Exhibit 10.1

 

EXECUTION COPY

 

NOVASTAR MORTGAGE, INC.

as Seller,

 

NOVASTAR MORTGAGE FUNDING CORPORATION

as Company,

 

WACHOVIA BANK, NATIONAL ASSOCIATION

as Custodian

 

and

 

JPMORGAN CHASE BANK

as Trustee

 

MORTGAGE LOAN PURCHASE AGREEMENT

 

Dated as of March 1, 2004

 

Fixed and Adjustable Rate Mortgage Loans

 

NovaStar Mortgage Funding Trust, Series 2004-1

NovaStar Home Equity Loan Asset-Backed Certificate, Series 2004-1

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TABLE OF CONTENTS

 

          Page(s)

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ARTICLE I DEFINITIONS    1

Section 1.01

   Definitions    1 ARTICLE II SALE OF MORTGAGE LOANS AND RELATED PROVISIONS   
2

Section 2.01

   Sale of Closing Date Mortgage Loans and MI Policies    2

Section 2.02

   Conveyance of the Subsequent Mortgage Loans    5

Section 2.03

   Pre-Funding Account    9 ARTICLE III REPRESENTATIONS AND WARRANTIES; REMEDIES
FOR BREACH    9

Section 3.01

   Seller Representations and Warranties    9

Section 3.02

   Company Representations and Warranties    27 ARTICLE IV SELLER’S COVENANTS   
29

Section 4.01

   Covenants of the Seller    29

Section 4.02

   Payment of Expenses    29 ARTICLE V CONDITIONS TO CLOSING DATE MORTGAGE LOAN
PURCHASE    30

Section 5.01

   Conditions of Company’s Obligations    30 ARTICLE VI INDEMNIFICATION BY THE
SELLER WITH RESPECT TO THE MORTGAGE LOANS    30

Section 6.01

   Indemnification With Respect to the Mortgage Loans    30

Section 6.02

   Limitation on Liability of the Seller    31 ARTICLE VII TERMINATION    31

Section 7.01

   Termination    31 ARTICLE VIII MISCELLANEOUS PROVISIONS    32

Section 8.01

   Amendment    32

Section 8.02

   Governing Law    32

Section 8.03

   Notices    33

Section 8.04

   Severability of Provisions    34

Section 8.05

   Relationship of Parties    34

Section 8.06

   Counterparts    34

Section 8.07

   Further Agreements    34

Section 8.08

   Intention of the Parties    34

 

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Section 8.09

   Successors and Assigns; Assignment of Purchase Agreement    35

Section 8.10

   Survival    35

Section 8.11

   Liability of the Trustee    35

EXHIBIT 1

   Closing Date Mortgage Loan Schedule     

EXHIBIT 2(A)

   Seller’s Subsequent Transfer Instrument     

EXHIBIT 2(B)

   Company’s Subsequent Transfer Instrument     

 

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

 

W I T N E S S E T H  T H A T:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

ARTICLE I

 

DEFINITIONS

 

Section 1.01 Definitions.

 

For all purposes of this Purchase Agreement, except as otherwise expressly
provided herein or unless the context otherwise requires, capitalized terms not
otherwise defined herein shall have the meanings assigned to such terms in the
Definitions contained in Appendix A to the Pooling and Servicing Agreement,
dated as of March 1, 2004, among the Custodian, the Trustee, the Company and
NovaStar Mortgage, Inc. as seller and servicer (the “Servicer”) which

 

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is incorporated by reference herein. All other capitalized terms used herein
shall have the meanings specified herein.

 

ARTICLE II

 

SALE OF MORTGAGE LOANS AND RELATED PROVISIONS

 

Section 2.01 Sale of Closing Date Mortgage Loans and MI Policies.

 

(a) The Seller hereby sells, and the Company hereby purchases on the Closing
Date the Closing Date Mortgage Loans identified (and the related MI Policies) on
the Mortgage Loan Schedule annexed hereto as Exhibit 1, the proceeds thereof and
all rights under the Related Documents (including the related Mortgage Files).
The Closing Date Mortgage Loans consist of a pool of three groups of
conventional, residential first lien mortgage loans with fixed and adjustable
interest rates, the Group IA Mortgage Loans, the Group II Mortgage Loans and the
Group III Mortgage Loans, and a group of residential first and second lien
mortgage loans with fixed and adjustable interest rates, the Group IB Mortgage
Loans. The Closing Date Mortgage Loans will have a Principal Balance as of the
close of business on the Cut-off Date, after giving effect to any payments due
on or before such date whether or not received, of approximately $1,200,000,000.
The sale of the Closing Date Mortgage Loans will take place on the Closing Date,
subject to and simultaneously with the deposit of the Closing Date Mortgage
Loans and the Original Pre-Funded Amount into the Trust Fund, the issuance of
the Certificates by the Trustee and the sale of the Underwritten Certificates
pursuant to the Underwriting Agreement. The purchase price (the “Purchase
Price”) for the Closing Date Mortgage Loans to be paid by the Company to the
Seller on the Closing Date is the unpaid principal balance of the Closing Date
Mortgage Loans less any unreimbursed advances plus accrued and unpaid interest
plus any costs and damages incurred in connection with the violation of any
Closing Date Mortgage Loan of any predatory or abusive lending law. The Purchase
Price shall consist of the following:

 

(i) a payment in an amount equal to $1,722,281,981 representing the net proceeds
of the sale of the Underwritten Certificates, which payment shall be paid to the
Seller by wire transfer in immediately available funds on the Closing Date by or
on behalf of the Company, or as otherwise agreed by the Company; and

 

(ii) a payment in an amount equal to $17,500,000 representing the proceeds of
the sale of the Class O Certificates, the Class P and Class X Certificates
(including the net value represented by the Class I Certificates) by the Company
to NCFC pursuant to the REMIC Interests Sale Agreement, which payment shall be
paid to the Seller by wire transfer in immediately available funds on the
Closing Date by or on behalf of the Company, or as otherwise agreed by the
Company.

 

(b) [Reserved]

 

(c) In connection with such conveyances by the Seller, the Seller shall on
behalf of and at the direction of the Company deliver to, and deposit with the
Custodian on behalf of the Trustee, on or before the Closing Date in the case of
a Closing Date Mortgage Loan and two Business Days prior to the related
Subsequent Transfer Date in the case of a Subsequent

 

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Mortgage Loan, the following documents or instruments with respect to each
Mortgage Loan (the “Mortgage File”):

 

(i) the original Mortgage Note endorsed to “JPMorgan Chase Bank, as Trustee of
the NovaStar Mortgage Funding Trust, Series 2004-1, relating to the NovaStar
Home Equity Loan Asset-Backed Certificates, Series 2004-1”;

 

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

 

(iii) unless the Mortgage Loan is registered on the MERS System, an original
assignment (which may be included in one or more blanket assignments if
permitted by applicable law) of the Mortgage endorsed to “JPMorgan Chase Bank,
as Trustee of the NovaStar Mortgage Funding Trust, Series 2004-1, relating to
the NovaStar Home Equity Loan Asset-Backed Certificates, Series 2004-1”, and
otherwise in recordable form;

 

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

 

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

 

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

 

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

 

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

 

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Subsequent Mortgage Loans and Section 2.02(c) hereof as to the Subsequent
Mortgage Loans for breaches of representations and warranties.

 

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

 

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

 

In connection with the assignment of any Closing Date Mortgage Loan registered
on the MERS System, promptly after the Closing Date, the Seller further agrees
that it will cause, at the Seller’s own expense, the MERS System to indicate
that such Closing Date Mortgage Loan has been assigned by the Seller to the
Trustee in accordance with this Agreement for the benefit of the
Certificateholders by including in such computer files (a) the applicable
Trustee code in the field “Trustee” which identifies the Trustee and (b) the
code “NovaStar 2004-1” (or its equivalent) in the field “Pool Field” which
identifies the series of the Certificates issued in connection with such
Mortgage Loans.

 

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

 

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

 

(d) The parties hereto intend that the transactions set forth herein constitute
a sale by the Seller to the Company on the Closing Date of all the Seller’s
right, title and interest in and to the Closing Date Mortgage Loans and other
property as and to the extent described above.

 

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

 

Section 2.02 Conveyance of the Subsequent Mortgage Loans.

 

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

 

In the event such transactions shall be deemed not to be a sale, the Seller
hereby grants to the Company as of each Subsequent Transfer Date a security
interest in all of the Seller’s right, title and interest in, to and under the
related Subsequent Mortgage Loans and such other property, to secure all of the
Seller’s obligations hereunder, and this Purchase Agreement

 

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shall constitute a security agreement under applicable law, and in such event,
the parties hereto acknowledge that the Custodian, in addition to holding the
Subsequent Mortgage Loans and the related MI Policies on behalf of the Trustee
for the benefit of the Certificateholders, holds the Subsequent Mortgage Loans
and the related MI Policies as designee of the Company. The Seller agrees to
take or cause to be taken such actions and to execute such documents, including
without limitation the filing of all necessary UCC-1 financing statements filed
in the Commonwealth of Virginia (which shall be submitted for filing as of the
related Subsequent Transfer Date), any continuation statements with respect
thereto and any amendments thereto required to reflect a change in the name or
corporate structure of the Seller or the filing of any additional UCC-1
financing statements due to a change in the state of incorporation of the Seller
as are necessary to perfect and protect the interests of the Company and its
assignees in the Subsequent Mortgage Loans.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(ii) the Seller shall have delivered to the Company, who shall have delivered to
the Trustee, who shall have delivered to the Custodian, a duly executed
Subsequent Transfer Instrument substantially in the form of Exhibit 2(A) or
2(B), as applicable, (A) confirming the satisfaction of each condition precedent
and representations specified in this Section 2.02(b), Section 2.02(c) and in
the related Subsequent Transfer Instrument and (B) including a Mortgage Loan
Schedule attached thereto listing the Subsequent Mortgage Loans;

 

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

 

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

 

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

 

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

 

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The obligation of the Trustee to purchase a Subsequent Mortgage Loan on any
Subsequent Transfer Date is subject to the following conditions: (1) each such
Subsequent Mortgage Loan shall satisfy the representations and warranties
specified in the related Subsequent Transfer Instrument and this Purchase
Agreement; (2) the Seller shall not select such Subsequent Mortgage Loans in a
manner that it reasonably believes is adverse to the interests of the Majority
Certificateholders; (3) the Seller shall have delivered certain Opinions of
Counsel required pursuant to Section 2.02(b)(iv) and (vi) hereof; (4) as of the
related Subsequent Cut-off Date, the Subsequent Mortgage Loans shall satisfy the
following criteria: (i) each Subsequent Mortgage Loan shall not be 60 or more
days contractually delinquent as of the related Subsequent Cut-off Date; (ii)
the remaining stated term to maturity of each Subsequent Mortgage Loan shall not
exceed 360 months; (iii) no less than approximately 98% of the Subsequent
Mortgage Loans are secured by first liens on the related Mortgaged Property;
(iv) each Subsequent Mortgage Loan shall have an outstanding Principal Balance
of at least $10,000; (v) each Subsequent Mortgage Loan shall be underwritten in
accordance with the Underwriting Guidelines; (vi) each Subsequent Mortgage Loan
shall have a Loan-to-Value Ratio of no more than 100%; (vii) each Subsequent
Mortgage Loan shall have a stated maturity of no later than June 1, 2034; (viii)
no Subsequent Mortgage Loan shall permit negative amortization; (ix) each
Subsequent Mortgage Loan shall either have a fixed Mortgage Rate of at least
4.00% or, if an adjustable loan, a Gross Margin of at least 1.00%; (x) a minimum
of 70% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal
Balance) shall have an adjustable Mortgage Rate; (xi) the weighted average
Loan-to-Value Ratio of the Subsequent Mortgage Loans (by Subsequent Cut-off Date
Principal Balance) shall be no more than 83.00%; (xii) no less than 31.75% of
the Subsequent Mortgage Loans shall either (A) have a Loan-to Value Ratio of no
more than 60% or (B) have a Loan-to-Value Ratio of greater than 60% and be
covered by an MI Policy which will insure losses to the extent that the
uninsured exposure of the related Subsequent Mortgage Loan is reduced to an
amount equal to 55%, 51% or 50% of the lesser of the appraised value or purchase
price, as the case may be, of the related Mortgaged Property, in each case, at
the time of the applicable effective date of the MI Policy; (xiii) the
Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall
have a weighted average coupon of at least 7.40%; (xiv) pursuant to the
Underwriting Guidelines, no fewer than 50% of the Subsequent Mortgage Loans (by
Subsequent Cut-off Date Principal Balance) shall be ALT-A and M1 credit risks,
no fewer than 10% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date
Principal Balance) shall be M2 credit risks, and no more than 15% of the
Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall
be M3 and M4 credit risks; (xv) the Subsequent Mortgage Loans (by Subsequent
Cut-off Date Principal Balance) shall have a weighted average FICO score issued
by a consumer credit rating agency of at least 615; (xvi) at least 87% of such
Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall
be loans for primary residences; (xvii) no more than 45% of the Subsequent
Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall have stated
loan documentation, and no more than 15% of the Subsequent Mortgage Loans (by
Subsequent Cut-off Date Principal Balance shall have no loan documentation;
(xviii) at least 65% of the Subsequent Mortgage Loans (by Subsequent Cut-off
Date Principal Balance) shall be loans for single family residences; (xix) no
more than 70% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date
Principal Balance) shall be loans that are the subject of cash-out refinances;
(xx) the ratings agencies shall have consented either in writing or verbally to
the

 

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

 

The acceptance of the Subsequent Mortgage Loans by the Trustee is subject to the
Seller receiving a written or verbal consent from each of the Rating Agencies
that states that the addition of such Subsequent Mortgage Loans will not cause
the Rating Agencies to downgrade any of their ratings on the Underwritten
Certificates.

 

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

 

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

 

Section 2.03 Pre-Funding Account.

 

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

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES;

REMEDIES FOR BREACH

 

Section 3.01 Seller Representations and Warranties.

 

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

 

(a) As to the Seller:

 

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

 

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Subsequent Transfer Instrument and to consummate the transactions contemplated
hereby and thereby;

 

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

 

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

 

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

 

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

 

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

 

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

 

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Mortgage Loans, all monies due or to become due with respect thereto, and all
proceeds of such Subsequent Cut-off Date Principal Balance of the Subsequent
Mortgage Loans;

 

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

 

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

 

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

 

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

 

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

 

(iii) No more than 7.45%, 5.91%, 6.57% and 5.42% of the Closing Date Mortgage
Loans in Group IA, Closing Date Mortgage Loans in Group IB, Closing Date
Mortgage Loans in Group II and Closing Date Mortgage Loans in Group III,
respectively, (by Cut-off Date Principal Balance) were secured by condominium
units; and no more than 13.55%, 13.52%, 13.98% and 13.93% of the Closing Date
Mortgage Loans in Group IA, Closing Date Mortgage Loans in Group II and the
Closing Date Mortgage Loans in Group III, respectively, (by Cut-off Date
Principal Balance) were secured by properties in planned unit developments;

 

(iv) As of the Cut-off Date, the remaining term of each Group IA Closing Date
Mortgage Loan is not more than 360 months and not less than 119 months, the
remaining term of each Group IB Closing Date Mortgage Loan is not more than 360
months and not less than 177 months, the remaining term of each Group II Closing
Date Mortgage Loan is not more than 360 months and not less than 118 months and
the remaining term of each Group III Closing Date Mortgage Loan is not more than
360 months and not less than 116 months;

 

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(v) No more than 63.58%, 50.06%, 65.06% and 59.50% of the Closing Date Mortgage
Loans in Group IA, Closing Date Mortgage Loans in Group IB, Closing Date
Mortgage Loans in Group II and Closing Date Mortgage Loans in Group III,
respectively, (by Cut-off Date Principal Balance) have been the subject of
cash-out refinances;

 

(vi) No more than 8.05%, 4.45%, 7.51% and 8.13% of the Closing Date Mortgage
Loans in Group IA, Closing Date Mortgage Loans in Group IB, Closing Date
Mortgage Loans in Group II and Closing Date Mortgage Loans in Group III,
respectively, (by Cut-off Date Principal Balance) respectively, have been the
subject of rate and term (no cash-out) refinances;

 

(vii) No fewer than 28.37%, 45.49%, 27.42% and 32.37% of the Closing Date
Mortgage Loans in Group IA, Closing Date Mortgage Loans in Group IB, Closing
Date Mortgage Loans in Group II and Closing Date Mortgage Loans in Group III,
respectively, (by Cut-off Date Principal Balance) are purchase money loans;

 

(viii) No more than 21.40%, 33.11%, 21.20% and 29.30% of the Closing Date
Mortgage Loans in Group IA, Closing Date Mortgage Loans in Group IB, Closing
Date Mortgage Loans in Group II and Closing Date Mortgage Loans in Group III,
respectively, (by Cut-off Date Principal Balance) are secured by Mortgaged
Properties located in the State of California; no more than 18.60%, 11.75%,
13.84% and 15.90% of the Closing Date Mortgage Loans in Group IA, Closing Date
Mortgage Loans in Group IB, Closing Date Mortgage Loans in Group II and the
Closing Date Mortgage Loans in Group III, respectively, (by Cut-off Date
Principal Balance) are secured by Mortgaged Properties located in the State of
Florida; no more than 4.37% of the Closing Date Mortgage Loans in Group IA (by
Cut-off Date Principal Balance) are secured by Mortgaged Properties located in
the State of Virginia; no more than 4.11% of the Closing Date Mortgage Loans in
Group IB (by Cut-off Date Principal Balance) are secured by Mortgaged Properties
located in the State of Texas; no more than 4.40% of the Closing Date Mortgage
Loans in Group II (by Cut-off Date Principal Balance) are secured by Mortgaged
Properties located in the State of Georgia; no more than 4.11% of the Closing
Date Mortgage Loans in Group III (by Cut-off Date Principal Balance) are secured
by Mortgaged Properties located in the State of Michigan; and no more than
3.86%, 3.95%, 4.07% and 3.90% of the Closing Date Mortgage Loans in Group IA,
Closing Date Mortgage Loans in Group IB, Closing Date Mortgage Loans in Group II
and the Closing Date Mortgage Loans in Group III, respectively, (by Cut-off Date
Principal Balance) are located in any other state;

 

(ix) The outstanding Principal Balances of the Closing Date Mortgage Loans in
Group IA (by Cut-off Date Principal Balance) ranged from $34,089 to $400,000,
the average outstanding Principal Balance of the Closing Date Mortgage Loans in
Group IA is approximately $142,188; the outstanding Principal Balances of the
Closing Date Mortgage Loans in Group IB (by Cut-off Date Principal Balance)
ranged from $11,960 to $465,500, the average outstanding Principal Balance of
the Closing Date Mortgage Loans in Group IB is approximately $63,996; the
outstanding Principal Balances of the Closing Date Mortgage Loans in Group II
(by Cut-off Date Principal Balance) ranged from $19,990 to $436,000, the average
outstanding Principal Balance of the Closing Date Mortgage Loans in Group II is
approximately $141,733, the outstanding Principal Balance of the Closing Date
Mortgage Loans in Group III (by Cut-off Date Principal Balance) ranged from
$39,577 to

 

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$998,975 and the average outstanding Principal Balance of the Closing Date
Mortgage Loans in Group III is approximately $166,472;

 

(x) Approximately 73.74%, 76.67%, 74.38% and 76.05% of the Closing Date Mortgage
Loans in Group IA, Closing Date Mortgage Loans in Group IB, Closing Date
Mortgage Loans in Group II and Closing Date Mortgage Loans in Group III,
respectively (by Cut-off Date Principal Balance) were secured by a first lien on
a parcel of real property improved by a detached single family residence; no
more than 5.26%, 3.90%, 5.06% and 4.59% of the Closing Date Mortgage Loans in
Group IA, Closing Date Mortgage Loans in Group IB, Closing Date Mortgage Loans
in Group II and the Closing Date Mortgage Loans in Group III, respectively, (by
Cut-off Date Principal Balance) were secured by a first lien on a parcel of real
estate improved by a multi-unit residence;

 

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

 

(xii) The Mortgage Rates borne by the adjustable rate Closing Date Mortgage
Loans in Group IA as of the Closing Date range from 4.750% and per annum to
10.200% per annum, and the weighted average Mortgage Rate (by Cut-off Date
Principal Balance) of the adjustable rate Closing Date Mortgage Loans in Group
IA was 7.502%, per annum; the Mortgage Rates borne by fixed rate Closing Date
Mortgage Loans in Group IA as of the Closing Date range from 5.400% per annum to
11.650% per annum, and the weighted average Mortgage Rate (by Cut-off Date
Principal Balance) of the fixed rate Closing Date Mortgage Loans in Group IA was
7.561% per annum; the Mortgage Rates borne by the adjustable rate Closing Date
Mortgage Loans in Group IB as of the Closing Date range from 4.750% per annum to
9.990% per annum, and the weighted average Mortgage Rate (by Cut-off Date
Principal Balance) of the adjustable rate Closing Date Mortgage Loans in Group
IB was 7.215%, per annum; the Mortgage Rates borne by fixed rate Closing Date
Mortgage Loans in Group IB as of the Closing Date range from 6.125% per annum to
13.000% per annum, and the weighted average Mortgage Rate (by Cut-off Date
Principal Balance) of the fixed rate Closing Date Mortgage Loans in Group IB was
11.092% per annum; the Mortgage Rates borne by adjustable rate Closing Date
Mortgage Loans in Group II as of the Closing Date range from 4.125% per annum to
11.500% per annum, and the weighted average Mortgage Rate (by Cut-off Date
Principal Balance) of the adjustable rate Closing Date Mortgage Loans in Group
II was 7.520%, per annum; the Mortgage Rates borne by fixed rate Closing Date
Mortgage Loans in Group II as of the Closing Date range from 5.375% per annum to
12.250% per annum, and the weighted average Mortgage Rate (by Cut-off Date
Principal Balance) of the fixed rate Closing Date Mortgage Loans in Group II was
7.550% per annum; the Mortgage Rates borne by adjustable rate Closing Date
Mortgage Loans in Group III as of the Closing Date range from 4.250% per annum
to 11.990% per annum, and the weighted average Mortgage Rate (by Cut-off Date
Principal Balance) of the adjustable rate Closing Date Mortgage Loans in Group
III was

 

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7.477% per annum; the Mortgage Rates borne by fixed rate Closing Date Mortgage
Loans in Group III as of the Closing Date range from 4.990% per annum to 12.100%
per annum and the weighted average Mortgage Rate (by Cut-off Date Principal
Balance) of the fixed rate Closing Date Mortgage Loans in Group III was 7.256%
per annum.

 

(xiii) Approximately 53.06%, 58.79%, 56.69% and 56.34% of the Closing Date
Mortgage Loans in Group IA, the Closing Date Mortgage Loans in Group IB, the
Closing Date Mortgage Loans in Group II, and the Closing Date Mortgage Loans in
Group III, respectively, (by Cut-off Date Principal Balance) have a
Loan-to-Value Ratio in excess of 80%; no Group IA Closing Date Mortgage Loan,
Group IB Closing Date Mortgage Loan, Group II Closing Date Mortgage Loan or
Group III Closing Date Mortgage Loan in the Mortgage Pool had a Loan-to-Value
Ratio or combined Loan-to-Value Ratio at origination in excess of 100%; and the
weighted average Loan-to-Value Ratio (by Cut-off Date Principal Balance) of the
Closing Date Mortgage Loans in Group IA, the Closing Date Mortgage Loans in
Group IB, the Closing Date Mortgage Loans in Group II and the Closing Date
Mortgage Loans in Group III was equal to or less than 82.52%, 46.38%, 82.72% and
82.81%, respectively;

 

(xiv) Approximately 100.00%, 51.84%, 100.00% and 100.00% of the Closing Date
Mortgage Loans in Group IA, the Closing Date Mortgage Loans in Group IB, the
Closing Date Mortgage Loans in Group II and the Closing Date Mortgage Loans in
Group III, respectively, are secured by first liens on the related Mortgaged
Property; and approximately 48.16% of the Closing Date Mortgage Loans in Group
IB are secured by second liens on the related Mortgaged Property;

 

(xv) The weighted average Loan-to-Value Ratio of the Closing Date Mortgage Loans
secured by first liens in Group IA is approximately 82.52%; the weighted average
Loan-to-Value Ratio of the Closing Date Mortgage Loans secured by first liens in
Group II is approximately 82.72%; the weighted average Loan-to-Value Ratio of
the Closing Date Mortgage Loans secured by first liens in Group III secured by
first liens is approximately 82.81%; the weighted average combined Loan-to-Value
Ratio of the Closing Date Mortgage Loans secured by first and second liens in
Group IB is approximately 84.54%; the weighted average combined Loan-to-Value
Ratio of all of the Closing Date Mortgage Loans in Group IA, Group IB, Group II
and Group III is approximately 82.76%; the gross weighted average coupon of the
Closing Date Mortgage Loans is approximately 7.535%;

 

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

 

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

 

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

 

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

 

(xx) Each Mortgage Loan at origination complied in all material respects with
applicable local, state and federal laws, including, without limitation, usury,
equal credit opportunity, real estate settlement procedures, the Truth In
Lending Act of 1968, as amended, all applicable predatory and abusive lending
laws and disclosure laws and consummation of the transactions contemplated
hereby, including without limitation, the receipt of interest by the owner of
such Mortgage Loan or the Holders of Certificates secured thereby, will not
violate any such laws. Each Mortgage Loan is being serviced in all material
respects in accordance with applicable state and federal laws, including,
without limitation, the Truth In Lending Act of 1968, as amended, and other
consumer protection laws, real estate settlement procedures, usury, equal credit
opportunity and disclosure laws;

 

(xxi) Neither the Seller nor any prior holder of any Mortgage has impaired,
waived, altered or modified the Mortgage or Mortgage Notes in any material
respect (except that a Mortgage Loan may have been modified by a written
instrument which has been

 

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recorded, if necessary to protect the interests of the owner of such Mortgage
Loan or the Certificates, and which has been delivered to the Trustee);
satisfied, canceled or subordinated such Mortgage in whole or in part; released
the applicable Mortgaged Property in whole or in part from the lien of such
Mortgage; or executed any instrument of release, cancellation or satisfaction
with respect thereto;

 

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

 

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

 

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

 

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

 

(xxvi) The proceeds of the Mortgage Loans have been fully disbursed, there is no
requirement for future advances thereunder and any and all requirements as to
completion of any on-site or off-site improvements and as to disbursement of any
escrow

 

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funds therefor have been complied with. All costs, fees and expenses incurred in
making, closing or recording the Mortgage Loans were paid and the Mortgagor is
not entitled to any refund of amounts paid or due under the Mortgage Note;

 

(xxvii) Each Mortgage contains customary and enforceable provisions that render
the rights and remedies of the holder thereof adequate for the realization
against the Mortgaged Property of the benefits of the security, including (i) in
the case of a Mortgage designated as a deed of trust, by trustee’s sale, and
(ii) otherwise by judicial foreclosure or if applicable, non-judicial
foreclosure. Upon default by a Mortgagor on a Mortgage Loan and foreclosure on,
or trustee’s sale of, the Mortgaged Property pursuant to the proper procedures,
the holder of the Mortgage Loan will be able to deliver good and merchantable
title to the property, subject to any applicable rights of redemption;

 

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

 

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

 

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

 

(xxxi) As of the Closing Date in the case of a Closing Date Mortgage Loan and as
of the related Subsequent Transfer Date in the case of a Subsequent Mortgage
Loan, the improvements upon each Mortgaged Property are covered by a valid and
existing hazard insurance policy substantially acceptable to FNMA and acceptable
to the Seller which policy provides for fire extended coverage and such other
hazards as are customary in the area where the Mortgaged Property is located
representing coverage in an amount not less than the lesser of (A) the maximum
insurable value of the improvements securing such Mortgage Loan and (B) the
outstanding Principal Balance of the related Mortgage Loan; if the improvement
on the Mortgaged Property is a condominium unit, it is included under the
coverage afforded by a blanket policy for the condominium project. All
individual insurance policies contain a standard mortgagee clause naming the
Seller or the original holder of the Mortgage, and its successors in interest,
as mortgagee, and the Seller has received no notice that any premiums due and
payable thereon have not been paid; the Mortgage obligates the Mortgagor
thereunder to maintain all such insurance at the Mortgagor’s cost and expense,
and upon the Mortgagor’s failure to do so, authorizes the holder of the Mortgage
to obtain and maintain such insurance at the Mortgagor’s cost and expense and to
seek reimbursement therefor from the Mortgagor. There has been no act or
omission which would impair the coverage of any

 

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such policy, the benefits of the endorsement provided for herein, or the
validity and binding effect of either;

 

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

 

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

 

(xxxiv) Each Mortgage Loan is being serviced by the Servicer;

 

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

 

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

 

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

 

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

 

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due and owing have been paid, or, if required by the terms of the Mortgage Loan,
an escrow of funds has been established in an amount sufficient to pay for every
such item which remains unpaid and which has been assessed, but is not yet due
and payable. Except for (A) payments in the nature of escrow payments and (B)
interest accruing from the date of the Mortgage Note or date of disbursement of
the Mortgage proceeds to the day which precedes by one month the Due Date of the
first installment of principal and interest, including, without limitation,
taxes and insurance payments, the Servicer has not advanced funds, or induced,
solicited or knowingly received any advance of funds by a party other than the
Mortgagor, directly or indirectly, for the payment of any amount required by the
Mortgage;

 

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

 

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

 

(xli) 0.00%, 0.00%, 0.00% and 0.02% of the adjustable rate Group IA Closing Date
Mortgage Loans, the adjustable rate Group IB Closing Date Mortgage Loans, the
adjustable rate Group II Closing Date Mortgage Loans and the adjustable rate
Group III Closing Date Mortgage Loans, respectively, (by Cut-off Date Principal
Balance) are Convertible Mortgage Loans;

 

(xlii) (a) Except with respect to no more than 0.25%, 0.00%, 0.23% and 0.26% of
the Closing Date Mortgage Loans in Group IA, the Closing Date Mortgage Loans in
Group IB, the Closing Date Mortgage Loans in Group II and the Closing Date
Mortgage Loans in Group III, respectively, none of the payments of principal of
or interest on or in respect of any Closing Date Mortgage Loans (by Cut-off Date
Principal Balance) shall be 30 days or more but less than 60 days past due as of
the Cut-off Date; none of the payments of principal or interest on or in respect
of any Closing Date Mortgage Loans shall be 60 days or more but less than 90
days past due as of the Cut-off Date; and no Closing Date Mortgage Loan was 90
days or more past due as of the Cut-off Date; (b) except as set forth in clause
(a) above, all payments required to be made by the Mortgagor under the terms of
the Mortgage Note have been made and credited; and (c) to the Seller’s
knowledge, there was no delinquent recording, tax or assessment lien against the
property subject to any Mortgage, except where such lien was being contested in
good faith and a stay had been granted against levying on the property;

 

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

 

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

 

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

 

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

 

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

 

(xlviii) The Mortgagor has not notified the Seller, and the Seller has no
knowledge of any relief requested or allowed to the Mortgagor under the
Servicemembers Civil Relief Act other than as disclosed pursuant to the
Prospectus Supplement;

 

(xlix) To the best of the Seller’s knowledge, there exists no violation of any
local, state, or federal environmental law, rule or regulation in respect of the
Mortgaged Property which violation has or could have a material adverse effect
on the market value of such Mortgaged Property. The Seller has no knowledge of
any pending action or proceeding directly involving the related Mortgaged
Property in which compliance with any environmental law, rule or regulation is
in issue; and, to the best of the Seller’s knowledge, nothing further remains to
be done to satisfy in full all requirements of each such law, rule or regulation
constituting a prerequisite to the use and employment of such Mortgaged
Property;

 

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

 

(li) Each Mortgage Loan is in compliance with the anti-predatory lending
eligibility requirements of Fannie Mae’s Selling Guide;

 

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

 

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

 

(liv) The Servicer meets all applicable requirements under the Pooling and
Servicing Agreement, is properly qualified to service each Mortgage Loan and has
been servicing each Mortgage Loan prior to the Cut-off Date or the related
Subsequent Cut-off Date, as the case may be;

 

(lv) No instrument of release or waiver has been executed in connection with the
Mortgage Loans, and no Mortgagor has been released, in whole or in part from its
obligations in connection with a Mortgage Loan except in connection with an
assumption agreement which has been delivered to the Trustee;

 

(lvi) On the basis of a representation by the Mortgagor at the time of
origination of the Mortgage Loans, at least 93.67%, 98.35%, 94.98% and 95.49% of
the Closing Date Mortgage Loans in Group IA, Closing Date Mortgage Loans in
Group II and Closing Date Mortgage Loans in Group III, respectively, (by Cut-off
Date Principal Balance) will be secured by Mortgages on owner-occupied primary
residence properties;

 

(lvii) 0.00%, 39.95%, 0.13%, and 0.02% of the Closing Date Mortgage Loans in
Group IA, Closing Date Mortgage Loans in Group II and the Closing Date Mortgage
Loans in Group III, respectively, (by Cut-off Date Principal Balance) provide
for a balloon payment and each Mortgage Note with respect to each such Mortgage
Loan requires monthly payments of principal based on 30 year amortization
schedules and have scheduled maturity dates of 15 years from the due date of the
first monthly payment;

 

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

 

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

 

(lx) [Reserved].

 

(lxi) No Mortgage Loan is a “High Cost Home Loan” as defined in the Georgia Fair
Lending Act, as amended (the “Georgia Act”). No Mortgage Loan secured by owner
occupied real property or an owner occupied manufactured home located in the
State of Georgia was originated (or modified) on or after October 1, 2002
through and including March 6, 2003;

 

(lxii) None of the Mortgage Loans are subject to the requirements of the Home
Ownership and Equity Protection Act of 1994, as amended, or any comparable state
or local law; none of the Mortgage Loans are “section 32” loans or “high cost”
loans as defined by applicable predatory and abusive lending laws; no proceeds
from any Mortgage Loan were used to finance any single premium credit insurance
policies; none of the Mortgage Loans (by Cut-off Date Principal Balance) require
a mortgagor to pay a Prepayment

 

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Charge if the mortgagor prepays a Mortgage Loan more than five years after the
date the Mortgage Loan was originated;

 

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

 

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

 

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

 

(lxvi) No Mortgage Loan is a “High-Cost Home Loan” as defined in the New Jersey
Home Ownership Act effective November 27, 2003 (N.J.S.A. 46:10B-22 et seq.);

 

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

 

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

 

(lxix) No borrower was encouraged or required to select a Mortgage Loan product
offered by the Mortgage Loan’s originator which is a higher cost product
designed for less creditworthy borrowers, unless at the time of the Mortgage
Loan’s origination, such borrower did not qualify taking into account credit
history and debt to income ratios for a lower cost credit product then offered
by the Mortgage Loan’s originator or any affiliate of the Mortgage Loan’s
originator;

 

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

 

(lxxi) Approximately 75.20% of the Closing Date Mortgage Loans are subject to
prepayment penalty charges as of the Cut-off Date;

 

(lxxii) With respect to any Mortgage Loan that contains a provision permitting
imposition of a premium upon a prepayment prior to maturity: (i) prior to the
loan’s origination, the borrower agreed to such premium in exchange for a
monetary benefit, including but not limited to a rate or fee reduction, (ii)
prior to the loan’s origination, the borrower was offered the option of
obtaining a mortgage loan that did not require payment of such a premium, (iii)
the prepayment premium is disclosed to the borrower in the loan

 

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documents pursuant to applicable state and federal law, and (iv) notwithstanding
any state or federal law to the contrary, the Servicer shall not impose such
prepayment premium in any instance when the mortgage debt is accelerated as the
result of the borrower’s default in making the loan payments;

 

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

 

(lxxiv) All points and fees related to each Mortgage Loan in Group IA were
disclosed in writing to the borrower in accordance with applicable state and
federal law and regulation. Except in the case of a Mortgage Loan in Group IA in
an original principal amount of less than $60,000 which would have resulted in
an unprofitable origination, no borrower was charged “points and fees” (whether
or not financed) in an amount greater than 5% of the principal amount of such
loan, such 5% limitation is calculated in accordance with Fannie Mae’s
anti-predatory lending requirements as set forth in the Fannie Mae Selling
Guide;

 

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

 

(lxxvi) The Servicer will transmit full-file credit reporting data for each
Mortgage Loan in Group IA pursuant to Fannie Mae Guide Announcement 95-19 and
that for each Mortgage Loan in Group IA, Servicer agrees it shall report one of
the following statuses each month as follows: new origination, current,
delinquent (30-, 60-, 90-days, etc.), foreclosed, or charged-off;

 

(lxxvii) No Group IA or Group II Mortgage Loan secured by a single-family
residence has a Principal Balance at origination in excess of $333,700; no Group
IA or Group II Mortgage Loan secured by a two-family residence has a Principal
Balance at origination in excess of $427,150; no Group IA or Group II Mortgage
Loan secured by a three-family residence has a Principal Balance at origination
in excess of $516,300; and no Group IA or Group II Mortgage Loan secured by a
four-family residence has a Principal Balance at origination in excess of
$641,650;

 

(lxxviii) No selection procedure reasonably believed by the Seller to be adverse
to the interests of the Certificateholders was utilized in selecting the
Mortgage Loans;

 

(lxxix) The terms of the Mortgage Note related to each adjustable rate Mortgage
Loan provide that, following an initial period of two or three years following
the month in which such Mortgage Loan was originated and semiannually or
annually thereafter (each such date, an “Adjustment Date”), the Mortgage Rate on
such Mortgage Loan will be

 

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adjusted to equal the sum of (a) the related Index and (b) a fixed percentage
amount specified in the related Mortgage Note (each, a “Gross Margin”);
provided, however, that the Mortgage Rate generally will not increase or
decrease by the related Periodic Rate Cap, and will not increase above a
specified maximum Mortgage Rate over the life of the Adjustable Rate Mortgage
Loan (the “Maximum Mortgage Rate”) or decrease below a specified minimum
Mortgage Rate over the life of the Adjustable Rate Mortgage Loan (the “Minimum
Mortgage Rate”);

 

(lxxx) None of the Closing Date Mortgage Loans (by Cut-off Date Principal
Balance) are negative amortization loans, and none of the Subsequent Mortgage
Loans shall be negative amortization loans;

 

(lxxxi) No material misrepresentation, fraud or similar occurrence with respect
to a Mortgage Loan has taken place on the part of the Seller, its affiliates or
employees or any other person involved in the origination of the Mortgage Loan
or in the application for any insurance, including, but not limited to the MI
Policy, in relation to such Mortgage Loan;

 

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

 

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

 

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

 

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

 

(lxxxvi) Each Mortgage Loan is a “qualified mortgage” within Section 860G(a)(3)
of the Code;

 

(lxxxvii) Approximately 25.86% of the Closing Date Mortgage Loans (by Cut-off
Date Principal Balance) with a Loan-to-Value Ratio greater than 60% are covered
by an MI Policy issued by an MI Insurer;

 

(lxxxviii) Approximately 25.86% of the Closing Date Mortgage Loans that are
identified on Exhibit 1 hereto are covered by a MI Policy issued by the MI
Insurer;

 

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

 

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

 

(xci) All appraisals of the Mortgage Loans by the Seller are full URAR/1004
appraisals;

 

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

 

(xciii) All points and fees related to each Mortgage Loan in Group II were
disclosed in writing to the borrower in accordance with applicable state and
federal law and regulation. Except in the case of a Mortgage Loan in Group II in
an original principal amount of less than $60,000 which would have resulted in
an unprofitable origination, no borrower was charged “points and fees” (whether
or not financed) in an amount greater than 5% of the principal amount of such
loan, such 5% limitation is calculated in accordance with Freddie Mac’s
anti-predatory lending requirements as set forth in the Freddie Mac Selling
Guide; and

 

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

 

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

 

Upon discovery by the Seller or upon notice from the Company, the Trustee, or
the Custodian, as applicable, of a breach of any representation or warranty in
this subsection (b) with respect to any Mortgage Loan or upon the occurrence of
a Repurchase Event, which materially and adversely affects the value of the
related Mortgage Loan or the interests of any Certificateholders or of the
Company or the Trustee in such Mortgage Loan (notice of which shall be given to
the Company and the Trustee by the Seller, if it discovers the same) the Seller
shall, within 90 days after the earlier of its discovery or receipt of notice
thereof, either cure such breach or Repurchase Event in all material respects or
either (i) repurchase such Mortgage Loan

 

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from the Trustee at the Repurchase Price, or (ii) substitute one or more
Eligible Substitute Mortgage Loans for such Mortgage Loan, in each case in the
manner and subject to the conditions set forth below. The Repurchase Price for
any such Mortgage Loan repurchased by the Seller shall be deposited or caused to
be deposited by the Servicer in the Collection Account maintained by it pursuant
to Section 3.06 of the Pooling and Servicing Agreement.

 

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

 

Upon receipt by the Trustee of written notification, signed by a Servicing
Officer, of the deposit of such Repurchase Price or of such substitution of an
Eligible Substitute Mortgage Loan and deposit of any applicable Substitution
Adjustment Amount as provided above, the Custodian shall, on behalf of the
Trustee, cause to be released to the Seller the related Mortgage File for the
Mortgage Loan being repurchased or substituted for and the Trustee shall execute
and deliver such instruments of transfer or assignment prepared by the Servicer,
in each case without recourse, as shall be necessary to vest in the Seller or
its designee such Mortgage Loan released pursuant hereto and thereafter such
Mortgage Loan shall not be an asset of the Trustee.

 

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It is understood and agreed that the obligation of the Seller to cure any breach
with respect to or to repurchase or substitute for, any Mortgage Loan as to
which such a breach has occurred and is continuing shall, except to the extent
provided in Section 6.01 of this Purchase Agreement, constitute the sole remedy
respecting such breach available to the Company, the Trustee, the
Certificateholders or the Custodian against the Seller.

 

It is understood and agreed that the representations and warranties set forth in
this Section 3.01 shall survive delivery of the respective Mortgage Files to the
Custodian on behalf of the Trustee.

 

Section 3.02 Company Representations and Warranties.

 

The Company hereby represents and warrants to the Seller and the Trustee as of
the date hereof and as of the Closing Date that:

 

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

 

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

 

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

 

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

 

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

 

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ARTICLE IV

 

SELLER’S COVENANTS

 

Section 4.01 Covenants of the Seller.

 

The Seller hereby covenants as of the date hereof and as of the Closing Date
that, except for the transfer hereunder, on and after the Closing Date, the
Seller will not sell, pledge, assign or transfer to any other Person, or grant,
create, incur or assume any Lien on, any Mortgage Loan, whether now existing or
hereafter created, or any interest therein; the Seller will notify the Custodian
and the Trustee of the existence of any such Lien on any Mortgage Loan
immediately upon discovery thereof; and the Seller will defend the right, title
and interest of the Trustee, on its own behalf and as assignee of the Company,
in, to and under the Mortgage Loans, whether now existing or hereafter created,
against all claims of third parties claiming through or under the Seller.

 

In the event that the Custodian or the Trustee receives actual notice of any
Transfer Taxes arising out of the transfer, assignment and conveyance of the
Mortgage Loans, on written demand by the Custodian, or upon the Seller’s
otherwise being given notice thereof by the Custodian, the Seller shall pay any
and all such Transfer Taxes (it being understood that the Holders of the
Certificates, the Company, the Custodian and the Trustee shall have no
obligation to pay such Transfer Taxes).

 

Section 4.02 Payment of Expenses.

 

(a) The Seller will pay on the Closing Date all expenses incident to the
performance of its obligations under this Purchase Agreement and the
Underwriting Agreement, including (i) the preparation, printing and any filing
of the preliminary prospectus, Prospectus Supplement and Prospectus (including
any schedules or exhibits and any document incorporated therein by reference)
originally filed and of each amendment or supplement thereto, (ii) the
preparation, printing and delivery to the Underwriters of this Purchase
Agreement and the Underwriting Agreement, the Pooling and Servicing Agreement
and such other documents as may be required in connection with the offering,
purchase, sale and delivery of the Certificates, (iii) the preparation, issuance
and delivery of the certificates for the Class A Certificates, Mezzanine
Certificates and Class B Certificates to the Underwriters, including any charges
of DTC, CEDEL, S.A. and the Euroclear System in connection therewith; (iv) the
qualification of the Class A Certificates, Mezzanine Certificates and Class B
Certificates under securities laws in accordance with the provisions of Section
3(f) of the Underwriting Agreement, including filing fees and the reasonable
fees and disbursements of counsel for the Underwriters in connection therewith
and in connection with the preparation of the Blue Sky Survey and any supplement
thereto for delivery to potential investors, (v) in addition to the initial
printing and filing costs under (i) above, the printing and delivery to the
Underwriters of copies of each preliminary prospectus and of the Prospectus and
any amendments or supplements thereto for delivery to potential investors, (vi)
the fees and expenses of the Trustee and the Custodian, including the fees and
disbursements of counsel for the Trustee and the Custodian in connection with
the

 

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Pooling and Servicing Agreement, the Purchase Agreement and the Certificates and
(vii) any fees payable in connection with the rating of the Certificates.

 

(b) If the Underwriting Agreement is terminated by the Underwriters in
accordance with the provisions of Section 5 or Section 9(a)(i) thereof, the
Seller shall reimburse the Underwriters for all of their out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the Underwriters.

 

ARTICLE V

 

CONDITIONS TO CLOSING DATE MORTGAGE LOAN PURCHASE

 

Section 5.01 Conditions of Company’s Obligations.

 

The Company’s obligations to purchase the Closing Date Mortgage Loans which each
accepts for purchase hereunder shall be subject to each of the following
conditions:

 

(i) the Mortgage File for each Closing Date Mortgage Loan shall have been
delivered in accordance with this Purchase Agreement;

 

(ii) the representations and warranties set forth in Section 3.01(b) hereof with
respect to each Closing Date Mortgage Loan shall be true as of the Closing Date;

 

(iii) the Underwriters or their affiliates shall have had an opportunity to
perform a due diligence review of each Mortgage Loan; and

 

(iv) the Seller shall have provided to the Underwriters or their affiliates such
other documents which are then required to have been delivered under this
Purchase Agreement or which are reasonably requested by the Underwriters or
their affiliates, which other documents may include UCC financing statements, a
favorable opinion or opinions of counsel with respect to matters which are
reasonably requested by the Underwriters, and/or an Officers’ Certificate.

 

ARTICLE VI

 

INDEMNIFICATION BY THE SELLER

WITH RESPECT TO THE MORTGAGE LOANS

 

Section 6.01 Indemnification With Respect to the Mortgage Loans.

 

The Seller shall indemnify and hold harmless the Company, Trustee and the
Custodian from and against any loss, liability or expense arising from the
breach by the Seller of its representations and warranties in Section 3.01 of
this Purchase Agreement which materially and adversely affects the value of any
Mortgage Loan or the Company’s assignees’ interest in any Mortgage Loan or from
the failure by the Seller to perform its obligations under this Purchase
Agreement in any material respect.

 

30

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Section 6.02 Limitation on Liability of the Seller.

 

None of the directors, officers, employees or agents of the Seller shall be
under any liability to the Company, it being expressly understood that all such
liability is expressly waived and released as a condition of, and as
consideration for, the execution of this Purchase Agreement. Except as and to
the extent expressly provided in the Basic Documents, the Seller shall not be
under any liability to the Trustee, the Custodian or the Certificateholders. The
Seller and any director, officer, employee or agent of the Seller may rely in
good faith on any document of any kind prima facie properly executed and
submitted by any Person respecting any matters arising hereunder.

 

ARTICLE VII

 

TERMINATION

 

Section 7.01 Termination.

 

(a) Except as provided in Section 7.01(b) hereof, the respective obligations and
responsibilities of the Seller, the Company, the Trustee and the Custodian
created hereby shall terminate, except for the Seller’s indemnity obligations as
provided herein, upon the termination of the Trust Fund pursuant to the terms of
the Pooling and Servicing Agreement.

 

(b) The Company may terminate this Purchase Agreement, by notice to the Seller,
at any time at or prior to the Closing Date:

 

(i) if the Underwriting Agreement is terminated by the Underwriters pursuant to
the terms of the Underwriting Agreement or if there has been, since the time of
execution of this Purchase Agreement or since the respective dates as of which
information is given in the Prospectus, any material adverse change in the
financial condition, earnings, business affairs or business prospects of the
Seller, whether or not arising in the ordinary course of business, or

 

(ii) if there has occurred any material adverse change in the financial markets
in the United States, any outbreak of hostilities or escalation thereof or other
calamity or crisis or any change or development involving a prospective change
in national or international political, financial or economic conditions, in
each case the effect of which is such as to make it, in the judgment of the
Underwriters, impracticable to market the Class A Certificates, Mezzanine
Certificates and Class B Certificates or to enforce contracts for the sale of
the Class A Certificates, Mezzanine Certificates and Class B Certificates, or

 

(iii) if trading in any securities of the Seller has been suspended or limited
by the Commission or the New York Stock Exchange, or if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the NASDAQ National
Market System has been suspended or limited, or minimum or maximum prices for
trading have been fixed, or maximum ranges for prices have been required, by any
of said exchanges or by such system or by order of the Commission, the National
Association of Securities Dealers, Inc. or any other governmental authority,

 

31

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(iv) if a banking moratorium has been declared by either federal or New York
authorities,

 

(v) either (A) a change in control of the Seller shall have occurred other than
in connection with and as a result of the issuance and sale by the Seller or
registered, publicly offered common stock; or (B) the Underwriters determine in
their sole discretion that any material adverse change has occurred in the
management of the Seller,

 

(vi) there is (A) a material breach by the Seller of any representation and
warranty contained in this Purchase Agreement or the Underwriting Agreement
other than a representation or warranty relating to particular Mortgage Loans,
and the Underwriters have reason to believe in good faith either that such
breach is not curable within two (2) days or that such breach may not have been
cured in all material respects at the expiration of two (2) days following
discovery thereof by the Seller or (B) a failure by the Seller to make any
payment payable by it under this Purchase Agreement or (C) any other failure by
the Seller to observe and perform in any material respect its material
covenants, agreements and obligations with the Company, including without
limitation those contained in this Purchase Agreement, and the Company has
reason to believe in good faith that such failure may not have been cured in all
material respects at the expiration of two (2) days following discovery thereof
by the Seller, or

 

(vii) the Seller fails to provide written notification to the Underwriters of
any change in its loan origination, acquisition or appraisal guidelines or
practices, or the Seller, without the prior consent of the Underwriters (which
shall not be unreasonably withheld), amends in any material respect its loan
origination, acquisition or appraisal guidelines or practices.

 

If this Purchase Agreement is terminated pursuant to this Section 7.01(b), such
termination shall be without liability of any party to any other party except as
provided in Section 4.02 hereof.

 

ARTICLE VIII

 

MISCELLANEOUS PROVISIONS

 

Section 8.01 Amendment.

 

This Purchase Agreement may be amended from time to time by the Seller, the
Company, the Trustee and the Custodian by written agreement signed by the
Seller, the Company, the Trustee and the Custodian.

 

Section 8.02 Governing Law.

 

This Purchase Agreement shall be governed by and construed in accordance with
the laws of the State of New York and the obligations, rights and remedies of
the parties hereunder shall be determined in accordance with such laws.

 

32

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Section 8.03 Notices.

 

All demands, notices and communications hereunder shall be in writing and shall
be deemed to have been duly given if personally delivered at or mailed by
registered mail, postage prepaid, addressed as follows:

 

(i) if to the Seller:

 

NovaStar Mortgage, Inc.

8140 Ward Parkway

Suite 300

Kansas City, Missouri 64114

Attention: Scott F. Hartman

 

or, such other address as may hereafter be furnished to the Company in writing
by the Seller.

 

(ii) if to the Company:

 

NovaStar Mortgage Funding Corporation

8140 Ward Parkway

Suite 300

Kansas City, Missouri 64114

Attention: Matt Kaltenrieder

 

or such other address as may hereafter be furnished to the Seller in writing by
the Company.

 

(iii) if to the Custodian:

 

Wachovia Bank, National Association

4527 Metropolitan Court, Suite C

Frederick, Maryland 21704

Attention: Edward Aquino

 

or such other address as may hereafter be furnished to the Seller in writing by
the Custodian.

 

(iv) if to the Trustee:

 

JPMorgan Chase Bank

4 New York Plaza, 6th Floor

New York, NY 10004-2477

Attention: Institutional Trust Services (NovaStar Mortgage Funding Trust, Series
2004-1)

 

or such other address as may hereafter be furnished to the Seller in writing by
the Trustee.

 

33

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Section 8.04 Severability of Provisions.

 

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

 

Section 8.05 Relationship of Parties.

 

Nothing herein contained shall be deemed or construed to create a partnership or
joint venture between the parties hereto, and the services of the Seller shall
be rendered as an independent contractor and not as agent for the Company.

 

Section 8.06 Counterparts.

 

This Purchase Agreement may be executed in two 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 and such counterparts together shall
constitute one and the same agreement.

 

Section 8.07 Further Agreements.

 

The Company and the Seller each agree to execute and deliver to the other such
additional documents, instruments or agreements as may be necessary or
appropriate to effectuate the purposes of this Purchase Agreement. Each of the
Company and the Seller agrees to use its best reasonable efforts to take all
actions necessary to be taken by it to cause the Class A-1A Certificates to be
rated “Aaa” by Moody’s and “AAA” by S&P, the Class A-1B Certificates to be rated
“Aaa by Moody’s and “AAA” by S&P, the Class A-2 Certificates to be rated “Aaa”
by Moody’s and “AAA” by S&P, the Class A-3A Certificates to be rated “Aaa” by
Moody’s and “AAA” by S&P, the Class A-3B Certificates to be rated “Aaa” by
Moody’s and “AAA” by S&P, the Class A-3 Certificates to be rated “Aaa” by
Moody’s and “AAA” by S&P, the Class M-1 Certificates to be rated “Aa1” by
Moody’s and “AA+” by S&P, the Class M-2 Certificates to be rated “Aa2” by
Moody’s and “AA” by S&P, the Class M-3 Certificates to be rated “Aa3” by Moody’s
and “AA-” by S&P, the Class M-4 Certificates to be rated “A+” by Moody’s and
“A1” by S&P, the Class M-5 Certificates to be rated “A+” by Moody’s and “A2” by
S&P, the Class M-6 Certificates to be rated “A” by Moody’s and “A3” by S&P, the
Class B-1 Certificates to be rated “Baa1” by Moody’s and “A-1” by S&P, the Class
B-2 Certificates to be rated “Baa2” by Moody’s and “BBB” by S&P, the Class B-3
Certificates to be rated “Baa3” by Moody’s and “BBB-” by S&P and the Class P
Certificates to be rated “AAA” by S&P, and each party will cooperate with the
other in connection therewith.

 

Section 8.08 Intention of the Parties.

 

It is the intention of the parties that (i) the Company is purchasing on the
Closing Date, and the Seller is selling on the Closing Date, the Closing Date
Mortgage Loans, rather than the Company providing to the Seller a loan secured
by the Closing Date Mortgage Loans on the Closing Date, and (ii) the Trustee is
purchasing on the Closing Date, and the Company is selling

 

34

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on the Closing Date, the Closing Date Mortgage Loans, rather than the Trustee
providing to the Company a loan secured by the Closing Date Mortgage Loans,
(iii) the Company will be purchasing on each Subsequent Transfer Date, and the
Seller will be selling on each Subsequent Transfer Date, the related Subsequent
Mortgage Loans, rather than the Company providing to the Seller a loan secured
by the related Subsequent Mortgage Loans on each Subsequent Transfer Date, and
(iv) the Trustee will be purchasing on each Subsequent Transfer Date, and the
Company will be selling on each Subsequent Transfer Date, the related Subsequent
Mortgage Loans, rather than the Trustee providing to the Company a loan secured
by the related Subsequent Mortgage Loans on each Subsequent Transfer Date.
Accordingly, the parties hereto each intend to treat these transactions as (i) a
sale by the Seller, and a purchase by the Company, of the Closing Date Mortgage
Loans on the Closing Date, and (ii) a sale by the Company, and a purchase by the
Trustee, of the Closing Date Mortgage Loans on the Closing Date, (iii) a sale by
the Seller, and a purchase by the Company, of the related Subsequent Mortgage
Loans on each Subsequent Transfer Date, and (iv) a sale by the Company, and a
purchase by the Trustee, of the related Subsequent Mortgage Loans on each
Subsequent Transfer Date.

 

Section 8.09 Successors and Assigns; Assignment of Purchase Agreement.

 

This Purchase Agreement shall bind and inure to the benefit of and be
enforceable by the Seller, the Company, the Trustee, the Custodian, and their
respective successors and assigns. The obligations of the Seller under this
Purchase Agreement cannot be assigned or delegated to a third party without the
consent of the Company, which consent shall be at the Company’s discretion. The
parties hereto acknowledge that (i) the Company is acquiring the Closing Date
Mortgage Loans for the purpose of selling them to the Trustee, who will hold the
Closing Date Mortgage Loans in trust for the benefit of the Certificateholders
and (ii) the Company is acquiring the Subsequent Mortgage Loans for the purpose
of selling them to the Trustee, who will hold the Subsequent Mortgage Loans for
the benefit of the Certificateholders. As an inducement to the Company and the
Trustee to purchase the Mortgage Loans, the Seller acknowledges and consents to
(i) the assignment by the Company to the Trustee of all of the Company’s rights
or remedies against the Seller pursuant to this Purchase Agreement and to (ii)
the enforcement or exercise of any rights against the Seller pursuant to this
Purchase Agreement by the Company and the Trustee. Such enforcement of a right
or remedy by the Trustee, shall have the same force and effect as if the right
or remedy had been enforced or exercised by the Company directly.

 

Section 8.10 Survival.

 

The representations and warranties made herein by the Seller and the provisions
of Article V hereof shall survive the purchase of the Mortgage Loans hereunder.

 

Section 8.11 Liability of the Trustee.

 

The Trustee is entering into the Basic Documents to which it is a party solely
as Trustee, hereunder and thereunder, and not in its individual capacity, and
all persons having any claim against the Trustee by reason of the transactions
contemplated by this Agreement or any other Basic Document shall look only to
the Trust Fund for payment or satisfaction thereof.

 

35

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IN WITNESS WHEREOF, the Seller, the Company, the Custodian and the Trustee have
caused their names to be signed to this Mortgage Loan Purchase Agreement by
their respective officers thereunto duly authorized as of the day and year first
above written.

 

NOVASTAR MORTGAGE, INC.

as Seller

By:   /s/    Matt Kaltenrieder            

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

Name:

  Matt Kaltenrieder

Title:

  Vice President

 

NOVASTAR MORTGAGE FUNDING CORPORATION

as Company

By:   /s/    Matt Kaltenrieder            

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

Name:

  Matt Kaltenrieder

Title:

  Vice President

 

WACHOVIA BANK, NATIONAL ASSOCIATION as Custodian By:   /s    Edwin
Aquino            

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

Name:

  Edwin Aquino

Title:

  Vice President

 

JPMORGAN CHASE BANK,

not in its individual capacity,

but solely as Trustee

By:   /s/    Michael A. Smith            

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

Name:

  Michael A. Smith

Title:

  Vice President

 

[Signature Page to Mortgage Loan Purchase Agreement]

 

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

EXHIBIT 1

 

CLOSING DATE MORTGAGE LOAN SCHEDULE

 

[Provided to the Trustee at the Closing]

 

2

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

EXHIBIT 2(A)

 

SELLER’S SUBSEQUENT TRANSFER INSTRUMENT

 

Pursuant to this Seller’s Subsequent Transfer Instrument (the “Seller’s
Instrument”), dated as of March 1, 2004, between NovaStar Mortgage, Inc. as
seller (the “Seller”), and NovaStar Mortgage Funding Corporation, as company
(the “Company”), and pursuant to the Mortgage Loan Purchase Agreement, dated as
of March 1, 2004 (the “Purchase Agreement”), among the Seller, the Company,
Wachovia Bank, National Association, as Custodian (the “Custodian”) and JPMorgan
Chase Bank, as Trustee (the “Trustee”), the Seller and the Company agree to the
sale by the Seller and the purchase by the Company of the subsequent Mortgage
Loans listed on the attached Mortgage Loan Schedule (the “Subsequent Mortgage
Loans”) and the related MI Policies.

 

Capitalized terms used and not defined herein have their respective meanings as
set forth in the definitions contained in the Pooling and Servicing Agreement,
dated as of March 1, 2004 (the “Pooling and Servicing Agreement”), between the
Trustee, the Custodian, the Company and the Seller/Servicer which definitions
are incorporated by reference herein. All other capitalized terms used herein
shall have the meanings specified herein.

 

Section 1. Conveyance of Subsequent Mortgage Loans.

 

(a) The Seller does hereby sell, transfer, assign, set over and convey to the
Company, without recourse, all of its right, title and interest in and to the
Subsequent Mortgage Loans and the related MI Policies, all scheduled payments of
principal and interest on the Subsequent Mortgage Loans due after the Subsequent
Cut-off Date, and all other payments of principal and interest on the Subsequent
Mortgage Loans collected after the Subsequent Cut-off Date (minus that portion
of any such payment which is allocable to the period prior to the Subsequent
Cut-off Date); provided, however, that no scheduled payments of principal and
interest due on or before the Subsequent Cut-off Date and collected after the
Subsequent Cut-off Date shall belong to the Company pursuant to the terms of
this Seller’s Instrument. The Seller, contemporaneously with the delivery of
this Seller’s Instrument, has delivered or caused to be delivered to the
Custodian, at the direction of the Company, each item set forth in Section
2.02(b) of the Purchase Agreement with respect to such Subsequent Mortgage Loans
and the related MI Policies. The transfer to the Company by the Seller of the
Subsequent Mortgage Loans identified on the attached Mortgage Loan Schedule
shall be absolute and is intended by the Seller, the Company, the Custodian, the
Trustee and the Certificateholders to constitute and to be treated as a sale by
the Seller.

 

The parties hereto intend that the transactions set forth herein constitute a
sale by the Seller to the Company on the Subsequent Transfer Date of all the
Seller’s right, title and interest in and to the Subsequent Mortgage Loans and
the related MI Policies, and other property as and to the extent described
above. In the event the transactions set forth herein shall be deemed not to be
a sale, the Seller hereby grants to the Company as of the Subsequent Transfer
Date a security interest in all of the Seller’s right, title and interest in, to
and under the Subsequent Mortgage Loans, and such other property, to secure all
of the Seller’s obligations hereunder, and this Purchase Agreement shall
constitute a security agreement under applicable

 

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

law, and in such event, the parties hereto acknowledge that the Custodian, in
addition to holding the Subsequent Mortgage Loans and the related MI Policies on
behalf of the Trustee for the benefit of the Certificateholders, holds the
Subsequent Mortgage Loans and the related MI Policies as designee and agent of
the Company. The Seller agrees to take or cause to be taken such actions and to
execute such documents, including without limitation the filing of all necessary
UCC-1 financing statements filed in the State of Maryland (which shall be
submitted for filing as of the Subsequent Transfer Date), any continuation
statements with respect thereto and any amendments thereto required to reflect a
change in the name or corporate structure of the Seller or the filing of any
additional UCC-1 financing statements due to the change in the state of
incorporation of the Seller as are necessary to perfect and protect the
interests of the Company and its assignees in each Subsequent Mortgage Loan, the
related MI Policies and the proceeds thereof.

 

(b) The expenses and costs relating to the delivery of the Subsequent Mortgage
Loans, this Seller’s Instrument and such other items required under the Mortgage
Loan Purchase Agreement shall be borne by the Seller.

 

(c) Additional terms of the sale are set forth on Attachment A hereto.

 

Section 2. Representations and Warranties; Conditions Precedent.

 

(a) The Seller hereby affirms the representations and warranties set forth in
Section 3.01 of the Purchase Agreement that relate to the Seller and the
Subsequent Mortgage Loans as of the date hereof. The Seller hereby confirms that
each of the conditions set forth in Section 2.02(b) of the Purchase Agreement
are satisfied as of the date hereof and further represents and warrants that
each Subsequent Mortgage Loan complies with the requirements of this Seller’s
Instrument and Section 2.02(c) of the Purchase Agreement.

 

(b) The Seller is solvent, is able to pay its debts as they become due and has
capital sufficient to carry on its business and its obligations hereunder; it
will not be rendered insolvent by the execution and delivery of this Seller’s
Instrument or by the performance of its obligations hereunder nor is it aware of
any pending insolvency; no petition of bankruptcy (or similar insolvency
proceeding) has been filed by or against the Seller prior to the date hereof;

 

(c) All terms and conditions of the Purchase Agreement are hereby ratified and
confirmed; provided, however, that in the event of any conflict the provisions
of this Seller’s Instrument shall control over the conflicting provisions of the
Purchase Agreement.

 

Section 3. Recordation of the Seller’s Instrument.

 

To the extent permitted by applicable law, this Seller’s Instrument, 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 situated, and in any other appropriate public
recording office or elsewhere, such recordation to be effected by the Servicer,
but only when accompanied by an Opinion of Counsel to the effect that such
recordation materially and beneficially affects the interests of the
Certificateholders or is necessary for the administration or servicing of the
Mortgage Loans.

 

2

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

Section 4. Governing Law.

 

This Seller’s Instrument shall be construed in accordance with the laws of the
State of New York and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with such laws, without giving
effect to principles of conflicts of law.

 

Section 5. Counterparts.

 

This Seller’s Instrument 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 instrument.

 

Section 6. Successors and Assigns.

 

This Seller’s Instrument shall inure to the benefit of and be binding upon the
Seller and the Company and their respective successors and assigns. The
Custodian and the Trustee shall be express third party beneficiaries hereto.

 

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Seller’s
Instrument as of the day and year first written above.

 

NOVASTAR MORTGAGE, INC.,

as Seller

By:        

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

Name:

   

Title:

   

 

NOVASTAR MORTGAGE FUNDING

CORPORATION,

as Company

By:        

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

Name:

   

Title:

   

 

3

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

NOVASTAR HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 2004-1

 

ATTACHMENT A TO SELLER’S SUBSEQUENT TRANSFER INSTRUMENT

 

                     , 2004

 

A. Profile of Subsequent Mortgage Loans:

 

1. Subsequent Cut-off Date:                      , 2004

 

2. Subsequent Transfer Date:                      , 2004

 

3. Aggregate Principal Balance of the Subsequent Mortgage Loans as of the
Subsequent Cut-off Date: $                    

 

4. Purchase Price: 100.00%

 

B. As to all the Subsequent Mortgage Loans the subject of this Instrument:

 

I.  

Longest stated term to maturity:

   360 months     II.  

Minimum Mortgage Rate:

   ____%     III.  

Maximum Mortgage Rate:

   ____%     IV.  

WAC of all Mortgage Loans:

   ____%     V.  

WAM of all Mortgage Loans:

   ____%     VI.  

Largest Principal Balance:

   $___     VII.  

Non-owner occupied Mortgaged Properties:

   ____%     VIII.  

California zip code concentration:

   ____%     IX.  

Condominiums:

   ____%     X.  

Single-family:

   ____%     XI.  

Weighted average term since origination:

   ____ month     XII.  

Mortgage Loans Covered by MI Policies:

   ____%    

 

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

EXHIBIT 2(B)

 

COMPANY’S SUBSEQUENT TRANSFER INSTRUMENT

 

Pursuant to this Company’s Subsequent Transfer Instrument (the “Company’s
Instrument”), dated as of                      , 2004, between NovaStar Mortgage
Funding Corporation, as company (the “Company”), and JPMorgan Chase Bank, as
trustee (the “Trustee”), and pursuant to the Mortgage Loan Purchase Agreement,
dated as of March 1, 2004 (the “Purchase Agreement”), among NovaStar Mortgage,
Inc., as seller (the “Seller”), the Company, Wachovia Bank, National
Association, as Custodian (“Custodian”), and JPMorgan Chase Bank, as Trustee
(the “Trustee”), the Company and the Trustee agree to the sale by the Company
and the purchase by the Trustee of the subsequent Mortgage Loans listed on the
attached Mortgage Loan Schedule (the “Subsequent Mortgage Loans”) and the
related MI Policies, and the pledge of the Subsequent Mortgage Loans by the
Trustee.

 

Capitalized terms used and not defined herein have their respective meanings as
set forth in the definitions contained in the Pooling and Servicing Agreement,
dated as of March 1, 2004 (the “Pooling and Servicing Agreement”), between the
Custodian, the Trustee, the Company and the Servicer which definitions are
incorporated by reference herein. All other capitalized terms used herein shall
have the meanings specified herein.

 

Section 1. Conveyance of Subsequent Mortgage Loans.

 

(a) The Company does hereby sell, transfer, assign, set over and convey to the
Trustee, without recourse, (i) all of its right, title and interest in and to
the Subsequent Mortgage Loans and the related MI Policies, all scheduled
payments of principal and interest on the Subsequent Mortgage Loans due after
the Subsequent Cut-off Date, and all other payments of principal and interest on
the Subsequent Mortgage Loans collected after the Subsequent Cut-off Date (minus
that portion of any such payment which is allocable to the period prior to the
Subsequent Cut-off Date); provided, however, that no scheduled payments of
principal and interest due on or before the Subsequent Cut-off Date and
collected after the Subsequent Cut-off Date shall belong to the Trustee pursuant
to the terms of this Company’s Instrument and (ii) all of its right, title and
interest in and to the Seller’s Subsequent Transfer Instrument, dated as of
                     , 2003 (the “Seller’s Instrument”), between the Seller and
the Company. The Company, contemporaneously with the delivery of this Company’s
Instrument, has delivered or caused to be delivered to the Custodian each item
set forth in Section 2.02(b) of the Purchase Agreement with respect to such
Subsequent Mortgage Loans. The transfer to the Trustee by the Company of the
Subsequent Mortgage Loans identified on the attached Mortgage Loan Schedule and
the related MI Policies shall be absolute and is intended by the Company, the
Trustee, the Custodian and the Certificateholders to constitute and to be
treated as a sale by the Company.

 

The parties hereto intend that the transactions set forth herein constitute a
sale by the Company to the Trustee on the Subsequent Transfer Date of all the
Company’s right, title and interest in and to the Subsequent Mortgage Loans and
the related MI Policies, and other property as and to the extent described
above. In the event the transactions set forth herein shall be deemed not to be
a sale, the Company hereby grants to the Trustee as of the Subsequent Transfer
Date a security interest in all of the Company’s right, title and interest in,
to and under the

 

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

Subsequent Mortgage Loans, and such other property, to secure all of the
Company’s obligations hereunder, and this Company’s Instrument shall constitute
a security agreement under applicable law, and in such event, the parties hereto
acknowledge that the Custodian on behalf of the Trustee, in addition to holding
the Subsequent Mortgage Loans and the related MI Policies for the benefit of the
Certificateholders, holds the Subsequent Mortgage Loans and the related MI
Policies as designee and agent of the Trustee. The Company agrees to take or
cause to be taken such actions and to execute such documents, including without
limitation the filing of all necessary UCC-1 financing statements filed in the
State of Delaware (which shall be submitted for filing as of the Subsequent
Transfer Date), any continuation statements with respect thereto and any
amendments thereto required to reflect a change in the name or corporate
structure of the Company or the filing of any additional UCC-1 financing
statements due to the change in the state of incorporation of the Company as are
necessary to perfect and protect the interests of the Trustee and its assignees
in each Subsequent Mortgage Loan, the related MI Policies and the proceeds
thereof.

 

(b) The expenses and costs relating to the delivery of the Subsequent Mortgage
Loans, this Company’s Instrument and such other items required under the
Purchase Agreement shall be borne by the Company.

 

Section 2. Representations and Warranties; Conditions Precedent.

 

(a) The Company hereby affirms the representations and warranties set forth in
Section 3.02 of the Purchase Agreement that relate to the Company as of the date
hereof.

 

(b) The Company is solvent, is able to pay its debts as they become due and has
capital sufficient to carry on its business and its obligations hereunder; it
will not be rendered insolvent by the execution and delivery of this Company’s
Instrument or by the performance of its obligations hereunder nor is it aware of
any pending insolvency; no petition of bankruptcy (or similar insolvency
proceeding) has been filed by or against the Company prior to the date hereof;

 

(c) All terms and conditions of the Purchase Agreement are hereby ratified and
confirmed; provided, however, that in the event of any conflict the provisions
of this Company’s Instrument shall control over the conflicting provisions of
the Mortgage Loan Purchase Agreement.

 

Section 3. Recordation of Instrument.

 

To the extent permitted by applicable law, this Company’s Instrument, 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 situated, and in any other appropriate public
recording office or elsewhere, such recordation to be effected by the Servicer,
but only when accompanied by an Opinion of Counsel to the effect that such
recordation materially and beneficially affects the interests of the
Certificateholders or is necessary for the administration or servicing of the
Mortgage Loans.

 

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

Section 4. Governing Law.

 

This Company’s Instrument shall be construed in accordance with the laws of the
State of New York and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with such laws, without giving
effect to principles of conflicts of law.

 

Section 5. Counterparts.

 

This Company’s Instrument 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 instrument.

 

Section 6. Successors and Assigns.

 

This Company’s instrument shall inure to the benefit of and be binding upon the
Company, the Custodian and the Trustee and their respective successors and
assigns.

 

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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Company’s Instrument as of the day and year first written above.

 

NOVASTAR MORTGAGE FUNDING CORPORATION,

as Company

By:        

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Name:

Title:

   

 

JPMORGAN CHASE BANK, not in its individual capacity but solely as Trustee By:  
     

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Name:

Title:

   

 

WACHOVIA BANK, NATIONAL ASSOCIATION, as Custodian By:        

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Name:

Title: