AMENDED AND RESTATED REPURCHASE AGREEMENT GOVERNIN PURCHASES AND SALES OF MORTGAGE LOANS

EXHIBIT 10.3

 

EXECUTION COPY

 

AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT

GOVERNING

PURCHASES AND SALES OF MORTGAGE LOANS

 

D ATED AS OF M ARCH 18, 2003

 

B ETWEEN

 

LEHMAN BROTHERS BANK, FSB,

AS B UYER

 

AND

 

WMC MORTGAGE CORP.,

A S S ELLER

T ABLE OF C ONTENTS

 

 

i

 

ii

AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT GOVERNING

PURCHASES AND SALES OF MORTGAGE LOANS

 

D ATED AS OF M ARCH 18, 2003

 

B ETWEEN

 

LEHMAN BROTHERS BANK, FSB,

AS B UYER

 

AND

 

WMC MORTGAGE CORP.,

AS S ELLER

 

1. APPLICABILITY

 

From time to time until the Final Repurchase Date, Lehman Brothers Bank, FSB (“ Buyer ”) shall, subject to the terms hereof, enter into transactions upon the request of WMC Mortgage Corp. (“ Seller ”) in which Seller agrees to transfer to Buyer Mortgage Loans against the transfer of funds by Buyer, with a simultaneous agreement by Buyer to transfer to Seller such Mortgage Loans at a date certain or on demand, as specified in the Confirmation, against the transfer of funds by Seller. Each such transaction shall be referred to herein as a “ Transaction ” and shall be governed by this Agreement and the related Confirmation, unless otherwise agreed in writing. Buyer shall have the option, upon the completion of a Transaction and receipt of a Request for Purchase, to enter into additional Transactions with respect to the related Mortgage Loans provided that the maximum aggregate term any Mortgage Loan may be subject to Transactions shall not exceed the earlier of (x) ninety (90) days (or, subject to the limitations set forth in this Agreement, one hundred eighty (180) days) or (y) the Final Repurchase Date. Notwithstanding anything in this Agreement to the contrary, Buyer shall have no obligation to enter into any Transaction hereunder if there shall have occurred any material adverse change, as determined by Buyer in its reasonable judgment, in the financial condition of Seller, the financial markets generally or the secondary market for Mortgage Loans. Buyer shall promptly notify Seller of any determination by Buyer that any of the foregoing has occurred. All obligations under the Transactions shall be recourse to Seller.

 

2. DEFINITIONS

 

“ Act of Insolvency ” means, 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 of 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) 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.

“ Additional Costs ” has the meaning specified in Section 3(e).

 

“ Additional Loans ” means Mortgage Loans provided by Seller to Buyer or its designee pursuant to Section 4(a).

 

“ Affiliate ” means, with respect to any Person, another Person that directly or indirectly controls, or is under common control with, or is controlled by, such Person. As used in this definition, “control” (including, with is correlative meanings, “controlled by” and “under common control with”) means possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise).

 

“ Affirmation of Guaranty ” means that Affirmation of Guaranty, dated as of March 24, 2003, as amended, modified or supplemented from time to time, affirming the Guaranty, dated as of March 19, 2001,

 

“ Aged Mortgage Loan ” means a Mortgage Loan that has been subject to Transactions for more than ninety (90) days and up to one hundred eighty (180) days and that is not more than 29 days Delinquent.

 

“ Agreement ” means this Amended and Restated Master Repurchase Agreement Governing Purchases and Sales of Mortgage Loans between Buyer and Seller, as amended from time to time.

 

“ Balloon Mortgage Loan ” means any Mortgage Loan that provided on the date of origination for scheduled payments by the Mortgagor based upon an amortization schedule extending beyond its maturity date.

 

“ Blocked Account Agreement ” has the meaning specified in Section 5(b) hereof.

 

“ Breakage Costs ” has the meaning specified in Section 3(f).

 

“ Business Day ” means a day other than (i) a Saturday or Sunday, or (ii) a day on which the New York Stock Exchange is authorized or obligated by law or executive order to be closed.

 

“ Buyer ” has the meaning specified in Section 1.

 

“ Capital Lease ”, as applied to any Person or entity, shall mean any lease of any property (whether real, personal or mixed) by that Person or entity as lessee that, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person or entity.

 

“ Capital Stock ” means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.

 

2

“ Cash Equivalents ” shall mean (a) securities with maturities of 90 days or less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit and eurodollar time deposits with maturities of 90 days or less from the date of acquisition and overnight bank deposits of any commercial bank having capital and surplus in excess of $50,000,000, (c) repurchase obligations of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than seven days with respect to securities issued or fully guaranteed or insured by the United States Government, (d) commercial paper of a domestic issuer rated at least A-1 or the equivalent thereof by S&P or P-1 or the equivalent thereof by Moody’s and in either case maturing within 90 days after the day of acquisition, (e) securities with maturities of 90 days or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody’s, (f) securities with maturities of 90 days or less from the date of acquisition backed by standby letters of credit issued by any commercial bank satisfying the requirements of clause (b) of this definition, or (g) shares of money market, mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition.

 

“ Collateral ” has the meaning specified in Section 6.

 

“ Collateral Deficit ” means either a Market Value Collateral Deficit or a Securitization Value Collateral Deficit.

 

“ Collateral Information ” means the following information with respect to each Mortgage Loan: (i) Seller’s loan number, (ii) the Mortgagor’s name, (iii) the address of the Mortgaged Property, (iv) the current interest rate, (v) the original balance, (vi) the current balance as of the last day of the immediately preceding month, (vii) the paid to date and the next payment date, (viii) the appraised value of the Mortgaged Property at the time the Mortgage Loan was originated, (ix) whether the interest rate is fixed or adjustable (and if adjustable, the “ARM” code, which includes the index, adjustment frequency, spread and caps), (x) the lien position of the Mortgage Loan on the Mortgaged Property (and if a second lien, the outstanding principal balance of the first lien at the time the Mortgage Loan was originated and the monthly payment and maturity date of the first lien loan), (xi) the occupancy status of the Mortgaged Property (including whether owner occupied), (xii) whether the Mortgage Loan is a Balloon Mortgage Loan, (xiii) the first payment date, (xiv) the maturity date, (xv) the principal and interest payment, (xvi) the property type of the Mortgaged Property, (xvii) the Mortgagor’s FICO Score (where available in the Mortgage File), (xviii) the applicable Mortgage Loan grade, (xix) the social security number of the Mortgagor, (xx) the Mortgage Note date, (xxi) the prepayment penalty and prepayment penalty type, (xxii) the delinquency status, and (xxiii) Mortgage Loan purpose (i.e. refinance, cash out refinance, home improvement, debt consolidation).

 

“ Collateral Maintenance Amount ” means, with respect to any Transaction, the amount obtained by application of the applicable Collateral Maintenance Percentage to the Repurchase Price for such Transaction.

 

“ Collateral Maintenance Percentage ” means the amount set forth in the Confirmation with respect to each Mortgage Loan which, (1) in determining whether a Market Value Collateral Deficit exists pursuant to the second sentence of Section 4(a) hereof shall, for each type of Mortgage Loan set forth in the far left hand column below, equal the applicable percentage set forth in the middle column below and (2) in determining whether a Securitization Value Collateral Deficit exists pursuant to the third sentence of Section 4(a) hereof shall, for each type of Mortgage Loan set forth in the far left hand column below, equal the applicable percentage set forth in the far right hand column below:

 

3

 

“ Collection Account ” and “ Collection Account Bank ” have the meanings specified in Section 5(b) and 5(a) hereof, respectively.

 

“ Confirmation ” has the meaning specified in Section 3(c).

 

“ Contractual Obligation ” shall mean as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

 

“ Costs ” has the meaning specified in Section 20.

 

“ Custodial Agreement ” means that custodial agreement, dated as of March 19, 2001, as amended, modified or supplemented from time to time, by and among Buyer, Seller and the Custodian, the form of which is attached hereto as Exhibit II.

 

“ Custodial Delivery ” means the form executed by the Seller in order to deliver a Mortgage Loan Schedule and/or Mortgage Files to Buyer or its designee (including the Custodian) pursuant to Section 7, a form of which is attached hereto as Exhibit III.

 

“ Custodian ” means the custodian under the Custodial Agreement. The initial custodian is Wells Fargo Bank Minnesota, National Association.

 

4

“ Delinquent ” means, with respect to any Mortgage Loan, the period of time from the date on which a Mortgagor fails to pay an obligation under the terms of such Mortgage Loan to the date on which such payment is made.

 

“ Delinquent Mortgage Loans ” means (x) the portion of the Mortgage Loans that are Delinquent for thirty (30) or more days and up to (and including) fifty-nine (59) days in excess of 3% of the aggregate Repurchase Price for all Mortgage Loans which are subject to then outstanding Transactions and (y) any Mortgage Loan that is Delinquent for sixty (60) or more days and up to (but excluding) one hundred twenty (120) days and, in either of clauses (x) or (y) above that are secured by a Mortgaged Property the title to which has not been acquired by foreclosure, deed-in-lieu of foreclosure or similar means.

 

“ EBITDA ” means, for any period, Net Income for such period plus , without duplication and to the extent reflected as a charge in the statement of such Net Income for such period, the sum of (a) total income tax expense, (b) interest expense, (c) depreciation and amortization expense, (d) amortization of intangibles (including, but not limited to, goodwill) and organization costs, (e) any extraordinary expenses or losses (including, whether or not otherwise includable as a separate item in the statement of such Net Income for such period, losses on sales of assets outside of the ordinary course of business), and (f) any other noncash charges, and minus , to the extent included in the statement of such Net Income for such period, the sum of (a) any extraordinary income or gains (including, whether or not otherwise includable as a separate item in the statement of such Net Income for such period, gains on the sales of assets outside of the ordinary course of business) and (b) any other noncash income (other than any income represented by a receivable that in the ordinary course would be expected to be paid in cash), all as determined on a consolidated basis.

 

“ Electronic Tracking Agreement ” means an Electronic Tracking Agreement by and among Buyer, Seller, MERS and MERS Corp. Inc., entered into pursuant to Section 7(i), the form of which is attached hereto as Exhibit IX (with such changes as Buyer shall agree to).

 

“ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time.

 

“ ERISA Affiliate ” shall mean any trade or business (whether or not incorporated) which, together with the Seller, is treated as single employer under Section 414(b) or (c) of the Internal Revenue Code, or solely for purposes of Section 302 of ERISA and Section 412 of the Internal Revenue Code, is treated as a single employer under Section 414 of the Internal Revenue Code.

 

“ ERISA Event ” shall mean (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder, with respect to a Plan; (b) the adoption of any amendment to a Plan that would require the provision of security pursuant to Section 401(a)(29) of the Internal Revenue Code or Section 307 of ERISA; (c) the existence with respect to any Plan of an “accumulated funding deficiency” (as defined in Section 412 of the Internal Revenue Code or Section 302 of ERISA), whether or not waived; (d) the filing pursuant to Section 412(d) of the Internal Revenue Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (e) the incurrence of any liability under Title IV of ERISA upon the termination of any Plan or the withdrawal or partial withdrawal of the Seller or any ERISA Affiliates from any Plan or Multiemployer Plan; (f) the receipt by the Seller or any ERISA Affiliate from the Pension Benefit Guaranty Corporation of any notice relating to the intention to terminate any Plan or to appoint a trustee to administer any Plan; (g) the receipt by the Seller or any ERISA Affiliate of any notice concerning the imposition of withdrawal liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; and (h) the occurrence of a “prohibited transaction” with respect to which

 

5

the Seller or any Subsidiaries is a “disqualified person” (within the meaning of Section 4975 of the Internal Revenue Code) or with respect to which the Seller or any such Subsidiary could otherwise be liable.

 

“ Escrow Account ” has the meaning specified in Section 5(b).

 

“ Event of Default ” has the meaning specified in Section 13.

 

“ Facility Amount ” has the meaning specified in Section 3(g).

 

“ Facility Documents ” has the meaning specified in Section 3(a).

 

“ FHLMC ” means Federal Home Loan Mortgage Corporation or Freddie Mac.

 

“ Final Repurchase Date ” means September 17, 2004 or such earlier date on which all Purchased Mortgage Loans are required to be immediately repurchased pursuant to Section 14(a) (unless such date is extended upon mutual agreement of Buyer and Seller).

 

“ First Mortgage ” means the Mortgage that is the first lien on the Mortgaged Property.

 

“ FNMA ” means Federal National Mortgage Association or Fannie Mae.

 

“ Foreign NIM Transactions ” means a transaction with respect to which each of the following statements is accurate and complete:

 

(a) Said transaction is a net interest margin transaction in which Seller, through its special purpose Subsidiaries, sells certificates (the “NIM Transaction Certificates”) representing credit enhancement and/or prepayment penalties and/or other similar interests that it derives from a securitization of its Mortgage Loans through investment instruments to be purchased by U.S. and/or non-U.S. investors;

 

(b) To facilitate said transaction, Seller creates or has created (i) a domestic Subsidiary which acts as a qualifying special purpose entity (the “QSPE”), and (ii) a special purpose Subsidiary organized under a non-U.S. jurisdiction and primarily owned by the QSPE (the “Foreign Subsidiary”) which issues certain rated instruments (the “Foreign Instruments”);

 

(c) In said transaction, the QSPE transfers the NIM Transaction Certificates to the Foreign Subsidiary in exchange for cash resulting from the sale of the Foreign Instruments by the Foreign Subsidiary and certain common stock ownership interests in the Foreign Subsidiary which will be received by the QSPE immediately upon consummation of such transaction; and

 

(d) If requested by Buyer, Seller has provided to Buyer a written description of said transaction in detail satisfactory to Buyer.

 

“ Foreign Instruments ” and “ Foreign Subsidiary ” have the meanings given in the definition of “Foreign NIM Transactions.”

 

“ GAAP ” means with respect to the financial statements or other financial information of any Person, generally accepted accounting principles in the United States set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the accounting profession) which are applicable and in effect from time to time.

 

6

“ Governmental Authority ” means any nation or government, any state or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any court or arbitrator having jurisdiction over the Borrower, any of its Affiliates or any of its properties.

 

“ Guarantee Obligation ” means a guarantee, an endorsement, a contingent agreement to purchase or to furnish funds for the payment or maintenance of, or otherwise to be or become contingently liable under or with respect to, the Indebtedness, other obligations, net worth, working capital or earnings of any Person, or a guarantee of the payment of dividends or other distributions upon the stock or equity interests of any Person, or an agreement to purchase, sell or lease (as lessee or lessor) property, products, materials, supplies or services primarily for the purpose of enabling a debtor to make payment of such debtor’s obligations or an agreement to assure a creditor against loss, and including, without limitation, causing a bank or other financial institution to issue a letter of credit or other similar instrument for the benefit of another Person, but excluding endorsements for collection or deposit in the ordinary course of business.

 

“ Guarantor ” means WMC Finance Co., a Delaware corporation.

 

“ Guaranty ” means the Guaranty of the aggregate Repurchase Price from Guarantor, the form of which is attached hereto as Exhibit V and which is affirmed by the Affirmation of Guaranty.

 

“ Hedge ” means, with respect to any or all of the Mortgage Loans, any interest rate swap, cap or collar agreement or similar arrangements providing for protection against fluctuations in interest rates or the exchange of nominal interest obligations, either generally or under specific contingencies, entered into by Seller, and reasonably acceptable to the Buyer.

 

“ HUD ” means the United States Department of Housing and Urban Development.

 

“ Income ” means, with respect to any Mortgage Loan at any time, any principal thereof then payable, any principal prepayments and curtailments and all interest, dividends or other distributions payable thereon.

 

“ Indebtedness ” means, 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 ninety (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 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 (other than a Permitted Letter of Credit); (e) Capital Leases of such Person; and (f) Indebtedness of others guaranteed by such Person.

 

“ Interest Coverage Ratio ” means for any period with respect to the Seller and it Subsidiaries, the ratio of (a) EBITDA for such period to (b) Interest Expense for such period.

 

7

“ Interest Expense ” means for any period, total interest expense, both expensed and capitalized, of the Seller and its Subsidiaries for such period with respect to all outstanding Indebtedness of the Seller and its Subsidiaries (including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing and net costs under interest rate protection agreements), determined on a consolidated basis in accordance with GAAP, net of interest income of the Seller and its Subsidiaries for such period (determined on a consolidated basis in accordance with GAAP).

 

“ Interest Period ” means, with respect to any Transaction, (i) initially, the period commencing on the related Purchase Date and ending on the day immediately preceding the next Payment Date (the “ Interest Reset Date ”), and (ii) thereafter, each period from and including the day following the immediately preceding Interest Reset Date up to and including the succeeding Interest Reset Date or such shorter period as agreed among Buyer and Seller when the current Interest Period expires. Notwithstanding the foregoing, each Interest Period that commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate calendar month when the Interest Period expires) shall end on the last Business Day of the appropriate calendar month. Notwithstanding the foregoing: (i) no Interest Period may begin before and end after the Final Repurchase Date; and (ii) each Interest Period that would otherwise end on a day that is not a Business Day shall end on the next succeeding Business Day (or, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day).

 

“ Interest Reset Date ” has the meaning specified in the definition of Interest Period.

 

“ Leverage Ratio ” means, at any time with respect to the Seller and its Subsidiaries, the ratio of (i) the aggregate principal amount of all Indebtedness (inclusive of residual financing) at such time which on a consolidated basis in accordance with GAAP would be required to be reflected on a consolidated balance sheet as a liability to (ii) the Tangible Net Worth at such time.

 

“ LIBOR ” means the rate per annum calculated with respect to each Transaction as set forth below:

 

(i) Two (2) Business Days prior to each Interest Reset Date, LIBOR shall be determined by Buyer on the basis of the offered rate for one month deposits of not less than U.S.$1,000,000, which appears on the date of determination on Dow Jones Market Service Page 3750 as of 11:00 a.m., London time (or such other page as may replace the Dow Jones Market Service Page on that service for the purposes of displaying London interbank offered rates of major banks). If no such offered rate appears, LIBOR with respect to the relevant Interest Period shall be determined as described in (ii) below.

 

(ii) With respect to an Interest Reset Date on which no such offered rate appears two (2) Business Days prior thereto on Dow Jones Market Service Page 3750 as described in (i) above, LIBOR shall be the arithmetic mean, expressed as a percentage, of the offered rates for one month deposits in U.S. Dollars that appears on the Reuters Screen LIBOR Page as of 11:00 a.m., London time, on the date of determination. If, in turn, such rate is not displayed on the Reuters Screen LIBOR Page at such time, then LIBOR for such date shall be reasonably determined by Buyer to be the arithmetic mean of the offered quotations to first-class banks in the Interbank LIBOR Market.

 

All percentages resulting from any calculations of LIBOR referred to in this Agreement shall be rounded up to the nearest multiple of 1/100 of 1% and all U.S. Dollar amounts used in or resulting from such calculations shall be rounded to the next higher cent.

 

8

“ Loan-to-Value Ratio ” means with respect to any Mortgage Loan, the fraction, expressed as a percentage, the numerator of which is the principal balance of such Mortgage Loan at the date of origination and the denominator of which is the lowest of (a) the value of the related Mortgaged Property as set forth in the appraisal of such Mortgaged Property obtained in connection with the origination of such Mortgage Loan, (b) the purchase price of the Mortgaged Property or (c) the review appraisal, if any, provided that the appraised value shown in the review appraisal is less than the appraised value at origination by a variance of 10% or greater. For purposes of calculating the Loan-to-Value Ratio of a Mortgage Loan secured by a second Mortgage, the principal balance of the related First Mortgage (at the time of origination of the second Mortgage) as well as the second Mortgage shall be included in the numerator.

 

“ Market Value ” means as of any date with respect to any Mortgage Loan, the price at which such Mortgage Loan could readily be sold as determined by Buyer in its sole discretion; provided , that the Market Value shall be deemed zero for any Mortgage Loan:

 

(i) except as set forth in clause (ii) below, which has been subject to Transactions for more than 90 days,

 

(ii) which is an Aged Mortgaged Loan and together with the other Aged Mortgage Loans subject to then outstanding Transactions would cause the aggregate Repurchase Price for all Aged Mortgage Loans which are subject to then outstanding Transactions to exceed the lesser of (x) 20% of the aggregate Repurchase Price for all Mortgage Loans which are subject to then outstanding Transactions and (y) $80,000,000,

 

(iii) which is Delinquent for thirty (30) or more days and up to fifty-nine (59) days (and is not a Delinquent Mortgage Loan) and together with the other Mortgage Loans that are Delinquent (and are not Delinquent Mortgage Loans) for such period subject to then outstanding Transactions would cause the aggregate outstanding principal balance of such Mortgage Loans that are Delinquent (and are not Delinquent Mortgage Loans) for such period subject to then outstanding Transactions to exceed 3.0% of the aggregate Repurchase Price for of all Mortgage Loans which are subject to then outstanding Transactions,

 

(iv) which is a Delinquent Mortgage Loan and together with the other Delinquent Mortgage Loans subject to then outstanding Transactions would cause the aggregate Repurchase Price for all Delinquent Mortgage Loans which are subject to then outstanding Transactions to exceed the lesser of (x) 3% of the aggregate Repurchase Price for all Mortgage Loans which are subject to then outstanding Transactions and (y) $10,000,000,

 

(v) which is a Mortgage Loan secured by a second mortgage lien on the Mortgaged Property and together with the other Mortgage Loans secured by second mortgage liens on the Mortgaged Property subject to then outstanding Transactions would cause the aggregate Repurchase Price for all Mortgage Loans secured by second mortgage liens on the Mortgaged Property which are subject to then outstanding Transactions to exceed the lesser of (x) 10% of the aggregate Repurchase Price for all Mortgage Loans which are subject to then outstanding Transactions and (y) $40,000,000,

 

(vi) which is Delinquent for one hundred twenty (120) days or more,

 

(vii) which is Delinquent for sixty (60) days or more (except as permitted under clause (iv) above),

 

9

(viii) which is a Wet Ink Mortgage Loan for more than seven (7) Business Days,

 

(ix) which is a Wet Ink Mortgage Loan and together with the other Wet Ink Mortgage Loans subject to then outstanding Transactions, would cause the aggregate Repurchase Price of Wet Ink Mortgage Loans subject to the then outstanding Transactions to exceed $85,000,000,

 

(x) which is a Repurchased Mortgage Loan and together with the other Repurchased Mortgage Loans subject to then outstanding Transactions would cause the aggregate Repurchase Price for all Repurchased Mortgage Loans which are subject to then outstanding Transactions to exceed $10,000,000,

 

(xi) with respect to which there is a breach of a representation, warranty or covenant made by Seller in this Agreement that materially adversely affects Buyer’s interest in such Mortgage Loan and which breach has not been cured, or

 

(xii) which is in foreclosure or subject to a bankruptcy proceeding of the related Mortgager or with respect to which the first monthly payment was not made by the second due date or within the grace period in accordance with the terms of the Mortgage Note.

 

“ Market Value Collateral Deficit ” has the meaning specified in Section 4(a).

 

“ Material Adverse Effect ” shall mean a material adverse effect on (a) the business, assets, property, condition (financial or otherwise) or prospects of the Seller and its Subsidiaries taken as a whole, or (b) the validity or enforceability of (i) this Agreement or the other Facility Documents or (ii) the rights or remedies of the Buyer hereunder or thereunder.

 

“ MERS ” and “ MERS System ” have the meanings specified in Section 7(i).

 

“ Moody’s ” means Moody’s Investors Service, Inc.

 

“ Mortgage ” means a mortgage, deed of trust, deed to secure debt or other instrument, creating a valid and enforceable first or second lien on or a first or second priority ownership interest in an estate in fee simple in real property and the improvements thereon, securing a mortgage note or similar evidence of indebtedness.

 

“ Mortgage File ” means the documents specified as the “Mortgage File” in Section 7(d), together with any additional documents and information required to be delivered to the Buyer or its designee (including the Custodian) pursuant to this Agreement.

 

“ Mortgage Loan ” means a non-securitized whole loan, namely a conventional mortgage loan secured by a first or second lien on a one to four family residential property (including, without limitation, a Wet Ink Mortgage Loan) which conforms to the Seller’s Underwriting Guidelines.

 

“ Mortgage Loan Schedule ” means a schedule of Mortgage Loans attached to each Trust Receipt, Confirmation and Custodial Delivery.

 

“ Mortgage Note ” means a note or other evidence of indebtedness of a Mortgagor secured by a Mortgage.

 

“ Mortgaged Property ” means the real property securing repayment of the debt evidenced by a Mortgage Note.

 

10

“ Mortgagee ” means the record holder of a Mortgage.

 

“ Mortgagor ” means the obligor on a Mortgage Note and the grantor of the related Mortgage.

 

“ Multiemployer Plan ” shall mean a Plan which is a multiemployer plan as defined in Section 4001(a) of ERISA.

 

“ Net Income ” means, for any period, the consolidated net income (or loss) for such period, determined on a consolidated basis in accordance with GAAP.

 

“ Net Worth ” mean the amount which would be included under stockholders’ equity on a consolidated balance sheet of Seller and its Subsidiaries determined on a consolidated basis in accordance with GAAP.

 

“ NIM Transaction Certificates ” has the meaning given in the definition of “Foreign NIM Transaction.”

 

“ Payment Date ” means the first calendar day of the month (or if such day is not a Business Day, the succeeding Business Day).

 

“ Periodic Payment ” has the meaning specified in Section 5(c).

 

“ Permitted Securitization ” means any transaction or series of related transactions for the sale or financing of Purchased Mortgage Loans (the “ Sold Loans ”) pursuant to which the Sold Loans are held by or transferred to a special purpose entity structured in a manner which enhances the credit or diminishes the bankruptcy risks attendant upon creditors of such entity (any such entity so structured, a “ Special Purpose Entity ”), and such transaction or transactions would not violate or be inconsistent with any statute, law, rule, regulation, judgment, order or decree applicable to the Seller, any of its Subsidiaries or any of their respective properties (including, without limitation, any thereof respecting fraudulent transfers or conveyances set forth in any applicable laws of any jurisdiction respecting the bankruptcy or insolvency of debtors).

 

“ Person ” means an individual, partnership, limited liability company, corporation, joint stock company, trust or unincorporated organization or a governmental agency or political subdivision thereof.

 

“ Plan ” shall mean any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 112 of the Internal Revenue Code or Section 307 of ERISA and in respect of which the Borrower or any ERISA Affiliate is (or if such plan were terminated would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

 

“ Predatory Lending Practices ” means any and all underwriting and lending policies, procedures and practices defined or enumerated in any local or municipal ordinance or regulation or any state or federal regulation or statute prohibiting, limiting or otherwise relating to the protection of consumers from such policies, procedures and practices. Such policies, practices and procedures may include, without limitation, charging excessive loan, broker, and closing fees, charging excessive rates of loan interest, making loans without regard to a consumer’s ability to re-pay the loan, refinancing loans with no material benefit to the consumer, charging fees for services not actually performed, discriminating against consumers on the basis of race, gender, or age, failing to make proper disclosures to the consumer of the consumer’s rights under federal and state law, and any other predatory lending policy, practice or procedure as defined by ordinance, regulation or statute.

 

11

“ Price Differential ” means, with respect to any Transaction hereunder as of any date, the aggregate amount obtained by daily application of the Pricing Rate for such Transaction to the Purchase Price for such Transaction on a 360 day per year basis for the actual number of days during the period commencing on (and including) the Purchase Date for such Transaction and ending on (but excluding) the Repurchase Date (reduced by any amount of such Price Differential previously paid by Seller to Buyer with respect to such Transaction).

 

“ Pricing Rate ” means, with respect to a Transaction, the per annum percentage rate specified in the related Confirmation for determination of the Price Differential which shall not exceed LIBOR plus the applicable Pricing Spread.

 

“ Pricing Spread ” means the rate specified in the Confirmation with respect to each Mortgage Loan, which shall be equal to (i) on each day the related Purchased Mortgage Loan is a Wet Ink Mortgage Loan, 1.55% and (ii) on each date on and after the delivery to the Custodian of a complete Mortgage File for such Purchased Mortgaged Loan, for each type of Mortgage Loan set forth in the left hand column below, the applicable rate set forth in the right hand column below:

 

 

“ Prime Rate ” means the rate of interest published by The Wall Street Journal , northeast edition, as the “prime rate.”

 

“ Purchase Date ” means the date on which Purchased Mortgage Loans are transferred by Seller to Buyer or its designee (including the Custodian) as specified in the Confirmation.

 

“ Purchase Price ” means on each Purchase Date, the price at which each Purchased Mortgage Loan is transferred by Seller to Buyer or its designee (including the Custodian) which shall be equal to for each type of Mortgage Loan set forth in the left hand column below, the lowest of (i) the product of the Market Value of such Mortgage Loan and the applicable percentage set forth below under the column labeled “A”, (ii) the product of the Securitization Value of such Mortgage Loan and the applicable percentage set forth under the column labeled “B” and (iii) the product of the outstanding principal balance of such Mortgage Loan and the applicable percentage set forth below under the column labeled “C”:

 

12

 

“ Purchased Mortgage Loans ” means the Mortgage Loans sold by Seller to Buyer in a Transaction, any Additional Loans and any Substituted Mortgage Loans.

 

“ QSPE ” has the meaning given in the definition of “Foreign NIM Transactions.”

 

“ Replacement Loans ” has the meaning specified in Section 14(b)(ii).

 

13

“ Repurchase Date ” means the date on which Seller is to repurchase the Purchased Mortgage Loans from Buyer, including any date determined by application of the provisions of Sections 3 or 14, as specified in the Confirmation or otherwise; provided that (a) in no event shall such date be more than one hundred eighty (180) days after the Purchase Date and (b) in no event shall such date be more than ninety (90) days after the Purchase Date with respect to Aged Mortgage Loans which have an aggregate Repurchase Price for Purchased Mortgage Loans subject to such Transactions exceeding the lesser of (x) 20% of the aggregate Repurchase Price for all Purchased Mortgage Loans subject to Transactions at such time and (y) $80,000,000.

 

“ Repurchase Price ” means the price at which Purchased Mortgage Loans are to be transferred from Buyer or its designee (including the Custodian) to Seller upon termination of a Transaction, which will be determined in each case as the sum of the Purchase Price and the Price Differential as of the date of such determination decreased by all cash, Income and Periodic Payments actually received by Buyer pursuant to Sections 4(a), 5(a) and 5(f), respectively, with respect to such Transaction.

 

“ Repurchased Mortgage Loan ” means any Mortgage Loan which (x) the Seller or an Affiliate of the Seller has previously sold to an investor in any type of sale transaction (including, without limitation, a whole loan sale, a mortgage loan purchase and sale agreement, or otherwise) and the Seller or such Affiliate has been required to repurchase or otherwise take back for any reason (including, without limitation, due to breach of a representation and warranty or a document deficiency with respect to such Mortgage Loan or otherwise) and (y) the Buyer has specifically approved the inclusion of such Mortgage Loan in a Transaction in its reasonable discretion. No Repurchased Mortgage Loan may be a Wet Ink Mortgage Loan.

 

“ Request for Purchase ” means written notice of Seller’s request to enter into a Transaction in the form of Exhibit IV. Such Request for Purchase shall specify the requested Purchase Date and Repurchase Date and include the Mortgage Loan Schedule containing information with respect to the Collateral that the Seller proposes to pledge to Buyer in connection with such Transaction.

 

“ Requirement of Law ” means as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

 

“ Responsible Officer ” means, as to any Person, the chief executive officer, chief operating officer, the chief financial officer or treasurer or any other officer having substantially the same authority and responsibility including any vice president with responsibility for or knowledge of financial matters.

 

“ S&P ” means Standards & Poor’s Ratings Group, a division of McGraw Hill Companies, Inc.

 

“ Securitization Value ” means, as of any date with respect to any Mortgage Loans, the price at which such Mortgage Loans could be securitized and sold in a securitization as determined by Buyer in its sole discretion; provided , that the Securitization Value shall be deemed zero for any Mortgage Loan:

 

(i) except as set forth in clause (ii) below, which has been subject to Transactions for more than 90 days,

 

(ii) which is an Aged Mortgaged Loan and together with the other Aged Mortgage Loans subject to then outstanding Transactions would cause the aggregate Repurchase Price for all Aged Mortgage Loans which are subject to then outstanding Transactions to exceed the lesser of (x) 20% of the aggregate Repurchase Price for all Mortgage Loans which are subject to then outstanding Transactions and (y) $80,000,000,

 

14

(iii) which is Delinquent for thirty (30) or more days and up to fifty-nine (59) days (and is not a Delinquent Mortgage Loan) and together with the other Mortgage Loans that are Delinquent (and are not Delinquent Mortgage Loans) for such period subject to then outstanding Transactions would cause the aggregate outstanding principal balance of such Mortgage Loans that are Delinquent (and are not Delinquent Mortgage Loans) for such period subject to then outstanding Transactions to exceed 3.0% of the aggregate Repurchase Price for of all Mortgage Loans which are subject to then outstanding Transactions,

 

(iv) which is a Delinquent Mortgage Loan and together with the other Delinquent Mortgage Loans subject to then outstanding Transactions would cause the aggregate Repurchase Price for all Delinquent Mortgage Loans which are subject to then outstanding Transactions to exceed the lesser of (x) 3% of the aggregate Repurchase Price for all Mortgage Loans which are subject to then outstanding Transactions and (y) $10,000,000,

 

(v) which is a Mortgage Loan secured by a second mortgage lien on the Mortgaged Property and together with the other Mortgage Loans secured by second mortgage liens on the Mortgaged Property subject to then outstanding Transactions would cause the aggregate Repurchase Price for all Mortgage Loans secured by second mortgage liens on the Mortgaged Property which are subject to then outstanding Transactions to exceed the lesser of (x) 10% of the aggregate Repurchase Price for all Mortgage Loans which are subject to then outstanding Transactions and (y) $40,000,000,

 

(vi) which is Delinquent for one hundred twenty (120) days or more,

 

(vii) which is Delinquent for sixty (60) days or more (except as permitted under clause (iv) above),

 

(viii) which is a Wet Ink Mortgage Loan for more than seven (7) Business Days,

 

(ix) which is a Wet Ink Mortgage Loan and together with the other Wet Ink Mortgage Loans subject to then outstanding Transactions, would cause the aggregate Repurchase Price of Wet Ink Mortgage Loans subject to the then outstanding Transactions to exceed $85,000,000,

 

(x) which is a Repurchased Mortgage Loan and together with the other Repurchased Mortgage Loans subject to then outstanding Transactions would cause the aggregate Repurchase Price for all Repurchased Mortgage Loans which are subject to then outstanding Transactions to exceed $10,000,000,

 

(xi) with respect to which there is a breach of a representation, warranty or covenant made by Seller in this Agreement that materially adversely affects Buyer’s interest in such Mortgage Loan and which breach has not been cured, or

 

(xii) which is in foreclosure or subject to a bankruptcy proceeding of the related Mortgager or with respect to which the first monthly payment was not made by the second due date or within the grace period in accordance with the terms of the Mortgage Note.

 

“ Securitization Value Collateral Deficit ” has the meaning specified in Section 4(a).

 

15

“ Seller ” has the meaning specified in Section 1.

 

“ Servicer ” means Fairbanks Capital Corp., a Utah corporation, and its successors in interest and permitted assigns.

 

“ Servicing Agreement ” means the servicing agreement, between the Buyer, the Seller and the Servicer, as amended, modified or supplemented from time to time, the form of which is attached hereto as Exhibit VIII.

 

“ Servicing Records ” has the meaning specified in Section 25.

 

“ Sold Loans ” and “ Special Purpose Entity ” have the meaning specified in the definition of “Permitted Securitization”.

 

“ Subsidiary ” means, as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a “Subsidiary” or to “Subsidiaries” in this Agreement shall refer to a Subsidiary or Subsidiaries of the Seller.

 

“ Substituted Mortgage Loans ” means any Mortgage Loans substituted for Purchased Mortgage Loans in accordance with Section 9 hereof.

 

“ Tangible Net Worth ” means, at any time, Net Worth at such time, minus intangible assets included in determining Net Worth.

 

“ Transaction ” has the meaning specified in Section 1.

 

“ Trust Receipt ” means a trust receipt issued by the Custodian to the Buyer confirming the Custodian’s possession of certain mortgage loan files which are the property of and held by the Custodian for the benefit of the Buyer or the registered holder of such trust receipt.

 

“ Underwriting Guidelines ” means the underwriting guidelines attached as Schedule 2 hereto, as amended, modified or supplemented from time to time.

 

“ Uniform Commercial Code ” means the Uniform Commercial Code as in effect on the date hereof in the State of New York; provided , that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, “Uniform Commercial Code” shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection.

 

“ Wet Ink Mortgage Loan ” means a Mortgage Loan for which a Mortgage File has not been delivered to the Custodian. No Repurchased Mortgage Loan may qualify as a Wet Ink Mortgage Loan.

 

“ Whole Loan Sale ” means a sale of the Purchased Mortgage Loans by the Seller (other than in connection with a Permitted Securitization).

 

16

3. CONDITIONS PRECEDENT; INITIATION; CONFIRMATION; TERMINATION; MAXIMUM TRANSACTION AMOUNTS

 

(a) Conditions Precedent to Initial Transaction . Buyer’s obligation to enter into the initial Transaction hereunder is subject to the satisfaction, immediately prior to or concurrently with the making of such Transaction, of the condition precedent that Buyer shall have received all of the following documents, each of which shall be reasonably satisfactory to Buyer and its counsel in form and substance (collectively, the “ Facility Documents ”):

 

(i) Agreement . This Agreement, duly completed, and executed and delivered by Seller;

 

(ii) Custodial Agreement . The Custodial Agreement, duly executed and delivered by Seller and Custodian;

 

(iii) Uniform Commercial Code Filings . Any filings requested or required under the Uniform Commercial Code duly completed and executed and such other actions as Buyer shall have requested in order to perfect the security interests created pursuant to this Agreement;

 

(iv) Blocked Account Agreement . The Blocked Account Agreement, duly executed and delivered by Seller and the Collection Account Bank;

 

(v) Opinion of Counsel . An opinion or opinions of counsel favorable to the Buyer with respect to the Seller and the transactions contemplated by this Agreement;

 

(vi) Letter Agreements . The letter agreements with respect to the payment of fees and certain investment banking services, duly executed and delivered by Seller; and

 

(vii) Other Documents . Such other documents as Buyer may reasonably request.

 

(b) Conditions Precedent to all Transactions . Except as provided below, Buyer’s obligation to enter into each Transaction (including the initial Transaction) is subject to the satisfaction of the following further conditions precedent, both immediately prior to entering into such Transaction and also after giving effect thereto to the intended use thereof:

 

(i) Seller shall have delivered to Buyer and Custodian a Request for Purchase at least one Business Day prior to the proposed Purchase Date specified in such Request for Purchase (including in the Mortgage Loan Schedule attached thereto the Collateral Information, which may be transmitted by direct electronic transmission or via a computer diskette, in either case in Excel format);

 

(ii) other than with respect to Wet Ink Mortgage Loans, Buyer shall have received from the Custodian a Trust Receipt with exceptions as are acceptable to Buyer in its sole discretion in respect of Mortgage Loans to be sold hereunder on the applicable Business Day and a Mortgage Loan Schedule, in each case dated such Business Day and duly completed;

 

(iii) Buyer shall have completed its due diligence to its reasonable satisfaction with respect to each Mortgage Loan to be purchased on such Purchase Date;

 

(iv) no Event of Default shall have occurred and be continuing;

 

17

(v) Seller shall have provided Buyer with a copy of any material changes to Seller’s Underwriting Guidelines prior to the effectiveness of any such change and obtained Buyer’s approval of such change; and

 

(vi) no Collateral Deficit exists.

 

(c) Initiation and Confirmation .

 

(i) Each agreement to enter into a Transaction must be entered into in writing at the initiation of Seller by Seller’s delivery of a Request for Purchase to Buyer. Buyer shall confirm the terms of each Transaction by issuing a written confirmation to Seller promptly after the parties enter into such Transaction in the form of Exhibit I attached hereto (a “ Confirmation ”). Such Confirmation shall describe the Purchased Mortgage Loans, identify Buyer and Seller and set forth (i) the Purchase Date, (ii) the Purchase Price, (iii) the Repurchase Date, (iv) the Pricing Rate applicable to the Transaction, (v) the applicable Collateral Maintenance Percentages and (vi) additional terms or conditions not inconsistent with this Agreement. After receipt of the Confirmation, Seller shall, subject to the provisions of subsection (c)(iii) below, sign the Confirmation and promptly return it to Buyer. The Purchase Price for any Transaction shall not be less than $750,000. Buyer shall not have any obligation to enter into more than two Transactions on any Business Day.

 

(ii) Any Confirmation by Buyer shall be deemed to have been received by Seller on the date actually received by Seller.

 

(iii) Each Confirmation, together with this Agreement, shall be conclusive evidence of the terms of the Transaction(s) covered thereby unless objected to in writing by Seller no more than two (2) Business Days after the date the Confirmation was received by Seller or unless a corrected Confirmation is sent by Buyer. An objection sent by Seller must state specifically that such writing is an objection to a Confirmation and must specify the provision(s) being objected to by Seller, must set forth such provision(s) in the manner that the Seller believes they should be stated, and must be received by Buyer no more than two (2) Business Days after the Confirmation was received by Seller.

 

(iv) With respect to all Transactions hereunder related to a Repurchased Mortgage Loan that is Delinquent for sixty (60) or more days, the Purchase Date shall be not later than ten (10) Business Days following the day on which the Seller provides the Collateral Information relating thereto as requested by Buyer in a computer readable format together with a liquidation proceeds spreadsheet and a BPO, with pictures, and a Trust Receipt. With respect to all Transactions hereunder related to a Repurchased Mortgage Loan, the Seller shall deliver to the Buyer a written explanation of the reason the Seller or its Affiliate was required to repurchase or otherwise take back the related Mortgage Loan.

 

(d) Limitation on Pricing Rate Used; Illegality . Anything herein to the contrary notwithstanding, if, on or prior to the determination of the Pricing Rate:

 

(i) the Buyer reasonably determines, which determination shall be conclusive, that quotations of interest rates for the relevant deposits referred to in the definition of “LIBOR” in Section 2 hereof are not being provided in the relevant amounts or for the relevant maturities for purposes of determining the Pricing Rates as provided herein; or

 

18

(ii) the Buyer reasonably determines, which determination shall be conclusive, that the relevant rate of interest referred to in the definition of “Pricing Rate” in Section 2 hereof upon the basis of which the Pricing Rate is to be determined is not likely to equal the cost to the Buyer of purchasing the Purchased Mortgage Loans using such Pricing Rate; or

 

(iii) it becomes unlawful for the Buyer to honor its obligation to purchase Mortgage Loans hereunder using a Pricing Rate based upon LIBOR;

 

then the Buyer shall give the Seller prompt notice thereof and, so long as such condition remains in effect, the Buyer shall be under no obligation to enter into additional Transactions, and the Seller shall, at the option of Seller, either repurchase all Purchased Mortgage Loans then subject to a Transaction or the Pricing Rate shall be determined based upon the rate selected by the Buyer in a manner that is reasonably satisfactory to Buyer so as to adequately reflect the cost to Buyer of purchasing the Purchased Mortgage Loans using such substituted Pricing Rate (in which case Buyer shall continue to be obligated to enter into additional Transactions using that substituted Pricing Rate).

 

(e) Additional Costs . The Seller shall pay directly to Buyer from time to time such amounts as Buyer may determine to be necessary to compensate Buyer for any costs that Buyer determines are attributable to its using a LIBOR-based Pricing Rate or its obligation to use a LIBOR-based Pricing Rate hereunder, or any reduction in any amount receivable by Buyer hereunder in respect of the Pricing Rate (such increases in costs and reductions in amounts receivable being herein called “ Additional Costs ”), resulting from any change that:

 

(i) shall subject Buyer to any tax, duty or other charge in respect of such LIBOR-based Pricing Rate or changes the basis of taxation of any amounts payable to such Buyer under this Agreement in respect of any of such LIBOR-based Pricing Rate (excluding changes in the rate of tax on the overall net income of such Buyer by the jurisdiction in which Buyer has its principal office); or

 

(ii) imposes or modifies any reserve, special deposit or similar requirements relating to any LIBOR-based Pricing Rate; or

 

(iii) imposes any other condition affecting this Agreement or the transactions contemplated hereby or thereby.

 

Buyer shall deliver to Seller a statement setting forth the amount and basis of determination of any Additional Costs in such detail as reasonably determined in good faith by Buyer to be adequate, it being agreed that such statement and the method of its calculation shall be adequate and shall be conclusive and binding upon Seller, absent manifest error.

 

(f) Termination and Repurchase .

 

(i) Seller may at any time and from time to time repurchase the Purchased Mortgage Loans subject to a Transaction, in whole or in part, in connection with a Permitted Securitization or a Whole Loan Sale, upon at least two (2) Business Days’ irrevocable notice to Buyer, specifying the Business Day of such repurchase and amount required to be paid in connection with such repurchase pursuant to Section 5(d). If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with any amounts payable pursuant to the succeeding paragraph.

 

19

(ii) On the Repurchase Date, termination of the Transaction will be effected by transfer to Seller or its designee of the Purchased Mortgage Loans (and any Income in respect thereof received by Buyer not previously credited or transferred to, or applied to the obligations of, Seller pursuant to Section 5) against the simultaneous transfer of the amount required to be paid in connection with such repurchase plus any Breakage Costs payable by Seller to Buyer pursuant to the succeeding paragraph to an account of Buyer. Seller is obligated to obtain the Mortgage Files from Buyer or its designee at Seller’s expense on the Repurchase Date.

 

(iii) If Seller repurchases the Purchased Mortgage Loans subject to a Transaction on any day or otherwise transfers funds to Buyer pursuant to its obligations hereunder on any day which is not a Repurchase Date, Seller shall indemnify Buyer and hold Buyer harmless from any loss or expense which Buyer actually sustains or incurs arising from the reemployment of funds obtained by Buyer hereunder or from fees actually paid by Buyer to terminate the deposits from which such funds were obtained, but not including loss of profit (“ Breakage Costs ”). Buyer shall deliver to Seller a statement setting forth the amount and basis of determination of any Breakage Costs in such detail as reasonably determined in good faith by Buyer, it being agreed that such statement and the method of its calculation shall be conclusive and binding upon Seller, absent manifest error. This Section shall survive termination of this Agreement and repurchase of all Purchased Mortgage Loans subject to Transactions hereunder.

 

(g) Maximum Facility Amount . With respect to all Transactions hereunder, the aggregate Purchase Price for all Purchased Mortgage Loans at any one time subject to then outstanding Transactions shall not exceed $400,000,000 (the “ Facility Amount ”).

 

4. COLLATERAL AMOUNT MAINTENANCE

 

(a) Buyer shall mark to market the Mortgage Loans in its sole discretion, but at least monthly. If at any time the aggregate Market Value of all Purchased Mortgage Loans subject to all Transactions is less than the aggregate Collateral Maintenance Amount for all such Transactions (a “ Market Value Collateral Deficit ”), then Buyer may by notice to Seller require Seller to transfer to Buyer or its designee (including the Custodian) Additional Loans or cash or other collateral acceptable to Buyer, so that the cash and aggregate Market Value of the Purchased Mortgage Loans and other collateral, including any such Additional Loans, will thereupon equal or exceed the aggregate Collateral Maintenance Amount. If at any time the aggregate Securitization Value of all Mortgage Loans subject to Transactions is less than the aggregate Collateral Maintenance Amount for all such Transactions (a “ Securitization Value Collateral Deficit ”), then Buyer may by notice to Seller require Seller to transfer to Buyer or its designee (including the Custodian) Additional Loans or cash or other collateral acceptable to Buyer, so that the cash and aggregate Securitization Value of the Purchased Mortgage Loans and other collateral, including any such Additional Loans, will thereupon equal or exceed the aggregate Collateral Maintenance Amount.

 

(b) Notice required pursuant to subsection (a) above may be given by any means of facsimile transmission. Seller shall transfer Additional Loans or cash pursuant to subsection (a) above not later than 5:00 p.m. on the Business Day following the receipt of such notice. The failure of Buyer, on any one or more occasions, to exercise its rights under subsection (a) of this Section shall not change or alter the terms and conditions to which this Agreement is subject or limit the right of the Buyer to do so at a later date. Buyer and Seller agree that a failure or delay to exercise its rights under subsection (a) of this Section shall not limit Buyer’s rights under this Agreement or otherwise existing by law or in any way create additional rights for Seller.

 

20

(c) In the event that Seller fails to comply with the provisions of this Section 4, Buyer shall not enter into any additional Transactions hereunder after the date of such failure and an Event of Default shall exist.

 

5. INCOME PAYMENTS

 

(a) Where a particular Transaction’s term extends over an Income payment date on the Purchased Mortgage Loans subject to that Transaction, such Income shall be the property of Buyer, subject to the application of such Income in accordance with this Agreement. Seller shall instruct each Mortgagor to remit all Income and all tax and insurance escrow payments to a financial institution reasonably acceptable to Buyer (the “ Collection Account Bank ”). The initial Collection Account Bank shall be Bank One, Utah. The Collection Account Bank shall upon receipt thereof promptly remit all Income (including all cash, checks and other near cash items) to the Collection Account (as defined below) and all tax and insurance escrow payments to the Escrow Accounts (as defined below).

 

(b) Seller shall, or shall cause the Servicer to, establish on or prior to the date of the first Transaction, and maintain for the Buyer’s benefit, with the Collection Account Bank one or more collection accounts (together, the “ Collection Account ”) and escrow accounts (together, the “ Escrow Account ”) pledged to the Buyer, which may be interest-bearing and shall be entitled “[Servicer], in trust for WMC Mortgage Corp. and Lehman Brothers Bank, FSB” The Collection Account and the Escrow Account shall be under the sole dominion and control of the Collection Account Bank. Prior to the date of the first Transaction, Seller shall cause the Collection Account Bank to deliver to the Buyer an agreement between the Seller, the Buyer and the Collection Account Bank, substantially in the form of Exhibit VI hereto (the “ Blocked Account Agreement ”) in which the Collection Account Bank acknowledges the Buyer’s security interest in the Collection Account and the Escrow Account and agrees that upon receipt of notice that an Event of Default has occurred or is continuing, the Collection Account Bank shall only withdraw funds from the Collection Account or the Escrow Account, respectively, on instructions of Buyer (other than for payment of servicing fees and ancillary income due and owing to the Servicer and reimbursement of servicing advances under any servicing agreement). Prior to the delivery by Buyer to the Collection Account Bank of the notice referred to in the immediately preceding sentence, all Income and all tax and insurance escrow payments held in the Collection Account or the Escrow Account, respectively, may be withdrawn by Seller or the Servicer for servicing of the Mortgage Loans and administration of escrow-related matters pertaining to the Purchased Mortgage Loans and any other purposes.

 

(c) Notwithstanding that Buyer and Seller intend that the Transactions hereunder be sales to Buyer of the Purchased Mortgage Loans, Seller shall pay by wire transfer to Buyer the accreted value of the Price Differential (each such payment, a “ Periodic Payment ”) on each Payment Date and may withdraw from the Collection Account any excess on such Payment Date in the ordinary course of business. The Price Differential shall accrue and be calculated on a daily basis for each Purchased Mortgage Loan.

 

(d) In the event the Seller repurchases the Purchased Mortgage Loans in connection with a Whole Loan Sale or Permitted Securitization, Seller shall simultaneous with the closing thereof apply the net proceeds (after payment of all reasonable costs and expenses incurred in connection therewith) from such Whole Loan Sale or Permitted Securitization to pay: (i) first, the accreted value of the Price Differential, and (ii) second, the Repurchase Price (exclusive of such Price Differential) of all Purchased Mortgage Loans which are the subject of such Whole Loan Sale or Permitted Securitization, and shall be permitted to retain the remainder, if any.

 

21

(e) If an Event of Default shall have occurred and be continuing, all Income held in the Collection Account, on each Business Day shall be distributed by Seller or the Servicer, on each Business Day in the following order of priority:

 

FIRST:    To the Servicer in payment of any reasonable servicing fees and ancillary income under any servicing agreement due and owing and for reimbursement of servicing advances under any servicing agreement and the Custodian’s fees under the Custodial Agreement;

 

SECOND: To the Buyer in an amount sufficient to pay:

 

(i) any Periodic Payment due and owing;

 

(ii) the amount of any Collateral Deficit; and

 

(iii) the amount of any fees or expenses or other amounts due and owing to the Buyer hereunder or in the Facility Documents; and

 

THIRD: To payment of any then outstanding and due Repurchase Price for all Transactions and any additional amounts owing to the Buyer hereunder; and

 

FOURTH: To the Seller in an amount equal to any surplus then remaining.

 

(f) Buyer shall offset against the Repurchase Price of each Transaction all Income and Periodic Payments actually received by Buyer pursuant to Sections 5(a) – (e).

 

6. SECURITY INTEREST

 

(a) Buyer and the Seller intend that the Transactions hereunder be sales to Buyer of the Purchased Mortgage Loans and not loans from Buyer to Seller secured by the Purchased Mortgage Loans. However, in order to preserve Buyer’s rights under this Agreement in the event that a court or other forum recharacterizes the Transactions hereunder as loans and as security for the performance by Seller of all of Seller’s obligations to Buyer under this Agreement and the Transactions entered into pursuant to this Agreement, Seller grants Buyer a first priority security interest in (i) the Purchased Mortgage Loans and (ii) all of the following with respect to the Purchased Mortgage Loans: Servicing Records, servicing agreements, purchase commitments, insurance, Income, any and all Hedges, any and all collection accounts and escrow accounts and all cash or other property or amounts on deposit therein and any other contract rights, general intangibles and other assets and any and all replacements, substitutions, distributions on or proceeds of any and all of the foregoing (collectively, the “ Collateral ”).

 

(b) Seller shall pay all fees and expenses associated with perfecting Buyer’s security interest in the Collateral (including, without limitation, the cost of filing financing statements under the Uniform Commercial Code and, upon the occurrence of an Event of Default, recording assignments of Mortgage, as and when required by Buyer in its sole discretion). Seller shall take such further actions as are necessary in order to perfect Buyer’s first priority security interest in the Hedges with respect to the Purchased Mortgage Loans.

 

7. PAYMENT, TRANSFER AND CUSTODY

 

(a) Unless otherwise mutually agreed in writing, all transfers of funds hereunder shall be in immediately available funds.

 

22

(b) On or before each Purchase Date, Seller shall deliver or cause to be delivered to Buyer or its designee the Custodial Delivery in the form attached hereto as Exhibit III.

 

(c) On the Purchase Date for each Transaction, ownership of the Purchased Mortgage Loans shall be transferred to the Buyer or its designee (including the Custodian) against the simultaneous transfer of the Purchase Price to an account of Seller specified in the Confirmation. Seller, simultaneously with the delivery to Buyer or its designee (including the Custodian) of the Purchased Mortgage Loans relating to each Transaction hereby sells, transfers, conveys and assigns to Buyer or its designee (including the Custodian) without recourse, but subject to the terms of this Agreement, all the right, title and interest of Seller in and to the Purchased Mortgage Loans together with all right, title and interest in and to the proceeds of any related insurance policies.

 

(d) In connection with each sale, transfer, conveyance and assignment, on or prior to each Purchase Date with respect to each Mortgage Loan which is not a Wet Ink Mortgage Loan (or with respect to item (viii) below within five Business Days after the Purchase Date), the Seller shall deliver or cause to be delivered and released to the Custodian the following original documents (collectively the “ Mortgage File ”), pertaining to each of the Purchased Mortgage Loans identified in the Custodial Delivery delivered therewith:

 

(i) the original Mortgage Note bearing all intervening endorsements (or allonges), endorsed “Pay to the order of              , without recourse” and signed in the name of the last endorsee (the “ Last Endorsee ”) by an authorized officer (in the event that the Mortgage Loan was acquired by the Last Endorsee in a merger, the signature must be in the following form: “[the Last Endorsee], successor by merger to [name of predecessor]”; in the event that the Mortgage Loan was acquired or originated while doing business under another name, the signature must be in the following form: “[the Last Endorsee], formerly known as [previous name]”);

 

(ii) the original of any guarantee executed in connection with the Mortgage Note (if any);

 

(iii) the original Mortgage with evidence of recording thereon or a copy certified by Seller, its agent or the title company on behalf of Seller to have been sent for recording;

 

(iv) the originals of all assumption, modification, consolidation or extension agreements, with evidence of recording thereon or copies certified by Seller, its agent or the title company on behalf of Seller to have been sent for recording, if any;

 

(v) the original assignment of Mortgage in blank (or, if such Mortgage Loan is and will be registered on the MERS System, showing MERS as the assignee of such Mortgage) for each Mortgage Loan, in form and substance acceptable for recording and signed in the name of the Last Endorsee (in the event that the Mortgage Loan was acquired by the Last Endorsee in a merger, the signature must be in the following form: “[the Last Endorsee], successor by merger to [name of predecessor]”; in the event that the Mortgage Loan was acquired or originated while doing business under another name, the signature must be in the following form: “[the Last Endorsee], formerly known as [previous name]”);

 

(vi) the originals of all intervening assignments of mortgage with evidence of recording thereon or copies certified by Seller to have been sent for recording, if any;

 

(vii) the original of any security agreement, chattel mortgage or equivalent document executed in connection with the Mortgage (if any);

 

23

(viii) the original policy of title insurance or a true copy thereof or, if such policy has not yet been delivered by the insurer, the commitment or binder to issue the same (which may be marked by the title insurance company) and a certified copy of mortgage insurance, if applicable; and

 

(ix) the original power of attorney, if any, or a copy thereof certified by an authorized officer of the Seller, for any document described above; and

 

(x) if such Mortgage Loan is and will be registered on the MERS System, evidence, in accordance with the MERS procedures manual, that Borrower has designated the Servicer as the servicer or subservicer in the MERS System for such Purchase Mortgage Loan.

 

(e) In connection with each sale, transfer, conveyance and assignment, with respect to each Mortgage Loan which is a Wet Ink Mortgage Loan, (x) on each Purchase Date, Seller shall cause the related Mortgage Note for each funded Mortgage Loan to be faxed to the Custodian and (y) on or prior to 1:30 p.m. (New York City time) on the fifth Business Day following each Purchase Date, Seller shall deliver or cause to be delivered to the Custodian a complete Mortgage File. On the date on which the Buyer receives a Trust Receipt from the Custodian certifying that a complete Mortgage File with respect to a Wet Ink Mortgage Loan is in the possession of the Custodian, such Wet Ink Mortgage Loan be deemed a standard Mortgage Loan (and no longer a Wet Ink Mortgage Loan) for all purposes hereunder, including, without limitation, determination of the Pricing Spread and compliance with subsection (zz) of Schedule 1.

 

(f) With respect to each Mortgage Loan delivered by Seller to Buyer or its designee (including the Custodian), Seller shall have executed an omnibus power of attorney substantially in the form of Exhibit VII attached hereto irrevocably appointing Buyer its attorney-in-fact with full power to complete and record the assignment of Mortgage, complete the endorsement of the Mortgage Note and take such other steps as may be necessary or desirable to enforce Buyer’s rights against such Mortgage Loans, the related Mortgage Files and the Servicing Records.

 

(g) Buyer shall deposit the Mortgage Files representing the Purchased Mortgage Loans, or direct that the Mortgage Files be deposited directly, with the Custodian. The Mortgage Files shall be maintained in accordance with the Custodial Agreement.

 

(h) Any Mortgage Files not delivered to Buyer or its designee (including the Custodian) are and shall be held in trust by Seller or its designee for the benefit of Buyer as the owner thereof. Seller or its designee shall maintain a copy of the Mortgage File and the originals of the Mortgage File not delivered to Buyer or its designee. The possession of the Mortgage File by Seller or its designee is at the will of the Buyer for the sole purpose of servicing the related Purchased Mortgage Loan, and such retention and possession by the Seller or its designee is in a custodial capacity only. The books and records (including, without limitation, any computer records or tapes) of Seller or its designee shall be marked appropriately to reflect clearly the sale of the related Purchased Mortgage Loan to Buyer. Seller or its designee (including the Custodian) shall release its custody of the Mortgage File only in accordance with written instructions from Buyer, unless such release is required as incidental to the servicing of the Purchased Mortgage Loans or is in connection with a repurchase of any Purchased Mortgage Loan by Seller.

 

(i) From time to time, the Seller may request in writing that the Buyer agree to have the Purchased Mortgage Loans registered on the MERS CORP., Inc. mortgage electronic registry system (the “ MERS System ”) such that the mortgagee of record under such Purchased Mortgage Loans shall be identified as Mortgage Electronic Registration Systems, Inc. (“ MERS ”). If Buyer agrees to such registration, then prior to effecting such registration fo