-----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, Irty7uH/tj7TYSAnP0F6FULZN6p5yfM2WUtcCkQ1/ERdwTnTORSPfww5WNtF0Bd7 2+2Js5nazfE+1e3qxy2bcg== 0000914121-05-000858.txt : 20050429 0000914121-05-000858.hdr.sgml : 20050429 20050429172833 ACCESSION NUMBER: 0000914121-05-000858 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20050429 DATE AS OF CHANGE: 20050429 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN HOME MORTGAGE INVESTMENT CORP CENTRAL INDEX KEY: 0001256536 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 200103914 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-31916 FILM NUMBER: 05787620 MAIL ADDRESS: STREET 1: 520 BROADHOLLOW ROAD CITY: MELVILLE STATE: NY ZIP: 11747 10-Q/A 1 am033104-10qa.txt AMENDMENT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004. OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________. Commission File Number: 001-31916 AMERICAN HOME MORTGAGE INVESTMENT CORP. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) Maryland 20-0103914 - -------------------------------------------------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 538 Broadhollow Road, Melville, New York 11747 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (516) 949-3900 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] As of May 4, 2004, there were 39,891,698 shares of the registrant's common stock, par value $0.01 per share, outstanding. AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES TABLE OF CONTENTS This amendment on Form 10-Q/A reflects the restatement of the consolidated financial statements of American Home Mortgage Investment Corp., as discussed in Note 13 to the consolidated financial statements. All of the information in this Form 10-Q/A is as of May 10, 2004, the filing date of the original Form 10-Q for the quarter ended March 31, 2004, and has not been updated for events subsequent to that date other than for the matter discussed above. PART I-FINANCIAL INFORMATION Page ---- Item 1. Financial Statements Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003...............................................1 Consolidated Statements of Income for the Three Months Ended March 31, 2004 and 2003...................................2 Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2004 and 2003......................3 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 (As Restated) and 2003.....................4 Notes to Consolidated Financial Statements .......................5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................21 Item 3. Quantitative and Qualitative Disclosures About Market Risk ......33 Item 4. Controls and Procedures..........................................34 PART II-OTHER INFORMATION Item 1. Legal Proceedings................................................36 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.................................36 Item 3. Defaults Upon Senior Securities..................................36 Item 4. Submission of Matters to a Vote of Security Holders..............36 Item 5. Other Information................................................36 Item 6. Exhibits and Reports on Form 8-K ................................37 SIGNATURES INDEX TO EXHIBITS PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands, except per share amounts)
March 31, December 31, 2004 2003 --------------------- -------------------- Assets: Cash and cash equivalents $ 97,557 $ 53,148 Accounts receivable and servicing advances 80,426 84,311 Mortgage-backed securities (including securities pledged of $3,574,125 and $1,426,477 as of March 31, 2004 and December 31, 2003, respectively) 4,003,079 1,763,628 Mortgage loans held for sale, net 1,371,048 1,223,827 Derivative assets 24,151 20,837 Mortgage servicing rights, net 113,519 117,784 Premises and equipment, net 41,234 41,738 Goodwill 83,752 83,445 Other assets 12,213 13,672 --------------------- -------------------- Total assets $ 5,826,979 $ 3,402,390 ===================== ==================== Liabilities and Stockholders' Equity: Liabilities: Warehouse lines of credit $ 1,251,845 $ 1,121,760 Drafts payable 64,310 25,625 Reverse repurchase agreements 3,394,941 1,344,327 Payable for securities purchased 134,647 259,701 Derivative liabilities 21,295 10,394 Accrued expenses and other liabilities 58,648 76,156 Notes payable 106,423 99,655 Income taxes payable 53,689 66,802 --------------------- -------------------- Total liabilities 5,085,798 3,004,420 --------------------- -------------------- Commitments and contingencies - - Stockholders' Equity: Preferred stock, $0.01 per share par value, 10,000,000 shares authorized, none issued and outstanding - - Common stock, $0.01 per share par value, 100,000,000 shares authorized, 39,875,524 and 25,270,100 shares issued and outstanding as of March 31, 2004 and December 31, 2003, respectively 399 252 Additional paid-in capital 623,953 281,432 Retained earnings 125,504 121,029 Accumulated other comprehensive loss (8,675) (4,743) --------------------- -------------------- Total stockholders' equity 741,181 397,970 --------------------- -------------------- Total liabilities and stockholders' equity $ 5,826,979 $ 3,402,390 ===================== ====================
See notes to consolidated financial statements. -1- AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except per share amounts)
Three Months Ended March 31, ---------------------------------------------------- 2004 2003 ---------------------- ----------------------- Net interest income: Interest income $ 34,050 $ 20,978 Interest expense (21,278) (10,209) ---------------------- ----------------------- Total net interest income 12,772 10,769 ---------------------- ----------------------- Non-interest income: Gain on sales of mortgage loans and mortgage-backed securities 80,133 88,211 Loan servicing fees 10,318 11,128 Amortization (7,346) (12,769) Impairment reserve provision (12,584) (5,713) ---------------------- ----------------------- Net loan servicing fees (loss) (9,612) (7,354) ---------------------- ----------------------- Other non-interest income 978 2,928 ---------------------- ----------------------- Total non-interest income 71,499 83,785 ---------------------- ----------------------- Non-interest expenses: Salaries, commissions and benefits, net 39,782 44,647 Occupancy and equipment 8,094 5,623 Data processing and communications 3,213 3,079 Office supplies and expenses 3,118 3,023 Marketing and promotion 2,212 2,799 Travel and entertainment 2,577 1,987 Professional fees 2,428 1,841 Other 5,438 3,665 ---------------------- ----------------------- Total non-interest expenses 66,862 66,664 ---------------------- ----------------------- Net income before income tax (benefit) expense 17,409 27,890 Income tax (benefit) expense (3,814) 11,577 ---------------------- ----------------------- Net income $ 21,223 $ 16,313 ====================== ======================= Per share data: Basic $ 0.71 $ 0.97 ====================== ======================= Diluted $ 0.70 $ 0.96 ====================== ======================= Weighted average number of shares - basic 30,030,248 16,750,960 Weighted average number of shares - diluted 30,507,818 17,015,681
See notes to consolidated financial statements. -2- AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) THREE MONTHS ENDED MARCH 31, 2004 AND 2003
Shares of Additional Common Common Paid-in Retained (Dollars in thousands) Stock Stock Capital Earnings - -------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2002 16,717,459 $ 167 $ 95,785 $ 68,144 =================== ================= ================= ================= Comprehensive income: Net income - - - 16,313 Comprehensive income Issuance of common stock, earnouts 13,827 - 142 - Issuance of common stock, 1999 Omnibus Stock Incentive Plan 43,627 1 325 - Dividends declared - - - (837) ------------------- ----------------- ----------------- ----------------- Balance at March 31, 2003 16,774,913 $ 168 $ 96,252 $ 83,620 =================== ================= ================= ================= Balance at December 31, 2003 25,270,100 $ 252 $ 281,432 $ 121,029 =================== ================= ================= ================= Comprehensive income: Net income - - - 21,223 Net unrealized gain on mortgage-backed securities available for sale - - - - Gross unrealized loss on interest rate swaps - - - - Comprehensive income Issuance of common stock, offering 14,375,000 144 339,647 - Issuance of common stock, earnouts 4,758 - 109 - Issuance of common stock, 1999 Omnibus Stock Incentive Plan 225,666 3 1,166 - Tax benefit from stock options exercised - - 1,599 - Dividends declared - - - (16,748) ------------------- ----------------- ----------------- ----------------- Balance at March 31, 2004 39,875,524 $ 399 $ 623,953 $ 125,504 =================== ================= ================= ================= Accumulated Other Total Comprehensive Stockholders' (Dollars in thousands) Loss Equity - ------------------------------------------------------------------------------------------------------ Balance at December 31, 2002 $ - $ 164,096 ==================== ==================== Comprehensive income: Net income - 16,313 -------------------- Comprehensive income 16,313 Issuance of common stock, earnouts - 142 Issuance of common stock, 1999 Omnibus Stock Incentive Plan - 326 Dividends declared - (837) -------------------- -------------------- Balance at March 31, 2003 $ - $ 180,040 ==================== ==================== Balance at December 31, 2003 $ (4,743) $ 397,970 ==================== ==================== Comprehensive income: Net income - 21,223 Net unrealized gain on mortgage-backed securities available for sale 10,221 10,221 Gross unrealized loss on interest rate swaps (14,153) (14,153) -------------------- Comprehensive income 17,291 Issuance of common stock, offering - 339,791 Issuance of common stock, earnouts - 109 Issuance of common stock, 1999 Omnibus Stock Incentive Plan - 1,169 Tax benefit from stock options exercised - 1,599 Dividends declared - (16,748) -------------------- -------------------- Balance at March 31, 2004 $ (8,675) $ 741,181 ==================== ====================
See notes to consolidated financial statements. -3- AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Three Months Ended March 31, ---------------------------- 2004 2003 ------------ ----------- (As restated, see Note 13) Cash flows from operating activities: Net income $ 21,223 $ 16,313 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 1,977 1,169 Amortization and impairment of mortgage servicing rights 19,930 18,482 Amortization of mortgage-backed securities premiums, net 2,952 -- Deferred cash flow hedge gain, net of amortization 415 -- Gain on sales of mortgage-backed securities and derivatives (6,705) -- Unrealized gain on mortgage-backed securities (10,217) -- Additions to mortgage servicing rights on securitized loans (9,863) -- Additions to mortgage servicing rights on sold loans (5,802) (5,832) Increase in interest rate lock commitments (9,990) (8,107) Increase in deferred origination costs (884) (6,605) Decrease (increase) in SFAS No. 133 basis adjustments 5,524 (4,203) Other (2,504) 123 (Increase) decrease in operating assets: Accounts receivable and servicing advances 3,885 3,029 Other assets 1,703 (1,373) Increase (decrease) in operating liabilities: Accrued expenses and other liabilities (8,092) 4,821 Income taxes payable (13,113) 7,980 Forward delivery contracts (5,809) (6,097) Origination of mortgage loans held for sale (4,413,174) (4,250,824) Proceeds from sales and repayments of mortgage loans 3,292,010 4,061,780 Proceeds from securitizations and repayments of mortgage loans 969,436 -- Additions to mortgage-backed securities (897,322) -- Proceeds from sales of mortgage-backed securities 23,861 -- Principal repayments of mortgage-backed securities 13,734 -- ------------- ----------- Net cash used in operating activities (1,026,825) (169,344) ------------- ----------- Cash flows from investing activities: Purchases of premises and equipment (1,473) (2,347) Purchases of mortgage-backed securities (2,094,101) -- Proceeds from sales of mortgage-backed securities 697,268 -- Principal repayments of mortgage-backed securities 49,985 -- Other (353) 369 ------------- ----------- Net cash used in investing activities (1,348,674) (1,978) ------------- ----------- Cash flows from financing activities: Increase in warehouse lines of credit, net 130,085 173,275 Increase in reverse repurchase agreements, net 2,050,614 -- Decrease in payable for securities purchased (125,054) -- Increase in drafts payable, net 38,685 7,744 Proceeds from issuance of common stock 341,882 202 Dividends paid (23,072) (837) Increase (decrease) in notes payable, net 6,768 (2,459) ------------- ----------- Net cash provided by financing activities 2,419,908 177,925 ------------- ----------- Net increase in cash and cash equivalents 44,409 6,603 Cash and cash equivalents, beginning of period 53,148 24,416 ------------- ----------- Cash and cash equivalents, end of period $ 97,557 $ 31,019 ============= =========== Supplemental disclosure of cash flow information: Interest paid $ 13,254 $ 8,527 Income taxes paid 6,361 5,256
See notes to consolidated financial statements. -4- AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization - On December 3, 2003, American Home Mortgage Holdings, Inc. ("AHM Holdings") completed its merger with Apex Mortgage Capital, Inc. ("Apex"). Under the terms of the agreement, AHM Holdings reorganized through a reverse triangular merger that caused American Home Mortgage Investment Corp. ("AHM Investment"), a newly formed Maryland corporation that operates and will elect to be treated as a real estate investment trust, or REIT, for federal income tax purposes, to become AHM Holdings' parent. AHM Investment was formed to combine the net assets of Apex, a Maryland corporation that operated and elected to be treated as a REIT, with the mortgage origination and servicing businesses of AHM Holdings. As used herein, references to the "Company," "American Home," "we," "our" and "us" refer to AHM Investment collectively with its subsidiaries. AHM Investment is a mortgage REIT focused on earning net interest income from purchased and self-originated mortgage-backed securities, and through its taxable subsidiaries, on earning income from originating and selling mortgage loans and servicing mortgage loans for institutional investors. Mortgages are originated through a network of 279 loan origination offices as well as through mortgage brokers and are serviced at the Company's Columbia, Maryland servicing center. Basis of Presentation - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company's estimates and assumptions primarily arise from risks and uncertainties associated with interest rate volatility, prepayment volatility, credit exposure and regulatory changes. Although management is not currently aware of any factors that would significantly change its estimates and assumptions in the near term, future changes in market trends and conditions may occur which could cause actual results to differ materially. When necessary, certain reclassifications of prior year financial statement amounts have been made to conform to the current year presentation. The unaudited consolidated financial statements included herein have been prepared in conformity with generally accepted accounting principles ("GAAP") for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Management believes all adjustments considered necessary for a fair presentation have been included. The consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 2003. Due to the fact that the Company exercises significant influence on the operations of its joint ventures, their balances and operations have been fully consolidated in the accompanying consolidated financial statements and all intercompany accounts and transactions have been eliminated. Cash and Cash Equivalents - Cash and cash equivalents include cash on hand, amounts due from banks and overnight deposits. Mortgage-backed Securities - Mortgage-backed securities are classified as either trading or available for sale. Trading securities are reported at fair value, and changes in fair value are reported in gain on sales of mortgage loans and mortgage-backed securities in the statements of operations. Available for sale securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported in accumulated other comprehensive income (loss). Realized gains and losses on sales of available for sale securities are determined on an average cost basis and included in gain on sales of mortgage loans and mortgage-backed securities. When the fair value of an available for sale security is less than amortized cost, management considers whether there is an other-than-temporary impairment in the value of the security (e.g., whether the security will be sold prior to the recovery of fair value). If, in management's judgment, an other-than-temporary impairment exists, the cost basis of the security is written down to the then-current fair value, and the unrealized loss is transferred from accumulated other comprehensive income as an immediate reduction of current earnings (i.e., as if the loss had been realized in the period of impairment). Mortgage Loans Held for Sale - Mortgage loans held for sale are carried at the lower of cost or aggregate market value. The cost basis includes the capitalized value of the interest rate lock commitments ("IRLCs") related to the mortgage loans and any net deferred origination costs. For mortgage loans held for sale that are hedged with forward sale commitments, the carrying value is adjusted for the -5- change in market during the time the hedge was deemed to be highly effective. The market value is determined by outstanding commitments from investors or current investor yield requirements calculated on the aggregate basis. Mortgage Servicing Rights - Mortgage servicing rights ("MSRs") are carried at the lower of cost or fair value, based on defined risk strata and are amortized in proportion to and over the period of estimated net servicing income. When the Company sells certain loans and retains the servicing rights, it allocates the cost basis of the loans between the assets sold and the MSRs based on their relative fair values on the date of sale. The Company estimates the fair value of its MSRs by obtaining market information from one of the primary mortgage servicing rights brokers. When the book value of capitalized MSRs exceeds their fair value, impairment is recognized through a valuation allowance. In determining impairment, the mortgage servicing portfolio is stratified by the predominant risk characteristic of the underlying mortgage loans. The Company has determined that the predominant risk characteristic is the interest rate on the underlying loans. The Company measures impairment for each stratum by comparing the estimated fair value to the recorded book value. Temporary impairment is recorded through a valuation allowance and amortization expense in the period of occurrence. In addition, the Company periodically evaluates its MSRs for other than temporary impairment to determine if the carrying value before the application of the valuation allowance is recoverable. The Company receives a sensitivity analysis of the estimated fair value of its MSRs assuming a 200-basis-point instantaneous increase in interest rates from an independent mortgage servicing rights broker. The fair value estimate includes changes in market assumptions that would be expected given the increase in mortgage rates (e.g., prepayment speeds would be lower). The Company believes this 200-basis-point increase in mortgage rates to be an appropriate threshold for determining the recoverability of the temporary impairment because that size rate increase is foreseeable and consistent with historical mortgage rate fluctuations. When using this instantaneous change in rates, if the fair value of the strata of MSRs is estimated to increase to a point where all of the impairment would be recovered, the impairment is considered to be temporary. When the Company determines that a portion of the MSRs is not recoverable, the related MSRs and the previously established valuation allowance are correspondingly reduced to reflect other than temporary impairment. Premises and Equipment - Premises and equipment is stated at cost less accumulated depreciation and amortization. Depreciation is provided using the straight-line method over their estimated service lives. Leasehold improvements are amortized over the lesser of the life of the lease or service lives of the improvements using the straight-line method. Depreciation and amortization are recorded within occupancy and equipment expense within the consolidated financial statements. Goodwill - Goodwill represents the excess purchase price over the fair value of net assets acquired from business acquisitions and which were being amortized over their initial estimated lives, generally 20 years. Effective January 1, 2002, the Company no longer amortizes goodwill, but instead tests for impairment at least annually. The Company will test for impairment more frequently if events or circumstances indicate that an asset may be impaired. The Company tests for impairment by comparing the fair value of goodwill, as determined by using a discounted cash flow method, with its carrying value. Any excess of carrying value over the fair value of the goodwill would be recognized as an impairment loss in continuing operations. The discounted cash flow calculation related to the Company's loan origination segment includes a forecast of the expected future loan originations and the related revenues and expenses. The discounted cash flow calculation related to the Company's mortgage-backed securities holdings segment includes a forecast of the expected future net interest income, gain on mortgage-backed securities and the related revenues and expenses. These cash flows are discounted using a rate that is estimated to be a weighted-average cost of capital for similar companies. We further test to ensure that the fair value of all of our business units does not exceed our total market capitalization. -6- Reverse Repurchase Agreements - The Company has entered into reverse repurchase agreements to finance certain of its investments. These agreements are secured by a portion of the Company's investments and bear interest rates that have historically moved in close relationship to LIBOR. Reverse repurchase agreements are accounted for as short-term borrowings and recorded as a liability on the balance sheet. Drafts Payable - Drafts payable represent outstanding mortgage loan disbursements that the Company has provided to its customers for the purchase of a home. The amounts outstanding do not bear interest and are transferred into the warehouse facility when they are presented to a bank. Derivative Financial Instruments - The Company has developed risk management programs and processes designed to manage market risk associated with normal business activities. Interest Rate Lock Commitments. The Company's mortgage committed pipeline includes IRLCs that have been extended to borrowers who have applied for loan funding and meet certain defined credit and underwriting criteria. The Company classifies and accounts for the IRLCs as free-standing derivatives. Accordingly, IRLCs are recorded at fair value with changes in fair value recorded to current earnings. The fair value of the IRLCs is determined by an estimate of the ultimate gain on sale of the loans, including the value of MSRs, net of estimated net costs to originate the loan. In March 2004, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 105 ("SAB No. 105"), which will change the timing of recognition of MSRs for IRLCs initiated after March 31, 2004. See "Recently Issued Accounting Standards" in this note. Forward Delivery Commitments Used to Hedge IRLCs. The Company uses mortgage forward delivery contracts to economically hedge the IRLCs, which are also classified and accounted for as free-standing derivatives and thus are recorded at fair value with the changes in fair value recorded to current earnings. Forward Delivery Commitments Used to Hedge Mortgage Loans Held for Sale. The Company's risk management objective for its mortgage loans held for sale is to protect earnings from an unexpected charge due to a decline in value. The Company's strategy is to engage in a risk management program involving the use of mortgage forward delivery contracts designated as fair value hedging instruments to hedge 100% of its agency-eligible conforming loans and most of its non-conforming loans held for sale. At the inception of the hedge, the Company formally documents the relationship between the forward delivery contracts and the mortgage inventory as well as its objective and strategy for undertaking the hedge transactions. For conventional conforming fixed-rate loans, the notional amount of the forward delivery contracts, along with the underlying rate and terms of the contracts, are equivalent to the unpaid principal amount of the mortgage inventory being hedged; hence, the forward delivery contracts effectively fix the forward sales price and thereby substantially eliminate interest rate and price risk to the Company. The Company classifies and accounts for these forward delivery contracts as fair value hedges. The derivatives are carried at fair value with the changes in fair value recorded to current earnings. When the hedges are deemed highly effective, the book value of the hedged loans held for sale is adjusted for its change in fair value during the hedge period. Forward Purchase Contracts Used to Hedge MSRs. From time to time, the Company hedges its exposure to impairment of the MSRs by the use of mortgage forward purchase contracts. These derivatives are classified and accounted for as fair value hedges. The mortgage forward purchase contracts are carried at fair value with the changes in their fair value recorded to current earnings. When the hedges are deemed to be highly effective, the book value of the hedged MSRs is adjusted for its change in fair value attributable to the hedged risk during the hedge period. The Company assesses the effectiveness of the hedge by using statistical analysis to measure the correlation of the changes in the value of the forward purchase contract to the changes in the value of the MSRs being hedged during the hedge period. During the three months ended March 31, 2004 and the year ended December 31, 2003, the Company did not hedge its exposure to impairment of the MSRs by the use of mortgage forward purchase contracts. Interest Rate Swap Agreements - All swap agreements are designated as cash flow hedges against the benchmark interest rate risk associated with the Company's borrowings. Although the terms and characteristics of the Company's swap agreements and hedged borrowings are nearly identical, due to the explicit requirements of Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," the Company does not account for these hedges under a method defined in SFAS No. 133 as the "shortcut" method, but rather the Company calculates the effectiveness of these hedges on an ongoing basis, and, to date, has calculated effectiveness of approximately 100%. All changes in the unrealized gains and losses on swap agreements have been recorded in "accumulated other comprehensive loss" and are reclassified to earnings as interest expense is recognized on the Company's hedged borrowings. If it becomes probable that the forecasted transaction, which in this case refers to interest payments to be made under the Company's short-term borrowing agreements, will not occur by the end of the originally specified time period, as documented at the inception of the hedging relationship, or within an additional two-month time period thereafter, then the related gain or loss in accumulated other comprehensive loss would be reclassified to income. Termination of Hedging Relationships. The Company employs a number of risk management monitoring procedures to ensure that the designated hedging relationships are demonstrating, and are expected to continue to demonstrate, a high level of effectiveness. Hedge -7- accounting is discontinued on a prospective basis if it is determined that the hedging relationship is no longer highly effective or expected to be highly effective in offsetting changes in fair value of the hedged item. Additionally, the Company may elect to de-designate a hedge relationship during an interim period and re-designate upon the rebalancing of a hedge profile and the corresponding hedge relationship. When hedge accounting is discontinued, the Company continues to carry the derivative instruments at fair value with changes in their value recorded in earnings. Gain on Sale of Loans - The Company recognizes gain on sale of loans for the difference between the sales price and the adjusted book value of the loans at the time of sale. The adjusted book value of the loans includes the original principal amount plus adjustments related to previously recognized income plus deferrals of fees and points received and direct loan origination costs. Loan Origination Fees and Direct Origination Costs - The Company records loan fees, discount points and certain direct origination costs as an adjustment of the cost of the loan or security and such amounts are included in revenues when the loan or security is sold. When loans are securitized and held, net deferred origination costs are amortized over the life of the security using the level-yield method and such amounts are included in interest income. Gain on sales of mortgage loans and salaries, commissions and benefits have been reduced by $20.7 million and $16.3 million due to direct loan origination costs, including commission costs, incurred for the three months ended March 31, 2004 and 2003, respectively. Interest Recognition - The Company accrues interest income as it is earned. Loans are placed on a nonaccrual status when any portion of the principal or interest is 90 days past due or earlier when concern exists as to the ultimate collectibility of principal or interest. Loans return to accrual status when principal and interest become current and are anticipated to be fully collectible. Interest expense is recorded on outstanding lines of credit at a rate based on a spread to the LIBOR. Servicing Fees - The Company recognizes servicing fees when the fees are collected. Marketing and Promotion - The Company charges the costs of marketing, promotion and advertising to expense in the period incurred. Income Taxes - The Company accounts for income taxes in conformity with SFAS No. 109, "Accounting for Income Taxes," which requires an asset and liability approach for accounting and reporting of income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences ("temporary differences") attributable to the differences between the carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. A valuation allowance is provided for deferred tax assets where realization is not considered "more likely than not." The Company recognizes the effect of changes in tax laws or rates on deferred tax assets and liabilities in the period that includes the enactment date. Stock Option Plans - In 1999, the Company established the 1999 Omnibus Stock Incentive Plan, as amended (the "Plan"). The Company has elected to account for its stock option plan using Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and to provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants as if the fair-value based method, as required by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123," had been applied. Had compensation cost been determined based on the fair value at the grant dates for awards under the Plan, the Company's net income would have been $21.0 million and $16.2 million for the three months ended March 31, 2004 and 2003, respectively. Basic earnings per share would have been $0.70 and $0.97 for 2004 and 2003, respectively. Diluted earnings per share would have been $0.69 and $0.95 for 2004 and 2003, respectively. -8-
Three Months Ended March 31, ---------------------------------------------------- (In thousands, except per share data) 2004 2003 ----------------------- ----------------------- Net income, as reported $ 21,223 $ 16,313 Less: Total stock-based employee compensation expense determined under fair value based method for all rewards, net of related tax effects (187) $ (134) ----------------------- ----------------------- Pro forma net income $ 21,036 $ 16,179 ======================= ======================= Earnings per share: Basic - as reported $ 0.71 $ 0.97 Basic - pro forma $ 0.70 $ 0.97 Diluted - as reported $ 0.70 $ 0.96 Diluted - pro forma $ 0.69 $ 0.95
Earnings Per Share - Basic earnings per share excludes dilution and is computed by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Cash Flows - Cash and cash equivalents are demand deposits and short-term investments with a maturity of 90 days or less. Recently Issued Accounting Standards - On March 9, 2004, the SEC issued SAB No. 105, which provides guidance regarding loan commitments that are accounted for as derivative instruments under SFAS No. 133 (as amended), "Accounting for Derivative Instruments and Hedging Activities". In SAB No. 105, the SEC stated that the value of expected future cash flows related to servicing rights should be excluded when determining the fair value of derivative interest rate lock commitments. This guidance must be applied to rate locks initiated after March 31, 2004. Under the new policy, the value of the expected future cash flow related to servicing rights is not recognized until the underlying loans are sold. The impact that this new policy will have on the Company's results of operations in the second quarter of 2004 will be influenced by that quarter's amount of rate lock volume associated with loans expected to be sold and by the timing of when loan sales are executed. The Company estimates that the second quarter of 2004 results of operations will be diminished $34 million pre-tax by its adoption of SAB No. 105. As rate lock volume is highly sensitive to changes in interest rates and the timing of loan sales may be affected by market conditions, the Company's actual results may be materially different from the estimate of future results. -9- NOTE 2 - MORTGAGE-BACKED SECURITIES The following table presents the Company's mortgage-backed securities as of March 31, 2004 and December 31, 2003:
March 31, 2004 ----------------------------------------------------------------------- (In thousands) Trading Securities Securities Available for Sale Total Securities ------------------ ----------------------------- ---------------- Principal amount $ 1,091,714 $ 2,814,285 $ 3,905,999 Unamortized premium 4,244 59,142 63,386 ------------------ ----------------------------- ---------------- Adjusted cost 1,095,958 2,873,427 3,969,385 Gross unrealized gains 22,181 13,528 35,709 Gross unrealized losses -- (2,015) (2,015) ------------------ ----------------------------- ---------------- Fair value $ 1,118,139 $ 2,884,940 $ 4,003,079 ================== ============================= ================ December 31, 2003 ----------------------------------------------------------------------- (In thousands) Trading Securities Securities Available for Sale Total Securities ------------------ ----------------------------- ---------------- Principal amount $ 473,424 $ 1,259,700 $ 1,733,124 Unamortized premium 3,117 22,823 25,940 ------------------ ----------------------------- ---------------- Adjusted cost 476,541 1,282,523 1,759,064 Gross unrealized gains 3,382 1,969 5,351 Gross unrealized losses (110) (677) (787) ------------------ ----------------------------- ---------------- Fair value $ 479,813 $ 1,283,815 $ 1,763,628 ================== ============================= ================
During the quarter ended March 31, 2004, the Company sold $789.6 million of mortgage-backed securities and realized $9.4 million in gains and $879 thousand in losses. The Company's mortgage-backed securities with gross unrealized losses at March 31, 2004 have been in an unrealized loss position for less than two months. The Company has credit exposure on loans it has securitized. The following table summarizes the loan delinquency information as of March 31, 2004 and December 31, 2003:
March 31, 2004 --------------------------------------------------------------------- (in thousands) Delinquency Status Loan Loan Percent of Total Percent of Total Count Balance Securitizations Assets - ------------------------ --------------------------------------------------------------------- 60 to 89 days 7 $ 1,353 0.10% 0.02% ---------- ------------- ---------------------- ------------------ 7 $ 1,353 0.10% 0.02% ========== ============= ====================== ==================
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December 31, 2003 -------------------------------------------------------------------- (in thousands) Delinquency Status Loan Loan Percent of Total Percent of Total Count Balance Securitizations Assets - ------------------------ -------------------------------------------------------------------- 60 to 89 days 1 $ 692 0.13% 0.02% ---------- ------------- ---------------------- ------------------ 1 $ 692 0.13% 0.02% ========== ============= ====================== ==================
As of March 31, 2004 the Company had a payable for securities purchased of $134.6 million of mortgage-backed securities. NOTE 3 - MORTGAGE LOANS HELD FOR SALE, NET The following table presents the Company's mortgage loans held for sale, net, as of March 31, 2004 and December 31, 2003: March 31, December 31, (In thousands) 2004 2003 ----------- ----------- Mortgage loans held for sale $ 1,330,349 $ 1,187,314 FAS 133 basis adjustments 10,965 16,489 Deferred origination costs, net 29,884 22,324 Forward delivery contracts (150) (2,300) ----------- ----------- Mortgage loans held for sale, net $ 1,371,048 $ 1,223,827 =========== =========== NOTE 4 - DERIVATIVE ASSETS AND LIABILITIES The following table presents the Company's derivative assets and liabilities as of March 31, 2004 and December 31, 2003:
March 31, December 31, (In thousands) 2004 2003 ------------- ------------- Derivative Assets: Interest rate lock commitments $ 24,151 $ 20,837 ------------- ------------- Derivative assets $ 24,151 $ 20,837 ============= ============= Derivative Liabilities: Forward delivery contracts - loan commitments $ 699 $ 4,358 Forward delivery contracts - loans held for sale(1) 150 2,300 Interest rate swaps 20,596 6,036 ------------- ------------- Derivative liabilities $ 21,445 $ 12,694 ============= =============
(1) This amount is included in mortgage loans held for sale, net (see Note 3). At March 31, 2004, the notional amount of forward delivery contracts and interest rate swaps amounted to approximately $1.4 billion and $1.3 billion, respectively. The forward delivery contracts have a high correlation to the price movement of the loans being hedged. The ineffectiveness recognized in hedging loans held for sale recorded on the balance sheet was insignificant as of March 31, 2004. -11- NOTE 5 - MORTGAGE SERVICING RIGHTS, NET The following table presents the activity in the Company's mortgage servicing rights, net, for the three months ended March 31, 2004 and 2003: Three Months Ended March 31, ---------------------------------- (In thousands) 2004 2003 --------------- --------------- Mortgage Servicing Rights: Balance at beginning of period $ 121,652 $ 119,225 Additions 15,665 5,832 Amortization (7,346) (12,769) --------------- --------------- Balance at end of period $ 129,971 $ 112,288 --------------- --------------- Impairment Allowance: Balance at beginning of period $ (3,868) $ (10,202) Impairment provision (12,584) (5,713) --------------- --------------- Balance at end of period $ (16,452) $ (15,915) --------------- --------------- Mortgage servicing rights, net $ 113,519 $ 96,373 =============== =============== Aggregate Amortization Expense - ------------------------------ Three months ended March 31, 2004 $ 7,346 Estimated Amortization Expense - ------------------------------ Year ended March 31, 2005 30,373 Year ended March 31, 2006 21,934 Year ended March 31, 2007 16,122 Year ended March 31, 2008 12,207 Year ended March 31, 2009 9,469 Thereafter 39,866 On a quarterly basis, the Company reviews MSRs for impairment based on risk strata. The MSRs are stratified based on the predominant risk characteristics of the underlying loans. The Company's predominant risk characteristic is interest rate. A valuation allowance is recognized for MSRs that have an amortized balance in excess of the estimated fair value for the individual risk stratification. The estimated fair value of MSRs is determined by obtaining a market valuation from an independent MSR broker. To determine the market value of MSRs, the MSR broker uses a valuation model which incorporates assumptions relating to the estimate of the cost of servicing the loan, a discount rate, a float value, an inflation rate, ancillary income per loan, prepayment speeds and default rates that market participants use for similar MSRs. Market assumptions are held constant over the life of the portfolio. The significant assumptions used in estimating the fair value of MSRs at March 31, 2004 and December 31, 2003 were as follows: March 31, 2004 December 31, 2003 -------------- ----------------- Weighted average prepayment speed (PSA) 573 397 Weighted average discount rate 10.04% 9.82% Weighted average default rate 3.00% 4.02% -12- The following table presents certain information regarding the Company's servicing portfolio of loans serviced for others at March 31, 2004 and December 31, 2003:
March 31, 2004 December 31, 2003 ---------------------- ---------------------- (Dollars in thousands) Loan servicing portfolio - loans sold or securitized $ 8,956,144 $ 8,272,294 Average loan size $ 127 $ 120 Weighted average servicing fee 0.363% 0.347% Weighted average note rate 5.58% 5.72% Weighted average remaining term (in months) 313 298 Weighted average age (in months) 26 27
NOTE 6 - GOODWILL The following table presents the activity in the Company's goodwill for the three months ended March 31, 2004:
(In thousands) Mortgage-Backed Loan Origination Securities Holdings Segment Segment Total --------------------- ----------------------------- --------------------- Balance at December 31, 2003 $ 58,605 $ $ 24,840 $ $ 83,445 Earnouts from previous acquisitions 307 - 307 --------------------- ----------------------------- --------------------- Balance at March 31, 2004 $ 58,912 $ $ 24,840 $ $ 83,752 ===================== ============================= =====================
NOTE 7 - WAREHOUSE LINES OF CREDIT As of March 31, 2004, the Company has a committed bank syndicated facility led by Residential Funding Corporation ("RFC") and a pre-purchase facility with UBS Real Estate Securities Inc. (formerly Paine Webber Real Estate Securities Inc.) ("UBS"). The Company also has committed facilities with CDC IXIS Capital Markets North America Inc. ("CDC"), Morgan Stanley Bank ("Morgan Stanley") and Credit Lyonnais. In addition, the Company has a gestation facility with Greenwich Capital Financial Products, Inc. The RFC facility is for $450 million, the UBS facility is for $1.2 billion, the CDC facility is for $450 million, the Morgan Stanley facility is for $350 million, the Credit Lyonnais facility is for $200 million and the Greenwich Capital Market facility is for $200 million. The interest rate on outstanding balances fluctuates daily based on a spread to the LIBOR and interest is paid monthly. The lines of credit are secured by mortgage loans and other assets of the Company. The lines contain various covenants pertaining to maintenance of net worth and working capital. At March 31, 2004, the Company was in compliance with the loan covenants. Included within the RFC line of credit, the Company has a working capital sub-limit that allows for borrowings up to $35 million at a rate based on a spread to the LIBOR that may be adjusted for earnings on compensating balances on deposit at creditors' banks. As of March 31, 2004, borrowings under the working capital line of credit were $26 million. -13- The following table presents the Company's warehouse lines of credit as of March 31, 2004 and December 31, 2003:
March 31, 2004 December 31, 2003 --------------------------------- ----------------------------------- Weighted Weighted Outstanding Average Outstanding Average (Dollars in thousands) Balance Rate Balance Rate --------------------------------- ----------------------------------- CDC $ 402,310 1.95 % $ 406,444 1.98 % UBS 376,764 3.12 128,345 3.21 Credit Lyonnais 187,736 1.84 200,702 1.88 Morgan Stanley 161,243 1.89 92,925 1.92 RFC 123,792 2.54 293,344 2.06 ----------------- ------------------ Warehouse lines of credit $ 1,251,845 2.34 % $ 1,121,760 2.12 % ================= ==================
NOTE 8 - REVERSE REPURCHASE AGREEMENTS The Company has arrangements to enter into reverse repurchase agreements, a form of collateralized short-term borrowing, with 13 different financial institutions and on March 31, 2004 had borrowed funds from five of these firms. Because the Company borrows money under these agreements based on the fair value of its mortgage-backed securities, and because changes in interest rates can negatively impact the valuation of mortgage-backed securities, the Company's borrowing ability under these agreements could be limited and lenders could initiate margin calls in the event interest rates change or the value of the Company's mortgage-backed securities declines for other reasons. As of March 31, 2004, the Company had $3.4 billion of reverse repurchase agreements outstanding with a weighted-average borrowing rate of 1.24% and a weighted-average remaining maturity of 4.4 months. As of December 31, 2003, the Company had $1.3 billion of reverse repurchase agreements outstanding with a weighted-average borrowing rate of 1.26% and a weighted-average remaining maturity of 6.9 months. At March 31, 2004 and December 31, 2003, the reverse repurchase agreements had the following remaining maturities: March 31, December 31, 2004 2003 --------------------- -------------------- (In thousands) Within 30 days $ 1,062,719 $ 184,302 31 to 89 days 544,442 - 90 to 365 days 1,787,780 1,160,025 -------------------- -------------------- Reverse repurchase agreements $ 3,394,941 $ 1,344,327 ==================== ==================== -14- NOTE 9 - EARNINGS PER SHARE The following is a reconciliation of the denominators used in the computations of basic and diluted earnings per share for the three months ended March 31, 2004 and 2003:
Three Months Ended March 31, ------------------------------------ (Dollars in thousands, except per share amounts) 2004 2003 ------------------ ----------------- Numerator for basic earnings per share - Net income $ 21,223 $ 16,313 ================= ================ Denominator: Denominator for basic earnings per share Weighted average number of common shares outstanding during the period 30,030,248 16,750,960 Net effect of dilutive stock options 477,570 264,721 ----------------- ---------------- Denominator for diluted earnings per share 30,507,818 17,015,681 ================= ================ Net income per share: Basic $ 0.71 $ 0.97 ================= ================ Diluted $ 0.70 $ 0.96 ================= ================
NOTE 10 - STOCK OPTION PLANS In 1999, the Company established the 1999 Omnibus Stock Incentive Plan, as amended (the "Plan"). Pursuant to the Plan, eligible employees, officers and directors are offered the opportunity to acquire the Company's common stock through the grant of options and the award of restricted stock under the Plan. The total number of shares that may be optioned or awarded under the Plan is 3,000,000 shares of common stock. The Plan provides for the granting of options at the fair market value on the date of grant. The options issued primarily vest 50% on the two-year anniversary of the grant date and 50% on the three-year anniversary of the grant date, and expire ten years from the grant date. As of March 31, 2004, the Company has awarded 182,259 shares of restricted stock under the Plan. During the quarters ended March 31, 2004 and 2003, the Company recognized compensation expense of $188 thousand and $123 thousand, respectively, relating to shares of restricted stock. At March 31, 2004, 96,799 shares are vested. In general, unvested restricted stock is forfeited upon the recipient's termination of employment. The Plan is a compensatory stock option plan. There was no intrinsic value of the options when granted, as the exercise price was equal to the quoted market price at the grant date. No compensation cost has been recognized for the three months ended March 31, 2004 and 2003. Pursuant to the terms of the Company's merger with Apex, which was consummated on December 3, 2003 (following the approval of the Company's stockholders at a special meeting held on November 21, 2003), the Company assumed the Amended and Restated 1997 Stock Option Plan of Apex (the "Apex Plan"). On the date that Apex's stockholders approved the merger, Apex caused all unvested options granted under the Apex Plan to become vested, and each option granted under the Apex Plan that was not exercised as of December 3, 2003 was terminated and not assumed by the Company. An aggregate of 1 million shares of common stock were available for issuance upon exercise of stock options granted under the Apex Plan. As of the effective date of the merger, Apex had granted options to purchase 791,000 shares of common stock, which options were either (i) previously caused to become vested or (ii) terminated and not assumed by the Company. Accordingly, options to purchase an aggregate of 209,000 shares of the Company's common stock remain available for grant under the Apex Plan. -15- The weighted-average fair value per share of options granted during the three months ended March 31, 2004 was $5.62. There were no options granted during the three months ended March 31, 2003. The fair value of the options granted is estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions used for the grants: Three Months Ended March 31, 2004 ------------------ Dividend yield 7.0 % Expected volatility 49.0 % Risk-free interest rate 5.0 % Expected life 3 years NOTE 11 - ACQUISITIONS Apex Mortgage Capital, Inc. On December 3, 2003, AHM Holdings completed its merger with Apex, a Maryland corporation that operated and elected to be treated as a REIT. Immediately prior to the merger, under the terms of the reorganization agreement between AHM Holdings and AHM Investment, AHM Holdings reorganized through a reverse triangular merger that caused AHM Investment, a newly formed Maryland corporation that operates and will elect to be treated as a REIT for federal income tax purposes, to become AHM Holdings' parent. AHM Investment issued 7,691,862 shares to former Apex stockholders in the merger valued at $177.3 million. The following table summarizes the required disclosures of the pro forma combined entity, as if the acquisition occurred at the beginning of the year for the three months ended March 31, 2003: Three Months Ended ------------------------- (In thousands, except per share amounts) March 31, 2003 ------------------------- Revenue $ 102,541 Income before income taxes 34,189 Net income $ 22,612 ========================= Earnings per share - basic $ 0.93 ========================= Earnings per share - diluted $ 0.92 ========================= Valley Bancorp, Inc. In August 2001, AHM Holdings entered into an agreement to acquire Valley Bancorp, Inc. ("Valley Bancorp") and its wholly-owned subsidiary, Valley Bank of Maryland ("Valley Bank"), a federal savings bank located in suburban Baltimore, Maryland, for a combination of cash and stock, subject to certain adjustments. Under the terms of the definitive agreement, the Company will pay 1.25 times Valley Bancorp's book value, or approximately $5.8 million. The acquisition agreement between AHM Holdings and Valley Bancorp has been extended through July 31, 2004. This transaction is subject to regulatory approval and no assurance can be given that such approval will be obtained or that the acquisition agreement with Valley Bancorp will be further extended if necessary. -16- NOTE 12 - SEGMENTS AND RELATED INFORMATION The Company has three segments, the Mortgage-Backed Securities Holdings segment, the Loan Origination segment and the Loan Servicing segment. The Mortgage-Backed Securities Holdings segment uses the Company's equity capital and borrowed funds to invest in mortgage-backed securities, thereby producing net interest income. The Loan Origination segment originates mortgage loans through the Company's retail and internet branches and loans sourced through mortgage brokers (wholesale channel). The Loan Servicing segment includes investments in mortgage servicing rights as well as servicing operations primarily for other financial institutions. The Mortgage-Backed Securities Holdings segment includes realized gains or losses on sales of mortgage-backed securities and unrealized mark-to-market gains or losses subsequent to the securitization date on mortgage-backed securities classified as trading securities. The Loan Origination segment includes unrealized gains or losses that exist on the date of securitization of self-originated loans that are classified as trading securities. -17-
Three Months Ended March 31, 2004 -------------------------------------------------------------------------------- (in thousands) Mortgage-Backed Securities Loan Origination Loan Servicing Holdings Segment Segment Segment Total -------------------------------------------------------------------------------- Net interest income: Interest income $ 15,149 $ 18,901 $ - $ 34,050 Interest expense (9,412) (10,962) (904) (21,278) -------------------------------------------------------------------------------- Total net interest income 5,737 7,939 (904) 12,772 -------------------------------------------------------------------------------- Non-interest income: Gain on sales of mortgage loans and mortgage-backed securities 12,651 67,482 - 80,133 Loan servicing fees - - 10,318 10,318 Amortization - - (7,346) (7,346) Impairment reserve provision - - (12,584) (12,584) -------------------------------------------------------------------------------- Net loan servicing fees (loss) - - (9,612) (9,612) Other non-interest income - 978 - 978 -------------------------------------------------------------------------------- Total non-interest income 12,651 68,460 (9,612) 71,499 -------------------------------------------------------------------------------- Non-interest expenses: Salaries, commissions and benefits, net 50 38,600 1,132 39,782 Occupancy and equipment - 7,935 159 8,094 Data processing and communications 2 3,181 30 3,213 Office supplies and expenses - 2,747 371 3,118 Marketing and promotion - 2,212 - 2,212 Travel and entertainment 2 2,462 113 2,577 Professional fees 71 2,213 144 2,428 Other 1,045 3,324 1,069 5,438 -------------------------------------------------------------------------------- Total non-interest expenses 1,170 62,674 3,018 66,862 -------------------------------------------------------------------------------- Net income before income tax expense (benefit) 17,218 13,725 (13,534) 17,409 -------------------------------------------------------------------------------- Income tax expense (benefit) - 1,735 (5,549) (3,814) -------------------------------------------------------------------------------- Net income $ 17,218 $ 11,990 $ (7,985) $ 21,223 ================================================================================ March 31, 2004 -------------------------------------------------------------------------------- Segment assets $ 4,074,086 $ 1,613,620 $ 139,273 $ 5,826,979 ================================================================================
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Three Months Ended March 31, 2003 -------------------------------------------------------------------------------- (in thousands) Mortgage-Backed Securities Loan Origination Loan Servicing Holdings Segment Segment Segment Total -------------------------------------------------------------------------------- Net interest income: Interest income $ - $ 20,976 $ 2 $ 20,978 Interest expense - (9,421) (788) (10,209) -------------------------------------------------------------------------------- Total net interest income - 11,555 (786) 10,769 -------------------------------------------------------------------------------- Non-interest income: Gain on sales of mortgage loans - 88,211 - 88,211 Loan servicing fees - - 11,128 11,128 Amortization - - (12,769) (12,769) Impairment reserve provision - - (5,713) (5,713) -------------------------------------------------------------------------------- Net loan servicing fees (loss) - - (7,354) (7,354) Other non-interest income - 2,928 - 2,928 -------------------------------------------------------------------------------- Total non-interest income - 91,139 (7,354) 83,785 -------------------------------------------------------------------------------- Non-interest expenses: Salaries, commissions and benefits, net - 43,841 806 44,647 Occupancy and equipment - 5,492 131 5,623 Data processing and communications - 3,052 27 3,079 Office supplies and expenses - 2,664 359 3,023 Marketing and promotion - 2,797 2 2,799 Travel and entertainment - 1,986 1 1,987 Professional fees - 1,709 132 1,841 Other - 3,259 406 3,665 -------------------------------------------------------------------------------- Total non-interest expenses - 64,800 1,864 66,664 -------------------------------------------------------------------------------- Net income before income tax expense (benefit) - 37,894 (10,004) 27,890 -------------------------------------------------------------------------------- Income tax expense (benefit) - 15,584 (4,007) 11,577 -------------------------------------------------------------------------------- Net income $ - $ 22,310 $ (5,997) $ 16,313 ================================================================================ December 31, 2003 -------------------------------------------------------------------------------- Segment assets $ 1,865,414 $ 1,372,976 $ 164,000 $ 3,402,390 ================================================================================
-19- NOTE 13 - RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS Subsequent to the issuance of the Company's financial statements for the quarter ended March 31, 2004, the Company determined it had improperly classified cash flows related to certain securitization and mortgage-backed securities holding activities as cash flows from investing activities rather than cash flows from operating activities. As a result, adjustments were recorded to properly classify sources and uses of cash in operating and investing activities with the most significant adjustment to properly classify cash used for purchases and additions to mortgage-backed securities of approximately $972 million and cash proceeds from sales of mortgage-backed securities of approximately $92 million from cash flows from investing activities to cash flows from operating activities for the quarter ended March 31, 2004. Certain reclassifications in the quarterly cash flow statement for the first quarter of 2004 have been made to conform the previously issued cash flow statement to the current presentation. The following table presents the significant effects of the restatement:
Three Months Ended March 31, 2004 ------------------------------- (In thousands) (As previously reported) (As restated) ------------------------------- Cash flows from operating activities: Adjustments to reconcile net income to net cash used in operating activities: Deferred cash flow hedge gain, net of amortization $ -- $ 415 Gain on sales of mortgage-backed securities and derivatives -- (6,705) Unrealized gain on mortgage-backed securities (18,909) (10,217) Capitalization of mortgage servicing rights (15,665) -- Additions to mortgage servicing rights on securitized loans -- (9,863) Additions to mortgage servicing rights on sold loans -- (5,802) Increase in interest rate lock commitments -- (9,990) Increase in deferred origination costs -- (884) Decrease in SFAS No. 133 basis adjustments -- 5,524 Other 60 (2,504) Increase in derivative assets (3,314) -- Increase (decrease) in operating liabilities: Accrued expenses and other liabilities (10,656) (8,092) Forward delivery contracts -- (5,809) Derivative liabilities (3,245) -- Proceeds from sales and securitizations of mortgage loans 4,265,953 -- Proceeds from sales and repayments of mortgage loans -- 3,292,010 Proceeds from securitizations and repayments of mortgage loans -- 969,436 Additions to mortgage-backed securities -- (897,322) Proceeds from sales of mortgage-backed securities -- 23,861 Principal repayments of mortgage-backed securities -- 13,734 Net cash used in operating activities (160,393) (1,026,825) Cash flows from investing activities: Purchases and additions to mortgage-backed securities (3,066,588) -- Purchases of mortgage-backed securities -- (2,094,101) Proceeds from sales of mortgage-backed securities 789,589 697,268 Principal repayments of mortgage-backed securities 63,719 49,985 Net cash used in investing activities (2,215,106) (1,348,674)
-20- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis reflects the restatement of our consolidated statement of cash flows, as discussed in Note 13 to the consolidated financial statements. Regarding Forward-Looking Statements This report, including, but not limited to, "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains certain forward-looking statements within the meaning of the federal securities laws. Some of the forward-looking statements can be identified by the use of forward-looking words. When used in this report, statements which are not historical in nature, including the words "anticipate," "may," "estimate," "should," "seek," "expect," "plan," "believe," "intend," and similar words, or the negatives of those words, are intended to identify forward-looking statements. Statements which also contain a projection of revenues, earnings (loss), capital expenditures, dividends, capital structure or other financial terms are intended to be forward-looking statements. Certain statements regarding the following particularly are forward-looking in nature: o our business strategy; o future performance, developments, market forecasts or projected dividends; o projected acquisitions or joint ventures; and o projected capital expenditures. It is important to note that the description of our business in general, and our mortgage-backed securities holdings in particular, is a statement about our operations as of a specific point in time. It is not meant to be construed as an investment policy, and the types of assets we hold, the amount of leverage we use, the liabilities we incur and other characteristics of our assets and liabilities are subject to reevaluation and change without notice. The forward-looking statements in this report are based on our management's beliefs, assumptions, and expectations of our future economic performance, taking into account the information currently available to it. These statements are not statements of historical fact. Forward-looking statements are subject to a number of factors, risks and uncertainties, some of which are not currently known to us, that may cause our actual results, performance or financial condition to be materially different from the expectations of future results, performance or financial position. These factors include, without limitation: o our limited operating history with respect to our proposed portfolio strategy; o our proposed portfolio strategy may be changed or modified by our management without advance notice to stockholders, and that we may suffer losses as a result of such modifications or changes; o our need for a significant amount of cash to operate our business; o risks associated with the use of leverage; o disruptions in the market for repurchase facilities; o failure to match the interest rates on our borrowings with the interest rates on the mortgage-backed securities we hold; o failure to maintain our status as a real estate investment trust; o changes in federal and state tax laws affecting real estate investment trusts; o general economic, political, market, financial or legal conditions; and -21- o the other factors referenced in this report, including, without limitation, those under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations." In light of these risks, uncertainties and assumptions, any forward-looking events discussed in this report might not occur, and we qualify any and all of our forward-looking statements entirely by these cautionary factors. You are cautioned not to place undue reliance on forward-looking statements. Such forward-looking statements are inherently uncertain, and actual results may differ from expectations. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. Critical Accounting Policies and Estimates Our accounting policies are described in Note 1 to the Consolidated Financial Statements. We have identified the following accounting policies that are critical to the presentation of our financial statements and that require critical accounting estimates by management. Mortgage-Backed Securities - We record our mortgage-backed securities at fair value. The fair values of our mortgage-backed securities are generally based on market prices provided by certain dealers who make markets on these financial instruments or third-party pricing services. If the fair value of a mortgage-backed security is not reasonably available, management estimates the fair value, which requires management's judgment and may not be indicative of the amounts we could realize in a current market exchange. Mortgage Loans Held for Sale - The hedged mortgage loans held for sale are carried at the lower of cost or aggregate market value. The cost basis includes the capitalized value of the IRLCs related to the mortgage loans and any net deferred origination costs. For mortgage loans held for sale that are hedged with forward sale commitments, the carrying value is adjusted for the change in market during the time the hedge was deemed to be highly effective. The market value is determined by outstanding commitments from investors or current yield requirements calculated on an aggregate basis. Mortgage Servicing Rights - When we acquire servicing assets through either purchase or origination of loans and sell or securitize those loans with servicing assets retained, the total cost of the loans is allocated to the servicing assets and the loans (without the servicing assets) based on their relative fair values. The amount attributable to the servicing assets is capitalized as MSRs on the consolidated balance sheets. The MSRs are amortized to expense in proportion to and over the period of estimated net servicing income. The MSRs are assessed for impairment based on the fair value of those assets. We estimate the fair value of the servicing assets by obtaining market information from a primary mortgage servicing rights broker. When the book value of capitalized servicing assets exceeds their fair value, impairment is recognized through a valuation allowance. In determining impairment, the mortgage servicing portfolio is stratified by the predominant risk characteristic of the underlying mortgage loans. We have determined that the predominant risk characteristic is the interest rate on the underlying loan. We measure impairment for each stratum by comparing the estimated fair value to the recorded book value. Temporary impairment is recorded through a valuation allowance and amortization expense in the period of occurrence. In addition, we periodically evaluate our MSRs for other than temporary impairment to determine if the carrying value before the application of the valuation allowance is recoverable. We receive a sensitivity analysis of the estimated fair value of our MSRs assuming a 200-basis-point instantaneous increase in interest rates from an independent mortgage servicing rights broker. The fair value estimate includes changes in market assumptions that would be expected given the increase in mortgage rates (e.g., prepayment speeds would be lower). We believe this 200-basis-point increase in mortgage rates to be an appropriate threshold for determining the recoverability of the temporary impairment because that size rate increase is foreseeable and consistent with historical mortgage rate fluctuations. When using this instantaneous change in rates, if the fair value of the strata of MSRs is estimated to increase to a point where all of the impairment would be recovered, the impairment is considered to be temporary. When we determine that a portion of the MSRs is not recoverable, the related MSRs and the previously established valuation allowance are correspondingly reduced to reflect other than temporary impairment. Derivative Assets and Derivative Liabilities - Our mortgage-committed pipeline includes IRLCs that have been extended to borrowers who have applied for loan funding and meet certain defined credit and underwriting criteria. IRLCs are recorded at fair value with changes in fair value recorded to current earnings. The fair value of the IRLCs is determined by an estimate of the ultimate gain on sale of the loans, including the value of MSRs, net of estimated net costs remaining to originate the loan. In March 2004, the SEC issued SAB No. 105, which provides industry guidance that will change the timing of recognition of MSRs for IRLCs initiated after March 31, 2004. See "Recently Issued Accounting Standards" in Note 1 to the Consolidated Financial Statements. We use other derivative instruments, including mortgage forward delivery contracts and treasury futures options, to economically hedge the IRLCs, which are also classified and accounted for as free-standing derivatives and thus are recorded at fair value with the changes in fair value recorded to current earnings. -22- We use mortgage forward delivery contracts designated as fair value hedging instruments to hedge 100% of our agency-eligible conforming fixed-rate loans and most of our non-conforming fixed-rate loans held for sale. At the inception of the hedge, we formally document the relationship between the forward delivery contracts and the mortgage inventory, as well as our objective and strategy for undertaking the hedge transactions. In the case of our conventional conforming fixed rate loan products, the notional amount of the forward delivery contracts, along with the underlying rate and terms of the contracts, are equivalent to the unpaid principal amount of the mortgage inventory being hedged; hence, the forward delivery contracts effectively fix the forward sales price and thereby substantially eliminate interest rate and price risk to us. We classify and account for these forward delivery contracts as fair value hedges. The derivatives are carried at fair value with the changes in fair value recorded to current earnings. When the hedges are deemed to be highly effective, the book value of the hedged loans held for sale is adjusted for its change in fair value during the hedge period. We enter into interest rate swap agreements to manage our interest rate exposure when financing our adjustable-rate mortgage loans and mortgage-backed securities. The swap agreements are accounted for as cash flow hedges and carried on the balance sheet at fair value. The fair values of our swap agreements are generally based on market prices provided by certain dealers who make markets on these financial instruments or third-party pricing services. If the fair value of a trading security is not reasonably available, management estimates the fair value, which requires management's judgment and may not be indicative of the amounts we could realize in a current market exchange. Goodwill - Goodwill represents the excess purchase price over the fair value of net assets stemming from business acquisitions, including identifiable intangibles. We test for impairment by comparing the fair value of goodwill, as determined by using a discounted cash flow method, with its carrying value. Any excess of carrying value over the fair value of the goodwill would be recognized as an impairment loss in continuing operations. The discounted cash flow calculation related to our loan origination segment includes a forecast of the expected future loan originations and the related revenues and expenses. The discounted cash flow calculation related to our Mortgage-Backed Securities Holdings segment includes a forecast of the expected future net interest income, gain on mortgage-backed securities and the related revenues and expenses. These cash flows are discounted using a rate that is estimated to be a weighted-average cost of capital for similar companies. We further test to ensure that the fair value of all our business units does not exceed our total market capitalization. -23- Financial Condition At March 31, 2004, 68.7% of our total assets were mortgage-backed securities and 23.5% were mortgage loans held for sale, compared to 51.8% and 36.0%, respectively, at December 31, 2003. Total assets increased $2.4 billion to $5.8 billion at March 31, 2004 from $3.4 billion at December 31, 2003. The increase primarily reflects an increase in mortgage-backed securities of $2.2 billion and a $0.1 billion rise in mortgage loans held for sale. The growth in mortgage-backed securities was primarily funded by an increase in reverse repurchase agreements of $2.1 billion. The increase in loans held for sale was funded by a $0.1 billion rise in warehouse lines of credit. The following table summarizes our mortgage-backed securities owned at March 31, 2004 and December 31, 2003, classified by type of issuer and by ratings categories:
March 31, 2004 -------------------------------------------------------------------------------------------------- Trading Securities Securities Available for Sale Total ------------------------------ ------------------------------ ------------------------------ (Dollars in thousands) Carrying Value Portfolio Mix Carrying Value Portfolio Mix Carrying Value Portfolio Mix -------------- ------------- -------------- ------------- -------------- ------------- Agency securities $ 614,219 54.9% $ 935,458 32.4% $ 1,549,677 38.7% Privately issued: AAA 160,474 14.4 1,858,699 64.4 2,019,173 50.4 AA 330,699 29.6 34,027 1.2 364,726 9.1 A 6,277 0.5 21,287 0.7 27,564 0.7 BBB - - 10,867 0.4 10,867 0.3 Unrated (1) 6,470 0.6 24,602 0.9 31,072 0.8 -------------- ------------- -------------- ------------- -------------- ------------- Total $ 1,118,139 100.0% $ 2,884,940 100.0% $ 4,003,079 100.0% ============== ============= ============== ============= ============== =============
(1) Unrated subordinated certificates retained by the Company as credit enhancements for its privately issued securities.
December 31, 2003 -------------------------------------------------------------------------------------------------- Trading Securities Securities Available for Sale Total ------------------------------ ------------------------------ ------------------------------ (Dollars in thousands) Carrying Value Portfolio Mix Carrying Value Portfolio Mix Carrying Value Portfolio Mix -------------- ------------- -------------- ------------- -------------- ------------- Agency securities $ 287,577 60.0% $ 713,790 55.6% $ 1,001,367 56.8% Privately issued: AAA 167,974 35.0 570,025 44.4 737,999 41.8 AA 11,322 2.4 - - 11,322 0.6 A 6,470 1.3 - - 6,470 0.4 Unrated (1) 6,470 1.3 - - 6,470 0.4 -------------- ------------- -------------- ------------- -------------- ------------- Total $ 479,813 100.0% $ 1,283,815 100.0% $ 1,763,628 100.0% ============== ============= ============== ============= ============== =============
(1) An unrated subordinated certificate retained by the Company as a credit enhancement for its privately issued securities. -24- The following table classifies our mortgage-backed securities portfolio by type of interest rate index at March 31, 2004 and December 31, 2003:
March 31, 2004 -------------------------------------------------------------------------------------------------- Trading Securities Securities Available for Sale Total ------------------------------ ------------------------------ ------------------------------ (Dollars in thousands) Carrying Value Portfolio Mix Carrying Value Portfolio Mix Carrying Value Portfolio Mix -------------- ------------- -------------- ------------- -------------- ------------- Index: One-month LIBOR $ 312,162 27.9% $ 108,486 3.8% $ 420,648 10.5% Six-month LIBOR 191,906 17.2 1,239,865 43.0 1,431,771 35.8 One-year LIBOR 593,901 53.1 1,207,428 41.9 1,801,329 45.0 One-year constant maturity treasury 20,170 1.8 329,161 11.3 349,331 8.7 -------------- ------------- -------------- ------------- -------------- ------------- Total $ 1,118,139 100.0% $ 2,884,940 100.0% $ 4,003,079 100.0% ============== ============= ============== ============= ============== =============
December 31, 2003 -------------------------------------------------------------------------------------------------- Trading Securities Securities Available for Sale Total ------------------------------ ------------------------------ ------------------------------ (Dollars in thousands) Carrying Value Portfolio Mix Carrying Value Portfolio Mix Carrying Value Portfolio Mix -------------- ------------- -------------- ------------- -------------- ------------- Index: One-month LIBOR $ 189,772 39.6% $- -% $ 189,772 10.8% Six-month LIBOR - - 517,248 40.3 517,248 29.3 One-year LIBOR 261,548 54.5 610,963 47.6 872,511 49.5 One-year constant maturity treasury 28,493 5.9 155,604 12.1 184,097 10.4 -------------- ------------- -------------- ------------- -------------- ------------- Total $ 479,813 100.0% $ 1,283,815 100.0% $ 1,763,628 100.0% ============== ============= ============== ============= ============== =============
-25- The following table classifies our mortgage-backed securities portfolio by product type at March 31, 2004 and December 31, 2003:
March 31, 2004 -------------------------------------------------------------------------------------------------- Trading Securities Securities Available for Sale Total ------------------------------ ------------------------------ ------------------------------ (Dollars in thousands) Carrying Value Portfolio Mix Carrying Value Portfolio Mix Carrying Value Portfolio Mix -------------- ------------- -------------- ------------- -------------- ------------- Product: 1 month ARM $ 184,200 16.5% $- -% $ 184,200 4.6% 6 month ARM - - 577,013 20.0 577,013 14.4 1 x 1 ARM 127,961 11.4 184,098 6.4 312,059 7.8 3/1 Hybrid ARM 418,082 37.4 640,850 22.2 1,058,932 26.5 5/1 Hybrid ARM 387,896 34.7 1,482,979 51.4 1,870,875 46.7 -------------- ------------- -------------- ------------- -------------- ------------- Total $ 1,118,139 100.0% $ 2,884,940 100.0% $ 4,003,079 100.0% ============== ============= ============== ============= ============== =============
December 31, 2003 -------------------------------------------------------------------------------------------------- Trading Securities Securities Available for Sale Total ------------------------------ ------------------------------ ------------------------------ (Dollars in thousands) Carrying Value Portfolio Mix Carrying Value Portfolio Mix Carrying Value Portfolio Mix -------------- ------------- -------------- ------------- -------------- ------------- Product: 1 month ARM $ 189,771 39.6% $ - - % $ 189,771 10.8% 6 month ARM - - 182,559 14.2 182,559 10.4 1 x 1 ARM - - 30,338 2.4 30,338 1.7 3/1 Hybrid ARM 133,019 27.7 415,674 32.4 548,693 31.1 5/1 Hybrid ARM 133,140 27.7 619,688 48.2 752,828 42.6 7/1 Hybrid ARM 23,883 5.0 35,556 2.8 59,439 3.4 -------------- ------------- -------------- ------------- -------------- ------------- Total $ 479,813 100.0% $ 1,283,815 100.0% $ 1,763,628 100.0% ============== ============= ============== ============= ============== =============
During the quarter ended March 31, 2004, we purchased $2.1 billion of mortgage-backed securities and added $1.0 billion of self-originated mortgage-backed securities. During the quarter ended March 31, 2004, we sold $789.6 million of mortgage-backed securities. The average cost basis of our mortgage-backed securities, excluding unrealized gains and losses, was 101.6% of par as of March 31, 2004 and 101.5% of par as of December 31, 2003. We had payables for securities purchased of $134.6 million and $259.7 million as of March 31, 2004 and December 31, 2003, respectively. As of May 6, 2004, we held $5.4 billion of mortgage-backed securities and we project our mortgage-backed securities to reach approximately $6.5 billion by June 30, 2004. -26- Results of Operations - Comparison of the Three Months Ended March 31, 2004 and 2003
Three Months Ended March 31, 2004 ------------------------------------------------------------------------ (in thousands) Mortgage-Backed Securities Holdings Loan Origination Loan Servicing Holdings Segment Segment Segment Total ------------------- ---------------- -------------- ----------- Net interest income: Interest income $ 15,149 $ 18,901 $ - $ 34,050 Interest expense (9,412) (10,962) (904) (21,278) ------------------------------------------------------------------------ Total net interest income 5,737 7,939 (904) 12,772 ------------------------------------------------------------------------ Non-interest income: Gain on sales of mortgage loans and mortgage-backed securities 12,651 67,482 - 80,133 Loan servicing fees - - 10,318 10,318 Amortization - - (7,346) (7,346) Impairment reserve provision - - (12,584) (12,584) ------------------------------------------------------------------------ Net loan servicing fees (loss) - - (9,612) (9,612) Other non-interest income - 978 - 978 ------------------------------------------------------------------------ Total non-interest income 12,651 68,460 (9,612) 71,499 ------------------------------------------------------------------------ Non-interest expenses: Salaries, commissions and benefits, net 50 38,600 1,132 39,782 Occupancy and equipment - 7,935 159 8,094 Data processing and communications 2 3,181 30 3,213 Office supplies and expenses - 2,747 371 3,118 Marketing and promotion - 2,212 - 2,212 Travel and entertainment 2 2,462 113 2,577 Professional fees 71 2,213 144 2,428 Other 1,045 3,324 1,069 5,438 ------------------------------------------------------------------------ Total non-interest expenses 1,170 62,674 3,018 66,862 ------------------------------------------------------------------------ Net income before income tax expense (benefit) 17,218 13,725 (13,534) 17,409 ------------------------------------------------------------------------ Income tax expense (benefit) - 1,735 (5,549) (3,814) ------------------------------------------------------------------------ Net income $ 17,218 $ 11,990 $ (7,985) $ 21,223 ======================================================================== March 31, 2004 ------------------------------------------------------------------------ Segment assets $ 4,074,086 $ 1,613,620 $ 139,273 $ 5,826,979 ========================================================================
-27-
Three Months Ended March 31, 2003 ------------------------------------------------------------------------ (in thousands) Mortgage-Backed Securities Holdings Loan Origination Loan Servicing Holdings Segment Segment Segment Total -------------------- ---------------- -------------- ----------- Net interest income: Interest income $ - $ 20,976 $ 2 $ 20,978 Interest expense - (9,421) (788) (10,209) ------------------------------------------------------------------------ Total net interest income - 11,555 (786) 10,769 ------------------------------------------------------------------------ Non-interest income: Gain on sales of mortgage loans - 88,211 - 88,211 Loan servicing fees - - 11,128 11,128 Amortization - - (12,769) (12,769) Impairment reserve provision - - (5,713) (5,713) ------------------------------------------------------------------------ Net loan servicing fees (loss) - - (7,354) (7,354) Other non-interest income - 2,928 - 2,928 ------------------------------------------------------------------------ Total non-interest income - 91,139 (7,354) 83,785 ------------------------------------------------------------------------ Non-interest expenses: Salaries, commissions and benefits, net - 43,841 806 44,647 Occupancy and equipment - 5,492 131 5,623 Data processing and communications - 3,052 27 3,079 Office supplies and expenses - 2,664 359 3,023 Marketing and promotion - 2,797 2 2,799 Travel and entertainment - 1,986 1 1,987 Professional fees - 1,709 132 1,841 Other - 3,259 406 3,665 ------------------------------------------------------------------------ Total non-interest expenses - 64,800 1,864 66,664 ------------------------------------------------------------------------ Net income before income tax expense (benefit) - 37,894 (10,004) 27,890 ------------------------------------------------------------------------ Income tax expense (benefit) - 15,584 (4,007) 11,577 ------------------------------------------------------------------------ Net income $ - $ 22,310 $ (5,997) $ 16,313 ======================================================================== December 31, 2003 ------------------------------------------------------------------------ Segment assets $ 1,865,414 $ 1,372,976 $ 164,000 $ 3,402,390 ========================================================================
-28- Mortgage-Backed Securities Holdings Segment - ------------------------------------------- Our Mortgage-Backed Securities Holdings segment began operations on December 3, 2003 as a result of the reorganization of the Company into a REIT and the merger with Apex. The segment's business is the holding for net interest income of adjustable-rate mortgage ("ARM")-backed securities. The following table presents the average balances for the Mortgage-Backed Securities Holdings segment's mortgage-backed securities and reverse repurchase agreements, corresponding annualized effective rate of interest and the related interest income or expense:
Three Months Ended March 31, ----------------------------------------------- (Dollars in thousands) 2004 ----------------------------------------------- Average Balance Interest Average Yield/Cost --------------- -------- ------------------ Mortgage-backed securities, net $ 1,958,339 $ 15,149 3.09% --------------- -------- ------------------ Reverse repurchase agreements (1) 1,795,332 9,412 2.10% --------------- -------- ------------------ Net interest income $ 5,737 ======== Interest rate spread 0.99% ================== Net interest margin 1.17% ==================
(1) Includes net interest expense on interest rate swaps Revenues. Total revenues for the Mortgage-Backed Securities Holdings segment were $18.4 million, consisting entirely of $12.7 million of gain on mortgage-backed securities and $5.7 million of net interest income. Loan Origination Segment - ------------------------ The Loan Origination segment's primary business is the origination and sale of primarily one-to-four family residential mortgage loans. Total loan originations for the quarter ended March 31, 2004 were $4.4 billion compared to $4.3 billion for the first quarter of 2003, a 2.3% increase. At March 31, 2004, the segment had 279 loan origination offices and 2,757 employees compared with 272 loan origination offices and 2,791 employees at December 31, 2003. Gain on Sales of Mortgage Loans and Mortgage-Backed Securities. The Loan Origination segment's primary source of revenue is the gain on sales of mortgage loans originated by the segment. Gain on sales of mortgage loans for the first quarter of 2004 totaled $52.7 million compared with $88.2 million for the first quarter of 2003. Net Interest Income. Total interest income for the quarter ended March 31, 2004 on our Loan Origination segment's mortgages held for sale was $18.9 million, compared to interest income for the quarter ended March 31, 2003 of $21.0 million, a decrease of $2.1 million, or 9.9%. The decrease was primarily due to lower average yield in 2004. Our Loan Origination segment funds its loan inventory primarily through borrowing facilities with several mortgage warehouse lenders. Total interest expense for the quarter ended March 31, 2004 was $11.0 million, compared to interest expense for the quarter ended March 31, 2003 of $9.4 million, a 16.4% increase, which was primarily due to increased borrowings to fund our large loan inventory. Other Revenue. Other revenue totaled $1.0 million for the quarter ended March 31, 2004 compared to $2.9 million for the quarter ended March 31, 2003. For the quarter ended March 31, 2004, other income primarily includes revenue from title services of $0.2 million, rental income of $0.6 million and premiums earned totaling approximately $0.1 million. For the quarter ended March 31, 2003, other income primarily consists of Principal Fulfillment Fees of $1.9 million, revenue from title services of $0.5 million and volume incentive bonuses received from loan purchasers totaling approximately $0.4 million. The fulfillment fees represent non-recurring fees received from Principal Residential Mortgage, Inc. ("PRM") for loans closed by us on behalf of PRM. As part of the agreement to acquire the retail -29- branches of PRM (the "Principal Branches"), we agreed to assume the costs incurred to close out PRM's application pipeline as of the date of the agreement on behalf of PRM for a per loan fee. Expenses. Total expenses of our Loan Origination segment for the quarter ended March 31, 2004 were $62.6 million, compared to $64.6 million for the quarter ended March 31, 2003. Our operating expenses represent costs that are not eligible to be added to the book value of the loans because they are not considered direct origination costs under the rules of SFAS No. 91 "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Costs of Leases." Direct origination costs are added to the book value of loans and either reduce the gain on sale of loans if the loans are sold or are amortized over the life of the loan. Salaries, commissions and benefits for the quarter ended March 31, 2004 were $38.6 million, or 87 basis points of total loan originations, compared to $43.8 million, or 102 basis points of total loan originations, for the quarter ended March 31, 2003. Operating expenses, excluding salaries, commissions and benefits, were 54 basis points of total loan originations for the quarter ended March 31, 2004 and 48 basis points for the quarter ended March 31, 2003. Income Tax Expense. Income tax expense decreased to $1.7 million for the quarter ended March 31, 2004 from $15.6 million for the quarter ended March 31, 2003, a decrease of $13.9 million, or 89.1%. The effective tax rate for the Loan Origination segment is 12.6%, which includes permanent book-to-tax differences related to activity within the REIT and the transactions between the taxable REIT subsidiary ("TRS") and qualified REIT subsidiary ("QRS"). Loan Servicing Segment - ---------------------- The Loan Servicing segment total revenues for the quarter ended March 31, 2004 were a loss of $10.5 million compared to a loss of $8.1 million for the quarter ended March 31, 2003, a decrease of $2.4 million, or 29.6%. Net loan servicing fees were a loss of $9.6 million for the quarter ended March 31, 2004, compared to a loss of $7.4 million for the quarter ended March 31, 2003. Loan servicing fees decreased to $10.3 million for the quarter ended March 31, 2004 from $11.1 million for the quarter ended March 31, 2003, a decrease of $0.8 million, or 7.2%. Included in loan servicing fees are gains on Ginnie Mae early buy-out sales of $2.4 million for the quarter ended March 31, 2004 compared to $3.6 million for the quarter ended March 31, 2003, a decrease of $1.2 million, or 33.3%. Amortization decreased to $7.3 million for the quarter ended March 31, 2004 from $12.8 million for the quarter ended March 31, 2003, a decrease of $5.5 million, or 43.0%. We recognized a temporary impairment provision of $12.6 million for the quarter ended March 31, 2004 versus a temporary impairment provision of $5.7 million for the quarter ended March 31, 2003, resulting in a decrease in net loan servicing fees of $6.9 million. The increase in impairment provision in the quarter ended March 31, 2004 is due to a decrease in the fair value of servicing rights attributable to an increase in estimated future prepayment speeds. The increase in estimated future prepayment speeds was a result of a reduction of interest rates in the quarter ended March 31, 2004. Given the current level of interest rates, the Company expects amortization to slow and expects to recover its impairment reserve, net of taxes, in the quarter ended June 30, 2004. Expenses. Total expenses of our Loan Servicing segment for the quarter ended March 31, 2004 were $3.0 million, compared to $1.9 million for the quarter ended March 31, 2003. Income Tax Benefit. Income tax benefit increased to $5.5 million for the quarter ended March 31, 2004 from a $4.0 million benefit for the quarter ended March 31, 2003, an increase of $1.5 million, or 37.5%. Liquidity and Capital Resources We have arrangements to enter into reverse repurchase agreements, a form of collateralized short-term borrowing, with 13 different financial institutions and on March 31, 2004 had borrowed funds from five of these firms. Because we borrow money under these agreements based on the fair value of our mortgage-backed securities, and because changes in interest rates can negatively impact the valuation of mortgage-backed securities, our borrowing ability under these agreements could be limited and lenders could initiate margin calls in the event interest rates change or the value of our mortgage-backed securities declines for other reasons. -30- As of March 31, 2004, we had $3.4 billion of reverse repurchase agreements outstanding with a weighted-average borrowing rate of 1.24% before the impact of interest rate swaps and a weighted-average remaining maturity of 4.4 months. To originate a mortgage loan, we draw against a $1.2 billion pre-purchase facility with UBS Real Estate Securities Inc. (formerly Paine Webber Real Estate Securities Inc.) ("UBS"), a $450 million bank syndicated facility led by Residential Funding Corporation ("RFC"), a $450 million facility with CDC IXIS Capital Markets North America Inc. ("CDC"), a facility of $350 million with Morgan Stanley Bank ("Morgan Stanley") and a facility of $200 million with Credit Lyonnais. In addition, the Company has a gestation facility with Greenwich Capital Financial Products, Inc. These facilities are secured by the mortgages owned by us and by certain of our other assets. Advances drawn under the facilities bear interest at rates that vary depending on the type of mortgages securing the advances. These loans are subject to sublimits, advance rates and terms that vary depending on the type of securing mortgages and the ratio of the Company's liabilities to its tangible net worth. At May 4, 2004, the aggregate outstanding balance under the warehouse facilities was $1.9 billion, the aggregate outstanding balance in drafts payable was $49.7 million and the aggregate maximum amount available for additional borrowings was $604.8 million. The documents governing our warehouse facilities contain a number of compensating balance requirements and restrictive financial and other covenants that, among other things, require us to adhere to a maximum ratio of total liabilities to tangible net worth and maintain a minimum level of tangible net worth and liquidity, as well as to comply with applicable regulatory and investor requirements. The facility agreements also contain covenants limiting the ability of our subsidiaries to transfer or sell assets other than in the ordinary course of business and to create liens on the collateral without obtaining the prior consent of the lenders, which consent may not be unreasonably withheld. In addition, under our warehouse facilities, we cannot continue to finance a mortgage loan that we hold if: o the loan is rejected as "unsatisfactory for purchase" by the ultimate investor and has exceeded its permissible 120-day warehouse period; o we fail to deliver the applicable mortgage note or other documents evidencing the loan within the requisite time period; o the underlying property that secures the loan has sustained a casualty loss in excess of 5% of its appraised value; or o the loan ceases to be an eligible loan (as determined pursuant to the applicable warehousing agreement). As of March 31, 2004, our aggregate warehouse facility borrowings were $1.3 billion (including $26 million of borrowings under a working capital sub-limit) and our outstanding drafts payable were $64.3 million, compared to $1.1 billion (including $29 million of borrowings under a working capital sub-limit) and our outstanding drafts payable were $25.6 million as of December 31, 2003. At March 31, 2004, our loans held for sale were $1.4 billion compared to $1.2 billion at December 31, 2003. In addition to the UBS, CDC, RFC, Morgan Stanley, and Credit Lyonnais warehouse facilities, we have a purchase and sale agreement with UBS. This agreement allows us to accelerate the sale of our mortgage loan inventory, resulting in a more effective use of the warehouse facility. Amounts sold and being held under this agreement at March 31, 2004 and December 31, 2003 were $234 million and $236 million, respectively. The amount so held under this agreement at May 3, 2004 was $263 million. This agreement is not a committed facility and may be terminated at the discretion of the counterparty. We make certain representations and warranties under the purchase and sale agreements regarding, among other things, the loans' compliance with laws and regulations, their conformity with the ultimate investors' underwriting standards and the accuracy of information. In the event of a breach of these representations or warranties or in the event of an early payment default, we may be required to repurchase the loans and indemnify the investor for damages caused by that breach. We have implemented strict procedures to ensure quality control and conformity to underwriting standards and minimize the risk of being required to repurchase loans. From time to time we have been required to repurchase loans that we sold; however, the liability for the fair value of those obligations has been immaterial. We also have a $100 million term loan facility with a bank syndicate led by RFC which we use to finance our MSRs. The term loan facility expires on May 28, 2004. Interest is based on a spread to the LIBOR and may be adjusted for earnings on escrow balances. At March 31, 2004 and December 31, 2003, borrowings under our term loan facility were $76.5 million and $71.5 million, respectively. Cash and cash equivalents increased to $97.6 million at March 31, 2004 from $53.1 million at December 31, 2003. Our primary sources of cash and cash equivalents during the quarter ended March 31, 2004, were as follows: -31- o $ 2.1 billion increase in reverse repurchase agreements; o $ 341.9 million proceeds from issuance of capital stock; and o $ 130.1 million increase in warehouse lines of credit. Our primary uses of cash and cash equivalents during the quarter ended March 31, 2004, were as follows: o $ 2.2 billion net increase in mortgage-backed securities; and o $ 147.2 million net increase in mortgage loans held for sale. Commitments The Company had the following commitments (excluding derivative financial instruments) at March 31, 2004:
Less Than After Total 1 Year 1 - 3 Years 4 - 5 Years 5 Years ---------- ---------- ------------ ------------ -------- (in thousands) Warehouse facilities $1,251,845 $1,251,845 $ - $ - $ - Operating leases 48,218 11,396 28,897 7,286 639 Notes payable 106,423 80,320 697 780 24,626 Reverse repurchase agreements 3,394,941 3,394,941 - - - Payable for securities purchased 134,647 134,647 - - -
-32- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Movements in interest rates can pose a major risk to the Company in either a rising or declining interest rate environment. The Company depends on substantial borrowings to conduct its business. These borrowings are all done at variable interest rate terms which will increase as short term interest rates rise. Additionally, when interest rates rise, loans held for sale and any applications in process with locked-in rates decrease in value. To preserve the value of such fixed-rate loans or applications in process with locked-in rates, agreements are executed for mandatory loan sales to be settled at future dates with fixed prices. These sales take the form of forward sales of mortgage-backed securities. When interest rates decline, fallout may occur as a result of customers withdrawing their applications. In those instances, the Company may be required to purchase loans at current market prices to fulfill existing mandatory loan sale agreements, thereby incurring losses upon sale. The Company uses an interest rate hedging program to manage these risks. Through this program, mortgage-backed securities are purchased and sold forward and options are acquired on treasury futures contracts. In the event that the Company does not deliver into the forward delivery commitments or exercise its option contracts, the instruments can be settled on a net basis. Net settlement entails paying or receiving cash based upon the change in market value of the existing instrument. All forward delivery commitments and option contracts to buy securities are to be contractually settled within six months of the balance sheet date. The Company's hedging program contains an element of risk because the counterparties to its mortgage and treasury securities transactions may be unable to meet their obligations. While the Company does not anticipate nonperformance by any counterparty, it is exposed to potential credit losses in the event the counterparty fails to perform. The Company's exposure to credit risk in the event of default by a counterparty is the difference between the contract and the current market price. The Company minimizes its credit risk exposure by limiting the counterparties to well-capitalized banks and securities dealers who meet established credit and capital guidelines. Movements in interest rates also impact the value of MSRs. When interest rates decline, the loans underlying the MSRs are generally expected to prepay faster, which reduces the market value of the MSRs. The Company considers the expected increase in loan origination volumes and the resulting additional origination related income as a natural hedge against the expected change in the value of MSRs. Lower mortgage rates generally reduce the fair value of the MSRs, as increased prepayment speeds are highly correlated with lower levels of mortgage interest rates. The Company enters into interest rate swap agreements ("Swap Agreements") to manage its interest rate exposure when financing its adjustable-rate loans and its mortgage-backed securities. The Company generally borrows money based on short-term interest rates, by entering into borrowings with maturity terms of less than one year, and frequently six to 12 months. The Company's adjustable-rate loans and mortgage-backed securities financing vehicles generally have an interest rate that reprices based on frequency terms of one to 12 months. The Company's mortgage-backed securities have an initial fixed interest rate period of three to five years. When the Company enters into a Swap Agreement, it generally agrees to pay a fixed rate of interest and to receive a variable interest rate, generally based on LIBOR. These Swap Agreements have the effect of converting the Company's variable-rate debt into fixed-rate debt over the life of the Swap Agreements. These instruments are used as a cost-effective way to lengthen the average repricing period of the Company's variable-rate and short-term borrowings such that the average repricing of the borrowings more closely matches the average repricing of the Company's mortgage-backed securities. The Company's duration gap was less than one month on March 31, 2004. -33- The following table summarizes the Company's interest rate sensitive instruments:
March 31, 2004 ------------------------------------ Notional Carrying Estimated Amount Amount Fair Value ---------- ---------- ---------- (In thousands) Assets: Mortgage-backed securities $3,969,385 $4,003,079 $4,003,079 Interest rate lock commitments 2,097,828 24,151 24,151 Mortgage loans held for sale, net 1,330,349 1,371,048 1,375,686 Mortgage servicing rights, net 8,956,144 113,519 113,519 Liabilities: Forward delivery commitments- Loan commitments $ 430,019 $ 699 $ 699 Forward delivery commitments - Loans held for sale (1) 944,000 150 150 Interest rate swaps 1,270,000 20,596 20,596
December 31, 2003 ------------------------------------ Notional Carrying Estimated Amount Amount Fair Value ---------- ---------- ---------- (In thousands) Assets: Mortgage-backed securities $1,759,064 $1,763,628 $1,763,628 Interest rate lock commitments 1,140,350 20,837 20,837 Mortgage loans held for sale, net 1,187,314 1,223,827 1,226,141 Mortgage servicing rights, net 8,272,294 117,784 117,784 Liabilities: Forward delivery commitments- Loan commitments $ 477,863 $ 4,358 $ 4,358 Forward delivery commitments - Loans held for sale (1) 1,161,217 2,300 2,300 Interest rate swaps 755,000 6,036 6,036
(1) This amount is included in mortgage loans held for sale, net (see Note 3). The Company had total commitments to lend at March 31, 2004 and December 31, 2003 of $7.3 billion and $4.0 billion, respectively. ITEM 4. CONTROLS AND PROCEDURES Disclosure Controls and Procedures - ---------------------------------- The Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of the end of the period covered by this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer had previously concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this quarterly report. However, subsequent to the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 2004, the Company identified a material weakness in the Company's internal control over financial reporting, which is a significant portion of our disclosure controls and procedures, which affected the Company's cash flow statement for the period covered by this quarterly report. As a result of this material weakness, the Chief Executive -34- Officer and Chief Financial Officer have now concluded that the Company's disclosure controls and procedures were not effective as of the end of the period covered by this quarterly report. Material Weakness in Internal Control Over Financial Reporting - -------------------------------------------------------------- A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the Company's ability to initiate, authorize, record, process, or report external financial information reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the Company's annual or interim financial statements that is more than inconsequential will not be prevented or detected. Subsequent to the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 2004, the Company identified a material weakness, in internal control over financial reporting, that existed as of March 31, 2004. Specifically, the Company's control intended to ensure the proper classification of cash flows related to the securitization of certain mortgage loans held for sale and the subsequent holding of securities retained from securitizations did not operate effectively as of March 31, 2004. The Company incorrectly concluded that such cash flows should be classified as cash flows from investing activities due to its intent to hold the resulting securities in its portfolio. As a result, the Company improperly classified cash flows related to certain securitization and mortgage-backed securities holding activities as cash flows from investing activities rather than cash flows from operating activities. As a result of this material weakness, the Company is filing this report on Form 10-Q/A to restate its quarterly cash flow statement for the quarter ended March 31, 2004. Changes in Internal Control Over Financial Reporting - ---------------------------------------------------- There were no changes that occurred during the first quarter of 2004 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. -35- PART II-OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In the ordinary course of its business, the Company is at times subject to various legal proceedings. The Company does not believe that any of its current legal proceedings, individually or in the aggregate, will have a material adverse effect on its operations or financial condition. A multitude of class action lawsuits have been filed against companies in the mortgage banking industry, which allege, among other things, violations of the terms of the mortgage loan documents and certain laws, rules and regulations (including, without limitation, consumer protection laws). These lawsuits may result in similar suits being filed against the Company. In addition, the publicity generated by such lawsuits may result in legislation that affects the manner in which the Company conducts its business and its relationships with mortgage brokers, correspondents and others. Any of these developments may materially and adversely affect the Company's business, financial condition and results of operations. ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES The following is a description of the Company's securities that were not registered under the Securities Act of 1933, as amended (the "Securities Act"), which were sold during the quarter ended March 31, 2004. The Company acquired First Home Mortgage Corp. ("First Home") on June 30, 2000. In addition to the shares paid to former First Home shareholders as initial consideration, the Company is required to issue unregistered shares of common stock to the former shareholders as additional consideration under the earnout provisions of the merger agreement. On January 1, 2004, pursuant to these earnout provisions, the Company issued an aggregate of 2,304 shares of common stock to such shareholders as additional consideration. In addition, on February 15, 2004, the Company issued 2,454 shares of common stock to such shareholders. These securities were exempt from registration under Section 4(2) of the Securities Act because they were issued pursuant to the terms of a private transaction rather than through a public offering. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. -36- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The following exhibits are filed as part of this report on Form 10-Q/A: Exhibit 10.1 Amendment to Amended and Restated Master Repurchase Agreement, dated as of January 1, 2004, by and between American Home Mortgage Corp. and CDC Mortgage Capital Inc. Exhibit 10.2 Guarantee, dated as of January 1, 2004, made by the Company, as Guarantor, on behalf of American Home Mortgage Corp. in favor of CDC Mortgage Capital Inc. Exhibit 10.3 Amended and Restated Mortgage Loan Purchase Agreement, dated as of February 6, 2004, by and among UBS Real Estate Securities Inc., the Company, American Home Mortgage Acceptance, Inc., American Home Mortgage Holdings, Inc., American Home Mortgage Corp. and Columbia National, Incorporated. Exhibit 10.4 Amended and Restated Mortgage Loan Repurchase Agreement, dated as of February 6, 2004, by and among UBS Real Estate Securities Inc., the Company, American Home Mortgage Acceptance, Inc., American Home Mortgage Holdings, Inc., American Home Mortgage Corp. and Columbia National, Incorporated. Exhibit 10.5 Amended and Restated Mortgage Loan Custodial Agreement, dated as of February 6, 2004, by and among UBS Real Estate Securities Inc., Deutsche Bank National Trust Company, the Company, American Home Mortgage Acceptance, Inc., American Home Mortgage Holdings, Inc., American Home Mortgage Corp. and Columbia National, Incorporated. Exhibit 10.6 Amended and Restated Mortgage Loan Participation Agreement, dated as of February 6, 2004, by and among UBS Real Estate Securities Inc., the Company, American Home Mortgage Acceptance, Inc., American Home Mortgage Holdings, Inc., American Home Mortgage Corp. and Columbia National, Incorporated. Exhibit 10.7 Amended and Restated Custodial Agreement, dated as of February 6, 2004, by and among UBS Real Estate Securities Inc., Deutsche Bank National Trust Company, the Company, American Home Mortgage Acceptance, Inc., American Home Mortgage Holdings, Inc., American Home Mortgage Corp. and Columbia National, Incorporated. Exhibit 10.8 Amended and Restated Employment Agreement, dated as of April 27, 2004, by and between American Home Mortgage Holdings, Inc. and John A. Johnston. Exhibit 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K. During the fiscal quarter ended March 31, 2004, the Company filed with the SEC the following Current Reports on Form 8-K: o Current Report on Form 8-K, dated February 12, 2004, and filed on February 12, 2004, which reported the commencement of a proposed offering of 10 million shares of the Company's common stock pursuant to a universal shelf registration statement on Form S-3, and announced the declaration of two special dividends in lieu of one regular dividend at the end of the first quarter of 2004. -37- o Current Report on Form 8-K, dated January 29, 2004, and furnished to the SEC on January 29, 2004, which disclosed that the Company had issued a press release announcing its financial results for the fiscal quarter and year ended December 31, 2003. o Current Report on Form 8-K, dated January 12, 2004, and filed with the SEC on January 12, 2004, which reported that the Company would report its financial results for the fiscal quarter and year ended December 31, 2003 on January 29, 2004, and announced that the Company's universal shelf registration statement on Form S-3 was declared effective by the SEC on January 12, 2004. -38- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN HOME MORTGAGE INVESTMENT CORP. (Registrant) Date: April 29, 2005 By: /s/ Michael Strauss ----------------------------------------- Michael Strauss Chairman of the Board, Chief Executive Officer and President Date: April 29, 2005 By: /s/ Stephen A. Hozie ----------------------------------------- Stephen A. Hozie Executive Vice President and Chief Financial Officer (Principal Financial Officer) -39- INDEX TO EXHIBITS Exhibit No. Description - ----------- -------------------------------------------------------- 10.1 -- Amendment to Amended and Restated Master Repurchase Agreement, dated as of January 1, 2004, by and between American Home Mortgage Corp. and CDC Mortgage Capital Inc. 10.2 -- Guarantee, dated as of January 1, 2004, made by the Company, as Guarantor, on behalf of American Home Mortgage Corp. in favor of CDC Mortgage Capital Inc. 10.3 -- Amended and Restated Mortgage Loan Purchase Agreement, dated as of February 6, 2004, by and among UBS Real Estate Securities Inc., the Company, American Home Mortgage Acceptance, Inc., American Home Mortgage Holdings, Inc., American Home Mortgage Corp. and Columbia National, Incorporated. 10.4 -- Amended and Restated Mortgage Loan Repurchase Agreement, dated as of February 6, 2004, by and among UBS Real Estate Securities Inc., the Company, American Home Mortgage Acceptance, Inc., American Home Mortgage Holdings, Inc., American Home Mortgage Corp. and Columbia National, Incorporated. 10.5 -- Amended and Restated Mortgage Loan Custodial Agreement, dated as of February 6, 2004, by and among UBS Real Estate Securities Inc., Deutsche Bank National Trust Company, the Company, American Home Mortgage Acceptance, Inc., American Home Mortgage Holdings, Inc., American Home Mortgage Corp. and Columbia National, Incorporated. 10.6 -- Amended and Restated Mortgage Loan Participation Agreement, dated as of February 6, 2004, by and among UBS Real Estate Securities Inc., the Company, American Home Mortgage Acceptance, Inc., American Home Mortgage Holdings, Inc., American Home Mortgage Corp. and Columbia National, Incorporated. 10.7 -- Amended and Restated Custodial Agreement, dated as of February 6, 2004, by and among UBS Real Estate Securities Inc., Deutsche Bank National Trust Company, the Company, American Home Mortgage Acceptance, Inc., American Home Mortgage Holdings, Inc., American Home Mortgage Corp. and Columbia National, Incorporated. 10.8 -- Amended and Restated Employment Agreement, dated as of April 27, 2004, by and between American Home Mortgage Holdings, Inc. and John A. Johnston. 31.1 -- Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 -- Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 -- Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 -- Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. EX-10.1 2 am033104-ex10_1.txt AMENDMENT TO AMENDED - RESTATE MASTER REPURCHASE Exhibit 10.1 AMENDMENT TO AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT AMENDMENT TO AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT, dated as of January 1, 2004 ("Amendment"), between American Home Mortgage Corp., a New York corporation ("Seller"), having its principal office at 520 Broadhollow Road, Melville, New York 11747, and CDC Mortgage Capital Inc., a New York corporation ("Buyer"), having its principal office at 9 West 57th Street, New York, New York 10019, under the Amended and Restated Master Repurchase Agreement, dated as of May 14, 2003, as amended, supplemented or otherwise modified prior to the date hereof (the "Existing Repurchase Agreement"), between Buyer and Seller. W I T N E S S E T H: WHEREAS, pursuant to the Existing Repurchase Agreement, between the Seller and the Buyer, the Buyer has agreed to purchase Mortgage Loans from time to time from the Seller, subject to the Seller's obligations to repurchase such Mortgage Loans upon the terms and conditions set forth therein; and WHEREAS, the Seller has requested and the Buyer has agreed to amend the Existing Repurchase Agreement to modify certain covenants, events of default and representations and warranties relating to the Mortgage Loans; NOW THEREFORE, in consideration of the premises and to induce the Buyer to make loans under the Existing Repurchase Agreement to the Seller, the Seller hereby agrees with the Buyer as follows: Section 1. Defined Terms. Unless otherwise defined herein, terms that are defined in the Existing Repurchase Agreement and used herein are so used as so defined. Section 2. Amendments. (a) The definition of "Existing Financing Facilities" as set forth in Section 2 of the Existing Repurchase Agreement is hereby deleted and replaced in its entirety with the following: ""Existing Financing Facility" shall mean the Morgan Facility, the UBS Warburg Facility, the RFC Facility, the Freddie Facility and the Greenwich Capital Facility." (b) Section 2 of the Existing Repurchase Agreement is hereby amended to include the following definition: ""Greenwich Capital Facility" means the Whole Loan Purchase and Sale Agreement, dated as of January 1, 2004, by and between American Home Mortgage Corp. and Greenwich Capital Financial Products, Inc." (c) Section 11(a) of the Existing Repurchase Agreement is hereby deleted and replaced in its entirely with the following: "(a) Financial Statements. Seller shall deliver to Buyer: (1) as soon as available and in any event within forty-five (45) calendar days after the end of each calendar month, the unaudited consolidated balance sheets of American Home Mortgage Investment Corp. ("AHMIC") and its consolidated Subsidiaries as at the end of such period and the related unaudited consolidated statements of income and retained earnings and of cash flows for AHMIC and its consolidated Subsidiaries for such period and the portion of the fiscal year through the end of such period, accompanied by a certificate of a Responsible Officer of AHMIC, which certificate shall state that said consolidated financial statements fairly present in all material respects the consolidated financial condition and results of operations of AHMIC and its consolidated Subsidiaries in accordance with GAAP, consistently applied, as at the end of, and for, such period (subject to normal year-end adjustments); (2) as soon as available and in any event within ninety (90) days after the end of each fiscal year of AHMIC, the consolidated balance sheets of AHMIC and its consolidated Subsidiaries as at the end of such fiscal year and the related consolidated statements of income and retained earnings and of cash flows for AHMIC and its consolidated Subsidiaries for such year, setting forth in each case in comparative form the figures for the previous year, accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall not be qualified as to scope of audit or going concern and shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of AHMIC and its respective consolidated Subsidiaries as at the end of, and for, such fiscal year in accordance with GAAP, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default or Event of Default; (3) from time to time such other information regarding the financial condition, operations, or business of Seller as Buyer may reasonably request; and (4) as soon as reasonably possible, and in any event within thirty (30) days after a Responsible Officer of Seller knows, or with respect to any Plan or Multiemployer Plan to which AHMIC or any of its Subsidiaries makes direct contributions, has reason to believe, that any of the events or conditions specified -2- below with respect to any Plan or Multiemployer Plan has occurred or exists, a statement signed by a senior financial officer of AHMIC setting forth details respecting such event or condition and the action, if any, that AHMIC or its ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC by AHMIC or an ERISA Affiliate with respect to such event or condition): (A) any reportable event, as defined in Section 4043(c) of ERISA or any successor provision thereof and the regulations issued thereunder, with respect to a Plan, as to which PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within thirty (30) days of the occurrence of such event (provided that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA or any successor provision thereof, including without limitation the failure to make on or before its due date a required installment under Section 412(m) of the Code or Section 302(e) of ERISA or any successor provision thereof, shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code or any successor provision thereof); and any request for a waiver under Section 412(d) of the Code or any successor provision thereof for any Plan; (B) the distribution under Section 4041(c) of ERISA or any successor provision thereof of a notice of intent to terminate any Plan or any action taken by Seller or an ERISA Affiliate to terminate any Plan; (C) the institution by PBGC of proceedings under Section 4042 of ERISA or any successor provision thereof for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by Seller or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan; (D) the complete or partial withdrawal from a Multiemployer Plan by AHMIC or any ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA or any successor provision thereof (including the obligation to satisfy secondary liability as a result of a purchaser default) that would have a Material Adverse Effect or the receipt by AHMIC or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or any successor provision thereof or that it intends to terminate or has terminated under Section 4041A of ERISA or any successor provision thereof; (E) the institution of a proceeding by a fiduciary of any Multiemployer Plan against AHMIC or any ERISA Affiliate to enforce Section 515 of ERISA or any successor provision thereof, which proceeding is not dismissed within thirty (30) days; and (F) the adoption of an amendment to any Plan that would result in the loss of tax-exempt status of the trust of which such Plan is a part if AHMIC or an -3- ERISA Affiliate fails to provide timely security to such Plan in accordance with the provisions of Section 401(a)(29) of the Code or Section 307 of ERISA or any successor provision thereof. The Seller will furnish to Buyer, at the time Seller furnishes each set of financial statements pursuant to paragraphs (a)(1) and (a)(2) above, a certificate of a Responsible Officer of the Seller to the effect that, to the best of such Responsible Officer's knowledge, the Seller during such fiscal period or year has observed or performed in all material respects all of its covenants and other agreements, and satisfied every condition, contained in this Agreement and the other Repurchase Documents to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate (and, if any Default or Event of Default has occurred and is continuing, describing the same in reasonable detail and describing the action the Seller has taken or proposes to take with respect thereto)." (d) Section 11(m) of the Existing Repurchase Agreement is hereby deleted and replaced in its entirety with the following: "(m) Maintenance of Profitability. Seller shall not permit, for any period of three (3) consecutive calendar months (each such period, a "Test Period"), Net Income of AHMIC and its consolidated Subsidiaries for such Test Period determined on a monthly basis, before income taxes for such Test Period and distributions made during such Test Period, to be less than $1.00." (e) Section 11(n) of the Existing Repurchase Agreement is hereby deleted and replaced in its entirety with the following: "(m) Maintenance of Tangible Net Worth; Liquidity. Seller shall not permit Tangible Net Worth of AHMIC and its consolidated Subsidiaries at any time to be (i) as of January 31, 2004 and February 28, 2004, less than $285,000,000 and (ii) as of March 31, 2004 and thereafter, less than $300,000,000. In addition, Seller shall maintain at least $10 million of Cash at all times." (f) Section 11(o) of the Existing Repurchase Agreement is hereby deleted and replaced in its entirety with the following: "(m) Maintenance of Ratio of Total Indebtedness to Tangible Net Worth. Seller shall not permit the ratio of Total Indebtedness to Tangible Net Worth of AHMIC and its consolidated Subsidiaries at any time to be greater than 13:1." (g) Section 11(t) of the Existing Repurchase Agreement is hereby deleted and replaced in its entirety with the following: "(m) Compliance Report. Seller shall provide Buyer no later than the forty-fifth (45th) day after the end of a calendar month, a compliance report, in the form of Exhibit IX attached hereto, demonstrating therein the calculations Seller utilized to determine its compliance with the financial covenants set forth in clauses (m), (n) and (o) of this Section 11 as of the end of the immediately preceding month. Such compliance report shall be delivered -4- by Seller to Buyer in accordance with Section 17 and shall also be delivered by Seller to Buyer at 9 West 57th Street, New York, NY 10019 Attn: Michael Friedman, Telecopier No.: (212) 891-6143, Telephone No.: (212) 891-6261." (h) The Existing Repurchase Agreement is hereby amended to add the following clause (p) to Section 12: "(m) AHMIC engages in a "prohibited transaction" as defined in Sectin 857(b)(6)(B)(iii) and (C) of the Code or fails at any time to maintain its status as a real estate investment trust." (i) Paragraph (26) of Schedule 1 to the Existing Repurchase Agreement is hereby deleted and replaced in its entirety with the following: "(26) Acceptable Investment. The Mortgagor is not in bankruptcy or insolvent and Seller has no knowledge of any circumstances or conditions with respect to the Mortgage, the Mortgaged Property, the Mortgagor or the Mortgagor's credit standing that can reasonably be expected to cause private institutional investors to regard the Mortgage Loan as an unacceptable investment, cause the Mortgage Loan to become delinquent, or adversely affect the value or marketability of the Mortgage Loan. No Mortgaged Property is located in a state, city, county or other local jurisdiction which the Buyer has determined in its sole good faith discretion would cause the related Mortgage Loan to be ineligible for whole loan sale or securitization in a transaction consistent with the prevailing sale and securitization industry (including, without limitation, the practice of the rating agencies) with respect to substantially similar mortgage loans;" (j) Paragraph (35) of Schedule 1 to the Existing Repurchase Agreement is hereby deleted and replaced in its entirety with the following: "(35) Servicemembers Civil Relief Act. The Mortgagor has not notified Seller, and Seller has no knowledge of, any relief requested or allowed to the Mortgagor under the Servicemembers Civil Relief Act or any similar state statute;" (k) Paragraph (41) of Schedule 1 to the Existing Repurchase Agreement is hereby deleted and replaced in its entirety with the following: "(41) Predatory Lending Regulations; High Cost Loans. No Mortgage Loan is a High Cost Loan. No Mortgage Loan is covered by the Home Ownership and Equity Protection Act of 1994 and no Mortgage Loan is in violation of any comparable state or local law. The Mortgaged Property is not located in a jurisdiction where a breach of this representation with respect to the related Mortgage Loan may result in additional assignee liability to Buyer, as determined by Buyer in its reasonable discretion;" (l) Paragraph (51) of Schedule 1 to the Existing Repurchase Agreement is hereby deleted and replaced in its entirety with the following: "(51) Georgia Fair Lending Act. There is no Mortgage Loan that was originated on or after October 1, 2002 and before March 7, 2003 which is secured by property located in the State of Georgia. There is no Mortgage Loan that was originated on or -5- after March 7, 2003 that is a "high cost home loan" as defined under the Georgia Fair Lending Act;" (m) Paragraph (57) of Schedule 1 to the Existing Repurchase Agreement is hereby deleted and replaced in its entirety with the following: "(57) Fair Credit Reporting Act. The Seller has (or has caused the Servicer to), in its capacity as servicer, for each Mortgage Loan, fully furnished, in accordance with the Fair Credit Reporting Act and its implementing regulations, accurate and complete information (e.g., favorable and unfavorable) on its borrower credit files to Equifax, Experian and Trans Union Credit Information Company (three of the credit repositories), on a monthly basis;" (n) The definition of "High Cost Loan" as set forth in Schedule 1 is hereby deleted and replaced in its entirety with the following: ""High Cost Loan" shall mean a Mortgage Loan classified as (a) a "high cost" loan under the Home Ownership and Equity Protection Act of 1994 or (b) a "high cost home," "threshold," "covered," "high risk home," "predatory" or similar loan under any other applicable state, federal or local law (or a similarly classified loan using different terminology under a law imposing heightened regulatory scrutiny or additional legal liability for residential mortgage loans having high interest rates, points and/or fees)." (o) A new Exhibit IX to the Existing Repurchase Agreement, attached as Exhibit A hereto, is hereby added to the Existing Repurchase Agreement. Section 3. Representations and Warranties. Seller hereby represents and warrants that the representations and warranties of the Seller contained in Section 10 of the Existing Repurchase Agreement, as supplemented by this Amendment, are true and correct with respect to Seller and AHMIC and as of the date of this Amendment. Section 4. Effectiveness. The closing for the Amendment of the Existing Repurchase Agreement shall be subject to the condition precedent that the Seller and the Buyer shall have executed and delivered the related closing documents as specified below, duly executed by all signatories as required pursuant to the respective terms thereof: 1. this Amendment; 2. the Guarantee, dated as of January 1, 2004, made by AHMIC, as guarantor, on behalf of Seller, in favor of the Buyer; 3. Opinion of Counsel to Seller and AHMIC, substantially in the form attached hereto as Exhibit B; 4. Secretary's Certificates of Seller and AHMIC, including good standing certificates and certified copies of the charter and by-laws (or equivalent documents) of Seller and AHMIC and of all corporate or other authority for Seller and AHMIC with respect to the execution, delivery and performance of this Amendment or the Guarantee, as applicable, -6- and each other document to be delivered by Seller and AHMIC in connection herewith; and 5. such other documents as Buyer may request. Section 5. Further Assurances. The Seller hereby covenants and agrees with the Buyer that, from and after the date hereof, at any time and from time to time, upon the written request of the Buyer, and at the sole expense of the Seller, the Seller will promptly and duly execute and deliver such further instruments and documents and take such further actions as the Buyer may reasonably request in order to effect the transactions contemplated hereby and to preserve the full benefits of the Existing Repurchase Agreement and the rights and powers therein granted. Section 6. Counterparts. This Amendment may be executed by each of the parties hereto on any number of separate counterparts, each of which shall be an original and, all of which taken together shall constitute one and the same instrument. Section 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE CHOICE OF LAW PROVISIONS THEREOF. Section 8. Ratification of Agreement. Except as modified by this Amendment, the Existing Repurchase Agreement is in all respects ratified and confirmed, and all the terms, provisions and conditions thereof shall be and remain in full force and effect. The execution of this Amendment shall in no manner constitute a waiver or extinguishment of any rights of the Buyer under the Existing Repurchase Agreement and all such rights are hereby reserved. [SIGNATURE PAGE FOLLOWS] -7- IN WITNESS WHEREOF, the parties have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the day and year first above written. CDC MORTGAGE CAPITAL INC. By: /s/ Joe Piscina ----------------------------------- Name: Joe Piscina Title: Managing Director CDC MORTGAGE CAPITAL INC. By: /s/ Kathy Lynch ----------------------------------- Name: Kathy Lynch Title: Director AMERICAN HOME MORTGAGE CORP. By: /s/ Stephen A. Hozie ----------------------------------- Name: Stephen A. Hozie Title: EX-10.2 3 am033104-ex10_2.txt GUARANTEE Exhibit 10.2 GUARANTEE GUARANTEE, dated as of January 1, 2004, made by American Home Mortgage Investment Corp. (the "Guarantor"), on behalf of American Home Mortgage Corp. (the "Seller"), in favor of CDC Mortgage Capital Inc. ("CDC"), a party to the Amended and Restated Master Repurchase Agreement and the Amended and Restated Custodial and Disbursement Agreement, each referred to below. RECITALS Pursuant to that certain Amended and Restated Master Repurchase Agreement, dated as of May 14, 2003 (as amended, supplemented or otherwise modified from time to time, the "Original Repurchase Agreement"), between CDC and the Seller, the Seller has agreed to sell, from time to time, to CDC certain mortgage loans (the "Mortgage Loans") as whole loans upon the terms and subject to the conditions set forth therein. The Guarantor owns indirectly all interests in the Seller. Pursuant to the terms of that certain Amended and Restated Custodial and Disbursement Agreement, dated as of May 14, 2003 (the "Custodial and Disbursement Agreement"), Deutsche Bank National Trust Company ("Deutsche Bank") is required to (i) take possession of the Mortgages and the Mortgage Notes, along with certain other documents specified in the Agreements, as the Custodian of CDC and any future purchaser, on several delivery dates, in accordance with the terms and conditions of the Custodial and Disbursement Agreement and (ii) hold certain accounts of the Seller and CDC and disburse certain funds in accordance with the terms of the Custodial and Disbursement Agreement. Pursuant to that certain Amendment to the Amended and Restated Master Repurchase Agreement, dated as of January 1, 2004 (the "Amendment", and collectively with the Original Repurchase Agreement as amended from time to time, the "Repurchase Agreement"), between CDC and the Seller, CDC and the Seller have agreed to amend the Original Repurchase Agreement to modify certain covenants, events of default and representations and warranties relating to the Mortgage Loans. It is a condition precedent to CDC's entering into the Amendment that the Guarantor shall have executed and delivered this Guarantee with respect to any and all representations, warranties, covenants and other obligations (collectively, the "Obligations") of the Seller with respect to CDC under each of the Repurchase Agreement, the Custodial and Disbursement Agreement and each other Repurchase Document. NOW, THEREFORE, in consideration of the premises and to induce CDC to enter into the Amendment, the Guarantor hereby agrees, for the benefit of CDC, as follows: 1. Defined Terms. (a) Unless otherwise defined herein, terms defined in the Repurchase Agreement and used herein shall have the meanings given to them in the Repurchase Agreement. (b) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Guarantee shall refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and section and paragraph references are to this Guarantee unless otherwise specified. (c) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 2. Guarantee. (a) The Guarantor hereby, unconditionally and irrevocably, guarantees, for the benefit of CDC and its successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Seller when such payment is due or performance required in accordance with the Obligations. (b) Anything herein to the contrary notwithstanding, the maximum liability of the Guarantor hereunder shall in no event exceed the amount which can be guaranteed by the Guarantor under applicable federal and state laws relating to the insolvency of the debtors. (c) The Guarantor further agrees to pay any and all expenses (including, without limitation, all fees and disbursements of counsel) which may be paid or incurred by CDC in enforcing, or obtaining advice of counsel in respect of, any rights with respect to, or collecting, any or all of the Obligations and/or enforcing any rights with respect to, or collecting against, the Guarantor under this Guarantee. This Guarantee shall remain in full force and effect until the Obligations are performed and/or paid in full and the Agreements are terminated, notwithstanding that from time to time prior thereto the Seller may be free from any Obligations. (d) No actions or payments made by the Seller, the Guarantor, any other guarantor or any other Person or received or collected by CDC from the Seller, the Guarantor, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of the Guarantor hereunder which shall, notwithstanding any such payment or payments other than payments made by the Guarantor in respect of the Obligations or payments received or collected from the Guarantor in respect of the Obligations, remain liable for the Obligations hereunder until the Obligations are paid in full and the Agreements are terminated. (e) The Guarantor agrees that whenever, at any time, or from time to time, it shall make any payment to CDC on account of its liability hereunder, it will notify CDC in writing that such payment or performance is made under this Guarantee for such purpose. 3. Right of Set-off. The Guarantor hereby irrevocably authorizes CDC at any time and from time to time without notice to the Guarantor, any such notice being expressly waived by the Guarantor, to set-off and appropriate and apply any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by CDC to or for the credit or the account of the Guarantor, or any part thereof in such amounts as CDC may elect, against and on account of the obligations and liabilities of the Guarantor to CDC hereunder and claims of every nature and description of CDC against the Guarantor, in any currency, whether arising hereunder, or otherwise, as CDC may elect, whether or not CDC has made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. CDC shall -2- notify the Guarantor promptly of any such set-off and the application made by CDC; provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of CDC under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which CDC may have. 4. No Subrogation. Notwithstanding any payment or payments made by the Guarantor hereunder or any set off or application of funds of the Guarantor by CDC, the Guarantor shall not be entitled to be subrogated to any of the rights of CDC against the Seller or any other guarantor or any collateral security or guarantee or right of offset held by CDC for the payment of the Obligations, nor shall the Guarantor seek or be entitled to seek any contribution or reimbursement from the Seller or any other guarantor in respect of any payments made by the Guarantor hereunder, until all amounts owing to CDC are paid in full and the Agreements are terminated. If any amount shall be paid to the Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by the Guarantor in trust for CDC segregated from other funds of the Guarantor, and shall, forthwith upon receipt by the Guarantor, be turned over to CDC, in the exact form received by the Guarantor (duly indorsed by the Guarantor to CDC, if required), to be applied against the Obligations, whether matured or unmatured, in such order as CDC may determine. 5. Amendments, etc. with respect to the Obligations; Waiver of Rights. The Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against the Guarantor and without notice to or further assent by the Guarantor, any demand for repurchase or other performance or payment under any of the Obligations made by CDC may be rescinded by such party and any of the Obligations continued, and the Obligations, or the liability of any other party upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by CDC, and the Agreements and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as CDC may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by CDC for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. CDC shall have no obligation to protect, secure, perfect or insure any lien at any time held by it as security for the Obligations or for this Guarantee or any property subject thereto. When making any demand hereunder against the Guarantor, CDC may, but shall be under no obligation to, make a similar demand on the Seller or any other guarantor, and any failure by CDC to make any such demand or to collect any payments from the Seller or any such other guarantor or any release of the Seller or such other guarantor shall not relieve the Guarantor of its obligations or liabilities hereunder, and shall not impair or affect the rights and remedies, express or implied, or as a matter of law, of CDC against the Guarantor. For the purposes hereof "demand" shall include the commencement and continuance of any legal proceedings. 6. Guarantee Absolute and Unconditional. The Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by CDC upon this Guarantee or acceptance of this Guarantee, and any creation, renewal extension or accrual of any of the Obligations, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon this -3- Guarantee; and all dealings between the Seller and the Guarantor, on the one hand, and CDC and the Seller, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon this Guarantee. The Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Seller or the Guarantor with respect to the Obligations. The Guarantor understands and agrees that this Guarantee shall be construed as a continuing, absolute and unconditional guarantee of payment and not of collection without regard to (a) the validity, regularity or enforceability of the Repurchase Agreement, the Custodial and Disbursement Agreement, or any other document, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by CDC, (b) any defense, set-off or counterclaim (other than a defense of payment or performance in full) which may at any time be available to or be asserted by the Seller against CDC, or (c) any other circumstance whatsoever (other than a defense of payment or performance in full) (with or without notice to or knowledge of the Seller or the Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Seller from the Obligations, or of the Guarantor under this Guarantee, in bankruptcy or in any other instance. When pursuing its rights and remedies hereunder against the Guarantor, CDC may, but shall be under no obligation to, pursue such rights and remedies as it may have against the Seller or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto and any failure by CDC to pursue such other rights or remedies or to collect any payments from the Seller or any such other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Seller or any such other Person or any such collateral security, guarantee or right of offset shall not relieve the Guarantor of any liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of CDC against the Guarantor. This Guarantee shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon the Guarantor and the successors and assigns thereof, and shall inure to the benefit of CDC, and its respective successors, indorsees, transferees and assigns, until all the Obligations and the obligations of the Guarantor under this Guarantee shall have been satisfied by complete performance and payment in full and the Agreements shall be terminated, notwithstanding that from time to time during the term of the Agreements the Guarantor may be free from any Obligations. 7. Reinstatement. This Guarantee shall continue to be effective, or be reinstated, as the case may be, if at any time payment and/or performance, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by CDC upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Seller or the Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Seller or the Guarantor or any substantial part of their respective property, or otherwise, all as though such payments had not been made. 8. Payments. The Guarantor hereby guarantees that payments hereunder will be paid to CDC without set-off or counterclaim in U.S. Dollars at the office of CDC as specified in Section 8 of the Repurchase Agreement. -4- 9. Representations and Warranties. The Guarantor hereby represents and warrants that: (a) it is duly organized, validly existing and in good standing under the laws of the state of Maryland and has the power and authority and the legal right to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged; (b) it has the power and authority and the legal right to execute and deliver, and to perform its obligations under, this Guarantee, and has taken all necessary action to authorize its execution, delivery and performance of this Guarantee; (c) this Guarantee has been duly executed and delivered on behalf of the Guarantor, and constitutes a legal, valid and binding obligation of the Guarantor enforceable in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered on a proceeding in equity or at law) and an implied covenant of good faith and fair dealing; (d) neither the execution and delivery of this Guarantee, nor the fulfillment of or compliance with the terms and conditions of this Guarantee, will conflict with or result in a breach of any of the terms, conditions or provisions of the Guarantor's organizational documents or any agreement or instrument to which the Guarantor is now a party or by which it is bound, or constitute a default or result in an acceleration under any of the foregoing, or result in the violation of any law, rule, regulation, order, judgment or decree to which the Guarantor or its property is subject; (e) no consent or authorization of, filing with, notice to, or other act by or in respect of, any governmental authority or any other Person (including, without limitation, any stockholder or creditor of the Guarantor) is required in connection with the execution, delivery, performance, validity or enforceability of this Guarantee; (f) there are no actions, suits, arbitrations, investigations (including, without limitation, any of the foregoing which are pending or threatened) or other legal or arbitrable proceedings affecting the Guarantor or any of its subsidiaries or affecting any of its properties before any governmental authority which (i) questions or challenges the validity or enforceability of the Agreements or any action to be taken in connection with the transactions contemplated thereby, (ii) makes a claim or claims in an aggregate amount greater than $500,000, or (iii) individually or in the aggregate, if adversely determined, could reasonably be likely to have a Material Adverse Effect (as defined in the Repurchase Agreement). (g) it has good record and marketable title in fee simple to, or a valid leasehold interest in, all its real property, and good title to, or a valid leasehold interest in, all its other property, and none of such property is subject to any lien of any nature whatsoever except such as are disclosed in the balance sheet referred to in Section 9(i) hereof; (h) it has filed or caused to be filed all tax returns which, to its knowledge, are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or -5- any of its property by any governmental authority (other than any amount or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Guarantor); no tax lien has been filed, and, to the knowledge of the Guarantor, no claim is being asserted, with respect to any such tax, fee or other charge; (i) the consolidated balance sheet of the Guarantor as of December 31, 2003 and the related consolidated statements of income and retained earnings and of cash flows for such fiscal year, audited by Deloitte & Touche LLP, copies of which have heretofore been furnished to CDC, are complete and correct and present fairly the financial condition of the Guarantor as at such date, and the results of its operations and its cash flow for such fiscal year. All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants or responsible officer, as the case may be, and as disclosed therein). At the date of the most recent balance sheet referred to above, the Guarantor had no material guarantee obligation, contingent liability or liability for taxes, or any long-term lease or unusual forward or long-term commitment, including, without limitation, any interest rate or foreign currency swap or exchange transaction or other financial derivative, which is not reflected in the foregoing statements or in the notes thereto. During the period from December 31, 2003, to and including the date hereof there has been no sale, transfer or other disposition by the Guarantor of any material part of its business or property and no purchase or other acquisition of any business or property (including any capital stock of any other Person) material in relation to the financial condition of the Guarantor at December 31, 2003; and (j) the Guarantor has not engaged in any material "prohibited transactions" as defined in Section 857(b)(6)(B)(iii) and (C) of the Code. The Guarantor for its current "tax year" (as defined in the Code) is and for all prior tax years subsequent to its election to be a real estate investment trust has been entitled to a dividends paid deduction under the requirements of Section 857 of the Code with respect to any dividends paid by it with respect to each such year for which it claims a deduction in its Form 1120-REIT filed with the United States Internal Revenue Service for such year. The Guarantor will not engage in any "prohibited transactions" and will maintain its status as a real estate investment trust until the termination of this Guarantee. 10. Notices. All notices, requests and demands which are required or permitted to be given under this Guarantee shall be in writing (or by telex, fax or similar electronic transfer confirmed in writing) and shall be deemed to have been duly given or made (1) when delivered by hand or (2) if given by mail, when deposited in the mails by certified mail, return receipt requested, or (3) if by telex, fax or similar electronic transfer, when sent and receipt has been confirmed, addressed as follows: (a) if to CDC or to the Seller, at their respective addresses or transmission numbers for notices provided in Section 17 of the Repurchase Agreement; and (b) if to the Guarantor, at its address or transmission number for notices set forth under its signature below. -6- CDC, the Seller and the Guarantor may change its address and transmission numbers for notices by notice in the manner provided in this Section. 11. Severability. Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 12. Integration. This Guarantee represents the agreement of the Guarantor with respect to the subject matter hereof. 13. Amendments in Writing; No Waiver; Cumulative Remedies. (a) None of the terms or provisions of this Guarantee may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Guarantor and CDC. (b) CDC shall not by any act, delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of CDC, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by CDC of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which CDC would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 14. Section Headings. The section headings used in this Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 15. Successors and Assigns. This Guarantee shall be binding upon the successors and assigns of the Guarantor and shall inure to the benefit of CDC and its successors and assigns. This Guarantee may not be assigned by the Guarantor without the prior written consent of CDC, which consent shall be at CDC's sole discretion. This Guarantee may be assigned by CDC without the consent of the Guarantor to any assignee of the Repurchase Agreement. 16. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPALS. 17. SUBMISSION TO JURISDICTION; WAIVERS. THE GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY: -7- (a) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE AND THE OTHER REPURCHASE DOCUMENTS, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN THE BOROUGH OF MANHATTAN, THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF; (b) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME; (c) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO ITS ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW OR AT SUCH OTHER ADDRESS OF WHICH CDC SHALL HAVE BEEN NOTIFIED; AND (d) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION. (e) CDC AND GUARANTOR HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTEE, ANY OTHER REPURCHASE DOCUMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. (f) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO IN THIS SECTION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES. 18. Acknowledgments. The Guarantor hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Guarantee; (b) CDC does not have any fiduciary relationship with or duty to the Guarantor arising out of or in connection with this Guarantee, and the relationship between the Guarantor, the Seller and CDC; and (c) no joint venture is created hereby or otherwise exists by virtue of the transactions contemplated hereby among the Guarantor, the Seller and CDC. -8- 19. WAIVER OF JURY TRIAL. THE GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE OR ANY OTHER DOCUMENT RELATING HERETO OR THE MORTGAGE LOANS AND FOR ANY COUNTERCLAIM THEREIN. IN WITNESS WHEREOF, the undersigned has caused this Guarantee to be duly executed and delivered by its duly authorized officer as of the day and year first above written. AMERICAN HOME MORTGAGE INVESTMENT CORP. By: /s/ Stephen A. Hozie --------------------------------------- Name: Stephen A. Hozie Title: Executive Vice President and Chief Financial Officer Address for Notices: American Home Mortgage Investment Corp. 520 Broadhollow Road Melville, New York 11747 Attention: Alan B. Horn Telecopier No.: (800) 209-7276 Telephone No: (516) 396-7703 EX-10.3 4 am033104-ex10_3.txt AMENDED AND RESTATED MORTGAGE LOAN Exhibit 10.3 AMENDED AND RESTATED MORTGAGE LOAN PURCHASE AGREEMENT PURCHASER: UBS REAL ESTATE SECURITIES INC. ADDRESS: 1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019 ATTENTION: GEORGE A. MANGIARACINA TELEPHONE: (212) 713-3734 ATTENTION: ROBERT CARPENTER TELEPHONE: (212) 713-8749 SELLER: AMERICAN HOME MORTGAGE INVESTMENT CORP. ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: STEPHEN A. HOZIE, CHIEF FINANCIAL OFFICER TELEPHONE: (516) 396-7700 SELLER: AMERICAN HOME MORTGAGE ACCEPTANCE, INC. ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: STEPHEN A. HOZIE, CHIEF FINANCIAL OFFICER TELEPHONE: (516) 396-7700 SELLER: AMERICAN HOME MORTGAGE HOLDINGS, INC. ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: STEPHEN A. HOZIE, CHIEF FINANCIAL OFFICER TELEPHONE: (516) 396-7700 SELLER: AMERICAN HOME MORTGAGE CORP. ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: MICHAEL STRAUSS, PRESIDENT TELEPHONE: (516) 396-7700 SELLER: COLUMBIA NATIONAL, INCORPORATED ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: MICHAEL STRAUSS, PRESIDENT TELEPHONE: (516) 396-7700 ATTENTION: STEPHEN A. HOZIE, CHIEF FINANCIAL OFFICER TELEPHONE: (516) 396-7700 DATE OF AGREEMENT: FEBRUARY 6, 2004 -2- TABLE OF CONTENTS
Page ---- Section 1 Definitions ........................................................ 1 Section 2 Procedures for Purchases of Mortgage Loans ......................... 10 Section 3 Sale of Mortgage Loans to Takeout Investor ......................... 12 Section 4 Servicing of the Mortgage Loans .................................... 14 Section 5 Trade Assignments .................................................. 16 Section 6 Transfers of Mortgage Loans by Purchaser ........................... 16 Section 7. Record Title to Mortgage Loans; Intent of Parties; Security Interest 16 Section 8. Representations and Warranties ..................................... 18 Section 9. Covenants of the Sellers ........................................... 21 Section 10. Confidentiality ................................................... 26 Section 11. Term .............................................................. 26 Section 12. Exclusive Benefit of Parties; Assignment .......................... 26 Section 13. Amendments; Waivers; Cumulative Rights ............................ 26 Section 14. Execution in Counterparts ......................................... 26 Section 15. Effect of Invalidity of Provisions ................................ 27 Section 16. GOVERNING LAW ..................................................... 27 Section 17. Notices ........................................................... 27 Section 18. Entire Agreement .................................................. 27 Section 19. Costs of Enforcement .............................................. 27 Section 20. Consent to Service ................................................ 27 Section 21. Construction ...................................................... 27 Section 22. Effect of Amendment and Restatement ............................... 27
-i- Schedule I Representations and Warranties Exhibit A Loan Purchase Detail Exhibit A-1 Data Layout Instructions Exhibit B-1 Warehouse Lender's Release Exhibit B-2 Warehouse Lender's Wire Instructions Exhibit C-1 Seller's Release Exhibit C-2 Seller's Wire Instructions Exhibit D Purchaser's Wire Instructions to Seller Exhibit E UCC-1 Financing Statement Exhibit F Authorized Signatories Exhibit G Form of Opinion Exhibit H Cash Account Adjustment Notice Exhibit I Cash Account Wire Instructions Exhibit J Withdrawal/Deposit Notice: Cash Account Exhibit K Takeout Proceeds Identification Letter -ii- AMENDED AND RESTATED MORTGAGE LOAN PURCHASE AGREEMENT THIS AMENDED AND RESTATED MORTGAGE LOAN PURCHASE AGREEMENT, dated as of the date set forth on the cover page hereof (as amended, supplemented or otherwise modified from time to time, "Agreement"), among UBS REAL ESTATE SECURITIES INC. ("Purchaser") and the Sellers whose names are set forth on the cover page hereof (each a "Seller" and, collectively, the "Sellers"). RECITALS WHEREAS, the Purchaser and American Home Mortgage Holdings, Inc., American Home Mortgage Corp. and Columbia National, Incorporated (in such capacity, the "Original American Home Parties") are parties to the Mortgage Loan Purchase Agreement, dated as of February 26, 1999 as amended, supplemented or otherwise modified prior to the date hereof (the "Original Mortgage Loan Purchase Agreement"); WHEREAS, pursuant to the Original Mortgage Loan Purchase Agreement, one or more of the Original American Home Parties may have, in its sole discretion, offered to sell to Purchaser from time to time Mortgage Loans (as defined therein), and Purchaser, in its sole discretion, may have agreed to purchase such Mortgage Loans from such Seller in accordance with the terms and conditions set forth in the Original Mortgage Loan Purchase Agreement; WHEREAS, the Original American Home Parties and the Purchaser desire to amend and restate the Original Mortgage Loan Purchase Agreement as provided herein; and NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree that the Original Mortgage Loan Purchase Agreement be amended and restated in its entirety as follows: PRELIMINARY STATEMENT Each Seller may, in its sole discretion, offer to sell to Purchaser from time to time Mortgage Loans, subject to such Seller's obligation to repurchase such Mortgage Loans in accordance with the terms herein and Purchaser, in its sole discretion, may agree to purchase such Mortgage Loans from such Seller in accordance with the terms and conditions set forth in this Agreement. Each Seller, subject to the terms hereof, will cause each of its respective Mortgage Loans to be purchased by Takeout Investor. During the period from the purchase of a Mortgage Loan to the sale of the Mortgage Loan to Takeout Investor, Purchaser expects to rely entirely upon the respective Seller to service (or cause to be serviced) each such Mortgage Loan. The parties hereto hereby agree as follows: Section 1. Definitions. Capitalized terms used but not defined herein shall have the meanings set forth in the Custodial Agreement. As used in this Agreement, the following terms shall have the following meanings: "Accepted Servicing Practices": With respect to each Mortgage Loan, such standards which comply with the applicable standards and requirements under: (i) an applicable Agency Program and related provisions of the applicable Agency Guide pursuant to which the related Mortgage Loan is intended to be purchased, and/or (ii) any applicable FHA and/or VA program and related provisions of applicable FHA and/or VA servicing guidelines. "Act of Insolvency": With respect to the related Seller, (a) the commencement by such Seller as debtor of any case or proceeding under any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar law, or such Seller's seeking the appointment of a receiver, trustee, custodian or similar official for such Seller or any substantial part of its property, or (b) the commencement of any such case or proceeding against such Seller, or another's seeking such appointment, or the filing against such Seller of an application for a protective decree which (1) is consented to or not timely contested by such Seller, (2) results in the entry of an order for relief, such an appointment, the issuance of such a protective decree or the entry of an order having a similar effect, or (3) is not dismissed within sixty (60) days, (c) the making by such Seller of a general assignment for the benefit of creditors, or (d) the admission in writing by such Seller that such Seller is unable to pay its debts as they become due or the nonpayment generally by such Seller of its debts as they become due. "Affiliate": With respect to any Person, any "affiliate" of such Person, as such term is defined in the Bankruptcy Code. "Agency": The Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("Fannie Mae"), and the Federal Home Loan Mortgage Corporation ("Freddie Mac"), as applicable. "Agency Approvals": As defined in Section 8(a)(viii) of this Agreement. "Agency Eligible Mortgage Loan": A mortgage loan that is in strict compliance with the eligibility requirements for swap or purchase by the designated Agency, under the applicable Agency Guide and/or applicable Agency Program. "Agency Guide": The GNMA Mortgage-Backed Securities Guide; the Fannie Mae Selling Guide and the Fannie Mae Servicing Guide; the Freddie Mac Sellers' and Servicers' Guide; as applicable, in each case as such Agency Guide may be amended from time to time. "Agency Program": The specific purchase program under the relevant Agency Guide or as otherwise approved by the Agency. "Applicable Guide": The Takeout Investor's eligibility requirements for Mortgage Loans, as applicable, and as each may be amended or supplemented from time to time. "Applicable Purchase Agreement": The applicable agreement, providing for the purchase by Takeout Investor of Mortgage Loans from the related Seller as such agreement may be amended from time to time. "Asset Value": With respect to each Mortgage Loan, the outstanding principal balance of such Mortgage Loan less the Discount; provided, that, the Asset Value shall be 2 deemed to be zero with respect to each Mortgage Loan (1) in respect of which there is a breach of a representation and warranty set forth in Schedule 1 (assuming each representation and warranty is made as of the date Asset Value is determined) or (2) which has been released from the possession of the Custodian under the Custodial Agreement to the related Seller for a period in excess of ten (10) calendar days; provided that the Purchaser may, in its sole and absolute discretion, assign an Asset Value above zero with respect to any Mortgage Loan that would otherwise be deemed to have an Asset Value of zero. "Assignee": With respect to this Agreement and any Mortgage Loan, any assignee of the Purchaser pursuant to a pledge or rehypothecation of the Mortgage Loan. "Authorized Signatory": With respect to each Seller. an officer of such Seller who is authorized and empowered to request a purchase of Mortgage Loans by the Purchaser pursuant to a request for purchase, and is indicated on the Authorized Signatories of such Seller attached hereto as Exhibit F. "Bankruptcy Code": The United States Bankruptcy Code of 1978, as amended from time to time. "Business Day": Any day other than (a) a Saturday, Sunday or other day on which banks located in the City of New York, New York are authorized or obligated by law or executive order to be closed, or (b) any day on which UBS Real Estate Securities Inc. is closed for business, provided that notice thereof shall have been given not less than seven calendar days prior to such day. "Cash Account": A separate cash account established and maintained by the Sellers at the Purchaser under the conditions set forth in Section 2.1. "Cash Account Adjustment": An adjustment to the Cash Account Balance pursuant to a Cash Account Adjustment Notice. "Cash Account Adjustment Notice": A cash account adjustment notice, in the form of Exhibit H; to be used by Purchaser to notify the Sellers of any adjustments to the Cash Account Balance. "Cash Account Balance": As of any date, the net amount of funds in the Cash Account on such date. "Cash Account Interest Accrual": The simple interest calculation posted on the last Business Day of each month resulting from the product of each Business Day's Cash Account Balance and the Cash Account Interest Rate. "Cash Account Interest Rate": With respect to each month, the average opening federal funds rate for such month. For the Cash Account, the opening federal funds rate on a Business Day shall be counted as the Cash Account Interest Rate until the next Business Day. "Cash Account Wire Instructions": The wire instructions, set forth in a letter in the form of Exhibit I, to be used for the payment of funds to the Sellers. 3 "Cash Window Mortgage Loan": Any Mortgage Loan to be sold to an Agency for cash. "Cash Window Transaction": A transaction in which a Cash Window Mortgage Loan is sold. "Code": The Internal Revenue Code of 1986, as amended from time to time. "Collateral": Each of the following items or types of property, whether now owned or hereafter acquired, now existing or hereafter created and wherever located: any cash or United Status Treasury obligations delivered to Purchaser pursuant to Section 7(d), and any and all replacements, substitutions, distributions on or proceeds of any and all of the foregoing. "Commitment Date": The date set forth in a Takeout Commitment as the commitment date. "Commitment Expiration Date": With respect to any Mortgage Loan, the date set forth in the related Takeout Commitment as the commitment expiration date. "Commitment Requirements": The requirements issued by Takeout Investor in the Applicable Guide regarding the issuance of Takeout Commitments, as amended from time to time by Takeout Investor. "Conduit": As defined in the Custodial Agreement. "Conduit Submission Package": As defined in the Custodial Agreement. "Credit File": All papers and records of whatever kind or description, whether developed or originated by the related Seller or others, required to document or service the Mortgage Loan; provided, however, that such Mortgage Loan papers, documents and records shall not include any Mortgage Loan papers, documents or records which are contained in the Conduit Submission Package. "Cure Expiration Date": With respect to a Defective Mortgage Loan in a Cash Window Transaction, the date occurring five Business Days after the Commitment Expiration Date. "Custodial Account": A separate custodial account, established and maintained by the Sellers under the conditions set forth in Section 4(b), for the deposit by the Sellers of all collections in respect of a Mortgage Loan that are payable to Purchaser as the owner of the Mortgage Loan. "Custodial Agreement": The Amended and Restated Mortgage Loan Custodial Agreement, dated as of the date set forth on the cover sheet thereof, among the Sellers, Purchaser and Custodian, as amended from time to time. "Custodial Fee": With respect to each Mortgage Loan, the amount set forth on the related Funding Confirmation as the "Custodial Fee." 4 "Custodian": The custodian named in the Custodial Agreement and its permitted successors. "Defect Amount": An amount (expressed as a positive number) equal to the aggregate Asset Value of the Mortgage Loans owned by Purchaser hereunder less the aggregate Purchase Price for all such Mortgage Loans if at any time the aggregate Asset Value of the Mortgage Loans is less than the aggregate Purchase Price for all such Mortgage Loans. "Defective Mortgage Loan": A Mortgage Loan that is not in compliance with the Applicable Guide and this Agreement. "Discount": With respect to each Mortgage Loan, the amount set forth on such related Funding Confirmation as the Discount. "Document File": The Credit File and the Conduit Submission Package. "Due Date": The day of the month on which the Monthly Payment is due on a Mortgage Loan. "Electronic Tracking Agreement": The Electronic Tracking Agreement, dated as of the date hereof, among Participant, Sellers, MERSCORP, Inc. and Mortgage Electronic Registration Systems, Inc.; provided that if no Mortgage Loans are or will be MERS Designated Mortgage Loans, all references herein to the Electronic Tracking Agreement shall be disregarded. "Electronic Transmission": Shall mean the delivery of information in an electronic format acceptable to the applicable recipient thereof. "FDIC": The Federal Deposit Insurance Corporation or any successor thereto. "FHA": The Federal Housing Administration. "Funding Confirmation": With respect to all Mortgage Loans purchased by Purchaser from the related Seller via a single wire funds transaction on a particular Business Day, the trade confirmation from Purchaser to such Seller confirming the terms of Purchaser's purchase of such Mortgage Loans. "HUD": The United States Department of Housing and Urban Development. "Incremental Pass-Through Rate": The amount by which the Pass-Through Rate is increased upon the occurrence of (i) a Commitment Expiration Date or (ii) any event giving Purchaser the right to elect a remedy pursuant to Section 3, which amount shall be set forth in a Funding Confirmation as the "Incremental Pass-Through Rate". "Interim Funder": With respect to each MERS Designated Mortgage Loan, the Person named on the MERS(R) System as the interim funder pursuant to the MERS Procedures Manual. 5 "Investor": With respect to each MERS Designated Mortgage Loan, the Person named on the MERS(R) System as the investor pursuant to the MERS Procedures Manual. "Loan Purchase Detail": A loan purchase detail, transmitted via Electronic Transmission in the appropriate data layout set forth on Exhibit A-1, prepared by the related Seller, containing each data point set forth on Exhibit A or as may be requested by the Purchaser regarding the characteristics of all Mortgage Loans being offered for sale by such Seller on a particular Business Day. "Losses": Any and all losses, claims, damages, liabilities or expenses (including reasonable attorneys' fees) incurred by any person specified; provided, however, that "Losses" shall not include any losses, claims, damages, liabilities or expenses which would have been avoided had such person taken reasonable actions to mitigate such losses, claims, damages, liabilities or expenses. "MERS Designated Mortgage Loan": Mortgage Loans for which (a) the related Seller has designated or will designate MERS as, and has taken or will take such action as is necessary to cause MERS to be, the mortgagee of record, as nominee for such Seller, in accordance with MERS Procedure Manual and (b) such Seller has designated or will designate the Purchaser as the Investor and Interim Funder on the MERS(R) System. "MERS Procedure Manual": The MERS Procedures Manual attached as Exhibit B to the Electronic Tracking Agreement, as it may be amended, supplemented or otherwise modified from time to time. "MERS Report": The schedule listing MERS Designated Mortgage Loans and other information prepared by the Electronic Agent pursuant to the Electronic Tracking Agreement. "MERS(R) System": The Electronic Agent's mortgage electronic registry system, as more particularly described in the MERS Procedures Manual. "Monthly Payment": The scheduled monthly payment of principal and interest on a Mortgage Loan. "Mortgage": The mortgage, deed of trust or other instrument creating a first lien on an estate in fee simple in real property securing a Mortgage Note. "Mortgage Loan": A loan that is secured by a Mortgage and which is subject to this Agreement, and which satisfies the Commitment Requirements as the same may be modified from time to time. "Mortgage Note": The note or other evidence of the indebtedness of a Mortgagor secured by a Mortgage. "Mortgaged Property": The property subject to the lien of the Mortgage securing a Mortgage Note. 6 "Mortgagor": The obligor on a Mortgage Note. "NCUA": The National Credit Union Administration, or any successor thereto. "Original American Home Parties": Shall have the meaning assigned to such term in the recitals hereof. "Original Mortgage Loan Purchase Agreement": Shall have the meaning assigned to such term in the recitals hereof. "OTS": The Office of Thrift Supervision, or any successor thereto. "Parent Company": A corporation or other entity owning, directly or indirectly, more than 50% of the outstanding shares of voting stock of American Home Mortgage Investment Corp., American Home Mortgage Acceptance, Inc., American Home Mortgage Holdings, Inc., American Home Mortgage Corp. and/or Columbia National, Incorporated. "Pass-Through Rate": With respect to each Mortgage Loan, the rate at which interest is passed through to Purchaser which initially shall be the rate of interest specified on a Funding Confirmation as the Pass-Through Rate. "Performance Fee": With respect to each Mortgage Loan, an amount equal to the Discount less the Custodial Fee, plus the Yield Compensation Adjustment plus or minus any other adjustments permitted hereunder, which amount shall be payable to the related Seller by Purchaser as compensation to such Seller for its services hereunder. "Person": Any individual, corporation, company, voluntary association, partnership, joint venture, limited liability company, trust, unincorporated association or government (or any agency, instrumentality or political subdivision thereof). "Property": Any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. "Purchase Advice": An approved purchase list delivered to Purchaser by the Takeout Investor via electronic or facsimile transmission, confirming the amount of Takeout Proceeds allocable to each Mortgage Loan purchased by Takeout Investor. "Purchase Date": With respect to any Mortgage Loan, the date of payment thereof by Purchaser to the related Seller of the Purchase Price. "Purchase Price": With respect to each Mortgage Loan, an amount equal to the Trade Principal less an amount equal to the product of the Trade Principal and the Discount. Accrued interest shall be allocated in accordance with Section 2(c). "Purchaser": UBS Real Estate Securities Inc. and its successors. 7 "Purchaser's Wire Instructions to Seller": The wire instructions, set forth in a notice delivered by Purchaser to the related Seller containing the information set forth in Exhibit D, to be used for the payment of all amounts due and payable to Purchaser hereunder. "Qualified Insurer": A mortgage guaranty insurance company duly authorized and licensed where required by law to transact mortgage guaranty insurance business and approved as an insurer by Fannie Mae or Freddie Mac and GNMA. "REIT Seller": As the case may be, American Home Mortgage Investment Corp. and American Home Mortgage Acceptance, Inc. "REIT Status": With respect to any Person, such Person's status as a real estate investment trust, as defined in Section 856(a) of the Code, that satisfies the conditions and limitations set forth in Section 856(b) and 856(c) of the Code. "RTC": The Resolution Trust Corporation or any successor thereto. "Seller": Each Seller whose name is set forth on the cover page hereof, and its permitted successors hereunder. "Seller's Release": A letter in the form of Exhibit C-1, delivered by the related Seller when no Warehouse Lender has an interest in a Mortgage Loan, conditionally releasing all of such Seller's interest in a Mortgage Loan upon receipt of payment by such Seller. "Seller's Wire Instructions": The wire instructions, set forth in a letter in the form of Exhibit C-2, to be used for the payment of funds to the related Seller when no Warehouse Lender has an interest in the Mortgage Loans to which such payment relates. "Seller": The Sellers whose names are set forth on the cover page hereof, and their permitted successors hereunder. "Servicing Rights": Any and all of the following: (a) any and all rights to service the Mortgage Loans; (b) any payments to or monies received by a Seller or any other Person for servicing the Mortgage Loans; (c) any late fees, penalties or similar payments with respect to the Mortgage Loans; (d) all agreements or documents creating, defining or evidencing any such servicing rights to the extent they relate to such servicing rights and all rights of a Seller or any other Person thereunder; (e) escrow payments or other similar payments with respect to the Mortgage Loans and any amounts actually collected by the related Seller or any other Person with respect thereto; and (f) all accounts and other rights to payment related to the Mortgage Loans. "Settlement Date": With respect to any Mortgage Loan, the date the allocable Pass-Through Rate shall cease to accrue upon payment by Takeout Investor to Purchaser of the Takeout Proceeds as confirmed by Purchaser's receipt from the related Seller of the related Settlement Information in accordance with Section 3(a). "Settlement Information": The Purchase Advice or group of Purchase Advices which shall identify each Mortgage Loan by the Mortgagor's name, and of which the aggregate 8 disbursement amount equals the precise dollar amount of Takeout Proceeds to be received by Purchaser from this Agreement and, when applicable, a Takeout Proceeds Identification Letter. "Subsidiary": With respect to any Person, any corporation, partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. "Successor Servicer": An entity designated by Purchaser, in conformity with Section 16, to replace the related Seller as servicer for Purchaser. "Takeout Commitment": Commitment of the related Seller to sell one or more Mortgage Loans to Takeout Investor and of Takeout Investor to purchase one or more Mortgage Loans from such Seller. "Takeout Investor": The applicable Conduit. "Takeout Proceeds": The amount of funds Takeout Investor pays to Purchaser on a particular Business Day as identified by the related Settlement Information; provided, that the amount of such payment shall be calculated without regard to any set-off, counterclaim or any other adjustment resulting from transactions between the Seller and the Takeout Investor. "Takeout Proceeds Identification Letter": A letter in the form of Exhibit K, delivered by the related Seller to Purchaser identifying Takeout Proceeds received by Purchaser from an Agency or Takeout Investor which funds do not relate to Mortgage Loans purchased by Purchaser from such Seller. "Third Party Underwriter": Any third party, including but not limited to a mortgage loan pool insurer, who underwrites the Mortgage Loan(s) prior to the purchase by Purchaser. "Third Party Underwriter's Certificate": A certificate issued by a Third Party Underwriter with respect to a Mortgage Loan, certifying that such Mortgage Loan complies with its underwriting requirements. "Trade Price": The trade price set forth on a Takeout Commitment. "Trade Principal": With respect to any Mortgage Loan, the outstanding principal balance of the Mortgage Loan multiplied by a percentage equal to the Trade Price. "Transaction": Any sale of a Mortgage Loan by the related Seller to Purchaser pursuant to a Funding Confirmation in accordance with this Agreement. 9 "UBSRES Purchase Program": Purchaser's Cash Window Funding Program, Conduit Funding Program, or MBS Swap Funding Program as applicable. "VA": The Department of Veterans Affairs. "Warehouse Lender": Any lender, including, without limitation, Purchaser, providing financing to the related Seller in any fractional amount for the purpose of originating or purchasing Mortgage Loans which lender has a security interest in such Mortgage Loans as collateral for the obligations of such Seller to such lender. "Warehouse Lender's Release": A letter in the form of Exhibit B-1, from a Warehouse Lender to Purchaser, conditionally releasing all of Warehouse Lender's right, title and interest in certain Mortgage Loans identified therein upon receipt of payment by Warehouse Lender. "Warehouse Lender's Wire Instructions": The wire instructions, set forth in a letter in the form of Exhibit B-2, from a Warehouse Lender to Purchaser, setting forth wire instructions for all amounts due and payable to such Warehouse Lender hereunder. "Withdrawal/Deposit Notice": A notice, substantially in the form of Exhibit J, delivered by the Sellers to Purchaser, from time to time, in connection with withdrawals from and deposits to the Cash Account. "Wire Fee": For each disbursement relating to a Transaction, a fee payable to Purchaser by the related Seller as set forth in the Funding Confirmation. "Yield Compensation Adjustment": Subject to any further adjustment provided in this Agreement, an amount (which may be a negative number) equal to: A(BC-DE) 360 where (i) A equals the number of days in the period beginning on the Purchase Date to but not including the Settlement Date, (ii) B equals the principal amount of the Mortgage Loan, (iii) C equals the interest rate (expressed as a decimal) on the Mortgage Loan, (iv) D equals the Purchase Price and (v) E equals the Pass-Through Rate (expressed as a decimal). Section 2. Procedures for Purchases of Mortgage Loans. (a) (1) Purchaser may, in its sole discretion, from time to time, purchase one or more Mortgage Loans from the related Seller. The related Seller shall be deemed to make for the benefit of Purchaser, as of the applicable dates specified in Section 8, the representations and warranties set forth in Section 8 in respect of each such Mortgage Loan. (a) (2) Prior to Purchaser's election to purchase any Mortgage Loan, Purchaser shall have received from the related Seller (i) a Loan Purchase Detail, via Electronic Transmission, (ii) a MERS Report reflecting the Purchaser as Investor or Interim Funder for each MERS Designated Mortgage Loan and (iii) Custodian shall have received all applicable 10 documents required by Section 2 of the Custodial Agreement. The terms and conditions of such purchase shall be set forth in this Agreement and in each Funding Confirmation. (b) (1) If Purchaser elects to purchase any Mortgage Loan, Purchaser shall pay the amount of the Purchase Price for such Mortgage Loan by wire transfer of immediately available funds (i) if a Warehouse Lender's Release has been included in the related Conduit Submission Package, in accordance with the Warehouse Lender's Wire Instructions or (ii) if there is no Warehouse Lender's Release included in the related Conduit Submission Package, in accordance with the Seller's Wire Instructions. If Purchaser is the Warehouse Lender with respect to a Mortgage Loan, the amount transferred shall be reduced to account for amounts previously advanced by Purchaser with respect to such Mortgage Loan by such Warehouse Lender. With respect to each Mortgage Loan which Purchaser has elected to purchase, Custodian shall deliver to Takeout Investor the applicable portion of the Conduit Submission Package, in the manner and at the time set forth in the Custodial Agreement. The related Seller shall thereafter promptly deliver to Takeout Investor any and all additional documents requested by Takeout Investor to enable Takeout Investor to make payment to Purchaser of the Takeout Proceeds. (b) (2) Simultaneously with the payment by Purchaser of the Purchase Price of a Mortgage Loan, in accordance with the Warehouse Lender's Wire Instructions or the related Seller's Wire Instructions, as applicable, with respect to a Mortgage Loan, such Seller hereby conveys to Purchaser all of such Seller's right, title and interest in and to such Mortgage Loan, free and clear of any lien, claim or encumbrance. (c) With respect to each Mortgage Loan that Purchaser elects to purchase hereunder, Purchaser shall owe to the related Seller a Performance Fee. The Yield Compensation Adjustment component of the Performance Fee shall include an accrued interest calculation. Purchaser's accrued interest calculation shall be identical to that of Takeout Investor, therefore the amount of accrued interest included in a settlement calculation will represent accrued interest paid to Purchaser and paid by Purchaser. (d) Notwithstanding the satisfaction by the related Seller of the conditions specified in Section 2(a), Purchaser is not obligated to purchase any Mortgage Loan offered to it hereunder. In the event that Purchaser rejects a Mortgage Loan for purchase for any reason and/or does not transmit the Purchase Price, any Conduit Submission Package delivered to Custodian in anticipation of such purchase shall be returned by Custodian in accordance with the terms of the bailee letter under which it was received. Section 2.2 Cash Account. (a) The Sellers hereby authorize and direct Purchaser to create a separate Cash Account for the Sellers. The Cash Account shall be held by Purchaser for the Sellers subject to the terms and conditions of this Agreement. Purchaser shall notify the Sellers, via electronic or facsimile transmission, of the Cash Account Balance on each Business Day when the Cash Account Balance is greater than zero and on each Business Day on which a Transaction occurs hereunder. 11 (b) Purchaser shall credit the Cash Account for (i) any deposits therein by any Seller upon such Seller's written direction pursuant to a Withdrawal/Deposit Notice, (ii) any amounts due any of the Sellers and payable by Purchaser under any UBSRES Purchase Program to the extent not otherwise netted as described hereunder, (iii) any Cash Account Interest Accruals and (iv) any deposits by any Seller hereunder. (c) Purchaser shall debit the Cash Account for (i) any withdrawals therefrom by the Sellers upon written direction pursuant to a Withdrawal/Deposit Notice from each Seller, (ii) any amounts due Purchaser and payable by any Seller under any UBSRES Purchase Program, (iii) any debit pursuant to a Cash Account Adjustment and (iv) any Wire Fees. (d) Upon termination of this Agreement and payment in full of all obligations owing by the Sellers hereunder, under the Custodial Agreement and under the Electronic Tracking Agreement (if any), Purchaser shall remit to the Sellers the Cash Account Balance. Section 3. Sale of Mortgage Loans to Takeout Investor(a) . (a)(1) Upon the sale to Takeout Investor of a Mortgage Loan previously purchased by Purchaser hereunder, the related Seller shall cause Takeout Proceeds relating to such Mortgage Loan to be paid to Purchaser in accordance with Purchaser's Wire Instructions to such Seller. Since a Takeout Investor or an Agency may aggregate Takeout Proceeds from several Mortgage Loans in one wire transfer, it may be necessary, from time to time, for the related Seller to cause a Takeout Investor or an Agency to also pay to Purchaser Takeout Proceeds relating to Mortgage Loans not purchased by Purchaser. (a)(2) Upon receipt by Purchaser of any Takeout Proceeds, Purchaser will attempt to identify such Takeout Proceeds by reviewing the Settlement Information that has been supplied by the related Seller in advance of the purchase of Mortgage Loans by the Agency. (a)(3) The Settlement Date will occur on the earliest date Settlement Information is made available by the related Seller to Purchaser, Purchaser will (i) place all related unidentified Takeout Proceeds in a non-interest bearing account and (ii) continue to accrue interest at the Pass-Through Rate on all Mortgage Loans which relate to such unidentified Takeout Proceeds until the Settlement Date of such Mortgage Loans. (a)(4) All Takeout Proceeds received by Purchaser from Takeout Investor after 3:00 P.M. New York City time on a Business Day (or at any time on a day which is not a Business Day) shall be deemed, with regard to determining the Settlement Date, received by Purchaser on the next succeeding Business Day. (b)(1) If any Mortgage Loan is rejected by Takeout Investor because it is a Defective Mortgage Loan, the related Seller shall promptly notify Purchaser. If any Mortgage Loan is a Defective Mortgage Loan on the Purchase Date and in Purchaser's sole judgment the defects in such Mortgage Loan will not be cured (or in fact are not cured) by the related Seller prior to the Commitment Expiration Date, the Pass-Through Rate applicable to such Defective Mortgage Loan shall, on such Commitment Expiration Date, increase by the Incremental Pass-Through Rate and Purchaser, at its election, may require that such Seller, upon receipt of notice from Purchaser, immediately repurchase Purchaser's ownership interest in such Defective 12 Mortgage Loan by remitting to Purchaser (in immediately available funds in accordance with Purchaser's instructions) the amount paid by Purchaser for such Defective Mortgage Loan plus interest at the Pass-Through Rate on the principal amount thereof from the Purchase Date of such Mortgage Loan to the date of such repurchase. If at any time prior to the repurchase of a Defective Mortgage Loan by the related Seller or the purchase of a Mortgage Loan by Takeout Investor, such Seller receives the Mortgage Note or any other portion of the Conduit Submission Package, such Seller shall promptly forward such Mortgage Note and/or other portion of the Conduit Submission Package to Purchaser. (b)(2) If the related Seller fails to comply with its obligations in the manner described in Section 3(b)(1), upon receipt by such Seller of notice from Purchaser, such Seller's rights and obligations to service its Mortgage Loans, as provided in this Agreement, shall terminate. If an Act of Insolvency occurs at any time, the related Seller's rights and obligations to service the Mortgage Loans, as provided in this Agreement, shall terminate immediately, without any notice or action by Purchaser. Upon any such termination, Purchaser is hereby authorized and empowered as the exclusive agent for the related Seller to sell and transfer such rights to service its Mortgage Loans for such price and on such terms and conditions as Purchaser shall reasonably determine, and such Seller shall not otherwise attempt to sell or transfer such rights to service without the prior consent of Purchaser. The related Seller shall perform all acts and take all action so that all files and documents relating to the Mortgage Loans held by such Seller, together with all escrow amounts relating to such Mortgage Loans, are delivered to Successor Servicer. To the extent that the approval of a Third Party Underwriter or any other person is required for any such sale or transfer, such Seller shall fully cooperate with Purchaser to obtain such approval. Upon exercise by Purchaser of its remedies under this Section 3(b)(2), the related Seller hereby authorizes Purchaser to receive all amounts paid by any purchaser of such rights to service the Mortgage Loans and to remit such amounts to such Seller subject to Purchaser's rights of set-off under this Agreement. Upon exercise by Purchaser of its remedies under this Section 3(b)(2), Purchaser's obligation to pay and the related Seller's right to receive any portion of the Performance Fee relating to such Mortgage Loans shall automatically be canceled and become null and void, provided that such cancellation shall in no way relieve such Seller or otherwise affect the obligation of such Seller to indemnify and hold Purchaser harmless as specified in Section 3(c). (b)(3) Each Mortgage Loan required to be delivered to Successor Servicer by Section 3(b)(2) shall be delivered free of any servicing rights in favor of the related Seller and free of any title, interest, lien, encumbrance or claim of any kind of such Seller. The related Seller shall deliver or cause to be delivered all files and documents relating to each Mortgage Loan held by such Seller to Successor Servicer. The related Seller shall promptly take such actions and furnish to Purchaser such documents that Purchaser deems necessary or appropriate to enable Purchaser to cure any defect in each such Mortgage Loan or to enforce such Mortgage Loans, as appropriate. (c) The related Seller agrees to indemnify and hold Purchaser and its assignees harmless from and against all Losses resulting from or relating to any breach or failure to perform by such Seller of any representation, warranty, covenant, term or condition made or to be performed by such Seller under this Agreement. 13 (d) No exercise by Purchaser of its rights under this Section 3 shall relieve the related Seller of responsibility or liability for any breach of this Agreement. (e) The related Seller hereby grants Purchaser a right of set-off against the payment of any amounts that may be due and payable to Purchaser from such Seller, such right to be upon any and all monies or other property of such Seller held or received by Purchaser, or due and owing from Purchaser to such Seller. Section 4. Servicing of the Mortgage Loans. (a) It is expressly acknowledged that the Servicing Rights relating to each Mortgage Loan purchased by Purchaser hereunder have been or will be sold, assigned, and transferred by the related Seller to Purchaser along with such Mortgage Loan. The related Seller shall service and administer each Mortgage Loan on behalf of Purchaser on an interim basis in accordance with accepted and prudent mortgage loan servicing standards and procedures generally accepted in the mortgage banking industry for the same type of mortgage loans as the Mortgage Loans and in a manner at least equal in quality to the servicing such Seller provides for mortgage loans which it owns and in accordance with the requirements of the Takeout Investor as though the Takeout Investor's requirements were set forth in an independent contract between such Seller and Purchaser, provided that such Seller shall at all times comply with applicable law and the requirements of any applicable insurer or guarantor so that the insurance and any applicable guarantee in respect of any Mortgage Loan is not voided or reduced. The related Seller shall at all times maintain accurate and complete records of its servicing of each of its Mortgage Loans, and Purchaser may, at any time during such Seller's business hours, on reasonable notice, examine and make copies of such records. On the 2nd day of each calendar month, or at any other time upon Purchaser's request, such Seller shall deliver to Purchaser reports regarding the status of each of its Mortgage Loans in accordance with Section 9(l) and Section 9(m), which shall include, with respect to any MERS Designated Mortgage Loan, MERS status, and any circumstances that could materially adversely affect any such Mortgage Loan, Purchaser's ownership of any such Mortgage Loan or the collateral securing any such Mortgage Loan. The related Seller agrees and acknowledges that Purchaser may, at any time, terminate the servicing of the Mortgage Loans by such Seller and transfer servicing to another Person on such date as Purchaser may determine in its sole discretion. In the event that anything in this Agreement is interpreted as constituting one or more interim servicing contracts, each such servicing contract shall terminate automatically upon the earlier of (i) the repurchase of a Mortgage Loan by the related Seller or (ii) the Purchaser's notice to such Seller directing such Seller to transfer servicing (provided, such Seller's obligations as set forth herein to cooperate in the transfer of such servicing shall not terminate until such servicing has actually been transferred in full). (b) Within two Business Days of notice from Purchaser or with respect to each Mortgage Loan, on the Commitment Expiration Date: (i) The Sellers shall establish and maintain a Custodial Account entitled "[name of Seller(s)], in trust for UBS Real Estate Securities Inc. and its assignees under the Amended and Restated Mortgage Loan Purchase Agreement dated [the date of this Agreement]" and shall promptly deposit into such Custodial Account, in the form received with any necessary endorsements, all collections received in respect of each 14 Mortgage Loan that are payable to Purchaser as the owner of each such Mortgage Loan; and (ii) at the Purchaser's sole option, upon written notice from the Purchaser, the related Seller shall transfer servicing of the Mortgage Loans to a Successor Servicer designated by the Purchaser. (c) Amounts deposited in the Custodial Account with respect to any Mortgage Loan shall be held in trust for Purchaser as the owner of such Mortgage Loan and shall be released only as follows: (i) Except as otherwise provided in this Section 4(c), following receipt by Purchaser or its designee of the Takeout Proceeds for such Mortgage Loan from Takeout Investor or the related Seller amounts deposited in the Custodial Account shall be paid in accordance with Section 2(c). Notwithstanding the foregoing, all amounts deposited in the Custodial Account shall be paid to the related Seller upon the purchase by Takeout Investor of the related Mortgage Loan(s) from Purchaser if, and to the extent that, the amounts due and payable to Purchaser hereunder have been set off against the Purchase Price for the Mortgage Loan or the Performance Fee relating to the Mortgage Loan. The amounts paid to the related Seller (if any) pursuant to this Section 4(c)(1) shall constitute such Seller's sole compensation for servicing the Mortgage Loans as provided in this Section 4. (ii) If a Successor Servicer is appointed by Purchaser (either under the circumstances set forth in clause (b)(ii) above, or otherwise), all amounts deposited in the Custodial Account shall be paid to Purchaser promptly upon such delivery. (iii) During the period that any Seller acts as servicer, all amounts deposited in the Custodial Account shall be released only in accordance with Purchaser's written instructions. (iv) With respect to a Cash Window Transaction, if a Mortgage Loan is not purchased by the Agency on or before the Cure Expiration Date, during the period thereafter that the related Seller acts as servicer, all amounts deposited in the Custodial Account shall be released only in accordance with Purchaser's written instructions. (d) In the event the related Seller or its Affiliate is servicing the Mortgage Loans, such Seller shall permit the Purchaser to inspect such Seller's or its Affiliate's servicing facilities, as the case may be, for the purpose of satisfying the Purchaser that such Seller or its Affiliate, as the case may be, has the ability to service the Mortgage Loans as provided in this Agreement. (e) If the servicer of the Mortgage Loans is the related Seller or the servicer is an Affiliate of such Seller, such Seller shall provide to Purchaser a letter from such Seller or such Affiliate, as the case may be, to the effect that upon 1 day's notice from Purchaser, such Seller's rights and obligations to service the Mortgage Loans shall terminate immediately, without any further notice or action by Purchaser and such Seller shall transfer servicing to Purchaser's designee, at no cost or expense to the Purchaser, it being agreed that such Seller will pay any and 15 all fees required to terminate the Servicing Agreement and to effectuate the transfer of servicing to the designee of the Purchaser. Section 5. Trade Assignments. Each Seller hereby assigns to Purchaser, free of any security interest, lien, claim or encumbrance of any kind, such Seller's rights, under each Takeout Commitment to the full extent permitted by Takeout Investor, to deliver the Mortgage Loan(s) specified therein to Takeout Investor and to receive the Takeout Proceeds therefor from Takeout Investor. Purchaser shall not be deemed to have accepted such rights of the related Seller which relate to a particular Mortgage Loan unless and until it purchases the Mortgage Loan, and nothing set forth herein shall be deemed to impair Purchaser's right to reject any Mortgage Loan for any reason, in its sole discretion. Section 6. Transfers of Mortgage Loans by Purchaser. Purchaser may, in its sole discretion, assign all of its right, title and interest in or grant a security interest in any Mortgage Loan sold by the related Seller hereunder and all rights of Purchaser under this Agreement and the Custodial Agreement, in respect of such Mortgage Loan to Assignee, subject only to an obligation on the part of Assignee to deliver each such Mortgage Loan to Takeout Investor pursuant to Section 5 or to Purchaser to permit Purchaser or its designee to make delivery thereof to Takeout Investor pursuant to Section 5. It is anticipated that such assignment to Assignee will be made by Purchaser, and the related Seller hereby irrevocably consents to such assignment. No notice of such assignment shall be given by Purchaser to any Seller or Takeout Investor. Assignment by Purchaser of the Mortgage Loans as provided in this Section 6 shall not release Purchaser from its obligations otherwise under this Agreement. Without limitation of the foregoing, an assignment of a Mortgage Loan to Assignee, as described in this Section 6, shall be effective upon delivery to Assignee of a Conduit Submission Package. Section 7. Record Title to Mortgage Loans; Intent of Parties; Security Interest. From and after the delivery of the related Conduit Submission Package, and subject to the remedies of Purchaser in Section 3, the related Seller shall remain the last named payee or endorsee of each Mortgage Note and the mortgagee or assignee of record of each Mortgage (except with respect to a MERS Designated Mortgage Loan) in trust for the benefit of Purchaser, for the sole purpose of facilitating the servicing of such Mortgage Loan. (a) Each Seller shall maintain a complete set of books and records for each of its Mortgage Loans which shall be clearly marked to reflect the ownership interest in each such Mortgage Loan of Purchaser and with respect to each MERS Designated Mortgage Loan, such Seller shall designate the Purchaser as the Investor and Interim Funder on the MERS(R) System. (b) Purchaser and each Seller confirm that the transactions contemplated herein are intended to be sales of the Mortgage Loans by the related Seller to Purchaser rather than borrowings secured by the Mortgage Loans. In the event, for any reason, any transaction is construed by any court or regulatory authority as a borrowing rather than as a sale, each Seller and Purchaser intend that Purchaser or Assignee, as the case may be, shall have a perfected first priority security interest in the related Mortgage Loans (including all servicing rights related 16 thereto), the Custodial Account, the Takeout Commitments and the proceeds of any and all of the foregoing and, free and clear of adverse claims (collectively, the "Mortgage Collateral"). In such case, the related Seller shall be deemed to have hereby granted to Purchaser or Assignee, as the case may be, a first priority security interest in and lien upon the Mortgage Collateral, free and clear of adverse claims. In such event, this Agreement shall constitute a security agreement, the Custodian shall be deemed to be an independent custodian for purposes of perfection of the security interest granted to Purchaser or Assignee, as the case may be, and Purchaser or Assignee, as the case may be, shall have all of the rights of a secured party under applicable law. The related Seller shall, not later than the date of the first purchase of a Mortgage Loan by Purchaser under this Agreement, deliver to Purchaser a UCC-1 Financing Statement containing a description of the Mortgage Collateral in the form attached hereto in Exhibit E. (c) The related Seller acknowledges that Purchaser's purchase of Mortgage Loans hereunder will be based in part on the existence of one or more Takeout Commitments with respect to such Mortgage Loans, such Seller's representations and warranties with respect to such Takeout Commitments and the related Takeout Investors and such Seller's covenants with respect to such Takeout Commitments and Takeout Investors. In order to secure the related Seller's obligations with respect thereto, and as a condition to Purchaser's purchase of any Mortgage Loans hereunder, such Seller hereby grants to Purchaser a first priority perfected security interest in and lien upon the Collateral, free and clear of adverse claims. If at any time there exists a Defect Amount, then the Sellers shall deliver to the Purchaser cash or United States Treasury obligations approved by the Purchaser in an amount equal to the Defect Amount as security for their respective obligations hereunder. If Purchaser delivers notice of the existence of such Defect Amount (a "Defect Notice") to the Sellers on or prior to 10:00 a.m. (New York City time) on any Business Day, then the Sellers shall deliver to Purchaser an amount equal to the Defect Amount no later than 5:00 p.m. (New York City time) on such Business Day. In the event Purchaser delivers a Defect Notice to the Sellers after 10:00 a.m. (New York City time) on any Business Day, then such Defect Notice shall be deemed to have been delivered on the following Business Day and the Sellers shall be required to deliver to Purchaser an amount equal to the Defect Amount no later than 5:00 p.m. (New York City time) on such subsequent Business Day. At such time as a Defect Amount ceases to exist or the Sellers have delivered cash or United States Treasury obligations in an amount in excess of such Defect Amount to Purchaser (such amounts the "Repurchase Excesses") pursuant to this Section 7(d), Purchaser shall remit to the Sellers such Repurchase Excesses. In the event Purchaser determines that the related Seller fails to perform in any material respect any of its obligations with respect to any Takeout Commitment or Takeout Investor, or any of such Seller's representations, warranties or covenants with respect thereto, Purchaser shall have all rights and remedies available to it with respect to the Collateral under applicable law. In addition to any rights and remedies of the Purchaser provided by this Agreement and by law, Purchaser shall have the right, without prior notice to the related Seller, any such notice being expressly waived by such Seller to the extent permitted by applicable law, upon any amount becoming due and payable by such Seller hereunder to set-off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Purchaser or any Affiliate thereof to or for the credit or the account of the related Seller. 17 Section 8. Representations and Warranties. (a) Each Seller hereby represents and warrants to Purchaser as of the date hereof and as of the date of each delivery of a Conduit Submission Package that: (i) Such Seller is duly organized, validly existing and in good standing under the laws of the state of its organization or of the United States of America and has all licenses necessary to carry on its business as now being conducted and is licensed, qualified and in good standing to do business in each jurisdiction in which it is legally required to do so. Such Seller has all requisite power and authority (including, if applicable, corporate power) to execute and deliver this Agreement, the Electronic Tracking Agreement and the Custodial Agreement and to perform in accordance herewith and therewith; the execution, delivery and performance of this Agreement, the Electronic Tracking Agreement and the Custodial Agreement (including all instruments of transfer to be delivered pursuant to this Agreement, the Electronic Tracking Agreement and the Custodial Agreement) by such Seller and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized. Each of this Agreement, the Electronic Tracking Agreement and the Custodial Agreement evidences the valid, binding and enforceable obligation of such Seller and all requisite action (including, if applicable, corporate action) has been taken by such Seller to make this Agreement, the Electronic Tracking Agreement and the Custodial Agreement valid and binding upon such Seller in accordance with its terms; (ii) No approval of the transactions contemplated by this Agreement, the Electronic Tracking Agreement or the Custodial Agreement from the OTS, the NCUA, the FDIC or any similar federal or state regulatory authority having jurisdiction over such Seller is required, or if required, such approval has been obtained. The transfers, assignments and conveyances provided for herein and therein are not subject to the bulk transfer or any similar statutory provisions in effect in any applicable jurisdiction; (iii) The consummation of the transactions contemplated by this Agreement, the Electronic Tracking Agreement and the Custodial Agreement are in the ordinary course of business of such Seller and will not result in the breach of any term or provision of the charter, by-laws or other organizational document of such Seller or result in the breach of any term or provision of, or conflict with or constitute a default under or result in the acceleration of any obligation under, an agreement, indenture or loan or credit agreement or other instrument to which such Seller or its property is subject, or result in the violation of any law, rule, regulation, order, judgment or decree to which such Seller or its property is subject; (iv) This Agreement, the Custodial Agreement, the Electronic Tracking Agreement and every document to be executed by such Seller pursuant hereto and thereto is and will be valid, binding and a subsisting obligation of such Seller, enforceable in accordance with its respective terms. No consents or approvals are required to be obtained by such Seller or its Parent Company for the execution, delivery and performance of this Agreement, the Electronic Tracking Agreement or the Custodial Agreement by such Seller; 18 (v) Purchaser will be the sole owner of the related Mortgage Loan, free and clear of any lien, claim or encumbrance; (vi) All information relating to such Seller that such Seller has delivered or caused to be delivered to Purchaser, including, but not limited to, all documents related to this Agreement, the Electronic Tracking Agreement, the Custodial Agreement or such Seller's financial statements, and all such information hereafter furnished by such Seller, does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made therein or herein in light of the circumstances under which they were made, not misleading. Such Seller has disclosed in writing any and all facts relating to such Seller that materially and adversely affect or may affect the business operations or financial condition of such Seller or the ability of such Seller to perform its obligations under this Agreement, the Electronic Tracking Agreement or the Custodial Agreement; (vii) There are no actions, suits or proceedings pending, or to the knowledge of such Seller threatened, including any claims for which an action, suit or proceeding has not been commenced, against or affecting such Seller or any of its assets in any court or before any arbitrator or before any governmental commission, board, bureau or other administrative agency that, in any such case, if adversely determined, would have a material adverse effect on the financial condition or business of such Seller or the ability of such Seller to perform under this Agreement, the Electronic Tracking Agreement, each Funding Confirmation and the Custodial Agreement; (viii) If applicable with respect to each Mortgage Loan sold hereunder, such Seller (and each servicer) is approved by GNMA as an approved issuer, Fannie Mae as an approved lender, Freddie Mac as an approved seller/servicer (as the case may be) and by FHA as an approved mortgagee and by VA as an approved VA lender, in each case in good standing (such collective approvals and conditions, "Agency Approvals"), with no event having occurred or such Seller (or any subservicer) having any reason whatsoever to believe or suspect will occur prior to the purchase of the Mortgage Loan by the related Agency, including without limitation a change in insurance coverage which would either make such Seller (or any servicer) unable to comply with the eligibility requirements for maintaining all such Agency Approvals or require notification to the relevant Agency or to HUD, FHA or VA. Should such Seller (or any servicer), for any reason, cease to possess all such Agency Approvals, or should notification to the relevant Agency or to HUD, FHA or VA be required, such Seller shall so notify Purchaser immediately in writing. Notwithstanding the preceding sentence, such Seller shall take all necessary action to maintain all of its (and each servicer's) Agency Approvals at all times during the term of this Agreement. Such Seller (and any servicer) has adequate financial standing, servicing facilities, procedures and experienced personnel necessary for the sound servicing of mortgage loans of the same types as may from time to time constitute Mortgage Loans and in accordance with Accepted Servicing Practices; (ix) The Custodian is an eligible custodian under the Agency Guide and Agency Program; 19 (x) Such Seller and its Subsidiaries have filed all Federal income tax returns and all other material tax returns that are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by it or any of its Subsidiaries, except for any such taxes as are being appropriately contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves have been provided. The charges, accruals and reserves on the books of such Seller and its Subsidiaries in respect of taxes and other governmental charges are, in the opinion of such Seller, adequate; (xi) Neither such Seller nor any of its Subsidiaries is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended; (xii) Upon the filing of financing statements on Form UCC-1 naming Purchaser as "Secured Party", such Seller as "Debtor" and describing the Collateral, in the jurisdictions and recording offices listed on Exhibit V attached hereto, the security interests granted hereunder in the Collateral will constitute fully perfected security interests under the Uniform Commercial Code in all right, title and interest of such Seller in, to and under such Collateral, which can be perfected by filing under the Uniform Commercial Code; (xiii) As of the date hereof, and during the four months immediately preceding the date hereof, such Seller's chief executive office, is, and has been located at 520 Broadhollow Road, Melville, New York 11747. As of the date hereof, Seller's jurisdiction of organization is as follows: American Home Mortgage Investment Corp., Maryland, American Home Mortgage Acceptance, Inc., Maryland, American Home Mortgage Holdings, Inc., Delaware, American Home Mortgage Corp., New York, and/or Columbia National, Incorporated, Maryland; and (xiv) As of the date hereof, with respect to the Original Mortgage Loan Purchase Agreement, no default has occurred and is continuing thereunder and there is no breach of representation or warranty thereunder. (b) Such Seller hereby represents, warrants and covenants to Purchaser with respect to each Mortgage Loan as of the related Purchase Date each of the representations and warranties set forth on Schedule I hereto is true and correct in all respects. (c) Each of American Home Mortgage Investment Corp. and American Home Mortgage Acceptance, Inc. hereby represents, warrants and covenants to Purchaser that it is a REIT Seller and it has not engaged in any material "prohibited transactions" as defined in Section 857(b)(6)(B)(iii) and (C) of the Code. Each REIT Seller for its current "tax year" (as defined in the Code) is entitled to a dividends paid deduction under the requirements of Section 857 of the Code with respect to any dividends paid by it with respect to each such year for which it claims a deduction in its Form 1120-REIT filed with the United States Internal Revenue Service for such year. 20 The representations and warranties of each Seller in this Section 8 are unaffected by and supersede any provision in any endorsement of any Mortgage Loan or in any assignment with respect to such Mortgage Loan to the effect that such endorsement or assignment is without recourse or without representation or warranty. With respect to each Mortgage Loan purchased by Purchaser hereunder, to the extent that any representation or warranty made by the related Seller is either not required by Takeout Investor or is waived by Takeout Investor, Purchaser hereby agrees to waive such representation or warranty if such Mortgage Loan is purchased by Takeout Investor from Purchaser, in accordance with the terms of the related Takeout Commitment. Section 9. Covenants of the Sellers. Each Seller hereby covenants and agrees with Purchaser as follows: (a) Such Seller shall deliver to Purchaser: (i) Within one hundred twenty (120) days after the end of each fiscal year of such Seller, consolidated balance sheets of such Seller and its consolidated subsidiaries and the related consolidated statements of income showing the financial condition of Seller and its consolidated subsidiaries as of the close of such fiscal year and the results of operations during such year, and a consolidated statement of cash flows, as of the close of such fiscal year, setting forth, in each case, in comparative form the corresponding figures for the preceding year, all the foregoing consolidated financial statements to be reported on by, and to carry the report (acceptable in form and content to Purchaser) of an independent public accountant of national standing acceptable to Purchaser; (ii) Within sixty (60) days after the end of each of the first three fiscal quarters of each fiscal year of such Seller, unaudited consolidated balance sheets and consolidated statements of income, all to be in a form acceptable to Purchaser, showing the financial condition and results of operations of such Seller and its consolidated subsidiaries on a consolidated basis as of the end of each such quarter and for the then elapsed portion of the fiscal year, setting forth, in each case, in comparative form the corresponding figures for the corresponding periods of the preceding fiscal year, certified by a financial officer of such Seller (acceptable to Purchaser) as presenting fairly the financial position and results of operations of such Seller and its consolidated subsidiaries and as having been prepared in accordance with generally accepted accounting principles consistently applied, in each case, subject to normal year-end audit adjustments; (iii) Within forty-five (45) days after the end of each of the first two months of each fiscal quarter of such Seller, unaudited consolidated balance sheets and consolidated statements of income, all to be in a form acceptable to Purchaser, showing the financial condition and results of operation of such Seller and its consolidated subsidiaries on a consolidated basis as of the end of each such month and for the then elapsed portion of the fiscal year, setting forth, in each case, in comparative form the corresponding figures for the corresponding periods of the preceding fiscal year, certified by a financial officer of such Seller (acceptable to Purchaser) as presenting fairly the financial position and results of operations of such Seller and its consolidated subsidiaries 21 and as having been prepared in accordance with generally accepted accounting principles consistently applied, in each case, subject to normal year-end audit adjustments; (iv) Promptly upon receipt thereof, a copy of each other report submitted to such Seller by its independent public accountants in connection with any annual, interim or special audit of such Seller; (v) Promptly upon becoming aware thereof, notice of (1) the commencement of, or any determination in, any legal, judicial or regulatory proceedings where damages, fines, penalties and/or other claims could reasonably be expected to be or are in excess of $250,000 (x) against such Seller or Parent Company or (y) where injunctive or other equitable relief is sought against such Seller or Parent Company, (2) any dispute between such Seller or its Parent Company and any governmental or regulatory body where damages, fines, penalties and/or other claims could reasonably be expected to be or are in excess of $250,000 (x) against such Seller or Parent Company or (y) where injunctive or other equitable relief is sought against such Seller or Parent Company, (3) any event or condition, which, in any case of (1) or (2) if adversely determined, would have a material adverse effect on (A) the validity or enforceability of this Agreement, (B) the financial condition or business operations of such Seller, or (C) the ability of such Seller to fulfill its obligations under this Agreement or (4) any material adverse change in the business, operations, prospects or financial condition of such Seller, including, without limitation, the insolvency of such Seller or its Parent Company; (vi) Promptly upon becoming available, copies of all financial statements, reports, notices and proxy statements sent by its Parent Company, such Seller or any of such Seller's consolidated subsidiaries in a general mailing to their respective stockholders and of all reports and other material (including copies of all registration statements under the Securities Act of 1933, as amended) filed by any of them with any securities exchange or with the Securities and Exchange Commission or any governmental authority succeeding to any or all of the functions of said Commission; (vii) Promptly upon becoming available, copies of any press releases issued by its Parent Company or such Seller and copies of any annual, quarterly and monthly financial reports and any reports on Form H-(b)12 which its Parent Company or such Seller may be required to file with the OTS or the RTC or comparable reports which a Parent Company or such Seller may be required to file with the FDIC or any other federal banking agency containing such financial statements and other information concerning such Parent Company's or such Seller's business and affairs as is required to be included in such reports in accordance with the rules and regulations of the OTS, the RTC, the FDIC or such other banking agency, as may be promulgated from time to time; (viii) Promptly upon becoming available, copies of any reports any REIT Seller may be required to file with the Internal Revenue Service; (ix) Such supplements to the aforementioned documents and such other information regarding the operations, business, affairs and financial condition of its 22 Parent Company, such Seller or any of such Seller's consolidated subsidiaries as Purchaser may request; and (x) Prior to the date of any purchase of a Mortgage Loan by Purchaser hereunder, a copy of (1) the articles of incorporation, certificate of formation or other organizational documents of such Seller and any amendments thereto certified by the Secretary of State, Comptroller of Currency, Internal Revenue Service or similar official of such Seller's jurisdiction of organization, (2) a copy of such Seller's by-laws, operating agreement or other internal governing documents, together with any amendments thereto, (3) a copy of the resolutions or other internal governing documents adopted by such Seller's Board of Directors or a similar governing body authorizing such Seller to enter into this Agreement, the Electronic Tracking Agreement and the Custodial Agreement and authorizing one or more of such Seller's officers to execute the documents related to this Agreement, the Electronic Tracking Agreement and the Custodial Agreement, (4) a certificate of incumbency and signature of each officer of such Seller executing any document in connection with this Agreement, the Electronic Tracking Agreement and the Custodial Agreement; (5) a certificate reflecting each Authorized Signatory of such Seller, in the form of Exhibit F hereto and (6) one or more opinions to such Seller, in the form of Exhibit G hereto. (b) The consideration received by such Seller upon the sale of each Mortgage Loan will constitute reasonably equivalent value and fair consideration for the ownership interest in the Mortgage Loan. (c) Neither such Seller nor any affiliate thereof will acquire at any time any Mortgage Loan or any other economic interest in or obligation with respect to any Mortgage Loan. (d) Under generally accepted accounting principles ("GAAP") and for federal income tax purposes, such Seller will report each sale of a Mortgage Loan to the Purchaser as a sale of the ownership interest in the Mortgage Loan. Such Seller has been advised by or has confirmed with its independent public accountants that the foregoing transactions will be so classified under GAAP. (e) Such Seller will be solvent at all relevant times prior to, and will not be rendered insolvent by, any sale of a Mortgage Loan to the Purchaser. (f) Such Seller will not sell any Mortgage Loan to the Purchaser with any intent to hinder, delay or defraud any of such Seller's creditors. (g) Such Seller shall comply, in all material respects, with all laws, rules and regulations to which it is or may become subject. (h) Such Seller shall, upon request of Purchaser, promptly execute and deliver to Purchaser all such other and further documents and instruments of transfer, conveyance and assignment, and shall take such other action as Purchaser may require to more effectively to transfer, convey, assign to and vest in Purchaser and to put Purchaser in possession of the 23 property to be transferred, conveyed, assigned and delivered hereunder and otherwise to carry out more effectively the intent of the provisions under this Agreement. (i) Such Seller shall ensure that all Takeout Proceeds paid by Takeout Investor resulting from Takeout Commitments that relate to Mortgage Loans purchased by Purchaser pursuant to the terms of this Agreement are paid to Purchaser by Takeout Investor in accordance with Purchaser's Wire Instructions to such Seller. (j) The consideration received by such Seller upon sale of each Mortgage Loan will constitute reasonably equivalent value and fair consideration for the Mortgage Loan. (k) Such Seller acknowledges that the Purchaser has the right to perform continuing due diligence reviews with respect to the Mortgage Loans, for purposes of verifying compliance with the representations, warranties and specifications made hereunder, or otherwise, and such Seller agrees that upon reasonable (but no less than one (1) Business Day's) prior notice to such Seller, the Purchaser or its authorized representatives will be permitted during normal business hours to examine, inspect, make copies of, and make extracts of, the Mortgage Files and any and all documents, records, agreements, instruments or information relating to such Mortgage Loans in possession, or under the control, of such Seller and/or Custodian. Such Seller also shall make available to the Purchaser a knowledgeable financial or accounting officer for the purpose of answering questions respecting the Mortgage Files and Mortgage Loans. Such Seller and Purchaser further agree that all out-of-pocket costs and expenses incurred by the Purchaser in connection with the Purchaser's activities pursuant to this Section 9(k) shall be paid for by such Seller. (l) Upon request such Seller shall provide Purchaser with a monthly report, which report shall include, among other items, a summary of such Seller's delinquency and loss experience with respect to mortgage loans serviced by such Seller, any Servicer or any designee of either, with respect to any MERS Designated Mortgage Loan, MERS Reports, plus any such additional reports as Purchaser may reasonably request with respect to such Seller's or any Servicer's servicing portfolio or pending originations of mortgage loans. Such Seller shall not cause the Mortgage Loans to be serviced by any servicer other than a servicer expressly approved in writing by Purchaser. (m) On the second Business Day of each month, such Seller shall furnish to Purchaser or shall cause the Servicer to furnish to Purchaser, a remittance report, in hard copy and electronic format acceptable to Purchaser, containing information regarding funds collected during the prior calendar month with respect to its Mortgage Loans. This report shall contain the following information: (i) Mortgage Loan number; (ii) Note Rate; (iii) Remittances allocable to principal and interest; (iv) Paid through date; 24 (v) Mortgage Loan balance; (vi) Delinquency status; (vii) Whether the Mortgaged Property is in foreclosure or has become an real state owned property; (viii) Whether any Mortgagor is the subject of any bankruptcy action; and (ix) Any other information that Purchaser may reasonably request. (n) Such Seller shall pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its Property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained. (o) Such Seller covenants and agrees to take all actions required of it in compliance with the terms of the Electronic Tracking Agreement. (p) Such Seller covenants and agrees that it will not (1) consolidate or merge or enter into any analogous reorganization or transaction with any Person, unless such other Person is an Affiliate of Seller or is engaged in the mortgage banking business and such Seller is the surviving entity; (2) liquidate, wind up or dissolve (or suffer any liquidation or dissolution); (3) cease actively to engage in the business of origination, acquiring or servicing Mortgage Loans or make any other material change in the nature or scope of the business in which such Seller engaged as of the date of this Agreement; (4) sell, assign, lease, convey, transfer or otherwise dispose of (whether in one transaction or a series of transactions) all or any substantial part of such Seller's business or assets, whether now owned or acquired after the date of this Agreement and without the prior written consent of the Purchaser (except in the ordinary course of business or except in a transaction or series of transactions between two or more Sellers); (5) acquire by purchase or in any other transaction all or substantially all of the business or property of, or stock or other ownership interests of, any Person, without the prior written consent of the Purchaser; (6) change its jurisdiction of organization, without the prior written consent of the Purchaser; nor (7) permit any subsidiary of such Seller to do or to take any of the foregoing actions. (q) Each REIT Seller covenants and agrees that it shall at all times continue to be (i) qualified as a real estate investment trust as defined in Section 856 of the Code for so long as the Board of Directors deems it in the best interests of the stockholders of such REIT Seller to remain so qualified and (ii) entitled to a dividends paid deduction under Section 857 of the Code with respect to dividends paid by it with respect to each taxable year for which it claims a deduction on its Form 1120 - REIT filed with the United States Internal Revenue Service for such year, or the entering into by any REIT Seller of any material "prohibited transactions" as defined in Sections 857(b) and 856(c) of the Code. After the occurrence and during the continuation of any monetary default or any default that results in the acceleration or required prepayment of any indebtedness pursuant to the terms of this Agreement or any other agreement 25 between a Seller and Purchaser, no Seller shall make any payment on account of, or set apart assets for, a sinking or other analogous fund for the purchase, redemption, defeasance, retirement or other acquisition of any equity or partnership interest of such Sellers, whether now or hereafter outstanding, or make any other distribution in respect of any of the foregoing or to any shareholder or equity owner of such Seller, either directly or indirectly, whether in cash or property or in obligations of such Seller or any of such Seller's consolidated Subsidiaries. Section 10. Confidentiality. Each Seller hereby acknowledges and agrees that (i) all written or computer-readable information provided by Purchaser to such Seller regarding Purchaser and (ii) the terms of this Agreement (the "Purchaser Confidential Information"), shall be kept confidential and each of their respective contents will not be divulged to any party without Purchaser's consent except to the extent that (i) such Seller deems appropriate to do so in working with legal counsel, auditors, taxing authorities or other governmental agencies or regulatory bodies or in order to comply with any applicable federal or state laws, (ii) any portion of Purchaser Confidential Information is in the public domain other than due to a breach of this covenant, (iii) such Seller deems appropriate in connection with exercising any or all of such Seller's rights or remedies or complying with any obligations under this Agreement. Section 11. Term. This Agreement shall continue in effect until terminated as to future transactions between the related Seller and Purchaser by written instruction signed by either such Seller or Purchaser and delivered to the other, provided that no termination will affect the obligations hereunder as to any of the Mortgage Loans with respect to which Conduit Submission Packages have been delivered to Custodian pursuant to the terms of this Agreement or the Custodial Agreement. Section 12. Exclusive Benefit of Parties; Assignment. This Agreement is for the exclusive benefit of the parties hereto and their respective successors and assigns and shall not be deemed to give any legal or equitable right to any other person, including the Custodian. Except as provided in Section 6, no rights or obligations created by this Agreement may be assigned by any party hereto without the prior written consent of the other parties. Section 13. Amendments; Waivers; Cumulative Rights. This Agreement may be amended from time to time only by written agreement of the Sellers and Purchaser. Any forbearance, failure or delay by either party in exercising any right, power or remedy hereunder shall not be deemed to be a waiver thereof, and any single or partial exercise by Purchaser of any right, power or remedy hereunder shall not preclude the further exercise thereof. Every right, power and remedy of Purchaser shall continue in full force and effect until specifically waived by Purchaser in writing. No right, power or remedy shall be exclusive, and each such right, power or remedy shall be cumulative and in addition to any other right, power or remedy, whether conferred hereby or hereafter available at law or in equity or by statute or otherwise. Section 14. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 26 Section 15. Effect of Invalidity of Provisions. In case any one or more of the provisions contained in this Agreement should be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or therein shall in no way be affected, prejudiced or disturbed thereby. Section 16. 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. Section 17. Notices. Any notices, consents, elections, directions and other communications given under this Agreement shall be in writing and shall be deemed to have been duly given when telecopied or delivered by overnight courier to, personally delivered to, or on the third day following the placing thereof in the mail, first class postage prepaid to, the respective addresses set forth on the cover page hereof for the related Seller and Purchaser, or to such other address as such party shall give notice to the other parties pursuant to this Section 17. Notices to Assignee shall be given to such address as Assignee shall provide to the related Seller in writing. Section 18. Entire Agreement. This Agreement, the Funding Confirmations and the Custodial Agreement contain the entire agreement among the parties hereto with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements among them, oral or written, of any nature whatsoever with respect to the subject matter hereof. Section 19. Costs of Enforcement. In addition to any other indemnity specified in this Agreement, in the event of a breach by the related Seller of this Agreement, the Custodial Agreement or a Takeout Commitment, such Seller agrees to pay the reasonable attorneys' fees and expenses of Purchaser and, when applicable, Assignee incurred as a consequence of such breach. Section 20. Consent to Service. Each party irrevocably consents to the service of process by registered or certified mail, postage prepaid, to it at its address given in or pursuant to Section 16. Section 21. Construction. The headings in this Agreement are for convenience only and are not intended to influence its construction. References to Sections, Exhibits, Schedules and Annexes in this Agreement are to the Sections of, and Exhibits, Schedules and Annexes to this Agreement. The Exhibits are part of this Agreement, and are incorporated herein by reference. The singular includes the plural, the plural the singular, and the words "and" and "or" are used in the conjunctive or disjunctive as the sense and circumstances may require. Section 22. Effect of Amendment and Restatement. Upon the execution of this Agreement by all parties hereto and the delivery of the opinion required by Section 9(a)(x), the Original Mortgage Loan Purchase Agreement shall be amended, restated and superseded in its 27 entirety by this Agreement. The parties hereto acknowledge and agree that (a) the liens and security interests granted under the Original Mortgage Loan Purchase Agreement are in full force and effect and, upon the amendment and restatement of the Original Mortgage Loan Purchase Agreement and the related documents, such liens and security interests secure and continue to secure the payment and performance of Seller's obligations under this Agreement and the related documents, and (b) upon the effectiveness of such amendment and restatement, all outstanding Mortgage Loans under, and as defined in, the Original Mortgage Loan Agreement, shall be deemed to be outstanding as Mortgage Loans hereunder mutatis mutandis, in each case on the terms and conditions set forth in this Agreement. Furthermore, the provisions of this Agreement shall relate back to and shall govern all aspects of all sales of Mortgage Loans by the Sellers to the Purchaser beginning December 18, 2003 pursuant to the purchase facility. [SIGNATURES COMMENCE ON FOLLOWING PAGE] 28 IN WITNESS WHEREOF Purchaser and the Sellers have duly executed this Agreement as of the date and year set forth on the cover page hereof. UBS REAL ESTATE SECURITIES INC. By: /s/ George A. Mangiaracina ------------------------------------- Name: George A. Mangiaracina Title: Managing Director By: /s/ Robert Carpenter ------------------------------------- Name: Robert Carpenter Title: Director AMERICAN HOME MORTGAGE INVESTMENT CORP. By: /s/ Michael Strauss -------------------------------------- Name: Michael Strauss Title: President AMERICAN HOME MORTGAGE ACCEPTANCE, INC. By: /s/ Michael Strauss -------------------------------------- Name: Michael Strauss Title: President AMERICAN HOME MORTGAGE HOLDINGS, INC. By: /s/ Michael Strauss -------------------------------------- Name: Michael Strauss Title: President AMERICAN HOME MORTGAGE CORP. By: /s/ Michael Strauss -------------------------------------- Name: Michael Strauss Title: President COLUMBIA NATIONAL, INCORPORATED By: /s/ Michael Strauss -------------------------------------- Name: Michael Strauss Title: President EX-10.4 5 am033104-ex10_4.txt AMENDED AND RESTATED MORTGAGE LOAN Exhibit 10.4 AMENDED AND RESTATED MORTGAGE LOAN REPURCHASE AGREEMENT PURCHASER: UBS REAL ESTATE SECURITIES INC. ADDRESS: 1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019 ATTENTION: GEORGE A. MANGIARACINA TELEPHONE: (212) 713-3734 ATTENTION: ROBERT CARPENTER TELEPHONE: (212) 713-8749 SELLER: AMERICAN HOME MORTGAGE INVESTMENT CORP. ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: STEPHEN A. HOZIE, CHIEF FINANCIAL OFFICER TELEPHONE: (516) 396-7700 SELLER: AMERICAN HOME MORTGAGE ACCEPTANCE, INC. ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: STEPHEN A. HOZIE, CHIEF FINANCIAL OFFICER TELEPHONE: (516) 396-7700 SELLER: AMERICAN HOME MORTGAGE HOLDINGS, INC. ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: STEPHEN A. HOZIE, CHIEF FINANCIAL OFFICER TELEPHONE: (516) 396-7700 SELLER: AMERICAN HOME MORTGAGE CORP. ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: MICHAEL STRAUSS, PRESIDENT TELEPHONE: (516) 396-7700 SELLER: COLUMBIA NATIONAL, INCORPORATED ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: MICHAEL STRAUSS, PRESIDENT TELEPHONE: (516) 396-7700 ATTENTION: STEPHEN A. HOZIE, CHIEF FINANCIAL OFFICER TELEPHONE: (516) 396-7700 DATE OF AGREEMENT: FEBRUARY 6, 2004 -2- TABLE OF CONTENTS Page --- SECTION 1. DEFINITIONS ................................................... 2 SECTION 2. PROCEEDS FOR PURCHASES OF MORTGAGE LOANS ...................... 16 SECTION 3. PROCEDURE FOR REPURCHASES OF MORTGAGE LOANS ................... 19 SECTION 4. TERMS OF EACH TRANSACTION ..................................... 21 SECTION 5. CASH ACCOUNT .................................................. 21 SECTION 6. SERVICING OF THE MORTGAGE LOANS ............................... 22 SECTION 7. REMEDIES; MARGIN DEFICITS ..................................... 24 SECTION 8. TRANSFER OF MORTGAGE LOAN BY PURCHASER ........................ 26 SECTION 9. RECORD TITLE TO MORTGAGE LOANS; INTENT OF PARTIES; SECURITY INTEREST ............................................ 27 SECTION 10. REPRESENTATIONS AND WARRANTIES ................................ 27 SECTION 11. COVENANTS OF THE SELLERS ...................................... 31 SECTION 12. PERIODIC DUE DILIGENCE ........................................ 36 SECTION 13. THIRD PARTY SERVICING ......................................... 36 SECTION 14. CONFIDENTIALITY ............................................... 37 SECTION 15. TERM .......................................................... 37 SECTION 16. EXCLUSIVE BENEFIT OF PARTIES; ASSIGNMENT ...................... 37 SECTION 17. AMENDMENTS; WAIVERS; CUMULATIVE RIGHTS ........................ 37 SECTION 18. EXECUTION IN COUNTERPARTS ..................................... 37 SECTION 19. EFFECT OF INVALIDITY OF PROVISIONS ............................ 37 SECTION 20. GOVERNING LAW ................................................. 37 SECTION 21. NOTICES ....................................................... 37 SECTION 22. ENTIRE AGREEMENT .............................................. 38 SECTION 23. COSTS OF ENFORCEMENT .......................................... 38 SECTION 24. PURCHASER'S APPOINTMENT AS ATTORNEY-IN-FACT ................... 38 SECTION 25. SUBMISSION TO JURISDICTION; WAIVERS ........................... 39 SECTION 26. CONSTRUCTION .................................................. 40 SECTION 27. EFFECT OF AMENDMENT AND RESTATEMENT ........................... 41 i SCHEDULES Schedule 1 Representations and Warranties regarding Mortgage Loans EXHIBITS Exhibit A Closing Loan Purchase Detail Fields Exhibit B Rewarehousing Loan Purchase Detail Fields Exhibit C Conversion Loan Purchase Detail Fields Exhibit D Withdrawal/Deposit Notice Exhibit E Cash Account Wire Instructions Exhibit F Cash Account Adjustment Notice Exhibit G [Intentionally Left Blank] Exhibit H Purchaser's Wire Instructions to Seller Exhibit I UCC-1 Financing Statement Exhibit J Seller's Delivery Instructions Exhibit K Seller's Release Exhibit L Seller's Wire Instructions Exhibit M Warehouse Lender's Release Exhibit N Authorized Signatures of Seller Exhibit O Warehouse Lender's Wire Instructions Exhibit P MBS Swap Funding Program Selection Notice Exhibit Q Request For Mortgage Loan Shipment Exhibit R MBS Swap Shipment Documents Exhibit S Form of Closing Instruction Letter Insert Exhibit T Seller's Underwriting Guidelines Exhibit U Form of Opinion Exhibit V UCC Filing Jurisdictions Exhibit W Form of Servicer Notice Exhibit X Form of Covenant Compliance Letter Exhibit Y Form of Request for Purchase ii AMENDED AND RESTATED MORTGAGE LOAN REPURCHASE AGREEMENT THIS AMENDED AND RESTATED MORTGAGE LOAN REPURCHASE AGREEMENT, dated as of the date set forth on the cover page hereof (as amended, supplemented or otherwise modified from time to time, "Agreement"), among UBS REAL ESTATE SECURITIES INC. ("Purchaser" or "UBSRES") and the Sellers whose names are set forth on the cover page hereof (each a "Seller" and, collectively, the "Sellers"). RECITALS WHEREAS, the Purchaser; American Home Mortgage Holdings, Inc., American Home Mortgage Corp. and Columbia National, Incorporated (in such capacity, the "Original American Home Parties"); and the Custodian are parties to the Mortgage Loan Repurchase Agreement, dated as of February 26, 1999 as amended, supplemented or otherwise modified prior to the date hereof (the "Original Repurchase Agreement"); WHEREAS, pursuant to the Original Repurchase Agreement, one or more of the Original American Home Parties may have, in its sole discretion, offered to sell to Purchaser from time to time Mortgage Loans (as defined therein), subject to the related Seller's obligation to repurchase such Mortgage Loans in accordance with the terms therein and Purchaser, in its sole discretion, may have agreed to purchase such Mortgage Loans from such Seller in accordance with the terms and conditions set forth in the Original Repurchase Agreement; WHEREAS, the Original American Home Parties and the Purchaser desire to amend and restate the Original Repurchase Agreement as provided herein; and NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree that the Original Repurchase Agreement be amended and restated in its entirety as follows: PRELIMINARY STATEMENT Each Seller is engaged among other pursuits, in the business of originating, purchasing and selling Mortgage Loans. Purchaser is engaged in, among other pursuits, the business of purchasing Mortgage Loans. Each Seller may, in its sole discretion, offer to sell to Purchaser from time to time Mortgage Loans, subject to the related Seller's obligation to repurchase such Mortgage Loans in accordance with the terms herein and Purchaser, in its sole discretion, may agree to purchase such Mortgage Loans from such Seller in accordance with the terms and conditions set forth in this Agreement. It is contemplated by the parties hereto that the Mortgage Loans subject to this Agreement, from time to time, will become the subject of transactions in which Purchaser purchases such Mortgage Loans from the related Seller on a servicing released basis. The related Seller subsequently will offer to sell such Mortgage Loans to Purchaser on a servicing released basis, and Purchaser, pursuant to one of the UBSRES Purchase Programs, may elect to purchase such Mortgage Loans from such Seller. The parties hereto hereby agree as follows: Section 1. Definitions. Capitalized terms used but not defined herein shall have the meanings set forth in the Custodial Agreement. As used in this Agreement, the following terms shall have the following meanings: "Act of Insolvency": With respect to any party and its Affiliates, (i) the filing of a petition, commencing, or authorizing the commencement of any case or proceeding under any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar law relating to the protection of creditors, or suffering any such petition or proceeding to be commenced by another which is consented to, not timely contested or results in entry of an order for relief; (ii) the seeking the appointment of a receiver, trustee, custodian or similar official for such party or an Affiliate or any substantial part of the property of either; (iii) the appointment of a receiver, conservator, or manager for such party or an Affiliate by any governmental agency or authority having the jurisdiction to do so; (iv) the making or offering by such party or an Affiliate of a composition with its creditors or a general assignment for the benefit of creditors; (v) the admission by such party or an Affiliate of such party of its inability to pay its debts or discharge its obligations as they become due or mature; or (vi) that any governmental authority or agency or any person, agency or entity acting or purporting to act under governmental authority shall have taken any action to condemn, seize or appropriate, or to assume custody or control of, all or any substantial part of the property of such party or of any of its Affiliates, or shall have taken any action to displace the management of such party or of any of its Affiliates or to curtail its authority in the conduct of the business of such party or of any of its Affiliates. "Affiliate": With respect to any Person, any "affiliate" of such Person, as such term is defined in the Bankruptcy Code. "Agency": The Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), and the Federal Home Loan Mortgage Corporation ("FHLMC"), as applicable. "Agency Approvals": Shall have the meaning ascribed thereto in Section 10(a)(xii) of this Agreement. "Agency Eligible Mortgage Loan": A mortgage loan that is in strict compliance with the eligibility requirements for swap or purchase by the designated Agency, under the applicable Agency Guide and/or applicable Agency Program. "Agency Guide": The GNMA Mortgage-Backed Securities Guide; the Fannie Mae Selling Guide and the Fannie Mae Servicing Guide; the Freddie Mac Sellers' and Servicers' Guide; as applicable, in each case as such Agency Guide may be amended from time to time. 2 "Agency Program": The specific purchase program under the relevant Agency Guide or as otherwise approved by the Agency. "Assignee": With respect to this Agreement and any Mortgage Loan, any assignee of the Purchaser pursuant to a pledge or rehypothecation of the Mortgage Loan. "Asset Value": With respect to each Mortgage Loan, the lesser of (a) the Market Value of such Mortgage Loan less the related Discount or (b) the outstanding principal balance of such Mortgage Loan less the Discount; provided, that, the Asset Value shall be deemed to be zero with respect to each Mortgage Loan (1) in respect of which there is a breach of a representation and warranty set forth in Schedule 1 (assuming each representation and warranty is made as of the date Asset Value is determined), (2) in respect of which there is a delinquency in the payment of principal and/or interest which continues for a period in excess of twenty nine (29) calendar days (without regard to any applicable grace periods), (3) which has not been repurchased by the related Seller by its Scheduled Repurchase Date, or (4) which has been released from the possession of the Custodian under the Custodial Agreement to the related Seller for a period in excess of ten (10) calendar days; provided that the Purchaser may, in its sole and absolute discretion, assign a market value above zero with respect to any Mortgage Loan that would otherwise be deemed to have an Asset Value of zero. "Authorized Signatory": With respect to each Seller, an officer of such Seller who is authorized and empowered to request a purchase of Mortgage Loans by the Purchaser pursuant to a Request for Purchase, and is indicated on the Authorized Signatories of such Seller attached hereto as Exhibit N. "Bankruptcy Code": The United States Bankruptcy Code of 1978, as amended from time to time. "Business Day": Any day other than (a) a Saturday, Sunday or other day on which banks located in the City of New York, New York are authorized or obligated by law or executive order to be closed, or (b) any day on which UBSRES is closed for business, provided that notice thereof shall have been given not less than seven calendar days prior to such day. "Capital Lease Obligations": For any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP. "Cash Account": A separate cash account established and maintained by the Sellers at UBSRES under the conditions set forth in Section 5. "Cash Account Adjustment": An adjustment to the Cash Account Balance pursuant to a Cash Account Adjustment Notice. 3 "Cash Account Adjustment Notice": A cash account adjustment notice, in the form of Exhibit F; to be used by Purchaser to notify the Sellers of any adjustments to the Cash Account Balance. "Cash Account Balance": As of any date, the net amount of funds in the Cash Account on such date. "Cash Account Interest Accrual": The simple interest calculation posted on the last Business Day of each month resulting from the product of each Business Day's Cash Account Balance and the Cash Account Interest Rate. "Cash Account Interest Rate": With respect to each month, the average opening federal funds rate for such month. For the Cash Account, the opening federal funds rate on a Business Day shall be counted as the Cash Account Interest Rate until the next Business Day. "Cash Account Wire Instructions": The wire instructions, set forth in a letter in the form of Exhibit E, to be used for the payment of funds to the Sellers. "Closing Instruction Letter": With respect to each Wet Mortgage Loan which is being originated in part by the proceeds of a Closing Transaction, the instruction letter of the related Seller with respect to such origination which is acknowledged by the Escrow Agent. "Closing Instruction Letter Insert": A paragraph in the form of Exhibit S hereto which shall be inserted into the Closing Instruction Letter. "Closing Loan Purchase Detail": A loan purchase detail, prepared by the related Seller and delivered by such Seller to Purchaser via electronic transmission containing all information specified on Exhibit A (as such information may be amended from time to time by notice from Purchaser to such Seller) in a form acceptable to Purchaser, regarding the characteristics of a Mortgage Loan being offered for sale by such Seller to Purchaser under a Closing Transaction. "Closing Transaction": Any sale of a Mortgage Loan by the related Seller to Purchaser, structured as either a Wet Funding or a Dry Funding, wherein Purchaser wires the Disbursement Amount in accordance with the Escrow Agent Standing Wire Instructions subject to an obligation of such Seller to repurchase such Mortgage Loan pursuant to this Agreement. "Code": The Internal Revenue Code of 1986, as amended from time to time. "Collateral": Each of the following items or types of property, whether now owned or hereafter acquired, now existing or hereafter created and wherever located: the Mortgage Loans, all mortgage loan documents (including, without limitation, all promissory notes, all servicing records, servicing agreements and any other collateral pledged or otherwise relating to such Mortgage Loans), together with all files, documents, instruments, surveys, certificates, correspondence, appraisals, computer programs, computer storage media, accounting records and other books and records relating thereto, all mortgage guaranties and insurance (issued by governmental agencies or otherwise) and any mortgage insurance certificate or other document evidencing such mortgage guaranties or insurance relating to any Mortgage Loan, all 4 Servicing Rights relating to the Mortgage Loans, any servicing accounts established pursuant to any Servicing Agreement and all amounts on deposit therein, from time to time, all purchase agreements or other agreements or contracts relating to, constituting, or otherwise governing, any or all of the foregoing to the extent they relate to the Mortgage Loans including the right to receive principal and interest payments with respect to the Mortgage Loans and the right to enforce such payments, the Cash Account and all monies from time to time on deposit in the Cash Account, the Custodial Account and all monies from time to time on deposit in the Custodial Account, all "general intangibles", "accounts", "chattel paper" and "investment property" as defined in the UCC relating to or constituting any and all of the foregoing, and any and all replacements, substitutions, distributions on or proceeds of any and all of the foregoing. "Collateral Receipt": With respect to each Wet Mortgage Loan, the receipt by Custodian on a Business Day of a Dry Submission Package or Conduit Submission Package. "Collateral Receipt Adjustment": The process initiated by Collateral Receipt wherein the Pass-Through Rate on a Wet Mortgage Loan is reduced, effective from the date of Collateral Receipt through one calendar day prior to the Repurchase Date. "Collateral Receipt Date": With respect to each Wet Mortgage Loan, the Business Day on which a Collateral Receipt occurs. "Conduit Funding Program": A program pursuant to the terms of the Custodial Agreement and the Conduit Amended and Restated Mortgage Loan Purchase Agreement dated as of the date set forth on the cover sheet thereof, among the Sellers and Purchaser as amended from time to time. "Conduit Submission Package": The documents required to be delivered by a Seller to Custodian under the Conduit Funding Program. "Conversion Loan Purchase Detail": A loan purchase detail, prepared by the related Seller and delivered by such Seller to Purchaser via electronic transmission containing the information set forth on Exhibit C, in a form acceptable to Purchaser, regarding the characteristics of a Mortgage Loan that is subject to repurchase and that is subsequently offered to Purchaser under the Conduit Funding Program. "Credit File": All papers and records of whatever kind or description, whether developed or originated by the related Seller or others, required to document or service the Mortgage Loan; provided however, that such Mortgage Loan papers, documents and records shall not include any Mortgage Loan papers, documents or records which are contained in the Dry Submission Package. "Custodial Account": A separate custodial account, established and maintained by the Sellers under the conditions set forth in Section 6(b), for the deposit by the Sellers of all collections in respect of a Mortgage Loan that are payable to Purchaser as the owner of the Mortgage Loan. "Custodial Agreement": The Amended and Restated Mortgage Loan Custodial Agreement, dated as of the date set forth on the cover sheet thereof, among the Sellers, Purchaser 5 and custodian, as amended from time to time. Such Amended and Restated Mortgage Loan Custodial Agreement governs Purchaser's Whole Loan Purchase Program and Conduit Funding Program. "Custodial Fee": With respect to each Repurchase, a fee payable to Purchaser by the related Seller in the amount set forth on the related Funding Confirmation, and remitted to Purchaser on the related Repurchase Date as a component of the related Repurchase Price . "Custodian": The custodian named in the Custodial Agreement, and its permitted successors hereunder. "Defective Mortgage Loan": A Mortgage Loan that is not in compliance with this Agreement and/or the Electronic Tracking Agreement, including but not limited to a Mortgage Loan that is not in compliance with the representations and warranties set forth on Schedule 1 hereto. "Desired Funding Date": The Business Day indicated by the related Seller on the Closing Loan Purchase Detail, on which such Seller desires Purchaser to purchase a Mortgage Loan via a Wet Funding or a Dry Funding or the Business Day indicated by such Seller on the Rewarehousing Loan Purchase Detail, on which such Seller desires Purchaser to purchase a Mortgage Loan via a Dry Funding. "Disbursement Amount": With respect to a Mortgage Loan, the amount set forth on the related Closing Loan Purchase Detail or Rewarehousing Loan Purchase Detail as the "Disbursement Amount". "Discount": With respect to each Mortgage Loan, the amount, determined by the Purchaser in its sole and absolute discretion, set forth on the related Funding Confirmation as the "Discount." "Document File": The Credit File and the Dry Submission Package. "Dry Funding": Either (i) a Closing Transaction initiated by the delivery by a Seller, via electronic transmission to Purchaser of a Closing Loan Purchase Detail and the receipt by Custodian of a Dry Submission Package or (ii) a Rewarehousing Transaction initiated by the delivery by such Seller, via electronic transmission to Purchaser, of a Rewarehousing Loan Purchase Detail, a Warehouse Lender's or such Seller's Release and the Custodian's receipt of a Dry Submission Package. "Dry Mortgage Loan": A Mortgage Loan with respect to which (i) Custodian has received a Dry Submission Package and (ii) no Repurchase has occurred. "Dry Submission Package": The documents required to be delivered by a Seller to Custodian pursuant to the Custodial Agreement. "Due Date": The day of the month on which the Monthly Payment is due on the Mortgage Loan. 6 "Electronic Agent": MERSCORP, INC., and its successors in interest. "Electronic Tracking Agreement": The Electronic Tracking Agreement, dated as of the date hereof, among Participant, Sellers, MERSCORP, Inc. and Mortgage Electronic Registration Systems, Inc.; provided that if no Mortgage Loans are or will be MERS Designated Mortgage Loans, all references herein to the Electronic Tracking Agreement shall be disregarded. "Escrow Agent": The agent appointed by the Title Insurance Company to administer the closing of a Mortgage Loan. "Escrow Agent Standing Wire Instructions": The wire instructions of the Escrow Agent set forth in the applicable Closing Loan Purchase Detail, from the related Seller to Purchaser for use when Purchaser wires Disbursement Amounts for Wet Fundings and Dry Fundings structured as Closing Transactions. "Event of Default": The occurrence of any of the following events: (i) an Act of Insolvency with respect to the related Seller or its Parent Company; (ii) any representation or warranty made by the related Seller hereunder shall have been incorrect or untrue in any material respect when made or when deemed to have been made; (iii) the related Seller shall fail to perform, or shall admit to Purchaser its inability to, or its intention not to, perform any of its obligations hereunder or under the Electronic Tracking Agreement; (iv) an event or events shall have occurred resulting in the effective absence of a "repo market" or comparable "lending market" for financing debt obligations secured by mortgage loans or securities or an event or events shall have occurred resulting in the Purchaser not being able to finance any Mortgage Loans through the "repo market" or "lending market" with traditional counterparties at rates which would have been reasonable prior to the occurrence of such event or events; (v) an event or events shall have occurred resulting in the effective absence of a "securities market" for securities backed by mortgage loans or an event or events shall have occurred resulting in the Purchaser not being able to sell securities backed by mortgage loans at prices which would have been reasonable prior to such event or events; (vi) there shall have occurred a material adverse change in the "repo market" or comparable "lending market" or in the financial condition of the Purchaser which effects (or can reasonably be expected to effect) materially and adversely the ability of the Purchaser to fund its obligations under this Agreement; (vii) the related Seller or any of such Seller's Affiliates shall be in default beyond any applicable grace period under any note, indenture, loan agreement, guaranty, swap agreement or any other contract to which it is a party; (viii) the related Seller shall fail to comply with the requirements of any of Section 7(h), Sections 11(a) through 11(c) (inclusive), Section 11(e), Section 11(h) through Section 11(j) (inclusive), or Section 11(n); (ix)(a) the related Seller shall fail to comply with the requirements of any of Section 11(k) through Section 11(m) (inclusive) or (b) the related Seller shall fail to comply with the requirements of any other subsection in Section 11 (other than those specifically enumerated in preceding clauses (viii) or (ix)(a)), and such default shall continue unremedied for a period of three Business Days; (x) if the Purchaser has purchased MERS Designated Mortgage Loans, the Electronic Tracking Agreement has for whatever reason been terminated or ceases to be in full force and effect and the Purchaser (or the Custodian as its designee) shall not have received an assignment of mortgage with respect to each MERS Designated Mortgage Loan, in blank, in recordable form, but unrecorded; (xi) any materially adverse change in the Property, 7 business, financial condition or prospects of the related Seller or any of its Affiliates shall occur, in each case as determined by the Purchaser in its sole discretion, or any other condition shall exist which, in the Purchaser's sole discretion, constitutes a material impairment of such Seller's ability to perform its obligations under this Agreement or any other document in connection herewith; (xii) the discovery by the Purchaser of a condition or event which existed at or prior to the execution hereof and which the Purchaser, in its sole discretion, determines materially and adversely affects: (a) the condition (financial or otherwise) of the related Seller, its Subsidiaries or Affiliates; or (b) the ability of either the related Seller or Purchaser to fulfill its respective obligations under this Agreement; or (xiii) the failure of any REIT Seller to at any time continue to be (x) qualified as a real estate investment trust as defined in Section 856 of the Code and (y) entitled to a dividend paid deduction under Section 857 of the Code with respect to dividends paid by it with respect to each taxable year for which it claims a deduction on its Form 1120 - REIT filed with the United States Internal Revenue Service for such year, or the entering into by any REIT Seller of any material "prohibited transactions" as defined in Sections 857(b) and 856(c) of the Code. "FDIC": The Federal Deposit Insurance Corporation or any successor thereto. "Freddie Mac": Freddie Mac or any successor thereto. "Fannie Mae": Fannie Mae or any successor thereto. "Funding Confirmation": With respect to each Mortgage Loan purchased by Purchaser from the related Seller via a single wire funds transaction on a particular Business Day, the trade confirmation from Purchaser to such Seller confirming such Seller's obligation to repurchase such Mortgage Loan from Purchaser by the Scheduled Repurchase Date. "GAAP": Generally accepted accounting principles as in effect from time to time in the United States. "GMNA": The Government National Mortgage Association or any successor thereto. "Guarantee": As to any Person, any obligation of such Person directly or indirectly guaranteeing any Indebtedness of any other Person or in any manner providing for the payment of any Indebtedness of any other Person or otherwise protecting the holder of such Indebtedness against loss (whether by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, or to take-or-pay or otherwise); provided that the term "Guarantee" shall not include (i) endorsements for collection or deposit in the ordinary course of business, or (ii) obligations to make servicing advances for delinquent taxes and insurance or other obligations in respect of a Mortgaged Property, to the extent required by the Purchaser. The amount of any Guarantee of a Person shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith. The terms "Guarantee" and "Guaranteed" used as verbs shall have correlative meanings. 8 "Incremental Pass-Through Rate": The amount by which the Pass-Through Rate increases upon the occurrence of any event giving Purchaser the right to elect a remedy pursuant to Section 7, which amount shall be set forth in the applicable Funding Confirmation as the "Incremental Pass-Through Rate". "Indebtedness": For any Person: (a) obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of Property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such Property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of Property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within 90 days of the date the respective goods are delivered or the respective services are rendered; (c) Indebtedness of others secured by a Lien on the Property of such Person, whether or not the respective Indebtedness so secured has been assumed by such Person; (d) obligations (contingent or otherwise) of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for account of such Person; (e) Capital Lease Obligations of such Person; (f) obligations of such Person under repurchase agreements, sale/buy back agreements or like arrangements; (g) Indebtedness of others Guaranteed by such Person; (h) all obligations of such Person incurred in connection with the acquisition or carrying of fixed assets by such Person; and (i) Indebtedness of general partnerships of which such Person is a general partner. "Interest Rate Protection Agreement": With respect to any or all of the Mortgage Loans, any short sale of US Treasury securities, or futures contracts, or options related contracts, or interest rate swap, cap or collar agreement or similar arrangement providing for protection against fluctuations in interest rates or the exchange of nominal interest obligations either generally or under specific contingencies and acceptable to Purchaser. "Interim Funder": With respect to each MERS Designated Mortgage Loan, the Person named on the MERS(R)System as the interim funder pursuant to the MERS Procedures Manual. "Investor": With respect to each MERS Designated Mortgage Loan, the Person named on the MERS(R) System as the investor pursuant to the MERS Procedures Manual. "Lien": Any mortgage, lien, pledge, charge, security interest or similar encumbrance. "Losses": Any and all losses, claims, damages, liabilities or expenses (including reasonable attorneys' fees) incurred by any person specified; provided, however, that "Losses" shall not include any losses, claims, damages, liabilities or expenses which would have been avoided had such person taken reasonable actions to mitigate such losses, claims, damages, liabilities or expenses. "Market Value": As of any date in respect of a Mortgage Loan, the price at which such Mortgage Loan could readily be sold as determined by Purchaser in its sole discretion, 9 which price may be determined to be zero. Purchaser's good faith determination of Market Value shall be conclusive upon the parties. "MBS Swap Custodial Agreement": The custodial agreement, dated as of the date set forth on the cover sheet thereof, among the Sellers, Purchaser and custodian as amended from time to time. Such custodial agreement governs Purchaser's MBS Swap Funding Program. "MBS Swap Funding Program": A program pursuant to the terms of (i) the MBS Swap Mortgage Loan Participation Agreement dated as of the date set forth on the cover sheet thereof, among the Sellers and Purchaser as amended from time to time and (ii) the MBS Swap Custodial Agreement. "MBS Swap Funding Program Selection Notice": A notification that identifies Mortgage Loans intended for the MBS Swap Funding Program provided by the related Seller to Purchaser either (i) on the Closing Loan Purchase Detail or Rewarehousing Loan Purchase Detail via the "MBS Swap Funding Program Designation" field or (ii) via a facsimile transmission in the form of Exhibit P, received by Purchaser prior to the Scheduled Repurchase Date, for any Mortgage Loans previously purchased without the "MBS Swap Funding Program Designation". "MBS Swap Shipment Documents": With respect to each Mortgage Loan for which an MBS Swap Funding Program Selection Notice has been provided, the documents required, as listed in Exhibit R, to be received by Purchaser from the related Seller via facsimile transmission, prior to Purchaser's carrying out such Seller's instructions for the Request for Mortgage Loan Shipment. "MBS Swap Submission Package": The documents required to be provided by the related Seller to Purchaser with respect to each purchase under the MBS Swap Funding Program, as described in the MBS Swap Mortgage Loan Participation Agreement and MBS Swap Custodial Agreement. "MERS Designated Mortgage Loan": Mortgage Loans for which (a) the related Seller has designated or will designate MERS as, and has taken or will take such action as is necessary to cause MERS to be, the mortgagee of record, as nominee for such Seller, in accordance with MERS Procedure Manual and (b) the related Seller has designated or will designate the Purchaser as the Investor and Interim Funder on the MERS(R)System. "MERS Procedure Manual": The MERS Procedures Manual attached as Exhibit B to the Electronic Tracking Agreement, as it may be amended, supplemented or otherwise modified from time to time. "MERS Report": The schedule listing MERS Designated Mortgage Loans and other information prepared by the Electronic Agent pursuant to the Electronic Tracking Agreement. "MERS(R)System": The Electronic Agent's mortgage electronic registry system, as more particularly described in the MERS Procedures Manual. 10 "Monthly Payment": The scheduled monthly payment of principal and interest on a Mortgage Loan. "Moody's": Moody's Investors Service, Inc. "Mortgage": The mortgage, deed of trust or other instrument creating a lien on an estate in fee simple in real property securing a Mortgage Note. "Mortgage Loan": A one-to-four family residential loan secured by a Mortgage that is underwritten in accordance with the Underwriting Guidelines and is subject to this Agreement. "Mortgage Note": The note or other evidence of the indebtedness of a Mortgagor or secured by a Mortgage. "Mortgaged Property": The property subject to the lien of the Mortgage securing a Mortgage Note. "Mortgagor": The obligor on a Mortgage Note. "NCUA": The National Credit Union Administration, or any successor thereto. "Net Income": With respect to any Seller, for any period, the net income of such Seller for such period as determined in accordance with GAAP. "Note Rate": The rate of interest borne by a Mortgage Note. "Original American Home Parties": Shall have the meaning assigned to such term in the recitals hereof. "Original Repurchase Agreement": Shall have the meaning assigned to such term in the recitals hereof. "OTS": The Office of Thrift Supervision, or any successor thereto. "Parent Company": A corporation or other entity owning, directly or indirectly, more than 50% of the outstanding shares of voting stock of American Home Mortgage Investment Corp., American Home Mortgage Acceptance, Inc., American Home Mortgage Holdings, Inc., American Home Mortgage Corp. and/or Columbia National, Incorporated. "Pass-Through Rate": With respect to each Mortgage Loan, the rate at which interest is passed through to Purchaser which initially shall be the rate of interest specified on a Funding Confirmation as the "Pass-Through Rate". "Person": Any individual, corporation, company, voluntary association, partnership, joint venture, limited liability company, trust, unincorporated association or government (or any agency, instrumentality or political subdivision thereof). 11 "Property": Any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. "Purchase Date": With respect to a Mortgage Loan, the date on which Purchaser purchases such Mortgage Loan from the related Seller. "Purchase Price": With respect to each Mortgage Loan, an amount equal to the face amount of the Mortgage Loan less the Discount. "Purchaser": UBS Real Estate Securities Inc. and its successors. "Purchaser's Wire Instructions": The wire instructions, set forth in a notice delivered by Purchaser to the related Seller in the form of Exhibit H, containing the information to be used for the payment of all amounts due and payable to Purchaser hereunder. "REIT Seller": As the case may be, American Home Mortgage Investment Corp. and American Home Mortgage Acceptance, Inc. "REIT Status": With respect to any Person, such Person's status as a real estate investment trust, as defined in Section 856(a) of the Code, that satisfies the conditions and limitations set forth in Section 856(b) and 856(c) of the Code. "Repurchase": With respect to any Mortgage Loan, the transaction by which the related Seller remits the Repurchase Price to Purchaser and simultaneously Purchaser purchases the Mortgage Loan with a netting of funds resulting, governed by the terms of the applicable UBSRES Purchase Program. "Repurchase Date": With respect to any Mortgage Loan, the date that the related Seller remits the Repurchase Price to Purchaser. "Repurchase Price": With respect to each Mortgage Loan, an amount equal to the Purchase Price plus the Custodial Fee plus the product of the Purchase Price of the Mortgage Loan, the Pass-Through Rate and the number of calendar days from the Purchase Date to the Repurchase Date divided by 360. "Request for Mortgage Loan Shipment": Notification provided by the related Seller to Purchaser via facsimile transmission in the form of Exhibit Q, which presents Mortgage Loans to be delivered by Purchaser to the custodian as set forth on the cover page of the MBS Swap Funding Program Custodial Agreement or under the appropriate circumstances, Freddie Mac. "RESPA": Real Estate Settlement Procedures Act, as amended from time to time. "Rewarehousing Loan Purchase Detail": A loan purchase detail, prepared and submitted by the related Seller to Purchaser via electronic transmission containing the information specified on Exhibit B (as such information may be amended from time to time by notice from Purchaser to such Seller) in a form acceptable to Purchaser, regarding the 12 characteristics of a Mortgage Loan being offered for sale by, such Seller to Purchaser under a Rewarehousing Transaction. "Rewarehousing Transaction": Any sale of a Mortgage Loan by the related Seller to Purchaser structured as a Dry Funding wherein Purchaser wires the Disbursement Amount pursuant to the Warehouse Lender's Wire Instructions or such Seller's Wire Instructions, as applicable, subject to an obligation of such Seller to repurchase such Mortgage Loan pursuant to this Agreement. "RTC": The Resolution Trust Corporation or any successor thereto. "S&P": Standard and Poor's Ratings Services, a division of McGraw-Hill Companies. "Scheduled Collateral Receipt Date": With respect to each Wet Mortgage Loan, the Business Day, as set forth on the Funding Confirmation as the "Collateral Receipt Date", by which a Collateral Receipt is required to occur, such date to be within five (5) Business Days of a Wet Funding structured as a Closing Transaction. "Scheduled Repurchase Date": With respect to each Mortgage Loan, the Business Day as set forth on the Funding Confirmation as the "Repurchase Date", by which a repurchase is required to occur, such date to be within five (5) Business Days after the Purchase Date with respect to a Wet Mortgage Loan unless such Mortgage Loan has become a Dry Mortgage Loan prior to such fifth Business Day, (ii) within five (5) Business Days after the Collateral Receipt Date with respect to a Dry Mortgage Loan or (iii) within five (5) Business Days after the Purchase Date with respect to a Dry Mortgage Loan for which the related Seller has provided Purchaser with an MBS Swap Funding Program Selection Notice, unless, in any case, such date has been accelerated in connection with either an Event of Default pursuant to Section 7(a), a Defective Mortgage Loan pursuant to Section 7(b) or a Margin Deficit pursuant to Section 7(h). "Seller": Each Seller whose name is set forth on the cover page hereof, and its permitted successors and assigns. "Seller's Delivery Instructions": With respect to each Mortgage Loan for which the related Seller has remitted the Repurchase Price to Purchaser and which Purchaser concurrently does not elect to purchase under a UBSRES Purchase Program, the notification provided by such Seller to Purchaser via facsimile transmission in the Form of Exhibit J, instructing Purchaser to deliver the Dry Submission Package for such Mortgage Loan to the indicated address. "Seller's Release": A letter in the form of Exhibit K, delivered by a when no Warehouse Lender has an interest in a Mortgage Loan, conditionally releasing all of such Seller's interest in a Mortgage Loan upon receipt of payment by such Seller. "Seller's Wire Instructions": The wire instructions set forth in a letter in the form of Exhibit L, to be used for the payment of funds to the related Seller when no Warehouse Lender has an interest in the Mortgage Loans to which such payment relates. 13 "Sellers": The Sellers whose names are set forth on the cover page hereof, and their permitted successors and assigns. "Servicer": Shall have the meaning provided in Section 13 hereof. "Servicing Agreement": Shall have the meaning provided in Section 13 hereof. "Servicing Rights": Any and all of the following: (a) any and all rights to service the Mortgage Loans; (b) any payments to or monies received by a Seller or any other Person for servicing the Mortgage Loans; (c) any late fees, penalties or similar payments with respect to the Mortgage Loans; (d) all agreements or documents creating, defining or evidencing any such servicing rights to the extent they relate to such servicing rights and all rights of the related Seller or any other Person thereunder; (e) escrow payments or other similar payments with respect to the Mortgage Loans and any amounts actually collected by a Seller or any other Person with respect thereto; and (f) all accounts and other rights to payment related to the Mortgage Loans. "Submission Package": A Conduit Submission Package, a Dry Submission Package or a MBS Swap Submission Package, as applicable. "Subsidiary": With respect to any Person, any corporation, partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. "Successor Servicer": An entity designated by Purchaser, in conformity with Section 7, to replace the related Seller as servicer for Purchaser. "Supplemental Amount": With respect to each Mortgage Loan, an amount equal to the Disbursement Amount less the Purchase Price. "Tangible Net Worth": With respect to any Seller, as of a particular date, (i) all amounts which would be included under capital on a balance sheet of such Seller at such date, determined in accordance with GAAP, less (ii) amounts owing to such Seller from Affiliates, and (iii) intangible assets. "Title Insurance Company": A title insurance company acceptable to Purchaser in its sole discretion. 14 "Total Indebtedness": With respect to any Seller, for any period, the aggregate Indebtedness of such Seller during such period less the amount of any nonspecific balance sheet reserves maintained in accordance with GAAP. "Transaction": Any sale of a Mortgage Loan by the related Seller to Purchaser subject to an obligation of such Seller to repurchase such Mortgage Loan pursuant to a Funding Confirmation in accordance with this Agreement. "UBSRES Purchase Program": Purchaser's Conduit Funding Program or MBS Swap Funding Program as applicable. "UCC": The Uniform Commercial Code, as enacted in each applicable state. "Underwriting Guidelines": The underwriting guidelines delivered by the related Seller to Purchaser on or prior to the date hereof and as may be supplemented from time to time thereafter, a copy of which is attached hereto as Exhibit T. "Warehouse Lender ": Any lender providing financing to the related Seller in any fractional amount for the purpose of originating or purchasing Mortgage Loans, which lender has a security interest in such Mortgage Loans as collateral for the obligations of such Seller to such lender. "Warehouse Lender's Release": A letter in the form of Exhibit M from a Warehouse Lender to Purchaser, conditionally releasing all of Warehouse Lender's right, title and interest in certain Mortgage Loans identified therein upon receipt of payment by Warehouse Lender. "Warehouse Lender's Wire Instructions": The wire instructions set forth in a letter in the form of Exhibit O, from a Warehouse Lender who has an interest in the Mortgage Loans to which such payment relates. "Wet Funding": A Closing Transaction initiated by the delivery by a Seller, either via electronic or facsimile transmission to Purchaser, of a Closing Loan Purchase Detail and a pledge by such Seller to Purchaser to deliver to Custodian a Dry Submission Package or Conduit Submission Package by the Scheduled Collateral Receipt Date. "Wet Mortgage Loan": A Mortgage Loan for which Custodian on behalf of Purchaser, does not have physical possession of the related complete Dry Submission Package and which the related Seller has agreed to pledge to Purchaser all right, title and interest in, to and under such Mortgage Loan, free and clear of all liens, pledges, charges, encumbrances or security interests of any nature. "Whole Loan Purchase Program": A program pursuant to the terms of the Custodial Agreement and this Agreement. "Withdrawal/Deposit Notice": A notice, substantially in the form of Exhibit D, delivered by the Sellers to Purchaser, from time to time, in connection with withdrawals from and deposits to the Cash Account. 15 "Wire Fee": For each disbursement relating to a Closing Transaction, a fee payable to Purchaser by the related Seller as set forth in the Funding Confirmation. Section 2. Proceeds for Purchases of Mortgage Loans. (a) General Procedures for Purchases of Mortgage Loans. (1) Pursuant to either a Wet Funding or a Dry Funding, Purchaser may, in its sole discretion, from time to time, purchase one or more Mortgage Loans from the related Seller on a "servicing released" basis subject to an obligation of such Seller to repurchase such Mortgage Loans and subsequently to offer to sell such Mortgage Loans to Purchaser pursuant to one of the UBSRES Purchase Programs. Such Seller shall be deemed to make, and hereby makes, for the benefit of Purchaser, as of the applicable dates specified in Section 10, the representations and warranties set forth on Schedule 1 hereto in respect of each such Mortgage Loan. (2) Notwithstanding the satisfaction by the related Seller of the conditions specified in this Section, this is not a committed facility, Purchaser is not obligated to purchase any Mortgage Loan offered to it hereunder and the decision of Purchaser to purchase such Mortgage Loan shall be at Purchaser's sole discretion. In the event that Purchaser elects to reject a Mortgage Loan offered by such Seller for purchase by Purchaser in a Wet Funding or a Dry Funding for any reason and/or does not transmit the Disbursement Amount, any Dry Submission Package delivered to Custodian in anticipation of such purchase shall be returned by Custodian in accordance with the terms of the Custodial Agreement. (b) Specific Procedures for Purchases of Mortgage Loans related to Wet Fundings. (1) Prior to Purchaser's election to purchase any Mortgage Loan pursuant to a Wet Funding, Purchaser shall have received from the related Seller (i) a Closing Loan Purchase Detail in electronic format and (ii) a Request to Purchase, in the form attached hereto as Exhibit Y, signed by an Authorized Signatory of such Seller, and (iii) evidence that the Cash Account Balance is not less than the sum of the Supplemental Amount plus the Wire Fee. The terms and conditions of each such purchase shall be set forth in this Agreement and in the applicable Funding Confirmation. (2) If Purchaser elects to purchase any Mortgage Loan pursuant to a Wet Funding, Purchaser shall (i) withdraw the Supplemental Amount, if any, and the Wire Fee from the Cash Account and (ii) pay the Disbursement Amount for such Mortgage Loans to the Escrow Agent by wire transfer of immediately available funds in accordance with the Escrow Agent Standing Wire Instructions. 16 (3) Prior to payment of the Disbursement Amount by the Purchaser to the Escrow Agent with respect to the initial Wet Funding, Purchaser has obtained confirmation from the receiving bank that the information pertaining to it on the Escrow Agent Standing Wire Instructions is accurate. (4) With respect to each Wet Funding, simultaneously with the payment by Purchaser of the Disbursement Amount for a Mortgage Loan in accordance with the Escrow Agent Standing Wire Instructions, (i) the related Seller hereby conveys to Purchaser all of such Seller's right, title and interest in, to and under such Mortgage Loan (including, without limitation, Servicing Rights with respect thereto), free and clear of all liens, pledges, charges, encumbrances or security interests of any nature, and (ii) such Seller hereby covenants to cause to occur a Collateral Receipt by the Scheduled Collateral Receipt Date and to provide Purchaser with a Conversion Loan Purchase Detail for any Collateral Receipt relating to a Conduit Submission Package. (5) With respect to each Wet Funding, if by the Scheduled Collateral Receipt Date (i) a Collateral Receipt has occurred and (ii) the related Seller is not in breach of this Agreement, the Electronic Tracking Agreement or the Custodial Agreement then (a) with respect to any Collateral Receipt containing a Dry Submission Package, a Collateral Receipt Adjustment will occur and (b) with respect to any Collateral Receipt containing a Conduit Submission Package a Repurchase will occur. If a Collateral Receipt does not occur by the Scheduled Collateral Receipt Date Purchaser may elect a remedy pursuant to Section 7 including, without limitation, the application of an Incremental Pass-Through Rate. (c) Specific Procedures for Purchases of Mortgage Loans related to Dry Fundings structured as Closing Transactions. (1) Prior to Purchaser's election to purchase any Mortgage Loan pursuant to a Dry Funding structured as a Closing Transaction, Purchaser shall have received from the related Seller (i) a Closing Loan Purchase Detail in electronic format, (ii) a Request to Purchase, in the form attached hereto as Exhibit Y, signed by an Authorized Signatory of such Seller, (iii) a MERS Report reflecting the Purchaser as Investor or Interim Funder for each MERS Designated Loan, (iv) evidence that the Cash Account Balance is not less than the sum of the Supplemental Amount plus the Wire Fee and (v) evidence that Custodian has received all applicable documents required by Section 2 of the Custodial Agreement. The terms and conditions of each such purchase shall be set forth in this Agreement and in the applicable Funding Confirmation. 17 (2) If Purchaser elects to purchase any Mortgage Loan pursuant to a Dry Funding structured as a Closing Transaction, Purchaser shall (i) withdraw the Supplemental Amount, if any, and the Wire Fee from the Cash Account and (ii) pay the Disbursement Amount for such Mortgage Loans to the Escrow Agent by wire transfer of immediately available funds in accordance with the Escrow Agent Standing Wire Instructions. (3) Prior to payment of the Disbursement Amount by the Purchaser to the Escrow Agent with respect to the initial Dry Funding, Purchaser has obtained confirmation from the receiving bank that the information pertaining to it on the Escrow Agent Standing Wire Instructions is accurate. (4) With respect to each Dry Funding structured as a Closing Transaction, simultaneously with the payment by Purchaser of the Disbursement Amount for a Mortgage Loan in accordance with the Escrow Agent Standing Wire Instructions, the related Seller hereby conveys to Purchaser all of such Seller's right, title and interest in, to and under such Mortgage Loan (including, without limitation, Servicing Rights with respect thereto), free and clear of all liens, pledges, charges, encumbrances or security interests of any nature. (5) With respect to each Dry Funding structured as a Closing Transaction, if a Repurchase has not occurred by the Scheduled Repurchase Date and if the related Seller has not repurchased the related Mortgage Loan(s), Purchaser may elect a remedy pursuant to Section 7 including, without limitation, the application of an Incremental Pass-Through Rate. (d) Specific Procedures for Purchases of Mortgage Loans related to Dry Fundings structured as Rewarehousing Transactions. (1) Prior to Purchaser's election to purchase any Mortgage Loan pursuant to a Dry Funding structured as a Rewarehousing Transaction, Purchaser shall have received from the related Seller (i) a Rewarehousing Loan Purchase Detail in electronic format and (ii) a Request to Purchase, in the form attached hereto as Exhibit Y, signed by an Authorized Signatory of such Seller, (iii) an original of a Warehouse Lender's Release or such Seller's Release, as applicable, (iv) a MERS Report reflecting the Purchaser as Investor or Interim Funder for each MERS Designated Loan, (v) evidence that the Cash Account Balance is not less than the sum of the Supplemental Amount plus the Wire Fee and (vi) evidence that the Custodian has received all applicable documents required by Section 2 of the Custodial Agreement. The terms and conditions of each such purchase shall be set forth in this Agreement and in the applicable Funding Confirmation. 18 (2) If Purchaser elects to purchase any Mortgage Loan pursuant to a Dry Funding structured as a Rewarehousing Transaction, Purchaser shall (i) withdraw the Supplemental Amount and the Wire Fee, in each case if any, from the Cash Account and (ii) pay the Disbursement Amount for such Mortgage Loans to the Warehouse Lender or such Seller, as applicable, by wire transfer of immediately available funds in accordance with the Warehouse Lender's Wire Instructions or such Seller's Wire Instructions, as applicable. (3) With respect to each Dry Funding structured as a Rewarehousing Transaction, simultaneously with the payment by Purchaser of the Disbursement Amount for a Mortgage Loan, in accordance with the Warehouse Lender's Wire Instructions or the related Seller's Wire Instructions, as applicable, such Seller hereby conveys to Purchaser all of such Seller's right, title and interest in, to and under such Mortgage Loan (including, without limitation, Servicing Rights with respect thereto), free and clear of all liens, pledges, charges, encumbrances or security interests of any nature. (4) With respect to each Dry Funding structured as a Rewarehousing Transaction, if a Repurchase has not occurred by the Scheduled Repurchase Date and if the related Seller has not repurchased the related Mortgage Loan(s), Purchaser may elect a remedy pursuant to Section 7 including the application of an Incremental Pass-Through Rate. Section 3. Procedure for Repurchases of Mortgage Loans. (a) Prior to the related Seller's repurchase of any Mortgage Loan that such Seller intends to subsequently offer for sale to Purchaser under the Conduit Funding Program and at least five Business Days prior to such Seller's repurchase of any Mortgage Loan that such Seller intends to offer for sale to Purchaser under the MBS Swap Funding Program, all agreements related to the applicable UBSRES Purchase Program must be executed by such Seller, the Purchaser and where applicable the Custodian, and all requirements of such agreements must be satisfied as a condition precedent to the following: (i) For Mortgage Loans that the related Seller intends to repurchase and offer to Purchaser under the Conduit Purchase Program, the following must occur on or before the Scheduled Repurchase Date: (1) Such Seller shall transmit electronically a Conversion Loan Purchase Detail containing all information set forth on Exhibit C hereto to Purchaser and Custodian shall have received all applicable documents required by Section 2 of the Custodial Agreement to be in a Conduit Submission Package; (2) Such Seller shall remit the Repurchase Price to Purchaser and Purchaser shall assign, transfer and convey to such Seller all of 19 Purchaser's right, title and interest in, to and under such Mortgage Loan, free and clear of all liens, pledges, charges, claims, encumbrances or security interests of any nature; and (3) Purchaser shall remit the Purchase Price to such Seller pursuant to, and to the extent provided for under, the terms of the Conduit Funding Program and such Seller shall assign, transfer and convey to Purchaser pursuant to the applicable UBSRES Purchase Program all of such Seller's right, title and interest in, to and under such Mortgage Loan, free and clear of all liens, pledges, charges, claims, encumbrances or security interests of any nature. The payment of funds pursuant to clauses (2) and (3) above shall be netted. (ii) For Mortgage Loans that the related Seller intends to repurchase and subsequently offer for sale to Purchaser under the MBS Swap Funding Program the following must occur on or before the Scheduled Repayment Date: (1) Such Seller shall transmit to Purchaser, via a facsimile transmission, the applicable MBS Swap Shipment Documents at least five (5) Business Days before the Scheduled Repurchase Date; (2) Purchaser shall deliver to the Custodian a Request for Mortgage Loan Shipment setting for the Mortgage Loans to be shipped and the location to which such Mortgage Loans shall be delivered via overnight courier; (3) Such Seller shall deliver to Purchaser, via overnight courier, the related MBS Swap Submission Package; (4) Upon Purchaser's review of the MBS Swap Submission Package and election to purchase such Mortgage Loans, such Seller shall remit the Repurchase Price to Purchaser and Purchaser shall assign, transfer and convey to such Seller all of Purchaser's right, title and interest in, to and under such Mortgage Loan, free and clear of all liens, pledges, charges, claims, encumbrances or security interests of any nature; and (5) Purchaser shall remit the purchase price to such Seller pursuant to, and to the extent provided for under, the terms of the MBS Swap Purchase Program and such Seller shall assign, transfer and convey to Purchaser pursuant to the UBSRES Purchase Program all of such Seller's right, title and interest in, to and under such Mortgage Loan, free and clear of all liens, pledges, charges, claims, encumbrances or security interests of any nature. The payment of funds pursuant to clauses (4) and (5) above shall be netted. 20 (b) With respect to any Wet Mortgage Loan or Dry Mortgage Loan, if the related Seller has provided Purchaser with an MBS Swap Funding Program Selection Notice and such Seller, subsequent to such delivery and subsequent to the Scheduled Repurchase Date for such Mortgage Loan, provides Purchaser with a Conversion Loan Purchase Detail and a corresponding Conduit Submission Package, then Purchaser may elect a remedy pursuant to Section 7 and may retroactively apply an Incremental Pass-Through Rate for such Mortgage Loan for the period from the Scheduled Repurchase Date through one day prior to the Repurchase Date. (c) With respect to each Mortgage Loan, on either the Scheduled Collateral Receipt Date or the Scheduled Repurchase Date, if the related Seller has not satisfied the requirements of this Agreement or Purchaser has elected not to purchase such Mortgage Loan: (i) the Pass-Through Rate shall increase by the Incremental Pass-Through Rate; (ii) such Seller shall remit the Repurchase Price to Purchaser and Purchaser shall assign, transfer and convey to such Seller all of Purchaser's right, title and interest in, to and under such Mortgage Loan, free and clear of all liens, pledges, charges, claims, encumbrances or security interests of any nature; and (iii) upon receipt of the Repurchase Price and such Seller's Delivery Instructions from such Seller, Purchaser shall direct Custodian to deliver the Dry Submission Package or Conduit Submission Package related to such Mortgage Loan pursuant to such Seller's Delivery Instructions. Section 4. Terms of Each Transaction. (a) The obligations of the parties hereto shall, with respect to each Transaction, begin on a Purchase Date and terminate on the Repurchase Date or on the satisfaction by the related Seller of its obligations pursuant to Section 7. (b) The terms and conditions of each Transaction, including, without limitation, the Purchase Date, the Scheduled Repurchase Date, the Mortgage Loan subject thereto, the Purchase Price, the Pass-Through Rate, the Incremental Pass-Through Rate, the Scheduled Collateral Receipt Date for Wet Fundings only, the Custodial Fee and, if applicable, the Wire Fee, shall be set forth in the related Funding Confirmation. Each Funding Confirmation shall be deemed to be controlling as to the related terms and provisions of the purchase of a Mortgage Loan, absent manifest error, without regard to any other oral or written communication between Purchaser and the related Seller with respect to the purchase of such Mortgage Loan. With respect to the purchase or repurchase of a Mortgage Loan, in the event of any conflict between the terms and the provisions of this Agreement and the terms and provisions of the related Funding Confirmation, the terms and provisions of the related Funding Confirmation will prevail over the terms and provisions of this Agreement. Section 5. Cash Account. 21 (a) The Sellers hereby authorize and direct Purchaser to create a separate Cash Account for the Sellers. The Cash Account shall be held by Purchaser for the Sellers subject to the terms and conditions of this Agreement. Purchaser shall notify the Sellers, via electronic or facsimile transmission, of the Cash Account Balance on each Business Day when the Cash Account Balance is greater than zero and on each Business Day on which a Transaction occurs hereunder. (b) Purchaser shall credit the Cash Account for (i) any deposits therein by the related Seller upon such Seller's written direction pursuant to a Withdrawal/Deposit Notice, (ii) any amounts due the related Seller and payable by Purchaser under any UBSRES Purchase Program to the extent not otherwise netted as described in Section 3 of this Agreement, (iii) any Supplemental Amount for any of the Sellers' Mortgage Loans upon the refunding to Purchaser of the Disbursement Amount for such Mortgage Loan by the Escrow Agent upon any failure to apply the Disbursement Amount in connection with the proposed funding of such Mortgage Loan, (iv) any credit pursuant to a Cash Account Adjustment, (v) any Cash Account Interest Accruals and (vi) any deposits by the Sellers pursuant to Section 7 hereof. (c) Purchaser shall debit the Cash Account for (i) any withdrawals therefrom by the Sellers upon written direction pursuant to a Withdrawal/Deposit Notice from each Seller, (ii) any amounts due Purchaser and payable by the Sellers under any UBSRES Purchase Program, (iii) the Supplemental Amount for any Mortgage Loan upon payment of the Disbursement Amount for such Mortgage Loan to the Escrow Agent in accordance with Section 2(b)(2), Section 2(c)(1) and Section 2(d)(2), (iv) any debit pursuant to a Cash Account Adjustment and (v) any Wire Fees. (d) Upon termination of this Agreement and payment in full of all obligations owing by the related Seller hereunder, under the Custodial Agreement and under the Electronic Tracking Agreement, Purchaser shall remit to the Sellers the Cash Account Balance. Section 6. Servicing of the Mortgage Loans. (a) It is expressly acknowledged that the Servicing Rights relating to each Mortgage Loan purchased by Purchaser hereunder have been or will be sold, assigned, and transferred by the related Seller to Purchaser along with such Mortgage Loan. The related Seller shall service and administer each Mortgage Loan on behalf of Purchaser on an interim basis in accordance with accepted and prudent mortgage loan servicing standards and procedures generally accepted in the mortgage banking industry for the same type of mortgage loans as the Mortgage Loans and in a manner at least equal in quality to the servicing such Seller provides for mortgage loans which it owns, provided that such Seller shall at all times comply with applicable law and the requirements of any applicable insurer or guarantor so that the insurance and any applicable guarantee in respect of any Mortgage Loan is not voided or reduced. The related Seller shall at all times maintain accurate and complete records of its servicing of each Mortgage Loan, and Purchaser may, at any time during such Seller's business hours, on reasonable notice, examine and make copies of such records. On the 2nd day of each calendar month, or at any other time upon Purchaser's request such Seller shall deliver to Purchaser reports regarding the status of each Mortgage Loan in accordance with Section 11(o) and Section 11(p), which shall include, with respect to any MERS Designated Mortgage Loan, MERS Reports, and any 22 circumstances that could materially adversely affect any such Mortgage Loan, Purchaser's ownership of any such Mortgage Loan or the collateral securing any such Mortgage Loan. The related Seller agrees and acknowledges that Purchaser may, at any time, terminate the servicing of the Mortgage Loans by such Seller and transfer servicing to another Person on such date as Purchaser may determine in its sole discretion. In the event that anything in this Agreement is interpreted as constituting one or more interim servicing contracts, each such servicing contract shall terminate automatically upon the earliest of (i) an Event of Default, (ii) the repurchase of a Mortgage Loan by the related Seller or (iii) the Purchaser's notice to the related Seller directing such Seller to transfer servicing (provided, such Seller's obligations as set forth herein to cooperate in the transfer of such servicing shall not terminate until such servicing has actually been transferred in full). (b) Within five Business Days of notice from Purchaser, or immediately upon notice if an Event of Default has occurred: (i) the Sellers shall establish and maintain a Custodial Account entitled "[name of Seller(s)], in trust for UBS Real Estate Securities Inc. and its assignees under the Amended and Restated Mortgage Loan Repurchase Agreement dated as of the date of this Agreement" and shall promptly deposit into the Custodial Account, in the form received with any necessary endorsements, all collections received in respect of each Mortgage Loan that are payable to Purchaser as the owner of each such Mortgage Loan; and (ii) at the Purchaser's sole option, upon written notice from the Purchaser, the related Seller shall transfer servicing of its Mortgage Loans to a successor servicer designated by the Purchaser. (c) Amounts deposited in the Custodial Account with respect to any Mortgage Loan shall be held in trust for Purchaser as the owner of such Mortgage Loan and shall be released only as follows: (i) All amounts deposited in the Custodial Account with respect to a Seller's Mortgage Loans shall be paid to such Seller upon the repurchase by such Seller of the related Mortgage Loans from Purchaser if, and to the extent that, the Repurchase Prices and all other amounts due and payable to Purchaser hereunder with respect to such Mortgage Loans have been paid. The amounts paid to such Seller (if any) pursuant to this Section 6(c)(i) shall constitute such Seller's sole compensation for servicing the Mortgage Loans as provided in this Section 6. (ii) If a Successor Servicer is appointed by Purchaser (either under the circumstances set forth in clause (b)(ii) above, Section 7 or otherwise), or if an Event of Default has occurred, all amounts deposited in the Custodial Account shall be paid to Purchaser promptly upon such delivery. (iii) During the period that the related Seller acts as Servicer, all amounts deposited in the Custodial Account shall be released only in accordance with Purchaser's written instructions. 23 (d) In the event the related Seller or its Affiliate is servicing the Mortgage Loans, such Seller shall permit the Purchaser to inspect such Seller's or its Affiliate's servicing facilities, as the case may be, for the purpose of satisfying the Purchaser that such Seller or its Affiliate, as the case may be, has the ability to service the Mortgage Loans as provided in this Agreement. (e) If the servicer of the Mortgage Loans is the related Seller or the Servicer is an Affiliate of such Seller, such Seller shall provide to Purchaser a letter from such Seller or such Affiliate, as the case may be, to the effect that upon 1 day's notice from Purchaser or immediately upon the occurrence of an Event of Default, Servicer's rights and obligations to service the Mortgage Loans shall terminate immediately, without any further notice or action by Purchaser and Servicer shall transfer servicing to Purchaser's designee, at no cost or expense to the Purchaser, it being agreed that such Seller will pay any and all fees required to terminate the Servicing Agreement and to effectuate the transfer of servicing to the designee of the Purchaser. Section 7. Remedies; Margin Deficits. (a) Upon the occurrence of an Event of Default, at the option of Purchaser exercised by written notice to the related Seller (which option shall be deemed to have been exercised even if no notice is given, immediately upon the occurrence of an Act of Insolvency with respect to such Seller or an Affiliate of such Seller), the Scheduled Repurchase Date for each Transaction of such Seller hereunder shall be, deemed immediately to occur and, upon exercise of such option, (i) such Seller's obligations hereunder to repurchase all of its Mortgage Loans shall thereupon become immediately due and payable, (ii) the Pass-Through Rate applicable to each such Mortgage Loan shall increase by the Incremental Pass-Through Rate, (iii) all amounts then or thereafter held in the Custodial Account and the Cash Account shall be retained by Purchaser and applied to the aggregate unpaid Repurchase Prices owed by such Seller and to any other amounts owing by such Seller hereunder or under the Custodial Agreement and (iv) Purchaser may at any time on the Business Day following notice to Seller (which notice may be the notice given above of an Event of Default), (A) immediately sell, without demand or further notice of any kind, at a public or private sale and at such price or prices as Purchaser may deem satisfactory, any or all of such Mortgage Loans and apply the proceeds thereof (net of any expenses of sale) to the aggregate unpaid Repurchase Prices and any other amounts owing by such Seller hereunder or under the Custodial Agreement or (B) in its sole discretion elect, in lieu of selling all or a portion of such Mortgage Loans, to give such Seller credit for such Mortgage Loans in an amount equal to the price therefor on such date, obtained from a generally recognized source or the most recent closing bid quotation from such a source, against the aggregate unpaid Repurchase Prices and any other amounts owing by Seller hereunder or under the Custodial Agreement, and in either case upon the determination and receipt by Purchaser of all such amounts owing by such Seller (including, without limitation, any unpaid fees, expenses, legal fees and expenses of Purchaser's counsel or other amounts owing to Purchaser under this Agreement, the Electronic Tracking Agreement or the Custodial Agreement), Purchaser shall transfer any remaining portion of such Mortgage Loans and proceeds thereof to either (1) such Seller, if in Purchaser's reasonable judgment such Seller is legally entitled thereto, (2) such other entity as is in Purchaser's reasonable judgment legally entitled thereto or (3) if Purchaser cannot determine in its judgment the entity entitled thereto, a court of competent jurisdiction; provided that such Seller shall be liable for any deficiency if the 24 proceeds of any sale or other disposition of the Mortgage Loans and any amounts applied from the Custodial Account and the Cash Account are insufficient to pay all amounts to which Purchaser is entitled hereunder. (b) If any Mortgage Loan becomes a Defective Mortgage Loan prior to the Repurchase Date, the Pass-Through Rate applicable to such Defective Mortgage Loan shall increase by the Incremental Pass-Through Rate, and Purchaser, at its election, may immediately accelerate the Scheduled Repurchase Date and require that the related Seller, upon receipt of such election, immediately repurchase such Defective Mortgage Loan by remitting to Purchaser (in immediately available funds in accordance with Purchaser's Wire Instructions) the Repurchase Price for such Defective Mortgage Loan. (c) If the related Seller fails to comply with its obligations in the manner described in Section 7(b) or under the Electronic Tracking Agreement or if the Purchaser delivers notice to such Seller pursuant to Section 6(a) or 6(b) hereof such Seller's rights and obligations to interim service Mortgage Loans, as provided in this Agreement, shall terminate. If any such event occurs, such Seller's rights and obligations to service the Mortgage Loans, as provided in this Agreement, shall terminate immediately, without any further notice or action by Purchaser. Upon any such termination, Purchaser is hereby authorized and empowered to sell and transfer such rights to service the Mortgage Loans for such price and on such terms and conditions as Purchaser shall determine in its sole discretion. The related Seller does not have any right to and shall not attempt to sell or transfer the Servicing Rights or any rights incident thereto without the prior consent of the Purchaser, which may be withheld in Purchaser's sole discretion. In the event of any servicing transfer, the related Seller shall perform all acts and take all action so (i) that the Mortgage Loans and all files and documents relating to such Mortgage Loans held by such Seller, together with all escrow amounts relating to such Mortgage Loans, are delivered to a Successor Servicer, (ii) all applicable laws and regulations relating to the servicing of the Mortgage Loans and any transfer of the such servicing with respect thereto are complied with in all respects, including, without limitation all provisions of RESPA, the Truth in Lending Act and other applicable laws and (iii) with respect to all MERS Designated Mortgage Loans, the "Servicer" and all other relevant fields in the MERS(R) System are modified to reflect the Successor Servicer, where applicable. To the extent that the approval of any other insurer or guarantor is required for any such sale or transfer, the related Seller shall fully cooperate with Purchaser to obtain such approval. Upon exercise, by Purchaser of its remedies under this Section 7(c), the related Seller hereby authorizes Purchaser to receive all amounts paid by any purchaser of such rights to service the Mortgage Loans and to remit such amounts to such Seller subject to Purchaser's rights of set-off under this Agreement. (d) Each Mortgage Loan required to be delivered to a Successor Servicer by Section 7(c) shall be delivered free of any Servicing Rights in favor of the related Seller and free of any title, interest, lien, encumbrance or claim of any kind of such Seller, and such Seller shall deliver or cause to be delivered all files and documents relating to each Mortgage Loan held by such Seller to a Successor Servicer. The related Seller shall promptly take such actions and furnish to Purchaser such documents that Purchaser deems necessary or appropriate to enable Purchaser to cure any defect in each such Mortgage Loan or to enforce such Mortgage Loans, as appropriate. 25 (e) Each Seller agrees to indemnify and hold Purchaser and its assigns harmless for and against all Losses resulting from or relating to any Event of Default related to such Seller. (f) No election by Purchaser pursuant to this Section 7 shall relieve the related Seller of responsibility or liability for any breach of or under this Agreement. (g) Each Seller and its Affiliates hereby grant Purchaser and its Affiliates a right of set-off, to secure the payment of any amounts that may be due and payable to Purchaser from such Seller, such right to be upon any and all monies or other property of such Seller and its Affiliates held or received by Purchaser and its Affiliates, or due and owing from Purchaser and its Affiliates to such Seller and its Affiliates. (h) If at any time the aggregate Asset Value of the Mortgage Loans is less than the aggregate Purchase Price for all such Mortgage Loans (a "Margin Deficit"), then Purchaser may by notice to the Sellers (as such notice is more particularly set forth below, a "Margin Deficit Notice"), accelerate the Scheduled Repurchase Date for the Mortgage Loans or require the Sellers to deposit into the Cash Account an amount (which amount may be deposited in the form of United States treasury obligations approved by the Purchaser) equal to the Margin Deficit so that the aggregate Asset Value of the Mortgage Loans, including any such amounts deposited into the Cash Account, will thereupon equal or exceed the aggregate Asset Value. If Purchaser delivers a Margin Deficit Notice to the Sellers on or prior to 10:00 a.m. (New York City time) on any Business Day, then the Sellers shall repurchase the specified Mortgage Loans or deposit an amount equal to the Margin Deficit into the Cash Account no later than 5:00 p.m. (New York City time) on such Business Day. In the event Purchaser delivers a Margin Deficit Notice to the Sellers after 10:00 a.m. (New York City time) on any Business Day, then such Margin Deficit Notice shall be deemed to have been delivered on the following Business Day and the Sellers shall be required to repurchase the specified Mortgage Loans or deposit an amount equal to the Margin Deficit into the Cash Account no later than 5:00 p.m. (New York City time) on such subsequent Business Day. Section 8. Transfer of Mortgage Loan by Purchaser. Purchaser may, in its sole discretion, grant or assign a security interest in any Mortgage Loan sold by the related Seller hereunder and all rights of Purchaser under this Agreement, the Electronic Tracking Agreement and/or the Custodial Agreement, in respect of such Mortgage Loan to Assignee, subject only to an obligation on the part of Assignee to deliver each such Mortgage Loan to Purchaser to permit Purchaser or its designee to make delivery thereof to such Seller on the Repurchase Date. It is anticipated that such assignment to Assignee will be made by Purchaser, and each Seller hereby irrevocably consents to such assignment. No notice of such assignment shall be given by Purchaser to any Seller. Assignment by Purchaser of the Mortgage Loans as provided in this Section 8 shall not release Purchaser from its obligations otherwise under this Agreement. Without limitation of the foregoing, an assignment of a Mortgage Loan to Assignee, as described in this Section 8, shall be effective upon delivery to Assignee of a Dry Submission Package. 26 Section 9. Record Title to Mortgage Loans; Intent of Parties; Security Interest. (a) From and after the delivery of the related Submission Package, and subject to the remedies of Purchaser set forth in Section 7, the related Seller shall remain the named payee or endorsee of each related Mortgage Note and the mortgagee or assignee of record of each Mortgage (except with respect to a MERS Designated Mortgage Loan) in trust for the benefit of Purchaser, for the sole purpose of facilitating the servicing of such Mortgage Loan. (b) Each Seller shall maintain a complete set of books and records for each of its Mortgage Loans which shall be clearly marked to reflect the ownership interest in each Mortgage Loan of Purchaser and with respect to each MERS Designated Mortgage Loan, such Seller shall designate the Purchaser as the Investor and Interim Funder on the MERS(R) System. (c) Purchaser and each Seller confirm that the Transactions contemplated herein are intended to be sales of the Mortgage Loans by such Seller to Purchaser rather than borrowings secured by the Mortgage Loans. In the event, for any reason, any Transaction is construed by any court or regulatory authority as a borrowing rather than as a sale, each Seller and Purchaser intend that Purchaser or Assignee, as the case may be, shall have a perfected first priority security interest in the Collateral, free and clear of adverse claims. In such case, such Seller shall be deemed to have hereby granted to Purchaser or Assignee, as the case may be, a first priority security interest in and lien upon the Collateral, free and clear of adverse claims. In such event, this Agreement shall constitute a security agreement, the Custodian shall be deemed to be an independent custodian for purposes of perfection of the security interest granted to Purchaser or Assignee, as the case may be, and Purchaser or Assignee, as the case may be, shall have all of the rights of a secured party under applicable law. The related Seller shall, not later than the date of the first purchase of a Mortgage Loan by Purchaser under this Agreement, deliver to Purchaser a UCC-1 Financing Statement containing a description of collateral in the form attached hereto in Exhibit I. Section 10. Representations and Warranties. (a) Each Seller hereby represents and warrants to Purchaser as of the date hereof and as of the date of each delivery of a Submission Package that: (i) Such Seller is duly organized, validly existing and in good standing under the laws of the state of its organization or of the United States of America and has all licenses necessary to carry on its business as now being conducted and is licensed, qualified and in good standing to do business in each jurisdiction in which it is legally required to do so. Such Seller has all requisite power and authority (including, if applicable, corporate power) to execute and deliver this Agreement, the Electronic Tracking Agreement and the Custodial Agreement and to perform in accordance herewith and therewith; the execution, delivery and performance of this Agreement, the Electronic Tracking Agreement and the Custodial Agreement (including all instruments of transfer to be delivered pursuant to this Agreement, the Electronic Tracking Agreement and the Custodial Agreement) by such Seller and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized. Each of this 27 Agreement, the Electronic Tracking Agreement and the Custodial Agreement evidences the valid, binding and enforceable obligation of such Seller and all requisite action (including, if applicable, corporate action) has been taken by such Seller to make this Agreement, the Electronic Tracking Agreement and the Custodial Agreement valid and binding upon such Seller in accordance with its terms; (ii) No approval of the transactions contemplated by this Agreement, the Electronic Tracking Agreement or the Custodial Agreement from the OTS, the NCUA, the FDIC or any similar federal or state regulatory authority having jurisdiction over Seller is required, or if required, such approval has been obtained. The transfers, assignments and conveyances provided for herein and therein are not subject to the bulk transfer or any similar statutory provisions in effect in any applicable jurisdiction; (iii) The consummation of the transactions contemplated by this Agreement, the Electronic Tracking Agreement and the Custodial Agreement are in the ordinary course of business of Seller and will not result in the breach of any term or provision of the charter, by-laws or other organizational document of Seller or result in the breach of any term or provision of, or conflict with or constitute a default under or result in the acceleration of any obligation under, an agreement, indenture or loan or credit agreement or other instrument to which Seller or its property is subject, or result in the violation of any law, rule, regulation, order, judgment or decree to which Seller or its property is subject; (iv) This Agreement, the Custodial Agreement, the Electronic Tracking Agreement and every document to be executed by Seller pursuant hereto and thereto is and will be valid, binding and a subsisting obligation of Seller, enforceable in accordance with its respective terms. No consents or approvals are required to be obtained by Seller or its Parent Company for the execution, delivery and performance of this Agreement, the Electronic Tracking Agreement or the Custodial Agreement by Seller; (v) All information relating to Seller that Seller has delivered or caused to be delivered to Purchaser, including, but not limited to, all documents related to this Agreement, the Electronic Tracking Agreement, the Custodial Agreement or Seller's financial statements, and all such information hereafter furnished by Seller, does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made therein or herein in light of the circumstances under which they were made, not misleading. Seller has disclosed in writing any and all facts relating to Seller that materially and adversely affect or may affect the business operations or financial condition of Seller or the ability of Seller to perform its obligations under this Agreement, the Electronic Tracking Agreement or the Custodial Agreement; (vi) There are no actions, suits or proceedings pending, or to the knowledge of Seller threatened, including any claims for which an action, suit or proceeding has not been commenced, against or affecting Seller or any of its assets in any court or before any arbitrator or before any governmental commission, board, bureau or other administrative agency that, in any such case, if adversely determined, would have a 28 material adverse effect on the financial condition or business of Seller or the ability of Seller to perform under this Agreement, the Electronic Tracking Agreement, each Funding Confirmation and the Custodial Agreement; (vii) Seller and its Subsidiaries have filed all Federal income tax returns and all other material tax returns that are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by it or any of its Subsidiaries, except for any such taxes as are being appropriately contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves have been provided. The charges, accruals and reserves on the books of Seller and its Subsidiaries in respect of taxes and other governmental charges are, in the opinion of Seller, adequate; (viii) Neither Seller nor any of its Subsidiaries is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended; (ix) Upon the filing of financing statements on Form UCC-1 naming Purchaser as "Secured Party", Seller as "Debtor" and describing the Mortgage Loans, in the jurisdictions and recording offices listed on Exhibit V attached hereto, the security interests granted hereunder in the Mortgage Loans of Seller will constitute fully perfected security interests under the Uniform Commercial Code in all right, title and interest of Seller in, to and under such Mortgage Loans, which can be perfected by filing under the Uniform Commercial Code; (x) As of the date hereof, and during the four months immediately preceding the Effective Date, Seller's chief executive office, is, and has been located at 520 Broadhollow Road, Melville, New York 11747. As of the date hereof, Seller's jurisdiction of organization is as follows: American Home Mortgage Investment Corp., Maryland, American Home Mortgage Acceptance, Inc., Maryland, American Home Mortgage Holdings, Inc., Delaware, American Home Mortgage Corp., New York, and/or Columbia National, Incorporated, Maryland; (xi) the aggregate consolidated Tangible Net Worth of the Parent Company is not less than $75,000,000; (xii) Seller (and each servicer) is approved by GNMA as an approved issuer, Fannie Mae as an approved lender, Freddie Mac as an approved seller/servicer (as the case may be) and by FHA as an approved mortgagee and by VA as an approved VA lender, in each case in good standing (such collective approvals and conditions, "Agency Approvals"), with no event having occurred or Seller (or any subservicer) having any reason whatsoever to believe or suspect will occur prior to the purchase of the Mortgage Loan by the related Agency, including without limitation a change in insurance coverage which would either make Seller (or any servicer) unable to comply with the eligibility requirements for maintaining all such Agency Approvals or require notification to the relevant Agency or to HUD, FHA or VA. Should Seller (or any servicer), for any reason, cease to possess all such Agency Approvals, or should notification to the relevant Agency 29 or to HUD, FHA or VA be required, Seller shall so notify Purchaser immediately in writing. Notwithstanding the preceding sentence, Seller shall take all necessary action to maintain all of its (and each servicer's) Agency Approvals at all times during the term of this Agreement. Seller (and any servicer) has adequate financial standing, servicing facilities, procedures and experienced personnel necessary for the sound servicing of mortgage loans of the same types as may from time to time constitute Mortgage Loans and in accordance with Accepted Servicing Practices; (xiii) The Custodian is an eligible custodian under the Agency Guide and Agency Program; and (xiv) As of the date hereof, with respect to the Original Repurchase Agreement, no Event of Default (as defined therein) has occurred and is continuing and the Original American Home Parties are not in default with respect to any of such Original American Home Parties' obligations thereunder. (b) With respect to each Mortgage Loan as of the related Purchase Date, the related Seller hereby represents and warrants that the Mortgage Loan has been originated with 30 days of the date such Mortgage Loan was first sold to Purchaser hereunder and such Seller hereby makes each representation, warranty and covenant set forth on Schedule 1 hereto. (c) Each Seller hereby represents and warrants to Purchaser as of the date hereof and as of each Purchase Date, (i) with respect to the Escrow Agent Wire Instructions, the Seller received such instructions on the letterhead of the Escrow Agent and such instructions are true and correct and (ii) such Seller has inserted the Closing Instruction Letter Insert in each Closing Instruction Letter for all Wet Fundings and Dry Fundings structured as Closing Transactions. (d) Each Seller hereby represents and warrants to Purchaser as of the date hereof and as of each Purchase Date, with respect to each related Wet Funding or Dry Funding structured as a Closing Transaction, an insured closing letter from each Escrow Agent that is not a title insurance company is included in the Credit File and such Seller shall promptly, upon request of Purchaser, send to Purchaser (i) a copy of any such insured closing letter and (ii) a complete list of all Escrow Agents such Seller has approved to act as an Escrow Agent. (e) Each of American Home Mortgage Investment Corp. and American Home Mortgage Acceptance, Inc. hereby represents, warrants and covenants to Purchaser that it is a REIT Seller and it has not engaged in any material "prohibited transactions" as defined in Section 857(b)(6)(B)(iii) and (C) of the Code. Each REIT Seller for its current "tax year" (as defined in the Code) is entitled to a dividends paid deduction under the requirements of Section 857 of the Code with respect to any dividends paid by it with respect to each such year for which it claims a deduction in its Form 1120-REIT filed with the United States Internal Revenue Service for such year. The representations and warranties of each Seller in this Section 10 and Schedule 1 hereto are unaffected by and supersede any provision in any endorsement of any 30 Mortgage Loan or in any assignment with respect to such Mortgage Loan to the effect that such endorsement or assignment is without recourse or without representation or warranty. Section 11. Covenants of the Sellers. Each Seller hereby covenants and agrees with Purchaser as follows: (a) Such Seller shall deliver to Purchaser; UBS Real Estate Securities Inc., 1285 Avenue of the Americas, 11th Floor, New York, New York 10019, Attention: Peter Chudy and Bill Boak: (i) Within 120 days after the end of each fiscal year of such Seller, consolidated balance sheets of such Seller and its consolidated subsidiaries and the related consolidated statements of income showing the financial condition of such Seller and its consolidated subsidiaries as of the close of such fiscal year, consolidated statement of cash flows, as of the close of such fiscal year, setting forth, in each case, in comparative form the corresponding figures for the preceding year, all the foregoing consolidated financial statements to be reported on by, and to carry the report (acceptable in form and content to Purchaser) of an independent public accountant of national standing acceptable to Purchaser; (ii) Within 45 days after the end of each of the first two months of each fiscal quarter of such Seller, unaudited consolidated balance sheets and consolidated statements of income, all to be in a form acceptable to Purchaser, showing the financial condition and results of operation of such Seller and its consolidated subsidiaries on a consolidated basis as of the end of each such month and for the then elapsed portion of the fiscal year, setting forth, in each case, in comparative form the corresponding figures for the corresponding periods of the preceding fiscal year, certified by a financial officer of such Seller (acceptable to Purchaser) as presenting fairly the financial position and results of operations of such Seller and its consolidated subsidiaries and as having been prepared in accordance with generally accepted accounting principles consistently applied, in each case, subject to normal year-end audit adjustments; (iii) Promptly upon receipt thereof, a copy of each other report submitted to such Seller by its independent public accountants in connection with any annual, interim or special audit of such Seller; (iv) Promptly upon becoming aware thereof, notice of (1) the commencement of, or any determination in, any legal, judicial or regulatory proceedings where damages, fines, penalties and/or other claims could reasonably be expected to be or are in excess of $250,000 (x) against such Seller or Parent Company or (y) where injunctive or other equitable relief is sought against such Seller or Parent Company, (2) any dispute between such Seller or its Parent Company and any governmental or regulatory body where damages, fines, penalties and/or other claims could reasonably be expected to be or are in excess of $250,000 (x) against such Seller or Parent Company or (y) where injunctive or other equitable relief is sought against such Seller or Parent Company, (3) any event or condition, which, in any case of (1) or (2), if adversely determined, would have a material adverse effect on (A) the validity or enforceability of 31 this Agreement, (B) the financial condition or business operations of such Seller, or (C) the ability of such Seller to fulfill its obligations under this Agreement or (4) any material adverse change in the business, operations, prospects or financial condition of such Seller, including, without limitation, an Act of Insolvency with respect to such Seller or any Affiliate of such Seller; (v) Promptly upon becoming available, copies of all financial statements, reports, notices and proxy statements sent by its Parent Company, such Seller or any of such Seller's consolidated subsidiaries in a general mailing to their respective stockholders and of all reports and other material (including copies of all registration statements under the Securities Act of 1933, as amended) filed by any of them with any securities exchange or with the Securities and Exchange Commission or any governmental authority succeeding to any or all of the functions of said Commission; (vi) Promptly upon becoming available, copies of any press releases issued by its Parent Company or such Seller and copies of any annual, quarterly and monthly financial reports and any reports on Form H-(b)12 which its Parent Company or such Seller may be required to file with the OTS or the RTC or comparable reports which a Parent Company or such Seller may be required to file with the FDIC or any other federal banking agency containing such financial statements and other information concerning such Parent Company's or such Seller's business and affairs as is required to be included in such reports in accordance with the rules and regulations of the OTS, the RTC, the FDIC or such other banking agency, as may be promulgated from time to time; (vii) Promptly upon becoming available, copies of any reports any REIT Seller may be required to file with the Internal Revenue Service; (viii) Such supplements to the aforementioned documents and such other information regarding the operations, business, affairs and financial condition of its Parent Company, such Seller or any of such Seller's consolidated subsidiaries as Purchaser may request; (ix) Prior to the date of any purchase of a Mortgage Loan by Purchaser hereunder, a copy of (1) the articles of incorporation, certificate of formation or other organizational documents of such Seller and any amendments thereto certified by the Secretary of State, Comptroller of Currency, Internal Revenue Service or similar official of such Seller's jurisdiction of organization, (2) a copy of such Seller's by-laws, operating agreement or other internal governing documents, together with any amendments thereto, (3) a copy of the resolutions adopted by such Seller's Board of Directors or a similar governing body authorizing such Seller to enter into this Agreement, the Electronic Tracking Agreement and the Custodial Agreement and authorizing one or more of such Seller's officers to execute the documents related to this Agreement, the Electronic Tracking Agreement and the Custodial Agreement, (4) a certificate of incumbency and signature of each officer of such Seller executing any document in connection with this Agreement, the Electronic Tracking Agreement and the Custodial Agreement; (5) a certificate reflecting each Authorized Signatory of such 32 Seller, in the form of Exhibit N hereto and (6) one or more opinions of counsel to such Seller, substantially in the form of Exhibit U hereto; and (x) A Covenant Compliance Letter, substantially in the form of Exhibit X hereto, within 45 days after the end of each of the first eleven calendar months of each fiscal year, within 60 days after the end of each of the first three fiscal quarters of each fiscal year and within 120 days after the end of each fiscal year. (b) Such Seller will be solvent at all relevant times prior to, and will not be rendered insolvent by, any sale of a Mortgage Loan to Purchaser. (c) Such Seller will not sell any Mortgage Loan to Purchaser with any intent to hinder, delay or defraud any of such Seller's creditors. (d) Such Seller shall comply, in all material respects, with all laws, rules and regulations to which it is or may become subject. (e) Such Seller shall not move its chief executive office from the address referred to in Section 10 or change its jurisdiction of organization unless it shall have provided Purchaser thirty (30) days' prior written notice of such change. (f) Such Seller shall pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its Property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained. (g) Such Seller shall, upon request of Purchaser, promptly execute and deliver to Purchaser all such other and further documents and instruments of transfer, conveyance and assignment, and shall take such other action as Purchaser may require to more effectively transfer, convey, assign to and vest in Purchaser and to put Purchaser in possession of the property to be transferred, conveyed, assigned and delivered hereunder and otherwise to carry out more effectively the intent of the provisions under this Agreement. (h) Immediately upon notice of a lien or any circumstance which could give rise to a lien on the Mortgage Loans, such Seller will defend its Mortgage Loans against, and will take such other action as is necessary to remove, any lien, security interest or claim on or to such Mortgage Loans (other than any security interest created under this Repurchase Agreement), and such Seller will defend the right, title and interest of Purchaser in and to any of such Mortgage Loans against the claims and demands of all persons whomsoever. (i) If during the term of a Transaction, such Seller gains possession of a Submission Package that relates to the Transaction, such Seller shall hold such Submission Package in trust for Purchaser, immediately notify Purchaser of the specific Submission Package being held by such Seller and promptly deliver such Submission Package via overnight courier in accordance with Purchaser's instructions. 33 (j) Such Seller covenants and agrees to take all actions required of it in compliance with the terms of the Electronic Tracking Agreement. (k) The Parent Company shall maintain a consolidated Tangible Net Worth which shall be not less than the greater of (i) $75,000,000 measured on a quarterly basis (as at the end of each month) and (ii) (A) 85% of the consolidated Tangible Net Worth of such Parent Company at the end of the most recently completed fiscal year of such Parent Company plus (B) 50% of net proceeds from issuance of equity securities during such fiscal year plus (C) 50% of positive year to date consolidated net income. (l) [Reserved]. (m) Parent Company shall not permit, for any period of four consecutive calendar months (each such period, a "Test Period"), consolidated Net Income for such Test Period, before income taxes for such Test Period and distributions made during such Test Period, to be less than $1.00. (n) Such Seller shall, with respect to each Mortgage Loan, cause the paragraphs set forth on Exhibit S hereto to be inserted into each closing letter or other similar agreement with the Escrow Agent for such Mortgage Loan, and shall, upon the request of Purchaser, fax a copy of such closing letter to Purchaser prior to the closing of such Mortgage Loan. (o) Such Seller shall provide Purchaser with a monthly report, which report shall include, among other items, a summary of such Seller's delinquency and loss experience with respect to mortgage loans serviced by such Seller, any Servicer or any designee of either, with respect to any MERS Designated Mortgage Loan, MERS Reports, plus any such additional reports as Purchaser may reasonably request with respect to such Seller's or any Servicer's servicing portfolio or pending originations of mortgage loans. Such Seller shall not cause the Mortgage Loans to be serviced by any servicer other than a servicer expressly approved in writing by Purchaser. (p) On the second Business Day of each month, such Seller shall furnish to Purchaser or shall cause the Servicer to furnish to Purchaser, a remittance report, in hard copy and electronic format acceptable to Purchaser, containing information regarding funds collected during the prior calendar month. This report shall contain the following information: (i) Mortgage Loan number; (ii) Note Rate; (iii) Remittances allocable to principal and interest; (iv) Paid through date; (v) Mortgage Loan balance; (vi) Delinquency status; 34 (vii) Whether the Mortgaged Property is in foreclosure or has become an real state owned property; (viii) Whether any Mortgagor is the subject of any bankruptcy action; and (ix) Any other information that Purchaser may reasonably request. (q) Such Seller covenants and agrees that it will not (1) consolidate or merge or enter into any analogous reorganization or transaction with any Person, unless such other Person is an Affiliate of Seller or is engaged in the mortgage banking business and such Seller is the surviving entity; (2) liquidate, wind up or dissolve (or suffer any liquidation or dissolution); (3) cease actively to engage in the business of origination, acquiring or servicing Mortgage Loans or make any other material change in the nature or scope of the business in which such Seller engaged as of the date of this Agreement; (4) sell, assign, lease, convey, transfer or otherwise dispose of (whether in one transaction or a series of transactions) all or any substantial part of such Seller's business or assets, whether now owned or acquired after the date of this Agreement and without the prior written consent of the Purchaser (except in the ordinary course of business or except in a transaction or series of transactions between two or more Sellers); (5) acquire by purchase or in any other transaction all or substantially all of the business or property of, or stock or other ownership interests of, any Person, without the prior written consent of the Purchaser; (6) change its jurisdiction of organization, without the prior written consent of the Purchaser; nor (7) permit any subsidiary of such Seller to do or to take any of the foregoing actions. (r) Each REIT Seller covenants and agrees that it shall at all times continue to be (i) qualified as a real estate investment trust as defined in Section 856 of the Code for so long as the Board of Directors deems it in the best interests of the stockholders of such REIT Seller to remain so qualified and (ii) entitled to a dividends paid deduction under Section 857 of the Code with respect to dividends paid by it with respect to each taxable year for which it claims a deduction on its Form 1120 - REIT filed with the United States Internal Revenue Service for such year, or the entering into by any REIT Seller of any material "prohibited transactions" as defined in Sections 857(b) and 856(c) of the Code. After the occurrence and during the continuation of any monetary default or any default that results in the acceleration or required prepayment of any indebtedness pursuant to the terms of this Agreement or any other agreement between a Seller and Purchaser, no Seller shall make any payment on account of, or set apart assets for, a sinking or other analogous fund for the purchase, redemption, defeasance, retirement or other acquisition of any equity or partnership interest of such Sellers, whether now or hereafter outstanding, or make any other distribution in respect of any of the foregoing or to any shareholder or equity owner of such Seller, either directly or indirectly, whether in cash or property or in obligations of such Seller or any of such Seller's consolidated Subsidiaries. 35 Section 12. Periodic Due Diligence. (a) Each Seller acknowledges that Purchaser has the right to perform continuing due diligence reviews with respect to the Mortgage Loans, for purposes of verifying compliance with the representations, warranties and specifications made hereunder, or otherwise, and each Seller agrees that upon reasonable (but no less than one (1) Business Day's) prior notice to such Seller, Purchaser or its authorized representatives will be permitted during normal business hours to examine, inspect, and make copies and extracts of, the Mortgage Files and any and all documents, records, agreements, instruments or information relating to any Mortgage Loans in the possession or under the control of Seller and/or the Custodian. Each Seller shall make available to Purchaser a knowledgeable financial or accounting officer for the purpose of answering questions respecting the Mortgage Loans. Without limiting the generality of the foregoing, each Seller acknowledges that Purchaser may purchase Mortgage Loans from such Seller based solely upon the information provided by such Seller to Purchaser in the Closing Loan Purchase Detail or Rewarehousing Loan Purchase Detail, as applicable, and the representations, warranties and covenants contained herein, and that Purchaser, at its option, has the right at any time to conduct a partial or complete due diligence review on some or all of the Mortgage Loans purchased by Purchaser, including without limitation ordering new credit reports and new appraisals on the related Mortgaged Properties and otherwise re-generating the information used to originate such Mortgage Loan. Purchaser may underwrite such Mortgage Loans itself or engage a mutually agreed upon third party underwriter to perform such underwriting. Each Seller agrees to cooperate with Purchaser and any third party underwriter in connection with such underwriting, including, but not limited to, providing Purchaser and any third party underwriter with access to any and all documents, records, agreements, underwriting reports, instruments or information relating to such Mortgage Loans in the possession, or under the control, of such Seller. All such due diligence conducted in accordance with this Section 12 shall be at the expense of the related Seller. (b) Without limiting the generality of the foregoing, each Seller acknowledges that upon demand by Purchaser, the related Seller shall deliver within five Business Days copies of the Closing Instruction Letters reflecting the addition of the Closing Instruction Letter Insert for all Wet Fundings and Dry Fundings structured as Closing Transactions closed prior to the date of such demand. Each Seller acknowledges Purchaser is authorized to contact any Escrow Agent or any other person who has delivered a Closing Instruction Letter in connection with any Wet Funding or Dry Funding in order to confirm the information contained in such Closing Instruction Letter. Section 13. Third Party Servicing. If the Mortgage Loans are serviced by a third party servicer (such third party servicer, the "Servicer"), the related Seller (i) shall provide a copy of the servicing agreement to Purchaser, which shall be in form and substance acceptable to Purchaser (the "Servicing Agreement"); (ii) shall provide a Servicer Notice to the Servicer substantially in the form of Exhibit W hereto; and (iii) hereby irrevocably assigns to Purchaser and Purchaser's successors and assigns all right, title, interest of such Seller in, to and under, and the benefits of, any Servicing Agreement with respect to the Mortgage Loans. Any successor to the Servicer shall be approved in writing by Purchaser prior to such successor's assumption of servicing obligations with respect to the Mortgage Loans. 36 Section 14. Confidentiality. Each Seller hereby acknowledges and agrees that (i) all written or computer-readable information provided by Purchaser to such Seller regarding Purchaser and (ii) the terms of this Agreement (the "Purchaser Confidential Information"), shall be kept confidential and each of their respective contents will not be divulged to any party without Purchaser's consent except to the extent that (i) such Seller deems appropriate to do so in working with legal counsel, auditors, taxing authorities or other governmental agencies or regulatory bodies or in order to comply with any applicable federal or state laws, (ii) any portion of Purchaser Confidential Information is in the public domain other than due to a breach of this covenant, (iii) such Seller deems appropriate in connection with exercising any or all of Seller's rights or remedies or complying with any obligations under this Agreement. Section 15. Term. This Agreement shall continue in effect until terminated as to future transactions between the related Seller and Purchaser by written instruction signed by either such Seller or Purchaser and delivered to the other, provided that no termination will affect the obligations hereunder as to any outstanding Transaction. Section 16. Exclusive Benefit of Parties; Assignment. This Agreement is for the exclusive benefit of the parties hereto and their respective successors and assigns and shall be deemed to give any legal or equitable right to any other person, including the Custodian. Except as provided in Section 7, no rights or obligations created by this Agreement may be assigned by any party hereto without the prior written consent of the other parties. Section 17. Amendments; Waivers; Cumulative Rights. This Agreement may be amended from time to time only by written agreement of the Sellers and Purchaser. Any forbearance, failure or delay by such party in exercising any right, power or remedy hereunder shall not be deemed to be a waiver thereof, and any single or partial exercise by Purchaser of any right, power or remedy hereunder shall not preclude the further exercise thereof. Every right, power and remedy of Purchaser shall continue in full force and effect until specifically waived by Purchaser in writing. No right, power or remedy shall be exclusive, and each such right, power or remedy shall be cumulative and in addition to any other right, power or remedy, whether conferred hereby or hereafter available at law or in equity or by statute or otherwise. Section 18. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. Section 19. Effect of Invalidity of Provisions. In case any one or more of the provisions contained in this Agreement should be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or therein shall in no way be affected, prejudiced or disturbed thereby. Section 20. 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 LAW RULES. Section 21. Notices. Any notices, consents, elections, directions and other communications given under this Agreement shall be in writing and shall be deemed to have 37 been duly given when telecopied or delivered by overnight courier to, personally delivered to, or on the third day following the placing thereof in the mail, first class postage prepaid to, the respective addresses set forth on the cover page hereof for the Sellers and Purchaser, or to such other address as either party shall give notice to the other parties pursuant to this Section 21. Notices to Assignee shall be given to such address as Assignee shall provide to the related Seller in writing. Section 22. Entire Agreement. This Agreement, the Funding Confirmations and the Custodial Agreement contain the entire agreement among the parties hereto with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements among them, oral or written, of any nature whatsoever with respect to the subject matter hereof. Section 23. Costs of Enforcement. In addition to any other indemnity specified in this Agreement, in the event of a breach by Seller of this Agreement or the Custodial Agreement. Seller agrees to pay the reasonable attorneys fees and expenses of Purchaser and, when applicable, Assignee incurred in the enforcement of the Agreement as a consequence of such breach. Section 24. Purchaser's Appointment as Attorney-In-Fact(a) . Each Seller hereby irrevocably constitutes and appoints Purchaser and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Seller and in the name of such Seller or in its own name, from time to time in Purchaser's discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be reasonably necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, such Seller hereby gives Purchaser the power and right, on behalf of such Seller, without assent by, but with notice to, such Seller, to do the following: in the name of such Seller, or in its own name, or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any mortgage insurance or with respect to any other Mortgage Loans and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by Purchaser for the purpose of collecting any and all such moneys due under any such mortgage insurance or with respect to any other Mortgage Loans whenever payable; (b) to pay or discharge taxes and liens levied or placed on or threatened against the Mortgage Loans; (c) (A) to direct any party liable for any payment under any Mortgage Loans to make payment of any and all moneys due or to become due thereunder directly to Purchaser or as Purchaser shall direct; (B) to ask or demand for, collect, receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Mortgage Loans; (C) to sign and endorse any invoices, assignments, verifications, notices and other documents in connection with any Mortgage Loans; (D) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Mortgage Loans or any proceeds thereof and to enforce any other right in respect of any Mortgage Loans; (E) to defend any suit, action or proceeding 38 brought against such Seller with respect to any Mortgage Loans; (F) to settle, compromise or adjust any suit, action or proceeding described in clause (E) above and, in connection therewith, to give such discharges or releases as Purchaser may deem appropriate; and (G) generally, to sell, transfer, pledge and make any agreement with respect to or otherwise deal with any Mortgage Loans as fully and completely as though Purchaser were the absolute owner thereof for all purposes, and to do, at Purchaser's option and such Seller's expense, at any time, and from time to time, all acts and things which Purchaser deems necessary to protect, preserve or realize upon the Mortgage Loans and Purchaser's liens thereon and to effect the intent of this Agreement, all as fully and effectively as such Seller might do; (d) to direct the actions of Custodian with respect to the Mortgage Loans under the Custodial Agreement; and (e) to execute, from time to time, in connection with any sale provided for in Section 7, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Mortgage Loans. Each Seller hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable. The powers conferred on Purchaser hereunder are solely to protect Purchaser's interests in the Mortgage Loans and shall not impose any duty upon it to exercise any such powers. Purchaser shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither it nor any of its officers, directors, employees or agents shall be responsible to any Seller for any act or failure to act hereunder, except for its or their own gross negligence or willful misconduct. Section 25. Submission to Jurisdiction; Waivers. EACH SELLER HEREBY IRREVOCABLY AND UNCONDITIONALLY: (1) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS REPURCHASE AGREEMENT AND THE OTHER REPURCHASE DOCUMENTS, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF; (2) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING 39 WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME; (3) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO ITS ADDRESS SET FORTH ON THE COVER PAGE HERETO OR AT SUCH OTHER ADDRESS OF WHICH PURCHASER SHALL HAVE BEEN NOTIFIED; (4) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION; AND (5) SELLER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS REPURCHASE AGREEMENT, ANY OTHER DOCUMENT RELATING THERETO OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. Section 26. Construction. The headings in this Agreement are for convenience only and are not intended to influence its construction. References to Sections and Exhibits in this Agreement are to the Sections of and Exhibits to this Agreement. The Exhibits and Schedules to this Agreement are part of this Agreement, and are incorporated herein by reference. The singular includes the plural, the plural the singular, and the words "and" and "or" are used in the conjunctive or disjunctive as the sense and circumstances may require. 40 Section 27. Effect of Amendment and Restatement. Upon the execution of this Agreement by all parties hereto and the delivery of the opinion required by Section 11(a)(ix), the Original Repurchase Agreement shall be amended, restated and superseded in its entirety by this Agreement. The parties hereto acknowledge and agree that (a) the liens and security interests granted under the Original Repurchase Agreement are in full force and effect and, upon the amendment and restatement of the Original Repurchase Agreement and the related documents, such liens and security interests secure and continue to secure the payment and performance of Seller's obligations under this Agreement and the related documents, and (b) upon the effectiveness of such amendment and restatement, all outstanding Mortgage Loans under, and as defined in, the Original Repurchase Agreement, shall be deemed to be outstanding as Mortgage Loans hereunder mutatis mutandis, in each case on the terms and conditions set forth in this Agreement. Furthermore, the provisions of this Agreement shall relate back to and shall govern all aspects of all sales of Mortgage Loans the Sellers to the Purchaser beginning December 18, 2003 pursuant to the repurchase facility. [SIGNATURES COMMENCE ON FOLLOWING PAGE] 41 IN WITNESS WHEREOF, Purchaser and the Sellers have duly executed this Agreement as of the date and year set forth on the cover page hereof. UBS REAL ESTATE SECURITIES INC. By: /s/ George A. Mangiaracina -------------------------------------- Name: George A. Mangiaracina Title: Managing Director By: /s/ Robert Carpenter -------------------------------------- Name: Robert Carpenter Title: Director AMERICAN HOME MORTGAGE INVESTMENT CORP. By: /s/ Michael Strauss -------------------------------------- Name: Michael Strauss Title: President AMERICAN HOME MORTGAGE ACCEPTANCE, INC. By: /s/ Michael Strauss -------------------------------------- Name: Michael Strauss Title: President AMERICAN HOME MORTGAGE HOLDINGS, INC. By: /s/ Michael Strauss -------------------------------------- Name: Michael Strauss Title: President AMERICAN HOME MORTGAGE CORP. By: /s/ Michael Strauss -------------------------------------- Name: Michael Strauss Title: President COLUMBIA NATIONAL, INCORPORATED By: /s/ Michael Strauss -------------------------------------- Name: Michael Strauss Title: President EX-10.5 6 am033104-ex10_5.txt AMENDED AND RESTATED MORTGAGE LOAN Exhibit 10.5 AMENDED AND RESTATED MORTGAGE LOAN CUSTODIAL AGREEMENT PURCHASER: UBS REAL ESTATE SECURITIES INC. ADDRESS: 1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019 ATTENTION: GEORGE A. MANGIARACINA TELEPHONE: (212) 713-3734 ATTENTION: ROBERT CARPENTER TELEPHONE: (212) 713-8749 CUSTODIAN: DEUTSCHE BANK NATIONAL TRUST COMPANY ADDRESS: 1761 EAST ST. ANDREW PLACE SANTA ANA, CALIFORNIA 92705-4934 ATTENTION: MORTGAGE CUSTODY- AH099C TELEPHONE: (714) 247-6000 FACSIMILE: (714) 247-6058 SELLER: AMERICAN HOME MORTGAGE INVESTMENT CORP. ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: STEPHEN A. HOZIE, CHIEF FINANCIAL OFFICER TELEPHONE: (516) 396-7700 SELLER: AMERICAN HOME MORTGAGE ACCEPTANCE, INC. ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: STEPHEN A. HOZIE, CHIEF FINANCIAL OFFICER TELEPHONE: (516) 396-7700 SELLER: AMERICAN HOME MORTGAGE HOLDINGS, INC. ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: STEPHEN A. HOZIE, CHIEF FINANCIAL OFFICER TELEPHONE: (516) 396-7700 SELLER: AMERICAN HOME MORTGAGE CORP. ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: MICHAEL STRAUSS, PRESIDENT TELEPHONE: (516) 396-7700 SELLER: COLUMBIA NATIONAL, INCORPORATED ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: MICHAEL STRAUSS, PRESIDENT TELEPHONE: (516) 396-7700 ATTENTION: STEPHEN A. HOZIE, CHIEF FINANCIAL OFFICER TELEPHONE: (516) 396-7700 DATE: FEBRUARY 6, 2004 ii TABLE OF CONTENTS Page ---- Section 1. Definitions ................................................... 2 Section 2. Delivery of Documents by Seller ............................... 9 Section 3. Custodian as Custodian for, and Bailee of, Purchaser, Assignee and Warehouse Lender ................................. 11 Section 4. Certification by Custodian; Delivery of Documents ............. 12 Section 5. [Reserved] .................................................... 15 Section 6. Default ....................................................... 15 Section 7. Access to Documents ........................................... 16 Section 8. Custodian's Fees and Expenses; Successor Custodian; Standard of Care .............................................. 16 Section 9. Assignment by Purchaser ....................................... 18 Section 10. Insurance ..................................................... 19 Section 11. Delivery of Submission Packages ............................... 19 Section 12. Representations, Warranties and Covenants ..................... 19 Section 13. No Adverse Interests .......................................... 21 Section 14. Amendments .................................................... 21 Section 15. Execution in Counterparts ..................................... 21 Section 16. Agreement for Exclusive Benefit of Parties; Assignment .................................................... 21 Section 17. Effect of Invalidity of Provisions ............................ 21 Section 18. GOVERNING LAW ................................................. 22 Section 19. Consent to Service ............................................ 22 Section 20. Notices ....................................................... 22 Section 21. Certification ................................................. 22 Section 22. Authorized Representatives .................................... 22 iii Section 23. Construction .................................................. 22 Section 24. Effect of Amendment and Restatement ........................... 23 Exhibit A Dry Submission Package Exhibit B-1 Cash Window Submission Package Exhibit B-2 Freddie Mac Document List Exhibit B-3 Fannie Mae Document List Exhibit B-4 Fannie Mae Bailee Letter Exhibit C-1 Conduit Submission Package Exhibit C-2 Conduit Bailee Letter Exhibit D Conversion Submission Packages Exhibit E Request for Certification Exhibit F Document Codes Exhibit G-1 Warehouse Lender's Release Exhibit G-2 Warehouse Lender's Wire Instructions Exhibit H-1 Seller's Release Exhibit H-2 Seller's Wire Instructions Exhibit I-1 Purchaser's Wire Instructions to Seller Exhibit I-2 Purchaser's Delivery Instructions to Custodian Exhibit J Notice by Assignee to Custodian of Purchaser's Default Exhibit K Limited Power of Attorney Exhibit L Unidentified Mortgage Loans List Exhibit M Form of Trust Receipt Exhibit N Form of Delivery Instructions Exhibit O Purchaser's Instructions to Custodian to Destroy Specified Files Exhibit P Form of Electronic Tracking Agreement Exhibit Q Authorized Representatives of Purchaser Exhibit R Authorized Representatives of Seller Exhibit S Authorized Representatives of Custodian Schedule A List of Conduits iv AMENDED AND RESTATED MORTGAGE LOAN CUSTODIAL AGREEMENT THIS AMENDED AND RESTATED MORTGAGE LOAN CUSTODIAL AGREEMENT ("Agreement"), dated as of the date set forth on the cover page hereof (as amended, supplemented or otherwise modified from time to time, "Agreement"), among UBS REAL ESTATE SECURITIES INC. ("Purchaser" or "UBSRES"), Deutsche Bank National Trust Company as Custodian (the "Custodian"), and the Sellers whose names are set forth on the cover page hereof (each a "Seller" and, collectively, the "Sellers"). RECITALS WHEREAS, the Purchaser; American Home Mortgage Holdings, Inc., American Home Mortgage Corp. and Columbia National, Incorporated (in such capacity, the "Original American Home Parties"); and the Custodian are parties to the Mortgage Loan Custodial Agreement, dated as of February 26, 1999 as amended, supplemented or otherwise modified prior to the date hereof (the "Original Custodial Agreement"); WHEREAS, in connection with the Original Custodial Agreement, (i) the Purchaser has agreed to purchase, from time to time, at its sole election from the Original American Home Parties, certain residential first mortgage loans pursuant to the terms and conditions of one or more Purchase Agreements (as defined therein) among Purchaser and the Original American Home Parties relating to Dry Transactions, Cash Window Transactions or Conduit Transactions (each as defined therein) and (ii) the Purchaser desired to have Custodian take possession of the Mortgage Notes (as defined therein) evidencing the Mortgage Loans (as defined therein), along with certain other documents specified therein, as the custodian for and bailee of Purchaser or Assignee (as defined therein) in accordance with the terms and conditions thereof; WHEREAS, the Purchaser, the Original American Home Parties and the Custodian desire to amend and restate the Original Custodial Agreement as provided herein; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree that the Original Custodial Agreement be amended and restated in its entirety as follows: PRELIMINARY STATEMENT Purchaser has agreed to purchase, from time to time, at its sole election from the related Seller, certain residential first mortgage loans pursuant to the terms and conditions of one or more Purchase Agreements among Purchaser, such Seller and the other parties thereto relating to Dry Transactions, Cash Window Transactions or Conduit Transactions. The related Seller is obligated to service the Mortgage Loans pursuant to the terms and conditions of the Purchase Agreements. Purchaser desires to have Custodian take possession of the Mortgage Notes evidencing the Mortgage Loans, along with certain other documents specified herein, as the custodian for and bailee of Purchaser or Assignee in accordance with the terms and conditions hereof. The parties hereto agree as follows: Section 1. Definitions. As used in this Agreement, the following terms shall have the following meanings: "Agency": Freddie Mac or Fannie Mae, as applicable. "Applicable Agency Documents": The documents listed on Exhibit B-2 or Exhibit B-3, as applicable. "Applicable Guide": With respect to each Takeout Investor the applicable guide published by such Takeout Investor setting forth the requirements each Mortgage Loan needs to satisfy in order to be eligible for purchase by such Takeout Investor, as such guide may be amended or supplemented from time to time. "Assignee": With respect to this Agreement and any Mortgage Loan, any assignee of the Purchaser pursuant to a pledge or rehypothecation of the Mortgage Loan. "Assignment of Mortgage": An assignment of the Mortgage, notice of transfer or equivalent instrument sufficient under the laws of the jurisdiction wherein the related Mortgaged Property is located to reflect of record the sale of a Mortgage Loan. "Bailee Letter": A Fannie Mae Bailee Letter or a Conduit Bailee Letter, as applicable. "Business Day": Any day other than (a) a Saturday, Sunday or other day on which banks located in the City of New York, New York or the city in which the office of the Custodian are authorized or obligated by law or executive order to be closed, or (b) any day on which UBS Real Estate Securities Inc. is closed for business, provided that notice thereof shall have been given not less than seven calendar days prior to such day. "Cash Window Submission Package": The documents listed on Exhibit B-1, which shall be delivered by the related Seller to Custodian in connection with each Cash Window Transaction. "Cash Window Transaction": A transaction initiated by Purchaser's delivery of a Request for Certification which identifies Fannie Mae or Freddie Mac as the Takeout Investor but does not include a Conversion Code. "Certification": With respect to a Mortgage Loan, the full performance by Custodian of the procedures set forth in Sections 4(a) and 4(b). "Certification Code": A Mortgage Loan Absentee Code, a Mortgage Loan Approval Code or a Mortgage Loan Suspension Code. "Certification Report": A Request for Certification to which Custodian has added its Certification Codes, and which is transmitted via electronic transmission by Custodian to Purchaser in an appropriate data layout provided by Purchaser. -2- "Commitment": A commitment executed by Takeout Investor and the related Seller on Takeout Investor's letterhead evidencing Takeout Investor's agreement to purchase one or more Mortgage Loans from such Seller and such Seller's agreement to sell one or more Mortgage Loans to an investor in a forward trade by the applicable Commitment Expiration Date. "Commitment Expiration Date": With respect to any Commitment, the expiration date thereof. "Conduit": Any of the Entities listed on Schedule A, as amended or supplemented from time to time. "Conduit Bailee Letter": The master bailee letter, in the form of Exhibit C-2, for use by Custodian in connection with the delivery of a Conduit Submission Package, provided, however, for the purposes of delivering the related Conduit Submission Package, excluding (i) a copy of the Commitment, (ii) the Warehouse Lender's Release or the related Seller's Release, as applicable, and (iii) the original Assignment of Mortgage, in blank, to a Conduit. "Conduit Submission Package": The documents listed on Exhibit C-1, which shall be delivered by a Seller to Custodian in connection with the related Conduit Transaction. "Conduit Transaction": A transaction initiated by Purchaser's delivery of a Request for Certification which identifies a Conduit as the Takeout Investor but does not include a Conversion Code. "Confirmation": A confirmation confirming a trade between the related Seller and Takeout Investor. "Conversion Code": With respect to a Mortgage Loan, the conversion code set forth in Part II of Exhibit F, entered by Purchaser, along with the Program Code, in the "PROG CODE" column of the related Request for Certification indicating that (i) such Mortgage Loan was previously acquired by Purchaser in a Dry Transaction and (ii) a Conversion Submission Package shall be received by Custodian on the applicable Delivery Date. "Conversion Submission Package": One of the sets of documents listed on Exhibit D, which shall be delivered by the related Seller to Custodian in connection with each Conversion Transaction. "Conversion Transaction": With respect to a Mortgage Loan, a transaction initiated by Purchaser's delivery to Custodian of a Request for Certification containing a Conversion Code. A Conversion Transaction shall always be preceded by a Dry Transaction. "Cumulative Position File": A list of all Mortgage Loans held by the Custodian on each day which includes all information which would be on the Custodian's Certification Report and additionally includes the shipping information for each Mortgage Loan which has been released from the Custodian's possession (i.e., airbill number, federal express tracking code or other identifying information). -3- "Custodian": Deutsche Bank National Trust Company, a national banking association, and its permitted successors hereunder. "Delivery Date": With respect to a Mortgage Loan, the date set forth on the related Request for Certification in the "DELIVERY DATE" column, which shall be the Business Day on which the related Seller desires the applicable portion of the related Submission Package be sent by Custodian to the Takeout Investor, i.e., one Business Day prior to the Business Day on which such Seller desires the applicable portion of the Submission Package to be received by the Takeout Investor. "Delivery Instructions": With respect to a Mortgage Loan, instructions prepared by the related Seller, in the form of Exhibit N indicating the address for the delivery by Custodian of the applicable portion of the related Submission Package. "Delivery Report": A report created by Custodian delivered to the related Seller which identifies any loans delivered to an approved Takeout Investor including the date delivered. "Dry Submission Package": The documents listed on Exhibit A, which shall be delivered by the related Seller to Custodian in connection with each Dry Transaction. "Dry Transaction": A transaction initiated by Purchaser's delivery to Custodian of a Request for Certification, which does not identify a Takeout Investor, and which does not include a Conversion Code. "Electronic Agent": The electronic agent identified in the Electronic Tracking Agreement. "Electronic Tracking Agreement": The Electronic Tracking Agreement substantially in the form set forth in Exhibit P hereto, dated as of the date hereof, among Participant, Sellers, MERSCORP, Inc. and Mortgage Electronic Registration Systems, Inc.; provided that if no Mortgage Loans are or will be MERS Designated Mortgage Loans, all references herein to the Electronic Tracking Agreement shall be disregarded. "Entity": Any individual, corporation, partnership, joint venture, association, joint stock company, trust (including any beneficiary thereof), unincorporated organization or government or any agency or political subdivision thereof. "Exception Code": Each of the exception codes set forth in Part III of Exhibit F, placed by Custodian on an Exception Report indicating missing documents, incomplete documents and deficiencies in documents reviewed by Custodian. "Exception Report": A list of document exceptions delivered by Custodian to Purchaser in accordance with the terms of this Agreement. "Expected Delivery Date": The date identified on a Request for Certification as the "Expected Delivery Date of Mortgage File", which shall be the date on which the related -4- Seller has informed Purchaser that a Submission Package will be received by Custodian from such Seller. "Fannie Mae": Fannie Mae and any successor thereto. "Fannie Mae Bailee Letter": The master bailee letter, in the form of Exhibit B-4, for use by Custodian in connection with the delivery to Fannie Mae of the Cash Window Submission Package, excluding (i) the original Assignment of Mortgage, in blank, (ii) the Warehouse Lender's Release or the related Seller's Release, as applicable, (iii) all modification agreements relating to a Mortgage, (iv) the Delivery Instructions and (v) a copy of the Commitment. "Fannie Mae Commitment": A commitment executed by Fannie Mae and the related Seller, evidencing Fannie Mae's agreement to purchase one or more Mortgage Loans from such Seller and such Seller's agreement to sell one or more Mortgage Loans to Fannie Mae by the applicable Commitment Expiration Date under the Applicable Guide. "Freddie Mac": Freddie Mac and any successor thereto. "Freddie Mac Commitment": A commitment executed by Freddie Mac and the related Seller evidencing Freddie Mac's agreement to purchase one or more Mortgage Loans from such Seller and such Seller's agreement to sell one or more Mortgage Loans to Freddie Mac by the applicable Commitment Expiration Date under the Applicable Guide. "HUD": United States Department of Housing and Urban Development and any successor thereto. "Interim Funder" shall mean with respect to each MERS Designated Mortgage Loan, the Person named on the MERS System as the interim funder pursuant to the MERS Procedures Manual. "Limited Power of Attorney": A limited power of attorney, in the form of Exhibit K, executed by the related Seller and delivered to Custodian, authorizing Custodian to complete Mortgage Note endorsements in the form indicated thereon. "Loan Identification Data": The applicable information regarding a Mortgage Loan, set forth on a Request for Certification, which shall include Purchaser's reference number, the name of Purchaser's applicable program, the Mortgage Loan number, the MERS Identification Number, the last name of the Mortgagor, the address of the Mortgaged Property, the face amount of the Mortgage Note, the number of months to maturity of the Mortgage Loan, and the interest rate borne by the Mortgage Note and, solely with respect to Cash Window Transactions, Conduit Transactions and Conversion Transactions, the name of the Takeout Investor, the sale price of the Mortgage Loan to the Takeout Investor, the commitment number, the Commitment Expiration Date, the Delivery Date, the Release Payment, and the name of the Warehouse Lender. "Losses": Any and all losses, claims, damages, liabilities or expenses (including reasonable attorney's fees) incurred by any person specified; provided however that "Losses" -5- shall not include losses, claims, damages, liabilities or expenses which would have been avoided had such person taken reasonable actions to mitigate such losses, claims, damages, liabilities or expenses. "MERS Designated Mortgage Loan" shall have the meaning assigned to such term in Section 3 of the Electronic Tracking Agreement, if any; provided that no Mortgage Loan shall be considered a MERS Designated Mortgage Loan unless an Electronic Tracking Agreement shall have been entered into. "MERS Identification Number" shall mean the eighteen digit number permanently assigned to each MERS Designated Mortgage Loan. "MERS Procedures Manual" shall mean the MERS Procedures Manual attached as Exhibit B to the Electronic Tracking Agreement, as it may be amended, supplemented or modified from time to time. "MERS Report" shall mean the schedule listing MERS Designated Mortgage Loans and other information prepared by the Electronic Agent pursuant to the Electronic Tracking Agreement. "MERS(R)System" shall mean the Electronic Agent's mortgage electronic registry system, as more particularly described in the MERS Procedures Manual. "Mortgage": A mortgage, deed of trust or other security instrument creating a first lien on an estate in fee simple in real property securing a Mortgage Note. "Mortgage Loan": A one-to-four family residential mortgage loan that is subject to this Agreement. "Mortgage Loan Absentee Code": The mortgage loan absentee code, set forth in Part III of Exhibit F, placed by Custodian on a Certification Report to notify Purchaser that a Submission Package related to a Mortgage Loan listed on a Request for Certification is not in Custodian's possession. "Mortgage Loan Approval Code": The mortgage loan approval code, set forth in Part III of Exhibit F, placed by Custodian on a Certification Report to notify Purchaser that Custodian's review of the applicable items in a Submission Package is complete and that such items satisfy all the applicable requirements set forth in Section 4(a) and Section 4(b). "Mortgage Loan Schedule": A listing prepared by Custodian, attached to the Trust Receipt of all Mortgage Loans Custodian has annotated with a Mortgage Loan Approval Code and that Purchaser has not communicated to Custodian its release of interest therein. "Mortgage Loan Suspension Code": The mortgage loan suspension code, set forth in Part III of Exhibit F, placed by Custodian on a Certification Report to notify Purchaser that Custodian's review of the Submission Package has determined that one or more of the documents in the Submission Package are missing, incomplete or incorrect and/or do not satisfy one or more of the requirements set forth in Section 4(a) or Section 4(b). -6- "Mortgage Note": The note or other evidence of the indebtedness of a Mortgagor secured by a Mortgage. "Mortgaged Property": The property subject to the lien of the Mortgage securing a Mortgage Note. "Mortgagor": The obligor on a Mortgage Note. "Notice of Bailment": A notice, in the form of Schedule A to Exhibit B-4 or C-2, as applicable, delivered by Custodian to Takeout Investor in connection with each delivery to Takeout Investor of the applicable portion of each Submission Package. "Original American Home Parties": Shall have the meaning assigned to such term in the recitals hereof. "Officer's Certificate": A certificate signed by the Chairman of the Board or the Vice Chairman of the Board or a President or a Vice President and by the Treasurer or the Secretary or one of the Assistant Treasurers or Assistant Secretaries of the applicable Seller, and delivered to the Purchaser or the Custodian, as the case may be, as required by this Agreement. "Original Custodial Agreement": Shall have the meaning assigned to such term in the recitals hereof. "Payee Number": The code used by Fannie Mae to indicate the wire transfer instructions that will be used by Fannie Mae to purchase a Mortgage Loan. "Person": Any individual, corporation, company, partnership, joint venture, voluntary association, joint stock company, trust (including any beneficiary thereof), limited liability company, unincorporated organization or government or any agency, instrumentality or political subdivision thereof. "Program Code": Each of the codes, set forth in Part I of Exhibit F, placed by the Purchaser in the "PROG CODE" column of a Request for Certification indicating that the Mortgage Loan is being offered by the related Seller to Purchaser in a Dry Transaction, Cash Window Transaction or a Conduit Transaction, as applicable. "Purchase Agreement": Each Amended and Restated Mortgage Loan Purchase Agreement, dated as of the date set forth on the cover page thereof, among the Sellers and Purchaser, as each is amended from time to time providing the terms of Dry Transactions, Cash Window Transactions, Conduit Transactions or Conversion Transactions. "Purchase Date": With respect to a Mortgage Loan, the date on which Purchaser purchases such Mortgage Loan from the related Seller. "Purchaser": UBS Real Estate Securities Inc. and its successors. "Purchaser's Payment": The amount set forth on the Request for Certification in the "RELEASE PAYMENT" column. -7- "Purchaser's Wire Instructions to Seller": The wire instructions, set forth on Exhibit I-1, specifying the account which shall be used for the payment of all amounts due and payable by the related Seller to Purchaser hereunder. "Release Payment": The funds referred to in a Warehouse Lender's Release or the related Seller's Release, as applicable. "Request for Certification": A report detailing Loan Identification Data supplied by the related Seller to Purchaser, transmitted by Purchaser to Custodian either via facsimile in the form of Exhibit E or transmitted electronically in an appropriate data layout, regarding all Mortgage Loans being offered for sale by such Seller to Purchaser on the Expected Delivery Date. "Re-warehouse Lender": Any lender providing financing to a correspondent of the related Seller in any fractional amount for the purpose of originating or purchasing Mortgage Loans, which lender has a security interest in such Mortgage Loans as collateral for the obligations of such correspondent to such lender; provided, however, that the Re-warehouse Lender shall not include Purchaser. "Re-warehouse Release Letter": A letter, which may take the form of a bailee letter, conditionally releasing all of Re-warehouse Lender's right, title and interest in certain Mortgage Loans identified therein upon receipt of payment by Re-warehouse Lender. "Seller": Shall have the meaning specified in the preamble hereof. "Sellers": Shall have the meaning specified in the preamble hereof. "Seller's Release": A letter, in the form of Exhibit H-1, delivered by the related Seller when no Warehouse Lender has an interest in a Mortgage Loan, conditionally releasing all of such Seller's right, title and interest in such Mortgage Loan upon receipt of payment by such Seller. "Seller's Wire Instructions": The wire instructions, set forth in a letter in the form of Exhibit H-2, to be used for the payment of funds to the related Seller when no Warehouse Lender has an interest in the Mortgage Loans to which such payment relates. "Submission Package": With respect to each Mortgage Loan, a Dry Submission Package, a Cash Window Submission Package, a Conduit Submission Package or a Conversion Submission Package, as applicable. "Successor Servicer": An entity designated by Purchaser, in conformity with the Purchase Agreement, to replace the related Seller as servicer for Purchaser, and, with respect to Cash Window Transactions, as seller/servicer of the Mortgage Loans for the Agency. "Takeout Investor": An Agency or a Conduit, as applicable. "Trust Receipt": A receipt of Custodian, substantially in the form of Exhibit M hereto, indicating that with respect to the Mortgage Loans listed on the attached Mortgage Loan -8- Schedule, the Custodian has performed the procedures set forth in Sections 4(a) and 4(b) hereof that it has received the Dry Submission Package, Cash Window Submission Package, or the Conduit Submission Package, as applicable, and that it is holding such documents as bailee and custodian of Purchaser. Any reference in this Agreement to a Trust Receipt shall include the attached Mortgage Loan Schedule. "Underwriter": Any party, including but not limited to a mortgage loan pool insurer, who underwrites a Mortgage Loan prior to its purchase by Purchaser. "Underwriter's Form": A Fannie Mae / Freddie Mac Form 1008/1077, HUD 92900WS, HUD92900.4, VA Form 26-6393, VA Form 26-1866, or a mortgage loan pool insurance certificate, as applicable, completed by an Underwriter with respect to a Mortgage Loan, indicating that such Mortgage Loan complies with its underwriting requirements. "Unidentified Mortgage Loans List": A list of Mortgage Loans for which Custodian has received the related Submission Packages from the related Seller but which have not been identified by Purchaser in a Request for Certification. Such list shall include, with respect to each Mortgage Loan, the information set forth in Exhibit L. "Warehouse Lender": Any lender providing financing to the related Seller in any fractional amount for the purpose of originating or purchasing Mortgage Loans, which lender has a security interest in such Mortgage Loans as collateral for the obligations of such Seller to such lender. In all Dry Transactions and Conversion Transactions, Purchaser shall be the Warehouse Lender. "Warehouse Lender's Release": A letter, in the form of Exhibit G-l, from a Warehouse Lender to Purchaser, conditionally releasing all of Warehouse Lender's right, title and interest in certain Mortgage Loans identified therein upon receipt of payment by Warehouse Lender. "Warehouse Lender's Wire Instructions": The wire instructions, set forth in a letter in the form of Exhibit G-2, from a Warehouse Lender to Purchaser, setting forth wire instructions for all amounts due and payable to such Warehouse Lender. Section 2. Delivery of Documents by Seller. (a) The related Seller may, before the first purchase by Purchaser under a Purchase Agreement of a Mortgage Loan, deliver to Custodian a Limited Power of Attorney; provided, however, Custodian shall have no responsibility or obligation to act under such Limited Power of Attorney. (b) If a Seller desires to engage in Cash Window Transactions, prior to the first such transaction: (1) relating to a Freddie Mac Commitment, such Seller shall deliver to Purchaser a copy of (i) Freddie Mac Form 1035 (Custodial Agreement), if applicable, duly executed by the related custodian and Freddie Mac, (ii) Freddie Mac Form 3 (Summary Agreement) or such other equivalent agreement as is acceptable to Purchaser, duly executed by such Seller and Freddie Mac, and (iii) Freddie Mac Form 1 (Fixed-Rate Mortgage Purchase Contract Conventional Home Mortgages - Original Cash) or Freddie -9- Mac Form 9 (Fixed-Rate Mortgage Purchase Contract Conventional Home Mortgages - Gold Cash), or Freddie Mac Form 2 (Adjustable Rate Purchase Contract Conventional Home Mortgages); or (2) relating to a Fannie Mae Commitment, such Seller shall deliver to Purchaser a copy of (i) Fannie Mae Form 2003 (Custodial Agreement) if applicable, duly executed by the related custodian and Fannie Mae, (ii) Fannie Mae Mortgage Selling and Servicing Contract, and Fannie Mae Form 482 (Designation of Payee - Wire Transfer Information), and (iii) either a Standard Mandatory Delivery Commitment or a Negotiated Mandatory Delivery Commitment or a Negotiated Market-Rate Standby Commitment. (c) With respect to each Mortgage Loan being offered by such Seller for sale to Purchaser pursuant to a Purchase Agreement, such Seller shall deliver to Custodian a Submission Package on the Expected Delivery Date. In no event shall such Seller deliver to Custodian a Submission Package later than 11:00 a.m. New York City time on the related Expected Delivery Date. In addition, the Purchaser shall deliver, no later than 10:30 a.m. New York City time on the Expected Delivery Date, the Request for Certification in computer readable format. (d) With respect to each Mortgage Loan being offered by such Seller for sale to Purchaser pursuant to a Purchase Agreement, such Seller shall insure that Purchaser has received a Request for Certification no later than 6:00 p.m. New York City time on the Business Day immediately preceding the related Purchase Date, which shall be forwarded by Purchaser to Custodian. Further, such Seller shall insure that (i) Custodian shall be in possession of a Submission Package for each Mortgage Loan identified on a Request for Certification, (ii) with respect to Cash Window Transactions and Conduit Transactions, Purchaser is in possession of a Commitment and either a Warehouse Lender's Release or a Seller's Release from such Seller, as applicable, and (iii) with respect to Dry Transactions, Purchaser is in possession of a Warehouse Lender's Release, a Seller's Release from such Seller or a Re-warehouse Release Letter, as applicable, no later than 3:00 p.m. New York City time on the related Purchase Date. Upon receipt by Custodian of such Request for Certification, Custodian shall ascertain whether it is in possession of a Submission Package for each Mortgage Loan identified on a Request for Certification and shall certify, in accordance with Section 4(a) and Section 4(b) herein, each Submission Package and no later than 3:00 p.m. New York City time on the related Purchase Date, transmit via facsimile or electronic transmission to Purchaser the applicable Certification Code, if any. If Custodian is in possession of a Submission Package, and determines, pursuant to Section 4(a) and 4(b), that such Submission Package is complete, Custodian shall issue to Purchaser a Mortgage Loan Approval Code. If Custodian is not in possession of a Submission Package relating to a Mortgage Loan identified on a Request for Certification, or after the review pursuant to Section 4(a) and 4(b) Custodian determines that the Submission Package is incomplete, the Custodian shall notify the related Seller and shall issue to Purchaser a Mortgage Loan Absentee Code or Mortgage Loan Suspension Code respectively. Unless Purchaser notifies Custodian not later than 4:00 p.m. New York City time on the related Purchase Date of its intent not to purchase any of the Mortgage Loans, then not later than 5:30 p.m. New York City time on the related Purchase Date, Custodian shall issue the related Trust Receipt to Purchaser or the Assignee, by facsimile or electronic transmission. -10- (e) Not later than 4:30 p.m. New York City time on each Business Day, and within one Business Day after Purchaser's release of its interest in a Mortgage Loan, Purchaser shall deliver to Custodian via facsimile or electronic transmission a detailed listing of (i) all Mortgage Loans previously classified by Purchaser as Dry Transactions which have been reclassified by Purchaser as Cash Window Transactions or Conduit Transactions and (ii) any Mortgage Loans with respect to which Purchaser has released its interest. Custodian acknowledges that the delivery requirements for Mortgage Loans referenced in (i) above shall take effect on the next Business Day. The Custodian shall deliver to Purchaser on a daily basis, via facsimile or electronic transmission in a data layout agreed to by Purchaser and Custodian, a report detailing: (i) all Mortgage Loans that Custodian has certified with a Mortgage Loan Approval Code on all prior Purchase Dates that Purchaser has not communicated to Custodian its release of interest in, (ii) if the place of business of the Custodian appearing on the cover page hereof is not the collateral location of each Mortgage Loan appearing on such report, the date of shipment of each such Mortgage Loan to such other collateral location. Section 3. Custodian as Custodian for, and Bailee of, Purchaser, Assignee and Warehouse Lender. (a) With respect to each Mortgage Note, each Assignment of Mortgage (except with respect to MERS Designated Mortgage Loans) and all other documents constituting each Submission Package that are delivered to Custodian or that at any time come into Custodian's possession, Custodian, subject to the provisions of paragraphs (b) and (c) of this Section 3, shall act solely in the capacity of custodian for, and bailee of, Purchaser. Custodian shall, subject to the provisions of paragraphs (b) and (c) of this Section 3 and except as otherwise required by Section 4, hold all documents constituting a Submission Package received by it for the exclusive use and benefit of Purchaser, and shall make disposition thereof only in accordance with this Agreement. Custodian shall segregate and maintain continuous custody of all documents constituting a Submission Package received by it in secure and fire resistant facilities in accordance with customary standards for such custody and shall mark its books and records to indicate that the Submission Package is being held for Purchaser. (b) Purchaser hereby notifies Custodian that each Mortgage Loan purchased by Purchaser from the related Seller shall be promptly assigned by Purchaser to Assignee, as of the date of Purchase, as described in Section 9. Upon notice, in the form of Exhibit J, by Assignee to Custodian of Purchaser's default, Assignee may (i) require Custodian to act with respect to the related Submission Packages solely in the capacity of custodian for, and bailee of, Assignee, but nevertheless subject to and in accordance with the terms of this Agreement, (ii) require Custodian to hold such Submission Packages for the exclusive use and benefit of Assignee, (iii) assume the rights of Purchaser under this Agreement to furnish instructions to Custodian as to the disposition of such Submission Packages and such rights shall be exercisable solely by Assignee and (iv) take all such actions under the Electronic Tracking Agreement, if any, which are necessary to effectuate any of the foregoing. Custodian shall give Assignee written acknowledgment to the effect set forth in (i), (ii) and (iii), by executing such notice and returning a copy thereof to Assignee. In the event that, prior to receipt of such notice from Assignee, Custodian delivered any Submission Package to Purchaser, Takeout Investor or Purchaser's designee, Custodian shall so notify Assignee, and Custodian shall not be deemed to hold such Submission Package for Assignee unless and until such Submission Package is redelivered to Custodian. The failure of Custodian to give the written acknowledgment referred to above shall not affect the validity of such assignment, pledge or grant of a security interest. -11- The effects of Assignee's notice to Custodian set forth above shall continue until Custodian is otherwise notified in writing by Assignee. The terms of this Agreement shall not apply to any Submission Package physically delivered by Custodian to Assignee. (c) The related Seller and Purchaser acknowledge that Warehouse Lender, if any, identified from time to time in each Warehouse Lender's Release to be received by Custodian pursuant to Section 2(c), is a warehouse lender for such Seller. The related Seller and Purchaser acknowledge that, in accordance with the terms of each Warehouse Lender's Release to be received by the Custodian pursuant to Section 2(c), pursuant to which each such Warehouse Lender conditionally releases its security interest in the Mortgage Loan referred to in the related Warehouse Lender's Release, such release shall not be effective until the Release Payment is received in accordance with the Warehouse Lender's Wire Instructions. Until receipt of a Release Payment, the interest of the related Warehouse Lender in a Mortgage Loan shall continue and remain in full force and effect. (d) If any additional documents relating to the Submission Package come into the Custodian's possession, the provisions of paragraphs (a), (b) and (c) of this Section 3 shall apply to such additional documents in the same manner as such provisions apply to related Submission Package. (e) Purchaser shall notify Custodian on each Business Day, in writing of all Mortgage Loans purchased by Purchaser on such Business Day which relate to this Agreement. (f) On or prior to 7:00 p.m. New York time, Custodian shall deliver to Purchaser a Cumulative Position Report reflecting all Mortgage Loans held by Custodian as of such time under this Agreement. Section 4. Certification by Custodian; Delivery of Documents. (a) With respect to each Mortgage Loan that Purchaser desires to purchase, Purchaser shall deliver to Custodian a Request for Certification. Upon receipt by Custodian of a Request for Certification, Custodian shall perform the following procedures with respect to each Mortgage Loan listed on such Request for Certification: (i) Custodian shall ascertain whether it is in possession of a Submission Package for each Mortgage Loan identified on a Request for Certification. If Custodian is not in possession of a Submission Package relating to a Mortgage Loan identified on a Request for Certification, Custodian shall annotate its Certification Report in the appropriate space provided with a Mortgage Loan Absentee Code. If Custodian is in possession of Submission Packages delivered by the related Seller which do not relate to any of the Mortgage Loans listed on a Request for Certification, Custodian shall generate an Unidentified Mortgage Loans List and shall deliver such List promptly to Purchaser. Purchaser shall deliver a copy of such Unidentified Mortgage Loans List to such Seller. No action shall be taken by Custodian, other than in accordance with a notice in the form of Exhibit I-2 or Exhibit O, with respect to Mortgage Loans appearing on an Unidentified Mortgage Loans List until any such Mortgage Loans are included in a Request for Certification. -12- (ii) With respect to each Request for Certification Custodian shall: (A) verify the Loan Identification Data appearing in (1) the "LAST NAME" column by comparing such Loan Identification Data to the information in the Mortgage Note and Assignment of Mortgage, (2) the "NOTE DATE" (indicating any Mortgage Note with a date which is greater than 30 days prior with the appropriate exception code), "FACE AMOUNT", "# OF MONTHS TO MATURITY" and "NOTE RATE" columns by comparing such Loan Identification Data to the information in the Mortgage Note and (3) the "MERS IDENTIFICATION NUMBER" column by comparing such Loan Identification Data to the information in the Mortgage Note; (B) if the Program Code indicates a Cash Window Transaction, verify the Loan Identification Data appearing in the "LOAN #" column by comparing the related information in any of the related Applicable Agency Documents; (C) if the Program Code indicates a Cash Window Transaction, Conduit Transaction or Conversion Transaction, verify the Loan Identification Data appearing in the "TAKEOUT INVESTOR", "SALE PRICE", "COMMITMENT #", and "COMMITMENT EXPIRATION DATE" columns by comparing such Loan Identification Data to the information appearing in the Commitment; and (D) if the Program Code indicates a Cash Window Transaction or a Conduit Transaction, verify the Loan Identification Data appearing in the "WAREHOUSE LENDER" column by comparing such Loan Identification Data to the information appearing in the Warehouse Lender's Release or such Seller's Release, as applicable. After applying the applicable procedures set forth in clauses (A), (B) and (C) above, any discrepancies between the Loan Identification Data and documents comprising the Submission Package shall be noted by Custodian on the Exception Report. (b) With respect to each Request for Certification, following completion by Custodian of the procedures set forth in Section (4)(a). (i) Custodian shall review each applicable set of documents comprising the Submission Package and shall ascertain whether (A) each such document is in Custodian's possession, (B) each such document accurately conforms with the Loan Identification Data set forth in Section 4(a)(ii), (C) each such document appears regular on its face, (D) each such document in the Submission Package appears on its face to conform to the requirements of Exhibit A, Exhibit B-l, Exhibit C-1 or Exhibit F, as applicable, (E) unless the Program Code indicates either a Dry Transaction or a Conversion Transaction, the Mortgage Loan is listed on a schedule attached to a Warehouse Lender's Release or a Seller's Release from the related Seller, as the case may be, (F) either (1) if the Release Payment is a dollar amount, the amount appearing in the "RELEASE PAYMENT" column on the Request for Certification is equal to or -13- exceeds the Release Payment, or (2) if the Program Code indicates either a Dry Transaction or a Conversion Transaction, or if the Release Payment is a formula, as indicated in Exhibit G-1, the Custodian need not verify the amount, if any, appearing in the "RELEASE PAYMENT" column and (G) (1) with respect to the wire transfer instructions as set forth in Freddie Mac Form 987 (Wire Transfer Authorization for a Cash Warehouse Delivery) such wire transfer instructions are identical to Purchaser's Wire Instructions to the related Seller or (2) the Payee Number set forth on Fannie Mae Form 1068 (Fixed-Rate, Graduated-Payment, or Growing-Equity Mortgage Loan Schedule) or Fannie Mae Form 1069 (Adjustable-Rate Mortgage Loan Schedule), as applicable, is identical to the Payee Number that has been identified by Purchaser in the Request for Certification. (ii) If Custodian determines that the documents in the Submission Package and the Mortgage Loan to which they relate conform in all respects with Section 4(b)(i), Custodian shall so indicate in the space provided in its Certification Report with a Mortgage Loan Approval Code. If Custodian determines that the documents in a Submission Package and the Mortgage Loan to which they relate conform in all respects with Section 4(b)(i) except that the endorsement of the Mortgage Note is missing, Custodian may, but shall not be obligated to, prepare such endorsement pursuant to the Limited Power of Attorney. If documents in the Submission Package do not conform in all respects with Section 4(b)(i) or are missing and/or do not conform, Custodian shall indicate such on its Exception Report. (c) The Custodian shall have no obligation to provide a Certification Report with respect to (i) any Submission Package received after 11:00 a.m. (New York City time) or (ii) any Submission Packages delivered in excess of 100 Submission Packages without two (2) Business Days prior notice from the related Seller(s) (in any event not to exceed 175 Submission Packages) on any Expected Delivery Date. Provided that the Custodian has received the Submission Packages in accordance with clauses (i) and (ii) above, the Custodian shall prepare and deliver to Purchaser, by 3:00 p.m. (New York City time), the Certification Report. All applicable documents comprising a Submission Package relating to a Mortgage Loan with respect to which Custodian has assigned a Mortgage Loan Approval Code shall be delivered by Custodian in such reasonable order as Custodian may determine, via overnight courier in accordance with the Delivery Instructions on the applicable Delivery Date and under cover of a fully completed Bailee Letter prepared by Custodian. In those cases where a copy of any intervening mortgage assignment, or an unrecorded original of any intervening mortgage assignment are delivered to the Custodian, the related Seller shall cause the original of such instrument to be recorded. If Delivery Instructions direct Custodian to deliver a Submission Package to a location that is not a Takeout Investor's office as listed on Schedule A, which may be amended from time to time by Purchaser, Custodian must receive Purchaser's written consent to make deliveries to such location prior to complying with such Delivery Instructions. Upon receipt of one written approval from Purchaser, such written approval shall, unless Custodian receives a notice from Purchaser to the contrary, be deemed to apply to all Delivery Instructions delivered in the future by the related Seller that list such location. With respect to a Dry Transaction, Custodian must receive Purchaser's consent prior to making each and every delivery of a Dry Submission Package in accordance with the Delivery Instructions. Custodian shall deliver a Delivery Report to the related Seller and, upon request, to Purchaser by facsimile -14- or electronic transmission. Following delivery by Custodian of the applicable portion of a Submission Package to a Takeout Investor, and subsequent to Purchaser's communication to Custodian that the Mortgage Loan has been purchased by the Takeout Investor, all remaining documents comprising such Submission Package shall be held by Custodian for 120 (one hundred twenty) calendar days and then will be delivered by Custodian to the related Seller at such Seller's expense. If, on any Business Day, Custodian assigns a Mortgage Loan Suspension Code to any Submission Package, Custodian shall deliver to the related Seller, by facsimile or electronic transmission, a report detailing each such Suspension Package for which such Mortgage Loan Suspension Code was assigned. All applicable documents comprising a Submission Package relating to a Mortgage Loan with respect to which Custodian has assigned a Mortgage Loan Suspension Code shall be held by Custodian until receipt from the related Seller of instructions. On each Business Day during which a Mortgage Loan shall have a Mortgage Loan Suspension Code assigned to it, such Seller shall instruct Custodian as to the action, if any, Custodian should take with respect to such Mortgage Loan. (d) As outlined in Section 2(d), Custodian shall deliver to Purchaser or the Assignee, no later than 5:30 p.m. New York City time on the related Purchase Date, by facsimile transmission followed by overnight courier to Assignee, a Trust Receipt or Trust Receipts with respect to the Mortgage Loans listed on the Mortgage Loan Schedule(s) attached thereto. The Trust Receipt(s) will represent the Mortgage Loans for which the Custodian has issued a Mortgage Loan Approval Code on any Business Day less any Mortgage Loans as to which the Purchaser has notified Custodian that its interest has been released; provided, however, that the aggregate original principal balance of the Mortgage Loans listed on a Mortgage Loan Schedule shall not exceed an amount determined by Purchaser and agreed to by Custodian, which agreement will not be unreasonably withheld. Each Trust Receipt of a series, as identified by an alphanumeric number thereon, that is delivered by Custodian to Purchaser shall, upon such delivery, supercede and cancel any prior Trust Receipt of the same series. (e) At any time following the delivery of a Trust Receipt, in the event Custodian becomes aware of any defect with respect to such Submission Package or the related forms, including the return of documents to the Custodian from Takeout Investor due to a defect in such documents, the Custodian shall give prompt oral notice of such defect to the Purchaser, followed by a written specification thereof. Section 5. [Reserved]. Section 6. Default. If the related Seller fails to fulfill any of its obligations under the Purchase Agreement, the Electronic Tracking Agreement, if any, or hereunder or in connection with the exercise by Purchaser of any remedy pursuant to Section 3 of the Purchase Agreement then, subject to the provisions of Section 3(c) hereof, Purchaser may, by notice to Custodian and with its prior consent, (a) appoint Custodian as its delegee to complete the endorsements on the Mortgage Notes held by Custodian and to complete and record at Purchaser's expense the related blank Assignments of Mortgages relating to the affected Mortgage Loan in accordance with Purchaser's instructions, when applicable, (b) require Custodian to deliver to Purchaser, Takeout Investor or Successor Servicer the Submission -15- Packages (or any portion thereof specified by Purchaser) in Custodian's possession or under Custodian's control to which the failure relates, and (c) take such actions under the Electronic Tracking Agreement, if any, on behalf of the Purchaser as are necessary to effectuate the foregoing. Section 7. Access to Documents. Upon reasonable prior written notice to Custodian, Purchaser (and if the Mortgage Loans have been assigned, Assignee) and its agents, accountants, attorneys and auditors will be permitted during normal business hours at the Custodian's offices to examine and copy at their expense the Submission Packages, documents, records and other papers in possession of or under the control of Custodian relating to any or all of the Mortgage Loans in which Purchaser has an interest. Upon the request of Purchaser (or, if applicable, Assignee) and at the cost and expense of Purchaser (or, if applicable, Assignee), Custodian shall provide such Purchaser (or, if applicable, Assignee) with copies of the Mortgage Notes, Assignments of Mortgage and other documents in Custodian's possession relating to any of the Mortgage Loans in which Purchaser (or, if applicable, Assignee) has an interest. Section 8. Custodian's Fees and Expenses; Successor Custodian; Standard of Care. (a) It is understood that the Sellers will be charged for Custodian's fees for its services and shall reimburse Custodian for any expense it has incurred under this Agreement in such amounts and in the manner set forth in a separate letter agreement among Sellers and Custodian. Notwithstanding the foregoing, Custodian has no lien on, and shall not attempt to place a lien on, any of the Mortgage Loans or proceeds thereof to secure the payment of its fees. The obligations of each Seller under this Section 8(a) shall survive the resignation or removal of the Custodian hereunder and the termination of this Agreement. (b) Custodian may resign at any time and be discharged of the duties and obligations created by this Agreement by giving not less than sixty (60) days' written notice to Sellers and Purchaser. (c) Such resignation shall take effect upon the earlier of (i) the appointment of a successor Custodian by Purchaser and delivery of all the Submission Packages and any portion of the related documents in Custodian's possession to the successor Custodian, and (ii) the delivery of all the Submission Packages and any portion of the related documents in Custodian's possession to the Purchaser or its designee pursuant to (c) below. (d) In the event of any such resignation, Custodian shall promptly transfer to the successor Custodian all Submission Packages and related documents in Custodian's possession and the successor Custodian shall hold Submission Packages and related documents in accordance with this Agreement. Purchaser shall be responsible for all expenses associated with the transfer of the Submission Packages and any related documents in Custodian's possession and for any fee of the successor Custodian in excess of the fees of the initial Custodian hereunder. The Purchaser shall have 60 days in which to appoint and designate an acceptable successor Custodian. If the Purchaser fails to appoint a successor Custodian within such 60-day period, then Custodian shall deliver possession and custody of the Submission Packages and any related Submission Packages in Custodian's possession to Purchaser at the address specified on the cover page hereof, or if a timely written designation is received by Custodian, to any designee of Purchaser. -16- (e) Custodian shall have responsibility only for the Submission Packages and the contents thereof which have been actually delivered to it and which have not been released to the related Seller, Purchaser, the Agency or Assignee or their respective agent or designee in accordance with this Agreement. The standard of care to be exercised by Custodian in the performance of its duties under this Agreement shall be to exercise the same degree of care as Custodian exercises when it holds mortgage loan documents as security for similar mortgage warehouse loan customers. Custodian is an agent, bailee and custodian only and is not intended to be, nor shall it be construed to be (except only as agent, bailee and custodian), a representative, trustee or fiduciary of or for the related Seller, the Agency, Purchaser or Assignee. (f) Custodian shall incur no liability to any Entity for Custodian's acts or omissions hereunder, except for liabilities which (i) arise from Custodian's gross negligence or willful misconduct or (ii) solely with respect to the Purchaser, which arise from Custodian negligently or intentionally failing to (A) issue an accurate Certification Report; provided, however, any such liability shall not be incurred with respect to the issuance of an inaccurate Certification Report if the defect causing such inaccuracy would not have been ascertainable by the Custodian applying the procedures expressly set forth in this Agreement, (B) timely deliver the Submission Package in accordance with the Delivery Instructions or Purchaser's written instructions, as applicable, (C) prevent the loss, damage or destruction of any document included in a Submission Package when held by Custodian, (D) issue a Trust Receipt which applies to a Mortgage Loan with respect to which the procedures set forth in Section 4 hereof have not been completed by the Custodian in accordance with this Agreement, (E) include a Bailee Letter, including Purchaser's Wire Instructions, in the form of Exhibit I-1, in each Submission Package delivered to a Takeout Investor or a Dry Transaction Takeout Investor, as applicable or (F) include a Notice of Bailment, in the form of Schedule A to Exhibit B-4, including Purchaser's Wire Instructions, in each Submission Package delivered to Fannie Mae; provided, however, Custodian shall have no liability hereunder if Custodian's failure to perform resulted from the inaction or action of any other Entity, other than Entities that are affiliated with Custodian or are acting under the direct control of Custodian. Custodian's liability under this Agreement shall be limited to direct damages resulting from aforesaid. In addition Custodian shall not be liable, directly or indirectly, for (1) any losses, claims, damages, liabilities or expenses which would have been avoided had any Entity making a claim taken reasonable action to mitigate such losses, claims, damages, liabilities or expenses or (2) special, punitive or consequential damages, even if Custodian has been advised of the possibility of such damages; provided, however, that if Custodian's actions or inactions as set forth above result in a decline in the market value of a Mortgage Loan thereby causing direct damages to the Purchaser, such damages shall not be deemed special or consequential damages. (g) Custodian may consult with counsel and shall be entitled to conclusively rely upon the advice of its legal counsel from time to time and shall not be liable for any action or inaction by it in reliance upon such advice. Custodian also shall be entitled to conclusively rely upon any notice, document, correspondence, request or directive received by it from any Seller, Takeout Investor, Purchaser or Assignee, as the case may be, that Custodian believes to be genuine and to have been signed or presented by the proper and duly authorized officer or representative thereof, and shall not be obligated to inquire as to the authority or power of any -17- person so executing or presenting such documents or as to the truthfulness or correctness of any statements set forth therein. (h) Each Seller hereby jointly and severally indemnifies, defends and holds Custodian and its officers, directors, employees, representatives and agents harmless from and against any claim, legal action, liability, obligation, damages, penalty, judgment, suit or loss that is initiated against or incurred by Custodian, including court costs and reasonable attorneys' fees and disbursements, in connection with Custodian's performance of its duties under this Agreement, including those involving ordinary negligence, but excluding those involving gross negligence or willful misconduct of Custodian; such indemnification shall survive the resignation or removal of the Custodian hereunder and the termination of this Agreement. (i) Custodian undertakes to perform such duties and only such duties as are specifically set forth in this Agreement, it being expressly understood that there are no implied duties or obligations hereunder. (j) Custodian shall not be required by any provision of this Agreement to expend or risk its own funds in the performance of its duties under this Agreement if it shall have reasonable grounds for believing that repayment of such funds is not assured to it or indemnity satisfactory to it against such risk or liability. (k) Custodian may rely on the validity of documents and, to the extent permitted hereby, oral communications delivered to it, without investigation as to their authenticity or legal effectiveness and Sellers and Purchaser will jointly and severally hold the Custodian harmless from any claim which may arise or be asserted against the Custodian because of the invalidity of any such documents or oral communications or their failure to fulfill their intended purpose. (l) If the Custodian shall have at any time received conflicting instructions from the Purchaser or a Seller with respect to any of the Custodian's Submission Packages, and the conflict between such instructions cannot be resolved by reference to the terms of this Agreement, the Custodian shall be entitled to rely exclusively on the instructions of the Purchaser. (m) If Custodian requests written instructions from any Seller or Purchaser, as the case may be, with respect to any act, action or failure to act in connection with this Agreement, Custodian shall be entitled to refrain from taking such action unless and until Custodian receives written instructions from such Seller or Purchaser, as the case may be. Section 9. Assignment by Purchaser. Purchaser hereby notifies Custodian that Purchaser may assign, as of the date of the purchase of all of its right, title and interest in and to all Mortgage Loans purchased by Purchaser pursuant to the Purchase Agreement and all rights of Purchaser under the Purchase Agreement, this Agreement and the Electronic Tracking Agreement, if any, in respect of such Mortgage Loans represented thereby to Assignee, subject only to an obligation on the part of Assignee to deliver each such Mortgage Loan to Custodian or to Purchaser to permit Custodian, Purchaser or its designee to make delivery thereof to Takeout Investor, but not otherwise. Each Seller hereby irrevocably consents to such assignment. -18- Assignment by Purchaser of the Mortgage Loans as provided in this Section 9 shall not release Purchaser from its obligations otherwise under this Agreement. Subject to any limitations in any agreement between Assignee and Purchaser, Assignee may, upon notice of Purchaser's default as provided in Section 3(b) hereof, directly enforce and exercise such rights under this Agreement that have been assigned or pledged to it and, until otherwise notified by Assignee, Purchaser shall no longer have any of such rights. Custodian shall assume that any assignment from Purchaser to Assignee is subject to no limitations that are not expressly set forth in this Agreement. Section 10. Insurance. Custodian shall, at its own expense, maintain at all times during the existence of this Agreement such (a) fidelity insurance, (b) theft of documents insurance, (c) forgery insurance and (d) errors and omissions insurance as Custodian deems, from time to time appropriate. Section 11. Delivery of Submission Packages. Prior to any shipment of a Mortgage Loan hereunder, Custodian shall have received from the related Seller written instructions as to the method of shipment and shipper(s) the Custodian is directed to utilize in connection with the delivery of Submission Packages related to Mortgage Loans in the performance of the Custodian's duties hereunder. The applicable Seller shall select shipper(s) from a list of shippers, approved by both Custodian and Purchaser, provided by Purchaser to such Seller. Furthermore, the related Seller shall provide Custodian Delivery Instructions by 11:00 a.m. New York City time on the Delivery Date for same day shipment together with an electronic transmission of such delivery instructions. The applicable Seller will arrange for the provision of such services at its sole cost and expense (or, at the Custodian's option, reimburse the Custodian for all costs and expenses incurred by the Custodian consistent with such instructions) and will maintain such insurance against loss or damage to Submission Packages as the applicable Seller deems appropriate. It is expressly agreed that in no event shall the Custodian have any liability for any losses or damages to any person, including without limitation, the Sellers, arising out of actions of the Custodian consistent with instructions of the Seller (including, without limitation, losses or damages arising out of non-performance or faulty performance by a shipper). Any delivery of Submission Packages under this Agreement shall be by personal delivery, recognized courier delivery service, or registered or certified first class mail, postage prepaid, return receipt requested, as designated by the related Seller. In the event Custodian does not receive such written instructions, Custodian shall be authorized to use any nationally recognized courier service. In no event shall Custodian, without the prior consent of Purchaser, permit delivery to be made to any Seller or an agent of any Seller. Section 12. Representations, Warranties and Covenants. (a) By Custodian. Custodian hereby represents and warrants to, and covenants with, each Seller and Purchaser that, as of the date hereof and at all times while Custodian is performing services under this Agreement: (i) Custodian is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; and (ii) Custodian has the full power and authority to hold each Mortgage Loan and to execute, deliver and perform, and to enter into and perform its duties and -19- obligations as contemplated by, this Agreement, has duly authorized the execution, delivery and performance of this Agreement and has duly executed and delivered this Agreement, and this Agreement constitutes a legal, valid and binding obligation of Custodian, enforceable against it in accordance with its terms, except as the enforcement thereof may be limited by applicable receivership, conservatorship or similar debtor relief laws and except that certain equitable remedies may not be available regardless of whether enforcement is sought in equity or law. (b) By Seller. Each Seller hereby represents and warrants to, and covenants with, Custodian and Purchaser that, as of the date hereof and throughout the term of this Agreement: (i) Seller is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (ii) Seller has the full power and authority to hold each of its Mortgage Loans and to execute, deliver and perform, and to enter into and consummate all transactions contemplated by, this Agreement, has duly authorized the execution, delivery and performance of this Agreement and has duly executed and delivered this Agreement, and this Agreement constitutes a legal, valid and binding obligation of Seller, enforceable against it in accordance with its terms, except as the enforcement thereof may be limited by applicable receivership, conservatorship or similar debtor relief laws and except that certain equitable remedies may not be available regardless of whether enforcement is sought in equity or law; and (iii) As of the date hereof, with respect to the Original Custodial Agreement, no default has occurred and is continuing and the Original American Home Parties are not in default with respect to any of such Original American Home Parties' obligations thereunder. (c) By Purchaser. Purchaser hereby represents and warrants to, and covenants with, Custodian and the Sellers that, as of the date hereof and throughout the term of this Agreement: (i) Purchaser is acquiring the Mortgage Loans for its own account only and not for any other person; (ii) Purchaser considers itself a substantial, sophisticated institutional investor having such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of investment in the Mortgage Loans; (iii) Purchaser has been furnished with all information regarding the related Mortgage Loans that it has requested from the related Seller; (iv) Purchaser is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; and -20- (v) Purchaser has the full power and authority to hold each Mortgage Loan and to execute, deliver and perform, and to enter into and consummate all transactions contemplated by, this Agreement, has duly authorized the execution, delivery and performance of this Agreement and has duly executed and delivered this Agreement, and this Agreement constitutes a legal, valid and binding obligation of Purchaser, enforceable against it in accordance with its terms, except as the enforcement thereof may be limited by applicable receivership, conservatorship or similar debtor relief laws and except that certain equitable remedies may not be available regardless of whether enforcement is sought in equity or law. Section 13. No Adverse Interests. By its acceptance of each Submission Package, Custodian covenants and warrants to Purchaser that: (a) as of the date of payment by Purchaser of the Release Payment, Custodian, solely in its capacity as Custodian, holds no adverse interests, by way of security or otherwise, in the related Mortgage Loan and (b) Custodian hereby waives and releases any such interest in such Mortgage Loan which it, acting solely in its capacity as Custodian, has or which it may thereafter acquire prior to the time of release of such Mortgage Loan from the terms of this Agreement. Section 14. Amendments. This Agreement may be amended from time to time only by written agreement of each Seller, Purchaser and Custodian except that, if this Agreement shall have been assigned by Purchaser, no amendment shall be effective unless the amendment is also signed by Assignee. Purchaser shall give at least five (5) days' prior written notice to Assignee of any proposed amendment to this Agreement and shall furnish Assignee with a copy of each such amendment within five days after it is executed and delivered. Section 15. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. Section 16. Agreement for Exclusive Benefit of Parties; Assignment. This Agreement is for the exclusive benefit of the parties hereto and their respective successors and permitted assigns hereunder and shall not be deemed to give any legal or equitable right, remedy or claim to any other person whatsoever. This Agreement shall bind the parties hereto and their respective successors, but, except for the assignments provided in Sections 3(b) and 9, shall not be assigned or pledged by any party without the prior written consent of the other parties. Written notice from Assignee to Custodian (with a copy to Purchaser) that Purchaser has defaulted in any material respect under any funding or loan agreement relating to the financing of Purchaser's purchase of Mortgage Loans shall be conclusive for all purposes of this Agreement. Section 17. Effect of Invalidity of Provisions. In case any one or more of the provisions contained in this Agreement should be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or therein shall in no way be affected, prejudiced or disturbed thereby. -21- Section 18. 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. Section 19. Consent to Service. Each party irrevocably consents to the service of process by registered or certified mail, postage prepaid, to it at its address given in or pursuant to Section 19. This Agreement is subject to, and any dispute arising hereof will be determined by, a court of competent jurisdiction in and under the laws of the State of New York. Each of the parties hereto submit to the exclusive jurisdiction of the United States District Courts for the Southern District of New York and of any court sitting in the Borough of Manhattan, New York for the purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. Section 20. Notices. Any notices, consents, directions and other communications given under this Agreement shall be in writing and shall be deemed to have been duly given when delivered by facsimile or electronic transmission, or personally delivered at, or sent by overnight courier to the addresses of the parties hereto set forth on the cover page hereof or such other address as any party shall give in a notice to the other parties pursuant to this Section 20. Section 21. Certification. Custodian hereby acknowledges that each time it enters the Approval Code on a Request for Certification in the "Approval Code" column, it is making an express representation and warranty to Purchaser that it has performed the Certification as specified in Sections 4(a) and (b) with respect to the related Mortgage Loan. Custodian makes no representations as to, and shall not be responsible to verify: (i) the validity, legality, enforceability, recordability, sufficiency, due authorization or genuineness of any documents contained in each Submission Package identified on a Mortgage Loan Schedule, or (ii) the collectability, insurability, effectiveness or suitability of any such Mortgage Loan. Section 22. Authorized Representatives. Each individual designated as an authorized representative of Purchaser or its successors or assigns, each Seller and Custodian, respectively (an "Authorized Representative"), is authorized to give and receive notices, requests and instructions and to deliver certificates and documents in connection with this Agreement on behalf of Purchaser, such Seller and Custodian, as the case may be, and the specimen signature for each such Authorized Representative, initially authorized hereunder, is set forth on Exhibits Q, R and S hereof, respectively. From time to time, Purchaser, the Sellers and Custodian or their respective successors or permitted assigns may, by delivering to the others a revised annex, change the information previously given pursuant to this Section 22, but each of the parties hereto shall be entitled to rely conclusively on the then current annex until receipt of a superseding annex. Section 23. Construction. The headings in this Agreement are for convenience only and are not intended to influence its construction. References to Sections and Exhibits in -22- this Agreement are to the Sections of and Exhibits to this Agreement. The Exhibits are part of this Agreement. In this Agreement, the singular includes the plural, the plural the singular, and the words "and" and "or" are used in the conjunctive or disjunctive as the sense and circumstances may require. Section 24. Effect of Amendment and Restatement. Upon the execution of this Agreement and the Purchase Agreement by all parties hereto and thereto, the Original Custodial Agreement shall be amended, restated and superseded in its entirety by this Agreement. The parties hereto acknowledge and agree that (a) the liens and security interests granted under the Original Custodial Agreement are in full force and effect and, upon the amendment and restatement of the Original Custodial Agreement and the related documents, such liens and security interests secure and continue to secure the payment and performance of Seller's obligations under this Agreement and the related documents, and (b) upon the effectiveness of such amendment and restatement, all outstanding Mortgage Loans under, and as defined in, the Original Custodial Agreement, shall be deemed to be outstanding as Mortgage Loans hereunder mutatis mutandis, in each case on the terms and conditions set forth in this Agreement. [SIGNATURES COMMENCE ON FOLLOWING PAGE] -23- IN WITNESS WHEREOF, the Sellers, Purchaser and Custodian have caused this Agreement to be duly executed as of the date and year first above written. AMERICAN HOME MORTGAGE INVESTMENT CORP. By: /s/ Michael Strauss -------------------------------------- Name: Michael Strauss Title: President AMERICAN HOME MORTGAGE ACCEPTANCE, INC. By: /s/ Michael Strauss -------------------------------------- Name: Michael Strauss Title: President AMERICAN HOME MORTGAGE HOLDINGS, INC., as Seller By: /s/ Michael Strauss -------------------------------------- Name: Michael Strauss Title: President AMERICAN HOME MORTGAGE CORP., as Seller By: /s/ Michael Strauss -------------------------------------- Name: Michael Strauss Title: President COLUMBIA NATIONAL, INCORPORATED, as Seller By: /s/ Michael Strauss -------------------------------------- Name: Michael Strauss Title: President UBS REAL ESTATE SECURITIES INC., as Purchaser By: /s/ George A. Mangiaracina -------------------------------------- Name: George A. Mangiaracina Title: Managing Director By: /s/ Robert Carpenter -------------------------------------- Name: Robert Carpenter Title: Director DEUTSCHE BANK NATIONAL TRUST COMPANY, as Custodian By: /s/ Andrew Hays -------------------------------------- Name: Andrew Hays Title: Associate By: /s/ Jerome W. Harney -------------------------------------- Name: Jerome W. Harney Title: Vice President EX-10.6 7 am033104-ex10_6.txt AMENDED AND RESTATED MORTAGE LOAN Exhibit 10.6 AMENDED AND RESTATED MORTGAGE LOAN PARTICIPATION AGREEMENT PARTICIPANT: UBS REAL ESTATE SECURITIES INC. ADDRESS: 1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019 ATTENTION: GEORGE A. MANGIARACINA ATTENTION: ROBERT CARPENTER SELLER: AMERICAN HOME MORTGAGE INVESTMENT CORP. ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: STEPHEN A. HOZIE, CHIEF FINANCIAL OFFICER SELLER: AMERICAN HOME MORTGAGE ACCEPTANCE, INC. ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: STEPHEN A. HOZIE, CHIEF FINANCIAL OFFICER SELLER: AMERICAN HOME MORTGAGE HOLDINGS, INC. ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: STEPHEN A. HOZIE, CHIEF FINANCIAL OFFICER SELLER: AMERICAN HOME MORTGAGE CORP. ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: MICHAEL STRAUSS, PRESIDENT SELLER: COLUMBIA NATIONAL, INCORPORATED ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: MICHAEL STRAUSS, PRESIDENT ATTENTION: STEPHEN A. HOZIE, CHIEF FINANCIAL OFFICER DATE OF AGREEMENT: FEBRUARY 6, 2004 -ii- TABLE OF CONTENTS Page ---- Section 1. Definitions ................................................... 2 Section 2. Procedures for Purchases of Participation Certificates ........ 9 Section 3. Issuance of Securities ........................................ 10 Section 4. Servicing of the Mortgage Loans ............................... 13 Section 5. Takeout Commitments ........................................... 14 Section 6. Transfers of Participation Certificates and Securities by Participant ................................................... 15 Section 7. Record Title to Mortgage Loans; Intent of Parties; Security Interest ...................................................... 15 Section 8. Representations and Warranties ................................ 16 Section 9. Covenants of Sellers .......................................... 21 Section 10. Confidentiality ............................................... 25 Section 11. Term .......................................................... 25 Section 12. Exclusive Benefit of Parties; Assignment ...................... 26 Section 13. Amendments; Waivers; Cumulative Rights ........................ 26 Section 14. Execution in Counterparts ..................................... 26 Section 15. Effect of Invalidity of Provisions ............................ 26 Section 16. Governing Law ................................................. 26 Section 17. Notices ....................................................... 26 Section 18. Entire Agreement .............................................. 26 Section 19. Costs of Enforcement .......................................... 26 Section 20. Consent to Service ............................................ 27 Section 21. Submission to Jurisdiction; Waivers ........................... 27 Section 22. Construction .................................................. 28 Section 23. Effect of Amendment and Restatement ........................... 28 -i- Exhibit A Participation Certificate Exhibit B Trade Assignment Exhibit C Document List Exhibit D Warehouse Lender's Release Exhibit E Assignment Exhibit F Authorized Signatories Exhibit G Form of Opinion Exhibit H UCC-1 Financing Statement Annex A Sellers' Delivery Instructions -ii- AMENDED AND RESTATED MORTGAGE LOAN PARTICIPATION AGREEMENT Amended and Restated Mortgage Loan Participation Agreement ("Agreement"), dated as of the date set forth on the cover page hereof, among UBS Real Estate Securities Inc. ("Participant") and each of the Sellers whose names are set forth on the cover page hereof (each a "Seller" and, collectively, the "Sellers"). RECITALS WHEREAS, the Participant and American Home Mortgage Holdings, Inc., American Home Mortgage Corp. and Columbia National, Incorporated (in such capacity, the "Original American Home Parties") are parties to the Mortgage Loan Participation Agreement, dated as of July 25, 2003 as amended, supplemented or otherwise modified prior to the date hereof (the "Original Participation Agreement"); WHEREAS, pursuant to the Original Participation Agreement, one or more of the Original American Home Parties may have, in its sole discretion, offered to sell to Participant from time to time Participation Certificates (as defined therein), and Participant, in its sole discretion, may have agreed to purchase such Participation Certificates from such Seller in accordance with the terms and conditions set forth in the Original Participation Agreement; WHEREAS, the Original American Home Parties and the Participant desire to amend and restate the Original Participation Agreement as provided herein; and NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree that the Original Participation Agreement be amended and restated in its entirety as follows: PRELIMINARY STATEMENT Sellers desire to sell to Participant from time to time Participation Certificates evidencing a 100% undivided ownership interest in certain Mortgage Loans eligible in the aggregate to back Securities with the terms described in related Takeout Commitments. Participant desires and may in its sole discretion purchase such Participation Certificates from Sellers in accordance with the terms and conditions set forth in this Agreement. Sellers, subject to the terms hereof, will cause (a) Mortgage Loans evidenced by a Participation Certificate to back a GNMA Security issued by Sellers and guaranteed by GNMA, a FNMA Security issued and guaranteed by FNMA or a FHLMC Security issued and guaranteed by FHLMC and (b) Delivery of such GNMA Security, FNMA Security or FHLMC Security by GNMA, FNMA or FHLMC to Participant or its designee, which GNMA Security, FNMA Security or FHLMC Security will be purchased by a Takeout Investor. Participant's willingness to purchase any Participation Certificate evidencing particular Mortgage Loans is based on Participant's expectation, in reliance upon Sellers' representations and warranties herein, that such Mortgage Loans in the aggregate, constitute a pool or pools of mortgage loans that are eligible to back a Security and that the Security, in the amount and with the terms described in the related Takeout Commitment, will be issued and Participant will receive Delivery thereof within the time period agreed upon among Participant and Sellers and reflected in the terms of such Participation Certificate. The amount of the Purchase Price and the Performance Fee to be paid by Participant to Sellers with respect to each Participation Certificate will be calculated on the expectation of Participant, based upon the representations and warranties of the Sellers herein, that Participant will receive Delivery of the Security to be backed by the Mortgage Loans evidenced by the Participation Certificate purchased by Participant on the specified Anticipated Delivery Date and that failure to receive such Delivery will result in a material decrease in the market value of the Participation Certificate and the underlying Mortgage Loans considered as a whole. During the period from the purchase of a Participation Certificate to Delivery of the related Security, Participant expects to rely entirely upon such Sellers to service the Mortgage Loans evidenced by the applicable Participation Certificate, it being acknowledged that the continued effectiveness of such Seller's Agency Approvals during such period constitutes an essential factor in the calculation by Participant of the Purchase Price and the Performance Fee paid to such Sellers for the related Participation Certificate and that loss of such Agency Approvals by such Sellers would result in a material decrease in the market value of the Participation Certificate and the underlying Mortgage Loans considered as a whole. The parties hereto hereby agree as follows: Section 1. Definitions. Capitalized terms used but not defined herein shall have the meanings set forth in the Custodial Agreement. As used in this Agreement, the following terms shall have the following meanings: "Accepted Servicing Practices": With respect to each Mortgage Loan, such standards which comply with the applicable standards and requirements under: (i) an applicable Agency Program and related provisions of the applicable Agency Guide pursuant to which the related Mortgage Loan is intended to be purchased, and/or (ii) any applicable FHA and/or VA program and related provisions of applicable FHA and/or VA servicing guidelines. "Act of Insolvency": With respect to the related Seller, (a) the commencement by such Seller as debtor of any case or proceeding under any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar law, or such Seller's seeking the appointment of a receiver, trustee, custodian or similar official for such Seller or any substantial part of its property, or (b) the commencement of any such case or proceeding against such Seller, or another's seeking such appointment, or the filing against such Seller of an application for a protective decree which (1) is consented to or not timely contested by such Seller, (2) results in the entry of an order for relief, such an appointment, the issuance of such a protective decree or the entry of an order having a similar effect, or (3) is not dismissed within sixty (60) days, (c) the making by such Seller of a general assignment for the benefit of creditors, or (d) the admission in writing by such Seller that such Seller is unable to pay its debts as they become due or the nonpayment generally by such Seller of its debts as they become due. -2- "Agency": The Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), and the Federal Home Loan Mortgage Corporation ("FHLMC"), as applicable. "Agency Approvals": As defined in Section 8(a)(viii) of this Agreement. "Agency Guide": The GNMA Mortgage-Backed Securities Guide; the Fannie Mae Selling Guide and the Fannie Mae Servicing Guide; the Freddie Mac Sellers' and Servicers' Guide; as applicable, in each case as such Agency Guide may be amended from time to time. "Agency Program": The specific purchase program under the relevant Agency Guide or as otherwise approved by the Agency. "Anticipated Delivery Date": With respect to a Security, the date specified in the related Form HUD 11705 (Schedule of Subscribers), Fannie Mae Form 2014 (Delivery Schedule), or FHLMC Form 939 (Settlement and Information Multiple Registration Form), as applicable, on which it is anticipated that Delivery of the Security by the Applicable Agency will be made. "Applicable Agency" As defined in Section 3(a)(l). "Assignee": As defined in Section 6. "Assignment of Mortgage": As defined in Section 6. "Authorized Signatory": An officer of the related Seller who is authorized and empowered to cause Participation Certificates evidencing Mortgage Loans to back a Security issued by such Seller and guaranteed by an Agency, and is indicated on the Authorized Signatories of such Seller attached hereto as Exhibit F. "Code": The Internal Revenue Code of 1986, as amended from time to time. "Collateral": As defined in Section 7(c). "Custodial Account": As defined in Section 4(b)(i). "Custodial Agreement": The Custodial Agreement, dated as of the date set forth on the cover sheet thereof, among Sellers, Participant and Custodian. "Custodian": The Custodian (which, under the appropriate circumstance, may include FHLMC as Custodian) set forth on the cover page hereof and its permitted successors under the Custodial Agreement. "Defective Mortgage Loan": With respect to a Participation Certificate, a mortgage loan that is not in Strict Compliance with the GNMA Program, FNMA Program or FHLMC Program, as applicable. -3- "Delivery": The later to occur of (a) the issuance of the related Security and (b) the transfer of all of the right, title and ownership interest in that Security to Participant. "Discount": With respect to each Participation Certificate, the amount of the adjustment to the Trade Price of the related Security agreed upon by the related Sellers and Participant to reserve for the possibility that such Sellers may be unable to perform their obligations under this Agreement in accordance with their terms. "Electronic Agent": MERSCORP, Inc., and its successors in interest. "Electronic Tracking Agreement": The Electronic Tracking Agreement, dated as of the date hereof, among Participant, Sellers, MERSCORP, Inc. and Mortgage Electronic Registration Systems, Inc.; provided that if no Mortgage Loans are or will be MERS Designated Mortgage Loans, all references herein to the Electronic Tracking Agreement shall be disregarded. "FDIC": Federal Deposit Insurance Corporation or any successor thereto. "FHA": The Federal Housing Administration or any successor thereto. "FHLMC": Federal Home Loan Mortgage Corporation or any successor thereto. "FHLMC as Custodian": With respect to FHLMC Participation Certificates, the circumstances in which the related Seller elects to appoint FHLMC (as opposed to some other third party as permitted by the FHLMC Guide) as Custodian for the FHLMC Mortgage Loans subject to the FHLMC Participation Certificates to be purchased by Participant hereunder. "FHLMC Guide": The Freddie Mac Sellers' and Servicers' Guide, as such Guide may hereafter from time to time be amended. "FHLMC Mortgage Loan": With respect to any FHLMC Participation Certificate or any FHLMC Security, a mortgage loan that is in Strict Compliance with the eligibility requirements specified for the applicable FHLMC Program described in the FHLMC Guide. "FHLMC Participation Certificate": With respect to the FHLMC Program, a certificate, in the form of Exhibit A, issued by the related Seller and authenticated by Custodian, evidencing the 100% undivided ownership interest in the Mortgage Loans that are either (a) set forth on a copy of the FHLMC Form 11 (Mortgage Submission Schedule) attached to such Participation Certificate or (b) identified on a computer tape compatible with MIDANET as belonging to the mortgage loan pool described in such Participation Certificate. "FHLMC Program": The FHLMC Home Mortgage Guarantor Program or the FHLMC FHA/VA Home Mortgage Guarantor Program, as described in the FHLMC Guide. "FHLMC Security": A modified pass-through mortgage-backed participation certificate, evidenced by a book-entry credit made by a Securities Intermediary that is a participant of the Federal Reserve Bank of New York, issued and guaranteed, with respect to timely payment of interest and ultimate payment of principal, by FHLMC and backed by a pool -4- of FHLMC Mortgage Loans, in substantially the principal amount and with substantially the other terms as specified with respect to such FHLMC Security in the related Takeout Commitment, if any. "FNMA" or "Fannie Mae": Federal National Mortgage Association or any successor thereto. "FNMA as Custodian": With respect to FNMA Participation Certificates, the circumstances in which the related Seller elects to appoint FNMA (as opposed to some other third party as permitted by the FNMA Guide) as Custodian for the FNMA Mortgage Loans subject to the FNMA Participation Certificates to be purchased by Participant hereunder. "FNMA Guide": The Fannie Mae MBS Selling and Servicing Guide, as such Guide may hereafter from time to time be amended. "FNMA Mortgage Loan": With respect to any FNMA Participation Certificate or any FNMA Security, a mortgage loan that is in Strict Compliance with the eligibility requirements specified for the applicable FNMA Program described in the FNMA Guide. "FNMA Participation Certificate": With respect to the FNMA Program, a certificate, in the form of Exhibit A, authenticated by Custodian, evidencing the 100% undivided ownership interest in the Mortgage Loans set forth on Fannie Mae Form 2005 (Schedule of Mortgages). "FNMA Program": The FNMA Guaranteed Mortgage-Backed Securities Programs, as described in the FNMA Guide. "FNMA Security": An ownership interest in a pool of FNMA Mortgage Loans, evidenced by a book-entry credit made by a Securities Intermediary that is a participant of the Federal Reserve Bank of New York, in substantially the principal amount and with substantially the other terms as specified with respect to such FNMA Security in the related Takeout Commitment, if any. "GNMA": Government National Mortgage Association or any successor thereto. "GNMA Guide": The GNMA Mortgage-Backed Securities Guide I or II, as such Guide may hereafter from time to time be amended. "GNMA Mortgage Loan": With respect to any GNMA Participation Certificate or any GNMA Security, a mortgage loan that is in Strict Compliance with the eligibility requirements specified for the applicable GNMA Program in the applicable GNMA Guide. "GNMA Participation Certificate": With respect to the GNMA Program, a certificate, in the form of Exhibit A, issued by the related Seller and authenticated by Custodian, evidencing the 100% undivided ownership interest in the Mortgage Loans set forth on the Form HUD 11706 (Schedule of Pooled Mortgages). -5- "GNMA Program": The GNMA Mortgage-Backed Securities Programs, as described in a GNMA Guide. "GNMA Security": A fully-modified pass-through mortgage-backed certificate guaranteed by GNMA, evidenced by a book-entry credit made by a Securities Intermediary that is a participant of The Depository Trust Company and backed by a pool of GNMA Mortgage Loans, in substantially the principal amount and with substantially the other terms as specified with respect to such GNMA Security in the related Takeout Commitment, if any. "HUD": The United States Department of Housing and Urban Development or any successor thereto. "Interim Funder": With respect to each MERS Designated Mortgage Loan, the Person named on the MERS(R) System as the interim funder pursuant to the MERS Procedures Manual. "Investor": With respect to each MERS Designated Mortgage Loan, the Person named on the MERS(R) System as the investor pursuant to the MERS Procedures Manual. "Issuance Date": With respect to a Security, the first day of the month in which the Security is issued. "Losses": Any and all losses, claims, damages, liabilities or expenses (including reasonable attorneys' fees) incurred by any person specified; provided, however, that "Losses" shall not include any losses, claims, damages, liabilities or expenses which would have been avoided had such person taken reasonable actions to mitigate such losses, claims, damages, liabilities or expenses. "MERS Designated Mortgage Loan": Mortgage Loans for which (a) the related Seller has designated or will designate MERS as, and has taken or will take such action as is necessary to cause MERS to be, the mortgagee of record, as nominee for such Seller, in accordance with MERS Procedure Manual and (b) such Seller has designated or will designate the Participant as the Investor and Interim Funder on the MERS(R) System. "MERS Procedure Manual": The MERS Procedures Manual attached as Exhibit B to the Electronic Tracking Agreement, as it may be amended, supplemented or otherwise modified from time to time. "MERS Report": The schedule listing MERS Designated Mortgage Loans and other information prepared by the Electronic Agent pursuant to the Electronic Tracking Agreement. "MERS(R) System": The Electronic Agent's mortgage electronic registry system, as more particularly described in the MERS Procedures Manual. "MIDANET": The FHLMC automated system by which sellers and servicers of mortgage loans to FHLMC transfer mortgage summary and record data or mortgage accounting -6- and servicing information from their computer system or service bureau to FHLMC, as more fully described in the FHLMC Guide. "Mortgage": A mortgage, deed of trust or other security instrument, securing a Mortgage Note. "Mortgage Loan": A GNMA Mortgage Loan, a FNMA Mortgage Loan or a FHLMC Mortgage Loan. "Mortgage Note": A promissory note evidencing a Mortgage Loan. "Original American Home Parties": Shall have the meaning assigned to such term in the recitals hereof. "Original Participation Agreement": Shall have the meaning assigned to such term in the recitals hereof. "OTS": Office of Thrift Supervision or any successor thereto. "Parent Company": A corporation or other entity owning, directly or indirectly, more than 50% of the outstanding shares of voting stock of American Home Mortgage Investment Corp., American Home Mortgage Acceptance, Inc., American Home Mortgage Holdings, Inc., American Home Mortgage Corp. and/or Columbia National, Incorporated. "Participant": UBS Real Estate Securities Inc. and its successors in interest, including, but not limited to, any lender, designee or assignee to whom a Participation Certificate or a Security shall be pledged or assigned. "Participation Certificate": A GNMA Participation Certificate, a FNMA Participation Certificate or a FHLMC Participation Certificate. "Pass-Through Rate": With respect to a Participation Certificate, the rate of interest specified as the Pass-Through Rate in such Participation Certificate, which rate shall continue in effect until the latest of (a) the Settlement Date of the related Security, (b) either the date on which Receipt of the Security occurs or, if such Receipt occurs on such date after 12:00 noon, New York City time the next Business Day on which Participant is permitted under applicable laws and regulations to make delivery of the Security to the Takeout Investor and, if applicable, (c) the date on which the related Seller completes its Performance of its obligations under Section 3(c)(2). "Performance Fee": With respect to each Participation Certificate, an amount equal to the Discount plus the Yield Compensation Adjustment, less any reduction pursuant to Section 3(b), which amount shall be payable to the related Seller by Participant as compensation to such Seller for its services in connection with the issuance of a Security. "Purchase Date": With respect to a Participation Certificate, the date on which Participant elects to purchase such Participation Certificate. -7- "Purchase Price": With respect to each Participation Certificate, the Trade Price of the Security to be backed by the Mortgage Loans evidenced by the Participation Certificate, less the Discount. Accrued interest shall be allocated in accordance with Section 3(a)(3). "Receipt": The Delivery of a Security, upon notice by the related Seller to Participant, not later than 12:00 noon, New York City time, on the second (2nd) Business Day prior to the applicable Settlement Date, of (a) the amount of any change in the principal amount of the Mortgage Loans backing such Security, and (b) with respect to FHLMC Securities, the FHLMC Mortgage Loan pool number applicable to such Security. If the related Seller fails to so notify Participant, "Receipt" shall be deemed to have occurred on the later of (1) the second (2nd) Business Day after the date on which such Seller provides such notification to Participant and (2) the date on which Participant receives Delivery of the Security. "REIT Seller": As the case may be, American Home Mortgage Investment Corp. and American Home Mortgage Acceptance, Inc. "REIT Status": With respect to any Person, such Person's status as a real estate investment trust, as defined in Section 856(a) of the Code, that satisfies the conditions and limitations set forth in Section 856(b) and 856(c) of the Code. "RTC": Resolution Trust Corporation or any successor thereto. "Securities Intermediary": As defined in Section 8-102(a)(14) of the Uniform Commercial Code. "Security": A GNMA Security, a FNMA Security or a FHLMC Security. "Servicing Rights": Any and all of the following: (a) any and all rights to service the Mortgage Loans; (b) any payments to or monies received by the related Sellers or any other Person for servicing the Mortgage Loans; (c) any late fees, penalties or similar payments with respect to the Mortgage Loans; (d) all agreements or documents creating, defining or evidencing any such servicing rights to the extent they relate to such servicing rights and all rights of such Sellers or any other Person thereunder; (e) escrow payments or other similar payments with respect to the Mortgage Loans and any amounts actually collected by such Sellers or any other Person with respect thereto; and (f) all accounts and other rights to payment related to the Mortgage Loans. "Settlement Date": The date specified in a Takeout Commitment upon which the related Security is scheduled to be delivered, against payment, to the specified Takeout Investor. "Strict Compliance" shall mean compliance of the related Sellers and the Mortgage Loans with the requirements of the GNMA Guide, FNMA Guide or FHLMC Guide, as applicable and as amended by any agreements between such Seller and the Applicable Agency, sufficient to enable such Sellers to issue and GNMA to guarantee or FNMA or FHLMC to issue and guarantee a Security, provided that until copies of any such agreements between such Seller and the Applicable Agency have been provided to Participant by such Sellers, such agreements shall be deemed, as between such Seller and Participant, not to amend the requirements of the GNMA Guide, FNMA Guide or FHLMC Guide, as applicable. -8- "Successor Servicer": An entity with the necessary Agency Approvals, as the circumstances may require, and designated by Participant, in conformity with Section 3(c)(2), to replace the related Seller as issuer and servicer, mortgagee or seller/servicer of the Mortgage Loans or the Securities related thereto. "Takeout Commitment": A trade confirmation from the Takeout Investor to the related Seller confirming the details of a forward trade between the Takeout Investor and such Seller with respect to one or more Securities, which trade confirmation shall be enforceable and in full force and effect, and shall be validly and effectively assigned to Participant pursuant to a Trade Assignment, and relate to pools of Mortgage Loans that satisfy the "good delivery standards" of the Public Securities Association as set forth in the Public Securities Association Uniform Practices Guide. "Takeout Investor": A securities dealer or other financial institution, acceptable to Participant, who has made a Takeout Commitment. "Trade Assignment": A letter substantially in the form of Exhibit B. "Trade Price": The price specified in a Takeout Commitment at which a Takeout Investor is obligated to purchase the Security specified in such Takeout Commitment. "VA": The United States Veterans Administration or any successor thereto. "Warehouse Lender": Any lender providing financing to the related Sellers for the purpose of originating Mortgage Loans, which has a security interest in such Mortgage Loans as collateral for the obligations of such Sellers to such lender. "Wire Instructions": The wire instructions set forth opposite the name of the Warehouse Lender in a letter, in the form of Exhibit E to the Custodial Agreement, executed by the related Seller and Custodian, receipt of which has been acknowledged by Participant. "Yield Compensation Adjustment": Subject to any further adjustment provided in this Agreement, an amount (which may be a negative number) equal to: A(BC-DE) 360 where (i) A equals the number of days in the period beginning on the date Participant purchases such Participation Certificate to but not including the Settlement Date, (ii) B equals the aggregate principal amount of the Mortgage Loans evidenced by a Participation Certificate, (iii) C equals the interest rate (expressed as a decimal) on the Security backed by the Mortgage Loans subject to such Participation Certificate, (iv) D equals the Purchase Price and (v) E equals the Pass-Through Rate (expressed as a decimal) specified in such Participation Certificate. Section 2. Procedures for Purchases of Participation Certificates. (a) Participant may, in its sole discretion from time to time, purchase one or more Participation Certificates from the related Seller. Such Seller, on behalf of Participant, shall -9- arrange for the Delivery to Participant of a Security backed by the Mortgage Loans evidenced by any Participation Certificate so purchased, which Security shall be subject to a Takeout Commitment. Participant's obligation to purchase any Participation Certificate which Participant elects to purchase, shall be subject to the receipt by the Participant of the documents listed in Exhibit C from such Seller, in form and substance satisfactory to Participant, and the execution of the Custodial Agreement relating to the Participation Certificate by such Seller and Custodian and delivery thereof to Participant. Notwithstanding the satisfaction of the conditions specified in this Section 2(a), Participant is not obligated to purchase any Participation Certificate offered to it hereunder. (b) If Participant elects to purchase any Participation Certificate, Participant shall pay to the related Seller, on the Purchase Date, the amount of the Purchase Price for such Participation Certificate. In the event that Participant does not transmit the Purchase Price, (i) any Participation Certificate delivered by Custodian to Participant in anticipation of such purchase shall automatically be null and void, (ii) Participant will not consummate the transactions contemplated in the applicable Trade Assignment and (iii) to the extent that Participant shall nevertheless receive the Security backed by the Mortgage Loans to which such Participation Certificate relates prior to its becoming null and void as provided in clause (i) above, Participant shall take all reasonable actions necessary to ensure that such Security shall be delivered in accordance with such Seller's delivery instructions specified in Annex A. (c) The terms and conditions of the purchase of each Participation Certificate shall be as set forth in this Agreement. Each Participation Certificate shall be deemed to incorporate, and the related Seller shall be deemed to make as of the applicable dates specified in Section 8, for the benefit of Participant and each Assignee of such Participation Certificate, the representations and warranties set forth in Section 8 in respect of such Participation Certificate and the Mortgage Loans evidenced by such Participation Certificate. Section 3. Issuance of Securities. (a) (1) With respect to Mortgage Loans evidenced by a Participation Certificate which Participant has elected to purchase, the related Seller shall instruct (and, if such Seller fails to instruct, then Participant may instruct) Custodian to deliver to GNMA, FNMA or FHLMC, as applicable (the "Applicable Agency"), the documents listed in Exhibits C-l, C-2 or C-3 of the Custodial Agreement in respect of such Mortgage Loans, in the manner and at the time set forth in the Custodial Agreement. Such Seller shall thereafter promptly deliver to the Applicable Agency any and all additional documents requested by the Applicable Agency to enable the Applicable Agency to make Delivery to Participant of a Security backed by such Mortgage Loans on the related Anticipated Delivery Date. Such Seller shall not revoke such instructions to Custodian and shall not revoke its instructions to the Applicable Agency to make Delivery to Participant or its designee of a Security backed by such Mortgage Loans. (2) The related Seller shall notify Participant, not later than 12:00 noon, New York City time, on the second (2nd) Business Day prior to the applicable Settlement Date, (i) of the amount of any change in the principal amount of the Mortgage Loans backing each such Security related to such Settlement Date and (ii) with respect to FHLMC Securities, the FHLMC mortgage loan pool number applicable to each Security to which such Settlement Date relates. -10- Upon Delivery of such Security to Participant or its designee, Participant shall cease to have any interest under such Participation Certificate in the Mortgage Loans backing such Security, notwithstanding anything to the contrary in the Participation Certificate. (3) With respect to each Participation Certificate that Participant elects to purchase hereunder, Participant shall owe to the related Seller, on the later to occur of four (4) Business Days after the Purchase Date or on the date of Receipt by Participant of the related Security, a Performance Fee. If a Participation Certificate is purchased by Participant after the first (1st) day of the month in which the Settlement Date occurs, Participant shall also pay to such Seller on the date of Receipt by Participant of the Security backed by the related Mortgage Loans an amount equal to the accrued interest on the related Security at the rate specified in the related Takeout Commitment from the first day of such month to and including the day immediately preceding the date Participant purchased such Participation Certificate. If a Participation Certificate is purchased by Participant in the month prior to the month in which the Settlement Date occurs, the related Seller, as servicer, shall pay to Participant all interest payments which accrue on such Participation Certificate during the period from the date of purchase of such Participation Certificate through and including the last day of the month prior to the month in which such Settlement Date occurs. Notwithstanding the foregoing, no amounts shall be owed by Participant to such Seller upon issuance of such Security in the circumstances contemplated in Section 3(c)(2). Except as otherwise provided in this Section 3(a)(3) and in Section 3(b), and subject to Participant's right of set-off set forth in Section 3(g), any Performance Fee owed by Participant with respect to a Participation Certificate shall be paid by Participant to the related Seller not later than the Settlement Date of the related Security. It is understood by the related Seller and Participant that, if such Seller requests and Participant agrees to pay the Performance Fee prior to the Settlement Date of the related Security, the amount of such Performance Fee shall be adjusted as mutually agreed by such Seller and Participant. (b) Unless Receipt of a Security backed by the Mortgage Loans evidenced by a Participation Certificate purchased hereunder has occurred by 12:00 noon, New York City time, on the related Settlement Date, (1) the Performance Fee relating to such Participation Certificate shall be reduced daily for the period from the Settlement Date to but not including the earlier of the date of Receipt of such Security and the date of satisfaction of the obligations of the related Seller pursuant to the exercise by Participant of any remedial election authorized by this Section 3 by an amount equal to (A) the Purchase Price of such Participation Certificate multiplied by (B) the result obtained by dividing (i) the Pass-Through Rate for such Participation Certificate plus one percent (1%) by (ii) three hundred and sixty (360) and (2) the Performance Fee, if any, relating to such Participation Certificate shall not be payable until the end of the period specified in clause (1) of this paragraph. (c) (1) If a breach by any Seller of this Agreement results in any Mortgage Loan being a Defective Mortgage Loan at the time of the delivery of the related Participation Certificate to Participant, Participant in its sole discretion may require that such Seller, upon receipt of notice from Participant of its exercise of such right, either (i) immediately repurchase Participant's ownership interest in such Defective Mortgage Loan by remitting to Participant the allocable amount paid by Participant for such Defective Mortgage Loan plus interest at the Pass-Through Rate on the principal amount thereof from the date of Participant's purchase of such Participation Certificate to the date of such repurchase, or (ii) deliver to Custodian a Mortgage -11- Loan eligible to back such Security in exchange for such Defective Mortgage Loan, which newly delivered Mortgage Loan shall be in all respects acceptable to Participant in Participant's sole discretion, and such newly delivered Mortgage Loan will thereupon become one of the Mortgage Loans evidenced by the Participation Certificate. If the aggregate principal balance of any Mortgage Loans that are accepted by Participant pursuant to clause (ii) of the immediately preceding sentence is less than the aggregate principal balance of any Defective Mortgage Loan that is being replaced by such Mortgage Loan, the related Seller shall remit with such Mortgage Loan to Participant an amount equal to the difference between the aggregate principal balance of the new Mortgage Loan accepted by Participant and the aggregate principal balance of the Defective Mortgage Loan being replaced thereby. (2) If the related Seller fails to comply with its obligations in the manner described in Section 3(c)(1), or such Seller is in breach of Section 8(a)(viii) or 8(b)(vii), not later than the third (3rd) calendar day after receipt by such Seller of notice from Participant (or if such day is not a Business Day, the next Business Day thereafter), such Seller's rights and obligations to service the Mortgage Loans evidenced by such Participation Certificate, as provided in this Agreement, shall terminate. If an Act of Insolvency occurs at any time, such Seller's rights and obligations to service the Mortgage Loans, as provided in this Agreement, shall terminate immediately, without any notice or action by Participant. Upon any such termination, Participant is hereby authorized and empowered as the exclusive agent for the related Seller to sell and transfer such rights to service the Mortgage Loans for such price and on such terms and conditions as Participant shall reasonably determine. Such Seller shall not otherwise attempt to sell or transfer such rights to service without the prior consent of Participant. Such Seller shall perform all acts and take all action so that the Mortgage Loans and all files and documents relating to such Mortgage Loans held by such Seller, together with all escrow amounts relating to such Mortgage Loans, are delivered to Successor Servicer. To the extent that the approval of the Applicable Agency is required for any such sale or transfer, the related Seller shall fully cooperate with Participant to obtain such approval. Upon exercise by Participant of its remedies under this Section 3(c)(2), such Seller hereby authorizes Participant to receive all amounts paid by any purchaser of such rights to service the Mortgage Loans and to remit such amounts to such Seller subject to Participant's rights of set-off under this Agreement. Upon exercise by Participant of its remedies under this Section 3(c)(2), Participant's obligation to pay and the related Seller's right to receive any portion of the Performance Fee relating to such Mortgage Loans shall automatically be canceled and become null and void, provided that such cancellation shall in no way relieve such Seller or otherwise affect the obligation of such Seller to indemnify and hold Participant harmless as specified in Section 3(e). (d) Mortgage Loans required to be delivered to Successor Servicer by Section 3(c)(2) shall be delivered free of any servicing rights in favor of the related Seller and free of any title, interest, lien, encumbrance or claim of any kind of such Seller. The related Seller shall deliver or cause to be delivered all files and documents relating to such Mortgage Loans held by such Seller to Successor Servicer. The related Seller shall promptly take such actions and furnish to Participant such documents that Participant deems necessary or appropriate to enable Participant to obtain a Security backed by such Mortgage Loans or to enforce such Mortgage Loans, as appropriate. -12- (e) The related Seller agrees to indemnify and hold Participant and its assigns harmless from and against all Losses (including, without limitation, Losses incurred by Participant on account of fees paid by Participant to the Applicable Agency to cause the Securities to be issued or any Losses in connection with any indemnification by Participant of the Applicable Agency) resulting from or relating to any breach or failure to perform by such Seller of any representation, warranty. covenant, term or condition made or to be performed by Seller under this Agreement. (f) No exercise by Participant of its rights under this Section 3 shall relieve any Seller of responsibility or liability for any breach of this Agreement. (g) The related Seller hereby grants Participant a right of set-off against the payment of any amounts that may be due and payable to Participant from such Seller, such right to be upon any and all monies or other property of such Seller held or received by Participant or due and owing from Participant to such Seller. Section 4. Servicing of the Mortgage Loans. (a) It is expressly acknowledged that the Servicing Rights relating to the Mortgage Loans evidenced by each Participation Certificate purchased by Participant hereunder have been sold, assigned, and transferred by the related Seller to Participant along with the ownership interest in such Mortgage Loans as evidenced by a Participation Certificate. The related Seller shall service and administer the Mortgage Loans evidenced by a Participation Certificate on behalf of Participant on an interim basis in accordance with accepted and prudent mortgage loan servicing standards and procedures generally accepted in the mortgage banking industry for the same type of mortgage loans as the Mortgage Loans and in a manner at least equal in quality to the servicing such Seller provides for mortgage loans which it owns and in accordance with the requirements of the GNMA Program, FNMA Program or FHLMC Program, as the case may be, provided that the related Seller shall at all times comply with applicable law, FHA regulations and VA regulations and the requirements of any private mortgage insurer so that the FHA insurance, VA guarantee or any other applicable insurance or guarantee in respect of any Mortgage Loan is not voided or reduced. The related Seller shall at all times maintain accurate and complete records of its servicing of the Mortgage Loans, and Participant may, at any time during such Seller's business hours on reasonable notice, examine and make copies of such records. On the second (2nd) day of each calendar month, or at any other time upon Participant's request, the related Seller shall deliver to Participant reports regarding the status of each Mortgage Loan in accordance with Section 9(g) and Section 9(h), which shall include, but shall not be limited to, a description of those Mortgage Loans in default for more than thirty (30) days, and any circumstances that could materially adversely affect any of such Mortgage Loans, Participant's ownership of any of such Mortgage Loans or the collateral securing any of such Mortgage Loans. The related Seller shall deliver such a report to Participant every thirty (30) days until (i) Delivery of the related Security to Participant or (ii) the exercise by Participant of any remedial election pursuant to Section 3. The related Seller agrees and acknowledges that Participant may, at any time, terminate the servicing of the Mortgage Loans by such Seller and transfer servicing to another Person on such date as Participant may determine in its sole discretion. In the event that anything in this Agreement is interpreted as constituting one or more interim servicing contracts, each such servicing contract shall terminate automatically upon the -13- earlier of (i) Delivery of the related Security to Participant or (ii) Participant's notice to the related Seller directing such Seller to transfer servicing (provided, such Seller's obligations as set forth herein to cooperate in the transfer of such servicing shall not terminate until such servicing has actually been transferred in full). (b) Within two (2) Business Days of notice from Participant or with respect to each Participation Certificate, on the Settlement Date: (i) The Sellers shall establish and maintain a separate custodial account (the "Custodial Account") entitled "[Name of Seller(s)], in trust for UBS Real Estate Securities Inc. and its assignees under the "Mortgage Loan Participation Agreement dated [the date of this Agreement]" and shall promptly deposit into such Custodial Account, in the form received with any necessary endorsements, all collections received in respect of each Mortgage Loan evidenced by a Participation Certificate that are payable to Participant as the owner of such Participation Certificate; and (ii) at the Participant's sole option, upon written notice from the Participant, the related Seller shall transfer servicing of the Mortgage Loans to a Successor Servicer designated by the Participant. (c) Amounts deposited in the Custodial Account with respect to any Mortgage Loan shall be held in trust for Participant as the owner of the Mortgage Loans and shall be released only as follows: (i) Except as otherwise provided in Section 4(c)(ii), upon Delivery of the Security backed by such Mortgage Loans to Participant and either (i) receipt by Participant or its designee of the purchase price for the Security from the Takeout Investor or (ii) if earlier, on the date required by the GNMA Guide, FNMA Guide or FHLMC Guide, as the case may be, amounts deposited in the Custodial Account shall be released in accordance with Section 3(a)(3). Notwithstanding the foregoing, all amounts deposited in the Custodial Account shall be paid to related Seller upon the Delivery of the related Security to Participant if, and to the extent that, the amounts due and payable to Participant hereunder have been set-off against the Purchase Price for the related Participation Certificate or the Performance Fee relating to the Mortgage Loans underlying such Participation Certificate. The amounts paid to the related Seller (if any) pursuant to this Section 4(c)(i) shall constitute such Seller's sole compensation for servicing the Mortgage Loans as provided in this Section 4. (ii) If a Successor Servicer takes delivery of such Mortgage Loans either under the circumstances set forth in clause (b)(ii) above, or otherwise, all amounts deposited in the Custodial Account shall be paid to Participant promptly upon such delivery. (iii) During the period that any Seller acts as servicer, all amounts deposited in the Custodial Account shall be released only in accordance with Participant's written instructions. Section 5. Takeout Commitments. Each Seller hereby assigns to Participant, free of any security interest, lien, claim or encumbrance of any kind, each Sellers' rights under each -14- Takeout Commitment to deliver the Security specified therein to the related Takeout Investor and to receive the purchase price therefor from such Takeout Investor. Subject to Participant's rights under Section 3, Participant agrees that it will satisfy the Takeout Commitment on the Settlement Date specified therein. Each Seller understands that, as a result of this Section 5 and each Trade Assignment, Participant will succeed to the rights and obligations of such Seller with respect to each Takeout Commitment subject to a Trade Assignment, and that in satisfying each such Takeout Commitment, Participant will stand in the shoes of such Seller and, consequently, will be acting as a non-dealer in exercising its rights and fulfilling its obligations assigned pursuant to this Section 5 and each Trade Assignment. Each Trade Assignment delivered by any Seller to Participant pursuant to Section 2 shall be delivered by the related Seller in a timely manner sufficient to enable Participant to facilitate the settlement of the related trade on the trade date in accordance with Chapter 8 of the Bond Market Association's Uniform Practices for the Clearance and Settlement of Mortgage-Backed Securities and other Related Securities, as amended from time to time. Section 6. Transfers of Participation Certificates and Securities by Participant. Participant may, in its sole discretion and without the consent of the related Seller, assign all of its right, title and interest or grant a security interest in any Participation Certificate, any Mortgage Note, Mortgage and any assignment of Mortgages (an "Assignment of Mortgage"), each Security in respect thereof of which Delivery is made to Participant and all rights of Participant under this Agreement (including, but not limited to, the Custodial Account) in respect of such Participation Certificate, Mortgage Note, Mortgage, Assignment of Mortgage and such Security, to any person (an "Assignee"), subject only to an obligation on the part of the Assignee to deliver each such Security to a Takeout Investor pursuant to Section 5 or to Participant to permit Participant or its designee to make delivery thereof to a Takeout Investor pursuant to Section 5. Assignment by Participant of a Participation Certificate as provided in this Section 6 will not release Participant from its obligations otherwise under this Agreement. Without limitation of the foregoing, an assignment of the Participation Certificate to an Assignee, as described in this Section 6, shall be effective upon delivery of the Participation Certificate to the Assignee or its designee, together with a duly executed Assignment in the Form of Exhibit E. Section 7. Record Title to Mortgage Loans; Intent of Parties; Security Interest. (a) From and after the issuance and delivery of the related Participation Certificate, and subject to the remedies of Participant in Section 3, Seller shall remain the last named payee or endorsee of each Mortgage Note and the mortgagee or assignee of record of each Mortgage (except with respect to a MERS Designated Mortgage Loan) in trust for the benefit of Participant, for the sole purpose of facilitating the servicing of such Mortgage Loan and the issuance of a Security backed by such Mortgage Loan. Where Seller has appointed FHLMC or FNMA, as applicable, as Custodian, the parties hereto acknowledge that the Mortgage Notes acquired hereunder have been deposited with FHLMC or FNMA, as applicable, to facilitate the issuance of FHLMC Securities or FNMA Securities, as applicable, with respect thereto and that prior to such issuance FHLMC or FNMA, as applicable, is holding such Mortgage Notes as Custodian for Participant. -15- (b) The related Seller shall maintain a complete set of books and records for each Mortgage Loan which shall be clearly marked to reflect the ownership interest in each Mortgage Loan of the holder of the related Participation Certificate and with respect to each MERS Designated Mortgage Loan, such Seller shall designate the Participant as the Investor and Interim Funder on the MERS(R) System. (c) Participant and Sellers confirm that the transactions contemplated herein are intended to be sales of the Mortgage Loans by Sellers to Participant rather than borrowings secured by the Mortgage Loans. In the event, for any reason, any transaction is construed by any court or regulatory authority as a borrowing rather than as a sale, the Sellers and Participant intend that Participant or its Assignee, as the case may be, shall have a perfected first priority security interest in the Participation Certificates, any Custodial Accounts, the Mortgage Loans subject to each Participation Certificate (including all servicing rights related thereto), all documents evidencing the Mortgage Loans, the Securities to be issued as contemplated hereunder and all proceeds thereof, the Takeout Commitments and the proceeds of any and all of the foregoing (collectively, the "Collateral"), free and clear of adverse claims. In such case, Sellers shall be deemed to have hereby granted to Participant or its Assignee, as the case may be, a first priority security interest in and lien upon the Collateral, free and clear of adverse claims. In such event, this Agreement shall constitute a security agreement, the Custodian shall be deemed to be an independent custodian for purposes of perfection of the security interest granted to Participant, and Participant or each such Assignee shall have all of the rights of a secured party under applicable law. Section 8. Representations and Warranties. (a) Each Seller hereby represents and warrants to Participant as of the date hereof and as of the date of each issuance and delivery of a Participation Certificate that: (i) All representations and warranties made and all information (including, without limitation, any financial information concerning any Seller) and documents or copies of documents furnished by Sellers to Participant pursuant to or in connection with this Agreement are and will be true and correct at the time when made and at all times thereafter or, if limited to a specific date, as of the date to which they refer; (ii) Such Seller is duly organized, validly existing and in good standing under the laws of the state of its organization or of the United States of America and has all licenses necessary to carry on its business as now being conducted and is licensed, qualified and in good standing to do business in each jurisdiction in which it is legally required to do so. Such Seller has all requisite power and authority (including, if applicable, corporate power) to execute and deliver this Agreement, the Electronic Tracking Agreement and the Custodial Agreement and to perform in accordance herewith and therewith; the execution, delivery and performance of this Agreement, the Electronic Tracking Agreement and the Custodial Agreement (including all instruments of transfer to be delivered pursuant to this Agreement, the Electronic Tracking Agreement and the Custodial Agreement) by such Seller and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized. Each of this Agreement, the Electronic Tracking Agreement and the Custodial Agreement evidences -16- the valid, binding and enforceable obligation of such Seller and all requisite action (including, if applicable, corporate action) has been taken by such Seller to make this Agreement, the Electronic Tracking Agreement and the Custodial Agreement valid and binding upon such Seller in accordance with its terms; (iii) This Agreement, the Custodial Agreement, the Electronic Tracking Agreement and every document to be executed by such Seller pursuant hereto and thereto is and will be valid, binding and a subsisting obligation of such Seller, enforceable in accordance with its respective terms. No consents or approvals are required to be obtained by any Seller or its Parent Company for the execution, delivery and performance of this Agreement, the Electronic Tracking Agreement or the Custodial Agreement by Seller; (iv) The consummation of the transactions contemplated by this Agreement, the Electronic Tracking Agreement and the Custodial Agreement are in the ordinary course of business of such Seller and will not result in the breach of any provision of the charter or by-laws of such Seller or result in the breach of any provision of, or conflict with or constitute a default under or result in the acceleration of any obligation under, any agreement, indenture, loan or credit agreement or other instrument to which any Seller, the Mortgage Loans or any of Sellers' property is subject, or result in the violation of any law, rule, regulation, order, judgment or decree to which any Seller, the Mortgage Loans or Sellers' property is subject. Without limiting the generality of the foregoing, the consummation of the transactions contemplated herein or therein will not violate any policy, regulation or guideline of the FHA or VA or result in the voiding or reduction of the FHA insurance, VA guarantee or any other insurance or guarantee in respect of any Mortgage Loan, and such insurance or guarantee is in full force and effect or shall be in full force and effect as required by the applicable GNMA Guide, FNMA Guide or FHLMC Guide; (v) Such Seller has not sold, assigned, transferred, pledged or hypothecated any interest in any Participation Certificate to any person other than Participant, and upon delivery of a Participation Certificate to Participant, Participant will be the sole owner thereof, free and clear of any lien, claim or encumbrance; (vi) All information relating to such Seller that such Seller has delivered or caused to be delivered to Participant, including, but not limited to, all documents related to this Agreement, the Electronic Tracking Agreement, the Custodial Agreement or such Seller's financial statements, and all such information hereafter furnished by such Seller, does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made therein or herein in light of the circumstances under which they were made, not misleading. Such Seller has disclosed in writing any and all facts relating to such Seller that materially and adversely affect or may affect the business operations or financial condition of such Seller or the ability of such Seller to perform its obligations under this Agreement, the Electronic Tracking Agreement or the Custodial Agreement; -17- (vii) There are no actions, suits or proceedings pending, or to the knowledge of any Seller threatened, including any claims for which an action, suit or proceeding has not been commenced, against or affecting such Seller or any of its assets in any court or before any arbitrator or before any governmental commission, board, bureau or other administrative agency that, in any such case, if adversely determined, would have a material adverse effect on the financial condition or business of such Seller or the ability of such Seller to perform under this Agreement, the Electronic Tracking Agreement and the Custodial Agreement; (viii) If applicable with respect to each Mortgage Loan evidenced by a Participation Certificate sold hereunder, such Seller (and each servicer) is approved by GNMA as an approved issuer, Fannie Mae as an approved lender, Freddie Mac as an approved seller/servicer (as the case may be) and by FHA as an approved mortgagee and by VA as an approved VA lender, in each case in good standing (such collective approvals and conditions, "Agency Approvals"), with no event having occurred or such Seller (or any subservicer) having any reason whatsoever to believe or suspect will occur prior to the Delivery of the Security by the related Agency, including without limitation a change in insurance coverage which would either make such Seller (or any servicer) unable to comply with the eligibility requirements for maintaining all such Agency Approvals or require notification to the relevant Agency or to HUD, FHA or VA. Should such Seller (or any servicer), for any reason, cease to possess all such Agency Approvals, or should notification to the relevant Agency or to HUD, FHA or VA be required, such Seller shall so notify Participant immediately in writing. Notwithstanding the preceding sentence, such Seller shall take all necessary action to maintain all of its (and each servicer's) Agency Approvals at all times during the term of this Agreement. The related Seller (and any servicer) has adequate financial standing, servicing facilities, procedures and experienced personnel necessary for the sound servicing of mortgage loans of the same types as may from time to time constitute Mortgage Loans and in accordance with Accepted Servicing Practices; (ix) The Custodian is an eligible custodian under the Agency Guide and Agency Program; (x) Such Seller and their Subsidiaries have filed all Federal income tax returns and all other material tax returns that are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by it or any of its Subsidiaries, except for any such taxes as are being appropriately contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves have been provided. The charges, accruals and reserves on the books of such Seller and their Subsidiaries in respect of taxes and other governmental charges are, in the opinion of each Seller, adequate; (xi) Neither such Seller nor any of its Subsidiaries are an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended; -18- (xii) Upon the filing of financing statements on Form UCC-1 naming Participant as "Secured Party", each Seller as "Debtor" and describing the Collateral, in the jurisdiction and recording office listed on Exhibit H attached hereto, the security interest granted hereunder in the Collateral will constitute a fully perfected security interest under the Uniform Commercial Code in all right, title and interest of Seller in, to and under such Collateral, which can be perfected by filing under the Uniform Commercial Code; and (xiii) As of the date hereof, each Seller's chief executive office is 520 Broadhollow Road, Melville, New York 11747. As of the date hereof, and during the four months immediately preceding the date hereof, hereof, Seller's jurisdiction of organization is as follows: American Home Mortgage Investment Corp., Maryland, American Home Mortgage Acceptance, Inc., Maryland, American Home Mortgage Holdings, Inc., Delaware, American Home Mortgage Corp., New York, and/or Columbia National, Incorporated, Maryland. (xiv) Such Seller's exact legal name is, and for the immediately preceding four months has been, as set forth on the signature page hereto. (xv) Such Seller has used any trade name or assumed name. (xvi) No Seller has merged with, or acquired all or substantially all of the assets of, any other person or entity within the immediately preceding year (except for (a) American Home Mortgage Investment Corp.'s acquisition of Apex Mortgage Capital, Inc. and (b) American Home Mortgage Holdings, Inc. merger with AHM Merger Sub, Inc.). (b) Each Seller hereby represents and warrants to Participant with respect to each Mortgage Loan as of the date of the payment by Participant of the Purchase Price of the related Participation Certificate that: (i) Such Mortgage Loan was, immediately prior to the sale to Participant of the related Participation Certificate, owned solely by the related Seller, is not subject to any lien, claim or encumbrance, including, without limitation, any such interest pursuant to a loan or credit agreement for warehousing mortgage loans, and was originated and serviced in accordance with all applicable law and regulations, including without limitation the Federal Truth-in-Lending Act, the Real Estate Settlement Procedures Act, regulations issued pursuant to any of the aforesaid, and any and all rules, requirements, guidelines and announcements of the Applicable Agency, and, as applicable, the FHA and VA, as the same may be amended from time to time; (ii) The improvements on the land securing such Mortgage Loan are and will be kept insured at all times by responsible insurance companies reasonably acceptable to Participant against fire and extended coverage hazards under policies, binders or certificates of insurance with a standard mortgagee clause in favor of such Seller and its assigns, providing that such policy may not be canceled without prior notice to such Seller. Any proceeds of such insurance shall be held in trust for the benefit of -19- Participant. The scope and amount of such insurance shall satisfy the rules, requirements, guidelines and announcements of the Applicable Agency, and shall in all cases be at least equal to the lesser of (A) principal amount of such Mortgage Loan or (B) the maximum amount permitted by applicable law, and shall not be subject to reduction below such amount through the operation of a coinsurance, reduced rate contribution or similar clause; (iii) Each Mortgage is a valid first lien on the mortgaged property and covered by an attorney's opinion of title acceptable to GNMA, FNMA or FHLMC, as applicable, or by a policy of title insurance on a standard ALTA or similar lender's form in favor of the related Seller and its assigns, subject only to exceptions permitted by the GNMA, FNMA or FHLMC Program, as applicable. Such Seller shall hold in trust for Participant such policy of title insurance, and, upon request of Participant, shall immediately deliver such policy to Participant or to the Custodian on behalf of Participant; (iv) To the extent applicable, such Mortgage Loan is either insured by the FHA under the National Housing Act, guaranteed by the VA under the Servicemen's Readjustment Act of 1944 or is otherwise insured or guaranteed in accordance with the requirements of the GNMA, FNMA or FHLMC Program, as applicable, and is not subject to any defect that would prevent recovery in full or in part against the FHA, VA or other insurer or guarantor, as the case may be; (v) Such Mortgage Loan is in Strict Compliance with the requirements and specifications (including, without limitation, all representations and warranties required in respect thereof) set forth in the GNMA Guide, FNMA Guide or FHLMC Guide, as applicable; (vi) Such Mortgage Loan conforms in all respects with all requirements of the Takeout Commitment applicable to the Security to be backed by such Mortgage Loan; and (vii) To the extent applicable, each Mortgage Loan is being serviced by a mortgage sub-servicer having all Agency Approvals necessary to make such Mortgage Loan eligible to back a GNMA, FNMA or FHLMC Security, as applicable. (c) Each of American Home Mortgage Investment Corp. and American Home Mortgage Acceptance, Inc. hereby represents, warrants and covenants to Participant that it is a REIT Seller and it has not engaged in any material "prohibited transactions" as defined in Section 857(b)(6)(B)(iii) and (C) of the Code. Each REIT Seller for its current "tax year" (as defined in the Code) is entitled to a dividends paid deduction under the requirements of Section 857 of the Code with respect to any dividends paid by it with respect to each such year for which it claims a deduction in its Form 1120-REIT filed with the United States Internal Revenue Service for such year. The representations and warranties of such Seller in this Section 8 are unaffected by and supersede any provision in any endorsement of any Mortgage Loan or in any assignment -20- with respect to such Mortgage Loan to the effect that such endorsement or assignment is without recourse or without representation or warranty. Section 9. Covenants of Sellers. Each Seller hereby covenants and agrees with Participant as follows: (a) Such Seller shall deliver to Participant: (i) Within one hundred twenty (120) days after the end of each fiscal year of each Seller, consolidated balance sheets of each Seller and its consolidated subsidiaries and the related consolidated statements of income showing the financial condition of each Seller and its consolidated subsidiaries as of the close of such fiscal year and the results of operations during such year, and a consolidated statement of cash flows, as of the close of such fiscal year, setting forth, in each case, in comparative form the corresponding figures for the preceding year, all the foregoing consolidated financial statements to be reported on by, and to carry the report (acceptable in form and content to Participant) of an independent public accountant of national standing acceptable to Participant; (ii) Within sixty (60) days after the end of each of the first three (3) fiscal quarters of each fiscal year of each Seller, unaudited consolidated balance sheets and consolidated statements of income, all to be in a form acceptable to Participant, showing the financial condition and results of operations of each Seller and its consolidated subsidiaries on a consolidated basis as of the end of each such quarter and for the then elapsed portion of the fiscal year, setting forth, in each case, in comparative form the corresponding figures for the corresponding periods of the preceding fiscal year, certified by a financial officer of each Seller (acceptable to Participant) as presenting fairly the financial position and results of operations of each Seller and its consolidated subsidiaries and as having been prepared in accordance with generally accepted accounting principles consistently applied, in each case, subject to normal year-end audit adjustments; (iii) Within forty-five (45) days after the end of each of the first eleven months of each fiscal year of each Seller, unaudited consolidated balance sheets and consolidated statements of income, all to be in a form acceptable to Participant, showing the financial condition and results of operation of each Seller and its consolidated subsidiaries on a consolidated basis as of the end of each such month and for the then elapsed portion of the fiscal year, setting forth, in each case, in comparative form the corresponding figures for the corresponding periods of the preceding fiscal year, certified by a financial officer of each Seller (acceptable to Participant) as presenting fairly the financial position and results of operations of each Seller and its consolidated subsidiaries and as having been prepared in accordance with generally accepted accounting principles consistently applied, in each case, subject to normal year-end audit adjustments; (iv) Promptly upon receipt thereof, a copy of each other report submitted to each Seller by its independent public accountants in connection with any annual, interim or special audit of such Seller; -21- (v) Promptly upon becoming aware thereof, notice of (1) the commencement of, or any determination in, any legal, judicial or regulatory proceedings, (2) any dispute between any Seller or its Parent Company and any governmental or regulatory body, (3) any event or condition, which, in any case of (1) or (2), if adversely determined, would have a material adverse effect on (A) the validity or enforceability of this Agreement, (B) the financial condition or business operations of such Seller, (C) the Agency Approvals of such Seller or (D) the ability of such Seller to fulfill its obligations under this Agreement or (4) any material adverse change in the business, operations, prospects or financial condition of such Seller, including, without limitation, the insolvency of such Seller or its Parent Company; (vi) Promptly upon becoming available, copies of all financial statements, reports, notices and proxy statements sent by its Parent Company, such Seller or any of such Seller's consolidated subsidiaries in a general mailing to their respective stockholders and of all reports and other material (including copies of all registration statements under the Securities Act of 1933, as amended) filed by any of them with any securities exchange or with the Securities and Exchange Commission or any governmental authority succeeding to any or all of the functions of said Commission; (vii) Promptly upon becoming available, copies of any press releases issued by their Parent Company or such Seller and copies of any annual and quarterly financial reports and any reports on Form H-(b)12 which its Parent Company or such Seller may be required to file with the OTS or the RTC or comparable reports which a Parent Company or such Seller may be required to file with the FDIC or any other federal banking agency containing such financial statements and other information concerning such Parent Company's or such Seller's business and affairs as is required to be included in such reports in accordance with the rules and regulations of the OTS, the RTC, the FDIC or such other banking agency, as may be promulgated from time to time; (viii) Such supplements to the aforementioned documents and such other information regarding the operations, business, affairs and financial condition of its Parent Company, Sellers or any of Sellers' consolidated subsidiaries as Participant may request; (ix) Promptly upon becoming available, copies of any reports any REIT Seller may be required to file with the Internal Revenue Service; (x) Prior to the date of any purchase of a Participation Certificate by Participant hereunder, a copy of (1) the articles of incorporation, certificate of formation or other organizational documents of such Seller and any amendments thereto certified by the Secretary of State, Comptroller of Currency, Internal Revenue Service or similar official of such Seller's jurisdiction of organization, (2) a copy of such Seller's by-laws, together with any amendments thereto, (3) a copy of the resolutions adopted by such Seller's Board of Directors authorizing such Seller to enter into this Agreement, the Electronic Tracking Agreement and the Custodial Agreement and authorizing one or more of such Seller's officers to execute the documents related to this Agreement, the Electronic Tracking Agreement and the Custodial Agreement, (4) a certificate of -22- incumbency and signature of such officer of such Seller's executing any document in connection with this Agreement, the Electronic Tracking Agreement and the Custodial Agreement, (5) a certificate reflecting each Authorized Signatory of such Seller, in the form of Exhibit F hereto, and (6) an opinion of counsel to such Seller, in the form of Exhibit G hereto; (xi) Neither such Seller nor any affiliate thereof will acquire at any time any Participation Certificate or any other economic interest in or obligation with respect to any Mortgage Loan; (xii) Under generally accepted accounting principles ("GAAP") and for federal income tax purposes, such Seller will report each sale of a Participation Certificate to the Participant as a sale of the ownership interest in the Mortgage Loans evidenced by that Participation Certificate. Such Seller has been advised by or has confirmed with its independent public accountants that the foregoing transactions will be so classified under GAAP; (xiii) The consideration received by such Seller upon the sale of each Participation Certificate will constitute reasonably equivalent value and fair consideration for the ownership interest in the Mortgage Loans evidenced by that Participation Certificate; (xiv) Such Seller will be solvent at all relevant times prior to, and will not be rendered insolvent by, any sale of a Participation Certificate to the Participant; and (xv) Such Seller will not sell any Participation Certificate to the Participant with any intent to hinder, delay or defraud any of the Seller's creditors. (b) Each Seller shall take all necessary action to maintain its Agency Approvals at all times during the term of this Agreement. If, for any reason, any Seller ceases to maintain such Agency Approvals, such Seller shall so notify Participant immediately. (c) Each Seller shall comply, in all material respects, with all laws, rules and regulations to which it is or may become subject. (d) Each Seller shall, upon request of Participant, promptly execute and deliver to Participant all such other and further documents and instruments of transfer, conveyance and assignment, and shall take such other action as Participant may require more effectively to transfer, convey, assign to and vest in Participant and to put Participant in possession of the property to be transferred, conveyed, assigned and delivered hereunder and otherwise to carry out more effectively the intent of the provisions under this Agreement. (e) Each Seller shall ensure that all proceeds paid by a Takeout Investor resulting from Takeout Commitments that relate to any Security backed by Mortgage Loans evidenced by a Participation Certificate purchased by Participant pursuant to the terms of this Agreement are paid to Participant by such Takeout Investor in accordance with Participant's wire instructions to such Seller. -23- (f) Each Seller acknowledges that the Participant has the right to perform continuing due diligence reviews with respect to the Mortgage Loans, for purposes of verifying compliance with the representations, warranties and specifications made hereunder, or otherwise, and such Seller agrees that upon reasonable (but no less than one (1) Business Day's) prior notice to such Seller, the Participant or its authorized representatives will be permitted during normal business hours to examine, inspect, make copies of, and make extracts of, the mortgage files and any and all documents, records, agreements, instruments or information relating to such Mortgage Loans in possession, or under the control, of such Seller and/or Custodian. Such Seller also shall make available to the Participant a knowledgeable financial or accounting officer for the purpose of answering questions respecting the mortgage files and Mortgage Loans. Such Seller and Participant further agree that all out-of-pocket costs and expenses incurred by the Participant in connection with the Participant's activities pursuant to this Section 9(f) shall be paid for by such Seller, provided that Participant shall pay any such costs if such due diligence is conducted more often than two (2) times in a calendar year. (g) Each Seller shall provide Participant with a monthly report, which report shall include, among other items, a summary of such Seller's delinquency and loss experience with respect to mortgage loans serviced by such Seller, any Servicer or any designee of either, with respect to any MERS Designated Mortgage Loan, MERS Reports, plus any such additional reports as Participant may reasonably request with respect to such Seller's or any Servicer's servicing portfolio or pending originations of mortgage loans. Such Seller shall not cause the Mortgage Loans to be serviced by any servicer other than a servicer expressly approved in writing by Participant. (h) On the second (2nd) Business Day of each month, each Seller shall furnish to Participant or shall cause the Servicer to furnish to Participant, a remittance report, in hard copy and electronic format acceptable to Participant, containing information regarding funds collected during the prior calendar month. This report shall contain the following information: (i) Mortgage Loan number; (ii) Note Rate; (iii) Remittances allocable to principal and interest; (iv) Paid through date; (v) Mortgage Loan balance; (vi) Delinquency status; (vii) Whether the Mortgaged Property is in foreclosure or has become an real estate owned property; (viii) Whether any Mortgagor is the subject of any bankruptcy action; and (ix) Any other information that Participant may reasonably request. -24- (i) Each Seller shall pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained. (j) Each Seller covenants and agrees to take all actions required of it in compliance with the terms of the Electronic Tracking Agreement. (k) Unless any Seller shall have given Participant at least thirty (30) days' prior written notice, each Seller shall not (i) change its name, organizational identity or jurisdiction of organization or (ii) merge with or into, acquire all or substantially all of the assets of, or transfer all or substantially all of its assets to, any other person or entity (except in the ordinary course of business or except in a transaction or series of transactions between two or more Sellers). (l) Each REIT Seller covenants and agrees that it shall at all times continue to be (i) qualified as a real estate investment trust as defined in Section 856 of the Code for so long as the Board of Directors deems it in the best interests of the stockholders of such REIT Seller to remain so qualified and (ii) entitled to a dividends paid deduction under Section 857 of the Code with respect to dividends paid by it with respect to each taxable year for which it claims a deduction on its Form 1120 - REIT filed with the United States Internal Revenue Service for such year, or the entering into by any REIT Seller of any material "prohibited transactions" as defined in Sections 857(b) and 856(c) of the Code. After the occurrence and during the continuation of any monetary default or any default that results in the acceleration or required prepayment of any indebtedness pursuant to the terms of this Agreement or any other agreement between a Seller and Participant, no Seller shall make any payment on account of, or set apart assets for, a sinking or other analogous fund for the purchase, redemption, defeasance, retirement or other acquisition of any equity or partnership interest of such Sellers, whether now or hereafter outstanding, or make any other distribution in respect of any of the foregoing or to any shareholder or equity owner of such Seller, either directly or indirectly, whether in cash or property or in obligations of such Seller or any of such Seller's consolidated Subsidiaries. Section 10. Confidentiality. Each Seller hereby acknowledges and agrees that (1) all written or computer-readable information provided by Participant to such Seller regarding Participant and (2) the terms of this Agreement (the "Participant Confidential Information"), shall be kept confidential and each of their respective contents will not be divulged to any party without Participant's consent except to the extent that (i) such Seller deems appropriate to do so in working with legal counsel, auditors, taxing authorities or other governmental agencies or regulatory bodies or in order to comply with any applicable federal or state laws, (ii) any portion of Participant Confidential Information is in the public domain other than due to a breach of this covenant, or (iii) such Seller deems appropriate in connection with exercising any or all of such Seller's rights or remedies or complying with any obligations under this Agreement. Section 11. Term. This Agreement shall continue in effect until terminated as to future transactions by written instruction signed by either Sellers or Participant and delivered to the other, provided that no termination will affect the obligations hereunder as to any of the -25- Participation Certificates then outstanding hereunder or any Security not yet delivered to the related Takeout Investor. Section 12. Exclusive Benefit of Parties; Assignment. This Agreement is for the exclusive benefit of the parties hereto and their respective successors and assigns and shall not be deemed to give any legal or equitable right to any other person, including the Takeout Investor and Custodian. Except as provided in Section 6, no rights or obligations created by this Agreement may be assigned by either party hereto without the prior written consent of the other party. Section 13. Amendments; Waivers; Cumulative Rights. This Agreement may be amended from time to time only by written agreement of Sellers and Participant. Any forbearance, failure or delay by Participant in exercising any right, power or remedy hereunder shall not be deemed to be a waiver thereof, and any single or partial exercise by Participant of any right, power or remedy hereunder shall not preclude the further exercise thereof. Every right, power and remedy of Participant shall continue in full force and effect until specifically waived by Participant in writing. No right, power or remedy shall be exclusive, and each such right, power or remedy shall be cumulative and in addition to any other right, power or remedy, whether conferred hereby or hereafter available at law or in equity or by statute or otherwise. Section 14. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. Section 15. Effect of Invalidity of Provisions. In case any one or more of the provisions contained in this Agreement should be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or therein shall in no way be affected, prejudiced or disturbed thereby. Section 16. 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. Section 17. Notices. Any notices, consents, elections, directions and other communications given under this Agreement shall be in writing and shall be deemed to have been duly given when telecopied or delivered by overnight courier to, personally delivered to, or on the third day following the placing thereof in the mail, first class postage prepaid to, the respective addresses set forth on the cover page hereof for Sellers or Participant, or to such other address as any party shall give notice to the other parties pursuant to this Section 17. Notices to any Assignee shall be given to such address as the Assignee shall provide to Seller in writing. Section 18. Entire Agreement. This Agreement, the Participation Certificates and the Custodial Agreement contain the entire agreement between the parties hereto with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements between them, oral or written, of any nature whatsoever with respect to the subject matter hereof. Section 19. Costs of Enforcement. In addition to any other indemnity specified in this Agreement, in the event of a breach by any Seller of this Agreement, the -26- Custodial Agreement, a Participation Certificate or a Takeout Commitment, such Seller agrees to pay the reasonable attorneys' fees and expenses of Participant, and/or, when applicable, any Assignee, incurred in the enforcement of the Agreement as a consequence of such breach. Section 20. Consent to Service. Each party irrevocably consents to the service of process by registered or certified mail, postage prepaid, to it at its address given in or pursuant to Section 17. Section 21. Submission to Jurisdiction; Waivers. EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY: (i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS MORTGAGE LOAN PARTICIPATION AGREEMENT AND THE OTHER DOCUMENTS, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF; (ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME; (iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO ITS ADDRESS SET FORTH ON THE COVER PAGE HERETO OR AT SUCH OTHER ADDRESS OF WHICH PARTICIPANT SHALL HAVE BEEN NOTIFIED; (iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION; AND (v) WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS MORTGAGE LOAN PARTICIPATION AGREEMENT, ANY OTHER DOCUMENT RELATING THERETO OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. -27- Section 22. Construction. The headings in this Agreement are for convenience only and are not intended to influence its construction. References to Sections, Exhibits and Annexes in this Agreement are to the Sections of and Exhibits and Annexes to this Agreement. The Exhibits and Annexes are part of this Agreement, and are incorporated herein by reference. In this Agreement, the singular includes the plural, the plural the singular, and the words "and" and "or" are used in the conjunctive or disjunctive as the sense and circumstances may require. Section 23. Effect of Amendment and Restatement. Upon the execution of this Agreement by all parties hereto and the delivery of the opinion required by Section 9(a)(x), the Original Participation Agreement shall be amended, restated and superseded in its entirety by this Agreement. The parties hereto acknowledge and agree that (a) the liens and security interests granted under the Original Participation Agreement are in full force and effect and, upon the amendment and restatement of the Original Participation Agreement and the related documents, such liens and security interests secure and continue to secure the payment and performance of Seller's obligations under this Agreement and the related documents, and (b) upon the effectiveness of such amendment and restatement, all outstanding Participation Certificates under, and as defined in, the Original Participation Agreement, shall be deemed to be outstanding as Participation Certificates hereunder mutatis mutandis, in each case on the terms and conditions set forth in this Agreement. Furthermore, the provisions of this Agreement shall relate back to and shall govern all aspects of all sales of Participation Certificates by the Sellers to the Purchase beginning December 18, 2003. [SIGNATURES COMMENCE ON FOLLOWING PAGE] -28- IN WITNESS WHEREOF, Participant and Sellers have duly executed this Agreement as of the date and year set forth on the cover page hereof. UBS REAL ESTATE SECURITIES INC. By: /s/ George A. Mangiaracina -------------------------------------- Name: George A. Mangiaracina Title: Managing Director By: /s/ Robert Carpenter -------------------------------------- Name: Robert Carpenter Title: Director AMERICAN HOME MORTGAGE INVESTMENT CORP. By: /s/ Michael Strauss -------------------------------------- Name: Michael Strauss Title: President AMERICAN HOME MORTGAGE ACCEPTANCE, INC. By: /s/ Michael Strauss -------------------------------------- Name: Michael Strauss Title: President AMERICAN HOME MORTGAGE HOLDINGS, INC. By: /s/ Michael Strauss -------------------------------------- Name: Michael Strauss Title: President AMERICAN HOME MORTGAGE CORP. By: /s/ Michael Strauss -------------------------------------- Name: Michael Strauss Title: President COLUMBIA NATIONAL, INCORPORATED By: /s/ Michael Strauss -------------------------------------- Name: Michael Strauss Title: President EX-10.7 8 am033104-ex10_7.txt AMENDED AND RESTATED CUSTODIAL AGREEMENT Exhibit 10.7 AMENDED AND RESTATED CUSTODIAL AGREEMENT PARTICIPANT: UBS REAL ESTATE SECURITIES INC. ADDRESS: 1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019 ATTENTION: GEORGE A. MANGIARACINA ATTENTION: ROBERT CARPENTER CUSTODIAN: DEUTSCHE BANK NATIONAL TRUST COMPANY ADDRESS: 1761 EAST SAINT ANDREW PLACE SANTA ANA, CALIFORNIA 92705 ATTENTION: MORTGAGE CUSTODY - AH030C SELLER: AMERICAN HOME MORTGAGE INVESTMENT CORP. ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: STEPHEN A. HOZIE, CHIEF FINANCIAL OFFICER SELLER: AMERICAN HOME MORTGAGE ACCEPTANCE, INC. ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: STEPHEN A. HOZIE, CHIEF FINANCIAL OFFICER SELLER: AMERICAN HOME MORTGAGE HOLDINGS, INC. ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: STEPHEN A. HOZIE, CHIEF FINANCIAL OFFICER SELLER: AMERICAN HOME MORTGAGE CORP. ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: MICHAEL STRAUSS, PRESIDENT SELLER: COLUMBIA NATIONAL, INCORPORATED ADDRESS: 520 BROADHOLLOW ROAD MELVILLE, NEW YORK 11747 ATTENTION: MICHAEL STRAUSS, PRESIDENT ATTENTION: STEPHEN A. HOZIE, CHIEF FINANCIAL OFFICER DATE: February 6, 2004 -2- TABLE OF CONTENTS Page ---- SECTION 1. DEFINITIONS ................................................... 2 SECTION 2. DELIVERY OF DOCUMENTS ......................................... 7 SECTION 3. CUSTODIAN AS CUSTODIAN FOR, AND BAILEE OF, PARTICIPANT AND ASSIGNEES ..................................... 9 SECTION 4. CERTIFICATION OF RECEIPT BY CUSTODIAN ......................... 10 SECTION 5. CUSTODIAN'S FEES AND EXPENSES; SUCCESSOR CUSTODIAN ............ 12 SECTION 6. DEFAULT ....................................................... 14 SECTION 7. ACCESS TO DOCUMENTS ........................................... 15 SECTION 8. ASSIGNMENT BY PARTICIPANT ..................................... 16 SECTION 9. INSURANCE ..................................................... 16 SECTION 10. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE CUSTODIAN ..................................................... 16 SECTION 11. INDEMNIFICATION BY CUSTODIAN .................................. 17 SECTION 12. NO ADVERSE INTERESTS .......................................... 17 SECTION 13. AMENDMENTS .................................................... 17 SECTION 14. RECORDATION OF AGREEMENT ...................................... 17 SECTION 15. EXECUTION IN COUNTERPARTS ..................................... 17 SECTION 16. AGREEMENT FOR EXCLUSIVE BENEFIT OF PARTIES; ASSIGNMENT ........ 18 SECTION 17. EFFECT OF INVALIDITY OF PROVISIONS ............................ 18 SECTION 18. GOVERNING LAW ................................................. 18 SECTION 19. CONSENT TO SERVICE ............................................ 18 SECTION 20. SUBMISSION TO JURISDICTION .................................... 18 SECTION 21. JURISDICTION NOT EXCLUSIVE .................................... 18 SECTION 22. WAIVER OF JURY TRIAL .......................................... 19 SECTION 23. NOTICES ....................................................... 19 SECTION 24. AUTHENTICATION ................................................ 19 SECTION 25. CONSTRUCTION .................................................. 19 SECTION 26. EFFECT OF AMENDMENT AND RESTATEMENT ........................... 19 Exhibit A Participation Certificate Exhibit B-1 Warehouse Lender's Release Exhibit B-2 Seller's Release Exhibit C-1 GNMA Document List Exhibit C-2 FNMA Document List Exhibit C-3 FHLMC Document List Exhibit D Limited Power of Attorney Exhibit E Wire Instructions Exhibit F Confirmation of Payment Exhibit G Form of Electronic Tracking Agreement AMENDED AND RESTATED CUSTODIAL AGREEMENT THIS AGREEMENT, dated as of the date set forth on the cover page hereof, among UBS Real Estate Securities Inc. (the "Participant"), Deutsche Bank National Trust Company as Custodian (the "Custodian"), and each of the Sellers whose names are set forth on the cover page hereof (the "Seller", and collectively, the "Sellers"). WHEREAS, the Purchaser; American Home Mortgage Holdings, Inc., American Home Mortgage Corp. and Columbia National, Incorporated (in such capacity, the "Original American Home Parties"); and the Custodian are parties to the Custodial Agreement, dated as of July 25, 2003 as amended, supplemented or otherwise modified prior to the date hereof (the "Original Custodial Agreement"); WHEREAS, in connection with the Original Custodial Agreement, the Participant agreed to purchase, from time to time, at its sole election from the related Seller, participation certificates (the "Participation Certificates") representing 100% ownership interest in certain residential first mortgage loans (the "Mortgage Loans") pursuant to the terms and conditions of a Mortgage Loan Participation Agreement dated as of the date set forth on the cover page thereof (the "Participation Agreement") among the Participant and the Sellers; WHEREAS, the related Seller is obligated to service the Mortgage Loans pursuant to the terms and conditions of the Participation Agreement; WHEREAS, in connection with the Original Custodial Agreement, the Purchaser, the Original American Home Parties and the Custodian desire to amend and restate the Original Custodial Agreement as provided herein; WHEREAS, the Participant desires to have the Custodian (1) take possession of the mortgage notes evidencing the Mortgage Loans, along with certain other documents specified herein, as the custodian for and bailee of the Participant or any assignees of the Participant in accordance with the terms and conditions hereof and (2) act as authenticating agent for the Participation Certificates; WHEREAS, the related Seller will cause the Mortgage Loans evidenced by a Participation Certificate to back a Security (as defined below), which the Participant or its designee will receive in substitution for the related Participation Certificate; WHEREAS, upon an assignment by the Participant to an assignee relating to the financing of the Participant's purchase of Participation Certificates, the rights of the Participant under this Agreement shall be exercisable solely by such assignee; and NOW, THEREFORE, the parties, intending to be legally bound, agree as follows: -1- Section 1. Definitions. As used in this Agreement, the following terms shall have the following meanings: "Applicable Agency": GNMA, FNMA or FHLMC, as applicable. "Applicable Agency Documents": As defined in Section 2(b). "Assigned Mortgage Loans": As defined in Section 3(b). "Assignee": Any person to whom the Participant makes an assignment. "Assignment of Mortgage": An assignment of mortgage. "Authentication Date": The date mutually agreed between Participant and Seller, with prior written notice to the Custodian, on which the Custodian is to authenticate the Participation Certificates. "Business Day": Any day other than (a) a Saturday, Sunday or other day on which banks located in the City of New York, New York or the city in which the office of the Custodian is located are authorized or obligated by law or executive order to be closed, or (b) any day on which UBS Real Estate Securities Inc. is closed for business, provided that notice thereof shall have been given not less than seven calendar days prior to such day. "Certification": As defined in Section 4. "Custodian": The Custodian set forth on the cover page hereof and its permitted successors hereunder. "Discount": With respect to each Participation Certificate, the amount of the adjustment to the Trade Price of the related Security agreed upon by the related Seller and Participant to reserve for the possibility that such Seller may be unable to perform its obligations under the Participation Agreement in accordance with their terms. "Electronic Agent": The electronic agent identified in the Electronic Tracking Agreement. "Electronic Tracking Agreement": The Electronic Tracking Agreement, if any, substantially in the form set forth in Exhibit G hereto, dated as of the date hereof, among the Participant, the related Seller, an electronic agent and Mortgage Electronic Registration Systems, Inc., as the same shall be amended, supplemented or otherwise modified from time to time; provided that if no Mortgage Loans are or will be MERS Designated Mortgage Loans, all references herein to the Electronic Tracking Agreement shall be disregarded. "Exhibit B-1 Letter": As defined in Section 2(a). "Exhibit B-2 Letter": As defined in Section 2(a). -2- "Exhibit F Letter": A letter substantially in the form of Exhibit F. "FHA": The Federal Housing Administration or any successor thereto. "FHLMC": Federal Home Loan Mortgage Corporation or any successor thereto. "FHLMC Guide": The Freddie Mac Sellers' and Servicers' Guide, as such Guide may hereafter from time to time be amended. "FHLMC Mortgage Loan": With respect to any FHLMC Participation Certificate or any FHLMC Security, a mortgage loan that is in Strict Compliance with the eligibility requirements specified for the applicable FHLMC Program described in the FHLMC Guide. "FHLMC Participation Certificate": With respect to the FHLMC Program, a certificate, in the form of Exhibit A, issued by the related Seller and authenticated by the Custodian, evidencing the 100% undivided ownership interest in the Mortgage Loans that are either (a) set forth on a copy of the FHLMC Form 11 (Mortgage Submission Schedule) attached to such Participation Certificate or (b) identified on a computer tape compatible with MIDANET as belonging to the mortgage loan pool described in such Participation Certificate. "FHLMC Program": The FHLMC Home Mortgage Guarantor Program or the FHLMC FHA/VA Home Mortgage Guarantor Program, as such Programs are described in the FHLMC Guide. "FHLMC Security": A modified pass-through mortgage-backed participation certificate, evidenced by a book-entry credit made by a Securities Intermediary that is a participant of the Federal Reserve Bank of New York, issued and guaranteed, with respect to timely payment of interest and ultimate payment of principal, by FHLMC and backed by a pool of FHLMC Mortgage Loans, in substantially the principal amount and with substantially the other terms as specified with respect to such FHLMC Security in the related Takeout Commitment, if any. "FNMA" or "Fannie Mae": Federal National Mortgage Association or any successor thereto. "FNMA Guide": The Fannie Mae MBS Selling and Servicing Guide, as such Guide may hereafter from time to time be amended. "FNMA Mortgage Loan": With respect to any FNMA Participation Certificate or any FNMA Security, a mortgage loan that is in Strict Compliance with the eligibility requirements specified for the applicable FNMA Program described in the FNMA Guide. "FNMA Participation Certificate": With respect to the FNMA Program, a certificate, in the form of Exhibit A, issued by the related Seller and authenticated by the Custodian and evidencing the 100% undivided ownership interest in the Mortgage Loans set forth on Fannie Mae Form 2005 (Schedule of Mortgages). -3- "FNMA Program": The FNMA Guaranteed Mortgage-Backed Securities Programs, as described in the FNMA Guide. "FNMA Security": An ownership interest in a pool of FNMA Mortgage Loans, evidenced by a book-entry credit made by a Securities Intermediary that is a participant of the Federal Reserve Bank of New York, in substantially the principal amount and with substantially the other terms as specified with respect to such FNMA Security in the related Takeout Commitment, if any. "GNMA": Government National Mortgage Association or any successor thereto. "GNMA Guide": The GNMA Mortgage-Backed Securities Guide I or II, as such Guide may hereafter from time to time be amended. "GNMA Mortgage Loan": With respect to any GNMA Participation Certificate or any GNMA Security, a mortgage loan that is in Strict Compliance with the eligibility requirements specified for the applicable GNMA Program in the applicable GNMA Guide. "GNMA Participation Certificate": With respect to the GNMA Program, a certificate, in the form of Exhibit A, issued by the related Seller and authenticated by the Custodian and evidencing the 100% undivided ownership interest in the Mortgage Loans set forth on the Form HUD 11706 (Schedule of Pooled Mortgages). "GNMA Program": The GNMA Mortgage-Backed Securities Programs, as described in a GNMA Guide. "GNMA Security": A fully-modified pass-through mortgage-backed certificate guaranteed by GNMA, evidenced by a book-entry credit made by a Securities Intermediary that is a participant of The Depository Trust Company and backed by a pool of GNMA Mortgage Loans, in substantially the principal amount and with substantially the other terms as specified with respect to such GNMA Security in the related Takeout Commitment, if any. "HUD": The United States Department of Housing and Urban Development or any successor thereto. "Initial Purchase Price": With respect to each Participation Certificate, the Trade Price of the Security to be backed by the Mortgage Loans evidenced by the Participation Certificate less the Discount. "Interim Funder": With respect to each MERS Designated Mortgage Loan, the Person named on the MERS(R) System as the interim funder pursuant to the MERS Procedures Manual. "Limited Power": As defined in Section 3(d). "MERS Designated Mortgage Loan": MERS Designated Mortgage Loan shall have the meaning assigned to such term in Section 3 of the Electronic Tracking Agreement; -4- provided that no Mortgage Loan shall be considered a MERS Designated Mortgage Loan unless an Electronic Tracking Agreement shall have been entered into. "MERS Identification Number": The eighteen-digit number permanently assigned to each MERS Designated Mortgage Loan. "MERS Procedures Manual": The MERS Procedures Manual attached as Exhibit B to the Electronic Tracking Agreement, as it may be amended, supplemented or modified from time to time. "MERS Report": The schedule listing MERS Designated Mortgage Loans and other information prepared by the Electronic Agent pursuant to the Electronic Tracking Agreement. "MERS(R) System": The Electronic Agent's mortgage electronic registry system, as more particularly described in the MERS Procedures Manual. "MIDANET": The FHLMC automated system by which sellers and servicers of mortgage loans to FHLMC transfer mortgage summary and record data or mortgage accounting and servicing information from their computer system or service bureau to FHLMC, as more fully described in the FHLMC Guide. "Mortgage": A mortgage, deed of trust or other security instrument securing a Mortgage Note. "Mortgage File": As defined in Section 2(a). "Mortgage Loan": A GNMA Mortgage Loan, a FNMA Mortgage Loan or a FHLMC Mortgage Loan. "Mortgage Loan Schedule": As defined in Section 2(a). "Mortgage Note": A promissory note evidencing a Mortgage Loan. "Mortgaged Property": The property subject to the lien of the Mortgage securing a Mortgage Note. "Participant": UBS Real Estate Securities Inc. and its successors in interest, including, but not limited to, any lender, designee or Assignee to whom a Participation Certificate or a Security shall be pledged or assigned. "Participation Agreement": As defined in the recitals hereof. "Participation Certificate": A GNMA Participation Certificate, a FNMA Participation Certificate or a FHLMC Participation Certificate. "Securities Intermediary": As defined in Section 8-102(a)(14) of the Uniform Commercial Code. -5- "Security": A GNMA Security, a FNMA Security or a FHLMC Security. "Strict Compliance" shall mean compliance of the Sellers and the Mortgage Loans with the requirements of the GNMA, FNMA or FHLMC Guide, as applicable and as amended by any agreements between the Seller and the Applicable Agency, sufficient to enable the Seller to issue and GNMA to guarantee, or FNMA or FHLMC to issue and guarantee a Security, provided, however, that until copies of any such agreements between the related Seller and the Applicable Agency have been provided to the Participant by such Seller, such agreements shall be deemed, as between such Seller and the Participant, not to amend the requirements of the GNMA, FNMA or FHLMC Guide as applicable. "Successor Servicer": An entity, that is a GNMA-approved issuer, a GNMA-approved servicer, a FHA-approved mortgagee, a VA-approved lender, a FNMA-approved lender or FHLMC-approved seller/servicer, as applicable, in good standing and designated by Participant, to replace the related Seller as issuer and servicer, mortgagee or seller/servicer of the Mortgage Loans or the Securities related thereto. "Takeout Commitment": A trade confirmation from the Takeout Investor to the related Seller confirming the details of a forward trade between the Takeout Investor and such Seller with respect to one or more Securities, which trade confirmation shall be enforceable and in full force and effect, and shall be validly and effectively assigned to Participant pursuant to a trade assignment, and relate to pools of Mortgage Loans that satisfy the "good-delivery guidelines" of The Bond Market Association as set forth in the Association's Uniform Practices Manual. "Takeout Investor": A securities dealer or other financial institution, acceptable to Participant, who has made a Takeout Commitment. "Trade Price": The price specified in a Takeout Commitment at which a Takeout Investor is obligated to purchase the Security specified in such Takeout Commitment. "Warehouse Lender": Any lender providing financing to the related Seller for the purpose of originating Mortgage Loans, which lender has a security interest in such Mortgage Loans as collateral for the obligations of such Seller to such lender. "Warehouse Payment": As defined in Section 3(c). "Wire Instructions": The wire instructions set forth in a letter, in the form of Exhibit E, executed by the related Seller and the Warehouse Lender, receipt of which has been acknowledged by the Participant. -6- Section 2. Delivery of Documents. (a) The related Seller has delivered and released, or will deliver and release, to the Custodian the documents identified in the succeeding paragraph pertaining to each of the Mortgage Loans identified in the Mortgage Loan Schedule ("Mortgage Loan Schedule") attached to each Participation Certificate that may be issued from time to time pursuant to the Participation Agreement. A copy of each such Mortgage Loan Schedule has been, or will be, delivered by the related Seller to the Custodian at or before the time of delivery to the Custodian of such documents related to the Mortgage Loans identified in such Mortgage Loan Schedule. In addition, with respect to MERS Designated Mortgage Loans, the related Seller has delivered, or will deliver, to the Custodian the related MERS Report. No Participation Certificate shall be authenticated hereunder unless the related Seller shall have delivered to the Custodian the related Mortgage Loan Schedule and each of the following with respect to the Mortgage Loans identified in such Mortgage Loan Schedule: (i) The original Mortgage Note endorsed, "Pay to the order of ______________________________, without recourse" and signed in the name of the related Seller by an authorized officer; (ii) A Mortgage meeting one of the following requirements: (A) The original Mortgage bearing evidence that the Mortgage has been duly recorded in the records of the jurisdiction in which the Mortgaged Property is located; or (B) A copy of the Mortgage together with an officer's certificate (which may be a blanket officer's certificate of the related Seller covering all such Mortgage Loans), or a certificate from the recorder's office, certifying that such copy represents a true and correct reproduction of the original Mortgage and that such original has been duly recorded or delivered for recordation in the appropriate records of the jurisdiction in which the Mortgaged Property is located; or (C) With respect to each MERS Designated Mortgage Loan, the requirements set forth in the Electronic Tracking Agreement have been satisfied; (iii) Except in the case of a MERS Designated Mortgage Loan, an Assignment of Mortgage to GNMA, FNMA or FHLMC, as applicable, in recordable form but unrecorded (which Assignment of Mortgage may be in the form of a blanket assignment of two or more such Mortgage Loans to the extent permitted by applicable law) signed in the name of the related Seller by an authorized officer; (iv) If the related Seller did not originate a Mortgage Loan, all necessary intervening assignments to show a complete chain of title from the originating mortgagee to the related Seller (or, in the case of a MERS Designated Mortgage Loan, Mortgage Electronic Registration Systems, Inc.); -7- (v) Except in the case of a MERS Designated Mortgage Loan, a second Assignment of Mortgage, in blank, in recordable form but unrecorded (which Assignment of Mortgage may be in the form of a blanket assignment of two or more such Mortgages to the extent permitted by applicable law and the GNMA, FNMA or FHLMC Guide, as applicable) signed in the name of the related Seller by an authorized officer; and (vi) a letter (an "Exhibit B-1 Letter") substantially in the form of Exhibit B-1, from any Warehouse Lender having a security interest in the Mortgage Loans (except when the Warehouse Lender is the Participant) or, if there is no Warehouse Lender with respect to such Mortgage Loans, a letter (an "Exhibit B-2 Letter") substantially in the form of Exhibit B-2, from the related Seller, addressed to Participant, releasing any and all right, title and interest in such Mortgage Loans. The Mortgage Loan documents referred to in clause (i), (ii), (iii), (iv) and (v) of this Section 2(a), are referred to herein as the "Mortgage File", provided, however, that upon transmission by the Custodian by overnight courier of the document referenced in clause (i) of Section 2(a) to FHLMC when the related Seller has appointed FHLMC as custodian, the Mortgage File shall not include the document referenced in clause (i) of Section 2(a). Such Seller shall promptly deliver to the Custodian all additional original documents evidencing an assumption or modification of a Mortgage Loan approved by such Seller. (b) In addition, the related Seller shall (i) on the date of this Agreement, deliver to Custodian a certificate as to the incumbency and signature of each officer of such Seller executing any document in connection with this Agreement or the Participation Agreement and, thereafter, whenever there is a change in such certificate; and (ii) in respect of each Mortgage Loan identified in each Mortgage Loan Schedule and, at least one (1) Business Day for up to 250 Mortgage Loans (with an additional Business Day for each additional set of 250 Mortgage Loans) prior to the Authentication Date, (A) deliver to the Custodian for transmission to GNMA, FNMA or FHLMC, as the case may be, the documents listed in Exhibit C-1, Exhibit C-2 or Exhibit C-3, as applicable (the "Applicable Agency Documents"), which documents shall be fully completed and executed and sufficient to permit GNMA, FNMA or FHLMC, as the case may be, to deliver a Security in respect of the related Mortgage Loans, and (B) deliver to Participant a copy of the Seller's letter to Custodian listing all Applicable Agency Documents delivered by such Seller to the Custodian with respect to such Participation Certificate and in compliance with this Section 2(b). (c) The Custodian, in accordance with the provisions of Section 4, shall deliver to GNMA, FNMA or FHLMC, as the case may be, within one (1) Business Day of Certification (as defined below) the Applicable Agency Documents, fully completed and executed and sufficient to permit GNMA, FNMA or FHLMC, as the case may be, to deliver a Security in respect of the related Mortgage Loans. If the Custodian, for any reason whatsoever, is unable to complete and/or deliver the Applicable Agency Documents in compliance with this Section 2(c), the Custodian shall give prompt oral notice thereof to the Participant, followed by -8- written notice specifying the reason(s) therefor, which notice shall be delivered via facsimile transmission on the same day that oral notice is given. Section 3. Custodian as Custodian for, and Bailee of, Participant and Assignees. (a) With respect to each Mortgage Note and each Assignment of Mortgage (except with respect to MERS Designated Mortgage Loans) and all other documents constituting each Mortgage File which are delivered to the Custodian or which at any time come into the possession of the Custodian, the Custodian, subject to the provisions of paragraphs (b) and (c) of this Section, shall act solely in the capacity of custodian for, and bailee of, the Participant. The Custodian shall hold all documents constituting the Mortgage File received by it for the exclusive use and benefit of the Participant, and shall make disposition thereof only in accordance with the written instructions furnished by the Participant. The Custodian shall segregate and maintain continuous custody of all documents constituting the Mortgage File received by it in secure and fire-resistant facilities in accordance with customary standards for such custody and shall mark the file folders therefor to indicate that the Mortgage File is being held for the Participant. Notwithstanding anything in this Section 3 to the contrary, upon delivery of a Security to the Participant or its designee, the Custodian shall automatically cease to hold the related Mortgage File on behalf of the Participant, and this Agreement shall thereupon cease to be of any effect with respect thereto. The Custodian shall not be responsible to verify (i) the validity, legality, recordability, enforceability, sufficiency, due authorization or genuineness of any document in each Mortgage File or any of the Mortgage Loans or (ii) the collectability, insurability, effectiveness or suitability of any Mortgage Loan. (b) With respect to each Participation Certificate and/or each related Mortgage Note, Assignment of Mortgage and related Security, the Participant shall, upon assigning, pledging or granting a security interest therein to an Assignee, notify the Custodian and such Assignee in writing that it has assigned, pledged or granted a security interest in each Participation Certificate and/or each related Mortgage Note, Assignment of Mortgage and related Security to such Assignee. Subject to any limitations in any agreement between such Assignee and the Participant, such Assignee, upon notice, as provided in Section 16, may (i) require the Custodian to act with respect to the related Mortgage File solely in the capacity of custodian for, and bailee of, such Assignee, (ii) require the Custodian to hold such Mortgage File for the exclusive use and benefit of such Assignee, (iii) assume the rights of Participant under this Agreement to furnish written instructions to the Custodian as to the disposition of such Mortgage File and such rights shall be exercisable solely by such Assignee, (iv) require the Custodian to give such Assignee written acknowledgement to the effect set forth in clauses (i), (ii) and (iii), and (v) take all such actions under the Electronic Tracking Agreement which are necessary to effectuate any of the foregoing. The failure of the Custodian to give the written acknowledgement referred to in clause (iv) above shall not affect the validity of such assignment, pledge or grant of a security interest. The effects of the Participant's notice to the Custodian set forth in clauses (i) to (iii) above shall continue until the Custodian is otherwise notified in writing by such Assignee, except that upon the delivery of the Security to the Participant or its designee, the Custodian shall automatically cease to hold the Mortgage File on behalf of the Assignee, and this Agreement shall thereupon cease to be of any effect with respect thereto. Mortgage Notes and Assignments of Mortgages as to which the Participant has assigned, pledged or granted a -9- security interest to an Assignee are sometimes referred to in this Agreement as "Assigned Mortgage Loans." (c) The related Seller and the Participant acknowledge that the Warehouse Lender, if any, identified from time to time in each Exhibit B-1 Letter to be received by the Custodian pursuant to Section 2(a), is a Warehouse Lender for the related Seller. Such Seller and the Participant acknowledge that, in accordance with the terms of each Exhibit B-1 Letter to be received by the Custodian pursuant to Section 2(a) (except when the Warehouse Lender is the Participant), pursuant to which each such Warehouse Lender conditionally releases its security interest in Mortgage Loans referred to in the related Exhibit B-1 Letter, such release shall not be effective until the funds referred to in such Exhibit B-1 Letter (a "Warehouse Payment") are received in accordance with the Wire Instructions. Until receipt of a Warehouse Payment, the interest of the related Warehouse Lender in such Mortgage Loans shall continue and remain in full force and effect, and the Participant shall have no interest in the Mortgage Loans which is not subordinate to the interest of each Warehouse Lender in such Mortgage Loans. The related Seller and the Participant acknowledge and agree to the foregoing arrangements. (d) In order to enable the Custodian to make the Certification described in Section 4, Participant shall provide the Custodian with such information as it requests to complete the forms referenced in this subsection (upon which information the Custodian may conclusively rely) and shall, promptly after the execution of this Agreement, deliver to Custodian a limited power of attorney, in the form of Exhibit D (the "Limited Power"), authorizing the Custodian, as attorney-in-fact of the Participant, upon receipt of Exhibit F Letter, if applicable (i) to complete a new form HUD 11711A (Release of Security Interest), Fannie Mae Form 2004 (Security Release Certification), FHLMC Form 939 (Security Settlement Information and Delivery Authorization) or FHLMC Form 996 (Warehouse Lender Release of Security Interest), as applicable, naming the Participant as the "warehouse lender" on each such form with respect to the applicable Mortgage Loans; (ii) to substitute such completed forms for the corresponding forms, if any, previously delivered to the Custodian by the related Seller, naming a person other than the Participant as "warehouse lender;" and (iii) to include such completed substituted forms among the documents to be delivered by the Custodian pursuant to Section 4(ii). Section 4. Certification of Receipt by Custodian. Prior to authenticating a Participation Certificate, the Custodian shall ascertain that all documents required to be delivered to it pursuant to Section 2 in respect of each Mortgage Loan Schedule are in its possession and shall certify (the "Certification") to Participant that: (i) As to each Mortgage Loan listed in such Mortgage Loan Schedule, (A) all documents required to be delivered to it pursuant to Section 2(a) and (b) are in its possession, (B) such documents have been reviewed by it and appear regular on their face and relate to such Mortgage Loan, (C) based only on its examination of the foregoing documents, the information set forth in the Mortgage Loan Schedule respecting such Mortgage Loan is correct, (D) such Participation Certificate is the only outstanding Participation Certificate authenticated by it related to the specified mortgage pool (E) each Mortgage Note appears on its face to have been -10- endorsed as provided in Section 2 and (F) each such Mortgage Loan is listed on a schedule attached to an Exhibit B-1 Letter or Exhibit B-2 Letter, as the case may be. (ii) As to such Mortgage Loan Schedule, (A) the Applicable Agency Documents were received from the related Seller and have been reviewed by it, have been completed, appear regular on their face and relate to such Mortgage Loan Schedule, (B) either (x) such documents have been transmitted by the Custodian by overnight courier to GNMA, FNMA or FHLMC, as applicable or (y) upon receipt by the Custodian of the applicable Exhibit F Letter, the Applicable Agency Documents will be transmitted by the Custodian on the same day as such receipt, by overnight courier, to GNMA, FNMA or FHLMC, as applicable, and (C) with respect to the written instructions for delivery of the Securities to be issued with respect to such Mortgage Loans as set forth in the copies, delivered or to be delivered in completed form to GNMA, FNMA or FHLMC, as applicable, of (x) form HUD 11705 (Schedule of Subscribers) with respect to the GNMA Program, (y) Fannie Mae Form 2014 (Delivery Schedule) with respect to the FNMA Program or (z) FHLMC Form 939 (Settlement and Information Multiple Registration Form) with respect to the FHLMC Program, such instructions for delivery are identical to the instructions for delivery of such Securities set forth in the copies of such forms delivered to the Participant. As to each MERS Designated Mortgage Loan, the Custodian shall verify the related "MERS Identification Number" listed on the related Mortgage Note, the Mortgage Loan Schedule and the MERS Report. Upon receipt of all the documents required to be delivered to it pursuant to Section 2, Custodian shall execute the Participation Certificate and deliver to Participant by overnight courier the fully completed Participation Certificate and Mortgage Loan Schedule attached thereto, a copy of each Exhibit B-1 Letter or Exhibit B-2 Letter and a fully completed copy of (i) Form HUD 11705 (Schedule of Subscribers), (ii) Fannie Mae Form 2014 (Delivery Schedule) or (iii) a copy of FHLMC Form 381 (Contract Delivery Summary) and a copy of FHLMC Form 939 (Settlement and Information Multiple Registration Form), as the case may be, designating the Participant as the party authorized to receive the Securities, executed by the related Seller and relating to the Securities to be backed by the Mortgage Loans. The execution by the Custodian of each Participation Certificate shall constitute an express representation and warranty by the Custodian to the Participant that the Custodian has performed the Certification with respect to the Participation Certificate, the Mortgage Loans evidenced thereby and the documents referenced in Section 2 received from the related Seller in connection therewith. (iii) So long as the Custodian holds a Mortgage File on behalf of the Participant, in the event the Custodian discovers any nonconformity with the review criteria under this Section 4 with respect to such Mortgage File or the related forms, the Custodian shall give prompt oral notice of such -11- defect to the related Seller and the Participant, followed by a written specification thereof. Section 5. Custodian's Fees and Expenses; Successor Custodian. (a) It is understood that the Custodian will charge such fees for its services under this Agreement as are set forth in a separate agreement between the Custodian and the related Seller, the payment of which, together with the Custodian's expenses in connection herewith, shall be solely the obligation of the related Seller. The Custodian has no lien on, and shall not attempt to place a lien on, any of the Mortgage Loans or proceeds thereof to secure the payment of its fees. (b) The Custodian or any successor Custodian may resign at any time by giving thirty (30) days' written notice to the related Seller and the Participant. Such resignation shall take effect upon (i) the appointment of a successor Custodian by the related Seller, which successor Custodian shall be a bank or trust company acceptable to the Participant, each Assignee and to GNMA, FNMA or FHLMC, as applicable, and (ii) delivery of all the Mortgage Files to the successor Custodian. If a successor is not appointed within such 30 day notice period, the Custodian may petition a court of competent jurisdiction to appoint a successor Custodian. (c) The related Seller may (and shall, upon the written request of the Participant) at any time remove and discharge the Custodian or any successor Custodian thereafter appointed from the performance of its duties under this Agreement by written notice from such Seller to the Custodian or the successor Custodian, with copies to the Participant. Such removal shall take effect upon (i) the appointment of a successor Custodian by such Seller, which Custodian shall be a bank or trust company acceptable to the Participant, each Assignee and to GNMA, FNMA or FHLMC, as applicable, and (ii) delivery of all the Mortgage Files to the successor Custodian. (d) In the event of any such resignation or removal, the Custodian shall, at the expense of the related Seller, promptly transfer to the successor Custodian within thirty (30) days all Mortgage Files being administered under this Agreement and the successor Custodian shall hold such Mortgage Files in accordance with this Agreement. In the event of any such appointment, the related Seller shall be responsible for the fees of the successor Custodian. (e) The related Seller agrees to indemnify, reimburse and hold harmless the Custodian, its directors, officers, employees and agents from and against any and all liability, loss and expense, including counsel fees and disbursements arising from or connected with the Custodian's execution and performance of this Agreement including but not limited to claims of third parties, including the Participant, except in the case of loss, liability or expenses resulting from the gross negligence or willful misconduct on the part of the Custodian. The foregoing indemnification shall survive the earlier resignation or removal of the Custodian and termination or assignment of this Agreement. (f) The standard of care to be exercised by Custodian in the performance of its duties under this Agreement shall be to exercise the same degree of care as Custodian exercises when it holds mortgage loan documents as security for similar mortgage warehouse customers. Custodian is an agent, bailee and custodian only and is not intended to be, nor shall it be -12- construed to be (except only as agent, bailee and custodian), a representative, trustee or fiduciary of or for either the related Seller, the Agency, Participant or Assignee. The Custodian shall not be bound in any way by any agreement or contract other than this Agreement and the exhibits and schedules hereto and any other agreement to which it is a party. The Custodian shall not be required to ascertain or inquire as to the performance or observance of any of the conditions or agreements to be performed or observed by any other party, except as specifically provided in this Agreement and the exhibits and schedules hereto. The Custodian disclaims any responsibility for the validity or accuracy of the recitals to this Agreement and any representations and warranties contained herein, unless specifically identified as recitals, representations or warranties of the Custodian. (i) Throughout the term of this Agreement, other than as specifically set forth in this Agreement, the Custodian shall have no responsibility ascertaining or verifying the value, legality, collectibility, sufficiency, due authorization, insurability, enforceability, effectiveness or suitability of any collateral, the title of any party therein, the validity or adequacy of the security afforded thereby, or the validity of this Agreement (except as to Custodian's authority to enter into this Agreement and to perform its obligations hereunder). (ii) No provision of this Agreement shall require the Custodian to expend or risk 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 and powers, if, in its sole judgment, it shall believe that repayment of such funds or indemnity satisfactory to it against such risk or liability is not assured to it. (iii) The Custodian is not responsible for preparing or filing any reports or returns relating to federal, state or local income taxes with respect to this Agreement, other than for the Custodian's compensation or for reimbursement of expenses. (iv) Neither the Custodian nor any of its directors, attorneys, agents, and employees shall be liable with respect to any action taken or omitted to be taken in accordance with the written direction, instruction, acknowledgement, consent or any other communication from the Participant. (v) If the Custodian requests written instruction from the Participant with respect to any action or omission in connection with this Agreement, the Custodian shall be entitled (without incurring any liability therefore) to refrain from taking such action unless and until Custodian receives written instructions from the Participant. (vi) In the event that (i) the Participant, one of the Sellers or the Custodian shall be served by a third party with any type of levy, attachment, writ or court order with respect to any Mortgage File or any document included -13- within a Mortgage File or (ii) a third party shall institute any court proceeding by which any Mortgage File or a document included within a Mortgage File shall be required to be delivered otherwise than in accordance with the provisions of this Custodial Agreement, the party receiving such service shall promptly deliver or cause to be delivered to the other parties to this Custodial Agreement copies of all court papers, orders, documents and other materials concerning such proceedings. The Custodian shall, to the extent permitted by law and any court order, continue to hold and maintain all Mortgage Files that are the subject of such proceedings pending an order of a court of competent jurisdiction permitting or directing disposition thereof. Upon final determination of such court, and if permitted by such determination, the Custodian shall dispose of such Mortgage File or any document included within such Mortgage File as directed in writing by the Participant in writing, which shall give a direction consistent with such court determination. The Custodian shall have no obligation to monitor or appear in any such proceeding on behalf of or in the name of the Participant or any of the Sellers. Expenses and fees (including, without limitation, attorney's fees) of the Custodian incurred as a result of such proceedings shall be borne by the Sellers. (vii) The Custodian may consult with counsel and the advice or any opinion of counsel shall be full and complete authorization and protection in respect of any action taken or omitted by it hereunder in good faith in accordance with such advice or opinion of counsel. (viii) In the absence of bad faith on the part of the Custodian, the Custodian may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any request, instructions, certificate, opinion or other document furnished to the Custodian, reasonably believed by the Custodian to be genuine and to have been signed or presented by the proper party or parties. (ix) In no event shall the Custodian or its directors, officers, agents and employees be held liable for any special, indirect or consequential damages resulting from any action taken or omitted to be taken by it or them hereunder or in connection herewith even if advised of the possibility of such damages. Section 6. Default. If the related Seller fails to fulfill any of its obligations under the Participation Agreement, the Electronic Tracking Agreement or hereunder or in connection with the exercise by Participant of any remedy pursuant to Section 3(c) of the Participation Agreement then, subject to the provisions of Section 3(b), the Participant may, by written notice to the Custodian, at the Seller's expense (a) require the Custodian to complete the endorsements on the Mortgage Notes held by the Custodian and/or (b) require the Custodian to deliver to Participant or Successor Servicer the Mortgage Files to which the failure relates and -14- (c) take such actions under the Electronic Tracking Agreement on behalf of the Purchaser as are necessary to effectuate the foregoing. Section 7. Access to Documents. Upon reasonable prior written notice to the Custodian, the Participant (and with respect to Assigned Mortgage Loans, each Assignee) and their agents, accountants, attorneys and auditors will be permitted during normal business hours to examine and copy the Mortgage Files, documents, records and other papers in possession of or under the control of the Custodian relating to any or all of the Mortgage Loans in which the Participant has an interest. Upon the written request of the Participant (and with respect to Assigned Mortgage Loans, each Assignee) and at the cost and expense of the Participant, the Custodian shall provide the Participant (and with respect to Assigned Mortgage Loans, each Assignee) with copies of the Mortgage Notes, Mortgages, Assignment of Mortgages and other documents relating to any of the Mortgage Loans in which the Participant (and with respect to Assigned Mortgage Loans, each Assignee) has an interest. -15- Section 8. Assignment by Participant. The Participant may assign, pledge or grant a security interest in any or all of its rights under this Agreement and the Electronic Tracking Agreement to one or more Assignees in connection with the assignment, pledge or grant of a security interest in a Participation Certificate, and/or related Mortgage Notes, Assignments of Mortgages and related Security. In addition to the notice required by Section 3(b), the Participant shall give written notice thereof to the related Seller and the Custodian. The failure of the Participant to give such notice shall not affect the validity of any such assignment, pledge or grant of a security interest. If the Participant does, however, fail to give such notice to the related Seller and the Custodian, then the Assignee may give such notice to such Seller and the Custodian. Upon receipt of such notice by the related Seller and the Custodian, copies of all communications required to be sent hereunder to the Participant shall be sent to both the Participant and each Assignee (at its address set forth in such notice of assignment). Subject to any limitations in any agreement between such Assignee and the Participant, such Assignee may, upon notice as provided in Section 16 hereof, directly enforce and exercise such rights under this Agreement that have been assigned or pledged to it or are the subject of a security interest granted to it and, until otherwise notified by such Assignee, the Participant shall no longer have any of such rights. Section 9. Insurance. The Custodian shall, at its own expense, maintain at all times during the existence of this Agreement (a) fidelity insurance, (b) theft of documents insurance, (c) forgery insurance and (d) errors and omissions insurance. All such insurance shall be in amounts, with standard coverage and subject to deductibles, all as is customary for insurance typically maintained by banks which act as custodians and be in such amounts and a certificate of the respective insurer as to each such policy, with a copy of such policy attached, shall be furnished to the Participant, upon request. Section 10. Representations, Warranties and Covenants of the Custodian. The Custodian hereby represents and warrants to, and covenants with, the Sellers and the Participant that, as of the date hereof and at all times while Custodian is performing services under this Agreement: (a) The Custodian is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and fully satisfies the requirements for acting as a GNMA custodian, a FNMA custodian and a FHLMC custodian, and (b) The Custodian has the full power and authority to hold each Mortgage Loan and to execute, deliver and perform, and to enter into and consummate all transactions contemplated by, this Agreement, has duly authorized the execution, delivery and performance of this Agreement and has duly executed and delivered this Agreement, and this Agreement constitutes a legal, valid and binding obligation of the Custodian, enforceable against it in accordance with its terms except as the enforcement thereof may be limited by applicable receivership, conservatorship or similar debtor relief laws and except that certain equitable remedies may not be available regardless of whether enforcement is sought in equity or law. (c) Neither the execution and delivery by the Custodian of this Agreement, nor the consummation by the Custodian of any of the transactions contemplated hereby, nor the -16- fulfillment by the Custodian of the terms hereof, will conflict with, or violate, result in a material breach of or constitute a material default (with or without notice or lapse of time, or both) under any term or provision of the Certificate of Incorporation, By-laws or similar governing document of the Custodian or any governmental rule applicable to the Custodian. Section 11. Indemnification by Custodian. The Custodian agrees to indemnify and hold the Sellers and Participant, and their respective designees harmless against any and all liabilities, obligations, losses, damages, penalties, actions, judgements, suits, costs, or out-of-pocket expenses, including reasonable attorney's fees, that may be imposed on, incurred by, or asserted against it or them in any way relating to or arising out of the Custodian's gross negligence or willful misconduct or any breach of the covenants, conditions, representations or warranties contained herein or, solely with respect to Participant, Custodian's failure to produce a Mortgage Note, Assignment of Mortgage or any other document related to a Mortgage Loan that as in its possession pursuant to Section 2 within two (2) Business Days after required or requested by the Participant, and provided, that (i) Custodian previously delivered to the Participant a Certification with respect to such document (other than any Mortgage Loan identified in the exception report annexed thereto as not covered by such certification); (ii) such document has not been delivered to another party or at another party's direction in accordance with the terms of this Agreement; and (iii) such document was held by the Custodian on behalf of the Participant. The foregoing indemnification shall survive any termination or assignment of this Agreement. Section 12. No Adverse Interests. By its acceptance of each Mortgage File, the Custodian covenants and warrants to the Participant that the Custodian holds no adverse interests, by way of security or otherwise, in the related Mortgage Loan and the Custodian hereby waives and releases any such interest in such Mortgage Loan which it, acting as Custodian, has or which it may thereafter acquire prior to the time of release of such Mortgage Loan from the terms of this Agreement. Section 13. Amendments. This Agreement may be amended from time to time only by written agreement of the Sellers, the Participant and the Custodian except that, if this Agreement or any Participation Certificate shall have been assigned by Participant, no amendment shall affect any Mortgage Loans that relate to Participation Certificates that have been so assigned. Participant shall give at least five (5) days' prior written notice to each Assignee of any proposed amendment to this Agreement and shall furnish each Assignee with a copy of each such amendment within five days after it is executed and delivered. Section 14. Recordation of Agreement. To the extent permitted by applicable law, this Agreement shall be filed and/or recorded by any Seller at its expense in all appropriate public offices on direction by the Participant accompanied by an opinion of counsel to the Participant (who may also be counsel employed by the Participant) to the effect that such filing and/or recordation would materially and beneficially affect the interests of the Participant. Section 15. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. -17- Section 16. Agreement for Exclusive Benefit of Parties; Assignment. This Agreement is for the exclusive benefit of the parties hereto and their respective successors and permitted assigns hereunder and shall not be deemed to give any legal or equitable right, remedy or claim to any other person whatsoever. This Agreement shall bind the parties hereto and their respective successors, but, except as provided in Section 8, shall not be assigned or pledged by any party without the prior written consent of the other parties. Written notice from an Assignee to the Custodian (with a copy to the Participant) that the Participant has defaulted in any material respect under any funding or loan agreement relating to the financing of the Participant's purchase of Participation Certificates shall be conclusive for all purposes of this Agreement and after receipt of such notice, the Custodian shall act in accordance with the written instructions of the Assignee with respect to the related Mortgage Files. Section 17. Effect of Invalidity of Provisions. In case any one or more of the provisions contained in this Agreement should be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or therein shall in no way be affected, prejudiced or disturbed thereby. Section 18. 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. Section 19. Consent to Service. Each party irrevocably consents to the service of process by registered or certified mail, postage prepaid, to it at its address given in or pursuant to Section 23. Section 20. Submission to Jurisdiction. With respect to any claim arising out of this Agreement each party (a) irrevocably submits to the nonexclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City, and (b) irrevocably waives (i) any objection which it may have at any time to the laying of venue of any suit, action or proceeding arising out of or relating hereto brought in any such court, (ii) any claim that any such suit, action or proceeding brought in any such court has been brought in any inconvenient forum and (iii) the right to object, with respect to such claim, suit, action or proceeding brought in any such court, that such court does not have jurisdiction over such party. Section 21. Jurisdiction Not Exclusive. Nothing herein will be deemed to preclude either party hereto from bringing an action or proceeding in respect of this Agreement in any other jurisdiction other than as set forth in Section 20. -18- Section 22. Waiver of Jury Trial. Each party hereto irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement, any other agreement or the transactions contemplated hereby or thereby. Section 23. Notices. Any notices, consents, directions and other communications given under this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered at, or mailed by first-class mail, postage prepaid and sent to the addresses of the parties hereto set forth on the cover page hereof or such other address as any party shall give in a notice to the other parties pursuant to this Section. Section 24. Authentication. No Participation Certificate shall be valid unless authenticated by the manual signature of an authorized officer of the Custodian. The Custodian hereby acknowledges that each time it authenticates a Participation Certificate, it is making an express representation and warranty to the Participant that it has performed the Certification as specified in Section 4. Section 25. Construction. The headings in this Agreement are for convenience only and are not intended to influence its construction. References to Sections and Exhibits in this Agreement are to the Sections of and Exhibits to this Agreement. The Exhibits are part of this Agreement. In this Agreement, the singular includes the plural, the plural the singular, and the words "and" and "or" are used in the conjunctive or disjunctive as the sense and circumstances may require. Section 26. Effect of Amendment and Restatement. Upon the execution of this Agreement and the Purchase Agreement by all parties hereto and thereto, the Original Custodial Agreement shall be amended, restated and superseded in its entirety by this Agreement. The parties hereto acknowledge and agree that (a) the liens and security interests granted under the Original Custodial Agreement are in full force and effect and, upon the amendment and restatement of the Original Custodial Agreement and the related documents, such liens and security interests secure and continue to secure the payment and performance of Seller's obligations under this Agreement and the related documents, and (b) upon the effectiveness of such amendment and restatement, all outstanding Mortgage Loans under, and as defined in, the Original Custodial Agreement, shall be deemed to be outstanding as Mortgage Loans hereunder mutatis mutandis, in each case on the terms and conditions set forth in this Agreement. [SIGNATURES COMMENCE ON FOLLOWING PAGE] -19- IN WITNESS WHEREOF, the Sellers, Purchaser and Custodian have caused this Agreement to be duly executed as of the date and year first above written. AMERICAN HOME MORTGAGE INVESTMENT CORP. By: /s/ Michael Strauss --------------------------------- Name: Michael Strauss Title: President AMERICAN HOME MORTGAGE ACCEPTANCE, INC. By: /s/ Michael Strauss --------------------------------- Name: Michael Strauss Title: President AMERICAN HOME MORTGAGE HOLDINGS, INC., as Seller By: /s/ Michael Strauss --------------------------------- Name: Michael Strauss Title: President AMERICAN HOME MORTGAGE CORP., as Seller By: /s/ Michael Strauss --------------------------------- Name: Michael Strauss Title: President COLUMBIA NATIONAL, INCORPORATED, as Seller By: /s/ Michael Strauss --------------------------------- Name: Michael Strauss Title: President UBS REAL ESTATE SECURITIES INC., as Purchaser By: /s/ George A. Mangiaracina -------------------------------- Name: George A. Mangiaracina Title: Managing Director By: /s/ Robert Carpenter ------------------------------ Name: Robert Carpenter Title: Director DEUTSCHE BANK NATIONAL TRUST COMPANY, as Custodian By: /s/ Andrew Hays ------------------------------ Name: Andrew Hays Title: Associate By: /s/ Jerome W. Harney ------------------------------ Name: Jerome W. Harney Title: Vice President EX-10.8 9 am033104-ex10_8.txt AMENDED AND RESTATED EMPLOYMENT AGREEMENT Exhibit 10.8 AMENDED AND RESTATED EMPLOYMENT AGREEMENT This Amended and Restated Employment Agreement (this "Agreement") is made as of April 27, 2004, by and between American Home Mortgage Holdings, Inc., a Delaware corporation (the "Company"), and John A. Johnston (the "Executive"). WHEREAS, reference is made to that certain Agreement and Plan of Merger, dated as of December 29, 1999, by and among the Company, American Home Mortgage Sub I, Inc., Marina Mortgage Company, Inc. ("Marina") and the stockholders of Marina listed on the signature pages thereto (the "Merger Agreement"); WHEREAS, in connection with the Merger Agreement, the Company and the Executive previously entered into that certain Employment Agreement, dated as of December 29, 1999 (the "Original Employment Agreement"), by and between the Company and the Executive, and that certain Non-Competition Agreement, dated as of December 29, 1999 (the "Non-Competition Agreement"), by and between the Company and the Executive; WHEREAS, the Company desires to continue to assure itself of the services of the Executive, upon the terms and conditions hereinafter set forth; WHEREAS, the Executive desires to continue to be employed by the Company, upon the terms and conditions hereinafter set forth; and WHEREAS, it is the intention of the Company and the Executive that, as of the Effective Date (as hereinafter defined), this Agreement shall supersede and replace in full any and all other agreements between the parties with respect to the subject matter hereof, including, but not limited to, the Original Employment Agreement and the Non-Competition Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Executive hereby agree as follows: 1. Definitions. Unless defined elsewhere in this Agreement, capitalized terms contained herein shall have the meanings set forth or incorporated by reference in Section 18 hereof. 2. Employment. The Company agrees to employ the Executive, and the Executive hereby accepts such employment by the Company and/or any subsidiary or affiliate of the Company, during the term set forth in Section 3 hereof and upon the other terms and conditions of this Agreement. 3. Term. (a) The term of this Agreement shall commence as of January 1, 2004 (the "Effective Date"), and, subject to Section 3(b) hereof, shall terminate at the close of business on the fifth anniversary of such date (the "Fifth Anniversary"). (b) The term of this Agreement set forth in Section 3(a) hereof shall be extended or further extended, as the case may be, without any action by the Company or the Executive, on the Fifth Anniversary and on each subsequent anniversary of the date thereof, for an additional period of one year, until either party gives a Notice of Termination (as defined in Section 7(g) hereof) to the other party twelve months in advance of any such anniversary of the Effective Date, in the manner set forth in Section 15 hereof, that the term in effect when such notice is given is not to be extended or further extended, as the case may be, beyond the year following the next anniversary of the Effective Date. If the Executive shall continue in the full-time employment of the Company after the Fifth Anniversary, such continued employment shall be subject to the terms and conditions of this Agreement, including, without limitation, the continuation of the Executive's compensation hereunder, except to the extent that the parties hereto mutually agree in writing to revise any of the terms hereof. 4. Position, Duties and Responsibilities, Rights. (a) From the Effective Date until the Fifth Anniversary, the Executive shall serve as, and be elected to and hold the office and title of, President, Western Division, of the Company. As such, the Executive shall report only to the Chief Executive Officer of the Company, and shall have all of the powers and duties usually incident to the office of President of the Western Division of the Company, and shall have powers to perform such other reasonable additional duties as may from time to time be lawfully assigned to the Executive by the Chief Executive Officer of the Company. Among other duties, the Executive shall be responsible for profit and loss and sales management for the Company's Western Division. (b) During the term of this Agreement, the Executive agrees to devote substantially all of the Executive's time, efforts and skills to the affairs of the Company during the Company's normal business hours, except for vacations, illness and incapacity, but nothing in this Agreement shall preclude the Executive from devoting reasonable periods to (i) manage the Executive's personal investments, (ii) participate in professional, educational, public interest, charitable, civic or community activities, including activities sponsored by trade organizations, and (iii) serve as a director or member of an advisory committee of any corporation not in competition with the Company or any of its subsidiaries or affiliates, or as an officer, trustee or director of any charitable, educational, philanthropic, civic, social or industry organizations, or as a speaker or arbitrator; provided, however, that the performance of the Executive's duties or responsibilities in any of such capacities does not materially interfere with the regular performance of the Executive's duties and responsibilities hereunder. 5. Place of Performance. In connection with the Executive's employment by the Company, the Executive shall be based at the principal executive offices of the Company's Western Division, and shall not be required to be absent therefrom on travel status or otherwise -2- for more than a reasonable time each year as necessary or appropriate for the performance of the Executive's duties hereunder. 6. Compensation. During the term of this Agreement, the Executive shall be compensated by the Company as follows: (a) Base Salary. The Company shall pay the Executive, and the Executive agrees to accept, a base salary in the amount of not less than $400,000 per year, which amount may be increased by the Company in its sole discretion (the "Base Salary"). The Base Salary shall be paid in 24 equal bi-monthly installments; provided, however, in the event that the Company changes its normal payroll cycle, such payment installments will be adjusted accordingly. (b) Payments under Section 2.4(f) of the Merger Agreement. The Company shall pay the Executive any amounts due under Section 2.4 of the Merger Agreement on the terms and subject to the conditions set forth in the Merger Agreement. In lieu of the Company's obligation to make such payments under Section 2.4 of the Merger Agreement, the Company agrees to make such payments under this Agreement. Section 2.4(f) of the Merger Agreement and any defined terms used in said section and defined in the Merger Agreement shall be deemed incorporated by reference herein. The Company agrees to treat any payments of such amounts in all respects as if they had been paid pursuant to the Merger Agreement. (c) Performance-Based Compensation. (i) Volume Override Payment. (A) Subject to the provisions of Section 6(c)(iii) below, for each fiscal year of the Company during the term of this Agreement, the Executive shall receive in cash an amount equal to one-quarter (0.25) of a basis point of Origination Volume of loan production of the Western Division (the "Volume Override Payment"), which Volume Override Payment may be adjusted in respect of a given fiscal year in accordance with Section 6(c)(ii) hereof. (B) The Volume Override Payment provided in Section 6(c)(i) hereof shall be subject to adjustment as follows: (1) For the fiscal year ended December 31, 2004, the Volume Override Payment shall be increased by the Payment Multiplier; and (2) For all fiscal years subsequent to the fiscal year ended December 31, 2004, but during the term of this Agreement, the Volume Override Payment may, in the sole discretion of the Chief Executive Officer, be increased by a multiplier (which, if any, may be equal to, greater than or less than the Payment Multiplier) to be determined in good faith by the Chief Executive Officer; provided, however, that in no event shall the Chief Executive Officer be obligated to increase the Volume Override Payment by any multiplier in respect of any such fiscal year. -3- (ii) Profit Participation Payment. (A) Subject to the provisions of Section 6(c)(iii) below, for each fiscal year of the Company during the term of this Agreement, the Executive shall receive three and one-quarter percent (3.25%) of the difference between any Profits of the Western Division less the amount of the Invested Capital Charge (the "Profit Participation Payment"). (B) The Profit Participation Payment provided in Section 6(c)(ii) hereof shall be subject to adjustment as follows: (1) For the fiscal year ended December 31, 2004, the Profit Participation Payment shall be increased by the Payment Multiplier; and (2) For all fiscal years subsequent to the fiscal year ended December 31, 2004, but during the term of this Agreement, the Profit Participation Payment may, in the sole discretion of the Chief Executive Officer, be increased by a multiplier (which, if any, may be equal to, greater than or less than the Payment Multiplier) to be determined in good faith by the Chief Executive Officer; provided, however, that in no event shall the Chief Executive Officer be obligated to increase the Profit Participation Payment by any multiplier in respect of any such fiscal year. (iii) Payment of Volume Override Payment and Profit Participation Payment. (A) Notwithstanding any other provisions contained in this Agreement or otherwise, the aggregate Volume Override Payment and Profit Participation Payment, if any, due the Executive in respect of any fiscal year during the term of this Agreement, shall be reduced by any amounts payable to the Executive under Section 6(b) above for such fiscal year. (B) The Company shall calculate and pay any Volume Override Payment and/or Profit Participation Payment due the Executive on an annual basis and any such payments shall be paid in a lump sum no later than March 31 of the fiscal year that immediately follows the fiscal year to which such payment relates. (iv) Determination of Volume Override Payment and Profit Participation Payment. Within 60 days after the end of each fiscal year during the term of this Agreement, the Company shall determine the amount of any Volume Override Payment and Profit Participation Payment due to the Executive (a "Payment Determination") and furnish the Payment Determination to the Executive together with information respecting the basis for such Payment Determination. After receipt of the Payment Determination, the Executive may request from the Company an audit of the Payment Determination (a "Payment Audit"), which Payment Audit shall be performed by the Company's independent public accountants at such time. Any request by the Executive for a Payment Audit must be in writing and must be received by the Company within 30 days of the Executive's receipt of the Payment Determination. The Company -4- shall bear the cost of any Payment Audit requested by the Executive under this Section 6(c)(iv); provided, however, that if the Volume Override Payment or Profit Participation Payment determined by the Company's independent public accountants after conducting the Payment Audit is not more than one percent (1%) greater than amount of the Volume Override Payment or Profit Participation Payment in the Payment Determination, the Executive shall bear the full cost of the Payment Audit. (d) Payments under Section 2.4(e) of the Merger Agreement. The Company shall continue to pay the Executive any amounts due to the Executive under Section 2.4(e) of the Merger Agreement on the terms and conditions set forth in the Merger Agreement. (e) Perquisites and Reimbursement of Expenses. During the term of this Agreement, the Executive shall be entitled to (i) perquisites, including, without limitation, an office and secretarial and clerical staff, and (ii) fringe benefits, including, without limitation, health insurance, in each case at least equal to, and on the same terms and conditions as, those attached to the Executive's office on the date hereof, as the same may be improved from time to time during the term of this Agreement, as well as to reimbursement, upon proper accounting, of all reasonable expenses and disbursements incurred by the Executive in the course of the Executive's duties. (f) Dependents and Beneficiaries. The Executive and the Executive's dependents and beneficiaries shall be entitled to all benefits and service credit for benefits during the term of this Agreement to which senior officers of the Company and their dependents and beneficiaries are entitled as the result of the employment of such officers during the term of this Agreement under the terms of employee plans and practices of the Company and its subsidiaries and affiliates, including, without limitation, any pension plans, profit sharing plans, any non-qualified deferred compensation plans and related "rabbi" trusts, the Company's life insurance plans, its disability benefit plans, its vacation and holiday pay plans, its medical, dental and welfare plans, and other present or successor plans and practices of the Company and its subsidiaries and affiliates for which senior officers, their dependents and beneficiaries are eligible, and to all payments and other benefits under any such plan or practice subsequent to the term of this Agreement as a result of participation in such plan or practice during the term of this Agreement. 7. Termination of Employment. (a) The term of this Agreement shall terminate upon the death of the Executive. (b) The Company may terminate the Executive's employment during the term of this Agreement for Cause as provided in Section 7(b)(i) hereof or in the event of Disability as provided in Section 7(b)(ii) hereof. (i) This Agreement shall be considered terminated for "Cause" only: (A) if the Executive willfully fails to substantially perform the duties assigned to him by the Chief Executive Officer, other than by reason of a Disability; -5- (B) if the Executive is grossly negligent or engages in gross misconduct in the performance of the Executive's duties hereunder; (C) if the Executive knowingly engages in an act of dishonesty, an act of fraud or embezzlement, or any conduct resulting in a felony conviction; or (D) if the Executive violates the provisions of Section 9 hereof, and, in the case of each of clauses (A), (B) (C) and (D) above, the applicable conditions set forth in Section 7(f) hereof are satisfied. Anything in this Section 7(b) to the contrary notwithstanding, the Executive's employment shall in no event be considered terminated by the Company for Cause if termination takes place as the result of bad judgment or negligence on the part of the Executive other than gross negligence or willful or reckless misconduct. (ii) The term "Disability" as used in this Agreement means an accident or physical or mental illness which prevents the Executive from substantially performing the Executive's duties hereunder for six consecutive months. The term of this Agreement shall end as of the close of business on the last day of such six-month period but without prejudice to any payments due to the Executive in respect of disability under this Agreement or any plan or practice of the Company. The amount of any payments payable under Section 6(a)(i) or (b)(i) hereof during such six-month period shall be reduced by any payments to which the Executive may be entitled for the same period because of disability under any disability or pension plan or arrangement of the Company or any subsidiary or affiliate thereof. (c) The Executive may terminate the Executive's employment during the term of this Agreement for Good Reason. For purposes of this Agreement, "Good Reason" shall mean (i) a reduction of the Executive's rate of compensation or any other failure by the Company to comply with Section 6 hereof; (ii) failure by the Company to comply with Section 5 hereof; (iii) failure by the Company to obtain the assumption of, and the agreement to perform, this Agreement by any successor as contemplated in Section 11(a) hereof; or (iv) such reduction described in the foregoing clause (i) or failure or breach described in the foregoing clauses (ii) or (iii), as the case may be, is not cured within 30 days after receipt by the Company of written notice from the Executive describing such event. (d) In accordance with Section 3(b) hereof, the Company or the Executive may terminate the Executive's employment under this Agreement by delivering a Notice of Termination to the other party stating that the term of this Agreement in effect when such notice is given is not to be extended or further extended, as the case may be, beyond the Fifth Anniversary or the year following the applicable anniversary of the Effective Date. (e) Notwithstanding anything to the contrary set forth herein, the Company shall have the right to terminate the Executive's employment for any reason other than Cause at any time, subject to the consequences of such termination as set forth in Section 8 hereof. -6- (f) In no event shall the Company be entitled to terminate the Executive's employment during the term of this Agreement for Cause pursuant to Section 7(b) hereof, unless and until all of the following take place, provided that Sections 7(f)(i) through (iii) shall not apply to any termination for Cause pursuant to Section 7(b)(i)(C): (i) the Secretary of the Company gives written notice to the Executive (the "Warning Notice") setting forth (A) the specific provision(s) of this Agreement that the Executive is alleged to have failed to satisfy, (B) the acts or omissions alleged to constitute such failure, (C) the date on which the Executive shall be given a reasonable opportunity to appear before and be heard by the Board of Directors of the Company concerning the allegations, which date shall be not less than 30, nor more than 90, days after the Executive's receipt of the Warning Notice, and (D) the loss of rights under this Agreement that shall occur unless the Executive diligently and in good faith takes reasonable steps to remedy such failure within 30 days after the Executive's receipt of the Warning Notice; (ii) the Executive does not diligently and in good faith take all reasonable steps to remedy such failure within 30 days after the Executive's receipt of the Warning Notice; and (iii) the Executive is given a reasonable opportunity to appear before and be heard by the Board of Directors concerning the allegations, in accordance with the Warning Notice. (g) Any termination by the Company pursuant to Section 7(b) hereof, by the Executive pursuant to Section 7(c) hereof, or by the Company or the Executive pursuant to Section 7(d) hereof, shall be communicated by a Notice of Termination to the other party hereto. For purposes of this Agreement, "Notice of Termination" shall mean (i) with respect to termination pursuant to Sections 7(b) or 7(c) hereof, a written notice which indicates the specific termination provision(s) in this Agreement relied upon and sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision(s) so indicated, and (ii) with respect to termination pursuant to Section 7(d) hereof, written notice by one party to the other party that the term of this Agreement in effect when such notice is given is not to be extended or further extended, as the case may be, beyond the Fifth Anniversary or the year following the applicable anniversary of the Effective Date, which notice must be given twelve months in advance of the Fifth Anniversary or the applicable anniversary of the Effective Date. (h) "Date of Termination" shall mean (i) if the Executive's employment is terminated by the Executive's death, the date of the Executive's death, (ii) if the Executive's employment is terminated pursuant to Section 7(b)(ii) hereof, 30 days after Notice of Termination is given (provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such 30-day period), and (iii) if the Executive's employment is terminated for any other reason, the date on which Notice of Termination is given. -7- 8. Compensation on Termination. The parties recognize and agree that, if the Company terminates the Executive's employment during the term of this Agreement other than pursuant to Section 7(b) hereof, or if the Executive terminates the Executive's employment during the term of this Agreement for Good Reason pursuant to Section 7(c) hereof, the actual damages to the Executive would be difficult if not impossible to ascertain and agree that the Executive's sole remedy shall be a right to receive amounts determined and paid in accordance with the provisions of this Section 8. The Executive shall not be required to mitigate the amount of any payment provided for in this Section 8 by seeking other employment or otherwise, nor shall any compensation earned by the Executive in other employment or otherwise reduce the amount of any payment provided for in this Section 8. (a) If the Company shall terminate the Executive's employment during the term of this Agreement other than pursuant to Section 7(b) hereof, or if the Executive shall terminate the Executive's employment during the term of this Agreement for Good Reason pursuant to Section 7(c) hereof, or if the Executive's employment shall terminate by reason of the Company electing not to extend or further extend the term of this Agreement pursuant to Section 3(b) hereof, then, as severance pay or liquidated damages or both: (i) the Company shall pay to the Executive the Executive's Base Salary at the rate in effect at the time Notice of Termination is given for a period of three (3) years from the Date of Termination, together with any other amounts payable to the Executive under Section 6 hereof for periods prior to the Date of Termination (the Base Salary payable to the Executive after termination of employment under this Section 8(a)(i) shall be paid in 24 equal bi-monthly installments per year, in accordance with the Company's normal payroll cycle; provided, however, in the event that the Company changes its normal payroll cycle, such payment installments will be adjusted accordingly); (ii) the Company shall make any payments if and when due to the Executive under Sections 6(b) and 6(d) hereof; and (iii) for a period of three (3) years from the Date of Termination, the Executive and his dependents and beneficiaries shall be entitled to receive health insurance from the Company on the same terms and conditions as the Executive's health insurance in effect at the time Notice of Termination is given. (b) If the Executive's employment terminates under any circumstance that does not entitle the Executive to payments under Section 8(a) hereof (including a termination by reason of the death or Disability of the Executive, or by reason of the Executive electing not to extend or further extend the term of this Agreement pursuant to Sections 3(b) and 7(d) hereof), the Executive (i) shall not be entitled to receive any compensation under Section 6 accruing after the date of such termination (other than any payments due under Sections 6(b) and 6(d) hereof), and (ii) shall be (x) subject to the Non-Competition Restrictions (as defined in Section 9 hereof) for a period of three (3) years from the Date of Termination and (y) subject to the Non-Solicitation Restrictions (as defined in Section 9 hereof) for a period of eight (8) years from the Date of Termination; provided, however, that if the termination is a result of the death or -8- Disability of the Executive, the Executive shall be entitled to payments under Sections 6(b) and 6(d) hereof as if the Executive were still in the employ of the Company. 9. Non-Competition; Non-Solicitation. (a) The Executive agrees that for the period ending on the Fifth Anniversary or for such longer period of time if the Executive is employed by the Company in accordance with Section 3(b) hereof or as may be extended under this Section 9 (the "Non-Competition Period"), the Executive shall not, directly or indirectly (whether as a sole proprietor, partner or venturer, stockholder, director, officer, employee, consultant or in any other capacity as principal or agent or through any Person, subsidiary, affiliate or employee acting as nominee or agent): (i) conduct or engage in or be interested in or associated with any Person which conducts or engages in the AHM Business (as hereinafter defined) within the United States; (ii) take any action, directly or indirectly, to finance, guarantee or provide any other material assistance to any Person engaged in the AHM Business; (iii) solicit, contact or accept business of any client or counterparty whom the Company served or conducted business with or whose name became known to the Executive as a potential client or counterparty while in the employ of the Company or during the Non-Competition Period; or (iv) influence or attempt to influence any Person that is a contracting party with the Company at any time during the Non-Competition Period to terminate any written or oral agreement with the Company. The restrictions set forth in paragraphs (i) through (iv) of this Section 9(a) shall be collectively referred to herein as the "Non-Competition Restrictions." For purposes of this Agreement, the term "AHM Business" shall mean the residential mortgage lending or residential mortgage brokerage business as conducted by the Company and any business involving the supply of services substantially similar to services provided by the Company at the time of the termination of the Executive's employment. (b) The Executive agrees that for the period ending on the Fifth Anniversary or for such longer period of time if the Executive is employed by the Company in accordance with Section 3(b) hereof or as may be extended under this Section 9 (the "Non-Solicitation Period"), the Executive shall not, whether for the Executive's own account or in conjunction with or on behalf of any other Person, solicit or entice away from the Company any officer, employee or customer of the Company or any subsidiary or affiliate of the Company during the Non-Solicitation Period nor engage, hire, employ, or induce the employment of any such Person whether or not such officer, employee or customer would commit a breach of contract by reason of leaving service or transferring business. The restrictions set forth in this Section 9(b) shall be collectively referred to herein as the "Non-Solicitation Restrictions." (c) The restrictive provisions hereof shall not prohibit the Executive from (i) having an equity interest in the securities of any entity engaged in the AHM Business or any -9- business with respect to which the Executive obtained confidential or proprietary data or information, which entity's securities are listed on the New York Stock Exchange, the American Stock Exchange or the Nasdaq National Market, to the extent that such interest does not exceed one percent (1%) of the outstanding equity interests of such entity or (ii) with the prior written consent of the Company, serving as a director or other advisor to any other Person. (d) The Executive agrees that the covenants and restrictions contained in this Section 9 are reasonable covenants and restrictions under the circumstances, and further agrees that if in the opinion of a court of competent jurisdiction, such restraint is not reasonable in any respect, such court shall have the right, power and authority to excise or modify such provision or provisions of these covenants which as to such court shall appear not reasonable, including, but not limited to, the right, power and authority to reduce the periods during which the Executive is subject to the restrictions set forth in this Section 9, and to enforce the remainder thereof as so amended. (e) Notwithstanding anything herein to the contrary, if either the Executive or the Company shall terminate the Executive's employment during the term of this Agreement for any reason, including, but not limited to, the election by the Company or the Executive not to extend or further extend the term of this Agreement pursuant to Sections 3(b) and 7(d) hereof, the Executive shall be subject to the Non-Competition Restrictions set forth in this Section 9 for a period of three (3) years from the Date of Termination. (f) Notwithstanding anything herein to the contrary, if either the Executive or the Company shall terminate the Executive's employment during the term of this Agreement for any reason, including, but not limited to, the election by the Company or the Executive not to extend or further extend the term of this Agreement pursuant to Sections 3(b) and 7(d) hereof, the Executive shall be subject to the Non-Solicitation Restrictions set forth in this Section 9 for a period of eight (8) years from the Date of Termination. (g) The Non-Competition Agreement shall be terminated as of the Effective Date of this Agreement. 10. Indemnification. The Company shall indemnify the Executive to the fullest extent permitted by the General Corporation Law of the State of Delaware, as amended from time to time. 11. Successors; Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the extent that the Company would be required to perform it if no such succession had taken place; provided, however, that no such agreement with a successor shall release the Company without the Executive's express written consent. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive's -10- employment were terminated by the Company other than pursuant to Section 7(b) hereof, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. (b) If the Executive should die while any amounts are due and payable to the Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of the Agreement to the Executive's devisees, legatee or other designee or, if there be no such designee, to the Executive's estate. (c) Except as to withholding of any tax under the laws of the United States or any state or locality, neither this Agreement nor any right or interest hereunder nor any amount payable at any time hereunder shall be subject in any manner to alienation, sale, transfer, assignment, pledge, attachment or other legal process, or encumbrance of any kind by the Executive or the beneficiaries of the Executive or by legal representatives without the Company's prior written consent, nor shall there be any right of set-off or counterclaim in respect of any debts or liabilities of the Executive, the Executive's beneficiaries or legal representatives against any right or interest hereunder or any amount payable at any time hereunder to the Executive, the Executive's beneficiaries or legal representatives; provided, however, that nothing in this Section 11 shall preclude the Executive from designating a beneficiary to receive any benefit payable on the Executive's death, or the legal representatives of the Executive from assigning any rights hereunder to the Person or Persons entitled thereto under the Executive's will or, in case of intestacy, to the Person or Persons entitled thereto under the laws of intestacy applicable to the Executive's estate. 12. Parties. This Agreement shall be binding upon and shall inure to the benefit of the Company and the Executive, the Executive's heirs, beneficiaries and legal representatives. 13. Entire Agreement; Amendment. (a) This Agreement contains the entire understanding of the parties with respect to the subject matter hereof and supersedes any and all other agreements between the parties with respect to the subject matter hereof, including, but not limited to, the Original Employment Agreement and the Non-Competition Agreement. (b) Any amendment of this Agreement shall not be binding unless in writing and signed by both (i) an officer or director of the Company duly authorized to do so and (ii) the Executive. 14. Enforceability. In the event that any provision of this Agreement is determined to be invalid or unenforceable, the remaining terms and conditions of this Agreement shall be unaffected and shall remain in full force and effect, and any such determination of invalidity or enforceability shall not affect the validity or enforceability of any other provision of this Agreement. 15. Notices. All notices which may be necessary or proper for either the Company or the Executive to give to the other shall be in writing and shall be sent by hand delivery, registered or certified mail, return receipt requested, overnight courier or facsimile, if to -11- the Executive, to him at [ADDRESS OMITTED], Attention: John A. Johnston, Facsimile: [(___) ________], with a copy to King, Holmes, Paterno & Berliner, LLP, 1900 Avenue of the Stars, 25th Floor, Los Angeles, California 90067, Attention: Keith Holmes, Esq., Facsimile: (310) 282-8903, and, if to the Company, to it at its principal executive offices at 520 Broadhollow Road, Melville, New York 11747, Attention: General Counsel, Facsimile: (800) 209-7276, with a copy to Cadwalader, Wickersham & Taft LLP, 100 Maiden Lane, New York, New York 10038, Attention: Louis J. Bevilacqua, Esq., Facsimile: (212) 504-6666, and shall be deemed given when sent, provided that any Notice of Termination or other notice given pursuant to Section 7 shall be deemed given only when received. Either party may by like notice to the other party change the address at which the Executive or it is to receive notices hereunder. 16. Governing Law. THIS AGREEMENT IS EXECUTED IN THE STATE OF NEW YORK AND SHALL BE GOVERNED BY, AND BE ENFORCEABLE IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. 17. Effective Date. This Agreement shall become effective as of January 1, 2004. 18. Definitions. The following terms, when capitalized in this Agreement, shall have the meanings set forth or incorporated by reference in this Section 18. (a) "Alt-A Loans" shall mean alternate "A" mortgage loans. (b) "Applicable Reference Price" shall mean (i) with respect to loans (other than HELOC Loans) that will be sold to a third party and not held, in securitized or whole-loan form, by AHMIC or any affiliate or subsidiary thereof, the highest price quoted by any one of the Reference Banks (expressed as a percentage of par) for best efforts delivery and a delivery window not less than, but closest to, the lock-in period granted by the secondary marketing desk of AHMIC (or its affiliate or subsidiary, as the case may be) at the time the loan is locked; (ii) with respect to loans that will be held by AHMIC or any affiliate or subsidiary thereof (other than loans designated by the Company as Alt-A Loans and subprime loans), including loans held in securitized or whole-loan form, the price posted by AHMIC (or its affiliate or subsidiary, as the case may be) with respect to each such loan, plus the Principal Financial Branch Acquisition Adjustment; (iii) with respect to loans that have been designated by the Company as Alt-A Loans or subprime loans and will be held by AHMIC or any affiliate or subsidiary thereof, in securitized or whole-loan form, the price posted by AHMIC (or its affiliate or subsidiary, as the case may be) with respect to each such loan, plus 0.375% of the principal amount of such loan, plus the Principal Financial Branch Acquisition Adjustment; and (iv) with respect to all HELOC Loans, whether or not such loans are sold to a third party or held, in securitized or whole-loan form, by AHMIC or any affiliate or subsidiary thereof, 100.625% of the original funded balance at the time of the closing of such loan. (c) "AHMIC" means American Home Mortgage Investment Corp., a Maryland corporation and the parent company of the Company. (d) "Base Salary" shall have the meaning set forth in Section 6(a) hereof. -12- (e) "Board of Directors" means the Board of Directors of the Company, as constituted from time to time. (f) "Borrower Price" with respect to a loan shall mean (i) with respect to all loans other than HELOC Loans, 100% of the principal amount of such loan, minus any points, whether denominated as origination fees or discounts, paid by the borrower in connection with such loan, and (ii) with respect to HELOC Loans, 100% of the original funded balance at the time of the closing of such loan, minus any points, whether denominated as origination fees or discounts, paid by the borrower in connection with such loan. (g) "Cause" shall have the meaning set forth in Section 7(b)(i) hereof. (h) "Company" means American Home Mortgage Holdings, Inc., a Delaware corporation, and any successors to its business and/or assets, which executes and delivers an agreement provided for in Section 11(a) or which otherwise becomes bound by all the terms and conditions of this Agreement by operation of law. (i) "Credit Loss" shall mean the Company's good faith estimate of the loss it incurs if the Company is forced to repurchase a loan or the Company is forced to indemnify a loan. The sum of the losses for such repurchased and indemnified loans at the end of the applicable time period will be equal to the credit losses for such period. (j) "Date of Termination" shall have the meaning set forth in Section 7(h) hereof. (k) "Disability" shall have the meaning set forth in Section 7(b)(ii) hereof. (l) "Excluded Acquisition" shall mean any Western Division Acquisition proposed by the Company which the Executive believes is not in his best interests, and with respect to which the Executive, as soon as practicable prior to the Company's completion of such acquisition, notifies the Company in writing that such acquisition should not be treated as a Western Division Acquisition for purposes of this Agreement. With respect to an Excluded Acquisition, (i) the Invested Capital Charge shall not be increased to take into account any capital outlays incurred by the Company in connection with such Excluded Acquisition, and (ii) the retail sales channel branches and retail channel sales personnel acquired in connection with such Excluded Acquisition shall not be included in the term "Western Division" for purposes of determining any compensation due the Executive under Section 6 hereof. (m) "Expenses" shall include all direct and allocated costs charged to the Western Division, including, but not limited to, (i) employment costs, such as wages, salaries, commissions, overrides, profit participation and profit-sharing type costs (including, but not limited to, the Profit Participation Payment payable to the Executive hereunder), payroll taxes, employee benefits and all other employment expenses; (ii) Credit Losses; (iii) costs to determine a borrower's eligibility for a loan, including appraisals, credit reports, automated underwriting fees, social security checks and other investigation fees; (iv) costs of marketing, including advertising, promotion and public relations; (v) other costs for loan origination and processing, including copying, messenger and overnight delivery and office consumables; (vi) costs of running branches and offices, including rent, insurance, utilities, office maintenance and upkeep -13- and depreciation; (vii) allocated costs for corporate overhead not to exceed $585 per loan, provided, however, that if a loan is a second lien that is closed concurrently with a first lien, such corporate overhead costs shall not exceed $195 per loan, or, if a loan is a second or third lien downpayment assistance loan provided by the State of California or a political subdivision thereof, or a government housing assistance program through the State of California or any municipality thereof, such corporate overhead costs shall be zero; and (viii) Invested Capital Charges; and all of such Expenses shall be calculated according to the Company's standard practices as may be amended from time to time. (n) "Good Reason" shall have the meaning set forth in Section 7(c) hereof. (o) "HELOC Loan" shall mean a home equity line of credit. (p) "Invested Capital Charge" initially shall equal the amount of $500,000, but shall be adjusted in the event that the Company engages in one or more Western Division Acquisitions during a given fiscal year, such that the Invested Capital Charge shall be increased to take into account any capital outlays incurred by the Company in connection with such Western Division Acquisition(s), with any such increase in the Invested Capital Charge to be determined in good faith by the Chief Executive Officer prior to the consummation of such Western Division Acquisition(s); provided, however, that the Invested Capital Charge shall not include any capital outlays incurred by the Company in connection with an Excluded Acquisition. (q) "Merger Agreement" shall have the meaning set forth in the recitals. (r) "Net Interest Income" shall mean (i) for the fiscal year ending December 31, 2004, 16 basis points per loan, and (ii) for all subsequent fiscal years, an amount determined in good faith by the Chief Executive Officer. (s) "Non-Competition Agreement" shall have the meaning set forth in the recitals. (t) "Non-Competition Period" shall have the meaning set forth in Section 9(a) hereof. (u) "Non-Competition Restrictions" shall have the meaning set forth in Section 9(a) hereof. (v) "Non-Solicitation Period" shall have the meaning set forth in Section 9(b) hereof. (w) "Non-Competition Restrictions" shall have the meaning set forth in Section 9(b) hereof. (x) "Notice of Termination" shall have the meaning set forth in Section 7(g) hereof. -14- (y) "Original Employment Agreement" shall have the meaning set forth in the recitals. (z) "Origination Volume" shall mean the dollar volume of Western Division loan originations. (aa) "Payment Audit" shall have the meaning set forth in Section 6(c)(iv) hereof. (bb) "Payment Determination" shall have the meaning set forth in Section 6(c)(iv) hereof. (cc) "Payment Multiplier" shall, for the fiscal year ended December 31, 2004, equal 1.75 (i.e., multiplied by 1.75). (dd) "Per Loan Revenue" for each loan shall be the sum of (i) the product of the difference between the Applicable Reference Price for the loan (expressed as a percentage of par) less the Borrower Price for such loan (expressed as a percentage of par) and (x) with respect to all loans other than HELOC Loans, the loan's principal amount, and (y) with respect to HELOC Loans, the original funded balance at the time of the closing of such loan, all at the time such loan is last locked; (ii) all fees (excluding points included in the price paid by the borrower that are included in (i) above) charged the borrower by the Company in connection with the borrower's loan application and loan closing (but excluding fees associated with the Company's ongoing ownership of the borrower's loan after the closing of the loan) including, but not limited to, servicing of the borrower's loan, or delivery of any services or financing or products for the borrower; (iii) fees earned from brokering loan applications to outside companies; (iv) the Secondary Allocation; and (v) Net Interest Income on loans held for sale. (ee) "Person" means any individual, corporation, partnership, limited liability company, limited duration company, trust or other entity of any nature whatsoever. (ff) "Principal Financial Branch Acquisition Adjustment" shall equal (i) with respect to the branches of the Western Division listed on Schedule I hereto, the amount set forth opposite each such branch on Schedule I hereto, and (ii) with respect to all other branches of the Western Division, zero. (gg) "Profit Participation Payment" shall have the meaning set forth in Section 6(c)(ii) hereof. (hh) "Profits" means, with respect to the Western Division, for any measurement period, the sum of the Per Loan Revenue for all loans that were funded by the Company during the measurement period, or were brokered by the Company and closed by another lender during the measurement period, and in all cases, were originated by the Western Division, minus Expenses. (ii) "Reference Banks" shall mean Chase Manhattan Mortgage, Citicorp Mortgage, Countrywide Credit Corp., Washington Mutual and Wells Fargo Mortgage. -15- (jj) "Reference Price Verification" shall have the meaning set forth in Section 19 hereof. (kk) "Secondary Allocation" shall mean (i) for the fiscal year ending December 31, 2004, 20 basis points per loan, and (ii) for all subsequent fiscal years, an amount determined in good faith by the Chief Executive Officer. (ll) "Volume Override Payment" shall have the meaning set forth in Section 6(c)(i) hereof. (mm) "Western Division" shall include all of the Company's retail channel branches and retail channel sales personnel designated by the Chief Executive Officer as part of the Western Division of the Company; provided, however, that the Western Division shall not include MortgageSelect or any other unit or division of the Company that reports to the Company's Alternative Division; and provided, further, that the Western Division may from time to time be expanded or reduced (by state or otherwise) by the Chief Executive Officer to reflect the operational needs of the Company; and provided, further, that for purposes of determining any compensation due the Executive under Section 6 hereof, the term "Western Division" shall not include the retail channel branches and retail channel sales personnel acquired in connection with any Excluded Acquisition. (nn) "Western Division Acquisition" means any acquisition, except for an Excluded Acquisition, by the Company of any company, business, mortgage origination pipeline, group of employees or other assets, whether by merger, acquisition, asset purchase or any other transaction, that is designated by the Chief Executive Officer as a Western Division Acquisition. 19. Reference Price Verification. Not more than twelve times in any year during the term of this Agreement, the Executive shall be entitled to request information from the Company in order to verify the Applicable Reference Price with respect to a given loan (a "Reference Price Verification"). The Executive shall send any request for a Reference Price Verification to the Company in writing. Upon receipt of such request, the Company's capital markets group shall furnish information to the Executive in order to verify that the Applicable Reference Price with respect to such loan was established in accordance with the terms of this Agreement. [Signature Page to Follow] -16- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. AMERICAN HOME MORTGAGE HOLDINGS, INC. By: /s/ Michael Strauss -------------------------------------- Name: Michael Strauss Title: Chief Executive Officer and President EXECUTIVE /s/ John A. Johnston ----------------------------------------- John A. Johnston EX-31.1 10 am033104-ex31_1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Michael Strauss, certify that: 1. I have reviewed this report on Form 10-Q/A of American Home Mortgage Investment Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. /s/ Michael Strauss - ----------------------------------- Michael Strauss Chairman of the Board, Chief Executive Officer and President April 29, 2005 EX-31.2 11 am033104-ex31_2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER Exhibit 31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Stephen A. Hozie, certify that: 1. I have reviewed this report on Form 10-Q/A of American Home Mortgage Investment Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. /s/ Stephen A. Hozie - ----------------------------------- Stephen A. Hozie Executive Vice President and Chief Financial Officer April 29, 2005 EX-32.1 12 am033104-ex32_1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER Exhibit 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the report of American Home Mortgage Investment Corp. (the "Registrant") on Form 10-Q/A for the quarter ended March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael Strauss, Chairman of the Board, Chief Executive Officer and President of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. April 29, 2005 /s/ Michael Strauss ----------------------------------------------- Michael Strauss Chairman of the Board, Chief Executive Officer and President EX-32.2 13 am033104-ex32_2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER Exhibit 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the report of American Home Mortgage Investment Corp. (the "Registrant") on Form 10-Q/A for the quarter ended March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stephen A. Hozie, Executive Vice President and Chief Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. April 29, 2005 /s/ Stephen A. Hozie ---------------------------------------------------- Stephen A. Hozie Executive Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----