EXHIBIT 10.3

 

 

 

 

 

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VON KARMAN FUNDING LLC,

 

as Purchaser,

 

 

 

and

 

 

 

NEW CENTURY MORTGAGE CORPORATION,

 

as Seller and Servicer

 

 

 

MORTGAGE LOAN PURCHASE AND SERVICING AGREEMENT

 

dated as of September 5, 2003

 

 

 

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TABLE OF CONTENTS

 

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ARTICLE 1

  

DEFINITIONS

   1

ARTICLE 2

   SALE OF MORTGAGE LOANS; POSSESSION OF MORTGAGE FILES; BOOKS AND RECORDS;
CUSTODIAL AGREEMENT; DELIVERY OF DOCUMENTS    18     

Section 2.1

  Sale of Mortgage Loans; Possession of Mortgage Loan Files; Maintenance of
Mortgage Loan Files    18     

Section 2.2

  Determination of Initial Purchase Price    21     

Section 2.3

  Purchase Commitment Term    22     

Section 2.4

  Books and Records; Transfers of Mortgage Loans    22     

Section 2.5

  Custodial Agreement    22     

Section 2.6

  Capital Contribution    22     

Section 2.7

  Reserve Fund Deposit    23

ARTICLE 3

   REPRESENTATIONS AND WARRANTIES; COVENANTS; REMEDIES AND BREACH    23     

Section 3.1

  Representations and Warranties of the Company    23     

Section 3.2

  Representations and Warranties Regarding Individual Mortgage Loans;
Eligibility Representations    26     

Section 3.3

  Remedies for Breach of Representations and Warranties, First Pay Default Loans
   35     

Section 3.4

  Conditions to Closing    36     

Section 3.5

  Covenants of the Company and the Purchaser    36

ARTICLE 4

  

ADMINISTRATION AND SERVICING OF MORTGAGE LOANS

   38     

Section 4.1

  The Company to Act as Servicer; Servicing and Administration of the Mortgage
Loans    38     

Section 4.2

  Sales    40     

Section 4.3

  Liquidation of Mortgage Loans    42     

Section 4.4

  Collection of Mortgage Loan Payments    42     

Section 4.5

  Establishment of, and Deposits to, Collection Account    43     

Section 4.6

  Permitted Withdrawals From Collection Account; Deposit into the Collateral
Account    43     

Section 4.7

  Establishment of, and Deposits to, Proceeds Account    45     

Section 4.8

  Permitted Withdrawals From Proceeds Account    46

 

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Section 4.9

  Servicing Advances    46     

Section 4.10

  Protection of Accounts    46     

Section 4.11

  Maintenance of Hazard Insurance    47     

Section 4.12

  Maintenance of Mortgage Impairment Insurance    48     

Section 4.13

  Maintenance of Fidelity Bond and Errors and Omissions Insurance Policy    48  
  

Section 4.14

  Inspections    49     

Section 4.15

  Restoration of Mortgaged Property    49     

Section 4.16

  [Reserved]    49     

Section 4.17

  Title, Management and Disposition of REO Property    49     

Section 4.18

  Servicer Reports    50     

Section 4.19

  Real Estate Owned Reports    50     

Section 4.20

  Liquidation Reports    50     

Section 4.21

  Reports of Foreclosures and Abandonments of Mortgaged Property    50     

Section 4.22

  [Reserved]    50     

Section 4.23

  Monthly Disposition Report    51     

Section 4.24

  Monthly Portfolio Report    51     

Section 4.25

  Servicer Advance Facility    51     

Section 4.26

  Covenant Compliance Certificates    52

ARTICLE 5

  

SERVICER ADVANCES

   52     

Section 5.1

  Monthly Advances    52

ARTICLE 6

  

GENERAL SERVICING PROCEDURES

   53     

Section 6.1

  Transfers of Mortgaged Property    53     

Section 6.2

  Satisfaction of Mortgages and Release of Mortgage Loan Files    53     

Section 6.3

  Servicing Compensation    54     

Section 6.4

  Annual Statement as to Compliance    54     

Section 6.5

  Annual Financials, Annual Independent Public Accountants’ Servicing Report   
54     

Section 6.6

  Right to Examine Servicer Records    55

ARTICLE 7

  

REPURCHASE OBLIGATION

   55

 

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     Section 7.1   Servicer’s Repurchase Obligations    55

ARTICLE 8

  

SERVICER TO COOPERATE

   56     

Section 8.1

  Provision of Information    56

ARTICLE 9

  

THE SERVICER

   56     

Section 9.1

  Indemnification of Third-Party Claims    56     

Section 9.2

  Corporate Existence of the Servicer    57     

Section 9.3

  Limitation on Liability of Servicer and Others    57     

Section 9.4

  Limitation on Resignation of Servicer    57     

Section 9.5

  Limitation on Assignment of Rights and Obligations    57

ARTICLE 10

  

DEFAULT

       58     

Section 10.1

  Servicer Events of Default    58     

Section 10.2

  Waiver of Defaults    60

ARTICLE 11

  

TERMINATION

   60     

Section 11.1

  Termination of Agreement    60     

Section 11.2

  Termination of Purchase Obligations    60     

Section 11.3

  Termination of Servicing With Respect to Any Mortgage Loan    63

ARTICLE 12

  

MISCELLANEOUS PROVISIONS

   64     

Section 12.1

  Successor to Servicer    64     

Section 12.2

  Amendment    65     

Section 12.3

  Governing Law    65     

Section 12.4

  Duration of Agreement    65     

Section 12.5

  Notices    65     

Section 12.6

  Severability of Provisions    66     

Section 12.7

  Relationship of Parties    66     

Section 12.8

  Execution; Successors and Assigns    66     

Section 12.9

  Recordation of Assignments of Mortgage    66     

Section 12.10

  Assignment by Purchaser    66     

Section 12.11

  Non-Petition Agreement    67     

Section 12.12

  Waiver of Offset    67     

Section 12.13

  Limited Recourse    67     

Section 12.14

  Third Party Beneficiary    67

 

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ARTICLE 13

  

[RESERVED]

       67

ARTICLE 14

  

ASSIGNMENT

   67     

Section 14.1

  Assignment    67

ARTICLE 15

  

COMMITMENT FEE

   68     

Section 15.1

  Commitment Fee    68

 

EXHIBIT A TRANSFER SUPPLEMENT

EXHIBIT B RATED BIDDER

EXHIBIT C [RESERVED]

EXHIBIT D FORM OF SERVICER REPORT

EXHIBIT E FORM OF MONTHLY DISPOSITION REPORT

EXHIBIT F FORM OF MONTHLY PORTFOLIO REPORT

EXHIBIT G-1 FORM OF QUARTERLY COMPLIANCE CERTIFICATE

EXHIBIT G-2 FORM OF MONTHLY LIQUIDITY COMPLIANCE CERTIFICATE

 

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MORTGAGE LOAN PURCHASE AND SERVICING AGREEMENT, dated as of September 5, 2003
(as amended, supplemented or otherwise modified and in effect from time to time,
the “Purchase Agreement”), between VON KARMAN FUNDING LLC, a Delaware limited
liability company, as purchaser (the “Purchaser”) and NEW CENTURY MORTGAGE
CORPORATION, a California corporation, as seller and servicer (the “Company”, in
its capacity as servicer hereunder, the “Servicer” and in its capacity as seller
hereunder, the “Seller”).

 

W I T N E S S E T H

 

WHEREAS, the Purchaser has agreed to purchase from the Seller and the Seller has
agreed to sell to the Purchaser from time to time Mortgage Loans constituting
Eligible Loans until the termination of this Purchase Agreement in accordance
with Section 11.1 hereof. The Company wishes to service each Mortgage Loan on
behalf of the Purchaser after the sale and purchase thereof.

 

WHEREAS, the Purchaser and the Company, as Seller and Servicer, wish to
prescribe the manner of purchase of the Mortgage Loans and the management,
servicing and control of the Mortgage Loans.

 

WHEREAS, the Purchaser intends to sell the Mortgage Loans and the Servicer will
arrange for the sale of the Mortgage Loans on behalf of the Purchaser to
Mortgage Loan Buyers.

 

NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth,
and for other good and valuable consideration, the receipt and adequacy of which
is hereby acknowledged, the Purchaser and the Company, as the Seller and the
Servicer, agree as follows:

 

ARTICLE 1

 

DEFINITIONS

 

Whenever used herein, the following words and phrases, unless the context
otherwise requires, shall have the following meanings:

 

“Acquisition Date Accrued Interest”:  With respect to any Mortgage Loan, the
amount of interest, if any, accrued and unpaid on the date of acquisition of
such Mortgage Loan by the Purchaser.

 

“Affiliate”:  With respect to any specified Person, any other Person controlling
or controlled by or under common control with such specified Person. For the
purposes of this definition, “control” when used with respect to any specified
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities
(including, without limitation, partnership interests), by contract or otherwise
and the terms “controlling” and “controlled” have meanings correlative to the
foregoing.

 

“Allocated Expenses”:  The meaning assigned to such term in the Security
Agreement.

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“Appraised Value”:  The value set forth in an appraisal made in connection with
the origination or subsequent servicing of the related Mortgage Loan as the
value of the Mortgaged Property.

 

“Assignment of Mortgage”:  An assignment of mortgage, notice of transfer or
equivalent instrument in recordable form, sufficient under the laws of the
jurisdiction wherein the related Mortgaged Property is located to reflect the
sale of the Mortgage to the Purchaser.

 

“Back-up Servicer”:  Ocwen Federal Bank FSB.

 

“Bid Price”:  The meaning assigned to such term in Section 4.2(e) hereof.

 

“BIF”:  The Bank Insurance Fund or any successor thereto.

 

“Business Day”:  Any day other than (i) Saturday and Sunday or (ii) a day on
which banking institutions or foreign exchange markets in New York City are
authorized or required by law, regulation or executive order to be closed for
business.

 

“Calculation Agent”:  Citigroup Global Markets Inc. or its designee.

 

“Cash Equivalent Investment”.  At any time, (a) securities with maturities of
ninety (90) days or less from the date of acquisition issued or fully guaranteed
or insured by the United States Government or any agency thereof, (b)
certificates of deposit and eurodollar time deposits with maturities of ninety
(90) days or less from the date of acquisition and overnight bank deposits of
any commercial bank having capital and surplus in excess of $500,000,000, (c)
repurchase obligations of any commercial bank satisfying the requirements of
clause (b) of this definition, having a term of not more than seven days with
respect to securities issued or fully guaranteed or insured by the United States
Government, (d) commercial paper of a domestic issuer rated at least “A-1+” or
the equivalent thereof by S&P or “P-1” or the equivalent thereof by Moody’s, and
in either case maturing within ninety (90) days after the day of acquisition,
(e) securities with maturities of ninety (90) days or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or territory
of the United States, by any political subdivision or taxing authority of any
such state, commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political subdivision,
taxing authority or foreign government (as the case may be) are rated at least
“A” by S&P or “A2” by Moody’s, (f) securities with maturities of ninety (90)
days or less from the date of acquisition backed by standby letters of credit
issued by any commercial bank satisfying the requirements of clause (b) of this
definition, or (g) shares of money market mutual or similar funds which invest
exclusively in assets satisfying the requirements of clauses (a) through (f) of
this definition.

 

“Cash-Out Refinancing Loan”:  A refinancing transaction with respect to a
Mortgage Loan, in which the amount received from the refinancing loan exceeds
the aggregate amount required for (x) repayment of the existing Mortgage Loan,
plus closing costs and fees, and (y) satisfaction of any outstanding subordinate
mortgage liens, by an amount in excess of the lesser of (i) $2,000, or (ii) two
percent (2%) of the Mortgage Loan, and the terms of the Mortgage Note allows the
relevant Mortgagor to receive such excess amount for any purpose.

 

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“Class”:  Shall mean any Secured Liquidity Notes with the same Expected Maturity
(regardless of the date of issuance thereof, and including any Extended Notes
derived from such Secured Liquidity Notes).

 

“Closing Date”:  The closing date specified in any Transfer Supplement, which is
the date as to which the sale of any Portfolio is designated to occur.

 

“Code”:  The Internal Revenue Code of 1986, as it may be amended from time to
time or any successor statute thereto, and applicable U.S. Department of the
Treasury regulations issued pursuant thereto.

 

“Collateral Account”:  The meaning assigned to such term in Section 4.6(b)
hereof.

 

“Collateral Agent”:  Deutsche Bank Trust Company Americas, not in its individual
capacity but solely as collateral agent under the Security Agreement, or any
successor collateral agent under the Security Agreement.

 

“Collection Account”:  The meaning assigned to such term in Section 4.5 hereof.

 

“Combined LTV”:  With respect to any Mortgage Loans as of the date of
origination, the ratio (expressed as a percentage) on such date of (x) the
outstanding principal amount of the Mortgage Loan (plus, in the case of a Second
Lien Mortgage Loan, the outstanding principal balance of the related first lien
mortgage loan) which is secured by a lien on the related Mortgaged Property, to
(y) to the lesser of (i) the most recently obtained Appraised Value of the
Mortgaged Property and (ii) if the Mortgage Loan was made to finance the
acquisition of the related Mortgaged Property, the purchase price of the
Mortgaged Property.

 

“Commitment Fee”:  Is defined in the Side Letter.

 

“Company”:  The meaning assigned to such term in the recitals hereof.

 

“Condemnation Proceeds”:  As to each Mortgage Loan, all awards or settlements in
respect of a Mortgaged Property, whether permanent or temporary, partial or
entire, by exercise of the power of eminent domain or condemnation, to the
extent not required to be released to the Mortgagor pursuant to the terms of the
related Loan Documents.

 

“Contractual Obligation”:  As to any Person, any material provision of any
agreement, instrument or other undertaking to which such Person is a party or by
which it or any of its property is bound or any material provision of any
security issued by such Person.

 

“Current Transfer Price”:  With respect to any Mortgage Loan, the prevailing
price at which mortgage loans are transferred by the Company to NC Capital
Corporation, which is quarterly reset to reflect prevailing market conditions
and a fair return on assets for each of the Company and NC Capital Corporation
based upon their respective roles, provided that, the Current Transfer Price
shall in any event be not less than the Outstanding Purchase Price (plus accrued
interest thereon) of such Mortgage Loan.

 

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“Custodial Agreement”:  The custodial agreement, dated as of the date hereof, by
and among the Purchaser, the Seller, the Collateral Agent and the Custodian, as
the same may at any time be amended, modified or supplemented.

 

“Custodian”:  Deutsche Bank National Trust Company, in its capacity as custodian
under the Custodial Agreement, or any successor custodian under the Custodial
Agreement.

 

“Customary Servicing Procedures”:  Procedures (including collection procedures)
that the Servicer customarily employs and exercises in servicing and
administering non-prime loans for its own account which are in accordance with
accepted non-prime loan servicing practices of prudent mortgage lenders in the
jurisdiction in which the Mortgaged Property is situated for properties of a
similar type.

 

“Cut-Off Date”:  Shall mean (i) with respect to the repurchase of a Mortgage
Loan by the Seller or the Servicer pursuant to Section 3.3, 6.2 or 7.1 hereof,
the date of such repurchase and (ii) with respect to any other sale by the
Purchaser of a Mortgage Loan, the time and date established by the Purchaser and
the Mortgage Loan Buyer as the time and date on and after which all principal
and interest collected and other benefits accruing on the Mortgage Loan shall
belong to such Mortgage Loan Buyer.

 

“Defaulted Loan”:  Any Mortgage Loan (i) which has a Monthly Payment that is
past its Due Date for a period of time extending beyond the close of business on
the corresponding day of the third calendar month immediately succeeding the
month in which such Due Date occurred, or, if there is no such corresponding day
(e.g., as when the third calendar month is a 30-day month and such Due Date
occurred on the 31st day of a month), then on the last day of such third
calendar month, without giving effect to any Monthly Advance, or (ii) which is a
Delinquent Loan for which the Servicer has not made a Monthly Advance and the
Servicer has delivered a certificate pursuant to Section 5.1 hereof or (iii)
where any other event has occurred which gives the holder the right to
accelerate payment of the Mortgage Loan and/or take steps to foreclose on the
Mortgage securing the Mortgage Loan under the related Mortgage Note or other
Loan Documents, including without limitation the bankruptcy of the Mortgagor.

 

“Deferred Amount”:  Any amount payable or paid by a purchaser (other than the
Purchaser) of Mortgage Loans or the servicing rights in respect thereof after
the settlement date of the sale or securitization of such Mortgage Loans or
servicing rights, in respect of deferred sale price or deferred excess servicing
fee, or other cash consideration for such sale or securitization.

 

“Delinquent Loan”:  Any Mortgage Loan which has a Monthly Payment that is past
its Due Date for a period of time extending beyond the close of business on the
corresponding day of the month immediately succeeding the month in which such
Due Date occurred, or, if there is no such corresponding day (e.g., as when a
30-day month follows a 31-day month in which such Due Date occurred on the 31st
day of such month), then on the last day of such immediately succeeding month,
up to but not including the corresponding day of the third calendar month
immediately succeeding the month in which such Due Date occurred, or, if there
is no such corresponding day (e.g., as when the third calendar month is a 30-day
month and

 

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such Due Date occurred on the 31st day of a month), then on the last day of such
third calendar month, without giving effect to any Monthly Advance.

 

“Depositary”:  Deutsche Bank Trust Company Americas, in its capacity as
depositary under the Depositary Agreement, or any successor depositary under the
Depositary Agreement.

 

“Depositary Agreement”:  The depositary agreement, dated as of the date hereof,
entered into by the Purchaser and the Depositary, as the same may at any time be
amended, modified or supplemented.

 

“Distressed Termination Event”:  Any Security Agreement Event of Default or
Termination Event which is not a Non-Distressed Termination Event.

 

“Due Date”:  With respect to each Mortgage Loan, the day on which the related
Monthly Payment on such Mortgage Loan is due, exclusive of any grace period.

 

“Eligibility Criteria”:  Is defined in the Side Letter.

 

“Eligibility Representations”:  The representations and warranties made by the
Seller with respect to each Mortgage Loan, set forth in Section 3.2 hereof.

 

“Eligible Investments”:  Investments which mature no later than the Business Day
prior to the next following Payment Date in the following: (i) obligations
issued by, or the full and timely payment of principal of and interest on which
is fully guaranteed by, the United States of America or any agency or
instrumentality thereof (which agency or instrumentality is backed by the full
faith and credit of the United States of America), (ii) commercial paper notes
(other than the Secured Liquidity Notes) rated (at the time of purchase) at
least “A-l+” by S&P, “P-1” by Moody’s and, if rated by Fitch, “F1+” by Fitch,
(iii) certificates of deposit, other deposits or bankers’ acceptances issued by
or established with commercial banks having short-term deposit ratings (at the
time of purchase) of at least “A-l+” by S&P, “P-1” by Moody’s and, if rated by
Fitch, “F1+” by Fitch, (iv) repurchase agreements involving any of the Eligible
Investments described in clauses (i) through (iii) hereof so long as the other
party to the repurchase agreement has short-term unsecured debt obligations or
short-term deposits rated (at the time of purchase) at least “A-l+” by S&P,
“P-1” by Moody’s and, if rated by Fitch, “F1+” by Fitch and (v) direct
obligations of any money market fund or other similar investment company all of
whose investments consist of obligations described in the foregoing clauses of
this definition and that is rated “AAAm” by S&P and “Aam” by Moody’s. In
addition, any such Eligible Investment shall not have an “r” highlighter affixed
to its rating, and its term shall have a predetermined fixed dollar amount of
principal due at maturity that cannot vary or change. Interest on any Eligible
Investment shall be tied to a single interest rate index plus a single fixed
spread, if any, and move proportionately with that index. Without limitation of
the foregoing, “Eligible Investments” may include investments for which the
Collateral Agent or its Affiliates serves as investment manager or advisor.

 

“Eligible Loan”:  Mortgage Loans that satisfy the Eligibility Criteria,
Eligibility Representations, Portfolio Aging Limitations and which, taken
together with the other Mortgage

 

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Loans owned or to be owned by the Purchaser, does not cause a breach of the
Portfolio Criteria. An Eligible Loan includes, without limitation, the Mortgage
Loan File, Monthly Payments, Principal Prepayments, Liquidation Proceeds,
Condemnation Proceeds, Insurance Proceeds, REO Disposition Proceeds and all
other rights, benefits, proceeds and obligations arising from or in connection
with such Eligible Loan.

 

“Event of Bankruptcy” shall be deemed to have occurred with respect to a Person
if:

 

(a)    such Person shall become insolvent or admit in writing its inability to
pay its debts as they come due, or the commencement by such Person of a
voluntary case under the federal bankruptcy laws, as now or hereafter in effect,
or any other present or future federal or state bankruptcy, insolvency or
similar law, or the consent by such Person to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator
or other similar official of such Person or of any substantial part of its
property or the making by such Person of an assignment for the benefit of
creditors or the failure by such Person generally to pay its debts as such debts
become due or the taking of action by such Person in furtherance of any of the
foregoing; or

 

(b)    an involuntary petition or an involuntary proceeding shall have been
filed or commenced against such Person under the federal bankruptcy laws, as now
or hereafter in effect, or any other present or future federal or state
bankruptcy laws, as now or hereafter in effect, or any other present or future
federal or state bankruptcy, insolvency or similar law, or seeking the
appointment of a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of such Person or of any substantial part
of its property, or seeking the winding up or liquidation of the affairs of such
Person and such petition or proceeding shall not have been dismissed for a
period of thirty (30) days (in the case of the Purchaser), or sixty (60) days
(in any other case), or an order or decree for relief against such Person shall
be entered in any such proceeding; or

 

(c)    the board of directors of such Person (if such Person is a corporation or
similar entity) shall vote to implement any of the actions set forth in clause
(b) above.

 

“Expected Maturity”:  Has the meaning given in the Security Agreement.

 

“Expense Rate”:  For any Remittance Period, the rate equal to 12 times a
fraction, the numerator of which is the aggregate Allocated Expenses for such
Remittance Period and the denominator of which is the weighted average
Outstanding Purchase Price of the Mortgage Loans owned by the Purchaser during
such Remittance Period, provided, however, that for purposes of calculating the
sum referred to in sub-clause (xviii) of the definition of “Portfolio Criteria”,
the Expense Rate shall be deemed to be fifteen (15) basis points (0.15%) per
annum.

 

“Extended Note Amortization Event”:  Any Extended Note which remains outstanding
for thirty (30) days following the conversion of the related Secured Liquidity
Note; provided, however, that any Extended Note Amortization Event shall cease
to exist and shall no longer be deemed to be continuing from the date all
Extended Notes are paid in full.

 

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“Extended Notes”:  Any one of the Extended Notes resulting from the conversion
of a Secured Liquidity Note to an Extended Note pursuant to a SLN Extension
Event.

 

“Fallout Loan”:  A mortgage loan which was (a) proposed for sale into a whole
loan sale or securitization and finally rejected by the prospective purchaser,
or (b) previously sold (by any Person) to a third party in a whole loan sale or
securitization, and which was subsequently repurchased by the seller in such
whole loan sale, or removed from such securitization, for any reason.

 

“FDIC”:  The Federal Deposit Insurance Corporation, or any successor thereto.

 

“FICO Score”:  A statistical credit score obtained by many mortgage lenders in
connection with a loan application to help assess a borrower’s creditworthiness.
A FICO Score is generated by models developed by a third party and made
available to lenders through three (3) national credit bureaus. The FICO Score
is based on a borrower’s historical credit data, including, among other things,
payment history, delinquencies on accounts, levels of outstanding indebtedness,
length of credit history, types of credit and bankruptcy experience.

 

“Final Maturity”:  Has the meaning given in the Security Agreement.

 

“Financial Covenant Event of Default”:  Failure by the Seller and/or the
Purchaser to comply with the obligations set forth in Section 3.5(i), which
default shall be continuing unremedied for a period of three (3) Business Days.

 

“First Lien Mortgage Loan”:  A Mortgage Loan secured by a first lien Mortgage on
the related Mortgaged Property.

 

“First Pay Default Loan”:  A Mortgage Loan for which the initial Monthly Payment
due thereon after origination is not made by the related Mortgagor within
forty-five (45) days after the Due Date therefor.

 

“Fitch”:  Fitch, Inc. and any successor thereto.

 

“GAAP”:  Generally accepted accounting principles adopted in the United States,
consistently applied.

 

“High Cost Loan”:  A mortgage loan classified as (a) a “high cost” loan under
the Home Ownership and Equity Protection Act of 1994, or (b) a “high cost”,
“threshold”, “covered”, “predatory” or similar loan under any applicable
federal, state or local law.

 

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“Indebtedness”:  With respect to any Person at any time, without duplication,
all obligations of such Person which, in accordance with GAAP, consistently
applied, should be classified as liabilities on an unconsolidated balance sheet
of such Person, but in any event including: (a) all obligations of such Person
for borrowed money, (b) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (c) all obligations of such
Person upon which interest charges are customarily paid or accrued, (d) all
obligations of such Person under conditional sale or other title retention
agreements relating to property purchased by such Person, (e) all obligations of
such Person issued or assumed as the deferred purchase price of property or
services, but excluding accrued expenses and trade payables incurred and paid in
the ordinary course of business, (f) all obligations of others secured by any
lien on property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, (g) all capitalized lease
obligations of such Person, (h) all obligations of such Person in respect of
interest rate protection agreements, (i) all obligations of such Person, actual
or contingent, in respect of letters of credit or banker’s acceptances, (j) all
obligations of any partnership or joint venture as to which such Person is or
may become personally liable, and (k) all guarantees by such Person of
Indebtedness of others, less (l) the aggregate amount of any indebtedness that
is reflected on the balance sheet of such Person in respect of obligations
incurred pursuant to a securitization transaction, solely to the extent such
obligations are secured by the assets securitized thereby and are non-recourse
to such Person.

 

“Initial Purchase Price”:  Is defined in the Side Letter.

 

“Initial Required Reserve Fund Amount”:  The meaning assigned to such term in
the Security Agreement.

 

“Insurance Proceeds”:  With respect to each Mortgage Loan, proceeds of insurance
policies insuring the related Mortgaged Property to the extent not required to
be released to the Mortgagor pursuant to the terms of the related Loan
Documents.

 

“Insured Amount”:  The meaning assigned to such term in Section 4.10 hereof.

 

“Lien”:  Any interest in property securing an obligation owed to, or a claim by,
a Person other than the owner of such property, whether such interest is based
on the common law, statute or contract, and including, but not limited to, the
security interest, security title or lien arising from a security agreement,
mortgage, deed of trust, deed to secure debt, encumbrance or pledge for security
purposes.

 

“Liquidation Proceeds”:  All amounts received and retained in connection with
the liquidation of Defaulted Loans.

 

“Liquidity”:  For each relevant Person, the aggregate of all cash, Cash
Equivalent Investments, and Overcollateralization, less the amount of Restricted
Cash owned by such Person.

 

“LLC Agreement”:  The amended and restated limited liability company agreement
of Von Karman Funding LLC, dated as of the date hereof, and executed by the

 

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Member and the Special Member, as the same may at any time be amended, modified
or supplemented.

 

“Loan Documents”:  The meaning assigned to such term in Section 2.1(b) hereof.

 

“Loan Rate”:  For any Remittance Period, the weighted average Mortgage Interest
Rate for such Remittance Period calculated at the more recent of (i) the
beginning of such Remittance Period, and (ii) the date that a Mortgage Loan was
purchased by the Purchaser hereunder.

 

“Loan Termination Date”:  Each day on which a deposit is made into the
Collateral Account in respect of Terminated Loans.

 

“Loan-to-Value Ratio” or “LTV”:  With respect to each Mortgage Loan, the ratio
expressed as a percentage of the outstanding principal balance of the Mortgage
Loan as of the date of origination of the Mortgage Loan, to the lesser of (i)
the most recently obtained Appraised Value of the Mortgaged Property and (ii) if
the Mortgage Loan was made to finance the acquisition of the related Mortgaged
Property, the purchase price of the Mortgaged Property.

 

“Manager”:  The Company.

 

“Market Value”:  With respect to any Mortgage Loan at any date, the price at
which such Mortgage Loan could be sold in its entirety to a single, third-party
purchaser on arm’s length terms, as determined by the Calculation Agent in its
sole discretion and taking into account customary factors, including, but not
limited to, market factors where such price is affected by the Purchaser (if
that be the case) being in default under the Program Documents. Where the
Calculation Agent is called upon to determine the Market Value of a particular
portfolio of Mortgage Loans, the Calculation Agent may, but shall not be
obligated to, take into account the increase or decrease in price attributable
to such Mortgage Loans being part of such portfolio.

 

“Market Value Event Collateral Deposit”:  Has the meaning given in the Security
Agreement.

 

“Market Value Requirement”:  Has the meaning given in the Security Agreement.

 

“Material Adverse Effect”:  A material adverse effect on (a) the business,
assets, operations, prospects or condition, financial or otherwise, of the
Purchaser or (b) the ability of the Purchaser, the Seller or the Servicer to
perform any of its obligations under this Purchase Agreement or any of the other
Program Documents.

 

“Member”:  The Company.

 

“MERS”:  Mortgage Electronic Registration Systems, Inc.

 

“MERS Mortgage”:  Any Mortgage that is recorded in the name of MERS, as nominee
for the Company (or in such substantially similar language as the Company deems
appropriate).

 

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“Monthly Advance”:  Amounts advanced by the Servicer in respect of Delinquent
Loans and Defaulted Loans pursuant to Section 5.1 hereof.

 

“Monthly Payment”:  The scheduled monthly payment of principal and interest on a
Mortgage Loan.

 

“Monthly Remittance Date”:  The 24th day of each month, or if such day is not a
Business Day, the preceding Business Day.

 

“Moody’s”:  Moody’s Investors Service, Inc., and any successor thereto.

 

“Mortgage”:  The mortgage, deed of trust or other instrument which creates a
first or second priority lien on an estate in fee simple in real property
securing the Mortgage Note.

 

“Mortgage Interest Rate”:  The annualized regular rate of interest borne on a
Mortgage Note relating to the Mortgage Loan.

 

“Mortgage Loan”:  Each non-prime loan identified in each Transfer Supplement.

 

“Mortgage Loan Buyer”:  A Securitization Vehicle or other Person that is
purchasing a Portfolio from the Purchaser (other than the Seller or the Servicer
in the case of a repurchase of a Mortgage Loan pursuant to Section 3.3, 6.2 or
7.1 hereof).

 

“Mortgage Loan Buyer Account”:  The meaning assigned to such term in Section
4.6(f) hereof.

 

“Mortgage Loan File”:  The items pertaining to each Mortgage Loan referred to in
Section 2.1(b) hereof, and any additional documents required to be added to the
Mortgage Loan File pursuant to this Purchase Agreement.

 

“Mortgage Loan Schedule”:  The meaning assigned to such term in the Custodial
Agreement.

 

“Mortgage Note”:  The note or other evidence of the indebtedness of a Mortgagor
secured by a Mortgage, relating to a Mortgage Loan.

 

“Mortgaged Property”:  The real property securing repayment of the debt
evidenced by a Mortgage Note.

 

“Mortgagee”:  The lender on a Mortgage Note.

 

“Mortgagor”:  The obligor on a Mortgage Note.

 

“Net Worth”:  With respect to any Person, shall mean the excess of total assets
of such Person over total liabilities of such Person, determined in accordance
with GAAP.

 

“Non-Distressed Termination Event”:  (i) Any voluntary wind-down and termination
of the Program, (ii) any of the events described in Sections 11.2(e), (i), (n)
or (o)(ii)

 

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hereof, and (iii) any of the events described in Sections 7.01 (l)(ii) (where
the Swap Counterparty is the sole party in default), (m) (where the Swap
Counterparty is the sole party in default) or (q) of the Security Agreement.

 

“Notes”:  Any of the Secured Liquidity Notes and Extended Notes.

 

“Officer’s Certificate”:  A certificate signed by the Chairman of the Board, the
Chief Executive Officer, the President, any Executive Vice President, any Senior
Vice President, any Vice President, the Secretary or any Assistant Secretary of
the Seller, the Servicer or the Manager (on behalf of the Purchaser), as
applicable.

 

“One-Month LIBOR”:  Means the rate derived using the method set forth in Section
4.06(b) of the Security Agreement.

 

“Opinion of Counsel”:  A written opinion of counsel, who may be an employee of
the Seller or the Servicer, as applicable, in a form reasonably acceptable to
the Purchaser.

 

“Outstanding Program Amount”:  As of any day, the aggregate of the Outstanding
Purchase Price of all Eligible Loans owned by the Purchaser on that day.

 

“Outstanding Purchase Price”:  With respect to any Mortgage Loan and any date of
determination, (i) the Initial Purchase Price of such Mortgage Loan, less (ii)
the amounts of any payments received by the Purchaser in respect of Acquisition
Date Accrued Interest, less (iii) all previous principal payments made on such
Mortgage Loan after acquisition by the Purchaser and received by the Servicer
prior to such date of determination; provided, however, that after any Loan
Termination Date or any date on which a Mortgage Loan is repurchased by the
Seller or the Servicer pursuant to Section 3.3, 6.2 or 7.1 hereof, the
Outstanding Purchase Price of such Terminated Loan or such repurchased Mortgage
Loan shall be zero.

 

“Overcollateralization”:  As of any date of determination for any Person, the
excess of (i) the collateral value of assets pledged by that Person to a lender
under a committed warehouse or repurchase facility (after taking into account
required haircuts) over (ii) the aggregate amount of the advances or loans made
by the lender to the Borrower under any such committed warehouse or repurchase
facility.

 

“Payment Date”:  The 25th day of each month (or if such day is not a Business
Day, the next following Business Day), commencing on October 25, 2003.

 

“Person”:  Any individual, corporation, limited liability company, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof.

 

“Portfolio”:  A Mortgage Loan or pool of Mortgage Loans sold to the Purchaser on
a Closing Date pursuant to the terms hereof and the applicable Transfer
Supplement.

 

“Portfolio Aging Limitations”:  Is defined in the Side Letter.

 

“Portfolio Criteria”:  Is defined in the Side Letter.

 

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“Principal Prepayment”:  Any payment or other recovery of principal made on a
Mortgage Loan which is received in advance of its scheduled Due Date, including
any prepayment penalty or premium thereon, which is not accompanied by an amount
of interest representing scheduled interest due on any date or dates in any
month or months subsequent to the month of prepayment.

 

“Proceeds Account”:  As to each Mortgage Loan, any separate account or accounts
created and maintained pursuant to Section 4.7 hereof.

 

“Program”:  The non-prime mortgage loan funding, sale and purchase program
contemplated by the Program Documents.

 

“Program Documents”:  This Purchase Agreement, the Security Agreement, the
Custodial Agreement, the LLC Agreement, the Rated Bidder Letter, the Depositary
Agreement, the Total Return Swap, and the SLN Placement Agent Agreement.

 

“Program Size”:  $2,000,000,000 (as such limit may be increased or decreased in
accordance with the Program Documents).

 

“Purchase Agreement”:  The meaning assigned to such term in the recitals hereof.

 

“Purchase Price”:  The meaning assigned to such term in Section 11.2 hereof.

 

“Purchaser”:  The meaning assigned to such term in the recitals hereof.

 

“Qualified Depository”:  Any depository the accounts of which are insured by the
FDIC through the BIF or the SAIF and the debt obligations of which are rated
“Aa2,” “AA” and “AA” or better by Moody’s, S&P and, if rated by Fitch, Fitch,
respectively, or such depository as shall be acceptable to Moody’s, S&P and
Fitch, as applicable.

 

“Qualified Purchaser”:  A regular purchaser in the market for non-prime loans.

 

“Rated Bidder”:  The meaning assigned to such term in Section 11.2 hereof.

 

“Rating Agency” or “Rating Agencies”:  With respect to the Company or the Notes,
shall refer to S&P and Moody’s; and with respect to Eligible Investments, a
Qualified Depositary, or the Swap Counterparty, shall refer to S&P, Moody’s and,
if applicable, Fitch.

 

“Rating Agency Confirmation”:  A written confirmation from each Rating Agency
rating the Notes that the proposed action will not cause the reduction or
withdrawal of its then current rating (in effect immediately before taking such
action) of any outstanding Notes.

 

“Refinanced Mortgage Loan”:  A Mortgage Loan, none of the proceeds of which were
used to purchase the related Mortgage Property.

 

“Remittance Period”:  With respect to each Monthly Remittance Date, the calendar
month immediately preceding such Monthly Remittance Date.

 

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“REO Disposition”:  The final sale by the Servicer of any REO Property.

 

“REO Disposition Proceeds”:  All amounts received with respect to a REO
Disposition pursuant to Section 4.17 hereof, net of (i) costs related thereto
(including unreimbursed Servicing Advances) and (ii) unreimbursed Monthly
Advances relating to the related Mortgage Loan.

 

“REO Property”:  A Mortgaged Property acquired by the Servicer on behalf of the
Purchaser through foreclosure or by deed in lieu of foreclosure, as described in
Section 4.17 hereof.

 

“Repurchase Price”:  With respect to each Mortgage Loan that is repurchased by
the Seller or the Servicer pursuant to Section 3.3, 6.2 or 7.1 hereof, the
Outstanding Purchase Price of such loan plus accrued and unpaid interest to (but
not including) the date of repurchase, as certified to the Collateral Agent by
the Servicer.

 

“Required Reserve Fund Amount”:  The meaning assigned to such term in the
Security Agreement.

 

“Required Senior Noteholders”:  Senior Noteholders holding in excess of 50% in
aggregate principal amount of all outstanding Senior Notes, voting together as a
single class.

 

“Reserve Fund”:  The segregated trust account established and maintained by the
Collateral Agent for the benefit of the Secured Parties, as set forth in Section
6.05 of the Security Agreement.

 

“Restricted Cash”:  All cash and Cash Equivalent Investments that are subject to
a Lien in favor of any Person other than the Collateral Agent on behalf of the
Secured Parties, that are required to be maintained by the Purchaser pursuant to
a Contractual Obligation or as a result of the operation of law.

 

“S&P”:  Standard & Poor’s Ratings Services, a division of The McGraw-Hill
Companies, or any successor thereto.

 

“SAIF”:  The Savings Association Insurance Fund, or any successor thereto.

 

“Sale Price”:  The meaning assigned to such term in Section 4.2(e) hereof.

 

“Second Lien Mortgage Loan”:  A Mortgage Loan secured by a second lien Mortgage
on the related Mortgaged Property.

 

“Secured Liquidity Notes”:  The Secured Liquidity Notes issued from time to time
by the Purchaser pursuant to the Depositary Agreement and the Security
Agreement.

 

“Secured Parties”:  As defined in the Security Agreement.

 

“Securities Act”:  The Securities Act of 1933, as amended.

 

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“Securitization Vehicle”:  A special purpose entity established for the purpose
of (i) securitizing mortgage loans or (ii) funding mortgage loans through a
commercial paper program or repurchase facility.

 

“Security Agreement”:  The Security Agreement dated as of the date hereof,
between the Purchaser and the Collateral Agent.

 

“Security Agreement Event of Default”:  An event of default set forth in the
Security Agreement.

 

“Seller”:  Shall have the meaning set forth in the recitals hereto.

 

“Senior Noteholders”:  The registered holders of any Senior Notes.

 

“Senior Notes”:  The Secured Liquidity Notes and Extended Notes.

 

“Series”:  The Secured Liquidity Notes and Extended Notes taken together as one
series.

 

“Servicer”:  The meaning assigned to such term in the recitals hereof, and any
successor appointed pursuant to Section 12.1.

 

“Servicer Event of Default”:  The meaning assigned to such term in Section 10.1
hereof.

 

“Servicer Report”:  The meaning assigned to such term in Section 4.18 hereof.

 

“Servicing Advances”:  All customary, reasonable and necessary “out of pocket”
costs and expenses other than Monthly Advances (including reasonable attorneys’
fees and disbursements) incurred in the performance by the Servicer in
connection with a default or other unanticipated occurrence with respect to each
Mortgage Loan owned by the Purchaser (and not including the performance of its
ordinary and customary activities as Servicer), including, but not limited to,
the cost of (a) the preservation, restoration and protection of the Mortgaged
Property, (b) any enforcement or judicial proceedings, including foreclosures,
(c) the management and liquidation of any REO Property and (d) any advances of
taxes, insurance premiums and other charges made pursuant to Section 4.9 hereof
as a consequence of the default by the Mortgagor on its obligation to pay such
amounts.

 

“Servicing Fee”:  With respect to the services provided by the Servicer pursuant
to this Purchase Agreement, a monthly servicing fee of one half of one percent
(0.50%) per annum on the Outstanding Purchase Price of Mortgage Loans held by
the Purchaser as of the first day of such month.

 

“Servicing File”:  The meaning assigned to such term in Section 2.1(b) hereof.

 

“Side Letter”:  The Side Letter, dated as of the date hereof, among the Company,
the Purchaser, the Swap Counterparty and the Collateral Agent.

 

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“SLN Extension Event”:  With respect to any Secured Liquidity Note, such Secured
Liquidity Note is not paid in full on its Expected Maturity and, as a result,
such Secured Liquidity Note is converted to an Extended Note pursuant to the
Security Agreement.

 

“SLN Placement Agent”:  Citigroup Global Markets Inc., Banc of America
Securities LLC, and such others as may be appointed by the Purchaser from time
to time, each as a SLN Placement Agent pursuant to the SLN Placement Agent
Agreement.

 

“SLN Placement Agent Agreement”:  The private placement agreement, dated as of
the date hereof, among the Purchaser, the Company and the SLN Placement Agents.

 

“Special Member”:  Kenneth J. Uva.

 

“Swap Counterparty”:  Citibank, N.A. while it is a party to the Total Return
Swap, or any other Person which is a commercial bank or financial institution
having a short-term credit rating of “A-1+”, “P-1” and “F1+” from S&P, Moody’s
and, if rated by Fitch, Fitch, respectively, and a long-term credit rating of at
least “AA-”, “Aa3” and “AA-” from S&P, Moody’s and, if rated by Fitch, Fitch,
respectively, and which becomes a swap counterparty under a Total Return Swap,
provided, however, that no such other Person may become a Swap Counterparty
without having first obtained Rating Agency Confirmation.

 

“Swap Counterparty Representative”:  The meaning assigned to such term in
Section 11.2 hereof.

 

“Swap Fee Spread”:  The amount separately agreed to be paid by the Issuer to the
Swap Counterparty in consideration for the Swap Counterparty entering into and
maintaining the Total Return Swap.

 

“Tangible Net Worth”:  With respect to any Person, as of any date of
determination, the consolidated Net Worth of such Person and its subsidiaries,
less the consolidated net book value of all assets of such Person and its
subsidiaries (to the extent reflected as an asset on the balance sheet of such
Person or any subsidiary of such Person at such date) which will be treated as
intangibles under GAAP, including, without limitation, such items as deferred
financing expenses, net leasehold improvements, goodwill, trademarks, trade
names, service marks, copyrights, patents, licenses and unamortized debt
discount and expense; provided, that, residual securities owned by such Person
shall not be treated as intangibles for purposes of this definition.

 

“Terminated Loan”:  Each Mortgage Loan owned by the Purchaser which is wholly
prepaid by the Mortgagor, or sold by the Purchaser to a Mortgage Loan Buyer
(other than a repurchase or sale, or a Mortgage Loan subject to sale to or
repurchase by, the Seller or the Servicer pursuant to Section3.3, 6.2 or 7.1
hereof).

 

“Termination Event”:  The meaning assigned to such term in Section 11.2 hereof.

 

“Termination Event Auction”:  The meaning assigned to such term in Section 11.2
hereof.

 

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“Total Indebtedness”:  At any time, the aggregate Indebtedness of any Person and
its subsidiaries.

 

“Total Return Swap”:  One or more total return swap agreements, each dated as of
the date hereof, and any other total return swap agreement entered into, between
the Purchaser and each Swap Counterparty separately or any substitute total
return swaps entered into pursuant to the provisions of the Total Return Swap.

 

“Total Return Swap Event of Default”:  An event of default under any Total
Return Swap.

 

“Total Return Swap Termination Event”:  A termination event under any Total
Return Swap.

 

“Transfer Supplement”:  The document pursuant to which a Portfolio is sold by
the Seller to the Purchaser, a form of which is attached hereto as Exhibit A.

 

“Wet Funded Loan”:  A Mortgage Loan that is originated or acquired by the Seller
and purchased by the Purchaser, prior to the delivery of the Mortgage Note to
the Custodian.

 

“Wet Funded Loan Limitation”:  Is defined in the Side Letter.

 

ARTICLE 2

 

SALE OF MORTGAGE LOANS; POSSESSION OF

MORTGAGE FILES; BOOKS AND RECORDS;

CUSTODIAL AGREEMENT; DELIVERY OF DOCUMENTS

 

Section 2.1    Sale of Mortgage Loans; Possession of Mortgage Loan Files;
Maintenance of Mortgage Loan Files.

 

(a)    (i)  From time to time, pursuant to any Transfer Supplement, the Seller
may sell, transfer, assign, set over and convey to the Purchaser, without
recourse, but subject to the terms hereof, all the right, title and interest of
the Seller in and to each Mortgage Loan identified on such Transfer Supplement,
including Wet Funded Loans; provided, however, that the Purchaser shall not at
any time be required to purchase Mortgage Loans to the extent that, after giving
effect to such purchase, the Outstanding Program Amount is greater than the
then-current Program Size; provided, further, that each Mortgage Loan
transferred on each Closing Date must be an Eligible Loan. In connection with
the sale of Mortgage Loans to the Purchaser, the Seller shall sell, transfer,
assign, set over and convey to the Purchaser all right, title and interest of
the Seller in and to the servicing rights related to such Mortgage Loans. The
Seller shall provide a notice to the Purchaser, the Servicer, the Collateral
Agent and the Swap Counterparty not later than 12:00 noon (New York City time)
(where the Purchaser intends to issue Secured Liquidity Notes to fund its
purchase of a Portfolio on such day), or 4:00 p.m. (New York City time) (where
the Purchaser does not intend to issue Secured Liquidity Notes to fund its
purchase of a Portfolio on such day) on the Closing Date of its intention to
sell a Portfolio to

 

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the Purchaser pursuant to a Transfer Supplement. In such notice, the Seller
shall inform the Purchaser of the aggregate principal balance of the Mortgage
Loans that it intends to sell on such date. The subject Portfolio and related
servicing rights shall be sold by the Seller to the Purchaser as described in
Section 2.2 hereof. Each Transfer Supplement shall be executed by the Seller and
the Purchaser at the time of the sale of the subject Portfolio and related
servicing rights. Notwithstanding the foregoing, the Purchaser may not purchase
any Mortgage Loans during the continuation of an Extended Note Amortization
Event or a Termination Event.

 

(i)    Upon execution of any Transfer Supplement by the Seller and the Purchaser
and receipt of the Initial Purchase Price therefor, the Seller hereby sells,
assigns, transfers, sets over and conveys to the Purchaser all right, title and
interest of the Seller in, to and under each Mortgage Loan identified on such
Transfer Supplement. It is intended that the transfer, assignment and conveyance
herein contemplated constitute a sale of the Mortgage Loans, conveying good
title thereto free and clear of any liens, by the Seller to the Purchaser and
that the Mortgage Loans and related servicing rights not be part of the Seller’s
estate in the event of insolvency. In the event that the Mortgage Loans and
related servicing rights are held to be property of the Seller or if for any
other reason any Transfer Supplement is held or deemed not to absolutely sell
and assign the Mortgage Loans and related servicing rights, the parties intend
that the Seller shall be deemed to have granted, and does hereby grant, to the
Purchaser a valid security interest, free and clear of any lien, claim or
interest of any other Person, in the Seller’s right, title and interest in the
Mortgage Loans and all collateral related thereto now existing or hereafter
arising for the purpose of securing the rights of the Purchaser under this
Purchase Agreement, and that this Purchase Agreement and the Transfer Supplement
shall each constitute a security agreement under applicable law.

 

(b)  Pursuant to Section 2.5 hereof, as soon as practicable but in any event on
or before the date which is seven (7) Business Days after the sale of any
Mortgage Loan to the Purchaser, the Seller shall deliver and release each
related Mortgage Note, Mortgage and Assignment of Mortgage, including Mortgage
Notes, Mortgages and Assignments of Mortgages on Wet Funded Loans (subject to
the Wet Funded Loan Limitation), to the Custodian, as bailee, initially for the
Purchaser and then for the Collateral Agent pursuant to the Custodial Agreement;
provided, however, that any Mortgage Loan whose related Mortgage Note, Mortgage
and Assignment of Mortgage are not delivered on or before the date which is
seven (7) Business Days after the sale of such Mortgage Loan to the Purchaser
shall be repurchased by the Seller on such seventh (7th) Business Day at the
Repurchase Price in accordance with Section 3.3 hereof; provided, further, that
any Mortgage Loan that is not repurchased by the Seller on or before a date
which is five (5) days after the expiration of such seven (7) Business Day
period shall be sold by the Servicer as soon as practicable. The Seller shall
deliver the related Loan Documents not delivered to the Custodian (the
“Servicing File”) to the Servicer and the contents of each related Servicing
File shall be held in trust by the Servicer, as bailee, for the benefit of the
Purchaser as owner and the Collateral Agent as secured party; provided, however,
that the failure of the Seller to deliver any such Loan Document, which failure
does not have a material and adverse impact on the value of a Mortgage Loan,
shall not constitute a breach of this Purchase Agreement; provided, further,
that all Mortgage Notes, Mortgages and Assignments of Mortgages shall be
delivered to the Custodian, as bailee, initially for the Purchaser and then for
the Collateral Agent, as provided in the first sentence of this Section 2.1(b).
The possession of

 

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each Servicing File by the Servicer is at the will of the Purchaser for the sole
purpose of servicing the related Mortgage Loan and such retention and possession
by the Servicer is in a custodial capacity only. Upon the sale of the Mortgage
Loans to the Purchaser, the ownership of each related Mortgage Note, Mortgage,
Assignment of Mortgage and the remainder of the Mortgage Loan File shall vest
immediately in the Purchaser, and the ownership of all other records and
documents with respect to the related Mortgage Loan prepared by or which come
into the possession of the Servicer shall vest immediately in the Purchaser and
shall be retained and maintained by the Servicer, in trust, at the will of the
Purchaser and the Collateral Agent and only in such custodial capacity. Each
Servicing File and the Servicer’s books and records shall be marked
appropriately to reflect clearly the sale of the related Mortgage Loans to the
Purchaser. The Custodian shall only release its custody of the Mortgage Notes,
Mortgages, Assignments of Mortgages and other contents of a Mortgage Loan File
in its possession in accordance with the Custodial Agreement.

 

The Mortgage Loan File shall consist of the following documents (constituting,
collectively, the “Loan Documents”) and such other documents as the Purchaser
may reasonably require from time to time:

 

(i)    the original of any guarantee executed in connection with the Mortgage
Note (if any);

 

(ii)    the original Mortgage with evidence of recording thereon. If in
connection with each Mortgage Loan, the Seller cannot deliver or cause to be
delivered the original Mortgage with evidence of recording thereon on or prior
to the Closing Date because of a delay caused by the public recording office
where such Mortgage has been delivered for recordation or because such Mortgage
has been lost or because such public recording office retains the original
recorded Mortgage, the Seller shall deliver or cause to be delivered to the
Custodian, (a) in the case of a delay caused by the public recording office, a
photocopy of such Mortgage, together with an Officer’s Certificate of the Seller
stating that such Mortgage has been dispatched to the appropriate public
recording office for recordation and that the original recorded Mortgage or a
copy of such Mortgage certified by such public recording office to be a true and
complete copy of the original recorded Mortgage will be promptly delivered to
the Custodian upon receipt thereof by the Seller or (b) in the case of a
Mortgage where a public recording office retains the original recorded Mortgage
or in the case where a Mortgage is lost after recordation in a public recording
office, a photocopy of such Mortgage certified by such public recording office
to be a true and complete copy of the original recorded Mortgage. Any provision
in this Purchase Agreement or any other Program Document that requires a
Mortgage to be delivered within seven (7) Business Days after the sale of the
related Mortgage Loan to the Purchaser shall be deemed complied with if, under
the circumstances described in the immediately preceding sentence, the
document(s) described in clause (a) or (b) of such sentence, as applicable, are
delivered within such seven (7) Business Day period;

 

(iii)    the originals of all assumption, modification, consolidation or
extension agreements, with evidence of recording thereon;

 

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(iv)    except with respect to a MERS Mortgage (which shall not require an
assignment), the original duly executed Assignment of Mortgage for each Mortgage
Loan, in form and substance acceptable for recording; if the Mortgage Loan was
acquired by the Seller in a merger, any Assignment of Mortgage (other than with
respect to a MERS Mortgage, which shall not require an assignment) must be made
by “[Seller], successor by merger to [name of predecessor].” If the Mortgage
Loan was acquired or originated by the Seller while doing business under another
name, any Assignment of Mortgage (other than with respect to a MERS Mortgage,
which shall not require an assignment) must be by “[Seller], formerly known as
[previous name].” If the Mortgage Loan was acquired by the Seller as receiver
for another entity, any Assignment of Mortgage (other than with respect to a
MERS Mortgage, which shall not require an assignment) must be by “[Seller],
receiver for [name of entity in receivership].” Any Assignment of Mortgage must
be duly recorded only if recordation is required as provided in Section 12.9
hereof. If any Assignment of Mortgage is to be recorded, the Mortgage shall be
assigned to the Custodian. If any Assignment of Mortgage is not to be recorded
but is otherwise required hereunder, such Assignment of Mortgage shall be
delivered in blank;

 

(v)    the originals of all intervening assignments of mortgage from any Person
not an Affiliate of the Seller, with evidence of recording thereon (if such
recording is necessary as represented in Section 3.2 (cc) hereof), or if any
such intervening assignment has not been returned from the applicable recording
office or has been lost or if such public recording office retains the original
recorded assignment of mortgage, the Seller shall deliver or cause to be
delivered to the Servicer, (a) in the case of a delay caused by the public
recording office, a photocopy of such intervening assignment, together with an
Officer’s Certificate of the Seller stating that such intervening assignment of
mortgage has been dispatched to the appropriate public recording office for
recordation and that such original recorded intervening assignment of mortgage
or a copy of such intervening assignment of mortgage certified by the
appropriate public recording office to be a true and complete copy of the
original recorded intervening assignment of mortgage will be promptly delivered
to the Servicer upon receipt thereof by the Seller or (b) in the case of an
intervening assignment where a public recording office retains the original
recorded intervening assignment or in a case where an intervening assignment is
lost after recordation in a public recording office, a copy of such intervening
assignment certified by such public recording office to be a true and complete
copy of the original recorded intervening assignment;

 

(vi)    if available, either (a) the original mortgagee title insurance policy
or, if the policy has not yet been issued, the irrevocable written commitment,
interim binder or marked up binder for a title insurance policy issued by the
title insurance company dated and certified as of the date the Mortgage Loan was
funded, or (b) the original attorney’s opinion of title; and

 

(vii)    the original of any security agreement, chattel mortgage or equivalent
document executed in connection with the Mortgage.

 

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(c)  It is the intention of this Purchase Agreement that each conveyance of the
Seller’s right, title and interest in and to each Mortgage Loan pursuant to this
Purchase Agreement and any Transfer Supplement shall constitute a purchase and
sale and not a loan.

 

Section 2.2    Determination of Initial Purchase Price.

 

No later than 12.00 noon (New York City time) (where the Purchaser intends to
issue Secured Liquidity Notes to fund its purchase of a Portfolio on such day)
on each Closing Date (or 4:00 p.m. (New York City time) where the Purchaser does
not intend to issue Secured Liquidity Notes to fund its purchase of a Portfolio
on such day), the Seller shall deliver to the Purchaser a Transfer Supplement
and shall notify the Purchaser of its calculation of the Initial Purchase Price
for each Mortgage Loan in the Portfolio. If the Purchaser does not agree with
any purchase calculation or the sale does not close for any other reason, the
Closing Date for the Portfolio shall be rescheduled to a later date, at its
option, by the Seller. The Purchaser and the Seller shall use their best efforts
to close the sale of any Portfolio on any such Closing Date. The Purchaser shall
pay to the Seller the Initial Purchase Price of each Mortgage Loan purchased by
it hereunder in immediately available funds not later than 5:00 p.m., (New York
City time), on the Closing Date. Each Mortgage Loan must be an Eligible Loan.

 

Section 2.3    Purchase Commitment Term.

 

Subject to the terms and conditions of the Program Documents, the commitment of
the Purchaser under this Purchase Agreement shall expire on the termination of
this Purchase Agreement, pursuant to Section 11.1 hereof.

 

Section 2.4    Books and Records; Transfers of Mortgage Loans.

 

From and after each related Closing Date, all rights arising with respect to
each Mortgage Loan sold pursuant to any Transfer Supplement, including but not
limited to all funds received on or in connection with each Mortgage Loan, shall
be received and held by the Servicer in trust for the benefit of the Purchaser.
Pursuant to the Custodial Agreement, the Custodian shall hold all of the
Mortgage Notes, Mortgages and Assignments of Mortgages as described in the
Custodial Agreement.

 

The Servicer shall be responsible for maintaining, and shall maintain, a
complete set of books and records for each Mortgage Loan which shall be marked
clearly to reflect the ownership of each Mortgage Loan by the Purchaser. To the
extent that original documents are not required for purposes of realization of
Liquidation Proceeds or Insurance Proceeds, documents maintained by the Servicer
may be in the form of microfilm or microfiche or such other reliable means of
recreating original documents, including but not limited to, optical imagery
techniques so long as the Servicer complies with its Customary Servicing
Procedures.

 

The Servicer shall maintain with respect to each Mortgage Loan and shall make
available for inspection by the Purchaser, the Collateral Agent, any SLN
Placement Agent, the Depositary or their respective designees, upon reasonable
advance notice, at the offices of the Servicer during normal business hours the
related Servicing File during the time the Purchaser retains ownership of a
Mortgage Loan and thereafter pursuant to applicable laws and regulations.

 

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Section 2.5    Custodial Agreement.

 

Pursuant to the Custodial Agreement, the Seller shall, from time to time in
connection with the purchase of Mortgage Loans pursuant to the terms of this
Purchase Agreement, deliver to the Custodian, on or before the date which is
seven (7) Business Days after the related Closing Date, the Mortgage Note,
Mortgage and Assignment of Mortgage with respect to each Mortgage Loan
transferred. The Custodian shall hold each Mortgage Note, Mortgage and
Assignment of Mortgage in trust, as bailee, initially for the Purchaser and then
for the Collateral Agent pursuant to the Custodial Agreement.

 

Section 2.6    Capital Contribution.

 

To the extent that the Market Value of any Portfolio on the related Closing Date
exceeds the Initial Purchase Price of such Mortgage Loan, such excess shall be a
capital contribution by the Seller to the Purchaser.

 

Section 2.7    Reserve Fund Deposit.

 

On the first Closing Date pursuant to this Purchase Agreement and on each date
that any Mortgage Loans are sold to the Purchaser in connection with an increase
in the Outstanding Program Amount, the Purchaser shall deposit an amount into
the Reserve Fund from the proceeds of the commitment fees paid to the Purchaser
pursuant to Section 15.1, so that the amount on deposit in the Reserve Fund
equals the Initial Required Reserve Fund Amount.

 

ARTICLE 3

 

REPRESENTATIONS AND WARRANTIES;

COVENANTS; REMEDIES AND BREACH

 

Section 3.1    Representations and Warranties of the Company.

 

The Company, as Seller and Servicer, represents and warrants to the Purchaser
that as of each applicable Closing Date:

 

(a)    Due Organization and Authority.  The Company is duly organized, validly
existing and in good standing under the laws of California and has all licenses
necessary to carry on its business as now being conducted and is licensed,
qualified and in good standing in each state where a Mortgaged Property is
located if required to conduct business of the type conducted by it, and in any
event the Company is in compliance with the laws of any such state to the extent
necessary to ensure the enforceability of any Mortgage Loan sold hereunder and
the servicing of any such Mortgage Loan in accordance with the terms of this
Agreement and any Transfer Supplement, except where the failure to hold such
license or qualification, or be in such good standing or compliance with law,
would not have a material adverse effect on its ability to perform its
obligations hereunder; the Company has the full power and authority to execute
and deliver this Purchase Agreement and any Transfer Supplement and to perform
its obligations in accordance herewith and therewith; the execution, delivery
and performance of this Purchase Agreement and any Transfer Supplement by the
Company and the performance of the

 

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transactions contemplated hereby and thereby have been duly and validly
authorized by the Company; all requisite corporate action has been taken by the
Company to make this Purchase Agreement and any Transfer Supplement valid and
binding upon the Company pursuant to its terms; this Purchase Agreement and any
Transfer Supplement each evidences the valid, binding and enforceable obligation
of the Company except that (i) the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium, receivership and other similar laws relating
to creditors’ rights generally and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.

 

(b)    Ordinary Course of Business.  The performance of the transactions
contemplated by this Purchase Agreement are in the ordinary course of business
of the Company, and the transfer, assignment and conveyance of the Mortgage
Notes and the Mortgages by the Company pursuant to this Purchase Agreement are
not subject to the bulk transfer or any similar statutory provisions in effect
in any applicable jurisdiction.

 

(c)    No Conflicts.  None of the execution and delivery of this Purchase
Agreement or any Transfer Supplement, the origination or acquisition of Mortgage
Loans by the Company, the sale of Mortgage Loans to the Purchaser or the
transactions contemplated hereby or thereby, or the fulfillment of or compliance
with the terms and conditions of this Purchase Agreement or any Transfer
Supplement, will conflict with or result in a breach of any of the terms,
conditions or provisions of the Company’s charter or by-laws or any material
agreement or instrument to which the Company is now a party or by which it is
bound, or constitute a default or result in an acceleration under any of the
foregoing, or result in the violation in any material respect of any applicable
law, rule, regulation, order, judgment or decree to which the Company, or its
property is subject, or impair the ability of the Purchaser to realize on the
Mortgage Loans in any material respect, or impair the value of the Mortgage
Loans in any material respect.

 

(d)    Ability to Service.  The Company as Servicer services mortgage loans in
accordance with its Customary Servicing Procedures. The Company as Servicer has
the facilities, procedures and experienced personnel necessary for the servicing
of the Mortgage Loans. There are no sub-servicers hereunder as of the date of
this Purchase Agreement and the Servicer will terminate any sub-servicer
hereunder within ninety (90) days after being directed to do so by the Required
Senior Noteholders or the Swap Counterparty.

 

(e)    Reasonable Servicing Fee.  The Servicer acknowledges and agrees that the
Servicing Fee represents reasonable compensation for servicing, administering
and arranging for the sale of the Mortgage Loans pursuant to this Purchase
Agreement and shall be treated by the Servicer, for accounting and tax purposes,
as compensation for the servicing and administration of the Mortgage Loans
pursuant to this Purchase Agreement.

 

(f)    No Litigation Pending.  Other than as disclosed on the most recent 10-K
and 10-Q filings with the Securities Exchange Commission by New Century
Financial Corporation, there is no action, suit, proceeding or investigation
pending or to its knowledge threatened against the Company which, either in any
one instance or in the aggregate, would result in any material impairment of the
right or ability of the Company to carry on its business

 

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substantially as now conducted, or which would draw into question the validity
of this Purchase Agreement or any Transfer Supplement or the Mortgage Loans or
of any action taken or to be taken in connection with the obligations of the
Company contemplated herein, or which would be likely to impair materially the
ability of the Company to perform under the terms of this Purchase Agreement or
any Transfer Supplement.

 

(g)    No Consent Required.  No consent, approval, authorization or order of any
court or governmental agency or body is required for the execution, delivery and
performance by the Company of or compliance with this Purchase Agreement or any
Transfer Supplement or the sale of the Mortgage Loans, or if required, such
consent, approval, authorization or order has been obtained.

 

(h)    Selection Process.  Any Portfolio of Mortgage Loans sold pursuant to a
Transfer Supplement was selected from mortgage loans originated by the Seller or
acquired by the Seller from third parties and are Mortgage Loans which satisfy
the Eligibility Criteria (other than the Eligibility Representations, which are
the subject of the representations set forth in Section 3.2 hereof), Portfolio
Criteria and Wet Funded Loan Limitation, and any selection process employed by
it was not made in a manner so as to materially adversely affect the interest of
the Purchaser.

 

(i)    No Untrue Information.  None of this Purchase Agreement, any Transfer
Supplement or any statement, report or other document prepared by the Company or
to be prepared by the Company pursuant to this Purchase Agreement or in
connection with the transactions contemplated hereby contains any untrue
statement of a material fact relating to the Company or the Mortgage Loans or
omits to state a fact necessary to make the statements herein or therein, under
the circumstances in which they were made, not misleading.

 

(j)    Financial Statements.  The financial statements of New Century Financial
Corporation, copies of which have been furnished to the Purchaser, (i) are, as
of the dates and for the periods referred to therein, complete and correct in
all material respects, (ii) present fairly the financial condition and results
of operations of New Century Financial Corporation as of the dates and for the
periods indicated and (iii) have been prepared in accordance with GAAP
consistently applied, except as noted therein (subject as to interim statements
to normal year-end adjustments). Since the date of the most recent financial
statements, there has been no change which has had a material adverse effect
with respect to New Century Financial Corporation. Except as disclosed in such
financial statements, New Century Financial Corporation is not subject to any
contingent liabilities or commitments that, individually or in the aggregate,
have a reasonable likelihood of having a material adverse effect with respect to
New Century Financial Corporation.

 

(k)    No Brokers’ Fees.  The Seller has not dealt with any broker, investment
banker, agent or other Person that may be entitled to any commission or
compensation in connection with the sale of each Mortgage Loan to the Purchaser.

 

(l)    Fair Consideration.  The consideration received by the Seller in
connection with the sale of the Mortgage Loans under this Purchase Agreement
constitutes fair consideration and reasonably equivalent value for the Mortgage
Loans.

 

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(m)    Ability to Perform.  The Company does not believe, nor does it have
reason or cause to believe, that it cannot perform the covenants contained in
this Purchase Agreement in all material respects. The Company is not insolvent,
nor will it be made insolvent by the sale of the Mortgage Loans to the
Purchaser, nor is the Company aware of any pending insolvency, and the sale of
the Mortgage Loans to the Purchaser is not undertaken to hinder, delay or
defraud any of the Company’s creditors.

 

(n)    Company’s Origination.  The Company’s decision to originate any mortgage
loan or to deny any mortgage loan application is an independent decision based
upon the Company’s underwriting standards, and is in no way made as a result of
the Purchaser’s commitment to purchase Mortgage Loans pursuant to this Purchase
Agreement.

 

Section 3.2    Representations and Warranties Regarding Individual Mortgage
Loans; Eligibility Representations.

 

With respect to each Mortgage Loan sold by the Seller to the Purchaser, the
Seller hereby represents and warrants to the Purchaser that as of each
applicable Closing Date:

 

(a)    Eligibility of Mortgage Loans.  The Mortgage Loan is an Eligible Loan.

 

(b)    Mortgage Loans as Described.  The information set forth in the Mortgage
Loan Schedule attached to the applicable Transfer Supplement is complete, true
and correct in all material respects.

 

(c)    Valid First or Second Lien.  The Mortgage is a valid, subsisting and
enforceable first or second lien of record (or is in the process of being
recorded) on the Mortgaged Property, including all buildings on the Mortgaged
Property, and all additions, alterations and replacements made at any time with
respect to the foregoing, except that (i) the enforceability thereof may be
limited by bankruptcy, insolvency, moratorium, receivership and other similar
laws relating to creditors’ rights generally and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. The lien of the Mortgage is subject only to:

 

(1)    the lien of current real property taxes and assessments not yet due and
payable;

 

(2)    covenants, conditions and restrictions, rights of way, easements and
other matters of the public record as of the date of recording acceptable to
mortgage lending institutions generally and specifically referred to in the
lender’s title insurance policy, or attorney’s opinion of title;

 

(3)    other matters to which like properties are commonly subject which do not
materially interfere with the benefits of the security intended to be provided
by the Mortgage or the use, enjoyment, value or marketability of the related
Mortgaged Property; and

 

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(4)    with respect to each Second Lien Mortgage Loan, a prior mortgage lien on
the related Mortgaged Property.

 

Any security agreement, chattel mortgage or equivalent document related to and
delivered in connection with the Mortgage Loan establishes and creates a valid,
subsisting and enforceable (A) first lien and first priority security interest
with respect to each First Lien Mortgage Loan, or (B) second lien and second
priority security interest with respect to each Second Lien Mortgage Loan, in
either case, on the property described therein and the Seller has full right to
sell and assign the same to the Purchaser. The Mortgaged Property was not, as of
the date of the origination of the Mortgage Loan, subject to a mortgage, deed of
trust, deed to secure debt or other security instrument creating a lien senior
to the lien of the Mortgage, except liens as set forth in this Section 3.2(c).

 

(d)    Ownership.  The Seller is the sole owner of record and holder of the
Mortgage Loan. The Mortgage Loan is not assigned or pledged, and the Seller has
good and marketable title thereto, and has full right to transfer and sell the
Mortgage Loan to the Purchaser free and clear of any encumbrance, equity,
participation interest, lien, pledge, charge, claim or security interest, and
has full right and authority, subject to no interest or participation of, or
agreement with, any other party, to sell and assign the Mortgage Loan pursuant
to the related Transfer Supplement.

 

(e)    No Additional Collateral.  The Mortgage Note is not and has not been
secured by any collateral except the lien of the corresponding Mortgage and the
security interest of any applicable security agreement or chattel mortgage
referred to in Section 3.2(c) hereof.

 

(f)    Conformance with Underwriting Standards.  The Mortgage Loan was
originated by the Company, an Affiliate of the Seller or a broker for
simultaneous assignment to the Seller or was acquired by the Seller from a
correspondent lender. The Mortgage Loan was underwritten (or, if acquired by the
Seller from a correspondent lender, re-underwritten) to comply with the Seller’s
underwriting standards in effect on the date of origination (or, if acquired by
the Seller from a correspondent lender, on the date of acquisition) of such
Mortgage Loan.

 

(g)    Payments Current.    The Mortgage Loan is not a Delinquent Loan.

 

(h)    No Mortgagor Bankruptcy.  To the best of the Seller’s knowledge and
belief, no Mortgagor is the subject of a bankruptcy or similar proceeding.

 

(i)    No Outstanding Charges.  To the best of the Seller’s knowledge and
belief, all taxes, governmental assessments, insurance premiums, water, sewer
and municipal charges, leasehold payments or ground rents with respect to the
Mortgaged Property which previously became due and owing have been paid, or 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. The Company has not advanced funds, or induced, solicited or
knowingly received any advance of funds by a party other than the Mortgagor,
directly or indirectly, for the payment of any amount required under the
Mortgage Loan, except for interest accruing from the date of the Mortgage Note
or date of disbursement of the Mortgage

 

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Loan proceeds, whichever is greater, to the day which precedes by one (1) month
the Due Date of the first installment of principal and interest.

 

(j)    Original Terms Unmodified.  The terms of the Mortgage Note and Mortgage
have not been impaired, waived, altered or modified in any material respect from
the date of origination except by a written instrument which has been recorded,
if necessary, to protect the interests of the Purchaser, and which has been
delivered to the Custodian or the Servicer, as required hereunder.

 

(k)    No Defenses.  To the best of the Seller’s knowledge and belief, the
Mortgage Loan is not subject to any right of rescission, set-off, counterclaim
or defense, including without limitation the defense of usury, and no such right
of rescission, set-off, counterclaim or defense has been asserted with respect
thereto, nor will the operation of any of the terms of the Mortgage Note or the
Mortgage, or the exercise of any right thereunder, render either the Mortgage
Note or the Mortgage unenforceable, in whole or in part, or subject the Mortgage
Note or the Mortgage to any right of rescission, set-off, counterclaim or
defense, including without limitation the defense of usury, and no Mortgagor was
a debtor in any state or federal bankruptcy or insolvency proceeding at the time
the Mortgage Loan was originated.

 

(l)    Hazard Insurance.  Pursuant to the terms of the Mortgage, all buildings
or other improvements upon the Mortgaged Property are insured against loss by
fire and hazards of extended coverage pursuant to insurance policies conforming
to the requirements of Section 4.11 hereof. If upon origination of the Mortgage
Loan, the Mortgaged Property was in an area identified in the Federal Register
by the Federal Emergency Management Agency as having special flood hazards (and
such flood insurance has been made available) a flood insurance policy meeting
the requirements of the current guidelines of the Flood Insurance Administration
is in effect which policy conforms to the requirements of Section 4.11 hereof.
All individual insurance policies contain a standard mortgagee clause naming (or
that will name) the Company and its successors and assigns as mortgagee, and to
the best of the Seller’s knowledge and belief, all premiums thereon have been
paid. The Mortgage obligates the Mortgagor thereunder to maintain the hazard
insurance policy at the Mortgagor’s cost and expense, and on the Mortgagor’s
failure to do so, authorizes the holder of the Mortgage to obtain and maintain
such insurance at such Mortgagor’s cost and expense, and to seek reimbursement
therefor from the Mortgagor. Where required by state law or regulation, the
Mortgagor has been given an opportunity to choose the carrier of the required
hazard insurance, provided that the policy is not a “master” or “blanket” hazard
insurance policy covering the common facilities of a planned unit development.
To the best of the Seller’s knowledge and belief, the hazard insurance policy is
the valid and binding obligation of the insurer and is in full force and effect.
To the best of the Seller’s knowledge and belief, the Company has not engaged
in, and has no knowledge of the Mortgagor’s having engaged in, any act or
omission which would impair the coverage of any such policy, the benefits of the
endorsement provided for herein, or the validity and binding effect of either.

 

(m)    Compliance with Applicable Laws.  Any applicable requirements of federal,
state or local law including, without limitation, usury, truth-in-lending, real
estate settlement procedures, consumer credit protection, equal credit
opportunity or disclosure laws applicable to the Mortgage Loan, including any
origination by the Company of the Mortgage

 

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Loan, to the best of the Seller’s knowledge and belief, have been complied with
by the Company in all material respects.

 

(n)    No Satisfaction of Mortgage.  The Mortgage has not been satisfied,
cancelled, subordinated (except in the case of a Second Lien Mortgage Loan, to
the prior mortgage lien on the related Mortgaged Property) or rescinded, in
whole or in part, and the Mortgaged Property has not been released from the lien
of the Mortgage, in whole or in part, nor has any instrument been executed that
would effect any such release, cancellation, subordination or rescission. To the
best of the Seller’s knowledge and belief, the Company has not waived the
performance by the Mortgagor of any action, if the Mortgagor’s failure to
perform such action would cause the Mortgage Loan to be in default.

 

(o)    Location and Type of Mortgaged Property.  The Mortgaged Property is
located in the state identified in the Mortgage Loan Schedule and consists of a
parcel of real property with a detached single family residence erected thereon,
or a two-to-four family dwelling, or an individual condominium unit or
townhouse, or an individual unit in a planned unit development, or a unit of
manufactured housing treated as real estate under applicable state law. To the
best of the Seller’s knowledge and belief, no portion of the Mortgaged Property
is used for commercial purposes.

 

(p)    Validity of Mortgage Documents.  The Mortgage Note and the Mortgage are
genuine and each is the legal, valid and binding obligation of the maker thereof
enforceable pursuant to its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors’ rights and to general equity principles. All
parties to the Mortgage Note and the Mortgage and any other related agreement
had legal capacity to enter into the Mortgage Loan and to execute and deliver
the Mortgage Note and the Mortgage and any other related agreement, and the
Mortgage Note and the Mortgage have been duly and properly executed by such
parties. To the best of the Seller’s knowledge and belief, the documents,
instruments and agreements submitted for loan underwriting were not falsified
and contain no untrue statement of material fact or omit to state a material
fact required to be stated therein or necessary to make the information and
statements therein not misleading. To the best of the Seller’s knowledge and
belief, no fraud was committed in connection with the origination of the
Mortgage Loan.

 

(q)    Consolidation of Future Advances.  Any advances made after the date of
origination of the Mortgage Loan, but prior to the sale of the Mortgage Loan to
the Purchaser, have been consolidated with the outstanding principal amount
secured by the related Mortgage, and the secured principal amount, as
consolidated, bears a single interest rate and single repayment term. The
consolidated principal amount does not exceed the original principal amount of
the Mortgage Loan. No Mortgage Note relating to a Mortgage Loan permits or
obligates the Company to make future advances to the related Mortgagor at the
option of the Mortgagor.

 

(r)    Doing Business.  To the best of the Seller’s knowledge and belief, all
parties which have had any interest in the Mortgage Loan, whether as mortgagee,
assignee, pledgee or otherwise, are (or, during the period in which they held
and disposed of such interest, were) (i) in compliance with any applicable
licensing requirements of the laws of the state

 

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wherein the Mortgaged Property is located, and (ii) organized under the laws of
such state, (iii) qualified to do business in such state or (iv) not required to
qualify to do business in such state.

 

(s)    LTV.  The Combined LTV of the Mortgage Loan is not more than 100%.

 

(t)    Title Insurance.  The Mortgage Loan is covered by:

 

(i)    an attorney’s opinion of title, the form and substance of which are
acceptable to mortgage lending institutions making non-prime loans in the area
where the Mortgaged Property is located; or

 

(ii)    either (A) an ALTA lender’s title insurance policy issued by a title
insurer qualified to do business in the jurisdiction where the Mortgaged
Property is located, insuring the Seller, its successors and assigns, as to the
first or second priority lien of the Mortgage in an amount at least equal to the
original principal amount of the Mortgage Loan, and against any loss by reason
of the invalidity or unenforceability of the lien resulting from the provisions
of the Mortgage Note and other Loan Documents providing for adjustment in the
Mortgage Interest Rate and Monthly Payment, or (B) a binding commitment from
such title insurer to issue the same;

 

in each case subject to the exceptions contained in clauses (i) and (ii), and
with respect to each Second Lien Mortgage Loan, clause (4) of Section 3.02(c)
hereof and in all cases subject to the exceptions to title set forth in the
title insurance policy (or commitment), attorney’s opinion of title, which
exceptions are generally acceptable to banking institutions in connection with
their regular mortgage lending activities, and to such other exceptions to which
similar properties are commonly subject and which do not individually, or in the
aggregate, materially and adversely affect the benefits of the security intended
to be provided by the Mortgage. Where required by state law or regulation, the
Mortgagor has been given the opportunity to choose the carrier of the required
lender’s title insurance. Additionally, such lender’s title insurance policy
affirmatively insures ingress and egress, and against encroachments by or upon
the Mortgaged Property or any interest therein. The Seller or an Affiliate of
the Seller is the sole insured of such lender’s title insurance policy (or
commitment), and such lender’s title insurance policy is in full force and
effect or will be in force and effect upon issuance pursuant to the commitment.
To the best of the Seller’s knowledge and belief, no claims have been made under
such lender’s title insurance policy, and no prior holder of the Mortgage,
including the Seller, has done, by act or omission, anything which would impair
the coverage of such lender’s title insurance policy.

 

(u)    No Defaults.  To the best of the Seller’s knowledge and belief, there is
no default, breach, violation or event of acceleration existing under the
Mortgage or the Mortgage Note, and no event with respect to which the applicable
grace or cure period has expired which, with the passage of time or with notice,
would constitute a default, breach, violation or event of acceleration, and
neither the Seller nor its predecessors have waived any default, breach,
violation or event of acceleration. To the best of the Seller’s knowledge and
belief, with respect to each Second Lien Mortgage Loan, (i) the prior mortgage
is in full force and effect, (ii) there is no default, breach, violation or
event of acceleration existing under the prior mortgage or the related mortgage
note, (iii) there is no event which, with the passage of time or with notice and
the expiration of any grace or cure period, would constitute a default, breach,
violation or event

 

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of acceleration thereunder, (iv) the prior mortgage does not provide for
negative amortization, (v) no funds provided to the Mortgagor from the Second
Lien Mortgage Loan were concurrently used as a down payment for the prior
mortgage, and either (A) the prior mortgage contains a provision which allows or
(B) applicable law requires, the Mortgagee under the Second Lien Mortgage Loan
to receive notice of, and affords such Mortgagee an opportunity to cure by
payment in full or otherwise, any default under the prior mortgage.

 

(v)    No Mechanics’ Liens.  To the best of the Seller’s knowledge and belief,
there are no mechanics’ or similar liens or claims which have been filed for
work, labor or material (and no rights are outstanding that under the law could
give rise to such liens) affecting the related Mortgaged Property which are or
may be liens prior to, or equal or coordinate with, the lien of the related
Mortgage, which are not insured against or otherwise covered by the applicable
title policy.

 

(w)    Location of Improvements; No Encroachments.  All improvements which were
considered in determining the Appraised Value of the Mortgaged Property lay
wholly within the boundaries and building restriction lines of the Mortgaged
Property and, to the best of the Seller’s knowledge and belief, no improvements
on adjoining properties encroach upon the Mortgaged Property. To the best of the
Seller’s knowledge and belief, no improvement located on or being part of the
Mortgaged Property is in violation of any applicable zoning law or regulation.

 

(x)    Customary Provisions.  The Mortgage contains customary and enforceable
provisions such as to render the rights and remedies of the holder thereof
adequate for the realization against the Mortgaged Property of the benefits of
the security provided thereby, including, (i) in the case of a Mortgage
designated as a deed of trust, by trustee’s sale and (ii) otherwise by 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 marketable
title to the Mortgaged Property. There is no homestead or other exemption, other
than any applicable Mortgagor redemption rights, available to a Mortgagor which
would materially interfere with the right to sell the Mortgaged Property at a
trustee’s sale or the right to foreclose the Mortgage.

 

(y)    Occupancy of the Mortgaged Property.  To the best of the Seller’s
knowledge and belief, the Mortgaged Property is lawfully occupied under
applicable law. To the best of the Seller’s knowledge and belief, 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 of the Mortgaged Property, including but not limited to
certificates of occupancy and fire underwriting certificates, have been made by
or obtained from the appropriate authorities.

 

(z)    Deeds of Trust.  In the event that the Mortgage constitutes a deed of
trust, a trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in the Mortgage, and no
fees or expenses are or will become payable by the Purchaser to the trustee
under the deed of trust, except in connection with a trustee’s sale after
default by the Mortgagor.

 

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(aa)    Acceptable Investment.  The Seller has no knowledge of any circumstances
or conditions with respect to the Mortgage, the Mortgaged Property, the
Mortgagor or the Mortgagor’s credit-standing not reflected in the
representations set forth herein, or in the documents delivered to the Custodian
or in the Mortgage Loan File, that could reasonably be expected to cause private
institutional investors to regard the Mortgage Loan as an unacceptable
investment or cause the Mortgage Loan to become delinquent or materially
adversely affect the value or the marketability of the Mortgage Loan.

 

(bb)    Delivery of Mortgage Note, Mortgage and Assignment of Mortgage.  The
Mortgage Note endorsed in blank or to the Purchaser, the Mortgage (or a copy of
the Mortgage, as permitted under the circumstances described in clause (ii) of
the second paragraph of Section 2.1(b) hereof) and the Assignment of Mortgage
required to be delivered for the Mortgage Loan by the Seller under the Custodial
Agreement (i) have been delivered to the Custodian on or prior to the Closing
Date or (ii) will be delivered to the Custodian as soon as practicable, but in
no event later than seven (7) Business Days from the Closing Date. The Seller is
in possession of a complete Mortgage Loan File with respect to the Mortgage
Loan; provided, however, that in the case of a Wet Funded Loan, the Seller is
not in possession of the related Mortgage Note.

 

(cc)    Recording of Mortgage.  The original Mortgage is in recordable form and
is acceptable for recording under the laws of the jurisdiction in which the
related Mortgaged Property is located. The original Mortgage (in recordable form
and acceptable for recording) was recorded or is in the process of being
recorded under the laws of the jurisdiction in which the related Mortgaged
Property is located. All intervening assignments of the original Mortgage (other
than unrecorded warehouse assignments) have been delivered for recordation or
have been recorded in the appropriate jurisdictions wherein such recordation is
necessary to perfect the lien thereof as against creditors of or purchasers from
the Seller. The Assignment of Mortgage (other than with respect to a MERS
Mortgage, which shall not require an assignment) is in recordable form and is
acceptable for recording under the laws of the jurisdiction in which the related
Mortgaged Property is located.

 

(dd)    Due on Sale.  The Mortgage contains an enforceable provision for the
acceleration of the payment of the unpaid principal balance of the Mortgage Loan
in the event that the Mortgaged Property is sold or transferred without the
prior written consent of the Mortgagee thereunder.

 

(ee)    No Graduated Payments.  The Mortgage Loan is not a graduated payment
mortgage loan and does not have a shared appreciation feature.

 

(ff)    Mortgaged Property Undamaged.  To the best of the Seller’s knowledge and
belief, there is no proceeding pending or threatened for the total or partial
condemnation of the Mortgaged Property. To the best of the Seller’s knowledge
and belief, the Mortgaged Property is undamaged by waste, fire, earthquake or
earth movement, windstorm, flood, tornado or other casualty so as to affect
materially adversely the value of the Mortgaged Property as security for the
Mortgage Loan or the use for which the premises were intended.

 

(gg)    Collection Practices; Adjustable Rate Mortgage Loan Adjustments.  To the
best of the Seller’s knowledge and belief, the collection practices used by the
Servicer with

 

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respect to the Mortgage Loan have been in accordance with the Servicer’s
Customary Servicing Procedures, are in compliance in all material respects with
all applicable laws and regulations, and all Mortgage Interest Rate adjustments
have been made in strict compliance with state and federal law and the terms of
the related Mortgage Note.

 

(hh)    Appraisal.    The Mortgage Loan File contains an appraisal of the
related Mortgaged Property signed prior to the approval of the mortgage loan
application by a qualified appraiser, duly appointed by or acceptable to the
Seller, who, to the best of the Seller’s knowledge and belief, had no interest,
direct or indirect, in the Mortgaged Property or in any loan made on the
security thereof, and whose compensation is not affected by the approval or
disapproval of the Mortgage Loan, and the appraisal and appraiser both satisfy
the requirements of Title XI of the Federal Institutions Reform, Recovery, and
Enforcement Act of 1989 and the regulations promulgated thereunder, all as in
effect on the date that the Mortgage Loan was originated.

 

(ii)    Soldiers’ and Sailors’ Relief Act.  The Mortgagor has not notified the
Seller and the Seller has no knowledge of any relief requested by the Mortgagor
under the Soldiers’ and Sailors’ Civil Relief Act of 1940.

 

(jj)    Environmental Matters.  To the best of the Seller’s knowledge and
belief, the Mortgaged Property is free from any and all toxic or hazardous
substances and there exists no violation of any local, state or federal
environmental law, rule or regulation with respect to the Mortgaged Property.
There is no pending action or proceeding directly involving any Mortgaged
Property of which the Seller is aware in which compliance with any environmental
law, rule or regulation is an issue; and, to the best of the Seller’s knowledge
and belief, nothing further remains to be done to satisfy in full all
requirements of each such law, rule or regulation consisting of a prerequisite
to use and enjoyment of said property.

 

(kk)    No Construction Loans.  To the best of the Seller’s knowledge and
belief, no Mortgage Loan (i) was made for the construction or rehabilitation of
a Mortgaged Property which has not been completed or (ii) provides for future
advances of funds by the Company which have not yet been advanced or (iii)
facilitates the trade-in or exchange of a Mortgaged Property.

 

(ll)    Regarding the Mortgagor.  The Mortgagor is one (1) or more natural
persons.

 

(mm)    Consent.  Either (a) no consent for the Second Lien Mortgage Loan is
required by the holder of the related first lien mortgage or (b) such consent
has been obtained and is contained in the Mortgage Loan File.

 

(nn)    Mortgagor Acknowledgment.  If the Mortgage Loan is an adjustable rate
mortgage loan, the Mortgagor has executed a statement to the effect that the
Mortgagor has received all disclosure materials required by applicable law with
respect to the making of adjustable rate mortgage loans. The Servicer agrees
that it shall maintain such statement in the Mortgage Loan File.

 

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(oo)    No Buydown Provisions.  The Mortgage Loan does not contain provisions
pursuant to which Monthly Payments are paid or partially paid with funds
deposited in any separate account established by the Seller, the Mortgagor or
anyone on behalf of the Mortgagor, or paid by any source other than the
Mortgagor nor does it contain any other similar provisions currently in effect
which may constitute a “buydown” provision.

 

(pp)    Schedule of Payments.  Each Mortgage Note with respect to a Mortgage
Loan provides for a schedule of substantially level and equal Monthly Payments
(or periodic rate adjustments in the case of Mortgage Loans that have an
adjustable interest rate) which are sufficient to amortize fully the principal
balance of such Mortgage Note on or before its maturity date.

 

(qq)    [reserved]

 

(rr)    No Taxes, Fees or Charges.  The sale, transfer, assignment and
conveyance of the Mortgage Loan by the Seller pursuant to this Purchase
Agreement are not subject to and will not result in any tax, fee or governmental
charge payable by the Seller or the Purchaser to any federal, state or local
government other than such taxes, fees and governmental charges which have been
or will be paid as due by the Seller.

 

(ss)    Ground Lease.  With respect to each Mortgaged Property subject to a
ground lease (i) the current ground lessor has been identified and all ground
rents which have previously become due and owing have been paid, (ii) the ground
lease term extends, or is automatically renewable, for at least five years
beyond the maturity date of the related Mortgage Loan, (iii) the ground lease
has been duly executed and recorded, (iv) the amount of the ground rent and any
increases therein are clearly identified in the lease and are for predetermined
amounts at predetermined times, (v) the ground rent payment is included in the
Mortgagor’s monthly payment as an expense item in determining the qualification
of the Mortgagor for such Mortgage Loan, (vi) the Purchaser on behalf of the
Collateral Agent has the right to cure defaults on the ground lease, and (vii)
the terms and conditions of the leasehold do not prevent the free and absolute
marketability of the Mortgaged Property.

 

(tt)    Mortgage Interest Rate.  The Mortgage Interest Rate on the Mortgage Loan
is calculated on the basis of a year of 360 days with twelve 30-day months.

 

(uu)    Negative Amortization.  If the Mortgage Loan has a variable interest
rate, it is not subject to negative amortization.

 

(vv)    [reserved]

 

(ww)    Rights Under Insurance Policies.  The Seller has caused and will cause
to be performed any and all acts required to be performed by it to preserve the
rights and remedies of the Collateral Agent in any insurance policies applicable
to the Mortgage Loan including, without limitation, any necessary notifications
of insurers, assignments of policies or interests therein, and establishments of
co-insured, joint loss payee and mortgagee rights in favor of the Collateral
Agent.

 

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(xx)    Prepayment Penalty.  If the Mortgage Loan contains a provision that
provides for the payment of a penalty if the related Mortgage Note is paid in
full prior to the date such Mortgage Note is scheduled to be paid in full, such
provision is enforceable under applicable law.

 

Section 3.3    Remedies for Breach of Representations and Warranties, First Pay
Default Loans.

 

It is understood and agreed that the representations and warranties set forth in
Sections 3.1 and 3.2 hereof shall survive the sale of each Mortgage Loan to the
Purchaser and the delivery of the Servicing File to the Servicer and delivery of
the Mortgage Notes, Mortgages and Assignments of Mortgages to the Custodian and
shall inure to the benefit of the Purchaser notwithstanding any restrictive or
qualified endorsement on any Mortgage Note or Assignment of Mortgage or the
examination or failure to examine any Mortgage Loan File. Upon discovery by
either the Seller, the Servicer or the Purchaser (i) of a breach of any of the
foregoing representations and warranties, or (ii) that any of the
representations or warranties in Section 3.1 or Section 3.2 hereof were untrue
at the time made without regard to any limitation contained therein concerning
the knowledge of the Seller or the Servicer as to the facts stated therein, and
in each case which materially and adversely affects the value of the Mortgage
Loans or the interest of the Purchaser (or which materially and adversely
affects the interest of the Purchaser in the related Mortgage Loan in the case
of a representation and warranty relating to a particular Mortgage Loan), the
party discovering such breach or inaccuracy shall give prompt written notice to
the other two, the Collateral Agent and the Swap Counterparty.

 

Within thirty (30) days of the earlier of either discovery by or notice to the
Seller of any such breach or inaccuracy (without regard to any limitation
contained therein concerning the knowledge of the Seller or the Servicer as to
the facts stated therein) of a representation or warranty set forth in Section
3.1 hereof that materially and adversely affects the value of any Mortgage Loan,
the Seller shall use its best efforts promptly to cure such breach or inaccuracy
in all material respects and, if such breach or inaccuracy cannot be cured, or
is not cured, within such thirty (30) day time period, the Seller shall
repurchase such Mortgage Loan at the Repurchase Price. Within ten (10) days of
the earlier of either discovery by or notice to the Seller of any such breach or
inaccuracy (without regard to any limitation contained therein concerning the
knowledge of the Seller or the Servicer as to the facts stated therein) of a
representation or warranty set forth in Section 3.2 hereof that materially and
adversely affects the value of any Mortgage Loan, the Seller shall use its best
efforts promptly to cure such breach or inaccuracy in all material respects and,
if such breach or inaccuracy cannot be cured, or is not cured, within such ten
(10) day time period, the Seller shall repurchase such Mortgage Loan at the
Repurchase Price. Within ten (10) days of a Mortgage Loan becoming a First Pay
Default Loan, the Seller shall use its best efforts promptly to procure the
related Mortgagor to cure such payment default and, if such default cannot be
cured, or is not cured, within such ten (10) day time period, the Seller shall
repurchase such Mortgage Loan at the Repurchase Price. In each case, the
Repurchase Price shall be remitted to the Collateral Agent and shall be
deposited into the Collateral Account on the day of receipt. Upon receipt of the
Repurchase Price by the Collateral Agent, the Purchaser and the Seller shall
arrange for the reassignment of the Mortgage Loan or Mortgage Loans to the
Seller and the delivery to the Seller of any documents held by the

 

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Custodian or the Servicer relating to the reassigned Mortgage Loan or Mortgage
Loans. Notwithstanding the fact that a representation or warranty contained in
Section 3.1 or 3.2 hereof may be limited to the Seller’s knowledge, such
limitation shall not relieve the Seller of its repurchase obligation under this
Section 3.3.

 

In addition to such repurchase obligation, the Seller shall indemnify the
Purchaser and hold it harmless against any losses, damages, transfer taxes,
penalties, fines, forfeitures, reasonable and necessary legal fees and related
costs, judgments, and other costs and expenses resulting from any claim, demand,
defense or assertion based on or grounded upon, or resulting from, a breach of
the representations and warranties of the Seller contained in this Purchase
Agreement. The Seller shall not be obligated under this indemnity for any
indirect or consequential damages. It is understood and agreed that the
obligations of the Seller set forth in this Section 3.3 to cure or repurchase a
Mortgage Loan and to indemnify the Purchaser constitute the sole remedies of the
Purchaser respecting a breach of the foregoing representations and warranties,
or any First Pay Default Loans.

 

Section 3.4    Conditions to Closing.

 

The obligation of the Purchaser to purchase the Mortgage Loans that are the
subject of any Transfer Supplement shall be subject to satisfaction of each of
the following conditions on or before the related Closing Date:

 

(a)    To the best of the Seller’s knowledge and belief, all of the
representations and warranties of the Seller contained in this Purchase
Agreement shall be true and correct in all material respects as of such Closing
Date and no event shall have occurred which, with notice or the passage of time,
would constitute a Servicer Event of Default under this Purchase Agreement;

 

(b)    The Seller shall have delivered and released to the Custodian all
documents required to be delivered to the Custodian pursuant to the Custodial
Agreement;

 

(c)    No Termination Event shall have occurred and be continuing; and

 

(d)    All other material terms and conditions of this Purchase Agreement shall
have been satisfied.

 

Section 3.5    Covenants of the Company and the Purchaser.

 

(a)    Licenses.  The Company shall maintain its qualifications to do business
and all licenses necessary to perform its obligations hereunder.

 

(b)    Servicing Standards.  The Servicer will administer and service Mortgage
Loans, and arrange for the sale of Mortgage Loans, pursuant to the terms of this
Purchase Agreement, the Mortgage Notes, applicable law and its Customary
Servicing Procedures.

 

(c)    Delivery of Mortgage Note.  The Seller shall deliver each Mortgage Note,
Mortgage and Assignment of Mortgage, including Mortgage Notes, Mortgages and
Assignments

 

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of Mortgages on Wet Funded Loans, to the Custodian as soon as practicable, but
in any event within seven (7) Business Days of the purchase by the Purchaser of
the related Mortgage Loan, and, if any Mortgage Note, Mortgage or Assignment of
Mortgage is not delivered within seven (7) Business Days of purchase, the
related Mortgage Loan shall be repurchased on such seventh (7th) Business Day by
the Seller at the Repurchase Price.

 

(d)    Portfolio Criteria and Limitations.  The Servicer agrees that as of any
date of determination, the Mortgage Loans shall satisfy the Portfolio Criteria,
the Eligibility Criteria set forth in clause (i) of the definition thereof, the
Portfolio Aging Limitations and the Wet Funded Loan Limitation.

 

(e)    Changes in Origination and Underwriting Criteria.  The Company shall
inform the Swap Counterparty and each Rating Agency rating any outstanding Notes
of any changes in the Company’s origination or underwriting practices and
guidelines with respect to mortgage loans that would have a Material Adverse
Effect (as determined by the Company).

 

(f)    Extended Note Amortization Event.  The Purchaser shall not purchase any
Mortgage Loans during the continuation of an Extended Note Amortization Event.

 

(g)    Defaulted Loans.  The Servicer shall sell on behalf of the Purchaser any
Mortgage Loan that becomes a Defaulted Loan as soon as practicable after
becoming a Defaulted Loan.

 

(h)    Concentration.  The Servicer shall arrange for sales of Mortgage Loans to
assure that the Outstanding Purchase Price of Mortgage Loans payable by a single
obligor shall not exceed two percent (2%) of the Outstanding Purchase Price of
all Mortgage Loans owned by the Purchaser at any time.

 

(i)    Certain Financial Covenants.  The Seller and the Purchaser shall:

 

(i)    Maintain, on a consolidated basis, a Tangible Net Worth not less than the
greater of (1) $230,000,000, and (2) seventy-five percent (75%) of (x) their
consolidated Tangible Net Worth as of December 31, 2002, plus, (y) ninety
percent (90%) of all capital contributions made during the fiscal year ending on
December 31, 2003, plus, (z) fifty percent (50%) of positive year-to-date net
income for such Persons.

 

(ii)    Ensure that New Century Financial Corporation shall maintain a Tangible
Net Worth not less than the greater of (1) $250,000,000, and (2) seventy-five
percent (75%) of (w) its Tangible Net Worth as of December 31, 2002, plus, (x)
ninety percent (90%) of all capital contributions made during the fiscal year
ending on December 31, 2003, plus, (y) fifty percent (50%) of positive
year-to-date net income for such Persons, minus, (z) the dollar value of all
repurchases of common stock in New Century Financial Corporation by New Century
Financial Corporation, in an amount not to exceed the lesser of: (i) the dollar
equivalent of repurchases of 1,800,000 shares (or share equivalents in the case
of stock splits/reverse splits), or (ii) $40,000,000.

 

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(iii)    Maintain a ratio of Total Indebtedness to Tangible Net Worth not
greater than 12:1, measured on a consolidated basis on the last day of each
fiscal quarter of the Seller and the Purchaser.

 

(iv)    Ensure that New Century Financial Corporation shall maintain a ratio of
Total Indebtedness to Tangible Net Worth not greater than 12:1, measured on the
last day of each of its fiscal quarters.

 

(v)    Maintain, together with New Century Financial Corporation on a
consolidated basis, Liquidity in an amount equal to not less than $60,000,000.

 

ARTICLE 4

 

ADMINISTRATION AND SERVICING OF MORTGAGE LOANS

 

Section 4.1    The Company to Act as Servicer; Servicing and Administration of
the Mortgage Loans.

 

(a)    (i) The Company, as an independent contract servicer, shall service and
administer the Mortgage Loans. The Servicer shall proceed in the best interests
of and for the benefit of the Purchaser (as determined by the Servicer in its
reasonable judgment) with a view to the maximization of timely recovery of
principal and interest on the Mortgage Loans, consistent with the provisions
hereof. The Servicer will be required to service and administer each Mortgage
Loan in the same manner in which, and with the same care, skill, prudence and
diligence with which, it services and administers similar non-prime loans which
it owns, giving due consideration to customary and usual standards of practice
of mortgage lenders and loan servicers administering similar mortgage loans.

 

The Servicer shall service the Mortgage Loans in a manner consistent with the
Portfolio Criteria, Portfolio Aging Limitations and Wet Funded Loan Limitation.
Additionally, as the principal of any Notes becomes due and payable, whether
pursuant to the terms thereof or by the occurrence of a Security Agreement Event
of Default or optional repurchase, maturity or otherwise, the Purchaser shall
cause the Servicer to arrange for the sale of Mortgage Loans at such times and
in such manner so that the proceeds of the sale, together with amounts received
by the Purchaser in connection with the Total Return Swap, are available to pay
amounts due and owing on such Notes.

 

Any Affiliate of the Company may purchase any Mortgage Loans from the Purchaser
at any time and from time to time (including following the occurrence and during
the continuance of a Non-Distressed Termination Event), other than following the
occurrence and during the continuance of a Distressed Termination Event (unless
the Affiliate or Affiliates purchase a sufficient amount of the Mortgage Loans
then owned by the Purchaser such that following such purchase, the aggregate of
the Outstanding Program Amount plus all Allocated Expenses then current or to be
incurred thereafter, is less than the Required Reserve Fund Amount), at the
Current Transfer Price. Notwithstanding the foregoing, except for any sales by
the Purchaser to Securitization Vehicles, no Affiliate of the Company may
purchase any non-Delinquent Loan or non-Defaulted Loan from the Purchaser unless
either (a) the purchase price

 

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paid by such Affiliate is at least equal to the then Outstanding Purchase Price
of such Mortgage Loan plus accrued and unpaid interest arising under the related
Mortgage Note, or (b) if the purchase price proposed to be paid by such
Affiliate is less than the Outstanding Purchase Price of such Mortgage Loan plus
accrued and unpaid interest arising under the related Mortgage Note, then (x)
the Company shall procure that the Affiliate provide the Purchaser with a letter
from a qualified, independent party stating that the purchase price proposed to
be paid by such Affiliate is not less than the then-current fair market value of
the Mortgage Loan, and, if no Non-Distressed Termination Event shall have
occurred and be continuing, (y) the Company shall promptly notify the Swap
Counterparty, or if there are multiple Swap Counterparties, such person as the
Swap Counterparties shall designate as the Swap Counterparty representative (the
Swap Counterparty or such designated person, the “Swap Counterparty
Representative”) of the proposed price (the “Purchase Price”), and the Swap
Counterparty Representative shall have up to two (2) Business Days from the time
of notification to elect to purchase such Mortgage Loan at such Purchase Price.
If the Swap Counterparty Representative elects to purchase such Mortgage Loan
within such two (2) Business Day time period, the Swap Counterparty
Representative shall pay the Purchase Price for such Mortgage Loan within two
(2) Business Days of the date of such election. If the Swap Counterparty
Representative fails to pay such Purchase Price or fails to affirmatively elect
to purchase such Mortgage Loan, in either case, within the applicable time
period referred to above, the relevant Affiliate of the Company shall have the
right to purchase such Mortgage Loan at a price not less than the Purchase
Price.

 

(i)    Except to the extent that this Purchase Agreement provides for a contrary
specific course of action, the Servicer will be required to service and
administer each Mortgage Loan without regard to (a) any other relationship that
the Servicer, any sub-servicer or any Affiliate of the Servicer or any
sub-servicer may have with the borrowers or any Affiliate of such borrowers, (b)
the ownership of any Notes by the Servicer or any Affiliate of the Servicer, (c)
the Servicer’s obligations to make any Monthly Advances or Servicing Advances or
to incur servicing expenses with respect to each Mortgage Loan, (d) the
Servicer’s or any sub-servicer’s right to receive compensation for its services
under this Purchase Agreement or with respect to any particular transaction or
(e) the ownership, servicing or management for others by the Servicer or any
sub-servicer of any other mortgage loans or property.

 

(b)    The Servicer may enter into additional servicing or sub-servicing
agreements with third parties with respect to any of its obligations hereunder,
provided that any such agreement shall be consistent with the provisions of this
Purchase Agreement and no sub-servicer (or its agent or subcontractors) shall
grant any modification, waiver or amendment to any Mortgage Loan without the
approval of the Servicer. Notwithstanding any servicing or sub-servicing
agreement, any of the provisions of this Purchase Agreement relating to
agreements or arrangements between the Servicer and any Person acting as
servicer or sub-servicer (or its agents or subcontractors) or any reference to
action taken through any Person acting as servicer or sub-servicer or otherwise,
the Servicer shall remain obligated and primarily liable to the Purchaser for
the servicing and administering of the Mortgage Loans and arranging for the sale
of each Mortgage Loan pursuant to the provisions of this Purchase Agreement
without diminution of such obligation or liability by virtue of such servicing
or sub-servicing agreements or arrangements or by virtue of indemnification from
any Person acting as servicer or sub-servicer (or its agents or subcontractors)
to the same extent and under the same terms and

 

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conditions as if the Servicer alone were engaging in such activities. In the
event that the Servicer is a sub-servicer, the Purchaser shall be entitled to
proceed directly against the Servicer as sub-servicer to enforce the Servicer’s
obligations to the Purchaser.

 

(c)    Without limiting the generality of the foregoing, the Servicer is hereby
authorized and empowered to waive, modify or vary any term of any Mortgage Loan
or consent to the postponement of compliance with any such term or in any manner
grant indulgence to any Mortgagor if in the Servicer’s reasonable and prudent
determination such waiver, modification, variance, postponement or indulgence is
not materially adverse to the Purchaser; provided, however, that the Servicer
shall not make any future advances to a Mortgagor with respect to each Mortgage
Loan and (unless the Mortgagor is in default with respect to the Mortgage Loan
or such default is, in the judgment of the Servicer, imminent) the Servicer
shall not permit any modification with respect to any Mortgage Loan that would
change the Mortgage Interest Rate, defer, forgive the payment of principal or
interest, reduce or increase the outstanding principal balance (except for
actual payments of principal), release any collateral from the Mortgage Loan or
change the final maturity date on such Mortgage Loan. Without limiting the
generality of the foregoing, the Servicer shall continue, and is hereby
authorized and empowered, to execute and deliver on behalf of itself and the
Purchaser all instruments of satisfaction or cancellation, or of partial or full
release, discharge and all other comparable instruments, with respect to each
Mortgage Loan and with respect to the related Mortgaged Property. If reasonably
required by the Servicer, the Purchaser shall furnish the Servicer with any
powers of attorney, in recordable form, and other documents necessary or
appropriate to enable the Servicer to carry out its servicing and administrative
duties under this Purchase Agreement.

 

Section 4.2    Sales.

 

(a)    Subject to the servicing standards described in Section 4.1 hereof, the
Servicer shall have full power and authority, acting alone, to do or cause to be
done any and all things in connection with such servicing and administration
that it may deem necessary and desirable in connection with arranging for the
sale by the Purchaser of Mortgage Loans to Mortgage Loan Buyers. The Servicer
shall have no liability to the Purchaser with respect to any sale, provided that
the Servicer arranges for such sale in good faith pursuant to the procedures
utilized by the Servicer in connection with any sale of mortgage loans held for
its own account. The proceeds of sale of any Mortgage Loans will be remitted to
the Collateral Agent and will be deposited into the Collateral Account
maintained by the Collateral Agent on the day of receipt.

 

(b)    With respect to each sale of Mortgage Loans entered into by the
Purchaser, the Servicer shall:

 

(i)    cooperate fully with the Purchaser, any prospective Mortgage Loan Buyer,
or any party to any agreement executed in connection with the sale of such
Mortgage Loans, with respect to all reasonable requests and due diligence
procedures and use its best efforts to facilitate such sale;

 

(ii)    restate, as of the closing date of such sale, the representations and
warranties contained in Section 3.1 hereof and state that, except as otherwise
disclosed in writing by the Servicer to the Mortgage Loan Buyer, each of the
representations and

 

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warranties with respect to such Mortgage Loans contained in Sections 3.2(b),
(c), (e), (g), (h), (i), (j), (k), (l), (m), (n), (t), (u), (v), (w), (y), (z),
(aa), (ff), (gg), (ii), (jj), (ss) and (ww) hereof, are true as of the closing
date of such sale (and for this purpose, references to the knowledge of the
Seller shall mean the knowledge of the Servicer);

 

(iii)    deliver to the Purchaser for inclusion in any prospectus or other
offering material such written information regarding the New Century Financial
Corporation, its respective financial condition, mortgage loan origination and
servicing experience, and mortgage loan delinquency, foreclosure and loss
experience as shall be reasonably requested by the Purchaser and indemnify and
hold harmless the Purchaser against any and all liabilities, losses and expenses
arising under the Securities Act in connection with any material misstatement
contained in such written information or any omission of a material fact the
inclusion of which was necessary to make such written information not
misleading;

 

(iv)    deliver to the Purchaser and to any Person designated by the Purchaser,
such statements and audit letters of reputable, certified public accountants
pertaining to the written information provided by the Servicer pursuant to
clause (iii) above as shall be reasonably requested by the Purchaser; and

 

(v)    deliver to the Purchaser, and to any Person designated by the Purchaser,
such opinions of counsel as are customarily delivered by originators/servicers
in connection with sales of Mortgage Loans of this type.

 

All Mortgage Loans not sold or transferred pursuant to a sale shall continue to
be serviced pursuant to the terms of this Purchase Agreement.

 

(c)    With respect to each sale of Mortgage Loans entered into by the
Purchaser, the Seller shall restate, as of the closing date of such sale, the
representations and warranties contained in Section 3.1 hereof and the
representations and warranties with respect to such Mortgage Loans contained in
Sections 3.2(b), (f), (o), (p), (q), (r), (s), (x), (bb), (cc), (dd), (ee),
(hh), (kk), (ll), (mm), (nn), (oo), (pp), (rr), (tt), (uu), and (xx) hereof.

 

(d)    Upon the sale of any Mortgage Loan, the rights and obligations of the
Servicer hereunder with respect to such Mortgage Loan shall be terminated on the
effective date of such sale. Upon written request from the Purchaser, the
Servicer shall prepare, execute and deliver to the successor entity designated
by the Purchaser any and all documents and other instruments, place in such
successor’s possession the Mortgage Loan File, and do or cause to be done all
other acts or things necessary or appropriate to effect the purposes of such
termination, including but not limited to the transfer and endorsement or
assignment of the Mortgage Loan and related documents, at the Servicer’s sole
expense. The Servicer shall cooperate with such successor in effecting the
termination of the Servicer’s responsibilities and rights hereunder, including
without limitation, the transfer to such successor for administration by it of
all cash amounts which shall at the time be credited by the Servicer to any
Collection Account thereafter received with respect to the Mortgage Loan,
subject to the Servicer’s right to withdraw any amounts it is entitled pursuant
to this Purchase Agreement.

 

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(e)    If the Servicer arranges for the sale of Mortgage Loans by the Purchaser
pursuant to this Purchase Agreement and the sale price of any Mortgage Loan is
less than the Outstanding Purchase Price of such Mortgage Loan, the Servicer
shall give the Swap Counterparty written notice of the sale price (the “Sale
Price”) of such Mortgage Loan or Mortgage Loans in advance of such sale. Such
written notice shall also include a summary description of the procedure used in
the determination of the Sale Price. The Swap Counterparty shall have two (2)
Business Days from the receipt of such written notice to dispute the Sale Price.
If the Swap Counterparty disputes the Sale Price, the Servicer and the Swap
Counterparty shall use their best efforts to resolve such dispute within two (2)
Business Days of receipt by the Swap Counterparty of such written notice. If the
Swap Counterparty disputes the Sale Price of any Mortgage Loan and such dispute
is not resolved, then the Swap Counterparty, or its designee, shall be permitted
to purchase such Mortgage Loan at a price greater than 100.5% of the Sale Price
(the “Bid Price”) within three (3) Business Days of receipt by the Swap
Counterparty of the written notice of the Sale Price. If the Swap Counterparty
fails to dispute the Sale Price within two (2) Business Days after receipt of
notice of the Sale Price or fails (or such designee fails) to pay the Bid Price
for such Mortgage Loan within three (3) Business Days after receipt of notice of
the Sale Price, the Servicer shall be permitted to sell such Mortgage Loan in
accordance with Section 4.2 (a) hereof.

 

Section 4.3    Liquidation of Mortgage Loans.

 

In the event that any payment due under any Mortgage Loan is not paid when the
payment becomes due and payable, by Monthly Advance or otherwise, or in the
event that the Mortgagor fails to perform any other covenant or obligation under
the Mortgage Loan and such failure continues beyond any applicable grace period,
the Servicer shall take such action as the Servicer would take under similar
circumstances with respect to a similar mortgage loan held for its own account
for investment, which action shall be consistent with its Customary Servicing
Procedures and in the best interest of the Purchaser; provided, however, that
any Defaulted Loan will be sold by the Servicer on behalf of the Purchaser as
soon as practicable after becoming a Defaulted Loan, and the Servicer shall use
its best efforts to sell any such Defaulted Loan within five (5) Business Days
after becoming a Defaulted Loan.

 

If at any time any outstanding Extended Notes are to become due and payable at
their Final Maturity, and the Servicer appears to be likely to be unable to
fulfill its obligation under Section 4.1 to arrange for the sale of Mortgage
Loans at such times and in such manner so that the proceeds of the sale,
together with amounts received by the Purchaser in connection with the Total
Return Swap, are available to pay amounts due and owing on such Extended Notes
at their Final Maturity, because the Servicer shall not have been able to sell
Mortgage Loans despite having used its best efforts to do so, then the Swap
Counterparty agrees, at the request of the Servicer, to purchase such Mortgage
Loans at their Market Value and in sufficient time to ensure that the proceeds
of such sale, together with funds payable by the Swap Counterparty under the
Total Return Swap, shall be available no later than the Final Maturity of the
outstanding Extended Notes.

 

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Section 4.4 Collection of Mortgage Loan Payments.

 

The Servicer shall proceed diligently, pursuant to the Servicer’s Customary
Servicing Procedures, to collect all payments called for under the terms and
provisions of each Mortgage Loan it is obligated to service hereunder and shall
follow such collection procedures as are consistent with this Purchase Agreement
(including without limitation, the servicing standards set forth in Section 4.1
hereof). The Servicer shall segregate and hold all payments received by it
separate and apart from any of its funds and general assets and in trust for the
Secured Parties and shall apply such payments as provided in Section 4.5 hereof.
The accounts established by the Servicer pursuant to this Article IV may include
any number of sub-accounts for convenience in administering the Mortgage Loans.

 

Section 4.5 Establishment of, and Deposits to, Collection Account.

 

The Servicer shall establish with the Collateral Agent a single, segregated
trust account which shall be designated as the collection account (the
“Collection Account”), which shall be held in trust in the name of the
Collateral Agent for the benefit of the Secured Parties, into which the Servicer
shall from time to time deposit, within two (2) Business Days of the receipt
thereof, and retain therein, the following collections received by the Servicer:
(a) all payments on account of scheduled principal on the Mortgage Loans
(including the principal portion of all Monthly Advances) (net of charges
against such amounts allowed pursuant to Section 4.6(a) hereof), (b) all
payments on account of interest on the Mortgage Loans (including the interest
portion of all Monthly Advances) (net of charges against such amounts allowed
pursuant to Sections 4.6(a) and 4.6(c)(i)(y) hereof and the last sentence of
Section 4.6(d) hereof), (c) any partial or full Principal Prepayments, (d) all
Insurance Proceeds including amounts required to be deposited pursuant to
Sections 4.11 and 4.12 hereof (other than proceeds to be held in the Proceeds
Account and applied to the restoration or repair of the related Mortgaged
Property or released to the Mortgagor in accordance with the Servicer’s
Customary Servicing Procedures as specified in Section 4.15 hereof), (e) all
Condemnation Proceeds which are not applied to the restoration or repair of the
Mortgaged Property or released to the Mortgagor pursuant to Section 4.15 hereof,
(f) any amounts required to be deposited by the Servicer pursuant to Section
4.12 hereof in connection with the deductible clause in any blanket hazard
insurance policy, (g) any amounts received with respect to or related to any REO
Property and all REO Disposition Proceeds pursuant to Section 4.17 hereof, and
(h) any other amounts received with respect to or related to the Mortgage Loans,
including but not limited to interest paid on funds deposited in the Collection
Account, to the extent permitted by applicable law; provided, however, that all
servicing related fees and charges described in Section 6.3(b) hereof may be
retained by the Servicer as and when collected. The Collection Account shall be
established with a Qualified Depository acceptable to the Purchaser. For so long
as the Security Agreement shall be in effect, the Collection Account shall be
maintained with the Collateral Agent. Any funds deposited in the Collection
Account shall at all times be fully insured to the full extent permitted under
applicable law. The Servicer shall be entitled to any interest earnings on
amounts on deposit from time to time in the Collection Account.

 

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Section 4.6 Permitted Withdrawals From Collection Account; Deposit into the
Collateral Account.

 

(a) In connection with amounts deposited by the Servicer into the Collection
Account by mistake or overpayment or as otherwise required to make adjustments
to amounts deposited therein in accordance with ordinary and normal servicing
adjustments, the Servicer shall be entitled to retain from time to time from
collections on the Mortgage Loans owned by the Purchaser prior to the deposit of
such collections in the Collection Account amounts equal to the amounts so
deposited by mistake or overpayment or the adjustments so required, provided
that the amounts so retained are reflected in the Servicer Report delivered to
the Collateral Agent for the Remittance Period in which such retention occurred.

 

(b) Pursuant to the terms of the Security Agreement, the Collateral Agent shall
establish a single, segregated trust account which shall be designated as the
collateral account (the “Collateral Account”), which shall be held in trust in
the name of the Collateral Agent for the benefit of the Secured Parties and over
which the Collateral Agent shall have exclusive control and the sole right of
withdrawal. The proceeds, including Deferred Amounts, of any sales of Mortgage
Loans by the Purchaser to Mortgage Loan Buyers, the Repurchase Price of any
Mortgage Loans repurchased by the Seller or the Servicer pursuant to Section
3.3, 6.2 or 7.1 hereof, and any other amounts payable in connection with the
Seller’s or the Servicer’s repurchase of any Mortgage Loan and certain other
amounts as more fully set forth in the Security Agreement, shall be deposited
directly into the Collateral Account on the same day of receipt. Any and all
funds at any time on deposit in, or otherwise to the credit of, the Collateral
Account shall be held in trust by the Collateral Agent for the benefit of the
Secured Parties.

 

(c) Subject to Sections 4.6 (e) and 4.25 hereof, the Servicer shall, on or after
each Monthly Remittance Date but no later than the Business Day immediately
preceding the next following Payment Date, request the Collateral Agent to (i)
withdraw (A) all amounts on deposit in the Collection Account on such Monthly
Remittance Date, plus (B) to the extent not included in the amounts referred to
in clause (A) above, all Monthly Advances deposited into the Collection Account
with respect to the related Remittance Period and deposit such amounts into the
Collateral Account for application pursuant to the terms of the Security
Agreement, and (ii) release amounts in accordance with the Servicer Report
delivered to the Collateral Agent for such Payment Date.

 

        (i) The Servicer shall be entitled to reimbursement for Monthly Advances
and Servicing Advances previously made pursuant to Sections 5.1 or 4.9 hereof,
respectively, either by (x) requesting, by delivery of a Servicer Report, the
Collateral Agent to withdraw funds from the Collection Account to reimburse the
Servicer for such Monthly Advances, or (y) retaining from interest payments on
the related Mortgage Loans the amount of such Monthly Advances prior to the
deposit of such interest payments into the Collection Account, provided,
however, that such retention is reflected in a Servicer Report delivered to the
Collateral Agent no later than the Monthly Remittance Date for the Remittance
Period in which such retention occurred, the Servicer’s right to reimbursement
pursuant to this clause (c)(i) being limited to amounts received on the related
Mortgage Loan that represent late payments of interest respecting which any such
Monthly Advance was made, it being understood that, in the case of any such
reimbursement, the Servicer’s right thereto shall be prior to the rights of the
Purchaser,

 

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except that, where the Servicer is required to repurchase a Mortgage Loan
pursuant to Sections 6.2 and 7.1 hereof, the Servicer’s right to such
reimbursement shall be subsequent to the payment to the Purchaser of the
Repurchase Price pursuant to such Sections 6.2 and 7.1 and all other amounts
required to be paid to the Purchaser with respect to such Mortgage Loan.

 

        (ii) [reserved]

 

(d) Subject to Section 4.25 hereof, the Servicer shall, on or after each Monthly
Remittance Date but no later than the Business Day immediately preceding the
next following Payment Date, by delivery of the Servicer Report to the
Collateral Agent, request the Collateral Agent to withdraw and remit to the
Servicer on such date of delivery from the amounts in the Collection Account
referred to in clauses (A) and (B) of Section 4.6(c)(i) hereof, an amount equal
to (i) the Servicing Fee for the related Remittance Period and (ii) if and to
the extent previously deposited into the Collection Account, any unpaid
servicing related fees and charges to which the Servicer is entitled pursuant to
Section 6.3(b) hereof. To the extent that the Servicing Fee and such other
servicing related fees and charges are not remitted to the Servicer as provided
above, they shall be paid to the Servicer as Allocated Expenses in the method
and manner specified in the Security Agreement. Notwithstanding the foregoing,
the Servicer shall be entitled to retain from the interest payments on the
Mortgage Loans owned by the Purchaser prior to deposit of such payments into the
Collection Account, the Servicing Fee to which it is entitled relating to such
Mortgage Loans, provided that any such retention is reflected in the Servicer
Report delivered to the Collateral Agent for the Remittance Period in which such
retention occurred.

 

(e) Subject to the provisions of Section 4.6(f) hereof, the Servicer may, on any
Business Day, request the Collateral Agent to withdraw any or all principal
payments or collections (including partial or full Principal Prepayments) on
deposit in the Collection Account and deposit such amounts into the Collateral
Account; provided, however, that any interest payment accompanying a principal
payment (including a partial or full Principal Prepayment) shall only be
deposited into the Collateral Account in accordance with Section 4.6(c) hereof.

 

(f) The Servicer shall establish a separate account within the Collection
Account to hold amounts deposited into the Collection Account with respect to
Mortgage Loans that have been identified for sale by the Purchaser to a Mortgage
Loan Buyer (a “Mortgage Loan Buyer Account”). Upon the establishment by the
Purchaser and a Mortgage Loan Buyer of a Cut-Off Date for the sale of Mortgage
Loans by the Purchaser to the Mortgage Loan Buyer, all amounts (including
Monthly Advances) in respect of such Mortgage Loans which are deposited into the
Collection Account on and after the Cut-Off Date and prior to the closing date
for such sale (i) shall be directed by the Servicer to be held in the Mortgage
Loan Buyer Account established for such sale and (ii) shall not be deposited
into the Collateral Account pursuant to Section 4.6(c) or (e) hereof but shall
remain in the Mortgage Loan Buyer Account until the closing or abandonment of
such sale. Upon the closing of such sale, the Servicer shall, on the closing
date for such sale, request the Collateral Agent to withdraw funds from the
Mortgage Loan Buyer Account representing the amounts deposited into the
Collection Account in respect of the Mortgage Loans sold to the Mortgage Loan
Buyer during the period on and after the related Cut-Off Date and prior to such
closing date and remit such amounts to the account of the Mortgage Loan Buyer as
designated by the Purchaser. Upon failure of such sale, the amounts in

 

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the Mortgage Loan Buyer Account established for such sale shall be returned to
the Collection Account for application pursuant to the provisions of this
Purchase Agreement.

 

Section 4.7 Establishment of, and Deposits to, Proceeds Account.

 

The Servicer shall establish and maintain one (1) or more Proceeds Accounts
which shall be held in trust in the name of the Collateral Agent for the benefit
of the Secured Parties, in the form of time deposit or demand accounts, in a
manner which shall provide maximum available insurance thereunder. Funds
deposited in any Proceeds Account may be invested by the Servicer which shall be
entitled to any investment income therefrom except as otherwise required by law.
Funds deposited in any Proceeds Account may be drawn on by the Servicer pursuant
to Section 4.8 hereof.

 

The Servicer shall deposit in such Proceeds Account within two (2) Business Days
and retain therein all amounts representing Insurance Proceeds or Condemnation
Proceeds which are to be applied to the restoration or repair of any Mortgaged
Property.

 

The Servicer shall make withdrawals from any Proceeds Account only to effect
such payments as are required under this Purchase Agreement, as set forth in
Section 4.8 hereof. To the extent required by law, the Servicer shall pay
interest on escrowed funds to the Mortgagor notwithstanding that such Proceeds
Account may be non-interest bearing or that interest paid thereon is
insufficient for such purposes.

 

Section 4.8 Permitted Withdrawals From Proceeds Account.

 

Withdrawals from any Proceeds Account may be made by the Servicer only:

 

(1) For transfer to the Collection Account and application to reduce the
principal balance of a Mortgage Loan in accordance with the terms of the related
Mortgage and Mortgage Note;

 

(2) For application to restoration or repair of the Mortgaged Property pursuant
to the procedures outlined in Section 4.15 hereof; and

 

(3) To pay to the Mortgagor, to the extent required by law, any interest paid on
the funds deposited in the Proceeds Account.

 

Section 4.9 Servicing Advances.

 

The Servicer shall make Servicing Advances with respect to each Mortgage Loan,
including advances of taxes or other charges which are or may become a lien on
the related Mortgaged Property, and advances of premiums for fire and hazard
insurance coverage on the related Mortgaged Property, to the extent not paid by
the related Mortgagor, unless the Servicer provides an Officer’s Certificate to
the Purchaser stating that such Servicing Advance would not be recoverable in
its reasonable judgment.

 

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Section 4.10 Protection of Accounts.

 

Amounts on deposit in the Collection Account may at the direction of the
Servicer be invested by the Collateral Agent in Eligible Investments; provided,
however, that in the event that amounts on deposit in the Collection Account
(which shall be properly titled to insure the funds in such account on a
loan-by-loan basis) exceed the amount fully insured by the FDIC (the “Insured
Amount”) the Servicer shall be obligated to direct the Collateral Agent to
invest the excess amount over the Insured Amount in Eligible Investments on the
next Business Day as such excess amount becomes present in the Collection
Account. Monies held in the Collection Account shall be invested in Eligible
Investments having maturities of no greater than one day; provided, however,
that if there are no Senior Notes then outstanding, monies held in the
Collection Account shall be invested in Eligible Investments having maturities
of no greater than thirty (30) days. So long as there are Eligible Investments
having maturities of greater than one (1) day, the Purchaser shall not issue
Secured Liquidity Notes. All such Eligible Investments shall be made in the name
of, and shall be payable to, the Collateral Agent for the benefit of the Secured
Parties.

 

Section 4.11 Maintenance of Hazard Insurance.

 

The Servicer shall cause to be maintained for each Mortgage Loan hazard
insurance such that all buildings upon the Mortgaged Property are insured by a
generally acceptable insurer pursuant to the Servicer’s Customary Servicing
Procedures against loss by fire and hazards of extended coverage in an amount
which is at least equal to, to the extent permitted by applicable law, the
lesser of (i) the maximum insurable value of the improvements securing such
Mortgage Loan and (ii) the unpaid principal balance of the Mortgage Loan plus,
in the case of a Second Lien Mortgage Loan, the unpaid principal balance of the
first lien mortgage on the related Mortgaged Property, and in each case in an
amount such that the proceeds thereof shall be sufficient to prevent the
Mortgagor or the loss payee from becoming a co-insurer.

 

If upon origination or acquisition of the Mortgage Loan, the related Mortgaged
Property was located in an area identified in the Federal Register by the
Federal Emergency Management Agency as having special flood hazards (and such
flood insurance has been made available) the Servicer shall cause to be in
effect a flood insurance policy meeting the requirements of the current
guidelines of the Flood Insurance Administration with a generally acceptable
insurance carrier pursuant to the Servicer’s Customary Servicing Procedures in
an amount representing coverage equal to the lesser of (i) the minimum amount
required, under the terms of coverage, to compensate for any damage or loss on a
replacement cost basis (or the unpaid principal balance of the Mortgage Loan
(and, in the case of a Second Lien Mortgage Loan, the unpaid principal balance
of the first lien mortgage on the related Mortgaged Property) if replacement
cost coverage is not available for the type of building insured) and (ii) the
maximum amount of insurance which is available under the Flood Disaster
Protection Act of 1973, as amended (assuming the Mortgaged Property is located
in an area participating in the programs maintained under such Act). If at any
time during the term of the Mortgage Loan, the Servicer determines in accordance
with applicable law, that a Mortgaged Property is located in a special flood
hazard area and is not covered by flood insurance or is covered in an amount
less than the amount required by the Flood Disaster Protection Act of 1973, as
amended, the Servicer shall notify the related Mortgagor that the Mortgagor must
obtain such flood insurance coverage,

 

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and if said Mortgagor fails to obtain the required flood insurance coverage
within forty-five (45) days after such notification, the Servicer shall
immediately place in force the required flood insurance on the Mortgagor’s
behalf.

 

The Servicer shall not interfere with the Mortgagor’s freedom of choice in
selecting either his insurance carrier or agent; provided, however, that the
Servicer shall not accept any such insurance policies from insurance companies
unless such companies are generally acceptable companies pursuant to the
Servicer’s Customary Servicing Procedures and are licensed to do business in the
jurisdiction in which the Mortgaged Property is located. The Servicer shall
determine that such policies provide sufficient risk coverage and amounts, that
they insure the property owner, and that they properly describe the property
address. The Servicer shall furnish to the Mortgagor a formal notice of
expiration of any such insurance in sufficient time for the Mortgagor to arrange
for renewal coverage by the expiration date.

 

Pursuant to Section 4.5 hereof, any amounts collected by the Servicer under any
such policies (other than amounts to be deposited in any Proceeds Account and
applied to the restoration or repair of the related Mortgaged Property or to be
released to the Mortgagor in accordance with the Servicer’s Customary Servicing
Procedures as specified in Section 4.15 hereof) shall be deposited in the
Collection Account subject to withdrawal pursuant to Section 4.6 hereof.

 

Section 4.12 Maintenance of Mortgage Impairment Insurance.

 

If the Servicer shall obtain and maintain a blanket policy insuring against
losses arising from fire and hazards covered under extended coverage on all of
the Mortgage Loans, then, to the extent such policy provides coverage in an
amount equal to the amount required pursuant to Section 4.11 hereof and
otherwise complies with all other requirements of Section 4.11, it shall
conclusively be deemed to have satisfied its obligations as set forth in such
Section 4.11. Any amounts collected by the Servicer under any such policy
relating to a Mortgage Loan shall be deposited in the Collection Account subject
to withdrawal pursuant to Section 4.6 hereof. Such policy may contain a
deductible clause, in which case, in the event that there shall not have been
maintained on the related Mortgaged Property a policy complying with Section
4.11 hereof, and there shall have been a loss which would have been covered by
such policy, the Servicer shall deposit in the Collection Account at the time of
such loss the amount not otherwise payable under the blanket policy because of
such deductible clause, such amount to be deposited from the Servicer’s funds,
without reimbursement therefor. Upon request of the Purchaser, the Servicer
shall cause to be delivered to the Purchaser a certified true copy of such
policy.

 

Section 4.13 Maintenance of Fidelity Bond and Errors and Omissions Insurance
Policy.

 

The Servicer shall maintain with appropriate insurers of a type commonly
insuring such risks, at its own expense, a blanket fidelity bond, with broad
coverage on all officers, employees or other persons acting in any capacity
requiring such persons to handle funds, money, documents or papers relating to
the Mortgage Loans. Such fidelity bond shall be in the form of the Mortgage
Banker’s Blanket Bond and shall protect and insure the Servicer against losses,
including forgery, theft, embezzlement, fraud, and negligent acts of such
persons.

 

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The Servicer shall also maintain with appropriate insurers of a type commonly
insuring such risks, at its own expense, an errors and omissions insurance
policy, with broad coverage on all officers, employees or other persons acting
in any capacity requiring such persons to handle funds, money, documents or
papers relating to the Mortgage Loans. No provision of this Section 4.13
requiring such fidelity bond or errors and omissions insurance policy shall
diminish or relieve the Servicer from its duties and obligations as set forth in
this Purchase Agreement. The minimum coverage under such fidelity bond or errors
and omissions insurance policy shall be at least equal to the corresponding
amounts required by the Servicer’s Customary Servicing Procedures. Upon the
request of the Purchaser, the Servicer shall cause to be delivered to the
Purchaser a certified true copy of such fidelity bond and such errors and
omissions insurance policy.

 

Section 4.14 Inspections.

 

The Servicer shall inspect the Mortgaged Property in accordance with its
Customary Servicing Procedures.

 

Section 4.15 Restoration of Mortgaged Property.

 

The Servicer need not obtain the approval of the Purchaser prior to releasing
any Insurance Proceeds or Condemnation Proceeds to the Mortgagor to be applied
to the restoration or repair of the Mortgaged Property if such release is in
accordance with the Servicer’s Customary Servicing Procedures. At a minimum, the
Servicer shall comply with the following conditions in connection with any such
release of Insurance Proceeds or Condemnation Proceeds:

 

(1) The Servicer shall receive satisfactory independent verification of
completion of repairs and issuance of any required approvals with respect
thereto;

 

(2) The Servicer shall take all steps necessary to preserve the priority of the
lien of the Mortgage, including, but not limited to, requiring waivers with
respect to mechanics’ and materialmen’s liens;

 

(3) The Servicer shall verify that the Mortgage Loan is not in default; and

 

(4) Pending repairs or restoration, the Servicer shall place the Insurance
Proceeds or Condemnation Proceeds in any Proceeds Account.

 

Section 4.16 [Reserved].

 

Section 4.17 Title, Management and Disposition of REO Property.

 

In the event that title to any Mortgaged Property is acquired in foreclosure or
by deed in lieu of foreclosure, the deed or certificate of sale shall be taken
in the name of the Servicer as agent for the Secured Parties, or in the event
the Servicer is not authorized or permitted to hold title to real property in
the state where the REO Property is located, or would be adversely affected
under the “doing business” or tax laws of such state by so holding title, the

 

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deed or certificate of sale shall be taken in the name of such Person or Persons
as shall be reasonably acceptable to the Purchaser. The Person or Persons
holding such title other than the Servicer shall acknowledge in writing that
such title is being held as nominee for the Servicer.

 

The Servicer shall manage, conserve, protect and operate each REO Property for
the Purchaser solely for the purpose of its prompt disposition and sale. The
Servicer, either itself or through an agent selected by the Servicer, shall
manage, conserve, protect and operate the REO Property in the manner that it
manages, conserves, protects and operates other foreclosed property for its own
account, and in the manner that similar property in the locality as the REO
Property is managed. The Servicer shall attempt to sell the REO Property on such
terms and conditions as the Servicer deems to be in the best interest of the
Purchaser. The Servicer shall dispose of the REO Property in accordance with the
Servicer’s Customary Servicing Procedures as soon as possible.

 

The Servicer shall also maintain on each REO Property fire and hazard insurance
with extended coverage in an amount which is at least equal to the maximum
insurable value of the improvements which are a part of such property, liability
insurance and, to the extent required and available under the Flood Disaster
Protection Act of 1973, as amended, flood insurance.

 

The disposition of REO Property shall be carried out by the Servicer at such
price and upon such terms and conditions as the Servicer deems to be in the best
interest of the Purchaser. All REO Disposition Proceeds shall be promptly
deposited in the Collection Account.

 

Section 4.18 Servicer Reports.

 

The Servicer shall deliver a report to the Purchaser, the Manager, the
Collateral Agent, the Custodian, the Swap Counterparty and the SLN Placement
Agents on or before the Business Day immediately preceding each Payment Date
(the “Servicer Report”), a form of which is attached hereto as Exhibit D (which
such Exhibit D will include Servicer Advances).

 

Section 4.19 Real Estate Owned Reports.

 

The Servicer shall furnish to the Purchaser on or before each Payment Date a
statement with respect to any REO Property covering the operation of such REO
Property and the Servicer’s efforts in connection with the sale of such REO
Property and any rental of such REO Property incidental to the sale thereof.
That statement shall be accompanied by such other information as the Purchaser
shall reasonably request.

 

Section 4.20 Liquidation Reports.

 

As promptly as practicable following the foreclosure sale of any Mortgaged
Property or the acquisition thereof by the Purchaser pursuant to a deed in lieu
of foreclosure, the Servicer shall submit to the Purchaser a liquidation report
with respect to such Mortgaged Property.

 

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Section 4.21 Reports of Foreclosures and Abandonments of Mortgaged Property.

 

Following the foreclosure sale or abandonment of any Mortgaged Property, the
Servicer shall report such foreclosure or abandonment as required pursuant to
Section 6050J of the Code.

 

Section 4.22 [Reserved].

 

Section 4.23 Monthly Disposition Report.

 

The Servicer shall on each Payment Date deliver to the Purchaser, the Swap
Counterparty and the Collateral Agent a report with respect to sales of Mortgage
Loans made by the Purchaser to Mortgage Loan Buyers in the preceding Remittance
Period in substantially the form attached as Exhibit E hereto. Neither the
Collateral Agent nor the Swap Counterparty shall have any duty to examine any
such report.

 

Section 4.24 Monthly Portfolio Report.

 

The Servicer shall within fifteen (15) days of the end of each calendar month,
deliver to the SLN Placement Agents, with a copy to the Swap Counterparty, a
report with respect to the portfolio of Mortgage Loans owned by the Purchaser at
the end of the preceding calendar month for distribution to investors in, and
potential investors in, the Secured Liquidity Notes, in substantially the form
attached as Exhibit F hereto. The Swap Counterparty shall have no duty to
examine any such report.

 

Section 4.25 Servicer Advance Facility.

 

The Servicer is authorized to enter into a facility (an “Advance Facility”) with
any Person which provides that such Person (an “Advancing Person”) may fund
(whether by direct payment or by way of a loan to the Servicer) Monthly Advances
and/or Servicing Advances under this Agreement, although no such Advance
Facility shall reduce or otherwise affect the Servicer’s obligation to fund such
Monthly Advances and/or Servicing Advances. If the Servicer enters into an
Advance Facility pursuant to this Section 4.25, upon the reasonable request of
the Advancing Person, the Servicer shall seek to procure from the Collateral
Agent a letter to the Advancing Person, confirming that the Collateral Agent has
received notice of the existence of the Advance Facility. If an Advancing Person
funds any Monthly Advance and/or Servicing Advance (whether by direct payment or
by way of a loan to the Servicer) and the Collateral Agent is provided with
written notice acknowledged by the Servicer that such Advancing Person is
entitled to reimbursement (whether in respect of such direct payment or to
offset or pay down any loan to the Servicer), such Advancing Person (or nominee)
shall be entitled to reimbursement in respect of such Monthly Advance and/or
Servicing Advance in the place and stead of the Servicer, to the same extent
that the Servicer is entitled to reimbursement under the Program Documents. Such
notice from the Advancing Person must specify the amount of the reimbursement,
the section of this Agreement (or other Program Document) that permits the
applicable Monthly Advance or Servicing Advance to be reimbursed and the
section(s) of the

 

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Advance Facility documentation that entitle the Advancing Person (or nominee)
(rather than the Servicer) to request reimbursement from the Collateral Agent,
and include the Servicer’s acknowledgement thereto or proof of an event of
default under the documentation for the Advance Facility entitling the Advancing
Person to give such notice without the acknowledgement of the Servicer. The
Collateral Agent 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
conclusively rely without independent investigation on the Advancing Person’s
notice. An Advancing Person whose obligations are limited to the funding of
Monthly Advances and/or Servicing Advances (whether by direct payment or by way
of a loan to the Servicer) shall not be required to meet the qualifications of
the Servicer or any permitted assignee under Section 9.5 hereof, and will not be
deemed to be a sub-servicer or assignee of the Servicer.

 

If any Advance Facility is entered into, upon such facility becoming effective
with respect to this Purchase Agreement and the Program Documents, the Servicer
shall not be permitted to reimburse itself for Monthly Advances and Servicing
Advances under Sections 4.5 or 4.6(c), or to be reimbursed pursuant to the
Security Agreement, but instead the Advancing Person (or nominee) shall be
reimbursed directly by (i) the Collateral Agent, from the proceeds of the
Collection Account or the Collateral Account upon receipt of the written notice
referred to above, or (ii) by the Servicer arranging for an appropriate portion
of interest payments on Mortgage Loans to be directed to the Advancing Person
(or nominee) as contemplated by Section 4.6(c)(i)(y).

 

Section 4.26 Covenant Compliance Certificates.

 

The Servicer shall deliver to the SLN Placement Agents, with a copy to the Swap
Counterparty:

 

(a) within fifteen (15) days of the end of each March, June, September and
December, a certificate substantially in the form of Exhibit G-1 hereto, showing
with appropriate calculations compliance with the covenants set forth in Section
3.5(i)(i) through (iv).

 

(b) within fifteen (15) days of the end of each calendar month, a certificate
substantially in the form of Exhibit G-2 hereto, showing with appropriate
calculations compliance with the covenant set forth in Section 3.5(i)(v).

 

ARTICLE 5

 

SERVICER ADVANCES

 

Section 5.1 Monthly Advances.

 

On or after each Monthly Remittance Date, but no later than the Business Day
immediately preceding the next following Payment Date, the Servicer shall
deposit into the Collection Account from its own funds an amount equal to all
Monthly Payments which were due on Mortgage Loans that became Delinquent Loans
or Defaulted Loans during the related Remittance Period and which remain unpaid
at the close of business on the last day of the related Remittance Period or
which were deferred pursuant to Section 4.1 hereof (“Monthly Advances”).

 

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The Servicer’s obligation to make such Monthly Advances as to any Mortgage Loan
will continue through the last Monthly Payment due prior to the payment in full
of the Mortgage Loan or through the Payment Date for the distribution of all
proceeds of sale of the Mortgage Loan and other payments or recoveries
(including Insurance Proceeds and Condemnation Proceeds) with respect to the
Mortgage Loan, unless the Servicer provides an Officer’s Certificate to the
Purchaser stating that such Monthly Advance would not be recoverable in its
reasonable judgment.

 

ARTICLE 6

 

GENERAL SERVICING PROCEDURES

 

Section 6.1 Transfers of Mortgaged Property.

 

The Servicer shall enforce any “due-on-sale” provision in accordance with the
Servicer’s Customary Servicing Procedures and applicable law contained in any
Mortgage or Mortgage Note and to deny assumption by the Person to whom the
Mortgaged Property has been or is about to be sold whether by absolute
conveyance or by contract of sale, and whether or not the Mortgagor remains
liable on the Mortgage and the Mortgage Note. When the Mortgaged Property has
been conveyed by the Mortgagor, the Servicer shall, to the extent it has
knowledge of such conveyance, exercise its rights to accelerate the maturity of
such Mortgage Loan under the “due-on-sale” clause applicable thereto; provided,
however, that the Servicer shall not exercise such rights if prohibited by law
from doing so.

 

If the Servicer reasonably believes it is unable under applicable law to enforce
such “due-on-sale” clause, the Servicer shall enter into (i) an assumption and
modification agreement with the Person to whom the Mortgaged Property has been
conveyed, pursuant to which such Person becomes liable under the Mortgage Note
and the original Mortgagor remains liable thereon or (ii) in the event that the
Servicer is unable under applicable law to require that the original Mortgagor
remain liable under the Mortgage Note, a substitution of liability agreement
with the purchaser of the Mortgaged Property pursuant to which the original
Mortgagor is released from liability and the purchaser of the Mortgaged Property
is substituted as Mortgagor and becomes liable under the Mortgage Note.

 

Section 6.2 Satisfaction of Mortgages and Release of Mortgage Loan Files.

 

Upon the payment in full of each Mortgage Loan, or the receipt by the Servicer
of a notification that payment in full will be escrowed in a manner customary
for such purposes, the Servicer shall notify the Purchaser and the Collateral
Agent.

 

If the Servicer satisfies or releases a Mortgage without first having obtained
payment in full of the indebtedness secured by the Mortgage or should the
Servicer otherwise prejudice any rights the Purchaser may have under the
mortgage instruments which materially and adversely affects the value of the
related Mortgage Loan, upon written demand of the Purchaser, the Servicer shall
purchase the related Mortgage Loan at the Repurchase Price by deposit thereof in
the Collateral Account within two (2) Business Days of receipt of such demand by
the Purchaser.

 

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Upon receipt of the Repurchase Price by the Collateral Agent, the Purchaser and
the Servicer shall arrange for the reassignment of the Mortgage Loans to the
Servicer and the delivery to the Servicer of any documents held by the Custodian
relating to the reassigned Mortgage Loans. The Servicer shall, simultaneously
with such assignment, give written notice to the Seller, the Collateral Agent
and the Swap Counterparty that such purchase has taken place.

 

Section 6.3 Servicing Compensation.

 

As compensation for its services hereunder, the Servicer shall be entitled to
(a) the Servicing Fee and (b) any late payment charges, prepayment penalties,
prepayment premiums, release fees, bad check charges, assumption fees and any
other servicing-related fees collected from Mortgagors with respect to the
Mortgage Loans. The Servicer shall be required to pay all expenses incurred by
it in connection with its servicing activities hereunder and shall not be
entitled to reimbursement therefor except as specifically provided herein.

 

Section 6.4 Annual Statement as to Compliance.

 

The Servicer shall deliver to the Purchaser, the Manager, the Collateral Agent,
the SLN Placement Agents and the Swap Counterparty, on or before June 30 of each
year beginning 2004, an Officer’s Certificate, stating that (i) a review of the
activities of the Servicer during the preceding calendar year and of performance
under this Purchase Agreement has been made under such officer’s supervision,
and (ii) to the best of such officer’s knowledge, based on such review, the
Servicer has fulfilled its obligations in all material respects under this
Purchase Agreement throughout such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officer and the nature and status thereof and the action being taken by the
Servicer to cure such default.

 

Section 6.5 Annual Financials, Annual Independent Public Accountants’ Servicing
Report. On or before June 30 of each year beginning 2004, the Servicer, at its
expense, shall cause a firm of internationally recognized independent public
accountants which is one of the “big four” and is a member of the American
Institute of Certified Public Accountants, to furnish a report to the Purchaser,
the Manager, the Collateral Agent, the SLN Placement Agents and the Swap
Counterparty stating that such firm has examined the Servicer’s overall
servicing operations in accordance with the minimum standards identified in the
Mortgage Bankers Association of America’s Uniform Single Attestation Program for
Mortgage Bankers (USAP), and stating such firm’s conclusions relating thereto.
None of the Collateral Agent, the Swap Counterparty or the SLN Placement Agents
shall have any duty to examine such report.

 

The Purchaser and the Seller shall keep or cause to be kept in reasonable detail
books and records of account of their assets and business and shall clearly
reflect therein the transfer of the Mortgage Loans to the Purchaser. The Company
shall furnish or cause to be furnished to the Purchaser, the Manager, the
Collateral Agent, the SLN Placement Agents and the Swap Counterparty the
following financial statements: (x) as soon as available and in any event within
ninety (90) days after the end of each fiscal year of the Company, the
consolidated, audited balance sheet of New Century Financial Corporation, and
the balance sheets of the Company, as of the end of each such fiscal year, and
the audited statements of income and

 

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changes in equity of each of the above entities, and the audited statement of
cash flows of New Century Financial Corporation (inclusive of the Company), for
such fiscal year and (y) as soon as available and in any event within forty-five
(45) days after the end of each quarter (including the fourth quarter), the
consolidated and consolidating, unaudited balance sheet of New Century Financial
Corporation (inclusive of the Company) as of the end of each quarter, and the
unaudited statements of income and changes in equity of New Century Financial
Corporation (inclusive of the Company), and the unaudited statement of cash
flows of New Century Financial Corporation (inclusive of the Company), for the
portion of the fiscal year then ended, and (z) within 45 days after the end of
each month, monthly consolidated and unaudited statements of income and changes
in equity (and, to the extent available, cash flow statements) and balance
sheets as provided in clause (y), all of which have been prepared in accordance
with GAAP and certified by such New Century Financial Corporation’s, or the
Company’s, as applicable, chief financial officer in the form of a compliance
certificate to be delivered along with the above financial statements.

 

Section 6.6 Right to Examine Servicer Records.

 

Each of the Purchaser, the Swap Counterparty, the Manager, the Collateral Agent
(or any of their agents, attorneys or representatives) (acting on its own behalf
or at the written direction of the Required Senior Noteholders) upon at least
three (3) Business Days’ prior notice, shall have the right to reasonable access
to the books, records, or other information of the Servicer, whether held by the
Servicer or by another on its behalf, with respect to or concerning this
Purchase Agreement or the Mortgage Loans owned by the Purchaser, during regular
business hours or at such other times as may be reasonable under applicable
circumstances.

 

ARTICLE 7

 

REPURCHASE OBLIGATION

 

Section 7.1 Servicer’s Repurchase Obligations.

 

Upon the earlier of the Servicer having actual knowledge of, or receipt of
notice from the Purchaser of, a breach of any representation or warranty made by
the Company, in its capacity as Servicer, as set forth in Section 3.1 hereof,
which materially and adversely affects the value of a Mortgage Loan, the
Servicer shall use its best efforts to cure and correct any such breach, and, in
the event such breach is not cured and corrected within thirty (30) days, the
Mortgage Loan shall be purchased by the Servicer at the Repurchase Price within
such thirty (30) day period, pursuant to Section 3.3 hereof.

 

Upon deposit by the Servicer of the Repurchase Price in the Collateral Account,
the Purchaser, the Custodian and the Servicer shall arrange for the reassignment
of Mortgage Loans adversely affected by such breach to the Servicer according to
the Servicer’s instructions, and the delivery to the Servicer of any documents
held by the Purchaser or the Custodian relating to the reassigned Mortgage
Loans. The Servicer shall, simultaneously with such assignment, give written
notice to the Seller, the Collateral Agent and the Swap Counterparty that such
purchase has taken place.

 

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In addition to such repurchase obligation, the Servicer shall indemnify the
Purchaser and hold it harmless against any losses, damages, transfer taxes,
penalties, fines, forfeitures, reasonable and necessary legal fees and related
costs, judgments, and other costs and expenses resulting from any claim, demand,
defense or assertion based on or grounded upon, or resulting from, a breach of
the representations and warranties of the Servicer contained in this Purchase
Agreement. The Servicer shall not be obligated under this indemnity for any
indirect or consequential damages. It is understood and agreed that the
obligations of the Servicer set forth in this Section 7.1 to cure or repurchase
a Mortgage Loan and to indemnify the Purchaser constitute the sole remedies of
the Purchaser respecting a breach of such representations and warranties.

 

ARTICLE 8

 

SERVICER TO COOPERATE

 

Section 8.1 Provision of Information.

 

During the term of this Purchase Agreement, the Servicer shall furnish to the
Purchaser, the Swap Counterparty, the Manager and the Collateral Agent (acting
on behalf of the Senior Noteholders) such periodic, special, or other reports or
information as they may reasonably request from time to time in order to
effectuate the purposes and to carry out the terms of this Purchase Agreement.
All such reports, documents or information shall be provided by and in
accordance with all reasonable instructions and directions which the Purchaser,
the Manager, the Swap Counterparty and the Collateral Agent may give.

 

The Servicer shall execute and deliver all such instruments and take all such
action as the Purchaser, the Collateral Agent (acting on its own behalf or on
behalf of the Senior Noteholders), the Custodian, the Swap Counterparty or the
SLN Placement Agents may reasonably request from time to time, in order to
effectuate the purposes and to carry out the terms of this Purchase Agreement.

 

ARTICLE 9

 

THE SERVICER

 

Section 9.1 Indemnification of Third-Party Claims.

 

The Servicer agrees to indemnify and hold harmless the Purchaser, the Manager,
the Collateral Agent and the SLN Placement Agents against any and all claims,
losses, penalties, fines, forfeitures, reasonable legal fees and related costs,
judgments, and any other costs, fees and expenses that the Purchaser, the
Manager, the Collateral Agent or the SLN Placement Agents (and any of their
officers, directors, employees and agents) may sustain in any way related to the
failure of the Servicer to perform its duties and service the Mortgage Loans in
strict compliance with the terms of this Purchase Agreement, or its gross
negligence, willful misconduct or bad faith. The Servicer shall immediately
notify the Purchaser, the Manager, the Collateral Agent and the SLN Placement
Agents if a claim is made by a third party with respect to a matter as to which
the Servicer has agreed to indemnify and hold harmless such parties

 

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under this Section 9.1, and the Servicer may assume the defense of any such
claim, and if assumed shall pay all expenses in connection therewith, including
counsel fees, and promptly pay, discharge and satisfy any judgment or decree
which may be entered against the Servicer or the Purchaser, the Manager, the
Collateral Agent or the SLN Placement Agents in respect of such claim. The
Servicer’s indemnification obligation pursuant to this Section 9.1 shall survive
the termination of this Purchase Agreement.

 

Section 9.2 Corporate Existence of the Servicer.

 

The Servicer shall keep in full effect its existence, rights and franchises as a
corporation, and shall obtain and preserve its qualification to do business as a
foreign corporation in each jurisdiction in which such qualification is or shall
be necessary to protect the validity and enforceability of this Purchase
Agreement or any of the Mortgage Loans and to perform its duties under this
Purchase Agreement.

 

Section 9.3 Limitation on Liability of Servicer and Others.

 

Neither the Servicer nor any of the directors, officers, employees or agents of
the Servicer shall be under any liability to the Purchaser for any action taken
or for refraining from the taking of any action in good faith pursuant to this
Purchase Agreement, or for errors in judgment; provided, however, that this
provision shall not protect the Servicer or any such person against any breach
of warranties or representations made herein, or failure to perform its
obligations in compliance with any standard of care set forth in this Purchase
Agreement, its own gross negligence, willful misconduct or bad faith, or any
liability which would otherwise be imposed by reason of any breach of the terms
and conditions of this Purchase Agreement. The Servicer and any director,
officer, employee or agent of the Servicer may rely in good faith on any
document which it in good faith reasonably believes to be genuine and to have
been adopted or signed by the proper authorities respecting any matters arising
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 Purchase Agreement and which
in its opinion may involve it in any expense or liability; provided, however,
that the Servicer may, with the consent of the Purchaser, undertake any such
action which it may deem necessary or desirable with respect to this Purchase
Agreement and the rights and duties of the parties hereto. In such event, the
Servicer shall be entitled to reimbursement from the Purchaser of the reasonable
legal expenses and costs of such action.

 

Section 9.4 Limitation on Resignation of Servicer.

 

The Purchaser has entered into this Purchase Agreement with the Servicer in
reliance upon the representations as to the adequacy of its servicing
facilities, plant, personnel, records and procedures, its integrity, reputation
and financial standing, and the continuance thereof. The Servicer shall not
resign from the obligations and duties hereby imposed on it as to each Mortgage
Loan except by consent of the Swap Counterparty or upon the determination that
its duties hereunder are no longer permissible under applicable law and such
incapacity cannot reasonably be cured by the Servicer. Notice of any such
determination permitting the resignation of the Servicer shall be delivered to
each Rating Agency and any such determination shall be evidenced by an Opinion
of Counsel to such effect delivered to the Purchaser which Opinion of

 

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Counsel shall be in form and substance acceptable to the Purchaser. No such
resignation shall become effective until a successor shall have assumed the
Servicer’s responsibilities and obligations hereunder in the manner provided in
Section 12.1 hereof, subject to Rating Agency Confirmation.

 

Section 9.5 Limitation on Assignment of Rights and Obligations. The Servicer
shall not assign, sell or otherwise transfer its rights, obligations, duties and
agreements hereunder (a) except as permitted by Section 4.1(b), Section 9.4 or
Section 10.1 hereof, or (b) unless consented to in writing by the Swap
Counterparty or (c) unless, in the case of a sale or other disposition by the
Servicer of all or substantially all of its servicing business, whether by
merger, consolidation, sale of assets or otherwise, the Purchaser shall have
received Rating Agency Confirmation; provided that nothing herein shall prohibit
the Servicer from assigning or otherwise transferring its right to receive any
payments (including the Servicing Fee) hereunder.

 

ARTICLE 10

 

DEFAULT

 

Section 10.1 Servicer Events of Default.

 

Each of the following shall constitute a “Servicer Event of Default” on the part
of the Servicer:

 

(a) Any failure by the Servicer to observe or perform in any material respect
any of the terms, covenants or agreements on the part of the Servicer set forth
in this Purchase Agreement, any Transfer Supplement or the Custodial Agreement
(other than those set forth in clause (g) below) which continues unremedied for
a period of sixty (60) days after the date on which the Servicer has actual
knowledge or written notice of such failure;

 

(b) Any representation, warranty, statement or certification made by the
Servicer shall prove to have been incorrect in any material respect as of the
time when made, and which continues to be incorrect in any material respect for
sixty (60) days after the date on which the Servicer has actual knowledge or
written notice;

 

(c) Any failure by the Servicer to maintain any required licenses to do business
in any jurisdiction where the Mortgaged Property is located, which failure has a
material adverse effect on the ability of the Servicer to perform its functions
under this Purchase Agreement or materially impairs the value of the Mortgage
Loans, and which continues to be unremedied for a period of sixty (60) days
after the date on which the Servicer has actual knowledge or written notice of
such failure;

 

(d) Application for the appointment of a conservator or receiver or liquidator
in any insolvency, readjustment of debt, including bankruptcy, marshalling 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 a
decree or order shall have remained in force undischarged or unstayed for a
period of sixty (60) days;

 

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(e) 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, bankruptcy or reorganization statute, make an assignment for the
benefit of its creditors, voluntarily suspend payment of its obligations or
cease its normal business operations other than in the ordinary course;

 

(f) The Company or any Affiliate thereof enters into a consent agreement or
otherwise agrees in writing with any federal or state regulatory agency or
authority to restrict its activities, if the default of such agreement by the
Company or any Affiliate thereof entitles such applicable federal or state
agency to place the Company in receivership or conservatorship;

 

(g) The failure on the part of the Servicer to make (x) any Monthly Advance
required by it under this Purchase Agreement on or before the date such advance
is required to be made or (y) any other payment or deposit required by it under
this Purchase Agreement and such failure continues unremedied for a period of
three (3) Business Days after the date on which the Servicer has actual
knowledge or written notice of such failure;

 

(h) on the last Business Day of any month, the aggregate of all Delinquent Loans
is more than five percent (5%) of the aggregate of all non-prime home mortgage
loans serviced by the Servicer on such date which would be “Delinquent Loans” as
defined herein were they Mortgage Loans;

 

(i) on the last Business Day of any month, the aggregate of all Defaulted Loans
is more than two percent (2%) of the aggregate of all non-prime home mortgage
loans serviced by the Servicer on such date which would be “Defaulted Loans” as
defined herein were they Mortgage Loans.

 

At any time during the continuance of an event described in clauses (a) through
(c) and (g) through (i) above, the Purchaser may, and shall (x) at the written
request of the Required Senior Noteholders or the Swap Counterparty, or (y) on
the occurrence and during the continuance of any of the events listed in (d)
through (f) above, and during any other Distressed Termination Event, terminate
all of the rights and obligations of the Servicer under this Purchase Agreement
and in and to the Mortgage Loans and the proceeds thereof other than unpaid
Servicing Fees, Servicing Advances and Monthly Advances. Notice of such
termination shall be given to the Collateral Agent, the Manager, the Custodian,
the Swap Counterparty, each SLN Placement Agent and the Rating Agencies. Upon
receipt by the Servicer of such written notice, all authority and power of the
Servicer under this Purchase Agreement, whether with respect to the Mortgage
Loans or otherwise, shall pass to and be vested in the successor appointed
pursuant to Section 12.1 hereof. Upon written request from the Purchaser, the
Servicer shall prepare, execute and deliver to the successor entity designated
by the Purchaser any and all documents and other instruments, place in such
successor’s possession all Servicing Files, and do or cause to be done all other
acts or things necessary or appropriate to effect the purposes of such notice of
termination, including but not limited to the transfer and endorsement or
assignment of the Mortgage Loans and related documents, at the Servicer’s sole
expense. The Servicer shall cooperate with such successor in effecting the
termination of the Servicer’s responsibilities and

 

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rights hereunder, including without limitation, the transfer to such successor
for administration by it of all cash amounts which shall at the time be credited
by the Servicer to any Collection Account thereafter received with respect to
the Mortgage Loans.

 

Section 10.2 Waiver of Defaults.

 

With the consent of the Required Senior Noteholders and the Swap Counterparty,
the Purchaser, by written notice to the Collateral Agent, may waive any default
by the Servicer in the performance of its obligations hereunder and its
consequences. Upon any waiver of a past default, such default shall cease to
exist, and any event of default arising therefrom shall be deemed to have been
remedied for every purpose of this Purchase Agreement. No such waiver shall
extend to any subsequent or other default or impair any right consequent thereon
except to the extent expressly so waived. Notice of any such waiver shall be
given to each Rating Agency.

 

ARTICLE 11

 

TERMINATION

 

Section 11.1 Termination of Agreement.

 

This Purchase Agreement shall terminate upon (x) the final payment, other
liquidation (or any advance with respect thereto) or sale of the last Mortgage
Loan held by the Purchaser hereunder and (y) the payment in full of the Notes.

 

Section 11.2 Termination of Purchase Obligations.

 

Each of the following shall constitute a termination event under this Purchase
Agreement (each, a “Termination Event”):

 

(a) Any representation, warranty, statement, or certification made by the Seller
(excluding any representations or warranties made pursuant to Section 3.2
hereof) in any Program Document shall prove to have been incorrect in any
material respect as of the time when made, and which continues to be incorrect
in any material respect for a period of thirty (30) days after written notice;

 

(b) The failure on the part of the Seller to observe or perform in any material
respect any of the material terms, covenants or agreements of the Seller
contained in the Program Documents (other than terms, covenants or agreements
specifically referred to elsewhere in this Section 11.2) which continues
unremedied for a period of thirty (30) days after written notice;

 

(c) Any Servicer Event of Default has occurred and is continuing after giving
effect to any applicable grace period;

 

(d) An Event of Bankruptcy with respect to the Purchaser, the Seller, NC Capital
Corporation or New Century Financial Corporation;

 

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(e)  The Company or New Century Financial Corporation shall fail to pay (after
demand, if required, and expiration of any applicable grace period) any of its
debt obligations in an aggregate amount in excess of $20,000,000 resulting in
acceleration of such debt;

 

(f)  [reserved];

 

(g)  Non-compliance with the Portfolio Criteria shall continue for a period of
ten (10) days, or non-compliance with the Wet Funded Loan Limitation shall
continue for a period of ten (10) days;

 

(h)  Non-compliance with the Portfolio Aging Limitations, and such
non-compliance shall continue for a period of ten (10) days;

 

(i)  The Total Return Swap shall cease, for any reason (other than those
described in clause (o) below), to be in full force and effect in accordance
with its terms;

 

(j)  A Security Agreement Event of Default shall have been declared by the
Controlling Class and shall be continuing or an automatic Security Agreement
Event of Default shall have occurred and be continuing;

 

(k)  Funds on deposit in (i) the Reserve Fund shall be more than $200,000 below
the Required Reserve Fund Amount for three (3) Business Days or more; or (ii)
the Reserve Fund shall be less than the Required Reserve Fund Amount by less
than $200,000 for more than one (1) Business Day after the Payment Date next
following the date on which the funds on deposit in the Reserve Fund fell below
the Required Reserve Fund Amount; or (iii) the Market Value Reserve Account
shall be more than $200,000 below the Market Value Requirement for three (3)
Business Days or more (except where one or more Market Value Event Notices is
the subject of a diligent and good faith dispute as contemplated by Section
6.07(b) of the Security Agreement);

 

(l)  A Financial Covenant Event of Default shall have occurred and be
continuing;

 

(m)  The failure of the Purchaser to maintain an agreement (in substantially the
form attached hereto as Exhibit B) with a Rated Bidder to the effect that such
Rated Bidder agrees to submit a binding bid for all non-Delinquent Loans and
non-Defaulted Loans in a Termination Event Auction and, in the case of a
withdrawal or reduction of the rating assigned to the Rated Bidder below “P-1”
by Moody’s, such failure continues for a period of thirty (30) days or more;

 

(n)  One (1) or more Swap Counterparties fail to agree to any extension of any
Total Return Swap, and a replacement Swap Counterparty or Swap Counterparties
shall not have been obtained at least one (1) year prior to the scheduled
termination date in a maximum notional amount at least equal to the lesser of
(x) the maximum notional amount of the Total Return Swap or Total Return Swaps
represented by the non-extending Swap Counterparty or Swap Counterparties or (y)
if the Program Size has been

 

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modified, an amount equal to (i) the then-current Program Size less (ii) the
maximum notional amount of all effective (as of such scheduled termination date)
Total Return Swaps;

 

(o)  (i) with respect to the Purchaser as the sole Defaulting Party or sole
Affected Party (as defined in the Total Return Swap), a Total Return Swap
Termination Event or a Total Return Swap Event of Default has occurred and is
continuing, or (ii) with respect to the Swap Counterparty as the sole Defaulting
Party or sole Affected Party (as defined in the Total Return Swap), a Total
Return Swap Termination Event or a Total Return Swap Event of Default has
occurred and is continuing;

 

(p)  [reserved];

 

(q)  The Seller or the Servicer shall fail to comply with its repurchase and
sale obligations under Sections 3.3, 4.3 or 6.2 respectively, provided that, any
Mortgage Loan due for repurchase or sale pursuant to Sections 3.3, 4.3 or 6.2
may remain unsold or not repurchased (as the case may be) for thirty (30) days
following the date on which such Mortgage Loan was due for repurchase or within
which such sale was to be sought pursuant to Sections 3.3, 4.3 or 6.2, provided
further, that the aggregate Outstanding Purchase Price of all Mortgage Loans
unsold or not repurchased pursuant to the foregoing proviso shall not be greater
than $3,000,000; or

 

(r)  [reserved];

 

provided, however, that at any time during the continuance of an event described
in clauses (a) through (c), or (o)(ii), the Purchaser may, and shall at the
written request of the Required Senior Noteholders or (except in the case of
(o)(ii)) the Swap Counterparty, notify the Seller that the commitment of the
Purchaser to purchase Mortgage Loans from the Seller shall terminate. Upon the
occurrence of a Termination Event described in clauses (d) through (r) (other
than (o)(ii)), the Purchaser shall notify the Seller that the commitment of the
Purchaser to purchase Mortgage Loans from the Seller shall terminate. Upon the
declaration of a Termination Event by the Purchaser or the occurrence of an
automatic Termination Event, the Purchaser will no longer be permitted to
purchase additional Mortgage Loans and principal collections on Mortgage Loans,
proceeds of sales of Mortgage Loans and amounts received from the Swap
Counterparty will be retained under the Security Agreement and used to pay the
outstanding obligations of the Purchaser pursuant to the terms thereof. If a
Termination Event described in clauses (d), (g), (h), (k), (l), (m), (o)(i) or
(q) above occurs, or a Security Agreement Event of Default described in clause
(f), (m), (n), or (p) of Section 7.01 of the Security Agreement occurs, the
Servicer shall use its best efforts to sell all Mortgage Loans within thirty
(30) days of the date on which such Termination Event or Security Agreement
Event of Default occurred. In the event that all Mortgage Loans have not been so
sold by such thirtieth (30th) day, the Collateral Agent shall hold an auction (a
“Termination Event Auction”) of the remaining Mortgage Loans for settlement not
later than the forty-fifth (45th) day following the date on which such
Termination Event or Security Agreement Event of Default occurred. The
Collateral Agent shall notify potential bidders of the Termination Event
Auction, including one bidder obligated to make a bid on non-Delinquent Loans
and non-Defaulted Loans in any such auction; provided, however, that such bidder
shall have a “P-1” rating from Moody’s (the “Rated Bidder”). During the

 

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Termination Event Auction, the Collateral Agent shall promptly notify the Swap
Counterparty, or if there are multiple Swap Counterparties, such person as the
Swap Counterparties shall designate as the Swap Counterparty representative (the
Swap Counterparty or such designated person, the “Swap Counterparty
Representative”) of the highest bid price obtained in the Termination Event
Auction for each such Mortgage Loan and the Swap Counterparty Representative
shall have up to two (2) Business Days from the time of notification (but in no
event beyond the forty-fifth (45th) day referred to above) to elect to purchase
such Mortgage Loans at a price equal to such highest bid price but in no event
less than the amount of the Outstanding Purchase Price of such Mortgage Loans
(plus accrued interest thereon) (the “Purchase Price”). If the Swap Counterparty
Representative elects to purchase such Mortgage Loans within such two (2)
Business Day time period, the Swap Counterparty Representative shall pay the
Purchase Price for such Mortgage Loans within two (2) Business Days of the date
of such election (but in no event beyond the forty-fifth (45th) day referred to
above). If the Swap Counterparty Representative fails to pay such Purchase Price
or fails to affirmatively elect to purchase such Mortgage Loans, in either case,
within the applicable time period referred to above, the Collateral Agent shall
have the right to sell such Mortgage Loans to the highest bidder. If any
Mortgage Loans remain unsold at the end of the Termination Event Auction, every
such Mortgage Loan shall be purchased by the Swap Counterparty at a price equal
to the Market Value of such Mortgage Loans on a date in no event beyond the
forty-fifth (45th) day referred to above, provided, however, that such funds,
together with funds payable by the Swap Counterparty under the Total Return
Swap, shall be available in any event (x) in an amount not less than the
Outstanding Purchase Price of the Mortgage Loans acquired by the Swap
Counterparty pursuant to this sentence, and (y) no later than the Final Maturity
of any outstanding Extended Notes.

 

Section 11.3  Termination of Servicing With Respect to Any Mortgage Loan.

 

The servicing of any Mortgage Loan in accordance with the terms of this Purchase
Agreement shall terminate upon the occurrence of the following: (i) the receipt
into the Collateral Account of the proceeds of sale of such Mortgage Loan or the
Repurchase Price of such Mortgage Loan or the receipt into the Collateral
Account of the Principal Prepayment in full of such Mortgage Loan or (ii) the
effectiveness of the termination of the Servicer pursuant to Section 12.1
hereof. No termination of the Servicer pursuant to Section 12.1 hereof shall
become effective until a successor shall have assumed the Servicer’s
responsibilities and obligations hereunder in the manner provided in Section
12.1.

 

Upon written request from the Purchaser, the Servicer shall deliver all
Servicing Files and other documents relating to the Mortgage Loans held by it
hereunder to the successor servicer, prepare, execute and deliver to the
successor servicer designated by the Purchaser any and all documents and other
instruments, and do or cause to be done all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, including but
not limited to the transfer and endorsement or assignment of the Mortgage Loans
and related documents, at the Servicer’s sole expense. The Servicer shall
cooperate with such successor in effecting the termination of the Servicer’s
responsibilities and rights hereunder, including without limitation, the
transfer to such successor for administration by it of all cash amounts

 

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which shall at the time be credited by the Servicer to any Collection Account or
thereafter received with respect to the Mortgage Loans.

 

ARTICLE 12

 

MISCELLANEOUS PROVISIONS

 

Section 12.1  Successor to Servicer.

 

Prior to termination of the Servicer’s responsibilities and duties under this
Purchase Agreement pursuant to Section 9.4 or 10.1 hereof, the Purchaser shall
appoint the Back-up Servicer as a successor servicer which shall succeed to all
rights and assume all of the responsibilities, duties and liabilities of the
Servicer under this Purchase Agreement prior to the termination of the
Servicer’s responsibilities, duties and liabilities under this Purchase
Agreement. In the event that the Servicer’s duties, responsibilities and
liabilities under this Purchase Agreement should be terminated pursuant to
Section 9.4, 9.5(b) or (c) or 10.1 hereof, the Servicer shall discharge such
duties, responsibilities and liabilities during the period from the date it
acquires knowledge of such termination until the effective date thereof with the
degree of diligence and prudence which it is obligated to exercise under this
Purchase Agreement and shall take no action whatsoever that might impair or
prejudice the rights or financial condition of its successor. The resignation or
removal of, or assignment by, the Servicer pursuant to Section 9.4, 9.5(b) or
(c) or 10.1 hereof shall not become effective until (i) in the case of a
resignation or removal pursuant to Section 9.4 or 10.1 hereof, the Back-up
Servicer appointed by the Purchaser pursuant to this Section 12.1 shall have
accepted its appointment as provided in the next paragraph of this Section 12.1,
(ii) in the case of an assignment by the Servicer pursuant to Section 9.5(b) or
(c) hereof, the assignee accepts its appointment as Servicer as provided in the
next paragraph of this Section 12.1, and (iii) in all cases, notice thereof
shall have been given to the Rating Agencies and the Swap Counterparty and the
Purchaser shall have received Rating Agency Confirmation, and such resignation,
removal or assignment shall in no event relieve the Servicer of the
representations and warranties made pursuant to Section 3.1 hereof and the
remedies available to the Purchaser under Sections 6.2 or 7.1 hereof, it being
understood and agreed that the provisions of such Sections 3.1, 6.2 and 7.1
shall be applicable to the Servicer notwithstanding any such resignation or
removal of, or assignment by, the Servicer, or the termination of this Purchase
Agreement.

 

Any successor to the Servicer permitted hereunder shall execute, acknowledge and
deliver to the Servicer and the Purchaser an instrument accepting its
appointment as Servicer, wherein the successor shall make the representations
and warranties set forth in Section 3.1 hereof, whereupon such successor shall
become fully vested with all the rights, powers, duties, responsibilities,
obligations and liabilities of the Servicer, with like effect as if originally
named as a party to this Purchase Agreement. Any termination or resignation of
the Servicer or termination of this Purchase Agreement pursuant to Section 9.4,
9.5(b) or (c), 10.1 or 11.1 hereof shall not affect any claims that the
Purchaser may have against the Servicer arising out of the Servicer’s actions or
failure to act prior to any such termination or resignation.

 

The Servicer shall deliver promptly to the successor servicer the funds in any
Collection Account and all Servicing Files and related documents and statements
held by it

 

62

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hereunder and the Servicer shall account for all funds and shall execute and
deliver such instruments and do such other things as may reasonably be required
to more fully and definitively vest in the successor all such rights, powers,
duties, responsibilities, obligations and liabilities of the Servicer.

 

Section 12.2  Amendment.

 

This Purchase Agreement may only be amended with the written consent of the
Purchaser, the Seller, the Swap Counterparty, and the Servicer, and with Rating
Agency Confirmation. The costs and expenses associated with any such amendment
shall be borne by the party requesting the amendment.

 

Section 12.3  Governing Law.

 

THIS PURCHASE AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

 

Section 12.4  Duration of Agreement.

 

This Purchase Agreement shall continue in existence and effect until terminated
as provided in Section 11.1 hereof.

 

Section 12.5  Notices.

 

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

 

(i)  if to the Company:

 

New Century Mortgage Corporation

18400 Von Karman, Suite 1000

Irvine, CA 92616

 

Attn: Kevin Cloyd (business contact)

General Counsel (legal contact)

Phone: (949) 440-7030

Fax: (949) 440-7033

 

or such other address in each case as may hereafter be furnished to the
Purchaser in writing;

 

(ii)  if to the Purchaser:

 

Von Karman Funding LLC

C/O New Century Mortgage Corporation, as Manager

 

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18400 Von Karman, Suite 1000

Irvine, CA 92616

 

Attn: Kevin Cloyd (business contact)

General Counsel (legal contact)

Phone: (949) 440-7030

Fax: (949) 440-7033

 

Section 12.6  Severability of Provisions.

 

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

 

Section 12.7  Relationship of Parties.

 

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

 

Section 12.8  Execution; Successors and Assigns.

 

This Purchase Agreement may be executed in one (1) 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 (1) agreement. This Purchase Agreement shall inure to the benefit
of and be binding upon the Seller, the Servicer and the Purchaser and their
respective successors and permitted assigns; provided, however, that, except for
the assignment set forth in Article V of the Security Agreement, the rights of
the Purchaser to indemnity from the Seller and the Servicer pursuant to Sections
3.3 and 7.1 hereof are not assignable and shall inure only to the benefit of the
Purchaser and to no other Person.

 

Section 12.9  Recordation of Assignments of Mortgage.

 

To the extent permitted by applicable law, each of the Assignments of Mortgage
is subject to recordation in all appropriate public offices for real property
records in all the counties or other comparable jurisdictions in which any or
all of the Mortgaged Properties are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected at the
Purchaser’s expense if requested by the Purchaser after the occurrence and
during the continuation of a Termination Event or at such other time as the
Purchaser deems necessary or prudent in its reasonable business judgment in
order to preserve or protect the interests of the Purchaser in any Mortgage
Loan.

 

Section 12.10  Assignment by Purchaser.

 

The Purchaser shall have the right to assign its interest under this Purchase
Agreement to the Collateral Agent for the benefit of the Secured Parties.

 

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Section 12.11  Non-Petition Agreement.

 

Notwithstanding any prior termination of this Purchase Agreement, the Company
covenants and agrees that it shall not, prior to the date which is one year and
one day (or if longer, the applicable preference period then in effect) after
the payment in full of the Notes or rated obligations of the Purchaser,
acquiesce, petition or otherwise, directly or indirectly, invoke or cause the
Purchaser to invoke the process of any governmental authority for the purpose of
commencing or sustaining a case against the Purchaser under any federal or state
bankruptcy, insolvency or similar law or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Purchaser or any substantial part of its property or ordering the winding up or
liquidation of the affairs of the Purchaser. This Section 12.11 will survive the
termination of this Purchase Agreement.

 

Section 12.12  Waiver of Offset.

 

The Servicer agrees to deliver to the Purchaser all amounts required by this
Purchase Agreement to be delivered by the Servicer to the Purchaser free and
clear of any offset, counterclaim or other deduction on account of, or in
respect of, any obligation of the Purchaser to the Servicer hereunder.

 

Section 12.13  Limited Recourse.

 

The Servicer agrees that the obligations of the Purchaser to the Servicer under
this Purchase Agreement are limited recourse obligations of the Purchaser
payable solely from the assets of the Purchaser available for such purposes
under the Security Agreement and that, upon application of all assets of the
Purchaser available under the Security Agreement for such purposes, the Servicer
shall have no recourse to the Purchaser for any obligations of the Purchaser to
the Servicer to the extent such application does not provide for full
satisfaction and payment of such obligation. In any event, no such obligation of
the Purchaser to the Seller under this Purchase Agreement shall be a claim under
Section 101 of the Bankruptcy Code. This Section 12.13 will survive the
termination of this Purchase Agreement.

 

Section 12.14  Third Party Beneficiary.

 

The parties hereto agree that the Swap Counterparty shall be an express third
party beneficiary of this Purchase Agreement, and entitled to enforce any rights
granted to it hereunder.

 

ARTICLE 13

[RESERVED]

 

ARTICLE 14

 

ASSIGNMENT

 

Section 14.1 Assignment.  Notwithstanding anything to the contrary contained in
this Purchase Agreement, the Purchaser hereby assigns, conveys, transfers,
delivers and sets over

 

65

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unto the Collateral Agent for the benefit of the Secured Parties, all of its
right, title and interest in, to and under, whether now owned or existing, or
hereafter acquired, this Purchase Agreement. The Purchaser acknowledges the
security interest in the Mortgage Loans of the Collateral Agent as
representative secured party for the Purchaser and the Persons to whom Purchaser
owes the obligations secured by such Mortgage Loans.

 

The Purchaser and the Seller shall each treat the Collateral Agent as the
Purchaser under this Purchase Agreement and each consent to such assignment and
acknowledge that the Collateral Agent shall enjoy the Purchaser’s rights under
this Purchase Agreement pursuant to the provisions of this Section 14.1. Without
limiting the generality of the foregoing, the Purchaser and the Seller shall
each report to and correspond and communicate with the Collateral Agent and in
all other regards treat the Collateral Agent as the purchaser hereunder with
respect to the Mortgage Loans. The Collateral Agent shall have all rights of the
Purchaser to enforce the covenants and conditions set forth in this Purchase
Agreement with respect to the Mortgage Loans, and the Purchaser and the Seller,
respectively, shall each follow the instructions of the Collateral Agent under
this Purchase Agreement. The Collateral Agent shall have the right to give any
waivers or consents required or allowed under this Purchase Agreement, and such
waivers and consents shall be binding upon the Purchaser and any party for whom
the Collateral Agent acts as representative secured party as if the Purchaser or
such party had given the same. All amounts due the Purchaser under this Purchase
Agreement shall be remitted to the Collateral Agent in accordance with the
Collateral Agent’s instructions and in accordance with this Purchase Agreement.

 

ARTICLE 15

 

COMMITMENT FEE

 

Section 15.1 Commitment Fee.  In connection with the execution of this Purchase
Agreement, and the commitment of the Purchaser to purchase Mortgage Loans in an
amount equal to the then-current Program Size, the Seller agrees to pay, prior
to the initial issuance of any Secured Liquidity Notes, to the Purchaser a
Commitment Fee. The Commitment Fee may be increased in connection with an
increase in the Outstanding Program Amount from time to time. In connection with
any amendment, modification or supplement to this Purchase Agreement or any
Program Document, the Purchaser may condition such amendment, modification or
supplement upon the payment of any additional Commitment Fee in an amount to be
agreed upon at the time of such amendment, modification or supplement.

 

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IN WITNESS WHEREOF, the parties hereto have caused their names to be signed
hereto by their respective officers thereunto duly authorized as of the day and
year first above written.

 

NEW CENTURY MORTGAGE CORPORATION,     as Seller and as Servicer By:  
/s/    PATRICK FLANAGAN          

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

   

Name:  Patrick Flanagan

   

Title:    President

VON KARMAN FUNDING LLC,     as Purchaser By:  NEW CENTURY MORTGAGE CORPORATION,
    as Manager By:   /s/    PATRICK FLANAGAN          

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

   

Name:  Patrick Flanagan

   

Title:    President

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

The Swap Counterparty hereby acknowledges and agrees to its obligations set
forth in (x) the second paragraph of Section 4.3, and (y) the last sentence of
Section 11.2 of this Purchase Agreement:

 

CITIBANK, N.A.,     as Swap Counterparty By:   /s/    STEVE INCONTRO          

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

   

Name:  Steve Incontro

   

Title:    Director

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

EXHIBIT A

 

TRANSFER SUPPLEMENT

 

[date]

 

Von Karman Funding LLC

 

 

Purchase Terms Letter

 

Ladies and Gentlemen:

 

New Century Mortgage Corporation (the “Seller”) and Von Karman Funding LLC (the
“Purchaser”) herewith confirm the terms and provisions of the Mortgage Loan
Purchase and Servicing Agreement (the “Purchase Agreement”) entered into on
September 5, 2003 pursuant to which New Century Mortgage Corporation and the
Purchaser agreed upon the terms under which the Seller would from time to time
sell non-prime loans to the Purchaser. In consideration of the promises and the
mutual agreements herein and therein set forth, the Seller and the Purchaser
hereby agree to the terms and provisions of the sale of the non-prime loans
described in the Mortgage Loan Schedule attached hereto as Exhibit I, as set
forth below and as described in more detail in the Purchase Agreement. Upon
execution of this Transfer Supplement by the Seller and the Purchaser and
receipt of the Initial Purchase Price therefor, the Seller hereby sells,
assigns, transfers, sets over and conveys to the Purchaser all right, title and
interest of the Seller in, to and under each non-prime loan identified on the
attached Mortgage Loan Schedule (collectively, the “Mortgage Loans”). It is
intended that the transfer, assignment and conveyance herein contemplated
constitute a sale of the Mortgage Loans, conveying good title thereto free and
clear of any liens, by the Seller to the Purchaser and that the Mortgage Loans
not be part of the Seller’s estate in the event of insolvency. In the event that
the Mortgage Loans are held to be property of the Seller or if for any other
reason this Transfer Supplement is held or deemed not to absolutely sell and
assign the Mortgage Loans, the parties intend that the Seller shall be deemed to
have granted, and does hereby grant, to the Purchaser a valid security interest,
free and clear of any lien, claim or interest of any other Person, in the
Mortgage Loans and all Assigned Collateral (as defined in the Security
Agreement) related thereto now existing or hereafter arising for the purpose of
securing the rights of the Purchaser under the Purchase Agreement, and that the
Purchase Agreement and this Transfer Supplement shall each constitute a security
agreement under applicable law.

 

  (i) Closing Date:    The Initial Purchase Price shall be paid by the Purchaser
to the Seller in immediately available funds on such Closing Date.

 

  (ii) Initial Purchase Price:    The Initial Purchase Price for the Mortgage
Loans shall be $            .

 

A-1

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

  (iii) The Mortgage Loans:    The Mortgage Loans have the characteristics set
forth on the Mortgage Loan Schedule, set forth as Exhibit I attached hereto.

 

  (iv) Representations and Warranties:    Each representation and warranty of
the Seller set forth in Sections 3.1 and 3.2 of the Purchase Agreement will be
true and correct on the Closing Date as they relate to the Mortgage Loans.

 

  (v) Terms:    All references herein to the Mortgage Loans shall be deemed to
refer only to the Mortgage Loans described in the Mortgage Loan Schedule
attached hereto. Capitalized terms used herein but not otherwise defined herein
shall have the meanings ascribed to such terms in the Purchase Agreement.

 

  (vi) Governing Law:    This Transfer Supplement will be governed by the law of
the State of New York.

 

A-2

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

Kindly acknowledge your agreement and consent to the terms of this letter by
signing and returning to us the enclosed duplicate copy hereof.

 

 

Very truly yours,   New Century Mortgage Corporation, as Seller   By:      

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

   

Name:

Title:

 

Date:      

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

ACCEPTED AND AGREED: Von Karman Funding LLC By:   New Century Mortgage
Corporation,
as Manager By:      

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

   

Name:

Title:

 

A-3

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

EXHIBIT I TO TRANSFER SUPPLEMENT

 

Mortgage Loan Schedule

 

(1) identifying number for the Mortgage Loan:

 

(2) Mortgagor’s name:

 

(3) street address of the Mortgaged Property including the state code:

 

(4) code indicating whether the Mortgaged Property is a one family residence, a
2-4 family residence, an individual condominium unit or townhouse, an individual
unit in a planned unit development, or a unit of manufactured housing treated as
real estate under applicable state law:

 

(5) months to maturity from the Closing Date based on the amortization schedule
for such Mortgage Loan:

 

(6) Loan-to-Value Ratio:

 

(7) Mortgage Interest Rate:

 

(8) stated maturity date:

 

(9) amount of Monthly Payment:

 

(10) original principal balance:

 

(11) payment type (fixed rate or adjustable rate):

 

(12) purchase price:

 

(13) Closing Date:

 

(14) first-priority or second-priority security interest:

 

(15) MERS number, if applicable:

 

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

EXHIBIT B

 

[RATED BIDDER]

 

[ADDRESS]

 

[            ], 200_

 

Von Karman Funding LLC

18400 Von Karman, Suite 1000

Irvine, CA 92616

Attn: Kevin Cloyd (business contact)

  General Counsel (legal contact)

 

Deutsche Bank AG, New York Branch

60 Wall Street

MS NYC 60-2606

New York, NY 10005

Attention: Commercial Paper

 

Dear Sirs:

 

Reference is made to the (i) Mortgage Loan Purchase and Servicing Agreement,
dated as of September 5, 2003 (the “Purchase Agreement”), among New Century
Mortgage Corporation, as Seller and Servicer and Von Karman Funding LLC, as
purchaser (the “Purchaser”) and (ii) Security Agreement, dated as of September
5, 2003 (the “Security Agreement”), between the Purchaser and Deutsche Bank
Trust Company Americas, as Collateral Agent, each as may be amended, modified or
supplemented. Capitalized terms used and not defined herein shall have the
meanings assigned to such terms in the Purchase Agreement and the Security
Agreement.

 

Pursuant to Section 11.2 of the Purchase Agreement, if a Termination Event
described in clauses (d), (g), (h), (k), (l), (m), (o)(i) or (q) of Section 11.2
of the Purchase Agreement occurs, or a Security Agreement Event of Default
described in clause (f), (m), (n), or (p) of Section 7.01 of the Security
Agreement occurs, the Servicer is obligated to use its best efforts to sell all
Mortgage Loans within thirty (30) days of the date on which such Termination
Event or Security Agreement Event of Default occurred. In the event that all
Mortgage Loans have not been so sold by such thirtieth (30th) day, the
Collateral Agent shall hold an auction (a “Termination Event Auction”) of the
remaining Mortgage Loans for settlement not later than the forty-fifth (45th)
day following the date on which such Termination Event or Security Agreement
Event of Default occurred (the “Final Settlement Date”). Additionally, pursuant
to Section 4.1 of the Purchase Agreement, in the event the principal of any
Notes becomes due and payable (a “Repayment Event”), whether pursuant to the
terms thereof or by the occurrence of a Security Agreement Event of Default or
optional repurchase, maturity or otherwise, the Servicer is required to arrange
for the sale of Mortgage Loans at such times and in such manner so that the
proceeds of the sale, together with amounts received by the Purchaser in
connection with the

 

B-1

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Total Return Swap, are available to pay amounts due and owing on such Notes on
the dates the Notes are required to be repaid (each, a “Repayment Date”).

 

In connection with any such Termination Event Auction or Repayment Event, [RATED
BIDDER] (the “Bank”), the Servicer, the Collateral Agent and the Purchaser agree
as follows:

 

(a)    With respect to the Termination Event Auction:

 

(i)    the Bank shall participate in a Termination Event Auction and agrees to
make a binding bid (the “Bid”) for all Mortgage Loans which, as of the auction
date, are non-Delinquent Loans and non-Defaulted Loans. The amount of the Bid
shall be determined in the sole discretion of the Bank and such Bid shall remain
in effect until the Final Settlement Date; and

 

(ii)    if the Collateral Agent accepts the Bid, the Collateral Agent shall
notify the Bank and the Purchaser of such acceptance and the principal balance
of the Mortgage Loans to be purchased by the Bank (which amount may be all or a
portion of the principal balance of the Mortgage Loans) in writing not later
than two (2) Business Days prior to the Final Settlement Date. Any such purchase
of Mortgage Loans by the Bank shall be settled on or prior to the Final
Settlement Date.

 

(b) With respect to any Repayment Event, if requested by the Collateral Agent:

 

(i)    the Bank agrees to make a Bid for the principal balance of all Mortgage
Loans specified by the Collateral Agent which, as of the bid date, are
non-Delinquent Loans and non-Defaulted Loans. The amount of the Bid shall be
determined in the sole discretion of the Bank and such Bid shall remain in
effect until such Repayment Date; and

 

(ii)    if the Collateral Agent accepts the Bid, the Collateral Agent shall
notify the Bank and the Purchaser of such acceptance and the principal balance
of Mortgage Loans to be purchased by the Bank (which amount may be all or a
portion of the principal balance of the Mortgage Loans) in writing on or prior
to such Repayment Date. Any such purchase of Mortgage Loans by the Bank shall be
settled on or prior to such Repayment Date.

 

(c)    If the Bank’s rating assigned by any Rating Agency is either downgraded
or withdrawn from the required level of a “P-1” rating from Moody’s, the Bank
shall give notice of such downgrade or withdrawal to the Purchaser within three
days of notice thereof. The Bank shall use its best efforts to assist the
Purchaser in finding a replacement rated bidder to assume the Bank’s obligations
under this agreement.

 

This agreement shall remain in full force and effect until all the Notes have
been paid in full. This agreement and the Bank’s rights and obligations
hereunder may not be

 

B-2

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assigned or otherwise transferred by the Bank, whether by operation of law or
otherwise, unless (i) the Purchaser, the Swap Counterparty, the Servicer and the
Collateral Agent consent in writing to such assignment, (ii) the assignee has
expressly assumed the obligations of the Bank hereunder by written instrument in
form and substance satisfactory to the Purchaser, the Swap Counterparty, the
Servicer and the Collateral Agent and (iii) Rating Agency Confirmation with
respect to such assignment has been received by the Purchaser.

 

In consideration of the above agreement the Purchaser shall pay the Bank such
fee as shall be separately agreed between the Purchaser and the Bank.

 

This agreement shall be governed by the internal laws of the State of New York
and may be executed in counterparts.

 

 

Very truly yours, DEUTSCHE BANK AG, NEW YORK BRANCH By:      

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

   

Name:

Title:

By:      

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

   

Name:

Title:

 

 

Date::      

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

    Name Accepted And Agreed as of the date written above: Von Karman Funding
LLC By:   New Century Mortgage Corporation,
as Manager By:      

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

   

Name:

Title:

 

 

B-3

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New Century Mortgage Corporation,
    as Servicer By:      

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

   

Name:

Title:

Deutsche Bank Trust Company Americas,
    as Collateral Agent By:      

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

   

Name:

Title:

 

B-4

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EXHIBIT C

 

[RESERVED]

 

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EXHIBIT D

 

FORM OF SERVICER REPORT

 

SECTION 1: ALLOCATED EXPENSE ACCOUNT

          Balance

1. Allocated Expenses—Beginning Balance

    

2. Allocated Expenses—Current Month

    

a. Notional Amount

    

(1) Average Outstanding Purchase Price

    

(2) Average Collateral Account Balance

    

Total Notional Amount

    

b. Rating Agency Fees

    

(1) Moody’s

    

(2) S&P

    

Total Rating Agency Fees

    

c. Total Return Swap Fees

    

(1) Citibank

    

d. Indenture Trustee Fees

    

e. Depositary Fees

    

f. Servicing Fees

    

g. Unrecoverable Servicing Advances

    

h. Collateral Agent Fees

    

I. Custodian Fees

    

j. Other (Legal Fees)

    

Total Allocated Expenses

    

3. Transfer from Collection Account

    

4. Allocated Expenses—Ending Balance

    

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

SECTION 2: COLLECTION ACCOUNT REQUIREMENT

 

1. Loan Rate for the related Remittance Period (WAC        %)

 

2. Average Outstanding Purchase Price

3. Divided by 12 Months

 

4. Current Month Collection Account Requirement

 

5. Monthly interest Advances Requirement Calculation

a. Payments on account of Actual Interest on Mortgage Loans

b. Payments on account of Actual Interest on Mortgage Loans

c. Previous remittances

d. Monthly Servicer Advances of Delinquent Loans

Subtotal

 

6. Monthly Interest Advances

 

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SECTION 3: COLLECTION ACCOUNT

 

1. Collection Account—Beginning Balance

2. Interest Activity up to Monthly Remittance Date

a. Payments on account of Actual Interest on Mortgage Loans (Remittance Period)

3. Principal Activity up to Monthly Remittance Date

a. Payments on account of Actual Principal on Mortgage Loans (Remittance Period)

b. Partial of full Principal Prepayments (Remittance Period)

c. Interest Income on deposits in Collection Account

d. Other—related to the Mortgage Loans

4. Withdrawals

a. Transfer to Allocated Expense Account

b. Servicing Adjustments (NSFs, Incorrect Postings)

c. Repayment of Monthly Servicer Advances (Corp Adv)

d. Repayment of Monthly interest Advances

e. Servicing Fee Collected

f. Additional Servicing Fee Due

g. Transfer to Collection Sub-Account

h. Interim Transfers to Collateral Account (Princ payments on securitized or
repurchased Loans for Remittance Period)

I. Remittance Day Transfer to Collateral Account

Subtotal

5. Collection Account—Ending Balance

6. Interest Collections transferred to the Collateral Account

 

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SECTION 4: CALCULATION OF VON KARMAN PAYS INTEREST ON MORTGAGE LOANS

 

1. Current Month Collection Account Requirement

2. Plus Monthly Servicer Advances on Delinquent Loans

3. Less Interest Collections transferred to Collateral Account on Securitization

4. Less Interest Collections transferred to Collateral Account on Repurchases

 

5. Interest on Mortgage Loans Von Karman Pays

   

 

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EXHIBIT E

 

FORM OF MONTHLY DISPOSITION REPORT

 

Loan
ID    Date
Added    Date
Removed    First
Payment    Paid
Thru
Date    Closing    Current
Rate    Net
Rate    Current
Balance    Days
Accrued    Accrued
Int    Original
Balance    Adjustment
Type    PandI

 

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EXHIBIT F

 

FORM OF MONTHLY PORTFOLIO REPORT

 

Program Size: $2,000,000,000.00

                

Aggregate Outstanding Purchase Price of Mortgage Loans: $

           

Aggregate Outstanding Face Amount of Secured Liquidity Notes: $1

                      Portfolio
Composition    Program
Limitations

Loan Size

   Average Balance                  Maximum Balance         $ 1,000,000.00     
Minimum Balance         $ 25,000.00      > $400,000           <= 12%

Loan Coupon

   Weighted Average WAC                  Maximum Coupon                  Minimum
Coupon            

Loan Types

   Manufactured Housing           <= 1%

% of Outstanding Program Amount

   Non-Owner Occupied           <= 10%      Limited/Stated Documentation        
  <= 40%      Second-Lien           <= 5%      Cash-Out Refinance           <=
70%      Balloon           <= 2%      Wet Funded Loans           <= 35%

Geographical Distribution

   California           <= 42%

% of Outstanding Program Amount

   Single State other than California           <= 15%      Any Five States     
     <= 60%

Loan to Value Distribution

   Maximum Allowable           100%

% of Outstanding Program Amount

   >90%           <= 20%      Weighted Average LTV           <= 85%

FICO Score Distribution

   Minimum Allowable*           >= 500

% of Outstanding Program Amount

   No Score           <= 2%      < 525*           <= 12%      Second-Lien*     
     >=625      Weighted Average FICO*           >= 590

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

Aging Status

   <= 90 Days     

% of Outstanding Program Amount

   91—180 Days    <= 25%      > 180 Days    0%      Weighted Average Age     

Delinquency Status

   < 30 Days     

% of Outstanding Program Amount

   30—89 Days    <= 1%      90 Days           > 90 Days     

* EXCLUDING LOANS WITH NO FICO SCORE

    

 

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EXHIBIT G-1

 

FORM OF QUARTERLY COMPLIANCE CERTIFICATE

 

NEW CENTURY MORTGAGE CORPORATION

(in its capacity as Manager)

 

Reference is made to the Mortgage Loan Purchase and Servicing Agreement, dated
as of September 5, 2003 (the “Purchase Agreement”), among New Century Mortgage
Corporation, as Seller and Servicer and Von Karman Funding LLC, as Purchaser.
Capitalized terms used and not defined herein shall have the meanings assigned
to such terms in the Purchase Agreement.

 

Pursuant to Section 4.26(a) of the Purchase Agreement, the undersigned officer
of the Manager hereby certifies to each SLN Placement Agent and to the Swap
Counterparty that, as measured at a balance sheet date of the last day of the
fiscal quarter of New Century Financial Corporation, the Seller and the
Purchaser ended                                  , 200    :

 

(i) The Seller and the Purchaser, on a consolidated basis, had a Tangible Net
Worth of $            , which amount is not less than the greater of (1)
$230,000,000, and (2) seventy-five percent (75%) of (x) their consolidated
Tangible Net Worth as of December 31, 2002, plus, (y) ninety percent (90%) of
all capital contributions made during the fiscal year ending on December 31,
2003, plus, (z) fifty percent (50%) of positive year-to-date net income for such
Persons.

 

(ii) New Century Financial Corporation had a Tangible Net Worth of
$            , which amount is not less than the greater of (1) $250,000,000,
and (2) seventy-five percent (75%) of (w) its Tangible Net Worth as of December
31, 2002, plus, (x) ninety percent (90%) of all capital contributions made
during the fiscal year ending on December 31, 2003, plus, (y) fifty percent
(50%) of positive year-to-date net income for such Persons, minus, (z) the
dollar value of all repurchases of common stock in New Century Financial
Corporation by New Century Financial Corporation, in an amount not to exceed the
lesser of: (i) the dollar equivalent of repurchases of 1,800,000 shares (or
share equivalents in the case of stock splits/reverse splits), or (ii)
$40,000,000.

 

(iii) The Seller and the Purchaser, on a consolidated basis, had a ratio of
Total Indebtedness to Tangible Net Worth of             , which ratio is less
than 12:1.

 

(iv) New Century Financial Corporation had a ratio of Total Indebtedness to
Tangible Net Worth of             , which ratio is not greater than 12:1.

 

Annexed hereto is a spreadsheet of calculations as to the above.

 

Certified this              day of             , 200            

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  By:      

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

    Name:     Title:

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ANNEX TO QUARTERLY COMPLIANCE CERTIFICATE

 

[ATTACH SPREADSHEET OF CALCULATIONS]

 

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EXHIBIT G-2

 

FORM OF MONTHLY LIQUIDITY COMPLIANCE CERTIFICATE

 

NEW CENTURY MORTGAGE CORPORATION

(in its capacity as Manager)

 

Reference is made to the Mortgage Loan Purchase and Servicing Agreement, dated
as of September 5, 2003 (the “Purchase Agreement”), among New Century Mortgage
Corporation, as Seller and Servicer and Von Karman Funding LLC, as Purchaser.
Capitalized terms used and not defined herein shall have the meanings assigned
to such terms in the Purchase Agreement.

 

Pursuant to Section 4.26(b) of the Purchase Agreement, the undersigned officer
of the Manager hereby certifies to each SLN Placement Agent and to the Swap
Counterparty that, as measured at a balance sheet date of the last day of the
calendar month of             , 200    , the Seller, the Purchaser and New
Century Financial Corporation on a consolidated basis, had Liquidity of
$            , which amount is not less than $60,000,000.

 

Annexed hereto is a spreadsheet of calculations as to the above.

 

        Certified this              day of             , 200             By:    
         

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            Name:             Title:

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ANNEX TO MONTHLY LIQUIDITY COMPLIANCE CERTIFICATE

 

[ATTACH SPREADSHEET OF CALCULATIONS]