MORTGAGE LOAN PURCHASE AGREEMENT

Exhibit 10.1

NOVASTAR MORTGAGE, INC. as Sponsor,

NOVASTAR MORTGAGE FUNDING CORPORATION

as Depositor,

U.S. BANK NATIONAL ASSOCIATION as Custodian

and

DEUTSCHE BANK NATIONAL TRUST COMPANY

as Trustee

MORTGAGE LOAN PURCHASE AGREEMENT

Dated as of November 1, 2006

Fixed and Adjustable Rate Mortgage Loans

NovaStar Mortgage Funding Trust, Series 2006-6

NovaStar Home Equity Loan Asset-Backed Certificate, Series 2006-6

TABLE OF CONTENTS

 

 

THIS MORTGAGE LOAN PURCHASE AGREEMENT (this “ Purchase Agreement ”), dated as of November 1, 2006, is made among NovaStar Mortgage, Inc. (the “ Sponsor ”), NovaStar Mortgage Funding Corporation (the “ Depositor ”), U.S. Bank National Association (the “ Custodian ”) and Deutsche Bank National Trust Company as trustee (the “ Trustee ”).

W I T N E S S E T H T H A T:

WHEREAS, pursuant to the terms of this Purchase Agreement, the Sponsor will sell the Initial Mortgage Loans and the related MI Policies to the Depositor on the Closing Date;

WHEREAS, pursuant to the terms of the Pooling and Servicing Agreement, the Depositor will transfer the Initial Mortgage Loans and the related MI Policies, and assign all of its rights under the Purchase Agreement, to the Trustee, without recourse, on the Closing Date;

WHEREAS, pursuant to the terms of the Pooling and Servicing Agreement, the Trustee will issue the Certificates;

WHEREAS, pursuant to the terms of the Pooling and Servicing Agreement, the Trustee will transfer the Certificates to the Depositor;

WHEREAS, pursuant to the terms of the Underwriting Agreement, the Depositor will sell the Offered Certificates to the Underwriters; and

WHEREAS, pursuant to the terms of the Pooling and Servicing Agreement, the Servicer will service the Mortgage Loans.

ARTICLE I

DEFINITIONS

Section 1.01 Definitions .

For all purposes of this Purchase Agreement, except as otherwise expressly provided herein or unless the context otherwise requires, capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Definitions contained in Appendix A to the Pooling and Servicing Agreement, dated as of November 1, 2006, among the Custodian, the Trustee, the Depositor and NovaStar Mortgage, Inc. as sponsor and servicer (the “ Servicer ”) which is incorporated by reference herein. All other capitalized terms used herein shall have the meanings specified herein.

 

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ARTICLE II

SALE OF MORTGAGE LOANS AND RELATED PROVISIONS

Section 2.01 Sale of Initial Mortgage Loans and MI Policies.

(a) The Sponsor hereby sells, and the Depositor hereby purchases on the Closing Date the Initial Mortgage Loans identified (and the related MI Policies) on the Mortgage Loan Schedule annexed hereto as Exhibit 1, the proceeds thereof and all rights under the Related Documents (including the related Mortgage Files). The Initial Mortgage Loans consist of a group of conventional, residential first and second lien mortgage loans with fixed and adjustable interest rates (the “Group I Mortgage Loans”) and a group of conventional, residential first and second lien mortgage loans with fixed and adjustable interest rates (the “Group II Mortgage Loans”). The Initial Mortgage Loans will have a Principal Balance as of the close of business on the Cut-off Date, after giving effect to any payments due on or before such date whether or not received, of approximately $758,811,465. The sale of the Initial Mortgage Loans will take place on the Closing Date, subject to and simultaneously with the deposit of the Initial Mortgage Loans and the Original Pre-Funded Amount and the Interest Coverage Account into the Trust Fund, the authentication of the Certificates by the Trustee and the sale of the Underwritten Certificates pursuant to the Underwriting Agreement. The purchase price (the “ Purchase Price ”) for the Initial Mortgage Loans to be paid by the Depositor to the Sponsor on the Closing Date shall consist of the following:

(i) a payment in an amount equal to $1,214,162,390 representing the net proceeds of the sale of the Underwritten Certificates, which payment shall be paid to the Sponsor by wire transfer in immediately available funds on the Closing Date by or on behalf of the Depositor, or as otherwise agreed by the Depositor; and

(ii) the Class M-10 Certificates, the Class M-11 Certificates, the Class M-12 Certificates, the Class M-13 Certificates, the Class M-10N Certificates, the Class M-11N Certificates, the Class M-12N Certificates, the Class M-13N Certificates, the Class M-10 DSI Certificates, the Class M-11 DSI Certificates, the Class M-12 DSI Certificates, the Class M-13 DSI Certificates, the Class CA Certificates and the Class CB Certificates (including the net value represented by the Class I Certificates) and the Residual Certificates.

(b) [Reserved]

(c) In connection with such conveyances by the Sponsor, the Sponsor shall on behalf of and at the direction of the Depositor deliver to, and deposit with the Custodian on behalf of the Trustee, on or before the Closing Date in the case of an Initial Mortgage Loan and four Business Days prior to the related Subsequent Transfer Date in the case of a Subsequent Mortgage Loan, the following documents or instruments with respect to each Mortgage Loan (the “ Mortgage File ”):

(i) the original Mortgage Note endorsed to “Deutsche Bank National Trust Company, as Trustee of the NovaStar Mortgage Funding Trust, Series 2006-6, relating to the NovaStar Home Equity Loan Asset-Backed Certificates, Series 2006-6”;

 

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(ii) the original Mortgage with evidence of recording thereon, or, if the original Mortgage has not yet been returned from the public recording office, a copy of the original Mortgage certified by the Sponsor or the public recording office in which such original Mortgage has been recorded and if the Mortgage Loan is registered on the MERS System, such Mortgage shall include thereon a statement that it is a MOM Loan and shall include the MIN for such Mortgage Loan;

(iii) unless the Mortgage Loan is registered on the MERS System, an original assignment (which may be included in one or more blanket assignments if permitted by applicable law) of the Mortgage endorsed to “Deutsche Bank National Trust Company, as Trustee of the NovaStar Mortgage Funding Trust, Series 2006-6, relating to the NovaStar Home Equity Loan Asset-Backed Certificates, Series 2006-6,” and otherwise in recordable form;

(iv) originals of any intervening assignments of the Mortgage showing an unbroken chain of title from the originator thereof to the Person assigning it to the Trustee (or to MERS, if the Mortgage Loan is registered on the MERS System, and noting the presence of a MIN, if the Mortgage Loan is registered on the MERS System), with evidence of recording thereon, or, if the original of any such intervening assignment has not yet been returned from the public recording office, a copy of such original intervening assignment certified by the Sponsor or the public recording office in which such original intervening assignment has been recorded;

(v) the original policy of title insurance (or a commitment for title insurance, if the policy is being held by the title insurance company pending recordation of the Mortgage);

(vi) true and correct copy of each assumption, modification, consolidation or substitution agreement, if any, relating to the Mortgage Loan; and

(vii) an executed copy of the notice of assignment and acknowledgement of assignment with respect to the Mortgage Loans covered by the MI Policies.

If a defect in any Mortgage File is discovered which may materially and adversely affect the value of the related Mortgage Loan, or the interests of the Trustee (as pledgee of the Mortgage Loans), or the Certificateholders in such Mortgage Loan, including if any document required to be delivered to the Custodian has not been delivered (provided that a Mortgage File will not be deemed to contain a defect for an unrecorded assignment under clause (i) above for 180 days following submission of the assignment if the Sponsor has submitted such assignment for recording pursuant to the terms of the following paragraph), the Sponsor shall cure such defect, repurchase the related Mortgage Loan at the Repurchase Price or substitute an Eligible Substitute Mortgage Loan for the related Mortgage Loan upon the same terms and conditions set forth in Section 3.01 hereof as to the Initial Mortgage Loans and the Subsequent Mortgage Loans and Section 2.02(c) hereof as to the Subsequent Mortgage Loans for breaches of representations and warranties.

 

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Promptly after the Closing Date in the case of an Initial Mortgage Loan, or, in the case of a Subsequent Mortgage Loan, promptly after the Subsequent Transfer Date (or after the date of transfer of any Eligible Substitute Mortgage Loan), the Sponsor at its own expense shall complete and submit for recording in the appropriate public office for real property records each of the assignments referred to in clause (iii) above, with such assignment completed in favor of the Trustee, excluding any Mortgage Loan that is registered on the MERS System if MERS is identified on the Mortgage or on a properly recorded assignment of Mortgage as the mortgagee of record. While such assignment to be recorded is being recorded, the Custodian shall retain a photocopy of such assignment. If any assignment is lost or returned unrecorded to the Custodian because of any defect therein, the Sponsor is required to prepare a substitute assignment or cure such defect, as the case may be, and the Sponsor shall cause such substitute assignment to be recorded in accordance with this paragraph.

In instances where an original Mortgage or any original intervening assignment of Mortgage is not, in accordance with clause (ii) or (iv) above, delivered by the Sponsor to the Custodian, on behalf of the Trustee, prior to or on the Closing Date in the case of an Initial Mortgage Loan or, in the case of a Subsequent Mortgage Loan, prior to or on the Subsequent Transfer Date, the Sponsor will deliver or cause to be delivered the originals of such documents to the Custodian, on behalf of the Trustee, promptly upon receipt thereof.

In connection with the assignment of any Initial Mortgage Loan registered on the MERS System, promptly after the Closing Date, the Sponsor further agrees that it will cause, at the Sponsor’s own expense, the MERS System to indicate that such Initial Mortgage Loan has been assigned by the Sponsor to the Trustee in accordance with this Agreement for the benefit of the Certificateholders by including in such computer files (a) the applicable Trustee code in the field “Trustee” which identifies the Trustee and (b) the code “NovaStar 2006-6” (or its equivalent) in the field “Pool” which identifies the series of the Certificates issued in connection with such Mortgage Loans. The Custodian will certify in its final certification that the MERS System shows the Trustee on behalf of the Certificateholders as the beneficial owner of the Mortgage Loans registered on the MERS System.

Effective on the Closing Date, the Depositor hereby acknowledges its acceptance of all right, title and interest to the Initial Mortgage Loans and other property, existing on the Closing Date and thereafter created and conveyed to it pursuant to this Section 2.01.

The Trustee, as assignee or transferee of the Depositor, shall be entitled to all scheduled principal payments due after the Cut-off Date, all other payments of principal due and collected after the Cut-off Date, and all payments of interest on the Initial Mortgage Loans. No scheduled payments of principal due on or before the Cut-off Date and collected after the Cut-off Date shall belong to the Depositor pursuant to the terms of this Purchase Agreement. The Pooling and Servicing Agreement shall provide that any late payment charges collected in connection with a Mortgage Loan shall be paid to the Servicer as provided therein.

 

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(d) The parties hereto intend that the transactions set forth herein constitute a sale by the Sponsor to the Depositor on the Closing Date of all the Sponsor’s right, title and interest in and to the Initial Mortgage Loans and other property as and to the extent described above. In the event the transactions set forth herein shall be deemed not to be a sale, the Sponsor hereby grants to the Depositor as of the Closing Date a security interest in all of the Sponsor’s right, title and interest in, to and under the Initial Mortgage Loans and such other property, to secure all of the Sponsor’s obligations hereunder and this Purchase Agreement shall constitute a security agreement under applicable law and in such event, the parties hereto acknowledge that the Custodian, in addition to holding the Initial Mortgage Loans on behalf of the Trustee for the benefit of the Certificateholders, holds the Initial Mortgage Loans as designee of the Depositor. The Sponsor agrees to take or cause to be taken such actions and to execute such documents, including without limitation the filing of all necessary UCC-1 financing statements filed in the Commonwealth of Virginia (which shall have been submitted for filing as of the Closing Date and each Subsequent Transfer Date, as applicable), any continuation statements with respect thereto and any amendments thereto required to reflect a change in the name or corporate structure of the Sponsor, as are necessary to perfect and protect the interests of the Depositor and their respective assignees in each Initial Mortgage Loan and the proceeds thereof and the interests of the Trustee and its assignees in each Subsequent Mortgage Loan and the proceeds thereof. The Depositor agrees to take or cause to be taken such actions and to execute such documents, including without limitation the filing of all necessary UCC-1 financing statements, and continuation statements with respect thereto and any amendments thereto as are necessary to perfect and protect the interests of the Trustee and its assignees in each Initial Mortgage Loan.

The parties hereto understand and agree that it is not intended that any Mortgage Loan be included in the Trust Fund that is a “High-Cost Home Loan” as defined in the New Jersey Home Ownership Act, effective as of November 27, 2003, the Home Loan Protection Act of New Mexico, effective as of January 1, 2004, the Massachusetts Predatory Home Loan Practices Act, effective as of November 7, 2004, or the Indiana Home Loan Practices Act effective January 1st, 2005.

Section 2.02 Conveyance of the Subsequent Mortgage Loans.

(a) Subject to the conditions set forth in paragraph (b) below in consideration of the Trustee’s delivery on the related Subsequent Transfer Dates of all or a portion of the balance of funds in the Pre-Funding Account, the Sponsor shall on any Subsequent Transfer Date sell, transfer, assign, set over and convey, without recourse, to the Depositor, who shall then sell, transfer, assign, set over and convey, without recourse, to the Trustee, but subject to the other terms and provisions of this Purchase Agreement and the Pooling and Servicing Agreement, all of the right, title and interest of the Sponsor in and to (i) the Subsequent Mortgage Loans (and the related MI Policies) identified on the related Mortgage Loan Schedule attached to the related Subsequent Transfer Instrument delivered by the Sponsor on such Subsequent Transfer Date, (ii) principal due and interest accruing on the Subsequent Mortgage Loans after the related Subsequent Cut-off Date and (i) with respect to such Subsequent Mortgage Loans all items to be delivered pursuant to Section 2.01(c) above and the other items in the related Mortgage Files; provided, however, that the Sponsor reserves and retains all right, title and interest in and to principal received and interest accruing on the Subsequent Mortgage Loans prior to the related Subsequent Cut-off Date. The transfer by the Sponsor to the Depositor, and by the Depositor to the Trustee, of the Subsequent Mortgage Loans identified on each Mortgage Loan Schedule

 

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attached to the related Subsequent Transfer Instrument and the related MI Policies shall be absolute and is intended by the Trustee, the Depositor and the Sponsor to constitute and to be treated as a sale of the Subsequent Mortgage Loans by the Sponsor to the Depositor, and a sale of the Subsequent Mortgage Loans by the Depositor to the Trustee.

The Subsequent Mortgage Loans presented for purchase will be designated as either Group I or Group II. Of the Original Pre-Funded Amount of $491,188,534.52, a maximum of $229,152,618.38 will be used to acquire Subsequent Mortgage Loans for inclusion in Group I and a maximum of $262,035,916.14 will be used to acquire Subsequent Mortgage Loans for inclusion in Group II, subject to the satisfaction of the conditions set forth herein.

In the event such transactions shall be deemed not to be a sale, the Sponsor hereby grants to the Depositor as of each Subsequent Transfer Date a security interest in all of the Sponsor’s right, title and interest in, to and under the related Subsequent Mortgage Loans and such other property, to secure all of the Sponsor’s obligations hereunder, and this Purchase Agreement shall constitute a security agreement under applicable law, and in such event, the parties hereto acknowledge that the Custodian, in addition to holding the Subsequent Mortgage Loans and the related MI Policies on behalf of the Trustee for the benefit of the Certificateholders, holds the Subsequent Mortgage Loans and the related MI Policies as designee of the Depositor. The Sponsor agrees to take or cause to be taken such actions and to execute such documents, including without limitation the filing of all necessary UCC-1 financing statements filed in the Commonwealth of Virginia (which shall be submitted for filing as of the related Subsequent Transfer Date), any continuation statements with respect thereto and any amendments thereto required to reflect a change in the name or corporate structure of the Sponsor or the filing of any additional UCC-1 financing statements due to a change in the state of incorporation of the Sponsor as are necessary to perfect and protect the interests of the Depositor and its assignees in the Subsequent Mortgage Loans.

In the event such transactions shall be deemed not to be a sale, the Depositor hereby grants to the Trustee as of each Subsequent Transfer Date a security interest in all of the Depositor’s right, title and interest in, to and under the related Subsequent Mortgage Loans and such other property, to secure all of the Depositor’s obligations hereunder, and this Purchase Agreement shall constitute a security agreement under applicable law, and in such event, the parties hereto acknowledge that the Custodian, in addition to holding the Subsequent Mortgage Loans and the related MI Policies on behalf of the Trustee for the benefit of the Certificateholders, holds the Subsequent Mortgage Loans and the related MI Policies as designee of the Trustee. The Depositor agrees to take or cause to be taken such actions and to execute such documents, including without limitation, the filing of all necessary UCC-1 financing statements filed in the State of Delaware (which shall be submitted for filing as of the related Subsequent Transfer Date), any continuation statements with respect thereto and any amendments thereto required to reflect a change in the name or corporate structure of the Depositor or the filing of any additional UCC-1 financing statements due to a change in the state of incorporation of the Depositor as are necessary to perfect and protect the interests of the Trustee and its assignees in Subsequent Mortgage Loans.

The related Mortgage File for each Subsequent Mortgage Loan shall be delivered to the Custodian, on behalf of the Trustee, prior to the related Subsequent Transfer Date.

 

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The Trustee on each Subsequent Transfer Date shall acknowledge by signing receipt thereof in the form of Exhibit 2(A), its acceptance of all right, title and interest to the related Subsequent Mortgage Loans and other property, existing on the Subsequent Transfer Date and thereafter created, conveyed to it pursuant to this Section 2.02.

The Trustee, as trustee of the Trust Fund, shall be entitled to all scheduled principal payments due after each Subsequent Cut-off Date, all other payments of principal due and collected after each related Subsequent Cut-off Date, and all payments of interest on the Subsequent Mortgage Loans, minus that portion of any such payment which is allocable to the period prior to the related Subsequent Cut-off Date. No scheduled payments of principal due on or before the related Subsequent Cut-off Date and collected after the related Subsequent Cut-off Date shall belong to the Trust Fund pursuant to the terms of this Purchase Agreement.

The purchase price distributed by the Trustee solely from the funds in the Pre-Funding Account, at the direction of the Servicer, shall be one-hundred percent (100%) of the aggregate Principal Balances of the Subsequent Mortgage Loans so transferred (as identified on the Mortgage Loan Schedule attached to the related Subsequent Transfer Instrument provided by the Sponsor).

(b) The Sponsor shall transfer to the Depositor, who shall transfer to the Trustee, the Subsequent Mortgage Loans and the other property and rights related thereto described in Section 2.02(a) above, and the Trustee shall cause to be released funds from the related Pre-Funding Account, only upon the satisfaction of each of the following conditions on or prior to the related Subsequent Transfer Date:

(i) the Sponsor shall have provided the Depositor, and the Depositor shall have provided the Trustee and the Custodian, with a timely Addition Notice, which notice shall be given no fewer than four Business Days prior to the related Subsequent Transfer Date and shall designate the Subsequent Mortgage Loans to be sold to the Depositor and then to the Trustee and the aggregate Principal Balances of such Subsequent Mortgage Loans as of the related Subsequent Cut-off Date and any other information reasonably requested by the Trustee or the Custodian with respect to the Subsequent Mortgage Loans;

(ii) the Sponsor shall have executed, and the Depositor shall have executed and delivered to the Trustee and the Custodian for execution, a Subsequent Transfer Instrument substantially in the form of Exhibit 2(A) or 2(B), as applicable. Such Subsequent Transfer Instrument shall include a representation by the Depositor confirming the satisfaction of each condition precedent and representations specified in this Section 2.02(b), Section 2.02(c) and in the related Subsequent Transfer Instrument (upon which representations neither the Trustee nor the Custodian shall have any liability in relying). Such Subsequent Transfer Instrument shall also include a Mortgage Loan Schedule attached thereto listing the Subsequent Mortgage Loans;

(iii) as of each Subsequent Transfer Date, as evidenced by delivery of the Sponsor’s Subsequent Transfer Instrument in the form of Exhibit 2(A) and the Depositor’s Subsequent Transfer Instrument is the form of Exhibit 2(B), neither the Sponsor nor the Depositor shall be insolvent or have been made insolvent by such transfers, nor shall they be aware of any pending insolvency;

 

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(iv) such sale and transfer (i) does not cause any REMIC created under the Pooling and Servicing Agreement to fail to qualify as a REMIC and (ii) is not a prohibited transaction within the meaning of Section 860F(a)(2) of the Code or a contribution resulting in a tax under Section 860G(d) of the Code, both as evidenced by an Opinion of Counsel provided for the Trustee at the expense of the Sponsor;

(v) the Pre-Funding Period shall not have terminated; and

(vi) the Sponsor shall have delivered to the Custodian, the Trustee, and the Rating Agencies Opinions of Counsel addressed to the Rating Agencies, the Trustee and the Custodian with respect to the transfers of the Subsequent Mortgage Loans substantially in the form of the Opinion of Counsel delivered to the Custodian, the Trustee and the Rating Agencies on the Closing Date (1) regarding certain corporate matters and (2) confirming the existence of a true sale which may be contained in such opinion delivered on the Closing Date.

The obligation of the Trustee to distribute funds from the Pre-Funding Account for the purchase of a Subsequent Mortgage Loan on any Subsequent Transfer Date is subject to the following conditions: (1) each such Subsequent Mortgage Loan shall satisfy the representations and warranties specified in the related Subsequent Transfer Instrument and this Purchase Agreement; (2) the Sponsor shall not select such Subsequent Mortgage Loans in a manner that it reasonably believes is adverse to the interests of the Majority Certificateholders; (3) the Sponsor shall have delivered certain Opinions of Counsel required pursuant to Section 2.02(b)(iv) and (vi) hereof; (4) as of the related Subsequent Cut-off Date, the Subsequent Mortgage Loans shall satisfy the following criteria: (i) each Subsequent Mortgage Loan shall not be 60 or more days contractually delinquent as of the related Subsequent Cut-off Date; (ii) the remaining stated term to maturity of each Subsequent Mortgage Loan shall not exceed 360 months; (iii) no less than approximately 95% of the Subsequent Mortgage Loans are secured by first liens on the related Mortgaged Property; (iv) each Subsequent Mortgage Loan shall have an outstanding Principal Balance of at least $10,000; (v) each Subsequent Mortgage Loan shall be underwritten in accordance with the Underwriting Guidelines or shall have been underwritten in accordance with the underwriting guidelines in place at the time of such Subsequent Mortgage Loan’s origination; (vi) each Subsequent Mortgage Loan shall have a Loan-to-Value Ratio or a combined Loan-to-Value Ratio of no more than 100%; (vii) each Subsequent Mortgage Loan shall have a stated maturity of no later than February 1, 2037; (viii) no Subsequent Mortgage Loan shall permit negative amortization; (ix) each Subsequent Mortgage Loan shall have a Mortgage Rate of at least 4.00%; (x) a minimum of 70% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall have an adjustable Mortgage Rate; (xi) the weighted average Loan-to-Value Ratio of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be no more than 83.50%; (xii) no less than 63% of the Subsequent Mortgage Loans shall either (A) have a Loan-to Value Ratio of no more than 60% or (B) have a Loan-to-Value Ratio of greater than 60% and be covered by an MI Policy which will insure losses to the extent that the uninsured exposure of the related Subsequent Mortgage Loan is reduced to an amount equal to 55%,50% or 51% of the lesser of the appraised value or

 

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purchase price, as the case may be, of the related Mortgaged Property, in each case, at the time of the effective date of the MI Policy; (xiii) the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall have a weighted average coupon of at least 8.800%; (xiv) pursuant to the Underwriting Guidelines, no fewer than 50% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be ALT-A and M1 credit risks, no more than 25% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be M2 credit risks, and no more than 15% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be M3 and M4 credit risks; (xv) the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall have a weighted average FICO score issued by a consumer credit rating agency of at least 610; (xvi) at least 85% of such Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be loans for primary residences; (xvii) no more than 60% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall have stated loan documentation, and no more than 15% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance shall have no loan documentation; (xviii) at least 60% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be loans for single family residences; (xix) no more than 70% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be loans that are the subject of cash-out refinances; (xx) the Rating Agencies shall have confirmed either in writing or verbally to the transfer of the Subsequent Mortgage Loans; and (xxi) at least 50% of the Subsequent Mortgage Loans shall have prepayment penalties.

The sale by the Depositor of the Subsequent Mortgage Loans is subject to the Sponsor receiving a written or verbal confirmation from each of the Rating Agencies that states that the addition of such Subsequent Mortgage Loans will not cause the Rating Agencies to downgrade any of their ratings on the Offered Certificates.

Notwithstanding the foregoing, Subsequent Mortgage Loans with characteristics varying from those set forth above may be purchased funds from the Pre-Funding Account on a Subsequent Transfer Date, if (i) the Trustee is provided with written confirmation that the aggregate credit risk of such Subsequent Mortgage Loans is similar to that of the Initial Mortgage Loans and (ii) the Sponsor receives and provides to the Trustee a written confirmation from each of the Rating Agencies that states that the addition of such Subsequent Mortgage Loans will not cause the Rating Agencies to downgrade any of their ratings of the Offered Certificates.

(c) Within five Business Days after the end of the Pre-Funding Period, the Sponsor shall deliver to the Rating Agencies, the Trustee and the Custodian a copy of the updated Mortgage Loan Schedule including the Subsequent Mortgage Loans in electronic format.

Section 2.03 Pre-Funding Account.

(a) No later than the Closing Date, the Trustee will establish and maintain the Pre-Funding Account pursuant to the Pooling and Servicing Agreement. On the Closing Date, the Sponsor will deposit in the Pre-Funding Account the Original Pre-Funded Amount from the net proceeds of the sale of the Offered Certificates.

 

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Section 2.04 Interest Coverage Account

(a) If the Interest Coverage Account on the Closing Date is greater than zero on the Closing Date, the Trustee will establish and maintain, pursuant to the Pooling and Servicing Agreement the Interest Coverage Account. On the Closing Date, the Sponsor will deposit in the Interest Coverage Account the Interest Coverage Amount from the net proceeds of the sale of the Underwritten Certificates.

ARTICLE III

REPRESENTATIONS AND WARRANTIES;

REMEDIES FOR BREACH

Section 3.01 Sponsor Representations and Warranties.

The Sponsor hereby represents and warrants to the Depositor and the Trustee as of the date hereof, as of the Closing Date (or if otherwise specified below, as of the date so specified) and as of each Subsequent Transfer Date:

(a) As to the Sponsor:

(i) The Sponsor (i) is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Virginia and (ii) is qualified and in good standing as a foreign corporation to do business in each jurisdiction where such qualification is necessary, except where the failure to so qualify would not have a material adverse effect on the Sponsor’s ability to enter into this Purchase Agreement and each Sponsor’s Subsequent Transfer Instrument and to consummate the transactions contemplated hereby and thereby;

(ii) The Sponsor has the power and authority to make, execute, deliver and perform its obligations under this Purchase Agreement and each Sponsor’s Subsequent Transfer Instrument and all of the transactions contemplated under this Purchase Agreement and each Sponsor’s Subsequent Transfer Instrument, and has taken all necessary corporate action to authorize the execution, delivery and performance of this Purchase Agreement and each Sponsor’s Subsequent Transfer Instrument;

(iii) The Sponsor is not required to obtain the consent of any other Person or any consent, approval or authorization from, or registration or declaration with, any governmental authority, bureau or agency in connection with the execution, delivery, performance, validity or enforceability of this Purchase Agreement or any Sponsor’s Subsequent Transfer Instrument except for such consents, approvals or authorization, or registration or declaration, as shall have been obtained or filed, as the case may be;

(iv) The execution and delivery of this Purchase Agreement and each Sponsor’s Subsequent Transfer Instrument and the performance of the transactions contemplated hereby by the Sponsor will not violate any provision of any existing law or regulation or any order or decree of any court applicable to the Sponsor or any

 

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provision of the certificate of incorporation or bylaws of the Sponsor, or constitute a material breach of any mortgage, indenture, contract or other agreement to which the Sponsor is a party or by which the Sponsor may be bound;

(v) No litigation or administrative proceeding of or before any court, tribunal or governmental body is currently pending, or to the knowledge of the Sponsor threatened, against the Sponsor or any of its properties or with respect to this Purchase Agreement or any Sponsor’s Subsequent Transfer Instrument, the Certificates which in the opinion of the Sponsor has a reasonable likelihood of resulting in a material adverse effect on the transactions contemplated by this Purchase Agreement or any Sponsor’s Subsequent Transfer Instrument;

(vi) This Purchase Agreement and each Sponsor’s Subsequent Transfer Instrument constitute the legal, valid and binding obligations of the Sponsor, enforceable against the Sponsor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors’ rights in general and except as such enforceability may be limited by general principles of equity (whether considered in a proceeding at law or in equity);

(vii) This Purchase Agreement constitutes a valid transfer and assignment to the Depositor of all right, title and interest of the Sponsor in and to the Cut-off Date Principal Balance of the Initial Mortgage Loans, all monies due or to become due with respect thereto, and all proceeds of such Cut-off Date Principal Balance of the Initial Mortgage Loans, and this Purchase Agreement and the Sponsor’s Subsequent Transfer Instrument constitutes a valid transfer and assignment to the Trustee of all right, title and interest of the Sponsor in and to the Subsequent Cut-off Date Principal Balance of the Subsequent Mortgage Loans, all monies due or to become due with respect thereto, and all proceeds of such Subsequent Cut-off Date Principal Balance of the Subsequent Mortgage Loans;

(viii) The Sponsor is not in default with respect to any order or decree of any court or any order or regulation of any federal, state or governmental agency, which default might have consequences that would materially and adversely affect the condition (financial or other) or operations of the Sponsor or its properties or might have consequences that would materially adversely affect its performance hereunder; and

(ix) The Servicer or any Subservicer who will be servicing any Mortgage Loan pursuant to the Pooling and Servicing Agreement or a Subservicing Agreement is qualified to do business in all jurisdictions in which its activities as Servicer or Subservicer of the Mortgage Loans serviced by it require such qualifications except where failure to be so qualified will not have a material adverse effect on such servicing activities.

 

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(b) As to each Initial Mortgage Loan as of the Closing Date and with respect to each Subsequent Mortgage Loan as of the Subsequent Transfer Date, except as otherwise expressly stated:

(i) The information set forth on the Mortgage Loan Schedule with respect to each Initial Mortgage Loan is true and correct in all material respects as of the Closing Date, and with respect to each Subsequent Mortgage Loan is true and correct in all material respects as of the related Subsequent Transfer Date, and the information regarding the Initial Mortgage Loans and the Subsequent Mortgage Loans on the computer diskette or tape delivered to the Trustee prior to the Closing Date or related Subsequent Transfer Date, as applicable, is true and accurate in all material respects and describes the same Mortgage Loans as the Mortgage Loans on the Mortgage Loan Schedule;

(ii) The Mortgage Loans are not being transferred with any intent to hinder, delay or defraud any creditors;

(iii) No more than 4.63% and 7.13% of the Initial Mortgage Loans in Group I and the Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) were secured by condominium units; and no more than 10.73% and 19.33% of the Initial Mortgage Loans in Group I and the Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) were secured by properties in planned unit developments;

(iv) As of the Cut-off Date, the remaining term of each Group I Initial Mortgage Loan is not more than 360 months and not less than 118 months and the remaining term of each Group II Initial Mortgage Loan is not more than 360 months and not less than 62 months;

(v) No more than 75.85% and 36.17% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) have been the subject of cash-out refinances;

(vi) No more than 5.77% and 3.62% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance), have been the subject of rate and term (no cash-out) refinances;

(vii) No fewer than 18.38% and 60.17% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) are purchase money loans;

(viii) No more than 9.15% and 16.96% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) are secured by Mortgaged Properties located in the State of California; no more than 23.39% and 21.24% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) are secured by Mortgaged Properties located in the State of Florida; no more than 3.41% and 2.47% of the Initial Mortgage Loans in Group I and Initial Mortgage

 

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Loans in Group II (by Cut-off Date Principal Balance) are secured by Mortgaged Properties located in the State of Virginia; no more than 4.55% and 3.60% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II (by Cut-off Date Principal Balance) are secured by Mortgaged Properties located in the State of New Jersey; no more than 5.09% and 3.78% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II (by Cut-off Date Principal Balance) are secured by Mortgaged Properties located in the State of Maryland; no more than 3.88% and 5.55% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II (by Cut-off Date Principal Balance) are secured by Mortgaged Properties located in the State of New York; no more than 50.53% and 46.40% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) are located in any other state;

(ix) The outstanding Principal Balances of the Initial Mortgage Loans in Group I (by Cut-off Date Principal Balance) ranged from $10,000 to $585,000, the average outstanding Principal Balance of the Initial Mortgage Loans in Group I is approximately $154,759; the outstanding Principal Balances of the Initial Mortgage Loans in Group II (by Cut-off Date Principal Balance) ranged from $11,000 to $1,497,976, the average outstanding Principal Balance of the Initial Mortgage Loans in Group II is approximately $180,577;

(x) Approximately 79.83% and 67.53% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) were secured by a first lien on a parcel of real property improved by a detached single family residence; no more than 4.81% and 6.01% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) were secured by a first lien on a parcel of real estate improved by a multi-unit residence;

(xi) All points and fees related to each Mortgage Loan were disclosed in writing to the borrower in accordance with applicable state and federal law and the borrower has executed a statement to that effect. No borrower was charged “points and fees” (whether or not financed) in an amount greater than 5% of the principal amount of any such loan originated by the Sponsor, such 5% limitation calculated in accordance with the Lender Letter. All fees and charges (including finance charges) and whether or not financed, assessed, collected or to be collected with the origination and servicing of each Mortgage Loan has been disclosed in writing to the borrower in accordance with applicable state and federal law and regulation;

(xii) The Mortgage Rates borne by the adjustable rate Initial Mortgage Loans in Group I as of the Closing Date range from 5.990% per annum to 12.650% per annum, and the weighted average Mortgage Rate (by Cut-off Date Principal Balance) of the adjustable rate Initial Mortgage Loans in Group I was 8.994% per annum; the Mortgage Rates borne by fixed rate Initial Mortgage Loans in Group I as of the Closing Date range from 6.950% per annum to 13.000% per annum, and the weighted average Mortgage Rate (by Cut-off Date Principal Balance) of the fixed rate Initial Mortgage Loans in Group I was 9.049% per annum; the Mortgage Rates borne by

 

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adjustable rate Initial Mortgage Loans in Group II as of the Closing Date range from 5.650% per annum to 13.125% per annum, and the weighted average Mortgage Rate (by Cut-off Date Principal Balance) of the adjustable rate Initial Mortgage Loans in Group II was 9.081% per annum; the Mortgage Rates borne by fixed rate Initial Mortgage Loans in Group II as of the Closing Date range from 6.490% per annum to 13.000% per annum, and the weighted average Mortgage Rate (by Cut-off Date Principal Balance) of the fixed rate Initial Mortgage Loans in Group II was 9.334% per annum;

(xiii) Approximately 49.25% and 52.70% of the Initial Mortgage Loans in Group I and the Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) have a Loan-to-Value Ratio in excess of 80%; no Group I Mortgage Loan or Group II Mortgage Loan in the Mortgage Pool had a Loan-to-Value Ratio or combined Loan-to-Value Ratio at origination in excess of 100%; and the weighted average Loan-to-Value Ratio (by Cut-off Date Principal Balance) of the Initial Mortgage Loans in Group I and the Initial Mortgage Loans in Group II was equal to 80.73% and 84.69%, respectively (by Cut-off Date Principal Balance). For any Group I Mortgage Loan or Group II Mortgage Loan in the Mortgage Pool, if such loan has had a material modification since origination, the Loan-to-Value Ratio as of such modification does not exceed 100%, and any Initial Mortgage Loan seasoned more than 12 months does not have a Loan-to-Value Ratio in excess of 100% as of the Closing Date;

(xiv) Approximately 98.91% and 94.40% of the Initial Mortgage Loans in Group I and the Initial Mortgage Loans in Group II, respectively (by Cut-off Date Principal Balance), are secured by first liens on the related Mortgaged Property; and approximately 1.09% and 5.60% (by Cut-off Date Principal Balance) of the Initial Mortgage Loans in Group I and the Initial Mortgage Loans in Group II are secured by second liens on the related Mortgaged Property;

(xv) As of the Cut-off Date, the weighted average Loan-to-Value Ratio of the Initial Mortgage Loans secured by first liens in Group I is approximately 80.52%; the weighted average combined Loan-to-Value Ratio of the Initial Mortgage Loans secured by first and second liens in Group I is approximately 80.73%; the weighted average Loan-to-Value Ratio of the Initial Mortgage Loans secured by first liens in Group II is approximately 83.80%; the weighted average combined Loan-to-Value Ratio of the Initial Mortgage Loans secured by first and second liens in Group II is approximately 84.69%; the weighted average combined Loan-to-Value Ratio of all of the Initial Mortgage Loans in Group I and Group II is approximately 82.77%; and the gross weighted average coupon of the Initial Mortgage Loans is approximately 9.079%;

(xvi) There is no valid offset, right of rescission, defense, claim or counterclaim of any obligor under any Mortgage Note or Mortgage, including the obligation of the Mortgagor to pay the unpaid principal of or interest on such Mortgage Note, and any applicable right of rescission has expired, nor will the operation of any of the terms of such Mortgage Note or Mortgage, or the exercise of any right thereunder, render either the Mortgage Note or the Mortgage unenforceable, in whole or in part, or subject to any right of rescission, set-off, recoupment, counterclaim or defense, including, without limitation, the defense of usury, and no such right of rescission, set-off,

 

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recoupment, counterclaim or defense has been asserted with respect thereto. To the best of Sponsor’s knowledge, except for approximately 0.88% of the Mortgage Loans, no Mortgagor of the applicable Mortgage is or since the date of origination has been a debtor in any state or federal bankruptcy or insolvency proceeding and no Mortgaged Property has been subject to any such proceeding. With regard to the Mortgage Loans that involve a Mortgagor who is a debtor in a state or federal bankruptcy or insolvency proceeding, each such Mortgagor is, as of the Cut-Off Date, current under the related bankruptcy plan;

(xvii) There are no mechanics’ liens or any similar liens or claims for work, labor or material affecting any Mortgaged Property which are or may be a lien prior to, or equal with, the lien of such Mortgage, except those which are insured against by the title insurance policy referred to in clause (xxii) below;

(xviii) As of the Closing Date in the case of an Initial Mortgage Loan or as of the related Subsequent Transfer Date in the case of a Subsequent Mortgage Loan, each Mortgaged Property is free of material damage and is in good repair and there is no proceeding pending or threatened for the total or partial condemnation of any Mortgage Property;

(xix) Each Mortgage is a valid and enforceable first or second lien on the Mortgaged Property including all improvements on the Mortgaged Property securing the related Mortgage Note and each Mortgaged Property is owned by the Mortgagor in fee simple (except with respect to common areas in the case of condominiums, PUDs and de minimis PUTDs) subject only to (1) the lien of nondelinquent current real property taxes and assessments, (2) covenants, conditions and restrictions, rights of way, easements and other matters of public record as of the date of recording of such Mortgage, such exceptions appearing of record being acceptable to mortgage lending institutions generally or specifically reflected in the appraisal made in connection with the origination of the related Mortgage Loan or referred to in the lender’s title insurance policy delivered to the originator of the related Mortgage Loan and (3) other matters to which like properties are commonly subject that do not materially interfere with the benefits of the security intended to be provided by such Mortgage. Immediately prior to the sale of such Mortgage Loan to the Depositor pursuant to this Purchase Agreement, the Sponsor had full right to sell and assign the same to the Depositor or the Trustee, as the case may be. Immediately following the sale of such Mortgage Loan to the Depositor and the Depositor’s assignment and sale thereof of such Mortgage Loan to the Trustee in the case of an Initial Mortgage Loan, the Trustee will have good title thereto subject to no claims or liens, including delinquent tax or assessment liens. Immediately following the sale of such Mortgage Loan to the Depositor and the Depositor’s assignment and sale thereof to the Trustee in the case of a Subsequent Mortgage Loan, the Trustee will have good title thereto subject to no claims or liens;

(xx) Each Mortgage Loan at origination complied with applicable local, state and federal laws, including, without limitation, usury, equal credit opportunity, real estate settlement procedures, the Truth In Lending Act of 1968, as

 

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amended, all applicable predatory and abusive lending laws and disclosure laws and consummation of the transactions contemplated hereby, including without limitation, the receipt of interest by the owner of such Mortgage Loan or the Holders of Certificates secured thereby, will not violate any such laws. Any and all statements or acknowledgments required to be made by the Mortgagor relating to such requirements are and will remain in the Mortgage File. Each Mortgage Loan is being serviced in accordance with applicable state and federal laws, including, without limitation, the Truth In Lending Act of 1968, as amended, and other consumer protection laws, real estate settlement procedures, usury, equal credit opportunity and disclosure laws and in a prudent and customary manner;

(xxi) Neither the Sponsor nor any prior holder of any Mortgage has impaired, waived, altered or modified the Mortgage or Mortgage Notes in any material respect (except that a Mortgage Loan may have been modified by a written instrument which has been recorded, if necessary to protect the interests of the owner of such Mortgage Loan or the Certificates, and which has been delivered to the Trustee); satisfied, canceled or subordinated such Mortgage in whole or in part; released the applicable Mortgaged Property in whole or in part from the lien of such Mortgage; or executed any instrument of release, cancellation or satisfaction with respect thereto;

(xxii) A lender’s policy of title insurance (on an ALTA or CLTA form) or binder, or other assurance of title customary in the relevant jurisdiction insuring the first lien priority of the Mortgage Loan in an amount at least equal to the original Principal Balance of each such Mortgage Loan or a commitment binder or commitment to issue the same was effective on the date of the origination of each Mortgage Loan, each such policy is valid and remains in full force and effect, and each such policy was issued by a title insurer qualified to do business in the jurisdiction where the Mortgaged Property is located, which policy insures the Sponsor and successor owners of indebtedness secured by the insured Mortgage as to the first priority lien of the Mortgage as applicable. The Sponsor is, and such successor owners will be, the sole insured under such lender’s title insurance policy; no claims have been made under such mortgage title insurance policy; no prior holder of the applicable Mortgage, including the Sponsor, has done, by act or omission, anything which would impair the coverage of such mortgage title insurance policy; and each such policy, binder or assurance contains all applicable endorsements;

(xxiii) All of the improvements which were included for the purpose of determining the Appraised Value of the Mortgaged Property lie wholly within the boundaries and building restriction lines of such property and no improvements on adjoining properties encroach upon the Mortgaged Property;

(xxiv) No improvement located on or being part of the Mortgaged Pr