MORTGAGE LOAN PURCHASE AGREEMENT

Exhibit 10.1

 

NOVASTAR MORTGAGE, INC.

as Seller,

 

NOVASTAR MORTGAGE FUNDING CORPORATION

as Company,

 

WACHOVIA BANK, NATIONAL ASSOCIATION

as Custodian

 

and

 

JPMORGAN CHASE BANK

as Trustee

 

MORTGAGE LOAN PURCHASE AGREEMENT

 

Dated as of June 1, 2004

 

Fixed and Adjustable Rate Mortgage Loans

 

NovaStar Mortgage Funding Trust, Series 2004-2

NovaStar Home Equity Loan Asset-Backed Certificate, Series 2004-2

 

TABLE OF CONTENTS

 

 

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THIS MORTGAGE LOAN PURCHASE AGREEMENT (this “ Purchase Agreement ”), dated as of June 1, 2004, is made among NovaStar Mortgage, Inc. (the “ Seller ”), NovaStar Mortgage Funding Corporation (the “ Company ”), Wachovia Bank, National Association (the “ Custodian ”) and JPMorgan Chase Bank (the “ Trustee ”).

 

WITNESSETH THAT :

 

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

 

WHEREAS, pursuant to the terms of the Pooling and Servicing Agreement, the Company 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 Company;

 

WHEREAS, pursuant to the terms of the Underwriting Agreement, the Company will sell the Underwritten Certificates to the Underwriters;

 

WHEREAS, pursuant to the terms of the REMIC Interests Sale Agreement, the Company will sell the Class X Certificates (including the net value represented by the Class I Certificates), Class O Certificates, the Class P Certificates and the Residual Certificates to NovaStar Certificates Financing Corporation (“ NCFC ”);

 

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

 

WHEREAS, pursuant to the terms of the Converted Loan Purchase Agreement, the Converted Loan Purchaser will be obligated to purchase the Converted Mortgage Loans from the Trustee.

 

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 June 1, 2004, among the Custodian, the Trustee, the Company and NovaStar Mortgage, Inc. as seller 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 Seller hereby sells, and the Company 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 lien mortgage loans with fixed and adjustable interest rates (the “ Group I Mortgage Loans ”) and a group of 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 $840,277,965. 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 into the Trust Fund, the issuance 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 Company to the Seller on the Closing Date shall consist of the following:

 

(i) a payment in an amount equal to $1,374,058,437.50 representing the net proceeds of the sale of the Underwritten Certificates, which payment shall be paid to the Seller by wire transfer in immediately available funds on the Closing Date by or on behalf of the Company, or as otherwise agreed by the Company; and

 

(ii) a payment in an amount equal to $25,199,900 representing the proceeds of the sale of the Class O Certificates, the Class P and Class X Certificates (including the net value represented by the Class I Certificates) by the Company to NCFC pursuant to the REMIC Interests Sale Agreement, which payment shall be paid to the Seller by wire transfer in immediately available funds on the Closing Date by or on behalf of the Company, or as otherwise agreed by the Company.

 

(b) [Reserved]

 

(c) In connection with such conveyances by the Seller, the Seller shall on behalf of and at the direction of the Company 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 two 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 “JPMorgan Chase Bank, as Trustee of the NovaStar Mortgage Funding Trust, Series 2004-2, relating to the NovaStar Home Equity Loan Asset-Backed Certificates, Series 2004-2”;

 

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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 Seller 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 “JPMorgan Chase Bank, as Trustee of the NovaStar Mortgage Funding Trust, Series 2004-2, relating to the NovaStar Home Equity Loan Asset-Backed Certificates, Series 2004-2”, 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 Seller 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 material 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 (iii) above for 180 days following submission of the assignment if the Seller has submitted such assignment for recording pursuant to the terms of the following paragraph), the Seller 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.

 

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 Seller at its own expense shall

 

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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 Seller is required to prepare a substitute assignment or cure such defect, as the case may be, and the Seller 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 Seller 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 Seller 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 Seller further agrees that it will cause, at the Seller’s own expense, the MERS System to indicate that such Initial Mortgage Loan has been assigned by the Seller 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 2004-2” (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 Certficateholders as the beneficial owner of the Mortgage Loans registered on the MERS System.

 

Effective on the Closing Date, the Company 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 Company, 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 Company 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.

 

(d) The parties hereto intend that the transactions set forth herein constitute a sale by the Seller to the Company on the Closing Date of all the Seller’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 Seller hereby grants to the Company as of the Closing Date a security interest in all of the Seller’s right, title and interest in, to and under the Initial Mortgage Loans and such other property, to secure all of the Seller’s obligations hereunder and this Purchase Agreement shall constitute a security agreement under

 

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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 Company. The Seller 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 Seller, as are necessary to perfect and protect the interests of the Company 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 Company 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.

 

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 Seller shall on any Subsequent Transfer Date sell, transfer, assign, set over and convey, without recourse, to the Company, 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 Seller 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 Seller on such Subsequent Transfer Date, (ii) principal due and interest accruing on the Subsequent Mortgage Loans after the related Subsequent Cut-off Date and (iii) 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 Seller 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 Seller to the Company, and by the Company to the Trustee, of the Subsequent Mortgage Loans identified on each Mortgage Loan Schedule attached to the related Subsequent Transfer Instrument and the related MI Policies shall be absolute and is intended by the Trustee, the Company and the Seller to constitute and to be treated as a sale of the Subsequent Mortgage Loans by the Seller to the Company, and a sale of the Subsequent Mortgage Loans by the Company to the Trustee.

 

The Subsequent Mortgage Loans presented for purchase will be designated as either Group I or Group II. Of the $559,722,035 in the Pre-Funding Account, a maximum of $446,952,745 will be used to acquire Subsequent Mortgage Loans for inclusion in Group I and a maximum of $112,769,289 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 Seller hereby grants to the Company as of each Subsequent Transfer Date a security interest in all of the

 

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Seller’s right, title and interest in, to and under the related Subsequent Mortgage Loans and such other property, to secure all of the Seller’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 Company. The Seller 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 Seller or the filing of any additional UCC-1 financing statements due to a change in the state of incorporation of the Seller as are necessary to perfect and protect the interests of the Company and its assignees in the Subsequent Mortgage Loans.

 

In the event such transactions shall be deemed not to be a sale, the Company hereby grants to the Trustee as of each Subsequent Transfer Date a security interest in all of the Company’s right, title and interest in, to and under the related Subsequent Mortgage Loans and such other property, to secure all of the Company’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 Company 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 Company or the filing of any additional UCC-1 financing statements due to a change in the state of incorporation of the Company 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.

 

The Trustee on each Subsequent Transfer Date shall acknowledge by signing receipt thereof 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.

 

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The purchase price paid by the Trustee, at the direction of the Servicer and on behalf of the Trustee, from amounts released from the Pre-Funding Account 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 Seller).

 

(b) The Seller shall transfer to the Company, 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 Seller shall have provided the Company, and the Company shall have provided the Trustee, 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 Company 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 with respect to the Subsequent Mortgage Loans;

 

(ii) the Seller shall have delivered to the Company, who shall have delivered to the Trustee, who shall have delivered to the Custodian, a duly executed Subsequent Transfer Instrument substantially in the form of Exhibit 2(A) or 2(B), as applicable, (A) 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 and (B) including a Mortgage Loan Schedule attached thereto listing the Subsequent Mortgage Loans;

 

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

 

(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 Seller;

 

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

 

(vi) the Seller shall have delivered to the Custodian, the Trustee, the Class A-1 Insurer and the Rating Agencies Opinions of Counsel addressed to the Rating Agencies, the Trustee, the Class A-1 Insurer 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, the Class A-1 Insurer and the Rating Agencies on the Closing Date

 

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(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; and

 

(vii) the Trustee shall have received the written consent of the Class A-1 Insurer.

 

The obligation of the Trustee to purchase 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 Seller 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 Seller 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 98% 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; (vi) each Subsequent Mortgage Loan shall have a Loan-to-Value Ratio of no more than 100%; (vii) each Subsequent Mortgage Loan shall have a stated maturity of no later than September 1, 2034; (viii) no Subsequent Mortgage Loan shall permit negative amortization; (ix) each Subsequent Mortgage Loan shall either have a fixed Mortgage Rate of at least 4.00% or, if an adjustable loan, a Gross Margin of at least 1.00%; (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 83.75%; (xii) no less than 42.00% 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%, 51% or 50% of the lesser of the appraised value or 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 7.30%; (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 fewer than 10% 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 615; (xvi) at least 87% of such Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be loans for primary residences; (xvii) no more than 45% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall have stated loan

 

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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 65% 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 ratings agencies shall have consented either in writing or verbally to the transfer of the Subsequent Mortgage Loans; (xxi) at least 67% of the Subsequent Mortgage Loans shall have prepayment penalties; and (xxii) none of the Subsequent Mortgage Loans will have a Loan-to-Value Ratio or a combined Loan-to-Value Ratio in excess of 100%.

 

The acceptance of the Subsequent Mortgage Loans by the Trustee is subject to the Seller receiving a written or verbal consent 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 Underwritten Certificates.

 

Notwithstanding the foregoing, Subsequent Mortgage Loans with characteristics varying from those set forth above may be purchased by the Trustee and included in the Trust Fund, 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, (ii) the Trustee is provided with written consent from the Class A-1 Insurer and (iii) the Seller receives and provides to the Trustee a written consent 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 Underwritten Certificates.

 

(c) Within five Business Days after the end of the Pre-Funding Period, the Seller shall deliver to the Rating Agencies, the Trustee, the Class A-1 Insurer 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 Seller will deposit in the Pre-Funding Account the Original Pre-Funded Amount from the net proceeds of the sale of the Underwritten Certificates.

 

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ARTICLE III

 

REPRESENTATIONS AND WARRANTIES;

REMEDIES FOR BREACH

 

Section 3.01 Seller Representations and Warranties.

 

The Seller hereby represents and warrants to the Company, the Class A-1 Insurer 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 Seller:

 

(i) The Seller (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 Seller’s ability to enter into this Purchase Agreement and each Seller’s Subsequent Transfer Instrument and to consummate the transactions contemplated hereby and thereby;

 

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

 

(iii) The Seller 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 Seller’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 Seller’s Subsequent Transfer Instrument and the performance of the transactions contemplated hereby by the Seller will not violate any provision of any existing law or regulation or any order or decree of any court applicable to the Seller or any provision of the certificate of incorporation or bylaws of the Seller, or constitute a material breach of any mortgage, indenture, contract or other agreement to which the Seller is a party or by which the Seller 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 Seller threatened, against the Seller or any of its properties or with respect to this Purchase Agreement or any Seller’s Subsequent Transfer Instrument, the Certificates which in the opinion of the Seller has a reasonable likelihood of resulting in a material adverse effect on the transactions contemplated by this Purchase Agreement or any Seller’s Subsequent Transfer Instrument;

 

(vi) This Purchase Agreement and each Seller’s Subsequent Transfer Instrument constitute the legal, valid and binding obligations of the Seller, enforceable against the Seller 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);

 

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(vii) This Purchase Agreement constitutes a valid transfer and assignment to the Company of all right, title and interest of the Seller 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 related Seller’s Subsequent Transfer Instrument constitutes a valid transfer and assignment to the Trustee of all right, title and interest of the Seller 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 Seller 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 Seller 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.

 

(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 respects as of the Closing Date, and with respect to each Subsequent Mortgage Loan is true and correct in all 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 Subsequent Transfer Date, as applicable, is true and accurate in all 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 6.59% and 6.94% 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 condominium units; and no more than 14.35% and 20.00% of the Initial Mortgage Loans in 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 359 months and not less than 118 months and the

 

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remaining term of each Group II Initial Mortgage Loan is not more than 359 months and not less than 176 months;

 

(v) No more than 59.73% and 59.77% 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 6.77% and 5.25% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) respectively, have been the subject of rate and term (no cash-out) refinances;

 

(vii) No fewer than 33.49% and 34.99% 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 20.62% and 33.39% 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 19.92% and 10.83% of the Initial Mortgage Loans in Group I (by Cut-off Date Principal Balance) are secured by Mortgaged Properties located in the State of Florida; and no more than 5.29% of the Initial Mortgage Loans in Group II (by Cut-off Date Principal Balance) are secured by Mortgaged Properties located in the State of Texas; and no more than 4.70% and 4.90% of the Initial Mortgage Loans in Group I and the 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 $39,518 to $449,624, the average outstanding Principal Balance of the Initial Mortgage Loans in Group I is approximately $145,621; the outstanding Principal Balance of the Initial Mortgage Loans in Group II (by Cut-off Date Principal Balance) ranged from $9,927 to $1,030,000 and the average outstanding Principal Balance of the Initial Mortgage Loans in Group II is approximately $154,437;

 

(x) Approximately 72.32% and 69.72% 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 5.34% and 2.67% 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 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 Seller, 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;

 

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(xii) The Mortgage Rates borne by the adjustable rate Initial Mortgage Loans in Group I as of the Closing Date range from 4.500% per annum to 10.300% 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 7.244%, per annum; the Mortgage Rates borne by fixed rate Initial Mortgage Loans in Group I as of the Closing Date range from 5.200% per annum to 11.800% 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 7.284% per annum; the Mortgage Rates borne by adjustable rate Initial Mortgage Loans in Group II as of the Closing Date range from 4.500% per annum to 11.400% 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 7.838%, per annum; the Mortgage Rates borne by fixed rate Initial Mortgage Loans in Group II as of the Closing Date range from 4.875% per annum to 14.250% 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 8.557% per annum.

 

(xiii) Approximately 54.46% and 61.36% of the Initial Mortgage Loans in 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 Initial Mortgage Loan or Group II Initial 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 or less than 82.33% and 84.47%, respectively;

 

(xiv) Approximately 100.00% and 92.22% of the Initial Mortgage Loans in Group I and the Initial Mortgage Loans in Group II, respectively, are secured by first liens on the related Mortgaged Property; and approximately 7.78% of the Initial Mortgage Loans in Group II are secured by second liens on the related Mortgaged Property;

 

(xv) The weighted average Loan-to-Value Ratio of the Initial Mortgage Loans secured by first liens in Group I is approximately 82.33%; the weighted average combined Loan-to-Value Ratio of the Initial Mortgage Loans secured by first and second liens in Group II is approximately 84.47%; 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%; the gross weighted average coupon of the Initial Mortgage Loans is approximately 7.397%; the maximum Loan-to-Value Ratio of all of the Initial Mortgage Loans in Group I and Group II is no greater than 100%

 

(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, recoupment, counterclaim or defense has been asserted with respect thereto, and, to the best of Seller’s knowledge, no Mortgagor of the applicable Mortgage

 

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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;

 

(xvii) There are no mechanics’ liens or any other 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 (xix) below;

 

(xviii) As of the Closing Date in the case of a Cut-off Date Mortgage Loan or as of the related Subsequent Cut-off 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 deminimis 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 Company in the case of an Initial Mortgage Loan and to the Trustee in the case of a Subsequent Mortgage Loan pursuant to this Purchase Agreement, the Seller had full right to sell and assign the same to the Company or the Trustee, as the case may be. Immediately following the sale of such Mortgage Loan to the Company and the Company’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 Company and the Company’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 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,

 

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real estate settlement procedures, usury, equal credit opportunity and disclosure laws and in a prudent and customary manner;

 

(xxi) Neither the Seller 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 Seller and successor owners of indebtedness secured by the insured Mortgage as to the first priority lien of the Mortgage as applicable. The Seller 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 Seller, 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 Property is in violation of any applicable zoning law or regulation, subdivision law or ordinance, except where the failure to comply would not have a material adverse effect on the market value of the Mortgaged Property. All inspections, licenses and certificates required to be made or issued with respect to all occupied portions of the Mortgaged Property and, with respect to the use and occupancy and fire underwriting certificates, have been made or obtained from the appropriate authorities and the Mortgaged Property is lawfully occupied under applicable law except where the failure to comply would not have a material adverse effect on the market value of the Mortgaged Property;

 

(xxv) Each Mortgage Note and the applicable Mortgage are genuine, and each is the legal, valid and binding obligation of the maker thereof, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency, reorganization, moratorium, receivership and other similar laws re