SALE AND SERVICING AGREEMENT

EXHIBIT 10.1

EXECUTION VERSION

SALE AND SERVICING AGREEMENT

dated as of May 1, 2006

by and among

NOVASTAR CERTIFICATES FINANCING CORPORATION

as Depositor,

NOVASTAR MORTGAGE INC.,

as Sponsor and Servicer,

NOVASTAR FINANCIAL INC.,

as a Seller

NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2006-MTA1,

as Issuing Entity,

JPMORGAN CHASE BANK, NATIONAL ASSOCIATION,

as Indenture Trustee

U.S. BANK NATIONAL ASSOCIATION,

as Custodian

J.P. MORGAN TRUST COMPANY, NATIONAL ASSOCIATION

as Co-Trustee

TABLE OF CONTENTS

 

 

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EXHIBITS

 

 

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SALE AND SERVICING AGREEMENT, dated as of May 1, 2006 (this “ Agreement ”), by and among NOVASTAR CERTIFICATES FINANCING CORPORATION, a Delaware corporation, as depositor (the “ Depositor ”), NOVASTAR FINANCIAL INC., as seller (the “ Seller ”), NOVASTAR MORTGAGE INC., a Virginia corporation, as sponsor (the “ Sponsor ”), NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2006-MTA1, a Delaware statutory trust, as issuing entity (the “ Issuing Entity ”), NOVASTAR MORTGAGE INC., a Virginia corporation, as servicer (the “ Servicer ”), JPMORGAN CHASE BANK, NATIONAL ASSOCIATION, a banking association organized under the laws of the United States, as indenture trustee (the “ Indenture Trustee ”), J.P. MORGAN TRUST COMPANY, NATIONAL ASSOCIATION, as co-trustee (the “ Co-Trustee ”) and U.S. BANK NATIONAL ASSOCIATION, a banking association organized under the laws of the United States, as custodian (the “ Custodian ”).

W I T N E S S E T H

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

WHEREAS, pursuant to the terms of this Agreement, the Depositor will sell to the Issuing Entity, and the Issuing Entity will purchase from the Depositor, the Initial Mortgage Loans and the related MI Policies on the Closing Date;

WHEREAS, immediately after such purchase, the Issuing Entity will pledge such Mortgage Loans to the Indenture Trustee pursuant to the terms of an Indenture, dated as of May 1, 2006 (the “ Indenture ”), between the Issuing Entity and the Indenture Trustee, and issue the NovaStar Mortgage Funding Trust, Series 2006-MTA1, Asset-Backed Notes (the “ Notes ”);

WHEREAS, the Servicer has agreed to service the Mortgage Loans, which constitute the principal assets of the Issuing Entity;

WHEREAS, the Custodian on behalf of the Indenture Trustee will hold the Mortgage Loans and certain other assets pledged to the Indenture Trustee pursuant to the Indenture; and

NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the Depositor, the Sponsor, the Issuing Entity, the Servicer, the Indenture Trustee and the Custodian hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01. Certain Defined Terms . Capitalized terms used herein but not defined herein shall have the meanings ascribed to such terms in Appendix I attached hereto.

Section 1.02. Provisions of General Application .

(a) The terms defined herein and in Appendix I to the Indenture include the plural as well as the singular.

 

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(b) The words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole. Unless otherwise noted, all references to Articles and Sections shall be deemed to refer to Articles and Sections of this Agreement.

(c) Any reference to statutes are to be construed as including all statutory provisions consolidating, amending or replacing the statute to which reference is made and all regulations promulgated pursuant to such statutes.

(d) All calculations of interest with respect to the LIBOR Notes provided for herein shall be on the basis of a 360-day year and the actual number of days elapsed in the related Interest Accrual Period. All calculations of interest with respect to any Mortgage Loan provided for herein shall be made in accordance with the terms of the related Mortgage Note and Mortgage or, if such documents do not specify the basis upon which interest accrues thereon, on the basis of a 360 day year consisting of twelve 30-day months, to the extent permitted by applicable law.

(e) Any Mortgage Loan payment is deemed to be received on the date such payment is actually received by the Servicer; provided, however , that, for purposes of calculating payments on the Notes, prepayments with respect to any Mortgage Loan are deemed to be received on the date they are applied in accordance with Accepted Servicing Practices consistent with the terms of the related Mortgage Note and Mortgage to reduce the outstanding Principal Balance of such Mortgage Loan on which interest accrues.

ARTICLE II

SALE AND CONVEYANCE OF THE MORTGAGE LOANS

Section 2.01. Purchase and Sale of Initial Mortgage Loans; Deposit of Derivatives .

(a) The Sponsor and the Seller hereby sell, transfer, assign, set over and convey, and the Depositor hereby purchases on the Closing Date the Initial Mortgage Loans identified (and the related MI Policies) on the Mortgage Loan Schedule annexed hereto as Schedule I, the proceeds thereof and all rights under the Related Documents (including the related Mortgage Files). The Initial Mortgage Loans will have a Principal Balance as of the close of business on the Cut-off Date, after giving effect to any payments due on or before such date whether or not received, of approximately $1,061,223,414.92. The sale of the Initial Mortgage Loans will take place on the Closing Date, subject to and simultaneously with the deposit of the Initial Mortgage Loans and the Original Pre-Funded Amount and the Capitalized Interest Account into the Trust Estate, the authentication of the Notes by the Indenture Trustee and the sale of the Notes pursuant to the Underwriting Agreement.

(b) The Sponsor hereby directs the Depositor to sell, transfer, assign, set over and convey, and the Depositor does hereby sell, transfer, assign, set over and convey to the Issuing Entity, in each case without recourse, but subject to the terms and provisions of this Agreement, all of the right, title and interest of the Depositor in and to the Initial Mortgage Loans, including the Cut-Off Date Principal Balance of, and interest due on, such Initial Mortgage Loans listed on Schedule I attached hereto, and all other assets included or to be included in the Trust Estate.

 

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(c) The Depositor may cause the deposit of derivatives solely for the benefit of the Certificates at any time into the NovaStar Mortgage Funding Trust, Series 2006-MTA1 and any such deposited derivatives shall become part of the Trust Estate.

(d) The parties hereto understand and agree that it is not intended that any Mortgage Loan be included in the Issuing Entity that is a “High-Cost Home Loan” as defined by HOEPA or any other applicable predatory or abusive lending laws.

Section 2.02. Reserved .

Section 2.03. Purchase Price . On the Closing Date, as full consideration for the Depositor’s sale of the Mortgage Loans to the Issuing Entity, the Underwriter, on behalf of the Issuing Entity, will deliver to, or at the direction of, the Depositor an amount in cash equal to approximately $1,187,566,172. Additionally, the Depositor will receive the Certificates issued by the Issuing Entity pursuant to the Trust Agreement. The Sponsor will receive the Class M-8 Notes, Class M-9 Notes and the Class M-10 Notes.

Section 2.04. Possession of Mortgage Files; Access to Mortgage Files .

(a) Upon the receipt by the Depositor, or its designee, of the purchase price for the Initial Mortgage Loans set forth in Section 2.03 hereof, the ownership of each Mortgage Note, each Mortgage and the contents of the Mortgage File related to each Initial Mortgage Loan will be vested in the Issuing Entity, and will be pledged to the Indenture Trustee, for the benefit of the Noteholders.

(b) The Custodian, on behalf of the Indenture Trustee will hold the Mortgage Files in trust for the benefit of all present and future Noteholders. The Custodian shall at all times retain possession of the Mortgage Files in the State of Maryland, except for those Mortgage Files or portions thereof released to the Servicer pursuant to this Agreement or the Indenture.

(c) Consistent with the terms of the Indenture, the Custodian shall afford the Depositor, the Sponsor, the Seller, the Issuing Entity, the Indenture Trustee and the Servicer reasonable access to all records and documentation regarding the Mortgage Loans relating to this Agreement, such access being afforded at customary charges, upon reasonable prior written request and during normal business hours at the offices of the Custodian.

(d) No later than the fifth Business Day of each fourth month, commencing in November 2006, the Custodian, on behalf of the Indenture Trustee shall deliver to the Servicer a report dated as of the first day of such month, identifying those Mortgage Loans for which it has not yet received (i) an original recorded Mortgage or a copy thereof certified to be true and correct by the public recording office in possession of such Mortgage or (ii) in the event that Assignments of Mortgage are required to be recorded in accordance with the provisions of Section 2.05, an original recorded Assignment of Mortgage to the Custodian, on behalf of the Indenture Trustee and any required intervening Assignments of Mortgage or a copy thereof certified to be a true and correct copy by the public recording office in possession of such Assignment of Mortgage.

 

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Section 2.05. Delivery of Mortgage Loan Documents . In connection with the transfer and assignment of the Mortgage Loans, the Sponsor or the Seller, as applicable, shall, on or before the Closing Date in the case of an Initial Mortgage Loan and two business days prior to the related Subsequent Transfer Date in the case of a Subsequent Mortgage Loan, deliver, or cause to be delivered, to the Depositor and the Depositor shall, on or before the Closing Date, deliver, or cause to be delivered, to the Custodian, as the Indenture Trustee’s designated agent (as pledgee of the Issuing Entity pursuant to the Indenture), the following documents or instruments constituting the Mortgage File with respect to each Mortgage Loan so transferred or assigned (with respect to each Mortgage Loan, a “ Mortgage File ”):

(i) the original Mortgage Note endorsed to “JPMorgan Chase Bank, National Association, as Indenture Trustee for the NovaStar Home Equity Loan Asset-Backed Notes, Series 2006-MTA1,” including all intervening endorsements showing a complete chain of endorsement;

(ii) the related original mortgage with evidence of recording indicated thereon or a copy thereof certified by the applicable recording office, the Sponsor or the Sponsor’s closing agent (or, if applicable, the Seller or the Seller’s closing agent) in connection with the closing of the Mortgage Loan and if the Mortgage Loan is registered on the MERS system (as described below), such mortgage or an assignment of the Mortgage will reflect MERS as the mortgagee of record and will include the MERS mortgage identification number;

(iii) each intervening mortgage assignment, if any, with evidence of recording indicated thereon, or if the original is not available, a copy thereof certified by the applicable recording office, the Sponsor or the Sponsor’s closing agent (or, if applicable, the Seller or the Seller’s closing agent) in connection with the closing of the Mortgage Loan, showing a complete chain of assignment from the originator of the related Mortgage Loan to the Sponsor or the Seller (or to MERS, if the Mortgage Loan is registered on the MERS system and indicating the mortgage identification number, if the Mortgage Loan is so registered) — which assignment may, at the Sponsor’s option, be combined with the assignment referred to in clause (d) below;

(iv) unless the Mortgage is registered on the MERS system, a mortgage assignment in recordable form, which, if acceptable for recording in the relevant jurisdiction, may be included in a blanket assignment or assignments, of each Mortgage from the Sponsor to the Indenture Trustee;

(v) originals of all assumption, modification and substitution agreements in those instances where the terms or provisions of a Mortgage or Mortgage Note have been modified or such Mortgage or Mortgage Note has been assumed; and

(vi) an original title insurance policy or title opinion (or (A) a copy of the title insurance policy or title opinion or (B) the related binder, commitment or

 

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preliminary report, or copy thereof, in which case the Sponsor certifies that the original mortgage has been delivered for recordation to the title insurance company that issued such binder, commitment or preliminary report).

If a material defect in any Mortgage File is discovered which may materially and adversely affects the value of the related Mortgage Loan, or the interests of the Indenture Trustee or the Noteholders in such Mortgage Loan, including if any document required to be delivered to the Custodian has not been delivered (provided that a Mortgage File will not be deemed to contain a defect for an unrecorded assignment under clause (iii) above for 180 days following submission of the assignment if the Sponsor or, the Seller, as applicable, has submitted such assignment for recording pursuant to the terms of the following paragraph), the Sponsor or, the Seller, as applicable, shall cure such defect or repurchase the related Mortgage Loan at the Repurchase Price or substitute an Qualified Substitute Mortgage Loan for the related Mortgage Loan upon the same terms and conditions as set forth in Section 5.01 of this Agreement as to the Mortgage Loans and Section 2.09(c) hereof as to the Subsequent Mortgage Loans for breaches of representations and warranties.

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

In instances where an original Mortgage, any original intervening assignment of Mortgage or an original policy of title insurance (or a commitment for title insurance) is not, in accordance with clause (ii), (iii) or (vi) above, delivered by the Sponsor or, the Seller, as applicable, to the Custodian, on behalf of the Indenture Trustee, prior to or on the Closing Date in the case of a Mortgage Loan, such failure to deliver such original Mortgage, original intervening assignment of Mortgage or an original policy of title insurance (or a commitment for title insurance) shall not be considered a material defect in a Mortgage File and the Sponsor or, the Seller, as applicable, will deliver or cause to be delivered the originals of such documents to the Custodian, on behalf of the Indenture Trustee, promptly upon receipt thereof.

In connection with the assignment of any Mortgage Loan registered on the MERS System, promptly after the Closing Date in the case of an Mortgage Loan (or after the date of transfer of any Qualified Substitute Mortgage Loan), the Sponsor or, the Seller, as applicable, further agrees that it will cause, at the Sponsor’s or, the Seller’s, as applicable, own expense, the MERS System to indicate that such Mortgage Loan has been assigned by the Sponsor or, the Seller, as applicable, to the Indenture Trustee in accordance with this Agreement for the benefit of the Noteholders by including (or deleting, in the case of Mortgage Loans which are repurchased in

 

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accordance with this Agreement) in its computer files (a) the applicable Trustee code in the field “Trustee” which identifies the Indenture Trustee and (b) the code “NovaStar 2006-MTA1” (or its equivalent) in the field “Pool Field” which identifies the series of the Notes issued in connection with such Mortgage Loans. The Sponsor or, the Seller, as applicable, further agrees that it will not, and will not permit the Servicer to, and the Servicer agrees that it will not, alter the codes referenced in this paragraph with respect to any such Mortgage Loan during the term of this Agreement unless and until such Mortgage Loan is repurchased in accordance with the terms of this Agreement.

Effective on the Closing Date, the Indenture Trustee, on behalf of the Noteholders, hereby acknowledges its acceptance of all right, title and interest to the Mortgage Loans and other property, existing on the Closing Date and thereafter created and conveyed to it pursuant to this Article II.

The Indenture Trustee, as assignee or transferee of the Depositor, shall be entitled to all scheduled principal payments due after the Cut-off Date, all other payments of principal due and collected after the Cut-off Date, and all payments of interest on the Mortgage Loans. No scheduled payments of principal due on or before the Cut-off Date and collected after the Cut-off Date shall belong to the Depositor pursuant to the terms of this Agreement. Any late payment charges collected in connection with a Mortgage Loan shall be paid to the Servicer as provided in Section 5.15(b) hereof.

Section 2.06. Acceptance of the Trust Estate; Certain Substitutions; Certification by the Custodian, on behalf of the Indenture Trustee . The Custodian, on behalf of the Indenture Trustee, acknowledges receipt of, subject to the review described below and any exceptions it notes pursuant to the procedures described below, the documents (or certified copies thereof) referred to in Section 2.05 hereof and declares that it holds and will continue to hold those documents and any amendments, replacements or supplements thereto and all other assets of the Trust Estate in trust for the use and benefit of all present and future Noteholders. No later than 45 days after the Closing Date (or, with respect to any Qualified Substitute Mortgage Loan, within 5 Business Days after the receipt by the Custodian, on behalf of the Indenture Trustee, thereof and, with respect to any documents received beyond 45 days after the Closing Date, promptly thereafter), the Custodian, on behalf of the Indenture Trustee, agrees, for the benefit of the Noteholders, to review each Mortgage File delivered to it and to execute and deliver, or cause to be executed and delivered, to the Sponsor an initial certification in the form annexed hereto as Exhibit D. In conducting such review, the Custodian, on behalf of the Indenture Trustee, will ascertain whether all required documents described in Section 2.05 hereof have been executed and received and whether those documents relate, determined on the basis of the Mortgagor name, original principal balance and loan number, to the Mortgage Loans it has received, as identified in Exhibit B to this Agreement, as supplemented (provided, however, that with respect to those documents described in subclause (vii) of such section, the Custodian’s obligations shall extend only to documents actually delivered pursuant to such subclause). In performing any such review, the Custodian, on behalf of the Indenture Trustee, may conclusively rely on the purported due execution and genuineness of any such document and on the purported genuineness of any signature thereon. If the Custodian, on behalf of the Indenture Trustee, finds that any document constituting part of the Mortgage File not to have been executed or received, or to be unrelated to the Mortgage Loans identified in Exhibit B or Attachment B to Exhibit 2 of

 

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the Purchase Agreement or to appear to be defective on its face, the Custodian, on behalf of the Indenture Trustee, shall promptly notify the Sponsor or the Seller, as applicable of such finding and the Sponsor’s or the Seller’s, as applicable obligation to cure such defect or repurchase or substitute for the related Mortgage Loan.

(a) No later than 180 days after the Closing Date, the Custodian, on behalf of the Indenture Trustee, will review, for the benefit of the Noteholders, the Mortgage Files and will execute and deliver or cause to be executed and delivered to the Sponsor or the Seller, as applicable, a final certification in the form annexed hereto as Exhibit E. In conducting such review, the Custodian, on behalf of the Indenture Trustee, will ascertain whether an original of each document described in subclauses (ii)-(iv) of Section 2.05 hereof required to be recorded has been returned from the recording office with evidence of recording thereon or a certified copy has been obtained from the recording office. If the Custodian, on behalf of the Indenture Trustee, finds any document constituting part of the Mortgage File has not been received, or to be unrelated, determined on the basis of the Mortgagor name, original principal balance and loan number, to the Mortgage Loans identified in Exhibit B or Attachment B to Exhibit 2 of this Agreement or to appear defective on its face, the Custodian, on behalf of the Indenture Trustee, shall promptly notify the Sponsor or the Seller, as applicable and the Indenture Trustee of such finding and the Sponsor’s obligation to cure such defect or repurchase or substitute for the related Mortgage Loan.

(b) Upon deposit of the Repurchase Price in the Collection Account and notification of the Indenture Trustee, by a certification signed by a Servicing Officer (which certification shall include a statement to the effect that the Repurchase Price has been deposited in the Collection Account), the Indenture Trustee shall cause the Custodian to release to the Sponsor or the Seller, as applicable the related Mortgage File and shall cause to be executed and delivered all instruments of transfer or assignment, without recourse, furnished to it by the Sponsor or the Seller, as applicable as are necessary to vest in the Sponsor or the Seller, as applicable title to and rights under the related Mortgage Loan. Such purchase shall be deemed to have occurred on the date on which certification of the deposit of the Repurchase Price in the Payment Account was received by the Indenture Trustee. The Custodian, on behalf of the Indenture Trustee, shall amend the applicable Mortgage Loan Schedule to reflect such repurchase and shall promptly notify the Servicer, and the Rating Agencies of such amendment.

Section 2.07. Grant of Security Interest . (a) It is intended that the conveyance of the Mortgage Loans and other property by the Depositor to the Issuing Entity as provided in this Article II be, and be construed for all purposes other than tax and accounting purposes as, a sale of the Mortgage Loans and such other property by the Depositor to the Issuing Entity. It is, for all purposes other than tax and accounting purposes further, not intended that such conveyance be deemed a pledge of the Mortgage Loans or such other property by the Depositor to the Issuing Entity to secure a debt or other obligation of the Depositor. However, in the event that the Mortgage Loans or any of such other property are held to be property of the Depositor, or if for any reason this Agreement is held or deemed to create a security interest in the Mortgage Loans or any of such other property, then it is intended that: (i) this Agreement shall also be deemed to be a security agreement within the meaning of the Uniform Commercial Code; (ii) the conveyance provided for in this Article II shall be deemed to be a grant by the Depositor to the

 

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Issuing Entity of a security interest in all of the Depositor’s right, title and interest in and to the Mortgage Loans and such other property and all amounts payable to the holders of the Mortgage Loans in accordance with the terms thereof and all proceeds of the conversion, voluntary or involuntary, of the foregoing into cash, instruments, securities or other property, including, without limitation, all amounts from time to time held or invested in the Accounts whether in the form of cash, instruments, securities or other property; (iii) the possession by the Custodian on behalf of the Indenture Trustee, of the Mortgage Notes and such other items of property as constitute instruments, money, negotiable documents or chattel paper shall be deemed to be “possession by the secured party” for purposes of perfecting the security interest pursuant to the Uniform Commercial Code; and (iv) notifications to persons holding such property, and acknowledgments, receipts or confirmations from persons holding such property, shall be deemed notifications to, or acknowledgments, receipts or confirmations from financial intermediaries, bailees or agents, as applicable, of the Indenture Trustee for the purpose of perfecting such security interest under applicable law. The Depositor, the Sponsor, the Servicer, on behalf of the Issuing Entity and the Indenture Trustee, shall, to the extent consistent with this Agreement, take such actions as may be reasonably necessary to ensure that, if this Agreement were deemed to create a security interest in the Mortgage Loans or any of such other property, such security interest would be deemed to be a perfected security interest of first priority under applicable law and will be maintained as such throughout the term of this Agreement.

(b) The Depositor, the Seller, the Sponsor and the Servicer shall take no action inconsistent with the Issuing Entity’s ownership of the Trust Estate and each shall indicate or shall cause to be indicated in its records and records held on its behalf that ownership of each Mortgage Loan and the other assets in the Trust Estate is vested in the Issuing Entity, as owner, and is pledged to the Indenture Trustee, for the benefit of the Noteholders pursuant to the terms of the Indenture. The Indenture Trustee is authorized to act, pursuant to the terms of this Agreement for the benefit of the Noteholders and shall be authorized to act at the direction of such parties. In addition, the Depositor, the Seller, the Sponsor and the Servicer shall respond to any inquiries from third parties with respect to ownership of a Mortgage Loan or any other asset in the Trust Estate by stating that it is not the owner of such asset and that the Issuing Entity is the owner of such Mortgage Loan or other asset in the Trust Estate, which is pledged to the Indenture Trustee, for the benefit of the Noteholders.

Section 2.08. Further Action Evidencing Assignments . (a) The Servicer agrees that, from time to time, at its expense, it shall cause the Seller, the Sponsor or Depositor, as the case may be, to, and each of the Seller, the Sponsor and Depositor agree that it shall, promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or appropriate, or that the Servicer or the Indenture Trustee (upon the receipt of written notification of the necessity thereof) may reasonably request, in order to perfect, protect or more fully evidence the transfer of ownership of the Mortgage Loans and other assets in the Trust Estate or to enable the Indenture Trustee, to exercise or enforce any of its rights hereunder. Without limiting the generality of the foregoing, the Seller, the Servicer, the Sponsor and the Depositor shall, upon the request of the Servicer or the Indenture Trustee (upon the receipt of written notification of the necessity thereof) execute and file (or cause to be executed and filed) such real estate filings, financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate.

 

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(b) Each of the Seller, the Sponsor and the Depositor hereby grants to the Servicer and the Indenture Trustee powers of attorney to execute all documents on its behalf under this Agreement as may be necessary or desirable to effectuate the foregoing.

Section 2.09. Conveyance of the Subsequent Mortgage Loans .

(a) Subject to the conditions set forth in paragraph (b) below in consideration of the Issuing Entity’s delivery on the related Subsequent Transfer Dates of all or a portion of the balance of funds in the Pre-Funding Account, the Sponsor shall on any Subsequent Transfer Date sell, transfer, assign, set over and convey, without recourse, to the Depositor, who shall then sell, transfer, assign, set over and convey, without recourse, to the Issuing Entity, but subject to the other terms and provisions of this Sale and Servicing Agreement, all of the right, title and interest of the Sponsor in and to (i) the Subsequent Mortgage Loans (and the related MI Policies) identified on the related Mortgage Loan Schedule attached to the related Subsequent Transfer Instrument delivered by the Sponsor on such Subsequent Transfer Date, (ii) principal due and interest accruing on the Subsequent Mortgage Loans after the related Subsequent Cut-off Date and (i) with respect to such Subsequent Mortgage Loans all items to be delivered pursuant to Section 2.05 above and the other items in the related Mortgage Files; provided, however, that the Sponsor reserves and retains all right, title and interest in and to principal received and interest accruing on the Subsequent Mortgage Loans prior to the related Subsequent Cut-off Date. The transfer by the Sponsor to the Depositor, and by the Depositor to the Trustee, of the Subsequent Mortgage Loans identified on each Mortgage Loan Schedule attached to the related Subsequent Transfer Instrument and the related MI Policies shall be absolute and is intended by the Issuing Entity, the Depositor and the Sponsor to constitute and to be treated as a sale of the Subsequent Mortgage Loans by the Sponsor to the Depositor, and a sale of the Subsequent Mortgage Loans by the Depositor to the Issuing Entity.

The Subsequent Mortgage Loans presented for purchase will be designated as either Group I or Group II. Of the Original Pre-Funded Amount of $138,776,585.08, a maximum of $90,813,688.21 will be used to acquire Subsequent Mortgage Loans for inclusion in Group I and a maximum of $47,962,896.87 will be used to acquire Subsequent Mortgage Loans for inclusion in Group II, subject to the satisfaction of the conditions set forth herein.

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

 

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Sponsor or the filing of any additional UCC-1 financing statements due to a change in the state of incorporation of the Sponsor as are necessary to perfect and protect the interests of the Depositor and its assignees in the Subsequent Mortgage Loans.

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

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

The Indenture Trustee on each Subsequent Transfer Date shall acknowledge by signing receipt thereof its acceptance of all right, title and interest to the related Subsequent Mortgage Loans and other property, existing on the Subsequent Transfer Date and thereafter created, conveyed to it pursuant to this Section 2.09.

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

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

(b) The Sponsor shall transfer to the Depositor, who shall transfer to the Indenture Trustee, the Subsequent Mortgage Loans and the other property and rights related thereto described in Section 2.09(a) above, and the Indenture Trustee shall cause to be released

 

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funds from the related Pre-Funding Account, only upon the satisfaction of each of the following conditions on or prior to the related Subsequent Transfer Date:

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

(ii) the Sponsor shall have delivered to the Depositor, who shall have delivered to the Indenture Trustee and the Custodian, a duly executed Subsequent Transfer Instrument substantially in the form of Exhibit N-1 or N-2, as applicable, (A) confirming the satisfaction of each condition precedent and representations specified in this Section 2.09(b), Section 2.09(c) and in the related Subsequent Transfer Instrument and (B) including a Mortgage Loan Schedule attached thereto listing the Subsequent Mortgage Loans;

(iii) as of each Subsequent Transfer Date, as evidenced by delivery of the Sponsor’s Subsequent Transfer Instrument in the form of Exhibit N-1 and the Depositor’s Subsequent Transfer Instrument is the form of Exhibit N-2, neither the Sponsor nor the Depositor shall be insolvent or have been made insolvent by such transfers, nor shall they be aware of any pending insolvency;

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

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

(c) The obligation of the Issuing Entity to purchase a Subsequent Mortgage Loan on any Subsequent Transfer Date is subject to the following conditions: (1) each such Subsequent Mortgage Loan shall satisfy the representations and warranties specified in the related Subsequent Transfer Instrument and this Sale and Servicing Agreement; (2) the Sponsor shall not select such Subsequent Mortgage Loans in a manner that it reasonably believes is adverse to the interests of the Majority Noteholders; (3) the Sponsor shall have delivered certain Opinions of Counsel required pursuant to Section 2.09(v) hereof; (4) as of the related Subsequent Cut-off Date, the Subsequent Mortgage Loans shall satisfy the following criteria: (i) each Subsequent Mortgage Loan shall not be 60 or more days contractually delinquent as of the related Subsequent Cut-off Date; (ii) the remaining stated

 

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term to maturity of each Subsequent Mortgage Loan shall not exceed 480 months; (iii) all of the Subsequent Mortgage Loans are secured by first liens on the related Mortgaged Property; (iv) each Subsequent Mortgage Loan shall have an outstanding Principal Balance of at least $10,000; (v) each Subsequent Mortgage Loan shall be underwritten in accordance with the Underwriting Guidelines; (vi) each Subsequent Mortgage Loan shall have a Loan-to-Value Ratio or a combined Loan-to-Value Ratio of no more than 100%; (vii) each Subsequent Mortgage Loan shall have a stated maturity of no later than September, 2046; (viii) each Subsequent Mortgage Loan shall either have a Mortgage Rate of at least 1.00%; (ix) all of the Subsequent Mortgage Loans shall have an adjustable Mortgage Rate; (x) the weighted average Loan-to-Value Ratio of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be no more than 80%; (xi) Reserved (xii) the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall have a weighted average coupon of at least 1.80%; (xiii) pursuant to the Underwriting Guidelines, no fewer than 75% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be ALT-A and M1 credit risks, no more than 25% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be comprised of other credit risks (xiv) the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall have a weighted average FICO score issued by a consumer credit rating agency of at least 690; (xv) at least 94% of such Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be loans for primary residences; (xvi) no more than 70% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall have stated loan documentation, and no more than 15% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance shall have no loan documentation; (xvii) at least 65% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be loans for single family residences; (xviii) no more than 65% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be loans that are the subject of cash-out refinances; (xix) the ratings agencies shall have consented either in writing or verbally to the transfer of the Subsequent Mortgage Loans; and (xx) at least 65% of the Subsequent Mortgage Loans shall have prepayment penalties.

The acceptance of the Subsequent Mortgage Loans by the Issuing Entity is subject to the Sponsor receiving a written or verbal consent from each of the Rating Agencies that states that the addition of such Subsequent Mortgage Loans will not cause the Rating Agencies to downgrade any of their ratings on the Offered Notes.

Notwithstanding the foregoing, Subsequent Mortgage Loans with characteristics varying from those set forth above may be purchased by the Issuing Entity and included in the Trust Estate, if (i) the Issuing Entity is provided with written confirmation that the aggregate credit risk of such Subsequent Mortgage Loans is similar to that of the Initial Mortgage Loans and (ii) the Sponsor receives and provides to the Issuing Entity a written consent from each of the Rating Agencies that states that the addition of such Subsequent Mortgage Loans will not cause the Rating Agencies to downgrade any of their ratings of the Offered Notes.

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

 

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ARTICLE III

REPRESENTATIONS, WARRANTIES AND COVENANTS

Section 3.01. Representations, Warranties and Covenants of the Servicer . The Servicer hereby represents, warrants and covenants to the Indenture Trustee, the Depositor, the Sponsor, the Issuing Entity, the Custodian and the Noteholders that as of the Closing Date or as of such date specifically provided herein:

(i) The Servicer is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Virginia and has the corporate power to own its assets and to transact the business in which it is currently engaged. The Servicer is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the character of the business transacted by it or properties owned or leased by it requires such qualification and in which the failure to so qualify would have a material adverse effect on the business, properties, assets, or condition (financial or other) of the Servicer or the validity or enforceability of the Mortgage Loans;

(ii) The Servicer has the corporate power and authority to make, execute, deliver and perform this Agreement and all of the transactions contemplated under this Agreement, and has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement. When executed and delivered, this Agreement will constitute the legal, valid and binding obligation of the Servicer enforceable in accordance with its terms, except as enforcement of such terms may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally and by the availability of equitable remedies;

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

(iv) The execution and delivery of this Agreement and the performance of the transactions contemplated hereby by the Servicer will not violate any provision of any existing law or regulation or any order or decree of any court applicable to the Servicer or any provision of the certificate of incorporation or bylaws of the Servicer, or constitute a material breach of any mortgage, indenture, contract or other agreement to which the Servicer is a party or by which the Servicer may be bound;

(v) The consummation of the transactions contemplated by this Agreement and the fulfillment of the terms hereof do not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under, the articles of organization or bylaws of the Servicer or any agreement or other instrument to which the Servicer is a party or by which it is bound;

 

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(vi) No litigation or administrative proceeding of or before any court, tribunal or governmental body is currently pending, or to the knowledge of the Servicer threatened, against the Servicer or any of its properties or with respect to this Agreement or the Notes which, to the knowledge of the Servicer, has a reasonable likelihood of resulting in a material adverse effect on the transactions contemplated by this Agreement;

(vii) The Servicer is a member of MERS in good standing, and will comply in all material respects with the rules and procedures of MERS in connection with the servicing of the Mortgage Loans that are registered with MERS; and

(viii) With respect to the Group I Mortgage Loans, the Servicer will accurately and fully report its borrower credit files to the three largest credit repositories in a timely manner.

(ix) The Servicer shall take all necessary steps to maintain the Indenture Trustee’s perfection and priority in the Mortgage Loans.

The foregoing representations and warranties shall survive any termination of the Servicer hereunder.

Section 3.02. Representations, Warranties and Covenants of the Sponsor . The Sponsor hereby represents and warrants to the Depositor, the Seller, the Custodian, the Issuing Entity and the Indenture Trustee as of the date hereof, as of the Closing Date (or if otherwise specified below, as of the date so specified) and as of each subsequent Transfer Date:

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

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

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

 

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(iv) The execution and delivery of this Agreement and each Sponsor’s Subsequent Transfer Instrument and the performance of the transactions contemplated hereby and each Sponsor’s Subsequent Transfer Instrument by the Sponsor will not violate any provision of any existing law or regulation or any order or decree of any court applicable to the Sponsor or any provision of the certificate of incorporation or bylaws of the Sponsor, or constitute a material breach of any mortgage, indenture, contract or other agreement to which the Sponsor is a party or by which the Sponsor may be bound;

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

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

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

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

(ix) The consummation of the transactions contemplated by this Agreement and the fulfillment of the terms hereof do not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under, the articles of organization or bylaws of the Sponsor or any agreement or other instrument to which the Sponsor is a party or by which it is bound;

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

 

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Section 3.03. Representations, Warranties and Covenants of the Sponsor . The Seller hereby represents and warrants to the Depositor, the Sponsor, the Custodian, the Issuing Entity and the Indenture Trustee as of the date hereof, as of the Closing Date (or if otherwise specified below, as of the date so specified) and as of each subsequent Transfer Date:

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

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

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

(iv) The execution and delivery of this Agreement and each Seller’s Subsequent Transfer Instrument and the performance of the transactions contemplated hereby and each Seller’s Subsequent Transfer Instrument by the Seller will not violate any provision of any existing law or regulation or any order or decree of any court applicable to the Seller or any provision of the certificate of incorporation or bylaws of the Seller, or constitute a material breach of any mortgage, indenture, contract or other agreement to which the Seller is a party or by which the Seller may be bound;

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

(vi) This Agreement constitutes the legal, valid and binding obligation of the Seller, enforceable against the Sponsor in accordance with its terms, except as

 

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enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors’ rights in general and except as such enforceability may be limited by general principles of equity (whether considered in a proceeding at law or in equity);

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

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

(ix) The consummation of the transactions contemplated by this Agreement and the fulfillment of the terms hereof do not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under, the articles of organization or bylaws of the Seller or any agreement or other instrument to which the Seller is a party or by which it is bound;

Section 3.04. Representations, Warranties and Covenants of the Indenture Trustee . The Indenture Trustee hereby represents, warrants and covenants to the Issuing Entity, the Servicer, the Depositor, the Custodian, the Seller and the Sponsor that as of the date of this Agreement and the Subsequent Transfer Instruments or as of such date specifically provided herein:

(i) The Indenture Trustee is duly organized and validly existing as a national banking association in good standing under the laws of the United States with power and authority to own its properties and to conduct its business as such properties are currently owned and such business is presently conducted;

(ii) The Indenture Trustee has the power and authority to execute and deliver this Agreement and to carry out its terms; and the execution, delivery and performance of this Agreement have been duly authorized by the Indenture Trustee by all necessary corporate action;

(iii) The consummation of the transactions contemplated by this Agreement and the fulfillment of the terms hereof do not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under, the articles of organization or bylaws of the Indenture Trustee or any agreement or other instrument to which the Indenture Trustee is a party or by which it is bound; and

 

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(iv) To the Indenture Trustee’s best knowledge, there are no proceedings or investigations pending or threatened before any court, regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Indenture Trustee or its properties: (A) asserting the invalidity of this Agreement, (B) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or (C) seeking any determination or ruling that might materially and adversely affect the performance by the Indenture Trustee of its obligations under, or the validity or enforceability of, this Agreement.

It is understood and agreed that the representations, warranties and covenants set forth in this Section 3.04 shall survive delivery of the respective Mortgage Files to the Custodian on behalf of the Indenture Trustee.

Section 3.05. Representations and Warranties of the Depositor . The Depositor hereby represents and warrants to the Sponsor, the Seller, the Custodian and the Indenture Trustee as of the date hereof and as of the Closing Date and the Depositor’s Subsequent Transfer Instrument that:

(a) The Depositor is duly organized and validly existing as a corporation in good standing under the laws of the State of Delaware, with power and authority to own its properties and to conduct its business as such properties are currently owned and such business is presently conducted.

(b) The Depositor is duly qualified to do business as a foreign corporation in good standing and has obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of its property or the conduct of its business shall require such qualifications and in which the failure to so qualify would have a material adverse effect on the business, properties, assets or condition (financial or other) of the Depositor and the ability of the Depositor to perform under this Agreement.

(c) The Depositor has the power and authority to execute and deliver this Agreement and to carry out its terms; the Depositor has full power and authority to purchase the property to be purchased from the Sponsor and the Depositor has duly authorized such purchase by all necessary corporate action; and the execution, delivery and performance of this Agreement have been duly authorized by the Depositor by all necessary corporate action.

(d) The consummation of the transactions contemplated by this Agreement and the fulfillment of the terms hereof do not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under, the articles of incorporation or bylaws of the Depositor, or any indenture, agreement or other instrument to which the Depositor is a party or by which it is bound; nor result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such indenture, agreement or other instrument (other than pursuant to the Basic Documents); nor violate any law or, to the best of the Depositor’s knowledge, any order, rule or regulation

 

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applicable to the Depositor of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Depositor or its properties.

(e) The Depositor (A) is a solvent entity and is paying its debts as they become due and (B) after giving effect to the transfer of the Mortgage Loans, will be a solvent entity and will have sufficient resources to pay its debts as they become due.

It is understood and agreed that the representations, warranties and covenants set forth in this Section 3.05 shall survive delivery of the respective Mortgage Files to the Custodian on behalf of the Indenture Trustee and shall inure to the benefit of the Indenture Trustee.

ARTICLE IV

THE MORTGAGE LOANS

Section 4.01. Representations and Warranties Concerning the Mortgage Loans .

The Sponsor and Seller hereby represents and warrants to the Depositor, the Custodian, the Issuing Entity and the Indenture Trustee as to each Mortgage Loan as of the Closing Date and as to each Subsequent Mortgage Loan as of the Subsequent Transfer Date, except as otherwise expressly stated:

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

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

(iii) No more than 11.46% and 5.51% of the Initial Mortgage Loans in Group I and the Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) were secured by condominium units; and no more than 17.07% and 19.24% of the Initial Mortgage Loans in Group I and the Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) were secured by properties in planned unit developments;

(iv) As of the Cut-off Date, the remaining term of each Group I Initial Mortgage Loan is not more than 343 months and not less than 476 months and the remaining term of each Group II Initial Mortgage Loan is not more than 340 months and not less than 376 months;

 

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(v) No more than 60.05% and 47.08% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) have been the subject of cash-out refinances;

(vi) No more than 11.51% and 10.71% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance), have been the subject of rate and term (no cash-out) refinances;

(vii) No fewer than 28.44% and 42.22% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) are purchase money loans;

(viii) No more than 59.15% and 85.66% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) are secured by Mortgaged Properties located in the State of California; no more than 12.22% and 2.58% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) are secured by Mortgaged Properties located in the State of Florida; no more than 2.12% and 0.88% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II (by Cut-off Date Principal Balance) are secured by Mortgaged Properties located in the State of Maryland; no more than 26.52% and 10.88% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) are located in any other state;

(ix) The outstanding Principal Balances of the Initial Mortgage Loans in Group I (by Cut-off Date Principal Balance) ranged from $59,929 to $728,092, the average outstanding Principal Balance of the Initial Mortgage Loans in Group I is approximately $272,849; the outstanding Principal Balances of the Initial Mortgage Loans in Group II (by Cut-off Date Principal Balance) ranged from $66,549 to $3,032,861, the average outstanding Principal Balance of the Initial Mortgage Loans in Group II is approximately $566,653;

(x) Approximately 62.04% and 70.48% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) were secured by a lien on a parcel of real property improved by a detached single family residence; no more than 9.31% and 4.77% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) were secured by a lien on a parcel of real estate improved by a multi-unit residence;

(xi) All fees and charges (including finance charges) and whether or not financed, assessed, collected or to be collected with the origination and servicing of each Mortgage Loan has been disclosed in writing to the borrower in accordance with applicable state and federal law and regulation;

(xii) The Mortgage Rates borne by the Initial Mortgage Loans in Group I as of the Closing Date range from 1.600% per annum to 9.238% per annum, and the

 

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weighted average Mortgage Rate (by Cut-off Date Principal Balance) of the Initial Mortgage Loans in Group I was 7.188% per annum; the Mortgage Rates borne by the Initial Mortgage Loans in Group II as of the Closing Date range from 2.450% per annum to 8.838% per annum, and the weighted average Mortgage Rate (by Cut-off Date Principal Balance) of the Initial Mortgage Loans in Group II was 7.028% per annum;

(xiii) Approximately 11.37% and 2.55% of the Initial Mortgage Loans in Group I and the Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) have a Loan-to-Value Ratio in excess of 80%; no Group I Initial Mortgage Loan or Group II Initial Mortgage Loan in the Mortgage Pool had a Loan-to-Value Ratio or combined Loan-to-Value Ratio at origination in excess of 100%; and the weighted average Loan-to-Value Ratio (by Cut-off Date Principal Balance) of the Initial Mortgage Loans in Group I and the Initial Mortgage Loans in Group II was equal to or less than 74.84% and 74.52%, respectively (by Cut-off Date Principal Balance);

(xiv) All of the Initial Mortgage Loans in Group I and the Initial Mortgage Loans in Group II, respectively, are secured by first liens on the related Mortgaged Property;

(xv) As of the Cut-off Date, the weighted average Loan-to-Value Ratio of the Initial Mortgage Loans in Group I is approximately 74.84%; the weighted average Loan-to-Value Ratio of the Initial Mortgage Loans in Group II is approximately 74.52%; and the gross weighted average coupon of the Mortgage Loans is approximately 7.102%;

(xvi) There is no valid offset, right of rescission, defense, claim or counterclaim of any obligor under any Mortgage Note or Mortgage, including the obligation of the Mortgagor to pay the unpaid principal of or interest on such Mortgage Note, and any applicable right of rescission has expired, nor will the operation of any of the terms of such Mortgage Note or Mortgage, or the exercise of any right thereunder, render either the Mortgage Note or the Mortgage unenforceable, in whole or in part, or subject to any right of rescission, set-off, recoupment, counterclaim or defense, including, without limitation, the defense of usury, and no such right of rescission, set-off, recoupment, counterclaim or defense has been asserted with respect thereto, and, to the best of Sponsor’s knowledge, no Mortgagor of the applicable Mortgage is or since the date of origination has been a debtor in any state or federal bankruptcy or insolvency proceeding and no Mortgaged Property has been subject to any such proceeding;

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

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

 

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

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

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

(xxii) A lender’s policy of title insurance (on an ALTA or CLTA form) or binder, or other assurance of title customary in the relevant jurisdiction insuring the first lien priority of the Mortgage Loan in an amount at least equal to the original Principal

 

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

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

(xxiv) No improvement located on or being part of the Mortgaged Property is in violation of any applicable zoning law or regulation, subdivision law or ordinance, except where the failure to comply would not have a material adverse effect on the market value of the Mortgaged Property. All inspections, licenses and certificates required to be made or issued with respect to all occupied portions of the Mortgaged Property and, with respect to the use and occupancy and fire underwriting certificates, have been made or obtained from the appropriate authorities and the Mortgaged Property is lawfully occupied under applicable law except where the failure to comply would not have a material adverse effect on the market value of the Mortgaged Property;

(xxv) Each Mortgage Note and the applicable Mortgage are genuine, and each is the legal, valid and binding obligation of the maker thereof, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency, reorganization, moratorium, receivership and other similar laws relating to creditors’ rights generally or by equitable principles (regardless of whether such enforcement is considered in a proceeding in equity or at law). All parties to the Mortgage Note and the Mortgage had legal capacity to execute the Mortgage Note and the Mortgage and each Mortgage Note and Mortgage has been duly and properly executed by such parties;

(xxvi) The proceeds of the Mortgage Loans have been fully disbursed, there is no requirement for future advances thereunder and any and all requirements as to completion of any on-site or off-site improvements and as to disbursement of any escrow funds therefor have been complied with. All costs, fees and expenses incurred in making, closing or recording the Mortgage Loans were paid and the Mortgagor is not entitled to any refund of amounts paid or due under the Mortgage Note;

(xxvii) Each Mortgage contains customary and enforceable provisions that render the rights and remedies of the holder thereof adequate for the realization against the Mortgaged Property of the benefits of the security, including (i) in the case of

 

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a Mortgage designated as a deed of trust, by trustee’s sale, and (ii) otherwise by judicial foreclosure or if applicable, non-judicial foreclosure. Upon default by a Mortgagor on a Mortgage Loan and foreclosure on, or trustee’s sale of, the Mortgaged Property pursuant to the proper procedures, the holder of the Mortgage Loan will be able to deliver good and merchantable title to the property, subject to any applicable rights of redemption;

(xxviii) With respect to each Mortgage constituting a deed of trust, either a trustee, duly qualified under applicable law to serve as such, has been properly designated and currently so serves and is named in such Mortgage or if no duly qualified trustee has been properly designated and so serves, the Mortgage contains satisfactory provisions for the appointment of such trustee by the holder of the Mortgage at no cost or expense to such holder, and no fees or expenses are or will become payable by the Noteholders to the trustee under the deed of trust, except in connection with a trustee’s sale after default by the Mortgagor;

(xxix) There exist no deficiencies with respect to escrow deposits and payments, if such are required, for which customary arrangements for repayment thereof cannot be made, and no escrow deficits or payments of other charges or payments due the Sponsor or the Seller, as applicable have been capitalized under the Mortgage or the applicable Mortgage Note;

(xxx) The Mortgage Note is not and has not been secured by any collateral, pledged account or other security other than real estate securing the Mortgagor’s obligations and no Mortgage Loan is secured by more than one Mortgaged Property;

(xxxi) As of the Closing Date, the improvements upon each Mortgaged Property are covered by a valid and existing hazard insurance policy substantially acceptable to FNMA and acceptable to the Sponsor or the Seller, as applicable which policy provides for fire extended coverage and such other hazards as are customary in the area where the Mortgaged Property is located representing coverage in an amount not less than the lesser of (A) the maximum insurable value of the improvements securing such Mortgage Loan and (B) the outstanding Principal Balance of the related Mortgage Loan; if the improvement on the Mortgaged Property is a condominium unit, it is included under the coverage afforded by a blanket policy for the condominium project. All individual insurance policies contain a standard mortgagee clause naming the Sponsor or the Seller, as applicable or the original holder of the Mortgage, and its successors in interest, as mortgagee, and neither the Sponsor nor the Seller has received notice that any premiums due and payable thereon have not been paid; the Mortgage obligates the Mortgagor thereunder to maintain all such insurance at the Mortgagor’s cost and expense, and upon the Mortgagor’s failure to do so, authorizes the holder of the Mortgage to obtain and maintain such insurance at the Mortgagor’s cost and expense and to seek reimbursement therefore from the Mortgagor. There has been no act or omission which would impair the coverage of any such policy, the benefits of the endorsement provided for herein, or the validity and binding effect of either;

 

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(xxxii) If the Mortgaged Property is in an area identified in the Federal Register by the Federal Emergency Management Agency as having special flood hazards, a flood insurance policy in a form meeting the requirements of the current guidelines of the Flood Insurance Administration is in effect with respect to such Mortgaged Property with a generally acceptable carrier in an amount representing coverage not less than the least of (A) the outstanding Principal Balance of the Mortgage Loan, (B) the minimum amount required to compensate for damage or loss on a replacement cost basis and (C) the maximum amount of flood coverage that is available under federal law;

(xxxiii) Except for the Mortgage Loans referred to in clause (xlii) as being delinquent, if any, there is no default, breach, violation or event of acceleration existing under the Mortgage or the applicable Mortgage Note; and no event which, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a material default, breach, violation or event of acceleration, and neither the Sponsor or the Seller, as applicable, nor any of their respective affiliates nor any servicer or subservicer of any related Mortgage Loan has waived any default, breach, violation or event of acceleration; no foreclosure action is threatened or has been commenced with respect to the Mortgage Loan;

(xxxiv) Each Mortgage Loan is being serviced by the Servicer in accordance with the terms of the Mortgage Note;

(xxxv) There is no obligation on the part of the Sponsor or the Seller, as applicable or any other party to make any payments with respect to the related Mortgage Loan in addition to the Monthly Payments required to be made by the applicable Mortgagor;

(xxxvi) Any future advances made prior to the Cut-off Date, with respect to any Mortgage Loan have been consolidated with the outstanding principal amount secured by such Mortgage, and the secured principal amount, as consolidated, bears a single interest rate and single repayment term reflected on the Mortgage Loan Schedule. The consolidated principal amount does not exceed the original principal amount of the Mortgage Loan. The Mortgage Note with respect to any Mortgage Loan does not permit or obligate the Servicer to make future advances to the Mortgagor at the option of the Mortgagor;

(xxxvii) The Sponsor or the Seller, as applicable has caused or will cause to be performed any and all acts required to preserve the rights and remedies of the Depositor and the Indenture Trustee evidencing an interest in the Mortgage Loans in any insurance policies applicable to the Mortgage Loans including, without limitation, any necessary notifications of insurers, assignments of policies or interests therein, and establishments of coinsured, joint loss payee and mortgagee rights in favor of Indenture Trustee;

(xxxviii) Except as set forth in clause (xlii), there are no defaults by the Mortgagor in complying with the terms of any Mortgage, and all taxes, governmental assessments, insurance premiums, water, sewer and municipal charges which previously

 

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became due and owing have been paid, or, if required by the terms of the Mortgage Loan, an escrow of funds has been established in an amount sufficient to pay for every such item which remains unpaid and which has been assessed, but is not yet due and payable. Except for (A) payments in the nature of escrow payments and (B) interest accruing from the date of the Mortgage Note or date of disbursement of the Mortgage proceeds to the day which precedes by one month the Due Date of the first installment of principal and interest, including, without limitation, taxes and insurance payments, none of the Sponsor, the Seller nor the Servicer has advanced funds, or induced, solicited or knowingly received any advance of funds by a party other than the Mortgagor, directly or indirectly, for the payment of any amount required by the Mortgage;

(xxxix) At the time of origination, each Mortgaged Property was the subject of an appraisal which conforms to the underwriting requirements of the related originator; and the Mortgage File contains an appraisal of the applicable Mortgaged Property;

(xl) None of the Mortgage Loans are graduated payment Mortgage Loans or growth equity Mortgage Loans;

(xli) [Reserved.]

(xlii) (a) Except with respect to no more than 2.27% of the Initial Mortgage Loans in Group II (by Cut-off Date Principal Balance), none of the payments of principal of or interest on or in respect of any Initial Mortgage Loans shall be 30 days or more but less than 60 days past due as of the Cut-off Date; and none and 0.07% of the Initial Mortgage Loans in Group I and the Initial Mortgage Loans in Group II, respectively, was 60 days or more past due as of the Cut-off Date; (b) except as set forth in clause (a) above, all payments required to be made by the Mortgagor under the terms of the Mortgage Note have been made and credited; and (c) to the Sponsor’s or the Seller’s knowledge, as applicable, there was no delinquent recording, tax or assessment lien against the property subject to any Mortgage, except where such lien was being contested in good faith and a stay had been granted against levying on the property;

(xliii) Upon payment of the Purchase Price for the Mortgage Loans by the Depositor, pursuant to this Agreement, the Sponsor or the Seller, as applicable has transferred to the Depositor in the case of a Mortgage Loan, good and marketable title to each Mortgage Note and Mortgage free and clear of any and all liens, claims, encumbrances, participation interests, equities, pledges, charges or security interests of any nature and has or had full right and authority, subject to no participation of or agreement with any other person, to sell and assign the same, and following the sale of each Mortgage Loan, the Depositor or the Issuing Entity, as applicable, will own such Mortgage Loan free and clear of any encumbrance, equity interest, participation interest, lien, pledge, charge, claim or security interest;

(xliv) The Sponsor or the Seller, as applicable acquired any right, title and interest in and to the Mortgage Loans in good faith and without notice of any adverse claim;

 

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(xlv) The Mortgage Note, the Mortgage, the related Assignment of Mortgage and any other documents required to be delivered by the Sponsor or the Seller, as applicable have been delivered to the Custodian. The Custodian is in possession of a complete, true and accurate Mortgage File in accordance with Section 2.01 hereof. Substantially all the Mortgage Loans have monthly payments due on the first day of each month and each Mortgage Loan had an original term to maturity of no greater than 30 years;

(xlvi) Each Mortgage Loan contains a due-on-sale provision, although each Mortgage Loan may be assumable if permitted by the Servicer under certain circumstances;

(xlvii) Each of the Mortgage and the Assignment of Mortgage is in recordable form and is acceptable for recording under the laws of the jurisdiction in which the Mortgaged Property is located;

(xlviii) The Mortgagor has not notified the Sponsor or the Seller, as applicable, and neither the Seller nor the Sponsor has knowledge of any relief requested or allowed to the Mortgagor under the Servicemembers Civil Relief Act other than as disclosed pursuant to the Prospectus Supplement;

(xlix) To the best of the Sponsor’s or the Seller’s knowledge, as applicable there exists no violation of any local, state, or federal environmental law, rule or regulation in respect of the Mortgaged Property which violation has or could have a material adverse effect on the market value of such Mortgaged Property. Neither the Seller or the Sponsor has knowledge of any pending action or proceeding directly involving the related Mortgaged Property in which compliance with any environmental law, rule or regulation is in issue; and, to the best of the Sponsor’s or the Seller’s knowledge, as applicable nothing further remains to be done to satisfy in full all requirements of each such law, rule or regulation constituting a prerequisite to the use and employment of such Mortgaged Property;

(l) Each Mortgage Loan conforms, and all such Mortgage Loans in the aggregate conform in all material respects, to the description thereof set forth in the Prospectus and Prospectus Supplement;

(li) [Reserved]

(lii) No Mortgage Loan is subject to the requirements of the Home Ownership and Equity Protection Act of 1994 (“HOEPA”);

(liii) Immediately prior to the transfer to the Depositor or the Issuing Entity, as applicable, the Sponsor or the Seller, applicable had good and marketable title thereto, and the Sponsor or the Seller, applicable is the sole legal, equitable owner of beneficial title to and holder of the Mortgage Loan. The Sponsor or the Seller, applicable is conveying the same to the Depositor or the Issuing Entity, as applicable, free and clear of any and all liens, claims, encumbrances, participation interests, equities, pledges, charges or security interests of any nature and has full right and authority to sell and assign the same pursuant to this Agreement, except for liens which will be released simultaneously with such conveyance;

 

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(liv) For each Mortgage Loan, the related Mortgage File contains a true, accurate and correct copy of each of the documents and instruments required to be included therein;

(lv) The Servicer meets all applicable requirements under the Sale and Servicing Agreement, is properly qualified to service each Mortgage Loan and has been servicing each Mortgage Loan prior to the Cut-off Date;

(lvi) Reserved;

(lvii) On the basis of a representation by the Mortgagor at the time of origination of the Initial Mortgage Loans, at least 75.22% and 91.47% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) will be secured by Mortgages on owner-occupied primary residence properties;

(lviii) None of the Initial Mortgage Loans in Group I and the Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) provide for a balloon payment and each Mortgage Note with respect to each such Mortgage Loan requires monthly payments of principal based on either a 40 year or 30 year amortization schedules and have scheduled maturity dates of 30 years or 15 years, respectively, from the due date of the first monthly payment;

(lix) No Mortgage Loan was originated based on an appraisal of the related Mortgaged Property made prior to completion of construction of the improvements thereon;

(lx) None of the Mortgage Loans is a “buy down” mortgage loan;

(lxi) [Reserved].

(lxii) No Mortgage Loan is a “High Cost Home Loan” or “Covered Loan,” as applicable, (as such terms are defined in the then current Standard & Poor’s LEVELS ^® Glossary which is now Version 5.6(c) Revised, Appendix E) and no Mortgage Loan is a “High Cost Home Loan” as defined in the Georgia Fair Lending Act, as amended (the “Georgia Act”). No Mortgage Loan that was originated (or modified) on or after October 1, 2002 and before March 7, 2003, is secured by property located in the State of Georgia. There is no Mortgage Loan that was originated on or after March 7, 2003 which is a “high cost home loan” as defined under the Georgia Fair Lending Act;

(lxiii) None of the Mortgage Loans are covered by the requirements of the Home Ownership and Equity Protection Act of 1994, as amended, or any comparable state or local law; none of the Mortgage Loans are “section 32” loans or “high cost” loans as defined by applicable predatory and abusive lending laws; none of the Mortgage Loans (by Cut-off Date Principal Balance) require a mortgagor to pay a Prepayment Charge if the mortgagor prepays a Mortgage Loan more than five years after the date the Mortgage Loan was originated;

 

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(lxiv) No Mortgage Loan is a “High-Cost Home Loan” as defined in New York Banking Law 6-1;

(lxv) No Mortgage Loan is a “High-Cost Home Loan” as defined in the Arkansas Home Loan Protection Act effective July 16, 2003 (Act 1340 of 2003);

(lxvi) No Mortgage Loan is a “High-Cost Home Loan” as defined in the Kentucky high-cost home loan statute effective June 24, 2003 (Ky. Rev. Stat. Section 360.100);

(lxvii) No Mortgage Loan in the trust is a “high-cost home,” “covered” (excluding home loans defined as “covered home loans” in the New Jersey Home Ownership Security Act of 2002 that were originated between November 26, 2003 and July 7, 2004), “high risk home” or “predatory” loan under any applicable state, federal or local law (or a similarly classified loan using different terminology under a law imposing heightened regulatory scrutiny or additional legal liability for residential mortgage loans having high interest rates, points and/or fees);

(lxviii) No Mortgage Loan is a “High-Cost Home Loan” as defined in the New Mexico Home Loan Protection Act effective January 1, 2004 (N.M. Stat. Ann. §§ 58-21A-1 et seq.);

(lxix) No Mortgage Loan is a “High-Risk Home Loan” as defined in the Illinois High-Risk Home Loan Act effective January 1, 2004 (815 Ill. Comp. Stat. 137/1 et seq.);

(lxx) No Mortgage Loan is a “High-Cost Home Loan” as defined in the Massachusetts Predatory Home Loan Practices Act effective November 7, 2004 (MA House Bill 4880);

(lxxi) No Mortgage Loan is a “High-Cost Home Loan” as defined in the Indiana Home Loan Practices Act effective January 1st, 2005 (Indiana Code Ann. §§ 24-9-1 et seq.);

(lxxii) Approximately 70.84% of the Initial Mortgage Loans are subject to prepayment charges as of the Cut-off Date;

(lxxiii) [Reserved.]

(lxxiv) No borrower was required to purchase any credit life, disability, accident or health insurance product as a condition of obtaining the extension of credit. No borrower obtained a prepaid single premium credit life, credit disability, credit unemployment or credit property insurance policy in connection with the origination of the Mortgage Loan; No proceeds from any Mortgage Loan were used to purchase single premium credit insurance policies as part of the origination of, or as a condition to closing, such Mortgage Loan;

 

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(lxxv) Reserved;

(lxxvi) With respect to the Group I Mortgage Loans secured by manufactured housing, such housing will be the principal residence of the borrower upon origination of the Group I Mortgage Loan.

(lxxvii) With respect to the Group I Mortgage Loans that contain a provision permitting the imposition of a premium upon a prepayment prior to maturity: (a) prior to the Mortgage Loan’s origination, the borrower agreed to such premium in exchange for a monetary benefit, including but not limited to a rate or fee reduction; (b) prior to the Mortgage Loan’s origination, the borrower was offered the option of obtaining a Mortgage Loan that did not require payment of such a premium; (c) the prepayment premium is adequately disclosed to the borrower pursuant to applicable state and federal law; (d) no Group I Mortgage Loan originated on or after October 1, 2002 will impose a prepayment premium for a term in excess of three years and any loans originated prior to such date will not impose prepayment penalties in excess of five years; in each case unless the loan was modified to reduce the prepayment period to no more than three years from the date of the note and the borrower was notified in writing of such reduction in prepayment period; and (e) notwithstanding any state or federal law to the contrary, the servicer shall not impose such prepayment premium in any instance when the mortgage loan is accelerated or paid off in connection with the workout of a delinquent mortgage or due to the borrower’s default.

(lxxviii) With respect to the Group I Mortgage Loans, the Group I Mortgage Loan’s Originator offered the borrower mortgage loan products offered by such mortgage loan’s originator, or any affiliate of such mortgage loan’s originator, for which the borrower qualified.

(lxxix) With respect to Mortgaged Properties located in the continental United States and Puerto Rico, no Group I Mortgage Loan secured by a single-family residence has a Principal Balance at origination in excess of $417,000; no Group I Mortgage Loan secured by a two-family residence has a Principal Balance at origination in excess of $533,850; no Group I Mortgage Loan secured by a three-family residence has a Principal Balance at origination in excess of $645,300; and no Group I Mortgage Loan secured by a four-family residence has a Principal Balance at origination in excess of $801,950; with respect to Mortgaged Properties located in Alaska, Guam, Hawaii and the Virgin Islands, no Group I Mortgage Loan secured by a single-family residence has a Principal Balance at origination in excess of $625,500; no Group I Mortgage Loan secured by a two-family residence has a Principal Balance at origination in excess of $800,775; no Group I Mortgage Loan secured by a three-family residence has a Principal Balance at origination in excess of $967,950; and no Group I Mortgage Loan secured by a four-family residence has a Principal Balance at origination in excess of $1,202,925;

 

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(lxxx) No selection procedure reasonably believed by the Sponsor or the Seller, as applicable to be adverse to the interests of the Noteholders was utilized in selecting the Mortgage Loans;

(lxxxi) The terms of the Mortgage Note related to each Mortgage Loan provide that, following an initial period of two or three years following the month in which such Mortgage Loan was originated and semiannually or annually thereafter (each such date, an “ Adjustment Date ”), the Mortgage Rate on such Mortgage Loan will be adjusted to equal the sum of (a) the related Index and (b) a fixed percentage amount specified in the related Mortgage Note (each, a “ Gross Margin ”); provided, however , that the Mortgage Rate will not increase or decrease by the related Periodic Rate Cap, and will not increase above a specified maximum Mortgage Rate over the life of the Mortgage Loan (the “ Maximum Mortgage Rate ”) or decrease below a specified minimum Mortgage Rate over the life of the Mortgage Loan (the “ Minimum Mortgage Rate ”);

(lxxxii) No error, omission, negligence, misrepresentation, fraud or similar occurrence with respect to a Mortgage Loan has taken place on the part of the Sponsor or the Seller, as applicable, their respective affiliates or employees or any other person involved in the origination of the Mortgage Loan or in the application for any insurance, including, but not limited to the MI Policy, in relation to such Mortgage Loan;

(lxxxiii) Each Mortgage Loan was originated by a mortgagee approved by the Secretary of Housing and Urban Development pursuant to Sections 203 and 211 of the Act, a savings and loan association, a savings bank, a commercial bank, credit union, insurance company or similar institution which is supervised and examined by a federal or state authority;

(lxxxiv) With respect to each Mortgage Loan secured by manufactured housing, such manufactured housing is permanently affixed to a foundation and constitutes real estate under applicable state law;

(lxxxv) No Mortgage Loans are date of payment or simple interest loans;

(lxxxvi) The sale, transfer, assignment and conveyance of Mortgage Loans by the Sponsor or the Seller, as applicable pursuant to this Agreement is not subject to and will not result in any tax, fee or governmental charge payable by the Depositor, the Issuing Entity, the Custodian or the Indenture Trustee to any federal, state or local government (“Transfer Taxes”) other than Transfer Taxes which have or will be paid by the Sponsor or the Seller, as applicable as due;

(lxxxvii) Approximately 5.95% of the Initial Mortgage Loans (by Cut-off Date Principal Balance) with a Loan-to-Value Ratio greater than 60% are covered by an MI Policy issued by an MI Insurer;

(lxxxviii) [Reserved];

 

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(lxxxix) All requirements for the valid transfer of each MI Policy, including any assignments or notices required in each MI Policy, have been satisfied;

(xc) As of the Closing Date with respect to each Initial Mortgage Loan that is subject to a MI Policy, the Sponsor or the Seller, as applicable is unaware of any existing circumstances which would cause the MI Insurer to deny a claim with respect to such Mortgage Loan;

(xci) All appraisals of the Mortgage Loans by the Sponsor or the Seller, as applicable are full URAR/1004 appraisals;

(xcii) All Prepayment Charges are enforceable and were originated in compliance with all applicable federal, state, and local laws;

(xciii) [Reserved.]

(xciv) With respect to Mortgage Loans that are more than 59 days delinquent as of the Cut-off Date, the Sponsor or the Seller, as applicable has made a specific review of the Servicer’s data and records that reflect mortgagor communications and payment history, and has no actual knowledge of an event, condition or mortgagor communication which would cause the Sponsor or the Seller, as applicable to institute foreclosure proceedings;

(xcv) The servicer for each Group I Mortgage Loan has fully furnished (and will fully furnish), in accordance with the Fair Credit Reporting Act and its implementing regulations, accurate and complete information (i.e., favorable and unfavorable) on its borrower credit files to Equifax, Experian, and Trans Union Credit Information Company (three of the credit repositories), on a monthly basis;

(xcvi) None of the Group I Mortgage Loans are classified as (a) “high cost” loans under the Home Ownership and Equity Protection Act of 1994 or (b) “high cost,” “threshold,” “covered”, “predatory” or “abusive” loans under any other applicable state, federal or local law (including without limitation any regulation or ordinance) (or a similarly classified loan using different terminology under a law imposing heightened regulatory scrutiny or additional legal liability for residential mortgage loans having high interest rates, points and/or fees); and

(xcvii) With respect to any Group I Mortgage Loan originated on or after August 1, 2004, neither the related mortgage nor the related mortgage note requires the borrower to submit to arbitration to resolve any dispute arising out of or relating in any way to the mortgage loan transaction.

(xcviii) With respect to the Group I Mortgage Loans, the methodology used in underwriting the extension of credit for each Group I Mortgage Loan employs objective mathematical principles which relate the borrower’s income, assets and liabilities to the proposed payment and such underwriting methodology does not rely on the extent of the borrower’s equity in the collateral as the principal determining factor in approving such credit extension. Such underwriting methodology confirmed that at the time of origination (application/approval) the borrower had the reasonable ability to make timely payments on the mortgage loan.

 

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(xcix) With respect to the Group I Mortgage Loans, no borrower under a Group I Mortgage Loan was charged “points and fees” in an amount greater than (a) $1,000 or (b) 5% of the principal amount of such mortgage loan, whichever is greater. For purposes of this representation, “points and fees” (x) included origination, underwriting, broker and finder’s fees and charges that the lender imposed as a condition of making the mortgage loan, whether they are paid to the lender or a third party; and (y) exclude bona fide discount points, fees paid for actual services rendered in connection with the origination of the mortgage (such as attorneys’ fees, notaries fee and fees paid for property appraisals, credit reports, surveys, title examinations and extracts, flood and tax certifications, and home inspections); the cost of mortgage insurance or credit-risk price adjustments; the costs of title, hazard, and flood insurance policies; state and local transfer taxes or fees; escrow deposits for the future payment of taxes and insurance premiums; and other miscellaneous fees and charges that, in total, do not exceed 0.25 percent of the loan amount.

(c) With respect to the Group I Mortgage Loans, all points, fees and charges (including finance charges), whether or not financed, assessed, collected or to be collected in connection with the origination and servicing of each Group I Mortgage Loan, have been disclosed in writing to the borrower in accordance with applicable state and federal law and regulation.

Upon discovery by the Sponsor or the Seller or upon notice from the Depositor, the Indenture Trustee, or the Custodian, as applicable, of a breach of any representation or warranty in Section 3.05 which materially and adversely affects the interests of the Noteholders the Sponsor or the Seller shall, within 45 days of its discovery or its receipt of notice of such breach, either (i) cure such breach in all material respects or (ii) to the extent that such breach is with respect to a Mortgage Loan or a Related Document, either (A) repurchase such Mortgage Loan from the Indenture Trustee at the Repurchase Price, or (B) substitute one or more Qualified Substitute Mortgage Loans for such Mortgage Loan, in each case in the manner and subject to the conditions and limitations set forth below.

Upon discovery by the Sponsor or the Seller or upon notice from the Depositor, the Issuing Entity, the Indenture Trustee, or the Custodian, as applicable, of a breach of any representation or warranty in this Section 4.01 with respect to any Mortgage Loan or upon the occurrence of a Repurchase Event, which materially and adversely affects the value of the related Mortgage Loan or the interests of any Noteholders or of the Depositor, the Issuing Entity, or the Indenture Trustee in such Mortgage Loan (notice of which shall be given to the Depositor, the Custodian and the Indenture Trustee by the Sponsor, if it discovers the same) the Sponsor or the Seller shall, within 90 days after the earlier of its discovery or receipt of notice thereof, either cure such breach or Repurchase Event in all material respects or either (i) repurchase such Mortgage Loan from the Indenture Trustee at the Repurchase Price, or (ii) substitute one or more Qualified Substitute Mortgage Loans for such Mortgage Loan, in each case in the manner and subject to the conditions set forth below; provided, however , that a breach of any of the representations and warranties found in subsections (xx), (lii), (lxii), (lxvii), (lxxiv), (lxxv),

 

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(lxxvi), (lxxvii), (lxxviii), (lxxix), (xcvii), (xcviii), (xcix), (c), (ci) and (cii) shall be deemed to materially and adversely affect the interest of the Noteholders. The Repurchase Price for any such Mortgage Loan repurchased by the Sponsor or the Seller shall be deposited or caused to be deposited by the Servicer in the Collection Account maintained by it pursuant to Section 5.06 of this Agreement.

In the event that the Sponsor or the Seller, as applicable elects to substitute an Qualified Substitute Mortgage Loan or Loans for a Deleted Mortgage Loan pursuant to this Section 4.01, the Sponsor shall deliver to the Custodian on behalf of the Indenture Trustee, with respect to such Qualified Substitute Mortgage Loan or Loans, the original Mortgage Note and all other documents and agreements as are required by Section 2.01 hereof, with the Mortgage Note endorsed as required by such Section 2.01 hereof. No substitution will be made in any calendar month after the Determination Date for such month. Monthly Payments due with respect to Qualified Substitute Mortgage Loans in the month of substitution shall not be part of the Trust Estate and will be retained by the Servicer and remitted by the Servicer to the Sponsor on the next succeeding Payment Date. For the month of substitution, payments to the Collection Account pursuant to the Sale and Servicing Agreement will include the Monthly Payment due on a Deleted Mortgage Loan for such month and thereafter the Sponsor or the Seller, as applicable shall be entitled to retain all amounts received in respect of such Deleted Mortgage Loan. The Servicer shall amend or cause to be amended the Mortgage Loan Schedule to reflect the removal of such Deleted Mortgage Loan and the substitution of the Qualified Substitute Mortgage Loan or Loans and the Servicer shall deliver the amended Mortgage Loan Schedule to the Custodian and the Indenture Trustee. Upon such substitution, the Qualified Substitute Mortgage Loan or Loans shall be subject to the terms of this Agreement and the Sale and Servicing Agreement in all respects, the Sponsor or the Seller, as applicable shall be deemed to have made the representations and warranties with respect to the Qualified Substitute Mortgage Loan contained herein set forth in this Section 4.01, to the extent set forth in the definition of “Qualified Substitute Mortgage Loan”, as of the date of substitution, and the Sponsor or the Seller, as applicable shall be obligated to repurchase or substitute for any Qualified Substitute Mortgage Loan as to which a Repurchase Event has occurred as provided herein. In connection with the substitution of one or more Qualified Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the Servicer will determine the amount (such amount, a “Substitution Adjustment Amount”), if any, by which (i) the Repurchase Price that would otherwise apply to such Deleted Mortgage Loan, exceeds (ii) the principal balance of the related Qualified Substitute Mortgage Loan (after application of the principal portion of the Monthly Payments due in the month of substitution that are to be distributed to the Collection Account in the month of substitution). The Sponsor or the Seller, as applicable shall pay the amount of such shortfall to the Servicer for deposit into the Collection Account on the day of substitution, without any reimbursement therefor.

Upon receipt by the Indenture Trustee of written notification, signed by a Servicing Officer, of the deposit of such Repurchase Price or of such substitution of an Qualified Substitute Mortgage Loan and deposit of any applicable Substitution Adjustment Amount as provided above, the Custodian shall, on behalf of the Indenture Trustee, cause to be released to the Sponsor or the Seller, as applicable the related Mortgage File for the Mortgage Loan being repurchased or substituted for and the Indenture Trustee shall execute and deliver such instruments of transfer or assignment prepared by the Servicer, in each case without recourse, as

 

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shall be necessary to vest in the Sponsor or the Seller, as applicable or its designee such Mortgage Loan released pursuant hereto and thereafter such Mortgage Loan shall not be an asset of the Indenture Trustee.

It is understood and agreed that the obligation of the Sponsor or the Seller, as applicable to cure any breach with respect to or to repurchase or substitute for, any Mortgage Loan as to which such a breach has occurred and is continuing shall, except to the extent provided in Section 8.02 of this Agreement, constitute the sole remedy respecting such breach available to the Depositor, the Indenture Trustee, the Noteholders or the Custodian against the Sponsor or the Seller, as applicable.

It is understood and agreed that the representations and warranties set forth in this Section 4.01 shall survive delivery of the respective Mortgage Files to the Custodian on behalf of the Indenture Trustee.

ARTICLE V

ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS

Section 5.01. Servicer to Assure Servicing .

(a) The Servicer shall supervise, or take such actions as are necessary to ensure, the servicing and administration of the Mortgage Loans and any REO Property in accordance with this Agreement and Accepted Servicing Practices, which generally shall conform to the standards of an institution prudently servicing mortgage loans for its own account and shall have full authority to do anything it reasonably deems appropriate or desirable in connection with such servicing and administration. The Servicer may perform its responsibilities relating to servicing through other agents or independent contractors, but shall not thereby be released from any of its responsibilities as hereinafter set forth. Subject to Section 5.06(b), the authority of the Servicer, in its capacity as Servicer, and any Subservicer acting on its behalf, shall include, without limitation, the power to (i) consult with and advise any Subservicer regarding administration of a related Mortgage Loan, (ii) approve any recommendation by a Subservicer to foreclose on a related Mortgage Loan, (iii) supervise the filing and collection of insurance claims and take or cause to be taken such actions on behalf of the insured Person thereunder as shall be reasonably necessary to prevent the denial of coverage thereunder, and (iv) effectuate foreclosure or other conversion of the ownership of the Mortgaged Property securing a related Mortgage Loan, including the employment of attorneys, the institution of legal proceedings, the collection of deficiency judgments, the acceptance of compromise proposals and any other matter pertaining to a delinquent Mortgage Loan. The authority of the Servicer shall include, in addition, the power on behalf of the Noteholders, the Indenture Trustee, or any of them to (i) execute and deliver customary consents or waivers and other instruments and documents, (ii) consent to transfer of any related Mortgaged Property and assumptions of the related Mortgage Notes and Mortgages (in the manner provided in this Agreement) and (iii) collect any Insurance Proceeds and Liquidation Proceeds. Without limiting the generality of the foregoing, the Servicer and any Subservicer acting on its behalf may, and is hereby authorized, and empowered by the Indenture Trustee when the Servicer believes it is reasonably necessary in its best judgment in

 

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order to comply with its servicing duties hereunder, to execute and deliver, on behalf of itself, the Noteholders, the Indenture Trustee, or any of them, any instruments of satisfaction, cancellation, partial or full release, discharge and all other comparable instruments, with respect to the related Mortgage Loans, the insurance policies and the accounts related thereto, and the Mortgaged Properties. The Servicer may exercise this power in its own name or in the name of a Subservicer.

The Servicer, in such capacity, may not consent to the placing of a lien senior to that of the Mortgage on the related Mortgaged Property.

The relationship of the Servicer (and of any successor to the Servicer as servicer under this Agreement) to the Issuing Entity and the Indenture Trustee under this Agreement is intended by the parties to be that of an independent contractor and not that of a joint venturer, partner or agent.

(b) Notwithstanding the provisions of Subsection 5.01(a), the Servicer shall not take any action inconsistent with the interests of the Indenture Trustee, or the Noteholders or with the rights and interests of the Indenture Trustee, or the Noteholders under this Agreement.

(c) The Indenture Trustee shall furnish the Servicer with any powers of attorney and other documents in form as provided to it necessary or appropriate to enable the Servicer to service and administer the related Mortgage Loans and REO Property and the Indenture Trustee shall not be liable for the actions of the Servicer or any Subservicers under such powers of attorney.

(d) The Servicer further is authorized and empowered by the Indenture Trustee, on behalf of the Noteholders and the Indenture Trustee, when the Servicer believes it is appropriate in its best judgment to register any Mortgage Loan on the MERS System, or cause the removal from the registration of any Mortgage Loan on the MERS System, to execute and deliver, on behalf of the Indenture Trustee and the Noteholders 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 Indenture Trustee and its successors and assigns. Any expenses incurred in connection with the actions described in the preceding sentence shall be borne by the Servicer with no right of reimbursement; provided, that if, as a result of MERS discontinuing or becoming unable to continue operations in connection with the MERS System, it becomes necessary to remove any Mortgage Loan from registration on the MERS System and to arrange for the assignment of the related Mortgages to the Indenture Trustee, then any related expenses shall be reimbursable to the Servicer by the Issuing Entity.

Section 5.02. Subservicing Agreements Between Servicer and Subservicers .

(a) The Servicer may enter into Subservicing Agreements with Subservicers for the servicing and administration of the Mortgage Loans and for the performance of any and all other activities of the Servicer hereunder. Each Subservicer shall be either (i) an institution the accounts of which are insured by the FDIC or (ii) another entity that engages in

 

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the business of originating or servicing mortgage loans comparable to the Mortgage Loans, and in either case shall be authorized to transact business in the state or states in which the related Mortgaged Properties it is to service are situated, if and to the extent required by applicable law to enable the Subservicer to perform its obligations hereunder and under the Subservicing Agreement. Any Subservicing Agreement entered into by the Servicer shall include the provision that such Agreement may be immediately terminated (i) (x) with cause and without any termination fee by the Servicer hereunder and/or (y) without cause, in which case