-----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, Q/3ukJVw+COPRxQcbq1gNoeD2KhcXeaDO4X7lLulFmMSYKPyD1sM2IbahcR0Ow09 jAJSjbaRctGaLg5t+7EDvQ== 0001024739-98-000683.txt : 19980716 0001024739-98-000683.hdr.sgml : 19980716 ACCESSION NUMBER: 0001024739-98-000683 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980626 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980710 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2 CENTRAL INDEX KEY: 0001065411 STANDARD INDUSTRIAL CLASSIFICATION: IRS NUMBER: 952944875 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 333-44585-03 FILM NUMBER: 98664130 BUSINESS ADDRESS: STREET 1: 17305 VON KARMAN AVE CITY: IRVINE STATE: CA ZIP: 92614 MAIL ADDRESS: STREET 1: 17305 VON KAMAN AVENUE CITY: IRVINE STATE: CA ZIP: 92614 8-K 1 FORM 8-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) June 26, 1998 First Alliance Mortgage Loan Trust 1998-2 ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 333-44585-03 13-7148828 - - ----------------------------------------------- ----------------------------- ----------------------------- (State or Other Jurisdiction of (Commission File (I.R.S. Employer Incorporation) Number) Identification No.)
c/o Wilmington Trust Company, as Owner Trustee 1100 North Market Street Wilmington, Delaware 19890 - - ---------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (302) 651-1000 -------------- No Change ------------------------------------------------------------- (Former name or former address, if changed since last report) ================================================================================ Item 5. Other Events. Reference is hereby made to the Registration Statement on Form S-3 (Registration File No. 333-44585) filed by First Alliance Mortgage Company ("First Alliance") with the Securities and Exchange Commission (the "Commission") on January 21, 1998, as amended by Amendment No. 1 to the Registration Statement on Form S-3 dated February 3, 1998, pursuant to which First Alliance registered $750,000,000 aggregate principal amount of its mortgage loan asset-backed certificates and notes, issuable in various series, for sale in accordance with the provisions of the Securities Act of 1933, as amended (the "Act"). Reference is also hereby made to the Prospectus dated March 10, 1998, and the related Prospectus Supplement, dated June 10, 1998, which were previously filed with the Commission pursuant to Rule 424(b)(5), with respect to the FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2 Adjustable Rate Mortgage Loan Asset Backed Notes, Series 1998-2A (the "Adjustable Rate Notes") and Fixed Rate Mortgage Loan Asset Backed Notes, Series 1998-2F (the "Fixed Rate Notes" and together with the Adjustable Rate Notes, the "Notes"). The Notes were sold to Wheat First Securities, Inc., doing business as First Union Capital Markets, a division of Wheat First Securities, Inc. (the "Underwriter") pursuant to the terms of an underwriting agreement dated June 10, 1998 (the "Underwriting Agreement") between First Alliance and the Underwriter. A copy of the Underwriting Agreement is filed herewith as Exhibit 1.1. The Adjustable Rate Notes were issued pursuant to an Indenture dated as of June 1, 1998 (the "Adjustable Rate Indenture") between First Alliance Mortgage Loan Trust 1998-2 (the "Trust") and The Chase Manhattan Bank, as Indenture Trustee (the "Indenture Trustee"). The Fixed Rate Notes were issued pursuant to an Indenture dated as of June 1, 1998 (the "Fixed Rate Indenture") between the Trust and the Indenture Trustee. (The Fixed Rate Indenture and the Adjustable Rate Indenture, each an "Indenture" and collectively, the "Indentures"). Copies of the Adjustable Rate Indenture and the Fixed Rate Indenture are filed herewith as Exhibits 4.1 and 4.2, respectively. The Adjustable Rate Notes are secured by a portion of the trust estate pledged under the Adjustable Rate Indenture (the "Adjustable Rate Pool") and by a limited right to receive certain excess cashflow from the Fixed Rate Pool (defined below) to fund certain shortfalls. The Fixed Rate Notes are secured by a portion of the trust estate pledged under the Fixed Rate Indenture (the "Fixed Rate Pool") and by a limited right to receive certain excess cashflow from the Adjustable Rate Pool to fund certain shortfalls. The assets of the Trust, consisting of the Adjustable Rate Pool and the Fixed Rate Pool, primarily include a pool of fixed and adjustable rate mortgage loans (the "Mortgage Loans") secured by first and second lien mortgages or deeds of trust on one-to-four family residential properties. Beneficial interests in the Trust are represented by certificates issued pursuant to the Trust Agreement dated as of June 1, 1998 (the "Trust Agreement") between First Alliance and Wilmington Trust Company, as Owner Trustee. A copy of the Trust Agreement is filed herewith as Exhibit 4.3. The Mortgage Loans were sold by First Alliance, as Seller, to the Trust pursuant to the terms of a Sale and Servicing Agreement dated as of June 1, 1998 (the "Sale and Servicing Agreement") among the Trust, as Issuer, First Alliance, as Seller and Servicer, and the Indenture Trustee. The Mortgage Loans will be serviced by First Alliance, as Servicer, pursuant to the terms of the Sale and Servicing Agreement. A copy of the Sale and Servicing Agreement is filed herewith as Exhibit 10.1 As of the Closing Date, the Mortgage Loans possessed the characteristics described in the Prospectus dated March 10, 1998 and the Prospectus Supplement dated June 10, 1998, filed pursuant to Rule 424(b)(5) of the Act on June 23, 1998. On June 30, 1998, the Trust acquired $17,380,072.68 of Subsequent Mortgage Loans ($3,418,150.07, of such Subsequent Mortgage Loans, by aggregate principal balance, were added to the Adjustable Rate Pool and $13,961,922.61 of such Subsequent Mortgage Loans, by aggregate principal balance, were added to the Fixed Rate Pool) pursuant to the terms of the Sale and Servicing Agreement and the Subsequent Transfer Agreement dated as of June 30, 1998 and attached hereto as Exhibit 10.2, between First Alliance, as Seller and Servicer, and the Indenture Trustee, on behalf of the Trust. The Subsequent Mortgage Loans possess the characteristics required by the Prospectus dated March 10, 1998 and the Prospectus Supplement dated June 10, 1998, filed pursuant to Rule 424(b)(5) of the Act on June 23, 1998. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Not applicable (b) Not applicable (c) Exhibits: 1.1 Underwriting Agreement dated June 10, 1998, between First Alliance Mortgage Company and Wheat First Securities, Inc., doing business as First Union Capital Markets, a division of Wheat First Securities, Inc. 4.1 Indenture, dated as of June 1, 1998, relating to the Adjustable Rate Mortgage Loans, between First Alliance Mortgage Loan Trust 1998-2, as Issuer, and The Chase Manhattan Bank, as Indenture Trustee. 4.2 Indenture, dated as of June 1, 1998, relating to the Fixed Rate Mortgage Loans, between First Alliance Mortgage Loan Trust 1998-2, as Issuer, and The Chase Manhattan Bank, as Indenture Trustee. 4.3 Trust Agreement, dated as of June 1, 1998 between First Alliance Mortgage Company and Wilmington Trust Company, as Owner Trustee. 10.1 Sale and Servicing Agreement dated as of June 1, 1998, among First Alliance Mortgage Company, as Seller and Servicer, First Alliance Mortgage Loan Trust 1998-2, as Issuer, and The Chase Manhattan Bank, as Indenture Trustee. 10.2 Subsequent Transfer Agreement dated June 30, 1998, between First Alliance Mortgage Company and First Alliance Mortgage Loan Trust 1998-2. 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. By: FIRST ALLIANCE MORTGAGE COMPANY, as Company By: /s/ Brian Chisick ------------------------------------- Name: Brian Chisick Title: President and Chief Executive Officer Dated: July 10, 1998 EXHIBIT INDEX
Exhibit No. Description Page No. - - ----------- ----------- -------- 1.1 Underwriting Agreement dated June 10, 1998, between First Alliance Mortgage Company and Wheat First Securities, Inc., doing business as First Union Capital Markets, a division of Wheat First Securities, Inc. 4.1 Indenture, dated as of June 1, 1998, relating to the Adjustable Rate Mortgage Loans, between First Alliance Mortgage Loan Trust 1998-2, as Issuer, and The Chase Manhattan Bank, as Indenture Trustee. 4.2 Indenture, dated as of June 1, 1998, relating to the Fixed Rate Mortgage Loans, between First Alliance Mortgage Loan Trust 1998-2, as Issuer, and The Chase Manhattan Bank, as Indenture Trustee. 4.3 Trust Agreement, dated as of June 1, 1998 between First Alliance Mortgage Company and Wilmington Trust Company, as Owner Trustee. 10.1 Sale and Servicing Agreement dated as of June 1, 1998, among First Alliance Mortgage Company, as Seller and Servicer, First Alliance Mortgage Loan Trust 1998-2, as Issuer, and The Chase Manhattan Bank, as Indenture Trustee. 10.2 Subsequent Transfer Agreement dated June 30, 1998, between First Alliance Mortgage Company and First Alliance Mortgage Loan Trust 1998-2.
EX-1.1 2 UNDERWRITING AGREEMENT Exhibit 1.1 FIRST ALLIANCE MORTGAGE COMPANY AND WHEAT FIRST SECURITIES, INC., doing business as FIRST UNION CAPITAL MARKETS, a division of WHEAT FIRST SECURITIES, INC. UNDERWRITING AGREEMENT FOR FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2 MORTGAGE LOAN ASSET BACKED NOTES $30,000,000 ADJUSTABLE RATE MORTGAGE LOAN ASSET BACKED NOTES, SERIES 1998-2A $70,000,000 6.52% FIXED RATE MORTGAGE LOAN ASSET BACKED NOTES, SERIES 1998-2F June 10, 1998 June 10, 1998 First Alliance Mortgage Company 17305 Von Karman Avenue Irvine, California 92614 Wheat First Securities, Inc., doing business as First Union Capital Markets, a division of Wheat First Securities, Inc. c/o First Union National Bank One First Union Center Charlotte, North Carolina 28288-0166 First Alliance Mortgage Company (the "Seller") hereby confirms its agreement to sell certain adjustable rate mortgage loan asset backed notes (the "Adjustable Rate Notes") and certain fixed rate mortgage loan asset backed notes (the "Fixed Rate Notes," and together with the Adjustable Rate Notes, the "Notes") to Wheat First Securities, Inc., doing business as First Union Capital Markets, a division of Wheat First Securities, Inc. (the "Underwriter") as described herein relating to the First Alliance Mortgage Loan Trust 1998-2 (the "Issuer"). The Notes, together with certain instruments evidencing the residual interest in the Trust Estate (the "Certificates"), will evidence in the aggregate the entire beneficial interest in a trust estate (the "Trust Estate") consisting of two pools (the "Mortgage Pools") of closed-end mortgage loans (the "Initial Mortgage Loans") and such amounts as may be held by the Indenture Trustee in the Pre-Funding Account ("Pre-Funding Account"), the Capitalized Interest Account (the "Capitalized Interest Account") and any other accounts held by the Indenture Trustee for the Trust. The Initial Mortgage Loans in the Adjustable Rate Pool shall have, as of the close of business on June 1, 1998 (the "Cut-Off Date"), an aggregate principal balance of $26,582,365.10, and the Initial Mortgage Loans in the Fixed Rate Pool shall have, as of the close of business on the Cut-Off Date, an aggregate principal balance of $56,038,610.90. The Adjustable Rate Notes are to be issued under an indenture dated as of June 1, 1998 (the "Adjustable Rate Indenture") relating to the Issuer's Adjustable Rate Mortgage Loan Asset Backed Notes, Series 1998-2A between the Issuer and The Chase Manhattan Bank, as Indenture Trustee (the "Indenture Trustee"). The Fixed Rate Notes are to be issued under an indenture dated as of June 1, 1998 (the "Fixed Rate Indenture") relating to the Issuer's Fixed Rate Mortgage Loan Asset Backed Notes, Series 1998-2F, between the Issuer and the Indenture Trustee. On the Closing Date, approximately $17,379,024.00 will be deposited in the name of the Indenture Trustee in the Pre-Funding Account from the sale of each series of Notes (a "Series"); $3,417,634.90 of such amount will be used to purchase Mortgage Loans for addition to the Adjustable Rate Pool, and $13,961,389.10 of such amount will be used to purchase Mortgage Loans for addition to the Fixed Rate Pool. It is intended that additional Mortgage Loans satisfying the criteria specified in the Sale and Servicing Agreement (the "Subsequent Mortgage Loans") will be purchased by the Issuer for inclusion in the Mortgage Pools from the Seller from time to time on or before June 30, 1998 from funds on deposit in the Pre-Funding Account at the time of execution and delivery of each Subsequent Transfer Agreement (the "Subsequent Transfer Agreement"). Funds in the Capitalized Interest Account will be applied by the Indenture Trustee to cover shortfalls in interest during the Funding Period. On or prior to the date of issuance of the Notes, the Seller will obtain two financial guaranty insurance policies (the "Policies") issued by Financial Security Assurance Inc. (the "Insurer") which will unconditionally and irrevocably guarantee to the Indenture Trustee for the benefit of the holders of the Notes full and complete payment of all amounts payable on the Notes. All capitalized terms used but not otherwise defined herein have the respective meanings set forth in the form of Sale and Servicing Agreement heretofore delivered to the Underwriter. 1. Securities. The Notes will be issued in two Series, each consisting of a single class. The Certificates will be issued by the Issuer pursuant to the Trust Agreement dated as of June 1, 1998 between the Seller and Wilmington Trust Company, as Owner Trustee (the "Trust Agreement"). The Notes and the Certificates are hereinafter referred to as the "Securities." 2. Representations and Warranties of the Seller. The Seller represents and warrants to, and covenants with, the Underwriter that: A. The Seller has filed with the Securities and Exchange Commission (the "Commission"), a registration statement (No. 333-44585) on Form S-3 for the registration under the Securities Act of 1933, as amended (the "Act"), of Mortgage Loan Asset Backed Certificates and Notes (issuable in series), which registration statement, as amended at the date hereof, has become effective. Such registration statement, as amended to the date of this Agreement, meets the requirements set forth in Rule 415(a)(1)(vii) under the Act and complies in all other material respects with such Rule. The Seller proposes to file with the Commission pursuant to Rule 424(b)(5) under the Act a supplement dated June 10, 1998 to the prospectus dated March 10, 1998 relating to the Notes and the method of distribution thereof and has previously advised the Underwriter of all further information (financial and other) with respect to the Notes to be set forth therein. Such registration statement, including the exhibits thereto, as amended at the date hereof, is hereinafter called the "Registration Statement"; such prospectus dated March 10, 1998, in the form in which it will be filed with the Commission pursuant to Rule 424(b)(5) under the Act is hereinafter called the "Basic Prospectus"; such supplement dated June 10, 1998 to the Basic Prospectus, in the form in which it will be filed with the Commission pursuant to Rule 424(b)(5) of the Act, is hereinafter called the "Prospectus Supplement"; and the Basic Prospectus and the Prospectus Supplement together are hereinafter called the "Prospectus." The Seller will file with the Commission (i) promptly after receipt from the Underwriter of any Computational Material (as defined herein) a Form 8-K incorporating such Computational Materials and (ii) within fifteen days of the issuance of the Securities a report on Form 8-K setting forth specific information concerning the related Mortgage Loans (the "8-K"). B. As of the date hereof, when the Registration Statement became effective, when the Prospectus Supplement is first filed pursuant to Rule 424(b)(5) under the Act, and at the Closing Date, (i) the Registration Statement, as amended as of any such time, and the Prospectus, as amended or supplemented as of any such time, will comply in all material respects with the applicable requirements of the Act and the rules thereunder and (ii) the Registration Statement, as amended as of any such time, did not and will not contain any untrue statement of a material fact and did not and will not omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and the Prospectus, as amended or supplemented as of any such time, did not and will not contain an untrue statement of a material fact and did not and will not omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that 2 the Seller makes no representations or warranties as to the information contained in or omitted from the Registration Statement or the Prospectus or any amendment thereof or supplement thereto in reliance upon and in conformity with the information furnished in writing to the Seller by or on behalf of any Underwriter specifically for use in connection with the preparation of the Registration Statement and the Prospectus. C. The Seller is duly organized, validly existing and in good standing under the laws of the State of California, has full power and authority (corporate and other) to own its properties and conduct its business as now conducted by it, and as described in the Prospectus, and is duly qualified to do business in each jurisdiction in which it owns or leases real property (to the extent such qualification is required by applicable law) or in which the conduct of its business requires such qualification except where the failure to be so qualified does not involve (i) a material risk to, or a material adverse effect on, the business, properties, financial position, operations or results of operations of the Seller or (ii) any risk whatsoever as to the enforceability of any Mortgage Loan. D. There are no actions, proceedings or investigations pending, or, to the knowledge of the Seller, threatened, before any court, governmental agency or body or other tribunal (i) asserting the invalidity of this Agreement, the Securities, the Insurance Agreement, the Indemnification Agreement, the Trust Agreement or of the Sale and Servicing Agreement, (ii) seeking to prevent the issuance of the Securities or the consummation of any of the transactions contemplated by this Agreement, the Adjustable Rate Indenture, the Fixed Rate Indenture, the Sale and Servicing Agreement, the Trust Agreement or any Subsequent Transfer Agreement, (iii) which may, individually or in the aggregate, materially and adversely affect the performance by the Seller of its obligations under, or the validity or enforceability of, this Agreement, the Securities, the Adjustable Rate Indenture, the Fixed Rate Indenture, the Sale and Servicing Agreement, the Trust Agreement or any Subsequent Transfer Agreement, or (iv) which may affect adversely the federal income tax attributes of the Securities as described in the Prospectus. E. The execution and delivery by the Seller of this Agreement, the Indemnification Agreement, the Insurance Agreement, the Trust Agreement and the Sale and Servicing Agreement, the issuance of the Securities and the transfer and delivery of the Mortgage Loans to the Issuer by the Seller are within the corporate power of the Seller and have been, or will be, prior to the Closing Date duly authorized by all necessary corporate action on the part of the Seller and the execution and delivery of such instruments, the consummation of the transactions therein contemplated and compliance with the provisions thereof will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute or any agreement or instrument to which the Seller or any of its affiliates is a party or by which it or any of them is bound or to which any of the property of the Seller or any of its affiliates is subject, the Seller's charter or bylaws, or any order, rule or regulation of any court, governmental agency or body or other tribunal having jurisdiction over the Seller, any of its affiliates or any of its or their properties; and no consent, approval, authorization or order of, or filing with, any court or governmental agency or body or other tribunal is required for the consummation of the transactions contemplated by this Agreement or the Prospectus in connection with the issuance and sale of the Securities by the Seller except pursuant to the Act. Neither the Seller nor any of its affiliates is 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, rule or regulation of any court, governmental agency or body or other tribunal having jurisdiction over the Seller or any of its affiliates, which materially and adversely affects, or may in the future materially and adversely affect, (i) the ability of the Seller to perform its obligations under the Sale and Servicing Agreement, the Trust Agreement, this Agreement, the Insurance Agreement, the Indemnification Agreement and any Subsequent Transfer Agreement or (ii) the business, operations, results of operations, financial position, income, properties or assets of the Seller, taken as a whole. 3 F. This Agreement and the Indemnification Agreement have been duly executed and delivered by the Seller, and the Sale and Servicing Agreement, the Trust Agreement, the Insurance Agreement and any Subsequent Transfer Agreement will be duly executed and delivered by the Seller, and each constitutes and/or will constitute, as applicable, the legal, valid and binding obligation of the Seller enforceable in accordance with their respective terms, except as enforceability may be limited by (i) bankruptcy, insolvency, liquidation, receivership, moratorium, reorganization or other similar laws affecting the enforcement of the rights of creditors and (ii) general principles of equity, whether enforcement is sought in a proceeding at law or in equity. G. The Notes will conform in all material respects to the description thereof to be contained in the Prospectus and will be duly and validly authorized and, when duly and validly executed, authenticated, issued and delivered in accordance with the Adjustable Rate Indenture or the Fixed Rate Indenture, as applicable, and the Sale and Servicing Agreement and sold to the Underwriter as provided herein, will be validly issued and outstanding and entitled to the benefits of the Adjustable Rate Indenture or the Fixed Rate Indenture, as applicable. H. On the Closing Date, the Initial Mortgage Loans will conform in all material respects to the description thereof contained in the Prospectus and the representations and warranties contained in this Agreement will be true and correct in all material respects. The representations and warranties set out in the Sale and Servicing Agreement are hereby made to the Underwriter as though set out herein, and at the dates specified in the Sale and Servicing Agreement, and in any Subsequent Transfer Agreement, such representations and warranties were, or will be, true and correct in all material respects. I. The transfer of the Initial Mortgage Loans to the Issuer on the Closing Date will be treated by the Seller for financial accounting and reporting purposes as a sale of assets and not as a pledge of assets to secure debt, however, for federal income tax purposes, the Seller will report the issuance of the Notes as indebtedness. J. The Seller possesses all material licenses, certificates, permits or other authorizations issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct the business now operated by it and as described in the Prospectus and there are no proceedings, pending or, to the best knowledge of the Seller, threatened, relating to the revocation or modification of any such license, certificate, permit or other authorization which singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would materially and adversely affect the business, operations, results of operations, financial position, income, property or assets of the Seller taken as a whole. K. Any taxes, fees and other governmental charges in connection with the execution and delivery of this Agreement, the Insurance Agreement, the Indemnification Agreement, the Adjustable Rate Indenture, the Fixed Rate Indenture, the Trust Agreement and the Sale and Servicing Agreement or the execution and issuance of the Securities have been or will be paid on or prior to the Closing Date. L. There has not been any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business or operations of the Seller or its subsidiaries, taken as a whole, from December 31, 1997 to the date hereof. M. This Agreement, the Adjustable Rate Indenture, the Fixed Rate Indenture and the Sale and Servicing Agreement will conform in all material respects to the descriptions thereof contained in the Prospectus. 4 N. The Seller is not aware of (i) any request by the Commission for any further amendment of the Registration Statement or the Prospectus or for any additional information, (ii) the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or threatening of any proceeding for that purpose or (iii) any notification with respect to the suspension of the qualification of the Notes for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose. O. Each assignment of Mortgages required to be prepared pursuant to the Sale and Servicing Agreement is based on forms recently utilized by the Seller with respect to mortgaged properties located in the appropriate jurisdiction and used in the regular course of the Seller's business. Based on the Seller's experience with such matters it is reasonable to believe that upon execution each such assignment will be in recordable form and will be sufficient to effect the assignment of the Mortgage to which it relates as provided in the Sale and Servicing Agreement. P. The Seller is current in all filings under the Securities Exchange Act and is eligible to use the Registration Statement. Any certificate signed by any officer of the Seller and delivered to the Underwriter in connection with the sale of the Securities hereunder shall be deemed a representation and warranty as to the matters covered thereby by the Seller to each person to whom the representations and warranties in this Section 2 are made. 3. Agreements of the Underwriter. A. The Underwriter agrees with the Seller that upon the execution of this Agreement and authorization by the Underwriter of the release of each Series of Notes, the Underwriter shall offer each Series of Notes for sale upon the terms and conditions set forth in the Prospectus as amended or supplemented. B. The Underwriter may prepare and provide to prospective investors certain Computational Materials and ABS Term Sheets in connection with the offering of the Notes, subject to the following conditions: 1. In connection with the use of Computational Materials, the Underwriter shall comply with all applicable requirements of the No-Action Letter, dated May 20, 1994, issued by the Division of Corporation Finance of the Commission to Kidder, Peabody Acceptance Corporation I, Kidder, Peabody & Co. Incorporated and Kidder Structured Asset Corporation, as made applicable to other issuers and the Underwriter by the Division of Corporation Finance of the Commission in response to the request of the Public Securities Association ("PSA"), dated May 23, 1994 (collectively, the "Kidder/PSA Letters"), as well as the PSA Letter referred to below. In connection with the use of ABS Term Sheets, the Underwriter shall comply with all applicable requirements of the No-Action Letter, dated February 17, 1995, issued by the Division of Corporation Finance to the Commission to PSA (the "PSA Letter" and, together with the Kidder/PSA Letters, the "No-Action Letters"). 2. The term "Computational Materials" as used herein shall have the meaning given to such term in the No-Action Letters, but shall include only those Computational Materials that have been prepared or delivered to prospective investors by or at the direction of the Underwriter. The terms "ABS Term Sheets," "Collateral Term Sheets" and "Structural Term Sheets" as used herein shall have the meanings given to such terms in the PSA Letter, but shall 5 include only those ABS Term Sheets, Collateral Term Sheets or Structural Term Sheets that have been prepared or delivered to prospective investors by or at the direction of the Underwriter. 3. All Computational Materials and ABS Term Sheets provided to prospective investors that are required to be filed pursuant to the No-Action Letters shall bear a legend on each page in a form previously agreed upon by the Seller and the Underwriter. 4. Any Computational Materials and ABS Term Sheets are subject to review by and approval of the Seller prior to their distribution to any prospective investors and a copy of such Computational Materials and ABS Term Sheets as are delivered to prospective investors shall, in addition to the foregoing delivery requirements, be delivered to the Seller simultaneously with delivery to prospective investors. 5. The Underwriter shall provide to the Seller, for filing on Form 8-K as provided in Section 9 hereof, five copies (in such format as required by the Seller) of all Computational Materials and ABS Term Sheets that are required to be filed with the Commission pursuant to the No-Action Letters. Each delivery of Computational Materials or ABS Term Sheets to the Seller pursuant to this paragraph shall be effected by delivering four copies of such material to counsel for the Seller on behalf of the Seller and one copy of such materials to the Seller. The Underwriter may provide copies of the foregoing in a consolidated or aggregate form that includes all information required to be filed. All Computational Materials and ABS Term Sheets described in this Section must be provided to the Seller not later than 10:00 a.m., New York time, on the Business Day before the date on which filing thereof is required pursuant to the terms of this Agreement. The Underwriter agrees that it will not provide to any investor or prospective investor in the Notes any Computational Materials or ABS Term Sheets on or after the day on which Computational Materials and ABS Term Sheets are required to be provided to the Seller pursuant to this Section (other than copies of Computational Materials or ABS Term Sheets previously submitted to the Seller in accordance with this Section for filing pursuant to Section 9 hereof), unless such Computational Materials or ABS Term Sheets are preceded or accompanied by the delivery of a Prospectus to such investor or prospective investor. 6. All information included in the Computational Materials and ABS Term Sheets shall be generated based on substantially the same methodology and assumptions that are used to generate the information in the Prospectus Supplement as set forth therein; provided, however, that the Computational Materials and ABS Term Sheets may include information based on alternative methodologies or assumptions specified therein. If any Computational Materials or ABS Term Sheets that are required to be filed were based on assumptions with respect to the Mortgage Loans that are incorrect, that differ from the final information about the Mortgage Pools in any material respect or on structuring terms that were revised in any material respect prior to the printing of the Prospectus, to the extent the Prospectus Supplement does not specifically correct such inaccuracies, the Underwriter shall prepare revised Computational Materials or ABS Term Sheets, as the case may be, based on the final information about the Mortgage Pools and structuring assumptions, circulate such revised Computational Materials or ABS Term Sheets, as the case may be, to all recipients of the preliminary versions thereof that indicated orally to an Underwriter that they would purchase all or any portion of the Notes and include such revised Computational Materials or ABS Term Sheets (marked "as revised") in the materials delivered to the Seller pursuant to 3.B.5. 7. The Seller shall not be obligated to file any Computational Materials or ABS Term Sheets that (i) in the reasonable determination of the Seller and the 6 Underwriter and their respective counsel are not required to be filed pursuant to the No-Action Letters or (ii) have been determined to contain any material error or omission, provided that, at the request of the Underwriter, the Seller will file Computational Materials or ABS Term Sheets that contain a material error or omission if clearly marked "superseded by materials dated _____________" and accompanied by corrected Computational Materials or ABS Term Sheets that are marked "material previously dated __________________, as corrected." In the event that at any time when a prospectus relating to the Notes is required to be delivered under the Securities Act, any Computational Materials or ABS Term Sheets are determined, in the reasonable judgment of the Seller or the Underwriter to contain a material error or omission, the Underwriter shall prepare a corrected version of such Computational Materials or ABS Term Sheets, shall circulate such corrected version of such Computational Materials or ABS Term Sheets to all recipients of the prior version thereof that either indicated orally to such Underwriter that they would purchase all or any portion of the Notes, or actually purchased all or any portion thereof, and shall deliver copies of such Computational Materials or ABS Term Sheets (marked "as corrected") to the Seller for filing with the Commission is a subsequent Form 8-K submission (subject to the Seller's obtaining an accountant's comfort letter in respect of such corrected Computational Materials or ABS Term Sheets, which shall be at the expense of the Underwriter). C. The Underwriter represents and warrants and agrees with the Seller that, as of the date hereof and as of the Closing Date, that: (i) the Computational Materials and ABS Term Sheets furnished to the Seller pursuant to Section 3.B.5 constitute (either in original, aggregated or consolidated form) all of the materials furnished to prospective investors by the Underwriter prior to the time of delivery thereof to the Seller that are required to be filed with the Commission with respect to the Notes in accordance with the No-Action Letters, and such Computational Materials and ABS Term Sheets comply with the requirements of the No-Action Letters; (ii) on the date any such Computational Materials and ABS Term Sheets with respect to such Notes (or any written or electronic materials furnished to prospective investors on which the Computational Materials and ABS Term Sheets are based) were last furnished to each prospective investor and on the date of delivery thereof to the Seller pursuant to Section 3.B.5 and on the related Closing Date, such Computational Materials and ABS Terms Sheets (or materials) were accurate in all material respects when read in conjunction with the Prospectus (taking into account the assumptions explicitly set forth in the Computational Materials), except to the extent of any errors therein that are caused by errors in information about the Mortgage Pools provided to the Underwriter by the Seller; (iii) the Underwriter has not and will not represent to potential investors that any Computational Materials or ABS Term Sheets were prepared or disseminated on behalf of the Seller; and (iv) all Computational Materials and ABS Term Sheets (or underlying materials distributed to prospective investors on which the Computational Materials and ABS Term Sheets were based) contained and will contain the legend in the form previously agreed upon by the Seller and the Underwriter as required by Section 3.B.3. Notwithstanding the foregoing, the Underwriter makes no representation or warranty as to whether any Computational Materials or ABS Term Sheets (or any written or electronic materials furnished to prospective investors on which the Computational Materials or ABS Term Sheets are based) included or will include any inaccurate statement resulting directly from any error contained in the information about the Mortgage Pools provided to the Underwriter by the Seller. D. Each Underwriter that delivers any Computational Materials and ABS Term Sheets to the Seller shall deliver to the Seller a certificate, dated as of the date hereof, to the effect that the representations and warranties of the Underwriter contained in this Section 3 are true and correct as of such date. If the Underwriter does not provide any Computational Materials or ABS Term Sheets to the Seller pursuant to Section 3.B.5, the Underwriter shall be deemed to have represented, as of the Closing Date, that it did not provide any prospective investors with any information in written or electronic form in connection 7 with the offering of the Notes that is required to be filed with the Commission in accordance with the No-Action Letters. 4. Purchase, Sale and Delivery of the Notes. The Seller hereby agrees, subject to the terms and conditions hereof, to sell each Series of Notes to the Underwriter, who, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, hereby agrees to purchase the entire aggregate principal amount of the Adjustable Rate Notes in the amount of $30,000,000 and the entire aggregate principal amount of the Fixed Rate Notes in the amount of $70,000,000. At the time of issuance of the Notes, the Initial Mortgage Loans will be sold by the Seller to the Issuer pursuant to the Sale and Servicing Agreement. The Subsequent Mortgage Loans will be purchased by the Issuer for inclusion in the Mortgage Pools, from time to time on or before June 30, 1998. The Seller will be obligated, under the Sale and Servicing Agreement, to service the Mortgage Loans either directly or through sub-servicers. The Notes to be purchased by the Underwriter will be delivered by the Seller to the Underwriter (which delivery shall be made through the facilities of The Depository Trust Company ("DTC")) against payment of the purchase price therefor, equal to 99.75% of the aggregate principal amount of each Series of Notes. Accrued interest is payable on the Fixed Rate Notes, but no accrued interest will be payable on the Adjustable Rate Notes, each of which shall be dated their date of delivery. The Underwriter's fee shall be 25 basis points of each Series of Notes. Settlement shall take place at the offices of Arter & Hadden LLP, 1801 K Street, N.W., Washington, D.C. 20006, at 10:00 a.m. (E.S.T.), on June 26, 1998, or at such other time thereafter as the Underwriter and the Seller determine (such time being herein referred to as the "Closing Date"). The Notes will be prepared in definitive form and in such authorized denominations as the Underwriter may request, registered in the name of Cede & Co., as nominee of DTC. The Seller agrees to have the Notes available for inspection and review by the Underwriter in New York City not later than 1:00 p.m. (E.S.T.) on the business day prior to the Closing Date. 5. Covenants of the Seller. The Seller covenants and agrees with the Underwriter that: A. The Seller will promptly advise the Underwriter and its counsel (i) when any amendment to the Registration Statement shall have become effective, (ii) of any request by the Commission for any amendment to the Registration Statement or the Prospectus or for any additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or threatening of any proceeding for that purpose and (iv) of the receipt by the Seller of any notification with respect to the suspension of the qualification of the Notes for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose. The Seller will not file any amendment to the Registration Statement or supplement to the Prospectus after the date hereof and prior to the Closing Date for the Securities unless the Seller has furnished the Underwriter and its counsel copies of such amendment or supplement for their review prior to filing and will not file any such proposed amendment or supplement to which the Underwriter reasonably objects, unless such filing is required by law. The Seller will use its best efforts to prevent the issuance of any stop order suspending the effectiveness of the Registration Statement and, if issued, to obtain as soon as possible the withdrawal thereof. B. If, at any time during the period in which the Prospectus is required by law to be delivered, any event occurs as a result of which the Prospectus as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it 8 shall be necessary to amend or supplement the Prospectus to comply with the Act or the rules under the Act, the Seller will promptly prepare and file with the Commission, subject to Paragraph A of this Section 5, an amendment or supplement that will correct such statement or omission or an amendment that will effect such compliance and, if such amendment or supplement is required to be contained in a post-effective amendment to the Registration Statement, will use its best efforts to cause such amendment of the Registration Statement to be made effective as soon as possible. C. The Seller will furnish to the Underwriter without charge, executed copies of the Registration Statement (including exhibits thereto) and, so long as delivery of a Prospectus by the Underwriter or a dealer may be required by the Act, as many copies of the Prospectus, as amended or supplemented, and any amendments and supplements thereto as the Underwriter may reasonably request. The Seller will pay the expenses of printing (or otherwise reproducing) all offering documents relating to the offering of the Notes. D. As soon as practicable, but not later than sixteen months after the date hereof, the Seller will cause the Trust to make generally available to Owners of the Notes an earnings statement of the Trust covering a period of at least 12 months beginning after the effective date of the Registration Statement which will satisfy the provisions of Section 11(a) of the Act and, at the option of the Seller, will satisfy the requirements of Rule 158 under the Act. E. During a period of 20 calendar days from the date as of which this Agreement is executed, neither the Seller nor any affiliate of the Seller will, without the Underwriter's prior written consent (which consent shall not be unreasonably withheld), enter into any agreement to offer or sell mortgage loan asset backed securities backed by mortgage loans, except pursuant to this Agreement other than the First Alliance Mortgage Loan Trust 1998-2, $30,000,000 Adjustable Rate Mortgage Loan Notes, Series 1998-2A and First Alliance Mortgage Loan Trust 1998-2, $70,000,000 Fixed Rate Mortgage Loan Notes, Series 1998-2F. F. So long as any of the Notes are outstanding, the Seller will cause to be delivered to the Underwriter (i) all documents required to be distributed to Owners of the Notes and (ii) from time to time, any other information concerning the Trust filed with any government or regulatory authority that is otherwise publicly available. G. The Seller, whether or not the transactions contemplated hereunder are consummated or this Agreement is terminated, will pay all expenses in connection with the transactions contemplated herein, including, but not limited to, the expenses of printing (or otherwise reproducing) all documents relating to the offering, the reasonable fees and disbursements of its counsel and expenses of the Underwriter incurred in connection with (i) the issuance and delivery of the Notes, (ii) preparation of all documents specified in this Agreement, (iii) any fees and expenses of the Owner Trustee, the Indenture Trustee, the Insurer and any other credit support provider (including legal fees), accounting fees and disbursements, and (iv) any fees charged by investment rating agencies for rating the Notes. H. The Seller agrees that, so long as any of the Notes shall be outstanding, it will deliver or cause to be delivered to the Underwriter (i) the annual statement as to compliance delivered to the Indenture Trustee pursuant to the Sale and Servicing Agreement, (ii) the annual statement of a firm of independent public accountants furnished to the Indenture Trustee pursuant to the Sale and Servicing Agreement as soon as such statement is furnished to the Seller and (iii) any information required to be delivered by the Seller or the Servicer to prepare the report by the Indenture Trustee pursuant to Section 3.8 of the form of Sale and Servicing Agreement heretofore delivered to the Underwriter. 9 I. The Seller will enter into the Sale and Servicing Agreement, the Trust Agreement, the Insurance Agreement, and all related agreements on or prior to the Closing Date. J. The Seller will endeavor to qualify the Notes for sale to the extent necessary under any state securities or Blue Sky laws in any jurisdictions as may be reasonably requested by the Underwriter, if any, and will pay all expenses (including fees and disbursements of counsel) in connection with such qualification and in connection with the determination of the eligibility of the Notes for investment under the laws of such jurisdictions as the Underwriter may reasonably designate, if any. 6. Conditions of the Underwriter's Obligation. The obligation of the Underwriter to purchase and pay for the Notes as provided herein shall be subject to the accuracy as of the date hereof and the Closing Date (as if made at the Closing Date) of the representations and warranties of the Seller contained herein (including those representations and warranties set forth in the Sale and Servicing Agreement and incorporated herein), to the accuracy of the statements of the Seller made in any certificate or other document delivered pursuant to the provisions hereof, to the performance by the Seller of its obligations hereunder, and to the following additional conditions: A. The Registration Statement shall have become effective no later than the date hereof, and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or threatened, and the Prospectus shall have been filed pursuant to Rule 424(b). B. The Underwriter shall have received the Sale and Servicing Agreement and the Notes in form and substance satisfactory to the Underwriter, duly executed by all signatories required pursuant to the respective terms thereof. C.1. The Underwriter shall have received the favorable opinion of the Vice President and General Counsel to the Seller, with respect to the following items, dated the Closing Date, to the effect that: (a) The Seller has been duly organized and is validly existing as a corporation in good standing under the laws of the State of California, and is qualified to do business in each state necessary to enable it to perform its obligations as Servicer under the Sale and Servicing Agreement. The Seller has the requisite power and authority to execute and deliver, engage in the transactions contemplated by, and perform and observe the conditions of, this Agreement, the Sale and Servicing Agreement, the Trust Agreement, any Subsequent Transfer Agreement, the Insurance Agreement and the Indemnification Agreement. (b) This Agreement, the Securities, the Sale and Servicing Agreement, the Trust Agreement, the Insurance Agreement and the Indemnification Agreement have been duly and validly authorized, executed and delivered by the Seller, all requisite corporate action having been taken with respect thereto, and each (other than the Securities) constitutes the valid, legal and binding agreement of the Seller enforceable against the Seller in accordance with its respective terms. (c) Neither the transfer of the Initial Mortgage Loans to the Issuer, the issuance or sale of the Securities nor the execution, delivery or performance by the Seller of the Sale and Servicing Agreement, the Trust Agreement, this Agreement, any Subsequent Transfer Agreement, the Insurance Agreement or the Indemnification Agreement (A) conflicts or will 10 conflict with or results or will result in a breach of, or constitutes or will constitute a default under, (i) any term or provision of the articles of incorporation or bylaws of the Seller; (ii) any term or provision of any material agreement, contract, instrument or indenture, to which the Seller is a party or is bound; or (iii) any order, judgment, writ, injunction or decree of any court or governmental agency or body or other tribunal having jurisdiction over the Seller; or (B) results in, or will result in the creation or imposition of any lien, charge or encumbrance upon the Trust Estate or upon the Securities, except as otherwise contemplated by the Sale and Servicing Agreement. (d) The endorsement and delivery of each Mortgage Note, and the preparation, delivery and recording of an Assignment in recordable form, with respect to each Mortgage (in the absence of the delivery of the opinions described in Section 2.5(b)(ii) of the Sale and Servicing Agreement), as and in the manner contemplated by the Sale and Servicing Agreement, is sufficient fully to transfer to the Trustee for the benefit of the Owners all right, title and interest of the Seller in the Mortgage Note and Mortgage, as noteholder and mortgagee or assignee thereof, and will be sufficient to permit the Trustee to avail itself of all protection available under applicable law against the claims of any present or future creditors of the Seller and to prevent any other sale, transfer, assignment, pledge or other encumbrance of the Mortgage Loans by the Seller from being enforceable. (e) No consent, approval, authorization or order of, registration or filing with, or notice to, courts, governmental agency or body or other tribunal is required under the laws of the State of California, for the execution, delivery and performance of the Sale and Servicing Agreement, the Trust Agreement, the Insurance Agreement, this Agreement, the Indemnification Agreement or the offer, issuance, sale or delivery of the Securities or the consummation of any other transaction contemplated thereby by the Seller, except such which have been obtained. (f) There are no actions, proceedings or investigations pending or, to such counsel's knowledge, threatened against the Seller before any court, governmental agency or body or other tribunal (i) asserting the invalidity of the Sale and Servicing Agreement, the Trust Agreement, the Insurance Agreement, this Agreement, the Indemnification Agreement or the Securities, (ii) seeking to prevent the issuance of the Securities or the consummation of any of the transactions contemplated by the Sale and Servicing Agreement, the Trust Agreement, the Indemnification Agreement, the Insurance Agreement or this Agreement or (iii) which would materially and adversely affect the performance by the Seller of obligations under, or the validity or enforceability of, the Sale and Servicing Agreement, the Trust Agreement, the Securities, the Indemnification Agreement, the Insurance Agreement or this Agreement. (g) To the best of such counsel's knowledge, the Registration Statement, the Prospectus Supplement and the Prospectus do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading with respect to the statements set forth in the Prospectus under the caption "Certain Legal Aspects of Mortgage Loans and Related Matters". 2. The Underwriter shall have received the favorable opinion of Arter & Hadden LLP, special counsel to the Seller, dated the Closing Date, to the effect that: 11 (a) Each Series of Notes, assuming due execution by the Owner Trustee and due authentication by the Indenture Trustee, and delivery and payment therefor pursuant to this Agreement is validly issued and outstanding, and the Notes are entitled to the benefits of the Adjustable Rate Indenture or the Fixed Rate Indenture, as applicable. (b) 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 the Sale and Servicing Agreement, the Trust Agreement, this Agreement, any Subsequent Transfer Agreement, the Indemnification Agreement, the Insurance Agreement or the offer, issue, sale or delivery of the Notes or the consummation of any other transaction contemplated thereby by the Seller, except such which have been obtained. (c) Neither the transfer of the Initial Mortgage Loans to the Issuer, the issuance or sale of the Notes, nor the execution, delivery or performance by the Seller of the Sale and Servicing Agreement, the Trust Agreement, the Insurance Agreement, any Subsequent Transfer Agreement, the Indemnification Agreement or this Agreement will (a) conflict with or result in a breach of, or constitute a default under any law, rule or regulation of the State of New York or the federal government, or (b) to such counsel's knowledge, without independent investigation, results in, or will result in, the creation or imposition of any lien, charge or encumbrance upon the Trust Estate or upon the Notes, except as otherwise contemplated by the Adjustable Rate Indenture or the Fixed Rate Indenture, as applicable, or the Sale and Servicing Agreement. (d) Each Subsequent Transfer Agreement at the time of its execution and delivery will be sufficient to convey all of the Seller's right, title and interest in the Subsequent Mortgage Loans to the Issuer and following the consummation of the transaction contemplated by each Subsequent Transfer Agreement, the transfer of the Subsequent Mortgage Loans by the Seller to the Issuer will be a sale thereof. (e) The Registration Statement, the Prospectus and the Prospectus Supplement (other than the financial and statistical data included therein, as to which such counsel need express no opinion), as of the date on which the Registration Statement was declared effective and as of the date hereof, comply as to form in all material respects with the requirements of the Act and the rules and regulations thereunder, and such counsel does not know of any amendment to the Registration Statement required to be filed, or of any contracts, indentures or other documents of a character required to be filed as an exhibit to the Registration Statement or required to be described in the Registration Statement, the Prospectus or the Prospectus Supplement which has not been filed or described as required. (f) The registration of the Issuer under the Investment Company Act of 1940 is not presently required. (g) The statements in the Prospectus set forth under the captions "DESCRIPTION OF THE SECURITIES" and "THE POOLING AND SERVICING AGREEMENT" and the statements in the Prospectus Supplement set forth under the captions "DESCRIPTION OF THE NOTES" and "ADMINISTRATION," to the extent such statements purport to summarize certain provisions of the Notes or of the Sale and Servicing Agreement, are fair and accurate in all material respects. 12 (h) Except as to any financial or statistical data contained in the Registration Statement, the statements set forth in the Prospectus under the caption "DESCRIPTION OF CREDIT ENHANCEMENT," and in the Prospectus Supplement under the caption "THE NOTE INSURER," and any Computational Materials as to which no opinion or belief need be expressed, to the best of such counsel's knowledge, the Registration Statement does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. (i) Upon receipt by the Indenture Trustee on behalf of the Owners of the Notes of the related Mortgage Notes, endorsed as described in the Sale and Servicing Agreement, and the receipt by the Seller of the purchase price for the Notes and for so long as the Indenture Trustee maintains actual physical possession of such Mortgage Notes, (i) the Issuer shall be vested with good and indefeasible title to, and shall be the sole owner of, and shall obtain all right, title and interest of the Seller in, each Mortgage Loan, (ii) in the event that the sale of the Mortgage Loans were to be recharacterized as a financing secured by the Mortgage Loans, the Indenture Trustee, on behalf of the Issuer, has a first perfected security interest in the Mortgage Loans and (iii) in the jurisdictions listed in such opinion, the recordation of the assignments of the Mortgages is not required for the Issuer to obtain such rights, as against creditors of, and purported transferees of, the Seller. (j) To the best of the knowledge of such counsel, the Commission has not issued any stop order suspending the effectiveness of the Registration Statement or any order directed to any prospectus relating to the Securities (including the Prospectus), and has not initiated or threatened any proceeding for that purpose. 3. The Underwriter shall have received the favorable opinion of Arter & Hadden LLP, special tax and bankruptcy counsel to the Seller, dated the Closing Date, to the effect that: (a) The statements under the captions "SUMMARY OF PROSPECTUS -- CERTAIN FEDERAL INCOME TAX CONSEQUENCES" and "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" in the Prospectus and under the captions "SUMMARY -- FEDERAL INCOME TAX ASPECTS" and "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" in the Prospectus Supplement as they relate to federal tax matters are true and correct in all material respects. (b) For federal income tax purposes, the Notes will be treated as newly originated debt obligations and not as representing an ownership interest in the Trust Estate or an equity interest in the Issuer or the Seller. In addition, for federal income tax purposes, the Issuer will not be (i) classified as an association taxable as a corporation, (ii) a taxable mortgage pool as defined in Section 7701(i) of the Internal Revenue Code of 1986, as amended, or (iii) a "publicly traded partnership" as defined in Treasury Regulation Section 1.7704-1. (c) The Issuer will not be subject to tax upon its income or assets by the taxing authority of New York State or New York City. (d) The Issuer will not be subject to the California state income tax. (e) A court would hold that the conveyance by the Seller of all right, title and interest in the Mortgage Loans to the Issuer (except for the Seller's right, title and interest 13 in the principal and interest due on such Mortgage Loans on or prior to the Cut-Off Date), constitutes a sale of the Mortgage Loans and not a borrowing by the Seller secured by the pledge of the Mortgage Loans. A court would find that, following such conveyance, the Mortgage Loans and proceeds thereof (net of payments of principal and interest due on such Mortgage Loans on or prior to the Cut-Off Date) are not property of the estate of the Seller within the meaning of Section 541 of the Bankruptcy Code, and, further that the Issuer's rights with respect to the Mortgage Loans and the proceeds thereof would not subject it to the automatic stay provisions of Section 362 of the Bankruptcy Code. Since the conveyance of the Mortgage Loans (net of payments of scheduled principal due and interest accrued on or prior to the Cut-Off Date) constitutes a sale of said Mortgage Loans then the payments thereunder (net of payments of scheduled principal due on and interest accrued on or prior to the Cut-Off Date) are not property of the estate of the Seller and the distributions of such payments by the Indenture Trustee to the Owners of the Notes pursuant to the Adjustable Rate Indenture and the Fixed Rate Indenture are not preferential payments made by, for, or on behalf of the Seller under the provisions of Section 547 of the Bankruptcy Code. (f) If a court characterized the transfer of the Mortgage Loans to the Issuer as a pledge of collateral rather than an absolute sale or assignment, with respect to the Mortgage Loans and other property included in the Trust Estate on the date hereof, to the extent governed by the laws of the State of New York, a valid security interest has been created in favor of the Indenture Trustee, on behalf of the Owners of the Notes, which security interest will be perfected and will constitute a first perfected security interest, with respect to the Seller's right, title and interest in and to the Mortgage Notes, upon endorsement and delivery thereof to the Indenture Trustee, on behalf of the Owners of the Notes. With respect to the security interest of the Indenture Trustee, on behalf of the Owners of the Notes, in the Mortgage Notes, New York law would govern. 4. The Underwriter shall have received the favorable opinion of Dewey Ballantine LLP, special counsel to the Underwriter, dated the Closing Date, to the effect that: (a) The Notes, assuming due execution by the Owner Trustee and due authentication by the Indenture Trustee, and delivery and payment therefor pursuant to this Agreement, are validly issued and outstanding and are entitled to the benefits of the Adjustable Rate Indenture or the Fixed Rate Indenture, as applicable. (b) No fact has come to such counsel's attention which causes them to believe that the Prospectus (other than the financial statement and other financial and statistical data contained therein, as to which such counsel need express no opinion), as of the date thereof, contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (c) Such other matters as the Underwriter may reasonably request. In rendering their opinions, the counsels described in this Paragraph C may rely, as to matters of fact, on certificates of responsible officers of the Seller, the Owner Trustee, the Indenture Trustee and public officials. Such opinions may also assume the due authorization, execution and delivery of the instruments and documents referred to therein by the parties thereto other than the Seller. 14 D. The Underwriter shall have received a letter from Deloitte & Touche, dated on or before the Closing Date, in form and substance satisfactory to the Underwriter and counsel for the Underwriter, to the effect that they have performed certain specified procedures requested by the Underwriter with respect to the information set forth in the Prospectus and certain matters relating to the Seller. E. Each Series of Notes shall have been rated in the highest rating category by Moody's Investors Service, Inc., and by Standard & Poor's Ratings Service, a division of The McGraw-Hill Companies, and such ratings shall not have been rescinded. The Underwriter and counsel for the Underwriter shall have received copies of any opinions of counsel supplied to the rating organizations relating to any matters with respect to the Notes. Any such opinions shall be dated the Closing Date and addressed to the Underwriter or accompanied by reliance letters to the Underwriter or shall state that the Underwriter may rely upon them. F. The Underwriter shall have received from the Seller a certificate, signed by the president, a senior vice president or a vice president of the Seller, dated the Closing Date, to the effect that the signer of such certificate has carefully examined the Registration Statement, the Sale and Servicing Agreement, the Trust Agreement and this Agreement and that, to the best of his or her knowledge based upon reasonable investigation: 1. the representations and warranties of the Seller in this Agreement and in the Indemnification Agreement, as of the Closing Date, in the Sale and Servicing Agreement, the Trust Agreement, the Insurance Agreement and in all related agreements, as of the date specified in such agreements, are true and correct, and the Seller has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date; 2. there are no actions, suits or proceedings pending, or to the best of such officer's knowledge, threatened against or affecting the Seller which if adversely determined, individually or in the aggregate, would be reasonably likely to adversely affect the Seller's obligations under the Sale and Servicing Agreement, the Trust Agreement, the Insurance Agreement, this Agreement or under the Indemnification Agreement in any material way; and no merger, liquidation, dissolution or bankruptcy of the Seller is pending or contemplated; 3. the information contained in the Registration Statement and Prospectus relating to the Seller, the Mortgage Loans or the servicing procedures of it or its affiliates or the subservicer is true and accurate in all material respects and nothing has come to his or her attention that would lead such officer to believe that the Registration Statement and Prospectus includes any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading; 4. the information set forth in the Schedules of Mortgage Loans required to be furnished pursuant to the Sale and Servicing Agreement is true and correct in all material respects; 5. there has been no amendment or other document filed affecting the articles of incorporation or bylaws of the Seller since August 1, 1996, and no such amendment has been authorized. No event has occurred since June 19, 1998, which has affected the good standing of the Seller under the laws of the State of California; 6. there has not occurred any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business or operations of the Seller and its subsidiaries, taken as a whole, from March 31, 1998; 15 7. on or prior to the Closing Date, there has been no downgrading, nor has any notice been given of (A) any intended or potential downgrading or (B) any review or possible changes in rating, the direction of which has not been indicated, in the rating, if any, accorded the Seller or in any rating accorded any securities of the Seller, if any, by any "nationally recognized statistical rating organization," as such term is defined for purposes of the Act; and 8. each person who, as an officer or representative of the Seller, signed or signs the Registration Statement, the Sale and Servicing Agreement, the Trust Agreement, this Agreement, the Indemnification Agreement, the Insurance Agreement, or any other document delivered pursuant hereto, on the date of such execution, or on the Closing Date, as the case may be, in connection with the transactions described in the Sale and Servicing Agreement, the Trust Agreement, the Indemnification Agreement, the Insurance Agreement and this Agreement was, at the respective times of such signing and delivery, and is now, duly elected or appointed, qualified and acting as such officer or representative, and the signatures of such persons appearing on such documents are their genuine signatures. The Seller shall attach to such certificate a true and correct copy of its certificate or articles of incorporation, as appropriate, and bylaws which are in full force and effect on the date of such certificate and a certified true copy of the resolutions of its Board of Directors with respect to the transactions contemplated herein. G. The Underwriter shall have received an opinion of Richards, Layton & Finger, counsel to the Owner Trustee, dated the Closing Date, in form and substance satisfactory to the Underwriter and counsel for the Underwriter, to the effect that: 1. The Owner Trustee is a Delaware banking corporation duly incorporated and validly existing under the laws of the State of Delaware. 2. The Owner Trustee has the full power and authority to accept the office of owner trustee under the Trust Agreement and to enter into and perform its obligations under the Trust Agreement and the transactions contemplated thereby. 3. The execution and delivery of the Trust Agreement by the Owner Trustee and the performance by the Owner Trustee of its obligations under the Trust Agreement have been duly authorized by all necessary action of the Owner Trustee, and the Trust Agreement has been duly executed and delivered by the Owner Trustee. 4. The Trust Agreement constitutes the valid and binding obligation of the Owner Trustee enforceable against the Owner Trustee in accordance with its terms, except as the enforceability thereof may be (a) limited by bankruptcy, insolvency, reorganization, moratorium, liquidation or other similar laws affecting the rights of creditors generally, and (b) subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 5. The execution and delivery by the Owner Trustee of the Trust Agreement and the consummation of the transactions contemplated thereby do not require any consent, approval or authorization of, or any registration or filing with, any applicable governmental authority of the State of Delaware which has not been obtained or done. 16 6. Neither the consummation by the Owner Trustee of the transactions contemplated in the Trust Agreement, nor the fulfillment of the terms thereof by the Owner Trustee will conflict with, result in a breach or violation of, or constitute a default under the Articles of Association, Bylaws or other organizational documents of the Owner Trustee. H. The Underwriter shall have received an opinion of Richards, Layton & Finger, special Delaware counsel for the Issuer dated the Closing Date, in form and substance satisfactory to the Underwriter and counsel for the Underwriter, to the effect that: 1. The Trust Agreement is the legal, valid and binding agreement of the Owner Trustee and the Seller, enforceable against the Owner Trustee and the Seller in accordance with its terms subject to (i) applicable bankruptcy, insolvency, moratorium, receivership, reorganization, fraudulent conveyance and similar laws relating to and affecting the rights and remedies of creditors generally, (ii) principles of equity (regardless of whether considered and applied in a proceeding in equity or at law), and (iii) the effect of applicable public policy on the enforceability of provisions relating to indemnification or contribution. 2. The Certificate of Trust has been duly filed with the Secretary of State of the State of Delaware. The Issuer has been duly formed and is validly existing as a business trust under the Delaware Business Trust Act. 3. The Issuer has the power and authority under the Trust Agreement and the Delaware Business Trust Act to execute, deliver and perform its obligations under the Trust Agreement, the Adjustable Rate Indenture, the Fixed Rate Indenture, the Sale and Servicing Agreement, the Notes and the Certificates and to issue the Securities. 4. The Issuer has duly authorized and executed the Trust Agreement, the Adjustable Rate Indenture, the Fixed Rate Indenture, the Sale and Servicing Agreement, the Notes and the Certificates. 5. The Issuer has the power under the Trust Agreement and the Delaware Business Trust Act to pledge the Trust Estate to the Indenture Trustee as security for the Notes. 6. The Certificates have been executed, authorized and delivered by the Owner Trustee upon the order of the Seller in accordance with the Trust Agreement. 7. To the extent that Article 9 of the Uniform Commercial Code as in effect in the State of Delaware (the "Delaware UCC") is applicable (without regard to conflicts of laws principles), and assuming that the security interest created in the Collateral by the Adjustable Rate Indenture and the Fixed Rate Indenture has been duly created and has attached, upon the filing of a UCC-1 financing statement with the Secretary of State of the State of Delaware, the Indenture Trustee will have a perfected security interest in such Collateral and the proceeds thereof; and such security interest will be prior to any other security interest granted by the Issuer that is perfected solely by the filing of financing statements under the Delaware UCC, excluding purchase money security interests under Section 9-312 of the Delaware UCC and temporarily perfected security interests in proceeds under Section 9-306 of the Delaware UCC. 8. No re-filing or other action is necessary under the Delaware UCC in the State of Delaware in order to maintain the perfection of the security interest referenced above except for the filing of continuation statements at five-year intervals. 17 9. Under Section 3805(b) of the Delaware Business Trust Act, no creditor of any holder of the Certificate shall have any right to obtain possession of, or otherwise exercise legal or equitable remedies with respect to, the property of the Issuer except in accordance with the terms of the Trust Agreement subject to (i) applicable bankruptcy, insolvency, moratorium, receivership, reorganization, fraudulent conveyance and similar laws relating to and affecting the rights and remedies of creditors generally, (ii) principles of equity (regardless of whether considered and applied in a proceeding in equity or at law), and (iii) the effect of applicable public policy on the enforceability of provisions relating to indemnification or contribution. 10. Under Section 3805(c) of the Delaware Business Trust Act, and assuming that the Sale and Servicing Agreement conveys good title to the Mortgage Loans to the Issuer as a true sale and not as a security arrangement, the Issuer, rather than the holders of the Certificates is the owner of the Mortgage Loans subject to (i) applicable bankruptcy, insolvency, moratorium, receivership, reorganization, fraudulent conveyance and similar laws relating to and affecting the rights and remedies of creditors generally, (ii) principles of equity (regardless of whether considered or applied in a proceeding in equity or at law), and (iii) the effect of applicable public policy on the enforceability of provisions relating to indemnification or contribution. 11. The execution and delivery by the Owner Trustee of the Trust Agreement and, on behalf of the Issuer, of the Adjustable Rate Indenture, the Fixed Rate Indenture and the Sale and Servicing Agreement do not require any consent, approval or authorization of, or any registration or filing with, any governmental authority of the State of Delaware, except for the filing of the Certificate of Trust with the Secretary of State. 12. Neither the consummation by the Owner Trustee of the transactions contemplated by the Trust Agreement or, on behalf of the Issuer, the transactions contemplated by the Adjustable Rate Indenture, the Fixed Rate Indenture and the Sale and Servicing Agreement nor the fulfillment of the terms thereof by the Owner Trustee will conflict with or result in a breach or violation of any law of the State of Delaware. Such opinion may contain such assumptions, qualifications and limitations as are customary in opinions of this type and are reasonably acceptable to counsel to the Underwriter. In rendering such opinion, such counsel may state that they express no opinion as to the laws of any jurisdiction other than the federal law of the United States of America and the laws of the State of Delaware. I. The Underwriter shall have received the favorable opinion of counsel to the Indenture Trustee, dated the Closing Date, addressed to the Underwriter and in form and scope satisfactory to counsel to the Underwriter, to the effect that: 1. The Indenture Trustee is a banking corporation duly incorporated and validly existing under the laws of the State of New York. 2. The Indenture Trustee has the full corporate trust power to execute, deliver and perform its obligations under the Adjustable Rate Indenture and the Fixed Rate Indenture. 3. The execution and delivery by the Indenture Trustee of the Adjustable Rate Indenture and the Fixed Rate Indenture and the performance by the Indenture Trustee of its obligations under the Adjustable Rate Indenture and the Fixed Rate Indenture have been duly authorized by all necessary corporate action of the Indenture Trustee. 18 4. The Adjustable Rate Indenture and the Fixed Rate Indenture are valid and legally binding obligations of the Indenture Trustee enforceable against the Indenture Trustee. 5. The execution and delivery by the Indenture Trustee of the Adjustable Rate Indenture and the Fixed Rate Indenture does not (a) violate the Organization Certificate of the Indenture Trustee or the Bylaws of the Indenture Trustee, (b) to such counsel's knowledge, violate any judgment, decree or order of any New York or United States federal court or other New York or United States federal governmental authority by which the Indenture Trustee is bound or (c) assuming the non-existence of any judgment, decree or order of any court or other governmental authority that would be violated by such execution and delivery, violate any New York or United States federal statute, rule or regulation or require any consent, approval or authorization of any New York or United States federal court or other New York or United States federal governmental authority. 6. Each Series of Notes has been duly authenticated and delivered by the Indenture Trustee. 7. If the Indenture Trustee were acting as Servicer under the Sale and Servicing Agreement as of the date of such opinion, the Indenture Trustee would have full corporate trust power to perform the obligations of the Servicer under the Sale and Servicing Agreement; and 8. To the best of such counsel's knowledge, there are no actions, proceedings or investigations pending or threatened against or affecting the Indenture Trustee before or by any court, arbitrator, administrative agency or other governmental authority which, if decided adversely to the Indenture Trustee, would materially and adversely affect the ability of the Indenture Trustee to carry out the transactions contemplated in the Adjustable Rate Indenture and the Fixed Rate Indenture. In rendering such opinion, such counsel may rely, as to matters of fact, on certificates of responsible officers of the Seller, the Indenture Trustee and public officials. Such opinion may also assume the due authorization, execution and delivery of the instruments and documents referred to therein by the parties thereto other than the Indenture Trustee. J. The Underwriter shall have received from the Owner Trustee a certificate, signed by the President, a senior vice president or an assistant vice president of the Owner Trustee, dated the Closing Date, to the effect that each person who, as an officer or representative of the Owner Trustee, signed or signs the Securities, the Sale and Servicing Agreement, the Trust Agreement, the Adjustable Rate Indenture, the Fixed Rate Indenture or any other document delivered pursuant hereto, on the date hereof or on the Closing Date, in connection with the transactions described in the Sale and Servicing Agreement was, at the respective times of such signing and delivery, and is now, duly elected or appointed, qualified and acting as such officer or representative, and the signatures of such persons appearing on such documents are their genuine signatures. K. The Policies relating to the Notes shall have been duly executed and issued at or prior to the Closing Date and shall conform in all material respects to the description thereof in the Prospectus. L. The Underwriter shall have received a favorable opinion of the General Counsel to the Insurer, dated the Closing Date and in form and substance satisfactory to counsel for the Underwriter, to the effect that: 19 1. The Insurer is a stock insurance corporation, duly incorporated and validly existing under the laws of the State of New York. The Insurer is validly licensed and authorized to issue the Policies and perform its obligations under the Policies in accordance with the terms thereof, under the laws of the State of New York. 2. The execution and delivery by the Insurer of the Policies, the Insurance Agreement and the Indemnification Agreement are within the corporate power of the Insurer and have been authorized by all necessary corporate action on the part of the Insurer; the Policies have been duly executed and are the valid and binding obligations of the Insurer enforceable in accordance with their terms except that the enforcement of the Policies may be limited by laws relating to bankruptcy, insolvency, reorganization, moratorium, receivership and other similar laws affecting creditors' rights generally and by general principles of equity. 3. The Insurer is authorized to deliver the Insurance Agreement and the Indemnification Agreement, and the Insurance Agreement and the Indemnification Agreement have been duly executed and are the valid and binding obligations of the Insurer enforceable in accordance with their terms except that the enforcement of the Insurance Agreement and the Indemnification Agreement may be limited by laws relating to bankruptcy, insolvency, reorganization, moratorium, receivership and other similar laws affecting creditors' rights generally and by general principles of equity and by public policy considerations relating to indemnification for securities law violations. 4. No consent, approval, authorization or order of any state or federal court or governmental agency or body is required on the part of the Insurer, the lack of which would adversely affect the validity or enforceability of the Policies; to the extent required by applicable legal requirements that would adversely affect validity or enforceability of the Policies, the form of the Policies have been filed with, and approved by, all governmental authorities having jurisdiction over the Insurer in connection with such Policies. 5. To the extent the Policies constitute a security within the meaning of Section 2(1) of the Act, it is a security that is exempt from the registration requirements of the Act. 6. The information set forth under the caption "THE NOTE INSURER" in the Prospectus Supplement, insofar as such statements constitute a description of the Policies, accurately summarizes the Policies. In rendering this opinion, such counsel may rely, as to matters of fact, on certificates of responsible officers of the Seller, the Insurer and public officials. Such opinion may assume the due authorization, execution and delivery of the instruments and documents referred to therein by the parties thereto other than the Insurer. M. On or prior to the Closing Date, there has been no downgrading, nor has any notice been given of (A) any intended or potential downgrading or (B) any review or possible changes in rating, the direction of which has not been indicated, in the rating, if any, accorded the Seller or in any rating accorded any securities of the Seller, if any, by any "nationally recognized statistical rating organization," as such term is defined for purposes of the Act. N. On or prior to the Closing Date there shall not have occurred any downgrading, nor shall any notice have been given of (A) any intended or potential downgrading or (B) any review or possible change in rating the direction of which has not been indicated, in the rating accorded the Insurer's claims 20 paying ability by any "nationally recognized statistical rating organization," as such term is defined for purposes of the Act. O. There has not occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings, business or operations, since December 31, 1997, of (A) the Seller, its subsidiaries and affiliates or since March 31, 1998, of (B) the Insurer, that is in the Underwriter's judgment material and adverse and that makes it in the Underwriter's judgment impracticable to market the Notes on the terms and in the manner contemplated in the Prospectus. P. The Underwriter shall have received from the Insurer a certificate, signed by the President, a senior vice president or a vice president of the Insurer, dated the Closing Date, to the effect that the signer of such certificate has carefully examined the Policies, the Insurance Agreement, the Indemnification Agreement and the related documents and that, to the best of his or her knowledge based on reasonable investigation: 1. each person who as an officer or representative of the Insurer, signed or signs the Policies, the Insurance Agreement, the Indemnification Agreement or any other document delivered pursuant hereto, on the date thereof, or on the Closing Date, in connection with the transactions described in this Agreement was, at the respective times of such signing and delivery, and is now a duly authorized representative of the Insurer and is authorized to execute and deliver this certificate. 2. The financial data presented in the table set forth under the heading "THE NOTE INSURER" in the Prospectus Supplement presents fairly the capitalization of the Insurer and its wholly owned subsidiaries as of March 31, 1998, and to the best of the Insurer's knowledge since such date, no material and adverse change has occurred in the financial position of the Insurer other than as set forth in the Prospectus Supplement. 3. The audited financial statements dated as of December 31, 1997 and the unaudited financial statements dated as of March 31, 1998 incorporated by reference into the Prospectus Supplement are true and accurate. 4. The information which relates to the Insurer or the Policies under the caption titled "THE NOTE INSURER" in the Prospectus Supplement is true and correct in all material respects. 5. There are no actions, suits, proceedings or investigations pending or, to the best of the Insurer's knowledge, threatened against it at law or in equity or before or by any court, governmental agency, board or commission or any arbitrator which, if decided adversely, would materially and adversely affect its condition (financial or otherwise) or operations or which would materially and adversely affect its ability to perform its obligations under the Policies or the Insurance Agreement. 6. The execution and delivery of the Insurance Agreement and the Policies and the compliance with the terms and provisions thereof will not conflict with, result in a breach of, or constitute a default under any of the terms, provisions or conditions of the Restated Charter or By-Laws of the Insurer or of any agreement, indenture or instrument to which the Insurer is a party. 7. The issuance of the Policies and the execution, delivery and performance of the Insurance Agreement have been duly authorized by all necessary corporate proceedings. No further approvals or filings of any kind, including, without limitation, any further approvals or further filing 21 with any governmental agency or other governmental authority, or any approval of the Insurer's board of directors or stockholders, are necessary for the Policies and the Insurance Agreement to constitute the legal, valid and binding obligations of the Insurer. The officer of the Insurer certifying to items 2 and 3 shall be an officer in charge of a principal financial function. The Insurer shall attach to such certificate a true and correct copy of its certificate or articles of incorporation, as appropriate, and its bylaws, all of which are in full force and effect on the date of such certificate. Q. The Underwriter shall have received from Dewey Ballantine LLP, special counsel to the Underwriter, such opinion or opinions, dated the Closing Date, with respect to the issuance and sale of the Notes, the Prospectus and such other related matters as the Underwriter shall reasonably require. R. The Underwriter and counsel for the Underwriter shall have received copies of any opinions of counsel to the Seller or the Insurer supplied to the Indenture Trustee relating to matters with respect to the Securities or the Policies. Any such opinions shall be dated the Closing Date and addressed to the Underwriter or accompanied by reliance letters to the Underwriter or shall state that the Underwriter may rely thereon. S. The Underwriter shall have received such further information, certificates and documents as the Underwriter may reasonably have requested not fewer than three (3) full business days prior to the Closing Date. If any of the conditions specified in this Section 6 shall not have been fulfilled in all respects when and as provided in this Agreement, if the Seller is in breach of any covenants or agreements contained herein or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be in all material respects reasonably satisfactory in form and substance to the Underwriter and counsel to the Underwriter, this Agreement and all obligations of the Underwriter hereunder, may be canceled on, or at any time prior to, the Closing Date by the Underwriter. Notice of such cancellation shall be given to the Seller in writing, or by telephone or telegraph confirmed in writing. 7. Expenses. If the sale of the Notes provided for herein is not consummated by reason of a default by the Seller in its obligations hereunder, then the Seller will reimburse the Underwriter, upon demand, for all reasonable out-of-pocket expenses (including, but not limited to, the reasonable fees and expenses of Dewey Ballantine LLP) that shall have been incurred by the Underwriter in connection with its investigation with regard to the Seller and the Notes and the proposed purchase and sale of the Notes. 8. Indemnification and Contribution. A. Regardless of whether any Notes are sold, the Seller will indemnify and hold harmless the Underwriter, each of its respective officers and directors and each person who controls the Underwriter within the meaning of the Act or the Securities Exchange Act of 1934 (the "1934 Act"), against any and all losses, claims, damages, or liabilities (including the cost of any investigation, legal and other expenses incurred in connection with any amounts paid in settlement of any action, suit, proceeding or claim asserted), joint or several, to which they may become subject, under the Act, the 1934 Act or other federal or state 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 upon an untrue statement or alleged untrue statement of a material fact contained (i) in the Registration Statement, or any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein, not misleading or (ii) in the Basic 22 Prospectus or the Prospectus Supplement or any amendment thereto or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and will reimburse each such indemnified party for any legal or other expenses reasonably incurred by it in connection with investigating or defending against such loss, claim, damage, liability or action; provided, however, that the Seller shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Seller by or on behalf of the Underwriter specifically for use in connection with the preparation thereof. B. Regardless of whether any Notes are sold, the Underwriter agrees to indemnify and hold harmless the Seller, each of its officers and directors and each person, if any, who controls the Seller within the meaning of the Act or the 1934 Act against any losses, claims, damages or liabilities to which they or any of them become subject under the Act, the 1934 Act or other federal or state law or regulation, at common law or otherwise, to the same extent as the foregoing indemnity, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in (i) the Registration Statement, or any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading or in (ii) the Basic Prospectus or the Prospectus Supplement or any amendment thereto or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made therein in reliance upon and in conformity with written information furnished to the Seller by or on behalf of the Underwriter specifically for use in the preparation thereof and so acknowledged in writing, and will reimburse the Seller for any legal or other expenses reasonably incurred by the Seller in connection with investigating or defending against such loss, claim, damage, liability or action. 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 Paragraphs A and B above such person (hereinafter called the indemnified party) shall promptly notify the person against whom such indemnity may be sought (hereinafter called the indemnifying party) in writing thereof; but the omission to notify the indemnifying party shall not relieve such indemnifying party from any liability which it may have to any indemnified party otherwise than under such Paragraph. 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 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 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 fees and expenses of more than one separate firm for all such indemnified parties, and that all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by the Underwriter in the case of parties indemnified pursuant to Paragraph A and by the Seller in the case of parties indemnified pursuant to Paragraph B. 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 is 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 23 judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated above, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. D. If the indemnification provided for in this Section 8 is unavailable to an indemnified party in respect of any losses, claims, damages or liabilities referred to herein, then each 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 (i) in such proportion as is appropriate to reflect the relative benefits received by the Seller and the Underwriter from the sale of the Notes or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only relative benefits referred to in clause (i) above but also the relative fault of the Seller and of the Underwriter in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Seller and the Underwriter shall be deemed to be in such proportion so that the Underwriter is responsible for that portion determined by multiplying the total amount of such losses, claims, damages and liabilities, including legal and other expenses, by a fraction, the numerator of which is (x) the excess of the Aggregate Resale Price of the Notes purchased by the Underwriter over the aggregate purchase price of the Notes specified in Section 4 of this Agreement and the denominator of which is (y) the Aggregate Resale Price of the Notes purchased by the Underwriter and the Seller is responsible for the balance, provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of the immediately preceding sentence, the "Aggregate Resale Price" of the Notes at the time of any determination shall be the weighted average of the purchase prices (in each case expressed as a percentage of the aggregate principal amount of the Notes so purchased), determined on the basis of such principal amounts, paid to the Underwriter by all subsequent purchasers that purchased the Notes on or prior to such date of determination. The relative fault of the Seller and the Underwriter 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 the Seller or by the related Underwriter and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. E. The Seller and the Underwriter agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in Paragraph D. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in Paragraph D 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. Notwithstanding the provisions of this Section 8, the Underwriter shall not be required to contribute any amount in excess of the amount by which the Aggregate Resale Price exceeds the amount of any damages that the Underwriter have otherwise been required to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. 24 F. Reserved. G. The Underwriter severally agrees, assuming all information provided to it by the Seller is accurate and complete in all material respects, to indemnify and hold harmless the Seller, each of the Seller's officers and directors and each person who controls the Seller within the meaning of Section 15 of the Securities Act against any and all losses, claims, damages or liabilities, joint or several, to which they may become subject under the Securities 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 of a material fact contained in the Computational Materials provided by the Underwriter and agrees to reimburse each such indemnified party for any legal or other expenses reasonably incurred by him, her or it in connection with investigating or defending or preparing to defend any such loss, claim, damage, liability or action as such expenses are incurred. The obligations of the Underwriter under this Section 8(G) shall be in addition to any liability which the Underwriter may otherwise have. H. The Seller and the Underwriter each expressly waive, and agree not to assert, any defense to their respective indemnification and contribution obligations under this Section 8 which they might otherwise assert based upon any claim that such obligations are unenforceable under federal or state securities laws or by reasons of public policy. I. The obligations of the Seller under this Section 8 shall be in addition to any liability which the Seller may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the Underwriter within the meaning of the Act or the 1934 Act; and the obligations of the Underwriter under this Section 8 shall be in addition to any liability that such Underwriter may otherwise have and shall extend, upon the same terms and conditions, to each director of the Seller and to each person, if any, who controls the Seller within the meaning of the Act or the 1934 Act; provided, however, that in no event shall the Seller or the Underwriter be liable for double indemnification. 9. Information Supplied by the Underwriter. The statements set forth in the last paragraph on the front cover page of the Prospectus regarding market-making and under the heading "Underwriting" in the Supplement (to the extent such statements relate to the Underwriter), together with the Computational Materials, constitute the only information furnished by the Underwriter to the Seller for the purposes of Sections 2(B) and 8(A) hereof. The Underwriter confirms that such statements (to such extent) are correct. The Seller will cause any Computational Materials with respect to the Notes that are delivered to the Seller as provided in Section 3.B.5 to be filed with the Commission on a Current Report on Form 8-K at or before the time of filing of the Prospectus pursuant to Rule 424(b) under the Securities Act; to cause any ABS Term Sheets with respect to the Notes that are delivered to the Seller as provided in Section 3.B.5 to be filed with the Commission on one or more Current Reports on Form 8-K (i) at or before the time of filing of the Prospectus pursuant to Rule 424(b) of the Rules and Regulations in the case of Structural Term Sheets, and (ii) within two Business Days of first use in the case of Collateral Term Sheets. Prior to any such filing of Computational Materials or ABS Term Sheets (other than any Collateral Term Sheets that are not based on Mortgage Pool information provided to the Underwriter by the Seller) by the Seller, however, the Underwriter must comply with their obligations pursuant to Section 3.B and the Seller must receive a letter from independent, certified public accountants, satisfactory in form and substance to the Seller and its counsel, to the effect that such accountants have performed certain specified procedures, all of which have been agreed to by the Seller, as a result of which they determined that all information that is included in the Computational Materials and ABS Term Sheets (if any) provided by the Underwriter to the Seller for filing on Form 8-K, as provided in Section 3.B and this Section 9, is accurate except as to such 25 matters that are not deemed by the Seller to be material. The Seller shall file any corrected Computational Materials or ABS Term Sheets described in Section 3.B.7 as soon as practicable following receipt thereof. 10. Notices. All communications hereunder shall be in writing and, if sent to the Underwriter, shall be mailed or delivered or telecopied and confirmed in writing to the Underwriter at Wheat First Securities, Inc., doing business as First Union Capital Markets, a division of Wheat First Securities, Inc., c/o First Union National Bank, One First Union Center, Charlotte, North Carolina 28288-0166, Attention: Wallace Saunders; and, if sent to the Seller, shall be mailed, delivered or telegraphed and confirmed in writing to the Seller at the address set forth above, Attention: Director of Secondary Marketing. 11. Survival. All representations, warranties, covenants and agreements of the Seller contained herein or in agreements or certificates delivered pursuant hereto, the agreements of the Underwriter and the Seller contained in Section 8 hereof, and the representations, warranties and agreements of the Underwriter contained in Section 3 hereof, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Underwriter or any controlling persons, or any subsequent purchaser or the Seller or any of its officers, directors or any controlling persons, and shall survive delivery of and payment for the Notes. The provisions of Sections 5, 7 and 8 hereof shall survive the termination or cancellation of this Agreement. 12. Termination. The Underwriter shall have the right to terminate this Agreement by giving notice as hereinafter specified at any time at or prior to the Closing Date if (a) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the National Association of Securities Dealers, Inc., the Chicago Board Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (b) trading of any securities of the Seller shall have been suspended on any exchange or in any over-the-counter market, (c) a general moratorium on commercial banking activities shall have been declared by either federal or New York State authorities, (d) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis which, in the Underwriter's reasonable judgment, is material and adverse, and, in the case of any of the events specified in clauses (a) through (d), such event singly or together with any other such event makes it in the Underwriter's reasonable judgment impractical to market the Notes. Any such termination shall be without liability of any other party except that the provisions of Paragraph G of Section 5 (except with respect to expenses of the Underwriter) and Sections 7 and 8 hereof shall at all times be effective. If the Underwriter elects to terminate this Agreement as provided in this Section 12, the Seller shall be notified promptly by the Underwriter by telephone, telegram or facsimile transmission, in any case, confirmed by letter. 13. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns (which successors and assigns do not include any person purchasing a Note from the Underwriter), and the officers and directors and controlling persons referred to in Section 8 hereof and their respective successors and assigns, and no other persons will have any right or obligations hereunder. 14. Applicable Law; Venue. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York. Any action or proceeding brought to enforce or arising out of any provision of this Agreement shall be brought only in a state or federal court located in the Borough of Manhattan, New York City, New York, and the parties hereto expressly consent to the jurisdiction of such courts and agree to waive any defense or claim of forum non conveniens they may have with respect to any such action or proceeding brought. 26 15. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall together constitute but one and the same instrument. 16. Amendments and Waivers. This Agreement may be amended, modified, altered or terminated, and any of its provisions waived, only in a writing signed on behalf of the parties hereto. 27 IN WITNESS WHEREOF, the parties hereto hereby execute this Underwriting Agreement, as of the day and year first above written. FIRST ALLIANCE MORTGAGE COMPANY By: /s/ Brian Chisick ---------------------------------- Name: Brian Chisick Title: President/Chief Executive Officer WHEAT FIRST SECURITIES, INC., doing business as First Union Capital Markets, a division of WHEAT FIRST SECURITIES, INC. By: /s/ Shanker Lall Merchant ------------------------- Name: Shankar Lall Merchant Title: Managing Director {UNDERWRITING AGREEMENT SIGNATURE PAGE} EX-4.1 3 INDENTURE Exhibit 4.1 INDENTURE between FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2, as Issuer and THE CHASE MANHATTAN BANK, as Indenture Trustee Dated as of June 1, 1998 FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2 Adjustable Rate Mortgage Loan Asset Backed Notes, Series 1998-2A TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE........................................................................2 SECTION 1.1 Definitions............................................................................2 SECTION 1.2 Incorporation by Reference of Trust Indenture Act......................................7 SECTION 1.3 Rules of Construction..................................................................8 ARTICLE II THE NOTES.........................................................................................................8 SECTION 2.1 Form...................................................................................8 SECTION 2.2 Execution, Authentication, Delivery and Dating.........................................9 SECTION 2.3 Registration; Registration of Transfer and Exchange....................................9 SECTION 2.4 Mutilated, Destroyed, Lost or Stolen Notes............................................10 SECTION 2.5 Persons Deemed Owners.................................................................11 SECTION 2.6 Payment of Principal and Interest; Defaulted Interest.................................11 SECTION 2.7 Cancellation..........................................................................12 SECTION 2.8 Authentication of Notes...............................................................12 SECTION 2.9 Release of Collateral.................................................................12 SECTION 2.10 Book-Entry Notes......................................................................13 SECTION 2.11 Notices to Clearing Agency............................................................13 SECTION 2.12 Definitive Notes......................................................................14 SECTION 2.13 Tax Treatment.........................................................................14 ARTICLE III COVENANTS........................................................................................................14 SECTION 3.1 Payment of Principal and Interest.....................................................14 SECTION 3.2 Maintenance of Office or Agency.......................................................14 SECTION 3.3 Money for Payments To Be Held in Trust................................................15 SECTION 3.4 Existence.............................................................................16 SECTION 3.5 Protection of Collateral..............................................................17 SECTION 3.6 Annual Opinions as to Collateral......................................................17 SECTION 3.7 Performance of Obligations; Servicing of Adjustable Rate Mortgage Loans...............17 SECTION 3.8 Negative Covenants....................................................................19 SECTION 3.9 Annual Statement as to Compliance.....................................................20 SECTION 3.10 Covenants of the Issuer...............................................................20 SECTION 3.11 Investment Company Act................................................................20 SECTION 3.12 Restricted Payments...................................................................20 SECTION 3.13 Treatment of Notes as Debt for Tax Purposes...........................................20 SECTION 3.14 Notice of Events of Default...........................................................20 SECTION 3.15 Further Instruments and Acts..........................................................21 SECTION 3.16 No Other Business.....................................................................21 SECTION 3.17 No Borrowing..........................................................................21 SECTION 3.18 Guarantees, Loans, Advances and Other Liabilities. ..................................21 SECTION 3.19 Capital Expenditures..................................................................21
Page ARTICLE IV SATISFACTION AND DISCHARGE.......................................................................................21 SECTION 4.1 Satisfaction and Discharge of Indenture...............................................21 SECTION 4.2 Application of Trust Money............................................................22 SECTION 4.3 Repayment of Moneys Held by Paying Agent..............................................22 ARTICLE V REMEDIES.........................................................................................................22 SECTION 5.1 Events of Default.....................................................................22 SECTION 5.2 Acceleration of Maturity; Rescission and Annulment....................................23 SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Indenture Trustee.............24 SECTION 5.4 Remedies; Priorities..................................................................26 SECTION 5.5 Optional Preservation of the Collateral...............................................28 SECTION 5.6 Limitation of Suits...................................................................28 SECTION 5.7 Unconditional Rights of Owners To Receive Principal and Interest......................28 SECTION 5.8 Restoration of Rights and Remedies....................................................29 SECTION 5.9 Rights and Remedies Cumulative........................................................29 SECTION 5.10 Delay or Omission Not a Waiver........................................................29 SECTION 5.11 Control by Note Insurer or Owners.....................................................29 SECTION 5.12 Waiver of Past Defaults...............................................................30 SECTION 5.13 Undertaking for Costs.................................................................30 SECTION 5.14 Waiver of Stay or Extension Laws......................................................30 SECTION 5.15 Action on Notes.......................................................................30 SECTION 5.16 Performance and Enforcement of Certain Obligations....................................30 ARTICLE VI THE INDENTURE TRUSTEE............................................................................................31 SECTION 6.1 Duties of Indenture Trustee...........................................................31 SECTION 6.2 Rights of Indenture Trustee...........................................................32 SECTION 6.3 Individual Rights of Indenture Trustee................................................33 SECTION 6.4 Indenture Trustee's Disclaimer........................................................33 SECTION 6.5 Notice of Defaults....................................................................33 SECTION 6.6 Reports by Indenture Trustee to Owners................................................33 SECTION 6.7 Compensation and Indemnity............................................................33 SECTION 6.8 Replacement of Indenture Trustee......................................................34 SECTION 6.9 Successor Indenture Trustee by Merger.................................................34 SECTION 6.10 Appointment of Co-Indenture Trustee or Separate Indenture Trustee.....................35 SECTION 6.11 Eligibility; Disqualification.........................................................36 SECTION 6.12 Preferential Collection of Claims Against Issuer......................................36 SECTION 6.13 Tax Administration of the Issuer......................................................36 SECTION 6.14 Representations and Warranties........................................................36 SECTION 6.15 Directions to Indenture Trustee.......................................................37
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Page ARTICLE VII OWNERS' LISTS AND REPORTS........................................................................................37 SECTION 7.1 Issuer To Furnish Indenture Trustee Names and Addresses of Owners.....................37 SECTION 7.2 Preservation of Information; Communications to Owners.................................37 SECTION 7.3 Reports by Issuer.....................................................................38 SECTION 7.4 Reports by Indenture Trustee..........................................................38 ARTICLE VIII ACCOUNTS, DISBURSEMENTS AND RELEASES.............................................................................38 SECTION 8.1 Collection of Money...................................................................38 SECTION 8.2 Accounts; Distributions...............................................................39 SECTION 8.3 General Provisions Regarding Accounts.................................................40 SECTION 8.4 Monthly Statements....................................................................40 SECTION 8.5 Release of Collateral.................................................................40 SECTION 8.6 Opinion of Counsel....................................................................41 ARTICLE IX SUPPLEMENTAL INDENTURES..........................................................................................41 SECTION 9.1 Supplemental Indentures Without Consent of Owners.....................................41 SECTION 9.2 Supplemental Indentures With Consent of Owners........................................42 SECTION 9.3 Execution of Supplemental Indentures..................................................43 SECTION 9.4 Effect of Supplemental Indenture......................................................43 SECTION 9.5 Conformity with Trust Indenture Act...................................................44 SECTION 9.6 Reference in Notes to Supplemental Indentures.........................................44 SECTION 9.7 Amendments to Trust Agreement.........................................................44 SECTION 9.8 Notice of Supplemental Indentures.....................................................44 ARTICLE X REDEMPTION OF NOTES..............................................................................................44 SECTION 10.1 Redemption. ..........................................................................44 SECTION 10.2 Form of Redemption Notice.............................................................45 SECTION 10.3 Notes Payable on Redemption Date; Provision for Payment of Indenture Trustee, Owner Trustee and Note Insurer...............................................45 SECTION 10.4 Notice of Final Payment...............................................................45 ARTICLE XI MISCELLANEOUS....................................................................................................46 SECTION 11.1 Compliance Certificates and Opinions, etc.............................................46 SECTION 11.2 Form of Documents Delivered to Indenture Trustee......................................46 SECTION 11.3 Acts of Owners........................................................................47 SECTION 11.4 Notices, etc., to Indenture Trustee, Issuer, Rating Agencies and Note Insurer..........................................................................47 SECTION 11.5 Notices to Owners; Waiver.............................................................48 SECTION 11.6 Conflict with Trust Indenture Act.....................................................48 SECTION 11.7 Effect of Headings and Table of Contents..............................................48
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Page SECTION 11.8 Successors and Assigns................................................................48 SECTION 11.9 Separability..........................................................................48 SECTION 11.10 Benefits of Indenture.................................................................48 SECTION 11.11 Legal Holidays........................................................................49 SECTION 11.12 Governing Law.........................................................................49 SECTION 11.13 Counterparts..........................................................................49 SECTION 11.14 Recording of Indenture................................................................49 SECTION 11.15 Trust Obligation......................................................................49 SECTION 11.16 No Petition...........................................................................49 SECTION 11.17 Inspection............................................................................49 SECTION 11.18 Grant of Owner Rights to Note Insurer.................................................50 SECTION 11.19 Third Party Beneficiary...............................................................50 SECTION 11.20 Suspension and Termination of Note Insurer's Rights...................................50 SECTION 11.21 Certain Matters Regarding the Note Insurer............................................50 EXHIBITS SCHEDULE A - Schedule of Adjustable Rate Mortgage Loans EXHIBIT A - Form of Note
iv INDENTURE (this "Indenture" or this "Agreement") dated as of June 1, 1998, between FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2, a Delaware business trust (the "Issuer"), and THE CHASE MANHATTAN BANK, a New York banking corporation, as trustee and not in its individual capacity (the "Indenture Trustee"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Owners of the First Alliance Mortgage Loan Trust 1998-2 Adjustable Rate Mortgage Loan Asset Backed Notes, Series 1998-2A and the Note Insurer. GRANTING CLAUSE Subject to the terms of this Indenture, the Issuer hereby Grants to the Indenture Trustee on the Closing Date, as Indenture Trustee for the benefit of the Owners of the Notes and the Note Insurer (and for the benefit of the owners of the Fixed Rate Notes and the Note Insurer to the limited extent provided in the Sale and Servicing Agreement), all of the Issuer's right, title and interest whether now existing or hereafter acquired in and to: (i) the Trust Estate; (ii) all right, title and interest of the Issuer in the Sale and Servicing Agreement relating to the Adjustable Rate Mortgage Loans (including the Issuer's right to cause the Seller to repurchase Adjustable Rate Mortgage Loans from the Issuer under certain circumstances described therein); (iii) with respect to the Adjustable Rate Mortgage Loans, all present and future claims, demands, causes of action and choses in action in respect of any or all of the foregoing and all payments on or under and all proceeds of every kind and nature whatsoever in respect of any or all of the foregoing, including all proceeds of the conversion thereof, voluntary or involuntary, into cash or other liquid property, all cash proceeds, accounts, accounts receivable, notes, drafts, acceptances, chattel paper, checks, deposit accounts, insurance proceeds, condemnation awards, rights to payment of any and every kind and other forms of obligations and receivables, instruments and other property which at any time constitute all or part of or are included in the proceeds of any of the foregoing; (iv) all funds on deposit from time to time in the Accounts relating to the Adjustable Rate Mortgage Loans or the Notes (including the Adjustable Rate Note Account) and (v) all other property of the Trust relating to the Adjustable Rate Mortgage Loans from time to time (collectively, the "Collateral"). The foregoing Grant is made in trust to secure (i) the payment of principal of and interest on, and any other amounts owing in respect of, the Notes, and the Fixed Rate Notes to the limited extent provided in the Sale and Servicing Agreement, equally and ratably without prejudice, priority or distinction, (ii) the payment of all other amounts payable under this Indenture, (iii) compliance with the provisions of this Indenture, all as provided in this Indenture and (iv) the payment of any amounts due to the Note Insurer in accordance with the Sale and Servicing Agreement. The Indenture Trustee, as Indenture Trustee on behalf of the Owners of the Notes and the Note Insurer, acknowledges such Grant, accepts the trusts hereunder and agrees to perform its duties required in this Indenture to the best of its ability to the end that the interests of the Owners of the Notes and the Note Insurer may be adequately and effectively protected. The Indenture Trustee agrees that it will hold the Adjustable Rate Note Insurance Policy in trust and that it will hold any proceeds of any claim made upon the Adjustable Rate Note Insurance Policy solely for the use and benefit of the Owners of the Notes in accordance with the terms hereof and the terms of the Adjustable Rate Note Insurance Policy. The Indenture Trustee agrees and acknowledges that the Files will be held by the Custodian, as agent of the Indenture Trustee, in trust, for the use and benefit of the Issuer, the Note Insurer and all present and future Owners of the Notes, in New York, New York. The Indenture Trustee further agrees and acknowledges that each other item of Collateral that is physically delivered to the Indenture Trustee will be held by the Indenture Trustee in New York, New York. The Indenture Trustee further acknowledges that in the event the conveyance of the Adjustable Rate Mortgage Loans by the Seller to the Issuer pursuant to the Trust Agreement is determined to constitute a financing, the Indenture Trustee holds the Adjustable Rate Mortgage Loans as the designee of the Issuer, subject, however, to a prior lien in favor of the Owners of the Notes and the Note Insurer. ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.1 Definitions. Except as otherwise specified herein or as the context may otherwise require, the following terms have the respective meanings set forth below for all purposes of this Indenture. "Act": The meaning specified in Section 11.3(a) hereof. "Affiliate": With respect to any specified Person, any other Person controlling or controlled by or under common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Authorized Officer": With respect to the Issuer, any officer of the Owner Trustee who is authorized to act for the Owner Trustee in matters relating to the Issuer and who is identified on the list of Authorized Officers delivered by the Owner Trustee to the Indenture Trustee on the Closing Date (as such list may be modified or supplemented from time to time thereafter). "Book-Entry Notes": A beneficial interest in the Notes, the ownership and transfer of which shall be made through book entries by a Clearing Agency as described in Section 2.10. "Book-Entry Owner": With respect to a Book-Entry Note, the Person who is the beneficial owner of such Book-Entry Note, as reflected on the books of the Clearing Agency or on the books of a Person maintaining an account with such Clearing Agency (directly as a Clearing Agency Participant or as an indirect participant, in each case in accordance with the rules of such Clearing Agency). "Business Day": Any day other than a Saturday, Sunday or a day on which commercial banking institutions in the States of New York or California or in the city in which the Corporate Trust Office is located or the city in which the principal office of the Note Insurer is located are authorized or obligated by law or executive order to be closed. "Certificate of Trust": The certificate of trust of the Issuer substantially in the form of Exhibit A to the Trust Agreement. "Clearing Agency": An organization registered as a "clearing agency" pursuant to Section 17A of the Exchange Act. "Clearing Agency Participant": A broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of securities deposited with the Clearing Agency. 2 "Closing Date": June 26, 1998. "Code": The Internal Revenue Code of 1986, as amended from time to time, and the Treasury Regulations promulgated thereunder. "Collateral": The meaning specified in the Granting Clause of this Indenture. "Corporate Trust Office": The principal office of the Indenture Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of execution of this Agreement is located at 450 West 33rd Street, New York, New York 10001, Attention: First Alliance Mortgage Loan Trust 1998-2 - Adjustable Rate Notes, or at such other address as the Indenture Trustee may designate from time to time by notice to the Owners and the Issuer, or the principal corporate trust office of any successor Indenture Trustee at the address designated by such successor Indenture Trustee by notice to the Owners, the Note Insurer and the Issuer. "Default": Any occurrence that is, or with notice or the lapse of time or both would become, an Event of Default. "Definitive Notes": The meaning specified in Section 2.12. "Event of Default": The meaning specified in Section 5.1 hereof. "Exchange Act": The Securities Exchange Act of 1934, as amended. "Final Payment Date": September 20, 2029. "Fixed Rate Indenture": The meaning specified in Section 3.8(iv) hereof. "Grant": To mortgage, pledge, bargain, sell, warrant, alienate, remise, release, convey, assign, transfer, create, and grant a lien upon and a security interest in and right of set-off against, deposit, set over and confirm pursuant to this Indenture. A Grant of the Collateral or of any other agreement or instrument shall include all rights, powers and options (but none of the obligations) of the granting party thereunder, including the immediate and continuing right to claim for, collect, receive and give receipt for principal and interest payments in respect of the Collateral and all other moneys payable thereunder, to give and receive notices and other communications, to make waivers or other agreements, to exercise all rights and options, to bring Proceedings in the name of the granting party or otherwise, and generally to do and receive anything that the granting party is or may be entitled to do or receive thereunder or with respect thereto. "Indenture Trustee": The Chase Manhattan Bank, a New York banking corporation, as Indenture Trustee under this Indenture, or any successor Indenture Trustee under this Indenture. "Independent": When used with respect to any specified Person, that the Person (a) is in fact independent of the Issuer, any other obligor on the Notes, the Seller and any Affiliate of any of the foregoing Persons, (b) does not have any direct financial interest or any material indirect financial interest in the Issuer, any such other obligor, the Seller or any Affiliate of any of the foregoing Persons and (c) is not connected with the Issuer, any such other obligor, the Seller or any Affiliate of any of the foregoing Persons as an officer, employee, promoter, underwriter, trustee, partner, director or person performing similar functions. 3 "Independent Certificate": A certificate or opinion to be delivered to the Indenture Trustee under the circumstances described in, and otherwise complying with, the applicable requirements of Section 11.1, made by an Independent appraiser or other expert appointed by an Issuer Order and approved by the Indenture Trustee in the exercise of reasonable care, and such opinion or certificate shall state that the signer has read the definition of "Independent" in this Indenture and that the signer is Independent within the meaning thereof. "Issuer": First Alliance Mortgage Loan Trust 1998-2 until a successor replaces it and, thereafter, means the successor and, for purposes of any provision contained herein and required by the TIA, each other obligor on the Notes. "Issuer Order" and "Issuer Request": A written order or request signed in the name of the Issuer by any one of its Authorized Officers and delivered to the Indenture Trustee. "Moody's": Moody's Investor Service, Inc., and any successor thereto. "Note": The Issuer's Adjustable Rate Mortgage Loan Asset Backed Notes, Series 1998-2A, substantially in the Form of Exhibit A hereto. "Note Register" and "Note Registrar": The respective meanings specified in Section 2.3. "Officer's Certificate": A certificate signed by any Authorized Officer of the Issuer, under the circumstances described in, and otherwise complying with, the applicable requirements of Section 11.1, and delivered to the Indenture Trustee. "Opinion of Counsel": One or more written opinions of counsel who may, except as otherwise expressly provided in this Indenture, be employees of or counsel to the Issuer and who shall be satisfactory to the Indenture Trustee and the Note Insurer, and which opinion or opinions shall be addressed to the Indenture Trustee, as Indenture Trustee, and the Note Insurer and shall comply with any applicable requirements of Section 11.1 and shall be in form and substance satisfactory to the Indenture Trustee and the Note Insurer. "Outstanding": With respect to any Note and as of the date of determination, any Note theretofore authenticated and delivered under this Indenture except: (i) Notes theretofore canceled by the Note Registrar or delivered to the Note Registrar for cancellation; (ii) Notes or portions thereof the payment for which money in the necessary amount has been theretofore deposited with the Indenture Trustee or any Paying Agent in trust for the Owners of such Notes (provided, however, that if such Notes are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision for such notice has been made, satisfactory to the Indenture Trustee); (iii) Notes in exchange for or in lieu of which other Notes have been authenticated and delivered pursuant to this Indenture unless proof satisfactory to the Indenture Trustee is presented that any such Notes are held by a bona fide purchaser; provided, that in determining whether the Owners of the requisite Outstanding Amount of the Notes have given any request, demand, 4 authorization, direction, notice, consent, or waiver hereunder or under any Operative Document, Notes owned by the Issuer, any other obligor upon the Notes, the Seller or any Affiliate of any of the foregoing Persons shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Indenture Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, or waiver, only Notes that the Indenture Trustee knows to be so owned shall be so disregarded. Notes so owned that have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Indenture Trustee the pledgee's right so to act with respect to such Notes and that the pledgee is not the Issuer, any other obligor upon the Notes, the Seller or any Affiliate of any of the foregoing Persons; (iv) Notes alleged to have been destroyed, lost or stolen for which replacement Notes have been issued as provided for in Section 2.4 thereof; and (v) Notes as to which the Indenture Trustee has made the final distribution thereon, whether or not such Notes are ever returned to the Indenture Trustee. "Outstanding Amount": The aggregate principal amount of all Notes that are Outstanding at the date of determination. "Owner": The Person in whose name a Note is registered on the Note Register; provided that the exercise of any rights of such Owner under this Indenture shall at all times be subject to Section 11.18 hereto. "Owner Trustee": Wilmington Trust Company, not in its individual capacity but solely as Owner Trustee under the Trust Agreement, or any successor Owner Trustee under the Trust Agreement. "Paying Agent": The Indenture Trustee or any other Person that meets the eligibility standards for the Indenture Trustee specified in Section 6.11 and is authorized by the Issuer to make payments to and distributions from the Adjustable Rate Note Account, including payment of principal of or interest on the Notes on behalf of the Issuer. "Payment Date": The 20th day of any month or if such day is not a Business Day, the next succeeding Business Day, commencing in July 1998. "Predecessor Note": With respect to any particular Note, every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for the purpose of this definition, any Note authenticated and delivered under Section 2.4 in lieu of a mutilated, lost, destroyed or stolen Note shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Note. "Proceeding": Any suit in equity, action at law or other judicial or administrative proceeding. "Rating Agency": Either or both of (i) Standard & Poor's or (ii) Moody's. If no such organization or successor is any longer in existence, "Rating Agency" shall be a nationally recognized statistical rating organization or other comparable Person designated by the Note Insurer, notice of which designation shall be given to the Issuer, the Indenture Trustee, the Owner Trustee and the Servicer. "Rating Agency Condition": With respect to any action to which a Rating Agency Condition applies, that each Rating Agency shall have been given 10 days (or such shorter period as is acceptable to each Rating 5 Agency) prior notice thereof and that each of the Rating Agencies shall have notified the Seller, the Servicer, the Note Insurer and the Issuer in writing that such action will not result in a reduction or withdrawal of the then current rating of the Notes. "Record Date": With respect to any Payment Date, the last day of the calendar month immediately preceding the calendar month in which such Payment Date occurs, whether or not such day is a Business Day. "Redemption Date": The first Payment Date on which the outstanding aggregate Loan Balance of the Adjustable Rate Mortgage Loans has declined to $3,000,000 or less. "Redemption Price": In the case of a redemption of the Notes pursuant to Section 10.1, an amount equal to the sum of (i) the unpaid principal amount of the Notes redeemed plus accrued and unpaid interest thereon (and any Available Funds Cap Carry-Forward Amounts) at the Adjustable Rate Note Rate to but excluding the Redemption Date, (ii) any unpaid Indenture Trustee Fees, Owner Trustee Fees and Premium Amounts relating to the Adjustable Rate Mortgage Loans, (iii) all other amounts owed to the Note Insurer pursuant to the Insurance Agreement and (iv) any unreimbursed Delinquency Advances and Servicing Advances relating to the Adjustable Rate Mortgage Loans. "Registered Owner": The Person in whose name a Note is registered on the Note Register on the applicable Record Date. "Responsible Officer": With respect to the Indenture Trustee, any officer within the Corporate Trust Office of the Indenture Trustee, including any Vice President, Assistant Vice President, Assistant Treasurer, Assistant Secretary or any other officer of the Indenture Trustee customarily performing functions similar to those performed by any of the above designated officers and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. "Sale and Servicing Agreement": The Sale and Servicing Agreement dated as of June 1, 1998, among the Issuer, the Seller, the Servicer and the Indenture Trustee, as Indenture Trustee. "Securities Act": The Securities Act of 1933, as amended. "Seller": First Alliance Mortgage Company, in its capacity as seller under the Sale and Servicing Agreement, and its successor in interest. "Servicer": First Alliance Mortgage Company, in its capacity as servicer under the Sale and Servicing Agreement, and any Successor Servicer thereunder. "Standard & Poor's": Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., and any successor thereto. "State": Any one of the 50 States of the United States of America or the District of Columbia. "Successor Servicer": The meaning specified in Section 3.7(e). 6 "Trust Estate": The assets relating to the Adjustable Rate Mortgage Loans and subject to this Agreement, the Sale and Servicing Agreement and the Trust Agreement and assigned to the Trust, which assets consist of (a) the Initial Adjustable Rate Mortgage Loans listed in Schedule I to the Sale and Servicing Agreement and any Subsequent Adjustable Rate Mortgage Loans listed in Schedule I to any Subsequent Transfer Agreement, including the related Files that the Seller causes to be delivered to the Indenture Trustee, all payments of principal received, collected or otherwise recovered after the Cut-Off Date (or Subsequent Cut-Off Date) for each Adjustable Rate Mortgage Loan (other than any principal payments due thereon on or prior to the Cut-Off Date or Subsequent Cut-Off Date), all payments of interest accruing on each Adjustable Rate Mortgage Loan after the Cut-Off Date (or Subsequent Cut-Off Date) therefor (other than any interest payments due thereon on or prior to the Cut-Off Date or Subsequent Cut-Off Date) and all other proceeds received in respect of such Adjustable Rate Mortgage Loans, (b) the Adjustable Rate Note Insurance Policy, (c) any Insurance Policies relating to the Adjustable Rate Mortgage Loans, (d) all cash, instruments or other property held or required to be deposited in the Principal and Interest Account relating to the Adjustable Rate Mortgage Loans, the Adjustable Rate Note Account, and the Available Funds Cap Carry-Forward Amount Account, including all investments made with funds in such accounts (but not including any income on funds deposited in, or investments made with funds deposited in, the Principal and Interest Account relating to the Adjustable Rate Mortgage Loans, which income shall belong to and be for the account of the Servicer, and not including any income on funds deposited in, or investments made with funds deposited in, the Adjustable Rate Note Account or Available Funds Cap Carry-Forward Amount Account, which income shall belong to and be for the account of the Issuer), (e) the Issuer's rights under the Sale and Servicing Agreement, and (f) all proceeds of the conversion, voluntary or involuntary, of any of the foregoing into cash or other liquid assets, including, without limitation, all insurance proceeds and condemnation awards. "Trust Indenture Act" or "TIA": The Trust Indenture Act of 1939, as amended, as in force on the date hereof, unless otherwise specifically provided. "UCC": Unless the context otherwise requires, the Uniform Commercial Code, as in effect in the relevant jurisdiction, as amended from time to time. (b) Except as otherwise specified herein or as the context may otherwise require, for all purposes of this Indenture capitalized terms used but not otherwise defined herein have the respective meanings set forth in the Sale and Servicing Agreement or, if not defined therein, in the Trust Agreement. SECTION 1.2 Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the Securities and Exchange Commission. "indenture securities" means the Notes. "indenture security Owner" means an Owner. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Indenture Trustee. 7 "obligor" on the Indenture securities means the Issuer and any other obligor on the Indenture securities. All other TIA terms used in this Indenture that are defined in the TIA, defined by TIA reference to another statute or defined by Commission rule have the meaning assigned to them by such definitions. SECTION 1.3 Rules of Construction. Unless the context otherwise requires: (i) a term has the meaning assigned to it; (ii) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles as in effect from time to time; (iii) "or" is not exclusive; (iv) "including" means including without limitation; (v) words in the singular include the plural and words in the plural include the singular; and (vi) any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time amended, modified or supplemented (as provided in such agreements) and includes (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein; references to a Person are also to its permitted successors and assigns. ARTICLE II THE NOTES SECTION 2.1 Form. The Notes shall be designated as the "First Alliance Adjustable Rate Mortgage Loan Asset Backed Notes, Series 1998-2A" and, together with the Indenture Trustee's certificate of authentication, shall be in substantially the form set forth in Exhibit A hereto, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may, consistently herewith, be determined by the officers executing such Notes, as evidenced by their execution thereof. Any portion of the text of any Note may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Note. The Definitive Notes shall be typewritten, printed, lithographed or engraved or produced by any combination of these methods, all as determined by the officers executing such Notes, as evidenced by their execution of such Notes. The terms of the Notes set forth in Exhibit A are part of the terms of this Indenture. The Notes may be marked as temporary, and any Note being so marked may be cancelled and destroyed for substitution by a replacement Note, subject to the provisions of Section 2.2. 8 SECTION 2.2 Execution, Authentication, Delivery and Dating. The Notes shall be executed on behalf of the Issuer by an Authorized Officer. The signature of any such Authorized Officer on the Notes may be manual or facsimile. Notes bearing the manual or facsimile signature of individuals who were at any time Authorized Officers of the Owner Trustee shall bind the Issuer, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Notes or did not hold such offices at the date of such Notes. Subject to the satisfaction of the conditions set forth in Section 2.8, the Indenture Trustee shall authenticate and deliver Notes for original issue in an aggregate principal amount of $30,000,000. The aggregate principal amount of Notes Outstanding at any time may not exceed such amount. The Notes that are authenticated and delivered by the Indenture Trustee to or upon the order of the Issuer on the Closing Date shall be dated June 26, 1998. All other Notes that are authenticated after the Closing Date for any other purpose under this Indenture shall be dated the date of their authentication. The Notes shall be issuable as registered Notes in the minimum denomination of $25,000 and integral multiples of $1,000 in excess thereof. No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Note a certificate of authentication substantially in the form provided for herein executed by the Indenture Trustee by the manual signature of one of its authorized signatories, and such certificate upon any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder. SECTION 2.3 Registration; Registration of Transfer and Exchange. The Issuer shall cause to be kept a register (the "Note Register") in which, subject to such reasonable regulations as it may prescribe, the Issuer shall provide for the registration of Notes and the registration of transfers of Notes. The Indenture Trustee initially shall be the "Note Registrar" for the purpose of registering Notes and transfers of Notes as herein provided. Upon any resignation of any Note Registrar, the Issuer shall promptly appoint a successor or, if it elects not to make such an appointment, assume the duties of Note Registrar. If a Person other than the Indenture Trustee is appointed by the Issuer as Note Registrar with the consent of the Note Insurer, the Issuer will give the Indenture Trustee prompt written notice of the appointment of such Note Registrar and of the location, and any change in the location, of the Note Register, and the Indenture Trustee shall have the right to inspect the Note Register at all reasonable times and to obtain copies thereof, and the Indenture Trustee and the Note Insurer shall have the right to rely upon a certificate executed on behalf of the Note Registrar by an Authorized Officer thereof as to the names and addresses of the Owners of the Notes and the principal amounts and number of such Notes. Upon surrender for registration of transfer of any Note at the office or agency of the Issuer to be maintained as provided in Section 3.2, the Issuer shall execute, and the Indenture Trustee shall authenticate and the Owner shall obtain from the Indenture Trustee, in the name of the designated transferee or transferees, one or more new Notes in any authorized denominations, of a like aggregate principal amount. At the option of any Owner, Notes owned by such Owner may be exchanged for other Notes in any authorized denominations, of a like aggregate principal amount, upon surrender of the Notes to be exchanged at such office or agency. Whenever any Notes are so surrendered for exchange, the Issuer shall execute, 9 and the Indenture Trustee shall authenticate and the Owner shall obtain from the Indenture Trustee, the Notes which the Owner making the exchange is entitled to receive. All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Issuer, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Notes surrendered upon such registration of transfer or exchange. Every Note presented or surrendered for registration of transfer or exchange shall be duly endorsed by, or be accompanied by a written instrument of transfer in form satisfactory to the Indenture Trustee duly executed by the Owner thereof or such Owner's attorney duly authorized in writing, with such signature guaranteed by an "eligible guarantor institution" meeting the requirements of the Note Registrar, which requirements include membership or participation in the Securities Transfer Agent's Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Note Registrar in addition to, or in substitution for, STAMP, all in accordance with the Exchange Act. Any Noteholder using the assets of (i) an employee benefit plan (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) that is subject to the provisions of Title I of ERISA, (ii) a plan described in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended, or (iii) any entity whose underlying assets include plan assets by reason of a plan's investment in the entity to purchase the Notes, or to whom the Notes are transferred, will be deemed to have represented that the acquisition and continued holding of the Notes will be covered by a U.S. Department of Labor Class Exemption. No service charge shall be made to an Owner for any registration of transfer or exchange of Notes, but the Issuer may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Notes, other than exchanges pursuant to Section 2.4 or Section 9.6 not involving any transfer. The preceding provisions of this Section notwithstanding, the Issuer shall not be required to make, and the Note Registrar need not register, transfers or exchanges of Notes selected for redemption or of any Note for a period of 15 days preceding the due date for any payment with respect to such Note. SECTION 2.4 Mutilated, Destroyed, Lost or Stolen Notes. If (i) any mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, and (ii) there is delivered to the Indenture Trustee such security or indemnity as may be required by it to hold the Issuer, the Note Insurer and the Indenture Trustee harmless, then, in the absence of notice to the Issuer, the Note Registrar or the Indenture Trustee that such Note has been acquired by a bona fide purchaser, and provided that the requirements of Section 8-405 of the UCC are met, the Issuer shall execute, and upon its request the Indenture Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a replacement Note; provided, however, that if any such destroyed, lost or stolen Note, but not a mutilated Note, shall have become or within seven days shall be due and payable, or shall have been called for redemption, instead of issuing a replacement Note, the Issuer may pay such destroyed, lost or stolen Note when so due or payable or upon the Redemption Date without surrender thereof. If, after the delivery of such replacement Note or payment of a destroyed, lost or stolen Note pursuant to the proviso to the preceding sentence, a bona fide purchaser of the original Note in lieu of which such replacement Note was issued presents for payment such original Note, the Issuer, the Note Insurer and the Indenture Trustee shall be entitled to recover such replacement Note (or such payment) from the Person to whom it was delivered or any Person taking such replacement Note from such Person to whom 10 such replacement Note was delivered or any assignee of such Person, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the Issuer, the Note Insurer or the Indenture Trustee in connection therewith. Upon the issuance of any replacement Note under this Section, the Issuer may require the payment by the Owner of such Note, other than the Note Insurer, of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other reasonable expenses (including the fees and expenses of the Indenture Trustee) connected therewith. Every replacement Note issued pursuant to this Section in replacement of any mutilated, destroyed, lost or stolen Note shall constitute an original additional contractual obligation of the Issuer, whether or not the mutilated, destroyed, lost or stolen Note shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Notes duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. SECTION 2.5 Persons Deemed Owners. Prior to due presentment for registration of transfer of any Note, the Issuer, the Note Insurer, the Indenture Trustee and any agent of the Issuer, the Note Insurer or the Indenture Trustee may treat the Person in whose name any Note is registered (as of the day of determination) as the owner of such Note for the purpose of receiving payments of principal of and interest, if any, on such Note and for all other purposes whatsoever, whether or not such Note be overdue, and none of the Issuer, the Note Insurer, the Indenture Trustee or any agent of the Issuer or the Indenture Trustee shall be affected by notice to the contrary. SECTION 2.6 Payment of Principal and Interest; Defaulted Interest. (a) The Notes shall accrue interest at the Adjustable Rate Note Rate as set forth in the Sale and Servicing Agreement, and such interest shall be payable on each Payment Date as specified therein, subject to Section 3.1 hereof. Any installment of interest or principal, if any, payable on any Note that is punctually paid or duly provided for by the Issuer on the applicable Payment Date shall be paid to the Person in whose name such Note (or one or more Predecessor Notes) is registered on the Record Date by check mailed first-class postage prepaid to such Person's address as it appears on the Note Register on such Record Date, except that, unless Definitive Notes have been issued pursuant to Section 2.12, with respect to Notes registered on the Record Date in the name of the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.), payment will be made by wire transfer in immediately available funds to the account designated by such nominee and except for the final installment of principal payable with respect to such Note on a Payment Date or on the applicable Final Payment Date (and except for the Redemption Price for any Note called for redemption pursuant to Section 10.1), which shall be payable as provided below. The funds represented by any such checks returned undelivered shall be held in accordance with Section 3.3. (b) The principal of each Note shall be payable in installments on each Payment Date as provided in the Sale and Servicing Agreement and the form of the Notes set forth in Exhibit A. Notwithstanding the foregoing, the entire unpaid principal amount of the Notes shall be due and payable, if not previously paid, on the earlier of (i) the Final Payment Date, (ii) the Redemption Date or (iii) the date on which an Event of Default shall have occurred and be continuing, if either the Owners or the Note Insurer has declared the Notes to be immediately due and payable in the manner provided in Section 5.2. All 11 principal payments on the Notes shall be made pro rata to the Owners. The Indenture Trustee shall notify the Person in whose name a Note is registered at the close of business on the Record Date preceding the Payment Date on which the Issuer expects that the final installment of principal of and interest on such Note will be paid. Such notice shall be mailed or transmitted by facsimile prior to such final Payment Date and shall specify that such final installment will be payable only upon presentation and surrender of such Note and shall specify the place where such Note may be presented and surrendered for payment of such installment. A copy of such form of notice shall be sent to the Note Insurer by the Indenture Trustee. Notices in connection with redemptions of Notes shall be mailed to Owners as provided in Section 10.2. SECTION 2.7 Cancellation. All Notes surrendered for payment, registration of transfer, exchange or redemption shall, if surrendered to any Person other than the Indenture Trustee, be delivered to the Indenture Trustee and shall be promptly canceled by the Indenture Trustee. The Issuer may at any time deliver to the Indenture Trustee for cancellation any Notes previously authenticated and delivered hereunder which the Issuer may have acquired in any manner whatsoever, and all Notes so delivered shall be promptly canceled by the Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for any Notes canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Notes may be held or disposed of by the Indenture Trustee in accordance with its standard retention or disposal policy as in effect at the time, unless the Issuer shall direct by an Issuer Order that they be destroyed or returned to it; provided, that such Issuer Order is timely and the Notes have not been previously disposed of by the Indenture Trustee. SECTION 2.8 Authentication of Notes. The Notes may be authenticated by the Indenture Trustee upon Issuer Request. SECTION 2.9 Release of Collateral. (a) Subject to subsections (b) and (c) hereof, Section 11.1 hereof and the terms of the Operative Documents, the Indenture Trustee shall release property from the lien of this Indenture only upon receipt of an Issuer Request accompanied by an Officer's Certificate, an Opinion of Counsel and Independent Certificates in accordance with TIA Sections 314(c) and 314(d)(l) or an Opinion of Counsel in lieu of such Independent Certificates to the effect that the TIA does not require any such Independent Certificates. (b) The Servicer, on behalf of the Issuer, shall be entitled to obtain a release from the lien of this Indenture for any Adjustable Rate Mortgage Loan and the related Property at any time (i) after a payment by the Seller or the Issuer of the Loan Purchase Price of the Adjustable Rate Mortgage Loan, (ii) after a Qualified Replacement Mortgage is substituted for such Adjustable Rate Mortgage Loan and payment of the Substitution Amount if any, (iii) after liquidation of the Adjustable Rate Mortgage Loan in accordance with Section 4.13 of the Sale and Servicing Agreement and the deposit of all Liquidation Proceeds thereon in the Principal and Interest Account, or (iv) upon the termination of an Adjustable Rate Mortgage Loan (due to, among other causes, a prepayment in full of the Adjustable Rate Mortgage Loan and sale or other disposition of the related Property), if the Issuer delivers to the Indenture Trustee and the Note Insurer an Issuer Request (A) identifying the Adjustable Rate Mortgage Loan and the related Property to be released, (B) requesting the release thereof, (C) setting forth the amount deposited in the Principal and Interest Account with respect thereto, and (D) certifying that the amount deposited in the Principal and Interest Account (x) equals the Loan Purchase Price of the Adjustable Rate Mortgage Loan, in the event an Adjustable Rate Mortgage Loan and the related Property are being released from the lien of this Indenture pursuant to item (i) above, (y) equals the Substitution Amount related to the Qualified Replacement Mortgage and the Adjustable Rate Mortgage Loan being released from the lien of this Indenture pursuant to item (ii) above, or (z) equals the 12 entire amount of recoveries received with respect to such Adjustable Rate Mortgage Loan and the related Property in the event of a release from the lien of this Indenture pursuant to items (iii) or (iv) above. (c) The Indenture Trustee shall, if requested in writing by the Servicer, temporarily release or cause the Custodian to temporarily release to the Servicer the File pursuant to the provisions of Section 4.14 of the Sale and Servicing Agreement upon compliance by the Servicer of the provisions thereof provided that the Indenture Trustee's File shall have been stamped to signify the Issuer's pledge to the Indenture Trustee under this Indenture. SECTION 2.10 Book-Entry Notes. The Notes, upon original issuance, will be issued in the form of typewritten Notes representing the Book-Entry Notes, to be delivered to The Depository Trust Company, the initial Clearing Agency, by, or on behalf of, the Issuer. The Book-Entry Notes shall be registered initially on the Note Register in the name of Cede & Co., the nominee of the initial Clearing Agency, and no Owner of any Note will receive a definitive Note representing such Book-Entry Owner's interest in such Note, except as provided in Section 2.12. Unless and until definitive, fully registered Notes (the "Definitive Notes") have been issued to such Book-Entry Owners pursuant to Section 2.12: (i) the provisions of this Section shall be in full force and effect; (ii) the Note Registrar, the Note Insurer and the Indenture Trustee shall be entitled to deal with the Clearing Agency for all purposes of this Indenture (including the payment of principal of and interest on the Notes and the giving of instructions or directions hereunder) as the sole Owner of the Notes, and shall have no obligation to the Book-Entry Owners; (iii) to the extent that the provisions of this Section conflict with any other provisions of this Indenture, the provisions of this Section shall control; (iv) the rights of Book-Entry Owners shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Book-Entry Owners and the Clearing Agency and/or the Clearing Agency Participants. Unless and until Definitive Notes are issued pursuant to Section 2.12, the initial Clearing Agency will make book-entry transfers among the Clearing Agency Participants and receive and transmit payments of principal of and interest on the Notes to such Clearing Agency Participants; and (v) whenever this Indenture requires or permits actions to be taken based upon instructions or directions of Owners of Notes evidencing a specified percentage of the Outstanding Amount of the Notes, the Clearing Agency shall be deemed to represent such percentage only to the extent that it has received instructions to such effect from Book-Entry Owners and/or Clearing Agency Participants owning or representing, respectively, such required percentage of the beneficial interest in the Notes and has delivered such instructions to the Indenture Trustee. SECTION 2.11 Notices to Clearing Agency. Whenever a notice or other communication to the Owners is required under this Indenture, unless and until Definitive Notes shall have been issued to such Book-Entry Owners pursuant to Section 2.12, the Indenture Trustee shall give all such notices and communications specified herein to be given to Owners of the Notes to the Clearing Agency, and shall have no obligation to such Book-Entry Owners. 13 SECTION 2.12 Definitive Notes. If (i) the Clearing Agency is no longer willing or able to properly discharge its responsibilities with respect to the Book-Entry Notes and the Issuer is unable to locate a qualified successor, (ii) the Issuer at its option advises the Indenture Trustee in writing that it elects to terminate the book-entry system through the Clearing Agency or (iii) after the occurrence of an Event of Default, Owners of the Book-Entry Notes representing beneficial interests aggregating at least a majority of the Outstanding Amount of such Notes advise the Clearing Agency in writing that the continuation of a book-entry system through the Clearing Agency is no longer in the best interests of such Book-Entry Owners, then the Clearing Agency shall notify all Book-Entry Owners and the Indenture Trustee of the occurrence of such event and of the availability of Definitive Notes to Book-Entry Owners requesting the same. Upon surrender to the Indenture Trustee of the typewritten Notes representing the Book-Entry Notes by the Clearing Agency, accompanied by registration instructions, the Issuer shall execute and the Indenture Trustee shall authenticate the Definitive Notes in accordance with the instructions of the Clearing Agency. None of the Issuer, the Note Registrar, the Note Insurer or the Indenture Trustee shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Notes, the Indenture Trustee shall recognize the Owners of the Definitive Notes as Owners. SECTION 2.13 Tax Treatment. The Issuer has entered into this Indenture, and the Notes will be issued, with the intention that, for federal, state and local income, single business and franchise tax purposes, the Notes will qualify as indebtedness of the Issuer secured by the Collateral. The Issuer, by entering into this Indenture, and each Owner, by its acceptance of a Note (and each Book-Entry Owner by its acceptance of an interest in the applicable Book-Entry Note), agree to treat the Notes for federal, state and local income, single business and franchise tax purposes as indebtedness of the Issuer. ARTICLE III COVENANTS SECTION 3.1 Payment of Principal and Interest. The Issuer will duly and punctually pay (or will cause to be duly and punctually paid) the principal of and interest, if any, on the Notes in accordance with the terms of the Notes and this Indenture. Without limiting the foregoing, subject to and in accordance with Section 8.2(c), on each Payment Date the Issuer will cause to be distributed all amounts on deposit in the Adjustable Rate Note Account deposited or retained therein pursuant to the Sale and Servicing Agreement for the benefit of the Owners of the Notes, to the Owners and the Note Insurer. Amounts properly withheld under the Code by any Person from a payment to any Owner of interest and/or principal shall be considered as having been paid by the Issuer to such Owner for all purposes of this Indenture. The Notes shall be non-recourse obligations of the Issuer and shall be limited in right of payment to amounts available from the Collateral and any amounts received by the Indenture Trustee under the Adjustable Rate Note Insurance Policy in respect of the Notes, as provided in this Indenture and the Sale and Servicing Agreement. The Issuer shall not otherwise be liable for payments on the Notes. If any other provision of this Indenture shall be deemed to conflict with the provisions of this Section 3.1, the provisions of this Section 3.1 shall control. SECTION 3.2 Maintenance of Office or Agency. The Issuer will maintain in the Borough of Manhattan, The City of New York, an office or agency where Notes may be surrendered for registration of transfer or exchange, and where notices and demands to or upon the Issuer in respect of the Notes and this 14 Indenture may be served. The Issuer hereby initially appoints the Indenture Trustee to serve as its agent for the foregoing purposes. The Issuer will give prompt written notice to the Indenture Trustee and the Note Insurer of the location, and of any change in the location, of any such office or agency. If at any time the Issuer shall fail to maintain any such office or agency or shall fail to furnish the Indenture Trustee with the address thereof, such surrenders, notices and demands may be made or served at the Corporate Trust Office, and the Issuer hereby appoints the Indenture Trustee as its agent to receive all such surrenders, notices and demands. SECTION 3.3 Money for Payments To Be Held in Trust. As provided in Section 8.2 (a) and (b), all payments of amounts due and payable with respect to any Notes that are to be made from amounts withdrawn from the Principal and Interest Account or retained in the Adjustable Rate Note Account pursuant to Section 8.2(c) shall be made on behalf of the Issuer by the Indenture Trustee or by the Paying Agent, and no amounts so withdrawn from the Principal and Interest Account or retained in the Adjustable Rate Note Account for payments of Notes shall be paid over to the Issuer except as provided in this Section 3.3. On or before the second Business Day preceding each Payment Date and Redemption Date, the Indenture Trustee shall cause to be deposited in the Adjustable Rate Note Account an aggregate sum sufficient to pay the amounts due on such Payment Date under the Notes, such sum to be held in trust for the benefit of the Persons entitled thereto. Subject to the prior consent of the Note Insurer, any Paying Agent shall be appointed by Issuer Order with written notice thereof to the Indenture Trustee and the Note Insurer. Any Paying Agent appointed by the Issuer shall be a Person who would be eligible to be Indenture Trustee hereunder as provided in Section 6.11. The Issuer shall not appoint any Paying Agent (other than the Indenture Trustee) which is not, at the time of such appointment, a Designated Depository Institution. The Issuer will cause each Paying Agent to execute and deliver to the Indenture Trustee an instrument in which such Paying Agent shall agree with the Indenture Trustee (and if the Indenture Trustee acts as Paying Agent, it hereby so agrees), subject to the provisions of this Section 3.3, that such Paying Agent will: (i) hold all sums held by it for the payment of amounts due with respect to the Notes in trust for the benefit of the Owners entitled thereto until such sums shall be paid to such Owners or otherwise disposed of as herein provided and pay such sums to such Owners as herein provided; (ii) give the Indenture Trustee, the Rating Agencies and the Note Insurer notice of any default by the Issuer (or any other obligor upon the Notes) of which it has actual knowledge in the making of any payment required to be made with respect to the Notes; (iii) at any time during the continuance of any such default, upon the written request of the Indenture Trustee, forthwith pay to the Indenture Trustee all sums so held in trust by such Paying Agent; (iv) immediately resign as a Paying Agent and forthwith pay to the Indenture Trustee all sums held by it in trust for the payment of Notes if at any time it ceases to meet the standards required to be met by a Paying Agent at the time of its appointment; 15 (v) comply with all requirements of the Code with respect to the withholding from any payments made by it on any Notes of any applicable withholding taxes imposed thereon and with respect to any applicable reporting requirements in connection therewith; provided, however, that with respect to withholding and reporting requirements applicable to original issue discount (if any) on the Notes, the Issuer shall have first provided the calculations pertaining thereto to the Indenture Trustee; and (vi) not commence a bankruptcy proceeding against the Issuer in connection with this Indenture. The Issuer may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, by Issuer Order direct any Paying Agent to pay to the Indenture Trustee all sums held in trust by such Paying Agent, such sums to be held by the Indenture Trustee upon the same trusts as those upon which the sums were held by such Paying Agent; and upon such payment by any Paying Agent to the Indenture Trustee, such Paying Agent shall be released from all further liability with respect to such money. Subject to applicable laws with respect to escheat of funds or abandoned property, any money held by the Indenture Trustee or any Paying Agent in trust for the payment of any amount due with respect to any Note and remaining unclaimed for two years after such amount has become due and payable shall be discharged from such trust and be paid to the Issuer on Issuer Request; and the Owner of such Note shall thereafter, as an unsecured general creditor, look only to the Issuer for payment thereof (but only to the extent of the amounts so paid to the Issuer), and all liability of the Indenture Trustee or such Paying Agent with respect to such trust money shall thereupon cease; provided, however, that the Indenture Trustee or such Paying Agent, before being required to make any such repayment, shall at the expense and direction of the Issuer cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Issuer. The Indenture Trustee shall also adopt and employ, at the expense and direction of the Issuer, any other reasonable means of notification of such repayment (including, but not limited to, mailing notice of such repayment to Owners whose Notes have been called but have not been surrendered for redemption or whose right to or interest in moneys due and payable but not claimed is determinable from the records of the Indenture Trustee or of any Paying Agent, at the last address of record for each such Owner). SECTION 3.4 Existence. (a) Subject to subsection (b) of this Section 3.4, the Issuer will keep in full effect its existence, rights and franchises as a business trust under the laws of the State of Delaware (unless it becomes, or any successor Issuer hereunder is or becomes, organized under the laws of any other State or of the United States of America, in which case the Issuer will keep in full effect its existence, rights and franchises under the laws of such other jurisdiction) and will obtain and preserve its qualification to do business in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Indenture, the Notes and the Collateral. (b) Any successor to the Owner Trustee appointed pursuant to Section 10.2 of the Trust Agreement shall be the successor Owner Trustee under this Indenture without the execution or filing of any paper, instrument or further act to be done on the part of the parties hereto. 16 (c) Upon any consolidation or merger of or other succession to the Owner Trustee, the Person succeeding to the Owner Trustee under the Trust Agreement may exercise every right and power of the Owner Trustee under this Indenture with the same effect as if such Person had been named as the Owner Trustee herein. SECTION 3.5 Protection of Collateral. The Issuer will from time to time and upon the direction of the Note Insurer execute and deliver all such supplements and amendments hereto and all such financing statements, continuation statements, instruments of further assurance and other instruments, and will take such other action necessary or advisable to: (i) provide further assurance with respect to the Grant of all or any portion of the Collateral; (ii) maintain or preserve the lien and security interest (and the priority thereof) of this Indenture or carry out more effectively the purposes hereof; (iii) perfect, publish notice of or protect the validity of any Grant made or to be made by this Indenture; (iv) enforce any rights with respect to the Collateral; or (v) preserve and defend title to the Collateral and the rights of the Indenture Trustee, the Owners and the Note Insurer in such Collateral against the claims of all persons and parties. SECTION 3.6 Annual Opinions as to Collateral. On or before March 15 in each calendar year, beginning in 1999, the Issuer shall furnish to the Indenture Trustee and the Note Insurer an Opinion of Counsel either stating that, in the opinion of such counsel, such action has been taken with respect to the recording, filing, re-recording and refiling of this Indenture, any indentures supplemental hereto and any other requisite documents and with respect to the execution and filing of any financing statements and continuation statements as is necessary to maintain the lien and security interest created by this Indenture and reciting the details of such action or stating that in the opinion of such counsel no such action is necessary to maintain such lien and security interest. Such Opinion of Counsel shall also describe the recording, filing, re-recording and refiling of this Indenture, any indentures supplemental hereto and any other requisite documents and the execution and filing of any financing statements and continuation statements that will, in the opinion of such counsel, be required to maintain the lien and security interest of this Indenture until March 15 of the following calendar year. SECTION 3.7 Performance of Obligations; Servicing of Adjustable Rate Mortgage Loans. (a) The Issuer will not take any action and will use its best efforts not to permit any action to be taken by others that would release any Person from any of such Person's material covenants or obligations under any instrument or agreement included in the Collateral or that would result in the amendment, hypothecation, subordination, termination or discharge of, or impair the validity or effectiveness of, any such instrument or agreement, except as expressly provided in this Indenture, the Sale and Servicing Agreement or such other instrument or agreement. (b) Subject to the prior consent of the Note Insurer, the Issuer may contract with or otherwise obtain the assistance of other Persons to assist it in performing its duties under this Indenture, and any performance of such duties by a Person identified to the Indenture Trustee and the Note Insurer in an 17 Officer's Certificate of the Issuer shall be deemed to be action taken by the Issuer. Initially, the Issuer has contracted with the Servicer pursuant to the Sale and Servicing Agreement to assist the Issuer in performing its duties under this Indenture. (c) The Issuer will punctually perform and observe all of its obligations and agreements contained in this Indenture, the Operative Documents and in the instruments and agreements included in the Collateral, including but not limited to (i) filing or causing to be filed all UCC financing statements and continuation statements required to be filed by the terms of this Indenture and the Sale and Servicing Agreement and (ii) recording or causing to be recorded all Mortgages, Assignments of Mortgage, all intervening Assignments of Mortgage and all assumption and modification agreements required to be recorded by the terms of the Sale and Servicing Agreement, in accordance with and within the time periods provided for in this Indenture and/or the Sale and Servicing Agreement, as applicable. Except as otherwise expressly provided therein, the Issuer shall not waive, amend, modify, supplement or terminate any Operative Document or any provision thereof without the consent of the Indenture Trustee, the Note Insurer, and the Owners of at least a majority of the Outstanding Amount of the Notes. (d) If the Issuer shall have knowledge of the occurrence of an Event of Servicing Termination under the Sale and Servicing Agreement, the Issuer shall promptly notify the Indenture Trustee, the Note Insurer and the Rating Agencies thereof, and shall specify in such notice the action, if any, the Issuer is taking with respect of such default. If such Event of Servicing Termination shall arise from the failure of the Servicer to perform any of its duties or obligations under the Sale and Servicing Agreement with respect to the Adjustable Rate Mortgage Loans, the Issuer shall take all reasonable steps available to it to remedy such failure. (e) As promptly as possible after the giving of notice of termination to the Servicer of the Servicer's rights and powers pursuant to Section 4.20 of the Sale and Servicing Agreement, the Issuer, upon the prior written consent of or upon the direction of the Note Insurer, shall appoint a successor servicer (the "Successor Servicer") in accordance with the provisions of Section 4.21 of the Sale and Servicing Agreement. (f) Upon any termination of the Servicer's rights and powers pursuant to the Sale and Servicing Agreement, the Issuer shall promptly notify the Indenture Trustee and the Note Insurer. As soon as a Successor Servicer is appointed pursuant to Section 4.21 of the Sale and Servicing Agreement, the Issuer shall notify the Indenture Trustee and the Rating Agencies of such appointment, specifying in such notice the name and address of such Successor Servicer. (g) Without derogating from the absolute nature of the assignment granted to the Indenture Trustee under this Indenture or the rights of the Indenture Trustee hereunder, the Issuer agrees (i) that it will not, without the prior written consent of the Indenture Trustee and the Note Insurer, or, if a Note Insurer Default has occurred and is continuing, the Owners of at least a majority in Outstanding Amount of the Notes, amend, modify, waive, supplement, terminate or surrender, or agree to any amendment, modification, supplement, termination, waiver or surrender of, the terms of any Collateral (except to the extent otherwise provided in the Sale and Servicing Agreement) or the Operative Documents, or waive timely performance or observance by the Servicer or the Seller under the Sale and Servicing Agreement; and (ii) that any such amendment shall not (A) increase or reduce in any manner the amount of, or accelerate or delay the timing of, distributions that are required to be made for the benefit of the Owners or (B) reduce the aforesaid percentage of the Notes that is required to consent to any such amendment, without the consent of the Owners of all the outstanding Notes. If any such amendment, modification, supplement or waiver shall be 18 so consented to by the Indenture Trustee and the Note Insurer, the Issuer agrees, promptly following a request by the Indenture Trustee or the Note Insurer to do so, to execute and deliver, in its own name and at its own expense, such agreements, instruments, consents and other documents as the Indenture Trustee or the Note Insurer may deem necessary or appropriate in the circumstances. SECTION 3.8 Negative Covenants. So long as any Notes are Outstanding, the Issuer shall not: (i) except as expressly permitted by this Indenture, or the Sale and Servicing Agreement, sell, transfer, exchange or otherwise dispose of any of the properties or assets of the Issuer, including those included in the Collateral, unless directed to do so by the Indenture Trustee or the Note Insurer; (ii) claim any credit on, or make any deduction from the principal or interest payable in respect of, the Notes (other than amounts properly withheld from such payments under the Code) or assert any claim against any present or former Owner by reason of the payment of the taxes levied or assessed upon any part of the Collateral; (iii) engage in any business or activity other than as permitted by the Trust Agreement or other than in connection with, or relating to, the issuance of Notes pursuant to this Indenture, or amend the Trust Agreement as in effect on the Closing Date other than in accordance with Section 11.1 thereof, (iv) issue debt obligations under any indenture other than the Indenture dated as of June 1, 1998 (the "Fixed Rate Indenture"), between the Issuer and the Indenture Trustee relating to First Alliance Mortgage Loan Trust 1998-2, Fixed Rate Mortgage Loan Asset Backed Notes, Series 1998-2F, as contemplated by the Sale and Servicing Agreement; (v) incur or assume any indebtedness or guaranty any indebtedness of any Person, except for such indebtedness as may be incurred by the Issuer in connection with the issuance of the Notes pursuant to this Indenture or the Fixed Rate Indenture; (vi) dissolve or liquidate in whole or in part or merge or consolidate with any other Person; (vii) (A) permit the validity or effectiveness of this Indenture to be impaired, or permit the lien of this Indenture to be amended, hypothecated, subordinated, terminated or discharged, or permit any Person to be released from any covenants or obligations with respect to the Notes under this Indenture except as may be expressly permitted hereby, (B) permit any lien, charge, excise, claim, security interest, mortgage or other encumbrance (other than the lien of this Indenture) to be created on or extend to or otherwise arise upon or burden the Collateral or any part thereof or any interest therein or the proceeds thereof (other than tax liens, mechanics' liens and other liens that arise by operation of law, in each case on any of the Properties and arising solely as a result of an action or omission of the related Mortgagor) or (C) permit the lien of this Indenture not to constitute a valid first priority (other than with respect to any such tax, mechanics' or other lien) security interest in the Collateral; (viii) take any other action or fail to take any action which may cause the Issuer to be taxable as (a) an association pursuant to Section 7701 of the Code and the corresponding regulations or (b) as a taxable mortgage pool pursuant to Section 7701(i) of the Code and the corresponding regulations. 19 SECTION 3.9 Annual Statement as to Compliance. The Issuer will deliver to the Indenture Trustee and the Note Insurer, within 120 days after the end of each fiscal year of the Issuer (commencing with the 1999 fiscal year), an Officer's Certificate stating, as to the Authorized Officer signing such Officer's Certificate, that: (i) a review of the activities of the Issuer during such year and of its performance under this Indenture has been made under such Authorized Officer's supervision; and (ii) to the best of such Authorized Officer's knowledge, based on such review, the Issuer has complied with all conditions and covenants under the Indenture throughout such year, or, if there has been a default in its compliance with any such condition or covenant, specifying each such default known to such Authorized Officer and the nature and status thereof. SECTION 3.10 Covenants of the Issuer. All covenants of the Issuer in the Indenture are covenants of the Issuer and are not covenants of the Owner Trustee. The Owner Trustee is, and any successor Owner Trustee under the Trust Agreement will be, entering into this Indenture solely as Owner Trustee under the Trust Agreement and not in its respective individual capacity, and in no case whatsoever shall the Owner Trustee or any such successor Owner Trustee be personally liable on, or for any loss in respect of, any of the statements, representations, warranties or obligations of the Issuer hereunder, as to all of which the parties hereto agree to look solely to the property of the Issuer. SECTION 3.11 Investment Company Act. The Issuer shall not become an "investment company" or under the "control" of an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (or any successor or amendatory statute), and the rules and regulations thereunder (taking into account not only the general definition of the term "investment company" but also any available exceptions to such general definition); provided, however, that the Issuer shall be in compliance with this Section 3.11 if it shall have obtained an order exempting it from regulation as an "investment company" so long as it is in compliance with the conditions imposed in such order. SECTION 3.12 Restricted Payments. The Issuer shall not, directly or indirectly, (i) pay any dividend or make any distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, to the Owner Trustee or any owner of a beneficial interest in the Issuer or otherwise with respect to any ownership or equity interest or security in or of the Issuer or to the Servicer, (ii) redeem, purchase, retire or otherwise acquire for value any such ownership or equity interest or security or (iii) set aside or otherwise segregate any amounts for any such purpose; provided, however, that the Issuer may make, or cause to be made, distributions to the Servicer, the Indenture Trustee, the Owner Trustee, the Note Insurer, the Owners and the Certificateholders as contemplated by, and to the extent funds are available for such purpose under, the Sale and Servicing Agreement or the Trust Agreement. The Issuer will not, directly or indirectly, make or cause to be made payments to or distributions from the Principal and Interest Account except in accordance with this Indenture and the Operative Documents. SECTION 3.13 Treatment of Notes as Debt for Tax Purposes. The Issuer shall treat the Notes as indebtedness for all federal, state and local income and franchise tax purposes. SECTION 3.14 Notice of Events of Default. The Issuer shall give the Indenture Trustee, the Note Insurer and the Rating Agencies prompt written notice of each Event of Default hereunder and each default on the part of the Servicer or the Seller of its obligations under the Sale and Servicing Agreement. 20 SECTION 3.15 Further Instruments and Acts. Upon request of the Indenture Trustee or the Note Insurer, the Issuer will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. SECTION 3.16 No Other Business. The Issuer shall not engage in any business other than financing, purchasing, owning, selling and managing the Mortgage Loans and the issuance of the Notes pursuant to this Indenture, the Certificates issued pursuant to the Trust Agreement and the notes issued pursuant to the Fixed Rate Indenture in the manner contemplated by this Indenture and the Operative Documents and all activities incidental thereto. SECTION 3.17 No Borrowing. The Issuer shall not issue, incur, assume, guarantee or otherwise become liable, directly or indirectly, for any indebtedness except for the Notes, the notes issued pursuant to the Fixed Rate Indenture and amounts due to the Note Insurer under this Indenture, the Fixed Rate Indenture and the Insurance Agreement. SECTION 3.18 Guarantees, Loans, Advances and Other Liabilities. Except as contemplated by this Indenture, the Fixed Rate Indenture or the Operative Documents, the Issuer shall not make any loan or advance or credit to, or guarantee (directly or indirectly or by an instrument having the effect of assuring another's payment or performance on any obligation or capability of so doing or otherwise), endorse or otherwise become contingently liable, directly or indirectly, in connection with the obligations, stocks or dividends of, or own, purchase, repurchase or acquire (or agree contingently to do so) any stock, obligations, assets or securities of, or any other interest in, or make any capital contribution to, any other Person. SECTION 3.19 Capital Expenditures. The Issuer shall not make any expenditure (by long-term or operating lease or otherwise) for capital assets (either realty or personalty). ARTICLE IV SATISFACTION AND DISCHARGE SECTION 4.1 Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect with respect to the Notes (except as to (i) rights of registration of transfer and exchange, (ii) substitution of mutilated, destroyed, lost or stolen Notes, (iii) rights of Owners to receive payments of principal thereof and interest thereon, (iv) Sections 3.3, 3.4, 3.5, 3.8 and 3.10 hereof, (v) the rights, obligations and immunities of the Indenture Trustee hereunder (including the rights of the Indenture Trustee under Section 6.7 and the obligations of the Indenture Trustee under Section 4.2) and (vi) the rights of Owners as beneficiaries hereof with respect to the property so deposited with the Indenture Trustee payable to all or any of them), and the Indenture Trustee, on demand of and at the expense of the Issuer, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture with respect to the Notes, when all of the following have occurred: (A) either (1) all Notes theretofore authenticated and delivered (other than (i) Notes that have been destroyed, lost or stolen and that have been replaced or paid as provided in Section 2.4 and (ii) Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Issuer and thereafter repaid to the Issuer or discharged from such trust, as provided in Section 3.3) have been delivered to the Indenture Trustee for cancellation; or 21 (2) all Notes not theretofore delivered to the Indenture Trustee for cancellation a. have become due and payable, b. are to be called for redemption within one year under arrangements satisfactory to the Indenture Trustee for the giving of notice of redemption by the Indenture Trustee in the name, and at the expense, of the Issuer, and the Issuer, in the case of a. or b. above, has irrevocably deposited or caused to be irrevocably deposited with the Indenture Trustee cash or direct obligations of or obligations guaranteed by the United States of America (which will mature prior to the date such amounts are payable), in trust for such purpose, in an amount sufficient to pay and discharge the entire indebtedness on such Notes not theretofore delivered to the Indenture Trustee for cancellation when due to the Final Payment Date or Redemption Date (if Notes shall have been called for redemption pursuant to Section 10.1), as the case may be; (B) the later of (a) eighteen months after payment in full of all outstanding obligations under the Notes, (b) the payment in full, in respect of the Adjustable Rate Mortgage Loans, of all unpaid Indenture Trustee Fees and Premium Amounts and all sums owing to the Note Insurer under the Insurance Agreement and (c) the date on which the Issuer has paid or caused to be paid all other sums payable hereunder by the Issuer; and (C) the Issuer has delivered to the Indenture Trustee an Officer's Certificate, an Opinion of Counsel and (if required by the TIA or the Indenture Trustee) an Independent Certificate from a firm of certified public accountants, each meeting the applicable requirements of Section 11.1 and, subject to Section 11.2, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture with respect to the Notes have been complied with. SECTION 4.2 Application of Trust Money. All moneys deposited with the Indenture Trustee pursuant to Sections 3.3 and 4.3 hereof shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent, as the Indenture Trustee may determine, to the Owners of the Notes for the payment or redemption of which such moneys have been deposited with the Indenture Trustee, of all sums due and to become due thereon for principal and interest; but such moneys need not be segregated from other funds except to the extent required herein or in the Sale and Servicing Agreement or required by law. SECTION 4.3 Repayment of Moneys Held by Paying Agent. In connection with the satisfaction and discharge of this Indenture with respect to the Notes, all moneys then held by any Paying Agent other than the Indenture Trustee under the provisions of this Indenture with respect to such Notes shall, upon demand of the Issuer, be paid to the Indenture Trustee to be held and applied according to Section 3.3 and thereupon such Paying Agent shall be released from all further liability with respect to such moneys. ARTICLE V REMEDIES SECTION 5.1 Events of Default. "Event of Default," wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): 22 (a) default in the payment of any Current Interest on any Note when the same becomes due and payable (it being understood that any Available Funds Cap Carry-Forward Amount does not constitute interest due and payable); or (b) default in the payment of the Principal Payment Amount of any Note when the same becomes due and payable; or (c) default in the observance or performance of any covenant or agreement of the Issuer made in this Indenture (other than a covenant or agreement, a default in the observance or performance of which is elsewhere in this Section 5.1 specifically dealt with), or any representation or warranty of the Issuer made in this Indenture, the Insurance Agreement, the Sale and Servicing Agreement or in any certificate or other writing delivered pursuant hereto or in connection herewith proving to have been incorrect in any material respect as of the time when the same shall have been made, and such default shall continue or not be cured, or the circumstance or condition in respect of which such misrepresentation or warranty was incorrect shall not have been eliminated or otherwise cured, for a period of 30 days after there shall have been given, by registered or certified mail, to the Issuer by the Indenture Trustee or to the Issuer and the Indenture Trustee by the Owners of a majority of the Outstanding Amount of the Notes, a written notice specifying such default or incorrect representation or warranty and requiring it to be remedied and stating that such notice is a notice of Default hereunder; or (d) the filing of a decree or order for relief by a court having jurisdiction in the premises in respect of the Issuer or any substantial part of the Collateral in an involuntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Issuer or for any substantial part of the Collateral, or ordering the winding-up or liquidation of the Issuer's affairs, and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (e) the commencement by the Issuer of a voluntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or the consent by the Issuer to the entry of an order for relief in an involuntary case under any such law, or the consent by the Issuer to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Issuer or for any substantial part of the Collateral, or the making by the Issuer of any general assignment for the benefit of creditors, or the failure by the Issuer generally to pay its debts as such debts become due, or the taking of any action by the Issuer in furtherance of any of the foregoing. The Issuer shall deliver to the Indenture Trustee and the Note Insurer, within five days after the occurrence thereof, written notice in the form of an Officer's Certificate of any event which with the giving of notice and the lapse of time would become an Event of Default under clause (c) above, its status and what action the Issuer is taking or proposes to take with respect thereto. SECTION 5.2 Acceleration of Maturity; Rescission and Annulment. If an Event of Default should occur and be continuing, the Indenture Trustee (x) shall, at the direction or upon the prior written consent of the Note Insurer or, (y) may, if a Note Insurer Default has occurred and is continuing, at the direction of the Owners of Notes representing not less than a majority of the Outstanding Amount of the Notes declare all the Notes to be immediately due and payable, by a notice in writing to the Issuer (and to the Indenture Trustee if given by Owners), and upon any such declaration the unpaid principal amount of such Notes, together with accrued and unpaid interest thereon through the date of acceleration, shall become immediately due and payable. 23 At any time after such declaration of acceleration of maturity with respect to an Event of Default has been made and before a judgment or decree for payment of the money due has been obtained by the Indenture Trustee as hereinafter in this Article V provided, the Note Insurer or, if a Note Insurer Default exists, the Owners of Notes representing a majority of the Adjustable Rate Note Principal Balances of all Notes, by written notice to the Issuer and the Indenture Trustee, may waive the related Event of Default and rescind and annul such declaration and its consequences if: (a) the Issuer has paid or deposited with the Indenture Trustee a sum sufficient to pay: (i) all payments of principal of and interest on all Notes and all other amounts that would then be due hereunder or upon such Notes if the Event of Default giving rise to such acceleration had not occurred; and (ii) all sums paid or advanced by the Indenture Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee and its agents and counsel; and (iii) all Events of Default, other than the nonpayment of the principal of the Notes that has become due solely by such acceleration, have been cured or waived as provided in Section 5.12. No such rescission shall affect any subsequent default or impair any right consequent thereto. SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Indenture Trustee. (a) The Issuer covenants that if (i) default is made in the payment of any interest on any Note when the same becomes due and payable, and such default continues for a period of five days, or (ii) default is made in the payment of the principal of or any installment of the principal of any Note when the same becomes due and payable, the Issuer will, upon demand of the Indenture Trustee and at the direction of the Note Insurer, pay to the Indenture Trustee, for the benefit of the Owners of the Notes and the Note Insurer, the whole amount then due and payable on such Notes for principal and interest, with interest upon the overdue principal and, to the extent payment at such rate of interest shall be legally enforceable, upon overdue installments of interest at the rate borne by the Notes and in addition thereto such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee and the Note Insurer and their respective agents and counsel. (b) In case the Issuer shall fail forthwith to pay such amounts upon such demand, the Indenture Trustee, in its own name and as trustee of an express trust, shall at the direction of the Note Insurer, and if a Note Insurer Default has occurred and is continuing, the Indenture Trustee may, in its discretion, and shall at the direction of the Owners of the Notes representing a majority of the Outstanding Amount of the Notes, institute a Proceeding for the collection of the sums so due and unpaid, and may prosecute such Proceeding to judgment or final decree, and may enforce the same against the Issuer or other obligor upon such Notes and collect in the manner provided by law out of the property of the Issuer or other obligor upon such Notes, wherever situated, the moneys adjudged or decreed to be payable. (c) If an Event of Default occurs and is continuing, the Indenture Trustee shall, at the direction of the Note Insurer, and if a Note Insurer Default has occurred and is continuing, the Indenture Trustee may, 24 in its discretion, and shall at the direction of the Owners of the Notes representing a majority of the Outstanding Amount of the Notes, as more particularly provided in Section 5.4, proceed to protect and enforce its rights and the rights of the Note Insurer and the Owners, by such appropriate Proceedings as the Indenture Trustee shall deem most effective to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy or legal or equitable right vested in the Indenture Trustee by this Indenture or by law. (d) In case there shall be pending, relative to the Issuer or any other obligor upon the Notes or any Person having or claiming an ownership interest in the Collateral, Proceedings under Title 11 of the United States Code or any other applicable federal or state bankruptcy, insolvency or other similar law, or in case a receiver, assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or similar official shall have been appointed for or taken possession of the Issuer or its property or such other obligor or Person, or in case of any other comparable judicial Proceedings relative to the Issuer or other obligor upon the Notes, or to the creditors or property of the Issuer or such other obligor, the Indenture Trustee, irrespective of whether the principal of any Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Indenture Trustee shall have made any demand pursuant to the provisions of this Section, shall be entitled and empowered, upon the direction of the Note Insurer, by intervention in such Proceedings or otherwise: (i) to file and prove a claim or claims for the whole amount of principal and interest owing and unpaid in respect of the Notes and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Indenture Trustee (including any claim for reasonable compensation to the Indenture Trustee, each predecessor Indenture Trustee and the Note Insurer, and their respective agents, attorneys and counsel, and for reimbursement of all expenses and liabilities incurred, and all advances made, by the Indenture Trustee and each predecessor Indenture Trustee (except as a result of negligence or bad faith), the Note Insurer and of the Owners allowed in such Proceedings; (ii) unless prohibited by applicable law and regulations, to vote on behalf of the Owners of Notes in any election of a trustee, a standby trustee or Person performing similar functions in any such Proceedings; (iii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute all amounts received with respect to the claims of the Owners, the Note Insurer and the Indenture Trustee on their behalf; and (iv) to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Indenture Trustee, the Note Insurer or the Owners of Notes allowed in any judicial proceedings relative to the Issuer, its creditors and its property; and any trustee, receiver, liquidator, custodian or other similar official in any such Proceeding is hereby authorized by each of such Owners and the Note Insurer to make payments to the Indenture Trustee and, in the event that the Indenture Trustee shall consent to the making of payments directly to such Owners and the Note Insurer, to pay to the Indenture Trustee such amounts as shall be sufficient to cover reasonable compensation to the Indenture Trustee, each predecessor Indenture Trustee and their respective agents, 25 attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Indenture Trustee and each predecessor Indenture Trustee except as a result of negligence or bad faith. (e) Nothing herein contained shall be deemed to authorize the Indenture Trustee to authorize or consent to or vote for or accept or adopt on behalf of any Owner or the Note Insurer any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Owner thereof or the Note Insurer or to authorize the Indenture Trustee to vote in respect of the claim of any Owner in any such proceeding except, as aforesaid, to vote for the election of a trustee in bankruptcy or similar Person. (f) All rights of action and of asserting claims under this Indenture, or under any of the Notes, may be enforced by the Indenture Trustee without the possession of any of the Notes or the production thereof in any trial or other Proceedings relative thereto, and any such action or Proceedings instituted by the Indenture Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment, subject to the payment of the expenses, disbursements and compensation of the Indenture Trustee, each predecessor Indenture Trustee and their respective agents and attorneys, shall be for the ratable benefit of the Owners of the Notes and the Note Insurer. (g) In any Proceedings brought by the Indenture Trustee (and also any Proceedings involving the interpretation of any provision of this Indenture to which the Indenture Trustee shall be a party), the Indenture Trustee shall be held to represent all the Owners, and it shall not be necessary to make any Owner a party to any such Proceedings. SECTION 5.4 Remedies; Priorities. (a) If an Event of Default shall have occurred and be continuing, the Indenture Trustee shall, at the direction of the Note Insurer, and if a Note Insurer Default has occurred and is continuing, the Indenture Trustee may and at the direction of the Owners of the Notes representing a majority of the Outstanding Amount of the Notes shall, upon receipt of satisfactory indemnity and assurances, do one or more of the following (subject to Section 5.5): (i) institute Proceedings in its own name and as trustee of an express trust for the collection of all amounts then payable on the Notes or under this Indenture with respect thereto, whether by declaration or otherwise, enforce any judgment obtained, and collect from the Issuer and any other obligor upon such Notes moneys adjudged due; (ii) institute Proceedings from time to time for the complete or partial foreclosure of this Indenture with respect to the Collateral; (iii) exercise any remedies of a secured party under the UCC and take any other appropriate action to protect and enforce the rights and remedies of the Indenture Trustee, the Note Insurer or the Owners; and (iv) sell the Collateral or any portion thereof or rights or interest therein in a commercially reasonable manner, at one or more public or private sales called and conducted in any manner permitted by law; 26 provided, however, that, if a Note Insurer Default has occurred and is continuing, the Indenture Trustee may not sell or otherwise liquidate the Collateral following an Event of Default, unless (A) the Owners of 100% of the Outstanding Amount of the Notes consent thereto, (B) the proceeds of such sale or liquidation distributable to the Owners are sufficient to discharge in full all amounts then due and unpaid upon such Notes for principal and interest or (C) the Indenture Trustee determines that the Collateral will not continue to provide sufficient funds for the payment of principal of and interest on the Notes as they would have become due if the Notes had not been declared due and payable, and the Indenture Trustee obtains the consent of Owners of 66-2/3% of the Outstanding Amount of the Notes. In determining such sufficiency or insufficiency with respect to clauses (B) and (C), the Indenture Trustee may, but need not, obtain and rely upon an opinion of an Independent investment banking or accounting firm of national reputation as to the feasibility of such proposed action and as to the sufficiency of the Collateral for such purpose. (b) If the Indenture Trustee collects any money or property pursuant to this Article V, it shall pay out the money or property in the following order: FIRST: to the Indenture Trustee for the Indenture Trustee Fee relating to the Adjustable Rate Mortgage Loans then due and any costs or expenses incurred by it in connection with the enforcement of the remedies provided for in this Article V and to the Owner Trustee for the Owner Trustee Fee relating to the Adjustable Rate Mortgage Loans then due; SECOND: to the Note Insurer for the Premium Amount relating to the Adjustable Rate Mortgage Loans then due and unpaid; THIRD: to the Servicer for the Servicing Fee relating to the Adjustable Rate Mortgage Loans then due and unpaid; FOURTH: to Owners for amounts due and unpaid on the Notes for Current Interest, pro rata, according to the amounts due and payable on the Notes for interest; FIFTH: to Owners of the Notes for amounts due and unpaid on the Notes for principal, pro rata; SIXTH: to the Note Insurer for any amounts then due and payable under the Insurance Agreement; and SEVENTH: to Owners of the Notes for any Available Funds Cap Carry-Forward Amount then unpaid; and EIGHTH: to the Trust Paying Agent, for any amounts to be distributed, pro rata, to the Certificateholders. The Indenture Trustee may fix a record date and payment date for any payment to be made to the Owners pursuant to this Section. At least 15 days before such record date, the Indenture Trustee shall mail to each Owner, the Note Insurer and the Issuer a notice that states the record date, the payment date and the amount to be paid. 27 SECTION 5.5 Optional Preservation of the Collateral. If the Notes have been declared to be due and payable under Section 5.2 following an Event of Default and such declaration and its consequences have not been rescinded and annulled, the Indenture Trustee shall, if directed by the Note Insurer (or if a Note Insurer Default has occured and is continuing, the Indenture Trustee may, but need not) elect to maintain possession of the Collateral. It is the desire of the parties hereto and the Owners that there be at all times sufficient funds for the payment of principal of and interest on the Notes, and the Indenture Trustee shall take such desire into account when determining whether or not to maintain possession of the Collateral. In determining whether to maintain possession of the Collateral, the Indenture Trustee may, but need not, obtain and rely upon an opinion of an Independent investment banking or accounting firm of national reputation as to the feasibility of such proposed action and as to the sufficiency of the Collateral for such purpose. SECTION 5.6 Limitation of Suits. No Owner of any Note shall have any right to institute any Proceeding, judicial or otherwise, with respect to this Indenture or for the appointment of a receiver or trustee, or for any other remedy hereunder for so long as a Note Insurer Default has not occurred or is not continuing and if a Note Insurer Default has occurred and is continuing, unless: (a) such Owner has previously given written notice to the Indenture Trustee of a continuing Event of Default; (b) the Owners of a majority of the Outstanding Amount of the Notes have made written request to the Indenture Trustee to institute such Proceeding in respect of such Event of Default in its own name as Indenture Trustee hereunder; (c) such Owner or Owners have offered to the Indenture Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in complying with such request; (d) the Indenture Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute such Proceedings; and (e) no direction inconsistent with such written request has been given to the Indenture Trustee during such 60-day period by the Owners of a majority of the Outstanding Amount of the Notes. It is understood and intended that no one or more Owners of Notes shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Owners of Notes or to obtain or to seek to obtain priority or preference over any other Owners or to enforce any right under this Indenture, except in the manner herein provided. In the event the Indenture Trustee shall receive conflicting or inconsistent requests and indemnity from two or more groups of Owners of Notes, each representing less than a majority of the Outstanding Amount of the Notes, the Indenture Trustee in its sole discretion may determine what action, if any, shall be taken, notwithstanding any other provisions of this Indenture. SECTION 5.7 Unconditional Rights of Owners To Receive Principal and Interest. Notwithstanding any other provisions in this Indenture, the Owner of any Note shall have the right, which is absolute and unconditional, to receive payment of the principal of and interest, if any, on such Note on or after the Final Payment Date (or, in the case of redemption, on or after the Redemption Date) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Owner. 28 SECTION 5.8 Restoration of Rights and Remedies. If the Indenture Trustee, the Note Insurer or any Owner has instituted any Proceeding to enforce any right or remedy under this Indenture and such Proceeding has been discontinued or abandoned for any reason or has been determined adversely to the Indenture Trustee, the Note Insurer or to such Owner, then and in every such case the Issuer, the Indenture Trustee, the Note Insurer and the Owners shall, subject to any determination in such Proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Indenture Trustee and the Owners shall continue as though no such Proceeding had been instituted. SECTION 5.9 Rights and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Indenture Trustee, the Note Insurer or to the Owners is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 5.10 Delay or Omission Not a Waiver. No delay or omission of the Indenture Trustee, the Note Insurer or any Owner of any Note to exercise any right or remedy accruing upon any Default or Event of Default shall impair any such right or remedy or constitute a waiver of any such Default or Event of Default or an acquiescence therein. Every right and remedy given by this Article V or by law to the Indenture Trustee, the Note Insurer or to the Owners may be exercised from time to time, and as often as may be deemed expedient, by the Indenture Trustee, the Note Insurer or by the Owners, as the case may be, subject, in each case, however, to the right of the Note Insurer to control any such right and remedy, except as provided in Section 11.20. SECTION 5.11 Control by Note Insurer or Owners. The Note Insurer, or if a Note Insurer Default exists, the Owners of a majority of the Outstanding Amount of the Notes shall have the right to direct the time, method and place of conducting any Proceeding for any remedy available to the Indenture Trustee with respect to the Notes or exercising any trust or power conferred on the Indenture Trustee; provided that: (a) such direction shall not be in conflict with any rule of law or with this Indenture; (b) if a Note Insurer Default exists, subject to the express terms of Section 5.4, any direction to the Indenture Trustee to sell or liquidate the Collateral shall be by Owners of Notes representing not less than 100% of the Outstanding Amount of the Notes; (c) if the conditions set forth in Section 5.5 have been satisfied and the Indenture Trustee elects to retain the Collateral pursuant to such Section, then any direction to the Indenture Trustee by Owners of Notes representing less than 100% of the Outstanding Amount of the Notes to sell or liquidate the Collateral shall be of no force and effect; and (d) if a Note Insurer Default exists, the Indenture Trustee may take any other action deemed proper by the Indenture Trustee that is not inconsistent with such direction. Notwithstanding the rights of the Note Insurer and the Owners set forth in this Section, subject to Section 6.1, the Indenture Trustee need not take any action that it determines might involve it in liability, unless it receives assurances of sufficient indemnity or, if a Note Insurer Default exists, might materially adversely affect the rights of any Owners not consenting to such action. 29 SECTION 5.12 Waiver of Past Defaults. Prior to the declaration of the acceleration of the maturity of the Notes as provided in Section 5.2, the Note Insurer, or if a Note Insurer Default exists, the Owners of Notes representing not less than a majority of the Outstanding Amount of the Notes may waive any past Default or Event of Default and its consequences except a Default (a) in the payment of principal of or interest on any of the Notes or (b) during the existence of a Note Insurer Default, in respect of a covenant or provision hereof that cannot be modified or amended without the consent of the Owner of each Note. In the case of any such waiver, the Issuer, the Indenture Trustee, the Note Insurer and the Owners of the Notes shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereto. Upon any such waiver, such Default shall cease to exist and be deemed to have been cured and not to have occurred, and any Event of Default arising therefrom shall be deemed to have been cured and not to have occurred, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereto. SECTION 5.13 Undertaking for Costs. All parties to this Indenture agree, and each Owner of any Note by such Owner's acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Indenture Trustee for any action taken, suffered or omitted by it as Indenture Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to (a) any suit instituted by the Indenture Trustee or the Note Insurer, (b) any suit instituted by any Owner, or group of Owners, in each case holding in the aggregate more than 10% of the Outstanding Amount of the Notes or (c) any suit instituted by any Owner for the enforcement of the payment of principal of or interest on any Note on or after the respective due dates expressed in such Note and in this Indenture (or, in the case of redemption, on or after the Redemption Date). SECTION 5.14 Waiver of Stay or Extension Laws. The Issuer covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead or in any manner whatsoever, claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Issuer (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Indenture Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 5.15 Action on Notes. The Indenture Trustee's right to seek and recover judgment on the Notes or under this Indenture shall not be affected by the seeking, obtaining or application of any other relief under or with respect to this Indenture. Neither the lien of this Indenture nor any rights or remedies of the Indenture Trustee or the Owners shall be impaired by the recovery of any judgment by the Indenture Trustee against the Issuer or by the levy of any execution under such judgment upon any portion of the Collateral or upon any of the assets of the Issuer. Any money or property collected by the Indenture Trustee shall be applied in accordance with Section 5.4(b). SECTION 5.16 Performance and Enforcement of Certain Obligations. (a) Promptly following a request from the Indenture Trustee or the Note Insurer to do so, the Issuer shall take all such lawful action as the Indenture Trustee or the Note Insurer may request to compel 30 or secure the performance and observance by the Seller and the Servicer, as applicable, of each of their obligations to the Issuer under or in connection with the Sale and Servicing Agreement and to exercise any and all rights, remedies, powers and privileges lawfully available to the Issuer under or in connection with the Sale and Servicing Agreement to the extent and in the manner directed by the Indenture Trustee or the Note Insurer, including the transmission of notices of default on the part of the Seller or the Servicer thereunder and the institution of legal or administrative actions or proceedings to compel or secure performance by the Seller or the Servicer of each of their obligations under the Sale and Servicing Agreement. (b) If an Event of Default has occurred and is continuing, the Indenture Trustee may (with the consent of the Note Insurer), and at the direction of the Note Insurer (or if a Note Insurer Default exists, at the written direction (which direction shall be in writing or by telephone, confirmed in writing promptly thereafter) of the Owners of 66-2/3% of the Outstanding Amount of the Notes) shall, exercise all rights, remedies, powers, privileges and claims of the Issuer against the Seller or the Servicer under or in connection with the Sale and Servicing Agreement, including the right or power to take any action to compel or secure performance or observance by the Seller or the Servicer, as the case may be, of each of their obligations to the Issuer thereunder and to give any consent, request, notice, direction, approval, extension, or waiver under the Sale and Servicing Agreement and any right of the Issuer to take such action shall be suspended. ARTICLE VI THE INDENTURE TRUSTEE SECTION 6.1 Duties of Indenture Trustee. (a) If an Event of Default of which a Responsible Officer of the Indenture Trustee shall have actual knowledge has occurred and is continuing, the Indenture Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (i) the Indenture Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Indenture Trustee; and (ii) in the absence of bad faith on its part, the Indenture Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates (or similar documents) or opinions furnished to the Indenture Trustee and conforming to the requirements of this Indenture; however, the Indenture Trustee shall examine the certificates (or similar documents) and opinions to determine whether or not they conform to the requirements of this Indenture; provided that the Indenture Trustee shall not be responsible for the accuracy or content of any certificate (or similar document) or opinion furnished to it pursuant to the terms of this Indenture. (c) The Indenture Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: 31 (i) this paragraph does not limit the effect of paragraph (b) of this Section; (ii) the Indenture Trustee shall not be personally liable for any error of judgment made in good faith by a Responsible Officer unless it is proved that the Indenture Trustee was negligent in ascertaining the pertinent facts; and (iii) the Indenture Trustee shall not be personally liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 5.11 or for exercising or omitting to exercise any trust or power conferred upon the Indenture Trustee under this Indenture. (d) Every provision of this Indenture that in any way relates to the Indenture Trustee is subject to paragraphs (a), (b), (c) and (g) of this Section. (e) The Indenture Trustee shall not be liable for interest on any money received by it except as the Indenture Trustee may agree in writing with the Issuer and except to the extent of income or other gain on investments which are deposits in or certificates of deposit of the Indenture Trustee in its commercial capacity. (f) Money held in trust by the Indenture Trustee shall be segregated from other funds except to the extent permitted by law or the terms of this Indenture or the Sale and Servicing Agreement. (g) No provision of this Indenture shall require the Indenture Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it; provided, however, that the Indenture Trustee shall not refuse or fail to perform any of its duties hereunder solely as a result of nonpayment of its normal fees and expenses and further provided that nothing in this Section 6.1(g) shall be construed to limit the exercise by the Indenture Trustee of any right or remedy permitted under this Indenture or otherwise in the event of the Issuer's failure to pay the Indenture Trustee's fees and expenses pursuant to Section 6.7. In determining that such repayment or indemnity is not reasonably assured to it, the Indenture Trustee must consider not only the likelihood of repayment or indemnity by or on behalf of the Issuer but also the likelihood of repayment or indemnity from amounts payable to it from the Collateral pursuant to Section 6.7. (h) Every provision of this Indenture relating to the conduct of, affecting the liability of or affording protection to the Indenture Trustee shall be subject to the provisions of this Section and to the provisions of the TIA. SECTION 6.2 Rights of Indenture Trustee. (a) The Indenture Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Indenture Trustee need not investigate any fact or matter stated in the document. (b) Before the Indenture Trustee acts or refrains from acting, it may require an Officer's Certificate or an Opinion of Counsel, which shall not be at the expense of the Indenture Trustee. The 32 Indenture Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on an Officer's Certificate or Opinion of Counsel. (c) The Indenture Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys or a custodian or nominee and the Indenture Trustee shall not be responsible for any misconduct or negligence on the part of any such agent or attorney or custodian appointed by the Indenture Trustee with due care. (d) The Indenture Trustee shall not be liable for (i) any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers; provided, however, that such action or omission by the Indenture Trustee does not constitute willful misconduct, negligence or bad faith; or (ii) any willful misconduct or gross negligence on the part of the Custodian. SECTION 6.3 Individual Rights of Indenture Trustee. The Indenture Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Issuer or its Affiliates with the same rights it would have if it were not Indenture Trustee. Any Paying Agent, Note Registrar, co-registrar or co-paying agent may do the same with like rights. However, the Indenture Trustee must comply with Sections 6.11 and 6.12. SECTION 6.4 Indenture Trustee's Disclaimer. The Indenture Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, shall not be accountable for the Issuer's use of the proceeds from the Notes, or responsible for any statement of the Issuer in this Indenture or in any document issued in connection with the sale of the Notes or in the Notes other than the Indenture Trustee's certificate of authentication. SECTION 6.5 Notice of Defaults. If a Default occurs and is continuing and if it is known to a Responsible Officer of the Indenture Trustee, the Indenture Trustee shall mail to the Rating Agencies, the Note Insurer and each Owner notice of the Default within 90 days after it occurs. Except in the case of a Default in payment of principal of or interest on any Note (including payments pursuant to the mandatory redemption provisions of such Note), the Indenture Trustee may withhold the notice to each Owner if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of Owners. SECTION 6.6 Reports by Indenture Trustee to Owners. The Indenture Trustee shall deliver to each Owner such information as may be required to enable such Owner to prepare its federal and state income tax returns. SECTION 6.7 Compensation and Indemnity. The Indenture Trustee shall receive compensation for fees and reimbursement for expenses pursuant to Sections 3.5(b)(i)(A) and 3.5(b)(iv) of the Sale and Servicing Agreement. The Indenture Trustee and any director, officer, employee or agent of the Indenture Trustee shall be indemnified by the Issuer and held harmless against any loss, liability, or "unanticipated out-of-pocket" expense incurred or paid to third parties (which expenses shall not include salaries paid to employees, or allocable overhead, of the Indenture Trustee) in connection with the acceptance or administration of its trusts hereunder or the Notes, other than any loss, liability or expense incurred by reason of willful misfeasance, bad faith or negligence in the performance of duties hereunder or by reason of reckless disregard of obligations and duties hereunder. All such amounts described in the preceding sentence shall be payable as provided in Section 3.5(b)(iv) of the Sale and Servicing Agreement, subject to Section 6.1(g) of this Indenture. The provisions of this Section 6.7 shall survive the termination of this Indenture. 33 SECTION 6.8 Replacement of Indenture Trustee. No resignation or removal of the Indenture Trustee and no appointment of a successor Indenture Trustee shall become effective until the acceptance of appointment by the successor Indenture Trustee pursuant to this Section. The Note Insurer (or during the continuation of a Note Insurer Default, the Indenture Trustee may resign at any time by so notifying the Issuer, the Rating Agencies and the Note Insurer. The Owners of a majority of the Outstanding Amount of the Notes) may remove the Indenture Trustee by so notifying the Indenture Trustee and may appoint a successor Indenture Trustee. The Note Insurer (or the Issuer upon the prior written consent of the Note Insurer) may remove the Indenture Trustee if: (a) the Indenture Trustee fails to comply with Section 6.11; (b) the Indenture Trustee is adjudged a bankrupt or insolvent; (c) a receiver or other public officer takes charge of the Indenture Trustee or its property; or (d) the Indenture Trustee otherwise becomes incapable of acting. If the Indenture Trustee resigns or is removed, or if a vacancy exists in the office of Indenture Trustee for any reason (the Indenture Trustee in such event being referred to herein as the retiring Indenture Trustee), the Note Insurer may, or if the Note Insurer fails to do so, the Issuer, shall promptly appoint a successor Indenture Trustee acceptable to the Note Insurer. A successor Indenture Trustee shall deliver a written acceptance of its appointment to the retiring Indenture Trustee, the Note Insurer and to the Issuer. Thereupon the resignation or removal of the retiring Indenture Trustee shall become effective, and the successor Indenture Trustee shall have all the rights, powers and duties of the Indenture Trustee under this Indenture. The successor Indenture Trustee shall mail a notice of its succession to the Owners. The retiring Indenture Trustee shall promptly transfer all property held by it as Indenture Trustee to the successor Indenture Trustee. If a successor Indenture Trustee does not take office within 60 days after the retiring Indenture Trustee resigns or is removed, the retiring Indenture Trustee, the Issuer or the Owners of a majority of the Outstanding Amount of the Notes may petition any court of competent jurisdiction for the appointment of a successor Indenture Trustee acceptable to the Note Insurer. If the Indenture Trustee fails to comply with Section 6.11, the Note Insurer (or during the continuation of a Note Insurer Default, any Owner) may petition any court of competent jurisdiction for the removal of the Indenture Trustee and the appointment of a successor Indenture Trustee acceptable to the Note Insurer. Notwithstanding the replacement of the Indenture Trustee pursuant to this Section, the Issuer's obligations under Section 6.7 shall continue for the benefit of the retiring Indenture Trustee. Notwithstanding anything to the contrary herein, no resignation or removal of the Indenture Trustee shall be effective until a replacement Indenture Trustee acceptable to the Note Insurer has accepted his appointment as replacement Indenture Trustee. SECTION 6.9 Successor Indenture Trustee by Merger. If the Indenture Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act 34 shall be the successor Indenture Trustee; provided, that such corporation or banking association shall be otherwise qualified and eligible under Section 6.11. The Indenture Trustee shall provide the Note Insurer and the Rating Agencies prior written notice of any such transaction. In case at the time such successor or successors by merger, conversion or consolidation to the Indenture Trustee shall succeed to the trusts created by this Indenture any of the Notes shall have been authenticated but not delivered, any such successor to the Indenture Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Notes so authenticated; and in case at that time any of the Notes shall not have been authenticated, any successor to the Indenture Trustee may authenticate such Notes either in the name of any predecessor hereunder or in the name of the successor to the Indenture Trustee; and in all such cases such certificates shall have the full force provided in the Notes or in this Indenture. SECTION 6.10 Appointment of Co-Indenture Trustee or Separate Indenture Trustee. (a) Notwithstanding any other provisions of this Indenture, at any time, for the purpose of meeting any legal requirement of any jurisdiction in which any part of the Collateral may at the time be located, the Indenture Trustee shall have the power, with the prior written consent of the Note Insurer, and may execute and deliver all instruments to appoint one or more Persons to act as a co-trustee or co-trustees, or separate trustee or separate trustees, of all or any part of the Trust, and to vest in such Person or Persons, in such capacity and for the benefit of the Owners, such title to the Collateral, or any part hereof, and, subject to the other provisions of this Section, such powers, duties, obligations, rights and trusts as the Indenture Trustee may consider necessary or desirable. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 6.11 and no notice to Owners of the appointment of any co-trustee or separate trustee shall be required under Section 6.8 hereof; provided that the Indenture Trustee shall deliver notice of any such co-trustee or separate trustee to the Servicer and the Note Insurer. (b) Every separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (i) all rights, powers, duties and obligations conferred or imposed upon the Indenture Trustee shall be conferred or imposed upon and exercised or performed by the Indenture Trustee and such separate trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately without the Indenture Trustee joining in such act), except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed the Indenture Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Collateral or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate trustee or co-trustee, but solely at the direction of the Indenture Trustee; (ii) no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder; and (iii) the Indenture Trustee may at any time accept the resignation of or remove any separate trustee or co-trustee. 35 (c) Any notice, request or other writing given to the Indenture Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Indenture and the conditions of this Article VI. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, jointly with the Indenture Trustee, subject to all the provisions of this Indenture, specifically including every provision of this Indenture relating to the conduct of, affecting the liability of, or affording protection to, the Indenture Trustee. Every such instrument shall be filed with the Indenture Trustee. (d) Any separate trustee or co-trustee may at any time constitute the Indenture Trustee its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Indenture on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Indenture Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. SECTION 6.11 Eligibility; Disqualification. The Indenture Trustee shall at all times be acceptable to the Note Insurer and authorized to exercise corporate trust powers. The Indenture Trustee shall also satisfy the requirements of TIA Section 310(a) and have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition and it or its parent shall have a long-term debt rating of Baa3 or better by Moody's and BBB or better by Standard & Poor's. The Indenture Trustee shall comply with TIA Section 310(b), including the optional provision permitted by the second sentence of TIA Section 310(b)(9); provided, however, that there shall be excluded from the operation of TIA Section 310(b)(1) any indenture or indentures under which other securities of the Issuer are outstanding if the requirements for such exclusion set forth in TIA Section 310(b)(1) are met. If at any time the Indenture Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect specified in Section 6.8 hereof. SECTION 6.12 Preferential Collection of Claims Against Issuer. The Indenture Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). An Indenture Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated. SECTION 6.13 Tax Administration of the Issuer. The Servicer shall prepare and file (or cause to be prepared and filed), on behalf of the Owner Trustee, all tax returns and information reports, tax elections and such annual or other reports of the Issuer as are necessary for preparation of tax returns and information reports as provided in Section 5.5 of the Trust Agreement, including without limitation Form 1099. SECTION 6.14 Representations and Warranties. The Indenture Trustee hereby represents that: (i) The Indenture Trustee is duly organized and validly existing as a banking corporation in good standing under the laws of New York with power and authority to own its properties and to conduct its business as such properties are currently owned and such business is presently conducted; (ii) The Indenture Trustee has the power and authority to execute and deliver this Indenture and to carry out its terms; and the execution, delivery and performance of this Indenture have been duly authorized by the Indenture Trustee by all necessary corporate action; 36 (iii) The consummation of the transactions contemplated by this Indenture and the fulfillment of the terms hereof do not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under, the articles of organization or bylaws of the Indenture Trustee or any agreement or other instrument to which the Indenture Trustee is a party or by which it is bound; (iv) To the Indenture Trustee's best knowledge, there are no proceedings or investigations pending or threatened before any court, regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Indenture Trustee or its properties: (A) asserting the invalidity of this Indenture, (B) seeking to prevent the consummation of any of the transactions contemplated by this Indenture or (C) seeking any determination or ruling that might materially and adversely affect the performance by the Indenture Trustee of its obligations under, or the validity or enforceability of, this Indenture; and (v) This Indenture when executed by the Indenture Trustee, will constitute the legal, valid and binding obligation of the Indenture Trustee, enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and general equitable principles. SECTION 6.15 Directions to Indenture Trustee. The Indenture Trustee is hereby directed: (a) to accept the pledge of the Adjustable Rate Mortgage Loans and hold the assets of the Owner Trust Estate in trust for the Owners of the Notes and the Note Insurer; (b) to authenticate and deliver the Notes substantially in the form prescribed by Exhibit A in accordance with the terms of this Indenture; and (c) to take all other actions as shall be required to be taken by the terms of this Indenture. ARTICLE VII OWNERS' LISTS AND REPORTS SECTION 7.1 Issuer To Furnish Indenture Trustee Names and Addresses of Owners. The Issuer will furnish or cause to be furnished to the Indenture Trustee (a) not more than five days after each Record Date, a list, in such form as the Indenture Trustee may reasonably require, of the names and addresses of the Owners as of such Record Date, (b) at such other times as the Indenture Trustee may request in writing, within 30 days after receipt by the Issuer of any such request, a list of similar form and content as of a date not more than 10 days prior to the time such list is furnished; provided, however, that so long as the Indenture Trustee is the Note Registrar, no such list shall be required to be furnished. SECTION 7.2 Preservation of Information; Communications to Owners. (a) The Indenture Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of the Owners contained in the most recent list furnished to the Indenture Trustee as provided in Section 7.1 and the names and addresses of Owners received by the Indenture Trustee in its capacity as Note Registrar. The Indenture Trustee may destroy any list furnished to it as provided in such Section 7.1 upon receipt of a new list so furnished. 37 (b) Owners may communicate pursuant to TIA Section 312(b) with other Owners with respect to their rights under this Indenture or under the Notes. (c) The Issuer, the Indenture Trustee and the Note Registrar shall have the protection of TIA Section 312(c). SECTION 7.3 Reports by Issuer. The Issuer shall: (a) file with the Indenture Trustee and the Note Insurer, within 15 days after the Issuer is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) that the Issuer may be required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act; (b) file with the Indenture Trustee and the Note Insurer and the Commission in accordance with the rules and regulations prescribed from time to time by the Commission such additional information, documents and reports with respect to compliance by the Issuer with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (c) supply to the Indenture Trustee (and the Indenture Trustee shall transmit by mail to all Owners described in TIA Section 313(c)) such summaries of any information, documents and reports required to be filed by the Issuer pursuant to clauses (i) and (ii) of this Section 7.3(a) and by rules and regulations prescribed from time to time by the Commission. SECTION 7.4 Reports by Indenture Trustee. If required by TIA Section 313(a), within 60 days after each January 1, beginning with January 1, 1999, the Indenture Trustee shall mail to the Note Insurer and to each Owner as required by TIA Section 313(c) a brief report dated as of such date that complies with TIA Section 313(a). The Indenture Trustee also shall comply with TIA Section 313(b). A copy of each report at the time of its mailing to Owners shall be filed by the Indenture Trustee with the Commission and each securities exchange, if any, on which the Notes are listed. The Issuer shall notify the Indenture Trustee if and when the Notes are listed on any securities exchange. ARTICLE VIII ACCOUNTS, DISBURSEMENTS AND RELEASES SECTION 8.1 Collection of Money. (a) General. Except as otherwise expressly provided herein, the Indenture Trustee may demand payment or delivery of, and shall receive and collect, directly and without intervention or assistance of any fiscal agent or other intermediary, all money and other property payable to or receivable by the Indenture Trustee pursuant to this Indenture. The Indenture Trustee shall apply all such money received by it as provided in this Indenture. Except as otherwise expressly provided in this Indenture, if any default occurs in the making of any payment or performance under any agreement or instrument that is part of the Collateral, the Indenture Trustee may (with the consent of the Note Insurer), and upon written request of the Note Insurer shall, take such action as may be appropriate to enforce such payment or performance, including the institution and prosecution of appropriate Proceedings. Any such action shall be without prejudice to 38 any right to claim a Default or Event of Default under this Indenture and any right to proceed thereafter as provided in Article V. (b) Claims Under Adjustable Rate Note Insurance Policy. The Notes will be insured by the Adjustable Rate Note Insurance Policy pursuant to the terms set forth therein, notwithstanding any provisions to the contrary contained in this Indenture or the Sale and Servicing Agreement. All amounts received under the Adjustable Rate Note Insurance Policy shall be used solely for the payment to Owners of Insured Payments; provided, however that the Adjustable Rate Note Insurance Policy does not insure the payment of the Available Funds Cap Carry-Forward Amount. SECTION 8.2 Accounts; Distributions. (a) On or prior to the Closing Date, the Issuer shall cause the Servicer to establish and maintain, in the name of the Indenture Trustee for the benefit of the Owners and the Note Insurer, the Accounts as provided in the Sale and Servicing Agreement. The Indenture Trustee shall deposit amounts into the Accounts in accordance with the terms hereof and the Sale and Servicing Agreement. (b) On or before the Remittance Date prior to each Payment Date, the Servicer shall withdraw from the Principal and Interest Account the amounts specified in Section 3.3(a) of the Sale and Servicing Agreement and will deposit such amount into the Adjustable Rate Note Account. No later than the Business Day prior to each Payment Date, to the extent funds are available in the Adjustable Rate Note Account, the Indenture Trustee shall either retain funds in the Adjustable Rate Note Account or make the withdrawals from the Adjustable Rate Note Account and deposits into the other Accounts for distribution on such Payment Date as required pursuant to Section 3.3(b) of the Sale and Servicing Agreement. (c) On each Payment Date and the Redemption Date, to the extent funds are available in the Adjustable Rate Note Account, the Indenture Trustee shall make the following distributions from the amounts on deposit in the Adjustable Rate Note Account in the following order of priority (except as otherwise provided in Section 5.4(b)): (i) to the Owners of the Notes, the Current Interest for such Payment Date; provided, that if there are not sufficient funds in the Adjustable Rate Note Account to pay the entire amount of accrued and unpaid interest then due on the Notes, the amount in the Adjustable Rate Note Account shall be applied to the payment of such interest on the Notes pro rata on the basis of the total such interest due on the Notes; and (ii) to the Owners of the Notes, the Adjustable Rate Principal Payment Amount for such Payment Date. (d) The Indenture Trustee shall make claims in respect of the Adjustable Rate Mortgage Loans under the Adjustable Rate Note Insurance Policy pursuant to Section 3.3 of the Sale and Servicing Agreement and in accordance with the Adjustable Rate Note Insurance Policy. The Indenture Trustee shall deposit any Insured Payment received from the Note Insurer in respect of the Adjustable Rate Notes in the Policy Payments Account. All amounts received under the Adjustable Rate Note Insurance Policy shall be used solely for the payment to Owners of principal and interest on the Notes. 39 SECTION 8.3 General Provisions Regarding Accounts. (a) So long as no Default or Event of Default shall have occurred and be continuing, all or a portion of the funds in the Accounts shall be invested in Eligible Investments and reinvested by the Indenture Trustee at the direction of the Seller in accordance with the provisions of Section 3.6 of the Sale and Servicing Agreement. The Issuer will not direct the Indenture Trustee to make any investment of any funds or to sell any investment held in any of the Accounts unless the security interest Granted and perfected in such Account will continue to be perfected in such investment or the proceeds of such sale, in either case without any further action by any Person, and, in connection with any direction to the Indenture Trustee to make any such investment or sale. (b) Subject to Section 6.1(c), the Indenture Trustee shall not in any way be held liable by reason of any insufficiency in any of the Accounts resulting from any loss on any Eligible Investment included therein except for losses attributable to the Indenture Trustee's failure to make payments on such Eligible Investments issued by the Indenture Trustee, in its commercial capacity as principal obligor and not as trustee, in accordance with their terms. (c) If (i) the Seller shall have failed to give investment directions for any funds on deposit in the Accounts to the Indenture Trustee by 11:00 a.m. Eastern Time (or such other time as may be agreed by the Issuer and Indenture Trustee) on any Business Day or (ii) a Default or Event of Default shall have occurred and be continuing with respect to the Notes but the Notes shall not have been declared due and payable pursuant to Section 5.2 or (iii) if such Notes shall been declared due and payable following an Event of Default, amounts collected or receivable from the Collateral are being applied in accordance with Section 5.5 as if there had not been such a declaration, then the Indenture Trustee shall, to the fullest extent practicable, invest and reinvest funds in the Accounts in one or more Eligible Investments. SECTION 8.4 Monthly Statements. On each Payment Date (to the extent it receives the supporting documentation from the Servicer on a timely basis), the Indenture Trustee shall deliver the report required by Section 3.8 of the Sale and Servicing Agreement with respect to such Payment Date to the Seller, the Servicer, the Rating Agencies, and the Note Insurer. SECTION 8.5 Release of Collateral. (a) Subject to the payment of its fees and expenses pursuant to Section 6.7, the Indenture Trustee may, and when required by the provisions of this Indenture and the Sale and Servicing Agreement shall, execute instruments to release property from the lien of this Indenture, or convey the Indenture Trustee's interest in the same, in a manner and under circumstances that are not inconsistent with the provisions of this Indenture. No party relying upon an instrument executed by the Indenture Trustee as provided in this Article VIII shall be bound to ascertain the Indenture Trustee's authority, inquire into the satisfaction of any conditions precedent or see to the application of any moneys. (b) The Indenture Trustee shall, at such time as there are no Notes Outstanding and all sums due to the Note Insurer, the Indenture Trustee and the Owner Trustee in respect of the Notes have been paid, release any remaining portion of the Collateral that secured the Notes from the lien of this Indenture and release to the Issuer or any other Person entitled thereto any funds then on deposit in the Accounts. 40 (c) The Indenture Trustee shall release property from the lien of this Indenture pursuant to Subsection (b) above only upon receipt of an Issuer Request accompanied by an Officer's Certificate, an Opinion of Counsel and (if required by the TIA) Independent Certificates in accordance with TIA Sections 314(c) and 314(d)(1) meeting the applicable requirements of Section 11.1. SECTION 8.6 Opinion of Counsel. The Indenture Trustee and the Note Insurer shall receive at least seven Business Days notice when requested by the Issuer to take any action pursuant to Section 8.5(a), accompanied by copies of any instruments involved, and the Indenture Trustee shall also require, as a condition to such action, an Opinion of Counsel, in form and substance satisfactory to the Indenture Trustee, stating the legal effect of any such action, outlining the steps required to complete the same, and concluding that all conditions precedent to the taking of such action have been complied with and such action will not materially and adversely impair the security for the Notes or the rights of the Owners in contravention of the provisions of this Indenture; provided, however, that such Opinion of Counsel shall not be required to express an opinion as to the fair value of the Collateral. Counsel rendering any such opinion may rely, without independent investigation, on the accuracy and validity of any certificate or other instrument delivered to the Indenture Trustee in connection with any such action. ARTICLE IX SUPPLEMENTAL INDENTURES SECTION 9.1 Supplemental Indentures Without Consent of Owners. (a) Without the consent of the Owners of any Notes but with prior notice to the Rating Agencies and with the prior written consent of the Note Insurer, the Issuer and the Indenture Trustee, when authorized by an Issuer Order, at any time and from time to time, may enter into one or more indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act as in force at the date of the execution thereof), in form satisfactory to the Indenture Trustee, for any of the following purposes: (i) to correct or amplify the description of any property at any time subject to the lien of this Indenture, or better to assure, convey and confirm unto the Indenture Trustee any property subject or required to be subjected to the lien of this Indenture, or to subject to the lien of this Indenture additional property; (ii) to evidence the succession, in compliance with the applicable provisions hereof, of another person to the Issuer, and the assumption by any such successor of the covenants of the Issuer herein and in the Notes contained; (iii) to add to the covenants of the Issuer, for the benefit of the Owners of the Notes, or to surrender any right or power herein conferred upon the Issuer; (iv) to convey, transfer, assign, mortgage or pledge any property to or with the Indenture Trustee; (v) to cure any ambiguity, to correct or supplement any provision herein or in any supplemental indenture that may be inconsistent with any other provision herein or in any supplemental indenture or to make any other provisions with respect to 41 matters or questions arising under this Indenture or in any supplemental indenture; provided, that such action shall not adversely affect the interests of the Owners of the Notes; (vi) to evidence and provide for the acceptance of the appointment hereunder by a successor trustee with respect to the Notes and to add to or change any of the provisions of this Indenture as shall be necessary to facilitate the administration of the trusts hereunder by more than one trustee, pursuant to the requirements of Article VI; (vii) to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualification of the Indenture under the TIA or under any similar federal statute hereafter enacted and to add to the Indenture such other provisions as may be expressly required by the TIA; or (viii) to modify or alter the provisions of the definition of the term "Outstanding". The Indenture Trustee is hereby authorized to join in the execution of any such supplemental indenture and to make any further appropriate agreements and stipulations that may be therein contained. (b) The Issuer and the Indenture Trustee, with the prior written consent of the Note Insurer, when authorized by an Issuer Order, may, upon satisfaction of the Rating Agency Condition but without the consent of any of the Owners, enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, this Indenture or of modifying in any manner the rights of the Owners of the Notes under this Indenture; provided, however, that such action shall not, as evidenced by (i) an Opinion of Counsel or (ii) satisfaction of the Rating Agency Condition, adversely affect in any material respect the interests of any Owner. SECTION 9.2 Supplemental Indentures with Consent of Owners. The Issuer and the Indenture Trustee, when authorized by an Issuer Order, also may, with the prior consent of the Note Insurer and with the consent of the Owners of not less than a majority of the Outstanding Amount of the Notes, by Act of such Owners delivered to the Issuer and the Indenture Trustee, enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, this Indenture or of modifying in any manner the rights of the Owners of the Notes under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Owner of each Note affected thereby and the Note Insurer if affected thereby: (a) change the date of payment of any installment of principal of or interest on any Note, or reduce the principal amount thereof or, the Adjustable Rate Note Rate, change the provisions of this Indenture relating to the application of collections on, or the proceeds of the sale of, the Collateral to payment of principal of or interest on the Notes, or change any place of payment where, or the coin or currency in which, any Note or the interest thereon is payable, or impair the right to institute suit for the enforcement of the provisions of this Indenture requiring the application of funds available therefor, as provided in Article V, to the payment of any such amount due on the Notes on or after the respective due dates thereof (or, in the case of redemption, on or after the Redemption Date); 42 (b) reduce the percentage of the Outstanding Amount of the Notes, the consent of the Owners of which is required for any such supplemental indenture, or the consent of the Owners of which is required for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences provided for in this Indenture; (c) reduce the percentage of the Outstanding Amount of the Notes required to direct the Indenture Trustee to direct the Issuer to sell or liquidate the Collateral pursuant to Section 5.4; (d) modify any provision of this Section except to increase any percentage specified herein or to provide that certain additional provisions of this Indenture or the Operative Documents cannot be modified or waived without the consent of the Owner of each Note affected thereby; (e) modify any of the provisions of this Indenture in such manner as to affect the calculation of the amount of any payment of interest or principal due on any Note on any Payment Date (including the calculation of any of the individual components of such calculation) or to affect the rights of the Owners of Notes to the benefit of any provisions for the mandatory redemption of the Notes contained herein; or (f) permit the creation of any lien ranking prior to or on a parity with the lien of this Indenture with respect to any part of the Collateral or, except as otherwise permitted or contemplated herein, terminate the lien of this Indenture on any property at any time subject hereto or deprive the Owner of any Note of the security provided by the lien of this Indenture. The Indenture Trustee may in its discretion determine whether or not any Notes would be affected by any supplemental indenture and any such determination shall be conclusive upon the Owners of all Notes, whether theretofore or thereafter authenticated and delivered hereunder. The Indenture Trustee shall not be liable for any such determination made in good faith. In connection with requesting the consent of the Owners pursuant to this Section, the Indenture Trustee shall mail to the Owners of the Notes to which such amendment or supplemental indenture relates a notice setting forth in general terms the substance of such supplemental indenture. It shall not be necessary for any Act of Owners under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 9.3 Execution of Supplemental Indentures. In executing, or permitting the additional trusts created by, any supplemental indenture permitted by this Article IX or the modification thereby of the trusts created by this Indenture, the Indenture Trustee shall be entitled to receive, and subject to Sections 6.1 and 6.2, shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Indenture Trustee may, but shall not be obligated to, enter into any such supplemental indenture that affects the Indenture Trustee's own rights, duties, liabilities or immunities under this Indenture or otherwise. SECTION 9.4 Effect of Supplemental Indenture. Upon the execution of any supplemental indenture pursuant to the provisions hereof, this Indenture shall be deemed to be modified and amended in accordance therewith with respect to the Notes affected thereby, and the respective rights, limitations of rights, obligations, duties, liabilities and immunities under this Indenture of the Indenture Trustee, the Issuer and the Owners of the Notes shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental 43 indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. SECTION 9.5 Conformity with Trust Indenture Act. Every amendment of this Indenture and every supplemental indenture executed pursuant to this Article IX shall conform to the requirements of the Trust Indenture Act as then in effect so long as this Indenture shall then be qualified under the Trust Indenture Act. SECTION 9.6 Reference in Notes to Supplemental Indentures. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to this Article IX may, and if required by the Indenture Trustee shall, bear a notation in form approved by the Indenture Trustee as to any matter provided for in such supplemental indenture. If the Issuer or the Indenture Trustee shall so determine, new notes so modified as to conform, in the opinion of the Indenture Trustee and the Issuer, to any such supplemental indenture may be prepared and executed by the Issuer and authenticated and delivered by the Indenture Trustee in exchange for Notes. SECTION 9.7 Amendments to Trust Agreement. Subject to Section 11.1 of the Trust Agreement, the Indenture Trustee shall, upon Issuer Order, consent to any proposed amendment to the Trust Agreement or an amendment to or waiver of any provision of any other document relating to the Trust Agreement, such consent to be given without the necessity of obtaining the consent of the Owners of any Notes upon satisfaction of the requirements under Section 11.1 of the Trust Agreement. Nothing in this Section shall be construed to require that any Person obtain the consent of the Indenture Trustee to any amendment or waiver or any provision of any document where the making of such amendment or the giving of such waiver without obtaining the consent of the Indenture Trustee is not prohibited by this Indenture or by the terms of the document that is the subject of the proposed amendment or waiver. SECTION 9.8 Notice of Supplemental Indentures. The Indenture Trustee shall, upon execution thereof, provide notice of the form and substance of any Supplemental Indenture to each party hereto, the Note Insurer, the Rating Agencies and each Owner. ARTICLE X REDEMPTION OF NOTES SECTION 10.1 Redemption. The Servicer has the option to purchase all of the Collateral at the Redemption Price on the Redemption Date or any Payment Date thereafter pursuant to Section 5.2 of the Sale and Servicing Agreement. If the Servicer declines to exercise such option to purchase the Collateral, the Note Insurer may do so as provided in Section 5.2(c) of the Sale and Servicing Agreement. Upon such purchase by either the Servicer or the Note Insurer, the Issuer shall use the proceeds it receives to redeem the Notes, in whole and not in part, and terminate this Indenture. Any such redemption by the Servicer or the Note Insurer, as applicable, shall be accomplished by the Servicer or the Note Insurer, as applicable, depositing or causing to be deposited into the Principal and Interest Account by 10:00 A.M. New York City time on the Remittance Date prior to the Redemption Date (or such later Payment Date on which the Collateral is purchased) the amount of the Redemption Price. On the Payment Date after the date that the Redemption Price is deposited into the Principal and Interest 44 Account, the Redemption Price shall be transferred to the Adjustable Rate Note Account for distribution to the Owners on the Redemption Date; and any amounts received with respect to the Adjustable Rate Mortgage Loans and REO Properties subsequent to such transfer shall belong to the Servicer or the Note Insurer, as applicable. The Servicer or the Issuer shall furnish the Indenture Trustee, the Rating Agencies and the Note Insurer notice of any such redemption in accordance with Section 10.2 no later than 15 days prior to the Redemption Date. SECTION 10.2 Form of Redemption Notice. (a) Notice of redemption under Section 10.1 shall be given by the Indenture Trustee by first-class mail, postage prepaid, or by facsimile mailed or transmitted not later than 10 days prior to the applicable Redemption Date to each Owner of Notes, as of the close of business on the Record Date preceding the applicable Redemption Date, at such Owner's address or facsimile number appearing in the Note Register. All notices of redemption shall state: (i) the Redemption Date; (ii) the Redemption Price; and (iii) the place where such Notes are to be surrendered for payment of the Redemption Price (which shall be the office or agency of the Issuer to be maintained as provided in Section 3.2). Notice of redemption of the Notes shall be given by the Indenture Trustee in the name of the Issuer and at the expense of the Servicer. Failure to give notice of redemption, or any defect therein, to any Owner of any Note shall not impair or affect the validity of the redemption of any other Note SECTION 10.3 Notes Payable on Redemption Date; Provision for Payment of Indenture Trustee, Owner Trustee and Note Insurer. The Notes or portions thereof to be redeemed shall, following notice of redemption as required by Section 10.2 (in the case of redemption pursuant to Section 10.1), on the Redemption Date become due and payable at the Redemption Price and (unless the Issuer shall default in the payment of the Redemption Price) no interest shall accrue on the Redemption Price for any period after the date to which accrued interest is calculated for purposes of calculating the Redemption Price. The Issuer may not redeem the Notes unless, (i) all outstanding obligations under the Notes have been paid in full and (ii) the Indenture Trustee and the Owner Trustee have been paid all amounts in respect of the Notes to which they are entitled hereunder and the Note Insurer has been paid all Premium Amounts and Reimbursement Amounts to which it is entitled in respect of the Notes as of the applicable Redemption Date. SECTION 10.4 Notice of Final Payment. The Indenture Trustee shall provide notice to the Note Insurer, the Seller, the Servicer, the Rating Agencies and each Owner of the final payment under the Notes, whether by redemption, acceleration or payment of the Notes in accordance with their terms. 45 ARTICLE XI MISCELLANEOUS SECTION 11.1 Compliance Certificates and Opinions, etc. Upon any application or request by the Issuer to the Indenture Trustee to take any action under any provision of this Indenture, the Issuer shall furnish to the Indenture Trustee (i) an Officer's Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, and (ii) (if required by the TIA) an Independent Certificate from a firm of certified public accountants meeting the applicable requirements of this Section, except that, in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that each individual signing such certificate or opinion has read or has caused to be read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; and (3) a statement as to whether, in the opinion of each such signatory, such condition or covenant has been complied with. SECTION 11.2 Form of Documents Delivered to Indenture Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an Authorized Officer of the Issuer may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which such officer's certificate or opinion is based are erroneous. Any such certificate of an Authorized Officer or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Servicer, the Seller or the Issuer, stating that the information with respect to such factual matters is in the possession of the Servicer, the Seller or the Issuer, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. 46 Whenever in this Indenture, in connection with any application or certificate or report to the Indenture Trustee, it is provided that the Issuer shall deliver any document as a condition of the granting of such application, or as evidence of the Issuer's compliance with any term hereof, it is intended that the truth and accuracy, at the time of the granting of such application or at the effective date of such certificate or report (as the case may be), of the facts and opinions stated in such document shall in such case be conditions precedent to the right of the Issuer to have such application granted or to the sufficiency of such certificate or report. The foregoing shall not, however, be construed to affect the Indenture Trustee's right to rely upon the truth and accuracy of any statement or opinion contained in any such document as provided in Article VI. SECTION 11.3 Acts of Owners. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Owners may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Owners in person or by agents duly appointed in writing; and except as herein otherwise expressly provided such action shall become effective when such instrument or instruments are delivered in writing to the Indenture Trustee, and, where it is hereby expressly required, to the Issuer. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Owners signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.1) conclusive in favor of the Indenture Trustee and the Issuer, if made in the manner provided in this Section. (b) The fact and date of the execution by any person of any such instrument or writing may be proved in any manner that the Indenture Trustee deems sufficient. (c) The ownership of Notes shall be proved by the Note Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Owner of any Notes shall bind the Owner of every Note issued upon the registration thereof or in exchange therefor or in lieu thereof, in respect of anything done, omitted or suffered to be done by the Indenture Trustee or the Issuer in reliance thereon, whether or not notation of such action is made upon such Note. SECTION 11.4 Notices, etc., to Indenture Trustee, Issuer, Rating Agencies and Note Insurer. Any request, demand, authorization, direction, notice, consent, waiver or Act of Owners or other documents provided or permitted by this Indenture shall be in writing and if such request, demand, authorization, direction, notice, consent, waiver or act of Owners is to be made upon, given or furnished to or filed with: (a) the Indenture Trustee by any Owner or by the Issuer shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Indenture Trustee at its Corporate Trust Office, or (b) in the case of the Issuer, Rating Agencies or Note Insurer as provided in Section 6.16 of the Sale and Servicing Agreement. 47 SECTION 11.5 Notices to Owners; Waiver. Where this Indenture provides for notice to Owners of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class, postage prepaid to each Owner affected by such event, at his address as it appears on the Note Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Owners is given by mail, neither the failure to mail such notice nor any defect in any notice so mailed to any particular Owner shall affect the sufficiency of such notice with respect to other Owners, and any notice that is mailed in the manner herein provided shall conclusively be presumed to have been duly given. Where this Indenture provides for notice in any manner, such notice may be waived in writing by any Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Owners shall be filed with the Indenture Trustee but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such a waiver. In case, by reason of the suspension of regular mail service as a result of a strike, work stoppage or similar activity, it shall be impractical to mail notice of any event to Owners when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Indenture Trustee shall be deemed to be a sufficient giving of such notice. Where this Indenture provides for notice to the Rating Agencies, failure to give such notice shall not affect any other rights or obligations created hereunder, and shall not under any circumstance constitute a Default or Event of Default. SECTION 11.6 Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with another provision hereof that is required to be included in this Indenture by any of the provisions of the Trust Indenture Act, such required provision shall control. The provisions of TIA Sections 310 through 317 that impose duties on any person (including the provisions automatically deemed included herein unless expressly excluded by this Indenture) are a part of and govern this Indenture, whether or not physically contained herein. SECTION 11.7 Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 11.8 Successors and Assigns. All covenants and agreements in this Indenture and the Notes by the Issuer shall bind its successors and assigns, whether so expressed or not. All agreements of the Indenture Trustee in this Indenture shall bind its successors, co-trustees and agents. SECTION 11.9 Separability. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.10 Benefits of Indenture. Nothing in this Indenture or in the Notes, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, and the Owners, and any other party secured hereunder, and any other Person with an ownership interest in any part of the Collateral, any benefit or any legal or equitable right, remedy or claim under this Indenture, except that the Note Insurer is an express third party beneficiary to this Indenture as provided in Section 11.19. 48 SECTION 11.11 Legal Holidays. In any case where the date on which any payment is due shall not be a Business Day, then (notwithstanding any other provision of the Notes or this Indenture) payment need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the date on which nominally due, and no interest shall accrue for the period from and after any such nominal date. SECTION 11.12 Governing Law. THIS INDENTURE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. SECTION 11.13 Counterparts. This Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 11.14 Recording of Indenture. If this Indenture is subject to recording in any appropriate public recording offices, such recording is to be effected by the Issuer and at its expense accompanied by an Opinion of Counsel (which may be counsel to the Indenture Trustee or any other counsel reasonably acceptable to the Indenture Trustee) to the effect that such recording is necessary either for the protection of the Owners or any other Person secured hereunder or for the enforcement of any right or remedy granted to the Indenture Trustee under this Indenture. SECTION 11.15 Trust Obligation. No recourse may be taken, directly or indirectly, with respect to the obligations of the Issuer, the Owner Trustee or the Indenture Trustee on the Notes or under this Indenture or any certificate or other writing delivered in connection herewith or therewith, against (i) the Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any owner of a beneficial interest in the Issuer or (iii) any partner, owner, beneficiary, agent, officer, director, employee or agent of the Indenture Trustee or the Owner Trustee in its individual capacity, any Owner of a beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee or of any successor or assign of the Indenture Trustee or the Owner Trustee in its individual capacity, except as any such Person may have expressly agreed (it being understood that the Indenture Trustee and the Owner Trustee have no such obligations in their individual capacity) and except that any such partner, owner or beneficiary shall be fully liable, to the extent provided by applicable law, for any unpaid consideration for stock, unpaid capital contribution or failure to pay any installment or call owing to such entity. For all purposes of this Indenture, in the performance of any duties or obligations of the Issuer hereunder, the Owner Trustee shall be subject to, and entitled to the benefits of, the terms and provisions of Article VI, VII and VIII of the Trust Agreement. SECTION 11.16 No Petition. The Indenture Trustee, by entering into this Indenture, and each Owner, by accepting a Note, hereby covenant and agree that they will not at any time institute against the Issuer, or join in any institution against the Issuer of, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any United States federal or state bankruptcy or similar law in connection with any obligations relating to the Notes, this Indenture or any of the Operative Documents. SECTION 11.17 Inspection. The Issuer agrees that, on reasonable prior notice, it will permit any representative of the Indenture Trustee or the Note Insurer, during the Issuer's normal business hours, to examine all the books of account, records, reports and other papers of the Issuer, to make copies and extracts 49 therefrom, to cause such books to be audited by Independent certified public accountants, and to discuss the Issuer's affairs, finances and accounts with the Issuer's officers, employees, and Independent certified public accountants, all at such reasonable times and as often as may be reasonably requested. The Indenture Trustee shall and shall cause its representatives to hold in confidence all such information except to the extent disclosure may be required by law (and all reasonable applications for confidential treatment are unavailing) and except to the extent that the Indenture Trustee may reasonably determine that such disclosure is consistent with its obligations hereunder. SECTION 11.18 Grant of Owner Rights to Note Insurer. In consideration for the guarantee of the Notes by the Note Insurer pursuant to the Adjustable Rate Note Insurance Policy, the Owners hereby grant to the Note Insurer the right to act as the Owner of 100% of the outstanding Notes for the purpose of exercising the rights of the Owners of the Notes hereunder, including the voting rights of such Owners, but excluding those rights requiring the consent of all such Owners under Section 9.2 and any rights of such Owners to distributions under Section 8.2 hereof; provided that the preceding grant of rights to the Note Insurer by the Owners shall be subject to Section 11.20 hereof. The rights of the Note Insurer to direct certain actions and consent to certain actions of the Owners hereunder will terminate at such time as the Adjustable Rate Note Principal Balance has been reduced to zero and the Note Insurer has been reimbursed for all Insured Payments and any other amounts respecting the Notes owed under the Adjustable Rate Note Insurance Policy and the Insurance Agreement and the Note Insurer has no further obligation under the Adjustable Rate Note Insurance Policy. SECTION 11.19 Third Party Beneficiary. The parties hereto acknowledge that the Note Insurer is an express third party beneficiary hereof entitled to enforce any rights reserved to it hereunder as if it were actually a party hereto. SECTION 11.20 Suspension and Termination of Note Insurer's Rights. (a) During the continuation of a Note Insurer Default, rights granted or reserved to the Note Insurer hereunder shall vest instead in the Owners; provided that the Note Insurer shall be entitled to any distributions in reimbursement of the Reimbursement Amount, and the Note Insurer shall retain those rights under Section 9.2 hereof to consent to any supplement to this Indenture. (b) At such time as either (i) the Adjustable Rate Note Principal Balance has been reduced to zero or (ii) the Adjustable Rate Note Insurance Policy has been terminated following a Note Insurer Default, and in either case of (i) or (ii) the Note Insurer has been reimbursed for all Insured Payments and any other amounts respecting the Notes owed under the Adjustable Rate Note Insurance Policy and the Insurance Agreement (and the Note Insurer no longer has any obligation under the Adjustable Rate Note Insurance Policy, except for breach thereof by the Note Insurer), then the rights and benefits granted or reserved to the Note Insurer hereunder (including the rights to direct certain actions and receive certain notices) shall terminate and the Owners shall be entitled to the exercise of such rights and to receive such benefits of the Note Insurer following such termination to the extent that such rights and benefits are applicable to the Owners. SECTION 11.21 Certain Matters Regarding the Note Insurer. The provisions of Article VII of the Sale and Servicing Agreement, the extent applicable to this Indenture, are hereby incorporated by reference herein and each Owner by acceptance of its Notes agrees to the provisions contained in Article VII of the Sale and Servicing Agreement. 50 IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this Indenture to be duly executed by their respective officers, thereunto duly authorized and duly attested, all as of the day and year first above written. FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2 By: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee By: /s/ Debra Eberly ------------------------------ Name: Debra Eberly Title: Administrative Account Manager THE CHASE MANHATTAN BANK, as Indenture Trustee By: /s/ Diane E. Wallace -------------------- Name Diane E. Wallace Title: Trust Officer 51 STATE OF Delaware ) ) ss COUNTY OF New Castle ) BEFORE ME, the undersigned authority, a Notary Public in and for said county and state, on this day personally appeared Debra Eberly, known to me to be the person and officer whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said WILMINGTON TRUST COMPANY, not in its individual capacity, but solely as Owner Trustee on behalf of FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2, a Delaware business trust, and that such person executed the same as the act of said business trust for the purpose and consideration therein expressed, and in the capacities therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of June, 1998. /s/ Kathleen A. Pedelini ------------------------ Notary Public in and for the State of Delaware (Seal) My commission expires: October 31, 1998 STATE OF New York ) ) ss COUNTY OF New York ) BEFORE ME, the undersigned authority, a Notary Public in and for said county and state, on this day personally appeared Diane Wallace, known to me to be the person and officer whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of THE CHASE MANHATTAN BANK, a New York banking corporation and that such person executed the same as the act of said corporation for the purpose and consideration therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 29th day of June, 1998. /s/ Margaret M. Price --------------------- Notary Public in and for the State of New York (Seal) My commission expires: April 22, 1999 SCHEDULE A Available Upon Request to the Indenture Trustee EXHIBIT A Form of Note UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. Date of Indenture: As of June 1, 1998 Original Note Principal Balance: $________ First Payment Date: July 20, 1998 CUSIP No. __________ Denomination: $______________________ Note No: ___________
FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2 ADJUSTABLE RATE MORTGAGE LOAN ASSET-BACKED NOTES, SERIES 1998-2A FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2, a business trust organized and existing under the laws of the State of Delaware (herein referred to as the "Issuer"), for value received, hereby promises to pay to Cede & Co., or registered assigns, the principal sum of _____________ ($___________) payable on each Payment Date in an amount equal to the result obtained by multiplying (i) a fraction the numerator of which is $____________ and the denominator of which is $________________ by (ii) the aggregate amount, if any, payable under this Note pursuant to the Indenture dated as of June 1, 1998 (the "Indenture"), between the Issuer and The Chase Manhattan Bank, a New York banking corporation as Indenture Trustee (the "Indenture Trustee") relating to the Issuer's Adjustable Rate Mortgage Loan, Asset Backed Notes, Series 1998-2A; provided, however, that the entire unpaid principal amount of this Note shall be due and payable on the earlier of (i) the Payment Date occurring in __________ (the "Final Payment Date"), (ii) the Redemption Date, if any, pursuant to Article X of the Indenture or (iii) the date on which an Event of Default shall have occurred and be continuing, if the Note Insurer or in the event of a Note Insurer Default, the Indenture Trustee or the Owners of Notes representing not less than a majority of the Outstanding Amount of the Notes have declared the Notes to be immediately due and payable in the manner provided in Section 5.2 of the Indenture. Capitalized terms used but not defined herein are defined in Article I of the Indenture. Pursuant to the terms of the Indenture, payments will be made on the 20th day of each month or, if such day is not a Business Day, on the Business Day immediately following such 20th day (the "Payment Date"), commencing on the first Payment Date specified above, to the Person in whose name this Note is registered at the close of business on the applicable Record Date, in an amount equal to the product of (a) the Percentage Interest evidenced by this Note and (b) the sum of the Current Interest, Adjustable Rate Principal Payment Amount and any Insured Payment with respect to such Payment Date, all as more specifically set forth in the Indenture and the Sale and Servicing Agreement. The principal of and interest on this Note are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. All payments made by the Issuer with respect to this Note shall be applied first to interest due and payable on this Note as provided above and then to the unpaid principal of this Note. Reference is made to the further provisions of this Note set forth on the reverse hereof, which shall have the same effect as though fully set forth on the face of this Note. Unless the certificate of authentication hereon has been executed by the Indenture Trustee whose name appears below by manual signature, this Note shall not be entitled to any benefit under the Indenture referred to on the reverse hereof, or be valid or obligatory for any purpose. [Signatures follow] IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed, manually or in facsimile, by its Authorized Officer, as of the date set forth below. Date: ____________________ FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2 By: WILMINGTON TRUST COMPANY not in its individual capacity but solely as Owner Trustee under the Trust Agreement By: _______________________________ Authorized Signatory CERTIFICATE OF AUTHENTICATION This is one of the Notes designated above and referred to in the within-mentioned Indenture. Date: ____________________ THE CHASE MANHATTAN BANK, as Indenture Trustee By: ______________________________ Authorized Signatory [Reverse of Note] This Note is one of a Series of a duly authorized issue of Notes of the Issuer, designated as its Adjustable Rate Mortgage Loan Asset-Backed Notes, Series 1998-2A (herein called the "Notes"), issued under the Indenture, to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights and obligations thereunder of the Issuer, the Indenture Trustee and the Owners of the Notes. To the extent that any provision of this Note contradicts or is inconsistent with the provisions of the Indenture, the provisions of the Indenture shall control and supersede such contradictory or inconsistent provision herein. The Notes are subject to all terms of the Indenture. The Notes are and will be equally and ratably secured by the collateral pledged as security therefor as provided in the Indenture. Principal of the Notes will be payable on each Payment Date in an amount described on the face hereof. As described above, the entire unpaid principal amount of this Note shall be due and payable on the earlier of the Final Payment Date and the Redemption Date, if any, pursuant to Article X of the Indenture. Notwithstanding the foregoing, the entire unpaid principal amount of the Notes shall be due and payable on the date on which an Event of Default shall have occurred and be continuing and the Indenture Trustee, upon the prior written direction of Financial Security Assurance Inc. (the "Note Insurer") or, upon the occurrence of a Note Insurer Default, the Owners of the Notes representing not less than a majority of the Outstanding Amount of the Notes have declared the Notes to be immediately due and payable in the manner provided in Section 5.2 of the Indenture. All principal payments on the Notes shall be made pro rata to the Owners entitled thereto on the basis of their Adjustable Rate Note Principal Balance. The Note Insurer has issued an Adjustable Rate Note Insurance Policy in the name of the Indenture Trustee for the benefit of the Owners. Unless a Note Insurer Default shall be continuing, subject to Section 11.18 of the Indenture, the Note Insurer shall be deemed to be the Owner of 100% of the Adjustable Rate Note Principal Balance of the Outstanding Notes for the purpose of exercising the rights, including voting rights, of the Owners under the Indenture. In addition, on each Payment Date, after the Owners have been paid all amounts to which they are entitled, the Note Insurer will be entitled to be reimbursed for any unreimbursed Insured Payments and any other amounts owed under the Adjustable Rate Note Insurance Policy. Payments of interest on this Note are due and payable on each Payment Date, together with the installment of principal, if any, to the extent not in full payment of this Note, shall be made by check mailed to the Person whose name appears as the Owner of the Note (or one or more Predecessor Notes) on the Note Register as of the close of business on each Record Date, except that with respect to Notes registered on the Record Date in the name of the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.), payments will be made by wire transfer in immediately available funds to the account designated by such nominee. Such checks shall be mailed to the Person entitled thereto at the address of such Person as it appears on the Note Register as of the applicable Record Date without requiring that this Note be submitted for notation of payment. Any reduction in the principal amount of this Note (or any one or more Predecessor Notes) effected by any payments made on any Payment Date shall be binding upon all future Owners of this Note and of any Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not noted hereon. If funds are expected to be available, as provided in the Indenture, for payment in full of the then remaining unpaid principal amount of this Note on a Payment Date, then the Indenture Trustee, in the name of and on behalf of the Issuer, will notify the Person who was the Owner hereof as of the Record Date preceding such Payment Date by notice mailed or transmitted by facsimile prior to such Payment Date, and the amount then due and payable shall be payable only upon presentation and surrender of this Note at the Indenture Trustee's principal Corporate Trust Office or at the office of the Indenture Trustee's agent appointed for such purposes located in The City of New York. As provided in the Indenture, the Notes may be redeemed in whole, but not in part, at the option of the Servicer, on any Payment Date on and after the Redemption Date pursuant to Article X of the Indenture and Section 5.2 of the Sale and Servicing Agreement. If the Servicer declines to exercise such option, the Note Insurer may do so as provided in Article X of the Indenture and Section 5.2 of the Sale and Servicing Agreement. As provided in the Indenture and subject to certain limitations set forth therein, the transfer of this Note may be registered on the Note Register upon surrender of this Note for registration of transfer at the office or agency designated by the Issuer pursuant to the Indenture, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Indenture Trustee duly executed by the Owner hereof or such Owner's attorney duly authorized in writing, with such signature guaranteed by an "eligible guarantor institution" meeting the requirements of the Note Registrar, which requirements include membership or participation in the Securities Transfer Agent's Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Note Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended, and thereupon one more new Notes of authorized denominations and in the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge will be charged for any registration of transfer or exchange of this Note, but the transferor may be required to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any such registration of transfer or exchange. Each Owner, by acceptance of a Note or, in the case of a Book-Entry Owner, a beneficial interest in a Note, covenants and agrees that no recourse may be taken, directly or indirectly, with respect to the obligations of the Issuer, the Seller, the Servicer, the Owner Trustee or the Indenture Trustee on the Notes or under the Indenture or any certificate or other writing delivered in connection therewith, against (i) the Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any owner of a beneficial interest in the Issuer or (iii) any partner, owner, beneficiary, agent, officer, director or employee of the Indenture Trustee or the Owner Trustee in its individual capacity, any holder of a beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee or of any successor or assign of the Indenture Trustee or the Owner Trustee in its individual capacity, except as any such person may have expressly agreed and except that any such partner, owner or beneficiary shall be fully liable, to the extent provided by applicable law, for any unpaid consideration for stock, unpaid capital contribution or failure to pay any installment or call owing to such entity. Each Owner or Book-Entry Owner, by acceptance of a Note or, in the case of a Book-Entry Owner, a beneficial interest in a Note, covenants and agrees by accepting the benefits of the Indenture that such Owner or Book-Entry Owner will not at any time institute against the Seller, the Servicer, or the Issuer, or join in any institution against the Seller, the Servicer, or the Issuer of, any bankruptcy, reorganization, arrangement, insolvency or similar law in connection with any obligations relating to the Notes, the Indenture or any of the Operative Documents. The Issuer has entered into the Indenture and this Note is issued with the intention that, for federal, state and local income, single business and franchise tax purposes, the Notes will qualify as indebtedness of the Issuer secured by the Trust Estate. Each Owner, by acceptance of a Note (and each Book-Entry Owner by acceptance of a beneficial interest in a Note), agrees to treat the Notes for federal, state and local income, single business and franchise tax purposes as indebtedness of the Issuer. Prior to the due presentment for registration of transfer of this Note, the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture Trustee may treat the person in whose name this Note (as of the day of determination or as of such other date as may be specified in the Indenture) is registered as the owner hereof for all purposes, whether or not this Note be overdue, and none of the Issuer, the Indenture Trustee or any such agent shall be affected by notice to the contrary. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Issuer and the rights of the Owners of the Notes under the Indenture at any time by the Issuer with the consent of the Note Insurer and the Owner of Notes representing a majority of the Outstanding Amount of Notes. The Indenture also contains provisions permitting the Owners of Notes representing the majority of the Outstanding Amount of the Notes on behalf of the Owners of all the Notes to waive compliance by the Issuer with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Owner of this Note (or any one or more Predecessor Notes) shall be conclusive and binding upon such Owners and upon all future Owners of this Note and of any Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof whether or not notation of such consent or waiver is made upon this Note. The Indenture also permits the amendment thereof, in certain limited circumstances, or the waiver of certain terms and conditions set forth in the Indenture, without the consent of Owners of the Notes issued thereunder. The term "Issuer" as used in this Note includes any successor to the Issuer under the Indenture. The Notes are issuable only in registered form in denominations as provided in the Indenture, subject to certain limitations therein set forth. This Note and the Indenture shall be construed in accordance with the laws of the State of New York, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder and thereunder shall be determined in accordance with such laws. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and interest on this Note at the times, place and rate, and in the coin or currency herein prescribed. Anything herein to the contrary notwithstanding, except as expressly provided in the Operative Documents, none of the Issuer in its individual capacity, the Owner Trustee in its individual capacity, any owner of a beneficial interest in the Issuer, or any of their respective partners, beneficiaries, agents, officers, directors, employees or successors or assigns shall be personally liable for, nor shall recourse be had to any of them for, the payment of principal of or interest on this Note or performance of, or omission to perform, any of the covenants, obligations or indemnifications contained in the Indenture. The Owner of this Note by its acceptance hereof agrees that, except as expressly provided in the Operative Documents, in the case of an Event of Default under the Indenture, the Owner shall have no claim against any of the foregoing for any deficiency, loss or claim therefrom; provided, however, that nothing contained herein shall be taken to prevent recourse to, and enforcement against, the assets of the Issuer for any and all liabilities, obligations and undertakings contained in the Indenture or in this Note. ASSIGNMENT Social Security or Taxpayer I.D. or other identifying number of assignee: FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto: - - -------------------------------------------------------------------------------- (name and address of assignee) the within Note and all rights thereunder, and hereby irrevocably constitutes and appoints _______________________, attorney, to transfer said Note on the books kept for registration thereof, with full power of substitution in the premises. Dated: __________________*/ Signature Guaranteed: ________________________*/ */ NOTICE: The signature to this assignment must correspond with the name of the registered owner as it appears on the face of the within Note in every particular, without alteration, enlargement or any change whatever. Such signature must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Note Registrar, which requirements include membership or participation in STAMP or such other "signature guarantee program" as may be determined by the Note Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. EX-4.2 4 INDENTURE Exhibit 4.2 INDENTURE between FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2, as Issuer and THE CHASE MANHATTAN BANK, as Indenture Trustee Dated as of June 1, 1998 FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2 Fixed Rate Mortgage Loan Asset Backed Notes, Series 1998-2F TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE........................................................................2 SECTION 1.1 Definitions............................................................................2 SECTION 1.2 Incorporation by Reference of Trust Indenture Act......................................7 SECTION 1.3 Rules of Construction..................................................................8 ARTICLE II THE NOTES.........................................................................................................8 SECTION 2.1 Form...................................................................................8 SECTION 2.2 Execution, Authentication, Delivery and Dating.........................................8 SECTION 2.3 Registration; Registration of Transfer and Exchange....................................9 SECTION 2.4 Mutilated, Destroyed, Lost or Stolen Notes............................................10 SECTION 2.5 Persons Deemed Owners.................................................................11 SECTION 2.6 Payment of Principal and Interest; Defaulted Interest.................................11 SECTION 2.7 Cancellation..........................................................................12 SECTION 2.8 Authentication of Notes...............................................................12 SECTION 2.9 Release of Collateral.................................................................12 SECTION 2.10 Book-Entry Notes......................................................................13 SECTION 2.11 Notices to Clearing Agency............................................................13 SECTION 2.12 Definitive Notes......................................................................13 SECTION 2.13 Tax Treatment.........................................................................14 ARTICLE III COVENANTS........................................................................................................14 SECTION 3.1 Payment of Principal and Interest.....................................................14 SECTION 3.2 Maintenance of Office or Agency.......................................................14 SECTION 3.3 Money for Payments To Be Held in Trust................................................14 SECTION 3.4 Existence.............................................................................16 SECTION 3.5 Protection of Collateral..............................................................16 SECTION 3.6 Annual Opinions as to Collateral......................................................17 SECTION 3.7 Performance of Obligations; Servicing of Fixed Rate Mortgage Loans....................17 SECTION 3.8 Negative Covenants....................................................................18 SECTION 3.9 Annual Statement as to Compliance.....................................................19 SECTION 3.10 Covenants of the Issuer...............................................................19 SECTION 3.11 Investment Company Act................................................................20 SECTION 3.12 Restricted Payments...................................................................20 SECTION 3.13 Treatment of Notes as Debt for Tax Purposes...........................................20 SECTION 3.14 Notice of Events of Default...........................................................20 SECTION 3.15 Further Instruments and Acts..........................................................20 SECTION 3.16 No Other Business.....................................................................20 SECTION 3.17 No Borrowing..........................................................................20 SECTION 3.18 Guarantees, Loans, Advances and Other Liabilities. ..................................20 SECTION 3.19 Capital Expenditures..................................................................21
Page ARTICLE IV SATISFACTION AND DISCHARGE.......................................................................................21 SECTION 4.1 Satisfaction and Discharge of Indenture...............................................21 SECTION 4.2 Application of Trust Money............................................................22 SECTION 4.3 Repayment of Moneys Held by Paying Agent..............................................22 ARTICLE V REMEDIES.........................................................................................................22 SECTION 5.1 Events of Default.....................................................................22 SECTION 5.2 Acceleration of Maturity; Rescission and Annulment....................................23 SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Indenture Trustee.............24 SECTION 5.4 Remedies; Priorities..................................................................26 SECTION 5.5 Optional Preservation of the Collateral...............................................27 SECTION 5.6 Limitation of Suits...................................................................27 SECTION 5.7 Unconditional Rights of Owners To Receive Principal and Interest......................28 SECTION 5.8 Restoration of Rights and Remedies....................................................28 SECTION 5.9 Rights and Remedies Cumulative........................................................28 SECTION 5.10 Delay or Omission Not a Waiver........................................................28 SECTION 5.11 Control by Note Insurer or Owners.....................................................29 SECTION 5.12 Waiver of Past Defaults...............................................................29 SECTION 5.13 Undertaking for Costs.................................................................29 SECTION 5.14 Waiver of Stay or Extension Laws......................................................30 SECTION 5.15 Action on Notes.......................................................................30 SECTION 5.16 Performance and Enforcement of Certain Obligations....................................30 ARTICLE VI THE INDENTURE TRUSTEE............................................................................................31 SECTION 6.1 Duties of Indenture Trustee...........................................................31 SECTION 6.2 Rights of Indenture Trustee...........................................................32 SECTION 6.3 Individual Rights of Indenture Trustee................................................32 SECTION 6.4 Indenture Trustee's Disclaimer........................................................32 SECTION 6.5 Notice of Defaults....................................................................33 SECTION 6.6 Reports by Indenture Trustee to Owners................................................33 SECTION 6.7 Compensation and Indemnity............................................................33 SECTION 6.8 Replacement of Indenture Trustee......................................................33 SECTION 6.9 Successor Indenture Trustee by Merger.................................................34 SECTION 6.10 Appointment of Co-Indenture Trustee or Separate Indenture Trustee.....................34 SECTION 6.11 Eligibility; Disqualification.........................................................35 SECTION 6.12 Preferential Collection of Claims Against Issuer......................................36 SECTION 6.13 Tax Administration of the Issuer......................................................36 SECTION 6.14 Representations and Warranties........................................................36 SECTION 6.15 Directions to Indenture Trustee.......................................................37
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Page ARTICLE VII OWNERS' LISTS AND REPORTS........................................................................................37 SECTION 7.1 Issuer To Furnish Indenture Trustee Names and Addresses of Owners.....................37 SECTION 7.2 Preservation of Information; Communications to Owners.................................37 SECTION 7.3 Reports by Issuer.....................................................................37 SECTION 7.4 Reports by Indenture Trustee..........................................................38 ARTICLE VIII ACCOUNTS, DISBURSEMENTS AND RELEASES.............................................................................38 SECTION 8.1 Collection of Money...................................................................38 SECTION 8.2 Accounts; Distributions...............................................................38 SECTION 8.3 General Provisions Regarding Accounts.................................................39 SECTION 8.4 Monthly Statements....................................................................40 SECTION 8.5 Release of Collateral.................................................................40 SECTION 8.6 Opinion of Counsel....................................................................40 ARTICLE IX SUPPLEMENTAL INDENTURES..........................................................................................41 SECTION 9.1 Supplemental Indentures Without Consent of Owners.....................................41 SECTION 9.2 Supplemental Indentures With Consent of Owners........................................42 SECTION 9.3 Execution of Supplemental Indentures..................................................43 SECTION 9.4 Effect of Supplemental Indenture......................................................43 SECTION 9.5 Conformity with Trust Indenture Act...................................................43 SECTION 9.6 Reference in Notes to Supplemental Indentures.........................................43 SECTION 9.7 Amendments to Trust Agreement.........................................................44 SECTION 9.8 Notice of Supplemental Indentures.....................................................44 ARTICLE X REDEMPTION OF NOTES..............................................................................................44 SECTION 10.1 Redemption. ..........................................................................44 SECTION 10.2 Form of Redemption Notice.............................................................44 SECTION 10.3 Notes Payable on Redemption Date; Provision for Payment of Indenture Trustee, Owner Trustee and Note Insurer...............................................45 SECTION 10.4 Notice of Final Payment...............................................................45 ARTICLE XI MISCELLANEOUS....................................................................................................45 SECTION 11.1 Compliance Certificates and Opinions, etc.............................................46 SECTION 11.2 Form of Documents Delivered to Indenture Trustee......................................46 SECTION 11.3 Acts of Owners........................................................................46 SECTION 11.4 Notices, etc., to Indenture Trustee, Issuer, Rating Agencies and Note Insurer..........................................................................47 SECTION 11.5 Notices to Owners; Waiver.............................................................47 SECTION 11.6 Conflict with Trust Indenture Act.....................................................48 SECTION 11.7 Effect of Headings and Table of Contents..............................................48
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Page SECTION 11.8 Successors and Assigns................................................................48 SECTION 11.9 Separability..........................................................................48 SECTION 11.10 Benefits of Indenture.................................................................48 SECTION 11.11 Legal Holidays........................................................................48 SECTION 11.12 Governing Law.........................................................................48 SECTION 11.13 Counterparts..........................................................................48 SECTION 11.14 Recording of Indenture................................................................49 SECTION 11.15 Trust Obligation......................................................................49 SECTION 11.16 No Petition...........................................................................49 SECTION 11.17 Inspection............................................................................49 SECTION 11.18 Grant of Owner Rights to Note Insurer.................................................49 SECTION 11.19 Third Party Beneficiary...............................................................50 SECTION 11.20 Suspension and Termination of Note Insurer's Rights...................................50 SECTION 11.21 Certain Matters Regarding the Note Insurer............................................50 EXHIBITS SCHEDULE A - Schedule of Fixed Rate Mortgage Loans EXHIBIT A - Form of Note
iv INDENTURE (this "Indenture" or this "Agreement") dated as of June 1, 1998, between FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2, a Delaware business trust (the "Issuer"), and THE CHASE MANHATTAN BANK, a New York banking corporation, as trustee and not in its individual capacity (the "Indenture Trustee"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Owners of the First Alliance Mortgage Loan Trust 1998-2 Fixed Rate Mortgage Loan Asset Backed Notes, Series 1998-2F and the Note Insurer. GRANTING CLAUSE Subject to the terms of this Indenture, the Issuer hereby Grants to the Indenture Trustee on the Closing Date, as Indenture Trustee for the benefit of the Owners of the Notes and the Note Insurer (and for the benefit of the owners of the Adjustable Rate Notes and the Note Insurer to the limited extent provided in the Sale and Servicing Agreement), all of the Issuer's right, title and interest whether now existing or hereafter acquired in and to: (i) the Trust Estate; (ii) all right, title and interest of the Issuer in the Sale and Servicing Agreement relating to the Fixed Rate Mortgage Loans (including the Issuer's right to cause the Seller to repurchase Fixed Rate Mortgage Loans from the Issuer under certain circumstances described therein); (iii) with respect to the Fixed Rate Mortgage Loans, all present and future claims, demands, causes of action and choses in action in respect of any or all of the foregoing and all payments on or under and all proceeds of every kind and nature whatsoever in respect of any or all of the foregoing, including all proceeds of the conversion thereof, voluntary or involuntary, into cash or other liquid property, all cash proceeds, accounts, accounts receivable, notes, drafts, acceptances, chattel paper, checks, deposit accounts, insurance proceeds, condemnation awards, rights to payment of any and every kind and other forms of obligations and receivables, instruments and other property which at any time constitute all or part of or are included in the proceeds of any of the foregoing; (iv) all funds on deposit from time to time in the Accounts relating to the Fixed Rate Mortgage Loans or the Notes (including the Fixed Rate Note Account) and (v) all other property of the Trust relating to the Fixed Rate Mortgage Loans from time to time (collectively, the "Collateral"). The foregoing Grant is made in trust to secure (i) the payment of principal of and interest on, and any other amounts owing in respect of, the Notes, and the Adjustable Rate Notes to the limited extent provided in the Sale and Servicing Agreement, equally and ratably without prejudice, priority or distinction, (ii) the payment of all other amounts payable under this Indenture, (iii) compliance with the provisions of this Indenture, all as provided in this Indenture and (iv) the payment of any amounts due to the Note Insurer in accordance with the Sale and Servicing Agreement. The Indenture Trustee, as Indenture Trustee on behalf of the Owners of the Notes and the Note Insurer, acknowledges such Grant, accepts the trusts hereunder and agrees to perform its duties required in this Indenture to the best of its ability to the end that the interests of the Owners of the Notes and the Note Insurer may be adequately and effectively protected. The Indenture Trustee agrees that it will hold the Fixed Rate Note Insurance Policy in trust and that it will hold any proceeds of any claim made upon the Fixed Rate Note Insurance Policy solely for the use and benefit of the Owners of the Notes in accordance with the terms hereof and the terms of the Fixed Rate Note Insurance Policy. The Indenture Trustee agrees and acknowledges that the Files will be held by the Custodian, as agent of the Indenture Trustee, in trust, for the use and benefit of the Issuer, the Note Insurer and all present and future Owners of the Notes, in New York, New York. The Indenture Trustee further agrees and acknowledges that each other item of Collateral that is physically delivered to the Indenture Trustee will be held by the Indenture Trustee in New York, New York. 1 The Indenture Trustee further acknowledges that in the event the conveyance of the Fixed Rate Mortgage Loans by the Seller to the Issuer pursuant to the Trust Agreement is determined to constitute a financing, the Indenture Trustee holds the Fixed Rate Mortgage Loans as the designee of the Issuer, subject, however, to a prior lien in favor of the Owners of the Notes and the Note Insurer. ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.1 Definitions. Except as otherwise specified herein or as the context may otherwise require, the following terms have the respective meanings set forth below for all purposes of this Indenture. "Act": The meaning specified in Section 11.3(a) hereof. "Adjustable Rate Indenture": The meaning specified in Section 3.8(iv) hereof. "Affiliate": With respect to any specified Person, any other Person controlling or controlled by or under common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Authorized Officer": With respect to the Issuer, any officer of the Owner Trustee who is authorized to act for the Owner Trustee in matters relating to the Issuer and who is identified on the list of Authorized Officers delivered by the Owner Trustee to the Indenture Trustee on the Closing Date (as such list may be modified or supplemented from time to time thereafter). "Book-Entry Notes": A beneficial interest in the Notes, the ownership and transfer of which shall be made through book entries by a Clearing Agency as described in Section 2.10. "Book-Entry Owner": With respect to a Book-Entry Note, the Person who is the beneficial owner of such Book-Entry Note, as reflected on the books of the Clearing Agency or on the books of a Person maintaining an account with such Clearing Agency (directly as a Clearing Agency Participant or as an indirect participant, in each case in accordance with the rules of such Clearing Agency). "Business Day": Any day other than a Saturday, Sunday or a day on which commercial banking institutions in the States of New York or California or in the city in which the Corporate Trust Office is located or the city in which the principal office of the Note Insurer is located are authorized or obligated by law or executive order to be closed. "Certificate of Trust": The certificate of trust of the Issuer substantially in the form of Exhibit A to the Trust Agreement. "Clearing Agency": An organization registered as a "clearing agency" pursuant to Section 17A of the Exchange Act. "Clearing Agency Participant": A broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of securities deposited with the Clearing Agency. 2 "Closing Date": June 26, 1998. "Code": The Internal Revenue Code of 1986, as amended from time to time, and the Treasury Regulations promulgated thereunder. "Collateral": The meaning specified in the Granting Clause of this Indenture. "Corporate Trust Office": The principal office of the Indenture Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of execution of this Agreement is located at 450 West 33rd Street, New York, New York 10001, Attention: First Alliance Mortgage Loan Trust 1998-2 - Fixed Rate Notes, or at such other address as the Indenture Trustee may designate from time to time by notice to the Owners and the Issuer, or the principal corporate trust office of any successor Indenture Trustee at the address designated by such successor Indenture Trustee by notice to the Owners, the Note Insurer and the Issuer. "Default": Any occurrence that is, or with notice or the lapse of time or both would become, an Event of Default. "Definitive Notes": The meaning specified in Section 2.12. "Event of Default": The meaning specified in Section 5.1 hereof. "Exchange Act": The Securities Exchange Act of 1934, as amended. "Final Payment Date": September 20, 2029. "Grant": To mortgage, pledge, bargain, sell, warrant, alienate, remise, release, convey, assign, transfer, create, and grant a lien upon and a security interest in and right of set-off against, deposit, set over and confirm pursuant to this Indenture. A Grant of the Collateral or of any other agreement or instrument shall include all rights, powers and options (but none of the obligations) of the granting party thereunder, including the immediate and continuing right to claim for, collect, receive and give receipt for principal and interest payments in respect of the Collateral and all other moneys payable thereunder, to give and receive notices and other communications, to make waivers or other agreements, to exercise all rights and options, to bring Proceedings in the name of the granting party or otherwise, and generally to do and receive anything that the granting party is or may be entitled to do or receive thereunder or with respect thereto. "Indenture Trustee": The Chase Manhattan Bank, a New York banking corporation, as Indenture Trustee under this Indenture, or any successor Indenture Trustee under this Indenture. "Independent": When used with respect to any specified Person, that the Person (a) is in fact independent of the Issuer, any other obligor on the Notes, the Seller and any Affiliate of any of the foregoing Persons, (b) does not have any direct financial interest or any material indirect financial interest in the Issuer, any such other obligor, the Seller or any Affiliate of any of the foregoing Persons and (c) is not connected with the Issuer, any such other obligor, the Seller or any Affiliate of any of the foregoing Persons as an officer, employee, promoter, underwriter, trustee, partner, director or person performing similar functions. "Independent Certificate": A certificate or opinion to be delivered to the Indenture Trustee under the circumstances described in, and otherwise complying with, the applicable requirements of Section 11.1, made by an Independent appraiser or other expert appointed by an Issuer Order and approved by the 3 Indenture Trustee in the exercise of reasonable care, and such opinion or certificate shall state that the signer has read the definition of "Independent" in this Indenture and that the signer is Independent within the meaning thereof. "Issuer": First Alliance Mortgage Loan Trust 1998-2 until a successor replaces it and, thereafter, means the successor and, for purposes of any provision contained herein and required by the TIA, each other obligor on the Notes. "Issuer Order" and "Issuer Request": A written order or request signed in the name of the Issuer by any one of its Authorized Officers and delivered to the Indenture Trustee. "Moody's": Moody's Investor Service, Inc., and any successor thereto. "Note": The Issuer's Fixed Rate Mortgage Loan Asset Backed Notes, Series 1998-2F, substantially in the Form of Exhibit A hereto. "Note Register" and "Note Registrar": The respective meanings specified in Section 2.3. "Officer's Certificate": A certificate signed by any Authorized Officer of the Issuer, under the circumstances described in, and otherwise complying with, the applicable requirements of Section 11.1, and delivered to the Indenture Trustee. "Opinion of Counsel": One or more written opinions of counsel who may, except as otherwise expressly provided in this Indenture, be employees of or counsel to the Issuer and who shall be satisfactory to the Indenture Trustee and the Note Insurer, and which opinion or opinions shall be addressed to the Indenture Trustee, as Indenture Trustee, and the Note Insurer and shall comply with any applicable requirements of Section 11.1 and shall be in form and substance satisfactory to the Indenture Trustee and the Note Insurer. "Outstanding": With respect to any Note and as of the date of determination, any Note theretofore authenticated and delivered under this Indenture except: (i) Notes theretofore canceled by the Note Registrar or delivered to the Note Registrar for cancellation; (ii) Notes or portions thereof the payment for which money in the necessary amount has been theretofore deposited with the Indenture Trustee or any Paying Agent in trust for the Owners of such Notes (provided, however, that if such Notes are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision for such notice has been made, satisfactory to the Indenture Trustee); (iii) Notes in exchange for or in lieu of which other Notes have been authenticated and delivered pursuant to this Indenture unless proof satisfactory to the Indenture Trustee is presented that any such Notes are held by a bona fide purchaser; provided, that in determining whether the Owners of the requisite Outstanding Amount of the Notes have given any request, demand, authorization, direction, notice, consent, or waiver hereunder or under any Operative Document, Notes owned by the Issuer, any other obligor upon the Notes, the Seller or any Affiliate of any of the foregoing Persons shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Indenture Trustee shall be protected 4 in relying upon any such request, demand, authorization, direction, notice, consent, or waiver, only Notes that the Indenture Trustee knows to be so owned shall be so disregarded. Notes so owned that have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Indenture Trustee the pledgee's right so to act with respect to such Notes and that the pledgee is not the Issuer, any other obligor upon the Notes, the Seller or any Affiliate of any of the foregoing Persons; (iv) Notes alleged to have been destroyed, lost or stolen for which replacement Notes have been issued as provided for in Section 2.4 thereof; and (v) Notes as to which the Indenture Trustee has made the final distribution thereon, whether or not such Notes are ever returned to the Indenture Trustee. "Outstanding Amount": The aggregate principal amount of all Notes that are Outstanding at the date of determination. "Owner": The Person in whose name a Note is registered on the Note Register; provided that the exercise of any rights of such Owner under this Indenture shall at all times be subject to Section 11.18 hereto. "Owner Trustee": Wilmington Trust Company, not in its individual capacity but solely as Owner Trustee under the Trust Agreement, or any successor Owner Trustee under the Trust Agreement. "Paying Agent": The Indenture Trustee or any other Person that meets the eligibility standards for the Indenture Trustee specified in Section 6.11 and is authorized by the Issuer to make payments to and distributions from the Fixed Rate Note Account, including payment of principal of or interest on the Notes on behalf of the Issuer. "Payment Date": The 20th day of any month or if such day is not a Business Day, the next succeeding Business Day, commencing in July 1998. "Predecessor Note": With respect to any particular Note, every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for the purpose of this definition, any Note authenticated and delivered under Section 2.4 in lieu of a mutilated, lost, destroyed or stolen Note shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Note. "Proceeding": Any suit in equity, action at law or other judicial or administrative proceeding. "Rating Agency": Either or both of (i) Standard & Poor's or (ii) Moody's. If no such organization or successor is any longer in existence, "Rating Agency" shall be a nationally recognized statistical rating organization or other comparable Person designated by the Note Insurer, notice of which designation shall be given to the Issuer, the Indenture Trustee, the Owner Trustee and the Servicer. "Rating Agency Condition": With respect to any action to which a Rating Agency Condition applies, that each Rating Agency shall have been given 10 days (or such shorter period as is acceptable to each Rating Agency) prior notice thereof and that each of the Rating Agencies shall have notified the Seller, the Servicer, the Note Insurer and the Issuer in writing that such action will not result in a reduction or withdrawal of the then current rating of the Notes. 5 "Record Date": With respect to any Payment Date, the last Business Day immediately preceding such Payment Date. "Redemption Date": The first Payment Date on which the outstanding aggregate Loan Balance of the Fixed Rate Mortgage Loans has declined to $7,000,000 or less. "Redemption Price": In the case of a redemption of the Notes pursuant to Section 10.1, an amount equal to the sum of (i) the unpaid principal amount of the Notes redeemed plus accrued and unpaid interest thereon at the Fixed Rate Note Rate to but excluding the Redemption Date, (ii) any unpaid Indenture Trustee Fees, Owner Trustee Fees and Premium Amounts relating to the Fixed Rate Mortgage Loans, (iii) all other amounts owed to the Note Insurer pursuant to the Insurance Agreement and (iv) any unreimbursed Delinquency Advances and Servicing Advances relating to the Fixed Rate Mortgage Loans. "Registered Owner": The Person in whose name a Note is registered on the Note Register on the applicable Record Date. "Responsible Officer": With respect to the Indenture Trustee, any officer within the Corporate Trust Office of the Indenture Trustee, including any Vice President, Assistant Vice President, Assistant Treasurer, Assistant Secretary or any other officer of the Indenture Trustee customarily performing functions similar to those performed by any of the above designated officers and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. "Sale and Servicing Agreement": The Sale and Servicing Agreement dated as of June 1, 1998, among the Issuer, the Seller, the Servicer and the Indenture Trustee, as Indenture Trustee. "Securities Act": The Securities Act of 1933, as amended. "Seller": First Alliance Mortgage Company, in its capacity as seller under the Sale and Servicing Agreement, and its successor in interest. "Servicer": First Alliance Mortgage Company, in its capacity as servicer under the Sale and Servicing Agreement, and any Successor Servicer thereunder. "Standard & Poor's": Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., and any successor thereto. "State": Any one of the 50 States of the United States of America or the District of Columbia. "Successor Servicer": The meaning specified in Section 3.7(e). "Trust Estate": The assets relating to the Fixed Rate Mortgage Loans and subject to this Agreement, the Sale and Servicing Agreement and the Trust Agreement and assigned to the Trust, which assets consist of (a) the Initial Fixed Rate Mortgage Loans listed in Schedule I to the Sale and Servicing Agreement and any Subsequent Fixed Rate Mortgage Loans listed in Schedule I to any Subsequent Transfer Agreement, including the related Files that the Seller causes to be delivered to the Indenture Trustee, all payments of principal received, collected or otherwise recovered after the Cut-Off Date (or Subsequent Cut-Off Date) for each Fixed Rate Mortgage Loan (other than any principal payments due thereon on or prior to the Cut-Off Date or Subsequent Cut-Off Date), all payments of interest accruing on each Fixed Rate Mortgage Loan after 6 the Cut-Off Date (or Subsequent Cut-Off Date) therefor (other than any interest payments due thereon on or prior to the Cut-Off Date or Subsequent Cut-Off Date) and all other proceeds received in respect of such Fixed Rate Mortgage Loans, (b) the Fixed Rate Note Insurance Policy, (c) any Insurance Policies relating to the Fixed Rate Mortgage Loans, (d) all cash, instruments or other property held or required to be deposited in the Principal and Interest Account, relating to the Fixed Rate Mortgage Loans and the Fixed Rate Note Account, including all investments made with funds in such accounts (but not including any income on funds deposited in, or investments made with funds deposited in, the Principal and Interest Account, relating to the Fixed Rate Mortgage Loans, which income shall belong to and be for the account of the Servicer, and not including any income on funds deposited in, or investments made with funds deposited in, the Fixed Rate Note Account, which income shall belong to and be for the account of the Issuer), (e) the Issuer's rights under the Sale and Servicing Agreement, and (f) all proceeds of the conversion, voluntary or involuntary, of any of the foregoing into cash or other liquid assets, including, without limitation, all insurance proceeds and condemnation awards. "Trust Indenture Act" or "TIA": The Trust Indenture Act of 1939, as amended, as in force on the date hereof, unless otherwise specifically provided. "UCC": Unless the context otherwise requires, the Uniform Commercial Code, as in effect in the relevant jurisdiction, as amended from time to time. (b) Except as otherwise specified herein or as the context may otherwise require, for all purposes of this Indenture capitalized terms used but not otherwise defined herein have the respective meanings set forth in the Sale and Servicing Agreement or, if not defined therein, in the Trust Agreement. SECTION 1.2 Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the Securities and Exchange Commission. "indenture securities" means the Notes. "indenture security Owner" means an Owner. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Indenture Trustee. "obligor" on the Indenture securities means the Issuer and any other obligor on the Indenture securities. All other TIA terms used in this Indenture that are defined in the TIA, defined by TIA reference to another statute or defined by Commission rule have the meaning assigned to them by such definitions. 7 SECTION 1.3 Rules of Construction. Unless the context otherwise requires: (i) a term has the meaning assigned to it; (ii) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles as in effect from time to time; (iii) "or" is not exclusive; (iv) "including" means including without limitation; (v) words in the singular include the plural and words in the plural include the singular; and (vi) any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time amended, modified or supplemented (as provided in such agreements) and includes (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein; references to a Person are also to its permitted successors and assigns. ARTICLE II THE NOTES SECTION 2.1 Form. The Notes shall be designated as the "First Alliance Fixed Rate Mortgage Loan Asset Backed Notes, Series 1998-2F" and, together with the Indenture Trustee's certificate of authentication, shall be in substantially the form set forth in Exhibit A hereto, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may, consistently herewith, be determined by the officers executing such Notes, as evidenced by their execution thereof. Any portion of the text of any Note may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Note. The Definitive Notes shall be typewritten, printed, lithographed or engraved or produced by any combination of these methods, all as determined by the officers executing such Notes, as evidenced by their execution of such Notes. The terms of the Notes set forth in Exhibit A are part of the terms of this Indenture. The Notes may be marked as temporary, and any Note being so marked may be cancelled and destroyed for substitution by a replacement Note, subject to the provisions of Section 2.2. SECTION 2.2 Execution, Authentication, Delivery and Dating. The Notes shall be executed on behalf of the Issuer by an Authorized Officer. The signature of any such Authorized Officer on the Notes may be manual or facsimile. Notes bearing the manual or facsimile signature of individuals who were at any time Authorized Officers of the Owner Trustee shall bind the Issuer, notwithstanding that such individuals or any of them 8 have ceased to hold such offices prior to the authentication and delivery of such Notes or did not hold such offices at the date of such Notes. Subject to the satisfaction of the conditions set forth in Section 2.8, the Indenture Trustee shall authenticate and deliver Notes for original issue in an aggregate principal amount of $70,000,000. The aggregate principal amount of Notes Outstanding at any time may not exceed such amount. The Notes that are authenticated and delivered by the Indenture Trustee to or upon the order of the Issuer on the Closing Date shall be dated June 26, 1998. All other Notes that are authenticated after the Closing Date for any other purpose under this Indenture shall be dated the date of their authentication. The Notes shall be issuable as registered Notes in the minimum denomination of $25,000 and integral multiples of $1,000 in excess thereof. No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Note a certificate of authentication substantially in the form provided for herein executed by the Indenture Trustee by the manual signature of one of its authorized signatories, and such certificate upon any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder. SECTION 2.3 Registration; Registration of Transfer and Exchange. The Issuer shall cause to be kept a register (the "Note Register") in which, subject to such reasonable regulations as it may prescribe, the Issuer shall provide for the registration of Notes and the registration of transfers of Notes. The Indenture Trustee initially shall be the "Note Registrar" for the purpose of registering Notes and transfers of Notes as herein provided. Upon any resignation of any Note Registrar, the Issuer shall promptly appoint a successor or, if it elects not to make such an appointment, assume the duties of Note Registrar. If a Person other than the Indenture Trustee is appointed by the Issuer as Note Registrar with the consent of the Note Insurer, the Issuer will give the Indenture Trustee prompt written notice of the appointment of such Note Registrar and of the location, and any change in the location, of the Note Register, and the Indenture Trustee shall have the right to inspect the Note Register at all reasonable times and to obtain copies thereof, and the Indenture Trustee and the Note Insurer shall have the right to rely upon a certificate executed on behalf of the Note Registrar by an Authorized Officer thereof as to the names and addresses of the Owners of the Notes and the principal amounts and number of such Notes. Upon surrender for registration of transfer of any Note at the office or agency of the Issuer to be maintained as provided in Section 3.2, the Issuer shall execute, and the Indenture Trustee shall authenticate and the Owner shall obtain from the Indenture Trustee, in the name of the designated transferee or transferees, one or more new Notes in any authorized denominations, of a like aggregate principal amount. At the option of any Owner, Notes owned by such Owner may be exchanged for other Notes in any authorized denominations, of a like aggregate principal amount, upon surrender of the Notes to be exchanged at such office or agency. Whenever any Notes are so surrendered for exchange, the Issuer shall execute, and the Indenture Trustee shall authenticate and the Owner shall obtain from the Indenture Trustee, the Notes which the Owner making the exchange is entitled to receive. All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Issuer, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Notes surrendered upon such registration of transfer or exchange. 9 Every Note presented or surrendered for registration of transfer or exchange shall be duly endorsed by, or be accompanied by a written instrument of transfer in form satisfactory to the Indenture Trustee duly executed by the Owner thereof or such Owner's attorney duly authorized in writing, with such signature guaranteed by an "eligible guarantor institution" meeting the requirements of the Note Registrar, which requirements include membership or participation in the Securities Transfer Agent's Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Note Registrar in addition to, or in substitution for, STAMP, all in accordance with the Exchange Act. Any Noteholder using the assets of (i) an employee benefit plan (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) that is subject to the provisions of Title I of ERISA, (ii) a plan described in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended, or (iii) any entity whose underlying assets include plan assets by reason of a plan's investment in the entity to purchase the Notes, or to whom the Notes are transferred, will be deemed to have represented that the acquisition and continued holding of the Notes will be covered by a U.S. Department of Labor Class Exemption. No service charge shall be made to an Owner for any registration of transfer or exchange of Notes, but the Issuer may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Notes, other than exchanges pursuant to Section 2.4 or Section 9.6 not involving any transfer. The preceding provisions of this Section notwithstanding, the Issuer shall not be required to make, and the Note Registrar need not register, transfers or exchanges of Notes selected for redemption or of any Note for a period of 15 days preceding the due date for any payment with respect to such Note. SECTION 2.4 Mutilated, Destroyed, Lost or Stolen Notes. If (i) any mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, and (ii) there is delivered to the Indenture Trustee such security or indemnity as may be required by it to hold the Issuer, the Note Insurer and the Indenture Trustee harmless, then, in the absence of notice to the Issuer, the Note Registrar or the Indenture Trustee that such Note has been acquired by a bona fide purchaser, and provided that the requirements of Section 8-405 of the UCC are met, the Issuer shall execute, and upon its request the Indenture Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a replacement Note; provided, however, that if any such destroyed, lost or stolen Note, but not a mutilated Note, shall have become or within seven days shall be due and payable, or shall have been called for redemption, instead of issuing a replacement Note, the Issuer may pay such destroyed, lost or stolen Note when so due or payable or upon the Redemption Date without surrender thereof. If, after the delivery of such replacement Note or payment of a destroyed, lost or stolen Note pursuant to the proviso to the preceding sentence, a bona fide purchaser of the original Note in lieu of which such replacement Note was issued presents for payment such original Note, the Issuer, the Note Insurer and the Indenture Trustee shall be entitled to recover such replacement Note (or such payment) from the Person to whom it was delivered or any Person taking such replacement Note from such Person to whom such replacement Note was delivered or any assignee of such Person, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the Issuer, the Note Insurer or the Indenture Trustee in connection therewith. Upon the issuance of any replacement Note under this Section, the Issuer may require the payment by the Owner of such Note, other than the Note Insurer, of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other reasonable expenses (including the fees and expenses of the Indenture Trustee) connected therewith. 10 Every replacement Note issued pursuant to this Section in replacement of any mutilated, destroyed, lost or stolen Note shall constitute an original additional contractual obligation of the Issuer, whether or not the mutilated, destroyed, lost or stolen Note shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Notes duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. SECTION 2.5 Persons Deemed Owners. Prior to due presentment for registration of transfer of any Note, the Issuer, the Note Insurer, the Indenture Trustee and any agent of the Issuer, the Note Insurer or the Indenture Trustee may treat the Person in whose name any Note is registered (as of the day of determination) as the owner of such Note for the purpose of receiving payments of principal of and interest, if any, on such Note and for all other purposes whatsoever, whether or not such Note be overdue, and none of the Issuer, the Note Insurer, the Indenture Trustee or any agent of the Issuer or the Indenture Trustee shall be affected by notice to the contrary. SECTION 2.6 Payment of Principal and Interest; Defaulted Interest. (a) The Notes shall accrue interest at the Fixed Rate Note Rate as set forth in the Sale and Servicing Agreement, and such interest shall be payable on each Payment Date as specified therein, subject to Section 3.1 hereof. Any installment of interest or principal, if any, payable on any Note that is punctually paid or duly provided for by the Issuer on the applicable Payment Date shall be paid to the Person in whose name such Note (or one or more Predecessor Notes) is registered on the Record Date by check mailed first-class postage prepaid to such Person's address as it appears on the Note Register on such Record Date, except that, unless Definitive Notes have been issued pursuant to Section 2.12, with respect to Notes registered on the Record Date in the name of the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.), payment will be made by wire transfer in immediately available funds to the account designated by such nominee and except for the final installment of principal payable with respect to such Note on a Payment Date or on the applicable Final Payment Date (and except for the Redemption Price for any Note called for redemption pursuant to Section 10.1), which shall be payable as provided below. The funds represented by any such checks returned undelivered shall be held in accordance with Section 3.3. (b) The principal of each Note shall be payable in installments on each Payment Date as provided in the Sale and Servicing Agreement and the form of the Notes set forth in Exhibit A. Notwithstanding the foregoing, the entire unpaid principal amount of the Notes shall be due and payable, if not previously paid, on the earlier of (i) the Final Payment Date, (ii) the Redemption Date or (iii) the date on which an Event of Default shall have occurred and be continuing, if either the Owners or the Note Insurer has declared the Notes to be immediately due and payable in the manner provided in Section 5.2. All principal payments on the Notes shall be made pro rata to the Owners. The Indenture Trustee shall notify the Person in whose name a Note is registered at the close of business on the Record Date preceding the Payment Date on which the Issuer expects that the final installment of principal of and interest on such Note will be paid. Such notice shall be mailed or transmitted by facsimile prior to such final Payment Date and shall specify that such final installment will be payable only upon presentation and surrender of such Note and shall specify the place where such Note may be presented and surrendered for payment of such installment. A copy of such form of notice shall be sent to the Note Insurer by the Indenture Trustee. Notices in connection with redemptions of Notes shall be mailed to Owners as provided in Section 10.2. 11 SECTION 2.7 Cancellation. All Notes surrendered for payment, registration of transfer, exchange or redemption shall, if surrendered to any Person other than the Indenture Trustee, be delivered to the Indenture Trustee and shall be promptly canceled by the Indenture Trustee. The Issuer may at any time deliver to the Indenture Trustee for cancellation any Notes previously authenticated and delivered hereunder which the Issuer may have acquired in any manner whatsoever, and all Notes so delivered shall be promptly canceled by the Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for any Notes canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Notes may be held or disposed of by the Indenture Trustee in accordance with its standard retention or disposal policy as in effect at the time, unless the Issuer shall direct by an Issuer Order that they be destroyed or returned to it; provided, that such Issuer Order is timely and the Notes have not been previously disposed of by the Indenture Trustee. SECTION 2.8 Authentication of Notes. The Notes may be authenticated by the Indenture Trustee upon Issuer Request. SECTION 2.9 Release of Collateral. (a) Subject to subsections (b) and (c) hereof, Section 11.1 hereof and the terms of the Operative Documents, the Indenture Trustee shall release property from the lien of this Indenture only upon receipt of an Issuer Request accompanied by an Officer's Certificate, an Opinion of Counsel and Independent Certificates in accordance with TIA Sections 314(c) and 314(d)(l) or an Opinion of Counsel in lieu of such Independent Certificates to the effect that the TIA does not require any such Independent Certificates. (b) The Servicer, on behalf of the Issuer, shall be entitled to obtain a release from the lien of this Indenture for any Fixed Rate Mortgage Loan and the related Property at any time (i) after a payment by the Seller or the Issuer of the Loan Purchase Price of the Fixed Rate Mortgage Loan, (ii) after a Qualified Replacement Mortgage is substituted for such Fixed Rate Mortgage Loan and payment of the Substitution Amount if any, (iii) after liquidation of the Fixed Rate Mortgage Loan in accordance with Section 4.13 of the Sale and Servicing Agreement and the deposit of all Liquidation Proceeds thereon in the Principal and Interest Account, or (iv) upon the termination of a Fixed Rate Mortgage Loan (due to, among other causes, a prepayment in full of the Fixed Rate Mortgage Loan and sale or other disposition of the related Property), if the Issuer delivers to the Indenture Trustee and the Note Insurer an Issuer Request (A) identifying the Fixed Rate Mortgage Loan and the related Property to be released, (B) requesting the release thereof, (C) setting forth the amount deposited in the Principal and Interest Account with respect thereto, and (D) certifying that the amount deposited in the Principal and Interest Account (x) equals the Loan Purchase Price of the Fixed Rate Mortgage Loan, in the event a Fixed Rate Mortgage Loan and the related Property are being released from the lien of this Indenture pursuant to item (i) above, (y) equals the Substitution Amount related to the Qualified Replacement Mortgage and the Fixed Rate Mortgage Loan being released from the lien of this Indenture pursuant to item (ii) above, or (z) equals the entire amount of recoveries received with respect to such Fixed Rate Mortgage Loan and the related Property in the event of a release from the lien of this Indenture pursuant to items (iii) or (iv) above. (c) The Indenture Trustee shall, if requested in writing by the Servicer, temporarily release or cause the Custodian to temporarily release to the Servicer the File pursuant to the provisions of Section 4.14 of the Sale and Servicing Agreement upon compliance by the Servicer of the provisions thereof provided that the Indenture Trustee's File shall have been stamped to signify the Issuer's pledge to the Indenture Trustee under this Indenture. 12 SECTION 2.10 Book-Entry Notes. The Notes, upon original issuance, will be issued in the form of typewritten Notes representing the Book-Entry Notes, to be delivered to The Depository Trust Company, the initial Clearing Agency, by, or on behalf of, the Issuer. The Book-Entry Notes shall be registered initially on the Note Register in the name of Cede & Co., the nominee of the initial Clearing Agency, and no Owner of any Note will receive a definitive Note representing such Book-Entry Owner's interest in such Note, except as provided in Section 2.12. Unless and until definitive, fully registered Notes (the "Definitive Notes") have been issued to such Book-Entry Owners pursuant to Section 2.12: (i) the provisions of this Section shall be in full force and effect; (ii) the Note Registrar, the Note Insurer and the Indenture Trustee shall be entitled to deal with the Clearing Agency for all purposes of this Indenture (including the payment of principal of and interest on the Notes and the giving of instructions or directions hereunder) as the sole Owner of the Notes, and shall have no obligation to the Book-Entry Owners; (iii) to the extent that the provisions of this Section conflict with any other provisions of this Indenture, the provisions of this Section shall control; (iv) the rights of Book-Entry Owners shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Book-Entry Owners and the Clearing Agency and/or the Clearing Agency Participants. Unless and until Definitive Notes are issued pursuant to Section 2.12, the initial Clearing Agency will make book-entry transfers among the Clearing Agency Participants and receive and transmit payments of principal of and interest on the Notes to such Clearing Agency Participants; and (v) whenever this Indenture requires or permits actions to be taken based upon instructions or directions of Owners of Notes evidencing a specified percentage of the Outstanding Amount of the Notes, the Clearing Agency shall be deemed to represent such percentage only to the extent that it has received instructions to such effect from Book-Entry Owners and/or Clearing Agency Participants owning or representing, respectively, such required percentage of the beneficial interest in the Notes and has delivered such instructions to the Indenture Trustee. SECTION 2.11 Notices to Clearing Agency. Whenever a notice or other communication to the Owners is required under this Indenture, unless and until Definitive Notes shall have been issued to such Book-Entry Owners pursuant to Section 2.12, the Indenture Trustee shall give all such notices and communications specified herein to be given to Owners of the Notes to the Clearing Agency, and shall have no obligation to such Book-Entry Owners. SECTION 2.12 Definitive Notes. If (i) the Clearing Agency is no longer willing or able to properly discharge its responsibilities with respect to the Book-Entry Notes and the Issuer is unable to locate a qualified successor, (ii) the Issuer at its option advises the Indenture Trustee in writing that it elects to terminate the book-entry system through the Clearing Agency or (iii) after the occurrence of an Event of Default, Owners of the Book-Entry Notes representing beneficial interests aggregating at least a majority of the Outstanding Amount of such Notes advise the Clearing Agency in writing that the continuation of a book-entry system through the Clearing Agency is no longer in the best interests of such Book-Entry Owners, then the Clearing Agency shall notify all Book-Entry Owners and the Indenture Trustee of the occurrence of such event and of the availability of Definitive Notes to Book-Entry Owners requesting the same. Upon surrender to the Indenture Trustee of the typewritten Notes representing the Book-Entry Notes by the Clearing Agency, accompanied by registration instructions, the Issuer shall execute and the Indenture 13 Trustee shall authenticate the Definitive Notes in accordance with the instructions of the Clearing Agency. None of the Issuer, the Note Registrar, the Note Insurer or the Indenture Trustee shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Notes, the Indenture Trustee shall recognize the Owners of the Definitive Notes as Owners. SECTION 2.13 Tax Treatment. The Issuer has entered into this Indenture, and the Notes will be issued, with the intention that, for federal, state and local income, single business and franchise tax purposes, the Notes will qualify as indebtedness of the Issuer secured by the Collateral. The Issuer, by entering into this Indenture, and each Owner, by its acceptance of a Note (and each Book-Entry Owner by its acceptance of an interest in the applicable Book-Entry Note), agree to treat the Notes for federal, state and local income, single business and franchise tax purposes as indebtedness of the Issuer. ARTICLE III COVENANTS SECTION 3.1 Payment of Principal and Interest. The Issuer will duly and punctually pay (or will cause to be duly and punctually paid) the principal of and interest, if any, on the Notes in accordance with the terms of the Notes and this Indenture. Without limiting the foregoing, subject to and in accordance with Section 8.2(c), on each Payment Date the Issuer will cause to be distributed all amounts on deposit in the Fixed Rate Note Account deposited or retained therein pursuant to the Sale and Servicing Agreement for the benefit of the Owners of the Notes, to the Owners and the Note Insurer. Amounts properly withheld under the Code by any Person from a payment to any Owner of interest and/or principal shall be considered as having been paid by the Issuer to such Owner for all purposes of this Indenture. The Notes shall be non-recourse obligations of the Issuer and shall be limited in right of payment to amounts available from the Collateral and any amounts received by the Indenture Trustee under the Fixed Rate Note Insurance Policy in respect of the Notes, as provided in this Indenture and the Sale and Servicing Agreement. The Issuer shall not otherwise be liable for payments on the Notes. If any other provision of this Indenture shall be deemed to conflict with the provisions of this Section 3.1, the provisions of this Section 3.1 shall control. SECTION 3.2 Maintenance of Office or Agency. The Issuer will maintain in the Borough of Manhattan, The City of New York, an office or agency where Notes may be surrendered for registration of transfer or exchange, and where notices and demands to or upon the Issuer in respect of the Notes and this Indenture may be served. The Issuer hereby initially appoints the Indenture Trustee to serve as its agent for the foregoing purposes. The Issuer will give prompt written notice to the Indenture Trustee and the Note Insurer of the location, and of any change in the location, of any such office or agency. If at any time the Issuer shall fail to maintain any such office or agency or shall fail to furnish the Indenture Trustee with the address thereof, such surrenders, notices and demands may be made or served at the Corporate Trust Office, and the Issuer hereby appoints the Indenture Trustee as its agent to receive all such surrenders, notices and demands. SECTION 3.3 Money for Payments To Be Held in Trust. As provided in Section 8.2 (a) and (b), all payments of amounts due and payable with respect to any Notes that are to be made from amounts withdrawn from the Principal and Interest Account or retained in the Fixed Rate Note Account pursuant to Section 8.2(c) shall be made on behalf of the Issuer by the Indenture Trustee or by the Paying Agent, and 14 no amounts so withdrawn from the Principal and Interest Account or retained in the Fixed Rate Note Account for payments of Notes shall be paid over to the Issuer except as provided in this Section 3.3. On or before the second Business Day preceding each Payment Date and Redemption Date, the Indenture Trustee shall cause to be deposited in the Fixed Rate Note Account an aggregate sum sufficient to pay the amounts due on such Payment Date under the Notes, such sum to be held in trust for the benefit of the Persons entitled thereto. Subject to the prior consent of the Note Insurer, any Paying Agent shall be appointed by Issuer Order with written notice thereof to the Indenture Trustee and the Note Insurer. Any Paying Agent appointed by the Issuer shall be a Person who would be eligible to be Indenture Trustee hereunder as provided in Section 6.11. The Issuer shall not appoint any Paying Agent (other than the Indenture Trustee) which is not, at the time of such appointment, a Designated Depository Institution. The Issuer will cause each Paying Agent to execute and deliver to the Indenture Trustee an instrument in which such Paying Agent shall agree with the Indenture Trustee (and if the Indenture Trustee acts as Paying Agent, it hereby so agrees), subject to the provisions of this Section 3.3, that such Paying Agent will: (i) hold all sums held by it for the payment of amounts due with respect to the Notes in trust for the benefit of the Owners entitled thereto until such sums shall be paid to such Owners or otherwise disposed of as herein provided and pay such sums to such Owners as herein provided; (ii) give the Indenture Trustee, the Rating Agencies and the Note Insurer notice of any default by the Issuer (or any other obligor upon the Notes) of which it has actual knowledge in the making of any payment required to be made with respect to the Notes; (iii) at any time during the continuance of any such default, upon the written request of the Indenture Trustee, forthwith pay to the Indenture Trustee all sums so held in trust by such Paying Agent; (iv) immediately resign as a Paying Agent and forthwith pay to the Indenture Trustee all sums held by it in trust for the payment of Notes if at any time it ceases to meet the standards required to be met by a Paying Agent at the time of its appointment; (v) comply with all requirements of the Code with respect to the withholding from any payments made by it on any Notes of any applicable withholding taxes imposed thereon and with respect to any applicable reporting requirements in connection therewith; provided, however, that with respect to withholding and reporting requirements applicable to original issue discount (if any) on the Notes, the Issuer shall have first provided the calculations pertaining thereto to the Indenture Trustee; and (vi) not commence a bankruptcy proceeding against the Issuer in connection with this Indenture. The Issuer may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, by Issuer Order direct any Paying Agent to pay to the Indenture Trustee all sums held in trust by such Paying Agent, such sums to be held by the Indenture Trustee upon the same trusts as those upon which the sums were held by such Paying Agent; and upon such payment by any Paying 15 Agent to the Indenture Trustee, such Paying Agent shall be released from all further liability with respect to such money. Subject to applicable laws with respect to escheat of funds or abandoned property, any money held by the Indenture Trustee or any Paying Agent in trust for the payment of any amount due with respect to any Note and remaining unclaimed for two years after such amount has become due and payable shall be discharged from such trust and be paid to the Issuer on Issuer Request; and the Owner of such Note shall thereafter, as an unsecured general creditor, look only to the Issuer for payment thereof (but only to the extent of the amounts so paid to the Issuer), and all liability of the Indenture Trustee or such Paying Agent with respect to such trust money shall thereupon cease; provided, however, that the Indenture Trustee or such Paying Agent, before being required to make any such repayment, shall at the expense and direction of the Issuer cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Issuer. The Indenture Trustee shall also adopt and employ, at the expense and direction of the Issuer, any other reasonable means of notification of such repayment (including, but not limited to, mailing notice of such repayment to Owners whose Notes have been called but have not been surrendered for redemption or whose right to or interest in moneys due and payable but not claimed is determinable from the records of the Indenture Trustee or of any Paying Agent, at the last address of record for each such Owner). SECTION 3.4 Existence. (a) Subject to subsection (b) of this Section 3.4, the Issuer will keep in full effect its existence, rights and franchises as a business trust under the laws of the State of Delaware (unless it becomes, or any successor Issuer hereunder is or becomes, organized under the laws of any other State or of the United States of America, in which case the Issuer will keep in full effect its existence, rights and franchises under the laws of such other jurisdiction) and will obtain and preserve its qualification to do business in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Indenture, the Notes and the Collateral. (b) Any successor to the Owner Trustee appointed pursuant to Section 10.2 of the Trust Agreement shall be the successor Owner Trustee under this Indenture without the execution or filing of any paper, instrument or further act to be done on the part of the parties hereto. (c) Upon any consolidation or merger of or other succession to the Owner Trustee, the Person succeeding to the Owner Trustee under the Trust Agreement may exercise every right and power of the Owner Trustee under this Indenture with the same effect as if such Person had been named as the Owner Trustee herein. SECTION 3.5 Protection of Collateral. The Issuer will from time to time and upon the direction of the Note Insurer execute and deliver all such supplements and amendments hereto and all such financing statements, continuation statements, instruments of further assurance and other instruments, and will take such other action necessary or advisable to: (i) provide further assurance with respect to the Grant of all or any portion of the Collateral; (ii) maintain or preserve the lien and security interest (and the priority thereof) of this Indenture or carry out more effectively the purposes hereof; 16 (iii) perfect, publish notice of or protect the validity of any Grant made or to be made by this Indenture; (iv) enforce any rights with respect to the Collateral; or (v) preserve and defend title to the Collateral and the rights of the Indenture Trustee, the Owners and the Note Insurer in such Collateral against the claims of all persons and parties. SECTION 3.6 Annual Opinions as to Collateral. On or before March 15 in each calendar year, beginning in 1999, the Issuer shall furnish to the Indenture Trustee and the Note Insurer an Opinion of Counsel either stating that, in the opinion of such counsel, such action has been taken with respect to the recording, filing, re-recording and refiling of this Indenture, any indentures supplemental hereto and any other requisite documents and with respect to the execution and filing of any financing statements and continuation statements as is necessary to maintain the lien and security interest created by this Indenture and reciting the details of such action or stating that in the opinion of such counsel no such action is necessary to maintain such lien and security interest. Such Opinion of Counsel shall also describe the recording, filing, re-recording and refiling of this Indenture, any indentures supplemental hereto and any other requisite documents and the execution and filing of any financing statements and continuation statements that will, in the opinion of such counsel, be required to maintain the lien and security interest of this Indenture until March 15 of the following calendar year. SECTION 3.7 Performance of Obligations; Servicing of Fixed Rate Mortgage Loans. (a) The Issuer will not take any action and will use its best efforts not to permit any action to be taken by others that would release any Person from any of such Person's material covenants or obligations under any instrument or agreement included in the Collateral or that would result in the amendment, hypothecation, subordination, termination or discharge of, or impair the validity or effectiveness of, any such instrument or agreement, except as expressly provided in this Indenture, the Sale and Servicing Agreement or such other instrument or agreement. (b) Subject to the prior consent of the Note Insurer, the Issuer may contract with or otherwise obtain the assistance of other Persons to assist it in performing its duties under this Indenture, and any performance of such duties by a Person identified to the Indenture Trustee and the Note Insurer in an Officer's Certificate of the Issuer shall be deemed to be action taken by the Issuer. Initially, the Issuer has contracted with the Servicer pursuant to the Sale and Servicing Agreement to assist the Issuer in performing its duties under this Indenture. (c) The Issuer will punctually perform and observe all of its obligations and agreements contained in this Indenture, the Operative Documents and in the instruments and agreements included in the Collateral, including but not limited to (i) filing or causing to be filed all UCC financing statements and continuation statements required to be filed by the terms of this Indenture and the Sale and Servicing Agreement and (ii) recording or causing to be recorded all Mortgages, Assignments of Mortgage, all intervening Assignments of Mortgage and all assumption and modification agreements required to be recorded by the terms of the Sale and Servicing Agreement, in accordance with and within the time periods provided for in this Indenture and/or the Sale and Servicing Agreement, as applicable. Except as otherwise expressly provided therein, the Issuer shall not waive, amend, modify, supplement or terminate any Operative Document or any provision thereof without the consent of the Indenture Trustee, the Note Insurer, and the Owners of at least a majority of the Outstanding Amount of the Notes. 17 (d) If the Issuer shall have knowledge of the occurrence of an Event of Servicing Termination under the Sale and Servicing Agreement, the Issuer shall promptly notify the Indenture Trustee, the Note Insurer and the Rating Agencies thereof, and shall specify in such notice the action, if any, the Issuer is taking with respect of such default. If such Event of Servicing Termination shall arise from the failure of the Servicer to perform any of its duties or obligations under the Sale and Servicing Agreement with respect to the Fixed Rate Mortgage Loans, the Issuer shall take all reasonable steps available to it to remedy such failure. (e) As promptly as possible after the giving of notice of termination to the Servicer of the Servicer's rights and powers pursuant to Section 4.20 of the Sale and Servicing Agreement, the Issuer, upon the prior written consent of or upon the direction of the Note Insurer, shall appoint a successor servicer (the "Successor Servicer") in accordance with the provisions of Section 4.21 of the Sale and Servicing Agreement. (f) Upon any termination of the Servicer's rights and powers pursuant to the Sale and Servicing Agreement, the Issuer shall promptly notify the Indenture Trustee and the Note Insurer. As soon as a Successor Servicer is appointed pursuant to Section 4.21 of the Sale and Servicing Agreement, the Issuer shall notify the Indenture Trustee and the Rating Agencies of such appointment, specifying in such notice the name and address of such Successor Servicer. (g) Without derogating from the absolute nature of the assignment granted to the Indenture Trustee under this Indenture or the rights of the Indenture Trustee hereunder, the Issuer agrees (i) that it will not, without the prior written consent of the Indenture Trustee and the Note Insurer, or, if a Note Insurer Default has occurred and is continuing, the Owners of at least a majority in Outstanding Amount of the Notes, amend, modify, waive, supplement, terminate or surrender, or agree to any amendment, modification, supplement, termination, waiver or surrender of, the terms of any Collateral (except to the extent otherwise provided in the Sale and Servicing Agreement) or the Operative Documents, or waive timely performance or observance by the Servicer or the Seller under the Sale and Servicing Agreement; and (ii) that any such amendment shall not (A) increase or reduce in any manner the amount of, or accelerate or delay the timing of, distributions that are required to be made for the benefit of the Owners or (B) reduce the aforesaid percentage of the Notes that is required to consent to any such amendment, without the consent of the Owners of all the outstanding Notes. If any such amendment, modification, supplement or waiver shall be so consented to by the Indenture Trustee and the Note Insurer, the Issuer agrees, promptly following a request by the Indenture Trustee or the Note Insurer to do so, to execute and deliver, in its own name and at its own expense, such agreements, instruments, consents and other documents as the Indenture Trustee or the Note Insurer may deem necessary or appropriate in the circumstances. SECTION 3.8 Negative Covenants. So long as any Notes are Outstanding, the Issuer shall not: (i) except as expressly permitted by this Indenture, or the Sale and Servicing Agreement, sell, transfer, exchange or otherwise dispose of any of the properties or assets of the Issuer, including those included in the Collateral, unless directed to do so by the Indenture Trustee or the Note Insurer; (ii) claim any credit on, or make any deduction from the principal or interest payable in respect of, the Notes (other than amounts properly withheld from such payments under the Code) or assert any claim against any present or former Owner by reason of the payment of the taxes levied or assessed upon any part of the Collateral; 18 (iii) engage in any business or activity other than as permitted by the Trust Agreement or other than in connection with, or relating to, the issuance of Notes pursuant to this Indenture, or amend the Trust Agreement as in effect on the Closing Date other than in accordance with Section 11.1 thereof, (iv) issue debt obligations under any indenture other than the Indenture dated as of June 1, 1998 (the "Adjustable Rate Indenture") between the Issuer and the Indenture Trustee relating to First Alliance Mortgage Loan Trust 1998-2 Adjustable Rate Mortgage Loan Asset Backed Notes, Series 1998-2A, as contemplated by the Sale and Servicing Agreement; (v) incur or assume any indebtedness or guaranty any indebtedness of any Person, except for such indebtedness as may be incurred by the Issuer in connection with the issuance of the Notes pursuant to this Indenture or the Adjustable Rate Indenture; (vi) dissolve or liquidate in whole or in part or merge or consolidate with any other Person; (vii) (A) permit the validity or effectiveness of this Indenture to be impaired, or permit the lien of this Indenture to be amended, hypothecated, subordinated, terminated or discharged, or permit any Person to be released from any covenants or obligations with respect to the Notes under this Indenture except as may be expressly permitted hereby, (B) permit any lien, charge, excise, claim, security interest, mortgage or other encumbrance (other than the lien of this Indenture) to be created on or extend to or otherwise arise upon or burden the Collateral or any part thereof or any interest therein or the proceeds thereof (other than tax liens, mechanics' liens and other liens that arise by operation of law, in each case on any of the Properties and arising solely as a result of an action or omission of the related Mortgagor) or (C) permit the lien of this Indenture not to constitute a valid first priority (other than with respect to any such tax, mechanics' or other lien) security interest in the Collateral; (viii) take any other action or fail to take any action which may cause the Issuer to be taxable as (a) an association pursuant to Section 7701 of the Code and the corresponding regulations or (b) as a taxable mortgage pool pursuant to Section 7701(i) of the Code and the corresponding regulations. SECTION 3.9 Annual Statement as to Compliance. The Issuer will deliver to the Indenture Trustee and the Note Insurer, within 120 days after the end of each fiscal year of the Issuer (commencing with the 1999 fiscal year), an Officer's Certificate stating, as to the Authorized Officer signing such Officer's Certificate, that: (i) a review of the activities of the Issuer during such year and of its performance under this Indenture has been made under such Authorized Officer's supervision; and (ii) to the best of such Authorized Officer's knowledge, based on such review, the Issuer has complied with all conditions and covenants under the Indenture throughout such year, or, if there has been a default in its compliance with any such condition or covenant, specifying each such default known to such Authorized Officer and the nature and status thereof. SECTION 3.10 Covenants of the Issuer. All covenants of the Issuer in the Indenture are covenants of the Issuer and are not covenants of the Owner Trustee. The Owner Trustee is, and any successor Owner Trustee under the Trust Agreement will be, entering into this Indenture solely as Owner Trustee under the Trust Agreement and not in its respective individual capacity, and in no case whatsoever shall the Owner 19 Trustee or any such successor Owner Trustee be personally liable on, or for any loss in respect of, any of the statements, representations, warranties or obligations of the Issuer hereunder, as to all of which the parties hereto agree to look solely to the property of the Issuer. SECTION 3.11 Investment Company Act. The Issuer shall not become an "investment company" or under the "control" of an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (or any successor or amendatory statute), and the rules and regulations thereunder (taking into account not only the general definition of the term "investment company" but also any available exceptions to such general definition); provided, however, that the Issuer shall be in compliance with this Section 3.11 if it shall have obtained an order exempting it from regulation as an "investment company" so long as it is in compliance with the conditions imposed in such order. SECTION 3.12 Restricted Payments. The Issuer shall not, directly or indirectly, (i) pay any dividend or make any distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, to the Owner Trustee or any owner of a beneficial interest in the Issuer or otherwise with respect to any ownership or equity interest or security in or of the Issuer or to the Servicer, (ii) redeem, purchase, retire or otherwise acquire for value any such ownership or equity interest or security or (iii) set aside or otherwise segregate any amounts for any such purpose; provided, however, that the Issuer may make, or cause to be made, distributions to the Servicer, the Indenture Trustee, the Owner Trustee, the Note Insurer, the Owners and the Certificateholders as contemplated by, and to the extent funds are available for such purpose under, the Sale and Servicing Agreement or the Trust Agreement. The Issuer will not, directly or indirectly, make or cause to be made payments to or distributions from the Principal and Interest Account except in accordance with this Indenture and the Operative Documents. SECTION 3.13 Treatment of Notes as Debt for Tax Purposes. The Issuer shall treat the Notes as indebtedness for all federal, state and local income and franchise tax purposes. SECTION 3.14 Notice of Events of Default. The Issuer shall give the Indenture Trustee, the Note Insurer and the Rating Agencies prompt written notice of each Event of Default hereunder and each default on the part of the Servicer or the Seller of its obligations under the Sale and Servicing Agreement. SECTION 3.15 Further Instruments and Acts. Upon request of the Indenture Trustee or the Note Insurer, the Issuer will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. SECTION 3.16 No Other Business. The Issuer shall not engage in any business other than financing, purchasing, owning, selling and managing the Mortgage Loans and the issuance of the Notes pursuant to this Indenture, the Certificates issued pursuant to the Trust Agreement and the notes issued pursuant to the Adjustable Rate Indenture in the manner contemplated by this Indenture and the Operative Documents and all activities incidental thereto. SECTION 3.17 No Borrowing. The Issuer shall not issue, incur, assume, guarantee or otherwise become liable, directly or indirectly, for any indebtedness except for the Notes, the notes issued pursuant to the Adjustable Rate Indenture and amounts due to the Note Insurer under this Indenture, the Adjustable Rate Indenture and the Insurance Agreement. SECTION 3.18 Guarantees, Loans, Advances and Other Liabilities. Except as contemplated by this Indenture, the Adjustable Rate Indenture or the Operative Documents, the Issuer shall not make any loan or advance or credit to, or guarantee (directly or indirectly or by an instrument having the effect of assuring 20 another's payment or performance on any obligation or capability of so doing or otherwise), endorse or otherwise become contingently liable, directly or indirectly, in connection with the obligations, stocks or dividends of, or own, purchase, repurchase or acquire (or agree contingently to do so) any stock, obligations, assets or securities of, or any other interest in, or make any capital contribution to, any other Person. SECTION 3.19 Capital Expenditures. The Issuer shall not make any expenditure (by long-term or operating lease or otherwise) for capital assets (either realty or personalty). ARTICLE IV SATISFACTION AND DISCHARGE SECTION 4.1 Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect with respect to the Notes (except as to (i) rights of registration of transfer and exchange, (ii) substitution of mutilated, destroyed, lost or stolen Notes, (iii) rights of Owners to receive payments of principal thereof and interest thereon, (iv) Sections 3.3, 3.4, 3.5, 3.8 and 3.10 hereof, (v) the rights, obligations and immunities of the Indenture Trustee hereunder (including the rights of the Indenture Trustee under Section 6.7 and the obligations of the Indenture Trustee under Section 4.2) and (vi) the rights of Owners as beneficiaries hereof with respect to the property so deposited with the Indenture Trustee payable to all or any of them), and the Indenture Trustee, on demand of and at the expense of the Issuer, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture with respect to the Notes, when all of the following have occurred: (A) either (1) all Notes theretofore authenticated and delivered (other than (i) Notes that have been destroyed, lost or stolen and that have been replaced or paid as provided in Section 2.4 and (ii) Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Issuer and thereafter repaid to the Issuer or discharged from such trust, as provided in Section 3.3) have been delivered to the Indenture Trustee for cancellation; or (2) all Notes not theretofore delivered to the Indenture Trustee for cancellation a. have become due and payable, b. are to be called for redemption within one year under arrangements satisfactory to the Indenture Trustee for the giving of notice of redemption by the Indenture Trustee in the name, and at the expense, of the Issuer, and the Issuer, in the case of a. or b. above, has irrevocably deposited or caused to be irrevocably deposited with the Indenture Trustee cash or direct obligations of or obligations guaranteed by the United States of America (which will mature prior to the date such amounts are payable), in trust for such purpose, in an amount sufficient to pay and discharge the entire indebtedness on such Notes not theretofore delivered to the Indenture Trustee for cancellation when due to the Final Payment Date or Redemption Date (if Notes shall have been called for redemption pursuant to Section 10.1), as the case may be; (B) the later of (a) eighteen months after payment in full of all outstanding obligations under the Notes, (b) the payment in full, in respect of the Fixed Rate Mortgage Loans of all unpaid Indenture Trustee Fees and Premium Amounts and all sums owing to the Note Insurer under the Insurance Agreement and (c) 21 the date on which the Issuer has paid or caused to be paid all other sums payable hereunder by the Issuer; and (C) the Issuer has delivered to the Indenture Trustee an Officer's Certificate, an Opinion of Counsel and (if required by the TIA or the Indenture Trustee) an Independent Certificate from a firm of certified public accountants, each meeting the applicable requirements of Section 11.1 and, subject to Section 11.2, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture with respect to the Notes have been complied with. SECTION 4.2 Application of Trust Money. All moneys deposited with the Indenture Trustee pursuant to Sections 3.3 and 4.3 hereof shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent, as the Indenture Trustee may determine, to the Owners of the Notes for the payment or redemption of which such moneys have been deposited with the Indenture Trustee, of all sums due and to become due thereon for principal and interest; but such moneys need not be segregated from other funds except to the extent required herein or in the Sale and Servicing Agreement or required by law. SECTION 4.3 Repayment of Moneys Held by Paying Agent. In connection with the satisfaction and discharge of this Indenture with respect to the Notes, all moneys then held by any Paying Agent other than the Indenture Trustee under the provisions of this Indenture with respect to such Notes shall, upon demand of the Issuer, be paid to the Indenture Trustee to be held and applied according to Section 3.3 and thereupon such Paying Agent shall be released from all further liability with respect to such moneys. ARTICLE V REMEDIES SECTION 5.1 Events of Default. "Event of Default," wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) default in the payment of any Current Interest on any Note when the same becomes due and payable; or (b) default in the payment of the Principal Payment Amount of any Note when the same becomes due and payable; or (c) default in the observance or performance of any covenant or agreement of the Issuer made in this Indenture (other than a covenant or agreement, a default in the observance or performance of which is elsewhere in this Section 5.1 specifically dealt with), or any representation or warranty of the Issuer made in this Indenture, the Insurance Agreement, the Sale and Servicing Agreement or in any certificate or other writing delivered pursuant hereto or in connection herewith proving to have been incorrect in any material respect as of the time when the same shall have been made, and such default shall continue or not be cured, or the circumstance or condition in respect of which such misrepresentation or warranty was incorrect shall not have been eliminated or otherwise cured, for a period of 30 days after there shall have been given, by registered or certified mail, to the Issuer by the Indenture Trustee or to the Issuer and the Indenture Trustee by the Owners of a majority of the Outstanding Amount of the Notes, a written notice specifying such default 22 or incorrect representation or warranty and requiring it to be remedied and stating that such notice is a notice of Default hereunder; or (d) the filing of a decree or order for relief by a court having jurisdiction in the premises in respect of the Issuer or any substantial part of the Collateral in an involuntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Issuer or for any substantial part of the Collateral, or ordering the winding-up or liquidation of the Issuer's affairs, and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (e) the commencement by the Issuer of a voluntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or the consent by the Issuer to the entry of an order for relief in an involuntary case under any such law, or the consent by the Issuer to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Issuer or for any substantial part of the Collateral, or the making by the Issuer of any general assignment for the benefit of creditors, or the failure by the Issuer generally to pay its debts as such debts become due, or the taking of any action by the Issuer in furtherance of any of the foregoing. The Issuer shall deliver to the Indenture Trustee and the Note Insurer, within five days after the occurrence thereof, written notice in the form of an Officer's Certificate of any event which with the giving of notice and the lapse of time would become an Event of Default under clause (c) above, its status and what action the Issuer is taking or proposes to take with respect thereto. SECTION 5.2 Acceleration of Maturity; Rescission and Annulment. If an Event of Default should occur and be continuing, the Indenture Trustee (x) shall, at the direction or upon the prior written consent of the Note Insurer or, (y) may, if a Note Insurer Default has occurred and is continuing, at the direction of the Owners of Notes representing not less than a majority of the Outstanding Amount of the Notes declare all the Notes to be immediately due and payable, by a notice in writing to the Issuer (and to the Indenture Trustee if given by Owners), and upon any such declaration the unpaid principal amount of such Notes, together with accrued and unpaid interest thereon through the date of acceleration, shall become immediately due and payable. At any time after such declaration of acceleration of maturity with respect to an Event of Default has been made and before a judgment or decree for payment of the money due has been obtained by the Indenture Trustee as hereinafter in this Article V provided, the Note Insurer or, if a Note Insurer Default exists, the Owners of Notes representing a majority of the Fixed Rate Note Principal Balances of all Notes, by written notice to the Issuer and the Indenture Trustee, may waive the related Event of Default and rescind and annul such declaration and its consequences if: (a) the Issuer has paid or deposited with the Indenture Trustee a sum sufficient to pay: (i) all payments of principal of and interest on all Notes and all other amounts that would then be due hereunder or upon such Notes if the Event of Default giving rise to such acceleration had not occurred; and (ii) all sums paid or advanced by the Indenture Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee and its agents and counsel; and 23 (iii) all Events of Default, other than the nonpayment of the principal of the Notes that has become due solely by such acceleration, have been cured or waived as provided in Section 5.12. No such rescission shall affect any subsequent default or impair any right consequent thereto. SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Indenture Trustee. (a) The Issuer covenants that if (i) default is made in the payment of any interest on any Note when the same becomes due and payable, and such default continues for a period of five days, or (ii) default is made in the payment of the principal of or any installment of the principal of any Note when the same becomes due and payable, the Issuer will, upon demand of the Indenture Trustee and at the direction of the Note Insurer, pay to the Indenture Trustee, for the benefit of the Owners of the Notes and the Note Insurer, the whole amount then due and payable on such Notes for principal and interest, with interest upon the overdue principal and, to the extent payment at such rate of interest shall be legally enforceable, upon overdue installments of interest at the rate borne by the Notes and in addition thereto such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee and the Note Insurer and their respective agents and counsel. (b) In case the Issuer shall fail forthwith to pay such amounts upon such demand, the Indenture Trustee, in its own name and as trustee of an express trust, shall at the direction of the Note Insurer, and if a Note Insurer Default has occurred and is continuing, the Indenture Trustee may, in its discretion, and shall at the direction of the Owners of the Notes representing a majority of the Outstanding Amount of the Notes, institute a Proceeding for the collection of the sums so due and unpaid, and may prosecute such Proceeding to judgment or final decree, and may enforce the same against the Issuer or other obligor upon such Notes and collect in the manner provided by law out of the property of the Issuer or other obligor upon such Notes, wherever situated, the moneys adjudged or decreed to be payable. (c) If an Event of Default occurs and is continuing, the Indenture Trustee shall, at the direction of the Note Insurer, and if a Note Insurer Default has occurred and is continuing, the Indenture Trustee may, in its discretion, and shall at the direction of the Owners of the Notes representing a majority of the Outstanding Amount of the Notes, as more particularly provided in Section 5.4, proceed to protect and enforce its rights and the rights of the Note Insurer and the Owners, by such appropriate Proceedings as the Indenture Trustee shall deem most effective to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy or legal or equitable right vested in the Indenture Trustee by this Indenture or by law. (d) In case there shall be pending, relative to the Issuer or any other obligor upon the Notes or any Person having or claiming an ownership interest in the Collateral, Proceedings under Title 11 of the United States Code or any other applicable federal or state bankruptcy, insolvency or other similar law, or in case a receiver, assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or similar official shall have been appointed for or taken possession of the Issuer or its property or such other obligor or Person, or in case of any other comparable judicial Proceedings relative to the Issuer or other obligor upon the Notes, or to the creditors or property of the Issuer or such other obligor, the Indenture Trustee, irrespective of whether the principal of any Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Indenture Trustee shall have made any demand 24 pursuant to the provisions of this Section, shall be entitled and empowered, upon the direction of the Note Insurer, by intervention in such Proceedings or otherwise: (i) to file and prove a claim or claims for the whole amount of principal and interest owing and unpaid in respect of the Notes and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Indenture Trustee (including any claim for reasonable compensation to the Indenture Trustee, each predecessor Indenture Trustee and the Note Insurer, and their respective agents, attorneys and counsel, and for reimbursement of all expenses and liabilities incurred, and all advances made, by the Indenture Trustee and each predecessor Indenture Trustee (except as a result of negligence or bad faith), the Note Insurer and of the Owners allowed in such Proceedings; (ii) unless prohibited by applicable law and regulations, to vote on behalf of the Owners of Notes in any election of a trustee, a standby trustee or Person performing similar functions in any such Proceedings; (iii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute all amounts received with respect to the claims of the Owners, the Note Insurer and the Indenture Trustee on their behalf; and (iv) to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Indenture Trustee, the Note Insurer or the Owners of Notes allowed in any judicial proceedings relative to the Issuer, its creditors and its property; and any trustee, receiver, liquidator, custodian or other similar official in any such Proceeding is hereby authorized by each of such Owners and the Note Insurer to make payments to the Indenture Trustee and, in the event that the Indenture Trustee shall consent to the making of payments directly to such Owners and the Note Insurer, to pay to the Indenture Trustee such amounts as shall be sufficient to cover reasonable compensation to the Indenture Trustee, each predecessor Indenture Trustee and their respective agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Indenture Trustee and each predecessor Indenture Trustee except as a result of negligence or bad faith. (e) Nothing herein contained shall be deemed to authorize the Indenture Trustee to authorize or consent to or vote for or accept or adopt on behalf of any Owner or the Note Insurer any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Owner thereof or the Note Insurer or to authorize the Indenture Trustee to vote in respect of the claim of any Owner in any such proceeding except, as aforesaid, to vote for the election of a trustee in bankruptcy or similar Person. (f) All rights of action and of asserting claims under this Indenture, or under any of the Notes, may be enforced by the Indenture Trustee without the possession of any of the Notes or the production thereof in any trial or other Proceedings relative thereto, and any such action or Proceedings instituted by the Indenture Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment, subject to the payment of the expenses, disbursements and compensation of the Indenture Trustee, each predecessor Indenture Trustee and their respective agents and attorneys, shall be for the ratable benefit of the Owners of the Notes and the Note Insurer. 25 (g) In any Proceedings brought by the Indenture Trustee (and also any Proceedings involving the interpretation of any provision of this Indenture to which the Indenture Trustee shall be a party), the Indenture Trustee shall be held to represent all the Owners, and it shall not be necessary to make any Owner a party to any such Proceedings. SECTION 5.4 Remedies; Priorities. (a) If an Event of Default shall have occurred and be continuing, the Indenture Trustee shall, at the direction of the Note Insurer, and if a Note Insurer Default has occurred and is continuing, the Indenture Trustee may and at the direction of the Owners of the Notes representing a majority of the Outstanding Amount of the Notes shall, upon receipt of satisfactory indemnity and assurances, do one or more of the following (subject to Section 5.5): (i) institute Proceedings in its own name and as trustee of an express trust for the collection of all amounts then payable on the Notes or under this Indenture with respect thereto, whether by declaration or otherwise, enforce any judgment obtained, and collect from the Issuer and any other obligor upon such Notes moneys adjudged due; (ii) institute Proceedings from time to time for the complete or partial foreclosure of this Indenture with respect to the Collateral; (iii) exercise any remedies of a secured party under the UCC and take any other appropriate action to protect and enforce the rights and remedies of the Indenture Trustee, the Note Insurer or the Owners; and (iv) sell the Collateral or any portion thereof or rights or interest therein in a commercially reasonable manner, at one or more public or private sales called and conducted in any manner permitted by law; provided, however, that, if a Note Insurer Default has occurred and is continuing, the Indenture Trustee may not sell or otherwise liquidate the Collateral following an Event of Default, unless (A) the Owners of 100% of the Outstanding Amount of the Notes consent thereto, (B) the proceeds of such sale or liquidation distributable to the Owners are sufficient to discharge in full all amounts then due and unpaid upon such Notes for principal and interest or (C) the Indenture Trustee determines that the Collateral will not continue to provide sufficient funds for the payment of principal of and interest on the Notes as they would have become due if the Notes had not been declared due and payable, and the Indenture Trustee obtains the consent of Owners of 66-2/3% of the Outstanding Amount of the Notes. In determining such sufficiency or insufficiency with respect to clauses (B) and (C), the Indenture Trustee may, but need not, obtain and rely upon an opinion of an Independent investment banking or accounting firm of national reputation as to the feasibility of such proposed action and as to the sufficiency of the Collateral for such purpose. (b) If the Indenture Trustee collects any money or property pursuant to this Article V, it shall pay out the money or property in the following order: 26 FIRST: to the Indenture Trustee for the Indenture Trustee Fee relating to the Fixed Rate Mortgage Loans then due and any costs or expenses incurred by it in connection with the enforcement of the remedies provided for in this Article V and to the Owner Trustee for the Owner Trustee Fee relating to the Fixed Rate Mortgage Loans then due; SECOND: to the Note Insurer for the Premium Amount relating to the Fixed Rate Mortgage Loans then due and unpaid; THIRD: to the Servicer for the Servicing Fee relating to the Fixed Rate Mortgage Loans then due and unpaid; FOURTH: to Owners for amounts due and unpaid on the Notes for Current Interest, pro rata, according to the amounts due and payable on the Notes for interest; FIFTH: to Owners of the Notes for amounts due and unpaid on the Notes for principal, pro rata; SIXTH: to the Note Insurer for any amounts then due and payable under the Insurance Agreement; and SEVENTH: to the Trust Paying Agent, for any amounts to be distributed, pro rata, to the Certificateholders. The Indenture Trustee may fix a record date and payment date for any payment to be made to the Owners pursuant to this Section. At least 15 days before such record date, the Indenture Trustee shall mail to each Owner, the Note Insurer and the Issuer a notice that states the record date, the payment date and the amount to be paid. SECTION 5.5 Optional Preservation of the Collateral. If the Notes have been declared to be due and payable under Section 5.2 following an Event of Default and such declaration and its consequences have not been rescinded and annulled, the Indenture Trustee shall, if directed by the Note Insurer (or if a Note Insurer Default has occurred and is continuing, the Indenture Trustee may, but need not) elect to maintain possession of the Collateral. It is the desire of the parties hereto and the Owners that there be at all times sufficient funds for the payment of principal of and interest on the Notes, and the Indenture Trustee shall take such desire into account when determining whether or not to maintain possession of the Collateral. In determining whether to maintain possession of the Collateral, the Indenture Trustee may, but need not, obtain and rely upon an opinion of an Independent investment banking or accounting firm of national reputation as to the feasibility of such proposed action and as to the sufficiency of the Collateral for such purpose. SECTION 5.6 Limitation of Suits. No Owner of any Note shall have any right to institute any Proceeding, judicial or otherwise, with respect to this Indenture or for the appointment of a receiver or trustee, or for any other remedy hereunder for so long as a Note Insurer Default has not occurred or is not continuing and if a Note Insurer Default has occurred and is continuing, unless: (a) such Owner has previously given written notice to the Indenture Trustee of a continuing Event of Default; 27 (b) the Owners of a majority of the Outstanding Amount of the Notes have made written request to the Indenture Trustee to institute such Proceeding in respect of such Event of Default in its own name as Indenture Trustee hereunder; (c) such Owner or Owners have offered to the Indenture Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in complying with such request; (d) the Indenture Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute such Proceedings; and (e) no direction inconsistent with such written request has been given to the Indenture Trustee during such 60-day period by the Owners of a majority of the Outstanding Amount of the Notes. It is understood and intended that no one or more Owners of Notes shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Owners of Notes or to obtain or to seek to obtain priority or preference over any other Owners or to enforce any right under this Indenture, except in the manner herein provided. In the event the Indenture Trustee shall receive conflicting or inconsistent requests and indemnity from two or more groups of Owners of Notes, each representing less than a majority of the Outstanding Amount of the Notes, the Indenture Trustee in its sole discretion may determine what action, if any, shall be taken, notwithstanding any other provisions of this Indenture. SECTION 5.7 Unconditional Rights of Owners To Receive Principal and Interest. Notwithstanding any other provisions in this Indenture, the Owner of any Note shall have the right, which is absolute and unconditional, to receive payment of the principal of and interest, if any, on such Note on or after the Final Payment Date (or, in the case of redemption, on or after the Redemption Date) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Owner. SECTION 5.8 Restoration of Rights and Remedies. If the Indenture Trustee, the Note Insurer or any Owner has instituted any Proceeding to enforce any right or remedy under this Indenture and such Proceeding has been discontinued or abandoned for any reason or has been determined adversely to the Indenture Trustee, the Note Insurer or to such Owner, then and in every such case the Issuer, the Indenture Trustee, the Note Insurer and the Owners shall, subject to any determination in such Proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Indenture Trustee and the Owners shall continue as though no such Proceeding had been instituted. SECTION 5.9 Rights and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Indenture Trustee, the Note Insurer or to the Owners is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 5.10 Delay or Omission Not a Waiver. No delay or omission of the Indenture Trustee, the Note Insurer or any Owner of any Note to exercise any right or remedy accruing upon any Default or Event of Default shall impair any such right or remedy or constitute a waiver of any such Default or Event of Default or an acquiescence therein. Every right and remedy given by this Article V or by law to the Indenture Trustee, the Note Insurer or to the Owners may be exercised from time to time, and as often as may 28 be deemed expedient, by the Indenture Trustee, the Note Insurer or by the Owners, as the case may be, subject, in each case, however, to the right of the Note Insurer to control any such right and remedy, except as provided in Section 11.20. SECTION 5.11 Control by Note Insurer or Owners. The Note Insurer, or if a Note Insurer Default exists, the Owners of a majority of the Outstanding Amount of the Notes shall have the right to direct the time, method and place of conducting any Proceeding for any remedy available to the Indenture Trustee with respect to the Notes or exercising any trust or power conferred on the Indenture Trustee; provided that: (a) such direction shall not be in conflict with any rule of law or with this Indenture; (b) if a Note Insurer Default exists, subject to the express terms of Section 5.4, any direction to the Indenture Trustee to sell or liquidate the Collateral shall be by Owners of Notes representing not less than 100% of the Outstanding Amount of the Notes; (c) if the conditions set forth in Section 5.5 have been satisfied and the Indenture Trustee elects to retain the Collateral pursuant to such Section, then any direction to the Indenture Trustee by Owners of Notes representing less than 100% of the Outstanding Amount of the Notes to sell or liquidate the Collateral shall be of no force and effect; and (d) if a Note Insurer Default exists, the Indenture Trustee may take any other action deemed proper by the Indenture Trustee that is not inconsistent with such direction. Notwithstanding the rights of the Note Insurer and the Owners set forth in this Section, subject to Section 6.1, the Indenture Trustee need not take any action that it determines might involve it in liability unless it receives assurances of sufficient indemnity or, if a Note Insurer Default exists, might materially adversely affect the rights of any Owners not consenting to such action. SECTION 5.12 Waiver of Past Defaults. Prior to the declaration of the acceleration of the maturity of the Notes as provided in Section 5.2, the Note Insurer, or if a Note Insurer Default exists, the Owners of Notes representing not less than a majority of the Outstanding Amount of the Notes may waive any past Default or Event of Default and its consequences except a Default (a) in the payment of principal of or interest on any of the Notes or (b) during the existence of a Note Insurer Default, in respect of a covenant or provision hereof that cannot be modified or amended without the consent of the Owner of each Note. In the case of any such waiver, the Issuer, the Indenture Trustee, the Note Insurer and the Owners of the Notes shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereto. Upon any such waiver, such Default shall cease to exist and be deemed to have been cured and not to have occurred, and any Event of Default arising therefrom shall be deemed to have been cured and not to have occurred, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereto. SECTION 5.13 Undertaking for Costs. All parties to this Indenture agree, and each Owner of any Note by such Owner's acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Indenture Trustee for any action taken, suffered or omitted by it as Indenture Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, 29 having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to (a) any suit instituted by the Indenture Trustee or the Note Insurer, (b) any suit instituted by any Owner, or group of Owners, in each case holding in the aggregate more than 10% of the Outstanding Amount of the Notes or (c) any suit instituted by any Owner for the enforcement of the payment of principal of or interest on any Note on or after the respective due dates expressed in such Note and in this Indenture (or, in the case of redemption, on or after the Redemption Date). SECTION 5.14 Waiver of Stay or Extension Laws. The Issuer covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead or in any manner whatsoever, claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Issuer (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Indenture Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 5.15 Action on Notes. The Indenture Trustee's right to seek and recover judgment on the Notes or under this Indenture shall not be affected by the seeking, obtaining or application of any other relief under or with respect to this Indenture. Neither the lien of this Indenture nor any rights or remedies of the Indenture Trustee or the Owners shall be impaired by the recovery of any judgment by the Indenture Trustee against the Issuer or by the levy of any execution under such judgment upon any portion of the Collateral or upon any of the assets of the Issuer. Any money or property collected by the Indenture Trustee shall be applied in accordance with Section 5.4(b). SECTION 5.16 Performance and Enforcement of Certain Obligations. (a) Promptly following a request from the Indenture Trustee or the Note Insurer to do so, the Issuer shall take all such lawful action as the Indenture Trustee or the Note Insurer may request to compel or secure the performance and observance by the Seller and the Servicer, as applicable, of each of their obligations to the Issuer under or in connection with the Sale and Servicing Agreement and to exercise any and all rights, remedies, powers and privileges lawfully available to the Issuer under or in connection with the Sale and Servicing Agreement to the extent and in the manner directed by the Indenture Trustee or the Note Insurer, including the transmission of notices of default on the part of the Seller or the Servicer thereunder and the institution of legal or administrative actions or proceedings to compel or secure performance by the Seller or the Servicer of each of their obligations under the Sale and Servicing Agreement. (b) If an Event of Default has occurred and is continuing, the Indenture Trustee may (with the consent of the Note Insurer), and at the direction of the Note Insurer (or if a Note Insurer Default exists, at the written direction (which direction shall be in writing or by telephone, confirmed in writing promptly thereafter) of the Owners of 66-2/3% of the Outstanding Amount of the Notes) shall, exercise all rights, remedies, powers, privileges and claims of the Issuer against the Seller or the Servicer under or in connection with the Sale and Servicing Agreement, including the right or power to take any action to compel or secure performance or observance by the Seller or the Servicer, as the case may be, of each of their obligations to the Issuer thereunder and to give any consent, request, notice, direction, approval, extension, or waiver under the Sale and Servicing Agreement and any right of the Issuer to take such action shall be suspended. 30 ARTICLE VI THE INDENTURE TRUSTEE SECTION 6.1 Duties of Indenture Trustee. (a) If an Event of Default of which a Responsible Officer of the Indenture Trustee shall have actual knowledge has occurred and is continuing, the Indenture Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (i) the Indenture Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Indenture Trustee; and (ii) in the absence of bad faith on its part, the Indenture Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates (or similar documents) or opinions furnished to the Indenture Trustee and conforming to the requirements of this Indenture; however, the Indenture Trustee shall examine the certificates (or similar documents) and opinions to determine whether or not they conform to the requirements of this Indenture; provided that the Indenture Trustee shall not be responsible for the accuracy or content of any certificate (or similar document) or opinion furnished to it pursuant to the terms of this Indenture. (c) The Indenture Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; (ii) the Indenture Trustee shall not be personally liable for any error of judgment made in good faith by a Responsible Officer unless it is proved that the Indenture Trustee was negligent in ascertaining the pertinent facts; and (iii) the Indenture Trustee shall not be personally liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 5.11 or for exercising or omitting to exercise any trust or power conferred upon the Indenture Trustee under this Indenture. (d) Every provision of this Indenture that in any way relates to the Indenture Trustee is subject to paragraphs (a), (b), (c) and (g) of this Section. (e) The Indenture Trustee shall not be liable for interest on any money received by it except as the Indenture Trustee may agree in writing with the Issuer and except to the extent of income or other gain on investments which are deposits in or certificates of deposit of the Indenture Trustee in its commercial capacity. 31 (f) Money held in trust by the Indenture Trustee shall be segregated from other funds except to the extent permitted by law or the terms of this Indenture or the Sale and Servicing Agreement. (g) No provision of this Indenture shall require the Indenture Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it; provided, however, that the Indenture Trustee shall not refuse or fail to perform any of its duties hereunder solely as a result of nonpayment of its normal fees and expenses and further provided that nothing in this Section 6.1(g) shall be construed to limit the exercise by the Indenture Trustee of any right or remedy permitted under this Indenture or otherwise in the event of the Issuer's failure to pay the Indenture Trustee's fees and expenses pursuant to Section 6.7. In determining that such repayment or indemnity is not reasonably assured to it, the Indenture Trustee must consider not only the likelihood of repayment or indemnity by or on behalf of the Issuer but also the likelihood of repayment or indemnity from amounts payable to it from the Collateral pursuant to Section 6.7. (h) Every provision of this Indenture relating to the conduct of, affecting the liability of or affording protection to the Indenture Trustee shall be subject to the provisions of this Section and to the provisions of the TIA. SECTION 6.2 Rights of Indenture Trustee. (a) The Indenture Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Indenture Trustee need not investigate any fact or matter stated in the document. (b) Before the Indenture Trustee acts or refrains from acting, it may require an Officer's Certificate or an Opinion of Counsel, which shall not be at the expense of the Indenture Trustee. The Indenture Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on an Officer's Certificate or Opinion of Counsel. (c) The Indenture Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys or a custodian or nominee and the Indenture Trustee shall not be responsible for any misconduct or negligence on the part of any such agent or attorney or custodian appointed by the Indenture Trustee with due care. (d) The Indenture Trustee shall not be liable for (i) any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers; provided, however, that such action or omission by the Indenture Trustee does not constitute willful misconduct, negligence or bad faith; or (ii) any willful misconduct or gross negligence on the part of the Custodian. SECTION 6.3 Individual Rights of Indenture Trustee. The Indenture Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Issuer or its Affiliates with the same rights it would have if it were not Indenture Trustee. Any Paying Agent, Note Registrar, co-registrar or co-paying agent may do the same with like rights. However, the Indenture Trustee must comply with Sections 6.11 and 6.12. SECTION 6.4 Indenture Trustee's Disclaimer. The Indenture Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, shall not be 32 accountable for the Issuer's use of the proceeds from the Notes, or responsible for any statement of the Issuer in this Indenture or in any document issued in connection with the sale of the Notes or in the Notes other than the Indenture Trustee's certificate of authentication. SECTION 6.5 Notice of Defaults. If a Default occurs and is continuing and if it is known to a Responsible Officer of the Indenture Trustee, the Indenture Trustee shall mail to the Rating Agencies, the Note Insurer and each Owner notice of the Default within 90 days after it occurs. Except in the case of a Default in payment of principal of or interest on any Note (including payments pursuant to the mandatory redemption provisions of such Note), the Indenture Trustee may withhold the notice to each Owner if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of Owners. SECTION 6.6 Reports by Indenture Trustee to Owners. The Indenture Trustee shall deliver to each Owner such information as may be required to enable such Owner to prepare its federal and state income tax returns. SECTION 6.7 Compensation and Indemnity. The Indenture Trustee shall receive compensation for fees and reimbursement for expenses pursuant to Sections 3.5(b)(i)(A) and 3.5(b)(iv) of the Sale and Servicing Agreement. The Indenture Trustee and any director, officer, employee or agent of the Indenture Trustee shall be indemnified by the Issuer and held harmless against any loss, liability, or "unanticipated out-of-pocket" expense incurred or paid to third parties (which expenses shall not include salaries paid to employees, or allocable overhead, of the Indenture Trustee) in connection with the acceptance or administration of its trusts hereunder or the Notes, other than any loss, liability or expense incurred by reason of willful misfeasance, bad faith or negligence in the performance of duties hereunder or by reason of reckless disregard of obligations and duties hereunder. All such amounts described in the preceding sentence shall be payable as provided in Section 3.5(b)(iv) of the Sale and Servicing Agreement, subject to Section 6.1(g) of this Indenture. The provisions of this Section 6.7 shall survive the termination of this Indenture. SECTION 6.8 Replacement of Indenture Trustee. No resignation or removal of the Indenture Trustee and no appointment of a successor Indenture Trustee shall become effective until the acceptance of appointment by the successor Indenture Trustee pursuant to this Section. The Indenture Trustee may resign at any time by so notifying the Issuer, the Rating Agencies and the Note Insurer. The Note Insurer (or during the continuation of a Note Insurer Default, the Owners of a majority of the Outstanding Amount of the Notes) may remove the Indenture Trustee by so notifying the Indenture Trustee and may appoint a successor Indenture Trustee. The Note Insurer (or the Issuer upon the prior written consent of the Note Insurer) may remove the Indenture Trustee if: (a) the Indenture Trustee fails to comply with Section 6.11; (b) the Indenture Trustee is adjudged a bankrupt or insolvent; (c) a receiver or other public officer takes charge of the Indenture Trustee or its property; or (d) the Indenture Trustee otherwise becomes incapable of acting. If the Indenture Trustee resigns or is removed, or if a vacancy exists in the office of Indenture Trustee for any reason (the Indenture Trustee in such event being referred to herein as the retiring Indenture Trustee), the Note Insurer may, or if the Note Insurer fails to do so, the Issuer, shall promptly appoint a successor Indenture Trustee acceptable to the Note Insurer. A successor Indenture Trustee shall deliver a 33 written acceptance of its appointment to the retiring Indenture Trustee, the Note Insurer and to the Issuer. Thereupon the resignation or removal of the retiring Indenture Trustee shall become effective, and the successor Indenture Trustee shall have all the rights, powers and duties of the Indenture Trustee under this Indenture. The successor Indenture Trustee shall mail a notice of its succession to the Owners. The retiring Indenture Trustee shall promptly transfer all property held by it as Indenture Trustee to the successor Indenture Trustee. If a successor Indenture Trustee does not take office within 60 days after the retiring Indenture Trustee resigns or is removed, the retiring Indenture Trustee, the Issuer or the Owners of a majority of the Outstanding Amount of the Notes may petition any court of competent jurisdiction for the appointment of a successor Indenture Trustee acceptable to the Note Insurer. If the Indenture Trustee fails to comply with Section 6.11, the Note Insurer (or during the continuation of a Note Insurer Default, any Owner) may petition any court of competent jurisdiction for the removal of the Indenture Trustee and the appointment of a successor Indenture Trustee acceptable to the Note Insurer. Notwithstanding anything to the contrary herein, no resignation or removal of the Indenture Trustee shall be effective until a replacement Indenture Trustee acceptable to the Note Insurer has accepted its appointment as replacement Indenture Trustee. Notwithstanding the replacement of the Indenture Trustee pursuant to this Section, the Issuer's obligations under Section 6.7 shall continue for the benefit of the retiring Indenture Trustee. SECTION 6.9 Successor Indenture Trustee by Merger. If the Indenture Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Indenture Trustee; provided, that such corporation or banking association shall be otherwise qualified and eligible under Section 6.11. The Indenture Trustee shall provide the Note Insurer and the Rating Agencies prior written notice of any such transaction. In case at the time such successor or successors by merger, conversion or consolidation to the Indenture Trustee shall succeed to the trusts created by this Indenture any of the Notes shall have been authenticated but not delivered, any such successor to the Indenture Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Notes so authenticated; and in case at that time any of the Notes shall not have been authenticated, any successor to the Indenture Trustee may authenticate such Notes either in the name of any predecessor hereunder or in the name of the successor to the Indenture Trustee; and in all such cases such certificates shall have the full force provided in the Notes or in this Indenture. SECTION 6.10 Appointment of Co-Indenture Trustee or Separate Indenture Trustee. (a) Notwithstanding any other provisions of this Indenture, at any time, for the purpose of meeting any legal requirement of any jurisdiction in which any part of the Collateral may at the time be located, the Indenture Trustee shall have the power, with the prior written consent of the Note Insurer, and may execute and deliver all instruments to appoint one or more Persons to act as a co-trustee or co-trustees, or separate trustee or separate trustees, of all or any part of the Trust, and to vest in such Person or Persons, 34 in such capacity and for the benefit of the Owners, such title to the Collateral, or any part hereof, and, subject to the other provisions of this Section, such powers, duties, obligations, rights and trusts as the Indenture Trustee may consider necessary or desirable. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 6.11 and no notice to Owners of the appointment of any co-trustee or separate trustee shall be required under Section 6.8 hereof; provided that the Indenture Trustee shall deliver notice of any such co-trustee or separate trustee to the Servicer and the Note Insurer. (b) Every separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (i) all rights, powers, duties and obligations conferred or imposed upon the Indenture Trustee shall be conferred or imposed upon and exercised or performed by the Indenture Trustee and such separate trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately without the Indenture Trustee joining in such act), except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed the Indenture Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Collateral or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate trustee or co-trustee, but solely at the direction of the Indenture Trustee; (ii) no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder; and (iii) the Indenture Trustee may at any time accept the resignation of or remove any separate trustee or co-trustee. (c) Any notice, request or other writing given to the Indenture Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Indenture and the conditions of this Article VI. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, jointly with the Indenture Trustee, subject to all the provisions of this Indenture, specifically including every provision of this Indenture relating to the conduct of, affecting the liability of, or affording protection to, the Indenture Trustee. Every such instrument shall be filed with the Indenture Trustee. (d) Any separate trustee or co-trustee may at any time constitute the Indenture Trustee its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Indenture on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Indenture Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. SECTION 6.11 Eligibility; Disqualification. The Indenture Trustee shall at all times be acceptable to the Note Insurer and authorized to exercise corporate trust powers. The Indenture Trustee shall also satisfy the requirements of TIA Section 310(a) and have a combined capital and surplus of at least 35 $50,000,000 as set forth in its most recent published annual report of condition and it or its parent shall have a long-term debt rating of Baa3 or better by Moody's and BBB or better by Standard & Poor's. The Indenture Trustee shall comply with TIA Section 310(b), including the optional provision permitted by the second sentence of TIA Section 310(b)(9); provided, however, that there shall be excluded from the operation of TIA Section 310(b)(1) any indenture or indentures under which other securities of the Issuer are outstanding if the requirements for such exclusion set forth in TIA Section 310(b)(1) are met. If at any time the Indenture Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect specified in Section 6.8 hereof. SECTION 6.12 Preferential Collection of Claims Against Issuer. The Indenture Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). An Indenture Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated. SECTION 6.13 Tax Administration of the Issuer. The Servicer shall prepare and file (or cause to be prepared and filed), on behalf of the Owner Trustee, all tax returns and information reports, tax elections and such annual or other reports of the Issuer as are necessary for preparation of tax returns and information reports as provided in Section 5.5 of the Trust Agreement, including without limitation Form 1099. SECTION 6.14 Representations and Warranties. The Indenture Trustee hereby represents that: (i) The Indenture Trustee is duly organized and validly existing as a banking corporation in good standing under the laws of New York with power and authority to own its properties and to conduct its business as such properties are currently owned and such business is presently conducted; (ii) The Indenture Trustee has the power and authority to execute and deliver this Indenture and to carry out its terms; and the execution, delivery and performance of this Indenture have been duly authorized by the Indenture Trustee by all necessary corporate action; (iii) The consummation of the transactions contemplated by this Indenture and the fulfillment of the terms hereof do not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under, the articles of organization or bylaws of the Indenture Trustee or any agreement or other instrument to which the Indenture Trustee is a party or by which it is bound; (iv) To the Indenture Trustee's best knowledge, there are no proceedings or investigations pending or threatened before any court, regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Indenture Trustee or its properties: (A) asserting the invalidity of this Indenture, (B) seeking to prevent the consummation of any of the transactions contemplated by this Indenture or (C) seeking any determination or ruling that might materially and adversely affect the performance by the Indenture Trustee of its obligations under, or the validity or enforceability of, this Indenture; and (v) This Indenture when executed by the Indenture Trustee, will constitute the legal, valid and binding obligation of the Indenture Trustee, enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and general equitable principles. 36 SECTION 6.15 Directions to Indenture Trustee. The Indenture Trustee is hereby directed: (a) to accept the pledge of the Fixed Rate Mortgage Loans and hold the assets of the Owner Trust Estate in trust for the Owners of the Notes and the Note Insurer; (b) to authenticate and deliver the Notes substantially in the form prescribed by Exhibit A in accordance with the terms of this Indenture; and (c) to take all other actions as shall be required to be taken by the terms of this Indenture. ARTICLE VII OWNERS' LISTS AND REPORTS SECTION 7.1 Issuer To Furnish Indenture Trustee Names and Addresses of Owners. The Issuer will furnish or cause to be furnished to the Indenture Trustee (a) not more than five days after each Record Date, a list, in such form as the Indenture Trustee may reasonably require, of the names and addresses of the Owners as of such Record Date, (b) at such other times as the Indenture Trustee may request in writing, within 30 days after receipt by the Issuer of any such request, a list of similar form and content as of a date not more than 10 days prior to the time such list is furnished; provided, however, that so long as the Indenture Trustee is the Note Registrar, no such list shall be required to be furnished. SECTION 7.2 Preservation of Information; Communications to Owners. (a) The Indenture Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of the Owners contained in the most recent list furnished to the Indenture Trustee as provided in Section 7.1 and the names and addresses of Owners received by the Indenture Trustee in its capacity as Note Registrar. The Indenture Trustee may destroy any list furnished to it as provided in such Section 7.1 upon receipt of a new list so furnished. (b) Owners may communicate pursuant to TIA Section 312(b) with other Owners with respect to their rights under this Indenture or under the Notes. (c) The Issuer, the Indenture Trustee and the Note Registrar shall have the protection of TIA Section 312(c). SECTION 7.3 Reports by Issuer. The Issuer shall: (a) file with the Indenture Trustee and the Note Insurer, within 15 days after the Issuer is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) that the Issuer may be required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act; 37 (b) file with the Indenture Trustee and the Note Insurer and the Commission in accordance with the rules and regulations prescribed from time to time by the Commission such additional information, documents and reports with respect to compliance by the Issuer with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (c) supply to the Indenture Trustee (and the Indenture Trustee shall transmit by mail to all Owners described in TIA Section 313(c)) such summaries of any information, documents and reports required to be filed by the Issuer pursuant to clauses (i) and (ii) of this Section 7.3(a) and by rules and regulations prescribed from time to time by the Commission. SECTION 7.4 Reports by Indenture Trustee. If required by TIA Section 313(a), within 60 days after each January 1, beginning with January 1, 1999, the Indenture Trustee shall mail to the Note Insurer and to each Owner as required by TIA Section 313(c) a brief report dated as of such date that complies with TIA Section 313(a). The Indenture Trustee also shall comply with TIA Section 313(b). A copy of each report at the time of its mailing to Owners shall be filed by the Indenture Trustee with the Commission and each securities exchange, if any, on which the Notes are listed. The Issuer shall notify the Indenture Trustee if and when the Notes are listed on any securities exchange. ARTICLE VIII ACCOUNTS, DISBURSEMENTS AND RELEASES SECTION 8.1 Collection of Money. (a) General. Except as otherwise expressly provided herein, the Indenture Trustee may demand payment or delivery of, and shall receive and collect, directly and without intervention or assistance of any fiscal agent or other intermediary, all money and other property payable to or receivable by the Indenture Trustee pursuant to this Indenture. The Indenture Trustee shall apply all such money received by it as provided in this Indenture. Except as otherwise expressly provided in this Indenture, if any default occurs in the making of any payment or performance under any agreement or instrument that is part of the Collateral, the Indenture Trustee may (with the consent of the Note Insurer), and upon written request of the Note Insurer shall, take such action as may be appropriate to enforce such payment or performance, including the institution and prosecution of appropriate Proceedings. Any such action shall be without prejudice to any right to claim a Default or Event of Default under this Indenture and any right to proceed thereafter as provided in Article V. (b) Claims Under Fixed Rate Note Insurance Policy. The Notes will be insured by the Fixed Rate Note Insurance Policy pursuant to the terms set forth therein, notwithstanding any provisions to the contrary contained in this Indenture or the Sale and Servicing Agreement. All amounts received under the Fixed Rate Note Insurance Policy shall be used solely for the payment to Owners of Insured Payments. SECTION 8.2 Accounts; Distributions. (a) On or prior to the Closing Date, the Issuer shall cause the Servicer to establish and maintain, in the name of the Indenture Trustee for the benefit of the Owners and the Note Insurer, the Accounts as 38 provided in the Sale and Servicing Agreement. The Indenture Trustee shall deposit amounts into the Accounts in accordance with the terms hereof and the Sale and Servicing Agreement. (b) On or before the Remittance Date prior to each Payment Date, the Servicer shall withdraw from the Principal and Interest Account the amounts specified in Section 3.3(a) of the Sale and Servicing Agreement and will deposit such amount into the Fixed Rate Note Account. No later than the Business Day prior to each Payment Date, to the extent funds are available in the Fixed Rate Note Account, the Indenture Trustee shall either retain funds in the Fixed Rate Note Account or make the withdrawals from the Fixed Rate Note Account and deposits into the other Accounts for distribution on such Payment Date as required pursuant to Section 3.3(b) of the Sale and Servicing Agreement. (c) On each Payment Date and the Redemption Date, to the extent funds are available in the Fixed Rate Note Account, the Indenture Trustee shall make the following distributions from the amounts on deposit in the Fixed Rate Note Account in the following order of priority (except as otherwise provided in Section 5.4(b)): (i) to the Owners of the Notes, the Current Interest for such Payment Date; provided, that if there are not sufficient funds in the Fixed Rate Note Account to pay the entire amount of accrued and unpaid interest then due on the Notes, the amount in the Fixed Rate Note Account shall be applied to the payment of such interest on the Notes pro rata on the basis of the total such interest due on the Notes; and (ii) to the Owners of the Notes, the Fixed Rate Principal Payment Amount for such Payment Date. (d) The Indenture Trustee shall make claims, in respect of the Fixed Rate Mortgage Loans under the Fixed Rate Note Insurance Policy pursuant to Section 3.3 of the Sale and Servicing Agreement and in accordance with the Fixed Rate Note Insurance Policy. The Indenture Trustee shall deposit any Insured Payment received from the Note Insurer in respect of the Fixed Rate Notes in the Policy Payments Account. All amounts received under the Fixed Rate Note Insurance Policy shall be used solely for the payment to Owners of principal and interest on the Notes. SECTION 8.3 General Provisions Regarding Accounts. (a) So long as no Default or Event of Default shall have occurred and be continuing, all or a portion of the funds in the Accounts shall be invested in Eligible Investments and reinvested by the Indenture Trustee at the direction of the Seller in accordance with the provisions of Section 3.6 of the Sale and Servicing Agreement. The Issuer will not direct the Indenture Trustee to make any investment of any funds or to sell any investment held in any of the Accounts unless the security interest Granted and perfected in such Account will continue to be perfected in such investment or the proceeds of such sale, in either case without any further action by any Person, and, in connection with any direction to the Indenture Trustee to make any such investment or sale. (b) Subject to Section 6.1(c), the Indenture Trustee shall not in any way be held liable by reason of any insufficiency in any of the Accounts resulting from any loss on any Eligible Investment included therein except for losses attributable to the Indenture Trustee's failure to make payments on such Eligible 39 Investments issued by the Indenture Trustee, in its commercial capacity as principal obligor and not as trustee, in accordance with their terms. (c) If (i) the Seller shall have failed to give investment directions for any funds on deposit in the Accounts to the Indenture Trustee by 11:00 a.m. Eastern Time (or such other time as may be agreed by the Issuer and Indenture Trustee) on any Business Day or (ii) a Default or Event of Default shall have occurred and be continuing with respect to the Notes but the Notes shall not have been declared due and payable pursuant to Section 5.2 or (iii) if such Notes shall been declared due and payable following an Event of Default, amounts collected or receivable from the Collateral are being applied in accordance with Section 5.5 as if there had not been such a declaration, then the Indenture Trustee shall, to the fullest extent practicable, invest and reinvest funds in the Accounts in one or more Eligible Investments. SECTION 8.4 Monthly Statements. On each Payment Date (to the extent it receives the supporting documentation from the Servicer on a timely basis), the Indenture Trustee shall deliver the report required by Section 3.8 of the Sale and Servicing Agreement with respect to such Payment Date to the Seller, the Servicer, the Rating Agencies, and the Note Insurer. SECTION 8.5 Release of Collateral. (a) Subject to the payment of its fees and expenses pursuant to Section 6.7, the Indenture Trustee may, and when required by the provisions of this Indenture and the Sale and Servicing Agreement shall, execute instruments to release property from the lien of this Indenture, or convey the Indenture Trustee's interest in the same, in a manner and under circumstances that are not inconsistent with the provisions of this Indenture. No party relying upon an instrument executed by the Indenture Trustee as provided in this Article VIII shall be bound to ascertain the Indenture Trustee's authority, inquire into the satisfaction of any conditions precedent or see to the application of any moneys. (b) The Indenture Trustee shall, at such time as there are no Notes Outstanding and all sums due to the Note Insurer, the Indenture Trustee and the Owner Trustee in respect of the Notes have been paid, release any remaining portion of the Collateral that secured the Notes from the lien of this Indenture and release to the Issuer or any other Person entitled thereto any funds then on deposit in the Accounts. (c) The Indenture Trustee shall release property from the lien of this Indenture pursuant to Subsection (b) above only upon receipt of an Issuer Request accompanied by an Officer's Certificate, an Opinion of Counsel and (if required by the TIA) Independent Certificates in accordance with TIA Sections 314(c) and 314(d)(1) meeting the applicable requirements of Section 11.1. SECTION 8.6 Opinion of Counsel. The Indenture Trustee and the Note Insurer shall receive at least seven Business Days notice when requested by the Issuer to take any action pursuant to Section 8.5(a), accompanied by copies of any instruments involved, and the Indenture Trustee shall also require, as a condition to such action, an Opinion of Counsel, in form and substance satisfactory to the Indenture Trustee, stating the legal effect of any such action, outlining the steps required to complete the same, and concluding that all conditions precedent to the taking of such action have been complied with and such action will not materially and adversely impair the security for the Notes or the rights of the Owners in contravention of the provisions of this Indenture; provided, however, that such Opinion of Counsel shall not be required to express an opinion as to the fair value of the Collateral. Counsel rendering any such opinion may rely, 40 without independent investigation, on the accuracy and validity of any certificate or other instrument delivered to the Indenture Trustee in connection with any such action. ARTICLE IX SUPPLEMENTAL INDENTURES SECTION 9.1 Supplemental Indentures Without Consent of Owners. (a) Without the consent of the Owners of any Notes but with prior notice to the Rating Agencies and with the prior written consent of the Note Insurer, the Issuer and the Indenture Trustee, when authorized by an Issuer Order, at any time and from time to time, may enter into one or more indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act as in force at the date of the execution thereof), in form satisfactory to the Indenture Trustee, for any of the following purposes: (i) to correct or amplify the description of any property at any time subject to the lien of this Indenture, or better to assure, convey and confirm unto the Indenture Trustee any property subject or required to be subjected to the lien of this Indenture, or to subject to the lien of this Indenture additional property; (ii) to evidence the succession, in compliance with the applicable provisions hereof, of another person to the Issuer, and the assumption by any such successor of the covenants of the Issuer herein and in the Notes contained; (iii) to add to the covenants of the Issuer, for the benefit of the Owners of the Notes, or to surrender any right or power herein conferred upon the Issuer; (iv) to convey, transfer, assign, mortgage or pledge any property to or with the Indenture Trustee; (v) to cure any ambiguity, to correct or supplement any provision herein or in any supplemental indenture that may be inconsistent with any other provision herein or in any supplemental indenture or to make any other provisions with respect to matters or questions arising under this Indenture or in any supplemental indenture; provided, that such action shall not adversely affect the interests of the Owners of the Notes; (vi) to evidence and provide for the acceptance of the appointment hereunder by a successor trustee with respect to the Notes and to add to or change any of the provisions of this Indenture as shall be necessary to facilitate the administration of the trusts hereunder by more than one trustee, pursuant to the requirements of Article VI; (vii) to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualification of the Indenture under the TIA or under any similar federal statute hereafter enacted and to add to the Indenture such other provisions as may be expressly required by the TIA; or 41 (viii) to modify or alter the provisions of the definition of the term "Outstanding". The Indenture Trustee is hereby authorized to join in the execution of any such supplemental indenture and to make any further appropriate agreements and stipulations that may be therein contained. (b) The Issuer and the Indenture Trustee, with the prior written consent of the Note Insurer, when authorized by an Issuer Order, may, upon satisfaction of the Rating Agency Condition but without the consent of any of the Owners , enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, this Indenture or of modifying in any manner the rights of the Owners of the Notes under this Indenture; provided, however, that such action shall not, as evidenced by (i) an Opinion of Counsel or (ii) satisfaction of the Rating Agency Condition, adversely affect in any material respect the interests of any Owner. SECTION 9.2 Supplemental Indentures with Consent of Owners. The Issuer and the Indenture Trustee, when authorized by an Issuer Order, also may, with the prior consent of the Note Insurer and with the consent of the Owners of not less than a majority of the Outstanding Amount of the Notes, by Act of such Owners delivered to the Issuer and the Indenture Trustee, enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, this Indenture or of modifying in any manner the rights of the Owners of the Notes under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Owner of each Note affected thereby and the Note Insurer if affected thereby: (a) change the date of payment of any installment of principal of or interest on any Note, or reduce the principal amount thereof or, the Fixed Rate Note Rate, change the provisions of this Indenture relating to the application of collections on, or the proceeds of the sale of, the Collateral to payment of principal of or interest on the Notes, or change any place of payment where, or the coin or currency in which, any Note or the interest thereon is payable, or impair the right to institute suit for the enforcement of the provisions of this Indenture requiring the application of funds available therefor, as provided in Article V, to the payment of any such amount due on the Notes on or after the respective due dates thereof (or, in the case of redemption, on or after the Redemption Date); (b) reduce the percentage of the Outstanding Amount of the Notes, the consent of the Owners of which is required for any such supplemental indenture, or the consent of the Owners of which is required for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences provided for in this Indenture; (c) reduce the percentage of the Outstanding Amount of the Notes required to direct the Indenture Trustee to direct the Issuer to sell or liquidate the Collateral pursuant to Section 5.4; (d) modify any provision of this Section except to increase any percentage specified herein or to provide that certain additional provisions of this Indenture or the Operative Documents cannot be modified or waived without the consent of the Owner of each Note affected thereby; (e) modify any of the provisions of this Indenture in such manner as to affect the calculation of the amount of any payment of interest or principal due on any Note on any Payment Date (including the calculation of any of the individual components of such calculation) or to affect the rights of the Owners of Notes to the benefit of any provisions for the mandatory redemption of the Notes contained herein; or 42 (f) permit the creation of any lien ranking prior to or on a parity with the lien of this Indenture with respect to any part of the Collateral or, except as otherwise permitted or contemplated herein, terminate the lien of this Indenture on any property at any time subject hereto or deprive the Owner of any Note of the security provided by the lien of this Indenture. The Indenture Trustee may in its discretion determine whether or not any Notes would be affected by any supplemental indenture and any such determination shall be conclusive upon the Owners of all Notes, whether theretofore or thereafter authenticated and delivered hereunder. The Indenture Trustee shall not be liable for any such determination made in good faith. In connection with requesting the consent of the Owners pursuant to this Section, the Indenture Trustee shall mail to the Owners of the Notes to which such amendment or supplemental indenture relates a notice setting forth in general terms the substance of such supplemental indenture. It shall not be necessary for any Act of Owners under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 9.3 Execution of Supplemental Indentures. In executing, or permitting the additional trusts created by, any supplemental indenture permitted by this Article IX or the modification thereby of the trusts created by this Indenture, the Indenture Trustee shall be entitled to receive, and subject to Sections 6.1 and 6.2, shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Indenture Trustee may, but shall not be obligated to, enter into any such supplemental indenture that affects the Indenture Trustee's own rights, duties, liabilities or immunities under this Indenture or otherwise. SECTION 9.4 Effect of Supplemental Indenture. Upon the execution of any supplemental indenture pursuant to the provisions hereof, this Indenture shall be deemed to be modified and amended in accordance therewith with respect to the Notes affected thereby, and the respective rights, limitations of rights, obligations, duties, liabilities and immunities under this Indenture of the Indenture Trustee, the Issuer and the Owners of the Notes shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. SECTION 9.5 Conformity with Trust Indenture Act. Every amendment of this Indenture and every supplemental indenture executed pursuant to this Article IX shall conform to the requirements of the Trust Indenture Act as then in effect so long as this Indenture shall then be qualified under the Trust Indenture Act. SECTION 9.6 Reference in Notes to Supplemental Indentures. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to this Article IX may, and if required by the Indenture Trustee shall, bear a notation in form approved by the Indenture Trustee as to any matter provided for in such supplemental indenture. If the Issuer or the Indenture Trustee shall so determine, new notes so modified as to conform, in the opinion of the Indenture Trustee and the Issuer, to any such supplemental indenture may be prepared and executed by the Issuer and authenticated and delivered by the Indenture Trustee in exchange for Notes. 43 SECTION 9.7 Amendments to Trust Agreement. Subject to Section 11.1 of the Trust Agreement, the Indenture Trustee shall, upon Issuer Order, consent to any proposed amendment to the Trust Agreement or an amendment to or waiver of any provision of any other document relating to the Trust Agreement, such consent to be given without the necessity of obtaining the consent of the Owners of any Notes upon satisfaction of the requirements under Section 11.1 of the Trust Agreement. Nothing in this Section shall be construed to require that any Person obtain the consent of the Indenture Trustee to any amendment or waiver or any provision of any document where the making of such amendment or the giving of such waiver without obtaining the consent of the Indenture Trustee is not prohibited by this Indenture or by the terms of the document that is the subject of the proposed amendment or waiver. SECTION 9.8 Notice of Supplemental Indentures. The Indenture Trustee shall, upon execution thereof, provide notice of the form and substance of any Supplemental Indenture to each party hereto, the Note Insurer, the Rating Agencies and each Owner. ARTICLE X REDEMPTION OF NOTES SECTION 10.1 Redemption. The Servicer has the option to purchase all of the Collateral at the Redemption Price on the Redemption Date or any Payment Date thereafter pursuant to Section 5.2 of the Sale and Servicing Agreement. If the Servicer declines to exercise such option to purchase the Collateral, the Note Insurer may do so as provided in Section 5.2(c) of the Sale and Servicing Agreement. Upon such purchase by either the Servicer or the Note Insurer, the Issuer shall use the proceeds it receives to redeem the Notes, in whole and not in part, and terminate this Indenture. Any such redemption by the Servicer or the Note Insurer, as applicable, shall be accomplished by the Servicer or the Note Insurer, as applicable, depositing or causing to be deposited into the Principal and Interest Account by 10:00 A.M. New York City time on the Remittance Date prior to the Redemption Date (or such later Payment Date on which the Collateral is purchased) the amount of the Redemption Price. On the Payment Date after the date that the Redemption Price is deposited into the Principal and Interest Account, the Redemption Price shall be transferred to the Fixed Rate Note Account for distribution to the Owners on the Redemption Date; and any amounts received with respect to the Fixed Rate Mortgage Loans and REO Properties subsequent to such transfer shall belong to the Servicer or the Note Insurer, as applicable. The Servicer or the Issuer shall furnish the Indenture Trustee, the Rating Agencies and the Note Insurer notice of any such redemption in accordance with Section 10.2 no later than 15 days prior to the Redemption Date. SECTION 10.2 Form of Redemption Notice. (a) Notice of redemption under Section 10.1 shall be given by the Indenture Trustee by first-class mail, postage prepaid, or by facsimile mailed or transmitted not later than 10 days prior to the applicable Redemption Date to each Owner of Notes, as of the close of business on the Record Date 44 preceding the applicable Redemption Date, at such Owner's address or facsimile number appearing in the Note Register. All notices of redemption shall state: (i) the Redemption Date; (ii) the Redemption Price; and (iii) the place where such Notes are to be surrendered for payment of the Redemption Price (which shall be the office or agency of the Issuer to be maintained as provided in Section 3.2). Notice of redemption of the Notes shall be given by the Indenture Trustee in the name of the Issuer and at the expense of the Servicer. Failure to give notice of redemption, or any defect therein, to any Owner of any Note shall not impair or affect the validity of the redemption of any other Note SECTION 10.3 Notes Payable on Redemption Date; Provision for Payment of Indenture Trustee, Owner Trustee and Note Insurer. The Notes or portions thereof to be redeemed shall, following notice of redemption as required by Section 10.2 (in the case of redemption pursuant to Section 10.1), on the Redemption Date become due and payable at the Redemption Price and (unless the Issuer shall default in the payment of the Redemption Price) no interest shall accrue on the Redemption Price for any period after the date to which accrued interest is calculated for purposes of calculating the Redemption Price. The Issuer may not redeem the Notes unless, (i) all outstanding obligations under the Notes have been paid in full and (ii) the Indenture Trustee and the Owner Trustee have been paid all amounts in respect of the Notes to which they are entitled hereunder and the Note Insurer has been paid all Premium Amounts and Reimbursement Amounts to which it is entitled in respect of the Notes as of the applicable Redemption Date. SECTION 10.4 Notice of Final Payment. The Indenture Trustee shall provide notice to the Note Insurer, the Seller, the Servicer, the Rating Agencies and each Owner of the final payment under the Notes, whether by redemption, acceleration or payment of the Notes in accordance with their terms. ARTICLE XI MISCELLANEOUS SECTION 11.1 Compliance Certificates and Opinions, etc. Upon any application or request by the Issuer to the Indenture Trustee to take any action under any provision of this Indenture, the Issuer shall furnish to the Indenture Trustee (i) an Officer's Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, and (ii) (if required by the TIA) an Independent Certificate from a firm of certified public accountants meeting the applicable requirements of this Section, except that, in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture, no additional certificate or opinion need be furnished. 45 Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that each individual signing such certificate or opinion has read or has caused to be read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; and (3) a statement as to whether, in the opinion of each such signatory, such condition or covenant has been complied with. SECTION 11.2 Form of Documents Delivered to Indenture Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an Authorized Officer of the Issuer may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which such officer's certificate or opinion is based are erroneous. Any such certificate of an Authorized Officer or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Servicer, the Seller or the Issuer, stating that the information with respect to such factual matters is in the possession of the Servicer, the Seller or the Issuer, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. Whenever in this Indenture, in connection with any application or certificate or report to the Indenture Trustee, it is provided that the Issuer shall deliver any document as a condition of the granting of such application, or as evidence of the Issuer's compliance with any term hereof, it is intended that the truth and accuracy, at the time of the granting of such application or at the effective date of such certificate or report (as the case may be), of the facts and opinions stated in such document shall in such case be conditions precedent to the right of the Issuer to have such application granted or to the sufficiency of such certificate or report. The foregoing shall not, however, be construed to affect the Indenture Trustee's right to rely upon the truth and accuracy of any statement or opinion contained in any such document as provided in Article VI. SECTION 11.3 Acts of Owners. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Owners may be embodied in and evidenced by one or 46 more instruments of substantially similar tenor signed by such Owners in person or by agents duly appointed in writing; and except as herein otherwise expressly provided such action shall become effective when such instrument or instruments are delivered in writing to the Indenture Trustee, and, where it is hereby expressly required, to the Issuer. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Owners signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.1) conclusive in favor of the Indenture Trustee and the Issuer, if made in the manner provided in this Section. (b) The fact and date of the execution by any person of any such instrument or writing may be proved in any manner that the Indenture Trustee deems sufficient. (c) The ownership of Notes shall be proved by the Note Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Owner of any Notes shall bind the Owner of every Note issued upon the registration thereof or in exchange therefor or in lieu thereof, in respect of anything done, omitted or suffered to be done by the Indenture Trustee or the Issuer in reliance thereon, whether or not notation of such action is made upon such Note. SECTION 11.4 Notices, etc., to Indenture Trustee, Issuer, Rating Agencies and Note Insurer. Any request, demand, authorization, direction, notice, consent, waiver or Act of Owners or other documents provided or permitted by this Indenture shall be in writing and if such request, demand, authorization, direction, notice, consent, waiver or act of Owners is to be made upon, given or furnished to or filed with: (a) the Indenture Trustee by any Owner or by the Issuer shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Indenture Trustee at its Corporate Trust Office, or (b) in the case of the Issuer, Rating Agencies or Note Insurer as provided in Section 6.16 of the Sale and Servicing Agreement. SECTION 11.5 Notices to Owners; Waiver. Where this Indenture provides for notice to Owners of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class, postage prepaid to each Owner affected by such event, at his address as it appears on the Note Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Owners is given by mail, neither the failure to mail such notice nor any defect in any notice so mailed to any particular Owner shall affect the sufficiency of such notice with respect to other Owners, and any notice that is mailed in the manner herein provided shall conclusively be presumed to have been duly given. Where this Indenture provides for notice in any manner, such notice may be waived in writing by any Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Owners shall be filed with the Indenture Trustee but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such a waiver. In case, by reason of the suspension of regular mail service as a result of a strike, work stoppage or similar activity, it shall be impractical to mail notice of any event to Owners when such notice is required 47 to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Indenture Trustee shall be deemed to be a sufficient giving of such notice. Where this Indenture provides for notice to the Rating Agencies, failure to give such notice shall not affect any other rights or obligations created hereunder, and shall not under any circumstance constitute a Default or Event of Default. SECTION 11.6 Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with another provision hereof that is required to be included in this Indenture by any of the provisions of the Trust Indenture Act, such required provision shall control. The provisions of TIA Sections 310 through 317 that impose duties on any person (including the provisions automatically deemed included herein unless expressly excluded by this Indenture) are a part of and govern this Indenture, whether or not physically contained herein. SECTION 11.7 Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 11.8 Successors and Assigns. All covenants and agreements in this Indenture and the Notes by the Issuer shall bind its successors and assigns, whether so expressed or not. All agreements of the Indenture Trustee in this Indenture shall bind its successors, co-trustees and agents. SECTION 11.9 Separability. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.10 Benefits of Indenture. Nothing in this Indenture or in the Notes, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, and the Owners, and any other party secured hereunder, and any other Person with an ownership interest in any part of the Collateral, any benefit or any legal or equitable right, remedy or claim under this Indenture, except that the Note Insurer is an express third party beneficiary to this Indenture as provided in Section 11.19. SECTION 11.11 Legal Holidays. In any case where the date on which any payment is due shall not be a Business Day, then (notwithstanding any other provision of the Notes or this Indenture) payment need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the date on which nominally due, and no interest shall accrue for the period from and after any such nominal date. SECTION 11.12 Governing Law. THIS INDENTURE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. SECTION 11.13 Counterparts. This Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. 48 SECTION 11.14 Recording of Indenture. If this Indenture is subject to recording in any appropriate public recording offices, such recording is to be effected by the Issuer and at its expense accompanied by an Opinion of Counsel (which may be counsel to the Indenture Trustee or any other counsel reasonably acceptable to the Indenture Trustee) to the effect that such recording is necessary either for the protection of the Owners or any other Person secured hereunder or for the enforcement of any right or remedy granted to the Indenture Trustee under this Indenture. SECTION 11.15 Trust Obligation. No recourse may be taken, directly or indirectly, with respect to the obligations of the Issuer, the Owner Trustee or the Indenture Trustee on the Notes or under this Indenture or any certificate or other writing delivered in connection herewith or therewith, against (i) the Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any owner of a beneficial interest in the Issuer or (iii) any partner, owner, beneficiary, agent, officer, director, employee or agent of the Indenture Trustee or the Owner Trustee in its individual capacity, any Owner of a beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee or of any successor or assign of the Indenture Trustee or the Owner Trustee in its individual capacity, except as any such Person may have expressly agreed (it being understood that the Indenture Trustee and the Owner Trustee have no such obligations in their individual capacity) and except that any such partner, owner or beneficiary shall be fully liable, to the extent provided by applicable law, for any unpaid consideration for stock, unpaid capital contribution or failure to pay any installment or call owing to such entity. For all purposes of this Indenture, in the performance of any duties or obligations of the Issuer hereunder, the Owner Trustee shall be subject to, and entitled to the benefits of, the terms and provisions of Article VI, VII and VIII of the Trust Agreement. SECTION 11.16 No Petition. The Indenture Trustee, by entering into this Indenture, and each Owner, by accepting a Note, hereby covenant and agree that they will not at any time institute against the Issuer, or join in any institution against the Issuer of, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any United States federal or state bankruptcy or similar law in connection with any obligations relating to the Notes, this Indenture or any of the Operative Documents. SECTION 11.17 Inspection. The Issuer agrees that, on reasonable prior notice, it will permit any representative of the Indenture Trustee or the Note Insurer, during the Issuer's normal business hours, to examine all the books of account, records, reports and other papers of the Issuer, to make copies and extracts therefrom, to cause such books to be audited by Independent certified public accountants, and to discuss the Issuer's affairs, finances and accounts with the Issuer's officers, employees, and Independent certified public accountants, all at such reasonable times and as often as may be reasonably requested. The Indenture Trustee shall and shall cause its representatives to hold in confidence all such information except to the extent disclosure may be required by law (and all reasonable applications for confidential treatment are unavailing) and except to the extent that the Indenture Trustee may reasonably determine that such disclosure is consistent with its obligations hereunder. SECTION 11.18 Grant of Owner Rights to Note Insurer. In consideration for the guarantee of the Notes by the Note Insurer pursuant to the Fixed Rate Note Insurance Policy, the Owners hereby grant to the Note Insurer the right to act as the Owner of 100% of the outstanding Notes for the purpose of exercising the rights of the Owners of the Notes hereunder, including the voting rights of such Owners, but excluding those rights requiring the consent of all such Owners under Section 9.2 and any rights of such Owners to distributions under Section 8.2 hereof; provided that the preceding grant of rights to the Note Insurer by the Owners shall be subject to Section 11.20 hereof. The rights of the Note Insurer to direct certain actions and 49 consent to certain actions of the Owners hereunder will terminate at such time as the Fixed Rate Note Principal Balance has been reduced to zero and the Note Insurer has been reimbursed for all Insured Payments and any other amounts respecting the Notes owed under the Fixed Rate Note Insurance Policy and the Insurance Agreement and the Note Insurer has no further obligation under the Fixed Rate Note Insurance Policy. SECTION 11.19 Third Party Beneficiary. The parties hereto acknowledge that the Note Insurer is an express third party beneficiary hereof entitled to enforce any rights reserved to it hereunder as if it were actually a party hereto. SECTION 11.20 Suspension and Termination of Note Insurer's Rights. (a) During the continuation of a Note Insurer Default, rights granted or reserved to the Note Insurer hereunder shall vest instead in the Owners; provided that the Note Insurer shall be entitled to any distributions in reimbursement of the Reimbursement Amount, and the Note Insurer shall retain those rights under Section 9.2 hereof to consent to any supplement to this Indenture. (b) At such time as either (i) the Fixed Rate Note Principal Balance has been reduced to zero or (ii) the Fixed Rate Note Insurance Policy has been terminated following a Note Insurer Default, and in either case of (i) or (ii) the Note Insurer has been reimbursed for all Insured Payments and any other amounts respecting the Notes owed under the Fixed Rate Note Insurance Policy and the Insurance Agreement (and the Note Insurer no longer has any obligation under the Fixed Rate Note Insurance Policy, except for breach thereof by the Note Insurer), then the rights and benefits granted or reserved to the Note Insurer hereunder (including the rights to direct certain actions and receive certain notices) shall terminate and the Owners shall be entitled to the exercise of such rights and to receive such benefits of the Note Insurer following such termination to the extent that such rights and benefits are applicable to the Owners. SECTION 11.21 Certain Matters Regarding the Note Insurer. The provisions of Article VII of the Sale and Servicing Agreement, the extent applicable to this Indenture, are hereby incorporated by reference herein and each Owner by acceptance of its Notes agrees to the provisions contained in Article VII of the Sale and Servicing Agreement. 50 IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this Indenture to be duly executed by their respective officers, thereunto duly authorized and duly attested, all as of the day and year first above written. FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2 By: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee By: /s/ Debra Eberly ------------------------------ Name: Debra Eberly Title: Administrative Account Manager THE CHASE MANHATTAN BANK, as Indenture Trustee By: /s/ Diane E. Wallace -------------------- Name Diane E. Wallace Title: Trust Officer 51 STATE OF Delaware ) ) ss COUNTY OF New Castle ) BEFORE ME, the undersigned authority, a Notary Public in and for said county and state, on this day personally appeared Debra Eberly, known to me to be the person and officer whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said WILMINGTON TRUST COMPANY, not in its individual capacity, but solely as Owner Trustee on behalf of FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2, a Delaware business trust, and that such person executed the same as the act of said business trust for the purpose and consideration therein expressed, and in the capacities therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 23rd day of June, 1998. /s/ Kathleen A. Pedelini ------------------------ Notary Public in and for the State of Delaware (Seal) My commission expires: October 31, 1998 STATE OF New York ) ) ss COUNTY OF New York ) BEFORE ME, the undersigned authority, a Notary Public in and for said county and state, on this day personally appeared Diane E. Wallace, known to me to be the person and officer whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of THE CHASE MANHATTAN BANK, a New York banking corporation and that such person executed the same as the act of said corporation for the purpose and consideration therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 29th day of June, 1998. /s/ Margaret M. Price --------------------- Notary Public in and for the State of New York (Seal) My commission expires: April 22, 1999 SCHEDULE A Available Upon Request to the Indenture Trustee EXHIBIT A Form of Note UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. Date of Indenture: As of June 1, 1998 Original Note Principal Balance: $__________ First Payment Date: July 20, 1998 CUSIP No. ___________ Denomination: $______________________ Note No: ___________
FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2 FIXED RATE MORTGAGE LOAN ASSET-BACKED NOTES, SERIES 1998-2F FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2, a business trust organized and existing under the laws of the State of Delaware (herein referred to as the "Issuer"), for value received, hereby promises to pay to Cede & Co., or registered assigns, the principal sum of _____________ ($___________) payable on each Payment Date in an amount equal to the result obtained by multiplying (i) a fraction the numerator of which is $____________ and the denominator of which is $________________ by (ii) the aggregate amount, if any, payable under this Note pursuant to the Indenture dated as of June 1, 1998, between the Issuer and The Chase Manhattan Bank, a New York banking corporation as Indenture Trustee (the "Indenture Trustee") relating to the Issuer's Fixed Rate Mortgage Loan, Asset Backed Notes, Series 1998-2F; provided, however, that the entire unpaid principal amount of this Note shall be due and payable on the earlier of (i) the Payment Date occurring in __________ (the "Final Payment Date"), (ii) the Redemption Date, if any, pursuant to Article X of the Indenture or (iii) the date on which an Event of Default shall have occurred and be continuing, if the Note Insurer or in the event of a Note Insurer Default, the Indenture Trustee or the Owners of Notes representing not less than a majority of the Outstanding Amount of the Notes have declared the Notes to be immediately due and payable in the manner provided in Section 5.2 of the Indenture. Capitalized terms used but not defined herein are defined in Article I of the Indenture. Pursuant to the terms of the Indenture, payments will be made on the 20th day of each month or, if such day is not a Business Day, on the Business Day immediately following such 20th day (the "Payment Date"), commencing on the first Payment Date specified above, to the Person in whose name this Note is registered at the close of business on the applicable Record Date, in an amount equal to the product of (a) the Percentage Interest evidenced by this Note and (b) the sum of the Current Interest, Fixed Rate Principal Payment Amount and any Insured Payment with respect to such Payment Date, all as more specifically set forth in the Indenture and the Sale and Servicing Agreement. The principal of and interest on this Note are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. All payments made by the Issuer with respect to this Note shall be applied first to interest due and payable on this Note as provided above and then to the unpaid principal of this Note. Reference is made to the further provisions of this Note set forth on the reverse hereof, which shall have the same effect as though fully set forth on the face of this Note. Unless the certificate of authentication hereon has been executed by the Indenture Trustee whose name appears below by manual signature, this Note shall not be entitled to any benefit under the Indenture referred to on the reverse hereof, or be valid or obligatory for any purpose. [Signatures follow] IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed, manually or in facsimile, by its Authorized Officer, as of the date set forth below. Date: ____________________ FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2 By: WILMINGTON TRUST COMPANY not in its individual capacity but solely as Owner Trustee under the Trust Agreement By: __________________________ Authorized Signatory CERTIFICATE OF AUTHENTICATION This is one of the Notes designated above and referred to in the within-mentioned Indenture. Date: ____________________ THE CHASE MANHATTAN BANK, as Indenture Trustee By: _______________________ Authorized Signatory [Reverse of Note] This Note is one of a Series of a duly authorized issue of Notes of the Issuer, designated as its Fixed Rate Mortgage Loan Asset-Backed Notes, Series 1998-2F (herein called the "Notes"), issued under the Indenture, to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights and obligations thereunder of the Issuer, the Indenture Trustee and the Owners of the Notes. To the extent that any provision of this Note contradicts or is inconsistent with the provisions of the Indenture, the provisions of the Indenture shall control and supersede such contradictory or inconsistent provision herein. The Notes are subject to all terms of the Indenture. The Notes are and will be equally and ratably secured by the collateral pledged as security therefor as provided in the Indenture. Principal of the Notes will be payable on each Payment Date in an amount described on the face hereof. As described above, the entire unpaid principal amount of this Note shall be due and payable on the earlier of the Final Payment Date and the Redemption Date, if any, pursuant to Article X of the Indenture. Notwithstanding the foregoing, the entire unpaid principal amount of the Notes shall be due and payable on the date on which an Event of Default shall have occurred and be continuing and the Indenture Trustee, upon the prior written direction of Financial Security Assurance Inc. (the "Note Insurer") or, upon the occurrence of a Note Insurer Default, the Owners of the Notes representing not less than a majority of the Outstanding Amount of the Notes have declared the Notes to be immediately due and payable in the manner provided in Section 5.2 of the Indenture. All principal payments on the Notes shall be made pro rata to the Owners entitled thereto on the basis of their Fixed Rate Note Principal Balance. The Note Insurer has issued a Fixed Rate Note Insurance Policy in the name of the Indenture Trustee for the benefit of the Owners. Unless a Note Insurer Default shall be continuing, subject to Section 11.18 of the Indenture, the Note Insurer shall be deemed to be the Owner of 100% of the Fixed Rate Note Principal Balance of the Outstanding Notes for the purpose of exercising the rights, including voting rights, of the Owners under the Indenture. In addition, on each Payment Date, after the Owners have been paid all amounts to which they are entitled, the Note Insurer will be entitled to be reimbursed for any unreimbursed Insured Payments and any other amounts owed under the Fixed Rate Note Insurance Policy. Payments of interest on this Note are due and payable on each Payment Date, together with the installment of principal, if any, to the extent not in full payment of this Note, shall be made by check mailed to the Person whose name appears as the Owner of the Note (or one or more Predecessor Notes) on the Note Register as of the close of business on each Record Date, except that with respect to Notes registered on the Record Date in the name of the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.), payments will be made by wire transfer in immediately available funds to the account designated by such nominee. Such checks shall be mailed to the Person entitled thereto at the address of such Person as it appears on the Note Register as of the applicable Record Date without requiring that this Note be submitted for notation of payment. Any reduction in the principal amount of this Note (or any one or more Predecessor Notes) effected by any payments made on any Payment Date shall be binding upon all future Owners of this Note and of any Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not noted hereon. If funds are expected to be available, as provided in the Indenture, for payment in full of the then remaining unpaid principal amount of this Note on a Payment Date, then the Indenture Trustee, in the name of and on behalf of the Issuer, will notify the Person who was the Owner hereof as of the Record Date preceding such Payment Date by notice mailed or transmitted by facsimile prior to such Payment Date, and the amount then due and payable shall be payable only upon presentation and surrender of this Note at the Indenture Trustee's principal Corporate Trust Office or at the office of the Indenture Trustee's agent appointed for such purposes located in The City of New York. As provided in the Indenture, the Notes may be redeemed in whole, but not in part, at the option of the Servicer on any Payment Date on and after the Redemption Date pursuant to Article X of the Indenture and Section 5.2 of the Sale and Servicing Agreement. If the Servicer declines to exercise such option, the Note Insurer may do so as provided in Article X of the Indenture and Section 5.2 of the Sale and Servicing Agreement. As provided in the Indenture and subject to certain limitations set forth therein, the transfer of this Note may be registered on the Note Register upon surrender of this Note for registration of transfer at the office or agency designated by the Issuer pursuant to the Indenture, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Indenture Trustee duly executed by the Owner hereof or such Owner's attorney duly authorized in writing, with such signature guaranteed by an "eligible guarantor institution" meeting the requirements of the Note Registrar, which requirements include membership or participation in the Securities Transfer Agent's Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Note Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended, and thereupon one more new Notes of authorized denominations and in the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge will be charged for any registration of transfer or exchange of this Note, but the transferor may be required to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any such registration of transfer or exchange. Each Owner, by acceptance of a Note or, in the case of a Book-Entry Owner, a beneficial interest in a Note, covenants and agrees that no recourse may be taken, directly or indirectly, with respect to the obligations of the Issuer, the Seller, the Servicer, the Owner Trustee or the Indenture Trustee on the Notes or under the Indenture or any certificate or other writing delivered in connection therewith, against (i) the Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any owner of a beneficial interest in the Issuer or (iii) any partner, owner, beneficiary, agent, officer, director or employee of the Indenture Trustee or the Owner Trustee in its individual capacity, any holder of a beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee or of any successor or assign of the Indenture Trustee or the Owner Trustee in its individual capacity, except as any such person may have expressly agreed and except that any such partner, owner or beneficiary shall be fully liable, to the extent provided by applicable law, for any unpaid consideration for stock, unpaid capital contribution or failure to pay any installment or call owing to such entity. Each Owner or Book-Entry Owner, by acceptance of a Note or, in the case of a Book-Entry Owner, a beneficial interest in a Note, covenants and agrees by accepting the benefits of the Indenture that such Owner or Book-Entry Owner will not at any time institute against the Seller, the Servicer, or the Issuer, or join in any institution against the Seller, the Servicer, or the Issuer of, any bankruptcy, reorganization, arrangement, insolvency or similar law in connection with any obligations relating to the Notes, the Indenture or any of the Operative Documents. The Issuer has entered into the Indenture and this Note is issued with the intention that, for federal, state and local income, single business and franchise tax purposes, the Notes will qualify as indebtedness of the Issuer secured by the Trust Estate. Each Owner, by acceptance of a Note (and each Book-Entry Owner by acceptance of a beneficial interest in a Note), agrees to treat the Notes for federal, state and local income, single business and franchise tax purposes as indebtedness of the Issuer. Prior to the due presentment for registration of transfer of this Note, the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture Trustee may treat the person in whose name this Note (as of the day of determination or as of such other date as may be specified in the Indenture) is registered as the owner hereof for all purposes, whether or not this Note be overdue, and none of the Issuer, the Indenture Trustee or any such agent shall be affected by notice to the contrary. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Issuer and the rights of the Owners of the Notes under the Indenture at any time by the Issuer with the consent of the Note Insurer and the Owner of Notes representing a majority of the Outstanding Amount of Notes. The Indenture also contains provisions permitting the Owners of Notes representing the majority of the Outstanding Amount of the Notes on behalf of the Owners of all the Notes to waive compliance by the Issuer with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Owner of this Note (or any one or more Predecessor Notes) shall be conclusive and binding upon such Owners and upon all future Owners of this Note and of any Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof whether or not notation of such consent or waiver is made upon this Note. The Indenture also permits the amendment thereof, in certain limited circumstances, or the waiver of certain terms and conditions set forth in the Indenture, without the consent of Owners of the Notes issued thereunder. The term "Issuer" as used in this Note includes any successor to the Issuer under the Indenture. The Notes are issuable only in registered form in denominations as provided in the Indenture, subject to certain limitations therein set forth. This Note and the Indenture shall be construed in accordance with the laws of the State of New York, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder and thereunder shall be determined in accordance with such laws. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and interest on this Note at the times, place and rate, and in the coin or currency herein prescribed. Anything herein to the contrary notwithstanding, except as expressly provided in the Operative Documents, none of the Issuer in its individual capacity, the Owner Trustee in its individual capacity, any owner of a beneficial interest in the Issuer, or any of their respective partners, beneficiaries, agents, officers, directors, employees or successors or assigns shall be personally liable for, nor shall recourse be had to any of them for, the payment of principal of or interest on this Note or performance of, or omission to perform, any of the covenants, obligations or indemnifications contained in the Indenture. The Owner of this Note by its acceptance hereof agrees that, except as expressly provided in the Operative Documents, in the case of an Event of Default under the Indenture, the Owner shall have no claim against any of the foregoing for any deficiency, loss or claim therefrom; provided, however, that nothing contained herein shall be taken to prevent recourse to, and enforcement against, the assets of the Issuer for any and all liabilities, obligations and undertakings contained in the Indenture or in this Note. ASSIGNMENT Social Security or Taxpayer I.D. or other identifying number of assignee: FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto: - - -------------------------------------------------------------------------------- (name and address of assignee) the within Note and all rights thereunder, and hereby irrevocably constitutes and appoints _______________________, attorney, to transfer said Note on the books kept for registration thereof, with full power of substitution in the premises. Dated: __________________*/ Signature Guaranteed: ________________________*/ */ NOTICE: The signature to this assignment must correspond with the name of the registered owner as it appears on the face of the within Note in every particular, without alteration, enlargement or any change whatever. Such signature must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Note Registrar, which requirements include membership or participation in STAMP or such other "signature guarantee program" as may be determined by the Note Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. EX-4.3 5 TRUST AGREEMENT Exhibit 4.3 TRUST AGREEMENT between FIRST ALLIANCE MORTGAGE COMPANY, as Seller and WILMINGTON TRUST COMPANY as Owner Trustee Dated as of June 1, 1998 FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2 CONTENTS
Page ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE...............................................................1 SECTION 1.1 Capitalized Terms.............................................................1 SECTION 1.2 Other Definitional Provisions.................................................4 ARTICLE II ORGANIZATION.............................................................................................5 SECTION 2.1 Name..........................................................................5 SECTION 2.2 Office........................................................................5 SECTION 2.3 Purpose and Powers............................................................5 SECTION 2.4 Appointment of Owner Trustee..................................................6 SECTION 2.5 Initial Capital Contribution of the Owner Trust Estate........................6 SECTION 2.6 Declaration of Trust..........................................................6 SECTION 2.7 Liability of the Holders......................................................6 SECTION 2.8 Title to Trust Property.......................................................6 SECTION 2.9 Situs of Trust................................................................7 SECTION 2.10 Representations and Warranties of the Seller..................................7 SECTION 2.11 Federal Income Tax Allocations................................................8 ARTICLE III THE CERTIFICATES.........................................................................................9 SECTION 3.1 Initial Certificate Ownership.................................................9 SECTION 3.2 Form of the Certificates......................................................9 SECTION 3.3 Execution, Authentication and Delivery........................................9 SECTION 3.4 Registration; Registration of Transfer and Exchange of Certificates..........10 SECTION 3.5 Mutilated; Destroyed; Lost or Stolen Certificates............................10 SECTION 3.6 Persons Deemed Certificateholders............................................11 SECTION 3.7 Access to List of Holders' Names and Addresses...............................11 SECTION 3.8 Maintenance of Office For Surrenders.........................................12 SECTION 3.9 Appointment of Trust Paying Agent............................................12 SECTION 3.10 Restriction on Transfers of Certificate......................................12 ARTICLE IV ACTIONS BY OWNER TRUSTEE................................................................................16 SECTION 4.1 Prior Notice to Owners with Respect to Certain Matters.......................16 SECTION 4.2 Action by Holders with Respect to Certain Matters............................18 SECTION 4.3 Action by Holders with Respect to Bankruptcy.................................18 SECTION 4.4 Restrictions on Holders' Power...............................................18 SECTION 4.5 Majority Control.............................................................18
Page ARTICLE V APPLICATION OF OWNER TRUST ESTATE; CERTAIN DUTIES.......................................................19 SECTION 5.1 Establishment of Certificate Distribution Account............................19 SECTION 5.2 Application of Trust Funds...................................................19 SECTION 5.3 Method of Payment............................................................20 SECTION 5.4 Segregation of Moneys; No Interest...........................................20 SECTION 5.5 Accounting and Reports to the Certificateholders, the Internal Revenue Service and Others...................................................20 SECTION 5.6 Signature on Returns; Tax Matters Partner....................................20 ARTICLE VI AUTHORITY AND DUTIES OF THE OWNER TRUSTEE...............................................................22 SECTION 6.1 General Authority............................................................22 SECTION 6.2 General Duties...............................................................22 SECTION 6.3 Action upon Instruction by Owners............................................22 SECTION 6.4 No Duties Except as Specified in this Agreement, the Operative Documents or in Instructions.................................................23 SECTION 6.5 No Action Except Under Specified Documents or Instructions...................24 SECTION 6.6 Restrictions.................................................................24 ARTICLE VII CONCERNING THE OWNER TRUSTEE............................................................................25 SECTION 7.1 Acceptance of Trusts and Duties..............................................25 SECTION 7.2 Furnishing of Documents......................................................26 SECTION 7.3 Representations and Warranties of Owner Trustee..............................27 SECTION 7.4 Reliance; Advice of Counsel..................................................27 SECTION 7.5 Owner Trustee May Own Certificates and Notes.................................28 SECTION 7.6 Licenses.....................................................................28 ARTICLE VIII COMPENSATION OF OWNER TRUSTEE...........................................................................29 SECTION 8.1 Owner Trustee's Fee and Expenses.............................................29 SECTION 8.2 Indemnification..............................................................29 SECTION 8.3 Payments to the Owner Trustee................................................30 ARTICLE IX TERMINATION OF TRUST AGREEMENT..........................................................................31 SECTION 9.1 Termination of Trust Agreement...............................................31 ARTICLE X SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES..................................................32 SECTION 10.1 Eligibility Requirements for Owner Trustee...................................32 SECTION 10.2 Resignation or Removal of Owner Trustee......................................32
ii
Page SECTION 10.3 Successor Owner Trustee......................................................33 SECTION 10.4 Merger or Consolidation of Owner Trustee.....................................33 SECTION 10.5 Appointment of Co-Trustee or Separate Trustee................................33 ARTICLE XI MISCELLANEOUS...........................................................................................35 SECTION 11.1 Amendments Without Consent of Certificateholders or Owners of the Notes.................................................................35 SECTION 11.2 Amendments With Consent of Certificateholders................................35 SECTION 11.3 Form of Amendments...........................................................35 SECTION 11.4 No Legal Title to Owner Trust Estate.........................................36 SECTION 11.5 Limitations on Rights of Others..............................................36 SECTION 11.6 Notices......................................................................36 SECTION 11.7 Severability.................................................................37 SECTION 11.8 Counterparts.................................................................37 SECTION 11.9 Successors and Assigns.......................................................37 SECTION 11.10 No Petition Covenant.........................................................37 SECTION 11.11 No Recourse..................................................................37 SECTION 11.12 Headings.....................................................................37 SECTION 11.13 Governing Law................................................................38 SECTION 11.14 Integration..................................................................38 SECTION 11.15 Third-Party Beneficiary......................................................38 SECTION 11.16 Suspension and Termination of Note Insurer's Rights..........................38
iii TRUST AGREEMENT, dated as of June 1, 1998, between FIRST ALLIANCE MORTGAGE COMPANY, a California corporation (the "Seller") and WILMINGTON TRUST COMPANY, a Delaware corporation, not in its individual capacity but solely as Owner Trustee (the "Owner Trustee"). The Seller and the Owner Trustee hereby agree as follows: ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.1 Capitalized Terms. For all purposes of this Agreement, the following terms shall have the meanings set forth below: "Adjustable Rate Indenture" shall mean the Indenture, dated as of June 1, 1998, between the Issuer and the Indenture Trustee relating to the First Alliance Mortgage Loan Trust 1998-2 Adjustable Rate Mortgage Loan Asset Backed Notes, Series 1998-2A. "Agreement" shall mean this Trust Agreement, as the same may be amended and supplemented from time to time. "Bankruptcy Action" shall have the meaning assigned to such term in Section 4.1 hereof. "Business Trust Statute" shall mean Chapter 38 of Title 12 of the Delaware Code, 12 Del. Code Section 3801 et seq., as the same may be amended from time to time. "Certificate" shall mean a certificate evidencing the beneficial interest of a Certificateholder in the Trust, substantially in the form attached hereto as Exhibit B. "Certificate Distribution Account" shall have the meaning assigned to such term in Section 5.1. "Certificate of Trust" shall mean the Certificate of Trust in the form of Exhibit A to be filed for the Trust pursuant to Section 3810(a) of the Business Trust Statute. "Certificate Register" and "Certificate Registrar" shall mean the register mentioned and the registrar appointed pursuant to Section 3.4. "Certificateholder" or "Holder" shall mean a Person in whose name a Certificate is registered. "Code" shall mean the Internal Revenue Code of 1986, as amended, and Treasury Regulations promulgated thereunder. "Corporate Trust Office" shall mean, with respect to the Owner Trustee, the principal corporate trust office of the Owner Trustee located at Rodney Square North, 1100 N. Market Street, Wilmington, Delaware 19890-0001; or at such other address in the State of Delaware as the Owner Trustee may designate by notice to the Owners and the Seller, or the principal corporate trust office of any successor Owner Trustee (the address (which shall be in the State of Delaware) of which the successor owner trustee will notify the Owners, the Holders and the Seller). "Expenses" shall have the meaning assigned to such term in Section 8.2. "Fixed Rate Indenture" shall mean the Indenture, dated as of June 1, 1998, between the Issuer and the Indenture Trustee relating to the First Alliance Mortgage Loan Trust 1998-2 Fixed Rate Mortgage Loan Asset Backed Notes, Series 1998-2F. "Indemnification Agreement" shall mean the Indemnification Agreement dated as of June 10, 1998 among the Note Insurer, the Seller, the Issuer and Wheat First Securities, Inc., doing business as First Union Capital Markets, a division of Wheat First Securities, Inc. "Indentures" shall mean the Adjustable Rate Indenture and the Fixed Rate Indenture. "Indenture Trustee" means The Chase Manhattan Bank, as Indenture Trustee under the Indentures. "Insurance Agreement" shall mean the Insurance and Indemnity Agreement, dated as of June 1, 1998, among the Seller, the Servicer, the Issuer, the Indenture Trustee and the Note Insurer. "Issuer" shall mean First Alliance Mortgage Loan Trust 1998-2, the Delaware business trust created pursuant to this Agreement. "Non-permitted Foreign Holder" shall have the meaning set forth in Section 3.10. "Non-U.S. Person" shall mean an individual, corporation, partnership or other person other than a citizen or resident of the United States, a corporation, partnership or other entity created or organized in or under the laws of the United States or any political subdivision thereof, or an estate or trust that is subject to U.S. federal income tax regardless of the source of its income. "Note Insurer" shall mean Financial Security Assurance Inc. and its successors and assigns. "Operative Documents" shall mean this Agreement, the Notes, the Certificates, the Custodial Agreement, the Indentures, the Insurance Agreement, the Indemnification Agreement, the Sale and Servicing Agreement and the other documents and certificates delivered in connection therewith. "Owner" shall mean each holder of a Note. 2 "Owner Trust Estate" shall mean the Trust Estate (as defined in the Indenture), including the contribution of $1 referred to in Section 2.5 hereof. "Owner Trustee" shall mean Wilmington Trust Company, a Delaware corporation, not in its individual capacity but solely as owner trustee under this Agreement, and any successor owner trustee hereunder. "Owner Trustee Fee": The fees payable to the Owner Trustee for its services as owner trustee of the Trust, as provided in the fee agreement between the Owner Trustee and the Seller. "Percentage Interest" shall mean with respect to each Certificate, the percentage portion of all of the Certificates evidenced thereby as stated on the face of such Certificate. "Prospective Holder" shall have the meaning set forth in Section 3.10(a). "Rating Agency Condition" means, with respect to any action to which a Rating Agency Condition applies, that each Rating Agency shall have been given 10 days (or such shorter period as is acceptable to each Rating Agency) prior notice thereof and that each of the Rating Agencies shall have notified the Seller, the Servicer, the Note Insurer, the Owner Trustee and the Issuer in writing that such action will not result in a reduction or withdrawal of the then current rating of the related Series of Notes, without taking into account the Note Insurance Policy relating to such Series of Notes. "Record Date" shall mean as to each Payment Date the last day of the calendar month immediately preceding the calendar month in which such Payment Date occurs, whether or not such day is a Business Day. "Sale and Servicing Agreement" shall mean the Sale and Servicing Agreement dated as of the date hereof, among the Issuer, the Seller, the Servicer and the Indenture Trustee. "Secretary of State" shall mean the Secretary of State of the State of Delaware. "Seller" shall mean First Alliance Mortgage Company, a California corporation. "Treasury Regulations" shall mean regulations, including proposed or temporary regulations, promulgated under the Code. References herein to specific provisions of proposed or temporary regulations shall include analogous provisions of final Treasury Regulations or other successor Treasury Regulations. "Trust" shall mean the trust established by this Agreement. "Trust Paying Agent" shall mean The Chase Manhattan Bank or any successor in interest thereto or any other paying agent or co-paying agent appointed pursuant to Section 3.9 and 3 authorized by the Issuer to make payments to and distributions from the Certificate Distribution Account, including payment of principal of or interest on the Certificates on behalf of the Issuer. SECTION 1.2 Other Definitional Provisions. (a) Capitalized terms used herein and not otherwise defined herein have the meanings assigned to them in the Sale and Servicing Agreement or, if not defined therein, in the Indentures. (b) All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. (c) As used in this Agreement and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in this Agreement or in any such certificate or other document, and accounting terms partly defined in this Agreement or in any such certificate or other document to the extent not defined, shall have the respective meanings given to them under generally accepted accounting principles. To the extent that the definitions of accounting terms in this Agreement or in any such certificate or other document are inconsistent with the meanings of such terms under generally accepted accounting principles, the definitions contained in this Agreement or in any such certificate or other document shall control. (d) The words "hereof", "herein", "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; Section and Exhibit references contained in this Agreement are references to Sections and Exhibits in or to this Agreement unless otherwise specified; and the term "including" shall mean "including without limitation". (e) The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as the feminine and neuter genders of such terms. (f) Any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time amended, modified or supplemented and includes (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein; references to a Person are also to its permitted successors and assigns. 4 ARTICLE II ORGANIZATION SECTION 2.1 Name. The Trust created hereby shall be known as "First Alliance Mortgage Loan Trust 1998-2", in which name the Owner Trustee may conduct the business of the Trust, make and execute contracts and other instruments on behalf of the Trust and sue and be sued on behalf of the Trust. SECTION 2.2 Office. The office of the Trust shall be in care of the Owner Trustee at the Corporate Trust Office or at such other address in Delaware as the Owner Trustee may designate by written notice to the Certificateholders, the Note Insurer, the Owners and the Seller. SECTION 2.3 Purpose and Powers. The purpose of the Trust is to engage in the following activities: (i) to issue the Notes pursuant to the Indentures and the Certificates pursuant to this Agreement and to sell the Notes and Certificates; (ii) with the proceeds of the sale of the Notes and the Certificates, to pay the organizational, start-up and transactional expenses of the Trust and to pay the balance to the Seller pursuant to the Sale and Servicing Agreement; (iii) to assign, grant, transfer, pledge, mortgage and convey the Owner Trust Estate pursuant to the terms of the Indentures and to hold, manage and distribute to the Certificateholders pursuant to the terms of the Sale and Servicing Agreement any portion of the Owner Trust Estate released from the lien of, and remitted to the Trust pursuant to, the Indentures; (iv) to enter into and perform its obligations under the Operative Documents to which it is to be a party; (v) to engage in those activities, including entering into agreements, that are necessary, suitable or convenient to accomplish the foregoing or are incidental thereto or connected therewith; and (vi) subject to compliance with the Operative Documents, to engage in such other activities as may be required in connection with conservation of the assets of the Trust and the making of distributions to the Certificateholders and the Owners of the Notes. The Trust is hereby authorized to engage in the foregoing activities and shall not engage in any activity other than in connection with the foregoing or other than as required or authorized by the terms of this Agreement or the Operative Documents. 5 SECTION 2.4 Appointment of Owner Trustee. The Seller hereby appoints the Owner Trustee as trustee of the Trust effective as of the date hereof, to have all the rights, powers and duties set forth herein. The Owner Trustee hereby accepts its appointment subject to the terms and conditions hereof. SECTION 2.5 Initial Capital Contribution of the Owner Trust Estate. The Seller hereby sells, assigns, transfers, conveys and sets over to the Owner Trustee, as of the date hereof, the sum of $1. The Owner Trustee hereby acknowledges receipt in trust from the Seller, as of the date hereof, of the foregoing contribution which shall constitute the initial Owner Trust Estate and shall be deposited in the Certificate Distribution Account. The Seller shall pay the organizational expenses of the Trust as they may arise or shall, upon the request of the Owner Trustee, promptly reimburse the Owner Trustee for any such expenses paid by the Owner Trustee. SECTION 2.6 Declaration of Trust. The Owner Trustee hereby declares that it shall hold the Owner Trust Estate in trust upon and subject to the conditions set forth herein for the use and benefit of the Certificateholders, subject to the obligations of the Trust under the Operative Documents. It is the intention of the parties hereto that the Trust shall constitute a business trust under the Business Trust Statute and that this Agreement shall constitute the governing instrument of such business trust. It is the intention of the parties hereto that, for federal and state income and state and local franchise tax purposes, the Trust shall not be treated as (i) an association subject separately to taxation as a corporation, (ii) a "publicly traded partnership" as defined in Treasury Regulation Section 1.7704-1 or (iii) a "taxable mortgage pool" as defined in Section 7701(i) of the Code, and that each Series of Notes shall be debt, and the provisions of this Trust Agreement shall be interpreted to further this intention. Except as otherwise provided in this Trust Agreement, the rights of the Certificateholders will be those of equity owners of the Trust. Effective as of the date hereof, the Owner Trustee shall have the rights, powers and duties set forth herein and in the Business Trust Statute with respect to accomplishing the purposes of the Trust. The Owner Trustee shall file the Certificate of Trust pursuant to the Business Trust Statute with the Secretary of State. SECTION 2.7 Liability of the Holders. No Certificateholder shall have any personal liability for any liability or obligation of the Trust. The Certificates shall be fully paid and nonassessable. SECTION 2.8 Title to Trust Property. (a) Subject to the Indentures, legal title to all of the Owner Trust Estate shall be vested at all times in the Trust as a separate legal entity except where applicable law in any jurisdiction requires title to any part of the Owner Trust Estate to be vested in a trustee or trustees, in which case title shall be deemed to be vested in the Owner Trustee, a co-trustee and/or a separate trustee, as the case may be. (b) The Certificateholders shall not have legal title to any part of the Owner Trust Estate. No transfer by operation of law or otherwise of any interest of the Certificateholders shall operate to terminate this Agreement or the trusts hereunder or entitle any transferee to an accounting or to the transfer to it of any part of the Owner Trust Estate. 6 SECTION 2.9 Situs of Trust. The Trust shall be located and administered in the State of Delaware. All bank accounts maintained by the Owner Trustee on behalf of the Trust shall be located in the State of Delaware or the State of New York. The Trust shall not have any employees; provided, however, that nothing herein shall restrict or prohibit the Owner Trustee from having employees within or without the State of Delaware. Payments shall be received by the Trust only in Delaware or New York, and payments will be made by the Trust only from Delaware or New York. The only office of the Trust shall be the Corporate Trust Office in Delaware. SECTION 2.10 Representations and Warranties of the Seller. The Seller hereby represents and warrants to the Owner Trustee and the Note Insurer that: (a) The Seller has been duly organized and is validly existing as a corporation in good standing under the laws of the State of California, with power and authority to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted. (b) The Seller is duly qualified to do business as a foreign corporation in good standing, and has obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of property or the conduct of its business requires such qualifications. (c) The Seller has the power and authority to execute and deliver this Agreement and to carry out its terms; the Seller has full power and authority to sell and assign the property to be sold and assigned to and deposited with the Trust, and the Seller has duly authorized such sale and assignment to the Trust by all necessary corporate action; and the execution, delivery and performance of this Agreement have been duly authorized by the Seller by all necessary corporate action. (d) The consummation of the transactions contemplated by this Agreement and the fulfillment of the terms of this Agreement do not conflict with, result in any breach of any of the terms and provisions of or constitute (with or without notice or lapse of time) a default under, the articles of incorporation or by-laws of the Seller, or any indenture, agreement or other instrument to which the Seller is a party or by which it is bound; nor result in the creation or imposition of any lien upon any of its properties pursuant to the terms of any such indenture, agreement or other instrument (other than pursuant to the Operative Documents); nor violate any law or, to the best of the Seller's knowledge, any order, rule or regulation applicable to the Seller of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Seller or any of its properties. (e) There are no proceedings or investigations pending or notice of which has been received in writing before any court, regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Seller or its properties: (i) asserting the invalidity of this Agreement, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or (iii) seeking any determination or 7 ruling that might materially and adversely affect the performance by the Seller of its obligations under, or the validity or enforceability of, this Agreement. (f) The representations and warranties of the Seller in Section 2.1 of the Sale and Servicing Agreement are true and correct. (g) The Trust is not required to register as an investment company under the Investment Company Act and is not under the control of a Person required to so register. SECTION 2.11 Federal Income Tax Allocations. Net income of the Trust for any month, as determined for Federal income tax purposes (and each item of income, gain, loss and deduction entering into the computation thereof), shall be allocated to the Certificateholders, pro rata. 8 ARTICLE III THE CERTIFICATES SECTION 3.1 Initial Certificate Ownership. Upon the formation of the Trust by the contribution by the Seller pursuant to Section 2.5 and until the issuance of the Certificates, the Seller shall be the sole owner of the Trust. SECTION 3.2 Form of the Certificates. (a) The Certificates shall be issued without a principal amount in the form of one or more Certificates each representing not less than a 10% Percentage Interest. The Certificates shall be executed on behalf of the Trust by manual or facsimile signature of an authorized signatory of the Owner Trustee. Certificates bearing the manual or facsimile signatures of individuals who were, at the time when such signatures shall have been affixed, authorized to sign on behalf of the Trust shall be valid, notwithstanding that such individuals or any of them shall have ceased to be so authorized prior to the authentication and delivery of such Certificates or did not hold such offices at the date of authentication and delivery of such Certificates. (b) The Certificates shall be typewritten, printed, lithographed or engraved or produced by any combination of these methods (with or without steel engraved borders) all as determined by the authorized signatory of the Owner Trustee or the Owner Trustee's authenticating agent executing such Certificates, as evidenced by their execution of such Certificates. (c) A transferee of a Certificate shall become a Certificateholder, and shall be entitled to the rights and subject to the obligations of a Certificateholder hereunder, upon such transferee's acceptance of a Certificate duly registered in such transferee's name pursuant to Section 3.4. SECTION 3.3 Execution, Authentication and Delivery. Concurrently with the initial sale of the Mortgage Loans by the Seller to the Trust pursuant to the Sale and Servicing Agreement, the Owner Trustee shall execute, or cause its authenticating agent to execute the Certificates representing 100% of the Percentage Interests of the Trust to be executed on behalf of the Trust, authenticated and delivered to or upon the written order of the Seller, signed by an Authorized Officer of the Seller, without further corporate action by the Seller. The Certificates shall be registered in the name of First Alliance Portfolio Services, Inc. The Trust shall not issue any other Certificate without the prior written consent of the Note Insurer, provided, however, that such consent shall not be unreasonably withheld. No Certificate shall entitle its Holder to any benefit under this Agreement, or shall be valid for any purpose, unless there shall appear on such Certificate a certificate of authentication substantially in the form set forth in Exhibit B, executed by the Owner Trustee or the Certificate Registrar by manual or facsimile signature. Such authentication shall constitute conclusive evidence that such Certificate shall have been duly authenticated and delivered hereunder. All Certificates shall be dated the date of their authentication. 9 SECTION 3.4 Registration; Registration of Transfer and Exchange of Certificates. The Certificate Registrar shall cause to be kept at its office or agency in New York, New York, or at its designated agent, a Certificate Register in which, subject to such reasonable regulations as it may prescribe, it shall provide for the registration of Certificates and of transfers and exchanges of Certificates as herein provided. Upon any resignation of a Certificate Registrar, the Owner Trustee shall promptly appoint a successor or, if it elects not to make such an appointment, assume the duties of the Certificate Registrar. The Chase Manhattan Bank shall be the initial Certificate Registrar. Subject to Section 3.10, upon surrender for registration of transfer of any Certificate at the office or agency of the Owner Trustee maintained pursuant to Section 3.8, the Owner Trustee shall execute, and the Owner Trustee or the Certificate Registrar shall authenticate and deliver in the name of the designated transferee or transferees, a new Certificate or Certificates of the same Percentage Interest and dated the date of authentication by the Owner Trustee or the Certificate Registrar. The Certificate Registrar shall thereupon provide the Rating Agencies with notice of such Certificate transfer. At the option of a Certificateholder, Certificates may be exchanged for other Certificates of a like aggregate Percentage Interest, upon surrender of the Certificates to be exchanged at such office. Whenever any Certificates are so surrendered for exchange, the Owner Trustee or the Certificate Registrar shall execute, authenticate and deliver the Certificates which the Certificateholder making the exchange is entitled to receive. No service charge shall be made for any registration of transfer or exchange of Certificates, but the Owner Trustee or the Certificate Registrar may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any registration of transfer or exchange of Certificates. All Certificates surrendered for registration of transfer or exchange shall be marked "canceled" by the Owner Trustee. The preceding provisions of this Section notwithstanding, the Owner Trustee shall not make, and the Certificate Registrar shall not register transfers or exchanges of Certificates for a period of 15 days preceding the due date for any payment with respect to the Certificates. SECTION 3.5 Mutilated; Destroyed; Lost or Stolen Certificates. (a) If (i) any mutilated Certificate is surrendered to the Certificate Registrar, or the Certificate Registrar receives evidence to its satisfaction of the destruction, loss or theft of any Certificate, and (ii) there is delivered to the Certificate Registrar, the Owner Trustee and the Trust such security or indemnity as may be required by them to hold each of them harmless, then, in the absence of notice to the Certificate Registrar or the Owner Trustee that such Certificate has been acquired by a bona fide purchaser, the Owner Trustee shall execute on behalf of the Trust and the Owner Trustee or the Certificate Registrar shall authenticate and deliver, in exchange for or in lieu 10 of any such mutilated, destroyed, lost or stolen Certificate, a replacement Certificate of a like Percentage Interest; provided, however, that if any such destroyed, lost or stolen Certificate, but not a mutilated Certificate, shall have become or within seven days shall be due and payable, then instead of issuing a replacement Certificate the Owner Trustee may pay such destroyed, lost or stolen Certificate when so due or payable. (b) In connection with the issuance of any replacement Certificate under this Section 3.5, the Owner Trustee or the Certificate Registrar may require the payment by the Holder of such Certificate of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other reasonable expenses (including the fees and expenses of the Owner Trustee and the Certificate Registrar) connected therewith. (c) Any duplicate Certificate issued pursuant to this Section 3.5 in replacement of any mutilated, destroyed, lost or stolen Certificate shall constitute an original additional contractual obligation of the Trust, whether or not the mutilated, destroyed, lost or stolen Certificate shall be found at any time or be enforced by anyone, and shall be entitled to all the benefits of this Agreement equally and proportionately with any and all other Certificates duly issued hereunder. (d) The provisions of this Section 3.5 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Certificates. SECTION 3.6 Persons Deemed Certificateholders. Prior to due presentation of a Certificate for registration of transfer, the Owner Trustee, the Certificate Registrar or any Trust Paying Agent may treat the Person in whose name any Certificate shall be registered in the Certificate Registrar as the owner of such Certificate for the purpose of receiving distributions pursuant to Article V and for all other purposes whatsoever, and neither the Owner Trustee, nor the Certificate Registrar nor the Trust Paying Agent shall be affected by any notice to the contrary. SECTION 3.7 Access to List of Holders' Names and Addresses. The Owner Trustee shall furnish or cause to be furnished to the Servicer and the Seller, within 15 days after receipt by the Owner Trustee of a request therefor from the Servicer or the Seller in writing, a list, in such form as the Servicer or the Seller may reasonably require, of the names and addresses of the Certificateholders as of the most recent Record Date. If three or more Certificateholders or one or more Holders of Certificates together evidencing a Percentage Interest totaling not less than 25% apply in writing to the Owner Trustee, and such application states that the applicants desire to communicate with other Certificateholders with respect to their rights under this Agreement or under the Certificates and such application is accompanied by a copy of the communication that such applicants propose to transmit, then the Owner Trustee shall, within five Business Days after the receipt of such application, afford such applicants access during normal business hours to the current list of Certificateholders. Each Certificateholder, by receiving and holding a Certificate, shall be deemed to have agreed not to hold any of the Servicer, the Seller, the Certificate Registrar or the Owner Trustee accountable by reason of the disclosure of its name and address, regardless of the source from which information was derived. 11 SECTION 3.8 Maintenance of Office For Surrenders. The Owner Trustee shall maintain an office or offices or agency or agencies where Certificates may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Owner Trustee in respect of the Certificates and the Operative Documents may be served. The Owner Trustee initially designates the Corporate Trust Office as its principal office for such purposes. The Owner Trustee shall give prompt written notice to the Seller and to the Certificateholders and Owners of any change in the location of the Certificate Register or any such office or agency. SECTION 3.9 Appointment of Trust Paying Agent. The Owner Trustee hereby appoints The Chase Manhattan Bank as the Trust Paying Agent under this Agreement. The Trust Paying Agent shall make distributions to Certificateholders from the Certificate Distribution Account pursuant to Section 5.2(a) and shall report the amounts of such distributions to the Owner Trustee and the Servicer. The Trust Paying Agent shall have the revocable power to withdraw funds from the Certificate Distribution Account for the purpose of making the distributions referred to above. The Owner Trustee may revoke such power and remove the Trust Paying Agent if the Owner Trustee determines in its sole discretion that the Trust Paying Agent shall have failed to perform its obligations under this Agreement in any material respect. If The Chase Manhattan Bank shall no longer be the Trust Paying Agent, the Owner Trustee shall appoint a successor to act as Trust Paying Agent (which shall be a bank or trust company acceptable to the Seller, the Note Insurer and the Rating Agencies). The Owner Trustee shall cause such successor Trust Paying Agent or any additional Trust Paying Agent appointed by the Owner Trustee to execute and deliver to the Owner Trustee an instrument in which such successor Trust Paying Agent or additional Trust Paying Agent shall agree with the Owner Trustee that as Trust Paying Agent, such successor Trust Paying Agent or additional Trust Paying Agent shall hold all sums, if any, held by it for payment to the Certificateholders in trust for the benefit of the Certificateholders entitled thereto until such sums shall be paid to such Holders. The Trust Paying Agent shall return all unclaimed funds to the Trust and upon removal of a Trust Paying Agent such Trust Paying Agent shall also return all funds in its possession to the Trust. The provisions of Article VI shall apply to the Owner Trustee also in its role as Trust Paying Agent, for so long as the Owner Trustee shall act as Trust Paying Agent and, to the extent applicable, to any other Trust Paying Agent (including The Chase Manhattan Bank) appointed hereunder. Any reference in this Agreement to the Trust Paying Agent shall include any co-paying agent unless the context requires otherwise. SECTION 3.10 Restriction on Transfers of Certificate. (a) Each prospective purchaser and any subsequent transferee of a Certificate (each, a "Prospective Holder"), other than First Alliance Portfolio Services, Inc., shall either: (i) represent and warrant, in writing, to the Owner Trustee and the Certificate Registrar and any of their respective successors that: (A) Such Person is (I) a "qualified institutional buyer" as defined in Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and is aware that the seller of the Certificate may be relying on the exemption from the registration requirements of the Securities Act provided 12 by Rule 144A and is acquiring such Certificate for its own account or for the account of one or more qualified institutional buyers for whom it is authorized to act, or (II) a Person involved in the organization or operation of the Trust or an affiliate of such Person within the meaning of Rule 3a-7 of the Investment Company Act of 1940, as amended (including, but not limited to, the Seller). (B) Such Person understands that the Certificate has not been and will not be registered under the Securities Act and may be offered, sold, pledged or otherwise transferred only to a person whom the seller reasonably believes is (A) a qualified institutional buyer or (B) a Person involved in the organization or operation of the Trust or an affiliate of such Person, in a transaction meeting the requirements of Rule 144A under the Securities Act and in accordance with any applicable securities laws of any state of the United States. (C) Such Person understands that the Certificate bears a legend to the following effect: "THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THIS CERTIFICATE MAY BE DIRECTLY OR INDIRECTLY OFFERED OR SOLD OR OTHERWISE DISPOSED OF (INCLUDING PLEDGED) BY THE HOLDER HEREOF ONLY TO (I) A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE ACT, IN A TRANSACTION THAT IS REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT PURSUANT TO RULE 144A OR (II) A PERSON INVOLVED IN THE ORGANIZATION OR OPERATION OF THE TRUST OR AN AFFILIATE OF SUCH A PERSON WITHIN THE MEANING OF RULE 3a-7 OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (INCLUDING, BUT NOT LIMITED TO, FIRST ALLIANCE MORTGAGE COMPANY) IN A TRANSACTION THAT IS REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS. NO PERSON IS OBLIGATED TO REGISTER THIS CERTIFICATE UNDER THE ACT OR ANY STATE SECURITIES LAWS"; or 13 (ii) furnish to the Owner Trustee and the Certificate Registrar and any of their respective successors an opinion of counsel acceptable to such persons that such transfer may be made pursuant to an exemption to the Securities Act, describing the applicable exemption and the basis therefor, or is being made pursuant to the Securities Act, which opinion of counsel shall not be an expense of the Trust, the Owner Trustee or the Certificate Registrar. (b) Each Prospective Holder, other than First Alliance Portfolio Services, Inc., shall represent and warrant, in writing, to the Owner Trustee and the Certificate Registrar and any of their respective successors that the Prospective Holder is not an "employee benefit plan" within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or a "plan" within the meaning of Section 4975(e)(1) of the Code (any such plan or employee benefit plan, a "Plan") and is not directly or indirectly purchasing such Certificate on behalf of, as investment manager of, as named fiduciary of, as trustee of, or with assets of a Plan. (c) By its acceptance of a Certificate, each Prospective Holder agrees and acknowledges that no legal or beneficial interest in all or any portion of any Certificate may be transferred directly or indirectly to (i) an entity that holds residual securities as nominee to facilitate the clearance and settlement of such securities through electronic book-entry changes in accounts of participating organizations (a "Book-Entry Nominee"), or (ii) an individual, corporation, partnership or other person unless such transferee is not a Non-U.S. Person (any such person being referred to herein as a "Non-permitted Foreign Holder"), and any such purported transfer shall be void and have no effect. (d) The Owner Trustee shall not execute, and shall not countersign and deliver, a Certificate in connection with any transfer thereof unless the transferor shall have provided to the Owner Trustee an IRS Form W-9 and a certificate, signed by the transferee, that it is not a Book-Entry Nominee or a Non-permitted Foreign Holder, which certificate shall contain the consent of the transferee to any amendments of this Agreement as may be required to effectuate further the foregoing restrictions on transfer of the Certificate to Book-Entry Nominees or Non-permitted Foreign Holders, and an agreement by the transferee that it will not transfer a Certificate without providing to the Owner Trustee a certificate in the form provided above. (e) The Certificates shall bear an additional legend referring to the restrictions contained in paragraph (c) above. (f) No offer, sale, transfer, pledge, hypothecation or other disposition (including any pledge or transfer under a repurchase transaction or securities loan) of any Certificate shall be made to any entity unless, prior to such disposition, (i) the Note Insurer has given its prior written consent to the offer, sale, transfer, pledge, hypothecation or other disposition; provided, however, that such consent shall not be unreasonably withheld and (ii) the Prospective Holder delivers to the Owner Trustee an opinion of counsel, rendered by a law firm generally recognized to be qualified to opine concerning the tax aspects of asset securitization, to the effect that such transfer (including any disposition permitted following any default under any pledge or repurchase transaction will not cause the Trust to be (i) treated as an association taxable as a corporation for federal income tax 14 purposes, (ii) taxable as a taxable mortgage pool as defined in Section 7701(i) of the Code or (iii) taxable as a "publicly traded partnership" as defined in Treasury Regulation Section 1.7704-1. Notwithstanding the foregoing, the provisions of this paragraph shall not apply to the initial transfer of the Certificates to First Alliance Portfolio Services, Inc. 15 ARTICLE IV ACTIONS BY OWNER TRUSTEE SECTION 4.1 Prior Notice to Owners with Respect to Certain Matters. The Owner Trustee shall not take action with respect to the following matters, unless (i) the Owner Trustee shall have notified the Certificateholders, the Rating Agencies and the Note Insurer in writing of the proposed action at least 30 days before the taking of such action, and (ii) neither the Certificateholders nor the Note Insurer shall have notified the Owner Trustee in writing prior to the 30th day after such notice is given that such Certificateholders or the Note Insurer have withheld consent or provided alternative direction (provided that any directions by the Certificateholders shall require the prior consent of the Note Insurer): (a) the initiation of any claim or lawsuit by the Trust (except claims and law suits brought in connection with the collection of the Mortgage Loans) or the compromise of any action, claim or lawsuit brought by or against the Trust (except claims and law suits brought in connection with the collection of the Mortgage Loans); (b) the election by the Trust to file an amendment to the Certificate of Trust, (except to the extent such amendment is required under the Business Trust Statute); (c) the amendment or other change to this Agreement or any Operative Documents in circumstances where the consent of any Owner of a Note or the Note Insurer is required; (d) the amendment or other change to this Agreement or any Operative Documents in circumstances where the consent of any Owner of a Note or the Note Insurer is not required and such amendment materially adversely affects the interest of the Certificateholders; (e) the appointment pursuant to an Indenture of a successor Note Registrar, Paying Agent or Indenture Trustee or, pursuant to this Agreement, of a successor Certificate Registrar or Trust Paying Agent, or the consent to the assignment by the Note Registrar, Paying Agent or Indenture Trustee, Certificate Registrar or Trust Paying Agent of its obligations under the Indentures or this Agreement, as applicable; (f) the consent to the calling or waiver of any default of any Operative Document; (g) the consent to the assignment of the Indenture Trustee or Servicer of their respective obligations under the Operative Document; (h) except as provided in Article IX hereof, dissolve, terminate or liquidate the Trust in whole or in part; 16 (i) merge or consolidate the Trust with or into any other entity, or convey or transfer all or substantially all of the Trust's assets to any other entity; (j) cause the Trust to incur, assume or guaranty any indebtedness other than as set forth in this Agreement; (k) do any act that conflicts with any other Operative Document; (l) do any act which would make it impossible to carry on the ordinary business of the Trust as described in Section 2.3 hereof; (m) confess a judgment against the Trust; (n) possess Trust assets, or assign the Trust's right to property, for other than a Trust purpose; (o) cause the Trust to lend any funds to any entity; or (p) change the Trust's purpose and powers from those set forth in this Agreement. In addition the Trust shall not commingle its assets with those of any other entity. The Trust shall maintain its financial and accounting books and records separate from those of any other entity. Except as expressly set forth herein, the Trust shall pay its indebtedness and any operating expenses from its own funds, and the Trust shall not pay the indebtedness, operating expenses or liabilities of any other entity. The Trust shall maintain appropriate minutes or other records of all appropriate actions and shall maintain its office separate from the offices of the Seller and the Servicer. The Owner Trustee shall not have the power, except upon the direction of the Certificateholders with the consent of the Note Insurer, and to the extent otherwise consistent with the Operative Documents, to (i) remove or replace the Servicer or the Indenture Trustee, (ii) institute proceedings to have the Trust declared or adjudicated a bankruptcy or insolvent, (iii) consent to the institution of bankruptcy or insolvency proceedings against the Trust, (iv) file a petition or consent to a petition seeking reorganization or relief on behalf of the Trust under any applicable federal or state law relating to bankruptcy, (v) consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or any similar official) of the Trust or a substantial portion of the property of the Trust, (vi) make any assignment for the benefit of the Trust's creditors, (vii) cause the Trust to admit in writing its inability to pay its debts generally as they become due or (viii) take any action, or cause the Trust to take any action, in furtherance of any of the foregoing (any of the above, a "Bankruptcy Action"). So long as an Indenture remains in effect and no Note Insurer Default exists, no Certificateholder shall have the power to take, and shall not take, any Bankruptcy Action with respect to the Trust or direct the Owner Trustee to take any Bankruptcy Action with respect to the Trust. 17 SECTION 4.2 Action by Holders with Respect to Certain Matters. The Owner Trustee shall not have the power to remove the Servicer under the Sale and Servicing Agreement. SECTION 4.3 Action by Holders with Respect to Bankruptcy. Neither the Owner Trustee nor any Certificateholder shall have the power to commence a voluntary proceeding in bankruptcy relating to the Trust without the consent and approval of (i) the Note Insurer, (ii) the unanimous prior approval of all Certificateholders and Owners of Notes, (iii) the Owner Trustee and (iv) the Indenture Trustee and the delivery to the Owner Trustee by each such Certificateholder of a certificate certifying that such Certificateholder reasonably believes that the Trust is insolvent. This paragraph shall survive for one year and one day following termination of this Agreement. SECTION 4.4 Restrictions on Holders' Power. The Certificateholders shall not direct the Owner Trustee to take or refrain from taking any action if such action or inaction would be contrary to any obligation of the Trust or the Owner Trustee under this Agreement or any of the Operative Documents or would be contrary to Section 2.3, nor shall the Owner Trustee be obligated to follow any such direction, if given. SECTION 4.5 Majority Control. Except as expressly provided herein any action that may be taken or consent that may be given or withheld or written notice delivered by the Certificateholders under this Agreement may be taken by Holders of Certificates representing not less than a majority of the Certificates. 18 ARTICLE V APPLICATION OF OWNER TRUST ESTATE; CERTAIN DUTIES SECTION 5.1 Establishment of Certificate Distribution Account. The Owner Trustee shall cause the Servicer, for the benefit of the Certificateholders, to establish and maintain with The Chase Manhattan Bank for the benefit of the Owner Trustee a Trust Account which, while the Trust Paying Agent holds such Account, shall be entitled "CERTIFICATE DISTRIBUTION ACCOUNT, THE CHASE MANHATTAN BANK AS TRUST PAYING AGENT, IN TRUST FOR THE FIRST ALLIANCE MORTGAGE LOAN ASSET BACKED CERTIFICATES, SERIES 1998-2." Funds shall be deposited in the Certificate Distribution Account as required by the Indentures, or following satisfaction or release of an Indenture, by the Sale and Servicing Agreement. All of the right, title and interest of the Owner Trustee in all funds on deposit from time to time in the Certificate Distribution Account and in all proceeds thereof shall be held for the benefit of the Certificateholders. Except as otherwise expressly provided herein or in the Sale and Servicing Agreement, the Certificate Distribution Account shall be under the sole dominion and control of the Owner Trustee for the benefit of the Certificateholders. SECTION 5.2 Application of Trust Funds. (a) On each Payment Date, the Trust Paying Agent shall distribute to the Certificateholders, pro rata, from amounts on deposit in the Certificate Distribution Account the distributions as provided in Sections 3.5(b)(v) and 3.5(f)(v) of the Sale and Servicing Agreement with respect to such Payment Date. (b) In the event that any withholding tax is imposed on the Trust's payment (or allocations of income) to a Certificateholder, such tax shall reduce the amount otherwise distributable to the Certificateholder in accordance with this Section. The Trust Paying Agent is hereby authorized and directed to retain from amounts otherwise distributable to the Certificateholders sufficient funds for the payment of any tax that is legally owed by the Trust (but such authorization shall not prevent the Trust Paying Agent from contesting any such tax in appropriate proceedings, and withholding payment of such tax, if permitted by law, pending the outcome of such proceedings). The amount of any withholding tax imposed with respect to a Certificateholder shall be treated as cash distributed to such Holder at the time it is withheld by the Trust Paying Agent and remitted to the appropriate taxing authority. If there is a possibility that withholding tax is payable with respect to a distribution (such as a distribution to a non-U.S. Holder), the Trust Paying Agent may in its sole discretion withhold such amounts in accordance with this paragraph (b). In the event that a Certificateholder wishes to apply for a refund of any such withholding tax, the Trust Paying Agent shall reasonably cooperate with such Certificateholder in making such claim so long as such Certificateholder agrees to reimburse the Trust Paying Agent for any out-of-pocket expenses incurred. (c) Distributions to Certificateholders shall be subordinated to the creditors of the Trust, including the Owners of each Series of Notes and the Note Insurer. 19 SECTION 5.3 Method of Payment. Distributions required to be made to Certificateholders on any Payment Date shall be made to each Certificateholder of record on the immediately preceding Record Date either by wire transfer, in immediately available funds, to the account of such Certificateholder at a bank or other entity having appropriate facilities therefor, if such Certificateholder shall have provided to the Certificate Registrar appropriate written instructions at least five Business Days prior to such Payment Date, or, if not, by check mailed to such Certificateholder at the address of such Certificateholder appearing in the Certificate Register. SECTION 5.4 Segregation of Moneys; No Interest. Subject to Sections 5.1 and 5.2, moneys received by the Trust Paying Agent hereunder and deposited into the Certificate Distribution Account will be segregated except to the extent required otherwise by law and shall be invested, at the direction of the Seller, in Eligible Investments maturing no later than one Business Day prior to the related Payment Date. The Trust Paying Agent shall not be liable for payment of any interest or losses in respect of such moneys. Investment gains shall be for the account of and paid to the Certificateholders. SECTION 5.5 Accounting and Reports to the Certificateholders, the Internal Revenue Service and Others. (a) The Indenture Trustee shall (i) maintain (or cause to be maintained) the books of the Trust on a calendar year basis on the accrual method of accounting, and such books shall be maintained separately from those of any other entity and reflect the separate interest of the Trust, (ii) deliver to each Certificateholder, as may be required by the Code and applicable Treasury Regulations, such information as may be required (including Schedule K-1) to enable such Certificateholder to prepare its federal and state income tax returns and (iii) withhold from any income or distributions to Certificateholders made pursuant to this Agreement, any tax required to be withheld (as certified by the Seller). (b) The Servicer shall (i) file such tax returns relating to the Trust (including a partnership information return, IRS Form 1065), and make such elections as may from time to time be required or appropriate under any applicable state or federal statute or rule or regulation thereunder so as to maintain the Trust's characterization as a partnership for federal income tax purposes and (ii) cause such tax returns to be signed in the manner required by law. The Servicer shall elect under Section 1278 of the Code to include in income currently any market discount that accrues with respect to the Mortgage Loans. The Servicer shall not make the election provided under Section 754 of the Code. SECTION 5.6 Signature on Returns; Tax Matters Partner. (a) The Indenture Trustee shall sign on behalf of the Trust the tax returns of the Trust, unless applicable law requires a Certificateholder to sign such documents, in which case such documents shall be signed by the Seller. 20 (b) The Seller shall be designated the "tax matters partner" of the Trust pursuant to Section 6231(a)(7)(A) of the Code and applicable Treasury Regulations. 21 ARTICLE VI AUTHORITY AND DUTIES OF THE OWNER TRUSTEE SECTION 6.1 General Authority. The Owner Trustee is authorized and directed to execute and deliver, or cause to be executed and delivered, the Certificates and the Operative Documents to which the Trust is to be a party and each certificate or other document attached as an exhibit to or contemplated by the Operative Documents to which the Trust is to be a party and any amendment or other agreement or instrument described in Article III, in each case, in such form as the Seller shall approve, as evidenced conclusively by the Owner Trustee's execution thereof, and, on behalf of the Trust, to direct the Indenture Trustee to authenticate and deliver the Adjustable Rate Notes in the aggregate principal amount of $30,000,000 and the Fixed Rate Notes, in the aggregate principal amount of $70,000,000. In addition to the foregoing, the Owner Trustee is authorized, but shall not be obligated, to take all actions required of the Trust, pursuant to the Operative Documents. SECTION 6.2 General Duties. It shall be the duty of the Owner Trustee: (a) to discharge (or cause to be discharged) all of its responsibilities pursuant to the terms of this Agreement and the Operative Documents to which the Trust is a party and to administer the Trust in the interest of the Certificateholders, and in accordance with the provisions of this Agreement; and (b) to obtain and preserve, the Trust's qualification to do business in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of the Indentures, the Notes, and each other instrument and agreement included in the Owner Trust Estate. SECTION 6.3 Action upon Instruction by Owners. (a) Subject to Article IV, the Certificateholders may by written instruction direct the Owner Trustee in the management of the Trust, but only to the extent consistent with the limited purposes of the Trust. Such direction may be exercised at any time by written instruction of the Certificateholders pursuant to Article IV. (b) Notwithstanding the foregoing, the Owner Trustee shall not be required to take any action hereunder or under any Operative Document if the Owner Trustee shall have reasonably determined, or shall have been advised by counsel, that such action is likely to result in liability on the part of the Owner Trustee or is contrary to the terms hereof or of any Operative Document or is otherwise contrary to law. (c) Whenever the Owner Trustee is unable to decide between alternative courses of action permitted or required by the terms of this Agreement or any Operative Document, or is unsure as to the application, intent, interpretation or meaning of any provision of this agreement or the Operative Documents, the Owner Trustee shall promptly give notice (in such form as shall be 22 appropriate under the circumstances) to the Note Insurer and the Certificateholders requesting instruction as to the course of action to be adopted, and, to the extent the Owner Trustee acts in good faith in accordance with any such instruction received, the Owner Trustee shall not be liable on account of such action to any Person. If the Owner Trustee shall not have received appropriate instructions within ten days of such notice (or within such shorter period of time as reasonably may be specified in such notice or may be necessary under the circumstances) it may, but shall be under no duty to, take or refrain from taking such action which is consistent, in its view, with this Agreement or the Operative Documents, and as it shall deem to be the best interests of the Certificateholders, and the Owner Trustee shall have no liability to any Person for any such action or inaction. (d) In the event that the Owner Trustee is unsure as to the application of any provision of this Agreement or any Operative Document or any such provision is ambiguous as to its application, or is, or appears to be, in conflict with any other applicable provision, or in the event that this Agreement permits any determination by the Owner Trustee or is silent or is incomplete as to the course of action that the Owner Trustee is required to take with respect to a particular set of facts, the Owner Trustee may give notice (in such form as shall be appropriate under the circumstances) to the Certificateholders requesting instruction and, to the extent that the Owner Trustee acts or refrains from acting in good faith in accordance with any such instruction received, the Owner Trustee shall not be liable, on account of such action or inaction, to any Person. If the Owner Trustee shall not have received appropriate instruction within 10 days of such notice (or within such shorter period of time as reasonably may be specified in such notice or may be necessary under the circumstances) it may, but shall be under no duty to, take or refrain from taking such action, not inconsistent with this Agreement or the Operative Documents, as it shall deem to be in the best interest of the Certificateholders, and shall have no liability to any Person for such action or inaction. SECTION 6.4 No Duties Except as Specified in this Agreement, the Operative Documents or in Instructions. The Owner Trustee shall not have any duty or obligation to manage, make any payment with respect to, register, record, sell, dispose of, or otherwise deal with the Owner Trust Estate, or to otherwise take or refrain from taking any action under, or in connection with, any document contemplated hereby to which the Owner Trustee is a party, except as expressly provided by the terms of this Agreement, any Operative Document or in any document or written instruction received by the Owner Trustee pursuant to Section 6.3; and no implied duties or obligations shall be read into this Agreement or any Operative Document against the Owner Trustee. The Owner Trustee shall have no responsibility for filing any financing or continuation statement in any public office at any time or to otherwise perfect or maintain the perfection of any security interest or lien granted to it hereunder or to prepare or file any Securities and Exchange Commission filing for the Trust or to record this Agreement or any Operative Document. The Owner Trustee nevertheless agrees that it will, at its own cost and expense, promptly take all action as may be necessary to discharge any liens on any part of the Owner Trust Estate that result from actions by, or claims against, the Owner Trustee that are not related to the ownership or the administration of the Owner Trust Estate. 23 SECTION 6.5 No Action Except Under Specified Documents or Instructions. The Owner Trustee shall not manage, control, use, sell, dispose of or otherwise deal with any part of the Owner Trust Estate except (i) in accordance with the powers granted to and the authority conferred upon the Owner Trustee pursuant to this Agreement, (ii) in accordance with the Operative Documents and (iii) in accordance with any document or instruction delivered to the Owner Trustee pursuant to Section 6.3. SECTION 6.6 Restrictions. The Owner Trustee shall not take any action (a) that is inconsistent with the purposes of the Trust set forth in Section 2.3 or (b) that, to the actual knowledge of the Owner Trustee, would result in the Trust's becoming taxable as a corporation for Federal income tax purposes. The Certificateholders shall not direct the Owner Trustee to take action that would violate the provisions of this Section. 24 ARTICLE VII CONCERNING THE OWNER TRUSTEE SECTION 7.1 Acceptance of Trusts and Duties. Except as otherwise provided in this Article VII, in accepting the trusts hereby created Wilmington Trust Company acts solely as Owner Trustee hereunder and not in its individual capacity and all Persons having any claim against the Owner Trustee by reason of the transactions contemplated by this Agreement or any Operative Document shall look only to the assets of the Trust for payment or satisfaction thereof. The Owner Trustee accepts the trusts hereby created and agrees to perform its duties hereunder with respect to such trusts but only upon the terms of this Agreement. The Owner Trustee also agrees to disburse all moneys actually received by it constituting part of the assets of the Trust upon the terms of the Operative Documents and this Agreement. The Owner Trustee shall not be liable or accountable hereunder or under any Operative Document under any circumstances, except (i) for its own gross negligent action, its own gross negligent failure to act or its own willful misconduct or (ii) in the case of the inaccuracy of any representation or warranty contained in Section 7.3 and expressly made by the Owner Trustee. In particular, but not by way of limitation (and subject to the exceptions set forth in the preceding sentence): (a) the Owner Trustee shall at no time have any responsibility or liability for or with respect to the legality, validity and enforceability of any Mortgage Loan, or the perfection and priority of any security interest created by any Mortgage Loan in any Property or the maintenance of any such perfection and priority, or for or with respect to the sufficiency of the assets of the Trust or their ability to generate the payments to be distributed to Certificateholders under this Agreement or the Owners of the Notes under the Indentures, including, without limitation: the existence, condition and ownership of any Property; the existence and enforceability of any insurance thereon; the existence and contents of any Mortgage Loan on any computer or other record thereof; the validity of the assignment of any Mortgage Loan to the Trust or of any intervening assignment; the completeness of any Mortgage Loan; the performance or enforcement of any Mortgage Loan; the compliance by the Seller or the Servicer with any warranty or representation made under any Operative Document or in any related document or the accuracy of any such warranty or representation or any action of the Indenture Trustee, the Custodian or the Servicer or any subservicer taken in the name of the Owner Trustee. (b) the Owner Trustee shall not be liable with respect to any action taken or omitted to be taken by it in accordance with the instructions of the Note Insurer or any Certificateholder; (c) no provision of this Agreement or any Operative Document shall require the Owner Trustee to expend or risk funds or otherwise incur any financial liability in the performance of any of its rights or powers hereunder or under any Operative Document, if the Owner Trustee shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured or provided to it; 25 (d) under no circumstances shall the Owner Trustee be liable for indebtedness evidenced by or arising under any of the Operative Documents, including the Fixed Rate Note Principal Balance and the Adjustable Rate Note Principal Balance and the interest on the Notes; (e) the Owner Trustee shall not be responsible for or in respect of and makes no representation as to the validity or sufficiency of any provision of this Agreement or for the due execution hereof by the Seller or for the form, character, genuineness, sufficiency, value or validity of any of the Owner Trust Estate or for or in respect of the validity or sufficiency of the Operative Documents, the Notes, the Certificates (other than the certificate of authentication on the Certificates, if executed by the Owner Trustee) or of any Mortgage Loans or any related documents, and the Owner Trustee shall in no event assume or incur any liability, duty or obligation to any Owner of a Note or to any Certificateholder, other than as expressly provided for herein and in the Operative Documents; (f) the Owner Trustee shall not be liable for the default or misconduct of the Indenture Trustee, the Custodian, the Seller or the Servicer under any of the Operative Documents or otherwise and the Owner Trustee shall have no obligation or liability to perform the obligations of the Trust under this Agreement or the Operative Documents that are required to be performed by the Indenture Trustee under the Indentures, the Custodian under the Custodial Agreement or the Seller or Servicer under the Sale and Servicing Agreement; (g) the Owner Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement, or to institute, conduct or defend any litigation under this Agreement or otherwise or in relation to this Agreement, the Underwriting Agreement or any Operative Document, at the request, order or direction of any of the Note Insurer or any of the Certificateholders, unless the Note Insurer or such Certificateholders have offered to the Owner Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities that may be incurred by the Owner Trustee therein or thereby. The right of the Owner Trustee to perform any discretionary act enumerated in this Agreement or in any Operative Document shall not be construed as a duty, and the Owner Trustee shall not be answerable for other than its negligence or willful misconduct in the performance of any such act; (h) The Owner Trustee shall have no responsibility for filing any financing or continuation statement in any public office at any time or to otherwise perfect or maintain the perfection of any security interest or lien granted to it hereunder or to prepare, execute or file any Securities and Exchange Commission filing or tax return for the Trust or to record this Agreement or any Operative Document. SECTION 7.2 Furnishing of Documents. The Owner Trustee shall furnish (a) to the Certificateholders, promptly upon receipt of a written request therefor, duplicates or copies of all reports, notices, requests, demands, certificates, financial statements and any other instruments furnished to the Owner Trustee under the Operative Documents, and (b) to the Note Insurer and the Rating Agencies, copies of any reports, notices, requests, demands, certificates, financial statements, and any other instruments relating to the Trust, the Certificates or the Notes in the possession of the Owner Trustee, that the Note Insurer shall request in writing. 26 SECTION 7.3 Representations and Warranties of Owner Trustee. The Owner Trustee hereby represents and warrants to the Seller, for the benefit of the Certificateholders and the Note Insurer, that: (a) It is a banking corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. (b) It has full power, authority and legal right to execute, deliver and perform its obligations under this Agreement, and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement. (c) The execution, delivery and performance by it of this Agreement (i) shall not violate any provision of any law or regulation governing the banking and trust powers of the Owner Trustee or any order, writ, judgment or decree of any court, arbitrator or governmental authority applicable to the Owner Trustee or any of its assets, (ii) shall not violate any provision of the corporate charter or by-laws of the Owner Trustee, or (iii) shall not violate any provision of, or constitute, with or without notice or lapse of time, a default under, or result in the creation or imposition of any lien on any properties included in the Trust pursuant to the provisions of any mortgage, indenture, contract, agreement or other undertaking to which it is a party, which violation, default or lien could reasonably be expected to have a materially adverse effect on the Owner Trustee's performance or ability to perform its duties as Owner Trustee under this Agreement or on the transactions contemplated in this Agreement. (d) This Agreement has been duly executed and delivered by the Owner Trustee and constitutes the legal, valid and binding agreement of the Owner Trustee, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, or other similar law affecting the enforcement of creditors' rights in general and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (e) The Owner Trustee is not in default with respect to any order or decree of any court or any order, regulation or demand of any Federal, state, municipal or governmental agency, which default might have consequences that would materially and adversely affect the condition (financial or other) or operations of the Owner Trustee or its properties or might have consequences that would materially adversely affect its performance hereunder. (f) No litigation is pending or, to the best of the Owner Trustee's knowledge, threatened against the Owner Trustee which would prohibit its entering into this Trust Agreement or performing its obligations under this Trust Agreement. SECTION 7.4 Reliance; Advice of Counsel. (a) The Owner Trustee shall incur no liability to anyone in acting upon any signature, instrument, notice, resolution, request, consent, order, certificate, report, opinion, note or other document or paper believed by it to be genuine and believed by it to be signed by the proper 27 party or parties. The Owner Trustee may accept a certified copy of a resolution of the board of directors or other governing body of any corporate party as conclusive evidence that such resolution has been duly adopted by such body and that the same is in full force and effect. As to any fact or matter the method of the determination of which is not specifically prescribed herein, the Owner Trustee may for all purposes hereof rely on a certificate, signed by the president or any vice president or by the treasurer or other authorized officers of the relevant party, as to such fact or matter, and such certificate shall constitute full protection to the Owner Trustee for any action taken or omitted to be taken by it in good faith in reliance thereon. (b) In the exercise or administration of the Trust hereunder and in the performance of its duties and obligations under this Agreement or the Operative Documents, the Owner Trustee: (i) may act directly or through its agents, attorneys, custodians or nominees, and the Owner Trustee shall not be liable for the conduct or misconduct of such agents, attorneys, custodians or nominees if such agents, attorneys, custodians or nominees shall have been selected by the Owner Trustee with reasonable care and (ii) may consult with counsel, accountants and other skilled professionals to be selected with reasonable care and employed by it. The Owner Trustee shall not be liable for anything done, suffered or omitted in good faith by it in accordance with the opinion or advice of any such counsel, accountants or other such Persons and not contrary to this Agreement or any of the Operative Documents. (c) In providing any certificates required of the Issuer pursuant to an Indenture, the Owner Trustee may rely on an Officer's Certificate of the Seller or the Servicer in a form satisfactory to the Owner Trustee. SECTION 7.5 Owner Trustee May Own Certificates and Notes. The Owner Trustee in its individual or any other capacity may become the owner or pledgee of Certificates or Notes and may deal with the Seller, the Indenture Trustee and the Servicer in transactions in the same manner and with the same rights as it would have if it were not the Owner Trustee. SECTION 7.6 Licenses. The Owner Trustee shall cause the Trust to use its best efforts to obtain and maintain the effectiveness of any licenses required in connection with this Agreement and the Operative Documents and the transactions contemplated hereby and thereby until such time as the Trust shall terminate in accordance with the terms hereof. 28 ARTICLE VIII COMPENSATION OF OWNER TRUSTEE SECTION 8.1 Owner Trustee's Fee and Expenses. The Owner Trustee shall receive from the Seller as compensation for its services hereunder such fees as have been separately agreed upon before the date hereof between the Seller and the Owner Trustee, and the Owner Trustee shall be entitled to be reimbursed by the Seller for its other reasonable expenses hereunder, including the reasonable compensation, expenses and disbursements of such agents, custodians, nominees, representatives, experts and counsel as the Owner Trustee may employ in connection with the exercise and performance of its rights and its duties hereunder. The amount of the Owner Trustee Fee shall be paid to the Owner Trustee pursuant to Section 3.5 of the Sale and Servicing Agreement. SECTION 8.2 Indemnification. The Seller shall be liable as primary obligor pursuant to the Sale and Servicing Agreement for, and shall indemnify the Owner Trustee and its successors, assigns, agents and servants (collectively, the "Indemnified Parties") from and against, any and all liabilities, obligations, losses, damages, taxes, claims, actions and suits, and any and all reasonable costs, expenses and disbursements (including reasonable legal fees and expenses) of any kind and nature whatsoever (collectively, "Expenses") which may at any time be imposed on, incurred by, or asserted against the Owner Trustee or any Indemnified Party in any way relating to or arising out of this Agreement, the Operative Documents, the Owner Trust Estate, the administration of the Trust or the action or inaction of the Owner Trustee hereunder, provided that: (i) the Seller shall not be liable for or required to indemnify an Indemnified Party from and against Expenses arising or resulting from the Owner Trustee's willful misconduct, gross negligence or bad faith, as specified in the fourth sentence of Section 7.1 or as a result of any inaccuracy of a representation or warranty contained in Section 7.3 expressly made by the Owner Trustee; (ii) with respect to any such claim, the Indemnified Party shall have given the Seller written notice thereof promptly after the Indemnified Party shall have actual knowledge thereof; (iii) while maintaining control over its own defense, the Seller shall consult with the Indemnified Party in preparing such defense; and (iv) notwithstanding anything in this Agreement to the contrary, the Seller shall not be liable for settlement of any claim by an Indemnified Party entered into without the prior consent of the Seller which consent shall not be unreasonably withheld. The indemnities contained in this Section shall survive the resignation or termination of the Owner Trustee or the termination of this Agreement. In the event of any claim, action or proceeding for which indemnity will be sought pursuant to this Section 8.2, the Owner Trustee's choice of legal counsel, if other than the legal counsel retained by the Owner Trustee in connection with the execution and delivery of this Agreement, shall be subject to the approval of the Seller, which 29 approval shall not be unreasonably withheld. In addition, upon written notice to the Owner Trustee and with the consent of the Owner Trustee which consent shall not be unreasonably withheld, the Seller has the right to assume the defense of any claim, action or proceeding against the Owner Trustee. SECTION 8.3 Payments to the Owner Trustee. Any amounts paid to the Owner Trustee pursuant to this Article VIII shall be deemed not to be a part of the Owner Trust Estate immediately after such payment. 30 ARTICLE IX TERMINATION OF TRUST AGREEMENT SECTION 9.1 Termination of Trust Agreement. (a) This Agreement (other than Article VIII) and the Trust shall terminate and be of no further force or effect on the earlier of: (i) the final distribution by the Indenture Trustee of all moneys or other property or proceeds of the assets of the Trust in accordance with the terms of the Indentures and (ii) the expiration of 21 years from the death of the last survivor of the descendants of Joseph P. Kennedy (the late ambassador of the United States to the Court of St. James's). The bankruptcy, liquidation, dissolution, death or incapacity of any Certificateholder shall not (x) operate to terminate this Agreement or the Trust, nor (y) entitle such Certificateholder's legal representatives or heirs to claim an accounting or to take any action or proceeding in any court for a partition or winding up of all or any part of the Trust or the Owner Trust Estate or (z) otherwise affect the rights, obligations and liabilities of the parties hereto. (b) The Certificates shall be subject to an early redemption or termination at the option of the Holders of a majority of the Certificates, and in certain instances the Note Insurer, in the manner and subject to the provisions of Section 5.2 of the Sale and Servicing Agreement. (c) Except as provided in paragraphs (a) and (b) of this Section 9.1, none of the Seller, the Servicer, the Note Insurer or any Certificateholder shall be entitled to revoke or terminate the Trust. (d) Notice of any termination of the Trust, specifying the Payment Date upon which the Certificateholders shall surrender their Certificates to the Owner Trustee for payment of the final distribution and cancellation, shall be given by the Owner Trustee by letter to the Note Insurer, the Rating Agencies and the Trust Paying Agent mailed within five Business Days of receipt of notice of such termination, stating: (i) the Payment Date upon or with respect to which final payment of the Certificates shall be made upon presentation and surrender of the Certificates at the office of the Owner Trustee therein designated; (ii) the amount of any such final payment; and (iii) that the Record Date otherwise applicable to such Payment Date is not applicable, payments being made only upon presentation and surrender of the Certificates at the office of the Owner Trustee therein specified. The Owner Trustee shall give such notice to the Certificate Registrar (if other than the Owner Trustee) and the Trust Paying Agent at the time such notice is given to Certificateholders. The Owner Trustee will give notice to the Trust Paying Agent of each presentation and surrender of the Certificates and the Trust Paying Agent shall cause to be distributed to Certificateholders amounts distributable on such Payment Date pursuant to Section 5.3 of the Sale and Servicing Agreement. (e) Upon the winding up of the Trust and its termination, the Owner Trustee shall cause the Certificate of Trust to be canceled by filing a certificate of cancellation with the Secretary of State in accordance with the provisions of Section 3810(d) of the Business Trust Statute. 31 ARTICLE X SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES SECTION 10.1 Eligibility Requirements for Owner Trustee. The Owner Trustee shall at all times be a corporation satisfying the provisions of Section 3807(a) of the Business Trust Statute; authorized to exercise corporate powers; having a combined capital and surplus of at least $100,000,000 and subject to supervision or examination by Federal or state authorities; and having (or having a parent which has) a rating of at least "Baa3" by Moody's and "A-1" by Standard & Poor's and being acceptable to the Note Insurer. If such corporation shall publish reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purpose of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Owner Trustee shall cease to be eligible in accordance with the provisions of this Section, the Owner Trustee shall resign immediately in the manner and with the effect specified in Section 10.2. SECTION 10.2 Resignation or Removal of Owner Trustee. The Owner Trustee may at any time resign and be discharged from the trusts hereby created by giving 30 days prior written notice thereof to the Seller, the Indenture Trustee, the Rating Agencies and the Note Insurer. Upon receiving such notice of resignation, the Seller shall promptly appoint a successor Owner Trustee (acceptable to the Note Insurer) by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Owner Trustee and one copy to the successor Owner Trustee. If no successor Owner Trustee shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation, the resigning Owner Trustee or the Note Insurer may petition any court of competent jurisdiction for the appointment of a successor Owner Trustee. If at any time the Owner Trustee shall cease to be eligible in accordance with the provisions of Section 10.1 and shall fail to resign after written request therefor by the Indenture Trustee, or if at any time the Owner Trustee shall be legally unable to act, or shall be adjudged bankrupt or insolvent, or a receiver of the Owner Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Owner Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then the Note Insurer, or the Indenture Trustee with the consent of the Note Insurer, may remove the Owner Trustee. If the Indenture Trustee or the Note Insurer shall remove the Owner Trustee under the authority of the immediately preceding sentence, the Note Insurer, or the Servicer with the consent of the Note Insurer, shall promptly appoint a successor Owner Trustee by written instrument in duplicate, one copy of which instrument shall be delivered to the outgoing Owner Trustee so removed and one copy to the successor Owner Trustee and payment of all fees owed to the outgoing Owner Trustee. Any resignation or removal of the Owner Trustee and appointment of a successor Owner Trustee pursuant to any of the provisions of this Section shall not become effective until acceptance of appointment by the successor Owner Trustee pursuant to Section 10.3, written approval by the Note Insurer and payment of all fees and expenses owed to the outgoing Owner Trustee. The Seller shall provide notice of such resignation or removal of the Owner Trustee to each of the Rating Agencies and the Note Insurer. 32 SECTION 10.3 Successor Owner Trustee. Any successor Owner Trustee appointed pursuant to Section 10.2 shall execute, acknowledge and deliver to the Seller, the Indenture Trustee, the Note Insurer and to its predecessor Owner Trustee an instrument accepting such appointment under this Agreement, and thereupon the resignation or removal of the predecessor Owner Trustee shall become effective and such successor Owner Trustee (if acceptable to the Note Insurer), without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties, and obligations of its predecessor under this Agreement, with like effect as if originally named as Owner Trustee. The predecessor Owner Trustee shall upon payment of its fees and expenses deliver to the successor Owner Trustee all documents and statements and monies held by it under this Agreement; and the Seller and the predecessor Owner Trustee shall execute and deliver such instruments and do such other things as may reasonably be required for fully and certainly vesting and confirming in the successor Owner Trustee all such rights, powers, duties, and obligations. No successor Owner Trustee shall accept appointment as provided in this Section unless at the time of such acceptance such successor Owner Trustee shall be eligible pursuant to Section 10.1. Upon acceptance of appointment by a successor Owner Trustee pursuant to this Section, the Seller shall mail notice of the successor of such Owner Trustee to all Certificateholders, the Indenture Trustee, the Owners of the Notes, the Note Insurer and the Rating Agencies. If the Seller fails to mail such notice within 10 days after acceptance of appointment by the successor Owner Trustee, the successor Owner Trustee shall cause such notice to be mailed at the expense of the Seller. SECTION 10.4 Merger or Consolidation of Owner Trustee. Any corporation into which the Owner Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Owner Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Owner Trustee, shall be the successor of the Owner Trustee hereunder, provided such corporation shall be eligible pursuant to Section 10.1, and without the execution or filing of any instrument or any further act on the part of any of the parties hereto; provided, however, that the Owner Trustee shall mail notice of such merger or consolidation to the Note Insurer and each of the Rating Agencies. SECTION 10.5 Appointment of Co-Trustee or Separate Trustee. (a) Notwithstanding any other provisions of this Agreement, at any time, for the purpose of meeting any legal requirement of any jurisdiction in which any part of the Owner Trust Estate or any Property may at the time be located, the Owner Trustee (with the consent of the Note Insurer) shall have the power and shall execute and deliver all instruments to appoint one or more Persons approved by the Owner Trustee and the Note Insurer to act as co-trustee, jointly with the Owner Trustee, or as separate trustee or trustees, of all or any part of the assets of the Trust, and to vest in such Person, in such capacity, such title to the Trust, or any part thereof, and, subject to the other provisions of this Section, such powers, duties, obligations, rights and trusts as the Note Insurer and the Owner Trustee may consider necessary or desirable. No co-trustee or separate trustee under this Agreement shall be required to meet the terms of eligibility as a successor trustee pursuant 33 to Section 10.1 and no notice of the appointment of any co-trustee or separate trustee shall be required pursuant to Section 10.3. (b) Each separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (i) all rights, powers, duties and obligations conferred or imposed upon the Owner Trustee shall be conferred upon and exercised or performed by the Owner Trustee, and such separate trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately without the Owner Trustee joining in such act), except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed, the Owner Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Trust or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate trustee or co-trustee, but solely at the direction of the Owner Trustee; (ii) no trustee under this Agreement shall be personally liable by reason of any act or omission of any other trustee under this Agreement; and (iii) the Owner Trustee may at any time accept the resignation of or remove any separate trustee or co-trustee. (c) Any notice, request or other writing given to the Owner Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Agreement and the conditions of this Article. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Owner Trustee or separately, as may be provided therein, subject to all the provisions of this Agreement, specifically including every provision of this Agreement relating to the conduct of, affecting the liability of, or affording protection to, the Owner Trustee. Each such instrument shall be filed with the Owner Trustee and a copy thereof given to the Note Insurer. (d) Any separate trustee or co-trustee may at any time appoint the Owner Trustee as its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Agreement on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Owner Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. 34 ARTICLE XI MISCELLANEOUS SECTION 11.1 Amendments Without Consent of Certificateholders or Owners of the Notes. This Agreement may be amended by the Seller and the Owner Trustee without the consent of any of the Certificateholders (but with the prior written consent of the Note Insurer), to (i) cure any ambiguity, (ii) correct or supplement any provision in this Agreement that may be defective or inconsistent with any other provision in this Agreement, (iii) add or supplement any credit enhancement for the benefit of the Owners of the Notes or the Certificateholders, (iv) add to the covenants, restrictions or obligations of the Seller or the Owner Trustee and (v) add, change or eliminate any other provision of this Agreement in any manner that shall not, adversely affect in any material respect the interests of the Owners of the Notes or the Certificateholders. An amendment described above shall be deemed not to adversely affect in any material respect the interests of any Certificateholder or Owner of a Note if (i) an opinion of counsel is obtained to such effect or (ii) the party requesting the amendment satisfies the Rating Agency Condition with respect to such amendment. SECTION 11.2 Amendments With Consent of Certificateholders. This Agreement may be amended from time to time by the Seller and the Owner Trustee with the consent of the Note Insurer and more than a majority in Percentage Interests of the Certificates for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement, or of modifying in any manner the rights of the Certificateholders; provided, however, that no such amendment shall (a) increase or reduce in any manner the amount of, or accelerate or delay the timing of, collections of payments on Mortgage Loans or distributions that shall be made for the benefit of the Certificateholders or (b) reduce the aforesaid percentage required to consent to any such amendment, without the consent of the Holders of all of the Certificates then outstanding. SECTION 11.3 Form of Amendments. (a) Promptly after the execution of any amendment, supplement or consent pursuant to Section 11.1 or 11.2, the Owner Trustee shall furnish written notification of the substance of such amendment or consent to each Certificateholder, the Indenture Trustee, the Note Insurer and each Rating Agency. (b) It shall not be necessary for the consent of the Certificateholders, pursuant to Section 11.2 to approve the particular form of any proposed amendment or consent, but it shall be sufficient if such consent shall approve the substance thereof. The manner of obtaining such consents (and any other consents of Certificateholders provided for in this Agreement or in any other Operative Document) and of evidencing the authorization of the execution thereof by Certificateholders shall be subject to such reasonable requirements as the Owner Trustee may prescribe. (c) Promptly after the execution of any amendment to the Certificate of Trust, the Owner Trustee shall cause the filing of such amendment with the Secretary of State. 35 (d) Prior to the execution of any amendment to this Agreement or the Certificate of Trust, the Owner Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating that the execution of such amendment is authorized or permitted by this Agreement and that all conditions precedent to the execution and delivery of such amendment have been satisfied. The Owner Trustee may, but shall not be obligated to, enter into any such amendment which affects the Owner Trustee's own rights, duties or immunities under this Agreement or otherwise. (e) The Owner Trustee shall, upon execution thereof, provide each Certificateholder, the Seller, the Note Insurer and the Rating Agencies with notice of the form and substance of any amendment to this Agreement. SECTION 11.4 No Legal Title to Owner Trust Estate. The Certificateholders shall not have legal title to any part of the assets of the Owner Trust Estate solely by virtue of their status as Certificateholders. The Certificateholders shall be entitled to receive distributions with respect to their undivided ownership interest therein only in accordance with Articles V and IX. No transfer, by operation of law or otherwise, of any right, title, and interest of the Certificateholders to and in their ownership interest in the assets of the Trust shall operate to terminate this Agreement or the trusts hereunder or entitle any transferee to an accounting or to the transfer to it of legal title to any part of the assets of the Trust. SECTION 11.5 Limitations on Rights of Others. Except for Section 2.7, the provisions of this Agreement are solely for the benefit of the Note Insurer, the Owner Trustee, the Seller, the Certificateholders and, to the extent expressly provided herein, the Indenture Trustee and the Owners of the Notes, and nothing in this Agreement (other than Section 2.7), whether express or implied, shall be construed to give to any other Person any legal or equitable right, remedy or claim in the assets of the Trust or under or in respect of this Agreement or any covenants, conditions or provisions contained herein. SECTION 11.6 Notices. (a) All demands, notices and communications hereunder shall be in writing and shall be deemed to have been duly given if personally delivered at or mailed by overnight mail, certified mail or registered mail, postage prepaid, to (i) in the case of the Servicer, First Alliance Mortgage Company, 17305 Von Karman Avenue, Irvine, California 92614-6203, Attention: Manager, Investor Reporting, or such other addresses as may hereafter be furnished to the Certificateholders in writing by the Servicer, (ii) in the case of the Seller, First Alliance Mortgage Company, 17305 Von Karman Avenue, Irvine, California 92614-6203, Attention: Director, Secondary Marketing, or such other addresses as may hereafter be furnished to the Certificateholders in writing by the Seller, (iii) in the case of the Owner Trustee, Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890, Attention: First Alliance Mortgage Loan Trust 1998-2, (iv) in the case of the Certificateholders, as set forth in the Certificate Register, (v) in the case of the Indenture Trustee, The Chase Manhattan Bank, 450 West 33rd Street, New York, New York 10006, Attention: First Alliance Mortgage Loan Trust 1998-2, (vi) in the case of Moody's, 99 Church Street, New York, New York 10007, Attention: Home Equity Monitoring Group, (vii) in the case of Standard & Poor's, 25 Broadway, New York, New York 10004, Attention: Residential Mortgage Group, and (viii) in the case of the Note Insurer, Financial Security Assurance 36 Inc., 350 Park Avenue, New York, New York 10022, Attention: First Alliance Mortgage Loan Trust 1998-2. Any such notices shall be deemed to be effective with respect to any party hereto upon the receipt of such notice by such party, except that notices to the Certificateholders shall be effective upon mailing or personal delivery. (b) Any notice required or permitted to be given to a Certificateholder shall be given by first-class mail, postage prepaid, at the address of such Holder as shown in the Certificate Register. Any notice so mailed within the time prescribed in this Agreement shall be conclusively presumed to have been duly given, whether or not the Certificateholder receives such notice. SECTION 11.7 Severability. If any one or more of the covenants, agreements, provisions or terms of this Agreement shall be for any reason whatsoever held invalid, 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 or of the Certificates or the rights of the Holders thereof. SECTION 11.8 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. SECTION 11.9 Successors and Assigns. All covenants and agreements contained herein shall be binding upon, and inure to the benefit of, the Seller, the Owner Trustee, the Note Insurer and each Certificateholder and their respective successors and permitted assigns, all as herein provided. Any request, notice, direction, consent, waiver or other instrument or action by a Certificateholder shall bind the successors and assigns of such Certificateholder. SECTION 11.10 No Petition Covenant. Notwithstanding any prior termination of this Agreement, the Trust (or the Owner Trustee on behalf of the Trust), the Seller, each Certificateholder and the Indenture Trustee shall not acquiesce, petition or otherwise invoke or cause the Trust to invoke the process of any court or governmental authority for the purpose of commencing or sustaining a case against the Trust under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Trust or any substantial part of its property, or ordering the winding up or liquidation of the affairs of the Trust. SECTION 11.11 No Recourse. Each Certificateholder by accepting a Certificate acknowledges that such Certificateholder's Certificates represent beneficial interests in the Trust only and do not represent interests in or obligations of the Seller, the Servicer, the Owner Trustee, the Indenture Trustee or any affiliate thereof and no recourse may be had against such parties or their assets, except as may be expressly set forth or contemplated in this Agreement, the Certificates or the Operative Documents. SECTION 11.12 Headings. The headings of the various Articles and Sections herein are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. 37 SECTION 11.13 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. SECTION 11.14 Integration. This Agreement constitutes the entire agreement among the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements and understandings pertaining thereto. SECTION 11.15 Third-Party Beneficiary. The parties hereto acknowledge that the Note Insurer is an express third party beneficiary hereof entitled to enforce the provisions hereunder as if it were actually a party hereto. Nothing in this section, however, shall be construed to mitigate in any way, the fiduciary responsibilities of the Owner Trustee to the Certificateholders nor to create a fiduciary responsibility of the Owner Trustee to the Note Insurer. SECTION 11.16 Suspension and Termination of Note Insurer's Rights. During the continuation of a Note Insurer Default, rights granted or reserved to the Note Insurer hereunder shall vest instead in the Certificateholders; provided that the Note Insurer shall be entitled to any distributions in reimbursement of the Reimbursement Amount, and the Note Insurer shall retain those rights under Section 11.1 to consent to any amendment of this Agreement. At such time as either (i) both the Adjustable Rate Note Principal Balance and the Fixed Rate Note Principal Balance have been reduced to zero and (ii) the Note Insurance Policies have been terminated and in either case of (i) or (ii) the Note Insurer has been reimbursed for all Insured Payments and any other amounts owed under the Note Insurance Policies and the Insurance Agreement (and the Note Insurer no longer has any obligation under the Note Insurance Policies, except for breach thereof by the Note Insurer), then the rights and benefits granted or reserved to the Note Insurer hereunder (including the rights to direct certain actions and receive certain notices) shall terminate and the Certificateholders shall be entitled to the exercise of such rights and to receive such benefits of the Note Insurer following such termination to the extent that such rights and benefits are applicable to the Certificateholders. 38 IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to be duly executed by their respective officers hereunto duly authorized, as of the day and year first above written. WILMINGTON TRUST COMPANY, as Owner Trustee By: /s/ Debra Eberly ------------------------------ Name: Debra Eberly Title: Administrative Account Manager FIRST ALLIANCE MORTGAGE COMPANY, as Seller By: /s/ Brian Chisick --------------------------------- Name: Brian Chisick Title: President/Chief Executive Officer Acknowledged and Accepted: FIRST ALLIANCE MORTGAGE COMPANY, as Servicer By: /s/ Brian Chisick --------------------------------- Name: Brian Chisick Title: President/Chief Executive Officer THE CHASE MANHATTAN BANK, as Trust Paying Agent and Certificate Registrar By: /s/ Diane E. Wallace -------------------- Name: Diane E. Wallace Title: Trust Officer EXHIBIT A CERTIFICATE OF TRUST OF FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2 THIS Certificate of Trust of First Alliance Mortgage Loan Trust 1998-2 (the "Trust") dated as of June 1, 1998, is being duly executed and filed by Wilmington Trust Company, a Delaware banking corporation, as trustee, to form a business trust under the Delaware Business Trust Act (12 Del. Code, ss.3801 et seq.). 1. Name. The name of the business trust formed hereby is First Alliance Mortgage Loan Trust 1998-2. 2. Delaware Trustee. The name and business address of the trustee of the Trust in the State of Delaware is Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administration. 3. This Certificate of Trust shall be effective as of its filing. IN WITNESS WHEREOF, the undersigned, being the sole trustee of the Trust, has executed this Certificate of Trust as of the date first above written. WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Owner Trustee By: _______________________________ Name: ________________________ Title: ________________________ EXHIBIT B TO THE TRUST AGREEMENT (FORM OF CERTIFICATE) THE EQUITY INTEREST IN THE TRUST REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THIS CERTIFICATE MAY BE DIRECTLY OR INDIRECTLY OFFERED OR SOLD OR OTHERWISE DISPOSED OR (INCLUDING PLEDGED) BY THE HOLDER HEREOF ONLY TO (I) A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE ACT, IN A TRANSACTION THAT IS REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT PURSUANT TO RULE 144A OR (II) A PERSON INVOLVED IN THE ORGANIZATION OR OPERATION OF THE TRUST OR AN AFFILIATE OF SUCH A PERSON WITHIN THE MEANING OR RULE 3A-7 OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (INCLUDING BUT NOT LIMITED TO, FIRST ALLIANCE MORTGAGE COMPANY AND FIRST ALLIANCE RESIDUAL HOLDING COMPANY) IN A TRANSACTION THAT IS REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS. NO PERSON IS OBLIGATED TO REGISTER THIS EQUITY INTEREST UNDER THE ACT OR ANY STATE SECURITIES LAWS. NO TRANSFER OF THIS CERTIFICATE OR ANY BENEFICIAL INTEREST THEREIN SHALL BE MADE TO ANY PERSON UNLESS THE OWNER TRUSTEE HAS RECEIVED A CERTIFICATE FROM THE TRANSFEREE TO THE EFFECT THAT SUCH TRANSFEREE IS NOT AN "EMPLOYEE BENEFIT PLAN" WITHIN THE MEANING OF SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR A "PLAN" WITHIN THE MEANING OF SECTION 4975(e)(1) OF THE CODE (ANY SUCH PLAN OR EMPLOYEE BENEFIT PLAN, A "PLAN") AND IS NOT DIRECTLY OR INDIRECTLY PURCHASING SUCH CERTIFICATE ON BEHALF OF, AS INVESTMENT MANAGER OF, AS NAMED FIDUCIARY OF, AS TRUSTEE OF, OR WITH ASSETS OF A PLAN. THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF UNLESS, PRIOR TO SUCH DISPOSITION, THE PROPOSED TRANSFEREE DELIVERS TO THE OWNER TRUSTEE AND THE CERTIFICATE REGISTRAR A CERTIFICATE STATING THAT SUCH TRANSFEREE (A) AGREES TO BE BOUND BY AND TO ABIDE BY THE TRANSFER RESTRICTIONS APPLICABLE TO THIS CERTIFICATE; (B) IS NOT AN ENTITY THAT WILL HOLD THIS CERTIFICATE AS NOMINEE TO FACILITATE THE CLEARANCE AND SETTLEMENT OF SUCH SECURITY THROUGH THIS CERTIFICATE MAY NOT BE PURCHASED BY OR TRANSFERRED TO ANY PERSON THAT IS A NON-U.S. PERSON. THE TERM "NON-U.S. PERSON" MEANS A PERSON WHO IS NOT ONE OF THE FOLLOWING: A CITIZEN OR RESIDENT OF THE UNITED STATES, A CORPORATION, PARTNERSHIP OR OTHER ENTITY CREATED OR ORGANIZED IN OR UNDER THE LAWS OF THE UNITED STATES OR ANY POLITICAL SUBDIVISION THEREOF, AN ESTATE THAT IS SUBJECT TO U.S. FEDERAL INCOME TAX REGARDLESS OF THE SOURCE OF ITS INCOME OR A TRUST IF (I) A COURT IN THE UNITED STATES IS ABLE TO EXERCISE PRIMARY SUPERVISION OVER THE ADMINISTRATION OF THE TRUST AND (II) ONE OR MORE UNITED STATES FIDUCIARIES HAVE THE AUTHORITY TO CONTROL ALL SUBSTANTIAL DECISIONS OF THE TRUST. B-2 FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2 CERTIFICATE No. 0001 THIS CERTIFIES THAT First Alliance Portfolio Services, Inc. (the "Owner") is the registered owner of a 100% Percentage Interest in First Alliance Mortgage Loan Trust 1998-2 (the "Trust") existing under the laws of the State of Delaware and created pursuant to the Trust Agreement, dated as of June 1, 1998 (the "Trust Agreement"), between First Alliance Mortgage Company, as Seller, and Wilmington Trust Company, in its individual capacity and in its fiduciary capacity as owner trustee under the Trust Agreement (the "Owner Trustee"). Capitalized terms used but not otherwise defined herein have the meanings assigned to such terms in the Trust Agreement. The Owner Trustee, on behalf of the Issuer and not in its individual capacity, has executed this Certificate by one of its duly authorized signatories as set forth below. This Certificate is one of the Certificates referred to in the Trust Agreement and is issued under and is subject to the terms, provisions and conditions of the Trust Agreement to which the holder of this Certificate by virtue of the acceptance hereof agrees and by which the holder hereof is bound. Reference is hereby made to the Trust Agreement for the rights of the holder of this Certificate, as well as for the terms and conditions of the Trust created by the Trust Agreement. The holder, by its acceptance hereof, agrees not to transfer this Certificate except in accordance with terms and provisions of the Agreement. THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not in its individual capacity, has caused this Certificate to be duly executed. FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2 By: WILMINGTON TRUST COMPANY not in its individual capacity but solely as Owner Trustee under the Trust Agreement By: _________________________________________ Authorized Signatory Dated: June 26, 1998 B-3 CERTIFICATE OF AUTHENTICATION This is one of the Certificates referred to in the within-mentioned Agreement. WILMINGTON TRUST COMPANY, as Owner Trustee By: ___________________________ Authorized Signatory B-4 ASSIGNMENT FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - - ------------------------------------------------------------------------------ (Please print or type name and address, including postal zip code, of assignee) - - ------------------------------------------------------------------------------ the within Instrument, and all rights thereunder, hereby irrevocably constituting and appointing _____________________________________________________________ Attorney to transfer said Instrument on the books of the Certificate Registrar, with full power of substitution in the premises. Dated: _____________________ _________________________________________ */ Signature Guaranteed: _________________________________________ */ NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Instrument in every particular, without alteration, enlargement or any change whatever. Such signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. B-5 EX-10.1 6 SALE AND SERVICING AGREEMENT Exhibit 10.1 SALE AND SERVICING AGREEMENT Dated as of June 1, 1998 Among FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2, as Issuer, FIRST ALLIANCE MORTGAGE COMPANY, as Seller, FIRST ALLIANCE MORTGAGE COMPANY, as Servicer and THE CHASE MANHATTAN BANK, as Indenture Trustee Dated as of June 1, 1998 FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2 ADJUSTABLE RATE MORTGAGE LOAN ASSET BACKED NOTES, SERIES 1998-2A FIXED RATE MORTGAGE LOAN ASSET BACKED NOTES, SERIES 1998-2F TABLE OF CONTENTS
ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION.......................................................................1 1.1. Definitions.....................................................................................1 1.2. Use of Words and Phrases.......................................................................23 1.3. Captions; Table of Contents....................................................................23 ARTICLE II REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLER AND THE SERVICER; COVENANT OF SELLER TO CONVEY MORTGAGE LOANS.............................................................23 2.1. Representations and Warranties of the Seller...................................................23 2.2. Representations and Warranties of the Servicer.................................................25 2.3. Representations and Warranties of the Seller with Respect to the Mortgage Loans................28 2.4. Covenants of the Seller to Take Certain Actions with Respect to the Mortgage Loans In Certain Situations..........................................................................33 2.5. Conveyance of the Mortgage Loans...............................................................33 2.6. Acceptance by Indenture Trustee; Certain Substitutions of Mortgage Loans; Certification by Indenture Trustee.............................................................37 2.7. Cooperation Procedures.........................................................................38 2.8. Conveyance of the Subsequent Mortgage Loans....................................................38 2.9. Books and Records..............................................................................40 ARTICLE III ACCOUNTS, DISBURSEMENTS AND RELEASES....................................................................41 3.1. Collection of Money............................................................................41 3.2. Establishment of Accounts......................................................................41 3.3. The Note Insurance Policies....................................................................41 3.4 Pre-Funding Account and Capitalized Interest Account...........................................42 3.5. Flow of Funds..................................................................................43 3.6. Investment of Accounts.........................................................................47 3.7. Eligible Investments...........................................................................48 3.8. Reports by Indenture Trustee...................................................................48 3.9. Additional Reports by Indenture Trustee........................................................50 ARTICLE IV SERVICING AND ADMINISTRATION OF MORTGAGE LOANS..........................................................50 4.1. Servicer and Sub-Servicers.....................................................................50 4.2. Collection of Certain Mortgage Loan Payments...................................................51 4.3. Sub-Servicing Agreements Between Servicer and Sub-Servicers....................................52 4.4. Successor Sub-Servicers........................................................................52 4.5. Liability of Servicer..........................................................................52 4.6. No Contractual Relationship Between Sub-Servicer and Indenture Trustee or the Owners..................................................................................52 4.7. Assumption or Termination of Sub-Servicing Agreement by Indenture Trustee......................52 4.8. Principal and Interest Account.................................................................53 4.9. Delinquency Advances, Compensating Interest and Servicing Advances.............................54 4.10. Purchase of Mortgage Loans.....................................................................55 4.11. Maintenance of Insurance.......................................................................55 4.12. Due-on-Sale Clauses; Assumption and Substitution Agreements....................................56 4.13. Realization Upon Defaulted Mortgage Loans......................................................56 i 4.14. Indenture Trustee to Cooperate; Release of Files...............................................57 4.15. Servicing Compensation.........................................................................58 4.16. Annual Statement as to Compliance..............................................................58 4.17. Annual Independent Certified Public Accountants' Reports.......................................58 4.18. Access to Certain Documentation and Information Regarding the Mortgage Loans...................58 4.19. Assignment of Agreement........................................................................59 4.20. Events of Servicing Termination................................................................59 4.21. Resignation of Servicer and Appointment of Successor...........................................61 4.22. Waiver of Past Events of Servicing Termination.................................................63 4.23. Inspections by Note Insurer; Errors and Omissions Insurance....................................63 4.24. Merger, Conversion, Consolidation or Succession to Business of Servicer........................63 4.25. Notices of Material Events.....................................................................64 4.26. Monthly Servicing Report and Servicing Certificate.............................................64 4.27. Indemnification by the Seller..................................................................66 4.29. Administration of the Issuer...................................................................66 4.28. Indemnification by the Servicer................................................................66 ARTICLE V TERMINATION.............................................................................................67 5.1. Termination....................................................................................67 5.2. Termination Upon Option of Servicer............................................................67 5.3 Redemption of Notes............................................................................67 5.4. Disposition of Proceeds........................................................................68 5.5. Netting of Amounts.............................................................................68 ARTICLE VI MISCELLANEOUS...........................................................................................68 6.1 Acts of Owners.................................................................................68 6.2 Recordation of Agreement.......................................................................68 6.3 Duration of Agreement..........................................................................68 6.4 Successors and Assigns.........................................................................68 6.5 Severability...................................................................................68 6.6. Benefits of Agreement..........................................................................68 6.7. Legal Holidays.................................................................................68 6.8. Governing Law..................................................................................69 6.9. Counterparts...................................................................................69 6.10. Amendment......................................................................................69 6.11. Specification of Certain Tax Matters...........................................................69 6.12. The Note Insurer...............................................................................70 6.13. Third Party Rights.............................................................................70 6.14. Usury..........................................................................................70 6.15. No Petition....................................................................................70 6.16. Notices........................................................................................70 ARTICLE VII CERTAIN MATTERS REGARDING THE NOTE INSURER..............................................................72 Section 7.01 Trust Estate and Accounts Held for Benefit of the Note Insurer........................72 Section 7.02 Claims Upon the Note Insurance Policies; Policy Payments Account......................72 Section 7.03 Effect of Payments by the Note Insurer; Subrogation...................................73 Section 7.04 Notices to the Note Insurer...........................................................73 Section 7.05 Rights to the Note Insurer To Exercise Rights of Owners...............................74 ii EXHIBIT A -- Mortgage Loan Schedule EXHIBIT B -- Form of Certificate Re: Mortgage Loans Prepaid in full After the Cut-Off Date EXHIBIT C -- Form of Initial Certification EXHIBIT D -- Form of Final Certification EXHIBIT E -- Form of Monthly Report EXHIBIT F -- Form of Request for Release EXHIBIT G -- Form of Subsequent Transfer Agreement
iii SALE AND SERVICING AGREEMENT, dated as of June 1, 1998, by and among FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2, a Delaware business trust (the "Issuer" or the "Trust"), FIRST ALLIANCE MORTGAGE COMPANY, a California corporation in its capacity as the Seller and the Servicer (respectively, the "Seller" and the "Servicer"), and THE CHASE MANHATTAN BANK, a New York banking corporation, in its capacity as Indenture Trustee (the "Indenture Trustee"). WHEREAS, the Issuer desires to purchase a pool of Mortgage Loans (the "Mortgage Loan Pool") consisting of two subpools (the "Adjustable Rate Pool" and the "Fixed Rate Pool") which were originated or purchased by the Seller in the ordinary course of its business; WHEREAS, the Servicer has agreed to service the Mortgage Loans, in accordance with the terms of this Agreement; WHEREAS, all things necessary to make this Agreement a valid agreement, in accordance with their and its terms, have been done; WHEREAS, The Chase Manhattan Bank is willing to serve in the capacity of Indenture Trustee hereunder; and WHEREAS, Financial Security Assurance Inc. (the "Note Insurer") is intended to be a third party beneficiary of this Agreement and is hereby recognized by the parties hereto to be a third-party beneficiary of this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the Issuer, the Seller, the Servicer and the Indenture Trustee hereby agree as follows: ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION Section 1.1. Definitions. For all purposes of this Agreement, the following terms shall have the meanings set forth below, unless the context clearly indicates otherwise: "Account": Any account established in accordance with Section 3.2 or 4.8 hereof. "Addition Notice": With respect to a transfer of Subsequent Mortgage Loans to the Issuer for inclusion in the Adjustable Rate Pool or the Fixed Rate Pool pursuant to Section 2.8 hereof, notice given not less than two Business Days prior to the related Subsequent Transfer Date of the Seller's designation of Subsequent Mortgage Loans to be sold to the Issuer for inclusion in the Adjustable Rate Pool or the Fixed Rate Pool and the aggregate Loan Balance of such Subsequent Mortgage Loans to be designated for inclusion in such Mortgage Loan Pool. "Adjustable Rate Amortized Subordinated Amount Requirement": As of any date of determination, the product of (x) 2.00% and (y) the Adjustable Rate Maximum Collateral Amount. "Adjustable Rate Available Funds": As defined in Section 3.3(a)(i) hereof. "Adjustable Rate Available Funds Shortfall": As defined in Section 3.5(b)(ii)(A) hereof. "Adjustable Rate Capitalized Interest Requirement": $17,500. 1 "Adjustable Rate Cumulative Loss Percentage": As of any date of determination thereof, the aggregate of all Realized Losses on Mortgage Loans in the Adjustable Rate Pool since the Closing Date as a percentage of the Adjustable Rate Maximum Collateral Amount. "Adjustable Rate Cumulative Loss Test": The Adjustable Rate Cumulative Loss Test for each period indicated below is satisfied if the Adjustable Rate Cumulative Loss Percentage for such period does not exceed the percentage set out for such period below:
Adjustable Rate Cumulative Loss Period Percentage ------ ---------- June 2, 1998 - June 1, 1999 1.75% June 2, 1999 - June 1, 2000 2.25% June 2, 2000 - June 1, 2001 2.75% June 2, 2001 - June 1, 2002 3.25% June 2, 2002 - and thereafter 3.75%
"Adjustable Rate Current Interest": With respect to interest accruing after the Cut-Off Date and as of any Payment Date, the sum of (i) the aggregate amount of interest accrued on the Adjustable Rate Note Principal Balance immediately prior to such Payment Date during the related Interest Accrual Period at the Adjustable Rate Note Rate and (ii) any related Interest Carry-Forward Amount for such Payment Date. "Adjustable Rate Indenture": The Indenture, dated June 1, 1998 between the Issuer and the Indenture Trustee, relating to the issuance of the Adjustable Rate Notes. "Adjustable Rate Interest Determination Date": With respect to any Interest Accrual Period for the Adjustable Rate Notes, the second London Business Day preceding such Interest Accrual Period. "Adjustable Rate Interest Remittance Amount": As of any Remittance Date, the sum, without duplication, of (i) all scheduled interest due on or prior to the Due Date occurring during the related Due Period, with respect to the Adjustable Rate Mortgage Loans to the extent collected by the Servicer during the related Remittance Period, (ii) all Delinquency Advances relating to interest made by the Servicer on such Remittance Date with respect to the Adjustable Rate Mortgage Loans and (iii) all Compensating Interest paid by the Servicer on such Remittance Date with respect to the Adjustable Rate Mortgage Loans and (iv) any amounts relating to the Adjustable Rate Pool required to be transferred from the Capitalized Interest Account to the Adjustable Rate Note Account pursuant to Section 3.4(e) hereof on the related Payment Date. "Adjustable Rate Maximum Collateral Amount": $30,000,000. "Adjustable Rate Monthly Payment Amount": With respect to a Payment Date, the sum of (x) the Adjustable Rate Principal Payment Amount payable to the Owners of the Adjustable Rate Notes pursuant to Section 3.5(b)(iv)(C) on such Payment Date and (y) the Adjustable Rate Current Interest payable to the Owners of the Adjustable Rate Notes pursuant to Section 3.5(b)(iv)(B) on such Payment Date. "Adjustable Rate Monthly Remittance Amount": As of any Remittance Date, the sum of (i) the Adjustable Rate Interest Remittance Amount and (ii) the Adjustable Rate Principal Remittance Amount. "Adjustable Rate Mortgage Loan": A Mortgage Loan included in the Adjustable Rate Pool. "Adjustable Rate Net Monthly Excess Cashflow": As defined in Section 3.5(b)(iii) hereof. 2 "Adjustable Rate Note Account": The Adjustable Rate Note Account established in accordance with Section 3.2(a) hereof and maintained by the Indenture Trustee, provided that the funds in such account shall not be commingled with any other funds held by the Indenture Trustee. "Adjustable Rate Note Insurance Policy": The financial guaranty insurance policy (number 50700B-N) dated June 26, 1998 issued by the Note Insurer to the Indenture Trustee for the benefit of the Owners of the Adjustable Rate Notes. "Adjustable Rate Note Principal Balance": As of any time of determination, the Original Adjustable Rate Note Principal Balance less any amounts actually distributed on account of the Adjustable Rate Principal Payment Amount pursuant to Section 3.5(b)(iv)(C) hereof with respect to principal thereon on all prior Payment Dates. "Adjustable Rate Note Rate": For the initial Payment Date, 5.81625%. As of any Payment Date thereafter, the lesser of (x) LIBOR plus, in the case of any Payment Date on or prior to the Redemption Date relating to the Adjustable Rate Pool, 0.16% per annum, or in the case of any Payment Date thereafter, 0.32% per annum and (y) the Available Funds Cap for such Payment Date. "Adjustable Rate Notes": Any one of the Notes substantially in the form attached to the Adjustable Rate Indenture as Exhibit A. "Adjustable Rate Pool": The pool of Adjustable Rate Mortgage Loans identified in the related Schedules of Mortgage Loans as having been assigned to the Adjustable Rate Pool, including any Qualified Replacement Mortgages delivered in replacement thereof and each Subsequent Mortgage Loan included therein. "Adjustable Rate Premium Amount": As to any Payment Date, the product of one-twelfth of (x) the Adjustable Rate Premium Percentage and (y) the Adjustable Rate Note Principal Balance on such Payment Date (before taking into account any distributions of principal to be made to the Owners of the Adjustable Rate Notes on such Payment Date). "Adjustable Rate Premium Percentage": The rate at which note insurance premium is calculated in respect of the Adjustable Rate Notes in accordance with the Premium Letter. "Adjustable Rate Principal Carry-Forward Amount": With respect to any Payment Date, the amount, if any, by which (i) the Adjustable Rate Principal Payment Amount as of the immediately preceding Payment Date exceeded (ii) the amount of the actual payment of principal made to the Owners of the Adjustable Rate Notes on such immediately preceding Payment Date. "Adjustable Rate Principal Payment Amount": With respect to the Adjustable Rate Note for any Payment Date, the lesser of: (x) the Adjustable Rate Total Available Funds plus any Insured Payment on the Adjustable Rate Notes minus the Adjustable Rate Current Interest and any Fees and Expenses related to the Adjustable Rate Pool for such Payment Date; and (y) the excess, if any, of (i) the sum, without duplication of: (a) the Adjustable Rate Principal Carry-Forward Amount for such Payment Date, (b) the principal portion of all scheduled monthly payments on the Mortgage Loans in the Adjustable Rate Pool due on or prior to the related Due Date during the related Due Period, to the extent actually received by the Servicer on or prior to the related Remittance Date or to the extent 3 advanced by the Servicer on or prior to the related Remittance Date and the principal portion of any Prepayments made by the respective Mortgagors during the related Remittance Period, (c) the Loan Balance of each Mortgage Loan in the Adjustable Rate Pool that either was repurchased by the Seller or an Originator or purchased by the Servicer on the related Remittance Date, (d) any Substitution Amounts delivered by the Seller or an Originator on the related Remittance Date in connection with a substitution of a Mortgage Loan in the Adjustable Rate Pool (to the extent such Substitution Amounts relate to principal), (e) all Net Liquidation Proceeds actually collected by the Servicer with respect to the Mortgage Loans in the Adjustable Rate Pool during the related Remittance Period (to the extent such Net Liquidation Proceeds relate to principal), (f) the amount of the excess, if any, of (i) the Adjustable Rate Subordination Deficit for such Payment Date over (ii) the Fixed Rate Subordinated Amount for such Payment Date, (g) the proceeds received by the Indenture Trustee with respect to any liquidation of the Adjustable Rate Mortgage Loans, as set forth in Article V hereof (to the extent such proceeds related to principal), (h) any moneys released from the Pre-Funding Account as a prepayment of the Adjustable Rate Notes on the Payment Date which immediately follows the end of the Funding Period; and (i) the amount of any Subordination Increase Amount with respect to the Adjustable Rate Pool for such Payment Date, to the extent of any Adjustable Rate Net Monthly Excess Cashflow available for such purpose; over (ii) the amount of any Subordination Reduction Amount with respect to the Adjustable Rate Pool for such Payment Date. "Adjustable Rate Principal Remittance Amount": As of any Remittance Date, the sum, without duplication, of (i) the scheduled principal due on or prior to the Due Date occurring during the related Due Period with respect to Mortgage Loans in the Adjustable Rate Pool to the extent collected by the Servicer during the related Remittance Period, (ii) Prepayments collected in the related Remittance Period and relating to principal on the Adjustable Rate Mortgage Loans, (iii) the Loan Balance of each Mortgage Loan in the Adjustable Rate Pool that either was repurchased by an Originator or by the Seller or purchased by the Servicer on such Remittance Date, (iv) any Substitution Amounts delivered by the Seller in connection with a substitution of a Mortgage Loan in the Adjustable Rate Pool to the extent such Substitution Amounts relate to principal, (v) all Net Liquidation Proceeds actually collected by the Servicer with respect to Mortgage Loans in the Adjustable Rate Pool during the related Remittance Period (to the extent such Liquidation Proceeds related to principal), (vi) all Delinquency Advances relating to principal made by the Servicer on such Remittance Date with respect to the Adjustable Rate Pool and (vii) the amount of any investment losses required to be deposited by the Seller or the Servicer pursuant to Sections 3.6(e) or 4.8(b). "Adjustable Rate Projected Net Monthly Excess Cashflow": As of any date of calculation, Adjustable Rate Net Monthly Excess Cashflow (other than any Subordination Reduction Amount included 4 therein), as calculated pursuant to Section 3.5(b)(iii) hereof on the Payment Date immediately preceding such date of calculation. "Adjustable Rate Reimbursement Amount": As of any Payment Date, the sum of (x)(i) all Insured Payments relating to the Adjustable Rate Notes previously received by the Indenture Trustee and not previously repaid to the Note Insurer pursuant to Section 3.5(b)(ii)(B) hereof plus (ii) interest accrued on each such Insured Payment not previously repaid calculated at the Late Payment Rate from the date the Indenture Trustee received the related Insured Payment to, but not including, such Payment Date and (y)(i) any amounts then due and owing to the Note Insurer relating to the Adjustable Rate Notes under the Insurance Agreement plus (ii) interest on such amounts at the Late Payment Rate. The Note Insurer shall notify the Indenture Trustee and the Seller of the amount of any Adjustable Rate Reimbursement Amount. "Adjustable Rate Residual Net Monthly Excess Cashflow": With respect to any Payment Date, the Adjustable Rate Net Monthly Excess Cashflow for such Payment Date, if any, remaining after making all of the applications described in Sections 3.5(b)(i), (ii), (iii) and (iv) hereof. "Adjustable Rate Specified Subordinated Amount": Means (a) for any Payment Date occurring during the period commencing on the Closing Date and ending on the later of (i) the date on which principal equal to one-half of the Adjustable Rate Maximum Collateral Amount has been received and (ii) the 30th Payment Date (inclusive) following the Closing Date, the greater of (A) the Adjustable Rate Amortized Subordinated Amount Requirement and (B) two (2) times the excess, if any, of (x) one-half of the aggregate Loan Balances of all Mortgage Loans in the Adjustable Rate Pool which are 90 or more days Delinquent (including REO Properties and Mortgage Loans in foreclosure) over (y) five times the Adjustable Rate Projected Net Monthly Excess Cashflow as of such Payment Date; and (b) for any Payment Date occurring after the end of the period in clause (a) above, the greatest of (i) the lesser of (A) the Adjustable Rate Amortized Subordinated Amount Requirement and (B) 4.00% times the current Adjustable Rate Note Principal Balance, (ii) two (2) times the excess of (A) one-half of the aggregate Loan Balances of all Mortgage Loans in the Adjustable Rate Pool which are 90 or more days Delinquent (including REO Properties and Mortgage Loans in foreclosure) over (B) three times the Adjustable Rate Projected Net Monthly Excess Cashflow as of such Payment Date and (iii) an amount equal to 0.50% of the Adjustable Rate Maximum Collateral Amount; provided, however, notwithstanding the above, in the event that any Insured Payment is made by the Note Insurer with respect to the Adjustable Rate Notes, the amount described in this clause (b) shall remain equal to the Adjustable Rate Amortized Subordinated Amount Requirement. The Adjustable Rate Specified Subordinated Amount may be reduced or eliminated by the Note Insurer in its sole discretion. Prior to any such reduction or elimination, the Servicer and the Note Insurer shall give written notice to the Rating Agencies. "Adjustable Rate Subordinated Amount": As of any Payment Date, the difference, if any, between (x) the sum of (i) the aggregate Loan Balances of the Mortgage Loans in the Adjustable Rate Pool as of the close of business on the last day of the related Remittance Period and (ii) any amount on deposit in the Pre-Funding Account relating to the Adjustable Rate Pool less any Pre-Funding Account Earnings relating to the Adjustable Rate Pool at such time and (y) the Adjustable Rate Note Principal Balance as of such Payment Date (after taking into account the payment of the Adjustable Rate Monthly Payment Amount (except for any portion thereof related to an Insured Payment) on such Payment Date). "Adjustable Rate Subordination Deficit": With respect to any Payment Date, the amount, if any, by which (x) the Adjustable Rate Note Principal Balance, after taking into account the payment of the Adjustable Rate Monthly Payment Amount on such Payment Date (except any payment to be made as to principal from the proceeds of the Adjustable Rate Note Insurance Policy), exceeds the sum of (y) the aggregate Loan Balance of the Mortgage Loans in the Adjustable Rate Pool as of the close of business on the last day of the preceding Remittance Period after taking into account payments of scheduled principal on such Mortgage Loans due on the Due Date in the calendar month in which such Payment Date occurs and (z) the portion of the Pre-Funded Amount relating to the Adjustable Rate Notes; provided that for the purpose of calculating Loan Balances to determine if an Adjustable Rate Subordination Deficit exists, the 5 aggregate amount of the principal component of all unreimbursed Delinquency Advances relating to the Adjustable Rate Pool shall be deducted from the related actual Loan Balances. "Adjustable Rate Total Available Funds": As defined in Section 3.3(a)(i) hereof. "Adjustable Rate Total Available Funds Shortfall": As defined in clause (ii) of Section 3.3(b) hereof. "Adjustable Rate Total Monthly Excess Cashflow": As defined in Section 3.5(b)(ii) hereof. "Adjustable Rate Total Monthly Excess Spread": With respect to any Payment Date, the difference between (i) the Adjustable Rate Interest Remittance Amount for such Remittance Period and (ii) the sum of (x) the interest due on the Adjustable Rate Notes on such Payment Date, (y) the Fees and Expenses relating to the Adjustable Rate Pool, if any, for such Payment Date and (z) the Servicing Fee relating to the Adjustable Rate Pool for such Payment Date. "Agreement": This Sale and Servicing Agreement, as it may be amended from time to time, and including the Exhibits hereto. "Annual Loss Percentage (Rolling Six Months)": As of any date of determination thereof, and with respect to either Mortgage Loan Pool, the product of (i) two and (ii) a fraction, expressed as a percentage, the numerator of which is the aggregate of the Realized Losses in respect of such Mortgage Loan Pool as of the last day of each of the six immediately preceding Remittance Periods and the denominator of which is the aggregate Loan Balance of the Mortgage Loans in such Mortgage Loan Pool as of the first day of the sixth preceding Remittance Period. "Appraised Value": The appraised value of any Property based upon the appraisal or other valuation made at the time of the origination of the related Mortgage Loan, or, in the case of a Mortgage Loan which is a purchase money mortgage, the sales price of the Property at such time of origination, if such sales price is less than such appraised value. "Authorized Officer": With respect to any Person, any person who is authorized to act for such Person in matters relating to this Agreement, and whose action is binding upon such Person and, with respect to the Seller and the Servicer, initially including those individuals whose names appear on the lists of Authorized Officers delivered on the Closing Date, and with respect to the Indenture Trustee, any Vice President, Assistant Vice President, Assistant Treasurer or Assistant Secretary of the Indenture Trustee. "Available Funds": With respect to the Adjustable Rate Pool, the Adjustable Rate Available Funds and with respect to the Fixed Rate Pool, the Fixed Rate Available Funds. "Available Funds Cap": As of any Payment Date (x) the weighted average of the Coupon Rates on the Mortgage Loans in the Adjustable Rate Pool less (y) the sum of (a) the sum of (i) the Servicing Fee Rate, (ii) the Indenture Trustee Fee Rate and (iii) the Owner Trustee Fee (expressed as a per annum percentage), (b) the Adjustable Rate Premium Percentage and (c) 0.50% per annum. "Available Funds Cap Carry-Forward Amortization Amount": As of any Payment Date, any amount distributed from the Available Funds Cap Carry-Forward Amount Account on such Payment Date pursuant to Section 3.5(c) hereof. "Available Funds Cap Carry-Forward Amount": As of any Payment Date, the excess, if any, of (x) the sum of (i) the excess, if any, equal to (a) the aggregate amount of interest due on the Adjustable Rate Notes on all prior Payment Dates, calculated at the Formula Note Rate applicable to each such Payment Date over (b) the aggregate amount of interest due on the Adjustable Rate Notes on all prior Payment Dates, calculated at the Adjustable Rate Note Rate applicable to each such Payment Date, (ii) the amount, if any, 6 described in clause (iii) hereof as of the immediately preceding Payment Date and (iii) the product of (a) one-twelfth of the Formula Note Rate on such Payment Date and (b) the sum of the amounts described in clauses (i) and (ii) preceding over (y) all Available Funds Cap Carry-Forward Amortization Amounts actually funded on all prior Payment Dates. "Available Funds Cap Carry-Forward Amount Account": The Available Funds Cap Carry- Forward Amount Account established in accordance with Section 3.2 hereof and maintained by the Indenture Trustee. "Available Funds Shortfall": Either the Adjustable Rate Available Funds Shortfall or the Fixed Rate Available Funds Shortfall. "Business Day": Any day that is not a Saturday, Sunday or other day on which commercial banking institutions in the States of New York or California or in the city in which the Corporate Trust Office is located or the city in which the principal office of the Note Insurer is located are authorized or obligated by law or executive order to be closed. "Capitalized Interest Account": The Capitalized Interest Account established in accordance with Section 3.2(b) hereof and maintained by the Indenture Trustee. "Certificate": Any one of the Certificates issued pursuant to the Trust Agreement. "Certificate Distribution Account": The Certificate Distribution Account established in accordance with the Trust Agreement. "Closing Date": June 26, 1998. "Code": The Internal Revenue Code of 1986, as amended and any successor statute. "Combined Loan-to-Value Ratio": With respect to any First Mortgage Loan, the percentage equal to the Original Principal Amount of the related Mortgage Note divided by the Appraised Value of the related Property and with respect to any Second Mortgage Loan, the percentage equal to (a) the sum of (i) the remaining principal balance, as of origination of the Second Mortgage Loan of the Senior Lien note(s) relating to such Second Mortgage Loan and (ii) the Original Principal Amount of the Mortgage Note relating to such Second Mortgage Loan divided by (b) the Appraised Value of the related Property. "Compensating Interest": As defined in Section 4.9(b) hereof. "Corporate Trust Office": The principal office of the Indenture Trustee at 450 West 33rd Street, 15th Floor, New York, New York 10001, attention: First Alliance Mortgage Loan Trust 1998-2 or any other office of the Indenture Trustee designated as such hereunder. "Coupon Rate": The annual rate of interest borne by each Mortgage Note. "Current Interest": As applicable, the Adjustable Rate Current Interest or the Fixed Rate Current Interest. "Curtailment": With respect to a Mortgage Loan, any payment of principal received during a Remittance Period as part of a payment that is in excess of the amount of the monthly payment due for such Remittance Period and which is not a Prepaid Installment or made in respect of a Paid-in-Full Mortgage Loan, nor is intended to cure a delinquency. "Custodial Agreement": The Custodial Agreement, dated as of June 1, 1998, among the Custodian, the Indenture Trustee, the Seller and the Servicer. 7 "Custodian": The Bank of New York, a New York banking corporation, as Custodian on behalf of the Indenture Trustee pursuant to the Custodial Agreement, or any successor thereto. "Cut-Off Date": June 1, 1998. "Delinquency Advance": As defined in Section 4.9(a) hereof. "Delinquent": A Mortgage Loan is "Delinquent" if any payment due thereon is not made by the close of business on the day such payment is scheduled to be due. A Mortgage Loan is "30 days Delinquent" if such payment has not been received by the close of business on the second day of the month immediately succeeding the month in which such payment was due. Similarly for "60 days Delinquent," "90 days Delinquent" and so on. "Designated Depository Institution": With respect to any Account an institution whose deposits are insured by the Bank Insurance Fund or the Savings Association Insurance Fund of the FDIC, the long-term deposits of which shall be rated (x) A or better by Standard & Poor's and (y) A2 or better by Moody's and in one of the highest short-term rating categories, unless otherwise approved in writing by the Note Insurer and each of Moody's and Standard & Poor's, and which is any of the following: (i) a federal savings and loan association duly organized, validly existing and in good standing under the federal banking laws, (ii) an institution duly organized, validly existing and in good standing under the applicable banking laws of any state, (iii) a national banking association duly organized, validly existing and in good standing under the federal banking laws, (iv) a principal subsidiary of a bank holding company, or (v) approved in writing by the Note Insurer, Moody's and Standard & Poor's and, in each case acting or designated by the Servicer as the depository institution for the Principal and Interest Account; provided, however, that any such institution or association shall have combined capital, surplus and undivided profits of at least $100,000,000. Notwithstanding the foregoing, any Account may be held by (a) the Indenture Trustee or (b) an institution otherwise meeting the preceding requirements except that the only applicable rating requirement shall be that the unsecured and uncollateralized debt obligations thereof shall be rated Baa3 or better by Moody's if such institution has trust powers and the Principal and Interest Account is held by such institution in its trust capacity and not in its commercial capacity. "Determination Date": The 12th day of each month, or if such day is not a Business Day, the next succeeding Business Day. "Due Date": The first day of the month of the related Payment Date. "Due Period": With respect to any Payment Date, the period commencing on the second day of the month preceding the month of such Payment Date (or, with respect to the first Due Period, the day following the Cut-Off Date) and ending on the related Due Date. "Eligible Investments": Those investments so designated pursuant to Section 3.7 hereof. "Event of Servicing Termination": Any event as described in Section 4.20 hereof. "Excess Subordinated Amount": With respect to any Mortgage Loan Pool and Payment Date, the excess, if any, of (x) the Subordinated Amount that would apply to such Mortgage Loan Pool on such Payment Date after taking into account the payment of the related Monthly Payment Amount on such Payment Date (except for any distributions of the Subordination Reduction Amount on such Payment Date) over (y) the related Specified Subordinated Amount for such Payment Date. "Fannie Mae": Fannie Mae, a federally-chartered and privately-owned corporation existing under the Federal National Mortgage Association Charter Act, as amended, or any successor thereof. "FDIC": The Federal Deposit Insurance Corporation, or any successor thereto. 8 "Fees and Expenses": With respect to any Payment Date, the sum of (a) the Premium Amount, (b) the Indenture Trustee Fee for such Payment Date and (c) the Owner Trustee Fee for such Payment Date. "FHLMC": The Federal Home Loan Mortgage Corporation, a corporate instrumentality of the United States created pursuant to the Emergency Home Finance Act of 1970, as amended, or any successor thereof. "File": The documents delivered to the Custodian, on behalf of the Indenture Trustee pursuant to Section 2.5 hereof pertaining to a particular Mortgage Loan and any additional documents required to be added to the mortgage file pursuant to this Agreement. "Final Certification": The final certification in the form set forth as Exhibit D hereto and delivered by the Custodian, on behalf of the Indenture Trustee to the Seller within 90 days after the Closing Date pursuant to Section 2.6 hereof. "Final Payment Date": September 20, 2029, for each Series of Notes. "First Mortgage Loan": A Mortgage Loan which constitutes a first priority mortgage lien with respect to any Property. "Fixed Rate Amortized Subordinated Amount Requirement": As of any date of determination, the product of (x) 1.00% and (y) the Fixed Rate Maximum Collateral Amount. "Fixed Rate Available Funds": As defined in Section 3.3(a)(ii) hereof. "Fixed Rate Available Funds Shortfall": As defined in Section 3.5(f)(ii)(A) hereof. "Fixed Rate Capitalized Interest Requirement": $77,500. "Fixed Rate Cumulative Loss Percentage": As of any date of determination thereof, the aggregate of all Realized Losses on Mortgage Loans in the Fixed Rate Pool since the Closing Date as a percentage of the Fixed Rate Maximum Collateral Amount. "Fixed Rate Cumulative Loss Test": The Fixed Rate Cumulative Loss Test for each period indicated below is satisfied if the Fixed Rate Cumulative Loss Percentage for such period does not exceed the percentage set out for such period below: Fixed Rate Cumulative Loss Period Percentage ------ ---------- June 2, 1998 - June 1, 1999 1.00% June 2, 1999 - June 1, 2000 1.50% June 2, 2000 - June 1, 2001 2.00% June 2, 2001 - June 1, 2002 2.50% June 2, 2002 - and thereafter 3.00% "Fixed Rate Current Interest": With respect to interest accruing after the Cut-Off Date and as of any Payment Date, the sum of (i) the aggregate amount of interest accrued on the Fixed Rate Note Principal Balance immediately prior to such Payment Date during the related Interest Accrual Period at the Fixed Rate Note Rate and (ii) any related Interest Carry-Forward Amount for such Payment Date. 9 "Fixed Rate Indenture": The Indenture, dated June 1, 1998 between the Issuer and the Indenture Trustee, relating to the issuance of the Fixed Rate Notes. "Fixed Rate Interest Remittance Amount": As of any Remittance Date, the sum, without duplication, of (i) all scheduled interest due on or prior to the Due Date occurring during the related Due Period, with respect to the Fixed Rate Mortgage Loans to the extent collected by the Servicer during the related Remittance Period, (ii) all Delinquency Advances relating to interest made by the Servicer on such Remittance Date with respect to the Fixed Rate Mortgage Loans, (iii) all Compensating Interest paid by the Servicer on such Remittance Date with respect to the Fixed Rate Mortgage Loans and (iv) any amounts relating to the Fixed Rate Pool required to be transferred from the Capitalized Interest Account to the Fixed Rate Note Account pursuant to Section 3.4(e) hereof on the related Payment Date. "Fixed Rate Maximum Collateral Amount": $70,000,000. "Fixed Rate Monthly Payment Amount": With respect to a Payment Date, the sum of (x) the Fixed Rate Principal Payment Amount payable to the Owners of the Fixed Rate Notes pursuant to Section 3.5(f)(iv)(C) on such Payment Date and (y) the Fixed Rate Current Interest payable to the Owners of the Fixed Rate Notes pursuant to Section 3.5(f)(iv)(B) on such Payment Date. "Fixed Rate Monthly Remittance Amount": As of any Remittance Date, the sum of (i) the Fixed Rate Interest Remittance Amount and the Fixed Rate Principal Remittance Amount. "Fixed Rate Mortgage Loan": A Mortgage Loan included in the Fixed Rate Pool. "Fixed Rate Net Monthly Excess Cashflow": As defined in Section 3.5(f)(iii) hereof. "Fixed Rate Note Account": The Fixed Rate Note Account established in accordance with Section 3.2(a) hereof and maintained by the Indenture Trustee, provided that the funds in such account shall not be commingled with any other funds held by the Indenture Trustee. "Fixed Rate Note Insurance Policy": The financial guaranty insurance policy (number 50700A-N) dated June 26, 1998 issued by the Note Insurer to the Indenture Trustee for the benefit of the Owners of the Fixed Rate Notes. "Fixed Rate Note Principal Balance": As of any time of determination, the Original Fixed Rate Note Principal Balance less any amounts actually distributed on account of the Fixed Rate Principal Payment Amount pursuant to Section 3.5(f)(iv)(C) hereof with respect to principal thereon on all prior Payment Date. "Fixed Rate Note Rate": 6.52% per annum; provided that on any Payment Date after the Redemption Date for the Fixed Rate Pool, the Fixed Rate Note Rate shall be 7.02% per annum. "Fixed Rate Notes": Any one of the Notes substantially in the form attached to the Fixed Rate Indenture as Exhibit A. "Fixed Rate Pool": The pool of Fixed Rate Mortgage Loans identified in the related Schedules of Mortgage Loans as having been assigned to the Fixed Rate Pool, including any Qualified Replacement Mortgages delivered in replacement thereof and each Subsequent Mortgage Loan included therein. "Fixed Rate Premium Amount": As to any Payment Date, the product of one-twelfth of (x) the Fixed Rate Premium Percentage and (y) the Fixed Rate Note Principal Balance on such Payment Date (before taking into account any distributions of principal to be made to the Owners of the Fixed Rate Notes on such Payment Date). 10 "Fixed Rate Premium Percentage": The rate at which note insurance premium is calculated in respect of the Fixed Rate Notes in accordance with the Premium Letter. "Fixed Rate Principal Carry-Forward Amount": With respect to any Payment Date, the amount, if any, by which (i) the Fixed Rate Principal Payment Amount as of the immediately preceding Payment Date exceeded (ii) the amount of the actual payment of principal made to the Owners of the Fixed Rate Notes on such immediately preceding Payment Date. "Fixed Rate Principal Payment Amount": With respect to the Fixed Rate Notes for any Payment Date, the lesser of: (x) the Fixed Rate Total Available Funds plus any Insured Payment on the Fixed Rate Notes minus the Fixed Rate Current Interest and any Fees and Expenses related to the Fixed Rate Pool for such Payment Date; and (y) the excess, if any, of (i) the sum, without duplication of: (a) the Fixed Rate Principal Carry-Forward Amount for such Payment Date, (b) the principal portion of all scheduled monthly payments on the Mortgage Loans in the Fixed Rate Pool due on or prior to the related Due Date during the related Due Period, to the extent actually received by the Servicer on or prior to the related Remittance Date or to the extent advanced by the Servicer on or prior to the related Remittance Date and the principal portion of any Prepayments made by the respective Mortgagors during the related Remittance Period, (c) the Loan Balance of each Mortgage Loan in the Fixed Rate Pool that either was repurchased by the Seller or an Originator or purchased by the Servicer on the related Remittance Date, (d) any Substitution Amounts delivered by the Seller or an Originator on the related Remittance Date in connection with a substitution of a Mortgage Loan in the Fixed Rate Pool (to the extent such Substitution Amounts relate to principal), (e) all Net Liquidation Proceeds actually collected by the Servicer with respect to the Mortgage Loans in the Fixed Rate Pool during the related Remittance Period (to the extent such Net Liquidation Proceeds relate to principal), (f) the amount of the excess, if any, of (i) the Fixed Rate Subordination Deficit for such Payment Date over (ii) the Adjustable Rate Subordinated Amount for such Payment Date, (g) the proceeds received by the Indenture Trustee with respect to any liquidation of the Fixed Rate Mortgage Loans, as set forth in Article V hereof (to the extent such proceeds related to principal), (h) any moneys released from the Pre-Funding Account as a prepayment of the Fixed Rate Notes on the Payment Date which immediately follows the end of the Funding Period; and (i) the amount of any Subordination Increase Amount with respect to the Fixed Rate Pool for such Payment Date, to the extent of any 11 Fixed Rate Net Monthly Excess Cashflow available for such purpose; over (ii) the amount of any Subordination Reduction Amount with respect to the Fixed Rate Pool for such Payment Date. "Fixed Rate Principal Remittance Amount": As of any Remittance Date, the sum, without duplication, of (i) the scheduled principal due on or prior to the Due Date occurring during the related Due Period with respect to Mortgage Loans in the Fixed Rate Pool to the extent collected by the Servicer during the related Remittance Period, (ii) Prepayments collected in the related Remittance Period and relating to principal on the Fixed Rate Mortgage Loans, (iii) the Loan Balance of each Mortgage Loan in the Fixed Rate Pool that either was repurchased by an Originator or by the Seller or purchased by the Servicer on such Remittance Date, to the extent such Loan Balance was actually deposited in the Principal and Interest Account, (iv) any Substitution Amounts delivered by the Seller in connection with a substitution of a Mortgage Loan in the Fixed Rate Pool to the extent such Substitution Amounts relate to principal, (v) all Net Liquidation Proceeds actually collected by the Servicer with respect to Mortgage Loans in the Fixed Rate Pool during the related Remittance Period (to the extent such Liquidation Proceeds related to principal), (vi) all Delinquency Advances relating to principal made by the Servicer on such Remittance Date with respect to the Fixed Rate Pool and (vii) the amount of any investment losses required to be deposited by the Seller or the Servicer pursuant to Sections 3.6(e) or 4.8(b). "Fixed Rate Projected Net Monthly Excess Cashflow": As of any date of calculation, Fixed Rate Net Monthly Excess Cashflow (other than any Subordination Reduction Amount included therein), as calculated pursuant to Section 3.5(f)(iii) hereof on the Payment Date immediately preceding such date of calculation. "Fixed Rate Reimbursement Amount": As of any Payment Date, the sum of (x)(i) all Insured Payments relating to the Fixed Rate Notes previously received by the Indenture Trustee and not previously repaid to the Note Insurer pursuant to Section 3.5(f)(ii)(B) hereof plus (ii) interest accrued on each such Insured Payment not previously repaid calculated at the Late Payment Rate from the date the Indenture Trustee received the related Insured Payment to, but not including, such Payment Date and (y)(i) any amounts then due and owing to the Note Insurer relating to the Fixed Rate Notes under the Insurance Agreement plus (ii) interest on such amounts at the Late Payment Rate. The Note Insurer shall notify the Indenture Trustee and the Seller of the amount of any Fixed Rate Reimbursement Amount. "Fixed Rate Residual Net Monthly Excess Cashflow": With respect to any Payment Date, the Fixed Rate Net Monthly Excess Cashflow for such Payment Date, if any, remaining after making all of the applications described in Section 3.5(f)(i), (ii), (iii) and (iv) hereof. "Fixed Rate Specified Subordinated Amount": Means (a) for any Payment Date occurring during the period commencing on the Closing Date and ending on the later of (i) the date on which principal equal to one-half of the Fixed Rate Maximum Collateral Amount has been received and (ii) the 30th Payment Date following the Closing Date, the greater of (A) the Fixed Rate Amortized Subordinated Amount Requirement and (B) two (2) times the excess, if any, of (x) one-half of the aggregate Loan Balances of all Mortgage Loans in the Fixed Rate Pool which are 90 or more days Delinquent (including REO Properties and Mortgage Loans in foreclosure) over (y) five times the Fixed Rate Projected Net Monthly Excess Cashflow as of such Payment Date; and (b) for any Payment Date occurring after the end of the period in clause (a) above, the greatest of (i) the lesser of (A) the Fixed Rate Amortized Subordinated Amount Requirement and (B) 2.00% times the current Fixed Rate Note Principal Balance, (ii) two (2) times the excess of (A) one-half of the aggregate Loan Balances of all Mortgage Loans in the Fixed Rate Pool which are 90 or more days Delinquent (including REO Properties and Mortgage Loans in foreclosure) over (B) three times the Fixed Rate Projected Net Monthly Excess Cashflow as of such Payment Date and (iii) an amount equal to 0.50% of the Fixed Rate Maximum Collateral Amount; provided, however, notwithstanding the above, in the event that any Insured Payment is made by the Note Insurer with respect to the Fixed Rate 12 Notes, the amount described in this clause (b) shall remain equal to the Fixed Rate Amortized Subordinated Amount Requirement. The Fixed Rate Specified Subordinated Amount may be reduced or eliminated by the Note Insurer in its sole discretion. Prior to any such reduction or elimination, the Servicer and the Note Insurer shall give written notice to the Rating Agencies. "Fixed Rate Subordinated Amount": As of any Payment Date, the difference, if any, between (x) the sum of (i) the aggregate Loan Balances of the Mortgage Loans in the Fixed Rate Pool as of the close of business on the last day of the related Remittance Period and (ii) any amount on deposit in the Pre-Funding Account relating to the Fixed Rate Pool less any Pre-Funding Account Earnings relating to the Fixed Rate Pool at such time and (y) the Fixed Rate Note Principal Balance as of such Payment Date (after taking into account the payment of the Fixed Rate Monthly Payment Amount (except for any portion thereof related to an Insured Payment) on such Payment Date). "Fixed Rate Subordination Deficit": With respect to any Payment Date, the amount, if any, by which (x) the Fixed Rate Note Principal Balance, after taking into account the payment of the Fixed Rate Monthly Payment Amount on such Payment Date (except any payment to be made as to principal from the proceeds of the Fixed Rate Note Insurance Policy), exceeds the sum of (y) the aggregate Loan Balance of the Mortgage Loans in the Fixed Rate Pool as of the close of business on the last day of the preceding Remittance Period after taking into account payments of scheduled principal on such Mortgage Loans due on the Due Date in the calendar month in which such Payment Date occurs and (z) the portion of the Pre-Funded Amount relating to the Adjustable Rate Notes; provided that for the purpose of calculating Loan Balances to determine if an Fixed Rate Subordination Deficit exists, the aggregate amount of the principal component of all unreimbursed Delinquency Advances relating to the Fixed Rate Pool shall be deducted from the related actual Loan Balances. "Fixed Rate Total Available Funds": As defined in Section 3.3(a)(ii) hereof. "Fixed Rate Total Available Funds Shortfall": As defined in clause (y) of Section 3.3(b) hereof. "Fixed Rate Total Monthly Excess Cashflow": As defined in Section 3.5(f)(ii) hereof. "Fixed Rate Total Monthly Excess Spread": With respect to any Payment Date, the difference between (i) the Fixed Rate Interest Remittance Amount for such Remittance Period and (ii) the sum of (x) the interest due on the Fixed Rate Notes on such Payment Date, (y) the Fees and Expenses relating to the Fixed Rate Pool, if any, for such Payment Date and (z) the Servicing Fee relating to the Fixed Rate Pool for such Payment Date. "Formula Note Rate": The rate determined by clause (x) of the definition of "Adjustable Rate Note Rate." "Funding Period": The period commencing on the Closing Date and ending on June 30, 1998. "Highest Lawful Rate": As defined in Section 6.14. "Indemnification Agreement": The Indemnification Agreement dated as of June 10, 1998, among the Note Insurer, the Seller, the Issuer and the Underwriter. "Indenture": As applicable, the Adjustable Rate Indenture and the Fixed Rate Indenture. "Indenture Trustee": The Chase Manhattan Bank located on the date of execution of this Agreement at 450 West 33rd Street, New York, New York 10001, not in its individual capacity but solely as Indenture Trustee under the Indenture, and any successor thereunder. 13 "Indenture Trustee Fee": The amount payable monthly to the Indenture Trustee on each Payment Date, in an amount equal to the product of (x) one-twelfth of the Indenture Trustee Fee Rate and (y) the sum of (1) the Adjustable Rate Note Principal Balance immediately prior to such Payment Date and (2) the Fixed Rate Note Principal Balance immediately prior to such Payment Date. "Indenture Trustee Fee Rate": 0.02% per annum. "Initial Adjustable Rate Specified Subordinated Amount": $0. "Initial Certification": The initial certification in the form set forth as Exhibit C hereto and delivered by the Custodian, on behalf of the Indenture Trustee, to the Seller on the Closing Date pursuant to Section 2.6 hereof. "Initial Fixed Rate Specified Subordinated Amount": $0. "Initial Mortgage Loans": The Mortgage Loans to be sold to the Issuer by the Seller on the Closing Date. "Insurance Agreement": The Insurance and Indemnity Agreement dated as of June 1, 1998, among the Seller, the Servicer, the Issuer and the Note Insurer, as it may be amended from time to time. "Insurance Policy": Any hazard, flood, title or primary mortgage insurance policy relating to a Mortgage Loan. "Insured Payment": For any Mortgage Loan Pool and Payment Date is the sum of (i) the amount by which the related Current Interest (net of any related Prepayment Interest Shortfalls and Relief Act Shortfalls) exceeds the Total Available Funds (after any deduction for the related Fees and Expenses) for such Mortgage Loan Pool and any Net Monthly Excess Spread available from the other Mortgage Loan Pool to cover such shortfall as of such Payment Date, (ii) the amount of the excess, if any, of (A) the Subordination Deficit for such Payment Date with respect to the related Mortgage Loan Pool over (B) the Subordinated Amount for such Payment Date with respect to the other Mortgage Loan Pool, (iii) any unpaid Preference Amount with respect to such Mortgage Loan Pool and (iv) as to the Final Payment Date for each Series of Notes, an amount sufficient after the application of the related Total Available Funds, to reduce the Note Principal Balance for such Series of Notes to zero and to pay all accrued and unpaid interest thereon. "Insured Payment Amount": For any Mortgage Loan Pool and (a) any Payment Date, other than the Final Payment Date the sum of (i) the related Current Interest (net of any Prepayment Interest Shortfalls and Relief Act Shortfalls) and (ii) the amount of the excess, if any, of (A) the Subordination Deficit for such Payment Date with respect to the related Mortgage Loan Pool over (B) the Subordinated Amount for such Payment Date with respect to the other Mortgage Loan Pool and (b) as to the Final Payment Date for each Series of Notes, an amount sufficient after the application of Total Available Funds on such Payment Date, to reduce the Note Principal Balance for such Series of Notes to zero and to pay all accrued and unpaid interest (net of any Prepayment Interest Shortfalls and Relief Act Shortfalls) thereon. "Interest Accrual Period": With respect to the Adjustable Rate Notes and any Payment Date, the period commencing on the immediately preceding Payment Date (or in the case of the first Payment Date, the Closing Date) and ending on the day immediately preceding the current Payment Date. With respect to the Fixed Rate Notes and any Payment Date, the calendar month immediately preceding such Payment Date. A "calendar month" shall be deemed to be 30 days. All calculations of interest on the Adjustable Rate Notes will be made on the basis of the actual number of days elapsed in the related Interest Accrual Period and in a year of 360 days and all calculations of interest on the Fixed Rate Notes will be made on the basis of a 360- day year assumed to consist of twelve 30-day months. 14 "Interest Carry Forward Amount": With respect to any Series of Notes and any Payment Date, the sum of (x) the amount, if any, by which (i) the Current Interest for such Series as of the immediately preceding Payment Date exceeded (ii) the amount of the actual payments of interest made to the Owners of such Series of Notes on such immediately preceding Payment Date and (y) interest on such amount, calculated at the related Note Rate for such Series of Notes for the number of days in the related Interest Accrual Period.. "Issuer" or "Trust": First Alliance Mortgage Loan Trust 1998-2, a Delaware business trust. "Late Payment Rate": As defined in the Insurance Agreement. "LIBOR": With respect to any Interest Accrual Period for the Adjustable Rate Notes, the rate determined by the Indenture Trustee on the related Adjustable Rate Interest Determination Date on the basis of the offered rates of the Reference Banks for one-month U.S. dollar deposits, as such rates appear on Telerate Page 3750, as of 11:00 a.m. (London time) on such Adjustable Rate Interest Determination Date. On each Adjustable Rate Interest Determination Date, LIBOR for the related Interest Accrual Period will be established by the Indenture Trustee as follows: (i) If on such Adjustable Rate Interest Determination Date two or more Reference Banks provide such offered quotations, LIBOR for the related Interest Accrual Period shall be the arithmetic mean of such offered quotations (rounded upwards if necessary to the nearest whole multiple of 0.0625%). (ii) If on such Adjustable Rate Interest Determination Date fewer than two Reference Banks provide such offered quotations, LIBOR for the related Interest Accrual Period shall be the higher of (i) LIBOR as determined on the previous Adjustable Rate Interest Determination Date and (ii) the Reserve Interest Rate. "Liquidated Loan": As defined in Section 4.13(b) hereof. A Mortgage Loan which is purchased from the Trust pursuant to Section 2.4, 2.6 or 4.10 hereof is not a "Liquidated Loan". "Liquidation Expenses": Expenses which are incurred by the Servicer in connection with the liquidation of any defaulted Mortgage Loan, such expenses, including, without limitation, legal fees and expenses, and any unreimbursed Servicing Advances expended by the Servicer pursuant to Sections 4.9(c) and 4.13 with respect to the related Mortgage Loan. "Liquidation Proceeds": With respect to any Liquidated Loan, as of any date of determination, any amounts (including the proceeds of any Insurance Policy) recovered by the Servicer in connection with such Liquidated Loan, whether through Indenture Trustee's sale, foreclosure sale or otherwise. "Loan Balance": With respect to a Mortgage Loan, the principal balance thereof on the CutOff Date, less any Principal Remittance Amounts relating to such Mortgage Loan included in previous Monthly Remittance Amounts that were received by the Servicer or any Sub-Servicer whether or not delivered to the Indenture Trustee, provided, that the Loan Balance for any Mortgage Loan which has become a Liquidated Loan shall be zero as of the first day of the Remittance Period following the Remittance Period in which such Mortgage Loan becomes a Liquidated Loan, and at all times thereafter. "Loan Purchase Price": With respect to any Mortgage Loan purchased from the Trust on a Remittance Date pursuant to Section 2.4, 2.6 or 4.10 hereof, an amount equal to the Loan Balance of such Mortgage Loan as of the date of purchase, plus one month's interest on the outstanding Loan Balance thereof as of the beginning of the preceding Remittance Period computed at the then applicable Coupon Rate less the Servicing Fee Rate, if any, together with, without duplication, the aggregate amount of (i) all delinquent interest, all Delinquency Advances and Servicing Advances theretofore made with respect to such Mortgage Loan and not subsequently recovered from the related Mortgage Loan and (ii) the interest portion of 15 any Delinquency Advances which the Servicer or any Sub-Servicer has theretofore failed to remit with respect to such Mortgage Loan. "Loan-to-Value Ratio": The percentage equal to the Original Principal Amount of the related Mortgage Note divided by the Appraised Value of the related Property. "London Business Day": A day on which banks are open for dealing in foreign currency and exchange in London and New York City. "Monthly Exception Report": The monthly report delivered by the Servicer to the Indenture Trustee on each Remittance Date pursuant to Section 4.8(d)(ii). Each Monthly Exception Report shall cover the immediately preceding Remittance Period and shall consist of, for each Mortgage Loan Pool and in the aggregate, (i) an activity report of the Mortgage Loans setting forth the Loan Balance of Mortgage Loans as of the first day of the related Remittance Period, scheduled payments due, Prepayments, Liquidated Loan balances, and the resulting Loan Balance of the Mortgage Loans as of the last day of the related Remittance Period and (ii) separate reports of (a) payoffs, Curtailments, foreclosures and bankruptcies, such reports to provide the payment details for each Mortgage Loan covering the immediately preceding Remittance Period and any Prepayments not previously reported from a prior Remittance Period, and (b) Prepayments and delinquencies, such reports to reflect the current status of each Mortgage Loan with payment details as of the last day of the related Remittance Period. "Monthly Payment Amount": As applicable, the Adjustable Rate Monthly Payment Amount or the Fixed Rate Monthly Payment Amount. "Monthly Remittance Amount": As applicable, the Adjustable Rate Monthly Remittance Amount or the Fixed Rate Monthly Remittance Amount. "Monthly Servicing Report": As defined in Section 4.26. "Moody's": Moody's Investors Service, Inc., and any successor thereto. "Mortgage": The mortgage, deed of trust or other instrument creating a first lien on an estate in fee simple interest in real property securing a Mortgage Note. "Mortgage Loan Pool": Collectively, the Adjustable Rate Pool and the Fixed Rate Pool, or, if the context requires, either the Adjustable Rate Pool or the Fixed Rate Pool. "Mortgage Loans": Such of the mortgage loans (including Initial Mortgage Loans and Subsequent Mortgage Loans) transferred and assigned to the Trust pursuant to Section 2.5(a) hereof, together with any Qualified Replacement Mortgages substituted therefor in accordance with this Agreement, as from time to time are held as a part of the Trust Estate, the Mortgage Loans originally so held being identified in the Schedule of Mortgage Loans. The term "Mortgage Loan" includes any Mortgage Loan which is Delinquent, which relates to a foreclosure or which relates to a Property which is REO Property prior to such Property's disposition by the Trust. Any mortgage loan which, although intended by the parties hereto to have been, and which purportedly was, transferred and assigned to the Trust by the Seller, in fact was not transferred and assigned to the Trust for any reason whatsoever shall nevertheless be considered a "Mortgage Loan" for all purposes of this Agreement. "Mortgage Note": The Mortgage Note or other evidence of indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan. "Mortgagor": The obligor on a Mortgage Note. "Net Liquidation Proceeds": As to any Liquidated Loan, Liquidation Proceeds net of, without duplication, Liquidation Expenses and unreimbursed Servicing Advances, unreimbursed 16 Delinquency Advances and accrued and unpaid Servicing Fees through the date of liquidation relating to such Liquidated Loan. In no event shall Net Liquidation Proceeds with respect to any Liquidated Loan be less than zero. "Note": Any one of the Adjustable Rate Notes or the Fixed Rate Notes. "Note Insurance Policies": The Adjustable Rate Note Insurance Policy and the Fixed Rate Note Insurance Policy. "Note Insurer": Financial Security Assurance Inc. or any successor thereto, as issuer of the Note Insurance Policies. "Note Insurer Default": The existence and continuance of any of the following: (a) the Note Insurer fails to make a payment required under a Note Insurance Policy in accordance with its terms; or (b) the Note Insurer shall have (i) filed a petition or commenced any case or proceeding under any provision or chapter of the United States Bankruptcy Code, the New York State Insurance Law or any other similar federal or state law relating to insolvency, bankruptcy, rehabilitation, liquidation or reorganization, (ii) made a general assignment for the benefit of its creditors or (iii) had an order for relief entered against it under the United States Bankruptcy Code, the New York State Insurance Law or any other similar federal or state law relating to insolvency, bankruptcy, rehabilitation, liquidation or reorganization that is final and nonappealable; or (c) a court of competent jurisdiction, the New York Department of Insurance or any other competent regulatory authority shall have entered a final and nonappealable order, judgement or decree (i) appointing a custodian, trustee, agent or receiver for the Note Insurer or for all or any material portion of its property or (ii) authorizing the taking of possession by a custodian, trustee, agent or receiver of the Note Insurer of all or any material portion of its property. "Officer's Certificate": A certificate signed by any Authorized Officer of any Person delivering such certificate and delivered to the Indenture Trustee. "Operative Documents": Collectively, this Agreement, the Note Insurance Policies, the Notes, the Insurance Agreement, the Underwriting Agreement, the Custodial Agreement, the Trust Agreement, the Indenture, any Sub-Servicing Agreement, the Registration Statement and the Indemnification Agreement. "Original Adjustable Rate Note Principal Balance": $30,000,000. "Original Adjustable Rate Pre-Funded Amount": $3,417,634.90. "Original Aggregate Adjustable Rate Loan Balance": $26,582,365.10. "Original Aggregate Fixed Rate Loan Balance": $56,038,610.90. "Original Aggregate Loan Balance": The aggregate Loan Balances of all Mortgage Loans as of the Cut-Off Date, i.e., $82,620,976.00. "Original Fixed Rate Note Principal Balance": $70,000,000. "Original Fixed Rate Pre-Funded Amount": $13,961,389.10. 17 "Original Principal Amount": With respect to each Mortgage Note, the principal amount of such Mortgage Note on the date of origination thereof. "Originator": The Seller and any entity from which the Seller acquires Mortgage Loans. "Owner": The Person in whose name a Note is registered in the Register, to the extent described in the Indenture. "Owner Trustee Fee": As defined in the Trust Agreement. "Paid-in-Full Mortgage Loan": With respect to any Payment Date, a Mortgage Loan on which the entire obligation of the related Mortgagor has been satisfied and the lien on the property may be removed during the related Remittance Period. "Payment Date": Any date on which the Indenture Trustee is required to make distributions to the Owners, which shall be the 20th day of each month, or if such day is not a Business Day, the next succeeding Business Day, commencing in the month following the Closing Date. "Percentage Interest": As to any Series of Notes, that percentage, expressed as a fraction, the numerator of which is the Note Principal Balance set forth on such Note as of the Cut-Off Date and the denominator of which is the Original Note Principal Balance of all Notes of such Series as of the Cut-Off Date. With respect to the Certificates, the portion evidenced thereby, expressed as a percentage, as stated on the face of such Certificate, all of which shall total 100% with respect to the Certificates. "Person": Any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Policy Payments Account": As defined in Section 7.02(b) hereof. "Pool Delinquency Rate": With respect to any Remittance Period, the fraction, expressed as a percentage, equal to (x) the aggregate principal balances of all Mortgage Loans in a Mortgage Loan Pool 90 or more days Delinquent (including foreclosures and REO Properties) as of the close of business on the last day of such Remittance Period over (y) the Pool Principal Balance of such Mortgage Loan Pool as of the close of business on the last day of such Remittance Period. "Pool Principal Balance": With respect to any date of determination thereof, the principal balances of the Mortgage Loans in a Mortgage Loan Pool as of such date of determination. "Pool Rolling Three Month Delinquency Rate": As of any Payment Date and for either Mortgage Loan Pool, the fraction, expressed as a percentage, equal to the average of the Pool Delinquency Rates for such Mortgage Loan Pool for each of the three (or one and two, in the case of the first and second Payment Dates) immediately preceding Remittance Periods. "Preference Amount": With respect to a Series of Notes, means, any amounts of related Current Interest and principal included in previous distributions to the Owners of such Notes which are recovered from such Owners as a voidable preference by a trustee in bankruptcy pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction and which have not theretofore been repaid to such Owners. "Preference Claim": As defined in Section 7.02(d) hereof. "Pre-Funded Amount": With respect to any Determination Date, the amount remaining on deposit in the Pre-Funding Account. 18 "Pre-Funding Account": The Pre-Funding Account established in accordance with Section 3.2(b) hereof and maintained by the Indenture Trustee. "Pre-Funding Account Earnings": With respect to the initial Payment Date, the actual investment earnings earned during the period from the Closing Date through June 30, 1998 (inclusive) on the Pre-Funding Account during such period as calculated by the Trustee pursuant to Section 2.8(d) hereof. "Premium Letter": As defined in the Insurance Agreement. "Prepaid Installment": With respect to any Mortgage Loan, any installment of principal thereof and interest thereon received by the Servicer prior to the scheduled due date for such installment, intended by the Mortgagor as an early payment thereof and not as a Prepayment with respect to such Mortgage Loan. "Prepayment": A Curtailment or a payment causing a Mortgage Loan to become a Paid-in- Full Mortgage Loan. "Prepayment Interest Shortfall": With respect to any Payment Date, the aggregate shortfall, if any, in collections of interest resulting from Prepayments on the Mortgage Loans during the preceding Remittance Period. "Preservation Expenses": Expenditures made by the Servicer in connection with a foreclosed Mortgage Loan prior to the liquidation thereof, including, without limitation, expenditures for real estate property taxes, hazard insurance premiums, property restoration or preservation. "Principal and Interest Account": Collectively, each principal and interest account created by the Servicer pursuant to Section 4.8(a) hereof, or pursuant to any Sub-Servicing Agreement. "Principal Remittance Amount": As applicable, the Adjustable Rate Principal Remittance Amount or the Fixed Rate Principal Remittance Amount. "Property": The underlying property securing a Mortgage Loan. "Prospectus": The Seller's Prospectus dated March 10, 1998. "Prospectus Supplement": The First Alliance Mortgage Loan Trust 1998-2 Prospectus Supplement dated June 10, 1998 to the Prospectus. "Qualified Replacement Mortgage": A Mortgage Loan substituted for another pursuant to Section 2.4 or 2.6 hereof, which (i) bears an adjustable rate of interest if the Mortgage Loans to be substituted for is in the Adjustable Rate Pool or a fixed rate of interest if the Mortgage Loan to be substituted for is in that Fixed Rate Pool , (ii) has a Coupon Rate at least equal to the Coupon Rate of the Mortgage Loan being replaced (which in the case of a Mortgage Loan in the Adjustable Rate Pool shall mean a Mortgage Loan having the same interest rate index, a margin over such index and a maximum interest rate at least equal to those applicable to the Mortgage Loan being replaced), (iii) is of the same or better property type and the same or better occupancy status as the replaced Mortgage Loan, (iv) shall be of the same or better credit quality classification (determined in accordance with the Originators' credit underwriting guidelines) as the Mortgage Loan being replaced, (v) shall mature no later than June 1, 2028, (vi) has a Combined Loan-to- Value Ratio as of the Cut-Off Date, no higher than the Combined Loan-to-Value Ratio of the replaced Mortgage Loan at such time, (vii) has a Loan Balance as of the related Replacement Cut-Off Date equal to or less than the Loan Balance of the replaced Mortgage Loan as of such Replacement Cut-Off Date, (viii) is of the same lien status or better lien status (ix) is not Delinquent, (x) meets the representations and warranties set out in Section 2.3 hereof and (xi) is a valid adjustable rate Mortgage Loan if the Mortgage Loan being substituted for is an Adjustable Rate Mortgage Loan or a valid fixed rate Mortgage Loan if the Mortgage Loan being substituted for is a Fixed Rate Mortgage Loan. In the event that one or more mortgage 19 loans are proposed to be substituted for one or more mortgage loans, the Note Insurer may allow the foregoing tests to be met on a weighted average basis or other aggregate basis acceptable to the Note Insurer, as evidenced by a written approval delivered to the Indenture Trustee by the Note Insurer, except that the requirement of clause (vi) hereof must be satisfied as to each Qualified Replacement Mortgage. "Rating Agencies": Moody's and Standard & Poor's or any successors thereto. "Realized Loss": As to any Liquidated Loan, the amount, if any, by which the Loan Balance thereof as of the date of liquidation is in excess of Net Liquidation Proceeds realized thereon. "Redemption Date": With respect to the Adjustable Rate Pool, the first Payment Date on which the outstanding aggregate Loan Balance of the Adjustable Rate Mortgage Loans has declined to $3,000,000 or less, and with respect to the Fixed Rate Pool, the first Payment Date on which the outstanding aggregate Loan Balance of the Fixed Rate Mortgage Loans has declined to $7,000,000 or less. "Reference Banks": Bankers Trust Company, Barclay's Bank PLC and National Westminster Bank PLC; provided that if any of the foregoing banks are not suitable to serve as a Reference Bank, then any leading banks selected by the Indenture Trustee which are engaged in transactions in Eurodollar deposits in the international Eurocurrency market (i) with an established place of business in London, (ii) not controlling, under the control of or under common control with the Seller or any affiliate thereof, (iii) whose quotations appear on the Telerate Page 3750 on the relevant Adjustable Rate Interest Determination Date and (iv) which have been designated as such by the Indenture Trustee. "Register": The register maintained by the Indenture Trustee in accordance with Section 2.3 of the Indenture, in which the names of the Owners are set forth. "Registrar": The Indenture Trustee, acting in its capacity as Indenture Trustee appointed pursuant to the Indenture, or any duly appointed and eligible successor thereto. "Registration Statement": The Registration Statement filed by the Seller with the Securities and Exchange Commission (Registration Statement Number 333-44585), including all amendments thereto and including the Prospectus and Prospectus Supplement constituting a part thereof. "Reimbursement Amount": An Adjustable Rate Reimbursement Amount or a Fixed Rate Reimbursement Amount. "Relief Act Shortfalls:" With respect to any Due Period, for any Mortgage Loans as to which there has been a reduction in the amount of interest collectible thereon for the most recently ended Due Period as a result of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended, the amount, if any, by which (i) interest collectible on such Mortgage Loans during the most recently ended Due Period is less than (ii) the sum of (a) one month's interest on the Loan Balance of such Mortgage Loans at a rate equal to the related Note Rate plus (b) the Servicing Fee and the Fees and Expenses for the related Remittance Period. "Remittance Date": Any date on which the Servicer is required to remit moneys on deposit in the Principal and Interest Account to the Note Account, which shall be the day two Business Days prior to the related Payment Date. "Remittance Period": The period (inclusive) beginning on the first day of the calendar month immediately preceding the month in which a Remittance Date occurs and ending on the last day of such immediately preceding calendar month. "REO Property": A Property acquired by the Servicer or any Sub-Servicer on behalf of the Trust through foreclosure or deed-in-lieu of foreclosure in connection with a defaulted Mortgage Loan. 20 "Replacement Cut-Off Date": With respect to any Qualified Replacement Mortgage, the first day of the calendar month in which such Qualified Replacement Mortgage is conveyed to the Trust. "Request for Release": The request for release in the form set forth as Exhibit F hereto. "Reserve Interest Rate": With respect to any Adjustable Rate Interest Determination Date, the rate per annum that the Indenture Trustee determines to be either (i) the arithmetic mean (rounded upwards if necessary to the nearest whole multiple of 0.0625%) of the one-month U.S. dollar lending rates which New York City banks selected by the Indenture Trustee are quoting on the relevant Adjustable Rate Interest Determination Date to the principal London offices of leading banks in the London interbank market or (ii) in the event that the Indenture Trustee can determine no such arithmetic mean, the lowest one-month U.S. dollar lending rate which New York City banks selected by the Indenture Trustee are quoting on such Adjustable Rate Interest Determination Date to leading European banks. "Schedule of Mortgage Loans": The Schedule of Mortgage Loans with respect to the Mortgage Loans listing each Mortgage Loan to be conveyed to a Mortgage Loan Pool on the Closing Date. Such Schedule of Mortgage Loans shall identify each Mortgage Loan by the Servicer's loan number and address (including the state) of the Property and shall set forth as to each Mortgage Loan the lien status, the Loan-to-Value Ratio, the Loan Balance as of the Cut-Off Date, the Coupon Rate, the index, the margin, the current scheduled monthly payment of principal and interest and the maturity of the related Mortgage Note, the property type, occupancy status, Appraised Value and the Originator of the Mortgage Loan, all as delivered to the Indenture Trustee in physical and computer readable form and delivered to the Note Insurer in physical form. "Securities Act": The Securities Act of 1933, as amended. "Seller": First Alliance Mortgage Company, a California corporation, and its permitted successors and assigns. "Series": Each of the Issuer's series of Notes issued pursuant to the Adjustable Rate Indenture and the Fixed Rate Indenture. "Servicer": First Alliance Mortgage Company, a California corporation, and its permitted successors and assigns. "Servicer Affiliate": A Person (i) controlling, controlled by or under common control with the Servicer and (ii) which is qualified to service residential mortgage loans. "Servicing Advance": As defined in Section 4.9(c) and Section 4.13 hereof. "Servicing Certificate": A certificate completed by and executed by an Authorized Officer of the Indenture Trustee as attached hereto in the form of Exhibit E. "Servicing Fee": As to any Payment Date, the product of (x) one-twelfth of the Servicing Fee Rate and (y) the aggregate Loan Balances of the Mortgage Loans as of the opening of business on the first day of the related Remittance Period. Such Servicing Fee is retained by the Servicer pursuant to Sections 4.8(c)(i) and 4.15 hereof. "Servicing Fee Rate": 0.50% per annum. "Six Month LIBOR Loans": Mortgage Loans whose interest rates adjust semi-annually based on the London interbank offered rate for six-month United States Dollar deposits in the London Market and as published in The Wall Street Journal. 21 "Specified Subordinated Amount": As applicable, the Adjustable Rate Specified Subordinated Amount or the Fixed Rate Specified Subordinated Amount. "Standard & Poor's": Standard & Poor's Rating Services, a division of The McGraw-Hill Companies, and any successor thereto. "Subordinated Amount": As applicable, the Adjustable Rate Subordinated Amount or the Fixed Rate Subordinated Amount. "Subordination Deficiency Amount": With respect to any Mortgage Loan Pool and Payment Date, the excess, if any, of (i) the related Specified Subordinated Amount applicable to such Payment Date over (ii) the related Subordinated Amount applicable to such Payment Date prior to taking into account the payment of any related Subordination Increase Amount on such Payment Date. "Subordination Increase Amount": With respect to any Payment Date, the lesser of (i) the related Subordination Deficiency Amount as of such Payment Date (after taking into account the payment of the related Monthly Payment Amount on such Payment Date (except for any related Subordination Increase Amount)) and (ii) the aggregate amount of Net Monthly Excess Cashflow to be allocated to such Mortgage Loan Pool pursuant to either Section 3.5(b)(iii)(A) or Section 3.5(f)(iii)(A) on such Payment Date. "Subordination Reduction Amount": With respect to any Mortgage Loan Pool Payment Date, an amount equal to the lesser of (x) the Excess Subordinated Amount for such Mortgage Loan Pool for such Payment Date and (y) the Principal Remittance Amount for such Mortgage Loan Pool for the related Remittance Period. "Subsequent Cut-Off Date": The beginning of business on the date specified in the Subsequent Transfer Agreement with respect to the Subsequent Mortgage Loans which are transferred and assigned to the Trust pursuant to the Subsequent Transfer Agreement. "Subsequent Mortgage Loans": The Mortgage Loans sold to the Issuer pursuant to Section 2.8 hereof, which shall be listed on the Schedules of Mortgage Loans attached to the Subsequent Transfer Agreement. "Subsequent Transfer Agreement": The Subsequent Transfer Agreement dated as of the Subsequent Transfer Date executed by the Indenture Trustee and the Seller substantially in the form of Exhibit G hereto, by which Subsequent Mortgage Loans are sold and assigned to the Trust. "Subsequent Transfer Date": June 30, 1998. "Sub-Servicer": Any Person with whom the Servicer has entered into a Sub-Servicing Agreement and who satisfies any requirements set forth in Section 4.3 hereof in respect of the qualification of a Sub-Servicer. "Sub-Servicing Agreement": The written contract between the Servicer and any Sub-Servicer relating to servicing and/or administration of certain Mortgage Loans as permitted by Section 4.3. "Substitution Amount": In connection with the delivery of any Qualified Replacement Mortgage, if the outstanding principal amount of such Qualified Replacement Mortgage as of the applicable Replacement Cut-Off Date is less than the Loan Balance of the Mortgage Loan being replaced as of such Replacement Cut-Off Date, an amount equal to such difference together with accrued and unpaid interest on such amount calculated at the Coupon Rate (net of the Servicing Fee Rate) of the Mortgage Loan being replaced. 22 "Telerate Page 3750": The display designated as page "3750" on the Dow Jones Telerate Capital Markets Report (or such other page as may replace page 3750 on that report for the purpose of displaying London interbank offered rates of major banks). "Termination Price": As defined in Section 5.2(a) hereof. "Total Monthly Excess Spread": As applicable, the Adjustable Rate Total Monthly Excess Spread or the Fixed Rate Total Monthly Excess Spread. "Trust" or "Issuer": First Alliance Mortgage Loan Trust 1998-2, a Delaware business trust. "Trust Agreement": The Trust Agreement dated as of June 1, 1998 between the Seller and the Owner Trustee. "Trust Estate": As defined in the Indentures. "Underwriter": Wheat First Securities Corp., doing business as First Union Capital Markets, a division of Wheat First Securities Corp. "Underwriting Agreement": The Underwriting Agreement dated as of June 10, 1998 between the Underwriter and the Seller. Section 1.2. Use of Words and Phrases. "Herein", "hereby", "hereunder", "hereof", "hereinbefore", "hereinafter" and other equivalent words refer to this Agreement as a whole and not solely to the particular section of this Agreement in which any such word is used. The definitions set forth in Section 1.1 hereof include both the singular and the plural. Whenever used in this Agreement, any pronoun shall be deemed to include both singular and plural and to cover all genders. Section 1.3. Captions; Table of Contents. The captions or headings in this Agreement and the Table of Contents are for convenience only and in no way define, limit or describe the scope and intent of any provisions of this Agreement. ARTICLE II REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLER AND THE SERVICER; COVENANT OF SELLER TO CONVEY MORTGAGE LOANS Section 2.1. Representations and Warranties of the Seller. The Seller hereby represents, warrants and covenants to the Indenture Trustee, the Owner Trustee, the Issuer, the Note Insurer and to the Owners as of the Closing Date that: (a) The Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of California and is in good standing as a foreign corporation in each jurisdiction in which the nature of its business, or the properties owned or leased by it, make such qualification necessary. The Seller has all requisite corporate power and authority to own and operate its properties, to carry out its business as presently conducted and as proposed to be conducted and to enter into and discharge its obligations under this Agreement and the other Operative Documents to which it is a party. (b) The execution and delivery of this Agreement and the other Operative Documents to which it is a party by the Seller and its performance and compliance with the terms of this Agreement and of the other Operative Documents to which it is a party have been duly authorized by all necessary corporate action on the part of the Seller and will not violate the Seller's Articles 23 of Incorporation or Bylaws or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, or result in the breach of, any material contract, agreement or other instrument to which the Seller is a party or by which the Seller is bound, or violate any statute or any order, rule or regulation of any court, governmental agency or body or other tribunal having jurisdiction over the Seller or any of its properties. (c) This Agreement and the other Operative Documents to which the Seller is a party, assuming due authorization, execution and delivery by the other parties hereto and thereto, each constitutes a valid, legal and binding obligation of the Seller, enforceable against it in accordance with the terms hereof and thereof, except as the enforcement hereof and thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by general principles of equity (whether considered in a proceeding or action in equity or at law). (d) The Seller is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or governmental agency, which might have consequences that would materially and adversely affect the condition (financial or otherwise) or operations of the Seller or its properties or might have consequences that would materially and adversely affect its performance hereunder or under the other Operative Documents to which it is a party. (e) No action, suit, proceeding or investigation is pending or, to the best of the Seller's knowledge, threatened against the Seller which, individually or in the aggregate, might have consequences that would prohibit the Seller from entering into this Agreement or any other Operative Document to which it is a party or that would materially and adversely affect the condition (financial or otherwise) or operations of the Seller or its properties or might have consequences that would materially and adversely affect the validity or enforceability of Mortgage Loans or the Seller's performance hereunder or under the other Operative Documents to which it is a party. (f) No certificate of an officer, statement furnished in writing or report delivered pursuant to the terms hereof by the Seller contains any untrue statement of a material fact or omits to state any material fact necessary to make the certificate, statement or report not misleading. (g) The statements contained in the Registration Statement which describe the Seller or matters or activities for which the Seller is responsible in accordance with the Operative Documents or which are attributed to the Seller therein are true and correct in all material respects, and the Registration Statement does not contain any untrue statement of a material fact with respect to the Seller or omit to state a material fact required to be stated therein or necessary in order to make the statements contained therein with respect to the Seller not misleading. With respect to matters other than those referred to in the immediately preceding sentence, to the best of the Seller's knowledge and belief, the Registration Statement does not contain any untrue statement of a material fact required to be stated therein or omit to state any material fact required to be stated therein or necessary to make the statements contained therein not misleading. (h) All actions, approvals, consents, waivers, exemptions, variances, franchises, orders, permits, authorizations, rights and licenses required to be taken, given or obtained, as the case may be, by or from any federal, state or other governmental authority or agency (other than any such actions, approvals, etc. under any state securities laws, real estate syndication or "Blue Sky" statutes, as to which the Seller makes no such representation or warranty), that are necessary or advisable in connection with the purchase and sale of the Notes and the execution and delivery by the Seller of the Operative Documents to which it is a party, have been duly taken, given or obtained, as the case may be, are in full force and effect on the Closing Date, are not subject to any pending proceedings or appeals (administrative, judicial or otherwise) and either the time within which any appeal therefrom may be taken or review thereof may be obtained has expired or no review thereof may be obtained or appeal therefrom taken, and are adequate to authorize the consummation of the 24 transactions contemplated by this Agreement and the other Operative Documents on the part of the Seller and the performance by the Seller of its obligations under this Agreement and such of the other Operative Documents to which it is a party. (i) The transactions contemplated by this Agreement are in the ordinary course of business of the Seller. (j) The Seller received fair consideration and reasonably equivalent value in exchange for the sale of the interests in the Mortgage Loans. (k) The Seller did not sell any interest in any Mortgage Loan with any intent to hinder, delay or defraud any of its creditors. (l) The Seller is solvent and the Seller will not be rendered insolvent as a result of the sale of the Mortgage Loans. (m) On the Closing Date, the Issuer will have good title to each Mortgage Loan and such other items comprising the corpus of the Trust Estate free and clear of any lien. (n) There has been no material adverse change in any information submitted by the Seller to the Note Insurer. (o) To the best knowledge of the Seller, no event has occurred which would allow any purchaser of the Notes not to be required to purchase the Notes on the Closing Date. (p) To the best knowledge of the Seller, no document (including any information provided in electronic form) submitted by or on behalf of the Seller to the Note Insurer contains any untrue or misleading statement of a material fact or fails to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. (q) To the best knowledge of the Seller, no material adverse change affecting any security for the Notes has occurred prior to delivery of and payment for the Notes. (r) The Seller is not in default under any agreement involving financial obligations or on any outstanding obligation which would materially adversely impact the financial condition or operations of the Seller or legal documents associated with the transaction contemplated in this Agreement. It is understood and agreed that the representations and warranties set forth in this Section 2.1 shall survive delivery of the Mortgage Loans to the Issuer. Section 2.2. Representations and Warranties of the Servicer. The Servicer hereby represents, warrants and covenants to the Issuer, the Owner Trustee, the Indenture Trustee, the Note Insurer and to the Owners as of the Closing Date that: (a) The Servicer is a corporation duly organized, validly existing and in good standing under the laws of the State of California. The Servicer is in compliance with the laws of each state in which any Property is located to the extent necessary to enable it to perform its obligations hereunder and is in good standing as a foreign corporation in each jurisdiction in which the nature of its business, or the properties owned or leased by it, make such qualification necessary. The Servicer has all requisite corporate power and authority to own and operate its properties, to carry out its business as presently conducted and as proposed to be conducted and to enter into and discharge its obligations under this Agreement and the other Operative Documents to which it is a party. The Servicer has equity of at least $20,000,000, as determined in accordance with generally accepted accounting principles. 25 (b) The execution and delivery of this Agreement by the Servicer and its performance and compliance with the terms of this Agreement and the other Operative Documents to which it is a party have been duly authorized by all necessary corporate action on the part of the Servicer and will not violate the Servicer's Articles of Incorporation or Bylaws or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, or result in the breach of, any material contract, agreement or other instrument to which the Servicer is a party or by which the Servicer is bound or violate any statute or any order, rule or regulation of any court, governmental agency or body or other tribunal having jurisdiction over the Servicer or any of its properties. (c) This Agreement and the other Operative Documents to which the Servicer is a party, assuming due authorization, execution and delivery by the other parties hereto and thereto, each constitutes a valid, legal and binding obligation of the Servicer, enforceable against it in accordance with the terms hereof and thereof, except as the enforcement hereof and thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by general principles of equity (whether considered in a proceeding or action in equity or at law). (d) The Servicer is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or governmental agency which might have consequences that would materially and adversely affect the condition (financial or otherwise) or operations of the Servicer or its properties or might have consequences that would materially and adversely affect its performance hereunder or under the other Operative Documents to which the Servicer is a party. (e) No action, suit, proceeding or investigation is pending or, to the best of the Servicer's knowledge, threatened against the Servicer which, individually or in the aggregate, might have consequences that would prohibit its entering into this Agreement or any other Operative Document to which it is a party or that would materially and adversely affect the condition (financial or otherwise) or operations of the Servicer or its properties or might have consequences that would materially and adversely affect the validity or the enforceability of the Mortgage Loans or the Servicer's performance hereunder or under the other Operative Documents to which the Servicer is a party. (f) No certificate of an officer, statement furnished in writing or report delivered pursuant to the terms hereof by the Servicer contains any untrue statement of a material fact or omits to state any material fact necessary to make the certificate, statement or report not misleading. (g) The statements contained in the Registration Statement which describe the Servicer or matters or activities for which the Servicer is responsible in accordance with the Operative Documents or which are attributed to the Servicer therein are true and correct in all material respects, and the Registration Statement does not contain any untrue statement of a material fact with respect to the Servicer or omit to state a material fact required to be stated therein or necessary to make the statements contained therein with respect to the Servicer not misleading. With respect to matters other than those referred to in the immediately preceding sentence, to the best of the Servicer's knowledge and belief, the Registration Statement does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements contained therein not misleading. (h) All actions, approvals, consents, waivers, exemptions, variances, franchises, orders, permits, authorizations, rights and licenses required to be taken, given or obtained, as the case may be, by or from any federal, state or other governmental authority or agency (other than any such actions, approvals, etc. under any state securities laws, real estate syndication or "Blue Sky" statutes, as to which the Servicer makes no such representation or warranty), that are necessary or advisable in connection with the execution and delivery by the Servicer of the Operative Documents 26 to which it is a party, have been duly taken, given or obtained, as the case may be, are in full force and effect on the date hereof, are not subject to any pending proceedings or appeals (administrative, judicial or otherwise) and either the time within which any appeal therefrom may be taken or review thereof may be obtained has expired or no review thereof may be obtained or appeal therefrom taken, and are adequate to authorize the consummation of the transactions contemplated by this Agreement and the other Operative Documents on the part of the Servicer and the performance by the Servicer of its obligations under this Agreement and such of the other Operative Documents to which it is a party. (i) The collection practices used by the Servicer with respect to the Mortgage Loans directly serviced by it have been, and are in all material respects, legal, proper, prudent and customary in the mortgage loan servicing business. (j) The transactions contemplated by this Agreement are in the ordinary course of business of the Servicer. (k) There are no Sub-Servicers as of the Closing Date. (l) The Servicer covenants that it will terminate any Sub-Servicer within ninety (90) days after being directed by the Note Insurer to do so. (m) There has been no material adverse change in any information submitted by the Servicer to the Note Insurer. (n) To the best knowledge of the Servicer, no event has occurred which would allow any purchaser of the Notes not to be required to purchase the Notes on the Closing Date. (o) To the best knowledge of the Servicer, no document (including any information provided in electronic form) submitted by or on behalf of the Servicer to the Note Insurer contains any untrue or misleading statement of a material fact or fails to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. (p) To the best knowledge of the Servicer, no material adverse change affecting any security for the Notes has occurred prior to delivery of and payment for the Notes. (q) The Servicer is not in default under any agreement involving financial obligations or on any outstanding obligation which would materially and adversely impact the financial condition or operations of the Servicer or legal documents associated with the transaction contemplated in this Agreement. It is understood and agreed that the representations and warranties set forth in this Section 2.2 shall survive delivery of the Mortgage Loans to the Issuer. Upon discovery by any of the Originators, the Servicer, the Seller, the Issuer, the Custodian, any Sub-Servicer, the Note Insurer, the Owner Trustee or the Indenture Trustee of a breach of any of the representations and warranties set forth in this Section 2.2 or in Section 2.1 hereof which materially and adversely affects the interests of the Owners or of the Note Insurer, without regard to any limitation set forth in such representation or warranty concerning the knowledge of the party making such representation or warranty as to the facts stated therein, the party discovering such breach shall give prompt written notice to the other parties hereto and the Note Insurer. Within 30 days of its discovery or its receipt of notice of breach, the breaching party shall cure such breach in all material respects and, if such breaching party is the Servicer and upon the Servicer's continued failure to cure such breach, the Servicer may be removed by the Indenture Trustee or the Note Insurer pursuant to Section 4.20 hereof; provided, however, that if the Servicer can demonstrate to the reasonable satisfaction of the Note Insurer that it is diligently pursuing remedial action, then the cure period may be extended with the written approval of the Note Insurer. 27 Section 2.3. Representations and Warranties of the Seller with Respect to the Mortgage Loans. (a) The Seller makes the following representations and warranties as to the Mortgage Loans on which the Note Insurer relies in issuing the Note Insurance Policies. Such representations and warranties speak as of the Closing Date (with respect to the Initial Mortgage Loans) and as of the respective Subsequent Cut-Off Date (with respect to the Subsequent Mortgage Loans) but shall survive the sale, transfer, and assignment of the related Mortgage Loans to the Issuer: (i) The information with respect to each Initial Mortgage Loan and Subsequent Mortgage Loan set forth in the related Schedule of Mortgage Loans is true and correct as of the CutOff Date (or in the case of the Subsequent Mortgage Loans, as of the related Subsequent Cut-Off Date); the Original Aggregate Loan Balance in the Trust Estate as of the Cut-Off Date is $82,620,976.00 (the "Original Aggregate Adjustable Rate Loan Balance as of the Cut-Off Date is $26,582,365.10 and the Original Aggregate Fixed Rate Loan Balance as of the Cut-Off Date is $56,038,610.90). (ii) All of the original or certified documentation set forth in Section 2.5 (including all material documents related thereto) with respect to each Initial Mortgage Loan has been or will be delivered to the Indenture Trustee on the Closing Date (or in the case of the Subsequent Mortgage Loans, as of the related Subsequent Transfer Date) or as otherwise provided in Section 2.5; (iii) Each Mortgage Loan is being serviced by the Servicer or a Servicer Affiliate; (iv) The Mortgage Note related to each Initial Mortgage Loan in the Adjustable Rate Pool bears a current Coupon Rate of at least 6.490% per annum and the Mortgage Note relating to each Mortgage Loan in the Fixed Rate Pool bears a current Coupon Rate of at least 7.250% per annum; (v) No more than 4.23% of the Initial Mortgage Loans in the Adjustable Rate Pool were 30-59 days Delinquent; and, of the Initial Mortgage Loans in the Fixed Rate Pool, no more than 4.10% were 30-59 days Delinquent, 0.19% were 60-89 days Delinquent, and 0.24% were 90 or more days Delinquent; (vi) As of the Cut-Off Date, no more than 1.57% of the Original Aggregate Adjustable Rate Loan Balance is secured by Properties located within any single zip code area, and no more than 0.80% of the Original Aggregate Fixed Rate Loan Balance is secured by Properties located within any single zip code area; (vii) Each Mortgage Loan conforms, and all such Mortgage Loans in the aggregate conform, in all material respects, to the description thereof set forth in the Registration Statement; (viii) As of the Cut-Off Date, no more than 17.09% and 10.12% of the Original Aggregate Adjustable Rate Loan Balance and the Original Aggregate Fixed Rate Loan Balance, respectively, is secured by condominiums, townhouses, or planned unit developments; (ix) As of the Cut-Off Date, no more than 5.80% and 4.57% of the Original Aggregate Loan Balance and the Original Aggregate Fixed Rate Loan Balance, respectively, is secured by investor-owned Properties; (x) The credit underwriting guidelines applicable to each Mortgage Loan conform in all material respects to the description thereof set forth in the Prospectus; (xi) All of the Mortgage Loans are actuarial loans; 28 (xii) All of the Adjustable Rate Mortgage Loans are First Mortgage Loans, and 99.84% of the Fixed Rate Mortgage Loans are First Mortgage Loans subject only to the exceptions to title set forth in the title insurance policy, with respect to the related Mortgage Loan, which exceptions are generally acceptable to mortgage lending companies, as applicable, and such other exceptions to which similar properties are commonly subject and which do not individually, or in the aggregate, materially and adversely affect the benefits of the security intended to be provided by such Mortgage. (xiii) As of the Cut-Off Date, substantially all of the Adjustable Rate Mortgage Loans had interest rates which were not fully indexed; (xiv) The gross margin range for Six Month LIBOR Loans is 3.990% to 8.990% and, the gross margin for all Six Month LIBOR Loans when added to the current index, creates the fully- indexed range; (xv) No Mortgage Loan has a remaining term in excess of 360 months; (xvi) With respect to each Mortgage Loan in the Adjustable Rate Pool, each Mortgagor's debt-to-income ratio will qualify for the related Originator's underwriting guidelines for a similar credit grade borrower when the related Mortgage Loan is at a rate equal to the applicable initial Coupon Rate plus 2%; (xvii) There is no proceeding pending or to the best of the Seller's knowledge threatened for the total or partial condemnation of any Property. No Property is damaged by waste, fire, earthquake or earth movement, windstorm, flood, other types of water damage, tornado, or other casualty so as to affect adversely the value of such Property as security for the Mortgage Loans or the use for which the premises were intended and each Property is free of material damage and is in good repair; (xviii) Each Mortgage Loan complies, and at all times has complied in all material respects with all applicable federal and state laws and regulations including without limitation the Truth-in-Lending Act, as amended; (xix) Each Mortgage Loan is secured by a Property having an appraised value of less than $417,440.00; (xx) The first Due Date of each Mortgage Loan is no later than July 1, 1998; and (xxi) On the Closing Date with respect to each Initial Mortgage Loan and on each Subsequent Transfer Date with respect to each Subsequent Mortgage Loan, the Issuer will have good title to each Mortgage Loan transferred on such date free and clear of all liens, encumbrances, mortgages or rights of others. (xxii) The Seller and any Originator complied with all applicable federal and state laws and regulations in connection with the origination of the Mortgage Loan; (xxiii) No more than 41% and 31% of the Initial Mortgage Loans in the Adjustable Rate Pool and the Fixed Rate Pool, respectively, were originated on an "alternative documentation" basis; (xxiv) No fraud, error, omission, misrepresentation or negligence with respect to the origination of a Mortgage Loan has taken place on the part of any person, including, without limitation, the Mortgagor, the Originator, the Seller, any appraiser or any other party involved in the origination of the Mortgage Loan; 29 (xxv) Each Property consists of a single parcel of residential real property that is separately assessed for tax purposes and that is owned by the related Mortgagor in fee simple absolute, and each Property is improved by a one- to four-family residential dwelling, which does not include cooperatives or mobile homes and does not constitute other than real property under state law. No Property is a manufactured housing unit. (xxvi) Each Mortgage Note will provide for a schedule of substantially equal Monthly Payments which are, if timely paid, sufficient to fully amortize the principal balance of such Mortgage Note on or before its maturity date (except that 0.87% of the Mortgage Loans in the Fixed Rate Pool contain "balloon" payment provisions); (xxvii) The Mortgage Loan is 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 or the Mortgage, or the exercise of any right thereunder, render either the Mortgage Note or 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; (xxviii) To the best of the Seller's knowledge, there is no mechanics' lien or claim for work, labor or material affecting any Property which is or may be a lien prior to, or equal with, the lien of such Mortgage except those which are insured against by the title insurance policy referred to in Section 2.3(a)(xxix) below; (xxix) With respect to each Mortgage Loan, a lender's title insurance policy or a written commitment therefor, issued in standard American Land Title Association or California Land Title Association form, or other form acceptable in a particular jurisdiction, by a title insurance company authorized to transact business in the state in which the related Property is situated, together with a condominium endorsement, if applicable, in an amount at least equal to the original principal balance of such Mortgage Loan insuring the mortgagee's interest under the related Mortgage Loan as the holder of a valid first mortgage lien of record on the real property described in the Mortgage, subject only to exceptions of the character referred to in Section 2.3(a)(xii) above, was effective on the date of the origination of such Mortgage Loan, and, as of the Cut-Off Date, such commitment, if applicable, will be valid and thereafter the policy issued, pursuant to such commitment shall continue in full force and effect. The Seller is the sole named insured of such mortgage title insurance policy, the assignment to the Issuer of the Seller's interest in such mortgage title insurance policy would not require the consent of or notification to the insurer, and such mortgage title insurance policy is in full force and effect and will be in full force and effect and inure to the benefit of the Issuer on the Closing Date. No claims have been made under such mortgage title insurance policy and no prior holder of the related Mortgage, including (without limitation) the Seller, has done, by act or omission, anything that would impair the coverage of such mortgage title insurance policy; (xxx) The improvements upon each Property are covered by a valid and existing hazard insurance policy with a generally acceptable carrier that provides for fire and extended coverage representing generally acceptable coverage against casualty to such improvements and, in any event, coverage not less than the least of (A) the outstanding principal balance of the related Mortgage, (B) the minimum amount required to compensate for damage or loss on a replacement cost basis, and (C) the full insurable value of such Property. Each individual insurance policy is the valid and binding obligation of the insurer and contains a standard mortgage clause naming the Seller, its successors and assigns as mortgagee. All premiums thereon have been paid. The related Mortgage obligates the Mortgagor thereunder to maintain all such 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; 30 (xxxi) If any 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 Federal Insurance Administration is in effect with respect to such Property with a generally acceptable carrier in an amount representing coverage not less than the least of (A) the outstanding principal balance of the related Mortgage Loan, (B) the minimum amount required to compensate for damage or loss on a replacement cost basis, and (C) the maximum amount of insurance that is available under the Flood Disaster Protection Act of 1973, as amended; (xxxii) Each Mortgage and Mortgage Note is the legal, valid and binding obligation of the maker thereof and is enforceable in accordance with its terms, except only as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (whether considered in a proceeding or action in equity or at law), and all parties to each Mortgage Loan had full legal capacity to execute all Mortgage Loan documents and convey the estate therein purported to be conveyed, and such Mortgage and Mortgage Note have been duly and properly executed by such parties; (xxxiii) The Seller has caused or will cause to be performed any and all acts required to be performed to preserve the rights and remedies of the Issuer and its successors and assigns in any insurance policies applicable to the Mortgage Loans including, without limitation, any necessary notifications of insurers, assignments of policies or interests therein, and establisments of co-insured, joint loss payee and mortgagee rights in favor of the Issuer; (xxxiv) No instrument of release or waiver has been executed in connection with the Mortgage Loan, and no Mortgagor has been released, in whole or in part; (xxxv) The proceeds of the Mortgage Loan have been fully disbursed, and there is no obligation on the part of the mortgagee to make future advances thereunder. (xxxvi) There is no obligation on the part of the Seller or any other party to make payments in addition to those made by the Mortgagor; (xxxvii) 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 Issuer or its successors or assigns to the trustee under the deed of trust, except in connection with a trustee's sale after default by the Mortgagor; (xxxviii) The Mortgage contains a customary provision for the acceleration of the payment of the unpaid principal balance of the Mortgage Loan in the event the related Property is sold or further encumbered without the prior consent of the mortgagee thereunder; (xxxix) The Mortgage Note does not permit or obligate any person to make future advances to the Mortgagor at the option of the Mortgagor; (xl) The related Mortgage contains customary and enforceable provisions which render the rights and remedies of the holder thereof adequate for the realization against the 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 Property at a trustee's sale or the right to foreclose the Mortgage; (xli) There is no default, breach, violation or event of acceleration existing under the Mortgage or the related Mortgage Note and no event which, with the passage of time or with notice 31 and the expiration of any grace or cure period, would constitute a default, breach, violation or event of acceleration; and neither the Seller nor any servicer has waived any default, breach, violation or event of acceleration; (xlii) 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; (xliii) All amounts received on and after the Cut-Off Date with respect to the Mortgage Loans have been deposited into the Principal and Interest Account and are, as of the Closing Date, in the Principal and Interest Account. All amounts received prior to the Cut-Off Date but representing payments that the Mortgagor is obligated to make after the Cut-Off Date have been deposited into the Principal and Interest Account and are, as of the Closing Date, in the Principal and Interest Account; (xliv) The Mortgage Loans were not selected by the Seller on any basis intended to adversely affect the Issuer, the Owners, the Note Issuer or any of their successors and assigns; (xlv) A full appraisal was performed in connection with each Property; (xlvi) To the best of the Seller's knowledge, no Property was in violation of any state or federal environmental law or regulation and no hazardous material substance or waste is present at any Property; (xlvii) None of the Mortgage Loans are subject to any bankruptcy plan; (xlviii) No duplicate original Mortgage Note was executed by any Mortgagor; and (xlix) No more than 70.05% and 65.33% of the Initial Mortgage Loans in the Adjustable Rate Pool and the Fixed Rate Pool, respectively, are subject to the Home Ownership and Equity Protection Act of 1994 (the "Home Protection Act"). With respect to each Initial Mortgage Loan subject to the Home Protection Act, each such Mortgage Loan has been originated and serviced in compliance with the provisions thereof. (b) Upon the discovery by the Issuer, the Seller, the Servicer, the Custodian, the Note Insurer, the Owner Trustee or the Indenture Trustee of a breach of any of the representations and warranties made herein in respect of any Mortgage Loan, without regard to any limitation set forth in such representation or warranty concerning the knowledge of the Seller or any related Originator as to the facts stated therein, which materially and adversely affects the interests of the Owners or of the Note Insurer in such Mortgage Loan the party discovering such breach shall give prompt written notice to the other parties hereto and the Note Insurer, as their interests may appear. The Servicer shall promptly notify the related Originator of such breach and request that such Originator cure such breach or take the actions described in Section 2.4(b) hereof within the time periods required thereby, and if such Originator does not cure such breach in all material respects, the Seller shall cure such breach or take such actions. Except as set forth in Section 2.4, the obligations of the Seller or Servicer, as the case may be, shall be limited to the remedies for cure set forth in Section 2.4 with respect to any Mortgage Loan as to which such a breach has occurred and is continuing; the remedies set forth in Section 2.4 shall constitute the sole remedy with respect to such breach available to the Owners, the Indenture Trustee and the Note Insurer. The Seller acknowledges that a breach of any representation or warranty (x) relating to marketability of title sufficient to transfer unencumbered title to a Mortgage Loan and (y) relating to enforceability of the Mortgage Loan against the related Mortgagor or Property is a priori the breach of a representation or warranty which "materially and adversely affects the interests of the Owners or of the Note Insurer" in such Mortgage Loan. 32 Section 2.4. Covenants of the Seller to Take Certain Actions with Respect to the Mortgage Loans In Certain Situations. (a) With the provisos and limitations as to remedies set forth in this Section 2.4, upon the discovery by any Originator, the Seller, the Issuer, the Servicer, the Note Insurer, any Sub-Servicer, the Owner Trustee, the Custodian or the Indenture Trustee that the representations and warranties set forth in Section 2.3 of this Agreement were untrue in any material respect as of the Closing Date (or in the case of the Subsequent Mortgage Loans, the Subsequent Transfer Date), and that such breach of the representations and warranties materially and adversely affects the interests of the Owners or of the Note Insurer, the party discovering such breach shall give prompt written notice to the other parties hereto and to the Note Insurer. (b) Upon the earliest to occur of the Seller's discovery, its receipt of notice of breach from any one of the other parties hereto or from the Note Insurer or such time as a breach of any representation and warranty materially and adversely affects the interests of the Owners or of the Note Insurer as set forth above, the Seller hereby covenants and warrants that it shall promptly cure such breach in all material respects or it shall (or shall cause an affiliate of the Seller to or an Originator to), subject to the further requirements of this paragraph, on the second Remittance Date next succeeding such discovery, receipt of notice or such other time (i) substitute in lieu of each Mortgage Loan which has given rise to the requirement for action by the Seller a Qualified Replacement Mortgage and deliver the Substitution Amount applicable thereto, together with the aggregate amount of all Delinquency Advances and Servicing Advances theretofore made with respect to such Mortgage Loan, to the Servicer for deposit in the Principal and Interest Account or (ii) purchase such Mortgage Loan from the Trust at a purchase price equal to the Loan Purchase Price thereof, which purchase price shall be delivered to the Servicer for deposit in the Principal and Interest Account. It is understood and agreed that the obligation of the Seller to cure the defect, or substitute for or purchase any Mortgage Loan as to which a representation or warranty is untrue in any material respect and has not been remedied shall constitute the sole remedy available to the Owners, the Indenture Trustee and the Note Insurer; provided, however, that notwithstanding the foregoing, the Seller agrees to indemnify and hold harmless the Issuer, the Note Issuer, the Indenture Trustee and each of the officers and directors of each such entity, in the event of any loss, claim, penalty, fine and any related costs suffered by any of such entities arising from a breach by the Seller of its representations and warranties in Section 2.3(b)(xlix). (c) In the event that any Qualified Replacement Mortgage is delivered by an Originator or by the Seller to the Trust pursuant to this Section 2.4 or Section 2.6 hereof, the related Originator and the Seller shall be obligated to take the actions described in Section 2.4(b) with respect to such Qualified Replacement Mortgage upon the discovery by any of the Owners, the Seller, the Issuer, the Servicer, the Note Insurer, any Sub-Servicer, the Owner Trustee, the Custodian or the Indenture Trustee that any of the representations and warranties set forth in Section 2.3 above are untrue in any material respect on the date such Qualified Replacement Mortgage is conveyed to the Trust such that the interests of the Owners or the Note Insurer in the related Qualified Replacement Mortgage are materially and adversely affected; provided, however, that for the purposes of this subsection (c) the representations and warranties in Section 2.3 above referring to items "as of the Cut-Off Date" or "as of the Closing Date" shall be deemed to refer to such items as of the date such Qualified Replacement Mortgage is conveyed to the Trust. (d) It is understood and agreed that the covenants set forth in this Section 2.4 shall survive delivery of the respective Mortgage Loans (including Qualified Replacement Mortgages) to the Issuer. (e) The Indenture Trustee shall have no duty to conduct any affirmative investigation other than as specifically set forth in this Agreement as to the occurrence of any condition requiring the repurchase or substitution of any Mortgage Loan pursuant to this section or the eligibility of any Mortgage Loan for purposes of this Agreement. Section 2.5. Conveyance of the Mortgage Loans. (a) The Seller, concurrently with the execution and delivery hereof, hereby transfers, assigns, sets over and otherwise conveys without recourse, to the Issuer, all right, title and interest of the Seller in and to each Initial Mortgage Loan listed on each Schedule of Mortgage Loans delivered by the Seller on the Closing Date, all right, title and interest in and 33 to principal and interest (including prepaid interest) due on each such Mortgage Loan after the Cut-Off Date (other than payments of principal and interest due on or before the Cut-Off Date) and all its right, title and interest in and to all Insurance Policies; provided, however, that the Seller reserves and retains all its right, title and interest in and to principal (including Prepayments) collected and principal and interest due on each Initial Mortgage Loan on or prior to the Cut-Off Date. The transfer by the Seller of the Initial Mortgage Loans set forth on the Schedules of Mortgage Loans and the Subsequent Mortgage Loans is absolute and is intended by the Owners and all parties hereto to be treated as a sale by the Seller. Pursuant to the Indenture, the Issuer will pledge the Trust Estate to the Indenture Trustee to be held on behalf of the Owners of the Notes. It is intended that the sale, transfer, assignment and conveyance herein contemplated constitute a sale of the Mortgage Loans conveying good title thereto free and clear of any liens and encumbrances from the Seller to the Issuer and that the Mortgage Loans not be part of the Seller's estate in the event of an insolvency. In the event that any such conveyance or a conveyance pursuant to Section 2.8 and any Subsequent Transfer Agreement is deemed to be a loan, the parties intend that the Seller shall be deemed to have granted to the Issuer a security interest of first priority in all of the Seller's right, title and interest in the Mortgage, Mortgage Note and the File, and that this Agreement shall constitute a security agreement under applicable law. In connection with the sale, transfer, assignment, and conveyance, from the Seller to the Issuer, the Seller has filed, in the appropriate office or offices in the States of California and Delaware, a UCC-1 financing statement executed by the Seller as debtor, naming the Issuer as secured party and listing the Mortgage Loans (both Initial Mortgage Loans and Subsequent Mortgage Loans) and the other property described above as collateral. The characterization of the Seller as a debtor and the Issuer as the secured party in such financing statements is solely for protective purposes and shall in no way be construed as being contrary to the intent of the parties that this transaction be treated as a sale of the Seller's entire right, title and interest in the Mortgage Loans and the related Files to the Issuer. In connection with such filing, the Seller shall cause to be filed all necessary continuation statements thereof and to take or cause to be taken such actions and execute such documents as are necessary to perfect and protect the Issuer's and the Owners' interests in the Mortgage Loans and the related Files. In connection with the pledge of the Adjustable Rate Pool by the Issuer to the Indenture Trustee, on behalf of the Owners of the Adjustable Rate Notes, the Issuer has filed, in the appropriate office or offices in the State of Delaware, a UCC-1 Financing Statement executed by the Issuer as debtor, naming the Indenture Trustee, on behalf of the Owners of the Adjustable Rate Notes, as the secured party and listing the Adjustable Rate Mortgage Loans (both Initial Mortgage Loans and Subsequent Mortgage Loans) and the other property described above as collateral. In connection with such filing, the Issuer agrees that it shall cause to be filed all necessary continuation statements thereof and to take or cause to be taken such actions and execute such documents as are necessary to perfect and protect the Indenture Trustee's interest in the Trust Estate on behalf of the Owners of the Adjustable Rate Notes. In connection with the pledge of the Fixed Rate Pool by the Issuer to the Indenture Trustee, on behalf of the Owners of the Fixed Rate Notes, the Issuer has filed, in the appropriate office or offices in the State of Delaware, a UCC-1 Financing Statement executed by the Issuer as debtor, naming the Indenture Trustee, on behalf of the Owners of the Fixed Rate Notes, as the secured party and listing the Fixed Rate Mortgage Loans (both Initial Mortgage Loans and Subsequent Mortgage Loans) and the other property described above as collateral. In connection with such filing, the Issuer agrees that it shall cause to be filed all necessary continuation statements thereof and to take or cause to be taken such actions and execute such documents as are necessary to perfect and protect the Indenture Trustee's interest in the Trust Estate on behalf of the Owners of the Fixed Rate Notes. (b) In connection with the transfer and assignment of the Mortgage Loans, the Seller agrees to: 34 (i) cause to be delivered, on or prior to the Closing Date (except as otherwise stated below) without recourse to the Custodian, on behalf of the Indenture Trustee, on the Closing Date with respect to each Initial Mortgage Loan listed on the Schedule of Mortgage Loans or on each Subsequent Transfer Date with respect to each Subsequent Mortgage Loan: (a) the original Mortgage Notes or certified copies thereof, endorsed without recourse by the related Originator, "Pay to the order of __________________ ____________, without recourse" or, if such Mortgage Notes relate to Adjustable Rate Mortgage Loans "Pay to the order of The Chase Manhattan Bank, as Indenture Trustee for the First Alliance Adjustable Rate Mortgage Loan Asset Backed Notes, Series 1998-2A, without recourse", and if such Mortgage Notes relate to Fixed Rate Mortgage Loans, "Pay to the order of The Chase Manhattan Bank, as Indenture Trustee for the First Alliance Fixed Rate Mortgage Loans Asset Backed Notes, Series 1998-2F, without recourse". In the event that the Mortgage Loan was acquired by the related Originator in a merger, the endorsement must be by the "(related Originator), successor by merger to (name of predecessor)"; and in the event that the Mortgage Loan was acquired or originated by the related Originator while doing business under another name, the endorsement must be by the "(related Originator), formerly known as (previous name)"; (b) originals of all intervening assignments, showing a complete chain of assignment from origination to the related Originator, if any, including warehousing assignments, with evidence of recording thereon (or, if an original intervening assignment has not been returned from the recording office, a certified copy thereof, the original to be delivered to the Custodian, on behalf of the Indenture Trustee forthwith after return); (c) originals of all assumption and modification agreements, if any (or, if an original assumption and/or modification agreement has not been returned from the recording office, a certified copy thereof, the original to be delivered to the Custodian, on behalf of the Indenture Trustee forthwith after return); (d) either (A) the original Mortgage with evidence of recording thereon or a certified copy of the Mortgage as recorded, or (B) if the original Mortgage has not yet been returned from the recording office, a certified copy of the Mortgage, together with a receipt from the recording office or from a title insurance company or a certificate of an Authorized Person of the related Originator indicating that such Mortgage has been delivered for recording; (e) the original assignment of Mortgage for each Adjustable Rate Mortgage Loan conveying the Mortgage to "The Chase Manhattan Bank, as Indenture Trustee of the First Alliance Adjustable Rate Mortgage Loan Asset Backed Notes, Series 1998-2A," and the original assignment of Mortgage for each Mortgage Loan conveying the Mortgage to "The Chase Manhattan Bank, as Indenture Trustee of the First Alliance Fixed Rate Mortgage Loan Asset Backed Notes, Series 1998-2F" which assignment shall be in form and substance acceptable for recording in the state or other jurisdiction where the mortgaged property is located and, within 75 Business Days following the Closing Date, with respect to the Initial Mortgage Loans, or within 75 Business Days of each Subsequent Transfer Date with respect to the Subsequent Mortgage Loans, a recorded assignment of each such Mortgage; provided that in the event that the Mortgage Loan was acquired by the related Originator in a merger, the assignment of Mortgage must be by the "(related Originator), successor by merger to (name of predecessor)"; and in the event that the Mortgage Loan was acquired or originated by the related Originator while doing business under another name, the assignment of Mortgage must be by the "(related Originator), formerly known as (previous name)" (subject to the foregoing, and where permitted under the applicable laws of the jurisdiction where the mortgaged property is located, the assignments of Mortgage 35 may be made by blanket assignments for Mortgage Loans covering mortgaged properties situated within the same county or other permitted governmental subdivision); and (f) evidence of title insurance with respect to the mortgaged property in the form of a binder or commitment. (ii) except with respect to Mortgage Loans covered by opinions of counsel delivered in the manner set forth below ("Assignment Opinions"), cause, as soon as possible but no more than 75 Business Days following the Closing Date, with respect to the Initial Mortgage Loans, or within 75 Business Days of each Subsequent Transfer Date with respect to the Subsequent Mortgage Loans, the Originators to deliver to the Custodian, on behalf of the Indenture Trustee, copies of all Mortgage assignments submitted for recording, together with a list of (x) all Mortgages for which no Mortgage assignment has yet been submitted for recording by the related Originator (y) reasons why the related Originator has not yet submitted such Mortgage assignments for recording; provided, however, that with respect to Mortgage Loans relating to Properties located in the states of Arizona, California, Colorado, District of Columbia, Georgia, Idaho, Illinois, Maryland, Massachusetts, Ohio, Oregon, Pennsylvania, Virginia and Washington, an Originator shall not be required to record an assignment of a Mortgage if the Seller furnishes to the Indenture Trustee and the Note Insurer, on or before the Closing Date with respect to the Initial Mortgage Loans, or on each Subsequent Transfer Date with respect to the Subsequent Mortgage Loans, at the Seller's expense, the Assignment Opinions for the relevant jurisdictions which opine that recording is not necessary to perfect the rights of the Indenture Trustee in the related Mortgage (in form satisfactory to the Note Insurer, Moody's and Standard & Poor's); provided further, however, notwithstanding the delivery of any legal opinions, each assignment of mortgage shall be recorded upon the earliest to occur of: (i) the instructions by the Note Insurer to so record such assignments (such instructions shall be given by the Note Insurer using reasonable discretion) or (ii) the occurrence of an Event of Servicing Termination. With respect to any Mortgage assignment set forth on the aforementioned list which has not been submitted for recording for a reason other than a lack of original recording information or with respect to Mortgages not covered by the Assignment Opinions, the Custodian, on behalf of the Indenture Trustee shall make an immediate demand on the Seller to cause such Mortgage assignments to be prepared and shall inform the Note Insurer of the Seller's failure to cause such Mortgage assignments to be prepared. Thereafter, the Custodian and the Indenture Trustee shall cooperate in executing any documents prepared by the Note Insurer and submitted to the Custodian and the Indenture Trustee in connection with this provision. Following the expiration of the 75- Business Day period following the Closing Date with respect to the Initial Mortgage Loans, or within 75 Business Days of each Subsequent Transfer Date with respect to the Subsequent Mortgage Loans and except with respect to Mortgages covered by the Assignment Opinions, the Seller shall cause to be prepared a Mortgage assignment for any Mortgage for which original recording information is subsequently received by the related Originator and shall promptly deliver a copy of such Mortgage assignment to the Custodian, on behalf of the Indenture Trustee. All recording required pursuant to this Section 2.5 shall be accomplished at the expense of the Originators or of the Seller. Notwithstanding anything to the contrary contained in this Section 2.5, in those instances where the public recording office retains the original Mortgage, the assignment of a Mortgage or the intervening assignments of the Mortgage after it has been recorded, the Seller shall be deemed to have satisfied its obligations hereunder upon delivery to the Custodian, on behalf of the Indenture Trustee, of a copy of such Mortgage, such assignment or assignments of Mortgage certified by the public recording office to be a true copy of the recorded original thereof. Copies of all Mortgage assignments received by the Custodian, on behalf of the Indenture Trustee shall be kept in the related File. (c) In the case of Mortgage Loans which have been prepaid in full on or after the Cut-Off Date and prior to the Closing Date, the Seller, in lieu of the foregoing, will deliver within 15 36 Business Days after the Closing Date to the Indenture Trustee a certification of an Authorized Officer in the form set forth in Exhibit B. (d) The Seller shall transfer, assign, set over and otherwise convey without recourse, to the Issuer all right, title and interest of the Seller in and to any Qualified Replacement Mortgage delivered to the Custodian, on behalf of the Indenture Trustee, on behalf of the Issuer by the Seller pursuant to Section 2.4 or Section 2.6 hereof and all its right, title and interest to principal and interest due on such Qualified Replacement Mortgage after the applicable Replacement Cut-Off Date; provided, however, that the Seller shall reserve and retain all right, title and interest in and to payments of principal and interest due on such Qualified Replacement Mortgage on and prior to the applicable Replacement Cut-Off Date. (e) As to each Mortgage Loan released from the lien of the related Indenture in connection with the conveyance of a Qualified Replacement Mortgage therefor, the Custodian, on behalf of the Indenture Trustee will transfer, assign, set over and otherwise convey without recourse, on the Seller's order, all of its right, title and interest in and to such released Mortgage Loan and all the Issuer's right, title and interest to principal and interest due on such released Mortgage Loan after the applicable Replacement Cut-Off Date; provided, however, that the Issuer shall reserve and retain all right, title and interest in and to payments of principal and interest due on such released Mortgage Loan on and prior to the applicable Replacement Cut-Off Date. (f) In connection with any transfer and assignment of a Qualified Replacement Mortgage to the Issuer, the Seller agrees to cause to be delivered to the Custodian, on behalf of the Indenture Trustee, the items described in Section 2.5(b) on the date of such transfer and assignment or if a later delivery time is permitted by Section 2.5(b) then no later than such later delivery time. (g) As to each Mortgage Loan released from a Mortgage Loan Pool in connection with the conveyance of a Qualified Replacement Mortgage the Custodian, on behalf of the Indenture Trustee, shall deliver on the date of conveyance of such Qualified Replacement Mortgage, and on the order of the Seller (i) the original Mortgage Note, or the certified copy, relating thereto, endorsed without recourse, to the Seller and (ii) such other documents as constituted the File with respect thereto. (h) If a Mortgage assignment is lost during the process of recording, or is returned from the recorder's office unrecorded due to a defect therein, the Seller shall prepare a substitute assignment or cure such defect, as the case may be, and thereafter cause each such assignment to be duly recorded. Section 2.6. Acceptance by Indenture Trustee; Certain Substitutions of Mortgage Loans; Certification by Indenture Trustee. (a) The Indenture Trustee agrees to cause the Custodian to execute and deliver to the Seller, the Issuer, the Servicer and the Note Insurer on the Closing Date an Initial Certification in the form annexed hereto as Exhibit C to the effect that, as to each Mortgage Loan listed in the Schedule of Mortgage Loans (other than any Mortgage Loan paid in full or any Mortgage Loan specifically identified in such certification as not covered by such certification), (i) all documents required to be delivered to it pursuant to this Agreement with respect to such Mortgage Loan are in its possession, (ii) such documents have been reviewed by it and appear regular on their face and relate to such Mortgage Loan and (iii) based on its examination and only as to the foregoing documents, the information set forth on the Schedule of Mortgage Loans as to loan number and address accurately reflects information set forth in the File. Neither the Indenture Trustee nor the Custodian, on behalf of the Indenture Trustee, shall be under any duty or obligation to inspect, review or examine said documents, instruments, certificates or other papers to determine that the same are genuine, enforceable or appropriate for the represented purpose or that they have actually been recorded or that they are other than what they purport to be on their face. Within 90 days of the Closing Date (or, with respect to any document delivered after the Closing Date, within 45 days of receipt thereof and with respect to any Subsequent Mortgage Loan or Qualified Replacement Mortgage, within 45 days after the assignment thereof) the Indenture Trustee shall cause the Custodian to deliver to the Issuer, the Seller, Note 37 Insurer and the Servicer a Final Certification in the form annexed hereto as Exhibit D evidencing the completeness of the Files, with any applicable exceptions noted thereon. (b) If in the process of reviewing the Files and preparing the certifications referred to above the Custodian, on behalf of the Indenture Trustee, finds any document or documents constituting a part of a File which is not properly executed, has not been received within the specified period or is unrelated to the Mortgage Loans identified in the related Schedules of Mortgage Loans, or that any Mortgage Loan does not conform as to loan number and address as set forth in the related Schedules of Mortgage Loans, the Custodian, on behalf of the Indenture Trustee shall promptly notify the Seller and the Note Insurer. The Seller shall use reasonable efforts to cure any such defect within 60 days from the date on which the Seller was notified of such defect, and if the Seller does not cure such defect in all material respects during such period, the Seller will (or will cause the related Originator or an affiliate of the Seller to) on the next succeeding Remittance Date (i) substitute in lieu of such Mortgage Loan a Qualified Replacement Mortgage and deliver the Substitution Amount applicable thereto to the Servicer for deposit in the Principal and Interest Account or (ii) purchase such Mortgage Loan at a purchase price equal to the Loan Purchase Price thereof, which purchase price shall be delivered to the Servicer for deposit in the Principal and Interest Account. Section 2.7. Cooperation Procedures. (a) The Seller shall, in connection with the delivery of each Qualified Replacement Mortgage to the Custodian, on behalf of the Indenture Trustee, provide the Indenture Trustee with the information set forth in the Schedule of Mortgage Loans with respect to such Qualified Replacement Mortgage. (b) The Seller, the Issuer, the Servicer and the Indenture Trustee covenant to provide each other with all data and information required to be provided by them hereunder at the times required hereunder, and additionally covenant reasonably to cooperate with each other in providing any additional information required to be obtained by any of them in connection with their respective duties hereunder. (c) The Servicer shall maintain such accurate and complete accounts, records and computer systems pertaining to each File as shall enable it and the Indenture Trustee to comply with this Agreement. In performing its recordkeeping duties the Servicer shall act in accordance with the servicing standards set forth in this Agreement. The Servicer shall conduct, or cause to be conducted, periodic audits of its accounts, records and computer systems as set forth in Sections 4.16 and 4.17 hereof. The Servicer shall promptly report to the Indenture Trustee any failure on its part to maintain its accounts, records and computer systems as herein provided and promptly take appropriate action to remedy any such failure. (d) The Seller further confirms to the Indenture Trustee that it has caused the portions of the electronic ledger relating to the Mortgage Loans to be clearly and unambiguously marked to indicate that such Mortgage Loans have been sold, transferred, assigned and conveyed to the Issuer and constitute part of the Trust Estate in accordance with the terms of the trust created hereunder and that the Seller will treat the transaction contemplated by such sale, transfer, assignment and conveyance as a sale for accounting purposes. Section 2.8. Conveyance of the Subsequent Mortgage Loans. (a) Subject to the satisfaction of the conditions set forth in Section 2.5 and paragraphs (b), (c) and (d) below (based on the Custodian's review of such conditions) in consideration of the Indenture Trustee's delivery on the relevant Subsequent Transfer Dates to or upon the order of the Seller of all or a portion of the balance of funds in the Pre-Funding Account, the Seller shall on any Subsequent Transfer Date sell, transfer, assign, set over and otherwise convey without recourse, to the Indenture Trustee, all of the Seller's right, title and interest in and to principal and interest (including prepaid interest) due on each Subsequent Mortgage Loan after the Subsequent Cut-Off Date (other than payments of principal and interest due on or before the relevant Subsequent Cut-Off Date), which Subsequent Mortgage Loans shall have been approved by the Note Insurer, and the Seller is causing to be delivered to the Custodian on behalf of the Indenture Trustee herewith (and all substitutions therefor as provided by Sections 2.4 and 2.6) together with the related Subsequent Mortgage Loan documents and the Seller's interest in any Property which secured a Subsequent Mortgage Loan but 38 which has been acquired by foreclosure or deed in lieu of foreclosure, and all payments thereon and proceeds of the conversion, voluntary or involuntary, of the foregoing and proceeds of all the foregoing (including, but not by way of limitation, all proceeds of any mortgage insurance, hazard insurance and title insurance policy relating to the Subsequent Mortgage Loans, cash proceeds, accounts, accounts receivable, notes, drafts, acceptances, chattel paper, checks, deposit accounts, rights to payment of any and every kind, and other forms of obligations and receivables which at any time constitute all or part of or are included in the proceeds of any of the foregoing). The transfer by the Seller of the Subsequent Mortgage Loans set forth on the related Schedule of Mortgage Loans to the Issuer shall be absolute and shall be intended by the Owners and all parties hereto to be treated as a sale by the Seller to the Issuer. Any Subsequent Mortgage Loan so transferred will be included in one (and only one) of the Adjustable Rate Pool or the Fixed Rate Pool. The amount released from the Pre-Funding Account shall be one hundred percent (100%) of the aggregate principal balances of the Subsequent Mortgage Loans so transferred. Upon the transfer by the Seller of the Subsequent Mortgage Loans hereunder, such Subsequent Mortgage Loans (and all principal and interest due thereon subsequent to the Subsequent Cut-Off Date) and all other rights and interests with respect to such Subsequent Mortgage Loans transferred pursuant to a Subsequent Transfer Agreement shall be deemed for all purposes hereunder to be part of the Trust Estate. The Seller hereby covenants and agrees to use its best efforts to ensure that a sufficient amount of Subsequent Mortgage Loans will be transferred to the Issuer during the Funding Period to reduce the Pre-Funded Amount to less than $100,000 for each Mortgage Loan Pool. (b) The obligation of the Indenture Trustee to accept the transfer of the Subsequent Mortgage Loans and the other property and rights related thereto described in paragraph (a) above is subject to the satisfaction of each of the following conditions on or prior to the related Subsequent Transfer Date: (i) the Seller shall have provided the Indenture Trustee and the Note Insurer with an Addition Notice and shall have provided any information reasonably requested by any of the foregoing with respect to the Subsequent Mortgage Loans; (ii) the Seller shall have delivered to the Indenture Trustee a duly executed Subsequent Transfer Agreement (including an acceptance by the Indenture Trustee) in substantially the form of Exhibit G, which shall include a Schedule of Mortgage Loans, listing the Subsequent Mortgage Loans and any other exhibits listed thereon; (iii) the Seller shall have deposited in the Principal and Interest Account all principal collected and interest due in respect of such Subsequent Mortgage Loans on or after the related Subsequent Cut-Off Date; (iv) as of each Subsequent Transfer Date, the Seller is not insolvent, nor will it be made insolvent by such transfer, nor is it aware of any pending insolvency; (v) the Funding Period shall not have ended; (vi) the Seller shall have delivered to the Indenture Trustee and the Note Insurer an Officer's Certificate confirming the satisfaction of each condition precedent specified in items (i) through (v) of this paragraph (b) and paragraphs (c) and (d) below and in the related Subsequent Transfer Agreement; (vii) the Seller shall have delivered to the Indenture Trustee, the Rating Agencies and the Note Insurer opinions of counsel with respect to the transfer of the Subsequent Mortgage Loans substantially in the form of the opinions of counsel delivered to the Note Insurer and the Indenture Trustee on the Closing Date with respect to the Initial Mortgage Loans (bankruptcy, corporate and tax); and 39 (viii) the Note Insurer retains the right to adjust the loss coverage requirements, including, but not limited to the related Specified Subordinated Amount, if a final Mortgage Loan Pool differs materially from the Initial Mortgage Loans in such Mortgage Loan Pool. Prior to any such adjustment, the Note Insurer shall give written notice to the Rating Agencies. (c) The obligation of the Issuer to purchase Subsequent Mortgage Loans on a Subsequent Transfer Date for inclusion in the Adjustable Rate Pool is subject to the following requirements: (i) such Subsequent Mortgage Loan may not be 30 or more days contractually delinquent as of the related Subsequent Cut-Off Date; (ii) the remaining term to maturity of such Subsequent Mortgage Loan may not exceed 30 years; (iii) such Subsequent Mortgage Loan will have a Loan-to-Value Ratio of not more than 85%; (iv) the Note Insurer shall have given its consent to the inclusion of such Subsequent Mortgage Loan and (v) following the purchase of such Subsequent Mortgage Loans by the Issuer, the Mortgage Loans in the Adjustable Rate Pool (including the Subsequent Mortgage Loans included in such Mortgage Loan Pool) (a) will have a weighted average coupon rate of at least 8.74%; (b) will have a weighted average Loan-to-Value Ratio of not more than 62.68%; and (c) will have an average current loan balance not greater than $110,263 and not more than 10% of the Mortgage Loans in the Adjustable Rate Pool may have a principal balance in excess of $200,000, (d) will satisfy the representations and warranties set forth in Section 2.3 hereof and (e) have a first due date no later than September 1, 1998. (d) The obligation of the Issuer to purchase Subsequent Mortgage Loans on a Subsequent Transfer Date for inclusion in the Fixed Rate Pool is subject to the following requirements: (i) such Subsequent Mortgage Loan may not be 30 or more days contractually delinquent as of the related Subsequent Cut-Off Date; (ii) the remaining term to maturity of such Subsequent Mortgage Loan may not exceed 30 years; (iii) such Subsequent Mortgage Loan will have a Combined Loan-to-Value Ratio of not more than 80%; and (iv) the Note Insurer shall have given its consent to the inclusion of such Subsequent Mortgage Loan and (v) following the purchase of such Subsequent Mortgage Loans by the Issuer, the Mortgage Loans in the Fixed Rate Pool (including the Subsequent Mortgage Loans included in such Mortgage Loan Pool) (a) will have a weighted average coupon rate of at least 9.68%; (b) will have a weighted average Combined Loan-to-Value Ratio of not more than 56.47%; and (c) will have an average current loan balance not greater than $76,295 and not more than 10% of the Mortgage Loans in the Fixed Rate Pool may have a principal balance in excess of $200,000, (d) will satisfy the representations and warranties set forth in Section 2.3 hereof and (e) have a first due date no later than September 1, 1998. (e) In connection with each Subsequent Transfer Date and on the Payment Date occurring in July 1998, the Indenture Trustee shall determine: (i) the amount and correct dispositions of the Adjustable Rate Capitalized Interest Requirement, Fixed Rate Capitalized Interest Requirement, Pre-Funding Account Earnings and the Pre-Funded Amount (and the portion of such amounts allocable to the Adjustable Rate Pool and the Fixed Rate Pool) and (ii) any other necessary matters in connection with the administration of the Pre-Funding Account and of the Capitalized Interest Account. In the event that any amounts are released as a result of an error in calculation to the Owners or the Seller from the Pre-Funding Account or from the Capitalized Interest Account, such Owners or the Seller shall immediately repay such amounts to the Trustee. Section 2.9. Books and Records. The sale of each Mortgage Loan shall be reflected in the Seller's balance sheets and other financial statements as a sale of assets by the Seller under generally accepted accounting principles. 40 ARTICLE III ACCOUNTS, DISBURSEMENTS AND RELEASES Section 3.1. Collection of Money. Except as otherwise expressly provided herein, the Indenture Trustee shall demand payment or delivery of all money and other property payable to or receivable by the Indenture Trustee pursuant to this Agreement, including (a) all payments due on the Mortgage Loans in accordance with the respective terms and conditions of such Mortgage Loans and required to be paid over to the Indenture Trustee by the Servicer or by any Sub-Servicer and (b) Insured Payments. The Indenture Trustee shall hold all such money and property received by it as part of the Trust Estate and shall apply it as provided in this Agreement. Section 3.2. Establishment of Accounts. (a) The Seller shall cause to be established, and the Indenture Trustee shall maintain, at the Corporate Trust Office, an Adjustable Rate Note Account, a Fixed Rate Note Account and an Available Funds Cap Carry-Forward Amount Account each to be held by the Indenture Trustee so long as the Indenture Trustee qualifies as a Designated Depository Institution and if the Indenture Trustee does not so qualify, then by any Designated Depository Institution in the name of the Indenture Trustee for the benefit of the Owners of the Notes and the Note Insurer, as their interests may appear. (b) The Seller shall cause to be established, and the Indenture Trustee shall maintain, at the corporate trust office of the Indenture Trustee, a Pre-Funding Account and a Capitalized Interest Account to be held by the Indenture Trustee in the name of the Indenture Trustee for the benefit of the Owners of the Notes and the Note Insurer, as their interests may appear. Section 3.3. The Note Insurance Policies. (a) On the Business Day prior to each Payment Date the Indenture Trustee shall determine with respect to the immediately following Payment Date: (i) the amount on deposit in the Adjustable Rate Note Account on such Payment Date and available to be distributed to the Owners of the Adjustable Rate Notes on such Payment Date (disregarding the sum of (x) the amount of any Insured Payments and (y) the amount of any expected investment earnings) and equal to the sum of (A) such amount excluding the amount of any Adjustable Rate Total Monthly Excess Cashflow included in such amount plus (B) any amount of Adjustable Rate Total Monthly Excess Cashflow to be applied on such Payment Date. The amount described in clause (A) of the preceding sentence with respect to each Payment Date is the "Adjustable Rate Available Funds"; the sum of the amounts described in clauses (A) and (B) of the preceding sentence with respect to each Payment Date is the "Adjustable Rate Total Available Funds." (ii) the amount on deposit in the Fixed Rate Note Account on such Payment Date and available to be distributed to the Owners of the Fixed Rate Notes on such Payment Date (disregarding the sum of (x) the amount of any Insured Payments and (y) the amount of any expected investment earnings) and equal to the sum of (A) such amount excluding the amount of any Fixed Rate Total Monthly Excess Cashflow included in such amount plus (B) any amount of Fixed Rate Total Monthly Excess Cashflow to be applied on such Payment Date. The amount described in clause (A) of the preceding sentence with respect to each Payment Date is the "Fixed Rate Available Funds"; the sum of the amounts described in clauses (A) and (B) of the preceding sentence with respect to each Payment Date is the "Fixed Rate Total Available Funds." (b) If (i) the Adjustable Rate Current Interest for any Payment Date exceeds the Adjustable Rate Total Available Funds for such Payment Date after deducting amounts payable therefrom, if any, for the Adjustable Rate Premium Amount and the Indenture Trustee Fee relating to the Adjustable Rate Pool due on such Payment Date and any amounts available pursuant to Section 3.5(f)(ii)(B) and/or (ii) an Adjustable Rate Subordination Deficit in excess of the Fixed Rate Subordinated Amount exists for such Payment Date (any such event being a "Adjustable Rate Total Available Funds Shortfall"), the Indenture 41 Trustee shall complete a Notice in the form of Exhibit A to the Adjustable Rate Note Insurance Policy and submit such notice to the Note Insurer no later than 12:00 noon New York City time on the Business Day preceding such Payment Date as a claim for an Insured Payment in an amount equal to such Adjustable Rate Total Available Funds Shortfall. Similarly, if (x) the Fixed Rate Current Interest for any Payment Date exceeds the Fixed Rate Total Available Funds for such Payment Date after deducting amounts payable therefrom, if any, for the Fixed Rate Premium Amount and the Indenture Trustee Fee relating to the Fixed Rate Pool due on such Payment Date and any amounts available pursuant to Section 3.5(b)(ii)(B) and/or (y) a Fixed Rate Subordination Deficit in excess of the Adjustable Rate Subordinated Amount exists for such Payment Date (any such event being an "Fixed Rate Total Available Funds Shortfall"), the Indenture Trustee shall complete a Notice in the form of Exhibit A to the Fixed Rate Note Insurance Policy and submit such notice to the Note Insurer no later than 12:00 noon New York City time on the Business Day preceding such Payment Date as a claim for an Insured Payment in an amount equal to such Fixed Rate Total Available Funds Shortfall. (c) The Note Insurer shall forward to the Indenture Trustee Insured Payments at such time and in the manner specified in the related Note Insurance Policy. Upon receipt of Insured Payments from the Note Insurer on behalf of Owners, the Indenture Trustee shall deposit such Insured Payments in the Policy Payments Account and shall distribute such Insured Payments, or the proceeds thereof, in accordance with Sections 3.5(b)(iv) and 3.5(f)(iv) to the Owners of the related Series of Notes. (d) The Indenture Trustee shall (i) receive Insured Payments as attorney-in-fact of each Owner of the Series of Notes receiving any Insured Payment from the Note Insurer and (ii) disburse such Insured Payment to the Owners of such Series of Notes as set forth in Sections 3.5(b)(iv) and 3.5(f)(iv). Insured Payments disbursed by the Indenture Trustee from proceeds of a Note Insurance Policy shall not be considered payment by the Trust nor shall such payments discharge the obligation of the Trust with respect to the Notes, and the Note Insurer shall be entitled to receive the Reimbursement Amount pursuant to Sections 3.5(b)(ii)(B) and 3.5(f)(ii)(B) hereof. Each Owner of Notes by its acceptance thereof recognizes that to the extent the Note Insurer makes Insured Payments, either directly or indirectly (as by paying through the Indenture Trustee), to the Owners of such Notes the Note Insurer will be entitled to receive the Reimbursement Amount pursuant to Sections 3.5(b)(ii)(D) or (E) and 3.5(f)(ii)(B) hereof. (e) On the Final Payment Date for a Series of Notes, the Indenture Trustee shall make a claim against the related Note Insurance Policy in an amount sufficient after the application of related Total Available Funds for such Payment Date to reduce the Note Principal Balance of such Series of Notes to zero and to pay any accrued interest on the Notes. Section 3.4 Pre-Funding Account and Capitalized Interest Account (a) On the Closing Date, the Seller will deposit, on behalf of the Owners of the Notes, in the Pre-Funding Account the Original Pre-Funded Amount, from the proceeds of the sale of the Notes. (b) On the Subsequent Transfer Date, the Seller shall instruct the Indenture Trustee to withdraw from the Pre-Funding Account an amount equal to 100% of the aggregate Loan Balances of the Subsequent Mortgage Loans sold to the Issuer on such Subsequent Transfer Date and pay such amount to or upon the order of the Seller upon satisfaction of the conditions set forth in Sections 2.5 and 2.8 hereof with respect to such transfer; in connection with such instructions the Seller shall additionally inform the Indenture Trustee whether such Subsequent Mortgage Loans are being transferred to the Adjustable Rate Pool or the Fixed Rate Pool. In no event shall the Seller be permitted to instruct the Indenture Trustee to release with respect to Subsequent Mortgage Loans from the Pre-Funding Account to the Adjustable Rate Note Account an amount in excess of the Original Adjustable Rate Pre-Funded Amount or from the Fixed Rate Note Account an amount in excess of the Original Fixed Rate Pre-Funded Amount. (c) On or before the July 1998 Payment Date, the Indenture Trustee shall withdraw from the Pre-Funding Account the amount (exclusive of any related Pre-Funding Account Earnings still on deposit 42 therein) remaining in the Pre-Funding Account and deposit such amount to the related Note Account, for the benefit of the Owners of the related Series of Notes. (d) On or before the July 1998 Payment Date, the Indenture Trustee shall transfer from the Pre-Funding Account to the Capitalized Interest Account, the Pre-Funding Account Earnings, if any, applicable to such Payment Date. (e) On or before the July 1998 Payment Date the Trustee shall transfer from the Capitalized Interest Account to the related Note Account, the Adjustable Rate Capitalized Interest Requirement and the Fixed Rate Capitalized Interest Requirement for such Payment Date. (f) On all amounts, if any, remaining in the Capitalized Interest Account shall be transferred to the Seller on the July 1998 Payment Date. Thereafter, the Capitalized Interest Account shall be closed. Section 3.5. Flow of Funds. (a) The Indenture Trustee shall deposit to the Adjustable Rate Note Account, without duplication, upon receipt, any Insured Payments relating to the Adjustable Rate Notes, the proceeds of any liquidation of the assets of the Adjustable Rate Pool, the Adjustable Rate Monthly Remittance Amount remitted by the Servicer or any Sub-Servicer, together with any Substitution Amounts and any Loan Purchase Price amounts relating to the Adjustable Rate Pool received by the Indenture Trustee. (b) With respect to the Adjustable Rate Note Account, on each Payment Date, the Indenture Trustee shall make the following allocations, disbursements and transfers from amounts deposited therein pursuant to subsection (a), in the following order of priority, and each such allocation, transfer and disbursement shall be treated as having occurred only after all preceding allocations, transfers and disbursements have occurred: (i) first, on each Payment Date from amounts then on deposit in the Adjustable Rate Note Account (A) to the Indenture Trustee, the portion of the Indenture Trustee Fee and to the Owner Trustee, the portion of the Owner Trustee Fee relating to the Adjustable Rate Pool and (B) to the Note Insurer, from amounts then on deposit in the Adjustable Rate Note Account, the Adjustable Rate Premium Amount for such Payment Date; (ii) second, on each Payment Date, the Indenture Trustee shall allocate an amount equal to the sum of (x) the Adjustable Rate Total Monthly Excess Spread with respect to such Payment Date plus (y) any Subordination Reduction Amount with respect to the Adjustable Rate Pool on such Payment Date (such sum being the "Adjustable Rate Total Monthly Excess Cashflow" with respect to such Payment Date) in the following order of priority: (A) first, such Adjustable Rate Total Monthly Excess Cashflow shall be allocated to the payment of the Adjustable Rate Monthly Payment Amount pursuant to clause (iv) below on such Payment Date in an amount equal to the difference, if any, between (x) the Adjustable Rate Monthly Payment Amount (calculated only with respect to clause (y) of the definition of Adjustable Rate Principal Payment Amount and without any Subordination Increase Amount relating to the Adjustable Rate Pool) for such Payment Date and (y) the Adjustable Rate Available Funds for such Payment Date (the amount of such difference being the "Adjustable Rate Available Funds Shortfall"); and (B) second, such Adjustable Rate Total Monthly Excess Cashflow shall be allocated to the payment of the Fixed Rate Current Interest pursuant to clause (f)(iv)(B) below; (C) third, such Adjustable Rate Total Monthly Excess Cashflow shall be allocated to the payment of the Fixed Rate Available Funds Shortfall pursuant to clause (f)(ii)(A) below; 43 (D) fourth, such Adjustable Rate Total Monthly Excess Cashflow shall be allocated to the payment of Adjustable Rate Reimbursement Amount pursuant to clause (b)(iv)(A)(I) below; and (E) fifth, any portion of the Adjustable Rate Total Monthly Excess Cashflow remaining after the allocations described in clause (A), (B), (C) and (D) above shall be allocated to the Note Insurer in respect of amounts owed on account of any Fixed Rate Reimbursement Amount pursuant to clause (f)(iv)(A)(I) below. (iii) third, the amount, if any, of the Adjustable Rate Total Monthly Excess Cashflow on a Payment Date remaining after the allocations described in clause (ii) above is the "Adjustable Rate Net Monthly Excess Cashflow" for such Payment Date; such Adjustable Rate Net Monthly Excess Cashflow is required to be allocated in the following order of priority: (A) first, such Adjustable Rate Net Monthly Excess Cashflow shall be used to reduce to zero, through the allocation of a Subordination Increase Amount relating to the Adjustable Rate Pool to the payment of the Adjustable Rate Monthly Payment Amount pursuant to clause (iv)(C) below, any Subordination Deficiency Amount relating to the Adjustable Rate Pool as of such Payment Date; (B) second, an amount equal to the lesser of (i) any portion of the Adjustable Rate Net Monthly Excess Cashflow remaining after the applications described in clause (A) above and (ii) the excess of (a) the Available Funds Cap Carry-Forward Amount for such Payment Date over (b) the amount then on deposit in the Available Funds Cap Carry-Forward Amount Account shall be allocated to the Available Funds Cap Carry-Forward Amount Account; and (C) third, any Adjustable Rate Net Monthly Excess Cashflow remaining after the applications described in clauses (A) and (B) above shall be allocated to the Servicer pursuant to clause (iv)(A)(II) below to the extent of any unreimbursed Delinquency Advances, unreimbursed Servicing Advances and accrued and unpaid Servicing Fees relating to the Adjustable Rate Pool, in each case as certified to the Indenture Trustee by the Servicer to be owing to it as of such Payment Date; (iv) fourth, following the making by the Indenture Trustee of all allocations, transfers and disbursements described above under Section 3.3 hereof and the prior clauses of this Section 3.5(b), from amounts (including any related Insured Payment which shall be paid only to the Owners of the Adjustable Rate Notes) then on deposit in the Adjustable Rate Note Account, the Indenture Trustee shall: (A) distribute (I) to the Note Insurer the amounts described in clause (ii)(D) above and clause (ii)(E) of Section 3.5(f) below and (II) to the Servicer the amounts described in clause (iii)(C) above; (B) retain in the Adjustable Rate Note Account, the Adjustable Rate Current Interest for such Payment Date (including the proceeds of any Insured Payments relating to interest on the Adjustable Rate Notes made by the Note Insurer); (C) retain in the Adjustable Rate Note Account, the Adjustable Rate Principal Payment Amount for such Payment Date (including the proceeds of any Insured Payments relating to principal on the Adjustable Rate Notes made by the Note Insurer); (D) distribute to the Available Funds Cap Carry-Forward Amount the amount described in clause (iii)(B) above; 44 (E) distribute to the Indenture Trustee, for the reimbursement of expenses of the Indenture Trustee not reimbursed pursuant to clause (b)(i) above which expenses were incurred in connection with its duties and obligations hereunder; and (v) fifth, following the making by the Indenture Trustee of all allocations, transfers and disbursements described above under Section 3.3 hereof and the prior clauses of this Section 3.5(b), from amounts remaining on deposit in the Adjustable Rate Note Account, the Indenture Trustee shall distribute to the Certificate Distribution Account, the Adjustable Rate Residual Net Monthly Excess Cashflow, if any, for such Payment Date. (c) On each Payment Date the Indenture Trustee shall distribute to the Owners the amount, if any, then on deposit in the Available Funds Cap Carry-Forward Amount Account. (d) Notwithstanding clause (b)(iv) above, the aggregate amounts distributed on all Payment Dates to the Owners of the Adjustable Rate Notes on account of principal shall not exceed the Original Adjustable Rate Note Principal Balance. (e) The Indenture Trustee shall deposit to the Fixed Rate Note Account, without duplication, upon receipt, any Insured Payments relating to the Fixed Rate Notes, the proceeds of any liquidation of the assets of the Fixed Rate Pool, the Fixed Rate Monthly Remittance Amount remitted by the Servicer or any Sub-Servicer, together with any Substitution Amounts and any Loan Purchase Price amounts relating to the Fixed Rate Pool received by the Indenture Trustee. (f) With respect to the Fixed Rate Note Account, on each Payment Date, the Indenture Trustee shall make the following allocations, disbursements and transfers from amounts deposited therein pursuant to subsection (e), in the following order of priority, and each such allocation, transfer and disbursement shall be treated as having occurred only after all preceding allocations, transfers and disbursements have occurred: (i) first, on each Payment Date from amounts then on deposit in the Fixed Rate Note Account (A) to the Indenture Trustee, the portion of the Indenture Trustee Fee and to the Owner Trustee, the portion of the Owner Trustee Fee relating to the Fixed Rate Pool and (B) to the Note Insurer, from amounts then on deposit in the Fixed Rate Note Account, the Fixed Rate Premium Amount for such Payment Date; (ii) second, on each Payment Date, the Indenture Trustee shall allocate an amount equal to the sum of (x) the Fixed Rate Total Monthly Excess Spread with respect to such Payment Date plus (y) any Subordination Reduction Amount with respect to the Fixed Rate Pool on such Payment Date (such sum being the "Fixed Rate Total Monthly Excess Cashflow" with respect to such Payment Date) in the following order of priority: (A) first, such Fixed Rate Total Monthly Excess Cashflow shall be allocated to the payment of the Fixed Rate Monthly Payment Amount pursuant to clause (iv) below on such Payment Date in an amount equal to the difference, if any, between (x) the Fixed Rate Monthly Payment Amount (calculated only with respect to clause (y) of the definition of Fixed Rate Principal Payment Amount and without any Subordination Increase Amount relating to the Fixed Rate Pool) for such Payment Date and (y) the Fixed Rate Available Funds for such Payment Date (the amount of such difference being the "Fixed Rate Available Funds Shortfall"); (B) second, such Fixed Rate Total Monthly Excess Cashflow shall be allocated to the payment of the Adjustable Rate Current Interest pursuant to clause (b)(iv)(B) above; 45 (C) third, such Fixed Rate Total Monthly Excess Cashflow shall be allocated to the payment of the Adjustable Rate Available Funds Shortfall pursuant to clause (b)(ii)(A) above; (D) fourth, such Fixed Rate Total Monthly Excess Cashflow shall be allocated to the payment of Fixed Rate Reimbursement Amount pursuant to clause (f)(iv)(A)(I) below; and (E) fifth, any portion of the Fixed Rate Total Monthly Excess Cashflow remaining after the allocations described in clause (A), (B), (C) and (D) above shall be allocated to the Note Insurer in respect of amounts owed on account of any Adjustable Rate Reimbursement Amount pursuant to clause (b)(iv)(A)(I) above. (iii) third, the amount, if any, of the Fixed Rate Total Monthly Excess Cashflow on a Payment Date remaining after the allocations described in clause (ii) above is the "Fixed Rate Net Monthly Excess Cashflow" for such Payment Date; such Fixed Rate Net Monthly Excess Cashflow is required to be allocated in the following order of priority: (A) first, such Fixed Rate Net Monthly Excess Cashflow shall be used to reduce to zero, through the allocation of a Subordination Increase Amount relating to the Fixed Rate Pool to the payment of the Fixed Rate Monthly Payment Amount pursuant to clause (iv)(C) below, any Subordination Deficiency Amount relating to the Fixed Rate Pool as of such Payment Date; (B) second, any Fixed Rate Net Monthly Excess Cashflow remaining after the applications described in clause (A) above shall be allocated to the Servicer pursuant to clause (iv)(A)(II) below to the extent of any unreimbursed Delinquency Advances, unreimbursed Servicing Advances and accrued and unpaid Servicing Fees relating to the Fixed Rate Pool, in each case as certified to the Indenture Trustee by the Servicer to be owing to it as of such Payment Date; (iv) fourth, following the making by the Indenture Trustee of all allocations, transfers and disbursements described above under Section 3.3 hereof and the prior clauses of this Section 3.5(f), from amounts (including any related Insured Payment which shall be paid only to the Owners of the Fixed Rate Notes) then on deposit in the Fixed Rate Note Account, the Indenture Trustee shall: (A) distribute (I) to the Note Insurer the amounts described in clause (ii)(D) above and clause (ii)(E) of Section 3.5(b) above and (II) to the Servicer the amounts described in clause (iii)(B) above; (B) retain in the Fixed Rate Note Account, the Fixed Rate Current Interest for such Payment Date (including the proceeds of any Insured Payments relating to interest on the Fixed Rate Notes made by the Note Insurer); (C) retain in the Fixed Rate Note Account, the Fixed Rate Principal Payment Amount for such Payment Date (including the proceeds of any Insured Payments relating to principal on the Fixed Rate Notes made by the Note Insurer); (D) distribute to the Indenture Trustee, for the reimbursement of expenses of the Indenture Trustee not reimbursed pursuant to clause (f)(i) above which expenses were incurred in connection with its duties and obligations hereunder; and (v) fifth, following the making by the Indenture Trustee of all allocations, transfers and disbursements described above under Section 3.3 hereof and the prior clauses of this Section 3.5(f), from amounts remaining on deposit in the Fixed Rate Note Account, the Indenture 46 Trustee shall distribute to the Certificate Distribution Account, the Fixed Rate Residual Net Monthly Excess Cashflow, if any, for such Payment Date. (g) Notwithstanding clause (f)(iv) above, the aggregate amounts distributed on all Payment Dates to the Owners of the Fixed Rate Notes on account of principal shall not exceed the Original Fixed Rate Note Principal Balance. Section 3.6. Investment of Accounts. (a) So long as no event described in Sections 4.20(a) or (b) hereof shall have occurred and be continuing, and consistent with any requirements of the Code, all or a portion of the Accounts held by the Indenture Trustee shall be invested and reinvested by the Indenture Trustee for the benefit of the Owners and the Note Insurer, as their interests may appear, directed in writing by the Servicer on the Closing Date and from time to time thereafter, in one or more Eligible Investments bearing interest or sold at a discount. During the continuance of an event described in Sections 4.20(a) or (b) hereof and following any removal of the Servicer, the Note Insurer shall direct such investments. No investment in any Account shall mature later than the second Business Day preceding the next Payment Date. (b) If any amounts are needed for disbursement from any Account held by the Indenture Trustee and sufficient uninvested funds are not available to make such disbursement, the Indenture Trustee shall cause to be sold or otherwise converted to cash a sufficient amount of the investments in such Account. No investments will be liquidated prior to maturity unless the proceeds thereof are needed for disbursement. (c) Subject to the terms of the Indenture, the Indenture Trustee shall not in any way be held liable by reason of any insufficiency in any Account held by the Indenture Trustee resulting from any loss on any Eligible Investment included therein. (d) The Indenture Trustee shall hold funds in the Accounts held by the Indenture Trustee uninvested upon the occurrence of either of the following events: (i) the Servicer or the Note Insurer, as the case may be, shall have failed to give investment directions to the Indenture Trustee within ten days after receipt of a written request for such directions from the Indenture Trustee; or (ii) the Servicer or the Note Insurer, as the case may be, shall have failed to give investment directions to the Indenture Trustee with respect to any investment by the Indenture Trustee that shall mature during the ten-day period described in clause (i). (e) For purposes of investment, the Indenture Trustee shall aggregate all amounts on deposit in each Account. All income or other gain from investments in any Account shall be deposited in such Account immediately on receipt, and any loss resulting from such investments shall be charged to the Seller, and upon request by the Indenture Trustee, the Seller shall reimburse the Trust Estate for such losses. (f) Each institution at which the Note Account is maintained shall invest the funds therein in Eligible Investments, which shall mature not later than the Business Day next preceding the related Payment Date (except that if such Eligible Investment is an obligation of the institution that maintains such account, then such Eligible Investment shall mature not later than such Payment Date) and, in each case, shall not be sold or disposed of prior to its maturity. All such Eligible Investments shall be made in the name of the Indenture Trustee, for the benefit of the Owners and the Note Insurer. All income and gain (net of any losses) realized from any such investment of funds on deposit in the Note Account shall be for the benefit of the Servicer as servicing compensation and shall be remitted to it monthly as provided herein. The amount of any realized losses in the Note Account incurred in any such account in respect of any such investments shall promptly be deposited by the Servicer in the Note Account or paid to the Indenture Trustee as applicable. The Indenture Trustee in its fiduciary capacity shall not be liable for the amount of any loss incurred in respect of any investment or lack of investment of funds held in the Note Account and made in accordance with this Section 3.6(f). 47 (g) The Servicer shall give notice to the Indenture Trustee, the Seller, the Issuer, each Rating Agency, and the Note Insurer of any proposed change of the location of the Note Account not later than 30 days and not more than 45 days prior to any change thereof. Section 3.7. Eligible Investments. The following are Eligible Investments: (a) Direct general obligations of the United States or the obligations of any agency or instrumentality of the United States fully and unconditionally guaranteed, the timely payment or the guarantee of which constitutes a full faith and credit obligation of the United States. (b) Federal funds, Notes of deposit, time and demand deposits, and bankers' acceptances (having original maturities of not more than 365 days) of any domestic bank, the short-term debt obligations of which have been rated A-1 or better by Standard & Poor's and P-1 by Moody's. (c) Investment agreements approved by the Note Insurer provided: 1. The agreement is with a bank or insurance company which has an unsecured, uninsured and unguaranteed obligation (or claims-paying ability) rated Aa2 or better by Moody's and AA or better by Standard & Poor's, 2. Moneys invested thereunder may be withdrawn without any penalty, premium or charge upon not more than one day's notice (provided such notice may be amended or canceled at any time prior to the withdrawal date), 3. The agreement is not subordinated to any other obligations of such insurance company or bank, 4. The same guaranteed interest rate will be paid on any future deposits made pursuant to such agreement, and 5. The Indenture Trustee and the Note Insurer receive an opinion of counsel that such agreement is an enforceable obligation of such insurance company or bank. (d) Commercial paper (having original maturities of not more than 365 days) rated A-1 or better by Standard & Poor's and P-1 or better by Moody's. (e) Investments in no load money market funds rated AAAm or AAAm-G by Standard & Poor's and Aaa by Moody's. (f) Investments approved in writing by the Note Insurer and acceptable to Moody's and Standard & Poor's. provided that no instrument described above is permitted to evidence either the right to receive (a) only interest with respect to obligations underlying such instrument or (b) both principal and interest payments derived from obligations underlying such instrument and the interest and principal payments with respect to such instrument provided a yield to maturity at par greater than 120% of the yield to maturity at par of the underlying obligations; and provided, further, that no instrument described above may be purchased at a price greater than par. Section 3.8. Reports by Indenture Trustee. (a) On each Payment Date the Indenture Trustee shall provide to each Owner, the Owner Trustee, the Servicer, the Note Insurer, the Underwriter, the Servicer, Standard & Poor's and Moody's a written report (based solely upon the information contained in the Monthly Servicing Report) in substantially the form set forth as Exhibit E hereto, as such form may be revised by the Indenture Trustee, the Servicer, Moody's and Standard & Poor's from time to time, but in every case setting forth the information requested on Exhibit E hereto and the following information: 48 (i) the amount of the distribution with respect to each Series of Notes and the Certificates; (ii) the amount of such distributions allocable to principal, separately identifying the aggregate amount of any Prepayments or Prepaid Installments of principal included therein and any Subordination Increase Amounts with respect to the related Mortgage Loan Pool; (iii) the amount of such distributions allocable to interest; (iv) the Note Principal Balance for each Series of Notes as of such Payment Date together with the principal amount of such Notes (based on a Note in an original principal amount of $1,000) then outstanding, in each case after giving effect to any payment of principal on such Payment Date; (v) the amount of any Insured Payment included for each Series of Notes in the amounts distributed with respect to such Series of Notes on such Payment Date; (vi) information to the extent and in the form furnished by the Seller pursuant to Section 6049(d)(7)(C) of the Code and the regulations promulgated thereunder to assist the Owners in computing their market discount; (vii) the total of any Substitution Amounts and any Loan Purchase Price amounts included in such distribution; (viii) the amount of any Subordination Reduction Amount for a Mortgage Loan Pool; (ix) the amounts, if any, of any Realized Losses for a Mortgage Loan Pool for the related Remittance Period and the cumulative amount of Realized Losses for a Mortgage Loan Pool since the Closing Date; (x) for the related Remittance Period and cumulatively since the Closing Date, the number and aggregate Loan Balance of Mortgage Loans in such Mortgage Loan Pool bought back by the Servicer or the Seller pursuant to Sections 2.4, 2.6 and 4.10 (identified separately for each such section); (xi) the amount of any Available Funds Cap Carry-Forward Amount; and (xii) identify any loans purchased by the Servicer pursuant to Section 4.10. Items (i) through (iii) above shall be presented on the basis of a Note having a $1,000 denomination. In addition, by January 31 of each calendar year following any year during which the Notes are outstanding, the Indenture Trustee shall furnish a report to each Owner of record at any time during each calendar year as to the aggregate of amounts reported pursuant to (i), (ii) and (iii) with respect to the Notes for such calendar year. (b) In addition, on each Payment Date the Indenture Trustee will distribute to each Owner, the Owner Trustee, the Note Insurer, the Underwriter, the Servicer, the Seller, Standard & Poor's and Moody's, together with the information described in Subsection (a) preceding, the following information with respect to each Mortgage Loan Pool as of the last day of the related Remittance Period, which is hereby required to be prepared by the Servicer and furnished to the Indenture Trustee for such purpose on or prior to the related Remittance Date: 49 (i) the total number of Mortgage Loans in each Mortgage Loan Pool and the aggregate Loan Balances thereof, and the percentage (based on the aggregate Loan Balances of the Mortgage Loans in such Mortgage Loan Pool) (a) 30-59 days Delinquent, (b) 60-89 days Delinquent and (c) 90 or more days Delinquent; (ii) the number and aggregate Loan Balances of all Mortgage Loans in each Mortgage Loan Pool and percentage (based on the aggregate Loan Balances of the Mortgage Loans in such Mortgage Loan Pool) in foreclosure proceedings (and whether any such Mortgage Loans are also included in any of the statistics described in the foregoing clause (i)); (iii) the number, aggregate Loan Balances of all Mortgage Loans in each Mortgage Loan Pool and percentage (based on the aggregate Loan Balances of the Mortgage Loans in such Mortgage Loan Pool) relating to Mortgagors in bankruptcy proceedings (and whether any such Mortgage Loans are also included in any of the statistics described in the foregoing clause (i)); (iv) the number, aggregate Loan Balances of all Mortgage Loans in each Mortgage Loan Pool and percentage (based on the aggregate Loan Balances of the Mortgage Loans in such Mortgage Loan Pool) relating to REO Properties (and whether any such Mortgage Loans are also included in any of the statistics described in the foregoing clause (i)); (v) the aggregate Loan Balance of all Mortgage Loans in each Mortgage Loan Pool, after giving effect to any payment of principal on such Payment Date; and (vi) the book value of any REO Property in each Mortgage Loan Pool. Section 3.9. Additional Reports by Indenture Trustee. (a) The Indenture Trustee shall report to the Owner Trustee, the Seller, the Servicer, Standard & Poor's, Moody's and the Note Insurer with respect to the amount then held in each Account (including investment earnings accrued or scheduled to accrue) held by the Indenture Trustee and the identity of the investments included therein, as the Seller, the Servicer or the Note Insurer may from time to time request. (b) Not later than 20 days after each Payment Date, the Indenture Trustee shall forward to the Seller, the Servicer and the Note Insurer a statement, setting forth the status of the Note Account as of the close of business on the last Business Day of the related Remittance Period showing, for the period covered by such statement, the aggregate of deposits into and withdrawals from the Note Account. ARTICLE IV SERVICING AND ADMINISTRATION OF MORTGAGE LOANS Section 4.1. Servicer and Sub-Servicers. (a) Acting directly or through one or more Sub-Servicers as provided in Section 4.3, the Servicer, as servicer, shall service and administer the Mortgage Loans in accordance with this Agreement and with reasonable care, and using that degree of skill and attention that the Servicer exercises with respect to comparable mortgage loans that it services for itself or others, and shall have full power and authority, acting alone, to do or cause to be done any and all things in connection with such servicing and administration which it may deem necessary or desirable. (b) The duties of the Servicer shall include collecting and posting of all payments, responding to inquiries of Mortgagors or by federal, state or local government authorities with respect to the Mortgage Loans, investigating delinquencies, reporting tax information to Mortgagors in accordance with its customary practices and accounting for collections, furnishing monthly and annual statements to the Indenture Trustee with respect to distributions, paying Compensating Interest and making Delinquency Advances and Servicing Advances pursuant hereto. The Servicer shall follow its customary standards, policies and procedures in performing its duties as Servicer. The Servicer shall cooperate with the Indenture 50 Trustee and furnish to the Indenture Trustee with reasonable promptness information in its possession as may be necessary or appropriate to enable the Indenture Trustee to perform its tax reporting duties hereunder. The Indenture Trustee shall furnish the Servicer with any powers of attorney and other documents necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties hereunder. (c) Without limiting the generality of the foregoing, the Servicer (i) shall continue, and is hereby authorized and empowered by the Indenture Trustee, to execute and deliver, on behalf of itself, the Owners, the Issuer and the Indenture Trustee or any of them, any and all instruments of satisfaction or cancellation, or of partial or full release or discharge and all other comparable instruments, with respect to the Mortgage Loans and with respect to the related Properties; (ii) may consent to any modification of the terms of any Mortgage Note not expressly prohibited hereby if the effect of any such modification will not be to affect materially and adversely the security afforded by the related Property, the timing of receipt of any payments required hereby or the interests of the Note Insurer. (d) With the consent of the Note Insurer, the Servicer may, and is hereby authorized to, perform any of its servicing responsibilities with respect to all or certain of the Mortgage Loans through a Sub-Servicer as it may from time to time designate but no such designation of a Sub-Servicer shall serve to release the Servicer from any of its obligations under this Agreement. Such Sub-Servicer shall have all the rights and powers of the Servicer with respect to such Mortgage Loans under this Agreement. (e) Without limiting the generality of the foregoing, but subject to Sections 4.13 and 4.14, the Servicer in its own name or in the name of a Sub-Servicer may be authorized and empowered pursuant to a power of attorney executed and delivered by the Indenture Trustee to execute and deliver, on behalf of itself, the Owners, the Issuer and the Indenture Trustee or any of them, (i) any and all instruments of satisfaction or cancellation or of partial or full release or discharge and all other comparable instruments with respect to the Mortgage Loans and with respect to the Properties, (ii) to institute foreclosure proceedings or obtain a deed in lieu of foreclosure so as to effect ownership of any Property on behalf of the Indenture Trustee and (iii) to hold title to any Property upon such foreclosure or deed in lieu of foreclosure on behalf of the Indenture Trustee; provided, however, that Section 4.14(a) shall constitute a power of attorney from the Issuer and the Indenture Trustee to the Servicer to execute an instrument of satisfaction (or assignment of mortgage without recourse) with respect to any Mortgage Loan paid in full (or with respect to which payment in full has been escrowed). Subject to Sections 4.13 and 4.14, the Indenture Trustee shall execute a power of attorney to the Servicer and any Sub-Servicer and furnish them with any other documents as the Servicer or such Sub-Servicer shall reasonably request to enable the Servicer and such Sub-Servicer to carry out their respective servicing and administrative duties hereunder. (f) The Servicer shall give prompt notice to the Indenture Trustee, the Issuer and the Note Insurer of any action, of which the Servicer has actual knowledge, to (i) assert a claim against the Trust or (ii) assert jurisdiction over the Trust. () Servicing Advances incurred by the Servicer or any Sub-Servicer in connection with the servicing of the Mortgage Loans (including any penalties in connection with the payment of any taxes and assessments or other charges) on any Property shall be recoverable by the Servicer or such Sub-Servicer to the extent described in Section 4.9(c) and in Sections 3.5(b)(iii)(C) and 3.5(f)(iii)(B) hereof. Section 4.2. Collection of Certain Mortgage Loan Payments. (a) The Servicer shall, to the extent such procedures shall be consistent with this Agreement and the terms and provisions of any applicable Insurance Policies follow such collection procedures as it follows from time to time with respect to mortgage loans in its servicing portfolio that are comparable to the Mortgage Loans; provided that the Servicer shall always at least follow collection procedures that are consistent with or better than standard industry practices. Consistent with the foregoing, the Servicer may in its discretion (i) waive any assumption fees, late payment charges, charges for checks returned for insufficient funds, prepayment fees, if any, or other fees which may be collected in the ordinary course of servicing the Mortgage Loans, (ii) if a Mortgagor is in default or about to be in default because of a Mortgagor's financial condition, arrange with the Mortgagor a schedule for the payment of delinquent payments due on the related Mortgage Loan; provided, 51 however, the Servicer shall not reschedule the payment of delinquent payments more than one time in any twelve (12) consecutive months with respect to any Mortgagor or (iii) modify payments of monthly principal and interest on any Mortgage Loan becoming subject to the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended, in accordance with the Servicer's general policies of the comparable mortgage loans subject to such Act. (b) The Servicer shall hold in escrow on behalf of the related Mortgagor all Prepaid Installments received by it, and shall apply such Prepaid Installments as directed by such Mortgagor and as set forth in the related Mortgage Note. Section 4.3. Sub-Servicing Agreements Between Servicer and Sub-Servicers. The Servicer may enter into Sub-Servicing Agreements for any servicing and administration of Mortgage Loans with any institution which is acceptable to the Note Insurer and which is in compliance with the laws of each state necessary to enable it to perform its obligations under such Sub-Servicing Agreement and (x) has (i) been designated an approved seller-servicer by FHLMC or Fannie Mae for Mortgage Loans and (ii) has equity of at least $5,000,000, as determined in accordance with generally accepted accounting principles or (y) is a Servicer Affiliate. The Servicer shall give notice to the Note Insurer, the Rating Agencies and the Indenture Trustee of the appointment of any Sub-Servicer and shall furnish to the Note Insurer and the Indenture Trustee a copy of such Sub-Servicing Agreement. For purposes of this Agreement, the Servicer shall be deemed to have received payments on Mortgage Loans when any Sub-Servicer has received such payments. Any such Sub-Servicing Agreement shall be consistent with and not violate the provisions of this Agreement. Section 4.4. Successor Sub-Servicers. With the consent of the Note Insurer, the Servicer may terminate any Sub-Servicing Agreement in accordance with the terms and conditions of such Sub-Servicing Agreement and either itself directly service the related Mortgage Loans or enter into a Sub- Servicing Agreement with a successor Sub-Servicer that qualifies under Section 4.3. Section 4.5. Liability of Servicer. The Servicer shall not be relieved of its obligations under this Agreement notwithstanding any Sub-Servicing Agreement or any of the provisions of this Agreement relating to agreements or arrangements between the Servicer and a Sub-Servicer or otherwise, and the Servicer shall be obligated to the same extent and under the same terms and conditions as if it alone were servicing and administering the Mortgage Loans. The Servicer shall be entitled to enter into any agreement with a Sub-Servicer for indemnification of the Servicer by such Sub-Servicer and nothing contained in such Sub-Servicing Agreement shall be deemed to limit or modify this Agreement. The Trust shall not indemnify the Servicer for any losses due to the Servicer's negligence. Section 4.6. No Contractual Relationship Between Sub-Servicer and Indenture Trustee or the Owners. Any Sub-Servicing Agreement and any other transactions or services relating to the Mortgage Loans involving a Sub-Servicer shall be deemed to be between the Sub-Servicer and the Servicer alone and the Note Insurer, the Indenture Trustee and the Owners shall not be deemed parties thereto and shall have no claims, rights, obligations, duties or liabilities with respect to any Sub-Servicer except as set forth in Section 4.7. Section 4.7. Assumption or Termination of Sub-Servicing Agreement by Indenture Trustee. In connection with the assumption of the responsibilities, duties and liabilities and of the authority, power and rights of the Servicer hereunder by the Indenture Trustee pursuant to Section 4.20, it is understood and agreed that the Servicer's rights and obligations under any Sub-Servicing Agreement then in force between the Servicer and a Sub-Servicer may be assumed or terminated by the Indenture Trustee at the Note Insurer's option without the payment of a fee notwithstanding any contrary provision in any Sub-Servicing Agreement. The Servicer shall, upon reasonable request of the Indenture Trustee, but at the expense of the Servicer, deliver to the assuming party documents and records relating to each Sub-Servicing Agreement 52 and an accounting of amounts collected and held by it and otherwise use its best reasonable efforts to effect the orderly and efficient transfer of the Sub-Servicing Agreements to the assuming party. Section 4.8. Principal and Interest Account. (a) The Servicer shall establish in the name of the Trust for the benefit of the Owners of each Series of the Notes and the Note Insurer and maintain at one or more Designated Depository Institutions the Principal and Interest Account. The funds held in the Principal and Interest Account shall not be commingled with any other funds. Subject to Subsection (c) below, the Servicer and any Sub-Servicer shall deposit all receipts related to the Mortgage Loans into the Principal and Interest Account on a daily basis (but no later than the first Business Day after receipt). Subject to Subsection (c) below on the Closing Date, the Seller and/or the Servicer shall deposit into the Principal and Interest Account all receipts related to the related Mortgage Loans received after the Cut-Off Date. (b) Any investment of funds in the Principal and Interest Account shall mature or be withdrawable at par on or prior to the immediately succeeding Remittance Date. All funds in the Principal and Interest Account may only be held (i) uninvested, up to the limits insured by the FDIC or (ii) invested in Eligible Investments. The Principal and Interest Account shall be held in trust in the name of the Trust and for the benefit of the Owners of the Notes. Any investment earnings on funds held in the Principal and Interest Account shall be for the account of the Servicer and may only be withdrawn from the Principal and Interest Account by the Servicer on the second Business Day of the month for the investment earnings for the previous calendar month. The Servicer shall withdraw from the Principal and Interest Account, on the second Business Day of the month, investment earnings for the previous calendar month. The Servicer shall deposit into the Principal and Interest Account the amount of all losses on investment of funds in the Principal and Interest Account. Any references herein to amounts on deposit in the Principal and Interest Account shall refer to amounts net of investment earnings. (c) The Servicer shall deposit to the Principal and Interest Account all principal and interest collections on the Mortgage Loans received after the Cut-Off Date, including any Prepayments and Net Liquidation Proceeds, all Loan Purchase Prices and Substitution Amounts received or paid by the Servicer with respect to the Mortgage Loans, other recoveries or amounts related to the Mortgage Loans received by the Servicer, Compensating Interest and Delinquency Advances together with any amounts which are reimbursable from the Principal and Interest Account but net of (i) the Servicing Fee with respect to each Mortgage Loan and other servicing compensation to the Servicer as permitted by Section 4.15 hereof, (ii) principal (including Prepayments) due on the related Mortgage Loans on or prior to the Cut-Off Date, (iii) interest due on the related Mortgage Loans on or prior to the Cut-Off Date and (iv) Net Liquidation Proceeds to the extent such Net Liquidation Proceeds exceed the Loan Balance of the related Mortgage Loan. (d) (i) The Servicer may make withdrawals from the Principal and Interest Account only for the following purposes: (A) to effect the timely remittance to the Indenture Trustee of the Monthly Remittance Amounts due on the Remittance Date; (B) to reimburse itself pursuant to Section 4.9(a) hereof for unrecovered Delinquency Advances and Servicing Advances; (C) to withdraw investment earnings on amounts on deposit in the Principal and Interest Account; 53 (D) to withdraw amounts that have been deposited to the Principal and Interest Account in error; and (E) to clear and terminate the Principal and Interest Account following the termination of the Trust pursuant to Article V hereof. (ii) On the Determination Date of each month, commencing in July 1998, the Servicer shall send to the Indenture Trustee the Monthly Exception Report detailing the payments on the Mortgage Loans during the prior Remittance Period and certifying the amounts and purpose of withdrawals permitted pursuant to (d) above from the Principal and Interest Account. Such report shall contain the specified data, as described in Section 4.26 hereof, and shall be in the form and have the specifications as may be agreed to between the Servicer, the Note Insurer and the Indenture Trustee from time to time. (iii) On each Remittance Date, commencing in July 1998 the Servicer shall remit to the Indenture Trustee by wire transfer, or otherwise make funds available in immediately available funds for deposit to the Adjustable Rate Note Account, the Adjustable Rate Interest Remittance Amount for such Remittance Date and the Adjustable Rate Principal Remittance Amount for such Remittance Date. (iv) On each Remittance Date, commencing in July 1998 the Servicer shall remit to the Indenture Trustee by wire transfer, or otherwise make funds available in immediately available funds for deposit to the Fixed Rate Note Account, the Fixed Rate Interest Remittance Amount for such Remittance Date and the Fixed Rate Principal Remittance Amount for such Remittance Date. Section 4.9. Delinquency Advances, Compensating Interest and Servicing Advances. (a) The Servicer is required, not later than each Remittance Date, to deposit into the Principal and Interest Account an amount equal to the sum of (i) the interest due (net of the Servicing Fees due) but not collected as of the last day of the related Remittance Period and (ii) scheduled principal due, but not collected as of the last day of the related Remittance Period, with respect to Delinquent Mortgage Loans during the related Due Period but only if, in its good faith business judgment, the Servicer reasonably believes that such amount will ultimately be recovered from the related Mortgage Loan. Such amounts are "Delinquency Advances". The Servicer shall be permitted to fund its payment of Delinquency Advances on any Remittance Date and to reimburse itself for any Delinquency Advances paid from the Servicer's own funds, from collections on any Mortgage Loan in the same Mortgage Loan Group deposited to the Principal and Interest Account subsequent to the related Due Period and shall deposit into the Principal and Interest Account with respect thereto (i) collections from the Mortgagor whose Delinquency gave rise to the shortfall which resulted in such Delinquency Advance, (ii) on the Remittance Date in July 1998, interest accrued on each Subsequent Mortgage Loan transferred to the Issuer during the Funding Period and (iii) Net Liquidation Proceeds recovered on account of the related Mortgage Loan to the extent of the amount of aggregate Delinquency Advances related thereto. If not thereto recovered from the related Mortgagor or the related Net Liquidation Proceeds, Delinquency Advances shall be recoverable pursuant to Section 3.5(b)(iii)(C) or 3.5(f)(iii)(B). (b) On or prior to each Remittance Date, the Servicer shall deposit in the Principal and Interest Account with respect to any Paid-in-Full Mortgage Loan during the related Remittance Period out of its own funds without any right of reimbursement therefor an amount equal to the difference between (x) 30 days' interest at such Mortgage Loan's Coupon Rate (less the Servicing Fee Rate) on the Loan Balance of such Mortgage Loan as of the first day of the related Remittance Period and (y) to the extent not previously advanced, the interest (less the Servicing Fee) paid by the Mortgagor with respect to the Mortgage Loan during such Remittance Period (any such amount paid by the Servicer, "Compensating Interest"). The Servicer shall in no event be required to pay Compensating Interest with respect to any Remittance Period in an amount in excess of the aggregate Servicing Fee received by the Servicer with respect to all Mortgage Loans for such Remittance Period. Further, the Servicer is not obligated to cover shortfalls in collections in interest due to Curtailments. Prepayment Interest Shortfalls resulting from partial prepayments will not be offset by the Servicing Fee or otherwise. 54 (c) The Servicer will pay all "out-of-pocket" costs and expenses incurred in the performance of its servicing obligations, including, but not limited to, the cost of (i) Preservation Expenses, (ii) any enforcement or judicial proceedings, including foreclosures, and (iii) the management and liquidation of REO Property, but is only required to pay such costs and expenses to the extent the Servicer reasonably believes such costs and expenses will increase Net Liquidation Proceeds on the related Mortgage Loan. Each such amount so paid will constitute a "Servicing Advance". The Servicer may recover Servicing Advances (x) from the Mortgagors to the extent permitted by the Mortgage Loans, from Liquidation Proceeds realized upon the liquidation of the related Mortgage Loan, and (y) as provided in Section 3.5(b)(iii)(C) or 3.5(f)(iii)(B) hereof. In no case may the Servicer recover Servicing Advances from principal and interest payments on any Mortgage Loan or from any amounts relating to any other Mortgage Loan except as provided pursuant to Section 3.5(b)(iii)(C) or 3.5(f)(iii)(B) hereof. Section 4.10. Purchase of Mortgage Loans. The Servicer may, but is not obligated to, purchase for its own account any Mortgage Loan which becomes Delinquent, in whole or in part, as to four consecutive monthly installments or any Mortgage Loan as to which enforcement proceedings have been brought by the Servicer or by any Sub-Servicer pursuant to Section 4.13; provided, that after the amount of such purchases exceeds 3% of the sum of the Adjustable Rate Maximum Collateral Amount and the Fixed Rate Maximum Collateral Amount the Servicer shall either (x) purchase only the Mortgage Loan that is the greatest number of days Delinquent or (y) obtain the consent of the Note Insurer prior to such purchase. Any such Loan so purchased shall be purchased by the Servicer not later than the related Remittance Date at a purchase price equal to the Loan Purchase Price thereof, which purchase price shall be deposited in the Principal and Interest Account. Section 4.11. Maintenance of Insurance. (a) The Servicer shall cause to be maintained with respect to each Mortgage Loan a hazard insurance policy with a generally acceptable carrier that provides for fire and extended coverage, and which provides for a recovery by the Servicer on behalf of the Trust of insurance proceeds relating to such Mortgage Loan in an amount not less than the least of (i) the outstanding principal balance of the Mortgage Loan, (ii) the minimum amount required to compensate for damage or loss on a replacement cost basis and (iii) the full insurable value of the premises. (b) If the Mortgage Loan at the time of origination relates to a Property in an area identified in the Federal Register by the Federal Emergency Management Agency as having special flood hazards, the Servicer will cause to be maintained with respect thereto a flood insurance policy in a form meeting the requirements of the current guidelines of the Federal Insurance Administration with a generally acceptable carrier in an amount representing coverage, and which provides for a recovery by the Servicer on behalf of the Trust of insurance proceeds relating to such Mortgage Loan of not less than the least of (i) the outstanding principal balance of the Mortgage Loan, (ii) the minimum amount required to compensate for damage or loss on a replacement cost basis and (iii) the maximum amount of insurance that is available under the Flood Disaster Protection Act of 1973. The Servicer shall indemnify the Trust and the Note Insurer out of the Servicer's own funds for any loss to the Trust and the Note Insurer resulting from the Servicer's failure to maintain the insurance required by this Section. (c) In the event that the Servicer shall obtain and maintain a blanket policy insuring against fire, flood and hazards of extended coverage on all of the Mortgage Loans, then, to the extent such policy names the Servicer as loss payee and provides coverage in an amount equal to the aggregate unpaid principal balance on the Mortgage Loans without co-insurance and otherwise complies with the requirements of this Section 4.11, the Servicer shall be deemed conclusively to have satisfied its obligations with respect to fire and hazard insurance coverage under this Section 4.11, it being understood and agreed that such blanket 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 Property a policy complying with the preceding paragraphs of this Section 4.11, and there shall have been a loss which would have been covered by such policy, deposit in the Principal and Interest Account from the Servicer's own funds the difference, if any, between the amount that would have been payable under a policy complying with the preceding paragraphs of this Section 4.11 and the amount paid under such blanket policy. Upon the request of the Indenture Trustee or the Note Insurer, 55 the Servicer shall cause to be delivered to the Indenture Trustee or the Note Insurer a certified true copy of such policy. Section 4.12. Due-on-Sale Clauses; Assumption and Substitution Agreements. When a Property has been or is about to be conveyed by the Mortgagor, the Servicer shall, to the extent it has knowledge of such conveyance or prospective conveyance, exercise its rights to accelerate the maturity of the related Mortgage Loan under any "due-on-sale" clause contained in the related Mortgage or Mortgage Note; provided, however, that the Servicer shall not exercise any such right if (i) the "due-on-sale" clause, in the reasonable belief of the Servicer, is not enforceable under applicable law or (ii) the Servicer reasonably believes that to permit an assumption of the Mortgage Loan would not materially and adversely affect the interest of the Owners or of the Note Insurer. In such event, the Servicer shall enter into an assumption and modification agreement with the person to whom such property has been or is about to be conveyed, pursuant to which such Person becomes liable under the Mortgage Note and, unless prohibited by applicable law or the related Mortgage Loan documents, the Mortgagor remains liable thereon. If the foregoing is not permitted under applicable law, the Servicer is authorized to enter into a substitution of liability agreement with such person, pursuant to which the original Mortgagor is released from liability and such person is substituted as Mortgagor and becomes liable under the Mortgage Note; provided, however, that to the extent any such substitution of liability agreement would be delivered by the Servicer outside of its usual procedures for mortgage loans held in its own portfolio the Servicer shall, prior to executing and delivering such agreement, obtain the prior written consent of the Note Insurer. The Mortgage Loan, as assumed, shall conform in all respects to the requirements, representations and warranties of this Agreement. The Servicer shall notify the Indenture Trustee that any such assumption or substitution agreement has been completed by forwarding to the Indenture Trustee the original copy of such assumption or substitution agreement, which copy shall be added by the Indenture Trustee to the related File and which shall, for all purposes, be considered a part of such File to the same extent as all other documents and instruments constituting a part thereof. The Servicer shall be responsible for recording any such assumption or substitution agreements. In connection with any such assumption or substitution agreement, the required monthly payment on the related Mortgage Loan shall not be changed but shall remain as in effect immediately prior to the assumption or substitution, the stated maturity or outstanding principal amount of such Mortgage Loan shall not be changed nor shall any required monthly payments of principal or interest be deferred or forgiven. Any fee collected by the Servicer or the Sub-Servicer for consenting to any such conveyance or entering into an assumption or substitution agreement shall be retained by or paid to the Servicer as additional servicing compensation. Notwithstanding the foregoing paragraph or any other provision of this Agreement, the Servicer shall not be deemed to be in default, breach or any other violation of its obligations hereunder by reason of any assumption of a Mortgage Loan by operation of law or any assumption which the Servicer may be restricted by law from preventing, for any reason whatsoever. Section 4.13. Realization Upon Defaulted Mortgage Loans. (a) The Servicer shall foreclose upon or otherwise comparably effect the ownership on behalf of the Trust of Properties relating to defaulted Mortgage Loans as to which no satisfactory arrangements can be made for collection of Delinquent payments and which the Servicer has not purchased pursuant to Section 4.10. In connection with such foreclosure or other conversion, the Servicer shall exercise such of the rights and powers vested in it hereunder, and use the same degree of care and skill in its exercise or use as prudent mortgage lenders would exercise or use under the circumstances in the conduct of their own affairs, including, but not limited to, advancing funds for the payment of taxes and insurance premiums. Any amounts so advanced shall constitute "Servicing Advances" within the meaning of Section 4.9(c) hereof. The Servicer shall sell any REO Property within 35 months of its acquisition by the Trust, unless the Servicer obtains for the Indenture Trustee and the Note Insurer an opinion of counsel experienced in federal income tax matters and reasonably acceptable to the Note Insurer, addressed to the Indenture Trustee, the Note Insurer and the Servicer, to the effect that the holding by the Trust of such REO Property for any greater period will not result in the imposition of taxes on the Trust. 56 Pursuant to its efforts to sell such REO Property, the Servicer shall either itself or through an agent selected by the Servicer protect and conserve such REO Property in the same manner and to such extent as is customary in the locality where such REO Property is located and may, incident to its conservation and protection of the interests of the Owners, rent the same, or any part thereof, as the Servicer deems to be in the best interest of the Owners for the period prior to the sale of such REO Property. The Servicer shall take into account the existence of any hazardous substances, hazardous wastes or solid wastes, as such terms are defined in the Comprehensive Environmental Response Compensation and Liability Act, the Resource Conservation and Recovery Act of 1976, or other federal, state or local environmental legislation, on a Property in determining whether to foreclose upon or otherwise comparably convert the ownership of such Property. (b) The Servicer shall determine, with respect to each defaulted Mortgage Loan, when it has recovered, whether through Indenture Trustee's sale, foreclosure sale or otherwise, all amounts it expects to recover from or on account of such defaulted Mortgage Loan, whereupon such Mortgage Loan shall become a "Liquidated Loan". Section 4.14. Indenture Trustee to Cooperate; Release of Files. (a) Upon the payment in full of any Mortgage Loan (including the repurchase of any Mortgage Loan or any liquidation of such Mortgage Loan through foreclosure or otherwise) or the receipt by the Servicer of a notification that payment in full will be escrowed in a manner customary for such purposes, the Servicer shall deliver to the Indenture Trustee a Request for Release. Upon receipt of such Request for Release, the Custodian, on behalf of the Indenture Trustee, shall promptly release the related File, in trust to (i) the Servicer, (ii) an escrow agent or (iii) any employee, agent or attorney of the Indenture Trustee, in each case pending its release by the Servicer, such escrow agent or such employee, agent or attorney of the Indenture Trustee, as the case may be. Upon any such payment in full or the receipt of such notification that such funds have been placed in escrow, the Servicer is authorized to give, as attorney-in-fact for the Indenture Trustee and the mortgagee under the Mortgage which secured the Mortgage Note, an instrument of satisfaction (or assignment of Mortgage without recourse) regarding the Property relating to such Mortgage, which instrument of satisfaction or assignment, as the case may be, shall be delivered to the Person or Persons entitled thereto against receipt therefor of payment in full, it being understood and agreed that no expense incurred in connection with such instrument of satisfaction or assignment, as the case may be, shall be chargeable to the Principal and Interest Account. In lieu of executing any such satisfaction or assignment, as the case may be, the Servicer may prepare and submit to the Indenture Trustee a satisfaction (or assignment without recourse, if requested by the Person or Persons entitled thereto) in form for execution by the Indenture Trustee with all requisite information completed by the Servicer; in such event, the Indenture Trustee shall execute and acknowledge such satisfaction or assignment, as the case may be, and deliver the same with the related File, as aforesaid. (b) From time to time and as appropriate in the servicing of any Mortgage Loan, including, without limitation, foreclosure or other comparable conversion of a Mortgage Loan or collection under any applicable Insurance Policy, the Custodian, on behalf of the Indenture Trustee shall (except in the case of the payment or liquidation pursuant to which the related File is released to an escrow agent or an employee, agent or attorney of the Indenture Trustee), upon request of the Servicer and delivery to the Custodian of a Request for Release, release the related File to the Servicer and shall execute such documents as shall be necessary to the prosecution of any such proceedings, including, without limitation, an assignment without recourse of the related Mortgage to the Servicer; provided that there shall not be released and unreturned at any one time more than 10% of the entire number of Files. The Indenture Trustee shall complete in the name of the Indenture Trustee any endorsement in blank on any Mortgage Note prior to releasing such Mortgage Note to the Servicer. Such receipt shall obligate the Servicer to return the File to the Custodian when the need therefor by the Servicer no longer exists unless the Mortgage Loan shall be liquidated in which case, upon receipt of the liquidation information, in physical or electronic form, the Request for Release shall be released by the Indenture Trustee to the Servicer. (c) The Servicer shall have the right to approve applications of Mortgagors for consent to (i) partial releases of Mortgages, (ii) alterations and (iii) removal, demolition or division of properties 57 subject to Mortgages. No application for approval shall be considered by the Servicer unless: (x) the provisions of the related Mortgage Note and Mortgage have been complied with; (y) the Loan-to-Value Ratio or Combined Loan-to-Value Ratio (which may, for this purpose, be determined at the time of any such action in a manner reasonably acceptable to the Note Insurer) after any release does not exceed the Loan-to-Value Ratio or Combined Loan-to-Value Ratio as of the Cut-Off Date or Subsequent Cut-Off Date, as the case may be, and the Mortgagor's debt-to-income ratio after any release does not exceed the debt-to-income ratio as of the Cut-Off Date and in no event exceeds the maximum debt-to-income levels under the related Originator's underwriting guidelines for a similar credit grade borrower and (z) the lien priority of the related Mortgage is not adversely affected. Upon receipt by the Indenture Trustee of an Officer's Certificate executed on behalf of the Servicer setting forth the action proposed to be taken in respect of a particular Mortgage Loan and certifying that the criteria set forth in the immediately preceding sentence have been satisfied, the Indenture Trustee shall execute and deliver to the Servicer the consent or partial release so requested by the Servicer. A proposed form of consent or partial release, as the case may be, shall accompany any Officer's Certificate delivered by the Servicer pursuant to this paragraph. (d) No costs associated with the procedures described in this Section 4.14 shall be an expense of the Trust. Section 4.15. Servicing Compensation. As compensation for its activities hereunder, the Servicer shall be entitled to retain the amount of the Servicing Fee with respect to each Mortgage Loan. Additional servicing compensation in the form of prepayment charges, release fees, bad check charges, assumption fees, late payment charges, prepayment penalties, any other servicing-related fees, Net Liquidation Proceeds not required to be deposited in the Principal and Interest Account pursuant to Section 4.8(c)(iv) and similar items shall, to the extent collected from Mortgagors, be retained by the Servicer. Section 4.16. Annual Statement as to Compliance. (a) The Servicer, at its own expense, will deliver to the Indenture Trustee, the Note Insurer, Standard & Poor's and Moody's, on or before the last day of March of each year, commencing in 1999, an Officer's Certificate stating, as to each signer thereof, that (i) a review of the activities of the Servicer during such preceding calendar year and of performance under this Agreement has been made under such officers' supervision and (ii) to the best of such officers' knowledge, based on such review, the Servicer has fulfilled all its obligations under this Agreement for such year, or, if there has been a default in the fulfillment of all such obligations, specifying each such default known to such officers and the nature and status thereof including the steps being taken by the Servicer to remedy such defaults. (b) The Servicer shall deliver to the Issuer, the Indenture Trustee, the Note Insurer, the Owners and the Rating Agencies, promptly after having obtained knowledge thereof but in no event later than five Business Days thereafter, written notice by means of an Officer's Certificate of any event which with the giving of notice or lapse of time, or both, would become an Event of Servicing Termination. Section 4.17. Annual Independent Certified Public Accountants' Reports. On or before the last day of March of each year, commencing in 1999, the Servicer, at its own expense, shall cause to be delivered to the Indenture Trustee, the Note Insurer, Standard & Poor's and Moody's a letter or letters of a firm of independent, nationally- recognized certified public accountants reasonably acceptable to the Note Insurer stating that such firm has, with respect to the Servicer's overall servicing operations during the preceding calendar year, examined such operations in accordance with the requirements of the Uniform Single Audit Program for Mortgage Bankers, and in either case stating such firm's conclusions relating thereto. Section 4.18. Access to Certain Documentation and Information Regarding the Mortgage Loans. The Servicer shall provide to the Indenture Trustee, the Note Insurer, the FDIC and the supervisory agents and examiners of each of the foregoing access to the documentation regarding the Mortgage Loans required by applicable state and federal regulations, such access being afforded without charge but only upon reasonable request and during normal business hours at the offices of the Servicer designated by it. 58 Upon any change in the format of the computer tape maintained by the Servicer in respect of the Mortgage Loans, the Servicer shall deliver a copy of such computer tape to the Indenture Trustee and in addition shall provide a copy of such computer tape to the Indenture Trustee, and the Note Insurer at such other times as the Indenture Trustee or the Note Insurer may reasonably request. Section 4.19. Assignment of Agreement. The Servicer may not assign its obligations under this Agreement, in whole or in part, unless it shall have first obtained the written consent of the Indenture Trustee and the Note Insurer, which such consent shall not be unreasonably withheld; provided, however, that any assignee must meet the eligibility requirements set forth in Section 4.21(f) hereof for a successor servicer. Notice of any such assignment shall be given by the Servicer to the Indenture Trustee, the Issuer, the Note Insurer and the Rating Agencies. Section 4.20. Events of Servicing Termination. (a) The Indenture Trustee (with the consent of the Note Insurer) or the Note Insurer (or the Owners with the consent of the Note Insurer) may remove the Servicer (including any successor entity serving as the Servicer) upon the occurrence of any of the following events: (i) The Servicer shall fail to deliver to the Indenture Trustee any proceeds or required payment, which failure continues unremedied for one Business Day following written notice to an Authorized Officer of the Servicer from the Indenture Trustee or from any Owner; (ii) The Servicer shall (I) apply for or consent to the appointment of a receiver, Indenture Trustee, liquidator or custodian or similar entity with respect to itself or its property, (II) admit in writing its inability to pay its debts generally as they become due, (III) make a general assignment for the benefit of creditors, (IV) be adjudicated a bankrupt or insolvent, (V) commence a voluntary case under the federal bankruptcy laws of the United States of America or file a voluntary petition or answer seeking reorganization, an arrangement with creditors or an order for relief or seeking to take advantage of any insolvency law or file an answer admitting the material allegations of a petition filed against it in any bankruptcy, reorganization or insolvency proceeding or (VI) take corporate action for the purpose of effecting any of the foregoing; (iii) If without the application, approval or consent of the Servicer, a proceeding shall be instituted in any court of competent jurisdiction, under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking in respect of the Servicer an order for relief or an adjudication in bankruptcy, reorganization, dissolution, winding up, liquidation, a composition or arrangement with creditors, a readjustment of debts, the appointment of a Indenture Trustee, receiver, liquidator, custodian or similar entity with respect to the Servicer or of all or any substantial part of its assets, or other like relief in respect thereof under any bankruptcy or insolvency law, and, if such proceeding is being contested by the Servicer in good faith, the same shall (A) result in the entry of an order for relief or any such adjudication or appointment or (B) continue undismissed or pending and unstayed for any period of seventy-five (75) consecutive days; (iv) The Servicer shall fail to perform any one or more of its obligations hereunder (other than the obligations set out in (i) above) and shall continue in default thereof for a period of sixty (60) days after the earlier of (x) notice by the Indenture Trustee or the Note Insurer of said failure or (y) actual knowledge of an officer of the Servicer; provided, however, that if the Servicer can demonstrate to the reasonable satisfaction of the Note Insurer that it is diligently pursuing remedial action, then the cure period may be extended with the written approval of the Note Insurer; or (v) The Servicer shall fail to cure any breach of any of its representations and warranties set forth in Section 2.2 which materially and adversely affects the interests of the Owners or Note Insurer for a period of sixty (60) days after the Servicer's discovery or receipt of notice thereof; provided, however, that if the Servicer can demonstrate to the reasonable satisfaction of the 59 Note Insurer that it is diligently pursuing remedial action, then the cure period may be extended with the written approval of the Note Insurer. (b) The Note Insurer may remove the Servicer upon the occurrence of any of the following events: (i) either an Adjustable Rate Total Available Funds Shortfall or a Fixed Rate Total Available Funds Shortfall; (ii) the failure by the Servicer to make any required Servicing Advance; (iii) the failure by the Servicer to perform any one or more of its obligations hereunder, which failure materially and adversely affects the interests of the Note Insurer, and the continuance of such failure for a period of 30 days or such longer period as agreed to in writing by the Note Insurer. (iv) the failure by the Servicer to make any required Delinquency Advance or to pay any Compensating Interest; (v) if on any Payment Date the Pool Rolling Three Month Delinquency Rate for either Mortgage Loan Pool exceeds 7.0% for either Mortgage Loan Pool; (vi) the Annual Loss Percentage (Rolling Six Months) for the prior six Remittance Periods exceeds 0.60% with respect to the Fixed Rate Pool or 0.80% with respect to the Adjustable Rate Pool; or (vii) the failure of the Servicer to satisfy either the Adjustable Rate Cumulative Loss Test or the Fixed Rate Cumulative Loss Test; (viii) the existence and continuation of any "event of default" as defined in the Insurance Agreement. Upon the Indenture Trustee's determination that a required Delinquency Advance or payment of Compensating Interest has not been made by the Servicer, the Indenture Trustee shall so notify in writing an Authorized Officer of the Servicer and the Note Insurer as soon as is reasonably practical. (c) In the case of clauses (i), (ii), (iii) or (iv) of Subsection (b) the Owners of Notes evidencing not less than 33 1/3% of the aggregate Note Principal Balance of a Series of Notes (with the consent of the Note Insurer) by notice then given in writing to the Servicer (and a copy to the Indenture Trustee) may terminate all of the rights and obligations of the Servicer under this Agreement; provided, however, that the responsibilities and duties of the initial Servicer with respect to the repurchase of Mortgage Loans pursuant to Section 2.4 shall not terminate. The Indenture Trustee shall mail a copy of any notice given by it hereunder to the Rating Agencies. On and after the receipt by the Servicer of such written notice, all authority and power of the Servicer under this Agreement, whether with respect to the Notes or the Mortgage Loans or otherwise, shall without further action pass to and be vested in the Indenture Trustee (for this purpose, the term includes an affiliate thereof) or such successor Servicer as may be appointed hereunder, and, without limitation, the Indenture Trustee is hereby authorized and empowered (which authority and power are coupled with an interest and are irrevocable) to execute and deliver, on behalf of the predecessor Servicer, as attorney-in-fact or otherwise, any and all documents and other instruments and to do or accomplish all other acts or things necessary or appropriate to effect the purposes of such notice or termination, whether to complete the transfer and endorsement of the Mortgage Loans and related documents or otherwise. The predecessor Servicer shall cooperate with the successor Servicer or the Indenture Trustee in effecting the termination of the responsibilities and rights of the predecessor Servicer under this Agreement including the transfer to the successor Servicer or to the Indenture Trustee for administration by it of all cash accounts that shall at the time be held by the predecessor Servicer for deposit or shall thereafter 60 be received with respect to a Mortgage Loan. All reasonable costs and expenses (including attorneys' fees) incurred in connection with transferring the Files to the successor Servicer and amending this Agreement to reflect such succession as Servicer pursuant to this Section 4.20 shall be paid by the predecessor Servicer upon presentation of reasonable documentation of such costs and expenses. (d) Notwithstanding the foregoing, in the event that one or more of the events listed in Section 4.20(b)(i), (v), (vi) or (vii) occurs, the Note Insurer and the Servicer agree that the Note Insurer shall comply with the provisions of that certain letter dated the Closing Date from the Note Insurer to the Seller prior to exercising its right to terminate the Servicer as provided herein. Section 4.21. Resignation of Servicer and Appointment of Successor. (a) Upon the Servicer's receipt of notice of termination pursuant to Section 4.20 or the failure to receive the Servicer Extension Notice pursuant to Section 4.21(m) or the Servicer's resignation in accordance with the terms of this Section 4.21, the predecessor Servicer shall continue to perform its functions as Servicer under this Agreement, in the case of termination, only until the date specified in such termination notice or, if no such date is specified in a notice of termination, until receipt of such notice and, in the case of a failure to receive the Servicer Extension Notice, until the end of the current three month time and, in the case of resignation, until the earlier of (x) the date 45 days from the delivery to the Note Insurer and the Indenture Trustee of written notice of such resignation (or written confirmation of such notice) in accordance with the terms of this Agreement and (y) the date upon which the predecessor Servicer shall become unable to act as Servicer, as specified in the notice of resignation and accompanying opinion of counsel. All collections then being held by the predecessor Servicer prior to its removal and any collections received by the Servicer after removal or resignation shall be endorsed by it to the Indenture Trustee and remitted directly and immediately to the Indenture Trustee or the successor Servicer. In the event of the Servicer's resignation or termination hereunder, the Indenture Trustee shall (at the direction of the Note Insurer) appoint a successor Servicer and the successor Servicer shall accept its appointment by a written assumption in form acceptable to the Indenture Trustee and the Note Insurer, with copies to the Note Insurer and the Rating Agencies. Pending such appointment, the Indenture Trustee shall act as the Servicer hereunder. (b) The Servicer shall not resign from the obligations and duties hereby imposed on it, except (i) upon determination that its duties hereunder are no longer permissible under applicable law or are in material conflict by reason of applicable law with any other activities carried on by it, the other activities of the Servicer so causing such a conflict being of a type and nature carried on by the Servicer at the date of this Agreement or (ii) upon written consent of the Note Insurer and the Indenture Trustee. Any such determination permitting the resignation of the Servicer shall be evidenced by an opinion of counsel to such effect which shall be delivered to the Indenture Trustee and the Note Insurer. (c) No removal or resignation of the Servicer shall become effective until the Indenture Trustee or a successor Servicer shall have assumed the Servicer's responsibilities and obligations in accordance with this Section. (d) Upon removal or resignation of the Servicer, the Servicer also shall promptly deliver or cause to be delivered to a successor Servicer or the Indenture Trustee all the books and records (including, without limitation, records kept in electronic form) that the Servicer has maintained for the Mortgage Loans, including all tax bills, assessment notices, insurance premium notices and all other documents as well as all original documents then in the Servicer's possession. (e) Any collections received by the Servicer after removal or resignation shall be endorsed by it to the Indenture Trustee and remitted directly and immediately to the Indenture Trustee, or the successor Servicer. (f) Upon removal or resignation of the Servicer, the Indenture Trustee (x) shall appoint a successor Servicer in accordance with the instructions of the Note Insurer, or if the Note Insurer fails to provide such instruction, solicit bids for a successor Servicer as described below and (y) pending the appointment of a successor Servicer shall serve as Servicer. The Indenture Trustee shall, if the Note Insurer 61 fails to instruct it as to the appointment of a Successor Servicer and if the Indenture Trustee is unable to obtain a qualifying bid and is prevented by law from acting as Servicer, (I) appoint, or petition a court of competent jurisdiction to appoint, any housing and home finance institution, bank or mortgage servicing institution which has been designated as an approved seller-servicer by Fannie Mae or FHLMC for second mortgage loans and having equity of not less than $15,000,000 or such lower level as may be acceptable to the Note Insurer as determined in accordance with generally accepted accounting principles as the successor to the Servicer hereunder in the assumption of all or any part of the responsibilities, duties or liabilities of the Servicer hereunder and (II) give notice thereof to the Note Insurer and Rating Agencies. The compensation of any successor Servicer (including, without limitation, the Indenture Trustee) so appointed shall be the Servicing Fee, together with the other servicing compensation in the form of assumption fees, late payment charges or otherwise as provided in Sections 4.8 and 4.15; provided, however, that if the Indenture Trustee acts as successor Servicer, then the former Servicer agrees to pay to the Indenture Trustee at such time that the Indenture Trustee becomes such successor Servicer a set-up fee of fifteen dollars ($15.00) for each Mortgage Loan then included in the Trust Estate. The Indenture Trustee shall be obligated to serve as successor Servicer whether or not the fee described in the preceding sentence is paid by the Seller, but shall in any event be entitled to receive, and to enforce payment of, such fee from the former Servicer. (g) In the event the Indenture Trustee solicits bids as provided above, the Indenture Trustee shall solicit, by public announcement, bids from housing and home finance institutions, banks and mortgage servicing institutions meeting the qualifications set forth above. Such public announcement shall specify that the successor Servicer shall be entitled to the full amount of the aggregate Servicing Fees as servicing compensation, together with the other servicing compensation in the form of assumption fees, late payment charges or otherwise as provided in Sections 4.8 and 4.15. Within thirty days after any such public announcement, the Indenture Trustee shall negotiate and effect the sale, transfer and assignment of the servicing rights and responsibilities hereunder to the qualified party submitting the highest satisfactory bid as to the price they will pay to obtain such servicing. The Indenture Trustee shall deduct from any sum received by the Indenture Trustee from the successor to the Servicer in respect of such sale, transfer and assignment all costs and expenses of any public announcement and of any sale, transfer and assignment of the servicing rights and responsibilities hereunder. After such deductions, the remainder of such sum shall be paid by the Indenture Trustee to the Servicer at the time of such sale. (h) The Indenture Trustee and such successor shall take such action consistent with this Agreement as shall be necessary to effectuate any such succession, including the notification to all Mortgagors of the transfer of servicing if such notification is not done by the Servicer as required by subsection (j) below. The Servicer agrees to cooperate with the Indenture Trustee and any successor Servicer in effecting the termination of the Servicer's servicing responsibilities and rights hereunder and shall promptly provide the Indenture Trustee or such successor Servicer, as applicable, all documents and records reasonably requested by it to enable it to assume the Servicer's functions hereunder and shall promptly also transfer to the Indenture Trustee or such successor Servicer, as applicable, all amounts which then have been or should have been deposited in the Principal and Interest Account by the Servicer or which are thereafter received with respect to the Mortgage Loans. Neither the Indenture Trustee nor any other successor Servicer shall be held liable by reason of any failure to make, or any delay in making, any distribution hereunder or any portion thereof caused by (i) the failure of the Servicer to deliver, or any delay in delivery, cash, documents or records to it or (ii) restrictions imposed by any regulatory authority having jurisdiction over the Servicer. (i) The Indenture Trustee or any other successor Servicer, upon assuming the duties of Servicer hereunder, shall immediately make all Delinquency Advances and pay all Compensating Interest which the Servicer has theretofore failed to remit with respect to the Mortgage Loans; provided, however, that if the Indenture Trustee is acting as successor Servicer, the Indenture Trustee shall only be required to make Delinquency Advances (including the Delinquency Advances described in this clause (i)) if, in the Indenture Trustee's reasonable good faith judgment, such Delinquency Advances will ultimately be recoverable from the Mortgage Loans. 62 (j) The Servicer which is being removed or is resigning shall give notice to the Mortgagors and to the Rating Agencies of the transfer of the servicing to the successor Servicer. (k) Upon appointment, the successor Servicer shall be the successor in all respects to the predecessor Servicer and shall be subject to all the responsibilities, duties and liabilities of the predecessor Servicer including, but not limited to, the maintenance of the hazard insurance policy(ies), the fidelity bond and an errors and omissions policy pursuant to Section 4.23 and shall be entitled to the Monthly Servicing Fee and all of the rights granted to the predecessor Servicer by the terms and provisions of this Agreement. The appointment of a successor Servicer shall not affect any liability of the predecessor Servicer which may have arisen under this Agreement prior to its termination as Servicer (including, without limitation, any deductible under an insurance policy) nor shall any successor Servicer be liable for any acts or omissions of the predecessor Servicer or for any breach by such Servicer of any of its representations or warranties contained herein or in any related document or agreement. (l) The Indenture Trustee shall give notice to the Note Insurer, Moody's and Standard & Poor's and the Owners of the occurrence of any event specified in Section 4.20 of which the Indenture Trustee has actual knowledge. (m) The Servicer hereby covenants and agrees to act as servicer under this Agreement for an initial term commencing on the Closing Date and expiring on September 30, 1998 (the "Initial Term"). Thereafter, the Initial Term may be extended for additional three-month terms, in the sole discretion of the Note Insurer, by written notice (each, a "Servicer Extension Notice") of the Note Insurer to the Servicer. Each such Servicer Extension Notice, if any, shall be delivered by the Note Insurer to the other parties to this Agreement. The Servicer hereby agrees that, as of the date hereof and upon its receipt of any Servicer Extension Notice, the Servicer shall be bound for the duration of the Initial Term and the term covered by any such Servicer Extension Notice to act as the Servicer, subject to and in accordance with the other provisions of this Agreement. The Servicer agrees that if, as of the tenth day prior to the last day of any such servicing term, the Servicer shall not have received a Servicer Extension Notice from the Note Insurer, the Servicer shall, within five days thereafter, give written notice of such non-receipt to the Note Insurer and the Indenture Trustee. The failure of the Note Insurer to deliver a Servicer Extension Notice by the end of any such three-month term shall result in the automatic termination of the Master Servicer. Section 4.22. Waiver of Past Events of Servicing Termination. Subject to the rights of the Note Insurer pursuant to Section 4.20 to terminate all of the rights and obligations of the Servicer under this Agreement, the Owners of at least 51% of the Note Principal Balance of a Series of Notes may (with the consent of the Note Insurer), on behalf of all Owners of Notes, waive any default by the Servicer in the performance of its obligations hereunder and its consequences, except a default in making any required deposits to or payments from the Principal and Interest Account in accordance with this Agreement. Upon any such waiver of a past default, such default shall cease to exist, and any Event of Servicing Termination 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. Section 4.23. Inspections by Note Insurer; Errors and Omissions Insurance. (a) At any reasonable time and from time to time upon reasonable notice, the Note Insurer, the Indenture Trustee, or any agents or representatives thereof may inspect the Servicer's servicing operations and discuss the servicing operations of the Servicer with any of its officers or directors. The costs and expenses incurred by the Servicer or its agents or representatives in connection with any such examinations or discussions shall be paid by the Servicer. (b) The Servicer agrees to maintain errors and omissions coverage and a fidelity bond, each at least to the extent generally maintained by prudent mortgage loan servicers having servicing portfolios of a similar size. Section 4.24. Merger, Conversion, Consolidation or Succession to Business of Servicer. Any corporation into which the Servicer may be merged or converted or with which it may be consolidated, 63 or corporation resulting from any merger, conversion or consolidation to which the Servicer shall be a party or any corporation succeeding to all or substantially all of the business of the Servicer shall, with the consent of the Note Insurer, be the successor of the Servicer hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto provided that such corporation meets the qualifications set forth in Section 4.21(f). Section 4.25. Notices of Material Events. The Servicer shall give prompt notice to the Note Insurer, the Indenture Trustee, the Issuer, the Owner Trustee, Moody's and Standard & Poor's of the occurrence of any of the following events: (a) Any default or any fact or event which results, or which with notice or the passage of time, or both, would result in the occurrence of a default by the Seller, any Originator or the Servicer under any Operative Document or would constitute a material breach of a representation, warranty or covenant under any Operative Document; (b) The submission of any claim or the initiation of any legal process, litigation or administrative or judicial investigation against the Seller or the Servicer in any federal, state or local court or before any governmental body or agency or before any arbitration board or any such proceedings threatened by any governmental agency, which, if adversely determined, would have a material adverse effect upon any the Seller's or the Servicer's ability to perform its obligations under any Operative Document; (c) The commencement of any proceedings by or against the Seller or the Servicer under any applicable bankruptcy, reorganization, liquidation, insolvency or other similar law now or hereafter in effect or of any proceeding in which a receiver, liquidator, Indenture Trustee or other similar official shall have been, or may be, appointed or requested for the Seller or the Servicer; and (d) The receipt of notice from any agency or governmental body having authority over the conduct of any of the Seller's or the Servicer's business that the Seller or the Servicer is to cease and desist, or to undertake any practice, program, procedure or policy employed by the Seller or the Servicer in the conduct of the business of any of them, and such cessation or undertaking will materially and adversely affect the conduct of the Seller's or the Servicer's business or its ability to perform under the Operative Documents or materially and adversely affect the financial affairs of the Seller or the Servicer. Section 4.26. Monthly Servicing Report and Servicing Certificate. (a) The Servicer shall, not later than the related Determination Date, deliver to the Indenture Trustee, the Rating Agencies and the Note Insurer a Monthly Servicing Report relating to the Mortgage Loans in the Adjustable Rate Pool and a Monthly Servicing Report relating to the Mortgage Loans in the Fixed Rate Pool stating the following: (i) As to the related Due Period, the Interest Remittance Amount (in both cases specifying the (a) scheduled interest collected; (b) Delinquency Advances relating to interest; and (c) Compensating Interest paid) and the Principal Remittance Amount (in both cases specifying the (1) scheduled principal collected; (2) Delinquency Advance relating to Mortgage principal; (3) Prepayments; (4) Loan Balance of Loans repurchased; (5) Substitution Amounts; and (6) Net Liquidation Proceeds (related to principal)); (ii) With respect to the related Remittance Period, the Servicing Fee payable to the Servicer; (iii) With respect to the related Remittance Period, the net scheduled principal and interest payments remitted by the Servicer to the Principal and Interest Account; (iv) The scheduled principal and interest payments on the Mortgage Loans that were not made by the related Mortgagors as of the last day of the related Remittance Period; 64 (v) The number and aggregate Loan Balances (computed in accordance with the terms of the Mortgage Loans) and the percentage of the total number of Mortgage Loans and of the Loan Balance which they represent of Mortgage Loans Delinquent, if any, (i) 30-59 days, (ii) 60-89 days and (iii) 90 days or more, respectively, as of the last day of the related Remittance Period; (vi) The number and aggregate Loan Balances of Mortgage Loans, if any, in foreclosure and the book value (within the meaning of 12 Code of Federal Regulations Section 571.13 or any comparable provision) of any real estate acquired through foreclosure or deed in lieu of foreclosure, including REO Properties as of the last day of the related Remittance Period; (vii) The Loan Balances (immediately prior to being classified as Liquidated Mortgage Loans) of Liquidated Mortgage Loans as of the last day of the related Remittance Period; (viii) Liquidation Proceeds received during the related Remittance Period; (ix) The amount of any Liquidation Expenses being deducted from Liquidation Proceeds or otherwise being charged to the Principal and Interest Account with respect to such Determination Date; (x) Liquidation Expenses incurred during the related Remittance Period which are not being deducted from Liquidation Proceeds or otherwise being charged to the Principal and Interest Account with respect to such Determination Date; (xi) Net Liquidation Proceeds as of the last day of the related Remittance Period; (xii) Insurance payments received from Insurance Policies during the related Remittance Period; (xiii) The number of Mortgage Loans and the aggregate scheduled Loan Balances as of the last day of the Due Period relating to the Payment Date; (xiv) The Total Available Funds related to such Mortgage Loan Pool and to the other Mortgage Loan Pool for each Remittance Date; (xv) The number and aggregate Loan Balances and Loan Purchase Prices of Mortgage Loans required to be repurchased by the Seller or purchased by the Servicer as of the Replacement Cut-Off Date occurring during the Remittance Period preceding such Date; (xvi) The number and aggregate Loan Balances of Mortgage Loans (at the time they became Defaulted Mortgage Loans) which are being carried as REO Properties; (xvii) The amount of any Delinquency Advances made by the Servicer during the related Remittance Period and any unreimbursed Delinquency Advances as of such Payment Date; (xviii) The weighted average Coupon Rates of the Mortgage Loans; (xix) The Monthly Exception Report; (xx) The amount of any Substitution Amounts delivered by the Seller; (xxi) The number and aggregate Loan Balances of Mortgage Loans, if any, in bankruptcy proceedings as of the last day of related Remittance Period; (xxii) The amount of unreimbursed Delinquency Advances made by the Servicer; 65 (xxiii) The amounts, if any, of the Realized Losses for the related Remittance Period and the cumulative amount of Realized Losses since the Closing Date. (xxiv) The amount of unreimbursed Servicing Advances made by the Servicer; (xxv) Unpaid Servicing Fees; (xxvi) The amount of Compensating Interest to be paid by the Servicer during the related Remittance Period; (xxvii) The weighted average net Coupon Rate of the Mortgage Loans; (xxviii) For the related Remittance Period and cumulatively since the Closing Date, the number and aggregate Loan Balance of Mortgage Loans bought back by the Servicer or the Seller pursuant to Section 2.4, 2.6 and 4.10 hereof (identified separately for each such section). (xxix) Any other information reasonably requested by the Note Insurer or the Indenture Trustee; (xxx) the Annual Loss Percentage (Rolling Six Months) for each Mortgage Loan Pool; (xxxi) the Adjustable Rate Cumulative Loss Percentage and the Fixed Rate Cumulative Loss Percentage; and (xxxii) The aggregate actual Loan Balance as of the last day of the Due Period relating to the Payment Date. (b) On each Payment Date, the Indenture Trustee shall provide to the Note Insurer, the Underwriter, the Seller, Standard & Poor's and Moody's a written report in substantially the form set forth as Exhibit E hereto (the "Servicing Certificate"), as such form may be revised by the Indenture Trustee, the Servicer, Moody's and Standard & Poor's from time to time, but in every case setting forth the information required under Section 3.8 hereof, based solely on information contained in the Monthly Servicing Report. Section 4.27. Indemnification by the Seller. The Seller agrees to indemnify and hold the Indenture Trustee, the Note Insurer and each Owner harmless against any and all claims, losses, penalties, fines, forfeitures, legal fees and related costs, judgments, and any other costs, fees and expenses that the Indenture Trustee, the Note Insurer and any Owner may sustain in any way related to the failure of the Seller to perform its duties under this Agreement. A party against whom a claim is brought shall immediately notify the other parties and the Rating Agencies if a claim is made by a third party with respect to this Agreement, and the Seller shall assume (with the consent of the Note Insurer and the Indenture Trustee) the defense of any such claim and pay all expenses in connection therewith, including reasonable counsel fees, and promptly pay, discharge and satisfy any judgment or decree which may be entered against the Note Insurer, the Servicer, the Seller, the Indenture Trustee and/or Owner in respect of such claim. In addition, the Servicer agrees to indemnify the Owner Trustee pursuant to Article VIII of the Trust Agreement. Section 4.29. Administration of the Issuer. The Servicer agrees to perform the administrative duties of the Issuer hereunder and under the Indenture. Section 4.28. Indemnification by the Servicer. The Servicer agrees to indemnify and hold the Indenture Trustee, the Note Insurer and each Owner harmless against any and all claims, losses, penalties, fines, forfeitures, legal fees and related costs, judgments, and any other costs, fees and expenses that the Indenture Trustee, the Note Insurer and any Owner may sustain in any way related to the failure of the Servicer to perform its duties and service the Mortgage Loans in compliance with the terms of this 66 Agreement. A party against whom a claim is brought shall immediately notify the other parties and the Rating Agencies if a claim is made by a third party with respect to this Agreement, and the Servicer shall assume (with the consent of the Indenture Trustee) the defense of any such claim and pay all expenses in connection therewith, including reasonable counsel fees, and promptly pay, discharge and satisfy any judgment or decree which may be entered against the Note Insurer, the Servicer, the Indenture Trustee and/or Owner in respect of such claim. ARTICLE V TERMINATION Section 5.1. Termination. This Agreement will terminate upon notice to the Indenture Trustee of either: (a) the later of (i) the satisfaction and discharge of the Indenture pursuant to Section 4.1 of the Indenture or (ii) the disposition of all funds with respect to the last Mortgage Loan and the remittance of all funds due hereunder and the payment of all amounts due and payable to the Indenture Trustee, the Owner Trustee, the Issuer, the Custodian and the Note Insurer; or (b) the mutual consent of the Servicer, the Seller, the Note Insurer and all Owners in writing. Section 5.2. Termination Upon Option of Servicer. (a) On any Payment Date on or after the Redemption Date for a Series of Notes, the Servicer shall have the option to purchase all of the Mortgage Loans in the related Mortgage Loan Pool by paying the related Termination Price to the Issuer and by providing notice thereof to the Indenture Trustee, Owner Trustee and Note Insurer. The Servicer may purchase the Mortgage Loans in a Mortgage Loan Pool at a price equal to the sum of (i) the then outstanding Note Principal Balance of the Notes relating to such Mortgage Loan Pool plus all accrued and unpaid interest thereon (and, in the case of the Adjustable Rate Pool, any Available Funds Cap Carry-Forward Amount), (ii) any related Fees and Expenses due and unpaid on such date, (iii) the payment of all amounts owed to the Note Insurer and (iv) any unreimbursed Delinquency Advances and Servicing Advances with respect to such Mortgage Loan Pool (such amount, the "Termination Price"). In connection with such purchase, the Servicer shall remit to the Indenture Trustee all amounts then on deposit in the Principal and Interest Account for deposit to the related Note Account, which deposit shall be deemed to have occurred immediately preceding such purchase. The proceeds from such sale will be distributed first, to the payment of any outstanding Fees and Expenses with respect to such Mortgage Loan Pool, second, to the Note Insurer, all amounts owed thereto, third, to the Servicer for unreimbursed Servicing Advances and Delinquency Advances with respect to the Mortgage Loan Pool, fourth, to the Owners of the Notes relating to such Mortgage Loan Pool in an amount equal to the then outstanding Note Principal Balance plus all accrued and unpaid interest thereon (plus, in the case of the Adjustable Rate Pool, any Available Funds Cap Carry-Forward Amount), fifth, to the Noteholders with respect to the other Mortgage Loan Pool, the amount of any Subordination Deficit, if any, for such other Mortgage Loan Pool and, sixth, to the holders of the Certificates, the remainder. Provided, however, that no such termination shall occur unless the Owners of the Note have received an amount equal to the then outstanding Note Principal Balance plus all accrued and unpaid interest on the Notes. (b) Promptly following any such purchase, the Indenture Trustee will release the Files to the Servicer, or otherwise upon their order, in a manner similar to that described in Section 4.14 hereof. (c) If the Servicer does not exercise its option pursuant to this Section 5.2 with respect to a Mortgage Loan Pool, then the Note Insurer may do so on the same terms. Section 5.3 Redemption of Notes. Upon any purchase described in Section 5.2 by either the Servicer or the Note Insurer, the Issuer shall use the proceeds it receives to redeem the Notes, in whole and not in part, and terminate the Indenture relating to such Mortgage Loan Pool. The Notes relating to such Mortgage Loan Pool will be redeemed upon payment of the related Termination Price, and the payment of the amount set forth in clause (i) of the definition of related Termination Price set forth in Section 5.2 to the 67 Owners of the Notes shall be in lieu of the payment otherwise required to be made to the Owners on such Payment Date in respect of the Notes. Section 5.4. Disposition of Proceeds. The Indenture Trustee shall, upon receipt thereof, deposit the proceeds of any liquidation of a Mortgage Loan Pool Estate pursuant to this Article V to the related Note Account; provided, however, that any amounts representing Servicing Fees, unreimbursed Delinquency Advances or unreimbursed Servicing Advances relating to such Mortgage Loan Pool theretofore funded by the Servicer from the Servicer's own funds shall be paid by the Indenture Trustee to the Servicer from the proceeds of the Trust Estate. Section 5.5. Netting of Amounts. If any Person paying the Termination Price would receive a portion of the amount so paid, such Person may net any such amount against the Termination Price otherwise payable. ARTICLE VI MISCELLANEOUS Section 6.1 Acts of Owners. Except as otherwise specifically provided herein, whenever Owner action, consent or approval is required under this Agreement, such action, consent or approval shall be deemed to have been taken or given on behalf of, and shall be binding upon, all Owners if the Owners of the majority of the Percentage Interest of the Notes agree to take such action or give such consent or approval. Section 6.2 Recordation of Agreement. To the extent permitted by applicable law, this Agreement, or a memorandum thereof if permitted under applicable law, is subject to recordation in all appropriate public offices for real property records in all of the counties or other comparable jurisdictions in which any or all of the Properties are situated, and in any other appropriate public recording office or elsewhere, such recordation to be effected by the Servicer at the Owners' expense on direction of the Owners of the majority of the Percentage Interest of the Notes or the Note Insurer, but only when accompanied by an opinion of counsel to the effect that such recordation materially and beneficially affects the interests of the Owners or is necessary for the administration or servicing of the Mortgage Loans. Section 6.3 Duration of Agreement. This Agreement shall continue in existence and effect until terminated as herein provided. Section 6.4 Successors and Assigns. All covenants and agreements in this Agreement by any party hereto shall bind its successors and assigns, whether so expressed or not. Section 6.5 Severability. In case any provision in this Agreement or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 6.6. Benefits of Agreement. Nothing in this Agreement or in the Notes, expressed or implied, shall give to any Person, other than the Owners, the Note Insurer and the parties hereto and their successors hereunder, any benefit or any legal or equitable right, remedy or claim under this Agreement. Section 6.7. Legal Holidays. In any case where the date of any Remittance Date, any Payment Date, any other date on which any distribution to any Owner is proposed to be paid or any date on which a notice is required to be sent to any Person pursuant to the terms of this Agreement shall not be a Business Day, then (notwithstanding any other provision of the Notes or this Agreement) payment or mailing need not be made on such date but may be made on the next succeeding Business Day with the same force and effect as if made or mailed on the nominal date of any such Remittance Date, such Payment Date or such 68 other date for the payment of any distribution to any Owner or the mailing of such notice, as the case may be, and no interest shall accrue for the period from and after any such nominal date, provided such payment is made in full on such next succeeding Business Day. Section 6.8. Governing Law. In view of the fact that Owners are expected to reside in many states and outside the United States and the desire to establish with certainty that this Agreement will be governed by and construed and interpreted in accordance with the law of a state having a well-developed body of commercial and financial law relevant to transactions of the type contemplated herein, this Agreement and each Note shall be construed in accordance with and governed by the laws of the State of New York applicable to agreements made and to be performed therein, without regard to the conflicts of law principles thereof. Section 6.9. Counterparts. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. Section 6.10. Amendment. (a) The Indenture Trustee, the Seller, the Issuer and the Servicer, may at any time and from time to time, with the prior approval of the Note Insurer but without the giving of notice to or the receipt of the consent of the Owners, amend this Agreement for the purposes of (i) curing any ambiguity; (ii) correcting or supplementing any provisions of this Agreement which are inconsistent with any other provisions of this Agreement or adding provisions to this Agreement which are not inconsistent with the provisions of this Agreement; (iii) adding any other provisions with respect to matters or questions arising under this Agreement; or (iv) for any other purpose, provided that in the case of clause (iv), (A) prior to the effectiveness of such amendment, the Seller delivers an opinion of counsel acceptable to the Indenture Trustee and the Note Insurer that such amendment will not adversely affect in any material respect the interest of the Owners and the Note Insurer and (B) delivers a letter from each Rating Agency stating that such amendment will not result in a withdrawal or reduction of the rating of the Notes without regard to the Note Insurance Policies. Notwithstanding anything to the contrary, no such amendment shall (a) change in any manner the amount of, or delay the timing of, payments which are required to be distributed to any Owner without the consent of the Owner of such Note, (b) change the percentages of Percentage Interest which are required to consent to any such amendments, without the consent of the Owners of all Notes affected then outstanding or (c) which affects in any manner the terms or provisions of the Note Insurance Policies. (b) This Agreement may be amended from time to time by the Servicer, the Seller, the Issuer and the Indenture Trustee with the consent of the Note Insurer (which consent shall not be withheld if, in an opinion of counsel addressed to the Indenture Trustee and the Note Insurer, failure to amend would adversely affect the interests of the Owners) and the Owners of 66 2/3% of the Notes for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of the Owners; provided, however, that no such amendment shall be made that no such amendment shall reduce in any manner the amount of, or delay the timing of, payments received on Mortgage Loans which are required to be distributed on any Notes without the consent of the Owner of such Notes or reduce the percentage for each Class the Owners of which are required to consent to any such amendment without the consent of the Owners of 100% of the Notes. (c) The Note Insurer, the Owners, Moody's and Standard & Poor's shall be provided with copies of any amendments to this Agreement, together with copies of any opinions or other documents or instruments executed in connection therewith. Section 6.11. Specification of Certain Tax Matters. Each Owner shall provide the Indenture Trustee with a completed and executed From W-9 prior to purchasing a Note. The Indenture Trustee shall comply with all requirements of the Code, and applicable state and local law, with respect to the withholding from any distributions made to any Owner of any applicable withholding taxes imposed thereon and with respect to any applicable reporting requirements in connection therewith. 69 Section 6.12. The Note Insurer. Any right conferred to the Note Insurer shall be suspended during any period in which there exists a Note Insurer Default. During any period of suspension the Note Insurer's rights hereunder shall vest in the Owners of the Notes and shall be exercisable by the Owners of at least a majority in Percentage Interest of the Notes then Outstanding. At such time as the Notes are no longer outstanding hereunder and the Note Insurer has been reimbursed for all Insured Payments to which it is entitled hereunder, the Note Insurer's rights hereunder shall terminate. Section 6.13. Third Party Rights. The Indenture Trustee, the Seller, the Issuer, the Servicer, and the Owners agree that the Note Insurer shall be deemed a third-party beneficiary of this Agreement as if it were a party hereto. Section 6.14. Usury. The amount of interest payable or paid on any Note under the terms of this Agreement shall be limited to an amount which shall not exceed the maximum nonusurious rate of interest allowed by the applicable laws of the State of New York or any applicable law of the United States permitting a higher maximum nonusurious rate that preempts such applicable New York laws, which could lawfully be contracted for, charged or received (the "Highest Lawful Rate"). In the event any payment of interest on any Note exceeds the Highest Lawful Rate, the Trust stipulates that such excess amount will be deemed to have been paid to the Owner of such Note as a result of an error on the part of the Indenture Trustee acting on behalf of the Trust and the Owner receiving such excess payment shall promptly, upon discovery of such error or upon notice thereof from the Indenture Trustee on behalf of the Trust, refund the amount of such excess or, at the option of such Owner, apply the excess to the payment of principal of such Note, if any, remaining unpaid. In addition, all sums paid or agreed to be paid to the Indenture Trustee for the benefit of Owners of Notes for the use, forbearance or detention of money shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of such Notes. Section 6.15. No Petition. The Indenture Trustee, the Seller and the Servicer, by entering into this Agreement, and each Owner, by accepting a Note, hereby covenant and agree that they will not at any time institute against the Seller, the Servicer or the Issuer, or join in any institution against the Seller, the Servicer or the Issuer of, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any United States federal or state bankruptcy or similar law in connection with any obligations relating to the Notes, this Agreement or any of the Operative Documents. Section 6.16. Notices. All notices hereunder shall be given as follows, until any superseding instructions are given to all other Persons listed below: The Indenture Trustee: The Chase Manhattan Bank 450 West 33rd Street, 15th Floor New York, New York 10001 Attention: Diane Wallace, Structured Finance Services Tel: (212) 946-8583 Fax: (212) 946-8552 The Seller: First Alliance Mortgage Company 17305 Von Karman Avenue Irvine, California 92614-6203 Attention: Director, Secondary Marketing Tel: (714) 224-8357 Fax: (714) 224-8366 70 The Issuer: First Alliance Mortgage Loan Trust 1998-2 c/o Wilmington Trust Company, as Owner Trustee Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Attention: Corporate Trust Administration Tel: (302) 651-8775 Fax: (302) 651-1576 The Servicer: First Alliance Mortgage Company 17305 Von Karman Avenue Irvine, California 92614-6203 Attention: Manager, Investor Reporting Tel: (714) 224-8357 Fax: (714) 224-8366 The Note Insurer: Financial Security Assurance Inc. 350 Park Avenue New York, NY 10022 Attention: Surveillance Department First Alliance Mortgage Loan Trust 1998-2 Tel: (212) 339-3518 Fax: (212) 339-3529 Moody's: Moody's Investors Service 99 Church Street New York, New York 10007 Attention: The Home Equity Monitoring Department Standard & Poor's: Standard & Poor's, A Division of The McGraw-Hill Companies 25 Broadway New York, New York 10004 Attention: Residential Mortgage Surveillance Dept. Underwriter: First Union Capital Markets, a division of Wheat First Securities Corp. One First Union Center Charlotte, North Carolina 28266-0166 Attention: Director, Asset-Backed Finance Tel: (704) 590-6161 Fax: (704) 383-8121 71 ARTICLE VII CERTAIN MATTERS REGARDING THE NOTE INSURER Section 7.01 Trust Estate and Accounts Held for Benefit of the Note Insurer. The Indenture Trustee shall hold the Trust Estate for the benefit of the related Owners and the Note Insurer and all references in this Agreement, the Indentures and in the Notes to the benefit of Owners of the Notes shall be deemed to include the Note Insurer. The Indenture Trustee shall cooperate in all reasonable respects with any reasonable request by the Note Insurer for action to preserve or enforce the Note Insurer's rights or interests under this Agreement, the Indentures and the Notes. The Servicer hereby acknowledges and agrees that it shall service and administer the Mortgage Loans and any REO Properties, and shall maintain the Principal and Interest Account, for the benefit of the Owners of each Series of the Notes and for the benefit of the Note Insurer, and all references in this Agreement or the Indentures to the benefit of or actions on behalf of the Owners shall be deemed to include the Note Insurer. Unless a Note Insurer Default exists, the Servicer shall not terminate any Sub-Servicing Agreements without cause without the prior consent of the Note Insurer. Section 7.02 Claims Upon the Note Insurance Policies; Policy Payments Account. (a) If, with respect to any Payment Date, the funds then on deposit in the Adjustable Rate Note Account or the Fixed Rate Note Account (after the application of the crosscollateralization provisions hereof), are insufficient to pay an Insured Payment on such Payment Date, the Indenture Trustee shall give notice to the Note Insurer by telephone or telecopy of the amount of such deficiency, confirmed in writing in the form set forth as Exhibit A to the Endorsement of the Note Insurance Policies, to the Note Insurer and the Fiscal Agent (as defined in the Note Insurance Policies), if any, at or before 12:00 noon New York City time, on the Business Day prior to such Payment Date. (b) The Indenture Trustee shall establish a separate special purpose trust account, for the benefit of the Owners of each Series of the Notes and the Note Insurer, referred to herein as the "Policy Payments Account" over which the Indenture Trustee shall have exclusive control and sole right of withdrawal. The Indenture Trustee shall deposit any amount paid under the Note Insurance Policies in the Policy Payments Account and distribute such amount only for purposes of payment to the Owners of the Notes of the Insured Payments for which a claim was made, and such amount may not be applied to satisfy any costs, expenses or liabilities of the Servicer, the Seller, the Depositor, the Custodian, the Indenture Trustee or the Trust. Amounts paid under the Note Insurance Policies shall be transferred to the Adjustable Rate Note Account or the Fixed Rate Note Account, as applicable, in accordance with the next succeeding paragraph and disbursed by the Indenture Trustee to Owners of the related Series of Notes in accordance with Section 3.5. It shall not be necessary for such payments to be made by checks or wire transfers separate from the checks or wire transfers used to pay the Insured Payments with other funds available to make such payment. However, the amount of any payment of principal of or interest on the Notes to be paid from funds transferred from the Policy Payments Account shall be noted as provided in paragraph (c) below in the Register and in the statement to be furnished to Owners of the related Series of Notes pursuant to Section 3.08. Funds held in the Policy Payments Account shall not be invested by the Indenture Trustee. On any Payment Date with respect to which a claim has been made under the Adjustable Rate Note Insurance Policy or the Fixed Rate Note Insurance Policy, the amount of funds received by the Indenture Trustee as a result of any claim under such Note Insurance Policies, to the extent required to make the Insured Payment on such Payment Date shall be withdrawn from the Policy Payments Account and deposited in the Adjustable Rate Note Account or the Fixed Rate Note Account, as applicable, and applied by the Indenture Trustee, together with the other funds to be withdrawn from the Adjustable Rate Note Account or the Fixed Rate Note Account, as applicable, directly to the payment in full of the Insured Payment due on the related Series of Notes. Funds received by the Indenture Trustee as a result of any claim 72 under the Note Insurance Policies shall be deposited by the Indenture Trustee in the Policy Payments Account and used solely for payment to the Owners of the Notes, and such funds may not be applied to satisfy any costs, expenses or liabilities of the Servicer, the Seller, the Depositor, the Custodian, the Indenture Trustee or the Trust. Any funds remaining in the Policy Payments Account on the first Business Day following a Payment Date shall be remitted to the Note Insurer, pursuant to the instructions of the Note Insurer, by the end of such Business Day. (c) The Indenture Trustee shall keep a complete and accurate record of the amount of interest and principal paid in respect of any Note from moneys received under the Note Insurance Policies. The Note Insurer shall have the right to inspect such records at reasonable times during normal business hours upon one Business Day's prior notice to the Indenture Trustee. (d) The Indenture Trustee shall promptly notify the Note Insurer and the Fiscal Agent (as defined in the Note Insurance Policies) of any proceeding or the institution of any action, of which an Authorized Officer of the Indenture Trustee has actual knowledge, seeking the avoidance as a preferential transfer under applicable bankruptcy, insolvency, receivership or similar law (a "Preference Claim") of any distribution made with respect to the Notes. Each Owner of a Note by its purchase of such Note, the Servicer and the Indenture Trustee hereby agree that, the Note Insurer (so long as no Note Insurer Default exists) may at any time during the continuation of any proceeding relating to a Preference Claim direct all matters relating to such Preference Claim, including without limitation, (i) the direction of any appeal of any order relating to such Preference Claim and (ii) the posting of any surety, supersedeas or performance bond pending any such appeal. In addition and without limitation of the foregoing, the Note Insurer shall be subrogated to the rights of the Servicer, the Indenture Trustee and each Owner of a Note in the conduct of any such Preference Claim, including, without limitation, all rights of any party to an adversary proceeding action with respect to any court order issued in connection with any such Preference Claim. (e) The Indenture Trustee shall, upon retirement of any Series of Notes, furnish to the Note Insurer a notice of such retirement, and, upon the retirement of such Series of Notes and the expiration of the term of the related Note Insurance Policy, surrender such Note Insurance Policy to the Note Insurer for cancellation. Section 7.03 Effect of Payments by the Note Insurer; Subrogation. Anything herein or in the Indentures to the contrary notwithstanding, any payment with respect to principal of or interest on any of the Notes which is made with moneys received pursuant to the terms of the Note Insurance Policies shall not be considered payment of such Notes from the Trust and shall not result in the payment of or the provision for the payment of the principal of or interest on such Notes within the meaning of Section 3.5. The Depositor, the Servicer and the Indenture Trustee acknowledge, and each Owner by its acceptance of a Note agrees, that without the need for any further action on the part of the Note Insurer, the Depositor, the Servicer, the Indenture Trustee or the Registrar (a) to the extent the Note Insurer makes payments, directly or indirectly, on account of principal of or interest on any Notes to the Owners of such Notes, the Note Insurer will be fully subrogated to the rights of such Owners to receive such principal and interest from the Trust and (b) the Note Insurer shall be paid such principal and interest but only from the sources and in the manner provided herein for the payment of such principal and interest. The Indenture Trustee, the Seller, the Depositor and the Servicer shall cooperate in all respects with any reasonable request by the Note Insurer for action to preserve or enforce the Note Insurer's rights or interests under this Agreement without limiting the rights or affecting the interests of the Owners as otherwise set forth therein. Section 7.04 Notices to the Note Insurer. All notices, statements, reports, certificates or opinions required by this Agreement or the Indentures to be sent to any other party hereto or to any of the Owners shall also be sent to the Note Insurer. 73 Section 7.05 Rights to the Note Insurer To Exercise Rights of Owners. By accepting its Note, each Owner agrees that unless a Note Insurer Default exists, the Note Insurer shall have the right to exercise all rights of the Owners as specified under this Agreement or the Indentures without any further consent of the Owners. 74 IN WITNESS WHEREOF, the Seller, the Servicer and the Indenture Trustee have caused this Agreement to be duly executed by their respective officers thereunto duly authorized, all as of the day and year first above written. FIRST ALLIANCE MORTGAGE LOAN TRUST 1998-2, By: WILMINGTON TRUST COMPANY as Owner Trustee By: /s/ Debra Eberly ------------------------------ Name: Debra Eberly Title: Administrative Account Manager FIRST ALLIANCE MORTGAGE COMPANY, as Seller By: /s/ Brian Chisick ------------------------------- Name: Brian Chisick Title: President/Chief Executive Officer FIRST ALLIANCE MORTGAGE COMPANY, as Servicer By: /s/ Brian Chisick ------------------------------- Name: Brian Chisick Title: President/Chief Executive Officer THE CHASE MANHATTAN BANK, as Indenture Trustee By: /s/ Diane E. Wallace ------------------------------- Name: Diane E. Wallace Title: Trust Officer 75 STATE OF Delaware ) : ss.: COUNTY OF New Castle ) On the 23rd day of June, 1998, before me personally came Debra Eberly, to me known, who, being by me duly sworn did depose and say that he/she resides at Bear, Delaware that he/she is a(n) Administrative Account Manager of Wilmington Trust Company, a Delaware banking corporation described in and that executed the above instrument as Owner Trustee; and that he/she signed his/her name thereto by order of the Board of Directors of said Delaware banking corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. [NOTARIAL SEAL] /s/ Kathleen A. Pedelini ------------------------ Notary Public 76 STATE OF New York ) : ss.: COUNTY OF New York ) On the 29th day of June, 1998, before me, personally came Diane E. Wallace, to me known, who being by me duly sworn did depose and say that his/her office is located at 450 West 33rd Street, New York, New York 10001; that he is a Trust Officer of The Chase Manhattan Bank, the New York banking corporation described herein and that he executed the above instrument as Indenture Trustee; and that he signed his name thereto under the authority granted by the Board of Directors of said New York banking corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. [NOTARIAL SEAL] /s/ Margaret M. Price --------------------- Notary Public 77 STATE OF CALIFORNIA ) ) ss.: COUNTY OF ORANGE ) On the 24TH day of June, 1998, before me, a Notary Public, personally appeared BRIAN CHISICK, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. [NOTARIAL SEAL] /s/ S. Morrison --------------- Notary Public 78 EXHIBIT B CERTIFICATE RE: PREPAID LOANS I, ______________, ______________ of First Alliance Mortgage Company, a California corporation, (the "Seller"), hereby certify that between the "Cut-Off Date" (as defined in the Sale and Servicing Agreement dated as of June 1, 1998 among the Seller, the Seller in its capacity as servicer (the "Servicer") and The Chase Manhattan Bank, a New York banking corporation, in its capacity as indenture trustee (the "Indenture Trustee")) and the "Closing Date" the following schedule of "Mortgage Loans" have been prepaid in full. Dated: By: _________________________ Name: _________________________ Title:_________________________ B-1 EXHIBIT C INITIAL CERTIFICATION WHEREAS, the undersigned is an Authorized Officer of The Bank of New York, a New York banking corporation, acting in its capacity as custodian (the "Custodian") on behalf of The Chase Manhattan Bank, a New York banking corporation acting in its capacity as indenture trustee (the "Indenture Trustee") of a certain pool of mortgage loans (the "Pool") heretofore conveyed in trust to the Custodian, on behalf of the Indenture Trustee, pursuant to that certain Sale and Servicing Agreement dated as of June 1, 1998 (the "Sale and Servicing Agreement") by and among First Alliance Mortgage Loan Trust 1998-2, a Delaware business trust (the "Issuer"), First Alliance Mortgage Company, a California corporation (the "Seller"), the Seller, in its capacity as servicer (the "Servicer") and the Indenture Trustee; WHEREAS, the Custodian, on behalf of the Indenture Trustee, is required, pursuant to Section 2.6 of the Sale and Servicing Agreement, to review the Files relating to the Pool on or before the Closing Date; and WHEREAS, Section 2.6 of the Sale and Servicing Agreement requires the Custodian, on behalf of the Indenture Trustee, to deliver this Initial Certification upon the satisfaction of certain conditions set forth therein. NOW, THEREFORE, the Custodian, on behalf of the Indenture Trustee, hereby certifies with respect to each Mortgage Loan listed in the Schedule of Mortgage Loans (other than any Mortgage Loan paid in full), which is attached hereto, that all documents required to be delivered to it pursuant to the Sale and Servicing Agreement are in its possession, such documents have been reviewed by it and appear regular on their face and relate to such Mortgage Loan and based on its examination and only as to the foregoing documents, the information set forth on the Schedule of Mortgage Loans as to loan number and address accurately reflects information set forth in the File, except as attached thereto. THE BANK OF NEW YORK, as Custodian Name: ________________________ Title:________________________ Dated: _________________ [Attached Exception List] C-1 EXHIBIT D FINAL CERTIFICATION WHEREAS, the undersigned is an Authorized Officer of The Bank of New York, a New York banking corporation, acting in its capacity as custodian (the "Custodian) on behalf of the indenture trustee (the "Indenture Trustee") of a certain pool of mortgage loans (the "Pool") heretofore conveyed in trust to the Custodian, on behalf of the Indenture Trustee, pursuant to that certain Sale and Servicing Agreement dated as of June 1, 1998 (the "Sale and Servicing Agreement") by and among First Alliance Mortgage Loan Trust 1998-2, a Delaware business trust (the "Issuer"), First Alliance Mortgage Company, a California corporation (the "Seller"), the Seller, in its capacity as servicer (the "Servicer") and the Indenture Trustee; WHEREAS, the Custodian, on behalf of the Indenture Trustee, is required, pursuant to Section 2.6 of the Sale and Servicing Agreement, to review the Files relating to the Pool within a specified period following the Closing Date and to notify the Seller promptly of any defects with respect to the Pool, and the Seller is required to remedy such defects or take certain other action, all as set forth in Section 2.6 of the Sale and Servicing Agreement; and WHEREAS, Section 2.6 of the Sale and Servicing Agreement requires the Custodian, on behalf of the Indenture Trustee, to deliver this Final Certification upon the satisfaction of certain conditions set forth therein. NOW, THEREFORE, the Custodian, on behalf of the Indenture Trustee, hereby certifies that it has determined that all required documents (or certified copies of documents listed in Section 2.5 of the Sale and Servicing Agreement) have been executed or received, and that such documents relate to the Mortgage Loans identified in the Schedule of Mortgage Loans pursuant to Section 2.5(a) of the Sale and Servicing Agreement or, in the event that such documents have not been executed and received or do not so relate to such Mortgage Loans, any remedial action by the Seller pursuant to Section 2.6 of the Sale and Servicing Agreement has been completed. The Custodian makes no certification hereby, however, with respect to any intervening assignments or assumption and modification agreements. THE BANK OF NEW YORK, as Custodian Name: __________________________________ Title:__________________________________ Dated: ____________________ D-1 EXHIBIT E FORM OF MONTHLY REPORT FIRST ALLIANCE MORTGAGE COMPANY MORTGAGE LOAN ASSET BACKED NOTES SERIES 1998-2 E-1 EXHIBIT F FORM OF REQUEST FOR RELEASE To: __________________________ __________________________ __________________________ Attn: First Alliance Mortgage Loan Trust 1998-2 Date: _________________________ In connection with the administration of the mortgage loans held by you as Custodian under a certain Sale and Servicing Agreement dated as of June 1, 1998 and by and among First Alliance Mortgage Loan Trust 1998-2, as Issuer, First Alliance Mortgage Company, the Seller in its capacity as servicer (the "Servicer"), and The Chase Manhattan Bank, in its capacity as Indenture Trustee (the "Agreement"), the Servicer hereby requests a release of the File held by you as Custodian, on behalf of the Indenture Trustee, with respect to the following described Mortgage Loan for the reason indicated below: Mortgagor's Name: Loan No.: _______ Reason for requesting file: _______ 1. Mortgage Loan paid in full. (The Servicer hereby certifies that all amounts received in connection with the loan have been or will be credited to the Note Account (whichever is applicable) pursuant to the Agreement.) _______ 2. Mortgage Loan repurchased pursuant to Section 2.4, 2.6(b) or 4.10 of the Agreement. (The Servicer hereby certifies that the Loan Purchase Price has been or will be paid to the Note Account pursuant to the Agreement.) _______ 3. Mortgage Loan substituted. (The Servicer hereby certifies that a Qualified Replacement Mortgage has been or will be assigned and delivered to you along with the related File pursuant to the Agreement.) _______ 4. The Mortgage Loan is being foreclosed. _______ 5. Other. (Describe). F-1 The undersigned acknowledges that the above File will be held by the undersigned in accordance with the provisions of the Agreement and will be returned to you, except if the Mortgage Loan has been paid in full, or repurchased or substituted for by a Qualified Replacement Mortgage (in which case the File will be retained by us permanently) and except if the Mortgage Loan is being foreclosed (in which case the File will be returned when no longer required by us for such purpose). Capitalized terms used herein shall have the meanings ascribed to them in the Agreement. FIRST ALLIANCE MORTGAGE COMPANY By: __________________________ Name:__________________________ Title:_________________________ F-2 EXHIBIT G SUBSEQUENT TRANSFER AGREEMENT First Alliance Mortgage Company in its capacities as seller (the "Seller") and as servicer (the "Servicer") and First Alliance Mortgage Loan Trust 1998-2, as the "Purchaser", pursuant to the Sale and Servicing Agreement dated as of June 1, 1998, (the "Sale and Servicing Agreement") among the Seller, the Servicer, the Purchaser and The Chase Manhattan Bank, a New York banking corporation, in its capacity as Indenture Trustee (the "Indenture Trustee"), hereby confirm their understanding with respect to the sale by the Seller and the purchase by the Purchaser of those Mortgage Loans (the "Subsequent Mortgage Loans") listed on the attached Schedule of Mortgage Loans. Conveyance of Subsequent Mortgage Loans. As of ___________ __, 1998 (the "Subsequent Transfer Date"), the Seller does hereby irrevocably transfer, assign, set over and otherwise convey to the Purchaser, without recourse (except as otherwise explicitly provided for herein) all of its right, title and interest in and to any and all benefits accruing from the Subsequent Mortgage Loans which are delivered to The Bank of New York, as custodian, on behalf of the Indenture Trustee herewith (and all substitutions therefor as provided by Sections 2.3, 2.4 and 2.6 of the Sale and Servicing Agreement), together with the related Subsequent Mortgage Loan documents and the interest in any Property which secured a Subsequent Mortgage Loan but which has been acquired by foreclosure or deed in lieu of foreclosure, and all payments thereon and proceeds of the conversion, voluntary or involuntary, of the foregoing; and proceeds of all the foregoing (including, but not by way of limitation, all proceeds of any mortgage insurance, hazard insurance and title insurance policy relating to the Subsequent Mortgage Loans, cash proceeds, accounts, accounts receivable, notes, drafts, acceptances, chattel paper, checks, deposit accounts, rights to payment of any and every kind, and other forms of obligations and receivables which at any time constitute all or part of or are included in the proceeds of any of the foregoing). The Seller shall deliver the original Mortgage or mortgage assignment with evidence of recording thereon (except as otherwise provided by the Sale and Servicing Agreement) and other required documentation in accordance with the terms set forth in Sections 2.5 and 2.8 of the Sale and Servicing Agreement. The costs relating to the delivery of the documents specified in this Subsequent Transfer Agreement and the Sale and Servicing Agreement shall be borne by the Seller. The Seller hereby affirms the representations and warranties set forth in the Sale and Servicing Agreement that relate to the Seller and the Subsequent Mortgage Loans as of the date hereof. The Seller hereby delivers notice and confirms that each of the conditions set forth in Section 2.8(b), 2.8(c) and 2.8(d) to the Sale and Servicing Agreement are satisfied as of the date hereof. Pursuant to Section 2.8(a) of the Sale and Servicing Agreement, the Seller instructs the Indenture Trustee to release one-hundred percent of the aggregate principal balances of the Subsequent Mortgage Loans so transferred from the Pre-Funding Account ($______________) pursuant to this Subsequent Transfer Agreement. All terms and conditions of the Sale and Servicing Agreement are hereby ratified, confirmed and incorporated herein, provided that in the event of any conflict the provisions of this Subsequent Transfer Agreement shall control over the conflicting provisions of the Sale and Servicing Agreement. C-1 Terms capitalized herein and not defined herein shall have their respective meanings as set forth in the Sale and Servicing Agreement. FIRST ALLIANCE MORTGAGE THE CHASE MANHATTAN BANK, COMPANY. as Seller as Indenture Trustee for First Alliance Mortgage Loan Trust 1998-2 By: __________________________________ By: _______________________ Name: ____________________________ Name: _________________ Title: ___________________________ Title:_________________ FIRST ALLIANCE MORTGAGE COMPANY, as Servicer By: __________________________________ Name: ____________________________ Title: ___________________________ Dated: C-2 EX-10.2 7 SUBSEQUENT TRANSFER AGREEMENT Exhibit 10.2 SUBSEQUENT TRANSFER AGREEMENT First Alliance Mortgage Company in its capacities as seller (the "Seller") and as servicer (the "Servicer") and First Alliance Mortgage Loan Trust 1998-2, as the "Purchaser", pursuant to the Sale and Servicing Agreement dated as of June 1, 1998, (the "Sale and Servicing Agreement") among the Seller, the Servicer, the Purchaser and The Chase Manhattan Bank, a New York banking corporation, in its capacity as Indenture Trustee (the "Indenture Trustee"), hereby confirm their understanding with respect to the sale by the Seller and the purchase by the Purchaser of those Mortgage Loans (the "Subsequent Mortgage Loans") listed on the attached Schedules of Mortgage Loans. Conveyance of Subsequent Mortgage Loans. As of June 30, 1998 (the "Subsequent Transfer Date"), the Seller does hereby irrevocably transfer, assign, set over and otherwise convey to the Purchaser, without recourse (except as otherwise explicitly provided for herein) all of its right, title and interest in and to any and all benefits accruing from the Subsequent Mortgage Loans which are delivered to The Bank of New York, as custodian, on behalf of the Indenture Trustee herewith (and all substitutions therefor as provided by Sections 2.3, 2.4 and 2.6 of the Sale and Servicing Agreement), together with the related Subsequent Mortgage Loan documents and the interest in any Property which secured a Subsequent Mortgage Loan but which has been acquired by foreclosure or deed in lieu of foreclosure, and all payments thereon and proceeds of the conversion, voluntary or involuntary, of the foregoing; and proceeds of all the foregoing (including, but not by way of limitation, all proceeds of any mortgage insurance, hazard insurance and title insurance policy relating to the Subsequent Mortgage Loans, cash proceeds, accounts, accounts receivable, notes, drafts, acceptances, chattel paper, checks, deposit accounts, rights to payment of any and every kind, and other forms of obligations and receivables which at any time constitute all or part of or are included in the proceeds of any of the foregoing). The Seller shall deliver the original Mortgage or mortgage assignment with evidence of recording thereon (except as otherwise provided by the Sale and Servicing Agreement) and other required documentation in accordance with the terms set forth in Sections 2.5 and 2.8 of the Sale and Servicing Agreement. The costs relating to the delivery of the documents specified in this Subsequent Transfer Agreement and the Sale and Servicing Agreement shall be borne by the Seller. The Seller hereby affirms the representations and warranties set forth in the Sale and Servicing Agreement that relate to the Seller and the Subsequent Mortgage Loans as of the date hereof. The Seller hereby delivers notice and confirms that each of the conditions set forth in Section 2.8(b), 2.8(c) and 2.8(d) to the Sale and Servicing Agreement are satisfied as of the date hereof. Pursuant to Section 2.8(a) of the Sale and Servicing Agreement, the Seller instructs the Indenture Trustee to release one-hundred percent of the aggregate principal balances of the Subsequent Mortgage Loans so transferred from the Pre-Funding Account, $17,380,072.68 pursuant to this Subsequent Transfer Agreement and to include $3,418,150.07 of the Subsequent Mortgage Loans listed in Exhibit A hereto in the Adjustable Rate Pool and $13,961,922.61 of the Subsequent Mortgage Loans listed in Exhibit B hereto in the Fixed Rate Pool. All terms and conditions of the Sale and Servicing Agreement are hereby ratified, confirmed and incorporated herein, provided that in the event of any conflict the provisions of this Subsequent Transfer Agreement shall control over the conflicting provisions of the Sale and Servicing Agreement. Terms capitalized herein and not defined herein shall have their respective meanings as set forth in the Sale and Servicing Agreement. FIRST ALLIANCE MORTGAGE THE CHASE MANHATTAN BANK, COMPANY, as Seller as Indenture Trustee for First Alliance Mortgage Loan Trust 1998-2 By: /s/ Brian Chisick By: /s/ Diane E. Wallace --------------------------------- --------------------- Name: Brian Chisick Name: Diane E. Wallace Title: President/Chief Executive Officer Title: Trust Officer FIRST ALLIANCE MORTGAGE Dated: June 30, 1998 COMPANY, as Servicer By: /s/ Brian Chisick --------------------------------- Name: Brian Chisick Title: President/Chief Executive Officer
Exhibit A Loan Schedule - 1998-2A (ADJUSTABLE)
Loan Lien Cut-Off Current Current Number Property Address City ST Zip Pos Balance Rate Pmt - - ------------------------------------------------------------------------------------------------------------------------------------ 106256 2431 34TH AVE SAN FRANCISCO CA 94116 1 188,811.00 10.000 1,656.95 106257 8803 HUMMINGBIRD AV FOUNTAIN VALLEY CA 92708 1 213,824.00 8.990 1,718.94 405792 1420 CAMPBELL STREET OAKLAND CA 94607 1 27,078.00 10.500 247.69 605004 72 RUSSELL DRIVE ANTIOCH CA 94509 1 39,995.00 9.690 341.86 1602885 1115 OAKHILL PLACE NW ISSAQUAH WA 98027 1 153,426.00 9.500 1,290.09 1803730 210 S. PROSPECT AVENUE CLARENDON HILLS IL 60514 1 165,847.00 9.490 1,393.32 1803738 8728 S. MARQUETTE CHICAGO IL 60617 1 55,190.00 8.990 559.45 2201911 494 E. STATE ST. SOUTH ELGIN IL 60177 1 80,490.00 9.850 697.45 2700583 5354 S. 2000 W. ROY UT 84067 1 106,979.00 9.240 879.31 2700584 198 E. 6715 S. MIDVALE UT 84047 1 71,747.00 7.740 513.51 3201110 13 PARK AVE PORT WASHINGTON NY 11050 1 184,541.00 11.240 1,790.97 3400591 88 PERGOLA AVE JAMESBURG (MONROE TWP) NJ 08831 1 111,200.00 10.650 1,029.68 3400605 64 DORSET DRIVE CLARK NJ 07066 1 118,570.00 9.490 996.14 3500356 177 WHITE BIRCH ST. LEICESTER MA 01524 1 126,690.00 8.850 1,005.73 3500394 6 BENTLEY LANE CHELMSFORD MA 01824 1 88,940.00 9.240 731.04 3500398 9 ABBOTT STREET NEWTON MA 02164 1 65,291.00 8.240 490.05 3500401 23 PICKMAN STREET SALEM MA 01970 1 76,990.00 9.850 667.12 8303014 7227 NW EVERS ROAD FOREST GROVE OR 97116 1 136,586.24 7.500 1,270.01 8303125 3845 SE 42ND AVE. PORTLAND OR 97206 1 63,954.83 7.750 458.50 8303179 5726 SE MALDEN STREET PORTLAND OR 97206 1 84,000.00 7.990 615.78 8303198 566 N. 2ND STREET SAN JOSE CA 95112 1 51,000.00 7.990 487.09 8303199 38304 NORTH SHORE AVE. WAUKEGAN IL 60087 1 82,000.00 7.750 771.85 8303244 166 W. AVENIDA DE LAS FLORES THOUSAND OAKS CA 91360 1 225,000.00 8.500 1,730.06 8410461 1084 NORTH SAN MARCOS ROAD SANTA BARBARA CA 93111 1 187,200.00 7.030 1,249.22 8410469 493 OLD FARM CIRCLE CENTERVILLE UT 84014 1 130,000.00 7.530 911.65 8410471 658 WEST 650 NORTH CLEARFIELD UT 84015 1 53,000.00 7.250 361.55 8410474 1941 NORTH 1400 WEST LAYTON UT 84041 1 80,000.00 8.530 616.83 8410479 5333 GARWOOD DRIVE SAN JOSE CA 95118 1 217,000.00 7.530 1,521.76 8410481 1231 BROOKSIDE ROAD PISCATAWAY NJ 08854 1 83,000.00 7.750 781.26 8410486 1507 WEST FERN AVENUE REDLANDS CA 92373 1 70,800.00 7.030 472.46 8410489 611 OBISPO AVENUE LONG BEACH CA 90814 1 79,000.00 7.780 567.60 - - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL VARIABLE RATE LOANS: 31 3,418,150.07 Loan Mat Pmt Prop Occup Appraised Orig Number Date Type Type Type Value Type - - ----------------------------------------------------------------------- 106256 8/1/28 A S I 319,000 F 106257 8/1/28 A S P 289,000 F 405792 8/1/28 A S P 68,000 F 605004 8/1/28 A S P 73,000 F 1602885 8/1/28 A S P 221,000 F 1803730 8/1/28 A S P 237,000 F 1803738 8/1/13 A F P 92,000 F 2201911 8/1/28 A S P 110,000 F 2700583 8/1/28 A F I 170,000 F 2700584 8/1/28 A S P 140,000 F 3201110 8/1/28 A S P 312,000 F 3400591 8/1/28 A S P 189,000 F 3400605 8/1/28 A S P 262,000 F 3500356 7/1/28 A S P 181,000 F 3500394 8/1/28 A S P 175,000 F 3500398 8/1/28 A S P 195,000 F 3500401 8/1/28 A S P 110,000 F 8303014 5/1/13 A S P 235,000 C 8303125 5/1/28 A S P 107,000 C 8303179 6/1/28 A S P 105,000 C 8303198 6/1/13 A S P 255,000 C 8303199 6/1/13 A S P 135,000 C 8303244 6/1/28 A S P 300,000 C 8410461 7/1/28 A S P 361,000 C 8410469 7/1/28 A S P 195,000 C 8410471 7/1/28 A S P 90,000 C 8410474 7/1/28 A S P 100,000 C 8410479 7/1/28 A S P 315,000 C 8410481 7/1/13 A S P 125,000 C 8410486 7/1/28 A S P 122,000 C 8410489 7/1/28 A S P 138,000 C - - ----------------------------------------------------------------------
Page 1 98-2A Exhibit B Loan Schedule - 1998-2F (FIXED)
Loan Lien Cut-Off Current Number Property Address City ST Zip Pos Balance Rate - - -------------------------------------------------------------------------------------------------------------------------------- 106253 13901 HOLT AVE SANTA ANA CA 92705 1 72,034.00 8.990 106255 22021 MALIBU LN HUNTINGTON BEACH CA 92646 1 49,700.00 8.990 203343 1185 MARLINE AVENUE EL CAJON CA 92021 1 75,411.10 10.950 204486 1720 WALTON STREET OCEANSIDE CA 92054 1 68,240.00 8.990 303954 19418 LEAL CIRCLE CERRITOS CA 90703 1 98,355.95 11.500 304045 2851 DELAWARE AVE SANTA MONICA CA 90404 1 191,225.69 9.625 304098 2720 EAST BROADWAY LONG BEACH CA 90803 1 79,064.70 9.625 304527 6013 GREENTOP STREET LAKEWOOD CA 90713 1 48,191.00 13.400 304533 1443 WEST 85TH STREET LOS ANGELES CA 90047 1 41,261.00 9.900 304539 1606 WEST 137TH STREET COMPTON CA 90222 1 37,091.00 9.890 304542 2006 WEST 79TH STREET LOS ANGELES CA 90047 1 60,931.00 8.990 304547 7040 6TH AVENUE LOS ANGELES CA 90043 1 36,559.00 9.490 404928 417-419 CLAYTON STREET SAN FRANCISCO CA 94117 1 158,809.41 9.950 405336 688 CENTRAL AVE PITTSBURG CA 94565 1 81,190.23 9.625 405439 1994 DEPOT ROAD HAYWARD CA 94545 1 66,417.16 9.950 405801 7521 HALLIDAY AVENUE OAKLAND CA 94605 1 44,186.00 9.400 405805 9966 LAWLOR STREET OAKLAND CA 94605 1 117,558.00 9.990 504517 1427 VENICE ST SIMI VALLEY CA 93065 1 63,476.94 9.625 505484 3708 MILITARY AVE LOS ANGELES CA 90034 1 68,937.49 8.750 505672 19519 BASSETT ST Reseda area CA 91335 1 63,200.00 9.400 505677 335 MARIPOSA DRIVE VENTURA CA 93001 3 34,924.00 14.950 505694 8618 STANSBURY AVENUE (PANORAMA CITY AREA) CA 91402 1 30,645.00 9.950 505699 1117 CAVALIER AVENUE SIMI VALLEY CA 93065 1 90,737.00 10.490 706953 679 FRASER AVENUE Los Angeles area CA 90022 1 79,899.28 9.990 707362 217 W BYGROVE ST; COVINA CA 91722 1 70,077.00 10.650 707373 4023 KENNETH STREET RIVERSIDE CA 92509 1 52,457.00 8.400 806667 3347 PLACERCREEK CT SAN JOSE CA 95121 1 100,787.00 9.400 806698 1885 KINROSS WAY SAN JOSE CA 95122 1 82,370.00 9.490 806699 495 ROSWELL DRIVE MILPITAS CA 95035 1 118,820.00 8.990 1301193 2418 LAVISTA ROAD NE ATLANTA GA 30329 1 50,676.97 9.200 1301642 2837 DAVIDSON DR LITHONIA GA 30058 1 86,800.00 10.900 1301658 2931 CHESHIRE DR. MARIETTA GA 30062 1 99,877.00 10.500 1301659 375 OAKLAND AVE. S.E. ATLANTA GA 30312 1 30,334.00 10.650 1301661 3984 ARDEN WAY N.E. ATLANTA GA 30342 1 171,769.00 8.990 1602095 5942 S. 125TH ST SEATTLE WA 98178 1 94,919.79 10.750 1602881 713 S MULLEN ST TACOMA WA 98405 1 51,481.00 8.990 1702670 8783 EVERETT COURT ARVADA CO 80005 1 84,795.84 9.500 1703083 916 ADAMS STREET DENVER CO 80206 1 77,039.00 8.990 1703084 3029 WEST LAYTON AVENUE ENGLEWOOD CO 80110 1 23,993.00 9.400 1802881 18901 S. 113TH AVENUE MOKENA IL 60448 1 75,618.86 9.750 1803063 9124 S. BELL AVENUE CHICAGO IL 60620 1 84,192.07 9.250 1803109 7418 S. JEFFERY BOULEVARD CHICAGO IL 60649 1 63,495.77 10.250 1803331 1642 W. 93RD STREET CHICAGO IL 60620 1 60,546.29 8.950 1803692 1541 S. TRUMBULL AVENUE CHICAGO IL 60623 1 29,633.00 9.900 1803711 1413 S. KOSTNER AVENUE CHICAGO IL 60623 1 75,081.99 8.990 1803717 10 TIMERLAKE TRAIL WEST OSWEGO IL 60543 1 87,221.99 8.990 1803735 338 MICHIGAN AVENUE AURORA IL 60506 1 52,651.00 10.490 1901801 7810 NW 175 STREET HIALEAH FL 33015 1 79,890.20 9.490 1901822 9420 JAMAICA DR MIAMI FL 33189 1 29,529.01 10.000 1901963 6266 SW 42ND ST MIAMI FL 33155 1 81,630.93 9.990 1901977 3621 SW 126 AVENUE MIAMI FL 33175 1 78,303.12 9.625 1902142 18035 NW 84TH AVENUE HIALEAH FL 33015 1 79,990.00 9.400 2101504 18346 SE TIBBETTS CT GRESHAM OR 97030 1 80,112.70 9.950 2101613 2001 LIBRA ST NEWBERG OR 97132 1 69,326.88 9.490 2101633 5342 SW 65TH AVE PORTLAND OR 97221 1 117,348.86 9.625 2101657 17650 SE HAIG DR PORTLAND OR 97236 1 101,582.40 9.650 2101807 11303 SE POWELL CT PORTLAND OR 97266 1 90,302.47 8.990 2102036 6440 NE 8TH AVE PORTLAND OR 97211 1 76,038.00 10.150 2102038 4353 NE JARRETT ST PORTLAND OR 97218 1 27,081.00 9.900 2102043 6435 NE BROADWAY ST PORTLAND OR 97213 1 52,323.00 9.400 2102045 4541 NE 26TH AVE PORTLAND OR 97211 1 40,841.00 11.900 2102047 10258 SE MITCHELL ST PORTLAND OR 97266 1 52,926.00 10.490 2201663 422 N SEMINARY AVE WOODSTOCK IL 60098 1 54,817.78 8.490 2201909 2940 N. SEELEY AVE. CHICAGO IL 60618 1 75,316.00 9.400 2401384 11371 NW 23RD STREET PEMBROKE PINES FL 33026 1 87,655.09 9.250 2401535 6701 OAKMONT DR NORTH LAUDERDALE FL 33068 1 75,738.86 9.450 2500156 1910 STINE ROAD PENINSULA OH 44264 1 97,501.79 9.500 2500177 4437 SILSBY ROAD UNIVERSITY HEIGHTS OH 44118 1 76,974.15 9.500 2500385 423 SOUTH ROSE BLVD. AKRON OH 44320 1 184,824.00 8.990 2600091 2939 N. 47TH. ST. PHOENIX AZ 85018 1 74,004.71 10.250 2600155 13022 N. 48TH. PL. SCOTTSDALE AZ 85254 1 75,724.65 9.625 2600266 2044 N. 71ST. ST. SCOTTSDALE AZ 85257 1 79,929.30 9.000 2700227 991 S 700 E SALT LAKE CITY UT 84105 1 52,642.84 10.250 2700281 557 S. 1100 W. WOODS CROSS UT 84087 1 57,091.40 9.250 2700589 5110 SOUTH 4420 WEST SALT LAKE CITY UT 84118 1 67,367.00 9.990 2900592 1434 CENTER ST LEVITTOWN PA 19057 1 40,622.28 9.500 2900855 329 MANOR RD. HATBORO PA 19040 1 80,537.00 8.990 2900861 155 CRABTREE DRIVE LEVITTOWN PA 19055 1 68,590.00 8.900 3100894 102 LAKE SHORE DR HEWITT NJ 07421 1 81,890.00 9.400 3100897 256 EPPS RD ENGLEWOOD NJ 07631 1 28,868.00 11.900 3100898 90 LANGDON AVE WHARTON NJ 07885 1 87,826.00 10.400 Loan Current Mat Pmt Prop Occup Appraised Orig Number Pmt Date Type Type Type Value Type - - ------------------------------------------------------------------------------------- 106253 579.08 8/1/28 A S P 315,000 F 106255 399.54 8/1/28 A S P 258,000 F 203343 732.79 2/1/24 A S I 112,000 F 204486 548.58 8/1/28 A S P 105,000 F 303954 981.27 9/1/26 A S P 210,000 F 304045 1,640.55 12/1/26 A S P 250,000 F 304098 677.56 2/1/27 A S P 155,000 F 304527 548.20 7/1/28 A S P 150,000 F 304533 359.05 8/1/28 A S P 77,000 F 304539 396.09 8/1/13 A S P 127,000 F 304542 489.83 8/1/28 A S P 124,000 F 304547 307.14 8/1/28 A S P 115,000 F 404928 1,405.18 5/1/26 A F P 320,000 F 405336 694.65 5/1/27 A S P 109,000 F 405439 583.11 9/1/27 A S I 161,000 F 405801 368.32 8/1/28 A S I 82,000 F 405805 1,030.79 8/1/28 A S P 163,000 F 504517 557.51 12/1/23 A S P 165,000 F 505484 545.92 7/1/27 A F P 261,000 F 505672 526.81 7/1/28 A S P 120,000 F 505677 440.20 7/1/28 A S I 360,000 F 505694 267.80 8/1/28 A S P 130,000 F 505699 829.33 8/1/28 A S P 162,000 F 706953 706.64 12/1/26 A S P 130,000 F 707362 648.89 8/1/28 A S P 150,000 F 707373 399.64 8/1/28 A S P 90,000 F 806667 840.13 7/1/28 A C P 126,000 F 806698 692.01 8/1/28 A S P 191,000 F 806699 955.20 8/1/28 A S P 235,000 F 1301193 418.05 5/1/27 A S P 134,000 F 1301642 820.06 6/1/28 A S P 103,000 F 1301658 913.61 8/1/28 A S P 153,000 F 1301659 338.14 8/1/13 A S P 74,000 F 1301661 1,380.86 8/1/28 A S P 230,000 F 1602095 892.59 12/1/26 A S P 131,000 F 1602881 413.86 8/1/28 A S P 97,000 F 1702670 720.24 11/1/26 A S P 123,000 F 1703083 619.32 8/1/28 A S P 118,000 F 1703084 200.00 7/1/28 A S P 125,000 F 1802881 655.71 12/1/26 A S P 136,000 F 1803063 697.95 4/1/27 A S P 145,000 F 1803109 572.27 5/1/27 A F P 150,000 F 1803331 487.83 11/1/27 A S P 84,000 F 1803692 389.96 7/1/08 A S P 68,500 F 1803711 603.59 7/1/28 A F P 122,000 F 1803717 884.14 8/1/13 A S P 200,000 F 1803735 481.23 8/1/28 A S P 93,000 F 1901801 677.61 12/1/26 A S P 139,000 F 1901822 291.95 1/1/17 A S P 101,000 F 1901963 719.08 8/1/27 A S P 129,000 F 1901977 668.54 9/1/27 A S P 131,000 F 1902142 666.77 8/1/28 A S P 128,000 F 2101504 706.93 10/1/26 A S P 119,000 F 2101613 587.35 2/1/27 A S P 116,000 F 2101633 1,005.10 3/1/27 A S P 174,000 F 2101657 871.91 4/1/27 A S P 133,000 F 2101807 729.22 10/1/27 A S P 121,000 F 2102036 675.73 8/1/28 A S P 117,000 F 2102038 235.66 8/1/28 A S P 75,000 F 2102043 436.15 8/1/28 A S P 130,000 F 2102045 487.54 8/1/13 A S P 84,000 F 2102047 483.74 8/1/28 A S P 104,000 F 2201663 557.52 11/1/12 A S P 92,000 F 2201909 627.81 7/1/28 A S P 174,000 F 2401384 952.27 12/1/11 A S P 134,000 F 2401535 636.03 12/1/27 A S P 95,000 F 2500156 826.60 4/1/27 A S P 180,000 F 2500177 652.18 6/1/27 A S P 113,000 F 2500385 1,485.81 8/1/28 A S P 280,000 F 2600091 671.83 3/1/26 A S P 102,000 F 2600155 651.88 6/1/26 A S P 120,000 F 2600266 649.94 12/1/26 A S P 108,000 F 2700227 474.68 4/1/27 A S P 107,000 F 2700281 473.02 6/1/27 A S P 97,000 F 2700589 590.70 8/1/28 A S P 96,000 F 2900592 343.14 9/1/27 A S P 121,000 F 2900855 816.38 8/1/13 A S P 130,000 F 2900861 546.96 8/1/28 A S P 98,000 F 3100894 682.61 8/1/28 A S P 120,000 F 3100897 344.61 8/1/13 A S P 115,000 F 3100898 796.82 8/1/28 A S P 127,000 F
Page 1 98-2F Exhibit B Loan Schedule - 1998-2F (FIXED)
Loan Lien Cut-Off Current Number Property Address City ST Zip Pos Balance Rate - - -------------------------------------------------------------------------------------------------------------------------------- 3100899 46 COLLEGE RD NETCONG NJ 07857 1 77,572.00 10.150 3100900 6046 PARK AVE WEST NEW YORK NJ 07093 1 26,066.00 9.400 3100908 16 BOYD AVE JERSEY CITY NJ 07304 1 20,468.00 11.900 3100909 43 W. CENTRAL AVE MAYWOOD NJ 07607 1 105,690.00 9.900 3200055 1602 BRENTWOOD ROAD BAYSHORE NY 11706 1 42,157.33 12.250 3200151 4 CHRISTOPHER CT DEER PARK NY 11729 1 64,755.25 9.250 3200280 360 W 18 ST DEER PARK NY 11729 1 70,021.69 10.750 3200376 24 LINDEN COURT HICKSVILLE NY 11801 1 104,726.37 9.750 3200567 53 ALLERS BLVD ROOSEVELT NY 11575 1 77,079.84 9.500 3200706 401 BEECHMONT AVENUE LINDENHURST NY 11757 1 95,999.27 9.500 3200708 28 BONAIRE DRIVE DIX HILLS NY 11746 1 125,794.26 8.490 3201065 1078 WOODFIELD RD ROCKVILLE CENTRE NY 11570 1 83,890.00 9.400 3201079 240 FIELDMERE STREET ELMONT NY 11003 1 125,983.00 10.400 3201094 516 BARBARA LN W. HEMPSTEAD NY 11552 1 61,691.00 9.900 3201106 50 SECOND PLACE CENTRAL ISLIP NY 11722 1 66,898.00 9.400 3201113 38 CRESCENT STREET HICKSVILLE NY 11801 1 42,542.00 9.400 3201117 558 RUTLAND ST WESTBURY NY 11590 1 79,643.00 9.400 3201124 3669 MARTHA BLVD BETHPAGE NY 11714 1 128,677.00 8.990 3300053 1835 69TH STREET BROOKLYN NY 11204 1 24,499.65 9.490 3300102 2035 NEW YORK AVENUE BROOKLYN NY 11210 1 58,120.00 9.990 3300471 4538 BEACH 45 STREET BROOKLYN NY 11224 1 34,784.88 8.490 3300695 60 HINCKLEY PLACE BROOKLYN NY 11218 1 73,324.00 12.400 3300699 50-31 46TH STREET WOODSIDE NY 11377 1 72,101.00 9.400 3300701 72-03 160TH STREET FLUSHING NY 11365 1 83,510.00 10.900 3300706 199-10 116 AVE. ST ALBANS NY 11412 1 24,959.00 9.900 3300707 101-19 159TH AVENUE HOWARD BEACH NY 11414 1 165,088.00 9.490 3400329 1215-17 CLINTON PLACE PLAINFIELD NJ 07063 1 33,471.11 9.250 3400577 218 JOHNSTON AVE PLAINFIELD NJ 07062 1 34,494.00 9.400 3400582 223 ADAMS STREET RAHWAY NJ 07065 1 70,276.00 9.400 3400584 19 CALUMET ROAD RANDOLPH NJ 07869 1 99,470.00 8.990 3400595 64 CLARK STREET ISELIN (WOODBRIDGE TWP) NJ 08830 1 103,378.00 9.900 3400597 650-52 E 7TH ST PLAINFIELD NJ 07060 1 47,111.00 9.400 3400599 42 NORTH 9TH AVE MANVILLE NJ 08835 1 43,639.00 9.900 3400600 354 OLD YORK RD FLEMINGTON(RARITAN TWP) NJ 08822 1 95,966.00 10.650 3400602 21 FIELD HEDGE DRIVE SOMERVILLE(HILLSBOROUGH TWP) NJ 08876 1 129,591.00 9.990 3500042 11 BRONISLAW ST. WOBURN MA 01801 1 70,771.68 8.950 3500052 122 SALEM ST. REVERE MA 02151 1 70,137.10 9.500 3500211 131 HIGH STREET BILLERICA MA 01862 1 45,126.11 8.000 3500363 5-7 MAIN STREET MALDEN MA 02148 1 71,752.00 9.400 3500370 104 SANBORN LANE READING MA 01867 1 190,032.00 9.900 3500399 14 WISCONSIN ROAD TEWKSBURY MA 01876 1 101,840.00 9.400 3500404 157 COLERIDGE ST. EAST BOSTON MA 02128 1 99,990.00 9.990 3500406 147 MARY STREET ARLINGTON MA 02174 1 202,971.00 9.400 3500407 10 SACHEM ST. BILLERICA MA 01821 1 69,538.00 8.990 3500412 180 MYSTIC VALLEY PKWY WINCHESTER MA 01890 1 182,162.00 9.990 3600285 5804 BLACK HAWK DRIVE OXON HILL MD 20745 1 64,787.00 9.650 3700075 424 WELLINGTON CT. MASON OH 45040 1 30,500.00 9.500 3700093 801 HARGROVE WAY CINCINNATI OH 45240 1 44,990.00 9.400 3800130 610 COTTAGE ST SW VIENNA VA 22180 1 100,721.36 9.250 3800277 7320 CARVER RD GAINESVILLE VA 20155 1 70,702.00 9.400 3800279 720 KENYON ST NW WASHINGTON DC 20010 1 35,972.00 9.400 3800280 1459 ST ST NW WASHINGTON DC 20009 1 20,000.00 9.900 3900263 941 STONE RD WESTMINSTER MD 21158 1 68,725.00 9.900 3900266 226 N GORSUCH RD WESTMINSTER MD 21157 1 48,807.00 9.490 4600028 23 OCEAN RD OCEAN CITY NJ 08226 1 21,574.00 10.650 4600042 270 BROOKSIDE AVE TRENTON (EWING TWP) NJ 08638 1 43,801.00 9.400 4800002 128 WHITTIER AVE NORTH BABYLON NY 11703 1 124,300.00 8.990 4800014 81 VERMONT AVENUE NO. BABYLON NY 11704 1 59,967.00 9.490 11001330 801 SAN TIMOTEO CANYON REDLANDS CA 92373 1 147,133.60 8.990 15000631 8100 HAGUE WAY ELVERTA CA 95626 1 63,781.61 8.950 8300104 7926 CYD DRIVE DENVER CO 80221 1 77,120.41 9.950 8300192 524 DATE STREET DRAIN OR 97435 1 44,248.99 9.250 8300795 6917 VANSCOY AVENUE NORTH HOLLYWOOD (AREA) CA 91605 1 95,016.33 9.400 8301335 4173 W. 217TH STREET FAIRVIEW PARK OH 44126 1 72,825.14 9.490 8301567 5514 18TH AVENUE SOUTH SEATTLE WA 98108 1 65,067.33 10.250 8301779 1283 EAST HIDDEN VALLEY DRIVE SANDY UT 84094 1 103,862.56 8.990 8302350 35874 BURNING TREE DRIVE NEWARK CA 94560 1 174,314.42 9.000 8302435 2262 W. 111TH UNIT B CHICAGO IL 60642 1 61,379.24 9.500 8303246 2989 S E WILLOW DRIVE HILLSBORO OR 97123 1 83,080.00 9.500 8303296 525 20TH AVENUE EAST SEATTLE WA 98112 1 145,500.00 8.750 8410239 2931 WEST 55TH AVENUE DENVER CO 80221 1 58,141.13 9.625 8410246 6185 S. CLARA DRIVE TAYLORSVILLE UT 84118 1 98,830.11 9.750 8900405 18 EUCLID AVENUE DIX HILLS NY 11746 1 79,598.17 9.500 8900561 1631 23RD AVENUE MELROSE PARK IL 60160 1 58,756.47 9.500 8901283 101 GARDEN STREET GARDEN CITY NY 11530 2 60,000.00 8.750 8901284 12 UTICA STREET LEXINGTON MA 02173 1 90,905.24 9.250 8901285 86 ABERDEEN ST. BROOKLYN NY 11207 1 85,284.07 9.500 8901286 15 HIGHVIEW LANE RIDGE NY 11961 2 29,927.55 9.990 8901287 37 WALTER STREET HOLBROOK NY 11741 1 59,830.42 8.250 8901288 2 HARBOR VIEW DRIVE HUNTINGTON BAY NY 11743 1 24,936.86 9.500 8901289 76 ELM STREET FRAMINGHAM MA 01701 1 82,000.00 9.990 Loan Current Mat Pmt Prop Occup Appraised Orig Number Pmt Date Type Type Type Value Type - - ------------------------------------------------------------------------------------- 3100899 689.36 8/1/28 A S P 129,000 F 3100900 217.28 8/1/28 A F P 136,000 F 3100908 244.34 8/1/13 A S P 137,500 F 3100909 919.70 8/1/28 A S P 151,000 F 3200055 444.13 12/1/26 A S P 141,000 F 3200151 537.45 2/1/27 A S P 161,000 F 3200280 657.31 4/1/27 A S P 140,000 F 3200376 905.53 5/1/27 A S P 210,000 F 3200567 651.10 9/1/27 A S P 107,000 F 3200706 811.72 11/1/27 A S P 131,000 F 3200708 970.57 11/1/27 A S P 262,000 F 3201065 699.28 7/1/28 A S P 142,000 F 3201079 1,143.01 7/1/28 A S P 168,000 F 3201094 536.83 7/1/28 A S P 137,000 F 3201106 557.64 8/1/28 A S P 97,000 F 3201113 354.62 8/1/28 A S P 177,000 F 3201117 663.88 8/1/28 A S P 163,000 F 3201124 1,034.44 8/1/28 A S P 184,000 F 3300053 344.52 4/1/07 A F P 234,000 F 3300102 512.98 4/1/27 A S P 149,000 F 3300471 346.26 3/1/13 A S P 145,000 F 3300695 776.87 8/1/28 A S P 230,000 F 3300699 748.55 8/1/13 A S P 180,000 F 3300701 788.98 8/1/28 A S P 170,000 F 3300706 217.19 8/1/28 A S P 155,000 F 3300707 1,386.95 8/1/28 A F P 270,000 F 3400329 276.09 2/1/28 A S P 83,000 F 3400577 287.53 7/1/28 A F P 82,000 F 3400582 585.80 8/1/28 A F P 120,000 F 3400584 799.64 8/1/28 A S P 229,000 F 3400595 899.59 8/1/28 A S P 170,000 F 3400597 489.11 8/1/13 A F P 138,000 F 3400599 466.28 8/1/13 A S P 114,000 F 3400600 888.62 8/1/28 A S P 150,000 F 3400602 1,136.30 8/1/28 A S P 200,000 F 3500042 570.16 8/1/27 A S P 132,000 F 3500052 592.77 8/1/27 A F P 138,000 F 3500211 332.63 12/1/27 A S P 145,000 F 3500363 598.10 7/1/28 A F P 165,000 F 3500370 1,653.64 7/1/28 A S P 310,000 F 3500399 848.91 8/1/28 A S P 150,000 F 3500404 876.75 7/1/28 A F P 125,000 F 3500406 1,691.90 8/1/28 A S P 280,000 F 3500407 704.89 8/1/13 A S P 185,000 F 3500412 1,597.26 8/1/28 A S P 330,000 F 3600285 551.87 8/1/28 A S P 120,000 F 3700075 256.46 7/1/28 A C I 67,000 F 3700093 375.02 8/1/28 A S P 75,000 F 3800130 831.25 12/1/27 A S P 182,000 F 3800277 589.35 8/1/28 A S P 120,000 F 3800279 299.85 8/1/28 A S P 78,000 F 3800280 213.70 8/1/13 A S P 166,000 F 3900263 598.04 8/1/28 A S P 127,000 F 3900266 410.04 8/1/28 A S P 136,000 F 4600028 240.49 7/1/13 A S I 260,000 F 4600042 365.11 8/1/28 A S P 81,000 F 4800002 999.25 8/1/28 A S P 168,000 F 4800014 503.80 8/1/28 A S P 129,000 F 11001330 1,224.25 3/1/24 A S P 304,000 F 15000631 528.51 4/1/24 A S P 102,000 F 8300104 684.31 12/1/25 A S P 120,000 C 8300192 370.24 1/1/26 A S P 83,000 C 8300795 800.23 11/1/26 A S P 155,000 C 8301335 616.64 3/1/27 A S P 105,000 C 8301567 586.44 5/1/27 A S P 109,000 C 8301779 848.62 6/1/27 A S P 163,000 C 8302350 1,408.08 11/1/27 A S P 250,000 C 8302435 517.67 12/1/27 A C P 88,000 C 8303246 698.58 6/1/28 A S P 134,000 C 8303296 1,144.65 6/1/28 A S P 210,000 C 8410239 497.44 5/1/27 A S P 92,000 C 8410246 854.55 5/1/27 A S P 133,000 C 8900405 672.38 9/1/27 A S P 222,500 C 8900561 496.59 8/1/27 A S P 115,000 C 8901283 472.02 5/8/13 A S P 400,000 C 8901284 748.63 4/17/28 A F P 345,000 C 8901285 892.81 5/6/13 A F I 160,000 C 8901286 322.20 5/8/13 A S P 120,000 C 8901287 582.08 5/7/13 A S P 132,000 C 8901288 261.06 5/1/13 A S P 460,000 C 8901289 719.00 5/4/28 A S P 225,000 C
Page 2 98-2F Exhibit B Loan Schedule - 1998-2F (FIXED)
Loan Lien Cut-Off Current Number Property Address City ST Zip Pos Balance Rate - - -------------------------------------------------------------------------------------------------------------------------------- 8901290 1 PRIMROSE LANE NORTH BABYLON NY 11703 1 35,000.00 10.500 8901291 93-29 HOLLIS BOULEVARD QUEENS VILLAGE NY 11428 1 109,840.21 9.250 8901292 465 ELTON STREET BROOKLYN NY 11208 1 79,966.81 10.300 8901293 9211 212TH STREET QUEENS VILLAGE NY 11428 2 60,000.00 10.250 8901294 44 OLIVER ST BROOKLYN NY 11209 1 29,939.89 11.990 8901295 229 HAMPTON GREEN STATEN ISLAND NY 10312 1 49,969.71 8.500 8901296 10 S. 141 WILEDEN LANE NAPERVILLE IL 60564 2 35,425.43 11.490 8901297 167 CENTRAL AVENUE BROOKLYN NY 11221 1 98,984.99 14.790 8901298 81 HORTON ROAD VALLEY STREAM NY 11581 1 75,000.00 9.990 8901299 967 HYLAN BOULEVARD STATEN ISLAND NY 10305 1 44,949.04 11.150 8901300 84 JOHN STREET INWOOD NY 11096 1 50,000.00 8.250 8901301 126-34 148TH STREET JAMAICA NY 11436 1 59,688.19 8.900 8901302 539 KENT PLACE WEST HEMPSTEAD NY 11552 1 75,808.06 9.500 8901303 3500 NW 1ST COURT FT. LAUDERDALE FL 33311 1 12,967.17 9.500 8901304 960 NW 34TH WAY FT. LAUDERDALE FL 33311 1 37,882.27 9.750 92001243 823 VIA FELIPE CORONA CA 91720 1 71,574.43 9.000 92001539 19125 SYLVAN STREET RESEDA AREA CA 91335 1 56,850.19 9.625 92002556 1212 NUUANU AVENUE #2207 HONOLULU HI 96817 1 235,229.02 9.600 92002941 441 EAST 169TH STREET CARSON CA 90746 1 105,281.41 9.750 92002946 770 SUNSET AVENUE VENICE CA 90291 1 213,365.69 9.625 92003001 9107, 9107 1/2 & 9109 CATTARAUGUS AV LOSUANGELES CA 90034 1 142,228.61 9.625 - - -------------------------------------------------------------------------------------------------------------------------------- TOTAL FIXED RATE LOANS: 183 13,961,922.61 Loan Current Mat Pmt Prop Occup Appraised Orig Number Pmt Date Type Type Type Value Type - - -------------------------------------------------------------------------------------- 8901290 320.16 5/8/28 A S P 140,000 C 8901291 1,007.45 5/6/18 A S P 220,000 C 8901292 719.86 5/4/28 A F P 155,000 C 8901293 588.99 5/12/18 A S P 155,000 C 8901294 359.86 5/1/13 A S P 330,000 C 8901295 384.46 5/1/28 A S P 146,000 C 8901296 414.48 5/5/13 A S P 162,500 C 8901297 1,235.19 5/20/28 A F P 136,000 C 8901298 805.50 5/7/13 A S P 165,000 C 8901299 469.09 5/12/18 A S P 200,000 C 8901300 375.63 5/12/28 A S P 150,000 C 8901301 756.81 5/15/08 A F P 168,000 C 8901302 793.61 5/11/13 A S P 205,000 C 8901303 135.75 4/13/13 A S P 63,000 C 8901304 326.48 4/20/28 A S P 80,000 C 92001243 598.04 11/1/23 A S P 115,000 C 92001539 498.56 2/1/24 A S P 130,000 C 92002556 2,054.18 5/1/24 A C P 375,000 C 92002941 929.87 6/1/24 A S P 150,000 C 92002946 1,865.25 6/1/24 A F P 313,000 C 92003001 1,243.64 6/1/24 A F I 275,000 C - - --------------------------------------------------------------------------------------
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