EXHIBIT 10.1

 

EXECUTION COPY

 

 

 

SALE AND SERVICING AGREEMENT

 

 

dated as of September 1, 2003

 

 

by and among

 

 

ACCREDITED HOME CAPITAL, INC.,

as Seller,

 

 

ACCREDITED HOME LENDERS, INC.,

as Sponsor and Master Servicer,

 

 

ACCREDITED MORTGAGE LOAN TRUST 2003-2,

as Issuer,

 

 

COUNTRYWIDE HOME LOANS SERVICING LP,

as Backup Servicer,

 

and

 

DEUTSCHE BANK NATIONAL TRUST COMPANY,

as Indenture Trustee

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TABLE OF CONTENTS

 

         Page

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ARTICLE I

DEFINITIONS

    

Section 1.01.

 

Certain Defined Terms

   1

Section 1.02.

 

Provisions of General Application

   2

ARTICLE II

SALE AND CONVEYANCE OF THE MORTGAGE LOANS

    

Section 2.01.

 

Purchase and Sale of Mortgage Loans; Deposit of Derivatives

   2

Section 2.02.

 

Reserved

   3

Section 2.03.

 

Purchase Price

   3

Section 2.04.

 

Possession of Mortgage Files; Access to Mortgage Files

   3

Section 2.05.

 

Delivery of Mortgage Loan Documents

   3

Section 2.06.

 

Acceptance of the Trust Estate; Certain Substitutions; Certification by the
Indenture Trustee

   6

Section 2.07.

 

Grant of Security Interest

   8

Section 2.08.

 

Further Action Evidencing Assignments

   9

Section 2.09.

 

Assignment of Agreement

   9

ARTICLE III

REPRESENTATIONS AND WARRANTIES

    

Section 3.01.

 

Representations of the Master Servicer

   9

Section 3.02.

 

Representations, Warranties and Covenants of the Sponsor

   11

Section 3.03.

 

Representations, Warranties and Covenants of the Backup Servicer

   12

Section 3.04.

 

Representations, Warranties and Covenants of the Indenture Trustee

   13

Section 3.05.

 

Covenants and Representations of the Sponsor and Master Servicer Regarding
Prepayment Charges

   14

Section 3.06.

 

Representations, Warranties and Covenants of the Seller

   15

ARTICLE IV

THE MORTGAGE LOANS

    

Section 4.01.

 

Representations and Warranties Concerning the Mortgage Loans

   16

Section 4.02.

 

Purchase and Substitution

   24

ARTICLE V

ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS

    

Section 5.01.

 

The Master Servicer

   25

Section 5.02.

 

Collection of Certain Mortgage Loan Payments; Collection Account

   27

Section 5.03.

 

Permitted Withdrawals from the Collection Account

   29

Section 5.04.

 

Hazard Insurance Policies; Property Protection Expenses

   30

 

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Section 5.05.

 

Assumption and Modification Agreements

   31

Section 5.06.

 

Realization Upon Defaulted Mortgage Loans

   32

Section 5.07.

 

Indenture Trustee to Cooperate

   33

Section 5.08.

 

Servicing Compensation; Payment of Certain Expenses by Master Servicer

   34

Section 5.09.

 

Annual Statement as to Compliance

   35

Section 5.10.

 

Annual Independent Public Accountants’ Servicing Report

   35

Section 5.11.

 

Access to Certain Documentation

   35

Section 5.12.

 

Maintenance of Fidelity Bond

   35

Section 5.13.

 

Subservicing Agreements Between the Master Servicer and Subservicer and
Subservicers

   36

Section 5.14.

 

Reports to the Indenture Trustee; Collection Account Statements

   37

Section 5.15.

 

Optional Purchase of Defaulted Mortgage Loans

   37

Section 5.16.

 

Reports to be Provided by the Master Servicer and the Backup Servicer

   38

Section 5.17.

 

[Reserved]

   39

Section 5.18.

 

Periodic Advances

   39

Section 5.19.

 

Indemnification; Third Party Claims

   40

Section 5.20.

 

Maintenance of Corporate Existence and Licenses; Merger or Consolidation of the
Master Servicer and Backup Servicer

   40

Section 5.21.

 

Assignment of Agreement by Master Servicer and Backup Servicer; Master Servicer
and Backup Servicer Not to Resign

   41

Section 5.22.

 

Periodic Filings with the Securities and Exchange Commission Additional
Information

   41

Section 5.23.

 

Administrative Duties

   42

ARTICLE VI

APPLICATION OF FUNDS

    

Section 6.01.

 

Deposits to the Payment Account

   43

Section 6.02.

 

Collection of Money

   43

Section 6.03.

 

Application of Principal and Interest

   43

Section 6.04.

 

[Reserved]

   43

Section 6.05.

 

Compensating Interest

   44

Section 6.06.

 

Effect of Payments by the Note Insurer; Subrogation

   44

ARTICLE VII

SERVICER DEFAULT

    

Section 7.01.

 

Servicer Events of Default

   44

Section 7.02.

 

Backup Servicer to Act: Appointment of Successor

   47

Section 7.03.

 

Waiver of Defaults

   51

Section 7.04.

 

Rights of the Note Insurer to Exercise Rights of the Noteholders

   51

Section 7.05.

 

Indenture Trustee To Act Solely with Consent of the Note Insurer

   52

Section 7.06.

 

Mortgage Loans, Trust Estate and Accounts Held for Benefit of the Note Insurer

   52

Section 7.07.

 

Note Insurer Default

   52

 

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ARTICLE VIII

TERMINATION

    

Section 8.01.

 

Termination

   53

Section 8.02.

 

Additional Termination Requirements

   54

Section 8.03.

 

Accounting Upon Termination of Master Servicer

   54

Section 8.04.

 

Termination of Backup Servicer as Successor Master Servicer

   54

ARTICLE IX

[RESERVED]

    

ARTICLE X

MISCELLANEOUS PROVISIONS

    

Section 10.01.

 

Limitation on Liability

   54

Section 10.02.

 

Acts of Noteholders

   55

Section 10.03.

 

Amendment

   56

Section 10.04.

 

Recordation of Agreement

   56

Section 10.05.

 

Duration of Agreement

   57

Section 10.06.

 

Notices

   57

Section 10.07.

 

Severability of Provisions

   57

Section 10.08.

 

No Partnership

   57

Section 10.09.

 

Counterparts

   58

Section 10.10.

 

Successors and Assigns

   58

Section 10.11.

 

Headings

   58

Section 10.12.

 

No Petition

   58

Section 10.13.

 

Third Party Beneficiary

   58

Section 10.14.

 

Intent of the Parties

   58

Section 10.15.

 

GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL

   58

Schedule I

 

Mortgage Loan Schedule

    

Appendix I

 

Defined Terms

     EXHIBITS     

Exhibit A

 

Contents of the Mortgage File

    

Exhibit B

 

Indenture Trustee’s Acknowledgement of Receipt

    

Exhibit C

 

Indenture Trustee’s Acknowledgement of Receipt

    

Exhibit D

 

Initial Certification of Indenture Trustee

    

Exhibit E

 

Final Certification of Indenture Trustee

    

Exhibit F

 

Request for Release of Documents

    

 

 

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SALE AND SERVICING AGREEMENT, dated as of September 1, 2003 (this “Agreement”),
by and among ACCREDITED HOME CAPITAL, INC., a Delaware corporation, as seller
(the “Seller”), ACCREDITED HOME LENDERS, INC., a California corporation, as
sponsor (the “Sponsor”), ACCREDITED MORTGAGE LOAN TRUST 2003-2, a Delaware
statutory trust, as issuer (the “Trust”), ACCREDITED HOME LENDERS, INC., a
California corporation, as master servicer (the “Master Servicer”), COUNTRYWIDE
HOME LOANS SERVICING LP, a Texas limited partnership, as backup servicer (the
“Backup Servicer”), and DEUTSCHE BANK NATIONAL TRUST COMPANY, a national banking
association, as indenture trustee (the “Indenture Trustee”).

 

W I T N E S S E T H

 

WHEREAS, the Sponsor has sold the mortgage loans (the “Mortgage Loans”) listed
on Schedule I to this Agreement and together with the Mortgage Loans, the
“Mortgage Loans”) to the Seller, pursuant to the Master Sale and Purchase
Agreement, dated as of December 29, 2001, between the Sponsor and the Seller;

 

WHEREAS, the Seller desires to sell to the Trust, and the Trust desires to
purchase from the Seller, the Mortgage Loans;

 

WHEREAS, immediately after such purchase, the Trust will pledge such Mortgage
Loans to the Indenture Trustee pursuant to the terms of an Indenture, dated as
of September 1, 2003 (the “Indenture”), between the Trust and the Indenture
Trustee, and issue the Accredited Mortgage Loan Trust 2003-2, Asset-Backed Notes
(the “Notes”);

 

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

 

WHEREAS, the Backup Servicer has agreed to act as backup servicer of the
Mortgage Loans, which constitute the principal assets of the Trust;

 

WHEREAS, 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 Seller, the Sponsor, the Trust, the Master Servicer, the
Backup Servicer and the Indenture Trustee 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.

 

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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.

 

(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 Class A-1 Notes provided
for herein shall be made on the basis of a 360-day year consisting of twelve
30-day months. All calculations of interest with respect to the Class A-2 Notes
and Class A-3 Notes provided for herein shall be on the basis of a 360-day year
and the actual number of days elapsed in the related 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 Master 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 Mortgage Loans; Deposit of Derivatives. (a)
The Sponsor hereby directs the Seller to sell, transfer, assign, set over and
convey, and the Seller does hereby sell, transfer, assign, set over and convey
to the Trust, to be included as part of Sub-Trust 1, Sub-Trust 2 or Sub-Trust 3,
as specified in the Mortgage Loan Schedule, in each case without recourse, but
subject to the terms and provisions of this Agreement, all of the right, title
and interest of the Seller in and to the Mortgage Loans, including the Cut-Off
Date Principal Balance of, and interest due on, such Mortgage Loans listed on
Schedule I attached hereto, and all other assets included or to be included in
the Trust Estate. In addition, on or prior to the Closing Date, the Sponsor
shall cause the Note Insurer to deliver the Note Insurance Policy.

 

(a) The Seller may cause the deposit of derivatives at any time into the
Accredited Mortgage Loan Trust 2003-2 and any such deposited derivatives shall
become part of the Trust Estate.

 

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Section 2.02. Reserved.

 

Section 2.03. Purchase Price. On the Closing Date, as full consideration for the
Seller’s sale of the Mortgage Loans to the Trust, the Underwriter, on behalf of
the Trust, will deliver to, or at the direction of, the Seller an amount in cash
equal to the sum of (A) 99.96797%, 100% and 100% of the Original Note Principal
Balance as of the Closing Date of the Class A-1 Notes, Class A-2 Notes and the
Class A-3 Notes, respectively, plus (B) accrued interest on the Original Note
Principal Balance of the Class A-1 Notes at the rate of 4.23% per annum from
(and including) September 1, 2003 to (but not including) the Closing Date.
Additionally, the Seller will receive the Certificates issued by the Trust
pursuant to the Trust Agreement.

 

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

 

(a) Upon the receipt by the Seller, or its designee, of the purchase price for
the 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 Mortgage Loan will be vested in the Trust, and will be pledged to the
Indenture Trustee, for the benefit of the Noteholders and the Note Insurer.

 

(b) Pursuant to Section 2.05 hereof, the Seller has delivered, or caused to be
delivered the Indenture Trustee’s Mortgage File related to each Mortgage Loan to
the Indenture Trustee.

 

(c) The Indenture Trustee will hold the Indenture Trustee’s Mortgage Files in
trust pursuant to the terms of the Indenture for the benefit of all present and
future Noteholders and the Note Insurer.

 

(d) Consistent with the terms of the Indenture, the Indenture Trustee shall
afford the Seller, the Sponsor, the Trust, the Note Insurer, the Master Servicer
and the Backup 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 Indenture Trustee.

 

Section 2.05. Delivery of Mortgage Loan Documents. (a) In connection with the
transfer and assignment of the Mortgage Loans, the Seller shall, on or before
the Closing Date, deliver, or cause to be delivered, to the Indenture Trustee
(as pledgee of the Trust pursuant to the Indenture), the following documents or
instruments constituting the Indenture Trustee’s Mortgage File with respect to
each Mortgage Loan so transferred or assigned:

 

(i) the original Mortgage Note, endorsed without recourse in blank or to
“Deutsche Bank National Trust Company, as Indenture Trustee under the Indenture
dated as of September 1, 2003, Accredited Mortgage Loan Trust 2003-2” by the
Sponsor, 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;

 

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(iii) each intervening mortgage assignment, with evidence of recording indicated
thereon or if the original is not available, a copy thereof certified by the
applicable recording office, if any, showing a complete chain of assignment from
the originator of the related Mortgage Loan to the Sponsor (which assignment
may, at the Sponsor’s option, be combined with the assignment referred to in
subpart (iv) hereof, in which case it must be in recordable form, but need not
have been previously recorded);

 

(iv) a mortgage assignment in recordable form (which, if acceptable for
recording in the relevant jurisdiction as evidenced by an opinion of counsel
addressed to the Indenture Trustee, 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 (if any);
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 preliminary report, or copy thereof in which case the Sponsor hereby
certifies that the original Mortgage has been delivered to the title insurance
company that issued such binder, commitment or preliminary report).

 

In instances where the original recorded Mortgage or any intervening mortgage
assignment or a completed assignment of the Mortgage in recordable form cannot
be delivered by the Sponsor to the Indenture Trustee prior to or concurrently
with the execution and delivery of this Agreement due to a delay in connection
with recording, the Sponsor may:

 

(x) in lieu of delivering such original recorded Mortgage or intervening
mortgage assignment, deliver to the Indenture Trustee, a copy thereof and the
Sponsor hereby certifies that the original Mortgage has been delivered to a
title insurance company for recordation after receipt of its policy of title
insurance or the related binder, commitment or preliminary report therefor; and

 

(y) with respect to clause (iii) above, in lieu of delivering the completed
assignment in recordable form, deliver to the Indenture Trustee, the assignment
in recordable form, otherwise complete except for recording information.

 

The Indenture Trustee is hereby authorized and directed, promptly upon receipt
thereof, with respect to each assignment described in Section 2.05(a)(iv)
hereof, to endorse such assignment as follows: “Deutsche Bank National Trust
Company, as Indenture Trustee under the Indenture dated as of September 1, 2003,
Accredited Mortgage Loan Trust 2003-2.”

 

(b) As promptly as practicable, but in any event within thirty (30) days from
the Closing Date, the Sponsor shall promptly submit, or cause to be submitted
for recording in the appropriate public office for real property records, each
assignment referred to in Section 2.05(a)(iv); provided however, the Sponsor
need not cause to be recorded any assignment which relates to a Mortgage Loan in
any jurisdiction under the laws of which, as evidenced by an

 

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Opinion of Counsel delivered by the Sponsor (at the Sponsor’s expense) to the
Indenture Trustee, acceptable to the Rating Agencies and the Note Insurer, the
recordation of such assignment is not necessary to protect the Indenture
Trustee’s, the Note Insurer’s, the Noteholders’ and the Certificates’ interest
in the related Mortgage Loan. The Indenture Trustee, shall retain a copy of each
assignment submitted for recording. In the event that any such assignment is
lost or returned unrecorded because of a defect therein, the Sponsor shall
promptly prepare a substitute assignment or cure such defect, as the case may
be, and thereafter the Sponsor shall submit each such assignment for recording.
The costs relating to the delivery and recordation of the documents in
connection with the Mortgage Loans as specified in this Article II shall be
borne by the Sponsor.

 

(c) The Sponsor shall, within five (5) Business Days after the receipt thereof,
deliver, or cause to be delivered, to the Indenture Trustee: (i) the original
recorded Mortgage and related power of attorney, if any, in those instances
where a copy thereof certified by the Sponsor was delivered to the Indenture
Trustee; (ii) the original recorded assignment of Mortgage from the last
endorsee to the Indenture Trustee, which, together with any intervening
assignments of Mortgage, evidences a complete chain of assignment from the
originator of the Mortgage Loan to the Indenture Trustee, in those instances
where copies of such assignments certified by the Sponsor were delivered to the
Indenture Trustee; and (iii) the title insurance policy or title opinion
required in Section 2.05(a)(vi).

 

Notwithstanding anything to the contrary contained in this Section 2.05, in
those instances where the public recording office retains the original Mortgage,
power of attorney, if any, assignment or assignment of Mortgage after it has
been recorded or such original has been lost, the Sponsor shall be deemed to
have satisfied its obligations hereunder upon delivery to the Indenture Trustee,
of a copy of such Mortgage, power of attorney, if any, assignment or assignment
of Mortgage certified by the public recording office to be a true copy of the
recorded original thereof.

 

From time to time the Sponsor may forward, or cause to be forwarded, to the
Indenture Trustee, additional original documents evidencing any assumption or
modification of a Mortgage Loan.

 

(d) All original documents relating to the Mortgage Loans that are not required
to be delivered to the Indenture Trustee, pursuant to Section 2.05(a) hereof
are, and shall be, held by the Master Servicer, the Sponsor or the Seller, as
the case may be, in trust for the benefit of the Indenture Trustee, on behalf of
the Noteholders and the Note Insurer. In the event that any such original
document is required pursuant to the terms of this Section 2.05 to be a part of
an Indenture Trustee’s Mortgage File, such document shall be delivered promptly
to the Indenture Trustee. From and after the sale of the Mortgage Loans to the
Trust pursuant hereto, to the extent that the last assignee thereof retains
title of record to any Mortgage Loans prior to the vesting of legal title in the
Trust, such title shall be retained in trust for the Trust as the owner of the
Mortgage Loans, and the Indenture Trustee, as the pledgee of the Trust under the
Indenture. In acting as custodian of any original document which is part of the
Indenture Trustee’s Mortgage Files, the Master Servicer agrees further that it
does not and will not have or assert any beneficial ownership interest in the
related Mortgage Loans or the Mortgage Files. Promptly upon the Master
Servicer’s receipt of any such original document, the Master Servicer,

 

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on behalf of the Trust, shall mark conspicuously each such original document,
and its master data processing records with a legend evidencing that the Trust
has purchased the related Mortgage Loan and all right and title thereto and
interest therein, and pledged such Mortgage Loan and all right and title thereto
and interest therein to the Indenture Trustee, on behalf of the Noteholders and
the Note Insurer.

 

Section 2.06. Acceptance of the Trust Estate; Certain Substitutions;
Certification by the Indenture Trustee. (a) The Indenture Trustee agrees to
execute and deliver to the Seller, the Sponsor, the Note Insurer, the Master
Servicer and the Backup Servicer on or prior to the Closing Date an
acknowledgement of receipt of the Note Insurance Policy in the form attached as
Exhibit B hereto.

 

(b) The Indenture Trustee is authorized and directed to, and agrees to, do the
following:

 

(i) execute and deliver to the Seller, the Sponsor, the Note Insurer, the Master
Servicer and the Backup Servicer, on or prior to the Closing Date with respect
to each Mortgage Loan transferred on such date, an acknowledgement of receipt,
in the form attached as Exhibit C hereto, of the original Mortgage Note as
required to be included in the Indenture Trustee’s Mortgage File (with any
exceptions noted) and declares that it will hold such documents and any
amendments, replacements or supplements thereto, as well as any other assets
included in the definition of Trust Estate and delivered to the Indenture
Trustee, subject to the conditions set forth in the Indenture, for the benefit
of the Noteholders and the Note Insurer.

 

(ii) to review (or cause to be reviewed) each Indenture Trustee’s Mortgage File
within sixty (60) days after the Closing Date (or, with respect to any Qualified
Substitute Mortgage Loans, within sixty (60) days after receipt thereof), and to
deliver to the Master Servicer, the Backup Servicer, the Seller, the Sponsor,
and the Note Insurer a certification, in the form attached hereto as Exhibit D,
to the effect that, except as otherwise noted, as to each Mortgage Loan listed
in the related Mortgage Loan Schedule (other than any Mortgage Loan paid in full
or any Mortgage Loan specifically identified in such certification as not
covered by such certification), (i) all documents specified in Section
2.05(a)(i)-(iv) and (vi) are in its possession, (ii) each such document has been
reviewed by it and appears, on its face, not to have been mutilated, damaged,
torn or otherwise physically altered (handwritten additions, changes or
corrections shall not constitute physical alteration if they reasonably appear
to have been initialed), appears regular on its face and relates to such
Mortgage Loan, and (iii) based on its examination and only as to the foregoing
documents, the information set forth on the Mortgage Loan Schedule as to the
information set forth in (i), (ii) (with respect to property address only,
excluding zip code), (iii) and (vi) of the definition of “Mortgage Loan
Schedule” accurately reflects the information set forth in the Indenture
Trustee’s Mortgage File delivered on such date; provided however, no
certification of the Indenture Trustee shall constitute a determination by the
Indenture Trustee of the proper form, adequacy or enforceability of any document
included in the Indenture Trustee’s Mortgage File.

 

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(iii) to review (or cause to be reviewed) each Indenture Trustee’s Mortgage File
within one hundred eighty (180) days after the Closing Date (or, with respect to
any Qualified Substitute Mortgage Loans, within one hundred eighty (180) days
after receipt thereof), and to deliver to the Master Servicer, the Backup
Servicer, the Sponsor and the Note Insurer a certification in the form attached
hereto as Exhibit E to the effect that, except as otherwise noted, as to each
Mortgage Loan listed in the related Mortgage Loan Schedule (other than any
Mortgage Loan paid in full or any Mortgage Loan specifically identified in such
certification as not covered by such certification), (i) all documents specified
in Section 2.05(a)(i)-(iv) and (vi) are in its possession, (ii) each such
document has been reviewed by it and has not been mutilated, damaged, torn or
otherwise physically altered (handwritten additions, changes or corrections
shall not constitute physical alteration if they reasonably appear to be
initialed by the Mortgagor), appears regular on its face and relates to such
Mortgage Loan, and (iii) based on its examination and only as to the foregoing
documents, the information set forth in items (i), (ii) (with respect to
property address only, excluding zip code), (iii) and (vi) of the definition of
“Mortgage Loan Schedule” accurately reflects the information set forth in the
Indenture Trustee’s Mortgage File delivered on such date.

 

In performing any such review, the Indenture Trustee may conclusively rely on
the Sponsor as to the purported genuineness of any such document and any
signature thereon. It is understood that the scope of the Indenture Trustee’s
review of the Indenture Trustee’s Mortgage Files is limited solely to confirming
that the documents listed in Section 2.05 have been executed and received and
relate to the Indenture Trustee’s Mortgage Files identified in the related
Mortgage Loan Schedule. The Indenture Trustee shall be under no duty or
obligation to inspect, review or examine any such documents, instruments,
certificates or other papers to determine that they are genuine, enforceable, or
appropriate for the represented purpose or that they are other than what they
purport to be on their face.

 

(c) If the Indenture Trustee during the process of reviewing the Indenture
Trustee’s Mortgage Files finds any document constituting a part of a Indenture
Trustee’s Mortgage File which is not executed, has not been received, is
unrelated to the Mortgage Loan identified in the related Mortgage Loan Schedule,
or does not conform to the requirements of Section 2.05 or the description
thereof as set forth in the related Mortgage Loan Schedule, the Indenture
Trustee shall promptly so notify the Master Servicer, the Backup Servicer, the
Sponsor, the Note Insurer and the Indenture Trustee. Upon receipt of such notice
respecting such defect, the Sponsor shall have a sixty (60) day period after
such notice within which to correct or cure any such defect, or if the Master
Servicer or the Note Insurer determines that the defect materially and adversely
affects the value of the related Mortgage Loan or the interest of the
Noteholders and the Note Insurer in the related Mortgage Loan, to either (i)
substitute in lieu of such Mortgage Loan a Qualified Substitute Mortgage Loan in
the manner and subject to the conditions set forth in this Section 2.06 or (ii)
purchase such Mortgage Loan at a purchase price equal to the Loan Repurchase
Price. Upon receipt by the Indenture Trustee of two copies of a certification,
in the form attached hereto as Exhibit F, of a Servicing Officer of such
substitution or purchase and, in the case of a substitution, upon receipt by the
Indenture Trustee, of the related Indenture Trustee’s Mortgage File, and the
deposit of the Loan Repurchase Price, in the case of a purchase, or the
Substitution Adjustment, if any, in connection with a substitution, in the
Collection Account, the Indenture Trustee shall release to the Master Servicer
for release to

 

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the Sponsor the related Indenture Trustee’s Mortgage File and the Indenture
Trustee shall execute, without recourse, and deliver such instruments of
transfer furnished by the Sponsor as may be necessary to transfer such Mortgage
Loan to the Sponsor. The Indenture Trustee shall provide notice to the Note
Insurer if the Sponsor fails to repurchase or substitute for a Mortgage Loan in
accordance with the foregoing.

 

Section 2.07. Grant of Security Interest. (a) It is intended that the conveyance
of the Mortgage Loans and other property by the Seller to the Trust 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 Seller to the Trust. 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 Seller to the Trust to secure a
debt or other obligation of the Seller. However, in the event that the Mortgage
Loans or any of such other property are held to be property of the Seller, 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 Seller to the Trust of a
security interest in all of the Seller’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 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 Seller, the Sponsor,
the Master Servicer, on behalf of the Trust 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 Seller, the Sponsor, the Master Servicer and the Backup Servicer shall
take no action inconsistent with the Trust’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 Trust, as owner, and is pledged to the
Indenture Trustee, for the benefit of the Noteholders and the Note Insurer
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 Note Insurer and shall be authorized to act at the direction of such
parties. In addition, the Seller, the Sponsor, the Master Servicer and the
Backup 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

 

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asset and that the Trust 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 and the Note Insurer.

 

Section 2.08. Further Action Evidencing Assignments. (a) The Master Servicer
agrees that, from time to time, at its expense, it shall cause the Sponsor or
Seller, as the case may be, to, and each of the Sponsor and Seller 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
Master Servicer or the Indenture Trustee 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 Master Servicer, the Sponsor and the Seller
shall, upon the request of the Master Servicer or the Indenture Trustee 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.

 

(b) Each of the Sponsor and the Seller hereby grants to the Master Servicer, the
Backup 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. Assignment of Agreement. The Sponsor, the Seller and the Master
Servicer hereby acknowledge and agree that the Trust may assign its interest
under this Agreement to the Indenture Trustee, for the benefit of the
Noteholders and the Note Insurer, as may be required to effect the purposes of
the Indenture, without further notice to, or consent of, the Sponsor or the
Master Servicer, and the Indenture Trustee shall succeed to such of the rights
of the Trust hereunder as shall be so assigned. The Trust shall, pursuant to the
Indenture, assign all of its right, title and interest in and to the Mortgage
Loans and its right to exercise the remedies created by Section 4.02 of this
Agreement for breaches of the representations, warranties, agreements and
covenants of the Sponsor contained in Sections 3.02 and 4.01 of this Agreement,
assign such right, title and interest to the Indenture Trustee, for the benefit
of the Noteholders and the Note Insurer. The Sponsor agrees that, upon such
assignment to the Indenture Trustee, such representations, warranties,
agreements and covenants will run to and be for the benefit of the Indenture
Trustee and the Indenture Trustee may enforce, without joinder of the Sponsor or
the Trust, the repurchase obligations of the Sponsor set forth herein with
respect to breaches of such representations, warranties, agreements and
covenants.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

 

Section 3.01. Representations of the Master Servicer. The Master Servicer hereby
represents and warrants to the Indenture Trustee, the Seller, the Sponsor, the
Trust, the Note Insurer, the Backup Servicer and the Noteholders as of the
Closing Date and during the term of this Agreement that:

 

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(a) The Master Servicer is duly organized, validly existing and in good standing
under the laws of its state of incorporation and has the power to own its assets
and to transact the business in which it is currently engaged. The Master
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 or the performance of its
obligations hereunder requires such qualification and in which the failure so to
qualify could reasonably be expected to have a material adverse effect on the
business, properties, assets, or condition (financial or other) of the Master
Servicer or the performance of its obligations hereunder.

 

(b) The Master Servicer has the 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, and assuming the due
authorization, execution and delivery hereof by the other parties hereto
constitutes, or will constitute, the legal, valid and binding obligation of the
Master Servicer, enforceable in accordance with its terms, except as enforcement
of such terms may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights of
creditors generally, and by general equity principles (regardless of whether
such enforcement is considered in a proceeding in equity or at law).

 

(c) The Master Servicer is not required to obtain the consent of any other party
or any consent, license, approval or authorization from, or registration or
declaration with, any governmental authority, bureau or agency which consent
already has not been obtained in connection with the execution, delivery,
performance, validity or enforceability of this Agreement, except such as have
been obtained prior to the Closing Date.

 

(d) The execution, delivery and performance of this Agreement by the Master
Servicer will not violate any provision of any existing law or regulation or any
order or decree of any court or the charter or bylaws of the Master Servicer, or
constitute a breach of any mortgage, indenture, contract or other Agreement to
which the Master Servicer is a party or by which it may be bound.

 

(e) Except as set forth in the “Risk Factors” section of the Prospectus
Supplement, there is no action, suit, proceeding or investigation pending or
threatened against the Master Servicer which, either in any one instance or in
the aggregate, is, in the Master Servicer’s judgment, likely to result in any
material adverse change in the business, operations, financial condition,
properties, or assets of the Master Servicer, or in any material impairment of
the right or ability of the Master Servicer to carry on its business
substantially as now conducted, or in any material liability on the part of the
Master Servicer, or which would draw into question the validity of this
Agreement, the Notes, or the Mortgage Loans or of any action taken or to be
taken in connection with the obligations of the Master Servicer contemplated
herein or therein, or which would be likely to impair materially the ability of
the Master Servicer to perform its obligations hereunder.

 

(f) Neither this Agreement nor any statement, report, or other document
furnished by the Master Servicer pursuant to this Agreement or in connection
with the transactions contemplated hereby, including, without limitation, the
sale or placement of the

 

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Notes, contains any untrue statement of fact provided by or on behalf of the
Master Servicer or omits to state a fact necessary to make the statements
provided by or on behalf of the Master Servicer contained herein or therein not
misleading.

 

(g) The Master Servicer does not believe, nor does it have any reason or cause
to believe, that it cannot perform each and every covenant contained in this
Agreement.

 

(h) The Master Servicer is not an “investment company” or a company “controlled
by an investment company,” within the meaning of the Investment Company Act of
1940, as amended.

 

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

 

It is understood and agreed that the representations, warranties and covenants
set forth in this Section 3.01 shall survive the delivery of the respective
Indenture Trustee’s Mortgage Files to the Indenture Trustee and inure to the
benefit of the Indenture Trustee.

 

Section 3.02. Representations, Warranties and Covenants of the Sponsor. The
Sponsor hereby represents, warrants and covenants to the Indenture Trustee, the
Seller, the Trust, the Backup Servicer, the Note Insurer and the Master Servicer
that as of the date of this Agreement or as of such date specifically provided
herein:

 

(a) The Sponsor is a corporation duly organized, validly existing and in good
standing under the laws of the State of California.

 

(b) The Sponsor has the corporate power and authority to convey the Mortgage
Loans and to execute, deliver and perform, and to enter into and consummate the
transactions contemplated by this Agreement.

 

(c) This Agreement has been duly and validly authorized, executed and delivered
by the Sponsor, all requisite corporate action having been taken, and, assuming
the due authorization, execution and delivery hereof by the other parties
hereto, constitutes or will constitute the legal, valid and binding agreement of
the Sponsor, enforceable against the Sponsor in accordance with its terms,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights of creditors generally, and by general equity principles (regardless of
whether such enforcement is considered in a proceeding in equity or at law).

 

(d) No consent, approval, authorization or order of or registration or filing
with, or notice to, any governmental authority or court is required for the
execution, delivery and performance of or compliance by the Sponsor with this
Agreement or the consummation by the Sponsor of any of the transactions
contemplated hereby, except as have been made on or prior to the Closing Date.

 

(e) None of the execution and delivery of this Agreement, the consummation of
the transactions contemplated hereby or thereby, or the fulfillment of or
compliance with the terms and conditions of this Agreement, (i) conflicts or
will conflict with or results or will result

 

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in a breach of, or constitutes or will constitute a default or results or will
result in an acceleration under (A) the articles of incorporation or bylaws of
the Sponsor, or (B) of any term, condition or provision of any material
indenture, deed of trust, contract or other agreement or instrument to which the
Sponsor or any of its subsidiaries is a party or by which it or any of its
subsidiaries is bound; (ii) results or will result in a violation of any law,
rule, regulation, order, judgment or decree applicable to the Sponsor of any
court or governmental authority having jurisdiction over the Sponsor or its
subsidiaries; or (iii) results in the creation or imposition of any lien, charge
or encumbrance which would have a material adverse effect upon the Mortgage
Loans or any documents or instruments evidencing or securing the Mortgage Loans.

 

(f) Except as set forth in the “Risk Factors” section of the Prospectus
Supplement, there are no actions, suits or proceedings before or against or
investigations of, the Sponsor pending, or to the knowledge of the Sponsor,
threatened, before any court, administrative agency or other tribunal, and no
notice of any such action, which, in the Sponsor’s reasonable judgment, might
materially and adversely affect the performance by the Sponsor of its
obligations under this Agreement, or the validity or enforceability of this
Agreement.

 

(g) The Sponsor is not in default with respect to any order or decree of any
court or any order, regulation or demand of any federal, state, municipal or
governmental agency that may materially and adversely affect its performance
hereunder.

 

It is understood and agreed that the representations, warranties and covenants
set forth in this Section 3.02 shall survive delivery of the respective
Indenture Trustee’s Mortgage Files to the Indenture Trustee and shall inure to
the benefit of the Indenture Trustee.

 

Section 3.03. Representations, Warranties and Covenants of the Backup Servicer.
The Backup Servicer hereby represents, warrants and covenants to the Indenture
Trustee, the Trust, the Master Servicer, the Note Insurer, the Seller and the
Sponsor that as of the date of this Agreement:

 

(a) The Backup Servicer is a corporation duly organized, validly existing and in
good standing under the laws of the State of California.

 

(b) The Backup Servicer has the corporate power and authority to execute,
deliver and perform, and to enter into and consummate transactions contemplated
by this Agreement.

 

(c) This Agreement has been duly and validly authorized, executed and delivered
by the Backup Servicer, all requisite corporate action having been taken, and,
assuming the due authorization, execution and delivery hereof by the other
parties hereto, constitutes or will constitute the legal, valid and binding
agreement of the Backup Servicer, enforceable against the Backup Servicer in
accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights of creditors generally, and by general
equity principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law).

 

(d) No consent, approval, authorization or order of or registration or filing
with, or notice to, any governmental authority or court is required for the
execution, delivery and

 

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performance of or compliance by the Backup Servicer with this Agreement or the
consummation by the Backup Servicer of any of the transactions contemplated
hereby, except as have been made on or prior to the Closing Date.

 

(e) None of the execution and delivery of this Agreement, the consummation of
the transactions contemplated hereby or thereby, or the fulfillment of or
compliance with the terms and conditions of this Agreement, (i) conflicts or
will conflict with or results or will result in a breach of, or constitutes or
will constitute a default or results or will result in an acceleration under (A)
the certificate of incorporation or bylaws of the Backup Servicer, or (B) of any
term, condition or provision of any material indenture, deed of trust, contract
or other agreement or instrument to which the Backup Servicer or any of its
subsidiaries is a party or by which it or any of its subsidiaries is bound; (ii)
results or will result in a violation of any law, rule, regulation, order,
judgment or decree applicable to the Backup Servicer of any court or
governmental authority having jurisdiction over the Backup Servicer or its
subsidiaries; or (iii) results in the creation or imposition of any lien, charge
or encumbrance which would have a material adverse effect upon the Mortgage
Loans or any documents or instruments evidencing or securing the Mortgage Loans;

 

(f) There are no actions, suits or proceedings before or against or
investigations of, the Backup Servicer pending, or to the knowledge of the
Backup Servicer, threatened, before any court, administrative agency or other
tribunal, and no notice of any such action, which, in the Backup Servicer’s
reasonable judgment, might materially and adversely affect the performance by
the Backup Servicer of its obligations under this Agreement, or the validity or
enforceability of this Agreement; and

 

(g) The Backup Servicer is not in default with respect to any order or decree of
any court or any order, regulation or demand of any federal, state, municipal or
governmental agency that may materially and adversely affect its performance
hereunder.

 

It is understood and agreed that the representations, warranties and covenants
set forth in this Section 3.03 shall survive delivery of the respective
Indenture Trustee’s Mortgage Files to the Indenture Trustee and shall inure to
the benefit of the Indenture Trustee.

 

Section 3.04. Representations, Warranties and Covenants of the Indenture
Trustee. The Indenture Trustee hereby represents, warrants and covenants to the
Backup Servicer, the Trust, the Master Servicer, the Seller, the Note Insurer
and the Sponsor that as of the date of this Agreement or as of such date
specifically provided herein:

 

(a) The Indenture Trustee is a national banking association duly organized,
validly existing and in good standing under the laws of the United States of
America.

 

(b) The Indenture Trustee has the requisite power and authority to execute,
deliver and perform, and to enter into and consummate transactions contemplated
by this Agreement.

 

(c) This Agreement has been duly and validly authorized, executed and delivered
by the Indenture Trustee, all requisite action having been taken, and, assuming
the due authorization, execution and delivery hereof by the other parties
hereto, constitutes or will

 

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constitute the legal, valid and binding agreement of the Indenture Trustee,
enforceable against the Indenture Trustee in accordance with its terms, except
as such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights of
creditors generally, and by general equity principles (regardless of whether
such enforcement is considered in a proceeding in equity or at law).

 

(d) No consent, approval, authorization or order of or registration or filing
with, or notice to, any governmental authority or court is required for the
execution, delivery and performance of or compliance by the Indenture Trustee
with this Agreement or the consummation by the Indenture Trustee of any of the
transactions contemplated hereby, except as have been made on or prior to the
Closing Date;

 

(e) None of the execution and delivery of this Agreement, the consummation of
the transactions contemplated hereby or thereby, or the fulfillment of or
compliance with the terms and conditions of this Agreement, (i) conflicts or
will conflict with or results or will result in a breach of, or constitutes or
will constitute a default or results or will result in an acceleration under (A)
the articles of association or bylaws of the Indenture Trustee, or (B) to the
best of its knowledge, of any term, condition or provision of any material
indenture, deed of trust, contract or other agreement or instrument to which the
Indenture Trustee is a party or by which it is bound; or (ii) results or will
result in a violation of any statute, rule, regulation, order, judgment or
decree applicable to the Indenture Trustee of any court or governmental
authority having jurisdiction over the Indenture Trustee or its subsidiaries
which violation would materially and adversely affect the Indenture Trustee’s
performance of its duties hereunder; and

 

(f) There are no actions, suits or proceedings before or against or
investigations of, the Indenture Trustee, pending or to the knowledge of the
Indenture Trustee threatened, before any court, administrative agency or other
tribunal, and no notice of any such action, which, in the Indenture Trustee’s
reasonable judgment, would materially and adversely affect the performance by
the Indenture Trustee of its obligations under this Agreement, 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
Indenture Trustee’s Mortgage Files to the Indenture Trustee.

 

Section 3.05. Covenants and Representations of the Sponsor and Master Servicer
Regarding Prepayment Charges. The Master Servicer covenants that it will not
waive any Prepayment Charge or part of a Prepayment Charge unless in connection
with a Mortgage Loan that is in default or for which a default is reasonably
foreseeable.

 

(a) The Sponsor hereby represents and warrants that the information set forth in
the Prepayment Charge Schedule is complete, true and correct in all material
respects at the date or dates respecting which such information is furnished and
each Prepayment Charge is permissible and enforceable in accordance with its
terms (except to the extent that the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium, receivership and other similar laws relating
to creditors’ rights generally) under applicable law.

 

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(b) Upon discovery by the Sponsor or the Indenture Trustee of a breach of the
foregoing, the party discovering such breach shall give prompt written notice to
the other parties. Within 60 days of the earlier of discovery by the Master
Servicer or receipt of notice by the Master Servicer of breach, the Master
Servicer shall cure such breach in all material respects. If the covenant made
by the Master Servicer in clause (a) above is breached the Master Servicer must
pay into the Collection Account the amount of the waived Prepayment Charge. If
the representation made by the Sponsor in clause (b) above is breached, the
Sponsor must pay into the Collection Account the amount of the scheduled
Prepayment Charge, less any amount previously collected and paid by the Master
Servicer into the Collection Account. The foregoing obligations of the Master
Servicer and the Sponsor shall be the sole and exclusive remedies for a breach
of this Section 3.05(a) or (b).

 

Section 3.06. Representations, Warranties and Covenants of the Seller. The
Seller, hereby represents, warrants and covenants to the Indenture Trustee, the
Trust, the Sponsor, the Backup Servicer, the Note Insurer and the Master
Servicer that as of the date of this Agreement or as of such date specifically
provided herein:

 

(a) The Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.

 

(b) The Seller has the corporate power and authority to convey the Mortgage
Loans and to execute, deliver and perform, and to enter into and consummate the
transactions contemplated by this Agreement.

 

(c) This Agreement has been duly and validly authorized, executed and delivered
by the Seller, all requisite corporate action having been taken, and, assuming
the due authorization, execution and delivery hereof by the other parties
hereto, constitutes or will constitute the legal, valid and binding agreement of
the Seller, enforceable against the Seller in accordance with its terms, except
as such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights of
creditors generally, and by general equity principles (regardless of whether
such enforcement is considered in a proceeding in equity or at law).

 

(d) No consent, approval, authorization or order of or registration or filing
with, or notice to, any governmental authority or court is required for the
execution, delivery and performance of or compliance by the Seller with this
Agreement or the consummation by the Seller of any of the transactions
contemplated hereby, except as have been made on or prior to the Closing Date.

 

(e) None of the execution and delivery of this Agreement, the consummation of
the transactions contemplated hereby or thereby, or the fulfillment of or
compliance with the terms and conditions of this Agreement, (i) conflicts or
will conflict with or results or will result in a breach of, or constitutes or
will constitute a default or results or will result in an acceleration under (A)
the articles of incorporation or bylaws of the Seller, or (B) of any term,
condition or provision of any material indenture, deed of trust, contract or
other agreement or instrument to which the Seller or any of its subsidiaries is
a party or by which it or any of its subsidiaries is bound; (ii) results or will
result in a violation of any law, rule, regulation, order, judgment or

 

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decree applicable to the Seller of any court or governmental authority having
jurisdiction over the Seller or its subsidiaries; or (iii) results in the
creation or imposition of any lien, charge or encumbrance which would have a
material adverse effect upon the Mortgage Loans or any documents or instruments
evidencing or securing the Mortgage Loans.

 

(f) There are no actions, suits or proceedings before or against or
investigations of, the Seller pending, or to the knowledge of the Seller,
threatened, before any court, administrative agency or other tribunal, and no
notice of any such action, which, in the Seller’s reasonable judgment, might
materially and adversely affect the performance by the Seller of its obligations
under this Agreement, or the validity or enforceability of this Agreement.

 

(g) The Seller is not in default with respect to any order or decree of any
court or any order, regulation or demand of any federal, state, municipal or
governmental agency that may materially and adversely affect its performance
hereunder.

 

It is understood and agreed that the representations, warranties and covenants
set forth in this Section 3.05 shall survive delivery of the respective
Indenture Trustee’s Mortgage Files to 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 makes the following representations and warranties to the Seller, the
Master Servicer, the Backup Servicer, the Indenture Trustee, the Note Insurer
and the Trust as to the Mortgage Loans on which the Trust relies in accepting
the Mortgage Loans in trust and executing the Notes. With respect to the
representations and warranties stated in Sections 4.01(i), (r), (ddd), (eee) and
(fff), the Sponsor makes such representations and warranties on behalf of itself
and the Seller. Such representations, warranties and covenants are made or
deemed to be made as of the Closing Date.

 

(a) The information with respect to each Mortgage Loan set forth in the Mortgage
Loan Schedule is true and correct as of the Cut-Off Date, based on Cut-Off Date
Principal Balances.

 

(b) Each Mortgage Loan is being serviced either (i) through the Master Servicer
or (ii) a Person controlling, controlled by or under common control with the
Master Servicer and qualified to service mortgage loans.

 

(c) Each Mortgage Loan was underwritten or reunderwritten pursuant to the
Underwriting Guidelines which conform in all material respects to the
description thereof set forth in the Prospectus Supplement.

 

(d) All of the original or certified documentation required to be delivered to
the Indenture Trustee pursuant to this Agreement (including all material
documents related thereto) with respect to each Mortgage Loan has been or will
be delivered to the Indenture Trustee in accordance with the terms of this
Agreement. Each of the documents and instruments

 

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specified to be included therein has been duly executed and in due and proper
form, and each such document or instrument is in a form generally acceptable to
prudent mortgage lenders that regularly originate or purchase mortgage loans
comparable to the Mortgage Loans for sale to prudent investors in the secondary
market that invest in mortgage loans such as the Mortgage Loans.

 

(e) [Reserved].

 

(f) Each Mortgaged Property is improved by a single (one to four) family
residential dwelling, which may include condominiums, individual units in a
planned unit development and townhouses but shall not include cooperatives.

 

(g) No Mortgage Loan had an LTV in excess of 95%.

 

(h) Each Mortgage Loan is a valid and subsisting first lien as identified on the
Mortgage Loan Schedule on the Mortgaged Property and subject in all cases to the
exceptions to title set forth in the title insurance policy, with respect to the
related Mortgage Loan, which exceptions are generally acceptable to banking
institutions in connection with their regular mortgage lending activities, and
such other exceptions to which similar properties are commonly subject and which
do not individually, or in the aggregate, materially and adversely affect the
benefits of the security intended to be provided by such Mortgage. At the time
each Mortgage Loan was originated, the originator was a mortgagee approved by
the Secretary of Housing and Urban Development pursuant to Sections 203 and 211
of the National Housing Act or a savings and loan association, a savings bank, a
commercial bank or similar banking institution which was supervised and examined
by a federal or state authority or a mortgage banker or broker licensed or
authorized to do business in the jurisdiction in which the related Mortgaged
Property is located, applying the same standards and procedures used by the
Sponsor in originating Mortgage Loans directly.

 

(i) Immediately prior to the transfer and assignment of the Mortgage Loans to
the Seller pursuant to the Master Sale and Purchase Agreement, the Sponsor held
good and marketable title to, and was the sole owner of each Mortgage Loan,
subject to no liens, charges, mortgages or encumbrances or rights of others,
except liens of third party warehouse lenders that will be released
simultaneously with the transfer and assignment contemplated herein; and
immediately prior to the transfer and assignment herein contemplated, the Seller
held good and marketable title to, and was the sole owner of, each Mortgage Loan
subject to no liens, charges, mortgages, encumbrances or rights of others except
liens which will be released simultaneously with such transfer and assignment;
and immediately upon the transfer and assignment herein contemplated, the
Indenture Trustee will hold good and marketable title to, and be the sole owner
of, each Mortgage Loan subject to no liens, charges, mortgages, encumbrances or
rights of others except liens which will be released simultaneously with such
transfer and assignment.

 

(j) There is no delinquent tax or assessment lien on any Mortgaged Property, and
each Mortgaged Property is free of substantial damage and is in good repair.

 

(k) There is no valid and enforceable right of rescission, offset, defense or
counterclaim to any Mortgage Note or Mortgage, including the obligation of the
related

 

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Mortgagor to pay the unpaid principal of or interest on such Mortgage Note or
the defense of usury, nor will the operation of any of the terms of the Mortgage
Note or the 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, counterclaim or defense, including the defense
of usury, and no such right of rescission, set-off, counterclaim or defense has
been asserted with respect thereto.

 

(l) There is no mechanics’ lien or claim for work, labor or material affecting
any Mortgaged Property which is or may be a lien prior to, or equal with, the
lien of the related Mortgage except those which are insured against by any title
insurance policy referred to in paragraph (n) below.

 

(m) Each Mortgage Loan at the time it was made complied with, and each Mortgage
Loan at all times was serviced in compliance with, in each case, in all material
respects, applicable state and federal laws and regulations, including, without
limitation, the federal Truth-in-Lending Act and other consumer protection laws,
the Home Ownership and Equity Protection Act of 1994, real estate settlement
procedure, usury, equal credit opportunity, disclosure and recording laws and
all applicable predatory and abusive lending laws.

 

(n) With respect to each Mortgage Loan, a lender’s title insurance policy,
issued in standard California Land Title Association form or American Land Title
Association form, or other form acceptable in a particular jurisdiction by a
title insurance company authorized to transact business in the state in which
the related Mortgaged Property is situated, in an amount at least equal to the
original Principal Balance of such Mortgage Loan insuring the mortgagee’s
interest under the related Mortgage Loan as the holder of a valid first mortgage
lien of record on the real property described in the related Mortgage, as the
case may be, subject only to exceptions of the character referred to in
paragraph (h) above, was effective on the date of the origination of such
Mortgage Loan, and, as of the Closing Date such policy will be valid and inure
to the benefit of the Indenture Trustee on behalf of the Noteholders.

 

(o) The improvements upon each Mortgaged Property are covered by a valid and
existing hazard insurance policy (which may be a blanket policy of the type
described in this Agreement) with a generally acceptable carrier that provides
for fire and extended coverage representing coverage not less than the least of
(i) the outstanding Principal Balance of the related Mortgage Loan, (ii) the
minimum amount required to compensate for damage or loss on a replacement cost
basis or (iii) the full insurable value of the Mortgaged Property.

 

(p) If any 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 (which may be a blanket policy of the type described in
this Agreement) in a form meeting the requirements of the current guidelines of
the Federal 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 (i) the outstanding Principal Balance of the related
Mortgage Loan (together, in the case of a second mortgage loan, with the
outstanding principal balance of the first mortgage loan), (ii) the minimum
amount required to compensate for damage or loss on a replacement cost basis or
(iii) the maximum amount of insurance that is available under the Flood Disaster
Protection Act of 1973.

 

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(q) Each Mortgage and Mortgage Note is the legal, valid and binding obligation
of the maker thereof and is enforceable in accordance with its terms, except
only as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors’ rights generally and by general principles of equity (whether
considered in a proceeding or action in equity or at law), and all parties to
each Mortgage Loan had full legal capacity to execute all documents relating to
such Mortgage Loan and convey the estate therein purported to be conveyed.

 

(r) The Sponsor has directed and the Seller has caused to be performed any and
all acts required to be performed to preserve the rights and remedies of the
Indenture Trustee in any Insurance Policies applicable to any Mortgage Loan
delivered by the Sponsor or the Seller including, to the extent such Mortgage
Loan is not covered by a blanket policy described in this Agreement, any
necessary notifications of insurers, assignments of policies or interests
therein, and establishments of coinsured, joint loss payee and mortgagee rights
in favor of the Indenture Trustee.

 

(s) The Sponsor has caused or will have caused, within ten days, the filing of
all appropriate financing statements in the proper filing office in the
appropriate jurisdictions under applicable law in order to perfect the security
interest in the original Mortgage Note and all subsequent assignments of the
original Mortgage, granted to the Indenture Trustee hereunder, subject to the
provisions of Section 2.05(b) of this Agreement.

 

(t) The terms of each Mortgage Note and each Mortgage have not been impaired,
altered or modified in any respect, except by a written instrument which has
been recorded, if necessary, to protect the interest of the Noteholders and
which has been delivered to the Indenture Trustee

 

(u) The proceeds of each Mortgage Loan have been fully disbursed, and there is
no obligation on the part of the mortgagee to make future advances thereunder.
All costs, fees and expenses incurred in making or closing or recording such
Mortgage Loans were paid.

 

(v) Except as otherwise required by law or pursuant to the statute under which
the related Mortgage Loan was made, the related Mortgage Note is not and has not
been secured by any collateral, pledged account or other security except the
lien of the corresponding Mortgage.

 

(w) No Mortgage Loan was originated under a buydown plan.

 

(x) No Mortgage Loan provides for negative amortization, has a shared
appreciation feature, or other contingent interest feature.

 

(y) Each Mortgaged Property is located in the state identified in the Mortgage
Loan Schedule and consists of one or more parcels of real property with a
residential dwelling erected thereon.

 

(z) Each Mortgage securing a Mortgage Note contains a provision for the
acceleration of the payment of the unpaid Principal Balance of the related
Mortgage Loan in the

 

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event the related Mortgaged Property is sold without the prior consent of the
mortgagee thereunder.

 

(aa) Any advances made after the date of origination of a Mortgage Loan but
prior to the Cut-Off Date, have been consolidated with the outstanding principal
amount secured by the related 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 related Mortgage Loan. No Mortgage Note
permits or obligates the Seller, the Master Servicer, the Backup Servicer, the
Sponsor or any other Person to make future advances to the related Mortgagor at
the option of the Mortgagor.

 

(bb) There is no proceeding pending or threatened for the total or partial
condemnation of any Mortgaged Property, nor is such a proceeding currently
occurring, and each Mortgaged Property is undamaged by waste, fire, earthquake
or earth movement, flood, tornado or other casualty, so as to affect adversely
the value of the Mortgaged Property as security for the Mortgage Loan or the use
for which the premises were intended.

 

(cc) All of the improvements which were included for the purposes of determining
the Appraised Value of any Mortgaged Property lie wholly within the boundaries
and building restriction lines of such Mortgaged Property, and no improvements
on adjoining properties encroach upon such Mortgaged Property, except as stated
in the related title insurance policy and affirmatively insured.

 

(dd) No improvement located on or being part of any Mortgaged Property is in
violation of any applicable zoning law or regulation. As of the related date of
origination, all inspections, licenses and certificates required to be made or
issued with respect to all occupied portions of each Mortgaged Property and,
with respect to the use and occupancy of the same, including, but not limited
to, certificates of occupancy and fire underwriting certificates, have been made
or obtained from the appropriate authorities and such Mortgaged Property is
lawfully occupied under the applicable law.

 

(ee) With respect to each Mortgage constituting a deed of trust, 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, and no fees or expenses
are or will become payable by the Sponsor, the Seller, or the Trust to the
trustee under the deed of trust, except in connection with a trustee’s sale
after default by the related Mortgagor.

 

(ff) [Reserved].

 

(gg) [Reserved].

 

(hh) Each Mortgage contains customary and enforceable provisions which render
the rights and remedies of the holder thereof adequate for the realization
against the related Mortgaged Property of the benefits of the security,
including (i) in the case of a Mortgage designated as a deed of trust, by
trustee’s sale and (ii) otherwise by judicial foreclosure. There is no homestead
or other exemption available which materially interferes with the right to sell
the related Mortgaged Property at a trustee’s sale or the right to foreclose the
related Mortgage.

 

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(ii) Except for delinquencies identified in the Mortgage Loan Schedule, there is
no default, breach, violation or event of acceleration existing under any
Mortgage or the related 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 default, breach, violation or event of acceleration; and the Seller
has not waived any default, breach, violation or event of acceleration.

 

(jj) No instrument of release or waiver has been executed in connection with any
Mortgage Loan, and no Mortgagor has been released, in whole or in part.

 

(kk) [Reserved].

 

(ll) The Sponsor has no actual knowledge that there exists on any Mortgaged
Property any hazardous substances, hazardous wastes or solid wastes, as such
terms are defined in the CERCLA, the Resource Conservation and Recovery Act of
1976, or other federal, state or local environmental legislation.

 

(mm) No action, error, omission, misrepresentation, negligence, fraud or similar
occurrence with respect to a Mortgage Loan has taken place on the part of any
person, including, without limitation, the Mortgagor, any appraiser, any builder
or developer, or any other party involved in the origination of the Mortgage
Loan or in the application of any insurance in relation to such Mortgage Loan.

 

(nn) The Sponsor has not solicited the Mortgagor in connection with any
refinancing.

 

(oo) If the Mortgage Loan is an adjustable rate Mortgage Loan, all of the
adjustments to the Mortgage Interest Rate, to the amount of the monthly payment,
and to the principal balance have been made in accordance with the terms of the
related Mortgage Note.

 

(pp) The origination and collection practices used with respect to the Mortgage
Loan have been in all respects legal, proper, prudent and customary in the
mortgage origination and servicing business.

 

(qq) An appraisal of the related Mortgaged Property was made and signed, prior
to the approval of the Mortgage Loan application, by a qualified appraiser who
met the requirements of the Sponsor’s appraisal policy and procedures and who
had no interest, direct or indirect in the Mortgaged Property or in any loan
made on the security thereof, whose compensation was not affected by the
approval or disapproval of the Mortgage Loan.

 

(rr) The Mortgagor has received all disclosure materials required by applicable
law with respect to the making of adjustable rate mortgage loans; and if the
Mortgage Loan is a refinanced Mortgage Loan, the Mortgagor has received all
disclosure and rescission materials required by applicable law with respect to
the making of a refinanced Mortgage Loan, and evidence of such receipt is and
will remain in the Master Servicer’s file.

 

(ss) If the residential dwelling on the Mortgaged Property is a condominium unit
or a unit in a planned unit development (other than a de minimis planned unit
development),

 

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such condominium or planned unit development project meets the Sponsor’s
eligibility requirements.

 

(tt) As of the Cut-Off Date, no more than 0.10% of the Mortgage Loans were more
than 29 days contractually delinquent or had been dishonored. No more than 0.10%
of the Mortgage Loans have been thirty or more days delinquent more than one
time in the twelve months preceding the Cut-Off Date.

 

(uu) The Sponsor has not advanced funds, or induced, solicited or knowingly
received any advance of funds by a person other than the Mortgagor, directly or
indirectly, for the payment of any amount required under the Mortgage Loan,
except for interest prepaid upon the closing of the Mortgage Loan. No Mortgage
Loan contains any provision pursuant to which Monthly Payments are: (i) paid or
partially paid with funds deposited in any separate account established by the
Sponsor, the Mortgagor, or anyone on behalf of the Mortgagor or (ii) paid by any
source other than the Mortgagor. The Mortgage Loan is not deemed a graduated
payment mortgage loan and the Mortgage Loan does not have a shared appreciation
or other contingent interest feature.

 

(vv) No foreclosure proceedings are pending against the Mortgaged Property and
the Mortgage Loan is not subject to any pending bankruptcy or insolvency
proceeding, and to the Sponsor’s best knowledge, no material litigation or
material lawsuit relating to the Mortgage Loan is pending.

 

(ww) Principal payments on the Mortgage Loan commenced or will commence within
sixty days after the proceeds of the Mortgage Loan were disbursed.

 

(xx) With respect to escrow deposits, if any, all such payments are in the
possession of, or under the control of, the Master Servicer and there exists no
deficiencies in connection therewith for which customary arrangements for
repayment thereof have not been made or could be made. No escrow deposits or
escrow advances or other charges or payments due the Master Servicer have been
capitalized under any Mortgage or the related Mortgage Note.

 

(yy) With respect to the conveyance of the Mortgage Loans by the Sponsor to the
Seller, the Sponsor used no selection procedures that identified the Mortgage
Loans as being less desirable or valuable than other comparable mortgage loans
originated or acquired by the Sponsor. The Mortgage Loans are representative of
the Sponsor’s portfolio of fixed-rate or adjustable-rate mortgage loans, as
applicable. With respect to the conveyance of the Mortgage Loans pursuant to
this Agreement, the Seller used no selection procedures that identified the
Mortgage Loans as being less desirable or valuable than other comparable
mortgage loans originated or acquired by the Seller. The Mortgage Loans are
representative of the Seller’s portfolio of fixed-rate or adjustable-rate
mortgage loans, as applicable.

 

(zz) 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 Supplement.

 

(aaa) All requirements for the valid transfer of each Insurance Policy,
including any assignments or notices required in each Insurance Policy, have
been satisfied.

 

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(bbb) This Agreement creates a valid and continuing security interest (as
defined in the applicable UCC) in the Mortgage Loans in favor of the Indenture
Trustee, which security interest is prior to all other liens, and is enforceable
as such as against creditors of and purchasers from the Seller.

 

(ccc) The Mortgage Loans constitute “instruments” within the meaning of the
applicable UCC.

 

(ddd) The Sponsor received all consents and approvals required by the terms of
the Mortgage Loans to the sale of the Mortgage Loans pursuant to the Master Sale
and Purchase Agreement to the Seller and the Seller has received all consents
and approvals required by the terms of the Mortgage Loans to the sale of the
Mortgage Loans hereunder to the Owner Trustee and the subsequent pledge to the
Indenture Trustee.

 

(eee) Other than the security interest granted to the Indenture Trustee pursuant
to the Indenture, neither the Sponsor nor the Seller has pledged, assigned,
sold, granted a security interest in, or otherwise conveyed any of the Mortgage
Loans. Neither the Sponsor nor the Seller has authorized the filing of nor is
aware of any financing statements against the Sponsor or the Seller that include
a description of collateral covering the Mortgage Loans other than any financing
statement relating to the security interest granted to the Indenture Trustee
hereunder or that has been terminated. Neither the Sponsor nor the Seller is
aware of any judgment or tax lien filings affecting the Mortgage Loans against
either the Seller or the Sponsor.

 

(fff) All financing statements filed or to be filed against the Sponsor or the
Seller in favor of the Indenture Trustee in connection herewith describing the
Mortgage Loans contain a statement to the following effect: “A purchase of or
security interest in any collateral described in this financing statement will
violate the rights of the Indenture Trustee.”

 

(ggg) None of the Mortgage Loans is a “High Cost Home Loan” within the meaning
of the Georgia Fair Lending Act (the “Georgia Act”). The Mortgage Loans in the
Trust Estate that are “Covered Loans” within the meaning of the Georgia Act
comply with all material provisions of the Georgia Act, and the Sponsor has
ensured, among other things, that if a borrower under a “Covered Loan” has
refinanced an existing “Home Loan” that was consummated within the previous five
years, the “Covered Loan” has provided a reasonable, tangible net benefit to
such borrower considering all of the circumstances.

 

(hhh) None of the Mortgage Loans is a Section 32 Mortgage Loan or “high cost
loan” under the Home Ownership Equity Protection Act of 1994.

 

(iii) None of the Mortgage Loans encumbering property located in Georgia was
originated after October 1, 2002.

 

(jjj) No Mortgage Loan is secured by a leasehold interest, unless such leasehold
interest extends 60 months beyond the stated maturity of the Mortgage Note.

 

It is understood and agreed that the representations, warranties and covenants
set forth in this Section 4.01 shall survive delivery of the respective
Indenture Trustee’s Mortgage Files to

 

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the Indenture Trustee and shall inure to the benefit of the Indenture Trustee on
behalf of the Noteholders and the Note Insurer.

 

Section 4.02. Purchase and Substitution. (a) It is understood and agreed that
the representations and warranties set forth in Section 4.01 shall survive the
transfer of the Mortgage Loans by the Seller to the Trust, the subsequent pledge
thereof by the Trust to the Indenture Trustee, for the benefit of the
Noteholders and the Note Insurer, and the delivery of the Notes to the
Noteholders, and shall continue in full force and effect, notwithstanding any
restrictive or qualified endorsement on the Mortgage Notes and notwithstanding
subsequent termination of this Agreement.

 

(b) Upon discovery by the Seller, the Sponsor, the Master Servicer, the
Indenture Trustee, the Note Insurer or a Noteholder of a breach of any of the
representations and warranties in Section 4.01 which materially and adversely
affects the value of any Mortgage Loan, or which materially and adversely
affects the interests of the Note Insurer or the Noteholders in the related
Mortgage Loan, the party discovering such breach or failure shall promptly (and
in any event within five (5) days of the discovery) give written notice thereof
to the others. Within sixty (60) days of the earlier of its discovery or its
receipt of notice of any breach of a representation or warranty, the Sponsor
shall (a) promptly cure such breach in all material respects, (b) purchase such
Mortgage Loan on the next succeeding Servicer Payment Date, in the manner and at
the price specified in Section 2.06(c) and this Section 4.02, or (c) remove such
Mortgage Loan from the Trust Estate (in which case it shall become a Deleted
Mortgage Loan) and substitute one or more Qualified Substitute Mortgage Loans in
the manner specified in Section 2.06 and this Section 4.02. The Indenture
Trustee shall deliver prompt written notice to the Note Insurer and the Rating
Agencies of any repurchase or substitution made pursuant to this Section 4.02 or
Section 2.06(c).

 

(c) As to any Deleted Mortgage Loan for which the Sponsor substitutes a
Qualified Substitute Mortgage Loan or Loans, the Master Servicer shall cause the
Sponsor to effect such substitution by delivering to the Indenture Trustee a
certification, in the form attached hereto as Exhibit F, executed by a Servicing
Officer, and the documents described in Sections 2.05(a)(i)-(vi) for such
Qualified Substitute Mortgage Loan or Loans.

 

(d) The Master Servicer shall deposit in the Collection Account all payments
received in connection with such Qualified Substitute Mortgage Loan or Loans
after the date of such substitution. Monthly Payments due with respect to
Qualified Substitute Mortgage Loans in or before the Due Period in which the
substitution occurs shall not be part of the Trust Estate and will be retained
by the Sponsor on the next succeeding Payment Date. For the Due Period in which
the substitution occurs, distributions to Noteholders will include the Monthly
Payment due on any Deleted Mortgage Loan for such Due Period and thereafter the
Sponsor shall be entitled to retain all amounts received in respect of such
Deleted Mortgage Loan. The Master Servicer shall give written notice to the
Backup Servicer, the Indenture Trustee and the Note Insurer that such
substitution has taken place and shall amend the Mortgage Loan Schedule to
reflect the removal of such Deleted Mortgage Loan from the terms of this
Agreement and the substitution of the Qualified Substitute Mortgage Loan or
Loans. Upon such substitution, such Qualified Substitute Mortgage Loan or Loans
shall be subject to the terms of this Agreement in all respects.

 

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(e) With respect to any Mortgage Loan that has been converted to an REO Mortgage
Loan, all references in this Section 4.02 or Section 2.06 to “Mortgage Loan”
shall be deemed to also refer to the REO Mortgage Loan. With respect to any
Mortgage Loan that the Sponsor is required to repurchase that is or becomes a
Liquidated Mortgage Loan, in lieu of repurchasing such Mortgage Loan, the Master
Servicer shall deposit into the related Payment Account, pursuant to Section
8.01 of the Indenture, an amount equal to the amount of the Liquidated Loan
Loss, if any, incurred in connection with the liquidation of such Mortgage Loan
within the same time period in which the Master Servicer or Sponsor would have
otherwise been required to repurchase such Mortgage Loan.

 

(f) It is understood and agreed that the obligations of the Sponsor set forth in
Sections 2.06 and 4.02 to cure, purchase or substitute for a defective Mortgage
Loan, or to indemnify as described in Section 4.02(g) constitute the sole
remedies of the Indenture Trustee, the Note Insurer and the Noteholders
respecting a breach of the representations and warranties of the Sponsor set
forth in Section 4.01 of this Agreement.

 

(g) The Sponsor shall be obligated to indemnify the Seller, the Indenture
Trustee, the Trust, the Owner Trustee, the Noteholders and the Note Insurer for
any third party claims arising out of a breach by the Sponsor of representations
or warranties regarding the Mortgage Loans.

 

ARTICLE V

 

ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS

 

Section 5.01. The Master Servicer. (a) The Master Servicer shall service and
administer the Mortgage Loans in accordance with this Agreement and in
accordance with Accepted Servicing Practices, and shall have full power and
authority, acting alone, to do or cause to be done any and all things in
connection with such servicing and administration which it may deem necessary or
desirable.

 

(b) The Master Servicer shall exercise its discretion consistent with Accepted
Servicing Practices and the terms of this Agreement, with respect to the
enforcement of defaulted Mortgage Loans in such manner as will maximize the
receipt of principal and interest with respect thereto, including but not
limited to the sale of such Mortgage Loan to a third party, the modification of
such Mortgage Loan, or foreclosure upon the related property with a Mortgage and
disposition thereof.

 

(c) The duties of the Master Servicer shall include collecting and posting of
all payments, responding to inquiries of Mortgagors or by federal, state or
local government authorities with respect to the Mortgage Loans, investigating
delinquencies, reporting tax information to Mortgagors in accordance with its
customary practices and accounting for collections and furnishing monthly and
annual statements to the Indenture Trustee with respect to distributions, paying
Compensating Interest and making Periodic Advances and Servicing Advances
pursuant hereto. The Master Servicer shall follow its customary standards,
policies and procedures in performing its duties as Master Servicer. The Master
Servicer shall cooperate with the Indenture Trustee and furnish to the Indenture
Trustee with reasonable promptness

 

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information in its possession as may be necessary or appropriate to enable the
Indenture Trustee to perform its tax reporting duties hereunder. The Indenture
Trustee shall furnish the Master Servicer, or the Backup Servicer with any
powers of attorney and other documents as the Indenture Trustee shall deem
necessary or appropriate to enable the Master Servicer, and the Backup Servicer
to carry out its servicing and administrative duties hereunder; provided,
however, the Master Servicer, or the Backup Servicer shall prepare for and
deliver to the Indenture Trustee for its execution any such powers of attorney;
provided, further, that the Indenture Trustee shall not be responsible for any
misuse of any such power of attorney.

 

(d) [Reserved].

 

(e) The Master Servicer shall, in accordance with Accepted Servicing Practices,
have the right to approve requests of Mortgagors for consent to (i) partial
releases of Mortgage Loans and (ii) alterations, removal, demolition or division
of Mortgaged Properties subject to Mortgage Loans. No such request shall be
approved by the Master Servicer unless: (x) the provisions of the related
Mortgage Note have been complied with; (y) the LTV (which may, for this purpose,
be determined at the time of any such action in a manner reasonably acceptable
to the Note Insurer) after any release does not exceed the LTV set forth for
such Mortgage Loan in the Mortgage Loan Schedule; and (z) the lien priority,
monthly payment, Mortgage Interest Rate or maturity date of the related Mortgage
is not affected except in accordance with Section 5.01(f); provided, however,
that the foregoing requirements (x), (y) and (z) shall not apply to any such
situation described in this paragraph if such situation results from any
condemnation or easement activity by a governmental entity.

 

(f) Notwithstanding anything else contained herein, the Master Servicer may not,
without the consent of the Note Insurer, agree to a modification or extension of
any Mortgage Loan unless both (i) such Mortgage Loan is in default or a default
thereon is reasonably foreseeable and (ii) such modification or extension would
not result in the Master Servicer agreeing to modifications or extensions on
Mortgage Loans with aggregate Cut-Off Date Principal Balances of more than 5.0%
of the Maximum Collateral Amount. In addition, the Master Servicer may not agree
to more than (i) one modification or extension with respect to any individual
Mortgage Loan in a calendar year or (ii) three modifications or extensions of an
individual Mortgage Loan during the life of such Mortgage Loan.

 

(g) [Reserved].

 

(h) Without limiting the generality of the foregoing, but subject to Sections
5.05 and 5.06, the Master Servicer in its own name may be authorized and
empowered pursuant to a power of attorney executed and delivered by the
Indenture Trustee to execute and deliver, and may be authorized and empowered by
the Indenture Trustee, to execute and deliver, on behalf of itself, the
Noteholders and the Indenture Trustee or any of them, (i) any and all
instruments of satisfaction or cancellation or of partial or full release or
discharge and all other comparable instruments with respect to the Mortgage
Loans and with respect to the Mortgaged Properties, (ii) and to institute
foreclosure proceedings or obtain a deed in lieu of foreclosure so as to effect
ownership of any Mortgaged Property on behalf of the Indenture Trustee, and
(iii) to hold title to any Mortgaged Property upon such foreclosure or deed in
lieu of foreclosure on behalf of the Indenture Trustee; provided, however, that
Section 5.07(a) shall constitute a power

 

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of attorney from the Indenture Trustee to the Master Servicer to execute an
instrument of satisfaction (or assignment of mortgage without recourse) with
respect to any Mortgage Loan paid in full (or with respect to which payment in
full has been escrowed). Subject to Sections 5.05 and 5.06, the Indenture
Trustee shall furnish the Master Servicer with any powers of attorney and other
documents as the Master Servicer shall reasonably request to enable the Master
Servicer to carry out their respective servicing and administrative duties
hereunder; provided, however, the Master Servicer shall prepare for and deliver
to the Indenture Trustee for its execution any such powers of attorney;
provided, further, that the Indenture Trustee shall not be responsible for any
misuse of any such power of attorney.

 

(i) The Master Servicer shall give prompt notice to the Backup Servicer, the
Indenture Trustee and the Note Insurer of any action, of which the Master
Servicer has actual knowledge, to (i) assert a claim against the Trust or (ii)
assert jurisdiction over the Trust.

 

(j) Servicing Advances incurred by the Master Servicer in connection with the
servicing of the Mortgage Loans (including any penalties in connection with the
payment of any taxes and assessments or other charges) on any Mortgaged Property
shall be recoverable by the Master Servicer to the extent described herein.

 

(k) The Master Servicer shall be entitled to rely, and shall be fully protected
in relying, upon any promissory note, writing, resolution, notice, consent,
certificate, affidavit, letter, e-mail, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document reasonably believed by it
to be genuine and correct and to have been signed, sent or made by the proper
person or persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Mortgagor(s)), independent accountants and
other experts selected by the Master Servicer.

 

(l) The Master Servicer shall have no liability to the Seller, the Sponsor, the
Indenture Trustee, the Owner Trustee, the Note Insurer, any Noteholder or any
other Person for any action taken, or for refraining from the taking of any
action, in good faith pursuant to this Agreement, or for errors in judgment;
provided, however, that the foregoing shall not apply to any breach of
representations or warranties made by the Master Servicer herein, or to any
specific liability imposed upon the Master Servicer pursuant to this Agreement
or any liability that would otherwise be imposed upon the Master Servicer by
reason of its willful misconduct, bad faith or negligence in the performance of
its duties hereunder or by reason of its failure to perform its obligations or
duties hereunder.

 

Section 5.02. Collection of Certain Mortgage Loan Payments; Collection Account.
(a) The Master Servicer shall make reasonable efforts to collect all payments
called for under the terms and provisions of the Mortgage Loans, and shall, to
the extent such procedures shall be consistent with this Agreement, follow
Accepted Servicing Practices. Consistent with the foregoing, the Master Servicer
may in its discretion waive any assumption fees or other fees which may be
collected in the ordinary course of servicing such Mortgage Loans.

 

(b) The Master Servicer shall establish and maintain, in the name of the
Indenture Trustee, a segregated account (the “Collection Account”), in trust for
the benefit of the

 

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Noteholders and the Note Insurer. The Collection Account shall be established
and maintained as an Eligible Account.

 

(c) The Master Servicer shall deposit in the Collection Account any amounts
representing Monthly Payments on the Mortgage Loans due or to be applied as of a
date after the Cut-Off Date on each Business Day, not more than two Business
Days after the date of collection, the following payments and collections
received or made by it (other than in respect of monthly payments of principal
on and interest of the Mortgage Loans that were due on or before the related
Cut-Off Date and Monthly Payments due on September 1, 2003):

 

(i) payments of interest on the Mortgage Loans including Prepayment Charges;

 

(ii) payments of principal of the Mortgage Loans, including Principal
Prepayments;

 

(iii) the Loan Repurchase Price of Mortgage Loans repurchased pursuant to
Sections 2.06(c) or 4.02;

 

(iv) the Substitution Adjustment received in connection with Mortgage Loans for
which Qualified Substitute Mortgage Loans are received pursuant to Sections 2.06
and 4.02;

 

(v) all Net REO Proceeds;

 

(vi) all Net Liquidation Proceeds; and

 

(vii) all Insurance Proceeds (including, for this purpose, any amounts required
to be deposited by the Master Servicer pursuant to Section 5.04 hereof).

 

It is understood that the Master Servicer need not deposit amounts representing
fees, late payment charges or extension or other administrative charges (other
than Prepayment Charges) payable by Mortgagors, or amounts received by the
Master Servicer for the account of Mortgagors for application towards the
payment of taxes, insurance premiums, assessments and similar items or
foreclosure proceeds to the extent payable to the related Mortgagor.

 

(d) The Master Servicer shall invest any funds in the Collection Account in
Permitted Investments, which shall mature not later than the Business Day next
preceding the Servicer Payment Date next following the date of such investment
(except that any investment held by the Indenture Trustee may mature on such
Servicer Payment Date) and shall not be sold or disposed of prior to its
maturity. All net income and gain realized from any such investment shall be for
the benefit of the Master Servicer and shall be subject to its withdrawal or
order on a Servicer Payment Date. The Master Servicer shall deposit from its own
funds the amount of any loss, to the extent not offset by investment income or
earnings, in the Collection Account upon the realization of such loss.

 

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Section 5.03. Permitted Withdrawals from the Collection Account. The Master
Servicer may make withdrawals from the Collection Account, on or prior to any
Servicer Payment Date, for the following purposes:

 

(a) to pay to the Sponsor amounts received in respect of any Defective Mortgage
Loan purchased or substituted for by the Sponsor to the extent that the payment
of any such amounts on the Servicer Payment Date upon which the proceeds of such
purchase are paid would make the total amount distributed in respect of any such
Mortgage Loan on such Servicer Payment Date greater than the Loan Repurchase
Price or the Substitution Adjustment therefor;

 

(b) to reimburse the Master Servicer for unreimbursed Periodic Advances and
unreimbursed Servicing Advances with respect to the Mortgage Loans for which it
has made a Periodic Advance or Servicing Advance, from late or deferred payments
collected, collections other than timely Monthly Payments, Liquidation Proceeds,
Insurance Proceeds and/or the Loan Repurchase Price or Substitution Adjustment
of or relating to such Mortgage Loans;

 

(c) to reimburse the Master Servicer for any Periodic Advances and Servicing
Advances determined in good faith to have become Nonrecoverable Advances, such
reimbursement to be made from any funds in the Collection Account;

 

(d) to withdraw any amount received from a Mortgagor that is recoverable and
sought to be recovered as a voidable preference by a trustee in bankruptcy
pursuant to the Bankruptcy Code in accordance with a final, nonappealable order
of a court having competent jurisdiction;

 

(e) to withdraw any funds deposited in the Collection Account that were not
required to be deposited therein;

 

(f) to pay the Master Servicer the Servicing Compensation pursuant to Section
5.08 hereof to the extent not retained or paid;

 

(g) to pay the Backup Servicer the Backup Servicing Fee pursuant to Section 5.08
hereof to the extent payments in respect of these amounts have not been
previously retained or paid;

 

(h) without duplication, and solely out of amounts which are payable to a former
master servicer pursuant to Section 7.02(g), to pay to the Backup Servicer, the
Indenture Trustee or any successor master servicer amounts paid by them in
connection with the transfer of the Master Servicer’s servicing obligations
pursuant to Article VII hereof and required under such Article VII to be borne
by the Master Servicer;

 

(i) to withdraw income on the Collection Account as provided in Section 5.02(d);
and

 

(j) amounts deposited into the Collection Account in respect of late fees,
assumption fees and similar fees (other than Prepayment Charges).

 

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The Master Servicer shall keep and maintain a separate accounting for each
Mortgage Loan for the purpose of accounting for withdrawals from the Collection
Account pursuant to this Section 5.03. Furthermore, in the event that servicing
has been transferred to the Backup Servicer, all reimbursements in respect of
Servicer Advances and Periodic Advances shall be made on a first in, first out
priority basis (i.e. the longest outstanding reimbursable Servicer Advance or
Periodic Advance will be reimbursed first).

 

Section 5.04. Hazard Insurance Policies; Property Protection Expenses. (a) The
Master Servicer shall cause to be maintained with respect to each Mortgage Loan
a hazard insurance policy with a carrier licensed in the state in which the
Mortgaged Property is located that provides for fire and extended coverage, and
which provides for a recovery by the named insured of insurance proceeds
relating to such Mortgage Loan in an amount not less than the least of (i) the
outstanding Principal Balance of the Mortgage Loan plus the outstanding
principal balance of any mortgage loan senior to such Mortgage Loan, but in no
event shall such amount be less than is necessary to prevent the Mortgagor from
becoming a coinsurer thereunder, (ii) the minimum amount required to compensate
for loss or damage on a replacement cost basis and (iii) the full insurable
value of the related Mortgage Property. The Master Servicer shall also maintain
on property acquired upon foreclosure, or by deed in lieu of foreclosure, hazard
insurance with extended coverage in an amount which is at least equal to the
lesser of (i) the maximum insurable value from time to time of the improvements
which are a part of such property or (ii) the sum of the Principal Balance of
such Mortgage Loan and the principal balance of any mortgage loan senior to such
Mortgage Loan at the time of such foreclosure plus accrued interest and the
good-faith estimate of the Master Servicer of related Liquidation Expenses to be
incurred in connection therewith. Amounts collected by the Master Servicer under
any such policies shall be deposited in the Collection Account to the extent
that they constitute Liquidation Proceeds or Insurance Proceeds. Each hazard
insurance policy shall contain a standard mortgage clause naming the Master
Servicer, its successors and assigns, as mortgagee. The Master Servicer shall be
under no obligation to require that any Mortgagor maintain earthquake (except as
provided herein) or other additional insurance and shall be under no obligation
itself to maintain any such additional insurance on property acquired in respect
of a Mortgage Loan, other than pursuant to such applicable laws and regulations
as shall at any time be in force and as shall require such additional insurance.

 

(b) In the event that the Master Servicer shall obtain and maintain a blanket
policy with an insurer either (i) which satisfies the corresponding requirements
of Fannie Mae or Freddie Mac or (ii) approved in writing by the Note Insurer,
such approval not to be unreasonably withheld, insuring against fire, flood and
hazards of extended coverage on all of the Mortgage Loans, then, to the extent
such policy names the Master Servicer as loss payee and provides coverage in an
amount equal to the aggregate unpaid Principal Balance on the Mortgage Loans
without co-insurance, and otherwise complies with the requirements of this
Section 5.04, the Master Servicer shall be deemed conclusively to have satisfied
its obligations with respect to fire and hazard insurance coverage under this
Section 5.04, it being understood and agreed that such blanket policy may
contain a deductible clause (payable by the Master Servicer), in which case the
Master Servicer shall, in the event that there shall not have been maintained on
the related Mortgaged Property a policy complying with the preceding paragraph
of this Section 5.04, and there shall have been a loss which would have been
covered by such policy, deposit in the Collection Account from the Master
Servicer’s own funds the difference, if any, between the

 

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amount that would have been payable under a policy complying with the preceding
paragraph of this Section 5.04 and the amount paid under such blanket policy.
Upon the request of the Indenture Trustee or the Note Insurer, the Master
Servicer shall cause to be delivered to the Indenture Trustee or the Note
Insurer, a certified true copy of such policy.

 

(c) If the Mortgage Loan at the time of origination relates to a Mortgaged
Property in an area identified in the Federal Register by the Federal Emergency
Management Agency as having special flood hazards as designated to the Master
Servicer by the Sponsor, the Master Servicer will cause to be maintained with
respect thereto a flood insurance policy in a form meeting the requirements of
the current guidelines of the Federal Insurance Administration with a generally
acceptable carrier in an amount representing coverage, and which provides for a
recovery by the Master Servicer on behalf of the Trust of insurance proceeds
relating to such Mortgage Loan of not less than the least of (i) the outstanding
Principal Balance of the related Mortgage Loan, plus the principal balance of
the related first lien, if any, (ii) the minimum amount required to compensate
for damage or loss on a replacement cost basis and (iii) the maximum amount of
insurance that is available under the Flood Disaster Protection Act of 1973. The
Master Servicer shall indemnify the Trust and the Note Insurer out of the Master
Servicer’s own funds for any loss to the Trust and the Note Insurer resulting
from the Master Servicer’s failure to maintain the insurance required by this
Section.

 

Section 5.05. Assumption and Modification Agreements. When a Mortgaged Property
has been or is about to be conveyed by the Mortgagor, the Master Servicer shall,
to the extent it has knowledge of such conveyance or prospective conveyance,
exercise its rights to accelerate the maturity of the related Mortgage Loan
under any “due-on-sale” clause contained in the related Mortgage or Mortgage
Note; provided, however, that the Master Servicer shall not exercise any such
right if (i) the “due-on-sale” clause, in the reasonable belief of the Master
Servicer, is not enforceable under applicable law or (ii) the Master Servicer
reasonably believes that to permit an assumption of the Mortgage Loan would not
materially and adversely affect the interest of the Noteholders or of the Note
Insurer. In such event, the Master Servicer shall enter into an assumption and
modification agreement with the Person to whom such property has been or is
about to be conveyed, pursuant to which such Person becomes liable under the
Mortgage Note and, unless prohibited by applicable law or the mortgage
documents, the Mortgagor remains liable thereon. If the foregoing is not
permitted under applicable law, the Master Servicer is authorized to enter into
a substitution of liability agreement with such Person, pursuant to which the
original Mortgagor is released from liability and such Person is substituted as
Mortgagor and becomes liable under the Mortgage Note; provided, however, that to
the extent any such substitution of liability agreement would be delivered by
the Master Servicer outside of its usual procedures for mortgage loans held in
its own portfolio the Master Servicer shall, prior to executing and delivering
such agreement, obtain the prior written consent of the Note Insurer. The
Mortgage Loan, if assumed, shall conform in all respects to the requirements and
representations and warranties of this Agreement. The Master Servicer shall
notify the Indenture Trustee that any applicable assumption or substitution
agreement has been completed by forwarding to the Indenture Trustee the original
copy of such assumption or substitution agreement, which copy shall be added by
the Indenture Trustee to the related Indenture Trustee’s Mortgage File and which
shall, for all purposes, be considered a part of such Indenture Trustee’s
Mortgage File to the same extent as all other documents and instruments
constituting a part thereof. The Master Servicer shall be responsible for
promptly recording any such assumption or

 

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substitution agreements. In connection with any such assumption or substitution
agreement, the required monthly payment on the related Mortgage Loan shall not
be changed but shall remain as in effect immediately prior to the assumption or
substitution, the stated maturity or outstanding Principal Balance of such
Mortgage Loan shall not be changed, the Mortgage Interest Rate shall not be
changed nor shall any required monthly payments of principal or interest be
deferred or forgiven. Any fee collected by the Master Servicer for consenting to
any such conveyance or entering into an assumption or substitution agreement
shall be retained by or paid to the Master Servicer as additional servicing
compensation.

 

Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Master Servicer shall not be deemed to be in default, breach or
any other violation of its obligations hereunder by reason of any assumption of
a Mortgage Loan by operation of law or any assumption which the Master Servicer
may be restricted by law from preventing, for any reason whatsoever.

 

Section 5.06. Realization Upon Defaulted Mortgage Loans. (a) The Master Servicer
shall foreclose upon or otherwise comparably effect the ownership on behalf of
the Trust of Mortgaged Properties relating to defaulted Mortgage Loans as to
which no satisfactory arrangements can be made for collection of Delinquent
payments and which the Sponsor has not purchased pursuant to Section 5.15,
unless the Master Servicer reasonably believes that Net Liquidation Proceeds
with respect to such Mortgage Loan would not be increased as a result of such
foreclosure or other action, in which case, such Mortgage Loan will be
charged-off and will become a Liquidated Mortgage Loan. The Master Servicer
shall have no obligation to purchase any Mortgaged Property at any foreclosure
sale. In connection with such foreclosure or other conversion, the Master
Servicer shall exercise foreclosure procedures with the same degree of care and
skill in their exercise or use, as it would ordinarily exercise or use under the
circumstances in the conduct of their own affairs. Any amounts including
Liquidation Expenses, advanced by the Master Servicer in connection with such
foreclosure or other action shall constitute Servicing Advances.

 

Pursuant to its efforts to sell any REO Property, the Master Servicer either
itself or through an agent selected by the Master Servicer shall manage,
conserve, protect and operate such REO Property in the same manner and to such
extent as is customary in the locality where such REO Property is located and
may, incident to its conservation and protection of the interests of the Master
Servicer, rent the same, or any part thereof, as the Master Servicer deems to be
in the best interest of the Trust and Note Insurer for the period prior to the
sale of such REO Property. The net income generated from the REO Property and
the proceeds from a sale of any REO Property shall be deposited in the
Collection Account.

 

(b) If the Master Servicer has reason to believe that a Mortgaged Property which
the Master Servicer is contemplating acquiring in foreclosure or by deed in lieu
of foreclosure contains environmental or hazardous waste risks known to the
Master Servicer, the Master Servicer shall notify the Backup Servicer, the
Indenture Trustee and the Note Insurer and obtain the consent of the Note
Insurer prior to acquiring the Mortgaged Property. The Master Servicer shall not
institute foreclosure actions with respect to such a property if it reasonably
believes that such action would not be consistent with the Accepted Servicing
Practices, and in no event shall the Master Servicer be required to manage,
operate or take any other action with

 

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respect thereto which the Master Servicer in good faith believes will result in
“clean-up” or other liability under applicable law, unless the Master Servicer
receives an indemnity acceptable to it in its sole discretion.

 

(c) The Master Servicer shall determine, with respect to each defaulted Mortgage
Loan, when it has recovered, whether through trustee’s sale, foreclosure sale or
otherwise, all amounts if any it expects to recover from or on account of such
defaulted Mortgage Loan, whereupon such Mortgage Loan shall become a Liquidated
Mortgage Loan.

 

(d) Net Foreclosure Profits, if any, shall be paid directly to the Sponsor.

 

(e) With respect to its obligations under this Section 5.06, the Master Servicer
shall take all such actions as it reasonably believes are consistent with
Accepted Servicing Practices.

 

Section 5.07. Indenture Trustee to Cooperate. (a) Upon the payment in full of
any Mortgage Loan or the receipt by the Master Servicer of a notification that
payment in full will be escrowed in a manner customary for such purposes, the
Master Servicer shall deliver to the Indenture Trustee one copy of a Request for
Release. Upon receipt of such copy of the Request for Release, the Indenture
Trustee shall promptly release the related Indenture Trustee’s Mortgage File, in
trust to (i) the Master Servicer (ii) an escrow agent or (iii) any employee,
agent or attorney of the Indenture Trustee, in each case pending its release by
the Master Servicer, such escrow agent or such employee, agent or attorney of
the Indenture Trustee, as the case may be. Upon any such payment in full, or the
receipt of such notification that such funds have been placed in escrow, the
Master Servicer is authorized to give, as attorney-in-fact for the Indenture
Trustee and the mortgagee under the Mortgage which secured the Mortgage Note, an
instrument of satisfaction (or assignment of Mortgage without recourse)
regarding the Mortgaged Property relating to such Mortgage, which instrument of
satisfaction or assignment, as the case may be, shall be delivered to the Person
or Persons entitled thereto against receipt therefor of payment in full, it
being understood and agreed that no expense incurred in connection with such
instrument of satisfaction or assignment, as the case may be, shall be
chargeable to the Collection Account.

 

(b) (i) From time to time and as appropriate in the servicing of any Mortgage
Loan, including, without limitation, foreclosure or other comparable conversion
of a Mortgage Loan or collection under any applicable Insurance Policy, the
Indenture Trustee shall (except in the case of the payment or liquidation
pursuant to which the related Indenture Trustee’s Mortgage File is released to
an escrow agent or an employee, agent or attorney of the Indenture Trustee),
upon request of the Master Servicer and delivery to the Indenture Trustee of one
copy of a Request for Release, release the related Indenture Trustee’s Mortgage
File to the Master Servicer and shall execute such documents as shall be
necessary to the prosecution of any such proceedings, including, without
limitation, an assignment without recourse of the related Mortgage to the Master
Servicer. The Indenture Trustee shall complete in the name of the Indenture
Trustee any endorsement in blank on any Mortgage Note prior to releasing such
Mortgage Note to the Master Servicer. Such receipt shall obligate the Master
Servicer to return the Indenture Trustee’s Mortgage File to the Indenture
Trustee when the need therefor by the Master Servicer no longer exists unless
the Mortgage Loan shall be liquidated, in which case, the

 

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Master Servicer shall deliver one copy of a Request for Release indicating such
loan has been paid in full.

 

(ii) Each Request for Release may be delivered to the Indenture Trustee (x) via
mail or courier, (y) via facsimile or (z) by such other means, including,
without limitation, electronic or computer readable medium, as the Master
Servicer and the Indenture Trustee shall mutually agree. The Indenture Trustee
shall promptly release the related Indenture Trustee’s Mortgage File(s) within
three (3) Business Days of receipt of one copy of a properly completed Request
for Release pursuant to clauses (x), (y) or (z) above or such shorter period as
may be agreed upon by the Master Servicer and the Indenture Trustee. Receipt of
a Request for Release pursuant to clauses (x), (y) or (z) above shall be
authorization to the Indenture Trustee to release such Indenture Trustee’s
Mortgage Files, provided the Indenture Trustee has determined that such Request
for Release has been executed, with respect to clauses (x) or (y) above, or
approved, with respect to clause (z) above, by a Servicing Officer of the Master
Servicer. If the Indenture Trustee is unable to release the Indenture Trustee’s
Mortgage Files within the time frames previously specified, the Indenture
Trustee shall immediately notify the Master Servicer, indicating the reason for
such delay, but in no event shall such notification be later than five Business
Days after receipt of a Request for Release. If the Master Servicer, is required
to pay penalties or damages due solely to the Indenture Trustee’s negligent
failure to release the related Indenture Trustee’s Mortgage File or the
Indenture Trustee’s negligent failure to execute and release documents in a
timely manner, the Indenture Trustee shall be liable for such penalties or
damages.

 

(c) No costs associated with the procedures described in this Section 5.07 shall
be an expense of the Trust.

 

Section 5.08. Servicing Compensation; Payment of Certain Expenses by Master
Servicer. The Master Servicer shall be entitled to receive and retain, out of
collections on the Mortgage Loans for each Due Period, as servicing compensation
for such Due Period, an amount (the “Servicing Fee”) equal to the product of
one-twelfth of the Servicing Fee Rate and the aggregate Stated Principal Balance
of the Mortgage Loans in each Loan Group as of the beginning of such Due Period.
Additional servicing compensation in the form of assumption fees, late payment
charges or extension and other administrative charges (other than Prepayment
Charges) shall be retained by the Master Servicer. The Master Servicer shall be
required to pay all expenses incurred by it in connection with its activities
hereunder (including payment of the Indenture Trustee Fee to the extent that
monies in the Collection Account are insufficient therefor, as provided in
Section 6.16 of the Indenture, and all other fees and expenses not expressly
stated hereunder to be payable by or from another source) and shall not be
entitled to reimbursement therefor except as specifically provided herein.

 

The Backup Servicer shall be entitled to receive, and the Master Servicer shall
pay, out of collections on the Mortgage Loans for each Due Period, as servicing
compensation for such Due Period, an amount (the “Backup Servicing Fee”) equal
to the product of one-twelfth of the Backup Servicing Fee Rate and the aggregate
Stated Principal Balance of the Mortgage Loans in each Loan Group as of the
beginning of such Due Period. The Backup Servicer will also be entitled to an
upfront fee of $7,500.00.

 

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Section 5.09. Annual Statement as to Compliance. The Master Servicer will
deliver to the Backup Servicer, the Trust, the Indenture Trustee, the Rating
Agencies, the Note Insurer and, the Sponsor on or before March 15 of each year,
beginning March 15, 2004, an Officer’s Certificate of the Master Servicer
stating that (a) a review of the activities of the Master Servicer during the
preceding calendar year and of its performance under this Agreement has been
made under such officer’s supervision and (b) to the best of such officer’s
knowledge, based on such review, the Master Servicer has fulfilled all its
material obligations under this Agreement throughout such year, or, if there has
been a default in the fulfillment of any such obligation, specifying each such
default known to such officer and the nature and status thereof.

 

Section 5.10. Annual Independent Public Accountants’ Servicing Report. On or
before March 15 of each year, beginning March 15, 2004, the Master Servicer at
its expense shall cause a firm of independent public accountants that is a
member of the American Institute of Certified Public Accountants (who may also
render other services to the Master Servicer) to furnish a report to the Backup
Servicer, the Trust, the Indenture Trustee, the Rating Agencies, the Note
Insurer and the Sponsor to the effect that such firm has examined certain
documents and records relating to the servicing of mortgage loans under
servicing agreements (including this Agreement) substantially similar to this
Agreement, and that such examination, which has been conducted substantially in
compliance with the Uniform Single Attestation Program for Mortgage Bankers or
the Audit Guide for Audits of HUD Approved Nonsupervised Mortgagees (to the
extent that the procedures in such audit guide are applicable to the servicing
obligations set forth in such agreements), has disclosed no items of
noncompliance with the provisions of this Agreement which, in the opinion of
such firm, are material, except for such items of noncompliance as shall be set
forth in such report.

 

Section 5.11. Access to Certain Documentation. The Master Servicer shall provide
to the Backup Servicer, the Indenture Trustee, the Note Insurer, the FDIC and
the supervisory agents and examiners (as required in the latter case by
applicable State and federal regulations) of each of the foregoing access to the
documentation regarding the Mortgage Loans, such access being afforded without
charge but only upon reasonable request and during normal business hours at the
offices of the Master Servicer designated by it.

 

Upon any change in the format of the computer tape maintained by the Master
Servicer in respect of the Mortgage Loans, the Master Servicer shall deliver a
copy of such computer tape to the Indenture Trustee and the Backup Servicer and
in addition shall provide a copy of such computer tape to the Indenture Trustee,
the Backup Servicer and the Note Insurer at such other times as the Indenture
Trustee or the Note Insurer may reasonably request.

 

The Master Servicer shall keep confidential (including from affiliates thereof)
information concerning the Mortgage Loans, except as required by law.

 

Section 5.12. Maintenance of Fidelity Bond. The Master Servicer and the Backup
Servicer shall each, during the term of its service as Master Servicer and
Backup Servicer, respectively, maintain in force a fidelity bond and errors and
omissions insurance in respect of their respective officers, employees or
agents. Such bond and insurance shall comply with the requirements from time to
time of Fannie Mae for Persons performing servicing for mortgage loans purchased
by such association.

 

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Section 5.13. Subservicing Agreements Between the Master Servicer and
Subservicer and Subservicers. (a) The Master Servicer may enter into
subservicing agreements for any servicing and administration of Mortgage Loans
with any institution which is in compliance with the laws of each state
necessary to enable it to perform its obligations under such subservicing
agreement. The Master Servicer shall give notice to the Backup Servicer, the
Note Insurer and the Indenture Trustee of the appointment of any subservicer and
shall furnish to the Backup Servicer, the Note Insurer and the Indenture Trustee
a copy of the subservicing agreement. The Master Servicer shall give notice to
each Rating Agency of the appointment of any subservicer. No such appointment of
a subservicer shall be effective without the consent of the Note Insurer. For
purposes of this Agreement, the Master Servicer shall be deemed to have received
payments on Mortgage Loans when any subservicer has received such payments. Any
such subservicing agreement shall be consistent with and not violate the
provisions of this Agreement.

 

(b) The Master Servicer may, with the consent of the Note Insurer, terminate any
subservicing agreement in accordance with the terms and conditions of such
subservicing agreement and thereafter directly service the related Mortgage
Loans itself or enter into a subservicing agreement with a successor subservicer
that qualifies under Subsection (a) of this Section 5.13. The Master Servicer
shall give notice to each Rating Agency of the termination of any subservicer
and the appointment of any successor subservicer.

 

(c) The Master Servicer shall not be relieved of its obligations under this
Agreement notwithstanding any subservicing agreement or any of the provisions of
this Agreement relating to agreements or arrangements between the Master
Servicer and a subservicer or otherwise, and the Master Servicer shall be
obligated to the same extent and under the same terms and conditions as if it
alone were servicing and administering the Mortgage Loans. The Master Servicer
shall be entitled to enter into any agreement with a subservicer for
indemnification of the Master Servicer by such subservicer and nothing contained
in such subservicing agreement shall be deemed to limit or modify this
Agreement. The Trust shall not indemnify the Master Servicer for any losses due
to the Master Servicer’s negligence.

 

(d) Any subservicing agreement and any other transactions or services relating
to the Mortgage Loans involving a subservicer shall be deemed to be between the
subservicer and the Master Servicer alone and the Backup Servicer, the Note
Insurer, the Indenture Trustee and the Noteholders shall not be deemed parties
thereto and shall have no claims, rights, obligations, duties or liabilities
with respect to any Subservicer except as set forth in Subsection (e) of this
Section 5.13 and the related Subservicing Agreement.

 

(e) Notwithstanding any contrary provision contained herein, in connection with
the assumption of the responsibilities, duties and liabilities and of the
authority, power and rights of the Master Servicer hereunder by the Backup
Servicer, the Indenture Trustee or any other successor master servicer pursuant
to Section 7.02, it is understood and agreed that the Master Servicer’s rights
and obligations under any subservicing agreement then in force between the
Master Servicer and a subservicer may be assumed or terminated (without cost) by
the Backup Servicer, the Indenture Trustee or any other successor master
servicer at its option as successor to the Master Servicer.

 

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The Master Servicer shall, upon request of the Backup Servicer, the Indenture
Trustee or the Note Insurer, but at the expense of the Master Servicer, deliver
to the assuming party documents and records relating to each subservicing
agreement and an accounting of amounts collected and held by it and otherwise
use its best reasonable efforts to effect the orderly and efficient transfer of
the subservicing agreements to the assuming party, without the payment of any
fee by the Backup Servicer, the Indenture Trustee, any Noteholders or the Note
Insurer, notwithstanding any contrary provision in any subservicing agreement.

 

Section 5.14. Reports to the Indenture Trustee; Collection Account Statements.
Not later than twenty-five (25) days after each Payment Date, the Master
Servicer shall provide to the Indenture Trustee, the Backup Servicer and the
Note Insurer a statement, certified by a Servicing Officer, setting forth the
status of the Collection Account as of the close of business on the last day of
the Due Period preceding such Payment Date, stating that all payments required
by this Agreement to be made by the Master Servicer on behalf of the Indenture
Trustee have been made (or if any required payment has not been made by the
Master Servicer, specifying the nature and status thereof) and showing, for the
period covered by such statement, the aggregate of deposits into and withdrawals
from the Collection Account and the aggregate of deposits into each Payment
Account as specified in Section 6.01. Such statement shall also state the
aggregate Stated Principal Balance and the aggregate unpaid principal balance of
all the Mortgage Loans as of the close of business on the last day of the month
preceding the month in which such Payment Date occurs.

 

Section 5.15. Optional Purchase of Defaulted Mortgage Loans. (a) The Sponsor, in
its sole discretion, shall have the right to elect (by written notice sent to
the Master Servicer, the Indenture Trustee and the Note Insurer), but shall not
be obligated, to purchase for its own account from the Trust any Mortgage Loan
which is ninety (90) days or more Delinquent in the manner at the Loan
Repurchase Price (except that the amount described in the definition of Loan
Repurchase Price shall in no case be net of the Servicing Fee and the Backup
Servicing Fee). The purchase price for any Mortgage Loan purchased hereunder
shall be deposited in the Collection Account and the Indenture Trustee, upon the
Indenture Trustee’s receipt of written notice by the Master Servicer of such
deposit, shall release or cause to be released to the purchaser of such Mortgage
Loan the related Indenture Trustee’s Mortgage File and shall execute and deliver
such instruments of transfer or assignment prepared by the purchaser of such
Mortgage Loan, in each case without recourse, as shall be necessary to vest in
the purchaser of such Mortgage Loan any Mortgage Loan released pursuant hereto
and the purchaser of such Mortgage Loan shall succeed to all the Indenture
Trustee’s right, title and interest in and to such Mortgage Loan and all
security and documents related thereto. Such assignment shall be an assignment
outright and not for security. The purchaser of such Mortgage Loan shall
thereupon own such Mortgage Loan, and all security and documents, free of any
further obligation to the Indenture Trustee, the Note Insurer or the Noteholders
with respect thereto. The purchaser of such Mortgage Loan shall give written
notice to the Note Insurer of the means by which any Mortgage Loan purchased
pursuant to this Section 5.15 is ultimately disposed of and any other
information regarding any such Mortgage Loan reasonably requested by the Note
Insurer.

 

(b) After the Sponsor or an Affiliate of the Sponsor has repurchased any
Mortgage Loans which are 90 days or more Delinquent in an aggregate amount equal
to 1% of the Maximum Collateral Amount, then notwithstanding the foregoing,
unless the Note Insurer

 

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consents, the Sponsor or an Affiliate of the Sponsor may only exercise its
option pursuant to this Section 5.15 with respect to the Mortgage Loan or
Mortgage Loans (including REO Mortgage Loans) that have been Delinquent for the
longest period at the time of such repurchase. Any request by the Sponsor or an
Affiliate of the Sponsor to the Note Insurer for consent to repurchase Mortgage
Loans that are not the most Delinquent shall be accompanied by a description of
the Mortgage Loans that have been Delinquent longer than the Mortgage Loan or
Mortgage Loans the Sponsor or such Affiliate proposes to repurchase. If the Note
Insurer fails to respond to such request within ten (10) Business Days after
receipt thereof, the Sponsor or such Affiliate may repurchase the Mortgage Loan
or Mortgage Loans proposed to be repurchased without the consent of, or any
further action by, the Note Insurer. Notice to the Note Insurer shall be
delivered in accordance with the terms of the Insurance Agreement.

 

Section 5.16. Reports to be Provided by the Master Servicer and the Backup
Servicer. (a) By 3:00 p.m. eastern time on the second Business Day following the
fifteenth (15th) day of each month (the “Servicer Reporting Date”), the Master
Servicer shall deliver to the Indenture Trustee, the Backup Servicer, the
Underwriter, Intex, Bloomberg and the Note Insurer a Servicer Remittance Report
for the related Servicer Payment Date setting forth the following information
with respect to all Mortgage Loans as well as a break out as to each Loan Group
as of the close of business on the last Business Day of the prior calendar month
(except as otherwise provided in clause (v) below):

 

(i) the total number of Mortgage Loans and the Aggregate Principal Balances
thereof, together with the number, Aggregate Principal Balances of such Mortgage
Loans and the percentage (based on the Aggregate Principal Balances of the
Mortgage Loans) of the Aggregate Principal Balances of such Mortgage Loans to
the Aggregate Principal Balance of all Mortgage Loans (A) 30-59 days Delinquent,
(B) 60-89 days Delinquent and (C) 90 or more days Delinquent;

 

(ii) the number, Aggregate Principal Balances of all Mortgage Loans and
percentage (based on the Aggregate Principal Balances of the Mortgage Loans) of
the Aggregate Principal Balances of such Mortgage Loans to the Aggregate
Principal Balance of all Mortgage Loans in foreclosure proceedings and the
number, Aggregate Principal Balances of all Mortgage Loans and percentage (based
on the Aggregate Principal Balances of the Mortgage Loans) of any such Mortgage
Loans also included in any of the statistics described in the foregoing clause
(i);

 

(iii) the number, Aggregate Principal Balances of all Mortgage Loans and
percentage (based on the Aggregate Principal Balances of the Mortgage Loans) of
the Aggregate Principal Balances of such Mortgage Loans to the Aggregate
Principal Balance of all Mortgage Loans relating to Mortgagors in bankruptcy
proceedings and the number, Aggregate Principal Balances of all Mortgage Loans
and percentage (based on the Aggregate Principal Balances of the Mortgage Loans)
of any such Mortgage Loans also included in any of the statistics described in
the foregoing clause (i);

 

(iv) the number, Aggregate Principal Balances of all Mortgage Loans and
percentage (based on the Aggregate Principal Balances of the Mortgage Loans) of
the Aggregate Principal Balances of such Mortgage Loans to the Aggregate
Principal

 

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Balance of all Mortgage Loans relating to REO Properties and the number,
Aggregate Principal Balances of all Mortgage Loans and percentage (based on the
Aggregate Principal Balances of the Mortgage Loans) of any such Mortgage Loans
also included in any of the statistics described in the foregoing clause (i);

 

(v) the weighted average Mortgage Interest Rate for the Mortgage Loans in Loan
Group 1, Loan Group 2 and Loan Group 3, in each case, as of the Due Date
occurring in the Due Period related to such Payment Date;

 

(vi) the weighted average remaining term to stated maturity of all Mortgage
Loans;

 

(vii) the book value of any REO Property;

 

(viii) the Cumulative Loan Losses during the related Collection Period;

 

(ix) the number and the Aggregate Principal Balance of Mortgage Loans
repurchased pursuant to Section 5.15; and

 

(x) such other loan level information as either (a) the Indenture Trustee may
reasonably request to enable it to prepare the Indenture Trustee’s Remittance
Report or (b) the Note Insurer may reasonably request.

 

(b) [Reserved].

 

(c) In addition to the contingent obligations of the Backup Servicer under this
Agreement, the Backup Servicer shall establish and maintain a system of
transaction accounting in regard to the Mortgage Loans substantially similar to
that maintained by the Master Servicer and post to such system all information
relating to the Mortgage Loans obtained by the Backup Servicer pursuant to
Section 5.16 and 5.18, to enable the Backup Servicer to perform the obligations
of a successor master servicer immediately upon any termination or resignation
of the Master Servicer. The Backup Servicer’s obligations described in this
Section 5.16(c) and its obligations pursuant to Section 7.02 shall be the only
obligations of the Backup Servicer under this Agreement. All such obligations of
the Backup Servicer are effective as of the date of this Agreement.

 

Section 5.17. [Reserved].

 

Section 5.18. Periodic Advances. If, on any Servicer Payment Date, the Master
Servicer determines that any Monthly Payments due during the related Due Period
have not been received as of the end of the related Due Period, the Master
Servicer shall determine the amount of any Periodic Advance required to be made
with respect to the related Payment Date. The Master Servicer shall deliver, one
(1) Business Day after such Servicer Payment Date, a magnetic tape, diskette (or
such other electronic medium used by the Master Servicer for such purpose) to
the Backup Servicer indicating the payment status of each Mortgage Loan as of
the date which is two Business Days prior to such Servicer Payment Date. The
Master Servicer shall include in the amount to be deposited in the related
Payment Account on such Servicer Payment Date an amount equal to the Periodic
Advance, if any, which deposit may be made in whole or in part

 

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from funds in the Collection Account being held for future payment or withdrawal
on or in connection with Payment Dates in subsequent months, other than any such
amounts which are voluntary Principal Prepayments in full. Any funds being held
for future payment to Noteholders and so used shall be replaced by the Master
Servicer from its own funds by deposit in the Collection Account on or before
the Business Day preceding any future Servicer Payment Date to the extent that
funds in the Collection Account on such Servicer Payment Date shall be less than
the Servicer Remittance Amount for such Payment Date.

 

The Master Servicer shall designate on its records the specific Mortgage Loans
and related installments (or portions thereof) as to which such Periodic Advance
shall be deemed to have been made, such determination being conclusive for
purposes of withdrawals from the Collection Account pursuant to Section 5.03
hereof.

 

Section 5.19. Indemnification; Third Party Claims. The Master Servicer agrees to
indemnify and to hold each of the Trust, the Owner Trustee, the Seller, the
Sponsor, the Backup Servicer, the Indenture Trustee, the Note Insurer and each
Noteholder harmless against any and all claims, losses, penalties, fines,
forfeitures, legal fees and related costs, judgments, and any other costs, fees
and expenses (including attorneys’ fees and expenses) that the Trust, the Owner
Trustee, the Seller, the Sponsor, the Backup Servicer, the Indenture Trustee,
the Note Insurer and any Noteholder (or any director, officer, employee or agent
of the foregoing) may sustain in any way related to the failure of the Master
Servicer to perform its duties and service the Mortgage Loans in compliance with
the terms of this Agreement and the other Basic Documents and in connection with
the Indenture as provided in Section 6.16 thereof. Each indemnified party and
the Master Servicer shall immediately notify the other indemnified parties if a
claim is made by a third party with respect to this Agreement and the other
Basic Documents and the Master Servicer shall assume the defense of any such
claim and pay all expenses in connection therewith, including reasonable counsel
fees, and promptly pay, discharge and satisfy any judgment or decree which may
be entered against the Trust, the Owner Trustee, the Seller, the Sponsor, the
Backup Servicer, the Master Servicer, the Indenture Trustee, the Note Insurer
and/or a Noteholder (or any director, officer, employee or agent of the
foregoing) in respect of such claim. The obligations of the Master Servicer
under this Section 5.19 arising prior to any resignation or termination of the
Master Servicer hereunder shall survive the resignation or termination of the
Master Servicer or the termination of this Agreement or the Indenture.

 

Section 5.20. Maintenance of Corporate Existence and Licenses; Merger or
Consolidation of the Master Servicer and Backup Servicer. (a) Each of the Master
Servicer and the Backup Servicer will keep in full effect its existence, rights
and franchises as a corporation, will obtain and preserve its qualification to
do business as a foreign corporation in each jurisdiction necessary to protect
the validity and enforceability of this Agreement or any of the Mortgage Loans
and to perform its duties under this Agreement and will otherwise operate its
business so as to cause the representations and warranties under Section 3.01
hereof to be true and correct at all times under this Agreement.

 

(b) Any corporation into which the Master Servicer or the Backup Servicer may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the Master
Servicer or the Backup Servicer shall be a party, or any corporation succeeding
to all or substantially all of the business

 

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of the Master Servicer or the Backup Servicer, shall be the successor of the
Master Servicer or the Backup Servicer, as applicable, hereunder, only with the
consent of the Note Insurer but without the execution or filing of any paper or
any further act on the part of any of the parties hereto provided that, in the
case of the Master Servicer, such corporation meets the qualifications set forth
in Section 7.02(b). The Master Servicer or the Backup Servicer, as applicable,
shall send notice of any such merger or consolidation to the Owner Trustee, the
Indenture Trustee, the Note Insurer and the Master Servicer or the Backup
Servicer, as applicable.

 

Section 5.21. Assignment of Agreement by Master Servicer and Backup Servicer;
Master Servicer and Backup Servicer Not to Resign. Neither the Master Servicer
nor the Backup Servicer shall assign this Agreement nor resign from the
obligations and duties hereby imposed on it except with the prior consent of the
Note Insurer (a copy of which will be provided to the Indenture Trustee), or
upon the determination that the Master Servicer’s or Backup Servicer’s duties
hereunder are no longer permissible under applicable law and that such
incapacity cannot be cured by the Master Servicer or the Backup Servicer, as
applicable, without incurring, in the reasonable judgment of the Note Insurer,
unreasonable expense. Any such determination that the Master Servicer’s or the
Backup Servicer’s duties hereunder are no longer permissible under applicable
law permitting the resignation of the Master Servicer or the Backup Servicer, as
applicable, shall be evidenced by a written Opinion of Counsel (who may be
counsel for the Master Servicer or the Backup Servicer) to such effect delivered
to the Indenture Trustee, the Trust, the Seller, the Sponsor, the Note Insurer
and the Backup Servicer or the Master Servicer, as applicable. No such
resignation of the Master Servicer shall become effective until the Backup
Servicer or a successor master servicer appointed in accordance with the terms
of this Agreement has assumed the Master Servicer’s responsibilities and
obligations hereunder in accordance with Section 7.02. The Master Servicer or
the Backup Servicer, as applicable, shall provide the Indenture Trustee, the
Rating Agencies and the Note Insurer with 30 days’ prior written notice of its
intention to resign pursuant to this Section 5.21.

 

Section 5.22. Periodic Filings with the Securities and Exchange Commission
Additional Information.

 

(a) The Indenture Trustee shall reasonably cooperate with the Master Servicer in
connection with the satisfaction of the reporting requirements under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Indenture
Trustee shall prepare on behalf of the Trust Fund any Forms 8-K and 10-K
customary for similar securities as required by the Exchange Act and the Rules
and Regulations of the Securities and Exchange Commission (the “Commission”)
thereunder, and shall file (via the Commission’s Electronic Data Gathering and
Retrieval System) such Forms on behalf of the Master Servicer. The Master
Servicer hereby grants to the Indenture Trustee a limited power of attorney to
execute and file each such Form 8-K but only to the extent no accompanying
certification is required to be filed on behalf of the Master Servicer. Such
power of attorney shall continue until the earlier of (i) receipt by the
Indenture Trustee from the Master Servicer of written termination of such power
of attorney and (ii) termination of the Trust Fund. The Master Servicer shall
execute the Form 10-Ks. The Indenture Trustee shall have no liability with
respect to any failure to properly prepare or file such periodic reports
resulting from or relating to the Indenture Trustee’s inability or failure to
obtain any information not resulting from its own negligence or willful
misconduct.

 

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(b) Each Form 8-K shall be filed by the Indenture Trustee within 15 days after
each Payment Date, with a copy of the statement to Certificateholders for such
Payment Date as an exhibit thereto. Prior to March 30th of each year (or such
earlier date as may be required by the Exchange Act and the Rules and
Regulations of the Commission), the Indenture Trustee shall file a Form 10-K, in
substance as required by applicable law or the Commission’s staff
interpretations. Such Form 10-K shall include as exhibits the Master Servicer’s
annual statement of compliance described under Section 5.09 and the accountant’s
report described under Section 5.10, in each case to the extent they have been
timely delivered to the Indenture Trustee. If they are not so timely delivered,
the Indenture Trustee shall file an amended Form 10-K including such documents
as exhibits reasonably promptly after they are delivered to the Indenture
Trustee. The Indenture Trustee shall have no liability with respect to any
failure to properly prepare or file such periodic reports resulting from or
relating to the Indenture Trustee’s inability or failure to obtain any
information not resulting from its own negligence or willful misconduct. The
Form 10-K shall also include a certification in the form attached hereto as
Exhibit N (the “Certification”), which shall be signed by the senior officer of
the Master Servicer in charge of securitization. The Indenture Trustee shall
prepare and deliver each Form 10-K to the Sponsor for execution no later than
March 20th of each year. The Master Servicer shall return the executed Form 10-K
to the Indenture Trustee for filing no later than March 25th of each year.

 

(c) The Master Servicer shall indemnify and hold harmless the Indenture Trustee
and its officers, directors and affiliates from and against any losses, damages,
penalties, fines, forfeitures, reasonable and necessary legal fees and related
costs, judgments and other costs and expenses arising out of or based upon a
breach of the Master Servicer’s obligations under this Section or the Sponsor’s
negligence, bad faith or willful misconduct in connection therewith.

 

(d) Upon any filing with the Commission, the Indenture Trustee shall promptly
deliver to the Master Servicer a copy of any executed report, statement or
information.

 

Section 5.23. Administrative Duties. (a) Duties with Respect to the Basic
Documents. The Master Servicer shall perform all its duties and the duties of
the Trust under the Basic Documents. In addition, the Master Servicer shall
consult with the Owner Trustee as the Master Servicer deems appropriate
regarding the duties of the Trust under the Basic Documents. The Master Servicer
shall monitor the performance of the Trust and shall advise the Owner Trustee
when action is necessary to comply with the Trust’s duties under the Basic
Documents. The Master Servicer shall prepare for execution by the Trust or shall
cause the preparation by other appropriate Persons of all such documents,
reports, filings, instruments, certificates and opinions as it shall be the duty
of the Trust to prepare, file or deliver pursuant to the Basic Documents. In
furtherance of the foregoing, the Master Servicer shall take all necessary
action that is the duty of the Trust to take pursuant to the Basic Documents.

 

(b) Duties with Respect to the Trust. In addition to the duties of the Master
Servicer set forth in this Agreement or any of the Basic Documents, the Master
Servicer shall perform such calculations and shall prepare for execution by the
Trust or the Owner Trustee or shall cause the preparation by other appropriate
Persons of all such documents, reports, filings, instruments, certificates and
opinions as it shall be the duty of the Trust or the Owner Trustee to prepare,
file or deliver pursuant to this Agreement or any of the Basic Documents or
under state

 

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and federal tax and securities laws and shall take all appropriate action that
it is the duty of the Trust to take pursuant to this Agreement or any of the
Basic Documents. In accordance with the directions of the Trust or the Owner
Trustee, the Master Servicer shall administer, perform, or supervise the
performance of such other activities in connection with the Basic Documents as
are not covered by any of the foregoing provisions and as are expressly
requested by the Trust or the Owner Trustee and are reasonably within the
capability of the Master Servicer.

 

In carrying out the foregoing duties under this Agreement, the Master Servicer
may enter into transactions with or otherwise deal with any of its Affiliates;
provided, however, that the terms of any such transactions or dealings shall be
in accordance with any directions received from the Trust and shall be, in the
Master Servicer’s opinion, no less favorable to the Trust in any material
respect.

 

(c) Additional Information to be Furnished to the Issuer. The Master Servicer
shall furnish to the Owner Trustee from time to time such additional information
regarding the Trust or the Basic Documents as the Owner Trustee shall reasonably
request. The Master Servicer shall prepare, execute and deliver all certificates
or other documents required to be delivered by the Issuer pursuant to the
Sarbanes-Oxley Act of 2002 or the rules and regulations promulgated thereunder.

 

ARTICLE VI

 

APPLICATION OF FUNDS

 

Section 6.01. Deposits to the Payment Account. By 12:00 noon (Eastern Time) on
each Servicer Payment Date, the Master Servicer shall cause to be deposited in
the related Payment Account, from funds on deposit in the Collection Account, an
amount equal to the Servicer Remittance Amount with respect to the related
Payment Date, minus any portion thereof payable to the Master Servicer or the
Backup Servicer pursuant to Section 5.03.

 

Section 6.02. Collection of Money. Except as otherwise expressly provided
herein, the Indenture Trustee may demand payment or delivery of all money and
other property payable to or receivable by the Indenture Trustee pursuant to
this Agreement, including (a) all payments due on the Mortgage Loans in
accordance with the respective terms and conditions of such Mortgage Loans and
required to be paid over to the Indenture Trustee by the Master Servicer and (b)
Insured Amounts. The Indenture Trustee shall hold all such money and property
received by it, as part of the Trust Estate and shall apply it as provided in
the Indenture.

 

Section 6.03. Application of Principal and Interest. In the event that Net
Liquidation Proceeds on a Liquidated Mortgage Loan are less than the Principal
Balance of the related Mortgage Loan plus accrued interest thereon, or any
Mortgagor makes a partial payment of any Monthly Payment due on a Mortgage Loan,
such Net Liquidation Proceeds or partial payment shall be applied to payment of
the related Mortgage Note as provided therein, and if not so provided, first to
interest accrued at the Mortgage Interest Rate and then to principal.

 

Section 6.04. [Reserved].

 

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Section 6.05. Compensating Interest. Not later than the Servicer Payment Date,
the Master Servicer shall remit to the Indenture Trustee (without right to
reimbursement therefor) for deposit into the related Payment Account, an amount
equal to, for all of the Mortgage Loans, the lesser of (a) the Prepayment
Interest Shortfalls for all of the Mortgage Loans for the related Payment Date
resulting from Principal Prepayments in full during the related Prepayment
Period and (b) its aggregate Servicing Fee with respect to all of the Mortgage
Loans for the related Due Period (the “Compensating Interest”).

 

Section 6.06. Effect of Payments by the Note Insurer; Subrogation. Anything
herein to the contrary notwithstanding, any payment with respect to principal of
or interest on the Notes which is made with moneys received pursuant to the
terms of the Note Insurance Policy shall not be considered payment of the Notes
from the Trust Estate. The Seller, the Sponsor, the Master Servicer, the Trust
and the Indenture Trustee acknowledge and agree, that without the need for any
further action on the part of the Note Insurer, the Seller, the Sponsor, the
Master Servicer, the Trust, the Indenture Trustee or the Note Registrar (a) to
the extent the Note Insurer makes payments, directly or indirectly, on account
of principal of or interest on the Notes to the Holders of such Notes, the Note
Insurer will be fully subrogated to, and each Noteholder, the Master Servicer,
the Seller, the Sponsor, the Trust and the Indenture Trustee hereby delegate and
assign to the Note Insurer, to the fullest extent permitted by law, the rights
of such Holders to receive such principal and interest from the Trust Estate,
including, without limitation, any amounts due to the Noteholders in respect of
securities law violations arising from the offer and sale of the Notes, and (b)
the Note Insurer shall be paid such amounts from the sources and in the manner
provided herein for the payment of such amounts and as provided in the Insurance
Agreement. The Indenture Trustee and the Master Servicer shall cooperate in all
respects with any reasonable request by the Note Insurer for action to preserve
or enforce the Note Insurer’s rights or interests under this Agreement without
limiting the rights or affecting the interests of the Holders as otherwise set
forth herein.

 

ARTICLE VII

 

SERVICER DEFAULT

 

Section 7.01. Servicer Events of Default. (a) I. The following events shall each
constitute a “Servicer Event of Default” hereunder:

 

(i) any failure by the Master Servicer to remit to the Indenture Trustee any
payment required to be made by the Master Servicer under the terms of this
Agreement (other than Servicing Advances covered by clause (ii) below and
Periodic Advances, which shall have no cure period), which continues unremedied
for one (1) Business Day after the date upon which notice of such failure,
requiring the same to be remedied, shall have been given to the Master Servicer
by the Indenture Trustee or to the Master Servicer and Indenture Trustee by the
Note Insurer or Noteholders affected thereby evidencing Percentage Interests of
at least 25%;

 

(ii) the failure by the Master Servicer to make any required Servicing Advance,
which failure continues unremedied for a period of thirty (30) days after the
date on which written notice of such failure, requiring the same to be remedied,
shall

 

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have been given to the Master Servicer by the Indenture Trustee or to the Master
Servicer and the Indenture Trustee by the Note Insurer or Noteholders affected
thereby evidencing Percentage Interests of at least 25%;

 

(iii) any failure on the part of the Master Servicer duly to observe or perform
in any material respect any other of the covenants or agreements on the part of
the Master Servicer contained in this Agreement, or the failure of any
representation and warranty made pursuant to Section 3.01(a) hereof to be true
and correct which continues unremedied for a period of thirty (30) days after
the date on which written notice of such failure, requiring the same to be
remedied, shall have been given to the Master Servicer by the Indenture Trustee
or to the Master Servicer and the Indenture Trustee by the Note Insurer or
Noteholders affected thereby evidencing Percentage Interests of at least 25%;

 

(iv) a decree or order of a court or agency or supervisory authority having
jurisdiction in an involuntary case under any present or future federal or state
bankruptcy, insolvency or similar law or for the appointment of a conservator or
receiver or liquidation in any insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Master Servicer
and such decree or order shall have remained in force, undischarged or unstayed
for a period of ninety (90) days;

 

(v) the Master Servicer shall consent to the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings of or relating to the Master
Servicer or of or relating to all or substantially all of the Master Servicer’s
property;

 

(vi) the Master Servicer shall admit in writing its inability generally to pay
its debts as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for the
benefit of its creditors, or voluntarily suspend payment of its obligations;

 

(vii) the Note Insurer shall notify the Indenture Trustee of any “event of
default” under the Insurance Agreement;

 

(viii) if on any Payment Date the Rolling Six Month Delinquency Rate exceeds
14.0%;

 

(ix) if on any Payment Date, the Twelve Month Loss Amount exceeds 2.50% of the
Aggregate Principal Balance of the Mortgage Loans, as of the close of business
on the first day of the twelfth preceding calendar month;

 

(x) if the total stockholders’ equity of the Master Servicer, as determined by
the Master Servicer’s independent accountants in accordance with generally
accepted accounting principles, shall be less than $60 million;

 

(xi) if the total on- or off-balance sheet financing available to the Master
Servicer shall be less than $400 million; or

 

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(xii) the occurrence of an Event of Default under the Indenture.

 

II. The following events shall each constitute a “Backup Servicer Event of
Default” hereunder:

 

(i) any failure on the part of the Backup Servicer duly to observe or perform in
any material respect any other of the covenants or agreements on the part of the
Backup Servicer contained in this Agreement, or the failure of any
representation and warranty made pursuant to Section 3.03(a) hereof to be true
and correct which continues unremedied for a period of thirty (30) days after
the date on which written notice of such failure, requiring the same to be
remedied, shall have been given to the Backup Servicer by the Indenture Trustee
or to the Backup Servicer and the Indenture Trustee by the Note Insurer or
Noteholders affected thereby evidencing Percentage Interests of at least 25%;

 

(ii) a decree or order of a court or agency or supervisory authority having
jurisdiction in an involuntary case under any present or future federal or state
bankruptcy, insolvency or similar law or for the appointment of a conservator or
receiver or liquidation in any insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Backup Servicer
and such decree or order shall have remained in force, undischarged or unstayed
for a period of ninety (90) days;

 

(iii) the Backup Servicer shall consent to the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings of or relating to the Backup
Servicer or of or relating to all or substantially all of the Backup Servicer’s
property; and

 

(iv) the Backup Servicer shall admit in writing its inability generally to pay
its debts as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for the
benefit of its creditors, or voluntarily suspend payment of its obligations.

 

So long as a Servicer Event of Default shall have occurred and not have been
remedied: (x) with respect solely to Section 7.01(a)(I)(i), if such payment is
in respect of Periodic Advances or Compensating Interest owing by the Master
Servicer and such payment is not made by 12:00 noon New York time on the second
Business Day prior to the applicable Payment Date, the Indenture Trustee, upon
receipt of written notice or discovery by a Responsible Officer of the Indenture
Trustee of such failure, shall give immediate telephonic and facsimile notice of
such failure to a Servicing Officer of the Master Servicer and the Backup
Servicer and to the Note Insurer, and the Indenture Trustee may, with the
consent of the Note Insurer, and shall, at the direction of the Note Insurer,
terminate all of the rights and obligations of the Master Servicer under this
Agreement, except for the Master Servicer’s indemnification obligation under
Section 5.19, and the Backup Servicer, the Indenture Trustee (if it is the
successor master servicer) or a successor master servicer appointed in
accordance with Section 7.02, shall immediately make such Periodic Advance or
payment of Compensating Interest as provided in Section 7.02 and assume,
pursuant to Section 7.02 hereof, the duties of a successor master servicer; (y)
with respect to that portion of Section 7.01(a)(I)(i) not referred to in the
preceding clause (x) and with

 

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respect to clauses (ii), (iii), (iv), (v), (vi), (vii) and (xii) of Section
7.01(a)(I) or clauses (i) through (iv) of Section 7.01(a)(II), upon receipt of
written notice or actual knowledge by a Responsible Officer of the Indenture
Trustee, the Indenture Trustee shall, but only at the direction of the Note
Insurer or the Majority Noteholders, by notice in writing to the Master
Servicer, the Backup Servicer and a Responsible Officer of the Indenture Trustee
and subject to the prior written consent of the Note Insurer in the case of any
removal at the direction of the Majority Noteholders, and in addition to
whatever rights such Noteholders may have at law or equity to damages, including
injunctive relief and specific performance, terminate all the rights and
obligations of the Master Servicer or Backup Servicer, as applicable, under this
Agreement, except for the Master Servicer’s indemnification obligations under
Section 5.19, and in and to the Mortgage Loans and the proceeds thereof, as
Master Servicer; and (z) with respect to clauses (viii)-(xi) of Section
7.01(a)(I), upon receipt of written notice or actual knowledge by a Responsible
Officer of the Indenture Trustee, the Indenture Trustee shall, but only at the
direction of the Note Insurer, after notice in writing to the Master Servicer,
the Backup Servicer and a Responsible Officer of the Indenture Trustee,
terminate all the rights and obligations of the Master Servicer under this
Agreement, except for the Master Servicer’s indemnification obligations under
Section 5.19, and in and to the Mortgage Loans and the proceeds thereof, as
Master Servicer. Upon receipt by the Master Servicer of such written notice, all
authority and power of the Master Servicer under this Agreement, whether with
respect to the Mortgage Loans or otherwise, shall, subject to Section 7.02, pass
to and be vested in the Backup Servicer, or another successor master servicer
selected by the Note Insurer, and the Backup Servicer or another successor
master servicer is hereby authorized and empowered to execute and deliver, on
behalf of the Master Servicer, as attorney-in-fact or otherwise, at the expense
of the Master Servicer, any and all documents and other instruments and do or
cause to be done all other acts or things necessary or appropriate to effect the
purposes of such notice of termination, including, but not limited to, the
transfer and endorsement or assignment of the Mortgage Loans and related
documents. The Master Servicer agrees to cooperate (and to pay any related costs
and expenses) with the Indenture Trustee and the Backup Servicer or another
successor master servicer in effecting the termination of the Master Servicer’s
responsibilities and rights hereunder, including, without limitation, the
transfer to the Backup Servicer or another successor master servicer, for
administration by it of all amounts which shall at the time be credited by the
Master Servicer to the Collection Account or thereafter received with respect to
the Mortgage Loans. The Indenture Trustee shall promptly notify the Note Insurer
and the Rating Agencies of the occurrence of a Servicer Event of Default upon
discovery or receipt of notice by a Responsible Officer of the Indenture
Trustee; provided, however, the Indenture Trustee shall not be obligated to
monitor the Master Servicer’s compliance with the terms hereof or to determine
the occurrence of any Servicer Event of Default.

 

Section 7.02. Backup Servicer to Act: Appointment of Successor. (a) (i) On and
after the time the Master Servicer receives a notice of termination pursuant to
Section 7.01, or the Indenture Trustee receives the resignation of the Master
Servicer evidenced by an Opinion of Counsel pursuant to Section 5.21, or the
Master Servicer is removed as Master Servicer pursuant to this Article VII, in
which event the Indenture Trustee shall promptly notify the Rating Agencies, and
except as otherwise provided in this Section 7.02, the Backup Servicer (provided
the Backup Servicer receives 20 days’ prior written notice) or another successor
master servicer selected by the Note Insurer shall be the successor in all
respects to the Master Servicer in its capacity as master servicer under this
Agreement and the transactions set forth or provided for in

 

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this Agreement, and shall be subject to all the responsibilities, restrictions,
duties, liabilities and termination provisions relating thereto placed on the
Master Servicer by the terms and provisions of this Agreement. The Backup
Servicer or another successor master servicer and the Indenture Trustee shall
take such action, consistent with this Agreement, as shall be necessary to
effect any such succession. If the Backup Servicer or any other successor master
servicer is acting as Master Servicer hereunder, it shall be subject to
termination under Section 7.01 upon the occurrence or continuation of a Servicer
Event of Default applicable to it as Master Servicer. The Backup Servicer hereby
agrees to act as successor master servicer pursuant to the terms of this
Agreement upon the termination or resignation of the Master Servicer as provided
in this Section 7.02, provided that the Backup Servicer receives all of the
necessary documents relating to the Mortgage Loans and computer records
reflecting the status of the Mortgage Loans as of the date of such transfer of
servicing. The Backup Servicer will not be obligated to incur any expenses or
costs (including, without limitation, legal fees and the preparation and
recording of all intervening assignments of mortgage) in connection with the
transfer of servicing of the Mortgage Loans to the Backup Servicer, or to compel
the performance of any obligations by any party to this Agreement. Any successor
master servicer and the Backup Servicer prior to its becoming the successor
master servicer shall not be liable for any actions, omissions or defaults of
any master servicer prior to it or breaches of representations and warranties of
the master servicer prior to it. The Backup Servicer or any other successor
master servicer, as successor master servicer, shall be obligated to pay
Compensating Interest pursuant to Section 6.05 in any event and to make Periodic
Advances pursuant to Section 5.18 unless, and only to the extent the Backup
Servicer determines reasonably and in good faith that such advances would not be
recoverable from the proceeds of the related Mortgage Loan pursuant to Section
5.03, such determination to be evidenced by a certification of a Responsible
Officer of the Backup Servicer delivered to the Note Insurer. Furthermore, the
Backup Servicer shall not be obligated to fund any resulting discrepancy or
shortfall in the Collection Account. Upon the transfer of the servicing of the
Mortgage Loans, the Indenture Trustee shall provide the Backup Servicer with an
officer’s certificate that contains: (i) a complete description of all material
breaches by the Master Servicer under the Agreement known by the Indenture
Trustee which have not been fully cured and (ii) confirmation that all reports
required to be filed with the Indenture Trustee have been timely filed by the
Master Servicer.

 

(ii) In the event that the Backup Servicer is terminated or resigns pursuant to
this Agreement or otherwise becomes unable to perform its obligations under this
Agreement, the Note Insurer may (or if the Note Insurer fails to do so promptly
the Indenture Trustee will) appoint a successor backup servicer in accordance
with the provisions of this Section 7.02; provided, that any successor backup
servicer, shall satisfy the requirements set forth in Section 7.02(b) and shall
be approved by the Rating Agencies and the Note Insurer.

 

(b) Any successor master servicer or successor backup servicer hereunder (other
than the Indenture Trustee) shall be a housing and home finance institution,
bank or mortgage servicing institution which has been designated as an approved
seller-servicer by Fannie Mae or Freddie Mac, having equity of not less than
$5,000,000 as determined in accordance with GAAP, as the successor to the Master
Servicer or the Backup Servicer hereunder in the assumption of all or any part
of the responsibilities, duties or liabilities of the Master Servicer or the
Backup Servicer, as applicable, hereunder.

 

 

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(c) In the event the Backup Servicer is the successor master servicer, it shall
be entitled to the same Servicing Compensation (including the Servicing Fee as
adjusted pursuant to the definition thereof) and other funds pursuant to Section
5.08 hereof as the Master Servicer if the Master Servicer had continued to act
as master servicer hereunder, and shall continue to be entitled to the Backup
Servicing Fee.

 

(d) The Indenture Trustee, the Backup Servicer and any successor master servicer
or backup servicer shall take such action, consistent with this Agreement, as
shall be necessary to effectuate any such succession. The Master Servicer agrees
to cooperate with the Indenture Trustee, the Backup Servicer and any successor
master servicer in effecting the termination of the Master Servicer’s servicing
responsibilities and rights hereunder and shall promptly provide the Indenture
Trustee, the Backup Servicer or such successor master servicer, as applicable,
at the Master Servicer’s cost and expense, all documents and records reasonably
requested by it to enable it to assume the Master Servicer’s functions hereunder
and shall promptly also transfer to the Indenture Trustee, the Backup Servicer
or such successor master servicer, as applicable, all amounts that then have
been or should have been deposited in the Collection Account by the Master
Servicer or that are thereafter received with respect to the Mortgage Loans,
including without limitation all Liquidation Proceeds and Insurance Proceeds,
and payments of insurance deductible amounts by the Master Servicer pursuant to
Section 5.04(b) with respect to all insurance claims arising during the Master
Servicer’s tenure. Any collections received by the Master Servicer after such
removal or resignation shall be endorsed by it to the Backup Servicer or (if the
Backup Servicer is not the successor master servicer) to the Indenture Trustee
and remitted directly to the Backup Servicer or the Indenture Trustee, as
applicable (or, at the direction of the Indenture Trustee, to any other
successor master servicer). Neither the Backup Servicer, the Indenture Trustee
nor any other successor master servicer shall be held liable by reason of any
failure to make, or any delay in making, any payment hereunder or any portion
thereof caused by (i) the failure of the Master Servicer to deliver, or any
delay in delivering, cash, documents or records to it, or (ii) restrictions
imposed by any regulatory authority having jurisdiction over the Master Servicer
hereunder. Notwithstanding anything to the contrary herein, no appointment of a
successor master servicer under this Agreement shall be effective until the Note
Insurer shall have consented thereto, and written notice of such proposed
appointment shall have been provided by the Indenture Trustee to the Note
Insurer and the Backup Servicer. The Indenture Trustee shall not resign as
Master Servicer until a successor master servicer reasonably acceptable to the
Note Insurer has been appointed. The Note Insurer shall have the right to remove
the Indenture Trustee as successor Master Servicer under this Section 7.02
without cause, and the Indenture Trustee shall appoint such other successor
master servicer as directed by the Note Insurer.

 

(e) In the event that the Master Servicer is terminated hereunder and no Backup
Servicer is obligated to act as successor master servicer and no other successor
master servicer has been appointed hereunder, the Indenture Trustee may appoint
a successor master servicer (which may be an affiliate of the Indenture Trustee)
or petition a court of competent jurisdiction to appoint a successor master
servicer. Pending appointment of such a successor master servicer hereunder, the
Indenture Trustee shall be the successor master servicer and act in such
capacity; provided, however, that the Indenture Trustee, in its capacity as
successor master servicer pending appointment of another successor master
servicer, (i) shall be obligated to make Periodic Advances or Servicing Advances
only to the extent that the Indenture Trustee deems

 

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such advances to be recoverable, (ii) shall be obligated to make Compensating
Interest payments in respect of any Payment Date only to the extent of any
Servicing Fee received by the Indenture Trustee in respect of such Payment Date,
(iii) shall not be obligated to perform any other duties or obligations of the
Master Servicer hereunder until the Indenture Trustee has received all master
servicing records and files from the predecessor master servicer or backup
servicer and in no event later than 90 days following the termination of the
Master Servicer; provided, however, the Indenture Trustee shall use its
reasonable efforts to perform the duties and obligations of the Master Servicer
prior to the end of such 90 day period, (iv) shall not be obligated to perform
any of the administrative duties specified in Section 5.23 hereof, and (v) shall
be entitled to payment of all Servicing Compensation and the Backup Servicing
Fee. In connection with any appointment and assumption of duties of a successor
master servicer, the Indenture Trustee may make such arrangements for the
compensation of such successor master servicer out of payments on Mortgage Loans
as the Note Insurer and such successor shall agree; provided, however, that such
compensation may not be in excess of that permitted the Master Servicer pursuant
to Section 5.08, together with other Servicing Compensation and the Backup
Servicing Fee. The Master Servicer, the Indenture Trustee and such successor
Master Servicer shall take such action, consistent with this Agreement, as shall
be necessary to effectuate any such succession.

 

(f) In the event the Backup Servicer, the Indenture Trustee, or any successor
master servicer incurs out-of-pocket expenses other than Servicing Advances or
Periodic Advances in connection with the transfer of master servicing hereunder,
which expenses are required to be borne by the Master Servicer hereunder, and
such expenses are not promptly reimbursed by the Master Servicer or recoverable
out of amounts reimbursable to the Master Servicer out of the Collection
Account, the Indenture Trustee shall make such reimbursement to the applicable
party out of funds in each Payment Account on any Payment Date after all
Payments to Noteholders on such Payment Date have been made and the Reserve
Payment Amount has been made to the Reserve Account but before any distribution
to the Certificateholders. The right of the Indenture Trustee to reimbursement
from any Payment Account for any of the Indenture Trustee’s costs and expenses
in connection with the transfer of any master servicing hereunder shall be in
addition to any rights of the Indenture Trustee to indemnification and
reimbursement under the Indenture.

 

(g) In the event that the Master Servicer is terminated or resigns hereunder,
and at such time the Master Servicer has made unreimbursed Periodic Advances or
Servicing Advances out of its own funds,

 

(i) any such Periodic Advances or Servicing Advances shall be allocated by the
successor master servicer in whole or in part to specific Mortgage Loans which
are delinquent at the time of the transfer of master servicing, which allocation
shall be based on loan-level accounts of the portion of each Periodic Advance or
Servicing Advance which has been funded by the Master Servicer from its own
funds consistently maintained by the former Master Servicer, or, if no such
accounts exist, then in the successor master servicer’s discretion;

 

(ii) following the transfer of master servicing, the successor master servicer
shall reimburse the former Master Servicer for such Periodic Advances and
Servicing Advances in accordance with the allocations determined in accordance
with

 

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clause (i) above only out of the proceeds of the Mortgage Loans to which they
relate and otherwise subject to Section 5.03, or, to the extent the successor
master servicer determines any such Periodic Advance or Servicing Advance to be
a Nonrecoverable Advance, out of any funds in the Collection Account.

 

Section 7.03. Waiver of Defaults. The Note Insurer or the Majority Noteholders
may, on behalf of all Noteholders, and subject to the consent of the Note
Insurer, waive any events permitting removal of the Master Servicer as master
servicer pursuant to this Article VII; provided, however, that the Majority
Noteholders may not waive a default in making a required payment on a Note
without the consent of the Holder of such Note. Upon any waiver of a past
default, such default shall cease to exist, and any Servicer Event of Default
arising therefrom shall be deemed to have been remedied for every purpose of
this Agreement. No such waiver shall extend to any subsequent or other default
or impair any right consequent thereto except to the extent expressly so waived.
Notice of any such waiver shall be given by the Indenture Trustee to the Rating
Agencies and the Note Insurer.

 

Section 7.04. Rights of the Note Insurer to Exercise Rights of the Noteholders.
By accepting its Note, each Noteholder agrees that unless a Note Insurer Default
exists, the Note Insurer shall be deemed to be the Noteholders for all purposes
(other than with respect to the receipt of payment on the Notes) and shall have
the right to exercise all rights of the Noteholders under this Agreement and
under the Notes without any further consent of the Noteholders, including,
without limitation:

 

(a) the right to require the Sponsor to repurchase or substitute Mortgage Loans
pursuant to Sections 2.06 and 4.02 hereof to the extent set forth therein;

 

(b) the right to give notices of breach or to terminate the rights and
obligations of the Master Servicer as master servicer pursuant to Section 7.01
hereof and to consent to or direct waivers of Master Servicer defaults pursuant
to Section 7.03 hereof;

 

(c) the right to direct the actions of the Indenture Trustee during the
continuance of a Servicer Event of Default pursuant to Sections 7.01 and 7.02
hereof;

 

(d) the right to institute proceedings against the Master Servicer pursuant to
Section 7.01 hereof;

 

(e) the right to remove the Indenture Trustee pursuant to Section 6.09 of the
Indenture;

 

(f) the right to direct foreclosures upon the failure of the Master Servicer to
do so in accordance with the provisions of Section 5.06 of this Agreement; and

 

(g) any rights or remedies expressly given the Majority Noteholders.

 

In addition, each Noteholder agrees that, subject to Section 10.02, unless a
Note Insurer Default exists, the rights specifically enumerated above may only
be exercised by the Noteholders with the prior written consent of the Note
Insurer.

 

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Section 7.05. Indenture Trustee To Act Solely with Consent of the Note Insurer.
Unless a Note Insurer Default exists, the Indenture Trustee shall not, without
the Note Insurer’s consent or unless directed by the Note Insurer:

 

(a) terminate the rights and obligations of the Master Servicer as master
servicer pursuant to Section 7.01 hereof;

 

(b) agree to any amendment pursuant to Section 10.03 hereof; or

 

(c) undertake any litigation.

 

The Note Insurer may, in writing and in its sole discretion renounce all or any
of its rights under Sections 7.04, 7.05 or 7.06 or any requirement for the Note
Insurer’s consent for any period of time.

 

Section 7.06. Mortgage Loans, Trust Estate and Accounts Held for Benefit of the
Note Insurer. (a) The Indenture Trustee shall hold the Trust Estate and the
Indenture Trustee’s Mortgage Files, for the benefit of the Noteholders and the
Note Insurer, and all references in this Agreement, the Notes and in any of the
other Basic Documents to the benefit of Noteholders shall be deemed to include
the Note Insurer. The Indenture Trustee shall cooperate in all reasonable
respects with any reasonable request by the Note Insurer for action to preserve
or enforce the Note Insurer’s rights or interests under this Agreement, the
Notes and in any of the Basic Documents unless, as stated in an Opinion of
Counsel addressed to the Indenture Trustee and the Note Insurer, such action is
adverse to the interests of the Noteholders or diminishes the rights of the
Noteholders or imposes additional burdens or restrictions on the Noteholders.

 

(b) The Master Servicer hereby acknowledges and agrees that it shall service the
Mortgage Loans for the benefit of the Noteholders and for the benefit of the
Note Insurer, and all references in this Agreement and in any of the other Basic
Documents to the benefit of or actions on behalf of the Noteholders shall be
deemed to include the Note Insurer.

 

Section 7.07. Note Insurer Default. During the continuation of a Note Insurer
Default, rights granted or reserved to the Note Insurer hereunder shall vest
instead in the Noteholders; provided, that the Note Insurer shall be entitled to
any distributions of reimbursements as set forth in the Indenture and the
Insurance Agreement and the Note Insurer shall retain those rights under Section
10.03 to consent to any amendment of this Agreement.

 

At such time as either (i) the outstanding Note Principal Balance of the Notes
has been reduced to zero or (ii) the Note Insurance Policy has been terminated
and in either case of (i) or (ii) the Note Insurer has been reimbursed for all
amounts owed under the Note Insurance Policy and the Insurance Agreement (and
the Note Insurer no longer has any obligation under the Note Insurance Policy,
except for breach thereof by the Note Insurer), then the rights and benefits
granted or reserved to the Note Insurer hereunder (including the rights to
direct certain actions and receive certain notices) shall terminate and the
Certificateholders shall be entitled to the exercise of such rights and to
receive such benefits of the Note Insurer following such termination to the
extent that such rights and benefits are applicable to the Certificateholders.

 

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ARTICLE VIII

 

TERMINATION

 

Section 8.01. Termination. (a) Subject to Section 8.02, this Agreement shall
terminate upon notice to the Indenture Trustee of either: (i) the disposition of
all funds with respect to the last Mortgage Loan and the remittance of all funds
due hereunder and the payment of all amounts due and payable to the Note Insurer
and the Indenture Trustee or (ii) mutual consent of the Owner Trustee, on behalf
of the Trust, at the direction of all the Certificateholders, the Indenture
Trustee, the Master Servicer, the Note Insurer and all Noteholders in writing.

 

(b) In addition, subject to Section 8.02, the Sponsor may, at its sole option,
cost and expense, terminate the Trust in accordance with the terms of Section
10.01 of the Indenture.

 

(c) If on any date, the Master Servicer determines that there are no outstanding
Mortgage Loans and no other funds or assets in the Trust Estate other than funds
in the Payment Accounts, the Master Servicer shall send a final payment notice
promptly to the Indenture Trustee, who shall forward notice to each Noteholder
in accordance with Section 8.01(d).

 

(d) Notice of any termination, specifying the Payment Date upon which the Trust
will terminate and the Noteholders shall surrender their Notes to the Indenture
Trustee for final payment and cancellation, shall be given promptly by the
Master Servicer to the Indenture Trustee, who shall forward the notice by letter
to Noteholders mailed during the month of such final payment before the Servicer
Payment Date in such month, specifying (i) the Payment Date upon which final
payment of the Notes will be made upon presentation and surrender of Notes at
the office of the Indenture Trustee therein designated, (ii) the amount of any
such final payment and (iii) that the Record Date otherwise applicable to such
Payment Date is not applicable, payments being made only upon presentation and
surrender of the Notes at the office of the Indenture Trustee therein specified.
The obligations of the Note Insurer hereunder shall terminate upon the deposit
by the Sponsor with the Indenture Trustee of a sum sufficient to purchase all of
the Mortgage Loans and REO Properties as set forth in Section 10.01 of the
Indenture or when the Note Principal Balance of the Notes has been reduced to
zero.

 

(e) In the event that all of the Noteholders do not surrender their Notes for
cancellation within six (6) months after the time specified in the
above-mentioned written notice, the Indenture Trustee shall give a second
written notice to the remaining Noteholders to surrender their Notes for
cancellation and receive the final payment with respect thereto. If within six
(6) months after the second notice, all of the Notes shall not have been
surrendered for cancellation, the Indenture Trustee may take appropriate steps,
or may appoint an agent to take appropriate steps, to contact the remaining
Noteholders concerning surrender of their Notes and the cost thereof shall be
paid out of the funds and other assets which remain subject hereto. If within
nine (9) months after the second notice all the Notes shall not have been
surrendered for cancellation, the Certificateholders shall be entitled to all
unclaimed funds and other assets which remain subject hereto and the Indenture
Trustee upon transfer of such funds shall be discharged

 

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of any responsibility for such funds and the Noteholders shall look only to the
Certificateholders for payment and not to the Note Insurer. Such funds shall
remain uninvested.

 

Section 8.02. Additional Termination Requirements. By their acceptance of the
Notes, the Holders thereof hereby agree to appoint the Master Servicer as their
attorney in fact to: (i) adopt a plan of complete liquidation (and the
Noteholders hereby appoint the Indenture Trustee as their attorney in fact to
sign such plan) as appropriate or upon the written request of the Note Insurer
and (ii) to take such other action in connection therewith as may be reasonably
required to carry out such plan of complete liquidation all in accordance with
the terms hereof.

 

Section 8.03. Accounting Upon Termination of Master Servicer. Upon termination
of the Master Servicer, the Master Servicer shall, at its expense:

 

(a) deliver to the successor master servicer or, if none shall yet have been
appointed, to the Indenture Trustee, the funds in any Account administered by
the Master Servicer;

 

(b) deliver to the successor master servicer or, if none shall yet have been
appointed, to the Indenture Trustee all Mortgage Files and related documents and
statements held by it hereunder and a Mortgage Loan portfolio computer tape
(such delivery to take place within 24 hours if the successor master servicer is
the Backup Servicer);

 

(c) deliver to the successor master servicer, or, if none shall yet have been
appointed, to the Indenture Trustee a full accounting of all funds, including a
statement showing the Monthly Payments collected by it and a statement of monies
held in trust by it for the payments or charges with respect to the Mortgage
Loans; and

 

(d) execute and deliver such instruments and perform all acts reasonably
requested in order to effect the orderly and efficient transfer of servicing of
the Mortgage Loans to the successor master servicer and to more fully and
definitively vest in such successor all rights, powers, duties,
responsibilities, obligations and liabilities of the Master Servicer under this
Agreement.

 

Section 8.04. Termination of Backup Servicer as Successor Master Servicer. In
the event the Backup Servicer becomes the successor master servicer and is
terminated for reasons other than the occurrence of a Servicer Event of Default,
then the Backup Servicer will be entitled to a release fee of $10.00 per
Mortgage Loan (subject to a minimum of $5,000.00).

 

ARTICLE IX

 

[RESERVED]

 

ARTICLE X

 

MISCELLANEOUS PROVISIONS

 

Section 10.01. Limitation on Liability. (a) None of the Trust, the Owner
Trustee, the Seller, the Sponsor, the Master Servicer, the Backup Servicer, the
Indenture Trustee or any of the

 

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directors, officers, employees or agents of such Persons shall be under any
liability to the Trust, the Noteholders or the Note Insurer for any action
taken, or for refraining from the taking of any action, in good faith pursuant
to this Agreement, or for errors in judgment; provided, however, that this
provision shall not protect the Trust, the Owner Trustee, the Seller, the
Sponsor, the Master Servicer, the Backup Servicer, the Indenture Trustee or any
such Person against liability for any breach of warranties or representations
made herein by such party, or against any specific liability imposed on each
such party pursuant to this Agreement or against any liability which would
otherwise be imposed upon such party by reason of willful misfeasance, bad faith
or negligence in the performance of duties or by reason of failure to perform
its obligations or duties hereunder. The Trust, the Owner Trustee, the Seller,
the Sponsor, the Master Servicer, the Backup Servicer, the Indenture Trustee and
any director, officer, employee or agent of such Person may rely in good faith
on any document of any kind which, prima facie, is properly executed and
submitted by any appropriate Person respecting any matters arising hereunder.

 

(b) It is expressly understood and agreed by the parties hereto that (i) this
Agreement is executed and delivered by U.S. Bank Trust National Association, not
individually or personally but solely as Owner Trustee under the Trust
Agreement, in the exercise of the powers and authority conferred and vested in
it under the Trust Agreement, (ii) each of the representations, undertakings and
agreements herein made on the part of the Trust is made and intended not as
personal representations, undertakings and agreements by U.S. Bank Trust
National Association but is made and intended for the purpose for binding only
the Trust, (iii) nothing herein contained shall be construed as creating any
liability on U.S. Bank Trust National Association, individually or personally,
to perform any covenant either expressed or implied contained herein, all such
liability, if any, being expressly waived by the parties hereto and by any
Person claiming by, through or under the parties hereto and (iv) under no
circumstances shall U.S. Bank Trust National Association be personally liable
for the payment of any indebtedness or expenses of the Trust or be liable for
the breach or failure of any obligation, representation, warranty or covenant
made or undertaken by the Trust under this Agreement or any other related
documents.

 

Section 10.02. Acts of Noteholders. (a) Subject to Section 7.04 and except as
otherwise specifically provided herein, whenever Noteholder action, consent or
approval is required under this Agreement, such action, consent or approval
shall be deemed to have been taken or given on behalf of, and shall be binding
upon, all Noteholders if the Majority Noteholders or the Note Insurer agrees to
take such action or give such consent or approval.

 

(b) The death or incapacity of any Noteholder shall not operate to terminate
this Agreement or the Trust, nor entitle such Noteholder’s legal representatives
or heirs to claim an accounting or to take any action or proceeding in any court
for a partition or winding up of the Trust, nor otherwise affect the rights,
obligations and liabilities of the parties hereto or any of them.

 

(c) No Noteholder shall have any right to vote (except as expressly provided for
herein) or in any manner otherwise control the operation and management of the
Trust, or the obligations of the parties hereto, nor shall anything herein set
forth, or contained in the terms of the Notes, be construed so as to constitute
the Noteholders from time to time as partners or

 

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members of an association; nor shall any Noteholder be under any liability to
any third person by reason of any action taken by the parties to this Agreement
pursuant to any provision hereof.

 

Section 10.03. Amendment. (a) This Agreement may be amended from time to time by
the Owner Trustee, on behalf of the Trust, the Master Servicer, the Seller,
Sponsor, the Backup Servicer and the Indenture Trustee by written agreement,
upon the prior written consent of the Note Insurer, without notice to or consent
of the Noteholders to cure any ambiguity, to correct or supplement any
provisions herein, to comply with any changes in the Code, or to make any other
provisions with respect to matters or questions arising under this Agreement
which shall not be inconsistent with the provisions of this Agreement; provided,
however, that such action shall not adversely affect in any material respect the
interests of any Noteholder, as evidenced by (i) an Opinion of Counsel, at the
expense of the party requesting the change, delivered to the Indenture Trustee
to such effect or (ii) a letter from each Rating Agency confirming that such
action will not result in the reduction, qualification or withdrawal of the
then-current ratings on the Notes (without taking into account the Note
Insurance Policy). The Indenture Trustee shall give prompt written notice to the
Rating Agencies of any amendment made pursuant to this Section 10.03.

 

(b) This Agreement may be amended from time to time by the Owner Trustee, on
behalf of the Trust, the Master Servicer, the Seller, the Sponsor, the Backup
Servicer and the Indenture Trustee, with the consent of the Note Insurer, the
Noteholders representing at least 51% of the outstanding Principal Balance of
the Notes of each affected Class and all of the Certificateholders; provided,
however, that no such amendment shall reduce in any manner the amount of, or
delay the timing of, payments received on Mortgage Loans which are required to
be paid on any Class of Notes without the consent of the Holders of such Class
of Notes or reduce the percentage for the Holders of which are required to
consent to any such amendment without the consent of the Holders of 100% of such
Class of Notes affected thereby.

 

(c) It shall not be necessary for the consent of Holders under this Section
10.03 to approve the particular form of any proposed amendment, but it shall be
sufficient if such consent shall approve the substance thereof.

 

(d) In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by Article IX of the Indenture or the
modifications thereby of the trusts created by the Indenture, the Indenture
Trustee shall be entitled to receive, and (subject to Section 6.01 of the
Indenture) shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by the Indenture. The Indenture Trustee may, but shall not be
obligated to, enter into any such supplemental indenture that affects the
Indenture Trustee’s own rights, duties or immunities under the Indenture or
otherwise. The Master Servicer, on behalf of the Trust, shall cause executed
copies of any supplemental indentures to be delivered to the Note Insurer and
the Rating Agencies.

 

Section 10.04. Recordation of Agreement. To the extent permitted by applicable
law, this Agreement, or a memorandum thereof if permitted under applicable law,
is subject to recordation in all appropriate public offices for real property
records in all of the counties or other comparable jurisdictions in which any or
all of the properties subject to the Mortgages are

 

56

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situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected by the Master Servicer at the Noteholders’
expense on direction and at the expense of Majority Noteholders requesting such
recordation, but only when accompanied by an Opinion of Counsel to the effect
that such recordation materially and beneficially affects the interests of the
Noteholders or is necessary for the administration or servicing of the Mortgage
Loans.

 

Section 10.05. Duration of Agreement. This Agreement shall continue in existence
and effect until terminated as herein provided.

 

Section 10.06. Notices. All demands, notices and communications hereunder shall
be in writing and shall be deemed to have been duly given when delivered to (i)
in the case of the Master Servicer, Accredited Home Lenders, Inc., 15090 Avenue
of Science, Suite 200, San Diego, California 92128, Attention: Director of
Operations with a copy to General Counsel; (ii) in the case of the Backup
Servicer, Countrywide Home Loans Servicing LP, 7105 Corporate Drive, Plano,
Texas 75024, Attention: Accredited Mortgage Loan Trust 2003-2; (iii) in the case
of the Trust, Accredited Mortgage Loan Trust 2003-2, c/o the Owner Trustee at
its Corporate Trust Office, Attention: Corporate Trust Administration; (iv) in
the case of the Indenture Trustee, Deutsche Bank National Trust Company, 1761
East St. Andrew Place, Santa Ana, California 92705-4934, Attention: Trust
Administration—AC0302; (v) in the case of the Sponsor, Accredited Home Lenders,
Inc., 15090 Avenue of Science, Suite 200, San Diego, California 92128,
Attention: Investor Reporting; (vi) in the case of the Underwriter, Credit
Suisse First Boston, LLC, 11 Madison Avenue, New York, New York 10010,
Attention: Boris Grinberg; (vii) in the case of the Note Insurer, Ambac
Assurance Corporation, One State Street Plaza, New York, New York 10004,
Attention: Jeff Nabi (in each case in which notice or other communication to the
Note Insurer refers to an Event of Default, a Servicer Event of Default or a
claim on the Note Insurance Policy or with respect to which failure on the part
of the Note Insurer to respond shall be deemed to constitute consent or
acceptance, then a copy of such notice or other communication should also be
sent to the attention of each of the General Counsel and the Head- Financial
Guaranty Group, and shall be marked to indicate “URGENT MATERIAL ENCLOSED”);
(viii) in the case of Standard & Poor’s Rating Services, 55 Water Street, New
York, New York 10004, Attention: Residential Mortgage Surveillance Group; (ix)
in the case of Moody’s Investors Service, Inc., 99 Church Street, New York, New
York 10007, Attention: Keith Wofford; (x) in the case of the Seller, Accredited
Home Capital, Inc., 15092 Avenue of Science, Suite 200A, San Diego, California
92128, Attention: General Counsel and (xi) in the case of the Noteholders, as
set forth in the Note Register. Any such notices shall be deemed to be effective
with respect to any party hereto upon the receipt of such notice by such party,
except that notices to the Noteholders shall be effective upon mailing or
personal delivery.

 

Section 10.07. Severability of Provisions. If any one or more of the covenants,
agreements, provisions or terms of this Agreement shall be held invalid for any
reason whatsoever, then such covenants, agreements, provisions or terms shall be
deemed severable from the remaining covenants, agreements, provisions or terms
of this Agreement and shall in no way affect the validity or enforceability of
the other covenants, agreements, provisions or terms of this Agreement.

 

Section 10.08. No Partnership. Nothing herein contained shall be deemed or
construed to create a co-partnership or joint venture between the parties hereto
and the services of the

 

57

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Master Servicer shall be rendered as an independent contractor and not as agent
for the Noteholders.

 

Section 10.09. Counterparts. This Agreement may be executed in one or more
counterparts and by the different parties hereto on separate counterparts, each
of which, when so executed, shall be deemed to be an original; such
counterparts, together, shall constitute one and the same agreement.

 

Section 10.10. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the Trust, the Master Servicer, the Backup Servicer, the
Seller, the Sponsor, the Indenture Trustee and the Noteholders and their
respective successors and permitted assigns.

 

Section 10.11. Headings. The headings of the various sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be part of this Agreement.

 

Section 10.12. No Petition. The Master Servicer and the Backup Servicer, by
entering into this Agreement, hereby covenant and agree that they will not at
any time institute against the Sponsor, the Seller or the Trust, or join in any
institution against the Sponsor, the Seller or the Trust of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States Federal or state bankruptcy law in
connection with any obligations relating to the Certificates, the Notes, this
Agreement or any of the other Basic Documents.

 

This Section 10.12 will survive for one year and one day following the
termination of this Agreement.

 

Section 10.13. Third Party Beneficiary. The parties agree that each of the Owner
Trustee and the Note Insurer is intended and shall have all rights of a
third-party beneficiary of this Agreement. Without limiting the generality of
the foregoing, all covenants and agreements in this Agreement that expressly
confer rights upon the Note Insurer shall be for the benefit of and run directly
to the Note Insurer, and the Note Insurer shall be entitled to rely on and
enforce such covenants to the same extent as if it were a party to this
Agreement.

 

Section 10.14. Intent of the Parties. It is the intent of the parties hereto and
Noteholders that, for federal income taxes, state and local income or franchise
taxes and other taxes imposed on or measured by income, the Notes be treated as
debt. The parties to this Agreement and the Holder of each Note, by acceptance
of its Note, and each Beneficial Owner thereof, agree to treat, and to take no
action inconsistent with the treatment of, the related Notes in accordance with
the preceding sentence for purposes of federal income taxes, state and local
income and franchise taxes and other taxes imposed on or measured by income.

 

Section 10.15. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL. (a)
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE OF NEW
YORK.

 

58

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(b) THE TRUST, THE MASTER SERVICER, THE SELLER, THE SPONSOR, THE BACKUP SERVICER
AND THE INDENTURE TRUSTEE HEREBY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT LOCATED IN
THE BOROUGH OF MANHATTAN IN NEW YORK CITY, AND EACH WAIVES PERSONAL SERVICE OF
ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE
MADE BY REGISTERED MAIL DIRECTED TO THE ADDRESS SET FORTH IN SECTION 10.06
HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE (5) DAYS AFTER
THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS, POSTAGE PREPAID. THE
TRUST, THE SELLER, THE SPONSOR, THE MASTER SERVICER, THE BACKUP SERVICER AND THE
INDENTURE TRUSTEE EACH HEREBY WAIVE ANY OBJECTION BASED ON FORUM NON CONVENIENS,
AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND CONSENTS TO
THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE
COURT. NOTHING IN THIS SECTION 10.15 SHALL AFFECT THE RIGHT OF THE TRUST, THE
SELLER, THE SPONSOR, THE MASTER SERVICER, THE BACKUP SERVICER OR THE INDENTURE
TRUSTEE TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT
ANY OF THEIR RIGHTS TO BRING ANY ACTION OR PROCEEDING IN THE COURTS OF ANY OTHER
JURISDICTION.

 

(c) THE TRUST, THE SELLER, THE SPONSOR, THE MASTER SERVICER, THE BACKUP SERVICER
AND THE INDENTURE TRUSTEE EACH HEREBY WAIVES ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR IN CONNECTION WITH THIS
AGREEMENT. INSTEAD, ANY DISPUTE WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A
JURY.

 

[Remainder of Page Intentionally Left Blank]

 

59

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IN WITNESS WHEREOF, the Master Servicer, the Backup Servicer, the Trust, the
Indenture Trustee, the Seller and the Sponsor have caused their names to be
signed hereto by their respective officers thereunto duly authorized as of the
day and year first above written.

 

ACCREDITED HOME LENDERS, INC.,
as Sponsor and Master Servicer

By:

 

/s/    Ray W. Mckewon        

--------------------------------------------------------------------------------

   

Name:

 

Ray W. McKewon

   

Title:

 

Executive Vice President

ACCREDITED MORTGAGE LOAN TRUST
2003-2

By:

  U.S. BANK TRUST NATIONAL ASSOCIATION, not in its individual capacity, but
solely as Owner Trustee under the Trust Agreement

By:

 

/s/    Patricia M. Child        

--------------------------------------------------------------------------------

   

Name:

 

Patricia M. Child

   

Title:

 

Vice President

ACCREDITED HOME CAPITAL, INC.,
as Seller

By:

 

/s/    David E. Hertzel        

--------------------------------------------------------------------------------

   

Name:

 

David E. Hertzel

   

Title:

 

GC, AVP Ass’t Sec’y

DEUTSCHE BANK NATIONAL TRUST

COMPANY,

as Indenture Trustee

By:

 

/s/    Barbara Campbell        

--------------------------------------------------------------------------------

   

Name:

 

Barbara Campbell

   

Title:

 

Assistant Vice President

By:

 

/s/    Ronaldo Reyes        

--------------------------------------------------------------------------------

   

Name:

 

Ronaldo Reyes

   

Title:

 

Assistant Vice President

 

 

60

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COUNTRYWIDE HOME LOANS SERVICING LP,
as Backup Servicer

By:

 

/s/ Craig Baingo

--------------------------------------------------------------------------------

   

Name:    /s/ Craig Baingo

   

Title:      Senior Vice President

 

[Signature Page to Sale and Servicing Agreement]

 

61

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SCHEDULE I

 

MORTGAGE LOAN SCHEDULE

 

[On File with Dewey Ballantine LLP]

 

A-1

--------------------------------------------------------------------------------

APPENDIX I

 

DEFINED TERMS

 

[See Appendix I to Indenture]

--------------------------------------------------------------------------------

EXHIBIT A

 

CONTENTS OF THE MORTGAGE FILE

 

With respect to each Mortgage Loan, the Mortgage File shall include each of the
following items (copies to the extent the originals have been delivered to the
Indenture Trustee for the benefit of the Noteholders and the Note Insurer,
pursuant to Section 2.05 of the Sale and Servicing Agreement), all of which
shall be available for inspection by the Noteholders, to the extent required by
applicable laws:

 

1. the original Mortgage Note, endorsed without recourse in blank from the last
endorsee thereof, including all intervening endorsements showing a complete
chain of endorsement;

 

2. the related original Mortgage with evidence of recording indicated thereon or
a copy thereof certified by the applicable recording office;

 

3. each intervening mortgage assignment, with evidence of recording indicated
thereon or if the original is not available, a copy thereof certified by the
applicable recording office, if any, showing a complete chain of assignment from
the last assignee thereof of the related Mortgage Loan to the Seller (which
assignment may, at the Sponsor’s option, be combined with the assignment
referred to in subpart (4) hereof, in which case it must be in recordable form,
but need not have been previously recorded);

 

4. a mortgage assignment in recordable form (which, if acceptable for recording
in the relevant jurisdiction as evidenced by an opinion of counsel addressed to
the Indenture Trustee, may be included in a blanket assignment or assignments)
of each Mortgage from the Sponsor to the Indenture Trustee;

 

5. 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 (if any);
and

 

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

 

In instances where the original recorded Mortgage or any intervening mortgage
assignment or a completed assignment of the Mortgage in recordable form cannot
be delivered by the Sponsor to the Indenture Trustee prior to or concurrently
with the execution and delivery of this Agreement, due to a delay in connection
with recording, the Sponsor may:

 

(a) with respect to item (3) above, in lieu of delivering such original recorded
Mortgage or intervening mortgage assignment, deliver to the Indenture Trustee, a
copy thereof; provided, that the Sponsor certifies that the original Mortgage
has been delivered to a title

 

A-1

--------------------------------------------------------------------------------

insurance company for recordation after receipt of its policy of title insurance
or the related binder, commitment or preliminary report; and

 

(b) in lieu of delivering the completed assignment in recordable form, deliver
to the Indenture Trustee, the assignment in recordable form, otherwise complete
except for recording information.

 

A-2

--------------------------------------------------------------------------------

EXHIBIT B

 

INDENTURE TRUSTEE’S ACKNOWLEDGMENT OF RECEIPT

 

 

   

                September     , 2003

Lehman Brothers Inc.

745 Seventh Avenue

New York, New York 10019

 

Accredited Home Lenders, Inc.

15090 Avenue of Science, Suite 200

San Diego, California 92128

Countrywide Home Loans Servicing LP

4500 Park Granada, Mail Stop CH-143,

Calabasas, California 91302

 

Ambac Assurance Corporation

One State Street Plaza

New York, New York 10022

Accredited Home Capital, Inc.

15092 Avenue of Science, Suite 200

San Diego, California 92128

   

 

   

Re:

   Sale and Servicing Agreement, dated as of September 1, 2003 among Accredited
Home Lenders, Inc., as Sponsor and Master Servicer, Accredited Home Capital,
Inc., as seller, Accredited Mortgage Loan Trust 2003-2, Countrywide Home Loans
Servicing LP, as Backup Servicer, and Deutsche Bank National Trust Company, as
Indenture Trustee

 

Ladies and Gentlemen:

 

In accordance with Section 2.06(a) of the above-captioned Sale and Servicing
Agreement, the undersigned, as Indenture Trustee, hereby acknowledges receipt by
it in good faith without notice of adverse claims, of the Note Insurance Policy
and declares that it holds and will hold such Note Insurance Policy in trust for
the exclusive use and benefit of all present and future Noteholders pursuant to
the terms of the Indenture dated as of September 1, 2003, by and between
Accredited Mortgage Loan Trust 2003-2 and the Indenture Trustee.

 

Capitalized words and phrases used herein shall have the respective meanings
assigned to them in Appendix I to the Indenture.

 

DEUTSCHE BANK NATIONAL TRUST

COMPANY,

as Indenture Trustee

By:

 

 

--------------------------------------------------------------------------------

 

B-1

--------------------------------------------------------------------------------

Name:

   

Title:

   

 

B-2

--------------------------------------------------------------------------------

INDENTURE TRUSTEE’S ACKNOWLEDGEMENT OF RECEIPT

 

   

September 25, 2003

Lehman Brothers Inc.

745 Seventh Avenue

New York, New York 10019

 

Accredited Home Lenders, Inc.

15090 Avenue of Science, Suite 200

San Diego, California 92128

Countrywide Home Loans Servicing LP

4500 Park Granada, Mail Stop CH-143,

Calabasas, California 91302

 

Ambac Assurance Corporation

One State Street Plaza

New York, New York 10022

Accredited Home Capital, Inc.

15092 Avenue of Science, Suite 200

San Diego, California 92128

   

 

   

Re:

   Sale and Servicing Agreement, dated as of September 1, 2003 among Accredited
Home Lenders, Inc., as Sponsor and Master Servicer, Accredited Home Capital,
Inc., as seller, Accredited Mortgage Loan Trust 2003-2, Countrywide Home Loans
Servicing LP, as Backup Servicer, and Deutsche Bank National Trust Company, as
Indenture Trustee

 

Ladies and Gentlemen:

 

In accordance with Section 2.06(b)(i) of the above-captioned Sale and Servicing
Agreement, the undersigned, as Indenture Trustee, hereby acknowledges receipt by
it in good faith without notice of adverse claims, subject to the provisions of
Sections 2.04 and 2.05 of the Sale and Servicing Agreement (as such provisions
relate to the Mortgage Loan), of, with respect to each Mortgage Loan, a Mortgage
File containing the original Mortgage Note, except with respect to the list of
exceptions attached hereto, and based on its examination and only as to the
foregoing, the information set forth in items (i), (ii) (with respect to
property address only, excluding zip code), (iii) and (vi) of the definition of
the “Mortgage Loan Schedule” accurately reflects information set forth in the
Mortgage Note, and declares that it holds and will hold such documents and the
other documents delivered to it constituting the Indenture Trustee’s Mortgage
Files, and that it holds or will hold all such assets and such other assets
included in the definition of “Trust Estate” that are delivered to it for the
exclusive use and benefit of all present and future Noteholders and the Note
Insurer.

--------------------------------------------------------------------------------

The Indenture Trustee has made no independent examination of any such documents
beyond the review specifically required in the above-referenced Sale and
Servicing Agreement. The Indenture Trustee makes no representations as to: (i)
the validity, legality, sufficiency, perfection, priority, enforceability or
genuineness of any such documents or any of the Mortgage Loans identified on the
Mortgage Loan Schedule, or (ii) the collectability, insurability, effectiveness
or suitability of any such Mortgage Loan.

 

The Mortgage Loan Schedule is attached to this Receipt.

 

Capitalized words and phrases used herein shall have the respective meanings
assigned to them in Appendix I to the Indenture, dated as of September 1, 2003,
by and between Accredited Mortgage Loan Trust 2003-2 and the Indenture Trustee.

 

DEUTSCHE BANK NATIONAL TRUST

COMPANY,

as Indenture Trustee

By:

 

 

--------------------------------------------------------------------------------

   

Name:

   

Title:

--------------------------------------------------------------------------------

EXHIBIT D

 

INITIAL CERTIFICATION OF INDENTURE TRUSTEE

 

                    , 2003                                                     

Lehman Brothers Inc.

745 Seventh Avenue

New York, New York 10019

 

Accredited Home Lenders, Inc.

15090 Avenue of Science, Suite 200

San Diego, California 92128

Countrywide Home Loans Servicing LP,

as Backup Servicer

4500 Park Granada, Mail Stop CH-143,

Calabasas, California 91302

 

Ambac Assurance Corporation

One State Street Plaza

New York, New York 10022

Accredited Home Capital, Inc.

15092 Avenue of Science, Suite 200

San Diego, California 92128

   

 

   

Re:

   Sale and Servicing Agreement, dated as of September 1, 2003 among Accredited
Home Lenders, Inc., as Sponsor and Master Servicer, Accredited Home Capital,
Inc., as seller, Accredited Mortgage Loan Trust 2003-2, Countrywide Home Loans
Servicing LP, as Backup Servicer, and Deutsche Bank National Trust Company, as
Indenture Trustee

 

Ladies and Gentlemen:

 

In accordance with the provisions of Section 2.06(b)(ii) of the above-referenced
Sale and Servicing Agreement, the undersigned, as Indenture Trustee, hereby
certifies that as to each Mortgage Loan listed in the Mortgage Loan Schedule
(other than any Mortgage Loan paid in full or any Mortgage Loan listed on the
attachment hereto), it has reviewed the documents delivered to it pursuant to
Section 2.05(a) of the Sale and Servicing Agreement and has determined that,
except as noted on the attachment hereto, (i) all documents required to be
delivered to it pursuant to Section 2.05(a)(i)-(iv) and (vi) of the
above-referenced Sale and Servicing Agreement are in its possession, (ii) such
documents have been reviewed by it and appear regular on their face and have not
been mutilated, damaged, torn or otherwise physically altered (handwritten
additions, changes or corrections do not constitute physical alteration if they
reasonably appear to have been initialed by the Mortgagor) and relates to such
Mortgage Loan and (iii) based on its examination and only as to the foregoing
documents, the information set forth in the Mortgage Loan Schedule as to the
information in clauses (i), (ii) (with respect to property address only,
excluding zip code), (iii) and (vi) of the definition of “Mortgage Loan
Schedule” respecting such Mortgage Loan accurately reflects the information set
forth in Indenture Trustee’s Mortgage

 

D-1

--------------------------------------------------------------------------------

File. The Indenture Trustee has made no independent examination of such
documents beyond the review specifically required in the above-referenced Sale
and Servicing Agreement. The Indenture Trustee makes no representations as to:
(x) the validity, legality, recordability, sufficiency, perfection, priority,
enforceability or genuineness of any such documents contained in each or any of
the Mortgage Loans identified on the Mortgage Loan Schedule, or (y) the
collectability, insurability, effectiveness or suitability of any such Mortgage
Loan.

 

Capitalized words and phrases used herein shall have the respective meanings
assigned to them in the above-captioned Sale and Servicing Agreement.

 

DEUTSCHE BANK NATIONAL TRUST COMPANY,

as Indenture Trustee

By:

 

 

--------------------------------------------------------------------------------

   

Name:

   

Title:

 

 

D-2

--------------------------------------------------------------------------------

EXHIBIT E

 

FINAL CERTIFICATION OF INDENTURE TRUSTEE

 

                          , 2003

Lehman Brothers Inc.

745 Seventh Avenue

New York, New York 10019

 

Accredited Home Lenders, Inc.

15090 Avenue of Science, Suite 200

San Diego, California 92128

Countrywide Home Loans Servicing LP,

as Backup Servicer

4500 Park Granada, Mail Stop CH-143,

Calabasas, California 91302

 

Ambac Assurance Corporation

One State Street Plaza

New York, New York 10022

Accredited Home Capital, Inc.

15092 Avenue of Science, Suite 200

San Diego, California 92128

   

 

   

Re:

   Sale and Servicing Agreement, dated as of September 1, 2003 among Accredited
Home Lenders, Inc., as Sponsor and Master Servicer, Accredited Home Capital,
Inc., as seller, Accredited Mortgage Loan Trust 2003-2, Countrywide Home Loans
Servicing LP, as Backup Servicer, and Deutsche Bank National Trust Company, as
Indenture Trustee

 

Ladies and Gentlemen:

 

In accordance with the provisions of Section 2.06(b)(iii) of the
above-referenced Sale and Servicing Agreement, the undersigned, as Indenture
Trustee, hereby certifies that as to each Mortgage Loan listed in the Mortgage
Loan Schedule (other than any Mortgage Loan paid in full or any Mortgage Loan
listed on the attachment hereto), it has reviewed the documents delivered to it
pursuant to Section 2.05(a) of the Sale and Servicing Agreement and has
determined that (i) all documents required to be delivered to it pursuant to
Section 2.05(a)(i)-(iv) and (vi) of the above referenced Sale and Servicing
Agreement are in its possession, (ii) such documents have been reviewed by it
and appear regular on their face and have not been mutilated, damaged, torn or
otherwise physically altered (handwritten additions, changes or corrections do
not constitute physical alteration if they reasonably appear to have been
initialed by the Mortgagor) and relates to such Mortgage Loan and (iii) based on
its examination and only as to the foregoing documents, the information set
forth in items (i), (ii) (with respect to property address only, excluding zip
code), (iii) and (vi) of the definition of the Mortgage Loan Schedule respecting

 

E-1

--------------------------------------------------------------------------------

such Mortgage Loan that can be determined from the face of such documents
accurately reflects the information set forth in the Indenture Trustee’s
Mortgage File. The Indenture Trustee has made no independent examination of such
documents beyond the review specifically required in the above-referenced Sale
and Servicing Agreement. The Indenture Trustee makes no representations as to:
(x) the validity, legality, recordability, sufficiency, perfection, priority,
enforceability or genuineness of any such documents contained in each or any of
the Mortgage Loans identified on the Mortgage Loan Schedule, or (y) the
collectability, insurability, effectiveness or suitability of any such Mortgage
Loan.

 

Capitalized words and phrases used herein shall have the respective meanings
assigned to them in the above-captioned Sale and Servicing Agreement.

 

DEUTSCHE BANK NATIONAL TRUST COMPANY,

as Indenture Trustee

By:

 

 

--------------------------------------------------------------------------------

   

Name:

   

Title:

 

 

E-2

--------------------------------------------------------------------------------

EXHIBIT F

 

REQUEST FOR RELEASE OF DOCUMENTS

 

To:

  

Deutsche Bank National Trust Company

    

1761 East St. Andrew Place

    

Santa Ana, California 92705

    

Attention: Trust Administration - AC0302

 

Re:

  Sale and Servicing Agreement, dated as of September 1, 2003 among Accredited
Home Lenders, Inc., as Sponsor and Master Servicer, Accredited Home Capital,
Inc., as seller, Accredited Mortgage Loan Trust 2003-2, Countrywide Home Loans
Servicing LP, as Backup Servicer, and Deutsche Bank National Trust Company, as
Indenture Trustee (“Custodian/Indenture Trustee”)

 

In connection with the administration of the Mortgage Loans held by you as
Indenture Trustee for the Issuer pursuant to the above-captioned Sale and
Servicing Agreement, we request the release, and hereby acknowledge receipt, of
the Indenture Trustee’s Mortgage File for the Mortgage Loan described below, for
the reason indicated.

 

Mortgage Loan Number:

 

Mortgagor Name, Address & Zip Code:

 

Reason for Requesting Documents (check one):

 

¨      1.

 

Mortgage Paid in Full

    

¨      2.

 

Foreclosure

    

¨      3.

 

Substitution

    

¨      4.

 

Other Liquidation (Repurchases, etc.)

    

¨      5.

 

Nonliquidation Reason:

  

Reason:                                     
                                               

 

Address to which Indenture Trustee should

 

Deliver the Mortgage File:

 

 

--------------------------------------------------------------------------------

   

 

--------------------------------------------------------------------------------

   

 

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

By:

 

 

--------------------------------------------------------------------------------

    (authorized signer)

Issuer:

 

 

--------------------------------------------------------------------------------

Address:

 

 

--------------------------------------------------------------------------------

   

 

--------------------------------------------------------------------------------

Date:

 

 

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