Insurance Agreement

 

Financial Guaranty Insurance Company

125 Park Avenue

New York, New York 10017

(212) 312-3000 (800) 352-0001

 

SURETY BOND

 

Form 9140

Page 1 of 4

 

Financial Guaranty Insurance Company

125 Park Avenue

New York, New York 10017

(212) 312-3000 (800) 352-0001

 

 

SURETY BOND

 

 

 

                                                 Policy Number:  04030023

                                                 Control Number:  0010001

 

 

Insured Obligations:

$675,000,000  in  principal   amount  of  Home  Equity   Mortgage   Asset-Backed

Pass-Through  Certificates,  Series 2004-KS7, Class A-II-A, Class A-II-B1, Class

A-II-B2 and Class A-II-B3 (collectively, the "Class A-II Certificates")

 

Trustee:  JPMorgan Chase Bank

 

Financial Guaranty Insurance Company  ("Financial  Guaranty"),  a New York stock

insurance  company,  in  consideration  of the right of  Financial  Guaranty  to

receive  monthly  premiums as provided in the  Insurance  Agreement  (as defined

below), and subject to the terms of this Surety Bond, hereby unconditionally and

irrevocably  agrees to pay each  Insured  Payment  (as  defined  below),  to the

Trustee named above or its  successor,  as trustee for Holders of the Class A-II

Certificates, to the extent set forth in the Pooling and Servicing Agreement (as

defined below).  Capitalized  terms used and not otherwise  defined herein shall

have the meanings assigned to such terms in the Pooling and Servicing  Agreement

as in effect and executed on the date hereof.

 

The following terms used herein shall have the meanings assigned to them below:

 

"Class A-II Overcollateralization  Deficiency Amount" shall mean with respect to

any  Distribution  Date,  after  giving  effect  to all  distributions  on  that

Distribution Date (without regard to any principal payments to be made under the

Policies,  other  than  payments  in  respect of Excess  Realized  Losses),  the

aggregate  of the  Certificate  Principal  Balances of the Class A  Certificates

exceeds the Stated Principal  Balance of the Mortgage Loans on that Distribution

Date, an amount equal to the excess of (a) the aggregate  Certificate  Principal

Balance of the Class A-II Certificates  after giving effect to all distributions

to be made on that Distribution  Date (without regard to any principal  payments

to be made under the Group II Policy) over (ii) the aggregate  Stated  Principal

Balance  of the  Group II Loans  plus the plus the  excess,  if any,  of (x) the

aggregate  of the  Stated  Principal  Balances  of the  Group I Loans as of that

Distribution  Date over (y) the Certificate  Principal  Balance of the Class A-I

Certificates,  in each case,  after giving effect to all  distributions  on that

Distribution Date.

 

"Deficiency  Amount"  shall mean with respect to any  Distribution  Date and the

Class A-II Certificates,  an amount, if any, equal to the sum of (1) the excess,

if any, of the Accrued  Certificate  Interest on the Class A-II Certificates for

 

 

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that Distribution Date over the Group II Available  Distribution  Amount on that

Distribution  Date,  other than any  portion  thereof  consisting  of an Insured

Payment  payable  as  interest  on the Class A-II  Certificates,  (2) any Excess

Realized  Losses  on the  Group  II  Loans  and  (3)  (i)  with  respect  to any

Distribution  Date that is not the  Distribution  Date in August 2034, the Class

A-II Overcollateralization Deficiency Amount, if any, for that Distribution Date

and (ii) on the  Distribution  Date in August 2034,  the  aggregate  Certificate

Principal  Balance of the Class A-II  Certificates  (after  giving effect to all

distributions  to be made  thereon  on that  Distribution  Date  other  than any

portion  thereof  consisting of an Insured  Payment  payable as principal on the

Class A-II Certificates).

 

 "Insured  Payment"  shall mean with respect to any  Distribution  Date, (i) any

Deficiency  Amount and (ii) any  Preference  Amount (as  defined in this  Surety

Bond).

 

Financial  Guaranty will pay a Deficiency  Amount with respect to the Class A-II

Certificates  by 12:00 noon (New York City time) in immediately  available funds

to the Trustee on the later of (i) the second  Business Day following the day on

which Financial  Guaranty shall have Received Notice that a Deficiency Amount is

due in respect of the Class A-II  Certificates and (ii) the Distribution Date on

which the related  Deficiency Amount is payable to the Holders of the Class A-II

Certificates  pursuant to the Pooling and Servicing Agreement,  for disbursement

to the  Holders  of the  Class  A-II  Certificates  in the same  manner as other

payments with respect to the Class A-II Certificates are required to be made.

 

Upon such payment, Financial Guaranty shall be fully subrogated to the rights of

the  Holders  of the Class  A-II  Certificates  to  receive  the amount so paid.

Financial  Guaranty's  obligations  with respect to the Class A-II  Certificates

hereunder  with respect to each  Distribution  Date shall be  discharged  to the

extent funds  consisting  of the related  Deficiency  Amount are received by the

Trustee on behalf of the Holders of the Class A-II  Certificates  for payment to

such  Holders,  as provided in the Pooling and  Servicing  Agreement and herein,

whether or not such funds are properly applied by the Trustee.

 

If any  portion  or all of  any  amount  that  is  insured  hereunder  that  was

previously  distributed  to a Holder of A-II  Certificates  is  recoverable  and

recovered  from such Holder as a voidable  preference by a trustee in bankruptcy

pursuant to the U.S. Bankruptcy Code, pursuant to a final  non-appealable  order

of a court  exercising  proper  jurisdiction  (a "Final Order") (such  recovered

amount,  a "Preference  Amount"),  Financial  Guaranty will pay on the guarantee

described in the first paragraph hereof, an amount equal to each such Preference

Amount by 12:00 noon on the next Distribution Date after the second Business Day

following  Receipt by  Financial  Guaranty of (w) a certified  copy of the Final

Order,  (x) an opinion of counsel  satisfactory to Financial  Guaranty that such

order is final and not subject to appeal, (y) an assignment,  in form reasonably

satisfactory to Financial Guaranty,  irrevocably assigning to Financial Guaranty

all  rights  and  claims  of the  Trustee  and/or  such  Holder  of  Class  A-II

Certificates  relating to or arising under such Preference Amount and appointing

Financial  Guaranty as the agent of the Trustee and/or such Holder in respect of

such Preference Amount, and (z) a Notice appropriately completed and executed by

the Trustee or such Holder,  as the case may be. Such  payment  shall be made to

 

 

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the receiver,  conservator,  debtor-in-possession or trustee in bankruptcy named

in the Final Order and not to the  Trustee or Holder of Class A-II  Certificates

directly  (unless the Holder has  previously  paid such amount to such receiver,

conservator,