CONTINGENT PAYMENT AGREEMENT

Exhibit 10.2

 

Execution Copy

 

CONTINGENT PAYMENT AGREEMENT

 

This Contingent Payment Agreement (the “ Agreement ”), dated as of August 12, 2005, is among Select Portfolio Servicing, Inc. (“ SPS ”), Credit Suisse First Boston (USA), Inc. (the “ Option Holder ”), Greenrange Partners LLC (“ Greenrange ”), The PMI Group, Inc. (“ PMI ”) and FSA Portfolio Management, Inc. (“ FSA ”, and together with Greenrange and PMI, each a “ Payee ” and collectively the “ Payees ”).

 

Background

 

A. Pursuant to the Option Agreement (as defined herein), the Option Holder has acquired an option (the “ Option ”), exercisable on or before August 12, 2005, to acquire 100% of the outstanding capital stock of SPS Holding Corp. (“ Holding ”) from the Payees. SPS is a wholly-owned subsidiary of Holding. The purchase price for such acquisition will be comprised of a “Cash Payment” (as defined in the Option Agreement), a series of “Monthly Contingent Payments” (as defined below) and the “Final Payment Amount” (as defined below).

 

B. The parties hereto wish to provide for the calculation of the Monthly Contingent Payments and the Final Payment Amount and for the remittance thereof by the Option Holder to the Payees to the extent applicable hereunder.

 

Agreement

 

In consideration of the mutual premises and mutual obligations set forth herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:

 

Section 1. Definitions. Whenever used in this Agreement, the following words and phrases shall have the following meanings:

 

“ Accountants ”: As defined in Section 3(e) .

 

“ Advance ”: Any servicing advance or advance related to delinquent principal and/or interest made by SPS in respect of a Mortgage Loan.

 

“ Affiliate ”: As defined in the Option Agreement.

 

“ Aggregate Unit Cost ”: With respect to any calendar month, the sum of the Unit Costs for each Mortgage Loan serviced by SPS on the first day of such calendar month.

 

“ Agreement ”: As defined in the preamble hereto.

 

1

“ Ancillary Income ”: With respect to a Mortgage Loan, all income received by SPS from such Mortgage Loan (other than servicing and sub-servicing fees and prepayment penalties) including, but not limited to, late charges, non-sufficient fund charges, speed pay fees, assignment fees, demand fees, payoff statement fees, loan document fees and any other incidental fees and charges, in each case, to the extent that collection of such amounts is not prohibited by the applicable Servicing Requirements or applicable law.

 

“ Business Day ”: A day of the week other than (a) Saturday or Sunday or (b) a day on which banking or savings institutions in New York or Utah are authorized or permitted under applicable law to be closed.

 

“ Cash Payment ”: As defined in the Option Agreement.

 

“ Closing Balance Sheet ”: As defined in the Option Agreement.

 

“ Consent Order ”: Order Preliminarily Approving Stipulated Final Judgment and Order as to Fairbanks Capital Corp. and Fairbanks Capital Holding Corp., entered by the United States District Court for the District of Massachusetts on November 21, 2003, as the same may be modified from time to time in accordance with the terms thereof.

 

“ Cumulative Shortfall ”: For any calendar month, (i) the sum of the Shortfall for that month and for any prior month less (ii) the Cumulative Shortfall Deductible Amount, if any, for all prior months.

 

“ Cumulative Shortfall Deductible Amount ”: For any calendar month, the lesser of (i) the Cumulative Shortfall for such calendar month and (ii) the Monthly Contingent Payment for such calendar month, calculated assuming that the Cumulative Shortfall Deductible Amount for such month is zero.

 

“ Curry Settlement ”: The Settlement Agreement and Release, dated November 14, 2003, entered into by Fairbanks Capital Corp., and Alanna Curry and certain other plaintiffs in connection with Civil Action No. 03-10895-DPW, and approved by the United States District Court for the District of Massachusetts, as the same may be modified from time to time in accordance with the terms thereof.

 

“ Customer Accommodation ”: An amount paid by SPS to a customer, or a credit by SPS to a customer’s account, in either case after the Option Closing Date, that (x) does not qualify as a Customer Reversal and (y) is a consequence of the customer alleging a Mortgage Loan Servicing Error or SPS identifying a Mortgage Loan Servicing Error, in each case which (i) occurred prior to the Option Closing Date (and which may or may not have continued thereafter) and (ii) SPS believes is reasonably likely to result in Private Litigation or a Regulatory Action; provided , however , that in no event will any Customer Accommodation (i) also be included in any calculation of Designated Litigation Expenses, (ii) include any amounts payable in connection with a Private Litigation or Regulatory Action or (iii) include any matter related to the Specified Disputes.

 

2

“ Customer Accommodation Amount ”: With respect to any calendar month, the sum of all Customer Accommodations for such calendar month; provided , however , that:

 

(i)

for any Customer Accommodation based in part upon Mortgage Loan Servicing Errors that occur both before the Option Closing Date and more than 180 days after the Option Closing Date, the related Customer Accommodation Amount (including pursuant to the immediately succeeding clause (ii)) shall be reduced by fifty percent (50%);

 

(ii)

any Customer Accommodation in excess of $10,000 made by SPS without the prior written approval of FSA and PMI shall be reduced by one-third (1/3) of the excess of such Customer Accommodation over $10,000; and

 

(iii)

for any Customer Accommodation involving only Mortgage Loan Servicing Errors occurring after the Option Closing Date, the related Customer Accommodation Amount shall be zero.

 

“ Customer Information ”: As defined in Section 8(g) .

 

“ Customer Reversal ”: An amount paid by SPS to a customer, or a credit by SPS to a customer’s account, in either case after the Option Closing Date, of an erroneous, duplicative or excessive fee or charge to such customer prior to the Option Closing Date that resulted from a Mortgage Loan Servicing Error which occurred prior to the Option Closing Date (and which may or may not have continued thereafter), except to the extent that SPS had established a reserve with respect thereto prior to the Option Closing Date and such reserve amount has not been reduced to zero as a result of a prior Customer Reversal Amount; provided , however , that in no event will any Customer Reversal (i) also be included in any calculation of Designated Litigation Expenses, (ii) include any amounts payable in connection with a Private Litigation or Regulatory Action or (iii) include any matter related to the Specified Disputes.

 

“ Customer Reversal Amount ”: With respect to any calendar month, the sum of all Customer Reversals for such calendar month; provided , however , that:

 

(i)

the Customer Reversal Amount shall not include any portion of a Customer Reversal that resulted from a Mortgage Loan Servicing Error that occurred after the Option Closing Date, unless, and only to the extent that, the erroneous, duplicative or excessive fee or charge billed to the customer after the Option Closing Date was included in the Monthly Contingent Payment actually paid to the Payees hereunder;

 

(ii)

the portion of the Customer Reversal Amount that is permitted to be included pursuant to the immediately preceding clause (i) shall be reduced by fifty percent (50%) if the Mortgage Loan Servicing Error giving rise to the Customer Reversal continued to occur more than 180 days after the Option Closing Date; and

 

(iii)

for any Customer Reversal involving only Mortgage Loan Servicing Errors occurring after the Option Closing Date, the related Customer Reversal Amount shall be zero.

 

3

“ Delinquent ”: With respect to any Mortgage Loan, when all or part of the related monthly payment or, where applicable, the escrow payment, is not paid on the related due date, as calculated using the method established by the Mortgage Bankers Association and commonly referred to as the MBA method.

 

“ Designated Litigation Expense Adjustment ”: Until such time as the Litigation Reserve Amount has been reduced to zero, the Designated Litigation Expense Adjustment shall equal zero. Thereafter, with respect to any calendar month (or portion thereof), the Designated Litigation Expense Adjustment shall equal the Designated Litigation Expenses paid by SPS during such calendar month (or portion thereof); provided , however , that to the extent the Litigation Reserve Amount has been reduced to zero and a Cumulative Shortfall exists with respect to a given calendar month, the Designated Litigation Expense Adjustment for such month shall equal zero.

 

“ Designated Litigation Expenses ”: With respect to any calendar month, the aggregate, without duplication, out-of-pocket costs related to damages, judgments, settlements, penalties, fines or expenses of any kind paid by SPS during such calendar month arising out of any Private Litigation, including interest, penalties, reasonable attorneys’ fees and expenses of outside counsel and all reasonable amounts paid in connection with the investigation, defense or settlement of any such claim; provided , however , that:

 

(i)

for any Private Litigation based in part upon Mortgage Loan Servicing Errors that occur both before the Option Closing Date and more than 180 days after the Option Closing Date, the related Designated Litigation Expenses (including pursuant to the immediately succeeding clause (ii)) shall be reduced by fifty percent (50%);

 

(ii)

for any Private Litigation that is settled by SPS without the prior written approval of FSA and PMI which results in Designated Litigation Expenses in excess of $15,000, the related Designated Litigation Expenses shall be reduced by one-third (1/3) of the excess of such Designated Litigation Expenses over $15,000;

 

(iii)

for any Private Litigation involving only Mortgage Loan Servicing Errors occurring after the Option Closing Date, the related Designated Litigation Expenses shall be zero; and

 

(iv)

in no event will any Designated Litigation Expense (x) also be included in any calculation of Designated Nonrecoverable Advances, Customer Accommodation Amounts or Customer Reversal Amounts, (y) include any amounts payable in connection with any Regulatory Action or Origination Litigation, or (z) include the Specified Disputes.

 

“ Designated Nonrecoverable Advances ”: With respect to any calendar month, the sum of any Advance (other than any servicing, delinquency or other advance that was purchased, rather than made, by SPS) made by SPS prior to the Option Closing Date that

 

4

SPS reasonably determines during such calendar month, consistent with the practices of SPS during the six month period prior to the Option Closing Date, to be a Nonrecoverable Advance; provided , however , that in no event will any Designated Nonrecoverable Advance include any matter relating to the Specified Disputes.

 

“ Designated Representative ”: As defined in Section 8(d) .

 

“ Fee Matrix ”: As defined in the Option Agreement.

 

“ Final Payment Amount ”: As defined in Section 3(c) .

 

“ FSA ”: As defined in the preamble to the Agreement.

 

“ Governmental Entity ”: As defined in the Option Agreement.

 

“ Greenrange ”: As defined in the preamble to the Agreement.

 

“ Holding ”: As defined in the preamble to the Agreement.

 

“ Indemnified Party ”: As defined in Section 11(a) .

 

“ Indemnifying Party ”: As defined in Section 11(a) .

 

“ Interest Expense ”: With respect to any calendar month, an amount equal to the product of (i) the average outstanding balance of Advances on the Mortgage Loans during such calendar month, times (ii) 85%, times (iii) one-month LIBOR as of the first Business Day of the month preceding such calendar month plus 2%, times (iv) 1/12.

 

“ Interest Income ”: With respect to any calendar month, an amount equal to the sum of all interest income (including, without limitation, income received under the Pledge Agreement), float income and/or earnings credit and interest on Advances received by SPS during such calendar month, to the extent that such amounts relate to the Servicing Agreements or the Subsequent Designated Agreements, in each case, to the extent such amounts may be collected in accordance with the related Servicing Agreements or the Subsequent Designated Agreements, as applicable, and the collection thereof is not prohibited by applicable law.

 

“ Litigation Reserve Amount ”: As of any date of calculation, an amount equal to the (i) the sum of the reserve for legal disputes (other than reserves for the Specified Disputes) and the “reserve for unasserted claims in Mississippi”, in each case as included on or reflected in the Closing Balance Sheet, minus (ii) the aggregate Designated Litigation Expenses paid by SPS prior to such date of calculation but during the Payment Period; provided , however , that the result shall not be less than zero.

 

“ Measurement Date ”: As defined in the Option Agreement.

 

“ Monthly Contingent Payment ”: With respect to any Payment Date, an amount paid to the Payees pursuant to Section 3(b) , as such amount is received from collections

 

5

on the Mortgage Loans. Each Monthly Contingent Payment shall equal the following, for the calendar month preceding the calendar month in which the Payment Date occurs: (a) the sum of, without duplication, (i) all Servicing Income for such preceding calendar month, (ii) all Professional Services Income for such preceding calendar month, (iii) the Recovery Amount for such preceding calendar month, and (iv) the Interest Income for such preceding calendar month; less (b) the sum of, without duplication, (i) the Aggregate Unit Cost for such preceding calendar month, (ii) the Designated Litigation Expense Adjustment for such preceding calendar month or, to the extent that the Litigation Reserve Amount has been reduced to zero and a Cumulative Shortfall exists, the Cumulative Shortfall Deductible Amount, (iii) the Designated Nonrecoverable Advances for such preceding calendar month, (iv) the Customer Accommodation Amount for such preceding calendar month, (v) the Customer Reversal Amount for such preceding calendar month, and (vi) the Interest Expense for such preceding calendar month; provided , however , that if the Monthly Contingent Payment for any calendar month is a negative amount, then the Monthly Contingent Payment for such month shall be zero, and a “Shortfall” shall be created in accordance with the definition thereof. All components of each Monthly Contingent Payment, as itemized in Exhibit A, other than the Aggregate Unit Cost, the Designated Litigation Expense Adjustment, the Customer Accommodation Amount and the Interest Expense, shall be charged, collected, calculated and applied by SPS in a manner consistent with methods utilized by SPS during the six months immediately preceding the Option Closing Date, consistently applied; provided , however , that the Servicing Income and the Professional Services Income components of each Monthly Contingent Payment, as itemized in Exhibit A, shall be charged, collected, calculated and applied by SPS subject to Section 7(b); provided , further , that SPS shall use its commercially reasonable efforts and act in good faith to achieve the same outcome on individual Customer Accommodations and Designated Litigation Expenses that was realized for comparable situations during the six months prior to the Option Closing Date.

 

“ Mortgage Loan ”: An individual mortgage loan related to a Servicing Agreement or Subsequent Designated Agreement. As applicable, “Mortgage Loan” shall be deemed to refer to the related REO Property.

 

“ Mortgage Loan Servicing Error ”: With respect to any Portfolio Mortgage Loan, a violation by SPS of applicable laws or applicable Servicing Requirements in its servicing of such Portfolio Mortgage Loan.

 

“ Nonrecoverable Advance ”: Any Advance (other than any servicing, delinquency or other advance that was purchased, rather than made, by SPS) with respect to a Portfolio Mortgage Loan that was made by SPS prior to the Option Closing Date as a result of a Servicing Process Error, which (i) SPS has reasonably determined will not be recovered from payments by or on behalf of the underlying obligor, liquidation proceeds or other amounts related to such Portfolio Mortgage Loan, or the related noteholder pursuant to the terms of the related Servicing Agreement and (ii) was not in a category included in SPS’s calculation of “Reserves for advance receivables” on the Closing Balance Sheet.

 

“ Notification Date ”: The twentieth (20 ^th ) day of each calendar month (or, if such day is not a Business Day, the next succeeding Business Day) beginning with the second

 

6

month of the Payment Period and ending on January 20, 2008 (or, if such day is not a Business Day, the next succeeding Business Day). For purposes of illustration only, Exhibit B sets forth a sample timeline which identifies the Notification Date in relation to certain other dates relevant to this Agreement.

 

“ Notification Summary ”: As defined in Section 3(a) .

 

“ Objection ”: As defined in Section 3(e) .

 

“ Option ”: As defined in the preamble.

 

“ Option Agreement ”: The Option Agreement, dated as of August 12, 2005, among the Option Holder, Holding and the Payees.

 

“ Option Closing Date ”: The “Closing Date” as defined in the Option Agreement.

 

“ Option Holder ”: As defined in the preamble.

 

“ Origination Litigation ”: Any litigation, action, suit, proceeding or claim to the extent relating to the origination, rather than the servicing, of a Portfolio Mortgage Loan.

 

“ Payee ”: As defined in the preamble to the Agreement.

 

“ Payee Designated Representative ”: As defined in Section 8(d) .

 

“ Payment Date ”: The twenty-fifth (25 ^th ) day of each calendar month (or, if such day is not a Business Day, the next succeeding Business Day) beginning with the second month of the Payment Period and ending on January 25, 2008 (or, if such day is not a Business Day, the next succeeding Business Day).

 

“ Payment Period ”: The period commencing on the first day of the first calendar month immediately following the Measurement Date and ending on December 31, 2007.

 

“ Peer Group ”: Four Subprime Servicers, which shall initially be: Countrywide Home Loans, Inc., Ocwen Loan Servicing, Inc., Litton Loan Servicing, and Wells Fargo Bank, National Association doing business as America’s Servicing Company, and any successor thereto, each solely in its (or its Affiliates’) capacity as a Subprime Servicer. If any of such entities ceases to be a Subprime Servicer or acts as Subprime Servicer for a subprime mortgage loan portfolio of less than $10 billion, files or is the subject of an involuntary filing for bankruptcy protection or becomes insolvent, dissolves, liquidates, or sells all or substantially all of its assets to an unaffiliated entity, or merges with or into another member of the Peer Group, then PMI and FSA may (but shall not be required to) jointly propose to the Option Holder a replacement Subprime Servicer, which, subject to the consent of the Option Holder (not to be unreasonably withheld or delayed), shall replace the affected Supbrime Servicer as a member of the Peer Group.

 

“ Pledge Agreement ”: The Security Agreement-Pledge (CDs, Commercial Paper, Loan Participations and Investment Property Accounts) executed by SPS and dated

 

7

May 8, 2001 (in error, the actual date thereof being May 8, 2002), together with any Revolving Credit Note executed by SPS in connection therewith.

 

“ PMI ”: As defined in the preamble to the Agreement.

 

“ Portfolio Mortgage Loan ”: An individual mortgage loan for which SPS has been appointed as the servicer, subservicer and/or master servicer (excluding any loans assigned to SPS’s Loss Recovery Division for collection which are not otherwise being serviced by SPS). As applicable, “Portfolio Mortgage Loan” shall be deemed to refer to the related REO Property. For the avoidance of doubt, “Portfolio Mortgage Loans” shall include all Mortgage Loans (as defined herein), as well as all other mortgage loans and REO Properties serviced by SPS.

 

“ Privacy and Collection Legislation ”: (a) the Fair Debt Collection Practices Act, (b) the Gramm-Leach-Bliley Act, (c) federal and state collections licensing laws, (d) federal and state truth-in-lending laws, consumer credit protection laws, equal credit opportunity laws, predatory and abusive disclosure laws, and (e) personal data privacy laws, and all applicable regulations passed under any such legislation, all as the same may be amended or replaced from time to time.

 

“ Private Litigation ”: Any action, suit or proceeding initiated by or on behalf of a borrower in any federal or state court of competent jurisdiction alleging commission of a Mortgage Loan Servicing Error by SPS prior to the Option Closing Date; provided , however , that (i) solely for purposes of the definition of Designated Litigation Expenses other than clause (iii) of the proviso contained therein, Private Litigation may include the alleged commission of a Mortgage Loan Servicing Error by SPS that occurred both prior and subsequent to the Option Closing Date; and (ii) Private Litigation shall exclude any Regulatory Action.

 

“ Professional Services Income ”: All income earned from professional services performed by SPS or its Affiliates (including, without limitation, Alta Real Estate Services, Inc., Residential RealEstate Review, Inc., Mountain West Realty Corp., Pelatis Insurance Agency Corp. and Pelatis Insurance Limited), in each case to the extent derived from or related to the Mortgage Loans, less the amount of all direct or indirect, fixed or variable, costs or expenses derived from or related to such professional services.

 

“ Proprietary Information ”: As defined in Section 8(g) .

 

“ Recovery Amount ”: For any calendar month, the aggregate amount recovered during such month on account of any Designated Nonrecoverable Advances irrespective of when such Designated Nonrecoverable Advance was deducted from the Monthly Contingent Payment.

 

“ Regulatory Action ”: As defined in the Option Agreement.

 

“ Regulatory Fee Scrutiny ”: Any of the following shall have occurred with respect to any fee or charge billed to a borrower which is included in the Fee Matrix:

 

(i)

SPS is examined or receives a direct communication from a Federal or state regulator alleging that the fee or charge imposed by SPS violates applicable law or that the amount of such fee or charge by SPS might subject SPS to regulatory sanctions;

 

8

(ii)

Either (A) a Federal or state regulator has made a statement that it intends to, or has taken an action to, subject Subprime Servicers to regulatory sanctions for imposing such fee or charge at a rate which equals or exceeds the rate being imposed by SPS or (B) Subprime Servicers have generally reduced the rate at which they impose such fees or charges to a rate that is less than the corresponding fee or charge included in the Fee Matrix; or

 

(iii)

any such fee or charge in the Fee Matrix is shown to exceed the highest such fee or charge billed to borrowers by members of the Peer Group with respect to subprime mortgage loans that are substantially similar to the Mortgage Loans by more than 20%; provided , however , that for purposes of this clause (iii), the Option Holder shall use its commercially reasonable best efforts to obtain the amount of such fee or charge billed by each member of the Peer Group.

 

“ REO Property ”: A mortgaged property acquired by SPS, as servicer, through foreclosure, by deed in lieu of foreclosure or otherwise.

 

“ Servicing Agreement ”: Each pooling and servicing agreement, whole loan servicing agreement, subservicing agreement and similar agreement listed on Schedule 1 hereto.

 

“ Servicing Income ”: All servicing fees earned, subservicing fees earned and Ancillary Income, in each case to the extent derived from or related to the Mortgage Loans, as reduced by any compensating interest payments required to be made by SPS related to the Mortgage Loans. Servicing Income for the applicable month shall be itemized and shown on each Monthly Contingent Payment report delivered pursuant to Section 3(a) . Subject to Section 7(b) , all components of Servicing Income shall be charged, collected, calculated and applied in a manner consistent with methods utilized by SPS during the six months immediately preceding the Option Closing Date, consistently applied.

 

“ Servicing Process Error ”: A clearly erroneous application by SPS of the “net present value” formula that it utilized prior to the Option Closing Date to determine that an Advance would be reimbursable to SPS under the Servicing Agreement governing the Portfolio Mortgage Loan for which the Advance was being made.

 

“ Servicing Requirements ”: With respect to each Mortgage Loan, the applicable provisions of the related Servicing Agreement with respect to the servicing, control and administration of such Mortgage Loan.

 

“ Servicing Rights ”: Any and all of SPS’s right, title and interest in and to: (1) all rights of subservicing, servicing and/or master servicing of Mortgage Loans pursuant to

 

9

any Servicing Agreement or Subsequent Designated Agreement; (2) all rights under each applicable Servicing Agreement to receive or retain amounts in respect of servicing fees, ancillary income, reimbursement for advances or other expenses and costs, and investment earnings or other benefits from positive account balances, together with all contract rights, incidental income and benefits to the extent payable to SPS; (3) rights to possession and use of servicing files and records directly or indirectly related to each Mortgage Loan or pertaining to the past, present or prospective servicing of such Mortgage Loan, including, without limitation, borrower lists, insurance policies and tax service agreements; (4) all agreements or documents creating, defining or evidencing any such servicing rights and all rights of SPS thereunder; (5) all accounts and other rights to payment related to any of the property described in this paragraph; and (6) all rights, powers and privileges incident to any of the foregoing.

 

“ Shortfall ”: For any calendar month after the Litigation Reserve Amount has been reduced to zero, the dollar amount, if any (expressed as a positive number), by which the Monthly Contingent Payment for such calendar month is a negative amount.

 

“ Specified Disputes ”: As defined in the Option Agreement.

 

“ SPS ”: As defined in the preamble to the Agreement.

 

“ SPS Designated Representative ”: As defined in Section 8(d) .

 

“ Subprime Servicer ”: An entity which services, master services and/or subservices subprime one-to-four family residential mortgage loans located within the United States, in each case solely in its capacity as such.

 

“ Subsequent Designated Agreement ”: As defined in Section 9(b) .

 

“ Unit Cost ”: For any calendar month: (i) with respect to any Mortgage Loan which is less than ninety (90) days Delinquent as of the end of the last day of such calendar month, the Unit Cost is $18.35; and (ii) with respect to any Mortgage Loan which is ninety (90) days or more Delinquent as of the end of the last day of such calendar month, the Unit Cost is $50.96. The Unit Cost shall apply to each Mortgage Loan which is serviced by SPS for the related month and is subject to servicing as of the first day of such calendar month.

 

Section 2. Acknowledgment

 

(a) Mortgage Loans. The parties to this Agreement acknowledge that some, but not all, of the Portfolio Mortgage Loans will be factored into the calculation of the Cash Payment made by the Option Holder to the Payees pursuant to the Option Agreement. The Monthly Contingent Payments and the Final Payment Amount will be based upon the Mortgage Loans, and may reflect reductions, to the extent provided herein, with respect to Designated Litigation Expenses, Customer Accommodations, Customer Reversals, and Designated Nonrecoverable Advances relating to both the Mortgage Loans and all other Portfolio Mortgage Loans.

 

10

(b) Designated Litigation Expenses. The parties to this Agreement acknowledge that the Cash Payment made by the Option Holder to the Payees pursuant to the Option Agreement will not include an amount equal to the Litigation Reserve Amount. Accordingly, the Monthly Contingent Payments to be made to the Payees hereunder will only be reduced for Designated Litigation Expenses once the Litigation Reserve Amount shall have been reduced to zero, as more specifically described in the definition of “Designated Litigation Expense Adjustment”.

 

Section 3. Payments

 

(a) Payment Notification. On each Notification Date, SPS shall notify the Payees of the amount of the Monthly Contingent Payment to be made on the next Payment Date. Such notification shall include a detailed summary of each component of such Monthly Contingent Payment in substantially the form of Exhibit A hereto (the “ Notification Summary ”), together with a certificate of the Chief Financial Officer of SPS (or, if there is a vacancy in such office, the Chief Executive Officer of SPS) stating that such statement was prepared on the basis described herein.

 

(b) Monthly Contingent Payments. On each Payment Date, the Option Holder shall remit (or cause SPS to remit on the Option Holder’s behalf) to the Payees the Monthly Contingent Payment, if any, for such Payment Date.

 

(c) Final Payment. On March 31, 2008 the Option Holder shall remit (or cause SPS to remit on the Option Holder’s behalf) to the Payees an amount (the “ Final Payment Amount ”) equal to (i) the net present value, as of December 31, 2007, of the anticipated Monthly Contingent Payments (excluding, for purposes of such anticipated Monthly Contingent Payments, any deduction on account of Designated Litigation Expense Adjustment, Designated Nonrecoverable Advances, Customer Accommodation Amount, or Customer Reversal Amount) through the expected remaining term of the Servicing Rights, calculated using a discount rate of twenty percent (20%) per annum, reduced by (ii) the Cumulative Shortfall Deductible Amount, if any, as of such date. The calculation of the Final Payment Amount shall assume that the revenue components, the Aggregate Unit Costs and Interest Expense included in the calculation of Monthly Contingent Payments are made or incurred in accordance with SPS’s financial projections as of December 31, 2007, which shall be prepared by SPS in good faith and in a manner that SPS reasonably believes will represent the Monthly Contingent Payments through the remaining term of the Servicing Rights, and, in the case of the one-month LIBOR rate used to calculate the Interest Expense, projected in accordance with the forward one-month LIBOR curve. SPS shall deliver to the Payees such projections and a detailed calculation of the Final Payment Amount no later than February 15, 2008, together with all related back-up material that may be reasonably requested by the Payees in reviewing such projections and calculation. SPS shall cooperate in good faith with the Payees in their review of such projections and calculation.

 

(d) Payment Instructions. All payments pursuant to this Section 3 shall be made as follows: 61.36500% of each Monthly Contingent Payment and the Final Payment Amount shall be paid to PMI, 37.40412% of each Monthly Contingent Payment

 

11

and the Final Payment Amount shall be paid to FSA and 1.23088% of each Monthly Contingent Payment and the Final Payment Amount shall be paid to Greenrange. Such payments shall be made by wire transfer as follows:

 

 

Each Payee may change its wire t