MASTER REPURCHASE AGREEMENT GOVERNING PURCHASES AND SALES OF MORTGAGE LOANS

Exhibit 10.11

 

 

MASTER REPURCHASE AGREEMENT

GOVERNING PURCHASES AND SALES OF MORTGAGE LOANS

 

 

Dated as of January 18, 2005

 

 

LEHMAN BROTHERS BANK, FSB

as Buyer

 

and

 

AAMES CAPITAL CORPORATION

 

and

 

AAMES INVESTMENT CORPORATION

Collectively, as Seller

 

Table of Contents

 

 

 

i

EXHIBITS

 

 

ii

MASTER REPURCHASE AGREEMENT

GOVERNING PURCHASES AND SALES OF MORTGAGE LOANS

 

Dated as of January 18, 2005

 

Between

 

LEHMAN BROTHERS BANK, FSB

 

as Buyer

 

and

 

AAMES CAPITAL CORPORATION

 

and

 

AAMES INVESTMENT CORPORATION

collectively, as Seller

 

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 Aames Capital Corporation and Aames Investment Corporation (individually and collectively, “ 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 not later than 30 days after the date of transfer 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. 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

 

“ ACC ” shall mean Aames Capital Corporation.

“ 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) that any governmental authority or agency or any person, agency or entity acting or purporting to act under governmental authority shall have taken any action to condemn, seize or appropriate, or to assume custody or control of, all or any substantial part of the property of such party or of any of its Affiliates, or shall have taken any action to displace the management of such party or of any of its Affiliates or to curtail its authority in the conduct of the business of such party or of any of its Affiliates.

 

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

 

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

 

“ Adjusted Leverage Ratio ” means, at any time, the ratio of (i) the aggregate principal amount of all indebtedness (other than outstanding non-recourse real estate investment trust portfolio debt) of AIC and its Subsidiaries at such time which on a consolidated basis in accordance with GAAP would be required to be reflected on a consolidated balance sheet of AIC and its Subsidiaries as a liability to (ii) the Tangible Net Worth of AIC and its Subsidiaries.

 

“ 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).

 

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

 

“ AIC ” shall mean Aames Investment Corporation.

 

“ A-MI Loan ” shall mean a Mortgage Loan described in Exhibit VI hereto.

 

“ Backup Servicer ” means a Person designated by Buyer, in its sole discretion, to act as a backup servicer of the Purchased Mortgage Loans in accordance with Section 26.

 

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“ 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.

 

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

 

“ Business Day ” means a day other than (i) a Saturday or Sunday, or (ii) a day in which the New York Stock Exchange or any state or federally-chartered bank depository institutions operating in the State of New York are 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.

 

“ 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 $500,000,000, (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 Standard and Poor’s Ratings Group (“ S&P ”) or P-1 or the equivalent thereof by Moody’s Investors Service, Inc. (“ 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.

 

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

 

“ Collateral Amount Percentage ” means the amount set forth in the related 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 first column below, equal the applicable percentage set forth in the second 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 first column below, equal the applicable percentage set forth in the third column below.

 

 

“ 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) current balance as of the first day of the current 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 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

 

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Mortgaged Property (and if a second lien, the outstanding principal balance of the first lien at the time the Mortgage Loan was originated), (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 note date, (xvii) pre-payment penalty, (xviii) pre-payment penalty type, (xix) loan purpose, (xx) the property type of the Mortgaged Property, (xxi) the Mortgagor’s credit score (where available in the Mortgage File), (xxii) the Mortgage Loan grade and FICO score (where available in the Mortgage File), (xxiii) the delinquency status, (xxiv) whether the Mortgage Loan is an A-MI Loan, and (xxv) if the Mortgage Loan is an A-MI Loan, the identity of the mortgage insurance company insuring the A-MI Loan and the percentage of insurance coverage so provided.

 

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

 

“ 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 21.

 

“ Custodial Agreement ” means that custodial agreement, dated as of December 1, 2000, as amended, modified or supplemented from time to time, by and among Buyer, Seller and the Custodian.

 

“ 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 II.

 

“ Custodian ” means the custodian under the Custodial Agreement. The initial custodian is Deutsche Bank Americas, Trust Company.

 

“ 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.

 

“ Depository Acknowledgment ” has the meaning specified in section 5(b).

 

“ 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.

 

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“ 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 the Seller or any Affiliates 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 Affiliate could otherwise be liable.

 

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

 

“ Facility Documents ” shall mean the Agreement, the Custodial Agreement, any related financing statements under the Uniform Commercial Code as set forth in Section 6 and any other related documents.

 

“ Final Repurchase Date ” means the Business Day prior to the first anniversary of the date of this Agreement or such earlier date on which all Purchased Mortgage Loans are required to be immediately repurchased pursuant to Section 14(a).

 

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

 

“ Forward Commitment Provider ” means a Person who enters into a formal commitment to purchase Mortgage Loans from the Seller and who is approved by Buyer in its sole discretion.

 

“ GAAP ” means with respect to the financial statements or other financial information of any Person, generally accepted accounting principles in the United States which are in effect from time to time.

 

“ 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 Seller, 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

 

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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 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.

 

“ 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 and all interest, dividends or other distributions payable thereon less any related servicing fee(s) charged by the Servicer.

 

“ 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; (e) Capital Leases of such Person; and (f) any of the foregoing types of indebtedness of others guaranteed by such Person (without duplication).

 

“ Interest Reset Date ” means each Business Day on which any Transaction is outstanding under this Agreement (it being the understanding of Buyer and Seller that the Pricing Rate applicable to each Transaction shall change on each Business Day based on any change in LIBOR) or, at the election of Buyer specified in the related Confirmation, Interest Reset Date shall have the meaning specified in the definition of Interest Period for which a written confirmation has been delivered to Seller prior to or on the date of the change disclosing the new interest rate.

 

“ 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

 

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on the last Business Day of the appropriate calendar month. Notwithstanding the foregoing, 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).

 

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

 

“ LIBOR ” means the rate per annum calculated with respect to each Transaction and the relevant Interest Period 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, that 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.

 

“ Licensed Title Company ” has the meaning specified in Section 10(b)(xxii).

 

“ 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 as well as the second Mortgage shall be included in the numerator.

 

“ Lockbox Bank ” has the meaning specified in Section 5(a).

 

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“ 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 Buyer may take into consideration the price at which the Forward Commitment Provider will buy such Mortgage Loan from Seller and any Hedges with respect to such Mortgage Loans; provided , further , that Buyer shall not take into account, for purposes of calculating Market Value, any Mortgage Loan,

 

(i) which has been subject to Transactions for more than 60 days (provided that this clause (i) (x) shall not apply to Purchased Mortgage Loans which do not exceed in the aggregate 20% of the aggregate outstanding principal balance of Purchased Mortgage Loans subject to then outstanding Transactions which Purchased Mortgage Loans that have been subject to Transactions for more than 60 days may be subject to Transactions for up to 90 days, (y) shall not apply to Purchased Mortgage Loans which do not exceed in the aggregate 10% of the aggregate outstanding principal balance of Purchased Mortgage Loans subject to then outstanding Transactions which Purchased Mortgage Loans that have been subject to Transactions for more than 90 days may be subject to Transactions for up to 120 days and (z) shall not apply to Purchased Mortgage Loans which do not exceed in the aggregate 10% of the aggregate outstanding principal balance of Purchased Mortgage Loans subject to then outstanding Transactions which Purchased Mortgage Loans that have been subject to Transactions for more than 120 days may be subject to Transactions for up to 150 days),

 

(ii) which, together with the other Mortgage Loans subject to then outstanding Transactions, would cause the 30+ Delinquency Percentage to exceed 3.0%,

 

(iii) which is more than 59 days Delinquent,

 

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

 

(v) 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,

 

(vi) as to which a foreclosure proceeding has been commenced or where the related Mortgagor has entered a bankruptcy proceeding,

 

(vii) as to which the related Mortgagor failed to make the first monthly debt service payment within thirty-one (31) days after the due date of the payment under the terms of the Mortgage Note, or

 

(viii) as to which the Purchase Price of a Wet Ink Mortgage Loan together with the Purchase Price of Purchased Mortgage Loans which are Wet Ink Mortgage Loans exceed, during the period beginning on the third from last Business Day of each calendar month, through and including the seventh Business Day of the next succeeding calendar month, $125,000,000 and, at all other times, $100,000,000; provided that such amounts referred to above in this clause (viii) shall be reduced to $75,000,000 and $50,000,000, respectively, in the event that AIC has cash, Cash Equivalents and unused borrowing capacity on unencumbered assets that could be drawn against (taking into account required haircuts) under committed warehouse and repurchase facilities in an amount less than $65,000,000.

 

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

 

“ 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).

 

“ Mortgage Loan ” means (i) non-securitized whole loan, namely a conventional mortgage loan secured by a first or second lien on a one to four family residential property or mixed-use property which conforms to Seller’s underwriting guidelines (including, without limitation, a Wet Ink Mortgage Loan), or (ii) other type of non-securitized whole loan as may be agreed upon in writing by the parties hereto from time to time.

 

“ 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.

 

“ Mortgagee ” means the record holder of a Mortgage Note secured by 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 AIC and its Subsidiaries determined on a consolidated basis in accordance with GAAP

 

“ 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 securitized in a transaction involving a special purpose entity which enhances the credit or diminishes the bankruptcy risks attendant upon creditors of such entity (any such entity

 

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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, 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 Seller 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 repay 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.

 

“ 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. Unless the Confirmation expressly indicates otherwise, the Pricing Rate shall be adjusted on each Business Day that the Transaction remains outstanding based on any change in LIBOR.

 

“ Pricing Spread ” means the rate specified in the Confirmation, which shall be equal to (i) on each date prior to the delivery to the Custodian of the complete Mortgage Files with respect to the related Purchased Mortgage Loans, 1.45% and (ii) on each date on and after the delivery to the Custodian of such Mortgage Files, 0.95%.

 

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

 

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“ 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 Purchased Mortgage Loans are transferred by Seller to Buyer or its designee (including the Custodian) which shall be equal to, with respect to each Purchased Mortgage Loan, the lower of (a) 96.5% of the Market Value of such Purchased Mortgage Loan as determined by the Buyer in its sole discretion, and (b) 99.5% (or, with respect to a Wet Ink Mortgage Loan, 98.5%) of the outstanding principal amount of such Purchased Mortgage Loan; provided, that with respect to each Purchased Mortgage Loan that has been subject to Transactions for 121 or more days but not more than 150 days, the Purchase Price shall equal the lower of (x) 95.0% of the Market Value of such Purchased Mortgage Loan as determined by the Buyer in its sole discretion, and (y) 97.5% of the outstanding principal amount of such Purchased Mortgage Loan.

 

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

 

“ Q-1 Loan ” means a Mortgage Loan that (i) is available only to borrowers of A, A– and B credit grades and (ii) provides for a hold back of proceeds or future advances to be applied to minor property repairs restricted to roofing, plumbing, electrical or carpentry repairs in an amount that does not exceed the lesser of $10,000 or 10% of the aggregate Purchase Price for such Q-1 Loan.

 

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

 

“ 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; provided that in no event shall such date be more than 30 days after the Purchase Date.

 

“ 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 (including Transactions terminable upon demand) 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(b), respectively, with respect to such Transaction.

 

“ Request for Purchase ” means written notice of a Seller’s request to enter into a Transaction in the form of Exhibit IX . Such Request for Purchase shall specify the requested Purchase Date and include the Mortgage Loan Schedule containing information with respect to the Mortgage Loans that Seller proposes to sell 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.

 

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“ 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 Buyer may take into consideration any Hedges with respect to such Mortgage Loans; provided , however , that Buyer shall not take into account, for purposes of calculating Securitization Value, any Mortgage Loan,

 

(i) which has been subject to Transactions for more than 60 days (provided this clause (i) (x) shall not apply to Purchased Mortgage Loans which do not exceed in the aggregate 20% of the aggregate outstanding principal balance of Purchased Mortgage Loans subject to then outstanding Transactions which Purchased Mortgage Loans that have been subject to Transactions for more than 60 days may be subject to Transactions for up to 90 days, (y) shall not apply to Purchased Mortgage Loans which do not exceed in the aggregate 10% of the aggregate outstanding principal balance of Purchased Mortgage Loans subject to then outstanding Transactions which Purchased Mortgaged Loans that have been subject to Transactions for more than 90 days may be subject to Transactions for up to 120 days and (z) shall not apply to Purchased Mortgage Loans which do not exceed in the aggregate 10% of the aggregate outstanding principal balance of Purchased Mortgage Loans subject to then outstanding Transactions which Purchased Mortgage Loans that have been subject to Transactions for more than 120 days may be subject to Transactions for up to 150 days),

 

(ii) which, together with the other Mortgage Loans subject to then outstanding Transactions, would cause the 30+ Delinquency Percentage to exceed 3.0%,

 

(iii) which is more than 59 days Delinquent,

 

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

 

(v) 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,

 

(vi) as to which a foreclosure proceeding has been commenced or where the related Mortgagor has entered a bankruptcy proceeding,

 

(vii) as to which the related Mortgagor failed to make the first monthly debt service payment within thirty-one (31) days after the due date of the payment under the terms of the Mortgage Note, or

 

(viii) as to which the Purchase Price of a Wet Ink Mortgage Loan together with the Purchase Price of Purchased Mortgage Loans which are Wet Ink Mortgage Loans exceed, during the period beginning on the third from last Business Day of each calendar month, through and including the seventh Business Day of the next succeeding calendar month, $125,000,000 and, at all other times, $100,000,000; provided that such amounts referred to above in this clause (viii) shall be reduced to $75,000,000 and $50,000,000, respectively, in the event that AIC has cash, Cash Equivalents and unused borrowing capacity on unencumbered assets that could be drawn against (taking into account required haircuts) under committed warehouse and repurchase facilities in an amount less than $65,000,000.

 

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

 

“ Seller ” has the meaning specified in Section 1.

 

“ Servicing Records ” has the meaning specified in Section 26(b).

 

“ 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 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 (in accordance with GAAP) included in determining Net Worth.

 

“ 30+ Delinquency Percentage ” means the fraction, expressed as a percentage, the numerator of which is the aggregate outstanding principal balance of Purchased Mortgage Loans subject to then outstanding Transactions which are more than 30 days Delinquent and the denominator of which is the aggregate outstanding principal balance of all Purchased Mortgage Loans subject to then outstanding Transactions.

 

“ Transaction ” has the meaning specified in Section 1.

 

“ Transferable Interest ” shall mean Buyer’s rights and obligations under this Agreement and the other Facility Documents (including all or a portion of any Transactions).

 

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

 

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

 

“ Wet Ink Mortgage Loan ” means a Mortgage Loan for which a Mortgage File has not been delivered to the Custodian.

 

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

 

3. 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 satisfactory to Buyer and its counsel in form and substance:

 

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

 

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

 

(iii) Uniform Commercial Code Filing . 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) Opinion of Counsel . An opinion or opinions of counsel favorable to Buyer with respect to each Seller;

 

(v) Secretary’s Certificate . A certificate of the Secretary of each Seller certifying to such matters as may be required by Buyer; and

 

(vi) 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, except in the case of Wet Ink Mortgage Loans in which case notice may be given the same day (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 Custodian a Trust Receipt with exceptions as are acceptable to Buyer in its discretion in respect of Mortgage Loans to be sold hereunder on the applicable Purchase Date and a Mortgage Loan Schedule, in each case dated such Purchase Date and duly completed;

 

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(iii) with respect to each Purchased Mortgage Loan included in such Transaction pursuant to which any Person has a security interest, pledge, hypothecation or Lien for the benefit of such Person prior to such loan being subject to such Transaction, Seller shall have delivered to Buyer either (x) a security release certification executed by an authorized officer of the Person that had a security interest, pledge, hypothecation or Lien for the benefit of such person in a form approved by Buyer or (y) a bailee letter in a form reasonably acceptable to Buyer and executed by an authorized officer of the Person that had a security interest, pledge, hypothecation or Lien for the benefit of such Person, which letter states the payoff amount for such Purchased Mortgage Loan;

 

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

 

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

 

(vi) Buyer shall have approved Seller’s Underwriting Guidelines applicable to such Transaction; and

 

(vii) no Collateral Deficit exists.

 

(c) Each agreement to enter into a Transaction must be entered into in writing at the initiation of Seller. In any event, 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, unless the Transaction is stated to be terminable on demand as stated in the Confirmation, (iv) the Pricing Rate applicable to the Transaction, (v) the applicable Collateral Amount 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) below, sign the Confirmation and promptly return it to Buyer. The Purchase Price for any Transaction shall exceed $750,000.

 

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

 

(e) 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 writing which is an objection, 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. Buyer shall promptly respond to any such objection raised by Seller.

 

(f) In the case of Transactions terminable upon demand, such demand shall be made by Buyer or Seller by telephone or otherwise, no later than 1:00 p.m. (New York Time) on the Business Day prior to the Repurchase Date.

 

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(g) 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 Repurchase Price 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.

 

(h) 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 $500,000,000. The Purchase Price for any individual Purchased Mortgage Loan under this Agreement shall not exceed the unpaid principal balance of such Purchased Mortgage Loan.

 

(i) Buyer shall not be obligated to enter into any Transaction until such time as Buyer shall have received copies of each material agreement or instrument entered into by Seller or any of its Subsidiaries with respect to indebtedness for borrowed money, certified by the chief financial officer or vice president of finance of Seller as being a true and correct copy of such agreement or instrument, as the case may be, and in full force and effect.

 

(j) 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 that is not a Repurchase Date, Seller shall indemnify Buyer and hold Buyer harmless from any loss or expense that Buyer 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.”

 

(k) Additional Costs . 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 ”), in each case resulting from any change occurring after the date hereof 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

 

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(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 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.

 

(l) Seller Payment Obligations Absolute . Subject to the provisions of Section 5(d), clause (ii) of Section 16 and of Section 28 (if applicable) of this Agreement, the obligation of Seller to make payment of the Repurchase Price and to make any and all other payments required to be made by Seller to Buyer under this Agreement, any Confirmation or any other Facility Document shall be unconditional and irrevocable and shall be paid under all circumstances strictly in accordance with the terms of this Agreement, notwithstanding the existence of any claim, set-off right, defense or other right that Seller, any of its Subsidiaries or Affiliates or any other Person may at any time have against Buyer or any other Person, whether in connection with this Agreement or any other related or unrelated agreements or transactions, and Seller hereby waives its right to exercise any such claim, set-off right, defense or other right to the extent such exercise would have the purpose or effect of offsetting any or all of Seller’s payment obligations under this Agreement, any Confirmation or any other Facility Document.”

 

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

 

(i) 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

 

(ii) 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 Buyer of purchasing the Purchased Mortgage Loans using such Pricing Rate; or

 

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

 

then Buyer shall give Seller prompt notice thereof and, so long as such condition remains in effect, Buyer shall be under no obligation to enter into additional Transactions, and Seller shall, at Seller’s option, either repurchase all Purchased Mortgage Loans then subject to then outstanding Transactions or the Pricing Rate shall be determined based upon the rate selected by 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).

 

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(n) 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, upon irrevocable notice to Buyer by 4:00 p.m. (New York City time) on the Business Day of such repurchase specifying the 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.

 

(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.

 

4. COLLATERAL AMOUNT MAINTENANCE

 

(a) Buyer shall mark to market the Mortgage Loans in its sole discretion, but at least monthly if it shall so determine. If at any time the aggregate Market Value of all Purchased Mortgage Loans subject to all Transactions is less than the aggregate Collateral 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) Mortgage Loans (“ 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 Amount. If at any time the aggregate Securitization Value of all Mortgage Loans subject to Transactions is less than the aggregate Collateral 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 Amount.

 

(b) Notice required pursuant to subsection (a) above may be given by any means of facsimile, telegraphic transmission or any other means to which Buyer and Seller agree. Seller shall transfer Additional Loans or cash pursuant to subsection (a) above not later than 5:00 p.m. on 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.

 

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(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.

 

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. Upon the occurrence of an Event of Default on the part of Seller, Seller shall instruct each Mortgagor to remit all Income (including all tax and insurance escrow payments) to one or more lockboxes under the sole dominion and control of a financial institution (each a “ Lockbox Bank ”) reasonably acceptable to Buyer. The initial Lockbox Bank shall be Bank One, N.A. A Lockbox Bank shall upon receipt thereof deposit all cash, checks, and other near cash items received in the lockbox to a lockbox account, and shall promptly remit all Income (other than tax and insurance escrow payments) on deposit in such lockbox account to an account at the Collection Account Bank.

 

(b) Immediately following the occurrence of an Event of Default on the part of Seller, AIC shall establish and maintain for the Buyer’s benefit one or more collection accounts pledged to the Buyer with a financial institution (the “ Collection Account Bank ”) reasonably acceptable to the Buyer, which may be interest-bearing and entitled “Aames Investment Corporation in trust for Lehman Brothers Bank, FSB”. Immediately following the occurrence of an Event of Default on the part of Seller, ACC shall establish and maintain for the Buyer’s benefit one or more collection accounts pledged to the Buyer with a financial institution (the “ Collection Account Bank ”) reasonably acceptable to the Buyer, which may be interest-bearing and entitled “Aames Capital Corporation in trust for Lehman Brothers Bank, FSB”. The AIC collection account and the ACC collection account are each a “Collection Account.” Immediately following the occurrence of an Event of Default on the part of Seller, Seller shall cause the Collection Account Bank to deliver to the Buyer an acknowledgment of the Buyer’s security interest in the Collection Account (the “ Depository Acknowledgment ”). The Depository Acknowledgment shall provide that upon notice to the Collection Account Bank, the Collection Account Bank shall promptly remit all Income (other than tax and insurance escrow payments) on deposit with the Collection Account Bank and all Income thereafter received to the Collection Account and that only Buyer shall be permitted to withdraw funds from the Collection Account. Such funds shall be applied by Buyer to reduce the outstanding Repurchase Price and to realize other obligations entitled to it hereunder.

 

(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 (less any amount of such Price Differential previously paid by Seller to Buyer) (each such payment, a “ Periodic Payment ”) on the earlier of (x) the fifth day of each month (or if such day is not a Business Day, the following Business Day) or (y) the related Repurchase Date. The Price Differential shall accrue, be calculated and be compounded on a daily basis for each Purchased Mortgage Loan.

 

(d) In the event the Seller repurchases the Purchased Mortgage Loans, Seller shall simultaneously pay: (i) the accreted value of the Price Differential (less any amount of such Price Differential previously paid by Seller to Buyer) and (ii) the Repurchase Price (exclusive of such Price Differential) of all related Transactions.

 

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(e) In the event the Seller repurchases the Purchased Mortgage Loans in connection with a Permitted Securitization or Whole Loan Sale, Seller shall simultaneously with the closing thereof apply the net proceeds (after payment of all reasonable costs and expenses incurred in connection therewith) from such Permitted Securitization or Whole Loan Sale to pay: (i) first, the accreted value of the Price Differential (less any amount of such Price Differential previously paid by Seller to Buyer) and (ii) second, the Repurchase Price (exclusive of such Price Differential) of all related Transactions. Seller shall be permitted to retain the remainder, if any.

 

(f) Subject to the provisions hereof and to the extent available for distribution, 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 the Buyer in the following order of priority:

 

FIRST: To the Custodian to pay 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 any other amounts due and owing to the Buyer hereunder or in the Facility Documents;

 

THIRD: To payment of any then outstanding and due Repurchase Price for all Transactions; and

 

FOURTH: Any surplus then remaining shall be paid to the Seller or its successors or assigns or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct.

 

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

 

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 the Purchased Mortgage Loans, Servicing Records, insurance relating to the Purchased Mortgage Loans, Income, any and all Hedges, any and all custodial accounts and escrow accounts relating to the Purchased Mortgage Loans, the Lockbox Account,

 

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the Collection Account and all cash or other property or amounts on deposit therein and any other contract rights, general intangibles and other assets relating to the Purchased Mortgage Loans or any interest in the Purchased Mortgage Loans and the servicing of the Purchased Mortgage Loans 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.

 

7. PAYMENT, TRANSFER AND CUSTODY

 

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

 

(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 II.

 

(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 (vii) below within seven 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);

 

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(iii) the original Mortgage with evidence of recording thereon or a copy certified by 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 to have been sent for recording;

 

(v) the original assignment of Mortgage in blank 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;

 

(vii) 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; and

 

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

 

(e) In connection with each sale, transfer, conveyance and assignment, on or prior to the seventh Business Day following each Purchase Date with respect to each Mortgage Loan which is a Wet Ink Mortgage Loan, 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 Exhibit V.

 

(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 III 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

 

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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.

 

8. REHYPOTHECATION OR PLEDGE OF PURCHASED MORTGAGE LOANS

 

Title to all Purchased Mortgage Loans shall pass to Buyer and Buyer shall have free and unrestricted use of all Purchased Mortgage Loans. Nothing in this Agreement shall preclude Buyer from engaging in repurchase transactions with the Purchased Mortgage Loans or otherwise assigning, syndicating, participating, sub-participating, pledging, repledging, hypothecating, or rehypothecating the Purchased Mortgage Loans, but no such transaction shall relieve Buyer of its obligations to transfer Purchased Mortgage Loans to Seller pursuant to Section 3. Seller shall cooperate with Buyer’s reasonable requests to complete such assignments, syndication, participation or pledge. Nothing contained in this Agreement shall obligate Buyer to segregate any Purchased Mortgage Loans delivered to Buyer by Seller. In the event that there is a material adverse change or other development in the repurchase markets which results in Buyer being unable to finance its position through the repurchase market with its traditional repurchase counterparties, Buyer may accelerate the Repurchase Date for any outstanding Transactions following reasonable notice to Seller of the occurrence of such event.

 

9. SUBSTITUTION

 

(a) Subject to Section 9(b) and the agreement of Buyer, Seller may, upon one (1) Business Days’ written notice to Buyer, with a copy to Custodian, substitute Mortgage Loans or other assets for any Purchased Mortgage Loans. Such substitution shall be made by transfer to Buyer or its designee (including the Custodian) of the Mortgage File of such other Mortgage Loans together with a Custodial Delivery and transfer to Seller or its designee of the Purchased Mortgage Loans requested for release. After substitution, the substituted Mortgage Loans, shall be deemed to be Purchased Mortgage Loans subject to the same Transaction as the released Mortgage Loans.

 

(b) Notwithstanding anything to the contrary in this Agreement, Seller may not substitute other Mortgage Loans or other assets for any Purchased Mortgage Loans if (i) after taking into account such substitution, a Collateral Deficit would occur, (ii) such substitution would cause a breach of any provision of this Agreement or (iii) the Market Value of the Mortgage Loans or assets substituted is less than the Market Value of such Purchased Mortgage Loans.

 

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10. REPRESENTATIONS AND WARRANTIES

 

(a) Each of Buyer and each Seller represents and warrants to the other that (i) it is duly authorized to execute and deliver this Agreement, to enter into the Transactions contemplated hereunder and to perform its obligations hereunder and has taken all necessary action to authorize such execution, delivery and performance; (ii) it will engage in such Transactions as principal; (iii) the person signing this Agreement on its behalf is duly authorized to do so on its behalf; (iv) no approval, consent or authorization of the Transactions contemplated by this Agreement from any federal, state, or local regulatory authority having jurisdiction over it is required or, if required, such approval, consent or authorization has been or will, prior to the first Purchase Date, be obtained; (v) the execution, delivery, and performance of this A