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FIRST HORIZON ASSET SECURITIES INC.
Depositor
FIRST HORIZON HOME LOAN CORPORATION
Master Servicer
and
THE BANK OF NEW YORK,
Trustee
-----------------------------------------------------
POOLING AND SERVICING AGREEMENT
Dated as of February 1, 2005
-----------------------------------------------------
FIRST HORIZON ALTERNATIVE MORTGAGE SECURITIES TRUST 2005-AA2
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2005-AA2
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS.............................................................................................5
ARTICLE II CONVEYANCE OF MORTGAGE LOANS; REPRESENTATIONS AND
WARRANTIES.........................................33
SECTION 2.1 Conveyance of Mortgage
Loans......................................................................33
SECTION 2.2 Acceptance by Trustee of the Mortgage
Loans.......................................................37
SECTION 2.3 Representations and Warranties of the Master
Servicer; Covenants of the Seller...................39
SECTION 2.4 Representations and Warranties of the Depositor as
to the Mortgage Loans..........................41
SECTION 2.5 Delivery of Opinion of Counsel in Connection with
Substitutions...................................42
SECTION 2.6 Execution and Delivery of
Certificates............................................................42
SECTION 2.7 REMIC
Matters.....................................................................................43
SECTION 2.8 Covenants of the Master
Servicer..................................................................45
ARTICLE III ADMINISTRATION AND SERVICING OF MORTGAGE
LOANS.......................................................46
SECTION 3.1 Master Servicer to Service Mortgage
Loans.........................................................46
SECTION 3.2 Subservicing; Enforcement of the Obligations of
Servicers.........................................47
SECTION 3.3 Rights of the Depositor and the Trustee in Respect
of the Master Servicer.........................48
SECTION 3.4 Trustee to Act as Master
Servicer.................................................................48
SECTION 3.5 Collection of Mortgage Loan Payments; Certificate
Account; Distribution Account...................49
SECTION 3.6 Collection of Taxes, Assessments and Similar Items;
Escrow Accounts...............................52
SECTION 3.7 Access to Certain Documentation and Information
Regarding the Mortgage Loans......................52
SECTION 3.8 Permitted Withdrawals from the Certificate Account
and Distribution Account.......................53
SECTION 3.9 Maintenance of Hazard Insurance; Maintenance of
Primary Insurance Policies........................55
SECTION 3.10 Enforcement of Due-on-Sale Clauses; Assumption
Agreements........................................56
SECTION 3.11 Realization Upon Defaulted Mortgage Loans;
Repurchase of Certain Mortgage Loans..................58
SECTION 3.12 Trustee to Cooperate; Release of Mortgage
Files..................................................60
SECTION 3.13 Documents Records and Funds in Possession of Master
Servicer to be Held for the Trustee..........61
SECTION 3.14 Master Servicing
Compensation....................................................................61
SECTION 3.15 Access to Certain
Documentation..................................................................62
SECTION 3.16 Annual Statement as to
Compliance................................................................62
SECTION 3.17 Annual Independent Public Accountants' Servicing
Statement; Financial Statements.................62
SECTION 3.18 Errors and Omissions Insurance; Fidelity
Bonds...................................................63
SECTION 3.19 Notification of
Adjustments......................................................................63
ARTICLE IV DISTRIBUTIONS AND ADVANCES BY THE MASTER
SERVICER.....................................................64
SECTION 4.1
Advances..........................................................................................64
SECTION 4.2 Priorities of
Distribution........................................................................64
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SECTION 4.3 Method of
Distribution............................................................................68
SECTION 4.4 Allocation of
Losses..............................................................................69
SECTION 4.5
[RESERVED]........................................................................................71
SECTION 4.6 Monthly Statements to
Certificateholders..........................................................71
ARTICLE V THE
CERTIFICATES.......................................................................................73
SECTION 5.1 The
Certificates..................................................................................73
SECTION 5.2 Certificate Register; Registration of Transfer and
Exchange of Certificates.......................74
SECTION 5.3 Mutilated, Destroyed, Lost or Stolen
Certificates.................................................79
SECTION 5.4 Persons Deemed
Owners.............................................................................79
SECTION 5.5 Access to List of Certificateholders' Names and
Addresses.........................................79
SECTION 5.6 Maintenance of Office or
Agency...................................................................80
ARTICLE VI THE DEPOSITOR AND THE MASTER
SERVICER.................................................................80
SECTION 6.1 Respective Liabilities of the Depositor and the
Master Servicer...................................80
SECTION 6.2 Merger or Consolidation of the Depositor or the
Master Servicer...................................80
SECTION 6.3 Limitation on Liability of the Depositor, the Master
Servicer and Others..........................80
SECTION 6.4 Limitation on Resignation of Master
Servicer......................................................81
ARTICLE VII
DEFAULT..............................................................................................81
SECTION 7.1 Events of
Default.................................................................................81
SECTION 7.2 Trustee to Act; Appointment of
Successor..........................................................83
SECTION 7.3 Notification to
Certificateholders................................................................85
ARTICLE VIII CONCERNING THE
TRUSTEE..............................................................................85
SECTION 8.1 Duties of
Trustee.................................................................................85
SECTION 8.2 Certain Matters Affecting the
Trustee.............................................................87
SECTION 8.3 Trustee Not Liable for Certificates or Mortgage
Loans.............................................88
SECTION 8.4 Trustee May Own
Certificates......................................................................88
SECTION 8.5 Trustee's Fees and
Expenses.......................................................................89
SECTION 8.6 Eligibility Requirements for
Trustee..............................................................89
SECTION 8.7 Resignation and Removal of
Trustee................................................................90
SECTION 8.8 Successor
Trustee.................................................................................90
SECTION 8.9 Merger or Consolidation of
Trustee................................................................91
SECTION 8.10 Appointment of Co-Trustee or Separate
Trustee....................................................91
SECTION 8.11 Tax
Matters......................................................................................92
SECTION 8.12 Periodic
Filings.................................................................................94
ARTICLE IX
TERMINATION...........................................................................................95
SECTION 9.1 Termination upon Liquidation or Purchase of all
Mortgage Loans....................................95
SECTION 9.2 Final Distribution on the
Certificates............................................................95
SECTION 9.3 Additional Termination
Requirements...............................................................96
ARTICLE X
[RESERVED].............................................................................................97
ARTICLE XI MISCELLANEOUS
PROVISIONS..............................................................................97
SECTION 11.1
Amendment........................................................................................97
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SECTION 11.2 Recordation of Agreement;
Counterparts...........................................................99
SECTION 11.3 Governing
Law....................................................................................99
SECTION 11.4 Intention of
Parties.............................................................................99
SECTION 11.5
Notices.........................................................................................100
SECTION 11.6 Severability of
Provisions......................................................................101
SECTION 11.7
Assignment......................................................................................101
SECTION 11.8 Limitation on Rights of
Certificateholders......................................................101
SECTION 11.9 Inspection and Audit
Rights.....................................................................102
SECTION 11.10 Certificates Nonassessable and Fully
Paid......................................................102
SECTION 11.11 Limitations on Actions; No
Proceedings.........................................................102
SECTION 11.12 Acknowledgment of
Seller.......................................................................103
SCHEDULES
Schedule I: Mortgage Loan Schedule S-I-1
Schedule II: Representations and Warranties of the Master
Servicer S-II-1
Schedule III: Form of Monthly Master Servicer Report S-III-1
EXHIBITS
Exhibit A: Form of Senior Certificate A-1
Exhibit B: Form of Subordinated Certificate B-1
Exhibit C: Form of Residual Certificate C-1
Exhibit D: Form of Reverse of Certificates D-1
Exhibit E: Form of Initial Certification E-1
Exhibit F: Form of Delay Delivery Certification F-1
Exhibit G: Form of Subsequent Certification of Custodian G-1
Exhibit H: Transfer Affidavit H-1
Exhibit I: Form of Transferor Certificate I-1
Exhibit J: Form of Investment Letter [Non-Rule 144A] J-1
Exhibit K: Form of Rule 144A Letter K-1
Exhibit L: Request for Release (for Trustee) L-1
Exhibit M: Request for Release (Mortgage Loan) M-1
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THIS POOLING AND SERVICING AGREEMENT, dated as of February 1,
2005, among
FIRST HORIZON ASSET SECURITIES INC., a Delaware corporation, as
depositor (the
"Depositor"), FIRST HORIZON HOME LOAN CORPORATION, a Kansas
corporation, as
master servicer (the "Master Servicer"), and THE BANK OF NEW
YORK, a banking
corporation organized under the laws of the State of New York,
as trustee (the
"Trustee").
WITNESSETH THAT
In consideration of the mutual agreements herein contained, the
parties
hereto agree as follows:
PRELIMINARY STATEMENT
The Depositor is the owner of the Trust Fund that is hereby
conveyed to
the Trustee in return for the Certificates. The Trust Fund for
federal income
tax purposes will consist of two separate REMICs. The
Certificates will
represent the entire beneficial ownership interest in the Trust
Fund. The
Regular Certificates will represent "regular interests" in the
Upper REMIC. The
Class II-A-R Certificates will represent the residual interests
in the Lower
REMIC and Upper REMIC, as described in Section 2.7. The "latest
possible
maturity date" for federal income tax purposes of all REMIC
regular interests
created hereby will be the Latest Possible Maturity Date.
The following table sets forth characteristics of the
Certificates,
together with the minimum denominations and integral multiples
in excess thereof
in which such Classes shall be issuable (except that one
Certificate of each
Class of Certificates may be issued in a different amount and,
in addition, one
Residual Certificate representing the Tax Matters Person
Certificate may be
issued in a different amount):
[Remainder of Page Intentionally Left Blank]
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Initial Class Initial Integral Multiples
Class Designation Certificate Balance Pass Through Rate Minimum
Denomination in Excess Minimum
------------------------- -----------------------
--------------------- ----------------------
---------------------
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Class I-A-1 $ 138,041,000.00 5.1967% (1) $ 25,000 $ 1,000
------------------------- -----------------------
--------------------- ----------------------
---------------------
Class I-A-2 $ 2,251,000.00 5.1967% (1) $ 25,000 $ N/A
------------------------- -----------------------
--------------------- ----------------------
---------------------
Class II-A-1 $ 179,375,000.00 5.4599% (2) $ 25,000 $ 1,000
------------------------- -----------------------
--------------------- ----------------------
---------------------
Class II-A-2 $ 2,925,000.00 5.4599% (2) $ 25,000 $ 1,000
------------------------- -----------------------
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Class II-A-R $ 100.00 5.4599% (2) $ 100 $ N/A
------------------------- -----------------------
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---------------------
Class B-1 $ 9,661,000.00 5.3455% (3) $ 100,000 $ 1,000
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--------------------- ----------------------
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Class B-2 $ 4,485,000.00 5.3455% (3) $ 100,000 $ 1,000
------------------------- -----------------------
--------------------- ----------------------
---------------------
Class B-3 $ 3,105,000.00 5.3455% (3) $ 100,000 $ 1,000
------------------------- -----------------------
--------------------- ----------------------
---------------------
Class B-4 $ 1,898,000.00 5.3455% (3) $ 100,000 $ 1,000
------------------------- -----------------------
--------------------- ----------------------
---------------------
Class B-5 $ 1,897,000.00 5.3455% (3) $ 100,000 $ 1,000
------------------------- -----------------------
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Class B-6 $ 1,380,945.00 5.3455% (3) $ 100,000 $ 1,000
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(1) The Pass-Through Rates for the Class I-A-1 and Class I-A-2
Certificates for
each subsequent Distribution Date will equal the Weighted
Average Adjusted Net
Mortgage Rate for Pool I, as of the first day of the month
immediately prior to
the month in which the relevant Distribution Date occurs, after
taking into
account scheduled payments of principal on that date and any
Principal
Prepayments received on or after such date and distributed to
Certificateholders
on the prior Distribution Date.
(2) The Pass-Through Rates for the Class II-A-1, Class II-A-2
and Class II-A-R
Certificates for each subsequent Distribution Date will equal
the Weighted
Average Adjusted Net Mortgage Rate for Pool II, as of the first
day of the month
immediately prior to the month in which the relevant
Distribution Date occurs,
after taking into account scheduled payments of principal on
that date and any
Principal Prepayments received on or after such date and
distributed to
Certificateholders on the prior Distribution Date.
(3) The Pass-Through Rates for the Subordinated Certificates for
each subsequent
Distribution Date will equal the weighted average of the
Weighted Average
Adjusted Net Mortgage Rates for each Mortgage Pool, weighted on
the basis of the
Group Subordinate Amount for each Mortgage Pool, as of the first
day of the
month immediately prior to the month in which the relevant
Distribution Date
occurs, after taking into account scheduled payments of
principal on that date
and any Principal Prepayments received on or after such date and
distributed to
Certificateholders on the prior Distribution Date.
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Accretion Directed Certificates....... None.
Accrual Certificates.................. None.
Accrual Components.................... None.
Book-Entry Certificates............... All Classes of
Certificates other than the Physical Certificates.
Certificate Group..................... With respect to Pool I,
the Group I Senior Certificates, and with respect
to Pool II, the Group II Senior Certificates. The
Subordinated
Certificates correspond to all the Mortgage Pools.
COFI Certificates..................... None.
Component Certificates................ None.
Components............................ None.
Delay Certificates.................... All interest-bearing
Classes of Certificates other than the Non-Delay
Certificates, if any.
ERISA-Restricted Certificates......... The Residual
Certificates, Private Certificates and Certificates of any
Class that no longer satisfy the applicable rating requirement
of the
Underwriters' Exemption.
Floating Rate Certificates............ None.
Group I Senior Certificates........... The Class I-A-1 and Class
I-A-2 Certificates.
Group II Senior Certificates.......... The Class II-A-1, Class
II-A-2 and Class II-A-R Certificates.
Insured Retail Certificates........... None.
Inverse Floating Rate Certificates....
None.
LIBOR Certificates.................... None.
Non-Delay Certificates................ None.
Notional Amount Components............ None.
Notional Amount Certificates.......... None.
Offered Certificates.................. All Classes of the
Certificates other than the Private Certificates.
Physical Certificates................. The Private Certificates
and the Residual Certificates.
Planned Principal Classes............. None.
Principal Only Certificates........... None.
Private Certificates.................. The Class B-4, Class B-5
and Class B-6 Certificates.
Rating Agencies....................... S&P and Moody's;
except that, for the purposes of the Class B-1, Class
B-2, Class B-3, Class B-4 and Class B-5 Certificates, S&P
shall be the
sole Rating Agency.
Regular Certificates.................. All Classes of
Certificates, other than the Residual Certificates.
Residual Certificates................. The Class II-A-R
Certificates.
</TABLE>
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Scheduled Principal Classes........... None.
Senior Certificates................... The Group I Senior
Certificates and the Group II Senior Certificates,
collectively.
Senior Support Certificates........... The Class I-A-2 and Class
II-A-2 Certificates.
Subordinated Certificates............. The Class B-1, Class B-2,
Class B-3, Class B-4, Class B-5 and Class B-6
Certificates.
Super Senior Certificates............. The Class I-A-1 and Class
II-A-1 Certificates.
Support Classes....................... None.
Targeted Principal Classes............ None.
Underwriters.......................... Citigroup Global Markets
Inc. and Credit Suisse First Boston LLC
</TABLE>
With respect to any of the foregoing designations as to which
the
corresponding reference is "None," all defined terms and
provisions herein
relating solely to such designations shall be of no force or
effect, and any
calculations herein incorporating references to such
designations shall be
interpreted without reference to such designations and amounts.
Defined terms
and provisions herein relating to statistical rating agencies
not designated
above as Rating Agencies shall be of no force or effect.
4
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ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and
phrases, unless
the context otherwise requires, shall have the following
meanings:
Accrued Certificate Interest: For any Class of Certificates for
any
Distribution Date, the interest accrued during the related
Interest Accrual
Period at the applicable Pass-Through Rate on the Class
Certificate Balance of
such Class of Certificates immediately prior to such
Distribution Date, less
such Class' share of any Net Interest Shortfall, allocable among
the outstanding
Classes of Senior Certificates of the related Certificate Group
based on the
Accrued Certificate Interest otherwise distributable thereto,
and allocable to
the Subordinated Certificates based on interest accrued on their
related
Apportioned Principal Balances.
Adjusted Mortgage Rate: As to each Mortgage Loan, and at any
time, the per
annum rate equal to the Mortgage Rate less the Master Servicing
Fee Rate.
Adjusted Net Mortgage Rate: As to each Mortgage Loan, and at any
time, the
per annum rate equal to the Mortgage Rate less the related
Expense Fee Rate.
Adjustment Date: A date specified in each Mortgage Note as a
date on which
the Mortgage Rate on the related Mortgage Loan will be
adjusted.
Advance: The payment required to be made by the Master Servicer
with
respect to any Distribution Date pursuant to Section 4.1, the
amount of any such
payment being equal to the aggregate of payments of principal
and interest (net
of the Master Servicing Fee and net of any net income in the
case of any REO
Property) on the Mortgage Loans that were due on the related Due
Date and not
received as of the close of business on the related
Determination Date, less the
aggregate amount of any such delinquent payments that the Master
Servicer has
determined would constitute a Nonrecoverable Advance if
advanced.
Agreement: This Pooling and Servicing Agreement and all
amendments or
supplements hereto.
Allocable Share: With respect to any Class of Subordinated
Certificates on
any Distribution Date, such Class' pro rata share (based on the
Class
Certificate Balance of each Class entitled thereto) of the
Subordinated Optimal
Principal Amount for all of the Mortgage Pools; provided, that,
except as
provided in this Agreement, no Subordinated Certificates (other
than the Class
of Subordinated Certificates with the highest priority of
distribution) shall be
entitled on any Distribution Date to receive distributions
pursuant to clauses
(2), (3) and (5) of the definition of Subordinated Optimal
Principal Amount
unless the Class Prepayment Distribution Trigger for such Class
is satisfied for
such Distribution Date.
Amount Held for Future Distribution: As to any Distribution
Date, the
aggregate amount held in the applicable subaccount of the
Certificate Account at
the close of business on the related Determination Date on
account of (i)
Principal Prepayments on the related Mortgage Pool received
after the related
Prepayment Period and Liquidation Proceeds in the related
Mortgage Pool received
in the month of such Distribution Date and (ii) all Scheduled
Payments in the
related Mortgage Pool due after the related Due Date.
5
<PAGE>
Apportioned Principal Balance: For any Class of Subordinated
Certificates
and any Distribution Date, an amount equal to the Class
Certificate Balance of
such Class immediately prior to that Distribution Date
multiplied by a fraction,
the numerator of which is the applicable Group Subordinate
Amount for such
Distribution Date and the denominator of which is the sum of the
Group
Subordinate Amounts for such Distribution Date.
Appraised Value: With respect to any Mortgage Loan, the
Appraised Value of
the related Mortgaged Property shall be: (i) with respect to a
Mortgage Loan
other than a Refinancing Mortgage Loan, the lesser of (a) the
value of the
Mortgaged Property based upon the appraisal made at the time of
the origination
of such Mortgage Loan and (b) the sales price of the Mortgaged
Property at the
time of the origination of such Mortgage Loan; (ii) with respect
to a
Refinancing Mortgage Loan other than a Streamlined Documentation
Mortgage Loan,
the value of the Mortgaged Property based upon the appraisal
made at the time of
the origination of such Refinancing Mortgage Loan; and (iii)
with respect to a
Streamlined Documentation Mortgage Loan, (a) if the
loan-to-value ratio with
respect to the Original Mortgage Loan at the time of the
origination thereof was
90% or less, the value of the Mortgaged Property based upon the
appraisal made
at the time of the origination of the Original Mortgage Loan and
(b) if the
loan-to-value ratio with respect to the Original Mortgage Loan
at the time of
the origination thereof was greater than 90%, the value of the
Mortgaged
Property based upon the appraisal (which may be a drive-by
appraisal) made at
the time of the origination of such Streamlined Documentation
Mortgage Loan.
Available Funds: For each Mortgage Pool, with respect to any
Distribution
Date, an amount equal to the sum of:
o all scheduled installments of interest, net of the Master
Servicing Fee and the Trustee Fee, and all scheduled
installments of principal due in respect of the Mortgage
Loans
in such Mortgage Pool on the Due Date in the month in which
the Distribution Date occurs and received before the related
Determination Date, together with any Advances in respect
thereof;
o all Insurance Proceeds and all Liquidation Proceeds
received
in respect of the Mortgage Loans in such Mortgage Pool
during
the calendar month before the Distribution Date, which in
each
case is net of unreimbursed expenses incurred in connection
with a liquidation or foreclosure and unreimbursed Advances,
if any;
o all Principal Prepayments received in respect of the
Mortgage
Loans in such Mortgage Pool during the related Prepayment
Period, plus interest received thereon, net of any
Prepayment
Interest Excess;
o any Compensating Interest in respect of Principal
Prepayments
in Full received in respect of the Mortgage Loans in such
Mortgage Pool during the related Prepayment Period (or, in
the
case of the first Distribution Date, from the Cut-off Date);
and
6
<PAGE>
o any Substitution Adjustment Amount or the Purchase Price
for
any Deleted Mortgage Loan in the related Mortgage Pool or a
Mortgage Loan in the related Mortgage Pool repurchased by
the
Seller or the Master Servicer as of such Distribution Date,
reduced by amounts in reimbursement for Advances previously
made and other amounts that the Master Servicer is entitled
to
be reimbursed for out of the Certificate Account pursuant to
this Agreement.
Bankruptcy Code: The United States Bankruptcy Reform Act of
1978, as
amended.
Bankruptcy Coverage Termination Date: The date on which the
Bankruptcy
Loss Coverage Amount is reduced to zero.
Bankruptcy Loss: With respect to any Mortgage Loan, a Deficient
Valuation
or Debt Service Reduction; provided, however, that a Bankruptcy
Loss shall not
be deemed a Bankruptcy Loss hereunder so long as the Master
Servicer has
notified the Trustee in writing that the Master Servicer is
diligently pursuing
any remedies that may exist in connection with the related
Mortgage Loan and
either (A) the related Mortgage Loan is not in default with
regard to payments
due thereunder or (B) delinquent payments of principal and
interest under the
related Mortgage Loan and any related escrow payments in respect
of such
Mortgage Loan are being advanced on a current basis by the
Master Servicer, in
either case without giving effect to any Debt Service Reduction
or Deficient
Valuation.
Bankruptcy Loss Coverage Amount: As of any Determination Date,
the
Bankruptcy Loss Coverage Amount shall equal the Initial
Bankruptcy Coverage
Amount as reduced by (i) the aggregate amount of Bankruptcy
Losses allocated to
the Certificates since the Cut-off Date and (ii) any permissible
reductions in
the Bankruptcy Loss Coverage Amount as evidenced by a letter of
each Rating
Agency to the Trustee to the effect that any such reduction will
not result in a
downgrading of the then current ratings assigned to the Classes
of Certificates
rated by it. As of any Distribution Date on or after the
Cross-over Date, the
Bankruptcy Loss Coverage Amount will be zero.
Blanket Mortgage: The mortgage or mortgages encumbering the
Cooperative
Property.
Book-Entry Certificates: As specified in the Preliminary
Statement.
Business Day: Any day other than (i) a Saturday or a Sunday, or
(ii) a day
on which banking institutions in the City of Dallas, or the
State of Texas or
the city in which the Corporate Trust Office of the Trustee is
located are
authorized or obligated by law or executive order to be
closed.
Certificate: Any one of the Certificates executed by the Trustee
in
substantially the forms attached hereto as exhibits.
Certificate Account: The separate Eligible Account or Accounts
created and
maintained by the Master Servicer pursuant to Section 3.5 with a
depository
institution in the name of the Trustee for the benefit of the
Trustee on behalf
of Certificateholders and designated "First Horizon Home Loan
Corporation in
trust for the registered holders of First Horizon Asset
Securities Inc. Mortgage
Pass-Through Certificates, Series 2005-AA2."
7
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Certificate Group: As specified in the Preliminary
Statement.
Certificate Owner: With respect to a Book-Entry Certificate, the
Person
who is the beneficial owner of such Book-Entry Certificate.
Certificate Principal Balance: With respect to any Certificate
and as of
any Distribution Date, the Certificate Principal Balance on the
date of the
initial issuance of such Certificate, as reduced by:
(a) all amounts distributed on previous Distribution Dates on
such
Certificate on account of principal,
(b) the principal portion of all Realized Losses previously
allocated to
such Certificate, and
(c) in the case of a Subordinated Certificate, such
Certificate's pro
rata share, if any, of the Subordinated Certificate Writedown
Amount
for previous Distribution Dates.
Certificate Register: The register maintained pursuant to
Section 5.2
hereof.
Certificateholder or Holder: The person in whose name a
Certificate is
registered in the Certificate Register, except that, solely for
the purpose of
giving any consent pursuant to this Agreement, any Certificate
registered in the
name of the Depositor or the Seller or any affiliate or agent of
the Depositor
or the Seller shall be deemed not to be Outstanding and the
Percentage Interest
evidenced thereby shall not be taken into account in determining
whether the
requisite amount of Percentage Interests necessary to effect
such consent has
been obtained; provided, however, that if any such Person
(including the
Depositor) owns 100% of the Percentage Interests evidenced by a
Class of
Certificates, such Certificates shall be deemed to be
Outstanding for purposes
of any provision hereof that requires the consent of the Holders
of Certificates
of a particular Class as a condition to the taking of any action
hereunder. The
Trustee is entitled to rely conclusively on a certification of
the Depositor or
any affiliate of the Depositor in determining which Certificates
are registered
in the name of an affiliate of the Depositor.
Class: All Certificates bearing the same class designation as
set forth in
the Preliminary Statement.
Class Certificate Balance: With respect to any Class of
Certificates and
as of any Distribution Date the aggregate of the Certificate
Principal Balances
of all Certificates of such Class as of such date.
Class Prepayment Distribution Trigger: For a Class of
Subordinated
Certificates (other than the Class of Subordinated Certificates
with the highest
priority of distribution), a trigger that is satisfied on any
Distribution Date
on which a fraction (expressed as a percentage), the numerator
of which is the
aggregate Class Certificate Balance of such Class and each Class
subordinate
thereto, if any, and the denominator of which is the aggregate
Pool Principal
Balance for both Mortgage Pools with respect to such
Distribution Date, equals
or exceeds such percentage calculated as of the Closing
Date.
8
<PAGE>
Closing Date: February 28, 2005.
Code: The Internal Revenue Code of 1986, including any successor
or
amendatory provisions.
COFI: Not applicable.
COFI Certificates: Not applicable.
Compensating Interest: As to any Distribution Date and any
Principal
Prepayment in respect of a Mortgage Loan that is received during
the period from
the sixteenth day of the month (or, in the case of the first
Distribution Date,
from the Cut-off Date) prior to the month of such Distribution
Date through the
last day of such month, an additional payment to the related
Mortgage Pool made
by the Master Servicer, to the extent funds are available from
the Master
Servicing Fee, equal to the amount of interest at the Adjusted
Net Mortgage Rate
for that Mortgage Loan from the date of the prepayment to the
related Due Date;
provided that the aggregate of all such payments as to the
Mortgage Loans in a
Mortgage Pool shall not exceed 0.0083% of the Pool Principal
Balance of such
Mortgage Pool as of the related Determination Date, and provided
further that if
a partial Principal Prepayment is applied on or after the first
day of the month
following the month of receipt, no additional payment is
required for such
Principal Prepayment.
Component: Not applicable.
Component Balance: Not applicable.
Component Certificates: Not applicable.
Cooperative Corporation: The entity that holds title (fee or an
acceptable
leasehold estate) to the real property and improvements
constituting the
Cooperative Property and which governs the Cooperative Property,
which
Cooperative Corporation must qualify as a Cooperative Housing
Corporation under
Section 216 of the Code.
Coop Shares: Shares issued by a Cooperative Corporation.
Cooperative Loan: Any Mortgage Loan secured by Coop Shares and
a
Proprietary Lease.
Cooperative Property: The real property and improvements owned
by the
Cooperative Corporation, including the allocation of individual
dwelling units
to the holders of the Coop Shares of the Cooperative
Corporation.
Cooperative Unit: A single family dwelling located in a
Cooperative
Property.
Corporate Trust Office: The designated office of the Trustee in
the State
of New York at which at any particular time its corporate trust
business with
respect to this Agreement shall be administered, which office at
the date of the
execution of this Agreement is located at The Bank of New York,
101 Barclay
Street, 8W, New York, New York 10286 (Attn: Corporate Trust
Mortgage-Backed
Securities Group, First Horizon Asset Securities Inc. Series
2005-AA2),
facsimile no. (212) 815-3986, and which is the address to which
notices to and
correspondence with the Trustee should be directed.
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Corresponding Class of Certificates: As to any Lower REMIC
Interest
identified in Section 2.7, the Class or Classes that are
identified in Section
2.7 as corresponding to such Lower REMIC Interest.
Cross-over Date: The Distribution Date on which the respective
Class
Certificate Balances of each Class of Subordinated Certificates
have been
reduced to zero.
Custodial Agreement: The Custodial Agreement dated as of
February 28, 2005
by and among the Trustee, the Master Servicer and the
Custodian.
Custodian: First Tennessee Bank National Association, a national
banking
association, and its successors and assigns, as custodian under
the Custodial
Agreement.
Cut-off Date: February 1, 2005.
Cut-off Date Pool Principal Balance: With respect to Pool I,
$150,045,671.53; and with respect to Pool II,
$194,973,373.47.
Cut-off Date Principal Balance: As to any Mortgage Loan, the
Stated
Principal Balance thereof as of the close of business on the
Cut-off Date.
Debt Service Reduction: With respect to any Mortgage Loan, a
reduction by
a court of competent jurisdiction in a proceeding under the
Bankruptcy Code in
the Scheduled Payment for such Mortgage Loan which became final
and
non-appealable, except such a reduction resulting from a
Deficient Valuation or
any reduction that results in a permanent forgiveness of
principal.
Defective Mortgage Loan: Any Mortgage Loan which is required to
be
repurchased pursuant to Section 2.2 or 2.3.
Deficient Valuation: With respect to any Mortgage Loan, a
valuation by a
court of competent jurisdiction of the Mortgaged Property in an
amount less than
the then-outstanding indebtedness under the Mortgage Loan, or
any reduction in
the amount of principal to be paid in connection with any
Scheduled Payment that
results in a permanent forgiveness of principal, which valuation
or reduction
results from an order of such court which is final and
non-appealable in a
proceeding under the Bankruptcy Code.
Definitive Certificates: Any Certificate evidenced by a
Physical
Certificate and any Certificate issued in lieu of a Book-Entry
Certificate
pursuant to Section 5.2(e).
Delay Certificates: Not applicable.
Delay Delivery Mortgage Loans: The Mortgage Loans for which all
or a
portion of a related Mortgage File is not delivered to Trustee
on the Closing
Date. The number of Delay Delivery Mortgage Loans shall not
exceed 25% of the
aggregate number of Mortgage Loans as of the Closing Date.
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<PAGE>
Deleted Mortgage Loan: As defined in Section 2.3(b) hereof.
Denomination: With respect to each Certificate, the amount set
forth on
the face thereof as the "Initial Certificate Balance of this
Certificate" or the
Percentage Interest appearing on the face thereof.
Depositor: First Horizon Asset Securities Inc., a Delaware
corporation, or
its successor in interest.
Depository: The initial Depository shall be The Depository Trust
Company,
the nominee of which is CEDE & Co., as the registered Holder
of the Book-Entry
Certificates. The Depository shall at all times be a "clearing
corporation" as
defined in Section 8-102(a)(5) of the Uniform Commercial Code of
the State of
New York.
Depository Participant: A broker, dealer, bank or other
financial
institution or other Person for whom from time to time a
Depository effects
book-entry transfers and pledges of securities deposited with
the Depository.
Determination Date: As to any Distribution Date, the earlier of
(i) the
third Business Day after the 15th day of each month, and (ii)
the second
Business Day prior to the related Distribution Date.
Distribution Account: The separate Eligible Account created and
maintained
by the Trustee pursuant to Section 3.5 in the name of the
Trustee for the
benefit of the Certificateholders and designated "The Bank of
New York, in trust
for registered Holders of First Horizon Asset Securities Inc.
Mortgage
Pass-Through Certificates, Series 2005-AA2." Funds in the
Distribution Account
shall be held in trust for the Certificateholders for the uses
and purposes set
forth in this Agreement.
Distribution Account Deposit Date: As to any Distribution Date,
1:30 p.m.
Central time on the Business Day immediately preceding such
Distribution Date.
Distribution Date: The 25th day of each calendar month after the
initial
issuance of the Certificates, or if such 25th day is not a
Business Day, the
next succeeding Business Day, commencing in March 2005.
Due Date: With respect to any Distribution Date, the first day
of the
month in which the related Distribution Date occurs.
Eligible Account: Any of (i) an account or accounts maintained
with a
federal or state chartered depository institution or trust
company the
short-term unsecured debt obligations of which (or, in the case
of a depository
institution or trust company that is the principal subsidiary of
a holding
company, the debt obligations of such holding company) have the
highest
short-term ratings of each Rating Agency at the time any amounts
are held on
deposit therein, or (ii) an account or accounts in a depository
institution or
trust company in which such accounts are insured by the FDIC or
the SAIF (to the
limits established by the FDIC or the SAIF, as applicable) and
the uninsured
deposits in which accounts are otherwise secured such that, as
evidenced by an
Opinion of Counsel delivered to the Trustee and to each Rating
Agency, the
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Certificateholders have a claim with respect to the funds in
such account or a
perfected first priority security interest against any
collateral (which shall
be limited to Permitted Investments) securing such funds that is
superior to
claims of any other depositors or creditors of the depository
institution or
trust company in which such account is maintained, or (iii) a
trust account or
accounts maintained with (a) the trust department of a federal
or state
chartered depository institution or (b) a trust company, acting
in its fiduciary
capacity or (iv) any other account acceptable to each Rating
Agency. Eligible
Accounts may bear interest, and may include, if otherwise
qualified under this
definition, accounts maintained with the Trustee.
ERISA: The Employee Retirement Income Security Act of 1974, as
amended.
ERISA-Qualifying Underwriting: With respect to any
ERISA-Restricted
Certificate, a best efforts or firm commitment underwriting or
private placement
that meets the requirements of the Underwriters' Exemption.
ERISA-Restricted Certificate: As specified in the Preliminary
Statement.
Escrow Account: The Eligible Account or Accounts established
and
maintained pursuant to Section 3.6(a) hereof.
Event of Default: As defined in Section 7.1 hereof.
Excess Loss: With respect to a Mortgage Pool, the amount of any
(i) Fraud
Loss realized after the Fraud Loss Coverage Termination Date,
(ii) Special
Hazard Loss realized after the Special Hazard Coverage
Termination Date or (iii)
Deficient Valuation realized after the Bankruptcy Coverage
Termination Date.
Excess Proceeds: With respect to any Liquidated Mortgage Loan,
the amount,
if any, by which the sum of any Liquidation Proceeds of such
Mortgage Loan
received in the calendar month in which such Mortgage Loan
became a Liquidated
Mortgage Loan, net of any amounts previously reimbursed to the
Master Servicer
as Nonrecoverable Advance(s) with respect to such Mortgage Loan
pursuant to
Section 3.8(a)(iii), exceeds (i) the unpaid principal balance of
such Liquidated
Mortgage Loan as of the Due Date in the month in which such
Mortgage Loan became
a Liquidated Mortgage Loan plus (ii) accrued interest at the
Mortgage Rate from
the Due Date as to which interest was last paid or advanced (and
not reimbursed)
to Certificateholders up to the Due Date applicable to the
Distribution Date
immediately following the calendar month during which such
liquidation occurred.
Expense Fee Rate: As to each Mortgage Loan, the sum of the
related Master
Servicing Fee Rate and the Trustee Fee Rate.
FDIC: The Federal Deposit Insurance Corporation, or any
successor thereto.
FHLMC: The Federal Home Loan Mortgage Corporation, a
corporate
instrumentality of the United States created and existing under
Title III of the
Emergency Home Finance Act of 1970, as amended, or any successor
thereto.
FIRREA: The Financial Institutions Reform, Recovery, and
Enforcement Act
of 1989.
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<PAGE>
First Horizon: First Horizon Home Loan Corporation, a Kansas
corporation
and an indirect wholly owned subsidiary of First Horizon
National Corporation, a
Tennessee corporation.
Fitch: Fitch Ratings or any successor thereto. If Fitch is
designated as a
Rating Agency in the Preliminary Statement, for purposes of
Section 11.5(b) the
address for notices to Fitch shall be Fitch, Inc., One State
Street Plaza, New
York, New York 10004, Attention: Residential Mortgage
Surveillance Group, or
such other address as Fitch may hereafter furnish to the
Depositor and the
Master Servicer.
FNMA: The Federal National Mortgage Association, a federally
chartered and
privately owned corporation organized and existing under the
Federal National
Mortgage Association Charter Act, or any successor thereto.
Fraud Loan: A Liquidated Mortgage Loan as to which a Fraud Loss
has
occurred.
Fraud Loss Coverage Amount: As of the Closing Date, $6,900,381.
As of any
Distribution Date from the first anniversary of the Cut-off Date
and prior to
the fifth anniversary of the Cut-off Date, the Fraud Loss
Coverage Amount will
equal $3,450,190 minus the aggregate amount of Fraud Losses that
would have been
allocated to the Subordinated Certificates in the absence of the
Loss Allocation
Limitation since the Cut-off Date. As of any Distribution Date
on or after the
earlier of the Cross-over Date or the fifth anniversary of the
Cut-off Date, the
Fraud Loss Coverage Amount shall be zero.
Fraud Loss Coverage Termination Date: The date on which the
Fraud Loss
Coverage Amount is reduced to zero.
Fraud Losses: Realized Losses on Mortgage Loans as to which a
loss is
sustained by reason of a default arising from fraud, dishonesty
or
misrepresentation in connection with the related Mortgage Loan,
including a loss
by reason of the denial of coverage under any related Primary
Insurance Policy
because of such fraud, dishonesty or misrepresentation.
Group I Senior Certificates: As specified in the Preliminary
Statement.
Group II Senior Certificates: As specified in the Preliminary
Statement.
Group Subordinate Amount: For a Mortgage Pool and any
Distribution Date;
the excess of (a) the Pool Principal Balance of such Mortgage
Pool for the
immediately preceding Distribution Date, over (b) the aggregate
Class
Certificate Balance of the Senior Certificates of the related
Certificate Group
immediately prior to that Distribution Date.
Index: Not applicable.
Indirect Participant: A broker, dealer, bank or other
financial
institution or other Person that clears through or maintains a
custodial
relationship with a Depository Participant.
Initial Bankruptcy Coverage Amount: $150,000.
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<PAGE>
Initial Component Balance: Not applicable.
Insurance Policy: With respect to any Mortgage Loan included in
the Trust
Fund, any insurance policy, including all riders and
endorsements thereto in
effect, including any replacement policy or policies for any
Insurance Policies.
Insurance Proceeds: Proceeds paid by an insurer pursuant to any
Insurance
Policy, in each case other than any amount included in such
Insurance Proceeds
in respect of Insured Expenses.
Insured Expenses: Expenses covered by an Insurance Policy or any
other
insurance policy with respect to the Mortgage Loans.
Insured Retail Certificates: Not applicable. Interest Accrual
Period: With
respect to each Class of Delay Certificates and any Distribution
Date, the
calendar month prior to the month of such Distribution Date.
With respect to any
Non-Delay Certificates and any Distribution Date, the one month
period
commencing on the 25th day of the month preceding the month in
which such
Distribution Date occurs and ending on the 24th day of the month
in which such
Distribution Date occurs.
Interest Determination Date: Not applicable.
Latest Possible Maturity Date: As to each Class of
Subordinated
Certificates, each Class of Senior Certificates and each Lower
REMIC Interest,
the Distribution Date following the third anniversary of the
scheduled maturity
date of the Mortgage Loan having the latest scheduled maturity
date as of the
Cut-off Date.
Lender PMI Mortgage Loan: Not applicable.
LIBOR: Not applicable.
LIBOR Certificates: Not applicable.
Liquidated Mortgage Loan: With respect to any Distribution Date,
a
defaulted Mortgage Loan (including any REO Property) which was
liquidated in the
calendar month preceding the month of such Distribution Date and
as to which the
Master Servicer has determined (in accordance with this
Agreement) that it has
received all amounts it expects to receive in connection with
the liquidation of
such Mortgage Loan, including the final disposition of an REO
Property.
Liquidation Proceeds: Amounts, including Insurance Proceeds and
any
Unanticipated Recoveries, received in connection with the
partial or complete
liquidation of defaulted Mortgage Loans, whether through
trustee's sale,
foreclosure sale or otherwise or amounts received in connection
with any
condemnation or partial release of a Mortgaged Property and any
other proceeds
received in connection with an REO Property, less the sum of
related
unreimbursed Master Servicing Fees, Servicing Advances and
Advances.
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<PAGE>
Loan-to-Value Ratio: With respect to any Mortgage Loan and as to
any date
of determination, the fraction (expressed as a percentage) the
numerator of
which is the principal balance of the related Mortgage Loan at
such date of
determination and the denominator of which is the Appraised
Value of the related
Mortgaged Property.
Loss Allocation Limitation: As defined in Section 4.4(g).
Lost Mortgage Note: Any Mortgage Note the original of which
was
permanently lost or destroyed and has not been replaced.
Lower REMIC: The segregated pool of assets consisting of the
Trust Fund
but excluding the Lower REMIC Interests, the RL Interest, and
the RU Interest.
Lower REMIC Interests: The REMIC regular interests, within the
meaning of
the REMIC Provisions, issued by the Lower REMIC as set forth in
Section 2.7.
Maintenance: With respect to any Cooperative Unit, the rent paid
by the
Mortgagor to the Cooperative Corporation pursuant to the
Proprietary Lease.
Majority in Interest: As to any Class of Regular Certificates,
the Holders
of Certificates of such Class evidencing, in the aggregate, at
least 51% of the
Percentage Interests evidenced by all Certificates of such
Class.
Master Servicer: First Horizon Home Loan Corporation, a
Kansas
corporation, and its successors and assigns, in its capacity as
master servicer
hereunder.
Master Servicer Advance Date: As to any Distribution Date, 1:30
p.m.
Central time on the Business Day immediately preceding such
Distribution Date.
Master Servicing Fee: As to each Mortgage Loan and any
Distribution Date,
an amount payable out of each full payment of interest received
on such Mortgage
Loan and equal to one-twelfth of the Master Servicing Fee Rate
multiplied by the
Stated Principal Balance of such Mortgage Loan as of the Due
Date in the month
of such Distribution Date (prior to giving effect to any
Scheduled Payments due
on such Mortgage Loan on such Due Date), subject to reduction as
provided in
Section 3.14.
Master Servicing Fee Rate: A per annum rate equal to 0.369%.
MERS: Mortgage Electronic Registration Systems, Inc., a
corporation
organized and existing under the laws of the State of Delaware,
or any successor
thereto.
MERS Mortgage Loan: Any Mortgage Loan registered with MERS on
the MERS
System.
MERS(R) System: The system of recording transfers of
mortgages
electronically maintained by MERS.
MIN: The Mortgage Identification Number for any MERS Mortgage
Loan.
15
<PAGE>
MLPA: The Mortgage Loan Purchase Agreement dated as of February
28, 2005,
by and between First Horizon Home Loan Corporation, as seller,
and First Horizon
Asset Securities Inc., as purchaser, as related to the transfer,
sale and
conveyance of the Mortgage Loans.
MOM Loan: Any Mortgage Loan as to which MERS is acting as
mortgagee,
solely as nominee for the originator of such Mortgage Loan and
its successors
and assigns.
Monthly Statement: The statement delivered to the
Certificateholders
pursuant to Section 4.6.
Moody's: Moody's Investors Service, Inc., or any successor
thereto. If
Moody's is designated as a Rating Agency in the Preliminary
Statement, for
purposes of Section 11.5(b) the address for notices to Moody's
shall be Moody's
Investors Service, Inc., 99 Church Street, New York, New York
10007, Attention:
Residential Pass-Through Monitoring, or such other address as
Moody's may
hereafter furnish to the Depositor or the Master Servicer.
Mortgage: The mortgage, deed of trust or other instrument
creating a first
lien on an estate in fee simple or leasehold interest in real
property securing
a Mortgage Note.
Mortgage File: The mortgage documents listed in Section 2.1(b)
hereof
pertaining to a particular Mortgage Loan and any additional
documents delivered
to the Trustee to be added to the Mortgage File pursuant to this
Agreement.
Mortgage Loan Schedule: The list of Mortgage Loans (as from time
to time
amended by the Master Servicer to reflect the addition of
Substitute Mortgage
Loans and the deletion of Deleted Mortgage Loans pursuant to the
provisions of
this Agreement) transferred to the Trustee as part of the Trust
Fund and from
time to time subject to this Agreement, attached hereto as
Schedule I, setting
forth the following information with respect to each Mortgage
Loan:
(1) the loan number;
(2) the Mortgagor's name and the street address of the
Mortgaged Property, including the zip code;
(3) the maturity date;
(4) the original principal balance;
(5) the Cut-off Date Principal Balance;
(6) the first payment date of the Mortgage Loan;
(7) the Scheduled Payment in effect as of the Cut-off
Date;
(8) the Loan-to-Value Ratio at origination;
(9) a code indicating whether the residential dwelling
at the time of origination was represented to be
owner-occupied;
16
<PAGE>
(10) a code indicating whether the residential dwelling
is either (a) a detached single family dwelling
(b) a dwelling in a de minimis PUD, (c) a
condominium unit or PUD (other than a de minimis
PUD), (d) a two-to-four unit residential property
or (e) a Cooperative Unit;
(11) the Mortgage Rate;
(12) the purpose for the Mortgage Loan;
(13) the type of documentation program pursuant to
which the Mortgage Loan was originated;
(14) the Master Servicing Fee for the Mortgage Loan;
and
(15) a code indicating whether the Mortgage Loan is a
MERS Mortgage Loan.
Such schedule shall also set forth the total of the amounts
described
under (4) and (5) above for all of the Mortgage Loans.
Mortgage Loans: Such of the mortgage loans transferred and
assigned to the
Trustee pursuant to the provisions hereof as from time to time
are held as a
part of the Trust Fund (including any REO Property), the
mortgage loans so held
being identified in the Mortgage Loan Schedule, notwithstanding
foreclosure or
other acquisition of title of the related Mortgaged
Property.
Mortgage Note: The original executed note or other evidence
of
indebtedness evidencing the indebtedness of a Mortgagor under a
Mortgage Loan.
Mortgage Pool: Either Pool I or Pool II.
Mortgage Rate: The annual rate of interest borne by a Mortgage
Note from
time to time, net of any insurance premium charged by the
mortgagee to obtain or
maintain any Primary Insurance Policy.
Mortgaged Property: The underlying property securing a Mortgage
Loan,
which, with respect to a Cooperative Loan, is the related Coop
Shares and
Proprietary Lease.
Mortgagor: The obligor(s) on a Mortgage Note.
National Cost of Funds Index: The National Monthly Median Cost
of
Funds Ratio to SAIF-Insured Institutions published by the Office
of Thrift
Supervision.
Net Interest Shortfall: For any Distribution Date and each
Mortgage Pool,
the sum of (a) the amount of interest which would otherwise have
been received
for any Mortgage Loan in such Mortgage Pool that was the subject
of (x) a Relief
Act Reduction or (y) a Special Hazard Loss, Fraud Loss, or
Deficient Valuation,
after the exhaustion of the respective amounts of coverage for
those types of
losses provided by the Subordinated Certificates; and (b) any
Net Prepayment
Interest Shortfalls in respect of such Mortgage Pool.
17
<PAGE>
Net Prepayment Interest Shortfalls: As to any Distribution Date
and each
Mortgage Pool, the amount by which the aggregate of Prepayment
Interest
Shortfalls in respect of the Mortgage Loans or such Mortgage
Pool during the
related Prepayment Period exceeds an amount equal to the
Compensating Interest
paid in respect of such Mortgage Loans, if any, for such
Distribution Date.
Non-Delay Certificates: As specified in the Preliminary
Statement.
Non-Excess Loss: Any Realized Loss other than an Excess
Loss.
Nonrecoverable Advance: Any portion of an Advance previously
made or
proposed to be made by the Master Servicer that, in the good
faith judgment of
the Master Servicer, will not be ultimately recoverable by the
Master Servicer
from the related Mortgagor, related Liquidation Proceeds or
otherwise.
Notice of Final Distribution: The notice to be provided pursuant
to
Section 9.2 to the effect that final distribution on any of the
Certificates
shall be made only upon presentation and surrender thereof.
Notional Amount: Not applicable.
Notional Amount Component: Not applicable.
Notional Amount Certificates: Not applicable.
Offered Certificates: As specified in the Preliminary
Statement.
Officer's Certificate: A Certificate (i) signed by the Chairman
of the
Board, the Vice Chairman of the Board, the President, a Managing
Director, a
Vice President (however denominated), an Assistant Vice
President, the
Treasurer, the Secretary, or one of the Assistant Treasurers or
Assistant
Secretaries of the Depositor or the Master Servicer, or (ii), if
provided for in
this Agreement, signed by a Servicing Officer, as the case may
be, and delivered
to the Depositor and the Trustee, as the case may be, as
required by this
Agreement.
Opinion of Counsel: A written opinion of counsel, who may be
counsel for
the Depositor or the Master Servicer, including, in-house
counsel, reasonably
acceptable to the Trustee; provided, however, that with respect
to the
interpretation or application of the REMIC Provisions, such
counsel must (i) in
fact be independent of the Depositor and the Master Servicer,
(ii) not have any
direct financial interest in the Depositor or the Master
Servicer or in any
affiliate of either, and (iii) not be connected with the
Depositor or the Master
Servicer as an officer, employee, promoter, underwriter,
trustee, partner,
director or person performing similar functions.
Optional Termination: The termination of the trust created
hereunder in
connection with the purchase of the Mortgage Loans pursuant to
Section 9.1(a)
hereof.
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<PAGE>
Original Group Subordinate Amount: With respect to a Mortgage
Pool, the
related Group Subordinate Amount as of the Cut-off Date.
Original Mortgage Loan: The Mortgage Loan refinanced in
connection with
the origination of a Refinancing Mortgage Loan.
OTS: The Office of Thrift Supervision.
Outside Reference Date: Not applicable.
Outstanding: With respect to the Certificates as of any date
of
determination, all Certificates theretofore executed and
authenticated under
this Agreement except:
(i) Certificates theretofore canceled by the Trustee or
delivered to the Trustee for cancellation; and
(ii) Certificates in exchange for which or in lieu of which
other Certificates have been executed and delivered by the
Trustee
pursuant to this Agreement.
Outstanding Mortgage Loan: As of any Due Date, a Mortgage Loan
with a
Stated Principal Balance greater than zero which was not the
subject of a
Principal Prepayment in Full prior to such Due Date and which
did not become a
Liquidated Mortgage Loan prior to such Due Date.
Ownership Interest: As to any Residual Certificate, any
ownership interest
in such Certificate including any interest in such Certificate
as the Holder
thereof and any other interest therein, whether direct or
indirect, legal or
beneficial.
Pass-Through Rate: For any Class of Certificates, the per annum
rate set
forth or calculated in the manner described in the Preliminary
Statement.
Percentage Interest: As to any Certificate, the percentage
interest
evidenced thereby in distributions required to be made on the
related Class,
such percentage interest being set forth on the face thereof or
equal to the
percentage obtained by dividing the Denomination of such
Certificate by the
aggregate of the Denominations of all Certificates of the same
Class.
Permitted Investments: At any time, any one or more of the
following
obligations and securities:
(i) obligations of the United States or any agency thereof,
provided such obligations are backed by the full faith and
credit of
the United States;
(ii) general obligations of or obligations guaranteed by any
state of the United States or the District of Columbia receiving
the
highest long-term debt rating of each Rating Agency;
19
<PAGE>
(iii) commercial or finance company paper which is then
receiving the highest commercial or finance company paper rating
of
each Rating Agency;
(iv) certificates of deposit, demand or time deposits, or
bankers' acceptances issued by any depository institution or
trust
company incorporated under the laws of the United States or of
any
state thereof and subject to supervision and examination by
federal
and/or state banking authorities, provided that the commercial
paper
and/or long term unsecured debt obligations of such
depository
institution or trust company (or in the case of the
principal
depository institution in a holding company system, the
commercial
paper or long-term unsecured debt obligations of such
holding
company, but only if Moody's is not a Rating Agency) are then
rated
one of the two highest long-term and/or the highest
short-term
ratings of each Rating Agency for such securities;
(v) demand or time deposits or certificates of deposit
issued
by any bank or trust company or savings institution to the
extent
that such deposits are fully insured by the FDIC and receiving
the
highest short-term debt rating of each Rating Agency;
(vi) guaranteed reinvestment agreements issued by any bank,
insurance company or other corporation and receiving the
highest
short-term debt rating of each Rating Agency and containing, at
the
time of the issuance of such agreements, such terms and
conditions
as will not result in the downgrading or withdrawal of the
rating
then assigned to the Certificates by either Rating Agency;
(vii) repurchase obligations with respect to any security
described in clauses (i) and (ii) above, in either case entered
into
with a depository institution or trust company (acting as
principal)
described in clause (iv) above;
(viii) securities (other than stripped bonds, stripped
coupons
or instruments sold at a purchase price in excess of 115% of
the
face amount thereof) bearing interest or sold at a discount
issued
by any corporation incorporated under the laws of the United
States
or any state thereof which, at the time of such investment, have
one
of the two highest ratings of each Rating Agency (except if
the
Rating Agency is Moody's or S&P, such rating shall be the
highest
commercial paper rating of Moody's or S&P, as applicable,
for any
such securities);
(ix) units of a taxable money-market portfolio having the
highest rating assigned by each Rating Agency (except if Fitch
is a
Rating Agency and has not rated the portfolio, the highest
rating
assigned by Moody's) and restricted to obligations issued or
guaranteed by the United States of America or entities whose
obligations are backed by the full faith and credit of the
United
States of America and repurchase agreements collateralized by
such
obligations; and
(x) such other investments bearing interest or sold at a
discount acceptable to each Rating Agency as will not result in
the
downgrading or withdrawal of the rating then assigned to the
Certificates by either Rating Agency, as evidenced by a
signed
writing delivered by each Rating Agency;
20
<PAGE>
provided that no such instrument shall be a Permitted Investment
if such
instrument evidences the right to receive interest only payments
with respect to
the obligations underlying such instrument.
Permitted Transferee: Any person other than (i) the United
States, any
State or political subdivision thereof, or any agency or
instrumentality of any
of the foregoing, (ii) a foreign government, International
Organization or any
agency or instrumentality of either of the foregoing, (iii) an
organization
(except certain farmers' cooperatives described in section 521
of the Code)
which is exempt from tax imposed by Chapter 1 of the Code
(including the tax
imposed by section 511 of the Code on unrelated business taxable
income) on any
excess inclusions (as defined in section 860E(c)(l) of the Code)
with respect to
any Residual Certificate, (iv) rural electric and telephone
cooperatives
described in section 1381(a)(2)(C) of the Code, (v) an "electing
large
partnership" as defined in section 775 of the Code, (vi) a
Person that is not
(a) a citizen or resident of the United States, (b) a
corporation, partnership,
or other entity created or organized in or under the laws of the
United States,
any state thereof or the District of Columbia, (c) an estate
whose income from
sources without the United States is includible in gross income
for United
States federal income tax purposes regardless of its connection
with the conduct
of a trade or business within the United States or (d) a trust
if a court within
the United States is able to exercise primary supervision over
the
administration of the trust and one or more United States
persons have the
authority to control all substantial decisions of the trust,
unless such Person
has furnished the transferor and the Trustee with a duly
completed Internal
Revenue Service Form W-8ECI or any applicable successor form,
and (vii) any
other Person so designated by the Depositor based upon an
Opinion of Counsel
that the Transfer of an Ownership Interest in a Residual
Certificate to such
Person may cause any REMIC created hereunder to fail to qualify
as a REMIC at
any time that the Certificates are outstanding; provided,
however, that if a
person is classified as a partnership under the Code, such
person shall only be
a Permitted Transferee if all of its beneficial owners are
described in
subclauses (a), (b), (c) or (d) of clause (vi) and the governing
documents of
such person prohibits a transfer of any interest in such person
to any person
described in clause (vi). The terms "United States," "State" and
"International
Organization" shall have the meanings set forth in section 7701
of the Code or
successor provisions. A corporation will not be treated as an
instrumentality of
the United States or of any State or political subdivision
thereof for these
purposes if all of its activities are subject to tax and, with
the exception of
the Federal Home Loan Mortgage Corporation, a majority of its
board of directors
is not selected by such government unit.
Person: Any individual, corporation, partnership, joint
venture,
association, joint-stock company, trust, unincorporated
organization or
government, or any agency or political subdivision thereof.
Physical Certificate: As specified in the Preliminary
Statement.
Planned Balance: Not applicable.
Planned Principal Classes: Not applicable.
21
<PAGE>
Pool I: The aggregate of the Mortgage Loans identified on the
Mortgage
Loan Schedule as being included in Pool I.
Pool II: The aggregate of the Mortgage Loans identified on the
Mortgage
Loan Schedule as being included in Pool II.
Pool Principal Balance: For each Mortgage Pool, with respect to
any
Distribution Date, the aggregate of the Stated Principal
Balances of the
Mortgage Loans which were Outstanding Mortgage Loans on the Due
Date in the
month preceding the month of such Distribution Date, and for the
first
Distribution Date, as of the Closing Date, less any Principal
Prepayments
received on or after such Due Date and distributed to
Certificateholders on the
prior Distribution Date.
Prepayment Interest Excess: As to any Principal Prepayment
received by the
Master Servicer from the first day through the fifteenth day of
any calendar
month (other than the calendar month in which the Cut-off Date
occurs), all
amounts paid by the related Mortgagor in respect of interest on
such Principal
Prepayment. All Prepayment Interest Excess shall be paid to the
Master Servicer
as additional master servicing compensation.
Prepayment Interest Shortfall: As to any Distribution Date,
Mortgage Loan
and Principal Prepayment received (a) during the period from the
sixteenth day
of the month preceding the month of such Distribution Date (or,
in the case of
the first Distribution Date, from the Cut-off Date) through the
last day of such
month, in the case of a Principal Prepayment in Full, or (b)
during the month
preceding the month of such Distribution Date, in the case of a
partial
Principal Prepayment, the amount, if any, by which one month's
interest at the
related Adjusted Mortgage Rate on such Principal Prepayment
exceeds the amount
of interest actually paid by the Mortgagor in connection with
such Principal
Prepayment.
Prepayment Period: (a) With respect to any Principal Prepayments
in Full
and any Distribution Date, the period from the sixteenth day of
the month
preceding the month of such Distribution Date (or, in the case
of the first
Distribution Date, from the Cut-off Date) through the fifteenth
day of the month
of such Distribution Date, and (b) with respect to any other
Principal
Prepayments and any Distribution Date, the month preceding the
month of such
Distribution Date.
Primary Insurance Policy: Each policy of primary mortgage
guaranty
insurance or any replacement policy therefor with respect to any
Mortgage Loan.
Principal Balance Schedules: Not applicable.
Principal Prepayment: Any payment of principal by a Mortgagor on
a
Mortgage Loan that is received in advance of its scheduled Due
Date and is not
accompanied by an amount representing scheduled interest due on
any date or
dates in any month or months subsequent to the month of
prepayment. Partial
Principal Prepayments shall be applied by the Master Servicer in
accordance with
the terms of the related Mortgage Note.
Principal Prepayment in Full: Any Principal Prepayment made by a
Mortgagor
of the entire principal balance of a Mortgage Loan.
22
<PAGE>
Private Certificate: As specified in the Preliminary
Statement.
Proprietary Lease: With respect to any Cooperative Unit, a lease
or
occupancy agreement between a Cooperative Corporation and a
holder of related
Coop Shares.
PUD: Planned Unit Development.
Purchase Price: With respect to any Mortgage Loan required to be
purchased
by the Seller pursuant to Section 2.2 or 2.3 hereof or purchased
at the option
of the Master Servicer pursuant to Section 3.11, an amount equal
to the sum of
(i) 100% of the unpaid principal balance of the Mortgage Loan on
the date of
such purchase, (ii) accrued interest thereon at the applicable
Mortgage Rate (or
at the applicable Adjusted Mortgage Rate if the purchaser is the
Master
Servicer) from the date through which interest was last paid by
the Mortgagor to
the Due Date in the month in which the Purchase Price is to be
distributed to
Certificateholders, and (iii) any costs and damages incurred by
the Trust in
connection with the noncompliance of such Mortgage Loan with any
specifically
applicable predatory or abusive lending law.
Qualified Insurer: A mortgage guaranty insurance company duly
qualified as
such under the laws of the state of its principal place of
business and each
state having jurisdiction over such insurer in connection with
the insurance
policy issued by such insurer, duly authorized and licensed in
such states to
transact a mortgage guaranty insurance business in such states
and to write the
insurance provided by the insurance policy issued by it,
approved as a
FNMA-approved mortgage insurer and having a claims paying
ability rating of at
least "AA" or equivalent rating by a nationally recognized
statistical rating
organization. Any replacement insurer with respect to a Mortgage
Loan must have
at least as high a claims paying ability rating as the insurer
it replaces had
on the Closing Date.
Rating Agency: Each of the Rating Agencies specified in the
Preliminary
Statement. If any such organization or a successor is no longer
in existence,
"Rating Agency" shall be such nationally recognized statistical
rating
organization, or other comparable Person, as is designated by
the Depositor,
notice of which designation shall be given to the Trustee.
References herein to
a given rating category of a Rating Agency shall mean such
rating category
without giving effect to any modifiers.
Realized Loss: With respect to each Liquidated Mortgage Loan, an
amount
(not less than zero or more than the Stated Principal Balance of
the Mortgage
Loan) as of the date of such liquidation, equal to (i) the
Stated Principal
Balance of the Liquidated Mortgage Loan as of the date of such
liquidation, plus
(ii) interest at the Adjusted Net Mortgage Rate from the Due
Date as to which
interest was last paid or advanced (and not reimbursed) to
Certificateholders up
to the Due Date in the month in which Liquidation Proceeds are
required to be
distributed on the Stated Principal Balance of such Liquidated
Mortgage Loan
from time to time, minus (iii) the Liquidation Proceeds, if any,
received during
the month in which such liquidation occurred, to the extent
applied as
recoveries of interest at the Adjusted Net Mortgage Rate and to
principal of the
Liquidated Mortgage Loan. With respect to each Mortgage Loan
which has become
the subject of a Deficient Valuation, if the principal amount
due under the
related Mortgage Note has been reduced, the difference between
the principal
balance of the Mortgage Loan outstanding immediately prior to
such Deficient
Valuation and the principal balance of the Mortgage Loan as
reduced by the
Deficient Valuation.
23
<PAGE>
Recognition Agreement: With respect to any Cooperative Loan, an
agreement
between the Cooperative Corporation and the originator of such
Mortgage Loan
which establishes the rights of such originator in the
Cooperative Property.
Record Date: With respect to any Distribution Date, the close of
business
on the last Business Day of the month preceding the month in
which such
Distribution Date occurs.
Reference Bank: Not applicable.
Refinancing Mortgage Loan: Any Mortgage Loan originated in
connection
with the refinancing of an existing mortgage loan.
Regular Certificates: As specified in the Preliminary
Statement.
Relief Act: The Servicemembers Civil Relief Act, or any similar
state
or local legislation or regulations.
Relief Act Reductions: With respect to any Distribution Date and
any
Mortgage Loan as to which there has been a reduction in the
amount of interest
collectible thereon for the most recently ended calendar month
as a result of
the application of the Relief Act, the amount, if any, by which
interest
collectible on such Mortgage Loan for the most recently ended
calendar month is
less than interest accrued thereon for such month pursuant to
the Mortgage Note.
REMIC: A "real estate mortgage investment conduit" within the
meaning of
section 860D of the Code.
REMIC Change of Law: Any proposed, temporary or final
regulation, revenue
ruling, revenue procedure or other official announcement or
interpretation
relating to REMICs and the REMIC Provisions issued after the
Closing Date.
REMIC Pool: Either the Lower REMIC or Upper REMIC.
REMIC Provisions: Provisions of the federal income tax law
relating to
real estate mortgage investment conduits, which appear at
sections 860A through
860G of Subchapter M of Chapter 1 of the Code, and related
provisions, and
regulations promulgated thereunder, as the foregoing may be in
effect from time
to time as well as provisions of applicable state laws.
REO Property: A Mortgaged Property acquired by the Trust Fund
through
foreclosure or deed-in-lieu of foreclosure in connection with a
defaulted
Mortgage Loan.
Request for Release: The Request for Release submitted by the
Master
Servicer to the Trustee, substantially in the form of Exhibits L
and M, as
appropriate.
Required Insurance Policy: With respect to any Mortgage Loan,
any
insurance policy that is required to be maintained from time to
time under this
Agreement.
24
<PAGE>
Required Recordation States: The states of Florida, Maryland
and
Mississippi.
Residual Certificates: As specified in the Preliminary
Statement.
Responsible Officer: When used with respect to the Trustee, any
Vice
President, any Assistant Vice President, the Secretary, any
Assistant Secretary,
any Trust Officer or any other officer of the Trustee
customarily performing
functions similar to those performed by any of the above
designated officers and
having direct responsibility for the administration of this
Agreement and also
to whom, with respect to a particular matter, such matter is
referred because of
such officer's knowledge of and familiarity with the particular
subject.
RL Interest: The REMIC residual interest, within the meaning of
the REMIC
Provisions, issued by the Lower REMIC, which shall be
represented by the Class
II-A-R Certificate.
RU Interest: The REMIC residual interest, within the meaning of
the REMIC
Provisions, issued by the Upper REMIC, which shall be
represented by the Class
II-A-R Certificate.
Scheduled Balances: Not applicable.
Scheduled Certificates: Not applicable.
Scheduled Payment: The scheduled monthly payment on a Mortgage
Loan due on
any Due Date allocable to principal and/or interest on such
Mortgage Loan which,
unless otherwise specified herein, shall give effect to any
related Debt Service
Reduction and any Deficient Valuation that affects the amount of
the monthly
payment due on such Mortgage Loan.
Scheduled Principal Classes: Not applicable.
Securities Act: The Securities Act of 1933, as amended.
Security Agreement: The security agreement with respect to a
Cooperative Loan.
Seller: First Horizon Home Loan Corporation, a Kansas
corporation, and
its successors and assigns, in its capacity as seller of the
Mortgage Loans
pursuant to the MLPA.
Senior Certificates: As specified in the Preliminary
Statement.
Senior Final Distribution Date: For each Certificate Group,
the
Distribution Date on which the Class Certificate Balance of each
Class of
related Senior Certificates has been reduced to zero.
Senior Optimal Principal Amount: As to a Mortgage Pool and with
respect to
each Distribution Date, an amount equal to the sum of:
(1) the related Senior Percentage of all Scheduled Payments
of
principal due on each Mortgage Loan in such Mortgage Pool on the
first day of
the month in which the Distribution Date occurs, as specified in
the
amortization schedule at the time applicable thereto after
adjustment for
previous principal prepayments and the principal portion of Debt
Service
Reductions after the Bankruptcy Loss Coverage Amount has been
reduced to zero,
but before any adjustment to such amortization schedule by
reason of any other
bankruptcy or similar proceeding or any moratorium or similar
waiver or grace
period;
25
<PAGE>
(2) the related Senior Prepayment Percentage of the Stated
Principal
Balance of each Mortgage Loan in such Mortgage Pool which was
the subject of a
Principal Prepayment in Full received by the Master Servicer
during the
applicable Prepayment Period;
(3) the related Senior Prepayment Percentage of all partial
Principal Prepayments in respect of each Mortgage Loan in such
Mortgage Pool
received during the applicable Prepayment Period;
(4) the lesser of:
(a) the related Senior Prepayment Percentage of the sum of
(x)
the Liquidation Proceeds allocable to principal on each
Mortgage
Loan in such Mortgage Pool which became a Liquidated Mortgage
Loan
during the related Prepayment Period, other than Mortgage
Loans
described in clause (y), and (y) the principal balance of
each
Mortgage Loan in such Mortgage Pool that was purchased by a
private
mortgage insurer during the related Prepayment Period as an
alternative to paying a claim under the related Insurance
Policy;
and
(b)(i) the related Senior Percentage of the sum of (x) the
Stated Principal Balance of each Mortgage Loan in such Mortgage
Pool
which became a Liquidated Mortgage Loan during the related
Prepayment Period, other than Mortgage Loans described in
clause
(y), and (y) the Stated Principal Balance of each Mortgage Loan
in
such Mortgage Pool that was purchased by a private mortgage
insurer
during the related Prepayment Period as an alternative to paying
a
claim under the related Insurance Policy minus (ii) the
related
Senior Percentage of the principal portion of Excess Losses
(other
than Debt Service Reductions) for such Mortgage Pool during
the
related Prepayment Period; and
(5) the related Senior Prepayment Percentage of the sum of (a)
the
Stated Principal Balance of each Mortgage Loan in such Mortgage
Pool which was
repurchased by the seller in connection with such Distribution
Date and (b) the
difference, if any, between the Stated Principal Balance of a
Mortgage Loan in
such Mortgage Pool that has been replaced by the seller with a
Substitute
Mortgage Loan pursuant to this Agreement in connection with such
Distribution
Date and the Stated Principal Balance of such Substitute
Mortgage Loan.
Senior Percentage: On any Distribution Date for a Certificate
Group, the
lesser of 100% and the percentage (carried to six places rounded
up) obtained by
dividing the aggregate Class Certificate Balances of all Classes
of Senior
Certificates of such Certificate Group immediately preceding
such Distribution
Date by the Pool Principal Balance of the related Mortgage Pool
for the
immediately preceding Distribution Date.
26
<PAGE>
Senior Prepayment Percentage: On any Distribution Date occurring
during
the periods set forth below, and as to each Certificate Group,
the Senior
Prepayment Percentages, described below:
<TABLE>
<CAPTION>
---------------------------------------
----------------------------------------------------------------------
<S> <C>
Period (Dates Inclusive) Senior Prepayment Percentage
---------------------------------------
----------------------------------------------------------------------
March 2005 - February 2012 100%
---------------------------------------
----------------------------------------------------------------------
The related Senior Percentage plus 70% of the related
Subordinated
March 2012 - February 2013 Percentage
---------------------------------------
----------------------------------------------------------------------
The related Senior Percentage plus 60% of the related
Subordinated
March 2013 - February 2014 Percentage
---------------------------------------
----------------------------------------------------------------------
The related Senior Percentage plus 40% of the related
Subordinated
March 2014 - February 2015 Percentage
---------------------------------------
----------------------------------------------------------------------
The related Senior Percentage plus 20% of the related
Subordinated
March 2015 - February 2016 Percentage
---------------------------------------
----------------------------------------------------------------------
March 2016 and thereafter The related Senior Percentage
---------------------------------------
----------------------------------------------------------------------
</TABLE>
provided however, (i) if on any Distribution Date the Senior
Percentage for a
Certificate Group exceeds the initial Senior Percentage for such
Certificate
Group, the Senior Prepayment Percentage for each Certificate
Croup for such
Distribution Date will equal 100%, (ii) if on any Distribution
Date before the
Distribution Date in March 2008, prior to giving effect to any
distributions on
such Distribution Date, the Subordinated Percentage for such
Certificate Group
for such Distribution Date is equal to or greater than twice the
initial
Subordinated Percentage for such Certificate Group, then the
Senior Prepayment
Percentage for such Certificate Group for such Distribution Date
will equal the
Senior Percentage for such Certificate Group plus 50% of the
Subordinated
Percentage for such Certificate Group and (iii) if on any
Distribution Date on
or after the Distribution Date in March 2008, prior to giving
effect to any
distributions on such Distribution Date, the Subordinated
Percentage for such
Certificate Group for such Distribution Date is equal to or
greater than twice
the initial Subordinated Percentage for such Certificate Group,
then the Senior
Prepayment Percentage for such Certificate Group for such
Distribution Date will
equal the Senior Percentage for such Certificate Group.
The reductions in the Senior Prepayment Percentage for each
Certificate
Group described above will not occur, and the Senior Prepayment
Percentage or
each Certificate Group for such prior period will be calculated
without regard
to clause (ii) or (iii) of the paragraph above, unless, as of
the last day of
the month preceding the Distribution Date:
(1) the aggregate Stated Principal Balance of Mortgage Loans in
both of
the Mortgage Pools delinquent 60 days or more (including for
this
purpose any Mortgage Loans in foreclosure or subject to
bankruptcy
proceedings and Mortgage Loans with respect to which the
related
Mortgaged Property, including REO Property, has been acquired by
the
Trust Fund) does not exceed 50% of the aggregate Certificate
Principal Balances of the Subordinated Certificates as of that
date;
and
(2) cumulative aggregate Realized Losses in both of the Mortgage
Pools
do not exceed:
27
<PAGE>
(a) 20% of the aggregate Original Group Subordinate Amount of
both
Mortgage Pools if such Distribution Date occurs between and
including March 2005 and February 2008; and
(b) 30% of the aggregate Original Group Subordinate Amount of
both
Mortgage Pools if such Distribution Date occurs on or after
March
2008.
Senior Support Certificates: As specified in the Preliminary
Statement.
Servicing Advances: All customary, reasonable and necessary "out
of
pocket" costs and expenses incurred in the performance by the
Master Servicer of
its servicing obligations, including, but not limited to, the
cost of (i) the
preservation, restoration and protection of a Mortgaged
Property, (ii) any
expenses reimbursable to the Master Servicer pursuant to Section
3.11 and any
enforcement or judicial proceedings, including foreclosures,
(iii) the
management and liquidation of any REO Property and (iv)
compliance with the
obligations under Section 3.9.
Servicing Agreement: The servicing agreement, dated as of
November 26,
2002 by and between First Horizon Asset Securities Inc. and its
assigns, as
owner, and First Tennessee Mortgage Services, Inc., as
servicer.
Servicing Officer: Any officer of the Master Servicer involved
in, or
responsible for, the administration and servicing of the
Mortgage Loans whose
name and facsimile signature appear on a list of servicing
officers furnished to
the Trustee by the Master Servicer on the Closing Date pursuant
to this
Agreement, as such list may from time to time be amended.
Servicing Rights Transfer and Subservicing Agreement: The
servicing rights
transfer and subservicing agreement, dated as of November 26,
2002, by and
between First Horizon Home Loan Corporation, as transferor and
subservicer, and
First Tennessee Mortgage Services, Inc., as transferee and
servicer.
Special Hazard Coverage Termination Date: The date on which the
Special
Hazard Loss Coverage Amount is reduced to zero.
Special Hazard Loss: Any Realized Loss suffered by a Mortgaged
Property on
account of direct physical loss but not including (i) any loss
of a type covered
by a hazard insurance policy or a flood insurance policy
required to be
maintained with respect to such Mortgaged Property pursuant to
Section 3.9 to
the extent of the amount of such loss covered thereby, or (ii)
any loss caused
by or resulting from:
(1) normal wear and tear;
(2) fraud, conversion or other dishonest act on the part of
the
Trustee, the Master Servicer or any of their agents or employees
(without regard
to any portion of the loss not covered by any errors and
omissions policy);
(3) errors in design, faulty workmanship or faulty materials,
unless
the collapse of the property or a part thereof ensues and then
only for the
ensuing loss;
28
<PAGE>
(4) nuclear or chemical reaction or nuclear radiation or
radioactive
or chemical contamination, all whether controlled or
uncontrolled, and whether
such loss be direct or indirect, proximate or remote or be in
whole or in part
caused by, contributed to or aggravated by a peril covered by
the definition of
the term "Special Hazard Loss";
(5) hostile or warlike action in time of peace and war,
including
action in hindering, combating or defending against an actual,
impending or
expected attack:
(i) by any government or sovereign power, de jure or de
facto,
or by any authority maintaining or using military, naval or
air
forces;
(ii) by military, naval or air forces; or
(iii) by an agent of any such government, power, authority
or
forces;
(6) any weapon of war employing nuclear fission, fusion or
other
radioactive force, whether in time of peace or war; or
(7) insurrection, rebellion, revolution, civil war, usurped
power or
action taken by governmental authority in hindering, combating
or defending
against such an occurrence, seizure or destruction under
quarantine or customs
regulations, confiscation by order of any government or public
authority or
risks of contraband or illegal transportation or trade.
Special Hazard Loss Coverage Amount: Upon the initial issuance
of the
Certificates, $4,900,000. As of any Distribution Date, the
Special Hazard Loss
Coverage Amount will equal the greater of
(a) 1.00% (or if greater than 1.00%, the highest percentage
of
Mortgage Loans by principal balance secured by Mortgaged
Properties in any
single California zip code) of the outstanding principal balance
of all the
Mortgage Loans as of the related Determination Date; and
(b) twice the outstanding principal balance of the Mortgage
Loan
which has the largest outstanding principal balance as of the
related
Determination Date,
less, in each case, the aggregate amount of Special Hazard
Losses that would
have been previously allocated to the Subordinated Certificates
in the absence
of the Loss Allocation Limitation. As of any Distribution Date
on or after the
Cross-over Date, the Special Hazard Loss Coverage Amount will be
zero.
Special Hazard Mortgage Loan: A Liquidated Mortgage Loan as to
which a
Special Hazard Loss has occurred.
S&P: Standard & Poor's Corporation, a division of The
McGraw-Hill
Companies, Inc. If S&P is designated as a Rating Agency in
the Preliminary
Statement, for purposes of Section 11.5(b) the address for
notices to S&P shall
be Standard & Poor's, 55 Water Street, 41st Floor, New York,
New York 10041,
Attention: Mortgage Surveillance Monitoring, or such other
address as S&P may
hereafter furnish to the Depositor and the Master Servicer.
29
<PAGE>
Startup Day: The Closing Date.
Stated Principal Balance: As to any Mortgage Loan and Due Date,
the unpaid
principal balance of such Mortgage Loan as of such Due Date as
specified in the
amortization schedule at the time relating thereto (before any
adjustment to
such amortization schedule by reason of any moratorium or
similar waiver or
grace period) after giving effect to any previous partial
Principal Prepayments
and Liquidation Proceeds allocable to principal (other than with
respect to any
Liquidated Mortgage Loan) and to the payment of principal due on
such Due Date
and irrespective of any delinquency in payment by the related
Mortgagor.
Streamlined Documentation Mortgage Loan: Any Mortgage Loan
originated
pursuant to the Seller's Streamlined Loan Documentation Program
then in
effect.
Subordinated Certificates: As specified in the Preliminary
Statement.
Subordinated Certificate Writedown Amount: As of any
Distribution Date,
the amount by which (a) the sum of the Class Certificate
Balances of all of the
Certificates, after giving effect to the distribution of
principal and the
allocation of Realized Losses in reduction of the Class
Certificate Balances of
all of the Certificates on such Distribution Date, exceeds (b)
the aggregate
Pool Principal Balance for both Mortgage Pools on the first day
of the month of
such Distribution Date less any Deficient Valuations occurring
before the
Bankruptcy Loss Coverage Amount has been reduced to zero.
Subordinated Optimal Principal Amount: With respect to each
Mortgage Pool
and each Distribution Date, an amount equal to the sum of the
following (but in
no event greater than the aggregate Class Certificate Balances
of the
Subordinated Certificates immediately prior to such Distribution
Date):
(1) the related Subordinated Percentage of all Scheduled
Payments of
principal due on each outstanding Mortgage Loan in the related
Mortgage Pool on
the first day of the month in which the Distribution Date
occurs, as specified
in the amortization schedule at the time applicable thereto,
after adjustment
for previous principal prepayments and the principal portion of
Debt Service
Reductions after the Bankruptcy Loss Coverage Amount has been
reduced to zero,
but before any adjustment to such amortization schedule by
reason of any other
bankruptcy or similar proceeding or any moratorium or similar
waiver or grace
period;
(2) the related Subordinated Prepayment Percentage of the
Stated
Principal Balance of each Mortgage Loan in the related Mortgage
Pool which was
the subject of a Principal Prepayment in Full received by the
Master Servicer
during the related Prepayment Period;
(3) the related Subordinated Prepayment Percentage of all
partial
Principal Prepayments received in respect of each Mortgage Loan
in the related
Mortgage Pool during the related Prepayment Period, plus, on the
Senior Final
Distribution Date, 100% of any related Senior Optimal Principal
Amount remaining
undistributed on such date;
30
<PAGE>
(4) the amount, if any, by which the sum of (a) the net
Liquidation
Proceeds allocable to principal received during the related
Prepayment Period in
respect of each Liquidated Mortgage Loan in the related Mortgage
Pool, other
than Mortgage Loans described in clause (b), and (b) the
principal balance of
each Mortgage Loan in the related Mortgage Pool that was
purchased by a private
mortgage insurer during the related Prepayment Period as an
alternative to
paying a claim under the related Insurance Policy exceeds (c)
the sum of the
amounts distributable to the Senior Certificateholders under
clause (4) of the
definition of applicable Senior Optimal Principal Amount on such
Distribution
Date; and
(5) the related Subordinated Prepayment Percentage of the sum of
(a)
the Stated Principal Balance of each Mortgage Loan in the
related Mortgage Pool
which was repurchased by the seller in connection with such
Distribution Date
and (b) the difference, if any, between the Stated Principal
Balance of a
Mortgage Loan in the related Mortgage Pool that has been
replaced by the seller
with a Substitute Mortgage Loan pursuant to the Agreement in
connection with
such Distribution Date and the Stated Principal Balance of each
such Substitute
Mortgage Loan.
Subordinated Percentage: For any Distribution Date and each
Certificate Group, 100% minus the related Senior Percentage.
Subordinated Prepayment Percentage: For any Distribution Date,
100%
minus the Senior Prepayment Percentage.
Subservicer: Any person to whom the Master Servicer has
contracted for
the servicing of all or a portion of the Mortgage Loans pursuant
to Section
3.2 hereof.
Substitute Mortgage Loan: A Mortgage Loan substituted by the
Seller for a
Deleted Mortgage Loan which must, on the date of such
substitution, as confirmed
in a Request for Release, substantially in the form of Exhibit
L, (i) have a
Stated Principal Balance, after deduction of the principal
portion of the
Scheduled Payment due in the month of substitution, not in
excess of, and not
more than 10% less than the Stated Principal Balance of the
Deleted Mortgage
Loan; (ii) have an Adjusted Net Mortgage Rate not lower than the
Adjusted Net
Mortgage Rate of the Deleted Mortgage Loan, provided that the
Master Servicing
Fee for the Substitute Mortgage Loan shall be equal to or
greater than that of
the Deleted Mortgage Loan; (iii) have a maximum mortgage rate
not more than 1%
per annum higher or lower than the maximum mortgage rate of the
Deleted Mortgage
Loan; (iv) have a minimum mortgage rate specified in its related
Mortgage Note
not more than 1% per annum higher or lower than the minimum
mortgage rate of the
Deleted Mortgage Loan; (v) have the same mortgage index, reset
period and
periodic rate as the Deleted Mortgage Loan and a gross margin
not more than 1%
per annum higher or lower than that of the Deleted Mortgage Loan
(vi) be
accruing interest at a rate no lower than and not more than 1%
per annum higher
than, that of the Deleted Mortgage Loan; (iv) have a
Loan-to-Value Ratio no
higher than that of the Deleted Mortgage Loan; (vii) have a
remaining term to
maturity no greater than (and not more than one year less than
that of) the
Deleted Mortgage Loan; (viii) not be a Cooperative Loan unless
the Deleted
Mortgage Loan was a Cooperative Loan and (ix) comply with each
representation
and warranty set forth in Section 2.3 hereof.
Substitution Adjustment Amount: The meaning ascribed to such
term pursuant
to Section 2.3.
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Super Senior Certificates: As specified in the Preliminary
Statement.
Support Classes: Not applicable.
Targeted Balances: Not applicable.
Targeted Principal Classes: Not applicable.
Tax Matters Person: The person designated as "tax matters
person" in
the manner provided under Treasury regulation ss. 1.860F-4(d)
and Treasury
regulation ss. 301.6231(a)(7)-1. Initially, the Tax Matters
Person shall be the
Trustee.
Tax Matters Person Certificate: The Class II-A-R Certificates
with a
Denomination of $0.01.
Transfer: Any direct or indirect transfer or sale of any
Ownership
Interest in a Residual Certificate.
Trust Fund: The corpus of the trust created hereunder consisting
of (i)
the Mortgage Loans and all interest and principal received on or
with respect
thereto after the Cut-off Date to the extent not applied in
computing the
Cut-off Date Principal Balance thereof; (ii) all of the
Depositor's rights as
purchaser under the MLPA; (iii) the Certificate Account and the
Distribution
Account and all amounts deposited therein pursuant to the
applicable provisions
of this Agreement; (iv) property that secured a Mortgage Loan
and has been
acquired by foreclosure, deed-in-lieu of foreclosure or
otherwise; and (v) all
proceeds of the conversion, voluntary or involuntary, of any of
the foregoing.
Trustee: The Bank of New York and its successors and, if a
successor
trustee is appointed hereunder, such successor.
Trustee Fee: As to any Distribution Date and a Mortgage Pool, an
amount
equal to one-twelfth of the Trustee Fee Rate multiplied by the
applicable Pool
Principal Balance with respect to such Distribution Date.
Trustee Fee Rate: With respect to each Mortgage Loan, the per
annum rate
agreed upon in writing on or prior to the Closing Date by the
Trustee and the
Depositor.
Two Times Test: A test that is satisfied with respect to a
Certificate
Group and any Distribution Date if the related Senior Prepayment
Percentage for
such Distribution Date is determined in accordance with clause
(ii) and (iii) of
the proviso in the definition of "Senior Prepayment
Percentage."
Unanticipated Recovery: As defined in Section 4.2(g).
Undercollateralization Distribution: As defined in Section
4.2(h).
Undercollateralized Group: With respect to any Distribution
Date, the
Senior Certificates of any Certificate Group as to which the
aggregate
Certificate Principal Balance thereof, after giving effect to
distributions
pursuant to Section 4.2(a) on such date, is greater than the
Pool Principal
Balance of the related Mortgage Pool for such Distribution
Date.
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<PAGE>
Underwriters: As specified in the Preliminary Statement.
Underwriters' Exemption: Prohibited Transaction Exemption 91-23,
or
Prohibited Transaction Exemption 89-40, each as amended (or any
successor
thereto), or any substantially similar administrative exemption
granted by
the U.S. Department of Labor.
Upper REMIC: The segregated pool of assets consisting of the
Upper REMIC
Interests.
Voting Rights: The portion of the voting rights of all of the
Certificates
which is allocated to any Certificate. As of any date of
determination, (a) 98%
of all Voting Rights will be allocated among all Holders of the
Certificates,
other than the Class II-A-R Certificates, in proportion to their
then
outstanding Class Certificate Balance; and (b) 2.0% of all
Voting Rights will be
allocated to the Class II-A-R Certificates (such Voting Rights
to be allocated
among the Holders of Certificates of each such Class in
accordance with their
respective Percentage Interests).
Weighted Average Adjusted Net Mortgage Rate: For a Mortgage
Pool, the
average of the Adjusted Net Mortgage Rates of the Mortgage Loans
in the related
Loan Group, weighted on the basis of the Stated Principal
Balances thereof.
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
REPRESENTATIONS AND WARRANTIES
SECTION 2.1 Conveyance of Mortgage Loans.
(a) The Depositor, concurrently with the execution and delivery
hereof,
hereby sells, transfers, assigns, sets over and otherwise
conveys to
the Trustee for the benefit of the Certificateholders,
without
recourse, all the right, title and interest of the Depositor in
and
to the Trust Fund together with (i) the Depositor's right to
(A)
require the Seller to cure any breach of a representation or
warranty made by the Seller pursuant to the MLPA, or (B)
repurchase
or substitute for any affected Mortgage Loan in accordance
herewith,
and (ii) all right, title and interest of the Depositor in, to
and
under the Servicing Agreement, which right has been assigned to
the
Depositor pursuant to the MLPA.
(b) In connection with the transfer and assignment set forth in
clause
(a) above, the Depositor has delivered or caused to be delivered
to
the Trustee or the Custodian on its behalf (or, in the case of
the
Delay Delivery Mortgage Loans, will deliver or cause to be
delivered
to the Trustee or the Custodian on its behalf within thirty
(30)
days following the Closing Date) for the benefit of the
Certificateholders the following documents or instruments
with
respect to each Mortgage Loan so assigned:
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<PAGE>
(i) (A) the original Mortgage Note endorsed by manual or
facsimile
signature in blank in the following form: "Pay to the order
of
________________, without recourse," with all intervening
endorsements showing a complete chain of endorsement from
the
originator to the Person endorsing the Mortgage Note (each
such endorsement being sufficient to transfer all right,
title
and interest of the party so endorsing, as noteholder or
assignee thereof, in and to that Mortgage Note); or
(B) with respect to any Lost Mortgage Note, a lost note
affidavit from the Seller stating that the original Mortgage
Note was lost or destroyed, together with a copy of such
Mortgage Note;
(ii) except as provided below and for each Mortgage Loan that
is
not a MERS Mortgage Loan, the original recorded Mortgage or
a
copy of such Mortgage certified by the Seller as being a
true
and complete copy of the Mortgage and in the case of each
MERS
Mortgage Loan, the original Mortgage, noting the presence of
the MIN of the Mortgage Loans and either language indicating
that the Mortgage Loan is a MOM Loan if the Mortgage Loan is
a
MOM Loan or if the Mortgage Loan was not a MOM Loan at
origination, the original Mortgage and the assignment
thereof
to MERS, with evidence of recording indicated thereon, or a
copy of the Mortgage certified by the public recording
office
in which such Mortgage has been recorded;
(iii) in the case of a Mortgage Loan that is not a MERS
Mortgage
Loan, a duly executed assignment of the Mortgage in blank
(which may be included in a blanket assignment or
assignments), together with, except as provided below, all
interim recorded assignments of such mortgage (each such
assignment, when duly and validly completed, to be in
recordable form and sufficient to effect the assignment of
and
transfer to the assignee thereof, under the Mortgage to
which
the assignment relates); provided that, if the related
Mortgage has not been returned from the applicable public
recording office, such assignment of the Mortgage may
exclude
the information to be provided by the recording office;
(iv) the original or copies of each assumption,
modification,
written assurance or substitution agreement, if any;
(v) either the original or duplicate original title policy
(including all riders thereto) with respect to the related
Mortgaged Property, if available, provided that the title
policy (including all riders thereto) will be delivered as
soon as it becomes available, and if the title policy is not
available, and to the extent required pursuant to the second
paragraph below or otherwise in connection with the rating
of
the Certificates, a written commitment or interim binder or
preliminary report of the title issued by the title
insurance
or escrow company with respect to the Mortgaged Property,
and
34
<PAGE>
(vi) in the case of a Cooperative Loan, the originals of the
following documents or instruments:
(A) The Coop Shares, together with a stock power in blank;
(B) The executed Security Agreement;
(C) The executed Proprietary Lease;
(D) The executed Recognition Agreement;
(E) The executed UCC-1 financing statement with evidence of
recording thereon which have been filed in all places
required to perfect the Seller's interest in the Coop
Shares and the Proprietary Lease; and
(F) Executed UCC-3 financing statements or other appropriate
UCC financing statements required by state law,
evidencing a complete and unbroken line from the
mortgagee to the Trustee with evidence of recording
thereon (or in a form suitable for recordation).
In the event that in connection with any Mortgage Loan that is
not a MERS
Mortgage Loan the Depositor cannot deliver (a) the original
recorded Mortgage or
(b) all interim recorded assignments satisfying the requirements
of clause (ii)
or (iii) above, respectively, concurrently with the execution
and delivery
hereof because such document or documents have not been returned
from the
applicable public recording office, the Depositor shall promptly
deliver or
cause to be delivered to the Trustee or the Custodian on its
behalf such
original Mortgage or such interim assignment, as the case may
be, with evidence
of recording indicated thereon upon receipt thereof from the
public recording
office, or a copy thereof, certified, if appropriate, by the
relevant recording
office, but in no event shall any such delivery of the original
Mortgage and
each such interim assignment or a copy thereof, certified, if
appropriate, by
the relevant recording office, be made later than one year
following the Closing
Date; provided, however, in the event the Depositor is unable to
deliver or
cause to be delivered by such date each Mortgage and each such
interim
assignment by reason of the fact that any such documents have
not been returned
by the appropriate recording office, or, in the case of each
such interim
assignment, because the related Mortgage has not been returned
by the
appropriate recording office, the Depositor shall deliver or
cause to be
delivered such documents to the Trustee or the Custodian on its
behalf as
promptly as possible upon receipt thereof and, in any event,
within 720 days
following the Closing Date. The Depositor shall forward or cause
to be forwarded
to the Trustee or the Custodian on its behalf (a) from time to
time additional
original documents evidencing an assumption or modification of a
Mortgage Loan
and (b) any other documents required to be delivered by the
Depositor or the
Master Servicer to the Trustee. In the event that the original
Mortgage is not
delivered and in connection with the payment in full of the
related Mortgage
Loan and the public recording office requires the presentation
of a "lost
instruments affidavit and indemnity" or any equivalent document,
because only a
copy of the Mortgage can be delivered with the instrument of
satisfaction or
reconveyance, the Master Servicer shall execute and deliver or
cause to be
executed and delivered such a document to the public recording
office. In the
case where a public recording office retains the original
recorded Mortgage or
in the case where a Mortgage is lost after recordation in a
public recording
office, the Depositor shall deliver or cause to be delivered to
the Trustee or
the Custodian on its behalf a copy of such Mortgage certified by
such public
recording office to be a true and complete copy of the original
recorded
Mortgage.
35
<PAGE>
In addition, in the event that in connection with any Mortgage
Loan the
Depositor cannot deliver or cause to be delivered the original
or duplicate
original lender's title policy (together with all riders
thereto), satisfying
the requirements of clause (v) above, concurrently with the
execution and
delivery hereof because the related Mortgage has not been
returned from the
applicable public recording office, the Depositor shall promptly
deliver or
cause to be delivered to the Trustee or the Custodian on its
behalf such
original or duplicate original lender's title policy (together
with all riders
thereto) upon receipt thereof from the applicable title insurer,
but in no event
shall any such delivery of the original or duplicate original
lender's title
policy be made later than one year following the Closing Date;
provided,
however, in the event the Depositor is unable to deliver or
cause to be
delivered by such date the original or duplicate original
lender's title policy
(together with all riders thereto) because the related Mortgage
has not been
returned by the appropriate recording office, the Depositor
shall deliver or
cause to be delivered such documents to the Trustee or the
Custodian on its
behalf as promptly as possible upon receipt thereof and, in any
event, within
720 days following the Closing Date. Notwithstanding the
preceding, in
connection with any Mortgage Loan for which either the original
or duplicate
original title policy has not been delivered to the Trust, if at
any time during
the term of this Agreement the parent company of the Seller does
not have a long
term senior debt rating of A- or higher from S&P and A- or
higher from Fitch (if
rated by Fitch), then the Depositor shall within 30 days deliver
or cause to be
delivered to the Trustee or the Custodian on its behalf (if it
has not
previously done so) a written commitment or interim binder or
preliminary report
of the title issued by the title insurance or escrow company
with respect to the
Mortgaged Property.
Subject to the immediately following sentence, as promptly as
practicable
subsequent to such transfer and assignment, and in any event,
within thirty (30)
days thereafter, the Master Servicer shall (i) complete each
assignment of
Mortgage, as follows: "First Horizon Mortgage Pass-Through
Certificates, Series
2005-AA2, The Bank of New York, as trustee for the holders of
the Certificates",
(ii) cause such assignment to be in proper form for recording in
the appropriate
public office for real property records and (iii) cause to be
delivered for
recording in the appropriate public office for real property
records the
assignments of the Mortgages to the Trustee, except that, with
respect to any
assignments of Mortgage as to which the Master Servicer has not
received the
information required to prepare such assignment in recordable
form, the Master
Servicer's obligation to do so and to deliver the same for such
recording shall
be as soon as practicable after receipt of such information and
in any event
within thirty (30) days after receipt thereof. Notwithstanding
the foregoing,
the Master Servicer need not cause to be recorded any assignment
which relates
to a Mortgage Loan in any state other than the Required
Recordation States.
In the case of Mortgage Loans that have been prepaid in full as
of the
Closing Date, the Depositor, in lieu of delivering the above
documents to the
Trustee or the Custodian on its behalf, will deposit in the
Certificate Account
the portion of such payment that is required to be deposited in
the Certificate
Account pursuant to Section 3.8 hereof.
36
<PAGE>
Notwithstanding anything to the contrary in this Agreement,
within thirty
days after the Closing Date, the Depositor shall either (i)
deliver or cause to
be delivered to the Trustee or the Custodian on its behalf the
Mortgage File as
required pursuant to this Section 2.1 for each Delay Delivery
Mortgage Loan or
(ii) (A) substitute or cause to be substituted a Substitute
Mortgage Loan for
the Delay Delivery Mortgage Loan or (B) repurchase or cause to
be repurchased
the Delay Delivery Mortgage Loan, which substitution or
repurchase shall be
accomplished in the manner and subject to the conditions set
forth in Section
2.3 (treating each Delay Delivery Mortgage Loan as a Deleted
Mortgage Loan for
purposes of such Section 2.3), provided, however, that if the
Depositor fails to
deliver a Mortgage File for any Delay Delivery Mortgage Loan
within the
thirty-day period provided in the prior sentence, the Depositor
shall use its
best reasonable efforts to effect or cause to be effected a
substitution, rather
than a repurchase of, such Deleted Mortgage Loan and provided
further that the
cure period provided for in Section 2.2 or in Section 2.3 shall
not apply to the
initial delivery of the Mortgage File for such Delay Delivery
Mortgage Loan, but
rather the Depositor shall have five (5) Business Days to cure
or cause to be
cured such failure to deliver. At the end of such thirty-day
period, the Trustee
or the Custodian, on its behalf shall send a Delay Delivery
Certification for
the Delay Delivery Mortgage Loans delivered during such
thirty-day period in
accordance with the provisions of Section 2.2. Notwithstanding
anything to the
contrary contained in this Agreement, none of the Mortgage Loans
in the Trust
Fund is or will be Delay Delivery Mortgage Loans.
SECTION 2.2 Acceptance by Trustee of the Mortgage Loans.
The Trustee or the Custodian, on behalf of the Trustee,
acknowledges
receipt of the documents identified in the Initial Certification
in the form
annexed hereto as Exhibit E and declares that it or the
Custodian holds and will
hold such documents and the other documents delivered to it or
the Custodian, as
applicable, constituting the Mortgage Files, and that it or the
Custodian, as
applicable, holds or will hold such other assets as are included
in the Trust
Fund, in trust for the exclusive use and benefit of all present
and future
Certificateholders. The Trustee acknowledges that the Custodian
will maintain
possession of the Mortgage Notes in the State of Texas, unless
otherwise
permitted by the Rating Agencies.
The Trustee agrees to execute and deliver or to cause the
Custodian to
execute and deliver on the Closing Date to the Depositor and the
Master Servicer
an Initial Certification in the form annexed hereto as Exhibit
E. Based on its
or the Custodian's review and examination, and only as to the
documents
identified in such Initial Certification, the Custodian, on
behalf of the
Trustee, acknowledges that such documents appear regular on
their face and
relate to such Mortgage Loan. Neither the Trustee nor the
Custodian shall be
under any duty or obligation to inspect, review or examine said
documents,
instruments, certificates or other papers to determine that the
same are
genuine, enforceable or appropriate for the represented purpose
or that they
have actually been recorded in the real estate records or that
they are other
than what they purport to be on their face.
On or about the thirtieth (30th) day after the Closing Date, the
Trustee
shall deliver or shall cause the Custodian to deliver to the
Depositor and the
Master Servicer a Delay Delivery Certification in the form
annexed hereto as
Exhibit F, with any applicable exceptions noted thereon.
Notwithstanding
anything to the contrary contained in this Agreement, none of
the Mortgage Loans
in the Trust Fund is or will be Delay Delivery Mortgage
Loans.
37
<PAGE>
Not later than 90 days after the Closing Date, the Trustee shall
deliver
or shall cause the Custodian to deliver to the Depositor and the
Master Servicer
a Subsequent Certification in the form annexed hereto as Exhibit
G, with any
applicable exceptions noted thereon.
If, in the course of such review, the Trustee or the Custodian,
on behalf
of the Trustee, finds any document constituting a part of a
Mortgage File which
does not meet the requirements of Section 2.1, the Trustee shall
list or shall
cause the Custodian to list such as an exception in the
Subsequent
Certification; provided, however that neither the Trustee nor
the Custodian
shall make any determination as to whether (i) any endorsement
is sufficient to
transfer all right, title and interest of the party so
endorsing, as noteholder
or assignee thereof, in and to that Mortgage Note or (ii) any
assignment is in
recordable form or is sufficient to effect the assignment of and
transfer to the
assignee thereof under the mortgage to which the assignment
relates. The Seller
shall promptly correct or cure such defect within 90 days from
the date it was
so notified of such defect and, if the Seller does not correct
or cure such
defect within such period, the Seller shall either (a)
substitute for the
related Mortgage Loan a Substitute Mortgage Loan, which
substitution shall be
accomplished in the manner and subject to the conditions set
forth in Section
2.3, or (b) purchase such Mortgage Loan from the Trustee within
90 days from the
date the Seller was notified of such defect in writing at the
Purchase Price of
such Mortgage Loan; provided, however, that in no event shall
such substitution
or purchase occur more than 540 days from the Closing Date,
except that if the
substitution or purchase of a Mortgage Loan pursuant to this
provision is
required by reason of a delay in delivery of any documents by
the appropriate
recording office, and there is a dispute between either the
Master Servicer or
the Seller and the Trustee over the location or status of the
recorded document,
then such substitution or purchase shall occur within 720 days
from the Closing
Date. The Trustee shall deliver or shall cause the Custodian to
deliver written
notice to each Rating Agency within 270 days from the Closing
Date indicating
each Mortgage Loan (a) which has not been returned by the
appropriate recording
office or (b) as to which there is a dispute as to location or
status of such
Mortgage Loan. Such notice shall be delivered every 90 days
thereafter until the
related Mortgage Loan is returned to the Trustee or the
Custodian on its behalf.
Any such substitution pursuant to (a) above or purchase pursuant
to (b) above
shall not be effected prior to the delivery to the Trustee of
the Opinion of
Counsel required by Section 2.5 hereof, if any, and any
substitution pursuant to
(a) above shall not be effected prior to the additional delivery
to the Trustee
of a Request for Release substantially in the form of Exhibit L.
No substitution
is permitted to be made in any calendar month after the
Determination Date for
such month. The Purchase Price for any such Mortgage Loan shall
be deposited by
the Seller in the Certificate Account on or prior to the
Distribution Account
Deposit Date for the Distribution Date in the month following
the month of
repurchase and, upon receipt of such deposit and certification
with respect
thereto in the form of Exhibit M hereto, the Trustee shall cause
the Custodian
to release the related Mortgage File to the Seller and shall
execute and deliver
at the Seller's request such instruments of transfer or
assignment prepared by
the Seller, in each case without recourse, as shall be necessary
to vest in the
Seller, or a designee, the Trustee's interest in any Mortgage
Loan released
pursuant hereto. If pursuant to the foregoing provisions the
Seller repurchases
a Mortgage Loan that is a MERS Mortgage Loan, the Master
Servicer shall either
(i) cause MERS to execute and deliver an assignment of the
Mortgage in
recordable form to transfer the Mortgage from MERS to the Seller
and shall cause
such Mortgage to be removed from registration on the MERS(R)
System in
accordance with MERS' rules and regulations or (ii) cause MERS
to designate on
the MERS(R) System the Seller as the beneficial holder of such
Mortgage Loan.
38
<PAGE>
The Trustee shall retain or shall cause the Custodian to retain
possession
and custody of each Mortgage File in accordance with and subject
to the terms
and conditions set forth herein. The Master Servicer shall
promptly deliver to
the Trustee or the Custodian on its behalf, upon the execution
or receipt
thereof, the originals of such other documents or instruments
constituting the
Mortgage File as come into the possession of the Master Servicer
from time to
time.
It is understood and agreed that the obligation of the Seller
to
substitute for or to purchase any Mortgage Loan which does not
meet the
requirements of Section 2.1 above shall constitute the sole
remedy respecting
such defect available to the Trustee, the Depositor and any
Certificateholder
against the Seller.
The mortgage loans permitted by the terms of this Agreement to
be included
in the Trust Fund are limited to (i) the Mortgage Loans (which
the Depositor
acquired pursuant to the MLPA, which contains, among other
representations and
warranties, a representation and warranty of the Seller that no
Mortgage Loan is
a "high cost loan" as defined by the specific applicable local,
state or federal
predatory and abusive lending laws, and (ii) Substitute Mortgage
Loans (which,
by definition as set forth in this Agreement and referred to in
the MLPA, are
required to conform to, among other representations and
warranties, a
representation and warranty of the Seller set forth in the MLPA
that no
Substitute Mortgage Loan is a "high cost loan" as defined by the
specific
applicable local, state or federal predatory and abusive lending
laws). It is
therefore understood and agreed by the parties hereto that it is
not intended
that any Mortgage Loan be included in the Trust Fund that is a
"high cost loan"
as defined in the by the specific applicable local, state or
federal predatory
and abusive lending laws.
SECTION 2.3 Representations and Warranties of the Master
Servicer;
Covenants of the Seller.
(a) The Master Servicer hereby makes the representations and
warranties
set forth in Schedule II hereto and by this reference
incorporated
herein, to the Depositor and the Trustee, as of the Closing
Date, or
if so specified therein, as of the Cut-off Date.
(b) Upon discovery by any of the parties hereto of a breach of
a
representation or warranty made pursuant to Schedule B to the
MLPA
that materially and adversely affects the interests of the
Certificateholders in any Mortgage Loan, the party discovering
such
breach shall give prompt notice thereof to the other parties.
The
Seller hereby covenants that within 90 days of the earlier of
its
discovery or its receipt of written notice from any party of
a
breach of any representation or warranty made pursuant to
Schedule B
to the MLPA which materially and adversely affects the interests
of
the Certificateholders in any Mortgage Loan, it shall cure
such
breach in all material respects, and if such breach is not so
cured,
shall, (i) if such 90-day period expires prior to the second
39
<PAGE>
anniversary of the Closing Date, remove such Mortgage Loan
(a
"Deleted Mortgage Loan") from the Trust Fund and substitute in
its
place a Substitute Mortgage Loan, in the manner and subject to
the
conditions set forth in this Section; or (ii) repurchase the
affected Mortgage Loan or Mortgage Loans from the Trustee at
the
Purchase Price in the manner set forth below; provided,
however,
that any such substitution pursuant to (i) above shall not
be
effected prior to the delivery to the Trustee of the Opinion
of
Counsel required by Section 2.5 hereof, if any, and any such
substitution pursuant to (i) above shall not be effected prior
to
the additional delivery to the Trustee or the Custodian on
its
behalf of a Request for Release substantially in the form of
Exhibit
M and the Mortgage File for any such Substitute Mortgage Loan.
The
Seller shall promptly reimburse the Master Servicer and the
Trustee
for any expenses reasonably incurred by the Master Servicer or
the
Trustee in respect of enforcing the remedies for such breach.
With
respect to the representations and warranties described in
this
Section which are made to the best of the Seller's knowledge, if
it
is discovered by either the Depositor, the Seller or the
Trustee
that the substance of such representation and warranty is
inaccurate
and such inaccuracy materially and adversely affects the value
of
the related Mortgage Loan or the interests of the
Certificateholders
therein, notwithstanding the Seller's lack of knowledge with
respect
to the substance of such representation or warranty, such
inaccuracy
shall be deemed a breach of the applicable representation or
warranty.
With respect to any Substitute Mortgage Loan or Loans, the
Seller shall
deliver to the Trustee or the Custodian on its behalf for the
benefit of the
Certificateholders the Mortgage Note, the Mortgage, the related
assignment of
the Mortgage, and such other documents and agreements as are
required by Section
2.1, with the Mortgage Note endorsed and the Mortgage assigned
as required by
Section 2.1. No substitution is permitted to be made in any
calendar month after
the Determination Date for such month. Scheduled Payments due
with respect to
Substitute Mortgage Loans in the month of substitution shall not
be part of the
Trust Fund and will be retained by the Seller on the next
succeeding
Distribution Date. For the month of substitution, distributions
to
Certificateholders will include the monthly payment due on any
Deleted Mortgage
Loan for such month and thereafter the Seller shall be entitled
to retain all
amounts received in respect of such Deleted Mortgage Loan. The
Master Servicer
shall amend the Mortgage Loan Schedule for the benefit of the
Certificateholders
to reflect the removal of such Deleted Mortgage Loan and the
substitution of the
Substitute Mortgage Loan or Loans and the Master Servicer shall
deliver the
amended Mortgage Loan Schedule to the Trustee. Upon such
substitution, the
Substitute Mortgage Loan or Loans shall be subject to the terms
of this
Agreement in all respects, and the Seller shall be deemed to
have made with
respect to such Substitute Mortgage Loan or Loans, as of the
date of
substitution, the representations and warranties made pursuant
to Schedule B to
the MLPA with respect to such Mortgage Loan. Upon any such
substitution and the
deposit to the Certificate Account of the amount required to be
deposited
therein in connection with such substitution as described in the
following
paragraph, the Trustee shall release or shall cause the
Custodian to release the
Mortgage File held for the benefit of the Certificateholders
relating to such
Deleted Mortgage Loan to the Seller and shall execute and
deliver at the
Seller's direction such instruments of transfer or assignment
prepared by the
Seller, in each case without recourse, as shall be necessary to
vest title in
the Seller, or its designee, the Trustee's interest in any
Deleted Mortgage Loan
substituted for pursuant to this Section 2.3.
40
<PAGE>
For any month in which the Seller substitutes one or more
Substitute
Mortgage Loans for one or more Deleted Mortgage Loans, the
Master Servicer will
determine the amount (if any) by which the aggregate principal
balance of all
such Substitute Mortgage Loans as of the date of substitution is
less than the
aggregate Stated Principal Balance of all such Deleted Mortgage
Loans (after
application of the scheduled principal portion of the monthly
payments due in
the month of substitution). The amount of such shortage (the
"Substitution
Adjustment Amount") plus an amount equal to the aggregate of any
unreimbursed
Advances with respect to such Deleted Mortgage Loans shall be
deposited in the
Certificate Account by the Seller on or before the Distribution
Account Deposit
Date for the Distribution Date in the month succeeding the
calendar month during
which the related Mortgage Loan became required to be purchased
or replaced
hereunder.
In the event that the Seller shall have repurchased a Mortgage
Loan, the
Purchase Price therefor shall be deposited in the Certificate
Account pursuant
to Section 3.5 on or before the Distribution Account Deposit
Date for the
Distribution Date in the month following the month during which
the Seller
became obligated hereunder to repurchase or replace such
Mortgage Loan and upon
such deposit of the Purchase Price, the delivery of the Opinion
of Counsel
required by Section 2.5 and receipt of a Request for Release in
the form of
Exhibit M hereto, the Trustee shall release or shall cause the
Custodian to
release the related Mortgage File held for the benefit of the
Certificateholders
to such Person, and the Trustee shall execute and deliver or
shall cause the
Custodian to execute and deliver at such Person's direction such
instruments of
transfer or assignment prepared by such Person, in each case
without recourse,
as shall be necessary to transfer title from the Trustee. It is
understood and
agreed that the obligation under this Agreement of the Seller to
cure,
repurchase or replace any Mortgage Loan as to which a breach has
occurred and is
continuing shall constitute the sole remedy against the Seller
respecting such
breach available to Certificateholders, the Depositor or the
Trustee on their
behalf.
After giving effect to the sale of the Certificates by the
Depositor to
the Underwriters, and thereafter, so long as any Certificates
remain
outstanding, the Seller, its affiliates and agents,
collectively, shall not
beneficially own Certificates the aggregate fair value of which
would represent
90% or more of the beneficial interests in the Trust Fund.
The representations and warranties made pursuant to this Section
2.3 shall
survive delivery of the respective Mortgage Files to the Trustee
or the
Custodian for the benefit of the Certificateholders.
SECTION 2.4 Representations and Warranties of the Depositor as
to the Mortgage
Loans.
The Depositor hereby represents and warrants to the Trustee with
respect
to each Mortgage Loan as of the date hereof or such other date
set forth herein
that as of the Closing Date, and following the transfer of the
Mortgage Loans to
it pursuant to the MLPA and immediately prior to the conveyance
of the Mortgage
Loans by it to the Trustee pursuant to Section 2.1(a) hereof,
the Depositor had
good title to the Mortgage Loans and the Mortgage Notes were
subject to no
offsets, defenses or counterclaims.
41
<PAGE>
It is understood and agreed that the representations and
warranties set
forth in this Section 2.4 shall survive delivery of the Mortgage
Files to the
Trustee. Upon discovery by the Depositor or the Trustee of a
breach of any of
the foregoing representations and warranties set forth in this
Section 2.4
(referred to herein as a "breach"), which breach materially and
adversely
affects the interest of the Certificateholders, the party
discovering such
breach shall give prompt written notice to the others and to
each Rating Agency.
SECTION 2.5 Delivery of Opinion of Counsel in Connection
with
Substitutions.
(a) Notwithstanding any contrary provision of this Agreement,
no
substitution pursuant to Section 2.2 or Section 2.3 shall be
made
more than 90 days after the Closing Date unless the
Depositor
delivers to the Trustee an Opinion of Counsel, which Opinion
of
Counsel shall not be at the expense of either the Trustee or
the
Trust Fund, addressed to the Trustee, to the effect that
such
substitution will not (i) result in the imposition of the tax
on
"prohibited transactions" on the Trust Fund or contributions
after
the Startup Date, as defined in Sections 860F(a)(2) and 860G(d)
of
the Code, respectively, or (ii) cause any REMIC created
hereunder to
fail to qualify as a REMIC at any time that any Certificates
are
outstanding.
(b) Upon discovery by the Depositor, the Master Servicer or the
Trustee
that any Mortgage Loan does not constitute a "qualified
mortgage"
within the meaning of Section 860G(a)(3) of the Code, the
party
discovering such fact shall promptly (and in any event within
five
(5) Business Days of discovery) give written notice thereof to
the
other parties. In connection therewith, the Trustee shall
require
the Depositor to cause the Seller, pursuant to the MLPA and at
the
Seller's option, to either (i) substitute, if the conditions
in
Section 2.3(b) with respect to substitutions are satisfied,
a
Substitute Mortgage Loan for the affected Mortgage Loan, or
(ii)
repurchase the affected Mortgage Loan within 90 days of such
discovery in the same manner as it would a Mortgage Loan for
a
breach of representation or warranty made pursuant to Section
2.3.
The Trustee shall reconvey or shall cause the Custodian to
reconvey
to the Seller the Mortgage Loan to be released pursuant hereto
in
the same manner, and on the same terms and conditions, as it
would a
Mortgage Loan repurchased for breach of a representation or
warranty
contained in Section 2.3.
SECTION 2.6 Execution and Delivery of Certificates.
The Trustee acknowledges the transfer and assignment to it of
the Trust
Fund and, concurrently with such transfer and assignment, has
executed and
delivered to or upon the order of the Depositor, the
Certificates in authorized
denominations evidencing directly or indirectly the entire
ownership of the
Trust Fund. The Trustee agrees to hold the Trust Fund and
exercise the rights
referred to above for the benefit of all present and future
Holders of the
Certificates and to perform the duties set forth in this
Agreement to the best
of its ability, to the end that the interests of the Holders of
the Certificates
may be adequately and effectively protected.
42
<PAGE>
SECTION 2.7 REMIC Matters.
The Preliminary Statement sets forth the "latest possible
maturity date"
for federal income tax purposes of all REMIC regular interests
created hereby.
The assets of the Lower REMIC shall be as set forth in the
definition
thereof. Each interest identified in the first table below by a
designation
beginning with "L" shall be a "regular interest" in the Lower
REMIC and a Lower
REMIC Interest, and the RL Interests shall be the sole class of
residual
interest in the Lower REMIC. The Lower REMIC Interests shall be
uncertificated
and shall be held by the Trustee as assets of the Upper
REMIC.
The assets of the Upper REMIC shall be as set forth in the
definition
thereof. The Regular Certificates shall represent "regular
interests" in the
Upper REMIC. The RU Interest shall be the sole class of residual
interest in the
Upper REMIC. The Class II-A-R Certificate shall represent
ownership of the RL
Interest and RU Interest.
The "Startup Day" for purposes of the REMIC Provisions for each
REMIC
hereunder shall be the Closing Date. The Tax Matters Person with
respect to each
REMIC hereunder shall be the Trustee and the Trustee shall hold
the Tax Matters
Person Certificate. Each REMIC's taxable year shall be the
calendar year and its
accounts shall be maintained using the accrual method.
<TABLE>
<CAPTION>
------------------ ----------------------
--------------------------
----------------------------------------
Corresponding Class of
Middle REMIC
Lower REMIC Lower REMIC Lower REMIC Interests
Interest or Interest Interest
----------------------------------------
Residual Balance Rate Interest Principal
------------------ ----------------------
-------------------------- ------------------------
---------------
<S> <C> <C> <C> <C>
L-I-A-1 $ 87,783.04 (2) (1) (1)
------------------ ----------------------
-------------------------- ------------------------
---------------
L-I-A-2 $ 9,753.67 (2) (1) (1)
------------------ ----------------------
-------------------------- ------------------------
---------------
L-I-A-ZZZ (1) (1)
$ 149,948,134.82 (2)
------------------ ----------------------
-------------------------- ------------------------
---------------
RL $ 0.00 N/A N/A N/A
------------------ ----------------------
-------------------------- ------------------------
---------------
L-II-A-1 $ 114,059.46 (3) (1) (1)
------------------ ----------------------
-------------------------- ------------------------
---------------
L-II-A-2 $ 12,673.27 (3) (1) (1)
------------------ ----------------------
-------------------------- ------------------------
---------------
L-II-A-ZZZ $ 194,846,640.74 (3) (1) (1)
------------------ ----------------------
-------------------------- ------------------------
---------------
Total $ 345,019,045.00
------------------ ----------------------
-------------------------- ------------------------
---------------
</TABLE>
(1) The Lower REMIC Interest L-I-A-1, Lower REMIC Interest
L-I-A-2 and Lower
REMIC Interest L-I-A-ZZZ shall be Corresponding Classes to these
Classes of
Certificates: I-A-1, I-A-2, B-1, B-2, B-3, B-4, B-5 and B-6
(provided that with
respect to B-1, B-2, B-3, B-4, B-5 and B-6, such Lower REMIC
Interests shall
only correspond to the portion supported by Pool I). The Lower
REMIC Interest
L-II-A-1, Lower REMIC L-II-A-2 and Lower REMIC Interest
L-II-A-ZZZ shall be
Corresponding Classes to these Classes of Certificates: II-A-1,
II-A-2, II-A-R,
B-1, B-2, B-3, B-4, B-5 and B-6 (provided that with respect to
B-1, B-2, B-3,
B-4, B-5 and B-6, such Lower REMIC Interests shall only
correspond to the
portion supported by Pool II).
43
<PAGE>
(2) The Lower REMIC Interest Rate for the Lower REMIC Interest
L-I-A-1, L-I-A-2
and L-I-A-ZZZ will equal the Weighted Average Adjusted Net
Mortgage Rate for
Pool I.
(3) The Lower REMIC Interest Rate for the Lower REMIC Interest
L-II-A-1,
L-II-A-2 and L-II-A-ZZZ will equal the Weighted Average Adjusted
Net Mortgage
Rate for Pool II.
"L1 Interests" refers to the L-I-A-1 Lower REMIC Interest and
the L-II-A-1
Lower REMIC Interests. "L2 Interests" refers to the L-I-A-2
Lower REMIC Interest
and L-II-A-2 Lower REMIC Interest. "LZZZ Interests" refers to
L-I-A-ZZZ Lower
REMIC Interest and L-II-A-ZZZ Lower REMIC Interest. Each L1
Interest shall have
a principal balance initially equal to 0.9% of the Group
Subordinate Amount of
its corresponding Mortgage Pool. Each L2 Interest shall have a
principal balance
initially equal to 0.1% of the Group Subordinate Amount of its
corresponding
Mortgage Pool. The initial principal balance of each LZZZ
Interest shall equal
the excess of the Pool Principal Balance of its corresponding
Mortgage Pool over
the sum of the initial principal balances of the L1 Interests
and L2 Interests
corresponding to such Mortgage Pool.
Unless a Cross-over Situation (as defined below) exists,
principal and
Realized Losses arising with respect to each Mortgage Pool shall
be allocated
first to cause the L1 and L2 Interests corresponding to such
Mortgage Pool to
equal 0.9% and 0.1% of the Group Subordinate Amount of such
Mortgage Pool as of
such Distribution Date (after distributions of principal and
allocation of
Realized Losses are made) and all excess principal and Realized
Losses shall be
allocated to the LZZZ Interest corresponding to such Mortgage
Pool. A L1, L2 or
LZZZ Interest that is allocated principal on any Distribution
Date shall receive
such principal, and have its principal balance reduced by the
amount of such
principal, on such Distribution Date. Similarly, a L1, L2 or
LZZZ Interest that
is allocated a Realized Loss on any Distribution Date shall have
its principal
balance reduced by the amount of such Realized Loss on such
Distribution Date.
A "Cross-over Situation" exists if on any Distribution Date
(after taking
into account distributions of principal and allocations of
Realized Losses on
such Distribution Date) the L1 and L2 Interests corresponding to
any Mortgage
Pool are in the aggregate less than 1% of the Group Subordinate
Amount of the
corresponding Mortgage Pool. If a Cross-over Situation exists on
any
Distribution Date, and the weighted average interest rate of the
outstanding L1
and L2 Interests is less than the Pass-Through Rate for any
Class of Subordinate
Certificates for the following Distribution Date, a Principal
Reallocation
Payment (as defined below) shall be made proportionately to the
outstanding L1
Interests prior to any other distributions of principal from
each such Mortgage
Pool so that the Calculation Rate equals the Pass-Through Rate
for each Class of
Subordinate Certificates. If a Cross-over Situation exists on
any Distribution
Date, and the weighted average rate of the outstanding L1 and L2
Interests is
greater than the Pass-Through Rate for any Class of Subordinate
Certificates for
the following Distribution Date, a Principal Reallocation
Payment shall be made
proportionately to the outstanding L2 Interests prior to any
other distributions
of principal from each such Mortgage Pool so that the
Calculation Rate equals
the Pass-Through Rate for each Class of Subordinate
Certificates. A "Principal
Reallocation Payment" is a distribution of the minimum amount of
principal that
causes the Calculation Rate (as defined below) with respect to
the outstanding
L1 and L2 Interests to equal the Pass-Through Rate for each
Class of Subordinate
Certificates. The "Calculation Rate" shall equal the product of
(i) 10 and (ii)
the weighted average interest rate of the outstanding L1 and L2
Interests,
treating each L1 Interest as capped at zero or reduced by a
fixed percentage of
44
<PAGE>
100% of the interest accruing on such class. Principal
Reallocation Payments
shall be made from principal received on the Mortgage Loans from
a Mortgage Pool
and shall also consist of a proportionate allocation of Realized
Losses from the
Mortgage Loans of a Mortgage Pool. For purposes of making
Principal Reallocation
Payments, to the extent that the principal received during the
applicable
collection period from the related Mortgage Pool and related
Realized Losses are
insufficient to make the necessary reduction of principal, then
interest shall
accrue on the LZZZ Interest (and be added to its principal
balance) of the
related Mortgage Pool to allow the necessary Principal
Reallocation Payment to
be made. The Calculation Rate is designed to always equal the
Pass-Through Rate
of each Class of Subordinated Certificates.
If a Cross-over Situation exists, the aggregate principal
balances of the
outstanding L1 and L2 Interests of all of the Mortgage Pools
shall not be
reduced below one percent of the aggregate Pool Principal
Balance of all of the
Mortgage Pools for the following Distribution Date in excess of
the Senior
Certificates as of the related Distribution Date (after taking
into account
distributions of principal and allocations of Realized Losses on
such
Distribution Date). To the extent this limitation prevents the
distribution of
principal to the L1 and L2 Interests of a Mortgage Pool and the
related LZZZ
Interest has already been reduced to zero, such excess principal
from such
Mortgage Pool shall be paid proportionately to the LZZZ
Interests of the
Mortgage Pool or Pools whose aggregate L1 and L2 Interests are
less than one
percent of the Group Subordinate Amount. Any such shortfall as a
result of the
Mortgage Pool receiving the extra payment having a Weighted
Average Adjusted Net
Mortgage Rate lower than the Weighted Average Adjusted Net
Mortgage Rate of the
Mortgage Pool from which the payment was reallocated shall be
treated as a
Realized Loss and if excess arises as result of the Mortgage
Pool receiving the
extra payment having a Weighted Average Adjusted Net Mortgage
Rate higher than
the Mortgage Pool from which the payment was reallocated it
shall reimburse the
Upper REMIC for prior Realized Losses. If on any Distribution
Date, the L1
Interest or L2 Interest remains outstanding after the related
Pool Principal
Balance is at zero as of the beginning of the Accrual Period
corresponding to
such Distribution Date, their Lower REMIC Interest Rate shall be
the Weighted
Average Adjusted Net Mortgage Rate of the Mortgage Pool with the
lowest Weighted
Average Adjusted Net Mortgage Rate that remains outstanding and
the excess of
interest at the Pass-Through Rate for the Subordinated
Certificates over
interest at such Weighted Average Adjusted Net Mortgage Rate
shall be treated as
paid from Lower REMIC to the Upper REMIC as reimbursement for
prior Realized
Losses.
The foregoing REMIC structure is intended to cause all of the
cash
from the Mortgage Loans to flow through to the Upper REMIC as
cash flow on a
REMIC regular interest, without creating any shortfall-actual or
potential
(other than for credit losses) to any REMIC regular interest. To
the extent that
the structure is believed to diverge from such intention the
Trustee shall
resolve ambiguities to accomplish such result and shall to the
extent necessary
rectify any drafting errors or seek clarification to the
structure without
Certificateholder approval (but with guidance of counsel) to
accomplish such
intention.
SECTION 2.8 Covenants of the Master Servicer.
45
<PAGE>
The Master Servicer hereby covenants to the Depositor and the
Trustee as
follows:
(a) the Master Servicer shall comply in the performance of
its
obligations under this Agreement with all reasonable rules
and
requirements of the insurer under each Required Insurance
Policy;
and
(b) no written information, certificate of an officer,
statement
furnished in writing or written report delivered to the
Depositor,
any affiliate of the Depositor or the Trustee and prepared by
the
Master Servicer pursuant to this Agreement will contain any
untrue
statement of a material fact or omit to state a material
fact
necessary to make such information, certificate, statement or
report
not misleading.
ARTICLE III
ADMINISTRATION AND SERVICING OF MORTGAGE LOANS
SECTION 3.1 Master Servicer to Service Mortgage Loans.
For and on behalf of the Certificateholders, the Master Servicer
shall
service and administer the Mortgage Loans in accordance with the
terms of (i)
the Servicing Rights Transfer and Subservicing Agreement,
pursuant to which
First Tennessee Mortgage Services, Inc. engaged the Master
Servicer to
subservice the Mortgage Loans, (ii) this Agreement and (iii) the
customary and
usual standards of practice of prudent mortgage loan servicers;
provided that if
there is a conflict between the terms of the Servicing Agreement
and the
Servicing Rights Transfer and Subservicing Agreement, on the one
hand, and this
Agreement, on the other hand, the terms of this Agreement shall
prevail. In
connection with such servicing and administration, the Master
Servicer shall
have full power and authority, acting alone and/or through
Subservicers as
provided in Section 3.2 hereof, to do or cause to be done any
and all things
that it may deem necessary or desirable in connection with such
servicing and
administration, including but not limited to, the power and
authority, subject
to the terms hereof (i) to execute and deliver, on behalf of
the
Certificateholders and the Trustee, customary consents or
waivers and other
instruments and documents, (ii) to consent to transfers of any
Mortgaged
Property and assumptions of the Mortgage Notes and related
Mortgages (but only
in the manner provided in this Agreement), (iii) to collect any
Insurance
Proceeds and other Liquidation Proceeds, and (iv) to effectuate
foreclosure or
other conversion of the ownership of the Mortgaged Property
securing any
Mortgage Loan; provided that the Master Servicer shall not take
any action that
is inconsistent with or prejudices the interests of the Trust
Fund or the
Certificateholders in any Mortgage Loan or the rights and
interests of the
Depositor, the Trustee and the Certificateholders under this
Agreement. The
Master Servicer shall represent and protect the interests of the
Trust Fund in
the same manner as it protects its own interests in mortgage
loans in its own
portfolio in any claim, proceeding or litigation regarding a
Mortgage Loan, and
shall not make or permit any modification, waiver or amendment
of any Mortgage
Loan which would cause any REMIC created hereunder to fail to
qualify as a REMIC
or result in the imposition of any tax under Section 860F(a) or
Section 860G(d)
of the Code. Without limiting the generality of the foregoing,
the Master
Servicer, in its own name or in the name of the Depositor and
the Trustee, is
hereby authorized and empowered by the Depositor and the
Trustee, when the
Master Servicer believes it appropriate in its reasonable
judgment, to execute
and deliver, on behalf of the Trustee, the Depositor, the
Certificateholders or
any of them, any and all instruments of satisfaction or
cancellation, or of
partial or full release or discharge and all other comparable
instruments, with
46
<PAGE>
respect to the Mortgage Loans, and with respect to the Mortgaged
Properties held
for the benefit of the Certificateholders. The Master Servicer
shall prepare and
deliver to the Depositor and/or the Trustee such documents
requiring execution
and delivery by either or both of them as are necessary or
appropriate to enable
the Master Servicer to service and administer the Mortgage Loans
to the extent
that the Master Servicer is not permitted to execute and deliver
such documents
pursuant to the preceding sentence. Upon receipt of such
documents, the
Depositor and/or the Trustee shall execute such documents and
deliver them to
the Master Servicer. The Master Servicer further is authorized
and empowered by
the Trustee, on behalf of the Certificateholders and the
Trustee, in its own
name or in the name of the Subservicer, when the Master Servicer
or the
Subservicer as the case may be, believes it appropriate in its
best judgment to
register any Mortgage Loan on the MERS(R) System, or cause the
removal from the
registration of any Mortgage Loan on the MERS(R) System, to
execute and deliver,
on behalf of the Trustee and the Certificateholders or any of
them, any and all
instruments of assignment and other comparable instruments with
respect to such
assignment or re-recording of a Mortgage in the name of MERS,
solely as nominee
for the Trustee and its successors and assigns.
In accordance with the standards of the preceding paragraph, the
Master
Servicer shall advance or cause to be advanced funds as
necessary for the
purpose of effecting the payment of taxes and assessments on the
Mortgaged
Properties, which advances shall be reimbursable in the first
instance from
related collections from the Mortgagors pursuant to Section 3.6,
and further as
provided in Section 3.8. The costs incurred by the Master
Servicer, if any, in
effecting the timely payments of taxes and assessments on the
Mortgaged
Properties and related insurance premiums shall not, for the
purpose of
calculating monthly distributions to the Certificateholders, be
added to the
Stated Principal Balances of the related Mortgage Loans,
notwithstanding that
the terms of such Mortgage Loans so permit.
SECTION 3.2 Subservicing; Enforcement of the Obligations of
Servicers.
(a) The Master Servicer may arrange for the subservicing of any
Mortgage
Loan by a Subservicer pursuant to a subservicing agreement;
provided, however, that such subservicing arrangement and the
terms
of the related subservicing agreement must provide for the
servicing
of such Mortgage Loans in a manner consistent with the
servicing
arrangements contemplated hereunder. Unless the context
otherwise
requires, references in this Agreement to actions taken or to
be
taken by the Master Servicer in servicing the Mortgage Loans
include
actions taken or to be taken by a Subservicer on behalf of
the
Master Servicer. Notwithstanding the provisions of any
subservicing
agreement, any of the provisions of this Agreement relating
to
agreements or arrangements between the Master Servicer and a
Subservicer or reference to actions taken through a Subservicer
or
otherwise, the Master Servicer shall remain obligated and liable
to
the Depositor, the Trustee and the Certificateholders for
the
servicing and administration of the Mortgage Loans in
accordance
with the provisions of this Agreement without diminution of
such
obligation or liability by virtue of such subservicing
agreements or
arrangements or by virtue of indemnification from the
Subservicer
and to the same extent and under the same terms and conditions
as if
the Master Servicer alone were servicing and administering
the
Mortgage Loans. All actions of each Subservicer performed
pursuant
to the related subservicing agreement shall be performed as an
agent
of the Master Servicer with the same force and effect as if
performed directly by the Master Servicer.
47
<PAGE>
(b) For purposes of this Agreement, the Master Servicer shall be
deemed
to have received any collections, recoveries or payments
with
respect to the Mortgage Loans that are received by a
Subservicer
regardless of whether such payments are remitted by the
Subservicer
to the Master Servicer.
SECTION 3.3 Rights of the Depositor and the Trustee in Respect
of
the Master Servicer.
The Depositor may, but is not obligated to, enforce the
obligations of the
Master Servicer hereunder and may, but is not obligated to,
perform, or cause a
designee to perform, any defaulted obligation of the Master
Servicer hereunder
and in connection with any such defaulted obligation to exercise
the related
rights of the Master Servicer hereunder; provided that the
Master Servicer shall
not be relieved of any of its obligations hereunder by virtue of
such
performance by the Depositor or its designee. Neither the
Trustee nor the
Depositor shall have any responsibility or liability for any
action or failure
to act by the Master Servicer nor shall the Trustee or the
Depositor be
obligated to supervise the performance of the Master Servicer
hereunder or
otherwise.
SECTION 3.4 Trustee to Act as Master Servicer.
In the event that the Master Servicer shall for any reason no
longer be
the Master Servicer hereunder (including by reason of an Event
of Default), the
Trustee or its successor shall thereupon assume all of the
rights and
obligations of the Master Servicer hereunder arising thereafter
(except that the
Trustee shall not be (i) liable for losses of the Master
Servicer pursuant to
Section 3.9 hereof or any acts or omissions of the predecessor
Master Servicer
hereunder), (ii) obligated to make Advances if it is prohibited
from doing so by
applicable law, (iii) obligated to effectuate repurchases or
substitutions of
Mortgage Loans hereunder including, but not limited to,
repurchases or
substitutions of Mortgage Loans pursuant to Section 2.2 or 2.3
hereof, (iv)
responsible for expenses of the Master Servicer pursuant to
Section 2.3 or (v)
deemed to have made any representations and warranties of the
Master Servicer
hereunder). Any such assumption shall be subject to Section 7.2
hereof. If the
Master Servicer shall for any reason no longer be the Master
Servicer (including
by reason of any Event of Default), the Trustee or its successor
shall succeed
to any rights and obligations of the Master Servicer under each
subservicing
agreement.
The Master Servicer shall, upon request of the Trustee, but at
the expense
of the Master Servicer, deliver to the assuming party all
documents and records
relating to each subservicing agreement or substitute
subservicing agreement and
the Mortgage Loans then being serviced thereunder and an
accounting of amounts
collected or held by it and otherwise use its best efforts to
effect the orderly
and efficient transfer of the substitute subservicing agreement
to the assuming
party.
48
<PAGE>
SECTION 3.5 Collection of Mortgage Loan Payments;
Certificate
Account; Distribution Account.
(a) The Master Servicer shall make reasonable efforts in
accordance with
the customary and usual standards of practice of prudent
mortgage
servicers to collect all payments called for under the terms
and
provisions of the Mortgage Loans to the extent such procedures
shall
be consistent with this Agreement and the terms and provisions
of
any related Required Insurance Policy. Consistent with the
foregoing, the Master Servicer may in its discretion (i) waive
any
late payment charge or any prepayment charge or penalty interest
in
connection with the prepayment of a Mortgage Loan and (ii)
extend
the due dates for payments due on a Mortgage Note for a period
not
greater than 180 days; provided, however, that the Master
Servicer
cannot extend the maturity of any such Mortgage Loan past the
date
on which the final payment is due on the latest maturing
Mortgage
Loan as of the Cut-off Date. In the event of any such
arrangement,
the Master Servicer shall make Advances on the related Mortgage
Loan
in accordance with the provisions of Section 4.1 during the
scheduled period in accordance with the amortization schedule
of
such Mortgage Loan without modification thereof by reason of
such
arrangements. The Master Servicer shall not be required to
institute
or join in litigation with respect to collection of any
payment
(whether under a Mortgage, Mortgage Note or otherwise or against
any
public or governmental authority with respect to a taking or
condemnation) if it reasonably believes that enforcing the
provision
of the Mortgage or other instrument pursuant to which such
payment
is required is prohibited by applicable law.
(b) The Master Servicer shall establish and maintain the
Certificate
Account. The Certificate Account shall consist of two
separate
subaccounts, each of which shall relate to a particular
Mortgage
Pool. The Master Servicer shall deposit or cause to be
deposited
into the appropriate subaccount of the Certificate Account no
later
than two Business Days after receipt, except as otherwise
specifically provided herein, the following payments and
collections
remitted by Subservicers or received by it in respect of the
Mortgage Loans subsequent to the Cut-off Date (other than in
respect
of principal and interest due on the Mortgage Loans on or before
the
Cut-off Date) and the following amounts required to be
deposited
hereunder:
(i) all payments on account of principal on the Mortgage Loans
in
the related Mortgage Pool, including Principal Prepayments;
(ii) all payments on account of interest on the Mortgage Loans
in
the related Mortgage Pool, net of the related Master
Servicing
Fee and any Prepayment Interest Excess;
(iii) all Insurance Proceeds and Liquidation Proceeds in respect
of
the related Mortgage Loans in the related Mortgage Pool,
other
than proceeds to be applied to the restoration or repair of
the Mortgaged Property or released to the Mortgagor in
accordance with the Master Servicer's normal servicing
procedures;
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(iv) any amount required to be deposited by the Master Servicer
in
respect of the related Mortgage Pool pursuant to Section
3.5(c) in connection with any losses on Permitted
Investments;
(v) any amounts required to be deposited by the Master Servicer
in
respect of the related Mortgage Pool pursuant to Section
3.9(b) and 3.9(d);
(vi) all Substitution Adjustment Amounts in respect of the
related
Mortgage Pool;
(vii) all Advances in respect of the related Mortgage Pool made
by
the Master Servicer pursuant to Section 4.1; and
(viii)any other amounts required to be deposited hereunder
in
respect of the related Mortgage Pool.
In addition, with respect to any Mortgage Loan that is subject
to a
buydown agreement, on each Due Date for such Mortgage Loan, in
addition to
the monthly payment remitted by the Mortgagor, the Master
Servicer shall
cause funds to be deposited into the applicable subaccount of
the
Certificate Account in an amount required to cause an amount of
interest
to be paid with respect to such Mortgage Loan equal to the
amount of
interest that has accrued on such Mortgage Loan from the
preceding Due
Date at the related Adjusted Mortgage Rate on such date.
The foregoing requirements for remittance by the Master
Servicer
shall be exclusive, it being understood and agreed that, without
limiting
the generality of the foregoing, payments in the nature of
prepayment
penalties, late payment charges, assumption fees or amounts
attributable
to reimbursements of Advances, if collected, need not be
remitted by the
Master Servicer. In the event that the Master Servicer shall
remit any
amount not required to be remitted, it may at any time withdraw
or direct
the institution maintaining the Certificate Account to withdraw
such
amount from the Certificate Account, any provision herein to the
contrary
notwithstanding. Such withdrawal or direction may be
accomplished by
delivering written notice thereof to the Trustee or such other
institution
maintaining the Certificate Account which describes the amounts
deposited
in error in the Certificate Account. The Master Servicer shall
maintain
adequate records with respect to all withdrawals made pursuant
to this
Section. All funds deposited in the Certificate Account shall be
held in
trust for the Certificateholders until withdrawn in accordance
with
Section 3.8.
(c) The Trustee shall establish and maintain, on behalf of
the
Certificateholders, the Distribution Account. The
Distribution
Account shall consist of two separate subaccounts, each of
which
shall relate to a particular Mortgage Pool. The Trustee
shall,
promptly upon receipt, deposit in the Distribution Account
and
retain therein the following:
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(i) the aggregate amount remitted by the Master Servicer to
the
Trustee in respect of a Mortgage Pool pursuant to Section
3.8(a)(ix);
(ii) any amount deposited by the Master Servicer pursuant to
this
Section 3.5(c) in connection with any losses on Permitted
Investments; and
(iii) any other amounts deposited hereunder which are required
to be
deposited in the Distribution Account.
In the event that the Master Servicer shall remit any amount
not
required to be remitted, it may at any time direct the Trustee
to withdraw
such amount from the applicable subaccount of the Distribution
Account,
any provision herein to the contrary notwithstanding. Such
direction may
be accomplished by delivering an Officer's Certificate to the
Trustee
which describes the amounts deposited in error in the
Distribution
Account. All funds deposited in the Distribution Account shall
be held by
the Trustee in trust for the related Certificateholders until
disbursed in
accordance with this Agreement or withdrawn in accordance with
Section
3.8. In no event shall the Trustee incur liability for
withdrawals from
the Distribution Account at the direction of the Master
Servicer.
(iv) The institutions at which the Certificate Account and
the
Distribution Account are maintained shall invest funds as
directed by the Master Servicer in Permitted Investments
which
in both cases shall mature not later than (i) in the case of
the Certificate Account, the second Business Day next
preceding the related Distribution Account Deposit Date
(except that if such Permitted Investment is an obligation
of
the institution that maintains such account, then such
Permitted Investment shall mature not later than the
Business
Day next preceding such Distribution Account Deposit Date)
and
(ii) in the case of the Distribution Account, the Business
Day
next preceding the Distribution Date (except that if such
Permitted Investment is an obligation of the institution
that
maintains such fund or account, then such Permitted
Investment
shall mature not later than such Distribution Date) and, in
each case, shall not be sold or disposed of prior to its
maturity. All such Permitted Investments shall be made in
the
name of the Trustee, for the benefit of the
Certificateholders. All income and gain net of any losses
realized from any such investment of funds on deposit in the
Certificate Account shall be for the benefit of the Master
Servicer as servicing compensation and all income and gain
net
of any losses realized from any such investment of funds on
deposit in the Distribution Account shall be for the benefit
of the Trustee. The amount of any Realized Losses in the
Certificate Account in respect of any such investments shall
promptly be deposited by the Master Servicer in the
Certificate Account and the amount of any Realized Losses in
the Distribution Account in respect of any such investments
shall promptly be deposited by the Trustee into the
Distribution Account. All reinvestment income earned on
amounts on deposit in the Distribution Account shall be for
the benefit of the Trustee. The Trustee in its fiduciary
capacity shall not be liable for the amount of any loss
incurred in respect of any investment or lack of investment
of
funds held in the Certificate Account and made in accordance
with this Section 3.5.
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(v) The Master Servicer shall give notice to the Trustee,
the
Seller, each Rating Agency and the Depositor of any proposed
change of the location of the Certificate Account prior to
any
change thereof. The Trustee shall give notice to the Master
Servicer, the Seller, each Rating Agency and the Depositor
of
any proposed change of the location of the Distribution
Account prior to any change thereof.
SECTION 3.6 Collection of Taxes, Assessments and Similar
Items;
Escrow Accounts.
(a) To the extent required by the related Mortgage Note and
not
violative of current law, the Master Servicer shall establish
and
maintain one or more accounts (each, an "Escrow Account")
and
deposit and retain therein all collections from the Mortgagors
(or
advances by the Master Servicer) for the payment of taxes,
assessments, hazard insurance premiums or comparable items for
the
account of the Mortgagors. Nothing herein shall require the
Master
Servicer to compel a Mortgagor to establish an Escrow Account
in
violation of applicable law.
(b) Withdrawals of amounts so collected from the Escrow Accounts
may be
made only to effect timely payment of taxes, assessments,
hazard
insurance premiums, condominium or PUD association dues, or
comparable items, to reimburse the Master Servicer out of
related
collections for any payments made pursuant to Sections 3.1
hereof
(with respect to taxes and assessments and insurance premiums)
and
3.9 hereof (with respect to hazard insurance), to refund to
any
Mortgagors any sums determined to be overages, to pay interest,
if
required by law or the terms of the related Mortgage or
Mortgage
Note, to Mortgagors on balances in the Escrow Account or to
clear
and terminate the Escrow Account at the termination of this
Agreement in accordance with Section 9.1 hereof. The Escrow
Accounts
shall not be a part of the Trust Fund.
(c) The Master Servicer shall advance any payments referred to
in
Section 3.6(a) that are not timely paid by the Mortgagors on
the
date when the tax, premium or other cost for which such payment
is
intended is due, but the Master Servicer shall be required so
to
advance only to the extent that such advances, in the good
faith
judgment of the Master Servicer, will be recoverable by the
Master
Servicer out of Insurance Proceeds, Liquidation Proceeds or
otherwise.
SECTION 3.7 Access to Certain Documentation and Information
Regarding the Mortgage Loans.
The Master Servicer shall afford the Depositor and the Trustee
reasonable
access to all records and documentation regarding the Mortgage
Loans and all
accounts, insurance information and other matters relating to
this Agreement,
such access being afforded without charge, but only upon
reasonable request and
during normal business hours at the office designated by the
Master Servicer.
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Upon reasonable advance notice in writing, the Master Servicer
will
provide to each Certificateholder or Certificate Owner which is
a savings and
loan association, bank or insurance company certain reports and
reasonable
access to information and documentation regarding the Mortgage
Loans sufficient
to permit such Certificateholder or Certificate Owner to comply
with applicable
regulations of the OTS or other regulatory authorities with
respect to
investm
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