Exhibit 10.1

SALE AND SERVICING AGREEMENT

dated as of April 1, 2006

by and among

NOVASTAR CERTIFICATES FINANCING CORPORATION

as Depositor,

NOVASTAR MORTGAGE INC.,

as Sponsor and Servicer,

NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2006-1,

as Issuing Entity,

JPMORGAN CHASE BANK, NATIONAL ASSOCIATION,

as Indenture Trustee

U.S. BANK NATIONAL ASSOCIATION,

as Custodian

J.P. MORGAN TRUST COMPANY, NATIONAL ASSOCIATION

as Co-Trustee

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TABLE OF CONTENTS

 

           Page    ARTICLE I       DEFINITIONS   

Section 1.01.

  

Certain Defined Terms

   1

Section 1.02.

  

Provisions of General Application

   1    ARTICLE II       SALE AND CONVEYANCE OF THE MORTGAGE LOANS   

Section 2.01.

  

Purchase and Sale of Mortgage Loans; Deposit of Derivatives

   2

Section 2.02.

  

Reserved

   3

Section 2.03.

  

Purchase Price

   3

Section 2.04.

  

Possession of Mortgage Files; Access to Mortgage Files

   3

Section 2.05.

  

Delivery of Mortgage Loan Documents

   4

Section 2.06.

  

Acceptance of the Trust Estate; Certain Substitutions; Certification by the
Custodian, on behalf of the Indenture Trustee

   6

Section 2.07.

  

Grant of Security Interest

   7

Section 2.08.

  

Further Action Evidencing Assignments

   8    ARTICLE III       REPRESENTATIONS, WARRANTIES AND COVENANTS   

Section 3.01.

  

Representations, Warranties and Covenants of the Servicer

   9

Section 3.02.

  

Representations, Warranties and Covenants of the Sponsor

   10

Section 3.03.

  

[Reserved]

   12

Section 3.04.

  

Representations, Warranties and Covenants of the Indenture Trustee

   12

Section 3.05.

  

Representations and Warranties of the Depositor

   12    ARTICLE IV       THE MORTGAGE LOANS   

Section 4.01.

  

Representations and Warranties Concerning the Mortgage Loans

   14    ARTICLE V       ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS   

Section 5.01.

  

Servicer to Assure Servicing

   30

Section 5.02.

  

Subservicing Agreements Between Servicer and Subservicers

   31

Section 5.03.

  

Successor Subservicers

   32

Section 5.04.

  

Liability of the Servicer

   32

Section 5.05.

  

Assumption or Termination of Subservicing Agreements by the Indenture Trustee

   33

Section 5.06.

  

Collection of Mortgage Loan Payments

   34

Section 5.07.

  

Withdrawals from the Collection Account

   36

 

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Section 5.08.

  

Collection of Taxes, Assessments and Similar Items; Servicing Accounts

   38

Section 5.09.

  

Access to Certain Documentation and Information Regarding the Mortgage Loans

   38

Section 5.10.

  

[Reserved]

   39

Section 5.11.

  

Maintenance of Hazard Insurance and Fidelity Coverage

   39

Section 5.12.

  

Due-on-Sale Clauses; Assumption Agreements

   41

Section 5.13.

  

Realization Upon Defaulted Mortgage Loans

   41

Section 5.14.

  

Custodian to Cooperate; Release of Mortgage Files

   43

Section 5.15.

  

Servicing Compensation

   44

Section 5.16.

  

Annual Statements of Compliance

   44

Section 5.17.

  

Assessments of Compliance and Attestation Reports

   45

Section 5.18.

  

Reports Filed with Securities and Exchange Commission

   46

Section 5.19.

  

Optional Purchase of Defaulted Mortgage Loans

   51

Section 5.20.

  

Information Required by the Internal Revenue Service Generally and Reports of
Foreclosures and Abandonments of Mortgaged Property

   51

Section 5.21.

  

Optional Purchase of Mortgage Loans

   52

Section 5.22.

  

[Reserved]

   52

Section 5.23.

  

Servicing and Administration of the MI Policies

   52

Section 5.24.

  

Determination Date Reports

   53

Section 5.25.

  

Advances

   54

Section 5.26.

  

Compensating Interest Payments

   54

Section 5.27.

  

Advance Facility

   54

Section 5.28.

  

Servicer Rights Facility

   57    ARTICLE VI       APPLICATION OF FUNDS   

Section 6.01.

  

Deposits to the Payment Account

   57

Section 6.02.

  

Collection of Money

   57

Section 6.03.

  

Application of Principal and Interest

   57    ARTICLE VII       THE SERVICER AND THE DEPOSITOR   

Section 7.01.

  

Liability of the Servicer and the Depositor

   58

Section 7.02.

  

Merger or Consolidation of, or Assumption of the Obligations of, the Servicer or
the Depositor

   58

Section 7.03.

  

Limitation on Liability of the Servicer and Others

   58

Section 7.04.

  

Servicer Not to Resign

   59

Section 7.05.

  

Delegation of Duties

   59

Section 7.06.

  

Servicer to Pay Trustee’s Fees and Expenses; Indemnification

   59    ARTICLE VIII       DEFAULT   

Section 8.01.

  

Servicing Default

   61

 

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Section 8.02.

  

Indenture Trustee to Act: Appointment of Successor

   62

Section 8.03.

  

Waiver of Defaults

   64    ARTICLE IX       TERMINATION   

Section 9.01.

  

Termination

   64

Section 9.02.

  

Accounting Upon Termination of Servicer

   65    ARTICLE X       [RESERVED]       ARTICLE XI       MISCELLANEOUS
PROVISIONS   

Section 11.01.

  

Limitation on Liability

   66

Section 11.02.

  

Acts of Noteholders

   66

Section 11.03.

  

Amendment

   67

Section 11.04.

  

Recordation of Agreement

   68

Section 11.05.

  

Duration of Agreement

   68

Section 11.06.

  

Notices

   68

Section 11.07.

  

Severability of Provisions

   69

Section 11.08.

  

No Partnership

   69

Section 11.09.

  

Counterparts

   69

Section 11.10.

  

Successors and Assigns

   69

Section 11.11.

  

Headings

   69

Section 11.12.

  

No Petition

   69

Section 11.13.

  

Third Party Beneficiary

   70

Section 11.14.

  

Intent of the Parties

   70

Section 11.15.

  

Compliance With Regulation AB

   70

Section 11.16.

  

Governing Law; Consent to Jurisdiction Waiver of Jury Trial

   70

Schedule I

  

Mortgage Loan Schedule

  

Appendix I

  

Defined Terms

  

 

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EXHIBITS

 

Exhibit A

  

Reserved

Exhibit B

  

Mortgage Loan Schedule

Exhibit C

  

Custodian’s Acknowledgement of Receipt

Exhibit D

  

Initial Certification of Custodian

Exhibit E

  

Final Certification of Custodian

Exhibit F

  

Request for Release of Documents

Exhibit G

  

NovaStar Mortgage Inc.’s Officer’s Certificate

Exhibit H

  

Servicing Criteria to be Addressed in Assessment of Compliance

Exhibit I

  

Form 10-D, Form 8-K and Form 10-K Reporting Responsibility

Exhibit J-1

  

Form of Certification to Be Provided by the Depositor with Form 10-K

Exhibit J-2

  

Form of Certification to Be Provided to the Depositor by the Indenture Trustee

Exhibit K

  

Form of Officer’s Certificate Regarding Annual Statement of Compliance

Exhibit L

  

Form of Advance Facility Notice

Exhibit M

  

Form of Written Notice to the Indenture Trustee

 

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

W I T N E S S E T H

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

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

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

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

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

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

ARTICLE I

DEFINITIONS

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

Section 1.02. Provisions of General Application.

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

 

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

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

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

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

ARTICLE II

SALE AND CONVEYANCE OF THE MORTGAGE LOANS

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

(a) The Sponsor hereby sells, transfers, assigns, sets over and conveys, and the
Depositor hereby purchases on the Closing Date the Mortgage Loans identified
(and the related MI Policies) on the Mortgage Loan Schedule annexed hereto as
Schedule I, the proceeds thereof and all rights under the Related Documents
(including the related Mortgage Files). The 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 $1,349,999,939.78. The sale of the Mortgage Loans will take place
on the Closing Date, subject to and simultaneously with the deposit of the
Mortgage Loans into the Trust Estate, the authentication of the Notes by the
Indenture Trustee and the sale of the Notes pursuant to the Underwriting
Agreement.

(b) The Sponsor hereby directs the Depositor to sell, transfer, assign, set over
and convey, and the Depositor does hereby sell, transfer, assign, set over and
convey to the Issuing Entity, in each case without recourse, but subject to the
terms and provisions of this Agreement, all of the right, title and interest of
the Depositor in and to the Mortgage Loans, including the Cut-Off Date Principal
Balance of, and interest due on, such Mortgage Loans listed

 

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on Schedule I attached hereto, and all other assets included or to be included
in the Trust Estate (other than the Hedge Agreements, which are being entered
into directly by the Issuing Entity).

(c) The Depositor may cause the deposit of derivatives solely for the benefit of
the Certificates at any time into the NovaStar Mortgage Funding Trust, Series
2006-1 and any such deposited derivatives shall become part of the Trust Estate.

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

Section 2.02. Reserved.

Section 2.03. Purchase Price. On the Closing Date, as full consideration for the
Depositor’s sale of the Mortgage Loans to the Issuing Entity, the Underwriters,
on behalf of the Issuing Entity, will deliver to, or at the direction of, the
Depositor an amount in cash equal to $1,318,150,098. Additionally, the Depositor
will receive the Certificates issued by the Issuing Entity pursuant to the Trust
Agreement. Novastar Certificates Financing LLC, an affiliate of the Sponsor,
will receive the Class M-9 Notes, the Class M-10 Notes and the Class M-11 Notes.

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

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

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

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

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

 

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Section 2.05, an original recorded Assignment of Mortgage to the Custodian, on
behalf of the Indenture Trustee and any required intervening Assignments of
Mortgage or a copy thereof certified to be a true and correct copy by the public
recording office in possession of such Assignment of Mortgage.

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

(i) the original Mortgage Note endorsed to “JPMorgan Chase Bank, National
Association, as Indenture Trustee for the NovaStar Home Equity Loan Asset-Backed
Notes, Series 2006-1,” including all intervening endorsements showing a complete
chain of endorsement;

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

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

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

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

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

 

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

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

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

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

In connection with the assignment of any Mortgage Loan registered on the MERS
System, promptly after the Closing Date in the case of an Mortgage Loan (or
after the date of transfer of any Qualified Substitute Mortgage Loan), the
Sponsor further agrees that it will cause, at the Sponsor’s own expense, the
MERS System to indicate that such Mortgage Loan has been assigned by the Sponsor
to the Indenture Trustee in accordance with this Agreement for the benefit of
the Noteholders by including (or deleting, in the case of Mortgage Loans which
are repurchased in accordance with this Agreement) in its computer files (a) the
applicable Trustee code in the field “Trustee” which identifies the Indenture
Trustee and (b) the code “NovaStar 2006-1” (or its equivalent) in the field
“Pool Field” which identifies the series of the Notes issued in connection with
such Mortgage Loans. The Sponsor further agrees that it will not, and

 

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will not permit the Servicer to, and the Servicer agrees that it will not, alter
the codes referenced in this paragraph with respect to any such Mortgage Loan
during the term of this Agreement unless and until such Mortgage Loan is
repurchased in accordance with the terms of this Agreement.

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

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

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

 

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

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

Section 2.07. Grant of Security Interest. (a) It is intended that the conveyance
of the Mortgage Loans and other property by the Depositor to the Issuing Entity
as provided in this Article II be, and be construed for all purposes other than
tax and accounting purposes as, a sale of the Mortgage Loans and such other
property by the Depositor to the Issuing Entity. It is, for all purposes other
than tax and accounting purposes further, not intended that such conveyance be
deemed a pledge of the Mortgage Loans or such other property by the Depositor to
the Issuing Entity to secure a debt or other obligation of the Depositor.
However, in the event that the Mortgage Loans or any of such other property are
held to be property of the Depositor, or if for any reason this Agreement is
held or deemed to create a security interest in the Mortgage Loans or any of
such other property, then it is intended that: (i) this Agreement shall also be
deemed to be a security agreement within the meaning of the Uniform Commercial
Code; (ii) the conveyance provided for in this Article II shall be deemed to be
a grant by the Depositor to the Issuing Entity of a security interest in all of
the Depositor’s right, title and interest in and to the Mortgage Loans and such
other property and all amounts payable to the holders of the Mortgage Loans in
accordance with the terms thereof and all proceeds of the conversion, voluntary
or involuntary, of the foregoing into cash, instruments, securities or other
property, including, without limitation, all amounts from time to time held or
invested in the Accounts whether in the form of cash, instruments, securities or
other property; (iii) the possession by the Custodian on behalf of the Indenture
Trustee, of the Mortgage Notes and such other items of property as constitute
instruments, money, negotiable documents or chattel paper shall be deemed to be

 

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“possession by the secured party” for purposes of perfecting the security
interest pursuant to the Uniform Commercial Code; and (iv) notifications to
persons holding such property, and acknowledgments, receipts or confirmations
from persons holding such property, shall be deemed notifications to, or
acknowledgments, receipts or confirmations from financial intermediaries,
bailees or agents, as applicable, of the Indenture Trustee for the purpose of
perfecting such security interest under applicable law. The Depositor, the
Sponsor, the Servicer, on behalf of the Issuing Entity and the Indenture
Trustee, shall, to the extent consistent with this Agreement, take such actions
as may be reasonably necessary to ensure that, if this Agreement were deemed to
create a security interest in the Mortgage Loans or any of such other property,
such security interest would be deemed to be a perfected security interest of
first priority under applicable law and will be maintained as such throughout
the term of this Agreement.

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

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

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

 

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ARTICLE III

REPRESENTATIONS, WARRANTIES AND COVENANTS

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

(iv) The execution and delivery of this Agreement and and the performance of the
transactions contemplated hereby by the Sponsor will not violate

 

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any provision of any existing law or regulation or any order or decree of any
court applicable to the Sponsor or any provision of the certificate of
incorporation or bylaws of the Sponsor, or constitute a material breach of any
mortgage, indenture, contract or other agreement to which the Sponsor is a party
or by which the Sponsor may be bound;

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

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

(vii) This Agreement constitutes a valid transfer and assignment to the
Depositor of all right, title and interest of the Sponsor in and to the Cut-off
Date Principal Balance of the Mortgage Loans, all monies due or to become due
with respect thereto, and all proceeds of such Cut-off Date Principal Balance of
the Mortgage Loans;

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

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

(x) The Servicer or any Subservicer who will be servicing any Mortgage Loan
pursuant to the Sale 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.

 

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Section 3.03. [Reserved.]

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

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

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

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

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

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

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

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

(b) The Depositor is duly qualified to do business as a foreign corporation in
good standing and has obtained all necessary licenses and approvals in all
jurisdictions in which

 

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the ownership or lease of its property or the conduct of its business shall
require such qualifications and in which the failure to so qualify would have a
material adverse effect on the business, properties, assets or condition
(financial or other) of the Depositor and the ability of the Depositor to
perform under this Agreement.

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

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

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

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

 

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ARTICLE IV

THE MORTGAGE LOANS

Section 4.01. Representations and Warranties Concerning the Mortgage Loans.

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

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

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

(iii) No more than 6.57% and 8.18% of the Mortgage Loans in Group I and the
Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance)
were secured by condominium units; and no more than 13.83% and 23.65% of the
Mortgage Loans in Group I and the Mortgage Loans in Group II, respectively, (by
Cut-off Date Principal Balance) were secured by properties in planned unit
developments;

(iv) As of the Cut-off Date, the remaining term of each Group I Mortgage Loan is
not more than 360 months and not less than 117 months and the remaining term of
each Group II Mortgage Loan is not more than 360 months and not less than 166
months;

(v) No more than 81.36% and 24.41% of the Mortgage Loans in Group I and Mortgage
Loans in Group II, respectively, (by Cut-off Date Principal Balance) have been
the subject of cash-out refinances;

(vi) No more than 3.97% and 0.65% of the Mortgage Loans in Group I and Mortgage
Loans in Group II, respectively, (by Cut-off Date Principal Balance), have been
the subject of rate and term (no cash-out) refinances;

(vii) No fewer than 14.67% and 74.94% of the Mortgage Loans in Group I and
Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance)
are purchase money loans;

(viii) No more than 14.40% and 28.82% of the Mortgage Loans in Group I and
Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance)
are secured by Mortgaged Properties located in the State of California; no more
than 23.29% and 26.17% of the Mortgage Loans in Group I and Mortgage Loans

 

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in Group II, respectively, (by Cut-off Date Principal Balance) are secured by
Mortgaged Properties located in the State of Florida; no more than 7.53% and
4.95% of the Mortgage Loans in Group I and Mortgage Loans in Group II (by
Cut-off Date Principal Balance) are secured by Mortgaged Properties located in
the State of Maryland; no more than 4.12% and 4.78% of the Mortgage Loans in
Group I and Mortgage Loans in Group II, respectively, (by Cut-off Date Principal
Balance) are located in any other state;

(ix) The outstanding Principal Balances of the Mortgage Loans in Group I (by
Cut-off Date Principal Balance) ranged from $10,688 to $573,915, the average
outstanding Principal Balance of the Mortgage Loans in Group I is approximately
$158,364; the outstanding Principal Balances of the Mortgage Loans in Group II
(by Cut-off Date Principal Balance) ranged from $13,185 to $1,140,000, the
average outstanding Principal Balance of the Mortgage Loans in Group II is
approximately $201,368;

(x) Approximately 73.74% and 63.81% of the Mortgage Loans in Group I and
Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance)
were secured by a lien on a parcel of real property improved by a detached
single family residence; no more than 5.86% and 4.36% of the Mortgage Loans in
Group I and Mortgage Loans in Group II, respectively, (by Cut-off Date Principal
Balance) were secured by a lien on a parcel of real estate improved by a
multi-unit residence;

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

(xii) The Mortgage Rates borne by the adjustable rate Mortgage Loans in Group I
as of the Closing Date range from 5.400% per annum to 13.100% per annum, and the
weighted average Mortgage Rate (by Cut-off Date Principal Balance) of the
adjustable rate Mortgage Loans in Group I was 8.633% per annum; the Mortgage
Rates borne by fixed rate Mortgage Loans in Group I as of the Closing Date range
from 6.500% per annum to 13.000% per annum, and the weighted average Mortgage
Rate (by Cut-off Date Principal Balance) of the fixed rate Mortgage Loans in
Group I was 8.507% per annum; the Mortgage Rates borne by adjustable rate
Mortgage Loans in Group II as of the Closing Date range from 5.625% per annum to
12.990% per annum, and the weighted average Mortgage Rate (by Cut-off Date
Principal Balance) of the adjustable rate Mortgage Loans in Group II was
8.474% per annum; the Mortgage Rates borne by fixed rate Mortgage Loans in Group
II as of the Closing Date range from 6.650% per annum to 13.000% per annum, and
the weighted average Mortgage Rate (by Cut-off Date Principal Balance) of the
fixed rate Mortgage Loans in Group II was 10.198% per annum;

(xiii) Approximately 43.85% and 42.93% of the Mortgage Loans in Group I and the
Mortgage Loans in Group II, respectively, (by Cut-off Date Principal

 

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Balance) have a Loan-to-Value Ratio in excess of 80%; no Group I Mortgage Loan
or Group II 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 Mortgage
Loans in Group I and the Mortgage Loans in Group II was equal to or less than
78.78% and 84.26%, respectively (by Cut-off Date Principal Balance);

(xiv) Approximately 98.68% and 91.77% of the Mortgage Loans in Group I and the
Mortgage Loans in Group II, respectively (by Cut-off Date Principal Balance),
are secured by first liens on the related Mortgaged Property; and approximately
1.32% and 8.23% (by Cut-off Date Principal Balance) of the Mortgage Loans in
Group I and the Mortgage Loans in Group II are secured by second liens on the
related Mortgaged Property;

(xv) As of the Cut-off Date, the weighted average Loan-to-Value Ratio of the
Mortgage Loans secured by first liens in Group I is approximately 78.51%; the
weighted average combined Loan-to-Value Ratio of the Mortgage Loans secured by
first and second liens in Group I is approximately 78.78%; the weighted average
Loan-to-Value Ratio of the Mortgage Loans secured by first liens in Group II is
approximately 82.89%; the weighted average combined Loan-to-Value Ratio of the
Mortgage Loans secured by first and second liens in Group II is approximately
84.26%; the weighted average combined Loan-to-Value Ratio of all of the Mortgage
Loans in Group I and Group II is approximately 80.59%; and the gross weighted
average coupon of the Mortgage Loans is approximately 8.637%;

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

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

(xviii) As of the Closing Date in the case of an Mortgage Loan, each Mortgaged
Property is free of material damage and is in good repair and there is

 

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no proceeding pending or threatened for the total or partial condemnation of any
Mortgage Property.

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

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

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

 

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(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 Sponsor and successor owners of indebtedness secured by the
insured Mortgage as to the first or second priority lien of the Mortgage as
applicable. The Sponsor is, and such successor owners will be, the sole insured
under such lender’s title insurance policy; no claims have been made under such
mortgage title insurance policy; no prior holder of the applicable Mortgage,
including the Sponsor, has done, by act or omission, anything which would impair
the coverage of such mortgage title insurance policy; and each such policy,
binder or assurance contains all applicable endorsements;

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

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

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

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

 

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(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 Noteholders to the trustee under the
deed of trust, except in connection with a trustee’s sale after default by the
Mortgagor;

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

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

(xxxi) As of the Closing Date, the improvements upon each Mortgaged Property are
covered by a valid and existing hazard insurance policy substantially acceptable
to FNMA and acceptable to the Sponsor which policy provides for fire extended
coverage and such other hazards as are customary in the area where the Mortgaged
Property is located representing coverage in an amount not less than the lesser
of (A) the maximum insurable value of the improvements securing such Mortgage
Loan and (B) the outstanding Principal Balance of the related Mortgage Loan; if
the improvement on the Mortgaged Property is a condominium unit, it is included
under the coverage afforded by a blanket policy for the condominium project. All
individual insurance policies contain a standard mortgagee clause naming the
Sponsor or the original holder of the Mortgage, and its successors in interest,
as mortgagee, and the Sponsor 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

 

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would impair the coverage of any 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 Loans referred to in clause (xlii) as being
delinquent, if any, there is no default, breach, violation or event of
acceleration existing under the Mortgage or the applicable Mortgage Note; and no
event which, with the passage of time or with notice and the expiration of any
grace or cure period, would constitute a material default, breach, violation or
event of acceleration, and neither the Sponsor, 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 in accordance with
the terms of the Mortgage Note;

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

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

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

 

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(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 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, neither the Sponsor
nor the Servicer has advanced funds, or induced, solicited or knowingly received
any advance of funds by a party other than the Mortgagor, directly or
indirectly, for the payment of any amount required by the Mortgage;

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

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

(xli) [Reserved.]

(xlii) (a) Except with respect to no more than 0.42% of the Mortgage Loans in
Group II (by Cut-off Date Principal Balance), none of the payments of principal
of or interest on or in respect of any Mortgage Loans shall be 30 days or more
but less than 60 days past due as of the Cut-off Date; and none and 0.12% of the
Mortgage Loans in Group I and the Mortgage Loans in Group II, respectively, was
60 days or more past due as of the Cut-off Date; (b) except as set forth in
clause (a) above, all payments required to be made by the Mortgagor under the
terms of the Mortgage Note have been made and credited; and (c) to the Sponsor’s
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
Depositor, pursuant to this Agreement, the Sponsor has transferred to the
Depositor in the case of a Mortgage Loan, good and marketable title to each
Mortgage Note and Mortgage free and clear of any and all liens, claims,
encumbrances, participation interests, equities, pledges, charges or security
interests of any nature and has or had full right and authority, subject to no
participation of or agreement with any other person, to sell and assign the
same, and following the sale of each Mortgage Loan, the Depositor or the
Indenture 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 Sponsor 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 Sponsor have been delivered
to the Custodian. The Custodian is in possession of a complete, true and
accurate Mortgage File in accordance with Section 2.01 hereof. Substantially all
the Mortgage Loans have monthly payments due on the first day of each month and
each Mortgage Loan had an original term to maturity of no greater than 30 years;

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

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

(xlviii) The Mortgagor has not notified the Sponsor, and the Sponsor 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 Sponsor’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 Sponsor 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 Sponsor’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 in all material respects, to the description thereof set forth in the
Prospectus and Prospectus Supplement;

(li) [Reserved]

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

(liii) Immediately prior to the transfer to the Depositor or the Issuing Entity,
as applicable, the Sponsor had good and marketable title thereto, and the
Sponsor is the sole legal, equitable owner of beneficial title to and holder of
the Mortgage Loan. The Sponsor is conveying the same to the Depositor or the
Issuing Entity, as applicable, free and clear of any and all liens, claims,
encumbrances, participation interests, equities, pledges, charges or security
interests of any nature and

 

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has full right and authority to sell and assign the same pursuant to this
Agreement, except for liens which will be released simultaneously with such
conveyance;

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

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

(lvi) Reserved;

(lvii) On the basis of a representation by the Mortgagor at the time of
origination of the Mortgage Loans, at least 89.78% and 97.45% of the Mortgage
Loans in Group I and Mortgage Loans in Group II, respectively, (by Cut-off Date
Principal Balance) will be secured by Mortgages on owner-occupied primary
residence properties;

(lviii) Approximately 4.66%, and 13.49% of the Mortgage Loans in Group I and the
Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance)
provide for a balloon payment and each Mortgage Note with respect to each such
Mortgage Loan requires monthly payments of principal based on either a 40 year
or 30 year amortization schedules and have scheduled maturity dates of 30 years
or 15 years, respectively, from the due date of the first monthly payment;

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

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

(lxi) [Reserved].

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

(lxiii) None of the Mortgage Loans are covered by the requirements of the Home
Ownership and Equity Protection Act of 1994, as amended, or any comparable state
or local law; none of the Mortgage Loans are “section 32” loans or “high cost”
loans as defined by applicable predatory and abusive lending laws;

 

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none of the Mortgage Loans (by Cut-off Date Principal Balance) require a
mortgagor to pay a Prepayment Charge if the mortgagor prepays a Mortgage Loan
more than five years after the date the Mortgage Loan was originated;

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

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

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

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

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

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

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

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

(lxxii) Approximately 59.92% of the Mortgage Loans are subject to prepayment
charges as of the Cut-off Date;

(lxxiii) [Reserved.]

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

 

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purchase single premium credit insurance policies as part of the origination of,
or as a condition to closing, such Mortgage Loan;

(lxxv) Reserved;

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

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

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

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

 

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

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

(lxxxii) None of the Mortgage Loans (by Cut-off Date Principal Balance) are
negative amortization loans;

(lxxxiii) No error, omission, negligence, misrepresentation, fraud or similar
occurrence with respect to a Mortgage Loan has taken place on the part of the
Sponsor, 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;

(lxxxiv) 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;

(lxxxv) 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;

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

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

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

 

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(lxxxix) Approximately 60.28% of the 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;

(xc) [Reserved];

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

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

(xciii) All appraisals of the Mortgage Loans by the Sponsor are full URAR/1004
appraisals;

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

(xcv) [Reserved.]

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

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

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

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

 

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

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

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

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

Upon discovery by the Sponsor or upon notice from the Depositor, the Indenture
Trustee, or the Custodian, as applicable, of a breach of any representation or
warranty in this Section 4.01 with respect to any Mortgage Loan or upon the
occurrence of a Repurchase Event, which materially and adversely affects the
value of the related Mortgage Loan or the interests of any Noteholders or of the
Depositor or the Indenture Trustee in such Mortgage Loan (notice of which shall
be given to the Depositor, the Custodian and the Indenture Trustee by the
Sponsor, if it discovers the same) the Sponsor shall, within 90 days after the
earlier of its discovery or receipt

 

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of notice thereof, either cure such breach or Repurchase Event in all material
respects or either (i) repurchase such Mortgage Loan from the Indenture Trustee
at the Repurchase Price, or (ii) substitute one or more Qualified Substitute
Mortgage Loans for such Mortgage Loan, in each case in the manner and subject to
the conditions set forth below; provided, however, that a breach of any of the
representations and warranties found in subsections (xx), (lii), (lxii),
(lxvii), (lxxiv), (lxxv), (lxxvi), (lxxvii), (lxxviii), (lxxix), (xcvii),
(xcviii), (xcix), (c), (ci) and (cii) shall be deemed to materially and
adversely affect the interest of the Noteholders. The Repurchase Price for any
such Mortgage Loan repurchased by the Sponsor shall be deposited or caused to be
deposited by the Servicer in the Collection Account maintained by it pursuant to
Section 5.06 of this Agreement.

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

Upon receipt by the Indenture Trustee of written notification, signed by a
Servicing Officer, of the deposit of such Repurchase Price or of such
substitution of an Qualified Substitute Mortgage Loan and deposit of any
applicable Substitution Adjustment Amount as provided above, the Custodian
shall, on behalf of the Indenture Trustee, cause to be released to the

 

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Sponsor the related Mortgage File for the Mortgage Loan being repurchased or
substituted for and the Indenture Trustee shall execute and deliver such
instruments of transfer or assignment prepared by the Servicer, in each case
without recourse, as shall be necessary to vest in the Sponsor or its designee
such Mortgage Loan released pursuant hereto and thereafter such Mortgage Loan
shall not be an asset of the Indenture Trustee.

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

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

ARTICLE V

ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS

Section 5.01. Servicer to Assure Servicing.

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

 

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

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

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

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

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

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

Section 5.02. Subservicing Agreements Between Servicer and Subservicers.

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

 

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of originating or servicing mortgage loans comparable to the Mortgage Loans, and
in either case shall be authorized to transact business in the state or states
in which the related Mortgaged Properties it is to service are situated, if and
to the extent required by applicable law to enable the Subservicer to perform
its obligations hereunder and under the Subservicing Agreement. Any Subservicing
Agreement entered into by the Servicer shall include the provision that such
Agreement may be immediately terminated (i) (x) with cause and without any
termination fee by the Servicer hereunder and/or (y) without cause, in which
case the Servicer shall be solely responsible for any termination fee or penalty
resulting therefrom and (ii) at the option of the Indenture Trustee upon the
termination or resignation of the Servicer hereunder, in which case the Servicer
shall be solely responsible for any termination fee or penalty resulting
therefrom. In addition, each Subservicing Agreement shall provide for servicing
of the Mortgage Loans consistent with the terms of this Agreement. The Servicer
and the Subservicers may enter into Subservicing Agreements and make amendments
to the Subservicing Agreements or enter into different forms of Subservicing
Agreements providing for, among other things, the delegation by the Servicer to
a Subservicer of additional duties regarding the administration of the Mortgage
Loans; provided, however, that any such amendments or different forms shall be
consistent with and not violate the provisions of this Agreement, and that no
such amendment or different form shall be made or entered into which could be
reasonably expected to be materially adverse to the interests of the
Noteholders, without the consent of the Noteholders holding at least 51% of the
aggregate Voting Rights.

(b) As part of its servicing activities hereunder, the Servicer, for the benefit
of the Indenture Trustee, and the Noteholders, shall enforce the obligations of
each Subservicer under the related Subservicing Agreement. Such enforcement,
including, without limitation, the legal prosecution of claims, termination of
Subservicing Agreements and the pursuit of other appropriate remedies, shall be
in such form and carried out to such an extent and at such time as the Servicer,
in its good faith business judgment, would require were it the owner of the
related Mortgage Loans. The Servicer shall pay the costs of such enforcement at
its own expense, but shall be reimbursed therefor only (i) from a general
recovery resulting from such enforcement only to the extent, if any, that such
recovery exceeds all amounts due in respect of the related Mortgage Loan or
(ii) from a specific recovery of costs, expenses or attorneys’ fees against the
party against whom such enforcement is directed.

Section 5.03. Successor Subservicers.

The Servicer shall be entitled to terminate any Subservicing Agreement that may
exist in accordance with the terms and conditions of such Subservicing Agreement
and without any limitation by virtue of this Agreement; provided, however, that
upon termination, the Servicer shall either act as servicer of the related
Mortgage Loans or enter into an appropriate contract with a successor
Subservicer, pursuant to which such successor Subservicer will be bound by all
relevant terms of the related Subservicing Agreement pertaining to the servicing
of such Mortgage Loans.

Section 5.04. Liability of the Servicer.

(a) Notwithstanding any Subservicing Agreement, any of the provisions of this
Agreement relating to agreements or arrangements between the Servicer and a
Subservicer

 

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or reference to actions taken through a Subservicer or otherwise, the Servicer
shall under all circumstances remain obligated and primarily liable to the
Indenture Trustee and the Noteholders for the servicing and administering of the
Mortgage Loans and any REO Property in accordance with this Agreement. The
obligations and liability of the Servicer shall not be diminished by virtue of
Subservicing Agreements or by virtue of indemnification of the Servicer by any
Subservicer, or any other Person. The obligations and liability of the Servicer
shall remain of the same nature and under the same terms and conditions as if
the Servicer alone were servicing and administering the related Mortgage Loans.
The Servicer shall, however, be entitled to enter into indemnification
agreements with any Subservicer or other Person and nothing in this Agreement
shall be deemed to limit or modify such indemnification. For the purposes of
this Agreement, the Servicer shall be deemed to have received any payment on a
Mortgage Loan on the date the Subservicer received such payment.

(b) Any Subservicing Agreement that may be entered into and any transactions or
services relating to the Mortgage Loans involving a Subservicer in its capacity
as such and not as an originator shall be deemed to be between the Subservicer
and the Servicer alone, and the Custodian, the Indenture Trustee and the
Noteholders shall not be deemed parties thereto and shall have no claims,
rights, obligations, duties or liabilities with respect to the Subservicer,
except as set forth in Section 3.05.

Section 5.05. Assumption or Termination of Subservicing Agreements by the
Indenture Trustee.

(a) If the Indenture Trustee or its designee as the successor Servicer, shall
assume the servicing obligations of the Servicer in accordance with Section 8.02
below, the Indenture Trustee or its designee as the successor Servicer, to the
extent necessary to carry out the provisions of Section 8.02 with respect to the
Mortgage Loans, shall succeed to all of the rights and obligations of the
Servicer under each of the Subservicing Agreements. In such event, the Indenture
Trustee or its designee as the successor Servicer shall be deemed to have
assumed all of the Servicer’s rights and obligations therein and to have
replaced the Servicer as a party to such Subservicing Agreements to the same
extent as if such Subservicing Agreements had been assigned to the Indenture
Trustee or its designee as a successor Servicer, except that the Indenture
Trustee or its designee as a successor Servicer shall not be deemed to have
assumed any obligations or liabilities of the Servicer arising prior to such
assumption or as a result of the Indenture Trustee’s or its designee’s
terminating any Subservicer upon the Indenture Trustee or its designee becoming
successor Servicer and the Servicer shall not thereby be relieved of any
liability or obligations under such Subservicing Agreements arising prior to
such assumption or as a result of the Indenture Trustee’s or its designee’s
terminating any Subservicer upon the Indenture Trustee or its designee becoming
successor Servicer.

(b) The Indenture Trustee or its designee as the successor Servicer may
terminate any Subservicer upon becoming successor Servicer. Any termination fees
will be paid by the terminated Subservicer.

(c) In the event that the Indenture Trustee or its designee as successor
Servicer assumes the servicing obligations of the Servicer under Section 8.02,
upon the request of the Indenture Trustee or such designee as successor
Servicer, the Servicer shall at its own

 

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expense deliver to the Indenture Trustee, or at its written request to such
designee, originals or, if originals are not available, photocopies of all
documents, files and records, electronic or otherwise, relating to the
Subservicing Agreements and the related Mortgage Loans or REO Property then
being serviced and an accounting of amounts collected and held by it, if any,
and will otherwise cooperate and use its reasonable efforts to effect the
orderly and efficient transfer of the Subservicing Agreements, or
responsibilities hereunder to the Indenture Trustee, or at its written request
to such designee as successor Servicer.

Section 5.06. Collection of Mortgage Loan Payments.

(a) The Servicer will coordinate and monitor remittances by Subservicers to it
with respect to the Mortgage Loans in accordance with this Agreement.

(b) The Servicer shall make its best reasonable efforts to collect or cause to
be collected all payments required under the terms and provisions of the
Mortgage Loans and shall follow, and use its best reasonable efforts to cause
Subservicers to follow, collection procedures comparable to the collection
procedures of prudent mortgage lenders servicing mortgage loans for their own
account to the extent such procedures shall be consistent with this Agreement.
Consistent with the foregoing, the Servicer or the related Subservicer may in
its discretion (i) waive or permit to be waived any late payment charge,
prepayment charge, assumption fee, or any penalty interest in connection with
the prepayment of a Mortgage Loan and (ii) suspend or reduce or permit to be
suspended or reduced regular monthly payments for a period of up to six months,
or arrange or permit an arrangement with a Mortgagor for a scheduled liquidation
of delinquencies; provided, however, that the Servicer or the related
Subservicer may permit the foregoing only if it believes, in good faith, that
recoveries of Monthly Payments will be maximized; provided further, however,
with respect to Mortgage Loans insured by an MI Policy, that the Servicer may
not without the prior written consent of the MI Insurer permit any waiver,
modification or variance which would (a) reduce or eliminate the coverage
provided under the MI Policy (b) change the loan rate, (c) forgive any payment
of principal or interest, (d) lessen the lien priority or (e) extend the final
maturity date of a Mortgage Loan past 12 months after the original maturity date
on such Mortgage Loan. In the event the Servicer or related Subservicer shall
consent to the deferment of the due dates for payments due on a Mortgage Note,
the Servicer shall nonetheless make an Advance or shall cause the related
Subservicer to make an advance to the same extent as if such installment were
due, owing and delinquent and had not been deferred through liquidation of the
Mortgaged Property; provided, however, that the obligation of the Servicer or
the related Subservicer to make an Advance shall apply only to the extent that
the Servicer believes, in good faith, that such advances are not Nonrecoverable
Advances. The Servicer shall pay the amount of any waived prepayment charge at
the time of payoff if such prepayment charge was waived for a reason other than
that specified in this Section 5.06(b).

(c) Within five Business Days after the Servicer has determined that all amounts
which it expects to recover from or on account of a Liquidated Mortgage Loan
have been recovered and that no further Liquidation Proceeds will be received in
connection therewith, the Servicer shall provide to the Indenture Trustee an
Officer’s Certificate of a Servicing Officer that such Mortgage Loan became a
Liquidated Mortgage Loan as of the date of such determination.

 

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(d) The Servicer shall establish a segregated account (the “Collection
Account”), which shall be an Eligible Account, which shall be titled “Collection
Account, JPMorgan Chase Bank, National Association, as Indenture Trustee for the
registered holders of NovaStar Mortgage Funding Trust, Series 2006-1, Home
Equity Loan Asset-Backed Notes, Series 2006-1”, in which the Servicer shall
deposit or cause to be deposited any amounts representing payments on and any
collections in respect of the Mortgage Loans received by it after the Cut-Off
Date within two Business Days (or such longer period of time due to exception
item processing) following receipt thereof, including the following payments and
collections received or made by it (without duplication):

(i) all payments of principal or interest on the Mortgage Loans received by the
Servicer directly from Mortgagors or from the respective Subservicer;

(ii) the aggregate Repurchase Price of the Mortgage Loans purchased by the
Servicer pursuant to Section 5.19;

(iii) Net Liquidation Proceeds;

(iv) all proceeds of any Mortgage Loans repurchased by the Sponsor pursuant to
the this Agreement, and all Substitution Adjustment Amounts required to be
deposited in connection with the substitution of an Qualified Substitute
Mortgage Loan pursuant to this Agreement;

(v) Insurance Proceeds, other than Net Liquidation Proceeds, and MI Insurance
Proceeds resulting from any insurance policy maintained on a Mortgaged Property;

(vi) any Advance and any Compensating Interest payments; and

(vii) any other amounts received by the Servicer, including all Foreclosure
Profits, assumption fees, prepayment penalties and any other fees that are
required to be deposited in the Collection Account pursuant to this Agreement;

provided, however, that with respect to each Due Period, the Servicer shall be
permitted to retain from payments actually collected in respect of interest on
the Mortgage Loans, the Servicing Fee for such Due Period. The foregoing
requirements respecting deposits to the Collection Account are exclusive, it
being understood that, without limiting the generality of the foregoing, the
Servicer need not deposit in the Collection Account late payment charges payable
by Mortgagors, as further described in Section 5.15, or amounts received by the
Subservicer for the accounts of Mortgagors for application towards the payment
of taxes, insurance premiums, assessments and similar items. In the event any
amount not required to be deposited in the Collection Account is so deposited,
the Servicer may at any time (prior to being terminated under this Agreement)
withdraw such amount from the Collection Account, any provision herein to the
contrary notwithstanding. The Servicer shall keep records that accurately
reflect the funds on deposit in the Collection Account that have been identified
by it as being attributable to the Mortgage Loans and shall hold all collections
in the Collection Account for the benefit of the Indenture Trustee, and the
Noteholders, as their interests may appear.

 

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Funds in the Collection Account may be invested in Eligible Investments with a
maturity date no later than the Business Day immediately preceding the Servicer
Remittance Date, but shall not be commingled with the Servicer’s own funds or
general assets or with funds respecting payments on mortgage loans or with any
other funds not related to the Notes. All such investments shall be made in the
name of the Indenture Trustee for the benefit of the Noteholders, provided,
however, that income earned on such Eligible Investments shall be for the
account of the Servicer. Such funds shall be invested at the written direction
of the Servicer or if the Servicer does not provide such written direction such
funds shall be retained by the Indenture Trustee uninvested. The Servicer shall
be obligated to cover losses on such Eligible Investments.

(e) The Servicer will require each Subservicer to hold all funds constituting
collections on the Mortgage Loans, pending remittance thereof to the Servicer,
in one or more accounts in the name of the Indenture Trustee meeting the
requirements of an Eligible Account, and such funds shall not be invested. The
Subservicer shall segregate and hold all funds collected and received pursuant
to each Mortgage Loan separate and apart from any of its own funds and general
assets and any other funds. Each Subservicer shall make remittances to the
Servicer no later than one Business Day following receipt thereof and the
Servicer shall deposit into the Collection Account any such remittances received
from any Subservicer within one Business Day following receipt by the Servicer.

Section 5.07. Withdrawals from the Collection Account.

(a) The Servicer shall, from time to time as provided herein, make withdrawals
from the Collection Account of amounts on deposit therein pursuant to
Section 5.06 that are attributable to the Mortgage Loans for the following
purposes (without duplication):

(i) to deposit in the Payment Account, by the Servicer Remittance Date prior to
each Payment Date, all collections on the Mortgage Loans required to be
distributed from the Payment Account on a Payment Date;

(ii) to the extent deposited to the Collection Account, to reimburse itself or
the related Subservicer for previously unreimbursed expenses incurred in
maintaining individual insurance policies pursuant to Section 5.11, or
Liquidation Expenses, paid pursuant to Section 5.13, such withdrawal right being
limited to amounts received on particular Mortgage Loans (other than any
Repurchase Price in respect thereof) which represent late recoveries of the
payments for which such expenses were paid, or from related Liquidation
Proceeds;

(iii) to pay to itself out of each payment received on account of interest on a
Mortgage Loan as contemplated by Section 5.15, an amount equal to the related
Servicing Fee (to the extent not retained pursuant to Section 5.06);

(iv) to pay to itself or the Sponsor, with respect to any Mortgage Loan or
property acquired in respect thereof that has been purchased by the Sponsor, the
Servicer or other entity, all amounts received thereon and not required to be
distributed to Noteholders as of the date on which the related Repurchase Price
is determined;

 

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(v) to reimburse the Servicer or any Subservicer for any unreimbursed Advance of
its own funds or any unreimbursed advance of such Subservicer’s own funds, the
right of the Servicer or a Subservicer to reimbursement pursuant to this
subclause (v) being limited to amounts received on a particular Mortgage Loan
(including, for this purpose, the Repurchase Price therefor, Insurance Proceeds
and Liquidation Proceeds) which represent late payments or recoveries of the
principal of or interest on such Mortgage Loan respecting which such Advance or
advance was made;

(vi) to reimburse the Servicer or any Subservicer from Insurance Proceeds or
Liquidation Proceeds relating to a particular Mortgage Loan for amounts expended
by the Servicer or such Subservicer pursuant to Section 5.13: (x) in good faith
in connection with the restoration of the related Mortgaged Property which was
damaged by the uninsured cause, (y) in connection with the liquidation of such
Mortgage Loan, or (z) with respect to an MI Claim Payment Advance made by the
Servicer with respect to such Mortgage Loan;

(vii) to reimburse the Servicer or any Subservicer for any unreimbursed
Nonrecoverable Advance previously made, and otherwise not reimbursed pursuant to
this Section 5.07(a);

(viii) to withdraw any other amount deposited in the Collection Account that was
not required to be deposited therein pursuant to Section 5.06;

(ix) to reimburse the Servicer for costs associated with the environmental
report handling the presence of any toxic or hazardous substance on a Mortgaged
Property as set forth in Section 5.13(c);

(x) to clear and terminate the Collection Account upon a termination pursuant to
Section 9.01;

(xi) to pay to the Servicer income earned on Eligible Investments in the
Collection Account;

(xii) to pay to the MI Insurer the monthly MI Premiums due under each MI Policy
from payments received (or Advances made) on account of interest due on the
related Mortgage Loan; and

(xiii) to make an Advance with respect to a Mortgage Loan that is Delinquent
from funds held in the Collection Account as contemplated by Section 5.24,
provided that the amount withdrawn for such an Advance is immediately deposited
into the Payment Account.

Withdrawals made pursuant to clause (xii) shall be made on a first priority
basis. In connection with withdrawals pursuant to clauses (ii), (iii), (iv),
(v) and (vi), the Servicer’s entitlement thereto is limited to collections or
other recoveries on the related Mortgage Loan, and the Servicer shall keep and
maintain separate accounting, on a Mortgage Loan by Mortgage Loan basis, for the
purpose of justifying any withdrawal from the Collection Account pursuant to
such clauses.

 

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(b) Notwithstanding the provisions of this Section 5.07, the Servicer may, but
is not required to, allow the Subservicers to deduct from amounts received by
them or from the related account maintained by a Subservicer, prior to deposit
in the Collection Account, any portion to which such Subservicers are entitled
as reimbursement of any reimbursable Advances made by such Subservicers.

Section 5.08. Collection of Taxes, Assessments and Similar Items; Servicing
Accounts.

(a) The Servicer shall establish and maintain or cause the related Subservicer
to establish and maintain, one or more Servicing Accounts. The Servicer or a
Subservicer will deposit and retain therein all collections from the Mortgagors
for the payment of taxes, assessments, insurance premiums, or comparable items
as agent of the Mortgagors.

(b) The deposits in the Servicing Accounts shall be held in trust by the
Servicer or a Subservicer (and its successors and assigns) in the name of the
Indenture Trustee. Such Servicing Accounts shall be Eligible Accounts and, if
permitted by applicable law, invested in Eligible Investments held in trust by
the Servicer or a Subservicer as described above and maturing, or be subject to
redemption or withdrawal, no later than the date on which such funds are
required to be withdrawn, and in no event later than 45 days after the date of
investment; withdrawals of amounts from the Servicing Accounts may be made only
to effect timely payment of taxes, assessments, insurance premiums, or
comparable items, to reimburse the Servicer or a Subservicer for any advances
made with respect to such items, to refund to any Mortgagors any sums as may be
determined to be overages, to pay interest, if required, to Mortgagors on
balances in the Servicing Accounts or to clear and terminate the Servicing
Accounts at or any time after the termination of this Agreement. Amounts
received from Mortgagors for deposit into the Servicing Accounts shall be
deposited in the Servicing Accounts by the Servicer within two days of receipt.
The Servicer shall advance from its own funds amounts needed to pay items
payable from the Servicing Accounts if the Servicer reasonably believes that
such amounts are recoverable from the related Mortgagor. The Servicer shall
comply with all laws relating to the Servicing Accounts, including laws relating
to payment of interest on the Servicing Accounts. If interest earned by the
Servicer on the Servicing Accounts is not sufficient to pay required interest on
the Servicing Accounts, the Servicer shall pay the difference from its own
funds. The Servicing Accounts shall not be the property of the Issuing Entity.

Section 5.09. Access to Certain Documentation and Information Regarding the
Mortgage Loans.

The Servicer shall provide, and shall cause any Subservicer to provide, to the
Indenture Trustee, access to the documentation regarding the related Mortgage
Loans and REO Property and to the Noteholders, Beneficial Owners, the FDIC, and
the supervisory agents and examiners of the FDIC (to which the Custodian and
Indenture Trustee shall also provide) access to the documentation regarding the
related Mortgage Loans required by applicable regulations, such

 

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access being afforded without charge but only upon reasonable request and during
normal business hours at the offices of the Servicer or the Subservicers that
are designated by these entities; provided, however, that, unless otherwise
required by law, the Servicer and any Subservicer shall not be required to
provide access to such documentation if the provision thereof would violate the
legal right to privacy of any Mortgagor; provided, further, however, that the
Indenture Trustee shall coordinate its request for such access so as not to
impose an unreasonable burden on, or cause an unreasonable interruption of, the
business of the Servicer or any Subservicer. The Servicer, the Subservicers, the
Indenture Trustee and the Custodian shall allow representatives of the above
entities to photocopy any of the documentation and shall provide equipment for
that purpose at a charge that covers their own actual out-of-pocket costs.

Section 5.10. [Reserved].

Section 5.11. Maintenance of Hazard Insurance and Fidelity Coverage.

(a) The Servicer shall maintain and keep, or cause each Subservicer to maintain
and keep, with respect to each Mortgage Loan and each REO Property, in full
force and effect hazard insurance (fire insurance with extended coverage) equal
to at least the lesser of the Principal Balance of the Mortgage Loan or the
current replacement cost of the Mortgaged Property, and containing a standard
mortgagee clause, provided, however, that the amount of hazard insurance may not
be less than the amount necessary to prevent loss due to the application of any
co-insurance provision of the related policy. Unless applicable state law
requires a higher deductible, the deductible on such hazard insurance policy may
be no more than $1,500 or 1% of the applicable amount of coverage, whichever is
less. In the case of a condominium unit or a unit in a planned unit development,
the required hazard insurance shall take the form of a multi-peril policy
covering the entire condominium project or planned unit development, in an
amount equal to at least 100% of the insurable value based on replacement cost.
If the Servicer shall obtain and maintain a blanket policy consistent with its
general mortgage servicing activities insuring against hazard losses on all of
the Mortgage Loans, it shall conclusively be deemed to have satisfied its
obligations as set forth in this Section 5.11(a), it being understood and agreed
that such policy may contain a deductible clause, in which case the Servicer
shall, in the event that there shall not have been maintained on the related
Mortgaged Property a policy complying with this Section 5.11(a) and there shall
have been a loss which would have been covered by such policy, deposit in the
Collection Account the amount not otherwise payable under the blanket policy
because of such deductible clause without any right of reimbursement. Any such
deposit by the Servicer shall be made on the last Business Day of the Due Period
in the month in which payments under any such policy would have been deposited
in the Collection Account. In connection with its activities as servicer of the
Mortgage Loans, the Servicer agrees to present, on behalf of itself, the Issuing
Entity, and the Indenture Trustee, claims under any such blanket policy.

(b) Any amounts collected by the Servicer or a Subservicer under any such hazard
insurance policy (other than amounts to be applied to the restoration or repair
of the Mortgaged Property or amounts released to the Mortgagor in accordance
with the Servicer’s or a Subservicer’s normal servicing procedures, the Mortgage
Note, the Mortgage or applicable law) shall be deposited in the Collection
Account.

 

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(c) Any cost incurred by a Servicer or a Subservicer in maintaining any such
individual hazard insurance policies shall not be added to the amount owing
under the Mortgage Loan for the purpose of calculating monthly payments to
Noteholders, notwithstanding that the terms of the Mortgage Loan so permit. Such
costs of maintaining individual hazard insurance policies shall be recoverable
by the Servicer or a Subservicer out of related late payments by the Mortgagor
or out of Insurance Proceeds or Liquidation Proceeds or by the Servicer from the
Repurchase Price, to the extent permitted by Section 5.07.

(d) No earthquake or other additional insurance is to be required of any
Mortgagor or maintained on property acquired with respect to a Mortgage other
than pursuant to such applicable laws and regulations as shall at any time be in
force and shall require such additional insurance. When, at the time of
origination of the Mortgage Loan or at any subsequent time, the Mortgaged
Property is located in a federally designated special flood hazard area, the
Servicer shall ensure that, with respect to such Mortgage Loan or such REO
Property, flood insurance is acquired (to the extent available and in accordance
with mortgage servicing industry practice). Such flood insurance shall cover the
Mortgaged Property, including all items taken into account in arriving at the
Appraised Value on which the Mortgage Loan was based, and shall be in an amount
equal to the lesser of (i) the Principal Balance of the related Mortgage Loan
and (ii) the minimum amount required under the terms of coverage to compensate
for any damage or loss on a replacement cost basis, but not more than the
maximum amount of such insurance available for the related Mortgaged Property
under either the regular or emergency programs of the National Flood Insurance
Program (assuming that the area in which such Mortgaged Property is located is
participating in such program). Unless applicable state law requires a higher
deductible, the deductible on such flood insurance may not exceed $1,500 or 1%
of the applicable amount of coverage, whichever is less.

(e) If insurance complying with Subsections 5.11 (a) and (d) has not been
maintained and there shall have been a loss which would have been covered by
such insurance had it been maintained, the Servicer shall pay, or cause the
related Subservicer to pay, for any necessary repairs without any right of
reimbursement.

(f) The Servicer shall present, or cause the related Subservicer to present,
claims under any related hazard insurance or flood insurance policy.

(g) The Servicer shall obtain and maintain at its own expense, and shall cause
each Subservicer to obtain and maintain at its own expense, and for the duration
of this Agreement, a blanket fidelity bond and an errors and omissions insurance
policy covering the Servicer’s and such Subservicer’s officers, employees and
other persons acting on its behalf in connection with its activities under this
Agreement. The amount of coverage shall correspond with the FNMA/FHMLC levels
presently maintained by the Servicer. The Servicer shall promptly notify the
Indenture Trustee of any material change in the terms of such bond or policy.
The Servicer shall provide annually by March 31st of each year, to the Indenture
Trustee a certification stating that such bond and policy are in effect. If any
such bond or policy ceases to be in effect, the Servicer shall, to the extent
possible, give the Indenture Trustee ten days’ notice prior to any such
cessation and shall use its reasonable best efforts to obtain a comparable
replacement bond or policy, as the case may be. Any amounts relating to the
Mortgage Loans collected under such bond or policy shall be deposited in the
Collection Account.

 

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Section 5.12. Due-on-Sale Clauses; Assumption Agreements.

(a) In any case in which the Servicer is notified by any Mortgagor or
Subservicer that a Mortgaged Property relating to a Mortgage Loan has been or is
about to be conveyed by the Mortgagor, the Servicer shall enforce, or shall
instruct such Subservicer to enforce, any due-on-sale clause contained in the
related Mortgage to the extent permitted under the terms of the related Mortgage
Note and by applicable law. The Servicer or the related Subservicer may
repurchase a Mortgage Loan at the Repurchase Price when the Servicer requires
acceleration of the Mortgage Loan, but only if the Servicer is satisfied, as
evidenced by an Officer’s Certificate delivered to the Indenture Trustee, that
such Mortgage Loan is in default or default is reasonably foreseeable. If the
Servicer reasonably believes that such due-on-sale clause cannot be enforced
under applicable law or if the Mortgage Loan does not contain a due-on-sale
clause, the Servicer is authorized, and may authorize any Subservicer, to
consent to a conveyance subject to the lien of the Mortgage, and, with the
consent of the MI Insurer, if applicable, to take or enter into an assumption
agreement from or with the Person to whom such property has been or is about to
be conveyed, pursuant to which such Person becomes liable under the related
Mortgage Note and unless prohibited by applicable state law, on condition,
however, that the related Mortgage Loan shall continue to be covered by a hazard
policy. In connection with any such assumption, no material term of the related
Mortgage Note may be changed. The Servicer shall notify the Custodian and
Indenture Trustee, whenever possible, before the completion of such assumption
agreement, and shall forward to the Custodian the original copy of such
assumption agreement, which copy shall be added by the Custodian to the related
Mortgage File and which shall, for all purposes, be considered a part of such
Mortgage File to the same extent as all other documents and instruments
constituting a part thereof.

(b) Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Servicer shall not be deemed to be in default, breach or any
other violation of its obligations hereunder by reason of any assumption of a
Mortgage Loan by operation of law or any conveyance by the Mortgagor of the
related Mortgaged Property or assumption of a Mortgage Loan which the Servicer
reasonably believes it may be restricted by law from preventing, for any reason
whatsoever or if the exercise of such right would impair or threaten to impair
any recovery under any applicable insurance policy.

Section 5.13. Realization Upon Defaulted Mortgage Loans.

(a) The Servicer shall, or shall direct the related Subservicer to, foreclose
upon or otherwise comparably convert the ownership of properties securing any
Mortgage Loans that come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments
pursuant to Section 5.06, except that the Servicer shall not, and shall not
direct the related Subservicer to, foreclose upon or otherwise comparably
convert a Mortgaged Property if there is evidence of toxic waste or other
environmental hazards thereon unless the Servicer follows the procedures in
Subsection (c) below. In connection with such foreclosure or other conversion,
the Servicer in conjunction with the related Subservicer, if any, shall use its
best reasonable efforts to preserve REO Property and to realize upon defaulted
Mortgage Loans in such manner as to maximize the receipt of principal and
interest by the Noteholders, taking into account, among other things, the timing
of foreclosure and the considerations set forth in Subsection 5.13(b). The
foregoing is subject to the proviso that the

 

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Servicer shall not be required to expend its own funds in connection with any
foreclosure or towards the restoration of any property unless it determines in
good faith (i) that such restoration or foreclosure will increase the proceeds
of liquidation of the Mortgage Loan to Noteholders after reimbursement to itself
for such expenses and (ii) that such expenses will be recoverable to it either
through Liquidation Proceeds (respecting which it shall have priority for
purposes of reimbursements from the Collection Account pursuant to Section 5.07)
or through Insurance Proceeds (respecting which it shall have similar priority).
The Servicer shall be responsible for all costs and expenses constituting
Liquidation Expenses incurred by it in any such proceedings; provided, however,
that it shall be entitled to reimbursement thereof (as well as its normal
servicing compensation) as set forth in Section 5.07. Any income from or other
funds (net of any income taxes) generated by REO Property shall be deemed for
purposes of this Agreement to be Liquidation Proceeds.

Any subsequent collections with respect to any Liquidated Mortgage Loan shall be
deposited to the Collection Account. For purposes of determining the amount of
any Liquidation Proceeds or Insurance Proceeds, or other unscheduled
collections, the Servicer may take into account any estimated additional
Liquidation Expenses expected to be incurred in connection with the related
defaulted Mortgage Loan.

In the event that a Mortgage Loan would be properly classified as a Liquidated
Mortgage Loan but for the fact that not all MI Insurance Proceeds claimed under
the related MI Policy have been received, the Servicer may, from its own funds,
make an advance (an “MI Claim Payment Advance”) to the Collection Account in an
amount not to exceed the claimed amount of such MI Insurance Proceeds not yet
received. The Servicer shall not make any MI Claim Payment Advance with respect
to a claim under an MI Policy if an MI Insurer Insolvency Event has occurred and
is continuing with respect to the related MI Insurer. In the event that the MI
Claim Payment Advance equals the claimed amount on such MI Policy, then upon the
deposit of such MI Claim Payment Advance into the Collection Account the related
Mortgage Loan shall be considered a “Liquidated Mortgage Loan.”

In the event that title to any Mortgaged Property is acquired in foreclosure or
by deed in lieu of foreclosure, the deed or Note of sale shall be issued to the
Indenture Trustee and held by the Custodian, who shall hold the same on behalf
of Indenture Trustee and the Issuing Entity in accordance with this Agreement.
Notwithstanding any such acquisition of title and cancellation of the related
Mortgage Loan, such Mortgaged Property shall (except as otherwise expressly
provided herein) be considered to be an outstanding Mortgage Loan held as an
asset of the Issuing Entity until such time as such property shall be sold.

The Indenture Trustee shall have no obligation and no liability for failing to
pay premiums, receive returned insurance premiums or maintain the MI Policies.

(b) The Servicer shall not acquire any real property (or any personal property
incident to such real property) on behalf of the Trust Estate except in
connection with a default or reasonably foreseeable default of a Mortgage Loan.
In the event that the Servicer acquires any real property (or personal property
incident to such real property) on behalf of the Trust Estate in connection with
a default or imminent default of a Mortgage Loan, such property shall

 

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be disposed of by the Servicer on behalf of the Trust Estate as soon as
reasonably practicable, but in no event later than three years after its
acquisition on behalf of the Trust Estate.

(c) With respect to any Mortgage Loan as to which the Servicer or a Subservicer
has received notice of, or has actual knowledge of, the presence of any toxic or
hazardous substance on the Mortgaged Property, the Servicer shall take such
action as it deems to be in the best economic interest of the Trust Estate
(other than proceeding against the Mortgaged Property) and is hereby authorized
at such time as it deems appropriate to release such Mortgaged Property from the
lien of the related Mortgage. The parties hereto acknowledge that the Servicer
shall not obtain on behalf of the Issuing Entity a deed as a result or in lieu
of foreclosure, and shall not otherwise acquire possession of or title to, or
commence any proceedings to acquire possession of or title to, or take any other
action with respect to, any Mortgaged Property, if the Issuing Entity could
reasonably be considered to be a responsible party for any liability arising
from the presence of any toxic or hazardous substance on the Mortgaged Property.

Section 5.14. Custodian to Cooperate; Release of Mortgage Files.

(a) Upon payment in full of any Mortgage Loan, the Servicer will immediately
notify the Custodian and the Indenture Trustee by a certification signed by a
Servicing Officer (which certification shall include a statement to the effect
that all amounts received in connection with such payment which are required to
be deposited in the Collection Account have been so deposited) and shall request
delivery to the Servicer or Subservicer, as the case may be, of the Mortgage
File. Upon receipt of such certification and request, the Custodian, on behalf
of the Indenture Trustee, shall promptly cause to be released the related
Mortgage File to the Servicer or Subservicer and the Indenture Trustee shall
execute and deliver to the Servicer, without recourse, the request for
reconveyance, deed of reconveyance or release or satisfaction of mortgage or
such instrument releasing the lien of the Mortgage (furnished by the Servicer),
together with the Mortgage Note with written evidence of cancellation thereon.

(b) From time to time as is appropriate, for the servicing or foreclosure of any
Mortgage Loan or collection under an insurance policy, the Servicer may deliver
to the Indenture Trustee and the Custodian a Request for Release signed by a
Servicing Officer on behalf of the Servicer in substantially the form attached
as Exhibit E hereto. Upon receipt of the Request for Release, the Custodian, on
behalf of the Indenture Trustee, shall deliver the Mortgage File or any document
therein to the Servicer or Subservicer, as the case may be, as bailee for the
Indenture Trustee.

(c) The Servicer shall cause each Mortgage File or any document therein released
pursuant to Subsection 5.14(b) to be returned to the Custodian when the need
therefor no longer exists, and in any event within 21 days of the Servicer’s
receipt thereof, unless the Mortgage Loan has become a Liquidated Mortgage Loan
and the Liquidation Proceeds relating to the Mortgage Loan have been deposited
in the Collection Account or such Mortgage File is being used to pursue
foreclosure or other legal proceedings. Prior to return of a Mortgage File or
any document to the Custodian, the Servicer, the related insurer or Subservicer
to whom such file or document was delivered shall retain such file or document
in its respective control as bailee

 

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for the Custodian, on behalf of the Indenture Trustee, unless the Mortgage File
or such document has been delivered to an attorney, or to a public trustee or
other public official as required by law, to initiate or pursue legal action or
other proceedings for the foreclosure of the Mortgaged Property either
judicially or non-judicially, and the Servicer has delivered to the Custodian
and the Indenture Trustee, an Officer’s Certificate of a Servicing Officer
certifying as to the name and address of the Person to which such Mortgage File
or such document was delivered and the purpose or purposes of such delivery. If
a Mortgage Loan becomes a Liquidated Mortgage Loan, the Custodian, on behalf of
the Indenture Trustee, shall deliver the Request for Release with respect
thereto to the Servicer upon deposit of the related Liquidation Proceeds in the
Collection Account.

(d) The Indenture Trustee shall execute and deliver or cause to be executed and
delivered to the Servicer any court pleadings, requests for trustee’s sale or
other documents necessary (i) for the foreclosure or trustee’s sale with respect
to a Mortgaged Property; (ii) for any legal action brought to obtain judgment
against any Mortgagor on the Mortgage Note or Mortgage; (iii) to obtain a
deficiency judgment against the Mortgagor; or (iv) to enforce any other rights
or remedies provided by the Mortgage Note or Mortgage or otherwise available at
law or equity. Together with such documents or pleadings the Servicer shall
deliver to the Indenture Trustee an Officer’s Certificate of a Servicing Officer
in which it requests the Indenture Trustee to execute or cause to be executed
the pleadings or documents. The Officer’s Certificate shall certify and explain
the reasons for which the pleadings or documents are required. It shall further
certify that the Indenture Trustee’s execution and delivery of the pleadings or
documents will not invalidate any insurance coverage under the insurance
policies or invalidate or otherwise affect the lien of the Mortgage, except for
the termination of such a lien upon completion of the foreclosure or Indenture
Trustee’s sale.

Section 5.15. Servicing Compensation.

(a) As compensation for its activities hereunder, the Servicer shall be entitled
to receive the Servicing Fee from full payments of accrued interest on each
Mortgage Loan. The Servicer shall be solely responsible for paying any and all
fees with respect to a Subservicer, and the Indenture Trustee and the Trust
Estate shall not bear any fees, expenses or other costs directly associated with
any Subservicer.

(b) The Servicer may retain additional servicing compensation in the form of
late payment charges, to the extent such charges are collected from the related
Mortgagors and investment earnings on the Collection Account. The Servicer shall
be required to pay all expenses it incurs in connection with servicing
activities under this Agreement and shall not be entitled in connection with
servicing activities under this Agreement to reimbursement except as provided in
this Agreement. Expenses to be paid by the Servicer without reimbursement under
this Subsection 5.15(b) shall include payment of the expenses of the accountants
retained pursuant to Section 5.17.

Section 5.16. Annual Statements of Compliance.

The Servicer will deliver to the Issuing Entity, the Indenture Trustee, the
Rating Agencies and the Sponsor on or before March 1st of each year, beginning
March 1st, 2007, an Officer’s

 

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Certificate of the Servicer (an “Annual Statement of Compliance”) stating, that
(a) a review of the activities of the Servicer, during the preceding calendar
year and of its performance under this Agreement has been made under such
officer’s supervision and (b) to the best of such officer’s knowledge, based on
such review, the Servicer has fulfilled all of its material obligations under
this Agreement in all material respects throughout such year, or, if there has
been a default in the fulfillment of any such obligation, specifying each such
default known to such officer and the nature and status thereof. Such Annual
Statement of Compliance shall contain no restrictions or limitations on its use.
In the event that the Servicer has delegated any servicing responsibilities with
respect to the Mortgage Loans to a subservicer or subcontractor that meets the
criteria in Item 1108(a)(2)(i) through (iii) of Regulation AB, the Servicer or
the related servicer (as the case may be) shall deliver a similar Annual
Statement of Compliance by that subservicer or subcontractor to the Indenture
Trustee, the Sponsor and the Rating Agencies as described above as and when
required with respect to the servicer.

Section 5.17. Assessments of Compliance and Attestation Reports.

The Servicer shall service and administer the Mortgage Loans in accordance with
all applicable requirements of the Servicing Criteria. Pursuant to Rules 13a-18
and 15d-18 of the Exchange Act and Item 1122 of Regulation AB, each of the
Servicer and the Indenture Trustee (each, an “Attesting Party”) shall deliver to
the Indenture Trustee and the Depositor on or before March 15th of each calendar
year in which the Issuing Entity is required to file a Form 10-K beginning in
2007, a report regarding such Attesting Party’s assessment of compliance (an
“Assessment of Compliance”) with the Servicing Criteria during the preceding
calendar year. The Assessment of Compliance, as set forth in Regulation AB, must
contain the following:

(i) A statement by such officer of its responsibility for assessing compliance
with the Servicing Criteria applicable to the related Attesting Party;

(ii) A statement by such officer that such Attesting Party used the Servicing
Criteria set forth in Item 1122(d) of Regulation AB to assess compliance with
the Servicing Criteria applicable to the related Attesting Party;

(iii) An assessment by such officer of the related Attesting Party’s compliance
with the applicable Servicing Criteria for the period consisting of the
preceding calendar year, including disclosure of any material instance of
noncompliance with respect thereto during such period, which assessment shall be
based on the activities such Attesting Party performs with respect to
asset-backed securities transactions taken as a whole involving the Servicer,
that are backed by the same asset type as the Mortgage Loans;

(iv) A statement that a registered public accounting firm has issued an
attestation report on the related Attesting Party’s Assessment of Compliance for
the period consisting of the preceding calendar year; and

(v) A statement as to which of the Servicing Criteria, if any, are not
applicable to such Attesting Party, which statement shall be based on the
activities

 

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such Attesting Party performs with respect to asset-backed securities
transactions taken as a whole involving such Attesting Party, that are backed by
the same asset type as the Mortgage Loans.

Such report at a minimum shall address each of the Servicing Criteria specified
on Exhibit H hereto which are indicated as applicable to the related Attesting
Party.

On or before March 15th of each calendar year in which the Issuing Entity is
required to file a Form 10-K beginning in 2007, each Attesting Party specified
in this Section shall furnish to the Indenture Trustee and the Depositor a
report (an “Attestation Report”) by a registered public accounting firm that
attests to, and reports on, the Assessment of Compliance made by the Servicer,
as required by Rules 13a-18 and 15d-18 of the Exchange Act and Item 1122(b) of
Regulation AB, which Attestation Report must be made in accordance with
standards for attestation reports issued or adopted by the Public Company
Accounting Oversight Board.

The Servicer or the Indenture Trustee, as the case may be shall cause any
subservicer, and each subcontractor determined by it to be materially
“participating in the servicing function” within the meaning of Item 1122 of
Regulation AB, to deliver to the Indenture Trustee and the Depositor an
Assessment of Compliance and Attestation Report as and when provided above along
with an indication of what Servicing Criteria are addressed in such assessment.

Notwithstanding the foregoing, as to any subcontractor (as defined in the
related servicing agreement), an Assessment of Compliance is not required to be
delivered unless it is required as part of a Form 10-K with respect to the
Issuing Entity.

In addition, the Custodian shall deliver to the Sponsor and the Depositor an
Assessment of Compliance and Attestation Report, as and when provided above,
which shall at a minimum address each of the Servicing Criteria specified on
Exhibit H hereto which are indicated as applicable to a “custodian.”

Section 5.18. Reports Filed with Securities and Exchange Commission.

(a) (i) (A) Within 15 days after each Payment Date for so long as the Issuing
Entity is subject to the Exchange Act reporting requirements, the Indenture
Trustee shall, in accordance with industry standards, file with the Commission
via the Electronic Data Gathering and Retrieval System (“EDGAR”), a Form 10-D,
signed by the Servicer, with a copy of the monthly statement to be furnished by
the Indenture Trustee to the Noteholders for such Payment Date; provided that
the Indenture Trustee shall have received no later than five (5) calandar days
after the related Servicer Reporting Date, all information required to be
provided to the Indenture Trustee as described below. Any disclosure in addition
to the Monthly Statement that is required to be included on Form 10-D
(“Additional Form 10-D Disclosure”) shall be approved by the Depositor.

Within five (5) calendar days after the related Servicer Reporting Date, (i) the
parties set forth in Exhibit I shall be required to provide, pursuant to section
5.18(a)(iv) below, to the Indenture Trustee and the Depositor, to the extent
known (by a Responsible Officer in the case of the Owner Trustee), in
EDGAR-compatible format at the following email address:

 

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sf_sec@jpmorgan.com, or in such other form as otherwise agreed upon by the
Indenture Trustee and the Depositor and such party, the form and substance of
any Additional Form 10-D Disclosure, if applicable, and (ii) the Depositor will
approve, as to form and substance, or disapprove, as the case may be, the
inclusion of the Additional Form 10-D Disclosure on Form 10-D. The Depositor
will be responsible for any reasonable fees and expenses assessed or incurred by
the Indenture Trustee in connection with including any Additional Form 10-D
Disclosure on Form 10-D pursuant to this Section.

(B) After preparing the Form 10-D, the Indenture Trustee shall forward
electronically a draft copy of the Form 10-D to the Depositor and the Servicer
for review. No later than two (2) Business Days prior to the 15th calendar day
after the related Payment Date, either the Depositor or a senior officer of the
Servicer in charge of the servicing function shall sign the Form 10-D and return
an electronic or fax copy of such signed Form 10-D (with an original executed
hard copy to follow by overnight mail) to the Indenture Trustee. For
administrative convenience, the Depositor or the Servicer may deliver executed
signature pages to the Indenture Trustee to be held by the Indenture Trustee in
escrow and attached to a Form 10-D only upon such Depositor’s or Servicer’s
electronic notification to the Indenture Trustee authorizing such attachment. If
a Form 10-D cannot be filed on time or if a previously filed Form 10-D needs to
be amended, the Indenture Trustee will follow the procedures set forth in
Section 5.18(a)(v). Promptly (but no later than one (1) Business Day) after
filing with the Commission, the Sponsor will make available on its internet
website a final executed copy of each Form 10-D. The signing party at the
Depositor or the Servicer can be contacted as set forth in Section 11.06. The
parties to this Agreement acknowledge that the performance by the Indenture
Trustee of its duties under Sections 5.18(a)(i) and (v) related to the timely
preparation and filing of Form 10-D is contingent upon such parties strictly
observing all applicable deadlines in the performance of their duties under such
Sections. The Indenture Trustee shall have no liability for any loss, expense,
damage, claim arising out of or with respect to any failure to properly prepare
and/or timely file such Form 10-D, where such failure results from the Indenture
Trustee’s inability or failure to receive, on a timely basis, any information
from any other party hereto needed to prepare, arrange for execution or file
such Form 10-D, not resulting from its own negligence, bad faith or willful
misconduct.

(ii) (A) Within four (4) Business Days after the occurrence of an event
requiring disclosure on Form 8-K (each such event, a “Reportable Event”) for so
long as the Issuing Entity is subject to the Exchange Act reporting
requirements, the Indenture Trustee shall prepare and file on behalf of the
Issuing Entity any Form 8-K prepared by the Depositor, as required by the
Exchange Act, provided that the Depositor shall file the initial Form 8-K in
connection with the issuance of the Notes; provided further, that the Indenture
Trustee shall only be responsible for filing such Form 8-K if the Indenture
Trustee has been notified by the Depositor of the necessity therefore and
provided with the disclosure to be included therein. Any disclosure or
information related to a Reportable Event or that is otherwise required to be
included on Form 8-K (“Form 8-K Disclosure Information”) shall be prepared by
the Depositor.

(B) For so long as the Issuing Entity is subject to the Exchange Act reporting
requirements, no later than 12:00 p.m. New York time on the 2nd Business Day
after the occurrence of a Reportable Event (i) the parties set forth in Exhibit
I shall be required pursuant to Section 5.18(a)(iv) below to provide to the
Indenture Trustee and the Depositor, to the extent

 

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known, in EDGAR-compatible format, or in such other form as otherwise agreed
upon by the Indenture Trustee and the Depositor and such party, the form and
substance of any Form 8-K Disclosure Information, if applicable, and (ii) the
Depositor will approve, as to form and substance, or disapprove, as the case may
be, the inclusion of the Form 8-K Disclosure Information on Form 8-K. The
Depositor will be responsible for any reasonable fees and expenses assessed or
incurred by the Indenture Trustee in connection with including any Form 8-K
Disclosure Information on Form 8-K pursuant to this Section.

(C) No later than the end of business New York City time on the 3rd Business Day
after the Reportable Event, either the Depositor or a senior officer of the
Servicer in charge of the servicing function shall sign the Form 8-K and return
an electronic or fax copy of such signed Form 8-K (with an original executed
hard copy to follow by overnight mail) to the Indenture Trustee. If a Form 8-K
cannot be filed on time or if a previously filed Form 8-K needs to be amended,
the Indenture Trustee will follow the procedures set forth in
Section 5.18(a)(v). Promptly (but no later than 1 Business Day) after filing
with the Commission, the Sponsor will, make available on its internet website a
final executed copy of each Form 8-K. The signing party at the Depositor or the
Servicer can be contacted as set forth in Section 11.06. The parties to this
Agreement acknowledge that the performance by the Indenture Trustee of its
duties under this Section 5.18(a)(ii) related to the timely preparation and
filing of Form 8-K is contingent upon such parties strictly observing all
applicable deadlines in the performance of their duties under this
Section 5.18(a)(ii). The Indenture Trustee shall have no liability for any loss,
expense, damage, claim arising out of or with respect to any failure to properly
prepare and/or timely file such Form 8-K, where such failure results from the
Indenture Trustee’s inability or failure to receive, on a timely basis, any
information from any other party hereto needed to prepare, arrange for execution
or file such Form 8-K, not resulting from its own negligence, bad faith or
willful misconduct.

(iii) (A) Within 90 days after the end of each fiscal year of the Issuing Entity
or such earlier date as may be required by the Exchange Act (the “10-K Filing
Deadline”) (it being understood that the fiscal year for the Issuing Entity ends
on December 31st of each year) for so long as the Issuing Entity is subject to
the Exchange Act reporting requirements, commencing in March 2007, the Indenture
Trustee shall prepare and file on behalf of the Issuing Entity a Form 10-K, in
form and substance as required by the Exchange Act. Each such Form 10-K shall
include the following items, in each case to the extent they have been delivered
to the Indenture Trustee within the applicable time frames set forth in this
Agreement, (1) an annual compliance statement of the Servicer and any
subservicer, as described under Section 5.16, the annual reports on assessment
of compliance with Servicing Criteria for the Servicer, each subservicer and
each subcontractor materially participating in the Servicing Function, each
Servicing Function Participant, the Indenture Trustee and each custodian, as
described under Section 5.10, (2) the registered public accounting firm
attestation report for the Servicer, and the Indenture Trustee, as described
under Section 5.10, which shall identify any material instance of noncompliance,
disclosure identifying such instance of noncompliance, and (3) a Sarbanes-Oxley
Certification as described in this Section 5.18 (a)(iii)(D) below. Any
disclosure or information in addition to (1) through (3) above that is required
to be included on Form 10-K (“Additional Form 10-K Disclosure”) shall be
determined and prepared by and approved by the Depositor.

 

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(B) No later than March 5th of each year that the Issuing Entity is subject to
the Exchange Act reporting requirements, commencing in 2007, (1) the parties set
forth in Exhibit I shall be required to provide pursuant to Section 5.18(a)(iv)
below to the Indenture Trustee and the Depositor, to the extent known (by a
Responsible Officer in the case of the Indenture Trustee and the Owner Trustee),
in EDGAR-compatible format, at the email address set forth in Section 11.06
hereof with respect to the Indenture Trustee, or in such other form as otherwise
agreed upon by the Indenture Trustee and the Depositor and such party, the form
and substance of any Additional Form 10-K Disclosure, if applicable, and (2) the
Depositor will approve, as to form and substance, or disapprove, as the case may
be, the inclusion of the Additional Form 10-K Disclosure on Form 10-K. The
Depositor will be responsible for any reasonable fees and expenses assessed or
incurred by the Indenture Trustee in connection with including any Additional
Form 10-K Disclosure on Form 10-K pursuant to this Section.

(C) After preparing the Form 10-K, the Indenture Trustee shall forward
electronically a draft copy of the Form 10-K to the Depositor and the Servicer
for review. No later than 12:00 p.m. New York time on the 4th Business Day prior
to the 10-K Filing Deadline, either the Depositor or a senior officer of the
Servicer in charge of the servicing function shall sign the Form 10-K and return
an electronic or fax copy of such signed Form 10-K (with an original executed
hard copy to follow by overnight mail) to the Indenture Trustee. If a Form 10-K
cannot be filed on time or if a previously filed Form 10-K needs to be amended,
the Indenture Trustee will follow the procedures set forth in
Section 5.18(a)(v). Promptly (but no later than one (1) Business Day) after
filing with the Commission, the Sponsor will make available on its internet
website a final executed copy of each Form 10-K. The signing party at the
Depositor or the Servicer can be contacted as set forth in Section 11.06. The
parties to this Agreement acknowledge that the performance by the Indenture
Trustee of its duties under Sections 5.18(a)(iii) and (v) related to the timely
preparation and filing of Form 10-K is contingent upon such parties strictly
observing all applicable deadlines in the performance of their duties under such
Section 5.16 and Section 5.17. The Indenture Trustee shall have no liability for
any loss, expense, damage, claim arising out of or with respect to any failure
to properly prepare and/or timely file such Form 10-K, where such failure
results from the Indenture Trustee’s inability or failure to receive, on a
timely basis, any information from any other party hereto needed to prepare,
arrange for execution or file such Form 10-K, not resulting from its own
negligence, bad faith or willful misconduct.

(D) Each Form 10-K shall include a certification (the “Sarbanes-Oxley
Certification”), required to be included therewith pursuant to the
Sarbanes-Oxley Act. The Servicer and the Indenture Trustee, shall and the
Servicer shall cause any subservicer or subcontractor engaged by it to, provide
to the Person who signs the Sarbanes-Oxley Certification (the “Certifying
Person”), by March 15 of each year in which the Issuing Entity is subject to the
reporting requirements of the Exchange Act, a certification (each, a “Back-Up
Certification”), in the form attached hereto as Exhibit J-2, upon which the
Certifying Person, the entity for which the Certifying Person acts as an
officer, and such entity’s officers, directors and Affiliates (collectively with
the Certifying Person, “Certification Parties”) can reasonably rely. The senior
officer of the Servicer shall serve as the Certifying Person on behalf of the
Issuing Entity. Such officer of the Certifying Person can be contacted as set
forth in Section 11.06. In the event the Indenture Trustee is terminated or
resigns pursuant to the terms of this Agreement, the Indenture Trustee shall

 

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provide a Back-Up Certification to the Certifying Person pursuant to this
Section 5.18(a)(iii) with respect to the period of time it was subject to this
Agreement.

(iv) With respect to any Additional Form 10-D Disclosure or Additional From 10-K
Disclosure (collectively, the “Additional Disclosure”) relating to the Trust
Estate, the Indenture Trustee’s obligation to include such Additional
Information in the applicable Exchange Act report is subject to receipt from the
entity that is indicated in Exhibit I as the responsible party for providing
that information, if other than the Indenture Trustee, as and when required as
described in Section 5.18(a)(i) through (iii) above. Each of the Servicer,
Sponsor, and Depositor hereby agree to notify and provide to the extent known to
the Indenture Trustee and the Depositor all Additional Disclosure relating to
the Trust Estate, with respect to which such party is indicated in Exhibit I as
the responsible party for providing that information.

(v) With respect to any Form 8-K Disclosure Information (collectively, the “8-K
Additional Disclosure”) relating to the Trust Estate, the Depositor’s obligation
to include such 8-K Additional Information in the applicable Exchange Act report
is subject to receipt from the entity that is indicated in Exhibit I as the
responsible party for providing that information, if other than the Depositor,
as and when required as described in Section 5.18(a)(i) through (iii) above.
Each of the Indenture Trustee, Servicer, Sponsor, and Depositor hereby agree to
notify and provide to the extent known to the Depositor all 8-K Additional
Disclosure relating to the Trust Estate, with respect to which such party is
indicated in Exhibit I as the responsible party for providing that information.

(vi) (A) On or prior to January 30 of the first year in which the Indenture
Trustee is able to do so under applicable law, the Indenture Trustee shall file
a Form 15 relating to the automatic suspension of reporting in respect of the
Issuing Entity under the Exchange Act.

(B) In the event that the Indenture Trustee is unable to timely file with the
Commission all or any required portion of any Form 10-D or 10-K required to be
filed by this Agreement because required disclosure information was either not
delivered to it or delivered to it after the delivery deadlines set forth in
this Agreement or for any other reason, the Indenture Trustee will immediately
notify the Depositor and the Servicer. In the case of Form 10-D and 10-K, the
Depositor, Servicer and Indenture Trustee will cooperate to prepare and file a
Form 12b-25 and a 10-DA and 10-KA as applicable, pursuant to Rule 12b-25 of the
Exchange Act. In the case of Form 8-K, the Depositor will, upon receipt of all
required Form 8-K Disclosure Information provide such Form 8-K Disclosure
Information to the Indenture Trustee for inclusion on the next Form 10-D. In the
event that any previously filed Form 10-D or 10-K needs to be amended, the
Indenture Trustee (to the extent of actual knowledge) will notify the Depositor
and the Servicer and such parties will cooperate to prepare any necessary 10-DA
or 10-KA. Any Form 15, Form 12b-25 or any amendment to Form 8-K, 10-D or 10-K
shall be signed by a senior officer of the Servicer. The Depositor and Servicer
acknowledge that the performance by the Indenture Trustee of its duties under
this Section 5.18(a)(v) related to the timely preparation and filing of Form 15,
a Form 12b-25 or any amendment to Form 10-D or 10-K is contingent upon the
Servicer and the Depositor performing their duties under this Section. The
Indenture Trustee shall have no liability for any loss, expense, damage, claim
arising out of or with respect to any failure to properly prepare and/or timely
file any such Form 15, Form 12b-25 or any amendments to Forms 10-D or 10-K,
where such failure results from the Indenture Trustee’s inability or

 

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failure to receive, on a timely basis, any information from any other party
hereto needed to prepare, arrange for execution or file such Form 15, Form
12b-25 or any amendments to Forms 8-K, 10-D or 10-K, not resulting from its own
negligence, bad faith or willful misconduct.

The Depositor agrees to promptly furnish to the Indenture Trustee, from time to
time upon request, such further information, reports and financial statements
within its control related to this Agreement, the Mortgage Loans as is necessary
for the preparation and filing of all required reports with the Commission. The
Indenture Trustee shall have no responsibility to file any items other than
those specified in this Section 5.18; provided, however, the Indenture Trustee
will cooperate with the Depositor in connection with any additional filings with
respect to the Issuing Entity as the Depositor deems necessary under the
Exchange Act. Copies of all reports filed by the Indenture Trustee under the
Exchange Act shall be sent to the Depositor as set forth in Section 11.06.

(b) In connection with the filing of any 10-K hereunder, the Indenture Trustee
shall sign a certification (a “Form of Back-Up Certification to Form 10-K
Certificate,” substantially in the form attached hereto as Exhibit J-2) for the
Depositor regarding certain aspects of the Form 10-K certification signed by the
Depositor, provided, however, that the Indenture Trustee shall not be required
to undertake an analysis of any accountant’s report attached as an exhibit to
the Form 10-K.

Section 5.19. Optional Purchase of Defaulted Mortgage Loans.

(a) The Servicer shall have the right, but not the obligation, to purchase any
Mortgage Loan which becomes 90 days or more delinquent at a purchase price equal
to the Repurchase Price (a) within 29 days after the date the Mortgage Loan
becomes 90 days delinquent or (b) on the date the Servicer liquidates the
related Mortgaged Property. The procedure for such purchase shall be the same as
for a repurchase made by the Sponsor under this Agreement. With respect to any
Mortgage Loans being purchased pursuant to this Section 5.19, the Servicer shall
purchase the most delinquent Mortgage Loans before purchasing other less
delinquent Mortgage Loans. The Servicer or the related Subservicer may purchase
a Mortgage Loan at the Repurchase Price when the Servicer requires acceleration
of the Mortgage Loan, but only if the Servicer is satisfied, as evidenced by an
Officer’s Certificate delivered to the Indenture Trustee, that such Mortgage
Loan is in default or default is reasonably foreseeable and that the conditions
to such optional purchase as set forth herein have been fulfilled.

(b) The Servicer may not repurchase pursuant to this Section 5.19 more than 10%
of the Mortgage Loans, measured by the outstanding Principal Balance of the
Mortgage Loans repurchased as a percentage of the Cut-off Date Principal
Balance.

Section 5.20. Information Required by the Internal Revenue Service Generally and
Reports of Foreclosures and Abandonments of Mortgaged Property.

The Servicer shall prepare and deliver all federal and state information reports
when and as required by all applicable state and federal income tax laws. In
particular, with respect to the requirement under Section 6050J of the Code to
the effect that the Servicer or Subservicer shall

 

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make reports of foreclosures and abandonments of any mortgaged property, the
Servicer or Subservicer shall file reports relating to each instance occurring
during the previous calendar year in which the Servicer (i) acquires an interest
in any Mortgaged Property through foreclosure or other comparable conversion in
full or partial satisfaction of a Mortgage Loan, or (ii) knows or has reason to
know that any Mortgaged Property has been abandoned. The reports from the
Servicer or Subservicer shall be in form and substance sufficient to meet the
reporting requirements imposed by Section 6050J, Section 6050H (reports relating
to mortgage interest received) and Section 6050P of the Code (reports relating
to cancellation of indebtedness).

Section 5.21. Optional Purchase of Mortgage Loans.

The Depositor has the right, but not the obligation, to purchase any Mortgage
Loan at a purchase price equal to the Repurchase Price, if the Depositor deems
it advisable in the administration or servicing of the Mortgage Loans. The
Depositor may not repurchase pursuant to this Section 5.21 more than twenty-five
(25) of the Mortgage Loans. The procedure for such purchase shall be the same as
for a repurchase made by the Sponsor under this Agreement.

Section 5.22. [Reserved].

Section 5.23. Servicing and Administration of the MI Policies.

(a) The Servicer shall take all such actions on behalf of the Indenture Trustee
as are necessary to service, maintain and administer the MI Policies and to
perform the Indenture Trustee’s obligations and enforce the Indenture Trustee’s
rights under the MI Policies, which actions shall conform to the standards of an
institution prudently administering MI Policies for its own account. Except as
expressly set forth herein, the Servicer shall have full authority on behalf of
the Issuing Entity to do anything it reasonably deems appropriate or desirable
in connection with the servicing, maintenance and administration of the MI
Policies. The Servicer shall make its best reasonable efforts to file all
insured claims under the MI Policies and collect from the MI Insurer all
Insurance Proceeds due to the Indenture Trustee under the MI Policies. The
Servicer shall not take, or permit any subservicer to take, any action which
would result in non-coverage under any applicable MI Policy of any loss which,
but for the actions of the Servicer or Subservicer, would have been covered
thereunder. To the extent coverage is available, the Servicer shall keep or
cause to be kept in full force and effect each such MI Policy for the life of
the Mortgage Loan; provided, however, that if a MI Insurer Insolvency Event has
occurred and is continuing, the Servicer may terminate the MI Policy on any
Mortgage Loan that is not then past due. The Servicer shall cooperate with the
MI Insurer and shall use its best efforts to furnish all reasonable aid,
evidence and information in the possession of the Servicer or to which the
Servicer has access with respect to any Mortgage Loan.

(b) The Servicer shall deposit into the Collection Account pursuant to
Section 5.06(d)(v) hereof all MI Insurance Proceeds received from the MI Insurer
under the terms of the MI Policies. The Servicer shall withdraw from the
Collection Account and pay to the MI Insurer pursuant to Section 5.07(a)(xii)
hereof, the monthly MI Premiums due to the MI Insurer in accordance with the
terms of the MI Insurance Agreements. Even in the event that the Indenture
Trustee has actual knowledge that any MI Premiums have in fact not been paid,
the Indenture Trustee shall not have any duty, and shall have no liability for
failing to distribute such amounts.

 

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(c) Notwithstanding the provisions of Subsection 5.22(a) and (b), the Servicer
shall not take any action in regard to the MI Policies inconsistent with the
interests of the Indenture Trustee or the Noteholders or with the rights and
interests of the Indenture Trustee or the Noteholders under this Agreement;
provided, however, that payments of the monthly MI Premiums to the MI Insurer
pursuant to Subsection 5.22(b) above and Section 5.07(a)(xii) hereof shall be
deemed not to be inconsistent with such interests.

(d) The Indenture Trustee shall furnish the Servicer with any powers of attorney
and other documents in form as provided to it necessary or appropriate to enable
the Servicer to service and administer the MI Policies; provided, however, that
the Indenture Trustee shall not be liable for the actions of the Servicer under
such powers of attorney.

(e) If at any time during the term of this Agreement, a MI Insurer Insolvency
Event has occurred and is continuing, the Servicer agrees to review, not less
often than monthly, the financial condition of the related MI Insurer with a
view towards determining whether recoveries under the MI Policy are jeopardized
for reasons related to the financial condition of the related MI Insurer. In
such event, the Servicer may obtain an additional MI Policy or a replacement MI
Policy, the MI Premiums on which would be paid by the Servicer from the
Collection Account pursuant to Section 5.07(a)(xii) hereof.

(f) The Servicer shall comply with all other terms, conditions and obligations
set forth in the MI Policies.

Section 5.24. Determination Date Reports.

On the second Business Day following each Determination Date (the “Servicer
Reporting Date”), the Servicer shall deliver to the Indenture Trustee a report,
prepared as of the close of business on the Determination Date (the
“Determination Date Report”), and shall forward to the Indenture Trustee in the
form of computer readable electronic file, electromagnetic tape or disk a copy
of such report in a format acceptable to the Indenture Trustee. The
Determination Date Report and any written information supplemental thereto shall
include such information with respect to the Mortgage Loans that is reasonably
available to the Servicer and that is required by the Indenture Trustee for
purposes of making the calculations and providing the reports referred to in
this Agreement, as set forth in written specifications or guidelines issued by
the Indenture Trustee from time to time. Such information shall include the
aggregate amounts required to be withdrawn from the Collection Account and
deposited into the Payment Account pursuant to Section 5.07. Such information
shall also include (a) the number of Mortgage Loans that prepaid in the previous
month; (b) the loan balance of each such Mortgage Loan; (c) whether a prepayment
penalty was applied to such Mortgage Loan; and (d) the amount of prepayment
penalty with respect to each such Mortgage Loan. The Servicer agrees to
cooperate with the Indenture Trustee in providing all information as is
reasonably requested by the Indenture Trustee to prepare the reports required
under this Agreement.

The determination by the Servicer of such amounts shall, in the absence of
obvious error, be presumptively deemed to be correct for all purposes hereunder
and the Indenture Trustee shall be fully protected in relying upon the same
without any independent check or verification.

 

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Section 5.25. Advances.

If any Monthly Payment (together with any advances from the Subservicers) on a
Mortgage Loan that was due on the immediately preceding Due Date and delinquent
on the Determination Date is delinquent other than as a result of application of
the Relief Act, the Servicer will deposit in the Collection Account not later
than the Servicer Remittance Date immediately preceding the related Payment Date
an amount equal to such deficiency net of the related Servicing Fee for such
Mortgage Loan, except to the extent the Servicer determines any such advance to
be nonrecoverable from Liquidation Proceeds, Insurance Proceeds or future
payments on such Mortgage Loan. Subject to the foregoing and in the absence of
such a determination, the Servicer shall continue to make such advances through
the date that the related Mortgaged Property has, in the judgment of the
Servicer, been completely liquidated.

The Servicer may fund an Advance from its own corporate funds, advances made by
any subservicer or funds held in the Collection Account for future payment or
withdrawal.

Advances made from funds held in the Collection Account may be made by the
Servicer from subsequent collections of principal and interest received on other
Mortgage Loans and deposited into the Collection Account. Advances made from the
Collection Account are not limited to subsequent collections of principal and
interest received on the delinquent Mortgage Loan with respect to which an
Advance is made. If on the Servicer Remittance Date prior to any Payment Date
funds in the Collection Account are less than the amount required to be paid to
the Noteholders on such Payment Date, then the Servicer shall deposit its own
funds into the Payment Account in the amount of the lesser of (i) any
unreimbursed Advances previously made by the Servicer with funds held in the
Collection Account or (ii) the shortfall in the Collection Account, provided,
however, that in no event shall the Servicer deposit into the Collection Account
an amount that is less than any shortfall in the Collection Account attributable
to delinquent payments on Mortgage Loans which the Servicer deems to be
recoverable and which has not been covered by an Advance from the Servicer’s own
corporate funds or any subservicer’s funds. If applicable, on the Servicer
Remittance Date preceding each Payment Date, the Servicer shall present an
Officer’s Certificate to the Indenture Trustee (i) stating that the Servicer
elects not to make an Advance in a stated amount and (ii) detailing the reason
it deems the advance to be nonrecoverable.

Section 5.26. Compensating Interest Payments.

The Servicer shall deposit in the Collection Account not later than the Servicer
Remittance Date preceding the Payment Date an amount equal to the Compensating
Interest for the related Determination Date. The Servicer shall not be entitled
to any reimbursement of any Compensating Interest payment.

Section 5.27. Advance Facility.

(a) The Servicer on behalf of the Trust Estate, is hereby authorized to enter
into a facility (such an arrangement, an “Advance Facility”) with any Person
which provides that such Person (an “Advancing Person”) may fund Advances and/or
Servicing Advances under this Agreement, although no such facility shall reduce
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fund such Advances and/or Servicing Advances. No consent of the Indenture
Trustee, Noteholders or any other party shall be required before the Servicer
may enter into an Advance Facility nor shall the Indenture Trustee or the
Noteholders be a third party beneficiary of any obligation of an Advancing
Person to the Servicer. If the Servicer enters into an Advance Facility, the
Servicer and the related Advancing Person shall deliver to the Indenture Trustee
at the address set forth in Section 11.06 hereof a written notice (an “Advance
Facility Notice”) (in the form attached hereto as Exhibit L), stating (a) the
identity of the Advancing Person and (b) the identity of the Person (the
“Servicer’s Assignee”) that will, subject to Section 5.27(b) hereof, have the
right to make withdrawals from the Collection Account pursuant to Section 5.07
hereof to reimburse previously unreimbursed Advances and/or Servicing Advances
(“Advance Reimbursement Amounts”). If the Servicer enters into such an Advance
Facility pursuant to this Section 5.27, the Indenture Trustee shall execute the
acknowledgment of the Advance Facility Notice, as prepared by the Servicer
confirming its receipt of written notice of the existence of such Advance
Facility. To the extent that an Advancing Person purchases or funds any Advance
or any Servicing Advance and provides the Indenture Trustee with written notice
(in the form attached hereto as Exhibit M) acknowledged by the Servicer that
such Advancing Person is entitled to reimbursement directly from the Indenture
Trustee pursuant to the terms of the Advance Facility, such Advancing Person
shall be entitled to receive reimbursement pursuant to this Agreement for such
amount to the extent provided in Section 5.27(b). Such notice from the Advancing
Person must specify the amount of the reimbursement, the Section of this
Agreement that permits the applicable Advance or Servicing Advance to be
reimbursed, the section(s) of the Advance Facility that entitle the Advancing
Person to request reimbursement from the Indenture Trustee, on behalf of the
Trust Estate, rather than the Servicer, the Advancing Person’s wire transfer
instructions, and include the Servicer’s acknowledgment thereto or proof of an
Event of Default under the Advance Facility. The Indenture Trustee shall have no
duty or liability with respect to any calculation of any reimbursement to be
paid to an Advancing Person and shall be entitled to rely without independent
investigation on the Advancing Person’s notice provided pursuant to this
Section 5.27. An Advancing Person whose obligations hereunder are limited to the
funding of Advances and/or Servicing Advances shall not be required to meet the
qualifications of a Sub-Servicer pursuant to Section 5.02 hereof.

(b) Notwithstanding the foregoing, and for the avoidance of doubt, (i) the
Servicer and/or the Servicer’s Assignee shall only be entitled to reimbursement
of Advance reimbursement amounts hereunder from withdrawals from the Collection
Account pursuant to Section 5.07 of this Agreement and shall not otherwise be
entitled to make withdrawals or receive amounts that shall be deposited in the
Payment Account, and (ii) none of the Indenture Trustee or the Noteholders shall
have any right to, or otherwise be entitled to, receive any Advance
reimbursement amounts to which the Servicer or Servicer’s Assignee, as
applicable, shall be entitled pursuant to Section 5.07 hereof. An Advance
Facility may be terminated by the joint written direction of the Servicer and
the related Advancing Person. Written notice of such termination shall be
delivered to the Indenture Trustee in the manner set forth in Section 11.06
hereof. None of the Depositor or the Indenture Trustee shall, as a result of the
existence of any Advance Facility, have any additional duty or liability with
respect to the calculation or payment of any Advance reimbursement amount, nor,
as a result of the existence of any Advance Facility, shall the Depositor or the
Indenture Trustee have any additional responsibility to track or monitor the
administration of the Advance Facility or the payment of Advance reimbursement
amounts to the Servicer’s Assignee. The Servicer shall indemnify the Depositor,
the Indenture Trustee, any

 

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successor Servicer and the Trust Estate for any claim, loss, liability or damage
resulting from any claim by the related Advancing Person, except to the extent
that such claim, loss, liability or damage resulted from or arose out of
negligence, recklessness or willful misconduct on the part of the Depositor, the
Indenture Trustee or any successor Servicer, as the case may be, or failure by
the successor Servicer or the Indenture Trustee, as the case may be, to remit
funds as required by this Agreement or the commission of an act or omission to
act by the successor Servicer or the Indenture Trustee, as the case may be, and
the passage of any applicable cure or grace period, such that an Event of
Default under this Agreement occurs or such entity is subject to termination for
cause under this Agreement. The Servicer shall maintain and provide to any
successor Servicer and, upon request, the Indenture Trustee a detailed
accounting on a loan-by-loan basis as to amounts advanced by, pledged or
assigned to, and reimbursed to any Advancing Person. The successor Servicer
shall be entitled to rely on any such information provided by the predecessor
Servicer, and the successor Servicer shall not be liable for any errors in such
information.

(c) If an Advancing Person is entitled to reimbursement for any particular
Advance or Servicing Advance as set forth in Section 5.27(a), then the Servicer
shall not be permitted to reimburse itself therefor under Section 5.07, but
instead the Servicer shall include such amounts in the applicable remittance to
the Indenture Trustee made pursuant to Section 5.06(d) to the extent of amounts
on deposit in the Collection Account on the related Servicer Remittance Date.
The Indenture Trustee is hereby authorized to pay to an Advancing Person
reimbursements for Advances and Servicing Advances from the Payment Account to
the same extent the Servicer would have been permitted to reimburse itself for
such Advances and/or Servicing Advances in accordance with Section 5.07, had the
Servicer made such Advance or Servicing Advance.

(d) All Advances and Servicing Advances made pursuant to the terms of this
Agreement shall be deemed made and shall be reimbursed on a “first in first out”
(FIFO) basis. In the event the Servicer’s Assignee shall have received some or
all of an Advance reimbursement amount related to Advances and/or Servicing
Advances that were made by a Person other than such predecessor Servicer or its
related Advancing Person in error, then such Servicer’s Assignee shall be
required to remit any portion of such Advance reimbursement amount to each
Person entitled to such portion of such Advance reimbursement amount. Without
limiting the generality of the foregoing, the Servicer shall remain entitled to
be reimbursed pursuant to Section 5.07 for all Advances and/or Servicing
Advances funded by the Servicer to the extent the related Advance reimbursement
amounts have not been assigned, sold or pledged to such Advancing Person or
Servicer’s Assignee.

(e) In the event the Servicer is terminated pursuant to Section 8.01, the
Advancing Person shall succeed to the terminated Servicer’s right of
reimbursement set forth in Section 8.02 to the extent of such Advancing Person’s
financing of Advances or Servicing Advances hereunder then remaining
unreimbursed.

(f) Any amendment to this Section 5.27 or to any other provision of this
Agreement that may be necessary or appropriate to effect the terms of an Advance
Facility as described generally in this Section 5.27, including amendments to
add provisions relating to a successor Servicer, may be entered into by the
Indenture Trustee, the Depositor and the Servicer

 

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without the consent of any Noteholder, provided such amendment complies with
Section 11.03 hereof. All reasonable costs and expenses (including attorneys’
fees) of each party hereto of any such amendment shall be borne solely by the
Servicer. The parties hereto hereby acknowledge and agree that: (a) the Advances
and/or Servicing Advances financed by, sold and/or pledged to an Advancing
Person under any Advance Facility are obligations owed to the Servicer payable
only from the cash flows and proceeds received under this Agreement for
reimbursement of Advances and/or Servicing Advances only to the extent provided
herein, and the Indenture Trustee and the Trust Estate are not, as a result of
the existence of any Advance Facility, obligated or liable to repay any Advances
and/or Servicing Advances financed by the Advancing Person; (b) the Servicer
will be responsible for remitting to the Advancing Person the applicable amounts
collected by it as reimbursement for Advances and/or Servicing Advances
purchased or funded by the Advancing Person, subject to the provisions of this
Agreement; and (c) the Indenture Trustee shall not have any responsibility to
track or monitor the administration of the financing arrangement between the
Servicer and any Advancing Person.

Section 5.28. Servicer Rights Facility.

The Servicer is hereby authorized to finance, pledge and/or assign any or all of
its right, title and interest in, to and under this Sale and Servicing Agreement
to one or more lenders selected by the Servicer, provided, however, that such
financing, pledge and/or assignment shall not materially or adversely affect the
rights of the noteholders.

ARTICLE VI

APPLICATION OF FUNDS

Section 6.01. Deposits to the Payment Account. By 12:00 noon (New York time) on
each Servicer Remittance Date, the Servicer shall remit to the Indenture Trustee
for deposit in the Payment Account, from funds on deposit in the Collection
Account, an amount equal to the Servicer Remittance Amount with respect to the
related Payment Date, minus any portion thereof payable to the Servicer pursuant
to Section 6.03.

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

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

 

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ARTICLE VII

THE SERVICER AND THE DEPOSITOR

Section 7.01. Liability of the Servicer and the Depositor.

The Servicer shall be liable in accordance herewith only to the extent of the
obligations specifically imposed upon and undertaken by Servicer herein. The
Depositor shall be liable in accordance herewith only to the extent of the
obligations specifically imposed upon and undertaken by the Depositor.

Section 7.02. Merger or Consolidation of, or Assumption of the Obligations of,
the Servicer or the Depositor.

Any entity into which the Servicer or Depositor may be merged or consolidated,
or any entity resulting from any merger, conversion or consolidation to which
the Servicer or the Depositor shall be a party, or any corporation succeeding to
the business of the Servicer or the Depositor, shall be the successor of the
Servicer or the Depositor, as the case may be, hereunder, without the execution
or filing of any paper or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding; provided, however, that
the successor Servicer shall satisfy all the requirements of Section 8.02 with
respect to the qualifications of a successor Servicer.

Section 7.03. Limitation on Liability of the Servicer and Others.

The Servicer and any director or officer or employee or agent of the Servicer
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. The
Servicer and any director or officer or employee or agent of the Servicer shall
be indemnified by the Issuing Entity and held harmless against any loss,
liability or expense incurred in connection with any legal action relating to
this Agreement or the Notes, including any amount paid to the Indenture Trustee
pursuant to Section 7.06(b), other than any loss, liability or expense related
to any specific Mortgage Loan or Mortgage Loans (except as any such loss,
liability or expense shall be otherwise reimbursable pursuant to this Agreement)
and any loss, liability or expense incurred by reason of its willful
misfeasance, bad faith or negligence in the performance of its duties hereunder
or by reason of its reckless disregard of its obligations and duties hereunder.
The Servicer shall not be under any obligation to appear in, prosecute or defend
any legal action which is not incidental to its duties to service the Mortgage
Loans in accordance with this Agreement, and which in its opinion may involve it
in any expense or liability; provided, however, that the Servicer may in its
sole discretion undertake any such action which it may deem necessary or
desirable in respect of this Agreement, and the rights and duties of the parties
hereto and the interests of the Noteholders hereunder. In such event, the
reasonable legal expenses and costs of such action and any liability resulting
therefrom shall be expenses, costs and liabilities of the Issuing Entity, and
the Servicer shall be entitled to be reimbursed therefor. The Servicer’s right
to indemnity or reimbursement pursuant to this Section 7.03 shall survive any
resignation or termination of the Servicer pursuant to Section 7.04 or 8.01 with
respect to any losses, expenses, costs or liabilities arising prior to

 

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such resignation or termination (or arising from events that occurred prior to
such resignation or termination). Any reimbursements or indemnification to the
Servicer from the Issuing Entity pursuant to this Section 7.03 shall be payable
in the priority set forth in Section 8.01 of the Indenture.

Section 7.04. Servicer Not to Resign.

Subject to the provisions of Section 7.04, the Servicer shall not resign from
the obligations and duties hereby imposed on it except (i) upon determination
that the performance of its obligations or duties hereunder are no longer
permissible under applicable law or (ii) upon satisfaction of the following
conditions: (a) the Servicer has proposed a successor servicer to the Indenture
Trustee in writing and such proposed successor servicer is reasonably acceptable
to the Indenture Trustee; and (b) each Rating Agency shall have delivered a
letter to the Indenture Trustee prior to the appointment of the successor
servicer stating that the proposed appointment of such successor servicer as
Servicer hereunder will not result in the reduction or withdrawal of then
current rating of the Notes; provided, however, that no such resignation by the
Servicer shall become effective until such successor servicer or, in the case of
(i) above, the Indenture Trustee or its designee as successor Servicer shall
have assumed the Servicer’s responsibilities and obligations hereunder or shall
have designated a successor servicer in accordance with Section 7.02. Any such
resignation shall not relieve the Servicer of responsibility for any of the
obligations specified in Sections 7.03 and 7.06 as obligations that survive the
resignation or termination of the Servicer. The Servicer shall have no claim
(whether by subrogation or otherwise) or other action against any Noteholder for
any amounts paid by the Servicer pursuant to any provision of this Agreement.
Any such determination permitting the resignation of the Servicer under clause
(i) above shall be evidenced by an Opinion of Counsel to such effect delivered
to the Indenture Trustee.

Section 7.05. Delegation of Duties.

In the ordinary course of business, the Servicer at any time may delegate any of
its duties hereunder to any Person, including any of its Affiliates, who agrees
to conduct such duties in accordance with the same standards with which the
Servicer complies pursuant to Section 5.01. Such delegation shall not relieve
the Servicer of its liabilities and responsibilities with respect to such duties
and shall not constitute a resignation within the meaning of Section 7.04.

Section 7.06. Servicer to Pay Trustee’s Fees and Expenses; Indemnification.

(a) The Servicer covenants and agrees to indemnify and pay to the Indenture
Trustee and any co-trustee of the Indenture Trustee from time to time, and the
Indenture Trustee and any such co-trustee shall be entitled to, reasonable
compensation, including all indemnification payments (which shall not be limited
by any provision of law in regard to the compensation of a trustee of an express
trust) for all services rendered by each of them in the execution of the trusts
created hereunder and in the exercise and performance of any of the powers and
duties and the Servicer will pay or reimburse the Indenture Trustee and any
co-trustee upon request for all reasonable expenses, disbursements and advances
incurred or made by the Indenture Trustee or any co-trustee of the Indenture
Trustee in accordance with any of the

 

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provisions of this Agreement except any such expense, disbursement or advance as
may arise from its negligence or bad faith.

(b) The Servicer agrees to indemnify the Indenture Trustee for, and to defend
and hold, the Indenture Trustee harmless against, any claim, tax, penalty, loss,
liability or expense of any kind whatsoever, incurred without gross negligence
or willful misconduct on the part of the Indenture Trustee as such and/or in its
individual capacity, arising out of, or in connection with, the performance of
the Indenture Trustee’s duties under this Agreement or the other Basic
Documents, including the reasonable costs and expenses (including reasonable
legal fees and expenses) of defending itself against any claim in connection
with the exercise or performance of any of its powers or duties hereunder,
provided that:

(i) with respect to any such claim, the Indenture Trustee shall have given the
Servicer written notice thereof promptly after the Indenture Trustee shall have
actual knowledge thereof;

(ii) while maintaining control over its own defense, the Indenture Trustee shall
cooperate and consult fully with the Servicer in preparing such defense; and

(iii) notwithstanding anything in this Agreement to the contrary, the Servicer
shall not be liable for settlement of any claim by the Indenture Trustee entered
into without the prior consent of the Servicer, which consent shall not be
unreasonably withheld.

No termination of this Agreement and resignation and removal of the Indenture
Trustee shall affect the obligations created by this Section 7.06 of the
Servicer to indemnify the Indenture Trustee under the conditions and to the
extent set forth herein. This section shall survive the termination of this
Agreement and resignation and removal of the Indenture Trustee. Any amounts to
be paid by the Servicer pursuant to this Subsection may not be paid from the
Issuing Entity except as provided in Article V and Article VIII of the
Indenture, but only to the extent unpaid by the Servicer.

Notwithstanding the foregoing, the indemnification provided by the Servicer in
this Section 7.06 shall not pertain to any loss, liability or expense of the
Indenture Trustee including the costs and expenses of defending itself against
any claim, incurred in connection with any actions taken by the Indenture
Trustee at the direction of the Noteholders, as the case may be, pursuant to the
terms of this Agreement.

(c) The Servicer agrees to indemnify the Issuing Entity in an amount equal to
the amount of any claim made under a MI Policy for which coverage is denied by
the MI Insurer because (and if the MI Insurer’s denial of coverage is contested
by the Servicer, a court or arbitrator finally determines that coverage is not
available under the MI Policy because) of the Servicer’s failure to abide by the
terms of the MI Policy or the MI Insurance Agreement or the Servicer’s failure
to abide by the NFI Underwriting Guidelines or the NFI Servicing Guidelines, as
attached to the MI Insurance Agreement.

 

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(d) In the event the Indenture Trustee becomes the Servicer pursuant to
Section 8.02 hereof, the Trustee shall not be obligated, in its individual
capacity, to pay any obligation of the Servicer under clause (a), (b) or
(c) above.

ARTICLE VIII

DEFAULT

Section 8.01. Servicing Default.

(a) If any one of the following events shall occur and be continuing it shall be
a “Servicing Default”:

(i) Any failure by the Servicer to deposit in the Collection Account or Payment
Account (A) any Advances and Compensating Interest or (B) any other deposit
required to be made under the terms of this Agreement, which, in the case of
this clause (B), continues unremedied for a period of three Business Days after
the date upon which written notice of such failure shall have been given to the
Servicer by the Indenture Trustee or to the Servicer and the Indenture Trustee
by the Holders of Notes evidencing at least 25% of the Voting Rights; or

(ii) Failure on the part of the Servicer duly to observe or perform in any
material respect any other covenants or agreements of the Servicer set forth in
this Agreement, which failure, in each case, materially and adversely affects
the interests of Noteholders or the breach of any representation or warranty of
the Servicer in this Agreement which materially and adversely affects the
interests of the Noteholders, and which in either case continues unremedied for
a period of 30 days after the date on which written notice of such failure or
breach, requiring the same to be remedied, and stating that such notice is a
“Notice of Default” hereunder, shall have been given to the Servicer by the
Indenture Trustee or to the Servicer and the Indenture Trustee by the Holders of
Notes evidencing at least 25% of the Voting Rights; or

(iii) The entry against the Servicer of a decree or order by a court or agency
or supervisory authority having jurisdiction in the premises for the appointment
of a trustee, conservator, receiver or liquidator in any insolvency,
conservatorship, receivership, readjustment of debt, marshaling of assets and
liabilities or similar proceedings, or for the winding up or liquidation of its
affairs, and the continuance of any such decree or order unstayed and in effect
for a period of 60 consecutive days; or

(iv) The Servicer shall voluntarily go into liquidation, consent to the
appointment of a conservator, receiver, liquidator or similar person in any
insolvency, readjustment of debt, marshaling of assets and liabilities or
similar proceedings of or relating to the Servicer or of or relating to all or
substantially all of its property, or a decree or order of a court, agency or
supervisory authority having jurisdiction in the premises for the appointment of
a conservator, receiver,

 

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liquidator or similar person in any insolvency, readjustment of debt, marshaling
of assets and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Servicer and
such decree or order shall have remained in force undischarged, unbonded or
unstayed for a period of 60 days; or the Servicer shall admit in writing its
inability to pay its debts generally as they become due, file a petition to take
advantage of any applicable insolvency or reorganization statute, make an
assignment for the benefit of its creditors or voluntarily suspend payment of
its obligations; or

(v) The Cumulative Loss Percentage exceeds (a) with respect to the first 12
Payment Dates, 1.75%, (b) with respect to the next 12 Payment Dates, 2.75%
(c) with respect to the next 12 Payment Dates, 4.00%, (d) with respect to the
next 12 Payment Dates, 4.75%, (e) with respect to the next 12 Payment Dates,
5.75%, (f) and with respect to all Payment Dates thereafter, 7.00%; or

(vi) Realized Losses on the Mortgage Loans over any twelve-month period exceeds
2.35% of the sum of the aggregate Principal Balance of the Mortgage Loans as of
the Cut-off Date; or

(vii) The Rolling 90 Day Delinquency Percentage exceeds 20.00%.

(b) So long as a Servicing Default shall not have been remedied within the
applicable grace period, (x) with respect solely to clause (i)(A) above, if such
Advance is not made by 5:00 P.M., New York time, on the Business Day immediately
following the Servicer Remittance Date (provided the Indenture Trustee shall
give the Servicer notice of such failure to advance by 5:00 P.M., New York time,
on the Servicer Remittance Date), the Indenture Trustee shall terminate all of
the rights and obligations of the Servicer under this Agreement and the
Indenture Trustee, or a successor servicer appointed in accordance with
Section 8.02, shall assume, pursuant to Section 8.02, the duties of a successor
Servicer and (y) in the case of (i)(B), (ii), (iii), (iv), (v) and (vi) and
(vii) above, the Indenture Trustee may, and, at the direction of the Holders of
Notes evidencing at least 51% of the Voting Rights the Indenture Trustee shall,
by notice then given in writing to the Servicer (and to the Indenture Trustee if
given by Holders of Notes), terminate all of the rights and obligations of the
Servicer as servicer under this Agreement. Any such notice to the Servicer shall
also be given to the Indenture Trustee, each Rating Agency, the Depositor and
the Sponsor. On or after the receipt by the Servicer (and by the Indenture
Trustee if such notice is given by the Holders) of such written notice, all
authority and power of the Servicer under this Agreement, whether with respect
to the Notes or the Mortgage Loans or otherwise, shall pass to and be vested in
the Indenture Trustee or other successor Servicer appointed in accordance with
Section 8.02.

Section 8.02. Indenture Trustee to Act: Appointment of Successor. (a) Within 90
days of the time the Servicer (and the Indenture Trustee if notice is sent by
the Holders) receives a notice of termination pursuant to Section 8.01, the
Indenture Trustee (or such other successor Servicer as is approved in accordance
with this Agreement) shall be the successor in all respects to the Servicer in
its capacity as servicer under this Agreement and the transactions set forth or
provided for herein and shall be subject to all the responsibilities, duties and
liabilities relating thereto placed on the Servicer by the terms and provisions
hereof arising on and after its

 

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succession. Notwithstanding the foregoing, the parties hereto agree that the
Indenture Trustee, in its capacity as successor Servicer, immediately will
assume all of the obligations of the Servicer to make Delinquency Advances;
provided however, that the obligation of the Indenture Trustee to make
Delinquency Advances is subject to the standards set forth in Section 5.25
hereof. Notwithstanding the foregoing, the Indenture Trustee, in its capacity as
successor Servicer, shall not be responsible for the lack of information and/or
documents that it cannot obtain through reasonable efforts. As compensation
therefor, the Indenture Trustee (or such other successor Servicer) shall be
entitled to such compensation as the Servicer would have been entitled to
hereunder if no such notice of termination had been given. Notwithstanding the
above, (i) if the Indenture Trustee is unwilling to act as successor Servicer or
(ii) if the Indenture Trustee is legally unable so to act, the Indenture Trustee
shall appoint or petition a court of competent jurisdiction to appoint, any
established housing and home finance institution, bank or other mortgage loan or
home equity loan servicer having a net worth of not less than $10,000,000 as the
successor to the Servicer hereunder in the assumption of all or any part of the
responsibilities, duties or liabilities of the Servicer hereunder; provided,
that the appointment of any such successor Servicer will not result in the
qualification, reduction or withdrawal of the ratings assigned to the Notes by
the Rating Agencies as evidenced by letters to such effect from the Rating
Agencies. Pending appointment of a successor to the Servicer hereunder, unless
the Indenture Trustee is prohibited by law from so acting, the Indenture Trustee
shall act in such capacity as hereinabove provided. In connection with such
appointment and assumption, the successor shall be entitled to receive
compensation out of payments on Mortgage Loans in an amount equal to the
compensation which the Servicer would otherwise have received pursuant to
Section 5.15 (or such other compensation as the Indenture Trustee and such
successor shall agree, not to exceed the Servicing Fee). The appointment of a
successor Servicer shall not affect any liability of the predecessor Servicer
which may have arisen under this Agreement prior to its termination as Servicer
to pay any deductible under an insurance policy pursuant to Section 5.13 or to
indemnify the Indenture Trustee pursuant to Section 7.06, nor shall any
successor Servicer be liable for any acts or omissions of the predecessor
Servicer or for any breach by such Servicer of any of its representations or
warranties contained herein or in any related document or agreement. The
Indenture Trustee and such successor shall take such action, consistent with
this Agreement, as shall be necessary to effectuate any such succession. All
Servicing Transfer Costs shall be paid by the predecessor Servicer upon
presentation of reasonable documentation of such costs, and if such predecessor
Servicer defaults in its obligation to pay such costs, such costs shall be paid
by the successor Servicer (in which case the successor Servicer or the Indenture
Trustee, as applicable, shall be entitled to reimbursement therefor from the
assets of the Issuing Entity).

(b) Any successor, including the Indenture Trustee, to the Servicer as servicer
shall during the term of its service as servicer continue to service and
administer the Mortgage Loans for the benefit of Noteholders, and maintain in
force a policy or policies of insurance covering errors and omissions in the
performance of its obligations as Servicer hereunder and a Fidelity Bond in
respect of its officers, employees and agents to the same extent as the Servicer
is so required pursuant to Section 5.13.

(c) In connection with the termination or resignation of the Servicer hereunder,
either (i) the successor Servicer, shall represent and warrant that it is a
member of MERS in good standing and shall agree to comply in all material
respects with the rules and

 

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procedures of MERS in connection with the servicing of the Mortgage Loans that
are registered with MERS, in which case the predecessor Servicer shall cooperate
with the successor Servicer in causing MERS to revise its records to reflect the
transfer of servicing to the successor Servicer as necessary under MERS’ rules
and regulations, or (ii) the predecessor Servicer shall cooperate with the
successor Servicer in causing MERS to execute and deliver an assignment of
Mortgage in recordable form to transfer the Mortgages from MERS to the Indenture
Trustee and to execute and deliver such other notices, documents and other
instruments as may be necessary or desirable to effect a transfer of such
Mortgage Loans or servicing of such Mortgage Loan on the MERS System to the
successor Servicer. The predecessor Servicer shall file or cause to be filed any
such assignment in the appropriate recording offices. The predecessor Servicer
shall bear any and all fees of MERS, costs of preparing any assignments of
Mortgage, and fees and costs of filing any assignments of Mortgage that may be
required under this subsection (c). The successor Servicer shall cause
assignment to be delivered to the Indenture Trustee promptly upon receipt of the
original with evidence of recording thereon or a copy certified by the public
recording office in which such assignment was recorded.

Section 8.03. Waiver of Defaults. The Majority Noteholders may, on behalf of all
Noteholders, waive any events permitting removal of the Servicer as servicer
pursuant to this Article VIII; provided, however, that the Majority Noteholders
may not waive a default in making a required payment on a Note without the
consent of the Holder of such Note. Upon any waiver of a past default, such
default shall cease to exist, and any Servicing Default arising therefrom shall
be deemed to have been remedied for every purpose of this Agreement. No such
waiver shall extend to any subsequent or other default or impair any right
consequent thereto except to the extent expressly so waived. Notice of any such
waiver shall be given by the Indenture Trustee to the Rating Agencies.

ARTICLE IX

TERMINATION

Section 9.01. Termination. (a) Subject to Section 8.02, this Agreement shall
terminate upon notice to a Responsible Officer of the Indenture Trustee of
either: (i) the disposition of all funds with respect to the last Mortgage Loan
and the remittance of all funds due hereunder and the payment of all amounts due
and payable to the Indenture Trustee and the Custodian or (ii) mutual consent of
the Owner Trustee, on behalf of the Issuing Entity, at the direction of all the
Noteholders, the Indenture Trustee, the Servicer, the Custodian, the Hedge
Counterparties (if the Hedge Agreements are still outstanding) and all
Noteholders in writing.

(b) In addition, subject to Section 9.02, the Sponsor may, at its sole option,
cost and expense, terminate the Issuing Entity in accordance with the terms of
Section 10.01 of the Indenture.

(c) If on any date, the Servicer determines that there are no outstanding
Mortgage Loans and no other funds or assets in the Trust Estate other than funds
in the Payment Account, the Servicer shall send a final payment notice promptly
to the Indenture Trustee, who shall forward notice to each Noteholder in
accordance with Section 9.01(d).

 

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(d) Notice of any termination, specifying the Payment Date upon which the
Issuing Entity will terminate and the Noteholders shall surrender their Notes to
the Indenture Trustee for final payment and cancellation, shall be given
promptly by the Servicer to the Indenture Trustee, who shall forward the notice
by letter to Noteholders mailed during the month of such final payment before
the Servicer Remittance Date in such month, specifying (i) the Payment Date upon
which final payment of the Notes will be made upon presentation and surrender of
Notes at the office of the Indenture Trustee therein designated, (ii) the amount
of any such final payment and (iii) that the Record Date otherwise applicable to
such Payment Date is not applicable, payments being made only upon presentation
and surrender of the Notes at the office of the Indenture Trustee therein
specified.

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

Section 9.02. Accounting Upon Termination of Servicer. Upon termination of the
Servicer, the Servicer shall, at its expense:

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

(b) deliver to the successor servicer or, if none shall yet have been appointed,
to the Indenture Trustee all Mortgage Files and related documents and statements
held by it hereunder and a Mortgage Loan portfolio computer tape;

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

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

 

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ARTICLE X

[RESERVED]

ARTICLE XI

MISCELLANEOUS PROVISIONS

Section 11.01. Limitation on Liability. (a) None of the Issuing Entity, the
Owner Trustee, the Depositor, the Sponsor, the Servicer, the Indenture Trustee,
the Custodian or any of the directors, officers, employees or agents of such
Persons shall be under any liability to the Issuing Entity, the Noteholders for
any action taken, or for refraining from the taking of any action, in good faith
pursuant to this Agreement, or for errors in judgment; provided, however, that
this provision shall not protect the Issuing Entity, the Owner Trustee, the
Depositor, the Sponsor, the Servicer, the Indenture Trustee, the Custodian or
any such Person against liability for any breach of warranties or
representations made herein by such party, or against any specific liability
imposed on each such party pursuant to this Agreement or against any liability
which would otherwise be imposed upon such party by reason of willful
misfeasance, bad faith or negligence in the performance of duties or by reason
of failure to perform its obligations or duties hereunder. The Issuing Entity,
the Owner Trustee, the Depositor, the Sponsor, the Servicer, the Indenture
Trustee, the Custodian and any director, officer, employee or agent of such
Person may rely in good faith on any document of any kind which, prima facie, is
properly executed and submitted by any appropriate Person respecting any matters
arising hereunder.

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

Section 11.02. Acts of Noteholders. (a) Subject to Section 7.04 and except as
otherwise specifically provided herein, whenever Noteholder action, consent or
approval is required under this Agreement, such action, consent or approval
shall be deemed to have been taken or given on behalf of, and shall be binding
upon, all Noteholders if the Majority Noteholders agree to take such action or
give such consent or approval.

 

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(b) No Noteholder shall have any right to vote (except as expressly provided for
herein) or in any manner otherwise control the operation and management of the
Issuing Entity, or the obligations of the parties hereto, nor shall anything
herein set forth, or contained in the terms of the Notes, be construed so as to
constitute the Noteholders from time to time as partners or members of an
association; nor shall any Noteholder be under any liability to any third person
by reason of any action taken by the parties to this Agreement pursuant to any
provision hereof.

Section 11.03. Amendment. (a) This Agreement may be amended from time to time by
the Owner Trustee, on behalf of the Issuing Entity, the Servicer, the Depositor,
Sponsor, the Custodian and the Indenture Trustee by written agreement, without
notice to or consent of the Noteholders and without the consent of the Hedge
Counterparties to cure any ambiguity, to correct or supplement any provisions
herein, to comply with any changes in the Code, or to make any other provisions
with respect to matters or questions arising under this Agreement which shall
not be inconsistent with the provisions of this Agreement; provided, however,
that such action shall not adversely affect in any material respect the
interests of any Noteholder or the Hedge Counterparties and will not prevent the
Notes from being characterized as debt for United States federal income tax
purposes or cause the Issuing Entity to be subject to an entity-level tax for
federal income tax purposes, as evidenced by (i) an Opinion of Counsel stating
that such action will not prevent the Notes from being characterized as debt for
United States federal income tax purposes or cause the Issuing Entity to be
subject to an entity-level tax for federal income tax purposes, at the expense
of the party requesting the change, delivered to the Indenture Trustee to such
effect and (ii) (x) an Opinion of Counsel stating that such action shall not
adversely affect in any material respect the interests of any Noteholder or the
Hedge Counterparties or (y) a letter from each Rating Agency confirming that
such action will not result in the reduction, qualification or withdrawal of the
then-current ratings on the Notes. The Indenture Trustee shall give prompt
written notice to the Rating Agencies of any amendment made pursuant to this
Section 11.03.

(b) This Agreement may be amended from time to time by the Owner Trustee, on
behalf of the Issuing Entity, the Servicer, the Depositor, the Sponsor, the
Custodian and the Indenture Trustee, with the consent of the Noteholders
representing more than 50% of the outstanding Principal Balance of the Notes of
each affected Class and all of the Certificateholders and with the consent of
the Hedge Counterparties (if the Hedge Agreements are still outstanding and
affected); provided, however, that no such amendment shall reduce in any manner
the amount of, or delay the timing of, payments received on Mortgage Loans which
are required to be paid on any Class of Notes without the consent of the Holders
of such Class of Notes or reduce the percentage for the Holders of which are
required to consent to any such amendment without the consent of the Holders of
100% of such Class of Notes affected thereby.

(c) It shall not be necessary for the consent of Holders under this
Section 11.03 to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the substance thereof.

(d) Notwithstanding the provisions of this Section 11.03, Sections 5.17 and 5.18
may be amended as necessary to comply with the provisions of Regulation AB
without the consent of the Noteholders.

 

67

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(e) The Servicer shall mail to the Hedge Counterparties (for so long as the
Hedge Agreements are outstanding) a copy of any executed amendment made pursuant
to this Section 11.03.

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

Section 11.04. Recordation of Agreement. To the extent permitted by applicable
law, this Agreement, or a memorandum thereof if permitted under applicable law,
is subject to recordation in all appropriate public offices for real property
records in all of the counties or other comparable jurisdictions in which any or
all of the properties subject to the Mortgages are situated, and in any other
appropriate public recording office or elsewhere, such recordation to be
effected by the Servicer at the Noteholders’ expense on direction and at the
expense of Majority Noteholders requesting such recordation, but only when
accompanied by an Opinion of Counsel to the effect that such recordation
materially and beneficially affects the interests of the Noteholders or is
necessary for the administration or servicing of the Mortgage Loans.

Section 11.05. Duration of Agreement. This Agreement shall continue in existence
and effect until terminated as herein provided.

Section 11.06. Notices. All demands, notices and communications hereunder shall
be in writing and shall be deemed to have been duly given when delivered to
(i) in the case of the Servicer, NovaStar Mortgage Inc., 8140 Ward Parkway,
Suite 300, Kansas City, Missouri 64114, Attention: Matt Kaltenrieder; (ii) in
the case of the Issuing Entity, NovaStar Mortgage Funding Trust, Series 2006-1,
c/o the Owner Trustee at its Corporate Trust Office, Attention: Corporate Trust
Administration; (iii) in the case of the Indenture Trustee, JPMorgan Chase Bank,
National Association, 4 New York Plaza, 6th Floor, New York, NY 10004-2477,
Attention: Worldwide Securities Services/Structured Finance Services (NovaStar
Mortgage Funding Trust, Series 2006-1); (iv) in the case of the Sponsor,
NovaStar Mortgage Inc., 8140 Ward Parkway, Suite 300, Kansas City, Missouri
64114, Attention: Matt Kaltenrieder; (v) in the case of Moody’s Investors
Service Inc., 99 Church Street, New York, New York 10007, Attention: Shachar
Gonen; Standard & Poor’s , 26 Broadway, New York, New York 10004-1064,
Attention: Julia Clements; and Fitch Ratings, One State Street Plaza, 30th
Floor, New York, New York 10004, Attention: Michele Patterson, Tel:
(212) 908-0779; (vi) in the case of the Custodian, U.S. Bank National
Association, 4527 Metropolitan Court, Suite C, Frederick, Maryland 21704,
Attention: Ronald Fisher; (vii) in the case of the Depositor, NovaStar
Certificates Financing Corporation, 8140 Ward Parkway, Suite 300, Kansas City,
Missouri 64114, Attention: Matt Kaltenrieder; (viii) in the case of The Royal
Bank of Scotland plc, as Swap Counterparty, c/o RBS Financial Markets, Level 7,
280 Bishopsgate, London,

 

68

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EC2M 3UR, Attention: Financial Markets Legal, Telephone: 44 207 085 5000,
Facsimile: 44 207 085 8411, With a copy to: 600 Steamboat Road, Greenwich, CT
06830, Attention: Legal Department – Derivatives Documentation, Telephone: 203
618-2531/32, Facsimile: 203 618-2533/34; (ix) in the case of Wachovia Bank,
N.A., as Swap Counterparty and as Cap Counterparty, Wachovia Bank, N.A., 301
South College Street, DC-8, Charlotte, NC 28202-06000, Attention: Bruce M.
Young, Tel: (704) 383-8778, Fax: (704) 383-0575; (x) in the case of Deutsche
Bank AG, as Swap Counterparty, Deutsche Bank AG, Taunusanlage 12, 60262
Frankfurt, GERMANY, Attention: Legal Department, Telex No: 411836 or 416731 or
41233, Answerback: DBF-D and (xi) in the case of the Noteholders, as set forth
in the Note Register. Any such notices shall be deemed to be effective with
respect to any party hereto upon the receipt of such notice by such party,
except that notices to the Noteholders shall be effective upon mailing or
personal delivery.

Section 11.07. Severability of Provisions. If any one or more of the covenants,
agreements, provisions or terms of this Agreement shall be held invalid for any
reason whatsoever, then such covenants, agreements, provisions or terms shall be
deemed severable from the remaining covenants, agreements, provisions or terms
of this Agreement and shall in no way affect the validity or enforceability of
the other covenants, agreements, provisions or terms of this Agreement.

Section 11.08. No Partnership. Nothing herein contained shall be deemed or
construed to create a co-partnership or joint venture between the parties hereto
and the services of the Servicer shall be rendered as an independent contractor
and not as agent for the Noteholders.

Section 11.09. Counterparts. This Agreement may be executed in one or more
counterparts and by the different parties hereto on separate counterparts, each
of which, when so executed, shall be deemed to be an original; such
counterparts, together, shall constitute one and the same agreement.

Section 11.10. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the Issuing Entity, the Servicer, the Depositor, the
Sponsor, the Indenture Trustee and the Noteholders and their respective
successors and permitted assigns.

Section 11.11. Headings. The headings of the various sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be part of this Agreement.

Section 11.12. No Petition. The Servicer, by entering into this Agreement hereby
covenants and agrees, and the Noteholders, by the acceptance of their Notes are
deemed to covenant and agree, that they will not at any time institute against
the Issuing Entity, or join in any institution against the Issuing Entity of,
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States Federal or state
bankruptcy law in connection with any obligations relating to the Certificates,
the Notes, this Agreement or any of the other Basic Documents.

 

69

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This Section 11.12 will survive for one year and one day following the
termination of this Agreement.

Section 11.13. Third Party Beneficiary. The parties agree that each of the Owner
Trustee and the Hedge Counterparties (if the Hedge Agreements are still
outstanding) is intended and shall have all rights of a third-party beneficiary
of this Agreement.

Section 11.14. Intent of the Parties. It is the intent of the parties hereto and
Noteholders that, for federal, state and local income, single business and
franchise tax purposes, the Notes be treated as debt. The parties to this
Agreement and the Holder of each Note, by acceptance of its Note, and each
Beneficial Owner thereof, agree to treat, and to take no action inconsistent
with the treatment of, the related Notes in accordance with the preceding
sentence for federal, state and local income, single business and franchise tax
purposes.

Section 11.15. Compliance With Regulation AB. Each of the parties hereto
acknowledges and agrees that the purpose of Sections 5.17 and 5.18 of this
Agreement is to facilitate compliance by the Sponsor and the Depositor with the
provisions of Regulation AB, as such may be amended or clarified from time to
time. Therefore, each of the parties agrees that (a) the obligations of the
parties hereunder shall be interpreted in such a manner as to accomplish
compliance with Regulation AB, (b) the parties’ obligations hereunder will be
supplemented and modified as necessary to be consistent with any such
amendments, interpretive advice or guidance, convention or consensus among
active participants in the asset-backed securities markets, advice of counsel,
or otherwise in respect of the requirements of Regulation AB and (c) the parties
shall comply, to the extent practicable from a timing and information systems
perspective, with requests made by the Sponsor or the Depositor for delivery of
additional or different information as the Sponsor or the Depositor may
determine in good faith is necessary to comply with the provisions of Regulation
AB.

Section 11.16. Governing Law; Consent to Jurisdiction Waiver of Jury Trial. (a)
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE OF NEW
YORK.

(b) THE ISSUING ENTITY, THE SERVICER, THE DEPOSITOR, THE SPONSOR AND THE
INDENTURE TRUSTEE HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS
OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT LOCATED IN THE
BOROUGH OF MANHATTAN IN NEW YORK CITY, AND WAIVES PERSONAL SERVICE OF ANY AND
ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY
REGISTERED MAIL DIRECTED TO THE ADDRESS SET FORTH IN SECTION 11.06 HEREOF AND
SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE (5) DAYS AFTER THE SAME
SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS, POSTAGE PREPAID. THE ISSUING
ENTITY, THE DEPOSITOR, THE SPONSOR, THE SERVICER AND THE INDENTURE TRUSTEE EACH
HEREBY WAIVE ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO
VENUE OF ANY ACTION INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH
LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE

 

70

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BY THE COURT. NOTHING IN THIS SECTION 11.15 SHALL AFFECT THE RIGHT OF THE
ISSUING ENTITY, THE DEPOSITOR, THE SPONSOR, THE SERVICER OR THE INDENTURE
TRUSTEE TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT
ANY OF THEIR RIGHTS TO BRING ANY ACTION OR PROCEEDING IN THE COURTS OF ANY OTHER
JURISDICTION.

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

[Remainder of Page Intentionally Left Blank]

 

71

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

 

NOVASTAR MORTGAGE INC.,

as Sponsor and Servicer

By:

      

Name:

 

Matt Kaltenrieder

 

Title:

 

Vice President

NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2006-1,

By:

 

WILMINGTON TRUST COMPANY, not in its individual capacity, but solely as Owner
Trustee under the Trust Agreement

 

By:

        

Name:

     

Title:

 

NOVASTAR CERTIFICATES FINANCING CORPORATION,

as Depositor

By:       

Name:

 

Matt Kaltenrieder

 

Title:

 

Vice President

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

Name:

   

Title:

 

J.P. MORGAN TRUST COMPANY,

NATIONAL ASSOCIATION,

as Co-Trustee

By:     

Name:

 

Title:

 

[Signature Page 1 to Sale and Servicing Agreement]

 

72

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

U.S. BANK NATIONAL ASSOCIATION,

as Custodian

By:

    

Name:

 

Title:

 

 

NOVASTAR FINANCIAL, INC., solely with

respect to Section 4.01

By:

    

Name:

 

Matt Kaltenrieder

Title:

 

Vice President

[Signature Page 2 to Sale and Servicing Agreement]

 

73

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SCHEDULE I

MORTGAGE LOAN SCHEDULE

[Delivered to the Sponsor, the Depositor, the Indenture Trustee and the
Custodian at Closing.]

 

A-1

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

APPENDIX I

DEFINED TERMS

[See Appendix I to Indenture]

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

EXHIBIT A

[Reserved]

 

A-1

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

EXHIBIT B

MORTGAGE LOAN SCHEDULE

 

B-1

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

EXHIBIT C

CUSTODIAN’S ACKNOWLEDGEMENT OF RECEIPT

                            , 2006

 

JPMorgan Chase Bank, National Association

4 New York Plaza, 6th Floor

New York, New York 10004

Attn: Worldwide Securities

Services/Structured Finance Services -

NovaStar Series 2006-1

  

NovaStar Mortgage Inc.

8140 Ward Parkway, Suite 300

Kansas City, Missouri 64114

NovaStar Certificates Financing Corporation

8140 Ward Parkway, Suite 300

Kansas City, Missouri 64114

  

 

  Re: Sale and Servicing Agreement, dated as of April 1, 2006 among NovaStar
Mortgage Inc., as Sponsor and Servicer, NovaStar Certificates Financing
Corporation, as depositor, NovaStar Mortgage Funding Trust, Series 2006-1,
JPMorgan Chase Bank, National Association, as Indenture Trustee, J.P. Morgan
Trust Company, National Association, as Co-Trustee and U.S. Bank National
Association, as Custodian

Ladies and Gentlemen:

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

 

C-1

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

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

The Mortgage Loan Schedule is attached to this Receipt.

Capitalized words and phrases used herein shall have the respective meanings
assigned to them in Appendix I to the Indenture, dated as of April 1, 2006, by
and between NovaStar Mortgage Funding Trust, Series 2006-1 and the Indenture
Trustee.

 

U.S. BANK NATIONAL ASSOCIATION, not in its

individual capacity but solely as Custodian

By:       

Name:

   

Title:

 

 

C-2

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

EXHIBIT D

INITIAL CERTIFICATION

                            , 2006

 

JPMorgan Chase Bank, National Association

4 New York Plaza, 6th Floor

New York, New York 10004

Attn: Worldwide Securities

Services/Structured Finance Services -

NovaStar Series 2006-1

  

NovaStar Mortgage Inc.

8140 Ward Parkway, Suite 300

Kansas City, Missouri 64114

NovaStar Certificates Financing Corporation

8140 Ward Parkway, Suite 300

Kansas City, Missouri 64114

  

 

  Re: Sale and Servicing Agreement, dated as of April 1, 2006 among NovaStar
Mortgage Inc., as Sponsor and Servicer, NovaStar Certificates Financing
Corporation, as depositor, NovaStar Mortgage Funding Trust, Series 2006-1, and
JPMorgan Chase Bank, National Association, as Indenture Trustee

Ladies and Gentlemen:

In accordance with the provisions of Section 2.06(a) of the above-referenced
Sale and Servicing Agreement, the undersigned, as Custodian, on behalf of the
Indenture Trustee, hereby certifies that as to each Mortgage Loan listed in the
Mortgage Loan Schedule (other than any Mortgage Loan paid in full or any
Mortgage Loan listed on the attachment hereto), it has reviewed the documents
delivered to it pursuant to Section 2.05(a) of the Sale and Servicing Agreement
and has determined that, except as noted on the attachment hereto, (i) all
documents required to be delivered to it pursuant to Section 2.05(a)(i)-(iv) and
(vi) of the above-referenced Sale and Servicing Agreement are in its possession,
(ii) such documents have been reviewed by it and appear regular on their face
and have not been mutilated, damaged, torn or otherwise physically altered
(handwritten additions, changes or corrections do not constitute physical
alteration if they reasonably appear to have been initialed by the Mortgagor)
and relates to such Mortgage Loan and (iii) based on its examination and only as
to the foregoing documents, the information set forth in the Mortgage Loan
Schedule as to the information in clauses (i), (ii) (with respect to property
address only, excluding zip code), (iii) and (vi) of the definition of “Mortgage
Loan Schedule” respecting such Mortgage Loan accurately reflects the information
set forth in Mortgage File. The Custodian, on behalf of the Indenture Trustee
has made no independent examination of such documents beyond the review
specifically required in the above-referenced Sale and Servicing Agreement. The
Custodian, on behalf of the Indenture Trustee makes no representations as to:
(x) the validity, legality, recordability, sufficiency,

 

D-1

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

perfection, priority, enforceability or genuineness of any such documents
contained in each or any of the Mortgage Loans identified on the Mortgage Loan
Schedule, or (y) the collectability, insurability, effectiveness or suitability
of any such Mortgage Loan.

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

 

U.S. BANK NATIONAL ASSOCIATION, not in its

individual capacity but solely as Custodian

By:     

Name:

 

Title:

 

 

D-2

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

EXHIBIT E

FINAL CERTIFICATION

                            , 20__

 

JPMorgan Chase Bank, National Association

4 New York Plaza, 6th Floor

New York, New York 10004

Attn: Worldwide Securities

Services/Structured Finance Services -

NovaStar Series 2006-1

  

NovaStar Mortgage Inc.

8140 Ward Parkway, Suite 300

Kansas City, Missouri 64114

NovaStar Certificates Financing Corporation

8140 Ward Parkway, Suite 300

Kansas City, Missouri 64114

  

 

  Re: Sale and Servicing Agreement, dated as of April 1, 2006 among NovaStar
Mortgage Inc., as Sponsor and Servicer, NovaStar Certificates Financing
Corporation, as depositor, NovaStar Mortgage Funding Trust, Series 2006-1,
JPMorgan Chase Bank, National Association, as Indenture Trustee, J.P. Morgan
Trust Company, National Association, as Co-Trustee and U.S. Bank National
Association, as Custodian

Ladies and Gentlemen:

In accordance with the provisions of Section 2.06(b) of the above-referenced
Sale and Servicing Agreement, the undersigned, as Custodian, on behalf of the
Indenture Trustee, hereby certifies that as to each Mortgage Loan listed in the
Mortgage Loan Schedule (other than any Mortgage Loan paid in full or any
Mortgage Loan listed on the attachment hereto), it has reviewed the documents
delivered to it pursuant to Section 2.05(a) of the Sale and Servicing Agreement
and has determined that, except as noted on the attachment hereto, (i) all
documents required to be delivered to it pursuant to Section 2.05(a)(i)-(iv) and
(vi) of the above referenced Sale and Servicing Agreement are in its possession,
(ii) such documents have been reviewed by it and appear regular on their face
and have not been mutilated, damaged, torn or otherwise physically altered
(handwritten additions, changes or corrections do not constitute physical
alteration if they reasonably appear to have been initialed by the Mortgagor)
and relates to such Mortgage Loan and (iii) based on its examination and only as
to the foregoing documents, the information set forth in items (i), (ii) (with
respect to property address only, excluding zip code), (iii) and (vi) of the
definition of the Mortgage Loan Schedule respecting such Mortgage Loan that can
be determined from the face of such documents accurately reflects the
information set forth in the Mortgage File. The Custodian, on behalf of the
Indenture Trustee has made no

 

E-1

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

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

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

 

U.S. BANK NATIONAL ASSOCIATION, not in its

individual capacity but solely as Custodian

By:     

Name:

 

Title:

 

 

E-2

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

EXHIBIT F

REQUEST FOR RELEASE OF DOCUMENTS

 

To: U.S. Bank National Association

  4527 Metropolitan Court

  Suite C

       Frederick, MD 21704

       Attention: Ronald L. Fisher

 

  Re: Sale and Servicing Agreement, dated as of April 1, 2006 among NovaStar
Mortgage Inc., as Sponsor and Servicer, NovaStar Certificates Financing
Corporation, as depositor, NovaStar Mortgage Funding Trust, Series 2006-1,
JPMorgan Chase Bank, National Association, as Indenture Trustee J.P. Morgan
Trust Company, National Association, as Co-Trustee and U.S. Bank National
Association, as Custodian

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

Mortgage Loan Number:

Mortgagor Name, Address & Zip Code:

Reason for Requesting Documents (check one):

 

¨

   1.    Mortgage Paid in Full     

¨

  

2.

   Foreclosure     

¨

  

3.

   Substitution     

¨

  

4.

   Other Liquidation (Repurchases, etc.)     

¨

  

5.

   Nonliquidation Reason:    Reason:        

Address to which Indenture Trustee should

 

 

Deliver the Mortgage File:               

 

By:        (authorized signer) Issuing Entity:     

Address:

         

Date:

    

 

F-1

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

EXHIBIT G

NOVASTAR MORTGAGE INC.

OFFICER’S CERTIFICATE

I,                     , certify that:

 

1. I have reviewed this annual report on Form 10-K, and all reports on Form 8-K
containing payment or servicing reports filed in respect of periods included in
the year covered by this annual report, of NovaStar Mortgage Funding Trust,
Series 2006-1;

 

2. Based on my knowledge, the information in these reports, taken as a whole,
does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading as of the
last day of the period covered by this annual report;

 

3. Based on my knowledge, the payment or servicing information required to be
provided to the indenture trustee by the servicer under the pooling and
servicing, or similar, agreement is included in these reports;

 

4. Based on my knowledge and upon the annual compliance statement included in
the report and required to be delivered to the indenture trustee in accordance
with the terms of the pooling and servicing, or similar, agreement, and except
as disclosed in the reports, the servicer has fulfilled its obligations under
the servicing agreement; and

 

5. The reports disclose all significant deficiencies relating to the servicer’s
compliance with the minimum servicing standards based upon the report provided
by an independent public accountant, after conducting a review in compliance
with the Uniform Single Attestation Program for Mortgage Bankers or similar
procedure, as set forth in the pooling and servicing, or similar, agreement that
is included in these reports.

In giving the certifications above, I have reasonably relied on information
provided to me by the following unaffiliated parties:                     .

 

Date:

    Name:

Title:

 

G-1

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EXHIBIT H

SERVICING CRITERIA TO BE ADDRESSED IN ASSESSMENT OF COMPLIANCE

Where there are multiple checks for criteria the attesting party will identify
in their management assertion that they are attesting only to the portion of the
payment chain they are responsible for in the related transaction agreements.

Key: X – obligation

 

Reg AB

Reference

  

Servicing Criteria

   Servicer   

Indenture

Trustee

   Custodian

General Servicing Considerations

1122(d)(1)(i)

   Policies and procedures are instituted to monitor any performance or other
triggers and events of default in accordance with the transaction agreements.   
X    X   

1122(d)(1)(ii)

   If any material servicing activities are outsourced to third parties,
policies and procedures are instituted to monitor the third party’s performance
and compliance with such servicing activities.    If applicable      

1122(d)(1)(iii)

   Any requirements in the transaction agreements to maintain a back-up servicer
for the Pool Assets are maintained.    If become
contractually
obligated      

1122(d)(1)(iv)

   A fidelity bond and errors and omissions policy is in effect on the party
participating in the servicing function throughout the reporting period in the
amount of coverage required by and otherwise in accordance with the terms of the
transaction agreements.    X       Cash Collection and Administration

1122(d)(2)(i)

   Payments on pool assets are deposited into the appropriate custodial bank
accounts and related bank clearing accounts no more than two business days
following receipt, or such other number of days specified in the transaction
agreements.    X    X   

1122(d)(2)(ii)

   Disbursements made via wire transfer on behalf of an obligor or to an
investor are made only by authorized personnel    X    X   

1122(d)(2)(iii)

   Advances of funds or guarantees regarding collections, cash flows or
payments, and any interest or other fees charged for such advances, are made,
reviewed and approved as specified in the transaction agreements.    X      

 

H-1

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

Reg AB Reference

  

Servicing Criteria

   Servicer    Indenture
Trustee    Custodian

1122(d)(2)(iv)

   The related accounts for the transaction, such as cash reserve accounts or
accounts established as a form of over collateralization, are separately
maintained (e.g., with respect to commingling of cash) as set forth in the
transaction agreements.    X    X   

1122(d)(2)(v)

   Each custodial account is maintained at a federally insured depository
institution as set forth in the transaction agreements. For purposes of this
criterion, “federally insured depository institution” with respect to a foreign
financial institution means a foreign financial institution that meets the
requirements of Rule 13k-1(b)(1) of the Securities Exchange Act.    X    X*   

1122(d)(2)(vi)

   Unissued checks are safeguarded so as to prevent unauthorized access    X   
  

1122(d)(2)(vii)

   Reconciliations are prepared on a monthly basis for all asset-backed
securities related bank accounts, including custodial accounts and related bank
clearing accounts. These reconciliations are (A) mathematically accurate; (B)
prepared within 30 calendar days after the bank statement cutoff date, or such
other number of days specified in the transaction agreements; (C) reviewed and
approved by someone other than the person who prepared the reconciliation; and
(D) contain explanations for reconciling items. These reconciling items are
resolved within 90 calendar days of their original identification, or such other
number of days specified in the transaction agreements.    X    X   

 

* The Indenture Trustee need only provide if it is determined that any account
maintained by the Indenture Trustee is a custodial account for purposes of the
Servicing Criteria. This item is subject to further clarification from the SEC.

 

I-2

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Reg AB

Reference

  

Servicing Criteria

   Servicer    Indenture
Trustee    Custodian   

Investor Remittances and Reporting

         1122(d)(3)(i)    Reports to investors, including those to be filed with
the Commission, are maintained in accordance with the transaction agreements and
applicable Commission requirements. Specifically, such reports (A) are prepared
in accordance with timeframes and other terms set forth in the transaction
agreements; (B) provide information calculated in accordance with the terms
specified in the transaction agreements; (C) are filed with the Commission as
required by its rules and regulations; and (D) agree with investors’ or the
trustee’s records as to the total unpaid principal balance and number of Pool
Assets serviced by the Servicer.    X    X    1122(d)(3)(ii)    Amounts due to
investors are allocated and remitted in accordance with timeframes, payment
priority and other terms set forth in the transaction agreements.    X    X   
1122(d)(3)(iii)    Disbursements made to an investor are posted within two
business days to the Servicer’s investor records, or such other number of days
specified in the transaction agreements.    X    X    1122(d)(3)(iv)    Amounts
remitted to investors per the investor reports agree with cancelled checks, or
other form of payment, or custodial bank statements.    X    X       Pool Asset
Administration          1122(d)(4)(i)    Collateral or security on pool assets
is maintained as required by the transaction agreements or related pool asset
documents.    X       X 1122(d)(4)(ii)    Pool assets and related documents are
safeguarded as required by the transaction agreements          X 1122(d)(4)(iii)
   Any additions, removals or substitutions to the asset pool are made, reviewed
and approved in accordance with any conditions or requirements in the
transaction agreements.    X    X   

 

I-3

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Reg AB

Reference

  

Servicing Criteria

   Servicer    Indenture
Trustee    Custodian 1122(d)(4)(iv)    Payments on pool assets, including any
payoffs, made in accordance with the related pool asset documents are posted to
the Servicer’s obligor records maintained no more than two business days after
receipt, or such other number of days specified in the transaction agreements,
and allocated to principal, interest or other items (e.g., escrow) in accordance
with the related pool asset documents.    X       1122(d)(4)(v)    The
Servicer’s records regarding the pool assets agree with the Servicer’s records
with respect to an obligor’s unpaid principal balance.    X       1122(d)(4)(vi)
   Changes with respect to the terms or status of an obligor’s pool assets
(e.g., loan modifications or reagings) are made, reviewed and approved by
authorized personnel in accordance with the transaction agreements and related
pool asset documents.    X       1122(d)(4)(vii)    Loss mitigation or recovery
actions (e.g., forbearance plans, modifications and deeds in lieu of
foreclosure, foreclosures and repossessions, as applicable) are initiated,
conducted and concluded in accordance with the timeframes or other requirements
established by the transaction agreements.    X       1122(d)(4)(viii)   
Records documenting collection efforts are maintained during the period a pool
asset is delinquent in accordance with the transaction agreements. Such records
are maintained on at least a monthly basis, or such other period specified in
the transaction agreements, and describe the entity’s activities in monitoring
delinquent pool assets including, for example, phone calls, letters and payment
rescheduling plans in cases where delinquency is deemed temporary (e.g., illness
or unemployment).    X       1122(d)(4)(ix)    Adjustments to interest rates or
rates of return for pool assets with variable rates are computed based on the
related pool asset documents.    X      

 

I-4

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Reg AB

Reference

  

Servicing Criteria

   Servicer    Indenture
Trustee    Custodian 1122(d)(4)(x)    Regarding any funds held in trust for an
obligor (such as escrow accounts): (A) such funds are analyzed, in accordance
with the obligor’s pool asset documents, on at least an annual basis, or such
other period specified in the transaction agreements; (B) interest on such funds
is paid, or credited, to obligors in accordance with applicable pool asset
documents and state laws; and (C) such funds are returned to the obligor within
30 calendar days of full repayment of the related pool assets, or such other
number of days specified in the transaction agreements.    X      
1122(d)(4)(xi)    Payments made on behalf of an obligor (such as tax or
insurance payments) are made on or before the related penalty or expiration
dates, as indicated on the appropriate bills or notices for such payments,
provided that such support has been received by the servicer at least 30
calendar days prior to these dates, or such other number of days specified in
the transaction agreements.    X       1122(d)(4)(xii)    Any late payment
penalties in connection with any payment to be made on behalf of an obligor are
paid from the Servicer’s funds and not charged to the obligor, unless the late
payment was due to the obligor’s error or omission.    X       1122(d)(4)(xiii)
   Disbursements made on behalf of an obligor are posted within two business
days to the obligor’s records maintained by the servicer, or such other number
of days specified in the transaction agreements.    X       1122(d)(4)(xiv)   
Delinquencies, charge-offs and uncollectible accounts are recognized and
recorded in accordance with the transaction agreements.    X      
1122(d)(4)(xv)    Any external enhancement or other support, identified in Item
1114(a)(1) through (3) or Item 1115 of Regulation AB, is maintained as set forth
in the transaction agreements.    X      

 

I-5

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EXHIBIT I

FORM 10-D, FORM 8-K AND FORM 10-K

REPORTING RESPONSIBILITY

As to each item described below, the entity indicated as the Responsible Party
shall be primarily responsible for reporting the information to the party
identified as responsible for preparing the Securities Exchange Act Reports
pursuant to Section 5.18 of the Sale and Servicing Agreement.

Under Item 1 of Form 10-D: a) items marked “8.06 statement” are required to be
included in the periodic reports prepared by the Indenture Trustee under
Section 8.06 of the Indenture, provided by the Indenture Trustee based on
information received from the Servicer; and b) items marked “Form 10-D report”
are required to be in the Form 10-D report but not the 8.06 statement, provided
by the party indicated. Information under all other Items of Form 10-D is to be
included in the Form 10-D report. All such information and any other Items of
Form 8-K and Form 10-K set forth in this exhibit shall be sent to the Indenture
Trustee and the Depositor.

 

Form

   Item   

Description

   Servicer    Indenture
Trustee   Owner
Trustee    Depositor    Sponsor    Custodian

10-D

   Must be filed within 15 days of the payment date for the asset-backed
securities.             1    Payment and Pool Performance Information           
            Item 1121(a) – payment and Pool Performance Information           
            (1) Any applicable record dates, accrual dates, determination dates
for calculating payments and actual payment dates for the payment period.      
X

 

(8.06
Statement)

                 (2) Cash flows received and the sources thereof for payments,
fees and expenses.       X

 

(8.06
Statement)

                 (3) Calculated amounts and payment of the flow of funds for the
period itemized by type and priority of payment, including:       X

 

(8.06
Statement)

          

 

I-1

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Form

   Item   

Description

   Servicer    Indenture
Trustee   Owner
Trustee    Depositor    Sponsor    Custodian       (i) Fees or expenses accrued
and paid, with an identification of the general purpose of such fees and the
party receiving such fees or expenses.       X

 

(8.06
Statement)

                 (ii) Payments accrued or paid with respect to enhancement or
other support identified in Item 1114 of Regulation AB (such as insurance
premiums or other enhancement maintenance fees), with an identification of the
general purpose of such payments and the party receiving such payments.       X

 

(8.06
Statement)

                 (iii) Principal, interest and other payments accrued and paid
on the asset-backed securities by type and by class or series and any principal
or interest shortfalls or carryovers.       X

 

(8.06
Statement)

                 (iv) The amount of excess cash flow or excess spread and the
disposition of excess cash flow.       X

 

(8.06
Statement)

                 (4) Beginning and ending principal balances of the asset-backed
securities.       X

 

(8.06
Statement)

          

 

I-2

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Form

   Item   

Description

   Servicer    Indenture
Trustee   Owner
Trustee    Depositor    Sponsor    Custodian       (5) Interest rates applicable
to the pool assets and the asset-backed securities, as applicable. Consider
providing interest rate information for pool assets in appropriate
distributional groups or incremental ranges.       X

 

(8.06
Statement)

                 (6) Beginning and ending balances of transaction accounts, such
as reserve accounts, and material account activity during the period.       X

 

(8.06
Statement)

                 (7) Any amounts drawn on any credit enhancement or other
support identified in Item 1114 of Regulation AB, as applicable, and the amount
of coverage remaining under any such enhancement, if known and applicable.      
X

 

(8.06
Statement)

                 (8) Number and amount of pool assets at the beginning and
ending of each period, and updated pool composition information, such as
weighted average coupon, weighted average remaining term, pool factors and
prepayment amounts.       X

 

(8.06
Statement)

     Updated
pool
composition
information
fields to be
as specified
by
Depositor
from time
to time            

(9) Delinquency and loss information for the period.

      X

 

(8.06
Statement)

          

 

I-3

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Form

   Item   

Description

   Servicer   

Indenture

Trustee

   Owner
Trustee    Depositor    Sponsor    Custodian       In addition, describe any
material changes to the information specified in Item 1100(b)(5) of Regulation
AB regarding the pool assets. (methodology)    X                      (10)
Information on the amount, terms and general purpose of any advances made or
reimbursed during the period, including the general use of funds advanced and
the general source of funds for reimbursements.      

X

 

(8.06 Statement)

                  (11) Any material modifications, extensions or waivers to pool
asset terms, fees, penalties or payments during the payment period or that have
cumulatively become material over time.    X          X    X          (12)
Material breaches of pool asset representations or warranties or transaction
covenants.    X          X    X          (13) Information on ratio, coverage or
other tests used for determining any early amortization, liquidation or other
performance trigger and whether the trigger was met.      

X

 

(8.06 Statement)

           

 

I-4

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Form

   Item   

Description

   Servicer    Indenture
Trustee    Owner
Trustee    Depositor    Sponsor    Custodian       (14) Information regarding
any new issuance of asset-backed securities backed by the same asset pool,      
      X    X          Information regarding any pool asset changes (other than
in connection with a pool asset converting into cash in accordance with its
terms), such as additions or removals in connection with a prefunding or
revolving period and pool asset substitutions and repurchases (and purchase
rates, if applicable), and cash flows available for future purchases, such as
the balances of any prefunding or revolving accounts, if applicable.    X      
   X             Disclose any material changes in the solicitation,
credit-granting, underwriting, origination, acquisition or pool selection
criteria or procedures, as applicable, used to originate, acquire or select the
new pool assets.             X    X         

Item 1121(b) – Pre-Funding or Revolving Period Information

Updated pool information as required under Item 1121(b).

            X          2    Legal Proceedings                  

 

I-5

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Form

   Item   

Description

   Servicer    Indenture
Trustee    Owner
Trustee    Depositor    Sponsor    Custodian       Item 1117 – Legal proceedings
pending against the following entities, or their respective property, that is
material to Noteholders, including proceedings known to be contemplated by
governmental authorities:                         Sponsor                X      
   Depositor             X             Owner Trustee          X               
Issuing entity             X             Servicer, other Servicer servicing 20%
or more of pool assets at time of report, other material servicers   

X

                     Indenture Trustee       X                  

Custodian

                  X    3    Sales of Securities and Use of Proceeds            
           

Information from Item 2(a) of Part II of Form 10-Q:

 

With respect to any sale of securities by the sponsor, depositor or issuing
entity, that are backed by the same asset pool or are otherwise issued by the
issuing entity, whether or not registered, provide the sales and use of proceeds
information in Item 701 of Regulation S-K. Pricing information can be omitted if
securities were not registered.

            X      

 

I-6

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Form

   Item   

Description

   Servicer    Indenture
Trustee    Owner
Trustee    Depositor    Sponsor    Custodian    4   

Defaults Upon

 

Senior Securities

                       

Information from Item 3 of Part II of Form 10-Q:

 

Report the occurrence of any Event of Default (after expiration of any grace
period and provision of any required notice)

            X    X       5    Submission of Matters to a Vote of Noteholders   
                     Information from Item 4 of Part II of Form 10-Q       X   
            6    Significant Obligors of Pool Assets                        
Item 1112(b) – Significant Obligor Financial Information*             X         
   *This information need only be reported on the Form 10-D for the payment
period in which updated information is required pursuant to the Item.         
            7    Significant Enhancement Provider Information                  
      Item 1114(b)(2) – Credit Enhancement Provider Financial Information*      
                  Determining applicable disclosure threshold                X
  

 

I-7

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Form

   Item   

Description

   Servicer    Indenture
Trustee    Owner
Trustee    Depositor    Sponsor    Custodian       Requesting required financial
information or effecting incorporation by reference                X         
Item 1115(b) – Derivative Counterparty Financial Information*                  
      Determining current maximum probable exposure                X         
Determining current significance percentage                X          Requesting
required financial information or effecting incorporation by reference         
      X          *This information need only be reported on the Form 10-D for
the payment period in which updated information is required pursuant to the
Items.                      8    Other Information                        
Disclose any information required to be reported on Form 8-K during the period
covered by the Form 10-D but not reported    The Responsible Party for the
applicable Form 8-
K item as indicated below.    9    Exhibits                         Payment
Report       X            

 

I-8

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Form

   Item   

Description

   Servicer    Indenture
Trustee    Owner
Trustee    Depositor    Sponsor    Custodian       Exhibits required by Item 601
of Regulation S-K, such as material agreements             X       8-K    Must
be filed within four business days of an event reportable on Form 8-K.    1.01
   Entry into a Material Definitive Agreement                        

Disclosure is required regarding entry into or amendment of any definitive
agreement that is material to the securitization, even if depositor is not a
party.

 

Examples: servicing agreement, custodial agreement.

 

Note: disclosure not required as to definitive agreements that are fully
disclosed in the prospectus

   X          X    X       1.02    Termination of a Material Definitive
Agreement                  

 

I-9

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Form

   Item   

Description

   Servicer    Indenture
Trustee    Owner
Trustee    Depositor    Sponsor    Custodian      

Disclosure is required regarding termination of any definitive agreement that is
material to the securitization (other than expiration in accordance with its
terms), even if depositor is not a party.

 

Examples: servicing agreement, custodial agreement.

   X          X    X       1.03    Bankruptcy or Receivership                  
     

Disclosure is required regarding the bankruptcy or receivership, if known to the
Depositor, Indenture Trustee, Sponsor or Servicer, with respect to any of the
following:

Sponsor, Depositor, Servicer, affiliated Servicer, other Servicer servicing 20%
or more of pool assets at time of report, other material servicers, Indenture
Trustee, Trustee, significant obligor, credit enhancer (10% or more),
derivatives counterparty, custodian

   X          X    X   

 

I-10

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Form

   Item   

Description

   Servicer    Indenture
Trustee    Owner
Trustee    Depositor    Sponsor    Custodian    2.04    Triggering Events that
Accelerate or Increase a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement                        

Includes an early amortization, performance trigger or other event, including
event of default, that would materially alter the payment priority/payment of
cash flows/amortization schedule.

 

Disclosure will be made of events other than waterfall triggers which are
disclosed in the 8.06 statement

   N/A    N/A    N/A    N/A    N/A    N/A    3.03    Material Modification to
Rights of Noteholders                         Disclosure is required of any
material modification to documents defining the rights of Noteholders, including
the Sale and Servicing Agreement             X    X       5.03    Amendments to
Articles of Incorporation or Bylaws; Change in Fiscal Year                     
   Disclosure is required of any amendment “to the governing documents of the
issuing entity”             X      

 

I-11

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Form

   Item   

Description

   Servicer    Indenture
Trustee   Owner
Trustee   Depositor    Sponsor    Custodian    5.06    Change in Shell Company
Status                       [Not applicable to ABS issuers]           X      
   6.01    ABS Informational and Computational Material                      
[Not included in reports to be filed under Section 3.19]           X         
6.02    Change of Servicer or Trustee                       Requires disclosure
of any removal, replacement, substitution or addition of any servicer,
affiliated servicer, other servicer servicing 10% or more of pool assets at time
of report, other material servicers, or trustee.    X        X             Reg
AB disclosure about any new servicer is also required.    X                   
Reg AB disclosure about any new trustee is also required.       X (by new
indenture
trustee)   X (by
new
owner
trustee)            6.03    Change in Credit Enhancement or Other External
Support                       Covers termination of any enhancement in manner
other than by its terms, the addition of an enhancement, or a material change in
the enhancement provided. Applies to external credit enhancements as well as
derivatives.           X    X   

 

I-12

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Form

   Item   

Description

   Servicer    Indenture
Trustee    Owner
Trustee    Depositor    Sponsor    Custodian       Reg AB disclosure about any
new enhancement provider is also required.             X          6.04   
Failure to Make a Required Payment       X                6.05    Securities Act
Updating Disclosure                         If any material pool characteristic
differs by 5% or more at the time of issuance of the securities from the
description in the final prospectus, provide updated Reg AB disclosure about the
actual asset pool.             X             If there are any new servicers or
originators required to be disclosed under Regulation AB as a result of the
foregoing, provide the information called for in Items 1108 and 1110
respectively.             X          7.01    7.01 Regulation FD Disclosure    X
         X    X       8.01    Other Events                         Any event,
with respect to which information is not otherwise called for in Form 8-K, that
the registrant deems of importance to Noteholders.             X    X       9.01
   Financial Statements and Exhibits    The Responsible Party applicable to
reportable
event. 10-K    Must be filed within 90 days of the fiscal year end for the
registrant.         

 

I-13

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Form

   Item   

Description

   Servicer    Indenture
Trustee    Owner
Trustee    Depositor    Sponsor    Custodian    9B    Other Information         
               Disclose any information required to be reported on Form 8-K
during the fourth quarter covered by the Form 10-K but not reported    The
Responsible Party for the applicable
Form 8-K Item as indicated above.    15    Exhibits and Financial Statement
Schedules                         Item 1112(b) – Significant Obligor Financial
Information             X             Item 1114(b)(2) – Credit Enhancement
Provider Financial Information                        

Determining applicable disclosure threshold

               X         

Requesting required financial information or effecting incorporation by
reference

               X          Item 1115(b) – Derivative Counterparty Financial
Information                        

Determining current maximum probable exposure

               X         

Determining current significance percentage

               X   

 

I-14

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Form

   Item   

Description

   Servicer    Indenture
Trustee    Owner
Trustee    Depositor    Sponsor    Custodian      

Requesting required financial information or effecting incorporation by
reference

               X          Item 1117 – Legal proceedings pending against the
following entities, or their respective property, that is material to
Noteholders, including proceedings known to be contemplated by governmental
authorities:                         Sponsor                X          Depositor
            X             Owner Trustee          X                Issuing entity
            X             Servicer, affiliated Servicer, other Servicer
servicing 20% or more of pool assets at time of report, other material servicers
   X                      Indenture Trustee       X                   Custodian
                  X       Item 1119 – Affiliations and relationships between the
following entities, or their respective affiliates, that are material to
Noteholders:                         Sponsor                X          Depositor
            X             Owner Trustee             X    X   

 

I-15

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Form

   Item   

Description

   Servicer    Indenture
Trustee    Owner
Trustee    Depositor    Sponsor    Custodian       Servicer, affiliated
Servicer, other Servicer servicing 20% or more of pool assets at time of report,
other material servicers    X                      Indenture Trustee       X   
               Custodian                   X       Credit Enhancer/Support
Provider             X             Significant Obligor             X            
Item 1122 – Assessment of Compliance with Servicing Criteria    X    X         
         Item 1123 – Servicer Compliance Statement    X               

 

I-16

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EXHIBIT J-1

FORM OF CERTIFICATION TO BE PROVIDED BY THE DEPOSITOR WITH

FORM 10-K

 

  Re: NovaStar Mortgage Funding Trust, Series 2006-1 (the “Issuing Entity”)
Asset-Backed Notes, Series 2006-1

I, [identify the certifying individual], certify, that:

 

  1. I have reviewed this report on Form 10-K, and all reports on Form 10-D
required to be filed in respect of the period covered by this report on Form
10-K of NovaStar Mortgage Funding Trust, Series 2006-1, Asset Backed Notes,
Series 2006-1 (the “Exchange Act periodic reports”);

 

  2. Based on my knowledge, the Exchange Act periodic reports, taken as a whole,
do not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect
to the period covered by this report;

 

  3. Based on my knowledge, all of the payment, servicing and other information
required to be provided under Form 10-D for the period covered by this report is
included in the Exchange Act periodic reports;

 

  4. Based on my knowledge and the servicer compliance statement required in
this report under Item 1123 of Regulation AB, and except as disclosed in the
Exchange Act periodic reports, the servicer has fulfilled its obligations under
the sale and servicing agreement; and

 

  5. All of the reports on assessment of compliance with servicing criteria for
asset-backed securities and their related attestation reports on assessment of
compliance with servicing criteria for asset-backed securities required to be
included in this report in accordance with Item 1122 of Regulation AB and
Exchange Act Rules 13a-18 and 15d-18 have been included as an exhibit to this
report, except as otherwise disclosed in this report. Any material instances of
noncompliance described in such reports have been disclosed in this report on
From 10-K.

In giving the certifications above, I have reasonably relied on information
provided to me by the following unaffiliated parties:
[                        ].

 

NOVASTAR CERTIFICATES FINANCING CORPORATION

By:

    

Name:

 

Title:

 

Date:

 

 

J-1-1

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

EXHIBIT J-2

FORM OF CERTIFICATION TO BE PROVIDED TO THE DEPOSITOR BY THE

[INDENTURE TRUSTEE][SERVICER]

 

Re: NovaStar Mortgage Funding Trust, Series 2006-1 (the “Issuing Entity”)
Asset-Backed Notes, Series 2006-1

Reference is made to the Sale and Servicing Agreement, dated as of April 1, 2006
(the “Servicer Agreement”), by and among JPMorgan Chase Bank, National
Association (the “Indenture Trustee”), NovaStar Certificates Financing
Corporation, as depositor (the “Depositor”), NovaStar Mortgage, Inc., as sponsor
and servicer (the “Sponsor” and the “Servicer”, respectively), U.S. Bank
National Association, as custodian (the “Custodian”) and the Issuing Entity. The
[Indenture Trustee][Servicer] hereby certifies to the Depositor and its
officers, directors and affiliates, and with the knowledge and intent that they
will rely upon this certification, that:

 

  (i) The [Indenture Trustee][Servicer] has reviewed the annual report on Form
10-K for the fiscal year [ ], and all reports on Form 10-D containing
distribution reports filed in respect of periods included in the year covered by
that annual report, relating to the above-referenced issuing entity;

 

  (ii) Subject to paragraph (iv), the distribution information in the
distribution reports contained in all monthly Form 10-D’s included in the year
covered by the annual report on Form 10-K for the calendar year [            ],
taken as a whole, does not contain any untrue statement of a material fact or
omit to state a material fact required by the Servicing Agreement to be included
therein and necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading as of the last day of the
period covered by that annual report;

 

  (iii) The distribution information required to be provided by the [Indenture
Trustee][Servicer] under the Servicing Agreement is included in these reports;
and

 

  (iv) In compiling the distribution information and making the foregoing
certifications, the [Indenture Trustee][Servicer] has relied upon information
furnished to it by the Servicer under the Servicing Agreement. The [Indenture
Trustee][Servicer] shall have no responsibility or liability for any inaccuracy
in such reports resulting from information so provided by the Servicer.

 

[JPMORGAN CHASE BANK, NATIONAL ASSOCIATION, not in its individual capacity but
solely as Indenture Trustee][NOVASTAR MORTGAGE, INC., as Servicer]

By:

    

Name:

    

Title:

    

 

J-2-1

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

EXHIBIT K

OFFICER’S CERTIFICATE REGARDING ANNUAL STATEMENT OF COMPLIANCE

NovaStar Mortgage Funding Trust, Series 2006-1

Asset-Backed Notes, Series 2006-1

I,                                                  , hereby certify that I am a
duly appointed                                                       of NovaStar
Mortgage, Inc. (the “Servicer”), and further certify as follows:

 

  1. This certification is being made pursuant to the terms of the Sale and
Servicing Agreement, dated as of April 1, 2006 (the “Servicing Agreement”),
among NovaStar Mortgage Inc., as Sponsor and Servicer, NovaStar Certificates
Financing Corporation, as depositor, NovaStar Mortgage Funding Trust, Series
2006-1, JPMorgan Chase Bank, National Association, as Indenture Trustee and U.S.
Bank National Association, as Custodian.

 

  2. I have reviewed the activities of the Servicer during the preceding
calendar year and the Servicer’s performance under the Servicing Agreement has
been made under my supervision and to the best of my knowledge, based on such
review, the Servicer has fulfilled all of its obligations under the Servicing
Agreement in all material respects throughout the year.

Capitalized terms not otherwise defined herein have the meanings set forth in
the Servicing Agreement.

 

Date:

   

Name:

Title:

 

J-1-1

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

EXHIBIT L

Form of Advance Facility Notice

[date]

JPMorgan Chase Bank, National Association

4 New York Plaza, 6th Floor

New York, NY 10004-2477

Attention: Worldwide Securities Services/ Structured Finance Services - NovaStar
Series 2006-1

 

  Re: Sale and Servicing Agreement, dated as of April 1, 2006 among NovaStar
Mortgage Inc., as Sponsor and Servicer, NovaStar Certificates Financing
Corporation, as depositor, NovaStar Mortgage Funding Trust, Series 2006-1,
JPMorgan Chase Bank, National Association, as Indenture Trustee (“Indenture
Trustee”) J.P. Morgan Trust Company, National Association, as Co-Trustee and
U.S. Bank National Association, as Custodian (the “Agreement”)

In accordance with Section 5.27(a) of the above-captioned Agreement, the
undersigned hereby notifies the Indenture Trustee of the following information:

The Servicer has entered into an Advance Facility.

The Advancing Person is [                ].

[            ], as the Servicer’s Assignee, has the right to make withdrawals
from the Collection Account subject to Section 3.26(b) of this Agreement to
reimburse previously unreimbursed Advances and/or Servicing Advances pursuant to
Section 3.07 of this Agreement.

[Remainder of Page Intentionally Left Blank]

 

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

 

NOVASTAR MORTGAGE INC.

as Servicer

By:

      

Name:

 

Title:

[                                                     ]

as Advancing Person

By:

      

Name:

 

Title:

The undersigned hereby acknowledges receipt of this notice pursuant to
Section 5.27(a) of the Agreement.

ACKNOWLEDGED AND AGREED:

JPMORGAN CHASE BANK, NATIONAL ASSOCIATION, not in its individual capacity but
solely as Indenture Trustee

 

By:

      

Name:

 

Title:

 

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Exhibit M

FORM OF WRITTEN NOTICE TO THE INDENTURE TRUSTEE

JPMorgan Chase Bank, National Association

4 New York Plaza, 6th Floor

New York, NY 10004-2477

Attention: Worldwide Securities Services/ Structured Finance Services - NovaStar
Series 2006-1

 

  Re: Sale and Servicing Agreement, dated as of April 1, 2006 among NovaStar
Mortgage Inc., as Sponsor and Servicer, NovaStar Certificates Financing
Corporation, as depositor, NovaStar Mortgage Funding Trust, Series 2006-1,
JPMorgan Chase Bank, National Association, as Indenture Trustee (“Indenture
Trustee”) J.P. Morgan Trust Company, National Association, as Co-Trustee and
U.S. Bank National Association, as Custodian (the “Agreement”)

In accordance with Section 5.27(a) and (b) of the above-captioned Agreement,
[name of Advancing Person] hereby notifies the Indenture Trustee that [name of
Advancing Person] has [purchased][funded][an Advance]/[a Servicing Advance] and
is entitled to reimbursement from the Indenture Trustee pursuant to the terms of
the Advance Facility.

(a) The amount of the reimbursement owed is an amount equal to $[            ].

(b) Section [    ] of the Agreement permits this [Advance]/[Servicing Advance]
to be reimbursed.

(c) Section [    ] of the Advance Facility entitles [name of Advancing Person]
to request reimbursement from the Issuing Entity, rather than from the Servicer.

(d) [name of Advancing Person]’s wire transfer instructions are as follows:

[insert wire transfer instructions]

(e) [Proof of Event of Default under the Advance Facility, if applicable.]

[Remainder of the Page Intentionally Left Blank]

 

M-1

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

 

[                                                     ]

as Advancing Person

By:

      

Name:

 

Title:

 

ACKNOWLEDGED AND AGREED:

NOVASTAR MORTGAGE INC., as Servicer

By:

      

Name:

 

Title:

 

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