Insurance Agreement

 

DFinancial 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

 

                                                     Policy Number:  04030022

                                                     Control Number:  0010001

 

 

Insured Obligations:

$175,000,000 in aggregate principal amount of Home Equity Mortgage  Asset-Backed

Pass-Through  Certificates,  Series 2004-KS7,  Class A-I-1,  Class A-I-2,  Class

A-I-3, Class A-I-4, Class A-I-5 and Class A-I-6 (collectively, the "Class A-I

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 the  Holders  of the Class A-I

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-I  Overcollateralization  Deficiency  Amount"  shall  mean  if on  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, if any, of (a) the aggregate  Certificate Principal Balance

of the Class A-I  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 I Policy) over (b) the aggregate Stated  Principal  Balance

of the Group I Loans plus the excess, if any, of (x) the aggregate of the Stated

Principal  Balances of the Group II Loans as of that  Distribution Date over (y)

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

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

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

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

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

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

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

 

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A-I 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-I  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-I 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-I

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-I Certificates  and (ii) the Distribution  Date on

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

Certificates  pursuant to the Pooling and Servicing Agreement,  for disbursement

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

payments with respect to the Class A-I 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-I  Certificates  to  receive  the  amount so paid.

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

Certificates  relating to or arising under such Preference Amount and appointing

 

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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

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

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