-----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, SYo4CToFUGfhoh5vJPmT51Msl69VsqZkDebX83GsSoLqHfvnWnQ/6xY2gLsE9aB2 GFqpTvQkj8hMFH/mJwTttQ== 0000893220-99-000393.txt : 19990402 0000893220-99-000393.hdr.sgml : 19990402 ACCESSION NUMBER: 0000893220-99-000393 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVANTA CONDUIT RECEIVABLES INC CENTRAL INDEX KEY: 0001082751 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 880360305 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-75295 FILM NUMBER: 99579487 BUSINESS ADDRESS: STREET 1: WELSH & MCKEON ROADS CITY: SPRING HOUSE STATE: PA ZIP: 19477 BUSINESS PHONE: 2156574000 MAIL ADDRESS: STREET 1: WELSH & MCKEON ROADS CITY: SPRING HOUSE STATE: PA ZIP: 19477 S-3 1 FORM S-3 ADVANTA CONDUIT RECEIVABLES, INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 1999 Registration No. 333-___________________ ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-3 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ------------------------- ADVANTA CONDUIT RECEIVABLES, INC. (As sponsor of the trusts described herein) Nevada 10790 Rancho Bernardo Road 88-0360305 (Jurisdiction) San Diego, California 92127 (I.R.S. Employee identification No.) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ------------------------- ELIZABETH MAI, ESQ. WELSH & MCKEAN ROADS SPRING HOUSE, PENNSYLVANIA 19477 (215) 657-4000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------- COPIES TO: CHRIS DIANGELO, ESQ. DEWEY BALLANTINE LLP 1301 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019 ------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. |_| If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. |X| If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. |_| If this Form is filed as a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. |_| If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE =============================================================================================================================== Proposed Proposed Title of Securities Amount Maximum Maximum Amount of Being Registered To be Aggregate Price Aggregate Registration Registered Per Unit(1) Offering Price(1) Fee =============================================================================================================================== Mortgage Loan Asset-Backed Certificates $1,000,000(2) 100% $1,000,000 $278.00(3) ===============================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee. (2) In accordance with Rule 429 of the Securities and Exchange Commission's Rules and Regulations under the Securities Act of 1933, as amended, the Prospectus included herein is a combined prospectus which also relates to the Registrant's Registration Statement on Form S-3 (Registration Statement No. 333-52351) (the "Prior Registration Statement"). The amount of Securities eligible to be sold under the Prior Registration Statement ($637,500,000 as of March 9, 1999) shall be carried forward to this Registration Statement. (3) $278.00 is paid pursuant to this Registration Statement. $177,225.00 is attributable to the amount carried forward from the Prior Registration Statement for which a filing fee was paid at the time of registration of the Prior Registration Statement. ------------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF 1933, THE PROSPECTUS FILED AS PART OF THIS REGISTRATION STATEMENT MAY BE USED IN CONNECTION WITH THE SECURITIES COVERED BY REGISTRATION STATEMENT ON FORM S-3 (REGISTRATION NO. 333-52351). ================================================================================ 2 CROSS REFERENCE SHEET TO FORM S-3
ITEM AND CAPTION IN FORM S-3 CAPTION OR LOCATION IN PROSPECTUS ---------------------------- --------------------------------- 1. Forepart of Registration Statement and Outside Front Forepart of Registration Statement; Outside Front Cover Page of Prospectus.............................. Cover Page** 2. Inside Front and Outside Back Cover Pages of Prospectus Inside Front and Outside Back Cover Page** 3. Summary Information, Risk Factors and Ratio of Earnings Summary of Prospectus**; Risk Factors**; to Fixed Charges...................................... 4. Use of Proceeds....................................... Use of Proceeds 5. Determination of Offering Price....................... * 6. Dilution.............................................. * 7. Selling Security Holders.............................. * 8. Plan of Distribution.................................. Methods of Distribution** 9. Description of Securities to be Registered............ Outside Front Cover Page**; Summary of Prospectus**; Description of the Securities**; Certain Federal Income Tax Consequences** 10. Interests of Named Experts and Counsel................ * 11. Material Changes...................................... * 12. Incorporation of Certain Information by Reference..... See Page II-3 13. Disclosure of Commission Position on Indemnification for Securities Act Liabilities............................ See Page II-4
- -------------------- * Not applicable or answer is negative. ** To be completed from time to time by Prospectus Supplement. 3 PROSPECTUS - -------------------------------------------------------------------------------- ADVANTA CONDUIT RECEIVABLES, INC. Mortgage Loan Asset-Backed Securities, Sponsor Issuable in Series ADVANTA MORTGAGE CORP. USA Master Servicer - -------------------------------------------------------------------------------- Advanta Conduit Receivables, Inc. may sell, from time to time, a series of its mortgage loan asset-backed securities backed solely by the assets of the related trust. The assets of each trust consist primarily of a pool of mortgage loans. YOU SHOULD READ THE SECTION ENTITLED "RISK FACTORS" ON PAGE 12 OF THIS PROSPECTUS AND CONSIDER THESE FACTORS BEFORE MAKING A DECISION TO INVEST IN THESE SECURITIES. These securities are mortgage loan asset-backed securities which represent interests in or obligations of the trust issuing that series of securities and are not interests in or obligations of any other person or entity. Neither these securities nor the underlying mortgage loans will be insured or guaranteed by any governmental agency or instrumentality. Retain this prospectus for future reference. This prospectus may not be used to consummate sales of securities unless accompanied by the prospectus supplement relating to the offering of such securities. THE SECURITIES -- - - will be issued from time to time in series - - will be issued by trusts established by Advanta Conduit Receivables, Inc. - - will be backed by one or more pools of mortgage loans held by the related issuing trust - - will, if offered by this prospectus, be rated in one of the four highest rating categories by at least one nationally recognized statistical rating organization - - may have the benefit of one or more forms of credit enhancement, such as insurance policies, overcollateralization, subordination or reserve funds. THE ASSETS -- The assets of each trust will primarily consist of a pool of mortgage loans, funds on deposit in one or more accounts and such forms of credit support as described in this prospectus and in the related prospectus supplement. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS APRIL __, 1999 4 IMPORTANT INFORMATION ABOUT THE INFORMATION PRESENTED IN THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT We provide information to you about the securities in two separate documents that progressively provide more detail: (1) this prospectus, which provides general information, some of which may not apply to a particular series of securities, and (2) the prospectus supplement, which describes the specific terms of your series of securities. This prospectus does not contain complete information about the offering of your securities. Additional information is contained in the prospectus supplement. We urge investors to read both this prospectus and the prospectus supplement in full. We cannot sell the securities to you unless you have received both this prospectus and the prospectus supplement. IF THE TERMS OF YOUR SERIES OF SECURITIES VARY BETWEEN THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT, YOU SHOULD RELY ON THE INFORMATION IN THE PROSPECTUS SUPPLEMENT. The prospectus supplement relating to a series of securities to be offered hereunder will state: - - the aggregate principal amount, interest rate, and authorized denominations of each class of such securities; - - certain information concerning the mortgage loans, the originator and the master servicer; - - the terms of any credit enhancement with respect to such series; - - information concerning any other assets in the related trust fund, including any reserve fund; - - the final scheduled distribution date of each class of such securities; - - the method used to calculate the rate at which interest on each class of securities will accrue, the time period during which interest on each class of securities will accrue, the order of priority of the application of such interest to the respective classes and the manner of distribution of interest among each class of securities; - - the method to be used to calculate the amount of principal required to be applied to each class of securities of each series on each payment date, the timing of the application of principal and the order of priority of the application of such principal to the respective classes of securities; - - additional information with respect to the plan of distribution of such securities; and - - the federal income tax characterization of the securities. 2 5 REPORTS The Sponsor intends to cause each trust to file certain reports with the Securities and Exchange Commission pursuant to the requirements of the Securities Exchange Act of 1934, as amended. The Sponsor intends to cause each trust to suspend filing such reports if and when such reports are no longer required under the Securities Exchange Act. In connection with each distribution of principal and/or interest, the trustee will furnish securityholders with statements containing information with respect to the related trust, as described herein and in the applicable prospectus supplement for such series. The master servicer for each series relating to mortgage loans will furnish periodic compliance statements setting forth certain specified information to the related trustee and, in addition, annually will furnish such trustee with a statement from a firm of independent public accounts with respect to the examination of certain documents and records relating to the servicing of the mortgage loans in the related trust. Copies of the monthly and annual statements provided by the master servicer to the trustee will be furnished to securityholders of each series upon request addressed to Advanta Conduit Receivables, Inc., 10790 Rancho Bernardo Road, San Diego, California 92127, (619) 674-1800. AVAILABLE INFORMATION The Sponsor has filed a registration statement under the Securities Act of 1933, as amended, with the Securities and Exchange Commission with respect to the securities offered pursuant to this prospectus. This prospectus contains, and the prospectus supplement for each series of securities will contain, a summary of the material terms of the documents referred to herein and therein, but neither contains nor will contain all of the information set forth in the registration statement of which this prospectus is a part. For further information, you should read the registration statement and any amendments thereof and exhibits thereto. You may obtain a copy of the registration statement from the Public Reference Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 upon payment of the prescribed charges, or you may examine the registration statement free of charge at the Securities and Exchange Commission's offices, 450 Fifth Street, N.W., Washington, D.C. 20549 or at the regional offices of the Securities and Exchange Commission located at Room 1400, 75 Park Place, New York, New York 10007 and Northwestern Atrium Center, 500 West Madison Street, Suite 400, Chicago, Illinois 60661-2511. In addition, the Securities and Exchange Commission maintains a site on the World Wide Web containing reports, proxy and information statements and other items. The address is http://www.sec.gov. You should rely only on the information contained in this document and the prospectus supplement. We have not authorized anyone to provide any information that is different. This prospectus and any prospectus supplement with respect hereto do not constitute an offer to sell or a solicitation of an offer to buy any securities other than the securities offered hereby and thereby nor an offer of the securities to any person in any state or other jurisdiction in which such offer would be unlawful. The information set forth herein speaks as of the date hereof. You should not assume that it will remain correct after such date. 3 6 INCORPORATION OF CERTAIN INFORMATION BY REFERENCE There are incorporated herein by reference all documents and reports filed or caused to be filed by the Sponsor with respect to a trust pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, after the date of this prospectus and prior to the termination of any offering of securities evidencing interests therein. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for all purposes of this prospectus to the extent that a statement contained herein (or in the accompanying prospectus supplement) or in any other subsequently filed document which also is or is deemed to be incorporated by reference modifies or replaces such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus. The Sponsor will provide or cause to be provided without charge to each person to whom this prospectus is delivered in connection with the offering of one or more classes of securities, a list identifying all filings with respect to a trust pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act since such trust's latest fiscal year covered by its annual report on Form 10-K and a copy of any or all documents or reports incorporated herein by reference, in each case to the extent such documents or reports relate to one or more of such classes of such securities, other than the exhibits to such documents (unless such exhibits are specifically incorporated by reference in such documents). You can obtain from the Sponsor, free of charge, a copy of the financial information incorporated by reference by making an oral or written request to Advanta Conduit Receivables, Inc., Attention: General Counsel, Welsh & McKean Roads, Spring House, Pennsylvania 19477, (215) 657-4000. The Sponsor's principal offices are located at 10790 Rancho Bernardo Road, San Diego, California 92127, and its telephone number is (619) 674-1800. We include cross-references in this prospectus to captions in these materials where you can find further related discussions. The following table of contents provides the pages on which these captions are located. 4 7 TABLE OF CONTENTS
PAGE ---- IMPORTANT INFORMATION ABOUT THE INFORMATION PRESENTED IN THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT ........................................................ 2 REPORTS........................................................................................................... 3 AVAILABLE INFORMATION............................................................................................. 3 INCORPORATION OF CERTAIN INFORMATION BY REFERENCE................................................................. 4 SUMMARY OF PROSPECTUS............................................................................................. 6 RISK FACTORS...................................................................................................... 12 THE TRUSTS........................................................................................................ 22 THE MORTGAGE LOANS................................................................................................ 23 MORTGAGE LOAN PROGRAM............................................................................................. 30 DESCRIPTION OF THE SECURITIES..................................................................................... 35 DESCRIPTION OF CREDIT ENHANCEMENT................................................................................. 50 THE SPONSOR....................................................................................................... 55 THE MASTER SERVICER............................................................................................... 55 THE POOLING AND SERVICING AGREEMENT............................................................................... 56 YIELD CONSIDERATIONS.............................................................................................. 60 MATURITY AND PREPAYMENT CONSIDERATIONS............................................................................ 61 CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS AND RELATED MATTERS....................................................... 63 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........................................................................... 73 STATE TAX CONSIDERATIONS.......................................................................................... 96 ERISA CONSIDERATIONS.............................................................................................. 96 LEGAL INVESTMENT MATTERS.......................................................................................... 100 USE OF PROCEEDS................................................................................................... 100 METHODS OF DISTRIBUTION........................................................................................... 100 LEGAL MATTERS..................................................................................................... 100 FINANCIAL INFORMATION............................................................................................. 101 ADDITIONAL INFORMATION............................................................................................ 101 INDEX OF PRINCIPAL DEFINED TERMS.................................................................................. 102 Annex I........................................................................................................... A-1
5 8 SUMMARY OF PROSPECTUS - - This summary highlights selected information from this prospectus and does not contain all of the information that you need to consider in making your investment decision. To understand all of the terms of the offering of the offered securities, read carefully this entire prospectus and the accompanying prospectus supplement. - - This summary provides an overview of certain calculations, cash flows and other information to aid your understanding and is qualified by the full description of these calculations, cash flows and other information in this prospectus and the accompanying prospectus supplement. - - You can find a listing of the pages where capitalized terms used in this prospectus are defined under the caption "Index of Principal Defined Terms" beginning on page 102 in this prospectus and under the caption "Index of Principal Defined Terms" in the accompanying prospectus supplement. SECURITIES Mortgage loan asset-backed certificates and mortgage loan asset-backed notes issuable from time to time in series, in fully registered form or book entry only form, in authorized denominations, as described in the related prospectus supplement. Each certificate will represent a beneficial ownership interest in a trust created from time to time pursuant to a pooling and servicing agreement or trust agreement. Notes evidencing a debt obligation of a trust will be issued pursuant to a trust indenture. THE SPONSOR Advanta Conduit Receivables, Inc. is a Nevada corporation whose principal offices are located at 10790 Rancho Bernardo Road, San Diego, California 92127 and its telephone number is (619) 674-1800. The Sponsor or its affiliates may retain or hold for sale from time to time one or more classes of a series of securities. THE MASTER SERVICER Advanta Mortgage Corp. USA or its successors and assigns. THE SUB-SERVICERS The Master Servicer may appoint sub-servicers, who may be affiliates, to perform servicing duties with respect to the mortgage loans. THE TRUSTEE The trustee for each series of securities will be specified in the related prospectus supplement. The owner trustee and the indenture trustee for each series of notes will be specified in the related prospectus supplement. ISSUER OF SECURITIES The issuer of each series of securities will be a trust established by the Sponsor or one of its affiliates. Securities styled as notes will represent indebtedness of the related issuing trust and will be issued pursuant to an indenture between such trust and the indenture trustee in which such trust will pledge the assets of the related trust to secure payment on the related notes. Securities styled as certificates will represent beneficial ownership interests in the related issuing trust and will generally be issued 6 9 pursuant to a pooling and servicing agreement. The securities will represent nonrecourse obligations solely of the related trust, and the proceeds of the related trust will be the sole source of payments on the securities, except for any third-party credit enhancement. THE MORTGAGE LOANS Each trust will consist of one or more pools of mortgage loans, which may include: - - conventional (i.e., not insured or guaranteed by any governmental agency) mortgage loans secured by one-to-four family residential properties; - - mortgage loans secured by security interests in shares issued by private, non-profit, cooperative housing corporations and in the related proprietary leases or occupancy agreements granting exclusive rights to occupy specific dwelling units in such cooperatives' buildings; and, - - mortgage loans secured by junior liens on the related mortgaged properties, mortgage loans with loan-to-value ratios in excess of the appraised value of the related mortgaged property, home improvement retail installment contracts and revolving home equity lines of credit. The mortgage loans may be located in any one of the 50 states, the District of Columbia or the Commonwealth of Puerto Rico. The Sponsor will direct or request the related trust to acquire the mortgage loans from affiliated originators, unaffiliated originators or warehouse trusts created by the Sponsor or an affiliate, to finance the origination of mortgage loans. Generally, mortgage loans originated by affiliated originators will have been originated in accordance with the sponsor's underwriting guidelines and mortgage loans originated by unaffiliated originators will have been originated either in accordance with the sponsor's guidelines or in accordance with guidelines approved by the sponsor. Some mortgage loans may have been purchased by the sponsor in bulk acquisitions and such loans will have been originated in accordance with the original originator's guidelines. THE SECURITIES The securities of any series may be issued in one or more classes, as specified in the prospectus supplement. One or more classes of securities of each series: - - may be entitled to receive distributions allocable only to principal, only to interest or to any combination thereof; - - may be entitled to receive distributions only of prepayments of principal throughout the lives of the securities or during specified periods; - - may be subordinated in the right to receive distributions of scheduled payments of principal, prepayments of principal, interest or any combination thereof to one or more other classes of securities of such series throughout the lives of the securities or during specified periods; - - may be entitled to receive such distributions only after the occurrence of events specified in the related prospectus supplement; 7 10 - - may be entitled to receive distributions in accordance with a schedule or formula or on the basis of collections from designated portions of the assets in the related trust; - - may be entitled to receive interest at a fixed rate or a rate that is subject to change from time to time; - - may accrue interest and no payments will be made thereon until certain other classes of the series have been paid in full, with such accrued interest added to the principal or notional amount of the securities; and - - may be entitled to distributions allocable to interest only after the occurrence of events specified in the related prospectus supplement with such accrued interest added to the principal or notional amount of the securities until such events occur. The timing and amounts of such distributions may vary among classes, over time, or otherwise as specified in the related prospectus supplement. DISTRIBUTIONS ON THE SECURITIES Owners of securities will be entitled to receive payments in the manner set forth in the related prospectus supplement. The related prospectus supplement will specify: - - whether distributions on the securities entitled thereto will be made monthly, quarterly, semi-annually or at other intervals and dates from the payments received in respect of the mortgage loans and other assets included in the related trust pledged for the benefit of the related owners of securities; - - the amount allocable to payments of principal and the amount allocable to payments of interest on any distribution date; and - - whether all distributions will be made pro rata to owners of securities. The aggregate original principal balance of the securities will equal the aggregate distributions allocable to principal that such securities will be entitled to receive. The securities will have an aggregate original principal balance equal to or less than the aggregate unpaid principal balance of the related mortgage loans (plus amounts held in a pre-funding account, if any) and the securities will generally bear interest in the aggregate at a rate equal to the coupon rate borne by the related mortgage loans net of servicing fees and any other specified amounts. PRE-FUNDING FEATURE A trust may enter into agreements with the Sponsor, or its affiliates, whereby the Sponsor, or its affiliates, will request or direct the related trust to acquire subsequent mortgage loans after the related securities are issued. The transfer of mortgage loans after the date on which the securities are issued is known as the pre-funding feature. Any subsequent mortgage loans so transferred will be required to conform to certain specified requirements. If the pre-funding feature is to be used, the related trustee or indenture trustee will be required to deposit in a segregated account all or a portion of the proceeds in connection with the sale of the securities of the related series. The subsequent mortgage loans will be transferred to the related trust in exchange for money released from such account. Such transfers may only occur during the period specified in the related pre-funding agreement which will generally be no longer 8 11 than three months from the startup day of the related trust. If all of the monies originally deposited to such segregated account are not used by the end of the specified period, all remaining monies will be applied as a mandatory prepayment of a class or classes of securities. OPTIONAL TERMINATION The Master Servicer or any of its affiliated sub-servicers or, if applicable, the credit enhancer, may at their respective options, effect early retirement of a series of securities through the purchase of the mortgage loans in the related trust on such terms as are set forth in the related prospectus supplement. Such retirement may only occur on a date following the date on which the aggregate outstanding principal balance of either the securities or the mortgage loans is reduced below a specified percentage of their respective original balances. MANDATORY TERMINATION The trustee or the indenture trustee, as applicable, the Master Servicer or any of its affiliated sub-servicers or certain other entities specified in the related prospectus supplement may be required to effect early retirement of a series of securities by soliciting competitive bids for the purchase of the assets of the related trust or otherwise. If a pre-funding feature is used for any series of securities, at the end of the related pre-funding period amounts set aside to purchase subsequent mortgage loans and not so used will be applied as a mandatory prepayment of a class or classes of securities. ADVANCES The Master Servicer or any sub-servicer of the mortgage loans may be obligated to advance delinquent installments of principal and/or accrued interest, less applicable servicing fees, on the mortgage loans in a trust. The obligation to make advances may be limited to amounts due to the owners of securities of the related series, to amounts deemed to be recoverable from late payments or liquidation proceeds, to specified periods or to any combination thereof, in each case as specified in the related prospectus supplement. Such advance will be recoverable as specified in the related prospectus supplement. In addition, the Master Servicer of any sub-servicer will be obligated, but only to the extent set forth in the related prospectus supplement, to pay interest shortfalls which may arise due to prepayments on the underlying mortgage loans in the month in which such prepayment occurs. Such payment must come from such servicer's own funds without any right of reimbursement. CREDIT ENHANCEMENT Credit enhancement refers to a mechanism that is intended to protect the owners of securities against losses due to defaults on the underlying mortgage loans. A series of securities, or certain classes within such series, may have the benefit of one or more types of credit enhancement including but not limited to, the following: - - the use of excess interest to cover losses and to distribute principal to create overcollateralization; - - the subordination of distributions on the lower classes of securities to the required distributions in more senior classes of securities; 9 12 - - the allocation of losses on the underlying mortgage loans to the lower classes of securities; and - - the use of cross support, reserve funds, financial guarantee insurance policies, guarantees, letters of credit and similar instruments and arrangements. The protection against losses afforded by any such credit enhancement will be limited in the manner described in the related prospectus supplement. BOOK ENTRY REGISTRATION One or more classes of a series of securities may be issued in book entry form in the name of a clearing agency registered with the Securities and Exchange Commission, or its nominee. Transfers and pledges of book entry securities may be made only through entries on the books of the clearing agency. All references to the owners of securities shall mean beneficial owners to the extent beneficial owners may exercise their rights through a clearing agency. Except as otherwise specified in this prospectus or a related prospectus supplement, the term "owners" shall be deemed to include beneficial owners. CERTAIN FEDERAL INCOME TAX CONSEQUENCES Securities of each series offered hereby will, for federal income tax purposes, constitute any of the following: - - interests in a trust treated as a grantor trust under applicable provisions of the Internal Revenue Code of 1986, as amended, - - "regular interests" or "residual interests" in a trust treated as a real estate mortgage investment conduit or REMIC (or, in certain instances, containing one or more REMICs) under Sections 860A through 860G of the Internal Revenue Code of 1986, as amended, - - debt issued by a trust, - - interests in a trust which trust is treated as a partnership, or - - "regular interests" or "high-yield interests" in a trust treated as a financial asset securitization investment conduit or FASIT (or, in certain circumstances containing one or more FASITs) under Sections 860H through 860L of the Internal Revenue Code of 1986, as amended. We urge you to consult with your tax advisors and to review "Certain Federal Income Tax Consequences" herein and in the related prospectus supplement. ERISA CONSIDERATIONS A fiduciary of a pension, profit sharing or other employee benefit plan should carefully review with its legal advisors whether the purchase, holding or disposition of securities could give rise to a prohibited transaction under the Employee Retirement Income Security Act of 1974, as amended, or Section 4975 of the Internal Revenue Code of 1986, as amended, and whether an exemption from the prohibited transaction rules is available. See "ERISA Considerations" herein and in the related prospectus supplement. LEGAL INVESTMENT MATTERS The related prospectus supplement will state whether or not the securities will constitute "mortgage related securities" under the Secondary Mortgage Market 10 13 Enhancement Act of 1984. We urge each investor whose investment authority is subject to legal restrictions to consult with its own legal advisors to determine whether and to what extent the securities are suitable legal investments for them. USE OF PROCEEDS Substantially all the net proceeds from the sale of a series of securities will be applied to the simultaneous purchase of the mortgage loans included in the related trust (or to reimburse the amounts previously used to effect such purchase or to reimburse trusts created to finance such purchase), the costs of carrying the mortgage loans until sale of the securities and to pay other expenses. RATING Each class of securities offered by a prospectus supplement will be rated in one of the four highest rating categories of a nationally recognized statistical rating agency. RISK FACTORS Investment in the securities will be subject to one or more risk factors, including declines in the value of mortgaged properties, prepayment of mortgage loans, higher risks of defaults on particular types of mortgage loans, limitations on security for the mortgage loans, limitations on credit enhancement and various other factors. We urge you to read "Risk Factors" herein and in the related prospectus supplement for a discussion of these and other risk factors that should be considered before investing in the securities. 11 14 RISK FACTORS You should consider the following risk factors prior to any purchase of any class of securities. You should also consider the information under the caption "Risk Factors" in the accompanying prospectus supplement. AN INVESTMENT IN ANY SECURITY MAY NOT BE A LIQUID INVESTMENT AND THE HOLDER MAY BE FORCED TO HOLD SUCH INVESTMENT TO MATURITY There can be no assurance that a secondary market for the securities of any series or class will develop or, if it does develop, that it will provide securityholders with liquidity of investment or that it will continue for the life of the securities of any series. The prospectus supplement for any series of securities may indicate that the related underwriter specified therein intends to establish a secondary market in such securities; however, no underwriter will be obligated to do so. The securities will not be listed on any securities exchange. UNDERWRITING STANDARDS ARE LESS STRINGENT THAN THOSE USED BY FEDERAL AGENCIES WHICH MAY INCREASE RISK OF DEFAULT The Sponsor's (and its affiliates') underwriting standards consider, among other things, a mortgagor's credit history, repayment ability and debt-to-income ratio, as well as the value of the property. However, the Sponsor's (and its affiliates') mortgage loan program generally provides for the origination of mortgage loans relating to mortgage loans which, based upon standard underwriting guidelines, are ineligible for purchase by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation due to credit characteristics that do not meet these federal agency guidelines. Certain of the types of loans that may be included in the mortgage pools may involve additional uncertainties not present in conventional types of mortgage loans. For example, certain of the mortgage loans may provide for escalating or variable payments by the related mortgagor, as to which the mortgagor is generally qualified on the basis of the initial payment amount. In some instances the mortgagors' income may not be sufficient to enable them to continue to make their loan payments as such payments increase and thus the likelihood of default will increase. THE ASSETS OF THE TRUST ESTATE, AS WELL AS ANY APPLICABLE CREDIT ENHANCEMENT, WILL BE LIMITED AND MAY BE INSUFFICIENT TO PREVENT LOSSES The securities will not represent an interest in or obligation, either recourse or non-recourse (except for certain non-recourse debt described under "Certain Federal Income Tax Consequences"), of the Sponsor, the Master Servicer, any of their affiliates or any person other than the related trust. The only obligations of the foregoing entities with respect to the securities or the mortgage loans will be the obligations (if any) of the Sponsor and the Master Servicer pursuant to certain limited representations and warranties made with respect to the mortgage loans, the servicing obligations under the related servicing agreement and, if and to the extent expressly described in the related 12 15 prospectus supplement, certain limited obligations of the Sponsor, the Master Servicer, any of their affiliates or another party in connection with a purchase obligation or an agreement to purchase or act as remarketing agent with respect to a convertible adjustable-rate mortgage loan upon conversion to a fixed rate. Notwithstanding the foregoing, certain types of credit enhancement, such as a financial guaranty insurance policy or a letter of credit, may constitute a full recourse obligation of the issuer of such credit enhancement. Neither the securities nor the underlying mortgage loans will be guaranteed or insured by any governmental agency or instrumentality, or by the Sponsor, the Master Servicer or any of their affiliates. Proceeds of the assets included in the related trust for each series of securities (including the mortgage loans and any form of credit enhancement) will be the sole source of payments on the securities. PREPAYMENTS MAY ADVERSELY AFFECT THE YIELD TO MATURITY OF THE SECURITIES The yield to maturity of each series of securities may be adversely affected by a higher or lower than anticipated rate of prepayment on the related mortgage loans. The yield to maturity of each series of securities will depend on the rate of payment of principal (including prepayments, liquidations due to defaults, and repurchases due to conversion of adjustable-rate mortgage loans to fixed-rate loans or breaches of representations and warranties) on the mortgage loans, the combined loan-to-value ratios of the mortgage loans and the price paid by securityholders. The yield to maturity on securities purchased at premiums or discounted to par will be extremely sensitive to the rate of prepayments on the related mortgage loans. In addition, the yield to maturity on certain types of classes of securities, including certain classes in a series including more than one class of securities, may be relatively more sensitive to the rate of prepayment on the related Mortgage Loans than other classes of securities. The mortgage loans may be prepaid in full or in part at any time although the related mortgagor may be required to pay a prepayment penalty or premium. Such prepayment penalties will generally not be property of the related trust. We cannot predict the rate of prepayments of the mortgage loans which is influenced by a wide variety of economic, social, and other factors, including prevailing mortgage market coupon rates, the availability of alternative financing, local and regional economic conditions and homeowner mobility. Therefore, we can give no assurance as to the level of prepayments that a trust will experience. Prepayments may result from mandatory prepayments relating to unused monies held in pre-funding accounts, if any, voluntary early payments by borrowers (including payments in connection with refinancings of the related senior mortgage loans), sales of mortgaged properties subject to "due-on-sale" provisions and liquidations due to default, as well as the receipt of proceeds from physical damage, credit life and disability insurance policies. In addition, repurchases or purchases from a trust of mortgage loans or substitution adjustments required to be made under the pooling and servicing agreement will have the same effect on the securityholders as a prepayment of such mortgage loans. The related 13 16 prospectus supplement will specify whether any or all of the mortgage loans contain "due-on-sale" provisions. Collections on the mortgage loans may vary due to the level of incidence of delinquent payments and of prepayments. Collections on the mortgage loans may also vary due to seasonal purchasing and payment habits of borrowers. Certain of the mortgage loans in a trust may be in the form of revolving home equity lines of credit. The prepayment experience with respect to the home equity lines of credit will affect the weighted average life of securities issued by a trust which contains such mortgage loans. Generally such loans are not viewed by borrowers as permanent financing. As a result, such loans may experience a higher rate of prepayment than traditional "purchase-money" first-lien mortgage loans. CREDIT ENHANCEMENT WILL BE LIMITED IN SCOPE AND MAY NOT BE SUFFICIENT TO COVER LOSSES With respect to each series of securities, credit enhancement will be provided in limited amounts to cover certain types of losses on the underlying mortgage loans. Credit enhancement will generally be provided in one or more of the forms referred to herein, including, but not limited to third-party credit enhancement in the form of a letter of credit; a repurchase obligation; a special hazard insurance policy; a reserve fund; or a financial guaranty insurance policy. Credit enhancement also may be created due to the structure of the related series of securities in the form of subordination of one or more classes of securities in a series; the allocation of losses; cross-support among mortgage loans; and/or overcollateralization. See "Description of Credit Enhancement." Regardless of the form of credit enhancement provided, the coverage will be limited in amount and in most cases will be subject to periodic reduction in accordance with a schedule or formula. In addition, credit enhancement may provide only very limited coverage as to certain types of losses, and may provide no coverage as to certain other types of losses. Generally, credit enhancement does not directly or indirectly guarantee to the investors any specified rate of prepayments. The Sponsor will generally be permitted to reduce, terminate or substitute all or a portion of the credit enhancement for any series of securities if the applicable rating agency indicates that the then current rating thereof will not be adversely affected. The amount and types of coverage, the identification of any entity providing the coverage, the terms of any subordination and related information will be set forth in the prospectus supplement relating to a series of securities. See "Description of Credit Enhancement". PRE-FUNDING MAY ADVERSELY AFFECT INVESTMENT If a trust includes a pre-funding feature and the principal balance of subsequent mortgage loans delivered to the trust during the pre-funding period is less than the amount deposited in the related pre-funding account upon the issuance of the securities, the holders of the securities of the related series will receive a prepayment of principal. Any such principal prepayment may adversely affect the yield to maturity of the applicable securities. Because prevailing interest rates are subject to fluctuation, we can make no 14 17 assurance that investors will be able to reinvest such a prepayment at yields equaling or exceeding the yields on the related securities. It is possible that the yield on any such reinvestment will be lower, and may be significantly lower, than the yield on the related securities. Each subsequent mortgage loan must satisfy the eligibility criteria specified in the related agreements. Such eligibility criteria will be determined in consultation with each rating agency (and/or credit enhancer) prior to the issuance of the related series and are designed to ensure that the credit quality of such assets would be consistent with the initial rating of each class of securities of such series. Following the transfer of subsequent mortgage loans to the trust, the aggregate characteristics of the mortgage loans then held in the trust may vary from those of the mortgage loans delivered to the trust on the date the securities were issued. As a result, the subsequent mortgage loans may adversely affect the performance of the related securities. The ability of a trust to invest in subsequent mortgage loans during the related pre-funding period will be dependent on the ability of the originators to originate or acquire mortgage loans that satisfy the eligibility requirements for transfer to the trust. The ability of the originators to originate or acquire such mortgage loans will be affected by a variety of social and economic factors, including the prevailing level of market interest rates, unemployment levels and consumer perceptions of general economic conditions. JUNIOR LIENS MAY EXPERIENCE HIGHER RATES OF DELINQUENCIES AND LOSSES Certain of the mortgage loans will be secured by junior liens subordinate to the rights of the mortgagee or beneficiary under each related senior mortgage or deed of trust. As a result, the proceeds from any liquidation, insurance or condemnation proceedings will be available to satisfy the principal balance of a mortgage loan only to the extent that the claims, if any, of each senior mortgagee or beneficiary are satisfied in full, including any related foreclosure costs. In addition, a mortgage secured by a junior lien may not foreclose on the related mortgaged property unless it forecloses subject to the related senior mortgage or mortgages, in which case it must either pay the entire amount of each senior mortgage to the applicable mortgagee at or prior to a foreclosure sale or undertake the obligation to make payments on each senior mortgage in the event of default thereunder. In servicing junior lien loans in its portfolio, it has generally been the practice of the Master Servicer to satisfy each such senior mortgage at or prior to the foreclosure sale but only to the extent that it determines any amounts so paid will be recoverable from future payments and collections on such junior lien loans or otherwise. The trusts will not have any source of funds to satisfy any such senior mortgage or make payments due to any senior mortgagee. See "Certain Legal Aspects of Mortgage Loans and Related Matters--Foreclosure." PROPERTY VALUES MAY DECLINE LEADING TO HIGHER LOSSES An investment in securities may be affected by a decline in real estate values and changes in the mortgagors' financial condition. We can give no assurance that values of the mortgaged properties have remained or will remain at their levels on the dates of 15 18 origination. If the residential real estate market should experience an overall decline in property values such that the outstanding balances of any senior liens, the mortgage loans which provide subordinate financing on the mortgaged properties in a particular mortgage pool become equal to or greater than the value of the mortgaged properties, the actual rates of delinquencies, foreclosures and losses could be higher than those now generally experienced in the nonconforming credit mortgage lending industry. Such a decline could extinguish the interest of the related trust with respect to such junior liens in the mortgaged properties before having any effect on the interest of the holder of the related senior lien. In addition, in the case of mortgage loans that are subject to negative amortization, due to the addition of deferred interest to the principal balance of such mortgage loan, the principal balances of such mortgage loans could be increased to an amount equal to or in excess of the value of the underlying mortgaged properties, thereby increasing the likelihood of default. To the extent that such losses are not covered by the applicable credit enhancement, holders of securities of the series evidencing interests in the related mortgage pool will bear all risk of loss resulting from default by mortgagors and will have to look primarily to the value of the mortgaged properties for recovery of the outstanding principal and unpaid interest on the defaulted mortgage loans. MORTGAGE LOANS WITH BALLOON PAYMENT METHODS MAY INCREASE THE RISK OF DEFAULT A portion of the mortgage loans may be balloon loans originated with a stated maturity of less than the period of time of the corresponding amortization schedule. At maturity, the related mortgagor will be required to make a "balloon" payment that will be significantly larger than previous monthly payments. Because the related mortgagor is required to make a substantial single payment at maturity, the risk of default may be greater than that associated with fully amortizing mortgage loans. ADJUSTABLE RATE MORTGAGE LOANS MAY HAVE A RISK OF DEFAULT IF LOAN PAYMENTS INCREASE Adjustable rate mortgage loans may be underwritten on the basis of an assessment that mortgagors will have the ability to make payments in higher amounts after relatively short periods of time. In some instances, mortgagors' income may not be sufficient to enable them to continue to make their loan payments as the amount of such payments increase. Therefore the likelihood of default will increase. PAY-FOR-PERFORMANCE MORTGAGE LOANS MAY REDUCE AMOUNT OF COLLECTIONS ON THE MORTGAGE LOANS WHICH MAY ADVERSELY AFFECT INVESTMENT Certain of the mortgage loans may constitute "Pay-for-Performance Mortgage Loans" which are originated with a stated coupon rate which may decrease if the mortgagor maintains a steady history of timely payments over a specified period of time. Any such decrease in coupon rate, although generally indicative of good performance, may result in decreased cash proceeds received by the related trust and as a result, less cash will be available for distribution to securityholders. 16 19 BANKRUPTCY OF MORTGAGORS COULD INCREASE LOSSES TO THE TRUST General economic conditions have an impact on the ability of borrowers to repay mortgage loans. Loss of earnings, illness and other similar factors also may lead to an increase in delinquencies and bankruptcy filings by borrowers. In the event of the personal bankruptcy of a mortgagor, it is possible that a trust could experience a loss with respect to such mortgagor's mortgage loan. In conjunction with a mortgagor's bankruptcy, a bankruptcy court may suspend or reduce the payments of principal and interest to be paid with respect to such mortgage loan or permanently reduce the principal balance of such mortgage loan thereby either delaying or permanently limiting the amount received by the trust with respect to such mortgage loan. Moreover, in the event a bankruptcy court prevents the transfer of the related mortgaged property to a trust, any remaining balance on such mortgage loan may not be recoverable. INTEREST-ONLY FEATURE OF REVOLVING HOME EQUITY LINES OF CREDIT MAY ADVERSELY AFFECT INVESTMENT In general, revolving home equity lines of credit may be drawn upon for a period of three to five years, which period may be extended at the Master Servicer's or the related originator's discretion in accordance with the terms of the related agreement and, with respect to the Master Servicer, in accordance with accepted servicing practices and procedures. The decision to extend the draw period may include a review of specific credit criteria. The ability to postpone the amortization of principal may have the effect of increasing the combined loan-to-value ratio of the related mortgage loan which in turn may increase the likelihood of default. Generally, the home equity lines of credit have an interest-only feature during the draw period. The minimum payment due during the draw period will be the greater of $50.00 or the finance charge that accrued on the outstanding balance of related home equity line of credit during the related billing period. The minimum payment due during the period following the conclusion of the draw period will be the amount necessary to amortize the outstanding balance, plus interest and fees. As a result, amounts collected by the trust attributable to principal payments may be minimal during the draw period and little or no principal will be paid to holders of securities issued by the related trust during the draw period. HIGH LOAN-TO-VALUE RATIO MORTGAGE LOANS MAY CREATE A RISK OF LOSS Certain of the Mortgage Loans may have combined loan-to-value ratios at the time of origination in excess of 100%, generally up to a maximum of 125%. As a result, the related mortgaged properties may not provide adequate security for these mortgage loans. Underwriting analysis with respect to such mortgage loans relies more heavily on the mortgagor's creditworthiness than on the protection afforded by the security interest alone. Such loans are generally targeted as debt consolidation loans for borrowers with generally strong credit ratings. 17 20 Additionally, there is also the risk that if the related mortgagors relocate, such mortgagors will be unable to repay the mortgage loans in full from the sale proceeds of the related mortgaged properties and any other funds available to these borrowers. As a result, the costs incurred in the collection and liquidation of high combined loan-to-value ratio mortgage loans may be higher than with respect to mortgage loans with combined loan-to-value ratios of 100% or less because the servicer may be required to pursue collection solely against the mortgagor. The Master Servicer may, in accordance with accepted servicing procedures, pursue alternative methods to maximize proceeds, including, without limitation, the modification of defaulted mortgage loans, which may include the abatement of accrued interest or the reduction of a portion of the outstanding principal balance of such defaulted mortgage loan. Consequently, the losses on such defaulted mortgage loans may be more severe because there is no assurance that any proceeds will be recovered. FORECLOSURE OF MORTGAGE PROPERTIES INVOLVE DELAYS AND EXPENSES AND COULD CAUSE LOSSES TO THE TRUST Even assuming that the mortgaged properties provide adequate security for the mortgage loans, substantial delays could be encountered in connection with the liquidation of defaulted mortgage loans and corresponding delays in the receipt of related proceeds by the securityholders could occur. An action to foreclose on a mortgaged property securing a mortgage loan is regulated by state statutes, rules and judicial decisions and is subject to many of the delays and expenses of other lawsuits if defenses or counterclaims are interposed, sometimes requiring several years to complete. Furthermore, in some states an action to obtain a deficiency judgment is not permitted following a nonjudicial sale of a mortgaged property. In the event of a default by a mortgagor, these restrictions may impede the ability of a servicer to foreclose on or sell the mortgaged property or to obtain liquidation proceeds (net of expenses) sufficient to repay all amounts due on the related mortgage loan. The Master Servicer will be entitled to deduct from liquidation proceeds all expenses reasonably incurred in attempting to recover amounts due on the related liquidated mortgage loan and not yet repaid, including payments to prior lienholders, accrued servicing fees, delinquency advances, servicing advances, legal fees and costs of legal action, real estate taxes, and maintenance and preservation expenses. In the event that any mortgaged properties fail to provide adequate security for the related mortgage loans and insufficient funds are available from any applicable credit enhancement, securityholders could experience a loss on their investment. Liquidation expenses with respect to defaulted mortgage loans do not vary directly with the outstanding principal balance of the loan at the time of default. Therefore, assuming that a servicer takes the same steps in realizing upon a defaulted mortgage loan having a small remaining principal balance as it would in the case of a defaulted mortgage loan having a larger principal balance, the amount realized after expenses of liquidation would be less as a percentage of the outstanding principal balance of the smaller principal balance mortgage loan than would be the case with a larger principal balance loan. Under environmental legislation and judicial decisions applicable in various states, a secured party that takes a deed in lieu of foreclosure, or acquires at a foreclosure sale a 18 21 mortgaged property that, prior to foreclosure, has been involved in decisions or actions which may lead to contamination of a property, may be liable for the costs of cleaning up the purportedly contaminated site. Although such costs could be substantial, it is unclear whether they would be imposed on a holder of a mortgage note (such as a trust) which, under the terms of the pooling and servicing agreement, may not be required to take an active role in operating the mortgaged properties. See "Certain Legal Aspects of Mortgage Loans and Related Matters--Environmental Legislation." Certain of the mortgaged properties relating to mortgage loans may not be owner occupied. It is possible that the rate of delinquencies, foreclosures and losses on mortgage loans secured by non-owner occupied properties could be higher than for mortgage loans secured by owner occupied residences. LITIGATION Any material litigation relating to the Sponsor, the Master Servicer or any of their affiliates will be specified in the related prospectus supplement. GEOGRAPHIC CONCENTRATION OF MORTGAGED PROPERTIES MAY RESULT IN HIGHER LOSSES IF A REGION EXPERIENCES A DOWNTURN Certain geographic regions from time to time will experience weaker regional economic conditions and housing markets than will other regions, and, consequently, will experience higher rates of loss and delinquency on mortgage loans generally. The mortgage loans underlying certain series of securities may be concentrated in such regions, and such concentrations may present risk considerations in addition to those generally present for similar mortgage loan asset-backed securities without such concentrations. Information with respect to geographic concentration of mortgaged properties will be specified in the related prospectus supplement. STATE AND FEDERAL CREDIT PROTECTION LAWS MAY LIMIT COLLECTIONS ON THE MORTGAGE LOANS Applicable state laws generally regulate coupon rates and other charges and require certain disclosures. In addition, most states have other laws, public policy and general principles of equity relating to the protection of consumers, unfair and deceptive practices and practices that may apply to the origination, servicing and collection of the mortgage loans. The mortgage loans may also be subject to federal laws, including: (i) the Federal Truth-in-Lending Act and Regulation Z promulgated thereunder and the Real Estate Settlement Procedures Act and Regulation X promulgated thereunder, which require certain disclosures to the borrowers regarding the terms of the mortgage loans; (ii) the Equal Credit Opportunity Act and Regulation B promulgated thereunder, which prohibit discrimination on the basis of age, race, color, sex, religion, marital status, national origin, receipt of public assistance or the exercise of any right under the Consumer Credit Protection Act, in the extension of credit; and (iii) the Fair Credit Reporting Act, which regulates the use and reporting of information related to the borrower's credit experience. 19 22 Depending on the provisions of the applicable law and the specific facts and circumstances involved, violations of these laws, policies and general principles of equity may limit the ability of a servicer to collect all or part of the principal of or interest on the mortgage loans, may entitle the borrower to rescind the loan or to a refund of amounts previously paid and, in addition, could subject the owner of the mortgage loan to damages and administrative sanctions. BOOK-ENTRY REGISTRATION MAY REDUCE THE LIQUIDITY OF SECURITIES Issuance of the securities in book-entry form may reduce the liquidity of such securities in the secondary trading market because investors may be unwilling to purchase securities for which they cannot, except in certain limited circumstances, obtain definitive physical certificates representing such securityholders' interests. Securities transactions will, in most cases, be effected only through the Depository Trust Company, direct or indirect participants in DTC's book-entry system and certain banks. Therefore, the ability of a securityholder to pledge a security to persons or entities that do not participate in the DTC system, or otherwise to take actions in respect of such securities, may be limited due to lack of a physical certificate representing the securities. Securityholders may experience some delay in their receipt of distributions of interest on and principal of the securities because distributions may be required to be forwarded by the trustee to DTC and, in such a case, DTC will be required to credit such distributions to the accounts of its participants which thereafter will be required to credit them to the accounts of the applicable class of securityholders either directly or indirectly through indirect participants. See "Description of the Securities--Form of Securities." THE SOLDIERS' AND SAILORS RELIEF ACT OF 1940 MAY LIMIT THE ABILITY TO COLLECT ON THE MORTGAGE LOANS Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended, or similar state legislation, members of all branches of the military on active duty, including draftees and reservists on active duty, (i) are entitled to have interest rates reduced and capped at 6% per annum, on obligations (including mortgage loans) incurred prior to the commencement of active duty for the duration of active duty, (ii) may be entitled to a stay of proceedings on any kind of foreclosure or repossession action in the case of defaults on such obligations entered into prior to active duty for the duration of active duty and (iii) may have the maturity of such obligations incurred prior to active duty extended, the payments lowered and the payment schedule readjusted for a period of time after the completion of active duty. However, the benefits of (i), (ii) or (iii) above are subject to challenge by creditors and if, in the opinion of the court, the ability of a person to comply with such obligations is not materially impaired by active duty, the court may apply equitable principles accordingly. If a borrower's obligation to repay amounts otherwise due on a mortgage loan is relieved pursuant to the Soldiers' and Sailors' Civil Relief Act of 1940, as amended, none of the related trust, the Master Servicer, the Sponsor nor the related trustee will be required to advance such amounts, and any loss in respect thereof may reduce the amounts available to be paid to the 20 23 securityholders. Unless otherwise specified in the related prospectus supplement, any shortfalls in collections of principal and interest on the mortgage loans resulting from application of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended, will be allocated to each class of securities that is entitled to receive such principal and interest in respect of such mortgage loans in proportion to the principal and interest that each such class of securities would have otherwise been entitled to receive in respect of such mortgage loans had such shortfall not occurred. Thus, in the event that such a mortgage loan goes into default, there may be delays and losses occasioned by the inability to realize upon the mortgaged property in a timely fashion. RATINGS ARE NOT RECOMMENDATIONS TO PURCHASE SECURITIES. A REDUCTION IN THE RATING OF ANY CREDIT ENHANCER WOULD LIKELY ADVERSELY IMPACT THE RATING OF THE SECURITIES A rating is not a recommendation to purchase, hold or sell securities, inasmuch as it does not address market price or suitability for a particular investment. There is no assurance that any rating will remain in effect for any given period of time or may not be lowered or withdrawn if in the judgment of the applicable rating agency circumstances in the future so warrant. The rating of securities credit enhanced through external credit enhancement will depend primarily on the creditworthiness of the issuer of such external credit enhancement device. Any reduction in the rating assigned to the claims-paying ability of the related credit enhancer below the rating initially given to the securities would likely result in a reduction in the rating of the securities. 21 24 THE TRUSTS From time to time, Advanta Conduit Receivables, Inc. (the "SPONSOR") will cause a separate trust (each, a "TRUST") to issue one or more series of mortgage loan asset-backed certificates ("CERTIFICATES") or mortgage loan asset-backed notes ("NOTES" and together with the Certificates, the "SECURITIES"). The primary assets of each Trust will consist of a segregated pool (each, a "MORTGAGE POOL") of one- to four-family residential mortgage loans or multi-family residential mortgage loans or certificates of interest or participation therein (the "MORTGAGE LOANS"), acquired by such Trust from one or more originators (each, an "Originator"), the Sponsor, its affiliates or from trusts created by the Sponsor or its affiliates to finance the origination of mortgage loans. The Certificates issued by any Trust represent beneficial ownership interests in the related Mortgage Loans held by the related Trust, and the Notes represent debt secured by such Mortgage Loans. Each Trust will be established pursuant to an agreement (each, a "TRUST AGREEMENT") by and between the Sponsor and the trustee named therein. Each Trust Agreement will describe the related pool of mortgage assets ("MORTGAGE ASSETS") to be held in trust (each such asset pool, the "TRUST ESTATE"), which will include the related Mortgage Assets, together with payments in respect of such Mortgage Loans and may include any combination of a mortgage pool insurance policy, letter of credit, financial guaranty insurance policy, special hazard policy, reserve fund or other form of credit support ("CREDIT ENHANCEMENT"). The Mortgage Loans held by each Trust will be master serviced by Advanta Mortgage Corp. USA (the "MASTER SERVICER") pursuant to a servicing agreement (each, a "SERVICING AGREEMENT") by and between the Master Servicer an the related trustee. With respect to Securities that represent debt issued by the related Trust, the related Trust will enter into an indenture (each, an "INDENTURE") by and between such Trust and the trustee named in such Indenture (the "INDENTURE TRUSTEE"). Securities that represent beneficial ownership interests in the related Trust will be issued pursuant to the related Trust Agreement. The Securities will be entitled to payment only from the assets of the related Trust (i.e., the related Trust Estate) and, unless specified in the related prospectus supplement, will not be entitled to payments in respect of the assets of any other Trust established by the Sponsor or any of its affiliates. In the case of any individual Trust, the contractual arrangements relating to the establishment of the Trust, the servicing of the related Mortgage Loans and the issuance of the related Securities may be contained in a single agreement, or in several agreements which combine certain aspects of the Trust Agreement, the Servicing Agreement and the Indenture described above (for example, a pooling and servicing agreement, or a servicing and collateral management agreement). For purposes of this prospectus, the term "POOLING AND SERVICING AGREEMENT" as used with respect to a Trust means, collectively, and except as otherwise specified, any and all agreements relating to the establishment of the related Trust, the servicing of the related Mortgage Loans and the issuance of the related Securities. 22 25 THE MORTGAGE LOANS GENERAL Each Mortgage Pool will consist primarily of (i) Mortgage Loans, minus any stripped portion of the accrued interest payments due under the related Mortgage Note that may have been retained by any Originator or broker ("ORIGINATOR'S RETAINED YIELD"), or any other interest retained by the Sponsor or any affiliate of the Sponsor, including interest accrued and principal collected prior to the related cut-off date, evidenced by promissory notes (the "MORTGAGE NOTES") secured by mortgages or deeds of trust or other similar security instruments ("MORTGAGES") creating a lien on single-family (i.e., one- to-four family) residential properties, multi-family properties or mixed use properties (the "MORTGAGED PROPERTIES"), or (ii) certificates of interest or participations in such Mortgage Notes. The Mortgaged Properties will consist primarily of attached or detached single-family dwelling units, one- to-four family dwelling units, condominiums, townhouses, row houses, individual units in planned-unit developments and certain other dwelling units, mixed use properties and the fee, leasehold or other interests in the underlying real property. The Mortgaged Properties may be owner occupied properties (which includes second and vacation homes) and non-owner occupied properties. A Mortgage Pool may contain cooperative apartment loans ("COOPERATIVE LOANS") evidenced by promissory notes ("COOPERATIVE NOTES") secured by security interests in shares issued by cooperatives and in the related proprietary leases or occupancy agreements granting exclusive rights to occupy specific dwelling units in the related buildings. In certain cases a Mortgage Loan may also be secured by the pledge of a limited amount of collateral which is not real estate, such as fixtures or personal property that includes, but is not limited to, furniture and appliances. As used herein, unless the context indicates otherwise, "Mortgage Loans" include Cooperative Loans, "Mortgaged Properties" include shares in the related cooperative and the related proprietary leases or occupancy agreements securing Cooperative Notes, "Mortgage Notes" include Cooperative Notes and "Mortgages" include security agreements with respect to Cooperative Notes. The Mortgaged Properties may be located in any one of the fifty states, the District of Columbia, Puerto Rico or any other Territories of the United States. The Mortgage Loans will be "Conventional Loans" (i.e., loans that are not insured or guaranteed by any governmental agency). Mortgage Loans with certain loan-to-value ratios and/or certain principal balances may be covered wholly or partially by primary mortgage insurance policies. Generally, all of the Mortgage Loans will be covered by standard hazard insurance policies (which may be in the form of a blanket or forced placed hazard insurance policy). The existence, extent and duration of any such coverage will be described in the applicable prospectus supplement. Each Mortgage Loan will be selected by the Sponsor for inclusion in a Mortgage Pool from among mortgage loans originated by one or more institutions affiliated with the Sponsor (such affiliated institutions, the "AFFILIATED ORIGINATORS"), or from banks, savings and loan associations, mortgage bankers, mortgage brokers, investment banking firms, the FDIC and other mortgage loan originators or purchasers not affiliated with the Sponsor (such unaffiliated institutions, the "UNAFFILIATED ORIGINATORS"). The characteristics of the Mortgage Loans in a Trust will be described in the related prospectus supplement. Other mortgage loans available for 23 26 acquisition by a Trust may have characteristics that would make them eligible for inclusion in a Mortgage Pool but may not be selected by the Sponsor for inclusion in such Mortgage Pool. Each Security will evidence an interest in only the related Mortgage Pool and corresponding Trust Estate, and not in any other Mortgage Pool or any other Trust Estate, except in those limited situations whereby certain collections on any Mortgage Loans in a related Trust Estate in excess of amounts needed to pay the related securities may be used to make payments on more than one series of Securities or may be reallocated as directed by the Sponsor. THE MORTGAGE LOANS A Mortgage Loan that accrues interest at a fixed rate will be referred to herein as a "FIXED RATE LOAN" and a Mortgage Loan that accrued interest at an adjustable rate will be referred to as an "ADJUSTABLE RATE LOAN" or an "ARM LOAN". The specified rate of interest on a Mortgage Loan is its "Coupon Rate". All of the Mortgage Loans in a Mortgage Pool will (i) have payments that are due monthly or bi-weekly, (ii) be secured by Mortgaged Properties located in any of the fifty states, the District of Columbia, Puerto Rico or any other Territories of the United States and (iii) consist of one or more of the following types of mortgage loans: (1) Fixed-rate, fully-amortizing mortgage loans (which may include mortgage loans converted from adjustable-rate mortgage loans or otherwise modified) providing for level monthly payments of principal and interest and terms at origination or modification of generally not more than 30 years; (2) Adjustable rate mortgage loans having original or modified terms to maturity of generally not more than 30 years with a related Coupon Rate that adjusts periodically, at the intervals described in the related Mortgage Note (which may have adjustments in the amount of monthly payments at periodic intervals) over the term of the mortgage loan. Such adjustable Coupon Rate is equal to the sum of a fixed percentage set forth in the related Mortgage Note (the "NOTE MARGIN") and an index (the "INDEX") specified in the related Mortgage Note such as, by way of example: (i) U.S. Treasury securities of a specified constant maturity, (ii) weekly auction average investment yield of U.S. Treasury bills of specified maturities, (iii) the daily Bank Prime Loan rate made available by the Federal Reserve Board or as quoted by one or more specified lending institutions, (iv) the cost of funds of member institutions for the Federal Home Loan Bank of San Francisco, or (v) the interbank offered rates for U.S. dollar deposits in the London Markets, each calculated as of a date prior to each scheduled interest rate adjustment date. The related prospectus supplement will set forth the relevant Index, and aggregate information regarding the highest, lowest and weighted-average Note Margin with respect to the ARM Loans in the related Mortgage Pool. An ARM Loan may include a provision that allows the Mortgagor to convert the adjustable Coupon Rate to a fixed rate at some point during the term of such ARM Loan which is subsequent to the initial payment date; (3) Fixed-rate, graduated payment mortgage loans having original or modified terms to maturity of generally not more than 30 years with monthly payments during the first year calculated on the basis of an assumed interest rate that will be lower than the 24 27 Coupon Rate applicable to such mortgage loan in subsequent years. Deferred interest, if any, will be added to the principal balance of such mortgage loans; (4) Fixed-rate, graduated payment mortgage loans having original or modified terms to maturity of generally not more than 30 years with monthly payments in subsequent years that are calculated on the basis of an assumed interest rate that will be lower than the Coupon Rate applicable to such loan in the first year or first two years, provided that the Mortgagor qualifies under certain positive criteria, including, but not limited to, a good payment history; (5) Balloon mortgage loans ("BALLOON LOANS"), which are mortgage loans having original or modified terms to maturity of generally 5 to 15 years, which may have level monthly payments of principal and interest based generally on a 10- to 30-year amortization schedule. The amount of the monthly payment may remain constant until the maturity date, upon which date the full outstanding principal balance on such Balloon Loan will be due and payable (such amount, the "BALLOON AMOUNT"); (6) Modified mortgage loans ("MODIFIED LOANS"), which are fixed or adjustable-rate mortgage loans providing for terms at the time of modification of generally not more than 30 years. Modified Loans may be mortgage loans which have been consolidated and/or have had various terms changed, mortgage loans which have been converted from adjustable rate mortgage loans to fixed rate mortgage loans, or construction loans which have been converted to permanent mortgage loans; (7) Hybrid mortgage loans ("HYBRID ARMS") which are originated having original or modified terms to maturity of not more than 30 years with monthly payments during the first two, three or five years, as applicable, calculated at a fixed rate of interest, which fixed rate then converts to an adjustable rate for the remainder of the term of the loan. (8) A Mortgage Pool may consist, in whole or in part, of revolving home equity loans or certain balances thereof ("REVOLVING CREDIT LINE LOANS"). Interest on each Revolving Credit Line Loan may be computed and payable monthly on the average daily outstanding principal balance of such loan. From time to time prior to the expiration of the related draw period specified in a Revolving Credit Line Loan, principal amounts on such Revolving Credit Line Loan may be drawn down (up to a maximum amount as set forth in the related loan) or repaid. New draws by borrowers under the Revolving Credit Line Loans will automatically become part of the related Trust Estate. As a result, the aggregate balance of the Revolving Credit Line Loans will fluctuate from day to day as new draws by borrowers are added to the Trust Estate and principal payments are applied to such balances and such amounts will usually differ each day. Under a Revolving Credit Line Loan, a borrower may, under certain circumstances during the related draw period, choose an interest only payment option, during which the borrower is obligated to pay only the amount of interest which accrues on the loan during the billing cycle, and may also elect to pay all or a portion of the principal. Following the conclusion of the draw period, the borrower's option to pay only a portion of principal ceases and regular scheduled payments of principal and interest commence. 25 28 (9) Pay-for-Performance mortgage loans ("PAY-FOR-PERFORMANCE LOANS"), which are mortgage loans having original or modified terms to maturity of generally not more than 30 years for which the Coupon Rate may be adjusted one or more times, but not below a specified floor, depending on the Mortgagor's history of payments over a specified period or periods of time; or (10) A Mortgage Pool may contain either or both of the following types of mortgage loans (i) ARM Loans which allow the Mortgagors to convert the adjustable rates on such Mortgage Loans to a fixed rate at some point during the life of such Mortgage Loans and (ii) fixed rate mortgage loans which allow the Mortgagors to convert the fixed rates on such Mortgage Loans to an adjustable rate at some point during the life of such Mortgage Loans (each such Mortgage Loan described in (i) and (ii) above, a "CONVERTIBLE MORTGAGE LOAN"). (11) Another type of mortgage loan described in the related prospectus supplement. PAYMENTS ON THE MORTGAGE LOANS In general, all of the Mortgage Loans in a Mortgage Pool will provide for payments to be made monthly ("MONTHLY PAY") or bi-weekly. The payment terms of the Mortgage Loans to be included in a Trust will be described in the related prospectus supplement. Interest may be payable at a fixed rate, or an adjustable rate (i.e., a rate that is adjustable from time to time in relation to an index, a rate that is fixed for a period of time and is followed by an adjustable rate, a rate that is adjustable for a period of time and is followed by a fixed rate, a rate that otherwise varies from time to time, or a rate that is convertible from an adjustable rate to a fixed rate). Changes to an adjustable Coupon Rate may be subject to periodic limitations, maximum rates, minimum rates or a combination of such limitations. Accrued interest may be deferred and added to the principal of a Mortgage Loan for such periods and under such circumstances as may be specified in the related prospectus supplement. Prepayments of principal may be subject to a prepayment fee, which may be fixed for the life of the Mortgage Loan, may decline over time or may be prohibited for certain periods ("LOCKOUT PERIODS"). The Mortgage Loans may include due-on-sale clauses which permit the mortgagee to demand payment of the entire Mortgage Loan in connection with the sale or certain transfers of the related Mortgaged Property. Other Mortgage Loans may be assumable by persons meeting the then applicable underwriting standards of the related Originator. Except as otherwise described in the related prospectus supplement, interest will be calculated on each Mortgage Loan pursuant to one of three methods: Date of Payment Loans. "DATE OF PAYMENT LOANS" provide that interest is charged to the borrower under the related Mortgage or Mortgage Note (the "MORTGAGOR") at the applicable Coupon Rate on the outstanding principal balance of such Mortgage Note and calculated based on the number of days elapsed between receipt of the Mortgagor's last payment through receipt of the Mortgagor's most current payment. Such 26 29 interest is deducted from the Mortgagor's payment amount and the remainder, if any, of the payment is applied as a reduction to the outstanding principal balance of such Mortgage Note. Actuarial Loans. "ACTUARIAL LOANS" provide that interest is charged to the Mortgagor thereunder, and payments are due from such Mortgagor, as of a scheduled day of each month which is fixed at the time of origination. Rule of 78's Loans. "A RULE OF 78'S LOAN" provides for the payment by the related Mortgagor of a specified total amount of payments, payable in equal monthly installments on each due date, which total represents the principal amount financed and add-on interest in an amount calculated on the basis of the stated Coupon Rate for the term of the Loan. The rate at which such amount of add-on interest is earned and, correspondingly, the amount of each fixed monthly payment allocated to reduction of the outstanding principal are calculated in accordance with the "Rule of 78's." THE MORTGAGE POOLS The Sponsor will cause or request the Mortgage Loans constituting each Trust Estate to be assigned to the trustee named in the related prospectus supplement (the "TRUSTEE"), for the benefit of the holders of all of the Securities of the related series. The Master Servicer will service the Mortgage Loans, either directly or through other mortgage servicing institutions who may be affiliates of the Master Servicer ("SUB-SERVICERS"), pursuant to a Pooling and Servicing Agreement and will receive a fee for such services. See "Mortgage Loan Program" and "Description of the Securities." With respect to those Mortgage Loans serviced by the Master Servicer through a Sub-Servicer, the Master Servicer will remain liable for its servicing obligations under the related Pooling and Servicing Agreement as if the Master Servicer alone were servicing such Mortgage Loans. As used herein, "Master Servicer" shall refer to either the Master Servicer or any Sub-Servicer, as applicable. The Sponsor and/or certain Originators may make certain representations and warranties regarding the Mortgage Loans, but its assignment of the Mortgage Loans to the Trustee will be without recourse. See "Description of the Securities--Assignment of Mortgage Loans." The Master Servicer's obligations with respect to the Mortgage Loans will consist principally of its contractual servicing obligations under the related Pooling and Servicing Agreement (including its obligation to enforce certain purchase and other obligations of Sub-Servicers and of Originators, as more fully described herein under "Mortgage Loan Program--Representations," "--Sub-Servicing by Originators" and "Description of the Securities--Assignment of Mortgage Loans," and its obligation, if any, to make certain cash advances in the event of delinquencies in payments on or with respect to the Mortgage Loans and interest shortfalls due to prepayment of Mortgage Loans, in amounts described herein under "Description of the Securities--Advances"). The obligation of the Master Servicer to make delinquency advances will be limited to the extent, in its good faith business judgment such delinquency advances would be ultimately recoverable from the related Mortgage Loans for which such delinquency advances were made. See "Description of the Securities--Advances." 27 30 The prospectus supplement for each series of Securities will contain certain information with respect to the Mortgage Loans (or a sample thereof) contained in the related Trust Estate; such information, insofar as it may relate to statistical information relating to such Mortgage Loans will be presented as of a date certain (the "STATISTICAL CALCULATION DATE") which may also be the related cut-off date (the "CUT-OFF DATE"). Such statistical information may include, among other things, to the extent applicable to the particular Mortgage Pool the aggregate outstanding principal balance and the average outstanding principal balance, the range of origination dates, the range of CLTVs, the range of the Coupon Rates and the geographical distribution of the Mortgage Loans on a state-by-state basis. In addition, preliminary or more general information may be provided in the prospectus supplement, and specific or final information may be set forth in the related Pooling and Servicing Agreement, which will be filed with the Securities and Exchange Commission and will be made available to holders of the related series of Securities within fifteen days after the initial issuance of such Securities. The loan-to-value ratio (the "LTV") of a Mortgage Loan is equal to the ratio (expressed as a percentage) of the original principal balance of such Mortgage Loan to the appraised value of the related Mortgaged Property at the time of origination of the Mortgage Loan. The combined loan-to-value ratio (the "CLTV") of a Mortgage Loan at any given time is the ratio, expressed as a percentage, determined by dividing (x) the sum of the original principal balance of such Mortgage Loan plus, if applicable, the then current principal balance of all mortgage loans (each, a "SENIOR LIEN") secured by liens on the related Mortgaged Property having priorities senior to that of the lien which secures such Mortgage Loan, by (y) the value of the related Mortgaged Property, based upon the appraisal or valuation made at the time of origination of the Mortgage Loan. In general, for purchase money mortgage loans, the LTVs and CLTVs are calculated using the lower of the purchased price or appraised values of the related Mortgaged Properties at the time of origination. There can be no assurance that the values of Mortgaged Properties will reflect actual real estate values during the term of the Mortgage Loans. No assurance can be given that values of the Mortgaged Properties have remained or will remain at their levels on the dates of origination of the related Mortgage Loans. If the residential real estate market should experience an overall decline in property values such that the outstanding principal balances of the Mortgage Loans (plus any additional financing by other lenders on the same Mortgaged Properties) in a particular Mortgage Pool become equal to or greater than the value of such Mortgaged Properties, the actual rates of delinquencies, foreclosures and losses could be higher than those now generally experienced in the non-conforming credit mortgage lending industry. In addition, adverse economic conditions (which may or may not affect real estate values) may affect the timely and ultimate payment by Mortgagors of scheduled payments of principal and interest on the Mortgage Loans and, accordingly, the actual rates of delinquencies, foreclosures and losses with respect to the Mortgage Loans. Certain Mortgage Loans may be secured by junior liens ("JUNIOR LIENS") subordinate to the rights of the mortgagee under any related senior mortgage(s). The proceeds from any liquidation, insurance or condemnation of Mortgaged Properties relating to Junior Liens in a Mortgage Pool will be available to satisfy the principal balance of such Junior Liens only to the extent that the claims, if any, of all related senior mortgagees, including any related foreclosure costs, are satisfied in full. In addition, the Master Servicer may not foreclose on a Mortgaged 28 31 Property relating to a Junior Lien unless it forecloses subject to the related senior mortgage(s), in which case it must either pay the entire amount of each senior mortgage to the applicable mortgagee at or prior to the foreclosure sale or undertake the obligation to make payments on each senior mortgage in the event of default thereunder. Generally, in servicing Junior Liens in its loan portfolios, it has been the Master Servicer's practice to satisfy each senior mortgage at or prior to a foreclosure sale but only to the extent that it determines any amounts so paid will be recoverable from the related payments and collections on the Mortgage Loans or otherwise. The Trusts will not have any source of funds to satisfy any such senior mortgage or make payments due to any senior mortgagee. See "Certain Legal Aspects of Mortgage Loans and Related Matters--Foreclosure." Single Family and Cooperative Loans. Single family loans will consist of mortgage loans, deeds of trust or participation or other beneficial interests therein, secured by first or junior liens on one- to four-family residential properties ("SINGLE FAMILY LOANS"). The Mortgaged Properties relating to Single Family Loans will consist of detached or semi-detached single-family dwelling units, two- to four-family dwelling units, townhouses, rowhouses, individual condominium units in condominium developments, individual units in planned unit developments, individual units in a cooperative housing corporation and certain mixed use and other dwelling units. Such Mortgaged Properties may include owner occupied properties (which includes vacation and second homes) and non-owner occupied properties. Single Family Loans may include loans or participations therein secured by mortgages or deeds of trust on condominium units in low- or high-rise condominium developments together with such condominium units' appurtenant interests in the common elements of such condominium developments. Unless otherwise specified, the Cooperative Loans will be secured by security interests in or similar liens on stock, shares or membership certificates issued by cooperatives and in the related proprietary leases or occupancy agreements granting exclusive rights to occupy specific dwelling units in such cooperatives' buildings. Contracts. Contracts will consist of manufactured housing conditional sales contracts and installment sales or loan agreements each secured by a Manufactured Home ("CONTRACTS"). Contracts may be conventional, insured partially by the FHA or partially guaranteed by the Veterans Administration, as specified in the related prospectus supplement. Each Contract will be fully amortizing and will bear interest at its annual percentage rate ("APR"). The "MANUFACTURED HOMES" securing the Contracts will consist of manufactured homes within the meaning of 42 United States Code, Section 5402(6), which defines a "manufactured home" as "a structure, transportable in one or more sections, which in the traveling mode, is eight body feet or more in width or forty body feet or more in length, or, when erected on site, is three hundred twenty or more square feet, and which is built on a permanent chassis and designed to be used as a dwelling with or without a permanent foundation when connected to the required utilities, and includes the plumbing, heating, air conditioning, and electrical systems contained therein; except that such term shall include any structure which meets all the requirements of [this] paragraph except the size requirements and with respect to which the manufacturer voluntarily files a certification required by the Secretary of Housing and Urban Development and complies with the standards established under [this] chapter." 29 32 The related prospectus supplement may specify for the Contracts contained in the related Trust, among other things, the range of dates of origination of the Contracts; the range of Coupon Rates or the APRs on the Contracts; the range of Loan-to-Value Ratios; the range of minimum and maximum outstanding principal balances, the range of average outstanding principal balance; the range of outstanding principal balances of the Contracts included in the related Trust; and the range of maturities of the Contracts. MORTGAGE LOAN PROGRAM As a general matter, the Sponsor's Mortgage Loan program will consist of the origination and purchase of Mortgage Loans relating to non-conforming credits (the "SPONSOR'S MORTGAGE LOAN PROGRAM"). For purposes hereof, "non-conforming credit" means a mortgage loan which, based upon standard underwriting guidelines, is ineligible for purchase by the Federal National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC") due to credit characteristics that do not meet FNMA or FHLMC guidelines, respectively. However, certain of the Mortgage Loans will relate to FNMA or FHLMC conforming credits. The Mortgagors generally will have taken out the related Mortgage Loans for one or more of four reasons: (i) to purchase the related Mortgaged Property, (ii) to refinance an existing mortgage loan on more favorable terms, (iii) to consolidate debt, or (iv) to obtain cash proceeds by borrowing against the Mortgagor's equity in the related Mortgaged Property; the Mortgage Loans described in (i) are commonly referred to as purchase money loans and the Mortgage Loans described in (ii), (iii) and (iv) on the whole are commonly referred to as home equity loans. It is the Sponsor's practice to solicit existing Mortgagors with respect to the possible refinancing of their existing Mortgages. UNDERWRITING GUIDELINES The following is a description of the underwriting guidelines customarily employed by the Sponsor and its affiliates in originating or acquiring Mortgage Loans. The Sponsor's and its affiliates' underwriting guidelines are less stringent than the standards generally acceptable to FNMA and FHLMC with regard to the Mortgagor's credit standing and repayment ability. Mortgagors who qualify generally would not satisfy FNMA and FHLMC underwriting guidelines for any number of reasons, including, without limitation, original principal balance, unsatisfactory payment histories or debt-to-income ratios, or a record of derogatory credit items such as outstanding judgments or prior bankruptcies. Unless otherwise specified in the related prospectus supplement, the underwriting guidelines to be used in originating or acquiring the Mortgage Loans are primarily intended to assess the creditworthiness of the Mortgagor, the value of the Mortgaged Property and the adequacy of such property as collateral for the Mortgage Loans. Originators' underwriting procedures customarily utilize one of two types of underwriting guidelines, as modified from time to time (1) "Sponsor's Guidelines", which are the guidelines of the Sponsor and its Affiliated Originators and (2) "Approved Guidelines" which are guidelines of approved Unaffiliated Originators. Mortgage Loans that are originated by the Sponsor and its Affiliated Originators are underwritten utilizing the Sponsor's Guidelines. Mortgage Loans that are purchased by the Sponsor and its Affiliated Originators are underwritten utlizing either the Sponsor's Guidelines or the Approved Guidelines. 30 33 Sponsor's Guidelines - The Sponsor's Guidelines consider the value and adequacy of the Mortgaged Property as collateral for the proposed Mortgage Loan but also takes into consideration the mortgagor's credit standing and repayment ability. There are three major steps in the Sponsor's underwriting process: (1) identify the eligibility and appropriate credit grade of the mortgagor, (2) evaluate the eligibility and lendable equity of the Mortgaged Property, and (3) ensure the loan terms meet those acceptable for that credit grade. On a case by case basis the Sponsor may determine that based on compensating factors, a prospective mortgagor may not strictly qualify under a particular underwriting credit grade risk category but warrants an underwriting exception. Compensating factors may include, without limitation, relatively low loan-to-value ratio, relatively low debt-to-income ratio, stable employment and amount of time borrower has lived in the same residence. It is anticipated that a number of the Mortgage Loans underwritten in accordance with the Sponsor's Guidelines will have been originated based on such underwriting exceptions. The Sponsor's Guidelines are revised continuously based on opportunities and prevailing conditions in the nonconforming credit residential mortgage market, as well as the expected market for the Securities. In addition to Mortgage Loans originated by the Sponsor and its Affiliated Originators, the Sponsor and its Affiliated Originators may purchase Mortgage Loans from Unaffiliated Originators which were underwritten in accordance with the Sponsor's Guidelines. The Sponsor generally will review or cause to be reviewed only a limited portion of the Mortgage Loans purchased from Unaffiliated Originators for conformity with the Sponsor's Guidelines. The Sponsor's Guidelines permit the origination and purchase of mortgage loans with multi-tiered credit characteristics tailored to individual credit profiles. In general, the Sponsor's Guidelines require an analysis of the equity in the Mortgaged Property, the payment history of the borrower, the borrower's ability to repay debt, the property type, and the characteristics of the underlying first mortgage, if any. A lower maximum CLTV is required for lower gradations of credit quality and higher property values. The Mortgage Loans generally are secured by either owner occupied properties (which includes second and vacation homes) or non-owner occupied properties which, in either case are single-family residences (which may be detached, part of a one- to-four family dwelling, a condominium unit, coop or a unit in a planned unit development). The Sponsor's Guidelines generally require that the CLTV of a Mortgage Loan not exceed 100%, after taking into account the amount of any primary mortgage insurance applicable to such Mortgage Loan. In most cases, the value of each property proposed as security for a mortgage loan is required to be determined by a full appraisal. A limited appraisal of a property, conducted on a drive-by basis or a "multiple comparable" basis, may be utilized. Two full appraisals are generally required for properties valued over $500,000. Appraisals are required to be completed by qualified professional appraisers. 31 34 The Sponsor's Guidelines provide for the origination of loans under three general loan programs: (i) a full verification program for salaried or self-employed borrowers, (ii) a "lite" documentation program for borrowers who may have income which cannot be verified by traditional methods and (iii) a non-income verification program for salaried and self-employed borrowers. However, the Sponsor's Guidelines allow for certain borrowers with existing loans to refinance such loans with either limited, or no, verification of income. The Sponsor may also purchase pools of mortgage loans which may include some mortgage loans originated under a non-income verification program. A credit report by an independent, nationally recognized credit reporting agency is required reflecting the applicant's complete credit history. The credit report should reflect all delinquencies of 30 days or more, repossessions, judgments, foreclosures, garnishments, bankruptcies and similar instances of adverse credit that can be discovered by a search of public records. Verification is required to be obtained of the senior mortgage balance, if any, and the status and whether local taxes, interest, insurance and assessments are included in the applicant's monthly payment. All taxes and assessments not included in the payment are required to be verified as current. In connection with purchase-money loans, the Sponsor's Guidelines generally require (x) (i) an acceptable source of downpayment funds, (ii) verification of the source of the downpayment funds and (iii) adequate cash reserves for owner occupied second homes and non-owner occupied properties or (y) adequate equity in the Mortgaged Property. Certain laws protect loan applicants by offering them a time frame after loan documents are signed, termed the rescission period, during which the applicant has the right to cancel the loan. The rescission period must have expired prior to funding a loan and may not be waived by the applicant except as permitted by law. The Sponsor's Guidelines generally require title insurance coverage issued by an approved ALTA or CLTA title insurance company on each Mortgage Loan it purchases. The Sponsor, the related Originator and/or their assignees generally are named as the insured. Where title insurance is not available with respect to a Mortgage Loan, the Sponsor's Guidelines require a property report and title search to evidence that the title or lien position is as indicated on the mortgage loan application. The applicant is required to secure property insurance in an amount sufficient to cover the related Mortgage Loan and any senior mortgage. If the sum of the outstanding first mortgage, if any, and the related Mortgage Loan exceeds replacement value (the cost of rebuilding the subject property, which generally does not include land value), insurance equal to replacement value may be accepted. The respective Originator or its designee is required to ensure that its name and address is properly added to the "Mortgagee Clause" of the insurance policy. In the event the Sponsor or the related Originator's name is added to a "Loss Payee Clause" and the policy does not provide for written notice of policy changes or cancellation, an endorsement adding such provision is required. One of the Sponsor's programs (the "HIGH LTV PROGRAM") specifically relates to Mortgage Loans with CLTV's in excess of 100%, generally up to a maximum of 125% ("HIGH 32 35 LTV LOANS"). Under the High LTV Program, relatively more emphasis in the underwriting analysis is placed on the borrower's payment history and ability to repay debt, rather than on the property value of the related Mortgaged Property. High LTV Loans are generally targeted as debt consolidation loans for repeat or frequent borrowers with generally strong credit ratings. Lending decisions for these loans are based on an analysis of the prospective Mortgagor's documented cash flow and credit history supplemented by a property value evaluation deemed appropriate by the Sponsor. With respect to High LTV Loans which are senior liens, the Sponsor requires hazard insurance. For High LTV Loans which are in a junior lien position, the Sponsor requires verification of the existence of hazard insurance at the time of origination, but does not generally require the tracking of such hazard insurance. Approved Guidelines - The Originators may purchase Mortgage Loans or pools of Mortgage Loans, in whole or in part, from Unaffiliated Originators. The underwriting guidelines employed by Unaffiliated Originators may deviate from the Sponsor's Guidelines but are approved by the Sponsor prior to their purchasing the Mortgage Loans or pools of Mortgage Loans ("APPROVED GUIDELINES") and are documented as part of the loan sale purchase agreement. The Sponsor or its Affiliated Originators will re-underwrite a representative sample of the Mortgage Loans or pool of Mortgage Loans to ensure that the Mortgage Loans, on a sample basis, are in conformity with the Approved Guidelines. Moreover, there can be no assurance that every Mortgage Loan was originated in conformity with the Approved Guidelines, or that the quality or performance of Mortgage Loans underwritten pursuant to the Approved Guidelines as described above will be equivalent under all circumstances. Bulk Purchases - Bulk Mortgage Loans purchases may be originated by a variety of Originators under several different underwriting guidelines. The Purchases of Bulk Mortgage Loans may not conform to either the requirements of the Sponsor's Guidelines or the Approved Guidelines. The Sponsor generally will cause the Mortgage Loans acquired in a Bulk Purchase to be reunderwritten on a sample basis. Such reunderwriting may be performed by the Sponsor or a third party acting at the direction of the Sponsor. REPRESENTATIONS Representations and warranties will be made in respect of the Mortgage Loans sold to a Trust. Such representations and warranties generally include, among other things, that at the time of the sale to the Trust of each Mortgage Loan: (i) the information with respect to each Mortgage Loan set forth in the Schedules of Mortgage Loans is true and correct as of the related Cut-Off Date; (ii) each Mortgage Loan being transferred to the Trust which is a real estate mortgage investment conduit ("REMIC") is a qualified mortgage under the REMIC provisions of the Internal Revenue Code of 1986, as amended (the "CODE") and is a Mortgage; (iii) each Mortgaged Property is improved by a single (one- to four-) family residential dwelling or a multi-family structure, which may include condominiums and townhouses, units in a "planned unit development" ("PUD") complex or a manufactured home; (iv) each Mortgage Loan had, at the time of origination, either an attorney's certification of title, a title search or title policy; (v) as of the related Cut-Off Date each Mortgage Loan is secured by a valid and subsisting lien of record on the Mortgaged Property having the priority indicated on the related schedule of Mortgage Loans subject in all cases to exceptions to title set forth in the title insurance policy, if any, with respect to the related Mortgage Loan; (vi) each Originator held good and indefeasible title to, and was the sole owner of, each Mortgage Loan conveyed by such Originator; and (vii) each Mortgage Loan was originated in accordance with such Originator; and (vii) each Mortgage Loan was originated in accordance with law and is the valid, legal and binding obligation of the related Mortgagor. If a breach of any representation or warranty occurs in respect of a Mortgage Loan that materially and adversely affects the interests of the Securityholders in such Mortgage Loan within a time period specified in the related Pooling and Servicing Agreement, the Sponsor will be obligated to purchase or cause to be purchase from the related Trust such Mortgage Loan at a price (the "LOAN PURCHASE PRICE") generally equal to the principal balance thereof as of the date 33 36 of purchase plus one month's accrued interest at the Coupon Rate less the amount, expressed as a percentage per annum, payable in respect of master servicing compensation or subservicing compensation, as applicable, and the Originator's Retained Yield, if any, together with the aggregate amount of all delinquent interest, if any, net of Servicing Advances (as defined herein). As to any such Mortgage Loan required to be purchased, rather than repurchase the Mortgage Loan, the Master Servicer may, at its sole option, remove such Mortgage Loan (a "DELETED MORTGAGE LOAN") from the related Trust and cause the Sponsor to substitute in its place another Mortgage Loan of like kind (a "QUALIFIED REPLACEMENT MORTGAGE") which satisfies the eligibility criteria set forth in the related Pooling and Servicing Agreement. With respect to a Trust for which a REMIC election is to be made, except as otherwise provided in the prospectus supplement relating to a series of Securities, such substitution of a defective Mortgage Loan must be effected within two years of the date of the initial issuance of the Securities, and may not be made if such substitution would cause the Trust to not qualify as a REMIC or result in a prohibited transaction tax under the Code. The Master Servicer will be required under the applicable Pooling and Servicing Agreement to enforce such purchase or substitution obligations for the benefit of the Trustee and the Securityholders, following the practices it would employ in its good faith business judgment if it were the owner of such Mortgage Loan; provided, however, that this purchase or substitution obligation will in no event become an obligation of the Master Servicer in the event the Originator fails to honor such obligation. The foregoing will constitute the sole remedy available to Securityholders or the Trustee for a breach of representation. SUB-SERVICERS Each Originator of a Mortgage Loan may act as Sub-Servicer for such Mortgage Loan unless the servicing obligations are released to the Master Servicer or transferred to a servicer approved by the Master Servicer. An Affiliated Originator of a Mortgage Loan may act as the Sub-Servicer for such Mortgage Loan unless the other related servicing obligations are released or transferred. An Unaffiliated Originator acting as a Sub-Servicer for the Mortgage Loans will be required to meet certain additional standards with respect to its mortgage loan servicing portfolio, GAAP tangible net worth and other qualifications. In addition, the Master Servicer may engage Sub-Servicers that are not Originators to perform certain servicing functions pursuant to an agreement between the Master Servicer and the Sub-Servicer (a "SUB-SERVICING AGREEMENT"). A Sub-Servicer may be obligated to make advances to the Master Servicer in respect of delinquent installments of principal and/or interest (net of any sub-servicing or other compensation) on Mortgage Loans, as described more fully under "Description of the Securities -- Advances," and in respect of certain taxes and insurance premiums not paid on a timely basis by Mortgagors. A Sub-Servicer may also be obligated to deposit amounts in respect of Compensating Interest (as defined herein) to the related Principal and Interest Account in connection with prepayments of principal received and applied to reduce the outstanding principal balance of a Mortgage Loan to zero. No assurance can be given that the Sub-Servicers will carry out their advancing or payment obligations, if any, with respect to the Mortgage 34 37 Loans. A Sub-Servicer may transfer its servicing obligations to another entity that has been approved for participation in the Sponsor's loan purchase programs, but only with the prior written approval of the Master Servicer. As compensation for its servicing duties, the Sub-Servicer may be entitled to receive a fee. The Sub-Servicer may also be entitled to collect and retain, as part of its servicing compensation, any late charges or prepayment penalties provided in the Mortgage Note or related instruments. The Sub-Servicer will be entitled to reimbursement for certain expenditures that it makes, generally to the same extent that the Master Servicer would be reimbursed under the applicable Pooling and Servicing Agreement. See "The Pooling and Servicing Agreement--Servicing and Other Compensation and Payment of Expenses." DESCRIPTION OF THE SECURITIES GENERAL The Securities will be issued in series. Each series of Securities (or, in certain instances, two or more series of Securities) will be issued pursuant to a Pooling and Servicing Agreement. The following summaries (together with additional summaries under "The Pooling and Servicing Agreement" below) describe certain provisions relating to the Securities common to each Pooling and Servicing Agreement. The summaries are not complete and are subject to all of the provisions of the Pooling and Servicing Agreement for the related Trust and the related prospectus supplement. The Securities will consist of two basic types: (i) Certificates representing beneficial ownership interests in the Mortgage Loans held by the related Trust and (ii) Notes representing debt secured by the Mortgage Loans held by the related Trust. Each series may also include a class or classes of subordinated equity participation securities. Each series or class of Securities may have a different rate of interest (the "PASS-THROUGH RATE"), which may be fixed or adjustable. The related prospectus supplement will specify the Interest Rate for each series or class of Securities, or the initial Pass-Through Rate and the method for determining subsequent changes to the Pass-Through Rate. A series may include one or more classes of Securities ("STRIP SECURITIES") entitled to (i) principal distributions, with disproportionate, nominal or no interest distributions, or (ii) interest distributions, with disproportionate, nominal or no principal distributions. In addition, a series may include two or more classes that differ as to timing, sequential order, priority of payment, Pass-Through Rate or amount of distributions of principal or interest or both. Distributions of principal or interest or both on any class may be made upon the occurrence of specified events, in accordance with a schedule or formula, or on the basis of collections from designated portions of the related Mortgage Pool. A series may include one or more classes of Securities ("ACCRUAL SECURITIES"), as to which certain accrued interest will not be distributed but rather will be added to the principal balance of the related Security (or nominal principal balance in the case of Accrual Securities which are also Strip Securities) thereof on each payment date. A series of Securities may include one or more classes of Securities (collectively, the "SENIOR SECURITIES") that are senior to one or more classes of Securities (collectively, the 35 38 "SUBORDINATE SECURITIES") in respect of certain distributions of principal and interest and allocations of losses on the Mortgage Loans. In addition, certain classes of Senior (or Subordinate) Securities may be senior to other classes of Senior (or Subordinate) Securities in respect of such distributions or losses. Each Trust may also issue classes of subordinated equity participation securities which will represent the right to receive the proceeds of the related Trust Estate after all required payments have been made to the holders of the related Notes or Certificates, as applicable (both Senior Securities and Subordinate Securities), and following any required deposits to any reserve account that may be established for the benefit of the related Notes or Certificates. Such classes of securities may constitute what are commonly referred to as the "residual interest," "seller's interest" or the "general partnership interest," depending upon the treatment of the related Trust for federal income tax purposes and generally will not be styled as having principal and interest components. Any losses suffered by the related Trust first will generally be absorbed by the related class of residual securities. GENERAL PAYMENT TERMS OF SECURITIES. Securityholders will be entitled to receive payments on their Securities on specified dates ("Payment Dates"). Payment Dates will occur monthly, quarterly or semi-annually, as described in the related prospectus supplement. The Payment Date will be the twenty-fifth day of each month (or, in the case of quarterly-pay Securities, the twenty-fifth day of every third month; and, in the case of semi-annually-pay Securities, the twenty-fifth day of every sixth month) or if such day is not a business day, the next succeeding business day. The related prospectus supplement will describe a date (the "RECORD DATE") preceding such Payment Date, as of which the Trustee or its paying agent will fix the identity of the Securityholders for the purpose of receiving payments on the next succeeding Payment Date. The Record Date will be either the close of business as of the last day of the calendar month which precedes the related Payment Date or the day immediately prior to such Payment Date. The related prospectus supplement and the Pooling and Servicing Agreement will describe a period (a "REMITTANCE PERIOD") prior to each Payment Date (for example, in the case of monthly-pay Securities, the calendar month preceding the month in which a Payment Date occurs or such other specified period). Interest accrued and principal collected on or with respect to the related Mortgage Loans during a Remittance Period will be required to be remitted by the Master Servicer to the related Trustee prior to the related Payment Date and will be used to distribute payments to Securityholders on such Payment Date. The related Pooling and Servicing Agreement may provide that all or a portion of the principal collected on or with respect to the related Mortgage Loans may be applied by the related Trustee to the acquisition of subsequent Mortgage Loans during a specified period (rather than used to distribute payments of principal to Securityholders during such period) with the result that the related securities possess an interest-only period, also commonly referred to as a revolving period, which will be followed by an amortization period. Any such interest-only or revolving period may, upon the occurrence of certain events, terminate prior to the end of the specified period and result in the earlier than expected amortization of the related Securities. 36 39 Neither the Securities nor the underlying Mortgage Loans will be guaranteed or insured by any governmental agency or instrumentality or the Sponsor, the Master Servicer, any Sub-Servicer, the Trustee, any Originator or any of their respective affiliates. DISTRIBUTIONS Beginning on the Payment Date in the month following the month (or, in the case of quarterly-pay Securities, the third month following such month and each third month thereafter or, in the case of semi-annually-pay Securities, the sixth month following such month and each sixth month thereafter) in which the Cut-Off Date occurs for a series of Securities, distributions of principal and accrued interest (or, where applicable, of principal only or interest only) on each class of Securities entitled thereto will be made either by the Trustee or a paying agent appointed by the Trustee (the "PAYING AGENT"), to the persons who are registered as Securityholders at the close of business on the Record Date. Interest that accrues and is not payable on a class of Securities will generally be added to the principal balance of each Security of such class. Distributions will be made in immediately available funds (by wire transfer or otherwise) to the account of a Securityholder at a bank or other entity having appropriate facilities therefor, if such Securityholder has so notified the Trustee or the Paying Agent, as the case may be, and the applicable Pooling and Servicing Agreement provides for such form of payment, or by check mailed to the address of the person entitled thereto as it appears on the Security Register; provided, however, that the final distribution in retirement of the Securities (other than any Book-Entry Securities) will be made only upon presentation and surrender of the Securities at the office or agency of the Trustee specified in the notice to Securityholders of such final distribution. PRINCIPAL AND INTEREST ON THE SECURITIES The method of determining, and the amount of, distributions of principal and interest (or, where applicable, of principal only or interest only) on a particular series of Securities will be described in the related prospectus supplement. Each class of Securities (other than certain classes of Strip Securities) may bear interest at a different Pass-Through Rate. The related prospectus supplement will specify the Pass-Through Rate for each class, or in the case of an adjustable Pass-Through Rate, the initial Pass-Through Rate and the method for determining the Pass-Through Rate. Interest on the Securities will be calculated either on the basis of a 360-day year consisting of twelve 30-day months, on the basis of the actual number of days in the related accrual period over 360 or on the basis of the actual number of days in the related accrual period over 365. On each Payment Date for a series of Securities, the Trustee will distribute or cause the Paying Agent to distribute, as the case may be, to each holder of record on the Record Date of a class of Securities, an amount equal to the percentage interest represented by the Security held by such holder multiplied by such class' Distribution Amount. The "Distribution Amount" for a class of Securities for any Payment Date will be the portion, if any, of the principal distribution amount (as defined in the related prospectus supplement) allocable to such class for such Payment Date, plus, if such class is entitled to payments of interest on such Payment Date, the interest accrued at the applicable Pass-Through Rate on the principal balance or notional amount of such class, less the amount of any deferred interest added to the principal balance of the 37 40 Mortgage Loans and/or the outstanding balance of one or more classes of Securities on the related Due Date and any other interest shortfalls allocable to Securityholders which are not covered by advances or the applicable Credit Enhancement. In the case of a series of Securities that includes two or more classes of Securities, the timing, sequential order, priority of payment or amount of distributions in respect of principal, and any schedule or formula or other provisions applicable to the determination thereof (including distributions among multiple classes of Senior Securities or Subordinate Securities) of each such class shall be as provided in the related prospectus supplement. Generally, distributions in respect of principal of any class of Securities will be made on a pro rata basis among all of the Securities of such class. On or prior to the second business day next preceding the Payment Date (or such earlier day as shall be agreed by the related provider of credit enhancement (the "CREDIT ENHANCER"), if any, and the related Trustee) of the month of distribution (the "DETERMINATION DATE"), the related Trustee will determine the amounts of principal and interest which will be passed through to Securityholders on the immediately succeeding Payment Date. If the amount in the Distribution Account is insufficient to cover the amount to be passed through to Securityholders, the related Trustee will be required to notify the related Credit Enhancer, if any, pursuant to the related Pooling and Servicing Agreement for the purpose of funding such deficiency. FORM OF SECURITIES The Securities of each series will be issued as physical certificates ("PHYSICAL CERTIFICATES") in fully registered form only in the denominations specified in the related prospectus supplement, and will be transferable and exchangeable at the corporate trust office of the registrar of the Securities (the "SECURITY REGISTRAR") named in the related prospectus supplement. No service charge will be made for any registration of exchange or transfer of Securities, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge. If so specified in the related prospectus supplement, specified classes of a series of Securities will be issued in uncertificated book-entry form ("BOOK-ENTRY SECURITIES"), and will be registered in the name of Cede, the nominee of the Depository Trust Company ("DTC"). DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code ("UCC") and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. DTC was created to hold securities for its participating organizations ("PARTICIPANTS") and facilitate the clearance and settlement of securities transactions between Participants through electronic book-entry changes in their accounts, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and may include certain other organizations. Indirect access to the DTC system also is available to others such as brokers, dealers, banks and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly ("INDIRECT PARTICIPANT"). 38 41 Under a book-entry format, Securityholders that are not Participants or Indirect Participants but desire to purchase, sell or otherwise transfer ownership of Securities registered in the name of Cede, as nominee of DTC, may do so only through Participants and Indirect Participants. In addition, such Securityholders will receive all distributions of principal of and interest on the Securities from the Trustee through DTC and its Participants. Under a book-entry format, Securityholders will receive payments after the related Payment Date because, while payments are required to be forwarded to Cede, as nominee for DTC, on each such date, DTC will forward such payments to its Participants, which thereafter will be required to forward such payments to Indirect Participants or Securityholders. Unless and until Physical Securities are issued, it is anticipated that the only Securityholder will be Cede, as nominee of DTC, and that the beneficial holders of Securities will not be recognized by the Trustee as Securityholders under the Pooling and Servicing Agreement. The beneficial holders of such Securities will only be permitted to exercise the rights of Securityholders under the Pooling and Servicing Agreement indirectly through DTC and its Participants who in turn will exercise their rights through DTC. Under the rules, regulations and procedures creating and affecting DTC and its operations, DTC is required to make book-entry transfers among Participants on whose behalf it acts with respect to the Securities and is required to receive and transmit payments of principal of and interest on the Securities. Participants and Indirect Participants with which Securityholders have accounts with respect to their Securities similarly are required to make book-entry transfers and receive and transmit such payments on behalf of their respective Securityholders. Accordingly, although Securityholders will not possess Securities, the rules provide a mechanism by which Securityholders will receive distributions and will be able to transfer their interests. Unless and until Physical Certificates are issued, Securityholders who are not Participants may transfer ownership of Securities only through Participants by instructing such Participants to transfer Securities, by book-entry transfer, through DTC for the account of the purchasers of such Securities, which account is maintained with their respective Participants. Under the Rules and in accordance with DTC's normal procedures, transfers of ownership of Securities will be executed through DTC and the accounts of the respective Participants at DTC will be debited and credited. Similarly, the respective Participants will make debits or credits, as the case may be, on their records on behalf of the selling and purchasing Securityholders. Because DTC can only act on behalf of Participants, who in turn act on behalf of Indirect Participants and certain banks, the ability of a Securityholder to pledge Securities to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such Securities may be limited due to the lack of a Physical Certificate for such Securities. DTC in general advises that it will take any action permitted to be taken by a Securityholder under a Pooling and Servicing Agreement only at the direction of one or more Participants to whose account with DTC the related Securities are credited. Additionally, DTC in general advises that it will take such actions with respect to specified percentages of the Securityholders only at the direction of and on behalf of Participants whose holdings include current principal amounts of outstanding Securities that satisfy such specified percentages. DTC may take conflicting actions with respect to other current principal amounts of outstanding 39 42 Securities to the extent that such actions are taken on behalf of Participants whose holdings include such current principal amounts of outstanding Securities. Any Securities initially registered in the name of Cede, as nominee of DTC, will be issued in fully registered, certificated form to Securityholders or their nominees, rather than to DTC or its nominee only under the events specified in the related Pooling and Servicing Agreement and described in the related prospectus supplement. Upon the occurrence of any of the events specified in the related Pooling and Servicing Agreement and the prospectus supplement, DTC will be required to notify all Participants of the availability through DTC of Physical Certificates. Upon surrender by DTC of the securities representing the Securities and instruction for reregistration, the Trustee will issue the Securities in the form of Physical Certificates, and thereafter the Trustee will recognize the holders of such Physical Certificates as Securityholders. Thereafter, payments of principal of and interest on the Securities will be made by the Trustee directly to Securityholders in accordance with the procedures set forth herein and in the Pooling and Servicing Agreement. The final distribution of any Security (whether Physical Certificates or Securities registered in the name of Cede), however, will be made only upon presentation and surrender of such Securities on the final Payment Date at such office or agency as is specified in the notice of final payment to Securityholders. None of the Company, the Originators, the Master Servicer or the Trustee will have any liability for any actions taken by DTC or its nominee or Cedelbank or Euroclear, including, without limitation, actions for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Securities held by Cede, as nominee for DTC, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. ASSIGNMENT OF MORTGAGE LOANS At the time of issuance of a series of Securities, the Sponsor will direct or request the Mortgage Loans being included in the related Trust Estate to be assigned to the Trustee together with all interest accrued and principal collected in respect of the Mortgage Loans on or after the related Cut-Off Date. Each Mortgage Loan will be identified in a schedule appearing as an exhibit to the related Pooling and Servicing Agreement. In connection with the establishment of certain Trusts, the Sponsor may first transfer the related Mortgage Loan to an affiliate and such affiliate will then transfer such Mortgage Loan to the related Trust. The related prospectus supplement will describe any applicable requirements relating to the delivery of documents, such as the related Notes, and the preparation and/or filing of transfer documentation, such as assignments of Mortgage, in connection with the establishment of the related Trust. The Trustee will be authorized at any time to appoint a custodian pursuant to a custodial agreement to maintain possession of and, if applicable, to review the documents relating to the Mortgage Loans as the agent of the Trustee. The identity of any such custodian to be appointed on the date of initial issuance of the Securities will be set forth in the related prospectus supplement or in the related Pooling and Servicing Agreement. 40 43 Pursuant to each Pooling and Servicing Agreement, the Master Servicer, either directly or through Sub-Servicers, will service and administer the Mortgage Loans assigned to the Trustee. PRE-FUNDING; MANDATORY PREPAYMENT A Trust may enter into an agreement, which may be the related Pooling and Servicing Agreement, (a "PRE-FUNDING AGREEMENT") with the Sponsor or any affiliate whereby the Sponsor or such affiliate will agree to transfer subsequent Mortgage Loans ("SUBSEQUENT MORTGAGE LOANS") to such Trust following the date on which such Trust is established and the date the related Securities are issued and delivered to the Securityholders (the "CLOSING DATE"). The Pre-Funding Agreement will require that any Mortgage Loans so transferred to a Trust conform to the requirements specified in such Pre-Funding Agreement or in the related Pooling and Servicing Agreement. In addition, the Pre-Funding Agreement states that the Sponsor shall only transfer the Subsequent Mortgage Loans upon the satisfaction of certain conditions. If the pre-funding feature is to be used, then the related Trustee will be required to deposit in a segregated account (each, a "PRE-FUNDING ACCOUNT") a portion of the net proceeds received in connection with the sale of one or more classes of Securities of the related series. The subsequent Mortgage Loans will be transferred to the related Trust in exchange for money released by the Trustee from the related Pre-Funding Account. Each Pre-Funding Agreement will set a specified period (the "PRE-FUNDING PERIOD") during which any such transfers must occur; provided, for a Trust which elects federal income treatment as a REMIC or as a grantor trust, the related Pre-Funding Period will be limited to three months from the startup day of such Trust. During the Pre-Funding Period, the monies deposited to the Pre-Funding Account will be invested in eligible investments. As set forth in the related prospectus supplement, on Payment Dates that occur during the Pre-Funding Period or on the Payment Date immediately following the end of the Pre-Funding Period, the Trustee shall distribute the investment earnings on the monies on deposit in the Pre-Funding Account to the holders of the securities as a distribution of interest or may distribute such earnings to the holders of the subordinate equity participation securities. The Pre-Funding Agreement or the related Pooling and Servicing Agreement will require that, if all monies originally deposited to such Pre-Funding Account are not so used by the end of the related Pre-Funding Period, then any remaining monies will be applied as a mandatory prepayment of principal of the related classes of Securities. PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO DISTRIBUTION ACCOUNT The Master Servicer will deposit or will cause to be deposited into an account (the "PRINCIPAL AND INTEREST ACCOUNT") on a daily basis, but generally no later than two (2) business days following receipt, certain payments of accrued interest on or after the Cut-Off Date or principal received on or after the Cut-Off Date. As specifically set forth in the related Pooling and Servicing Agreement, such deposit shall include: 41 44 (i) all payments on account of principal, including principal payments received in advance of the date on which the related monthly payment is due (the "DUE DATE") ("PRINCIPAL PREPAYMENTS"), on the Mortgage Loans comprising a Trust Estate; (ii) all payments on account of accrued interest on the Mortgage Loans comprising such Trust Estate, net of the portion of each payment thereof retained by the Master Servicer, if any, as its servicing fee or other compensation and any interest accrued prior to the related Cut-off Date; (iii) all amounts received and retained, if any, in connection with the liquidation of any defaulted Mortgage Loan, by foreclosure, deed in lieu of foreclosure or otherwise ("LIQUIDATION PROCEEDS"), including all proceeds of any special hazard insurance policy, bankruptcy bond, mortgage pool insurance policy, financial guaranty insurance policy and any title, hazard or other insurance policy covering any Mortgage Loan in such Mortgage Pool, other than the premiums paid with respect to or the proceeds of credit life insurance policies, except as may be described in the related prospectus supplement, (together with any payments under any letter of credit, "INSURANCE PROCEEDS") or proceeds from any alternative arrangements established in lieu of any such insurance, other than proceeds to be applied to the restoration of the related property or released to the Mortgagor in accordance with the Master Servicer's normal servicing procedures (such amounts, net of related unreimbursed liquidation expenses and insured expenses incurred and unreimbursed advances of the Master Servicer or by the related Sub-Servicer, "NET LIQUIDATION PROCEEDS"); (iv) all proceeds of any Mortgage Loan in such Trust Estate purchased (or, in the case of a substitution, certain amounts representing a principal adjustment) by the Master Servicer, the Sponsor, any Sub-Servicer or Originator or any other person pursuant to the terms of the Pooling and Servicing Agreement. See "Mortgage Loan Program--Representations," "--Assignment of Mortgage Loans" above; (v) any amounts required to be deposited by the Master Servicer in connection with losses realized on investments of funds held in the Principal and Interest Account; (vi) any amounts required to be deposited in connection with the liquidation of the related Trust Estate; and (vii) any amounts required to be transferred from the Distribution Account (as defined below) to the Principal and Interest Account. In addition to the Principal and Interest Account, the Sponsor shall cause to be established and the Trustee will maintain, at the corporate trust office of the Trustee, in the name of the Trust for the benefit of the holders of each series of Securities, an account for the disbursement of payments on each series of Securities (the "DISTRIBUTION ACCOUNT"). The Principal and Interest Account and the Distribution Account each must be maintained with a Designated Depository Institution. A "DESIGNATED DEPOSITORY INSTITUTION" is 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 have a rating satisfactory to the Rating 42 45 Agencies 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, (v) approved in writing by each Rating Agency and (v) an entity satisfying any other requirements which may be set forth in the related Pooling and Servicing Agreement; provided, however, that any such institution or association will generally be required to have combined capital, surplus and undivided profits of at least $50,000,000. Notwithstanding the foregoing, the Principal and Interest Account may be held by 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 at a level satisfactory to one or more Rating Agencies 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. The Distribution Account, the Principal and Interest Account and other accounts described in the related prospectus supplement are collectively referred to as "Accounts". All funds in the Distribution Account shall be invested and reinvested by the Trustee for the benefit of the Securityholders and the related Credit Enhancer, if any, as directed by the Master Servicer, in certain defined obligations set forth in the related Pooling and Servicing Agreement ("ELIGIBLE INVESTMENTS"). The Principal and Interest Account may contain funds relating to more than one series of Securities as well as payments received on other mortgage loans serviced or master serviced by it that have been deposited into the Principal and Interest Account. All funds in the Principal and Interest Account will be required to be held (i) uninvested, up to limits insured by the FDIC or (ii) invested by the Master Servicer in Eligible Investments. The Master Servicer will be entitled to net investment proceeds realized with respect to the funds on deposit in the Principal and Interest Account. On a specified day preceding each Payment Date (the "REMITTANCE DATE"), the Master Servicer will withdraw from the Principal and Interest Account and remit to the Trustee for deposit in the applicable Distribution Account, in immediately available funds, (i) the amount to be distributed therefrom to Securityholders on such Payment Date, (ii) any amounts required to be transferred to the Distribution Account from a Reserve Fund (as described under "Credit Enhancement" below), (iii) any amounts required to be paid by the Master Servicer out of its own funds due to the operation of a deductible clause in any blanket policy maintained by the Master Servicer to cover hazard losses on the Mortgage Loans and (iv) any other amounts as specifically set forth in the related Pooling and Servicing Agreement. The Master Servicer will also remit to the Trustee for deposit into the Distribution Account the amount of any advances made by the Master Servicer as described herein under "--Advances." The Trustee will cause all payments received by it from any Credit Enhancer to be deposited in the Distribution Account not later than the related Payment Date. The portion of any payment received by the Master Servicer in respect of a Mortgage Loan that is allocable to the Originator's Retained Yield generally will not be deposited into the 43 46 Principal and Interest Account, but will be paid over to the parties entitled thereto as provided in the related Pooling and Servicing Agreement. WITHDRAWALS FROM THE PRINCIPAL AND INTEREST ACCOUNT The Master Servicer may, from time to time, make withdrawals from the Principal and Interest Account for certain purposes, as specifically set forth in the related Pooling and Servicing Agreement, which generally will include the following except as otherwise provided therein: (i) to effect the timely remittance to the Trustee for deposit to the Distribution Account in the amounts and in the manner provided in the Pooling and Servicing Agreement and described in "--Payments on Mortgage Loans; Deposits to Distribution Account" above; (ii) to reimburse itself or any Sub-Servicer for any accrued and unpaid Servicing Fees and for Delinquency Advances and Servicing Advances (each as defined herein) related to any Mortgaged Property, out of late payments or collections on the related Mortgage Loan, including Liquidation Proceeds, Insurance Proceeds and such other amounts as may be collected by the Master Servicer from the related Mortgagor or otherwise relating to the Mortgage Loan with respect to which such Delinquency Advances or Servicing Advances were made; (iii) to reimburse itself for any Delinquency Advances or Servicing Advances determined in good faith not to be recoverable from the related Mortgage Loan, such reimbursement to be made from any funds in the Principal and Interest Account; (iv) to withdraw investment earnings on amounts on deposit in the Principal and Interest Account; (v) to pay the Sponsor or its assignee all amounts allocable to the Originator's Retained Yield out of collections or payments which represent interest on each Mortgage Loan (including any Mortgage Loan as to which title to the underlying Mortgaged Property was acquired) if previously deposited; (vi) to pay to the Sponsor interest accrued and principal collected prior to the related Cut-Off Date; (vii) to withdraw amounts that have been deposited in the Principal and Interest Account in error; (viii) to clear and terminate the Principal and Interest Account in connection with the termination of the Trust Estate pursuant to the Pooling and Servicing Agreement, as described in "The Pooling and Servicing Agreement--Termination, Retirement of Securities"; and (ix) to invest in Eligible Investments. 44 47 ADVANCES The Master Servicer or any Sub-Servicer will be required, not later than each Remittance Date, to deposit into the Principal and Interest Account an amount equal to the sum of the interest portions (net of the Servicing Fees and the Originators' Retained Yield) accrued, but not collected, with respect to delinquent Mortgage Loans directly serviced by the Master Servicer during the prior Remittance Period, but only if, in its good faith business judgment, the Master Servicer believes that such amount will ultimately be recovered from the related Mortgage Loan. As may be described in the related prospectus supplement, the Master Servicer may also be required to advance delinquent payments of principal. Any such amounts so advanced are "DELINQUENCY ADVANCES". The Master Servicer will be permitted to fund its payment of Delinquency Advances on any Remittance Date from collections on any Mortgage Loan deposited to the Principal and Interest Account subsequent to the related Remittance Period, and will be required to 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 and (ii) Net Liquidation Proceeds recovered on account of the related Mortgage Loan to the extent of the amount of aggregate Delinquency Advances related thereto. No Delinquency Advance will be required to be made by the Master Servicer if, in the good faith judgment of the Master Servicer, such Delinquency Advance would not ultimately be recoverable from the related Mortgage Loan (any such advance, a "NONRECOVERABLE DELINQUENCY ADVANCE"); and if previously made by the Master Servicer, a Nonrecoverable Delinquency Advance will be reimbursable from any amounts in the Principal and Interest Account prior to any distributions being made to the related Securityholders. A Sub-Servicer will be permitted to fund its payment of Delinquency Advances as set forth in the related Sub-Servicing Agreement. 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 plus any applicable grace period. On or prior to each Remittance Date, the Master Servicer (or Sub-Servicer) will be required to deposit in the Principal and Interest Account with respect to any full prepayment received on a Mortgage Loan directly serviced by such Servicer 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 the Mortgage Loan's Coupon Rate (less the related Servicing Fees and the Originators' Retained Yield, if any) on the principal 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 and the Originators' Retained Yield, if any) paid by the Mortgagor with respect to the Mortgage Loan during such Remittance Period (any such amount paid by such Servicer, "COMPENSATING INTEREST"). No Servicer shall be required to pay Compensating Interest with respect to any Remittance Period in an amount in excess of the aggregate related Servicing Fees received by such Servicer with respect to all Mortgage Loans directly serviced by such Servicer for such Remittance Period. Each Servicer will also be obligated to make Servicing Advances on a timely basis. "SERVICING ADVANCES" means any "out-of-pocket" costs and expenses, incurred in the performance of its servicing obligations, including, but not limited to, (i) expenditures in connection with a foreclosed Mortgage Loan prior to the liquidation thereof, including 45 48 expenditures for real estate property taxes, hazard insurance premiums and property restoration or preservation ("PRESERVATION EXPENSES"), (ii) the cost of any enforcement or judicial proceedings, including (a) foreclosures, and (b) other legal actions and costs associated therewith that potentially affect the existence, validity, priority, enforceability or collectibility of the Mortgage Loans, including collection agency fees and costs of pursuing or obtaining personal judgments, garnishments, levies, attachment and similar actions, (iii) the cost of the conservation, management, liquidation, sale or other disposition of any Mortgaged Property acquired in satisfaction of the related Mortgage Loan, including reasonable fees paid to any independent contractor in connection therewith, and (iv) advances to keep liens current, unless with respect to any of the foregoing the Servicer has determined that such advance would not be recoverable. No Servicing Advance will be required to be made by the Servicer, if in the good faith judgment of the Servicer, such Servicing Advance would not be recoverable from the related Mortgage Loan (any such advance, a "NONRECOVERABLE SERVICING ADVANCE"); and if previously made by the Servicer, a Nonrecoverable Servicing Advance will be reimbursable from any amounts in the Principal and Interest Account prior to any distribution being made to Securityholders. Notwithstanding the foregoing, if the Master Servicer or one of its affiliated Sub-Servicers exercises its option, if any, to purchase the assets of a Trust Estate as described under "The Pooling and Servicing Agreement--Termination; Retirement of Securities" below, the Master Servicer will net from the purchase price all related advances previously made by it and not theretofore reimbursed to it. The Master Servicer's obligation to make advances may be supported by the Credit Enhancer as described in the related Pooling and Servicing Agreement. In the event that the provider of such support is downgraded by a Rating Agency rating the related Securities or if the collateral supporting such obligation is not performing or is removed pursuant to the terms of any agreement described in the related prospectus supplement, the Securities may also be downgraded. REPORTS TO SECURITYHOLDERS With each distribution to Securityholders of a particular class the Trustee will forward or cause to be forwarded to each holder of record of such class of Securities a statement or statements with respect to the related Trust setting forth the information specifically described in the related prospectus supplement and the related Pooling and Servicing Agreement. In addition, on each Payment Date the Trustee will forward or cause to be forwarded additional information, as of the close of business on the last day of the Remittance Period, as more specifically described in the related prospectus supplement and the related Pooling and Servicing Agreement, which generally will include information with respect to the number and percentage of delinquent Mortgage Loans, the number of Mortgage Loans in foreclosure or Mortgagors in bankruptcy proceedings and REO Properties (as defined herein). COLLECTION AND OTHER SERVICING PROCEDURES The Master Servicer acting directly or through one or more Sub-Servicers as provided in the related Pooling and Servicing Agreement is required to service and administer the Mortgage Loans in accordance with the Pooling and Servicing Agreement and with reasonable care, and 46 49 using that degree of skill and attention that the Master Servicer exercises with respect to comparable mortgage loans that it services for itself or others. The duties of the Master Servicer 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, accounting for collections, furnishing monthly and annual statements to the Trustee with respect to distributions and making Delinquency Advances and Servicing Advances to the extent described in the related Pooling and Servicing Agreement. The Master Servicer is required to follow its customary standards, policies and procedures in performing its duties as Master Servicer. The Master Servicer (i) is authorized and empowered to execute and deliver, on behalf of itself, the Securityholders and the 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 Mortgaged Properties; (ii) may consent to any modification of the terms of any Mortgage Note not expressly prohibited by the Pooling and Servicing Agreement if the effect of any such modification (x) will not materially and adversely affect the security afforded by the related Mortgaged Property or the timing of receipt of any payments required thereunder (in each case other than a modification or forbearance as permitted by the related Pooling and Servicing Agreement); and (y) will not cause a Trust which is a REMIC to fail to qualify as a REMIC. The related Pooling and Servicing Agreement will require the Master Servicer to 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 Master Servicer is required always at least to follow collection procedures that are consistent with or better than standard industry practices. The Master 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 the 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, however, the Master Servicer shall generally not be permitted to reschedule the payment of delinquent payments more than one time in any twelve 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' Relief Act of 1940, as amended (the "RELIEF ACT") in accordance with the Master Servicer's general policies of the comparable mortgage loans subject to such Relief Act. When a Mortgaged Property (other than Mortgaged Property subject to an ARM Loan) has been or is about to be conveyed by the Mortgagor, the Master Servicer will be required, to the extent it has knowledge of such conveyance or prospective conveyance, to exercise its rights to accelerate the maturity of the related Mortgage Loan under any "due-on-sale" clause contained in the related Mortgage or Note; provided, however, that the Master Servicer will not be required to exercise any such right if (i) the "due-on-sale" clause, in the reasonable belief of the Master Servicer, is not enforceable under applicable law or (ii) the Master Servicer reasonably believes that to permit an assumption of the Mortgage Loan would materially and adversely affect the 47 50 interests of Securityholders or the related Credit Enhancer (whose consent may be required) or jeopardize coverage under any primary insurance policy or applicable Credit Enhancement arrangements. In such event, the Master Servicer will be required to enter into an assumption and modification agreement with the person to whom such Mortgaged 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 documents, the Mortgagor remains liable thereon. If the foregoing is not permitted under applicable law, the Master Servicer will be 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. The assumed loan must conform in all respects to the requirements, representations and warranties of the Pooling and Servicing Agreement and may require the consent of the related Credit Enhancer, if any. An ARM Loan may be assumed if such ARM Loan is by its terms assumable and if, in the reasonable judgment of the Master Servicer or the Sub-Servicer, the proposed transferee of the related Mortgaged Property establishes its ability to repay the loan and the security for such ARM Loan would not be impaired by the assumption. If a Mortgagor transfers the Mortgaged Property subject to an ARM Loan without consent, such ARM Loan may be declared due and payable. Any fee collected by the Master Servicer or Sub-Servicer for entering into an assumption or substitution of liability agreement will be retained by the Master Servicer or Sub-Servicer as additional servicing compensation. See "Certain Legal Aspects of Mortgage Loans and Related Matters--Enforceability of Certain Provisions" herein. The Master Servicer will generally have the right under the Pooling and Servicing Agreement to approve applications of Mortgagors seeking consent for (i) partial releases of Mortgages, (ii) alterations and (iii) removal, demolition or division of Mortgaged Properties. No application for consent may be approved by the Master Servicer unless: (i) the provisions of the related Mortgage Note and Mortgage have been complied with; (ii) the credit profile of the related Mortgage Loan after any release is generally consistent with the Sponsor's Originator Guide then applicable to such Mortgage Loan; and (iii) the lien priority of the related Mortgage is not reduced. REALIZATION UPON DEFAULTED MORTGAGE LOANS The Master Servicer shall foreclose upon or otherwise comparably effect the ownership of Mortgaged Properties relating to defaulted Mortgage Loans as to which no satisfactory arrangements can be made for collection of delinquent payments and which the Master Servicer has not purchased pursuant to the related Pooling and Servicing Agreement (such Mortgage Loans, "REO PROPERTY"). In connection with such foreclosure or other conversion, the Master Servicer shall exercise such of the rights and powers vested in it, and use the same degree of care and skill in their 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, making Servicing Advances for the payment of taxes, amounts due with respect to Senior Liens, and insurance premiums. The Master Servicer shall sell any REO Property within three years of its acquisition by the Trust. The Pooling and Servicing Agreements generally will permit the Master Servicer to cease further collection and foreclosure activity if the Master Servicer reasonably determines that such further activity would not increase collections or recoveries to be received by the 48 51 related Trust with respect to the related Mortgage Loan. In addition, any required advancing may be permitted to cease at this point. Notwithstanding the generality of the foregoing provisions, the Master Servicer will be required to manage, conserve, protect and operate each REO Property for the Securityholders solely for the purpose of its prompt disposition and sale as "foreclosure property" within the meaning of Section 860G(a)(8) of the Code or to prevent the receipt by the Trust of any "income from non-permitted assets" within the meaning of Section 860F(a)(2)(B) of the Code or any "net income from foreclosure property" which is subject to taxation under the REMIC Provisions. Pursuant to its efforts to sell such REO Property, the Master Servicer shall, either itself or through an agent selected by the Master 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 Securityholders, rent the same, or any part thereof, as the Master Servicer deems to be in the best interest of the Securityholders for the period prior to the sale of such REO Property. The Master 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 Mortgaged Property in determining whether to foreclose upon or otherwise comparably convert the ownership of such Mortgaged Property. The Master Servicer shall determine, with respect to each defaulted Mortgage Loan, when it has recovered, whether through 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 Mortgage Loan." A Mortgage Loan which is "charged-off", i.e., as to which the Master Servicer ceases further collection and/or foreclosure activity as a result of a determination that such further actions will not increase collections or recoveries to be received by the related Trust is also a Liquidated Mortgage Loan. If a loss is realized on a defaulted Mortgage Loan or REO Property upon the final liquidation thereof that is not covered by any applicable form of Credit Enhancement or other insurance, the Securityholders will bear such loss. However, if a gain results from the final liquidation of an REO Property that is not required by law to be remitted to the related Mortgagor, the Master Servicer will be entitled to retain such gain as additional servicing compensation unless the related prospectus supplement or Pooling and Servicing Agreement provides otherwise. For a description of the Master Servicer's obligations to maintain and make claims under applicable forms of Credit Enhancement and insurance relating to the Mortgage Loans, see "Description of Credit Enhancement." HAZARD INSURANCE POLICIES Generally, the terms of the Mortgage Loans require each Mortgagor to maintain a hazard insurance policy for such Mortgage Loan. With respect to High LTV Loans which are in a junior lien position, the Sponsor requires that a hazard insurance policy exist at the time such High LTV Loan is originated; however, the Master Servicer may, but generally does not, track such hazard insurance after origination. Additionally, the Pooling and Servicing Agreement will generally require the Master Servicer to cause to be maintained with respect to each Mortgage 49 52 Loan, except for certain High LTV Loans which are in a junior lien position, a hazard insurance policy with a generally acceptable carrier that provides for fire and extended coverage 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 or (iii) the full insurable value of the premises. If a Mortgage Loan at the time of origination relates to a Mortgaged Property in an area identified in the Federal Register by the Federal Emergency Management Agency as having special flood hazards, the Master Servicer will generally be required to maintain with respect thereto a flood insurance policy in a form meeting the requirements of the then current guidelines of the Federal Insurance Administration with a generally acceptable carrier in an amount representing coverage, and which provides for recovery by the Master 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, (iii) the maximum amount of insurance that is available under the Flood Disaster Protection Act of 1973. Pursuant to the related Pooling and Servicing Agreement, the Master Servicer will be required to indemnify the Trust out of the Master Servicer's own funds for any loss to the Trust resulting from the Master Servicer's failure to maintain such flood insurance. In the event that the Master Servicer obtains and maintains a blanket policy insuring against fire with extended coverage and against flood hazards on all of the Mortgage Loans, then, to the extent such policy names the Master 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 the Pooling and Servicing Agreement, the Master Servicer shall be deemed conclusively to have satisfied its obligations with respect to fire and flood hazard insurance coverage under the Pooling and Servicing Agreement. Such blanket policy may contain a deductible clause, in which case the Master Servicer will be required, in the event that there shall not have been maintained on the related Mortgaged Property a policy complying with the Pooling and Servicing Agreement, and there shall have been a loss that would have been covered by such policy, to deposit in the Principal and Interest Account from the Master Servicer's own funds the difference, if any, between the amount that would have been payable under a policy complying with the Pooling and Servicing Agreement and the amount paid under such blanket policy. DESCRIPTION OF CREDIT ENHANCEMENT GENERAL Each series of Securities shall have the benefit of Credit Enhancement comprised of one or more of the following components. To the extent that the Credit Enhancement for any series of Securities is exhausted, the Securityholders will bear all further risks of loss not otherwise insured against. Various forms of Credit Enhancement may be provided with respect to one or more classes of a series of Securities or with respect to the Mortgage Loans in the related Trust Estate. Credit Enhancement may be in the form of (i) the subordination of one or more classes of 50 53 Subordinate Securities to provide credit support to one or more classes of Senior Securities, (ii) the use of a financial guaranty insurance policy, mortgage pool insurance policy, special hazard insurance policy, bankruptcy bond, reserve fund, letter of credit or other third party guarantees, or (iii) the use of a cross-support feature or overcollateralization, or (iv) any combination of the foregoing. Any Credit Enhancement will not provide protection against all risks of loss and will not guarantee repayment of the entire principal balance of the Securities and interest thereon. If losses occur that exceed the amount covered by Credit Enhancement or are not covered by the Credit Enhancement, holders of one or more classes of Securities will bear their allocable share of deficiencies. The descriptions of any insurance policies or bonds described in this Prospectus or any prospectus supplement and the coverage thereunder are not complete and are qualified in their entirety by reference to the actual forms of such policies, copies of which are available upon request. FINANCIAL GUARANTY INSURANCE POLICIES A financial guaranty insurance policy or surety bond ("FINANCIAL GUARANTY INSURANCE POLICY") may be obtained and maintained for each class or series of Securities. The issuer of any Financial Guaranty Insurance Policy (a "FINANCIAL GUARANTY INSURER") will be described in the related prospectus supplement. Such description will include financial information with respect to the related Financial Guaranty Insurer. A Financial Guaranty Insurance Policy will unconditionally and irrevocably guarantee to Securityholders that an amount equal to each full and complete insured payment will be received by an agent of the Trustee (an "INSURANCE PAYING AGENT") on behalf of Securityholders, for distribution by the Trustee to each Securityholder. The "insured payment" will be defined in the related prospectus supplement, and will generally equal the full amount of the distributions of principal and interest to which Securityholders are entitled under the related Pooling and Servicing Agreement plus any other amounts specified therein or in the related prospectus supplement (the "INSURED PAYMENT"). Financial Guaranty Insurance Policies may apply only to certain specified classes, or may apply at the Mortgage Loan level and only to specified Mortgage Loans. The specific terms of any Financial Guaranty Insurance Policy will be set forth in the related prospectus supplement. Financial Guaranty Insurance Policies may have limitations including limitations on the Financial Guaranty Insurer's obligation to guarantee the obligations of the Originators to repurchase or substitute for any Mortgage Loans. Financial Guaranty Insurance Policies will not guarantee any specified rate of prepayments. In addition, Insured Payments will generally not be available to cover interest shortfalls arising from the application of the Relief Act. Subject to the terms of the related Pooling and Servicing Agreement, the Financial Guaranty Insurer may be subrogated to the rights of each Securityholder to receive payments under the Securities to the extent of any payment by such Financial Guaranty Insurer under the related Financial Guaranty Insurance Policy. 51 54 CROSS SUPPORT The beneficial ownership of separate groups of assets included in a Trust or the obligations to make payments secured by a pledge of a separate group of assets included in a Trust may be evidenced by separate classes of the related series of Securities. In such case, credit support may be provided by a cross-support feature which requires that distributions be made with respect to one class of Securities may be made from excess amounts available from other asset groups within the same Trust which support other classes of Securities. The prospectus supplement for a series that includes a cross-support feature will describe the manner and conditions for applying such cross-support feature. The coverage provided by one or more forms of credit support may apply concurrently to two or more separate Trusts. If applicable, the prospectus supplement will identify the Trusts to which such credit support relates and the manner of determining the amount of the coverage provided thereby and of the application of such coverage to the identified Trusts. OVERCOLLATERALIZATION Subordination provisions of a Trust may be used to accelerate the amortization of one or more classes of Securities relative to the amortization of the related Mortgage Loans. The accelerated amortization is achieved by the application of excess interest to the payment of principal of one or more classes of Securities. This acceleration feature creates, with respect to the Mortgage Loans or groups thereof, overcollateralization which results from the excess of the aggregate principal balance of the related Mortgage Loans, or a group thereof, over the principal balance of the related class of Securities. Such acceleration may continue for the life of the related Security, or may be limited. In the case of limited acceleration, once the required level of overcollateralization is reached, such limited acceleration feature may cease, unless necessary to maintain the required level of overcollateralization. SUBORDINATION The subordination of one or more classes of subordinate securities provides credit support to the related Senior Securities. With respect to any Senior/Subordinate Series of Securities, the total amount available for distribution on each Payment Date, as well as the method for allocating such amount among the various classes of Securities included in such series, will be as set forth in the related prospectus supplement. Generally, the amount available for contribution will be allocated first to interest on the Senior Securities of such series, and then to principal of the Senior Securities up to the amounts determined as specified in the related prospectus supplement and the related Pooling and Servicing Agreement, prior to allocation to the Subordinate Securities of such series. In the event of any realized losses on Mortgage Loans, the rights of the Subordinate Securityholders to receive distributions with respect to the Mortgage Loans will be subordinate to the rights of the Senior Securityholders. LETTER OF CREDIT If any component of Credit Enhancement as to any series of Securities is to be provided by a letter of credit (the "LETTER OF CREDIT"), a bank (the "LETTER OF CREDIT BANK") will deliver to the Trustee an irrevocable Letter of Credit. The Letter of Credit may provide direct coverage 52 55 with respect to the related Securities or support the Sponsor's or any other person's obligation pursuant to a purchase obligation to make certain payments to the Trustee with respect to one or more components of Credit Enhancement. The Letter of Credit Bank, as well as the amount available under the Letter of Credit with respect to each component of Credit Enhancement, will be specified in the applicable prospectus supplement and the related Pooling and Servicing Agreement. The Letter of Credit will expire on the expiration date set forth in the related prospectus supplement and the related Pooling and Servicing Agreement, unless earlier terminated or extended in accordance with its terms. On or before each Payment Date, either the Letter of Credit Bank or the Trustee (or other obligor under a purchase obligation) will be required to make the payments specified in the related prospectus supplement and the related Pooling and Servicing Agreement after notification from the Trustee, to be deposited in the related Distribution Account, if and to the extent covered, under the applicable Letter of Credit. MORTGAGE POOL INSURANCE POLICIES Any mortgage pool insurance policy ("MORTGAGE POOL INSURANCE POLICY") which may be obtained by the Sponsor for each related Trust Estate will be issued by an insurer (the "POOL INSURER") named in the related prospectus supplement. Each Mortgage Pool Insurance Policy will cover any loss by reason of default but will not cover the portion of the principal balance of any Mortgage Loan required to be covered by any primary mortgage insurance policy. The amount and terms of such coverage will be as set forth in the related prospectus supplement and the related Pooling and Servicing Agreement. SPECIAL HAZARD INSURANCE POLICIES Any insurance policy covering Special Hazard Losses (a "SPECIAL HAZARD INSURANCE POLICY") which may be obtained by the Sponsor for a Trust Estate will be issued by the insurer named in the related prospectus supplement. Each Special Hazard Insurance Policy will protect holders of the related series of Securities from (i) losses due to direct physical damage to a Mortgaged Property other than any loss of a type covered by a hazard insurance policy or a flood insurance policy, if applicable, and (ii) losses from partial damage caused by reason of the application of the co-insurance clauses contained in hazard insurance policies. Aggregate claims under a Special Hazard Insurance Policy will be limited to a maximum amount of coverage, as set forth in the related prospectus supplement and the related Pooling and Servicing Agreement. Subject to the foregoing limitations, in general a Special Hazard Insurance Policy will provide that, where there has been damage to property securing a foreclosed Mortgage Loan (title to which has been acquired by the insured) and to the extent such damage is not covered by the hazard insurance policy or flood insurance policy, if any, maintained by the Mortgagor or the Master Servicer or the Sub-Servicer, the insurer will pay the lesser of (i) the cost of repair or replacement of such property or (ii) upon transfer of the property to the insurer, the unpaid principal balance of such Mortgage Loan at the time of acquisition of such property by foreclosure or deed in lieu of foreclosure, plus accrued interest at the Coupon Rate to the date of claim settlement and certain expenses incurred by the Master Servicer or the Sub-Servicer with respect to such property. If the property is transferred to a third party in a sale approved by the issuer of the Special Hazard Insurance Policy (the "SPECIAL HAZARD INSURER"), the amount that 53 56 the Special Hazard Insurer will pay will be the amount under (ii) above, reduced by the net proceeds of the sale of the property. BANKRUPTCY BONDS In the event of a personal bankruptcy of a Mortgagor, it is possible that the bankruptcy court may establish the value of the Mortgaged Property of such Mortgagor at an amount less than the then-outstanding, principal balance of the Mortgage Loan secured by such Mortgaged Property (a "DEFICIENT VALUATION"). The amount of the secured debt could then be reduced to such value, and, thus, the holder of such Mortgage Loan would become an unsecured creditor to the extent the outstanding principal balance of such Mortgage Loan exceeds the value assigned to the Mortgaged Property by the bankruptcy court. In addition, certain other modifications of the terms of a Mortgage Loan can result from a bankruptcy proceeding, including a reduction in the amount of the monthly payment on the related Mortgage Loan or a reduction in the mortgage Coupon Rate (a "Debt Service Reduction"; Debt Service Reductions and Deficient Valuations, collectively referred to herein as "BANKRUPTCY LOSSES"). Any bankruptcy bond ("BANKRUPTCY BOND") to provide coverage for Bankruptcy Losses for proceedings under the federal Bankruptcy Code obtained by the Sponsor for a Trust Estate will be issued by an insurer named in the related prospectus supplement. The level of coverage under each Bankruptcy Bond will be set forth in the applicable prospectus supplement and the related Pooling and Servicing Agreement. RESERVE FUNDS If so provided in the related prospectus supplement, the Sponsor will deposit or cause to be deposited in an account (a "RESERVE FUND") any combination of cash, one or more irrevocable letters of credit or one or more Eligible Investments in specified amounts, amounts otherwise distributable to Subordinate Securityholders or the owners of any Originator's Retained Yield, or any other instrument satisfactory to the Rating Agency or Agencies, which will be applied and maintained in the manner and under the conditions specified in such prospectus supplement. In the alternate or in addition to such deposit, a Reserve Fund may be funded through application of all or a portion of amounts otherwise payable on any related Subordinate Securities, on any subordinated equity participation security or from the Originator's Retained Yield or otherwise. Amounts in a Reserve Fund may be distributed to Securityholders, or applied to reimburse the Master Servicer for outstanding advances or may be used for other purposes. OTHER INSURANCE, GUARANTEES AND SIMILAR INSTRUMENTS OR AGREEMENTS A Trust may include in lieu of some or all of the foregoing or in addition thereto third party guarantees, and other arrangements for maintaining timely payments or providing additional protection against losses on all or any specified portion of the assets included in such Trust, paying administrative expenses, or accomplishing such other purpose as may be described in the prospectus supplement. The Trust may include a guaranteed investment contract or reinvestment agreement pursuant to which funds held in one or more accounts will be invested at a specified rate. If any class of Securities has a floating interest rate, or if any of the Mortgage Assets has a floating Coupon Rate, the Trust may include an interest rate swap contract, an 54 57 interest rate cap agreement or similar contract providing limited protection against interest rate risks. REDUCTION OR SUBSTITUTION OF CREDIT ENHANCEMENT The amount of credit support provided pursuant to any of the Credit Enhancements (including, without limitation, a Mortgage Pool Insurance Policy, Financial Guaranty Insurance Policy, Special Hazard Insurance Policy, Bankruptcy Bond, Letter of Credit, or any alternative form of Credit Enhancement) may be reduced under certain specified circumstances. In most cases, the amount available pursuant to any Credit Enhancement will be subject to periodic reduction in accordance with a schedule or formula on a nondiscretionary basis pursuant to the terms of the related Pooling and Servicing Agreement as the aggregate outstanding principal balance of the Mortgage Loans declines. Additionally, in certain cases, such credit support (and any replacements therefor) may be replaced, reduced or terminated upon the written assurance from each applicable Rating Agency that the then current rating of the related series of Securities will not be adversely affected. Furthermore, in the event that the credit rating of any obligor under any applicable Credit Enhancement is downgraded, the credit rating of the related Securities may be downgraded to a corresponding level, and, the Sponsor thereafter will not be obligated to obtain replacement credit support in order to restore the rating of the Securities, and also will be permitted to replace such credit support with other Credit Enhancement instruments issued by obligors whose credit ratings are equivalent to such downgraded level and in lower amounts which would satisfy such downgraded level, provided that the then current, albeit downgraded, rating of the related series of Securities is maintained. Where the credit support is in the form of a Reserve Fund, a permitted reduction in the amount of Credit Enhancement will result in a release of all or a portion of the assets in the Reserve Fund to any of the holders of the subordinated equity participation certificates, the Sponsor, the Master Servicer, one or more Originators or such other person that is entitled thereto. Any assets so released will not be available to fund distribution obligations in future periods. THE SPONSOR The Sponsor, Advanta Conduit Receivables, Inc., was incorporated in the State of Nevada in March, 1994. It is a direct subsidiary of Advanta Mortgage Conduit Services, Inc., and an affiliate of Advanta Mortgage Corp. USA. The Sponsor was formed as a special purpose finance subsidiary to facilitate certain issuances of Securities. The Sponsor maintains its principal office at 10790 Rancho Bernardo Road, San Diego, California 92127. Its telephone number is (619) 674-1800. THE MASTER SERVICER Advanta Mortgage Corp. USA or its affiliates will act as the Master Servicer for a series of Securities. Advanta Mortgage Corp. USA is a Delaware corporation incorporated in 1983. It is a nationwide servicer of first and junior lien loans. Advanta Mortgage Corp. USA has centralized servicing functions located in San Diego, California. 55 58 Advanta Mortgage Corp. USA was acquired by Advanta Corp., a Delaware corporation ("ADVANTA PARENT") in September, 1986 and is an indirect subsidiary of Advanta Parent. The Master Servicer is an affiliate of Advanta National Bank, a national banking association domiciled in Delaware and Advanta Bank Corp., a Utah industrial loan corporation, and the parent of Advanta Mortgage Corp. Midatlantic, Advanta Mortgage Corp. Midatlantic II, Advanta Mortgage Corp. Midwest, Advanta Mortgage Corp. of New Jersey, Advanta Mortgage Corp. Northeast, Advanta Finance Corp. and Advanta Mortgage Conduit Services, Inc. THE POOLING AND SERVICING AGREEMENT As described above under "Description of the Securities--General," each series of Securities will be issued pursuant to a Pooling and Servicing Agreement. The following summaries describe certain additional provisions common to each Pooling and Servicing Agreement. The summaries are not complete and are subject to all of the provisions of the Pooling and Servicing Agreement for the related Trust and the related prospectus supplement. SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES Each servicer, whether the Master Servicer or any Sub-Servicer, will retain a fee in connection with its servicing activities for each series of Securities equal to the percentage per annum specified in the related prospectus supplement (the "SERVICING FEE"), generally payable monthly with respect to each Mortgage Loan directly serviced by such Servicer at one-twelfth the annual rate, of the then-outstanding principal amount of each such Mortgage Loan as of the first day of each calendar month. In addition to the Servicing Fee, each Servicer will generally be entitled under the Pooling and Servicing Agreement to retain additional servicing compensation in the form of prepayment charges, release fees, bad check charges, assumption fees, modification fees, late payment charges, any other servicing-related fees, Net Liquidation Proceeds not required to be deposited in the Principal and Interest Account pursuant to the Pooling and Servicing Agreement and similar items. The Master Servicer will pay or cause to be paid certain ongoing expenses associated with each Trust Estate and incurred by it in connection with its responsibilities under the Pooling and Servicing Agreement, including, without limitation, payment of any fee or other amount payable in respect of any alternative Credit Enhancement arrangements, payment of the fees and disbursements of the Trustee or of any firm of independent, nationally recognized certified public accountants, the custodian appointed by the Trustee, if any, the Security Registrar and any Paying Agent, and payment of expenses incurred in enforcing the obligations of Sub-Servicers and Originators. The Master Servicer may be entitled to reimbursement of expenses incurred in enforcing the obligations of Sub-Servicers and Originators under certain limited circumstances. In addition, as indicated in the preceding section, the Master Servicer will be entitled to reimbursements for certain expenses incurred by it in connection with Liquidated Mortgage Loans and in connection with the restoration of Mortgaged Properties, such right of reimbursement being prior to the rights of Securityholders to receive any related Liquidation Proceeds (including Insurance Proceeds). 56 59 EVIDENCE AS TO COMPLIANCE Each Pooling and Servicing Agreement will require the Master Servicer to deliver annually to the Trustee and any Credit Enhancer, an annual officers' certificate to the effect that the Master Servicer has fulfilled its obligations under such Pooling and Servicing Agreement throughout the preceding calendar year. Each Pooling and Servicing Agreement will require the Master Servicer to cause to be delivered to the Trustee and any Credit Enhancer a letter or letters of a firm of independent, nationally recognized certified public accountants reasonably acceptable to the Credit Enhancer, if applicable, stating that such firm has examined certain documents and records relating to the servicing of Mortgage Loans by the Master Servicer and that, based on such examination, such firm is of the opinion that the servicing has been conducted in compliance with Pooling and Servicing Agreements similar to the applicable Pooling and Servicing Agreement except for (i) such exceptions as such firm believes to be immaterial and (ii) such other exceptions as are set forth in such letter. Copies of the annual accountants' statement and the annual statement of officers of the Master Servicer may be obtained by Securityholders without charge upon written request to the Master Servicer. REMOVAL AND RESIGNATION OF THE MASTER SERVICER Each Pooling and Servicing Agreement will provide that the Master Servicer may not resign from its obligations and duties thereunder, except in connection with a permitted transfer of servicing, unless such duties and obligations are no longer permissible under applicable law or are in material conflict by reason of applicable law with any other activities of a type and nature presently carried on by it. No such resignation will become effective until the Trustee or a successor Master Servicer has assumed the Master Servicer's obligations and duties under the related Pooling and Servicing Agreement. The Trustee, the Securityholders or a Credit Enhancer, if applicable, will have the right, pursuant to the related Pooling and Servicing Agreement, to remove the Master Servicer upon the occurrence of any of (a) certain events of insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings regarding the Master Servicer and certain actions by the Master Servicer indicating its insolvency or inability to pay its obligations; (b) the failure of the Master Servicer to perform any one or more of its material obligations under the Pooling and Servicing Agreement as to which the Master Servicer shall continue in default with respect thereto for a specified period, generally of sixty (60) days, after notice by the Trustee or any Credit Enhancer (if required by the Pooling and Servicing Agreement) of said failure; or (c) the failure of the Master Servicer to cure any breach of any of its representations and warranties set forth in the Pooling and Servicing Agreement which materially and adversely affects the interests of the Securityholders or any Credit Enhancer, for a specified period, generally of thirty (30) days after the Master Servicer's discovery or receipt of notice thereof. The Pooling and Servicing Agreement may also provide that the related Credit Enhancer may remove the Master Servicer upon the occurrence of any of certain events, subject to the applicable cure periods set forth in the related Pooling and Servicing Agreement, including: 57 60 (i) with respect to any Payment Date, if the total available funds with respect to the Mortgage Pool will be less than the related distribution amount on the classes of credit enhanced securities in respect of such Payment Date; provided, however, that the Credit Enhancer generally will have no right to remove the Master Servicer pursuant to the provision described in this clause (i) if the Master Servicer can demonstrate to the reasonable satisfaction of the Credit Enhancer that such event was due to circumstances beyond the control of the Master Servicer; (ii) the failure by the Master Servicer to make any required Servicing Advance; (iii) the failure of the Master Servicer to perform one or more of its material obligations under the Pooling and Servicing Agreement; or (iv) the failure by the Master Servicer to make any required Delinquency Advance or to pay any Compensating Interest; provided, however, that prior to any removal of the Master Servicer by the related Credit Enhancer pursuant to clauses (i), (ii) or (iii) above the Master Servicer shall first have been given, by the related Credit Enhancer, notice of the occurrence of one or more of the events set forth in clauses (i) or (ii) above and the Master Servicer shall not have remedied, or shall not have taken action satisfactory to such Credit Enhancer to remedy, such event or events within a specified period, generally 30 days (60 days with respect to clause (iii)) after the Master Servicer's receipt of such notice; and provided, further that in the event of the refusal or inability of the Master Servicer to make any required Delinquency Advance or to pay any Compensating Interest as described in clause (iv) above, such removal shall be effective (without the requirement of any action on the part of such Credit Enhancer or of the Trustee) not later than a shorter specified period, generally not in excess of five business days, following the day on which the Trustee notifies an authorized officer of the Master Servicer that a required Delinquency Advance or to pay any Compensating Interest has not been received by the Trustee. AMENDMENTS The Trustee, the Sponsor and the Master Servicer may at any time and from time to time, with the prior approval of the related Credit Enhancer, if required, but without the giving of notice to or the receipt of the consent of the Securityholders, amend a Pooling and Servicing Agreement, and the Trustee will be required to consent to such amendment, for the purposes of (x) (i) curing any ambiguity, or correcting or supplementing any provision of such Pooling and Servicing Agreement which may be inconsistent with any other provision of the Pooling and Servicing Agreement, (ii) in connection with a Trust making REMIC elections, if accompanied by an approving opinion of counsel experienced in federal income tax matters, removing the restriction against the transfer of a REMIC residual security to a Disqualified Organization (as such term is defined in the Code) or (iii) complying with the requirements of the Code and the regulations proposed or promulgated thereunder; provided, however, that such action shall not, as evidenced by an opinion of counsel delivered to the Trustee, materially and adversely affect the interests of any Securityholder (without its written consent) or (y) such other purposes set forth in the related Pooling and Servicing Agreement. 58 61 Each Pooling and Servicing Agreement may also be amended by the Trustee, the Sponsor and the Master Servicer at any time and from time to time, with the prior written approval of the related Credit Enhancer, if required, and not less than a majority of the Securityholders represented by each related class of Securities then outstanding, for the purpose of adding any provisions or changing in any manner or eliminating any of the provisions of such Pooling and Servicing Agreement or of modifying in any manner the rights of the Securityholders thereunder; provided, however, that 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 Securityholders without the consent of the holder of such Security or (b) change the aforesaid percentages of Securityholders which are required to consent to any such amendments, without the consent of the holders of all Securities of the class or classes affected then outstanding. TERMINATION; RETIREMENT OF SECURITIES Each Pooling and Servicing Agreement will provide that a Trust will terminate upon the earlier of (i) the payment to the Securityholders of the outstanding principal balances of the Securities issued by the Trust from amounts other than those available under, if applicable, the related Credit Enhancement of all amounts required to be paid to such Securityholders upon the later to occur of (a) the final payment or other liquidation (or any advance made with respect thereto) of the last Mortgage Loan in the Trust Estate or (b) the disposition of all property acquired in respect of any Mortgage Loan remaining in the Trust Estate, (ii) any time when a Qualified Liquidation (as defined in the Code) of the Trust Estate (if the related Trust is a REMIC) is effected. In no event, however, will the trust created by the Pooling and Servicing Agreement continue beyond the expiration of 21 years from the death of the survivor of certain persons named in such Pooling and Servicing Agreement. Written notice of termination of the Pooling and Servicing Agreement will be given to each Securityholder, and the final distribution will be made only upon surrender and cancellation of the Securities at an office or agency appointed by the Trustee that will be specified in the notice of termination. If the Securityholders are permitted to terminate the trust under the applicable Pooling and Servicing Agreement, a penalty may be imposed upon the Securityholders based upon the fee that would be foregone by the Master Servicer because of such termination. Any purchase of Mortgage Loans and property acquired in respect of Mortgage Loans evidenced by a series of Securities shall be made at the option of the Master Servicer or any of its affiliated Sub-Servicers or, if applicable, the related Credit Enhancer at the price specified in the related prospectus supplement. The exercise of such right will effect earlier than expected retirement of that series of Securities, but the right of the Master Servicer or any of its affiliated Sub-Servicers to so purchase, is subject to the aggregate principal balance of the Mortgage Loans or the related Securities, as applicable, for that series as of any Remittance Date being less than the percentage specified in the related prospectus supplement of the aggregate principal balance of the Mortgage Loans or the related Securities, as applicable, at the Cut-Off Date for that series. The prospectus supplement for each series of Securities will set forth the amounts that the holders of such Securities will be entitled to receive upon such earlier than expected retirement. If a REMIC election has been made, the termination of the related Trust Estate will be effected in a manner consistent with applicable federal income tax regulations and its status as a REMIC. 59 62 THE TRUSTEE The Trustee under each Pooling and Servicing Agreement will be named in the related prospectus supplement. Each Pooling and Servicing Agreement will provide that the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by the Pooling and Servicing Agreement at the request or direction of any of the Securityholders, unless such Securityholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. The Trustee may execute any of the trusts or powers granted by each Pooling and Servicing Agreement or perform any duties thereunder either directly or by or through agents or attorneys, and the Trustee will not be responsible for any misconduct or negligence on the part of any agent or attorney appointed and supervised with due care by it thereunder. Pursuant to each Pooling and Servicing Agreement, the Trustee will not be liable for any action it takes or omits to take in good faith which it reasonably believes to be authorized by an authorized officer of any person or within its rights or powers under the Pooling and Servicing Agreement. Each Pooling and Servicing Agreement will permit the removal of the Trustee upon the occurrence and continuance of certain events, including, without limitation, the failure of the Trustee to satisfy the relevant eligibility requirements and the insolvency of the Trustee. If an event described above occurs and is continuing, then, and in every such case (i) the Sponsor, (ii) the Securityholders (on the terms set forth in the related Pooling and Servicing Agreement), or (iii) if there is a Credit Enhancer, such Credit Enhancer may, whether or not the Trustee has resigned, immediately, concurrently with the giving of notice to the Trustee, and without delay, appoint a successor Trustee pursuant to the terms of the Pooling and Servicing Agreement. The Trustee will be liable under the Pooling and Servicing Agreement only to the extent of the obligations specifically imposed upon and undertaken by the Trustee therein. Neither the Trustee nor any of the directors, officers, employees or agents of the Trustee will be under any liability on any Security or otherwise to any Account, the Sponsor, the Master Servicer or any Securityholder for any action taken or for refraining from the taking of any action in good faith under a Pooling and Servicing Agreement, or for errors in judgment; provided, however, that such provision shall not protect the Trustee or any such person against any liability which would otherwise be imposed by reason of negligent action, negligent failure to act or willful misconduct in the performance of duties or by reason of reckless disregard of obligations and duties thereunder. YIELD CONSIDERATIONS The yield to maturity of a Security will depend on the price paid by the holder for such Security, the Pass-Through Rate on any such Security entitled to payments of interest (which Pass-Through Rate may vary if so specified in the related prospectus supplement) and the rate of 60 63 payment of principal on such Security (or the rate at which the notional amount thereof is reduced if such Security is not entitled to payments of principal) and other factors. A class of Securities may be entitled to payments of interest at a fixed Pass-Through Rate, a variable Pass-Through Rate or adjustable Pass-Through Rate, as specified in the related prospectus supplement, calculated based on the weighted average of the Coupon Rates (net of Servicing Fees and any Originator's Retained Yield (each, a "NET COUPON RATE")) of the related Mortgage Loans for the designated periods preceding the Payment Date if so specified in the related prospectus supplement, or at such other variable rate as may be specified in the related prospectus supplement. The aggregate payments of interest on a class of Securities, and the yield to maturity thereon, will be effected by the rate of payment of principal on the Securities (or the rate of reduction in the notional balance of Securities entitled only to payments of interest) and, in the case of Securities evidencing interests in ARM Loans, by changes in the Net Coupon Rates on the ARM Loans and by changes in the Pass-Through Rates of the related Securities. See "Maturity and Prepayment Considerations" below. The yield on the Securities also will be effected by liquidations of Mortgage Loans following Mortgagor defaults and by purchases of Mortgage Loans required by the Pooling and Servicing Agreement in the event of breaches of representations made in respect of such Mortgage Loans, or repurchases due to conversions of ARM Loans to a fixed rate. See "Mortgage Loan Program--Representations" and "Descriptions of the Securities--Assignment of Mortgage Loans" above. In addition, the yield to maturity on certain other types of classes of Securities, including Accrual Securities or certain other classes in a series including more than one class of Securities, may be relatively more sensitive to the rate of prepayment on the related Mortgage Loans than other classes of Securities. The timing of changes in the rate of principal payments on or repurchases of the Mortgage Loans may significantly affect an investor's actual yield to maturity, even if the average rate of principal payments experienced over time is consistent with an investor's expectation. As a result, the effect on an investor's yield of principal payments and repurchases occurring at a rate higher (or lower) than the rate anticipated by the investor during the period immediately following the issuance of a series of Securities would not be fully offset by a subsequent like reduction (or increase) in the rate of principal payments. With respect to certain of the ARM Loans, the Coupon Rate at origination may be below the rate that would result if the index and margin relating thereto were applied at origination. Under the Sponsor's underwriting standards, the Mortgagor under each Mortgage Loan will be qualified on the basis of the Coupon Rate in effect at origination. The repayment of any such Mortgage Loan may thus be dependent on the ability of the Mortgagor to make larger monthly payments following the adjustment of the Coupon Rate. MATURITY AND PREPAYMENT CONSIDERATIONS As indicated above under "The Mortgage Pools," the original terms to maturity of the Mortgage Loans in a given Mortgage Pool will vary depending upon the type of Mortgage Loans included in such Mortgage Pool. The prospectus supplement for a series of Securities will contain information with respect to the types and maturities of the Mortgage Loans in the related 61 64 Mortgage Pool. Generally, the mortgage loans may be prepaid in full or in part at any time although the related mortgagor may be required to pay a prepayment penalty or premium. Such prepayment penalties will generally not be property of the related trust. The prepayment experience with respect to the Mortgage Loans in a Mortgage Pool will affect the maturity, average life and yield of the related series of Securities. With respect to Balloon Loans, payment of the full outstanding principal balance on such Balloon Loan (which, based on the amortization schedule of such Mortgage Loans, may be a substantial amount) will generally depend on the Mortgagor's ability to obtain refinancing of such Mortgage Loan or to sell the Mortgaged Property prior to the maturity of the Balloon Loan. The ability to obtain refinancing will depend on a number of factors prevailing at the time refinancing or sale is required, including, without limitation, real estate values, the Mortgagor's financial situation, prevailing mortgage loan Coupon Rates, the Mortgagor's equity in the related Mortgaged Property, tax laws and prevailing general economic conditions. Neither the Sponsor, the Master Servicer, nor any of their affiliates will be obligated to refinance or repurchase any Mortgage Loan or to sell the Mortgaged Property. A number of factors, including homeowner mobility, economic conditions, enforceability of due-on-sale clauses, mortgage market interest rates and the availability of mortgage funds, affect prepayment experience. The Mortgage Loans will generally contain due-on-sale provisions permitting the mortgagee to accelerate the maturity of the Mortgage Loan upon sale or certain transfers by the Mortgagor of the underlying Mortgaged Property. The Master Servicer will generally enforce any due-on-sale clause to the extent it has knowledge of the conveyance or proposed conveyance of the underlying Mortgaged Property and it is entitled to do so under applicable law; provided, however, that the Master Servicer will not take any action in relation to the enforcement of any due-on-sale provision which would adversely affect or jeopardize coverage under any applicable insurance policy. Certain ARM Loans may be assumable under certain conditions if the proposed transferee of the related Mortgaged Property establishes its ability to repay the Mortgage Loan and, in the reasonable judgment of the Master Servicer or the related Sub-Servicer, the security for the ARM Loan would not be impaired or might be improved by the assumption. The extent to which ARM Loans are assumed by purchasers of the Mortgaged Properties rather than prepaid by the related Mortgagors in connection with the sales of the Mortgaged Properties will affect the weighted average life of the related series of Securities. See "Description of the Securities--Collection and Other Servicing Procedures" and "Certain Legal Aspects of the Mortgage Loans and Related Matters--Enforceability of Certain Provisions" for a description of certain provisions of the Pooling and Servicing Agreement and certain legal developments that may affect the prepayment experience on the Mortgage Loans. There can be no assurance as to the rate of prepayment of the Mortgage Loans. The Sponsor is not aware of any reliable, publicly available statistics relating to the principal prepayment experience of diverse portfolios of mortgage loans such as the Mortgage Loans over an extended period of time. All statistics known to the Sponsor that have been compiled with respect to prepayment experience on mortgage loans indicates that while some mortgage loans may remain outstanding until their stated maturities, a substantial number will be paid prior to their respective stated maturities. 62 65 Although the Coupon Rates on ARM Loans will be subject to periodic adjustments, such adjustments will, (i) not increase or decrease such Coupon Rates by more than a fixed percentage amount on each adjustment date, (ii) not increase such Coupon Rates over a fixed percentage amount during the life of any ARM Loan and (iii) be based on an index (which may not rise and fall consistently with mortgage market interest rate rates) plus the related Note Margin (which may be different from margins being used at the time for newly originated adjustable rate mortgage loans). As a result, the Coupon Rates on the ARM Loans in a Mortgage Pool at any time may not equal the prevailing rates for similar, newly originated adjustable rate mortgage loans. In certain rate environments, the prevailing rates on fixed-rate mortgage loans may be sufficiently low in relation to the then current Coupon Rates on ARM Loans that the rate of prepayment of ARM Loans may increase as a result of refinancings. There can be no certainty as to the rate of prepayments on the Mortgage Loans during any period or over the life of any series of Securities. In addition, and as may be described in the related prospectus supplement, the related Pooling and Servicing Agreement may provide that all or a portion of such collected principal may be retained by the Trustee (and held in certain temporary investments, including Mortgage Loans) for a specified period prior to being used to fund payments of principal to Securityholders. The result of such retention and temporary investment by the Trustee of such principal would be to slow the amortization rate of the related Securities relative to the amortization rate of the related Mortgage Loans, or to attempt to match the amortization rate of the related Securities to an amortization schedule established at the time such Securities are issued. Any such feature applicable to any Securities may terminate upon the occurrence of events to be described in the related prospectus supplement, resulting in the current funding of principal payments to the related Securityholders and an acceleration of the amortization of such Securities. Under certain circumstances, the Master Servicer or any of its affiliated Sub-Servicers or, if applicable, the Credit Enhancer may have the option to purchase the Mortgage Loans in a Trust Estate. See "The Pooling and Servicing Agreement--Termination; Retirement of Securities." CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS AND RELATED MATTERS The following discussion contains summaries of certain legal aspects of mortgage loans that are general in nature. Because such legal aspects are governed in part by applicable state law (which laws may differ substantially), the summaries are not complete, do not reflect the laws of any particular state and do not encompass the laws of all states in which the Mortgaged Properties may be situated. GENERAL The Mortgage Loans will be represented by a Mortgage Note and an accompanying Mortgage. Pursuant to the Mortgage Note, the Mortgagor is personally liable to repay the indebtedness evidenced by the Mortgage Loan; pursuant to the Mortgage, such indebtedness is secured by a lien on the related Mortgaged Property. 63 66 ENFORCEMENT OF THE MORTGAGE NOTE Pursuant to the Mortgage Note, the related Mortgagor is personally liable to repay the indebtedness evidenced by the Mortgage Loan. In certain states, the lender on a note secured by a lien on real property has the option of bringing a personal action against the borrower on the debt without first exhausting such security; however, in some of these states the lender, following judgment on such personal action, may be deemed to have elected a remedy and may be precluded from exercising remedies with respect to the related property security. Consequently, the practical effect of the election requirement, in those states permitting such election, is that lenders will usually proceed against the property first rather than bringing a personal action against the borrower on the Note. Certain states have imposed statutory prohibitions that limit the remedies of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some states, including California, statutes limit the right of the beneficiary or mortgagee to obtain a deficiency judgment against the borrower following foreclosure. A deficiency judgment is a personal judgment against the former borrower equal in most cases to the difference between the amount due to the lender and the net amount realized upon the public sale of the real property. In the case of a Mortgage Loan secured by a property owned by a trust where the Mortgage Note is executed on behalf of the trust, a deficiency judgment against the trust following foreclosure or sale under a deed of trust, even if obtainable under applicable law, may be of little value to the mortgagee or beneficiary if there are no trust assets against which such deficiency judgment may be executed. Other statutes require the beneficiary or mortgagee to exhaust the security afforded under a deed of trust or mortgage by foreclosure in an attempt to satisfy the full debt before bringing a personal action against the borrower. Finally, in certain other states, statutory provisions limit any deficiency judgment against the former borrower following a foreclosure to the excess of the outstanding debt over the fair value of the property at the time of the public sale. The purpose of these statutes is generally to prevent a beneficiary or mortgagee from obtaining a large deficiency judgment against the former borrower as a result of low or no bids at the judicial sale. In addition to laws limiting or prohibiting deficiency judgments, numerous other federal and state statutory provisions, including the federal bankruptcy laws and state laws affording relief to debtors, may interfere with or affect the ability of the secured mortgage lender to realize upon collateral or enforce a deficiency judgment. For example, with respect to federal bankruptcy law, a court with federal bankruptcy jurisdiction may permit a debtor through his or her Chapter 11 or Chapter 13 rehabilitative plan to cure a monetary default in respect of a mortgage loan on a debtor's residence by paying arrearages within a reasonable time period and reinstating the original mortgage loan payment schedule even though the lender accelerated the mortgage loan and final judgment of foreclosure had been entered in state court (provided no sale of the residence had yet occurred) prior to the filing of the debtor's petition. Some courts with federal bankruptcy jurisdiction have approved plans, based on the particular facts of the reorganization case, that effected the curing of a mortgage loan default by paying arrearages over a number of years. Courts with federal bankruptcy jurisdiction also have indicated that the terms of a mortgage loan secured by property of the debtor may be modified. These courts have allowed modifications that include reducing the amount of each monthly payment, changing the rate of 64 67 interest, altering the repayment schedule, forgiving all or a portion of the debt and reducing the lender's security interest to the value of the residence, thus leaving the lender a general unsecured creditor for the difference between the value of the residence and the outstanding balance of the loan. Certain states have imposed general equitable principles upon judicial foreclosure. These equitable principles are generally designed to relieve the borrower from the legal effect of the borrower's default under the related loan documents. Examples of judicial remedies that have been fashioned include judicial requirements that the lender undertake affirmative and expensive actions to determine the causes for the borrower's default and the likelihood that the borrower will be able to reinstate the loan. In some cases, lenders have been required to reinstate loans or recast payment schedules in order to accommodate borrowers who are suffering from temporary financial disabilities. In other cases, such courts have limited the right of the lender to foreclose if the default under the loan is not monetary, such as the borrower failing to adequately maintain the property or the borrower executing a second deed of trust affecting the property. Certain tax liens arising under the Internal Revenue Code of 1986, as amended, may in certain circumstances provide priority over the lien of a mortgage or deed of trust. In addition, substantive requirements are imposed upon mortgage lenders in connection with the origination and the servicing of mortgage loans by numerous federal and some state consumer protection laws. These laws include, by example, the federal Truth-in-Lending Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act and related statutes and state laws, such as the California Fair Debt Collection Practices Act. These laws and regulations impose specific statutory liabilities upon lenders who originate mortgage loans and fail to comply with the provisions of the law. In some cases, this liability may affect assignees of the mortgage loans. DEEDS OF TRUST OR MORTGAGES The Mortgage Loans will be secured by either deeds of trust or mortgages, depending upon the prevailing practice in the state in which the Mortgaged Property subject to a Mortgage Loan is located. In some states, a mortgage creates a lien upon the real property encumbered by the mortgage. In other states, the mortgage conveys legal title to the property to the mortgagee subject to a condition subsequent (i.e., the payment of the indebtedness secured thereby). The mortgage is not prior to the lien for real estate taxes and assessments and other charges imposed under governmental police powers. Priority between mortgages depends on their terms in some cases or on the terms of separate subordination or intercreditor agreements, and generally on the order of recordation of the mortgage in the appropriate recording office. There are two parties to a mortgage, the mortgagor, who is the borrower and homeowner, and the mortgagee, who is the lender. Under the mortgage instrument, the mortgagor delivers to the mortgagee a note or bond and the mortgage. In the case of a land trust, there are three parties because title to the property is held by a land trustee under a land trust agreement of which the borrower is the beneficiary; at origination of a mortgage loan, the borrower executes a separate undertaking to make payments on the mortgage note. Although a deed of trust is similar to a mortgage, a deed of trust has three parties; the borrower-homeowner called the trustor (similar to a mortgagor), a lender (similar to a mortgagee) called the beneficiary, and a third-party grantee called the trustee. Under a deed of trust, the borrower grants the property, irrevocably until the debt is paid, in trust, generally with a 65 68 power of sale, to the trustee to secure payment of the obligation. The trustee's authority under a deed of trust and the mortgagee's authority under a mortgage are governed by law, the express provisions of the deed of trust or mortgage, and, in some cases, the directions of the beneficiary. COOPERATIVE LOANS If specified in the prospectus supplement relating to a series of Securities, the Mortgage Loans also may consist of Cooperative Loans evidenced by Cooperative Notes secured by security interests in shares issued by cooperatives, which are private corporations that are entitled to be treated as housing cooperatives under federal tax law, and in the related proprietary leases or occupancy agreements granting exclusive rights to occupy specific dwelling units in the cooperatives' buildings. The security agreement will create a lien upon, or grant a title interest in, the property which it covers, the priority of which will depend on the terms of the particular security agreement as well as the order of recordation of the agreement in the appropriate recording office. Such a lien or title interest is not prior to the lien for real estate taxes and assessments and other charges imposed under governmental police powers. Each cooperative owns in fee or has a leasehold interest in all the real property and owns in fee or leases the building and all separate dwelling units therein. The cooperative is directly responsible for property management and, in most cases, payment of real estate taxes, other governmental impositions and hazard and liability insurance. If there is a blanket mortgage or mortgages on the cooperative apartment building or underlying land, as is generally the case, or an underlying lease of the land, as is the case in some instances, the cooperative, as property mortgagor, or lessee, as the case may be, also is responsible for meeting these mortgage or rental obligations. A blanket mortgage is ordinarily incurred by the cooperative in connection with either the construction or purchase of the cooperative's apartment building or the obtaining of capital by the cooperative. The interest of the occupant under proprietary leases or occupancy agreements as to which that cooperative is the landlord generally is subordinate to the interest of the holder of a blanket mortgage and to the interest of the holder of a land lease. If the cooperative is unable to meet the payment obligations (i) arising under a blanket mortgage, the mortgagee holding a blanket mortgage could foreclose on that mortgage and terminate all subordinate proprietary leases and occupancy agreements or (ii) arising under its land lease, the holder of the landlord's interest under the land lease could terminate it and all subordinate proprietary leases and occupancy agreements. Also, a blanket mortgage on a cooperative may provide financing in the form of a mortgage that does not fully amortize, with a significant portion of principal being due in one final payment at maturity. The inability of the cooperative to refinance a mortgage and its consequent inability to make such final payment could lead to foreclosure by the mortgagee. Similarly, a land lease has an expiration date and the inability of the cooperative to extend its term or, in the alternative, to purchase the land could lead to termination of the cooperative's interest in the property and termination of all proprietary leases and occupancy agreements. In either event, a foreclosure by the holder of a blanket mortgage or the termination of the underlying lease could eliminate or significantly diminish the value of any collateral held by the lender who financed the purchase by an individual tenant-stockholder of cooperative shares or, in the case of the Mortgage Loans, the collateral securing the Cooperative Loans. 66 69 The cooperative is owned by tenant-stockholders who, through ownership of stock or shares in the corporation, receive proprietary leases or occupancy agreements that confer exclusive rights to occupy specific units. Generally, a tenant-stockholder of a cooperative must make a monthly payment to the cooperative representing such tenant-stockholder's pro rata share of the cooperative's payments for its blanket mortgage, real property taxes, maintenance expenses and other capital or ordinary expenses. An ownership interest in a cooperative and accompanying occupancy rights are financed through a cooperative share loan evidenced by a promissory note and secured by an assignment of and a security interest in the occupancy agreement or proprietary lease and a security interest in the related cooperative shares. The lender generally takes possession of the share certificate and a counterpart of the proprietary lease or occupancy agreement and a financing statement covering the proprietary lease or occupancy agreement and the cooperative shares is filed in the appropriate state and local offices to perfect the lender's interest in its collateral. Subject to the limitations discussed below, upon default of the tenant-stockholder, the lender may sue for judgment on the promissory note, dispose of the collateral at a public or private sale or otherwise proceed against the collateral or tenant-stockholder as an individual as provided in the security agreement covering the assignment of the proprietary lease or occupancy agreement and the pledge of cooperative shares. See "Foreclosure on Shares of Cooperatives" below. FORECLOSURE Foreclosure of a deed of trust is generally accomplished by a non-judicial trustee's sale (private sale) under a specific provision in the deed of trust and state laws which authorize the trustee to sell the property upon any default by the borrower under the terms of the note or deed of trust. Beside the nonjudicial remedy, a deed of trust may be judicially foreclosed. In addition to any notice requirements contained in a deed of trust, in some states, the trustee must record a notice of default and within a certain period of time send a copy to the borrower trustor and to any person who has recorded a request for a copy of notice of default and notice of sale. In addition, the trustee must provide notice in some states to any other individual having an interest of record in the real property, including any junior lienholders. If the deed of trust is not reinstated within a specified period, a notice of sale must be posted in a public place and, in most states, published for a specific period of time in one or more local newspapers. In addition, some state laws require that a copy of the notice of sale be posted on the property and sent to all parties having an interest of record in the real property. Foreclosure of a mortgage is generally accomplished by judicial action. Generally, the action is initiated by the service of legal pleadings upon all parties having an interest of record in the real property. Delays in completion of the foreclosure may occasionally result from difficulties in locating necessary parties. Judicial foreclosure proceedings are often not contested by any of the applicable parties. If the mortgagee's right to foreclose is contested, the legal proceedings necessary to resolve the issue can be time-consuming. In some states, the borrower-trustor has the right to reinstate the loan at any time following default until shortly before the trustee's sale. In general, in such states, the borrower, or any other person having a junior encumbrance on the real estate, may, during a reinstatement period, cure the default by paying the entire amount in arrears plus the costs and expenses incurred in enforcing the obligation. 67 70 In the case of foreclosure under either a mortgage or a deed of trust, the sale by the referee or other designated officer or by the trustee is a public sale. However, because of the difficulty a potential buyer at the sale would have in determining the exact status of title and because the physical condition of the property may have deteriorated during the foreclosure proceedings, it is uncommon for a third party to purchase the property at a foreclosure sale unless there is a great deal of economic incentive for the new purchaser to purchase the subject property at the sale. Rather, it is common for the lender to purchase the property from the trustee or referee for a credit bid less than or equal to the unpaid principal amount of the mortgage or deed of trust, accrued and unpaid interest and the expense of foreclosure. Generally, state law controls the amount of foreclosure costs and expenses, including attorneys' fees, which may be recovered by a lender. Thereafter, subject to the right of the borrower in some states to remain in possession during the redemption period, the lender will assume the burdens of ownership, including obtaining hazard insurance and making such repairs at its own expense as are necessary to render the property suitable for sale. The lender will commonly obtain the services of a real estate broker and pay the broker's commission in connection with the sale of the property. Depending upon market conditions, the ultimate proceeds of the sale of the property may not equal the lender's investment in the property and, in some states, the lender may be entitled to a deficiency judgment. Any loss may be reduced by the receipt of any mortgage insurance proceeds. FORECLOSURE ON SHARES OF COOPERATIVES The cooperative shares and proprietary lease or occupancy agreement owned by the tenant-stockholder and pledged to the lender are, in almost all cases, subject to restrictions on transfer as set forth in the cooperative's certificate of incorporation and by-laws, as well as in the proprietary lease or occupancy agreement. The proprietary lease or occupancy agreement, even while pledged, may be cancelled by the cooperative for failure by the tenant stockholder to pay rent or other obligations or charges owed by such tenant-stockholder, including mechanics' liens against the cooperative apartment building incurred by such tenant-stockholder. Commonly, rent and other obligations and charges arising under a proprietary lease or occupancy agreement that are owed to the cooperative are made liens upon the shares to which the proprietary lease or occupancy agreement relates. In addition, the proprietary lease or occupancy agreement generally permits the cooperative to terminate such lease or agreement in the event the borrower defaults in the performance of covenants thereunder. Typically, the lender and the cooperative enter into a recognition agreement that, together with any lender protection provisions contained in the proprietary lease, establishes the rights and obligations of both parties in the event of a default by the tenant-stockholder on its obligations under the proprietary lease or occupancy agreement. A default by the tenant-stockholder under the proprietary lease or occupancy agreement usually will constitute a default under the security agreement between the lender and the tenant-stockholder. The recognition agreement generally provides that, in the event that the tenant-stockholder has defaulted under the proprietary lease or occupancy agreement, the cooperative will take no action to terminate such lease or agreement until the lender has been provided with notice of and an opportunity to cure the default. The recognition agreement typically provides that if the proprietary lease or occupancy agreement is terminated, the cooperative will recognize the lender's lien against proceeds from a sale of the cooperative apartment, subject, however, to 68 71 the cooperative's right to sums due under such proprietary lease or occupancy agreement or sums that have become liens on the shares relating to the proprietary lease or occupancy agreement. The total amount owed to the cooperative by the tenant-stockholder, which the lender generally cannot restrict and does not monitor, could reduce the amount realized upon a sale of the collateral below the outstanding principal balance of the Cooperative Loan and accrued and unpaid interest thereon. Recognition agreements generally also provide that in the event of a foreclosure on a Cooperative Loan, the lender must obtain the approval or consent of the cooperative as required by the proprietary lease before transferring the cooperative shares or assigning the proprietary lease. Generally, the lender is not limited in any rights it may have to dispossess the tenant-stockholder. In New York, foreclosure on the cooperative shares is accomplished by public sale in accordance with the provisions of Article 9 of the UCC and the security agreement relating to those shares. Article 9 of the UCC requires that a sale be conducted in a "commercially reasonable" manner. Whether a sale has been conducted in a "commercially reasonable" manner will depend on the facts in each case. In determining commercial reasonableness, a court will look to the notice given the debtor and the method, manner, time, place and terms of the sale and the sale price. Generally, a sale conducted according to the usual practice of banks selling similar collateral will be considered reasonably conducted. Article 9 of the UCC provides that the proceeds of the sale will be applied first to pay the costs and expenses of the sale and then to satisfy the indebtedness secured by the lender's security interest. The recognition agreement, however, generally provides that the lender's right to reimbursement is subject to the right of the cooperative corporation to receive sums due under the proprietary lease or occupancy agreement. If there are proceeds remaining, the lender must account to the tenant-stockholder for the surplus. Conversely, if a portion of the indebtedness remains unpaid, the tenant-stockholder is generally responsible for the deficiency. See "Anti-Deficiency Legislation and Other Limitations on Lenders" below. RIGHTS OF REDEMPTION In some states, after sale pursuant to a deed of trust or foreclosure of a mortgage, the borrower and foreclosed junior lienors or other parties are given a statutory period in which to redeem the property from the foreclosure sale. In some states, redemption may occur only upon payment of the entire principal balance of the loan, accrued interest and expenses of foreclosure. In other states, redemption may be authorized if the former borrower pays only a portion of the sums due. The effect of a statutory right of redemption is to diminish the ability of the lender to sell the foreclosed property. The rights of redemption would defeat the title of any purchaser subsequent to foreclosure or sale under a deed of trust. Consequently, the practical effect of the redemption right is to force the lender to maintain the property and pay the expenses of ownership until the redemption period has expired. In some states, there is no right to redeem property after a trustee's sale under a deed of trust. 69 72 ENVIRONMENTAL LEGISLATION Certain states impose a statutory lien for associated costs on property that is the subject of a cleanup action by the state on account of hazardous wastes or hazardous substances released or disposed of on the property. Such a lien generally will have priority over all subsequent liens on the property and, in certain of these states, will have priority over prior recorded liens including the lien of a mortgage. In some states, however, such a lien will not have priority over prior recorded liens of a deed of trust. In addition, under federal environmental legislation and under state law in a number of states, a secured party which takes a deed in lieu of foreclosure or acquires a mortgaged property at a foreclosure sale or assumes active control over the operation or management of a property so as to be deemed an "owner" or "operator" of the property may be liable for the costs of cleaning up a contaminated site. Although such costs could be substantial, it is unclear whether they would be imposed on a lender (such as a Trust Estate) secured by residential real property. In the event that title to a Mortgaged Property securing a Mortgage Loan in a Trust Estate was acquired by the Trust and cleanup costs were incurred in respect of the Mortgaged Property, the holders of the related series of Securities might realize a loss if such costs were required to be paid by the Trust. ENFORCEABILITY OF CERTAIN PROVISIONS Unless the prospectus supplement indicates otherwise, generally all of the Mortgage Loans contain due-on-sale clauses. These clauses permit the lender to accelerate the maturity of the loan if the borrower sells, transfers or conveys the property. The enforceability of these clauses has been the subject of legislation or litigation in many states including California, and in some cases the enforceability of these clauses was limited or denied. However, the Garn-St. Germain Depository Institutions Act of 1982 (the "GARN-ST. GERMAIN ACT") preempts state constitutional, statutory and case law that prohibits the enforcement of due-on-sale clauses and permits lenders to enforce these clauses in accordance with their terms, subject to certain limited exceptions. The Garn-St. Germain Act does "encourage" lenders to permit assumption of loans at the original rate of interest or at some other rate less than the average of the original rate and the market rate. The Garn-St. Germain Act also sets forth nine specific instances in which a mortgage lender covered by the Garn-St. Germain Act may not exercise a due-on-sale clause, notwithstanding the fact that a transfer of the property may have occurred. These include intra-family transfers, certain transfers by operation of law, leases of fewer than three years and the creation of a junior encumbrance. Regulations promulgated under the Garn-St. Germain Act also prohibit the imposition of a prepayment penalty upon the acceleration of a loan pursuant to a due-on-sale clause. The inability to enforce a due-on-sale clause may result in a mortgage loan bearing a Coupon Rate below the current market rate being assumed by a new home buyer rather than being paid off, that may have an impact upon the average life of the Mortgage Loans and the number of Mortgage Loans that may be outstanding until maturity. Upon foreclosure, courts have imposed general equitable principles. These equitable principles generally are designed to relieve the borrower from the legal effect of his defaults 70 73 under the loan documents. Examples of judicial remedies that have been fashioned include judicial requirements that the lender undertake affirmative and expensive actions to determine the causes for the borrower's default and the likelihood that the borrower will be able to reinstate the loan. In some cases, courts have substituted their judgment for the lender's judgment and have required that lenders reinstate loans or recast payment schedules in order to accommodate borrowers who are suffering from temporary financial disability. In other cases, courts have limited the right of the lender to foreclose if the default under the mortgage instrument is not monetary, such as the borrower failing to adequately maintain the property or the borrower executing a second mortgage or deed of trust affecting the property. Finally, some courts have been faced with the issue of whether or not federal or state constitutional provisions reflecting due process concerns for adequate notice require that borrowers under deeds of trust or mortgages receive notices in addition to the statutorily prescribed minimum. For the most part, these cases have upheld the notice provisions as being reasonable or have found that the sale by a trustee under a deed of trust, or under a mortgage having a power of sale, does not involve sufficient state action to afford constitutional protections to the borrower. CERTAIN PROVISIONS OF CALIFORNIA DEEDS OF TRUST Most institutional lenders in California use a form of deed of trust that confers on the beneficiary the right both to receive all proceeds collected under any hazard insurance policy and all awards made in connection with any condemnation proceedings, and to apply such proceeds and awards to any indebtedness secured by the deed of trust, in such order as the beneficiary may determine, provided, however, that California law prohibits the beneficiary from applying insurance and condemnation proceeds to the indebtedness secured by the deed of trust unless the beneficiary's security has been impaired by the casualty or condemnation, and, if such security has been impaired, permits such proceeds to be so applied only to the extent of such impairment. Thus, in the event improvements on the property are damaged or destroyed by fire or other casualty, or in the event the property is taken by condemnation, and, as a result thereof, the beneficiary's security is impaired, the beneficiary under the underlying first deed of trust will have the prior right to collect any insurance proceeds payable under a hazard insurance policy and any award of damages in connection with the condemnation and to apply the same to the indebtedness secured by the first deed of trust. Proceeds in excess of the amount of indebtedness secured by a first deed of trust will, in most cases, be applied to the indebtedness of a junior deed of trust. Another provision typically found in the forms of deed of trust used by most institutional lenders in California obligates the trustor to pay before delinquency all taxes and assessments on the property and, when due, all encumbrances, charges and liens on the property which appear prior to the deed of trust, to provide and maintain fire insurance on the property, to maintain and repair the property and not to commit or permit any waste thereof, and to appear in and defend any action or proceeding purporting to affect the property or the rights of the beneficiary under the deed of trust. Upon a failure of the trustor to perform any of these obligations, the beneficiary is given the right under the deed of trust to perform the obligation itself, at its election, with the trustor agreeing to reimburse the beneficiary for any sums expended by the beneficiary on behalf of the trustor. All sums so expended by the beneficiary become part of the indebtedness secured by the deed of trust. 71 74 APPLICABILITY OF USURY LAWS Title V of the Depository Institutions Deregulation and Monetary Control Act of 1980, enacted in March 1980 ("TITLE V"), provides that state usury limitations shall not apply to certain types of residential first mortgage loans originated by certain lenders after March 31, 1980. A similar federal statute was in effect with respect to mortgage loans made during the first three months of 1980. The Office of Thrift Supervision is authorized to issue rules and regulations and to publish interpretations governing implementation of Title V. The statute authorized any state to reimpose interest rate limits by adopting, before April 1, 1983, a law or constitutional provision which expressly rejects application of the federal law. In addition, even where Title V is not so rejected, any state is authorized by the law to adopt a provision limiting discount points or other charges on mortgage loans covered by Title V. Certain states have taken action to reimpose interest rate limits or to limit discount points or other charges. As indicated above under "Mortgage Loan Program--Representations," representations will be made that each Mortgage Loan was originated in compliance with then applicable state laws, including usury laws, in all material respects. However, the Coupon Rates on the Mortgage Loans will be subject to applicable usury laws as in effect from time to time. ALTERNATIVE MORTGAGE INSTRUMENTS Alternative mortgage instruments, including ARM Loans and early ownership mortgage loans, originated by non-federally chartered lenders have historically been subjected to a variety of restrictions. Such restrictions differed from state to state, resulting in difficulties in determining whether a particular alternative mortgage instrument originated by a state-chartered lender was in compliance with applicable law. These difficulties were alleviated substantially as a result of the enactment of Title VIII of the Garn-St. Germain Act ("TITLE VIII"). Title VIII provides that: notwithstanding any state law to the contrary, state-chartered banks may originate alternative mortgage instruments in accordance with regulations promulgated by the Comptroller of the Currency with respect to origination of alternative mortgage instruments by national banks; state-chartered credit unions may originate alternative mortgage instruments in accordance with regulations promulgated by the National Credit Union Administration with respect to origination of alternative mortgage instruments by federal credit unions; and all other non-federally chartered housing creditors, including state-chartered savings and loan associations, state-chartered savings banks and mutual savings banks and mortgage banking companies, may originate alternative mortgage instruments in accordance with the regulations promulgated by the Federal Home Loan Bank Board, predecessor to the Office of Thrift Supervision, with respect to origination of alternative mortgage instruments by federal savings and loan associations. Title VIII provides that any state may reject applicability of the provisions of Title VIII by adopting, prior to October 15, 1985, a law or constitutional provision expressly rejecting the applicability of such provisions. Certain states have taken such action. SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940 Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the "RELIEF ACT"), members of all branches of the military on active duty, including draftees and reservists on active duty, (i) are entitled to have interest rates reduced and capped at 6% per 72 75 annum, on obligations (including mortgage loans) incurred prior to the commencement of active duty for the duration of active duty, (ii) may be entitled to a stay of proceedings on any kind of foreclosure or repossession action in the case of defaults on such obligations entered into prior to active duty for the duration of active duty and (iii) may have the maturity of such obligations incurred prior to active duty extended, the payments lowered and the payment schedule readjusted for a period of time after the completion of active duty. However, the benefits of (i), (ii) or (iii) above are subject to challenge by creditors and if, in the opinion of the court, the ability of a person to comply with such obligations is not materially impaired by active duty, the court may apply equitable principles accordingly. If a Mortgagor's obligation to repay amounts otherwise due on a Mortgage Loan is relieved pursuant to the Relief Act, none of the related Trust, the Servicer, the Sponsor, any Credit Enhancer nor the related trustee will be required to advance such amounts, and any loss in respect thereof may reduce the amounts available to be paid to the securityholders. Unless otherwise specified in the related prospectus supplement, any shortfalls in collections of interest and principal on the Mortgage Loans resulting from application of the Relief Act will be allocated to each class of Securities that is entitled to receive interest and principal in respect of such Mortgage Loans in proportion to the interest and principal that each such class of Securities would have otherwise been entitled to receive in respect of such Mortgage Loans had such shortfall not occurred. Thus, in the event that the Relief Act or similar legislation or regulations apply to any Mortgage Loan which goes into default, there may be delays in payment and losses on the related Securities in connection therewith. Any other interest shortfalls, deferrals or forgiveness of payments on the Mortgage Loans resulting from similar legislation or regulations may result in delays in payments or losses to Securityholders of the related series. CERTAIN FEDERAL INCOME TAX CONSEQUENCES GENERAL The following is a general discussion of the material anticipated federal income tax consequences to investors of the purchase, ownership and disposition of the Securities offered hereby. The discussion is based upon laws, regulations, rulings and decisions now in effect, all of which are subject to change. The discussion below is a summary and does not purport to deal with all federal tax consequences applicable to all categories of investors, some of which may be subject to special rules. Investors should consult their own tax advisors in determining the federal, state, local and any other tax consequences to them of the purchase, ownership and disposition of the Securities. For purposes of this discussion, references to a "Securityholder" or a "Holder" are to the beneficial owner of a Security. The following discussion addresses securities of five general types: (i) securities ("GRANTOR TRUST SECURITIES") representing interests in a Trust Estate (a "GRANTOR TRUST ESTATE") which the Sponsor will covenant not to elect to have treated as a real estate mortgage investment conduit ("REMIC") or a financial asset securitization investment trust ("FASIT"); (ii) securities ("REMIC SECURITIES") representing interests in a Trust Estate, or a portion thereof, which the Sponsor will covenant to elect to have treated as a REMIC under sections 860A through 860G of the Internal Revenue Code of 1986, as amended (the "CODE"); (iii) securities ("DEBT SECURITIES") that are intended to be treated for federal income tax purposes as indebtedness secured by the underlying Mortgage Loan and (iv) securities ("PARTNERSHIP 73 76 INTERESTS") representing interests in a Trust Estate (a "PARTNERSHIP") that is intended to be treated as a partnership under the Code and (v) securities ("FASIT SECURITIES") representing interests in a Trust Estate, or portion thereof, which the Sponsor will covenant to elect to have treated as a FASIT under sections 860H through 860L of the Code. The prospectus supplement for each series of Securities will indicate whether a REMIC or FASIT election (or elections) will be made for the related Trust Estate and, if a REMIC or FASIT election is to be made, will identify all "regular interests" and "residual interests" in the REMIC or all "regular interests," "high-yield interests" or "ownership interest" in the FASIT. The Taxpayer Relief Act of 1997 adds provisions to the Code that require the recognition of gain upon the "constructive sale of an appreciated financial position." A constructive sale of an appreciated financial position occurs if a taxpayer enters into certain transactions or series of such transactions with respect to a financial instrument that have the effect of substantially eliminating the taxpayer's risk of loss and opportunity for gain with respect to the financial instrument. These provisions apply only to Classes of Certificates that do not have a principal balance. GRANTOR TRUST SECURITIES With respect to each series of Grantor Trust Securities, Dewey Ballantine LLP, special tax counsel to the Sponsor, will deliver its opinion to the Sponsor that the related Grantor Trust Estate will be classified as a grantor trust and not as a partnership or an association taxable as a corporation. Such opinion shall be attached on Form 8-K to be filed with the Securities and Exchange Commission within fifteen days after the initial issuance of such Securities or filed with the Commission as a post-effective amendment to the prospectus. Accordingly, each Holder of a Grantor Trust Security will generally be treated as the owner of an interest in the Mortgage Loans included in the Grant or Trust Estate. For purposes of the following discussion, a Grantor Trust Security representing an undivided equitable ownership interest in the principal of the Mortgage Loans constituting the related Grantor Trust Estate, together with interest thereon at a pass-through rate, will be referred to as a "Grantor Trust Fractional Interest Security." A Grantor Trust Security representing ownership of all or a portion of the difference between interest paid on the Mortgage Loans constituting the related Grantor Trust Estate and interest paid to the Holders of Grantor Trust Fractional Interest Securities issued with respect to such Grantor Trust Estate will be referred to as a "Grantor Trust Strip Security." Special Tax Attributes Dewey Ballantine LLP, special tax counsel to the Sponsor, will deliver its opinion to the Sponsor that (a) Grantor Trust Fractional Interest Securities will represent interests in (i) "loans . . . secured by an interest in real property" within the meaning of section 7701(a)(19)(C)(v) of the Code; and (ii) "obligations (including any participation or certificate of beneficial ownership therein) which . . . are principally secured by an interest in real property" within the meaning of section 860G(a)(3)(A) of the Code; and (b) interest on Grantor Trust Fractional Interest Securities will be considered "interest on obligations secured by mortgages on real property or on interests in real property" within the meaning of section 856(c)(3)(B) of the Code. In 74 77 addition, the Grantor Trust Strip Securities will be "obligations (including any participation or certificate of beneficial ownership therein) . . . principally secured by an interest in real property" within the meaning of section 860G(a)(3)(A) of the Code. We will file such opinion with the Commission on Form 8-K within fifteen days after the initial issuance of such Securities or as a post-effective amendment to the prospectus. Taxation of Holders of Grantor Trust Securities Holders of Grantor Trust Fractional Interest Securities generally will be required to report on their federal income tax returns their respective shares of the income from the Mortgage Loans (including amounts used to pay reasonable servicing fees and other expenses but excluding amounts payable to Holders of any corresponding Grantor Trust Strip Securities) and, subject to the limitations described below, will be entitled to deduct their shares of any such reasonable servicing fees and other expenses. If a Holder acquires a Grantor Trust Fractional Interest Security for an amount that differs from its outstanding principal amount, the amount includible in income on a Grantor Trust Fractional Interest Security may differ from the amount of interest distributable thereon. See "Discount and Premium," below. Individuals holding a Grantor Trust Fractional Interest Security directly or through certain pass-through entities will be allowed a deduction for such reasonable servicing fees and expenses only to the extent that the aggregate of such Holder's miscellaneous itemized deductions exceeds 2% of such Holder's adjusted gross income. Further, Holders (other than corporations) subject to the alternative minimum tax may not deduct miscellaneous itemized deductions in determining alternative minimum taxable income. Holders of Grantor Trust Strip Securities generally will be required to treat such Securities as "stripped coupons" under section 1286 of the Code. Accordingly, such a Holder will be required to treat the excess of the total amount of payments on such a Security over the amount paid for such Security as original issue discount and to include such discount in income as it accrues over the life of such Security. See "--Discount and Premium," below. Grantor Trust Fractional Interest Securities may also be subject to the coupon stripping rules if a class of Grantor Trust Strip Securities is issued as part of the same series of Securities. The consequences of the application of the coupon stripping rules would appear to be that any discount arising upon the purchase of such a Security (and perhaps all stated interest thereon) would be classified as original issue discount and includible in the Holder's income as it accrues (regardless of the Holder's method of accounting), as described below under "--Discount and Premium." The coupon stripping rules will not apply, however, if (i) the pass-through rate is no more than 100 basis points lower than the gross rate of interest payable on the underlying Mortgage Loans and (ii) the difference between the outstanding principal balance on the Security and the amount paid for such Security is less than 0.25% of such principal balance times the weighted average remaining maturity of the Security. Sales of Grantor Trust Securities Any gain or loss recognized on the sale of a Grantor Trust Security (equal to the difference between the amount realized on the sale and the adjusted basis of such Grantor Trust Security) will be capital gain or loss, except to the extent of accrued and unrecognized market 75 78 discount, which will be treated as ordinary income, and in the case of banks and other financial institutions except as provided under section 582(c) of the Code. The adjusted basis of a Grantor Trust Security will generally equal its cost, increased by any income reported by the seller (including original issue discount and market discount income) and reduced (but not below zero) by any previously reported losses, any amortized premium and by any distributions of principal. Grantor Trust Reporting The Trustee will furnish to each Holder of a Grantor Trust Fractional Interest Security with each distribution a statement setting forth the amount of such distribution allocable to principal on the underlying Mortgage Loans and to interest thereon at the related Pass-Through Rate. In addition, within a reasonable time after the end of each calendar year, based on information provided by the Master Servicer, the Trustee will furnish to each Holder during such year such customary factual information as the Master Servicer deems necessary or desirable to enable Holders of Grantor Trust Securities to prepare their tax returns and will furnish comparable information to the Internal Revenue Service (the "IRS") as and when required to do so by law. REMIC SECURITIES If provided in a related prospectus supplement, an election will be made to treat a Trust Estate as a REMIC under the Code. Qualification as a REMIC requires ongoing compliance with certain conditions. With respect to each series of Securities for which such an election is made, Dewey Ballantine LLP, special tax counsel to the Sponsor, will deliver its opinion to the Sponsor that, assuming compliance with the Pooling and Servicing Agreement, the Trust Estate will be treated as a REMIC for federal income tax purposes. We will file such opinion with the Commission on Form 8-K within fifteen days after the initial issuance of such Securities or as a post-effective amendment to the prospectus. A Trust Estate for which a REMIC election is made will be referred to herein as a "REMIC TRUST." The Securities of each class will be designated as "regular interests" in the REMIC Trust except that a separate class will be designated as the "residual interest" in the REMIC Trust. The prospectus supplement for each series of Securities will state whether Securities of each class will constitute a regular interest (a "REMIC REGULAR SECURITY") or a residual interest (a "REMIC RESIDUAL SECURITY"). A REMIC Trust will not be subject to federal income tax except with respect to income from prohibited transactions and in certain other instances described below. See "--Taxes on a REMIC Trust." Generally, the total income from the Mortgage Loans in a REMIC Trust will be taxable to the Holders of the Securities of that series, as described below. Regulations issued by the Treasury Department on December 23, 1992 (the "REMIC REGULATIONS") provide some guidance regarding the federal income tax consequences associated with the purchase, ownership and disposition of REMIC Securities. While certain material provisions of the REMIC Regulations are discussed below, investors should consult their own tax advisors regarding the possible application of the REMIC Regulations in their specific circumstances. 76 79 SPECIAL TAX ATTRIBUTES REMIC Regular Securities and REMIC Residual Securities will be "regular or residual interests in a REMIC" within the meaning of section 7701(a)(19)(C)(xi) of the Code and "real estate assets" within the meaning of section 856(c)(5)(A) of the Code. If at any time during a calendar year less than 95% of the assets of a REMIC Trust consist of "qualified mortgages" (within the meaning of section 860G(a)(3) of the Code) then the portion of the REMIC Regular Securities and REMIC Residual Securities that are qualifying assets under those sections during such calendar year may be limited to the portion of the assets of such REMIC Trust that are qualified mortgages. Similarly, income on the REMIC Regular Securities and REMIC Residual Securities will be treated as "interest on obligations secured by mortgages on real property" within the meaning of section 856(c)(3)(B) of the Code, subject to the same limitation as set forth in the preceding sentence. For purposes of applying this limitation, a REMIC Trust should be treated as owning the assets represented by the qualified mortgages. The assets of the Trust Estate will include, in addition to the Mortgage Loans, payments on the Mortgage Loans held pending distribution on the REMIC Regular Securities and REMIC Residual Securities and any reinvestment income thereon. REMIC Regular Securities and REMIC Residual Securities held by a financial institution to which section 585, 586 or 593 of the Code applies will be treated as evidences of indebtedness for purposes of section 582(c)(1) of the Code. REMIC Regular Securities will also be qualified mortgages with respect to other REMICs and FASITs. Taxation of Holders of REMIC Regular Securities Except as indicated below in this federal income tax discussion, the REMIC Regular Securities will be treated for federal income tax purposes as debt instruments issued by the REMIC Trust on the date such Securities are first sold to the public (the "SETTLEMENT DATE") and not as ownership interests in the REMIC Trust or its assets. Holders of REMIC Regular Securities that otherwise report income under a cash method of accounting will be required to report income with respect to such Securities under an accrual method. For additional tax consequences relating to REMIC Regular Securities purchased at a discount or with premium, see "--Discount and Premium," below. Taxation of Holders of REMIC Residual Securities Daily Portions. Except as indicated below, a Holder of a REMIC Residual Security for a REMIC Trust generally will be required to report its daily portion of the taxable income or net loss of the REMIC Trust for each day during a calendar quarter that the Holder owned such REMIC Residual Security. For this purpose, the daily portion shall be determined by allocating to each day in the calendar quarter its ratable portion of the taxable income or net loss of the REMIC Trust for such quarter and by allocating the amount so allocated among the Residual Holders (on such day) in accordance with their percentage interests on such day. Any amount included in the gross income or allowed as a loss of any Residual Holder by virtue of this paragraph will be treated as ordinary income or loss. The requirement that each Holder of a REMIC Residual Security report its daily portion of the taxable income or net loss of the REMIC Trust will continue until there are no Securities 77 80 of any class outstanding, even though the Holder of the REMIC Residual Security may have received full payment of the stated interest and principal on its REMIC Residual Security. The Trustee will provide to Holders of REMIC Residual Securities of each series of Securities (i) such information as is necessary to enable them to prepare their federal income tax returns and (ii) any reports regarding the Securities of such series that may be required under the Code. Taxable Income or Net Loss of a REMIC Trust. The taxable income or net loss of a REMIC Trust will be the income from the qualified mortgages it holds and any reinvestment earnings less deductions allowed to the REMIC Trust. Such taxable income or net loss for a given calendar quarter will be determined in the same manner as for an individual having the calendar year as the taxable year and using the accrual method of accounting, with certain modifications. The first modification is that a deduction will be allowed for accruals of interest (including any original issue discount, but without regard to the investment interest limitation in section 163(d) of the Code) on the REMIC Regular Securities (but not the REMIC Residual Securities), even though REMIC Regular Securities are for non-tax purposes evidences of beneficial ownership rather than indebtedness of a REMIC Trust. Second, market discount or premium equal to the difference between the total stated principal balances of the qualified mortgages and the basis to the REMIC Trust therein generally will be included in income (in the case of discount) or deductible (in the case of premium) by the REMIC Trust as it accrues under a constant yield method, taking into account the related Prepayment Assumption as defined in the related prospectus supplement (the "PREPAYMENT ASSUMPTION")(see "--Discount and Premium--Original Issue Discount," below). The basis to a REMIC Trust in the qualified mortgages is the aggregate of the issue prices of all the REMIC Regular Securities and REMIC Residual Securities in the REMIC Trust on the Settlement Date. If, however, a substantial amount of a class of REMIC Regular Securities or REMIC Residual Securities has not been sold to the public, then the fair market value of all the REMIC Regular Securities or REMIC Residual Securities in that class as of the date of the prospectus supplement should be substituted for the issue price. The third modification is that no item of income, gain, loss or deduction allocable to a prohibited transaction (see "--Taxes on a REMIC Trust--Prohibited Transactions" below) will be taken into account. Fourth, a REMIC Trust generally may not deduct any item that would not be allowed in calculating the taxable income of a partnership by virtue of section 703(a)(2) of the Code. Finally, the limitation on miscellaneous itemized deductions imposed on individuals by section 67 of the Code will not be applied at the REMIC Trust level to any servicing and guaranty fees. (See, however, "--Pass-Through of Servicing and Guaranty Fees to Individuals" below.) In addition, under the REMIC Regulations, any expenses that are incurred in connection with the formation of a REMIC Trust and the issuance of the REMIC Regular Securities and REMIC Residual Securities are not treated as expenses of the REMIC Trust for which a deduction is allowed. If the deductions allowed to a REMIC Trust exceed its gross income for a calendar quarter, such excess will be a net loss for the REMIC Trust for that calendar quarter. The REMIC Regulations also provide that any gain or loss to a REMIC Trust from the disposition of any asset, including a qualified mortgage or "permitted investment" (as defined in section 860G(a)(5) of the Code) will be treated as ordinary gain or loss. 78 81 A Holder of a REMIC Residual Security may be required to recognize taxable income without being entitled to receive a corresponding amount of cash. This could occur, for example, if the qualified mortgages are considered to be purchased by the REMIC Trust at a discount, some or all of the REMIC Regular Securities are issued at a discount, and the discount included as a result of a prepayment on a Mortgage Loan that is used to pay principal on the REMIC Regular Securities exceeds the REMIC Trust's deduction for unaccrued original issue discount relating to such REMIC Regular Securities. Taxable income may also be greater in earlier years because interest expense deductions, expressed as a percentage of the outstanding principal amount of the REMIC Regular Securities, may increase over time as the earlier classes of REMIC Regular Securities are paid, whereas interest income with respect to any given Mortgage Loan expressed as a percentage of the outstanding principal amount of that Mortgage Loan, will remain constant over time. Basis Rules and Distributions. A Holder of a REMIC Residual Security has an initial basis in its Security equal to the amount paid for such REMIC Residual Security. Such basis is increased by amounts included in the income of the Holder and decreased by distributions and by any net loss taken into account with respect to such REMIC Residual Security. A distribution on a REMIC Residual Security to a Holder is not included in gross income to the extent it does not exceed such Holder's basis in the REMIC Residual Security (adjusted as described above) and, to the extent it exceeds the adjusted basis of the REMIC Residual Security, shall be treated as gain from the sale of the REMIC Residual Security. A Holder of a REMIC Residual Security is not allowed to take into account any net loss for any calendar quarter to the extent such net loss exceeds such Holder's adjusted basis in its REMIC Residual Security as of the close of such calendar quarter (determined without regard to such net loss). Any loss disallowed by reason of this limitation may be carried forward indefinitely to future calendar quarters and, subject to the same limitation, may be used only to offset income from the REMIC Residual Security. Excess Inclusions. Any excess inclusions with respect to a REMIC Residual Security are subject to certain special tax rules. With respect to a Holder of a REMIC Residual Security, the excess inclusion for any calendar quarter is defined as the excess (if any) of the daily portions of taxable income over the sum of the "daily accruals" for each day during such quarter that such REMIC Residual Security was held by such Holder. The daily accruals are determined by allocating to each day during a calendar quarter its ratable portion of the product of the "adjusted issue price" of the REMIC Residual Security at the beginning of the calendar quarter and 120% of the "federal long-term rate" in effect on the Settlement Date, based on quarterly compounding, and properly adjusted for the length of such quarter. For this purpose, the adjusted issue price of a REMIC Residual Security as of the beginning of any calendar quarter is equal to the issue price of the REMIC Residual Security, increased by the amount of daily accruals for all prior quarters and decreased by any distributions made with respect to such REMIC Residual Security before the beginning of such quarter. The issue price of a REMIC Residual Security is the initial offering price to the public (excluding bond houses and brokers) at which a substantial number of the REMIC Residual Securities was sold. The federal long-term rate is a blend of current yields on Treasury securities having a maturity of more than nine years, computed and published monthly by the IRS. 79 82 In general, Holders of REMIC Residual Securities with excess inclusion income cannot offset such income by losses from other activities. For Holders that are subject to tax only on unrelated business taxable income (as defined in section 511 of the Code), an excess inclusion of such Holder is treated as unrelated business taxable income. With respect to variable contracts (within the meaning of section 817 of the Code), a life insurance company cannot adjust its reserve to the extent of any excess inclusion, except as provided in regulations. The REMIC Regulations indicate that if a Holder of a REMIC Residual Security is a member of an affiliated group filing a consolidated income tax return, the taxable income of the affiliated group cannot be less than the sum of the excess inclusions attributable to all residual interests in REMICS held by members of the affiliated group. For a discussion of the effect of excess inclusions on certain foreign investors that own REMIC Residual Securities, see "--Foreign Investors" below. The Treasury Department also has the authority to issue regulations that would treat all taxable income of a REMIC Trust as excess inclusions if the REMIC Residual Security does not have "significant value." Although the Treasury Department did not exercise this authority in the REMIC Regulations, future regulations may contain such a rule. If such a rule were adopted, it is unclear how significant value would be determined for these purposes. If no such rule is applicable, excess inclusions should be calculated as discussed above. In the case of any REMIC Residual Securities that are held by a real estate investment trust, the aggregate excess inclusions with respect to such REMIC Residual Securities reduced (but not below zero) by the real estate investment trust taxable income (within the meaning of section 857(b)(2) of the Code, excluding any net capital gain) will be allocated among the shareholders of such trust in proportion to the dividends received by such shareholders from such trust, and any amount so allocated will be treated as an excess inclusion with respect to a REMIC Residual Security as if held directly by such shareholder. Similar rules will apply in the case of regulated investment companies, common trust funds and certain cooperatives that hold a REMIC Residual Security. Pass-Through of Servicing and Guaranty Fees to Individuals. A Holder of a REMIC Residual Security who is an individual will be required to include in income a share of any servicing and guaranty fees. A deduction for such fees will be allowed to such Holder only to the extent that such fees, along with certain of such Holder's other miscellaneous itemized deductions exceed 2% of such Holder's adjusted gross income. In addition, a Holder of a REMIC Residual Security may not be able to deduct any portion of such fees in computing such Holder's alternative minimum tax liability. A Holder's share of such fees will generally be determined by (i) allocating the amount of such expenses for each calendar quarter on a pro rata basis to each day in the calendar quarter, and (ii) allocating the daily amount among the Holders in proportion to their respective holdings on such day. Taxes on a REMIC Trust Prohibited Transactions. The Code imposes a tax on a REMIC equal to 100% of the net income derived from "prohibited transactions." In general, a prohibited transaction means the disposition of a qualified mortgage other than pursuant to certain specified exceptions, the receipt of investment income from a source other than a Mortgage Loan or certain other permitted investments, the receipt of compensation for services, or the disposition of an asset 80 83 purchased with the payments on the qualified mortgages for temporary investment pending distribution on the regular and residual interests. Contributions to a REMIC after the Startup Day. The Code imposes a tax on a REMIC equal to 100% of the value of any property contributed to the REMIC after the "startup day" (generally the same as the Settlement Date). Exceptions are provided for cash contributions to a REMIC (i) during the three month period beginning on the startup day, (ii) made to a qualified reserve fund by a Holder of a residual interest, (iii) in the nature of a guarantee, (iv) made to facilitate a qualified liquidation or clean-up call, and (v) as otherwise permitted by Treasury regulations. Net Income from Foreclosure Property. The Code imposes a tax on a REMIC equal to the highest corporate rate on "net income from foreclosure property." The terms "foreclosure property" (which includes property acquired by deed in lieu of foreclosure) and "net income from foreclosure property" are defined by reference to the rules applicable to real estate investment trusts. Generally, foreclosure property would be treated as such for a period of two years, with possible extensions. Net income from foreclosure property generally means gain from the sale of foreclosure property that is inventory property and gross income from foreclosure property other than qualifying rents and other qualifying income for a real estate investment trust. Sales of REMIC Securities General. Except as provided below, if a Regular or REMIC Residual Security is sold, the seller will recognize gain or loss equal to the difference between the amount realized in the sale and its adjusted basis in the Security. The adjusted basis of a REMIC Regular Security generally will equal the cost of such Security to the seller, increased by any original issue discount or market discount included in the seller's gross income with respect to such Security and reduced by distributions on such Security previously received by the seller of amounts included in the stated redemption price at maturity and by any premium that has reduced the seller's interest income with respect to such Security. See "--Discount and Premium." The adjusted basis of a REMIC Residual Security is determined as described above under "--Taxation of Holders of REMIC Residual Securities--Basis Rules and Distributions." Except as provided in the following paragraph or under section 582(c) of the Code, any such gain or loss will be capital gain or loss, provided such Security is held as a "capital asset" (generally, property held for investment) within the meaning of section 1221 of the Code. Gain from the sale of a REMIC Regular Security that might otherwise be capital gain will be treated as ordinary income to the extent that such gain does not exceed the excess, if any, of (i) the amount that would have been includible in the income of the Holder of a REMIC Regular Security had income accrued at a rate equal to 110% of the "applicable federal rate" (generally, an average of current yields on Treasury securities) as of the date of purchase over (ii) the amount actually includible in such Holder's income. In addition, gain recognized on such a sale by a Holder of a REMIC Regular Security who purchased such a Security at a market discount would also be taxable as ordinary income in an amount not exceeding the portion of such discount that accrued during the period such Security was held by such Holder, reduced by any 81 84 market discount includible in income under the rules described below under "--Discount and Premium." If a Holder of a REMIC Residual Security sells its REMIC Residual Security at a loss, the loss will not be recognized if, within six months before or after the sale of the REMIC Residual Security, such Holder purchases another residual interest in any REMIC or any interest in a taxable mortgage pool (as defined in section 7701(i) of the Code) comparable to a residual interest in a REMIC. Such disallowed loss would be allowed upon the sale of the other residual interest (or comparable interest) if the rule referred to in the preceding sentence does not apply to that sale. While this rule may be modified by Treasury regulations, no such regulations have yet been published. Transfers of REMIC Residual Securities. Section 860E(e) of the Code imposes a substantial tax, payable by the transferor (or, if a transfer is through a broker, nominee, or other middleman as the transferee's agent, payable by that agent) upon any transfer of a REMIC Residual Security to a disqualified organization and upon a pass-through entity (including regulated investment companies, real estate investment trusts, common trust funds, partnerships, trusts, estates, certain cooperatives, and nominees) that owns a REMIC Residual Security if such pass-through entity has a disqualified organization as a record-holder. For purposes of the preceding sentence, a transfer includes any transfer of record or beneficial ownership, whether pursuant to a purchase, a default under a secured lending agreement or otherwise. The term "DISQUALIFIED ORGANIZATION" includes the United States, any state or political subdivision thereof, any foreign government, any international organization, or any agency or instrumentality of the foregoing (other than certain taxable instrumentalities), any cooperative organization furnishing electric energy or providing telephone service to persons in rural areas, or any organization (other than a farmers' cooperative) that is exempt from federal income tax, unless such organization is subject to the tax on unrelated business income. Moreover, an entity will not qualify as a REMIC unless there are reasonable arrangements designed to ensure that (i) residual interests in such entity are not held by disqualified organizations and (ii) information necessary for the application of the tax described herein will be made available. Restrictions on the transfer of a REMIC Residual Security and certain other provisions that are intended to meet this requirement are described in the Pooling and Servicing Agreement, and will be discussed more fully in the related prospectus supplement relating to the offering of any REMIC Residual Security. In addition, a pass-through entity (including a nominee) that holds a REMIC Residual Security may be subject to additional taxes if a disqualified organization is a record-holder therein. A transferor of a REMIC Residual Security (or an agent of a transferee of a REMIC Residual Security, as the case may be) will be relieved of such tax liability if (i) the transferee furnishes to the transferor (or the transferee's agent) an affidavit that the transferee is not a disqualified organization, and (ii) the transferor (or the transferee's agent) does not have actual knowledge that the affidavit is false at the time of the transfer. Similarly, no such tax will be imposed on a pass-through entity for a period with respect to an interest therein owned by a disqualified organization if (i) the record-holder of such interest furnishes to the pass-through entity an affidavit that it is not a disqualified organization, and (ii) during such period, the pass-through entity has no actual knowledge that the affidavit is false. 82 85 The Taxpayer Relief Act of 1997 adds provisions to the Code that will apply to an "electing large partnership." If an electing large partnership holds a Residual Certificate, all interests in the electing large partnership are treated as held by disqualified organizations for purposes of the tax imposed upon a pass-through entity by section 860E(e) of the Code. An exception to this tax, otherwise available to a pass-through entity that is furnished certain affidavits by record holders of interests in the entity and that does not know such affidavits are false, is not available to an electing large partnership. Under the REMIC Regulations, a transfer of a "noneconomic residual interest" to a U.S. Person (as defined below in "--Foreign Investors--Grantor Trust Securities and REMIC Regular Securities") will be disregarded for all federal tax purposes unless no significant purpose of the transfer is to impede the assessment or collection of tax. A REMIC Residual Security would be treated as constituting a noneconomic residual interest unless, at the time of the transfer, (i) the present value of the expected future distributions on the REMIC Residual Security is no less than the product of the present value of the "anticipated excess inclusions" with respect to such Security and the highest corporate rate of tax for the year in which the transfer occurs, and (ii) the transferor reasonably expects that the transferee will receive distributions from the applicable REMIC Trust in an amount sufficient to satisfy the liability for income tax on any "excess inclusions" at or after the time when such liability accrues. Anticipated excess inclusions are the excess inclusions that are anticipated to be allocated to each calendar quarter (or portion thereof) following the transfer of a REMIC Residual Security, determined as of the date such Security is transferred and based on events that have occurred as of that date and on the Prepayment Assumption. See "--Discount and Premium" and "--Taxation of Holders of REMIC Residual Securities--Excess Inclusions." The REMIC Regulations provide that a significant purpose to impede the assessment or collection of tax exists if, at the time of the transfer, a transferor of a REMIC Residual Security has "improper knowledge" (i.e., either knew, or should have known, that the transferee would be unwilling or unable to pay taxes due on its share of the taxable income of the REMIC Trust). A transferor is presumed not to have improper knowledge if (i) the transferor conducts, at the time of a transfer, a reasonable investigation of the financial condition of the transferee and, as a result of the investigation, the transferor finds that the transferee has historically paid its debts as they come due and finds no significant evidence to indicate that the transferee will not continue to pay its debts as they come due in the future; and (ii) the transferee makes certain representations to the transferor in the affidavit relating to disqualified organizations discussed above. Transferors of a REMIC Residual Security should consult with their own tax advisors for further information regarding such transfers. Reporting and Other Administrative Matters. For purposes of the administrative provisions of the Code, each REMIC Trust will be treated as a partnership and the Holders of REMIC Residual Securities will be treated as partners. The Trustee will prepare, sign and file federal income tax returns for each REMIC Trust, which returns are subject to audit by the IRS. Moreover, within a reasonable time after the end of each calendar year, the Trustee will furnish to each Holder that received a distribution during such year a statement setting forth the portions of any such distributions that constitute interest distributions, original issue discount, and such other information as is required by Treasury regulations and, with respect to Holders of REMIC Residual Securities in a REMIC Trust, information necessary to compute the daily portions of 83 86 the taxable income (or net loss) of such REMIC Trust for each day during such year. The Trustee will also act as the tax matters partner for each REMIC Trust, either in its capacity as a Holder of a REMIC Residual Security or in a fiduciary capacity. Each Holder of a REMIC Residual Security, by the acceptance of its REMIC Residual Security, agrees that the Trustee will act as its fiduciary in the performance of any duties required of it in the event that it is the tax matters partner. Each Holder of a REMIC Residual Security is required to treat items on its return consistently with the treatment on the return of the REMIC Trust, unless the Holder either files a statement identifying the inconsistency or establishes that the inconsistency resulted from incorrect information received from the REMIC Trust. The IRS may assert a deficiency resulting from a failure to comply with the consistency requirement without instituting an administrative proceeding at the REMIC Trust level. Termination In general, no special tax consequences will apply to a Holder of a REMIC Regular Security upon the termination of a REMIC Trust by virtue of the final payment or liquidation of the last Mortgage Loan remaining in the Trust Estate. If a Holder of a REMIC Residual Security's adjusted basis in its REMIC Residual Security at the time such termination occurs exceeds the amount of cash distributed to such Holder in liquidation of its interest, although the matter is not entirely free from doubt, it would appear that the Holder of the REMIC Residual Security is entitled to a loss equal to the amount of such excess. DEBT SECURITIES General With respect to each series of Debt Securities, Dewey Ballantine LLP, special tax counsel to the Sponsor, will deliver its opinion to the Sponsor that the Securities will be classified as debt of the Sponsor secured by the related Mortgage Loans. Consequently, the Debt Securities will not be treated as ownership interests in the Mortgage Loans or the Trust. Holders will be required to report income received with respect to the Debt Securities in accordance with their normal method of accounting. For additional tax consequences relating to Debt Securities purchased at a discount or with premium, see "--Discount and Premium," below. Special Tax Attributes As described above, Grantor Trust Securities will possess certain special tax attributes by virtue of their being ownership interests in the underlying Mortgage Loans. Similarly, REMIC Securities will possess similar attributes by virtue of the REMIC provisions of the Code. In general, Debt Securities will not possess such special tax attributes. Investors to whom such attributes are important should consult their own tax advisors regarding investment in Debt Securities. 84 87 Sale or Exchange of Debt Securities If a Holder of a Debt Security sells or exchanges such Security, the Holder will recognize gain or loss equal to the difference, if any, between the amount received and the Holder's adjusted basis in the Security. The adjusted basis in the Security generally will equal its initial cost, increased by any original issue discount or market discount previously included in the seller's gross income with respect to the Security and reduced by the payments previously received on the Security, other than payments of qualified stated interest, and by any amortized premium. In general (except as described in "--Discount and Premium--Market Discount," below), except for certain financial institutions subject to section 582(c) of the Code, any gain or loss on the sale or exchange of a Debt Security recognized by an investor who holds the Security as a capital asset (within the meaning of section 1221 of the Code), will be capital gain or loss and will be long-term or short-term depending on whether the Security has been held for more than one year. Debt Securities Reporting The Trustee will furnish to each beneficial owner of a Debt Security with each distribution a statement setting forth the amount of such distribution allocable to principal on the underlying Mortgage Loans and to interest thereon at the related Coupon Rate. In addition, within a reasonable time after the end of each calendar year, based on information provided by the Master Servicer, the Trustee will furnish to each Holder during such year such customary factual information as the Servicer deems necessary or desirable to enable beneficial owners of Debt Securities to prepare their tax returns and will furnish comparable information to the IRS as and when required to do so by law. PARTNERSHIP INTERESTS With respect to each series of Partnership Interests, Dewey Ballantine LLP, special tax counsel to the Sponsor, will deliver its opinion to the Sponsor that the trust will be treated as a partnership and not an association taxable as a corporation for federal income tax purposes. We will file such opinion with the Securities and Exchange Commission on Form 8-K within fifteen (15) days after the initial issuance of such Securities or as a post-effective amendment to the prospectus. Accordingly, each Holder a Partnership Interest will generally be treated as the owner of an interest in the Mortgage Loans. Special Tax Attributes As described above, REMIC Securities will possess certain special tax attributes by virtue of the REMIC provisions of the Code. In general, Partnership Interests will not possess such special tax attributes. Investors to whom such attributes are important should consult their own tax advisors regarding investment in Partnership Interests. 85 88 Taxation of Beneficial Owners of Partnership Interests If the Trust is treated as a partnership for Federal Income Tax Purposes, the Trust will not be subject to federal income tax. Instead, each Holder of a Partnership Interest will be required to separately take into account its allocable share of income, gains, losses, deductions, credits and other tax items of the Trust. These partnership allocations are made in accordance with the Code, Treasury regulations and the partnership agreement (here, the Trust Agreement and related documents). The Trust's assets will be the assets of the partnership. The Trust's income will consist primarily of interest and finance charges earned on the underlying Loans. The Trust's deductions will consist primarily of interest accruing with respect to any indebtedness issued by the Trust, servicing and other fees, and losses or deductions upon collection or disposition of the Trust's assets. In certain instances, the Trust could have an obligation to make payments of withholding tax on behalf of a Holder of a Partnership Interest. (See "Backup Withholding" and "Foreign Investors" below). Substantially all of the taxable income allocated to a Holder of a Partnership Interest that is a pension, profit sharing or employee benefit plan or other tax-exempt entity (including an individual retirement account) will constitute "unrelated business taxable income" generally taxable to such a holder under the Code. Under Section 708 of the Code, the Trust will be deemed to terminate for federal income tax purposes if 50% or more of the capital and profits interests in the Trust are sold or exchanged within a 12-month period. Under Treasury regulations issued on May 9, 1997 if such a termination occurs, the Trust is deemed to contribute all of its assets and liabilities to a newly formed partnership in exchange for a partnership interest. Immediately thereafter, the terminated partnership distributes interests in the new partnership to the purchasing partner and remaining partners in proportion to their interests in liquidation of the terminated partnership. Sale or Exchange of Partnership Interests Generally, capital gain or loss will be recognized on a sale or exchange of Partnership Interests in an amount equal to the difference between the amount realized and the seller's tax basis in the Partnership Interests sold. A Holder's tax basis in a Partnership Interest will generally equal the Holder's cost increased by the Holder's share of Trust income and decreased by any distributions received with respect to such Partnership Interest. In addition, both the tax basis in the Partnership Interest and the amount realized on a sale of a Partnership Interest would take into account the beneficial owner's share of any indebtedness of the Trust. A Holder acquiring Partnership Interests at different prices may be required to maintain a single aggregate adjusted tax basis in such Partnership Interest, and upon sale or other disposition of some of the Partnership Interests, allocate a portion of such aggregate tax basis to the Partnership Interests sold (rather than maintaining a separate tax basis in each Partnership Interest for purposes of computing gain or loss on a sale of that Partnership Interest). 86 89 Any gain on the sale of a Partnership Interest attributable to the Holder's share of unrecognized accrued market discount on the assets of the Trust would generally be treated as ordinary income to the holder and would give rise to special tax reporting requirements. If a Holder of a Partnership Interest is required to recognize an aggregate amount of income over the life of the Partnership Interest that exceeds the aggregate cash distributions with respect thereto, such excess will generally give rise to a capital loss upon the retirement of the Partnership Interest. If a Holder sells its Partnership Interest at a profit or loss, the transferee will have a higher or lower basis in the Partnership Interests than the transferor had. The tax basis of the Trust's assets will not be adjusted to reflect that higher or lower basis unless the Trust files an election under Section 754 of the Code. Partnership Reporting The Trustee is required to (i) keep complete and accurate books of the Trust, (ii) file a partnership information return (IRS Form 1065) with the IRS for each taxable year of the Trust and (iii) report each Holder's allocable share of items of Trust income and expense to Holders and the IRS on Schedule K-1. The Trust will provide the Schedule K-1 information to nominees that fail to provide the Trust with the information statement described below and such nominees will be required to forward such information to the Holders of the Partnership Interests. Generally, Holders of a Partnership Interest must file tax returns that are consistent with the information return filed by the Trust or be subject to penalties unless the Holder of a Partnership Interest notifies the IRS of all such inconsistencies. Under Section 6031 of the Code, any person that holds Partnership Interests as a nominee at any time during a calendar year is required to furnish the Trust with a statement containing certain information on the nominee, the Holders and the Partnership Interests so held. Such information includes (i) the name, address and taxpayer identification number of the nominee and (ii) as to each Holder (x) the name, address and identification number of such person, (y) whether such person is a United States person, a tax-exempt entity or a foreign government, an international organization, or any wholly owned agency or instrumentality of either of the foregoing, and (z) certain information on Partnership Interests that were held, bought or sold on behalf of such person throughout the year. In addition, brokers and financial institutions that hold Partnership Interests through a nominee are required to furnish directly to the Trust information as to themselves and their ownership of Partnership Interests. A clearing agency registered under Section 17A of the Securities Exchange Act of 1934, as amended, is not required to furnish any such information statement to the Trust. Nominees, brokers and financial institutions that fail to provide the Trust with the information described above may be subject to penalties. The Code provides for administrative examination of a partnership as if the partnership were a separate and distinct taxpayer. Generally, the statute of limitations for partnership items does not expire before three (3) years after the date on which the partnership information return is filed. Any adverse determination following an audit of the return of the Trust by the appropriate taxing authorities could result in an adjustment of the returns of the Holder of a Partnership Interests, and, under certain circumstances, a Holder of a Partnership Interest may be precluded from separately litigating a proposed adjustment to the items of the Trust. An 87 90 adjustment could also result in an audit of the beneficial owner of a Partnership Interest's returns and adjustments of items note related to the income and losses of the Trust. FASIT SECURITIES If provided in a related prospectus supplement, an election will be made to treat the Trust as a FASIT within the meaning of Code Section 860L(a). Qualification as a FASIT requires ongoing compliance with certain conditions. With respect to each series of Securities for which an election is made, Dewey Ballantine LLP, special tax counsel to the Sponsor, will deliver its opinion to the Sponsor that, assuming compliance with the Pooling and Servicing Agreement, the trust will be treated as a FASIT for federal income tax purposes. A Trust for which a FASIT election is made will be referred to herein as a "FASIT Trust." The Securities of each class will be designated as "regular interests" or "high-yield regular interests" in the FASIT Trust except that one separate class will be designated as the "ownership interest" in the FASIT Trust. The prospectus supplement for each series of Securities will state whether Securities of each class will constitute either a regular interest or a high-yield regular interest (a FASIT Regular Security) or an ownership interest (a FASIT Ownership Security). We will file such opinion with the Securities and Exchange Commission on Form 8-K within fifteen (15) days after the initial issuance of such Securities or as a post-effective amendment to the prospectus. Special Tax Attributes FASIT Securities held by a real estate investment trust will constitute "real estate assets" within the meaning of Code Sections 856(c)(5)(A) and 856(c)(6) and interest on the FASIT Regular Securities will be considered "interest on obligations secured by mortgages on real property or on interests in real property" within the meaning of Code Section 856(c)(3)(B) in the same proportion that, for both purposes, the assets of the FASIT Trust and the income thereon would be so treated. FASIT Regular Securities held by a domestic building and loan association will be treated as "regular interest[s] in a FASIT" under Code Section 7701(a)(19)(C)(xi), but only in the proportion that the FASIT Trust holds "loans . . . secured by an interest in real property which is . . . residential real property" within the meaning of Code Section 7701(a)(19)(C)(v). If at all times 95% or more of the assets of the FASIT Trust or the income thereon qualify for the foregoing treatments, the FASIT Regular Securities will qualify for the corresponding status in their entirety. For purposes of Code Section 856(c)(5)(A), payments of principal and interest on a Loan that are reinvested pending distribution to holders of FASIT Regular Securities should qualify for such treatment. FASIT Regular Securities held by a regulated investment company will not constitute "government securities" within the meaning of Code Section 851(b)(4)(A)(i). FASIT Regular Securities held by certain financial institutions will constitute an "evidence of indebtedness" within the meaning of Code Section 582(c)(1). Taxation of Beneficial Owners of FASIT Regular Securities A FASIT Trust will not be subject to federal income tax except with respect to income from prohibited transactions and in certain other instances as described below. The FASIT Regular Securities generally will be treated for federal income tax purposes as newly-originated debt instruments. In general, interest, original issue discount ("OID") and market discount on a 88 91 FASIT Regular Security will be treated as ordinary income to the Holder, and principal payments (other than principal payments that do not exceed accrued market discount) on an FASIT Regular Security will be treated as a return of capital to the extent of the beneficial owner's basis allocable thereto. Holders must use the accrual method of accounting with respect to FASIT Regular Securities, regardless of the method of accounting otherwise used by such beneficial owners. See "Discount and Premium" below. In order for the FASIT Trust to qualify as a FASIT, there must be ongoing compliance with the requirements set forth in the Code. The FASIT must fulfill an asset test, which requires that substantially all the assets of the FASIT, as of the close of the third calendar month beginning after the "Startup Day" (which for purposes of this discussion is the date of the initial issuance of the FASIT Securities) and at all times thereafter, must consist of cash or cash equivalents, certain debt instruments (other than debt instruments issued by the owner of the FASIT or a related party) and hedges (and contracts to acquire the same), foreclosure property and regular interests in another FASIT or in a REMIC. Based on identical statutory language applicable to REMICs, it appears that the "substantially all" requirement should be met if at all times the aggregate adjusted basis of the nonqualified assets is less than one percent of the aggregate adjusted basis of all the FASIT's assets. The FASIT provisions of the Code (Sections 860H through 860L) also require the FASIT ownership interest and certain "high-yield regular interests" (described below) to be held only by certain fully taxable domestic corporations. Permitted debt instruments must bear interest, if any, at a fixed or qualified variable rate. Permitted hedges include interest rate or foreign currency notional principal contracts, letters of credit, insurance, guarantees of payment default and similar instruments to be provided in regulations, and which are reasonably required to guarantee or hedge against the FASIT's risks associated with being the obligor on interests issued by the FASIT. Foreclosure property is real property acquired by the FASIT in connection with the default or imminent default of a qualified mortgage, provided the Sponsor had no knowledge or reason to know as of the date such asset was acquired by the FASIT that such a default had occurred or would occur. In addition to the foregoing requirements, the various interests in a FASIT also must meet certain requirements. All of the interests in a FASIT must be either of the following: (a) one or more classes of regular interests or (b) a single class of ownership interest. A regular interest is an interest in a FASIT that is issued on or after the Startup Day with fixed terms, is designated as a regular interest, and (i) unconditionally entitles the holder to receive a specified principal amount (or other similar amount), (ii) provides that interest payments (or other similar amounts), if any, at or before maturity either are payable based on a fixed rate or a qualified variable rate, (iii) has a stated maturity of not longer than 30 years, (iv) has an issue price not greater than 125% of its stated principal amount, and (v) has a yield to maturity not greater than five (5%) percentage points higher than the related applicable Federal rate (as defined in Code Section 1274(d)). A regular interest that is described in the preceding sentence except that if fails to meet one or more of requirements (i), (ii) (iv) or (v) is a "high-yield regular interest." A high-yield regular interest that fails requirement (ii) must consist of a specified, nonvarying portion of the interest payments on the permitted assets, by reference to the REMIC rules. An ownership interest is an interest in a FASIT other than a regular interest that is issued on the Startup Day, is designated an ownership interest and is held by a single, fully-taxable, domestic 89 92 corporation. An interest in a FASIT may be treated as a regular interest even if payments of principal with respect to such interest are subordinated to payments on other regular interests or the ownership interest in the FASIT, and are dependent on the absence of defaults or delinquencies on permitted assets lower than reasonably expected returns on permitted assets, unanticipated expenses incurred by the FASIT or prepayment interest shortfalls. If an entity fails to comply with one or more of the ongoing requirements of the Code for status as a FASIT during any taxable year, the Code provides that the entity or applicable potion thereof will not be treated as a FASIT thereafter. In this event, any entity that holds mortgage loans and is the obligor with respect to debt obligations with two or more maturities, such as the Trust Fund, may be treated as a separate association taxable as a corporation, and the FASIT Regular Securities may be treated as equity interests therein. The legislative history to the FASIT Provisions indicates, however, that an entity can continue to be a FASIT if loss of its status was inadvertent, it takes prompt steps to requalify and other requirements that may be provided in Treasury regulations are met. Loss of FASIT status results in retirement of all regular interests and their reissuance. If the resulting instruments would be treated as equity under general tax principles, cancellation of debt income may result. DISCOUNT AND PREMIUM A Security purchased for an amount other than its outstanding principal amount will be subject to the rules governing original issue discount, market discount or premium. In addition, all Grantor Trust Strip Securities and certain Grantor Trust Fractional Interest Securities will be treated as having original issue discount by virtue of the coupon stripping rules in section 1286 of the Code. In very general terms, (i) original issue discount is treated as a form of interest and must be included in a Holder's income as it accrues (regardless of the Holder's regular method of accounting) using a constant yield method; (ii) market discount is treated as ordinary income and must be included in a Holder's income as principal payments are made on the Security (or upon a sale of a Security); and (iii) if a Holder so elects, premium may be amortized over the life of the Security and offset against inclusions of interest income. These tax consequences are discussed in greater detail below. Original Issue Discount In general, a Security will be considered to be issued with original issue discount equal to the excess, if any, of its "stated redemption price at maturity" over its "issue price" The "issue price" of a Security is the initial offering price to the public (excluding bond houses and brokers) at which a substantial number of the Securities was sold. The issue price also includes any accrued interest attributable to the period between the beginning of the first Remittance Period and the Settlement Date. The stated redemption price at maturity of a Security that has a notional principal amount or receives principal only or that is or may be an Accrual Security is equal to the sum of all distributions to be made under such Security. The "stated redemption price at maturity" of any other Security is its stated principal amount, plus an amount equal to the excess (if any) of the interest payable on the first Payment Date over the interest that accrues for the period from the Settlement Date to the first Payment Date. The Trustee will supply, at the time and in the manner required by the IRS, to Holders, bankers and middlemen information with respect to the original issue discount accruing on the Securities. 90 93 Notwithstanding the general definition, original issue discount will be treated as zero if such discount is less than 0.25% of the stated redemption price at maturity multiplied by its weighted average life. The weighted average life of a Security is apparently computed for this purpose as the sum, for all distributions included in the stated redemption price at maturity of the amounts determined by multiplying (i) the number of complete years (rounding down for partial years) from the Settlement Date until the date on which each such distribution is expected to be made under the assumption that the Mortgage Loans prepay at the rate specified in the related prospectus supplement by (ii) a fraction, the numerator of which is the amount of such distribution and the denominator of which is the Security's stated redemption price at maturity. If original issue discount is treated as zero under this rule, the actual amount of original issue discount must be allocated to the principal distributions on the Security and, when each such distribution is received, gain equal to the discount allocated to such distribution will be recognized. Section 1272(a)(6) of the Code contains special original issue discount rules directly applicable to REMIC Securities and Debt Securities. The Taxpayer Relief Act of 1997 extends application of Section 1272(a)(6) to the Grantor Trust Securities for tax years beginning after August 5, 1997. Under these rules (described in greater detail below), (i) the amount and rate of accrual of original issue discount on each series of Securities will be based on (x) the Prepayment Assumption, and (y) in the case of a Security calling for a variable rate of interest, an assumption that the value of the index upon which such variable rate is based remains equal to the value of that rate on the Settlement Date, and (ii) adjustments will be made in the amount of discount accruing in each taxable year in which the actual prepayment rate differs from the Prepayment Assumption. Section 1272(a)(6)(B)(iii) of the Code requires that the prepayment assumption used to calculate original issue discount be determined in the manner prescribed in Treasury regulations. To date, no such regulations have been promulgated. The legislative history of this Code provision indicates that the assumed prepayment rate must be the rate used by the parties in pricing the particular transaction. The Sponsor anticipates that the Prepayment Assumption for each series of Securities will be consistent with this standard. The Sponsor makes no representation, however, that the Mortgage Loans for a given series will prepay at the rate reflected in the Prepayment Assumption for that series or at any other rate. Each investor must make its own decision as to the appropriate prepayment assumption to be used in deciding whether or not to purchase any of the Securities. Each Securityholder must include in gross income the sum of the "daily portions" of original issue discount on its Security for each day during its taxable year on which it held such Security. For this purpose, in the case of an original Holder, the daily portions of original issue discount will be determined as follows. A calculation will first be made of the portion of the original issue discount that accrued during each "accrual period." The Trustee will supply, at the time and in the manner required by the IRS, to Securityholders, brokers and middlemen information with respect to the original issue discount accruing on the Securities. The Trustee will report original issue discount based on accrual periods of one month, each beginning on a payment date (or, in the case of the first such period, the Settlement Date) and ending on the day before the next payment date. 91 94 Under section 1272(a)(6) of the Code, the portion of original issue discount treated as accruing for any accrual period will equal the excess, if any, of (i) the sum of (A) the present values of all the distributions remaining to be made on the Security, if any, as of the end of the accrual period and (B) the distribution made on such Security during the accrual period of amounts included in the stated redemption price at maturity, over (ii) the adjusted issue price of such Security at the beginning of the accrual period. The present value of the remaining distributions referred to in the preceding sentence will be calculated based on (i) the yield to maturity of the Security, calculated as of the Settlement Date, giving effect to the Prepayment Assumption, (ii) events (including actual prepayments) that have occurred prior to the end of the accrual period, (iii) the Prepayment Assumption, and (iv) in the case of a Security calling for a variable rate of interest, an assumption that the value of the index upon which such variable rate is based remains the same as its value on the Settlement Date over the entire life of such Security. The adjusted issue price of a Security at any time will equal the issue price of such Security, increased by the aggregate amount of previously accrued original issue discount with respect to such Security, and reduced by the amount of any distributions made on such Security as of that time of amounts included in the stated redemption price at maturity. The original issue discount accruing during any accrual period will then be allocated ratably to each day during the period to determine the daily portion of original issue discount. In the case of Grantor Trust Strip Securities and certain REMIC Securities, the calculation described in the preceding paragraph may produce a negative amount of original issue discount for one or more accrual periods. No definitive guidance has been issued regarding the treatment of such negative amounts. The legislative history to section 1272(a)(6) indicates that such negative amounts may be used to offset subsequent positive accruals but may not offset prior accruals and may not be allowed as a deduction item in a taxable year in which negative accruals exceed positive accruals. Holders of such Securities should consult their own tax advisors concerning the treatment of such negative accruals. A subsequent purchaser of a Security that purchases such Security at a cost less than its remaining stated redemption price at maturity also will be required to include in gross income for each day on which it holds such Security, the daily portion of original issue discount with respect to such Security (but reduced, if the cost of such Security to such purchaser exceeds its adjusted issue price, by an amount equal to the product of (i) such daily portion and (ii) a constant fraction, the numerator of which is such excess and the denominator of which is the sum of the daily portions of original issue discount on such Security for all days on or after the day of purchase). Market Discount A Holder that purchases a Security at a market discount, that is, at a purchase price less than the remaining stated redemption price at maturity of such Security (or, in the case of a Security with original issue discount, its adjusted issue price), will be required to allocate each principal distribution first to accrued market discount on the Security, and recognize ordinary income to the extent such distribution does not exceed the aggregate amount of accrued market discount on such Security not previously included in income. With respect to Securities that have unaccrued original issue discount, such market discount must be included in income in addition to any original issue discount. A Holder that incurs or continues indebtedness to acquire 92 95 a Security at a market discount may also be required to defer the deduction of all or a portion of the interest on such indebtedness until the corresponding amount of market discount is included in income. In general terms, market discount on a Security may be treated as accruing either (i) under a constant yield method or (ii) in proportion to remaining accruals of original issue discount, if any, or if none, in proportion to remaining distributions of interest on the Security, in any case taking into account the Prepayment Assumption. The Trustee will make available, as required by the IRS, to Holders of Securities information necessary to compute the accrual of market discount. Notwithstanding the above rules, market discount on a Security will be considered to be zero if such discount is less than 0.25% of the remaining stated redemption price at maturity of such Security multiplied by its weighted average remaining life. Weighted average remaining life presumably would be calculated in a manner similar to weighted average life, taking into account payments (including prepayments) prior to the date of acquisition of the Security by the subsequent purchaser. If market discount on a Security is treated as zero under this rule, the actual amount of market discount must be allocated to the remaining principal distributions on the Security and, when each such distribution is received, gain equal to the discount allocated to such distribution will be recognized. Securities Purchased at a Premium A purchaser of a Security that purchases such Security at a cost greater than its remaining stated redemption price at maturity will be considered to have purchased such Security (a "PREMIUM SECURITY") at a premium. Such a purchaser need not include in income any remaining original issue discount and may elect, under section 171(c)(2) of the Code, to treat such premium as "amortizable bond premium." If a Holder makes such an election, the amount of any interest payment that must be included in such Holder's income for each period ending on a Payment Date will be reduced by the portion of the premium allocable to such period based on the Premium Security's yield to maturity. The legislative history of the Tax Reform Act of 1986 states that such premium amortization should be made under principles analogous to those governing the accrual of market discount (as discussed above under "--Market Discount"). If such election is made by the Holder, the election will also apply to all bonds the interest on which is not excludible from gross income ("fully taxable bonds") held by the Holder at the beginning of the first taxable year to which the election applies and to all such fully taxable bonds thereafter acquired by it, and is irrevocable without the consent of the IRS. If such an election is not made, (i) such a Holder must include the full amount of each interest payment in income as it accrues, and (ii) the premium must be allocated to the principal distributions on the Premium Security and, when each such distribution is received, a loss equal to the premium allocated to such distribution will be recognized. Any tax benefit from the premium not previously recognized will be taken into account in computing gain or loss upon the sale or disposition of the Premium Security. Some Securities may provide for only nominal distributions of principal in comparison to the distributions of interest thereon. It is possible that the IRS or the Treasury Department may issue guidance excluding such Securities from the rules generally applicable to debt instruments issued at a premium. In particular, it is possible that such a Security will be treated as having original issue discount equal to the excess of the total payments to be received thereon over its 93 96 issue price. In such event, section 1272(a)(6) of the Code would govern the accrual of such original issue discount, but a Holder would recognize substantially the same income in any given period as would be recognized if an election were made under section 171(c)(2) of the Code. Unless and until the Treasury Department or the IRS publishes specific guidance relating to the tax treatment of such Securities, the Trustee intends to furnish tax information to Holders of such Securities in accordance with the rules described in the preceding paragraph. Special Election For any Security acquired on or after April 4, 1994, a Holder may elect to include in gross income all "interest" that accrues on the Security by using a constant yield method. For purposes of the election, the term "interest" includes stated interest, acquisition discount, original issue discount, de minimis original issue discount, market discount, de minimis market discount and unstated interest as adjusted by any amortizable bond premium or acquisition premium. A Holder should consult its own tax advisor regarding the time and manner of making and the scope of the election and the implementation of the constant yield method. BACKUP WITHHOLDING Distributions of interest and principal, as well as distributions of proceeds from the sale of Securities, may be subject to the "backup withholding tax" under section 3406 of the Code at a rate of 31% if recipients of such distributions fail to furnish to the payor certain information, including their taxpayer identification numbers, or otherwise fail to establish an exemption from such tax. Any amounts deducted and withheld from a distribution to a recipient would be allowed as a credit against such recipient's federal income tax. Furthermore, certain penalties may be imposed by the IRS on a recipient of distributions that is required to supply information but that does not do so in the proper manner. The Internal Revenue Service recently issued final regulations (the "WITHHOLDING REGULATIONS"), which change certain of the rules relating to certain presumptions currently available relating to information reporting and backup withholding. The Withholding Regulations would provide alternative methods of satisfying the beneficial ownership certification requirement. The Withholding Regulations are effective January 1, 2000, although valid withholding certificates that are held on December 31, 1999 remain valid until the earlier of December 31, 2000 or the due date of expiration of the certificate under the rules as currently in effect. FOREIGN INVESTORS The Withholding Regulations would require, in the case of Securities held by a foreign partnership, that (x) the certification described above be provided by the partners rather than by the foreign partnership and (y) the partnership provide certain information, including a United States taxpayer identification number. See "--Backup Withholding" above. A look-through rule would apply in the case of tiered partnerships. Non-U.S. Persons should consult their own tax advisors regarding the application to them of the Withholding Regulations. 94 97 Grantor Trust Securities and REMIC Regular Securities Distributions made on a Grantor Trust Security or a REMIC Regular Security to, or on behalf of, a Holder that is not a U.S. Person generally will be exempt from U.S. federal income and withholding taxes. The term "U.S. PERSON" means 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 a court within the United States can exercise primary supervision over its administration and at least one United States fiduciary has the authority to control all substantial decisions of the trust. This exemption is applicable provided (a) the Holder is not subject to U.S. tax as a result of a connection to the United States other than ownership of the Security, (b) the Holder signs a statement under penalties of perjury that certifies that such Holder is not a U.S. Person, and provides the name and address of such Holder, and (c) the last U.S. Person in the chain of payment to the Holder receives such statement from such Holder or a financial institution holding on its behalf and does not have actual knowledge that such statement is false. Holders should be aware that the IRS might take the position that this exemption does not apply to a Holder that also owns 10% or more of the REMIC Residual Securities of any REMIC trust, or to a Holder that is a "controlled foreign corporation" described in section 881(c)(3)(C) of the Code. REMIC Residual Securities Amounts distributed to a Holder of a REMIC Residual Security that is a not a U.S. Person generally will be treated as interest for purposes of applying the 30% (or lower treaty rate) withholding tax on income that is not effectively connected with a U.S. trade or business. Temporary Treasury Regulations clarify that amounts not constituting excess inclusions that are distributed on a REMIC Residual Security to a Holder that is not a U.S. Person generally will be exempt from U.S. federal income and withholding tax, subject to the same conditions applicable to distributions on Grantor Trust Securities and REMIC Regular Securities, as described above, but only to the extent that the obligations directly underlying the REMIC Trust that issued the REMIC Residual Security (e.g., Mortgage Loans or regular interests in another REMIC) were issued after July 18, 1984. In no case will any portion of REMIC income that constitutes an excess inclusion be entitled to any exemption from the withholding tax or a reduced treaty rate for withholding. See "--REMIC Securities--Taxation of Holders of REMIC Residual Securities--Excess Inclusions." Partnership Interests Depending upon the particular terms of the Trust Agreement and Sale and Servicing Agreement, a Trust may be considered to be engaged in a trade or business in the United States for purposes of federal withholding taxes with respect to non-U.S. persons. If the Trust is considered to be engaged in a trade or business in the United States for such purposes and the Trust is treated as a partnership, the income of the Trust distributable to a non-U.S. person would be subject to federal withholding tax. Also, in such cases, a non-U.S. beneficial owner of a Partnership Interest that is a corporation may be subject to the branch profits tax. If the Trust is notified that a beneficial owner of a Partnership Interest is a foreign person, the Trust may withhold as if it were engaged in a trade or business in the United States in order to protect the 95 98 Trust from possible adverse consequences of a failure to withhold. A foreign holder generally would be entitled to file with the IRS a claim for refund with respect to withheld taxes, taking the position that no taxes were due because the Trust was not in a U.S. trade or business. FASIT Regular Securities Certain "high-yield" FASIT Regular Securities may not be sold to or beneficially owned by Non-U.S. Persons. Any such purported transfer will be null and void and, upon the Trustee's discovery of any purported transfer in violation of this requirement, the last preceding owner of such high-yield FASIT Regular Securities will be restored to ownership thereof as completely as possible. Such last preceding owner will, in any event, be taxable on all income with respect to such high-yield FASIT Regular Securities for federal income tax purposes. The Pooling and Servicing Agreement will provide that, as a condition to transfer of a high-yield FASIT Regular Security, the proposed transferee must furnish an affidavit as to its status as a U.S. Person and otherwise as a permitted transferee. STATE TAX CONSIDERATIONS In addition to the federal income tax consequences described in "Certain Federal Income Tax Consequences," potential investors should consider the state and local income tax consequences of the acquisition, ownership, and disposition of the Securities. State and local income tax law may differ substantially from the corresponding federal law, and this discussion does not purport to describe any aspect of the income tax laws of any state or locality. Therefore, potential investors should consult their own tax advisors with respect to the various state and local tax consequences of an investment in the Securities. THE FEDERAL INCOME TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON AN INVESTOR'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS. ERISA CONSIDERATIONS GENERAL Section 406 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and Section 4975 of the Code prohibit a pension, profit sharing or other employee benefit plan (a "PLAN") and certain individual retirement arrangements from engaging in certain transactions involving "plan assets" with persons that are "parties in interest" under ERISA or "disqualified persons" under the Code with respect to the Plan, unless a statutory or administrative exemption applies to the transaction. ERISA and the Code also prohibit generally certain actions involving conflicts of interest by persons who are fiduciaries of such Plans or arrangements. A violation of these "prohibited transaction" rules may generate excise tax and 96 99 other liabilities under ERISA and the Code for such persons. In addition, investments by Plans are subject to ERISA's general fiduciary requirements, including the requirement of investment prudence and diversification and the requirement that a Plan's investments be made in accordance with the documents governing the Plan. Employee benefit plans that are governmental plans (as defined in Section 3(32) of ERISA) and certain church plans (as deemed in Section 3(33) of ERISA) are not subject to ERISA or Section 4975 of the Code. Accordingly, assets of such plans may be invested in Securities without regard to the ERISA considerations discussed below, subject to the provisions of other applicable federal, state and local law. Any such Plan which is qualified and exempt from taxation under Section 401(a) and 501(a) of the Code, however, is subject to the prohibited transaction rules set forth in Section 503 of the Code. Certain transactions involving the Trust might be deemed to constitute prohibited transactions under ERISA and the Code with respect to a Plan (including an individual retirement arrangement) that purchased Securities if the assets of the Trust were deemed to be assets of the Plan. Under a regulation (the "PLAN ASSETS REGULATION") issued by the United States Department of Labor (the "DOL"), the assets of the Trust would be treated as assets of a Plan for the purposes of ERISA and the Code only if the Plan acquired an equity interest in the Trust and none of the exceptions contained in the Plan Assets Regulation were applicable. An "equity interest" is defined under the Plan Assets Regulation as an interest other than an instrument which is treated as indebtedness under applicable local law and which has no substantial equity features. In addition, in John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank, 510 U.S. 83 (1993), the United States Supreme Court ruled that assets held in an insurance company's general account may be deemed to be "plan assets" for ERISA purposes under certain circumstances. Therefore, in the absence of an exemption, the purchase, sale or holding of a Security by a Plan (including certain individual retirement arrangements) subject to Section 406 of ERISA or Section 4975 of the Code might result in prohibited transactions and the imposition of excise taxes and civil penalties. CERTIFICATES The DOL has issued to various underwriters individual prohibited transaction exemptions (the "UNDERWRITER EXEMPTIONS"), which generally exempt from the application of the prohibited transaction provisions of Section 406(a), Section 406(b)(1), Section 406(b)(2) and Section 407(a) of ERISA and the excise taxes imposed pursuant to Sections 4975(a) and (b) of the Code, certain transactions with respect to the initial purchase, the holding and the subsequent resale by Plans of certificates in pass-through trusts that consist of secured receivables, secured loans and other secured obligations that meet the conditions and requirements of the Underwriter Exemptions. The Underwriter Exemptions will only be available for Securities that are Certificates. Among the conditions that must be satisfied in order for the Underwriter Exemptions to apply to offered certificates are the following: (1) the acquisition of the certificates by a Plan is on terms (including the price for the certificates) that are at least as favorable to the Plan as they would be in an arm's-length transaction with an unrelated party; 97 100 (2) the rights and interests evidenced by the certificates acquired by the Plan are not subordinated to the rights and interests evidenced by other certificates of the trust; (3) the certificates acquired by the Plan have received a rating at the time of such acquisition that is one of the three highest generic rating categories from Standard & Poor's Rating Services, a division of The McGraw Hill Companies ("STANDARD & POOR'S"), Moody's Investors Service ("MOODY'S"), Duff & Phelps Credit Rating Co. ("DCR") or Fitch IBCA, Inc. ("FITCH" and, collectively, the "RATING AGENCIES"); (4) the trustee is not an affiliate of any other member of the Restricted Group (as defined below); (5) the sum of all payments made to and retained by the underwriters in connection with the distribution of the certificates represents not more than reasonable compensation for underwriting the certificates; the sum of all payments made to and retained by the originators and the sponsor pursuant to the assignment of the obligations to the trust estate represents not more than the fair market value of such obligations; the sum of all payments made to and retained by any servicer represents not more than reasonable compensation for such person's services under the pooling and servicing agreement and reimbursement of such person's reasonable expenses in connection therewith; (6) the Plan investing in the certificates is an "accredited investor" as defined in Rule 501(a)(1) of Regulation D of the Commission under the Securities Act of 1933; and (7) in the event that all of the obligations used to fund the trust have not been transferred to the trust on the closing date, additional obligations of the types specified in the prospectus supplement and/or pooling and servicing agreement having an aggregate value equal to no more than 25% of the total principal amount of the certificates being offered by the trust may be transferred to the trust, in exchange for amounts credited to the account funding the additional obligations, within a funding period of no longer than 90 days or 3 months following the closing date. The trust estate must also meet the following requirements: (i) the corpus of the trust estate must consist solely of assets of the type that have been included in other investment pools; (ii) certificates in such other investment pools must have been rated in one of the three highest rating categories of a Rating Agency for at least one year prior to the Plan's acquisition of certificates; and (iii) certificates evidencing interests in such other investment pools must have been purchased by investors other than Plans for at least one year prior to the Plan's acquisition of certificates. Moreover, the Underwriter Exemptions provide relief from certain self-dealing/conflict of interest prohibited transactions that may occur when the Plan fiduciary causes a Plan to 98 101 acquire certificates in a trust in which the fiduciary (or its affiliate) is an obligor on the receivables held in the trust; provided that, among other requirements, (i) in the case of an acquisition in connection with the initial issuance of certificates, at least fifty percent of each class of certificates in which Plans have invested is acquired by persons independent of the Restricted Group and at least fifty percent of the aggregate interest in the trust is acquired by persons independent of the Restricted Group; (ii) such fiduciary (or its affiliate) is an obligor with respect to five percent or less of the fair market value of the obligations contained in the trust; (iii) the Plan's investment in certificates of any class does not exceed twenty-five percent of all of the certificates of that class outstanding at the time of the acquisition; and (iv) immediately after the acquisition, no more than twenty-five percent of the assets of the Plan with respect to which such person is a fiduciary are invested in certificates representing an interest in one or more trusts containing assets sold or serviced by the same entity. The Underwriter Exemptions do not apply to Plans sponsored by the Sponsor, the Underwriters, the Trustee, the Master Servicer, any other servicer, any Financial Guaranty Insurer, any obligor with respect to Mortgage Loans included in the Trust Estate constituting more than five percent of the aggregate unamortized principal balance of the assets in the Trust Estate, or any affiliate of such parties (the "RESTRICTED GROUP"). In addition to the Underwriter Exemptions, the DOL has issued Prohibited Transaction Class Exemption ("PTCE") 83-1 which provides an exemption for certain transactions involving the sale or exchange of certain residential mortgage pool pass-through certificates by Plans and for transactions in connection with the servicing and operation of the mortgage pool. NOTES The Underwriter Exemptions will not be available for Securities which are Notes. However, under the Plan Assets Regulation, if the Notes are treated as indebtedness without substantial equity features, the Trust's assets would not be deemed assets of a Plan. If the Notes are treated as having substantial equity features, the purchase, holding and resale of the Notes could result in a transaction that is prohibited under ERISA or the Code. Even if the Notes were treated as debt for purposes of the Plan Assets Regulation, the acquisition or holding of the Notes by or on behalf of a Plan could nevertheless give rise to a prohibited transaction if such acquisition or holding were deemed to be a loan to a party in interest with respect to such Plan. Certain exemptions from such prohibited transaction rules could be applicable to the purchase and holding of Notes by a Plan, depending on the type and circumstances of the plan fiduciary making the decision to acquire such Notes. Included among these exemptions are: PTCE 84-14, regarding certain transactions effected by "qualified professional asset managers"; PTCE 90-1, regarding certain transactions entered into by insurance company pooled separate accounts; PTCE 91-38, regarding certain transactions entered into by bank collective investment funds; PTCE 95-60, regarding certain transactions entered into by insurance company general accounts; and PTCE 96-23, regarding certain transactions effected by "in-house asset managers". Each purchaser and each transferee of a Note that is treated as debt for purposes of the Plan Assets Regulation may be required to represent and warrant that its purchase and holding of such Note will be covered by one of the exemptions listed above or by another Department of Labor Class Exemption. 99 102 CONSULTATION WITH COUNSEL The prospectus supplement for each series of Securities will provide further information which Plans should consider before purchasing the offered Securities. A Plan fiduciary considering the purchase of Securities should consult its tax and/or legal advisors regarding whether the assets of the Trust would be considered plan assets, the possibility of exemptive relief from the prohibited transaction rules and other ERISA issues and their potential consequences. Moreover, each Plan fiduciary should determine whether under the general fiduciary standards of investment prudence and diversification, an investment in the Securities is appropriate for the Plan, taking into account the overall investment policy of the Plan and the composition of the Plan's investment portfolio. LEGAL INVESTMENT MATTERS Certain classes of Securities offered hereby and by the related prospectus supplement will constitute "mortgage related securities" for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"). The related prospectus supplement will describe whether or not the Securities will constitute "mortgage related securities" within the meaning of SMMEA. Accordingly, investors whose investment authority is subject to legal restrictions should consult with their own legal advisors to determine whether and to what extent the Securities constitute legal investments for them. USE OF PROCEEDS Substantially all of the net proceeds to be received from the sale of Securities will be applied by the Sponsor to finance the purchase of, or to repay short-term loans incurred to finance the purchase of, the Mortgage Loans underlying the Securities or will be used by the Sponsor for general corporate purposes. The Sponsor expects that it will make additional sales of securities similar to the Securities from time to time, but the timing and amount of any such additional offerings will be dependent upon a number of factors, including the volume of mortgage loans purchased by the Sponsor, prevailing interest rates, availability of funds and general market conditions. METHODS OF DISTRIBUTION The prospectus supplement relating to each series of Securities will set forth the specific terms of the offering of such series of Securities, the names of the underwriters, the proceeds to the Sponsor or its affiliates from such sale and, if applicable, the initial public offering prices, the discounts and commissions to the underwriters and any discounts and concessions allowed or reallowed to certain dealers. LEGAL MATTERS Certain legal matters in connection with the Securities will be passed upon for the Sponsor by Dewey Ballantine LLP, New York, New York, by the office of the general counsel of the Sponsor or such other counsel identified in the related prospectus supplement. 100 103 FINANCIAL INFORMATION The Sponsor has determined that its financial statements are not material to the offering made hereby. However, any prospective purchaser who desires to review financial information concerning the Sponsor will be provided by the Sponsor upon request with a copy of the most recent financial statements of the Sponsor. A new Trust will be formed to own the Trust Estate and to issue each series of Securities. Each such Trust will have no assets or obligations prior to the issuance of the securities and will not engage in any activities other than those described herein and in the related prospectus supplement. Accordingly, no financial statements with respect to such Trusts will be included in this prospectus or in any prospectus supplement A prospectus supplement and the related Current Report on Form 8-K (which will be incorporated by reference to the Registration Statement) may contain financial statements of the related Credit Enhancer, if any. ADDITIONAL INFORMATION This prospectus, together with the prospectus supplement for each series of Securities, contains a summary of the material terms of the applicable exhibits to the Registration Statement and the documents referred to herein and therein. Copies of such exhibits are on file at the offices of the Securities and Exchange Commission in Washington, D.C., and may be obtained at rates prescribed by the Commission upon request to the Commission and may be inspected, without charge, at the Commission's offices. 101 104 INDEX OF PRINCIPAL DEFINED TERMS
Page ---- Accounts......................................................................................................... 43 Accrual Securities............................................................................................... 35 Actuarial Loans.................................................................................................. 27 Adjustable Rate Loan............................................................................................. 24 Advanta Parent................................................................................................... 56 Affiliated Originators........................................................................................... 23 Approved Guidelines.............................................................................................. 30 APR.............................................................................................................. 29 ARM Loan......................................................................................................... 24 Balloon Amount................................................................................................... 25 Balloon Loans.................................................................................................... 25 Bankruptcy Bond.................................................................................................. 54 Bankruptcy Losses................................................................................................ 54 Book-Entry Securities............................................................................................ 38 Certificates..................................................................................................... 22 Closing Date..................................................................................................... 41 CLTV............................................................................................................. 28 Code............................................................................................................. 33 Compensating Interest............................................................................................ 45 Contracts........................................................................................................ 29 Conventional Loans............................................................................................... 23 Convertible Mortgage Loan........................................................................................ 26 Cooperative Loans................................................................................................ 23 Cooperative Notes................................................................................................ 23 Coupon Rate...................................................................................................... 24 Credit Enhancement............................................................................................... 22 Credit Enhancer.................................................................................................. 38 Cut-Off Date..................................................................................................... 28 Date of Payment Loans............................................................................................ 26 DCR.............................................................................................................. 98 Debt Securities.................................................................................................. 73 Debt Service Reduction........................................................................................... 54 Deficient Valuation.............................................................................................. 54 Deleted Mortgage Loan............................................................................................ 34 Delinquency Advances............................................................................................. 45 Delinquent....................................................................................................... 45 Designated Depository Institution................................................................................ 42 Determination Date............................................................................................... 38 Disqualified Organization........................................................................................ 82 Distribution Account............................................................................................. 42 Distribution Amount.............................................................................................. 37 DOL.............................................................................................................. 97 DTC.............................................................................................................. 38
102 105 Due Date......................................................................................................... 42 Eligible Investments............................................................................................. 43 Equity Interest.................................................................................................. 97 ERISA............................................................................................................ 96 FASIT............................................................................................................ 73 FASIT Securities................................................................................................. 74 FASIT Trust...................................................................................................... 88 FHLMC............................................................................................................ 30 Financial Guaranty Insurance Policy.............................................................................. 51 Financial Guaranty Insurer....................................................................................... 51 Fitch............................................................................................................ 98 Fixed Rate Loan.................................................................................................. 24 FNMA............................................................................................................. 30 Forward Purchase Agreement....................................................................................... 41 Fully Taxable Bonds.............................................................................................. 93 Garn-St. Germain Act............................................................................................. 70 General Partnership Interest..................................................................................... 36 Grantor Trust Estate............................................................................................. 73 Grantor Trust Fractional Interest Security....................................................................... 74 Grantor Trust Securities......................................................................................... 73 Grantor Trust Strip Security..................................................................................... 74 High LTV Loans................................................................................................... 31 High LTV Program................................................................................................. 31 Holder........................................................................................................... 73 Hybrid ARMs...................................................................................................... 25 Indenture........................................................................................................ 22 Indenture Trustee................................................................................................ 22 Index............................................................................................................ 24 Indirect Participant............................................................................................. 38 Insurance Paying Agent........................................................................................... 51 Insurance Proceeds............................................................................................... 42 Insured Payment.................................................................................................. 51 IRS.............................................................................................................. 76 issue price...................................................................................................... 90 Junior Lien...................................................................................................... 28 Letter of Credit................................................................................................. 52 Letter of Credit Bank............................................................................................ 52 Liquidated Mortgage Loan......................................................................................... 49 Liquidation Proceeds............................................................................................. 42 Loan Purchase Price.............................................................................................. 33 Lockout Periods.................................................................................................. 26 LTV.............................................................................................................. 28 Manufactured Homes............................................................................................... 29 Master Servicer.................................................................................................. 22 Modified Loans................................................................................................... 25 Monthly Pay...................................................................................................... 26
103 106 Moody's.......................................................................................................... 98 Mortgage......................................................................................................... 23 Mortgage Assets.................................................................................................. 22 Mortgage Loans................................................................................................... 22 Mortgage Notes................................................................................................... 23 Mortgage Pool.................................................................................................... 22 Mortgage Pool Insurance Policy................................................................................... 53 Mortgaged Properties............................................................................................. 23 Mortgagor........................................................................................................ 26 Net Coupon Rate.................................................................................................. 61 Net Liquidation Proceeds......................................................................................... 42 Non-conforming Credit............................................................................................ 30 Nonrecoverable Delinquency Advance............................................................................... 45 Nonrecoverable Servicing Advance................................................................................. 46 Note Margin...................................................................................................... 24 Notes............................................................................................................ 22 OID.............................................................................................................. 88 Originator....................................................................................................... 22 Originator's Guidelines.......................................................................................... 30 Originator's Retained Yield...................................................................................... 23 Participants..................................................................................................... 38 Partnership...................................................................................................... 74 Partnership Interests............................................................................................ 74 Pass-Through Rate................................................................................................ 35 Pay-for-Performance Loans........................................................................................ 26 Paying Agent..................................................................................................... 37 Payment Dates.................................................................................................... 36 Physical Certificates............................................................................................ 38 Plan............................................................................................................. 96 Plan Assets Regulation........................................................................................... 97 Pool Insurer..................................................................................................... 53 Pooling and Servicing Agreement.................................................................................. 22 Pre-Funding Account.............................................................................................. 41 Pre-Funding Agreement............................................................................................ 41 Pre-Funding Period............................................................................................... 41 Premium Security................................................................................................. 93 Prepayment Assumption............................................................................................ 78 Preservation Expenses............................................................................................ 46 Principal and Interest Account................................................................................... 41 Principal Prepayments............................................................................................ 42 PTCE............................................................................................................. 99 PUD.............................................................................................................. 33 Qualified Replacement Mortgage................................................................................... 34 Rating Agencies.................................................................................................. 98 Record Date...................................................................................................... 36 Relief Act....................................................................................................... 47
104 107 REMIC............................................................................................................ 33 REMIC Regular Security........................................................................................... 76 REMIC Regulations................................................................................................ 76 REMIC Residual Security.......................................................................................... 76 REMIC Securities................................................................................................. 73 REMIC Trust...................................................................................................... 76 Remittance Date.................................................................................................. 43 Remittance Period................................................................................................ 36 REO Property..................................................................................................... 48 Reserve Fund..................................................................................................... 54 Residual Interest................................................................................................ 36 Restricted Group................................................................................................. 99 Revolving Credit Line Loans...................................................................................... 25 Rule of 78's Loan................................................................................................ 27 Securities....................................................................................................... 22 Security Registrar............................................................................................... 38 Securityholder................................................................................................... 73 Seller's Interest................................................................................................ 36 Senior Lien...................................................................................................... 28 Senior Securities................................................................................................ 35 Servicer......................................................................................................... 27 Servicing Advances............................................................................................... 45 Servicing Agreement.............................................................................................. 22 Servicing Fee.................................................................................................... 56 Settlement Date.................................................................................................. 77 Single Family Loans.............................................................................................. 29 SMMEA............................................................................................................ 100 Special Hazard Insurance Policy.................................................................................. 53 Special Hazard Insurer........................................................................................... 53 Sponsor.......................................................................................................... 22 Sponsor's Mortgage Loan Program.................................................................................. 30 Standard & Poor's................................................................................................ 98 Startup Day...................................................................................................... 89 Stated Redemption Price at Maturity.............................................................................. 90 Statistical Calculation Date..................................................................................... 28 Strip Securities................................................................................................. 35 Subordinate Securities........................................................................................... 36 Subsequent Mortgage Loans........................................................................................ 41 Sub-Servicers.................................................................................................... 27 Sub-Servicing Agreement.......................................................................................... 34 Title V.......................................................................................................... 72 Title VIII....................................................................................................... 72 Trust............................................................................................................ 22 Trust Agreement.................................................................................................. 22 Trust Estate..................................................................................................... 22 Trustee.......................................................................................................... 27
105 108 U.S. Person...................................................................................................... 95 UCC.............................................................................................................. 38 Unaffiliated Originators......................................................................................... 23 Underwriter Exemptions........................................................................................... 97 Withholding Regulations.......................................................................................... 94
106 109 ANNEX I GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES Except in certain limited circumstances, the globally offered Securities (the "GLOBAL SECURITIES") will be available only in book-entry form. Investors in the Global Securities may hold such Global Securities through any of DTC, Cedelbank or Euroclear. The Global Securities will be tradeable as home market instruments in both the European and U.S. domestic markets. Initial settlement and all secondary trades will settle in same-day funds. Secondary market trading between investors through Cedelbank and Euroclear will be conducted in the ordinary way in accordance with the normal rules and operating procedures of Cedelbank and Euroclear and in accordance with conventional eurobond practice (i.e., seven calendar day settlement). Secondary market trading between investors through DTC will be conducted according to DTC's rules and procedures applicable to U.S. corporate debt obligations. Secondary cross-market trading between Cedelbank or Euroclear and DTC Participants holding Certificates will be effected on a delivery-against-payment basis through the respective Depositaries of Cedelbank and Euroclear (in such capacity) and as DTC Participants. Non-U.S. holders (as described below) of Global Securities will be subject to U.S. withholding taxes unless such holders meet certain requirements and deliver appropriate U.S. tax documents to the securities clearing organizations or their participants. INITIAL SETTLEMENT All Global Securities will be held in book-entry form by DTC in the name of Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will be represented through financial institutions acting on their behalf as direct and indirect Participants in DTC. As a result, Cedelbank and Euroclear will hold positions on behalf of their participants through their Relevant Depository which in turn will hold such positions in their accounts as DTC Participants. Investors electing to hold their Global Securities through DTC will follow DTC settlement practices. Investor securities custody accounts will be credited with their holdings against payment in same-day funds on the settlement date. Investors electing to hold their Global Securities through Cedelbank or Euroclear accounts will follow the settlement procedures applicable to conventional eurobonds, except that there will be no temporary global security and no "lock-up" or restricted period. Global Securities will be credited to the securities custody accounts on the settlement date against payment in same-day funds. A-1 110 SECONDARY MARKET TRADING Since the purchaser determines the place of delivery, it is important to establish at the time of the trade where both the purchaser's and seller's accounts are located to ensure that settlement can be made on the desired value date. Trading between DTC Participants. Secondary market trading between DTC Participants will be settled using the procedures applicable to prior home equity loan asset-backed certificates issues in same-day funds. Trading between Cedelbank and/or Euroclear Participants. Secondary market trading between Cedelbank Participants or Euroclear Participants will be settled using the procedures applicable to conventional eurobonds in same-day funds. Trading between DTC, Seller and Cedelbank or Euroclear Participants. When Global Securities are to be transferred from the account of a DTC Participant to the account of a Cedelbank Participant or a Euroclear Participant, the purchaser will send instructions to Cedelbank or Euroclear through a Cedelbank Participant or Euroclear Participant at least one business day prior to settlement. Cedelbank or Euroclear will instruct the Relevant Depository, as the case may be, to receive the Global Securities against payment. Payment will include interest accrued on the Global Securities from and including the last coupon payment date to and excluding the settlement date, on the basis of the actual number of days in such accrual period and a year assumed to consist of 360 days. For transactions settling on the 31st of the month, payment will include interest accrued to and excluding the first day of the following month. Payment will then be made by the Relevant Depository to the DTC Participant's account against delivery of the Global Securities. After settlement has been completed, the Global Securities will be credited to the respective clearing system and by the clearing system, in accordance with its usual procedures, to the Cedelbank Participant's or Euroclear Participant's account. The securities credit will appear the next day (European time) and the cash debt will be back-valued to, and the interest on the Global Securities will accrue from, the value date (which would be the preceding day when settlement occurred in New York). If settlement is not completed on the intended value date (i.e., the trade fails), the Cedelbank or Euroclear cash debt will be valued instead as of the actual settlement date. Cedelbank Participants and Euroclear Participants will need to make available to the respective clearing systems the funds necessary to process same-day funds settlement. The most direct means of doing so is to preposition funds for settlement, either from cash on hand or existing lines of credit, as they would for any settlement occurring within Cedelbank or Euroclear. Under this approach, they may take on credit exposure to Cedelbank or Euroclear until the Global Securities are credited to their account one day later. As an alternative, if Cedelbank or Euroclear has extended a line of credit to them, Cedelbank Participants or Euroclear Participants can elect not to preposition funds and allow that credit line to be drawn upon to finance settlement. Under this procedure, Cedelbank Participants or Euroclear Participants purchasing Global Securities would incur overdraft charges for one day, assuming they cleared the overdraft when the Global Securities were credited to their accounts. However, interest on the Global Securities would accrue from the value date. A-2 111 Therefore, in many cases the investment income on the Global Securities earned during that one-day period may substantially reduce or offset the amount of such overdraft charges, although the result will depend on each Cedelbank Participant's or Euroclear Participant's particular cost of funds. Since the settlement is taking place during New York business hours, DTC Participants can employ their usual procedures for crediting Global Securities to the respective European Depository for the benefit of Cedelbank Participants or Euroclear Participants. The sale proceeds will be available to the DTC seller on the settlement date. Thus, to the DTC Participants a cross-market transaction will settle no differently than a trade between two DTC Participants. Trading between Cedelbank or Euroclear Seller and DTC Purchaser. Due to time zone differences in their favor, Cedelbank Participants and Euroclear Participants may employ their customary procedures for transactions in which Global Securities are to be transferred by the respective clearing system, through the respective Depository, to a DTC Participant. The seller will send instructions to Cedelbank or Euroclear through a Cedelbank Participant or Euroclear Participant at least one business day prior to settlement. In these cases Cedelbank or Euroclear will instruct the respective Depository, as appropriate, to credit the Global Securities to the DTC Participant's account against payment. Payment will include interest accrued on the Global Securities from and including the last coupon payment to and excluding the settlement date on the basis of the actual number of days in such accrual period and a year assumed to consist of 360 days. For transactions settling on the 31st of the month, payment will include interest accrued to and excluding the first day of the following month. The payment will then be reflected in the account of Cedelbank Participant or Euroclear Participant the following day, and receipt of the cash proceeds in the Cedelbank Participant's or Euroclear Participant's account would be back-valued to the value date (which would be the preceding day, when settlement occurred in New York). In the event that the Cedelbank Participant or Euroclear Participant has a line of credit with its respective clearing system and elects to be in debt in anticipation of receipt of the sale proceeds in its account, the back-valuation will extinguish any overdraft incurred over that one-day period. If settlement is not completed on the intended value date (i.e., the trade fails), receipt of the cash proceeds in the Cedelbank Participant's or Euroclear Participant's account would instead be valued as of the actual settlement date. Finally, day traders that use Cedelbank or Euroclear and that purchase Global Securities from DTC Participants for delivery to Cedelbank Participants or Euroclear Participants should note that these trades would automatically fail on the sale side unless affirmative action is taken. At least three techniques should be readily available to eliminate this potential problem: (a) borrowing through Cedelbank or Euroclear for one day (until the purchase side of the trade is reflected in their Cedelbank or Euroclear accounts) in accordance with the clearing system's customary procedures; (b) borrowing the Global Securities in the U.S. from a DTC Participant no later than one day prior to settlement, which would give the Global Securities sufficient time to be reflected in their Cedelbank or Euroclear account in order to settle the sale side of the trade; or A-3 112 (c) staggering the value dates for the buy and sell sides of the trade so that the value date for the purchase from the DTC Participant is at least one day prior to the value date for the sale to the Cedelbank Participant or Euroclear Participant. CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS A beneficial owner of Global Securities holding securities through Cedelbank or Euroclear (or through DTC if the holder has an address outside the U.S.) will be subject to the 30% U.S. withholding tax that generally applies to payments of interest (including original issue discount) on registered debt issued by U.S. Persons (as defined below), unless (i) each clearing system, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business in the chain of intermediaries between such beneficial owner and the U.S. entity required to withhold tax complies with applicable certification requirements and (ii) such beneficial owner takes one of the following steps to obtain an exemption or reduced tax rate: Exemption for Non-U.S. Persons (Form W-8). Beneficial Owners of Global Securities that are Non-U.S. Persons (as defined below) can obtain a complete exemption from the withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If the information shown on Form W-8 changes, a new Form W-8 must be filed within 30 days of such change. Exemption for Non-U.S. Persons with effectively connected income (Form 4224). A Non-U.S. Person (as defined below), including a non-U.S. corporation or bank with a U.S. branch, for which the interest income is effectively connected with its conduct of a trade or business in the United States, can obtain an exemption from the withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income Effectively Connected with the Conduct of a Trade or Business in the United States). Exemption or reduced rate for non-U.S. Persons resident in treaty countries (Form 1001). Non-U.S. Persons residing in a country that has a tax treaty with the United States can obtain an exemption or reduced tax rate (depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty provides only for a reduced rate, withholding tax will be imposed at that rate unless the filer alternatively files Form W-8. Form 1001 may be filed by Certificate Owners or their agent. Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete exemption from the withholding tax by filing Form W-9 (Payer's Request for Taxpayer Identification Number and Certification). U.S. Federal Income Tax Reporting Procedure. The Owner of a Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files by submitting the appropriate form to the person through whom it holds (the clearing agency, in the case of persons holding directly on the books of the clearing agency). Form W-8 and Form 1001 are effective for three calendar years and Form 4224 is effective for one calendar year. On April 22, 1996, the IRS proposed regulations relating to withholding, backup withholding and information reporting that, if adopted in their current form would, among other A-4 113 things, unify current certification procedures and forms and clarify certain reliance standards. The regulations are proposed to be effective for payments made after December 31, 1997 but provide that certificates issued on or before the date that is 60 days after the proposed regulations are made final will continue to be valid until they expire. Proposed regulations, however, are subject to change prior to their adoption in final form. The term "U.S. Person" means (i) a citizen or resident of the United States, (ii) a corporation, partnership or other entity organized in or under the laws of the United States or any political subdivision thereof, (iii) an estate that is subject to U.S. federal income tax regardless of the source of its income or (iv) a trust if a court within the United States can exercise primary supervision over its administration and at least one United States fiduciary has the authority to control all substantial decisions of the trust. The term "NON-U.S. PERSON" means any person who is not a U.S. Person. This summary does not deal with all aspects of U.S. Federal income tax withholding that may be relevant to foreign holders of the Global Securities. Investors are advised to consult their own tax advisors for specific tax advice concerning their holding and disposing of the Global Securities. A-5 114 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. Set forth below is an estimate of the amount of fees and expenses (other than underwriting discounts and commissions) to be incurred in connection with the issuance and distribution of the Securities. SEC Filing Fee.................................................... $278 Trustee's Fees and Expenses*...................................... 75,000 Legal Fees and Expenses*.......................................... 300,000 Accounting Fees and Expenses*..................................... 105,000 Printing and Engraving Expenses*.................................. 120,000 Blue Sky Qualification and Legal Investment Fees and Expenses*..................................... 30,000 Rating Agency Fees*............................................... 300,000 Certificate Insurer's Fee*........................................ 450,000 Miscellaneous*.................................................... 100,000 ---------- TOTAL $1,480,278
- ---------- * Estimated in accordance with Item 511 of Regulation S-K. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Indemnification. Under the laws which govern the organization of the registrant, the registrant has the power and in some instances may be required to provide an agent, including an officer or director, who was or is a party or is threatened to be made a party to certain proceedings, with indemnification against certain expenses, judgments, fines, settlements and other amounts under certain circumstances. Article XI of the By-Laws of Advanta Conduit Receivables Inc. provides that the corporation shall indemnify any person (or the estate of any person) against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement, to the fullest extent permitted under applicable law in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, brought or threatened to be brought against him by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise. The form of the Underwriting Agreement, incorporated by reference as Exhibit 1.1 to this Registration Statement, provides that Advanta Conduit Receivables, Inc. will indemnify and reimburse the underwriter(s) and each director, officer and controlling person of the underwriter(s) with respect to certain expenses and liabilities, including liabilities under the 1933 Act or other federal or state regulations or under the common law, which arise out of or are based on certain material misstatements or omissions in the Registration Statement. In addition, the Underwriting Agreement provides that the underwriter(s) will similarly indemnify and reimburse Advanta Conduit Receivables, Inc. and each director, officer and controlling person of Advanta Conduit Receivables, Inc. with respect to certain material misstatements or omission in the Registration II-1 115 Statement which are based on certain written information furnished by the underwriter(s) for use in connection with the preparation of the Registration Statement. Insurance. As permitted under the laws which govern the organization of the Sponsor, the Sponsor has adopted by-laws which permit the board of directors to purchase and maintain insurance on behalf of the Sponsor's agents, including its officers and directors, against any liability asserted against them in such capacity or arising out of such agents' status as such, whether or not the Sponsor would have the power to indemnify them against such liability under applicable law. Advanta Conduit Receivables, Inc. has a general liability policy which insures its agents, including directors and officers, for general liability exposures. As permitted by the Employee Retirement Security Act of 1974, Advanta Conduit Receivables, Inc. has obtained insurance covering all employees entrusted with fiduciary responsibilities under certain of its employee welfare or benefit plans. The maximum coverage provided by this policy is an aggregate of $5,000,000 per year, subject to a maximum $100,000 deductible amount with respect to each claim. As permitted under the laws which govern the organization of the Sponsor, the Sponsor has adopted by-laws which permit the board of directors to purchase and maintain insurance on behalf of any person indemnified under Article XI of the Sponsor's by-laws against any liability which may be asserted against such person. Limitation of Liability. Article Fifth of the Certificate of Incorporation of Advanta Conduit Receivables, Inc. limits the personal liability of directors to Advanta Conduit Receivables, Inc., and its stockholders for monetary damages resulting from breaches of fiduciary duty. The provision does not eliminate or limit a director's liability for (i) breaches of fiduciary duty of loyalty, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) any unlawful payment of dividends, stock repurchase or redemption or (iv) any transaction from which the director derived an improper personal benefit. II-2 116 ITEM 16. EXHIBITS. 1.1* - Form of Underwriting Agreement. 3.1 - Certificate of Incorporation of the Sponsor (incorporated by reference to Exhibit 3.3 to the Sponsor's and Advanta Mortgage Conduit Services, Inc.'s Registration Statement on Form S-3 (Reg. No. 33-78642)). 3.2 - By-Laws of the Sponsor (incorporated by reference to Exhibit 3.4 to the Sponsor's and Advanta Mortgage Conduit Services, Inc.'s Registration Statement on Form S-3 (Reg. No. 33-78642)). 4.1* - Form of Pooling and Servicing Agreement (Single or Multi-Class) (Credit Support) among the Sponsor, the Master Servicer and the Trustee. 4.2* - Form of Sale and Servicing Agreement (Single or Multi-Class) (Credit Support) among the Issuer, the Sponsor, the Master Servicer and the Indenture Trustee. 4.3* - Form of Trust Agreement among the Sponsor and the Owner Trustee. 4.4* Form of Indenture among the Issuer and the Indenture Trustee. 4.5* - Form of Advanta Mortgage Holding Company Guaranty is included in the Form of Underwriting Agreement, Exhibit 1.1 hereto. 4.6* - Form of Master Loan Transfer Agreement among the Affiliated Originators, the Affiliate, the Trustee and the Sponsor. 5.1* - Opinion of Dewey Ballantine LLP with respect to validity. 8.1* - Opinion of Dewey Ballantine LLP with respect to REMIC Certificates tax matters. 8.2* - Opinion of Dewey Ballantine LLP with respect to Debt Securities tax matters. 10.1** - Form of Financial Guaranty Insurance Policy 23.1* - Consents of Dewey Ballantine LLP are included in its opinions filed as Exhibit 5.1 and 8.1 hereof. 99.1* - Form of Prospectus Supplement (Debt Securities) (Credit Support). 99.2* - Form of Prospectus Supplement (REMIC Certificates) (Credit Support).
- ------------------------- * Filed herewith. ** To be filed by amendment. II-3 117 ITEM 17. UNDERTAKINGS. A. Undertaking in respect of indemnification Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions in Item 15, or otherwise, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by the registrant is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue. B. Undertaking pursuant to Rule 415. The Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change of such information in the Registration Statement; provided, however, that paragraphs (i) and (ii) do not apply if the information required to be included in the post-effective amendment is contained in periodic reports filed by the Issuer pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. C. Undertaking regarding Incorporated Annual and Quarterly Reports. The Registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to securityholders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. D. Undertaking pursuant to Rule 430A. The Registrant hereby undertakes: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the forms of prospectus filed as part of a registration statement in reliance upon Rule 430A and II-4 118 contained in a form of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 119 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, hereunto duly authorized, in the City of Spring House, State of Pennsylvania on March 29, 1999. ADVANTA CONDUIT RECEIVABLES, INC. By: /s/ Michael Coco ------------------------------------- Vice President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip M. Browne, Jeffrey D. Beck, Michael Coco, and Susan A. McVeigh, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his name, place and stead, in any and all capacities to sign any or all amendments (including post-effective amendments) to this Registration Statement and any or all other documents in connection therewith, and to file the same, with all exhibits thereto, with the Securities and Exchange Commission, granting unto said authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all said attorneys-in-fact and agents or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons on March 29, 1999 in the capacities indicated. Signature Capacity - --------- -------- /s/ Walter N. Carter Executive Vice President - ---------------------- Walter N. Carter /s/ Susan A. McVeigh Vice President and Treasurer - ---------------------- Susan A. McVeigh /s/ James L. Shreero Vice President and Assistant Treasurer - ---------------------- James L. Shreero /s/ Mark Casale Director - ---------------------- Mark Casale /s/ John J. Calamari Director - ---------------------- John J. Calamari /s/ James L. Shreero Director - ---------------------- James L. Shreero /s/ Janice G. George Director - ---------------------- Janice G. George II-6 EX-1.1 2 FORM OF UNDERWRITING AGREEMENT 1 EXHIBIT 1.1 ADVANTA CONDUIT RECEIVABLES, INC. Mortgage Loan Asset-Backed Certificates, Series [Series] UNDERWRITING AGREEMENT ----------, ---- [Underwriter/Representative Underwriter] As [Underwriter/Representative of the Underwriters (the "Representative") named in Schedule I] [Underwriter's/Representative's Address] Ladies and Gentlemen: Advanta Conduit Receivables, Inc. (the "Company") has authorized the issuance and sale of Mortgage Loan Asset-Backed Certificates, Series [Series], consisting of (i) the Class [First Class of Securities] (the "Class [First Class of Securities]") , (ii) the Class [Second Class of Securities] (the "Class [Second Class of Securities]", together with the Class [First Class of Securities], the "Offered [Securities]"), and (iii) the residual class with respect to the REMIC held by the Trust (the "[Residual Securities]"). Only the Offered [Securities] are offered by the Underwriter[s]. The Offered [Securities] will be issued by the Advanta Mortgage Loan Trust [Series] (the "Trust"), and will evidence in the aggregate the beneficial interest in a trust estate (the "Trust Estate") consisting primarily of a pool of closed-end mortgage loans having fixed rates of interest (the "Fixed Rate Group"), a pool of closed-end mortgage loans having adjustable rates of interest (the "ARM Group", and together with the Fixed Rate Group, the "Mortgage Loans"), amounts on deposit with [Trustee], as trustee of the Trust (the "Trustee") in an account to be used to acquire additional mortgage loans following the Closing Date (as hereinafter defined) for the Trust (the "Pre-Funding Account") and certain related property. The Mortgage Loans shall have, on or about [Closing Date] (the "Closing Date"), an aggregate principal balance of approximately $[___________] and the Pre-Funding Account shall have approximately $[____________], of which an amount equal to approximately $[____________] may be applied to the purchase of additional loans for the Fixed Rate Group and an amount equal to approximately $[_________] may be applied to the purchase of additional loans for the ARM Group during the period from the Closing Date to on or before [End of Pre-Funding Period]. The Offered [Securities] are to be issued under a pooling and servicing agreement, to be dated as 2 of _________, ____ (the "Pooling and Servicing Agreement"), among the Company, as Sponsor, Advanta Mortgage Corp. USA, as Master Servicer, and the Trustee. On or prior to the date of issuance of the Certificates, the Company will obtain a guaranty insurance policy (the "Policy") issued by [Insurer] (the "Insurer") which will unconditionally and irrevocably guarantee to the Trustee for the benefit of the holders of the Offered [Securities] the amount by which (i) the Fixed Rate Group Insured Distribution Amount (as defined in the Pooling and Servicing Agreement), as applicable, for the Fixed Rate Group [Securities] exceeds the Fixed Rate Group Total Available Funds (as defined in the Pooling and Servicing Agreement) and (ii) the ARM Group Insured Distribution Amount (as defined in the Pooling and Servicing Agreement), as applicable, for the ARM Group [Securities] exceeds the ARM Group Total Available Funds (as defined in the Pooling and Servicing Agreement). The Offered [Securities] are more fully described in a Registration Statement which the Company has furnished to the Underwriter[s]. Capitalized terms used but not defined herein shall have the meanings given to them in the Pooling and Servicing Agreement. Simultaneously with the execution of the Pooling and Servicing Agreement, the Company will enter into a conveyance agreement pursuant to the Master Loan Transfer Agreement dated on or about __________, ____ among the Trustee, the Company and the Affiliated Originators named therein (together, the "Purchase Agreement"), pursuant to which the Affiliated Originators will transfer to the Company all of their right, title and interest in and to the Mortgage Loans as of the Closing Date. The Company will also enter into an Indemnification Agreement (the "Indemnification Agreement") dated as of __________, ____ among the Underwriter[s], the Company and the Insurer. Section 1. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with the Underwriter[s] that: a. Registration Statements on Form S-3, as amended by Post-Effective Amendments thereto, have (i) been prepared by the Company in conformity with the requirements of the Securities Act of 1933 (the "Securities Act") and the rules and regulations (the "Rules and Regulations") of the United States Securities and Exchange Commission (the "Commission") thereunder, (ii) been filed with the Commission under the Securities Act and (iii) become effective under the Securities Act. Copies of such Registration Statements have been delivered by the Company to the Underwriter[s]. As used in this Agreement, "Effective Time" means the date and the time as of which such Registration Statements, or the most recent post-effective amendment thereto, if any, was declared effective by the Commission; "Effective Date" means the date of the Effective Time; "Preliminary Prospectus" means each prospectus included in such Registration Statements, or amendments thereof, including a preliminary prospectus supplement which, as completed, is proposed to be used in connection with the sale of the Offered [Securities] and any prospectus filed with the Commission by the Company with the consent of the Underwriter[s] pursuant to Rule 424(a) of the Rules and Regulations; "Registration Statement" means such registration statements, as amended by all Post-Effective -2- 3 Amendments thereto heretofore filed with the Commission, at the Effective Time, including any documents incorporated by reference therein at such time; and "Prospectus" means such final prospectus, as supplemented by a final prospectus supplement (the "Prospectus Supplement") relating to the Offered [Securities], as first filed with the Commission pursuant to paragraph (1) or (4) of Rule 424(b) of the Rules and Regulations. Reference made herein to any Preliminary Prospectus or to the Prospectus shall be deemed to refer to and include any documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Securities Act, as of the date of such Preliminary Prospectus or the Prospectus, as the case may be, and any reference to any amendment or supplement to any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include any document filed under the Securities Exchange Act of 1934 (the "Exchange Act") after the date of such Preliminary Prospectus or the Prospectus, as the case may be, and incorporated by reference in such Preliminary Prospectus or the Prospectus, as the case may be; and any reference to any amendment to the Registration Statement shall be deemed to include any report of the Company filed with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act after the Effective Time that is incorporated by reference in the Registration Statement. The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus. There are no contracts or documents of the Company which are required to be filed as exhibits to the Registration Statement pursuant to the Securities Act or the Rules and Regulations which have not been so filed or incorporated by reference therein on or prior to the Effective Date of the Registration Statements. The conditions for use of Form S-3, as set forth in the General Instructions thereto, have been satisfied. To the extent that [the/any] Underwriter (i) has provided to the Company Collateral term sheets (as hereinafter defined) that [the/such] Underwriter has provided to a prospective investor, the Company has filed such Collateral term sheets as an exhibit to a report on Form 8-K within two business days of its receipt thereof, or (ii) has provided to the Company Structural term sheets or Computational Materials (each as defined below) that [the/such] Underwriter has provided to a prospective investor, the Company will file or cause to be filed with the Commission a report on Form 8-K containing such Structural term sheet and Computational Materials, as soon as reasonably practicable after the date of this Agreement, but in any event, not later than the date on which the Prospectus is filed with the Commission pursuant to Rule 424 of the Rules and Regulations. b. The Registration Statement conforms, and the Preliminary Prospectus and the Prospectus and any further amendments or supplements to the Registration Statement or the Preliminary Prospectus and the Prospectus will, when they become effective or are filed with the Commission, as the case may be, conform in all respects to the requirements of the Securities Act and the Rules and Regulations. The Registration Statement, as of the Effective Date thereof and of any amendment thereto, did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus as of its date, and as amended or supplemented as of the Closing Date does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that no representation or warranty is made as to information contained in or omitted from the Registration Statement or the Prospectus -3- 4 in reliance upon and in conformity with written information furnished to the Company in writing by the Underwriter[s] expressly for use therein. c. The documents incorporated by reference in the Prospectus, when they became effective or were filed with the Commission, as the case may be, conformed in all material respects to the requirements of the Securities Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder, and none of such documents contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and any further documents so filed and incorporated by reference in the Prospectus, when such documents become effective or are filed with the Commission, as the case may be, will conform in all material respects to the requirements of the Securities Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. d. Since the respective dates as of which information is given in the Prospectus, there has not been any material adverse change in the general affairs, management, financial condition, or results of operations of the Company, otherwise than as set forth or contemplated in the Prospectus as supplemented or amended as of the Closing Date. e. The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which its ownership or lease of property or the conduct of its business requires such qualification, and has all power and authority necessary to own or hold its properties, to conduct the business in which it is engaged and to enter into and perform its obligations under this Agreement, the Pooling and Servicing Agreement, the Indemnification Agreement, the Insurance Agreement, dated as of ________, ____, between the Insurer, Master Servicer, Sponsor, Advanta Mortgage Holding Company, as Joint Obligor and the Trustee (the "Insurance Agreement"), and the Purchase Agreement, and to cause the [Securities] to be issued. f. There are no actions, proceedings or investigations pending before or threatened by any court, administrative agency or other tribunal to which the Company is a party or of which any of its properties is the subject (a) which if determined adversely to the Company would have a material adverse effect on the business or financial condition of the Company, (b) which asserts the invalidity of this Agreement, the Pooling and Servicing Agreement, the Insurance Agreement, the Indemnification Agreement, the Purchase Agreement, or the Certificates, (c) which seeks to prevent the issuance of the Certificates or the consummation by the Company of any of the transactions contemplated by the Pooling and Servicing Agreement, the Insurance Agreement, the Indemnification Agreement, the Purchase Agreement or this Agreement, as the case may be, or (d) which might materially and adversely affect the performance by the Company of its obligations under, or the validity or enforceability of, the Pooling and Servicing Agreement, the Insurance Agreement, the Indemnification Agreement, the Purchase Agreement, this Agreement or the [Securities]. -4- 5 g. This Agreement has been, and the Pooling and Servicing Agreement, the Insurance Agreement, the Indemnification Agreement and the Purchase Agreement when executed and delivered as contemplated hereby and thereby will have been, duly authorized, executed and delivered by the Company, and this Agreement constitutes, and the Pooling and Servicing Agreement, the Insurance Agreement, the Indemnification Agreement and the Purchase Agreement when executed and delivered as contemplated herein, will constitute, legal, valid and binding instruments enforceable against the Company in accordance with their respective terms, subject as to enforceability to (x) applicable bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting creditors' rights generally, (y) general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law), and (z) with respect to rights of indemnity under this Agreement, the Indemnification Agreement and limitations of public policy under applicable securities laws. h. The execution, delivery and performance of this Agreement, the Pooling and Servicing Agreement, the Insurance Agreement, the Indemnification Agreement and the Purchase Agreement by the Company and the consummation of the transactions contemplated hereby and thereby, and the issuance and delivery of the [Securities] do not and will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company is a party, by which the Company is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such actions result in any violation of the provisions of the articles of incorporation or by-laws of the Company or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its properties or assets. i. [Accountants] are independent public accountants with respect to the Company as required by the Securities Act and the Rules and Regulations. j. The direction by the Company to the Trustee to execute, authenticate, issue and deliver the Certificates has been duly authorized by the Company, and assuming the Trustee has been duly authorized to do so, when executed, authenticated, issued and delivered by the Trustee in accordance with the Pooling and Servicing Agreement, the [Securities] will be validly issued and outstanding and will be entitled to the benefits provided by the Pooling and Servicing Agreement. k. No consent, approval, authorization, order, registration or qualification of or with any court or governmental agency or body of the United States is required for the issuance of the [Securities] and the sale of the Offered [Securities] to the Underwriter[s], or the consummation by the Company of the other transactions contemplated by this Agreement, the Pooling and Servicing Agreement, the Insurance Agreement, the Indemnification Agreement and the Purchase Agreement, except such consents, approvals, authorizations, registrations or qualifications as may be required under State securities or Blue Sky laws in connection with the purchase and distribution of the Offered [Securities] by the Underwriter[s] or as have been obtained. l. The Company possesses all material licenses, certificates, authorities or permits issued by the appropriate State, Federal or foreign regulatory agencies or bodies -5- 6 necessary to conduct the business now conducted by it and as described in the Prospectus, and the Company has not received notice of any proceedings relating to the revocation or modification of any such license, certificate, authority or permit which if decided adversely to the Company would, singly or in the aggregate, materially and adversely affect the conduct of its business, operations or financial condition. m. At the time of execution and delivery of the Pooling and Servicing Agreement, the Company will: (i) have good title to the interest in the Mortgage Loans, free and clear of any lien, mortgage, pledge, charge, encumbrance, adverse claim or other security interest (collectively, "Liens"); (ii) not have assigned to any person any of its right, title or interest in the Mortgage Loans, in the Purchase Agreement, in the Pooling and Servicing Agreement or in the Certificates being issued pursuant thereto; and (iii) have the power and authority to sell its interest in the Mortgage Loans to the Trustee, on behalf of the Trust, and to sell the Offered [Securities] to the Underwriter[s]. Upon execution and delivery of the Pooling and Servicing Agreement by the Trustee, the Trustee will have acquired beneficial ownership of all of the Company's right, title and interest in and to the Mortgage Loans. Upon delivery to the Underwriter[s] of the Offered [Securities], the Underwriter[s] will have good title to the Offered [Securities], free of any Liens. n. As of the opening of business on ________, ____ ( the "Cut-Off Date"), and on each Subsequent Cut-Off Date (as defined in the Pooling and Servicing Agreement) each of the Mortgage Loans will meet the eligibility criteria described in the Prospectus and will conform to the descriptions thereof contained in the Prospectus. o. Neither the Company nor the Trust created by the Pooling and Servicing Agreement is an "investment company" within the meaning of such term under the Investment Company Act of 1940 (the "1940 Act") and the rules and regulations of the Commission thereunder. p. At the Closing Date, the Offered [Securities] and the Pooling and Servicing Agreement will conform in all material respects to the descriptions thereof contained in the Prospectus. q. At the Closing Date, the Offered [Securities] shall have been rated in the highest rating category by at least two nationally recognized rating agencies. r. Any taxes, fees and other governmental charges in connection with the execution, delivery and issuance of this Agreement, the Pooling and Servicing Agreement, the Insurance Agreement, the Indemnification Agreement, the Purchase Agreement and the [Securities] have been paid or will be paid at or prior to the Closing Date. s. At the Closing Date, each of the representations and warranties of the Company set forth in the Pooling and Servicing Agreement will be true and correct in all material respects. Any certificate signed by an officer of the Company and delivered to the [Representative/Underwriter] or counsel for the Underwriter[s] in connection with an offering of the Offered [Securities] shall be deemed, and shall state that it is, a representation and warranty -6- 7 as to the matters covered thereby to each person to whom the representations and warranties in this Section 1 are made. Section 2. Purchase and Sale. The commitment of the Underwriter[s] to purchase the Offered [Securities] pursuant to this Agreement shall be deemed to have been made on the basis of the representations and warranties herein contained and shall be subject to the terms and conditions herein set forth. The Company agrees to instruct the Trustee to issue and agrees to sell to the Underwriter[s], and the Underwriter[s] agree[s] (except as provided in Sections 10 and 11 hereof) to purchase from the Company the aggregate initial principal amounts of Offered [Securities] set forth on Schedule A, at the purchase price or prices set forth in Schedule A. The obligations of the Underwriter[s] hereunder to purchase the Offered [Securities] of each Class shall be several and not joint. Each Underwriter[s]'s obligation shall be to purchase the aggregate principal amount of Offered [Securities] as is indicated with respect to [the/each] Underwriter under the caption "Underwriting" in the Prospectus. The rights of the Company and a non-defaulting Underwriter shall be as set forth in Section 13 hereof. Section 3. Delivery and Payment. Delivery of and payment for the Offered [Securities] to be purchased by the Underwriter[s] shall be made at the offices of Dewey Ballantine LLP, 1301 Sixth Avenue, New York, New York 10019, or at such other place as shall be agreed upon by the [Representative/Underwriter] and the Company at 10:00 A.M. New York City time on _________, 1999 or at such other time or date as shall be agreed upon by the [Representative/Underwriter] and the Company. Payment shall be made to the Company by wire transfer of same day funds payable to the account of the Company. Delivery of the Offered [Securities] shall be made to the [Representative/Underwriter] for the accounts of the Underwriter[s] against payment of the purchase price thereof. The Offered [Securities] shall be in such denominations and registered in such names as the Company and the [Representative/Underwriter] have agreed upon at least two business days prior to the Closing Date. The Offered [Securities] will be made available for examination by the [Representative/Underwriter] no later than 2:00 p.m. New York City time on the first business day prior to the Closing Date. Section 4. Offering by the Underwriter[s]. It is understood that, subject to the terms and conditions hereof, the Underwriter[s] propose to offer the Offered [Securities] for sale to the public as set forth in the Prospectus. Section 5. Covenants of the Company. The Company agrees as follows: a. (i) To prepare the Preliminary Prospectus Supplement and the Prospectus Supplement in a form approved by the [Representative/Underwriter] and to file such Preliminary Prospectus Supplement and the Prospectus Supplement pursuant to Rule 424(b) under the Securities Act not later than the Commission's close of business on the second business day -7- 8 following the execution and delivery of this Agreement; (ii) to make no further amendment or any supplement to the Registration Statement or to the Preliminary Prospectus and the Prospectus prior to the Closing Date except as permitted herein; (iii) to advise the [Representative/Underwriter], promptly after it receives notice thereof, of the time when any amendment to the Registration Statement has been filed or becomes effective or any supplement to the Preliminary Prospectus and the Prospectus or any amended Preliminary Prospectus or the Prospectus has been filed and to furnish the [Representative/Underwriter] with copies thereof; (iv) to file promptly all reports and any definitive proxy or information statements required to be filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of the Preliminary Prospectus and the Prospectus and, for so long as the delivery of a prospectus is required in connection with the offering or sale of the Offered [Securities]; and (v) to promptly advise the [Representative/Underwriter] of its receipt of notice of the issuance by the Commission of any stop order or of: (w) any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus; (x) the suspension of the qualification of the Offered [Securities] for offering or sale in any jurisdiction; (y) the initiation of or threat of any proceeding for any such purpose; (z) any request by the Commission for the amending or supplementing of the Registration Statement or the Prospectus or for additional information. In the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus or suspending any such qualification, the Company promptly shall use its best efforts to obtain the withdrawal of such order or suspension. b. To furnish promptly to the [Representative/Underwriter] and to counsel for the Underwriter[s] a signed copy of the Registration Statement as originally filed with the Commission, and of each amendment thereto filed with the Commission, including all consents and exhibits filed therewith. c. To deliver promptly to the [Representative/Underwriter] such number of the following documents as the [Representative/Underwriter] shall reasonably request: (i) conformed copies of the Registration Statement as originally filed with the Commission and each amendment thereto (in each case including exhibits); (ii) each Preliminary Prospectus, the Prospectus and any amended or supplemented Prospectus; and (iii) any document incorporated by reference in the Prospectus (including exhibits thereto). If the delivery of a prospectus is required at any time prior to the expiration of nine months after the Effective Time in connection with the offering or sale of the Offered [Securities], and if at such time any events shall have occurred 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 in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary during such same period to amend or supplement the Prospectus or to file under the Exchange Act any document incorporated by reference in the Prospectus in order to comply with the Securities Act or the Exchange Act, the Company shall notify the [Representative/Underwriter] and, upon the [Representative/Underwriter]'s request, shall file such document and prepare and furnish without charge to the Underwriter[s] and to any dealer in securities as many copies as the [Representative/Underwriter] may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which corrects such statement or omission or effects such compliance, and in case any of the Underwriter[s] are required to deliver a -8- 9 Prospectus in connection with sales of any of the Offered [Securities] at any time nine months or more after the Effective Time, upon the request of the [Representative/Underwriter] but at the expense of such Underwriter, the Company shall prepare and deliver to such Underwriter as many copies as such Underwriter may reasonably request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the Securities Act. d. To file promptly with the Commission any amendment to the Registration Statement or the Prospectus or any supplement to the Prospectus that may, in the judgment of the Company or the [Representative/Underwriter], be required by the Securities Act or requested by the Commission. e. Prior to filing with the Commission any (i) Preliminary Prospectus, (ii) amendment to the Registration Statement or supplement to the Prospectus, or document incorporated by reference in the Prospectus, or (iii) Prospectus pursuant to Rule 424 of the Rules and Regulations, to give at least three business days prior notification to the [Representative/Underwriter] and to furnish a copy thereof to the [Representative/Underwriter] and counsel for the Underwriter[s], provided, however, that if any of the foregoing filings referred to in (i), (ii), or (iii) relate to the Offered [Securities], the Company shall obtain the consent of the [Representative/Underwriter] to such filing, which consent shall not be unreasonably withheld. f. To make generally available to holders of the Offered [Securities] as soon as practicable, but in any event not later than 90 days after the close of the period covered thereby, a statement of earnings of the Trust (which need not be audited) complying with Section 11(a) of the Securities Act and the Rules and Regulations (including, at the option of the Company, Rule 158) and covering a period of at least twelve consecutive months beginning not later than the first day of the first fiscal quarter following the Closing Date. g. To use its best efforts, in cooperation with the [Representative/Underwriter], to qualify the Offered [Securities] for offering and sale under the applicable securities laws of such states and other jurisdictions of the United States as the [Representative/Underwriter] may designate, and maintain or cause to be maintained such qualifications in effect for as long as may be required for the distribution of the Offered [Securities]. The Company will file or cause the filing of such statements and reports as may be required by the laws of each jurisdiction in which the Offered [Securities] have been so qualified. h. Not, without the [Representative's/Underwriter's] prior written consent, which consent shall not be unreasonably withheld, to publicly offer or sell or contract to sell any mortgage pass-through securities, collateralized mortgage obligations or other similar securities representing interests in or secured by other mortgage-related assets originated or owned by the Company for a period of 5 business days following the commencement of the offering of the Offered [Securities] to the public. i. So long as the Offered [Securities] shall be outstanding, to deliver to the [Representative/Underwriter] as soon as such statements are furnished to the Trustee: (i) the annual statement as to compliance delivered to the Trustee pursuant to Article VII of the Pooling and Servicing Agreement; (ii) the annual statement of a firm of independent public accountants -9- 10 furnished to the Trustee pursuant to Article VIII of the Pooling and Servicing Agreement; and (iii) the Monthly Statement furnished to the Certificateholders pursuant to Article VII of the Pooling and Servicing Agreement. j. To apply the net proceeds from the sale of the Offered [Securities] in the manner set forth in the Prospectus. Section 6. Conditions to the [Underwriters'/Underwriter's] Obligations. The obligations of the Underwriter[s] to purchase the Offered [Securities] pursuant to this Agreement are subject to: (i) the accuracy on and as of the Closing Date of the representations and warranties on the part of the Company herein contained; (ii) the performance in all material respects by the Company of all of their respective obligations hereunder; and (iii) the following conditions as of the Closing Date: a. The [Representative/Underwriter] shall have received confirmation of the effectiveness of the Registration Statement. No stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission. Any request of the Commission for inclusion of additional information in the Registration Statement or the Prospectus shall have been complied with. b. None of the Underwriter[s] shall have discovered and disclosed to the Company on or prior to the Closing Date that the Registration Statement or the Prospectus or any amendment or supplement thereto contains an untrue statement of a fact or omits to state a fact which, in the opinion of [Counsel], counsel for the Underwriter[s], is material and is required to be stated therein or is necessary to make the statements therein not misleading. c. All corporate proceedings and other legal matters relating to the authorization, form and validity of this Agreement, the Pooling and Servicing Agreement, the Purchase Agreement, the Insurance Agreement, the Indemnification Agreement, the Certificates, the Registration Statement and the Prospectus, and all other legal matters relating to this Agreement and the transactions contemplated hereby shall be satisfactory in all respects to counsel for the Underwriter[s], and the Company shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters. d. The [Representative/Underwriter] shall have received the favorable opinion of Dewey Ballantine LLP, special counsel to the Company with respect to the following items, dated the Closing Date, to the effect that: 1. The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Nevada, and is qualified to do business in each state necessary to enable it to perform its obligations as Sponsor under the Pooling and Servicing Agreement. The Company 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 Insurance Agreement, the Pooling and Servicing Agreement, the -10- 11 Insurance Agreement, the Indemnification Agreement and the Purchase Agreement. 2. This Agreement, the Certificates, the Pooling and Servicing Agreement, the Insurance Agreement, the Indemnification Agreement and the Purchase Agreement have been duly and validly authorized, executed and delivered by the Company, all requisite corporate action having been taken with respect thereto, and each (other than the Certificates) constitutes the valid, legal and binding agreement of the Company. 3. Neither the transfer of the Mortgage Loans to the Trust Estate, the issuance or sale of the Certificates nor the execution, delivery or performance by the Company of the Pooling and Servicing Agreement, this Agreement, the Insurance Agreement, the Indemnification Agreement or the Purchase Agreement (A) conflicts or will 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 certificate of incorporation or bylaws of the Company; (ii) any term or provision of any material agreement, contract, instrument or indenture, to which the Company is a party or is bound and known to such counsel; or (iii) any order, judgment, writ, injunction or decree of any court or governmental agency or body or other tribunal having jurisdiction over the Company and known to such counsel; 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 Certificates, except as otherwise contemplated by the Pooling and Servicing Agreement. 4. With respect to the Mortgage Loans, the endorsement and delivery of each Note, and the preparation, delivery and recording of an Assignment in each case with respect to each Mortgage is sufficient to fully transfer to the Trustee for the benefit of the Owners of the Certificates all right, title and interest of the Company in the Note and Mortgage, as noteholder and mortgagee or assignee thereof, subject to any exceptions set forth in such opinion, 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 Company and to prevent any other sale, transfer, assignment, pledge or other encumbrance of the Mortgage Loans by the Company from being enforceable. 5. 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 New York, for the execution, delivery and performance of the Pooling and Servicing Agreement, this Agreement, the Insurance Agreement, the Indemnification Agreement, the Purchase Agreement or the offer, issuance, sale or delivery of the Offered [Securities] or the consummation of any other transaction contemplated thereby by the Company, except such which have been obtained. -11- 12 6. There are no actions, proceedings or investigations, to such counsel's knowledge, pending or threatened against the Company before any court, governmental agency or body or other tribunal (i) asserting the invalidity of the Pooling and Servicing Agreement, the Insurance Agreement, the Indemnification Agreement, this Agreement, the Purchase Agreement or the Certificates, (ii) seeking to prevent the issuance of the Certificates or the consummation of any of the transactions contemplated by the Pooling and Servicing Agreement, the Indemnification Agreement, or this Agreement, (iii) which would materially and adversely affect the performance by the Company of obligations under, or the validity or enforceability of, the Pooling and Servicing Agreement, the Insurance Agreement, the Indemnification Agreement, the Certificates, the Purchase Agreement or this Agreement or (iv) that would adversely affect the status of the Trust Estate as a "real estate mortgage investment conduit" ("REMIC") as such term is defined in the Internal Revenue Code of 1986, as amended. 7. 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 Offered [Securities] (including the Prospectus), and has not initiated or threatened any proceeding for that purpose. 8. The Registration Statement and the Prospectus (other than the financial and statistical data included therein, as to which such counsel need express no opinion), including the Incorporated Documents, 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 1933 Act and the rules and regulations thereunder and the Exchange 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 which has not been filed or described as required. 9. Neither the qualification of the Pooling and Servicing Agreement under the Trust Indenture Act of 1939 nor the registration of the Trust created by such Pooling and Servicing Agreement under the Investment Company Act of 1940 is presently required. 10. The statements in the Prospectus set forth under the captions "DESCRIPTION OF THE SECURITIES," "THE POOLING AND SERVICING AGREEMENT" and the statements in the Prospectus Supplement set forth under the caption "DESCRIPTION OF THE CERTIFICATES," to the extent such statements purport to summarize certain provisions of the Offered [Securities] or of the Pooling and Servicing Agreement, are fair and accurate in all material respects. -12- 13 11. The statements in the Prospectus and Prospectus Supplement set forth under the captions "ERISA CONSIDERATIONS," "CERTAIN FEDERAL INCOME TAX CONSEQUENCES," and the statements in the Prospectus set forth under the caption "CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS AND RELATED MATTERS," to the extent that they constitute matters of federal, New York or California law, or federal, New York or California legal conclusions provide a fair and accurate summary of such law or conclusions. 12. Assuming that (a) the Trustee causes the Trust created under the Pooling and Servicing Agreement to elect, as the Trustee has covenanted to do in the Pooling and Servicing Agreement, to be treated as a REMIC and (b) the parties to the Pooling and Servicing Agreement comply with the terms thereof, the Trust will be treated as a REMIC, the Offered [Securities] issued pursuant to the Pooling and Servicing Agreement will be treated as the "regular interests" in a REMIC and the [Residual] Certificates issued pursuant to the Pooling and Servicing Agreement will be treated as "residual interests" in a REMIC. Assuming that the Trust issues debt securities, the securities will be treated as debt and the Trust will not be treated as an association or a publicly traded partnership taxable as a corporation or a taxable mortgage pool. The Trust will not be subject to tax upon its income or assets by any taxing authority of the State of New York or New York City or of the State of California (except that no opinion need be expressed with respect to any minimum tax). 13. Such opinion shall also relate to comparable matters with respect to the Affiliated Originators and Advanta Mortgage Holding Company. 14. No information 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. 15. Such other matters as the [Representative/Underwriter] may reasonably request. In rendering its opinions, the counsel described above may rely, as to matters of fact, on certificates of responsible officers of the Company, the 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 Company. e. The [Representative/Underwriter] shall have received letters, including bring-down letters, from [Accountants], dated on or before the Closing Date, in form and substance satisfactory to the [Representative/Underwriter] and counsel for the Underwriter[s], to the effect that they have performed certain specified procedures requested by the -13- 14 [Representative/Underwriter] with respect to the information set forth in the Prospectus and certain matters relating to the Company. f. The Offered [Securities] shall have received the ratings listed on Schedule A hereto, and such ratings shall not have been rescinded or downgraded as of the Closing Date. The [Representative/Underwriter] and counsel for the Underwriter[s] shall have received copies of any opinions of counsel supplied to the rating organizations relating to any matters with respect to the Offered [Securities]. Any such opinions shall be dated the Closing Date and addressed to the Underwriter[s] or accompanied by reliance letters to the Underwriter[s] or shall state that the Underwriter[s] may rely upon them. g. The [Representative/Underwriter] shall have received from the Company a certificate, signed by the president, a senior vice president or a vice president of the Company, dated the Closing Date, to the effect that the signer of such certificate has carefully examined the Registration Statement, the Pooling and Servicing 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 Company in this Agreement, as of the Closing Date, and in the Pooling and Servicing Agreement, the Insurance Agreement, the Indemnification Agreement, the Purchase Agreement and in all related agreements, as of the date specified in such agreements, are true and correct, and the Company 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. except as set forth in the Prospectus, there are no actions, suits or proceedings pending, or to the best of such officer's knowledge, threatened against or affecting the Company which if adversely determined, individually or in the aggregate, would be reasonably likely to adversely affect the Company's obligations under the Pooling and Servicing Agreement, the Insurance Agreement, the Indemnification Agreement, this Agreement or the Purchase Agreement in any material way; and no merger, liquidation, dissolution or bankruptcy of the Company is pending or contemplated; 3. the information contained in the Registration Statement and the Prospectus relating to the Company, the Mortgage Loans or the servicing procedures of it or its affiliates or 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 or 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 Schedule of Mortgage Loans required to be furnished pursuant to the Pooling and Servicing Agreement is true and correct in all material respects; -14- 15 5. there has been no amendment or other document filed affecting the articles of incorporation or bylaws of the Company since ________, ____, and no such amendment has been authorized. No event has occurred since ________, ____, which has affected the good standing of the Company under the laws of the State of Nevada; 6. there has not occurred any material adverse change or, except as set forth in the Prospectus, any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole, from _________, ___. 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, if any, accorded the Company or in any rating accorded any securities of the Company, if any, by any "nationally recognized statistical rating organization," as such term is defined for purposes of the 1933 Act; and 8. each person who, as an officer or [Representative/Underwriter] of the Company, signed or signs the Registration Statement, the Pooling and Servicing Agreement, the Insurance Agreement, the Indemnification Agreement, this 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 Pooling and Servicing Agreement, the Insurance Agreement, the Indemnification Agreement, the Purchase 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/Underwriter], and the signatures of such persons appearing on such documents are their genuine signatures. The Company 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. h. The [Representative/Underwriter] shall have received a favorable opinion of counsel to the Trustee, dated the Closing Date and in form and substance satisfactory to the [Representative/Underwriter], to the effect that: 1. the Trustee is a national banking association duly organized, validly existing and in good standing under the laws of the United States and has the power and authority to enter into and to take all actions required of it under the Pooling and Servicing Agreement; -15- 16 2. the Pooling and Servicing Agreement has been duly authorized, executed and delivered by the Trustee and the Pooling and Servicing Agreement constitutes the legal, valid and binding obligation of the Trustee, enforceable against the Trustee in accordance with its terms, except as enforceability thereof may be limited by (A) bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally, as such laws would apply in the event of a bankruptcy, insolvency or reorganization or similar occurrence affecting the Trustee, and (B) general principles of equity regardless of whether such enforcement is sought in a proceeding at law or in equity; 3. no consent, approval, authorization or other action by any governmental agency or body or other tribunal is required on the part of the Trustee in connection with its execution and delivery of the Pooling and Servicing Agreement or the performance of its obligations thereunder; 4. the Offered [Securities] have been duly executed, authenticated and delivered by the Trustee; and 5. the execution and delivery of, and performance by the Trustee of its obligations under, the Pooling and Servicing Agreement do not conflict with or result in a violation of any statute or regulation applicable to the Trustee, or the charter or bylaws of the Trustee, or to the best knowledge of such counsel, any governmental authority having jurisdiction over the Trustee or the terms of any indenture or other agreement or instrument to which the Trustee is a party or by which it is bound. In rendering such opinion, such counsel may rely, as to matters of fact, on certificates of responsible officers of the Company, the 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 Trustee. i. The [Representative/Underwriter] shall have received from the Trustee a certificate, signed by the President, a senior vice president or a vice president of the Trustee, dated the Closing Date, to the effect that each person who, as an officer or [Representative/Underwriter] of the Trustee, signed or signs the Offered [Securities], the Pooling and Servicing Agreement or any other document delivered pursuant hereto, on the date hereof or on the Closing Date, in connection with the transactions described in the Pooling 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/Underwriter], and the signatures of such persons appearing on such documents are their genuine signatures. j. The Policy relating to the Offered [Securities] 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. -16- 17 k. The [Representative/Underwriter] shall have received a favorable opinion of in-house counsel to the Insurer, dated the Closing Date and in form and substance satisfactory to counsel for the Underwriter[s], to the effect that: 1. The Insurer is a stock insurance corporation, duly incorporated and validly existing under the laws of the State of [State]. The Insurer is validly licensed and authorized to issue the Policy and perform its obligations under the Policy in accordance with the terms thereof. 2. The execution and delivery by the Insurer of the Policy, 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 Policy has been duly executed and is the valid and binding obligation of the Insurer enforceable in accordance with its terms except that the enforcement of the Policy 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 (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law). 3. The Insurer is authorized to deliver the Indemnification Agreement and the Insurance Agreement and such agreements have been duly executed and delivered and constitute the legal, valid and binding obligations of the Insurer enforceable in accordance with its 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, in the case of the Indemnification Agreement, subject to principles of public policy limiting the right to enforce the indemnification provisions contained therein insofar as such provisions relate to indemnification for liabilities arising under securities laws. 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 Policy; to the extent required by applicable legal requirements that would adversely affect validity or enforceability of the Policy, the Policy form has been filed with, and approved by, all governmental authorities having jurisdiction over the Insurer in connection with the Policy. 5. The execution and delivery of the Insurance Agreement, the Indemnification Agreement and the Policy, and the compliance with the terms and provisions thereof, will not conflict with, result in breach of or constitute a default under any of the terms, provisions or conditions of the Charter or By-Laws of the Insurer. The execution, delivery and performance by the Insurer of its obligations under the policy do not, to the extent that either of the following would affect the validity or enforceability of the Policy, (a) contravene any law or government -17- 18 regulation or order presently binding on the Insurer or (b) contravene any provision of or constitute a default under any indenture, contract or other instrument to which the Insurer is a party or by which the Insurer is bound. 6. The Policy is not required to be registered under the Securities Act. 7. The information set forth under the caption "THE CERTIFICATE INSURANCE POLICY" and "THE CERTIFICATE INSURER" in the Prospectus forming a part of the Registration Statement, insofar as such statements constitute a description of the Policy, accurately summarizes the Policy. In rendering this opinion, such counsel may rely, as to matters of fact, on certificates of responsible officers of the Company, the Trustee, 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. l. 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 Insurer's claims paying ability by any "nationally recognized statistical rating organization," as such term is defined for purposes of the 1933 Act. 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 Company or in any rating accorded any securities of the Company, if any, by any "nationally recognized statistical rating organization," as such term is defined for purposes of the 1933 Act. n. 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 [________, ____], of (A) the Company and its subsidiaries or (B) the Insurer, that is in the [Representative/Underwriter]'s judgment material and adverse and that makes it in the [Representative/Underwriter]'s judgment impracticable to market the Offered [Securities] on the terms and in the manner contemplated in the Prospectus. o. The [Representative/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 Policy, 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. There are no actions, suits, proceedings or investigations pending or, to the best of Insurer's knowledge, threatened against it at law or at equity or before or by any court, governmental agency, board or commission or any arbitrator which, if adversely determined, would materially and adversely affect the Insurer's condition (financial or otherwise) or operations or which -18- 19 would materially and adversely effect its ability to perform its obligations under the Policy, the Insurance Agreement, or the Indemnification Agreement; 2. The information contained in the Prospectus under the captions "THE CERTIFICATE INSURANCE POLICY" and "THE CERTIFICATE INSURER" (the "Certificate Insurer Information") is limited and does not purport to provide the scope of disclosure required to be included in a prospectus for a registrant under the Securities Act of 1933, as amended, in connection with the public offer and sale of securities of such registrant. Within such limited scope of disclosure, the Certificate Insurer Information does not contain any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; 3. The tables regarding the Insurer's capitalization set forth under the heading "THE CERTIFICATE INSURER" in the Prospectus present fairly the capitalization of the Insurer as of [________, ____]; 4. The consolidated financial statements of the Insurer as of [________, ____] and [_________, ____] and for each of the three years ended [________, ____] incorporated by reference in the Prospectus Supplement (the "Certificate Insurer Audited Financial Statements"), fairly present in all material respects the financial condition of the Insurer as of such date and for the period covered by such statements in accordance with generally accepted accounting principles consistently applied. The consolidated financial statements of the Insurer and its subsidiaries for the nine months ended [________, ____] and for the periods ending [________, ____] and [_________, ____] include in the Quarterly Report on Form 10-Q of the Insurer for the period ending [________, ____] incorporated by reference into the Prospectus Supplement (the "(Certificate Insurer Unaudited Financial Statements") present fairly in all material respects the financial condition of the Insurer as of such date and for the period covered by such statements in accordance with generally accepted accounting principles applied in a manner consistent with the accounting principles used in preparing the Insurer Audited Statements and since [________, ____] there has been no material change in such financial condition of the Insurer which would materially and adversely affect its ability to perform its obligations under the Policy. 5. The execution and delivery of the Insurance Agreement, the Indemnification Agreement and the Policy 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 of By-Laws of the Insurer, or any agreement indenture or other instrument to which the Insurer is a party. 6. The issuance of the Policy and the execution, delivery and performance of the Indemnification Agreement and the Insurance Agreement have been duly authorized by all necessary corporate proceedings. No further -19- 20 approvals or filings of any kind, including, without limitation, any further approvals of or further filing with any governmental agency or other governmental authority, or any approval of the Insurer's board of directors or stockholders, are necessary for the Policy, the Indemnification Agreement and the Insurance Agreement to constitute the legal, valid and binding obligations of the Insurer. 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. p. The [Representative/Underwriter] shall have received from Dewey Ballantine LLP, special counsel to the Company, a survey in form and substance satisfactory to the [Representative/Underwriter], indicating the requirements of applicable local law which must be complied with in order to transfer and service the Mortgage Loans pursuant to the Pooling and Servicing Agreement and the Company shall have complied with all such requirements. q. The [Representative/Underwriter] shall have received from [Counsel], special counsel to the Underwriter[s], such opinion or opinions, dated the Closing Date, with respect to the issuance and sale of the Offered [Securities], the Prospectus and such other related matters as the [Representative/Underwriter] shall reasonably require. r. The [Representative/Underwriter] and counsel for the Underwriter[s] shall have received copies of any opinions of counsel to the Company supplied to the Trustee relating to matters with respect to the Certificates. Any such opinions shall be dated the Closing Date and addressed to the Underwriter[s] or accompanied by reliance letters to the Underwriter[s] or shall state the Underwriter[s] may rely thereon. s. The [Representative/Underwriter] shall have received such further information, certificates and documents as the [Representative/Underwriter] may reasonably have requested not fewer than three (3) full business days prior to the Closing Date. t. There shall have been executed and delivered by Advanta Mortgage Holding Company, the corporate parent of the Company ("AMHC"), a letter agreement with the Trustee and the Insurer, pursuant to which AMHC agrees to become jointly and severally liable with the Company and Advanta Mortgage Corp. USA for the payment of the Joint and Several Obligations (as defined in such letter agreement). u. There shall have been executed and delivered by AMHC, the corporate parent of the Company, a letter agreement with the Underwriter[s] and the Insurer substantially in the form of Exhibit A hereto, pursuant to which AMHC agrees to become jointly and severally liable with the Company and Advanta Mortgage Corp. USA for the payment of the Joint and Several Obligations (as defined in such letter agreement). v. Prior to the Closing Date, counsel for the Underwriter[s] shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling them to pass upon the issuance and sale of the Offered [Securities] as herein contemplated and related proceedings or in order to evidence the accuracy and completeness of -20- 21 any of the representations and warranties, or the fulfillment of any of the conditions, herein contained, and all proceedings taken by the Company in connection with the issuance and sale of the Offered [Securities] as herein contemplated shall be satisfactory in form and substance to the [Representative/Underwriter] and counsel for the Underwriter[s]. w. Subsequent to the execution and delivery of this Agreement none of the following shall have occurred: (i) trading in securities generally on the New York Stock Exchange, the American Stock Exchange or the over-the-counter market shall have been suspended or minimum prices shall have been established on either of such exchanges or such market by the Commission, by such exchange or by any other regulatory body or governmental authority having jurisdiction; (ii) a banking moratorium shall have been declared by Federal or state authorities; (iii) the United States shall have become engaged in hostilities, there shall have been an escalation of hostilities involving the United States or there shall have been a declaration of a national emergency or war by the United States; or (iv) there shall have occurred such a material adverse change in general economic, political or financial conditions (or the effect of international conditions on the financial markets of the United States shall be such) as to make it, in the judgment of the [Representative/Underwriter], impractical or inadvisable to proceed with the public offering or delivery of the Offered [Securities] on the terms and in the manner contemplated in the Prospectus. x. The Offered [Securities] shall have received the ratings set forth on Schedule A hereto. If any condition specified in this Section 6 shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the [Representative/Underwriter] by notice to the Company at any time at or prior to the Closing Date, and such termination shall be without liability of any party to any other party except as provided in Section 7. All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Underwriter[s]. Section 7. Payment of Expenses. The Company agrees to pay: (a) the costs incident to the authorization, issuance, sale and delivery of the Offered [Securities] and any taxes payable in connection therewith; (b) the costs incident to the preparation, printing and filing under the Securities Act of the Registration Statement and any amendments and exhibits thereto; (c) the costs of distributing the Registration Statement as originally filed and each amendment thereto and any post-effective amendments thereof (including, in each case, exhibits), the Preliminary Prospectus, the Prospectus and any amendment or supplement to the Prospectus or any document incorporated by reference therein, all as provided in this Agreement; (d) the fees and expenses of qualifying the Offered [Securities] under the securities laws of the several jurisdictions as provided in Section 5(g) hereof and of preparing, printing and distributing a Blue Sky Memorandum and a Legal Investment Survey (including related fees and expenses of counsel to the Underwriter[s]); (e) any fees charged by securities rating services for rating the Offered [Securities]; (f) the costs and -21- 22 expenses of Dewey Ballantine LLP, counsel to the Company; and (g) all other costs and expenses incident to the performance of the obligations of the Company; provided that, except as provided in this Section 7, the Underwriter[s] shall pay their own costs and expenses, including the costs and expenses of [Counsel], any transfer taxes on the Offered [Securities] which they may sell and the expenses of advertising any offering of the Offered [Securities] made by the Underwriter[s]. If this Agreement is terminated by the [Representative/Underwriter], in accordance with the provisions of Section 6 or Section 10, the Company shall reimburse the Underwriter[s] for their respective reasonable out-of-pocket expenses, including fees and disbursements of [Counsel], counsel for the Underwriter[s]. Section 8. Indemnification and Contribution. a. The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Securities Act from and against any and all loss, claim, damage or liability, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to purchases and sales of the Offered [Securities]), to which such Underwriter or any such controlling person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (iii) any untrue statement or alleged untrue statement of a material fact contained in the Prospectus or (iv) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and shall reimburse such Underwriter and each such controlling person promptly upon demand for any legal or other expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Prospectus or the Registration Statement in reliance upon and in conformity with written information (including any Derived Information) furnished to the Company through the [Representative/Underwriter] specifically for inclusion therein; and provided, further, that as to any Preliminary Prospectus this indemnity shall not inure to the benefit of any Underwriter or any controlling person on account of any loss, claim, damage, liability or action arising from the sale of the Offered [Securities] to any person by such Underwriter if such Underwriter failed to send or give a copy of the Prospectus, as amended or supplemented, to that person within the time required by the Securities Act, and the untrue statement or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact in the Preliminary Prospectus was corrected in the Prospectus, unless such failure resulted from non-compliance by the Company with Section 5(c). For purposes of the last proviso to the immediately preceding sentence, the term "Prospectus" shall not be deemed to include the documents incorporated therein by reference, and none of the Underwriter[s] shall be obligated to send or give any -22- 23 supplement or amendment to any document incorporated therein by reference to any person other than a person to whom such Underwriter had delivered such incorporated document or documents in response to a written request therefor. The foregoing indemnity agreement is in addition to any liability which the Company may otherwise have to any Underwriter[s] or any controlling person of such Underwriter. b. [The/Each] Underwriter agrees [severally, and not jointly] to indemnify and hold harmless the Company, each of its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act against any and all loss, claim, damage or liability, or any action in respect thereof, to which the Company or any such director, officer or controlling person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (iii) any untrue statement or alleged untrue statement of a material fact contained in the Prospectus or (iv) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by or on behalf of [the/such] Underwriter specifically for inclusion therein, and shall reimburse the Company and any such director, officer or controlling person for any legal or other expenses reasonably incurred by the Company or any director, officer or controlling person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred. The foregoing indemnity agreement is in addition to any liability which [the/any] Underwriter may otherwise have to the Company or any such director, officer or controlling person. c. Promptly after receipt by any indemnified party under this Section 8 of notice of any claim or the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against any indemnifying party under this Section 8, notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify an indemnifying party shall not relieve it from any liability which it may have under this Section 8 except to the extent it has been materially prejudiced by such failure, and provided, further, that the failure to notify any indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under this Section 8. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 8 for any legal or other expenses subsequently incurred by -23- 24 the indemnified party in connection with the defense thereof other than reasonable costs of investigation. Any indemnified party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless: (i) the employment thereof has been specifically authorized by the indemnifying party in writing; (ii) such indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party and in the reasonable judgment of such counsel it is advisable for such indemnified party to employ separate counsel; or (iii) the indemnifying party has failed to assume the defense of such action and employ counsel reasonably satisfactory to the indemnified party, in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party, it being understood, however, the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to local counsel) at any time for all such indemnified parties, which firm shall be designated in writing by the Underwriter[s], if the indemnified parties under this Section 8 consist of the Underwriter[s] or any of their controlling persons, or by the Company, if the indemnified parties under this Section 8 consist of the Company or any of the Company's directors, officers or controlling persons. Each indemnified party, as a condition of the indemnity agreements contained in Section 8(a) and (b), shall use its best efforts to cooperate with the indemnifying party in the defense of any such action or claim. No indemnifying party shall be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or 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, 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. d. [The/Each] Underwriter agrees to deliver to the Company no later than the date on which the Preliminary Prospectus Supplement and the Prospectus Supplement is required to be filed pursuant to Rule 424 with a copy of its Derived Information (defined below) for filing with the Commission on Form 8-K. e. [The/Each] Underwriter agrees, assuming all Company-Provided Information (defined below) is accurate and complete in all material respects, to severally and not jointly -24- 25 indemnify and hold harmless the Company, each of the Company's officers and directors and each person who controls the Company 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 Derived Information provided by such Underwriter, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, 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 [each of] the Underwriter[s] under this Section 8(e) shall be in addition to any liability which such Underwriter may otherwise have. The procedures set forth in Section 8(c) shall be equally applicable to this Section 8(e). f. For purposes of this Section 8, the term "Derived Information" means such portion, if any, of the information delivered to the Company pursuant to Section 8(d) for filing with the Commission on Form 8-K as: (i) is not contained in the Prospectus without taking into account information incorporated therein by reference; (ii) does not constitute Company-Provided Information; and (iii) is of the type of information defined as Collateral term sheets, Structural term sheets or Computational Materials (as such terms are interpreted in the No-Action Letters). "Company-Provided Information" means any computer tape furnished to the Underwriter[s] by the Company concerning the Mortgage Loans comprising all or a portion of the Trust Estate. The terms "Collateral term sheet" and "Structural term sheet" shall have the respective meanings assigned to them in the February 13, 1995 letter (the "PSA Letter") of Cleary, Gottlieb, Steen & Hamilton on behalf of the Public Securities Association (which letter, and the SEC staff's response thereto, were publicly available February 17, 1995). The term "Collateral term sheet" as used herein includes any subsequent Collateral term sheet that reflects a substantive change in the information presented. The term "Computational Materials" has the meaning assigned to it in the May 17, 1994 letter (the "Kidder letter" and together with the PSA Letter, the "No-Action Letters") of Brown & Wood on behalf of Kidder, Peabody & Co., Inc. (which letter, and the SEC staff's response thereto, were publicly available May 20, 1994). g. If the indemnification provided for in this Section 8 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Section 8(a) or (b) in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, -25- 26 contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriter[s] on the other from the offering of the Offered [Securities] or (ii) if the allocation provided by clause (i) above is not permitted by applicable law or if the indemnified party failed to give the notice required under Section 8(c), in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriter[s] on the other with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits of the Underwriter[s] and the Company shall be deemed to be in such proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions. The relative fault of the Underwriter[s] and the Company shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by one of the Underwriter[s], the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission and other equitable considerations. The Company and the Underwriter[s] agree that it would not be just and equitable if contributions pursuant to this Section 8(g) were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 8(g) shall be deemed to include, for purposes of this Section 8(g), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. h. For purposes of this Section 8, in no case shall [the/any] Underwriter be responsible for any amount in excess of (x) the amount received by [the/such] Underwriter in connection with its resale of the Offered [Securities] over (y) the amount paid by [the/such] Underwriter to the Company for the Offered [Securities] purchased by [the/such] Underwriter hereunder. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. i. The Underwriter[s] [confirms/severally confirm] that the information set forth (i) in the Prospectus Supplement relating to market making and (ii) in the third paragraph under the caption "Underwriting" in the Prospectus Supplement, together with the Derived Information, is correct and constitutes the only information furnished in writing to the Company by or on behalf of the Underwriter[s] specifically for inclusion in the Registration Statement and the Prospectus. Section 9. Representations, Warranties and Agreements to Survive Delivery. -26- 27 All representations, warranties and agreements contained in this Agreement or contained in certificates of officers of the Company submitted pursuant hereto shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of the Underwriter[s] or controlling persons thereof, or by or on behalf of the Company and shall survive delivery of any Offered [Securities] to the Underwriter[s]. Section 10. Termination of Agreement. The [Representative/Underwriter] may terminate this Agreement immediately upon notice to the Company, at any time at or prior to the Closing Date if any of the events or conditions described in Section 6(w) of this Agreement shall occur and be continuing. In the event of any such termination, the covenant set forth in Section 5(g), the provisions of Section 7, the indemnity agreement set forth in Section 8, and the provisions of Sections 8 and 9 shall remain in effect. Section 11. Notices. All statements, requests, notices and agreements hereunder shall be in writing, and: a. if to the Underwriter[s], shall be delivered or sent by mail, telex or facsimile transmission to [Underwriter/Representative], as [Underwriter/Representative of the Underwriters], [Address], Attention: [_________] (fax: (___) ________); b. if to the Company, shall be delivered or sent by mail, telex or facsimile transmission to Advanta Conduit Receivables, Inc. 10790 Rancho Bernardo Road, San Diego, California 92127 Attention: General Counsel (Fax: 619-674-3592). Section 12. Persons Entitled to the Benefit of this Agreement. This Agreement shall inure to the benefit of and be binding upon the Underwriter[s] and the Company, and their respective successors. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except that the representations, warranties, indemnities and agreements contained in this Agreement shall also be deemed to be for the benefit of the person or persons, if any, who control the Underwriter[s] within the meaning of Section 15 of the Securities Act, and for the benefit of directors of the Company, officers of the Company who have signed the Registration Statement and any person controlling the Company within the meaning of Section 15 of the Securities Act. Nothing in this Agreement is intended or shall be construed to give any person, other than the persons referred to in this Section 12, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. Section 13. [Default by One of the Underwriters. If one of the Underwriters shall fail on the Closing Date to purchase the Offered [Securities] which it is obligated to purchase hereunder (the "Defaulted Certificates"), the remaining Underwriter[s] (the "Non-Defaulting Underwriter"), shall have the right, but not the obligation within one (1) Business Day thereafter, to make arrangements to purchase all, but not less than all, of the Defaulted Certificates upon the terms herein set forth; if, however, the Non-Defaulting -27- 28 Underwriter shall not have completed such arrangements within such one (1) Business Day period, then this Agreement shall terminate without liability on the part of the Non-Defaulting Underwriter. No action taken pursuant to this Section 13 shall relieve the defaulting Underwriter from liability in respect of its default. In the event of any such default which does not result in a termination of this Agreement, either the Non-Defaulting Underwriter or the Company shall have the right to postpone the Closing Date for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements.] Section 14. Survival. The respective indemnities, representations, warranties and agreements of the Company and the Underwriter[s] contained in this Agreement, or made by or on behalf of them, respectively, pursuant to this Agreement, shall survive the delivery of and payment for the Certificates and shall remain in full force and effect, regardless of any investigation made by or on behalf of any of them or any person controlling any of them. Section 15. Definition of the Term "Business Day". For purposes of this Agreement, "Business Day" means any day on which the New York Stock Exchange, Inc. is open for trading. Section 16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND SHALL BE CONSTRUED IN ACCORDANCE WITH SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME. Section 17. Counterparts. This Agreement may be executed in counterparts and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original but all such counterparts shall together constitute one and the same instrument. Section 18. Headings. The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement. Section 19. [Representations of Underwriters. The Representative will act for the several Underwriters in connection with the transactions contemplated by this Agreement, and any action under this Agreement taken by the Representative will be binding upon all of the Underwriters.] -28- 29 If the foregoing correctly sets forth the agreement between the Company and the Underwriter[s], please indicate your acceptance in the space provided for that purpose below. Very truly yours, ADVANTA CONDUIT RECEIVABLES, INC. By: ____________________________ Name: Title: CONFIRMED AND ACCEPTED, as of the date first above written: [UNDERWRITER/REPRESENTATIVE], as [Representative/Underwriter of the Underwriter[s]] By: ______________________________ Name: Title: -29- 30
- ------------------------------------------------------------------------------------------------------------- SCHEDULE A - ------------------------------------------------------------------------------------------------------------- INITIAL PRINCIPAL AMOUNT OF OFFERED PURCHASE PRICE TO [SECURITIES] UNDERWRITER[S] REQUIRED RATINGS PURCHASED BY DISREGARDING CLASS [RATING AGENCIES] UNDERWRITER[S] COUPON ACCRUED INTEREST - ------------------------------------------------------------------------------------------------------------- [First Class] $____________ [Fixed/ __________%(1) Variable] - ------------------------------------------------------------------------------------------------------------- [Second Class] $____________ [Fixed/ __________%(1) Variable] - -------------------------------------------------------------------------------------------------------------
- ----------------- (1) Such amount does not include the accrued interest from ____________, _____. - 1 - 31 SCHEDULE I [List of Underwriters] - 2 - 32 [_____________, _____] ADVANTA MORTGAGE HOLDING COMPANY GUARANTY [Underwriter/[Representative] As Representative of the Underwriters named in Schedule I] [Underwriter's/Representative's Address] [Insurer] [Insurer's Address] Re: Underwriting Agreement dated [___________, _____] (the "Underwriting Agreement") between Advanta Conduit Receivables, Inc. ("Advanta") and [[Underwriter] (the "Underwriter"/[Representative], as representative of the Underwriters (the "Representative")] and the Indemnification Agreement dated as of [___________, _____] (the "Indemnification Agreement") among [Insurer] (the "Insurer"), Advanta and [Underwriter/Representative] ---------------------------------------------------- Ladies and Gentlemen: Pursuant to the Underwriting Agreement and the Indemnification Agreement (together, the "Designated Agreements"), Advanta has undertaken certain financial obligations with respect to the indemnification of the Underwriter[s] and the Insurer with respect to the Registration Statement, the Prospectus and the Prospectus Supplement described in the Designated Agreements. Any financial obligations of Advanta under the Designated Agreements, whether or not specifically enumerated in this paragraph, are hereinafter referred to as the "Joint and Several Obligations"; provided, however, the "Joint and Several Obligations" shall mean only the financial obligations of Advanta under the Designated Agreements (including the payment of money damages for a breach of any of Advanta's obligations under the Designated Agreement, whether financial or otherwise) but shall not include any obligations not relating to the payment of money. As a condition of their respective executions of the Underwriting Agreement and of the Indemnification Agreement, the Underwriter[s] and the Insurer have required the undersigned, Advanta Mortgage Holding Company ("AMHC"), the parent corporation of Advanta, to acknowledge its joint-and-several liability with Advanta for the payment of the Joint and Several Obligations under the Designated Agreements. Now, therefore, the Underwriter[s], the Insurer and AMHC do hereby agree that: 33 (i) AMHC hereby agrees to be absolutely and unconditionally jointly and severally liable with Advanta to the Underwriter[s] for the payment of the Joint and Several Obligations under the Underwriting Agreement. (ii) AMHC hereby agrees to be absolutely and unconditionally jointly and severally liable with Advanta to the Insurer for the payment of the Joint and Several Obligations under the Indemnification Agreement. (iii) AMHC may honor its obligations hereunder either by direct payment of any Joint and Several Obligations or by causing any Joint and Several Obligations to be paid to the Underwriters and to the Insurer by Advanta or another affiliate of AMHC. Capitalized terms used herein and not defined herein shall have their respective meanings set forth in the Agreement. 2 34 Very truly yours, ADVANTA MORTGAGE HOLDING COMPANY By: ______________________________ Name: [Officer] Title: [Officer's Title] [UNDERWRITER/REPRESENTATIVE, as Representative of the Underwriters] By: _____________________________ Name: Title: [INSURER] By: _____________________________ Name: Title: AMHC Guaranty to the Underwriter[s] 3 EX-4.1 3 FORM OF POOLING AND SERVICING AGREEMENT 1 Exhibit 4.1 POOLING AND SERVICING AGREEMENT Relating to [TRUST] Among ADVANTA CONDUIT RECEIVABLES, INC., as Sponsor, ADVANTA MORTGAGE CORP. USA, as Master Servicer, and [TRUSTEE] as Trustee Dated as of [________, ____] 2 TABLE OF CONTENTS (Not a Part of this Agreement)
Page Parties..................................................................................................1 Recitals.................................................................................................1 ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION.............................................................6 Section 1.1. Definitions.........................................................................6 Section 1.2. Use of Words and Phrases...........................................................36 Section 1.3. Captions; Table of Contents........................................................36 Section 1.4. Opinions...........................................................................36 ARTICLE II ESTABLISHMENT AND ORGANIZATION OF THE TRUST..................................................37 Section 2.1. Establishment of the Trust.........................................................37 Section 2.2. Office.............................................................................37 Section 2.3. Purposes and Powers................................................................37 Section 2.4. Appointment of the Trustee; Declaration of Trust...................................37 Section 2.5. Expenses of the Trust..............................................................37 Section 2.6. Ownership of the Trust.............................................................37 Section 2.7. Situs of the Trust.................................................................38 Section 2.8. [Miscellaneous REMIC Provisions.]..................................................38 ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SPONSOR AND THE MASTER SERVICER; COVENANT OF SPONSOR TO CONVEY MORTGAGE LOANS.......................................41 Section 3.1. Representations and Warranties of the Sponsor......................................41 Section 3.2. Representations and Warranties of the Master Servicer..............................43 Section 3.3. Representations and Warranties of the Sponsor with Respect to the Mortgage Loans...........................................................................45 Section 3.4. Covenants of Sponsor to Take Certain Actions with Respect to the Mortgage Loans In Certain Situations.....................................................47 Section 3.5. Conveyance of the Mortgage Loans...................................................48 Section 3.6. Acceptance by Trustee; Certain Substitutions of Mortgage Loans; Certification by Trustee........................................................50 Section 3.7. Cooperation Procedures.............................................................51 Section 3.8. Conveyance of the Subsequent Mortgage Loans........................................52 ARTICLE IV ISSUANCE AND SALE OF CERTIFICATES............................................................54 Section 4.1. Issuance of Certificates...........................................................54 Section 4.2. Sale of Certificates...............................................................54 ARTICLE V CERTIFICATES AND TRANSFER OF INTERESTS........................................................55 Section 5.1. Terms..............................................................................55 Section 5.2. Forms..............................................................................55 Section 5.3. Execution, Authentication and Delivery.............................................56 Section 5.4. Registration and Transfer of Certificates..........................................56 Section 5.5. Mutilated, Destroyed, Lost or Stolen Certificates..................................58 Section 5.6. Persons Deemed Owners..............................................................58 Section 5.7. Cancellation.......................................................................59 Section 5.8. Limitation on Transfer of Ownership Rights.........................................59 Section 5.9. Assignment of Rights...............................................................60
3 ARTICLE VI COVENANTS ...................................................................................60 Section 6.1. Distributions......................................................................60 Section 6.2. Money for Distributions to be Held in Trust; Withholding...........................60 Section 6.3. Protection of Trust Estate.........................................................61 Section 6.4. Performance of Obligations.........................................................61 Section 6.5. Negative Covenants.................................................................62 Section 6.6. No Other Powers....................................................................62 Section 6.7. Limitation of Suits................................................................62 Section 6.8. Unconditional Rights of Owners to Receive Distributions............................63 Section 6.9. Rights and Remedies Cumulative.....................................................63 Section 6.10. Delay or Omission Not Waiver.......................................................63 Section 6.11. Control by Owners..................................................................63 ARTICLE VII ACCOUNTS, DISBURSEMENTS AND RELEASES........................................................64 Section 7.1. Collection of Money................................................................64 Section 7.2. Establishment of Accounts..........................................................64 Section 7.3. The Certificate Insurance Policy...................................................64 Section 7.4. Pre-Funding Account and Capitalized Interest Account...............................66 Section 7.5. Flow of Funds......................................................................67 Section 7.6. Investment of Accounts.............................................................70 Section 7.7. Eligible Investments...............................................................71 Section 7.8. Reports by Trustee.................................................................72 Section 7.9. Additional Reports by Trustee......................................................75 Section 7.10. Supplemental Interest Payment Account and Supplemental Interest Payments...........75 ARTICLE VIII SERVICING AND ADMINISTRATION OF MORTGAGE LOANS.............................................76 Section 8.1. Master Servicer and Sub-Servicers..................................................76 Section 8.2. Collection of Certain Mortgage Loan Payments.......................................79 Section 8.3. Sub-Servicing Agreements Between Master Servicer and Sub-Servicers.................79 Section 8.4. Successor Sub-Servicers............................................................79 Section 8.5. Liability of Master Servicer.......................................................79 Section 8.6. No Contractual Relationship Between Sub-Servicer and Trustee or the Owners.........79 Section 8.7. Assumption or Termination of Sub-Servicing Agreement by Trustee....................80 Section 8.8. Principal and Interest Account.....................................................80 Section 8.9. Delinquency Advances, Compensating Interest and Servicing Advances.................82 Section 8.10. Purchase of Mortgage Loans.........................................................83 Section 8.11. Maintenance of Insurance...........................................................83 Section 8.12. Due-on-Sale Clauses; Assumption and Substitution Agreements........................84 Section 8.13. Realization Upon Defaulted Mortgage Loans..........................................85 Section 8.14. Trustee to Cooperate; Release of Files.............................................86 Section 8.15. Servicing Compensation.............................................................87 Section 8.16. Annual Statement as to Compliance..................................................88 Section 8.17. Annual Independent Certified Public Accountants' Reports...........................88 Section 8.18. Access to Certain Documentation and Information Regarding the Mortgage Loans...........................................................................88 Section 8.19. Assignment of Agreement............................................................88 Section 8.20. Removal of Master Servicer; Resignation of Master Servicer.........................89 Section 8.21. Inspections by the Certificate Insurer and the Trustee; Errors and Omissions Insurance.............................................................93
3 4 Section 8.22. Merger, Conversion, Consolidation or Succession to Business of Master Servicer........................................................................93 Section 8.23. Notices of Material Events.........................................................93 ARTICLE IX TERMINATION OF TRUST.........................................................................94 Section 9.1. Termination of Trust...............................................................94 Section 9.2. Clean-Up Call Termination..........................................................94 Section 9.3. Termination Upon Loss of REMIC Status..............................................95 Section 9.4. Disposition of Proceeds............................................................96 Section 9.5. Netting of Amounts.................................................................97 ARTICLE X THE TRUSTEE...................................................................................97 Section 10.1. Certain Duties and Responsibilities................................................97 Section 10.2. Removal of Trustee for Cause.......................................................98 Section 10.3. Certain Rights of the Trustee......................................................99 Section 10.4. Not Responsible for Recitals or Issuance of Certificates..........................100 Section 10.5. May Hold Certificates.............................................................100 Section 10.6. Money Held in Trust...............................................................100 Section 10.7. No Lien for Fees..................................................................100 Section 10.8. Corporate Trustee Required; Eligibility...........................................100 Section 10.9. Resignation and Removal; Appointment of Successor.................................101 Section 10.10. Acceptance of Appointment by Successor Trustee....................................102 Section 10.11. Merger, Conversion, Consolidation or Succession to Business of the Trustee........103 Section 10.12. Reporting; Withholding............................................................103 Section 10.13. Liability of the Trustee..........................................................103 Section 10.14. Appointment of Co-Trustee or Separate Trustee.....................................104 ARTICLE XI MISCELLANEOUS...............................................................................105 Section 11.1. Compliance Certificates and Opinions..............................................105 Section 11.2. Form of Documents Delivered to the Trustee........................................105 Section 11.3. Acts of Owners....................................................................106 Section 11.4. Notices, etc., to Trustee.........................................................106 Section 11.5. Notices and Reports to Owners; Waiver of Notices..................................107 Section 11.6. Rules by Trustee and Sponsor......................................................107 Section 11.7. Successors and Assigns............................................................107 Section 11.8. Severability......................................................................107 Section 11.9. Benefits of Agreement.............................................................107 Section 11.10. Legal Holidays....................................................................107 Section 11.11. Governing Law.....................................................................108 Section 11.12. Counterparts......................................................................108 Section 11.13. Usury.............................................................................108 Section 11.14. Amendment.........................................................................108 Section 11.15. REMIC Status; Taxes...............................................................109 Section 11.16. Additional Limitation on Action and Imposition of Tax.............................111 Section 11.17. Appointment of Tax Matters Person.................................................112 Section 11.18. The Certificate Insurer...........................................................112 Section 11.19. Maintenance of Records............................................................112 Section 11.20. Notices...........................................................................112 SCHEDULE I -- Schedules of Mortgage Loans EXHIBIT A -- Form of Certificates EXHIBIT B -- Contents of Mortgage Loan File EXHIBIT C -- Form of Certificate Re: Mortgage Loans Prepaid in Full After the Cut-Off Date
4 5 EXHIBIT D -- Form of Trustee's Acknowledgement of Receipt EXHIBIT E -- Form of Certification EXHIBIT F -- Form of Delivery Order EXHIBIT G -- Form of [Residual Class] Tax Matters Transfer Certificate EXHIBIT H -- Power of Attorney EXHIBIT I -- Form of Monthly Report EXHIBIT J -- Form of Master Servicer's Trust Receipt EXHIBIT K -- Form of Subsequent Transfer Agreement EXHIBIT L -- Form of Lost Note Affidavit
5 6 POOLING AND SERVICING AGREEMENT, relating to [TRUST], dated as of [________, ____], by and among ADVANTA CONDUIT RECEIVABLES, INC., a Nevada corporation, in its capacity as Sponsor of the Trust (the "Sponsor"), ADVANTA MORTGAGE CORP. USA, a Delaware corporation, in its capacity as master servicer (the "Master Servicer"), and [TRUSTEE], a [type of organization], in its capacity as trustee (the "Trustee"). WHEREAS, the Sponsor wishes to establish a trust, and to provide for the allocation and sale of the beneficial interests therein and the maintenance and distribution of the trust estate; WHEREAS, the Master Servicer has agreed to service the Mortgage Loans, which constitute the principal assets of the trust estate; WHEREAS, all things necessary to make the Certificates, when executed and authenticated by the Trustee valid instruments, and to make this Agreement a valid agreement, in accordance with their and its terms, have been done; WHEREAS,[Trustee] is willing to serve in the capacity of Trustee hereunder; and WHEREAS, [Certificate Insurer] (the "Certificate 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 Sponsor, the Master Servicer and the 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: "Accepted Servicing Practices": The Master Servicer's normal servicing practices in servicing and administering mortgage loans for its own account, which in general will conform to the mortgage servicing practices of prudent mortgage lending institutions which service for their own account mortgage loans of the same type as the Mortgage Loans in the jurisdictions in which the related Properties are located and will give due consideration to the Certificateholders' reliance on the Master Servicer. "Account": Any account established in accordance with Sections 7.2, 7.4, 7.10 or 8.8 hereof each of which shall be established at a Designated Depository Institution. "Accrual Period": On any Payment Date, (x) with respect to the Group I Certificates, the immediately preceding calendar month and (y) with respect to the Group II Certificates, the period commencing on the immediately preceding Payment Date (or the Startup 6 7 Day in the case of the first Payment Date) to and including the day prior to the current Payment Date. Calculations of interest on the Group I Certificates will be made on the basis of a 360-day year consisting of twelve thirty-day months and calculations of interest on the Group II Certificates will be made on the basis of the actual number of days elapsed in the related Accrual Period in a year of 360 days. "Addition Notice": With respect to the transfer of Subsequent Mortgage Loans to the Trust pursuant to Section 3.8(b) of this Agreement, notice, which shall be given not later than two Business Days prior to the related Subsequent Transfer Date, of the Sponsor's designation of Subsequent Mortgage Loans to be sold to the Trust, such notice shall include the approximate aggregate Loan Balance and the approximate weighted average Coupon Rate of such Subsequent Mortgage Loans. "Advanta Mortgage Files": For any Mortgage Loan identified on the related Schedule of Mortgage Loans with an "A" code, the items listed below: (a) the original Note, or , if such Note is lost, a certified copy thereof along with a Lost Note Affidavit in the form of Exhibit L hereto, bearing all intervening endorsements, endorsed either (i) "Pay to the order of [Trustee], as custodian or trustee under the applicable custody or trust agreement, without recourse" or (ii) "Pay to the order of [Trustee], as custodian or trustee under the applicable custody or trust agreement, without recourse, Advanta Mortgage Corp. USA as Master Servicer," or (iii) "Pay to the order of [Trustee], as custodian or trustee" by [Seller, signature, name, title] and signed in the name of the previous owner by an authorized officer (in the event that the Mortgage Loan was acquired by the previous owner in a merger the signature must be in the following form: "[the previous owner], successor by merger to [name of predecessor]", in the event that the Mortgage Loan was acquired or originated while doing business under another name, the signature must be in the following form: "[the previous owner], formerly known as [previous name]" or (iv) "Pay to the order of [Trustee], without recourse". The original Note should be accompanied by any rider made in connection with the origination of the related Mortgage Loan; (b) the original of any guarantee executed in connection with the Note (if any); (c) the original Mortgage with evidence of recording thereon or copies certified by the related recording office or, if the original Mortgage has not yet been returned from the recording office, a certified copy of the Mortgage; (d) the originals of all assumption, modification, consolidation or extension agreements; and (e) the originals of all intervening assignments of Mortgage, showing a complete chain of assignment from origination to the related Seller, 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. "Affiliated Originators": Advanta Mortgage Corp. USA, a Delaware corporation, Advanta Bank Corp., a Utah industrial loan corporation, Advanta Mortgage Corp. Midatlantic, a Pennsylvania corporation, Advanta Mortgage Corp. Midatlantic II, a Pennsylvania corporation, Advanta Mortgage Corp. Midwest, a Pennsylvania corporation, Advanta Mortgage Corp. of New Jersey, a New Jersey corporation, Advanta Mortgage Corp. Northeast, a New York corporation, 7 8 Advanta National Bank, a national banking association, Advanta Finance Corp., a Nevada corporation. "Aggregate Certificate Principal Balance": As of any date of determination thereof, the sum of the then outstanding Certificate Principal Balance of the Class [A] Certificates. "Agreement": This Pooling and Servicing Agreement, as it may be amended from time to time, and including the Exhibits hereto. "AMHC": Advanta Mortgage Holding Company, a Delaware corporation and the corporate parent of Advanta Mortgage Corp. USA, and the indirect corporate parent of Advanta Conduit Receivables, Inc. "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. "ARM Group Available Funds Cap Rate": As of any Payment Date, an amount, expressed as a per annum rate, equal to (a) the sum of (i) the aggregate amount of interest accrued and collected (or advanced) at the Coupon Rates on all of the Mortgage Loans in the Group II Pool for the related Remittance Period minus (ii) the aggregate of the Servicing Fee, the Premium Amount and the Trustee's Fee, in each case relating to the Group II Pool, on such Payment Date, and minus (iii) commencing on the seventh Payment Date following the Startup Day, an amount equal to 0.50% per annum times the aggregate principal balance of the Mortgage Loans in Group II as of the beginning of such related Remittance Period, divided by (b) the aggregate principal balance of the Mortgage Loans in Group II as of the beginning of the related Remittance Period, calculated on the basis of a 360-day year and the actual number of days elapsed. "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 Trustee, the Sponsor and the Master Servicer, initially including those individuals whose names appear on the lists of Authorized Officers delivered on the Startup Day. "Available Funds": Group I Available Funds or Group II Available Funds. "Available Funds Cap Rate": The Fixed Rate Group Available Funds Cap Rate or the ARM Group Available Funds Cap Rate, as applicable. "Available Funds Shortfall": As defined in Section 7.5(b)(D)(1) hereof. "Balance Ratio": As defined in Section 2.8(b) hereof. "Balloon Loan": Any Mortgage Loan which has an amortization schedule which extends beyond its maturity date, resulting in a relatively large unamortized principal balance due in a single payment at maturity. "Benefit Plan Entity": As defined in Section 5.8(b) hereof. 8 9 "Business Day": Any day that is not a Saturday, Sunday or other day on which the Certificate Insurer, the Master Servicer or the Sponsor is closed or commercial banking institutions in the State of New York, the State of California or in the city in which the principal corporate trust office of the Trustee 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 7.2 hereof and maintained by the Trustee. "Certificate": Any one of the Class [A] Certificates and the [Residual Class] Certificates, each representing the interests and the rights described in this Agreement. "Certificate Account": The Certificate Account established in accordance with Section 7.2 hereof and maintained by the Trustee. "Certificate Insurance Policy": The certificate guaranty insurance policy dated [________, ____] issued by the Certificate Insurer to the Trustee for the benefit of the Owners of the Class [A] Certificates. "Certificate Insurer": [Certificate Insurer]. "Certificate Insurer Default": Any one of the following events shall have occurred and be continuing: (a) The Certificate Insurer shall have failed to make a payment required under the Certificate Insurance Policy; (b) The Certificate Insurer shall have (i) filed a petition or commenced any case or proceeding under any provision or chapter of the United States Bankruptcy Code 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 or any other similar Federal or state law relating to insolvency, bankruptcy, rehabilitation, liquidation or reorganization which is final and nonappealable; or (c) A court of competent jurisdiction, the New York Department of Insurance, or other competent regulatory authority shall have entered a final and nonappealable order, judgment or decree (i) appointing a custodian, trustee, agent or receiver for the Certificate 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 Certificate Insurer (or the taking of possession of all or any material portion of the property of the Certificate Insurer). "Certificate Principal Balance": With respect to any Class [A] Certificate as of any date of determination, the Original Certificate Principal Balance less any principal amounts actually distributed on such Class [A] Certificates with respect to the Principal Distribution Amount pursuant to Section 7.5(b)(F) hereof on all prior Payment Dates. As of any Payment Date with respect to the Class [A-1] and the Class [A-2] Certificates, the Class [A-1] Certificate Principal Balance or the Class [A-2] Certificate Principal Balance, respectively, as of such Payment Date. The [Residual Class] Certificates do not have a Certificate Principal Balance. 9 10 "Civil Relief Act": The Soldiers and Sailors' Civil Relief Act of 1940, as amended from time to time. "Civil Relief Act Shortfalls": Interest shortfalls resulting from the application of the Civil Relief Act. "Class": Any Class of the Class [A] Certificates, the Class [B] Certificates or the [Residual Class] Certificates. "Class [A] Certificate": Any one of the Class [A-1] Certificates or the Class [A-2] Certificates. "Class [A] Current Interest": With respect to any Payment Date, the Class [A-1] Current Interest or the Class [A-2] Current Interest. "Class [A] Distribution Amount": The sum of the Class [A-1] Distribution Amount and the Class [A-2] Distribution Amount. "Class [A] Interest Carry Forward Amount": With respect to any Payment Date, the Class [A-1] Interest Carry Forward Amount or the Class [A-2] Interest Carry Forward Amount. "Class [A-1] Certificate": Any one of the Certificates designated on the face thereof as a Class [A-1] Certificate, substantially in the form annexed hereto as Exhibit [A-1], authenticated and delivered by the Trustee, representing the right to distributions as set forth herein. "Class [A-1] Certificate Principal Balance": As of any date of determination, the Original Certificate Principal Balance of all Class [A-1] Certificates less any principal amounts actually distributed with respect to the Class [A-1] Certificates pursuant to Section 7.5(b)(F) hereof on all prior Payment Dates. "Class [A-1] Certificate Termination Date": The Payment Date on which the Class [A-1] Certificate Principal Balance is reduced to zero. "Class [A-1] Current Interest": With respect to any Payment Date, the amount of interest accrued on the Class [A-1] Certificate Principal Balance immediately prior to such Payment Date during the related Accrual Period at the Class [A-1] Pass-Through Rate; provided, that such amount will be reduced by the Class [A-1] Certificates' pro rata share of any Civil Relief Act Shortfalls relating to Group I during the related Remittance Period. "Class [A-1] Distribution Amount": With respect to any Payment Date, the sum of (x) the Class [A-1] Current Interest, (y) the Class [A-1] Interest Carry Forward Amount, if any, and (z) the Group I Class [A] Principal Distribution Amount payable to the Owners of Class [A-1] Certificates pursuant to Section 7.5(b)(F) hereof. "Class [A-1] Interest Carry Forward Amount": With respect to any Payment Date, the sum of (x) the amount, if any, by which (i) the sum of (A) the Class [A-1] Current Interest as of the immediately preceding Payment Date and (B) in the event of a Certificate Insurer Default, any unpaid Class [A-1] Interest Carry Forward Amount, as calculated up through the previous Payment Date and outstanding on such immediately preceding Payment Date, 10 11 exceeds (ii) the amount of the actual distribution with respect to interest made to the Owners of the Class [A-1] Certificates on such immediately preceding Payment Date and (y) 30 days' interest on such amount at the Class [A-1] Pass-Through Rate. "Class [A-1] Pass-Through Rate": The Class [A-1] Pass-Through Rate will be equal to, with respect to any Payment Date, [___%] per annum. "Class [A-2] Certificate": Any one of the Certificates designated on the face thereof as a Class [A-2] Certificate, substantially in the form annexed hereto as Exhibit [A-2], authenticated and delivered by the Trustee, representing the right to distributions as set forth herein. "Class [A-2] Certificate Principal Balance": As of any date of determination, the Original Certificate Principal Balance of all Class [A-2] Certificates less any principal amounts actually distributed with respect to the Class [A-2] Certificates pursuant to Section 7.5(b)(F) hereof on all prior Payment Dates. "Class [A-2] Certificate Termination Date": The Payment Date on which the Class [A-2] Certificate Principal Balance is reduced to zero. "Class [A-2] Current Interest": With respect to any Payment Date, the amount of interest accrued on the Class [A-2] Certificate Principal Balance immediately prior to such Payment Date during the related Accrual Period at the Class [A-2] Pass-Through Rate; provided, that such amount will be reduced by the Class [A-2] Certificates' pro rata share of any Civil Relief Act Shortfalls relating to Group I during the related Remittance Period. "Class [A-2] Distribution Amount": With respect to any Payment Date, the sum of (x) the Class [A-2] Current Interest, (y) the Class [A-2] Interest Carry Forward Amount, if any, and (z) the Group I Class [A] Principal Distribution Amount payable to the Owners of Class [A-2] Certificates pursuant to Section 7.5(b)(F) hereof. "Class [A-2] Interest Carry Forward Amount": With respect to any Payment Date, the sum of (x) the amount, if any, by which (i) the sum of (A) the Class [A-2] Current Interest as of the immediately preceding Payment Date and (B) in the event of a Certificate Insurer Default, any unpaid Class [A-2] Interest Carry Forward Amount, as calculated up through the previous Payment Date and outstanding on such immediately preceding Payment Date, exceeds (ii) the amount of the actual distribution with respect to interest made to the Owners of the Class [A-2] Certificates on such immediately preceding Payment Date and (y) 30 days' interest on such amount at the Class [A-2] Pass-Through Rate. "Class [A-2] Pass-Through Rate": The Class [A-2] Pass-Through Rate will be equal to the lesser of (i)(a) with respect to any Payment Date which occurs on or prior to the Step-Up Payment Date, LIBOR plus [____%] per annum or (b) with respect to any Payment Date thereafter, LIBOR plus [____%] per annum and (ii) the ARM Group Available Funds Cap Rate for such Payment Date. "Class [A-2] Supplemental Interest Amount": With respect to any Payment Date, the excess, if any, of (x) the Class [A-2] Current Interest Amount due on the Class [A-2] Certificates calculated using the Formula Pass-Through Rate applicable to such Payment Date over (y) the interest due on such Class calculated at the ARM Group Available Funds Cap Rate applicable to such Payment Date. 11 12 "Class [A-2] Supplemental Interest Payment Account": The Class [A-2] Supplemental Interest Payment Account established in accordance with Section 7.10(a) hereof and maintained by the Trustee. "Class [A-2] Supplemental Interest Shortfall Amount": As defined in Section 7.10(b) hereof. "Class [A-2] Supplemental Interest Shortfall Carry-Forward Amount": With respect to any Payment Date, the amount, if any, by which (i) the sum of (A) the Class [A-2] Supplemental Interest Shortfall as of the immediately preceding Payment Date and (B) any unpaid Class [A-2] Supplemental Interest Shortfalls, as calculated up through the previous Payment Date and outstanding on such immediately preceding Payment Date, exceeds (ii) the amount of the actual distributions made on account of the Supplemental Interest Rights on such immediately preceding Payment Date. "Class [B] Certificate": Any one of the Certificates designated on the face thereof as a Class [B] Certificate, substantially in the form annexed hereto as Exhibit [A-B], authenticated and delivered by the Trustee, representing the right to distributions as set forth herein. The Class [B] Certificates represent a class of "regular interests" in the Upper-Tier REMIC. "Class [B] Distribution Amount": With respect to any Payment Date, the amount payable to Class [B] pursuant to footnotes 4 and 5 of Section 2.8(c). "Class [B] Pass-Through Rate": With respect to any Payment Date, the interest payable at the Group I Net Weighted Average Coupon Rate and the Group II Net Weighted Average Coupon Rate on the Group I and Group II Mortgage Loans in excess of the interest payable on the Class [A] Certificates, expressed as a per annum rate on the aggregate Loan Balance of the Mortgage Loans in Group I and Group II. "[Residual Class] Certificate": Any one of the Certificates designated on the face thereof as a [Residual Class] Certificate, substantially in the form annexed hereto as Exhibit A-R, authenticated and delivered by the Trustee, representing the right to distributions as set forth herein, and evidencing an interest designated as the "residual interest" in the Upper-Tier REMIC for the purposes of the REMIC Provisions. "Clean-Up Call Date": The Payment Date after the Initial Clean-Up Call Date on which the Redeeming Party elects to exercise its right to purchase all of the Mortgage Loans pursuant to Section 9.2 hereof. "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 Note divided by the Appraised Value of the related Property and with respect to any Junior Mortgage Loan, the percentage equal to (a) the sum of (i) the remaining principal balance, as of origination of the Junior Mortgage Loan, as appropriate, of the Senior Lien note(s) relating to such Junior Mortgage Loan, as appropriate, and (ii) the Original Principal Amount of the Note relating to such Junior Mortgage Loan, as appropriate, divided by (b) the Appraised Value. 12 13 "Commitment": The Commitment to issue a Certificate Guaranty Insurance Policy dated [__________, _____]and issued by the Certificate Insurer. "Compensating Interest": As defined in Section 8.9(b) hereof. "Conduit Acquisition Trust": The trust described in the Pooling and Servicing Agreement dated as of May 1, 1997 among Advanta Mortgage Conduit Services, Inc., as sponsor, Bankers Trust Company of California, N.A., as trustee, Advanta Mortgage Corp. USA, as the master servicer, and the "Borrowers" named therein. "Conduit Mortgage Files": For any Mortgage Loan identified on the related Schedule of Mortgage Loans with a "B" code, the items listed below: (a) the original Note, or , if such Note is lost, a certified copy thereof along with a Lost Note Affidavit in the form of Exhibit L hereto, bearing all intervening endorsements, endorsed either (i) "Pay to the order of [Trustee], as custodian or trustee under the applicable custody or trust agreement, without recourse" or (ii) "Pay to the order of [Trustee], as custodian or trustee under the applicable custody or trust agreement, without recourse, Advanta Mortgage Corp. USA as Master Servicer," or (iii) "Pay to the order of [Trustee], as custodian or trustee" by [Seller, signature, name, title] and signed in the name of the previous owner by an authorized officer (in the event that the Mortgage Loan was acquired by the previous owner in a merger the signature must be in the following form: "[the previous owner], successor by merger to [name of predecessor]", in the event that the Mortgage Loan was acquired or originated while doing business under another name, the signature must be in the following form: "[the previous owner], formerly known as [previous name]" or (iv) "Pay to the order of [Trustee], without recourse". The original Note should be accompanied by any rider made in connection with the origination of the related Mortgage Loan; (b) the original of any guarantee executed in connection with the Note (if any); (c) the original Mortgage with evidence of recording thereon or copies certified by the related recording office or, if the original Mortgage has not yet been returned from the recording office, a certified copy of the Mortgage; (d) the originals of all assumption, modification, consolidation or extension agreements; (e) the original assignment of Mortgage of each Mortgage Loan to "[Trustee], as custodian or trustee", "[Trustee], as trustee or custodian on behalf of the Advanta Conduit Receivables, Inc." or "[Trustee], as trustee". In the event that the Mortgage Loan was acquired by the previous owner in a merger, the assignment of Mortgage must be by the "(previous owner), successor by merger to (names of predecessor)"; and in the event that the Mortgage Loan was acquired or originated by the previous owner while doing business under another name, the Assignment of Mortgage must be by the "(previous owner), formerly known as (previous name)"; and (f) the originals of all intervening assignments of Mortgage, showing a complete chain of assignment from origination to the related Seller, 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. 13 14 "Control Party": Until the last sentence of Section 11.18 hereof is applicable and so long as no Certificate Insurer Default has occurred and is continuing, the Certificate Insurer, and thereafter, the Trustee. "Coupon Rate": The rate of interest borne by each Note. "Current Interest": With respect to any Payment Date, the sum of the Class [A-1] Current Interest and the Class [A-2] Current Interest. "Date-of-Payment Loan": Any Mortgage Loan as to which, pursuant to the Note relating thereto, interest is computed and charged to the Mortgagor at the Coupon Rate on the outstanding principal balance of such Note based on the number of days elapsed between receipt of the Mortgagor's last payment through receipt of the Mortgagor's most current payment. "Definitive Certificate": Certificates issued in definitive form without coupons. "Delinquency Advance": As defined in Section 8.9(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 corresponding day of the month immediately succeeding the month in which such payment was due, or, if there is no such corresponding day (e.g., as when a 30-day month follows a 31-day month in which a payment was due on the 31st day of such month) then on the last day of such immediately succeeding month. Similarly for "60 days delinquent," "90 days delinquent" and so on. "Delivery Order": The delivery order in the form set forth as Exhibit F hereto and delivered by the Sponsor to the Trustee on the Startup Day pursuant to Section 4.1 hereof. "Depository": The Depository Trust Company, 7 Hanover Square, New York, New York 10004 and any successor Depository hereafter named. "Designated Depository Institution": With respect to each 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 A2 or better by Moody's or better by Standard & Poor's and the short-term deposits of which shall be rated P-1 or better by Moody's and A1 or better by Standard & Poor's, unless otherwise approved in writing by the Trustee, the Certificate Insurer, 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 Trustee, the Certificate Insurer, Moody's and Standard & Poor's; 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, an Account may be held by 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 or BBB or better by Standard & Poor's if such institution has trust powers and such Account is held by such institution in its corporate trust department. 14 15 "Designated Residual Owner": Advanta Finance Residual Corporation. "Determination Date": As to each Payment Date, the third Business Day preceding such Payment Date or such earlier day as shall be agreed to by the Certificate Insurer and the Trustee. "Direct Participant" or "DTC Participant": Any broker-dealer, bank or other financial institution for which the Depository holds Class [A] Certificates from time to time as a securities depository. "Disqualified Organization": Shall have the meaning set forth from time to time in the definition thereof at Section 860E(e)(5) of the Code (or any successor statute thereto) and applicable to the Trust. "Document Delivery Requirements": The Sponsor's obligations to deliver certain legal documents, to prepare and record certain Mortgage assignments or to deliver certain opinions relating to Mortgage assignments, in each case with respect to the Mortgage Loans and as set forth in Section 3.5 hereof. "Eligible Investments": Those investments so designated pursuant to Section 7.7 hereof. "Event of Default": Any event described in clauses (a) or (b) of Section 8.20 hereof. "Fannie Mae": The Federal National Mortgage Association, 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. "File": The documents delivered to the Trustee pursuant to Section 3.5 hereof pertaining to a particular Mortgage Loan and any additional documents required to be added to the Advanta Mortgage File or Conduit Mortgage File, as appropriate, pursuant to this Agreement. "Final Determination": As defined in Section 9.3(a) hereof. "First Mortgage Loan": A Mortgage Loan which constitutes a first priority mortgage lien with respect to any Property. "Fixed Rate Group Available Funds Cap Rate": As of any Payment Date, an amount, expressed as a per annum rate, equal to (A)(i) the aggregate amount of interest accrued and collected (or advanced) at the Coupon Rates on all of the Mortgage Loans in the Group I Pool for the related Remittance Period minus (ii) the aggregate of the Servicing Fee, the Premium Amount and the Trustee's Fee, in each case relating to Group I on such Payment Date, divided by (B) the aggregate outstanding principal balance of the Mortgage Loans in Group I as of the beginning of the related Remittance Period, calculated on the basis of a 360-day year consisting of twelve thirty-day months. 15 16 "Formula Pass-Through Rate": With respect to the Class [A-2] Certificates, interest rate resulting from the calculation set forth in clause (i) in the definition of the Class [A-2] Pass-Through Rate. "Freddie Mac": 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. "Gross Margin": With respect to each Mortgage Loan with an adjustable Coupon Rate, the fixed percentage amount set forth in the related Mortgage Note which amount is added to the Index in accordance with the terms of the related Mortgage Note to determine, on each Interest Rate Adjustment Date, the Coupon Rate for such Mortgage Loan, subject to any maximum. "Group": Group I or Group II. "Group I" or "Group I Pool": The fixed pool of Mortgage Loans identified in the related Schedule of Mortgage Loans as having been assigned to Group I, including any Qualified Replacement Mortgages delivered in replacement thereof and assigned to Group I. "Group I Available Funds": As defined in Section 7.3(a) hereof. "Group I Capitalized Interest Deposit": [$__________ ]. "Group I Capitalized Interest Requirement": As to any Payment Date occurring during the Pre-Funding Period, the difference, if any, between (x) the Group I Interest Distribution Amount for such Payment Date plus the Premium Amount relating to the Group I Certificates and the Trustee's Fee relating to the Group I Certificates as of such Payment Date and (y) the sum of (i) the Group I Interest Remittance Amount as of such Payment Date, and (ii) any Pre-Funding Earnings relating to Group I to be transferred to the Certificate Account on such Payment Date pursuant to Section 7.4 hereof. "Group I Certificate Principal Balance": As of any date of determination, the aggregate Certificate Principal Balances of all Group I Certificates. "Group I Certificates": The Class [A-1] Certificates. "Group I Class [A] Principal Distribution Amount": With respect to the Group I Certificates, as of any Payment Date, the lesser of: (a) the Group I Available Funds, plus any related Insured Payment and minus the Group I Interest Distribution Amount, and (b) (i) the sum, without duplication of: (A) the principal actually collected by the Master Servicer with respect to the Mortgage Loans in the Group I Pool during the related Remittance Period; (B) the Loan Balance of each Mortgage Loan in the Group I Pool that either was repurchased by the Sponsor or an Originator 16 17 or purchased by the Master Servicer or any Sub-Servicer on the Group I Pool on the related Remittance Date, to the extent such Loan Balance is actually received by the Trustee; (C) any Substitution Amounts delivered by the Sponsor or an Originator on the related Remittance Date in connection with a substitution of a Mortgage Loan in the Group I Pool, to the extent such Substitution Amounts are actually received by the Trustee; (D) all Net Liquidation Proceeds actually collected by the Master Servicer with respect to the Mortgage Loans in the Group I Pool during the related Remittance Period (to the extent such Net Liquidation Proceeds relate to principal); (E) the amount of any Overcollateralization Deficit with respect to the Group I Pool for such Payment Date; (F) the proceeds received by the Trustee from any termination of the Group I Pool (to the extent such proceeds relate to principal); (G) any amounts remaining in the Pre-Funding Account relating to Group I at the end of the Pre-Funding Period; (H) the amount of any Overcollateralization Increase Amount with respect to the Group I Pool for such Payment Date to the extent of any Net Monthly Excess Cashflow available for such purpose; minus (ii) the amount of any Overcollateralization Reduction Amount with respect to Group I Pool for such Payment Date. In no event will the Group I Principal Distribution Amount for any class of Class [A] Certificates on any Payment Date (x) be less than zero or (y) be greater than the then-outstanding principal balance of the related class of Class [A] Certificates. "Group I Deficiency Amount": The excess, if any, of the Group I Required Distributions over the Group I Net Available Distribution Amount. "Group I Insured Distribution Amount": As to the Group I Certificates, the sum of (a) as of any Payment Date, the sum of (x) the Group I Interest Distribution Amount for such Payment Date and (y) the Group I Overcollateralization Deficit, if any, as of such Payment Date and (b) the Group I Preference Amount. "Group I Insured Payment": An amount equal to (a) as of any Payment Date, the Group I Deficiency Amount and (b) any unpaid Group I Preference Amount (without duplication). 17 18 "Group I Interest Amount Available": As of any Payment Date, the Group I Interest Remittance Amount less the sum of the portion of the Trustee's Fees related to Group I and the Premium Amount related to Group I for such Payment Date. "Group I Interest Distribution Amount": As of any Payment Date, the sum of (i) the Class [A-1] Current Interest and (ii) any Class [A-1] Interest Carry-Forward Amount. "Group I Interest Remittance Amount": As of any Remittance Date with respect to the Mortgage Loans in Group I, the sum, without duplication, of (i) all interest accrued during the related Remittance Period (less the Servicing Fee with respect to such Mortgage Loans) and actually collected prior to such Remittance Date, (ii) all Delinquency Advances and all Special Advances made by the Master Servicer on such Remittance Date, (iii) all Compensating Interest paid by the Master Servicer on such Remittance Date, net of amounts allowed to be retained pursuant to Section 8.8(c), (iv) without duplication, the portion of the Loan Purchase Price and the Substitution Amount relating to accrued interest on the Mortgage Loans in Group I, (v) the portion of any Net Liquidation Proceeds relating to accrued and unpaid interest with respect to Group I and (vi) the proceeds of any liquidation of the Trust Estate related to Group I (to the extent such proceeds relate to interest and Group I). "Group I Monthly Excess Cash Flow Amount": For any Payment Date, the sum of (x) the Group I Monthly Excess Interest Amount and (y) the Group I Overcollateralization Reduction amount for such Payment Date. "Group I Monthly Excess Interest Amount": With respect to any Payment Date, the excess, if any, of (i) the Group I Interest Amount Available for the related Remittance Period over (ii) the Group I Interest Distribution Amount on such Payment Date. "Group I Monthly Remittance Amount": As of any Remittance Date, the sum of (i) the Group I Interest Remittance Amount for such Remittance Date and (ii) the Group I Principal Remittance Amount for such Remittance Date. "Group I Net Available Distribution Amount": The Group I Total Available Funds. "Group I Net Weighted Average Coupon Rate": With respect to any Payment Date, the weighted average of the Coupon Rates of the Mortgage Loans in Group I (weighted by the Loan Balances of the Mortgage Loans in Group I), less the sum of (A) 0.50% per annum, (B) the Trustee Fee Rate related to Group I, and (c) the Premium Percentage related to Group I. "Group I Original Balance": The sum of (x) the aggregate principal balances of the Initial Mortgage Loans in Group I as of the Initial Cut-Off Date and (y) the Group I Original Pre-Funded Amount, which sum is [$______________]. "Group I Original Pre-Funded Amount ": The amount deposited in the Pre-Funding Account on the Startup Day from the proceeds of the sale of the Group I Certificates, which amount is [$____________]. "Group I Overcollateralization Amount": As of any Payment Date, the amount, if any, by which (x) the aggregate Loan Balance of the Mortgage Loans in Group I as of the close of business on the last day of the immediately preceding Remittance Period exceeds (y) the aggregate Certificate Principal Balance of the Group I Certificates after taking into account all 18 19 distributions of principal on such Group I Certificates as of such Payment Date (except for any payment to be made as to principal from the proceeds of the Certificate Insurance Policy). "Group I Overcollateralization Deficiency Amount": With respect to any Payment Date, the excess, if any, of (x) the Group I Specified Overcollateralization Amount for such Payment Date over (y) the Group I Overcollateralization Amount for such Payment Date. "Group I Overcollateralization Deficit": With respect to any Payment Date, the amount, if any, by which (x) the aggregate Certificate Principal Balance of the Group I Certificates, after taking into account all distributions to be made on such Payment Date (except for any payment to be made as to principal from the proceeds of the Certificate Insurance Policy), exceeds (y) the sum of (i) aggregate principal balance of the Mortgage Loans in the Group I Pool as of the close of business on the last day of the preceding Remittance Period, plus (ii) any amounts remaining in the Pre-Funding Account. "Group I Overcollateralization Increase Amount": Any Net Monthly Excess Cashflow actually applied as an accelerated payment of principal with respect to Group I. "Group I Overcollateralization Reduction Amount": As of any Payment Date, the lesser of (x) the Group I Principal Remittance Amount for such Payment Date and (y) the excess of (i) the Group I Overcollateralization Amount for such Payment Date, over (ii) the Group I Specified Overcollateralization Amount for such Payment Date. "Group I Pre-Funded Amount": With respect to any Determination Date, the amount on deposit in the Pre-Funding Account relating to Group I and available for the purchase of the Subsequent Mortgage Loans to be conveyed to the Group I Pool. "Group I Preference Amount": Any amount previously distributed to an Owner of the Group I Certificates that is recoverable and sought to be recovered as a voidable preference by a trustee in bankruptcy pursuant to the United States Bankruptcy Code (11 U.S.C.), as amended from time to time, in accordance with a final nonappealable order of a court having competent jurisdiction. "Group I Principal Remittance Amount": As of any Remittance Date, the sum, without duplication, of (i) the principal actually collected by the Master Servicer with respect to Mortgage Loans in Group I during the related Remittance Period, (ii) the Loan Balance of each Mortgage Loan in Group I that was purchased from the Trust on or prior to such Remittance Date, to the extent such Loan Balance was actually deposited in the Principal and Interest Account, (iii) any Substitution Amounts relating to principal delivered by the Sponsor in connection with a substitution of a Mortgage Loan in Group I, to the extent such principal portion of the Substitution Amounts were actually deposited in the Principal and Interest Account on such Remittance Date, (iv) any Net Liquidation Proceeds relating to principal actually collected by the Master Servicer with respect to such Mortgage Loans in Group I during the related Remittance Period net of amounts allowed to be retained pursuant to Section 8.8(c), and (v) the proceeds of any liquidation of the Trust Estate related to Group I (to the extent such proceeds related to principal). "Group I Reimbursement Amount": As of any Payment Date, the sum of (x)(i) all Group I Insured Payments previously received by the Trustee and all Group I Preference Amounts previously paid by the Certificate Insurer and in each case not previously repaid to the Certificate Insurer pursuant to Section 7.5(b)(D)(3) and (4) hereof plus (ii) interest accrued on 19 20 each such Group I Insured Payment not previously repaid calculated from the date the Trustee received the related Group I Insured Payment at the Late Payment Rate applicable to such date and (y)(i) any other amounts then due and owing to the Certificate Insurer relating to the Group I Certificates under the Insurance Agreement plus (ii) interest on such amounts at the Late Payment Rate, if applicable. On each Determination Date, the Certificate Insurer shall notify the Trustee and the Sponsor of the amount of any Group I Reimbursement Amount if such amount is greater than zero. "Group I Required Distributions": An amount equal to the Group I Insured Distribution Amount. "Group I Specified Overcollateralization Amount": The Specified Overcollateralization Amount with respect to Group I. "Group I Stepdown Date": The later to occur of (x) the 30th Payment Date from the Startup Day and (y) the Determination Date on which the outstanding principal balance on the Group I Certificates is equal to 50% of the Group I Original Balance. "Group I Total Available Funds": As defined in Section 7.3(a) hereof. "Group II" or "Group II Pool": The pool of adjustable rate Mortgage Loans identified in the related Schedule of Mortgage Loans as having been assigned to Group II, including any Qualified Replacement Mortgages delivered in replacement thereof and assigned to Group II. "Group II Available Funds": As defined in Section 7.3(a) hereof. "Group II Capitalized Interest Deposit": $[_________]. "Group II Capitalized Interest Requirement": As to any Payment Date occurring during the Pre-Funding Period, the difference, if any, between (x) the Group II Interest Distribution Amount on such Payment Date plus the Premium Amount relating to the Group II Certificates and the Trustee's Fee relating to the Group II Certificates as of such Payment Date and (y) the sum of (i) the Group II Interest Remittance Amount for such Payment Date and (ii) any Pre-Funding Earnings relating to Group II to be transferred to the Certificate Account on such Payment Date pursuant to Section 7.4 hereof. "Group II Certificate Principal Balance": As of any date of determination, the aggregate Certificate Principal Balances of all Group II Certificates. "Group II Certificates": The Class [A-2] Certificates. "Group II Class [A] Principal Distribution Amount": With respect to the Group II Certificates, as of any Payment Date, the lesser of: (a) the Group II Available Funds, plus any related Insured Payment and minus the Group II Interest Distribution Amount, and (b) (i) the sum, without duplication of: 20 21 (A) the principal actually collected by the Master Servicer with respect to the Mortgage Loans in the Group II Pool during the related Remittance Period; (B) the Loan Balance of each Mortgage Loan in the Group II Pool that either was repurchased by the Sponsor or an Originator or purchased by the Master Servicer or any Sub-Servicer on the Group II Pool on the related Remittance Date, to the extent such Loan Balance is actually received by the Trustee; (C) any Substitution Amounts delivered by the Sponsor or an Originator on the related Remittance Date in connection with a substitution of a Mortgage Loan in the Group II Pool, to the extent such Substitution Amounts are actually received by the Trustee; (D) all Net Liquidation Proceeds actually collected by the Master Servicer with respect to the Mortgage Loans in the Group II Pool during the related Remittance Period (to the extent such Net Liquidation Proceeds relate to principal); (E) the amount of any Overcollateralization Deficit with respect to the Group II Pool for such Payment Date; (F) the proceeds received by the Trustee from any termination of the Group II Pool (to the extent such proceeds relate to principal); (G) any amounts remaining in the Pre-Funding Account relating to Group II at the end of the Pre-Funding Period; (H) the amount of any Overcollateralization Increase Amount with respect to Group II Pool for such Payment Date to the extent of any Net Monthly Excess Cashflow available for such purpose; minus (ii) the amount of any Overcollateralization Reduction Amount with respect to Group II Pool for such Payment Date. In no event will the Group II Principal Distribution Amount for any Class [A-2] Certificates on any Payment Date (x) be less than zero or (y) be greater than the then-outstanding principal balance of the Class [A-2] Certificates. "Group II Deficiency Amount": The excess, if any, of the Group II Required Distributions over the Group II Net Available Distribution Amount. "Group II Insured Distribution Amount": As to the Group II Certificates, the sum of (a) as of any Payment Date, the sum of (x) the Group II Interest Distribution Amount for such Payment Date and (y) the Group II Overcollateralization Deficit, if any, as of such Payment Date and (b) the Group II Preference Amount. 21 22 "Group II Insured Payment": An amount equal to (a) as of any Payment Date, the Group II Deficiency Amount and (b) any unpaid Group II Preference Amount (without duplication). "Group II Interest Amount Available": As of any Payment Date, the Group II Interest Remittance Amount less the sum of the portion of the Trustee's Fees related to Group II and the Premium Amount related to Group II for such Payment Date. "Group II Interest Distribution Amount": As of any Payment Date, the sum of (i) the Class [A-2] Current Interest and (ii) any Class [A-2] Interest Carry-Forward Amount. "Group II Interest Remittance Amount": As of any Remittance Date with respect to the Mortgage Loans in Group II, the sum, without duplication, of (i) interest accrued during the related Remittance Period (less the Servicing Fee with respect to such Mortgage Loans) and actually collected prior to such Remittance Date, (ii) all Delinquency Advances and all Special Advances made by the Master Servicer on such Remittance Date, (iii) all Compensating Interest paid by the Master Servicer on such Remittance Date, net of amounts allowed to be retained pursuant to Section 8.8(c), (iv) without duplication, the portion of the Loan Purchase Price and the Substitution Amount relating to interest accrued on the Mortgage Loans in Group II and (v) the portion of any Net Liquidation Proceeds relating to accrued and unpaid interest with respect to Group II and (vi) the proceeds of any liquidation of the Trust Estate related to Group II (to the extent such proceeds relate to interest and Group II). "Group II Monthly Excess Cashflow Amount": For any Payment Date, the sum of (x) the Group II Monthly Excess Interest Amount and (y) the Group II Overcollateralization Reduction Amount for such Payment Date. "Group II Monthly Excess Interest Amount": With respect to any Payment Date, the excess, if any, of (i) the Group II Interest Amount Available for the related Remittance Period over (ii) the Group II Interest Distribution Amount on such Payment Date. "Group II Monthly Remittance Amount": As of any Remittance Date, the sum of (i) the Group II Interest Remittance Amount for such Remittance Date and (ii) the Group II Principal Remittance Amount for such Remittance Date. "Group II Net Available Distribution Amount": The Group II Total Available Funds. "Group II Net Weighted Average Coupon Rate": With respect to any Payment Date, the weighted average of the Coupon Rates of the Mortgage Loans in Group II (weighted by the Loan Balances of the Mortgage Loans in Group II), less the sum of (A) 0.50% per annum, (B) the Trustee Fee Rate related to Group II and (c) the Premium Percentage related to Group II. "Group II Original Balance": The sum of (x) the aggregate principal balances of the Initial Mortgage Loans in Group II as of the Initial Cut-Off-Date and (y) the Group II Original Pre-Funded Amount, which sum is [$______________]. "Group II Original Pre-Funded Amount": The amount deposited in the Pre-Funding Account on the Startup Day, from the proceeds of the sale of the Group II Certificates, which amount is [$_____________]. 22 23 "Group II Overcollateralization Amount": As of any Payment Date, the difference between (x) the aggregate Loan Balance of the Mortgage Loans in Group II as of the close of business on the last day of the immediately preceding Remittance Period and (y) the aggregate Certificate Principal Balance of the Group II Certificates after taking into account all distributions of principal on such Group II Certificates as of such Payment Date (except for any payment to be made as to principal from the proceeds of the Certificate Insurance Policy). "Group II Overcollateralization Deficiency Amount": With respect to any Payment Date, the excess, if any, of (x) the Group II Specified Overcollateralization Amount for such Payment Date over (y) the Group II Overcollateralization Amount for such Payment Date. "Group II Overcollateralization Deficit": With respect to any Payment Date, the amount, if any, by which (x) the aggregate Certificate Principal Balance of the Group II Certificates, after taking into account all distributions to be made on such Payment Date (except for any payment to be made as to principal from the proceeds of the Certificate Insurance Policy), exceeds (y) the sum of (i) the aggregate principal balance of the Mortgage Loans in the Group II Pool as of the close of business on the last day of the preceding Remittance Period plus (ii) any amounts remaining in the Pre-Funding Account. "Group II Overcollateralization Increase Amount": Any Net Monthly Excess Cashflow actually applied as an accelerated payment of principal with respect to Group II. "Group II Overcollateralization Reduction Amount": As of any Payment Date, the lesser of (x) the Group II Principal Remittance Amount for such Payment Date and (y) the excess of (i) the Group II Overcollateralization Amount for such Payment Date, over (ii) the Group II Specified Overcollateralization Amount for such Payment Date. "Group II Preference Amount": Any amount previously distributed to an Owner on the Group II Certificates that is recoverable and sought to be recovered as a voidable preference by a trustee in bankruptcy pursuant to the United States Bankruptcy Code (11 U.S.C.), as amended from time to time, in accordance with a final nonappealable order of a court having competent jurisdiction. "Group II Pre-Funded Amount": With respect to any Determination Date, the amount on deposit in the Pre-Funding Account and available for the purchase of the Subsequent Mortgage Loans to be conveyed to the Group II Pool. "Group II Principal Remittance Amount": As of any Remittance Date, the sum, without duplication, of (i) the principal actually collected by the Master Servicer with respect to Mortgage Loans in Group II during the related Remittance Period, (ii) the Loan Balance of each Mortgage Loan in Group II that was purchased from the Trust on or prior to such Remittance Date, to the extent such Loan Balance was actually deposited in the Principal and Interest Account, (iii) any Substitution Amounts relating to principal delivered by the Sponsor in connection with a substitution of a Mortgage Loan in Group II, to the extent such principal portion of the Substitution Amounts were actually deposited in the Principal and Interest Account on such Remittance Date, (iv) any Net Liquidation Proceeds relating to principal actually collected by the Master Servicer with respect to such Mortgage Loans in Group II during the related Remittance Period net of amounts allowed to be retained pursuant to Section 8.8(c), and (v) the proceeds of any liquidation of the Trust Estate related to Group II (to the extent such proceeds related to principal). 23 24 "Group II Reimbursement Amount": As of any Payment Date, the sum of (x)(i) all Group II Insured Payments previously received by the Trustee not previously repaid to the Certificate Insurer pursuant to Section 7.5(b)(D)(3) and (4) hereof plus (ii) interest accrued on each such Group II Insured Payment not previously repaid calculated from the date the Trustee received the related Group II Insured Payment at the Late Payment Rate applicable to such date and (y)(i) any other amounts then due and owing to the Certificate Insurer relating to the Group II Certificates under the Insurance Agreement plus (ii) interest on such amounts at the Late Payment Rate, if applicable. On each Determination Date, the Certificate Insurer shall notify the Trustee and the Sponsor of the amount of any Group II Reimbursement Amount if such amount is greater than zero. "Group II Required Distributions": An amount equal to the Group II Insured Distribution Amount. "Group II Specified Overcollateralization Amount": The Specified Overcollateralization Amount with respect to Group II. "Group II Stepdown Date": The later to occur of (x) the 36th Payment Date from the Startup Day and (y) the Determination Date on which the outstanding principal balance on the Group II Certificates is equal to 50% of the Group II Original Balance. "Group II Total Available Funds": An amount defined in Section 7.3(a) hereof. "Indemnification Agreement": The Indemnification Agreement dated as of [____________, _____]among the Certificate Insurer, the Sponsor and the Underwriters as may be amended from time to time. "Index": With respect to any adjustable rate Note, the applicable index set forth therein. "Indirect Participant" shall mean any financial institution for whom any Direct Participant holds an interest in a Class [A] Certificate. "Initial Clean-Up Call Date": The first Payment Date following the date on which the aggregate Loan Balances of all Mortgage Loans has declined to 10% or less of the aggregate principal balance of all of the Mortgage Loans acquired by the Trust as of the Startup Day and acquired by the Trust prior to the end of the Pre-Funding Period. "Initial Cut-Off Date": The date as of which Initial Mortgage Loans are transferred and assigned to the Trust, the opening of business on [____________, _____]. "Initial Mortgage Loans" shall mean Mortgage Loans conveyed, or caused to be conveyed, to the Trust by the Sponsor on the Startup Day. "Insurance Agreement": The Insurance Agreement dated as of [____________, _____] between the Sponsor, the Master Servicer, AMHC, the Trustee and the Certificate Insurer, as it may be amended from time to time. "Insurance Policy": Any hazard, title or primary mortgage insurance policy relating to a Mortgage Loan. 24 25 "Insured Distribution Amount": With respect to Group I, the Group I Insured Distribution Amount, and with respect to Group II, the Group II Insured Distribution Amount. "Insured Payment": The Group I Insured Payment and the Group II Insured Payment. "Interest Determination Date": With respect to any Payment Date for the Class [A-2] Certificates, the second London Business Day preceding such Payment Date or with respect to the [____________, _____] Payment Date, the second London Business Day preceding the Startup Day. "Interest Rate Adjustment Date": The date on which an adjustment to the Coupon Rate on a Note becomes effective. "Junior Mortgage Loan": A Mortgage Loan which constitutes a junior priority mortgage lien with respect to the related Property. "Late Payment Rate": For any Payment Date, the lesser of (a) the greater of (x) the per annum rate of interest publicly announced from time to time by Citibank, N.A. as its prime or base lending rate (any change in such rate of interest to be effective on the date such change is announced by Citibank, N.A.), plus 2% per annum and (y) the then applicable highest rate of interest on the Class [A] Certificates and (b) the maximum rate permissible under applicable usury or similar laws limiting interest rates. The Late Payment Rate shall be computed on the basis of the actual number of days elapsed over a year of 360 days. "LIBOR": With respect to any Accrual Period for the Class [A-2] Certificates, the rate determined by the Trustee on the related 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 (or any successor service thereto), as of 11:00 a.m. (London time) on such Interest Determination Date. On each Interest Determination Date, LIBOR for the related Accrual Period will be established by the Trustee as follows: (x) If on such Interest Determination Date two or more Reference Banks provide such offered quotations, LIBOR for the related Accrual Period shall be the arithmetic mean of such offered quotations (rounded to the nearest whole multiple of 1/16%). (y) If on such Interest Determination Date fewer than two Reference Banks provide such offered quotations, LIBOR for the related Accrual Period shall be the higher of (x) LIBOR as determined on the previous Interest Determination Date and (y) the Reserve Interest Rate. "Liquidated Loan": A Mortgage Loan which is purchased from the Trust as defined in Section 8.13(b) hereof. A Mortgage Loan which is purchased from the Trust pursuant to Section 3.3, 3.4, 3.6(b) or 8.10 hereof is not a "Liquidated Loan". "Liquidation Expenses": Expenses which are incurred by the Master Servicer or any Sub-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 Master Servicer or any Sub-Servicer pursuant to Section 8.9 with respect to the related Mortgage Loan. 25 26 "Liquidation Proceeds": With respect to any Liquidated Loan, any amounts (including the proceeds of any Insurance Policy) recovered by the Master Servicer in connection with such Liquidated Loan, whether through trustee's sale, foreclosure sale or otherwise. "Loan Balance": With respect to each Mortgage Loan, the outstanding principal balance thereof as of the Initial Cut-Off Date or Subsequent Cut-Off Date, as the case may be, less any principal amount relating to such Mortgage Loan included in previous related Monthly Remittance Amounts that were transferred by the Master Servicer or any Sub-Servicer to the Trustee for deposit in the Certificate Account; provided, however, 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 3.3, 3.4, 3.6(b) or 8.10 hereof, an amount equal to the Loan Balance of such Mortgage Loan as of such Remittance Date, plus one month's accrued interest (if not already deposited in the Principal and Interest Account) on the outstanding Loan Balance thereof as of the beginning of the related Remittance Period computed at the Coupon Rate less the Servicing Fee (expressed as an annual percentage 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, (ii) all Delinquency Advances which the Master Servicer or any Sub-Servicer has theretofore failed to remit with respect to such Mortgage Loan and (iii) any Group I Reimbursement Amount or Group II Reimbursement Amount, as the case may be, relating to such Mortgage Loan relating to such Group. "London Business Day": A day on which banks are open for dealing in foreign currency, and exchange in London and New York City. "Lower-Tier Balance": As to each Class of Lower-Tier Interests and any Payment Date, the Initial Lower-Tier Balance as set forth in Section 2.8(a) minus all amounts distributed as principal of such Class on previous Payment Dates. "Lower-Tier Interest 1": The interest of that name established pursuant to Section 2.8(a) hereof. "Lower-Tier Interest 2": The interest of that name established pursuant to Section 2.8(a) hereof. "Lower-Tier Interest 3": The interest of that name established pursuant to Section 2.8(a) hereof. "Lower-Tier Interest 4": The interest of that name established pursuant to Section 2.8(a) hereof. "Lower-Tier Interest 5": The interest of that name established pursuant to Section 2.8(a) hereof. "Lower-Tier Pass-Through Rate": As to each of the respective Lower-Tier Interests, the applicable "Lower-Tier Pass-Through Rate" set forth in Section 2.8 hereof. 26 27 "Lower-Tier REMIC": The segregated pool of assets consisting of the Mortgage Loans, the Accounts (except for the Non-REMIC Estate), any REO Property and any proceeds of the foregoing. "Lower-Tier REMIC Interests": As defined in Section 2.8(b) hereof. "Lower-Tier REMIC Regular Interests": As defined in Section 2.8(b) hereof. ["Lower-Tier REMIC Residual Interest": The Class RL Certificate.] "Master Servicer": Advanta Mortgage Corp. USA, a Delaware corporation, and its permitted successors and assigns. "Master Servicer's Trust Receipt": The Master Servicer's trust receipt in the form set forth as Exhibit J hereto. "Master Transfer Agreement": Any one of the Master Loan Transfer Agreements among the Sponsor and/or the Conduit Acquisition Trust, the Trustee and one or more Originators or any similar agreement designated as a "Master Transfer Agreement" together, in either case, with any related Conveyance Agreements (as defined therein). "Monthly Excess Interest Amount": With respect to Group I, the Group I Monthly Excess Interest Amount, and with respect to Group II, the Group II Monthly Excess Interest Amount. "Monthly Remittance Amount": With respect to Group I, the Group I Monthly Remittance Amount, and with respect to Group II, the Group II Monthly Remittance Amount. "Moody's": Moody's Investors Service, Inc. "Mortgage": The mortgage, deed of trust or other instrument creating a first or junior lien on an estate in fee simple or leasehold interest in real property securing a Note. "Mortgage Loan Group": Either Group I or Group II. References herein to the related Class of Class [A] Certificates, when used with respect to a Mortgage Loan Group, shall mean (A) in the case of Group I, the Group I Certificates and (B) in the case of Group II, the Group II Certificates. "Mortgage Loans": The mortgage loans transferred and assigned to the Trust pursuant to Section 3.5(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 the terms "First Mortgage Loan" and "Junior Mortgage Loan". The term "Mortgage Loan" includes any Mortgage Loan which is Delinquent, which relates to a foreclosure or which relates to a Property which is an 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 Sponsor, 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. The term "Mortgage Loan" includes the terms "Initial Mortgage Loan" and "Subsequent Mortgage Loan". 27 28 "Mortgagor": The obligor on a Note. "Net Liquidation Proceeds": As to any Liquidated Loan, Liquidation Proceeds net of, without duplication, Liquidation Expenses, unreimbursed Servicing Advances, unreimbursed 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. "Net Monthly Excess Cashflow": An amount as defined in Section 7.5(b)(E). "Nonrecoverable Advances": With respect to any Mortgage Loan, (i) any Delinquency Advance or Servicing Advance previously made and not reimbursed pursuant to Sections 7.5 or 8.9, (ii) a Delinquency Advance or Servicing Advance proposed to be made in respect of a Mortgage Loan or REO Property either of which, in the good faith business judgment of the Master Servicer, as evidenced by an Officer's Certificate delivered no later than 1 Business Day prior to the related Determination Date to the Certificate Insurer and the Trustee would not be ultimately recoverable pursuant to Sections 7.5 or 8.9 or (iii) any other advance identified as a Nonrecoverable Advance in subsection 8.9(d). "Non-REMIC Estate": Collectively, the Supplemental Interest Trust, the Class [A-2] Supplemental Interest Payment Account, the Capitalized Interest Account and the Pre-Funding Account. "Note": The note or other evidence of indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan. "Officer's Certificate": A certificate signed by any Authorized Officer of any Person delivering such certificate. "Operative Documents": Collectively, this Agreement, the Master Transfer Agreements, the Subsequent Transfer Agreements, the Certificate Insurance Policy, the Insurance Agreement, the Indemnification Agreement and Certificates. "Original Certificate Principal Balance": As of the Startup Day as to each of the following Classes of Certificates, the Certificate Principal Balances thereof, as follows: Class [A-1] Certificates = [$_________] Class [A-2] Certificates = [$_________] "Original Principal Amount": With respect to each Note, the principal amount of such Note or with respect to Junior Mortgages, the sum of (i) the principal amount of the mortgage note relating to the Senior Lien plus (ii) the principal amount of the Note conveyed to the Trust, as the case may be, on the date of origination thereof. "Originator": Any entity from which the Sponsor has purchased (or, in the case of Subsequent Mortgage Loans, will purchase) Mortgage Loans, including any Affiliated Originator and any Unaffiliated Originator. 28 29 "Outstanding": With respect to all Certificates of a Class, as of any date of determination, all such Certificates theretofore executed and delivered hereunder except: (i) Certificates theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Certificates or portions thereof for which full and final payment money in the necessary amount has been theretofore deposited with the Trustee in trust for the Owners of such Certificates; (iii) Certificates in exchange for or in lieu of which other Certificates have been executed and delivered pursuant to this Agreement, unless proof satisfactory to the Trustee is presented that any such Certificates are held by a bona fide purchaser; and (iv) Certificates alleged to have been destroyed, lost or stolen for which replacement Certificates have been issued as provided for in Section 5.5 hereof. "Overcollateralization Amount": With respect to Group I, the Group I Overcollateralization Amount and with respect to Group II, the Group II Overcollateralization Amount. "Overcollateralization Deficiency Amount": With respect to Group I, the Group I Overcollateralization Deficiency Amount and with respect to Group II, the Group II Overcollateralization Deficiency Amount. "Overcollateralization Deficit": With respect to Group I, the Group I Overcollateralization Deficit and with respect to Group II, the Group II Overcollateralization Deficit. "Overcollateralization Increase Amount": With respect to Group I, the Group I Overcollateralization Increase Amount and with respect to Group II, the Group II Overcollateralization Increase Amount. "Overcollateralization Reduction Amount": With respect to Group I, the Group I Overcollateralization Reduction Amount and with respect to Group II, the Group II Overcollateralization Reduction Amount. "Owner": The Person in whose name a Certificate is registered in the Register, to the extent described in Section 5.6. "Pass-Through Rate": As to the each Class of Certificates, the related Pass-Through Rate. "Payment Date": Any date on which the Trustee is required to make distributions to the Owners, which shall be the 25th day of each calendar month, commencing in the month following the Startup Day, or if the 25th day is not a Business Day, then the next succeeding Business Day. "Percentage Interest": As to any Class [A] Certificate, that percentage, expressed as a fraction, the numerator of which is the Certificate Principal Balance of such Certificate as of the Startup Day and the denominator of which is the Certificate Principal Balance of all 29 30 Certificates of the same Class as of the Startup Day; and as to any Class [B] or [Residual Class] Certificate, that Percentage Interest set forth on such Class [B] or [Residual Class] Certificate. "Person": Any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Pool Cumulative Realized Losses": With respect to any period, the sum of all Realized Losses with respect to the Mortgage Loans experienced during such period. "Pool Factor": As defined in Section 7.8(a) hereof. "Pool Principal Balance": The aggregate principal balances of all Mortgage Loans. "Pre-Funding Account": The Pre-Funding Account established in accordance with Section 7.2 hereof and maintained by the Trustee. "Pre-Funded Amount": The Group I Pre-Funded Amount and/or the Group II Pre-Funded Amount, as applicable. "Pre-Funding Earnings": With respect to the [___________, _____] Payment Date, the actual investment earnings earned during the period from [___________, _____] through [___________, _____] (inclusive) on the Pre-Funding Account during such period as calculated by the Trustee pursuant to Section 3.8(e) hereof; with respect to the [___________, _____] Payment Date, the actual investment earnings during the period beginning [___________, _____] through [___________, _____] (inclusive) on the Pre-Funding Account during such period as calculated by the Trustee pursuant to Section 3.8(e) hereof; with respect to the [___________, _____] Payment Date, the actual investment earnings during the period beginning [___________, _____] through [___________, _____] (inclusive) on the Pre-Funding Account during such period as calculated by the Trustee pursuant to Section 3.8(e) hereof. "Pre-Funding Period": The period commencing on the Startup Day and ending on the earliest to occur of (i) the date on which the Pre-Funded Amount (exclusive of any investment earnings) is less than $100,000, (ii) the date on which any Event of Default occurs and (iii) [___________, _____]. "Premium Amount": With respect to a Group of Mortgage Loans, as to any Payment Date, the product of (x) one-twelfth of the Premium Percentage and (y) the Certificate Principal Balance of such Group of Certificates on such Payment Date (after taking into account any distributions of the related Principal Distribution Amount for such Group on such Payment Date). "Premium Percentage": The percentage as defined in the Insurance Agreement. "Prepaid Installment": With respect to any Mortgage Loan, any installment of principal thereof and accrued interest thereon received 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. 30 31 "Prepayment": Any payment of principal of a Mortgage Loan which is received by the Master Servicer in advance of the scheduled due date for the payment of such principal (other than the principal portion of any Prepaid Installment), and the proceeds of any Insurance Policy which are to be applied as a payment of principal on the related Mortgage Loan shall be deemed to be Prepayments for all purposes of this Agreement. "Preservation Expenses": Expenditures made by the Master Servicer or any Sub-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, flood insurance premiums and property restoration or preservation. "Principal and Interest Account": Collectively, each principal and interest account created by the Master Servicer or any Sub-Servicer pursuant to Section 8.8(a) hereof, or pursuant to any Sub-Servicing Agreement. "Principal Remittance Amount": As applicable, the Group I Principal Remittance Amount or the Group II Principal Amount. "Prohibited Transaction": "Prohibited transaction" shall have the meaning set forth from time to time in the definition thereof contained in Section 860F(a)(2) of the Code (or any successor statute thereto) and applicable to the Trust. "Property": The underlying property securing a Mortgage Loan. "Prospectus": Such final prospectus dated March __, 1999, as supplemented by a prospectus supplement dated [___________, _____] relating to the Class [A] Certificates. "Purchase Option Period": As defined in Section 9.3(b) hereof. "Qualified Liquidation": "Qualified Liquidation" shall have the meaning set forth from time to time in the definition thereof at Section 860F(a)(4) of the Code (or any successor statute thereto) and applicable to the Trust. "Qualified Mortgage": "Qualified Mortgage" shall have the meaning set forth from time to time in the definition thereof at Section 860G(a)(3) of the Code (or any successor statute thereto) and applicable to the Trust and the Mortgage Loan Groups. "Qualified Replacement Mortgage": A Mortgage Loan substituted for another pursuant to Section 3.3, 3.4 or 3.6(b) hereof, which (i) bears a fixed rate of interest if the Mortgage Loan being replaced is in Group I and bears an adjustable rate of interest if the Mortgage Loan to be replaced is in Group II, (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 Group II, shall mean a Mortgage Loan having the same interest rate index, a margin over such index and a maximum interest rate equal to or greater than 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 [___________, _____], (vi) has a Combined Loan-to-Value Ratio as of the Replacement 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 31 32 Mortgage Loans as of such Replacement Cut-Off Date, (viii) satisfies all of the representations and warranties set forth in Section 3.3 and the criteria set forth from time to time in the definition thereof at Section 860G(a)(4) of the Code (or any successor statute thereto) and applicable to the Trust, all as evidenced by an Officer's Certificate of the Sponsor delivered to the Certificate Insurer and the Trustee prior to any such substitution and (ix) is a valid First Mortgage Loan if the Mortgage Loan to be substituted for is a valid First Mortgage Loan or, Junior Mortgage Loan of equal or better priority if the Mortgage Loan to be substituted for is a Junior Mortgage Loan. In the event that one or more mortgage loans are proposed to be substituted for one or more mortgage loans, the Certificate Insurer may allow the foregoing tests to be met on a weighted average basis with respect to the Mortgage Loans only or other aggregate basis acceptable to the Certificate Insurer, as evidenced by a written consent delivered to the Trustee by the Certificate Insurer, except that the requirement of clause (viii) hereof must be satisfied as to each Qualified Replacement Mortgage. "Rating Agency": [Rating Agency/Agencies]. "Realized Loss": As to any Liquidated Loan, the amount, if any, by which the Loan Balance thereof as of the date of liquidation exceeds the Net Liquidation Proceeds realized thereon. "Record Date": With respect to each Payment Date and (x) with respect to the Group I Certificates, the last Business Day of the calendar month immediately preceding the calendar month in which such Payment Date occurs and (y) with respect to the Group II Certificates, the Business Day immediately preceding such Payment Date (unless the Certificates become definitive, in which event the Record Date shall be the last Business Day of the calendar month immediately preceding the calendar month in which such Payment Date occurs). "Reference Banks": Bankers Trust Company, Barclay's Bank PLC, The Bank of Tokyo 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 Trustee which are engaged in transactions in Eurodollar deposits in the international Eurocurrency market (i) with an established place of business in London, (ii) which is not controlling, under the control of or under common control with the Sponsor or any affiliate thereof, (iii) whose quotations appear on the Telerate Page 3750 on the relevant Interest Determination Date and (iv) which have been designated as such by the Trustee. "Register": The register maintained by the Trustee in accordance with Section 5.4 hereof, in which the names of the Owners are set forth. "Registrar": The Trustee, acting in its capacity as Registrar appointed pursuant to Section 5.4 hereof, or any duly appointed and eligible successor thereto. "Registration Statement": The Registration Statement (No. 333-______) filed by the Sponsor with the Securities and Exchange Commission, including all amendments thereto and including the Prospectus relating to the Class [A] Certificates constituting a part thereof. "Reimbursement Amount": With respect to Group I, the Group I Reimbursement Amount and with respect to Group II, the Group II Reimbursement Amount. "REMIC": A "real estate mortgage investment conduit" within the meaning of Section 860D of the Code. 32 33 "REMIC Provisions": Provisions of the federal income tax law relating to real estate mortgage investment conduits, which appear at Sections 860A through 860G of the Code, and related provisions, and regulations and rulings promulgated thereunder, as the foregoing may be in effect from time to time. "REMIC Trust": The segregated pool of assets consisting of the Trust Estate, except for the Supplemental Interest Trust, the Class [A-2] Supplemental Interest Payment Account, the Capitalized Interest Account and the Pre-Funding Account. "Remittance Date": Any date on which the Master Servicer is required to remit monies on deposit in the Principal and Interest Account to the Trustee, which shall be no later than the 18th day of each month, or, if such day is not a Business Day, the immediately succeeding Business Day, commencing in the month following the month in which the Startup Day occurs. "Remittance Period": The period 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 Master Servicer or any Sub-Servicer on behalf of the Trust through foreclosure or grant of a deed-in-lieu of foreclosure in connection with a defaulted Mortgage Loan. "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 transferred and assigned to the Trust. "Representation Letter": The letters to, or agreements with, the Depository to effectuate a book entry system with respect to the Class [A] Certificates registered in the Register under the nominee name of the Depository. "Representative": [Representative Underwriter], as representative of the Underwriters. "Required Distributions": The Group I Required Distributions or the Group II Required Distributions, as applicable. "Reserve Interest Rate": The rate per annum that the Trustee determines to be either (i) the arithmetic mean (rounded to the nearest whole multiple of 1/16%) of the one-month U.S. dollar lending rates which New York City banks, selected by the Trustee, are quoting on the relevant Interest Determination Date to the principal London offices of leading banks in the London interbank market or, in the event that the Trustee can determine no such arithmetic mean, (ii) the lowest one-month U.S. dollar lending rate which New York City banks selected by the Trustee are quoting on such Interest Determination Date to leading European banks. "Schedule of Mortgage Loans": The Schedule of Mortgage Loans, attached hereto as Schedule I as may be further supplemented in connection with the transfer of Subsequent Mortgage Loans. Such Schedule shall also contain one of the following codes for each Mortgage Loan or Subsequent Mortgage Loan: "C" if such Mortgage Loan is an Unaffiliated Originator Loan or "A" for all other Mortgage Loans. The information contained on each Schedule of Mortgage Loans shall be delivered to the Trustee in an electronic media. 33 34 "Securities Act": The Securities Act of 1933, as amended. "Senior Lien": With respect to any Junior Mortgage Loan, the mortgage loan relating to the corresponding Property having a priority lien. "Servicer Affiliate": A Person (i) controlling, controlled by or under common control with the Master Servicer and (ii) which is qualified to service residential mortgage loans. "Servicing Advance": As defined in Section 8.9(c) and Section 8.13 hereof. "Servicing Fee": As to any Payment Date the product of (x) one-twelfth of 0.50% and (y) the aggregate Loan Balances of the Mortgage Loans as of the opening of business on the first day of the Remittance Period preceding such Payment Date. "Servicer Termination Loss Trigger": As defined in the Insurance Agreement. "Special Advance": Any advance made by the Master Servicer pursuant to Section 8.9(d) hereof. "Specified Overcollateralization Amount": As defined in the Insurance Agreement. "Sponsor": Advanta Conduit Receivables, Inc., a Nevada corporation. "Standard & Poor's": Standard & Poor's Ratings Services, a division of The McGraw Hill Companies. "Startup Day": [___________, _____]. "Step-Up Payment Date": The Payment Date following the calendar month in which the Initial Clean-Up Call Date occurs. "Subsequent Cut-Off Date": With respect to any Subsequent Mortgage Loans, the opening of business on the first day of the calendar month in which such Subsequent Mortgage Loans are transferred and assigned to the Trust. "Subsequent Mortgage Loans": The Mortgage Loans sold to the Trust pursuant to Section 3.8 hereof, which shall be listed on the Schedule of Mortgage Loans attached to the Subsequent Transfer Agreement. "Subsequent Transfer Agreement": Each Subsequent Transfer Agreement dated as of a Subsequent Transfer Date executed by the Trustee and the Sponsor substantially in the form of Exhibit M hereto, by which Subsequent Mortgage Loans are sold and assigned to the Trust. "Subsequent Transfer Date": The date specified in each Subsequent Transfer Agreement. "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 34 35 difference together with accrued and unpaid interest on such amount calculated at the Coupon Rate (net of the Servicing Fee) of the Mortgage Loan being replaced. "Sub-Servicer": Any Person with whom the Master Servicer has entered into a Sub-Servicing Agreement and who satisfies any requirements set forth in Section 8.3 hereof in respect of the qualification of a Sub-Servicer . "Sub-Servicing Agreement": The written contract between the Master Servicer and any Sub-Servicer relating to servicing and/or administration of certain Mortgage Loans as permitted by Section 8.3. "Supplemental Interest Payment Amount Available": As defined in Section 7.10(b) hereof. "Supplemental Interest Right": As defined in Section 7.10(e) hereof. "Supplemental Interest Trust": The [Supplemental Interest Trust] created pursuant to Section 7.10(a) hereof. "Tax Matters Person": The Tax Matters Person appointed pursuant to Section 11.17 hereof. "Tax Matters Person Residual Interest": The 100% interest in the [Residual Class] Certificate which shall be issued to and held by [Holder] or certain affiliates throughout the term hereof unless another person that is not a Disqualified Organization shall accept an assignment of such interest and the designation of Tax Matters Person pursuant to Section 11.17 hereof. "Termination Notice": As defined in Section 9.3(b) hereof. "Termination Price": As defined in Section 9.2(a) hereof. "Total Monthly Excess Cashflow": With respect to a Mortgage Loan Group and any Payment Date, an amount equal to the sum of (x) the Monthly Excess Interest Amount with respect to such Mortgage Loan Group plus (y) any Overcollateralization Reduction Amount with respect to such Mortgage Loan Group. "Transaction Documents": Collectively this Agreement, the Insurance Agreement, the Underwriting Agreement relating to the Class [A] Certificates, the Master Transfer Agreements, any Sub-Servicing Agreement, the Indemnification Agreement, any Subsequent Transfer Agreements, the Registration Statement relating to the Class [A] Certificates and the Certificates. "Trust": [Trust], the trust created under this Agreement. "Trust Estate": Collectively, all money, instruments and other property, to the extent such money, instruments and other property are subject or intended to be held in trust, and in the subtrusts, for the benefit of the Owners, including all proceeds thereof, including, without limitation, (i) the Mortgage Loans, (ii) such amounts including principal collections in respect of the related Mortgage Loans received on or after the Initial Cut-Off Date and each Subsequent Cut-Off date, including Eligible Investments, as from time to time may be held in all Accounts 35 36 (except as otherwise provided herein), except any premium recapture and interest accrued prior to the Initial Cut-Off Date and each Subsequent Cut-Off Date, (iii) any Property, the ownership of which has been effected on behalf of the Trust as a result of foreclosure or acceptance by the Master Servicer of a deed in lieu of foreclosure and that has not been withdrawn from the Trust, (iv) any Insurance Policies relating to the Mortgage Loans and any rights of the Sponsor or any Affiliated Originator under any Insurance Policies (excluding any non-mortgage related or credit life insurance policies), (v) Net Liquidation Proceeds with respect to any Liquidated Loan, (vi) the rights of the Trustee under the Certificate Insurance Policy, (vii) the rights of the Sponsor against any Originator pursuant to the related Master Transfer Agreement and (viii) the amounts on deposit in the Pre-Funding Account and the Capitalized Interest Account. "Trustee": [Trustee], located on the date of execution of this Agreement at [Trustee's Address], a national banking association, not in its individual capacity but solely as Trustee under this Agreement, and any successor hereunder. "Trustee's Fees": With respect to any Payment Date and Mortgage Loan Group, the product of (x) one-twelfth of the Trustee Fee Rate and (y) the aggregate Loan Balance of the Mortgage Loan in the related Mortgage Loan Group as of the beginning of the related Remittance Period. "Trustee Fee Rate": [____%] per annum. "Unaffiliated Originator Loan": Any Mortgage Loan purchased by the Sponsor from an Unaffiliated Originator and sold to the Trust by the Sponsor. "Unaffiliated Originators": Any Originator who is not affiliated with the Sponsor. "Uncertificated Interest": As defined in Section 2.8(b) hereof. "Underwriters": [Underwriters]. "Upper-Tier REMIC": The REMIC established pursuant to Section 2.8 hereof. The assets of the Upper-Tier REMIC shall be the Lower-Tier REMIC Regular Interests. "Upper-Tier REMIC Regular Interests": As defined in Section 2.8(c) hereof. "Warehouse Trust": Any trust established by an affiliate of the Sponsor to finance the origination of mortgage loans, including, without limitation, the Conduit Acquisition Trust. 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. 36 37 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. SECTION 1.4. OPINIONS. Each opinion with respect to the validity, binding nature and enforceability of documents or Certificates may be qualified to the extent that the same may be limited by applicable 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 may state that no opinion is expressed on the availability of the remedy of specific enforcement, injunctive relief or any other equitable remedy. Any opinion required to be furnished by any Person hereunder must be delivered by counsel upon whose opinion the addressee of such opinion may reasonably rely, and such opinion may state that it is given in reasonable reliance upon an opinion of another, a copy of which must be attached, concerning the laws of a foreign jurisdiction. ARTICLE II ESTABLISHMENT AND ORGANIZATION OF THE TRUST SECTION 2.1. ESTABLISHMENT OF THE TRUST. The parties hereto do hereby create and establish, pursuant to the laws of the State of New York and this Agreement, the Trust, which, for convenience, shall be known as "[Trust]". Each Mortgage Loan Group shall constitute a subtrust of the Trust. SECTION 2.2. OFFICE. The office of the Trust shall be in care of the Trustee, addressed to [Trustee], [Trustee Address], or at such other address as the Trustee may designate by notice to the Sponsor, the Master Servicer, the Owners and the Certificate Insurer. SECTION 2.3. PURPOSES AND POWERS. The purpose of the Trust is to engage in the following activities, and only such activities: (i) the issuance of the Certificates and the acquiring, owning and holding of Mortgage Loans and the Trust Estate in connection therewith; (ii) activities that are necessary, suitable or convenient to accomplish the foregoing or are incidental thereto or connected therewith, including the investment of monies in accordance with this Agreement; and (iii) such other activities as may be required in connection with conservation of the Trust Estate and distributions to the Owners; provided, however, that nothing contained herein shall permit the Trustee to take any action which would result in the loss of REMIC status for the REMIC Trust. SECTION 2.4. APPOINTMENT OF THE TRUSTEE; DECLARATION OF TRUST. The Sponsor hereby appoints the Trustee as trustee of the Trust effective as of the Startup Day, to have all the rights, powers and duties set forth herein. The Trustee hereby acknowledges and accepts such appointment, represents and warrants its eligibility as of the Startup Day to serve as Trustee pursuant to Section 10.8 hereof and declares that it will hold the Trust Estate in trust upon 37 38 and subject to the conditions set forth herein for the benefit of the Owners and the Certificate Insurer, as their interests may appear. SECTION 2.5. EXPENSES OF THE TRUST. Any expenses of the Trust that have been reviewed and approved by the Sponsor (which approval shall not be unreasonably withheld), including the reasonable expenses of the Trustee shall be paid by the Sponsor to the Trustee or to such other Person to whom such amounts may be due. Failure by the Sponsor to pay any such fees or other expenses shall not relieve the Trustee of its obligations hereunder. The Trustee hereby covenants with the Owners that every material contract or other material agreement entered into by the Trustee on behalf of the Trust shall expressly state therein that no Owner shall be personally liable in connection with such contract or agreement. SECTION 2.6. OWNERSHIP OF THE TRUST. On the Startup Day the ownership interests in the Trust and the subtrusts shall be transferred as set forth in Section 4.2 hereof, such transfer to be evidenced by sale of the Certificates as described therein. Thereafter, transfer of any ownership interest shall be governed by Sections 5.4 and 5.8 hereof. SECTION 2.7. SITUS OF THE TRUST. It is the intention of the parties hereto that the Trust constitute a trust under the laws of the State of New York. The Trust will be created in, and all Accounts maintained by the Trustee on behalf of the Trust will be located in, the State of New York. The Trust will not have any employees and will not have any real or personal property (other than property acquired pursuant to Section 8.13 hereof) located in any state other than in the State of New York and payments will be received by the Trust only in the State of New York and payments from the Trust will be made only from the State of New York. The Trust's only office will be at the office of the Trustee as set forth in Section 2.2 hereof. SECTION 2.8. MISCELLANEOUS REMIC PROVISIONS. (a) The Trustee shall elect that each of the Lower-Tier REMIC and the Upper-Tier REMIC shall be treated as a REMIC under Section 860D of the Code. Any inconsistencies or ambiguities in this Agreement or in the administration of this Agreement shall be resolved in a manner that preserves the validity of such REMIC elections. The assets of the Lower-Tier REMIC shall include the Mortgage Loans, the Accounts (except for the Non-REMIC Estate), any REO Property, and any proceeds of the foregoing. The Lower-Tier REMIC Regular Interests (as defined below) shall constitute the assets of the Upper-Tier REMIC. (b) The Lower-Tier REMIC will be evidenced by (x) Lower-Tier Interest 1, Lower-Tier Interest 2, Lower-Tier Interest 3, Lower-Tier Interest 4, and Lower-Tier Interest 5 (the "Lower-Tier REMIC Regular Interests"), which will be uncertificated and non-transferable and are hereby designated as the "regular interests" in the Lower-Tier REMIC and (y) the Lower-Tier REMIC Residual Interest, which is hereby designated as the single "residual interest" in the Lower-Tier REMIC (the Lower-Tier REMIC Regular Interests, together with the Lower-Tier REMIC Residual Interest, the "Lower-Tier REMIC Interests"). The Lower-Tier REMIC Regular Interests shall be recorded on the records of the Lower-Tier REMIC as being issued to and held by the Trustee on behalf of the Upper-Tier REMIC. 38 39 Lower-Tier Interest 1 shall have an initial principal balance equal to one percent of the sum of the initial principal balances of the Group I Certificates (that is, [$_________]). Lower-Tier Interest 2 shall have an initial principal balance equal to one percent of the Group I Original Balance (that is, [$_________]). Lower-Tier Interest 3 shall have an initial principal balance equal to one percent of the initial principal balance of the Class [A-2] Certificates (that is, [$__________]). Lower-Tier Interest 4 shall have an initial principal balance equal to one percent of the Group II Original Balance (that is, [$__________]) Lower-Tier Interest 5 shall have an initial principal balance equal to the excess of (i) the sum of the Group I Original Balance and the Group II Original Balance over (ii) the sum of the initial principal balances of Lower-Tier Interest 1, Lower-Tier Interest 2, Lower-Tier Interest 3, and Lower-tier Interest 4 (that is, [$__________]). On each Payment Date, principal payments on the Mortgage Loans shall be allocated 99% to Lower-Tier Interest 2, Lower-Tier Interest 4 and Lower-Tier Interest 5, and 1% to Lower-Tier Interest 1 and Lower-Tier Interest 3 until paid in full. The aggregate amount of principal allocated to the Lower-Tier Interest 1 and Lower-Tier Interest 3 shall be apportioned between such Interests in the same manner in which principal on the Mortgage Loans is payable with respect to the Group I Certificates and the Class [A-2] Certificates, respectively. The aggregate amount of principal allocated to Lower-Tier Interest 2, Lower-Tier Interest 4 and Lower-Tier Interest 5 shall be allocated and apportioned among such Interests first, to Lower-Tier Interest 2 and Lower-Tier Interest 4 the least amount of principal necessary which when applied to such Interests can be applied so that the ratio of the principal balance of Lower-Tier Interest 2 to the principal balance of Lower-Tier Interest 4 equals the ratio of the sum of Loan Balances of the Mortgage Loans in the Group I to the sum of the Loan Balances of the Mortgage Loans in the Group II (the "Balance Ratio") and second, to Lower-Tier Interest 5. Any Overcollateralization Increase Amount will not be paid as interest to the Lower-Tier REMIC Regular Interests, but instead to the extent available, a portion of the interest payable with respect to Lower-Tier Interest 5 which equals 1% of the Overcollateralization Increase Amount (and, to the extent 1% of the Overcollateralization Increase Amount exceeds the interest payable on Lower-Tier Interest 5, a pro rata portion of the interest payable on the Lower-Tier Interest 2 and Lower-Tier Interest 4 equal to such excess) will be payable as a reduction of the principal balances of Lower-Tier Interest 1 and Lower-Tier Interest 3 in the same manner in which the Overcollateralization Increase Amount is allocated among the Class [A-1] and [A-2], Certificates, respectively (and will be accrued and added to principal on Lower-Tier Interest 2, Lower-Tier Interest 4 and Lower-Tier Interest 5 in the same proportion as interest payable on such Interests is used to reduce principal on other Interests as just described). Notwithstanding the above, principal payments on the Mortgage Loans that are attributable to the Overcollateralization Reduction Amount shall be allocated to Lower-Tier Interest 2, Lower-Tier Interest 4 and Lower-Tier Interest 5 (allocated first to Lower-Tier Interest 5 until such certificates are paid in full, and second to Lower-Tier Interest 2 and Lower-Tier Interest 4 and apportioned between Lower-Tier Interest 2 and Lower-Tier Interest 4 in such a manner that the Balance Ratio is maintained until paid in full). Realized Losses shall be applied such that after all distributions have been made on such Payment Date the principal balances Lower-Tier Interest 1 and Lower-Tier Interest 3 are each 1% of the principal balances of the Group I Certificates and Class [A-2] Certificates, respectively, and the aggregate principal balance of Lower-Tier Interest 2, Lower-Tier Interest 4 and Lower-Tier Interest 5 is equal to the sum of the Loan Balances of the Mortgage Loans less an amount equal to the sum of the principal balances of Lower-Tier Interest 1 and Lower-Tier 39 40 Interest 3 and is allocated and apportioned first, to Lower-Tier Interest 2 and Lower-Tier Interest 4 the least amount of Realized Losses necessary which when applied to such Interests can be applied in such a manner that the Balance Ratio is maintained, and second, to Lower-Tier Interest 5. Lower-Tier Interest 1 and Lower-Tier Interest 2 shall each have Pass-Through Rates equal to the Group I Net Weighted Average Coupon Rate (the sum expressed as a per annum rate on the sum of the Loan Balances for Mortgage Loans in Group I). Lower-Tier Interest 3 and Lower-Tier Interest 4 shall each have a Pass-Through Rate equal to the Group II Net Weighted Average Coupon Rate (the sum expressed as a per annum rate on the sum of the Loan Balances for the Mortgage Loans in Group II). Lower-Tier Interest 5 shall have a Pass-Through Rate equal to the weighted average of the Group I Net Weighted Average Coupon Rate and the Group II Net Weighted Average Coupon Rate (the sum expressed as a per annum rate on the sum of Loan Balances of the Mortgage Loans). The Lower-Tier REMIC Residual Interest shall have no principal balance and no Pass-Through Rate and shall be entitled to only those distributable assets, if any, remaining in the Lower-Tier REMIC on each Payment Date after all amounts required to be distributed to Lower-Tier Interest 1, Lower-Tier Interest 2, Lower-Tier Interest 3, Lower-tier Interest 4, and Lower-Tier Interest 5 and applicable Trust expenses have been paid. The Lower-Tier REMIC Interests will have the following designations and Pass-Through Rates, and distributions of principal and interest thereon shall be allocated to the Certificates in the following manner:
Pass- Allocation Allocation Lower-Tier REMIC Initial Through of of Interests Balance Rate Principal Interest --------- ------- ---- --------- -------- 1 [$________] (1) (4) (5) 2 [$________] (1) (4) (5) 3 [$________] (2) (4) (5) 4 [$________] (2) (4) (5) 5 [$________] (3) (4) (5) Lower-Tier (6) (6) (6) Residual
40 41 - ---------------------- (1) The Pass-Through Rate on these Lower-Tier REMIC Regular Interests shall at any time of determination equal the Group I Net Weighted Average Coupon Rate. (2) The Pass-Through Rate on these Lower-Tier REMIC Regular Interest shall at any time of determination equal the Group II Net Weighted Average Coupon Rate. (3) The Pass-Through Rate on this Lower-Tier REMIC Regular Interest shall at any time of determination equal the weighted average of the Group I Net Weighted Average Coupon Rate and the Group II Net Weighted Average Coupon Rate. (4) Principal will be allocated to and apportioned among the Group I Certificates and the Class [A-2] Certificates in the same proportion as principal from the Mortgage Loans is payable with respect to such Certificates, except that a portion of such principal in an amount equal to the Overcollateralization Reduction Amount shall first be allocated as a payment of interest to the Class [B] Certificates, and all principal will be allocated as a payment of interest to the Class [B] Certificates after the principal balances of the Class [A] Certificates have been reduced to zero. (5) Except as provided in the next sentence, interest will be allocated among the Group I Certificates and Class [A-2] in the same proportion as interest is payable on such Certificates. Any interest with respect to each Lower-Tier REMIC Regular Interest in excess of the product of (i) 100 times the weighted average coupon of the Lower-Tier Interest 1, Lower-Tier Interest 2, Lower-Tier Interest 3, Lower-Tier Interest 4 and Lower-Tier Interest 5, where Lower-Tier Interest 1 and Lower-Tier Interest 3 are first subject to a cap and floor equal to the Group I Net Weighted Average Coupon Rate and Class [A-2] Pass-Through Rate, respectively, and Lower-Tier Interest 2, Lower-Tier Interest 4 and Lower-Tier Interest 5 are each subject to a cap equal to 0%, and (ii) the principal balance of each such Lower-Tier Interest, shall not be allocated to the Class [A] Certificates but will be allocated to the Class B Certificates. However, the Class [B] Certificates shall be subordinated to the extent provided in Section 7.5. hereof. (6) On each Distribution Date, available funds, if any, remaining in the Lower-Tier REMIC after payments of interest and principal, as designated above, will be distributed to the Lower-Tier Residual Interest. It is expected that there shall not be any distributions on the Lower-Tier Residual Interest. (c) The Class [A-1] and Class [A-2] Certificates are hereby designated as "regular interests" with respect to the Upper-Tier REMIC (the "Upper-Tier REMIC Regular Interests") and the [Residual Certificate] is hereby designated as the single "residual interest" with respect to the Upper-Tier REMIC. On each Payment Date, available funds, if any, remaining in the Upper-Tier REMIC after payments of interest and principal as designated herein shall be distributed to the [Residual Certificates]. (d) For federal income tax purposes, the "latest possible maturity date" for each of the Lower-Tier REMIC Regular Interests and Upper-Tier REMIC Regular Interests is hereby set to be the Payment Date of [_________, _____]. (e) The Startup Day is hereby designated for each of the Lower-Tier REMIC and Upper-Tier REMIC as the "startup day" within the meaning of Section 860G(a)(9) of the Code. (f) The Trustee shall provide to the Internal Revenue Service and to the persons described in 41 42 Section 860E(e)(3) and (6) of the Code, the information described in Treasury regulations Section 1.860D-1(b)(5)(ii), or any successor regulation thereto, with respect to each of the Lower-Tier REMIC and the Upper-Tier REMIC. Such information will be provided in the manner described in Treasury regulations Section 1.860E-2(a)(5), or any successor regulation thereto. (g) The Owner of the Tax Matters Person Residual Interests in the Upper-Tier REMIC and the Lower-Tier REMIC is hereby designated as "tax matters person" as defined in the REMIC Provisions with respect to each such REMIC. (h) The Trust and each REMIC shall, for federal income tax purposes, maintain books on a calendar year basis and report income on an accrual basis. (i) The final scheduled Payment Date for any Class of Certificates is hereby established as follows: CLASS FINAL SCHEDULED PAYMENT DATES
Final Scheduled Class Payment Date ----- ------------ Class [A-1] [_________, _____] Class [A-2] [_________, _____]
ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SPONSOR AND THE MASTER SERVICER; COVENANT OF SPONSOR TO CONVEY MORTGAGE LOANS SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF THE SPONSOR. The Sponsor hereby represents, warrants and covenants to the Trustee, the Certificate Insurer and to the Owners as of the Startup Day that: (a) The Sponsor is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada 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 Sponsor 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 the Sponsor is a party by the Sponsor 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 Sponsor and will not violate the Sponsor'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 Sponsor is a party or by which the Sponsor is bound, or violate any statute or any order, rule or regulation of any court, 42 43 governmental agency or body or other tribunal having jurisdiction over the Sponsor or any of its properties. (c) This Agreement and the other Operative Documents to which the Sponsor 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 Sponsor, 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 Sponsor 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 other) or operations of the Sponsor or its properties or might have consequences that would materially and adversely affect its performance hereunder and under the other Operative Documents to which it is a party. (e) No litigation is pending or, to the best of the Sponsor's knowledge, threatened against the Sponsor which litigation might have consequences that would prohibit its entering into this Agreement or any other Operative Document to which it is a party or might have consequences that would materially and adversely affect its performance hereunder and 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 Sponsor 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 Sponsor or matters or activities for which the Sponsor is responsible in accordance with the Operative Documents or which are attributed to the Sponsor 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 Sponsor 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 Sponsor not misleading. To the best of the Sponsor'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 Sponsor makes no such representation or warranty), that are necessary or advisable in connection with the purchase and sale of the Certificates and the execution and delivery by the Sponsor 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 date hereof, are not subject and are not reasonably expected to be 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 43 44 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 Sponsor and the performance by the Sponsor 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 Sponsor. (j) The Sponsor received fair consideration and reasonably equivalent value in exchange for the sale of the interests in the Mortgage Loans evidenced by the Certificates. (k) The Sponsor did not sell any interest in any Mortgage Loan evidenced by the Certificates with any intent to hinder, delay or defraud any of its respective creditors. (l) The Sponsor is solvent and the Sponsor will not be rendered insolvent as a result of the sale of the Mortgage Loans to the Trust or the issuance of the Certificates. It is understood and agreed that the representations and warranties set forth in this Section 3.1 shall survive delivery of the Mortgage Loans to the Trust. SECTION 3.2. REPRESENTATIONS AND WARRANTIES OF THE MASTER SERVICER. The Master Servicer hereby represents, warrants and covenants to the Trustee, the Certificate Insurer and the Owners as of the Startup Day that: (a) The Master Servicer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, is, and each Sub-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 Master Servicer and each Sub-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 Master Servicer has, on a consolidated basis with its parent, AMHC, equity of at least $5,000,000, as determined in accordance with generally accepted accounting principles. (b) The execution and delivery of this Agreement by the Master 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 Master Servicer and will not violate the Master 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 Master Servicer is a party or by which the Master 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 Master Servicer or any of its properties. (c) This Agreement and the other Operative Documents to which the Master 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 Master Servicer, enforceable against it in accordance with the terms hereof, except as the enforcement hereof may 44 45 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 Master 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 other) or operations of the Master Servicer or its properties or might have consequences that would materially and adversely affect its performance hereunder and under the other Operative Documents to which the Master Servicer is a party. (e) No litigation is pending or, to the best of the Master Servicer's knowledge, threatened against the Master Servicer which litigation might have consequences that would prohibit its entering into this Agreement or any other Operative Document to which it is a party or might have consequences that would materially and adversely affect its performance hereunder and under the other Operative Documents to which the Master Servicer is a party. (f) No certificate of an officer, statement furnished in writing or report delivered pursuant to the terms hereof by the Master 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 Master Servicer or matters or activities for which the Master Servicer is responsible in accordance with the Operative Documents or which are attributed to the Master 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 Master 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 Master Servicer not misleading. To the best of the Master 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) [Reserved.] (i) 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 Master Servicer makes no such representation or warranty), that are necessary or advisable in connection with the execution and delivery by the Master Servicer 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 date hereof, are not reasonably expected to be 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 Master Servicer and the performance by the Master Servicer of its obligations under this Agreement and such of the other Operative Documents to which it is a party. 45 46 (j) The collection practices used by the Master Servicer with respect to the Mortgage Loans directly serviced by it have been, in all material respects, legal, proper, prudent and customary in the mortgage loan servicing business. (k) The transactions contemplated by this Agreement are in the ordinary course of business of the Master Servicer. (l) The terms of each existing Sub-Servicing Agreement and each designated Sub-Servicer are acceptable to the Master Servicer and any new Sub-Servicing Agreements or Sub-Servicers will comply with the provisions of Section 8.3. It is understood and agreed that the representations and warranties set forth in this Section 3.2 shall survive delivery of the Mortgage Loans to the Trustee. Upon discovery by any of the Originators, the Master Servicer, the Sponsor, any Sub-Servicer, the Certificate Insurer or the Trustee of a breach of any of the representations and warranties set forth in this Section 3.2 which materially and adversely affects the interests of the Owners or of the Certificate Insurer, the party discovering such breach shall give prompt written notice to the other parties. Within 30 days of its discovery or its receipt of notice of breach, the Master Servicer shall cure such breach in all material respects and, upon the Master Servicer's continued failure to cure such breach, may thereafter be removed by the Trustee or the Certificate Insurer pursuant to Section 8.20 hereof; provided, however, that if the Master Servicer can demonstrate to the reasonable satisfaction of the Certificate Insurer and the Trustee that it is diligently pursuing remedial action, then the cure period may be extended with the written approval of the Certificate Insurer and the Trustee. SECTION 3.3. REPRESENTATIONS AND WARRANTIES OF THE SPONSOR WITH RESPECT TO THE MORTGAGE LOANS. (a) The Sponsor makes the following representations and warranties as to the Mortgage Loans on which the Certificate Insurer relies and the Trustee relies in accepting the Mortgage Loans in trust and executing and authenticating the Certificates. Such representations and warranties speak as of the Startup Day with respect to the Initial Mortgage Loans, as of the Subsequent Transfer Date with respect to any Subsequent Mortgage Loan, or as of the date upon which any Qualified Replacement Mortgage is added to the Trust, but shall survive the sale, transfer, and assignment of the Mortgage Loans to the Trustee: (i) The information with respect to each Mortgage Loan set forth in the Schedules of Mortgage Loans is true and correct as of the Initial Cut-Off Date, the Replacement Cut-Off Date or the Subsequent Cut-Off Date, as the case may be; (ii) All of the original or certified documentation set forth in Section 3.5 (including all material documents related thereto) with respect to each Mortgage Loan has been or will be delivered to the Trustee no later than the Startup Day, the related Subsequent Transfer Date or the date upon which any Qualified Replacement Mortgage is added to the Trust, as the case may be, or as otherwise provided in Section 3.5; (iii) Except for any Unaffiliated Originator Loans being serviced by a servicer other than the Master Servicer, each Mortgage Loan is being serviced by the Master Servicer or a Person controlling, controlled by or under common control with the Master Servicer and qualified to service mortgage loans; 46 47 (iv) The Note related to each Mortgage Loan in Group I as of the Initial Cut-Off Date bears a Coupon Rate of at least [____%] per annum; (v) As of the Initial Cut-Off Date, no more than [____%] of the aggregate principal balances of the Initial Mortgage Loans are 30-59 days Delinquent and no Initial Mortgage Loan is 60 or more days' Delinquent; as of the related Subsequent Cut-Off Date, no Subsequent Mortgage Loan shall be 60 or more days Delinquent as of the related Replacement Cut-Off Date, no Qualified Replacement Mortgage shall be 60 or more days Delinquent; (vi) As of the Initial Cut-Off Date, no more than [____%] of the aggregate principal balances of the Mortgage Loans is secured by Properties located within any single zip code area and less than [____%] of the aggregate Loan Balance of the Mortgage Loans consists of Date of Payment Loans or "simple interest" Mortgage Loans; (vii) All of the Mortgage Loans conform, in all material respects, to the description thereof set forth in the Registration Statement; (viii) As of the Initial Cut-Off Date, no more than [____%] of the Loan Balance of the Mortgage Loans relates to Mortgage Loans originated under the Originators' non-income verification program for self-employed borrowers; (ix) The credit underwriting guidelines applicable to each Mortgage Loan conform in all material respects to the description thereof set forth in the Prospectus; and (x) Each Mortgage Loan is a Qualified Mortgage. (b) The Sponsor hereby assigns to the Trustee for the benefit of the Owners of the Certificates and the Certificate Insurer (so long as a Certificate Insurer Default had not occurred and is continuing) all of its right, title and interest in respect of each Master Transfer Agreement applicable to the related Mortgage Loans. Insofar as such Master Transfer Agreement provides for representations and warranties made by the related Originator in respect of a Mortgage Loan and any remedies provided thereunder for any breach of such representations and warranties, such right, title and interest may be enforced by the Master Servicer or by the Trustee on behalf of the Owners and the Certificate Insurer. Upon the discovery by the Sponsor, the Master Servicer, the Certificate Insurer or the Trustee of a breach of any of the representations and warranties made in a Master Transfer Agreement in respect of any Mortgage Loan which materially and adversely affects the interests of the Owners or of the Certificate Insurer in such Mortgage Loan, the party discovering such breach shall give prompt written notice to the other parties. The Master 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 3.4(b) hereof within the time periods required thereby, and if such Originator does not cure such breach in all material respects, the Sponsor shall cure such breach or take such actions. The obligations of the Sponsor or Master Servicer, as the case may be, set forth herein with respect to any Mortgage Loan as to which such a breach has occurred and is continuing shall constitute the sole obligations of the Master Servicer and of the Sponsor in respect of such breach. 47 48 SECTION 3.4. COVENANTS OF SPONSOR 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 3.4, upon the discovery by any Originator, the Sponsor, the Master Servicer, the Certificate Insurer, any Sub-Servicer or the Trustee that the representations and warranties set forth in Section 3.3 of this Agreement or in a Master Transfer Agreement were untrue in any material respect as of the Startup Day (or the Subsequent Transfer Date, as the case may be) and such breaches of the representations and warranties materially and adversely affect the interests of the Owners or of the Certificate Insurer, the party discovering such breach shall give prompt written notice to the other parties. The Sponsor acknowledges that a breach of any representation or warranty (x) relating to marketability of title sufficient to transfer unencumbered title to a Mortgage Loan, (y) relating to enforceability of the Mortgage Loan against the related Mortgagor or Property or (z) set forth in clause (ix) of Section 3.3 above constitutes breach of a representation or warranty which materially and adversely affects the interests of the Owners or of the Certificate Insurer in such Mortgage Loan. (b) Upon the earliest to occur of the Sponsor's discovery, its receipt of notice of breach from any one of the other parties hereto or from the Certificate Insurer or such time as a breach of any representation and warranty materially and adversely affects the interests of the Owners or of the Certificate Insurer as set forth above, the Sponsor 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 Sponsor 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 in the related Mortgage Loan Group which has given rise to the requirement for action by the Sponsor 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 Master Servicer for deposit in the Principal and Interest Account or (ii) purchase such Mortgage Loan from the REMIC Trust at a purchase price equal to the Loan Purchase Price thereof, which purchase price shall be delivered to the Master Servicer for deposit in the Principal and Interest Account. In connection with any such proposed purchase or substitution, the Sponsor at its expense, shall cause to be delivered to the Trustee and the Certificate Insurer an opinion of counsel experienced in federal income tax matters stating whether or not such a proposed purchase or substitution would constitute a Prohibited Transaction for the REMIC Trust or would jeopardize the status of the REMIC Trust as a REMIC, and the Sponsor shall only be required to take either such action to the extent such action would not constitute a Prohibited Transaction for the REMIC Trust or would not jeopardize the status of the REMIC Trust as a REMIC. Any required purchase or substitution, if delayed by the absence of such opinion shall nonetheless occur upon the earlier of (i) the occurrence of a default or imminent default with respect to the Mortgage Loan, (ii) the delivery of such opinion or (iii) at the direction of the Control Party. It is understood and agreed that the obligation of the Sponsor 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 Trustee and the Certificate Insurer. (c) In the event that any Qualified Replacement Mortgage is delivered by an Originator or by the Sponsor (or by an affiliate of the Sponsor, as the case may be) to the Trust pursuant to Section 3.3, Section 3.4 or Section 3.6 hereof, the related Originator and the Sponsor 48 49 shall be obligated to take the actions described in Section 3.4(b) with respect to such Qualified Replacement Mortgage upon the discovery by any of the Owners, the Sponsor, the Master Servicer, the Certificate Insurer, any Sub-Servicer or the Trustee that the representations and warranties set forth in the related Master Transfer Agreement or in Section 3.3 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 Certificate Insurer in the related Qualified Replacement Mortgage are materially and adversely affected. (d) It is understood and agreed that the covenants set forth in this Section 3.4 shall survive delivery of the respective Mortgage Loans (including Qualified Replacement Mortgage Loans) to the Trustee. SECTION 3.5. CONVEYANCE OF THE MORTGAGE LOANS. (a) The Sponsor, concurrently with the execution and delivery hereof, hereby transfers, sells, assigns, sets over and otherwise conveys, or shall request or cause to be transferred, sold, assigned, set over and otherwise conveyed, without recourse, for good and valuable consideration, to the Trustee, all right, title and interest of the Sponsor and the Warehouse Trusts in and to each Initial Mortgage Loan, including all right, title and interest in and to principal collected and interest accruing on each such Initial Mortgage Loan on and after the Initial Cut-Off Date and all right, title and interest in and to all Insurance Policies and any other assets included or to be included in the Trust for the benefit of Owners and the Certificate Insurer. The transfer of the Initial Mortgage Loans set forth on the Schedule of Mortgage Loans to the Trustee is absolute and is intended by the Owners and all parties hereto to be treated as a sale by the Sponsor or the Warehouse Trusts. (b) The Sponsor agrees to take or cause to be taken such actions and execute such documents (including, without limitation, the filing of all necessary continuation statements for the UCC-1 financing statements filed in the State of New York (which shall have been filed within 90 days of the Startup Day or the Subsequent Transfer Date, as the case may be)) describing the Mortgage Loans and naming the Sponsor and the appropriate Warehouse Trust, as applicable, as debtor and the Trustee as the secured party and any amendments to UCC-1 financing statements required to reflect a change in the name or corporate structure of the debtor or the filing of any additional UCC-1 financing statements due to a change in the principal officer of the debtor (within 90 days of any event necessitating such filing) as are necessary to perfect and protect the Owners' and the Certificate Insurer's interests in each Mortgage Loan and the proceeds thereof. (c) In connection with the transfer and assignment of the Mortgage Loans, the Sponsor agrees to: (i) cause to be delivered, no later than the Startup Day or any Subsequent Transfer Date, as applicable, without recourse, to the Trustee the items listed in the definitions of "Advanta Mortgage Files" and "Conduit Mortgage Files," as appropriate; provided that the assignments of mortgage listed in clause (e) of Exhibit B hereto shall be delivered to the Trustee with respect to the Designated Advanta Mortgage Files within 75 Business Days of the Startup Day or any Subsequent Transfer Date, as applicable. (ii) cause, within 75 Business Days following the Startup Day or any Subsequent Transfer Date, as applicable, the assignments of Mortgage to be submitted for recording in the appropriate jurisdictions wherein such recordation is necessary to perfect 49 50 the lien thereof as against creditors of or purchasers from the related Originator to the Trustee; provided, however, that, for administrative convenience and facilitation of servicing and to reduce closing costs, assignments of mortgage shall not be required to be submitted for recording with respect to any Mortgage Loan which relates to an Advanta Mortgage File only if the Trustee, the Certificate Insurer and each Rating Agency has received an Opinion of Counsel, satisfactory in form and substance to the Certificate Insurer and to each Rating Agency, to the effect that the recordation of such assignments in any specific jurisdiction is not necessary to protect the Trustee's interest in the related Mortgage. All recording required pursuant to this Section 3.5 shall be accomplished at the expense of the Originators or of the Sponsor. Notwithstanding anything to the contrary contained in this Section 3.5, 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 Sponsor shall be deemed to have satisfied its obligations hereunder upon delivery to the 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 Trustee shall be kept in the related Mortgage Loan file. Such assignments of mortgage shall, in addition to the requirements specified in Exhibit B, be in recordable form. On or before the Startup Day or any Subsequent Transfer Date, as applicable, the Sponsor shall deliver to the Trustee original executed powers of attorney, from the current recordholders of the related Mortgage substantially in the form of Exhibit H, authorizing the Master Servicer on behalf of the Trustee to record the assignments of mortgage as provided in clause (ii) above. Pursuant to such power of attorney, the Trustee also may execute a new assignment of mortgage for any Mortgage Loan if the original assignment of mortgage delivered by the Sponsor to the Trustee is not in recordable form at such time as the assignment of mortgage is to be recorded by the Trustee. (d) In the case of Mortgage Loans which have been prepaid in full on or after the Initial Cut-Off Date and prior to the Startup Day, or on or after any Subsequent Cut-Off Date and prior to the related Subsequent Transfer Date, as the case may be, the Sponsor, in lieu of the assignment of mortgage, will deliver within 15 Business Days after the Startup Day or Subsequent Transfer Date, to the Trustee a certification of an Authorized Officer of the Sponsor in the form set forth in Exhibit C. (e) The Sponsor (or any Warehouse Trust, or any affiliate of the Sponsor) shall transfer, sell, assign, set over and otherwise convey without recourse, to the Trustee all right, title and interest of the Sponsor (or any Warehouse Trust or of such affiliate) in and to any Qualified Replacement Mortgage delivered to the Trustee pursuant to Section 3.3, Section 3.4 or Section 3.6 hereof and all its right, title and interest to principal collected and interest accruing on such Qualified Replacement Mortgage on and after the applicable Replacement Cut-Off Date; provided, however, that the Sponsor (or the Conduit Acquisition or such affiliate) shall reserve and retain all right, title and interest in and to payments of principal due and interest accrued on such Qualified Replacement Mortgage prior to the applicable Replacement Cut-Off Date. (f) As to each Mortgage Loan released from the Trust in connection with the conveyance of a Qualified Replacement Mortgage therefor, the Trustee will transfer, sell, assign, set over and otherwise convey without recourse, on the Sponsor's order, all of its right, title and 50 51 interest in and to such released Mortgage Loan and all the Trust's right, title and interest to principal collected and interest accruing on such released Mortgage Loan on and after the applicable Replacement Cut-Off Date; provided, however, that the Trust shall reserve and retain all right, title and interest in and to payments of principal collected and interest accruing on such released Mortgage Loan prior to the applicable Replacement Cut-Off Date. (g) In connection with any transfer and assignment of a Qualified Replacement Mortgage to the Trustee on behalf of the Trust, the Sponsor agrees to cause to be delivered to the Trustee the items described in Section 3.5(c) on the date of such transfer and assignment or, if a later delivery time is permitted by Section 3.5(c), then no later than such later delivery time. (h) As to each Mortgage Loan released from the Trust in connection with the conveyance of a Qualified Replacement Mortgage the Trustee shall deliver, on the date of conveyance of such Qualified Replacement Mortgage, on the order of the Sponsor (i) the original Note, or the certified copy, relating thereto, endorsed without recourse, to the Sponsor and (ii) such other documents as constituted the File with respect thereto. (i) 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 Sponsor shall prepare a substitute assignment or cure such defect, as the case may be, and thereafter cause each such assignment to be duly recorded. (j) The Sponsor shall cause to be reflected on the applicable records that the Mortgage Loans have been sold to the Trust. (k) To the extent that the ratings, if any, then assigned to the unsecured debt of the Sponsor or of the Sponsor's ultimate corporate parent are satisfactory to the Control Party and [Rating Agency/Agencies], then any of the Document Delivery Requirements described above may be waived by an instrument signed by the Control Party and [Rating Agency/Agencies] (or any documents theretofore delivered to the Trustee returned to the Sponsor) on such terms and subject to such conditions as the Control Party, [Rating Agency/Agencies] may permit. (l) The Sponsor shall, in connection with the delivery of each Qualified Replacement Mortgage to the Trustee, provide the Trustee with the information set forth in the Schedules of Mortgage Loans with respect to such Qualified Replacement Mortgage. SECTION 3.6. ACCEPTANCE BY TRUSTEE; CERTAIN SUBSTITUTIONS OF MORTGAGE LOANS; CERTIFICATION BY TRUSTEE. (a) The Trustee agrees to execute and deliver on the Startup Day, on any Subsequent Transfer Date and any day on which a Qualified Replacement Mortgage is conveyed to the Trust an acknowledgment of receipt in the form attached as Exhibit D hereto of the Files delivered by the Sponsor, and declares that it will hold such documents and any amendments, replacement or supplements thereto, as well as any other assets included in the definition of Trust Estate and delivered to the Trustee, as Trustee in trust upon and subject to the conditions set forth herein for the benefit of the Owners and the Certificate Insurer. On or before the tenth Business Day after the Startup Day, any Subsequent Transfer Date, and any day on which a Qualified Replacement Mortgage is conveyed to the Trust, the Trustee shall execute and deliver to the Certificate Insurer and the Master Servicer an acknowledgment of receipt of the original Notes 51 52 for each Mortgage Loan. The Trustee further agrees to review any documents delivered by the Sponsor within 90 days after the Startup Day (or within 90 days with respect to any Subsequent Mortgage Loan or Qualified Replacement Mortgage after the assignment thereof) and to deliver to the Sponsor, the Certificate Insurer and the Master Servicer a Certification in the form attached as Exhibit E hereto. The Trustee shall be under no duty or obligation to inspect, review or examine any such documents, instruments, certificates or other papers to determine that they are genuine, enforceable, or appropriate for the represented purpose or that they are other than what they purport to be on their face, nor shall the Trustee be under any duty to determine independently whether there are any intervening assignments or assumption or modification agreements with respect to any Mortgage Loan. (b) If the Trustee during such 90-day period finds any document 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 Schedules of Mortgage Loans, or that any Mortgage Loan does not conform in a material respect to the description thereof as set forth in the Schedules of Mortgage Loans, the Trustee shall promptly so notify the Sponsor and the Certificate Insurer. In performing any such review, the Trustee may conclusively rely on the Sponsor as to the purported genuineness of any such document and any signature thereon. The Sponsor agrees to use reasonable efforts to remedy a material defect in a document constituting part of a File of which it is so notified by the Trustee. If, however, within 60 days after the Trustee's notice to it respecting such defect the Sponsor has not remedied or caused to be remedied the defect and the defect materially and adversely affects the interest in the related Mortgage Loan of the Owners or of the Certificate Insurer, the Sponsor will (or will cause the related Originator or an affiliate of the Sponsor 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 Master 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 Master Servicer for deposit in the Principal and Interest Account. In connection with any such proposed purchase or substitution the Sponsor shall cause at the Sponsor's expense to be delivered to the Trustee and the Certificate Insurer an opinion of counsel experienced in federal income tax matters stating whether or not such a proposed purchase or substitution would constitute a Prohibited Transaction for the Upper-Tier REMIC or Lower-Tier REMIC or would jeopardize the status of the Upper-Tier REMIC or Lower-Tier REMIC as a REMIC, and the Sponsor shall only be required to take either such action to the extent such action would not constitute a Prohibited Transaction for the Upper-Tier REMIC or Lower-Tier REMIC or would not jeopardize the status of the Upper-Tier REMIC or Lower-Tier REMIC as a REMIC. Any required purchase or substitution, if delayed by the absence of such opinion shall nonetheless occur upon the earlier of (i) the occurrence of a default or imminent default with respect to the Mortgage Loan or (ii) the delivery of such opinion or (iii) at the direction of the Control Party. SECTION 3.7. COOPERATION PROCEDURES. (a) The Sponsor, the Master Servicer and the Trustee covenant to provide each other and to the Certificate Insurer 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 by any of them in connection with their respective duties hereunder. 52 53 SECTION 3.8. CONVEYANCE OF THE SUBSEQUENT MORTGAGE LOANS. (a) On any Subsequent Transfer Date, subject to the conditions set forth in paragraph (b) below in consideration of the Trustee's delivery to or upon the order of the Sponsor of all or a portion of the balance of funds in the Pre-Funding Account which shall be [$____________] with respect to Group I Loans and [$___________] with respect to Group II Loans, the Sponsor shall sell, transfer, assign, set over and otherwise convey, or shall request or cause the Trust to acquire from such Warehouse Trust all right, title and interest in and to each Subsequent Mortgage Loan listed on the Schedule of Mortgage Loans delivered by the Sponsor to the Trustee on such Subsequent Transfer Date, all right, title and interest in and to principal collected and interest accruing on each such Subsequent Mortgage Loan on and after the related Subsequent Cut-Off Date and all right, title and interest in and to all Insurance Policies; provided, however, that the Sponsor reserves and retains all its right, title and interest in and to principal collected and interest accruing on each such Subsequent Mortgage Loan prior to the related Subsequent Cut-Off Date. The transfer to the Trust of the Subsequent Mortgage Loans set forth on the Schedule of Mortgage Loans shall be absolute and shall be intended by the Sponsor and the Owners and all parties hereto to be treated as a sale by the Sponsor or the Warehouse Trust. The amount released from the Pre-Funding Account shall be equal to the aggregate Loan Balances of the Subsequent Mortgage Loans so transferred. (b) The Sponsor shall transfer or cause to be transferred to the Trust the Subsequent Mortgage Loans and the other property and rights related thereto described in paragraph (a) above only upon the satisfaction of each of the following conditions on or prior to the related Subsequent Transfer Date. (i) the Sponsor shall have provided the Trustee, the Certificate Insurer and [Rating Agency/Agencies] with an Addition Notice and shall have provided any information in an electronic data file form as reasonably requested by any of the foregoing and in a form agreeable to any of the foregoing with respect to the Subsequent Mortgage Loans; (ii) the Sponsor shall have delivered to the Trustee a duly executed written assignment (including an acceptance by the Trustee) in substantially the form of Exhibit K (the "Subsequent Transfer Agreement"), which shall include a Schedule of Mortgage Loans listing the Subsequent Mortgage Loans and any other exhibits listed thereon; (iii) as of each Subsequent Transfer Date, the Sponsor shall have deposited in the Principal and Interest Account all principal collections and interest accrued (excluding premium recapture and interest accrued prior to the related Subsequent Cut-Off Date) in respect of the Subsequent Mortgage Loans received on or after the related Subsequent Cut-Off Date; (iv) as of each Subsequent Transfer Date, none of the related Originator, the Master Servicer or the Sponsor was insolvent nor will any of them have been made insolvent by such transfer nor is any of them aware of any pending insolvency; (v) such addition will not result in a material adverse tax consequence to the Trust or the Owners of the Certificates; 53 54 (vi) the Pre-Funding Period shall not have terminated; (vii) the Sponsor shall have delivered to the Trustee an Officer's Certificate confirming (A) the satisfaction of each condition precedent specified in this paragraph (b) and paragraphs (c) and (d) below, and in the related Subsequent Transfer Agreement and (B) confirming that (i) neither the sale of the Subsequent Mortgage Loans by Advanta nor the purchase of the Subsequent Mortgage Loans by the Trust constitutes a "prohibited transaction", as defined in Section 860F(a)(2) of the Code, and (ii) the Subsequent Mortgage Loans are Qualified Mortgages; (viii) the Sponsor shall have delivered to the Rating Agencies, the Certificate Insurer, and the Trustee, 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 Trustee on the Startup Day (bankruptcy, corporate and tax opinions); (ix) an independent accountant retained by the Sponsor provides the Sponsor with a letter (with copies provided to the Rating Agencies, the Certificate Insurer, the Underwriters and the Trustee) stating whether or not the characteristics of the Subsequent Mortgage Loans conform to the characteristics described in the Pooling and Servicing Agreement. In preparing such letter, the independent accountant must use the same type of procedures as were applicable to the Initial Mortgage Loans which were transferred to the Trust as of the Startup Day; (x) The Rating Agencies shall have provided confirmation that the rating of the Certificates will not be adversely affected by such transfer of Subsequent Mortgage Loans; and (xi) the Certificate Insurer shall have approved the transfer. (c) The obligation of the Trust to purchase a Subsequent Mortgage Loan on any Subsequent Transfer Date 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 may not have a combined loan-to-value ratio ("CLTV") in excess of 100%; (iv) such Subsequent Mortgage Loan may not have a Loan Balance in excess of $500,000; and (v) following the purchase of Subsequent Mortgage Loans for Group I by the Trust, the Mortgage Loans in Group I (including the Subsequent Mortgage Loans) (a) will have a weighted average Coupon Rate of at least [____%]; (b) will have a weighted average CLTV of not more than [_____%]; (c) will have not less than [_____%], by aggregate principal balance, Mortgage Loans that are considered "fully documented" loans; (d) will have not less than [_____%], by aggregate principal balance, Mortgage Loans that are related to single family detached residences; (e) will have at least [_____%], by aggregate principal balance, Mortgage Loans which are first lien mortgages, (f) will have at least [_____%] by aggregate principal balance of Mortgage Loans which are "A-" classified or better, (g) will have not more than [_____%], by aggregate principal balance, Mortgage Loans that are "C" classified; (h) will have not more than [_____%], by aggregate principal balance, Mortgage Loans that are "D" classified; (i) no more that [_____%] of the Subsequent Mortgage Loans will be Unaffiliated Mortgage Loans; (j) no more than [_____%] by aggregate principal balance of Mortgage Loans will have a CLTV of [_____%] or greater; (k) no more than [_____%] by aggregate principal balance of Mortgage Loans will have a CLTV of [_____%] or greater and (vi) following the purchase of Subsequent Mortgage Loans for Group II by the Trust, the Mortgage Loans in Group 54 55 II (including the Subsequent Mortgage Loans) (a) will have a weighted average Coupon Rate by aggregate principal balance of Mortgage Loans of at least [_____%]; (b) will have a weighted average CLTV of no more than [_____%]; (c) will not have less than [_____%] by aggregate principal of Mortgage Loans that are considered "fully documented"; (d) will not have less than [_____%] by aggregate principal balance of Mortgage Loans that are related to single family detached residences; (e) will have a weighted average margin of at least [_____%]; (f) no more than [_____%] of the Subsequent Mortgage Loans will be Junior Mortgage Loans; (g) will have at least [_____%] by aggregate principal balance of Mortgage Loans which are "A-" classified or better; (h) will have not more than [_____%], by aggregate principal balance, Mortgage Loans that are "C" classified; (i) will have not more than [_____%], by aggregate principal balance, Mortgage Loans that are "D" classified; (j) no more that [_____%] of the Subsequent Mortgage Loans will be Unaffiliated Mortgage Loans; (k) no more than [_____%] by aggregate principal balance of Mortgage Loans will have a CLTV of [_____%] or greater; (l) no more than [_____%] by aggregate principal balance of Mortgage Loans will have a CLTV of [_____%] or greater. The Certificate Insurer may waive or modify any of the above requirements or specify any additional criteria provided that any such modification shall not materially and adversely affect the Sponsor. (d) In connection with the transfer and assignment of the Subsequent Mortgage Loans, the Sponsor agrees to satisfy the conditions set forth in Sections 3.5(b)-(j), 3.6, 3.7 and 3.8(b)-(c). (e) In connection with each Subsequent Transfer Date and on the Payment Dates occurring in [__________, _____], [__________, _____] and [__________, _____] the Master Servicer and the Trustee shall co-operate in determining (i) the amount and correct dispositions of Group I Capitalized Interest Requirement, the Group II Capitalized Interest Requirement, the Pre-Funding Earnings and the amount then on deposit in the Pre-Funding Account, 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 incorrectly released to the Owners of the [Residual Class] Certificates from either of the Pre-Funding Account or the Capitalized Interest Account, such Owners of the [Residual Class] Certificates shall immediately repay such amounts to the Trustee. ARTICLE IV ISSUANCE AND SALE OF CERTIFICATES SECTION 4.1. ISSUANCE OF CERTIFICATES. On the Startup Day, upon the Trustee's receipt from the Sponsor of an executed Delivery Order in the form set forth as Exhibit F hereto, the Trustee shall execute, authenticate and deliver the Certificates on behalf of the Trust in accordance with the directions set forth in such Delivery Order. SECTION 4.2. SALE OF CERTIFICATES. At 11 a.m. New York City time on the Startup Day, at the offices of Dewey Ballantine LLP, 1301 Avenue of the Americas, New York, New York, the Sponsor will sell and convey the Initial Mortgage Loans and the money, instruments and other property related thereto to the Trustee on behalf of the Trust, and the Trustee will (i) deliver to the Representative, the Group I Certificates and the Group II Certificates with an aggregate Percentage Interest in each Class equal to 100%, 55 56 registered in the name of Cede & Co. or in such other names as the Representative shall direct, against payment of the purchase price thereof by wire transfer of immediately available funds to the Trustee; (ii) deliver to the Trustee, the Class B Certificate with an aggregate Percentage Interest equal to 100%, registered in the name of the Trustee on behalf of the Class [A-2] Supplemental Interest Payment Account; (iii) deliver to [Residual Class Certificateholder], the [Residual Class] Certificates with an aggregate Percentage Interest equal to 100%, registered in such names as the [Residual Class Certificateholder] shall request; and (iv) deliver to the Trustee on behalf of the Owners of the Supplemental Interest Right, the certificate representing the Supplemental Interest Right. Upon receipt of the proceeds of the sale of the Certificates, the Trustee shall, from the proceeds of the sale of the Certificates, pay other fees and expenses identified by the Sponsor, deposit the Group I Original Pre-Funded Amount and the Group II Original Pre-Funded Amount into the Pre-Funding Account, deposit the Group I Capitalized Interest Deposit and the Group II Capitalized Interest Deposit into the Capitalized Interest Account and pay to the Sponsor the balance after deducting such amounts. ARTICLE V CERTIFICATES AND TRANSFER OF INTERESTS SECTION 5.1. TERMS. (a) The Certificates are pass-through securities having the rights described therein and herein. Notwithstanding references herein or therein with respect to the Certificates as to "principal" and "interest" no debt of any Person is represented thereby, nor are the Certificates or the underlying Notes guaranteed by any Person (except that the Notes may be recourse to the Mortgagors thereof to the extent permitted by law and except for the rights of the Trustee with respect to the Certificate Insurance Policy). Distributions on the Certificates are payable solely from payments received on or with respect to the Mortgage Loans (other than the Servicing Fees), monies in the Principal and Interest Account, the Pre-Funding Account, the Capitalized Interest Account and, with respect to the Class [A-2] Certificate, the Class [A-2] Supplemental Interest Payment Account, except as otherwise provided herein, from earnings on monies and the proceeds of property held as a part of the Trust Estate and, from Insured Payments. Each Certificate entitles the Owner thereof to receive monthly, on each Payment Date, in order of priority of distributions with respect to such Class of Certificates, a specified portion of such payments with respect to the Mortgage Loans in the related Mortgage Loan Group and Insured Payments, pro rata in accordance with such Owner's Percentage Interest and, with respect to the Class [A-2] Certificate, certain amounts payable from the Class [A-2] Supplemental Interest Payment Account. (b) Each Owner is required, and hereby agrees, to return to the Trustee any Certificate with respect to which the Trustee has made the final distribution due thereon. Any such Certificate as to which the Trustee has made the final distribution thereon shall be deemed cancelled and shall no longer be Outstanding for any purpose of this Agreement, whether or not such Certificate is ever returned to the Trustee. SECTION 5.2. FORMS. The Certificates shall be in substantially the forms set forth in Exhibit A hereof with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Agreement or as may in the Sponsor's judgment be necessary, appropriate or convenient 56 57 to comply, or facilitate compliance, with applicable laws, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any applicable securities laws or as may, consistently herewith, be determined by the Authorized Officer of the Sponsor executing such Delivery Order, as evidenced by his execution thereof. SECTION 5.3. EXECUTION, AUTHENTICATION AND DELIVERY. Each Certificate shall be executed on behalf of the Trust, by the manual signature of one of the Trustee's Authorized Officers and shall be authenticated by the manual signature of one of the Trustee's Authorized Officers. (a) Certificates bearing the manual signature of individuals who were at any time the proper officers of the Trustee shall, upon proper authentication by the Trustee, bind the Trust, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the execution and delivery of such Certificates or did not hold such offices at the date of authentication of such Certificates. (b) The initial Certificates shall be dated as of the Startup Day and delivered at the Closing to the parties specified in Section 4.2 hereof. (c) No Certificate shall be valid until executed and authenticated as set forth above. SECTION 5.4. REGISTRATION AND TRANSFER OF CERTIFICATES. (a) The Trustee, as registrar, shall cause to be kept a register (the "Register") in which, subject to such reasonable regulations as it may prescribe, the Trustee shall provide for the registration of Certificates and the registration of transfer of Certificates. The Trustee is hereby appointed registrar for the purpose of registering Certificates and transfers of Certificates as herein provided. The Owners and the Certificate Insurer shall have the right to inspect the Register at all reasonable times and to obtain copies thereof. (b) Subject to the provisions of Section 5.8 hereof, upon surrender for registration of transfer of any Certificate at the office designated as the location of the Register, the Trustee shall execute, authenticate and deliver, in the name of the designated transferee or transferees, one or more new Certificates of a like Class and in the aggregate principal amount of the Certificate so surrendered. (c) At the option of any Owner, Certificates of any Class owned by such Owner may be exchanged for other Certificates authorized of like Class, tenor and a like aggregate original principal amount and bearing numbers not contemporaneously outstanding, upon surrender of the Certificates to be exchanged at the office designated as the location of the Register. Whenever any Certificate is so surrendered for exchange, the Trustee shall execute, authenticate and deliver the Certificate or Certificates which the Owner making the exchange is entitled to receive. (d) Certificates issued upon any registration of transfer or exchange of Certificates shall be valid evidence of the same ownership interests in the Trust and entitled to the same benefits under this Agreement as the Certificates surrendered upon such registration of transfer or exchange. 57 58 (e) Any Certificate presented or surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Trustee duly executed by the Owner thereof or his attorney duly authorized in writing. (f) No service charge shall be made to an Owner for any registration of transfer or exchange of Certificates, but the Trustee 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 Certificates; any other expenses in connection with such transfer or exchange shall be an expense of the Trust. (g) It is intended that the Class [A] Certificates be registered so as to participate in a global book-entry system with the Depository, as set forth herein. Each Class of Class [A] Certificates shall, except as otherwise provided in the next paragraph, be initially issued in the form of a single fully registered Class [A] Certificate with a denomination equal to the Aggregate Certificate Principal Balance. Upon initial issuance, the ownership of each such Class [A] Certificate shall be registered in the Register in the name of Cede & Co., or any successor thereto, as nominee for the Depository. The Sponsor and the Trustee are hereby authorized to execute and deliver the Representation Letter with the Depository. With respect to Class [A] Certificates registered in the Register in the name of Cede & Co., as nominee of the Depository, the Sponsor, the Master Servicer, the Certificate Insurer and the Trustee shall have no responsibility or obligation to Direct or Indirect Participants or beneficial owners for which the Depository holds Class [A] Certificates from time to time as a Depository. Without limiting the immediately preceding sentence, the Sponsor, the Master Servicer, the Certificate Insurer and the Trustee shall have no responsibility or obligation with respect to (i) the accuracy of the records of the Depository, Cede & Co., or any Direct or Indirect Participant with respect to the ownership interest in the Class [A] Certificates, (ii) the delivery to any Direct or Indirect Participant or any other Person, other than a registered Owner of a Class [A] Certificate as shown in the Register, of any notice with respect to the Class [A] Certificates or (iii) the payment to any Direct or Indirect Participant or any other Person, other than a registered Owner of a Class [A] Certificate as shown in the Register, of any amount with respect to any distribution of principal or interest on the Class [A] Certificates. No Person other than a registered Owner of a Class [A] Certificate as shown in the Register shall receive a certificate evidencing such Class [A] Certificate. Upon delivery by the Depository to the Trustee of written notice to the effect that the Depository has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions hereof with respect to the payment of interest by the mailing of checks or drafts to the registered Owners of Class [A] Certificates appearing as registered Owners in the registration books maintained by the Trustee at the close of business on a Record Date, the name "Cede & Co." in this Agreement shall refer to such new nominee of the Depository. (h) In the event that (i) the Depository or the Sponsor advises the Trustee and the Certificate Insurer in writing that the Depository is no longer willing or able to discharge properly its responsibilities as nominee and depository with respect to the Class [A] Certificates and the Sponsor or the Trustee is unable to locate a qualified successor or (ii) the Sponsor at its sole option elects to terminate the book-entry system through the Depository, the Class [A] Certificates shall no longer be restricted to being registered in the Register in the name of Cede & 58 59 Co. (or a successor nominee) as nominee of the Depository. At that time, the Sponsor may determine that the Class [A] Certificates shall be registered in the name of and deposited with a successor depository operating a global book-entry system, as may be acceptable to the Sponsor, or such depository's agent or designee but, if the Sponsor does not select such alternative global book-entry system, then the Class [A] Certificates may be registered in whatever name or names registered Owners of Class [A] Certificates transferring Class [A] Certificates shall designate, in accordance with the provisions hereof; provided, that the cost of any such re-registration shall be paid by the Sponsor. (i) Notwithstanding any other provision of this Agreement to the contrary, so long as any Class [A] Certificate is registered in the name of Cede & Co., as nominee of the Depository, all distributions of principal or interest on such Class [A] Certificates as the case may be and all notices with respect to such Class [A] Certificates as the case may be shall be made and given, respectively, in the manner provided in the Representation Letter. (j) Neither the Sponsor, the Master Servicer, the Certificate Insurer, nor the Trustee will have any liability for any actions taken by DTC or its nominee, Euroclear or CEDEL, including, without limitation, actions for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Class [A] Certificates held by Euroclear, CEDEL or Cede & Co., as nominee for DTC, or for maintaining supervising or reviewing any records relating to such beneficial ownership interests. SECTION 5.5. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES. If (i) any mutilated Certificate is surrendered to the Trustee, or the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Certificate, and (ii) in the case of any mutilated Certificate, such mutilated Certificate shall first be surrendered to the Trustee, and in the case of any destroyed, lost or stolen Certificate, there shall be first delivered to the Trustee such security or indemnity as may be reasonably required by it to hold the Trustee harmless (provided, that with respect to an Owner which is an insurance company, a letter of indemnity furnished by it shall be sufficient for this purpose; provided, that such insurance company possesses at least an investment grade rating from any of the Rating Agencies), then, in the absence of notice to the Trustee that such Certificate has been acquired by a bona fide purchaser, the Trustee shall execute, authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like Class, tenor and aggregate principal amount, bearing a number not contemporaneously outstanding. Upon the issuance of any new Certificate under this Section, the Trustee may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto; any other expenses in connection with such issuance shall be an expense of the Trust. Every new Certificate issued pursuant to this Section in exchange for or in lieu of any mutilated, destroyed, lost or stolen Certificate shall constitute evidence of a substitute interest in the Trust, and shall be entitled to all the benefits of this Agreement equally and proportionately with any and all other Certificates of the same Class duly issued hereunder and such mutilated, destroyed, lost or stolen Certificate shall not be valid for any purpose. 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 Certificates. 59 60 SECTION 5.6. PERSONS DEEMED OWNERS. The Trustee and any agent of the Trustee may treat the Person in whose name any Certificate is registered as the Owner of such Certificate for the purpose of receiving distributions with respect to such Certificate and for all other purposes whatsoever, and neither the Trustee nor any agent of the Trustee shall be affected by notice to the contrary. SECTION 5.7. CANCELLATION. All Certificates surrendered for registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. No Certificate shall be authenticated in lieu of or in exchange for any Certificate cancelled as provided in this Section, except as expressly permitted by this Agreement. All cancelled Certificates may be held by the Trustee in accordance with its standard retention policy. SECTION 5.8. LIMITATION ON TRANSFER OF OWNERSHIP RIGHTS. (a) No sale or other transfer of any Class [A] Certificate shall be made to the Sponsor, any Originator or any of their respective affiliates, other than Advanta National Bank or Advanta Bank Corp. (b) No sale or other transfer of record or beneficial ownership of a [Residual Class] Certificate (whether pursuant to a purchase, a transfer resulting from a default under a secured lending agreement or otherwise) shall be made to a Disqualified Organization or an agent of a Disqualified Organization. The transfer, sale or other disposition of a [Residual Class] Certificate (whether pursuant to a purchase, a transfer resulting from a default under a secured lending agreement or otherwise) to a Disqualified Organization shall be deemed to be of no legal force or effect whatsoever and such transferee shall not be deemed to be an Owner for any purpose hereunder, including, but not limited to, the receipt of distributions on such [Residual Class] Certificate. Furthermore, in no event shall the Trustee accept surrender for transfer, registration of transfer, or register the transfer, of any [Residual Class] Certificate nor authenticate and make available any new [Residual Class] Certificate unless the Trustee has received an affidavit from the proposed transferee in the form attached hereto as Exhibit I. Each holder of a [Residual Class] Certificate by his acceptance thereof, shall be deemed for all purposes to have consented to the provisions of this Section 5.08(b). (c) No other sale or other transfer of record or beneficial ownership of a [Residual Class] Certificate shall be made unless such transfer is exempt from the registration requirements of the Securities Act of 1933, as amended, and any applicable state securities laws or is made in accordance with said Act and laws. In the event such a transfer is to be made within two years from the Startup Day, (i) the Trustee or the Sponsor shall require a written opinion of counsel acceptable to and in form and substance satisfactory to the Sponsor that such transfer may be made pursuant to an exemption, describing the applicable exemption and the basis therefor, from said Act and laws or is being made pursuant to said Act and laws, which opinion of counsel shall not be an expense of the Trustee or the Sponsor, and (ii) the Trustee shall require the Transferee to execute an investment letter acceptable to and in form and substance satisfactory to the Sponsor certifying to the Trustee and the Sponsor the facts surrounding such transfer, which investment letter shall not be an expense of the Trustee or the Sponsor. The Owner of a [Residual Class] Certificate desiring to effect such transfer shall, and does hereby agree to, indemnify the Trustee and the Sponsor against any liability that may result if the transfer is not so exempt or is not made in accordance with such federal and state laws. No [Residual 60 61 Class] Certificate shall be acquired by or transferred to (i) an employee benefit plan (as defined in section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) subject to the provisions of Title I of ERISA, (ii) a plan (as defined in Section 4975(e)(1) of the Code) subject to Section 4975 of the Code, or (iii) an entity whose underlying assets are deemed to be assets of a plan described in (i) or (ii) above by reason of such plan's investment in the entity (each, a "Benefit Plan Entity"). Any transferee of a [Residual Class] Certificate shall deliver to the Trustee a certificate to the effect that it is not a Benefit Plan Entity. SECTION 5.9. ASSIGNMENT OF RIGHTS. An Owner may pledge, encumber, hypothecate or assign all or any part of its right to receive distributions hereunder, but such pledge, encumbrance, hypothecation or assignment shall not constitute a transfer of an ownership interest sufficient to render the transferee an Owner of the Trust without compliance with the provisions of Section 5.4 and Section 5.8 hereof. ARTICLE VI COVENANTS SECTION 6.1. DISTRIBUTIONS. The Trustee will duly and punctually pay distributions with respect to the Certificates in accordance with the terms of the Certificates and this Agreement. Such distributions shall be made (i) by check mailed on each Payment Date or (ii) if requested by any Owner, to such Owner by wire transfer to an account within the United States designated no later than five Business Days prior to the related Record Date, made on each Payment Date, in each case to each Owner of record on the immediately preceding Record Date; provided, however, that an Owner of a Class [A] Certificate shall only be entitled to payment by wire transfer if such Owner owns Class [A] Certificates in the aggregate denomination of at least $5,000,000. SECTION 6.2. MONEY FOR DISTRIBUTIONS TO BE HELD IN TRUST; WITHHOLDING. (a) All payments of amounts due and payable with respect to any Certificate that are to be made from amounts withdrawn from the Certificate Account pursuant to Section 7.5 hereof or from Insured Payments shall be made by and on behalf of the Trustee, and no amounts so withdrawn from the Certificate Account for payments of the Certificates and no Insured Payment shall be paid over to the Trustee except as provided in this Section. (b) The Trustee on behalf of the Trust shall comply with all requirements of the Code and applicable state and local law with respect to the withholding from any distributions made by it to any Owner of any applicable withholding taxes imposed thereon and with respect to any applicable reporting requirements in connection therewith. (c) Any money held by the Trustee in trust for the payment of any amount due with respect to any Class [A] Certificate and remaining unclaimed by the Owner of such Class [A] Certificate for the period then specified in the escheat laws of the State of New York after such amount has become due and payable shall be discharged from such trust and be paid first, to the Certificate Insurer on account of any Reimbursement Amount, and second to the Owners of the [Residual Class] R Certificates; and the Owner of such Class [A] Certificate shall thereafter, as an unsecured general creditor, look only to the Owners of the [Residual Class] 61 62 Certificates, or the Certificate Insurer for payment thereof (but only to the extent of the amounts so paid to the Certificate Insurer or the Owners of the [Residual Class] Certificates), and all liability of the Trustee with respect to such trust money shall thereupon cease; provided, however, that the Trustee, before being required to make any such payment, shall at the expense of the Sponsor cause to be published once, in the eastern edition of The Wall Street Journal, notice that such money remains unclaimed and that, after a date specified therein, which shall be not fewer than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be paid to the Certificate Insurer or the Owners of the [Residual Class] Certificates as provided above. The Trustee shall, at the direction of the Sponsor, also adopt and employ, at the expense of the Sponsor, any other reasonable means of notification of such payment (including but not limited to mailing notice of such payment to Owners whose right to or interest in monies due and payable but not claimed is determinable from the Register at the last address of record for each such Owner). SECTION 6.3. PROTECTION OF TRUST ESTATE. (a) The Trustee will hold the Trust Estate in trust for the benefit of the Owners and the Certificate Insurer as their interests may appear, and, upon request of the Certificate Insurer, or with the consent of the Certificate Insurer, at the request and expense of the Sponsor, will from time to time execute and deliver all such supplements and amendments hereto pursuant to Section 11.14 hereof and all instruments of further assurance and other instruments, and will take such other action upon such request as it deems reasonably necessary or advisable, to: (i) more effectively hold in trust all or any portion of the Trust Estate; (ii) perfect, publish notice of, or protect the validity of any grant made or to be made by this Agreement; (iii) enforce any of the Mortgage Loans; or (iv) preserve and defend title to the Trust Estate and the rights of the Trustee, and the ownership interests of the Owners represented thereby, in such Trust Estate against the claims of all Persons and parties. The Trustee shall send copies of any request received from the Certificate Insurer or the Sponsor to take any action pursuant to this Section 6.3 to the other party. (b) The Trustee shall have the power to enforce, and shall enforce the obligations of the other parties to this Agreement and of the Certificate Insurer by action, suit or proceeding at law or equity, and shall also have the power to enjoin, by action or suit in equity, any acts or occurrences which may be unlawful or in violation of the rights of the Owners; provided, however, that nothing in this Section shall require any action by the Trustee unless the Trustee shall first (i) have been furnished indemnity satisfactory to it and (ii) when required by this Agreement, have been requested to take such action by a majority of the Percentage Interests represented by the affected Class or Classes of Class [A] Certificates then Outstanding or, if there are no longer any affected Class [A] Certificates then outstanding, by such majority of the Percentage Interests represented by the [Residual Class] Certificates. 62 63 (c) The Trustee shall execute any instrument required pursuant to this Section so long as such instrument does not conflict with this Agreement or with the Trustee's fiduciary duties. SECTION 6.4. PERFORMANCE OF OBLIGATIONS. (a) The Trustee will not take any action that would release the Sponsor or the Certificate Insurer from any of their respective covenants or obligations under any instrument or document relating to the Trust Estate or the Certificates or which would result in the amendment, hypothecation, subordination, termination or discharge of, or impair the validity or effectiveness of, any such instrument or document, except as expressly provided in this Agreement or such other instrument or document. The Trustee may contract with other Persons to assist it in performing its duties hereunder. SECTION 6.5. NEGATIVE COVENANTS. The Trustee will not, to the extent within the control of the Trustee, take any of the following actions: (i) sell, transfer, exchange or otherwise dispose of any of the Trust Estate except as expressly permitted by this Agreement; (ii) claim any credit on or make any deduction from the distributions payable in respect of, the Certificates (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 any taxes levied or assessed upon any of the Trust Estate; (iii) incur, assume or guaranty on behalf of the Trust any indebtedness of any Person except pursuant to this Agreement; (iv) dissolve or liquidate the Trust Estate in whole or in part, except pursuant to Article IX hereof; or (v) (A) impair the validity or effectiveness of this Agreement, or release any Person from any covenants or obligations with respect to the Trust or to the Certificates under this Agreement, except as may be expressly permitted hereby or (B) create or extend any lien, charge, adverse claim, security interest, mortgage or other encumbrance to or upon the Trust Estate or any part thereof or any interest therein or the proceeds thereof. SECTION 6.6. NO OTHER POWERS. The Trustee will not, to the extent within the control of the Trustee, permit the Trust to engage in any business activity or transaction other than those activities permitted by Section 2.3 hereof. SECTION 6.7. LIMITATION OF SUITS. 63 64 No Owner shall have any right to institute any proceeding, judicial or otherwise, with respect to this Agreement or the Certificate Insurance Policy or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (A) such Owner has previously given written notice to the Sponsor, the Certificate Insurer, and the Trustee of such Owner's intention to institute such proceeding; (B) the Owners of not less than 25% of the Percentage Interests represented by the affected Class or Classes of Certificates then Outstanding or, if there are no affected Classes of Class [A] or Class [B] Certificates then Outstanding, by such percentage of the Percentage Interests represented by the [Residual Class] Certificates, shall have made written request to the Trustee to institute such proceeding in respect of such Event of Default; (C) such Owner or Owners have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (D) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute such proceeding; (E) as long as any Class [A] Certificate or any Reimbursement Amount is outstanding, the Certificate Insurer consented in writing thereto; and (F) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Certificate Insurer or by the Owners of a majority of the Percentage Interests represented by the Class [A] Certificates or, if there are no Class [A] Certificates then Outstanding, by such majority of the Percentage Interests represented by the [Residual Class] Certificates; it being understood and intended that no one or more Owners shall have any right in any manner whatever by virtue of, or by availing themselves of, any provision of this Agreement to affect, disturb or prejudice the rights of any other Owner of the same Class or to obtain or to seek to obtain priority or preference over any other Owner of the same Class or to enforce any right under this Agreement, except in the manner herein provided and for the equal and ratable benefit of all the Owners of the same Class. In the event the Trustee shall receive conflicting or inconsistent requests and indemnity from two or more groups of Owners, each representing less than a majority of the applicable Class of Certificates, the Trustee shall act at the direction of the Certificate Insurer, notwithstanding any other provision of this Agreement. SECTION 6.8. UNCONDITIONAL RIGHTS OF OWNERS TO RECEIVE DISTRIBUTIONS. Notwithstanding any other provision in this Agreement, the Owner of any Certificate shall have the right, which is absolute and unconditional, to receive distributions to the extent provided herein and therein with respect to such Certificate or to institute suit for the enforcement of any such distribution, and such right shall not be impaired without the consent of such Owner. 64 65 SECTION 6.9. RIGHTS AND REMEDIES CUMULATIVE. Except as otherwise provided herein, no right or remedy herein conferred upon or reserved to the Trustee, the Certificate 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. Except as otherwise provided herein, 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 6.10. DELAY OR OMISSION NOT WAIVER. No delay of the Trustee, the Certificate Insurer or any Owner of any Certificate to exercise any right or remedy under this Agreement to any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article VI or by law to the Trustee, the Certificate Insurer or to the Owners may be exercised from time to time, and as often as may be deemed expedient, by the Trustee, the Certificate Insurer or by the Owners, as the case may be. SECTION 6.11. CONTROL BY OWNERS. The Certificate Insurer (so long as a Certificate Insurer Default has not occurred and is continuing) or the Owners of a majority of the Percentage Interests represented by the Class [A] Certificates then Outstanding, with the consent of the Control Party (which may not be unreasonably withheld) or, if there are no longer any Class [A] Certificates then Outstanding, by such majority of the Percentage Interests represented by the [Residual Class] Certificates then Outstanding, with the consent of the Control Party (which may not be unreasonably withheld) may direct the time, method and place of conducting any proceeding for any remedy available to the Control Party with respect to the Certificates or exercising any trust or power conferred on the Control Party with respect to the Certificates or the Trust Estate, including, but not limited to, those powers set forth in Section 6.3 and Section 8.20 hereof; provided that: (A) such direction shall not be in conflict with any rule of law or with this Agreement; (B) the Control Party shall have been provided with indemnity satisfactory to it; and (C) the Trustee may take any other action deemed proper by the Trustee, which is not inconsistent with such direction; provided, however, that the Trustee need not take any action which it determines might involve it in liability or may be unjustly prejudicial to the Owners not so directing; provided, further, that in the event that any directions provided by the Trustee and the Certificate Insurer conflict with each other, the Certificate Insurer's direction shall prevail. So long as an Certificate Insurer Default has not occurred and is continuing, the Certificate Insurer shall act as the Control Party and be subrogated thereto until all Reimbursement Amounts have been paid. 65 66 ARTICLE VII ACCOUNTS, DISBURSEMENTS AND RELEASES SECTION 7.1. COLLECTION OF MONEY. Except as otherwise expressly provided herein, the Trustee may demand payment or delivery of all money and other property payable to or receivable by the Trustee pursuant to this Agreement, including 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 Trustee by the Master Servicer or by any Sub-Servicer. The Trustee shall hold all such money and property received by it, other than pursuant to or as contemplated by Section 6.2(b) hereof, as part of the Trust Estate and shall apply it as provided in this Agreement. SECTION 7.2. ESTABLISHMENT OF ACCOUNTS. On or prior to the Startup Day, the Sponsor shall cause to be established, and the Trustee shall maintain, at the corporate trust office of the Trustee, a Certificate Account, a Pre-Funding Account, and a Capitalized Interest Account, each of which is to be held by the Trustee in the name of the Trust for the benefit of the Owners of the Certificates relating to such Mortgage Loan Group and the Certificate Insurer, as their interests may appear. SECTION 7.3. THE CERTIFICATE INSURANCE POLICY. On each Determination Date the Trustee shall determine with respect to the immediately following Payment Date: (a) The amounts to be on deposit in the Certificate Account on such Payment Date with respect to each Mortgage Loan Group (disregarding the amounts of any Insured Payments with respect to such Mortgage Loan Group) and equal to the sum of (x) such amounts excluding the amount of any Total Monthly Excess Cashflow amounts included in such amounts and excluding an amount equal to the Premium Amount with respect to such Mortgage Loan Group together with any Servicing Fees and Trustee's Fees with respect to such Mortgage Loan Group for the related Payment Date plus (y) any amounts of Total Monthly Excess Cashflow to be applied on account of such Mortgage Loan Group; the amounts described in the preceding clause (x) with respect to Group I and the related Payment Date, are the "Group I Available Funds" and with respect to Group II and the related Payment Date are the "Group II Available Funds"; the sum of the amounts described in the preceding clauses (x) and (y) are the "Group I Total Available Funds" with respect to the Mortgage Loans in Group I and "Group II Total Available Funds" with respect to the Mortgage Loans in Group II; provided, however, that the amounts which cannot be distributed to the Owners of the Class [A] Certificates as a result of proceedings under the United States Bankruptcy Code or similar insolvency laws will not be considered in determining the amount of Available Funds; (b) If a Group I Deficiency Amount and/or a Group II Deficiency Amount exists with respect to any Payment Date, the Trustee shall complete a Notice in the form of Exhibit A to the Certificate Insurance Policy and submit such notice to the Certificate Insurer no later than 12:00 noon New York City time on the second Business Day preceding such Payment Date as a claim for an Insured Payment in an amount equal to such Group I and/or Group II Deficiency Amount. Upon receipt of Insured Payments from the Certificate Insurer under the 66 67 Certificate Insurance Policy, the Trustee shall deposit such Insured Payments in the Certificate Account. (c) The Trustee shall distribute all Insured Payments received, or the proceeds thereof, in accordance with Section 7.5(b)(F) to the Owners of the related Class of Class [A] Certificates. (d) The Trustee shall (i) receive Insured Payments as attorney-in-fact of each Owner of the Class [A] Certificates of the related Class receiving any Insured Payment from the Certificate Insurer and (ii) disburse such Insured Payment to the Owners of the related Class [A] Certificates as set forth in Section 7.5(b)(F). The Certificate Insurer shall be entitled to receive the related Reimbursement Amount pursuant to Section 7.5(b)(D)(4) hereof with respect to each Insured Payment made by the Certificate Insurer. The Trustee hereby agrees on behalf of each Owner of Class [A] Certificates and the Trust for the benefit of the Certificate Insurer that it recognizes that to the extent the Certificate Insurer makes Insured Payments, either directly or indirectly (as by paying through the Trustee), to the Owners of such Class [A] Certificates, the Certificate Insurer will be entitled to receive the related Reimbursement Amount pursuant to Section 7.5(b)(D)(4) hereof. (e) The Trustee shall receive, as attorney-in-fact of each Owner of a Class [A] Certificate, any Insured Payment from the Certificate Insurer and disburse the same to each Owner of a Class [A] Certificate in accordance with the provisions of Section 7.3. Insured Payments disbursed by the Trustee from proceeds of the Certificate Insurance Policy shall not be considered payment by the Trust Estate nor shall such payments discharge the obligation of the Trust Estate with respect to such Class [A] Certificates, and the Certificate Insurer shall become the owner of such unpaid amounts due from the Trust Estate in respect of the Class [A] Certificates. The Trustee hereby agrees on behalf of each Owner of a Class [A] Certificate for the benefit of the Certificate Insurer that it recognizes that to the extent the Certificate Insurer makes any Group I Insured Payment or Group II Insured Payment, as applicable, either directly or indirectly (as by paying through the Trustee), to the Class [A] Certificateholders, the Certificate Insurer will be subrogated to the rights of the Class [A] Certificateholders with respect to such Insured Payment, shall be deemed to the extent of payments so made to be a registered Class [A] Certificateholder and shall receive all future distributions until all such Insured Payments by the Certificate Insurer, together with interest thereon at the interest rate borne by the Class [A] Certificates, have been fully reimbursed. To evidence such subrogation, the Trustee shall, or shall cause the Registrar to, note the Certificate Insurer's rights as subrogee on the registration books maintained by the Trustee or the Registrar upon receipt from the Certificate Insurer of proof of payment of any Group I Insured Payment or Group II Insured Payment, as applicable. The effect of the foregoing provisions is that, to the extent of Insured Payments made by it, the Certificate Insurer shall be paid before payment of the balance of the distributions are made to the other Owners of the Class [A] Certificates. SECTION 7.4. PRE-FUNDING ACCOUNT AND CAPITALIZED INTEREST ACCOUNT. (a) On the Startup Day, the Trustee will deposit, on behalf of the Owners, the Group I Original Pre-Funded Amount and the Group II Original Pre-Funded Amount in the Pre-Funding Account from the proceeds of the sale of the Certificates and on the Startup Day, the Trustee shall deposit, on behalf of the Owners, the Group I Capitalized Interest Deposit and the Group II Capitalized Interest Deposit in the Capitalized Interest Account from the proceeds of the sale of the Certificates. 67 68 (b) On any Subsequent Transfer Date, the Sponsor shall instruct the Trustee in writing 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 Trust on such Subsequent Transfer Date and pay such amount to or upon the order of the Sponsor upon satisfaction of the conditions set forth in Section 3.8 hereof with respect to such transfer. (c) If (x) the Pre-Funded Amount with respect to the related Mortgage Loan Group has not been reduced to zero by [__________, _____], or (y) the Pre-Funded Amount has been reduced to $100,000 or less, or (z) any Event of Default occurs and is continuing in each case after giving effect to any reductions in the Pre-Funded Amount on or before the related such Remittance Date, the Sponsor shall instruct the Trustee to withdraw from the Pre-Funding Account on such Remittance Date and deposit in the Certificate Account (i) on behalf of the owners of the Group I Certificates, the difference, if any, between (A) the Group I Original Pre-Funded Amount and (B) all amounts theretofore withdrawn from the Pre-Funding Account with respect to Subsequent Mortgage Loans purchased for Group I and (ii) on behalf of the Owners of the Group II Certificates, the difference, if any, between (A) the Group II Original Pre-Funded Amount and (B) all amounts theretofore withdrawn from the Pre-Funding Account with respect to Subsequent Mortgage Loans purchased for Group II. (d) On each Payment Date during the Pre-Funding Period, the Trustee shall transfer the Pre-Funding Earnings, if any, relating to such Payment Date from the Pre-Funding Account to the Certificate Account. (e) On the Payment Dates occurring in [__________, _____], [__________, _____] and [__________, _____], the Trustee shall transfer from the Capitalized Interest Account to the Certificate Account with respect to Group I, the Group I Capitalized Interest Requirement, if any, for such Payment Dates and with respect to Group II, the Group II Capitalized Interest Requirement, if any, for such Payment Dates. (f) On the Payment Date immediately following the end of the Pre-Funding Period, any amounts remaining in the Capitalized Interest Account after taking into account the transfers on such Payment Date described in clause (e) above shall be paid to the Owners of the [Residual Class] Certificates, and the Capitalized Interest Account shall be closed. SECTION 7.5. FLOW OF FUNDS. (a) On each Remittance Date, the Trustee shall deposit to the Certificate Account with respect to each Mortgage Loan Group, without duplication, (i) upon receipt, any Insured Payments relating to such Mortgage Loan Group, the proceeds of any liquidation of the assets of the Trust, insofar as such assets relate to such Mortgage Loan Group, together with the Monthly Remittance Amount with respect to such Mortgage Loan Group remitted by the Master Servicer or any Sub-Servicer and (ii) on the Payment Dates occurring in [__________, _____], [__________, _____] and [__________, _____], as applicable, (x) the Pre-Funding Earnings transferred by the Trustee pursuant to Section 7.4(d) hereof, (y) the Group I Capitalized Interest Requirement and the Group II Capitalized Interest Requirement to be transferred on such Payment Dates from the Capitalized Interest Account, pursuant to Section 7.4(e) hereof with respect to such Mortgage Loan Group and (z) the portion of the amount, if any, to be transferred on such Payment Date from the Pre-Funding Account, pursuant to Section 7.4(c) hereof with respect to such Mortgage Loan Group. 68 69 (b) On each Payment Date the Trustee shall make the following allocations, disbursements and transfers of amounts then on deposit in the Certificate Account with respect to each Mortgage Loan Group 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: (A) first, from amounts then on deposit in the Certificate Account with respect to such Mortgage Loan Group, to the Trustee, an amount equal to the Trustee's Fees then due to it with respect to such Mortgage Loan Group; (B) second, from amounts then on deposit in the Certificate Account with respect to such Mortgage Loan Group, to the Certificate Insurer the related Premium Amount for such Payment Date; (C) third, from amounts then on deposit in the Certificate Account to the Master Servicer, an amount equal to any Servicing Fees then due to it, to the extent not previously received by the Master Servicer pursuant to Sections 8.8(c)(i) or 8.9(a) hereof; (D) fourth, on each Payment Date, the Trustee shall allocate the Total Monthly Excess Cashflow with respect to each Mortgage Loan Group in the following order of priority: 1. first, such Total Monthly Excess Cashflow shall be allocated on such Payment Date with respect to the related Mortgage Loan Group in an amount equal to the excess, if any, of (x) the related Insured Distribution Amount for such Payment Date over (y) the Available Funds with respect to such Mortgage Loan Group for such Payment Date (the amount of such difference being the "Available Funds Shortfall" with respect to the related Mortgage Loan Group); 2. second, any portion of the Total Monthly Excess Cashflow with respect to such Mortgage Loan Group remaining after the application described in clause (1) above shall be allocated against any Available Funds Shortfall with respect to the other Mortgage Loan Group; 3. third, any portion of the Total Monthly Excess Cashflow with respect to such Mortgage Loan Group remaining after the allocations described in clauses (1) and (2) above shall be paid to the Certificate Insurer in respect of amounts owed on account of any Reimbursement Amount with respect to the related Mortgage Loan Group; 4. fourth, any portion of the Total Monthly Excess Cashflow with respect to such Mortgage Loan Group remaining after the allocations described in clauses (1), (2) and (3) above shall be paid to the Certificate Insurer in respect of any Reimbursement Amount with respect to the other Mortgage Loan Group; 69 70 (E) fifth, the amount, if any, of the Total Monthly Excess Cashflow with respect to a Mortgage Loan Group on a Payment Date remaining after the allocations described in clause (D) above is the "Net Monthly Excess Cashflow" with respect to such Mortgage Loan Group for such Payment Date; such amount is required to be applied in the following order of priority: 1. first, such Net Monthly Excess Cashflow shall be used to reduce to zero, through the payment of an Overcollateralization Increase Amount, any Overcollateralization Deficiency Amount with respect to the related Mortgage Loan Group as of such Payment Date; 2. second, any portion of the Net Monthly Excess Cashflow remaining after the application described in clause (1) above shall be used to reduce to zero, through the payment of an Overcollateralization Increase Amount, any Overcollateralization Deficiency Amount with respect to the other Mortgage Loan Group; 3. third, any remaining Net Monthly Excess Cashflow remaining after the applications described in clauses (1) and (2) above shall be paid to the Master Servicer to the extent of any unreimbursed Delinquency Advances, unreimbursed Servicing Advances and accrued and unpaid Servicing Fees, in each case as certified to the Trustee by the Master Servicer to be owing to it as of such Payment Date; (F) sixth, following the making by the Trustee of all allocations, transfers and disbursements described above under Sections 7.3 and 7.10 hereof and the prior clauses of this Section 7.5, from amounts (including any related Insured Payment) then on deposit in the Certificate Account with respect to each related Mortgage Loan Group, (such amount with respect to each Mortgage Loan Group, the related "Group Distribution Amount") shall be applied as follows: 1. with respect to the Group I Pool, the Group Distribution Amount shall be applied: (a) first, pro rata, to the Owners of the Group I Certificates, their respective Class [A] Current Interest; (b) second, pro rata, to the Owners of the Group I Certificates, their respective Class [A] Interest Carry Forward Amount; (c) third, the lesser of (x) the remaining amount of the Group Distribution Amount with respect to the Group I Pool and (y) the Group I Class [A] Principal Distribution Amount shall be applied in the following order of priority: 70 71 i. first, the Group I Class [A] Principal Distribution Amount shall be distributed to the Owners of the Class [A-1] Certificates in an amount equal to the Class [A-1] Principal Distribution Amount; ii. second, to the Owners of the Class [A-1] Certificates, any remaining amount of the Group I Class [A] Principal Distribution Amount for such Payment Date until the Certificate Principal Balance of the Class [A-1] Certificates has been reduced to zero. Notwithstanding the foregoing, on any Payment Date on which the Overcollateralization Amount related to Group I is zero and the Certificate Insurer is in default, the Principal Distribution Amount with respect to the Group I Certificates shall be distributed pro rata to the Owners of the Group I Certificates and not in accordance with the above priorities. 2. With respect to the Group II Pool, the Group Distribution Amount shall be applied: (a) first, pro rata, to the Owners of the Group II Certificates, their respective Class [A] Current Interest; (b) second, pro, rata, to the Owners of the Group II Certificates, their respective Class [A] Interest Carry Forward Amount; (c) third, the lesser of (x) the remaining amount of the Group Distribution Amount with respect to the Group II Pool and (y) the Group II Class [A] Principal Distribution Amount shall be distributed to the Owners of the Class [A-2] Certificates until the Certificate Principal Balance of Class [A-2] has been reduced to zero; (G) seventh, on each Payment Date, the Trustee shall transfer from amounts then on deposit in the Certificate Account to the Class [A-2] Supplemental Interest Payment Account, the Class [B] Distribution Amount; such transfer shall be deemed to be a distribution on the Class [B] Certificates; (H) eighth, on each Payment Date, the Trustee shall transfer all remaining monies then on deposit in the Certificate Account to the Owners of the [Residual Class] Certificates. (c) Notwithstanding paragraph (b) above, on any Payment Date during the continuance of any Certificate Insurer Default, no Premium Amounts or Reimbursement Amounts shall be paid to the Certificate Insurer unless the Certificate Insurer or its custodian, trustee, agent, receiver or similar official continues to make payment under the Policy, and any amounts otherwise payable to the Certificate Insurer as Premium Amounts or Reimbursement Amounts shall be retained in the Certificate Account as the Total Available Funds with respect to the related Mortgage Loan Group, as appropriate. On any Payment Date wherein such Certificate 71 72 Insurer Default has been cured, the Premium Amounts or Reimbursement Amount shall be paid to the Certificate Insurer. (d) Notwithstanding any of the foregoing provisions, the aggregate amount distributed to the Owners of any Class [A] Certificates on account of principal shall not exceed the Certificate Principal Balance for the related Class. SECTION 7.6. INVESTMENT OF ACCOUNTS. (a) So long as no event described in Sections 8.20(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 (other than the Principal and Interest Account) held by the Trustee shall be invested and reinvested by the Trustee in the name of the Trustee for the benefit of the Owners and the Certificate Insurer, as their interests may appear, as directed in writing by the Master Servicer, in one or more Eligible Investments bearing interest or sold at a discount, other than the Capitalized Interest Account which funds shall be invested and reinvested by the Trustee on behalf of the Master Servicer. The Master Servicer may invest funds held in the Principal and Interest Account in one or more Eligible Investments. During the continuance of an event described in Sections 8.20(a) or (b) hereof and following any removal of the Master Servicer, the Control Party shall direct such investments. No investment in any Account shall mature later than the Business Day immediately preceding the next Payment Date. (b) If any amounts are needed for disbursement from any Account held by the Trustee or the Master Servicer, as the case may be, and sufficient uninvested funds are not available to make such disbursement, the Trustee or the Master Servicer, as the case may be, 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 Section 10.1 hereof, the Trustee shall not in any way be held liable by reason of any insufficiency in any Account held by the Trustee resulting from any loss on any Eligible Investment included therein (except and only to the extent that the bank serving as Trustee is the obligor thereon and is otherwise liable). (d) The Trustee shall hold funds in the Accounts held by the Trustee uninvested upon the occurrence of either of the following events: (i) the Master Servicer or the Control Party, as the case may be, shall have failed to give investment directions to the Trustee within ten days after receipt of a written request for such directions from the Trustee; or (ii) the Master Servicer or the Control Party, as the case may be, shall have failed to give investment directions to the Trustee during the ten-day period described in clause (d)(i) preceding, by 11:15 a.m. New York time (or such other time as may be agreed by the Master Servicer and the Trustee) on any Business Day (any such investment by the Trustee pursuant to this clause (d)(ii) to mature on the next Business Day after the date of such investment). (e) For purposes of investment, the Trustee shall aggregate all amounts on deposit in the Accounts. All income or other gain from investments in the Accounts shall be 72 73 deposited, pro rata, in the Accounts immediately on receipt, and any loss resulting from such investments shall be charged, pro rata, to the Accounts. SECTION 7.7. 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 Housing Administration debentures and rated Aa2 or higher by Moody's and AA or better by Standard & Poor's. (c) Freddie Mac senior debt obligations and rated Aa2 or higher by Moody's and AA or better by Standard & Poor's. (d) Federal Home Loan Banks' consolidated senior debt obligations and rated Aa2 or higher by Moody's and AA or better by Standard & Poor's. (e) Fannie Mae senior debt obligations and rated Aa2 or higher by Moody's. (f) Federal funds, certificates 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 A1 or better by Standard & Poor's and P-1 by Moody's. (g) Investment agreements approved by the Control Party 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, and 2. Monies 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), and 3. The agreement is not subordinated to any other obligations of such insurance company or bank, and 4. The same guaranteed interest rate will be paid on any future deposits made pursuant to such agreement, and 5. The Trustee and the Certificate Insurer receive an opinion of counsel that such agreement is an enforceable obligation of such insurance company or bank. (h) Commercial paper (having original maturities of not more than 365 days) rated A1 or better by Standard & Poor's and P-1 or better by Moody's. 73 74 (i) Investments in money market funds rated AAAm or AAAM-G by Standard & Poor's and Aaa or P-1 by Moody's. (j) Investments approved in writing by the Control Party and acceptable to the Rating Agencies and the Certificate Insurer; 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 if such instrument may be prepaid or called at a price less than its purchase price prior to stated maturity; and provided, further, that, with respect to any instrument described above, such instrument qualifies as a "permitted investment" within the meaning of Section 860G(a)(5) of the Code and the regulations thereunder. SECTION 7.8. REPORTS BY TRUSTEE. (a) On each Payment Date the Trustee shall provide to each Owner, to the Master Servicer, to the Certificate Insurer, to each Underwriter, to the Sponsor and to each Rating Agency a written report in substantially the form set forth as Exhibit I hereto with respect to each Mortgage Loan Group, as such form may be revised by the Trustee and the Master Servicer from time to time, but in every case setting forth the information requested on Exhibit I hereto and the following information: (i) the amount of the distribution with respect to the related Class of Certificates; (ii) the amount of such distributions allocable to principal, separately identifying the aggregate amount of any Prepayments or other unscheduled recoveries of principal included therein; (iii) the amount of such distributions allocable to interest; (iv) the Interest Carry Forward Amount for each Class; (v) the Certificate Principal Balance for each Class of Class [A] Certificates as of such Payment Date, together with the principal amount of such Class of Class [A] Certificates (based on a Certificate 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; (vi) with respect to the Class [A] Certificates, the amount of any Class [A] Insured Payment included in the amounts distributed in respect of the Class [A] Certificates; (vii) the aggregate Loan Balance of all Mortgage Loans after giving effect to any payment of principal on such Payment Date both in the aggregate and in each of the Mortgage Loan Groups; 74 75 (viii) information furnished by the Sponsor pursuant to Section 6049(d)(7)(C) of the Code and the regulations promulgated thereunder to assist the Owners in computing their market discount; (ix) the total of any Substitution Amounts and any Loan Purchase Price amounts included in such distribution; (x) the weighted average Coupon Rate of the Mortgage Loans with respect to each Group; (xi) the amount of any Class [A-2] Supplemental Interest Amount; (xii) the Overcollateralization Amount, for each Mortgage Loan Group, after giving effect to any payment of principal on such Payment Date; (xiii) the aggregate Loan Balances of all Mortgage Loans in each Mortgage Loan Group that were repurchased during the related Remittance Period and any repurchases pursuant to Section 8.10; (xiv) the amounts, if any, of any Realized Losses in each Mortgage Loan Group for the related Remittance Period; (xv) the Pool Cumulative Realized Losses (x) as a percentage of the average Pool Principal Balance as of the close of business on the last day of each of the twelve preceding Remittance Periods and (y) as a percentage of the sum of the aggregate Loan Balances of the Mortgage Loans as of the Initial Cut-Off Date; (xvi) a number with respect to each Class (the "Pool Factor" for such Class) computed by dividing the Certificate Principal Balance for such Class (after giving effect to any distribution of principal to be made on such Payment Date) by the Certificate Principal Balance for such Class on the Startup Day; (xvii) whether a Servicer Termination Loss Trigger has occurred, as such terms are defined in the Insurance Agreement. Items (i) through (iii) above shall, with respect to each Class of Class [A] Certificates, be presented on the basis of a Certificate having a $1,000 denomination. In addition, by January 31 of each calendar year following any year during which the Certificates are outstanding, the 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 Certificates for such calendar year. If a Class of Certificates is in book-entry form, DTC will supply such reports to the Owners of such Class of Certificates as are in accordance with its procedures. (b) In addition, on each Payment Date the Trustee will distribute to each Owner, to the Certificate Insurer, to each Underwriter, to the Master Servicer, to the Sponsor and to each Rating Agency, together with the information described in Subsection (a) preceding, the following information with respect to each Mortgage Loan Group as of the close of business on the last Business Day of the prior calendar month, which is hereby required to be prepared by the Master Servicer and furnished to the Trustee for such purpose on or prior to the related Remittance Date: 75 76 (i) the total number and aggregate Loan Balances of Mortgage Loans in each Mortgage Loan Group and the percentage (based on the aggregate Loan Balances) of the aggregate Loan Balances of such Mortgage Loans in the related Mortgage Loan Group which are (a) 30-59 days Delinquent, (b) 60-89 days Delinquent and (c) 90 or more days Delinquent; (ii) the number, aggregate Loan Balances and percentage (based on the aggregate Loan Balances of the Mortgage Loans in such Mortgage Loan Group) of all Mortgage Loans in the related Mortgage Loan Group 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 and percentage (based on the aggregate Loan Balances of the Mortgage Loans in such Mortgage Loan Group) of all Mortgage Loans in the related Mortgage Loan Group 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 and percentage (based on the aggregate Loan Balances of the Mortgage Loans in such Mortgage Loan Group) of all Mortgage Loans in the related Mortgage Loan Group 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 loan number of the Mortgage Loans and the book value of any REO Property in each Mortgage Loan Group; (vi) the aggregate Loan Balance of 60+ Day Delinquent Mortgage Loans with respect to each Group; and (vii) the book value of any REO Property. (c) The foregoing reports shall be sent be to an Owner only insofar as such Owner owns a Certificate with respect to the related Mortgage Loan Group. (d) The Sponsor and the Master Servicer, on behalf of Certificateholders and the Trust (the "Trust Parties") hereby authorize the Trustee to include the loan level information with respect to the Mortgage Loans, excluding any information relating to the fees or amounts due to the Certificate Insurer, contained in reports provided to the Certificate Insurer or the Trustee by the Master Servicer hereunder and, if so directed by an Authorized Officer of the Sponsor in writing to the Trustee, the monthly report to the Owners prepared by the Trustee (the "Information") on The Bloomberg, an on-line computer based on-line information network maintained by Bloomberg L.P. ("Bloomberg") or on any other on-line computer based on-line information network or service ("Information Network"), or in other electronic or print information services deemed acceptable by the Sponsor or the Master Servicer as designated in writing to the Trustee by an Authorized Officer of the Master Servicer. The Trust Parties agree not to commence any actions or proceedings, or otherwise assert any claims, against the Trustee or its affiliates or any of the Trustee's or its affiliates' respective agents, representatives, directors, officers or employees (collectively, the "Designated Parties"), arising out of, or related to or in connection with the dissemination and/or use of any Information by the Trustee, including, but not limited to, claims based on allegations of inaccurate or incomplete information by the Trustee 76 77 to Bloomberg or to any Information Network or otherwise (other than in connection with the Trustee's negligence or willful misconduct). The Trust Parties waive their rights to assert any such claims against the Designated Parties and fully and finally release the Designated Parties from any and all such claims, demands, obligations, actions and liabilities (other than in connection with such Designated Parties' negligence or willful misconduct). The Trustee makes no representations or warranties, expressed or implied, of any kind whatsoever with respect to the accuracy, adequacy, timeliness, completeness, merchantability or fitness for any particular purpose of any Information in any form or manner. The authorizations, covenants and obligations of the Trust Parties under this section shall be irrevocable and shall survive the termination of this Agreement. SECTION 7.9. ADDITIONAL REPORTS BY TRUSTEE. (a) The Trustee shall report to the Sponsor, the Certificate Insurer and the Master Servicer with respect to the amount then held in each Account (including investment earnings accrued or scheduled to accrue) held by the Trustee and the identity of the investments included therein, as the Sponsor, the Master Servicer or the Certificate Insurer may from time to time request. Without limiting the generality of the foregoing, the Trustee shall, at the request of the Sponsor, the Master Servicer or the Certificate Insurer, transmit promptly to the Sponsor, the Certificate Insurer and the Master Servicer copies of all accounting of receipts in respect of the Mortgage Loans furnished to it by the Master Servicer and shall notify the Sponsor, the Certificate Insurer and the Master Servicer if any such receipts have not been received by the Trustee. (b) The Trustee shall immediately report to the Certificate Insurer, Sponsor and Master Servicer with respect to its actual knowledge, without independent investigation, of any breach of any of the representations or warranties relating to individual Mortgage Loans set forth in any Master Transfer Agreement or in Section 3.3(a) hereof. SECTION 7.10. SUPPLEMENTAL INTEREST PAYMENT ACCOUNT AND SUPPLEMENTAL INTEREST PAYMENTS. (a) The parties hereto do hereby create and establish a trust, the "[Supplemental Interest Trust]" (the "Supplemental Interest Trust"). The Supplemental Interest Trust shall hold a trust account (which shall be an Eligible Account), the "Class [A-2] Supplemental Interest Payment Account" to be held by the Trustee in its name on behalf of the Supplemental Interest Trust. None of the assets of the Supplemental Interest Trust shall be considered assets of the REMIC Trust, and any amounts transferred from the REMIC Trust to the Supplemental Interest Trust shall be treated as distributions. (b) The amount, if any, on deposit in the Class [A-2] Supplemental Interest Payment Account on any Payment Date is the "Supplemental Interest Payment Amount Available" on such Payment Date. On each Payment Date, the Trustee shall withdraw from the Class [A-2] Supplemental Interest Payment Account and pay to the Owners of the Supplemental Interest Right (which Owners shall, in the absence of contrary instructions received by the Trustee from the Owners of the Class [A-2] Certificates, be the Owners of the Class [A-2] Certificates) the lesser of (x) the sum of (i) the Class [A-2] Supplemental Interest Amount for such Payment Date plus (ii) any Class [A-2] Supplemental Interest Shortfall Carry-Forward Amount and (y) the Supplemental Interest Payment Amount Available. 77 78 If, on any Payment Date, the Supplemental Interest Payment Amount Available is insufficient to pay the Class [A-2] Supplemental Interest Amount for such Payment Date (such deficiency, the "Class [A-2] Supplemental Interest Shortfall Amount"), the Trustee shall demand that the Designated Residual Owner fund such deficiency on the related Payment Date and the Designated Residual Owner shall be required to fund such deficiency. (c) Any portion of the Supplemental Interest Payment Amount Available remaining after application of clause (b) above shall be distributed to the owners of the Class [___] Certificates pro rata in accordance with their Percentage Interests. (d) The Trustee, on behalf of the Supplemental Interest Trust, shall comply with all requirements of the Code and applicable state and local law with respect to the withholding from any distributions made by it to any Person entitled thereto of any applicable withholding taxes imposed thereon and with respect to any applicable reporting requirements in connection therewith. (e) Notwithstanding any other provision of this Section 7.10, the right to receive the Class [A-2] Supplemental Interest Amount plus any Class [A-2] Supplemental Interest Shortfall Carry-Forward Amounts (such right, the "Supplemental Interest Right") shall be separately transferable from the Class [A-2] Certificates, subject to the restrictions on transfer set forth in Article V hereof. ARTICLE VIII SERVICING AND ADMINISTRATION OF MORTGAGE LOANS SECTION 8.1. MASTER SERVICER AND SUB-SERVICERS. (a) Acting directly or through one or more Sub-Servicers as provided in Section 8.3, the Master Servicer, as master servicer, shall service and administer the Mortgage Loans in accordance with this Agreement on behalf of the Trustee, the Owners and the Certificate Insurer in accordance with Accepted Servicing Practices, 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 Master 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 and furnishing monthly and annual statements to the Trustee and the Certificate Insurer, as applicable, with respect to distributions, paying Compensating Interest and making Delinquency Advances and Servicing Advances pursuant hereto. The Master Servicer shall follow its customary standards, policies and procedures in performing its duties as Master Servicer. The Master Servicer shall cooperate with the Trustee and furnish to the Trustee with reasonable promptness information in its possession as may be necessary or appropriate to enable the Trustee to perform its tax reporting duties hereunder (c) Subject to clause (e) below, without limiting the generality of the foregoing, the Master Servicer (i) shall continue, and is hereby authorized and empowered by the 78 79 Trustee, to execute and deliver, on behalf of itself, the Owners, the Certificate Insurer and the Trustee or any of them, any and all instruments of satisfaction or cancellation, or of 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 Note not expressly prohibited hereby if the effect of any such modification (x) 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 Certificate Insurer and (y) will not cause the Upper-Tier REMIC or the Lower-Tier REMIC to fail to qualify as a REMIC. (d) The Master Servicer shall have the right using that degree of skill and attention that the Master Servicer exercises with respect to comparable mortgage loans that it services for itself or others, to approve applications of Mortgagors for consent to (i) partial releases of Mortgages, (ii) alterations to Properties and (iii) removal, demolition or division of Properties. No application for consent may be approved by the Master Servicer unless: (x) the provisions of the related Note and Mortgage have been complied with; (y) the 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 Trustee) and the Mortgagor's debt-to-income ratio after any release does not exceed the Combined Loan-to-Value Ratio and debt-to-income ratio applicable to such Mortgage Loan at origination and (z) the lien priority of the related Mortgage is not adversely affected or reduced; provided, however, that the foregoing requirements (x), (y) and (z) shall not apply to any such situation described in this paragraph if such situation results from any condemnation or easement activity by a governmental entity. (e) The parties intend that each of the Lower-Tier REMIC and the Upper-Tier REMIC shall constitute a REMIC and that the affairs of each shall be conducted so as to qualify each as a REMIC. In furtherance of such intention, the Master Servicer covenants and agrees that it shall act as agent (and the Master Servicer is hereby appointed to act as agent) on behalf of each such REMIC and that in such capacity it shall: (i) use its best efforts to conduct the affairs of each such REMIC at all times that any Class of Certificates are outstanding so as to maintain the status of each such REMIC as a REMIC under the REMIC Provisions; (ii) not knowingly or intentionally take any action or omit to take any action that would cause the termination of the REMIC status of either such REMIC or that would subject the Trust to tax and (iii) exercise reasonable care not to allow either such REMIC to receive income from the performance of services or from assets not permitted under the REMIC Provisions to be held by each REMIC. (f) The Master 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 the 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 or a Mortgagor's financial condition, arrange with the Mortgagor a schedule for the payment of delinquent payments due on the related Mortgage Loan; provided, however, the Master Servicer shall generally not be permitted to reschedule the payment of delinquent payments more than one time in any twelve consecutive months with respect to any Mortgagor and such modifications shall not be made in excess of 5% of the aggregate of the Group I Original Balance and the Group II Original Balance Principal Balance without the prior written consent of the Certificate Insurer; provided, however, that, if the Certificate Insurer has not given its consent within five (5) Business Days after notice from the Master Servicer, the Certificate Insurer shall be deemed to have given its consent to such modification or rescheduling for payments of delinquent payments; provided, however, that such notice and consent shall not be required in the event that the Master Servicer determines, in its sole discretion that such modification is required to be made prior to such five day period, or (iii) 79 80 modify payments of monthly principal and interest on any Mortgage Loan becoming subject to the terms of the Civil Relief Act in accordance with the Master Servicer's general policies of the comparable mortgage loans subject to the Civil Relief Act. (g) Without limiting the generality of the foregoing, but subject to Sections 8.13 and 8.14, the Master 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 Trustee to execute and deliver, and may be authorized and empowered by the Trustee, to execute and deliver, on behalf of itself, the Owners, the Certificate Insurer and the 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) and to institute foreclosure proceedings or obtain a deed in lieu of foreclosure so as to effect ownership of any Property on behalf of the Trustee, and (iii) to hold title to any Property upon such foreclosure or deed in lieu of foreclosure on behalf of the Trustee; provided, however, that Section 8.14(a) shall constitute a power of attorney from the Trustee to the Master Servicer or any Sub-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 8.13 and 8.14, the Trustee shall furnish the Master Servicer and any Sub-Servicer with any powers of attorney and other documents as the Master Servicer or such Sub-Servicer shall reasonably request to enable the Master Servicer and such Sub-Servicer to carry out their respective servicing and administrative duties hereunder. (h) The Master Servicer shall give prompt notice to the Trustee of any action, of which the Master Servicer has actual knowledge, to (i) assert a claim against the Trust or (ii) assert jurisdiction over the Trust. (i) Servicing Advances incurred by the Master 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 Master Servicer or such Sub-Servicer to the extent described in Section 8.9(c) and in Section 7.5(b)(E)(3). SECTION 8.2. COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS. (a) The Master Servicer shall, to the extent such procedures shall be consistent with this Agreement and the terms and provisions of any applicable Insurance Policies, follow Accepted Servicing Practices. Consistent with the foregoing, the Master 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, however, the Master Servicer shall not reschedule the payment of delinquent payments more than one time in any twelve consecutive months with respect to any Mortgagor. (b) The Master 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 Note. SECTION 8.3. SUB-SERVICING AGREEMENTS BETWEEN MASTER SERVICER AND SUB-SERVICERS. 80 81 The Master 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, which may be an Affiliate. Pursuant to the foregoing, the Master Servicer may enter into Sub-Servicing Agreements for any servicing and administration of Mortgage Loans with any institution which is in compliance with the laws of each state necessary to enable it to perform its obligations under such Sub-Servicing Agreement. The Master Servicer shall give notice to the Certificate Insurer and the Trustee of the appointment of any Sub-Servicer. The Master Servicer shall also furnish to the Certificate Insurer and the Trustee a copy of the Sub-Servicing Agreement, except when the Sub-Servicer is an affiliate of the Master Servicer. For purposes of this Agreement, the Master 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 8.4. SUCCESSOR SUB-SERVICERS. The Master Servicer may terminate any Sub-Servicing Agreement in accordance with the terms and conditions of such Sub-Servicing Agreement and either directly service the related Mortgage Loans itself or enter into a Sub-Servicing Agreement with a successor Sub-Servicers that qualifies under Section 8.3. SECTION 8.5. LIABILITY OF MASTER SERVICER. The Master 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 Master Servicer and a Sub-Servicer or otherwise, and the Master 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 Master Servicer shall be entitled to enter into any agreement with a Sub-Servicer for indemnification of the Master 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 Master Servicer for any losses due to the Master Servicer's negligence. SECTION 8.6. NO CONTRACTUAL RELATIONSHIP BETWEEN SUB-SERVICER AND 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 Master Servicer alone and the Certificate Insurer, the 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 8.7. SECTION 8.7. ASSUMPTION OR TERMINATION OF SUB-SERVICING AGREEMENT BY TRUSTEE. In connection with the assumption of the responsibilities, duties and liabilities and of the authority, power and rights of the Master Servicer hereunder by the Trustee pursuant to Section 8.20, it is understood and agreed that the Master Servicer's rights and obligations under any Sub-Servicing Agreement then in force between the Master Servicer and a Sub-Servicer may be assumed or terminated by the Trustee at its option. Any termination fee due under any such Sub-Servicing agreement shall be paid by the preceding Master Servicer but in no event shall the Trustee be liable for any such fee. 81 82 The Master Servicer shall, upon request of the Trustee, but at the expense of the Master Servicer, deliver to the assuming party documents and records relating to each Sub-Servicing Agreement 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, without the payment of any fee by the Trustee, notwithstanding any contrary provision in any Sub-Servicing Agreement. SECTION 8.8. PRINCIPAL AND INTEREST ACCOUNT. (a) The Master Servicer and/or each Sub-Servicer, as applicable, shall establish in the name of the Trust for the benefit of the Owners of the Certificates and the Certificate Insurer, as their interests may appear, and maintain at one or more Designated Depository Institutions a Principal and Interest Account. Subject to Subsections (c) and (e) below, the Master Servicer and any Sub-Servicer shall deposit all receipts of principal and accrued interest related to the Mortgage Loans in each such Mortgage Loan Group to the Principal and Interest Account on a daily basis (but no later than the first Business Day after receipt). (b) 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 Certificates and the Certificate Insurer. Any investment earnings on funds held in the Principal and Interest Account shall be for the account of the Master Servicer and may only be withdrawn from the Principal and Interest Account by the Master Servicer immediately following the remittance of the Monthly Remittance Amounts by the Master Servicer. Any references herein to amounts on deposit in the Principal and Interest Account shall refer to amounts net of such investment earnings. Any investment losses are at the expense of the Master Servicer and shall be replaced on or prior to the Remittance Date. (c) Subject to Subsection (e) below, the Master Servicer shall deposit to the Principal and Interest Account all principal collected and interest accrued on the Mortgage Loans on or after the Initial Cut-Off Date or related Subsequent Cut-Off Date including any Prepaid Installments, Prepayments and Net Liquidation Proceeds, all Loan Purchase Prices and Substitution Amounts received or paid by the Master Servicer with respect to such Mortgage Loans, other recoveries or amounts related to such Mortgage Loans received by the Master Servicer, Compensating Interest and Delinquency Advances together with any amounts which are reimbursable from such Principal and Interest Account, but net of (i) the Servicing Fee with respect to each such Mortgage Loan and other servicing compensation due to the Master Servicer as permitted by Section 8.15 hereof, (ii) principal (including Prepayments) collected on the related Mortgage Loans prior to the Cut-Off Date, (iii) interest accruing on the related Mortgage Loans prior to the Cut-Off Date and (iv) Net Liquidation Proceeds to the extent such Net Liquidation Proceeds exceed the sum of the Loan Balance of the related Mortgage Loan and accrued and unpaid interest thereon. (d) (i) The Master Servicer may make withdrawals from the Principal and Interest Account only for the following purposes: (1) to effect the timely remittance to the Trustee of the Monthly Remittance Amounts due on the Remittance Date; 82 83 (2) to reimburse itself pursuant to Section 8.9(a) hereof for unreimbursed Delinquency Advances and Servicing Advances and Nonrecoverable Advances; (3) to withdraw investment earnings on amounts on deposit in the Principal and Interest Account; (4) to withdraw amounts that have been deposited to a Principal and Interest Account in error; (5) to clear and terminate each Principal and Interest Account following the termination of the Trust Estate pursuant to Article X; and (6) to invest in Eligible Investments. (ii) On the tenth day of each month, the Master Servicer shall send to the Trustee a report, in the form of a computer tape, detailing the payments on the Mortgage Loans during the prior Remittance Period. Such tape shall be in the form and have the specifications as may be agreed to between the Master Servicer and the Trustee from time to time. The Certificate Insurer shall have the right to request this computer tape upon providing 3 Business Days written notice to the Master Servicer. (iii) On each Remittance Date the Master Servicer shall remit to the Trustee by wire transfer, or otherwise make funds available in immediately available funds for deposit in the Certificate Account the amounts specified in Section 7.5(a) of this Agreement, (A) for Group I, the Group I Interest Remittance Amount and the Group I Principal Remittance Amount and (B) for Group II, the Group II Interest Remittance Amount and the Group II Principal Remittance Amount. (e) To the extent that the ratings, if any, then assigned to the unsecured debt of the Master Servicer or of the Master Servicer's ultimate corporate parent are satisfactory to the Certificate Insurer, the Trustee and each Rating Agency, then the requirement to maintain the Principal and Interest Account and deposit of principal collections and accrued interest may be waived by an instrument signed by the Certificate Insurer, Trustee and each Rating Agency, and the Master Servicer may be allowed to co-mingle with its general funds the amounts otherwise required to be deposited to the Principal and Interest Account, on such terms and subject to such conditions as the Certificate Insurer, the Trustee and each Rating Agency may permit. SECTION 8.9. DELINQUENCY ADVANCES, COMPENSATING INTEREST AND SERVICING ADVANCES. (a) The Master Servicer is required, not later than each Remittance Date, to deposit into the Principal and Interest Account an amount equal to the sum of the interest portions accrued (net of the Servicing Fees and certain other administrative amounts, if any) with respect to Delinquent Mortgage Loans during the related Remittance Period but not collected on or prior to such Remittance Date, but only if, in its good faith business judgment, the Master Servicer reasonably believes that such amount will ultimately be recoverable from the related Mortgage Loan. Such amounts are "Delinquency Advances". The Master 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 Master Servicer's own funds, from collections on the related Mortgage Loan. The 83 84 Master Servicer may use funds deposited to the Principal and Interest Account subsequent to the related Remittance Period and shall deposit into the Principal and Interest Account with respect thereto (i) late collections from the Mortgagor whose Delinquency gave rise to the shortfall which resulted in such Delinquency Advance and (ii) Net Liquidation Proceeds recovered on account of the related Mortgage Loan to the extent of the amount of aggregate Delinquency Advances related thereto or (iii) from its own funds. If not therefore recovered from the related Mortgagor or the related Net Liquidation Proceeds, Delinquency Advances constituting Nonrecoverable Advances shall be recoverable pursuant to Section 7.5(b)(E)(3) hereof. The parties hereto intend the provision of this Section 8.9(a) to comply with Treasury Regulation Section 1.860G-2(c)(3). (b) On or prior to each Remittance Date, the Master Servicer shall deposit in the Principal and Interest Account with respect to any full Prepayment received on a 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 the Mortgage Loan's Coupon Rate (less the Servicing Fee) 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 Master Servicer, "Compensating Interest"). The Master 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 Master Servicer with respect to all Mortgage Loans for such Remittance Period nor shall it be required to pay Compensating Interest due to partial prepayments or Relief Act Shortfalls. The parties hereto intend the provisions of this Section 8.9(b) to comply with Treasury Regulation Section 1.860G-2(e). (c) The Master Servicer will pay all "out-of-pocket" costs and expenses incurred by the Master Servicer in the performance of its servicing obligations, including, but not limited to, the cost of (i) Preservation Expenses (including the payment of flood insurance premiums), (ii) any enforcement or judicial proceedings, including (a) foreclosures, and (b) other legal actions and costs associated therewith that potentially affect the existence, validity, priority, enforceability or collectibility of the Mortgage Loans, including collection agency fees and costs of pursuing or obtaining personal judgments, garnishments, levies, attachment and similar actions, (iii) the conservation, management, liquidation, sale or other disposition of any Mortgaged Property acquired in satisfaction of the related Mortgage Loan, including reasonable fees paid to any independent contractor in connection therewith, and (iv) advances to keep liens current; and with respect to any of the foregoing, the Master Servicer is only required to pay such costs and expenses to the extent the Master Servicer reasonably believes such costs and expenses will be recoverable from the related Mortgage Loan. Each such amount so paid will constitute a "Servicing Advance". The Master 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 7.5(b)(E)(3) hereof. In no case may the Master Servicer recover Servicing Advances from principal and interest payments on any other Mortgage Loan or from any amounts relating to any other Mortgage Loan except as provided pursuant to Section 7.5(b)(E)(3) hereof. The parties intend that the provisions of this Section 8.9(c) comply with Treasury Regulation Section 1.860G-2(c)(3)(iii). 84 85 (d) On the Remittance Date in [__________, _____], the Master Servicer shall make an advance (a "Special Advance") with respect to each Mortgage Loan Group equal to the sum of (x) one-month's interest, calculated at the weighted average Pass-Through Rate (applicable to the [__________, _____] Payment Date, as the case may be, for the classes of Class [A] Certificates related to such Group) with respect to all Mortgage Loans not having a payment due prior to the [__________, _____] Remittance Date; the amounts of such advances shall be included in the related Interest Remittance Amount. Reimbursement of Special Advances shall be made only as provided in Section 7.5(b)(E)(3). SECTION 8.10. PURCHASE OF MORTGAGE LOANS. The Master 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 Master Servicer or by any Sub-Servicer pursuant to Section 8.13. Any such Loan so purchased shall be purchased by the Master Servicer on a 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. Notwithstanding the foregoing, the Master Servicer may not purchase any such Mortgage Loan unless the Master Servicer has delivered to the Trustee and the Certificate Insurer an opinion of counsel experienced in federal income tax matters acceptable to the Trustee to the effect that such a purchase would not constitute a Prohibited Transaction for the Trust or otherwise subject the Trust to tax and would not jeopardize the status of either the Upper-Tier REMIC or the Lower-Tier REMIC as a REMIC. SECTION 8.11. MAINTENANCE OF INSURANCE. (a) The Master 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 Master 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 Master 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 Master 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 Master Servicer shall indemnify the Trust and the Certificate Insurer out of the Master Servicer's own funds for any loss to the Trust and the Certificate Insurer resulting from the Master Servicer's failure to maintain the insurance required by this Section. (c) In the event that the Master 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 Master Servicer as loss payee and provides 85 86 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 8.11, the Master Servicer shall be deemed conclusively to have satisfied its obligations with respect to fire and hazard insurance coverage under this Section 8.11, it being understood and agreed that such blanket policy may contain a deductible clause, in which case the Master 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 8.11, and there shall have been a loss which would have been covered by such policy, deposit in the Principal and Interest Account from the Master 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 8.11 and the amount paid under such blanket policy. Upon the request of the Trustee or the Certificate Insurer, the Master Servicer shall cause to be delivered to the Trustee and the Certificate Insurer, a certified true copy of such policy. The parties hereto intend that the provisions of this Section 8.11 comply with Treasury Regulation Section 1.860G-2(c)(3)(ii). SECTION 8.12. DUE-ON-SALE CLAUSES; ASSUMPTION AND SUBSTITUTION AGREEMENTS. When a Property has been or is about to be conveyed by the Mortgagor, the Master 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 Note; provided, however, that the Master Servicer shall not exercise any such right if (i) the "due-on-sale" clause, in the reasonable belief of the Master Servicer, is not enforceable under applicable law or (ii) the Master 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 Certificate Insurer. In such event, the Master 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 Note and, unless prohibited by applicable law or the Mortgage Documents, the Mortgagor remains liable thereon. If the foregoing is not permitted under applicable law, the Master 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 Note; provided, however, that to the extent any such substitution of liability agreement would be delivered by the Master Servicer outside of its usual procedures for mortgage loans held in its own portfolio the Master Servicer shall, prior to executing and delivering such agreement, obtain the prior written consent of the Control Party. The Mortgage Loan, as assumed, shall conform in all respects to the requirements, representations and warranties of this Agreement. The Master Servicer shall notify the Trustee that any such assumption or substitution agreement has been completed by forwarding to the Trustee the original copy of such assumption or substitution agreement, which copy shall be added by the 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 Master Servicer shall be responsible for recording or causing the recordation 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 Master Servicer or the Sub-Servicer for 86 87 consenting to any such conveyance or entering into an assumption or substitution agreement shall be retained by or paid to the Master Servicer as additional servicing compensation. Notwithstanding the foregoing paragraph or any other provision of this Agreement, the Master 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 Master Servicer may be restricted by law from preventing, for any reason whatsoever. SECTION 8.13. REALIZATION UPON DEFAULTED MORTGAGE LOANS. (a) The Master 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 Master Servicer has not purchased pursuant to Section 8.10. In connection with such foreclosure or other conversion, the Master Servicer shall exercise such of the rights and powers vested in it hereunder, and use the same degree of care and skill in their 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, amounts due with respect to Senior Liens, and insurance premiums. Any amounts so advanced shall constitute "Servicing Advances" within the meaning of Section 8.9(c) hereof. The Master Servicer shall sell any REO Property within 35 months of its acquisition by the Trust, unless the Master Servicer obtains for the Trustee an opinion of counsel experienced in federal income tax matters, addressed to the Trustee, the Certificate Insurer and the Master 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 "Prohibited Transactions" of the Trust or any REMIC therein as defined in Section 860F of the Code or cause either the Lower-Tier REMIC or the Upper-Tier REMIC to fail to qualify as a REMIC under the REMIC Provisions at any time that any Certificates are outstanding. Notwithstanding the generality of the foregoing provisions, the Master Servicer shall manage, conserve, protect and operate each REO Property for the Owners and the Certificate Insurer solely for the purpose of its prompt disposition and sale in a manner which does not cause such REO Property to fail to qualify as "foreclosure property" within the meaning of Section 860G(a)(8) of the Code or result in the receipt by the Lower-Tier REMIC or the Upper Tier REMIC of any "income from non-permitted assets" within the meaning of Section 860F(a)(2)(B) of the Code or any "net income from foreclosure property" which is subject to taxation under the REMIC Provisions. Pursuant to its efforts to sell such REO Property, the Master Servicer shall either itself or through an agent selected by the Master 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 Master Servicer deems to be in the best interest of the Owners for the period prior to the sale of such REO Property. The Master 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 REO Property in determining whether to foreclose upon or otherwise comparably convert the ownership of such REO Property. With respect to any Mortgage Loan secured by a mixed use REO Property, the Master Servicer shall, prior to foreclosing upon or otherwise comparably effecting the ownership in the name of the 87 88 Master Servicer on behalf of the Trust, either (x) perform a "phase one environmental study" of such REO Property or (y) repurchase such REO Property at the Loan Purchase Price. (b) The Master Servicer shall determine, with respect to each defaulted Mortgage Loan, when it has recovered, whether through trustee's sale, foreclosure sale or otherwise, all amounts it expects to recover from or on account of such defaulted Mortgage Loan (exclusive of any possibility of a deficiency judgment), whereupon such Mortgage Loan shall become a "Liquidated Loan" and shall promptly deliver to the Certificate Insurer a related liquidation report with respect to such Liquidated Loan. SECTION 8.14. 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 Master Servicer or any Sub-Servicer of a notification that payment in full will be escrowed in a manner customary for such purposes, the Master Servicer or any Sub-Servicer shall deliver to the Trustee a Master Servicer's Trust Receipt. Upon receipt of such Master Servicer's Trust Receipt, the Trustee shall promptly release the related File, in trust to the applicable party as directed in writing by the Master Servicer in the Master Servicer's Trust Receipt, in each case pending its release by the Master Servicer, such escrow agent or such employee, agent or attorney of the 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 Master Servicer or any Sub-Servicer is authorized to give, as attorney-in-fact for the Trustee and the mortgagee under the Mortgage which secured the 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 Master Servicer or any Sub-Servicer may prepare and submit to the Trustee, a satisfaction (or assignment without recourse, if requested by the Person or Persons entitled thereto) in form for execution by the Trustee with all requisite information completed by the Master Servicer or any Sub-Servicer; in such event, the 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 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 Trustee), upon request of the Master Servicer or any Sub-Servicer and delivery to the Trustee of a Master Servicer's Trust Receipt, release the related File to the Master 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 Master Servicer; provided that the Master Servicer shall not have received and not returned at any one time more than 10% of the entire number of Files. The Trustee shall complete in the name of the Trustee any endorsement in blank on any Note prior to releasing such Note to the Master Servicer or any Sub-Servicer. Such receipt shall obligate the Master Servicer or any Sub-Servicer to return the File to the Trustee when the need therefor by the Master Servicer or any Sub-Servicer no longer exists unless the Mortgage Loan shall be liquidated, in which case, upon receipt of the liquidation information, in physical or electronic 88 89 form acceptable to the Master Servicer and the Trustee, a copy of the Master Servicer's Trust Receipt shall be released by the Trustee to the Master Servicer or any Sub-Servicer. (c) No costs associated with the procedures described in this Section 8.14 shall be an expense of the Trust. (d) The provisions set forth in Subsections (a) and (b) may be superseded by any waiver of the Document Delivery Requirement as may be given by the Certificate Insurer and the Rating Agencies pursuant to Section 3.5(j) hereof. (e) Each Master Servicer's Trust Receipt may be delivered to the Trustee (i) via mail or courier, (ii) via facsimile or (iii) by such other means, including, without limitation, electronic or computer readable medium, as the Master Servicer and the Trustee shall mutually agree. The Trustee shall promptly release the related File(s) no later than seven (7) business days of receipt of a properly completed Master Servicer's Trust Receipt pursuant to clauses (i), (ii) or (iii) above or such shorter period as may be agreed upon by the Master Servicer and the Trustee. Receipt of a Master Servicer's Trust Receipt pursuant to clauses (i), (ii) or (iii) above shall be authorization to the Trustee to release such Files, provided the Trustee has determined that such Master Servicer's Trust Receipt has been executed, with respect to clauses (i) or (ii) above, or approved, with respect to clause (iii) above, by an Authorized Officer of the Master Servicer or any Sub-Servicer, and so long as the Trustee complies with its duties and obligations under this Agreement. If the Trustee is unable to release the Files within the time frames previously specified, the Trustee shall immediately notify the Master Servicer or any Sub-Servicer indicating the reason for such delay, but in no event shall such notification be later than five business days after receipt of a Master Servicer's Trust Receipt. If the Master Servicer is required to pay penalties or damages due to the Trustee's negligent failure to release the related File or the Trustee's negligent failure to execute and release documents in a timely manner, the Trustee shall be liable for such penalties or damages. On each day that the Master Servicer remits to the Trustee Master Servicer's Trust Receipts pursuant to clauses (ii) or (iii) above, the Master Servicer or any Sub-Servicer shall also submit to the Trustee a summary of the total amount of such Master Servicer's Trust Receipts requested on such day by the same method as described in such clauses (ii) or (iii) above. SECTION 8.15. SERVICING COMPENSATION. As compensation for its activities hereunder, the Master 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 investment income on the Accounts, prepayment charges, release fees, bad check charges, assumption fees, late payment charges, or any other servicing-related fees, Net Liquidation Proceeds not required to be deposited in the Principal and Interest Account pursuant to Section 8.8(c)(v) and similar items may, to the extent collected from Mortgagors, be retained by the Master Servicer. SECTION 8.16. ANNUAL STATEMENT AS TO COMPLIANCE. The Master Servicer, at its own expense, will deliver to the Trustee, the Certificate Insurer and each Rating Agency, on or before the last day of March of each year, commencing in [Year], an Officer's Certificate stating, as to each signer thereof, that (i) a review of the activities of the Master Servicer during such preceding calendar year and of performance under this Agreement 89 90 has been made under such officers' supervision, and (ii) to the best of such officers' knowledge, based on such review, the Master 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 Master Servicer to remedy such defaults. SECTION 8.17. ANNUAL INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORTS. On or before the last day of March of each year, commencing in [Year], the Master Servicer, at its own expense, shall cause to be delivered to the Trustee, the Certificate Insurer and each Rating Agency a letter or letters of a firm of independent, nationally recognized certified public accountants reasonably acceptable to the Control Party stating that such firm has, with respect to the Master Servicer's overall servicing operations (i) performed applicable tests in accordance with the compliance testing procedures as set forth in Appendix 3 of the Audit Guide for Audits of HUD Approved Nonsupervised Mortgagees or (ii) examined such operations in accordance with the requirements of the Uniform Single Attestation Program for Mortgage Bankers, and in either case stating such firm's conclusions relating thereto or (iii) examined such operations in accordance with the requirements of SAS 70. SECTION 8.18. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING THE MORTGAGE LOANS. The Master Servicer shall provide to the Trustee, the Certificate 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 Master Servicer designated by it. Upon any change in the format of the electronic medium maintained by the Master Servicer in respect of the Mortgage Loans, the Master Servicer shall deliver a copy of such electronic medium to the Trustee and in addition shall provide a copy of such computer tape to the Trustee and the Certificate Insurer at such other times as the Trustee or the Certificate Insurer may reasonably request. SECTION 8.19. ASSIGNMENT OF AGREEMENT. The Master 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 Trustee and the Certificate Insurer, which such consent shall not be unreasonably withheld; provided, however, that any assignee must meet the eligibility requirements set forth in Section 8.20(g) hereof for a successor servicer; and provided, further, this Section 8.19 does not apply to the appointment of Sub-Servicers. Notice of any such assignment shall be given by the Master Servicer to the Trustee, the Certificate Insurer and Moody's. SECTION 8.20. REMOVAL OF MASTER SERVICER; RESIGNATION OF MASTER SERVICER. (a) The Trustee, with the consent of the Certificate Insurer (or the Owners pursuant to Section 6.11 hereof) may remove the Master Servicer upon the occurrence of any of the following events: 90 91 (i) The Master Servicer shall fail to deliver to the Trustee any proceeds or required payment, which failure continues unremedied for five Business Days following written notice to an Authorized Officer of the Master Servicer from the Trustee or from any Owner. (ii) The Master Servicer shall (i) apply for or consent to the appointment of a receiver, 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 Master 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 Master 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 trustee, receiver, liquidator or custodian or similar entity with respect to the Master 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 Master 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; or (iv) The Master Servicer shall fail to perform any one or more of its obligations hereunder other than the obligations contemplated by Subsection 8.20(i) above, and shall continue in default thereof for a period of sixty (60) days after notice by the Trustee or the Certificate Insurer of said failure; provided, however, that if the Master Servicer can demonstrate to the reasonable satisfaction of the Control Party that it is diligently pursuing remedial action, then the cure period may be extended with the written approval of the Control Party; or (v) The Master Servicer shall fail to cure any breach of any of its representations and warranties set forth in Section 3.2 which materially and adversely affects the interests of the Owners or the Certificate Insurer for a period of thirty (30) days after the Master Servicer's discovery or receipt of notice thereof; provided, however, that if the Master Servicer can demonstrate to the reasonable satisfaction of the Control Party that it is diligently pursuing remedial action, then the cure period may be extended with the written approval of the Control Party. (b) The Certificate Insurer also may remove the Master Servicer upon the occurrence of any of the following events: (i) upon the making of any Insured Payment; provided, however, that the Certificate Insurer shall have no right to remove the Master Servicer under this clause (i) if the Master Servicer can demonstrate to the reasonable satisfaction of the Certificate 91 92 Insurer that such event was due to circumstances beyond the control of the Master Servicer; or (ii) the failure by the Master Servicer to make any required Servicing Advance; or (iii) the failure by the Master Servicer to perform any one or more of its obligations hereunder or under the Insurance Agreement, which failure materially and adversely affects the interests of the Certificate Insurer and the Trustee; or (iv) the failure by the Master Servicer to make any required Delinquency Advance, any Special Advance or to pay any Compensating Interest; or (v) the occurrence of a Servicer Termination Loss Trigger, as such term is defined in the Insurance Agreement; or (vi) the enactment of any law by a legislative body that declares, or any finding or ruling by a court of competent jurisdiction, that the Insurance Agreement or this Agreement is not valid and binding on the Sponsor or the Master Servicer; or (vii) Advanta National Bank fails to be "adequately capitalized" as defined in Section 1831(o)(b)(1)(B) of the Federal Deposit Insurance Corporation Improvement Act of 1991, as amended; or (viii) The tangible net worth of AMHC, on a consolidated basis, is less than $10,000,000; provided, however, with respect to clause (iv), if the Master Servicer can demonstrate to the reasonable satisfaction of the Control Party that any such event was due to circumstances beyond the control of the Master Servicer, such event shall not be considered an event of termination of the Master Servicer; provided, however, that (x) prior to any removal of the Master Servicer by the Control Party pursuant to clauses (i) or (ii) of this Section 8.20(b), the Master Servicer shall first have been given by the Control Party and by registered or certified mail, notice of the occurrence of one or more of the events set forth in clauses (i), (ii) or (iii) above and the Master Servicer shall not have remedied, or shall not have taken actions satisfactory to the Control Party to remedy, such event or events within 30 days (60 days with respect to clause (iii)) after the Master Servicer's receipt of such notice (provided, however, that if the Master Servicer can demonstrate to the reasonable satisfaction of the Control Party that it is diligently pursuing remedial action, then the cure period in each case may be extended with the written approval of the Control Party) and (y) in the event of the refusal or inability of the Master Servicer to make any required Delinquency Advance or Special Advance or to pay any Compensating Interest (as described in clause (iv)) or Monthly Remittance, such removal shall be effective (without the requirement of any action on the part of the Certificate Insurer or of the Trustee) at 4 p.m. on the second Business Day following the day on which the Trustee or the Certificate Insurer notifies an Authorized Officer of the Master Servicer that a required Delinquency Advance or Special Advance has not been received by the Trustee. Upon the Trustee's determination that a required Delinquency Advance or Special Advance or payment of Compensating Interest has not been made by the Master Servicer, the Trustee shall so notify in writing an Authorized Officer of the Master Servicer and the Certificate Insurer as soon as is reasonably practical. 92 93 (c) The Master Servicer shall not resign from the obligations and duties hereby imposed on it, except 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 Master Servicer so causing such a conflict being of a type and nature carried on by the Master Servicer at the date of this Agreement. Any such determination permitting the resignation of the Master Servicer shall be evidenced by an opinion of counsel to such effect which shall be delivered to the Trustee and the Certificate Insurer. (d) No removal or resignation of the Master Servicer shall become effective until the Trustee or a successor servicer shall have assumed the Master Servicer's responsibilities and obligations in accordance with this Section. If no successor servicer is available, the Trustee shall act as successor servicer and perform all of the obligations of this Section, including, without limitation, making Delinquency Advances and paying Compensating Interest; provided, however, that the Trustee will not be obligated to act as successor servicer if it is legally unable to perform its duties hereunder. (e) Upon removal or resignation of the Master Servicer, the Master Servicer also shall promptly deliver or cause to be delivered to a successor servicer or the Trustee all the books and records (including, without limitation, records kept in electronic form) that the Master 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 Master Servicer's possession. (f) Any collections received by the Master Servicer after removal or resignation shall be endorsed by it to the Trustee and remitted directly and immediately to the Trustee or the successor Master Servicer. (g) Upon removal or resignation of the Master Servicer, the Trustee (x) may solicit bids for a successor servicer as described below, and (y) pending the appointment of a successor Master Servicer as a result of soliciting such bids, shall serve as Master Servicer. The Trustee shall, if it is unable to obtain a qualifying bid and is prevented by law from acting as Master Servicer, appoint, or petition a court of competent jurisdiction to appoint, any housing and home finance institution, bank or mortgage servicing institution which has shareholders' equity of not less than $10,000,000, as determined in accordance with generally accepted accounting principles, and acceptable to the Certificate Insurer as the successor to the Master Servicer hereunder in the assumption of all or any part of the responsibilities, duties or liabilities of the Master Servicer hereunder. The compensation of any successor servicer (including, without limitation, the Trustee) so appointed shall be the aggregate Servicing Fees, together with the other servicing compensation in the form of assumption fees, late payment charges or otherwise as provided in Sections 8.8 and 8.15; provided, however, that if the Trustee acts as successor Master Servicer then the Sponsor agrees to pay to the Trustee at such time that the Trustee becomes such successor Master Servicer a fee of twenty-five dollars ($25.00) for each Mortgage Loan then included in the Trust Estate. The Trustee shall be obligated to serve as successor Master Servicer whether or not the $25.00 fee described in the preceding sentence is paid by the Sponsor, but shall in any event be entitled to receive, and to enforce payment of, such fee from the Sponsor. (h) In the event the Trustee solicits bids as provided above, the 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 Master Servicer shall be entitled to the 93 94 compensation set forth in clause (g) above. Within thirty days after any such public announcement, the 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. The Trustee shall deduct from any sum received by the Trustee from the successor to the Master 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 Trustee to the Master Servicer at the time of such sale, transfer and assignment to the Master Servicer's successor. (i) The Trustee and such successor shall take such action, consistent with this Agreement, as shall be necessary to effectuate any such succession. The Master Servicer agrees to cooperate with the Trustee and any successor Master Servicer in effecting the termination of the Master Servicer's servicing responsibilities and rights hereunder and shall promptly provide the Trustee or such successor Master Servicer, as applicable, all documents and records reasonably requested by it to enable it to assume the Master Servicer's functions hereunder and shall promptly also transfer to the Trustee or such successor Master Servicer, as applicable, all amounts which then have been or should have been deposited in the Principal and Interest Account by the Master Servicer or which are thereafter received with respect to the Mortgage Loans. Neither the Trustee nor any other successor Master 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 Master Servicer to deliver, or any delay in delivering, cash, documents or records to it, or (ii) restrictions imposed by any regulatory authority having jurisdiction over the Master Servicer or (iii) any breaches of a predecessor Master Servicer. (j) The Trustee or any other successor Master Servicer, upon assuming the duties of Master Servicer hereunder, shall immediately make all Delinquency Advances and pay all Compensating Interest which the Master Servicer has theretofore failed to remit with respect to the Mortgage Loans; provided, however, that if the Trustee is acting as successor Master Servicer, the Trustee shall only be required to make Delinquency Advances (including the Delinquency Advances described in this clause (j)) if, in the Trustee's reasonable good faith judgment, such Delinquency Advances will ultimately be recoverable from the related Mortgage Loans. (k) The Master Servicer which is being removed or is resigning shall give notice to the Mortgagors and to each Rating Agency of the transfer of the servicing to the successor. (l) The Trustee shall give notice to the Certificate Insurer, each Rating Agency and to the Owners of the occurrence of any event specified in Section 8.20(a) of which the Trustee has knowledge. (m) Notwithstanding anything herein to the contrary, upon termination of the Master Servicer hereunder, any liabilities of the Master Servicer which accrued prior to such termination shall survive such termination. 94 95 SECTION 8.21. INSPECTIONS BY THE CERTIFICATE INSURER AND THE TRUSTEE; ERRORS AND OMISSIONS INSURANCE. (a) At any reasonable time and from time to time upon reasonable notice, the Certificate Insurer, the Trustee, or any agents or representatives thereof may inspect the Master Servicer's servicing operations and discuss the servicing operations of the Master Servicer with any of its officers or directors. The reasonable costs and expenses incurred by the Master Servicer or its agents or representatives in connection with any such examinations or discussions shall be paid by the Master Servicer. (b) The Master 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 8.22. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS OF MASTER SERVICER. Any corporation into which the Master Servicer 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 Master Servicer shall be a party, or any corporation succeeding to all or substantially all of the business of the Master Servicer, shall be the successor of the Master Servicer hereunder upon notice to the Certificate Insurer, 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 is a housing and home finance institution, bank or mortgage servicing institution which has shareholders' equity of not less than $10,000,000, as determined in accordance with generally accepted accounting principles. SECTION 8.23. NOTICES OF MATERIAL EVENTS. The Master Servicer shall give prompt notice to the Certificate Insurer, the Trustee, and each Rating Agency 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 Sponsor, any Originator or the Master Servicer under any Transaction Document or would constitute a material breach of a representation, warranty or covenant under any Transaction Document; (b) The submission of any claim or the initiation of any legal process, litigation or administrative or judicial investigation against the Sponsor, the Master Servicer or AMHC 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 Sponsor's, the Master Servicer's or AMHC's ability to perform its obligations under any Transaction Document; (c) The commencement of any proceedings by or against the Sponsor, the Master Servicer or AMHC 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, trustee or other similar official shall have been, or may be, appointed or requested for the Sponsor, the Master Servicer or AMHC; and 95 96 (d) The receipt of notice from any agency or governmental body having authority over the conduct of any of the Sponsor's the Master Servicer's or the AMHC's business that the Sponsor, the Master Servicer or AMHC is to cease and desist, or to undertake any practice, program, procedure or policy employed by the Sponsor, the Master Servicer or AMHC in the conduct of the business of any of them, and such cessation or undertaking will materially adversely affect the conduct of the Sponsor's, the Master Servicer's or AMHC's business or its ability to perform under the Transaction Documents or materially adversely affect the financial affairs of the Sponsor, the Master Servicer or AMHC. ARTICLE IX TERMINATION OF TRUST SECTION 9.1. TERMINATION OF TRUST. The Trust created hereunder and all obligations created by this Agreement will terminate upon the earlier of (i) the payment to the Owners of all Certificates from amounts other than those available under the Certificate Insurance Policy of all amounts held by the Trustee and required to be paid to such Owners pursuant to this Agreement upon the later to occur of (a) the final payment or other liquidation (or any advance made with respect thereto) of the last Mortgage Loan in the Trust Estate or (b) the disposition of all property acquired in respect of any Mortgage Loan remaining in the Trust Estate, (ii) at any time when a Qualified Liquidation of the REMIC Trust is effected as described below or (iii) as described in Section 9.2 or 9.3 hereof. To effect a termination of this Agreement pursuant to clause (ii) above, the Owners of all Certificates then Outstanding shall (x) unanimously direct the Trustee on behalf of the Lower-Tier REMIC and the Upper-Tier REMIC to adopt a plan of complete liquidation with respect to each of the Mortgage Loan Groups as contemplated by Section 860F(a)(4) of the Code and (y) provide to the Trustee an opinion of counsel experienced in federal income tax matters to the effect that such liquidation constitutes a Qualified Liquidation, and the Trustee either shall sell the Mortgage Loans and distribute the proceeds of the liquidation of the Trust Estate, or shall distribute equitably in kind all of the assets of the Trust Estate to the remaining Owners of the Certificates based on their interests in the Trust, and distribute to the Certificate Insurer any amounts owed under the Insurance Agreement and return the Certificate Insurance Policy to the Certificate Insurer, each in accordance with such plan, so that the liquidation or distribution of the Trust Estate, the distribution of any proceeds of the liquidation and the termination of this Agreement occur no later than the close of the 90th day after the date of adoption of the plan of liquidation and such liquidation qualifies as a Qualified Liquidation. In no event, however, will the Trust created by this Agreement continue beyond the expiration of twenty-one (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 United Kingdom, living on the date hereof. The Trustee shall give written notice of termination of the Agreement to each Owner in the manner set forth in Section 11.5. SECTION 9.2. CLEAN-UP CALL TERMINATION. (a) On any Remittance Date on or after the Initial Clean-Up Call Date, either the Owners of a majority in Percentage Interest of the [Residual Class] Certificates (the "Redeeming Owners") or the Master Servicer, acting directly or through one or more of their respective affiliates or, if the Redeeming Owners or the Master Servicer or their affiliates do not so elect after having given notice to the Certificate Insurer, the Certificate Insurer (the Redeeming Owners, the Master Servicer or its affiliates, or the Certificate Insurer, the "Redeeming Party"), 96 97 may determine to purchase and may cause the purchase from the Trust of all (but not fewer than all) Mortgage Loans in the Trust Estate and all property theretofore acquired in respect of any such Mortgage Loan by foreclosure, deed in lieu of foreclosure, or otherwise then remaining in the Trust Estate at a price equal to the sum of (v) the greater of (i) 100% of the aggregate Loan Balances of all of the Mortgage Loans as of the day of purchase minus the amount actually remitted by the Master Servicer representing the related Monthly Principal Remittance Amount on such Remittance Date for the related Remittance Period and (ii) the fair market value of such Mortgage Loans (disregarding accrued interest), (w) if the Master Servicer is the Redeeming Party, the amount of any difference between the related Monthly Interest Remittance Amount actually remitted by the Master Servicer on such Remittance Date and the related Monthly Interest Remittance Amount due on such Remittance Date, (x) the related Reimbursement Amount, if any, and (y) if the Master Servicer is the Redeeming Party, the aggregate amount of any Delinquency Advances and Servicing Advances remaining unreimbursed, together with any accrued and unpaid Servicing Fees, as of such Remittance Date (such amount, the "Termination Price"). In connection with such purchase, the Redeeming Party shall remit to the Trustee all amounts then on deposit in the Principal and Interest Account for deposit to the Certificate Account, which deposit shall be deemed to have occurred immediately preceding such purchase. Notwithstanding the foregoing, the Redeeming Party may not terminate the Trust pursuant to this Section 9.2 without the consent of the Certificate Insurer, if termination would result in a draw on the Certificate Insurance Policy. (b) In connection with any such purchase, the Redeeming Party shall provide to the Trustee an opinion of counsel experienced in federal income tax matters to the effect that such purchase constitutes a Qualified Liquidation of the Lower-Tier REMIC and Upper-Tier REMIC. (c) Promptly following any such purchase, the Trustee will release the Files to the Redeeming Party, or otherwise upon their order, in a manner similar to that described in Section 8.14 hereof. (d) Upon such purchase, the Certificate Insurance Policy will terminate and shall be returned to the Certificate Insurer. SECTION 9.3. TERMINATION UPON LOSS OF REMIC STATUS. (a) Following a (x) final determination by the Internal Revenue Service, or by a court of competent jurisdiction, in either case from which no appeal is taken within the permitted time for such appeal, or (y) if any appeal is taken, following a final determination of such appeal from which no further appeal can be taken, to the effect that either the Upper-Tier REMIC or Lower-Tier REMIC do not and will no longer qualify as a "REMIC" pursuant to Section 860D of the Code (the "Final Determination") or (z) following the delivery of an opinion of counsel ("REMIC Opinion") to the effect that the effect of the Final Determination is to increase substantially the probability that either the Upper-Tier REMIC or Lower-Tier REMIC will no longer qualify as a "REMIC" pursuant to Section 860D of the Code, on any Remittance Date on or after the date which is 30 calendar days following such Final Determination, the Certificate Insurer, or if Certificate Insurer Default has occurred and is continuing, the Owners of a majority in Percentage Interest represented by the Class [A] Certificates then Outstanding may direct the Trustee to adopt a plan of complete liquidation with respect to the Trust Estate. In connection with such purchase, the Master Servicer shall remit to the Trustee all amounts then on deposit in the Principal and Interest Account for deposit in the Certificate Account, which deposit shall be deemed to have occurred immediately preceding such purchase. 97 98 (b) Upon receipt of such direction from the Certificate Insurer or the Owners of such Class [A] Certificates, as applicable, the Trustee shall notify the Master Servicer and holders of the [Residual Class] Certificates of such election to liquidate or such determination to purchase, as the case may be, (the "Termination Notice"). The Master Servicer or Owner of a majority of the Percentage Interest of the [Residual Class] Certificates then Outstanding acting directly or through one or more of their affiliates may, on any Remittance Date, within 60 days from the date of receipt of the Termination Notice (the "Purchase Option Period"), at their option, purchase from the Trust all (but not fewer than all) Mortgage Loans in the Trust Estate, and all property theretofore acquired by foreclosure, deed in lieu of foreclosure, or otherwise in respect of any Mortgage Loan then remaining in the Trust Estate at a purchase price equal to the Termination Price. (c) If, during the Purchase Option Period, the Master Servicer or the Owners of the Class R Certificates have not exercised the option described in the immediately preceding paragraph, then upon the expiration of the Purchase Option Period in the event that the Owners of the Class [A] Certificates have given the Trustee the direction described in clause (a)(i) above, the Trustee shall (with the prior consent of the Certificate Insurer, so long as no Certificate Insurer Default has occurred and is continuing) sell the Mortgage Loans and distribute the proceeds of the liquidation of the Trust Estate, such that, if so directed, the liquidation of the Trust Estate, the distribution of the proceeds of such liquidation occur no later than the close of the 60th day, or such later day as the Owner of a majority of the Percentage Interest of the Class [A] Certificates shall permit or direct in writing, after the expiration of the Purchase Option Period. (d) Following a Final Determination, the Owners of a majority of the Percentage Interest of the [Residual Class] Certificates then Outstanding may, at their option on any Remittance Date and upon delivery to the Owners of the Class [A] Certificates and the Trustee of an opinion of counsel experienced in federal income tax matters selected by the Owners of a majority of the Percentage Interest of such [Residual Class] Certificates which opinion shall be reasonably satisfactory in form and substance to a majority of the Percentage Interests represented by the Class [A] Certificates then Outstanding and the Trustee, to the effect that the effect of the Final Determination is to increase substantially the probability that the gross income of either the Upper-Tier REMIC or Lower-Tier REMIC will be subject to federal taxation, purchase from the Trust all (but not fewer than all) Mortgage Loans in the Trust Estate, and all property theretofore acquired by foreclosure, deed in lieu of foreclosure, or otherwise in respect of any Mortgage Loan then remaining in the Trust Estate at a purchase price equal to the Termination Price. In connection with such purchase, the Master Servicer shall remit to the Trustee all amounts then on deposit in the Principal and Interest Account for deposit to the Certificate Account, which deposit shall be deemed to have occurred immediately preceding such purchase. The foregoing opinion shall be deemed satisfactory unless the Owners of a majority of the Percentage Interest represented by the Class [A] Certificates then Outstanding or the Trustee give the Owners of a majority of the Percentage Interest of the [Residual Class] Certificates notice that such opinion is not satisfactory within thirty days after receipt of such opinion. SECTION 9.4. DISPOSITION OF PROCEEDS. The Trustee shall, upon receipt thereof, deposit the proceeds of any liquidation of the Trust Estate pursuant to this Article IX to the Certificate Account; provided, however, that any amounts representing Servicing Fees, unreimbursed Delinquency Advances or unreimbursed Servicing Advances theretofore funded by the Master Servicer from the Master Servicer's own funds shall be paid by the Trustee to the Master Servicer. 98 99 SECTION 9.5. 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 X THE TRUSTEE SECTION 10.1. CERTAIN DUTIES AND RESPONSIBILITIES. (a) The Trustee (i) undertakes to perform such duties and only such duties as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against the Trustee and (ii) in the absence of bad faith on its part, may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished pursuant to and conforming to the requirements of this Agreement; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Agreement. (b) Notwithstanding the appointment of the Master Servicer hereunder, the Trustee is hereby empowered to perform the duties of the Master Servicer hereunder whether following the failure of the Master Servicer to perform, pursuant to Section 8.20 hereof or otherwise. Specifically, and not in limitation of the foregoing, the Trustee shall have the power: (i) to collect Mortgagor payments; (ii) to foreclose on defaulted Mortgage Loans; (iii) to enforce due-on-sale clauses and to enter into assumption and substitution agreements as permitted by Section 8.12 hereof; (iv) to deliver instruments of satisfaction pursuant to Section 8.14; (v) to make Delinquency Advances and Servicing Advances and to pay Compensating Interest, and (vi) to enforce the Mortgage Loans. (c) No provision of this Agreement shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (i) this subsection shall not be construed to limit the effect of subsection (a) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by an Authorized Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and 99 100 (iii) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Certificate Insurer or of the Owners of a majority in Percentage Interest of the Certificates of the affected Class or Classes and the Certificate Insurer relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Agreement relating to such Certificates. (d) Whether or not therein expressly so provided, every provision of this Agreement relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. (e) No provision of this Agreement shall require the Trustee to expend or risk its own funds or otherwise incur any 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 for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (f) The permissive right of the Trustee to take actions enumerated in this Agreement shall not be construed as a duty and the Trustee shall not be answerable for other than its own negligence or willful misconduct. (g) The Trustee shall be under no obligation to institute any suit, or to take any remedial proceeding under this Agreement, or to take any steps in the execution of the trusts hereby created or in the enforcement of any rights and powers hereunder until it shall be indemnified to its satisfaction against any and all costs and expenses, outlays and counsel fees and other reasonable disbursements and against all liability, except liability which is adjudicated to have resulted from its negligence or willful misconduct, in connection with any action so taken. The Trustee shall receive from the Sponsor promptly upon demand therefor, reimbursement of expenses as are described in the fee quote letter, dated [__________, _____] and executed by the Sponsor. SECTION 10.2. REMOVAL OF TRUSTEE FOR CAUSE. (a) The Trustee may be removed pursuant to paragraph (b) hereof upon the occurrence of any of the following events (whatever the reason for such event 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) the Trustee shall fail to distribute to the Owners entitled thereto on any Payment Date amounts available for distribution in accordance with the terms hereof; or (B) the Trustee shall fail in the performance of, or breach, any covenant or agreement of the Trustee in this Agreement, or if any representation or warranty of the Trustee made in this Agreement or in any certificate or other writing delivered pursuant hereto or in connection herewith shall prove to be incorrect in any material respect as of the time when the same shall have been made, and such failure or breach shall continue or not be cured for a period of 30 days after there shall have been given, by registered or certified mail, to the 100 101 Trustee by the Sponsor, the Certificate Insurer or by the Owners of at least 25% of the aggregate Percentage Interests represented by the Class [A] Certificates then Outstanding a written notice specifying such failure or breach and requiring it to be remedied; or (C) a decree or order of a court or agency or supervisory authority having jurisdiction for the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs, shall have been entered against the Trustee, and such decree or order shall have remained in force undischarged or unstayed for a period of 75 days; or (D) a conservator or receiver or liquidator or sequestrator or custodian of the property of the Trustee is appointed in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings of or relating to the Trustee or relating to all or substantially all of its property; or (E) the Trustee shall become insolvent (however insolvency is evidenced), generally fail to pay its debts as they come due, file or consent to the filing of a petition to take advantage of any applicable insolvency or reorganization statute, make an assignment for the benefit of its creditors, voluntarily suspend payment of its obligations, or take corporate action for the purpose of any of the foregoing. The Sponsor shall give to the Certificate Insurer and each Rating Agency notice of the occurrence of any such event of which the Sponsor is aware. (b) If any event described in Paragraph (a) occurs and is continuing, then and in every such case (i) the Certificate Insurer or (ii) with the prior written consent (which shall not be unreasonably withheld) of the Certificate Insurer (x) the Sponsor or (y) the Owners of a majority of the Percentage Interests represented by the Class [A] Certificates, or, if there are no Class [A] Certificates then Outstanding, by such Percentage Interest represented by any Class of [Residual Class] Certificates then Outstanding may, whether or not the Trustee resigns pursuant to Section 10.9 hereof, immediately, concurrently with the giving of notice to the Trustee, and without delaying the 30 days required for notice therein, appoint a successor Trustee pursuant to the terms of Section 10.9 hereof. SECTION 10.3. CERTAIN RIGHTS OF THE TRUSTEE. Except as otherwise provided in Section 10.1 hereof: (a) the Trustee may request and rely upon and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Sponsor, the Certificate Insurer or the Owners of any Class of Certificates mentioned herein shall be sufficiently evidenced in writing; (c) whenever in the administration of this Agreement the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action 101 102 hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officer's Certificate; (d) the Trustee may consult with counsel, and the written advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reasonable reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement at the request or direction of any of the Owners pursuant to this Agreement, unless such Owners shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note or other paper or document, but the Trustee in its discretion may make such further inquiry or investigation into such facts or matters as it may see fit; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed and supervised with due care by it hereunder; and (h) the Trustee shall not be liable for any action it takes or omits to take in good faith which it reasonably believes to be authorized by the Authorized Officer of any Person or within its rights or powers under this Agreement other than as to validity and sufficiency of its authentication of the Certificates. SECTION 10.4. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF CERTIFICATES. The recitals contained herein and in the Certificates, except any such recitals relating to the Trustee, shall be taken as the statements of the Sponsor and the Trustee assumes no responsibility for their correctness. The Trustee makes no representation as to the validity or sufficiency of this Agreement or of the Certificates other than as to validity and sufficiency of its authentication of the Certificates. SECTION 10.5. MAY HOLD CERTIFICATES. The Trustee or any agent of the Trust, in its individual or any other capacity, may become an Owner or pledgee of Certificates and may otherwise deal with the Trust with the same rights it would have if it were not Trustee or such agent. SECTION 10.6. MONEY HELD IN TRUST. Money held by the Trustee in trust hereunder need not be segregated from other trust funds except to the extent required herein or required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Sponsor and except to the extent of income or other gain on investments which are deposits in or certificates of deposit of the Trustee in its commercial capacity and income or other gain actually received by the Trustee on Eligible Investments. 102 103 SECTION 10.7. NO LIEN FOR FEES. The Trustee shall have no lien on the Trust Estate for the payment of any fees and expenses. SECTION 10.8. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. There shall at all times be a Trustee hereunder which shall be a corporation or association organized and doing business under the laws of the United States of America or of any State authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $100,000,000, subject to supervision or examination by the United States of America or any such State having a rating or ratings acceptable to the Certificate Insurer or, if the last sentence of Section 11.18 hereof is applicable, the Sponsor and having (x) long-term, unsecured debt rated at least A-1 by Moody's (or such lower rating as may be acceptable to Moody's) and (y) a short-term deposit rating of at least A-1 from Standard & Poor's (or such lower rating as may be acceptable to Standard & Poor's). If such Trustee publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation or association shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall, upon the request of the Sponsor (with the consent of the Certificate Insurer) (which consent shall not be unreasonably withheld) or of the Certificate Insurer, resign immediately in the manner and with the effect hereinafter specified in this Article X. SECTION 10.9. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. (a) No resignation or removal of the Trustee and no appointment of a successor trustee pursuant to this Article X shall become effective until the acceptance of appointment by the successor trustee under Section 10.10 hereof. (b) The Trustee, or any trustee or trustees hereafter appointed, may resign at any time by giving written notice of resignation to the Sponsor and by mailing notice of resignation by first-class Mail, postage prepaid, to the Certificate Insurer and the Owners at their addresses appearing on the Register. A copy of such notice shall be sent by the resigning Trustee to each Rating Agency. Upon receiving notice of resignation, the Sponsor shall promptly appoint a successor trustee or trustees by written instrument, in duplicate, executed on behalf of the Trust by an Authorized Officer of the Sponsor, one copy of which instrument shall be delivered to the Trustee so resigning and one copy to the successor trustee or trustees. If no successor trustee shall have been appointed and have accepted appointment within 30 days after the giving of such notice of resignation, the resigning trustee may petition any court of competent jurisdiction for the appointment of a successor trustee, or any Owner may, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee. (c) If at any time the Trustee shall cease to be eligible under Section 10.8 hereof and shall fail to resign after written request therefor by the Sponsor or by the Certificate Insurer, the Certificate Insurer or the Sponsor (with the written consent of the Certificate Insurer) may remove the Trustee and appoint a successor trustee by written instrument, in duplicate, executed on behalf of the Trust by an Authorized Officer of the Sponsor, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee. 103 104 (d) The Owners of a majority of the Percentage Interests represented by the Class [A] Certificates, or, if there are no Class [A] Certificates then Outstanding, by such majority of the Percentage Interests represented by [Residual Class] Certificates then Outstanding may at any time, with the prior written consent of the Certificate Insurer, remove the Trustee and appoint a successor trustee by delivering to the Trustee to be removed, to the successor trustee so appointed, to the Sponsor and to the Certificate Insurer, copies of the record of the act taken by the Owners, as provided for in Section 11.3 hereof. (e) If the Trustee fails to perform its duties in accordance with the terms of this Agreement or becomes ineligible to serve as Trustee, the Certificate Insurer or, if the last sentence of Section 11.18 hereof is applicable, the Sponsor may remove the Trustee and appoint a successor trustee by written instrument, in triplicate, signed by the Certificate Insurer and the Sponsor duly authorized, one complete set of which instruments shall be delivered to the Sponsor, one complete set to the Certificate Insurer, one complete set to the Trustee so removed and one complete set to the successor Trustee so appointed. (f) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of the Trustee for any cause, the Sponsor shall promptly appoint a successor Trustee acceptable to the Certificate Insurer. If within one year after such resignation, removal or incapability or the occurrence of such vacancy, a successor Trustee shall be appointed by act of the Owners of a majority of the Percentage Interests represented by the Class [A] Certificates then Outstanding or, if there are no Class [A] Certificates then Outstanding, by such majority of the Percentage Interest of the [Residual Class] Certificates delivered to the Sponsor and the retiring Trustee, the successor Trustee so appointed shall forthwith upon its acceptance of such appointment become the successor Trustee and supersede the successor Trustee appointed by the Sponsor. If no successor Trustee shall have been so appointed by the Sponsor or the Owners and shall have accepted appointment in the manner hereinafter provided, any Owner may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor Trustee. (g) The Sponsor shall give notice of any removal of the Trustee by mailing notice of such event by first-class mail, postage prepaid, to the Certificate Insurer and to the Owners as their names and addresses appear in the Register. Each notice shall include the name of the successor Trustee and the address of its corporate trust office. SECTION 10.10. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR TRUSTEE. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Sponsor on behalf of the Trust and to its predecessor Trustee an instrument accepting such appointment hereunder and stating its eligibility to serve as Trustee hereunder, and thereupon the resignation or removal of the predecessor Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts, duties and obligations of its predecessor hereunder; but, on request of the Sponsor or the successor Trustee, such predecessor Trustee shall, upon payment of its charges then unpaid, execute and deliver an instrument transferring to such successor Trustee all of the rights, powers and trusts of the Trustee so ceasing to act, and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such Trustee so ceasing to act hereunder. Upon request of any such successor Trustee, the Sponsor on behalf of the Trust shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. 104 105 Upon acceptance of appointment by a successor Trustee as provided in this Section, the Sponsor shall mail notice thereof by first-class mail, postage prepaid, to the Owners at their last addresses appearing upon the Register. The Sponsor shall send a copy of such notice to each of the Rating Agencies and the Certificate Insurer. If the Sponsor fails to mail such notice within ten days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the Trust. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor shall be qualified and eligible under this Article X. SECTION 10.11. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS OF THE TRUSTEE. Any corporation or association into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation or association resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation or association succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto; provided, however, that such corporation or association shall be otherwise qualified and eligible under this Article X. In case any Certificates have been executed, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such Trustee may adopt such execution and deliver the Certificates so executed with the same effect as if such successor Trustee had itself executed such Certificates. SECTION 10.12. REPORTING; WITHHOLDING. With respect to each of the REMIC Trusts and the Non-REMIC Estate, the Trustee shall timely provide to the Owners (or other Persons entitled thereto) the Internal Revenue Service's Form 1099 and any other statement required by applicable Treasury regulations or analogous provisions of state or local law as determined by the Sponsor, and shall withhold, as required by applicable law, federal, state or local taxes, if any, applicable to distributions to the Owners, including, but not limited to, backup withholding under Section 3406 of the Code, the withholding tax on distributions to foreign investors under Sections 1441 and 1442 of the Code and beginning after [__________, _____], shall report as effectively connected income distributions with respect to Supplemental Interest Rights held by foreign holders if such holders have not provided certification that such distributions are not effectively connected income. SECTION 10.13. LIABILITY OF THE TRUSTEE. The Trustee shall be liable in accordance herewith only to the extent of the obligations specifically imposed upon and undertaken by the Trustee herein. Neither the Trustee nor any of the directors, officers, employees or agents of the Trustee shall be under any liability on any Certificate or otherwise to any Account, the Sponsor, the Master Servicer or any Owner for any action taken or for refraining from the taking of any action in good faith pursuant to this Agreement, or for errors in judgment; provided, however, that this provision shall not protect the Trustee or any such Person against any liability which would otherwise be imposed by reason of negligent action, negligent failure to act or bad faith in the performance of duties or by reason of reckless disregard of obligations and duties hereunder. Subject to the foregoing sentence, the Trustee shall not be liable for losses on investments of amounts in any Account (except for any losses on obligations on which the bank serving as Trustee is the obligor and is otherwise liable). 105 106 In addition, the Sponsor and Master Servicer covenant and agree to indemnify the Trustee, and its officers, directors, employees and agents, including, without limitation, when the Trustee is acting as Master Servicer, and hold it harmless against, any and all losses, liabilities, damages, claims or expenses (including legal fees and expenses) other than those resulting from the negligence or bad faith of the Trustee. The indemnification provided in this Section 10.13 shall survive the termination of this Agreement or the resignation or removal of the Trustee hereunder. The Trustee and any director, officer, employee or agent of the Trustee may rely and shall be protected in acting or refraining from acting in good faith on any certificate, notice or other document of any kind prima facie properly executed and submitted by the Authorized Officer of any Person respecting any matters arising hereunder. SECTION 10.14. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE. Notwithstanding any other provisions of this Agreement, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust Estate or Property may at the time be located, the Master Servicer and the Trustee acting jointly shall have the power and shall execute and deliver all instruments to appoint one or more Persons approved by the Trustee and the Certificate Insurer to act as co-Trustee or co-Trustees, jointly with the Trustee, of all or any part of the Trust Estate or separate Trustee or separate Trustees of any part of the Trust Estate, and to vest in such Person or Persons, in such capacity and for the benefit of the Owners, such title to the Trust Estate, or any part thereof, and, subject to the other provisions of this Section 10.14, such powers, duties, obligations, rights and trusts as the Master Servicer and the Trustee may consider necessary or desirable. If the Master Servicer shall not have joined in such appointment within 15 days after the receipt by it of a request so to do, or in the case any event indicated in Sections 8.20(a) or 8.20(b) shall have occurred and be continuing, the Trustee alone shall have the power to make such appointment with the consent of the Certificate Insurer. No co-Trustee or separate Trustee hereunder shall be required to meet the terms of eligibility as a successor Trustee under Section 10.8 and no notice to Owner of the appointment of any co-Trustee or separate Trustee shall be required under Section 10.8. Every separate Trustee and co-Trustee shall, to the extent permitted, be appointed and act subject to the following provisions and conditions: (i) All rights, powers, duties and obligations conferred or imposed upon the Trustee shall be conferred or imposed upon and exercised or performed by the 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 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 (whether as Trustee hereunder or as successor to the Master Servicer hereunder), the 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 Estate 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 Trustee; (ii) No co-Trustee hereunder shall be held personally liable by reason of any act or omission of any other co-Trustee hereunder; and (iii) The Master Servicer and the Trustee acting jointly may at any time accept the resignation of or remove any separate Trustee or co-Trustee. 106 107 Any notice, request or other writing given to the 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 Section 10.14. 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 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 Trustee. Every such instrument shall be filed with the Trustee and a copy thereof given to the Master Servicer. Any separate Trustee or co-Trustee may, at any time, constitute the 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 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 Trustee, to the extent permitted by law, without the appointment of a new or successor Trustee. The Trustee shall give to the Rating Agencies, the Sponsor and the Certificate Insurer notice of the appointment of any Co-Trustee or separate Trustee. ARTICLE XI MISCELLANEOUS SECTION 11.1. COMPLIANCE CERTIFICATES AND OPINIONS. Upon any application or request by the Sponsor, the Certificate Insurer or the Owners to the Trustee to take any action under any provision of this Agreement, the Sponsor, the Certificate Insurer or the Owners, as the case may be, shall furnish to the Trustee a certificate stating that all conditions precedent, if any, provided for in this Agreement relating to the proposed action have been complied with, except that in the case of any such application or request as to which the furnishing of any documents is specifically required by any provision of this Agreement relating to such particular application or request, no additional certificate need be furnished. Except as otherwise specifically provided herein, each certificate or opinion with respect to compliance with a condition or covenant provided for in this Agreement shall include: (a) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (b) 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 (c) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 11.2. FORM OF DOCUMENTS DELIVERED TO THE TRUSTEE. 107 108 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 of an Authorized Officer of the Trustee may be based, insofar as it relates to legal matters, upon an opinion of counsel, unless such Authorized Officer knows, or in the exercise of reasonable care should know, that the opinion is erroneous. Any such certificate of an Authorized Officer of the Trustee or any opinion of counsel may be based, insofar as it relates to factual matter upon a certificate or opinion of, or representations by, one or more Authorized Officers of the Sponsor or of the Master Servicer, stating that the information with respect to such factual matters is in the possession of the Sponsor or of the Master Servicer, unless such Authorized Officer or 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. Any opinion of counsel may also be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an Authorized Officer of the Trustee, stating that the information with respect to such matters is in the possession of the Trustee, 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. Any opinion of counsel may be based on the written opinion of other counsel, in which event such opinion of counsel shall be accompanied by a copy of such other counsel's opinion and shall include a statement to the effect that such counsel believes that such counsel and the Trustee may reasonably rely upon the opinion of such other counsel. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Agreement, they may, but need not, be consolidated and form one instrument. SECTION 11.3. ACTS OF OWNERS. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Agreement to be given or taken by the Owners may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Owners in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee, and, where it is hereby expressly required, to the Sponsor and/or the Certificate Insurer. 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 Agreement and conclusive in favor of the Trustee and the Trust, 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 by the affidavit of a witness of such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Whenever such execution is by an officer of a corporation or a member of a partnership on behalf of such corporation or partnership, such certificate or affidavit shall also constitute sufficient proof of his authority. 108 109 (c) The ownership of Certificates shall be proved by the Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Owner of any Certificate shall bind the Owner of every Certificate issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof, in respect of anything done, omitted or suffered to be done by the Trustee or the Trust in reliance thereon, whether or not notation of such action is made upon such Certificates. SECTION 11.4. NOTICES, ETC., TO TRUSTEE. Any request, demand, authorization, direction, notice, consent, waiver or act of the Owners or other documents provided or permitted by this Agreement to be made upon, given or furnished to, or filed with the Trustee by any Owner, the Certificate Insurer or by the Sponsor shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with and received by the Trustee at its corporate trust office as set forth in Section 2.2 hereof. SECTION 11.5. NOTICES AND REPORTS TO OWNERS; WAIVER OF NOTICES. Where this Agreement provides for notice to Owners of any event or the mailing of any report to Owners, such notice or report shall be sufficiently given (unless otherwise herein expressly provided) if mailed, first-class postage prepaid, to each Owner affected by such event or to whom such report is required to be mailed, at the address of such Owner as it appears on the Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice or the mailing of such report. In any case where a notice or report to Owners is mailed in the manner provided above, neither the failure to mail such notice or report nor any defect in any notice or report so mailed to any particular Owner shall affect the sufficiency of such notice or report with respect to other Owners, and any notice or report which is mailed in the manner herein provided shall be conclusively presumed to have been duly given or provided. Where this Agreement 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 Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such 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 Agreement, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice. Where this Agreement provides for notice to any rating agency that rated any Certificates, failure to give such notice shall not affect any other rights or obligations created hereunder. SECTION 11.6. RULES BY TRUSTEE AND SPONSOR. The Trustee may make reasonable rules for any meeting of Owners. The Sponsor may make reasonable rules and set reasonable requirements for its functions. SECTION 11.7. SUCCESSORS AND ASSIGNS. 109 110 All covenants and agreements in this Agreement by any party hereto shall bind its successors and assigns, whether so expressed or not. SECTION 11.8. SEVERABILITY. In case any provision in this Agreement or in the Certificates 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 11.9. BENEFITS OF AGREEMENT. Nothing in this Agreement or in the Certificates, expressed or implied, shall give to any Person, other than the Owners, the Certificate Insurer and the parties hereto and their successors hereunder, any benefit or any legal or equitable right, remedy or claim under this Agreement. SECTION 11.10. LEGAL HOLIDAYS. In any case where the date of 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 Certificates 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 Payment Date, or such 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 11.11. 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 Certificate 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. SECTION 11.12. 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 11.13. USURY. The amount of interest payable or paid on any Certificate 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 Certificate exceeds the Highest Lawful Rate, the Trust stipulates that such excess amount will be deemed to have been paid to the Owner of such 110 111 Certificate as a result of an error on the part of the 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 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 Certificate, if any, remaining unpaid. In addition, all sums paid or agreed to be paid to the Trustee for the benefit of Owners of Certificates 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 Certificates. SECTION 11.14. AMENDMENT. (a) The Trustee, the Sponsor and the Master Servicer, may at any time and from time to time, with the prior written consent of the Certificate Insurer but without the giving of notice to or the receipt of the consent of the Owners, amend this Agreement, and the Trustee shall consent to such amendment, for the purpose of (i) curing any ambiguity, or correcting or supplementing any provision hereof which may be inconsistent with any other provision hereof, or to add provisions hereto which are not inconsistent with the provisions hereof, (ii) upon receipt of an opinion of counsel experienced in federal income tax matters to the effect that no entity-level tax will be imposed on the Upper-Tier REMIC or the Lower-Tier REMIC or upon the transferor of a [Residual Class] Certificate as a result of the ownership of any [Residual Class] Certificate by a Disqualified Organization, removing the restriction on transfer set forth in Section 5.8(b) hereof or (iii) complying with the requirements of the Code and the regulations proposed or promulgated thereunder; provided, however, that any such action shall not, as evidenced by an opinion of counsel delivered to the Trustee, materially and adversely affect the interests of any Owner (without its written consent). (b) The Trustee, the Sponsor and the Master Servicer may, at any time and from time to time, with the prior written consent of the Certificate Insurer but without the giving of notice to or the receipt of the consent of the Owners, amend this Agreement, and the Trustee shall consent to such amendment, for the purpose of changing the definitions of "Group I Specified Overcollateralization Amount," and "Group II Specified Overcollateralization Amount"; provided, however, that no such change shall affect the weighted average life of the related Class of Class [A] Certificates (assuming an appropriate prepayment speed as determined by the Representative) by more than five percent, as determined by the Representative. (c) This Agreement may also be amended by the Trustee, the Sponsor, and the Master Servicer at any time and from time to time, with the prior written approval of the Certificate Insurer and not less than a majority of the Percentage Interest represented by each affected Class of Certificates then Outstanding, for the purpose of adding any provisions 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 hereunder; provided, however, that no such amendment shall (a) change in any manner the amount of, or change the timing of, payments which are required to be distributed to any Owner without the consent of the Owner of such Certificate, (b) change or reduce the aforesaid percentages of Percentage Interests which are required to consent to any such amendments or (c) result in a down-rating or withdrawal of any ratings then assigned to the Class [A] Certificates, without the consent of the Owners of all Certificates of the Class or Classes affected then Outstanding. (d) Each proposed amendment to this Agreement shall be accompanied by an opinion of counsel nationally recognized in federal income tax matters addressed to the Trustee and to the Certificate Insurer to the effect that such amendment would not adversely 111 112 affect the status of either the Upper-Tier REMIC or Lower-Tier REMIC as a REMIC. Neither such opinion of counsel nor any expense of any such proposed amendment shall be at the Trustee's expense. (e) The Certificate Insurer, the Owners and each Rating Agency 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 11.15. REMIC STATUS; TAXES. (a) The Tax Matters Person shall prepare and file or cause to be filed with the Internal Revenue Service federal tax or information returns with respect to the Upper-Tier REMIC and Lower-Tier REMIC and the Certificates containing such information and at the times and in such manner as may be required by the Code or applicable Treasury regulations, and shall furnish to Owners such statements or information at the times and in such manner as may be required thereby. For this purpose, the Tax Matters Person may, but need not, rely on any proposed regulations of the United States Department of the Treasury. The Tax Matters Person shall indicate the election to treat each of the Upper-Tier REMIC and Lower-Tier REMIC as a REMIC (which election shall apply to the taxable period ending [__________, _____] and each calendar year thereafter) in such manner as the Code or applicable Treasury regulations may prescribe. The Trustee, as Tax Matters Person appointed pursuant to Section 11.17 hereof shall sign all tax information returns filed pursuant to this Section 11.15. The Tax Matters Person shall provide information necessary for the computation of tax imposed on the transfer of a [Residual Class] Certificate to a Disqualified Organization, or an agent of a Disqualified Organization, or a pass-through entity in which a Disqualified Organization is the record holder of an interest. The Tax Matters Person shall provide the Trustee with copies of any Federal tax or information returns filed, or caused to be filed, by the Tax Matters Person with respect to the REMIC Trust or the Certificates. (b) The Tax Matters Person shall timely file all reports required to be filed by the Trust with any federal, state or local governmental authority having jurisdiction over the Trust, including other reports that must be filed with the Owners, such as the Internal Revenue Service's Form 1066 and Schedule Q and the form required under Section 6050K of the Code, if applicable to REMICs. The Trustee shall be liable to the Master Servicer and the Sponsor for any penalties or interest as a result of its negligence with respect to such filings. Furthermore, the Tax Matters Person shall report to Owners, if required, with respect to the allocation of expenses pursuant to Section 212 of the Code in accordance with the specific instructions to the Tax Matters Person by the Sponsor with respect to such allocation of expenses. The Tax Matters Person shall collect any forms or reports from the Owners determined by the Sponsor to be required under applicable federal, state and local tax laws. The Trustee shall provide copies of all filings to the Master Servicer within 15 days of the required date of such filing. In addition, the Trustee agrees not to file more than one extension per required filing without prior consultation with, and the consent of, the Master Servicer. Further, the Trustee shall provide to the Sponsor and the Master Servicer access to any documentation regarding its tax reporting duties hereunder as well as providing access to the Trustee's officers and personnel in order to discuss the methodology and preparation of any filings or returns hereunder. Such access shall be provided to the Master Servicer and the Sponsor without cost or charge. (c) The Tax Matters Person shall provide to the Internal Revenue Service and to persons described in Section 860E(e)(3) and (6) of the Code the information described in Treasury Regulation Section 1.860D-1(b)(5)(ii), or any successor regulation thereto. Such 112 113 information will be provided in the manner described in Treasury Regulation Section 1.860E-2(a)(5), or any successor regulation thereto. (d) The Sponsor covenants and agrees that within ten Business Days after receiving a written request from the Trustee it shall provide to the Trustee any information necessary to enable the Trustee to meet its obligations under subsections (b) and (c) above. (e) The Trustee, the Sponsor and the Master Servicer each covenants and agrees for the benefit of the Owners (i) to take no action which would result in the termination of "REMIC" status for the Upper-Tier REMIC and Lower-Tier REMIC, (ii) not to engage in any "prohibited transaction", as such term is defined in Section 860F(a)(2) of the Code and (iii) not to engage in any other action which may result in the imposition on the Upper-Tier REMIC and Lower-Tier REMIC of any other taxes under the Code. (f) The Upper-Tier REMIC and Lower-Tier REMIC shall, for federal income tax purposes, maintain books on a calendar year basis and report income on an accrual basis. (g) Except as otherwise permitted by Section 7.6(b), no Eligible Investment shall be sold prior to its stated maturity (unless sold pursuant to a plan of liquidation in accordance with Article IX hereof). (h) Neither the Sponsor nor the Trustee shall enter into any arrangement by which the Trustee will receive a fee or other compensation for services rendered pursuant to this Agreement, which fee or other compensation is paid from the Trust Estate, other than as expressly contemplated by this Agreement. (i) Notwithstanding the foregoing clauses (g) and (h), the Trustee or the Sponsor may engage in any of the transactions prohibited by such clauses, provided that the Trustee shall have received the prior written consent of the Certificate Insurer and an opinion of counsel experienced in federal income tax matters to the effect that such transaction does not result in a tax imposed on the Trustee or cause a termination of REMIC status for either the Upper-Tier REMIC or Lower-Tier REMIC; provided, however, that such transaction is otherwise permitted under this Agreement. SECTION 11.16. ADDITIONAL LIMITATION ON ACTION AND IMPOSITION OF TAX. (a) Any provision of this Agreement to the contrary notwithstanding, the Trustee shall not, without having obtained, and delivered to the Certificate Insurer, an opinion of counsel experienced in federal income tax matters (which opinion shall be at the expense of the Sponsor) to the effect that such transaction does not result in a tax imposed on the Trust or cause a termination of REMIC status for either the Upper-Tier REMIC or Lower-Tier REMIC, (i) sell any assets in the Trust Estate, (ii) accept any contribution of assets after the Startup Day or (iii) agree to any modification of this Agreement. (b) In the event that any tax is imposed on "prohibited transactions" of either the Upper-Tier REMIC or Lower-Tier REMIC as defined in Section 860F(a)(2) of the Code, on the "net income from foreclosure property" as defined in Section 860G(c) of the Code, on any contribution to either the Upper-Tier REMIC or Lower-Tier REMIC after the Startup Day pursuant to Section 860G(d) of the Code, or any other tax, including liability for withholding tax, (other than any minimum tax imposed by Sections 23151(a) or 23153(a) of the California 113 114 Revenue and Taxation Code) is imposed on the REMIC Trust or the Non-REMIC Estate, such tax shall be paid by (i) the Trustee, if such tax arises out of or results from a breach by the Trustee of any of its obligations under this Agreement, (ii) the Master Servicer, if such tax arises out of or results from a breach by the Master Servicer of any of its obligations under this Agreement, or otherwise (iii) the Owners of the [Residual Class] Certificates in proportion to their Percentage Interests. To the extent such tax is chargeable against the Owners of the [Residual Class] Certificates, notwithstanding anything to the contrary contained herein, the Trustee is hereby authorized to retain from amounts otherwise distributable to the Owners of the [Residual Class] Certificates on any Payment Date sufficient funds to reimburse the Trustee for the payment of such tax (to the extent that the Trustee has not been previously reimbursed or indemnified therefor). (c) The Trustee shall pay out of its own funds, without any right of reimbursement, any and all expenses relating to any tax audit of the Trust Estate (including, but not limited to, any professional fees or any administrative or judicial proceedings with respect thereto that involves the Internal Revenue Service or state tax authorities); provided, however, that if such audit resulted solely from the negligence of the Master Servicer or the Sponsor, as the case may be, the Master Servicer or Sponsor shall pay such expenses. The Trustee shall act on behalf of the Trust Estate in any administrative or judicial proceeding relating to an examination or audit by any governmental taxing authority with respect thereto. (d) On or before April 15 of each calendar year, commencing April 15, [Year], the Trustee shall deliver to the Master Servicer a Certificate from a Responsible Officer of the Trustee stating the Trustee's compliance with its tax reporting duties set forth in this Agreement. (e) The Trustee agrees to indemnify the Trust Estate, the Master Servicer and the Sponsor for any taxes and costs, including, without limitation, any penalties, interest, professional fees and attorneys' fees imposed on or incurred by the Trust Estate, the Master Servicer or the Sponsor, as a result of a breach of the Trustee's covenants set forth in this Agreement or as a result of the Trustee's negligence, willful misconduct or bad faith. SECTION 11.17. APPOINTMENT OF TAX MATTERS PERSON. The Owner of the [Residual Class] Certificate shall act as the Tax Matters Person for the Upper-Tier REMIC and the Owner of the [Residual Class] Certificate shall act as the Tax Matters Person for the Lower-Tier REMIC. The Owners of the [Residual Class] Certificates hereby appoint the Trustee as their agent for all purposes of the Code to perform, or cause to be performed, such duties and take, or cause to be taken, such actions as are required to be performed or taken by the Tax Matters Person for each REMIC under the Code. SECTION 11.18. THE CERTIFICATE INSURER. The Certificate Insurer is a third-party beneficiary of this Agreement. Any right conferred to the Certificate Insurer shall be suspended during any period in which the Certificate Insurer is in default in its payment obligations under the Certificate Insurance Policy, except with respect to amendments to this Agreement pursuant to Section 11.14. During the continuance of a Certificate Insurer Default, the Certificate Insurer's rights hereunder shall vest in the Trustee on behalf of the Owners of the Class [A] Certificates and shall be exercisable by the Owners of at least a majority in Percentage Interest of the Class [A] Certificates then Outstanding. At such time as the Class [A] Certificates are no longer Outstanding hereunder and the Certificate Insurer 114 115 has been reimbursed for all Reimbursement Amounts to which it is entitled hereunder and the Certificate Insurance Policy has expired, the Certificate Insurer's rights hereunder shall terminate. SECTION 11.19. MAINTENANCE OF RECORDS. Each Originator and Owner of a [Residual Class] Certificate shall each continuously keep an original executed counterpart of this Agreement in its official records. SECTION 11.20. NOTICES. All notices hereunder shall be given as follows, until any superseding instructions are given to all other Persons listed below: The Trustee: [Trustee] [Trustee's Address] Attention: [___________] Tel: [(___) ___-_____] Fax: [(___) ___-_____] The Sponsor: Advanta Conduit Receivables, Inc. 10790 Rancho Bernardo Road San Diego, California 92127 Tel: (619) 674-3317 Attention: Structured Finance The Master Servicer: Advanta Mortgage Corp. USA 10790 Rancho Bernardo Road San Diego, California 92127 Tel: (619) 674-3317 Fax: (619) 674-3592 The Certificate Insurer: [Certificate Insurer] [Certificate Insurer's Address] Attention: [_____________] [Rating Agency]: [Rating Agency] [Rating Agency Address] Attention: [______________] Underwriter(s): [Underwriter/Representative] [Underwriter's/Representative's Address] Attention: [_____________] 115 116 IN WITNESS WHEREOF, the Sponsor, the Master Servicer and the 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. ADVANTA CONDUIT RECEIVABLES, INC. as Sponsor By: ________________________________ Name: Title: ADVANTA MORTGAGE CORP. USA as Master Servicer By: ________________________________ Name: Title: [TRUSTEE], as Trustee By: ________________________________ [POOLING AND SERVICING AGREEMENT] 116 117 STATE OF CALIFORNIA ) : ss.: COUNTY OF ) On the ____ day of _________, ____, before me personally came ___________ to me known, who, being by me duly sworn did depose and say that his/her office is located at [Trustee's Address]; that s/he is ________________ of [Trustee], the national banking corporation described in and that executed the above instrument as Trustee; and that s/he signed his/her name thereto under authority granted by the Board of Directors of said national banking association. 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] ____________________________ Notary Public EX-4.2 4 FORM OF SALE AND SERVICING AGREEMENT 1 EXHIBIT 4.2 SALE AND SERVICING AGREEMENT Among ADVANTA MORTGAGE LOAN TRUST ____-_, as Issuer, ADVANTA CONDUIT RECEIVABLES, INC., as Sponsor, ADVANTA MORTGAGE CORP. USA, as Master Servicer, and [INDENTURE TRUSTEE] as Indenture Trustee Dated as of [DATE] 2 TABLE OF CONTENTS (Not a Part of this Agreement)
Page Parties..................................................................................................1 Recitals.................................................................................................1 ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION.............................................................2 Section 1.1. Definitions............................................................................2 Section 1.2. Use of Words and Phrases..............................................................15 Section 1.3. Captions; Table of Contents...........................................................15 Section 1.4. Opinions..............................................................................15 ARTICLE II CONVEYANCE OF MORTGAGE LOANS.................................................................15 Section 2.1. Conveyance of the Initial Mortgage Loans..............................................15 Section 2.2. Acceptance by the Issuer; Certain Substitutions of Mortgage Loans; Certification by Indenture Trustee.................................................17 Section 2.3. Cooperation Procedures................................................................19 Section 2.4. Conveyance of the Subsequent Mortgage Loans...........................................19 Section 2.5. Retransfers of Mortgage Loans at Election of Sponsor..................................21 ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SPONSOR AND THE MASTER SERVICER............22 Section 3.1. Representations and Warranties of the Sponsor.........................................22 Section 3.2. Representations and Warranties of the Master Servicer................................24 Section 3.3. Representations and Warranties of the Sponsor with Respect to the Mortgage Loans..............................................................................26 Section 3.4. Covenants of Sponsor to Take Certain Actions with Respect to the Mortgage Loans In Certain Situations........................................................27 ARTICLE IV SERVICING AND ADMINISTRATION OF MORTGAGE LOANS...............................................28 Section 4.1. Master Servicer and Sub-Servicers.....................................................28 Section 4.2. Collection of Certain Mortgage Loan Payments..........................................30 Section 4.3. Sub-Servicing Agreements Between Master Servicer and Sub-Servicers....................30 Section 4.4. Successor Sub-Servicers...............................................................30 Section 4.5. Liability of Master Servicer..........................................................31 Section 4.6. No Contractual Relationship Between Sub-Servicer and Indenture Trustee or the Noteholders........................................................................31 Section 4.7. Assumption or Termination of Sub-Servicing Agreement by Indenture Trustee.............31 Section 4.8. Principal and Interest Account........................................................31 Section 4.9. Delinquency Advances, Compensating Interest and Servicing Advances....................33 Section 4.10. Purchase of Mortgage Loans...........................................................34 Section 4.11. Maintenance of Insurance.............................................................34 Section 4.12. Due-on-Sale Clauses; Assumption and Substitution Agreements..........................35 Section 4.13. Realization Upon Defaulted Mortgage Loans............................................36 Section 4.14. Indenture Trustee to Cooperate; Release of Files.....................................37 Section 4.15. Servicing Compensation...............................................................38 Section 4.16. Annual Statement as to Compliance....................................................38 Section 4.17. Annual Independent Certified Public Accountants' Reports.............................38 Section 4.18. Access to Certain Documentation and Information Regarding the Mortgage Loans.........39 Section 4.19. Assignment of Agreement..............................................................39
i 3 ARTICLE V SERVICING TERMINATION.........................................................................39 Section 5.1. Events of Servicer Termination........................................................39 Section 5.2. Inspections by the Note Insurer and the Indenture Trustee; Errors and Omissions Insurance................................................................44 Section 5.3. Merger, Conversion, Consolidation or Succession to Business of Master Servicer........44 Section 5.4. Notices of to Noteholders.............................................................44 ARTICLE VI ADMINISTRATIVE DUTIES OF THE MASTER SERVICER.................................................44 Section 6.1. Administrative Duties with Respect to the Indenture...................................44 Section 6.2. Records...............................................................................46 Section 6.3. Additional Information to be Furnished to the Issuer..................................46 ARTICLE VII MISCELLANEOUS...............................................................................46 Section 7.1. Compliance Certificates and Opinions..................................................46 Section 7.2. Form of Documents Delivered to the Indenture Trustee..................................47 Section 7.3. Acts of Noteholders...................................................................47 Section 7.4. Notices, etc., to Indenture Trustee...................................................48 Section 7.5. Notices and Reports to Noteholders; Waiver of Notices.................................48 Section 7.6. Rules by Indenture Trustee and Sponsor................................................49 Section 7.7. Successors and Assigns................................................................49 Section 7.8. Severability..........................................................................49 Section 7.9. Benefits of Agreement.................................................................49 Section 7.10. Legal Holidays.......................................................................49 Section 7.11. Governing Law........................................................................49 Section 7.12. Counterparts.........................................................................49 Section 7.13. Usury................................................................................49 Section 7.14. Amendment............................................................................50 Section 7.15. The Note Insurer.....................................................................50 Section 7.16. Notices..............................................................................51 Section 7.17. Limitation of Liability..............................................................51
ii 4 SCHEDULE I -- Schedules of Mortgage Loans EXHIBIT A -- Form of Contents of Mortgage Loan File EXHIBIT B -- Form of Certificate Re: Mortgage Loans Prepaid in Full EXHIBIT C -- Form of Indenture Trustee's Acknowledgement of Receipt EXHIBIT D -- Form of Certification EXHIBIT E -- Form of Delivery Order EXHIBIT F -- Form of Monthly Report EXHIBIT G -- Form of Master Servicer's Trust Receipt EXHIBIT H -- Form of Subsequent Transfer Agreement EXHIBIT I -- Form of Addition Notice iii 5 SALE AND SERVICING AGREEMENT, relating to ADVANTA MORTGAGE LOAN TRUST ____-_ (the "Trust" or "Issuer"), dated as of [DATE], by and among ADVANTA CONDUIT RECEIVABLES, INC., a Nevada corporation, in its capacity as sponsor of the Trust (the "Sponsor"), ADVANTA MORTGAGE CORP. USA, a Delaware corporation, in its capacity as master servicer (the "Master Servicer"), and [INDENTURE TRUSTEE], a national banking association, in its capacity as indenture trustee (the "Indenture Trustee"). WHEREAS, the Trust desires to purchase a portfolio of the Mortgage Loans (as defined herein) originated by the Originators (as defined herein); WHEREAS, the Sponsor has purchased such Mortgage Loans from the Originators and is willing to sell such Mortgage Loans to the Trust; WHEREAS, the Trust desires to purchase Subsequent Mortgage Loans (as defined herein) to be originated by the Originators. WHEREAS, the Sponsor is willing to sell such Subsequent Mortgage Loans to the Trust and to direct or request the Trust to acquire such Subsequent Mortgage Loans; WHEREAS, the Master Servicer has agreed to service the Mortgage Loans, which constitute the principal assets of the trust estate; and WHEREAS, ______________________________ (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 Sponsor, the Master Servicer, the Trust and the Indenture Trustee hereby agree as follows: 6 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. In addition, capitalized terms used herein and not defined herein shall have their respective meanings as set forth in the Indenture: "Accepted Servicing Practices": The Master Servicer's normal servicing practices in servicing and administering mortgage loans for its own account, which in general will conform to the mortgage servicing practices of prudent mortgage lending institutions which service for their own account mortgage loans of the same type as the Mortgage Loans in the jurisdictions in which the related Properties are located and will give due consideration to the Noteholders' reliance on the Master Servicer. "Addition Notice": With respect to the transfer of Subsequent Mortgage Loans to the Trust pursuant to Section 2.4(a) of this Agreement, a notice in the form of Exhibit J hereto, which shall be given not later than five Business Days prior to the related Subsequent Transfer Date, of the Sponsor's designation of Subsequent Mortgage Loans to be sold to the Trust and the aggregate Loan Balance and the weighted average Coupon Rate of such Subsequent Mortgage Loans. Such Addition Notice shall include an electronic data file in a form agreeable to the Indenture Trustee, the Note Insurer and the Master Servicer. "Advanta Mortgage Files": For any Mortgage Loan identified on the related Schedule of Mortgage Loans with an "A" code, the items listed as below: (a) the original Mortgage Note, or a certified copy thereof, bearing all intervening endorsements, endorsed either (i) "Pay to the order of Bankers Trust Company of California, N.A., as custodian or trustee under the applicable custody or trust agreement, without recourse" or (ii) "Pay to the order of Bankers Trust Company of California, N.A., as custodian or trustee under the applicable custody or trust agreement, without recourse, Advanta as Master Servicer," or (iii) "Pay to the order of Bankers Trust Company of California, N.A., as custodian or trustee" by [Seller, signature, name, title] and signed in the name of the previous owner by an authorized officer (in the event that the Mortgage Loan was acquired by the previous owner in a merger the signature must be in the following form: "[the previous owner], successor by merger to [name of predecessor]", in the event that the Mortgage Loan was acquired or originated while doing business under another name, the signature must be in the following form: "[the previous owner], formerly known as [previous name]". The original Mortgage Note should be accompanied by any rider made in connection with the origination of the related Mortgage Loan; (b) the original of any guarantee executed in connection with the Mortgage Note (if any); (c) the original Mortgage with evidence of recording thereon or copies certified by the related recording office or if the original Mortgage has not yet been returned from the recording office, a certified copy of the Mortgage; (d) the originals of all assumption, modification, consolidation or extension agreements; and 2 7 (e) the originals of all intervening assignments of Mortgage, showing a complete chain of assignment from origination to the related Seller, 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. "Affiliated Originators": Advanta Mortgage Corp. USA, a Delaware corporation, Advanta Mortgage Corp. Midatlantic, a Pennsylvania corporation, Advanta Mortgage Corp. Midatlantic II, a Pennsylvania corporation, Advanta Mortgage Corp. Midwest, a Pennsylvania corporation, Advanta Mortgage Corp. of New Jersey, a New Jersey corporation, Advanta Mortgage Corp. Northeast, a New York corporation, Advanta National Bank, a national banking association, Advanta Bank Corp., a Utah industrial loan corporation, Advanta Finance Corp., a Nevada corporation. "Agreement": This Sale and Servicing Agreement, as it may be amended from time to time, and including the Exhibits and Schedules attached hereto. "AMHC": Advanta Mortgage Holding Company, a Delaware corporation and the corporate parent of Advanta Mortgage Corp. USA, and the indirect corporate parent of Advanta Conduit Receivables, Inc. "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 Indenture Trustee, the Sponsor, the Trust and the Master Servicer, initially including those individuals whose names appear on the lists of Authorized Officers delivered on the Closing Date. "Balloon Loan": Any Mortgage Loan which has an amortization schedule which extends beyond its maturity date, resulting in a relatively large unamortized principal balance due in a single payment at maturity. "Business Day": Any day that is not a Saturday, Sunday or other day on which commercial banking institutions in the State of New York, the State of California or in the city in which the principal corporate trust office of the Indenture Trustee 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 8.3 of the Indenture and maintained by the Indenture Trustee. "Capitalized Interest Requirement": As defined in the Indenture. "Certificate": As defined in the Trust Agreement. "Closing Date": [DATE]. "Code": The Internal Revenue Code of 1986, as amended and any successor statute. 3 8 "Combined Loan-to-Value Ratio": With respect to any First Mortgage Loan, the percentage equal to the Original Principal Amount of the related Note divided by the Appraised Value of the related Property and with respect to any Junior Mortgage Loan, the percentage equal to (a) the sum of (i) the remaining principal balance, as of origination of the Junior Mortgage Loan of the Senior Lien note(s) relating to such Junior Mortgage Loan and (ii) the Original Principal Amount of the Note relating to such Junior Mortgage Loan divided by (b) the Appraised Value. "Compensating Interest": As defined in Section 4.9(b) hereof. "Conduit Mortgage Files": For any Mortgage Loan identified on the related Schedule of Mortgage Loans with a "B" code, the items listed below: (a) the original Mortgage Note, or a certified copy thereof, bearing all intervening endorsements, endorsed either (i) "Pay to the order of Bankers Trust Company of California, N.A., as custodian or trustee under the applicable custody or trust agreement, without recourse" or (ii) "Pay to the order of Bankers Trust Company of California, N.A., as custodian or trustee under the applicable custody or trust agreement, without recourse, Advanta as Master Servicer," or (iii) "Pay to the order of Bankers Trust Company of California, N.A., as custodian or trustee" by [Seller, signature, name, title] and signed in the name of the previous owner by an authorized officer (in the event that the Mortgage Loan was acquired by the previous owner in a merger the signature must be in the following form: "[the previous owner], successor by merger to [name of predecessor]", in the event that the Mortgage Loan was acquired or originated while doing business under another name, the signature must be in the following form: "[the previous owner], formerly known as [previous name]". The original Mortgage Note should be accompanied by any rider made in connection with the origination of the related Mortgage Loan; (b) the original of any guarantee executed in connection with the Mortgage Note (if any); (c) the original Mortgage with evidence of recording thereon or copies certified by the related recording office or if the original Mortgage has not yet been returned from the recording office, a certified copy of the Mortgage; (d) the originals of all assumption, modification, consolidation or extension agreements; (e) the original assignment of Mortgage of each Mortgage Loan to "Bankers Trust Company of California, N.A., as custodian or trustee". In the event that the Mortgage Loan was acquired by the previous owner in a merger, the assignment of Mortgage must be the "(previous owner), successor by merger to (names of predecessor)"; and in the event that the Mortgage Loan was acquired or originated by the previous owner while doing business under another name, the Assignment of Mortgage must be by the "(previous owner), formerly known as (previous name)"; and (f) the originals of all intervening assignments of Mortgage, showing a complete chain of assignment from origination to the related Seller, 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. "Control Party": Until the last sentence of Section 7.15 hereof is applicable and so long as no Note Insurer Default has occurred and is continuing, the Note Insurer, and thereafter, the Indenture Trustee. 4 9 "Coupon Rate": The rate of interest borne by each Mortgage Note. "Cut-Off Date": The date as of which Initial Mortgage Loans are transferred and assigned to the Trust, the opening of business, [DATE]. "Deficiency Amount": As defined in the Indenture. "Definitive Notes": Notes issued in definitive form without coupons. "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 corresponding day of the month immediately succeeding the month in which such payment was due, or, if there is no such corresponding day (e.g., as when a 30-day month follows a 31-day month in which a payment was due on the 31st day of such month) then on the last day of such immediately succeeding month. Similarly for "60 days delinquent," "90 days delinquent" and so on. "Delivery Order": The delivery order in the form set forth as Exhibit E hereto and delivered by the Trust to the Indenture Trustee on the Closing Date pursuant to Section 2.2 of the Indenture. "Depository": The Depository Trust Company, 7 Hanover Square, New York, New York 10004 and any successor Depository hereafter named. "Designated Depository Institution": With respect to the Principal and Interest 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 A2 or better by Moody's or A or better by Standard & Poor's and in the highest short-term rating category for Moody's, and Standard & Poor's unless otherwise approved in writing by the Indenture Trustee. The Note Insurer, 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 Indenture Trustee, the Note Insurer, Moody's and Standard & Poor's and, in each case acting or designated by the Master 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, a Principal and Interest Account may be held by 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 or BBB or better by Standard & Poor's if such institution has trust powers and the Principal and Interest Account is held by such institution in its corporate trust department. "Determination Date": As to each Payment Date, the third Business Day preceding such Payment Date or such earlier day as shall be agreed to by the Note Insurer and the Indenture Trustee. 5 10 "Direct Participant" or "DTC Participant" means any broker-dealer, bank or other financial institution for which the Depository holds Notes from time to time as a securities depository. "Document Delivery Requirements": The Sponsor's obligations to deliver certain legal documents, to prepare and record certain Mortgage assignments or to deliver certain opinions relating to Mortgage assignments, in each case with respect to the Mortgage Loans and as set forth in Section 2.1(b) hereof. "Eligible Investments": Those investments so designated pursuant to Section 8.9 of the Indenture. "Event of Servicer Termination": Any event described in clause (a) of Section 5.1 hereof. "FDIC": The Federal Deposit Insurance Corporation, or any successor thereto. "File": The documents delivered to the Indenture Trustee pursuant to Section 2.1 hereof pertaining to a particular Mortgage Loan and any additional documents required to be added to the Advanta Mortgage File or Conduit Mortgage File, as appropriate, pursuant to this Agreement. "First Mortgage Loan": A Mortgage Loan which constitutes a first priority mortgage lien with respect to any Property. "Indemnification Agreement": The Indemnification Agreement dated as of [DATE] between the Note Insurer and the Underwriter as may be amended from time to time. "Indenture": The Indenture dated as of [DATE] between the Trust and the Indenture Trustee, as the same may be amended and supplemented from time to time. "Indenture Trustee": [INDENTURE TRUSTEE], located on the date of execution of this Agreement at [ADDRESS], a national banking association, not in its individual capacity but solely as Indenture Trustee under this Agreement, and any successor hereunder. "Indenture Trustee's Fees": With respect to any Payment Date, the product of (x) one-twelfth of ____% and (y) the aggregate Loan Balance of the Mortgage Loans as of the beginning of the related Remittance Period. "Indirect Participant": Any financial institution for whom any Direct Participant holds an interest in the Notes. "Initial Mortgage Loans": The Mortgage Loans delivered to the Trust on the Closing Date. "Insurance Agreement": The Insurance and Indemnity Agreement dated as of [DATE] among the Sponsor, the Indenture Trustee, the Master Servicer, the Trust and the Note Insurer, as it may be amended from time to time. "Insurance Policy": Any hazard, title or primary mortgage insurance policy relating to a Mortgage Loan. 6 11 "Issuer" or "Trust": Advanta Mortgage Loan Trust ____-_, as created by the Trust Agreement. "Junior Mortgage Loan": A Mortgage Loan which constitutes a subordinate priority mortgage lien with respect to the related Property. "Late Payment Rate": For any Payment Date, means the lesser of (a) the greater of (x) the per annum rate of interest publicly announced from time to time by Citibank, N.A. as its prime or base lending rate (any change in such rate of interest to be effective on the date such change is announced by Citibank, N.A.), plus 2% per annum and (y) the then applicable highest rate of interest on the Notes and (b) the maximum rate permissible under applicable usury or similar laws limiting interest rates. The Late Payment Rate shall be computed on the basis of the actual number of days elapsed over a year of 360 days. "Liquidated Mortgage Loan": As defined in Section 4.13(b) hereof. A Mortgage Loan which is purchased from the Trust pursuant to Section 3.3, 3.4, 2.2(b) or 4.10 hereof is not a "Liquidated Mortgage Loan". "Liquidation Expenses": Expenses which are incurred by the Master Servicer or any Sub-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 Master Servicer or any Sub-servicer pursuant to Section 4.9 with respect to the related Mortgage Loan. "Liquidation Proceeds": With respect to any Liquidated Mortgage Loan, any amounts (including the proceeds of any Insurance Policy) recovered by the Master Servicer in connection with such Liquidated Mortgage Loan, whether through trustee's sale, foreclosure sale or otherwise. "Loan Balance": With respect to each Mortgage Loan, the outstanding principal balance thereof as of the Cut-Off Date or Subsequent Cut-Off-Date, as the case may be, less any related Principal Remittance Amounts relating to such Mortgage Loan included in previous related Monthly Remittance Amounts that were transferred by the Master Servicer or any Sub-servicer to the Indenture Trustee for deposit in the Note Account; provided, however, (x) that the Loan Balance for any Mortgage Loan which has become a Liquidated Mortgage 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 Mortgage Loan, and at all times thereafter and (y) the Loan Balance "as of the Cut-Off Date" for any Mortgage Loan originated during the period from the Cut-Off Date to the Closing Date shall be the original Loan Balance thereof. "Loan Purchase Price": With respect to any Mortgage Loan purchased from the Trust on a Remittance Date pursuant to Section 3.3, 3.4, 2.2(b) 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 Coupon Rate less the Servicing Fee (expressed as an annual percentage rate), if any, together with, without duplication, the aggregate amount of (i) all delinquent interest, all Delinquency Advances and Servicing Advances, including Nonrecoverable Advances theretofore made with respect to such Mortgage Loan and not subsequently recovered from the related Mortgage Loan, (ii) all Delinquency Advances which the Master Servicer or any Sub-servicer has theretofore failed to remit with respect to such Mortgage Loan and (iii) any Reimbursement Amount relating to the Trust. 7 12 "Master Servicer": Advanta Mortgage Corp. USA, a Delaware corporation, and its permitted successors and assigns. "Master Servicer's Trust Receipt": The Master Servicer's trust receipt in the form set forth as Exhibit H hereto. "Master Transfer Agreement": Any one of the Master Loan Transfer Agreements among the Sponsor and one or more Originators, together with any related Conveyance Agreements (as defined therein). "Monthly Remittance Amounts". As defined in the Indenture. "Moody's": Moody's Investors Service, Inc. "Mortgage": The mortgage, deed of trust or other instrument creating a first or subordinate lien on an estate in fee simple interest in real property securing a Mortgage Note. "Mortgage Loans": Such of the mortgage loans transferred and assigned to the Trust pursuant to Section 2.1(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 the terms "First Mortgage Loan" and "Junior Mortgage Loan". 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, 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. The term "Mortgage Loan" includes the terms "Initial Mortgage Loan" and "Subsequent Mortgage Loan". "Mortgage Note": The 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 Mortgage Loan, Liquidation Proceeds net of, without duplication, Liquidation Expenses and unreimbursed Servicing Advances, unreimbursed Delinquency Advances and accrued and unpaid Servicing Fees through the date of liquidation relating to such Liquidated Mortgage Loan. In no event shall Net Liquidation Proceeds with respect to any Liquidated Mortgage Loan be less than zero. "Nonrecoverable Advances": With respect to any Mortgage Loan, (a) any Delinquency Advance or Servicing Advance previously made and not reimbursed pursuant to Section 8.7 (b)(xvii) of the Indenture or Section 4.9, (b) a Delinquency Advance or Servicing Advance proposed to be made in respect of a Mortgage Loan or REO Property either of which, in the good faith business judgment of the Master Servicer, as evidenced by an Officer's Certificate delivered promptly to the Note Insurer and the Indenture Trustee following such determination would not be ultimately recoverable pursuant to Section 8.7(b)(xvii) of the Indenture or Section 4.9 or (c) any other advance identified as a Nonrecoverable Advance in subsection 4.8(d). 8 13 "Note": Any note issued by the Trust substantially in the form of Exhibit A to the Indenture. "Note Account": The Note Account established in accordance with Section 8.3 of the Indenture and maintained by the Indenture Trustee. "Note Insurer": As defined in the recitals. "Note Insurer Default": Any one of the following events shall have occurred and be continuing: (a) The Note Insurer shall have failed to make a payment required under the Note Policy; (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 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 or any other similar Federal or state law relating to insolvency, bankruptcy, rehabilitation, liquidation or reorganization which is final and nonappealable; or (c) A court of competent jurisdiction, the New York Department of Insurance, or other competent regulatory authority shall have entered a final and nonappealable order, judgment 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 (or the taking of possession of all or any material portion of the property of the Note Insurer). "Note Policy": The note guaranty insurance policy dated [DATE] issued by the Note Insurer to the Indenture Trustee for the benefit of the Noteholders. "Note Principal Balance": As of the Closing Date, $___________. As of any Payment Date with respect to the Notes, the Note Principal Balance as of the Closing Date less any amounts actually distributed theretofor as principal thereon to the Notes on all prior Payment Dates. "Noteholders": The holders of the Notes. "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, the Master Transfer Agreements, the Insurance Agreement, the Indemnification Agreement, the Sale and Servicing Agreement, the Subsequent Transfer Agreements, the Trust Agreement, the Note Policy, the Indenture and the Notes. "Original Pool Principal Balance": The Pool Principal Balance as of the Closing Date. 9 14 "Original Principal Amount": With respect to each Mortgage Note, the principal amount of such Mortgage Note or the mortgage note relating to a Senior Lien, as the case may be, on the date of origination thereof. "Originator": Any entity from which the Sponsor has purchased (or, in the case of Subsequent Mortgage Loans, will purchase) Mortgage Loans, or Advanta Mortgage Corp. USA, Advanta Mortgage Corp. Midatlantic, Advanta Mortgage Corp. Midatlantic II, Advanta Mortgage Corp. Midwest, Advanta Mortgage Corp. of New Jersey, Advanta Mortgage Corp. Northeast, Advanta National Bank and Advanta Finance Corp. "Outstanding": With respect to the Notes, as of any date of determination, all such Notes theretofore executed and delivered hereunder except: (i) Notes theretofore cancelled by the Indenture Trustee or delivered to the Indenture Trustee for cancellation; (ii) Notes or portions thereof for which full and final payment money in the necessary amount has been theretofore deposited with the Indenture Trustee in trust for the Noteholders; (iii) Notes in exchange for or in lieu of which other Notes have been executed and delivered pursuant to this Agreement, unless proof satisfactory to the Indenture Trustee is presented that any such Notes are held by a bona fide purchaser; and (iv) Notes alleged to have been destroyed, lost or stolen for which replacement Notes have been issued as provided for in Section 2.4 of the Indenture. "Overall Event of Servicer Termination": Any event described in clause (b) of Section 5.1 hereof. "Owner Trustee": [OWNER TRUSTEE], not in its individual capacity but solely as Owner Trustee under the Trust Agreement, its successors in interest or any successor Owner Trustee under the Trust Agreement. "Payment Date": Any date on which the Indenture Trustee is required to make distributions to the Noteholders, which shall be the 25th day of each month, commencing in the month following the Closing Date or if the 25th day is not a Business Day, then the next succeeding Business Day. "Percentage Interest": As to any Note, that percentage, expressed as a fraction, the numerator of which is the Note Principal Balance of such Note as of the related Cut-Off Date and the denominator of which is the Aggregate Note Principal Balance; and as to any Certificate, that Percentage Interest set forth on such Certificate. "Person": Any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Pool Cumulative Realized Losses": With respect to any period, the sum of all Realized Losses with respect to the Mortgage Loans in the Trust experienced during such period. 10 15 "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 90 or more days Delinquent (including all foreclosures and REO Properties) as of the close of business on the last day of such Remittance Period over (y) the Pool Principal Balance as of the close of business on the last day of such Remittance Period. "Pool Principal Balance": The aggregate principal balances of all Mortgage Loans. "Pre-Funded Amount": With respect to any Determination Date, the amount on deposit in the Pre-Funding Account and available for the purchase of the Subsequent Mortgage Loans. "Pre-Funding Account": The Pre-Funding Account established in accordance with Section 8.3 of the Indenture and maintained by the Indenture Trustee. "Pre-Funding Earnings": With respect to the ___________ Payment Date, the actual investment earnings earned during the period [DATE] through ______________ (inclusive) on the Pre-Funding Account during such period as calculated by the Indenture Trustee pursuant to Section 2.4(g) hereof; with respect to the _________ Payment Date, the actual investment earnings during the period ______________ through ____________ (inclusive) on the Pre-Funding Account during such period as calculated by the Indenture Trustee pursuant to Section 2.4(g) hereof. "Pre-Funding Period": The period commencing on the Closing Date and ending on the earlier to occur of (i) the date on which the Pre-Funded Amount (exclusive of any investment earnings) is less than $100,000 and (ii) [DATE]. "Prepaid Installment": With respect to any Mortgage Loan, any installment of principal thereof and interest thereon received 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": Any payment of principal of a Mortgage Loan in full which is received by the Master Servicer in advance of the scheduled due date for the payment of such principal (other than the principal portion of any Prepaid Installment), and the proceeds of any Insurance Policy which are to be applied as a payment of principal on the related Mortgage Loan shall be deemed to be Prepayments for all purposes of this Agreement. "Preservation Expenses": Expenditures made by the Master Servicer or any Sub-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 Master Servicer or any Sub-servicer pursuant to Section 4.8(a) hereof, or pursuant to any Sub-Servicing Agreement. "Property": The underlying property securing a Mortgage Loan. 11 16 "Prospectus": That certain Prospectus dated [DATE] naming Advanta Conduit Receivables, Inc. as registrant and describing certain mortgage loan asset-backed securities to be issued from time to time as described in the related Prospectus Supplement. "Prospectus Supplement": That certain Prospectus Supplement dated [DATE], discussing the Notes issued by the Trust. "Qualified Replacement Mortgage": A Mortgage Loan substituted for another pursuant to Section 3.3, 3.4 or 2.2(b) hereof, which (i) bears a fixed rate of interest, (ii) has a Coupon Rate at least equal to the Coupon Rate of 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 the Payment Date in March, 2029, (vi) has a Combined Loan-to-Value Ratio as of the Cut-Off Date or Subsequent 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) satisfies all of the representations and warranties set forth in Section 3.3, all as evidenced by an Officer's Certificate of the Sponsor delivered to the Note Insurer and the Indenture Trustee prior to any such substitution and (ix) is a valid First Mortgage Loan if the Mortgage Loan to be substituted for is a valid First Mortgage Loan or, Junior Mortgage Loan if the Mortgage Loan to be substituted for is a Junior Mortgage Loan. In the event that one or more mortgage 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 consent delivered to the Indenture Trustee by the Note Insurer, except that the requirement of clauses (vi) and (viii) hereof must be satisfied as to each Qualified Replacement Mortgage. "Realized Loss": As to any Liquidated Mortgage 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. "Record Date": With respect to each Payment Date, [the business day immediately preceding the Payment Date/ the last Business Day of the calendar month immediately preceding the calendar month in which such Payment Date occurs]; provided, that, if the Notes revert to Definitive Notes, the Record Date with respect to each Payment Date thereafter shall be the last Business Day of the calendar month immediately preceding the calendar month in which such Payment Date occurs. "Register": The register maintained by the Indenture Trustee in accordance with Section 2.3 of the Indenture, in which the names of the Noteholders are set forth. "Registrar": The Indenture Trustee, acting in its capacity as Indenture Trustee appointed pursuant to Section 6.13 of the Indenture, or any duly appointed and eligible successor thereto. "Registration Statement": The Registration Statement filed by the Sponsor with the Securities and Exchange Commission, including all amendments thereto and including the Prospectus and Prospectus Supplement relating to the Notes constituting a part thereof. 12 17 "Remittance Date": Any date on which the Master Servicer is required to remit monies on deposit in the Principal and Interest Account to the Indenture Trustee, which shall be no later than the 18th day of each month, or, if such day is not a Business Day, the immediately succeeding Business Day, commencing in the month following the month in which the Closing Date occurs. "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 Master 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. "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. "Schedules of Mortgage Loans": The Schedules of Mortgage Loans, attached hereto as Schedule I as they may be further supplemented in connection with Subsequent Transfers. Such Schedules shall also contain one of the following codes for each Mortgage Loan or Subsequent Mortgage Loan: "C" if such Mortgage Loan is an Unaffiliated Originator Loan or "A" for all other Mortgage Loans. The information contained on each Mortgage Loan Schedule shall be delivered to the Indenture Trustee on a computer readable magnetic tape or disk. "Securities Act": The Securities Act of 1933, as amended. "Senior Lien": With respect to any Junior Mortgage Loan, the mortgage loan relating to the corresponding Property having a first or senior priority lien. "Servicer Affiliate": A Person (i) controlling, controlled by or under common control with the Master Servicer and (ii) which is qualified to service residential mortgage loans. "Servicer Termination Loss Trigger". As defined in the Insurance Agreement. "Servicing Advance": As defined in Section 4.9(c) and Section 4.13(a) hereof. "Servicing Fee": With respect to any Mortgage Loan, an amount retained by the Master Servicer or by any successor thereto as compensation for the servicing and administrative duties relating to such Mortgage Loan pursuant to Section 4.15 hereof and equal to 0.50% per annum of the then outstanding Loan Balance of such Mortgage Loan as of the opening of business on the first day of each calendar month on a monthly basis. "Sponsor": Advanta Conduit Receivables, Inc., a Nevada corporation. "Standard & Poor's": Standard & Poor's Ratings Group, a division of The McGraw Hill Companies. "Subsequent Cut-Off Date": With respect to any Subsequent Mortgage Loans, the first day of the month in which such Subsequent Mortgage Loans are transferred and assigned to the Trust. 13 18 "Subsequent Mortgage Loans": The Mortgage Loans sold to the Trust pursuant to Section 2.4 hereof, which shall be listed on the Schedule of Mortgage Loans attached to the Subsequent Transfer Agreement. "Subsequent Transfer Agreement": Each Subsequent Transfer Agreement dated as of a Subsequent Transfer Date executed by the Indenture Trustee and the Sponsor substantially in the form of Exhibit I hereto, by which Subsequent Mortgage Loans are sold and assigned to the Trust. "Subsequent Transfer Date": The date specified in each Subsequent Transfer Agreement. "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 of the Mortgage Loan being replaced. "Sub-Servicer": Any Person with whom the Master 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 Master Servicer and any Sub-Servicer relating to servicing "Trust": Advanta Mortgage Loan Trust ____-_, the trust created under the Trust Agreement. "Trust Agreement": The Trust Agreement dated as of [DATE] between the Owner Trustee and the Sponsor. "Trust Estate": Collectively, all money, instruments and other property, to the extent such money, instruments and other property are subject or intended to be held in trust for the benefit of the Noteholders, including all proceeds thereof, including, without limitation, (i) the Mortgage Loans, (ii) such amounts including interest accrued and principal collections in respect of the related Mortgage Loans received on or after the Cut-Off Date and each Subsequent Cut-Off Date, but excluding any premium recapture, as applicable, including Eligible Investments, as from time to time may be held in the Note Account and by the Master Servicer in the Principal and Interest Account (except as otherwise provided herein), each to be created pursuant to this Agreement, (iii) any Property, the ownership of which has been effected on behalf of the Trust as a result of foreclosure or acceptance by the Master Servicer of a deed in lieu of foreclosure and that has not been withdrawn from the Trust, (iv) any Insurance Policies relating to the Mortgage Loans (excluding any non-mortgage related or credit-life insurance policies) and any rights of the Sponsor or the Affiliated Originators under any Insurance Policies, (v) Net Liquidation Proceeds with respect to any Liquidated Mortgage Loan. "Trust Notes": The Note issued by the Trust. "Unaffiliated Originator Loan": Any Mortgage Loan originated by an Unaffiliated Originator and sold to the Trust. 14 19 "Unaffiliated Originators": Any Originator who is not affiliated with the Sponsor. "Underwriter": _________________________________. "Warehouse Trust": Any trust established by an affiliate of the Sponsor to finance the origination of mortgage loans, including, without limitation, the Conduit Acquisition Trust. 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. SECTION 1.4. OPINIONS. Each opinion with respect to the validity, binding nature and enforceability of documents or Certificates may be qualified to the extent that the same may be limited by applicable 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 may state that no opinion is expressed on the availability of the remedy of specific enforcement, injunctive relief or any other equitable remedy. Any opinion required to be furnished by any Person hereunder must be delivered by counsel upon whose opinion the addressee of such opinion may reasonably rely, and such opinion may state that it is given in reasonable reliance upon an opinion of another, a copy of which must be attached, concerning the laws of a foreign jurisdiction. ARTICLE II CONVEYANCE OF MORTGAGE LOANS SECTION 2.1. CONVEYANCE OF THE INITIAL MORTGAGE LOANS. (a) The Sponsor, concurrently with the execution and delivery hereof, hereby transfers, assigns, sets over and otherwise conveys without recourse, to the Trust, and hereby requests or directs the Trust to acquire, for pledge to the Indenture Trustee on behalf of the Noteholders all right, title and interest of the Sponsor and the Warehouse Trusts in and to (i) each Initial Mortgage Loan listed on the Schedule of Mortgage Loans, including its Loan Balance and all interest accrued and principal collected in respect thereof received on or after the Cut-Off Date (excluding payments in respect of accrued interest due prior to the Cut-Off Date and excluding any premium recapture); (ii) property that secured a Mortgage Loan that is acquired by foreclosure or deed in lieu of foreclosure; (iii) the Sponsor's rights under the hazard insurance policies; and (iv) all other assets included or to be included in the Trust Estate for pledge to the 15 20 Indenture Trustee on behalf of the Noteholders and the Note Insurer. In addition, on or prior to the Closing Date, the Sponsor shall cause the Note Insurer to deliver the Note Policy to the Trust for pledge to the Indenture Trustee on behalf of the Noteholders. The foregoing transfer, assignment, set-over and conveyance shall be made by the Sponsor to the Trust for pledge to the Indenture Trustee on behalf of the Noteholders, and each reference in this Agreement to such transfer, assignment, set-over and conveyance shall be construed accordingly. The Sponsor agrees to take or cause to be taken such actions and execute such documents (including, without limitation, the filing of all necessary continuation statements for the UCC-1 financing statements filed in the State of New York (which shall have been filed within 90 days of the Closing Date) describing the Mortgage Loans and naming the Sponsor and the Warehouse Trust, as appropriate, as debtor and the Indenture Trustee as secured party and any amendments to UCC-1 financing statements required to reflect a change in the name or corporate structure of the Sponsor or the filing of any additional UCC-1 financing statements due to the change in the principal office of the Sponsor (within 90 days of any event necessitating such filing)) as are necessary to perfect and protect the Noteholders' and the Note Insurer's interests in each Mortgage Loan and the proceeds thereof. (b) In connection with the transfer and assignment of the Mortgage Loans, the Sponsor agrees to: (i) cause to be delivered on the Closing Date, without recourse, to the Indenture Trustee, with respect to the Initial Mortgage Loans or, the Subsequent Transfer Date with respect to Subsequent Mortgage Loans, or, the Transfer Date with respect to the Qualified Replacement Mortgage listed on the Schedule of Mortgage Loans, the items listed in the definitions of "Advanta Mortgage Files" and "Conduit Mortgage Files," as appropriate; and (ii) cause, within 75 Business Days following the Closing Date or any Subsequent Transfer Date, as applicable, the assignments of Mortgage to be submitted for recording in the appropriate jurisdictions wherein such recordation is necessary to perfect the lien thereof as against creditors of or purchasers from the related Originator to the Indenture Trustee; provided, however, that for administrative convenience and facilitation of servicing and to reduce closing costs, assignments of mortgage shall not be required to be submitted for recording with respect to any Mortgage Loan which relates to an Advanta Mortgage File only if the Indenture Trustee has received an Opinion of Counsel to the effect that the recordation of such assignments in any specific jurisdiction is not necessary to protect the Indenture Trustee's interest in the related Mortgagee. All recording, if required pursuant to this Section 2.1, shall be accomplished at the expense of the Sponsor. Notwithstanding anything to the contrary contained in this Section 2.1, 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 Sponsor shall be deemed to have satisfied its obligations hereunder upon delivery to 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 and any assignment of Mortgage in recordable form received by the Indenture Trustee shall be kept in the related Mortgage File. 16 21 (c) In the case of Initial Mortgage Loans which have been prepaid in full on or after the Initial Cut-Off Date and prior to the Closing Date, or with respect to Subsequent Mortgage Loans which have been prepaid in full on or after the Subsequent Cut-Off Date and prior to the Subsequent Transfer Date, the Sponsor, in lieu of the foregoing, will deliver within 15 Business Days after the Closing Date, or Subsequent Transfer Date, as applicable, to the Indenture Trustee a certification of an Authorized Officer in the form set forth in Exhibit B. (d) The Sponsor shall transfer, assign, set over and otherwise convey to the Trust or request or direct the Trust to acquire without recourse, for pledge to the Indenture Trustee on behalf of the Noteholders all right, title and interest of the Sponsor in and to any Qualified Replacement Mortgage delivered to the Trust by the Sponsor pursuant to Section, 2.2, Section 3.3, Section 3.4 hereof and all its right, title and interest to principal collected and interest accruing on such Qualified Replacement Mortgage on and after the applicable Replacement Cut-Off Date; provided, however, that the Sponsor shall reserve and retain all right, title and interest in and to payments of principal and interest due on such Qualified Replacement Mortgage prior to the applicable Replacement Cut-Off Date. (e) As to each Mortgage Loan released from the Trust in connection with the conveyance of a Qualified Replacement Mortgage therefor, the Indenture Trustee will transfer, assign, set over and otherwise convey without recourse, on the Sponsor's order, all of its right, title and interest in and to such released Mortgage Loan and all of the Trust's right, title and interest to principal collected and interest accruing on such released Mortgage Loan on and after the applicable Replacement Cut-Off Date; provided, however, that the Trust shall reserve and retain all right, title and interest in and to payments of principal collected and interest accruing on such released Mortgage Loan prior to the applicable Replacement Cut-Off Date. (f) In connection with any transfer and assignment of a Qualified Replacement Mortgage to the Trust, the Sponsor agrees to cause to be delivered to the Indenture Trustee the items described in Section 2.1(b) on the date of such transfer and assignment or, if a later delivery time is permitted by Section 2.1(b), then no later than such later delivery time. (g) As to each Mortgage Loan released from the Trust in connection with the conveyance of a Qualified Replacement Mortgage the Indenture Trustee shall deliver no later than the date of conveyance of such Qualified Replacement Mortgage and on the order of the Sponsor (i) the original Mortgage Note, or the certified copy, relating thereto, endorsed without recourse, to the Sponsor 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 Sponsor shall prepare a substitute assignment or cure such defect, as the case may be, and thereafter cause each such assignment to be duly recorded. (i) The Sponsor shall reflect on its records that the Mortgage Loans have been sold to the Trust. (j) To the extent that the ratings, if any, then assigned to the unsecured debt of the Sponsor or of its ultimate corporate parent are satisfactory to the Control Party, Moody's and Standard & Poor's, then any of the Document Delivery Requirements described above may be waived by an instrument signed by the Control Party, Standard & Poor's and Moody's (or any documents theretofore delivered to the Indenture Trustee returned to the Sponsor) on such terms and subject to such conditions as the Control Party, Moody's and Standard & Poor's may permit. 17 22 SECTION 2.2. ACCEPTANCE BY THE TRUST; CERTAIN SUBSTITUTIONS OF MORTGAGE LOANS; CERTIFICATION BY INDENTURE TRUSTEE. (a) The Indenture Trustee, on behalf of the Trust, hereby acknowledges receipt of the Trust Estate and agrees to execute and deliver no later than the Closing Date, each Subsequent Transfer Date and each Transfer Date, as applicable, an acknowledgment of receipt of the Files delivered to it on behalf of the Trust by the Sponsor in the form attached as Exhibit C hereto, and declares that it will hold such documents and any amendments, replacement or supplements thereto, as well as any other assets included in the definition of Trust Estate and pledged to it on behalf of the Noteholders and the Note Insurer. The Indenture Trustee agrees to review any documents delivered by the Sponsor within 90 days after the Closing Date (or within 90 days with respect to any Subsequent Mortgage Loan or Qualified Replacement Mortgage after the assignment thereof) and to deliver to the Sponsor, the Master Servicer and the Note Insurer a Certification in the form attached hereto as Exhibit D hereto. The Indenture Trustee shall be under no duty or obligation to inspect, review or examine any such documents, instruments, certificates or other papers to determine that they are genuine, enforceable, or appropriate for the represented purpose or that they are other than what they purport to be on their face, nor shall the Indenture Trustee be under any duty to determine independently whether there are any intervening assignments or assumption or modification agreements with respect to any Mortgage Loan. (b) If the Indenture Trustee during such 90-day period finds any document 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 Schedules of Mortgage Loans, or that any Mortgage Loan does not conform in a material respect to the description thereof as set forth in the Schedules of Mortgage Loans, the Indenture Trustee shall promptly so notify the Sponsor, the Trust and the Note Insurer. In performing any such review, the Indenture Trustee may conclusively rely on the Sponsor as to the purported genuineness of any such document and any signature thereon. The Sponsor agrees to use reasonable efforts to remedy a material defect in a document constituting part of a File of which it is so notified by the Indenture Trustee. If, however, within 60 days after the Indenture Trustee's notice to it respecting such defect the Sponsor has not remedied or caused to be remedied the defect and the defect materially and adversely affects the interest in the related Mortgage Loan of the Noteholders or of the Note Insurer, the Sponsor will then 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 Master 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 Master Servicer for deposit in the Principal and Interest Account. Upon receipt of any Qualified Replacement Mortgage or of written notification signed by a Servicing Officer to the effect that the Loan Purchase Price in respect of a Defective Mortgage Loan has been deposited into the Principal and Interest Account, then as promptly as practicable, the Indenture Trustee shall execute such documents and instruments of transfer presented by the Sponsor, in each case without recourse, representation or warranty, and take such other actions as shall reasonably be requested by the Sponsor to effect such transfer by the Trust of such Defective Mortgage Loan pursuant to this Section. It is understood and agreed that the obligation of the Sponsor to accept a transfer of a Defective Mortgage Loan and to either convey a Qualified Replacement Mortgage or to make a deposit of any related Loan Purchase Price into the Principal and Interest Account shall constitute the sole remedy respecting such defect available to Noteholders, the Indenture Trustee, the Trust and the Note Insurer against the Sponsor. 18 23 The Sponsor, promptly following the transfer of a Defective Mortgage Loan from or to the Trust pursuant to this Section, shall deliver an amended Mortgage Loan Schedule to the Indenture Trustee and the Note Insurer and shall make appropriate entries in its general account records to reflect such transfer. The Master Servicer shall, following such retransfer, appropriately mark its records to indicate that it is no longer servicing such Mortgage Loan on behalf of the Trust. The Sponsor, promptly following such transfer, shall appropriately mark its electronic ledger and make appropriate entries in its general account records to reflect such transfer. (c) As to any Qualified Replacement Mortgage, the Sponsor shall, if required to deliver any such Qualified Replacement Mortgage, deliver to the Indenture Trustee with respect to such Qualified Replacement Mortgage such documents and agreements as are required to be held by the Indenture Trustee in accordance with Section 2.2. For any Remittance Period during which the Sponsor substitutes one or more Qualified Replacement Mortgages, the Master Servicer shall determine the Substitution Amount which amount shall be deposited by the Sponsor in the Principal and Interest Account at the time of substitution. All amounts received in respect of the Qualified Replacement Mortgage during the Remittance Period in which the circumstances giving rise to such substitution occur shall not be a part of the Trust Estate and shall not be deposited by the Master Servicer in the Principal and Interest Account. All amounts received by the Master Servicer during the Remittance Period in which the circumstances giving rise to such substitution occur in respect of any Defective Mortgage Loan so removed by the Trust Estate shall be deposited by the Master Servicer in the Principal and Interest Account. Upon such substitution, the Qualified Replacement Mortgage shall be subject to the terms of this Agreement in all respects, and the Sponsor shall be deemed (i) to have made with respect to such Qualified Replacement Mortgage or Loans, as of the date of substitution, the covenants, representations and warranties set forth in Section 3.3 and (ii) to have certified that such Mortgage Loan(s) is/are Qualified Replacement Loan(s). The procedures applied by the Sponsor in selecting each Qualified Replacement Mortgage shall not be materially adverse to the interests of the Indenture Trustee, the Trust, the Noteholders or the Note Insurer. SECTION 2.3. COOPERATION PROCEDURES. (a) The Sponsor shall, in connection with the delivery of each Qualified Replacement Mortgage to the Indenture Trustee, provide the Indenture Trustee with the information set forth in the Schedules of Mortgage Loans with respect to such Qualified Replacement Mortgage. (b) The Sponsor, the Master 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 by any of them in connection with their respective duties hereunder. SECTION 2.4. CONVEYANCE OF THE SUBSEQUENT MORTGAGE LOANS. (a) Subject to the conditions set forth in paragraph (b) below, in consideration of the Indenture Trustee's delivery on the related Subsequent Transfer Dates to or upon the order of the Sponsor of all or a portion of the balance of funds in the Pre-Funding Account, the Sponsor shall, on Subsequent Transfer Dates, transfer, assign and convey to the Trust or request or direct the Trust to acquire, without recourse, for pledge to the Indenture Trustee on behalf of the Noteholders all right, title and interest of the Sponsor and the Warehouse Trusts in and to each 19 24 Subsequent Mortgage Loan listed on the Schedule of Mortgage Loans delivered by the Sponsor on such Subsequent Transfer Date, all of the Sponsor's right, title and interest in and to principal collected and interest accruing on each such Subsequent Mortgage Loan on and after the related Subsequent Cut-Off Date; provided, however, that the Sponsor reserves and retains all of its right, title and interest in and to principal collected and interest accruing on each such Subsequent Mortgage Loan prior to the related Subsequent Cut-Off Date. Upon assignment of any Subsequent Mortgage Loan, the Indenture Trustee shall release to the Sponsor an amount equal to the Loan Balance thereof as of the related Subsequent Cut-Off Date from amounts then on deposit in the Pre-Funding Account. (b) The Sponsor shall transfer to the Indenture Trustee the Subsequent Mortgage Loans and the other property and rights related thereto described in paragraph (a) above only upon the satisfaction of each of the following conditions on or prior to the related Subsequent Transfer Date. (i) the Sponsor shall have provided the Indenture Trustee and the Note Insurer with a timely Addition Notice and shall have provided any information reasonably requested by any of the foregoing with respect to the Subsequent Mortgage Loans; (ii) the Sponsor shall have delivered to the Indenture Trustee a duly executed written assignment (including an acceptance by the Indenture Trustee) in substantially the form of Exhibit I (the "Subsequent Transfer Agreement"), which shall include Schedules of Mortgage Loans, listing the Subsequent Mortgage Loans and any other exhibits listed thereon; (iii) the Master Servicer shall have deposited in the Principal and Interest Account all collections in respect of the Subsequent Mortgage Loans received on or after the related Subsequent Cut-Off Date; (iv) as of each Subsequent Transfer Date, neither the Master Servicer nor the Sponsor was insolvent nor will any of them have been made insolvent by such transfer nor is any of them aware of any pending insolvency; (v) such addition will not result in a material adverse tax consequence to the Trust or the Noteholders; (vi) the Pre-Funding Period shall not have terminated; and (vii) the Sponsor shall have delivered to the Indenture Trustee an Officer's Certificate confirming the satisfaction of each condition precedent specified in this paragraph (b) and paragraphs (c) and (d) below and in the related Subsequent Transfer Agreement; (c) The obligation of the Trust to accept the assignment of a Subsequent Mortgage Loan on any Subsequent Transfer Date is subject to the following requirements: (i) such Subsequent Mortgage Loan may not be more than 30 days contractually delinquent as of the related Subsequent Cut-Off Date. (d) The obligation of the Trust to accept the assignment of a Subsequent Mortgage Loan on any Subsequent Transfer Date is subject to the following additional 20 25 requirements, any of which may be waived or modified in any respect by the Insurer by a written instrument executed by the Insurer: (1) (i) No such Subsequent Mortgage Loan may have (i) a Combined Loan-to-Value Ratio greater than __%; (ii) a Loan Balance in excess of $_______; (iii) a remaining term to stated maturity in excess of 360 months; (iv) a Loan Rate (as of the related Subsequent Cut-Off Date) below _____%; or (v) be more than 30 days Delinquent (as of the related Subsequent Cut-off Date). (2) After giving effect to the assignment to the Trust of any such Subsequent Mortgage Loan (i) the weighted average net Loan Rate of all Mortgage Loans shall be no less than ____%; (ii) the average Loan Balance shall not exceed $______; (iii) no more than ____% of the Pool Principal Balance as of such Subsequent Transfer Date shall relate to Mortgaged Properties which are non-owner occupied; (iv) the weighted average Combined Loan-to-Value Ratio of all Mortgage Loans shall be no greater than __%; (v) at least __% of the Pool Principal Balance as of such Subsequent Transfer Date shall be "full documentation" loans; (vi) at least __% of the Pool Principal Balance as of such Subsequent Transfer Date shall relate to Mortgaged Properties which are single-family residences; (vii) no more than ___% of the Pool Principal Balance as of such Subsequent Transfer Date shall relate to Mortgaged Properties in any one zip code; (viii) no more than ___% of the Pool Principal Balance as of such Subsequent Transfer Date shall relate to Mortgaged Properties in any one state; (ix) at least __% of the Pool Principal Balance as of such Subsequent Transfer Date shall relate to Mortgage Loans characterized with a credit grade of at least "A-"; (x) no more than __% of the Pool Principal Balance as of such Subsequent Transfer Date shall relate to Mortgage Loans characterized with a credit grade of "B"; (xi) no more than ___% of the Pool Principal Balance as of such Subsequent Transfer Date shall relate to Mortgage Loans characterized with a credit grade of "C"; (xii) no more than ___% of the Pool Principal Balance as of such Subsequent Transfer Date shall relate to Mortgage Loans characterized with a credit grade of "D"; and (xiv) no more than ___% of the Pool Principal Balance as of such Subsequent Transfer Date shall relate to Mortgage Loans secured by junior liens. (e) In connection with the transfer and assignment of the Subsequent Mortgage Loans, the Sponsor agrees to satisfy the conditions set forth in Sections 2.1(b)-(j), 2.2 and 2.3 hereof. (f) In connection with the transfer of any Subsequent Mortgage Loans to the Trust, the Sponsor, the Master Servicer and the Indenture Trustee may, with the prior written consent of the Insurer, amend the definition of "Specified Overcollateralization Amount" for the purpose of changing the Specified Overcollateralization Amount; provided, however, that any such amendment must comply with the provisions of Section 3.19 of the Indenture. (g) In connection with each Subsequent Transfer Date and on the Payment Date occurring in ____________ and __________, the Sponsor and the Indenture Trustee will cooperate in determining (i) the amount and correct dispositions of Capitalized Interest Requirement, the Pre-Funding Earnings, and the amount then on deposit in the Pre-Funding Account and (ii) any other necessary matters in connection with the administration of the Trust A Pre-Funding Account and of the Capitalized Interest Account. In the event that any amounts are incorrectly released to the owners of the Certificates from either the Pre-Funding Account or the Capitalized Interest Account, such owners or the Sponsor shall immediately repay such amounts to the Indenture Trustee. 21 26 SECTION 2.5. RETRANSFERS OF MORTGAGE LOANS AT ELECTION OF SPONSOR. Subject to the conditions set forth below, the Sponsor may, but shall not be obligated to (except the Sponsor shall be obligated upon a breach of a representation or warranty), accept the reassignment of Mortgage Loans from the Trust as of the close of business on a Payment Date (the "Transfer Date"). On the fifth Business Day (the "Transfer Notice Date") prior to the Transfer Date designated in such notice, the Sponsor shall give the Indenture Trustee, the Note Insurer and the Master Servicer a notice of the proposed reassignment that contains a list of the Mortgage Loans to be reassigned. Such reassignment of Mortgage Loans shall be permitted upon satisfaction of the following conditions: (i) No Event of Default has occurred or will occur as a result of such removal; (ii) the Overcollateralization Amount as of such Payment Date equals or exceeds the then Specified Overcollateralization Amount. (iii) On or before the Transfer Date, the Sponsor shall have delivered to the Indenture Trustee and the Note Insurer a revised Schedule of Mortgage Loans, reflecting the proposed transfer and the Transfer Date, and the Master Servicer shall have marked its servicing records to show that the Mortgage Loans reassigned to the holder of the Sponsor are no longer owned by the Trust; (iv) The Sponsor shall represent and warrant that random selection procedures were used in selecting the Mortgage Loans and no other selection procedures were used which are adverse to the interests of the Sponsor or the Noteholders or the Note Insurer were utilized in selecting the Mortgage Loans to be removed from the Trust; (v) The Sponsor shall have delivered to the Indenture Trustee and the Insurer an Officer's Certificate certifying that the items set forth in subparagraphs (i) through (iv), inclusive, have been performed or are true and correct, as the case may be. The Indenture Trustee may conclusively rely on such Officer's Certificate, shall have no duty to make inquiries with regard to the matters set forth therein and shall incur no liability in so relying. Upon receiving the requisite information from the Sponsor, the Master Servicer shall perform in a timely manner those acts required of it, as specified above. Upon satisfaction of the above conditions, on the Transfer Date the Indenture Trustee shall deliver, or cause to be delivered, to the Sponsor the File for each Mortgage Loan being so reassigned, and the Indenture Trustee shall execute and deliver to the Sponsor such other documents prepared by the Sponsor as shall be reasonably necessary to reassign such Mortgage Loans to the Sponsor. Any such transfer of the Trust's right, title and interest in and to Mortgage Loans shall be without recourse, representation or warranty by or of the Indenture Trustee or the Trust to the Sponsor. ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SPONSOR AND THE MASTER SERVICER SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF THE SPONSOR. 22 27 The Sponsor hereby represents, warrants and covenants to the Indenture Trustee, the Note Insurer and to the Noteholders as of the Closing Date that: (a) The Sponsor is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware 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 Sponsor 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 the Sponsor is a party by the Sponsor 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 Sponsor and will not violate the Sponsor'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 Sponsor is a party or by which the Sponsor 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 Sponsor or any of its properties. (c) This Agreement and the other Operative Documents to which the Sponsor 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 Sponsor, 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 Sponsor 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 other) or operations of the Sponsor or its properties or might have consequences that would materially and adversely affect its performance hereunder and under the other Operative Documents to which it is a party. (e) No litigation is pending or, to the best of the Sponsor's knowledge, threatened against the Sponsor which litigation might have consequences that would prohibit its entering into this Agreement or any other Operative Document to which it is a party or that might have consequences that would materially and adversely affect its performance hereunder and 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 Sponsor 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 Sponsor or matters or activities for which the Sponsor is responsible in accordance with the Operative Documents or which are attributed to the Sponsor therein are true and correct in all 23 28 material respects, and the Registration Statement does not contain any untrue statement of a material fact with respect to the Sponsor 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 Sponsor not misleading. To the best of the Sponsor'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 Sponsor 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 Sponsor 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 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 Sponsor and the performance by the Sponsor 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 Sponsor. (j) The Sponsor received fair consideration and reasonably equivalent value in exchange for the sale of the interests in the Mortgage Loans to the Trust. (k) The Sponsor did not sell any interest in any Mortgage Loan with any intent to hinder, delay or defraud any of its respective creditors. (l) The Sponsor is solvent and the Sponsor will not be rendered insolvent as a result of the sale of the Mortgage Loans to the Trust. It is understood and agreed that the representations and warranties set forth in this Section 3.1 shall survive delivery of the Mortgage Loans to the Indenture Trustee. SECTION 3.2. REPRESENTATIONS AND WARRANTIES OF THE MASTER SERVICER. The Master Servicer hereby represents, warrants and covenants to the Indenture Trustee, the Note Insurer and to the Noteholders as of the Closing Date that: (a) The Master Servicer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, is, and each Sub-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 Master Servicer and each Sub-servicer has all requisite corporate power and authority to own and operate its properties, to carry out its business as 24 29 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 Master Servicer has, on a consolidated basis with its parent, AMHC, equity of at least $5,000,000, as determined in accordance with generally accepted accounting principles. (b) The execution and delivery of this Agreement by the Master 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 Master Servicer and will not violate the Master 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 Master Servicer is a party or by which the Master 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 Master Servicer or any of its properties. (c) This Agreement and the other Operative Documents to which the Master 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 Master Servicer, enforceable against it in accordance with the terms hereof, except as the enforcement hereof 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 Master 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 other) or operations of the Master Servicer or its properties or might have consequences that would materially and adversely affect its performance hereunder and under the other Operative Documents to which the Master Servicer is a party. (e) No litigation is pending or, to the best of the Master Servicer's knowledge, threatened against the Master Servicer which litigation 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 its performance hereunder and under the other Operative Documents to which the Master Servicer is a party. (f) The statements contained in the Registration Statement which describe the Master Servicer or matters or activities for which the Master Servicer is responsible in accordance with the Operative Documents or which are attributed to the Master 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 Master 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 Master Servicer not misleading. (g) 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 Master Servicer makes no such representation or warranty), that are necessary or advisable in connection with the execution and delivery by the Master Servicer of the Operative Documents to which it is a party, have been duly taken, given or obtained, as the 25 30 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 Master Servicer and the performance by the Master Servicer of its obligations under this Agreement and such of the other Operative Documents to which it is a party. (h) The collection practices used by the Master Servicer with respect to the Mortgage Loans directly serviced by it have been, in all material respects, legal, proper, prudent and customary in the mortgage loan servicing business. (i) The transactions contemplated by this Agreement are in the ordinary course of business of the Master Servicer. (j) The terms of each existing Sub-Servicing Agreement and each designated Sub-servicer are acceptable to the Master Servicer and any new Sub-Servicing Agreements or Sub-servicers will comply with the provisions of Section 4.3. It is understood and agreed that the representations and warranties set forth in this Section 3.2 shall survive delivery of the Mortgage Loans to the Indenture Trustee. Upon discovery by any of the Master Servicer, the Sponsor, any Sub-Servicer, the Note Insurer or the Indenture Trustee of a breach of any of the representations and warranties set forth in this Section 3.2 which materially and adversely affects the interests of the Noteholders or of the Note Insurer, the party discovering such breach shall give prompt written notice to the other parties. Within 60 days of its discovery or its receipt of notice of breach, the Master Servicer shall cure such breach in all material respects; provided, however, that, if the Master Servicer can demonstrate to the reasonable satisfaction of the Note Insurer and the Indenture Trustee that it is diligently pursuing remedial action, then the cure period may be extended with the written approval of the Note Insurer. SECTION 3.3. REPRESENTATIONS AND WARRANTIES OF THE SPONSOR WITH RESPECT TO THE MORTGAGE LOANS. (a) The Sponsor makes the following representations and warranties as to the Mortgage Loans on which the Note Insurer relies and the Indenture Trustee relies in accepting the Mortgage Loans in trust and executing and authenticating the Noteholders. Such representations and warranties speak as of the Closing Date with respect to the Initial Mortgage Loans, as of the related Subsequent Transfer Date with respect to any Subsequent Mortgage Loan, or as of the Transfer Date upon which any Qualified Replacement Mortgage is added to the Trust, but shall in each case survive the pledge of the Mortgage Loans to the Indenture Trustee pursuant to the Indenture: (i) The information with respect to each Mortgage Loan set forth in the Schedules of Mortgage Loans is true and correct as of the Cut-Off Date or the Subsequent Cut-Off Date, as the case may be; (ii) All of the original or certified documentation set forth in Section 2.1 (including all material documents related thereto) with respect to each Mortgage Loan 26 31 has been or will be delivered to the Indenture Trustee on the Closing Date or the related Subsequent Transfer Date, as the case may be, or as otherwise provided in Section 2.1; (iii) Except for any Unaffiliated Originator Loans being serviced by a servicer other than the Master Servicer, each Mortgage Loan is being serviced by the Master Servicer or a Person controlling, controlled by or under common control with the Master Servicer and qualified to service mortgage loans; (iv) The Mortgage Note related to each Mortgage Loan in the Trust bears a Coupon Rate of at least ____% per annum; (v) As of the Cut-Off Date, none of the Initial Mortgage Loans are more than 59 days Delinquent; as of the related Subsequent Cut-Off Date, no Subsequent Mortgage Loan shall be more than 30 days Delinquent; (vi) As of the Closing Date and any Subsequent Transfer Date, no more than ___% of the aggregate Loan Balances of the Initial Mortgage Loans or the Subsequent Mortgage Loans, as applicable, 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; and (viii) The credit underwriting guidelines applicable to each Mortgage Loan conform in all material respects to the description thereof set forth in the Prospectus. (b) The Sponsor hereby assigns to the Indenture Trustee for the benefit of the Noteholders and the Note Insurer (so long as a Note Insurer Default has not occurred and is continuing) all of its right, title and interest in respect of each Master Transfer Agreement applicable to the related Mortgage Loan. Insofar as such Master Transfer Agreement provides for representations and warranties made by the related Originator in respect of a Mortgage Loan and any remedies provided thereunder for any breach of such representations and warranties, such right, title and interest may be enforced by the Master Servicer or by the Indenture Trustee on behalf of the Noteholders and the Note Insurer. Upon the discovery by the Sponsor, the Master Servicer, the Note Insurer or the Indenture Trustee of a breach of any of the representations and warranties made in a Master Transfer Agreement in respect of any Mortgage Loan which materially and adversely affects the interests of the Noteholders or of the Note Insurer in such Mortgage Loan, the party discovering such breach shall give prompt written notice to the other parties. The Master 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 3.4(b) hereof within the time periods required thereby, and if such Originator does not cure such breach in all material respects, the Sponsor shall cure such breach or take such actions. The obligations of the Sponsor or Master Servicer, as the case may be, set forth herein with respect to any Mortgage Loan as to which such a breach has occurred and is continuing shall constitute the sole obligations of the Master Servicer and of the Sponsor in respect of such breach. SECTION 3.4. COVENANTS OF SPONSOR TO TAKE CERTAIN ACTIONS WITH RESPECT TO THE MORTGAGE LOANS IN CERTAIN SITUATIONS. 27 32 (a) With the provisos and limitations as to remedies set forth in this Section 3.4, upon the discovery by the Sponsor, the Master Servicer, the Note Insurer, any Sub-Servicer or the Indenture Trustee that the representations and warranties set forth in Section 3.3 of this Agreement or in the Master Transfer Agreement were untrue in any material respect as of the Closing Date (or the Subsequent Transfer Date, as the case may be) and such breaches of the representations and warranties materially and adversely affect the interests of the Noteholders or of the Note Insurer, the party discovering such breach shall give prompt written notice to the other parties. The Sponsor acknowledges that a breach of any representation or warranty (x) relating to marketability of title sufficient to transfer unencumbered title to a Mortgage Loan, (y) relating to enforceability of the Mortgage Loan against the related Mortgagor or Property or (z) set forth in clause (viii) of Section 3.3 above constitutes breach of a representation or warranty which materially and adversely affects the interests of the Noteholders or of the Note Insurer in such Mortgage Loan. (b) Upon the earliest to occur of the Sponsor'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 Noteholders or of the Note Insurer as set forth above, the Sponsor 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 Sponsor 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 Sponsor a Qualified Replacement Mortgage and deliver the Substitution Amount applicable thereto, together with the aggregate amount of all Delinquency Advances and Servicing Advances, including Nonrecoverable Advances, theretofore made with respect to such Mortgage Loan, to the Master 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 Master Servicer for deposit in the Principal and Interest Account. It is understood and agreed that the obligation of the Sponsor 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 Noteholders, the Indenture Trustee or the Note Insurer. (c) In the event that any Qualified Replacement Mortgage is delivered by an Originator or by the Sponsor (or by an affiliate of the Sponsor, as the case may be) to the Trust pursuant to Section 3.3, Section 3.4 or Section 2.2 hereof, the related Originator and the Sponsor shall be obligated to take the actions described in Section 3.4(b) with respect to such Qualified Replacement Mortgage upon the discovery by any of the Noteholders, the Sponsor, the Master Servicer, the Note Insurer, any Sub-Servicer or the Indenture Trustee that the representations and warranties set forth in the related Master Transfer Agreement or in Section 3.3 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 Noteholders 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 the related Master Transfer Agreement or as set forth in Section 3.3 above referring to items "as of the Cut-Off Date" or "as of the Subsequent Cut-Off Date" or "as of the Closing Date" or "as of the Subsequent Transfer Date" shall be deemed to refer to such items as of the date such Qualified Replacement Mortgage is conveyed to the Trust. 28 33 (d) It is understood and agreed that the covenants set forth in this Section 3.4 shall survive delivery of the respective Mortgage Loans (including Qualified Replacement Mortgage Loans) to the Indenture Trustee on behalf of the Trust. ARTICLE IV SERVICING AND ADMINISTRATION OF MORTGAGE LOANS SECTION 4.1. MASTER SERVICER AND SUB-SERVICERS. (a) Acting directly or through one or more Sub-Servicers as provided in Section 4.3, the Master Servicer, as master servicer, shall service and administer the Mortgage Loans in accordance with this Agreement and on behalf of the Indenture Trustee and the Note Insurer and with reasonable care, and using that degree of skill and attention that the Master 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 Master 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 and furnishing monthly and annual statements to the Indenture Trustee and the Note Insurer, as applicable, with respect to distributions, paying Compensating Interest and making Delinquency Advances and Servicing Advances pursuant hereto. The Master Servicer shall follow its customary standards, policies and procedures in performing its duties as Master Servicer. The Master Servicer shall cooperate with the Indenture 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 Master Servicer or any Sub-servicer with any powers of attorney and other documents necessary or appropriate to enable the Master Servicer or any Sub-servicer to carry out its servicing and administrative duties hereunder. (c) The Master Servicer shall have the right using that degree of skill and attention that the Master Servicer exercises with respect to comparable mortgage loans that it services for itself or others, to approve applications of Mortgagors for consent to (i) partial releases of Mortgages, (ii) alterations to Properties and (iii) removal, demolition or division of Properties. No application for such approval shall be considered by the Master Servicer unless: (x) the provisions of the related Note and Mortgage have been complied with; (y) the Combined Loan-to-Value Ratio and the Mortgagor's debt-to-income ratio after any release does not exceed the Combined Loan-to-Value Ratio and debt-to-income ratio applicable to such Mortgage Loan at origination and (z) the lien priority of the related Mortgage is not adversely affected; provided, however, that the foregoing requirements (x), (y) and (z) shall not apply to any such situation described in this paragraph if such situation results from any condemnation or easement activity by a governmental entity. (d) The Master 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 29 34 serve to release the Master Servicer from any of its obligations under this Agreement. Such Sub-Servicer shall have all the rights and powers of the Master 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 Master 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, and may be authorized and empowered by the Indenture Trustee, to execute and deliver, on behalf of itself, the Noteholders, the Note Insurer 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, (iii) to hold title to any Property upon such foreclosure or deed in lieu of foreclosure on behalf of the Indenture Trustee, and (iv) to consent to any modification of the terms of any 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 and the timing of the receipt of payments required hereby or the interests of the Note Insurer; provided, however, that Section 4.14(a) shall constitute a power of attorney from the Indenture Trustee to the Master Servicer or any Sub-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). (f) The Master Servicer shall give prompt notice to the Indenture Trustee of any action, of which the Master Servicer has actual knowledge, to (i) assert a claim against the Trust or (ii) assert jurisdiction over the Trust. (g) Servicing Advances incurred by the Master 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 Master Servicer or such Sub-Servicer to the extent described in Section 4.9(c) and in Section 8.7(b)(xvii) of the Indenture. SECTION 4.2. COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS. (a) The Master Servicer shall, to the extent such procedures shall be consistent with this Agreement and the terms and provisions of any applicable Insurance Policies, follow Accepted Servicing Practices. Consistent with the foregoing, the Master 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, however, the Master Servicer shall not reschedule the payment of delinquent payments more than one time in any twelve consecutive months with respect to any Mortgagor. (b) The Master 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 Note. 30 35 SECTION 4.3. SUB-SERVICING AGREEMENTS BETWEEN MASTER SERVICER AND SUB-SERVICERS. The Master Servicer may enter into Sub-Servicing Agreements for any servicing and administration of Mortgage Loans with any institution which may be an Affiliate, and which is in compliance with the laws of each state necessary to enable it to perform its obligations under such Sub-Servicing Agreement. The Master Servicer shall give notice to the Note Insurer 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 the Subservicing Agreement. For purposes of this Agreement, the Master 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. The Master Servicer may terminate any Sub-Servicing Agreement in accordance with the terms and conditions of such Sub-Servicing Agreement and to either itself directly service the related Mortgage Loans itself or enter into a Sub-Servicing Agreement with a successor Sub-Servicers that qualifies under Section 4.3. SECTION 4.5. LIABILITY OF MASTER SERVICER. The Master 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 Master Servicer and a Sub-Servicer or otherwise, and the Master 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 Master Servicer shall be entitled to enter into any agreement with a Sub-Servicer for indemnification of the Master 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 Master Servicer for any losses due to the Master Servicer's negligence. SECTION 4.6. NO CONTRACTUAL RELATIONSHIP BETWEEN SUB-SERVICER AND INDENTURE TRUSTEE OR THE NOTEHOLDERS. 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 Master Servicer alone and the Note Insurer, the Indenture Trustee and the Noteholders 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 Master Servicer hereunder by the Indenture Trustee pursuant to Section 5.1, it is understood and agreed that the Master Servicer's rights and obligations under any Sub-Servicing Agreement then in force between the Master Servicer and a Sub-Servicer may be assumed or terminated by the Indenture Trustee at its option. Any termination fee due under any such Sub-servicing agreement shall be paid by the preceding Master Servicer but in no event shall the Indenture Trustee be liable for any such fee. 31 36 The Master Servicer shall, upon request of the Indenture Trustee, but at the expense of the Master Servicer, deliver to the assuming party documents and records relating to each Sub-Servicing Agreement 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, without the payment of any fee by the Indenture Trustee, notwithstanding any contrary provision in any Sub-Servicing Agreement. SECTION 4.8. PRINCIPAL AND INTEREST ACCOUNT. (a) The Master Servicer and/or each Sub-servicer, as applicable, shall establish in the name of the Trust for the benefit of the Noteholders and the Note Insurer, as their interests may appear, and maintain at one or more Designated Depository Institutions the Principal and Interest Account. Subject to Subsections (c) and (e) below, the Master Servicer and any Sub-servicer shall deposit all receipts related to the Mortgage Loans to the Principal and Interest Account on a daily basis (but no later than the second Business Day after receipt). Within one Business Day of the Closing Date, on each Subsequent Transfer Date and each Transfer Date, the Sponsor and/or the Master Servicer shall deposit to the Principal and Interest Account all receipts related to the Mortgage Loans which relate to or are received on or after the Cut-Off Date or the Subsequent Cut-Off Date, as the case may be. (b) 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 the Trust in the name of the Trust and for the benefit of the Noteholders and the Note Insurer. Any investment earnings on funds held in the Principal and Interest Account shall be for the account of the Master Servicer and may only be withdrawn from the Principal and Interest Account by the Master Servicer immediately following the remittance of the Monthly Remittance Amounts by the Master Servicer. Any references herein to amounts on deposit in the Principal and Interest Account shall refer to amounts net of such investment earnings. Any investment losses are at the expense of the Master Servicer and shall be replaced on or prior to the Remittance Date. (c) Subject to Subsection (e) below, the Master Servicer shall deposit to the Principal and Interest Account all principal and interest collections on the Mortgage Loans received on or after the Cut-Off Date or related Subsequent Cut-Off Date including any Prepaid Installments, Prepayments and Net Liquidation Proceeds, all Loan Purchase Prices and Substitution Amounts received or paid by the Master Servicer with respect to the Mortgage Loans, other recoveries or amounts related to the Mortgage Loans received by the Master 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 Master Servicer as permitted by Section 4.15 hereof, (ii) principal (including Prepayments) collected on the related Mortgage Loans prior to the Cut-Off Date or related Subsequent Cut-Off Date, (iii) interest accruing on the related Mortgage Loans prior to the Cut-Off Date or related Subsequent 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 Master Servicer may make withdrawals from the Principal and Interest Account only for the following purposes: 32 37 (1) to effect the timely remittance to the Indenture Trustee of the Monthly Remittance Amounts due on the Remittance Date; (2) to reimburse itself for unreimbursed Delinquency Advances and Servicing Advances and Nonrecoverable Advances; (3) to withdraw investment earnings on amounts on deposit in the Principal and Interest Account; (4) to withdraw amounts that have been deposited to the Principal and Interest Account in error; and (5) to clear and terminate the Principal and Interest Account following the termination of the Trust Estate pursuant to Article X of the Indenture. (ii) On the tenth day of each month, the Master Servicer shall send to the Indenture Trustee a report, in the form of a computer tape, detailing the payments on the Mortgage Loans during the prior Remittance Period. Such tape shall be in the form and have the specifications as may be agreed to between the Master Servicer and the Indenture Trustee from time to time. The Note Insurer shall have the right to request this computer tape upon providing 3 Business Days written notice to the Master Servicer. (iii) On each Remittance Date the Master Servicer shall remit to the Indenture Trustee by wire transfer, or otherwise make funds available in immediately available funds for deposit in the Note Account pursuant to Section 8.7(a) of the Indenture, the Interest Remittance Amount and the Principal Remittance Amount. (e) To the extent that the ratings, if any, then assigned to the unsecured debt of the Master Servicer or of the Master Servicer's ultimate corporate parent are satisfactory to the Note Insurer, the Indenture Trustee, Moody's and Standard & Poor's, then the requirement to maintain the Principal and Interest Account may be waived by an instrument signed by the Note Insurer, Standard & Poor's, Indenture Trustee, and Moody's, and the Master Servicer may be allowed to co-mingle with its general funds the amounts otherwise required to be deposited to the Principal and Interest Account, on such terms and subject to such conditions as the Note Insurer, the Indenture Trustee, Moody's and Standard & Poor's may permit. SECTION 4.9. DELINQUENCY ADVANCES, COMPENSATING INTEREST AND SERVICING ADVANCES. (a) The Master Servicer is required, not later than each Remittance Date, to deposit into the Principal and Interest Account an amount equal to the sum of the interest portions (net of the Servicing Fees) due, but not collected, with respect to Delinquent Mortgage Loans during the prior Remittance Period, but only if, in its good faith business judgment, the Master Servicer reasonably believes that such amount will ultimately be recovered from the related Mortgage Loan. Such amounts are "Delinquency Advances". The Master 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 Master Servicer's own funds, from collections on the related Mortgage Loan. The Master Servicer may use funds deposited to the Principal and Interest Account subsequent to the related Remittance Period to fund its payment of Delinquency Advances related to a Payment Date. The Master Servicer shall also fund Delinquency Advances from the deposits into the 33 38 Principal and Interest Account with respect thereto (i) late collections from the Mortgagor whose Delinquency gave rise to the shortfall which resulted in such Delinquency Advance and (ii) Net Liquidation Proceeds recovered on account of the related Mortgage Loan to the extent of the amount of aggregate Delinquency Advances related thereto or (iii) from its own funds. If not therefore recovered from the related Mortgagor or the related Net Liquidation Proceeds, Delinquency Advances constituting Nonrecoverable Advances shall be recoverable pursuant to Section 8.7(b)(xvii) of the Indenture and Section 4.8(a) hereof. (b) On or prior to each Remittance Date, the Master Servicer shall deposit in the Principal and Interest Account with respect to any full Prepayment received on a 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 the Mortgage Loan's Coupon Rate (less the Servicing Fee) 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 Master Servicer, "Compensating Interest"). The Master 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 Master Servicer with respect to all Mortgage Loans for such Remittance Period nor shall it be required to pay Compensating Interest due to partial prepayments or Relief Act Shortfalls. (c) The Master 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 (a) foreclosures and (b) other legal actions and costs associated therewith that potentially affect the existence, validity, priority, enforceability, or collectibility of the Mortgage Loans, including collection agency fees and costs of pursuing or obtaining personal judgments, garnishments, levies, attachment and similar actions, and (iii) the costs of the conservation, management, liquidation, sale or other disposition of any REO Property, including reasonable fees paid to any independent contractor in connection therewith, and (iv) advances to keep liens current, unless with respect to any of the foregoing the Master Servicer has determined that such advance would not be recoverable. Each such amount so paid will constitute a "Servicing Advance". The Master 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 4.8(d) hereof. (d) On the Remittance Date in ___________, the Master Servicer shall make a special non-recoverable advance equal to one-month's interest, calculated at the Note Interest Rate (applicable to the __________ Payment Date) for the Notes with respect to all Mortgage Loans in the Trust not having a payment due during __________ and the amounts of such advance shall be included in the Interest Remittance Amount related to the Trust. SECTION 4.10. PURCHASE OF MORTGAGE LOANS. The Master 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 Master Servicer or by any Sub-Servicer pursuant to Section 4.13. Any such Mortgage Loan so purchased shall be purchased by the Master Servicer on a Remittance Date at a purchase price equal to the Loan Purchase Price thereof, which purchase price shall be deposited in the Principal and Interest 34 39 Account; provided, that the Master Servicer may not purchase any Mortgage Loans pursuant to this Section 4.10 if such purchase will cause the aggregate purchase price to exceed 10% of the Original Pool Principal Balance. SECTION 4.11. MAINTENANCE OF INSURANCE. (a) The Master 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 Master 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 Master 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 Master 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 Master Servicer shall indemnify the Trust and the Note Insurer out of the Master Servicer's own funds for any loss to the Trust and the Note Insurer resulting from the Master Servicer's failure to maintain the insurance required by this Section. (c) It is understood and agreed that such insurance shall be with insurers approved by the Master Servicer and that no earthquake or other additional insurance is to be required of any Mortgagor or to be maintained on property acquired in respect of a defaulted loan, other than pursuant to such applicable laws and regulations as shall at any time be in force and as shall require such additional insurance. Any cost incurred by the Master Servicer in maintaining any such insurance shall be added to the amount owing under the Mortgage Loan where the terms of the Mortgage Loan so permit. Such costs shall be recoverable by the Master Servicer pursuant to Section 4.9. (d) In the event that the Master 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 Master 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 Master 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 Master 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 Master 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, the 35 40 Master Servicer shall cause to be delivered to the Indenture Trustee and 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 Master 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 Note; provided, however, that the Master Servicer shall not exercise any such right if (i) the "due-on-sale" clause, in the reasonable belief of the Master Servicer, is not enforceable under applicable law or (ii) the Master Servicer reasonably believes that to permit an assumption of the Mortgage Loan would not materially and adversely affect the interest of the Noteholders or of the Note Insurer. In such event, the Master 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 Note and, unless prohibited by applicable law or the Mortgage Documents, the Mortgagor remains liable thereon. If the foregoing is not permitted under applicable law, the Master 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 Note; provided, however, that to the extent any such substitution of liability agreement would be delivered by the Master Servicer outside of its usual procedures for mortgage loans held in its own portfolio the Master Servicer shall, prior to executing and delivering such agreement, obtain the prior written consent of the Control Party. The Mortgage Loan, as assumed, shall conform in all respects to the requirements, representations and warranties of this Agreement. The Master 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 Master Servicer shall be responsible for recording or causing the recordation 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 Master 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 Master Servicer as additional servicing compensation. Notwithstanding the foregoing paragraph or any other provision of this Agreement, the Master 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 Master Servicer may be restricted by law from preventing, for any reason whatsoever. SECTION 4.13. REALIZATION UPON DEFAULTED MORTGAGE LOANS. (a) The Master 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 36 41 which the Master Servicer has not purchased pursuant to Section 4.10. In connection with such foreclosure or other conversion, the Master Servicer shall exercise such of the rights and powers vested in it hereunder, and use the same degree of care and skill in their 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, amounts due with respect to Senior Liens, and insurance premiums. Any amounts so advanced shall constitute "Servicing Advances" within the meaning of Section 4.9(c) hereof. Notwithstanding the generality of the foregoing provisions, the Master Servicer shall manage, conserve, protect and operate each REO Property for the Noteholders solely for the purpose of its prompt disposition and sale. Pursuant to its efforts to sell such REO Property, the Master Servicer shall either itself or through an agent selected by the Master 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 Noteholders, rent the same, or any part thereof, as the Master Servicer deems to be in the best interest of the Noteholders for the period prior to the sale of such REO Property. The Master 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 Master Servicer shall determine, with respect to each defaulted Mortgage Loan, when it has recovered, whether through 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 Mortgage Loan" and shall promptly deliver to the Note Insurer, with a copy to the Indenture Trustee, a related liquidation report with respect to such Liquidated Mortgage 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 Master Servicer or any Sub-servicer of a notification that payment in full will be escrowed in a manner customary for such purposes, the Master Servicer or any Sub-servicer shall deliver to the Indenture Trustee a Master Servicer's Trust Receipt attached hereto as Exhibit G. Upon receipt of such Master Servicer's Trust Receipt, the Indenture Trustee shall promptly release the related File, in trust to the applicable party as directed in writing by the Master Servicer on the Master Servicer's Trust Receipt, in each case pending its release by the such party. Upon any such payment in full, or the receipt of such notification that such funds have been placed in escrow, the Master Servicer or any Sub-servicer is authorized to give, as attorney-in-fact for the Indenture Trustee and the mortgagee under the Mortgage which secured the 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 Master Servicer or any Sub-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 37 42 by the Master Servicer or any Sub-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 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 Master Servicer or any Sub-servicer and delivery to the Indenture Trustee of a Master Servicer's Trust Receipt, release the related File to the Master 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 Master Servicer. The Indenture Trustee shall complete in the name of the Indenture Trustee any endorsement in blank on any Note prior to releasing such Note to the Master Servicer or any Sub-servicer. Such receipt shall obligate the Master Servicer or any Sub-servicer to return the File to the Indenture Trustee when the need therefor by the Master Servicer or any Sub-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 Master Servicer's Trust Receipt shall be released by the Indenture Trustee to the Master Servicer or any Sub-servicer. (c) No costs associated with the procedures described in this Section 4.14 shall be an expense of the Trust. (d) The provisions set forth in Subsections (a) and (b) may be superseded by any waiver of the Document Delivery Requirement as may be given by the Note Insurer, Moody's and Standard & Poor's pursuant to Section 2.1(b) hereof. (e) Each Master Servicer's Trust Receipt may be delivered to the Indenture Trustee (i) via mail or courier, (ii) via facsimile or (iii) by such other means, including, without limitation, electronic or computer readable medium, as the Master Servicer and the Indenture Trustee shall mutually agree. The Indenture Trustee shall promptly release the related File(s) within five (5) to seven (7) business days of receipt of a properly completed Master Servicer's Trust Receipt pursuant to clauses (i), (ii) or (iii) above or such shorter period as may be agreed upon by the Master Servicer and the Indenture Trustee. Receipt of a Master Servicer's Trust Receipt pursuant to clauses (i), (ii) or (iii) above shall be authorization to the Indenture Trustee to release such Files, provided the Indenture Trustee has determined that such Master Servicer's Trust Receipt has been executed, with respect to clauses (i) or (ii) above, or approved, with respect to clause (iii) above, by an Authorized Officer of the Master Servicer or any Sub-servicer, and so long as the Indenture Trustee complies with its duties and obligations under this Agreement. If the Indenture Trustee is unable to release the Files within the time frames previously specified, the Indenture Trustee shall immediately notify the Master Servicer or any Sub-servicer indicating the reason for such delay, but in no event shall such notification be later than five business days after receipt of a Master Servicer's Trust Receipt. If the Master Servicer is required to pay penalties or damages due solely to the Indenture Trustee's negligent failure to release the related File or the Indenture Trustee's negligent failure to execute and release documents in a timely manner, the Indenture Trustee shall be liable for such penalties or damages. On each day that the Master Servicer remits to the Indenture Trustee Master Servicer's Trust Receipts pursuant to clauses (ii) or (iii) above, the Master Servicer or any Sub- 38 43 servicer shall also submit to the Indenture Trustee a summary of the total amount of such Master Servicer's Trust Receipts requested on such day by the same method as described in such clauses (ii) or (iii) above. SECTION 4.15. SERVICING COMPENSATION. As compensation for its activities hereunder, the Master 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, or 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)(v) and similar items may, to the extent collected from Mortgagors, be retained by the Master Servicer. SECTION 4.16. ANNUAL STATEMENT AS TO COMPLIANCE. The Master 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 ___, an Officer's Certificate stating, as to each signer thereof, that (i) a review of the activities of the Master 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 Master 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 Master Servicer to remedy such defaults. SECTION 4.17. ANNUAL INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORTS. On or before the last day of March of each year, commencing in ___, the Master 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 Control Party stating that such firm has, with respect to the Master Servicer's overall servicing operations (i) performed applicable tests in accordance with the compliance testing procedures as set forth in Appendix 3 of the Audit Guide for Audits of HUD Approved Nonsupervised Mortgagees or (ii) 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 Master 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 Master Servicer designated by it. Upon any change in the format of the computer tape maintained by the Master Servicer in respect of the Mortgage Loans, the Master 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 at such other times as the Indenture Trustee may reasonably request. The 39 44 Note Insurer may request a copy of this computer tape upon three Business Days prior written notice to the Master Servicer. SECTION 4.19. ASSIGNMENT OF AGREEMENT. The Master 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 5.1(g) hereof for a successor servicer. Notice of any such assignment shall be given by the Master Servicer to the Indenture Trustee, the Note Insurer and Moody's. ARTICLE V SERVICING TERMINATION SECTION 5.1. EVENTS OF SERVICER TERMINATION. (a) The Master Servicer may be removed with respect to the Trust if any one of the following events ("Events of Servicer Termination") shall occur and be continuing: (i) The Master Servicer shall fail to deliver to the Indenture Trustee any proceeds or required payment, which failure continues unremedied for five Business Days following written notice to an Authorized Officer of the Master Servicer from the Indenture Trustee or from Noteholders evidencing Percentage Interest aggregating not less than 25%. (ii) The Master Servicer shall fail to perform any one or more of its obligations hereunder other than the obligations contemplated by Subsection 5.1(i) above, and shall continue in default thereof for a period of sixty (60) days after notice by the Indenture Trustee or the Note Insurer of said failure; provided, however, that if the Master Servicer can demonstrate to the reasonable satisfaction of the Control Party that it is diligently pursuing remedial action, then the cure period may be extended with the written approval of the Control Party; or (iii) The Master Servicer shall fail to cure any breach of any of its representations and warranties set forth in Section 3.2 which materially and adversely affects the interests of the Noteholders or the Note Insurer for a period of thirty (30) days after the Master Servicer's discovery or receipt of notice thereof; provided, however, that if the Master Servicer can demonstrate to the reasonable satisfaction of the Control Party that it is diligently pursuing remedial action, then the cure period may be extended with the written approval of the Control Party; or (iv) The failure by the Master Servicer to make any required Servicing Advance and such failure continues for fifteen days; provided, however; that if the Master Servicer can demonstrate to the reasonable satisfaction of the Control Party that any such event was due to circumstances beyond the control of the Master Servicer, such event shall not be considered an event of termination of the Master Servicer; or (v) The failure by the Master Servicer to make any required Delinquency Advance or to pay any Compensating Interest; provided, however, that if the Master 40 45 Servicer can demonstrate to the reasonable satisfaction of the Control Party that any such event was due to circumstances beyond the control of the Master Servicer, such event shall not be considered an event of termination of the Master Servicer; Then, and in each and every such case, so long as a Event of Servicer Termination shall not have been remedied by the Master Servicer, either the Indenture Trustee, the Note Insurer or the Noteholders evidencing Percentage Interests aggregating not less than 51% in each case with the consent of the Note Insurer, or the Note Insurer, by notice then given in writing to the Master Servicer (and to the Indenture Trustee if given by the Note Insurer of the Noteholders) may terminate all of the rights and obligations of the Master Servicer as servicer of the Trust under this Agreement. Any such notice to the Master Servicer shall also be given to each Rating Agency and the Note Insurer. On and after the receipt by the Master Servicer of such written notice, all authority and power of the Master Servicer under this Agreement, whether with respect to the Notes or the Mortgage Loans or otherwise, shall pass to and be vested in the Indenture Trustee pursuant to and under this Section 5.1(a) and, without limitation, the Indenture Trustee is hereby authorized and empowered to execute and deliver, on behalf of the Master 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 of termination, whether to complete the transfer and endorsement of each Mortgage Loan and related documents, or otherwise. The Master Servicer agrees to cooperate with the Indenture Trustee in effecting the termination of the responsibilities and rights of the Master Servicer hereunder, including, without limitation, the transfer to the Indenture Trustee for the administration by it of all cash amounts that shall at the time be held by the Master Servicer and to be deposited by it in the Note Account, or that have been deposited by the Master Servicer in the Note Account or thereafter received by the Master Servicer with respect to the Mortgage Loans. All reasonable costs and expenses (including attorneys' fees) incurred in connection with amending this Agreement to reflect such succession as Master Servicer pursuant to this Section 5.1 shall be paid by the predecessor Master Servicer (or if the predecessor Master Servicer is the Indenture Trustee, the initial Master Servicer) upon presentation of reasonable documentation of such costs and expenses. Notwithstanding the foregoing, a delay in or failure of performance under Section 5.1(a)(i) for a period of two Business Days or under Section 5.1(ii), (iii), (iv), or (v) for a period of 60 days, shall not constitute a Event of Servicer Termination if such delay or failure could not be prevented by the exercise of reasonable diligence by the Master Servicer and such delay or failure was caused by an act of God or the public enemy, acts of declared or undeclared war, public disorder, rebellion or sabotage, epidemics, landslides, lightning, fire, hurricanes, earthquakes, floods or similar causes. The preceding sentence shall not relieve the Master Servicer from using its best efforts to perform its respective obligations in a timely manner in accordance with the terms of this Agreement and the Master Servicer shall provide the Indenture Trustee, the Sponsor, the Note Insurer and the Noteholders with an Officer's Certificate giving prompt notice of such failure or delay by it, together with a description of its efforts to so perform its obligations. The Master Servicer shall immediately notify the Indenture Trustee and the Note Insurer in writing of any Event of Servicer Termination. (b) The Master Servicer may be removed with respect to the Trust if any one of the following events ("Overall Events of Servicer Termination") shall occur and be continuing: 41 46 (i) The occurrence of a Servicer Termination Loss Trigger, as such terms are defined in the Insurance Agreement; or (ii) The Master Servicer shall (I) apply for or consent to the appointment of a receiver, 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; or (iii) If, without the application, approval or consent of the Master 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 Master 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 trustee, receiver, liquidator or custodian or similar entity with respect to the Master 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 Master 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. Then, and in each and every such case, so long as an Overall Event of Servicer Termination shall not have been remedied by the Master Servicer, either the Indenture Trustee, the Note Insurer or the Noteholders evidencing Percentage Interests aggregating not less than 51% with the consent of the Note Insurer, or the Note Insurer, by notice then given in writing to the Master Servicer (and to the Indenture Trustee if given by the Note Insurer of the Noteholders) may terminate all of the rights and obligations of the Master Servicer as servicer under this Agreement. Any such notice to the Master Servicer shall also be given to each Rating Agency and the Note Insurer. On and after the receipt by the Master Servicer of such written notice, all authority and power of the Master Servicer under this Agreement, whether with respect to the Trust Notes or the Mortgage Loans or otherwise, shall pass to and be vested in the Indenture Trustee pursuant to and under this Section 5.1(b) and, without limitation, the Indenture Trustee is hereby authorized and empowered to execute and deliver, on behalf of the Master 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 of termination, whether to complete the transfer and endorsement of each Mortgage Loan in the Trust and related documents, or otherwise. The Master Servicer agrees to cooperate with the Indenture Trustee in effecting the termination of the responsibilities and rights of the Master Servicer hereunder, including, without limitation, the transfer to the Indenture Trustee for the administration by it of all cash amounts that shall at the time be held by the Master Servicer and to be deposited by it in the Note Account, or that have been deposited by the Master Servicer in the Note Account or thereafter received by the Master Servicer with respect to the Mortgage Loans. All reasonable costs and expenses (including attorneys' fees) incurred in connection with amending this Agreement to reflect such succession as Master Servicer pursuant to this Section 5.1(b) shall be paid by the predecessor Master 42 47 Servicer (or if the predecessor Master Servicer is the Indenture Trustee, the initial Master Servicer) upon presentation of reasonable documentation of such costs and expenses. The Master Servicer shall not resign from the obligations and duties hereby imposed on it, except 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 Master Servicer so causing such a conflict being of a type and nature carried on by the Master Servicer at the date of this Agreement. Any such determination permitting the resignation of the Master 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 Master Servicer shall become effective until the Indenture Trustee or a successor servicer shall have assumed the Master Servicer's responsibilities and obligations in accordance with this Section. If no successor servicer is available, the Indenture Trustee shall act as successor servicer and perform all of the obligations of this Section, including, without limitation, making Delinquency Advances and paying Compensating Interest; provided, however, that the Indenture Trustee will not be obligated to act as successor servicer if it is legally unable to perform its duties hereunder. (d) Upon removal or resignation of the Master Servicer, the Master 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 Master 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 Master Servicer's possession. (e) Any collections received by the Master 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 Master Servicer. (f) Upon removal or resignation of the Master Servicer, the Indenture Trustee (x) may solicit bids for a successor servicer as described below, and (y) pending the appointment of a successor Master Servicer as a result of soliciting such bids, shall serve as Master Servicer. The Indenture Trustee shall, if it is unable to obtain a qualifying bid and is prevented by law from acting as Master Servicer, appoint, or petition a court of competent jurisdiction to appoint, any housing and home finance institution, bank or mortgage servicing institution which has shareholders' equity of not less than $10,000,000, as determined in accordance with generally accepted accounting principles, and acceptable to the Note Insurer as the successor to the Master Servicer hereunder in the assumption of all or any part of the responsibilities, duties or liabilities of the Master Servicer hereunder. The compensation of any successor servicer (including, without limitation, the Indenture Trustee) so appointed shall be the aggregate Servicing Fees, 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 Master Servicer then the Sponsor agrees to pay to the Indenture Trustee at such time that the Indenture Trustee becomes such successor Master Servicer a fee of twenty-five dollars ($25.00) for each Mortgage Loan then included in the Trust Estate. The Indenture Trustee shall be obligated to serve as successor Master Servicer whether or not the $25.00 fee described in the preceding sentence is paid by the Sponsor, but shall in any event be entitled to receive, and to enforce payment of, such fee from the Sponsor. 43 48 (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 Master 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. The Indenture Trustee shall deduct from any sum received by the Indenture Trustee from the successor to the Master 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 Master Servicer at the time of such sale, transfer and assignment to the Master Servicer's successor. (h) The Indenture Trustee and such successor shall take such action, consistent with this Agreement, as shall be necessary to effectuate any such succession. The Master Servicer agrees to cooperate with the Indenture Trustee and any successor Master Servicer in effecting the termination of the Master Servicer's servicing responsibilities and rights hereunder and shall promptly provide the Indenture Trustee or such successor Master Servicer, as applicable, all documents and records reasonably requested by it to enable it to assume the Master Servicer's functions hereunder and shall promptly also transfer to the Indenture Trustee or such successor Master Servicer, as applicable, all amounts which then have been or should have been deposited in the Principal and Interest Account by the Master Servicer or which are thereafter received with respect to the Mortgage Loans. Neither the Indenture Trustee nor any other successor Master 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 Master Servicer to deliver, or any delay in delivering, cash, documents or records to it, or (ii) restrictions imposed by any regulatory authority having jurisdiction over the Master Servicer or (iii) any breaches of a predecessor Master Servicer. (i) The Indenture Trustee or any other successor Master Servicer, upon assuming the duties of Master Servicer hereunder, shall immediately make all Delinquency Advances and pay all Compensating Interest which the Master Servicer has theretofore failed to remit with respect to the Mortgage Loans; provided, however, that if the Indenture Trustee is acting as successor Master Servicer, the Indenture Trustee shall be required to make Delinquency Advances (including the Delinquency Advances described in this clause (i)) only if, in the Indenture Trustee's reasonable good faith judgment, such Delinquency Advances will ultimately be recoverable from the related Mortgage Loans. (j) The Master Servicer which is being removed or is resigning shall give notice to the Mortgagors and to Moody's and Standard and & Poor's of the transfer of the servicing to the successor. (k) The Indenture Trustee shall give notice to the Note Insurer, Moody's, Standard & Poor's and to the Noteholders of the occurrence of any event specified in Section 5.1(a), 5.1(b) or any other event in which the Master Servicer is no longer acting as Master Servicer hereunder of which the Indenture Trustee has actual knowledge. 44 49 SECTION 5.2. INSPECTIONS BY THE NOTE INSURER AND THE INDENTURE TRUSTEE; 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 Master Servicer's servicing operations and discuss the servicing operations of the Master Servicer with any of its officers or directors. The costs and expenses incurred by the Master Servicer or its agents or representatives in connection with any such examinations or discussions shall be paid by the Master Servicer. (b) The Master 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 5.3. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS OF MASTER SERVICER. Any corporation into which the Master Servicer 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 Master Servicer shall be a party, or any corporation succeeding to all or substantially all of the business of the Master Servicer, shall be the successor of the Master 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 5.1(g). SECTION 5.4. NOTICES OF TO NOTEHOLDERS. Upon any termination or appointment of a successor to the Master Servicer pursuant to this Article V, the Indenture Trustee shall give prompt written notice thereof to the Noteholders at their respective addresses appearing in the Note Register, the Note Insurer and each Rating Agency. ARTICLE VI ADMINISTRATIVE DUTIES OF THE MASTER SERVICER SECTION 6.1. ADMINISTRATIVE DUTIES WITH RESPECT TO THE INDENTURE. The Master Servicer shall perform all its duties and the duties of the Trust under the Indenture. In addition, the Master Servicer shall consult with the Owner Trustee as the Master Servicer deems appropriate regarding the duties of the Trust under the Indenture. The Master Servicer shall monitor the performance of the Trust and shall advise the Owner Trustee when action is necessary to comply with the Trust's duties under the Indenture. The Master Servicer shall prepare for execution by the Trust or shall cause the preparation by other appropriate Persons of all such documents, reports, filings, instruments, certificates and opinions as it shall be the duty of the Trust to prepare, file or deliver pursuant to the Indenture. In furtherance of the foregoing, the Master Servicer shall take all necessary action that is the duty of the Trust to take pursuant to the Indenture. (a) Duties with Respect to the Trust. 45 50 (i) In addition to the duties of the Master Servicer set forth in this Agreement or any of the Documents, the Master Servicer shall perform such calculations and shall prepare for execution by the Trust or the Owner Trustee or shall cause the preparation by other appropriate Persons of all such documents, reports, filings, instruments, certificates and opinions as it shall be the duty of the Trust or the Owner Trustee to prepare, file or deliver pursuant to this Agreement or any of the Operative Documents or under state and federal tax and securities laws, and at the request of the Owner Trustee shall take all appropriate action that it is the duty of the Trust to take pursuant to this Agreement or any of the Operative Documents. In accordance with the directions of the Trust or the Owner Trustee, the Master Servicer shall administer, perform or supervise the performance of such other activities in connection with the Mortgage Loans (including the Operative Documents) as are not covered by any of the foregoing provisions and as are expressly requested by the Trust or the Owner Trustee and are reasonably within the capability of the Master Servicer. (ii) Notwithstanding anything in this Agreement or any of the Operative Documents to the contrary, the Master Servicer shall be responsible for promptly notifying the Owner Trustee and the Indenture Trustee in the event that any withholding tax is imposed on the Trust's payments (or allocations of income) with respect to the Certificates as contemplated by this Agreement. Any such notice shall be in writing and specify the amount of any withholding tax required to be withheld by the Owner Trustee or the Indenture Trustee pursuant to such provision. (iii) Notwithstanding anything in this Agreement or the Operative Documents to the contrary, the Master Servicer shall be responsible for performance of the duties of the Trust or the Sponsor set forth in [Section 5.1(a), (b), (c) and (d) of the Trust Agreement] with respect to, among other things, accounting and reports with respect to the Certificates. (iv) In carrying out the foregoing duties or any of its other obligations under this Agreement, the Master Servicer may enter into transactions with or otherwise deal with any of its Servicer Affiliates; provided, however, that the terms of any such transactions or dealings shall be in accordance with any directions received from the Trust and shall be, in the Master Servicer's opinion, no less favorable to the Trust in any material respect. (b) Non-Ministerial Matters. With respect to matters that in the reasonable judgment of the Master Servicer are non-ministerial, the Master Servicer shall not take any action pursuant to this Article VI unless within a reasonable time before the taking of such action, the Master Servicer shall have notified the Owner Trustee and the Note Insurer of the proposed action and the Owner Trustee and the Note Insurer shall not have withheld consent or provided an alternative direction. For the purpose of the preceding sentence, "non-ministerial matters" shall include: (A) the amendment of or any supplement to the Indenture; (B) the initiation of any claim or lawsuit by the Trust and the compromise of any action, claim or lawsuit brought by or against the Trust (other than in connection with the collection of the Mortgage Loans); 46 51 (C) the amendment, change or modification of this Agreement or any of the Operative Documents; (D) the appointment of successor Note Registrars, successor Paying Agents and successor Indenture Trustees pursuant to the Indenture or the appointment of Successor Servicers or the consent to the assignment by the Note Registrar, Paying Agent or Indenture Trustee of its obligations under the Indenture; and (E) the removal of the Indenture Trustee. (c) Exceptions. Notwithstanding anything to the contrary in this Agreement, except as expressly provided herein or in the other Operative Documents, the Master Servicer, in its capacity hereunder, shall not be obligated to, and shall not, (1) make any payments to the Noteholders under the Operative Documents, (2) sell the Trust Property pursuant to Section 5.1 of the Indenture, (3) take any other action that the Trust directs the Master Servicer not to take on its behalf or (4) in connection with its duties hereunder assume any indemnification obligation of any other Person. (d) The Indenture Trustee or any successor Servicer shall not be responsible for any obligations or duties of the Master Servicer under Section 6.1. SECTION 6.2. RECORDS. The Master Servicer shall maintain appropriate books of account and records relating to services performed under this Agreement, which books of account and records shall be accessible for inspection by the Trust and the Indenture Trustee at any time during normal business hours. SECTION 6.3. ADDITIONAL INFORMATION TO BE FURNISHED TO THE TRUST. The Master Servicer shall furnish to the Trust and the Indenture Trustee from time to time such additional information regarding the Mortgage Loans as the Trust and the Indenture Trustee shall reasonably request. ARTICLE VII MISCELLANEOUS SECTION 7.1. COMPLIANCE CERTIFICATES AND OPINIONS. Upon any application or request by the Sponsor, the Note Insurer or the Noteholders to the Indenture Trustee to take any action under any provision of this Agreement, the Sponsor, the Note Insurer or the Noteholders, as the case may be, shall furnish to the Indenture Trustee a certificate stating that all conditions precedent, if any, provided for in this Agreement relating to the proposed action have been complied with, except that in the case of any such application or request as to which the furnishing of any documents is specifically required by any provision of this Agreement relating to such particular application or request, no additional certificate need be furnished. Except as otherwise specifically provided herein, each certificate or opinion with respect to compliance with a condition or covenant provided for in this Agreement shall include: 47 52 (a) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (b) 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 (c) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 7.2. FORM OF DOCUMENTS DELIVERED TO THE 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 of an Authorized Officer of the Indenture Trustee may be based, insofar as it relates to legal matters, upon an opinion of counsel, unless such Authorized Officer knows, or in the exercise of reasonable care should know, that the opinion is erroneous. Any such certificate of an Authorized Officer of the Indenture Trustee or any opinion of counsel may be based, insofar as it relates to factual matter upon a certificate or opinion of, or representations by, one or more Authorized Officers of the Sponsor or of the Master Servicer, stating that the information with respect to such factual matters is in the possession of the Sponsor or of the Master Servicer, unless such Authorized Officer or 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. Any opinion of counsel may also be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an Authorized Officer of the Indenture Trustee, stating that the information with respect to such matters is in the possession of the Indenture Trustee, 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. Any opinion of counsel may be based on the written opinion of other counsel, in which event such opinion of counsel shall be accompanied by a copy of such other counsel's opinion and shall include a statement to the effect that such counsel believes that such counsel and the Indenture Trustee may reasonably rely upon the opinion of such other counsel. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Agreement, they may, but need not, be consolidated and form one instrument. SECTION 7.3. ACTS OF NOTEHOLDERS. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Agreement to be given or taken by the Noteholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Noteholders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Indenture Trustee, and, where it is hereby expressly required, to the Sponsor and/or the Note Insurer. Such instrument or instruments (and the action embodied 48 53 therein and evidenced thereby) are herein sometimes referred to as the "act" of the Noteholders 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 Agreement and conclusive in favor of the Indenture Trustee and the Trust, 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 by the affidavit of a witness of such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Whenever such execution is by an officer of a corporation or a member of a partnership on behalf of such corporation or partnership, such certificate or affidavit shall also constitute sufficient proof of his authority. (c) The ownership of Notes shall be proved by the Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Noteholders shall bind the Noteholders issued upon the registration of transfer 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 Trust in reliance thereon, whether or not notation of such action is made upon such Notes. SECTION 7.4. NOTICES, ETC., TO INDENTURE TRUSTEE. Any request, demand, authorization, direction, notice, consent, waiver or act of the Notes or other documents provided or permitted by this Agreement to be made upon, given or furnished to, or filed with the Indenture Trustee by any Notes, the Note Insurer or by the Sponsor shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with and received by the Indenture Trustee at its corporate trust office as set forth in the Indenture. SECTION 7.5. NOTICES AND REPORTS TO NOTEHOLDERS; WAIVER OF NOTICES. Where this Agreement provides for notice to Noteholders of any event or the mailing of any report to Noteholders, such notice or report shall be sufficiently given (unless otherwise herein expressly provided) if mailed, first-class postage prepaid, to each Noteholder affected by such event or to whom such report is required to be mailed, at the address of such Noteholder as it appears on the Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice or the mailing of such report. In any case where a notice or report to Noteholders is mailed in the manner provided above, neither the failure to mail such notice or report nor any defect in any notice or report so mailed to any particular Noteholder shall affect the sufficiency of such notice or report with respect to other Noteholders, and any notice or report which is mailed in the manner herein provided shall be conclusively presumed to have been duly given or provided. Where this Agreement 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 Noteholders 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 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 49 54 Noteholders when such notice is required to be given pursuant to any provision of this Agreement, 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 Agreement provides for notice to any rating agency that rated any Notes, failure to give such notice shall not affect any other rights or obligations created hereunder. SECTION 7.6. RULES BY INDENTURE TRUSTEE AND SPONSOR. The Indenture Trustee may make reasonable rules for any meeting of Noteholders. SECTION 7.7. 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 7.8. 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 7.9. BENEFITS OF AGREEMENT. Nothing in this Agreement or in the Notes, expressed or implied, shall give to any Person, other than the Noteholders, 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 7.10. LEGAL HOLIDAYS. In any case where the date of any Payment Date, any other date on which any distribution to any Noteholder 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 Payment Date, or such other date for the payment of any distribution to any Noteholder 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 7.11. GOVERNING LAW. In view of the fact that Noteholders 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. SECTION 7.12. COUNTERPARTS. 50 55 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 7.13. 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 Noteholder as a result of an error on the part of the Indenture Trustee acting on behalf of the Trust and the Noteholder 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 Noteholder, 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 Noteholders 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 7.14. AMENDMENT. (a) The Indenture Trustee, the Sponsor and the Master Servicer, may at any time and from time to time, with the prior written consent of the Note Insurer but without the giving of notice to or the receipt of the consent of the Noteholders, amend this Agreement, and the Indenture Trustee shall consent to such amendment, for the purpose of (i) curing any ambiguity, or correcting or supplementing any provision hereof which may be inconsistent with any other provision hereof, or to add provisions hereto which are not inconsistent with the provisions hereof, (ii) complying with the requirements of the Code and the regulations proposed or promulgated thereunder; provided, however, that any such action shall not, as evidenced by an opinion of counsel delivered to the Indenture Trustee, materially and adversely affect the interests of any Noteholder (without its written consent). (b) The Indenture Trustee, the Sponsor and the Master Servicer may, at any time and from time to time, with the prior written consent of the Note Insurer but without the giving of notice to or the receipt of the consent of the Noteholders, amend this Agreement, and the Indenture Trustee shall consent to such amendment, for the purpose of changing the definitions of Specified Overcollateralization Amount; provided, however, that no such change shall affect the weighted average life of the Notes (assuming an appropriate prepayment speed as determined by the Underwriter by more than five percent, as determined by the Underwriter. (c) This Agreement may also be amended by the Indenture Trustee, the Sponsor, and the Master Servicer at any time and from time to time, with the prior written approval of the Note Insurer and not less than a majority of the Percentage Interest represented by each the Notes then Outstanding, for the purpose of adding any provisions or changing in any manner or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of the Noteholders hereunder; provided, however, that no such amendment shall (a) change in any manner the amount of, or change the timing of, payments which are required to be distributed to any Noteholder without the consent of the Noteholder, (b) reduce the aforesaid 51 56 percentages of Percentage Interests which are required to consent to any such amendments or (c) result in a down-rating or withdrawal of any ratings then assigned to the Notes, without the consent of the Noteholders of the then Outstanding Notes. (d) The Note Insurer, the Noteholders, 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 7.15. THE NOTE INSURER. The Note Insurer is a third-party beneficiary of this Agreement. Any right conferred to the Note Insurer shall be suspended during any period in which the Note Insurer is in default in its payment obligations under the Note Policy, except with respect to amendments to this Agreement pursuant to Section 11.14. During the continuance of a Note Insurer Default, the Note Insurer's rights hereunder shall vest in the Indenture Trustee on behalf of the Noteholders and shall be exercisable by the Noteholders of at least a majority in Percentage Interest of the Notes then Outstanding or, if there are no Notes then Outstanding and the Note Policy has expired or a Note Insurer Default has occurred and is continuing, or if there are no Notes outstanding and any and all amounts due and owing the Note Insurer under the Insurance Agreement have been paid in full, and the Note Policy has expired or is unavailable due to a Note Insurer Default, by at least a majority of the Certificates then Outstanding. At such time as the Notes are no longer Outstanding hereunder and the Note Insurer has been reimbursed for all Reimbursement Amounts to which it is entitled hereunder and the Note Policy has expired, the Note Insurer's rights hereunder shall terminate. SECTION 7.16. NOTICES. All notices hereunder shall be given as follows, until any superseding instructions are given to all other Persons listed below: The Indenture Trustee: [ADDRESS] The Sponsor: Advanta Conduit Receivables, Inc. 10790 Rancho Bernardo Road San Diego, California 92127 Tel:(619) 674-3317 Fax:(619) 674-3666 Attention: Structured Finance The Master Servicer: Advanta Mortgage Corp. USA 10790 Rancho Bernardo Road San Diego, California 92127 Tel: (619) 674-3317 Fax: (619) 674-3666 The Note Insurer: [ADDRESS] Moody's: Moody's Investors Service 99 Church Street New York, New York 10007 Attention: The Mortgage Monitoring Department
52 57 Standard & Poor's: Standard & Poor's Ratings Group 26 Broadway, 15th Floor New York, New York 10004 Attention: Manager, Structured Finance Operations Group Underwriter: [ADDRESS] The Trust: Advanta Mortgage Loan Trust ____-_ c/o [OWNER TRUSTEE], as Owner Trustee [ADDRESS]
SECTION 7.17. LIMITATION OF LIABILITY. It is expressly understood and agreed by the parties hereto that (a) this Agreement is executed and delivered by [OWNER TRUSTEE], not individually or personally but solely as Owner Trustee of the Trust under the Trust Agreement, in the exercise of the powers and authority conferred and vested in it, (b) each of the representations, undertakings and agreements herein made on the part of the Trust is made and intended not as personal representations, undertakings and agreements by [OWNER TRUSTEE] but is made and intended for the purpose for binding only the Trust, (c) nothing herein contained shall be construed as creating any liability on [OWNER TRUSTEE] individually or personally, to perform any covenant either expressed or implied contained herein, all such liability, if any, being expressly waived by the parties to this Agreement and by any person claiming by, through or under them and (d) under no circumstances shall [OWNER TRUSTEE] be personally liable for the payment of any indebtedness or expenses of the Trust or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaking by the Trust under this Agreement or any related documents. 53 58 IN WITNESS WHEREOF, the Sponsor, the Trust, the Master 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. ADVANTA CONDUIT RECEIVABLES, INC., as Sponsor By: __________________________________ ADVANTA MORTGAGE CORP. USA as Master Servicer By: __________________________________ ADVANTA MORTGAGE LOAN TRUST ____-_, as Issuer By: [OWNER TRUSTEE], not in its individual capacity but solely as Owner Trustee, By: ___________________________________ Name: Title: [INDENTURE TRUSTEE], as Indenture Trustee By: ___________________________________ [SIGNATURE PAGE TO THE SALE AND SERVICING AGREEMENT] 54 59 STATE OF CALIFORNIA ) : ss.: COUNTY OF ) On the ____ day of _________, ____ before me personally came ___________ to me known, who, being by me duly sworn did depose and say that his/her office is located at [ADDRESS]; that s/he is ________________ of [INDENTURE TRUSTEE], the national banking corporation described in and that executed the above instrument as Indenture Trustee; and that s/he signed his/her name thereto under authority granted by the Board of Directors of said national banking association. 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] ______________________________________ Notary Public EX-4.3 5 FORM OF TRUST AGREEMENT 1 Exhibit 4.3 TRUST AGREEMENT between ADVANTA CONDUIT RECEIVABLES, INC., as Sponsor, and [OWNER TRUSTEE], as Owner Trustee Dated as of [Date] 2
TABLE OF CONTENTS Page ARTICLE I. Definitions.........................................................................................1 SECTION 1.1 Capitalized Terms.................................................................1 SECTION 1.2 Other Definitional Provisions.....................................................3 SECTION 1.3 Action by or Consent of Noteholders and Certificateholders........................4 ARTICLE II. Organization.......................................................................................4 SECTION 2.1 Name..............................................................................4 SECTION 2.2 Office............................................................................4 SECTION 2.3 Purposes and Powers...............................................................4 SECTION 2.4 Appointment of Owner Trustee......................................................6 SECTION 2.5 Initial Capital Contribution of Trust Estate......................................6 SECTION 2.6 Declaration of Trust..............................................................7 SECTION 2.7 Liability.........................................................................7 SECTION 2.8 Title to Trust Property...........................................................7 SECTION 2.9 Situs of Trust....................................................................7 SECTION 2.10 Representations and Warranties of the Sponsor.....................................8 SECTION 2.11 Federal Income Tax Allocations....................................................8 SECTION 2.12 Covenants of the Sponsor..........................................................9 SECTION 2.13 Covenants of the Certificateholders...............................................9 SECTION 2.14 Investment Companies.............................................................10 ARTICLE III. Certificates and Transfer of Interests...........................................................10 SECTION 3.1 Initial Ownership................................................................10 SECTION 3.2 The Certificates.................................................................11 SECTION 3.3 Authentication of Certificates...................................................11 SECTION 3.4 Registration of Transfer and Exchange of Certificates............................11 SECTION 3.5 Mutilated, Destroyed, Lost or Stolen Certificates................................12 SECTION 3.6 Persons Deemed Certificateholders................................................12 SECTION 3.7 Access to List of Certificateholders' Names and Addresses........................12 SECTION 3.8 Maintenance of Office or Agency..................................................12 SECTION 3.9 ERISA............................................................................13 SECTION 3.10 Restrictions on Transfer of Certificates.........................................13 SECTION 3.11 Acceptance of Obligations........................................................14 SECTION 3.12 Payments on Certificates.........................................................14 ARTICLE IV. Voting Rights and Other Actions...................................................................14 SECTION 4.1 Prior Notice to Certificateholders with Respect to Certain Matters...............14 SECTION 4.2 Action by Certificateholders with Respect to Certain Matters.....................15 SECTION 4.3 Action by Certificateholders with Respect to Bankruptcy..........................15 SECTION 4.4 Restrictions on Certificateholders' Power........................................15 SECTION 4.5 Majority Control.................................................................16 SECTION 4.6 Rights of Note Insurer...........................................................16
i 3 ARTICLE V. Certain Duties.....................................................................................16 SECTION 5.1 Accounting and Records to the Noteholders, Certificateholders, the Internal Revenue Service and Others........................................16 SECTION 5.2 Signature on Returns; Tax Matters Partner........................................17 ARTICLE VI. Authority and Duties of Owner Trustee.............................................................17 SECTION 6.1 General Authority................................................................17 SECTION 6.2 General Duties...................................................................17 SECTION 6.3 Action upon Instruction..........................................................18 SECTION 6.4 No Duties Except as Specified in this Agreement or in Instructions...............18 SECTION 6.5 No Action Except under Specified Documents or Instructions.......................19 SECTION 6.6 Restrictions.....................................................................19 ARTICLE VII. Concerning the Owner Trustee.....................................................................19 SECTION 7.1 Acceptance of Trust and Duties...................................................19 SECTION 7.2 Furnishing of Documents..........................................................20 SECTION 7.3 Representations and Warranties...................................................20 SECTION 7.4 Reliance; Advice of Counsel......................................................21 SECTION 7.5 Not Acting in Individual Capacity................................................21 SECTION 7.6 Owner Trustee Not Liable for Certificates or Mortgage Loans......................21 SECTION 7.7 Owner Trustee May Own Certificates and Notes.....................................22 SECTION 7.8 Payments from Owner Trust Estate.................................................22 SECTION 7.9 Doing Business in Other Jurisdictions............................................22 ARTICLE VIII. Compensation of Owner Trustee...................................................................22 SECTION 8.1 Owner Trustee's Fees and Expenses................................................22 SECTION 8.2 Indemnification..................................................................23 SECTION 8.3 Payments to the Owner Trustee....................................................23 SECTION 8.4 Non-recourse Obligations.........................................................23 ARTICLE IX. Termination of Trust Agreement....................................................................23 SECTION 9.1 Termination of Trust Agreement...................................................23 ARTICLE X. Successor Owner Trustees and Additional Owner Trustees.............................................24 SECTION 10.1 Eligibility Requirements for Owner Trustee.......................................24 SECTION 10.2 Resignation or Removal of Owner Trustee..........................................25 SECTION 10.3 Successor Owner Trustee..........................................................25 SECTION 10.4 Merger or Consolidation of Owner Trustee.........................................26 SECTION 10.5 Appointment of Co-Owner Trustee or Separate Owner Trustee........................26 ARTICLE XI. Miscellaneous.....................................................................................27 SECTION 11.1 Supplements and Amendments.......................................................27 SECTION 11.2 No Legal Title to Owner Trust Estate in Certificateholders.......................28 SECTION 11.3 Limitations on Rights of Others..................................................28 SECTION 11.4 Notices..........................................................................29
ii 4 SECTION 11.5 Severability.....................................................................29 SECTION 11.6 Separate Counterparts............................................................29 SECTION 11.7 Assignments; Note Insurer........................................................29 SECTION 11.8 No Petition......................................................................29 SECTION 11.9 No Recourse......................................................................30 SECTION 11.10 Headings.........................................................................30 SECTION 11.11 GOVERNING LAW....................................................................30 SECTION 11.12 Master Servicer..................................................................30 EXHIBITS Exhibit A Form of Certificate Exhibit B Form of Certificate of Trust
iii 5 TRUST AGREEMENT relating to the Advanta Mortgage Loan Trust ____-_ dated as of [Date] between ADVANTA CONDUIT RECEIVABLES, INC., a Nevada corporation as Sponsor, and [OWNER TRUSTEE], a Delaware banking corporation as Owner Trustee. ARTICLE I. Definitions SECTION 1.1 Capitalized Terms. For the purposes of this Agreement, the following terms shall have the meanings set forth below. "Accounts" shall have the meaning ascribed thereto in the Indenture. "Affiliate" shall mean with respect to any specified Person, a Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, or owns, directly or indirectly, 50% or more of, the Person specified. "Agreement" shall mean this Trust Agreement, as the same may be amended and supplemented from time to time. "Benefit Plan" shall have the meaning assigned to such term in Section 3.9. "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" means a trust certificate evidencing the beneficial ownership interest of a Certificateholder in the Trust, substantially in the form of Exhibit A attached hereto. "Certificateholder" or "Holder" shall initially mean Holding Trust, until and unless Holding Trust transfers any or all of its interest in the Certificate to any other Person and thereafter "Certificateholder" shall also mean or include such Person. "Certificate of Trust" shall mean the Certificate of Trust in the form of Exhibit B 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 maintained and the registrar appointed pursuant to Section 3.4. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, 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 [Address], Attention: Corporate Trust Administration, or at such other address as the Owner Trustee may designate by notice to the Certificateholders, the Sponsor and Holding Trust, or the principal corporate trust office of any successor Owner Trustee (the address of which the successor owner trustee will notify the Certificateholders and the Sponsor). "Definitive Certificates" shall mean Certificates issued in certificated, fully registered form. 6 "ERISA" shall have the meaning assigned to such term in Section 3.9. "Expenses" shall have the meaning assigned to such term in Section 8.2. "Holding Trust" shall mean Advanta Mortgage Holding Trust ____-_. "Indemnification Agreement" shall mean the Indemnification Agreement dated as of [Date] between the Note Insurer and "Indemnified Parties" shall have the meaning assigned to such term in Section 8.2. "Indenture" shall mean the Indenture dated as of [Date] between the Sponsor and the Trust, as the same may be amended and supplemented from time to time. "Indenture Trustee" shall initially mean [INDENTURE TRUSTEE]., in its capacity as indenture trustee, including its successors in interest, until and unless a successor Person shall have become the Indenture Trustee pursuant to the Sale and Servicing Agreement and thereafter "Indenture Trustee" shall mean such successor Person. "Instructing Party" shall have the meaning assigned to such term in Section 6.3. "Insurance Agreement" shall mean the Insurance and Indemnity Agreement dated as of [Date] among the Note Insurer, the Sponsor, the Master Servicer, the Trust, and the Indenture Trustee. "Issuer" shall mean Advanta Mortgage Loan Trust ____-_. "Master Servicer" shall mean Advanta Mortgage Corp. USA, a Delaware corporation, and its permitted successors and assigns. "Note Account" as defined in the Indenture. "Note Insurer" shall mean ______________, or its successor in interest. "Operative Documents" shall mean this Agreement, the Sale and Servicing Agreement, the Master Transfer Agreement, the Subsequent Transfer Agreements, the Note Policy, the Insurance Agreement, the Indemnification Agreement, the Indenture, and the Notes. "Originators" shall mean any entity from which the Sponsor has purchased (or, in the case of Subsequent Mortgage Loans, will purchase) Mortgage Loans, or Advanta Mortgage Corp. USA, Advanta Mortgage Corp. Midatlantic, Advanta Mortgage Corp. Midatlantic II, Advanta Mortgage Corp. Midwest, Advanta Mortgage Corp. of New Jersey, Advanta Mortgage Corp. Northeast, Advanta National Bank and Advanta Finance Corp. "Outstanding" shall have the meaning assigned to such term in the Indenture. "Owner Trustee" shall mean [OWNER TRUSTEE], a Delaware banking corporation, not in its individual capacity but solely as owner trustee under this Agreement, and any successor Owner Trustee hereunder. "Owner Trust Estate" shall mean all right, title and interest of the Trust in and to the property and rights assigned to the Trust pursuant to Article II of the Sale and Servicing Agreement, all funds on deposit from time to time in the Accounts and the Note Account and all other property of the Trust from time to time, including any rights of the Owner Trustee and the Trust pursuant to the Sale and Servicing Agreement. 2 7 "Record Date" shall mean with respect to any Payment Date, the close of business on the last Business Day immediately preceding such Payment Date, provided, that if the Certificates or Notes are in definitive form, the Record Date with respect to each Payment Date shall be the last Business Day of the calendar month immediately preceding the calendar month in which such Payment Date occurs. "Sale and Servicing Agreement" shall mean the Sale and Servicing Agreement relating to the Trust among the Trust, the Sponsor, Advanta Mortgage Corp. USA, as Master Servicer and the Indenture Trustee, dated as of [Date], as the same may be amended and supplemented from time to time. "Secretary of State" shall mean the Secretary of State of the State of Delaware. "Security Majority" means a majority by principal amount of the Noteholders so long as the Notes are Outstanding and a majority by principal amount of the Certificateholders thereafter. "Sponsor" shall mean Advanta Conduit Receivables, Inc. in its capacity as Sponsor hereunder. "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. Other Definitional Provisions. (a) Capitalized terms used herein and not otherwise defined have the meanings assigned to them in the Sale and Servicing Agreement or, if not defined therein, in the Indenture. (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 as in effect on the date of this Agreement or any such certificate or other document, as applicable. 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 to the feminine and neuter genders of such terms. 3 8 SECTION 1.2 Action by or Consent of Noteholders and Certificateholders. Whenever any provision of this Agreement refers to action to be taken, or consented to, by Noteholders or Certificateholders, such provision shall be deemed to refer to the Certificateholder or Noteholder, as the case may be, of record as of the Record Date immediately preceding the date on which such action is to be taken, or consent given, by Noteholders or Certificateholders. Solely for the purposes of any action to be taken, or consented to, by Noteholders or Certificateholders, any Note or Certificate registered in the name of the Sponsor, Holding Trust or any Affiliate thereof shall be deemed not to be outstanding; provided, however, that, solely for the purpose of determining whether the Indenture Trustee is entitled to rely upon any such action or consent, only Notes or Certificates which the Owner Trustee, or the Indenture Trustee, respectively, knows to be so owned shall be so disregarded. ARTICLE II. Organization SECTION 2.1 Name. There is hereby formed a trust to be known as "Advanta Mortgage Loan Trust ____-_", in which name the Owner Trustee may conduct the business of Trust, make and execute contracts and other instruments on behalf of the Trust and sue and be sued. 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 as the Owner Trustee may designate by written notice to the Certificateholders and the Sponsor. SECTION 2.3 Purposes and Powers. (a) The purpose of the Trust is, and the Trust shall have the power and authority, to engage in the following activities: (i) to issue the Notes pursuant to the Indenture and the Certificates pursuant to this Agreement, and to sell the Notes; (ii) with the proceeds of the sale of the Notes, to fund the Pre-Funding Account relating to the Trust and to pay the organizational, start-up and transactional expenses of the Trust and to pay the balance to the Sponsor pursuant to the Sale and Servicing Agreement; (iii) to assign, grant, transfer, pledge, mortgage and convey the Owner Trust Estate to the Indenture Trustee on behalf of the Noteholders and for the benefit of the Note Insurer 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 Indenture; (iv) to enter into and perform its obligations under the Operative Documents to which it is a party; 4 9 (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 Owner Trust Estate and the making of distributions to the Certificateholders and the Noteholders. The Trust is hereby authorized to engage in the foregoing activities. (b) The Trust shall not engage in any activity other than in connection with those described in Section 2.3(a) or other than as required or authorized by the terms of this Agreement or the Operative Documents. In addition, the Trust shall not: (i) incur any indebtedness other than the Notes issued pursuant to the Indenture (ii) engage in any dissolution, liquidation, consolidation, merger or sale of assets; (iii) amend this Trust Agreement without a confirmation from each applicable Rating Agency then rating the Notes, that such amendment would not result in the qualification, downgrade or withdrawal of the rating on the Notes; (iv) effect a transfer of any direct or indirect ownership interest in the Trust such that either (y) the transferee owns more than a 49% interest in the Trust, or (z) the transferee is an affiliate or a family member of a transferor which owned more than a 49% interest in the Borrower before such transfer may be made unless such transfer is conditioned upon the delivery of an acceptable non-consolidation opinion to the Rating Agencies concerning, as applicable, the transferee and/or their respective owners; (v) engage in any business activity in which it is not currently engaged; (vi) take any action that might cause the Trust to become insolvent; or (vii) form, or caused to be formed, any subsidiaries; (c) The Trust shall: (i) maintain books and records separate from any other person or entity; (ii) maintain its bank accounts separate from any other person or entity; (iii) not commingle its assets with those of any other person or entity and will hold all of its assets in its own name; (iv) conduct its own business in its own name; (v) maintain separate financial statements, showing its assets and liabilities separate and apart from those of any other person or entity and not have its assets listed on the financial statement of any other entity; 5 10 (vi) file its tax returns separate from those of any other entity and not file a consolidated federal income tax return with any other entity; (vii) except as set forth herein, pay its own liabilities and expenses only out of its own funds; (viii) observe all organizational formalities; (ix) enter into transactions with affiliates only where each such transaction is intrinsically fair, commercially reasonable, and on the same terms as would be available in an arm's length transaction with a person or entity that is not an affiliate; (x) pay the salaries of its own employees from its own funds; (xi) maintain a sufficient number of employees in light of its contemplated business operations; (xii) not guarantee or become obligated for the debts of any other entity or person; (xiii) not hold out its credit as being available to satisfy the obligation of any other person or entity; (xiv) not acquire the obligations or securities of its affiliates or owners, including partners, members or shareholders, as appropriate; (xv) not make loans to any other person or entity or buy or hold evidence of indebtedness issued by any other person or entity (except for cash and investment-grade securities); (xvi) allocate fairly and reasonably any overhead expenses that are shared with an affiliate, including paying for office space and services performed by any employee of any affiliate; (xvii) not pledge its asset for the benefit of any other person or entity other than with respect to the Notes; (xviii) hold itself out as a separate identity; (xix) correct any known misunderstanding regarding its separate identity; (xx) not identify itself as a division of any other person or entity; and (xxi) maintain adequate capital in light of its contemplated business operations. SECTION 2.4 Appointment of Owner Trustee. The Sponsor 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 and in the Business Trust Statute. SECTION 2.5 Initial Capital Contribution of Trust Estate. 6 11 The Sponsor 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 Sponsor, as of the date hereof, of the foregoing contribution, which shall constitute the initial Owner Trust Estate and shall be deposited in the Note Account. On or prior to the Closing Date, the Owner Trustee will also, upon receipt thereof, acknowledge on behalf of the Trust, receipt of the Mortgage Loans pursuant to the Sale and Servicing Agreement. The Sponsor shall pay the organizational expenses of the Trust as they may arise. SECTION 2.6 Declaration of Trust. The Owner Trustee hereby declares that it will 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 constitute a business trust under the Business Trust Statute and that this Agreement constitute the governing instrument of such business trust. It is the intention of the parties hereto that, solely for income tax purposes, the Trust shall be treated as a branch; provided, however, that in the event Certificates are owned by more than one Certificateholder, it is the intention of the parties hereto that, solely for income and franchise tax purposes, the Trust shall then be treated as a partnership and that, unless otherwise required by appropriate tax authorities, only after such time the Trust will file or cause to be filed annual or other necessary returns, reports and other forms consistent with the characterization of the Trust as a partnership for such tax purposes. Effective as of the date hereof, the Owner Trustee shall have all rights, powers and duties set forth herein and to the extent not inconsistent herewith, in the Business Trust Statute with respect to accomplishing the purposes of the Trust. The Owner Trustee shall file the Certificate of Trust with the Secretary of State. SECTION 2.7 Liability. No Holder shall have any personal liability for any liability or obligation of the Trust. SECTION 2.8 Title to Trust Property. (a) 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 Trust Property. The Certificateholders shall be entitled to receive distributions with respect to their undivided ownership interest therein only in accordance with Article IX. No transfer, by operation of law or otherwise, of any right, title or interest by any Certificateholder of its ownership interest in the Owner Trust Estate 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 Trust Property. SECTION 2.9 Situs of Trust. The Trust will 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. Payments will 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 Trust shall not have any employees in any state other than Delaware; provided, however, that nothing herein shall restrict or prohibit the Owner Trustee, the Master Servicer or any agent of the Trust from having employees within or without the State of Delaware. The only office of the Trust will be at the Corporate Trust Office in Delaware. 7 12 SECTION 2.10 Representations and Warranties of the Sponsor. The Sponsor makes the following representations and warranties on which the Owner Trustee relies in accepting the Owner Trust Estate in trust and issuing the Certificates and upon which the Note Insurer relies in issuing the Note Policy. (a) The Sponsor is duly organized and validly existing as a Delaware corporation 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 and is proposed to be conducted pursuant to this Agreement and the Operative Documents; (b) It 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 its property, the conduct of its business and the performance of its obligations under this Agreement and the Operative Documents requires such qualification; (c) The Sponsor has the corporate power and authority to execute and deliver this Agreement and to carry out its terms; the Sponsor has full power and authority to sell and assign the property to be sold and assigned to and deposited with the Trust and the Sponsor has duly authorized such sale and assignment and deposit to the Trust by all necessary corporate action; and the execution, delivery and performance of this Agreement has been duly authorized by the Sponsor by all necessary corporate action. The Sponsor has duly executed this Agreement and this Agreement constitutes a legal, valid and binding obligation of the Sponsor enforceable against the Sponsor, in accordance with its terms. (d) To the best knowledge of the Sponsor, no consent, license, approval or authorization or registration or declaration with, any Person or with any governmental authority, bureau or agency is required in connection with the execution, delivery or performance of this Agreement and the Operative Documents, except for such as have been obtained, effected or made; (e) The consummation of the transactions contemplated by this Agreement 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 certificate of incorporation or by-laws of the Sponsor, or any material indenture, agreement or other instrument to which the Sponsor 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 Sponsor's knowledge, any order, rule or regulation applicable to the Sponsor of any court or of any Federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Sponsor or its properties; and (f) There are no proceedings or investigations pending or, to its knowledge threatened against it before any court, regulatory body, administrative agency or other tribunal or governmental instrumentality having jurisdiction over it or its properties (A) asserting the invalidity of this Agreement or any of the Operative Documents, (B) seeking to prevent the issuance of the Certificates or the Notes or the consummation of any of the transactions contemplated by this Agreement or any of the Operative Documents, (C) seeking any determination or ruling that might materially and adversely affect its performance of its obligations under, or the validity or enforceability of, this Agreement or any of the Operative Documents, or (D) seeking to adversely affect the federal income tax or other federal, state or local tax attributes of the Notes or the Certificates. SECTION 2.11 Federal Income Tax Allocations. 8 13 In the event that the Trust is treated as a partnership for Federal income tax purposes, net income of the Trust for any month as determined for Federal income tax purposes (and each item of income, gain, loss, credit and deduction entering into the computation thereof) shall be allocated to the extent of available net income, among the Certificateholders as of the first Record Date following the end of such month, in proportion to their ownership percentage of principal amount of Certificates on such date. Net losses of the Trust, if any, for any month as determined for Federal income tax purposes (and each item of income, gain, loss, credit and deduction entering into the computation thereof) shall be allocated among the Certificateholders as of the Record Date in proportion to their ownership percentage of principal amount of Certificates on such Record Date until the principal balance of the Certificates is reduced to zero. The Sponsor, as agent on behalf of the Certificateholders, is authorized to modify the allocations in this paragraph if necessary or appropriate, in its sole discretion, for the allocations to fairly reflect the economic income, gain or loss to the Certificateholders, or as otherwise required by the Code. SECTION 2.12 Covenants of the Sponsor. The Sponsor agrees and covenants for the benefit of each Certificateholder, the Note Insurer and the Owner Trustee, during the term of this Agreement, and to the fullest extent permitted by applicable law, that: (a) it shall not create, incur or suffer to exist any indebtedness or engage in any business, except, in each case, as permitted by its certificate of incorporation and the Operative Documents; (b) it shall not, for any reason, institute proceedings for the Trust to be adjudicated a bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency proceedings against The Trust, or file a petition seeking or consenting to reorganization or relief under any applicable federal or state law relating to the bankruptcy of The Trust, or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Trust or a substantial part of the property of the Trust or cause or permit the Trust to make any assignment for the benefit of creditors, or admit in writing the inability of the Trust to pay its debts generally as they become due, or declare or effect a moratorium on the debt of the Trust or take any action in furtherance of any such action; (c) it shall obtain from each counterparty to each Operative Document to which it or the Trust is a party and each other agreement entered into on or after the date hereof to which it or the Trust is a party, an agreement by each such counterparty that prior to the occurrence of the event specified in Section 9.1(e) such counterparty shall not institute against, or join any other Person in instituting against, it or The Trust, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceedings under the laws of the United States or any state of the United States; and (d) it shall not, for any reason, withdraw or attempt to withdraw from this Agreement, dissolve, institute proceedings for it to be adjudicated a bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency proceedings against it, or file a petition seeking or consenting to reorganization or relief under any applicable federal or state law relating to bankruptcy, or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of it or a substantial part of its property, or make any assignment for the benefit of creditors, or admit in writing its inability to pay its debts generally as they become due, or declare or effect a moratorium on its debt or take any action in furtherance of any such action. SECTION 2.13 Covenants of the Certificateholders. 9 14 Each Certificateholder agrees: (a) to be bound by the terms and conditions of the Certificates and of this Agreement, including any supplements or amendments hereto and to perform the obligations of a Certificateholder as set forth therein or herein, in all respects as if it were a signatory hereto. This undertaking is made for the benefit of The Trust, the Owner Trustee, the Note Insurer and all other Certificateholders present and future; (b) to hereby appoint the Sponsor as such Certificateholder's agent and attorney-in-fact to sign any federal income tax information return filed on behalf of The Trust, if any, and agree that, if requested by The Trust, it will sign such federal income tax information return in its capacity as holder of an interest in the Trust. Each Certificateholder also hereby agrees that in its tax returns it will not take any position inconsistent with those taken in any tax returns that may be filed by the Trust; (c) if such Certificateholder is other than an individual or other entity holding its Certificate through a broker who reports securities sales on Form 1099-B, to notify the Owner Trustee of any transfer by it of a Certificate in a taxable sale or exchange, within 30 days of the date of the transfer; and (d) until the completion of the events specified in Section 9.1(e), not to, for any reason, institute proceedings for the Trust or the Sponsor to be adjudicated a bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency proceedings against The Trust, or file a petition seeking or consenting to reorganization or relief under any applicable federal or state law relating to bankruptcy, or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Sponsor or the Trust or a substantial part of its property, or cause or permit the Sponsor or the Trust to make any assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due, or declare or effect a moratorium on its debt or take any action in furtherance of any such action. Except as provided in this Section 2.13, and notwithstanding any other provision to the contrary in this Agreement, no Certificateholder shall be deemed to have adopted, be bound by, or succeed in any way to any representation by, or duty of indemnification by or any other duty of, the Sponsor, including those contained in Sections 2.10, 2.12, 8.2 or elsewhere herein. SECTION 2.14 Investment Company. Neither the Sponsor nor any Certificateholders shall take any action that would cause the Trust to become an "Investment Company" required to register under the Investment Company Act of 1940, as amended. ARTICLE III. Certificates and Transfer of Interests SECTION 3.1 Initial Ownership. Upon the formation of the Trust by the contribution by the Sponsor pursuant to Section 2.5, the Owner Trustee, contemporaneously therewith, having full power, authority, and authorization to do so, has executed, authenticated, dated, issued, and delivered, in the name and on behalf of The Trust, to the Sponsor, one or more Certificates representing in the aggregate a 100% interest in The Trust, and the Sponsor shall direct that such Certificate(s) on the Certificate Register be registered in the name of Holding Trust. Accordingly, Holding Trust shall initially be the sole beneficiary of the Trust. Such 10 15 Certificate(s) are duly authorized, validly issued, and entitled to the benefits of this Agreement. For so long as Holding Trust shall own such 100% interest in The Trust, Holding Trust shall be the sole beneficial owner of the Trust. SECTION 3.2 The Certificates. The Certificates shall be issued in denominations of $1,000 and integral multiples of $1,000 in excess thereof. The Certificates shall be executed on behalf of the Trust by manual or facsimile signature of an authorized officer 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 validly issued and entitled to the benefit of this Agreement, 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. Subject to Section 2.13(d), 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 due registration of such Certificate in such transferee's name pursuant to Section 3.4. SECTION 3.3 Authentication of Certificates. Concurrently with the initial sale of the Mortgage Loans to the Trust pursuant to the Sale and Servicing Agreement, the Owner Trustee shall cause each Certificate, to be executed on behalf of The Trust, authenticated and delivered to or upon the written order of the Sponsor, signed by its chairman of the board, its president or any vice president, its treasurer or any assistant treasurer without further corporate action by the Sponsor, in authorized denominations. 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 A, executed by the Owner Trustee, by manual 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. SECTION 3.4 Registration of Transfer and Exchange of Certificates. The Certificate Registrar shall keep or cause to be kept, at the office or agency maintained pursuant to Section 3.8, a Certificate Register in which, subject to such reasonable regulations as it may prescribe, the Owner Trustee shall provide for the registration of Certificates and of transfers and exchanges of Certificates as herein provided. The Owner Trustee shall be the initial Certificate Registrar. In furtherance of and not in limitation of the foregoing, each Certificateholder, by acceptance of its Certificate, specifically acknowledges that it has no right to or interest in any monies at any time held in the Pre-Funding Account prior to the release of such monies pursuant to Section 8.7(b)(vii) of the Indenture (other than Pre-Funding Earnings), such monies being held in trust for the benefit of the Noteholders and the Note Insurer. Notwithstanding the foregoing, in the event that it is ever determined that the monies held in the Pre-Funding Account constitute a pledge of collateral, then the provisions of the Sale and Servicing Agreement shall be considered to constitute a security agreement and the Sponsor and the Certificateholders hereby grant to the Indenture Trustee and the Note Insurer a first priority perfected security interest in such amounts. In addition, each Certificateholder, by acceptance of its Certificate, hereby appoints the Sponsor as its agent to pledge a first priority perfected security interest in the Pre-Funding Account, and any amounts held therein from time to time to the Indenture Trustee and the Note Insurer and agrees to execute and deliver such instruments of conveyance, assignment, grant, confirmation, etc., as well as any financing statements, in each case as the Note Insurer shall consider reasonably necessary in order to perfect the Indenture Trustee's security interest in the Mortgage Loans. 11 16 SECTION 3.5 Mutilated, Destroyed, Lost or Stolen Certificates. If (a) any mutilated Certificate shall be surrendered to the Certificate Registrar, or if the Certificate Registrar shall receive evidence to its satisfaction of the destruction, loss or theft of any Certificate and (b) there shall be delivered to the Certificate Registrar, the Owner Trustee and the Note Insurer such security or indemnity as may be required by them to save each of them harmless, then in the absence of notice that such Certificate shall have been acquired by a bona fide purchaser, the Owner Trustee on behalf of the Trust shall execute and the Owner Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like class, tenor and denomination. In connection with the issuance of any new Certificate under this Section, the Owner Trustee or the Certificate Registrar may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Certificate issued pursuant to this Section shall constitute conclusive evidence of an ownership interest in The Trust, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. SECTION 3.6 Persons Deemed Certificateholders. Except as otherwise stated herein, every Person by virtue of becoming a Certificateholder in accordance with this Agreement and the rules and regulations of the Certificate Registrar shall be deemed to be bound by the terms of this Agreement. Prior to due presentation of a Certificate for registration of transfer, the Owner Trustee, the Certificate Registrar and the Note Insurer and any agent of the Owner Trustee, the Certificate Registrar and the Note Insurer, may treat the Person in whose name any Certificate shall be registered in the Certificate Register as the owner of such Certificate for the purpose of receiving distributions pursuant to the Sale and Servicing Agreement and the Indenture and for all other purposes whatsoever, and none of the Owner Trustee, the Certificate Registrar or the Note Insurer nor any agent of the Owner Trustee, the Certificate Registrar or the Note Insurer shall be bound by any notice to the contrary. SECTION 3.7 Access to List of Certificateholders' Names and Addresses. The Owner Trustee shall furnish or cause to be furnished to the Master Servicer, the Sponsor or the Note Insurer, within 15 days after receipt by the Owner Trustee of a request therefor from such Person in writing, a list, of the names and addresses of the Certificateholders as of the most recent Record Date. If three or more Certificateholders or one or more Certificateholders evidencing not less than 25% by Percentage Interest 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 Sponsor, the Master Servicer, the Owner Trustee or the Note Insurer or any agent thereof accountable by reason of the disclosure of its name and address, regardless of the source from which such information was derived. SECTION 3.8 Maintenance of Office or Agency. The Owner Trustee shall maintain in Wilmington, Delaware 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 its Corporate Trust Office for such purposes. The Owner Trustee shall give prompt written notice to the Sponsor, the Certificateholders and the Note Insurer of any change in the location of the Certificate Register or any such office or agency. 12 17 SECTION 3.9 ERISA. The Certificates may not be acquired by or for the account 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 (as defined in Section 4975(e)(1) of the Code) that is subject to Section 4975 of the Code, or (iii) any entity whose underlying assets include assets of a plan described in (i) or (ii) plan assets by reason of a plan's investment in the entity (each, a "Benefit Plan"). By accepting and holding its beneficial ownership interest in its Certificate, the Holder thereof shall be deemed to have represented and warranted that it is not a Benefit Plan. SECTION 3.10 Restrictions on Transfer of Certificates. (a) The Certificates shall be assigned, transferred, exchanged, pledged, financed, hypothecated or otherwise conveyed (collectively, for purposes of this Section 3.10 and any other Section referring to the Certificates, "transferred" or a "transfer") only in accordance with this Section 3.10. (b) No transfer of a Certificate shall be made unless such transfer is exempt from the registration requirements of the Securities Act of 1933, as amended, and any applicable state securities laws or is made in accordance with said Act and laws. Except for the initial issuance of the Certificate to Holding Trust and its initial transferee, the Owner Trustee shall require (i) the transferee to execute an investment letter acceptable to and in form and substance satisfactory to the Owner Trustee and the Note Insurer certifying to the Owner Trustee and the Note Insurer the facts surrounding such transfer, which investment letter shall not be an expense of the Owner Trustee or the Note Insurer or (ii) if the investment letter is not delivered, a written Opinion of Counsel acceptable to and in form and substance satisfactory to the Owner Trustee, the Note Insurer and the Sponsor that such transfer may be made pursuant to an exemption, describing the applicable exemption and the basis therefor from said Act or is being made pursuant to said Act, which Opinion of Counsel shall not be an expense of the Owner Trustee, the Note Insurer or the Sponsor. The Certificateholder desiring to effect such transfer shall, and does hereby agree to, indemnify the Sponsor, the Owner Trustee and the Note Insurer against any liability that may result if the transfer is not so exempt or is not made in accordance with such federal and state laws. (c) The Certificates and any interest therein shall not be transferred except upon satisfaction of the following conditions precedent: (i) the Person that acquires a Certificate shall (A) be organized and existing under the laws of the United States of America or any state thereof or the District of Columbia; (B) expressly assume, by an agreement supplemental hereto, executed and delivered to the Owner Trustee, the performance of every covenant and obligation of the Sponsor hereunder except for the covenants and obligations contained in Sections 3.1, 3.3, 3.4 of the Sale and Servicing Agreement, and Sections 2.10, 2.12 or 8.2 of this Agreement; (ii) the person that acquires a Certificate shall deliver to the Owner Trustee and the Note Insurer an Officer's Certificate stating that such transfer and such supplemental agreement comply with this Section 3.10 and that all conditions precedent provided by this subsection 3.10 have been complied with and an Opinion of Counsel stating that such transfer and such supplemental agreement comply with this Section 3.10 and that all conditions precedent provided by this Section 3.10 have been complied with, and the Owner Trustee may conclusively rely on such Officer's Certificate, shall have no duty to make inquiries with regard to the matters set forth therein and shall incur no liability in so relying; (iii) the person that acquires a Certificate shall deliver to the Owner Trustee and the Note Insurer a letter from each Rating Agency confirming that its rating of the Notes, after giving effect to such transfer, will not be reduced or withdrawn without regard to the Note Policy; (iv) the person that acquires a Certificate shall deliver to the Owner Trustee and the Note Insurer an Opinion of Counsel to the effect that (a) such transfer will not adversely affect the treatment of the Notes after such transfer as debt for federal and applicable state income tax purposes, (b) such transfer will not result in the Trust being subject to tax at the entity level for federal or applicable state tax 13 18 purposes, (c) such transfer will not have any material adverse impact on the federal or applicable state income taxation of a Noteholder and (d) such transfer will not result in the arrangement created by this Agreement or any "portion" of the Trust, being treated as a taxable mortgage pool as defined in Section 7701(i) of the Code; (v) all filings and other actions necessary to continue the perfection of the interest of the Trust in the Mortgage Loans and the other property conveyed hereunder shall have been taken or made. Notwithstanding the foregoing, the requirement set forth in subclause (i)(A) of this Section 3.10 shall not apply in the event the Owner Trustee and the Note Insurer shall have received a letter from each Rating Agency confirming that its rating of the Notes, after giving effect to a proposed transfer to a Person that does not meet the requirement set forth in subclause (i)(A), shall not be reduced or withdrawn without regard to the Note Policy. Notwithstanding the foregoing, the requirements set forth in this paragraph (b) shall not apply to the initial issuance of the Certificates to the Holding Trust and its initial transferee. (d) Except for the initial issuance of the Certificates to Holding Trust and its initial transferee, no transfer of a Certificate shall be made unless the Owner Trustee shall have received a representation letter from the transferee of such Certificate, acceptable to and in form and substance satisfactory to the Owner Trustee, to the effect that such transferee is not a Benefit Plan and is not acting on behalf of or using the assets of a Benefit Plan, which representation letter shall not be an expense of the Owner Trustee. (e) No transfer or pledge of the Certificates shall result in more than 98 other holders of Certificates. SECTION 3.11 Acceptance of Obligations. The Sponsor agrees to be bound by and to perform all the duties of the Sponsor set forth in this Agreement. SECTION 3.12 Payments on Certificates. The Certificateholders will be entitled to distributions on each Payment Date, as provided in the Indenture. ARTICLE IV. Voting Rights and Other Actions SECTION 4.1 Prior Notice to Certificateholders with Respect to Certain Matters. With respect to the following matters, the Owner Trustee shall not take action unless at least 30 days before the taking of such action, the Owner Trustee shall have notified the Certificateholders in writing of the proposed action and the Certificateholders shall not have notified the Owner Trustee in writing prior to the 30th day after such notice is given that such Certificateholders have withheld consent or provided alternative direction: (a) the election by the Trust to file an amendment to the Certificate of Trust (unless such amendment is required to be filed under the Business Trust Statute or unless such amendment would not materially and adversely affect the interests of the Holders); (b) the amendment of the Indenture by a supplemental indenture in circumstances where the consent of any Noteholder is required; 14 19 (c) the amendment of the Indenture by a supplemental indenture in circumstances where the consent of any Noteholder is not required and such amendment materially adversely affects the interest of the Certificateholders; or (d) except pursuant to Section 7.14 of the Sale and Servicing Agreement, the amendment, change or modification of the Sale and Servicing Agreement, except to cure any ambiguity or defect or to amend or supplement any provision in a manner that would not materially adversely affect the interests of the Certificateholders. The Owner Trustee shall notify the Certificateholders in writing of any appointment of a successor Note Registrar, or Certificate Registrar within five Business Days thereof. SECTION 4.2 Action by Certificateholders with Respect to Certain Matters. (a) The Owner Trustee shall not have the power, except upon the direction of the Note Insurer or in the event that a Note Insurer Default shall have occurred and is continuing, the Security Majority in accordance with the Operative Documents, to (i) remove the Master Servicer under the Sale and Servicing Agreement or (ii) except as expressly provided in the Operative Documents, sell the Mortgage Loans after the termination of the Indenture. The Owner Trustee shall take the actions referred to in the preceding sentence only upon written instructions signed by the Note Insurer or the Noteholders, as the case may be, and the furnishing of indemnification satisfactory to the Owner Trustee by the Certificateholders. (b) Upon the written request of any Certificateholder (a "Proposer"), the Owner Trustee shall distribute promptly to all Certificateholders any request for action or consent of Certificateholders submitted by such Proposer. The Owner Trustee shall provide a reasonable method for collecting responses to such request and shall tabulate and report the results thereof to the Certificateholders and the Sponsor. The Owner Trustee shall have no responsibility or duty to determine if any such proposed action or consent is permitted under the terms of this Agreement or applicable law. SECTION 4.3 Action by Certificateholders with Respect to Bankruptcy. Until one year and one day following the day on which the Notes have been paid in full, the Owner Trustee shall not have the power to, and shall not, commence any proceeding or other actions contemplated by Section 2.12(b) relating to the Trust without the prior written consent of the Note Insurer (unless a Note Insurer Default shall have occurred and is continuing) or upon a Note Insurer Default, the Security Majority. Until one year and one day following the day on which the Notes have been paid in full, all amounts due to the Note Insurer under the Insurance Agreement have been paid in full, the Note Policy has terminated and the Indenture Trustee has surrendered the Note Policy to the Note Insurer, the Owner Trustee shall not have the power to, and shall not, commence any proceeding or other actions contemplated by Section 2.12(b) relating to the Trust without the prior written consent of all of the Certificateholders 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. SECTION 4.4 Restrictions on Certificateholders' Power. (a) 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 or otherwise contrary to law nor shall the Owner Trustee be obligated to follow any such direction, if given. 15 20 (b) No Certificateholder (other than Holding Trust or its initial transferee) shall have any right by virtue or by availing itself of any provisions of this Agreement to institute any suit, action, or proceeding in equity or at law upon or under or with respect to this Agreement or any Operative Document, unless the Certificateholders are the Instructing Party pursuant to Section 6.3 and unless a Certificateholder previously shall have given to the Owner Trustee a written notice of default and of the continuance thereof, as provided in this Agreement, and also unless Certificateholders evidencing not less than 25% by Percentage Interest shall have made written request upon the Owner Trustee to institute such action, suit or proceeding in its own name as Owner Trustee under this Agreement and shall have offered to the Owner Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Owner Trustee, for 30 days after its receipt of such notice, request, and offer of indemnity, shall have neglected or refused to institute any such action, suit, or proceeding, and during such 30-day period no request or waiver inconsistent with such written request has been given to the Owner Trustee pursuant to and in compliance with this Section or Section 6.3; it being understood and intended, and being expressly covenanted by each Certificateholder with every other Certificateholder and the Owner Trustee, that no one or more Holders of Certificates shall have any right in any manner whatever by virtue or by availing itself or themselves of any provisions of this Agreement to affect, disturb, or prejudice the rights of the Holders of any other of the Certificates, or to obtain or seek to obtain priority over or preference to any other such Holder, or to enforce any right under this Agreement, except in the manner provided in this Agreement and for the equal, ratable, and common benefit of all Certificateholders. For the protection and enforcement of the provisions of this Section 4.4, each and every Certificateholder and the Owner Trustee shall be entitled to such relief as can be given either at law or in equity. SECTION 4.5 Majority Control. No Certificateholder shall have any right to vote or in any manner otherwise control the operation and management of the Trust except as expressly provided in this Agreement. Except as otherwise expressly provided herein, any action that may be taken by the Certificateholders under this Agreement may be taken by the Holders of Certificates evidencing not less than a majority interest in the Trust. Except as otherwise expressly provided herein, any written notice of the Certificateholders delivered pursuant to this Agreement shall be effective if signed by Certificateholders evidencing not less than a majority interest in the Trust at the time of the delivery of such notice. SECTION 4.6 Rights of Note Insurer. Notwithstanding anything to the contrary in the Operative Documents, without the prior written consent of the Note Insurer (or if a Note Insurer Default shall have occurred and is continuing, the Security Majority) the Owner Trustee shall not (i) remove the Master Servicer, (ii) initiate any claim, suit or proceeding by the Trust or compromise any claim, suit or proceeding brought by or against The Trust, other than with respect to the enforcement of any Mortgage Loan or any rights of the Trust thereunder, (iii) authorize the merger or consolidation of the Trust with or into any other business trust or other entity (other than in accordance with Section 3.10 of the Indenture), (iv) amend the Certificate of Trust or (v) amend this Agreement in accordance with Section 11.1 of this Agreement. ARTICLE V. Certain Duties SECTION 5.1 Accounting and Records to the Noteholders, Certificateholders, the Internal Revenue Service and Others. 16 21 The Sponsor shall (a) maintain (or cause to be maintained) the books of the Trust on a calendar year basis on the accrual method of accounting, including, without limitation, the allocations of net income under Section 2.11 hereof, (b) deliver (or cause to be delivered) to each Certificateholder, as may be required by the Code and applicable Treasury Regulations, such information as may be required (including Schedule K-1, if applicable) to enable each Certificateholder to prepare its Federal and state income tax returns, (c) file or cause to be filed, if necessary, such tax returns relating to the Trust (including a partnership information return, Form 1065), and direct the Owner Trustee or the Master Servicer, as the case may be, to 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 branch, or if applicable, as a partnership, for Federal income tax purposes and (d) collect or cause to be collected any withholding tax as described in and in accordance with Section 6.1(a)(ii) of the Sale and Servicing Agreement with respect to income or distributions to Certificateholders and the appropriate forms relating thereto. The Owner Trustee or the Master Servicer, as the case may be, shall make all elections pursuant to this Section as directed in writing by the Sponsor. The Owner Trustee shall sign all tax information returns presented to it in final execution form, if any, filed pursuant to this Section 5.1 and any other returns as may be required by law, and in doing so shall rely entirely upon, and shall have no liability for information provided by, or calculations provided by, the Sponsor or the Master Servicer. The Owner Trustee 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 Owner Trustee shall not make the election provided under Section 754 of the Code. SECTION 5.2 Signature on Returns; Tax Matters Partner. (a) Notwithstanding the provisions of Section 5.1 and in the event that the Trust is characterized as a partnership, the Owner Trustee shall sign on behalf of the Trust the tax returns of the Trust presented to it in final execution form, unless applicable law requires a Certificateholder to sign such documents, in which case such documents shall be signed by the Sponsor, as agent, on behalf of the Certificateholders. (b) In the event that the Trust is characterized as a partnership, each Certificateholder shall be the "tax matters partner" of the Trust pursuant to the Code. ARTICLE VI. Authority and Duties of Owner Trustee SECTION 6.1 General Authority. The Owner Trustee is authorized and directed to execute and deliver the Operative Documents to which the Trust is named as a party and each certificate or other document attached as an exhibit to or contemplated by the Operative Documents to which the Trust is named as a party and any amendment thereto, in each case, in such form as the Sponsor 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 Notes in the aggregate principal amount of $____________. 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. The Owner Trustee is further authorized from time to time to take such action as the Instructing Party recommends with respect to the Operative Documents so long as such activities are consistent with the terms of the Operative Documents. SECTION 6.2 General Duties. 17 22 It shall be the duty of the Owner Trustee to discharge (or cause to be discharged) all of its responsibilities pursuant to the terms of this Agreement and to administer the Trust in the interest of the Holders, subject to the Operative Documents and in accordance with the provisions of this Agreement. Notwithstanding the foregoing, the Owner Trustee shall be deemed to have discharged its duties and responsibilities hereunder and under the Operative Documents to the extent the Master Servicer has agreed in the Sale and Servicing Agreement to perform any act or to discharge any duty of the Trust or the Owner Trustee hereunder or under any Operative Document, and the Owner Trustee shall not be liable for the default or failure of the Master Servicer to carry out its obligations under the Sale and Servicing Agreement. SECTION 6.3 Action upon Instruction. (a) Subject to Article IV, the Note Insurer (so long as a Note Insurer Default shall not have occurred and be continuing) or the Certificateholders (if a Note Insurer Default shall have occurred and be continuing) (the "Instructing Party") shall have the exclusive right to direct the actions of the Owner Trustee in the management of The Trust, so long as such instructions are not inconsistent with the express terms set forth herein or in any Operative Document. The Instructing Party shall not instruct the Owner Trustee in a manner inconsistent with this Agreement or the Operative Documents. (b) 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, the Owner Trustee shall promptly give notice (in such form as shall be appropriate under the circumstances) to the Instructing Party 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 written instruction of the Instructing Party 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 instruction 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, not inconsistent with this Agreement or the Operative Documents, as it shall deem to be in the best interests of the Certificateholders, and shall have no liability to any Person for 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 Instructing Party 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 interests 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 or in Instructions. 18 23 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 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 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 (solely in its individual capacity) and that are not related to the ownership or the administration of the Owner Trust Estate. 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 becoming taxable as a corporation or a publicly traded partnership for Federal income tax purposes. The Certificateholders shall not direct the Owner Trustee to take action that would violate the provisions of this Section. ARTICLE VII. Concerning the Owner Trustee SECTION 7.1 Acceptance of Trust and Duties. The Owner Trustee accepts the trust hereby created and agrees to perform its duties hereunder with respect to such trust but only upon the terms of this Agreement. The Owner Trustee also agrees to disburse all monies actually received by it constituting part of the Owner Trust Estate upon the terms of the Operative Documents and this Agreement. The Owner Trustee shall not be answerable or accountable hereunder or under any Operative Document under any circumstances, except (i) for its own willful misconduct, bad faith or gross negligence, (ii) in the case of the inaccuracy of any representation or warranty contained in Section 7.3 expressly made by the Owner Trustee in its individual capacity, (iii) for liabilities arising from the failure of the Owner Trustee to perform obligations expressly undertaken by it in the last sentence of Section 6.4 hereof, (iv) for any investments issued by the Owner Trustee or any branch or affiliate thereof in its commercial capacity or (v) for taxes, fees or other charges on, based on or measured by, any fees, commissions or compensation received by the Owner Trustee. In particular, but not by way of limitation (and subject to the exceptions set forth in the preceding sentence): 19 24 (a) the Owner Trustee shall not be liable for any error of judgment, not constituting gross negligence, made by a Responsible Officer 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 if such action or omission is in accordance with the instructions of the Instructing Party, the Sponsor, the Master Servicer or any Certificateholder pursuant to the terms hereof; (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; (d) under no circumstances shall the Owner Trustee be liable for indebtedness evidenced by or arising under any of the Operative Documents, including the principal of and interest on the Notes; (e) the Owner Trustee shall not be responsible for or in respect of the validity or sufficiency of this Agreement or for the due execution hereof by the Sponsor 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, other than the certificate of authentication on the Certificates, and the Owner Trustee shall in no event assume or incur any liability, duty or obligation to the Sponsor, the Note Insurer, Indenture Trustee, 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 Sponsor, the Note Insurer, the Indenture Trustee, the Trust, or the Master Servicer under any of the Operative Documents or otherwise and the Owner Trustee shall have no obligation or liability to perform the obligations under this Agreement or the Operative Documents that are required to be performed by the Sponsor under this Agreement, by the Indenture Trustee under the Indenture or the Master Servicer under the Sale and Servicing Agreement; and (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 or any Operative Document, at the request, order or direction of the Instructing Party or any of the Certificateholders, unless such Instructing Party or 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, bad faith or willful misconduct in the performance of any such act. SECTION 7.2 Furnishing of Documents. The Owner Trustee shall furnish 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. SECTION 7.3 Representations and Warranties. The Owner Trustee hereby represents and warrants, in its individual capacity, to the Sponsor and the Holders (which shall have relied on such representations and warranties in issuing the Note Policy), that: 20 25 (a) It is a Delaware banking corporation, duly organized and validly existing in good standing under the laws of the State of Delaware. It has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement. (b) It has taken all corporate action necessary to authorize the execution and delivery by it of this Agreement, and this Agreement will be executed and delivered by one of its officers who is duly authorized to execute and deliver this Agreement on its behalf. (c) Neither the execution nor the delivery by it of this Agreement, nor the consummation by it of the transactions contemplated hereby nor compliance by it with any of the terms or provisions hereof will contravene any federal or Delaware state law, governmental rule or regulation governing the banking or trust powers of the Owner Trustee or any judgment or order binding on it, or constitute any default under its charter documents or by-laws or any indenture, mortgage, contract, agreement or instrument to which it is a party or by which any of its properties may be bound. 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, bond or other document or paper believed by it to be genuine and believed by it to be signed by the proper 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, secretary 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 trusts 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 or attorneys pursuant to agreements entered into with any of them, and (ii) may consult with counsel, accountants and other skilled persons 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 written opinion or advice of any such counsel, accountants or other such persons and according to such opinion not contrary to this Agreement or any Operative Document. SECTION 7.5 Not Acting in Individual Capacity. Except as provided in this Article VII, in accepting the trusts hereby created [OWNER TRUSTEE] 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 Owner Trust Estate for payment or satisfaction thereof. SECTION 7.6 Owner Trustee Not Liable for Certificates or Mortgage Loans. The recitals contained herein and in the Certificates (other than the signature and countersignature of the Owner Trustee on the Certificates) shall be taken as the statements of the Sponsor and the Owner Trustee assumes no responsibility for the correctness thereof. The Owner Trustee makes no representations as to the validity or sufficiency of this Agreement, of any Operative Document or of the Certificates (other than the signature and countersignature of the Owner Trustee on the Certificates) or the Notes, or of any Mortgage Loan or related documents. The Owner Trustee shall at no time have any 21 26 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 or the maintenance of any such perfection and priority, or for or with respect to the sufficiency of the Owner Trust Estate or its ability to generate the payments to be distributed to Certificateholders under this Agreement or the Noteholders under the Indenture, including, without limitation: the existence, condition and ownership of any Mortgage Loan; 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 Sponsor, the Master Servicer or any other Person 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 or the Master Servicer or any Sub-Servicer taken in the name of the Owner Trustee. SECTION 7.7 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 Sponsor, the Indenture Trustee and the Master Servicer in banking transactions with the same rights as it would have if it were not Owner Trustee. SECTION 7.8 Payments from Owner Trust Estate. All payments to be made by the Owner Trustee under this Agreement or any of the Operative Documents to which the Trust or the Owner Trustee is a party shall be made only from the income and proceeds of the Owner Trust Estate and only to the extent that the Trust shall have received income or proceeds from the Owner Trust Estate to make such payments in accordance with the terms hereof. [OWNER TRUSTEE], or any successor thereto, in its individual capacity, shall not be liable for any amounts payable under this Agreement or any of the Operative Documents to which the Trust or the Owner Trustee is a party. SECTION 7.9 Doing Business in Other Jurisdictions. Notwithstanding anything contained to the contrary, neither [OWNER TRUSTEE] or any successor thereto, nor the Owner Trustee shall be required to take any action in any jurisdiction other than in the State of Delaware if the taking of such action will, even after the appointment of a co-trustee or separate trustee in accordance with Section 10.5 hereof, (i) require the consent or approval or authorization or order of or the giving of notice to, or the registration with or the taking of any other action in respect of, any state or other governmental authority or agency of any jurisdiction other than the State of Delaware ; (ii) result in any fee, tax or other governmental charge under the laws of the State of Delaware becoming payable by [OWNER TRUSTEE] (or any successor thereto); or (iii) subject [OWNER TRUSTEE] (or any successor thereto) to personal jurisdiction in any jurisdiction other than the State of Delaware for causes of action arising from acts unrelated to the consummation of the transactions by [OWNER TRUSTEE] (or any successor thereto) or the Owner Trustee, as the case may be, contemplated hereby. ARTICLE VIII. Compensation of Owner Trustee SECTION 8.1 Owner Trustee's Fees and Expenses. 22 27 The Owner Trustee shall receive as compensation for its services hereunder such fees as have been separately agreed upon before the date hereof between the Sponsor and the Owner Trustee, and the Owner Trustee shall be entitled to be reimbursed by the Sponsor for its other reasonable expenses hereunder, including the reasonable compensation, expenses and disbursements of such agents, representatives, experts and counsel as the Owner Trustee may employ in connection with the exercise and performance of its rights and its duties hereunder and under the Operative Documents. SECTION 8.2 Indemnification. The Sponsor shall be liable as primary obligor for, and shall indemnify the Owner Trustee (in its individual and trust capacities) and its officers, directors, 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 (in its trust or individual capacities) 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 Owner Trust Estate or the action or inaction of the Owner Trustee hereunder, except only that the Sponsor shall not be liable for or required to indemnify the Owner Trustee from and against Expenses arising or resulting from any of the matters described in the third sentence of Section 7.1. The indemnities contained in this Section and the rights under Section 8.1 shall survive the resignation or termination of the Owner Trustee or the termination of this Agreement. In any event of any claim, action or proceeding for which indemnity will be sought pursuant to this Section, the Owner Trustee's choice of legal counsel shall be subject to the approval of the Sponsor which approval shall not be unreasonably withheld. 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. SECTION 8.4 Non-recourse Obligations. Notwithstanding anything in this Agreement or any Operative Document, the Owner Trustee agrees in its individual capacity and in its capacity as Owner Trustee for the Trust that all obligations of the Trust to the Owner Trustee individually or as Owner Trustee for the Trust shall be recourse to the Owner Trust Estate only and specifically shall not be recourse to the assets of any Certificateholder. ARTICLE IX. Termination of Trust Agreement SECTION 9.1 Termination of Trust Agreement. (a) This Agreement and the Trust shall terminate and be of no further force or effect upon the later of (i) the maturity or other liquidation of the last Mortgage Loan (including the redemption by the Majority Certificateholders at its option of the corpus of the Trust as described in Section 10.1(b) of the Indenture) and the subsequent distribution of amounts in respect of such Mortgage Loans as provided in the Operative Documents or (ii) the payment to Certificateholders of all amounts required to be paid to them pursuant to this Agreement and the payment to the Note Insurer of all amounts payable or reimbursable to it pursuant to the Sale and Servicing Agreement and the Insurance Agreement; provided, however, that the rights to indemnification under Section 8.2 and the rights under Section 8.1 shall survive the termination of the Trust. The Master Servicer shall promptly 23 28 notify the Owner Trustee and the Note Insurer of any prospective termination pursuant to this Section 9.1. 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 Owner Trust Estate nor (z) otherwise affect the rights, obligations and liabilities of the parties hereto. (b) Except as provided in clause (a), neither the Sponsor nor any other Certificateholder shall be entitled to revoke or terminate the Trust. (c) Notice of any termination of The Trust, specifying the Payment Date upon which the Certificateholders shall surrender their Certificates to the Indenture Trustee for payment of the final distribution and cancellation, shall be given by the Owner Trustee by letter to Certificateholders mailed within five Business Days of receipt of notice of such redemption from the Master Servicer given pursuant to Section 10.1 of the Sale and Servicing Agreement, 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 Indenture 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 Indenture Trustee therein specified. The Owner Trustee shall give such notice to the Certificate Registrar (if other than the Owner Trustee) and the Indenture Trustee at the time such notice is given to Certificateholders. Upon presentation and surrender of the Certificates, the Indenture Trustee shall cause to be distributed to Certificateholders amounts distributable on such Payment Date pursuant to Section 8.7(b)(xx) of the Indenture. In the event that all of the Certificateholders shall not surrender their Certificates for cancellation within six months after the date specified in the above mentioned written notice, the Owner Trustee shall give a second written notice to the remaining Certificateholders to surrender their Certificates for cancellation and receive the final distribution with respect thereto. If within one year after the second notice all the Certificates shall not have been surrendered for cancellation, the Owner Trustee may take appropriate steps, or may appoint an agent to take appropriate steps, to contact the remaining Certificateholders concerning surrender of their Certificates, and the cost thereof shall be paid out of the funds and other assets that shall remain subject to this Agreement. Any funds remaining in the Trust after exhaustion of such remedies shall be distributed, subject to applicable escheat laws, by the Owner Trustee to the Sponsor and Certificateholders shall look solely to the Sponsor for payment. (d) Any funds remaining in the Trust after funds for final distribution have been distributed or set aside for distribution shall be distributed by the Owner Trustee to the Sponsor. (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 of the Business Trust Statute. 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 (i) satisfying the provisions of Section 3807(a) of the Business Trust Statute; (ii) authorized to exercise corporate trust powers; (iii) having a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by Federal or State 24 29 authorities; (iv) having (or having a parent which has) a rating of at least Baa3 by Moody's or A-1 by Standard & Poors or being otherwise acceptable to the Rating Agencies; and (v) acceptable to the Note Insurer in its sole discretion. 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 written notice thereof to the Sponsor, the Note Insurer and the Master Servicer. Upon receiving such notice of resignation, the Sponsor shall promptly appoint a successor Owner Trustee, meeting the qualifications set forth in Section 10.1 herein, 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, provided that the Sponsor shall have received written confirmation from each of the Rating Agencies that the proposed appointment will not result in an increased capital charge to the Note Insurer by either of the Rating Agencies. 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 Sponsor, 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 a majority of the Certificateholders with the consent of the Note Insurer (so long as no Note Insurer Default shall have occurred and is continuing) may remove the Owner Trustee. If a majority of the Certificateholders shall remove the Owner Trustee under the authority of the immediately preceding sentence, the Sponsor shall promptly appoint a successor Owner Trustee, meeting the qualifications set forth in Section 10.1 herein, by written instrument, in duplicate, one copy of which instrument shall be delivered to the outgoing Owner Trustee so removed, one copy to the Note Insurer and one copy to the successor Owner Trustee and the Sponsor shall pay all fees owed to the outgoing Owner Trustee, if not previously paid by the Trust. 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 and payment of all reasonable fees and expenses owed to the outgoing Owner Trustee. Notwithstanding any other provision of this Agreement, and in addition to any other method of removal of the Owner Trustee contained herein, upon a proposal made pursuant to Section 4.2(b) and the subsequent consent of Certificateholders representing no less than a 66-2/3% interest in The Trust, the Owner Trustee may be removed as Owner Trustee , subject to the consent of the Note Insurer (so long as no Note Insurer Default shall have occurred and is continuing), which consent is not to be unreasonably withheld. In the event the Owner Trustee is removed pursuant to this paragraph, the provisions of this Agreement, including Article X herein, shall apply as if the Owner Trustee had resigned hereunder. SECTION 10.3 Successor Owner Trustee. 25 30 Any successor Owner Trustee appointed pursuant to Section 10.2 shall execute, acknowledge and deliver to the Sponsor, the Master Servicer, 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, 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 Sponsor 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 Master Servicer shall mail notice of the successor of such Owner Trustee to all Certificateholders, the Indenture Trustee and the Noteholders. If the Master Servicer shall fail 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 Master Servicer. The successor Owner Trustee shall file an amendment to the Certificate of Trust with the Secretary of State reflecting the name and principal place of business of such successor Owner Trustee in the State of Delaware. 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, without the execution or filing of any instrument or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding; provided further that the Owner Trustee shall mail notice of such merger or consolidation to the Rating Agencies. SECTION 10.5 Appointment of Co-Owner Trustee or Separate Owner Trustee. Notwithstanding any other provisions of this Agreement, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Owner Trust Estate or any Mortgaged Property may at the time be located, the Master Servicer and the Owner Trustee acting jointly 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 separate trustee or separate trustees, of all or any part of the Owner Trust Estate, 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 Master Servicer and the Owner Trustee may consider necessary or desirable. If the Master Servicer shall not have joined in such appointment within 15 days after the receipt by it of a request so to do, the Owner Trustee subject to the approval of the Note Insurer (which approval shall not be unreasonably withheld) shall have the power to make such appointment. No co-trustee or separate trustee under this Agreement shall be required to meet the terms of eligibility as a successor trustee pursuant 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. 26 31 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 Master Servicer and the Owner Trustee acting jointly may at any time accept the resignation of or remove any separate trustee or co-trustee. 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 Master Servicer and the Note Insurer. Any separate trustee or co-trustee may at any time appoint the Owner 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 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. ARTICLE XI. Miscellaneous SECTION 11.1 Supplements and Amendments. (a) This Agreement may be amended by the Sponsor and the Owner Trustee, with the prior written consent of the Note Insurer (so long as no Note Insurer Default shall have occurred and is continuing), without the consent of any of the Noteholders or Certificateholders (i) to cure any ambiguity or defect or (ii) to correct, supplement or modify any provisions in this Agreement; provided, however, that such action shall not, as evidenced by an Opinion of Counsel which may be based upon a certificate of the Master Servicer, adversely affect in any material respect the interests of any Noteholder or Certificateholder. 27 32 (b) This Agreement may also be amended from time to time, with the prior written consent of the Note Insurer which consent shall not be unreasonably withheld (so long as no Note Insurer Default shall have occurred and is continuing) by the Sponsor and the Owner Trustee, with prior written notice to the Rating Agencies, and, to the extent such amendment materially and adversely affects the interests of the Noteholders, with the consent of the Noteholders evidencing not less than a majority of the Outstanding amount of the Notes and, the consent of the Certificateholders evidencing not less than a majority interest in the Trust (which consent of any Holder of a Certificate or Note given pursuant to this Section or pursuant to any other provision of this Agreement shall be conclusive and binding on such Holder and on all future Holders of such Certificate or Note and of any Certificate or Note issued upon the transfer thereof or in exchange thereof or in lieu thereof whether or not notation of such consent is made upon the Certificate or Note) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of the Noteholders or the Certificateholders; provided, however, that, subject to the express rights of the Note Insurer under the Operative Documents, 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 required to be made for the benefit of the Noteholders or the Certificateholders or (b) reduce the aforesaid percentage of the Outstanding Amount of the Notes and the Certificates, the Holders of which are required to consent to any such amendment, without the consent of the Holders of all the outstanding Notes and holders of all outstanding Certificates. Promptly after the execution of any such amendment or consent, the Owner Trustee shall furnish written notification of the substance of such amendment or consent to each Certificateholder and the Indenture Trustee. It shall not be necessary for the consent of Certificateholders, the Noteholders or the Indenture Trustee pursuant to this Section 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. 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. 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. SECTION 11.2 No Legal Title to Owner Trust Estate in Certificateholders. The Certificateholders shall not have legal title to any part of the Owner Trust Estate. The Certificateholders shall be entitled to receive distributions with respect to their ownership interest therein only in accordance with Article IX. No transfer, by operation of law or otherwise, of any right, title or interest of the Certificateholders to and in their ownership interest in the Owner Trust Estate 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 Owner Trust Estate. SECTION 11.3 Limitations on Rights of Others. Except for Section 11.7, the provisions of this Agreement are solely for the benefit of the Owner Trustee, the Sponsor, the Certificateholders, the Master Servicer and, to the extent expressly provided 28 33 herein, the Note Insurer, the Indenture Trustee and the Noteholders, and nothing in this Agreement, whether express or implied, shall be construed to give to any other Person any legal or equitable right, remedy or claim in the Owner Trust Estate or under or in respect of this Agreement or any covenants, conditions or provisions contained herein. SECTION 11.4 Notices. (a) Unless otherwise expressly specified or permitted by the terms hereof, all notices shall be in writing and shall be deemed given upon receipt personally delivered, delivered by overnight courier or mailed first class mail or certified mail, in each case return receipt requested, and shall be deemed to have been duly given upon receipt, if to the Owner Trustee, addressed to the Corporate Trust Office; if to the Sponsor, addressed to Advanta Conduit Receivables Inc., Welsh & McKean Roads, Spring House, Pennsylvania 19477; if to the Note Insurer, addressed to, _____________, Attention: ____________, Telecopy No.: __________; or, as to each party, at such other address as shall be designated by such party in a written notice to each other party. (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 11.5 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdictional shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 11.6 Separate 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 but one and the same instrument. SECTION 11.7 Assignments; Note Insurer. (a) This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. This Agreement shall also inure to the benefit of the Note Insurer for so long as a Note Insurer Default shall not have occurred and be continuing. Without limiting the generality of the foregoing, all covenants and agreements in this Agreement which confer rights upon the Note Insurer shall be for the benefit of and run directly to the Note Insurer, and the Note Insurer shall be entitled to rely on and enforce such covenants, subject, however, to the limitations on such rights provided in this Agreement and the Operative Documents. The Note Insurer may disclaim any of its rights and powers under this Agreement (but not its duties and obligations under the Note Policy) upon delivery of a written notice to the Owner Trustee. SECTION 11.8 No Petition. The Owner Trustee (not in its individual capacity but solely as Owner Trustee), by entering into this Agreement, each Certificateholder, by accepting a Certificate, and the Indenture Trustee and each Noteholder by accepting the benefits of this Agreement, hereby covenants and agrees that they will not at any time institute against the Sponsor, or join in any institution against the Sponsor of, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings 29 34 under any United States Federal or state bankruptcy or similar law in connection with any obligations relating to the Certificates, the Notes, this Agreement or any of the Operative Documents. SECTION 11.9 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 Master Servicer, the Sponsor, the Owner Trustee, the Indenture Trustee, the Note Insurer 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 11.10 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. SECTION 11.11 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 11.12 Master Servicer. The Master Servicer is authorized to prepare, or cause to be prepared, execute and deliver on behalf of the Trust all such documents, reports, filings, instruments, certificates and opinions as it shall be the duty of the Trust or Owner Trustee to prepare, file or deliver pursuant to the Operative Documents. Upon written request, the Owner Trustee shall execute and deliver to the Master Servicer a limited power of attorney appointing the Master Servicer the Trust's agent and attorney-in-fact to prepare, or cause to be prepared, execute and deliver all such documents, reports, filings, instruments, certificates and opinions. 30 35 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. [OWNER TRUSTEE], as Owner Trustee By:________________________________ Name: Title: ADVANTA CONDUIT RECEIVABLES, INC., as Sponsor By:________________________________ Name: Title: 31 36 Exhibit A CERTIFICATE SEE REVERSE FOR CERTAIN DEFINITIONS THIS CERTIFICATE REPRESENTS CERTAIN RESIDUAL RIGHTS TO PAYMENT TO THE EXTENT DESCRIBED HEREIN AND IN THE TRUST AGREEMENT REFERRED TO HEREIN. THIS CERTIFICATE MAY NOT BE HELD BY OR TRANSFERRED TO A NON-UNITED STATES PERSON. THIS CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE WITHOUT SUCH REGISTRATION OR QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION WHICH DOES NOT REQUIRE SUCH REGISTRATION OR QUALIFICATION AND IN ACCORDANCE WITH THE PROVISIONS OF SECTION 3.10 OF THE TRUST AGREEMENT REFERRED TO HEREIN. NO TRANSFER OF THIS CERTIFICATE MAY BE MADE UNLESS THE OWNER TRUSTEE SHALL HAVE RECEIVED A REPRESENTATION LETTER FROM THE TRANSFEREE OF SUCH CERTIFICATE, ACCEPTABLE TO AND IN FORM AND SUBSTANCE SATISFACTORY TO THE OWNER TRUSTEE, TO THE EFFECT THAT SUCH TRANSFEREE IS NOT A BENEFIT PLAN AND NOT ACTING ON BEHALF OF OR USING THE ASSETS OF A BENEFIT PLAN, WHICH REPRESENTATION LETTER SHALL NOT BE AN EXPENSE OF THE OWNER TRUSTEE. NO TRANSFER OF A CERTIFICATE SHALL BE MADE UNLESS SUCH TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS OR IS MADE IN ACCORDANCE WITH SAID ACT AND LAWS. EXCEPT FOR THE INITIAL ISSUANCE OF THE CERTIFICATES TO HOLDING TRUST AND ITS INITIAL TRANSFEREE, THE OWNER TRUSTEE SHALL REQUIRE (i) THE TRANSFEREE TO EXECUTE AN INVESTMENT LETTER ACCEPTABLE TO AND IN FORM AND SUBSTANCE SATISFACTORY TO THE OWNER TRUSTEE AND THE NOTE INSURER CERTIFYING TO THE OWNER TRUSTEE AND THE NOTE INSURER THE FACTS SURROUNDING SUCH TRANSFER, WHICH INVESTMENT LETTER SHALL NOT BE AN EXPENSE OF THE OWNER TRUSTEE OR THE NOTE INSURER OR (ii) IF THE INVESTMENT LETTER IS NOT DELIVERED, A WRITTEN OPINION OF COUNSEL ACCEPTABLE TO AND IN FORM AND SUBSTANCE SATISFACTORY TO THE OWNER TRUSTEE, THE NOTE INSURER AND THE SPONSOR THAT SUCH TRANSFER MAY BE MADE PURSUANT TO AN EXEMPTION, DESCRIBING THE APPLICABLE EXEMPTION AND THE BASIS THEREFOR, FROM SAID ACT OR IS BEING MADE PURSUANT TO SAID ACT, WHICH OPINION OF COUNSEL SHALL NOT BE AN EXPENSE OF THE OWNER TRUSTEE, THE NOTE INSURER OR THE SPONSOR. THE HOLDER OF A CERTIFICATE DESIRING TO EFFECT SUCH TRANSFER SHALL, AND DOES HEREBY AGREE TO, INDEMNIFY THE SPONSOR AND THE NOTE INSURER AGAINST ANY LIABILITY THAT MAY RESULT IF THE TRANSFER IS NOT SO EXEMPT OR IS NOT MADE IN ACCORDANCE WITH SUCH FEDERAL AND STATE LAWS. 37 THE CERTIFICATES AND ANY INTEREST THEREIN SHALL NOT BE TRANSFERRED EXCEPT UPON SATISFACTION OF THE FOLLOWING CONDITIONS PRECEDENT: (I) THE PERSON THAT ACQUIRES A CERTIFICATE SHALL (A) BE ORGANIZED AND EXISTING UNDER THE LAWS OF THE UNITED STATES OF AMERICA OR ANY STATE OR THE DISTRICT OF COLUMBIA THEREOF, (B) EXPRESSLY ASSUME, BY AN AGREEMENT SUPPLEMENTAL HERETO, EXECUTED AND DELIVERED TO THE OWNER TRUSTEE, THE PERFORMANCE OF EVERY COVENANT AND OBLIGATION OF THE SPONSOR UNDER THE TRUST AGREEMENT, EXCEPT FOR THE COVENANTS AND OBLIGATIONS CONTAINED IN SECTIONS 3.1, 3.3, AND 3.4 OF THE SALE AND SERVICING AGREEMENT, AND SECTIONS 2.10, 2.12 OR 8.2 OF THE TRUST AGREEMENT; (II) THE PERSON THAT ACQUIRES A CERTIFICATE SHALL DELIVER TO THE OWNER TRUSTEE AND THE NOTE INSURER AN OFFICER'S CERTIFICATE STATING THAT SUCH TRANSFER AND SUCH SUPPLEMENTAL AGREEMENT COMPLY WITH SECTION 3.10 OF THE TRUST AGREEMENT AND THAT ALL CONDITIONS PRECEDENT PROVIDED BY SECTION 3.10 OF THE TRUST AGREEMENT HAVE BEEN COMPLIED WITH AND AN OPINION OF COUNSEL STATING THAT SUCH TRANSFER AND SUCH SUPPLEMENTAL AGREEMENT COMPLY WITH SECTION 3.10 AND THAT ALL CONDITIONS PRECEDENT PROVIDED BY SECTION 3.10 HAVE BEEN COMPLIED WITH, AND THE OWNER TRUSTEE MAY CONCLUSIVELY RELY ON SUCH OFFICER'S CERTIFICATE, SHALL HAVE NO DUTY TO MAKE INQUIRIES WITH REGARD TO THE MATTERS SET FORTH THEREIN AND SHALL INCUR NO LIABILITY IN SO RELYING; (III) THE PERSON THAT ACQUIRES A CERTIFICATE SHALL DELIVER TO THE OWNER TRUSTEE AND THE NOTE INSURER A LETTER FROM EACH RATING AGENCY CONFIRMING THAT ITS RATING OF THE NOTES, AFTER GIVING EFFECT TO SUCH TRANSFER, WILL NOT BE REDUCED OR WITHDRAWN WITHOUT REGARD TO THE NOTE POLICY; (IV) THE PERSON THAT ACQUIRES A CERTIFICATE SHALL DELIVER TO THE OWNER TRUSTEE AND THE NOTE INSURER AN OPINION OF COUNSEL TO THE EFFECT THAT (A) SUCH TRANSFER WILL NOT ADVERSELY AFFECT THE TREATMENT OF THE NOTES AFTER SUCH TRANSFER AS DEBT FOR FEDERAL AND APPLICABLE STATE INCOME TAX PURPOSES, (B) SUCH TRANSFER WILL NOT RESULT IN THE TRUST BEING SUBJECT TO TAX AT THE ENTITY LEVEL FOR FEDERAL OR APPLICABLE STATE TAX PURPOSES, (C) SUCH TRANSFER WILL NOT HAVE ANY MATERIAL ADVERSE IMPACT ON THE FEDERAL OR APPLICABLE STATE INCOME TAXATION OF A NOTEHOLDER AND (D) SUCH TRANSFER WILL NOT RESULT IN THE ARRANGEMENT CREATED BY THE TRUST AGREEMENT OR ANY "PORTION" OF THE TRUST, BEING TREATED AS A TAXABLE MORTGAGE POOL AS DEFINED IN SECTION 7701(I) OF THE CODE; (V) ALL FILINGS AND OTHER ACTIONS NECESSARY TO CONTINUE THE PERFECTION OF THE INTEREST OF THE TRUST IN THE MORTGAGE LOANS AND THE OTHER PROPERTY CONVEYED UNDER THE TRUST AGREEMENT SHALL HAVE BEEN TAKEN OR MADE. 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. 38 ADVANTA MORTGAGE LOAN TRUST ____-_ CERTIFICATE Percentage Interest: 100% Date of Cut-Off Date: [Date] First Payment Date: Issue Date: [Date] April 26, 1999 No. 1 --------------------------------- OWNER TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Certificates referred to in the within-mentioned Trust Agreement. [OWNER TRUSTEE] not in its individual capacity but solely as Owner Trustee by:____________________________________ Authenticating Agent The Trust was created pursuant to a Trust Agreement dated as of [Date] (the "Trust Agreement"), between the Sponsor and [OWNER TRUSTEE], as owner trustee (the "Owner Trustee"), a summary of certain of the pertinent provisions of which is set forth below. To the extent not otherwise defined herein, the capitalized terms used herein have the meanings assigned to them in the Trust Agreement. This Certificate is one of the duly authorized Certificates designated as Advanta Mortgage Loan Trust ____-_ Certificates (herein called the "Certificates"). Also issued under the Indenture dated as of [Date], among the Trust and [INDENTURE TRUSTEE], as indenture trustee (the "Indenture Trustee") are Notes (the "Notes"). These Certificates are issued under and are subject to the terms, provisions and conditions of the Trust Agreement, to which Trust Agreement the holder of this Certificate by virtue of the acceptance hereof assents and by which such holder is bound. The property of the Trust includes a pool of fixed-rate mortgage loans secured by first or second deeds of trust or Mortgages on primarily one-to-four family residential properties. Under the Trust Agreement, there will be distributed on the 25th day of each month or, if such 25th day is not a Business Day, the next Business Day (the "Payment Date"), commencing on April 26, 1999, to the Person in whose name this Certificate is registered at the close of business on the 39 Business Day preceding such Payment Date (the "Record Date") such Certificateholder's Percentage Interest in the amount to be distributed to Certificateholders on such Payment Date. The holder of this Certificate acknowledges and agrees that its rights to receive distributions in respect of this Certificate are subordinated to the rights of the Noteholders as described in the Sale and Servicing Agreement, the Indenture and the Trust Agreement, as applicable. The holder of this Certificate, by acceptance of this Certificate, specifically acknowledges that it has no right to or interest in any monies at any time held pursuant to the Pre-Funding Account or prior to the release of such monies pursuant to Section 8.7 of the Indenture, such monies being held in trust for the benefit of the Noteholders and the Note Insurer. Notwithstanding the foregoing, in the event that it is ever determined that the monies held in the Pre-Funding Account constitute a pledge of collateral, then the provisions of the Sale and Servicing Agreement shall be considered to constitute a security agreement and the holder of this Certificate hereby grants to the Indenture Trustee and the Note Insurer a first priority perfected security interest in such amounts. In addition, each Certificateholder, by acceptance of its Certificate, hereby appoints the Sponsor as its agent to pledge a first priority perfected security interest in the Pre-Funding Account and agrees to execute and deliver such instruments of conveyance, assignment, grant, confirmation, etc., as well as any financing statements, in each case as the Note Insurer shall consider reasonably necessary in order to perfect the Indenture Trustee's security interest in the Trust Property. It is the intent of the Sponsor, the Master Servicer, and the Certificateholders that, for purposes of Federal income taxes, the Trust will be treated as a branch. In the event that the Certificates are held by more than one Holder, it is the intent of the Sponsor, the Master Servicer, and the Certificateholders that, for purposes of Federal income taxes, the Trust will be treated as a partnership and the Certificateholders will be treated as partners in that partnership. The Sponsor and any other Certificateholders, by acceptance of a Certificate, agree to treat, and to take no action inconsistent with the treatment of, the Certificates for such tax purposes as partnership interests in the Trust. Each Certificateholder, by its acceptance of a Certificate, covenants and agrees that such Certificateholder will not at any time institute against the Trust or the Sponsor, or join in any institution against the Trust or the Sponsor 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 Certificates, the Notes, the Trust Agreement or any of the Operative Documents. Distributions on this Certificate will be made as provided in the Sale and Servicing Agreement and the Indenture by the Indenture Trustee by wire transfer or check mailed to the Certificateholder of record in the Certificate Register without the presentation or surrender of this Certificate or the making of any notation hereon. Except as otherwise provided in the Trust Agreement and notwithstanding the above, the final distribution on this Certificate will be made after due notice by the Owner Trustee of the pendency of such distribution and only upon presentation and surrender of this Certificate at the office or agency maintained for the purpose by the Owner Trustee in the Corporate Trust Office. Reference is hereby made to the further provisions of this Certificate set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon shall have been executed by an authorized officer of the Owner Trustee, by manual signature, this Certificate shall not entitle the holder hereof to any benefit under the Trust Agreement or the Sale and Servicing Agreement or be valid for any purpose. 40 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. ADVANTA MORTGAGE LOAN TRUST ____-_ By: [OWNER TRUSTEE] not in its individual capacity but solely as Owner Trustee Dated: [Date] By:_________________________________________ Name: Title: 41 (Reverse of Certificate) The Certificates do not represent an obligation of, or an interest in, the Originators, the Sponsor, the Master Servicer, the Note Insurer, the Owner Trustee or any Affiliates of any of them and no recourse may be had against such parties or their assets, except as may be expressly set forth or contemplated herein or in the Trust Agreement, the Indenture or the Operative Documents. In addition, this Certificate is not guaranteed by any governmental agency or instrumentality and is limited in right of payment to certain collections with respect to the Mortgage Loans, as more specifically set forth herein, in the Sale and Servicing Agreement and in the Indenture. A copy of each of the Sale and Servicing Agreement and the Trust Agreement may be examined during normal business hours at the principal office of the Sponsor, and at such other places, if any, designated by the Sponsor, by any Certificateholder upon written request. The Trust Agreement permits, with certain exceptions therein provided, the amendment thereof and the modification of the rights and obligations of the Sponsor and the rights of the Certificateholders under the Trust Agreement at any time by the Sponsor and the Owner Trustee with the prior written consent of the Note Insurer and with the consent of the holders of the Notes and the Certificates evidencing not less than a majority of the outstanding Notes and the Certificates. Any such consent by the holder of this Certificate shall be conclusive and binding on such holder and on all future holders of this Certificate and of any Certificate issued upon the transfer hereof or in exchange hereof or in lieu hereof whether or not notation of such consent is made upon this Certificate. The Trust Agreement also permits the amendment thereof, in certain limited circumstances, without the consent of the holders of any of the Certificates (other than the Sponsor or the Note Insurer). As provided in the Trust Agreement and subject to certain limitations therein set forth, the transfer of this Certificate is registrable in the Certificate Register upon surrender of this Certificate for registration of transfer at the offices or agencies of the Certificate Registrar maintained by the Owner Trustee in the Corporate Trust Office, accompanied by a written instrument of transfer in form satisfactory to the Owner Trustee and the Certificate Registrar duly executed by the holder hereof or such holder's attorney duly authorized in writing, and thereupon one or more new Certificates in authorized denominations evidencing the same aggregate interest in the Trust will be issued to the designated transferee. The initial Certificate Registrar appointed under the Trust Agreement is [OWNER TRUSTEE]. Except for Certificates issued to Advanta Mortgage Holding Trust ____-_, the Certificates are issuable only as registered Certificates without coupons in denominations of $1,000 or integral multiples of $1,000 in excess thereof. As provided in the Trust Agreement and subject to certain limitations therein set forth, Certificates are exchangeable for new Certificates in authorized denominations evidencing the same aggregate denomination, as requested by the holder surrendering the same. No service charge will be made for any such registration of transfer or exchange, but the Owner Trustee or the Certificate Registrar may require payment of a sum sufficient to cover any tax or governmental charge payable in connection therewith. The Owner Trustee, the Certificate Registrar, the Note Insurer and any agent of the Owner Trustee, the Certificate Registrar, the Note Insurer or the Note Insurer may treat the person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Owner Trustee, the Certificate Registrar, the Note Insurer nor any such agent shall be affected by any notice to the contrary. The obligations and responsibilities created by the Trust Agreement and the Trust created thereby shall terminate upon the payment to Certificateholders of all amounts required to be paid to them pursuant to the Trust Agreement, the Indenture and the Sale and Servicing Agreement and the disposition of all property held as part of the Trust. The Certificateholder may at its option elect 42 to redeem the corpus of the Trust at a price specified in the Sale and Servicing Agreement, and after such redemption of the Mortgage Loans and other property of the Trust, all proceeds will be distributed to the Certificateholders; however, the Certificateholder's right to elect to redeem is exercisable, subject to certain restrictions, only on any Payment Date on or after the Payment Date immediately prior to which the Note Principal Balance is less than 10% of the Original Note Principal Balance and all amounts due and owing to the Note Insurer for unpaid premiums and unreimbursed draws on the Note Policy and all other amounts due and owing to the Note Insurer pursuant to the Insurance Agreement, together with interest thereon as provided under the Insurance Agreement, have been paid. The recitals contained herein shall be taken as the statements of the Sponsor or the Master Servicer, as the case may be, and the Owner Trustee assumes no responsibility for the correctness thereof. The Owner Trustee makes no representations as to the validity or sufficiency of this Certificate or of any Mortgage Loan or related document. Unless the certificate of authentication hereon shall have been executed by an authorized officer of the Owner Trustee, by manual or facsimile signature, this Certificate shall not entitle the holder hereof to any benefit under the Trust Agreement or the Sale and Servicing Agreement or be valid for any purpose. 43 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 Certificate, and all rights thereunder, hereby irrevocably ________________________________________________________________________________ constituting and appointing ___________________________________________ Attorney to transfer said Certificate 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 of the registered owner as it appears on the face of the within Certificate 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 Certificate Registrar, which requirements include membership or participation in STAMP or such other "signature guarantee program" as may be determined by the Certificate Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. 44 EXHIBIT B CERTIFICATE OF TRUST OF ADVANTA MORTGAGE LOAN TRUST ____-_ This Certificate of Trust of Advanta Mortgage Loan Trust ____-_ (the "Trust"), dated as of [Date], is being duly executed and filed by [OWNER TRUSTEE], a Delaware banking corporation, as trustee, to form a business trust under the Delaware Business Trust Act (12 Del. Code, Section 3801 et seq.). 1. Name. The name of the business trust formed hereby is Advanta Mortgage Loan Trust ____-_. 2. Delaware Trust. The name and business address of the Owner Trustee of the Trust in the State of Delaware is [OWNER TRUSTEE], [ADDRESS] Attn: Corporate Trust Administration. 3. This Certificate of Trust will be effective [Date]. 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. [OWNER TRUSTEE] not in its individual capacity but solely as Owner Trustee of the Trust. By:_________________________________ Name: Title: EX-4.4 6 FORM OF INDENTURE AMONG THE ISSUER 1 EXHIBIT 4.4 - -------------------------------------------------------------------------------- ADVANTA MORTGAGE LOAN TRUST ____-_ Mortgage Backed Notes, Series ____-_ ---------- INDENTURE Dated as of [DATE] ---------- [INDENTURE TRUSTEE] Indenture Trustee - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page ---- ARTICLE I. Definitions and Incorporation by Reference SECTION 1.1. Definitions.................................................................................2 SECTION 1.2. Incorporation by Reference of the Trust Indenture Act......................................22 SECTION 1.3. Rules of Construction......................................................................23 SECTION 1.4. Action by or Consent of Noteholders........................................................23 SECTION 1.5. Conflict with TIA..........................................................................23 ARTICLE II. The Notes SECTION 2.1. Form.......................................................................................23 SECTION 2.2. Execution, Authentication and Delivery.....................................................24 SECTION 2.3. Registration; Registration of Transfer and Exchange........................................24 SECTION 2.4. Mutilated, Destroyed, Lost or Stolen Notes.................................................25 SECTION 2.5. Persons Deemed Owners......................................................................26 SECTION 2.6. Payment of Principal and Interest; Defaulted Interest......................................27 SECTION 2.7. Cancellation...............................................................................27 SECTION 2.8. Release of Collateral......................................................................28 SECTION 2.9. Book-Entry Notes...........................................................................28 SECTION 2.10. Notices to Clearing Agency.................................................................29 SECTION 2.11. Definitive Notes...........................................................................29 ARTICLE III. Covenants SECTION 3.1. Payment of Principal and Interest..........................................................29 SECTION 3.2. Maintenance of Office or Agency............................................................30 SECTION 3.3. Money for Payments to be Held in Trust.....................................................30 SECTION 3.4. Existence..................................................................................31 SECTION 3.5. Protection of Trust Estate.................................................................31 SECTION 3.6. Opinions as to Trust Estate................................................................32 SECTION 3.7. Performance of Obligations; Servicing of Mortgage Loans....................................32 SECTION 3.8. Negative Covenants.........................................................................33 SECTION 3.9. Annual Statement as to Compliance..........................................................34 SECTION 3.10. Issuer Shall Not Consolidate or Transfer Assets............................................34 SECTION 3.11. No Other Business..........................................................................34 SECTION 3.12. No Borrowing...............................................................................34 SECTION 3.13. Guarantees, Loans, Advances and Other Liabilities..........................................35 SECTION 3.14. Capital Expenditures.......................................................................35 SECTION 3.15. Compliance with Laws.......................................................................35 SECTION 3.16. Restricted Payments........................................................................35
i 3 SECTION 3.17. Notice of Event of Defaults and Events of Servicing Termination............................35 SECTION 3.18. Further Instruments and Acts...............................................................35 SECTION 3.19. Amendments of Sale and Servicing Agreement and Trust Agreement.............................35 SECTION 3.20. Income Tax Characterization................................................................36 ARTICLE IV. Satisfaction and Discharge SECTION 4.1. Satisfaction and Discharge of Indenture....................................................36 SECTION 4.2. Application of Trust Money.................................................................37 SECTION 4.3. Repayment of Monies Held by Note Paying Agent..............................................37 ARTICLE V. Remedies SECTION 5.1. Rights Upon an Event of Default............................................................37 SECTION 5.2. Collection of Indebtedness and Suits for Enforcement by Indenture Trustee..................38 SECTION 5.3. Remedies...................................................................................38 SECTION 5.4. Indenture Trustee May File Proofs of Claim.................................................39 SECTION 5.5. Indenture Trustee May Enforce Claims Without Possession of Notes...........................40 SECTION 5.6. Application of Money Collected.............................................................40 SECTION 5.7. Limitation of Suits........................................................................41 SECTION 5.8. Unconditional Rights of Noteholders to Receive Principal and Interest......................41 SECTION 5.9. Restoration of Rights and Remedies.........................................................42 SECTION 5.10. Rights and Remedies Cumulative.............................................................42 SECTION 5.11. Delay or Omission Not a Waiver.............................................................42 SECTION 5.12. Control by Noteholders.....................................................................42 SECTION 5.13. Undertaking for Costs......................................................................42 SECTION 5.14. Waiver of Stay or Extension Laws...........................................................43 SECTION 5.15. Action on Notes............................................................................43 SECTION 5.16. Performance and Enforcement of Certain Obligations.........................................43 SECTION 5.17. Subrogation................................................................................44 SECTION 5.18. Preference Claims..........................................................................44 SECTION 5.19. Waiver of Past Defaults....................................................................45 ARTICLE VI. The Indenture Trustee SECTION 6.1. Duties of Indenture Trustee................................................................45 SECTION 6.2. Rights of Indenture Trustee................................................................47 SECTION 6.3. Individual Rights of Indenture Trustee.....................................................48 SECTION 6.4. Indenture Trustee's Disclaimer.............................................................48 SECTION 6.5. Notice of Defaults.........................................................................48 SECTION 6.6. Reports by Indenture Trustee to Holders....................................................48 SECTION 6.7. Compensation and Indemnity.................................................................48 SECTION 6.8. Replacement of Indenture Trustee...........................................................49 SECTION 6.9. Successor Indenture Trustee by Merger......................................................50
ii 4 SECTION 6.10. Appointment of Co-Indenture Trustee or Separate Indenture Trustee..........................51 SECTION 6.11. Eligibility: Disqualification..............................................................52 SECTION 6.12. Preferential Collection of Claims Against Issuer...........................................52 SECTION 6.13. Appointment and Powers.....................................................................53 SECTION 6.14. Performance of Duties......................................................................53 SECTION 6.15. Limitation on Liability....................................................................53 SECTION 6.16. Reliance Upon Documents....................................................................53 SECTION 6.17. Representations and Warranties of the Indenture Trustee....................................53 SECTION 6.18. Waiver of Setoffs..........................................................................54 SECTION 6.19. Control by the Control Party...............................................................54 SECTION 6.20. Indenture Trustee May Enforce Claims Without Possession of Notes...........................54 SECTION 6.21. Suits for Enforcement......................................................................54 SECTION 6.22. Mortgagor Claims...........................................................................55 ARTICLE VII. Noteholders' Lists and Reports SECTION 7.1. Issuer to Furnish to Indenture Trustee Names and Addresses of Noteholders..................55 SECTION 7.2. Preservation of Information; Communications to Noteholders.................................56 SECTION 7.3. Reports by Issuer..........................................................................56 SECTION 7.4. Reports by Indenture Trustee...............................................................57 ARTICLE VIII. Payments and Statements to Noteholders and Certificateholders; Accounts, Disbursements and Releases SECTION 8.1. Collection of Money........................................................................57 SECTION 8.2. Release of Trust Estate....................................................................57 SECTION 8.3. Establishment of Accounts..................................................................58 SECTION 8.4. The Note Policy............................................................................58 SECTION 8.5. Reserved...................................................................................58 SECTION 8.6. Pre-Funding Account and Capitalized Interest Account.......................................58 SECTION 8.7. Flow of Funds..............................................................................59 SECTION 8.8. Investment of Accounts.....................................................................61 SECTION 8.9. Eligible Investments.......................................................................62 SECTION 8.10. Reports by Indenture Trustee...............................................................63 SECTION 8.11. Additional Reports by Indenture Trustee....................................................66 SECTION 8.12. Opinion of Counsel.........................................................................67 ARTICLE IX. Supplemental Indentures SECTION 9.1. Supplemental Indentures Without Consent of Noteholders.....................................67 SECTION 9.2. Supplemental Indentures with Consent of Noteholders........................................68 SECTION 9.3. Execution of Supplemental Indentures.......................................................70 SECTION 9.4. Effect of Supplemental Indenture...........................................................70 SECTION 9.5. Conformity With Trust Indenture Act........................................................70 SECTION 9.6. Reference in Notes to Supplemental Indentures..............................................70
iii 5 SECTION 9.7. Amendment..................................................................................70 ARTICLE X. Redemption of Notes SECTION 10.1. Redemption.................................................................................71 SECTION 10.2. Surrender of Notes.........................................................................72 SECTION 10.3. Form of Redemption Notice..................................................................73 SECTION 10.4. Notes Payable on Redemption Date...........................................................74 ARTICLE XI. Miscellaneous SECTION 11.1. Compliance Certificates and Opinions, etc..................................................74 SECTION 11.2. Form of Documents Delivered to Indenture Trustee...........................................74 SECTION 11.3. Acts of Noteholders........................................................................75 SECTION 11.4. Notices, etc. to Indenture Trustee, Issuer and Rating Agencies.............................76 SECTION 11.5. Notices to Noteholders; Waiver.............................................................77 SECTION 11.6. Alternate Payment and Notice Provisions....................................................77 SECTION 11.7. Conflict with Trust Indenture Act..........................................................78 SECTION 11.8. Effect of Headings and Table of Contents...................................................78 SECTION 11.9. Successors and Assigns.....................................................................78 SECTION 11.10. Separability...............................................................................78 SECTION 11.11. Benefits of Indenture......................................................................78 SECTION 11.12. Legal Holidays.............................................................................78 SECTION 11.13. Governing Law..............................................................................78 SECTION 11.14. Counterparts...............................................................................79 SECTION 11.15. Recording of Indenture.....................................................................79 SECTION 11.16. Trust Obligation...........................................................................79 SECTION 11.17. No Petition................................................................................79 SECTION 11.18. Inspection.................................................................................79 SECTION 11.19. Limitation of Liability....................................................................80 ARTICLE XII. Events of Default SECTION 12.1. Events of Default..........................................................................80 EXHIBITS Exhibit A -- Form of Note
iv 6 INDENTURE dated as of [DATE], between ADVANTA MORTGAGE LOAN TRUST ____-_, a Delaware business trust (the "Trust" or the "Issuer"), and [INDENTURE TRUSTEE], a ___________, as Indenture Trustee (the "Indenture Trustee"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Trust's Mortgage Backed Notes Series ____-_ (the "Notes"): As security for the payment and performance by the Trust of its obligations under this Indenture and the Notes, the Trust has agreed to pledge the Collateral (as defined herein) to the Indenture Trustee on behalf of the Noteholders. ___________________________ (the "Note Insurer") has issued and delivered a financial guaranty insurance policy, dated as of the Closing Date, pursuant to which the Note Insurer guarantees the Insured Payments (as defined herein). As an inducement to the Note Insurer to issue and deliver the Note Policy, the Trust and the Note Insurer have executed and delivered the Insurance and Indemnity Agreement, dated as of [DATE] (as amended from time to time, the "Insurance Agreement"), among the Note Insurer, the Trust, Advanta Conduit Receivables, Inc. and the Indenture Trustee. As an additional inducement to the Note Insurer to issue the Note Policy, and as security for the performance by the Trust of the Note Insurer Issuer Secured Obligations and as security for the performance by the Trust of the Indenture Trustee Issuer Secured Obligations, the Trust has agreed to grant and assign the Collateral (as defined below) to the Indenture Trustee for the benefit of the Trust Secured Parties, as their respective interests may appear. 7 GRANTING CLAUSE The Trust hereby Grants to the Indenture Trustee at the Closing Date, for the benefit of the Trust Secured Parties all of the Trust's right, title and interest in and to (i) certain [fixed/adjustable] rate mortgage loans (the "Mortgage Loans") made or to be made and conveyed to the Trust under certain mortgage notes ("Notes"); (ii) interest accrued and principal collected in respect of the Mortgage Loans on or after the Cut-Off Date and each Subsequent Cut-Off Date, as applicable, including eligible investments as from time to time may be held by the Indenture Trustee in the Note Account and by the Master Servicer in the related Principal and Interest Account (except as otherwise provided in the Sale and Servicing Agreement but excluding any premium recapture, each to be created pursuant to the Sale and Servicing Agreement, (iii) property, the ownership of which has been effected on behalf of the Trust, as a result of foreclosure or acceptance by the Master Servicer of a deed in lieu of foreclosure and that has not been withdrawn from the Trust; (iv) rights of the Sponsor or any Affiliated Originators under Insurance Policies relating to the Mortgage Loans (excluding any non-mortgage related or credit-life insurance policies); (v) the Note Policy; (vi) Net Liquidation Proceeds with respect to any Liquidated Mortgage Loan; (vii) amounts on deposit in the Pre-Funding Account and the Capitalized Interest Account; (viii) all rights of the Trust under the Sale and Servicing Agreement; and (ix) any and all proceeds of the foregoing (the foregoing, collectively, the "Collateral"). The foregoing Grant is made in trust to the Indenture Trustee, for the benefit first, of the Noteholders, and second, for the benefit of the Note Insurer. The Indenture Trustee hereby acknowledges such Grant, accepts the trust under this Indenture in accordance with the provisions of this Indenture and agrees to perform the duties required of it by this Indenture to the best of its ability to the end that the interests of such parties, recognizing the priorities of their respective interests, may be adequately and effectively protected. ARTICLE I. DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.1. Definitions. Except as otherwise specified herein, the following terms have the respective meanings set forth below for all purposes of this Indenture. In addition, other capitalized terms used herein and not defined herein shall have their respective meanings as set forth in the Sale and Servicing Agreement. "Accelerated Principal Payments": With respect to any Payment Date, a payment received as a payment of principal by the Noteholders for the purpose of increasing the Overcollateralization Amount to the Specified Overcollateralization Amount applicable to such Payment Date, and to be paid from amounts remaining in the Note Account on such Payment Date, after deduction of the amounts described in clauses (i) through (viii) of Section 8.7(b) hereof (the "Remaining Cashflow") on such Payment Date and equal to the lesser of (x) the amount of such Remaining Cashflow and (y) the Overcollateralization Deficiency Amount. 2 8 "Account": Any account established in accordance with Section 8.3 hereof or Section 4.8 of the Sale and Servicing Agreement. "Act" has the meaning specified in Section 11.3(a) hereof. "Affiliate" means, with respect to any specified Person, any other Person controlling, controlled by or under common control with such Person. For the purposes of this definition, "control" means the power to direct the management and policies of a Person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "AMHC": Advanta Mortgage Holding Company, a Delaware corporation and the corporate parent of Advanta Mortgage Corp. USA, and the indirect corporate parent of Advanta Conduit Receivables, Inc. "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 Newspapers": Any of the following, The Wall Street Journal, the New York Times, the Washington Post, the Los Angeles Times or such other newspaper determined by the Indenture Trustee in its sole judgment. "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 Indenture Trustee, the Master Servicer and the Sponsor, initially including those individuals whose names appear on the lists of Authorized Officers delivered on the Closing Date. "Available Funds Cap Carry-Forward Amount:" With respect to any Payment Date, the amount, if any, by which (x) the Available Funds Cap Current Amount payable as of the immediately preceding Payment Date exceeded (y) the amount of the actual distribution made to the Noteholders on such immediately preceding Payment Date on account of the Available Funds Cap Carry-Forward Amount. "Available Funds Cap Current Amount": With respect to any Payment Date, the sum of (i) the excess of (x) the Interest Distribution Amount due on such Payment Date, calculated using the Note Formula Rate over (y) the Interest Distribution Amount due on such Payment Date, calculated using the Available Funds Cap Rate and (ii) the Available Funds Cap Carry-Forward Amount. "Available Funds Cap Rate": As to any Payment Date, an amount, expressed as a per annum rate, equal to (a)(i) the aggregate amount of interest due and collected (or advanced) on all of the Mortgage Loans in the Trust for the related Remittance Period, minus (ii) the aggregate of the Servicing Fee, the Indenture Trustee's Fee, the Owner Trustee's Fee and the Premium Amount on such Payment Date, minus (iii) commencing on the seventh Payment Date following the Closing Date, an amount equal to ____% per annum times the aggregate Loan 3 9 Balances of the Mortgage Loans in the Trust as of the beginning of such related Remittance Period divided by (b) the aggregate Loan Balances of the Mortgage Loans in the Trust as of the beginning of such related Remittance Period calculated on the basis of a [360-day year and the actual number of days elapsed/a year of 360 days and consisting of 12 thirty-day months]. "Available Reserve Amount": As defined in Section 8.5(a) hereof. "Benefit Plan": As defined in Section 2.3 hereof. "Book Entry Notes": A beneficial interest in the Notes, ownership and transfers of which shall be made through book entries by a Clearing Agency as described in Section 2.9 hereof. "Business Day": Any day that is not a Saturday, Sunday or other day on which commercial banking institutions in the State of New York, the State of California or in the city in which the principal Corporate Trust Office of the Indenture Trustee is located, are authorized or obligated by law or executive order to be closed. "Capitalized Interest Account Deposit": $____________. "Capitalized Interest Account": The capitalized interest account established in accordance with Section 8.3 hereof and maintained by the Indenture Trustee. "Capitalized Interest Amount": With respect to any Determination Date, the amount on deposit in the Capitalized Interest Account. "Capitalized Interest Requirement": As to any Payment Date occurring during the Pre-Funding Period, the difference, if any, between (x) the interest due on the portion of the Notes represented by the Pre-Funding Amount plus the related portion of the Premium Amount on such Payment Date and (y) any Pre-Funding Earnings to be transferred to the Note Account on such Payment Date pursuant to Section 8.6(c) hereof. "Certificate": As defined in the Trust Agreement. "Certificateholders": The holders of the Certificates issued pursuant to the Trust Agreement. "Civil Relief Act": The Soldiers and Sailors' Civil Relief Act of 1940, as amended from time to time. "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. "Clearing Agency" An organization registered as a "clearing agency" pursuant to Section 17A of the Exchange Act. "Closing Date": [DATE]. 4 10 "Code": The Internal Revenue Code of 1986, as amended and any successor statute. "Collateral": As defined in the Recitals hereof. "Combined Loan-to-Value Ratio": With respect to any First Mortgage Loan, the percentage equal to the Original Principal Amount of the related Note divided by the Appraised Value of the related Property and with respect to any Junior Mortgage Loan, the percentage equal to (a) the sum of (i) the remaining Loan Balance, as of origination of the Junior Mortgage Loan, as appropriate, of the Senior Lien note(s) relating to such Junior Mortgage Loan, as appropriate, and (ii) the Original Principal Amount of the Note relating to such Junior Mortgage Loan, as appropriate, divided by (b) the Appraised Value. "Compensating Interest": As defined in Section 4.9(b) of the Sale and Servicing Agreement. "Conduit Acquisition Trust": As defined in the Sale and Servicing Agreement. "Control Party": As defined in the Sale and Servicing Agreement. "Corporate Trust Office": As of the Closing Date, the Indenture Trustee's office at [ADDRESS]. "Coupon Rate": The rate of interest borne by each Note. "Cut-Off Date": The date as of which Initial Mortgage Loans are transferred and assigned to the Trust, the opening of business, [DATE]. "Deficiency Amount": (a) For any Payment Date, any shortfalls in the Total Available Funds to pay the sum of (i) the Interest Distribution Amount (excluding any Available Funds Cap Current Amounts, Available Funds Cap Carry Forward Amounts, and any Relief Act Shortfalls), and (ii) the Overcollateralization Deficit and (b) on the Final Scheduled Payment Date, any shortfall in the Total Available Funds to pay the outstanding Note Principal Balance. "Definitive Notes": Notes issued in definitive form without coupons. "Delinquency Advances": As defined in Section 4.9(a) of the Sale and Servicing Agreement. "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 corresponding day of the month immediately succeeding the month in which such payment was due, or, if there is no such corresponding day (e.g., as when a 30-day month follows a 31-day month in which a payment was due on the 31st day of such month) then on the last day of such immediately succeeding month. Similarly for "60 days delinquent," "90 days delinquent" and so on. 5 11 "Delivery Order": The delivery order in the form set forth as Exhibit E of the Sale and Servicing Agreement and required to be delivered by the Trust pursuant to Section 2.2 hereof. "Depository": The Depository Trust Company, 7 Hanover Square, New York, New York 10004 and any successor Depository hereafter named. "Designated Depository Institution": With respect to each 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 A2 or better by Moody's or A or better by Standard & Poor's and in the highest short-term rating category for Moody's, and Standard & Poor's unless otherwise approved in writing by the Note Insurer, 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 Master 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, an Account may be held by 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 or BBB or better by Standard & Poor's if such institution has trust powers and the Principal and Interest Account is held by such institution in its corporate trust department. "Determination Date": As to each Payment Date, the third Business Day next preceding such Payment Date or such earlier day as shall be agreed to by the Note Insurer and Indenture Trustee. "Direct Participant" or "DTC Participant": Any broker-dealer, bank or other financial institution for which the Depository holds the Notes from time to time as a securities depository. "Disqualified Organization": "Disqualified Organization" shall have the meaning set forth from time to time in the definition thereof at Section 860E(e)(5) of the Code (or any successor statute thereto) and applicable to the Trust. "Eligible Investments": Those investments so designated pursuant to Section 8.9 hereof. "ERISA" means Employee Retirement Income Security Act of 1974, as amended. "Event of Default": As defined in Section 12.1. "Excess Overcollateralization Amount": With respect to any Payment Date, the amount by which (x) the Overcollateralization Amount after taking into account the payment of 6 12 the Principal Distribution Amount on such Payment Date exceeds (y) the Specified Overcollateralization Amount for such Payment Date. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fannie Mae": The Federal National Mortgage Association, 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. "Final Scheduled Payment Date": The Payment Date in _____ whereby the Noteholders will be entitled to receive a payment of principal in an amount equal to the outstanding Note Principal Balance. "First Mortgage Loan": A Mortgage Loan which constitutes a first priority mortgage lien with respect to any Mortgaged Property. "FNMA": The Federal National Mortgage Association, a federally-chartered and privately-owned corporation existing under the Federal National Mortgage Association Charter Act, as amended, or any successor thereof. "Freddie Mac": 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. "Full Deficiency Amount": As defined in Section 8.5(b) herein. "Grant" means mortgage, pledge, bargain, sell, warrant, alienate, remise, release, convey, assign, transfer, create, 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 monies 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. "Indebtedness" means, with respect to any Person at any time, (a) indebtedness or liability of such Person for borrowed money whether or not evidenced by bonds, debentures, Notes or other instruments, or for the deferred purchase price of property or services (including trade obligations); (b) obligations of such Person as lessee under leases which should have been or should be, in accordance with generally accepted accounting principles, recorded as capital leases; (c) current liabilities of such Person in respect of unfunded vested benefits under plans covered by Title IV of ERISA; (d) obligations issued for or liabilities incurred on the account of such Person; (e) obligations or liabilities of such Person arising under acceptance facilities; 7 13 (f) obligations of such Person under any guarantees, endorsements (other than for collection or deposit in the ordinary course of business) and other contingent obligations to purchase, to provide funds for payment, to supply funds to invest in any Person or otherwise to assure a creditor against loss; (g) obligations of such Person secured by any lien on property or assets of such Person, whether or not the obligations have been assumed by such Person; or (h) obligations of such Person under any interest rate or currency exchange agreement. "Indemnification Agreement": The Indemnification Agreement dated as of [DATE] between the Note Insurer and the Underwriter. "Indenture" means this Indenture as amended and supplemented from time to time. "Indenture Trustee Issuer Secured Obligations" means all amounts and obligations which the Trust may at any time owe to the Indenture Trustee for the benefit of the Noteholders under this Indenture or the Notes. "Indenture Trustee": [INDENTURE TRUSTEE], located on the date of execution of this Agreement at [ADDRESS], not in its individual capacity but solely as Indenture Trustee under this Agreement, and any successor hereunder. "Indenture Trustee's Fees": With respect to any Payment Date, the product of (x) one-twelfth of ____% and (y) the aggregate Loan Balance of the Mortgage Loan as of the beginning of the related Remittance Period. "Independent Certificate" means 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, prepared by an Independent appraiser or other expert appointed pursuant to 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. "Independent" means, when used with respect to any specified Person, that the person (a) is in fact independent of the Trust, any other obligor upon the Notes, the Sponsor 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 Trust, any such other obligor, the Sponsor or any Affiliate of any of the foregoing Persons and (c) is not connected with the Trust, any such other obligor, the Sponsor or any Affiliate of any of the foregoing Persons as an officer, employee, promoter, underwriter, Indenture Trustee, partner, director or Person performing similar functions. "Indirect Participant" shall mean any financial institution for whom any Direct Participant holds an interest in the Notes. "Initial Cut-Off Date": With respect to the Initial Mortgage Loans, the opening of business on [DATE]. 8 14 "Initial Mortgage Loans": Mortgage Loans delivered to the Trust on the Closing Date. "Initial Redemption Date": The first date on which the Master Servicer, acting directly or through one or more affiliates, the Certificateholder or the Note Insurer are eligible to exercise its right of optional redemption of the Notes pursuant to Section 10.1(b) herein. "Insurance Agreement": The Insurance and Indemnity Agreement dated as of [DATE] among the Sponsor, the Master Servicer, the Trust, the Indenture Trustee and the Note Insurer, as it may be amended from time to time. "Insurance Policy": Any hazard, title or primary mortgage insurance policy relating to a Mortgage Loan. "Insurance Proceeds": Proceeds paid by any insurer (other than the Note Insurer) pursuant to any Insurance Policy covering a Mortgage Loan, or amounts required to be paid by the Master Servicer pursuant to the last sentence of the first paragraph of Section 4.11(b) of the Sale and Servicing Agreement, or the penultimate sentence of Section 4.11(c) of the Sale and Servicing Agreement, net of any component thereof (i) covering any expenses incurred by or on behalf of the Master Servicer in connection with obtaining such proceeds, (ii) that is applied to the restoration or repair of the related Mortgaged Property, (iii) released to the Mortgagor in accordance with the Master Servicer's normal servicing procedures, or (iv) required to be paid to any holder of a mortgage senior to such Mortgage Loan. "Insured Payment": As of any Payment Date, (i) any Deficiency Amount and (ii) any Preference Amount. "Interest Accrual Period": With respect to any Payment Date, the period commencing on the immediately preceding Payment Date (or the Closing Date in the case of the first Payment Date) to and including the day prior to the current Payment Date. All calculations of interest on the Notes will be made on the basis of [the actual number of days elapsed in the related Interest Accrual Period in a year of 360 days/ a year of 360 days consisting of twelve 30-day months]. "Interest Carry-Forward Amount": With respect to any Payment Date, the amount, if any, by which (x) the Interest Distribution Amount as of the immediately preceding Payment Date exceeded (y) the amount of the actual distribution made to the Noteholders on such immediately preceding Payment Date on account of the Interest Distribution Amount. "Interest Determination Date": With respect to any Interest Accrual Period for the Notes, the second London Business Day preceding the first day of such Interest Accrual Period. "Interest Distribution Amount": With respect to any Payment Date, the sum of (i) the product of (x) the Note Interest Rate applicable to such Payment Date and (y) the Principal Balance immediately prior to such Payment Date and (z) [the actual number of days elapsed during the related Interest Accrual Period divided by 360/1/12], provided that such amount will be reduced by any Relief Act Shortfalls relating to the Trust during the related Remittance Period and (ii) the Interest Carry Forward Amount. 9 15 "Interest Remittance Amount": As of any Remittance Date, the sum, without duplication, of (i) all interest accrued and collected (or advanced) by the Master Servicer during the related Remittance Period with respect to the Mortgage Loans (net of the Servicing Fee), except that with respect to Prepaid Installments, interest shall be remitted in the related Remittance Period and (ii) all Net Liquidation Proceeds actually collected by the Master Servicer with respect to the Mortgage Loans during the related Remittance Period (to the extent such Net Liquidation Proceeds relate to interest). "Issuer" means the party named as such in this Indenture 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" means a written order or request signed in the name of the Trust by any one of its Authorized Officers and delivered to the Indenture Trustee. "Issuer Secured Obligations" means the Note Insurer Issuer Secured Obligations and the Indenture Trustee Issuer Secured Obligations. "Issuer Secured Parties" means each of the Indenture Trustee in respect of the Indenture Trustee Issuer Secured Obligations and the Note Insurer in respect of the Note Insurer Issuer Secured Obligations. "Junior Mortgage Loan": A Mortgage Loan which constitutes a subordinate priority mortgage lien with respect to the related Mortgaged Property. "Late Payment Rate": For any Payment Date, means the lesser of (a) the greater of (x) the per annum rate of interest publicly announced from time to time by Citibank, N.A. as its prime or base lending rate (any change in such rate of interest to be effective on the date such change is announced by Citibank), plus 2% per annum and (y) the then applicable highest rate of interest on the Notes and (b) the maximum rate permissible under applicable usury or similar laws limiting interest rates. The Late Payment Rate shall be computed on the basis of [the actual number of days elapsed over a year of 360 days/a year of 360 days consisting of twelve 30-day months]. "LIBOR": With respect to any Interest Accrual Period for the Notes, the rate determined by the Indenture Trustee on the related 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 Screen Page 3750 (or any successor service thereto), as of 11:00 a.m. (London time) on such Interest Determination Date. On each Interest Determination Date, LIBOR for the related Interest Accrual Period will be established by the Indenture Trustee as follows: (i) If on such 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 1/16%. (ii) If on such Interest Determination Date fewer than two Reference Banks provide such offered quotations, LIBOR for the related Interest Accrual Period shall be 10 16 the higher of (i) LIBOR as determined on the previous Interest Determination Date and (ii) the Reserve Interest Rate. "Liquidated Mortgage Loan": As defined in the Sale and Servicing Agreement. "Liquidation Expenses": Expenses which are incurred by the Master Servicer or any Sub-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 Master Servicer or any Sub-Servicer pursuant to Section 4.9 of the Sale and Servicing Agreement with respect to the related Mortgage Loan. "Liquidation Proceeds": With respect to any Liquidated Mortgage Loan, any amounts (including the proceeds of any Insurance Policy but excluding any amounts drawn on the Note Policy) recovered by the Master Servicer in connection with such Liquidated Mortgage Loan, whether through Indenture Trustee's sale, foreclosure sale or otherwise. "Loan Balance": With respect to each Mortgage Loan, the outstanding principal balance thereof as of the Cut-Off Date or Subsequent Cut-Off-Date, as the case may be, less any related Principal Remittance Amounts relating to such Mortgage Loan included in previous related Monthly Remittance Amounts that were transferred by the Master Servicer or any Sub-servicer to the Indenture Trustee for deposit in the related Note Account; provided, however, (x) 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 and (y) the Loan Balance "as of the Cut-Off Date" for any Mortgage Loan originated during the period from the Cut-Off Date to the Closing Date shall be the original Loan Balance thereof. "London Business Day": A day on which banks are open for dealing in foreign currency, and exchange in London and New York City. "Master Servicer": Advanta Mortgage Corp. USA, a Delaware corporation, and its permitted successors and assigns. "Master Servicer Affiliate": A Person (i) controlling, controlled by or under common control with the Master Servicer and (ii) which is qualified to service residential mortgage loans. "Master Transfer Agreement": Any one of the Master Loan Transfer Agreements among the Sponsor and/or the Conduit Acquisition Trust, the Indenture Trustee and one or more Originators together with any related Conveyance Agreements (as defined therein). "Minimum Monthly Payment": With respect to any Mortgage Loan and any month, the minimum amount required to be paid by the related Mortgagor in that month. "Monthly Remittance Amounts": With respect to any Remittance Date, the sum of (i) the Interest Remittance Amount with respect to such Remittance Date and (ii) the Principal Remittance Amount with respect to such Remittance Date. 11 17 "Moody's": Moody's Investors Service, Inc. "Mortgage Files": As defined in the Sale and Servicing Agreement. "Mortgage Loans": As defined in the Sale and Servicing Agreement. "Mortgage": The mortgage, deed of trust or other instrument creating a first or subordinate lien on an estate in fee simple interest in real property securing a Note. "Net Liquidation Proceeds": As to any Liquidated Loan, Liquidation Proceeds net of, without duplication, Liquidation Expenses and unreimbursed Servicing Advances, unreimbursed 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": As defined in the recitals hereto. "Note Account": The Note Account established in accordance with Section 8.3 hereof and maintained by the Indenture Trustee. "Note Formula Capped Rate": With respect to any Payment Date, the lesser of (i) the Note Formula Rate for such Payment Date and (ii) ____%. "Note Formula Rate": With respect to the first Interest Accrual Period, LIBOR plus ____%. For any subsequent Interest Accrual Period, (x) with respect to any Interest Accrual Period which occurs on or prior to the Initial Redemption Date, LIBOR plus ____% per annum and (y) for any Interest Accrual Period thereafter, LIBOR plus _____% per annum. "Note Insurer Default": Any one of the following events shall have occurred and be continuing: (a) The Note Insurer shall have failed to make a payment required under the Note Policy; (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 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 or any other similar Federal or state law relating to insolvency, bankruptcy, rehabilitation, liquidation or reorganization which is final and nonappealable; or (c) A court of competent jurisdiction, the New York Department of Insurance, or other competent regulatory authority shall have entered a final and nonappealable order, judgment or decree (i) appointing a custodian, Indenture 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, Indenture Trustee, agent or receiver of the Note 12 18 Insurer (or the taking of possession of all or any material portion of the property of the Note Insurer). "Note Insurer Issuer Secured Obligations": All amounts and obligations which the Trust may at any time owe to or on behalf of the Note Insurer under this Indenture, the Insurance Agreement or any other Operative Document. "Note Insurer": ______________________ or any successor thereto, as issuer of the Note Policy. "Note Interest Rate": As to any Payment Date, the lesser of (i) the Note Formula Rate and (ii) the Available Funds Cap Rate. "Noteholder": The Person in whose name a Note is registered on the Note Register. "Note Owner": With respect to a Book-Entry Note, the person who is the owner of such Book-Entry Note or following the issuance of definitive Notes, the registered owner of the Notes. "Note 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 Trust to make payments to and distributions from the Note Account, including payment of principal of or interest on the Notes on behalf of the Trust. "Note Policy": The financial guaranty insurance policy dated [DATE], issued by the Note Insurer to the Indenture Trustee for the benefit of the Noteholders. "Note Principal Balance": As defined in the Sale and Servicing Agreement. "Note Register" and "Note Registrar" have the respective meanings specified in Section 2.3. "Note": The note or other evidence of indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan. "Officer's Certificate" means a certificate signed by any Authorized Officer of the Trust, under the circumstances described in, and otherwise complying with, the applicable requirements of Section 11.1 and TIA ss. 314, and delivered to the Indenture Trustee. "Operative Documents": The Indenture, the Trust Agreement, the Sale and Servicing Agreement, the Subsequent Transfer Agreements, the Note Policy, the Notes, the Indemnification Agreement and the Insurance Agreement. "Opinion of Counsel": One or more opinions of counsel who may, except as otherwise expressly provided in this Indenture, be employees of or counsel to the Trust and, if addressed to the Note Insurer, satisfactory to the Note Insurer, and which shall comply with any 13 19 applicable requirements of Section 11.1, and if addressed to the Note Insurer, satisfactory to the Note Insurer. "Original Note Principal Balance": $___________. "Original Pre-Funded Amount": The amount deposited in the Pre-Funding Account on the Closing Date, from the proceeds of the sale of the Notes, which amount is $____________. "Original Principal Amount": With respect to each Note, the principal amount of such Note relating to a Senior Lien on the date of origination thereof. "Originator": Any entity from which the Sponsor has purchased (or, in the case of Subsequent Mortgage Loans, will purchase) Mortgage Loans, or Advanta Mortgage Corp. USA, Advanta Mortgage Corp. Midatlantic, Advanta Mortgage Corp. Midatlantic II, Advanta Mortgage Corp. Midwest, Advanta Mortgage Corp. of New Jersey, Advanta Mortgage Corp. Northeast, Advanta National Bank, Advanta Bank Corp. and Advanta Finance Corp. "Outstanding": With respect to all Notes, as of any date of determination, all such Notes theretofore executed and delivered hereunder except: (i) Notes theretofore cancelled by the Indenture Trustee or delivered to the Indenture Trustee for cancellation; (ii) Notes or portions thereof for which full and final payment money in the necessary amount has been theretofore deposited with the Indenture Trustee in trust for the Noteholders; (iii) Notes in exchange for or in lieu of which other Notes have been executed and delivered pursuant to this Agreement, unless proof satisfactory to the Indenture Trustee is presented that any such Notes are held by a bona fide purchaser; and (iv) Notes alleged to have been destroyed, lost or stolen for which replacement Notes have been issued as provided for in Section 2.4 hereof. "Overcollateralization Amount": With respect to any Payment Date, the excess, if any, of (x) the Pool Principal Balance as of such Payment Date over (y) the Note Principal Balance as of such Payment Date (after taking into account reductions therein on such Payment Date). "Overcollateralization Deficiency Amount": With respect to any Payment Date, the difference, if any, between (i) the Specified Overcollateralization Amount applicable to such Payment Date and (ii) the Overcollateralization Amount applicable to such Payment Date. "Overcollateralization Deficit": With respect to any Payment Date, the amount, if any, by which (i) the aggregate Note Principal Balance, after taking into account the payment to the Noteholders of all principal from sources other than the Note Policy on such Payment Date, 14 20 exceeds (ii) the sum of (x) the Pool Principal Balance as of the end of the applicable Remittance Period and (y) the amounts of deposit in the Pre-Funding Account. "Overcollateralization Increase Amount": With respect to any Payment Date, the lesser of (i) the Overcollateralization Deficiency Amount as of such Payment Date (after taking into account the payment of the Principal Distribution Amount on such Payment Date (except for any Overcollateralization Increase Amount) and (ii) the amount of Total Available Funds remaining to be allocated for such purpose pursuant to Section 8.7(b)(ix) hereof on such Payment Date. "Overcollateralization Reduction Amount": With respect to any Payment Date, the lesser of (x) the Excess Overcollateralization Amount for such Payment Date and (y) the Principal Remittance Amount for the prior Remittance Period. "Owner Trustee": [OWNER TRUSTEE], not in its individual capacity but solely as Owner Trustee under the Trust Agreement, its successors in interest or any successor Owner Trustee under the Trust Agreement. "Owner Trustee's Fee": A fee which is separately agreed to in writing between the Sponsor and the Owner Trustee. "Payment Date": Any date on which the Indenture Trustee is required to make distributions to the Noteholders, which shall be the 25th day of each month, commencing in the month following the Closing Date or, if such day is not a Business Day, then on the succeeding Business Day. "Percentage Interest": As to any Note that percentage, expressed as a fraction, the numerator of which is the Note Principal Balance of such Note as of the related Cut-Off Date and the denominator of which is the Original Note Principal Balance of all Notes; and as to any Certificate, that Percentage Interest set forth on such Certificate. "Person": Any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Pool Cumulative Realized Losses": With respect to any period, the sum of all Realized Losses with respect to the Mortgage Loans experienced during such period. "Pool Delinquency Rate": With respect to any Remittance Period, the fraction, expressed as a percentage, equal to (x) the aggregate Loan Balances of all Mortgage Loans 90 or more days Delinquent (including all foreclosures and REO Properties) as of the close of business on the last day of such Remittance Period over (y) the Pool Principal Balance as of the close of business on the last day of such Remittance Period. "Pool Factor": A seven-digit decimal which the Indenture Trustee shall compute monthly expressing the Note Principal Balance as of each Payment Date (after giving effect to any distribution of principal on such Payment Date) as a proportion of the Original Note Principal Balance. On the Closing Date, the Pool Factor will be 1.0000000. Thereafter, the Pool 15 21 Factor shall decline to reflect reductions in the related Principal Balance resulting from distributions of principal to the Notes. "Pool Principal Balance": The aggregate Loan Balances of all Mortgage Loans. "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. "Preference Amount": Any amount previously distributed to Noteholder that is recoverable and sought to be recovered as a voidable preference by a Indenture Trustee in bankruptcy pursuant to the United States Bankruptcy Code (11 U.S.C.), as amended from time to time, in accordance with a final nonappealable order of a court having competent jurisdiction. "Preference Amount": As defined in the Note Policy. "Pre-Funded Amount": As defined in the Sale and Servicing Agreement. "Pre-Funding Account": The Pre-Funding Account established in accordance with Section 8.3 hereof and maintained by the Indenture Trustee. "Pre-Funding Earnings": As defined in the Sale and Servicing Agreement. "Pre-Funding Period": As defined in the Sale and Servicing Agreement. "Premium Amount": As to any Payment Date, the product of (x) one-twelfth of the Premium Percentage and (y) the Note Principal Balance on such Payment Date (before taking into account any distributions of the Scheduled Principal Distribution Amount to be made on such Payment Date). "Premium Percentage": As defined in the Insurance Agreement. "Prepaid Installment": With respect to any Mortgage Loan, any installment of principal thereof and interest thereon received 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": Any payment of principal of a Mortgage Loan in full which is received by the Master Servicer in advance of the scheduled due date for the payment of such principal (other than the principal portion of any Prepaid Installment), and the proceeds of any Insurance Policy which are to be applied as a payment of principal on the related Mortgage Loan shall be deemed to be Prepayments for all purposes of this Agreement. "Preservation Expenses": Expenditures made by the Master Servicer or any Sub-servicer in connection with a foreclosed Mortgage Loan prior to the liquidation thereof, 16 22 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 Master Servicer or any Sub-Servicer pursuant to Section 4.8(a) of the Sale and Servicing Agreement. "Principal Distribution Amount": With respect to the Notes for any Payment Date, the lesser of: (i) the excess of (a) the sum, as of such Payment Date, of (x) the Total Available Funds and (y) any Insured Payment over (b) the Interest Distribution Amount; and (ii) the sum, without duplication, of: (a) the principal actually collected by the Master Servicer with respect to the Mortgage Loans in the Trust during the related Remittance Period, (b) the Loan Balance of each Mortgage Loan in the Trust that either was repurchased by an Originator or by the Sponsor or purchased by the Master Servicer or any Sub-Servicer on the related Remittance Date, to the extent such Loan Balance is actually received by the Indenture Trustee, (c) any Substitution Amounts delivered by the Sponsor or an Originator on the related Remittance Date in connection with a substitution of a Mortgage Loan, to the extent such Substitution Amounts are actually received by the Indenture Trustee, (d) all Net Liquidation Proceeds actually collected by the Master Servicer with respect to the Mortgage Loans during the related Remittance Period (to the extent such Net Liquidation Proceeds relate to principal), (e) the proceeds received by the Indenture Trustee of any termination of the Trust (to the extent such proceeds relate to principal), minus (f) the amount of any Overcollateralization Reduction Amount for such Payment Date. "Principal Remittance Amount": As of any Remittance Date, the sum, without duplication, of (i) the principal actually collected by the Master Servicer with respect to Mortgage Loans in the Trust during the related Remittance Period, (ii) the Loan Balance of each such Mortgage Loan that either was repurchased by an Originator or by the Sponsor or purchased by the Master Servicer or any Sub-Servicer on such Remittance Date, to the extent such Loan Balance was actually deposited in the Principal and Interest Account, (iii) any Substitution Amounts delivered by the Sponsor or an Originator in connection with a substitution of a Mortgage Loan, to the extent such Substitution Amounts were actually deposited in the 17 23 Principal and Interest Account on such Remittance Date, (iv) all Net Liquidation Proceeds actually collected by the Master Servicer with respect to such Mortgage Loans during the related Remittance Period (to the extent such Liquidation Proceeds related to principal) net of amounts allowed to be retained pursuant to Section 4.8(c) of the Sale and Servicing Agreement, (v) the proceeds of any liquidation of the Trust Estate (to the extent such proceeds relate to principal). "Proceeding" means any suit in equity, action at law or other judicial or administrative proceeding. "Property": The underlying property securing a Mortgage Loan. "Prospectus": That certain Prospectus dated [DATE] naming Advanta Conduit Receivables, Inc. as registrant and describing certain mortgage loan asset-backed securities to be issued from time to time as described in related Prospectus Supplements. "Prospectus Supplement": That certain Prospectus Supplement dated [DATE], describing the Notes issued by the Trust. "Rating Agency": Moody's and Standard & Poor's. If such agency or a successor is no longer in existence, "Rating Agency" shall be such statistical credit rating agency, or other comparable Person, designated by the Sponsor and the Note Insurer, notice of which designation shall be given to the Indenture Trustee. References herein to the highest short term unsecured rating category of a Rating Agency shall means A-1 or better in the case of Standard & Poor's and P-1 or better in the case of Moody's, and in the case of any other Rating Agency shall mean the ratings such other Rating Agency deems equivalent to the foregoing ratings. References herein to the highest long-term rating category of a Rating Agency shall mean "AAA" in the case of Standard & Poor's and "Aaa" in the case of Moody's, and in the case of any other Rating Agency, the rating such other Rating Agency deems equivalent to the foregoing ratings. "Realized Loss": As to any Liquidated Mortgage 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. "Record Date": With respect to each Payment Date, [the business day immediately preceding the Payment Date occurs/ the last Business Day of the calendar month immediately preceding the calendar month in which such payment date occurs]; provided, that if the Notes revert to Definitive Notes, the Record Date with respect to each Payment Date thereafter shall be the last Business Day of the calendar month immediately preceding the calendar month in which such payment date occurs. "Redemption Date": In the case of a redemption of the Notes pursuant to Section 10.1, the Payment Date specified by the Master Servicer or the Trust pursuant to Section 10.2(a). "Redemption Price": In the case of a redemption of the Notes pursuant to Section 10.1, an amount equal to the unpaid principal amount of the then outstanding principal amount of each class of Notes being redeemed plus accrued and unpaid interest thereon to but excluding the Redemption Date. 18 24 "Reference Banks": Chase Manhattan Bank, Deutsche Morgan Grenfell, Fuji Bank, Merita Bank, Lloyds, Sumitomo Bank, Barclay's Bank PLC, National Westminster Bank PLC, Abbey, Westpac, Hambros, Commerzbank AG, Citibank, United Bank of Switzerland AG, BTM, and Royal Bank of Scotland; 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 Sponsor or any affiliate thereof, (iii) whose quotations appear on the Telerate Screen Page 3750 on the relevant Interest Determination Date and (iv) which have been designated as such by the Indenture Trustee. "Registration Statement": The Registration Statement filed by the Sponsor with the Securities and Exchange Commission, including all amendments thereto and including the Prospectus and the Prospectus Supplement relating to the Notes constituting a part thereof. "Reimbursement Amount": As of any Payment Date, the sum of (x)(i) all payments made pursuant to the Note Policy previously received by the Indenture Trustee and all Preference Amounts previously paid to the Indenture Trustee by the Note Insurer and in each case not previously repaid to the Note Insurer pursuant to Section 8.7(b)(viii) hereof plus (ii) interest accrued on each such payment made pursuant to the Note Policy not previously repaid calculated at the Late Payment Rate from the date the Indenture Trustee received the related payment made pursuant to the Note Policy and (y)(i) any amounts then due and owing to the Note Insurer 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 Sponsor of the amount of any Reimbursement Amount. "Relief Act Shortfall": With respect to any Remittance Period, for any Mortgage Loan as to which there has been a reduction in the amount of interest collectible thereon for the most recently ended Remittance Period as a result of the application of the Civil Relief Act, the amount, if any, by which (i) interest collectible on such Mortgage Loan during the most recently ended calendar month is less than (ii) the sum of (a) one month's interest on the Loan Balance of such Mortgage Loan at the rate equal to the sum of the Note Interest Rate, the rate at which the Indenture Trustee's Fee is calculated and the Premium Percentage, plus (b) the aggregate Servicing Fee for such Mortgage Loan payable to the Master Servicer in such calendar month. "Remittance Date": Any date on which the Master Servicer is required to remit monies on deposit in the Principal and Interest Account to the Indenture Trustee, which shall be the 18th day or, if such day is not a Business Day, the next succeeding Business Day, of each month, commencing in the month following the month in which the Closing Date occurs. "Remittance Period": As to any Payment Date, the calendar month preceding the month of such Payment Date. "REO Property": A Mortgaged Property acquired by the Master 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. 19 25 "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. "Representation Letter": Letters to, or agreements with, the Depository to effectuate a book entry system with respect to the Notes registered in the Register under the nominee name of the Depository. "Reserve Interest Rate": With respect to any 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 1/16%) of the one-month U.S. dollar lending rates which three New York City banks selected by the Indenture Trustee are quoting on the relevant 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 three New York City banks selected by the Indenture Trustee are quoting on such Interest Determination Date to leading European banks. "Sale and Servicing Agreement": The Sale and Servicing Agreement dated as of [DATE], among the Trust, the Sponsor, the Master Servicer and the Indenture Trustee, as the same may be amended or supplemented from time to time. "Scheduled Principal Distribution Amount": With respect to the Notes for any Payment Date, an amount equal to the lesser of (x) the Principal Distribution Amount as of such Payment Date and (y) the Note Principal Balance as of such Payment Date. "Schedules of Mortgage Loans": The Schedules of Mortgage Loans, attached hereto as Schedule I as they may be further supplemented in connection with Subsequent Transfers. Such Schedules shall also contain one of the following codes for each Mortgage Loan or Subsequent Mortgage Loan: "C" if such Mortgage Loan is an Unaffiliated Originator Loan or "A" for all other Mortgage Loans. The information contained on each Mortgage Loan Schedule shall be delivered to the Indenture Trustee on a computer readable magnetic tape or disk. "Securities Act": The Securities Act of 1933, as amended. "Senior Lien": With respect to any Junior Mortgage Loan, the mortgage loan relating to the corresponding Property having a senior priority lien. "Servicing Advance": As defined in the Sale and Servicing Agreement. "Servicing Fee": As defined in the Sale and Servicing Agreement. "Specified Overcollateralization Amount": As defined in the Insurance Agreement. "Sponsor": Advanta Conduit Receivables, Inc., a Nevada corporation. 20 26 "Standard & Poor's": Standard & Poor's Rating Group, a division of The McGraw Hill Companies. "Subsequent Cut-Off Date": With respect to any Subsequent Mortgage Loan, the opening of business on the first day of the calendar month in which the related Subsequent Transfer Date occurs. "Subsequent Mortgage Loans" As defined in the Sale and Servicing Agreement. "Subsequent Transfer Agreement": Each Subsequent Transfer Agreement dated as of a Subsequent Transfer Date executed by the Indenture Trustee and the Sponsor substantially in the form of Exhibit L of the Sale and Servicing Agreement, by which Subsequent Mortgage Loans are assigned to the Trust. "Subsequent Transfer Date": The date specified in each Subsequent Transfer Agreement, which must, with respect to any Payment Date, be a date occurring during the calendar month in which such Payment Date occurs, at least five Business Days prior to the Remittance Date occurring in such month. "Sub-Servicer": Any Person with whom the Master Servicer has entered into a Sub-Servicing Agreement and who satisfies any requirements set forth in Section 8.3 hereof in respect of the qualification of a Sub-Servicer. "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 of the Mortgage Loan being replaced. "Telerate Screen Page 3750": The display designated on page 3750 on the Telerate Service (or such other page as may replace page 3750 on that service for the purpose of displaying London interbank offered rates of major banks) "Termination Date" means the latest of (i) the termination of the Note Policy and the return of the Note Policy to the Note Insurer for cancellation, (ii) the date on which the Note Insurer shall have received payment and performance of all Note Insurer Issuer Secured Obligations and (iii) the date on which the Indenture Trustee shall have received payment and performance of all Indenture Trustee Issuer Secured Obligations. "Total Available Funds": As defined in Section 8.7(a) hereof. "Trust Agreement": The Trust Agreement dated as of [DATE] between the Trust and the Sponsor. "Trust Estate": Collectively, all money, instruments and other property, to the extent such money, instruments and other property are subject or intended to be held in trust, and in the subtrusts, for the benefit of the Noteholders and the Note Insurer, including all proceeds 21 27 thereof including, without limitation, (i) the Initial Mortgage Loans, Qualified Replacement Mortgages and Subsequent Mortgage Loans, (ii) such amounts, including Eligible Investments, as from time to time may be held in all Accounts (except as otherwise provided herein and excluding any premium recapture), (iii) any Mortgaged Property, the Noteholdership of which has been effected on behalf of the Trust as a result of foreclosure or acceptance by the Master Servicer or any Sub-Servicer of a deed in lieu of foreclosure and that has not been withdrawn from the Trust, (iv) any Insurance Policies relating to the Mortgage Loans and any rights of the Trust and the Originators under any Insurance Policies (except for any non-mortgage or credit-life insurance policies), (v) Net Liquidation Proceeds with respect to any Liquidated Mortgage Loan, (vi) the Insurance Policies, (vii) such amounts held in the Capitalized Interest Account, and (viii) such amounts held in the Pre-Funding Account, the Principal and Interest Account and the Note Account. "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as amended and as in force on the date hereof, unless otherwise specifically provided. "Trust": Advanta Mortgage Loan Trust ____-_. "UCC": Unless the context otherwise requires, the Uniform Commercial Code, as in effect in the relevant jurisdiction, as amended from time to time. "Unaffiliated Originator Loan": Any Mortgage Loan purchased by the Sponsor from an Unaffiliated Originator and sold to the Trust by the Sponsor. "Unaffiliated Originators": Any Originator who is not affiliated with the Sponsor. "Underwriter": Morgan Stanley & Co. Incorporated. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Sale and Servicing Agreement or the Trust Agreement. SECTION 1.2. Incorporation by Reference of the 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 holder" means a Noteholder. "indenture to be qualified" means this Indenture. "Indenture Trustee" or "institutional Indenture Trustee" means the Indenture Trustee. 22 28 "obligor" on the indenture securities means the Trust. All other TIA terms used in this Indenture that are defined by the TIA, 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; and (v) words in the singular include the plural and words in the plural include the singular. SECTION 1.4. Action by or Consent of Noteholders. Whenever any provision of this Agreement refers to action to be taken, or consented to, by Noteholders, such provision shall be deemed to refer to the Noteholder of record as of the Record Date immediately preceding the date on which such action is to be taken, or consent given, by Noteholders. Solely for the purposes of any action to be taken, or consented to, by Noteholders, any Note registered in the name of Advanta Conduit Receivables, Inc. or any Affiliate thereof shall be deemed not to be outstanding; provided, however, that, solely for the purpose of determining whether the Indenture Trustee or the Owner Trustee is entitled to rely upon any such action or consent, only Notes which the Owner Trustee or the Indenture Trustee, respectively, knows to be so owned shall be so disregarded. SECTION 1.5. Conflict with TIA. If any provision hereof limits, qualifies or conflicts with a provision of the TIA that is required under the TIA to be part of and govern this Indenture, the latter provision shall control and all provisions required by the TIA are hereby incorporated by reference. If any provision of this Indenture modifies or excludes any provision of the TIA that may be so modified or excluded, the latter provisions shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. ARTICLE II. THE NOTES SECTION 2.1. Form. 23 29 The Notes, together with the Indenture Trustee's certificate of authentication, shall be in substantially the form set forth in Exhibit A, 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 of the Notes. 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. Each Note shall be dated the date of its authentication. The terms of the Note set forth in Exhibit A are part of the terms of this Indenture. SECTION 2.2. Execution, Authentication and Delivery. The Notes shall be executed on behalf of the Trust by any of its Authorized Officers. The signature of any such Authorized Officer on the Notes may be original or facsimile. Notes bearing the original or facsimile signature of individuals who were at any time Authorized Officers of the Trust shall bind the Trust, 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. The Indenture Trustee, upon receipt of a written Delivery Order from the Trust, shall authenticate and deliver Notes for original issue in an aggregate principal amount of $__________. The Notes outstanding at any time may not exceed such amounts except as provided in Section 2.6. Each Note shall be dated the date of its authentication. The Notes shall be issuable as registered Notes in the minimum denomination of $1000 and in 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 attached to 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 attached to any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder. Subject to Section 2.11, the Notes shall be Book-Entry Notes. SECTION 2.3. Registration; Registration of Transfer and Exchange. The Trust shall cause to be kept a register (the "Note Register") in which, subject to such reasonable regulations as it may prescribe, the Trust shall provide for the registration of Notes and the registration of transfers of Notes. The Indenture Trustee shall be "Note Registrar" for the purpose of registering Notes and transfers of Notes as herein provided. Upon any resignation of any Note Registrar, the Trust shall promptly appoint a successor or, if it elects not to make such an appointment, assume the duties of Note Registrar. 24 30 If a Person other than the Indenture Trustee is appointed by the Trust as Note Registrar, the Trust 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. The Indenture Trustee 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 Holders of the Notes and the principal amounts and number of such Notes. Upon surrender for registration or transfer of any Note at the office or agency of the Trust to be maintained as provided in Section 3.2, and if the requirements of Section 8-401(1) of the UCC are met, the Trust shall execute or cause the Indenture Trustee to authenticate one or more new Notes, in any authorized denominations, of the same class and a like aggregate principal amount. A Noteholder may also obtain from the Indenture Trustee, in the name of the designated transferee or transferees one or more new Notes, in any authorized denominations, of the same class and a like aggregate principal amount. Such requirements shall not be deemed to create a duty in the Indenture Trustee to monitor the compliance by the Trust with Section 8-401 of the UCC. At the option of the Holder, Notes may be exchanged for other Notes in any authorized denominations, of the same class and 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, and if the requirements of Section 8-401(1) of the UCC are met, the Trust shall execute and upon its request the Indenture Trustee shall authenticate the Notes which the Noteholder making the exchange is entitled to receive. Such requirements shall not be deemed to create a duty in the Indenture Trustee to monitor the compliance by the Trust with Section 8-401 of the UCC. All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Trust, 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 (i) duly endorsed by, or be accompanied by a written instrument of transfer in the form attached to Exhibit A, duly executed by the Holder thereof or such Holder's attorney duly authorized in writing, with such signature guaranteed by an "eligible guarantor institution" meeting the requirements of the Note Registrar all in accordance with the Exchange Act, and (ii) accompanied by such other documents as the Note Registrar may require. No service charge shall be made to a Holder for any registration of transfer or exchange of Notes, but the Note Registrar 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 9.6 not involving any transfer. The Note Registrar shall not register the transfer of any Note (other than the transfer of a Note to the nominee of the Depository) unless the transferee has executed and delivered to the Indenture Trustee a certification to the effect that either (i) the transferee is not 25 31 (A) an employee benefit plan (as defined in Section 3(3) of ERISA) that is subject to the provisions of Title I of ERISA or (B) a plan (as defined in Section 4975(e)(1) of the Code) that is subject to Section 4975 of the Code (each of the foregoing, a "Benefit Plan"), and is not acting on behalf of or investing the assets of a Benefit Plan, or (ii) that the transferee's acquisition and continued holding of the Note will be covered by a U.S. Department of Labor Prohibited Transaction Class Exemption. Each transferee of a beneficial interest in a Book-Entry Note shall be deemed to make one of the foregoing representations. SECTION 2.4. Mutilated, Destroyed, Lost or Stolen Notes. If (i) any mutilated Note is surrendered to the Note Registrar, or the Note Registrar receives evidence to its satisfaction of the destruction, loss or theft of any Note, and (ii) there is delivered to the Indenture Trustee and the Note Insurer such security or indemnity as may be required by it to hold the Trust, the Indenture Trustee and the Note Insurer harmless, then, in the absence of notice to the Trust, 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 Indenture Trustee shall execute and authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a replacement Note (such requirement shall not be deemed to create a duty in the Indenture Trustee to monitor the compliance by the Trust with Section 8-405); 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, the Indenture Trustee may, instead of issuing a replacement Note 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 Trust, the Indenture Trustee and the Note Insurer 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 Trust or the Indenture Trustee in connection therewith. Upon the issuance of any replacement Note under this Section, the Trust may require the payment by the Holder of such Note 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 Trust, 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. 26 32 SECTION 2.5. Persons Deemed Owners. Prior to due presentment for registration of transfer of any Note, the Trust, the Indenture Trustee and the Note Insurer and any agent of the Trust, the Indenture Trustee and the Note Insurer may treat the Person in whose name any Note is registered (as of the related Record Date) 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 Trust, the Note Insurer, the Indenture Trustee nor any agent of the Trust, the Note Insurer 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 as provided herein, and such amount shall be due and payable on each Payment Date as specified herein. Any installment of interest or principal, if any, payable on any Note which is punctually paid or duly provided for by the Trust 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 Notes have been issued pursuant to Section 2.11, 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 Final Scheduled Payment Date (and except for the Redemption Price for any Note called for redemption pursuant to Section 10.1(a)) 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) Upon written notice from the Trust, 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 Trust 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. Notices in connection with redemptions of Notes shall be mailed to Noteholders as provided in Section 10.2. (c) If the Trust defaults in a payment of interest on the Notes, the Trust shall pay defaulted interest (plus interest on such defaulted interest to the extent lawful) at the Late Payment Rate to the extent lawful. The Trust may pay such defaulted interest to the Persons who are Noteholders on a subsequent special record date, which date shall be at least five Business Days prior to the payment date. The Trust shall fix or cause to be fixed any such special record date and payment date, and, at least 15 days before any such special record date, the Trust shall mail to each Noteholder and the Indenture Trustee a notice that states the special record date, the payment date and the amount of defaulted interest to be paid. (d) Promptly following the date on which all principal of and interest on the Notes has been paid in full and the Notes have been surrendered to the Indenture Trustee, the 27 33 Indenture Trustee shall, upon written notice from the Master Servicer of the amounts, if any, that the Note Insurer has paid in respect of the Notes under the Note Policy or otherwise which has not been reimbursed to it, deliver such surrendered Notes to the Note Insurer to the extent not previously cancelled or destroyed. SECTION 2.7. Cancellation. Subject to Section 2.6(d), 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. Subject to Section 2.6(d), the Trust may at any time deliver to the Indenture Trustee for cancellation any Notes previously authenticated and delivered hereunder which the Trust 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. Subject to Section 2.6(d), 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 Trust 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. Release of Collateral. The Indenture Trustee shall, on or after the Termination Date, release any remaining portion of the Trust Estate from the lien created by this Indenture and deposit in the Note Account any funds then on deposit in any other Account. Except as otherwise set forth in the Sale and Servicing Agreement, the Indenture Trustee shall release property from the lien created by this Indenture pursuant to this Section 2.8 only upon receipt of an Issuer Request by it accompanied by an Officer's Certificate, an Opinion of Counsel and (if required by the TIA) Independent Certificates in accordance with TIA ss.ss. 314(c) and 314(d)(1) meeting the applicable requirements of Section 11.1 or as provided in Section 4.14 of the Sale and Servicing Agreement. SECTION 2.9. 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 or its custodian, the initial Clearing Agency, by, or on behalf of, the Trust. Such Notes shall initially be registered on the Note Register in the name of Cede & Co., the nominee of the initial Clearing Agency, and no Note Owner will receive a Definitive Note representing such Note Owner's interest in such Note, except as provided in Section 2.11. Unless and until definitive, fully registered Notes have been issued to Note Owners pursuant to Section 2.11: (i) the provisions of this Section shall be in full force and effect; (ii) the Note Registrar 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 Holder of the Notes, and shall have no obligation to the Note Owners; 28 34 (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 Note Owners shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Note Owners and the Clearing Agency and/or the Clearing Agency Participants. Unless and until Notes are issued pursuant to Section 2.11, 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; (v) whenever this Indenture requires or permits actions to be taken based upon instructions or directions of Holders 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 Note 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; and (vi) Note Owners may receive copies of any reports sent to Noteholders pursuant to this Indenture, upon written request, together with a certification that they are Note Owners and payment of reproduction and postage expenses associated with the distribution of such reports, from the Indenture Trustee at the Corporate Trust Office. SECTION 2.10. Notices to Clearing Agency. Whenever a notice or other communication to the Noteholders is required under this Indenture, unless and until Notes shall have been issued to Note Owners pursuant to Section 2.11, the Indenture Trustee shall give all such notices and communications specified herein to be given to Holders of the Notes to the Clearing Agency, and shall have no obligation to the Note Owners. SECTION 2.11. Definitive Notes. If (i) the Sponsor advises the Indenture Trustee in writing that the Clearing Agency is no longer willing or able to properly discharge its responsibilities with respect to the Notes, and the Sponsor is unable to locate a qualified successor, (ii) the Sponsor 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 a Event of Default, Note Owners representing beneficial interests aggregating at least a majority of the Outstanding Amount of the Notes advise the Indenture Trustee through 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 the Note Owners, then the Clearing Agency shall notify all Note Owners and the Indenture Trustee of the occurrence of any such event and of the availability of Definitive Notes to Note Owners requesting the same. Upon surrender to the Indenture Trustee of the typewritten Note or Notes representing the Book-Entry Notes by the Clearing Agency, accompanied by registration instructions, the Trust shall execute and the Indenture Trustee shall authenticate the Definitive Notes in accordance with the instructions of the Clearing Agency. None of the Trust, the Note Registrar or the Indenture Trustee shall be liable for any delay in delivery of such instructions 29 35 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 holders of the Notes as Noteholders. ARTICLE III. COVENANTS SECTION 3.1. Payment of Principal and Interest. The Trust will duly and punctually pay the principal of and interest on the Notes in accordance with the terms of the Notes and this Indenture. Without limiting the foregoing, the Trust will cause to be distributed all amounts on deposit in the Note Account on a Payment Date deposited therein pursuant to the Sale and Servicing Agreement for the benefit of the Notes, to Noteholders. Amounts properly withheld under the Code by any Person from a payment to any Noteholder of interest and/or principal shall be considered as having been paid by the Trust to such Noteholder for all purposes of this Indenture. SECTION 3.2. Maintenance of Office or Agency. The Trust will maintain an office or agency where Notes may be surrendered for registration, transfer or exchange of the Notes, and where notices and demands to or upon the Trust in respect of the Notes and this Indenture may be served. The Trust hereby initially appoints the Indenture Trustee to serve as its agent for the foregoing purposes. The Trust will give prompt written notice to the Indenture Trustee of the location, and of any change in the location, of any such office or agency. If at any time the Trust 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 Indenture Trustee's offices maintained at 123 Washington Street, NY, NY 10006 and the Trust 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. The Trust will cause each Note Paying Agent other than the Indenture Trustee to execute and deliver to the Indenture Trustee and the Note Insurer an instrument in which such Note Paying Agent shall agree with the Indenture Trustee (and if the Indenture Trustee acts as Note Paying Agent, it hereby so agrees), subject to the provisions of this Section, that such Note 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 Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided and pay such sums to such Persons as herein provided; (ii) give the Indenture Trustee written notice of any default by the Trust (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; 30 36 (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 Note Paying Agent; (iv) immediately resign as a Note 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 Note Paying Agent at the time of its appointment; and (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. The Trust 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 Note Paying Agent to pay to the Indenture Trustee all sums held in trust by such Note 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 Note Paying Agent; and upon such a payment by any Note Paying Agent to the Indenture Trustee, such Note Paying Agent shall be released from all further liability with respect to such money. Subject to applicable laws with respect to the escheat of funds, any money held by the Indenture Trustee or any Note 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 Trust on Issuer Request, and shall be deposited by the Indenture Trustee in the Note Account; and the Holder of such Note shall thereafter, as an unsecured general creditor, look only to the Trust for payment thereof (but only to the extent of the amounts so paid to the Trust), and all liability of the Indenture Trustee or such Note Paying Agent with respect to such trust money shall thereupon cease. SECTION 3.4. Existence. Except as otherwise permitted by the provisions of Section 3.10, the Trust 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 Trust 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 Trust Estate, the Notes, and each other instrument or agreement included in the Trust Estate. SECTION 3.5. Protection of Trust Estate. The Trust intends the security interest granted pursuant to this Indenture in favor of the Trust Secured Parties to be prior to all other liens in respect of the Trust Estate, and the Trust shall take all actions necessary to obtain and maintain, in favor of the Indenture Trustee, for the benefit of the Trust Secured Parties, a first lien on and a first priority, perfected security interest in the 31 37 Trust Estate. The Trust will from time to time prepare (or shall cause to be prepared), 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) Grant more effectively all or any portion of the Trust Estate; (ii) maintain or preserve the lien and security interest (and the priority thereof) in favor of the Indenture Trustee for the benefit of the Trust Secured Parties created by 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 of the Collateral; (v) preserve and defend title to the Trust Estate and the rights of the Indenture Trustee in such Trust Estate against the claims of all persons and parties; and (vi) pay all taxes or assessments levied or assessed upon the Trust Estate when due. The Trust hereby designates the Indenture Trustee its agent and attorney-in-fact to execute any financing statement, continuation statement or other instrument required by the Indenture Trustee pursuant to this Section; provided that, such designation shall not be deemed to create a duty in the Indenture Trustee or the Indenture Trustee to monitor the compliance of the Trust with respect to its duties under this Section 3.5 or the adequacy of any financing statement, continuation statement or other instrument prepared by the Trust. SECTION 3.6. Opinions as to Trust Estate. (a) On the Closing Date, the Trust shall furnish to the Indenture Trustee and the Note Insurer an Opinion of Counsel stating that, in the opinion of such counsel, such actions have been taken with respect to the recording and filing 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 are necessary to perfect and make effective the first priority lien and security interest in favor of the Indenture Trustee, for the benefit of the Trust Secured Parties, created by this Indenture. (b) Within 90 days after the beginning of each calendar year, beginning with the first calendar year beginning more than six months after the Closing Date, the Trust shall furnish to the Indenture Trustee and the Note Insurer, an Opinion of Counsel either stating that, in the opinion of such counsel, such actions have 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 are 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 32 38 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. SECTION 3.7. Performance of Obligations; Servicing of Mortgage Loans. (a) The Trust 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 Trust Estate 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 ordered by any bankruptcy or other court or as expressly provided in this Indenture, the Operative Documents or such other instrument or agreement. (b) The Trust may contract with other Persons acceptable to the Note Insurer 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 Trust shall be deemed to be action taken by the Trust. Initially, the Trust has contracted with the Master Servicer to assist the Trust in performing its duties under this Indenture. (c) The Trust 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 Trust Estate, including, but not limited, to preparing (or causing to be prepared) and 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 in accordance with and within the time periods provided for herein and therein. Except as otherwise expressly provided therein, the Trust 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 or the Holders of at least a majority of the Outstanding Amount of the Notes. (d) If an Authorized Officer of the Owner Trustee shall have actual knowledge of the occurrence of an Event of Servicer Termination under the Sale and Servicing Agreement, the Trust shall promptly notify the Indenture Trustee, the Note Insurer and the Rating Agencies thereof in accordance with Section 11.4, and shall specify in such notice the action, if any, the Trust is taking in respect of such default. If an Event of Servicer Termination shall arise from the failure of the Master Servicer to perform any of its duties or obligations under the Sale and Servicing Agreement with respect to the Mortgage Loans, the Trust shall take all reasonable steps available to it to remedy such failure. (e) The Trust agrees that it will not waive timely performance or observance by the Master Servicer or the Sponsor of their respective duties under the Operative Documents (x) without the prior consent of the Note Insurer or (y) if the effect thereof would adversely affect the Holders of the Notes. SECTION 3.8. Negative Covenants. 33 39 So long as any Notes are Outstanding, the Trust shall not: (i) except as expressly permitted by this Indenture or the Operative Documents, sell, transfer, exchange or otherwise dispose of any of the properties or assets of the Trust, including those included in the Trust Estate, without the consent of the Note Insurer (which consent may not be unreasonably withheld; provided, that if an Note Insurer Default has occurred and is continuing, the Noteholders representing 51% of the Noteholders may direct the Indenture Trustee to sell or dispose of the Trust Estate if the Indenture Trustee receives the Redemption Price, as described in Section 10.1. (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 Noteholder by reason of the payment of the taxes levied or assessed upon any part of the Trust Estate; or (iii) (A) permit the validity or effectiveness of this Indenture to be impaired, or permit the lien in favor of the Indenture Trustee created by 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 Trust Estate 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 a Mortgaged Property and arising solely as a result of an action or omission of the related Mortgagor), (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 Trust Estate or (D) amend, modify or fail to comply with the provisions of the Operative Documents without the prior written consent of the Note Insurer, which consent may not be unreasonably withheld. SECTION 3.9. Annual Statement as to Compliance. The Trust will deliver to the Indenture Trustee and the Note Insurer, within 90 days after the end of each fiscal year of the Trust (commencing with the fiscal year ended December 31, ____), and otherwise in compliance with the requirements of TIA Section 314(a)(4) an Officer's Certificate stating, as to the Authorized Officer signing such Officer's Certificate, that (i) a review of the activities of the Trust during such year and of 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 Trust has complied with all conditions and covenants under this Indenture throughout such year, or, if there has been a default in the compliance of any such condition or covenant, specifying each such default known to such Authorized Officer and the nature and status thereof. 34 40 SECTION 3.10. The Trust Shall Not Consolidate or Transfer Assets. (a) The Trust shall not consolidate or merge with or into any other Person. (b) Except as otherwise provided in the Sale and Servicing Agreement, the Trust shall not convey or transfer all or substantially all of its properties or assets, including those included in the Trust Estate, to any Person. SECTION 3.11. No Other Business. The Trust shall not engage in any business other than purchasing, owning, selling and managing the Mortgage Loans and other assets in the manner contemplated by this Indenture and the Operative Documents and activities incidental thereto. SECTION 3.12. No Borrowing. The Trust shall not issue, incur, assume, guarantee or otherwise become liable, directly or indirectly, for any Indebtedness except for (i) the Notes, (ii) obligations owing from time to time to the Note Insurer under the Insurance Agreement and (iii) any other Indebtedness permitted by or arising under the Operative Documents. The proceeds of the Notes shall be used exclusively to fund the Trust's purchase of the Mortgage Loans and the other assets specified in the Sale and Servicing Agreement, to fund the Pre-Funding Account and the Capitalized Interest Account and to pay the Trust's organizational, transactional and start-up expenses. SECTION 3.13. Guarantees, Loans, Advances and Other Liabilities. Except as contemplated by the Sale and Servicing Agreement or this Indenture, the Trust 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 3.14. Capital Expenditures. The Trust shall not make any expenditure (by long-term or operating lease or otherwise) for capital assets (either realty or personalty). SECTION 3.15. Compliance with Laws. The Trust shall comply with the requirements of all applicable laws, the non-compliance with which would, individually or in the aggregate, materially and adversely affect the ability of the Trust to perform its obligations under the Notes, this Indenture or any Operative Document. SECTION 3.16. Restricted Payments. 35 41 The Trust 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 Trust or otherwise with respect to any ownership or equity interest or security in or of the Trust or to the Master 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 Trust may make, or cause to be made, distributions to the Master Servicer, the Owner Trustee, the Indenture Trustee and the Certificateholders as permitted by, and to the extent funds are available for such purpose under, the Sale and Servicing Agreement, this Indenture, or Trust Agreement. The Trust will not, directly or indirectly, make payments to or distributions from the Note Account except in accordance with this Indenture and the Operative Documents. SECTION 3.17. Notice of Event of Defaults and Events of Servicing Termination. Upon a Responsible Officer of the Owner Trustee having actual knowledge thereof, the Trust agrees to give the Indenture Trustee, the Note Insurer and the Rating Agencies prompt written notice of each Event of Default hereunder or Event of Servicer Termination under the Sale and Servicing Agreement. SECTION 3.18. Further Instruments and Acts. Upon request of the Indenture Trustee or the Note Insurer, the Trust 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 3.19. Amendments of Sale and Servicing Agreement and Trust Agreement. The Trust shall not agree to any amendment to Section 9.01 of the Sale and Servicing Agreement or Section 11.1 of the Trust Agreement to eliminate the requirements thereunder that the Indenture Trustee, the Note Insurer or the Holders of the Notes consent to amendments thereto as provided therein. SECTION 3.20. Income Tax Characterization. For purposes of federal income, state and local income and franchise and any other income taxes, the Trust will treat the Notes as indebtedness of the Sponsor and hereby instructs the Indenture Trustee to treat the Notes as indebtedness of the Sponsor for federal and state tax reporting purposes. ARTICLE IV. SATISFACTION AND DISCHARGE SECTION 4.1. Satisfaction and Discharge of Indenture. 36 42 Upon payment in full of the Notes, 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 Noteholders to receive payments of principal thereof and interest thereon, (iv) Sections 3.3, 3.4, 3.5, 3.8, 3.10, 3.12, and 3.19, (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 Noteholders 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 written demand in the form of an Issuer Order and at the expense of the Trust, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture with respect to the Notes, when (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 which payment money has theretofore been deposited in trust or segregated and held in trust by the Trust and thereafter repaid to the Trust or discharged from such trust, as provided in Section 3.3) have been delivered to the Indenture Trustee for cancellation and the Note Policy has terminated and been returned to the Note Insurer for cancellation and all amounts owing to the Note Insurer have been paid in full; or (2) all Notes not theretofore delivered to the Indenture Trustee for cancellation (i) have become due and payable, (ii) will become due and payable at their Final Scheduled Payment Date within one year, or (iii) 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 Trust, and in the case of (i), (ii) or (iii) above, the Trust, 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 on the Final Scheduled Payment Date or Redemption Date (if the Notes shall have been called for redemption pursuant to Section 10.1(a) or (b)), as the case may be; (B) the Trust has paid or caused to be paid all Note Insurer Issuer Secured Obligations and all Indenture Trustee Issuer Secured Obligations; and 37 43 (C) the Trust has delivered to the Indenture Trustee and the Note Insurer an Officer's Certificate, an Opinion of Counsel and if required by the TIA, the Indenture Trustee or the Note Insurer an Independent Certificate from a firm of certified public accountants, each meeting the applicable requirements of Section 11.1(a) and each stating that all conditions precedent herein provided relating to the satisfaction and discharge of this Indenture have been complied with. SECTION 4.2. Application of Trust Money. All monies deposited with the Indenture Trustee pursuant to Section 4.1 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 Note Paying Agent, as the Indenture Trustee may determine, to the Holders of the particular Notes for the payment or redemption of which such monies have been deposited with the Indenture Trustee, of all sums due and to become due thereon for principal and interest. SECTION 4.3. Repayment of Monies Held by Note Paying Agent. In connection with the satisfaction and discharge of this Indenture with respect to the Notes, all monies then held by any Note Paying Agent other than the Indenture Trustee under the provisions of this Indenture with respect to such Notes shall, upon demand of the Trust, be paid to the Indenture Trustee to be held and applied according to Section 3.3 and thereupon such Note Paying Agent shall be released from all further liability with respect to such monies. ARTICLE V. REMEDIES SECTION 5.1. Rights Upon an Event of Default. If an Event of Default as described in Article XII shall have occurred and be continuing, but with the consent of the Note Insurer in the absence of a Note Insurer Default, the Indenture Trustee may, and on request of the Note Insurer or the Holders of Notes representing not less than 51% of the Outstanding Amount of the Notes (with the consent of the Note Insurer), shall, declare all the Notes to be immediately due and payable by a notice in writing to the Trust (and to the Indenture Trustee if given by Noteholders), and upon any such declaration such Notes, in an amount equal to the Outstanding Amount of the Notes, together with accrued and unpaid interest thereon to the date of such acceleration, shall become immediately due and payable, all subject to the prior written consent of the Note Insurer in the absence of a Note Insurer Default. At any time after such a declaration of acceleration of maturity of the Notes 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; provided the Note Insurer or the Holders of Notes representing more than 50% of the Outstanding Amount of the Notes, with the prior written consent of the Note Insurer, by written notice to the Trust and the Indenture Trustee, may rescind and annul such declaration and its consequences if: 38 44 (1) the Trust has paid or deposited with the Indenture Trustee a sum sufficient to pay: (A) 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 (B) all sums paid or advanced by the Indenture Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee, its agents and counsel; and (2) all Events of Default with respect to the Notes, other than the nonpayment of the principal of Notes that have become due solely by such acceleration, have been cured or waived as provided in Section 5.19. No such rescission shall affect any subsequent Event of Default or impair any right consequent thereon. SECTION 5.2. Collection of Indebtedness and Suits for Enforcement by Indenture Trustee. Subject to the following sentence, if an Event of Default with respect to the Notes occurs and is continuing, the Indenture Trustee may, with the prior written consent of the Note Insurer and shall, at the direction of the Note Insurer, proceed to protect and enforce its rights and the rights of the Noteholders and the Note Insurer by any Proceedings the Indenture Trustee deems appropriate 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 enforce any other proper remedy. Any proceedings brought by the Indenture Trustee on behalf of the Noteholders and the Note Insurer or any Noteholder against the Trust shall be limited to the preservation, enforcement and foreclosure of the liens, assignments, rights and security interests under the Indenture and no attachment, execution or other unit or process shall be sought, issued or levied upon any assets, properties or funds of the Trust, other than the Trust Estate relative to the Notes in respect of which such Event of Default has occurred. If there is a foreclosure of any such liens, assignments, rights and security interests under this Indenture, by private power of sale or otherwise, no judgment for any deficiency upon the indebtedness represented by the Notes may be sought or obtained by the Indenture Trustee or any Noteholder against the Trust. The Indenture Trustee shall be entitled to recover the costs and expenses expended by it pursuant to this Article V including reasonable compensation, expenses, disbursements and advances of the Indenture Trustee, its agents and counsel. SECTION 5.3. Remedies. (a) If an Event of Default with respect to the Notes shall have occurred and be continuing and the Notes have been declared due and payable and such declaration and its consequences have not been rescinded and annulled, the Indenture Trustee, at the direction of the Note Insurer may, for the benefit of the Noteholders and the Note Insurer, do one or more of the following: 39 45 (i) institute Proceedings for the collection of all amounts then payable on the Notes, or under this Indenture, whether by declaration or otherwise, enforce any judgment obtained, and collect from the Trust moneys adjudged due, subject in all cases to the provisions of Sections 3.1 and 5.3; (ii) sell the Trust Estate or any portion thereof or rights or interest therein, at one or more public or private sales called and conducted in any manner permitted by law; (iii) institute Proceedings from time to time for the complete or partial foreclosure of this Indenture with respect to the Trust Estate; (iv) exercise any remedies of a secured party under the Uniform Commercial Code and take any other appropriate action to protect and enforce the rights and remedies of the Indenture Trustee or the Holders of the Notes and the Note Insurer hereunder; and (v) refrain from selling the Trust Estate and apply all related Monthly Remittance Amounts pursuant to Section 5.6. SECTION 5.4. Indenture Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, composition or other judicial Proceeding relative to the Trust or any other obligor upon any of the Notes or the property of the Trust or of such other obligor or their creditors, the Indenture Trustee (irrespective of whether the 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 on the Trust for the payment of any overdue principal or interest) shall, at the direction of the Note Insurer, be entitled and empowered, by intervention in such Proceeding or otherwise to: (i) file and prove a claim for the whole amount of principal and interest owing and unpaid in respect of the Notes and 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 the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee, its agents and counsel) and of the Noteholders and the Note Insurer allowed in such Proceeding, and (ii) collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any receiver, assignee, Indenture Trustee, liquidator, or sequestrator (or other similar official) in any such Proceeding is hereby authorized by each Noteholder and the Note Insurer to make such payments to the Indenture Trustee and, in the event that the Indenture Trustee shall consent to the making of such payments directly to the Noteholders and the Note Insurer, to pay to the Indenture Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee, its agents and counsel. Nothing herein contained shall be deemed to authorize the Indenture Trustee to authorize or consent to or accept or adopt on behalf of any Noteholder or the Note Insurer any plan of reorganization, arrangement, adjustment or composition affecting any of the Notes or the rights 40 46 of any Holder thereof, or the Note Insurer, or to authorize the Indenture Trustee to vote in respect of the claim of any Noteholder or the Note Insurer in any such Proceeding. Any plan of reorganization, arrangement, adjustment or composition relative to the Trust or any other obligor upon any of the Notes or the property of the Trust or of such obligor or their creditors and affecting the Notes or the rights of the Note Insurer under this Indenture or the Insurance Agreement must be acceptable to the Note Insurer and, as long as no Note Insurer Default exists and is continuing, the Note Insurer shall be entitled to exercise the voting rights of the Holders of the Notes regarding such plan, reorganization, arrangement, adjustment or composition. SECTION 5.5. Indenture Trustee May Enforce Claims Without Possession of Notes. All rights of action and claims under this Indenture or any of the Notes may be prosecuted and enforced by the Indenture Trustee without the possession of any of the Notes or the production thereof in any Proceeding relating thereto, and any such Proceeding instituted by the Indenture Trustee, at the direction of the Note Insurer, shall be brought in its own name as Indenture Trustee of an express trust, and any recovery of judgment shall be for the ratable benefit of the Holders of the Notes and the Note Insurer in respect of which such judgment has been recovered after payment of amounts required to be paid pursuant to clause (i) Section 5.6. SECTION 5.6. Application of Money Collected. If the Notes have been declared due and payable following an Event of Default with respect to the Notes and such declaration and its consequences have not been rescinded and annulled, any money collected by the Indenture Trustee with respect to the Notes pursuant to this Article or otherwise and any other monies that may then be held or thereafter received by the Indenture Trustee as security for the Notes shall be applied in the following order, at the date or dates fixed by the Indenture Trustee and, in case of the payment of the entire amount due on account of principal of, and interest on, the Notes, upon presentation and surrender thereof: (i) first, to the Indenture Trustee any unpaid Indenture Trustee's Fees related to the Notes then due and any other amounts payable and due to the Indenture Trustee under this Indenture, including any costs or expenses incurred by it in connection with the enforcement of the remedies provided for in this Article; (ii) second, to the Servicer, any amounts required to pay the Servicer for any unpaid Servicing Fees related to the Mortgage Loans then due and, upon the final liquidation of the related Mortgage Loan or the final liquidation of the Trust Estate related to the Mortgage Loans, Servicing Advances and Delinquency Advances, including Nonrecoverable Advances related to the Mortgage Loans previously made by, and not previously reimbursed or retained by, the Servicer; (iii) third, to the payment of the Interest Distribution Amount then due and unpaid upon the Outstanding Amount of the Notes through the day preceding the date on which such payment is made; (iv) fourth, to the payment of the Note Principal Balance then due and unpaid upon the Outstanding Amount of the Notes; 41 47 (v) fifth, to the payment of the Note Insurer, all amounts due pursuant to the Insurance Agreement; and (vi) sixth, to the Certificateholders, any amount remaining on deposit in the Note Account. SECTION 5.7. Limitation of Suits. No Holder 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 in bankruptcy, or for any other remedy hereunder, unless: (i) the Holders of not less than 25% of the Outstanding Amount of the related 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; (ii) such Holder or Holders have offered to the Indenture Trustee indemnity reasonably satisfactory to it against the costs, expenses and liabilities to be incurred in complying with such request; (iii) the Indenture Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute such proceedings; (iv) no direction inconsistent with such written request has been given to the Indenture Trustee during such 60-day period by the Holders of a majority of the Outstanding Amount of the related Notes; and (v) an Note Insurer Default shall have occurred and be continuing; it being understood and intended that no Holders of Notes shall have any right in any manner whatsoever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders of Notes or to obtain or to seek to obtain priority or preference over any other Holders 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 Holders of related Notes, each representing less than a majority of the Outstanding Amount of the related 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 5.8. Unconditional Rights of Noteholders to Receive Principal and Interest. Notwithstanding any other provisions in this Indenture, the Holder 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 respective due dates thereof expressed in such Note or in this Indenture (or, in the case of redemption, on or after the Redemption Date) and to institute suit for 42 48 the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. SECTION 5.9. Restoration of Rights and Remedies. If the Control Party or any Noteholder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, then and in every such case the Trust, the Note Insurer, the Indenture Trustee and the Noteholders 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, the Note Insurer and the Noteholders shall continue as though no such proceeding had been instituted. SECTION 5.10. Rights and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Control Party or to the related Noteholders 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 5.11. Delay or Omission Not a Waiver. No delay or omission of the Indenture Trustee, Control Party or any Holder of any Note to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such 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 Noteholders 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 Noteholders, as the case may be. SECTION 5.12. Control by Noteholders. If the Indenture Trustee is the Control Party, the Holders of a majority of the Outstanding Amount of the related Notes, with the consent of the Note Insurer, shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Indenture Trustee pursuant to Section 12.1 with respect to the related Notes or exercising any trust or power conferred on the Indenture Trustee; provided that (i) such direction shall not be in conflict with any rule of law or with this Indenture; (ii) the Indenture Trustee may take any other action deemed proper by the Indenture Trustee that is not inconsistent with such direction; provided, however, that, subject to Section 6.1, the Indenture Trustee need not take any action that it determines might involve it in liability or might materially adversely affect the rights of any related Noteholders not consenting to such action. 43 49 SECTION 5.13. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Note by such Holder'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, (b) any suit instituted by the Note Insurer, any Noteholder, or group of Noteholders with the prior written consent of the Note Insurer, in each case holding in the aggregate more than 10% of the Outstanding Amount of the Notes or (c) any suit instituted by any Noteholder 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 Trust 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 Trust (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, the Note Insurer or the Noteholders shall be impaired by the recovery of any judgment by the Indenture Trustee or the Note Insurer against the Trust or by the levy of any execution under such judgment upon any portion of the Trust Estate or upon any of the assets of the Trust. SECTION 5.16. Performance and Enforcement of Certain Obligations. (a) Promptly following a request from the Indenture Trustee (at the direction of the Note Insurer) to do so and at the Master Servicer's expense, the Trust agrees to take all such lawful action as the Indenture Trustee may request to compel or secure the performance and observance by the Sponsor and the Master Servicer, as applicable, of each of their obligations to the Trust under or in connection with the Sale and Servicing 44 50 Agreement in accordance with the terms thereof, and to exercise any and all rights, remedies, powers and privileges lawfully available to the Trust under or in connection with the Sale and Servicing Agreement to the extent and in the manner directed by the Indenture Trustee, including the transmission of notices of default on the part of the Sponsor or the Master Servicer thereunder and the institution of legal or administrative actions or proceedings to compel or secure performance by the Sponsor or the Master Servicer of each of their obligations under the Sale and Servicing Agreement. (b) If the Indenture Trustee is a Control Party and if an Event of Default has occurred and is continuing, the Indenture Trustee may, and, at the written direction of the Holders of 66-2/3% of the Outstanding Amount of the related Class of Notes shall, exercise all rights, remedies, powers, privileges and claims of the Trust against the Sponsor or the Master 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 Sponsor or the Master Servicer of each of their obligations to the Trust thereunder and to give any consent, request, notice, direction, approval, extension or waiver under the Sale and Servicing Agreement, and any right of the Trust to take such action shall be suspended. SECTION 5.17. Subrogation. The Indenture Trustee shall receive as attorney-in-fact of each Noteholder any Insured Payment from the Note Insurer pursuant to the Note Policy. Any and all Insured Payments disbursed by the Indenture Trustee from claims made under the Note Policy shall not be considered payment by the Trust, and shall not discharge the obligations of the Trust with respect thereto. The Note Insurer shall, to the extent it makes any payment with respect to any Notes, become subrogated to the rights of the recipient of such payments to the extent of such payments. Subject to and conditioned upon any payment with respect to any Notes by or on behalf of the Note Insurer, the Indenture Trustee shall assign to the Note Insurer all rights to the payment of interest or principal with respect to such Class of Notes which are then due for payment to the extent of all payments made by the Note Insurer. In addition to the rights of the Note Insurer set forth in Section 11.20 hereof, the Note Insurer may exercise any option, vote, right, power or the like with respect to such Class of Notes to the extent that it has made payment pursuant to the related Note Policy. SECTION 5.18. Preference Claims. (a) In the event that the Indenture Trustee has received a certified copy of an order of the appropriate court that any payment on a Note has been avoided in whole or in part as a preference payment under applicable bankruptcy law, the Indenture Trustee shall so notify the Note Insurer, shall comply with the provisions of the related Policy to obtain payment by the Note Insurer of such avoided payment, and shall, at the time it provides notice to the Note Insurer, notify Holders of the Notes by mail that, in the event that any Noteholder's payment is so recoverable, such Noteholder will be entitled to payment pursuant to the terms of the related Policy. The Indenture Trustee shall furnish to the Note Insurer at its written request, the requested records it holds in its possession evidencing the payments of principal of and interest on Notes, if any, which have been made by the Indenture Trustee and subsequently recovered from Noteholders, and the dates on which such payments were made. Pursuant to the terms of 45 51 the related Policy, the Note Insurer will make such payment on behalf of the Noteholder to the receiver, conservator, debtor-in-possession or trustee in bankruptcy named in the Final Order (as defined in the related Policy) and not to the Indenture Trustee or any Noteholder directly. (b) The Indenture Trustee shall promptly notify the Note Insurer of any proceeding or the institution of any action (of which the Indenture Trustee has actual knowledge) seeking the avoidance as a preferential transfer under applicable bankruptcy, insolvency, receivership, rehabilitation or similar law (a "Preference Claim") of any distribution made with respect to the Notes. Each Holder, by its purchase of Notes, and the Indenture Trustee hereby agree that so long as an Note Insurer Default shall not have occurred and be continuing, the Note Insurer 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 any Preference Claim and (ii) the posting of any surety, supersedes or performance bond pending any such appeal at the expense of the Note Insurer, but subject to reimbursement as provided in the Insurance Agreement. In addition, and without limitation of the foregoing, as set forth in Section 5.18, the Note Insurer shall be subrogated to, and each Noteholder and the Indenture Trustee hereby delegate and assign, to the fullest extent permitted by law, the rights of the Indenture Trustee and each Noteholder in the conduct of any proceeding with respect to a 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. SECTION 5.19. Waiver of Past Defaults. The Note Insurer or the Holders of Notes representing more than 50% of the aggregate Principal Balance of the Outstanding Notes on the applicable Record Date may on behalf of the Holders of all the Notes, and with the consent of the Note Insurer, waive any past default hereunder and its consequences, except a default in the payment of principal or any installment of interest on any Note. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture, but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. ARTICLE VI. THE INDENTURE TRUSTEE SECTION 6.1. Duties of Indenture Trustee. (a) If a Event of Default has occurred and is continuing, the Indenture Trustee shall exercise the rights and powers vested in it by this Indenture and the Operative Documents and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs; provided, however, that if the Indenture Trustee is acting as Master Servicer, it shall use the same degree of care and skill as is required of the Master Servicer under the Sale and Servicing Agreement. 46 52 (b) Except during the continuance of a 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 opinions furnished to the Indenture Trustee and conforming to the requirements of this Indenture; however, the Indenture Trustee shall examine the certificates and opinions to determine whether or not they conform on their face to the requirements 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 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; (iii) the Indenture Trustee shall not be 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; and (iv) the Indenture Trustee shall not be charged with knowledge of any failure by the Master Servicer to comply with the obligations of the Master Servicer referred to in clauses (i) and (ii) of Section 5.1 of the Sale and Servicing Agreement unless a Responsible Officer of the Indenture Trustee at the Corporate Trust Office obtains actual knowledge of such failure or occurrence or the Indenture Trustee receives written notice of such failure or occurrence from the Master Servicer, the Note Insurer or the Holders of Notes evidencing Voting Rights aggregating not less than 51%. (d) 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 Trust. (e) 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 indemnity reasonably satisfactory to it against such risk or liability is not reasonably assured to it. (f) Every provision of this Indenture relating to the conduct or 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. 47 53 (g) The Indenture Trustee shall, upon two Business Days' prior written notice to the Indenture Trustee, permit any representative of the Note Insurer, during the Indenture Trustee's normal business hours, to examine all books of account, records, reports and other papers of the Indenture Trustee relating to the Notes, to make copies and extracts therefrom and to discuss the Indenture Trustee's affairs and actions, as such affairs and actions relate to the Indenture Trustee's duties with respect to the Notes, with the Indenture Trustee's officers and employees responsible for carrying out the Indenture Trustee's duties with respect to the Notes. (h) The Indenture Trustee shall, and hereby agrees that it will, perform all of the obligations and duties required of it under the Sale and Servicing Agreement. (i) The Indenture Trustee shall, and hereby agrees that it will, hold the Note Policy in trust, and will hold any proceeds of any claim on the Note Policy in trust solely for the use and benefit of the Noteholders. (j) In no event shall [INDENTURE TRUSTEE], in any of its capacities hereunder, be deemed to have assumed any duties of the Owner Trustee under the Delaware Business Trust Statute, common law, or the Trust Agreement except making payments to the Certificateholders. SECTION 6.2. Rights of Indenture Trustee. (a) The Indenture Trustee may rely on any document reasonably 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. The Indenture Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the 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. (d) The Indenture Trustee shall not be liable for 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 the Indenture Trustee's conduct does not constitute willful misconduct, negligence or bad faith. (e) The Indenture Trustee may consult with counsel, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Notes shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (f) The Indenture Trustee shall be under no obligation to institute, conduct or defend any litigation under this Indenture or in relation to this Indenture, at the request, order or 48 54 direction of any of the Holders of Notes or the Control Party, pursuant to the provisions of this Indenture, unless such Holders of Notes or the Control Party shall have offered to the Indenture Trustee reasonable security or indemnity against the costs, expenses and liabilities that may be incurred therein or thereby; provided, however, that the Indenture Trustee shall, upon the occurrence of a Event of Default or Event of Servicer Termination as defined in the Sale and Servicing Agreement (that has not been cured or waived), exercise the rights and powers vested in it by this Indenture or the Sale and Servicing Agreement with reasonable care and skill. (g) The Indenture Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond or other paper or document, unless requested in writing to do so by the Note Insurer or by the Holders of Notes evidencing not less than 25% of the Outstanding Amount thereof; provided, however, that if the payment within a reasonable time to the Indenture Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Indenture Trustee, not reasonably assured to the Indenture Trustee by the security afforded to it by the terms of this Indenture or the Sale and Servicing Agreement, the Indenture Trustee may require indemnity reasonably satisfactory to it against such cost, expense or liability as a condition to so proceeding; the reasonable expense of every such examination shall be paid by the Person making such request, or, if paid by the Indenture Trustee shall be reimbursed by the Person making such request upon demand. (h) The Indenture Trustee shall not be accountable, shall have no liability and makes no representation as to any acts or omissions hereunder of the Master Servicer until such time as, and only to the extent that, the Indenture Trustee may be required to act as Master Servicer. 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 Trust or its Affiliates with the same rights it would have if it were not Indenture Trustee. Any Note 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, the Trust Estate or the Notes, it shall not be accountable for the Trust's use of the proceeds from the Notes, and it shall not be responsible for any statement of the Trust in the 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 an Event of Default or an Event of Servicer Termination occurs and is continuing and if it is either known by, or written notice of the existence thereof has been delivered to, a Responsible Officer of the Indenture Trustee, the Indenture Trustee shall mail to each Noteholder and to the Note Insurer of such event within 10 days after such knowledge or notice occurs. Except in the 49 55 case of an Event of Default in payment of principal of or interest on any Note, the Indenture Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of Noteholders. SECTION 6.6. Reports by Indenture Trustee to Holders. Upon written request, the Note Paying Agent or the Master Servicer shall on behalf of the Trust deliver to each Noteholder such information as may be reasonably required to enable such Holder to prepare its Federal and state income tax returns required by law. SECTION 6.7. Compensation and Indemnity. (a) The Indenture Trustee shall be liable in accordance herewith only to the extent of the obligations specifically imposed upon and undertaken by the Indenture Trustee herein. Neither the Indenture Trustee nor any of the directors, officers, employees or agents of the Indenture Trustee shall be under any liability on any Note or otherwise to any Account, the Sponsor, the Trust, the Master Servicer or any Securityholder for any action taken or for refraining from the taking of any action in good faith pursuant to this Indenture, or for errors in judgment; provided, however, that this provision shall not protect the Indenture Trustee or any such Person against any liability which would otherwise be imposed by reason of negligent action, negligent failure to act or bad faith in the performance of duties or by reason of reckless disregard of obligations and duties hereunder. Subject to the foregoing sentence, the Indenture Trustee shall not be liable for losses on investments of amounts in any Account (except for any losses on obligations on which the bank serving as Indenture Trustee is the obligor. The indemnification provided in this Section 6.7 shall survive the termination of this Indenture or the resignation or removal of the Indenture Trustee hereunder. The Indenture Trustee and any director, officer, employee or agent of the Indenture Trustee may rely and shall be protected in acting or refraining from acting in good faith on any certificate, notice or other document of any kind prima facie properly executed and submitted by the Authorized Officer of any Person respecting any matters arising hereunder. (b) The Trust's obligations to the Indenture Trustee pursuant to this Section shall survive the discharge of this Indenture. Notwithstanding anything else set forth in this Indenture or the Operative Documents, the Indenture Trustee agrees that the obligations of the Trust (but not the Master Servicer) to the Indenture Trustee hereunder and under the Operative Documents shall be recourse to the Trust Estate only and specifically shall not be recourse to the assets of the Trust or any Securityholder. In addition, the Indenture Trustee agrees that its recourse to the Trust, the Trust Estate, the Sponsor and amounts held in the Accounts shall be limited to the right to receive the distributions referred to herein. SECTION 6.8. Replacement of Indenture Trustee. The Indenture Trustee may resign at any time by so notifying the Trust and the Note Insurer by written notice. Upon receiving such notice of resignation, the Trust shall promptly appoint a successor Indenture Trustee (approved in writing by the Note Insurer, so long as such approval is not unreasonably withheld) by written instrument, in duplicate, one copy of such instrument shall be delivered to the resigning Indenture Trustee (who shall deliver a copy to the Master Servicer) 50 56 and one copy to the successor Indenture Trustee; provided, however, that any such successor Indenture Trustee shall be subject to the prior written approval of the Master Servicer, which approval shall not be unreasonably withheld. The Trust may and, at the request of the Note Insurer shall, remove the Indenture Trustee, if: (i) the Indenture Trustee fails to comply with Section 6.11; (ii) a court having jurisdiction in the premises in respect of the Indenture Trustee in an involuntary case or proceeding under federal or state banking or bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law, shall have entered a decree or order granting relief or appointing a receiver, liquidator, assignee, custodian, Indenture Trustee, conservator, sequestrator (or similar official) for the Indenture Trustee or for any substantial part of the Indenture Trustee's property, or ordering the winding-up or liquidation of the Indenture Trustee's affairs; (iii) an involuntary case under the federal bankruptcy laws, as now or hereafter in effect, or another present or future federal or state bankruptcy, insolvency or similar law is commenced with respect to the Indenture Trustee and such case is not dismissed within 60 days; (iv) the Indenture Trustee commences a voluntary case under any federal or state banking or bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law, or consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, Indenture Trustee, conservator, sequestrator (or other similar official) for the Indenture Trustee or for any substantial part of the Indenture Trustee's property, or makes any assignment for the benefit of creditors or fails generally to pay its debts as such debts become due or takes any corporate action in furtherance of any of the foregoing; or (v) 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 Trust shall promptly appoint a successor Indenture Trustee acceptable to the Note Insurer. If the Trust fails to appoint such a successor Indenture Trustee, the Note Insurer may appoint a successor Indenture Trustee. A successor Indenture Trustee shall deliver a written acceptance of its appointment to the retiring Indenture Trustee, to the Note Insurer and to the Trust. 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 retiring Indenture Trustee under this Indenture. The successor Indenture Trustee shall mail a notice of its succession to Noteholders. 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 30 days after the retiring Indenture Trustee resigns or is removed, the retiring Indenture Trustee, the Trust or the 51 57 Holders of a majority in 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, any Noteholder 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. Any resignation or removal of the Indenture Trustee and appointment of a successor Indenture Trustee pursuant to any of the provisions of this Section shall not become effective until acceptance of appointment by the successor Indenture Trustee pursuant to Section 6.8 and payment of all fees and expenses owed to the outgoing Indenture Trustee. Notwithstanding the replacement of the Indenture Trustee pursuant to this Section, the Trust's and the Master Servicer's indemnity obligations under Section 6.7 shall continue for the benefit of the retiring Indenture Trustee and the Master Servicer shall pay any amounts owing to the 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. 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 Indenture 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 which it is anywhere in the Notes or in this Indenture provided that the certificate of the Indenture Trustee shall have. 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 Trust may at the time be located, the Indenture Trustee with the consent of the Note Insurer shall have the power and may execute and deliver all instruments to appoint one or more Persons to act as a co-Indenture Trustee or co-Indenture Trustees, or separate Indenture Trustee or separate Indenture 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 Noteholders, such title to the Trust, 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-Indenture Trustee or separate Indenture Trustee hereunder shall be required to meet the terms of eligibility as a successor Indenture Trustee under Section 6.11 and no notice to Noteholders of the appointment 52 58 of any co-Indenture Trustee or separate Indenture Trustee shall be required under Section 6.8 hereof. (b) Every separate Indenture Trustee and co-Indenture 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 Indenture Trustee or co-Indenture Trustee jointly (it being understood that such separate Indenture Trustee or co-Indenture 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 Trust or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate Indenture Trustee or co-Indenture Trustee, but solely at the direction of the Indenture Trustee; (ii) no Indenture Trustee hereunder shall be personally liable by reason of any act or omission of any other Indenture Trustee hereunder, including acts or omissions of predecessor or successor Indenture Trustees; and (iii) the Indenture Trustee and the Master Servicer acting jointly may at any time accept the resignation of or remove any separate Indenture Trustee or co-Indenture Trustee except that following the occurrence of an Event of Servicer Termination, the Indenture Trustee acting alone may accept the resignation of or remove any separate Indenture Trustee or co-Indenture 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 Indenture Trustees and co-Indenture Trustees, as effectively as if given to each of them. Every instrument appointing any separate Indenture Trustee or co-Indenture Trustee shall refer to this Agreement and the conditions of this Article VI. Each separate Indenture Trustee and co-Indenture 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 Indenture Trustee or separately, as may be provided therein, 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 Indenture Trustee or co-Indenture 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 Agreement on its behalf and in its name. If any separate Indenture Trustee or co-Indenture Trustee shall die, dissolve, become insolvent, 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 Indenture Trustee. 53 59 (e) The Master Servicer shall be responsible for the fees of any co-Indenture Trustee or separate Indenture Trustee appointed hereunder. SECTION 6.11. Eligibility: Disqualification. The Indenture Trustee shall at all times satisfy the requirements of TIA Section 310(a). The Indenture Trustee shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. The Indenture Trustee shall provide copies of such reports to the Note Insurer upon request. 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 Trust are outstanding if the requirements for such exclusion set forth in TIA Section 310(b)(1) are met. SECTION 6.12. Preferential Collection of Claims Against the Trust. 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. Appointment and Powers. Subject to the terms and conditions hereof, each of the Trust Secured Parties hereby appoints [INDENTURE TRUSTEE] as the Indenture Trustee with respect to the Collateral, and [INDENTURE TRUSTEE] hereby accepts such appointment and agrees to act as Indenture Trustee with respect to the Trust Estate for the Trust Secured Parties, to maintain custody and possession of such Trust Estate (except as otherwise provided hereunder) and to perform the other duties of the Indenture Trustee in accordance with the provisions of this Indenture and the other Operative Documents. Each Issuer Secured Party hereby authorizes the Indenture Trustee to take such action on its behalf, and to exercise such rights, remedies, powers and privileges hereunder, as the Control Party may direct and as are specifically authorized to be exercised by the Indenture Trustee by the terms hereof, together with such actions, rights, remedies, powers and privileges as are reasonably incidental thereto. The Indenture Trustee shall act upon and in compliance with the written instructions of the Control Party delivered pursuant to this Indenture promptly following receipt of such written instructions; provided that the Indenture Trustee shall not act in accordance with any instructions (i) which are not authorized by, or in violation of the provisions of, this Indenture or (ii) for which the Indenture Trustee has not received reasonable indemnity. Receipt of such instructions shall not be a condition to the exercise by the Indenture Trustee of its express duties hereunder, except where this Indenture provides that the Indenture Trustee is permitted to act only following and in accordance with such instructions. SECTION 6.14. Performance of Duties. The Indenture Trustee shall have no duties or responsibilities except those expressly set forth in this Indenture and the other Operative Documents to which the Indenture Trustee is a party or as directed by the Control Party in accordance with this Indenture. The Indenture Trustee shall not be required to take any discretionary actions hereunder except at the written direction and with the indemnification of the Control Party. The Indenture Trustee shall, and hereby agrees 54 60 that it will, perform all of the duties and obligations required of it under the Sale and Servicing Agreement. SECTION 6.15. Limitation on Liability. Neither the Indenture Trustee nor any of its directors, officers, employees and agents shall be liable for any action taken or omitted to be taken by it or them hereunder, or in connection herewith, except that the Indenture Trustee shall be liable for its negligence, bad faith or willful misconduct; nor shall the Indenture Trustee be responsible for the validity, effectiveness, value, sufficiency or enforceability against the Trust of this Indenture or any of the Trust Estate (or any part thereof). SECTION 6.16. Reliance Upon Documents. In the absence of negligence, bad faith or willful misconduct on its part, the Indenture Trustee shall be entitled to rely on any communication, instrument, paper or other document reasonably believed by it to be genuine and correct and to have been signed or sent by the proper Person or Persons and shall have no liability in acting, or omitting to act, where such action or omission to act is in reasonable reliance upon any statement or opinion contained in any such document or instrument. SECTION 6.17. Representations and Warranties of the Indenture Trustee. The Indenture Trustee represents and warrants to the Trust and to each Issuer Secured Party as follows: (a) Due Organization. The Indenture Trustee is a national banking association, duly organized, validly existing and in good standing under the laws of the United States and is duly authorized and licensed under applicable law to conduct its business as presently conducted. (b) Corporate Power. The Indenture Trustee has all requisite right, power and authority to execute and deliver this Indenture and to perform all of its duties as the Indenture Trustee hereunder. (c) Due Authorization. The execution and delivery by the Indenture Trustee of this Indenture and the other Operative Documents to which it is a party, and the performance by the Indenture Trustee of its duties hereunder and thereunder, have been duly authorized by all necessary corporate proceedings, are required for the valid execution and delivery by the Indenture Trustee, or the performance by the Indenture Trustee, of this Indenture and such other Operative Documents. (d) Valid and Binding Indenture. The Indenture Trustee has duly executed and delivered this Indenture and each other Operative Document to which it is a party, and each of this Indenture and each such other Operative Document constitutes the legal, valid and binding obligation of the Indenture Trustee, enforceable against the Indenture Trustee in accordance with its terms, except as (i) such enforceability may be limited by bankruptcy, insolvency, reorganization and similar laws relating to or affecting the enforcement of creditors' 55 61 rights generally and (ii) the availability of equitable remedies may be limited by equitable principles of general applicability. SECTION 6.18. Waiver of Setoffs. The Indenture Trustee hereby expressly waives any and all rights of setoff that the Indenture Trustee may otherwise at any time have under applicable law with respect to any Account and agrees that amounts in the Accounts shall at all times be held and applied solely in accordance with the provisions hereof. SECTION 6.19. Control by the Control Party. The Indenture Trustee shall comply with notices and instructions given by the Trust only if accompanied by the written consent of the Control Party. SECTION 6.20. Indenture Trustee May Enforce Claims Without Possession of Notes. All rights of action and claims under this Agreement or the Notes may be prosecuted and enforced by the Indenture Trustee without the possession of any of the Notes or the production thereof in any proceeding relating thereto, and such proceeding instituted by the Indenture Trustee shall be brought in its own name or in its capacity as Indenture Trustee. Any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursement and advances of the Indenture Trustee, its agents and counsel, be for the ratable benefit of the Noteholders in respect of which such judgment has been recovered. SECTION 6.21. Suits for Enforcement. In case an Event of Servicer Termination or other default by the Master Servicer or the Sponsor hereunder shall occur and be continuing, the Indenture Trustee, if the Control Party (and if not the Control Party, with the consent of the Note Insurer), may proceed to protect and enforce its rights and the rights of the Noteholders under this Agreement by a suit, action or proceeding in equity or at law or otherwise, whether for the specific performance of any covenant or agreement contained in this Agreement or in aid of the execution of any power granted in this Agreement or for the enforcement of any other legal, equitable or other remedy, as the Indenture Trustee, being advised by counsel, shall deem most effectual to protect and enforce any of the rights of the Indenture Trustee and the Noteholders. SECTION 6.22. Mortgagor Claims. In connection with any offset defenses, or affirmative claim for recovery, asserted in legal actions brought by Mortgagors under one or more Mortgage Loans based upon provisions therein or upon other rights or remedies arising from any requirements of law applicable to the Mortgage Loans: (a) The Indenture Trustee is the holder of the Mortgage Loans only as Indenture Trustee on behalf of the holders of the Notes, and not as a principal or in any individual or personal capacity. 56 62 (b) The Indenture Trustee shall not be personally liable for, or obligated to pay Mortgagors, any affirmative claims asserted thereby, or responsible to holders of the Notes for any offset defense amounts applied against Mortgage Loan payments, pursuant to such legal actions. (c) The Indenture Trustee will pay, solely from available Trust money, affirmative claims for recovery by Mortgagors only pursuant to final judicial orders or judgments, or judicially-approved settlement agreements, resulting from such legal actions. (d) The Indenture Trustee will comply with judicial orders and judgments which require its actions or cooperation in connection with Mortgagors' legal actions to recover affirmative claims against holders of the Notes. (e) The Indenture Trustee will cooperate with and assist the Master Servicer, the Sponsor, or holders of the Notes in their defense of legal actions by Mortgagors to recover affirmative claims if such cooperation and assistance is not contrary to the interests of the Indenture Trustee as a party to such legal actions and if the Indenture Trustee is satisfactorily indemnified for all liability, costs and expenses arising therefrom. (f) The Trust hereby agrees to cause the Master Servicer to indemnify, hold harmless and defend the Indenture Trustee from and against any and all liability, loss, costs and expenses of the Indenture Trustee resulting from any affirmative claims for recovery asserted or collected by Mortgagors under the Mortgage Loans. ARTICLE VII. NOTEHOLDERS' LISTS AND REPORTS SECTION 7.1. The Trust to Furnish to Indenture Trustee Names and Addresses of Noteholders. The Trust will furnish or cause to be furnished to the Indenture Trustee (a) not more than five days after the earlier of (i) each Record Date and (ii) three months after the last Record Date, a list, in such form as the Indenture Trustee may reasonably require, of the names and addresses of the Holders 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 Trust 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. The Indenture Trustee or, if the Indenture Trustee is not the Note Registrar, the Trust shall furnish to the Note Insurer or the Trust in writing upon their written request and at such other times as the Note Insurer or the Trust may request a copy of the list. SECTION 7.2. Preservation of Information; Communications to Noteholders. (a) The Indenture Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of the Holders contained in the most recent list furnished to the Indenture Trustee as provided in Section 7.1 and the names and addresses of Holders 57 63 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) Noteholders may communicate pursuant to TIA Section 312(b) with other Noteholders with respect to their rights under this Indenture or under the Notes. (c) The Trust, the Indenture Trustee and the Note Registrar shall have the protection of TIA Section 312(c). SECTION 7.3. Reports by the Trust. (a) The Trust shall: (i) file with the Indenture Trustee, within 15 days after the Trust is required to file the same with the Commission, copies of the annual reports and copies 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) which the Trust may be required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act; (ii) file with the Indenture Trustee and the Commission in accordance with rules and regulations prescribed from time to time by the Commission such additional information, documents and reports with respect to compliance by the Trust with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (iii) supply to the Indenture Trustee (and the Indenture Trustee shall transmit by mail to all Noteholders described in TIA Section 313(c)) such summaries of any information, documents and reports required to be filed by the Trust pursuant to clauses (i) and (ii) of this Section 7.3(a) as may be required by rules and regulations prescribed from time to time by the Commission. (b) Unless the Trust otherwise determines, the fiscal year of the Trust shall end on December 31 of each year. SECTION 7.4. Reports by Indenture Trustee. If required by TIA Section 313(a), within 60 days after each December 31, beginning with December 31, ____, the Indenture Trustee shall mail to each Noteholder 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 Noteholders shall be filed by the Indenture Trustee with the Commission and each stock exchange, if any, on which the Notes are listed. The Trust shall notify the Indenture Trustee if and when the Notes are listed on any stock exchange. 58 64 ARTICLE VIII. PAYMENTS AND STATEMENTS TO NOTEHOLDERS AND CERTIFICATEHOLDERS; ACCOUNTS, DISBURSEMENTS AND RELEASES SECTION 8.1. Collection of Money. 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 and the Sale and Servicing Agreement including (a) all payments due on the Mortgage Loans and required to be paid over to the Indenture Trustee by the Master Servicer or by any Sub-Servicer and (b) Insured Payments. The Indenture Trustee shall apply all such money received by it as provided in this Indenture and the Sale and Servicing Agreement. Except as otherwise expressly provided in this Indenture or in the Sale and Servicing Agreement, if any default occurs in the making of any payment or performance under any agreement or instrument that is part of the Trust Estate, the Indenture Trustee may take such action as may be appropriate to enforce such payment or performance, including the institution and prosecution of appropriate proceedings. SECTION 8.2. Release of Trust Estate. (a) Subject to Section 8.12 and the payment of its fees and expenses pursuant to Section 6.7, the Indenture Trustee may, and when required by the Trust and the provisions of this Indenture shall, execute instruments to release property from the lien of this Indenture, in a manner and under circumstances that are not inconsistent with the provisions of this Indenture or the Sale and Servicing Agreement. 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 monies. (b) The Indenture Trustee shall, at such time as there are no Notes outstanding and all sums due the Indenture Trustee pursuant to Section 6.7 and to the Note Insurer pursuant to the Insurance Agreement have been paid, release any remaining portion of the Trust Estate that secured the Notes from the lien of this Indenture and release to the Trust or any other Person entitled thereto any funds then on deposit in the Accounts. The Indenture Trustee shall release property from the lien of this Indenture pursuant to this Section 8.2(b) 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 8.3. Establishment of Accounts. The Trust shall cause to be established, and the Indenture Trustee shall maintain, at the corporate trust office of the Indenture Trustee, a Note Account, a Pre-Funding Account and a 59 65 Capitalized Interest Account, each to be held by the Indenture Trustee in the name of the Trust for the benefit of the Noteholders and the Note Insurer, as their interests may appear. SECTION 8.4. The Note Policy. (a) On or before each Determination Date the Indenture Trustee shall determine with respect to the immediately following Payment Date, the Deficiency Amount, if any. (b) If the Indenture Trustee determines pursuant to paragraph (a) above that a Deficiency Amount would exist, the Indenture Trustee shall complete a Notice in the form of Exhibit A to the Note Policy and submit such notice to the Note Insurer no later than 12:00 p.m., New York City time on the third Business Day preceding such Payment Date as a claim for a payment in an amount equal to the Deficiency Amount. (c) Upon receipt of payments made pursuant to the Note Policy from the Note Insurer on behalf of Noteholders, the Indenture Trustee shall deposit such payments in the Note Account and shall distribute such payments, or the proceeds thereof, in accordance with Section 8.7(b) hereof to the Noteholders. (d) The Indenture Trustee shall (i) receive payments made pursuant to the Note Policy as attorney-in-fact of each Noteholder receiving any Insured Payment from the Note Insurer and (ii) disburse such Insured Payment to the Noteholders as set forth in Section 8.7(b) hereof. The Note Insurer shall be entitled to receive the related Reimbursement Amount pursuant to Section 8.7(b)(viii) hereof with respect to each Insured Payment made by the Note Insurer. The Indenture Trustee hereby agrees on behalf of each Noteholder and the Trust for the benefit of the Note Insurer that it recognizes that to the extent the Note Insurer makes payments pursuant to the Note Policy, either directly or indirectly (as by paying through the Indenture Trustee), to the Noteholders, the Note Insurer will be entitled to receive such related Reimbursement Amount. SECTION 8.5. Reserved. SECTION 8.6. Pre-Funding Account and Capitalized Interest Account. (a) On the Closing Date, the Indenture Trustee will deposit from the proceeds of the sale of the Notes, on behalf of the Noteholders and the Note Insurer, in the Pre-Funding Account, the Original Pre-Funded Amount and in the Capitalized Interest Account, the Capitalized Interest Account Deposit. (b) On each Subsequent Transfer Date, the Sponsor 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 transferred to the Trust on such Subsequent Transfer Date and pay such amount to or upon the order of the Sponsor upon satisfaction of the conditions set forth in Section 2.4 of the Sale and Servicing Agreement with respect to such transfer. 60 66 (c) On the Payment Dates occurring in __________ and ________, the Indenture Trustee shall transfer from the Pre-Funding Account to the Note Account, the Pre-Funding Earnings needed to pay interest on the portion of the Notes collateralized by amounts in the Pre-Funding Account, if any, applicable to each such Payment Date. On the Payment Dates occurring in __________ and ________, the Indenture Trustee shall distribute directly to the holders of the Certificates the Pre-Funding Earnings not used to pay interest on the portion of the Notes collateralized by amounts in the Pre-Funding Account, if any, applicable to such Payment Date. (d) [Reserved]. (e) On each Payment Date occurring in __________ and ________, the Indenture Trustee shall transfer from the Capitalized Interest Account to the Note Account the Capitalized Interest Requirement, if any, for such Payment Dates. (f) On the Payment Date occurring in ________, any amounts remaining in the Capitalized Interest Account after taking into account the transfers on such Payment Date described in clause (d) above shall be paid to the holders of the Certificates, and the Capitalized Interest Account shall be closed. (g) If (x) the Pre-Funded Amount has not been reduced to zero by the Payment Date occurring in ________ or (y) the Pre-Funded Amount has been reduced to $100,000 or less on any Remittance Date occurring during the Pre-Funding Period, in either case after giving effect to any reductions in the Pre-Funded Amount on or before the related such Remittance Date, the Sponsor shall instruct the Indenture Trustee to withdraw from the Pre-Funding Account on such Remittance Date and deposit to the Note Account the difference, if any, between (A) the Original Pre-Funded Amount and (B) all amounts theretofore withdrawn from the Pre-Funding Account with respect to Subsequent Mortgage Loans. SECTION 8.7. Flow of Funds. (a) The Indenture Trustee shall deposit to the Note Account, without duplication, upon receipt, (i) any payments made pursuant to the Note Policy relating to the Trust, (ii) the proceeds of any liquidation of the assets of the Trust, (iii) the Monthly Remittance Amount remitted by the Master Servicer or any Sub-Servicer, together with any Substitution Amounts, and any Loan Purchase Price amounts received by the Indenture Trustee, (iv) on the Payment Dates occurring in ________ or ________, the Pre-Funding Earnings transferred by the Indenture Trustee pursuant to Section 8.6(c) hereof, (v) the Capitalized Interest Requirement to be transferred on such Payment Dates from the Capitalized Interest Account, pursuant to Section 8.6(e) hereof and (vi) the portion of the amount, if any, to be transferred on such Payment Date from the Pre-Funding Account, pursuant to Section 8.6(g) hereof (collectively, the "Total Available Funds"). (b) Subject to any superseding provisions of clause (d) below, on each Payment Date, the Indenture Trustee shall make the following allocations, disbursements and transfers from amounts then on deposit in the Note Account in the following order of priority, 61 67 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, to the Indenture Trustee, the Indenture Trustee's Fee then due and to the Owner Trustee, the Owner Trustee's Fee then due; (ii) second, to the Note Insurer, the Premium Amount then due to the Note Insurer for such Payment Date. (iii) third, to the Master Servicer, an amount equal to any previously unreimbursed Servicing Fees then due to it on account of the Unaffiliated Originator Loans not theretofore received by the Master Servicer pursuant to Section 4.8(c)(i) of the Sale and Servicing Agreement, as reported by the Master Servicer to the Indenture Trustee. (iv) fourth, to the Noteholders, the Interest Distribution Amount for such Payment Date; (v) fifth, to the Noteholders, as a distribution of principal, the Scheduled Principal Distribution Amount for such Payment Date; (vi) sixth, to the Noteholders, as a distribution of principal, the related Overcollateralization Deficit for such Payment Date; (vii) seventh, if such Payment Date is the last Payment Date in the Pre-Funding Period, to the Noteholders, as a distribution of principal, any amount remaining in the Pre-Funding Account (after taking into account all transfers of Subsequent Mortgage Loans on or prior to such Payment Date); (viii) eighth, to the Note Insurer, the Reimbursement Amount, if any, then due to it; (ix) ninth, to the Noteholders, as a distribution of principal, up to an amount equal to the Accelerated Principal Payment; (x) tenth, to the Noteholders, to fund the amount of any Available Funds Cap Current Amount for such Payment Date; (xi) eleventh, to the Noteholders, to fund the amount of any Available Funds Cap Carry Forward Amount for such Payment Date; (xii) twelfth, to the Master Servicer, to the extent of any unreimbursed Delinquency Advances, unreimbursed Servicing Advances, including Nonrecoverable Delinquency Advances and Nonrecoverable Servicing Advances and accrued and unpaid Servicing Fees as of such Payment Date; (xiii) thirteenth, to the Indenture Trustee and the Owner Trustee, to the extent of any unreimbursed expenses owed to each of them with respect to the Trust; 62 68 (xiv) fourteenth, to the Certificateholders, any Overcollateralization Reduction Amount; and (xv) fifteenth, to the Certificateholders, any amount remaining on deposit in the Note Account. (c) Reserved. (d) On any Payment Date during the continuance of any Note Insurer Default described in clause (b) or (c) of the definition thereof: No Premium Amount shall be paid to the Note Insurer (unless the Note Insurer or its custodian, Indenture Trustee, agent, receiver, custodian, or similar official continues to make payments required under the Note Policy) and any amounts otherwise payable to the Note Insurer as Premium Amounts shall be retained in the Note Account as Total Available Funds. On any Payment Date wherein such Note Insurer Default has been cured, the Premium Amounts shall be paid to the Note Insurer. SECTION 8.8. Investment of Accounts. (a) So long as no event described in Section 5.1(a) or (b) of the Sale and Servicing Agreement 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 (other than each Principal and Interest Account shall be invested and reinvested by the Indenture Trustee in the name of the Indenture Trustee for the benefit of the Noteholders and the Note Insurer, as directed in writing by the Master Servicer, in one or more Eligible Investments bearing interest or sold at a discount. During the continuance of an event described in Section 5.1(a) or (b) of the Sale and Servicing Agreement and following any removal of the Master Servicer, the Note Insurer shall direct such investments. All investment income shall be held in the Accounts for the benefit of the Master Servicer. No investment in any Account shall mature later than the Business Day immediately 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) 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 Master Servicer or the Note Insurer, as the case may be, shall have failed to give investment directions to the Indenture Trustee; or 63 69 (ii) the Master Servicer or the Note Insurer, as the case may be, shall have failed to give investment directions to the Indenture Trustee by 11:15 a.m. New York time (or such other time as may be agreed by the Master Servicer or the Note Insurer, as the case may be, and the Indenture Trustee) on any Business Day (any such investment by the Indenture Trustee pursuant to this clause (ii) to mature on the next Business Day after the date of such investment). SECTION 8.9. 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 Housing Administration debentures and rated Aa2 or higher by Moody's and AA or better by Standard & Poor's if applicable. (c) Freddie Mac senior debt obligations and rated Aa2 or higher by Moody's and AA or better by Standard & Poor's, if applicable . (d) Federal Home Loan Banks' consolidated senior debt obligations and rated Aa2 or higher by Moody's and AA or better by Standard & Poor's if applicable. (e) FNMA senior debt obligations and rated Aa2 or higher by Moody's and AA or better by Standard & Poor's, if applicable. (f) Federal funds, certificates 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. (g) 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 and 2. Monies 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), and 3. The agreement is not subordinated to any other obligations of such insurance company or bank, and 4. The same guaranteed interest rate will be paid on any future deposits made pursuant to such agreement, and 64 70 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. (h) 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. (i) Investments in money market funds rated AAAm or AAAm-G by Standard & Poor's and Aaa or P-1 by Moody's. (j) Investments approved in writing by the Certificate 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 if such instrument may be prepaid or called at a price less than its purchase price prior to stated maturity. SECTION 8.10. Reports by Indenture Trustee. (a) On each Payment Date, to the extent that the related report described in Section 4.8(d)(ii) of the Sale and Servicing Agreement has been received by the Indenture Trustee, the Indenture Trustee shall provide to each Noteholder, to the Master Servicer, to the Note Insurer, to the Underwriter, to the Sponsor, to Standard & Poor's and to Moody's a written report in substantially the form set forth as Exhibit B hereto, as such form may be revised by the Indenture Trustee, the Master Servicer, Moody's and Standard & Poor's from time to time, but in every case setting forth the information requested on Exhibit B hereto and the following information: (i) the Scheduled Principal Distribution Amount; (ii) the amount of such distributions allocable to principal separately identifying the aggregate amount of any Prepayments or other unscheduled recoveries of principal included therein; (iii) the amount of such distributions allocable to interest; (iv) the amount of any Interest Carry Forward Amount; (v) the amount of any Insured Payment included in the amounts distributed to the Notes on such Payment Date; (vi) information furnished by the Sponsor pursuant to Section 6049(d)(7)(C) of the Code and the regulations promulgated thereunder to assist the Noteholders in computing their market discount; 65 71 (vii) the total of any Substitution Amounts and any Loan Purchase Price amounts included in such distribution; (viii) for Payment Dates during the Pre-Funding Period, the remaining Pre-Funded Amount; (ix) for the final Subsequent Transfer Date, the amount of any remaining Pre-Funded Amount that has not been used to fund the purchase of Subsequent Mortgage Loans and that will be distributed to the Noteholders as principal, if any, on the immediately following Payment Date; (x) the amounts, if any, of any Realized Losses for the related Remittance Period; and (xi) the Pool Cumulative Realized Losses (x) as a percentage of the average Pool Principal Balance as of the close of business on the last day of each of the twelve preceding Remittance Periods and (y) as a percentage of the Original Aggregate Loan Balance; and (xii) the Note Principal Balance and the Pool Factor, each after giving effect to such distribution of principal on such Payment Date; (xiii) the aggregate Loan Balances of all Mortgage Loans after giving effect to any payment of principal on such Payment Date both in the aggregate and in each Trust. (xiv) the weighted average Coupon Rate of the Mortgage Loans with respect to the Trust; (xv) the amount of any Available Funds Cap Current Amount and Available Funds Cap Carry Forward Amount; (xvi) the Overcollateralization Deficit; and (xvii) the amount of the Accelerated Principal Payment, if any, for the related Payment Date. (xviii) the amount by aggregate principal balance of Mortgage Loans repurchased for the previous period and the cumulative number of Mortgage Loans repurchased to date pursuant to Section 3.3(b) of the Sale and Servicing Agreement. Items (i) through (iii) above shall, with respect to each Note, 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 holder 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 Noteholder, to the Note Insurer, to the Underwriter, to the Master Servicer, to the Sponsor, 66 72 to Standard & Poor's and to Moody's, together with the information described in Subsection (a) preceding, the following information as of the close of business on the last Business Day of the prior calendar month, which is hereby required to be prepared by the Master Servicer and furnished to the Indenture Trustee for such purpose on or prior to the related Remittance Date: (i) the total number of Mortgage Loans and the Loan Balances thereof in the Trust, together with the number, aggregate Loan Balances of such Mortgage Loans and the percentage (based on the aggregate Loan Balance of the Mortgage Loans) of the aggregate Loan Balance of such Mortgage Loans to the aggregate Loan Balance of all Mortgage Loans (a) 30-59 days Delinquent, (b) 60-89 days Delinquent and (c) 90 or more days Delinquent; (ii) the number, aggregate Loan Balances of all Mortgage Loans and percentage (based on the aggregate Loan Balance of the Mortgage Loans) of the aggregate Loan Balance of such Mortgage Loans to the aggregate Loan Balance of all Mortgage Loans 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 and percentage (based on the aggregate Loan Balance of the Mortgage Loans) of the aggregate Loan Balance of such Mortgage Loans to the aggregate Loan Balance of all Mortgage Loans 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 and percentage (based on the aggregate Loan Balance of the Mortgage Loans) of the aggregate Loan Balance of such Mortgage Loans to the aggregate Loan Balance of all Mortgage Loans relating to REO Properties (and whether any such Mortgage Loans are also included in any of the statistics described in the foregoing clause (i)); and (v) the loan number of the related Mortgage Loan and the book value of any REO Property. (c) The foregoing reports shall be sent be to a Noteholder only insofar as such holder possesses a Note. (d) The Sponsor and the Master Servicer, on behalf of Noteholders and the Trust (the "Trust Parties") hereby authorize the Indenture Trustee to include the loan level information with respect to the Mortgage Loans, excluding any information relating to the fees or amounts due to the Note Insurer, contained in reports provided to the Note Insurer or the Indenture Trustee by the Master Servicer hereunder and, if so directed by an Authorized Officer of the Sponsor in writing to the Indenture Trustee, the monthly report in the Form of Exhibit F to the Noteholders prepared by the Indenture Trustee (the "Information") on The Bloomberg, an on-line computer based information network maintained by Bloomberg L.P. ("Bloomberg") or on any other on-line computer based information network or service ("Information Network"), or in other electronic or print information services deemed acceptable by the Sponsor or the Master 67 73 Servicer as designated in writing to the Indenture Trustee by an Authorized Officer of the Master Servicer. The Trust Parties agree not to commence any actions or proceedings, or otherwise assert any claims, against the Indenture Trustee or its affiliates or any of the Indenture Trustee's or its affiliates' respective agents, representatives, directors, officers or employees (collectively, the "Designated Parties"), arising out of, or related to or in connection with the dissemination and/or use of any Information by the Indenture Trustee, including, but not limited to, claims based on allegations of inaccurate or incomplete information by the Indenture Trustee to Bloomberg or to any Information Network or otherwise (other than in connection with the Indenture Trustee's negligence or willful misconduct). The Trust Parties waive their rights to assert any such claims against the Designated Parties and fully and finally release the Designated Parties from any and all such claims, demands, obligations, actions and liabilities (other than in connection with such Designated Parties' negligence or willful misconduct). The Indenture Trustee makes no representations or warranties, expressed or implied, of any kind whatsoever with respect to the accuracy, adequacy, timeliness, completeness, merchantability or fitness for any particular purpose of any Information in any form or manner. The authorizations, covenants and obligations of the Trust Parties under this section shall be irrevocable and shall survive the termination of this Agreement. SECTION 8.11. Additional Reports by Indenture Trustee. (a) The Indenture Trustee shall report to the Sponsor, the Master Servicer 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 Sponsor, the Master Servicer or the Note Insurer may from time to time request. Without limiting the generality of the foregoing, the Indenture Trustee shall, at the request of the Sponsor, the Master Servicer or the Note Insurer, transmit promptly to the Sponsor, the Master Servicer and the Note Insurer copies of all accounting of aggregate receipts in respect of the Mortgage Loans furnished to it by the Master Servicer pursuant to Section 4.8(d)(ii) of the Sale and Servicing Agreement and shall notify the Sponsor, the Master Servicer and the Note Insurer if any such receipts have not been received by the Indenture Trustee. (b) From time to time, at the request of the Note Insurer, the Indenture Trustee shall report to the Note Insurer with respect to its actual knowledge, without independent investigation, of any breach of any of the representations or warranties relating to individual Mortgage Loans set forth in Section 3.3(a) of the Sale and Servicing Agreement. On the date that is eighteen months after the Closing Date, the Indenture Trustee shall provide the Note Insurer with a written report of all of such inaccuracies to such date of which it has actual knowledge, without independent investigation, and of the action taken by the Sponsor under Section 3.4(b) of the Sale and Servicing Agreement with respect thereto. SECTION 8.12. Opinion of Counsel. The Indenture Trustee shall receive at least seven days' notice when requested by the Trust to take any action pursuant to Section 8.2(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, stating the legal effect of any such action, outlining the steps required to complete the same, and 68 74 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 Noteholders or the Note Insurer 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 Trust Estate. 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 Noteholders. (a) Without the consent of the Holders of any Notes but with the consent of the Note Insurer, as evidenced to the Indenture Trustee, the Trust 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 Trust, and the assumption by any such successor of the covenants of the Trust herein and in the Notes contained; (iii) to add to the covenants of the Trust, for the benefit of the Holders of the Notes, or to surrender any right or power herein conferred upon the Trust; (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 which 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 Holders of the Notes; (vi) to evidence and provide for the acceptance of the appointment hereunder by a successor Indenture 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 Indenture Trustee, pursuant to the requirements of Article VI; or 69 75 (vii) to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualification of this Indenture under the TIA or under any similar federal statute hereafter enacted and to add to this Indenture such other provisions as may be expressly required by the TIA. 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 Trust and the Indenture Trustee, when authorized by an Issuer Order, may, also without the consent of any of the Holders of the Notes but with the prior written consent of the Note Insurer and with prior notice to the Rating Agencies by the Trust, as evidenced to 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 Holders of the Notes under this Indenture; provided, however, that such action shall not, as evidenced by an Opinion of Counsel, adversely affect in any material respect the interests of any Noteholder. SECTION 9.2. Supplemental Indentures with Consent of Noteholders. The Trust and the Indenture Trustee, when authorized by an Issuer Order, also may, with prior notice to the Rating Agencies, with the consent of the Note Insurer and with the consent of the Holders of not less than a majority of the Outstanding Notes, by Act of such Holders delivered to the Trust 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 Holders of the Notes under this Indenture; provided, however, that, subject to the express rights of the Note Insurer under the Operative Documents, no such supplemental indenture shall, without the consent of the Holder of each Outstanding Note affected thereby: (i) change the date of payment of any installment of principal of or interest on any Note, or reduce the principal amount thereof, the interest rate thereon or the Redemption Price with respect thereto, change the provision of this Indenture relating to the application of collections on, or the proceeds of the sale of, the Trust Estate 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; (ii) 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); (iii) reduce the percentage of the Outstanding Notes, the consent of the Holders of which is required for any such supplemental indenture, or the consent of the Holders 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; 70 76 (iv) modify or alter the provisions of the proviso to the definition of the term "Outstanding"; (v) reduce the percentage of the Outstanding Notes required to direct the Indenture Trustee to direct the Trust to sell or liquidate the Trust Estate pursuant to Section 12.1; (vi) 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 Holder of each Outstanding Note affected thereby; (vii) 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 (viii) 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 Trust Estate or, except as otherwise permitted or contemplated herein or in any of the Operative Documents, terminate the lien of this Indenture on any property at any time subject hereto or deprive the Holder of any Note of the security provided by the lien of this Indenture. The Indenture Trustee may determine whether or not any Notes would be adversely affected by any supplemental indenture upon receipt of an Opinion of Counsel to that effect and any such determination shall be conclusive upon the Holders 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. It shall not be necessary for any Act of Noteholders 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. Promptly after the execution by the Trust and the Indenture Trustee of any supplemental indenture pursuant to this Section, the Indenture Trustee shall mail to the Holders of the Notes to which such amendment or supplemental indenture relates a notice setting forth in general terms the substance of such supplemental indenture. Any failure of the Indenture Trustee to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. 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 modifications 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 (and, if requested, an Officer's Certificate) 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 71 77 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 and 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 Trust and the Holders 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 Trust or the Indenture Trustee shall so determine, new Notes so modified as to conform, in the opinion of the Indenture Trustee and the Trust, to any such supplemental indenture may be prepared and executed by the Trust and authenticated and delivered by the Indenture Trustee in exchange for Outstanding Notes. SECTION 9.7. Amendment. (a) The Indenture Trustee, the Sponsor, the Trust and the Master Servicer, may at any time and from time to time, with the prior written consent of the Note Insurer but without the giving of notice to or the receipt of the consent of the Noteholders, amend this Agreement, and the Indenture Trustee shall consent to such amendment, for the purpose of curing any ambiguity, or correcting or supplementing any provision hereof which may be inconsistent with any other provision hereof; or to add provisions hereto which are not inconsistent with the provisions hereof; provided, however, that any such action shall not, as evidenced by an opinion of counsel delivered to the Indenture Trustee, materially and adversely affect the interests of any Owner (without its written consent). (b) The Indenture Trustee, the Sponsor, the Trust and the Master Servicer may, at any time and from time to time, with the prior written consent of the Note Insurer but without the giving of notice to or the receipt of the consent of the Noteholders, amend this Agreement, and the Indenture Trustee shall consent to such amendment, for the purpose of changing the definitions of "Specified Overcollateralization Amount"; provided, however, that no such change shall affect the weighted average life of the Notes (assuming an appropriate 72 78 prepayment speed as determined by the Underwriter with respect to the Notes by more than five percent, as determined by the Underwriter). (c) This Agreement may also be amended by the Indenture Trustee, the Sponsor, the Trust and the Master Servicer at any time and from time to time, with the prior written approval of the Note Insurer and not less than a majority of the Percentage Interest represented by the Notes then Outstanding, for the purpose of adding any provisions or changing in any manner or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of the Noteholders hereunder; provided, however, that no such amendment shall (a) change in any manner the amount of, or change the timing of, payments which are required to be distributed to any Noteholders without the consent of the Noteholders, (b) reduce the aforesaid percentages of Percentage Interests which are required to consent to any such amendments or (c) result in a down-rating or withdrawal of any ratings then assigned to the Notes, without the consent of all Noteholders then Outstanding. ARTICLE X. REDEMPTION OF NOTES SECTION 10.1. Redemption. (a) The Notes are subject to redemption following the later of (A) the Payment Date following payment in full of all amounts owing to the Note Insurer and (B) the earliest of (i) the transfer, under the conditions specified in Section 10.1(b), to the Master Servicer of the Noteholders' interest in each Mortgage Loan and all property acquired in respect of any Mortgage Loan remaining in the Trust for an amount equal to the sum of (a) the Note Principal Balance and (b) the sum of accrued and unpaid Interest Distribution Amount through the day preceding the final Payment Date, (ii) the day following the Payment Date on which the distribution made to Noteholders has reduced the Note Principal Balance to zero and no other amounts are owed to the Noteholders, (iii) the final payment or other liquidation of the last Mortgage Loan remaining in the Trust (including, without limitation, the disposition of the Mortgage Loan pursuant to Section 12.1 hereof) or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan and (iv) the Payment Date in _________; provided, however, that in no event shall the trust created hereby continue beyond the expiration of 21 years from the date of death of the last surviving descendants of Joseph P. Kennedy, the late ambassador of the United States to the Court of St. James, living on the date hereof. Upon termination in accordance with clause (B)(i) of this Section 10.1(a), the Indenture Trustee shall execute such documents and instruments of transfer presented by the Sponsor, in each case without recourse, representation or warranty, and take such other actions as the Sponsor may reasonably request to effect the transfer of the Mortgage Loan to the Sponsor. (b) The Notes shall be subject to optional redemption by the Master Servicer, acting directly or through one or more affiliates, or the Certificateholder, or, in the event that the Master Servicer or the Certificateholder do not exercise such option, the Note Insurer, on any Payment Date after the Note Principal Balance has been reduced to an amount less than or equal to $___________ (10% of the Original Note Principal Balance) and all amounts due and owing to the Note Insurer pursuant to the Insurance Agreement have been paid. Such transfer shall 73 79 only be permitted if the Master Servicer, acting directly or through one or more of affiliates, the Certificateholder or the Note Insurer delivers to the Indenture Trustee an amount equal to the sum of the outstanding Note Principal Balance and accrued and unpaid interest thereon at the Note Interest Rate through the day preceding the final Payment Date plus all Reimbursement Amounts. In connection with such purchase, the Master Servicer shall remit to the Indenture Trustee all amounts then on deposit in the Principal and Interest Account for deposit to the Note Account, which deposit shall be deemed to have occurred immediately preceding such purchase. (c) Promptly following any such purchase, the Indenture Trustee will release the Files to the Master Servicer, or otherwise upon their order, in a manner similar to that described in Section 4.14 of the Sale and Servicing Agreement. (d) Advanta National Bank may not participate in any purchase described in this Section 10.1(b), or fund any portion of the purchase price, unless the then-outstanding Principal Balances of the Mortgage Loans in the Trust Estate is less than or equal to five percent of the sum of the aggregate Loan Balances of all Mortgage Loans in the Trust Estate as of the Initial Cut-Off Date and the Original Pre-Funded Amount. (e) If the Notes are to be redeemed pursuant to this Section 10.1(a), the Master Servicer or the Trust shall furnish notice of such election to the Indenture Trustee not later than 45 days prior to the Redemption Date and the Trust shall deposit with the Indenture Trustee in the Note Account the Redemption Price of the Notes not less than five Business Days prior to the Redemption Date whereupon all such Notes shall be due and payable on the Redemption Date upon the furnishing of a notice complying with Section 10.2. SECTION 10.2. Surrender of Notes. (a) Notice of any termination, specifying the Payment Date (which shall be a date that would otherwise be a Payment Date) upon which the Noteholders may surrender their Notes to the Indenture Trustee for payment of the final distribution and cancellation, shall be given promptly by the Indenture Trustee (upon receipt of written directions from the Sponsor, if the Sponsor is exercising its right to transfer of the Mortgage Loans, given not later than the first day of the month preceding the month of such final distribution) to the Note Insurer and to the Master Servicer and by letter to Noteholders mailed not earlier than the 15th day and not later than the 25th day of the month next preceding the month of such final distribution specifying (i) the Payment Date upon which final distribution of the Notes will be made upon presentation and surrender of Notes at the office or agency of the Indenture Trustee therein designated, (ii) the amount of any such final distribution and (iii) that the Record Date otherwise applicable to such Payment Date is not applicable, distributions being made only upon presentation and surrender of the Notes at the office or agency of the Indenture Trustee therein specified. (b) Any money held by the Indenture Trustee in trust for the payment of any amount due with respect to any Note and remaining unclaimed by the related Noteholder for the period then specified in the escheat laws of the State of New York after such amount has become due and payable shall be discharged from such trust and be paid first, to the Note Insurer on account of any Reimbursement Amounts, and second, to the Certificateholders; and such Noteholder shall thereafter, as an unsecured general creditor, look only to the Note Insurer or the 74 80 Certificateholders for payment thereof (but only to the extent of the amounts so paid to the Note Insurer or the Certificateholders), and all liability of the Indenture Trustee with respect to such trust money shall thereupon cease; provided, however, that the Indenture Trustee, before being required to make any such payment, shall at the expense of the Trust cause to be published once, in the eastern edition of The Wall Street Journal, notice that such money remains unclaimed and that, after a date specified therein, which shall be not fewer than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be paid to the Note Insurer or the Certificateholders. The Indenture Trustee shall, at the direction of the Sponsor, also adopt and employ, at the expense of the Trust, any other reasonable means of notification of such payment (including, but not limited to, mailing notice of such payment to Noteholders whose right to or interest in monies due and payable but not claimed is determinable from the Note Register at the last address of record for each such Noteholder). SECTION 10.3. Form of Redemption Notice. Notice of redemption supplied to the Indenture Trustee by the Master Servicer under Section 10.1(a) shall be given by the Indenture Trustee by facsimile or by first-class mail, postage prepaid, transmitted or mailed prior to the applicable Redemption Date to each Holder of Notes of record, as of the close of business on the date which is not less than 5 days prior to the applicable Redemption Date, at such Holder's address appearing in the Note Register. All notices of redemption shall state: (i) the Redemption Date; (ii) the Redemption Price; (iii) that the Record Date otherwise applicable to such Redemption Date is not applicable and that payments shall be made only upon presentation and surrender of such Notes at the place where such Notes are to be surrendered for payment of the Redemption Price (which shall be the office or agency of the Trust to be maintained as provided in Section 3.2); and (iv) that interest on the Notes shall cease to accrue on the Redemption Date. Notice of redemption of the Notes shall be given by the Indenture Trustee in the name and at the expense of the Trust. Failure to give notice of redemption, or any defect therein, to any Holder of any Note shall not impair or affect the validity of the redemption of any other Note. SECTION 10.4. Notes Payable on Redemption Date. The Notes to be redeemed shall, following notice of redemption as required by Section 10.2, on the Redemption Date become due and payable at the Redemption Price and (unless the Trust 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. 75 81 ARTICLE XI. MISCELLANEOUS SECTION 11.1. Compliance Certificates and Opinions, etc. Upon any application or request by the Trust to the Indenture Trustee to take any action under any provision of this Indenture, the Trust shall furnish to the Indenture Trustee and to the Note Insurer if the application or request is made 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, (ii) an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with and (iii) (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: (i) a statement that each signatory of such certificate or opinion has read or has caused to be read such covenant or condition and the definitions herein relating thereto; (ii) 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; (iii) a statement that, in the opinion of each such signatory, such signatory has made such examination or investigation as is necessary to enable such signatory to express an informed opinion as to whether or not such covenant or condition has been complied with; and (iv) 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 Trust 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 76 82 certificate or opinion or representations with respect to the matters upon which his or her 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 Master Servicer, the Sponsor or the Trust, stating that the information with respect to such factual matters is in the possession of the Master Servicer, the Sponsor or the Trust, 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 Trust shall deliver any document as a condition of the granting of such application, or as evidence of the Trust'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 Trust 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 conclusively 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 Noteholders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Noteholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Noteholders 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 to the Indenture Trustee, and, where it is hereby expressly required, to the Trust. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Noteholders 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 Trust, 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 customary manner of the Indenture Trustee. (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 Holder of any Notes shall bind the Holder of every Note issued upon the registration thereof or in exchange therefor or in lieu thereof, in respect of anything done, 77 83 omitted or suffered to be done by the Indenture Trustee or the Trust in reliance thereon, whether or not notation of such action is made upon such Note. SECTION 11.4. Notices, etc. to Indenture Trustee, the Trust and Rating Agencies. Any request, demand, authorization, direction, notice, consent, waiver or Act of Noteholders or other documents provided or permitted by this Indenture to be made upon, given or furnished to or filed with: (a) The Indenture Trustee by any Noteholder or by the Trust shall be sufficient for every purpose hereunder if personally delivered, delivered by overnight courier or mailed first-class and shall be deemed to have been duly given upon receipt to the Indenture Trustee at its Corporate Trust Office and any notice delivered by facsimile shall be addressed to the Corporate Trust Office, telecopy number [TELECOPIER NUMBER], or (b) The Trust by the Indenture Trustee or by any Noteholder shall be in writing and shall be sufficient for every purpose hereunder if personally delivered, delivered by facsimile or overnight courier or mailed first class, and shall deemed to have been duly given upon receipt to the Trust addressed to: Advanta Mortgage Loan Trust ____-_, in care of [OWNER TRUSTEE], [ADDRESS], or at any other address previously furnished in writing to the Indenture Trustee by the Trust. The Trust shall promptly transmit any notice received by it from the Noteholders to the Indenture Trustee. (c) The Sponsor or the Master Servicer by the Indenture Trustee shall be in writing and shall be sufficient for every purpose hereunder if personally delivered, delivered by facsimile or overnight courier or mailed first class and shall be deemed to have been duly given upon receipt to the Sponsor or the Master Service addressed to: Advanta Conduit Receivables, Inc. 10790 Rancho Bernardo Road San Diego, CA 92127 Advanta Mortgage Corp. USA 10790 Rancho Bernardo Road San Diego, CA 92127 or such other address previously furnished in writing to the Indenture Trustee by Sponsor or Master Services. (d) The Note Insurer by the Trust or the Indenture Trustee shall be sufficient for any purpose hereunder if in writing and mailed by first-class mail, personally delivered, or telecopied to the recipient as follows: 78 84 To the Note Insurer: [ADDRESS] Notices required to be given to the Rating Agencies by the Trust, the Indenture Trustee or the Owner Trustee shall be in writing, personally delivered, delivered by overnight courier or first class or via facsimile to (i) in the case of Moody's, at the following address: Moody's Investors Service, Inc., 99 Church Street, New York, New York 10004, Fax No: (212) 533-0355 and (ii) in the case of Standard & Poor's, at the following address: Standard & Poor's Ratings Group, 26 Broadway (15th Floor), New York, New York 10004, Attention: Asset Backed Surveillance Department, Fax No: (212) 412-0224; or as to each of the foregoing, at such other address as shall be designated by written notice to the other parties. SECTION 11.5. Notices to Noteholders; Waiver. Where this Indenture provides for notice to Noteholders 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 Noteholder 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 Noteholders is given by mail, neither the failure to mail such notice nor any defect in any notice so mailed to any particular Noteholder shall affect the sufficiency of such notice with respect to other Noteholders, 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 Noteholders 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 Noteholders 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. SECTION 11.6. Alternate Payment and Notice Provisions. 79 85 Notwithstanding any provision of this Indenture or any of the Notes to the contrary, the Trust may enter into any agreement with any Holder of a Note providing for a method of payment, or notice by the Indenture Trustee or any Note Paying Agent to such Holder, that is different from the methods provided for in this Indenture for such payments or notices, provided that such methods are reasonable and consented to by the Indenture Trustee (which consent shall not be unreasonably withheld). The Trust will furnish to the Indenture Trustee a copy of each such agreement and the Indenture Trustee will cause payments to be made and notices to be given in accordance with such agreements. SECTION 11.7. 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 11.8. 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 11.9. Successors and Assigns. All covenants and agreements in this Indenture and the Notes by the Trust shall bind its successors and assigns, whether so expressed or not. All agreements of the Indenture Trustee in this Indenture shall bind its successors. SECTION 11.10. 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 11.11. Benefits of Indenture. The Note Insurer and its successors and assigns shall be a third-party beneficiary to the provisions of this Indenture, and shall be entitled to rely upon and directly to enforce such provisions of this 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, the Note Insurer and the Noteholders, and any other party secured hereunder, and any other person with an ownership interest in any part of the Trust Estate, any benefit or any legal or equitable right, remedy or claim under this Indenture. The Note Insurer may disclaim any of its rights and powers under this Indenture (in which case the Indenture Trustee may exercise such right or 80 86 power hereunder), but not its duties and obligations under the Note Policy, upon delivery of a written notice to the Indenture Trustee. SECTION 11.12. Legal Holidays. In any case where the date on which any payment is due shall not be a Business Day, then (except as otherwise provided by 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 11.13. 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 11.14. 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 11.15. Recording of Indenture. If this Indenture is subject to recording in any appropriate public recording offices, such recording is to be effected by the Trust and at its expense accompanied by an Opinion of Counsel (which may be counsel to the Trust or any other counsel reasonably acceptable to the Indenture Trustee and the Note Insurer) to the effect that such recording is necessary either for the protection of the Noteholders or any other person secured hereunder or for the enforcement of any right or remedy granted to the Indenture Trustee under this Indenture. SECTION 11.16. Trust Obligation. No recourse may be taken, directly or indirectly, with respect to the obligations of the Trust, the Sponsor, any Originator, the Master Servicer, 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 Sponsor, any Originator, the Master Servicer, the Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any owner of a beneficial interest in the Trust or (iii) any partner, owner, beneficiary, agent, officer, director, employee or agent of the Sponsor, any Originator, the Master Servicer, the Indenture Trustee or the Owner Trustee in its individual capacity, any holder of a beneficial interest in the Trust, the Sponsor, any Originator, the Master Servicer, the Owner Trustee or the Indenture Trustee or of any successor or assign of the Sponsor, any Originator, the Master Servicer, 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 owner or beneficiary shall be fully liable, to the 81 87 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 Trust hereunder, the Owner Trustee shall be subject to, and entitled to the benefits of, the terms and provisions of Articles VI, VII and VIII of the Trust Agreement. SECTION 11.17. No Petition. The Indenture Trustee, by entering into this Indenture, and each Noteholder, by accepting a Note, hereby covenant and agree that they will not at any time institute against the Sponsor, or the Trust, or join in any institution against the Sponsor, or the Trust 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 11.18. Inspection. The Trust agrees that, on reasonable prior notice, it will permit any representative of the Indenture Trustee or of the Note Insurer, during the Trust's normal business hours, to examine all the books of account, records, reports, and other papers of the Trust, to make copies and extracts therefrom, to cause such books to be audited by independent certified public accountants, and to discuss the Trust's affairs, finances and accounts with the Trust'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 11.19. Limitation of Liability. It is expressly understood and agreed by the parties hereto that (a) this Agreement is executed and delivered by [OWNER TRUSTEE], not individually or personally but solely as Owner Trustee of the Trust under the Trust Agreement, in the exercise of the powers and authority conferred and vested in it, (b) each of the representations, undertakings and agreements herein made on the part of the Trust is made and intended not as personal representations, undertakings and agreements by [OWNER TRUSTEE] but is made and intended for the purpose for binding only the Trust, (c) nothing herein contained shall be construed as creating any liability on [OWNER TRUSTEE] individually or personally, to perform any covenant either expressed or implied contained herein, all such liability, if any, being expressly waived by the parties to this Agreement and by any person claiming by, through or under them and (d) under no circumstances shall [OWNER TRUSTEE] be personally liable for the payment of any indebtedness or expenses of the Trust or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaking by the Trust under this Agreement or any related documents. 82 88 ARTICLE XII. EVENTS OF DEFAULT SECTION 12.1. Events of Default. The following shall constitute Events of Default: (a) failure on the part of the Trust (i) to make a payment or deposit required under the Sale and Servicing Agreement within five Business Days after the date such payment or deposit is required to be made or (ii) to observe or perform in any material respect any other covenants or agreements of the Trust set forth in the Sale and Servicing Agreement, which failure continues unremedied for a period of 60 days after written notice; (b) any representation or warranty made by the Sponsor in the Sale and Servicing Agreement proves to have been incorrect in any material respect when made and continues to be incorrect in any material respect for a period of 60 days after written notice and as a result of which the interests of the Holders or the Note Insurer are materially and adversely affected; provided, however, that a Event of Default shall not be deemed to occur if the Sponsor has purchased or made a substitution for the related Mortgage Loan or Mortgage Loans if applicable during such period (or within an additional 60 days with the consent of the Indenture Trustee and the Note Insurer) in accordance with the provisions of the related Sale and Servicing Agreement; (c) the occurrence of certain events of bankruptcy, insolvency or receivership relating to the Sponsor or the Master Servicer; (d) the Trust becomes subject to regulation by the Securities and Exchange Commission as an investment company within the meaning of the Investment Company Act of 1940, as amended; (e) the occurrence of an Event of Servicer Termination; (f) default in the payment of any interest, principal or any installment of principal on any Note when the same becomes due and payable, and such default continues for a period of five days; and (g) on any Payment Date, the failure to pay interest at the Note Formula Capped Rate. In the case of any event described in clause (a), (b), (e) or (g), an Event of Default will be deemed to have occurred only if, after the applicable grace period, if any, described herein or in the related Indenture or Sale and Servicing Agreement either (i) the Indenture Trustee or Holders holding Notes evidencing at least 50% of the aggregate principal amount of the Notes with the consent of the Note Insurer (so long as there is no continuing default by the Note Insurer in the performance of its obligations under the Note Policy) or the Note Insurer (so long as there is no continuing default by the Note Insurer in the performance of its obligations under the Note Policy), by written notice to the Note Insurer, the Sponsor, the Rating Agencies, and the Master Servicer 83 89 (and to the Indenture Trustee, if given by the Holders or the Note Insurer) declare that an Event of Default has occurred as of the date of such notice. In the case of any event described in clause (c), (d) or (f), an Event of Default will be deemed to have occurred without any notice or other action on the part of the Indenture Trustee, the Noteholders or the Note Insurer immediately upon the occurrence of such event. In addition to the consequences of an Event of Default discussed above, unless otherwise instructed within 60 days by the Noteholders representing undivided interests aggregating more than 50% of the aggregate principal amount of the Notes, the Indenture Trustee will sell, dispose of or otherwise liquidate the Trust Estate in a commercially reasonable manner and on commercially reasonable terms. Any such sale, disposal or liquidation and such sale, disposal or liquidation will be "servicing retained" by the Master Servicer. The net proceeds of such sale will first (if a Note Insurer Default shall not have occurred and be continuing) be paid to the Note Insurer to the extent of unreimbursed draws under the Note Policy and other amounts owing to the Note Insurer. The amount required to reduce the Note Principal Balance, together with all accrued and unpaid interest due thereon, to zero will be distributed to the Holders of the Notes; the Note Policy will guarantee and pay in full any amount by which such remaining net proceeds are insufficient to pay the Note Principal Balance in full. 84 90 IN WITNESS WHEREOF, the Trust and the Indenture Trustee have caused this Indenture to be duly executed by their respective officers, hereunto duly authorized, all as of the day and year first above written. ADVANTA MORTGAGE LOAN TRUST ____-_ By: [OWNER TRUSTEE], not in its individual capacity but solely as Owner Trustee, By:____________________________________________ Name: Title: [INDENTURE TRUSTEE], not in its individual capacity but solely as Indenture Trustee, By:____________________________________________ Name: Title: 91 EXHIBIT A [Form of Note] REGISTERED $________ No. A SEE REVERSE FOR CERTAIN DEFINITIONS CUSIP NO. _________ Unless this Note is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Trust or its agent for registration of transfer, exchange or payment, and any Note issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. ADVANTA MORTGAGE LOAN TRUST ____-_ MORTGAGE BACKED NOTES Advanta Mortgage Loan Trust ____-_, a business trust organized and existing under the laws of the State of Delaware (herein referred to as the "Issuer"), for value received, hereby promises to pay to CEDE & CO., or registered assigns, the principal sum of ($___________), such amount 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 from the Note Account in respect of principal on the Notes pursuant to Section 8.7 of the Indenture; provided, however, that the entire unpaid principal amount of this Note shall be due and payable on the __________, Payment Date (the "Final Scheduled Payment Date"). The Trust will pay interest on this Note at the rate per annum provided in the Indenture on each Payment Date until the principal of this Note is paid or made available for payment, on the principal amount of this Note outstanding on the preceding Payment Date (after giving effect to all payments of principal made on the preceding Payment Date). Interest on this Note will accrue for each Payment Date from the most recent Payment Date on which interest has been paid to but excluding such Payment Date or, if no interest has yet been paid, from [DATE]. Interest will be computed on A-1 92 the basis of the actual number of days elapsed in a 360-day year. Such principal of and interest on this Note shall be paid in the manner specified on the reverse hereof. 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 Trust 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. The Notes are entitled to the benefits of a financial guaranty insurance policy (the "Note Policy") issued by _________________ (the "Note Insurer"), pursuant to which the Note Insurer has unconditionally guaranteed payments of the Insured Payments on each Payment Date, all as more fully set forth in the Indenture. For purposes of federal income, state and local income and franchise and any other income taxes, the Trust will treat the Notes as indebtedness of the Trust and hereby instructs the Indenture Trustee to treat the Notes as indebtedness of the Trust for federal and state tax reporting purposes. Each Noteholder or Note Owner, by acceptance of this Note or, in the case of a Note 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 Trust, 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 Sponsor, any Originator, the Master Servicer, the Indenture Trustee, or the Owner Trustee in its individual capacity, (ii) any owner of a beneficial interest in the Trust or (iii) any owner, beneficiary, agent, officer, director or employee of the Sponsor, any Originator, the Master Servicer, the Indenture Trustee, or the Owner Trustee in its individual capacity, any holder of a beneficial interest in the Trust, the Sponsor, any Originator, the Master Servicer, the Owner Trustee or the Indenture Trustee or of any successor or assign of the Sponsor, any Originator, the Master Servicer, 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 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. 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. Each Note Owner, by acceptance of a beneficial interest in a Note, shall be deemed to represent either (i) that it is not (A) an employee benefit plan (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) that is A-2 93 subject to the provisions of Title I of ERISA or (B) a plan (as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code")) that is subject to Section 4975 of the Code (each of the foregoing, a "Benefit Plan"), and is not acting on behalf of or investing the assets of a Benefit Plan, or (ii) that its acquisition and continued holding of a beneficial interest in the Note will be covered by a U.S. Department of Labor Prohibited Transaction Class Exemption. A-3 94 IN WITNESS WHEREOF, the Trust has caused this instrument to be signed, manually or in facsimile, by its Authorized Officer. Date: [DATE] ADVANTA MORTGAGE LOAN TRUST ____-_ By: [OWNER TRUSTEE], not in its individual capacity but solely as Owner Trustee under the Trust Agreement By:____________________________________________ Name: Title: A-4 95 INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Notes designated above and referred to in the within-mentioned Indenture. Date: [DATE] [INDENTURE TRUSTEE], not in its individual capacity but solely as Indenture Trustee By:________________________________________________ Authorized Signatory A-5 96 REVERSE OF NOTE This Note is one of a duly authorized issue of Notes of the Trust, designated as its Mortgage Backed Notes (herein called the "Notes"), all issued under an Indenture dated as of [DATE] (such indenture, as supplemented or amended, is herein called the "Indenture"), between the Trust and [INDENTURE TRUSTEE], as Indenture Trustee (the "Indenture Trustee", which term includes any successor Indenture Trustee 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 Trust, the Indenture Trustee and the Holders of the Notes. The Notes are subject to all terms of the Indenture. All terms used in this Note that are defined in the Indenture, as supplemented or amended, shall have the meanings assigned to them in or pursuant to the Indenture, as so supplemented or amended. The Notes are and will be 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. "Payment Date" means the twenty-fifth day of each month, or, if any such date is not a Business Day, the next succeeding Business Day, commencing __________. The term "Payment Date," shall be deemed to include the Final Scheduled Payment Date. As described above, the entire unpaid principal amount of this Note shall be due and payable on the earlier of the Final Scheduled Payment Date and the Redemption Date, if any, pursuant to Section 10.1(a) of the Indenture. Notwithstanding the foregoing, the entire unpaid principal amount of the Notes shall be due and payable if the Sponsor or Master Servicer voluntarily files a bankruptcy petition or goes into liquidation or any person is appointed a receiver or bankruptcy trustee of the Sponsor or Master Servicer and the Indenture Trustee or the Holders of the Notes representing at least 50% of the Outstanding Amount of the Notes shall have the right to direct the Indenture Trustee to sell or liquidate the Trust Estate as provided in Section 5.1 of the Indenture. All principal payments on the Notes shall be made pro rata to the Noteholders entitled thereto. Payments of interest on this Note 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 Holder of this 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 Holders 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 A-6 97 unpaid principal amount of this Note on a Payment Date, then the Indenture Trustee, in the name of and on behalf of the Trust, will notify the Person who was the Holder hereof as of the Record Date preceding such Payment Date by notice mailed 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. The Trust shall pay interest on overdue installments of interest at the Note Rate to the extent lawful. As provided in the Indenture, the Notes may be redeemed pursuant to Section 10.1(b) of the Indenture at the option of the Certificateholders, on any Payment Date on or after the date on which the Note Principal Balance is less than or equal to 10% of the Original Note Principal Balance. 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 Trust pursuant to the Indenture, (i) duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Indenture Trustee duly executed by, the Holder hereof or his 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 Securities Transfer Agents 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, and (ii) accompanied by such other documents as the Indenture Trustee may require, and thereupon one or 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 Noteholder or Note Owner, by acceptance of a Note or, in the case of a Note 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 Trust, 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 Sponsor, any Originator, the Master Servicer, the Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any owner of a beneficial interest in the Trust or (iii) any owner, beneficiary, agent, officer, director or employee of the Sponsor, any Originator, the Master Servicer, the Indenture Trustee or the Owner Trustee in its individual capacity, any holder of a beneficial interest in the Trust, the Sponsor, any Originator, the Master Servicer, the Owner Trustee or the Indenture Trustee or of any successor or assign of the Sponsor, any Originator, the Master Servicer, 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 owner or beneficiary shall be fully liable, to the A-7 98 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 Noteholder or Note Owner, by acceptance of a Note or, in the case of a Note Owner, a beneficial interest in a Note covenants and agrees that by accepting the benefits of the Indenture that such Noteholder will not at any time institute against the Sponsor, or the Trust or join in any institution against the Sponsor, or the Trust 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, the Indenture or the Operative Documents. Prior to the due presentment for registration of transfer of this Note, the Trust, the Indenture Trustee and the Note Insurer and any agent of the Trust, the Indenture Trustee or the Note Insurer 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 neither the Trust, the Indenture Trustee nor 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 Trust and the rights of the Holders of the Notes under the Indenture at any time by the Trust with the consent of the Note Insurer and of the Holders of Notes representing a majority of the Outstanding Amount of all Notes at the time Outstanding. Any such consent or waiver by the Holder of this Note (or any one of more Predecessor Notes) shall be conclusive and binding upon such Holder and upon all future Holders 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 Indenture Trustee to amend or waive certain terms and conditions set forth in the Indenture without the consent of Holders of the Notes issued thereunder but with the consent of the Note Insurer. The term "Issuer" as used in this Note includes any successor to the Trust 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 Trust, 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 Indenture or the Operative Documents, neither [OWNER TRUSTEE] in its individual A-8 99 capacity, any owner of a beneficial interest in the Trust, nor any of their respective 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, or performance of, or omission to perform, any of the covenants, obligations or indemnifications contained in this Note or the Indenture, it being expressly understood that said covenants, obligations and indemnifications have been made by the Trust for the sole purposes of binding the interests of the Trust in the assets of the Trust. The Holder of this Note by the acceptance hereof agrees that except as expressly provided in the Indenture or the Operative Documents, in the case of an Event of Default under the Indenture, the Holder 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 Trust for any and all liabilities, obligations and undertakings contained in the Indenture or in this Note. A-9 100 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. (1) Dated:______________________________ ______________________________ Signature Guaranteed: ____________________________________ ______________________________ - -------- (1) NOTE: 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 whatsoever. A-10 EX-4.6 7 FORM OF MASTER LOAN TRANSFER AGREEMENT 1 EXHIBIT 4.6 - ------------------------------------------------------------------------------- MASTER LOAN TRANSFER AGREEMENT Dated as of [_____________, _____] by and among ADVANTA MORTGAGE CORP. USA ADVANTA MORTGAGE CORP. MIDATLANTIC ADVANTA MORTGAGE CORP. MIDATLANTIC II ADVANTA MORTGAGE CORP. MIDWEST ADVANTA MORTGAGE CORP. OF NEW JERSEY ADVANTA MORTGAGE CORP. NORTHEAST ADVANTA NATIONAL BANK ADVANTA BANK CORP. ADVANTA FINANCE CORP., as Affiliated Originators ADVANTA MORTGAGE CONDUIT SERVICES, INC. as an Affiliate [TRUSTEE], as Trustee and ADVANTA CONDUIT RECEIVABLES, INC., as Sponsor - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page ---- Section 1. Definitions..........................................................................1 Section 2. Interest Calculations................................................................4 Section 3. Transfers of Mortgage Loans..........................................................4 Section 4. Representations, Warranties and Covenants Regarding the Affiliated Originators and the Sponsor..........................................................4 Section 5. Representations and Warranties of the Affiliated Originators Regarding the Mortgage Loans.........................................................8 Section 6. Authorized Representatives..........................................................14 Section 7. Notices.............................................................................14 Section 8. Governing Law.......................................................................15 Section 9. Assignment..........................................................................15 Section 10. Counterparts........................................................................15 Section 11. Amendment...........................................................................15 Section 12. Severability of Provisions..........................................................15 Section 13. No Agency; No Partnership or Joint Venture..........................................15 Section 14. Further Assurances..................................................................15 Section 15. The Certificate Insurer.............................................................15 Section 16. Maintenance of Records..............................................................16
3 THIS MASTER LOAN TRANSFER AGREEMENT, dated as of [____________, _____], between Advanta Mortgage Corp. USA, Advanta Mortgage Corp. Midatlantic, Advanta Mortgage Corp. Midatlantic II, Advanta Mortgage Corp. Midwest, Advanta Mortgage Corp. of New Jersey, Advanta Mortgage Corp. Northeast, Advanta Mortgage Conduit Services, Inc., Advanta Finance Corp., Advanta Bank Corp. and Advanta National Bank, each a seller (each an "Affiliated Originator" and collectively, the "Affiliated Originators"), Advanta Mortgage Conduit Services, Inc. (the "Affiliate"), [Trustee], as trustee ("Trustee") and Advanta Conduit Receivables, Inc., as sponsor ("Sponsor"); I. BACKGROUND A. Each Affiliated Originator is an originator or purchaser of mortgage loans which such Affiliated Originator may, from time to time, convey to a Warehouse Trust; B. The Affiliated Originators and the Sponsor expect, from time to time, to cause such mortgage loans to be conveyed to an Advanta Trust in connection with a securitization transaction sponsored by the Sponsor. NOW, THEREFORE, in consideration of the foregoing and the mutual agreements herein contained, the parties hereto hereby agree as follows: Section 1. Definitions. Whenever used in this Agreement or in any Conveyance Agreement, the following words and phrases, unless the context otherwise requires, shall have the meanings specified in this Section; provided, however, that any capitalized terms used herein or in any conveyance Agreement and not defined herein shall have their respective meanings as set forth in the related Advanta Pooling Agreement. Advanta Pooling Agreement: Any Pooling and Servicing Agreement entered into by Advanta Conduit Receivables, Inc. as Sponsor, Advanta Mortgage Corp. USA, as Master Servicer and a trustee or any Sale and Servicing Agreement entered into by Advanta Conduit Receivables, Inc., as Sponsor, Advanta Mortgage Corp. USA, as Master Servicer, an Advanta Trust and an indenture trustee, as either may be amended and supplemented from time to time by the parties thereto Advanta Trust: A securitization trust created by the Sponsor into which Mortgage Loans described in this Agreement and the Conveyance Agreements are deposited, including the Conduit Acquisition Trust. Agreement: This Master Loan Transfer Agreement as it may be amended from time to time, including the exhibits and supplements hereto. 4 Bulk Acquisition Loan: Any Mortgage Loan purchased by an Affiliated Originator from another Originator (other than any other Affiliated Originator) as part of a bulk portfolio acquisition. Conduit Acquisition P&S: The Pooling and Servicing Agreement dated as of May 1, 1997, as amended, by and between Advanta Mortgage Conduit Services Inc. and the Trustee relating to the Conduit Acquisition Trust. Conduit Acquisition Trust: The trust created pursuant to the Conduit Acquisition P&S. Conveyance Agreement: Any conveyance agreement relating to a Pool, in substantially the form set forth as Exhibit A hereto. Coupon Rate: The rate of interest borne by each Note. Cut-Off Date: With respect to any Pool, as defined in the related Conveyance Agreement. FDIC: The Federal Deposit Insurance Corporation, or any successor thereto. 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 Trustee pursuant to the document delivery provisions of the Conduit Acquisition P&S pertaining to a particular Mortgage Loan, together with any additional documents required to be added to the File pursuant to the Conduit Acquisition P&S. First Mortgage Loan: A Mortgage Loan which constitutes a first priority mortgage lien with respect to any Property. FNMA: The Federal National Mortgage Association, a federally-chartered and privately-owned corporation existing under the Federal National Mortgage Association Charter Act, as amended, or any successor thereof. Junior Mortgage Loan: A Mortgage Loan which constitutes a junior priority mortgage lien with respect to the related Property. Junior Lien: With respect to any Junior Mortgage Loan, the mortgage loan relating to the corresponding Property having a senior priority lien. Loan Balance: With respect to each Mortgage Loan, the outstanding principal balance thereof on the related Cut-Off Date, less any related Principal Remittance Amounts relating to such Mortgage Loan included in previous related 2 5 Monthly Remittance Amounts that were transferred by the Master Servicer or any Sub-Servicer to the Trustee for deposit in the related Certificate Account. Master Servicer: Advanta Mortgage Corp. USA, a Delaware corporation, and its permitted successors and assigns. Mortgage Loans: Each of the mortgage loans subject hereto, together with any Qualified Replacement Mortgages substituted therefor in accordance with the related Advanta Pooling Agreement. Note: The note or other evidence of indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan. Offered Certificates: Any securities issued by an Advanta Trust which are not retained by the Sponsor, any affiliate of the Sponsor or any Originator. Person: Any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. Pool: Any group of Mortgage Loans transferred to the Sponsor and/or to an Advanta Trust pursuant to a specific Conveyance Agreement. Property: The underlying property securing a Mortgage Loan. Qualified Mortgage: "Qualified Mortgage" shall have the meaning set forth from time to time in the definition thereof at Section 860G(a)(3) of the Code (or any successor statute thereto) and applicable to the related Advanta Trust. Schedules of Mortgage Loans: The Schedules of Mortgage Loans required to be delivered pursuant to the related Advanta Pooling Agreement. Trustee: [Trustee], located on the date of execution of this Agreement at [Address], a [Type of Organization], not in its individual capacity but solely as Trustee, and any successor hereunder. Unaffiliated Originator Loan: Any Mortgage Loan purchased by an Affiliated Originator from an Unaffiliated Originator. Unaffiliated Originators: Any Originator not affiliated with the Sponsor. Warehouse Trust: Any trust established by an affiliate of the Sponsor to finance the origination of mortgage loans, including, without limitation, the Conduit Acquisition Trust. 3 6 Section 2. Interest Calculations. Calculations of interest hereunder, including, without limitation, calculations of interest at the Coupon Rate, which are made in respect of the Loan Balance of a Mortgage Loan shall be made on a daily basis using any of the following (i) a 360-day year comprised of twelve 30-day months, (ii) a 360-day year and the actual number of days elapsed in the applicable interest period, or (iii) a 365-day year and the actual number of days elapsed in the applicable interest period, as required by the related Note. Section 3. Transfers of Mortgage Loans. From time to time in connection with the establishment of Advanta Trusts, the Affiliated Originators and the Sponsor, intend to transfer Mortgage Loans to the Sponsor and/or to the related Advanta Trust. Each such transfer will be evidenced by a Conveyance Agreement in substantially the form of Exhibit A hereto. Section 4. Representations, Warranties and Covenants Regarding the Affiliated Originators and the Sponsor. (a) Each Affiliated Originator hereby represents and warrants to the Sponsor, the Trustee and their respective successors and assigns that, as of the date hereof; (i) Such Affiliated Originator is a corporation (or, in the case of Advanta National Bank USA, a national banking association, and, in the case of Advanta Bank Corp., a Utah industrial loan corporation) duly organized, validly existing and in good standing under the laws governing its creation and existence 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. Such Affiliated Originator 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, to enter into and discharge its obligations under this Agreement and the Conveyance Agreements. (ii) The execution and delivery of this Agreement by such Affiliated Originator and its performance and compliance with the terms of this Agreement and the Conveyance Agreements to which it is a party have been duly authorized by all necessary corporate action on the part of such Affiliated Originator and will not violate such Affiliated Originator's Articles of Incorporation, Articles of Association 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 a breach of, any material contract, agreement or other instrument to which such Affiliated Originator or its properties is a party or by which such Affiliated Originator 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 such Affiliated Originator or any of its properties. (iii) This Agreement and the Conveyance Agreements to which such Affiliated Originator is a party, assuming due authorization, execution and 4 7 delivery by the other parties hereto and thereto, each constitutes a valid, legal and binding obligation of such Affiliated Originator, enforceable against it in accordance with the terms hereof, except as the enforcement 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). (iv) Such Affiliated Originator 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 other) or operations of such Affiliated Originator or its properties, or might have consequences that would materially and adversely affect its performance hereunder and under the other Conveyance Agreements to which such Affiliated Originator is a party, or which would draw into question the validity of this Agreement or the Mortgage Loans taken as a whole or of any action taken or to be taken in connection with the obligations of the Affiliated Originator contemplated herein. (v) No litigation is pending or, to the best of such Affiliated Originator's knowledge, threatened against such Affiliated Originator which litigation might have consequences that would prohibit its entering into this Agreement or any Conveyance Agreements to which it is a party or might have consequences that would materially and adversely affect its performance hereunder and under the Conveyance Agreements to which such Affiliated Originator is a party. (vi) Neither this Agreement nor any certificate of an officer, statement furnished in writing or report delivered pursuant to the terms hereof by such Affiliated Originator 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. (vii) Upon the receipt of each Mortgage Loan and other items of the Mortgage by the Trustee under this Agreement, the related Advanta Trust will have good and marketable title to such Mortgage Loan and such other items of the related Trust Estate free and clear of any lien (other than liens which will be simultaneously released). (viii) Neither such Affiliated Originator nor any affiliate thereof will report on any financial statement any part of the Servicing Fee as an adjustment to the sales price of the Mortgage Loans. (ix) 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, 5 8 etc., under any state securities laws, real estate syndication or "Blue Sky" statutes, as to which such Affiliated Originator makes no such representation or warranty), that are necessary or advisable in connection with the sale of the Mortgage Loans and the execution and delivery by such Affiliated Originator of this Agreement and the Conveyance Agreements 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 Conveyance Agreements on the part of such Affiliated Originator and the performance by such Affiliated Originator of its obligations under this Agreement and such of the Conveyance Agreements to which it is a party. (x) The origination practices used by such Affiliated Originator with respect to the Mortgage Loans originated by such Affiliated Originator have been, (i) in all material respects, legal, proper, prudent and customary in the mortgage loan lending business and (ii) in compliance with the Master Servicer's underwriting criteria as described in the Prospectus. (xi) The transactions contemplated by this Agreement are in the ordinary course of business of such Affiliated Originator. The transfer, assignment and conveyance of the Mortgage Notes and the Mortgages by the Master Servicer pursuant to this Agreement are not subject to the bulk transfer laws or any similar statutory provisions in effect in any applicable jurisdiction. (xii) Such Affiliated Originator received fair consideration and reasonably equivalent value in exchange for the sale of the interests in the Mortgage Loans. (xiii) Such Affiliated Originator did not sell any interest in any Mortgage Loan with any intent to hinder, delay or defraud any of its respective creditors. (xiv) Such Affiliated Originator is solvent, and such Affiliated Originator will not be rendered insolvent as a result of the sale of the Mortgage Loans to the related Advanta Trust. The representations and warranties set forth in this paragraph (a) shall survive the sale and assignment of the Mortgage Loans to the Sponsor. In addition, each Affiliated Originator hereby covenants to perform the obligations, if any, imposed upon it by the related Advanta Pooling Agreement. 6 9 (b) The Sponsor hereby represents and warrants to each Affiliated Originator and the Trustee that, as of the date hereof: (i) The Sponsor is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all licenses and qualifications necessary to carry on its business as now being conducted and to perform its obligations hereunder; the Sponsor has the power and authority to execute and deliver this Agreement and to perform its obligations in accordance herewith; the execution, delivery and performance of this Agreement (including any Conveyance Agreement and any other instruments of transfer to be delivered pursuant to this Agreement) by the Sponsor and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action and do not violate the organization documents of the Sponsor, contravene or violate any law, regulation, rule, order, judgement or decree to which the Sponsor or its properties are subject or contravene, violate or result in any breach of any provision of, or constitute a default under, or result in the imposition of any lien on any assets of the Sponsor pursuant to the provisions of, any mortgage, indenture, contract, agreement or other undertaking to which the Sponsor is a party or which purports to be binding upon Sponsor or any of Sponsor's assets; this Agreement evidences the valid and binding obligation of the Sponsor enforceable against the Sponsor in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditor's rights generally or the application of equitable principles in any proceeding, whether at law or in equity; (ii) 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, that are necessary in connection with the execution and delivery by the Sponsor of this Agreement, have been duly taken, given or obtained, as the case may be, are in full force and effect, 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 on the part of the Sponsor and the performance by the Sponsor of its obligations under this Agreement; (iii) There is no action, suit, proceeding or investigation pending or, to the best of the Sponsor's knowledge, threatened against the Sponsor which, either in any one instance or in the aggregate, may result in any material adverse change in the business, operations, financial condition, properties or assets of the Sponsor or in any material impairment of the right or ability of the Sponsor to carry on its business substantially as now conducted, or in any material liability on the part of the Sponsor or which would draw into question the validity of this Agreement or of any action taken or to be taken in connection with the obligations 7 10 of the Sponsor contemplated herein, or which would be likely to impair the ability of the Sponsor to perform under the terms of this Agreement; and (iv) The Sponsor has the right to cause or request the transfer of the Mortgage Loans subject to a Warehouse Trust to an Advanta Trust or to direct or request an Advanta Trust to acquire such Mortgage Loans. The representations and warranties set forth in this paragraph (b) shall survive the sale and assignment of the Mortgage Loans to the Sponsor. Upon discovery of a breach of any of the foregoing representations and warranties which materially and adversely affects the interests of the Affiliated Originator, the Affiliated Originator shall give prompt written notice to the Sponsor. Within 30 days of its receipt of notice of breach, the Sponsor shall cure such breach in all material respects. Section 5. Representations and Warranties of the Affiliated Originators Regarding the Mortgage Loans. (a) Set forth in paragraph (b) below is a listing of representations and warranties which will be deemed to have been made by each Affiliated Originator in connection with each conveyance of a Pool to the Sponsor and/or the related Advanta Trust. In addition, a Conveyance Agreement may, with respect to the Mortgage Loans in the related Pool, delete or modify any of such representations and warranties, or may add additional representations and warranties ("Additional Representations and Warranties"). The representations and warranties listed in paragraph (b) below, together with any Additional Representations and Warranties, are the "Representations and Warranties". Reference to the Cut-Off Date are as of the Cut-Off Date set forth in the related Conveyance Agreement with respect to a Mortgage Loan. (b) With respect to each Mortgage Loan, each Affiliated Originator hereby represents, warrants and covenants to the Sponsor and the Trustee, as of the related Cut-Off Date, as follows, on which representations, warranties and covenants the Trustee relies in accepting the Mortgage Loans: (i) The information with respect to each Mortgage Loan set forth in the Schedules of Mortgage Loans is true and correct as of the Cut-Off Date; (ii) All of the original or certified documentation required to be delivered to the Trustee pursuant to the related Advanta Pooling Agreement (including all material documents related thereto) with respect to each Mortgage Loan has been or will be delivered to the Trustee in accordance with the terms of such Advanta Pooling Agreement. Each of the documents and instruments specified to be included therein has been duly executed and in due and proper form, and each such document or instrument is in a form generally acceptable to prudent mortgage lenders that regularly originate or purchase mortgage loans comparable to the Mortgage Loans for sale to prudent investors in the secondary market that invest in mortgage loans such as the Mortgage Loans. 8 11 (iii) Each Mortgage Loan being transferred to the Sponsor is a Qualified Mortgage and is a Mortgage; (iv) Each Property is improved by a single (one-to-four) family residential dwelling, which may include manufactured homes which qualify as eligible for inclusion in a REMIC, condominiums and townhouses but shall not include cooperatives; provided, however, that no more than 5.0% by aggregate principal balance of the Mortgage Loans as of the Initial Cut-Off Date were leasehold mortgages.; (v) No Mortgage Loan had a Combined Loan-to-Value Ratio in excess of 100%; (vi) Each Mortgage is either a valid and subsisting first, second or third lien of record on the Property (subject in the case of any Junior Mortgage Loan only to a Senior Lien on such Property) and subject in all cases 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 banking institutions in connection with their regular mortgage lending activities, 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; (vii) Immediately prior to the transfer and assignment herein contemplated, each Affiliated Originator and each Warehouse Trust held good and indefeasible title to, and was the sole owner of, each Mortgage Loan conveyed by such Affiliated Originator or such Warehouse Trust, as applicable, subject to no liens, charges, mortgages, encumbrances or rights of others except liens which will be released simultaneously with such transfer and assignment; and immediately upon the transfer and assignment herein contemplated, the Trustee will hold good and indefeasible title to, and be the sole owner of, each Mortgage Loan subject to no liens, charges, mortgages, encumbrances or rights of others except liens which will be released simultaneously with such transfer and assignment; (viii) As of the related Cut-Off Date, no Mortgage Loan is 30 or more days Delinquent, except for any portion of the Mortgage Loans which the related Advanta Pooling Agreement permits to be more than 30 days Delinquent; (ix) There is no delinquent tax or assessment lien or mechanic's lien on any Property, and each Property is free of substantial damage and is in good repair; (x) There is no valid and enforceable right of rescission offset, defense or counterclaim to any Note or Mortgage, including the obligation of the related Mortgagor to pay the unpaid principal of or interest on such Note or the defense of usury, nor will the operation of any of the terms of the Mortgage Note 9 12 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; (xi) 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 the related Mortgage except those which are insured against by any title insurance policy referred to in paragraph (xiii) below; (xii) Each Mortgage Loan at the time it was made complied in all material respects with all applicable state and federal laws and regulations, including, without limitation, the federal Truth-in-Lending Act and other consumer protection laws, real estate settlement procedure, usury, equal credit opportunity, disclosure and recording laws; (xiii) With respect to each Mortgage Loan, a lender's title insurance policy, issued in standard California Land Title Association form or American 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, in an amount at least equal to the Original Principal Amount of such Mortgage Loan insuring the mortgagee's interest under the related Mortgage Loan as the holder of a valid first, second or third mortgage lien of record on the real property described in the related Mortgage, as the case may be, subject only to exceptions of the character referred to in paragraph (vi) above, was effective on the date of the origination of such Mortgage Loan, and, as of the Cut-Off Date such policy will be valid and thereafter such policy shall continue in full force and effect; (xiv) The improvements upon each Property are covered by a valid and existing hazard insurance policy (which may be a blanket policy of the type described in the related Advanta Pooling Agreement) with a generally acceptable carrier that provides for fire and extended coverage representing coverage not less than the least of (A) the outstanding principal balance of the related Mortgage Loan (together, in the case of a Junior Mortgage Loan, with the outstanding principal balance of the Senior Lien), (B) the minimum amount required to compensate for damage or loss on a replacement cost basis or (C) the full insurable value of the Property; (xv) 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, (which may be a blanket policy of the type described in the related Advanta Pooling Agreement) a flood insurance policy in a form meeting the requirements of the current guidelines of the Federal Insurance Administration with a generally acceptable carrier is in effect with respect to such Property in an amount representing coverage, and 10 13 which provides for a recovery by the Master Servicer 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; (xvi) Each Mortgage and 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 documents relating to such Mortgage Loan and convey the estate therein purported to be conveyed; (xvii) Each Affiliated Originator has caused and will cause to be performed any and all acts required to be performed to preserve the rights and remedies of the servicer in any Insurance Policies applicable to any Mortgage Loans delivered by such Affiliated Originator or Warehouse Trust including, to the extent such Mortgage Loan is not covered by a blanket policy described in the Advanta Pooling Agreement, any necessary notifications of insurers, assignments of policies or interests therein, and establishments of co-insured, joint loss payee and mortgagee rights in favor of the servicer; (xviii) Each original Mortgage was recorded or is in the process of being recorded, and all subsequent assignments of the original Mortgage have been recorded in the appropriate jurisdictions wherein such recordation is necessary to perfect the lien thereof for the benefit of the applicable Affiliated Originator, subject to the provisions of Section [____] of the Advanta Pooling Agreement, (or are in the process of being recorded); (xix) The terms of each Note and each Mortgage have not been impaired, altered or modified in any respect, except by a written instrument which has been recorded, if necessary, to protect the interest of the owners and which has been delivered to the Trustee. The substance of any such alteration or modification is reflected on the related Schedule of Mortgage Loans and has been approved by the primary mortgage guaranty insurer, if any; (xx) The proceeds of each Mortgage Loan have been fully disbursed, and there is no obligation on the part of the mortgagee to make future advances thereunder. Any and all requirements as to completion of any on-site or off-site improvements and as to disbursements of any escrow funds therefor have been complied with. All costs, fees and expenses incurred in making or closing or recording such Mortgage Loans were paid; 11 14 (xxi) Except as otherwise required by law or pursuant to the statute under which the related Mortgage Loan was made, the related Note is not and has not been secured by any collateral, pledged account or other security except the lien of the corresponding Mortgage; (xxii) No Mortgage Loan was originated under a buydown plan; (xxiii) No Mortgage Loan provides for negative amortization, has a shared appreciation feature, or other contingent interest feature; (xxiv) Each Property is located in the state identified in the Schedule of Mortgage Loans and consists of one or more parcels of real property with a residential dwelling erected thereon; (xxv) Each Mortgage contains a provision for the acceleration of the payment of the unpaid principal balance of the related Mortgage Loan in the event the related Property is sold without the prior consent of the mortgagee thereunder, except as may be otherwise provided in the Advanta Pooling Agreement; (xxvi) Any advances made after the date of origination of a Mortgage Loan but prior to the Cut-Off Date, have been consolidated with the outstanding principal amount secured by the related Mortgage, and the secured principal amount, as consolidated, bears a single interest rate and single repayment term reflected on the Schedule of Mortgage Loans. The consolidated principal amount does not exceed the original principal amount of the related Mortgage Loan. No Note permits or obligates the Master Servicer, the Sub-Servicer or the Sponsor to make future advances to the related Mortgagor at the option of the Mortgagor; (xxvii) There is no proceeding pending or threatened for the total or partial condemnation of any Property, nor is such a proceeding currently occurring, and each Property is undamaged by waste, fire, earthquake or earth movement, flood, tornado or other casualty, so as to affect adversely the value of the Property as security for the Mortgage Loan or the use for which the premises were intended; (xxviii) All of the improvements which were included for the purposes of determining the Appraised Value of any Property lie wholly within the boundaries and building restriction lines of such Property, and no improvements on adjoining properties encroach upon such Property, and, if a title insurance policy exists with respect to such Property, are stated in such title insurance policy and affirmatively insured; (xxix) No improvement located on or being part of any Property is in violation of any applicable zoning law or regulation. All inspections, licenses and certificates required to be made or issued with respect to all occupied portions of each Property and, with respect to the use and occupancy of the same, including but not limited to certificates of occupancy and fire underwriting certificates, have 12 15 been made or obtained from the appropriate authorities and such Property is lawfully occupied under the applicable law; (xxx) 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 Sponsor or the related Trust to the trustee under the deed of trust, except in connection with a trustee's sale after default by the related Mortgagor; (xxxi) With respect to each Junior Mortgage Loan, either (A) no consent for such Mortgage Loan was required by the holder of the related Senior Lien prior to the making of such Mortgage Loan or (B) such consent has been obtained and is contained in the related File; (xxxii) Each Mortgage contains customary and enforceable provisions which render the rights and remedies of the holder thereof adequate for the realization against the related Property of the benefits of the security, including (A) in the case of a Mortgage designated as a deed of trust, by trustee's sale and (B) otherwise by judicial foreclosure. There is no homestead or other exemption available which materially interferes with the right to sell the related Property at a trustee's sale or the right to foreclose the related Mortgage; (xxxiii) Except as provided by clause (viii) of this Section, there is no default, breach, violation or event of acceleration existing under any Mortgage or the related Note and no event which, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a default, breach, violation or event of acceleration; and the applicable Affiliated Originator has not waived any default, breach, violation or event of acceleration; (xxxiv) Except for any Bulk Acquisition Loan, no instrument of release or waiver has been executed in connection with any Mortgage Loan, and no Mortgagor has been released, in whole or in part, except in connection with an assumption agreement which has been approved by the primary mortgage guaranty insurer, if any, and which has been delivered to the Trustee; (xxxv) Except for any Bulk Acquisition Loan, the maturity date of each Mortgage Loan which is a Junior Mortgage Loan is at least twelve months prior to the maturity date of the related first mortgage loan if such first mortgage loan provides for a balloon payment; (xxxvi) The credit underwriting guidelines applicable to each Mortgage Loan conform in all material respects to the Sponsor's underwriting guidelines; (xxxvii) All parties to the Note and the Mortgage had legal capacity to execute the Note and the Mortgage and each Note and Mortgage have been duly and properly executed by such parties; and 13 16 (xxxviii)The related Affiliated Originator has no actual knowledge that there exist on any Property 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. (c) No Originator Payment Obligations. There is no obligation on the part of the Servicer or any other party to make payments in addition to those made by the Mortgagor except for delinquency. The Representations and Warranties shall survive the transfer and assignment of the Mortgage Loans to the related Advanta Trust. Upon discovery by the Affiliated Originator or the Sponsor of a breach of any of the Representations and Warranties, without regard to any limitation set forth in such Representation or Warranty concerning the knowledge of the Affiliated Originator as to the facts stated therein, which breach, in the opinion of the Sponsor, materially and adversely affects the interests of the Sponsor, the Owners or of the Certificate Insurer in the related Mortgage Loan or Mortgage Loans, the party discovering such breach shall give prompt written notice to the other party, and the related Affiliated Originator shall be required to take the remedial actions required by the related Advanta Pooling Agreement within the time periods required thereto. Each Affiliated Originator hereby acknowledges that a breach of any of the Representations and Warranties listed in clauses (iii), (x), (xvi) and (xxxviii) above a priori materially and adversely affects the interests of the related Advanta Trust, the related Owners and the Certificate Insurer. Section 6. Authorized Representatives. The names of the officers of the Affiliated Originators and of the Sponsor who are authorized to give and receive notices, requests and instructions and to deliver certificates and documents in connection with this Agreement on behalf of the Affiliated Originator and of the Sponsor ("Authorized Representatives") are set forth on Exhibit B. From time to time, the Affiliated Originator and the Sponsor may, by delivering to the Trustee a revised exhibit, change the information previously given, but the Trustee shall be entitled to rely conclusively on the last exhibit until receipt of a superseding exhibit. Section 7. Notices. All demands, notices and communications relating to this Agreement shall be in writing and shall be deemed to have been duly given when received by the other party or parties at the address shown below, or such other address as may hereafter be furnished to the other party or parties by like notice. Any such demand, notice or communication hereunder shall be deemed to have been received on the date delivered to or received at the premises of the addressee. If to the Trustee: [Trustee] [Trustee's Address] 14 17 Telecopy: [(___) ___-____] Telephone: [(___) ___-____] If to the Affiliated Originators or the Sponsor: Advanta Mortgage Corp. USA 10790 Rancho Bernardo Road San Diego, California 92127 Attention: Mortgage Structured Finance Telecopy: (619) 674-3592 Telephone: (619) 674-3317 Section 8. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to conflict of laws rules applied in the State of New York. Section 9. Assignment. No party to this Agreement may assign its rights or delegate its obligations under this Agreement without the express written consent of the other parties, except as otherwise set forth in this Agreement. Section 10. Counterparts. For the purpose of facilitating the execution of this Agreement and for other purposes, this Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed to be an original, and together shall constitute and be one and the same instrument. Section 11. Amendment. This Agreement may be amended from time to time by the Affiliated Originators, the Sponsor and the Trustee only by a written instrument executed by such parties and with the prior written consent of the Certificate Insurer. Section 12. Severability of Provisions. 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. 15 18 Section 13. No Agency; No Partnership or Joint Venture. Neither the Affiliated Originators nor the Sponsor is the agent or representative of the other, and nothing in this Agreement shall be construed to make either the Affiliated Originator nor the Sponsor liable to any third party for services performed by it or for debts or claims accruing to it against the other party. Nothing contained herein nor the acts of the parties hereto shall be construed to create a partnership or joint venture between the Sponsor and the Affiliated Originator. Section 14. Further Assurances. The Affiliated Originators and Sponsor agree to cooperate reasonably and in good faith with one another in the performance of this Agreement. Section 15. The Certificate Insurer. The Certificate Insurer is a third-party beneficiary of this Agreement. Any right conferred to the Certificate Insurer shall be suspended during any period in which the Certificate Insurer is in default in its payment obligation's under the related Certificate Insurance Policies. During any period of suspension, the Certificate Insurer's rights hereunder shall vest in the Owners of the related Offered Certificates and shall be exercisable by the Owners of at least a majority in Percentage Interest of the related Offered Certificates then outstanding. At such time as the related Offered Certificates are no longer Outstanding under the related Advanta Pooling Agreement and the Certificate Insurer has been reimbursed for all Insured Payments to which it is entitled under the related Advanta Pooling Agreement, the Certificate Insurer's rights hereunder shall terminate. Section 16. Maintenance of Records. Each Affiliated Originator shall each continuously keep an original executed counterpart of this Agreement in its official records. 16 19 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers, all as of the day and year first above written. ADVANTA MORTGAGE CORP. USA ADVANTA MORTGAGE CORP. MIDATLANTIC ADVANTA MORTGAGE CORP. MIDATLANTIC II ADVANTA MORTGAGE CORP. MIDWEST ADVANTA MORTGAGE CORP. OF NEW JERSEY ADVANTA MORTGAGE CORP. NORTHEAST ADVANTA NATIONAL BANK as Sellers and ADVANTA CONDUIT RECEIVABLES, INC. as Sponsor By: ---------------------------------------- Name: Michael Coco Title: Vice President ADVANTA BANK CORP. as Seller By: ---------------------------------------- Name: Title [TRUSTEE], as Trustee and not in its individual capacity By: ---------------------------------------- Name: Title: [MASTER LOAN TRANSFER AGREEMENT] 17 20 ADVANTA MORTGAGE CONDUIT SERVICES, INC. an Affiliate By: ---------------------------------------- Name: Michael Coco Title: Vice President ADVANTA FINANCE CORP. By: ---------------------------------------- Name: Michael Coco Title: Vice President [MASTER LOAN TRANSFER AGREEMENT] 18 21 EXHIBIT A CONVEYANCE AGREEMENT Advanta Mortgage Corp. USA, Advanta Mortgage Corp. Midatlantic, Advanta Mortgage Corp. Midatlantic II, Advanta Mortgage Corp. Midwest, Advanta Mortgage Corp. of New Jersey, Advanta Mortgage Corp. Northeast, Advanta Finance Corp., Advanta Bank Corp. and Advanta National Bank, (each, an "Affiliated Originator"), Advanta Conduit Receivables, Inc., as Sponsor, and Advanta Mortgage Conduit Services, Inc., as an Affiliate, pursuant to the Master Loan Transfer Agreement dated as of [_____________, _____] among themselves and [Trustee], as Trustee (the "Master Transfer Agreement"), hereby confirm their understanding with respect to the conveyance by each Affiliated Originator, the Warehouse Trusts the Affiliate and the Sponsor of those Mortgage Loans listed on the attached Schedule of Mortgage Loans (the "Transferred Mortgage Loans") to the Sponsor and /or the Advanta Mortgage Loan Trust _____-__. Conveyance of Transferred Mortgage Loans. Each Affiliated Originator, the Affiliate and the Sponsor, concurrently with the execution and delivery of this Conveyance Agreement, does hereby irrevocably transfer, assign, set over and otherwise convey, and does direct the Trustee to convey to the Sponsor and/or the Advanta Mortgage Loan Trust - , without recourse (except as otherwise explicitly provided for herein) all of its right, title and interest in and to the Transferred Mortgage Loans being conveyed by it, including specifically, without limitation, the Mortgages (as such term is defined in the "related Advanta Pooling Agreement"), the Files and all other documents, materials and properties appurtenant thereto and the Notes, including all accrued interest and principal received by such Affiliated Originator on or with respect to such Transferred Mortgage Loans on or after the related Cut-off Date, together with all of its right, title and interest in and to the proceeds received on or after the related Cut-off Date of any related mortgage insurance policies (excluding any non-mortgage related or credit life insurance policies). If an Affiliated Originator cannot deliver the original Mortgage or mortgage assignment with evidence of recording thereon concurrently with the execution and delivery of this Conveyance Agreement solely because of a delay caused by the public recording office where such original Mortgage or mortgage assignment has been delivered for recordation, such Affiliated Originator shall promptly deliver to the Trustee such original Mortgage or mortgage assignment with evidence of recording indicated thereon upon receipt thereof from the public recording official. The costs relating to the delivery of the documents specified in this Conveyance Agreement shall be borne by each Affiliated Originator. A-1 22 The Affiliated Originators hereby make the Representations and Warranties set forth in Section 5(b) of the Master Transfer Agreement with respect to the Transferred Mortgage Loans. The "Cut-Off Date" with respect to such Transferred Mortgage Loans shall be ________,______. All terms and conditions of the Master Transfer Agreement are hereby incorporated herein, provided that in the event of any conflict the provisions of this Conveyance Agreement shall control over the conflicting provisions of the Master Transfer Agreement. For purposes of this Conveyance Agreement, the "related Advanta Pooling Agreement" is the Pooling and Servicing Agreement dated as of _________,_____ relating to Advanta Mortgage Loan Trust ______-__. A-2 23 Terms capitalized herein and not defined herein shall have their respective meanings as set forth in the Master Transfer Agreement. ADVANTA MORTGAGE CORP. USA ADVANTA MORTGAGE CORP. MIDATLANTIC ADVANTA MORTGAGE CORP. MIDATLANTIC II ADVANTA MORTGAGE CORP. MIDWEST ADVANTA MORTGAGE CORP. OF NEW JERSEY ADVANTA MORTGAGE CORP. NORTHEAST ADVANTA NATIONAL BANK. as Affiliated Originators and ADVANTA CONDUIT RECEIVABLES, INC. as Sponsor By: ---------------------------------------- Michael Coco, Vice President ADVANTA BANK CORP. as an Affiliated Originator By: ---------------------------------------- ADVANTA MORTGAGE CONDUIT SERVICES, INC., as an Affiliate By: ---------------------------------------- Michael Coco, Vice President [TRUSTEE], as Trustee By: ---------------------------------------- Name: Title: ADVANTA FINANCE CORP. By: ---------------------------------------- Name: Title: Dated: A-3 24 EXHIBIT B AUTHORIZED REPRESENTATIVES Reference is hereby made to the Master Loan Transfer Agreement, dated as of [_______________, _____] (the "Agreement"), among Advanta Mortgage Corp. USA, Advanta Mortgage Corp. Midatlantic, Advanta Mortgage Corp. Midatlantic II, Advanta Mortgage Corp. Midwest, Advanta Mortgage Corp. of New Jersey, Advanta Mortgage Corp. Northeast, Advanta Finance Corp., Advanta Bank Corp. and Advanta National Bank, as Affiliated Originators, Advanta Conduit Receivables, Inc., as Sponsor, Advanta Mortgage Conduit Services, Inc., as an Affiliate and [Trustee], as Trustee: The following are the Affiliated Originators' Authorized Representatives for purposes of the Agreement: Name Title ---- ----- [Michael Coco] [Vice President] [Susan McVeigh] [Vice President] The following are the Sponsor's Authorized Representatives for purposes of the Agreement: Name Title ---- ----- [Michael Coco] [Vice President] [Susan McVeigh] [Vice President] B-1 EX-5.1 8 OPINION OF DEWEY BALLANTINE LLP 1 EXHIBIT 5.1 March __, 1999 Advanta Conduit Receivables, Inc. 10790 Rancho Bernardo Road San Diego, CA 92127 Re: Advanta Conduit Receivables, Inc., Mortgage Loan Asset- Backed Securities ----------------------------------------------------------- Ladies and Gentlemen: We have acted as counsel to Advanta Conduit Receivables, Inc. (the "Sponsor" or the "Registrant") in connection with the preparation and filing of the registration statement on Form S-3 (such registration statement, the "Registration Statement") being filed today with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "Act"), in respect of Mortgage Loan Asset-Backed Securities ("Securities") which the Registrant plans to offer in series, each series to be issued under a separate pooling and servicing agreement (a "Pooling and Servicing Agreement") or indenture (an "Indenture"), in substantially one of the forms incorporated by reference as Exhibits to the Registration Statement, among the Registrant, Advanta Mortgage Corp. USA as master servicer (the "Master Servicer") and a trustee to be identified in the prospectus supplement for such series of Securities (the "Trustee" for such series). We have made investigations of law and have examined and relied on the originals or copies certified or otherwise identified to our satisfaction of all such documents and records of each of the Registrants and such other instruments and other certificates of public officials, officers and representatives of the Registrant and such other persons, as we have deemed appropriate as a basis for the opinions expressed below. The opinions expressed below are subject to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and to general equity principles. We are admitted to the Bar of the State of New York and we express no opinion as to the laws of any other jurisdiction except as to matters that are governed by Federal law or the laws of the State of New York. All opinions expressed herein are based on laws, regulations and policy guidelines currently in force and may be affected by future regulations. Based upon the foregoing, we are of the opinion that: When, in respect of a series of Securities, a Pooling and Servicing Agreement or Indenture has been duly authorized by all necessary action and duly executed and delivered by all necessary parties for such series, such Pooling and Servicing Agreement or Indenture will be a valid and legally binding obligation of each of the Registrants; and When a Pooling and Servicing Agreement or Indenture for a series of Securities has been duly authorized by all necessary action and duly executed and delivered by all necessary parties for such series, and when the Securities of such series have been duly executed and authenticated in accordance with the provisions of the Pooling and Servicing Agreement or Indenture, as applicable, and issued and sold as contemplated in the Registration 2 Statement and the prospectus, as amended or supplemented and delivered pursuant to Section 5 of the Act in connection therewith, such Securities will be legally and validly issued, fully paid and nonassessable, and the holders of such Securities will be entitled to the benefits of such Pooling and Servicing Agreement or Indenture, as applicable. We hereby consent to the filing of this opinion as an Exhibit to the Registration Statement and to the reference to Dewey Ballantine LLP in the Registration Statement and the related prospectus under the heading "Legal Matters." This opinion is furnished by us as counsel to the Registrant and is solely for the benefit of the addressees hereof. It may not be relied upon by any other person or for any other purpose without our prior written consent. Very truly yours, /s/ DEWEY BALLANTINE LLP ------------------------ EX-8.1 9 OPINION OF DEWEY BALLANTINE LLP 1 EXHIBIT 8.1 [---------------, -----] To the Addressees listed on Schedule I hereto Re: Advanta Mortgage Loan Trust [Trust] Mortgage Loan Asset-Backed Certificates, Series [Series] -------------------------------------------------------------- Ladies and Gentlemen: We have acted as special tax counsel in connection with the issuance and delivery of certain mortgage loan asset-backed certificates denominated Advanta Mortgage Loan Trust [Trust], Mortgage Loan Asset-Backed Certificates, Series [Series] (collectively, the "Certificates"), pursuant to a Pooling and Servicing Agreement dated as of [_____________, _____] (the "Pooling and Servicing Agreement") among Advanta Conduit Receivables, Inc. ("Advanta"), Advanta Mortgage Corp. USA, as Master Servicer (the "Master Servicer") and [Trustee], as trustee (the "Trustee"). As special tax counsel, we have examined such documents as we deemed appropriate for the purposes of rendering the opinions set forth below, including the following: (a) Prospectus dated [_____________, _____] (the "Prospectus") and a Prospectus Supplement dated [_____________, _____] (the "Prospectus Supplement") with respect to the Class [A] Certificates, and (b) an executed copy of the Pooling and Servicing Agreement and the exhibits attached thereto. Terms capitalized herein and not otherwise defined herein shall have their respective meanings as set forth in the Pooling and Servicing Agreement. Based upon the foregoing and upon the assumptions set forth below, we are of the opinion, under the laws of the United States, New York State, New York City and California in effect as of the date hereof, that: 1. Assuming that (a) the Trust created under the Pooling and Servicing Agreement elects, as it has covenanted to do in the Pooling and Servicing Agreement, to be treated as a "real estate mortgage investment conduit" ("REMIC"), as such term is defined in the Internal Revenue Code of 1986, as amended (the "Code") and (b) the parties to the Pooling and Servicing Agreement comply with the terms thereof, the Trust will be treated as a REMIC. Subject to the above, (i) each Class of Class [A] Certificates issued pursuant to the Pooling and Servicing Agreement will be treated as one or more "regular interests" in the REMIC and (ii) the [Residual Class] Certificates will be treated as the sole "residual interest" in the REMIC. 2 March 9, 1999 Page 2 2. The statements under the caption "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" in the Prospectus and the Prospectus Supplement and "STATE TAXES" in the Prospectus Supplement are accurate and complete in all material respects. 3. As a consequence of the qualification of the Trust as a REMIC, the Class [A] Certificates will be treated as "regular . . . interest(s) in a REMIC" under Section 7701(a)(19)(C) of the Code and "real estate assets" under Section 856(c) of the Code in the same proportion that the assets in the Trust consist of qualifying assets under such Sections. In addition, as a consequence of the qualification of the Trust as a REMIC, interest on the Class [A] Certificates will be treated as "interest on obligations secured by mortgages on real property" under Section 856(c) of the Code to the extent that such Class [A] Certificates are treated as "real estate assets" under Section 856(c) of the Code. 4. The Trust will not be subject to tax upon its income or assets by the taxing authority of New York State or New York City. 5. The Trust will not be subject to the California state income tax. While REMICs are subject to the California state minimum franchise tax imposed under Article 2, Section 23153 of the California Revenue and Taxation Code, no opinion is expressed as to whether the Trust is subject to such tax. 6. Neither the Trust nor any portion thereof, including, without limitation, the Supplemental Interest Account, will be treated as an association taxable as a corporation for federal income tax purposes. Very truly yours, /s/ Dewey Ballantine LLP 3 SCHEDULE I [Addressees] EX-8.2 10 OPINION OF DEWEY BALLANTINE LLP 1 EXHIBIT 8.2 [---------------, -----] To the Addressees listed on Schedule I hereto Re: Advanta Mortgage Loan Trust [Trust] Mortgage Backed Notes --------------------------------------------------------- Ladies and Gentlemen: We have acted as special tax counsel in connection with the issuance and delivery of certain notes denominated as Advanta Mortgage Loan Trust [Trust] Class [A] Mortgage Backed Notes (the "Notes"). The Notes will be issued pursuant to an Indenture, dated as of [______________, _____] (the "Indenture") between the Trust and the Indenture Trustee. Capitalized terms used herein but not defined herein shall have the meanings ascribed thereto in the Indenture. As special tax counsel, we have examined such documents as we have deemed appropriate for the purposes of rendering the opinions set forth below, including the following: (a) an executed copy of the Indenture and the exhibits attached thereto and (b) the Prospectus, dated [_____________, _____] and the Prospectus Supplement, dated [______________, _____] (the Prospectus and the Prospectus Supplement, collectively, the "Prospectus"). In our examination we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such latter documents. We have examined the question of the proper treatment of the Notes for federal income tax purposes. Our analysis is based on the provisions of the Internal Revenue Code of 1986, as amended, and the Treasury regulations promulgated thereunder as in effect on the date hereof and on existing judicial and administrative interpretations thereof. These authorities are subject to change and to differing interpretations, all of which could apply retroactively. The opinion of special tax counsel is not binding on the courts or on the Internal Revenue Service (the "IRS"). Based on the foregoing and such legal and factual investigations as we have deemed appropriate, while no transaction closely comparable to that contemplated 2 has been the subject of any Treasury regulation, revenue ruling or judicial decision, and therefore the matter is subject to interpretation, we are of the opinion that: (1) The portion of the Notes consisting of the right to receive payments of interest at the Note Formula Capped Rate for each Class will properly be treated as indebtedness for federal income tax purposes; (2) The portion of the Notes consisting of the right to receive interest in excess of the Note Formula Capped Rate and up to the Note Interest Rate for each Class (the "Available Funds Amount") will be treated as a notional principal contract as defined in Treasury regulations under section 446 of the Internal Revenue Code; (3) The Trust will not be constitute an association (or a publicly traded partnership) taxable as a corporation or a taxable mortgage pool for federal income tax purposes; and (4) The statements contained in the Prospectus and the Prospectus Supplement under the caption "Certain Federal Income Tax Consequences" insofar as they constitute matters of law or legal conclusions with respect thereto, have been prepared by us and are correct in all material respects. We express no opinion on any matter not discussed in this letter. This opinion is rendered as of the Closing Date, for the sole benefit of the addressees hereof and it may not be relied on by any other party or quoted without our express consent in writing. Very truly yours, /s/ Dewey Ballantine LLP 2 3 SCHEDULE I [Addressees] 3 EX-99.1 11 FORM OF PROSPECTUS SUPPLEMENT 1 EXHIBIT 99.1 ------------ Prospectus supplement to prospectus dated ____________, ____ ADVANTA MORTGAGE LOAN TRUST ____-_ Issuer $ ------------- (APPROXIMATE) MORTGAGE BACKED NOTES, SERIES ____-_ [ADVANTA LOGO] [ADVANTA LOGO] ADVANTA CONDUIT RECEIVABLES, INC. ADVANTA MORTGAGE CORP. USA Sponsor Master Servicer THE TRUST WILL ISSUE THE FOLLOWING NOTES: Initial Final Scheduled Principal Balance Interest Rate Payment Date ----------------- ------------- ------------ __________ is acting as underwriter for the issuance of the notes. Interest and principal on the notes is scheduled to be paid monthly on the 25th day of the month, or the next business day. The first scheduled payment date is ___________, ____. The property of the trust consists of a pool of fixed rate or adjustable rate (as applicable), first or second lien residential mortgage loans and cash to purchase additional residential mortgage loans on or before _____________. The Notes will have the benefit of an insurance policy from [NOTE INSURER] which will guarantee certain payments with respect to the mortgage loans and the notes. [NOTE INSURER LOGO] The offering of the notes is subject to certain conditions, which are discussed in the "Underwriting" section of this prospectus supplement. Delivery of the notes is expected in book-entry form through The Depository Trust Company, Cedelbank and the Euroclear System on or about _________________. The notes will be offered by the underwriter from time to time to the public in negotiated transactions or otherwise at varying prices to be determined at the time of the related sale. Proceeds to the sponsor are anticipated to be approximately $_____________ from the sale of the notes before deducting expenses payable by the sponsor, estimated to be $_______. The underwriter has agreed to reimburse the sponsor for a portion of such expenses. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus supplement. Any representation to the contrary is a criminal offense. [UNDERWRITER] The date of this prospectus supplement is __________, ____ - -------------------------------------------------------------------------------- YOU SHOULD READ THE SECTION ENTITLED "RISK FACTORS" STARTING ON PAGE S-__ OF THIS PROSPECTUS SUPPLEMENT AND PAGE __ OF THE PROSPECTUS AND CONSIDER THESE FACTORS BEFORE MAKING A DECISION TO INVEST IN THE NOTES. The notes represent non-recourse obligations of the trust only and are not interests in or obligations of any other person or duty. Neither the notes nor the underlying loans will be insured or guaranteed by any governmental agency or instrumentally. This prospectus supplement may be used to offer and sell the notes only if accompanied by the prospectus. - -------------------------------------------------------------------------------- 2 IMPORTANT NOTICE ABOUT THE INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS We provide information to you about the notes in two separate documents that progressively provide more detail: (1) the accompanying prospectus, which provides general information, some of which may not apply to your notes; and (2) this prospectus supplement, which describes the specific terms of your notes and may be different from the information in the prospectus. This prospectus supplement does not contain complete information about the offering of the notes. Additional information is contained in the prospectus. You are urged to read both this prospectus supplement and the prospectus in full. We cannot sell the notes to you unless you have received both this prospectus supplement and the prospectus. IF THE TERMS OF YOUR NOTES AND ANY OTHER INFORMATION CONTAINED HEREIN VARY BETWEEN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT. The Sponsor has filed with the Securities and Exchange Commission (the "Commission") a registration statement under the Securities Act of 1933, as amended, with respect to the notes offered pursuant to this prospectus supplement. This prospectus supplement and the prospectus, which form a part of the registration statement, omit certain information contained in such registration statement pursuant to the rules and regulations of the Commission. You may inspect the registration statement at the Public Reference Room at the Commission at 450 Fifth Street, N.W., Washington, D.C. and the Commission's regional offices at Seven World Trade Center, 13th Floor, New York, New York, 10048 and the Citibank Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can obtain copies of such materials at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the Commission maintains a site on the World Wide Web at http://www.sec.gov containing reports, proxy materials, information statements and other items. The Securities and Exchange Commission allows us to "incorporate by reference" certain information already on file with it. This means that we can disclose important information to you by referring you to those documents. Such information is considered part of this prospectus supplement, and later information that is filed will automatically update and supersede this information. You should rely only on the information incorporated by reference or provided in this prospectus supplement and the accompanying prospectus. We have not authorized anyone else to provide you with different information. You should not assume that the information in this prospectus supplement or the accompanying prospectus is accurate as of any date other than the date on the cover page of this prospectus supplement or the accompanying prospectus. You can obtain from the Sponsor, free of charge, a copy of the financial information incorporated by reference by making an oral or written request to Advanta Conduit Receivables, Inc., Attention: General Counsel, Welsh & McKean Roads, Spring House, Pennsylvania 19477, (215) 657-4000. 3 We include cross-references in this prospectus supplement and the accompanying prospectus to captions in these materials where you can find further related discussions. The following table of contents and the table of contents included in the accompanying prospectus provide the pages on which these captions are located. The Sponsor's principal offices are located at 10790 Rancho Bernardo Road, San Diego, California 92127, and its telephone number is (619) 674-1800. S-3 4
TABLE OF CONTENTS SUMMARY.......................................S-5 Calculation of LIBOR......................S-55 Principal Distributions...................S-55 TERMS OF THE NOTES AND THE MORTGAGE LOANS.....S-7 Flow of Funds.............................S-56 Optional Redemption of the Notes..........S-57 RISK FACTORS.................................S-13 Mandatory Redemption of the Notes.........S-57 Payments to the Certificateholders........S-58 THE PORTFOLIOS OF MORTGAGE LOANS.............S-16 Events of Default Under Indenture.........S-58 Delinquencies.............................S-16 THE INSURER..................................S-58 THE MORTGAGE LOANS...........................S-19 General...................................S-19 THE INSURANCE POLICY.........................S-60 The Statistic Calculation Pools...........S-19 The Mortgage Loans........................S-19 THE SALE AND SERVICING AGREEMENT.............S-62 Fixed Rate Mortgage Loan Pool.............S-20 Delinquency Advances, Conveyance of Subsequent Mortgage Loans...S-27 Compensating Interest and Adjustable Rate Mortgage Loan Pool........S-27 Servicing Advances.....................S-62 Servicing Compensation....................S-63 PREPAYMENT AND YIELD CONSIDERATIONS..........S-36 Governing Law.............................S-63 Projected Prepayments and Yields for Notes..................................S-36 CERTAIN FEDERAL INCOME TAX CONSEQUENCES......S-63 General...................................S-63 USE OF PROCEEDS..............................S-42 Characterization of the Notes as Indebtedness...........................S-64 THE SPONSOR AND THE MASTER SERVICER..........S-42 Taxation of Interest Income of Holders....S-65 General...................................S-42 Sale or Redemption of Notes...............S-66 The Sponsor and the Master Servicer.......S-42 Taxation of Certain Foreign Investors.....S-66 Backup Withholding........................S-66 THE TRUST....................................S-43 Possible Classification of the Trust as General...................................S-43 a Partnership or Association Certain Activities........................S-44 Taxable as a Corporation...............S-67 The Owner Trustee.........................S-44 The Indenture Trustee.....................S-45 STATE TAXES..................................S-67 Transfer of Mortgage Loans................S-45 Conveyance of the Subsequent ERISA CONSIDERATIONS.........................S-67 Mortgage Loans.........................S-45 Pre-Funding Account Feature...............S-46 RATINGS......................................S-68 Capitalized Interest Accounts.............S-46 Termination...............................S-46 LEGAL INVESTMENT CONSIDERATIONS..............S-69 DESCRIPTION OF THE NOTES.....................S-47 UNDERWRITING.................................S-69 General...................................S-47 Book Entry Registration of the Notes......S-47 EXPERTS......................................S-70 Payments on Mortgage Loans; Deposits to Principal and Interest CERTAIN LEGAL MATTERS........................S-70 Account................................S-51 Distributions on the Notes................S-52 INDEX OF PRINCIPAL DEFINED TERMS.............S-71 Overcollateralization Provisions..........S-52 Overcollateralization and the ANNEX I......................................S-74 Insurance Policy.......................S-53 GLOBAL CLEARANCE, Interest Distributions....................S-53 SETTLEMENT AND TAX DOCUMENTATION PROCEDURES.............................S-74
5 SUMMARY o This summary highlights selected information from this prospectus supplement and does not contain all of the information that you need to consider in making your investment decision. To understand all of the terms of the offering of the notes, read carefully this entire prospectus supplement and the accompanying prospectus. o This summary provides an overview of certain calculations, cash flows and other information to aid your understanding and is qualified by the full description of these calculations, cash flows and other information in this prospectus supplement and the accompanying prospectus. ------------------------------- TITLE OF SERIES: Advanta Mortgage Loan INSURER: [NOTE INSURER] Trust ____-_ NOTES: [Fixed/Floating] Rate Notes PAYMENT DATES: The 25th day of each month, beginning on ___________, ____. If the 25th day is not a business day, then the payment date will be the next business day. NON-OFFERED Trust Certificate CLOSING DATE: On or about ___________, ____. CERTIFICATES: SPONSOR: Advanta Conduit INITIAL CUT-OFF The opening of business on Receivables, Inc. DATE: __________, ____. MASTER SERVICER: Advanta Mortgage Corp. USA ORIGINATORS: Originators affiliated with the sponsor or from one or more unaffiliated originators. INDENTURE TRUSTEE: [Indenture Trustee], OWNER TRUSTEE: [OWNER TRUSTEE] a national banking association
6 The Trust. The sponsor is forming a trust to hold a pool of mortgage loans and to hold cash on deposit in an account to be used to purchase additional mortgage loans if certain conditions are met. All of the mortgage loans will be originated by affiliates of the sponsor or by one or more unaffiliated originators. Guarantor. The trust will own an insurance policy issued to it by [NOTE INSURER] guaranteeing payment of certain amounts due to the holders of the notes. The Notes. The notes will be issued pursuant to an indenture between [Indenture Trustee], as indenture trustee and the trust, as issuer. The notes will be secured by a pledge of a pool of mortgage loans. Principal Distributions. The trust will distribute principal monthly to the holders of the notes. Interest Distributions. The trust will distribute interest monthly to the holders of the notes based on each note's respective interest rate and principal balance. No Other Obligors. The notes do not represent the obligation of any entity other than the issuing trust. You can find a listing of the pages where capitalized terms used in this prospectus supplement are defined under the caption "Index of Principal Defined Terms" beginning on page S-__ in this prospectus supplement and under the caption "Index of Principal Defined Terms" beginning on page ___ in the accompanying prospectus. This summary provides a very broad overview of the notes; it does not, however, contain the specific information you will need to consider in making a decision whether to invest in the notes. If you are considering an investment in the notes, you should next review the sections "Terms of the Notes and the Mortgage Loans" and "Risk Factors." Before making a final investment decision, you should review: o this prospectus supplement -- for more detailed information on these notes. o the prospectus -- for general information, some of which may not apply to these notes. 7 TERMS OF THE NOTES AND THE MORTGAGE LOANS This term sheet provides an overview. It does not contain all the information that you need to consider in making your investment decision. To understand the terms of the notes and the characteristics of the underlying mortgage loans, read carefully the entire prospectus supplement and the accompanying prospectus. Capitalized terms used and not defined herein have the meanings set forth in the accompanying prospectus. NOTES The notes, which are offered hereby, will have the note principal balance, interest rates and other features set forth on the cover page of this prospectus supplement and described within this prospectus supplement. The notes represents an obligation of the trust, and is not an obligation of any other entity. The assets of the trust are a pool of either fixed rate or adjustable rate, first or second lien residential mortgage loans and cash on deposit in certain accounts to be used to purchase additional mortgage loans if certain conditions are met. The Indenture Trustee will make distributions on the 25th day of each month, or if that day is not a business day, the next business day, commencing on __________, __________. INTEREST RATE The interest rate for the notes is a [fixed/floating] rate determined by a formula based on LIBOR, subject to an interest rate cap. NOTE INTEREST RATE. Interest will accrue on the Notes for the interest period relating to the __________, ___________ payment date at an annual rate of interest equal to one-month LIBOR plus .____%. For each subsequent interest period, interest will accrue on the Notes at an annual rate of interest equal to the lesser of o one-month LIBOR plus .____% (for each interest period ending on or prior to the date on which the master servicer, acting directly or through one or more affiliates of the certificateholder could exercise its option to redeem the Notes) or one-month LIBOR plus _____% (for each interest period ending after such date), and o an interest rate cap, the calculation for which is set forth in detail in this prospectus supplement. If, on any payment date, the interest rate cap for the notes is less than the alternative calculation of the interest rate set forth above, the amount of any such shortfall will be paid from excess cash on such payment date and, if not paid, will be carried forward and be due and payable on the following payment dates and shall accrue interest at the applicable note interest rate until paid. These shortfall payments will not be guaranteed by the Insurer. If the Master Servicer, acting directly as though one is more affiliates, or the certificateholder exercises its right to terminate the trust, it is possible that some or all of the accrued but unpaid shortfall amounts due to a noteholder may not be paid. INTEREST DISTRIBUTIONS Interest will be paid on each note at the applicable interest rate, plus any accrued but unpaid interest from prior payment dates. The interest due on any payment date will be the interest which has accrued thereon at the respective interest rate from S-7 8 the preceding payment date (or from __________, __________ in the case of the first payment date) to and including the day prior to the current payment date. PRINCIPAL DISTRIBUTIONS Principal will be paid on each note on each payment date in reduction of the outstanding principal balance of such note. The amount of principal payable with respect to a note will be the principal received by the trust from the underlying pool of mortgage loans. During certain periods, all or a disproportionately large percentage of principal payments collected from the underlying mortgage loans will be distributed to the holders of notes to maintain the required levels of overcollateralization. You should review the priority of principal payments described under "Description of The Notes -- Principal Distributions" in this prospectus supplement. CREDIT ENHANCEMENT Credit enhancement reduces the harm caused to holders of notes from shortfalls in payments received from and losses incurred on the underlying pool of mortgage loans. The credit enhancement provided for the benefit of the notes consists of the following: o Subordination. The is also issuing a certificate representing the entire beneficial ownership interest in the underlying pool of mortgage loans. Payments on the trust certificate are subordinated to payments due on the notes. Subordination of the trust certificate provides credit enhancement to the notes. On each payment date, the certificates will not receive payments until the notes have been paid. If there is not enough money on a payment date to pay both the notes and the certificates, the certificates are the first to forego payment. o Overcollateralization. Additional credit enhancement will result from the fact that, at any time, the size of each pool of mortgage loans and any cash on deposit used to purchase additional mortgage loans is expected to be greater than the principal balance of the notes. Such overcollateralization is intended to result in interest amounts received on the underlying pool of mortgage loans being greater than the amount necessary to pay interest on the notes. In addition, the subordination and cash flow provisions of the trust result in limited acceleration of payments on the notes relative to the amortization of the underlying mortgage loans. This acceleration feature creates overcollateralization which equals the excess of the sum of the total principal balance of the mortgage loans and any cash on deposit used to purchase additional mortgage loans over the total principal balance of the notes. Once the required level of overcollateralization is reached, the acceleration feature will cease, unless necessary to maintain the required level of overcollateralization. The actual level of overcollateralization may increase or decrease over time. See "Description of the Notes--Overcollateralization Provisions" in this prospectus supplement. o Application of Excess Interest. Generally, because more interest is paid by the borrowers than is necessary to pay the interest earned on the notes, there will be excess interest each month. Some of the excess interest will be used to pay interest on notes that was previously accrued but not paid and some of the excess interest will be used to reimburse holders of the notes for losses that they experienced previously. In addition, the trust may apply excess interest as principal payments on the notes to create overcollateralization until the specified overcollateralization amount has been reached. See "Description of the Notes" in this prospectus supplement. S-8 9 o The Insurance Policy. The sponsor will obtain a noncancelable note guaranty insurance policy, in favor of the indenture trustee on behalf of the noteholders. On each payment date, the insurer will be required to make available to the indenture trustee the amount, if any, by which the payments due to the notes with respect to interest and overcollateralization deficiencies exceeds available funds received from the pool of mortgage loans. See "The Insurance Policies" and "The Insurer" in this prospectus supplement and "Description of Credit Enhancement" in the prospectus. MANDATORY REDEMPTION The Notes will be redeemed in part at the end of the pre-funding period to the extent of any cash remaining on each such payment date after the purchase by the trust of additional mortgage loans, if any. See "Description of the Notes - -- Mandatory Redemption of the Notes" in this prospectus supplement. DENOMINATIONS The Trust will issue the Notes in book-entry form in integral multiples of $1,000. INDENTURE TRUSTEE [INDENTURE TRUSTEE], a national banking association. OWNER TRUSTEE [OWNER TRUSTEE], a Delaware banking corporation. MORTGAGE LOANS THE SPONSOR Advanta Conduit Receivables, Inc. acquired all of the mortgage loans from either affiliated originators or unaffiliated originators. See "The Portfolios of Mortgage Loans" in this prospectus supplement. MASTER SERVICER Advanta Mortgage Corp. USA will act as the Master Servicer for the mortgage loans. The Master Servicer is entitled to retain an annual servicing fee, payable monthly, of 0.50% of the total principal balance of the mortgage loans underlying the trust. The Master Servicer must advance delinquent payments of interest on the mortgage loans, subject to certain limitations. See "The Sale and Servicing Agreements -- Delinquency Advances, Compensating Interest and Servicing Advances" and "-- Servicing Compensation" in this prospectus supplement. Advanta Mortgage Corp. USA may use a subservicer, which may be an affiliate, to carry out its obligations as Master Servicer. MORTGAGE LOAN DATA The mortgage loans securing the notes will be conveyed by or at the request of the Sponsor to the trust and pledged by such trust to the indenture trustee under an indenture. See "The Trust" in this prospectus supplement. The mortgage loans are fixed rate, first or second lien residential mortgage loans or adjustable rate, first or second lien residential mortgage loans. The statistical information presented in this prospectus supplement concerning the mortgage loans in the trust is given as of _________. The actual pools as of the closing date on or about __________ will represent approximately $__________ in mortgage loans. It is anticipated that as of the end of the pre-funding period, there will be approximately $________ in mortgage loans in the trust The additional mortgage loans reflected as of the end of the pre-funding period represent subsequent mortgage loans which will be assigned to the trust in exchange for funds in the pre-funding account. S-9 10 Some mortgage loans included in the statistical information presented here may prepay in full, or may be determined not to meet the eligibility requirements for the final pool and as a result may not be included in the final pool. In addition, some amortization of the mortgage loans in such pools will occur. As a result of the foregoing, the statistical distribution of mortgage loan characteristics of the trust as of the closing date will vary somewhat from those presented in this prospectus supplement, although such variance will not be material. As of ____________, the fixed rate mortgage loans had the following characteristics: Number of Mortgage Loans Aggregate Principal Balance Average Principal Balance Range of Principal Balances Weighted Average Mortgage Interest Rate Range of Mortgage Interest Rates Weighted Average Original Term (months) Weighted Average Remaining Term (months) As of _________________, the adjustable rate mortgage loans had the following characteristics: Number of Mortgage Loans Aggregate Principal Balance Average Principal Balance Range of Principal Balances Weighted Average Mortgage Interest Rate Range of Maximum Mortgage Interest Rates Weighted Average Minimum Mortgage Interest Rate Range of Minimum Mortgage Interest Rates Weighted Average Original Term (months) Weighted Average Remaining Term (months) See "The Mortgage Loans" in this prospectus supplement. PRE-FUNDING ACCOUNTS The trust may purchase additional mortgage loans on or before _________________________, subject to certain conditions described herein. On the closing date, the sponsor will deposit up to $__________ to the trust, to ensure that the trust has sufficient cash to purchase the additional mortgage loans. In addition, the sponsor will also be required to fund certain other accounts relating to the payment of interest during the pre-funding period. See "The Trust--Pre-Funding Account Feature" in this prospectus supplement. CAPITALIZED INTEREST ACCOUNTS The trust will establish a capitalized interest account, which will be funded on the closing date from the proceeds of the notes. The amounts deposited therein will be used by the indenture trustee during the pre-funding period to make up for any shortfalls that may arise in the event that interest collections on the underlying mortgage S-10 11 loans are insufficient to pay all of the interest due to the noteholders and certain other expenses during such period. Any unused amounts remaining in such accounts will be paid directly to the certificateholder of the trust. See "The Trust--Capitalized Interest Accounts" in this prospectus supplement. THE INSURER AND THE INSURANCE POLICIES [NOTE INSURER] will issue a financial guaranty insurance policy in favor of the indenture trustee for the benefit of the noteholders. On each payment date, the insurer will be required to make available to the indenture trustee the amount by which the payments due with respect to the notes exceeds available funds received from the underlying mortgage loans. The insurance policy does not insure shortfalls resulting from the application of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended, or due to principal prepayments on the mortgage loans. See "The Insurer" and "The Insurance Policies" in this prospectus supplement. OPTIONAL REDEMPTION At its option, the Master Servicer, acting directly or through one ore more affiliates or the certificateholder may effect an early retirement of the notes. Such option could occur on any payment date on which the total principal balance of the notes is equal to or less than 10% of the sum of the total principal balance of the notes as of the closing date. In the event the Master Servicer or the certificateholder of the trust exercises such option, the redemption price of the notes will be as described in this prospectus supplement under "Description of the Notes--Optional Redemption of the Notes." BOOK-ENTRY REGISTRATION The trust will initially issue the notes in book-entry form. You may elect to hold your interest in the notes through The Depository Trust Company in the United States, or Cedelbank, or the Euroclear System in Europe, or indirectly through participants in such systems. You will not be entitled to receive a definitive note representing your interest unless definitive notes are issued. See "Description of the Notes--Book-Entry Registration of the Notes" in this prospectus supplement. RATINGS AND RATING AGENCIES It is a condition to the issuance of the notes that the notes will be rated "Aaa" by Moody's Investors Service, Inc., and "AAA" by Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies or a similar rating from a nationally recognized statistical rating agency. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the rating agency. The ratings do not represent any assessment of the likelihood or rate of principal prepayments or the likelihood that certain interest shortfall amounts will be paid. See "Ratings" in this prospectus supplement. FEDERAL INCOME TAX ASPECTS Subject to the qualifications set forth in the "Certain Federal Income Tax Consequences" section of the prospectus supplement, Dewey Ballantine LLP, special tax counsel to the sponsor, is of the opinion that, for federal income tax purposes, the notes will be characterized as being composed of a debt instrument and a notional principal contract, and the trust will not be treated as an association or a publicly traded partnership taxable as a corporation or a taxable mortgage pool. The trust will not initially elect to be treated as REMICs but may elect to do so in the future. See the "Certain Federal Income Tax Consequences" sections in the prospectus supplement and in the prospectus for additional information concerning the application of federal income tax laws. S-11 12 LEGAL INVESTMENT CONSIDERATIONS The notes will not constitute "mortgage related securities" for purposes of the Secondary Mortgage Market Enhancement Act of 1984. See "Legal Investment Considerations" in this prospectus supplement. ERISA CONSIDERATIONS Subject to the conditions and considerations discussed under "ERISA Considerations" in this prospectus supplement, the notes will be eligible for purchase by pension, profit-sharing and other employee benefit plans and retirement arrangements subject to the Employee Retirement Income Security Act of 1974, as amended, or Section 4975 of the Internal Revenue Code of 1986. A fiduciary of any such plan or arrangement should consult with counsel regarding the potential application of such laws to an investment in the notes. See "ERISA Considerations" in the prospectus supplement and in the accompanying prospectus. S-12 13 RISK FACTORS Prospective investors in the notes should consider the following factors (as well as the factors set forth under the caption "Risk Factors" in the prospectus) in connection with the purchase of the notes. HIGH DEFAULT _____% of the mortgage loans as of ____________ by RATES FOR aggregate principal balance are "balloon loans," MORTGAGE LOANS which have an amortization schedule extending beyond WITH BALLOON such mortgage loan's maturity date, resulting in a PAYMENTS relatively late unamortized principal balance due in a single payment at maturity. See " -- Risk of Losses Associated with Balloon Loans" in the prospectus. JUNIOR LIEN Because certain of the mortgage loans are secured by MORTGAGE LOANS junior liens subordinate to the rights of the mortgagee or beneficiary under the related senior mortgage(s) or deed(s) of trust, the proceeds from any liquidation, insurance or condemnation proceedings will be available to satisfy the outstanding balance of such junior mortgage loan only to the extent that the claims of such senior mortgagee(s) or beneficiary(ies) have been satisfied in full, including any related foreclosure costs. In addition, a junior mortgagee may not foreclose on the property securing a junior mortgage unless it forecloses subject to the senior mortgage(s), in which case it must either pay the entire amount due on the senior mortgage(s) to the senior mortgagee(s) at or prior to the foreclosure sale or undertake the obligation to make payments on the senior mortgage(s) in the event the mortgagor is in default thereunder. In servicing junior mortgages in its portfolio, it is generally Advanta Mortgage Corp. USA's practice to satisfy the senior mortgage(s) at or prior to the foreclosure sale. Advanta Mortgage Corp. USA may also advance funds to keep the senior mortgage(s) current until such time as it satisfies the senior mortgage(s). The trust will have no source of funds to satisfy the senior mortgage(s) or make payments due to the senior mortgagee(s). Information is provided under "The Mortgage Loans -- General" in this prospectus supplement with respect to the loan-to-value ratios of the mortgage loans as of _____________. As discussed in the prospectus under "Risk Factors," the value of the mortgaged properties underlying such loans could be adversely affected by a number of factors. As a result, despite the amortization of the junior and senior mortgage loans on such mortgaged properties, there can be no assurance that the combined loan-to-value ratios of such loans, determined as of a date subsequent to the origination date, will be the same or lower than the combined loan-to-value ratios for such loans, determined as of the origination date. DELAYS UPON LIQUIDATION Even assuming that the mortgaged properties provided adequate security for the mortgage loans, substantial delay could be encountered in connection with the liquidation of defaulted mortgage loans and corresponding delays in the receipt of such proceeds by the trust could occur. Further, Advanta Mortgage Corp. USA will be entitled to deduct from liquidation proceeds received in respect of a fully liquidated mortgage loan all expenses incurred in attempting to recover amounts due on such mortgage loan and not yet repaid, including payments to senior mortgagees, legal fees, real estate taxes, and maintenance and preservation expenses, thereby reducing collections available to the trust. S-13 14 LIQUIDATION EXPENSES Liquidation expenses with respect to defaulted mortgage loans do not vary directly with the outstanding principal balance of the loan at the time of default. Therefore, assuming that a servicer took the same steps in realizing upon a defaulted mortgage loan having a small remaining principal balance as it would in the case of a defaulted mortgage loan having a larger principal balance, the amount realized after expenses of liquidation would be smaller as a percentage of the outstanding principal balance of the smaller mortgage loan than would be the case with a larger loan. Because the average outstanding principal balances of the mortgage loans are small relative to the size of the loans in a typical pool of purchase-money first mortgages, realizations net of liquidation expenses on defaulted mortgage loans may also be smaller as a percentage of the principal amount of the mortgage loans than would such net realizations in the case of a typical pool of purchase-money first mortgage loans. NON-OWNER OCCUPIED As of ___________ , non-owner occupied properties PROPERTIES represent _____% of the mortgage loans in the trust (by aggregate principal balance). It is possible that the rate of delinquencies, foreclosures and losses on mortgage loans secured by non-owner occupied properties could be higher than for loans secured by the primary residence of the borrower. MANDATORY REDEMPTION You should be aware that in the event that the sponsor does not have enough subsequent mortgage loans to sell to the trust, you will receive a prepayment of principal. Although no assurance can be given, the sponsor expects that the principal amount of subsequent mortgage loans sold to the trust will require substantially all cash on deposit in each pre-funding account and that there will be no material principal prepayment to the holders of the notes. ELIGIBILITY OF Each subsequent mortgage loan must satisfy certain SUBSEQUENT MORTGAGE eligibility criteria at the time of its addition to LOANS the trust. However, subsequent mortgage loans may have been originated or purchased using credit criteria different from those which were applied to the mortgage loans conveyed on the closing date and may be of a different credit quality. Therefore, following the transfer of subsequent mortgage loans, the aggregate characteristics of the pool of mortgage loans then held in the trust may vary from the pool conveyed on the closing date. See "The Mortgage Loans" in this prospectus supplement. EFFECT OF SOCIAL, The ability of the trust to purchase subsequent ECONOMIC AND OTHER mortgage loans depends upon whether the mortgagors FACTORS ON THE ABILITY thereunder perform their obligations required by such TO PURCHASE subsequent mortgage loans in order that such SUBSEQUENT subsequent mortgage loans meet the eligibility MORTGAGE LOANS requirements. The performance by such mortgagors may be affected as a result of a variety of social and economic factors including interest rates, unemployment levels, the rate of inflation and consumers' general perception of economic conditions. However, the originator is unable to determine and has no basis to predict whether or to what extent economic or social factors will affect the performance by such mortgagors and the availability of subsequent mortgage loans. S-14 15 YEAR 2000 ISSUE Many existing computer programs use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results on or after January 1, 2000. In connection with this issue Advanta Corp., the parent company of the affiliated originators and Advanta Mortgage Corp. USA, has completed the evaluation of its systems, applications and vendor lists, and is implementing project plans to modify existing computer programs, convert to new programs or replace systems, to the extent necessary to address the upcoming change in the century. Advanta Corp. has identified its significant business relationships, including, without limitation, vendors, customers, asset management counterparties and pre-funding counterparties. Advanta Corp. has initiated communications with these third parties to determine the extent to which Advanta Corp. is vulnerable to such third parties' failure to remediate their own year 2000 issues. In the event that Advanta Corp.'s project plans are not timely or successfully completed, there can be no assurance that the upcoming change in the century will not have a material adverse effect on the operations of the affiliated originators and Advanta Mortgage Corp. USA, including a shut-down of operations for a period of time, which may, in turn, have a material adverse effect on the notes. In addition, there can be no assurance that the systems used by outside service providers, including sub-servicers providing services to Advanta Mortgage Corp. USA, or other third parties upon which the affiliated originators' and Advanta Mortgage Corp. USA's systems rely, will be converted on a timely basis. Further, there can be no assurance that a failure to convert by another company, or a conversion that is incompatible with the affiliated originators' and Advanta Mortgage Corp. USA's systems, would not have a material adverse effect on their operations, which may, in turn, have a material adverse effect on the notes. In the event that the systems or programs of the indenture trustee, the owner trustee and the insurer are not year 2000 compliant, there can be no assurance that there would not be a material adverse effect on the operations of the indenture trustee or the insurer, respectively, which may, in turn, have a material adverse effect on the notes. DTC AND THE With respect to Year 2000 issues, the Depository YEAR 2000 ISSUE Trust Company ("DTC") has informed members of the financial community that it has developed and is implementing a program so that its systems, as the same relate to the timely payment of distributions (including principal and income payments) to securityholders, book-entry deliveries, and settlement of trades within DTC continue to function appropriately on and after January 1, 2000. This program includes a technical assessment and a remediation plan, each of which is complete. Additionally, DTC's plan includes a testing phase, which is expected to be completed within appropriate time frames. However, DTC's ability to perform properly its services is also dependent upon other parties, including but not limited to, its participating organizations (through which noteholders will hold their offered notes), as well as the computer systems of third party service providers. DTC has informed the financial community that it is contacting (and will continue to contact) third party vendors from whom DTC acquires services to: (i) impress upon them the importance of such services being Year 2000 compliant and (ii) determine the extent of their efforts for year 2000 remediation (and, as appropriate, testing) of their services. In addition, DTC has stated that it is in the process of developing such contingency plans as it deems appropriate. S-15 16 If problems associated with the Year 2000 issue were to occur with respect to DTC and the services described above, distributions to noteholders could be delayed or otherwise adversely affected. INTEREST SHORTFALLS Generally speaking, the note interest rate will be ARE NOT COVERED based upon the level of one-month LIBOR. This bears BY THE INSURANCE no relationship to the methods of calculating the POLICY interest rates on the fixed rate mortgage loans, the interest rates of which do not change or the adjustable rate mortgage loans, the interest rates of which are generally based on six-month LIBOR. It is possible, for instance, that the level of one-month LIBOR may move in one direction against fixed rate loans and during periods in which the level of the index related to the adjustable rate loans is stable or moving in the opposite direction. It is also possible that, even if the levels of both one-month LIBOR and the index used to calculate the interest rate on the adjustable rate mortgage loans move in the same direction during any period, the extent of the change in the level of one-month LIBOR may be greater or less than that of such index during the same period. These factors may cause the note interest rate to be greater than the amount of available interest on the mortgage loans. You should be aware that any resulting shortfall in interest will adversely affect the yield to maturity on the notes and that the insurance policy will not cover the interest shortfall resulting from the fact that the applicable interest rate cap is less than the alternative calculation of the interest rate set forth above under the heading "Notes -- Interest Rate" in the summary. THE PORTFOLIOS OF MORTGAGE LOANS The pool of mortgage loans (the "Mortgage Loans") conveyed to the trust (each, a "Mortgage Loan Pool") includes loans which were either originated directly by certain affiliated originators (the "Affiliated Originators") or purchased by the Affiliated Originators from others on a loan-by-loan basis and in either case acquired by Advanta Mortgage Credit Services, Inc. (the "Sponsor"). The Sponsor also acquires loans from unaffiliated originators (the "Unaffiliated Originators"). Such loans are originated by Unaffiliated Originators either directly or purchased by the Unaffiliated Originators from others on a loan-by-loan basis (with an Affiliated Originator and an Unaffiliated Originator each being referred to herein as an "Originator"). The Affiliated Originators are Advanta Mortgage Corp. USA, Advanta National Bank, Advanta Bank Corp., Advanta Mortgage Corp. Midatlantic, Advanta Mortgage Corp. Midatlantic II, Advanta Mortgage Corp. Midwest, Advanta Mortgage Corp. of New Jersey, Advanta Mortgage Corp. Northeast and Advanta Finance Corp. DELINQUENCIES Owned and Managed Servicing Portfolio. The following tables set forth information relating to the delinquency, loan loss and foreclosure experience of the Advanta Mortgage Corp. USA (the "Master Servicer") for its servicing portfolio, excluding certain loans serviced by the Master Servicer that were not originated or purchased and reunderwritten by the Sponsor or its Affiliated Originators (the "Owned and Managed Servicing Portfolio"), of fixed and adjustable rate mortgage loans as of __________________, and for each of the four prior years ended December 31. The Owned and Managed Servicing Portfolio S-16 17 includes, but is not limited to, the Mortgage Loans acquired on or prior to __________________, which are contained in the Statistic Calculation Pools. In addition to the Owned and Managed Servicing Portfolio, the Master Servicer serviced, as of __________________, approximately _______ mortgage loans with an aggregate principal balance as of such date of approximately $___ billion; such loans were not originated by the Sponsor or its Affiliated Originators and are being serviced for third parties on a contract servicing basis (the "Third-Party Servicing Portfolio"). No loans in the Third-Party Servicing Portfolio are included in the tables set forth below. S-17 18
DELINQUENCY AND FORECLOSURE EXPERIENCE OF THE MASTER SERVICER'S OWNED AND MANAGED SERVICING PORTFOLIO OF MORTGAGE LOANS ____ MONTHS ENDING YEAR ENDING DECEMBER 31, ----------------------- -------------------------------------------------------------------------------------- ----------------------- -------------------------------------------------------------------------------------- NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT LOANS (000) LOANS (000) LOANS (000) LOANS (000) LOANS (000) ---------- ------------ --------- ----------- -------- ----------- ---------- ----------- --------- ---------- Portfolio Delinquency percentage(1) 30-59 days 60-89 days 90 days or more Total Foreclosure rate(2) REO properties(3) - ----------------------
(1) The period of delinquency is based on the number of days payments are contractually past due. The delinquency statistics for the period exclude loans in foreclosure. (2) "Foreclosure Rate" is the number of mortgage loans or the dollar amount of mortgage loans in foreclosure as a percentage of the total number of mortgage loans or the dollar amount of mortgage loans, as the case may be, as of the date indicated. (3) REO Properties (i.e., "real estate owned" properties -- properties relating to mortgages foreclosed or for which deeds in lieu of foreclosure have been accepted, and held by the Master Servicer pending disposition) percentages are calculated using the number of loans, not the dollar amount.
LOAN LOSS EXPERIENCE OF THE MASTER SERVICER'S OWNED AND MANAGED SERVICING PORTFOLIO OF MORTGAGE LOANS ____ MONTHS ENDING YEAR ENDING DECEMBER 31, ------------------ -------------------------------------------------------------------------- ------------------ ---------------- ---------------- ----------------- ---------------- (Dollars in thousands) Average amount outstanding(1) Gross losses(2) Recoveries(3) Net losses(4) Net losses as a percentage of average amount outstanding(5) - --------------------
(1) "Average Amount Outstanding" during the period is the arithmetic average of the principal balances of the mortgage loans outstanding on the last business day of each month during the period. (2) "Gross Losses" are amounts which have been determined to be uncollectible relating to mortgage loans for each respective period. (3) "Recoveries" are recoveries from liquidation proceeds and deficiency judgments. (4) "Net Losses" represents "Gross Losses" minus "Recoveries". (5) ____________ percentage has been based on annualized net losses. S-18 19 THE MORTGAGE LOANS GENERAL The Mortgage Loans will be conveyed to Advanta Mortgage Loan Trust ____-_ (the "Trust"), on or before _____________ (the "Closing Date") and prior to the end of the pre-funding period, and simultaneously pledged to the Indenture Trustee. The Mortgage Loans will be predominantly used (x) to refinance an existing mortgage loan on more favorable terms, (y) to consolidate debt, or (z) to obtain cash proceeds by borrowing against the Mortgagor's equity in the related Mortgaged Property. THE STATISTIC CALCULATION POOLS The statistical information presented in this prospectus supplement concerning the Mortgage Loans in the Trust is given as of __________ (the "Initial Cut-Off Date"). The aggregate principal balances of the Initial Mortgage Loans for the Trust as of the Initial Cut-Off Date (as of such date, the "Statistic Calculation Pool") is $____________. The Sponsor expects that the actual amount of Mortgage Loans in the Trust as of the Closing Date will be approximately $_________ . It is anticipated that as of the close of the Pre-Funding Period (as defined herein), the Trust will contain approximately $____________ in Mortgage Loans. The additional Mortgage Loans reflected as of the Closing Date will represent Mortgage Loans acquired or to be acquired prior to the Closing Date. The additional Mortgage Loans reflected as of the Pre-Funding Period Termination Date represent subsequent Mortgage Loans which will be conveyed to the Trust by the Sponsor in exchange for funds in the Pre-Funding Account and subsequently pledged to the Indenture Trustee. In addition, with respect to the Statistic Calculation Pool as to which statistical information is presented herein, some amortization of the Mortgage Loans will occur prior to the Closing Date. Certain loans included in the Statistic Calculation Pool may prepay in full, or may be determined not to meet the eligibility requirements for the final pools and as a result may not be included in the final pool. As a result of the foregoing, the statistical distribution of such characteristics as of the Closing Date in the Mortgage Loan pool will vary somewhat from the statistical distribution of such characteristics in the Statistic Calculation Pool as presented in this prospectus supplement, although such variance will not be material. In the event that the Sponsor does not, as of the Closing Date, have the full amount of Mortgage Loans which the Sponsor expects to convey to the Trust or request the Trust to acquire on such date, the Sponsor will reduce the size of the offering. The Sponsor does not expect that the original principal amount of the notes will increase or decrease by more than 5% as a result of such non-delivery. Even if the full expected amount of Mortgage Loans is delivered, certain adjustments (plus or minus 5%) may occur. THE MORTGAGE LOANS The Statistic Calculation Pool contained ____ Mortgage Loans to be sold to the Trust evidenced by promissory notes (the "Mortgage Notes") secured by Mortgages on the Mortgaged Properties, which are located in ___states and the District of Columbia. The Mortgaged Properties securing the Mortgage Loans consist primarily of single-family residences (which may be detached, part of a two-to four-family dwelling, a condominium unit or a unit in a planned unit development). The Mortgaged Properties may be owner-occupied (which includes second and vacation homes) and non-owner occupied investment properties. The Mortgage Loans will be required to satisfy the following criteria as of the Initial Cut-Off Date: have remaining terms to maturity of no greater than 30 years; will not be 30 or more days delinquent (except that certain Mortgage Loans, representing in the aggregate not in excess of ______% S-19 20 of the aggregate principal balance of all Mortgage Loans as of the Initial Cut-Off Date, may be 30-59 days delinquent). Neither the Sponsor nor the Master Servicer have reason to believe that the delinquency and loss experience of the Mortgage Loans will differ in any material respect from that of the Master Servicer's total servicing portfolio, although there can be no assurance that this will be the case. Less than ____% of the Mortgage Loans (as a percentage of the aggregate principal balance of all Mortgage Loans contained in the Statistic Calculation Pools) are "simple interest" or "date of payment" loans, with the remainder "actuarial" or "pre-computed" loans. A "simple interest" loan provides that interest which has accrued to date is paid first and the remaining payment is applied to reduce the unpaid principal balance. An "actuarial" loan provides for amortization of the loan over a series of fixed level monthly installments. ____% of the Mortgage Loans are secured by first lien mortgages on the related Mortgaged Properties and ____% of the Mortgage Loans are secured by junior liens on the related Mortgaged Properties. Each of the Mortgage Loans contained in the Trust will be either (A) fixed rate Mortgage Loans and will (a) be secured by a Mortgage having either a first or junior lien position with respect to the related Mortgaged Property and will have a maximum remaining term to maturity of 30 years or (B) will be adjustable rate Mortgage Loans and will be secured by a Mortgage having first or second position with respect to the related Mortgaged Property and will have a maximum remaining term to maturity of 30 years. The CLTVs and LTVs described herein were calculated based upon the appraised values of the related Mortgaged Properties at the time of origination (the "Appraised Values"). In general, for purchase money loans, the CLTVs and LTVs were calculated using the lower of the purchase price or appraised values of the related Mortgaged Properties at the time of origination. No assurance can be given that such appraised values of the Mortgaged Properties have remained or will remain at their levels on the dates of origination of the related Mortgage Loans. If property values decline such that the outstanding balances of the Mortgage Loans, together with the outstanding balances of any Senior Liens, rises as a percentage of the value of the Mortgaged Properties, the actual rates of delinquencies, foreclosures and losses could be higher than those heretofore experienced by the Master Servicer, as set forth above under "The Portfolio of Mortgage Loans," and in the mortgage lending industry. FIXED RATE MORTGAGE LOAN POOL The fixed rate Mortgage Loans in the Statistic Calculation Pool consist of ________ Mortgage Loans under which the related Mortgaged Properties are located in ___ states and the District of Columbia, as set forth herein. The Trust had an aggregate principal balance of $_______ and the minimum principal balance of any of the Mortgage Loans in the Statistic Calculation Pool was $____, the maximum principal balance thereof was $_____ and the average principal balance of such Mortgage Loans was approximately $________ . The Mortgage Rates on the fixed rate Mortgage Loans ranged from ____% to _____% per annum, and the weighted average Mortgage Rate of such Mortgage Loans was _____% per annum. The original term to stated maturity of the fixed rate Mortgage Loans ranged from ___ months to 360 months, the remaining term to stated maturity ranged from 2 months to 360 months, the weighted average original term to stated maturity was ___ months, the weighted average remaining term to stated maturity was ____ months and the weighted average seasoning was ___ months. No fixed rate Mortgage Loan had a stated maturity later than _________. ________% of the fixed rate Mortgage Loans in by aggregate principal balance require monthly payments of principal that will fully amortize such Mortgage Loans by their respective maturity dates, and 15.00% of such Mortgage Loans by aggregate principal balance are Balloon Loans. S-20 21 The weighted average CLTV of the fixed rate Mortgage Loans included in _______ was _____% and the weighted average LTV was _______%. The weighted average Junior Lien Ratio (as defined below) of the Mortgage Loans was ______%. Approximately _____% of the fixed rate Mortgage Loans by aggregate principal balance were secured by first mortgages and approximately 2.43% by junior mortgages. The "Junior Lien Ratio" of a Mortgage Loan which is in a junior lien position is equal to the ratio (expressed as a percentage) of the original principal balance of such Mortgage Loan to the sum of (i) the original principal balance of such Mortgage Loan and (ii) the principal balance at the time of origination of the Mortgage Loan of any Senior Liens (computed at the time of origination of such Mortgage Loan). The following tables describe the fixed rate Mortgage Loans and the related Mortgaged Properties based upon the Statistic Calculation Pool as calculated at the opening of business on the Initial Cut-Off Date.
GEOGRAPHIC DISTRIBUTION NUMBER OF AGGREGATE % OF AGGREGATE STATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ----- -------------- ----------------- ----------------- Alabama..................... Alaska...................... Arizona..................... Arkansas.................... California.................. Colorado.................... Connecticut................. Delaware.................... District of Columbia........ Florida..................... Georgia..................... Hawaii...................... Idaho....................... Illinois.................... Indiana..................... Iowa........................ Kansas...................... Kentucky.................... Louisiana................... Maine....................... Maryland.................... Massachusetts............... Michigan.................... Minnesota................... Mississippi................. Missouri.................... Montana..................... Nebraska.................... Nevada...................... New Hampshire............... New Jersey.................. New Mexico.................. New York.................... North Carolina.............. North Dakota................ Ohio........................ Oklahoma.................... Oregon...................... Pennsylvania................ Rhode Island................ South Carolina.............. South Dakota................ Tennessee................... Texas....................... Utah........................ Vermont..................... Virginia.................... Washington.................. West Virginia............... Wisconsin................... Wyoming..................... TOTAL....................
S-21 22 DISTRIBUTION OF CLTVS
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE CLTV RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ----------- -------------- ----------------- ----------------- 90.01 - 95.00%................. 85.01 - 90.00.................. 80.01 - 85.00.................. 75.01 - 80.00.................. 70.01 - 75.00.................. 65.01 - 70.00.................. 60.01 - 65.00.................. 55.01 - 60.00.................. 50.01 - 55.00.................. 00.01 - 50.00.................. TOTAL.......................
DISTRIBUTION OF LTVS
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE LTV RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ---------- -------------- ----------------- ----------------- 90.01 - 95.00%................. 85.01 - 90.00.................. 80.01 - 85.00.................. 75.01 - 80.00.................. 70.01 - 75.00.................. 65.01 - 70.00.................. 60.01 - 65.00.................. 55.01 - 60.00.................. 50.01 - 55.00.................. 00.01 - 50.00.................. TOTAL.......................
DISTRIBUTION OF JUNIOR LIEN RATIOS (JUNIOR LIENS ONLY)
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE JUNIOR LIEN RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ------------------ -------------- ----------------- ----------------- 0.001 - 10.000%................. 10.001 - 20.000.................. 20.001 - 30.000.................. 30.001 - 40.000.................. 40.001 - 50.000.................. 50.001 - 60.000.................. 60.001 - 70.000.................. 70.001 - 80.000.................. 80.001 - 90.000.................. 90.001 -100.000.................. TOTAL........................
S-22 23
REMAINING TERM TO MATURITY DISTRIBUTION NUMBER OF AGGREGATE % OF AGGREGATE MONTHS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ------ -------------- ----------------- ----------------- 1 - 12.......................... 13 - 24.......................... 25 - 36.......................... 37 - 48.......................... 49 - 60.......................... 61 - 72.......................... 73 - 84.......................... 85 - 96.......................... 97 - 108......................... 109 - 120......................... 121 - 132......................... 133 - 144......................... 145 - 156......................... 157 - 168......................... 169 - 180......................... 181 - 192......................... 193 - 204......................... 205 - 216......................... 217 - 228......................... 229 - 240......................... 253 - 264......................... 265 - 276......................... 289 - 300......................... 301 - 312......................... 313 - 324......................... 325 - 336......................... 337 - 348......................... 349 - 360......................... TOTAL.........................
S-23 24
DISTRIBUTION OF PRINCIPAL BALANCES RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE PRINCIPAL BALANCES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ------------------ -------------- ----------------- ----------------- $ 0 - 5,000................. 5,001 - 10,000................. 10,001 - 15,000................. 15,001 - 20,000................. 20,001 - 25,000................. 25,001 - 30,000................. 30,001 - 35,000................. 35,001 - 40,000................. 40,001 - 45,000................. 45,001 - 50,000................. 50,001 - 55,000................. 55,001 - 60,000................. 60,001 - 65,000................. 65,001 - 70,000................. 70,001 - 75,000................. 75,001 - 80,000................. 80,001 - 85,000................. 85,001 - 90,000................. 90,001 - 95,000................. 95,001 - 100,000................. 100,001 - 150,000................. 150,001 - 200,000................. 200,001 - 250,000................. 250,001 - 300,000................. 300,001 - 350,000................. TOTAL.......................... DISTRIBUTION OF MORTGAGE RATES RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE -------------- -------------- ----------------- ----------------- 6.001 -7.000%................... 7.001 -8.000.................... 8.001 -9.000.................... 9.001 -10.000................... 10.001 -11.000................... 11.001 -12.000................... 12.001 -13.000................... 13.001 -14.000................... 14.001 -15.000................... 15.001 -16.000................... 16.001 -17.000................... 17.001 -18.000................... TOTAL.........................
S-24 25
DISTRIBUTION OF PROPERTY TYPES NUMBER OF AGGREGATE % OF AGGREGATE PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ------------- -------------- ----------------- ----------------- SF Detached/De Minimis PUD............. SF Row House/Townhouse/ Condo.......... Two to Four Family Homes............... Prefabricated Single Family............ TOTAL.............................. DISTRIBUTION OF OCCUPANCY STATUS NUMBER OF AGGREGATE % OF AGGREGATE OCCUPANCY STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ---------------- -------------- ----------------- ----------------- Owner occupied*...................... Non-owner occupied................... TOTAL............................ - ------------------- DISTRIBUTION OF SEASONING MONTHS ELAPSED NUMBER OF AGGREGATE % OF AGGREGATE SINCE ORIGINATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ----------------- -------------- ----------------- ----------------- 0 - 6........................... 7 - 12.......................... 13 - 24.......................... 49 - 60.......................... 73 - 84.......................... 85 - 96.......................... 97 - 108.......................... 109 - 120.......................... 121 - 132.......................... 133 - 144.......................... 145 - 156.......................... TOTAL............................
S-25 26 CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS During the Pre-Funding Period, the Sale and Servicing Agreement permits the Trust to acquire up to approximately $_______ aggregate principal balance of Subsequent Mortgage Loans for assignment to the Trust. Accordingly, the statistical characteristics of the Trust will vary as of any Subsequent Cut-Off Date upon the acquisition of the Subsequent Mortgage Loans which are assigned to the Trust. ADJUSTABLE RATE MORTGAGE LOAN POOL The adjustable rate Mortgage Loans in the Statistic Calculation Pool consist of ___ loans under which the related Mortgaged Properties are located in ____ states, as set forth herein. The adjustable rate Mortgage Loans in had an aggregate principal balance of $___________, the minimum principal balance of any of such Mortgage Loans was $______ , the maximum principal balance thereof was $__________ and the average principal balance of such Mortgage Loans was approximately $_______ . The weighted average current Mortgage Rate of the adjustable rate Mortgage Loans was _____% and the weighted average margin was ____ %. The adjustable rate Mortgage Loans have original terms to stated maturity from ____ months to 360 months, remaining terms to stated maturity from ____ months to 360 months, a weighted average remaining term to stated maturity of ____ months, a weighted average original term to stated maturity of ____ months and a weighted average seasoning of 1 month. No adjustable rate Mortgage Loan had a stated maturity later than ___________. All of the adjustable rate Mortgage Loans require monthly payments of principal that will fully amortize such Mortgage Loans by their respective maturity dates. The weighted average loan-to-value ratio of the adjustable rate Mortgage Loans included was _______%. All of the adjustable rate Mortgage Loans were secured by first mortgages. _____% of the Mortgage Loans bear interest (in some instances, following an initial fixed-rate period) at a six-month LIBOR rate, plus a margin. _____% are indexed on the average of the six-month LIBOR rates based on quotations at five major banks as set forth in the "Money Rates" section of The Wall Street Journal, Western Edition, on the first business day of the month; _____% are indexed on the average of the six-month LIBOR rates based on quotations of major banks, as published by the Federal National Mortgage Association ("FNMA"), on the first business day of the month; ____% are indexed on the average of the six-month LIBOR rates based on quotations at five major banks as set forth in the "Money Rates" section of the Wall Street Journal, Western Edition, on the most recent daily quote available; _____% are indexed on the average of the six-month LIBOR rates based on quotations at five major banks as set forth in the "Money Rates" section of The Wall Street Journal, Western Edition, on the last business day of the month; ______% are indexed on other six-month LIBOR rates; and ______ are indexed on the weekly average of the one-year constant maturity treasury. With respect to the adjustable rate Mortgage Loans _____, ____% of such Mortgage Loans bear interest at a fixed rate of interest for a two-year period following origination, ____% of such Mortgage Loans bear interest at a fixed rate of interest for a three-year period following origination, ____% of such Mortgage Loans bear interest at a fixed rate of interest for a five-year period following origination. After such initial periods, such Mortgage Loans bear interest at adjustable rates, as described above. ____% of the adjustable rate loans have semi-annual interest rate and semi-annual payment adjustment frequencies. _____% of the loans in the Trust have annual interest rate and annual payment adjustment frequencies. The margins for the adjustable rate Mortgage Loans range from ____ to _____. ________% of the adjustable rate Mortgage Loans have a periodic rate adjustment cap of 1.00%; ______ of such Mortgage Loans have a periodic rate adjustment cap of 1.50%; _____% of the adjustable rate S-26 27 Mortgage Loans have a periodic rate adjustment cap of 2.00%; ____% have a periodic rate adjustment cap of 3.00%; and ____% have other periodic rate adjustment caps. _____ of the adjustable rate Mortgage Loans have a lifetime cap of 7.00%; ______% have a lifetime cap of 6.50%; _____% have a lifetime cap of 6.00% and _____% have other lifetime caps. The weighted average number of months until the next reset date is approximately ____ months. The weighted average maximum Mortgage Rate was approximately _____ , with maximum Mortgage Rates that range from _____ to ____ . The weighted average minimum Mortgage Rate was approximately _____, with minimum Mortgage Rates that range from _____ to ______. The following tables describe the adjustable rate Mortgage Loans and the related Mortgaged Properties based upon the adjustable Statistic Calculation Pool as of the opening of business on the Initial Cut-Off Date. S-27 28
GEOGRAPHIC DISTRIBUTION NUMBER OF AGGREGATE % OF AGGREGATE STATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ----- -------------- ----------------- -----------------
S-28 29
DISTRIBUTION OF CLTVS RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE CLTV RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ----------- -------------- ----------------- ----------------- TOTAL.................... DISTRIBUTION OF LTVS RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE LTV RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ---------- -------------- ----------------- ----------------- DISTRIBUTION OF CURRENT MORTGAGE RATES RANGE OF CURRENT NUMBER OF AGGREGATE % OF AGGREGATE MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE -------------- -------------- ----------------- ----------------- TOTAL.....................
S-29 30
REMAINING TERM TO MATURITY DISTRIBUTION REMAINING TERM NUMBER OF AGGREGATE % OF AGGREGATE TO MATURITY MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ----------- -------------- ----------------- ----------------- TOTAL..................... DISTRIBUTION OF PRINCIPAL BALANCES RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE PRINCIPAL BALANCES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ------------------ -------------- ----------------- ----------------- TOTAL....................
S-30 31
DISTRIBUTION OF PROPERTY TYPES NUMBER OF AGGREGATE % OF AGGREGATE PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ------------- -------------- ----------------- ----------------- SF Detached/De Minimis PUD.......... SF Row House/Townhouse/Condo........ Two to Four Family Homes............ Prefabricated Single Family......... TOTAL.......................... DISTRIBUTION OF OCCUPANCY STATUS NUMBER OF AGGREGATE % OF AGGREGATE OCCUPANCY STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ---------------- -------------- ----------------- ----------------- Owner occupied*..................... Non-owner occupied.................. TOTAL.......................... - ----------------------- * Includes vacation and second homes. DISTRIBUTION OF SEASONING MONTHS ELAPSED NUMBER OF AGGREGATE % OF AGGREGATE SINCE ORIGINATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ----------------- -------------- ----------------- ----------------- TOTAL......................
S-31 32
DISTRIBUTION OF MAXIMUM MORTGAGE RATES RANGE OF MAXIMUM NUMBER OF AGGREGATE % OF AGGREGATE MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE -------------- -------------- ----------------- ----------------- TOTAL..................
S-32 33
DISTRIBUTION OF MINIMUM MORTGAGE RATES RANGE OF MINIMUM NUMBER OF AGGREGATE % OF AGGREGATE MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE -------------- -------------- ----------------- ----------------- TOTAL................... DISTRIBUTION OF MARGINS RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE MARGINS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ------- -------------- ----------------- ----------------- TOTAL...................
S-33 34
NEXT INTEREST ADJUSTMENT DATE DISTRIBUTION NEXT INTEREST NUMBER OF AGGREGATE % OF AGGREGATE ADJUSTMENT DATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE --------------- -------------- ----------------- ----------------- TOTAL.....................
S-34 35 PREPAYMENT AND YIELD CONSIDERATIONS The weighted average life of, and, if purchased at other than par, the yield to maturity on a Note will be directly related to the rate of payment of principal of the Mortgage Loans in the Trust, including for this purpose voluntary payment in whole or in part of Mortgage Loans in the Trust prior to stated maturity (a "Prepayment"), liquidations due to defaults, casualties and condemnations, and repurchases of Mortgage Loans in the Trust by the Sponsor, the Originators or the Master Servicer. The actual rate of principal prepayments on pools of mortgage loans is influenced by a variety of economic, tax, geographic, demographic, social, legal and other factors and has fluctuated considerably in recent years. In addition, the rate of principal prepayments may differ among mortgage loans at any time because of specific factors relating to the mortgage loans in the pool, including, among other things, the age of the mortgage loans, the geographic locations of the properties securing the loans and the extent of the mortgagors' equity in such properties, and changes in the mortgagors' housing needs, job transfers and unemployment. The timing of changes in the rate of prepayments may significantly affect the actual yield to investors, even if the average rate of principal prepayments is consistent with the expectations of investors. In general, the earlier the payment of principal of the Mortgage Loans the greater the effect on an investor's yield to maturity. As a result, the effect on an investor's yield of prepayments occurring at a rate higher (or lower) than the rate anticipated by the investor during the period immediately following the issuance of the Notes will not be offset by a subsequent like reduction (or increase) in the rate of principal prepayments. Investors must make their own decisions as to the appropriate prepayment assumptions to be used in deciding whether to purchase any of the Notes. The Sponsor makes no representations or warranties as to the rate of prepayment or the factors to be considered in connection with such determination. PROJECTED PREPAYMENTS AND YIELDS FOR NOTES If purchased at other than par, the yield to maturity on a Note will be affected by the rate of the payment of principal of the Mortgage Loans in the Trust. If the actual rate of payments on the Mortgage Loans in the Trust is slower than the rate anticipated by an investor who purchases a Note at a discount, the actual yield to such investor will be lower than such investor's anticipated yield. If the actual rate of payments on the Mortgage Loans is faster than the rate anticipated by an investor who purchases a Note at a premium, the actual yield to such investor will be lower than such investor's anticipated yield. Some of the Mortgage Loans are adjustable rate mortgage loans. As is the case with conventional fixed rate mortgage loans, adjustable rate mortgage loans may be subject to a greater rate of principal prepayments in a declining interest rate environment. For example, if prevailing interest rates fall significantly, adjustable rate mortgage loans could be subject to higher prepayment rates than if prevailing interest rates remain constant because the availability of fixed-rate mortgage loans at competitive interest rates may encourage mortgagors to refinance their adjustable rate mortgage loans to "lock in" a lower fixed interest rate. However, no assurance can be given as to the level of prepayments that the Mortgage Loans will experience. _____% of the Mortgage Loans in the Statistic Calculation Pool by aggregate principal balance had prepayment penalties. Some of the Mortgage Loans are fixed-rate mortgage loans. The rate of prepayments with respect to conventional fixed rate mortgage loans has fluctuated significantly in recent years. In general, if prevailing interest rates fall significantly below the interest rates on fixed rate mortgage loans, such mortgage loans are likely to be subject to higher prepayment rates than if prevailing rates remain at or above the interest rate on such mortgage loans. However, the monthly payment on mortgage loans S-35 36 similar to the Mortgage Loans is often smaller than the monthly payment on a purchase-money first mortgage loan. Consequently, a decrease in the interest rate payable as a result of a refinancing would result in a relatively small reduction in the amount of the Mortgagor's monthly payment, as a result of the relatively small loan balance. Conversely, if prevailing interest rates rise appreciably above the interest rates on fixed rate mortgage loans, such mortgage loans are likely to experience a lower prepayment rate than if prevailing rates remain at or below the interest rates on such mortgage loans. ____% and ____% of the Mortgage Loans in the Statistic Calculation Pool, by aggregate principal balance had prepayment penalties. The Final Scheduled Payment Dates for the Notes have been calculated assuming that the Mortgage Loan in the Trust having the latest maturity amortizes according to its terms. [NOTE INSURER] will guarantee payment by __________ (the "Final Scheduled Payment Date"). "Weighted average life" refers to the average amount of time that will elapse from the date of issuance of a security until each dollar of principal of such security will be repaid to the investor. The weighted average life of the Notes will be influenced by the rate at which principal payments on the Mortgage Loans in the Mortgage Loan Pool are paid, which may be in the form of scheduled amortization, accelerated amortization or prepayments (for this purpose, the term "prepayment" includes Prepayments and liquidations due to default) or as a result of an early termination of the Trust. The model used in this prospectus supplement is a prepayment assumption (the "Prepayment Assumption") which represents an assumed rate of prepayment each month relative to the then outstanding principal balance of a pool of mortgage loans for the life of such mortgage loans. The "100% Prepayment Assumption" assumes a conditional prepayment rate of 3% per annum of the then outstanding principal balance of the Mortgage Loans in the first month of the life of the Mortgage Loans and an additional 1.55% (precisely, 17/11%) per annum in each month thereafter until the twelfth month. Beginning in the twelfth month and in each month thereafter during the life of the Mortgage Loans, the 100% Prepayment Assumption assumes a conditional prepayment rate of 20% per annum each month. As used in the table below, 0% Prepayment Assumption assumes prepayment rates equal to 0% of the Prepayment Assumption, i.e., no prepayments on the synthetic mortgage loans having the characteristics described below. Correspondingly, 100% Prepayment Assumption assumes prepayment rates equal to 100% of the Prepayment Assumption, and so forth. The Prepayment Assumption does not purport to be a historical description of prepayment experience or a prediction of the anticipated rate of prepayment of any pool of mortgage loans, including the Mortgage Loans. The Sponsor believes that no existing statistics of which it is aware provide a reliable basis for Holders of Notes to predict the amount or the timing of receipt of prepayments on the Mortgage Loans. The tables below were prepared on the basis of the assumptions in the following paragraph and there are discrepancies between the characteristics of the actual Mortgage Loans and the characteristics of the Mortgage Loans assumed in preparing the tables. Any such discrepancy may have an effect upon the percentages of the Note Principal Balances outstanding and the weighted average lives of the Notes set forth in the tables. In addition, since the actual Mortgage Loans in the Trust have characteristics which differ from those assumed in preparing the tables set forth below, the distributions of principal on the Notes may be made earlier or later than as indicated in the tables. For the purpose of the tables below, it is assumed that: (i) THE MORTGAGE LOANS CONSIST OF MORTGAGE LOANS HAVING THE CHARACTERISTICS SET FORTH BELOW, (ii) THE CLOSING DATE IS ______________, S-36 37 (iii) DISTRIBUTIONS ON THE NOTES ARE MADE ON THE 25TH DAY OF EACH MONTH REGARDLESS OF THE DAY ON WHICH THE PAYMENT ACTUALLY OCCURS, COMMENCING ON ______________ IN ACCORDANCE WITH THE PRIORITIES DESCRIBED HEREIN, (iv) ALL PREPAYMENTS ARE PREPAYMENTS IN FULL AND INCLUDE 30 DAYS' INTEREST THEREON, (v) NO EARLY TERMINATION OF THE TRUST OCCURS, UNLESS OTHERWISE SPECIFIED, (vi) NO MORTGAGE LOAN IS EVER DELINQUENT, (vii) THE ASSUMED LEVELS OF ONE-MONTH LIBOR, SIX-MONTH LIBOR, AND 1 YEAR CMT ARE ______ , _______ AND ________, RESPECTIVELY, (viii) NOTES HAVE THE RESPECTIVE PASS-THROUGH RATES AND ORIGINAL PRINCIPAL BALANCES AS SET FORTH HEREIN, AND (ix) ALL OF THE SUBSEQUENT MORTGAGE LOANS ARE DELIVERED TO THE TRUST APPROXIMATELY ONE MONTH AFTER THE CLOSING DATE. PREPAYMENT SCENARIOS
Scenario I Scenario II Scenario III Scenario IV Scenario V Scenario VI Scenario VII ---------- ----------- ------------ ----------- ---------- ----------- ------------ Fixed Rate Pool(1)........... Adjustable Rate Pool (2) ....
- ------------------------ (1) As a percentage of the Prepayment Assumption. (2) As a conditional prepayment rate (CPR) percentage. S-37 38 INITIAL MORTGAGE LOANS
ORIGINAL REMAINING ORIGINAL GROSS TERM TO TERM TO AMORTIZATION COUPON MATURITY MATURITY TERM AMORTIZATION PRINCIPAL BALANCE RATE (MONTHS) (MONTHS) (MONTHS) METHOD ----------------- ------ -------- -------- ------------ ------------
SUBSEQUENT MORTGAGE LOANS
ORIGINAL REMAINING ORIGINAL GROSS TERM TO TERM TO AMORTIZATION COUPON MATURITY MATURITY TERM AMORTIZATION PRINCIPAL BALANCE RATE (MONTHS) (MONTHS) (MONTHS) METHOD ----------------- ------ -------- -------- ------------ ------------
S-38 39 ADJUSTABLE RATE TRUST
NEXT RATE ADJUSTMENT PERIODIC ORIGINAL REMAINING GROSS DATE CAP PERIODIC CAP TERM TO TERM TO PRINCIPAL COUPON (NUMBER OF (FIRST RESET (SUBSEQUENT LIFE LIFE MATURITY MATURITY RESET BALANCE RATE MONTHS) MARGIN DATE) RESET DATES) CAP FLOOR (MONTHS) (MONTHS) INDEX FREQUENCY --------- ------ ---------- ------ ------------ ------------ ------ ----- -------- -------- ----- ---------
S-39 40 The following tables set forth the percentages of the initial principal amount of the Notes that would be outstanding after each of the dates shown, based on prepayment scenarios described in the table entitled "Prepayment Scenarios". The percentages have been rounded to the nearest 1%. The actual characteristics and performance of the Mortgage Loans will differ from the assumptions used in constructing the tables set forth above, which only demonstrate how the Mortgage Loans may behave under varying prepayment scenarios. It is unlikely that the Mortgage Loans will prepay at the same levels of CPR or in accordance with the Prepayment Assumptions. Moreover, the varying remaining terms to maturity of the Mortgage Loans could produce slower or faster principal payments than indicated in the foregoing tables. PERCENTAGE OF INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
Dates Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Scenario 6 Scenario 7 ----- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Weighted Average Life (years) (1) Weighted Average Life (years) (2)
(1) To Maturity (2) To 10% Call The weighted average life of the Notes has been determined by (i) multiplying the amount of each principal payment by the number of years from the date of issuance to the related Payment Date, (ii) adding the results and (iii) dividing the sum of the initial respective Note Principal Balance for the Notes as of the Closing Date. S-40 41 USE OF PROCEEDS Concurrently with the sale of the Notes, the Sponsor will cause or direct the Trust to acquire the Mortgage Loans (other than the Subsequent Mortgage Loans) and to pledge such Mortgage Loans to the Indenture Trustee. The Pre-Funding Account and the Capitalized Interest Account will be funded from a portion of the proceeds of the sale of the Notes. The net proceeds from the sale of the Notes will be paid over to the Originators in consideration of the transfer of the Mortgage Loans. Such amount will be determined as a result of the pricing of the Notes through the offering described in this prospectus supplement. The net proceeds to be received from the sale of the Mortgage Loans will be added to the Originators' general funds and will be available for general corporate purposes, including the repayment of debt, including "warehouse" debt secured by the Mortgage Loans (prior to their sale to the Trust) and the purchase of new mortgage loans. The Underwriter (or its affiliates) may have acted as a "warehouse lender" to the Sponsor or one or more of its affiliates and may receive a portion of such proceeds as a repayment of such "warehouse" debt. A portion of the Notes may be delivered to Advanta National Bank and/or Advanta Bank Corp. in consideration for the transfer of its Mortgage Loans. This prospectus supplement and the accompanying prospectus also cover the resale of such Notes from time to time by Advanta National Bank Advanta Bank Corp. or their respective affiliates. THE SPONSOR AND THE MASTER SERVICER GENERAL Advanta Mortgage Corp., USA (the "Master Servicer") will service the Mortgage Loans in accordance with the terms set forth in the Sale and Servicing Agreement. The Master Servicer may perform any of its obligations under the Sale and Servicing Agreement through one or more subservicers, which may be an affiliate of the Master Servicer. Notwithstanding any such subservicing arrangement, the Master Servicer will remain liable for its servicing duties and obligations under the Sale and Servicing Agreement as if the Master Servicer alone were servicing the Mortgage Loans. THE SPONSOR AND THE MASTER SERVICER Advanta Conduit Receivables, Inc. (the "Sponsor"), is a subsidiary of Advanta Mortgage Corp. USA, the Master Servicer, and is an indirect subsidiary of Advanta Corp., a Delaware corporation ("Advanta Parent"), a publicly-traded company with its principal executive offices located in Spring House, Pennsylvania with assets as of __________________ in excess of $___ billion. Advanta Parent, through its subsidiaries (including the Master Servicer), managed assets (including mortgage loans) in excess of $____ billion as of __________________. See "The Sponsor and the Transferor" and "The Master Servicer" in the prospectus. As of __________________, the Master Servicer and its subsidiaries were servicing approximately _______ mortgage loans in the Owned and Managed Servicing Portfolio, representing an aggregate outstanding principal balance of approximately $___ billion, and approximately _______ mortgage loans in the Third-Party Servicing Portfolio representing an aggregate outstanding principal balance of approximately $___ billion. See "The Master Servicer" in the prospectus. As of __________________, the Sponsor or its affiliates have issued __ issues of mortgage backed securities with an original balance of approximately $____ billion. S-41 42 The Master Servicer understands the implications of the Year 2000 Issue with respect to internal operations as well as external interactions with other third-party business entities. The Master Servicer has assessed the impact of the Year 2000 Issue, and is implementing project plans to modify existing computer programs, convert to new programs or replace systems, to the extent necessary to address the Year 2000 Issue. The Master Servicer's review includes all IT and non-IT systems, applications and vendor lists. See "Risk Factors -- Year 2000 Issue" herein. The Indenture Trustee and the Insurer may remove the Master Servicer, and the Master Servicer may resign, only in accordance with the terms of the Sale and Servicing Agreement. No removal or resignation shall become effective until the Indenture Trustee or a successor Master Servicer acceptable to the Insurer (or the Indenture Trustee, if a default with respect to the Insurer has occurred and is continuing) shall have assumed the Master Servicer's responsibilities and obligations in accordance therewith. See "The Pooling and Servicing Agreement -- Removal and Resignation of the Master Servicer" in the prospectus. The Master Servicer may not assign its obligations under the Sale and Servicing Agreement, in whole or in part, unless it shall have first obtained the written consent of the Indenture Trustee and the Insurer, which consent shall not be unreasonably withheld; provided, that any assignee must meet the eligibility requirements for a successor Master Servicer set forth in the Sale and Servicing Agreement. See "The Pooling and Servicing Agreement -- Removal and Resignation of the Master Servicer" in the prospectus. The Master Servicer may enter into Sub-Servicing Agreements with qualified Sub-Servicers with respect to the servicing of all or any portion of the Mortgage Loans in the Trust. The Sale and Servicing Agreement will provide that affiliates of the Master Servicer which are qualified to service mortgage loans are qualified Sub-Servicers. No Sub-Servicing Agreement discharges the Master Servicer from its servicing obligations. See "Mortgage Loan Program -- Sub-Servicers" in the prospectus. Upon removal or resignation of the Master Servicer, the Indenture Trustee may solicit bids for a successor Master Servicer and, pending the appointment of a successor Master Servicer, the Indenture Trustee will be required to serve as Master Servicer. If the Indenture Trustee is unable to obtain a qualifying bid and is prevented by law from acting as Master Servicer, the Indenture Trustee will be required to appoint, or petition a court of competent jurisdiction to appoint, an eligible successor. Any successor is required to be acceptable to the Insurer, unless the Insurer has defaulted, in which case the Indenture Trustee's decision shall control. The Notes will not represent an interest in or obligation of, nor are the Mortgage Loans guaranteed by, either the Sponsor, the Master Servicer, the Owner Trustee, the Indenture Trustee or any of their affiliates, nor will they be insured or guaranteed by the Federal Deposit Insurance Corporation (the "FDIC") or any other governmental agency or instrumentality. The Master Servicer will be obligated to advance certain amounts to make up for shortfalls in payments from the underlying mortgagors. See "The Sale and Servicing Agreement -- Delinquency Advances, Compensating Interest and Services Advances" in this prospectus supplement. THE TRUST GENERAL Advanta Mortgage Loan Trust ____-_ (the "Trust") is a trust formed under the laws of the State of Delaware pursuant to a Trust Agreement (the "Trust Agreement"), dated as of ________________ S-42 43 between Advanta Conduit Receivables, Inc., in its capacity as the Sponsor of the Trust and [OWNER TRUSTEE], as Owner Trustee (the "Owner Trustee"). The Trust will issue notes (the "Notes") in the original aggregate principal amount of $_________. The Trust will also issue certain certificates which represent the ownership interest in the Trust Property (the "Certificates"). The Certificates are not offered hereby but will initially be retained by an affiliate of the Sponsor. Prior to its formation, the Trust will have no assets or obligations or any operating history. The Trust will not engage in any business other than (i) acquiring, holding and managing the Mortgage Loans, the other assets of such Trust and any proceeds therefrom, (ii) issuing the Notes and the Certificates, (iii) making payments on the Notes and the Certificates and (iv) engaging in other activities that are necessary, suitable or convenient to accomplish the foregoing or are incidental thereto. The property of the Trust (the "Trust Property") shall include all money, instruments and other property to the extent such money, instruments and other property are subject or intended to be held in trust for the benefit of the related Holders and the Insurer, and all proceeds thereof, including, without limitation, (i) the Mortgage Loans owned by the Trust, (ii) such amounts, including principal collections in respect of the related Mortgage Loans received and interest accrued on or after the Initial Cut-Off Date and each Subsequent Cut-Off Date, as applicable, including eligible investments as from time to time may be held by the Indenture Trustee in the Note Account and by the Master Servicer in the Principal and Interest Account for the Trust (except as otherwise provided in the Sale and Servicing Agreement) but excluding any premium recapture, each to be created pursuant to the Sale and Servicing Agreement, (iii) any Mortgaged Property, the ownership of which has been effected on behalf of the Trust as a result of foreclosure or acceptance by the Master Servicer of a deed in lieu of foreclosure and that has not been withdrawn from the Trust, (iv) any insurance policies relating to the Mortgage Loans in the Trust and any rights of the Sponsor or the Affiliated Originators under any insurance policies, (v) Net Liquidation Proceeds with respect to any Liquidated Loan in the Trust. The Trust will not acquire any assets other than the Trust Property, and it is not anticipated that the Trust will have any need for additional capital resources. Because the Trust will have no operating history upon their establishment and will not engage in any business other than the duties discussed above, no historical or pro forma financial statements or ratios of earnings to fixed charges with respect to the Trust have been included herein. CERTAIN ACTIVITIES The Trust will not, except as expressly provided in the Trust Agreement and Indenture, (i) borrow money (other than through the issuance of the Notes); (ii) make loans; (iii) invest in securities for the purpose of exercising control; (iv) underwrite securities; (v) engage in the purchase and sale (or turnover) of investments; (vi) offer securities in exchange for property; or (vii) repurchase or otherwise reacquire its securities. THE OWNER TRUSTEE [OWNER TRUSTEE], the Owner Trustee under the Trust Agreement, is a Delaware banking corporation and its principal offices are located at [ADDRESS], Attention: Corporate Trust Administration. The Owner Trustee will perform limited administrative functions under the Trust Agreement. The Owner Trustee's duties in connection with the issuance and sale of the Notes and the Certificates are limited solely to the express obligations of the Owner Trustee set forth in the Trust Agreement, the Indenture and the Sale and Servicing Agreement. S-43 44 THE INDENTURE TRUSTEE [INDENTURE TRUSTEE] is the Indenture Trustee under the Indenture. [INDENTURE TRUSTEE]. is a national banking association with principal offices as of the Closing Date located at [ADDRESS]. The Indenture Trustee's duties in connection with the Notes are limited solely to its express obligations under the Indenture and the Sale and Servicing Agreement. TRANSFER OF MORTGAGE LOANS Not later than the Closing Date, the Sponsor will cause the related Originators to transfer the related Mortgage Loans to be conveyed on such date (the "Initial Mortgage Loans") pursuant to one or more Master Mortgage Loan Transfer Agreements between such Originators and the Sponsor (the "Master Transfer Agreements"). In the Master Transfer Agreements each of the Originators will make certain representations and warranties; the Sponsor will assign its rights to enforce such representations and warranties to the Trust. Pursuant to the Sale and Servicing Agreement, on the Closing Date the Sponsor will cause or direct the Trust to acquire all right, title and interest of the Originators in each Mortgage Loan listed on the related schedule delivered to the Owner Trustee on the Closing Date (the "Schedule of Mortgage Loans") and all their right, title and interest in all principal collected and all interest due on each such Mortgage Loan (excluding any premium recapture) on or after the Initial Cut-Off Date. In connection with the sale of Mortgage Loans to the Trust on the Closing Date, the related Originators will be required to deliver to the Indenture Trustee a file (a "Mortgage Loan File") consisting of, among other things, (i) the original Mortgage Notes or certified copies thereof, endorsed by the Originator thereof in blank or to the order of the holder, (ii) originals of all intervening assignments, showing a complete chain of title from origination to the applicable Originators, if any, including warehousing assignments, with evidence of recording thereon, (iii) originals of all assumption and modification agreements if any, and, unless such Mortgage Loan is covered by a counsel's opinion as described in the next paragraph, (iv) either: (a) the original Mortgage, with evidence of recording thereon, (b) a true and accurate copy of the Mortgage where the original has been transmitted for recording, until such time as the original is returned by the public recording office or (c) a copy of the Mortgage certified by the public recording office in those instances where the original recorded Mortgage has been lost. The Indenture Trustee will agree, for the benefit of the Holders, to review each such file within 90 days after the Closing Date to ascertain that all required documents (or certified copies of documents) have been executed and received. The Sale and Servicing Agreement generally requires that there be prepared and recorded, within 75 business days of the Closing Date (or, if original recording information is unavailable, within such later period as is permitted by the Sale and Servicing Agreement) assignments of the Mortgages from the Originators to the Trust, in the appropriate jurisdictions in which such recordation is necessary to perfect the lien thereof as against creditors of or purchasers from the Originators; provided, however, that such requirements may be waived by the Insurer under certain circumstances set forth in the Sale and Servicing Agreement. CONVEYANCE OF THE SUBSEQUENT MORTGAGE LOANS In addition to the Initial Mortgage Loans, certain additional Mortgage Loans (the "Subsequent Mortgage Loans") will be assigned to the Trust from time to time on or prior to the end of the Pre-Funding Period. Subject to certain conditions, the Sponsor may, on certain dates (the "Subsequent Transfer Dates") specified in certain transfer agreements entered into after the Closing Date (the S-44 45 "Subsequent Transfer Agreements"), or request to be delivered, additional mortgage loans eligible to become Subsequent Mortgage Loans on the next Payment Date in exchange for monies released to the Sponsor from the Pre-Funding Account. The cut-off date for each Subsequent Mortgage Loan will be the opening of business on the first day of the calendar month in which the related Subsequent Transfer Date occurs (the "Subsequent Cut-Off Date"). Upon assignment of any Mortgage Loan to the Trust during the Pre-Funding Period, the Indenture Trustee shall release to the Sponsor an amount equal to the Principal Balance thereof as of the related Subsequent Cut-Off Date from amounts then on deposit in the Pre-Funding Account. PRE-FUNDING ACCOUNT FEATURE On the Closing Date, up to approximately $_____ (the "Original Pre-Funded Amount") will be deposited in the Pre-Funding Account (the " Pre-Funding Account") in the name of the Indenture Trustee on behalf of the Trust, for the benefit of the Insurer and the Holders of the Notes, from the proceeds of the sale of the Notes. During the period (the "Pre-Funding Period") from the Closing Date until the earlier of (i) the date on which the amount on deposit in the Pre-Funding Account is less than $100,000 or (ii) ________ (the "Pre-Funding Period Termination Date"), the Sponsor may deliver Subsequent Mortgage Loans to the Indenture Trustee for assignment to the Trust in exchange for a corresponding release of money from the Pre-Funding Account in an amount equal to the Principal Balance of such Subsequent Mortgage Loans as of the related Subsequent Transfer Date. Each of the Subsequent Mortgage Loans must meet the criteria set forth in the Sale and Servicing Agreement and must be reasonably acceptable to the Insurer. The Sponsor expects that the Original Pre-Funded Amount will be reduced to less than $100,000 by _________. Any amount remaining in the Pre-Funding Account on the Payment Date at the end of the Pre-Funding Period will be used to redeem the Notes. CAPITALIZED INTEREST ACCOUNTS On the Closing Date, the Indenture Trustee will be required to deposit a portion of the sale proceeds of the Notes in an account (the "Capitalized Interest Account") to be used, as necessary, by the Indenture Trustee during the Pre-Funding Period to make up for any shortfalls that may arise in the event that interest collected on the underlying mortgage loans is insufficient to pay all of the interest due to the Noteholders and certain expenses during such period. Any amounts remaining in the Capitalized Interest Account on a Payment Date which were not used for such purposes are required to be paid directly to the Certificateholders on such Payment Date. TERMINATION The Indenture will provide that the trust created under the Indenture will terminate upon the disposition of all property in the Trust Estate, or, if earlier, upon the payment to the Holders of all Notes issued under the Indenture of all amounts required to be paid such Holders and to the Insurer of all amounts required to be paid to the Insurer as reimbursement for any prior drawings on the Insurance Policy. DESCRIPTION OF THE NOTES The Notes will be issued pursuant to an Indenture (each, an "Indenture") dated as of ________ between the Trust and [Indenture Trustee] (the "Indenture Trustee"). The summaries of certain provisions of the Indenture set forth below, while complete in material respects, do not purport to be exhaustive. For more details regarding the terms of the Indentures, prospective investors in the Notes are advised to review the Indenture. S-45 46 GENERAL The Notes will be secured by the assets of the Trust Estate, as set forth below, created pursuant to the Indenture. The Notes represent non-recourse obligations of the issuing Trust. The only sources of payments on a the Notes will be proceeds of the assets in the Trust Estate and payments under the Insurance Policy. The Notes will not represent an interest in or obligation of the Sponsor, the Master Servicer, the Indenture Trustee, the Owner Trustee, the Underwriter, the Insurer, any of their respective affiliates or any other entity, and will not represent an interest in or recourse obligation of, the issuing Trust. [NOTE INSURER] the "Insurer") will issue note guaranty insurance policy with respect to the Notes (each, an "Insurance Policy". Certain distributions on the Notes will be unconditionally and irrevocably guaranteed as to the payment on each Payment Date pursuant to the Insurance Policy. The assets to be pledged by the issuing Trust to secure the Notes will consist of (i) the Trust Property; (ii) such amounts, including eligible investments as from time to time may be held by the Indenture Trustee in the Note Account for the Trust (except as otherwise provided in the Indenture); (iii) the issuing Trust's rights under the Sale and Servicing Agreement; (iv) the amounts on deposit in the Pre-Funding Account and the Capitalized Interest Account (as applicable); (v) the Insurance Policy; (vi) rights to receive certain monies on deposit in certain reserve accounts; and (vii) certain other property (collectively, a "Trust Estate"). Persons in whose name a Note is registered in the Register maintained by the Indenture Trustee are the "Holders" of the Notes or the "Noteholders". For so long as the Notes are in book-entry form with DTC, the only Holder of the Notes as the term "Holder" is used in the Sale and Servicing Agreement and in the Indenture will be Cede. No person acquiring a beneficial interest in a Note (a "Beneficial Owner") will be entitled to receive a note in definitive form (a "Definitive Note") representing such person's interest in the Trust, except in the event that Physical Notes are issued under limited circumstances set forth in each Sale and Servicing Agreement and in each Indenture. All references herein to the Holders of Notes or Noteholders shall mean and include the rights of Beneficial Owners, as such rights may be exercised through DTC and its participating organizations, except as otherwise specified in each Sale and Servicing Agreement and in each Indenture. See "Description of the Securities -- Form of Securities" in the prospectus. The Notes will be issued in denominations of not less than $1,000 principal amount and in integral dollar multiples thereof, with the exception of one Note which may be issued in a lesser amount. BOOK ENTRY REGISTRATION OF THE NOTES The Notes will be book-entry Notes (the "Book-Entry Notes"). The Beneficial Owners may elect to hold their Notes through DTC in the United States, or CEDEL or Euroclear in Europe if they are participants of such systems ("Participants"), or indirectly through organizations which are Participants in such systems. The Book-Entry Notes will be issued in one or more Notes which in the aggregate equal the principal balance of such Notes and will initially be registered in the name of Cede & Co., the nominee of DTC. CEDEL and Euroclear will hold omnibus positions on behalf of their Participants through customers' securities accounts in CEDEL's and Euroclear's names on the books of their respective depositaries which in turn will hold such positions in customers' securities accounts in the depositaries' names on the books of DTC. Citibank will act as depositary for CEDEL and Morgan will act as depositary for Euroclear (in such capacities, individually the "Relevant Depositary" and collectively the "European Depositaries"). Investors may hold such beneficial interests in the Book-Entry Notes in minimum denominations representing principal amounts of $1,000 and in integral multiples in excess S-46 47 thereof. Except as described below, no Beneficial Owner will be entitled to receive a Definitive Note. Unless and until Definitive Notes are issued, it is anticipated that the only "Holder" of such Notes will be Cede & Co., as nominee of DTC. Beneficial Owners will not be Holders as that term is used in the Sale and Servicing Agreement. Beneficial Owners are only permitted to exercise their rights indirectly through Participants and DTC. The Beneficial Owner's ownership of a Book-Entry Note will be recorded on the records of the brokerage firm, bank, thrift institution or other financial intermediary (each, a "Financial Intermediary") that maintains the Beneficial Owner's account for such purpose. In turn, the Financial Intermediary's Ownership of such Book-Entry Note will be recorded on the records of DTC (or of a participating firm that acts as agent for the Financial Intermediary, whose interest will in turn be recorded on the records of DTC, if the Beneficial Owner's Financial Intermediary is not a DTC Participant and on the records of CEDEL or Euroclear, as appropriate). Beneficial Owners will receive all distributions of principal of, and interest on, the Notes from the Indenture Trustee through DTC and DTC Participants. While such Notes are outstanding (except under the circumstances described below), under the rules, regulations and procedures creating and affecting DTC and its operations (the "Rules"), DTC is required to make book-entry transfers among Participants on whose behalf it acts with respect to such Notes and is required to receive and transmit distributions of principal of, and interest on, such Notes. Participants and indirect participants with whom Beneficial Owners have accounts with respect to Notes are similarly required to make book-entry transfers and receive and transmit such distributions on behalf of their respective Beneficial Owners. Accordingly, although Beneficial Owners will not possess certificates, the Rules provide a mechanism by which Beneficial Owners will receive distributions and will be able to transfer their interest. Beneficial Owners will not receive or be entitled to receive certificates representing their respective interests in the Notes, except under the limited circumstances described below. Unless and until Definitive Notes are issued, Beneficial Owners who are not Participants may transfer ownership of Notes only through Participants and indirect participants by instructing such Participants and indirect participants to transfer such Notes, by book-entry transfer, through DTC for the account of the purchasers of such Notes, which account is maintained with their respective Participants. Under the Rules and in accordance with DTC's normal procedures, transfers of ownership of such Notes will be executed through DTC and the accounts of the respective Participants at DTC will be debited and credited. Similarly, the Participants and indirect participants will make debits or credits, as the case may be, on their records on behalf of the selling and purchasing Beneficial Owners. Because of time zone differences, credits of securities received in CEDEL or Euroclear as a result of a transaction with a Participant will be made during subsequent securities settlement processing and dated the business day following the DTC settlement date. Such credits or any transactions in such securities settled during such processing will be reported to the relevant Euroclear or CEDEL Participants on such business day. Cash received in CEDEL or Euroclear as a result of sales of securities by or through a CEDEL Participant (as defined below) or Euroclear Participant (as defined below) to a DTC Participant will be received with value on the DTC settlement date but will be available in the relevant CEDEL or Euroclear cash account only as of the business day following settlements in DTC. For information with respect to tax documentation procedures relating to the Notes, see "Certain Federal Income Tax Consequences -- Foreign Investors" and " -- Backup Withholding" in the prospectus and "Global Clearance, Settlement and Tax Documentation Procedures -- Certain U.S. Federal Income Tax Documentation Requirements" in Annex I to the prospectus. S-47 48 Transfers between Participants will occur in accordance with DTC rules. Transfers between CEDEL Participants and Euroclear Participants will occur in accordance with their respective rules and operating procedures. Cross-market transfers between persons holding directly or indirectly through DTC, on the one hand, and directly or indirectly through CEDEL Participants or Euroclear Participants, on the other, will be effected in DTC in accordance with DTC rules on behalf of the relevant European international clearing system by the Relevant Depositary; however, such cross-market transactions will require delivery of instructions to the relevant European international clearing system by the counterparty in such system in accordance with its rules and procedures and within its established deadlines (European time). The relevant European international clearing system will, if the transaction meets its settlement requirements, deliver instructions to the Relevant Depositary to take action to effect final settlement on its behalf by delivering or receiving securities in DTC, and making or receiving payment in accordance with normal procedures for same day funds settlement applicable to DTC. CEDEL Participants and Euroclear Participants may not deliver instructions directly to the European Depositaries. DTC, which is a New York-chartered limited purpose trust company, performs services for its Participants ("DTC Participants"), some of which (and/or their representatives) own DTC. In accordance with its normal procedures, DTC is expected to record the positions held by each DTC Participant in the Book-Entry Notes, whether held for its own account or as a nominee for another person. In general, beneficial ownership of Book-Entry Notes will be subject to the rules, regulations and procedures governing DTC and DTC Participants as in effect from time to time. CEDEL is incorporated under the laws of Luxembourg as a professional depository. CEDEL holds securities for its participant organizations ("CEDEL Participants") and facilitates the clearance and settlement of securities transactions between CEDEL Participants through electronic book-entry changes in accounts of CEDEL Participants, thereby eliminating the need for physical movement of Notes. Transactions may be settled in CEDEL in any of 28 currencies, including United States dollars. CEDEL provides to its CEDEL Participants, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. CEDEL interfaces with domestic markets in several countries. As a professional depository, CEDEL is subject to regulation by the Luxembourg Monetary Institute. CEDEL Participants are recognized financial institutions around the world, including underwriters, securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Indirect access to CEDEL is also available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a CEDEL Participant, either directly or indirectly. Euroclear was created in 1968 to hold securities for participants of Euroclear ("Euroclear Participants") and to clear and settle transactions between Euroclear Participants through simultaneous electronic book-entry delivery against payment, thereby eliminating the need for physical movement of Notes and any risk from lack of simultaneous transfers of securities and cash. Transactions may now be settled in any of 27 currencies, including United States dollars. Euroclear includes various other services, including securities lending and borrowing and interfaces with domestic markets in several countries generally similar to the arrangements for cross-market transfers with DTC described above. Euroclear is operated by the Brussels, Belgium office of Morgan Guaranty Trust Company of New York (the "Euroclear Operator"), under contract with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the "Cooperative"). All operations are conducted by the Euroclear Operator, and all Euroclear Securities clearance accounts and Euroclear cash accounts are accounts with the Euroclear Operator, not the Cooperative. The Cooperative establishes policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants include banks (including central banks), securities brokers and dealers and other professional financial intermediaries. Indirect access to Euroclear is also available to S-48 49 other firms that clear through or maintain a custodial relationship with a Euroclear Participant, either directly or indirectly. The Euroclear Operator is the Belgian branch of a New York banking corporation which is a member bank of the Federal Reserve System. As such, it is regulated and examined by the Board of Governors of the Federal Reserve System and the New York State Banking Department, as well as the Belgian Banking Commission. Securities clearance accounts and cash accounts with the Euroclear operator are governed by the Terms and Conditions Governing Use of Euroclear and the related Operating Procedures of the Euroclear System and applicable Belgian law (collectively, the "Terms and Conditions"). The Terms and Conditions govern transfers of securities and cash within Euroclear, withdrawals of securities and cash from Euroclear, and receipts of payments with respect to securities in Euroclear. All securities in Euroclear are held on a fungible basis without attribution of specific Notes to specific securities clearance accounts. The Euroclear Operator acts under the Terms and Conditions only on behalf of Euroclear Participants, and has no record of or relationship with persons holding through Euroclear Participants. Distributions on the Book-Entry Notes will be made on each Payment Date by the Indenture Trustee to DTC. DTC will be responsible for crediting the amount of such payments to the accounts of the applicable DTC Participants in accordance with DTC's normal procedures. Each DTC Participant will be responsible for disbursing such payment to the Beneficial Owners of the Book-Entry Notes that it represents and to each Financial Intermediary for which it acts as agent. Each such Financial Intermediary will be responsible for disbursing funds to the Beneficial Owners of the Book-Entry Notes that it represents. Under a book-entry format, Beneficial Owners of the Book-Entry Notes may experience some delay in their receipt of payments, since such payments will be forwarded by the Indenture Trustee to Cede. Distributions with respect to Notes held through CEDEL or Euroclear will be credited to the cash accounts of CEDEL Participants or Euroclear Participants in accordance with the relevant system's rules and procedures, to the extent received by the Relevant Depositary. Such distributions will be subject to tax reporting in accordance with relevant United States tax laws and regulations. Because DTC can only act on behalf of Financial Intermediaries, the ability of a Beneficial Owner to pledge Book-Entry Notes, to persons or entities that do not participate in the Depository system, or otherwise take actions in respect of such Book-Entry Notes, may be limited due to the lack of physical Notes for such Book-Entry Notes. In addition, issuance of the Book-Entry Notes in book-entry form may reduce the liquidity of such Notes in the secondary market since certain potential investors may be unwilling to purchase Notes for which they cannot obtain physical Notes. Monthly and annual reports on the Trust provided by the Indenture Trustee to Cede, as nominee of DTC, may be made available to Beneficial Owners upon request, in accordance with the rules, regulations and procedures creating and affecting the Depository, and to the Financial Intermediaries to whose DTC accounts the Book-Entry Notes of such Beneficial Owners are credited. DTC has advised the Indenture Trustee that, unless and until Definitive Notes are issued, DTC will take any action permitted to be taken by the holders of the Book-Entry Notes under the Sale and Servicing Agreement only at the direction of one or more Financial Intermediaries to whose DTC accounts the Book-Entry Notes are credited, to the extent that such actions are taken on behalf of Financial Intermediaries whose holdings include such Book-Entry Notes. CEDEL or the Euroclear Operator, as the case may be, will take any action permitted to be taken by an Owner under the Sale and Servicing Agreement on behalf of a CEDEL Participant or Euroclear Participant only in accordance with its relevant rules and procedures and subject to the ability of the Relevant Depositary to effect such S-49 50 actions on its behalf through DTC. DTC may take actions, at the direction of the related Participants, with respect to some Notes which conflict with actions taken with respect to other Notes. Definitive Notes will be issued to Beneficial Owners of the Book-Entry Notes, or their nominees, rather than to DTC, only if (a) DTC or the Sponsor advises the Indenture Trustee in writing that DTC is no longer willing, qualified or able to discharge properly its responsibilities as a nominee and depository with respect to the Book-Entry Notes and the Sponsor or the Indenture Trustee is unable to locate a qualified successor, (b) the Sponsor, at its sole option, elects to terminate a book-entry system through DTC or (c) DTC, at the direction of the Beneficial Owners representing a majority of the outstanding Percentage Interests of the Notes, advises the Indenture Trustee in writing that the continuation of a book-entry system through DTC (or a successor thereto) is no longer in the best interests of Beneficial Owners. Upon the occurrence of any of the events described in the immediately preceding paragraph, the Indenture Trustee will be required to notify all Beneficial Owners of the occurrence of such event and the availability through DTC of Definitive Notes. Upon surrender by DTC of the global Note or Notes representing the Book-Entry Notes and instructions for re-registration, the Indenture Trustee will issue Definitive Notes, at the Sponsor's expense and thereafter the Indenture Trustee will recognize the holders of such Definitive Notes as holders under the Indenture. Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures in order to facilitate transfers of Notes among Participants of DTC, CEDEL and Euroclear, they are under no obligation to perform or continue to perform such procedures and such procedures may be discontinued at any time. Neither the Sponsor, the Master Servicer, the Insurer nor the Indenture Trustee will have any liability for any actions taken by DTC or its nominee, Euroclear, or CEDEL, including, without limitation, actions for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Notes held by Euroclear, CEDEL or Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO PRINCIPAL AND INTEREST ACCOUNT All collections on the Mortgage Loans will generally be allocated between amounts collected in respect of interest and amounts collected in respect of principal, as required under the related Mortgage Notes. As to any Payment Date, "Interest Collections" are amounts of interest collected net of the servicing fee and certain reimbursable amounts and expenses with respect to the Mortgage Loans in the Trust during the related Remittance Period and "Principal Collections" are amounts of principal collected with respect to the Mortgage Loans in the Trust during the related Remittance Period. As to any Payment Date, the related "Remittance Period" is the calendar month preceding the month in which such Payment Date occurs. The Master Servicer will deposit Interest Collections and Principal Collections in respect of the Mortgage Loans in the Trust in a segregated account (the "Principal and Interest Account") generally within two Business Days of receipt. On each monthly Remittance Date, the Master Servicer will remit these amounts, net of the servicing fee and certain reimbursable amounts, to the Indenture Trustee for deposit into the Note Account. The "Remittance Date" for the Trust is the eighteenth day of each month, or if such day is not a Business Day, the immediately succeeding Business Day. With respect to any date, the "Trust Balance" of the Trust will be equal to the aggregate of the Principal Balances of all Mortgage Loans in the Trust plus amounts on deposit in the Pre-Funding Account and amounts on deposit in the Reserve Account as of such date. The "Principal Balance" of a S-50 51 Mortgage Loan (other than a Liquidated Mortgage Loan) on any date is equal to its Principal Balance as of the Cut-Off Date, minus all collections credited against the Principal Balance of such Mortgage Loan in accordance with the related underlying Mortgage Note prior to such day. The "Principal Balance" of a Liquidated Mortgage Loan is zero. DISTRIBUTIONS ON THE NOTES Beginning with the first Payment Date, distributions on the Notes will be made by the Indenture Trustee or the Paying Agent on each Payment Date to the persons in whose names such Notes are registered at the close of business on the Record Date. The "Record Date" with respect to the Notes will be (i) so long as the Notes are registered in book-entry form, the business day immediately preceding the related Payment Date and (ii) with respect to Definitive Notes, the last business day of the month immediately preceding the related Payment Date. The term "Payment Date" means the twenty-fifth day of each month or, if such day is not a Business Day, then the next succeeding Business Day. Distributions will be made by electronic funds transfer to the account of the person entitled thereto (which, in the case of Book-Entry Securities, will be DTC or its nominee) as it appears on the register of Holders of Notes (the "Note Register") maintained by the Registrar on the Record Date in amounts calculated as described below. For purposes hereof, a "Business Day" is any day other than (i) a Saturday or Sunday or (ii) a day on which banking institutions in the State of New York or in the city in which the principal corporate trust office of the Indenture Trustee is located, are authorized or obligated by law or executive order to be closed. OVERCOLLATERALIZATION PROVISIONS The "Overcollateralization Amount" is the amount, if any, by which the Trust Balance exceeds the Note Principal Balance. The Insurer will require, based upon the terms and conditions hereinafter described, that the Overcollateralization Amount be maintained at a certain level, the "Specified Overcollateralization Amount." The Overcollateralization Amount as of the Closing Date will be less than the Specified Overcollateralization Amount, thus requiring an increase in such Overcollateralization Amount on future Payment Dates until such Overcollateralization Amount equals the Specified Overcollateralization Amount. Certain cashflow (the "Excess Cashflow"), generally consisting of the sum of (i) excess interest (i.e., the excess of Interest Collections on the Mortgage Loans in the Trust over the sum of interest payable for the Notes plus losses incurred on liquidated mortgage loans, certain fees and reimbursements), plus (ii) related Principal Collections not required to be applied to principal amortization for the Notes or to Reimbursement Amounts, will be applied as a payment of principal on the Notes on each Payment Date to maintain the Overcollateralization Amount at, or to increase it to, the Specified Overcollateralization Amount for such Payment Date. The amount of such Excess Cashflow with respect to the Notes so applied as a payment of principal on a Payment Date is an "Accelerated Principal Payment." The requirement to maintain the Overcollateralization Amount at the Specified Overcollateralization Amount, or to increase it to the Specified Overcollateralization Amount, is not an obligation of the Sponsor, the Originators, the Master Servicer, the Indenture Trustee, the Owner Trustee or any other person, including the Insurer. Because the Overcollateralization Amount is equal to the difference between the Trust Balance for the Trust and the outstanding Note Principal Balance of the Notes, the Overcollateralization Amount may be increased to the Specified Overcollateralization Amount by accelerating the amortization of such S-51 52 outstanding Note Principal Balance with Accelerated Principal Payments relative to the amortization of the Mortgage Loans. The Insurer may permit the Specified Overcollateralization Amount to decrease or "step down" over time, subject to certain floors and triggers. The dollar amount of any decrease in a Specified Overcollateralization Amount is an "Overcollateralization Reduction Amount," which may result in a release of cash from the lien of the Indenture in an amount equal to the Overcollateralization Reduction Amount (net of any Reimbursement Amounts due to the Insurer). The dollar amount of any Overcollateralization Reduction Amount on any Payment Date will reduce the principal payment on that Payment Date. OVERCOLLATERALIZATION AND THE INSURANCE POLICY The Indenture will require the Indenture Trustee to file a claim for an Insured Payment under the Insurance Policy not later than 12:00 noon (New York City time) on the second Business Day prior to any Payment Date as to which the Indenture Trustee has determined that a shortfall in the Interest Distribution Amount or an Overcollateralization Deficit (as defined below) with respect to the Notes will occur for the purpose of applying the proceeds of such Insured Payment as a payment of principal to the Noteholders on such Payment Date. With respect to any Payment Date, an "Overcollateralization Deficit" will mean the amount, if any, by which (x) the Note Principal Balance, after taking into account all payments to be made on such Payment Date in reduction thereof, including any Excess Cashflow payments and any Available Crossover Amounts (as defined below) applied as principal, exceeds (y) the Trust Balance as of the end of the applicable Remittance Period. The effect of both the overcollateralization provisions and the Insurance Policies is to provide for the ultimate payment of the full amount of the Note Principal Balance. Investors in the Notes should realize that, under certain loss or delinquency scenarios, they may temporarily receive no payments in reduction of the Note Principal Balance. INTEREST DISTRIBUTIONS Interest on the Notes will be payable monthly on each Payment Date at the Note Interest Rate for the related Interest Accrual Period. INTEREST DISTRIBUTION AMOUNT; INTEREST ACCRUAL PERIODS. Interest on the Notes in respect of any Payment Date will accrue from the preceding Payment Date (or in the case of the first Payment Date, from the Closing Date) through the day preceding such Payment Date (the "Interest Accrual Period") on the basis of the actual number of days in the Interest Accrual Period and a 360-day year. For any Payment Date, the interest then due on the Notes (calculated using the Note Interest Rate and exclusive of any Available Funds Cap Current Amount or Available Funds Cap Carry-Forward Amount) plus any interest carry-forward amounts from prior Payment Dates (which interest carry-forward amounts could only arise upon the failure of the Insurer to pay the interest then due calculated using the Note Interest Rate in the amounts required under the Insurance Policy) is the "Interest Distribution Amount" for such Payment Date. NOTES The "Note Interest Rate" for the initial Interest Accrual Period will equal a per annum rate of interest equal to One-Month LIBOR plus ____%. The Note Interest Rate for each subsequent Interest Period will equal a per annum rate of interest equal to the lesser of (i) for each Interest Accrual Period S-52 53 ending on or prior to the Initial Redemption Date, a per annum rate of interest equal to One-Month LIBOR plus .____%, and for each Interest Period thereafter, a per annum rate of interest equal to One-Month LIBOR plus ___% and (ii) the Available Funds Cap Rate. The "Fixed Rate Available Funds Cap Rate," as of any Payment Date, equals an amount, expressed as a per annum rate, equal to (a)(i) the aggregate amount of interest due and collected (or advanced) on all of the Mortgage Loans for the related Remittance Period minus (ii) the aggregate of the Servicing Fee, the Indenture Trustee's Fee, the Owner Trustee's Fee and the premiums due to the Insurer, on such Payment Date, minus (iii) commencing on the seventh Payment Date following the Closing Date, an amount equal to 0.75% per annum times the aggregate Principal Balance of the Mortgage Loans as of the beginning of such related Remittance Period, divided by (b) the aggregate Principal Balance of the Mortgage Loans in the Trust as of the beginning of such related Remittance Period calculated on the basis of a 360 day year and the actual number of days elapsed. The "Note Formula Rate" for any Payment Date shall be equal to a per annum rate of interest described in clause (i) of the definition of Note Interest Rate. The "Note Formula Capped Rate" for any Payment Date shall be equal to the lesser of (i) the Note Formula Rate for such Payment Date and (ii) ____%. CARRY-FORWARD FEATURE FOR AVAILABLE FUNDS CAP SHORTFALLS. In the event that, on any Payment Date, the Available Funds Cap Rate limits the Note Interest Rate (i.e., the rate set by the Available Funds Cap Rate is less than the Note Formula Rate), the excess of the amount of interest due based on the Note Formula Rate over the interest due based on the Available Funds Cap Rate (the "Available Funds Cap Current Amount") will be paid on such Payment Date from Excess Cashflow or Available Crossover Amounts, if any. The Available Funds Cap Current Amount not paid from the Excess Cashflow or Available Crossover Amounts, together with interest thereon at the then-applicable Note Formula Rate, will be carried-forward (the "Available Funds Cap Carry-Forward Amount") and due on future Payment Dates. The Insurer does not guarantee the payment of, nor do the ratings assigned to the Notes address the likelihood of payment of, any Available Funds Cap Current Amount or any Available Funds Cap Carry-Forward Amount and the payment of such amount may only be funded from the Excess Cashflow, to the extent described herein. If the Master Servicer, acting directly or through one or more affiliates, or the Certificateholder exercises its right to an Optional Redemption, then none of the Available Funds Cap Current Amount or the Available Funds Cap Carry-Forward Amount then owing may be paid in full. CALCULATION OF LIBOR On the second business day preceding each Payment Date or, in the case of the first Payment Date, on the second business day preceding the Closing Date (each such date, an "Interest Determination Date"), the Indenture Trustee will determine the London interbank offered rate for one-month U.S. dollar deposits ("LIBOR") for the next Interest Accrual Period for the Notes on the basis of the offered rates of the Reference Banks for one-month U.S. dollar deposits, as such rates appear on the Telerate Screen 3750, as of 11:00 a.m. (London time) on such Interest Determination Date. As used in this section, "business day" means a day on which banks are open for dealing in foreign currency and exchange in London and New York City; and "Reference Banks", means leading banks selected by the Indenture Trustee and engaged in transactions in Eurodollar deposits in the international Eurocurency market (i) with an established place of business in London, (ii) whose quotations appear on the Telerate Screen 3750 on the Interest Determination Date in question, (iii) which have been designated as such by the Indenture Trustee and (iv) not controlling, controlled by, or be under common control with, the Sponsor. S-53 54 On each Interest Determination Date, LIBOR for the related Interest Accrual Period for the Notes will be established by the Indenture Trustee as follows: (a) If on such Interest Determination Date two or more Reference Banks provides such offered quotations, LIBOR for the related Interest Accrual Period for the Note shall be the arithmetic mean of such offered quotations (rounded upwards if necessary to the nearest whole multiple of 1/16%). (b) If on such Interest Determination Date two Reference Banks provide such offered quotations, LIBOR for the related Interest Accrual Period for the Notes shall be the higher of (x) LIBOR as determined on the previous Interest Determination Date and (y) the Reserve Interest Rate. The "Reserve Interest Rate" shall be 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 1/16%) of the on-month U.S. dollar lending rates which New York City banks selected by the Indenture Trustee are quoting on the relevant Interest Determination Date to the principal London offices of leading banks in the London interbank market or, in the event that the Indenture Trustee can determine no such arithmetic mean, (ii) the lowest one-month U.S. dollar lending rate which New York City banks selected by the Indenture Trustee are quoting on such Interest Determination Date to leading European banks. The establishment of LIBOR on each Interest Determination Date by the Indenture Trustee and the Indenture Trustee's calculation of the rate of interest applicable to the Notes for the related Interest Accrual Period shall (in the absence of manifest error) be final and binding. Each such rate of interest may be obtained by telephoning the Indenture Trustee at 1-800-735-7777. PRINCIPAL DISTRIBUTIONS SCHEDULED PRINCIPAL. On each Payment Date, the Noteholders will be entitled to payments of the Scheduled Principal Distribution Amount in reduction of the Note Balance. The "Scheduled Principal Distribution Amount" on any Payment Date will consist of the excess of (i) the sum of Principal Collections with respect to the Trust plus the outstanding Principal Balances of all Mortgage Loans in the Trust which became Defaulted Mortgage Loans (as defined below) during the prior Remittance Period over (ii) the Overcollateralization Reduction Amount, if any, with respect to such Payment Date. A "Defaulted Mortgage Loan" is a Mortgage Loan which is more than 180 days delinquent (irrespective of grace periods) or which has become a Liquidated Mortgage Loan. ACCELERATED PRINCIPAL. In addition, on any Payment Date with respect to which there exists Excess Cashflow with respect to the Trust, such amount will be distributed in reduction of the Principal Balance of the Notes to the extent required to increase the related Overcollateralization Amount to the Specified Overcollateralization Amount applicable on such Payment Date. FLOW OF FUNDS The Indenture Trustee shall deposit to a certain account (the "Note Account"), without duplication, upon receipt (i) any Insured Payments received with respect to the Notes, (ii) the proceeds of any liquidation of the assets of the Trust, to the extent that such proceeds relate to the Trust, the Principal Collections, the Interest Collections and certain other amounts remitted by the Master Servicer or any sub-servicer, together with certain other specified amounts (the amounts specified in clause (ii), being "Available Funds" for the related Payment Date). On the Payment Dates occurring in ____________________________ with respect to the Notes, the Indenture Trustee shall deposit into the Note Account, as additional Available Funds, amounts S-54 55 withdrawn from the Pre-Funding Account and amounts withdrawn from the Capitalized Interest Account for such Payment Dates. With respect to the Note Account on each Payment Date, and to the extent of Available Funds, the Indenture Trustee shall make the following allocations, disbursements and transfers from amounts then on deposit in the Note Account 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, certain fees due to the Indenture Trustee and the Owner Trustee; (ii) second, provided no Insurer Default has occurred and is continuing, the Premium Amount payable to the Insurer; (iii) third, to the Holders of the Notes, the related Interest Distribution Amount for such Payment Date; (iv) fourth, to the Holders of the Notes as a distribution of principal, the Scheduled Principal Distribution Amount for such Payment Date; (v) fifth, to the Holders of the Notes, as a distribution of principal, the related Overcollateralization Deficit for such Payment Date; (vi) sixth, to the Insurer, the Reimbursement Amount, if any, then due to it; (vii) seventh, to the Holders of the Notes, the Accelerated Principal Payment, if any; (viii) eighth, to the Holders of the Notes, the amount of any Available Funds Cap Current Amount for such Payment Date; (ix) ninth, to the Holders of the Notes, the amount of any Available Funds Cap Carry-Forward Amount then due; (x) tenth, to the Master Servicer, reimbursement for Servicing Advances to the extent not previously reimbursed and reimbursement for Nonrecoverable Servicing Advances to the extent not previously reimbursed; (xi) eleventh, certain expenses due to the Indenture Trustee to the extent not previously reimbursed and the Owner Trustee; and (xii) twelfth, to the Certificateholders, any amount remaining on deposit in the Note Account. On each Determination Date the Indenture Trustee shall determine, with respect to the immediately following Payment Date, whether a draw is required to be made under the respective Policy for the purpose of pre-funding a Deficiency Amount (as defined below under "The Insurance Policy"). With respect to each Payment Date, the "Determination Date" is the fourth Business Day next preceding such Payment Date or such earlier day as shall be agreed to by the Insurer and the Indenture Trustee. OPTIONAL REDEMPTION OF THE NOTES The Notes will be subject to redemption, in whole but not in part, at the option of the Master Servicer, acting directly or through one or more affiliates, the Certificateholder or the Insurer on or after S-55 56 the first Payment Date (such date, the "Initial Redemption Date") on which the outstanding aggregate Note Principal Balance of the Notes had declined to 10% or less of the Note Principal Balance of the Notes as of the Closing Date (the date on which the Notes are to be redeemed, the "Redemption Date"). The Notes will be redeemed at a redemption price of 100% of the then outstanding Note Balance, plus accrued but unpaid interest thereon through the end of the Interest Accrual Period immediately preceding the related Payment Date; provided, however, that no redemption may take place unless, in connection with such redemption, any amounts due and owing to the Insurer under the Insurance Agreement are paid in full to the Insurer. There will be no prepayment premium in connection with such a redemption. Notice of an optional redemption of the Notes must be mailed by the Indenture Trustee to the Noteholders and the Insurer at least ten days prior to the Payment Date set for such redemption. The payment on the final Payment Date in connection with the redemption of the Notes shall be in lieu of the payment otherwise required to be made on such Payment Date in respect of the Notes. MANDATORY REDEMPTION OF THE NOTES The Notes will be redeemed in part on the payment date occurring following the end of the Pre-Funding Period, to the extent of any cash remaining in the Pre-Funding Account on such payment date after the purchase by the trust of additional mortgage loans, if any. PAYMENTS TO THE CERTIFICATEHOLDERS With respect to the Trust, on each Payment Date, any portion of Available Funds remaining after making payments of interest and principal due on the Notes and other distributions required on such Payment Date will be released to the holder(s) of the Certificates of the Trust, free of the lien of the Indenture. Such amounts will not be available to make payments on the Notes or payments to the Insurer on any subsequent Payment Date. EVENTS OF DEFAULT UNDER INDENTURE The following constitute Events of Default under each Indenture: (i) the failure on any Payment Date, after taking into account all payments made in respect of the Notes on such Payment Date, to pay interest on the Notes at the Note Formula Capped Rate; (ii) the occurrence of certain events of bankruptcy, insolvency or receivership relating to the issuing Trust; (iii) default by the issuing Trust in the observation of certain events specified in the Indenture relating to the sale or other disposition of certain assets of the Trust Estate; a claim against, or deduction by the issuing Trust from, the principal or interest on the Notes; the priority, validity or effectiveness of the lien of the Indenture is permitted by the issuing Trust to be impaired; (iv) default by the issuing Trust in the observation of covenants not otherwise specified and such default shall continue for 30 days after notice; (v) any representation or warranty of the issuing Trust shall have been incorrect in any material respect when made and the circumstances or condition in respect of which such representation or warranty was incorrect shall not have been eliminated or otherwise cured; or (vi) the failure to pay in full the principal of the Notes on the Final Scheduled Payment Date. The Indenture Trustee shall, at the direction of the Insurer, or with the consent of the Insurer (so long as a default by the Insurer shall not have occurred and be continuing), at the direction of Holders of the Notes evidencing at least 50% of the Note Principal Balance, declare an Event of Default upon the occurrence of any such event. Upon such declaration of an Event of Default, the Indenture Trustee will publish a notice of the occurrence of such event. If so directed by the Insurer or, with the consent of the Insurer (so long as a default by the Insurer shall not have occurred and be continuing), the Holders of the Notes evidencing at least 50% of the Note Principal Balance, the Indenture Trustee will sell, dispose of or otherwise liquidate the Mortgage Loans in the Trust in a commercially S-56 57 reasonable manner and on commercially reasonable terms. If no Event of Servicing Termination (as defined in the Sale and Servicing Agreement) has occurred with respect to such Trust and if the Insurer consents, any such sale, disposal or liquidation and such sale, disposal or liquidation will be "servicing retained" by the Master Servicer. The net proceeds of such sale will first be paid to the Insurer to the extent of unreimbursed draws under the Policy and other amounts owing to the Insurer, and then the amount required to reduce the Note Principal Balance of the Notes, together with all accrued and unpaid interest due thereon, to zero will be distributed to the Holders of the Notes. If such sale, disposition or liquidation has been directed by or approved by the Insurer, the Policy will cover any amount by which such remaining net proceeds are insufficient to pay such amounts. All remaining net proceeds will be distributed to the Certificateholders. THE INSURER The following information has been supplied by [NOTE INSURER] (the "Insurer") for inclusion in this prospectus supplement. No representation is made by the Sponsor, the Master Servicer, the Underwriter or any of their affiliates as to the accuracy or completeness of such information The consolidated financial statements of [NOTE INSURER] and its subsidiaries as of December 31, ____ and December 31, ____ and for the three years ended December 31, ____, prepared in accordance with generally accepted accounting principles, included in the Annual Report on Form 10-K of [NOTE INSURER] (which was filed with the Commission on ______________, Commission File No. _______) and the consolidated financial statements of [NOTE INSURER] and its subsidiaries as of __________________ for the periods ending __________________ and __________________ included in the Quarterly Report on Form 10-Q of [NOTE INSURER] for the period ended __________________ (which was filed with the Commission on _________________) are hereby incorporated by reference into this prospectus supplement and shall be deemed to be a part hereof. Any statement contained in a document incorporated herein by reference shall be modified or superseded for the purposes of this prospectus supplement to the extent that a statement contained herein by reference herein also modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus supplement. All financial statements of [NOTE INSURER] and its subsidiaries included in documents filed by [NOTE INSURER] with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the date of this prospectus supplement and prior to the termination of the offering of the Notes shall be deemed to be incorporated by reference into this prospectus supplement and to be a part hereof from the respective dates of filing such documents. The following table sets forth the capitalization of [NOTE INSURER] as of December 31, _____, December 31, ____, December 31, ____ and __________________, respectively, in conformity with generally accepted accounting principles. S-57 58 [NOTE INSURER] CAPITALIZATION TABLE (DOLLARS IN MILLIONS) Unearned premiums.............. Other liabilities.............. Total liabilities.............. Stockholder's equity: (1) Common stock................. Additional paid-in capital... Accumulated other comprehensive income........ Retained earnings............ Total stockholder's equity..... Total liabilities and stockholder's equity.......................
(1) Components of stockholder's equity have been restated for all periods presented to reflect "Accumulated other comprehensive income" in accordance with the Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" adopted by [NOTE INSURER] effective January 1, 1998. As this new standard only requires additional information in the financial statements, it does not affect [NOTE INSURER]'s financial position or results of operations. For additional financial information concerning [NOTE INSURER], see the audited and unaudited financial statements of [NOTE INSURER] incorporated by reference herein. Copies of the financial statements of [NOTE INSURER] incorporated herein by reference and copies of [NOTE INSURER]'s annual statement for the year ended December 31, ____ prepared in accordance with statutory accounting standards are available, without charge from [NOTE INSURER]. The address of [NOTE INSURER]'s administrative offices and its telephone number are [ADDRESS]. [NOTE INSURER] makes no representation regarding the Notes or the advisability of investing in the Notes and makes no representation regarding, nor has it participated in the preparation of, this prospectus supplement other than the information supplied by [NOTE INSURER] and presented under the headings "The Insurance Policies" and "The Insurer" and in the financial statements incorporated herein by reference. THE INSURANCE POLICY The Insurer, in consideration of the payment of the premium and subject to the terms of the Insurance Policy, agrees unconditionally and irrevocably to pay to the Indenture Trustee for the benefit of the Holders of the Insured Obligations, that portion of the Insured Amounts which shall become Due for Payment but shall be unpaid by reason of Nonpayment. The Insurer will make such payments to the Indenture Trustee from its own funds on the later of (a) two Business Days following delivery of the Notice to the Insurer of Nonpayment or (b) the Business S-58 59 Day on which the Insured Amounts are Due for Payment. The Insurer shall be subrogated to all the Holders' rights to payment on the Insured Obligations to the extent of the insurance disbursements so made. Once payments of the Insured Amounts have been made to the Indenture Trustee, the Insurer shall have no further obligation in respect of such Insured Amounts. Payment of Insured Amounts shall be made only at the time set forth in the Insurance Policy and no accelerated payment of Insured Amounts shall be made regardless of any acceleration of any of the Notes, unless such acceleration is at the sole option of the Insurer. Notwithstanding the foregoing paragraph, the Insurance Policies do not cover shortfalls, if any, attributable to the liability of the Trust or the Trustee for withholding taxes, if any (including interest and penalties in respect of any such liability), any prepayment penalty or other accelerated payment which at any time may become due on or with respect to any Insured Obligation, other than at the sole option of the Insurer, nor against any risk other than Nonpayment, including failure of the Indenture Trustee to make any payment due the Holders of the Insured Obligations. The Insurance Policy does do not cover, and Insured Amounts do not include, any shortfalls due to the application of the Relief Act, Compensating Interest, any Available Funds Cap Current Amounts and Available Funds Cap Carry-Forward Amounts. The Insurer will pay any Insured Payment that is a Preference Amount on the Business Day following receipt on a Business Day of a certified copy of the order requiring the return of a preference payment, and such other documentation as is reasonably required by the Insurer, such documentation being in a form satisfactory to the Insurer, provided that if such documents are received after 12:00 noon New York City time on such Business Day, they will be deemed to be received on the following Business Day. Insured Payments due under each Insurance Policy unless otherwise stated therein will be disbursed by the Insurer to the Indenture Trustee on behalf of the Holders by wire transfer of immediately available funds in the amount of the Insured Payment. As used herein, the following terms shall have the following meanings: "Deficiency Amount" means the excess, if any, of Required Payments over the Net Available Distribution Amount for such Payment Date. "Due for Payment" shall mean with respect to an Insured Amount, the Payment Date on which Insured Amounts are due or, with respect to an Insured Payment which is a Preference Amount, the Business Day on which the required documentation referred to above has been received by the Insurer. "Holder" shall mean any person who is the registered owner or beneficial owner of any Insured Obligation. "Insured Amounts" shall mean, with respect to any Payment Date, the Deficiency Amount (including any amounts paid in respect of an Insufficiency Amount) for such Payment Date. "Insured Obligations" shall mean the Notes. "Insured Payments" shall mean, the aggregate amount actually paid by the Insurer to the Trustee in respect of (i) Insured Amounts for a Payment Date and (ii) Preference Amounts for any given Business Day. S-59 60 "Net Available Distribution Amount" means, with respect to the Trust and any Payment Date, the sum of (i) the amount on deposit in the Note Account on such Payment Date, minus the Indenture Trustee's Fee and the Owner Trustee's Fee and minus the premium then due to the Insurer, plus (ii) any Available Crossover Amounts available from the Trust. "Nonpayment" shall mean, with respect to any Payment Date, a Deficiency Amount owing in respect of such Distribution Date. "Notice" means the notice sent in writing by telecopy, substantially in the form of Exhibit A attached to each Insurance Policy, from the Indenture Trustee specifying the Insured Amount which shall be due and owing on the applicable Payment Date. "Preference Amount" means any payment of principal or interest on an Insured Obligation which has become Due for Payment and which is made to a Holder by or on behalf of the Indenture Trustee which has been deemed a preferential transfer and theretofore recovered from its Holder pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court of competent jurisdiction. "Required Payments" shall mean, as of any Payment Date, the sum of (i) the Interest Distribution Amount and (ii) any Overcollateralization Deficit. Any notice under each Insurance Policy may be made at the address listed below for the Insurer or such other address as the Insurer shall specify in writing to the Indenture Trustee. The notice address of the Insurer is One State Street Plaza, New York, New York 10004 Attention: General Counsel, or such other address as the Insurer shall specify to the Trustee in writing. Each Insurance Policy is being issued under and pursuant to, and shall be construed under, the laws of the State of New York, without giving effect to the conflict of laws principles thereof. THE INSURANCE PROVIDED BY EACH INSURANCE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. The Insurance Policies are not cancelable for any reason. The premium on each Insurance Policy is not refundable for any reason. THE SALE AND SERVICING AGREEMENT In addition to the provisions of the Sale and Servicing Agreement summarized elsewhere in this prospectus supplement and the prospectus, there is set forth below a summary of certain other provisions of the Sale and Servicing Agreement. The summaries of certain provisions of the Sale and Servicing Agreement set forth below, while complete in material respects, do not purport to be exhaustive. For more details regarding the terms of the Sale and Servicing Agreement, prospective investors in the Notes are advised to review the Sale and Servicing Agreement. DELINQUENCY ADVANCES, COMPENSATING INTEREST AND SERVICING ADVANCES The Master Servicer will be obligated to make Delinquency Advances to the extent that such Delinquency Advances, in the Master Servicer's reasonable judgment, are recoverable from the related Mortgage Loan. Delinquency Advances are recoverable from (i) future collections on the Mortgage Loan which gave rise to the Delinquency Advance, (ii) Liquidation Proceeds for such Mortgage Loan and S-60 61 (iii) from certain excess cash flows not applied for any other purpose. "Delinquency Advances" are amounts deposited into the Principal and Interest Account by the Master Servicer equal to the sum of the interest portions (net of the Servicing Fees and certain other administrative amounts, if any) due, but not collected with respect to delinquent Mortgage Loans during the related Remittance Period. No Delinquency Advance will be required to be made by the Master Servicer if, in the good faith judgment of the Master Servicer, such Delinquency Advance would not ultimately be recoverable from the related Mortgage Loan (any such advance, a "Nonrecoverable Delinquency Advance"); and if previously made by the Master Servicer, a Nonrecoverable Delinquency Advance will be reimbursable from any amounts in the Principal and Interest Account prior to any distributions being made to Noteholders. The Master Servicer will also be obligated to make Servicing Advances on a timely basis. "Servicing Advances" means any "out-of-pocket" costs and expenses, incurred by the Master Servicer in the performance of its servicing obligations, including, but not limited to, (i) expenditures in connection with a foreclosed Mortgage Loan prior to the liquidation thereof, including expenditures for real estate property taxes, hazard insurance premiums and property restoration or preservation ("Preservation Expenses"), (ii) the cost of any enforcement or judicial proceedings, including (a) foreclosures, and (b) other legal actions and costs associated therewith that potentially affect the existence, validity, priority, enforceability or collectibility of the Mortgage Loans, including collection agency fees and costs of pursuing or obtaining personal judgments, garnishments, levies, attachment and similar actions, (iii) the cost of the conservation, management, liquidation, sale or other disposition of any Mortgaged Property acquired in satisfaction of the related Mortgage Loan, including reasonable fees paid to any independent contractor in connection therewith, and (iv) advances to keep liens current, unless with respect to any of the foregoing the Master Servicer has determined that such advance would not be recoverable. No Servicing Advance will be required to be made by the Master Servicer, if in the good faith judgment of the Master Servicer, such Servicing Advance would not be recoverable from the related Mortgage Loan (any such advance, a "Nonrecoverable Servicing Advance"); and if previously made by the Master Servicer, a Servicing Advance and a Nonrecoverable Servicing Advance will be reimbursable from any amounts in the Principal and Interest Account prior to any distribution being made to Noteholders. In addition, the Master Servicer will also be required to deposit Compensating Interest in a Trust's Principal and Interest Account with respect to any full Prepayment received on a Mortgage Loan owned by such Trust during the related Remittance Period out of its own funds without any right of reimbursement therefor. "Compensating Interest" is an amount equal to the difference between (x) 30 days' interest at the Mortgage Loan's interest rate on the principal balance as of the first day of the related Remittance Period and (y) to the extent not previously advanced, the interest paid by the Mortgagor with respect to the Mortgage Loan. The Master Servicer will not 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 Master Servicer for such Remittance Period nor will the Master Servicer be required to pay Compensating Interest as a result of the application of the Relief Act or due to partial Prepayments. SERVICING COMPENSATION The Master Servicer is entitled to retain an annual servicing fee, payable monthly, of 0.50% of the total principal balance of the Mortgage Loans underlying the Trust. See "The Pooling and Servicing Agreement --Servicing and other Compensation and Payments of Expenses; Originator's Retained Yield" in the prospectus. S-61 62 GOVERNING LAW The Sale and Servicing Agreement and each Note will 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. CERTAIN FEDERAL INCOME TAX CONSEQUENCES GENERAL The following discussion, which summarizes certain U.S. federal income tax aspects of the purchase, ownership and disposition of the Notes, is based on the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury Regulations thereunder, and published rulings and court decisions in effect as of the date hereof, all of which are subject to change, possibly retroactively. This discussion does not address every aspect of the U.S. federal income tax laws which may be relevant to Holders in light of their personal investment circumstances or to certain types of Holders subject to special treatment under the U.S. federal income tax laws (for example, banks and life insurance companies). Accordingly, investors should consult their tax advisors regarding U.S. federal, state, local, foreign and any other tax consequences to them of investing in the Notes. The Trust will not elect initially to be treated as a REMIC under the Code but may elect to do so in the future. Should a Trust elect to be treated as a REMIC, the Notes would be designated as the regular interests in such REMIC. See "Certain Federal Income Tax Consequences - - REMICs" in the prospectus. Absent a REMIC election, the Notes will not represent "real estate assets" for purposes of Section 856(c)(4)(A) of the Code or "[l]oans . . . principally secured by an interest in real property" within the meaning of Section 7701(a)(19)(C) of the Code. CHARACTERIZATION OF THE NOTES AS INDEBTEDNESS Based on the application of existing law to the facts as set forth in the Indentures and other relevant documents and assuming compliance with the terms of the Indenture as in effect on the date of issuance of the Notes, Dewey Ballantine LLP, special tax counsel to the Sponsor ("Tax Counsel"), is of the opinion that based on the application of existing law to the facts as set forth in the Indenture and other relevant documents and such investigations as it deemed appropriate, the portion of the Notes consisting of the right to receive interest at the Note Formula Capped Rate (the "Capped Notes") will be treated as debt instruments for federal income tax purposes as of such date and the portion of the Notes consisting of the right to receive interest in excess of the Note Formula Capped Rate and up to the Note Interest Rate (the "Available Funds Amount") will be treated as a notional principal contract. See "Certain Federal Income Tax Consequences -- Debt Securities" in the prospectus. In addition, the Trust will not be treated as an association taxable as a corporation (or a publicly traded partnership) or a taxable mortgage pool. The Trust and the Holders of the Notes express in the Indenture their intent that, for applicable tax purposes, the Capped Notes will be indebtedness secured by the Mortgage Loans. The Originator, the Sponsor and the Holders of the Notes, by accepting the Notes, and each Holder by its acquisition of a beneficial interest in a Note, have agreed to treat the Capped Notes as indebtedness for federal, state and local income and franchise tax purposes. Investors should be aware that no transaction closely comparable to that contemplated herein has been the subject of any Treasury Regulation, revenue ruling or judicial decision, and therefore the matter is subject to interpretation. Because different criteria are used to determine the non-tax accounting characterization of the transaction, the Originator intends to S-62 63 treat this transaction as a sale of an interest in the Principal Balances of the Mortgage Loans for financial accounting and certain regulatory purposes. In general, whether for U.S. federal income tax purposes a transaction constitutes a sale of property or a loan, the repayment of which is secured by property, is a question of fact, the resolution of which is based upon the economic substance of the transaction rather than its form or the manner in which it is labeled. While the Internal Revenue Service (the "IRS") and the courts have set forth several factors to be taken into account in determining whether the substance of a transaction is a sale of property or a secured loan, the primary factor in making this determination is whether the transferee has assumed the risk of loss or other economic burdens relating to the property and has obtained the benefits of ownership thereof. Tax Counsel has analyzed and relied on these factors in reaching its opinion that the weight of the benefits and burdens of ownership of the Mortgage Loans has been retained by the Originator and has not been transferred to the Holders of the Notes. Beneficial Owners of the Capped Notes and the related right to receive the Available Funds Amount will be treated for tax purposes as owning two separate investments: a debt instrument and the right to receive the Available Funds Amount. The Owners of the Notes must allocate the purchase price of the Notes between these two investments based on their relative fair market values. The purchase price allocated to the Capped Notes will be the issue price used for calculating accruals of original issue discount. See "Certain Federal Income Tax Consequences -- Discount and Premium" in the prospectus and "-- Original Issue Discount" herein. A Beneficial Owner of a Capped Note and the related right to receive the Available Funds Amount will be treated for federal income tax purposes as having entered into a notional principal contract on the date that it purchases its Note. Treasury Regulations under Section 446 of the Code relating to notional principal contracts (the "Notional Principal Contract Regulations") provide that taxpayers, regardless of their method of accounting, generally must recognize the ratable daily portion of a periodic payment for the taxable year to which that portion relates. Any Available Funds Amounts will be periodic payments. Income with respect to periodic payments under a notional principal contract for a taxable year should constitute ordinary income. The purchase price allocated to the Available Funds Amounts will be treated as a nonperiodic payment under the Notional Principal Contract Regulations. Such a nonperiodic payment may be amortized using several methods, including the level payment method described in the Notional Principal Contract Regulations. TAXATION OF INTEREST INCOME OF HOLDERS INTEREST INCOME ON THE CAPPED NOTES. As a general rule, interest paid or accrued on the Capped Notes will be treated as ordinary income to the holders thereof. A Holder of the Notes using the accrual method of accounting for federal income tax purposes is required to include interest paid or accrued on the Capped Notes in ordinary income as such interest accrues, while a Holder using the cash receipts and disbursements method of accounting for federal income tax purposes must include such interest in ordinary income when payments are received (or made available for receipt) by such holder. ORIGINAL ISSUE DISCOUNT. It is anticipated, and this discussion assumes, that the Capped Notes will not have any original issue discount ("OID") other than possibly OID within de minimis exception and that accordingly the provisions of sections 1271 through 1273 and 1275 of the Code, generally will not apply to the Notes. OID will be considered de minimis if it is less than 0.25% of the principal amount of a Note multiplied by its expected weighted average life. The prepayment assumption that will be used for purposes of computing original issue discount, if any, for federal income tax purposes is the Prepayment Assumption. See "Material Federal Income Consequences -- Discount and Premium -- Original Issue Discount" in the prospectus. S-63 64 MARKET DISCOUNT. A subsequent purchaser who buys a Capped Note for less than its principal amount may be subject to the "market discount" rules of Section 1276 through 1278 of the Code. If a subsequent purchaser of a Capped Note disposes of such Note (including certain nontaxable dispositions such as a gift), or receives a principal payment, any gain upon such sale or other disposition will be recognized, or the amount of such principal payment will be treated, as ordinary income to the extent of any "market discount" accrued for the period that such purchaser holds the Note. Such holder may instead elect to include market discount in income as it accrues with respect to all debt instruments acquired in the year of acquisition of the Notes and thereafter. Market discount generally will equal the excess, if any, of the then current unpaid principal balance of the Note over the purchaser's basis in the Capped Note immediately after such purchaser acquired the Note. In general, market discount on a Capped Note will be treated as accruing over the term of such Note in the ratio of interest for the current period over the sum of such current interest and the expected amount of all remaining interest payments, or at the election of the holder, under a constant yield method (taking into account the Prepayment Assumption). At the request of a holder of a Note, information will be made available that will allow the holder to compute the accrual of market discount under the first method described in the preceding sentence. See "Material Federal Income Consequences -- Discount and Premium -- Market Discount" in the prospectus. The market discount rules also provide that a holder who incurs or continues indebtedness to acquire a debt instrument at a market discount may be required to defer the deduction of all or a portion of the interest on such indebtedness until the corresponding amount of market discount is included income. Notwithstanding the above rules, market discount on a debt instrument will be considered to be zero if it is less than a de minimis amount, which is 0.25% of the remaining principal balance of the debt instrument multiplied by its expected weighted average remaining life. If OID or market discount is de minimis, the actual amount of discount must be allocated to the remaining principal distributions on such debt instrument and, when each such distribution is received, capital gain equal to the discount allocated to such distribution will be recognized. MARKET PREMIUM. A subsequent purchaser who buys a Capped Note for more than its principal amount generally will be considered to have purchased the Note at a premium. Such holder may amortize such premium, using a constant yield method, over the remaining term of the Note and, except as future regulations may otherwise provide, may apply such amortized amounts to reduce the amount of interest reportable with respect to such note over the period from the purchase date to the date of maturity of the Note. The amortization of such premium on an obligation that provides for partial principal payments prior to maturity should be governed by the methods for accrual of market discount on such an obligation (described above). A holder that elects to amortize premium must reduce the tax basis in the related obligation by the amount of the aggregate deductions (or interest offsets) allowable for amortizable premium. If a debt instrument purchased at a premium is redeemed in full prior to its maturity, a purchaser who has elected to amortize premium should be entitled to a deduction for any remaining unamortized premium in the taxable year of redemption. See "Material Federal Income Consequences -- Discount and Premium -- Premium" in the prospectus. SALE OR REDEMPTION OF NOTES If a Note is sold or retired, the seller will recognize gain or loss equal to the difference between the amount realized on the sale and such holder's adjusted basis in the Note. Such adjusted basis generally will equal the cost of the Note to the seller, increased by any original issue discount included in the seller's gross income in respect of the Note (and by any market discount which the taxpayer elected to include in income or was required to include in income), and reduced by payments other than payments of qualified stated interest in respect of the Note received by the seller and by any amortized premium. S-64 65 TAXATION OF CERTAIN FOREIGN INVESTORS Interest payments (including OID, if any) on the Notes made to a Noteholder who is a nonresident alien individual, foreign corporation or other non-United States person (a "foreign person") generally will be "portfolio interest" which is not subject to United States tax if such payments are not effectively connected with the conduct of a trade or business in the United States by such foreign person and if the Trust (or other person who would otherwise be required to withhold tax from such payments) is provided with an appropriate statement that the beneficial owner of the Note identified on the statement is a foreign person. See "Material Federal Income Consequences -- Foreign Investors" in the prospectus. BACKUP WITHHOLDING Distributions of interest and principal as well as distributions of proceeds from the sale of the Notes, may be subject to the "backup withholding tax" under Section 3406 of the Code at rate of 31% if recipients of such distributions fail to furnish to the payor certain information, including their taxpayer identification numbers, or otherwise fail to establish an exemption from such tax. Any amounts deducted and withheld from a distribution to a recipient would be allowed as a credit against such recipient's federal income tax. Furthermore, certain penalties may be imposed by the IRS on a recipient of distributions that is required to supply information but does not do so in the proper manner. See "Material Federal Income Consequences -- Backup Withholding" in the prospectus. POSSIBLE CLASSIFICATION OF THE TRUST AS A PARTNERSHIP OR ASSOCIATION TAXABLE AS A CORPORATION Although, as described above, it is the opinion of Tax Counsel that the Capped Notes are properly characterized as debt for federal income tax purposes and the Available Funds Amount will be treated as a notional principal contract, the opinion of Tax Counsel is not binding on the courts or the IRS and no assurance can be given that this characterization will prevail. It is possible that the IRS could assert that, for purposes of the Code, the transaction contemplated by this prospectus supplement with respect to the Notes constitutes a sale of the Mortgage Loans (or an interest therein) to the Holders of the Notes and that the proper classification of the legal relationship between the Sponsor, the Originator and the Holders of the Notes resulting from this transaction is that of a partnership (including a publicly traded partnership), a publicly traded partnership treated as a corporation, or an association taxable as a corporation. If it were determined that this transaction created an entity classified as a publicly traded partnership taxable as a corporation, the Trust would be subject to U.S. federal income tax at corporate income tax rates on the income it derives from the Mortgage Loans, which would reduce the amounts available for distribution to the Holders of the Notes. Cash distributions to the Note Holders generally would be treated as dividends for tax purposes to the extent of such corporation's earnings and profits. If the transaction were treated as creating a partnership (but not a publicly traded partnership taxable as a corporation) between the Holders of the Notes and the holders of the Certificates, the partnership itself would not be subject to U.S. federal income tax; rather, each holder of a Certificate and each Holder of the Notes would be taxed individually on its respective distributive shares of the partnership's income, gain, loss, deductions and credits. The amount and timing of items of income and deductions of the Holders of the Notes and the holder of the Certificates could differ if the Notes were held to constitute partnership interests rather than indebtedness. The Sponsor will not attempt to comply with U.S. federal income tax reporting requirements applicable to partnerships or corporations as such requirements would apply if the Capped Notes were not treated as indebtedness and the Available Funds Amounts were not treated as a notional principal contract. S-65 66 STATE TAXES The Sponsor makes no representations regarding the tax consequences of purchase, ownership or disposition of the Notes under the tax laws of any state. Investors considering an investment in the Notes should consult their own tax advisors regarding such tax consequences. ALL INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL OR FOREIGN INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES. ERISA CONSIDERATIONS Section 406 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and Section 4975 of the Code prohibit a pension, profit-sharing or other employee benefit plan, as well as individual retirement accounts and certain types of Keogh Plans (each, a "Benefit Plan") from engaging in certain transactions with persons that are "parties in interest" under ERISA or "disqualified persons under the Code with respect to such Benefit Plan. A violation of these "prohibited transaction" rules may result in an excise tax or other penalties and liabilities under ERISA and the Code for such persons. Title I of ERISA also requires that fiduciaries of a Benefit Plan subject to ERISA make investments that are prudent, diversified (except if prudent not to do so) and in accordance with governing plan documents. Certain transactions involving the Trust might be deemed to constitute prohibited transactions under ERISA and the Code if assets of the Trust were deemed to be assets of a Benefit Plan. Under a regulation issued by the United States Department of Labor (the "Plan Assets Regulation"), the assets of the Trust would be treated as plan assets of a Benefit Plan for the purposes of ERISA and the Code only if the Benefit Plan acquired an "Equity Interest" in the Trust and none of the exceptions contained in the Plan Assets Regulation were applicable. An equity interest is defined under the Plan Assets Regulation as an interest other than an instrument which is treated as indebtedness under applicable local law and which has no substantial equity features. Although there is little guidance on the subject, the Sponsor believes that the Notes should be treated as 'indebtedness without substantial equity features' for purposes of the Plan Assets Regulation. This determination is based in part upon the traditional debt features of the Notes, including the reasonable expectation of purchasers of Notes that the Notes will be repaid when due, as well as the absence of conversion rights, warrants and other typical equity features. The debt treatment of the Notes for ERISA purposes could change if the Trust incurred losses. However, even if the Notes are treated as 'indebtedness without substantial equity features', the acquisition or holding of Notes by or on behalf of a Benefit Plan could be considered to give rise to a prohibited transaction if the related issuing Trust or any of its affiliates is or becomes a party in interest or a disqualified person with respect to such Benefit Plan. In such case, certain exemptions from the prohibited transaction rules could be applicable depending on the type and circumstances of the plan fiduciary making the decision to acquire a Note. Included among these exemptions are: Prohibited Transaction Class Exemption ("PTCE") 90-l, regarding investments by insurance company pooled separate accounts; PTCE 95-60, regarding investments by insurance company general accounts; PTCE 91-38, regarding investments by bank collective investment funds; PTCE 96-23, regarding transactions affected by "in-house asset managers"; and PTCE 84-14, regarding transactions effected by "qualified professional asset managers." Each investor using the assets of a Benefit Plan which acquires 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 one of the exemptions listed above or by another Department of Labor Prohibited Transaction Class Exemption. Employee benefit plans that are governmental plans (as defined in Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA) are not subject to ERISA requirements; however, such plans may be subject to comparable restrictions under federal, state or local law. S-66 67 A Benefit Plan fiduciary considering the purchase of Notes should consult its tax and/or legal advisors regarding whether the assets of the Trust would be considered plan assets, the possibility of exemptive relief from the prohibited transaction rules and other related issues and their potential consequences. The sale of Notes to a Benefit Plan is in no respect a representation by the Sponsor, the Master Servicer or the Underwriter that this investment meets all relevant legal requirements with respect to investments by Benefit Plans generally or any particular Benefit Plan, or that this investment is appropriate for Benefit Plans generally or any Particular Benefit Plan. RATINGS It is a condition of the original issuance of the Notes that they receive ratings of "AAA" by Standard & Poor's and "Aaa" by Moody's. The ratings assigned to the Notes will be based on the claims-paying ability of the Insurer. Explanations of the significance of such ratings may be obtained from Moody's, 99 Church Street, New York, New York 10007 and Standard & Poor's, 25 Broadway, New York, New York 10006. Such ratings will be the views only of such rating agencies. There is no assurance that such ratings will continue for any period of time or that such ratings will not be revised or withdrawn. Any such revision or withdrawal of such ratings may have an adverse effect on the market price of the Notes. A security rating is not a recommendation to buy, sell or hold securities. The ratings assigned to the Notes do not address the likelihood of the payment of any shortfalls due to the application of the Relief Act, Compensating Interest, Available Funds Cap Current Amounts or any Available Funds Cap Carry-Forward Amounts. It is a condition to issuance that the Notes be rated "AAA" by Standard & Poor's and "Aaa" by Moody's. A securities rating addresses the likelihood of the receipt by Holders of distributions on the Mortgage Loans. The rating takes into consideration the characteristics of the Mortgage Loans and the structural, legal and tax aspects associated with the Notes. The ratings on the Notes do not, however, constitute statements regarding the likelihood or frequency of prepayments on the Mortgage Loans or the possibility that Holders might realize a lower than anticipated yield. The ratings assigned to the Notes will depend primarily upon the creditworthiness of the Insurer. Any reduction in a rating assigned to the claims-paying ability of the Insurer below the ratings initially assigned to the Notes may result in a reduction of one or more of the ratings assigned to the Notes. A securities rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organization. Each securities rating should be evaluated independently of similar ratings on different securities. LEGAL INVESTMENT CONSIDERATIONS The Notes will not constitute "mortgage related securities" for purposes of SMMEA. S-67 68 UNDERWRITING Subject to the terms and subject to the conditions set forth in the Underwriting Agreement for the sale of the Notes (the "Underwriting Agreement"), the Sponsor has agreed to cause the Trust to sell and (the Underwriter) has agreed to purchase the Notes. On the Closing Date, a portion of the Notes may be delivered to Advanta National Bank and/or Advanta Bank Corp in consideration for the transfer of its respective Mortgage Loans. Such Notes may be resold from time to time in negotiated transactions at varying prices to be determined at the time of the related transaction. This prospectus supplement and the accompanying prospectus also cover the resale of such Notes from time to time by Advanta National Bank, Advanta Bank Corp. or their respective affiliates. In the Underwriting Agreement, the Underwriter has agreed, subject to the terms and conditions set forth therein, to purchase the entire principal amount of the Notes. The Underwriter has agreed to reimburse the Sponsor for certain expenses of the issuance and distribution of the Notes. The Underwriter has informed the Sponsor that it proposes to offer the Notes for sale from time to time in one or more negotiated transactions, or otherwise, at varying prices to be determined, in each case, at the time of the related sale. The Underwriter may effect such transactions by selling the Notes to or through dealers, and such dealers may receive compensation in the form of underwriting discounts, concessions or commissions from the Underwriter. In connection with the sale of the Notes, the Underwriter may be deemed to have received compensation from the Sponsor in the form of underwriting compensation. The Underwriter and any dealers that participate with the Underwriter in the distribution of the Notes may be deemed to be underwriters and any commissions received by them and any profit on the resale of the Notes by them may be deemed to be underwriting discounts and commissions under the Securities Act of 1933, as amended. The Sponsor has agreed to indemnify the Underwriter against certain liabilities including liabilities under the Securities Act of 1933, as amended. In connection with this offering and in compliance with applicable law and industry practice, the Underwriter may overallot or effect transactions which stabilize, maintain or otherwise affect the market price of the Notes at a level above that which might otherwise prevail in the open market, including stabilizing bids, effecting syndicate covering transactions or imposing penalty bids. A stabilizing bid means the placing of any bid, or the effecting of any purchase, for the purpose of pegging, fixing or maintaining the price of a security. A syndicate covering transaction means the placing of any bid on behalf of the underwriting syndicate or the effecting of any purchase to reduce a short position created in connection with the offering. A penalty bid means an arrangement that permits Morgan Stanley & Co. Incorporated, as managing underwriter, to reclaim a selling concession from a syndicate member in connection with the offering when Notes originally sold by the syndicate member are purchased in syndicate covering transactions. The Underwriter are not required to engage in any of these activities. Any such activities, if commenced, may be discontinued at any time. The Sponsor or its affiliates may apply the net proceeds of the sale of the Notes to the repayment of debt, including "warehouse" debt secured by the Mortgage Loans prior to their transfer to the Trust. The Underwriter or one of its affiliates may have acted as "warehouse" lender to the Sponsor or one or more of its affiliates and may receive a portion of such proceeds as repayment of such "warehouse debt." S-68 69 The Sponsor has been advised by the Underwriter that the Underwriter presently intends to make a market in the Notes, as permitted by applicable laws and regulations. The Underwriter is not obligated, however, to make a market in the Notes and such market-making may be discontinued at any time at the sole discretion of the Underwriter. Accordingly, no assurance can be given as to the liquidity of, or trading markets for, the Notes. EXPERTS The consolidated financial statements of the Insurer, [NOTE INSURER], as of December 31, 1997 and 1996 and for each of the years in the three year period ended December 31, 1997, are incorporated by reference herein and in the registration statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein and upon the authority of said firm as experts in accounting and auditing. CERTAIN LEGAL MATTERS Certain legal matters relating to the validity of the issuance of the Notes will be passed upon by Dewey Ballantine LLP, New York, New York. S-69 70 INDEX OF PRINCIPAL DEFINED TERMS Accelerated Principal Payment...............................................S-53 Actuarial Loan..............................................................S-20 Advanta Parent..............................................................S-42 Affiliated Originators......................................................S-16 Appraised Values............................................................S-20 Available Funds.............................................................S-56 Available Funds Amount......................................................S-64 Available Funds Cap Amount..................................................S-54 Available Funds Cap Carry-Forward Amount....................................S-54 Average Amount Outstanding..................................................S-18 balloon loans...............................................................S-13 Beneficial Owner............................................................S-47 Benefit Plan................................................................S-67 Book-Entry Notes............................................................S-47 Business Day................................................................S-52 Capitalized Interest Account................................................S-46 Capped Notes................................................................S-64 CEDEL Participants..........................................................S-49 Certificates................................................................S-44 Closing Date................................................................S-19 Code........................................................................S-63 Commission...................................................................S-2 Compensating Interest.......................................................S-63 Cooperative.................................................................S-50 Defaulted Mortgage Loan.....................................................S-56 Deficiency Amount...........................................................S-61 Definitive Note.............................................................S-47 Delinquency Advances........................................................S-62 Determination Date..........................................................S-57 DTC.........................................................................S-15 DTC Participants............................................................S-49 Due for Payment.............................................................S-61 Equity Interest.............................................................S-68 ERISA.......................................................................S-67 Euroclear Operator..........................................................S-50 Euroclear Participants......................................................S-49 European Depositaries.......................................................S-48 Excess Cashflow.............................................................S-53 FDIC........................................................................S-43 Final Scheduled Payment Date................................................S-37 Financial Intermediary......................................................S-48 Fixed Rate Available Funds Cap Rate.........................................S-54 FNMA........................................................................S-27 Foreclosure Rate............................................................S-18 foreign person..............................................................S-66 Gross Losses................................................................S-18 Holder......................................................................S-61 Holders.....................................................................S-47 Indenture...................................................................S-47 Indenture Trustee...........................................................S-47 Initial Cut-Off Date........................................................S-19 Initial Mortgage Loans......................................................S-45 S-70 71 Initial Redemption Date.....................................................S-57 Insurance Policy............................................................S-47 Insured Amounts.............................................................S-61 Insured Obligations.........................................................S-61 Insured Payments............................................................S-61 Insurer.....................................................................S-47 Interest Accrual Period.....................................................S-54 Interest Collections........................................................S-51 Interest Determination Date.................................................S-55 Interest Distribution Amount................................................S-54 IRS.........................................................................S-64 Junior Lien Ratio...........................................................S-21 LIBOR.......................................................................S-55 Master Servicer.............................................................S-16 Master Transfer Agreements..................................................S-45 Mortgage Loan File..........................................................S-45 Mortgage Loan Pool..........................................................S-16 Mortgage Loans..............................................................S-16 Mortgage Notes..............................................................S-19 Net Available Distribution Amount...........................................S-61 Net Losses..................................................................S-18 Nonpayment..................................................................S-61 Nonrecoverable Delinquency Advance..........................................S-62 Nonrecoverable Servicing Advance............................................S-62 Non-U.S. Person.............................................................S-77 Note Account................................................................S-56 Note Formula Capped Rate....................................................S-54 Note Formula Rate...........................................................S-54 Note Interest Rate..........................................................S-54 Note Register...............................................................S-52 Noteholders.................................................................S-47 Notes.......................................................................S-44 Notes.......................................................................S-74 Notice......................................................................S-61 Notional Principal Contract Regulations.....................................S-64 OID.........................................................................S-65 Original Pre-Funded Amount..................................................S-46 Originator..................................................................S-16 Overcollateralization Amount................................................S-52 Overcollateralization Deficit...............................................S-53 Overcollateralization Reduction Amount......................................S-53 Owned and Managed Servicing Portfolio.......................................S-16 Owner Trustee...............................................................S-44 Participants................................................................S-48 Payment Date................................................................S-52 Plan Assets Regulation......................................................S-68 Preference Amount...........................................................S-61 Pre-Funding Account.........................................................S-46 Pre-Funding Period..........................................................S-46 Pre-Funding Period Termination Date.........................................S-46 prepayment..................................................................S-37 Prepayment..................................................................S-36 Prepayment Assumption.......................................................S-37 Preservation Expenses.......................................................S-62 Principal and Interest Account..............................................S-52 Principal Balance...........................................................S-52 S-71 72 Principal Collections.......................................................S-51 PTCE........................................................................S-68 Record Date.................................................................S-52 Recoveries..................................................................S-18 Redemption Date.............................................................S-57 Reference Banks.............................................................S-55 Reimbursement Amounts.......................................................S-53 Relevant Depositary.........................................................S-48 Remittance Date.............................................................S-52 Remittance Period...........................................................S-51 Required Payments...........................................................S-61 Reserve Interest Rate.......................................................S-55 Rules.......................................................................S-48 Schedule of Mortgage Loans..................................................S-45 Scheduled Principal Distribution Amount.....................................S-55 Servicing Advances..........................................................S-62 Specified Overcollateralization Amount......................................S-52 Sponsor.....................................................................S-16 Statistic Calculation Pool..................................................S-19 Subsequent Cut-Off Date.....................................................S-46 Subsequent Mortgage Loans...................................................S-45 Subsequent Transfer Agreements..............................................S-46 Subsequent Transfer Dates...................................................S-46 Tax Counsel.................................................................S-64 Terms and Conditions........................................................S-50 Third-Party Servicing Portfolio.............................................S-17 Trust.......................................................................S-19 Trust Agreement.............................................................S-43 Trust Balance...............................................................S-52 Trust Estate................................................................S-47 Trust Property..............................................................S-44 U.S. Person.................................................................S-77 Unaffiliated Originators....................................................S-16 Underwriter.................................................................S-69 Underwriting Agreement......................................................S-69 Weighted average life.......................................................S-37 S-72 73 ANNEX I GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES Except in certain limited circumstances, the offered Advanta Mortgage Backed Notes, Series ____-_ (the "Notes") will be available only in book-entry form. Investors in the Notes may hold such Notes through any of DTC, CEDEL or Euroclear. The Notes will be tradable as home market instruments in both the European and U.S. domestic markets. Initial settlement and all secondary trades will settle in same-day funds. Secondary market trading between investors through CEDEL and Euroclear will be conducted in the ordinary way in accordance with the normal rules and operating procedures of CEDEL and Euroclear and in accordance with conventional eurobond practice (i.e., seven calendar day settlement). Secondary market trading between investors through DTC will be conducted according to DTC's rules and procedures applicable to U.S. corporate debt obligations. Secondary cross-market trading between CEDEL or Euroclear and DTC Participants holding Certificates will be effected on a delivery-against-payment basis through the respective Depositaries of CEDEL and Euroclear (in such capacity) and as DTC Participants. Non-U.S. holders (as described below) of Notes will be subject to U.S. withholding taxes unless such holders meet certain requirements and deliver appropriate U.S. tax documents to the securities clearing organizations or their Participants. INITIAL SETTLEMENT All Notes will be held in book-entry form by DTC in the name of Cede & Co. as nominee of DTC. Investors' interests in the Notes will be represented through financial institutions acting on their behalf as direct and indirect Participants in DTC. As a result, CEDEL and Euroclear will hold positions on behalf of their Participants through their relevant depository which in turn will hold such positions in their accounts as DTC Participants. Investors electing to hold their Notes through DTC will follow DTC settlement practices. Investor securities custody accounts will be credited with their holdings against payment in same-day funds on the settlement date. Investors electing to hold their Notes through CEDEL or Euroclear accounts will follow the settlement procedures applicable to conventional eurobonds, except that there will be no temporary global security and no "lock-up" or restricted period. Notes will be credited to the securities custody accounts on the settlement date against payment in same-day funds. SECONDARY MARKET TRADING Since the purchaser determines the place of delivery, it is important to establish at the time of the trade where both the purchaser's and seller's accounts are located to ensure that settlement can be made on the desired value date. Trading Between DTC Participants. Secondary market trading between DTC Participants will be settled using the procedures applicable to prior home equity revolving credit line loan asset-backed certificates issues in same-day funds. S-73 74 Trading between CEDEL and/or Euroclear Participants. Secondary market trading between CEDEL Participants or Euroclear Participants will be settled using the procedures applicable to conventional eurobonds in same-day funds. Trading between DTC, Originator and CEDEL or Euroclear Participants. When Notes are to be transferred from the account of a DTC Participant to the account of a CEDEL Participant or a Euroclear Participant, the purchaser will send instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear Participant at least one business day prior to settlement. CEDEL or Euroclear will instruct the Relevant Depository, as the case may be, to receive the Notes against payment. Payment will include interest accrued on the Notes from and including the last coupon payment date to and excluding the settlement date, on the basis of the actual number of days in such accrual period and a year assumed to consist of 360 days. For transactions settling on the 31st of the month, payment will include interest accrued to and excluding the first day of the following month. Payment will then be made by the Relevant Depository to the DTC Participant's account against delivery of the Notes. After settlement has been completed, the Notes will be credited to the respective clearing system and by the clearing system, in accordance with its usual procedures, to the CEDEL Participant's or Euroclear Participant's account. The securities credit will appear the next day (European time) and the cash debt will be back-valued to, and the interest on the Notes will accrue from, the value date (which would be the preceding day when settlement occurred in New York). If settlement is not completed on the intended value date (i.e., the trade fails), the CEDEL or Euroclear cash debt will be valued instead as of the actual settlement date. CEDEL Participants and Euroclear Participants will need to make available to the respective clearing systems the funds necessary to process same-day funds settlement. The most direct means of doing so is to preposition funds for settlement, either from cash on hand or existing lines of credit, as they would for any settlement occurring within CEDEL or Euroclear. Under this approach, they may take on credit exposure to CEDEL or Euroclear until the Notes are credited to their account one day later. As an alternative, if CEDEL or Euroclear has extended a line of credit to them, CEDEL Participants or Euroclear Participants can elect not to preposition funds and allow that credit line to be drawn upon to finance settlement. Under this procedure, CEDEL Participants or Euroclear Participants purchasing Notes would incur overdraft charges for one day, assuming they cleared the overdraft when the Notes were credited to their accounts. However, interest on the Notes would accrue from the value date. Therefore, in many cases the investment income on the Notes earned during that one-day period may substantially reduce or offset the amount of such overdraft charges, although the result will depend on each CEDEL Participant's or Euroclear Participant's particular cost of funds. Since the settlement is taking place during New York business hours, DTC Participants can employ their usual procedures for crediting Notes to the respective European Depository for the benefit of CEDEL Participants or Euroclear Participants. The sale proceeds will be available to the DTC seller on the settlement date. Thus, to the DTC Participants a cross-market transaction will settle no differently than a trade between two DTC Participants. Trading between CEDEL or Euroclear Originator and DTC Purchaser. Due to time zone differences in their favor, CEDEL Participants and Euroclear Participants may employ their customary procedures for transactions in which Notes are to be transferred by the respective clearing system, through the respective Depository, to a DTC Participant. The seller will send instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear Participant at least one business day prior to settlement. In these cases CEDEL or Euroclear will instruct the respective Depository, as appropriate, to credit the Notes to the DTC Participant's account against payment. Payment will include interest accrued on the Notes from and including the last coupon payment to and excluding the settlement date on the basis of the actual number of days in such accrual period and a year assumed to consist of 360 days. For transactions S-74 75 settling on the 31st of the month, payment will include interest accrued to and excluding the first day of the following month. The payment will then be reflected in the account of CEDEL Participant or Euroclear Participant the following day, and receipt of the cash proceeds in the CEDEL Participant's or Euroclear Participant's account would be back-valued to the value date (which would be the preceding day, when settlement occurred in New York). In the event that the CEDEL Participant or Euroclear Participant has a line of credit with its respective clearing system and elects to be in debt in anticipation of receipt of the sale proceeds in its account, the back-valuation will extinguish any overdraft incurred over that one-day period. If settlement is not completed on the intended value date (i.e., the trade fails), receipt of the cash proceeds in the CEDEL Participant's or Euroclear Participant's account would instead be valued as of the actual settlement date. Finally, day traders that use CEDEL or Euroclear and that purchase Notes from DTC Participants for delivery to CEDEL Participants or Euroclear Participants should note that these trades would automatically fail on the sale side unless affirmative action is taken. At least three techniques should be readily available to eliminate this potential problem: (a) borrowing through CEDEL or Euroclear for one day (until the purchase side of the trade is reflected in their CEDEL or Euroclear accounts) in accordance with the clearing system's customary procedures; (b) borrowing the Notes in the U.S. from a DTC Participant no later than one day prior to settlement, which would give the Notes sufficient time to be reflected in their CEDEL or Euroclear account in order to settle the sale side of the trade; or (c) staggering the value dates for the buy and sell sides of the trade so that the value date for the purchase from the DTC Participant is at least one day prior to the value date for the sale to the CEDEL Participant or Euroclear Participant. CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS A beneficial owner of Notes holding securities through CEDEL or Euroclear (or through DTC if the holder has an address outside the U.S.) will be subject to the 30% U.S. withholding tax that generally applies to payments of interest (including original issue discount) on registered debt issued by U.S. Persons (as defined below), unless (i) each clearing system, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business in the chain of intermediaries between such beneficial owner and the U.S. entity required to withhold tax complies with applicable certification requirements and (ii) such beneficial owner takes one of the following steps to obtain an exemption or reduced tax rate: Exemption for Non-U.S. Persons (Form W-8). Beneficial Holders of Notes that are Non-U.S. Persons (as defined below) can obtain a complete exemption from the withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If the information shown on Form W-8 changes, a new Form W-8 must be filed within 30 days of such change. Exemption for Non-U.S. Persons with effectively connected income (Form 4224). A Non-U.S. Person (as defined below), including a non-U.S. corporation or bank with a U.S. branch, for which the interest income is effectively connected with its conduct of a trade or business in the United States, can obtain an exemption from the withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income Effectively Connected with the Conduct of a Trade or Business in the United States). S-75 76 Exemption or reduced rate for non-U.S. Persons resident in treaty countries (Form 1001). Non-U.S. Persons residing in a country that has a tax treaty with the United States can obtain an exemption or reduced tax rate (depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty provides only for a reduced rate, withholding tax will be imposed at that rate unless the filer alternatively files Form W-8. Form 1001 may be filed by Certificate Holders or their agent. Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete exemption from the withholding tax by filing Form W-9 (Payer's Request for Taxpayer Identification Number and Certification). U.S. Federal Income Tax Reporting Procedure. The Owner of a Notes or, in the case of a Form 1001 or a Form 4224 filer, his agent, files by submitting the appropriate form to the person through whom it holds (the clearing agency, in the case of persons holding directly on the books of the clearing agency). Form W-8 and Form 1001 are effective for three calendar years and Form 4224 is effective for one calendar year. The term "U.S. Person" means (i) a citizen or resident of the United States, (ii) a corporation, partnership or other entity organized in or under the laws of the United States or any political subdivision thereof (iii) an estate or trust that is subject to U.S. federal income tax regardless of the source of its income or (iv) a "foreign trust" as that term is defined in Section 7701 of the Code. The term "Non-U.S. Person" means any person who is not a U.S. Person. This summary does not deal with all aspects of U.S. federal income tax withholding that may be relevant to foreign holders of the Notes or with the application of recently issued Treasury Regulations relating to tax documentation requirements that are generally effective with respect to payments made after December 31, 1999. Investors are advised to consult their own tax advisors for specific tax advice concerning their holding and disposing of the Notes. S-76 77 ================================================================================ $______________ MORTGAGE BACKED NOTES, SERIES ____-_ ADVANTA MORTGAGE LOAN TRUST ____-_ ISSUER [LOGO] ADVANTA MORTGAGE CORP. USA ORIGINATOR AND MASTER SERVICER [LOGO] ADVANTA CONDUIT RECEIVABLES, INC. SPONSOR --------------------------------- PROSPECTUS SUPPLEMENT --------------------------------- [UNDERWRITER] [DATE] You should rely only on the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus. We have not authorized anyone to provide you with different information. We are not offering the notes offered hereby in any state where such offer is not permitted. We represent the accuracy of the information in this prospectus supplement and the accompanying prospectus only as of the dates on their respective covers. Dealers will be required to deliver a prospectus supplement and prospectus when acting as underwriters of the notes offered hereby and with respect to their unsold allotments or subscriptions. In addition, all dealers selling the notes, whether or not participating in this offering, may be required to deliver a prospectus supplement and prospectus until ________________. ================================================================================ EX-99.2 12 FORM OF PROSPECTUS SUPPLEMENT 1 EXHIBIT 99.2 Prospectus Supplement to Prospectus dated ________________, 1999 ADVANTA MORTGAGE LOAN TRUST [ISSUE] Issuer [$--------] (APPROXIMATE) MORTGAGE LOAN ASSET-BACKED CERTIFICATES, SERIES [ISSUE] [ADVANTA LOGO] [ADVANTA LOGO] ADVANTA CONDUIT RECEIVABLES, INC. ADVANTA MORTGAGE CORP. USA SPONSOR MASTER SERVICER THE TRUST IS OFFERING THE FOLLOWING SEVEN CLASSES OF SENIOR CLASS [A] CERTIFICATES: Initial Pass- Final Scheduled Class Principal Balance Through Rate Payment Date ----- ----------------- ------------ --------------- [A-1] [$__________] [____%] [_______, ____] [A-2] [$__________] [Libor + ___%] [_______, ____] Interest and principal on the Class [A] Certificates is scheduled to be paid monthly on the 25th day of the month, or the next business day. The first scheduled payment date is ______ __, ____. The property of the Trust consists of two separate groups of residential mortgage loans; one group consists entirely of fixed-rate loans, and the other group consists entirely of adjustable rate loans. The Trust will also hold cash to purchase additional residential mortgage loans on or before [________ __, ____]. Each class of the Class [A] Certificates will have the benefit of an insurance policy from [Insurer] which will guarantee certain payments with respect to the Class [A] Certificates. [[Insurer] LOGO] The offering of the Class [A] Certificates is subject to certain conditions, which are discussed in the "Underwriting" section of this prospectus supplement. Delivery of the Class [A] Certificates is expected in book-entry form through The Depository Trust Company, Cedelbank, and the Euroclear System on or about ___________, ____. The Class [A] Certificates will be offered by the underwriters from time to time to the public in negotiated transactions or otherwise at varying prices to be determined at the time of the related sale. Proceeds to the sponsor are anticipated to be approximately [$____________], plus accrued interest, from the sale of the Class [A] Certificates before deducting expenses payable by the sponsor, estimated to be [$_______]. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus supplement. Any representation to the contrary is a criminal offense. [UNDERWRITER[S]] The date of this Prospectus Supplement is ___________, ____ - -------------------------------------------------------------------------------- YOU SHOULD READ THE SECTION ENTITLED "RISK FACTORS" STARTING ON PAGE S-__ OF THIS PROSPECTUS SUPPLEMENT AND PAGE __ OF THE PROSPECTUS AND CONSIDER THESE FACTORS BEFORE MAKING A DECISION TO INVEST IN THE CERTIFICATES. These certificates represent non-recourse obligations of the Trust only and are not interests in or obligations of any other person or entity. Neither these certificates nor the underlying mortgage loans will be insured or guaranteed by any governmental agency or instrumentality. This prospectus supplement may be used to offer and sell the certificates only if accompanied by the prospectus. - -------------------------------------------------------------------------------- 2 IMPORTANT NOTICE ABOUT THE INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS We provide information to you about these securities in two separate documents that progressively provide more detail: (1) the accompanying prospectus, which provides general information, some of which may not apply to this series of securities; and (2) this prospectus supplement, which describes the specific terms of this series of securities. This prospectus supplement does not contain complete information about the offering of these securities. Additional information is contained in the prospectus. You are urged to read both this prospectus supplement and the prospectus in full. We cannot sell these securities to you unless you have received both this prospectus supplement and the prospectus. IF THE TERMS OF YOUR SERIES OF SECURITIES AND ANY OTHER INFORMATION CONTAINED HEREIN VARY BETWEEN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT. The Sponsor has filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933, as amended, with respect to the securities offered pursuant to this prospectus supplement. This prospectus supplement and the prospectus, which form a part of the registration statement, omit certain information contained in such registration statement pursuant to the rules and regulations of the Securities and Exchange Commission. You may inspect the registration statement at the Public Reference Room at the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. and the Securities and Exchange Commission's regional offices at Seven World Trade Center, 13th Floor, New York, New York, 10048 and the Citibank Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can obtain copies of such materials at prescribed rates from the Public Reference Section of the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the Securities and Exchange Commission maintains a site on the World Wide Web at http://www.sec.gov containing reports, proxy materials, information statements and other items. The Securities and Exchange Commission allows us to "incorporate by reference" certain information already on file with it. This means that we can disclose important information to you by referring you to those documents. Such information is considered part of this prospectus supplement, and later information that is filed will automatically update and supersede this information. We incorporate by reference the financial statements of [Insurer] included in, or as exhibits to, the following documents, which have been filed by [Insurer]: o Annual Report on Form 10-K for the year ended December 31, [____]; and o Quarterly Report on Form 10-Q for the quarter ended [___________, ____]. You should rely only on the information incorporated by reference or provided in this prospectus supplement and the accompanying prospectus. We have not authorized anyone else to provide you with different information. You should not assume that the information in this prospectus supplement or the accompanying prospectus is accurate as of any date other than the date on the cover page of this prospectus supplement or the accompanying prospectus. You can obtain from the Sponsor, free of charge, a copy of the financial information incorporated by reference by making an oral or written request to Advanta S-2 3 Conduit Receivables, Inc., Attention: General Counsel, Welsh & McKean Roads, Spring House, Pennsylvania 19477, (215) 657-4000. We include cross-references in this prospectus supplement and the accompanying prospectus to captions in these materials where you can find further related discussions. The following table of contents and the table of contents included in the accompanying prospectus provide the pages on which these captions are located. The Sponsor's principal offices are located at 10790 Rancho Bernardo Road, San Diego, California 92127, and its telephone number is (619) 674-1800. S-3 4 TABLE OF CONTENTS SUMMARY.....................................................................S-5 TERMS OF THE CLASS [A] CERTIFICATES AND THE MORTGAGE LOANS..................S-6 RISK FACTORS...............................................................S-12 THE PORTFOLIO OF MORTGAGE LOANS............................................S-18 Delinquencies...........................................................S-19 THE MORTGAGE LOANS.........................................................S-20 General.................................................................S-20 The Fixed Rate Group....................................................S-22 Conveyance of Subsequent Mortgage Loans to the Fixed Rate Group.........S-25 The ARM Group...........................................................S-26 Conveyance of Subsequent Mortgage Loans to the ARM Group................S-29 PREPAYMENT AND YIELD CONSIDERATIONS........................................S-29 Projected Prepayments and Yields for [Class A] Certificates.............S-30 Payment Lag Feature of the Class [A] Fixed Rate Group Certificates......S-34 USE OF PROCEEDS............................................................S-34 THE SPONSOR AND THE MASTER SERVICER........................................S-34 DESCRIPTION OF THE CERTIFICATES............................................S-36 General.................................................................S-36 Pre-Funding Account Feature.............................................S-37 Capitalized Interest Account............................................S-37 Remittance Dates........................................................S-37 Pass-Through Rates......................................................S-38 Distributions of Interest...............................................S-39 Distribution of Principal...............................................S-40 Book Entry Registration of the Class [A] Certificates...................S-42 Optional Redemption.....................................................S-46 Mandatory Redemption....................................................S-47 Calculation of LIBOR....................................................S-47 Certain Activities......................................................S-48 CREDIT ENHANCEMENT.........................................................S-48 Overcollateralization Provisions........................................S-48 Cross-collateralization Provisions......................................S-51 Credit Enhancement Does Not Apply to Prepayment Risk or Basis Risk......S-52 Class [A] Certificate Distributions and Insured Payments to the Owners of the Class [A] Certificates.................................S-52 THE CERTIFICATE INSURER....................................................S-53 THE CERTIFICATE INSURANCE POLICY...........................................S-55 THE POOLING AND SERVICING AGREEMENT........................................S-57 Formation of the Trust..................................................S-57 Sale of Mortgage Loans..................................................S-58 Conveyance of the Subsequent Mortgage Loans.............................S-59 Delinquency Advances, Compensating Interest and Servicing Advances......S-59 Governing Law...........................................................S-60 Termination of the Trust................................................S-60 Optional Termination....................................................S-61 CERTAIN FEDERAL INCOME TAX CONSEQUENCES....................................S-62 REMIC Elections.........................................................S-62 Special Tax Attributes..................................................S-63 Supplemental Interest Amounts...........................................S-63 Taxation of Foreign Investors...........................................S-64 Information Reporting and Backup Withholding............................S-64 STATE TAXES................................................................S-65 ERISA CONSIDERATIONS.......................................................S-65 RATINGS....................................................................S-70 LEGAL INVESTMENT CONSIDERATIONS............................................S-70 UNDERWRITING...............................................................S-71 EXPERTS....................................................................S-72 CERTAIN LEGAL MATTERS......................................................S-72 INDEX OF PRINCIPAL DEFINED TERMS...........................................S-73 S-4 5 SUMMARY This summary highlights selected information from this prospectus supplement and does not contain all of the information that you need to consider in making your investment decision. To understand all of the terms of the offering of the Class [A] Certificates, read carefully this entire prospectus supplement and the accompanying prospectus. --------------------------- TITLE OF SERIES: Advanta Mortgage Loan Trust [Trust], Mortgage Loan Asset-Backed Certificates, Series [Series] SPONSOR: Advanta Conduit Receivables, Inc. MASTER SERVICER: Advanta Mortgage Corp. USA TRUSTEE: [Trustee] THE TRUST: The Sponsor is forming the Advanta Mortgage Loan Trust [Trust] to hold two groups of residential mortgage loans. The Trust will also hold cash on deposit in a pre-funding account to be used for the sole purpose of purchasing additional mortgage loans on or before [_______, ____], if certain conditions are met. All of the mortgage loans will be originated by affiliates of the Sponsor or by one or more unaffiliated originators. CERTIFICATE The Trustee, on behalf of the INSURER: owners of the Class [A] Certificates, will hold an insurance policy issued to it by [Insurer] guaranteeing payment of certain amounts due to the owners of the Class [A] Certificates. PAYMENT DATES: The 25th day of each month, beginning on [________, ____]. If the 25th day is not a business day, then the payment date will be the next succeeding business day. CLOSING DATE: On or about [______, ____]. PRINCIPAL The Trust will distribute DISTRIBUTIONS: principal, monthly, to the owners of each class of Class [A] Certificates then entitled to receive distributions of principal. INTEREST The Trust will distribute DISTRIBUTIONS: interest, monthly, to the owners of each class of Class [A] Certificates based on their Class [A] Certificates' respective interest rate and principal balance. All calculations of interest on the Class [A-1] Certificates will be made on the basis of a 360-day year consisting of 12 months of 30 days each; all calculations of interest on the Class [A-2] Certificates will be made on the basis of the actual number of days elapsed in the related accrual period, divided by 360. NO OTHER OBLIGORS: The Class [A] Certificates do not represent the obligation of any entity other than the Trust. S-5 6 TERMS OF THE CLASS [A] CERTIFICATES AND THE MORTGAGE LOANS o The Terms of the Class [A] Certificates and the Mortgage Loans provide an overview of certain calculations, cash flows and other information to aid your understanding and is qualified by the full description of these calculations, cash flows and other information in this prospectus supplement and the accompanying prospectus. o Reference is made to the Index of Principal Defined Terms for the location of certain capitalized terms. ISSUER Advanta Mortgage Loan Trust [Trust]. THE TRUST The Trust will be created pursuant to a Pooling and Servicing Agreement to be dated as of [_______, ____], among Advanta Conduit Receivables, Inc., as Sponsor, Advanta Mortgage Corp. USA, as Master Servicer, and [Trustee], as Trustee. The Sponsor will request or direct the Trust to acquire the mortgage loans. Advanta Mortgage Corp. USA will service the mortgage loans for the Trust. [Trustee] will act as Trustee for the benefit of the owners of the Certificates. THE GROUPS The mortgage loans owned by the Trust will be assigned to one of two groups: the fixed rate group (which contains loans having fixed rates of interest) or the ARM group (which contains loans having adjustable rates of interest). The Class [A-1] Certificates will relate to the fixed rate group and the Class [A-2] Certificates will relate to the ARM group. CLASS [A] CERTIFICATES OFFERED [$__________] (approximate) Advanta Mortgage Loan [Trust], Mortgage Loan Asset-Backed Certificates, Series [Series], Class [A] to be issued in the following classes with initial principal balances as set forth below: INITIAL TRANCHE PRINCIPAL PASS-THROUGH CLASS TYPE(1) BALANCE RATE -------------------------------------------------------------------- [A-1] Senior Seq $__________ [____%] Libor + [A-2] Senior Floater $__________ [___%](2)(3) 1. Tranche types are as follows: "Senior" means a class which is not subordinate to any other class; "Seq" means a class in a series of sequential-pay classes; "Floater" means a class having an adjustable interest rate. 2. Subject to a cap on the pass-through rate. 3. Subject to an increase in the pass-through rate on the payment date immediately following the month in which the clean-up-call may first be exercised. The Trust will also issue one or more classes of subordinate certificates which are not being offered in this prospectus supplement. The subordinate certificates will be retained initially by the Sponsor or its affiliates. The subordinate certificates are subordinate to all classes of Class [A] Certificates, and essentially represent the excess of the aggregate mortgage loan balance over the aggregate principal balance of the Class [A] Certificates, together with any excess cashflow which is not required to be applied to payments on the Class [A] Certificates. S-6 7 The Class [A] Certificates will initially be issued in book-entry form through DTC, Cedelbank or Euroclear. We refer you to "Description of the Certificates--Book-Entry Registration of the Certificates" herein, and "Description of the Certificates--Book-Entry Registration" in the prospectus for more detail. INITIAL CUT-OFF DATE As of the opening of business on [______, ____]. STATISTICAL CALCULATION DATE As of the opening of business on [_________, ____]. CLOSING DATE On or about __________, ____. FINAL SCHEDULED PAYMENT DATES The final scheduled payment dates for each of the classes are as follows, although it is anticipated that the actual final payment date for each class will occur earlier than the final scheduled payment date set forth below. We refer you to "Prepayment and Yield Considerations" herein for more detail. Final Scheduled Class Payment Date ------- --------------- [A-1] [_______, ____] [A-2] [_______, ____] MORTGAGE LOANS THE SPONSOR Advanta Conduit Receivables, Inc. acquired or will acquire all of the mortgage loans to be conveyed to the Trust from either affiliated originators or unaffiliated originators. See "The Portfolios of Mortgage Loans" in this prospectus supplement. MASTER SERVICER Advanta Mortgage Corp. USA will act as the Master Servicer for the mortgage loans. The Master Servicer is entitled to retain an annual servicing fee, payable monthly, of 0.50% of the total principal balance of the mortgage loans owned by the Trust. The Master Servicer must advance delinquent payments of interest on the mortgage loans, subject to certain limitations. See "The Pooling and Servicing Agreement--Delinquency Advances, Compensating Interest and Servicing Advances" in this prospectus supplement. Advanta Mortgage Corp. USA may use one or more sub-servicers, which may be affiliates, to carry out its obligations as Master Servicer. MORTGAGE LOAN DATA The mortgage loans owned by the Trust will be segregated into two groups, one of which consists of fixed rate mortgage loans and the other one of which consists of adjustable rate mortgage loans. The fixed rate group will consist of first or junior lien residential mortgage loans and the adjustable rate or "ARM" group will consist of first lien residential mortgage loans. The statistical information presented in this prospectus supplement concerning the mortgage loans in each group is given as of the opening of business on [________, ____]. The actual mortgage loans in each group as of the closing date, which will be on or about [_______, ____], will represent approximately $350,000,000 in the fixed rate group, and approximately [$___________] in the ARM group, respectively. It is anticipated that as of the end of the pre-funding period, there will be approximately [$__________] of mortgage loans in the fixed rate group and approximately [$__________] of mortgage loans in the ARM group. The additional mortgage loans reflected as of the end of the pre-funding period represent subsequent mortgage loans which will be acquired by the Trust in exchange for funds in the pre-funding account. S-7 8 Some mortgage loans included in the statistical information presented here may prepay in full, or may be determined not to meet the eligibility requirements for inclusion in the respective mortgage loan group and as a result may not be included in the final groups. In addition, some amortization of the mortgage loans will occur between [_________, ____] and [________, ____]. The final group of mortgage loans that the Sponsor will sell to the Trust will include mortgage loans which were originated between [________, ____] and [_________, ____]. As a result of the foregoing, the statistical distribution of mortgage loan characteristics of the Trust as of the [__________, ____] cut-off date will vary somewhat from those presented in this prospectus supplement, although such variance is not expected to be material. As of [___________, ____], the mortgage loans in the fixed rate group had the following characteristics: Number of Mortgage Loans [______] Aggregate Principal Balance [$__________] Average Principal Balance [$________] to Range of Principal Balances [$__________] Weighted Average Mortgage Interest Rate [____%] Range of Mortgage Interest Rates [____%] to [____%] Weighted Average Original Term (months) [__________] Weighted Average Remaining Term (months) [__________] As of February 1, 1999, the mortgage loans in the ARM group had the following characteristics: Number of Mortgage Loans [___________] Aggregate Principal Balance [$__________] Average Principal Balance [$__________] [$________] to Range of Principal Balances [$__________] Weighted Average Mortgage Interest Rate [____%] Range of Maximum Mortgage Interest Rates [____%] to [____%] Weighted Average Maximum Mortgage Interest Rate [____%] Range of Minimum Mortgage Interest Rates [____% to [____%] Weighted Average Minimum Mortgage Interest Rate [____%] Weighted Average Original Term (months) [____] Weighted Average Remaining Term (months) [____] See "The Mortgage Loans" in this prospectus supplement. PRE-FUNDING ACCOUNT FEATURE The Trust may purchase additional mortgage loans on or before [______, ____], subject to certain conditions described herein, for inclusion in either the fixed rate group or the ARM group. At the closing, the Trustee will hold in trust, from the proceeds of the sale of the Class [A] Certificates, up to approximately [$___________], which may be applied to the purchase of additional fixed rate mortgage loans for inclusion in the fixed rate group, and up to approximately [$___________], which may be applied to the purchase of additional adjustable rate mortgage loans for inclusion in the ARM group. In addition, the Sponsor will also be required to fund certain other accounts relating to the payment of interest during the pre-funding period. See "Description of the Certificates--Pre-Funding Account Feature" in this prospectus supplement. S-8 9 DISTRIBUTIONS Owners of Class [A] Certificates will be entitled to receive payments of interest each month. Owners of Class [A] Certificates may not necessarily receive a distribution of principal in any given month. The amount of principal the owners of Class [A] Certificates will be entitled to receive will vary depending on a number of factors, including the payments received on the underlying mortgage loans in the related mortgage loan group. Each month, the Trustee will calculate the amounts to be paid to the owners of the Class [A] Certificates. Distributions will be made on each payment date to the owners of the Class [A] Certificates as of the related record date. The record date for a payment date is the last day of the prior calendar month for Class [A-1]; for Class [A-2], the record date is the business day immediately preceding the payment date. Owners of Class [A] Certificates will receive payments on the 25th day of each month, or, if such day is not a business day, then on the next succeeding business day. The first payment date is ________, ____. In summary, on each payment date the funds available to be distributed will be applied in the following order of priority: o first, to pay certain fees, such as fees payable to the Master Servicer, the Trustee and the Certificate Insurer; o second, to pay interest on the Class [A] Certificates; o third, to pay principal of the Class [A] Certificates in accordance with the priorities set forth herein; o fourth, to reimburse the Certificate Insurer; o fifth, to reimburse the Master Servicer for prior unreimbursed advances and/or other expenses; and o sixth, to make a distribution to the owners of the subordinate certificates which will be used to pay supplemental interest amounts, if any, subject to certain limitations. The cashflows from the two mortgage loan groups are cross-collateralized, although the Class [A] Certificates related to a mortgage loan group will generally amortize in accordance with the amortization of the mortgage loans contained in the related mortgage loan group. CREDIT ENHANCEMENT Credit enhancement refers to a mechanism that is intended to protect the owners of the Class [A] Certificates against losses due to defaults on the underlying mortgage loans. The Class [A] Certificates have the benefit of the following four types of credit enhancement: o THE USE OF EXCESS INTEREST TO COVER LOSSES AND TO DISTRIBUTE PRINCIPAL IN ORDER TO CREATE OVERCOLLATERALIZATION; o THE SUBORDINATION OF DISTRIBUTIONS ON THE SUBORDINATE CERTIFICATES TO THE REQUIRED DISTRIBUTIONS ON THE CLASS [A] CERTIFICATES; o THE ALLOCATION OF LOSSES ON THE UNDERLYING MORTGAGE LOANS TO THE SUBORDINATE CERTIFICATES; AND o THE CERTIFICATE INSURANCE POLICY. S-9 10 OPTIONAL REDEMPTION On any date when the outstanding principal balance of the mortgage loans (calculated as of the date the Trust acquired the related mortgaged loans) is less than or equal to 10% of the outstanding principal balance of all of the mortgage loans acquired by the Trust prior to the end of the pre-funding period, either the Master Servicer or the majority owners of one of the classes of the subordinate certificates then outstanding, acting directly or through one or more affiliates, will have the right to exercise a clean-up call, which will terminate the Trust on a subsequent payment date. In the event that the Master Servicer or the majority holders of one of the classes of subordinate certificates do not exercise such option, the certificate insurer shall be entitled to do so in accordance with the terms of the Pooling and Servicing Agreement. The clean-up call will be effected by a purchase from the Trust of all remaining mortgage loans which will generate proceeds sufficient to pay the then-outstanding amount of the Class [A] Certificates (plus interest), and will result in the redemption of the Class [A] Certificates. MANDATORY REDEMPTION The Class [A] Certificates will be redeemed in part in sequential order on the payment date immediately following the end of the pre-funding period to the extent of any cash remaining in the pre-funding account on such payment date after the purchase by the Trust of all subsequent mortgage loans, pursuant to the pre-funding feature. See "Description of the Certificates--Mandatory Redemption" in this prospectus supplement. DENOMINATIONS The Trust will issue the Class [A] Certificates in book-entry form in integral multiples of $1,000. RATINGS Before the Class [A] Certificates can be issued, the Trust must obtain the security ratings set out below from [Rating Agency/Agencies]: [Rating Agency] [Rating Agency] --------------- --------------- [Rating] [Rating] A security rating is not a recommendation to buy, sell or hold securities, and may be subject to revision or withdrawal at any time by a rating agency. We refer you to "Prepayment and Yield Considerations" and "Ratings" in this prospectus supplement for more detail. RISK FACTORS For a discussion of other risk factors that should be considered by prospective investors in the Class [A] Certificates, we refer you to "Risk Factors" in this prospectus supplement and in the accompanying prospectus. FEDERAL TAX ASPECTS Dewey Ballantine LLP acted as counsel to the Trust and is of the opinion that: o THE TRUST WILL BE TREATED AS A REAL ESTATE MORTGAGE INVESTMENT CONDUIT, OR REMIC, FOR FEDERAL INCOME TAX PURPOSES. o THE CLASS [A] CERTIFICATES WILL BE "REGULAR INTERESTS" IN THE REMIC AND WILL BE TREATED AS DEBT INSTRUMENTS OF THE REMIC FOR FEDERAL INCOME TAX PURPOSES. WE REFER YOU TO "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT FOR MORE DETAIL. S-10 11 ERISA CONSIDERATIONS Subject to certain considerations discussed in this prospectus supplement, the Class [A] Certificates may be purchased by pension, profit-sharing and other employee benefit plans subject to the Employee Retirement Income Security Act of 1974, as amended. We refer you to "ERISA Considerations" in this prospectus supplement and in the prospectus for more detail. LEGAL INVESTMENT CONSIDERATIONS The Secondary Mortgage Market Enhancement Act of 1984 defines "mortgage related securities" to include only first lien mortgages, and not junior lien mortgages. The Class [A] Certificates will not be "mortgage related securities" under that definition. Some institutions may be limited in their legal investment authority to only first-lien mortgages or "mortgage related securities" and will not be able to invest in the Class [A] Certificates. S-11 12 RISK FACTORS You should consider the following risk factors prior to any purchase of any of the Class [A] Certificates. You should also consider the information under the "Risk Factors" in the accompanying prospectus. UNDERWRITING STANDARDS The Sponsor's underwriting standards generally are less stringent than those of the Federal National Mortgage Association or Federal Home Loan Mortgage Corporation. The mortgage loans included in the Trust have been made to borrowers that typically have limited access to traditional mortgage financing for a variety of reasons, such as impaired past credit experience, limited credit history, insufficient home equity value, or a high level of debt-to-income ratio. As a result of this approach to underwriting, the mortgage loans may experience higher rates of delinquencies, defaults and foreclosures than mortgage loans underwritten in accordance with the Federal National Mortgage Association or Federal Home Loan Mortgage Corporation's guidelines. In addition, the Sponsor's mortgage loan program includes the purchase of mortgage loans from unaffiliated parties. These mortgage loans may have been originated pursuant to underwriting guidelines which are different from the Sponsor's underwriting guidelines. In connection with these purchases, it is the Sponsor's policy to re-underwrite the related loans to evaluate the terms of those other underlying guidelines and the frequency of exceptions to those guidelines. The Sponsor would typically re-underwrite only a sample, and not 100% of such purchased loans. As a result of such differing underwriting guidelines, these purchased mortgage loans may experience higher rates of delinquencies, defaults and foreclosures than mortgage loans underwritten in accordance with the Sponsor's guidelines. THE MORTGAGE LOANS MAY The underlying mortgage loans can be prepaid at any PREPAY AT ANY TIME, time by the borrowers. The rate of prepayment on the RESULTING IN UNCERTAINTY mortgage loans will affect the amortization rate of AS TO THE AMORTIZATION the Class [A] Certificates, as well as their weighted RATE OF THE CLASS [A] average lives. Certain of the mortgage loans may be CERTIFICATES prepaid in whole or in part at any time without penalty. In addition, a substantial portion of the mortgage loans contain due-on-sale provisions which, if enforced by the Master Servicer, will result in the prepayment of such mortgage loans. We refer you to "Prepayment and Yield Considerations" herein and "Certain Legal Aspects of Mortgage Loans and Related Matters--Enforcement of the Note" in the Prospectus for more detail. The underlying mortgage loans in the fixed rate group are all fixed rate loans. The rate of prepayments on fixed-rate mortgage loans is sensitive to prevailing interest rates. Generally, if prevailing interest rates fall significantly below the interest rates on the mortgage loans, the mortgage loans are likely to be subject to higher prepayment rates than if prevailing rates remain at or above the interest rates on the underlying mortgage loans. Conversely, if prevailing interest rates rise significantly above the interest rates on the mortgage loans, the rate of S-12 13 prepayments is likely to decrease. The weighted average lives of the Class [A] Certificates and, if purchased at other than par, the yields realized by owners of the Class [A] Certificates will be sensitive to rates of payment of principal (including prepayments) on the underlying mortgage loans. In general, the yield on a Class [A] Certificate that is purchased at a premium from its outstanding principal amount may be adversely affected by higher than anticipated levels of prepayments of the underlying mortgage loans. Conversely, the yield on a Class [A] Certificate that is purchased at a discount from its outstanding principal amount may be adversely affected by lower than anticipated levels of prepayments of the underlying mortgage loans. The underlying mortgage loans in the ARM group are all adjustable rate loans, including hybrid ARMs ("Hybrid ARMs" being loans which have a fixed rate of interest for the first two years ("2/28 Loans"), three years ("3/27 Loans") or five years ("5/25 Loans"), which fixed rate then converts to an adjustable rate). The prepayment experience on the adjustable rate loans, including the 2/28 Loans, the 3/27 Loans and the 5/25 Loans may differ from the prepayment experience on fixed rate loans due to provisions which provide for adjustment to an adjustable interest rate and related monthly payment and the applicable periodic reset caps and maximum rates. In particular, the 2/28 Loans, the 3/27 Loans and the 5/25 Loans may be subject to higher prepayment rates as they approach their initial coupon change dates. RISK OF JUNIOR MORTGAGES Mortgage loans that are secured by junior mortgages will receive proceeds from the sale of the related mortgaged property only after any senior mortgage loans and prior statutory liens have been paid. If the remaining proceeds are insufficient to satisfy the outstanding balance of the junior mortgage loan, and if the Certificate Insurer fails to perform its obligations under its insurance policy, then: o THERE MAY BE A DELAY IN DISTRIBUTIONS TO THE OWNERS OF THE CLASS [A] CERTIFICATES IF A DEFICIENCY JUDGMENT AGAINST THE BORROWER IS SOUGHT. o OWNERS OF CLASS [A] CERTIFICATES MAY INCUR A LOSS IF A DEFICIENCY JUDGMENT CANNOT BE OBTAINED. We refer you to "The Pooling and Servicing Agreement" in the prospectus for more detail. Junior mortgages are also more sensitive to a decline in the value of a property and could cause the value of the Trust's interest in the underlying mortgaged property to be reduced or extinguished. NATURE AND VALUE OF The combined loan-to-value ratios and loan-to-value COLLATERAL ratios described herein were calculated based upon the appraised values of the related mortgaged properties at the time of origination. In general, for purchase money loans, the combined loan-to-value ratios and loan-to-value ratios were calculated using the lower of the purchase price or appraised S-13 14 values of the related mortgaged properties at the time of origination. No assurance can be given that such appraised values of the mortgaged properties have remained or will remain at such values. If property values decline such that outstanding balances of the mortgage loans, together with the outstanding balances of any first lien, become equal to or greater than the value of the mortgaged properties, the actual rates of delinquencies, foreclosures and losses could be higher than those heretofore experienced by the Master Servicer. THE MORTGAGE LOANS ARE Many state and federal laws, public policy and HIGHLY REGULATED, AND general principles of equity relating to the THIS REGULATION MAY protection of consumers, unfair and deceptive IMPEDE COLLECTIONS practices and debt collection practices may apply to the origination, servicing and collection of the mortgage loans. Depending on the provisions of the applicable law and the specific facts and circumstances involved, violations of these laws, policies and principles may limit the ability of the Trust to collect all or part of the principal of or interest on the underlying mortgage loans. Such violations may entitle the mortgagor to a refund of amounts previously paid and, in addition, could subject the Master Servicer to damages and administrative enforcement. We refer you to "Certain Legal Aspects of the Mortgage Loans" in the Prospectus for more detail. RATINGS OF CLASS [A] The ratings assigned to the Class [A] Certificates by CERTIFICATES; CERTIFICATE the rating agencies will be based on the credit and INSURER DEFAULT other characteristics of the underlying mortgage loans and on the respective ratings assigned to the financial strength of the Certificate Insurer. Any reduction in the ratings so assigned to the Certificate Insurer by the rating agencies could result in the reduction of the ratings assigned to the Class [A] Certificates. Any such reduction in the ratings assigned to the Class [A] Certificates could adversely affect the liquidity and market value of the Class [A] Certificates. In the event of a default by the Certificate Insurer at a time when the overcollateralization is exhausted, the owners of the Class [A] Certificates are likely to experience losses. CLASS [A-2] CERTIFICATES. The Class [A-2] Certificates have a pass-through rate based on one-month LIBOR, subject to the ARM Group Available Funds Cap Rate (as defined herein). The mortgage loans in the ARM Group consist of mortgage loans having interest rates based upon six-month LIBOR and on the constant maturity treasury, each quoted as described under "The Mortgage Loans--ARM Group", as well as some 2/28 Loans, some 3/27 Loans and some 5/25 Loans. Since the indexes and rate adjustment dates on the mortgage loans in the ARM group differ from the pass-through rate on the Class [A-2] Certificates, the weighted-average interest rate on the mortgage loans in the ARM group could be reduced to a level such that the pass-through rate on such Class [A-2] Certificates may be limited by the ARM Group Available Funds Cap Rate. NON-OWNER OCCUPIED As of [________, ____], non-owner occupied properties PROPERTIES represent [____%] of the underlying mortgage loans in the fixed rate group and [____%] of the underlying mortgage loans in the ARM Group (by S-14 15 aggregate principal balance). It is possible that the rate of delinquencies, foreclosures and losses on mortgage loans secured by non-owner occupied properties could be higher than for loans secured by the primary residence of the mortgagor. MANDATORY REDEMPTION Owners of the Class [A] Certificates should be aware that in the event that the Sponsor does not have enough subsequent mortgage loans to sell to the Trust on or before the end of the pre-funding period with respect to either the fixed rate group or the ARM group pursuant to the pre-funding feature, owners of the Class [A] Certificates will receive a prepayment of principal on the Payment Date immediately following the end of the pre-funding period. Although no assurance can be given, the Sponsor expects that the principal amount of subsequent mortgage loans sold to the Trust will require substantially all cash on deposit in the pre-funding account with respect to the fixed rate group and the ARM group and that there will be no material principal prepayment to the owners of the Class [A] Certificates. ELIGIBILITY OF SUBSEQUENT Each subsequent mortgage loan must satisfy certain MORTGAGE LOANS eligibility criteria at the time of its acquisition by the Trust pursuant to the pre-funding feature. However, subsequent mortgage loans may have been originated or purchased using credit criteria different from those which were applied to the mortgage loans initially conveyed on the Closing Date, and may be of a different credit quality. Therefore, following the transfer of subsequent mortgage loans, the aggregate characteristics of the mortgage loans then held in the Trust may vary from those initially conveyed, but such variance is not expected to be material. See "The Mortgage Loans" in this prospectus supplement. S-15 16 EFFECT OF SOCIAL, The ability of the Trust to purchase subsequent ECONOMIC AND OTHER mortgage loans pursuant to the pre-funding feature FACTORS ON THE depends to some degree upon whether such subsequent ABILITY TO PURCHASE mortgage loans satisfy the eligibility requirements SUBSEQUENT MORTGAGE for inclusion in the Trust. The satisfaction of such LOANS eligibility requirements may be affected by a variety of social and economic factors including interest rates, unemployment levels, the rate of inflation and consumers' general perception of economic conditions. If such factors prevent underlying mortgagors from performing their obligations in respect of such mortgage loans or otherwise cause such mortgage loans to fail to satisfy the eligibility requirements, the related mortgage loans will not be eligible for inclusion in the Trust. The Sponsor is unable to determine and has no basis to predict whether or to what extent economic or social factors will affect the availability of subsequent mortgage loans for inclusion in the Trust. LIMITATIONS ON Generally, under the terms of the Soldiers' and INTEREST PAYMENTS Sailors' Civil Relief Act of 1940, as amended (the AND FORECLOSURES "Relief Act"), or similar state legislation, a mortgagor who enters military service after the origination of the related mortgage loan (including a mortgagor who is a member of the National Guard or is in reserve status at the time of the origination of the Mortgage Loan and is later called to active duty) may not be charged interest (including fees and charges) above an annual rate of 6% during the period of such mortgagor's active duty status, unless a court orders otherwise upon application of the lender. It is possible that such action could have an effect, for an indeterminate period of time, on the ability of the Master Servicer to collect full amounts of interest on certain of the mortgage loans. In addition, the Relief Act imposes limitations that would impair the ability of the Master Servicer to foreclose on an affected mortgage loan during the mortgagor's period of active duty status. Thus, in the event that such a mortgage loan goes into default, there may be delays and losses experienced by the owners of the Class [A] Certificates due to the inability to realize upon the mortgaged property in a timely fashion. The Certificate Insurance Policy does not cover any shortfalls in interest due to the application of the Relief Act nor is the Master Servicer required to pay compensating interest or make advances due to the application of the Relief Act. S-16 17 [YEAR 2000 ISSUE] [Many existing computer programs use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results on or after January 1, 2000 (the "Year 2000 Issue"). In connection with this issue Advanta Corp., the parent company of the affiliated originators and of the Master Servicer, has completed an evaluation of its systems, applications and vendor lists, and is implementing project plans to modify existing computer programs, convert to new programs or replace systems, to the extent necessary to address the upcoming change in the century. Advanta Corp. has identified its significant business relationships, including, without limitation, vendors, customers, asset management counterparties and funding counterparties. Advanta Corp. has initiated communications with these third parties to determine the extent to which Advanta Corp. is vulnerable to such third parties' failure to remediate their own Year 2000 Issues. In the event that Advanta Corp.'s project plans are not timely or successfully completed, there can be no assurance that the upcoming change in the century will not have a material adverse effect on the operations of the affiliated originators or of the Master Servicer, including a shut-down of operations for a period of time, which may, in turn, have a material adverse effect on the Class [A] Certificates. In addition, there can be no assurance that the systems used by outside service providers, including sub-servicers providing services to the Master Servicer, or other third parties upon which the affiliated originators' and the Master Servicer's systems rely, will be converted on a timely basis. Further, there can be no assurance that a failure to convert by another company, or a conversion that is incompatible with the affiliated originators' and the Master Servicer's systems, would not have a material adverse effect on their operations, which may, in turn, have a material adverse effect on the Class [A] Certificates. In the event that the systems or programs of the Trustee, or the Certificate Issuer are not Year 2000 compliant, there can be no assurance that there would not be a material adverse effect on the operations of the Trustee or the Certificate Insurer, respectively, which may, in turn, have a material adverse effect on the Class [A] Certificates.] [DTC AND THE YEAR 2000 [The management of the Depository Trust Company ISSUE] ("DTC") is aware that some computer applications, systems and the like for processing data that are dependant upon calendar dates, including dates before, on and after January 1, 2000, may encounter Year 2000 Issues. DTC has informed its participants and members of the financial community that it has developed and is implementing a program so that its systems, as the same relate to the timely payment of distributions (including principal and interest payments) to securityholders, book-entry deliveries, and settlement of trades within DTC continue to function appropriately on and after January 1, 2000. This program includes a technical assessment and a remediation plan, each of which is complete. Additionally, DTC's plan includes a testing phase, which is expected to be completed within appropriate time frames. S-17 18 However, DTC's ability to perform properly its services is also dependent upon other parties, including, but not limited to, issuers, their agents and its participating organizations (through which the owners of the Class [A] Certificates will hold their certificates) as well as third party vendors on whom DTC relies for information or the provision of services, including telecommunication and electrical utility service providers among others. DTC has informed the financial community that it is contacting (and will continue to contact) third party vendors from whom DTC acquires services to: (i) impress upon them the importance of such services being Year 2000 compliant and (ii) determine the extent of their efforts for Year 2000 remediation (and, as appropriate, testing) of their services. In addition, DTC has stated that it is in the process of developing such contingency plans as it deems appropriate. If problems associated with the Year 2000 Issue were to occur with respect to DTC and the services described above, distributions to the owners of Class [A] Certificates could be delayed or otherwise adversely affected. According to DTC, the foregoing information with respect to DTC has been provided to the financial community for information purposes only and is not intended to serve as a representation, warranty or contract modification of any kind.] THE PORTFOLIO OF MORTGAGE LOANS Each group of mortgage loans conveyed to the Trust (each such loan, a "Mortgage Loan", and each such group, a "Mortgage Loan Group" or a "Group") includes loans which were either originated directly by certain originators affiliated with the Sponsor (the "Affiliated Originators") or purchased by the Affiliated Originators from others on a loan-by-loan basis and in either case acquired by the Sponsor. The Sponsor also acquires loans from unaffiliated originators (the "Unaffiliated Originators") in long-term commitments from Conduit Participants (as defined in the Prospectus). Such loans are originated by Unaffiliated Originators either directly or purchased by the Unaffiliated Originators from others on a loan-by-loan basis or in bulk purchases (with an Affiliated Originator and an Unaffiliated Originator each being referred to herein as an "Originator"). The Affiliated Originators are Advanta Mortgage Corp. USA, Advanta National Bank, Advanta Bank Corp., Advanta Mortgage Corp. Midatlantic, Advanta Mortgage Corp. Midatlantic II, Advanta Mortgage Corp. Midwest, Advanta Mortgage Corp. of New Jersey, Advanta Mortgage Corp. Northeast and Advanta Finance Corp. All of the Mortgage Loans purchased by the Sponsor from the Unaffiliated Originators were originated in accordance with the Sponsor's underwriting guidelines for Unaffiliated Originators. See "Mortgage Loan Program--Underwriting Guidelines" in the Prospectus. DELINQUENCIES Owned and Managed Servicing Portfolio. The following tables set forth information relating to the delinquency, loan loss and foreclosure experience of the Master Servicer for its servicing portfolio, excluding certain loans serviced by the Master Servicer that were not S-18 19 originated or purchased and reunderwritten by the Sponsor or its Affiliated Originators (the "Owned and Managed Servicing Portfolio"), of fixed and adjustable rate mortgage loans as of [_________, ____], and for each of the three prior year ends. The Owned and Managed Servicing Portfolio includes, but is not limited to, the Mortgage Loans originated or purchased on or prior to [____________, ____]. In addition to the Owned and Managed Servicing Portfolio, the Master Servicer serviced, as of [__________, ____], approximately [_______] mortgage loans with an aggregate principal balance as of such date of approximately [$________]; such loans were not originated or purchased by the Sponsor or its Affiliated Originators but are being serviced for third parties on a contract servicing basis (the "Third-Party Servicing Portfolio"). No loans in the Third-Party Servicing Portfolio are included in the tables set forth below. DELINQUENCY AND FORECLOSURE EXPERIENCE OF THE MASTER SERVICER'S OWNED AND MANAGED SERVICING PORTFOLIO OF MORTGAGE LOANS
YEAR ENDING DECEMBER 31, -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT LOANS (000) LOANS (000) LOANS (000) LOANS (000) ------ ------ ------ ------ ------ ------ ------ ------ Portfolio Delinquency percentage(1) 30-59 days 60-89 days 90 days or more Total Foreclosure rate(2) REO properties(3)
- -------------------- (1) The period of delinquency is based on the number of days payments are contractually past due. The delinquency statistics for the period exclude loans in foreclosure. (2) "Foreclosure Rate" is the number of mortgage loans or the dollar amount of mortgage loans in foreclosure as a percentage of the total number of mortgage loans or the dollar amount of mortgage loans, as the case may be, as of the date indicated. (3) REO Properties (i.e., "real estate owned" properties -- properties relating to foreclosed mortgages or for which deeds in lieu of foreclosure have been accepted, and held by the Master Servicer pending disposition) percentages are calculated using the number of loans, not the dollar amount. S-19 20 LOAN LOSS EXPERIENCE OF THE MASTER SERVICER'S OWNED AND MANAGED SERVICING PORTFOLIO OF MORTGAGE LOANS
YEAR ENDING DECEMBER 31, -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) -------------------------------------------------------------------------------- Average amount outstanding(1) Gross losses(2) Recoveries(3) Net losses(4) Net losses as a percentage of average amount outstanding
- -------------------- (1) "Average Amount Outstanding" during the period is the arithmetic average of the principal balances of the mortgage loans outstanding on the last business day of each month during the period. (2) "Gross Losses" are amounts relating to mortgage loans which have been determined by the Master Servicer to be uncollectible for each respective period. (3) "Recoveries" are amounts received by the Master Servicer as recoveries from liquidation proceeds and deficiency judgments. (4) "Net Losses" represents "Gross Losses" minus "Recoveries". THE MORTGAGE LOANS GENERAL The Mortgage Loans will be predominantly used to refinance an existing mortgage loan on more favorable terms, to consolidate debt, or to obtain cash proceeds by borrowing against the related borrower's (the "Mortgagor") equity in the real property and improvements pledged to secure the related Mortgage Loan (the "Mortgaged Property"). The Mortgage Loans to be sold by the Sponsor to the Trust consisted, as of the Statistical Calculation Date, of loans evidenced by promissory notes (the "Notes") secured by Mortgages on the Mortgaged Properties, which are located in [___]states [and the District of Columbia]. The Mortgaged Properties securing the Mortgage Loans consist primarily of single-family residences (which may be detached, part of a two- to four-family dwelling, a condominium unit or a unit in a planned unit development). The Mortgaged Properties may be owner-occupied (which includes second and vacation homes) and non-owner occupied investment properties. The Mortgage Loans will be required to satisfy the following criteria as of the opening of business on [_________, ____] (the "Initial Cut-Off Date"): have remaining terms to maturity of not greater than 30 years; will not be 30 or more days delinquent (except that certain Mortgage Loans, representing in the aggregate not in excess of [____%] of the aggregate principal balance of all Mortgage Loans as of the Initial Cut-Off Date, may be 30-59 days delinquent). Neither the Sponsor nor the Master Servicer have reason to believe that the delinquency and loss experience of the Mortgage Loans will differ in any material respect from that of the Master Servicer's Owned and Managed Servicing Portfolio, although there can be no assurance that this will be the case. S-20 21 Less than [____%] of the Mortgage Loans (as a percentage of the aggregate principal balance of all Mortgage Loans as of the Statistical Calculation Date) are "simple interest" or "date of payment" loans, with the remainder being "actuarial" or "pre-computed" loans. A "simple interest" loan provides that interest which has accrued to date is paid first and the remaining payment is applied to reduce the unpaid principal balance. An "actuarial" loan provides for amortization of the loan over a series of fixed level monthly installments. Each Mortgage Loan in the Trust will be assigned to one of two mortgage loan groups (the "Fixed Rate Group" or the "ARM Group"). Each of the Mortgage Loans contained in the Fixed Rate Group will be a fixed-rate loan secured by a mortgage having either a first or junior lien position with respect to the related Mortgaged Property. The Mortgage Loans contained in the ARM Group will be an adjustable rate loan secured by a mortgage having a first lien position with respect to the related Mortgaged Property. The Class [A-1] Certificates (the "Class A Fixed Rate Group Certificates") represent undivided ownership interests in all Mortgage Loans contained or to be contained in the Fixed Rate Group, and the Class [A-2] Certificates (sometimes referred to as the "[Class A] ARM Group Certificates") represent undivided ownership interests in all Mortgage Loans contained or to be contained in the ARM Group. As of the Statistical Calculation Date, [____%] of the Mortgage Loans in both Groups (as a percentage of the aggregate principal balance of all Mortgage Loans on such date) are secured by first lien mortgages on the related Mortgaged Properties ("Senior Loans"), and [____%] of the Mortgage Loans in both Groups (as a percentage of the aggregate principal balance of all Mortgage Loans on such date) are secured by junior liens on the related Mortgaged Properties ("Junior Loans"). The combined loan-to-value ratios ("CLTVs") and loan-to-value ratios ("LTVs") described herein were calculated based upon the appraised values of the related Mortgaged Properties at the time of origination (the "Appraised Values"). In general, for purchase money loans, the CLTVs and LTVs were calculated using the lower of the purchase price or appraised values of the related Mortgaged Properties at the time of origination. No assurance can be given that such appraised values of the Mortgaged Properties have remained or will remain at such values. If property values decline such that the outstanding balances of the Mortgage Loans, together with the outstanding balances of any first lien, become equal to or greater than the value of the Mortgaged Properties, the actual rates of delinquencies, foreclosures and losses could be higher than those previously experienced by the Master Servicer, as set forth above under "The Portfolio of Mortgage Loans," and in the mortgage lending industry. Difference between Statistical Calculation Date; Closing Date and Final Groups. The statistical information presented in this Prospectus Supplement is based on the Mortgage Loans computed as of the opening of business on [________, ____] (the "Statistical Calculation Date"). As of the Statistical Calculation Date, the Mortgage Loans aggregated [$_____________] with respect to the Fixed Rate Group and [$__________] with respect to the ARM Group. The Sponsor expects that the actual aggregate principal balance of the Mortgage Loans to be sold to the Trust on the Closing Date (the "Initial Mortgage Loans"), as of the Initial Cut-Off Date, plus the aggregate principal balance of the Mortgage Loans (the "Subsequent Mortgage Loans") to be conveyed to the Trust during the period (the "Pre-Funding Period") from the Closing Date until the earlier of (i) the date on which the amount on deposit in the related Pre-Funding Account is less than $100,000 or (ii) [_________, ____] or (iii) the occurrence of an event of default as specified in the Pooling and Servicing Agreement, as of the end of the Pre-Funding Period will represent approximately [__________] in Mortgage Loans in the Fixed Rate Group and approximately [$____________] in Mortgage Loans in the ARM Group. The additional Mortgage Loans reflected as of the end of the Pre-Funding Period represent S-21 22 Subsequent Mortgage Loans which will be acquired by the Trust in exchange for funds in the related Pre-Funding Account (as defined herein). In addition, with respect to the Mortgage Loans as of the Statistical Calculation Date, some amortization of the Mortgage Loans will occur prior to the Closing Date. Moreover, certain Mortgage Loans as of the Statistical Calculation Date may prepay in full or may be determined not to meet the eligibility requirements for the final Mortgage Loan Groups and as a result may not be included in the final Mortgage Loan Groups. As a result of the foregoing, the statistical distribution of characteristics as of the Closing Date or as of the end of the Pre-Funding Period for the Fixed Rate Group and the ARM Group, respectively, will vary somewhat from the statistical distribution of such characteristics computed as of the Statistical Calculation Date as presented in this Prospectus Supplement, although such variance will not be material. THE FIXED RATE GROUP The Mortgage Loans in the Fixed Rate Group as of the Statistical Calculation Date consist of [______] Mortgage Loans under which the related Mortgaged Properties are located in [___] states [and the District of Columbia,] as set forth herein; had an aggregate principal balance of [$_____________]; the minimum principal balance of any of the Mortgage Loans was [$_________]; had a maximum principal balance of [$_____________] and had an average principal balance of approximately [$____________]. The interest rates of such Mortgage Loans ranged from [_____%] to [____%] per annum, and the weighted average interest rate of such Mortgage Loans was [____%] per annum. The original term to stated maturity of the Mortgage Loans as of the Statistical Calculation Date ranged from [___] months to [___] months, the remaining term to stated maturity ranged from [___] months to [____] months, the weighted average original term to stated maturity was [____] months, the weighted average remaining term to stated maturity was [___] months and the weighted average seasoning was [___] months. [____%] of the Mortgage Loans in the Fixed Rate Group as of the Statistical Calculation Date (calculated as a percentage of aggregate principal balance of all of the Mortgage Loans in the Fixed Rate Group) require monthly payments of principal that will fully amortize the Mortgage Loans by their respective maturity dates, and [_____%] of such Mortgage Loans (calculated as a percentage of aggregate principal balance of all of the Mortgage Loans in the Fixed Rate Group) are Balloon Loans. The weighted average CLTV of the Mortgage Loans included in the Fixed Rate Group as of the Statistical Calculation Date (calculated as a percentage of aggregate principal balance of all of the Mortgage Loans in the Fixed Rate Group) was [_____%]. The weighted average LTV of the Mortgage Loans in the Fixed Rate Group as of the Statistical Calculation Date (calculated as a percentage of aggregate principal balance of all of the Mortgage Loans in the Fixed Rate Group) was [____%]. The weighted average Junior Lien Ratio (as defined below) of the Mortgage Loans in the Fixed Rate Group as of the Statistical Calculation Date was [____%]. Approximately [_____%] of the Mortgage Loans in the Fixed Rate Group as of the Statistical Calculation Date (calculated as a percentage of aggregate principal balance of all of the Mortgage Loans in the Fixed Rate Group) were secured by first lien mortgages and approximately [______%] by junior lien mortgages. The "Junior Lien Ratio" of a Mortgage Loan which is in a junior lien position is equal to the ratio (expressed as a percentage) of the original principal balance of such Mortgage Loan to the sum of (i) the original principal balance of such Mortgage Loan and (ii) the outstanding principal balance of any lien on the related Mortgaged Property having priorities senior to that of S-22 23 the lien which secures such Mortgage Loan (such lien, a "Senior Lien") at the time of origination of the Mortgage Loan. The following tables describe the Fixed Rate Group of Mortgage Loans and the related Mortgaged Properties as of the opening of business on the Statistical Calculation Date. FIXED RATE GROUP GEOGRAPHIC DISTRIBUTION
NUMBER OF AGGREGATE % OF AGGREGATE STATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ----- -------------- ----------------- ----------------- TOTAL....................... [________] [$________] 100.00% ============== ================= =================
FIXED RATE GROUP DISTRIBUTION OF CLTVS
NUMBER OF AGGREGATE % OF AGGREGATE RANGE OF CLTV RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE -------------------- -------------- ----------------- ----------------- -------------- ----------------- ----------------- TOTAL....................... [_______] [$________] 100.00% ============== ================= =================
FIXED RATE GROUP DISTRIBUTION OF LTVS
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE LTV RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ---------- -------------- ----------------- ----------------- -------------- ----------------- ----------------- TOTAL....................... [_______] [$________] 100.00% ============== ================= =================
FIXED RATE GROUP DISTRIBUTION OF JUNIOR LIEN RATIOS (JUNIOR LIENS ONLY)
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE JUNIOR LIEN RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ------------------ -------------- ----------------- ----------------- -------------- ----------------- ----------------- TOTAL....................... [_______] [$________] 100.00% ============== ================= =================
S-23 24 FIXED RATE GROUP REMAINING TERM TO MATURITY DISTRIBUTION
NUMBER OF AGGREGATE % OF AGGREGATE MONTHS REMAINING MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ---------------- -------------- ----------------- ----------------- -------------- ----------------- ----------------- TOTAL....................... [_______] [$________] 100.00% ============== ================= =================
FIXED RATE GROUP DISTRIBUTION OF PRINCIPAL BALANCES
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE PRINCIPLES BALANCES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ------------------- -------------- ----------------- ----------------- -------------- ----------------- ----------------- TOTAL....................... [_______] [$________] 100.00% ============== ================= =================
FIXED RATE GROUP DISTRIBUTION OF MORTGAGE RATES
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE -------------- -------------- ----------------- ----------------- -------------- ----------------- ----------------- TOTAL....................... [_______] [$________] 100.00% ============== ================= =================
FIXED RATE GROUP DISTRIBUTION OF PROPERTY TYPES
NUMBER OF AGGREGATE % OF AGGREGATE PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ------------- -------------- ----------------- ----------------- SF Detached/Deminimus PUD......... SF Rowhouse/Townhouse/Condo....... Two to Four Family Home........... Prefabricated Single Family....... Other............................. -------------- ----------------- ----------------- TOTAL............................. [_______] [$________] 100.00% ============== ================= =================
FIXED RATE GROUP DISTRIBUTION OF OCCUPANCY STATUS
NUMBER OF AGGREGATE % OF AGGREGATE OCCUPANCY STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ---------------- -------------- ----------------- ----------------- Owner occupied*................. Non-owner occupied.............. -------------- ----------------- ----------------- TOTAL........................... [_______] [$________] 100.00% ============== ================= =================
- ------------------ * Includes vacation and second homes. S-24 25 FIXED RATE GROUP DISTRIBUTION OF SEASONING
MONTHS ELAPSED NUMBER OF AGGREGATE % OF AGGREGATE SINCE ORIGINATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ----------------- -------------- ----------------- ----------------- -------------- ----------------- ----------------- TOTAL....................... [_______] [$________] 100.00% ============== ================= =================
CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS TO THE FIXED RATE GROUP During the Pre-Funding Period, the Trust may acquire up to approximately [$__________] aggregate principal balance of Subsequent Mortgage Loans for assignment to the Fixed Rate Group. Accordingly, the statistical characteristics of the Fixed Rate Group will vary following the acquisition by the Trust of such Subsequent Mortgage Loans. S-25 26 THE ARM GROUP The Mortgage Loans in the ARM Group as of the Statistical Calculation Date consist of [________] loans under which the related Mortgaged Properties are located in [__] states [and the District of Columbia,] as set forth herein. The Mortgage Loans in the ARM Group as of the Statistical Calculation Date had an aggregate principal balance of [$___________], the minimum principal balance of any of such Mortgage Loans was [$__________], the maximum principal balance thereof was [$________] and the average principal balance of such Mortgage Loans was approximately [$___________]. The weighted average current interest rate of the Mortgage Loans in the ARM Group as of the Statistical Calculation Date was [_____%]. The margins for the Mortgage Loans in the ARM Group as of the Statistical Calculation Date ranged from [____%] to [_____%] and the weighted average margin was [____%]. The Mortgage Loans in the ARM Group as of the Statistical Calculation Date have original terms to stated maturity from [___] months to [___] months, remaining terms to stated maturity from [___] months to [___] months, a weighted average original term to stated maturity of [___] months, a weighted average remaining term to stated maturity of [___] months and a weighted average seasoning of [____] months. No Mortgage Loan in the ARM Group as of the Statistical Calculation Date had a stated maturity later than [______________, ____]. All of the Mortgage Loans in the ARM Group as of the Statistical Calculation Date by aggregate principal balance require monthly payments of principal that will fully amortize such Mortgage Loans by their respective maturity dates. The weighted average CLTV of the Mortgage Loans included in the ARM Group as of the Statistical Calculation Date was [_____%]. All of the Mortgage Loans in the ARM Group as of the Statistical Calculation Date by aggregate principal balance were secured by first lien mortgages. [_______%] of the Mortgage Loans in the ARM Group as of the Statistical Calculation Date bear interest (in some instances, following an initial fixed-rate period) at a six-month LIBOR rate, plus a margin. [______%] are indexed on the average of the six-month LIBOR rates based on quotations at five major banks as set forth in the "Money Rates" section of The Wall Street Journal, Western Edition, on the first business day of the month; [_____%] are indexed on the average of the six-month LIBOR rates based on quotations of major banks, as published by the Federal National Mortgage Association, on the first business day of the month; [_____%] are indexed on the average of the six-month LIBOR rates based on quotations at five major banks as set forth in the "Money Rates" section of The Wall Street Journal, Western Edition, on the most recent daily quote available; [_____%] are indexed on other six-month LIBOR rates; [_____%] are indexed on the one year Constant Maturity Treasury Index published in the Wall Street Journal as a Key Interest Rate each week and [_____%] are indexed on the weekly average of one year constant maturity treasury. With respect to the hybrid ARM Mortgage Loans in the ARM Group as of the Statistical Calculation Date, [_____%] of such Mortgage Loans bear interest at a fixed rate of interest for a two-year period following origination, [_____%] of such Mortgage Loans bear interest at a fixed rate of interest for a three-year period following origination, and [_____%] of such Mortgage Loans bear interest at a fixed rate of interest for a five year period following origination; after such initial periods, such Mortgage Loans bear interest at adjustable rates, as described above. [_____%] of the loans in the ARM Group as of the Statistical Calculation Date have semi-annual interest rate and semi-annual payment adjustment frequencies. [_____%] of the S-26 27 loans in the ARM Group as of the Statistical Calculation Date have annual interest rate and annual payment adjustment frequencies. [_____%] of the Mortgage Loans in the ARM Group as of the Statistical Calculation Date have a periodic rate adjustment cap of 1%; [_____%] of such Mortgage Loans have a periodic rate adjustment cap of 1.5%; [_____%] of the Mortgage Loans in the ARM Group as of the Statistical Calculation Date have a periodic rate adjustment cap of 2% and [_____%] have other periodic rate caps. [_____%] of the Mortgage Loans in the ARM Group as of the Statistical Calculation Date have a lifetime cap of 7.00%; [_____%] have a lifetime cap of 6.50%; [______%] have a lifetime cap of 6.00%. The weighted average number of months until the next reset date is approximately [___] months. The weighted average maximum Interest rate was approximately [______%], with maximum Interest rates that range from [____%] to [_____%]. The weighted average minimum Interest rate was approximately [_____%], with minimum Interest rates that range from [____%] to [_____%]. The following tables describe the ARM Group Mortgage Loans and the related Mortgaged Properties as of the opening of business on the Statistical Calculation Date. ARM GROUP GEOGRAPHIC DISTRIBUTION
NUMBER OF AGGREGATE % OF AGGREGATE STATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ----- -------------- ----------------- ----------------- TOTAL....................... [________] [$________] 100.00% ============== ================= =================
ARM GROUP DISTRIBUTION OF CLTVS
NUMBER OF AGGREGATE % OF AGGREGATE RANGE OF CLTV RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE -------------------- -------------- ----------------- ----------------- -------------- ----------------- ----------------- TOTAL....................... [_______] [$________] 100.00% ============== ================= =================
ARM GROUP DISTRIBUTION OF LTVS
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE LTV RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ---------- -------------- ----------------- ----------------- -------------- ----------------- ----------------- TOTAL....................... [_______] [$________] 100.00% ============== ================= =================
ARM GROUP DISTRIBUTION OF CURRENT MORTGAGE RATES
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE -------------- -------------- ----------------- ----------------- -------------- ----------------- ----------------- TOTAL....................... [_______] [$________] 100.00% ============== ================= =================
S-27 28 ARM GROUP REMAINING TERM TO MATURITY DISTRIBUTION
REMAINING TERM NUMBER OF AGGREGATE % OF AGGREGATE TO MATURITY MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE -------------- -------------- ----------------- ----------------- -------------- ----------------- ----------------- TOTAL....................... [_______] [$________] 100.00% ============== ================= =================
ARM GROUP DISTRIBUTION OF PRINCIPAL BALANCES
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE PRINCIPLES BALANCES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ------------------- -------------- ----------------- ----------------- -------------- ----------------- ----------------- TOTAL....................... [_______] [$________] 100.00% ============== ================= =================
ARM GROUP DISTRIBUTION OF PROPERTY TYPES
NUMBER OF AGGREGATE % OF AGGREGATE PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ------------- -------------- ----------------- ----------------- SF Detached/Deminimus PUD......... SF Rowhouse/Townhouse/Condo....... Two to Four Family Home........... Prefabricated Single Family....... Other............................. -------------- ----------------- ----------------- TOTAL............................. [_______] [$________] 100.00% ============== ================= =================
ARM GROUP DISTRIBUTION OF OCCUPANCY STATUS
NUMBER OF AGGREGATE % OF AGGREGATE OCCUPANCY STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ---------------- -------------- ----------------- ----------------- Owner occupied*................. Non-owner occupied.............. -------------- ----------------- ----------------- TOTAL........................... [_______] [$________] 100.00% ============== ================= =================
- ------------------ * Includes vacation and second homes. ARM GROUP DISTRIBUTION OF SEASONING
MONTHS ELAPSED NUMBER OF AGGREGATE % OF AGGREGATE SINCE ORIGINATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ----------------- -------------- ----------------- ----------------- -------------- ----------------- ----------------- TOTAL....................... [_______] [$________] 100.00% ============== ================= =================
S-28 29 ARM GROUP DISTRIBUTION OF MAXIMUM MORTGAGE RATES
RANGE OF MAXIMUM NUMBER OF AGGREGATE % OF AGGREGATE MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ---------------- -------------- ----------------- ----------------- -------------- ----------------- ----------------- TOTAL....................... [_______] [$________] 100.00% ============== ================= =================
ARM GROUP DISTRIBUTION OF MINIMUM MORTGAGE RATES
RANGE OF MINIMUM NUMBER OF AGGREGATE % OF AGGREGATE MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE ---------------- -------------- ----------------- ----------------- -------------- ----------------- ----------------- TOTAL....................... [_______] [$________] 100.00% ============== ================= =================
ARM GROUP DISTRIBUTION OF MARGINS
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE MARGINS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE -------- -------------- ----------------- ----------------- -------------- ----------------- ----------------- TOTAL....................... [_______] [$________] 100.00% ============== ================= =================
ARM GROUP NEXT INTEREST ADJUSTMENT DATE DISTRIBUTION
NEXT INTEREST NUMBER OF AGGREGATE % OF AGGREGATE ADJUSTMENT DATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE --------------- -------------- ----------------- ----------------- -------------- ----------------- ----------------- TOTAL....................... [_______] [$________] 100.00% ============== ================= =================
CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS TO THE ARM GROUP During the Pre-Funding Period, the Trust may acquire up to approximately [$___________] aggregate principal balance of Subsequent Mortgage Loans for assignment to the ARM Group. Accordingly, the statistical characteristics of the ARM Group will vary following the acquisition by the Trust of such Subsequent Mortgage Loans. PREPAYMENT AND YIELD CONSIDERATIONS The weighted average life of, and, if purchased at other than par, the yield to maturity on any Class [A] Certificate will be directly related to the rate of payment of principal of the Mortgage Loans in the related Mortgage Loan Group, including for this purpose voluntary payment in whole or in part prior to stated maturity (a "Prepayment"), liquidations due to defaults, casualties and condemnations, and repurchases of Mortgage Loans by the Sponsor, the Originators or the Master Servicer. The actual rate of principal prepayments on mortgage loans is influenced by a variety of economic, tax, geographic, demographic, social, legal and other factors and has fluctuated considerably in recent years. In addition, the rate of principal prepayments S-29 30 may differ among groups of mortgage loans at any time because of specific factors relating to the mortgage loans in the particular group, including, among other things, the age of the mortgage loans, the geographic locations of the properties securing the loans and the extent of the mortgagors' equity in such properties, and changes in the mortgagors' housing needs, job transfers and unemployment. The timing of changes in the rate of prepayments may significantly affect the actual yield to investors, even if the average rate of principal prepayments is consistent with the expectations of investors. In general, the earlier the payment of principal of the Mortgage Loans the greater the effect on an investor's yield to maturity. As a result, the effect on an investor's yield of prepayments occurring at a rate higher (or lower) than the rate anticipated by the investor during the period immediately following the issuance of the Class [A] Certificates will not be offset by a subsequent like reduction (or increase) in the rate of principal prepayments. Investors must make their own decisions as to the appropriate prepayment assumptions to be used in deciding whether to purchase any of the Class [A] Certificates. The Sponsor makes no representations or warranties as to the rate of prepayment or the factors to be considered in connection with such determination. PROJECTED PREPAYMENTS AND YIELDS FOR [CLASS A] CERTIFICATES If purchased at other than par, the yield to maturity on the Class [A] Certificates will be affected by the rate of the payment of principal of the Mortgage Loans in the related Mortgage Loan Group. If the actual rate of payments on the Mortgage Loans in the related Mortgage Loan Group is slower than the rate anticipated by an investor who purchases a Class [A] Certificate of the related class at a discount, the actual yield to such investor will be lower than such investor's anticipated yield. If the actual rate of payments on the Mortgage Loans in the related Mortgage Loan Group is faster than the rate anticipated by an investor who purchases a Class [A] Certificate of the related class at a premium, the actual yield to such investor will be lower than such investor's anticipated yield. The Mortgage Loans in the Fixed Rate Group are fixed-rate mortgage loans. The rate of prepayments with respect to conventional fixed rate mortgage loans has fluctuated significantly in recent years. In general, if prevailing interest rates fall significantly below the interest rates on fixed rate mortgage loans, such mortgage loans are likely to be subject to higher prepayment rates than if prevailing rates remain at or above the interest rate on such mortgage loans. Conversely, if prevailing interest rates rise appreciably above the interest rates on fixed rate mortgage loans, such mortgage loans are likely to experience a lower prepayment rate than if prevailing rates remain at or below the interest rates on such mortgage loans. The monthly payment on mortgage loans similar to the Mortgage Loans is often smaller than the monthly payment on a purchase-money first mortgage loan. Consequently, a decrease in the interest rate payable as a result of a refinancing would result in a relatively small reduction in the amount of the Mortgagor's monthly payment, as a result of the relatively small loan balance. [__________%] of the Mortgage Loans in the Fixed Rate Group as of the Statistical Calculation Date by aggregate principal balance had prepayment penalties. All of the Mortgage Loans in the ARM Group are adjustable rate mortgage loans. As is the case with conventional fixed rate mortgage loans, adjustable rate mortgage loans may be subject to a greater rate of principal prepayments in a declining interest rate environment. For example, if prevailing interest rates fall significantly, adjustable rate mortgage loans could be subject to higher prepayment rates than if prevailing interest rates remain constant because the availability of fixed-rate mortgage loans at competitive interest rates may encourage mortgagors S-30 31 to refinance their adjustable rate mortgage loans to "lock in" a lower fixed interest rate. No assurance can be given as to the level of prepayments that the Mortgage Loans in the ARM Group will experience. [________%] of the Mortgage Loans in the ARM Group as of the Statistical Calculation Date by aggregate principal balance had prepayment penalties. The final scheduled payment dates (as set forth in the "Terms of the Class [A] Certificates and Mortgage Loans" herein) (each a "Final Scheduled Payment Date") for the Class [A-1] Certificate has been calculated assuming that each Mortgage Loan in the Fixed Rate Group amortizes according to its terms and the final scheduled payment dates for the Class [A-2] Certificate was assumed to be [____________, ____]. "Weighted average life" refers to the average amount of time that will elapse from the date of issuance of a security until each dollar of principal of such security will be repaid to the investor. The weighted average life of the Class [A] Certificates of each class will be influenced by the rate at which principal payments on the Mortgage Loans in the related Mortgage Loan Group are paid, which may be in the form of scheduled amortization, accelerated amortization or prepayments (for this purpose, the term "prepayment" includes Prepayments and liquidations due to default) or as a result of an early termination of the Trust. The model used in this Prospectus Supplement for the Class [A] Fixed Rate Group Certificates is a prepayment assumption (the "Prepayment Assumption") which represents an assumed rate of prepayment each month relative to the then outstanding principal balance of the Fixed Rate Group for the life of such mortgage loans. The "100% Prepayment Assumption" assumes a conditional prepayment rate of 3% per annum of the then outstanding principal balance of the Mortgage Loans in the first month of the life of the Mortgage Loans and an additional 1.55% (precisely, 17/11%) per annum in each month thereafter until the twelfth month. Beginning in the twelfth month and in each month thereafter during the life of the Mortgage Loans, the 100% Prepayment Assumption assumes a conditional prepayment rate of 20% per annum each month. As used in the table below, 0% Prepayment Assumption assumes prepayment rates equal to 0% of the Prepayment Assumption, i.e., no prepayments on the synthetic mortgage loans having the characteristics described below. Correspondingly, 100% Prepayment Assumption assumes prepayment rates equal to 100% of the Prepayment Assumption, and so forth. The model used in this Prospectus Supplement for the Class [A-2] Certificates represents an assumed conditional prepayment rate per annum of the then outstanding principal balance of the ARM Group for the life of such mortgage loans (the "CPR Assumption"). Neither the Prepayment Assumption nor the CPR Assumption purport to be a historical description of prepayment experience or a prediction of the anticipated rate of prepayment of any mortgage loans, including the related Mortgage Loans. The Sponsor believes that no existing statistics of which it is aware provide a reliable basis for Owners of Class [A] Certificates to predict the amount or the timing of receipt of prepayments on the Mortgage Loans. The tables below were prepared on the basis of the assumptions in the following paragraph and there are discrepancies between the characteristics of the actual Mortgage Loans and the characteristics of the Mortgage Loans assumed in preparing the tables. Any such discrepancy may have an effect upon the percentages of the initial principal balances outstanding and the weighted average lives of the Class [A] Certificates set forth in the tables. In addition, since the actual Mortgage Loans in each Mortgage Loan Group have characteristics which differ from those assumed in preparing the tables set forth below, the distributions of principal on the Class [A] Certificates may be made earlier or later than as indicated in the tables. S-31 32 For the purpose of the tables below, it is assumed that: (i) the Mortgage Loans consist of mortgage loans having the characteristics set forth below, (ii) the Closing Date is [___________, ____], (iii) distributions on the Class [A] Certificates are made on the 25th day of each month regardless of the day on which the payment actually occurs, commencing on [____________, ____] in accordance with the priorities described herein, (iv) all prepayments are prepayments in full and include 30 days' interest thereon, (v) no early termination of the Trust occurs, unless otherwise specified, (vi) no Mortgage Loan is ever delinquent, (vii) the assumed levels of one-month LIBOR, six-month LIBOR, and 1 year CMT are [________%], [____%] and [_____%], respectively, (viii) the Class [A] Certificates have the respective pass-through rates and original principal balances as set forth herein, and (ix) all of the Subsequent Mortgage Loans are delivered to the Trust approximately one month after the Closing Date. PREPAYMENT SCENARIOS
Scenario Scenario Scenario Scenario Scenario V Scenario Scenario I II III IV VI VII -------- -------- -------- -------- ---------- -------- -------- Fixed Rate Group(1).......... ARM Group(2).................
- --------------- (1) As a percentage of the Prepayment Assumption. (2) As a conditional prepayment rate (CPR) percentage. FIXED RATE GROUP REPRESENTATIVE MORTGAGE LOANS FIXED RATE GROUP INITIAL MORTGAGE LOANS
ORIGINAL AMORTIZATION REMAINING PRINCIPAL GROSS TERM TO MATURITY TERM TO MATURITY AMORTIZATION BALANCE COUPON RATE (MONTHS) (MONTHS) METHOD --------- ----------- --------------------- ---------------- ------------
FIXED RATE GROUP SUBSEQUENT MORTGAGE LOANS
ORIGINAL AMORTIZATION REMAINING PRINCIPAL GROSS TERM TO MATURITY TERM TO MATURITY AMORTIZATION BALANCE COUPON RATE (MONTHS) (MONTHS) METHOD --------- ----------- --------------------- ---------------- ------------
S-32 33 ARM GROUP REPRESENTATIVE MORTGAGE LOANS ARM GROUP INITIAL MORTGAGE LOANS
ORIGINAL REMAINING PERIODIC GROSS TERM TO TERM TO MONTHS TO PERIODIC CAP COUPON MATURITY MATURITY COUPON CAP (FIRST (SUBSEQUENT LIFE PRINCIPAL BALANCE RATE (MONTHS) (MONTHS) ADJUSTMENT INDEX MARGIN RESET DATE) RESET DATES) LIFE CAP FLOOR - ----------------- ------ -------- -------- ---------- ----- ------ ----------- ------------ -------- -----
ARM GROUP SUBSEQUENT MORTGAGE LOANS
ORIGINAL REMAINING PERIODIC GROSS TERM TO TERM TO MONTHS TO PERIODIC CAP COUPON MATURITY MATURITY COUPON CAP (FIRST (SUBSEQUENT LIFE PRINCIPAL BALANCE RATE (MONTHS) (MONTHS) ADJUSTMENT INDEX MARGIN RESET DATE) RESET DATES) LIFE CAP FLOOR - ----------------- ------ -------- -------- ---------- ----- ------ ----------- ------------ -------- -----
The following tables set forth the percentages of the initial principal amount of the Class [A] Certificates that would be outstanding after each of the dates shown, based on prepayment scenarios described in the table entitled "Prepayment Scenarios". The percentages have been rounded to the nearest 1%. PERCENTAGE OF INITIAL CLASS [A-1] CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
DATES SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5 SCENARIO 6 SCENARIO 7 ----- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Weighted Average Life (years):(1) Weighted Average Life (years):(2)
(1) To Maturity (2) To 10% Call The weighted average life of each indicated class of Class[ A] Certificates has been determined by (i) multiplying the amount of each principal payment by the number of years from the date of issuance to the related Payment Date, (ii) adding the results and (iii) dividing the sum of the initial respective principal balance for the related Class [A] Certificates as of the Closing Date. S-33 34 PERCENTAGE OF INITIAL CLASS [A-2] CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
DATES SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5 SCENARIO 6 SCENARIO 7 ----- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Weighted Average Life (years):(1) Weighted Average Life (years):(2)
(1) To Maturity (2) To 10% Call The weighted average life of each indicated class of Class [A] Certificates has been determined by (i) multiplying the amount of each principal payment by the number of years from the date of issuance to the related Payment Date, (ii) adding the results and (iii) dividing the sum of the initial respective principal balance for the related Class [A] Certificates as of the Closing Date. PAYMENT LAG FEATURE OF THE CLASS [A] FIXED RATE GROUP CERTIFICATES Pursuant to the Pooling and Servicing Agreement, interest on the Class [A] Fixed Rate Group Certificates generally accrues during the calendar month immediately preceding the month in which the related Payment Date occurs. Payment Dates occur on the 25th day of each month (or, if such day is not a business day, on the next business day). Thus, the effective yield to the Owners of the Class [A] Fixed Rate Group Certificates will be below that otherwise produced by the related Pass-Through Rate. USE OF PROCEEDS The Sponsor will cause the Trust to acquire the Mortgage Loans (other than the Subsequent Mortgage Loans) concurrently with the sale of the Class [A] Certificates. The Pre-Funding Account and the Capitalized Interest Account will be funded from a portion of the proceeds of the sale of the Class [A] Certificates and the net proceeds will be paid to the Originators in consideration of the sale of the Mortgage Loans. Proceeds from the sale of the Class [A] Certificates will be determined as a result of the pricing of the Class [A] Certificates through the offering described in this Prospectus Supplement. The net proceeds to be received from the sale of the Mortgage Loans will be added to the Affiliated Originators' general funds and will be available for general corporate purposes, including the repayment of debt, including "warehouse" debt secured by the Mortgage Loans (prior to their sale to the Trust) and the origination and purchase of new mortgage loans. One or more of the Underwriters (or their respective affiliates) may have acted as a "warehouse lender" to the Sponsor or one or more of its affiliates and may receive a portion of such proceeds as a repayment of such "warehouse" debt. THE SPONSOR AND THE MASTER SERVICER The Sponsor, Advanta Conduit Receivables, Inc., is a subsidiary of Advanta Mortgage Corp. USA, the Master Servicer, and is an indirect subsidiary of Advanta Corp., a Delaware corporation ("Advanta Parent"), a publicly-traded company with its principal executive S-34 35 offices located in Spring House, Pennsylvania with assets as of [____________, ____] in excess of [$__________]. Advanta Parent, through its subsidiaries (including the Master Servicer) has managed assets (including the Mortgage Loans) in excess of [______] as of [___________, ____]. See "The Sponsor and the Transferor" in the Prospectus. As of [___________, ____], the Master Servicer and its subsidiaries were servicing approximately [___________] Mortgage Loans in the Owned and Managed Servicing Portfolio representing an aggregate outstanding principal balance of approximately [$________], and approximately [____________] mortgage loans in the Third-Party Servicing Portfolio representing an aggregate outstanding principal balance of approximately [$____________]. See "The Master Servicer" in the Prospectus. As of [______________, ____], the Sponsor or its affiliates have issued, all serviced by the Master Servicer, [__] series of mortgage pass-through securities with an original principal balance of approximately [$___________]. [The Master Servicer understands the implications of the Year 2000 Issue with respect to internal operations as well as external interactions with other third-party business entities. The Master Servicer is currently evaluating the impact of the Year 2000 Issue, and is implementing project plans to modify existing computer programs or conversions to new programs, to the extent necessary, to address the Year 2000 Issue. The Master Servicer's review includes all systems, applications and vendor lists. See "Risk Factors--Year 2000 Issue" herein.] The Master Servicer may resign or be removed, only in accordance with the terms of the Pooling and Servicing Agreement. No removal or resignation shall become effective until the Trustee or a successor servicer shall have assumed the Master Servicer's responsibilities and obligations in accordance therewith. See "The Pooling and Servicing Agreement--Removal and Resignation of the Master Servicer" in the Prospectus. The Master Servicer has the right, but not the obligation, to purchase from the Trust any Mortgage Loan which is in default or is "in imminent danger of being in" default. The Master Servicer may not assign its obligations under the Pooling and Servicing Agreement, in whole or in part, unless it shall have first obtained the written consent of the Trustee and the Certificate Insurer, which consent is required not to be unreasonably withheld; provided, however, that any assignee must meet the eligibility requirements for a successor servicer set forth in the Pooling and Servicing Agreement. See "The Pooling and Servicing Agreement--Removal and Resignation of the Master Servicer" in the Prospectus. The Master Servicer may enter into agreements with qualified sub-servicers ("Sub-Servicing Agreements") with respect to the servicing of all or any portion of the Mortgage Loans. The Pooling and Servicing Agreement provides that affiliates of the Master Servicer which are qualified to service mortgage loans are qualified sub-servicers. No Sub-Servicing Agreements discharge the Master Servicer from its servicing obligations. See "Mortgage Loan Program--Sub-Servicers" in the Prospectus. Upon removal or resignation of the Master Servicer, the Trustee may solicit bids for a successor servicer and, pending the appointment of a successor Master Servicer as a result of soliciting such bids, will be required to serve as Master Servicer. If the Trustee is unable to obtain a qualifying bid and is prevented by law from acting as Master Servicer, the Trustee will be required to appoint, or petition a court of competent jurisdiction to appoint, an eligible S-35 36 successor. Any successor is required to be a housing and home finance institution, bank or mortgage servicing institution which is acceptable to the Trustee and the Certificate Insurer (or if a Certificate Insurer default has occurred and is continuing, 51% of the Owners of the Class [A] Certificates) and shall assume all or any part of the responsibilities, duties or liabilities of the Master Servicer. The Class [A] Certificates will not represent an interest in or obligation of, nor are the Mortgage Loans guaranteed by, the Sponsor, the Master Servicer, Advanta Parent, the Trustee or any of their respective affiliates, nor will they be insured or guaranteed by the Federal Deposit Insurance Corporation (the "FDIC") or any other governmental agency or instrumentality. DESCRIPTION OF THE CERTIFICATES GENERAL The Class [A] Certificates will be issued by the Trust pursuant to a Pooling and Servicing Agreement, dated as of [____________, ____] (the "Pooling and Servicing Agreement") among the Sponsor, the Master Servicer and the Trustee. The Trust will also issue one or more classes of subordinate certificates which are not being offered hereby (the "Subordinate Certificates"). The Subordinate Certificates will be retained initially by the Sponsor or its affiliates. Distributions on the Class [A] Certificates are required to be made on the twenty-fifth day of each calendar month, or if such day is not a business day, the next succeeding business day (each, a "Payment Date") commencing on [_________, ____] to the Owners of record. The "Owners of record" are the Owners of the Class [A] Certificates as of the last day of the prior calendar month (in the case of the Class [A] Fixed Rate Group Certificates) or as of the business day immediately preceding the Payment Date (in the case of the Class [A-2] Certificates (each such day being a "Record Date"). Distributions will be made in amounts equal to the product of (a) such Owner's Percentage Interest and (b) the amount distributed with respect to such Owner's class of Class [A] Certificates on such Payment Date. Persons in whose name a Class [A] Certificate is registered in the Register maintained by the Trustee are the "Owners" of the Class [A] Certificates. For so long as the Class [A] Certificates are in book-entry form with DTC, the only "Owner" of the Class [A] Certificates, as the term "Owner" is used in the Pooling and Servicing Agreement, will be Cede. No person acquiring a beneficial interest in a Class [A] Certificate (a "Beneficial Owner") will be entitled to receive a definitive certificate representing such person's interest in the Trust, except in the event that Physical Certificates are issued under limited circumstances set forth in the Pooling and Servicing Agreement. All references herein to the Owners of Class [A] Certificates shall mean and include the rights of Beneficial Owners, as such rights may be exercised through DTC and its participating organizations, except as otherwise specified in the Pooling and Servicing Agreement. See "Description of the Securities--Form of Securities" in the Prospectus. Each class of Class [A] Certificates will evidence the right to receive on each Payment Date the Class [A] Distribution Amount for such class of Class [A] Certificates, in each case until the related principal balance has been reduced to zero. The Owners of the Subordinate Certificates will be entitled to receive distributions of residual cashflow not required to be applied to other purposes, as set forth in the Pooling and Servicing Agreement. S-36 37 PRE-FUNDING ACCOUNT FEATURE On the Closing Date, up to approximately [$___________] (the "Original Fixed Rate Group Pre-Funded Amount") will be deposited in an account (the "Pre-Funding Account") in the name of the Trustee from the proceeds of the sale of the Class [A] Fixed Rate Group Certificates. Similarly, on the Closing Date, up to approximately [$____________] (the "Original ARM Group Pre-Funded Amount", together with the Original Fixed Rate Group Pre-Funded Amount, the "Original Pre-Funded Amount") will be deposited into the Pre-Funding Account from the proceeds of the sale of the Class [A-2] Certificates. During the Pre-Funding Period, the Sponsor may deliver Subsequent Mortgage Loans to the Trustee for assignment to either the Fixed Rate Group or the ARM Group in exchange for a corresponding release of money from the related Pre-Funding Account. Each of the Subsequent Mortgage Loans must meet the criteria set forth in the Pooling and Servicing Agreement and must be reasonably acceptable to the Certificate Insurer. The Sponsor expects that the Original Pre-Funded Amount for each Mortgage Loan Group will be reduced to less than $100,000 by the end of the Pre-Funding Period. Any amount remaining in the Pre-Funding Account not used to purchase additional fixed rate mortgage loans on the Payment Date immediately following the end of the Pre-Funding Period will be used to redeem the Class [A] Fixed Rate Group Certificates on a sequential basis, and any amount remaining in the Pre-Funding Account on the Payment Date immediately following the end of the Pre-Funding Period not used to purchase additional adjustable rate mortgage loans will be used to redeem the Class [A-2] Certificates. CAPITALIZED INTEREST ACCOUNT On the Closing Date, the Trustee will be required to deposit a portion of the sale proceeds of the Class [A] Fixed Rate Group Certificates and the Class [A-2] Certificates in an account (the "Capitalized Interest Account") to be used, as necessary, by the Trustee during the Pre-Funding Period to make up for any shortfalls that may arise in the event that interest collected on the underlying mortgage loans is insufficient to pay all of the interest due on the Class [A] Fixed Rate Group Certificates and the Class [A-2] Certificates and certain expenses during such period. Any amounts remaining in the Capitalized Interest Account on the Payment Date immediately following the end of the Pre-Funding Period which were not used for such purposes are required to be paid directly to the Owners of the Subordinate Certificates on such Payment Date. REMITTANCE DATES The Pooling and Servicing Agreement will require that the Trustee create and maintain an account (the "Certificate Account"). See "Description of the Securities--Payments on Mortgage Loans; Deposits to Distribution Account" in the Prospectus. On the eighteenth day of each month (or, if such day is not a business day, the immediately succeeding business day) (each such day being a "Remittance Date") the Master Servicer is required to withdraw from the Principal and Interest Account and remit to the Trustee, for deposit in the Certificate Account, the Monthly Remittance Amount. The "Monthly Remittance Amount" is the sum of the principal collected by the Master Servicer and interest accrued in respect of the Mortgage Loans during the period beginning on the first day of the calendar month immediately preceding the month in which the related Remittance Date occurs and ending on the last day of such month (the "Remittance Period") plus any related Loan Purchase Prices, Substitution Amounts (as such terms are defined in the Prospectus), Delinquency Advances and Compensating Interest (as such terms are defined herein), less the sum of certain amounts the Master Servicer is permitted to withdraw from the Principal and Interest Account. S-37 38 PASS-THROUGH RATES The "Pass-Through Rates" applicable to the Class [A] Certificates for any Payment Date are as follows: Class [A-1] Pass-Through Rate: [____%] per annum. Class [A-2] Pass-Through Rate: The lesser of (i)(a) with respect to any Payment Date which occurs on or prior to the Step-Up Payment Date, the London interbank offering rate for one-month United States dollar deposits ("LIBOR") (calculated as described below under "Calculation of LIBOR") plus [____%] per annum or (b) with respect to any Payment Date thereafter, LIBOR plus [_____%] per annum (the rate described in this clause (i) being the "Class [A-2] Formula Pass-Through Rate") and (ii) the ARM Group Available Funds Cap Rate for such Payment Date. The excess, if any, of (x) the interest due on the Class [A-2] Certificates on any Payment Date calculated at the Class [A-2] Formula Pass-Through Rate over (y) the interest due on the Class [A-2] Certificates calculated at the ARM Group Available Funds Cap Rate applicable to such Payment Date is the "Supplemental Interest Amount" for the Class [A-2] Certificates for such Payment Date. If, on any Payment Date, there is a Supplemental Interest Amount due with respect to the Class [A-2] Certificates, the Owners of the Subordinate Certificates have agreed to pay such amount from the sources of funds specified in the Pooling and Servicing Agreement, including amounts which would otherwise be distributed to such owners by the Trust on such Payment Date. If the full amount of any Supplemental Interest Amount is not paid on any Payment Date, then the unpaid amount will accrue interest at the Class [A-2] Formula Pass-Through Rate until such amount is paid. If any of the Master Servicer, the Owners of a majority of Percentage Interests (the "Majority Owners") of one of the classes of the Subordinate Certificates then outstanding, acting directly or through one or more affiliates, or the Certificate Insurer, in accordance with the terms of the Pooling and Servicing Agreement, exercises its right to an optional termination of the Trust (an "Optional Termination"), the Supplemental Interest Amounts then owing with respect to the Class [A-2] Certificates might not be paid in full. The Certificate Insurer does not guarantee the payment of, nor do the ratings assigned to the Class [A-2] Certificates address the likelihood of the payment of any Supplemental Interest Amount. The Pooling and Servicing Agreement defines the "Fixed Rate Group Available Funds Cap Rate," as of any Payment Date, to be an amount, expressed as a per annum rate, equal to (a)(i) the aggregate amount of interest accrued and collected (or advanced) on all of the Mortgage Loans in the Fixed Rate Group for the related Remittance Period minus (ii) the aggregate amount of the Servicing Fee, the Trustee's Fee and the premiums due to the Certificate Insurer, in each case relating to the Fixed Rate Group, on such Payment Date, divided by (b) the aggregate principal balance of the Mortgage Loans in the Fixed Rate Group as of the beginning of the related Remittance Period, calculated on the basis of a 360-day year consisting of 12 months of 30 days each. The Pooling and Servicing Agreement defines the "ARM Group Available Funds Cap Rate," as of any Payment Date, to be an amount, expressed as a per annum rate, equal to the (a)(i) the aggregate amount of interest accrued and collected (or advanced) on all of the Mortgage S-38 39 Loans in ARM Group for the related Remittance Period minus (ii) the aggregate of the Servicing Fee and the Trustee's Fee and the premiums due to the Certificate Insurer, in each case relating to ARM Group, on such Payment Date and minus (iii) commencing on the seventh Payment Date following the Closing Date, an amount equal to 0.50 % per annum times the aggregate principal balance of the Mortgage Loans in ARM Group as of the beginning of such related Remittance Period, divided by (b) the aggregate principal balance of the Mortgage Loans in ARM Group as of the beginning of the related Remittance Period, calculated on the basis of a 360-day year and the actual number of days elapsed. The "Step-Up Payment Date" is the Payment Date following the calendar month in which the Clean-up Call Date occurs. DISTRIBUTIONS OF INTEREST For each Payment Date, the interest due with respect to the Class [A] Fixed Rate Group Certificates will be the interest which has accrued thereon at the related Pass-Through Rate during the immediately preceding calendar month, and the interest due with respect to the Class [A-2] Certificates will be the interest which has accrued thereon at the Class [A-2] Pass-Through Rate from the preceding Payment Date (or from the Closing Date in the case of the first Payment Date) to and including the day prior to the current Payment Date, (each such amount being the "Current Interest Amount" for the related class of Class [A] Certificates). Each period referred to in the prior sentence relating to the accrual of interest is the "Accrual Period" for the related class of Class [A] Certificates. With respect to a Payment Date, any unpaid interest shortfalls relating to a class of Class [A] Certificates from prior Accrual Periods is the "Class [A] Interest Carry Forward Amount." The Pooling and Servicing Agreement defines the "Class [A] Interest Distribution Amount" for each class of Class [A] Certificates with respect to each Payment Date as being the Current Interest Amount with respect to such class of Class [A] Certificates, together with any Interest Carry Forward Amount with respect to such class. The Class [A] Interest Distribution Amount for the Class [A-2] Certificates does not include the amount, if any, of the related Supplemental Interest Amount. The Class [A] Interest Distribution Amount with respect to the Class [A] Fixed Rate Group Certificates is sometimes referred to as the "Fixed Rate Group Interest Distribution Amount"; the Class [A] Interest Distribution Amount with respect to the Class [A-2] Certificates is sometimes referred to as the "ARM Group Interest Distribution Amount;" and each of the Fixed Rate Group Interest Distribution Amount, or the ARM Group Interest Distribution Amount is sometimes referred to as the related "Group Interest Distribution Amount." All calculations of interest on the Class [A] Fixed Rate Group Certificates will be made on the basis of a 360-day year consisting of 12 months of 30 days each; all calculations of interest on the Class [A-2] Certificates will be made on the basis of the actual number of days elapsed in the related Accrual Period, divided by 360. DISTRIBUTION OF PRINCIPAL The Owners of the Class [A] Certificates relating to a Mortgage Loan Group will be entitled to receive certain monthly distributions of principal on each Payment Date which S-39 40 generally reflect collections of principal during the prior Remittance Period on the underlying Mortgage Loans. The overcollateralization provisions of the Trust result in a limited acceleration of principal payments to the Owners of each class of Class [A] Certificates. Such overcollateralization provisions are more fully described under "Credit Enhancement--Overcollateralization Provisions" and "Credit Enhancement--Cross-collateralization Provisions." Such overcollateralization provisions also have an effect on the weighted average lives of the Class [A] Certificates; see "Prepayment and Yield Considerations." In addition, the following discussion makes use of a number of defined terms which are defined under "Credit Enhancement--Overcollateralization Provisions" and "Credit Enhancement--Cross-collateralization Provisions." The Pooling and Servicing Agreement defines the "Class [A] Principal Distribution Amount" for each Mortgage Loan Group (such amount with respect to the Fixed Rate Group, the "Fixed Rate Group Class [A] Principal Distribution Amount"; such amount with respect to the ARM Group, the "ARM Group Class [A] Principal Distribution Amount"); with respect to each Payment Date as being the lesser of: (a) the Group Available Funds for the related Mortgage Loan Group, plus any related Insured Payment and minus the related Group Interest Distribution Amount, and (b) (i) the sum, without duplication of: (A) the principal actually collected by the Master Servicer with respect to the Mortgage Loans in the related Mortgage Loan Group during the related Remittance Period; (B) the Principal Balance of each Mortgage Loan in the related Mortgage Loan Group that either was repurchased by the Sponsor or an Originator or purchased by the Master Servicer or any Sub-Servicer on the related Remittance Date, to the extent such Principal Amount is actually received by the Trustee; (C) any Substitution Amounts delivered by the Sponsor or an Originator on the related Remittance Date in connection with a substitution of a Mortgage Loan in the related Mortgage Loan Group, to the extent such Substitution Amounts are actually received by the Trustee; (D) all Net Liquidation Proceeds (as defined in the Prospectus) actually collected by the Master Servicer with respect to the Mortgage Loans in the related Mortgage Loan Group during the related Remittance Period (to the extent such Net Liquidation Proceeds relate to principal); (E) the amount of any Overcollateralization Deficit (as defined herein) with respect to the related Mortgage Loan Group for such Payment Date; (F) the proceeds received by the Trustee from any termination of the Trust (to the extent such proceeds relate to principal); (G) any unused moneys in the Pre-Funding Account relating to such Mortgage Loan Group at the end of the Pre-Funding Period; S-40 41 (H) the amount of any Overcollateralization Increase Amount with respect to the related Mortgage Loan Group for such Payment Date to the extent of any Net Monthly Excess Cashflow available for such purpose; minus (ii) the amount of any Overcollateralization Reduction Amount with respect to the related Mortgage Loan Group for such Payment Date. In no event will the Class [A] Principal Distribution Amount for any class of Class [A] Certificates on any Payment Date (x) be less than zero or (y) be greater than the then-outstanding principal balance of the related class of Class [A] Certificates. The Fixed Rate Group Class [A] Principal Distribution Amount is required to be distributed on each Payment Date in the following order of priority: (i) first, to the Class [A-1] Certificates, in the amounts necessary to reduce their principal balances to zero; Notwithstanding the foregoing, if on any Payment Date a Certificate Insurer default has occurred and an Overcollateralization Default exists with respect to the Fixed Rate Group, the Fixed Rate Group Class [A] Principal Distribution Amount will be distributed pro rata to the owners of the Class [A] Fixed Rate Group Certificates. The ARM Group Class [A] Principal Distribution Amount is required to be distributed on each Payment Date to the Owners of the Class [A-2] Certificates, until the Class [A-2] Certificate principal balance has been reduced to zero. With respect to the Class [A] Fixed Rate Group Certificates and any Payment Date, the sum of the Fixed Rate Group Interest Distribution Amount and the amount of the Fixed Rate Group Overcollateralization Deficit, if any, is the "Fixed Rate Group Insured Distribution Amount." With respect to the Class [A-2] Certificates and any Payment Date, the sum of the ARM Group Interest Distribution Amount and the ARM Group Overcollateralization Deficit, if any, is the "ARM Group Insured Distribution Amount." The Fixed Rate Group Insured Distribution Amount and the ARM Group Insured Distribution Amount are sometimes referred to as the related "Insured Distribution Amount". The actual amount distributed with respect to each class of Class [A] Certificates on any Payment Date is the "Class [A] Distribution Amount" for such class and Payment Date. The Certificate Insurance Policy does not require that the Certificate Insurer fund Realized Losses until such time as such aggregate, cumulative Realized Losses have created a an Overcollateralization Deficit with respect to the related Mortgage Loan Group, nor does the Certificate Insurance Policy cover the Master Servicer's failure to make Delinquency Advances until such time as the aggregate, cumulative amount of such unpaid Delinquency Advances, when added to Realized Losses, have created an Overcollateralization Deficit with respect to the related Mortgage Loan Group. An "Overcollateralization Deficit" with respect to a Mortgage Loan Group and Payment Date is the amount, if any, by which (x) the aggregate principal balance of the Class [A] Certificate issued with respect to a Mortgage Loan Group, after taking into account all S-41 42 distributions to be made on such Payment Date (except for any payment to be made as to principal from the proceeds of the Certificate Insurance Policy), exceeds (y) the aggregate principal balance of the Mortgage Loans in the related Mortgage Loan Group as of the close of business on the last day of the preceding Remittance Period, plus any amounts held by the Trustee in the related Pre-Funding Account. BOOK ENTRY REGISTRATION OF THE CLASS [A] CERTIFICATES The Class [A] Certificates will be book-entry certificates (the "Book-Entry Certificates"). The Beneficial Owners may elect to hold their Class [A] Certificates through DTC in the United States, or Cedelbank or Euroclear in Europe if they are participants of such systems ("Participants"), or indirectly through organizations which are Participants in such systems. The Book-Entry Certificates will be issued in one or more certificates per class of Class [A] Certificates which in the aggregate equal the principal balance of such Class [A] Certificates and will initially be registered in the name of "Cede & Co.", the nominee of DTC. Cedelbank and Euroclear will hold omnibus positions on behalf of their Participants through customers' securities accounts in Cedelbank's and Euroclear's names on the books of their respective depositaries which in turn will hold such positions in customers' securities accounts in the depositaries' names on the books of DTC. Citibank will act as depositary for Cedelbank and Morgan Guaranty Trust Company of New York will act as depositary for Euroclear (in such capacities, individually the "Relevant Depositary" and collectively the "European Depositaries"). Investors may hold such beneficial interests in the Book-Entry Certificates in minimum denominations representing principal amounts of $1,000 and in integral multiples in excess thereof. Except as described below, no Beneficial Owner will be entitled to receive a Definitive Certificate. Unless and until Definitive Certificates are issued, it is anticipated that the only "Owner" of such Class [A] Certificates will be Cede & Co., as nominee of DTC. Beneficial Owners will not be Owners as that term is used in the Pooling and Servicing Agreement. Beneficial Owners are only permitted to exercise their rights indirectly through Participants and DTC. The Beneficial Owner's ownership of a Book-Entry Certificate will be recorded on the records of the brokerage firm, bank, thrift institution or other financial intermediary (each, a "Financial Intermediary") that maintains the Beneficial Owner's account for such purpose. In turn, the Financial Intermediary's Ownership of such Book-Entry Certificate will be recorded on the records of DTC (or of a participating firm that acts as agent for the Financial Intermediary, whose interest will in turn be recorded on the records of DTC, if the Beneficial Owner's Financial Intermediary is not a DTC Participant and on the records of Cedelbank or Euroclear, as appropriate). Beneficial Owners will receive all distributions of principal of, and interest on, the Class [A] Certificates from the Trustee through DTC and DTC Participants. While such Class [A] Certificates are outstanding (except under the circumstances described below), under the rules, regulations and procedures creating and affecting DTC and its operations (the "Rules"), DTC is required to make book-entry transfers among Participants on whose behalf it acts with respect to such Class [A] Certificates and is required to receive and transmit distributions of principal of, and interest on, such Class [A] Certificates. Participants and indirect participants with whom Beneficial Owners have accounts with respect to Class [A] Certificates are similarly required to make book-entry transfers and receive and transmit such distributions on behalf of their respective Beneficial Owners. Accordingly, although Beneficial Owners will not possess certificates, the Rules provide a mechanism by which Beneficial Owners will receive distributions and will be able to transfer their interest. S-42 43 Beneficial Owners will not receive or be entitled to receive certificates representing their respective interests in the Class [A] Certificates, except under the limited circumstances described below. Unless and until Definitive Certificates are issued, Beneficial Owners who are not Participants may transfer ownership of Class [A] Certificates only through Participants and indirect participants by instructing such Participants and indirect participants to transfer such Class [A] Certificates, by book-entry transfer, through DTC for the account of the purchasers of such Class [A] Certificates, which account is maintained with their respective Participants. Under the Rules and in accordance with DTC's normal procedures, transfers of ownership of such Class [A] Certificates will be executed through DTC and the accounts of the respective Participants at DTC will be debited and credited. Similarly, the Participants and indirect participants will make debits or credits, as the case may be, on their records on behalf of the selling and purchasing Beneficial Owners. Because of time zone differences, credits of securities received in Cedelbank or Euroclear as a result of a transaction with a Participant will be made during subsequent securities settlement processing and dated the business day following the DTC settlement date. Such credits or any transactions in such securities settled during such processing will be reported to the relevant Euroclear or Cedelbank Participants on such business day. Cash received in Cedelbank or Euroclear as a result of sales of securities by or through a Cedelbank Participant (as defined below) or Euroclear Participant (as defined below) to a DTC Participant will be received with value on the DTC settlement date but will be available in the relevant Cedelbank or Euroclear cash account only as of the business day following settlements in DTC. For information with respect to tax documentation procedures relating to the Certificates, see "Certain Federal Income Tax Consequences--Foreign Investors" and "--Backup Withholding" in the Prospectus and "Global Clearance, Settlement and Tax Documentation Procedures--Certain U.S. Federal Income Tax Documentation Requirements" in Annex I to the Prospectus. Transfers between Participants will occur in accordance with DTC rules. Transfers between Cedelbank Participants and Euroclear Participants will occur in accordance with their respective rules and operating procedures. Cross-market transfers between persons holding directly or indirectly through DTC, on the one hand, and directly or indirectly through Cedelbank Participants or Euroclear Participants, on the other, will be effected in DTC in accordance with DTC rules on behalf of the relevant European international clearing system by the Relevant Depositary; however, such cross-market transactions will require delivery of instructions to the relevant European international clearing system by the counterparty in such system in accordance with its rules and procedures and within its established deadlines (European time). The relevant European international clearing system will, if the transaction meets its settlement requirements, deliver instructions to the Relevant Depositary to take action to effect final settlement on its behalf by delivering or receiving securities in DTC, and making or receiving payment in accordance with normal procedures for same day funds settlement applicable to DTC. Cedelbank Participants and Euroclear Participants may not deliver instructions directly to the European Depositaries. DTC, which is a New York-chartered limited purpose trust company, performs services for its Participants ("DTC Participants"), some of which (and/or their representatives) own DTC. In accordance with its normal procedures, DTC is expected to record the positions held by each DTC Participant in the Book-Entry Certificates, whether held for its own account or as a nominee for another person. In general, beneficial ownership of Book-Entry Certificates will be subject to the rules, regulations and procedures governing DTC and DTC Participants as in effect from time to time. S-43 44 Cedelbank is incorporated under the laws of Luxembourg as a professional depository. Cedelbank holds securities for its participant organizations ("Cedelbank Participants") and facilitates the clearance and settlement of securities transactions between Cedelbank Participants through electronic book-entry changes in accounts of Cedelbank Participants, thereby eliminating the need for physical movement of certificates. Transactions may be settled in Cedelbank in any of 28 currencies, including United States dollars. Cedelbank provides to its Cedelbank Participants, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Cedelbank interfaces with domestic markets in several countries. As a professional depository, Cedelbank is subject to regulation by the Luxembourg Monetary Institute. Cedelbank Participants are recognized financial institutions around the world, including underwriters, securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Indirect access to Cedelbank is also available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Cedelbank Participant, either directly or indirectly. Euroclear was created in 1968 to hold securities for participants of Euroclear ("Euroclear Participants") and to clear and settle transactions between Euroclear Participants through simultaneous electronic book-entry delivery against payment, thereby eliminating the need for physical movement of certificates and any risk from lack of simultaneous transfers of securities and cash. Transactions may now be settled in any of 27 currencies, including United States dollars. Euroclear includes various other services, including securities lending and borrowing and interfaces with domestic markets in several countries generally similar to the arrangements for cross-market transfers with DTC described above. Euroclear is operated by the Brussels, Belgium office of Morgan Guaranty Trust Company of New York (the "Euroclear Operator"), under contract with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the "Cooperative"). All operations are conducted by the Euroclear Operator, and all Euroclear Securities clearance accounts and Euroclear cash accounts are accounts with the Euroclear Operator, not the Cooperative. The Cooperative establishes policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants include banks (including central banks), securities brokers and dealers and other professional financial intermediaries. Indirect access to Euroclear is also available to other firms that clear through or maintain a custodial relationship with a Euroclear Participant, either directly or indirectly. The Euroclear Operator is the Belgian branch of a New York banking corporation which is a member bank of the Federal Reserve System. As such, it is regulated and examined by the Board of Governors of the Federal Reserve System and the New York State Banking Department, as well as the Belgian Banking Commission. Securities clearance accounts and cash accounts with the Euroclear operator are governed by the Terms and Conditions Governing Use of Euroclear and the related Operating Procedures of the Euroclear System and applicable Belgian law (collectively, the "Terms and Conditions"). The Terms and Conditions govern transfers of securities and cash within Euroclear, withdrawals of securities and cash from Euroclear, and receipts of payments with respect to securities in Euroclear. All securities in Euroclear are held on a fungible basis without attribution of specific certificates to specific securities clearance accounts. The Euroclear Operator acts under the Terms and Conditions only on behalf of Euroclear Participants, and has no record of or relationship with persons holding through Euroclear Participants. Distributions on the Book-Entry Certificates will be made on each Payment Date by the Trustee to DTC. DTC will be responsible for crediting the amount of such payments to the S-44 45 accounts of the applicable DTC Participants in accordance with DTC's normal procedures. Each DTC Participant will be responsible for disbursing such payment to the Beneficial Owners of the Book-Entry Certificates that it represents and to each Financial Intermediary for which it acts as agent. Each such Financial Intermediary will be responsible for disbursing funds to the Beneficial Owners of the Book-Entry Certificates that it represents. Under a book-entry format, Beneficial Owners of the Book-Entry Certificates may experience some delay in their receipt of payments, since such payments will be forwarded by the Trustee to Cede. Distributions with respect to Class [A] Certificates held through Cedelbank or Euroclear will be credited to the cash accounts of Cedelbank Participants or Euroclear Participants in accordance with the relevant system's rules and procedures, to the extent received by the Relevant Depositary. Such distributions will be subject to tax reporting in accordance with relevant United States tax laws and regulations. Because DTC can only act on behalf of Financial Intermediaries, the ability of a Beneficial Owner to pledge Book-Entry Certificates, to persons or entities that do not participate in the Depository system, or otherwise take actions in respect of such Book-Entry Certificates, may be limited due to the lack of physical certificates for such Book-Entry Certificates. In addition, issuance of the Book-Entry Certificates in book-entry form may reduce the liquidity of such Certificates in the secondary market since certain potential investors may be unwilling to purchase Certificates for which they cannot obtain physical certificates. Monthly and annual reports on the Trust provided by the Trustee to Cede, as nominee of DTC, may be made available to Beneficial Owners upon request, in accordance with the rules, regulations and procedures creating and affecting the Depository, and to the Financial Intermediaries to whose DTC accounts the Book-Entry Certificates of such Beneficial Owners are credited. DTC has advised the Trustee that, unless and until Definitive Certificates are issued, DTC will take any action permitted to be taken by the owners of the Book-Entry Certificates under the Pooling and Servicing Agreement only at the direction of one or more Financial Intermediaries to whose DTC accounts the Book-Entry Certificates are credited, to the extent that such actions are taken on behalf of Financial Intermediaries whose holdings include such Book-Entry Certificates. Cedelbank or the Euroclear Operator, as the case may be, will take any action permitted to be taken by an Owner under the Pooling and Servicing Agreement on behalf of a Cedelbank Participant or Euroclear Participant only in accordance with its relevant rules and procedures and subject to the ability of the Relevant Depositary to effect such actions on its behalf through DTC. DTC may take actions, at the direction of the related Participants, with respect to some Class [A] Certificates which conflict with actions taken with respect to other Class [A] Certificates. Definitive Certificates will be issued to Beneficial Owners of the Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC or the Sponsor advises the Trustee in writing that DTC is no longer willing, qualified or able to discharge properly its responsibilities as a nominee and depository with respect to the Book-Entry Certificates and the Sponsor or the Trustee is unable to locate a qualified successor, (b) the Sponsor, at its sole option, elects to terminate a book-entry system through DTC or (c) DTC, at the direction of the Beneficial Owners representing a majority of the outstanding Percentage Interests of the Class [A] Certificates, advises the Trustee in writing that the continuation of a book-entry system through DTC (or a successor thereto) is no longer in the best interests of Beneficial Owners. S-45 46 Upon the occurrence of any of the events described in the immediately preceding paragraph, the Trustee will be required to notify all Beneficial Owners of the occurrence of such event and the availability through DTC of Definitive Certificates. Upon surrender by DTC of the global certificate or certificates representing the Book-Entry Certificates and instructions for re-registration, the Trustee will issue Definitive Certificates, at the Sponsor's expense and thereafter the Trustee will recognize the owners of such Definitive Certificates as Owners under the Pooling and Servicing Agreement. Although DTC, Cedelbank and Euroclear have agreed to the foregoing procedures in order to facilitate transfers of Certificates among Participants of DTC, Cedelbank and Euroclear, they are under no obligation to perform or continue to perform such procedures and such procedures may be discontinued at any time. Neither the Sponsor, the Master Servicer, the Certificate Insurer nor the Trustee will have any liability for any actions taken by DTC or its nominee, Euroclear, or Cedelbank, including, without limitation, actions for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Class [A] Certificates held by Euroclear, Cedelbank or Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. OPTIONAL REDEMPTION Each of the Master Servicer and the Majority Owners of one of the classes of the Subordinate Certificates then outstanding, acting directly or through one or more affiliates, will have the right to purchase from the Trust all the Mortgage Loans then held by the Trust at a price at least equal to the sum of the aggregate principal balance of the Class [A] Certificates then outstanding plus accrued interest, together with any amount owed to the Certificate Insurer and certain other amounts, on any Payment Date after the Remittance Period during which the outstanding aggregate principal balance of the Mortgage Loans in the Trust (calculated as of the date the Trust acquired the related Mortgage Loan) had declined to 10% or less of the aggregate principal balance of all of the Mortgage Loans acquired by the Trust prior to the end of the Pre-Funding Period (the "Clean-up Call"). Any such purchase will result in the redemption of the Class [A] Certificates. The first such Payment Date on which such option may be exercised is the "Clean-up Call Date". The Clean-up Call applies to the Trust as a whole, and not to either Mortgage Loan Group individually. In the event that either the Master Servicer or the Majority Owners of one of the classes of the Subordinate Certificates do not exercise such option, the Certificate Insurer shall be entitled to do so in accordance with the Pooling and Servicing Agreement. MANDATORY REDEMPTION Class [A] Fixed Rate Group Certificates. The Original Fixed Rate Group Pre-Funded Amount of approximately [$___________] may be used to acquire fixed rate Subsequent Mortgage Loans for the Fixed Rate Group. In the event that, by the end of the Pre-Funding Period, not all of the Original Fixed Rate Group Pre-Funded Amount has been used to acquire such fixed rate Subsequent Mortgage Loans, then the Class [A] Fixed Rate Group Certificates will be prepaid in part on the Payment Date immediately following the end of the Pre-Funding Period in accordance with the sequential payment priorities described herein, from and to the extent of such remaining funds. S-46 47 ARM Group. The Original ARM Group Pre-Funded Amount of approximately [$____________] may be used to acquire adjustable rate Subsequent Mortgage Loans for the ARM Group. In the event that, by the end of the Pre-Funding Period, not all of the Original ARM Group Pre-Funded Amount has been used to acquire such adjustable rate Subsequent Mortgage Loans, then the Class [A-2] Certificates will be prepaid in part on the Payment Date immediately following the Pre-Funding Period from and to the extent of such remaining funds. CALCULATION OF LIBOR On the second business day preceding each Payment Date or, in the case of the first Payment Date, on the second business day preceding the Closing Date (each such date, an "Interest Determination Date"), the Trustee will determine the London interbank offered rate for one-month U.S. dollar deposits ("LIBOR") for the next Accrual Period for the Class [A-2] Certificates on the basis of the offered rates of the Reference Banks for one-month U.S. dollar deposits, as such rates appear on the Telerate Screen 3750, as of 11:00 a.m. (London time) on such Interest Determination Date. As used in this section, "business day" means a day on which banks are open for dealing in foreign currency and exchange in London and New York City; and "Reference Banks" means leading banks selected as the Trustee and engaged in transactions in Eurodollar deposits in the international Eurocurrency market (i) with an established place of business in London, (ii) whose quotations appear on the Telerate Screen 3750 on the related Interest Determination Date, (iii) which have been designated as such by the Trustee and (iv) which are not controlling, controlled by, or under common control with, the Sponsor. On each Interest Determination Date, LIBOR for the related Accrual Period for the Class [A-2] Certificates will be established by the Trustee as follows: (a) If on such Interest Determination Date two or more Reference Banks provides such offered quotations, LIBOR for the related Accrual Period for the Class [A-2] Certificates shall be the arithmetic mean of such offered quotations (rounded to the nearest whole multiple of 1/16%). (b) If on such Interest Determination Date fewer than two Reference Banks provide such offered quotations, LIBOR for the related Accrual Period for the Class [A-2] Certificates shall be the higher of (x) LIBOR as determined on the previous Interest Determination Date and (y) the Reserve Interest Rate. The "Reserve Interest Rate" shall be the rate per annum that the Trustee determines to be either (i) the arithmetic mean (rounded to the nearest whole multiple of 1/16%) of the one-month U.S. dollar lending rates which New York City banks selected by the Trustee are quoting on the relevant Interest Determination Date to the principal London offices of leading banks in the London interbank market or, in the event that the Trustee can determine no such arithmetic mean, (ii) the lowest one-month U.S. dollar lending rate which New York City banks selected by the Trustee are quoting on such Interest Determination Date to leading European banks. The establishment of LIBOR on each Interest Determination Date by the Trustee and the Trustee's calculation of the rate of interest applicable to the Class [A-2] Certificates for the related Accrual Period shall (in the absence of manifest error) be final and binding. Each such rate of interest may be obtained by telephoning the Trustee at 1-800-735-7777. S-47 48 CERTAIN ACTIVITIES The Trust has not and will not: (i) issue securities (except for the Certificates); (ii) borrow money; (iii) make loans; (iv) invest in securities for the purpose of exercising control; (v) underwrite securities; (vi) except as provided in the Pooling and Servicing Agreement, engage in the purchase and sale (or turnover) of investments; (vii) offer securities in exchange for property (except Certificates for the Mortgage Loans); or (viii) repurchase or otherwise reacquire its securities, except as provided in the Pooling and Servicing Agreement. See "Description of the Securities--Reports To The Securityholders" in the Prospectus for information regarding reports to the Owners. CREDIT ENHANCEMENT OVERCOLLATERALIZATION PROVISIONS Overcollateralization Resulting from Cash Flow Structure. The Pooling and Servicing Agreement requires that, on each Payment Date, certain excess cash flows with respect to a Mortgage Loan Group, consisting of the difference between (i) the difference between (x) the interest which is collected on the Mortgage Loans in such Mortgage Loan Group during the prior Remittance Period (net of the Servicing Fee) plus any Delinquency Advances and Compensating Interest and (y) the sum of (I) the interest which accrues on the related Class [A] Certificates during the related Accrual Period and (II) the premiums due to the Certificate Insurer with respect to the related Certificate Insurance Policy, and the Trustee's Fee (such difference, the "Total Monthly Excess Spread" with respect to the related Mortgage Loan Group), and (ii) any portion of the Total Monthly Excess Spread which is used to cover any shortfalls in Group Available Funds (provided, that this does not apply to any shortfall attributed to any Supplemental Interest Amount) on such Payment Date in the related Mortgage Loan Group, or in the other Mortgage Loan Group, or used to reimburse the Certificate Insurer on account of prior Insured Payments (such excess cash flows with respect to a Mortgage Loan Group being the "Net Monthly Excess Spread" with respect to such Mortgage Loan Group), be applied on such Payment Date as an accelerated payment of principal on the related Class [A] Certificates, but only to the limited extent hereafter described. This accelerated payment of principal has the effect of accelerating the amortization of the Class [A] Certificates relative to the amortization of the Mortgage Loans in the related Mortgage Loan Group. To the extent that any Net Monthly Excess Spread is not so used, the Pooling and Servicing Agreement provides that it will be used to reimburse the Master Servicer with respect to any amounts owing to it, or otherwise applied as directed by the Owners of the Subordinate Certificates. With respect to any Mortgage Loan Group and Payment Date, the difference, if any, between (x) the aggregate principal balances of the Mortgage Loans in such Mortgage Loan Group as of the close of business on the last day of the preceding Remittance Period and (y) the aggregate principal balance of the Class [A] Certificates issued in respect of the related Group as of such Payment Date (and following the making of all distributions on such Payment Date) is the "Overcollateralization Amount" with respect to such Mortgage Loan Group as of such Payment Date. Pursuant to the Pooling and Servicing Agreement, each Mortgage Loan Group's Net Monthly Excess Spread will be applied as an accelerated payment of principal on the related class or classes of Class [A] Certificates until the related Overcollateralization Amount has increased to the level required with respect to the related Mortgage Loan Group. Any amount of Net Monthly S-48 49 Excess Spread actually applied as an accelerated payment of principal is a "Overcollateralization Increase Amount." The required level of the Overcollateralization Amount with respect to a Mortgage Loan Group and Payment Date is the "Specified Overcollateralization Amount" with respect to such Mortgage Loan Group and Payment Date. The Specified Overcollateralization Amount may, over time, decrease, or increase, subject to certain floors, caps and triggers. To the extent that any Mortgage Loan Group's Net Monthly Excess Spread is not required to be applied to the payment of an Overcollateralization Increase Amount on the Class [A] Certificates relating to such Mortgage Loan Group because the Overcollateralization Amount with respect to such Mortgage Loan Group is equal to or greater than the then Specified Overcollateralization Amount with respect to such Mortgage Loan Group, such Net Monthly Excess Spread (together with the amount of any Overcollateralization Reduction Amount, as described in the next paragraph) is permitted to be applied to the payment of Overcollateralization Increase Amounts on the class or classes of Class [A] Certificates relating to the other Mortgage Loan Group, to the extent necessary to increase the Overcollateralization Amount with respect to such Mortgage Loan Group to the level of its respective Specified Overcollateralization Amount. In the event that the required level of the Specified Overcollateralization Amount with respect to a Mortgage Loan Group is permitted to decrease or "step down" on a Payment Date in the future, the Pooling and Servicing Agreement provides that a portion of the principal which would otherwise be distributed to the Owners of the class or classes of Class [A] Certificates on such Payment Date shall be distributed to, or otherwise applied as directed by, the Owners of the Subordinate Certificates on such Payment Date. This has the effect of decelerating the amortization of the Class [A] Certificates relative to the amortization of the Mortgage Loans in the related Mortgage Loan Group, and of reducing the related Overcollateralization Amount. With respect to any Mortgage Loan Group and Payment Date, the excess, if any, of (x) the Overcollateralization Amount that would apply to the related Mortgage Loan Group on such Payment Date after taking into account all distributions to be made on such Payment Date (except for any distributions of related Overcollateralization Reduction Amounts as described in this sentence) over (y) the related Specified Overcollateralization Amount is the "Excess Overcollateralization Amount" with respect to such Mortgage Loan Group and Payment Date. If, on any Payment Date, the Excess Overcollateralization Amount is, or, after taking into account all other distributions to be made on such Payment Date would be, greater than zero (i.e., the Overcollateralization Amount is or would be greater than the related Specified Overcollateralization Amount), then any amounts relating to principal which would otherwise be distributed to the Owners of the related class or classes of Class [A] Certificates on such Payment Date shall instead be used to reimburse the Master Servicer for certain amounts owing to it, or otherwise applied as directed by, the Owners of the Subordinate Certificates (subject to certain other prior applications as described below under "--Cross-collateralization Provisions") in an amount equal to the lesser of (x) the Excess Overcollateralization Amount and (y) the amount available for distribution on account of principal with respect to the related Class [A] Certificates on such Payment Date; such amount being the "Overcollateralization Reduction Amount" with respect to the related Mortgage Loan Group for such Payment Date. As a technical matter regarding the cash flow structure of the Trust, Overcollateralization Reduction Amounts may result even prior to the occurrence of any decrease or "step-down" in the related Specified Overcollateralization Amount. This is because the Owners of the related Class [A] Certificates will generally be entitled to receive 100% of collected principal, even though the related principal balance will, following the accelerated amortization resulting from the application of the Net Monthly Excess Spread, represent less than 100% of the related Mortgage Loan Group's aggregate principal balance. In the absence of the provisions relating to Overcollateralization Reduction Amounts, the foregoing may otherwise increase the Overcollateralization Amounts S-49 50 above their Specified Overcollateralization Amount requirements even without the further application of any Net Monthly Excess Spread. The Pooling and Servicing Agreement provides that, on any Payment Date, all amounts collected on account of principal (other than any such amount applied to the payment of a Overcollateralization Reduction Amount) with respect to a Mortgage Loan Group during the prior Remittance Period will be distributed to the Owners of the related class of Class [A] Certificates on such Payment Date. If any Mortgage Loan became a Liquidated Mortgage Loan during such prior Remittance Period, the Net Liquidation Proceeds related thereto and allocated to principal may be less than the principal balance of the related Mortgage Loan; the amount of any such insufficiency is a "Realized Loss." A "Liquidated Mortgage Loan" is, in general, a defaulted Mortgage Loan as to which the Master Servicer has determined that all amounts that it expects to recover on such Mortgage Loan have been recovered (exclusive of any possibility of a deficiency judgment). In addition, the Pooling and Servicing Agreement provides that the principal balance of any Mortgage Loan which becomes a Liquidated Mortgage Loan shall thenceforth equal zero. The Pooling and Servicing Agreement does not contain any rule which requires that the amount of any Realized Loss be distributed to the Owners of the related Class [A] Certificates on the Payment Date which immediately follows the event of loss, i.e., the Pooling and Servicing Agreement does not require the current recovery of losses. However, the occurrence of a Realized Loss will reduce the Overcollateralization Amount with respect to the related Mortgage Loan Group, which, to the extent that such reduction causes the Overcollateralization Amount to be less than the related Specified Overcollateralization Amount applicable to the related Payment Date, will require the payment of an Overcollateralization Increase Amount on such Payment Date (or, if insufficient funds are available on such Payment Date, or subsequent Payment Dates, until an Overcollateralization Amount equals the related Specified Overcollateralization Amount). The effect of the foregoing is to allocate losses to the Owners of the Subordinate Certificates by reducing, or eliminating entirely, payment of Monthly Excess Spread and of Overcollateralization Reduction Amounts which such Owners would otherwise receive. Overcollateralization and the Certificate Insurance Policy. The Pooling and Servicing Agreement requires the Trustee to make a claim for an Insured Payment under the Certificate Insurance Policy not later than the second Business Day prior to any Payment Date as to which the Trustee has determined that an Overcollateralization Deficit will occur for the purpose of applying the proceeds of such Insured Payment as a payment of principal to the Owners of the Class [A] Certificates on such Payment Date. The Certificate Insurance Policy is thus similar to the overcollateralization provisions described above insofar as the Certificate Insurance Policy guarantees ultimate, rather than current, payment of the amounts of any Realized Losses to the Owners of the related Class [A] Certificates. Investors in the Class [A] Certificates should realize that, under extreme loss or delinquency scenarios applicable to the related Mortgage Loan Pool, they may temporarily receive no distributions of principal. CROSS-COLLATERALIZATION PROVISIONS On each Payment Date, an amount equal to the sum of (x) the Total Monthly Excess Spread with respect to each Mortgage Loan Group and Payment Date plus (y) any Overcollateralization Reduction Amount with respect to such Mortgage Loan Group and Payment Date (such amount being the "Total Monthly Excess Cashflow" with respect to such Mortgage Loan Group and Payment Date) with respect to each Mortgage Loan Group will be required to be applied in the following order of priority: S-50 51 (i) such amount shall be used to fund any shortfall on such Payment Date with respect to the related Mortgage Loan Group and equal to the difference, if any, between (x) the Insured Distribution Amount for the related Mortgage Loan Group for such Payment Date and (y) the Group Available Funds with respect to the related Mortgage Loan Group for such Payment Date (the amount of such difference being equal to an "Available Funds Shortfall" with respect to the related Mortgage Loan Group); (ii) any remaining amount after the application described in clause (i) above shall be used to fund any Available Funds Shortfall with respect to the other Group for such Payment Date. (iii) any portion of the Total Monthly Excess Cashflow with respect to such Mortgage Loan Group remaining after the applications described in clause (i) and (ii) above shall be paid to the Certificate Insurer in respect of amounts owed on account of any Insured Payments theretofore made with respect to the related Mortgage Loan Group (any such amount so owed to the Certificate Insurer and not theretofore paid, together with accrued interest thereon, the "Certificate Insurer Reimbursable Amount" with respect to the related Mortgage Loan Group); and (iv) any portion of the Total Monthly Excess Cashflow with respect to such Mortgage Loan Group remaining after the application described in clauses (i), (ii) and (iii) above shall be paid to the Certificate Insurer in respect of any Certificate Insurer Reimbursable Amount with respect to the other Mortgage Loan Group. The amount, if any, of the Total Monthly Excess Cashflow with respect to a Mortgage Loan Group on a Payment Date remaining after the applications set forth in clauses (i) though (iv) above is the "Net Monthly Excess Cashflow" with respect to such Mortgage Loan Group for such Payment Date; such Net Monthly Excess Cashflow is required to be applied in the following order of priority on such Payment Date: (i) such amount shall be used to fund the payment of any required Overcollateralization Increase Amount with respect to the related Mortgage Loan Group as a portion of the distribution of the Class [A] Principal Distribution Amount on such Payment Date; (ii) any portion of the Net Monthly Excess Cashflow remaining after the application described in clause (i) above shall be used to make any required Overcollateralization Increase Amount with respect to the other Mortgage Loan Group; (iii) any remaining Net Monthly Excess Cashflow may then be used to reimburse the Master Servicer for certain amounts owing to it; and (iv) any remaining Net Monthly Excess Cashflow may be paid to or otherwise applied as directed by the Owners of the Subordinate Certificates. CREDIT ENHANCEMENT DOES NOT APPLY TO PREPAYMENT RISK OR BASIS RISK In general, the protection afforded by the overcollateralization provisions and by the Certificate Insurance Policy is protection for credit risk and not for prepayment risk or basis risk S-51 52 (the risk that changes in the value of the indices on the Mortgage Loans will not match the changes in the value of the index applicable to calculate the interest on the Certificates). The overcollateralization provisions may not be adjusted, nor may a claim be made under the Certificate Insurance Policy to guarantee or insure that any particular rate of prepayment is experienced by the Trust. CLASS [A] CERTIFICATE DISTRIBUTIONS AND INSURED PAYMENTS TO THE OWNERS OF THE CLASS [A] CERTIFICATES No later than the second Business Day prior to each Payment Date the Trustee will be required to determine the amount for each Mortgage Loan Group (the "Fixed Rate Group Available Funds" with respect to the Class [A] Fixed Rate Group Certificates, the "ARM Group Available Funds" with respect to the Class [A-2] Certificates with each being sometimes referred to as the "Group Available Funds") to be on deposit in the Certificate Account on such Payment Date (after taking into account any amounts transferred as a result of the cross-collateralization mechanics described above, and after deducting the amounts of certain fees and reimbursements). If the Group Insured Distribution Amount for any Payment Date exceeds the related Group Available Funds for such Payment Date, the Trustee will be required to draw the amount of such insufficiency from the Certificate Insurer under the Certificate Insurance Policy. The Pooling and Servicing Agreement provides that amounts which cannot be distributed to the Owners of the Class [A] Certificates as a result of proceedings under the United States Bankruptcy Code or similar insolvency laws will not be considered in determining the amount of Group Available Funds with respect to any Payment Date. On each Payment Date, and following the making by the Trustee of all allocations, transfers and deposits heretofore described, from amounts (including any related Insured Payment) then on deposit in the Certificate Account, the Trustee will be required to distribute to the Owners of each class of Class [A] Certificates the Class [A] Distribution Amount with respect to such class for such Payment Date. THE CERTIFICATE INSURER The following information has been supplied by [Certificate Issuer] for inclusion in this Prospectus Supplement. No representation is made by the Sponsor, the Master Servicer, the Underwriter or any of their affiliates as to the accuracy or completeness of such information The consolidated financial statements of the Certificate Insurer and its subsidiaries as of December 31, [____] and December 31, [____] and for each of the three years in the period ended December 31, 1997, prepared in accordance with generally accepted accounting principles, included in the Annual Report on Form 10-K of [_______] for the year ended December 31, [____] and the consolidated financial statements of the Certificate Insurer and its subsidiaries as of [____________, ____] and for the [____]-month periods ending [__________, ____] and [_____________, ____] included in the Quarterly Report on Form 10-Q of MBIA Inc. for the period ending [__________, ____], are hereby incorporated by reference into this Prospectus Supplement and shall be deemed to be a part hereof. Any statement contained in a document incorporated by reference herein shall be modified or superseded for purposes of this Prospectus Supplement to the extent that a statement contained herein or in any other subsequently filed document which also is incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus Supplement. S-52 53 All financial statements of the Certificate Insurer and its subsidiaries included in documents filed by [_________] pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the date of this Prospectus Supplement and prior to the termination of the offering of the Class [A] Certificates shall be deemed to be incorporated by reference into this Prospectus Supplement and to be a part hereof from the respective dates of filing such documents. The tables below present selected financial information of the Certificate Insurer determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities ("SAP") and generally accepted accounting principles ("GAAP"): SAP -------------------------------------- [--------] [---------] ----------------- ---------------- (Audited) (Unaudited) (In millions) Admitted Assets Liabilities Capital and Surplus GAAP -------------------------------------- [--------] [---------] ----------------- ---------------- (Audited) (Unaudited) (In millions) Admitted Assets Liabilities Capital and Surplus ------------------------------------- Copies of the financial statements of the Certificate Insurer incorporated by reference herein and copies of the Certificate Insurer's [____] year-end audited financial statements prepared in accordance with statutory accounting practices are available, without charge, from the Certificate Insurer. The address of the Certificate Insurer is [Address]. The telephone number of the Certificate Insurer is[ (___) ___-____]. The Certificate Insurer does not accept any responsibility for the accuracy or completeness of this Prospectus Supplement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Certificate Insurance Policy and Certificate Insurer set forth under the headings "THE CERTIFICATE INSURER" and "THE CERTIFICATE INSURANCE POLICY." Additionally, the Certificate Insurer makes no representation regarding the Class [A] Certificates or the advisability of investing in the Class [A] Certificates. [Rating Agency] rates the financial strength of the Certificate Insurer "___." [Rating Agency] rates the financial strength of the Certificate Insurer "___." [Rating Agency] rates the financial strength of the Certificate Insurer "AAA." S-53 54 Each rating of the Certificate Insurer should be evaluated independently. The ratings reflect the respective rating agency's current assessment of the creditworthiness of the Certificate Insurer and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the above ratings may be obtained only from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold the Class [A] Certificates and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Class [A] Certificates. The Certificate Insurer does not guaranty the market price of the Class [A] Certificates nor does it guaranty that the ratings on the Class [A] Certificates will not be revised or withdrawn. [An area of potential risk to the Certificate Insurer's financial guarantee business would be the inability of an issuer or its trustee or paying agent to make payments on a Certificate Insurer insured transaction because of their failure to be Year 2000 ready. To mitigate this risk, the Certificate Insurer has been surveying all trustees, all paying agents and selected high volume issuers to determine their state of readiness. While the survey is not complete, the results to date are that all respondents are either ready or planning to be ready by late 1999. If the Certificate Insurer is asked to pay in those situations where the issuer's system fails, it will so do and would expect to recover any such payment in a fairly short time period. It is not possible at this time to evaluate the extent of such payments. The Certificate Insurer believes that it has adequate sources of liquidity to cover these payments.] THE CERTIFICATE INSURANCE POLICY The following information has been supplied by the Certificate Insurer for inclusion in this Prospectus Supplement. The Certificate Insurer, in consideration of the payment of the premium and subject to the terms of the Certificate Insurance Policy (the "Policy"), thereby unconditionally and irrevocably guarantees to any Owner that an amount equal to each full and complete Insured Payment will be received by [Trustee], or its successor, as trustee for the Owners (the "Trustee"), on behalf of the Owners, from the Certificate Insurer, for distribution by the Trustee to each Owner of each Owner's proportionate share of the Insured Payment. The Certificate Insurer's obligations under the Policy with respect to particular Insured Payments shall be discharged to the extent funds equal to the applicable Insured Payment are received by the Trustee, whether or not such funds are properly applied by the Trustee. Insured Payment shall be made only at the time set forth in the Policy and no accelerated Insured Payments shall be made regardless of any acceleration of the Class [A] Certificates, unless such acceleration is at the sole option of the Certificate Insurer. Notwithstanding the foregoing paragraph, the Policy does not cover shortfalls, if any, attributable to the liability of the Trust, any REMIC or the Trustee for withholding taxes, if any, (including interest and penalties in respect of any such liability). The Policy does not cover, and Insured Payments do not include, any Civil Relief Act shortfalls or any Supplemental Interest Amounts. The Certificate Insurer will pay any Insured Payment that is a Preference Amount on the Business Day following receipt on a Business Day by the Fiscal Agent (as described below) of (i) a certified copy of the order requiring the return of a preference payment, (ii) an opinion of counsel satisfactory to the Certificate Insurer that such order is final and not subject to appeal, (iii) an assignment in such form as is reasonably required by the Certificate Insurer, irrevocably S-54 55 assigning to the Certificate Insurer all rights and claims of the Owner relating to or arising under the Class [A] Certificates against the debtor which made such preference payment or otherwise with respect to such preference payment and (iv) appropriate instruments to effect the appointment of the Certificate Insurer as agent for such Owner in any legal proceeding related to such preference payment, such instruments being in a form satisfactory to the Certificate Insurer; provided, that if such documents are received after 12:00 noon New York City time on such Business Day, they will be deemed to be received on the following Business Day. Such payments shall be disbursed to the receiver or trustee in bankruptcy named in the final order of the court exercising jurisdiction on behalf of the Owner and not to any Owner directly unless such Owner has returned principal or interest paid on the Class [A] Certificates, to such receiver or trustee in bankruptcy, in which case such payment shall be disbursed to such Owner. The Certificate Insurer will pay any other amount payable under the Policy no later than 12:00 noon New York City time on the later of the Payment Date on which the related Deficiency Amount is due or the second Business Day following receipt in New York, New York on a Business Day by [Fiscal Agent], as Fiscal Agent for the Certificate Insurer or any successor fiscal agent appointed by the Certificate Insurer (the "Fiscal Agent") of a Notice (as described below); provided, that if such Notice is received after 12:00 noon New York City time on such Business Day, it will be deemed to be received on the following Business Day. If any such Notice received by the Fiscal Agent is not in proper form or is otherwise insufficient for the purpose of making claim under the Policy it shall be deemed not to have been received by the Fiscal Agent for purposes of this paragraph, and the Certificate Insurer or the Fiscal Agent, as the case may be, shall promptly so advise the Trustee and the Trustee may submit an amended Notice. Insured Payments due under the Policy unless otherwise stated therein will be disbursed by the Fiscal Agent to the Trustee on behalf of the Owners by wire transfer of immediately available funds in the amount of the Insured Payment less, in respect of Insured Payments related to Preference Amounts, any amount held by the Trustee for the payment of such Insured Payment and legally available therefor. The Fiscal Agent is the agent of the Certificate Insurer only and the Fiscal Agent shall in no event be liable to Owners for any acts of the Fiscal Agent or any failure of the Certificate Insurer to deposit or cause to be deposited, sufficient funds to make payments due under the Policy. As used in the Policy, the following terms shall have the following meanings: "Agreement" means the Pooling and Servicing Agreement dated as of [___________, ____] among Advanta Mortgage Corp. USA, as Master Servicer, Advanta Conduit Receivables, Inc., as Sponsor, and [Trustee], as Trustee, without regard to any amendment or supplement thereto. "Business Day" means any day other than (i) a Saturday or Sunday or (ii) a day on which the Certificate Insurer is closed or banking institutions in the State of New York, the State of [Trustee's State of Principal Operation] or the city in which the principal corporate trust office of the Trustee under the Agreement is located, are authorized or obligated by law or executive order to be closed. "Deficiency Amount" means the excess, if any, of Required Distributions over the Net Available Distribution Amount. S-55 56 "Insured Payment" means (i) as of any Payment Date, any Deficiency Amount and (ii) any Preference Amount (without duplication). "Net Available Distribution Amount" means, with respect to a Mortgage Loan Group and any Payment Date, the related Group Available Funds for such Payment Date. "Notice" means the telephonic or telegraphic notice, promptly confirmed in writing by fax substantially in the form of Exhibit A attached to the Policy, the original of which is subsequently delivered by registered or certified mail, from the Trustee specifying the Insured Payment which shall be due and owing on the applicable Payment Date. "Owner" means each Owner (as defined in the Agreement) who, on the applicable Payment Date, is entitled under the terms of the applicable Class [A] Certificates, to payment thereunder. "Preference Amount" means any amount previously distributed to an Owner on the Class [A] Certificates, that is recoverable and sought to be recovered as a voidable preference by a trustee in bankruptcy pursuant to the United States Bankruptcy Code (11 U.S.C.), as amended from time to time in accordance with a final nonappealable order of a court having competent jurisdiction. "Required Distributions" means, with respect to a Mortgage Loan Group and (i) any Payment Date occurring prior to the Payment Date in [__________, ____], the Insured Distribution Amount (net of any shortfalls arising due to the application of the Relief Act) with respect to such Mortgage Loan Group and (ii) the Payment Date occurring in [________, ____], the aggregate outstanding principal balance, if any, of the Class [A] Certificates relating to such Mortgage Loan Group (after giving effect to all other payments of principal on the Class [A] Certificates on such Payment Date). Capitalized terms used in the Policy and not otherwise defined in the Policy shall have the respective meanings set forth in the Agreement as of the date of execution of the Policy, without giving effect to any subsequent amendment or modification to the Agreement unless such amendment or modification has been approved in writing by the Certificate Insurer. Any notice under the Policy or service of process on the Fiscal Agent may be made at the address listed below for the Fiscal Agent or such other address as the Certificate Insurer shall specify in writing to the Trustee. The notice address of the Fiscal Agent is [Address] Attention: [_______________] or such other address as the Fiscal Agent shall specify to the Trustee in writing. THE POLICY IS BEING ISSUED UNDER AND PURSUANT TO, AND SHALL BE CONSTRUED UNDER, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF. The insurance provided by the Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. The Policy is not cancelable for any reason. The premium on the Policy is not refundable for any reason including payment, or provision being made for payment, prior to maturity of the Class [A] Certificates. S-56 57 THE POOLING AND SERVICING AGREEMENT In addition to the provisions of the Pooling and Servicing Agreement summarized elsewhere in this Prospectus Supplement and the Prospectus, there is set forth below a summary of certain other provisions of the Pooling and Servicing Agreement. FORMATION OF THE TRUST The Trust will be created and established pursuant to the Pooling and Servicing Agreement on the Closing Date. On such date, the Sponsor will cause the Trust to acquire the Mortgage Loans, and the Trust will issue the Class [A] Certificates. The property of the Trust shall include all money, instruments and other property to the extent such money, instruments and other property are subject or intended to be held in trust for the benefit of the Owners, and all proceeds thereof, including, without limitation, (i) the Mortgage Loans, (ii) such amounts including principal collections in respect of the related Mortgage Loans received on and after the Initial Cut-Off Date and each Subsequent Cut-Off Date, as well as Eligible Investments, as from time to time may be held by the Trustee in the Certificate Account and the Pre-Funding Account, and by the Master Servicer in the Principal and Interest Account (except as otherwise provided in the Pooling and Servicing Agreement), each to be created pursuant to the Pooling and Servicing Agreement, except any premium recapture and interest accrued prior to the Initial Cut-Off Date and each Subsequent Cut-Off Date, (iii) any Mortgaged Property, the ownership of which has been effected on behalf of the Trust as a result of foreclosure or acceptance by the Master Servicer of a deed in lieu of foreclosure and that has not been withdrawn from the Trust, (iv) any insurance policies relating to the Mortgage Loans and any rights of the Sponsor or the Affiliated Originators under any mortgage insurance policies (excluding any non-mortgage related or credit life insurance products), (v) Net Liquidation Proceeds with respect to any Liquidated Mortgage Loan, (vi) the amounts on deposit in the Pre-Funding Account and the rights to receive payments under the Certificate Insurance Policy (collectively, the "Trust Estate"). The Pooling and Servicing Agreement also establishes an account, the "Supplemental Interest Account," which is held in trust by the Trustee, but does not constitute a part of the Trust. The Supplemental Interest Account will hold certain amounts and other property relating to the funding of Supplemental Interest Amounts, if any, with respect to the Class [A-2] Certificate. The Trustee will hold the Certificate Insurance Policy on behalf of the Owners of the Class [A] Certificates. SALE OF MORTGAGE LOANS Not later than the Closing Date the Sponsor will cause the Originators to transfer the Initial Mortgage Loans pursuant to one or more master mortgage loan transfer agreements between the Originators and the Sponsor (the "Master Transfer Agreements"). In the Master Transfer Agreements the Originators will make certain representations and warranties and the Sponsor will assign its rights to enforce such representations and warranties to the Trustee. Pursuant to the Pooling and Servicing Agreement, the Sponsor on the Closing Date will cause the Trust to acquire all right, title and interest of the Originators in each Mortgage Loan listed on the schedule delivered to the Trustee on the Closing Date (the "Schedule of Mortgage S-57 58 Loans") and all their right, title and interest in all principal collected and all interest due on each such Mortgage Loan (excluding any premium recapture) on or after the Initial Cut-Off Date. In connection with the sale of the Mortgage Loans on the Closing Date or on such date specified in the Pooling and Servicing Agreement, the Originators will be required to deliver to the Trustee a file (a "Mortgage Loan File") consisting of, among other things, (i) the original Notes or certified copies thereof, endorsed by the related Originator in blank or to the order of the holder, (ii) originals of all intervening assignments, showing a complete chain of title from origination to the applicable Originators, if any, including warehousing assignments, with evidence of recording thereon, (iii) originals of all assumption and modification agreements if any, and, unless such Mortgage Loan is covered by a counsel's opinion as described in the next paragraph, (iv) either: (a) the original Mortgage, with evidence of recording thereon, (b) a true and accurate copy of the Mortgage where the original has been transmitted for recording, until such time as the original is returned by the public recording office or (c) a copy of the Mortgage certified by the public recording office in those instances where the original recorded Mortgage has been lost. The Trustee will agree, for the benefit of the Owners, to review each such file within 90 days after the Closing Date to ascertain that all required documents (or certified copies of documents) have been executed and received. The Pooling and Servicing Agreement generally requires that there be prepared and recorded, within 75 business days of the Closing Date (or, if original recording information is unavailable, within such later period as is permitted by the Pooling and Servicing Agreement) assignments of the Mortgages from the Originators to the Trustee, in the appropriate jurisdictions in which such recordation is necessary to perfect the lien thereof against creditors of or purchasers from the Originators; provided, however, that such requirements may be waived by the Certificate Insurer under certain circumstances set forth in the Pooling and Servicing Agreement. CONVEYANCE OF THE SUBSEQUENT MORTGAGE LOANS In addition to the Initial Mortgage Loans, the Subsequent Mortgage Loans will be assigned to the Trust from time to time during the Pre-Funding Period. Subject to certain conditions, the Sponsor may, on certain dates (the "Subsequent Transfer Dates") specified in certain transfer agreements entered into after the Closing Date (the "Subsequent Transfer Agreements"), deliver to the Trust as applicable, additional mortgage loans eligible to become Subsequent Mortgage Loans on the next Payment Date in exchange for monies released to the Sponsor from the Pre-Funding Account. The cut-off date for each Subsequent Mortgage Loan will be the opening of business on the first day of the calendar month in which the related Subsequent Transfer Date occurs (the "Subsequent Cut-Off Date"). Upon assignment of any Mortgage Loan to the Trust by the Sponsor during the Pre-Funding Period, the Trustee shall release to the Sponsor an amount equal to the Principal Balance thereof as of the related Subsequent Cut-Off Date from amounts then on deposit in the Pre-Funding Account. DELINQUENCY ADVANCES, COMPENSATING INTEREST AND SERVICING ADVANCES The Master Servicer will be obligated to make Delinquency Advances to the extent that such Delinquency Advances, in the Master Servicer's reasonable judgment, are recoverable from the related Mortgage Loan. Delinquency Advances are recoverable from (i) future collections on the Mortgage Loan which gave rise to the Delinquency Advance, (ii) Liquidation Proceeds for S-58 59 such Mortgage Loan and (iii) from certain excess cash flows not applied for any other purpose. "Delinquency Advances" are amounts deposited into an account, which the Master Servicer and/or any designee thereof, as applicable, shall establish in the name of the Trust for the benefit of the Owners of the Certificates and the Certificate Insurer, as their interests may appear (the "Principal and Interest Account") by the Master Servicer equal to the sum of the interest portions (net of the Servicing Fees and certain other administrative amounts, if any) due, but not collected with respect to delinquent Mortgage Loans during the related Remittance Period. No Delinquency Advance will be required to be made by the Master Servicer if, in the good faith judgment of the Master Servicer, such Delinquency Advance would not ultimately be recoverable from the related Mortgage Loan (any such advance, a "Nonrecoverable Delinquency Advance"); and if previously made by the Master Servicer, a Nonrecoverable Delinquency Advance will be reimbursable from any amounts in the Principal and Interest Account prior to any distributions being made to Certificateholders. The Master Servicer will also be obligated to make Servicing Advances on a timely basis. "Servicing Advances" means any "out-of-pocket" costs and expenses, incurred by the Master Servicer in the performance of its servicing obligations, including, but not limited to, (i) expenditures in connection with a foreclosed Mortgage Loan prior to the liquidation thereof, including expenditures for real estate property taxes, hazard insurance premiums and property restoration or preservation ("Preservation Expenses"), (ii) the cost of any enforcement or judicial proceedings, including (a) foreclosures, and (b) other legal actions and costs associated therewith that potentially affect the existence, validity, priority, enforceability or collectibility of the Mortgage Loans, including collection agency fees and costs of pursuing or obtaining personal judgments, garnishments, levies, attachment and similar actions, (iii) the cost of the conservation, management, liquidation, sale or other disposition of any Mortgaged Property acquired in satisfaction of the related Mortgage Loan, including reasonable fees paid to any independent contractor in connection therewith, and (iv) advances to keep liens current, unless with respect to any of the foregoing the Master Servicer has determined that such advance would not be recoverable. No Servicing Advance will be required to be made by the Master Servicer, if in the good faith judgment of the Master Servicer, such Servicing Advance would not be recoverable from the related Mortgage Loan (any such advance, a "Nonrecoverable Servicing Advance"); and if previously made by the Master Servicer, a Nonrecoverable Servicing Advance will be reimbursable from any amounts in the Principal and Interest Account prior to any distribution being made to Certificateholders. In addition, the Master Servicer will also be required to deposit Compensating Interest in the Principal and Interest Account with respect to any full Prepayment received on a Mortgage Loan during the related Remittance Period out of its own funds without any right of reimbursement therefor. "Compensating Interest" is an amount equal to the difference between (x) 30 days' interest at the Mortgage Loan's interest rate on the principal balance as of the first day of the related Remittance Period and (y) to the extent not previously advanced, the interest paid by the Mortgagor with respect to a full Prepayment of a Mortgage Loan. The Master Servicer will not 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 Master Servicer for such Remittance Period nor will the Master Servicer be required to pay Compensating Interest as a result of the application of the Relief Act or due to partial Prepayments. S-59 60 GOVERNING LAW The Pooling and Servicing Agreement and each Certificate will 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. TERMINATION OF THE TRUST The Pooling and Servicing Agreement will provide that the Trust will terminate upon the payment to the Owners of all Certificates of all amounts required to be paid such Owners and to the Certificate Insurer of all amounts required to be paid to the Certificate Insurer as reimbursement for any prior drawings on the Certificate Insurance Policy upon the latest to occur of (a) the final payment or other liquidation (or any advance made with respect thereto) of the last Mortgage Loan or (b) the disposition of all property acquired in respect of any Mortgage Loan remaining in the Trust Estate and (c) at any time when a Qualified Liquidation of the Trust Estate is effected as described below. To effect a termination pursuant to clause (c) above, the Owners of all Class [A] Certificates then outstanding will be required (i) unanimously to direct the Trustee on behalf of the Trust to adopt a plan of complete liquidation, as contemplated by Section 860F(a)(4) of the Code and (ii) to furnish to the Trustee an opinion of counsel reasonably acceptable to the Trustee to the effect that such liquidation constitutes a Qualified Liquidation. OPTIONAL TERMINATION By the Master Servicer or By Owners of the Subordinate Certificates. On any Payment Date on and after the Clean-up Call Date, at their respective option, the Master Servicer or the Majority Owners of one of the classes of Subordinate Certificates then outstanding, acting directly or through one or more affiliates, may purchase from the Trust all of the Mortgage Loans and other property then held by the Trust, and thereby effect early redemption of the Class [A] Certificates. In the event that either the Master Servicer or the Majority Owners of one of the classes of Subordinate Certificates do not exercise such option, the Certificate Insurer shall be entitled to do so in accordance with the Pooling and Servicing Agreement. Upon Loss of REMIC Status. Following a final determination by the Internal Revenue Service, or by a court of competent jurisdiction, in each case from which no appeal is taken within the permitted time for such appeal, or if any appeal is taken, following a final determination of such appeal from which no further appeal can be taken to the effect that the Trust does not and will no longer qualify as a "REMIC" pursuant to Section 860D of the Code (the "Final Determination"), at any time on or after the date which is 30 calendar days following such Final Determination, (i) the Certificate Insurer, or in the event that a Certificate Insurer default has occurred and is continuing, the Majority Owners of Class [A] Certificates then outstanding may direct the Trustee to adopt a plan of complete liquidation with respect to the Trust or (ii) the Certificate Insurer (so long as no Certificate Insurer default has occurred and is continuing) may notify the Trustee of the Certificate Insurer's determination to purchase from the Trust all Mortgage Loans and other property acquired by foreclosure, deed in lieu of foreclosure, or otherwise in respect of any Mortgage Loan then remaining in the Trust, and thereby effect the early retirement of the Certificates. Upon receipt of such notice or direction, the Trustee will be required to notify the Master Servicer and the Owners of the Subordinate Certificates of the determination of the Certificate Insurer or the Owners of the Class [A] Certificates to liquidate (the "Termination Notice"). Either the Master Servicer or the Majority Owners of one of the classes of the Subordinate Certificates then outstanding, acting directly or through one or more affiliates, may, within 60 days from the date of receipt of the Termination Notice (the "Purchase S-60 61 Option Period"), at their option, purchase from the Trust all of the Mortgage Loans and other property then held by the Trust as of the date of such purchase at a price at least equal to the sum of the aggregate principal balance of the Class [A] Certificates then outstanding, plus accrued interest. If, during the Purchase Option Period, the Master Servicer or the Majority Owners of one of the classes of the Subordinate Certificates then outstanding, acting directly or through one or more affiliates, have not exercised the option described above, then upon the expiration of the Purchase Option Period the Certificate Insurer may purchase the Trust Estate within 60 days after the expiration of the Purchase Option Period or the Trustee, with the consent of the Certificate Insurer (so long as no Certificate Insurer default has occurred and is continuing), will liquidate the Trust Estate and distribute the proceeds of the liquidation thereof. Following a Final Determination, the Master Servicer or the Majority Owners of one of the classes of the Subordinate Certificates then outstanding, acting directly or through one or more affiliates, may, at their option (and upon delivery to the Trustee and the Certificate Insurer of an opinion of counsel experienced in Federal income tax matters to the effect that the effect of the Final Determination is to substantially increase the probability that the gross income of the Trust will be subject to federal taxation), purchase from the Trust all Mortgage Loans and other property then held by the Trust, plus any amounts owing to the Certificate Insurer and certain other amounts. The Pooling and Servicing Agreement provides that the foregoing opinion shall be deemed satisfactory unless the Majority Owners of the Class [A] Certificates then outstanding give the Master Servicer or the Majority Owners of one of the classes of Subordinate Certificates notice that such opinion is not satisfactory within thirty days after receipt of such opinion. CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following discussion of certain of the material anticipated federal income tax consequences of the purchase, ownership and disposition of the Supplemental Interest Amounts and the Class [A] Certificates is to be considered only in connection with "Certain Federal Income Tax Consequences" in the Prospectus. The discussion herein and in the Prospectus is based upon laws, regulations, rulings and decisions now in effect, all of which are subject to change. The discussion below and in the Prospectus does not purport to deal with all federal tax consequences applicable to all categories of investors, some of which may be subject to special rules. Investors should consult their own tax advisors in determining the federal, state, local and any other tax consequences to them of the purchase, ownership and disposition of the Supplemental Interest Amounts and the Class [A] Certificates. REMIC ELECTIONS The Trustee will cause one or more REMIC elections to be made with respect to certain specified assets of the Trust for federal income tax purposes. Qualification as a REMIC requires ongoing compliance with certain conditions. Dewey Ballantine LLP, special tax counsel, will advise that, in its opinion, for federal income tax purposes, assuming the REMIC elections are made and compliance with the Pooling and Servicing Agreement, the Trust will be treated as a REMIC for federal income tax purposes. Each of the Class [A] Certificates will be a "regular interest" in a REMIC, which will be treated as a debt instrument of the Trust for federal income tax purposes. The right of an Owner of a Class [A-2] Certificate to receive payments of any Supplemental Interest Amounts will have the characteristics described below. S-61 62 For federal income tax purposes, regular interests in a REMIC are treated as debt instruments issued by the REMIC on the date on which those interests are created, and not as ownership interests in the REMIC or its assets. Owners of Class [A] Certificates that otherwise report income under a cash method of accounting will be required to report income with respect to such Class [A] Certificates under an accrual method. It is anticipated that the Class [A] Certificates will not have any original issue discount ("OID") other than possibly OID within a de minimus exception and that accordingly the provisions of Sections 1271 through 1273 and 1275 of the Code generally will not apply to the Class [A] Certificates. OID will be considered de minimus if it is less than 0.25% of the principal amount of a Class [A] Certificate multiplied by its expected weighted average life. Because rules regarding the accrual of income on prepayable debt instruments such as the Class [A] Certificates have not yet been issued by the Internal Revenue Service, the proper treatment regarding possible OID and the accrual of income on the Class [A] Certificates is not clear. Potential investors should consult their own tax advisors regarding an investment in the Class [A] Certificates. The prepayment assumption that will be used in determining the rate of accrual of original issue discount on the Class [A] Certificates is 100% of the "Prepayment Assumption". See "Payment and Yield Considerations--Projected Prepayments and Yields for Class [A] Certificates" herein. No representation is made that any of the Mortgage Loans will prepay at such rates or any other rate. See "Payment and Yield Considerations--Projected Prepayments and Yields for Class [A] Certificates" herein and "Certain Federal Income Tax Consequences--Discount and Premium" in the Prospectus. SPECIAL TAX ATTRIBUTES The Class [A] Certificates possess certain special tax attributes by virtue of the REMIC provisions of the Code. See "Certain Federal Income Tax Consequences--REMIC Securities--Special Tax Attributes" in the Prospectus. The Small Business Job Protection Act of 1996 repeals the bad debt reserve method of accounting for mutual savings banks and domestic building and loan associations for tax years beginning after December 31, 1995. As a result, Section 593(d) of the Code is no longer applicable to treat REMIC regular interests, including the Certificates, as "qualifying real property loans." SUPPLEMENTAL INTEREST AMOUNTS The Beneficial Owners of the Class [A-2] Certificates and the related rights to receive Supplemental Interest Amounts will be treated for tax purposes as owning two separate investments: (i) the Class [A-2] Certificates without the right to receive Supplemental Interest Amounts and (ii) the right to receive the Supplemental Interest Amounts. The Owners of the Class [A-2] Certificates must allocate the purchase price of their Certificates between these two investments based on their relative fair market values. The purchase price allocated to the first investment will be the issue price of the Class [A-2] Certificates for calculating accruals of original issue discount. See "Certain Federal Income Tax Consequences--Discount and Premium" in the Prospectus. The Trust intends to treat the Supplemental Interest Amounts for federal income tax purposes as a notional principal contract. Treasury Regulations under Section 446 of the Code relating to notional principal contracts (the "Notional Principal Contract Regulations") provide that taxpayers, regardless of their method of accounting, generally must recognize the ratable daily portion of a periodic payment for the taxable year to which that portion relates. Any Supplemental Interest Amounts will be periodic payments. Income with respect to periodic payments under a notional principal contract for a taxable year should constitute ordinary income. The purchase price allocated to the right to receive the related Supplemental Interest Amounts S-62 63 will be treated as a nonperiodic payment under the Notional Principal Contract Regulations. Such a nonperiodic payment may be amortized using several methods, including the level payment method described in the Notional Principal Contract Regulations. Alternative federal income tax characterization of the Supplemental Interest Amounts is possible, including treatment of the Supplemental Interest Amounts as indebtedness or an interest in a partnership. The amount, timing and character of the income and deductions for a Beneficial Owner of Supplemental Interest Amounts would differ if the Supplemental Interest Amounts were held to constitute indebtedness or an interest in a partnership. Because the Trust will treat the Supplemental Interest Amounts as a notional principal contract, the Master Servicer will not attempt to satisfy the tax reporting requirements that would apply under these alternative characterizations of the Supplemental Interest Amounts. Investors that are foreign persons should consult their own tax advisors in determining the federal, state, local and other tax consequences to them of the purchase, ownership and disposition of the Supplemental Interest Amounts. The right to receive the Supplemental Interest Amounts will not constitute: (i) a "real estate asset" within the meaning of Section 856(c)(5)(B) of the Internal Revenue Code (the "Code") if held by a real estate investment trust; (ii) a "qualified mortgage" within the meaning of Section 860G(a)(3) of the Code or a "permitted investment" within the meaning of Section 860G(a)(5) of the Code if held by a REMIC; or (iii) assets described in Section 7701(a)(19)(C)(xi) of the Code if held by a thrift. Moreover, other special rules may apply to certain investors, including dealers in securities and dealers in notional principal contracts. If the Master Servicer, acting directly or through a permitted designee, exercises its right to an Optional Termination, the Supplemental Interest Amount might not be paid in full. TAXATION OF FOREIGN INVESTORS Subject to the discussion in "Certain Federal Income Tax Consequences--Foreign Investors--Grantor Trust Securities and REMIC Regular Securities" in the Prospectus, foreign investors will not be subject to U.S. withholding on income from the Supplemental Interest Amounts, if such income is not connected with a U.S. trade or business and the foreign investor certifies its foreign status. The Treasury Department has issued new regulations which make certain modifications to the requirements set forth in Annex I to the Prospectus. These new regulations will generally be effective for payments made after December 31, 1999. Prospective investors are urged to consult their tax advisors regarding these new regulations. INFORMATION REPORTING AND BACKUP WITHHOLDING The Trustee will furnish or make available, within a reasonable time after the end of each calendar year, to each person who held a Class [A] Certificate at any time during such year, such information as may be required by applicable rules to assist such holders in preparing their federal income tax returns, or to enable holders to make such information available to beneficial owners or financial intermediaries that hold such Certificates on behalf of beneficial owners. In particular, such information will include a statement of the adjusted issue price of the Class [A] Certificate at the beginning of each accrual period. In addition, the reports will include information necessary to compute the accrual of any market discount that may arise upon secondary trading of Class [A] Certificates. Distributions of interest and principal as well as distributions of proceeds from the sale of the Class [A] Certificates, may be subject to the "backup withholding tax" under Section 3406 of S-63 64 the Code at a rate of 31% if the recipients of such distributions fail to furnish to the payor certain information, including their taxpayer identification numbers, or otherwise fail to establish an exemption from such tax. Any amounts deducted and withheld from a distribution to a recipient would be allowed as a credit against such recipient's federal income tax. Furthermore, certain penalties may be imposed by the IRS on a recipient of distributions that is required to supply information but does not do so in the proper manner. See "Certain Federal Income Consequences--Backup Withholding" in the Prospectus. STATE TAXES The Sponsor makes no representations regarding the tax consequences of purchase, ownership or disposition of the Class [A] Certificates and Supplemental Interest Amounts under tax laws of any state. Investors considering an investment in the Class [A] Certificates and Supplemental Interest Amounts should consult their own tax advisors regarding such tax consequences. ALL INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE CLASS [A] CERTIFICATES AND THE SUPPLEMENTAL INTEREST AMOUNTS. ERISA CONSIDERATIONS Section 406 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and Section 4975 of the Code prohibit a pension, profit-sharing or other employee benefit plan (the "Plans") from engaging in certain transactions involving "plan assets" with persons that are "parties in interest" under ERISA or "disqualified persons" under the Code with respect to the Plan unless a statutory or administrative exemption applies to the transaction. A violation of these "prohibited transaction" rules may generate excise tax and other liabilities under ERISA and the Code for such persons. In addition, investments by Plans are subject to ERISA's general fiduciary requirements, including the requirement of investment prudence and diversification and the requirement that a Plan's investments be made in accordance with the documents governing the Plan. The United States Department of Labor (the "DOL") has issued a regulation (the "Plan Asset Regulation") describing what constitutes the assets of a Plan when the Plan acquires an equity interest in another entity. The Plan Asset Regulation states that, unless an exception described in the regulation is applicable, the underlying assets of a corporation, partnership or trust in which a Plan makes an equity investment will be considered, for purposes of ERISA, to be assets of the investing Plan. Pursuant to the Plan Asset Regulation, if the assets of the Trust were deemed to be plan assets by reason of a Plan's investment in any Class [A] Certificates, such plan assets would include an undivided interest in any assets held in such Trust. Therefore, in the absence of an exemption, the purchase, sale or holding of any Class [A] Certificate by a Plan (including certain individual retirement arrangements) subject to Section 406 of ERISA or Section 4975 of the Code might result in prohibited transactions and the imposition of excise taxes and civil penalties. The DOL has issued to the Underwriters individual prohibited transaction exemptions, (the "Exemptions"), which generally exempt from the application of the prohibited transaction provisions of Section 406(a), Section 406(b)(1), Section 406(b)(2) and Section 407(a) of ERISA and the excise taxes imposed pursuant to Sections 4975(a) and (b) of the Code, certain S-64 65 transactions with respect to the initial purchase, the holding and the subsequent resale by Plans of certificates in pass-through trusts that consist of certain receivables, loans and other obligations that meet the conditions and requirements of the Exemptions. The loans covered by the Exemptions include mortgage loans such as the Mortgage Loans. Among the conditions that must be satisfied for the Exemptions to apply are the following: (i) the acquisition of the certificates by a Plan is on terms (including the price for the certificates) that are at least as favorable to the Plan as they would be in an arm's-length transaction with an unrelated party; (ii) the rights and interests evidenced by the certificates acquired by the Plan are not subordinated to the rights and interests evidenced by other certificates of the trust; (iii) the certificates acquired by the Plan have received a rating at the time of such acquisition that is one of the three highest generic rating categories from either Standard & Poor's Rating Group, a division of The McGraw Hill Companies ("Standard & Poor's"), Moody's Investors Services ("Moody's), Fitch IBCA, Inc. ("Fitch") or Duff & Phelps Credit Rating Co. ("D&P"); (iv) the Trustee is not an affiliate of any other member of the Restricted Group (as defined below); (v) the sum of all payments made to and retained by the Underwriters in connection with the distribution of the certificates represents not more than reasonable compensation for underwriting the certificates; the sum of all payments made to and retained by the Originators and the Sponsor pursuant to the assignment of the loans to the Trust represents not more than the fair market value of such loans; the sum of all payments made to and retained by the Master Servicer or any sub-servicer represents not more than reasonable compensation for such person's services under the Pooling and Servicing Agreement and reimbursement of such person's reasonable expenses in connection therewith; and (vi) the Plan investing in the certificates is an "accredited investor" as defined in Rule 501(a)(1) of Regulation D of the Commission under the Securities Act. The Trust Estate must also meet the following requirements: (i) the corpus of the Trust Estate must consist solely of assets of the type that have been included in other investment pools; (ii) certificates in such other investment pools must have been rated in one of the three highest rating categories of Standard & Poor's, Moody's, Fitch or D&P for at least one year prior to the Plan's acquisition of certificates; and (iii) certificates evidencing interests in such other investment pools must have been purchased by investors other than Plans for at least one year prior to the Plan's acquisition of certificates. S-65 66 Moreover, the Exemptions provide relief from certain self-dealing/conflict of interest prohibited transactions that may occur when the Plan fiduciary causes a Plan to acquire certificates in a trust in which the fiduciary (or its affiliate) is an obligor on the receivables held in the trust; provided that, among other requirements, (i) in the case of an acquisition in connection with the initial issuance of certificates, at least fifty percent of each class of certificates in which Plans have invested is acquired by persons independent of the Restricted Group and at least fifty percent of the aggregate interest in the trust is acquired by persons independent of the Restricted Group; (ii) such fiduciary (or its affiliate) is an obligor with respect to five percent or less of the fair market value of the obligations contained in the trust; (iii) the Plan's investment in certificates of any class does not exceed twenty-five percent of all of the certificates of that class outstanding at the time of the acquisition; and (iv) immediately after the acquisition, no more than twenty-five percent of the assets of the Plan with respect to which such person is a fiduciary are invested in certificates representing an interest in one or more trusts containing assets sold or serviced by the same entity. The Exemptions do not apply to Plans sponsored by the Sponsor, the Certificate Insurer, the Underwriter(s), the Trustee, the Master Servicer, any other servicer, any obligor with respect to Mortgage Loans included in the Trust constituting more than five percent of the aggregate unamortized principal balance of the assets in the Trust, or any affiliate of such parties (the "Restricted Group"). On July 21, 1997, the DOL published in the Federal Register amendments to the Exemptions ("PTE 97-34"), which extend exemptive relief to certain mortgage-backed and asset-backed securities transactions using pre-funding accounts for trusts issuing pass-through certificates. With respect to the Class [A] Certificates, PTE 97-34 generally allows Mortgage Loans supporting payments to Owners of Class [A] Certificates, and having a value equal to no more than 25% of the total principal amount of the Certificates being offered by the Trust, to be transferred to the Trust within a funding period no longer than 90 days or three months following the Closing Date instead of requiring that all such Mortgage Loans be either identified or transferred on or before the Closing Date. The relief will apply to the purchase, sale and holding of the Class [A] Certificates, provided that the following general conditions are met: 1. the ratio of the amount allocated to the Pre-Funding Account to the total principal amount of the Certificates being offered (the "Pre-Funding Limit") does not exceed 25%; 2. all Subsequent Mortgage Loans meet the same terms and conditions for eligibility as the original Mortgage Loans used to create the Trust, which terms and conditions have been approved by Standard and Poor's or Moody's (the "Rating Agencies"); 3. the transfer of such Subsequent Mortgage Loans to the Trust during the Pre-Funding Period does not result in the Class [A] Certificates receiving a lower credit rating from the applicable Rating Agency upon termination of the Pre-Funding Period than the rating that was obtained at the time of the initial issuance of the Class [A] Certificates by the Trust; 4. solely as a result of the use of pre-funding, the weighted average annual percentage interest rate (the "Average Interest Rate") for all of the Mortgage Loans and Subsequent Mortgage Loans in the Trust at the end of the Pre-Funding Period is not more than 100 basis points lower than the Average Interest Rate for the Mortgage Loans which were transferred to the Trust on the Closing Date; S-66 67 5. either: (i) the characteristics of the Subsequent Mortgage Loans are monitored by an insurer or other credit support provider which is independent of the Sponsor; or (ii) an independent accountant retained by the Sponsor provides the Sponsor with a letter (with copies provided to the Rating Agencies, the Underwriters and the Trustee) stating whether or not the characteristics of the Subsequent Mortgage Loans conform to the characteristics described in the Prospectus Supplement and/or Pooling and Servicing Agreement. In preparing such letter, the independent accountant must use the same type of procedures as were applicable to the Mortgage Loans which were transferred to the Trust as of the Closing Date; 6. the Pre-Funding Period ends no later than three months or 90 days after the Closing Date or earlier in certain circumstances if the Pre-Funding Account falls below the minimum level specified in the Pooling and Servicing Agreement or an event of default occurs; 7. amounts transferred to any Pre-Funding Account and/or Capitalized Interest Account used in connection with the pre-funding may be invested only in investments which are permitted by the Rating Agencies and: (i) are direct obligations of, or obligations fully guaranteed as to timely payment of principal and interest by, the United States or any agency or instrumentality thereof (provided that such obligations are backed by the full faith and credit of the United States); or (ii) have been rated (or the obligor has been rated) in one of the three highest generic rating categories by either Standard & Poor's, Moody's, Fitch or D&P; 8. the Prospectus or Prospectus Supplement describes; (i) the Pre-Funding Account and/or Capitalized Interest Account; (ii) the duration of the Pre-Funding Period; (iii) the percentage and/or dollar amount of the Pre-Funding Limit for the Pre-Funding Period that will be remitted to Owners of Class [A] Certificates as repayments of principal; (iv) that the amounts remaining in the Pre-Funding Account at the end of the Pre-Funding Period will be remitted to Owners of Class [A] Certificates as repayments of principal; and 9. the Pooling and Servicing Agreement describes the permitted investments for the Pre-Funding Account and/or Capitalized Interest Account and, if not disclosed in the Prospectus or Prospectus Supplement, the terms and conditions for the eligibility of Subsequent Mortgage Loans. S-67 68 As of the Initial Cut-Off Date, there is no single Mortgage Loan included in the Trust that constitutes more than five percent of the aggregate unamortized principal balance of the assets of the Trust. Before purchasing a Class [A] Certificate based on the Exemptions, as amended by PTE 97-34, a fiduciary of a Plan should itself confirm (1) that such Certificate constitutes a "certificate" for purposes of the Exemptions and (2) that the conditions and other requirements set forth in the Exemptions would be satisfied. Any person purchasing a Class [A-2] Certificate and the related right to receive Supplemental Interest Amounts will have acquired, for purposes of ERISA and for federal income tax purposes, such Class [A-2] Certificate without the right to receive the Supplemental Interest Amounts, together with the right to receive the Supplemental Interest Amounts. The Exemptions do not apply to the acquisition, holding or resale of the right to receive the Supplemental Interest Amounts. Accordingly, the acquisition of the right to receive the Supplemental Interest Amounts by a Plan could result in a prohibited transaction unless another administrative exemption to ERISA's prohibited transaction rules is applicable. One or more alternative exemptions may be available with respect to certain prohibited transaction rules of ERISA that might apply in connection with the initial purchase, holding and resale of the right to receive the Supplemental Interest Amounts, including, but not limited to: (i) Prohibited Transaction Class Exemption ("PTCE") 91-38, regarding investments by bank collective investment funds; (ii) PTCE 90-1, regarding investments by insurance company pooled separate accounts; (iii) PTCE 84-14, regarding transactions negotiated by qualified professional asset managers; (iv) PTCE 96-23, regarding transactions negotiated by in-house asset managers or (v) PTCE 75-1, Part II, regarding principal transactions by broker-dealers (the "Principal Transactions Exemption"). It is believed that the conditions of the Principal Transactions Exemption will be met with respect to the acquisition of a right to receive the Supplemental Interest Amounts by a Plan, so long as such Underwriter is not a fiduciary with respect to the Plan (and is not a party in interest with respect to the Plan by reason of being a participating employer or affiliate thereof). Before purchasing Class [A-2] Certificates based on an administrative exemption (or exemptions), a fiduciary of a Plan should determine whether the conditions of such exemption (or exemptions) would be met and whether the scope of the relief provided by such exemption (or exemptions) would cover all acts that might be construed as prohibited transactions. Prospective Plan investors in the Class [A] Certificates should consult with their legal advisors concerning the impact of ERISA and the Code, the applicability of the Exemptions as amended by PTE 97-34, and the potential consequences in their specific circumstances, prior to making an investment in the Class [A] Certificates. Moreover, each Plan fiduciary should determine whether under the general fiduciary standards of investment procedure and diversification an investment in the Class [A] Certificates is appropriate for the Plan, taking into account the overall investment policy of the Plan and the composition of the Plan's investment portfolio. The sale of the Class [A] Certificates to a Plan is in no respect a representation by the Sponsor or the Underwriters that this investment meets all relevant legal requirements with respect to investments by Plans generally or by any particular Plan or that this investment is appropriate for Plans generally or any particular Plan. In addition to the matters described above, purchasers of a Class [A] Certificates that are insurance companies should consult with their counsel with respect to the recent United States Supreme Court case interpreting the fiduciary responsibility rules of ERISA, John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank, 510 U.S. 86 (1993). In John S-68 69 Hancock, the Supreme Court ruled that assets held in an insurance company's general account may be deemed to be "plan assets" for ERISA purposes under certain circumstances. Prospective purchasers using insurance company general account assets should determine whether the decision affects their ability to make purchases of the Class [A] Certificates. RATINGS It is a condition of the original issuance of the Class [A] Certificates that they receive ratings of "[___]" by [Rating Agency], and "[___]" by [Rating Agency]. The ratings assigned to the Class [A] Certificates will be based on the financial strength of the Certificate Insurer. Such ratings will be the views only of such rating agencies. Explanations of the significance of such ratings may be obtained from [Rating Agency], whose principal offices are located at [Address] and [Rating Agency], whose principal offices are located at [Address]. There is no assurance that such ratings will continue for any period of time or that such ratings will not be revised or withdrawn. Any such revision or withdrawal of such ratings may have an adverse effect on the market price of the Class [A] Certificates. A security rating is not a recommendation to buy, sell or hold securities. The ratings assigned to the Class [A] Certificates do not address the likelihood of the payment of any Supplemental Interest Amounts. The ratings of [Rating Agency] on mortgage loan pass-through certificates address the likelihood of the receipt by the Owners of all distributions to which such Owners are entitled. [Rating Agency] rating opinions address the structural and legal issues and tax-related aspects associated with the Certificates, including the nature of the underlying mortgage loans and the credit quality of the credit support provider, if any. [Rating Agency] ratings on pass-through certificates do not represent any assessment of the likelihood that principal prepayments may differ from those originally anticipated. Such ratings do not address the possibility that, as a result of principal prepayments, certificateholders may receive a lower than anticipated yield. The ratings of the Certificates should be evaluated independently from similar ratings on other types of securities. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency. The Sponsor has not requested a rating of the Class [A] Certificates offered hereby by any rating agency other than [Rating Agency] and [Rating Agency] and the Sponsor has not provided information relating to the Class [A] Certificates or the Mortgage Loans to any rating agency other than [Rating Agency] and [Rating Agency]. There can be no assurance as to whether any other rating agency will rate the Class [A] Certificates offered hereby or, if another rating agency rates such Class [A] Certificates, what rating would be assigned to such Class [A] Certificates by such rating agency. Any such unsolicited rating assigned by another rating agency to the Class [A] Certificates offered hereby may be lower than the rating assigned to such Class [A] Certificates by [Rating Agency] and [Rating Agency]. S-69 70 LEGAL INVESTMENT CONSIDERATIONS No class of the Class [A] Certificates will constitute "mortgage related securities" for purposes of the Secondary Mortgage Market Enhancement Act of 1984. UNDERWRITING Under the terms and subject to the conditions set forth in an Underwriting Agreement for the sale of the Class [A] Certificates, dated [___________, ____] (the "Underwriting Agreement"), the Sponsor has agreed to cause the Trust to sell to the underwriter(s) of the Class [A] Certificates set forth below (the "Underwriter(s)"), and the Underwriter(s) have agreed to purchase, the Class [A] Certificates. In the Underwriting Agreement, the Underwriter(s) have agreed, subject to the terms and conditions set forth therein, to purchase the entire principal amount of the Class [A] Certificates in the amounts with respect to each of the Underwriter(s) as set forth below: Underwriter Principal Amount - ------------------------------------------------- ---------------- [Underwriter].................................... [$___________] [Underwriter].................................... [$___________] ---------------- Total ............................... [$___________] The Underwriter(s) have informed the Sponsor that they propose to offer the Class [A] Certificates for sale from time to time in one or more negotiated transactions, or otherwise, at varying prices to be determined, in each case, at the time of the related sale. The Underwriter(s) may effect such transactions by selling the Class [A] Certificates to or through dealers, and such dealers may receive compensation in the form of underwriting discounts, concessions or commissions from the Underwriter(s). In connection with the sale of the Class [A] Certificates, the Underwriter(s) may be deemed to have received compensation from the Sponsor in the form of underwriting compensation. The Underwriter(s) and any dealers that participate with the Underwriter(s) in the distribution of the Class [A] Certificates may be deemed to be underwriters and any commissions received by them and any profit on the resale of the Class [A] Certificates by them may be deemed to be underwriting discounts and commissions under the Securities Act of 1933, as amended. The Sponsor has agreed to indemnify the Underwriters against certain liabilities including liabilities under the Securities Act of 1933, as amended. In connection with this offering and in compliance with applicable law and industry practice, the Underwriter(s) may overallot or effect transactions which stabilize, maintain or otherwise affect the market price of the Class [A] Certificates at a level above that which might otherwise prevail in the open market, including stabilizing bids, effecting syndicate covering transactions or imposing penalty bids. A stabilizing bid means the placing of any bid, or the effecting of any purchase, for the purpose of pegging, fixing or maintaining the price of a security. A syndicate covering transaction means the placing of any bid on behalf of the underwriting syndicate or the effecting of any purchase to reduce a short position created in connection with the offering. A penalty bid means an arrangement that permits [Underwriter/Representative of Underwriters], as managing underwriter], to reclaim a selling concession from a syndicate member in connection with the offering when Class [A] Certificates S-70 71 originally sold by the syndicate member are purchased in syndicate covering transactions. The Underwriter(s) are not required to engage in any of these activities. Any such activities, if commenced, may be discontinued at any time. The Sponsor or its affiliates may apply the net proceeds of the sale of the Class [A] Certificates to the repayment of debt, including "warehouse" debt secured by the Mortgage Loans prior to their transfer to the Trust. [One or more of] the Underwriters (or their respective affiliates) may have acted as "warehouse" lender to the Sponsor or one or more of its affiliates and may receive a portion of such proceeds as repayment of such "warehouse debt." The Sponsor has been advised by the Underwriters that the Underwriters presently intend to make a market in the Class [A] Certificates, as permitted by applicable laws and regulations. The Underwriter(s) are not obligated, however, to make a market in the Class [A] Certificates and such market-making may be discontinued at any time at the sole discretion of the Underwriters. Accordingly, no assurance can be given as to the liquidity of, or trading markets for, the Class [A] Certificates. EXPERTS The consolidated balance sheets of [Certificate Insurer] [and Subsidiaries] as of December 31, ____ and December 31, ____ and the related consolidated statements of income, changes in shareholder's equity, and cash flows for each of the three years in the period ended December 31, ____, incorporated by reference in this Prospectus Supplement have been incorporated herein in reliance on the report of [Accountants], independent accountants, given on the authority of that firm as experts in accounting and auditing. CERTAIN LEGAL MATTERS Certain legal matters relating to the validity of the issuance of the Class [A] Certificates will be passed upon for the Sponsor by Dewey Ballantine LLP, New York, New York, and for the Underwriters by [Counsel]. S-71 72 INDEX OF PRINCIPAL DEFINED TERMS 2/28 Loans.................................................................S-13 3/27 Loans.................................................................S-13 5/25 Loans.................................................................S-13 Accrual Period.............................................................S-39 Advanta Parent.............................................................S-34 Affiliated Originators.....................................................S-18 Agreement..................................................................S-56 Appraised Values...........................................................S-21 ARM Group..................................................................S-21 ARM Group Available Funds..................................................S-52 ARM Group Available Funds Cap Rate.........................................S-39 ARM Group Class [A] Principal Distribution Amount..........................S-40 ARM Group Insured Distribution Amount......................................S-41 ARM Group Interest Distribution Amount.....................................S-39 Available Funds Shortfall..................................................S-51 Average Amount Outstanding.................................................S-20 Average Interest Rate......................................................S-67 Beneficial Owner...........................................................S-36 Book-Entry Certificates....................................................S-42 Business Day...............................................................S-56 Capitalized Interest Account...............................................S-37 Cedelbank Participants.....................................................S-44 Certificate Account........................................................S-37 Certificate Insurer Reimbursable Amount....................................S-51 Class [A] Distribution Amount..............................................S-42 Class [A] Principal Distribution Amount....................................S-40 Class [A-1] Pass-Through Rate..............................................S-38 Class [A-2] Formula Pass-Through Rate......................................S-38 Class [A-2] Pass-Through Rate..............................................S-38 Class A ARM Group Certificates.............................................S-21 Class A Fixed Rate Group Certificates......................................S-21 Class A Interest Carry Forward Amount......................................S-39 Class A Interest Distribution Amount.......................................S-39 Clean-up Call..............................................................S-46 Clean-up Call Date.........................................................S-47 CLTV.......................................................................S-21 Code.......................................................................S-64 Compensating Interest......................................................S-60 CPR Assumption.............................................................S-31 Current Interest Amount....................................................S-39 D&P........................................................................S-66 Deficiency Amount..........................................................S-56 Delinquency Advances.......................................................S-59 DTC........................................................................S-44 DTC Participants...........................................................S-44 ERISA......................................................................S-11 Euroclear Operator.........................................................S-44 Euroclear Participants.....................................................S-44 European Depositaries......................................................S-42 Excess Overcollateralization Amount........................................S-49 Exemptions.................................................................S-65 FDIC.......................................................................S-36 Final Determination........................................................S-61 Final Scheduled Payment Date...............................................S-31 Financial Intermediary.....................................................S-42 Fiscal Agent...............................................................S-55 Fitch......................................................................S-66 Fixed Rate Group...........................................................S-21 Fixed Rate Group Available Funds...........................................S-52 Fixed Rate Group Available Funds Cap Rate..................................S-38 Fixed Rate Group Class A Principal Distribution Amount.....................S-40 Fixed Rate Group Insured Distribution Amount...............................S-41 Fixed Rate Group Interest Distribution Amount..............................S-39 Foreclosure Rate...........................................................S-19 Gross Losses...............................................................S-20 Group......................................................................S-18 Group Available Funds......................................................S-52 Group Interest Distribution Amount.........................................S-39 Hybrid ARMs................................................................S-13 Initial Cut-Off Date.......................................................S-20 Initial Mortgage Loans.....................................................S-21 Insured Distribution Amount................................................S-41 Insured Payment............................................................S-56 Interest Determination Date................................................S-47 Junior Lien Ratio..........................................................S-23 Junior Loans...............................................................S-21 LIBOR......................................................................S-38 Liquidated Mortgage Loan...................................................S-50 LTV........................................................................S-21 Majority Owners............................................................S-38 Master Transfer Agreements.................................................S-58 Monthly Remittance Amount..................................................S-37 Moody's....................................................................S-66 Mortgage Loan..............................................................S-18 Mortgage Loan File.........................................................S-58 Mortgage Loan Group........................................................S-18 Mortgaged Property.........................................................S-20 Net Available Distribution Amount..........................................S-56 Net Losses.................................................................S-20 Net Monthly Excess Cashflow................................................S-51 Net Monthly Excess Spread..................................................S-48 Nonrecoverable Delinquency Advance.........................................S-59 Nonrecoverable Servicing Advance...........................................S-60 Notes......................................................................S-20 Notice.....................................................................S-56 Notional Principal Contract Regulations....................................S-63 OID........................................................................S-62 Optional Termination.......................................................S-38 S-72 73 Original ARM Group Pre-Funded Amount.......................................S-37 Original Fixed Rate Group Pre-Funded Amount................................S-37 Original Pre-Funded Amount.................................................S-37 Overcollateralization Amount...............................................S-49 Overcollateralization Deficit..............................................S-42 Overcollateralization Increase Amount......................................S-49 Overcollateralization Reduction Amount.....................................S-50 Owned and Managed Servicing Portfolio......................................S-19 Owner......................................................................S-56 Participants...............................................................S-42 Pass-Through Rates.........................................................S-38 Payment Date...............................................................S-36 Plan Asset Regulation......................................................S-65 Plans......................................................................S-65 Policy.....................................................................S-55 Pooling and Servicing Agreement............................................S-36 Preference Amount..........................................................S-56 Pre-Funding Account........................................................S-37 Pre-Funding Limit..........................................................S-67 Pre-Funding Period.........................................................S-21 Prepayment.................................................................S-29 Prepayment Assumption......................................................S-31 Preservation Expenses......................................................S-60 Principal and Interest Account.............................................S-59 Principal Transactions Exemption...........................................S-69 PTCE.......................................................................S-69 PTE 97-34..................................................................S-67 Purchase Option Period.....................................................S-61 Rating Agencies............................................................S-67 Realized Loss..............................................................S-50 Record Date................................................................S-36 Recoveries.................................................................S-20 Reference Banks............................................................S-47 Relevant Depositary........................................................S-42 REMIC......................................................................S-61 Remittance Date............................................................S-37 Remittance Period..........................................................S-38 Required Distributions.....................................................S-57 Reserve Interest Rate......................................................S-48 Restricted Group...........................................................S-67 Rules......................................................................S-43 Schedule of Mortgage Loans.................................................S-58 Senior Lien................................................................S-23 Senior Loans...............................................................S-21 Servicing Advances.........................................................S-60 Specified Overcollateralization Amount.....................................S-49 Standard & Poor's..........................................................S-66 Statistical Calculation Date...............................................S-21 Step-Up Payment Date.......................................................S-39 Subordinate Certificates...................................................S-36 Subsequent Cut-Off Date....................................................S-59 Subsequent Mortgage Loans..................................................S-21 Subsequent Transfer Agreements.............................................S-59 Subsequent Transfer Dates..................................................S-59 Sub-Servicing Agreements...................................................S-35 Supplemental Interest Account..............................................S-58 Supplemental Interest Amount...............................................S-38 Termination Notice.........................................................S-61 Terms and Conditions.......................................................S-45 Third-Party Servicing Portfolio............................................S-19 Total Monthly Excess Cashflow..............................................S-51 Total Monthly Excess Spread................................................S-48 Trust Estate...............................................................S-58 Trustee....................................................................S-55 Unaffiliated Originators...................................................S-18 Underwriter(s).............................................................S-71 Underwriting Agreement.....................................................S-71 Weighted average life......................................................S-31 Year 2000 Issue............................................................S-17 S-73 74 ================================================================================ [$-----------] (APPROXIMATE) ADVANTA MORTGAGE LOAN TRUST [TRUST] MORTGAGE LOAN ASSET-BACKED CERTIFICATES, SERIES [SERIES] [LOGO] ADVANTA MORTGAGE CORP. USA MASTER SERVICER [LOGO] ADVANTA CONDUIT RECEIVABLES, INC. SPONSOR ----------------------------------- PROSPECTUS SUPPLEMENT ----------------------------------- [UNDERWRITER] [CO-UNDERWRITERS] [___________, ____] You should rely only on the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus. We have not authorized anyone to provide you with different information. We are not offering the securities offered hereby in any state where such offer is not permitted. We represent the accuracy of the information in this prospectus supplement and the accompanying prospectus only as of the dates on their respective covers. Dealers will be required to deliver a prospectus supplement and prospectus when acting as underwriters of the securities offered hereby and with respect to their unsold allotments or subscriptions. In addition, all dealers selling the securities, whether or not participating in this offering, may be required to deliver a prospectus supplement and prospectus until [___________, ____]. ================================================================================ -----END PRIVACY-ENHANCED MESSAGE-----