Exhibit 10.8

FEDERAL HOME LOAN BANK OF CHICAGO

ADVANCES, COLLATERAL PLEDGE, AND SECURITY AGREEMENT

[Insurance Companies]

[Nonstandard – RWT Financial, LLC]

THIS AGREEMENT, dated as of July 16, 2014 between the FEDERAL HOME LOAN BANK OF
CHICAGO, with its principal office located at 200 East Randolph Drive, Chicago,
Illinois 60601 (“Bank”) and RWT FINANCIAL, LLC, a Delaware limited liability
company, authorized by the Delaware Insurance Commissioner as a special purpose
captive insurance company pursuant to Certificate of Authority dated April 24,
2014 (“Member”), organized under the laws of Delaware, and having its chief
executive office at 155 North Wacker Drive, Suite 4250, Chicago, Illinois 60606.

WHEREAS, the Member desires from time to time to participate in the Bank’s
credit programs under the terms of this Agreement (as hereinafter defined) and
the Bank is authorized to make advances to the Member, subject to the provisions
of the Credit Policy (as hereinafter defined), the Federal Home Loan Bank Act,
as now and hereafter amended (the “Act”), and the regulations and guidelines of
the Federal Housing Finance Agency (or any successor thereto), as now and
hereafter in effect (collectively, the “Regulations”); and

WHEREAS, the Bank requires that advances and other obligations owed by the
Member to the Bank be secured pursuant to this Agreement, and the Member agrees
to provide the collateral security the Bank requests in accordance with this
Agreement and to otherwise comply with the requirements hereof and the Bank’s
Credit Policy.

NOW THEREFORE, the Member and Bank agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01 DEFINITIONS. As used herein, the following terms shall have the
following meanings:

(a) “Additional Collateral” means items of property other than Eligible
Collateral which are pledged by the Member and accepted by the Bank as
collateral, as it deems necessary, to fully secure and protect the Bank’s
security position on outstanding Advances or to renew an outstanding Advance in
accordance with Section 10(a)(4) of the Act (12 U.S.C. § 1430(a)(4), as amended)
and any Regulations adopted thereunder.

(b) “Advance” or “Advances” means any and all loans, overdrafts, or other
extensions of credit, including, without limitation, deposits under funding
agreements, and all Outstanding Commitments, whether now or hereafter granted by
the Bank to, on behalf of, or for the account of, the Member in accordance with
such terms and conditions as are applicable to each such transaction as set
forth in the Credit Policy (but excluding any obligations that the Bank may now
or hereafter have to honor items or transfer orders under a depository or
similar agreement between the Member and the Bank).

(c) “Affiliate” means with respect to the Member, any other person or entity
controlling or controlled by or under common control with the Member. For
purposes of this definition, “control” when used with respect to any specified
person (including the Member) means the power to direct the management and
policies of such person or entity, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; provided that, and for
the avoidance of doubt, notwithstanding the foregoing definition of “Affiliate”
none of the following shall be considered an Affiliate of the Member: (i) Acacia
CDO 5, Ltd. or Acacia CDO 5, Inc.; (ii) Acacia CDO 6,. Ltd. or Acacia CDO 6,
Inc.; (iii) Acacia CDO 7, Ltd. or Acacia CDO 7, Inc.; (iv) Acacia CDO 8, Ltd. or
Acacia CDO 8, Inc.; (v) Acacia CRE CDO 1, Ltd. or Acacia CRE CDO 1, Inc.;
(vi) Acacia CDO 9 Ltd. or Acacia CDO 9, Inc.; (vii) Acacia CDO 10, Ltd. or
Acacia CDO 10; Inc.; (viii) Acacia CDO 11, Ltd. or Acacia CDO 11, Inc.;
(ix) Acacia CDO 12, Ltd. or Acacia CDO 12, Inc.; (x) Acacia Option ARM 1 CDO,
Ltd. or Acacia Option ARM 1 CDO Corp.; or (xi) any securitization trust or
resecuritization trust established in connection with the issuance of any
mortgage-backed securities, any collateralized loan obligations, any
asset-backed commercial paper or any other asset-backed securities.

(d) “Agreement” means this Advances, Collateral Pledge, and Security Agreement,
together with any and all permitted and authorized amendments, modifications, or
restatements hereof as may be duly entered into by the parties hereto and all
documents or other agreements incorporated by reference including, but not
limited to, the Credit Policy.

(e) “Application” means a written or electronic submission (or if so specified
in the Credit Policy, may be telephonic to the Bank), in such form and submitted
in such manner as may be specified by the Bank from time to time in the Credit

 

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Policy or by notice to the Member, by which the Member requests an Advance or a
Commitment for an Advance, including, without limitation, in the case of a
deposit under a funding agreement, a placement schedule or similar addendum or
endorsement to the funding agreement.

(f) “Capital Stock” means all of the Member’s capital stock issued by the Bank
and all payments which have been or hereafter are made on account of
subscriptions to and all unpaid dividends on such capital stock.

(g) [Reserved].

(h) “Collateral” means: (1) all property, including the proceeds thereof,
heretofore assigned, transferred, or pledged to the Bank by the Member, or in
which the Member has granted the Bank a security interest, to secure Advances
and other Indebtedness and (2) all Eligible Collateral and Additional
Collateral, including the proceeds thereof, which is now or hereafter assigned,
transferred, or pledged to the Bank by the Member, or in which the Member now or
hereafter grants the Bank a security interest, pursuant to Section 3.01 hereof.

(i) “Collateral Maintenance Level” means a dollar amount of Qualifying
Collateral having a Collateral Value equal to such percentage as the Bank may
specify from time to time in its Credit Policy of the aggregate dollar amount of
(1) Indebtedness and (2) any other amounts specified by the Bank from time to
time under the Credit Policy. The Bank may increase or decrease the Collateral
Maintenance Level at any time (A) for all Members, as a result of a change in
the Credit Policy, upon fifteen (15) business days advance written notice to
Member; or (B) for Member, as a result of credit deterioration, upon three
(3) business days advance written notice.

(j) “Collateral Value” means an amount equal to such percentage of the market
value or unpaid principal balances of items of Collateral as the Bank may
specify from time to time, in its sole discretion.

(k) “Commitment” means any obligation of the Bank to make an Advance or payment
to, on behalf of, or for the account of, the Member, regardless of whether such
obligation is contingent in whole or in part, including, without limitation, on
the Bank’s obligations under letters of credit, firm commitments, guarantees, or
other arrangements intended to facilitate transactions between the Member and
third parties.

(l) [Reserved].

(m) “Confirmation of Advance” means a writing or transmission in electronic or
other form as may be determined by the Bank from time to time, by which the Bank
agrees to and confirms an Application. With respect to an open line of credit
Advance, the posting to a Member’s DID Account Statement or such similar
electronic statement shall be deemed to be receipt of a Confirmation of Advance.

(n) “Credit Policy” means, collectively, the Bank’s Member Products & Credit
Policy, its Member Products Guide, its Collateral Guidelines and such other
documents or publications as may from time to time be specified by the Bank as
supplementing the same, as each such document or publication may from time to
time be modified by the Bank in its sole discretion and communicated to the
Member.

(o) “Deposit Accounts” means the Member’s DID Account and any and all other
demand, term, time, savings or similar account maintained by the Member with the
Bank.

(p) “DID Account” means the Member’s Daily Investment Deposit Account at the
Bank.

(q) “Eligible Collateral” means Capital Stock, First Mortgage Collateral,
Securities, Deposit Accounts and Other Real Estate Related Collateral.

(r) “Event of Default” means an Event of Default as defined in Section 4.01
hereof.

(s) “First Mortgage Collateral” means Mortgage Loans (excluding participation or
other fractional interests therein), the Mortgage Notes evidencing the Mortgage
Loans, the Mortgages securing the Mortgage Loans and all general intangibles and
accounts relating to a Mortgage Loan, ancillary security agreements, policies
and certificates of insurance or guarantees, rent assignments, FHA mortgage
insurance or VA loan guarantee certificates, title insurance policies, evidences
of

 

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recordation, applications, underwriting materials, surveys, appraisals,
approvals, permits, notices, opinions of counsel, loan servicing rights, loan
servicing data, all other electronically created, stored and/or written records
or materials relating to the Mortgage Loans, the proceeds of the Mortgage Loans,
and any real property or other property obtained through foreclosure, by
realizing upon or in settlement of the Mortgage Loans and/or the Mortgages.

(t) “Indebtedness” means all indebtedness, obligations and liabilities of the
Member to the Bank arising under or pursuant to this Agreement or any other
agreements, now or hereafter outstanding, of the Member to the Bank, including,
without limitation, all Advances, Outstanding Commitments, interest, prepayment
premiums and all other obligations to pay and liabilities of the Member to the
Bank.

(u) “Law” means any law (including common law), constitution, statute, treaty,
regulation, rule, ordinance, adjudication, opinion, release, ruling, order,
injunction, writ, decree or award of any Official Body.

(v) “Mortgage Loans” means fully-disbursed whole loans evidenced by Mortgage
Notes which are secured by Mortgages that constitute a first lien on one-to-four
unit dwellings or Multi-Family Properties, and any endorsements or assignments
thereof.

(w) “Mortgage Notes” means notes, bonds, or other instruments evidencing
Mortgage Loans or any other loans or indebtedness secured by Mortgages.

(x) “Mortgages” means mortgages, deeds of trust and any other security
instruments that create a lien on real property and secure Mortgage Notes.

(y) “Multi-Family Property” means residential real property which includes five
or more dwelling units and as may be further defined in the Credit Policy.

(z) [Reserved].

(aa) “Official Body” means any federal, state, local or other government or
political subdivision or any agency, authority, bureau, central bank,
commission, department or instrumentality of either, or any court, tribunal, in
each case whether foreign or domestic, that regulates Member or Affiliate.

(bb) “Other Real Estate Related Collateral” means (i) all other loans, lines of
credit or indebtedness evidenced by Mortgage Notes, excluding First Mortgage
Collateral, but otherwise including without limitation, home equity loans, home
improvement loans, subordinate loans, mortgage warehouse lines of credit, real
estate construction loans, and other real estate related loans, which Mortgage
Notes are secured by Mortgages on commercial property, residential property or
by security interests in personal property related to real estate transactions
or financing, and (A) all Mortgage Notes or other instruments evidencing such
loans, lines of credit or indebtedness, (B) any endorsements and assignments
thereof to the Member, and (C) all ancillary security agreements, policies and
certificates of insurance or guarantees, chattel paper, electronic chattel
paper, evidences of recordation, applications, underwriting materials,
appraisals, notices, opinions of counsel, loan servicing rights, loan servicing
data, and all other electronically stored and written records or materials
relating to the loans evidenced or secured thereby, (ii) all property relating
to the Member’s management, collection, processing, accounting for, monitoring,
or servicing of loans and accounts, including, without limitation, all checks,
instruments, documents, certificates, agreements, loan accounts, payments,
chattel paper, electronic chattel paper, collections, account statements,
computer files, records, promissory notes, endorsements, assignments, and loan
servicing data, together with the rights, remedies, and powers related thereto,
and (iii) participations in or portions of First Mortgage Collateral and
participations in or portions of other real estate related collateral as set
forth in clause (i) above.

(cc) “Outstanding Commitment(s)” means, at any time, the maximum aggregate
amount that the Bank may be obligated to pay or advance under any Commitment.

(dd) “Qualifying Collateral” means Collateral other than Capital Stock that:
(1) qualifies as security for Advances under the terms and conditions of the
Credit Policy, the Act, and the Regulations and satisfies the requirements for
Qualifying Collateral that may be established by the Bank and (2) is owned by
the Member free and clear of any liens, encumbrances, or other interests other
than may be approved in writing by the Bank.

 

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(ee) “RBC Level” means the level of Risk-Based Capital as determined from time
to time in accordance with the most restrictive, as of the date of
determination, of the following: (1) state insurance law applicable to the
Member; and (2) the policies and procedures of the state insurance department
having regulatory authority over the Member, whether or not having the force or
effect of Law, which level, in the case of any of (1) or (2), requires a
response by the Member or the state insurance department having regulatory
authority over the Member.

(ff) “RBC Plan” means each comprehensive financial plan, including all
amendments and modifications thereto, filed by the Member with the state
insurance department having regulatory authority over the Member.

(gg) “RBC Report” means the report filed each year by the Member with the state
insurance department having regulatory authority over the Member, such report to
set forth a detailed calculation of the Member’s RBC Level as of the end of the
immediately preceding calendar year.

(hh) [Reserved].

(ii) “Risk-Based Capital” means that calculation, as in effect from time to
time, which shall be the most restrictive, as of each date of determination, of
the calculations utilized by the following: (1) state insurance Law applicable
to the Member; or (2) the policies and procedures of the state insurance
department having regulatory authority over the Member, whether or not having
the force or effect of Law, which calculation, in the case of any of (1) or (2),
determines, among other matters, the sufficiency of capital of the Member.

(jj) [Reserved].

(kk) “Securities” means mortgage-backed securities (including participation
certificates) issued by Federal Home Loan Mortgage Corporation or Federal
National Mortgage Association, obligations guaranteed by Government National
Mortgage Association, consolidated obligations of the Federal Home Loan Bank
System and/or obligations issued or guaranteed by the United States or an agency
thereof, privately-issued residential mortgage-backed securities, and other
securities as may be specified from time to time in the Credit Policy.

(ll) [Reserved].

(mm) [Reserved].

(nn) “Swap Transaction” means any transaction between the Member and Bank that
constitutes a “swap agreement” as that term is defined in United States
Bankruptcy Code (11 U.S.C. §101(53B) or any successor provision), as amended.

(oo) “UCC” means the Uniform Commercial Code as in effect in the State of
Illinois or any other state the laws of which are required to be applied in
connection with the perfection or priority of security interests thereunder.

ARTICLE II

ADVANCES AGREEMENT

Section 2.01 ADVANCE DOCUMENTATION.

(a) The Member may from time to time request Advances and Commitments for
Advances or renewal of an outstanding Advance by completing and submitting an
Application to the Bank. The terms of each Advance or Commitment for an Advance
shall be conclusively evidenced by this Agreement and by either (1) the Member’s
Application when such Application is executed or accepted by the Bank without
any change; (2) in the case of a telephonic Application received, completed, or
modified by the Bank, by a Confirmation of Advance generated by the Bank; or
(3) in the case of an open line of credit Advance, the Member’s DID Account
Statement. Unless otherwise agreed to by the Bank in writing, each Advance shall
be made by crediting the Member’s DID Account.

(b) The Member shall be estopped from asserting any claim or defense with
respect to the terms applicable to an Advance or a Commitment for an Advance
unless, within two (2) business days of receipt of the Bank’s Confirmation of
Advance, the Member delivers to the Bank a written notice specifying the
disputed term(s) or condition(s) of the Advance or Commitment for an Advance.
Upon the request of the Bank, the Member shall sign and deliver to the Bank a
promissory note or notes in such form as the Bank may reasonably require
evidencing any Advance.

 

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Section 2.02 REPAYMENT OF ADVANCES.

(a) The Member agrees to repay the principal amount of each Advance in
accordance with this Agreement and the terms and conditions specified in the
Application, the Confirmation of Advance and any other document evidencing such
Advance which document is executed by both the Member and the Bank, or, in the
case of an open line of credit Advance, on demand. Interest shall be paid on
each Advance at the times specified by the Bank in the Credit Policy, the
Application, the Confirmation of Advance and any other documents evidencing such
Advance and shall be charged for each day that an Advance is outstanding at the
rate applicable to each such Advance.

(b) The Member shall ensure that, on any day on which any payment is due to the
Bank with respect to an Advance or other Indebtedness, the DID Account has an
available balance in an amount at least equal to the amounts then currently due
and payable to the Bank, and the Member hereby authorizes the Bank to debit the
DID Account for any and all such amounts. In the event that the available
balance in the DID Account is insufficient to pay such due and payable amounts,
the Bank may, without notice to or request from the Member, apply any other
deposits, credits, or monies of the Member then in the possession or control of
the Bank (exclusive of any such items as are held by the Bank as bailee for a
third party) to the payment of amounts due and payable or, in the sole
discretion of the Bank, the Bank may fund an Advance to the Member in the amount
of the insufficiency, which Advance shall bear interest from the date the same
shall be made until paid at the rate in effect and being charged by the Bank
from time to time on overdrafts on daily investment deposit accounts of its
members.

(c) The Member shall pay to the Bank, immediately and without demand, interest
on any past due amount owing on any outstanding Advance (other than an Advance
made pursuant to Section 2.02(b)) or other Indebtedness at the interest rate set
forth in the Credit Policy.

(d) All payments with respect to Advances shall be applied first to any fees or
charges applicable thereto and to interest due thereon, in such order as the
Bank may determine, and then to any principal amount thereof.

Section 2.03 ADVANCES RELATED TO THIRD PARTY COMMITMENTS.

 

  (a)

(1) If an Event of Default has occurred and is continuing, the Bank may at its
option, and without notice to or request from the Member, or

 

    

(2) If the Bank reasonably and in good faith, determines that a material adverse
change of the Member’s financial condition has occurred or the Bank believes, in
good faith, that the prospect of payment or performance of any obligations or
any performance under this Agreement is materially impaired, the Bank may at its
option, and upon reasonable prior written notice to the Member,

make an Advance by crediting a special account of the Member with the Bank, such
special account to be established by the Bank at such time, in an amount equal
to the aggregate amount of any and all Outstanding Commitments that the Bank has
issued on the Member’s behalf to or for the benefit of parties other than the
Member. The Bank shall have a first priority perfected security interest in any
such special account, and amounts credited to such special account may not be
withdrawn by the Member for so long as there shall be Outstanding Commitments.
Amounts credited to such special account shall be utilized by the Bank for the
purpose of satisfying the Bank’s obligations under such third party Commitments.
When all such obligations have expired or have been satisfied, the Bank shall
disburse the balance, if any, in such special account first to the satisfaction
of any amounts then due and owing by the Member to the Bank and then to the
Member or its successors in interest. Advances made pursuant to this
Section 2.03 shall be payable on demand and shall bear interest from the date
made until paid at the rate in effect and being charged by the Bank from time to
time on overdrafts on daily investment deposit accounts of its members.

(b) The Bank shall not be obligated to honor an Outstanding Commitment to the
Member (excluding any Outstanding Commitments issued on behalf of the Member for
the benefit of third parties) if the Member’s access to advances is restricted
pursuant to § 1266.4 of the Federal Housing Finance Agency Regulations (or any
successor to such provision), an Event of Default has occurred under this
Agreement or if after giving effect to the related Advance, the Member would not
be in compliance with its Collateral Maintenance Level. The Member releases the
Bank from any and all liability in connection with such action by the Bank.

 

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Section 2.04 AMORTIZATION OF ADVANCES.

(a) If the Bank determines, in its sole discretion, that the creditworthiness of
the Member does not meet the minimum requirements of the Bank, the Bank may, or

(b) If the Bank reasonably and in good faith believes that the prospect of
payment or performance of any obligations or any performance under this
Agreement is materially impaired, the Bank may at its option, and upon five
(5) business days written notice to the Member,

require amortization by means of monthly payments of principal on all or part of
the Member’s Advances, specifying the amortization period. The Member agrees to
begin making such monthly amortization payments upon receipt of written notice
from the Bank, in such amounts as the Bank shall specify in writing, calculated
over such amortization period. The Member shall make such payments while any
amount remains unpaid on the subject Advances or until notified otherwise by the
Bank. No monthly payment shall exceed ten percent (10%) of the original
principal balance of the Advance being amortized. Unless otherwise specified by
the Bank in writing to the Member, such monthly amortization payments shall not
extend the maturity date or other scheduled payment dates applicable to the
Advance being amortized. Amortization payments required pursuant to this
Section 2.04 shall be in addition to all other required payments of principal
and interest with respect to Advances.

Section 2.05 DISCRETION OF THE BANK TO GRANT OR DENY ADVANCES. Nothing contained
herein, in the Credit Policy, or in any other documents describing or setting
forth the Bank’s credit program and credit policies shall be construed as an
agreement or Commitment on the part of the Bank to grant Advances or extend
Commitments for Advances hereunder or to enter into any other transaction, the
right and power of the Bank, in its discretion to either grant or deny any
Application or other request for an Advance or Commitment for an Advance in its
sole discretion being expressly reserved. The determination by the Bank of the
Collateral Value of a Member’s Qualifying Collateral shall not constitute a
determination by the Bank that the Member may obtain Advances or Commitments for
Advances up to the maximum amount that could be supported by such Qualifying
Collateral based on the Collateral Maintenance Level.

Section 2.06 ELECTRONIC TRANSACTIONS. The parties agree that the transactions
encompassed under this Agreement may be conducted electronically through
whatever means the Bank may provide from time to time. An Application submitted
electronically must be transmitted in accordance with the procedures established
by the Bank and communicated to the Member. The Bank may rely upon and enforce
an Application submitted electronically to the same extent as if such
Application were written and signed on paper and in ink.

Section 2.07 INTEREST RATE LIMITATION. Notwithstanding anything herein to the
contrary, if at any time the interest rate applicable to any Indebtedness,
together with all fees and other charges that are treated as interest on such
Indebtedness under applicable law, shall exceed the maximum lawful rate (the
“maximum rate”) that may be contracted for, charged, taken, received or reserved
by the Bank in accordance with applicable law, the rate of interest payable in
respect of such Indebtedness, together with all of the charges payable in
respect thereof, shall be limited to such maximum rate.

ARTICLE III

SECURITY AGREEMENT

Section 3.01 CREATION OF SECURITY INTEREST.

(a) As security for all Indebtedness and Outstanding Commitments, the Member
hereby assigns, transfers, and pledges to the Bank, and grants to the Bank a
first and prior security interest in:

(i) all of the following as may be now owned or existing or hereafter owned by
the Member:

(A) Capital Stock;

(B) Deposit Accounts;

(ii)  such First Mortgage Collateral, Other Real Estate Related Collateral,
Securities and Additional Collateral that are delivered pursuant to Section 3.04
hereof; and

(iii) all payment intangibles related to, and all cash and non-cash proceeds of
the foregoing.

 

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Without limitation of the foregoing and for the avoidance of doubt, all property
heretofore assigned, transferred, or pledged by the Member to the Bank or as to
which the Member has granted a security interest to the Bank, as collateral for
Advances or Commitments or other Indebtedness prior to the date hereof is
Collateral hereunder.

(b) The Member shall make, execute, acknowledge, record, and deliver to the Bank
such financing statements, notices, assignments, listings, powers, and other
documents with respect to the Collateral and the Bank’s security interest
therein and in such form as the Bank may reasonably require. To the extent
permitted by applicable law, the Member hereby irrevocably authorizes the Bank
to file, in the name of the Member or otherwise and without the signature or
other separate authorization or authentication of the Member appearing thereon,
such UCC financing statements (including, without limitation, continuations and
amendments) and in such jurisdictions as the Bank may deem necessary or
appropriate to perfect or maintain the perfection of the security interest of
the Bank with respect to any Collateral. The Member agrees that a photocopy,
electronic or other reproduction of this Agreement or of a financing statement
is sufficient as a financing statement. The Member shall pay the cost of, or
incidental to, any recording or filing of any financing statements (including,
without limitation, continuations and amendments) or other assignment documents
concerning the Collateral.

Section 3.02 COLLATERAL MAINTENANCE LEVEL REQUIREMENT.

(a) The Member shall at all times maintain as Collateral an amount of Qualifying
Collateral that has a Collateral Value that is at least equal to the then
current required Collateral Maintenance Level. The Member shall not assign,
pledge, transfer, create any security interest in, sell, or otherwise dispose of
any Collateral without the prior written consent of the Bank except as may be
specified in the Credit Policy.

(b) Any Collateral that has not been delivered in accordance with Section 3.04
hereof shall be held by the Member in trust for the benefit of, and subject to
the direction and control of, the Bank and will be physically safeguarded by the
Member with at least the same degree of care as the Member uses in physically
safeguarding its other property. Without limitation of the foregoing, the Member
shall take all action necessary or desirable to protect and preserve the
Collateral and the Bank’s interest therein, including without limitation causing
the property owner or applicable servicer of any First Mortgage Collateral or
Other Real Estate Related Collateral to maintain insurance on property securing
First Mortgage Collateral or Other Real Estate Related Collateral (any and all
policies and certificates of insurance or guaranty relating to such Mortgages
are herein called “insurance”), the collection of payments under all Mortgages
and under all insurance, and otherwise causing all Mortgages to be serviced in
accordance with the standards of a reasonable and prudent servicer in the
mortgage industry.

(c) If the Member becomes aware or has reason to believe that the Collateral
Value of the Member’s Qualifying Collateral has fallen below the Collateral
Maintenance Level (such belief being based on information, including but not
limited to, updated appraisals, revised model valuations and information
obtained in connection with Member’s evaluation of its loan loss reserves), or
that a contingency exists which with the lapse of time would result in the
Member failing to meet the Collateral Maintenance Level, the Member shall
immediately notify the Bank. If any Collateral that was Qualifying Collateral
delivered pursuant to Section 3.04 hereof ceases to be Qualifying Collateral,
the Member shall promptly notify the Bank in writing of that fact and, if so
requested by the Bank, the reason that the Collateral has ceased to be
Qualifying Collateral. In such case, the Member shall promptly specify, or
deliver, as the case may be, other Qualifying Collateral sufficient to maintain
its Collateral Maintenance Level.

Section 3.03 [RESERVED].

Section 3.04 DELIVERY OF COLLATERAL.

(a) The Member shall deliver to the Bank, or to a custodian designated or
approved by the Bank, Qualifying Collateral having a Collateral Value at least
equal to the Collateral Maintenance Level at all times. Any Collateral that is
delivered under this subsection as a part of the Qualifying Collateral must
conform to the requirements set forth in the Credit Policy for such Collateral.

(b) The Member agrees to pay the Bank such reasonable fees and charges as may be
assessed by the Bank to cover the overhead and other costs of the Bank relating
to the receipt, holding, redelivery, and reassignment of Collateral, and to
reimburse the Bank upon request for all recording fees and other reasonable
expenses, disbursements, and advances incurred or made by the Bank in connection
therewith, including reasonable compensation and the expenses and disbursements
of any custodian that may be appointed by the Bank hereunder, and the agents and
legal counsel of the Bank and such custodians.

 

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Section 3.05 RELEASE OF COLLATERAL.  Upon receipt of the Bank of writings or
electronic submissions in the form specified by the Bank in the Credit Policy
constituting: (a) a request from the Member for release of Collateral; (b) a
detailed listing of the Collateral to be released; and (c) a certificate of a
responsible officer of the Member certifying as to the Qualifying Collateral
remaining after such withdrawal, and upon the Bank’s determination that the
Collateral Value of the remaining Qualifying Collateral is not less than the
current required Collateral Maintenance Level, the Bank shall or shall cause the
custodian to promptly redeliver, release, or reassign to the Member, as
applicable, at the Member’s expense, the Collateral specified in the Member’s
listing of the Collateral to be released. Notwithstanding anything to the
contrary in this Section 3.05, (i) while an Event of Default shall have occurred
and be continuing; or (ii) at any time that the Bank reasonably believes in good
faith that the prospect of payment or performance of any obligations or any
performance under this Agreement by the Member is materially impaired, or
(iii) the Member would fail to satisfy its Collateral Maintenance Level, the
Member may not obtain any such release of collateral.

Section 3.06 BANK’S RESPONSIBILITIES AS TO COLLATERAL.  The duty of the Bank as
to the Collateral shall be solely to use reasonable care in the custody and
preservation of the Collateral in its possession, which shall not include
(i) any steps necessary to preserve rights against parties with a prior position
or (ii) the duty to send notices, perform services, or take any action in
connection with the collection or management of the Collateral. The Bank shall
not have any responsibility or liability for the form, sufficiency, correctness,
genuineness, or legal effect of any instrument or document constituting a part
of the Collateral, or any signature thereon or the description or
misdescription, or value of property represented, or purported to be
represented, by any such document or instrument. The Member agrees that any and
all Collateral may be removed by the Bank from the state or location where
situated, and may be subsequently dealt with by the Bank as provided in this
Agreement.

Section 3.07 BANK’S RIGHTS AS TO COLLATERAL; POWER OF ATTORNEY.

(a) At any time, at the expense of the Member, the Bank may in its reasonable
discretion, after the occurrence and during the continuation of an Event of
Default, in its own name or in the name of its nominee or of the Member, take
any and all reasonable actions that are pertinent to the protection of the
Bank’s interest hereunder and, if such actions are subject to the laws of a
state, are lawful under the laws of the State of Illinois including, but not
limited to the following:

(1) Terminate any consent given hereunder;

(2) Notify obligors on any Collateral to make payments thereon directly to the
Bank or the Bank’s nominee or servicer;

(3) Endorse any Collateral on behalf of the Member;

(4) Enter into any extension, compromise, settlement, release, renewal,
exchange, or other agreement relating to or affecting any Collateral;

(5) Take any action the Member is required to take or which is otherwise
reasonably necessary to (A) file a financing statement or otherwise perfect a
security interest in any or all of the Collateral or (B) obtain, preserve,
protect, enforce, or collect the Collateral;

(6) Take control of any funds or other proceeds generated by the Collateral and
use the same to reduce Indebtedness as it becomes due (or hold the same as
Additional Collateral); and

(7) Cause the Collateral to be transferred to its name or the name of its
nominee.

(b)  In connection with entering into this Agreement, the Member has executed a
power of attorney substantially in the form of Exhibit A hereto. In exercising
its rights under the power of attorney, the Bank is limited by the provisions of
Section 3.07(a) and may only take reasonable actions that are pertinent to the
protection of the Bank’s interest under this Agreement. Further, the Bank shall
only exercise its rights under such power of attorney if (i) it believes in good
faith that the prospect of payment or performance of any obligations or any
performance under this Agreement by the Member is materially impaired (and Bank
shall provide five (5) business days prior notice to Member if it is exercising
its rights under this Section 3.07(b)(i)); or (ii) an Event of Default under
this Agreement shall have occurred and shall be continuing.

 

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Section 3.08 SUBORDINATION OF OTHER LOANS TO COLLATERAL. The Member hereby
agrees that all Mortgage Notes which are part of the Collateral (other than home
equity loans and lines of credit) (“pledged notes”) shall have priority in right
and remedy over any other loans, advances, obligations or indebtedness of the
Member or Affiliate, whenever made, and, however evidenced (“Subordinated
Debt”), which are also secured by the mortgages securing the pledged notes
and/or by liens on the same properties encumbered by the Mortgages securing the
pledged notes. Subject to applicable state and federal law, the pledged notes
shall be satisfied out of the property (or proceeds thereof) encumbered by such
Mortgages before recourse to such property may be obtained for the repayment of
any Subordinated Debt. To this end, the Member hereby subordinates (i) the
Subordinated Debt to the pledged notes and (ii) the lien of any First Mortgage
Collateral or Other Real Estate Related Collateral that secure the Subordinated
Debt to the lien of the Mortgages and security agreements that secure the
pledged notes. The Member further agrees to retain possession of all notes or
other instruments evidencing any Subordinated Debt and not to pledge, assign, or
transfer the same, or any interest therein, except insofar as such Subordinated
Debt may be pledged to the Bank as part of the Collateral.

Section 3.09 PROCEEDS OF COLLATERAL. The Member, as the Bank’s agent, shall
collect all payments when due on all Collateral. Upon receipt of written notice
from the Bank after the occurrence and during the continuance of an Event of
Default, the Member shall hold such collections and other proceeds of Collateral
separate from its other monies in one or more designated cash collateral
accounts maintained at the Bank and apply them to the reduction of Indebtedness
as it becomes due; otherwise, the Bank consents to the Member’s use and
disposition of all such collections, except as may otherwise be provided under a
control agreement executed by the parties.

Section 3.10 COLLATERAL AUDITS; REPORTS AND ACCESS.

(a) All Collateral, the satisfaction of the Collateral Maintenance Level, and
Member’s compliance to Section 5.01A shall be subject to audit and verification
by or on behalf of the Bank. Such audits and verifications may occur upon
reasonable notice during the Member’s normal business hours or at such other
times as the Bank may reasonably request. The Member shall provide to the Bank
such reports relating to the Collateral as may be called for pursuant to the
Credit Policy or as the Bank may otherwise reasonably require. The Member shall
provide the Bank access to the Member’s books and records relating to such
Collateral and shall make adequate working facilities available to the
representatives or agents of the Bank for purposes of such audits and
verification. Reasonable fees and charges may be assessed to the Member by the
Bank to cover the Bank’s costs relating to such audit and verification.

(b) Notwithstanding anything to the contrary, the Member shall be solely
responsible for the accuracy and adequacy of all information and data in each
audit or status report (or other writing specifying and describing any
Collateral) submitted to the Bank, regardless of the form in which submitted. To
enable the Bank to regenerate any files or data previously furnished to the Bank
with respect to any Collateral or any information contained in any audit or
status report, the Member shall at all times maintain complete and accurate
records and materials supporting or relating to any audit or status report and
shall make the same available, on request, to the Bank. The parties hereto agree
that the maintenance and retention of such supporting records and materials
shall be the sole responsibility of the Member and that the Bank shall not be
liable for any loss of such data.

(c) The Bank shall have no duty to make any independent examination of or
calculation with respect to the information submitted in an audit or status
report (or in any written schedule that may be submitted by the Member) and,
without limiting the generality of the foregoing, the Bank makes no
representation or warranty as to the validity, accuracy, or completeness of any
information contained in any written records of the Bank concerning, or of any
response to, such audit or status report.

Section 3.11 MEMBER’S REPRESENTATIONS AND WARRANTIES CONCERNING
COLLATERAL.   The Member represents and warrants to the Bank, as of the date
hereof and the date of each Advance hereunder, as follows:

(a) The Member owns and has marketable title to the Collateral and has the right
and authority to grant a security interest in the Collateral and to subject all
of the Collateral to this Agreement;

 

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(b) The information given in any status report, schedule, or other documents
required hereunder and any other information given from time to time by the
Member as to each item of Collateral is, at the time made, true, accurate, and
complete in all material respects;

(c) All the Collateral meets the standards and requirements with respect thereto
from time to time established by the Act, the Regulations, and the Bank;

(d) Based on title insurance and attorney opinions, the lien of the First
Mortgage Collateral and Other Real Estate Related Collateral on the real
property securing the same is a perfected lien under applicable state law and
the lien is a first lien except with respect to (1) home equity loans or lines
of credit and (2) subordinate loans which are not reported by the Member as
Qualifying Collateral;

(e) The Member has not conveyed or otherwise created, and there does not
otherwise exist, any participation interest or other direct, indirect, legal, or
beneficial interest in any Qualifying Collateral on the part of anyone other
than the Bank and the Member;

(f) To the best of Member’s knowledge, all Mortgage documents, securities and
other instruments and documents constituting a part of the Collateral constitute
valid and binding obligations of their respective issuers and obligors
enforceable against such issuers and obligors in accordance with their
respective terms, subject to the effect of bankruptcy, insolvency and other
similar laws affecting the rights of creditors generally and to general
principles of equity;

(g) Except as may be approved in writing by the Bank, to the best of Member’s
knowledge, no account debtor or other obligor owing any obligation to the Member
with respect to any item of Qualifying Collateral has any defenses, offsetting
claims, or other rights affecting the right of the Member or the Bank to enforce
any Mortgage or Mortgage Note relating thereto, and no defaults (or conditions
that, with the passage of time or the giving of notice or both, would constitute
a default) exist under any such Mortgage or Mortgage Note;

(h) To the best of Member’s knowledge, no part of any real property or interest
in real property that is securing Mortgages included in Qualifying Collateral
contains or is subject to the effects of toxic or hazardous materials or other
hazardous substances (including those defined in the Comprehensive Environmental
Response Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601, et
seq.; the Hazardous Materials Transportation Act, 49 U.S.C. 1801 et seq.; the
Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq.; and in the
regulations adopted and publications promulgated pursuant to said laws) the
presence of which could subject the Bank or its successors and assigns to any
liability under applicable state or Federal law or local ordinance either at any
time that such property is pledged to the Bank or upon the enforcement by the
Bank of its security interest therein. The Member hereby agrees to indemnify and
hold the Bank harmless against all costs, claims, expenses, damages, and
liabilities resulting in any way from the presence or effects of any such toxic
or hazardous substances or materials in, on, or under any real property or
interest in real property that is subject to or included in the Collateral.

(i) Except as may be approved in writing by the Bank, Member and/or an Affiliate
are the servicer of the First Mortgage Collateral and Other Real Estate Related
Collateral.

(j) The exact legal name of the Member, the type and jurisdiction of
organization of the Member, and the location of the Member’s chief executive
office, each as stated in the first paragraph of this Agreement is true,
accurate, and complete. The Member will provide prior written notice to the
Bank, as soon as reasonably practicable, of any change to its name, its type and
jurisdiction of organization, or the location of its chief executive office.

ARTICLE IV

DEFAULT; REMEDIES

Section 4.01 EVENTS OF DEFAULT; ACCELERATION. Upon the occurrence of and during
the continuation of any of the following events or conditions of default (“Event
of Default”), the Bank may at its option and in its discretion, by a notice to
the Member, declare all or any part(s) of the Indebtedness and accrued interest
thereon, including any prepayment fees or charges which are payable in
connection with the payment prior to the originally scheduled maturity of any
Advance, to be immediately due and payable without presentment, demand, protest,
or any further notice:

(a) Failure of the Member to pay when due any principal of any Advance or
failure of the Member to pay within three (3) business days after the date when
due any interest on any Advance;

 

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(b) Material breach or failure of the Member to comply with the requirements of
the Credit Policy or perform any covenant, promise, or obligation or to satisfy
any condition or liability contained herein, in any Application, Confirmation of
Advance or in any other agreement to which the Member and the Bank are parties,
provided Member shall have five (5) business days to cure any such material
breach or default that is not related to any collateral requirement as set forth
in the Credit Policy or the documents identified in this subsection (b);

(c) In the Bank’s good faith and reasonable determination, evidence coming to
the attention of the Bank that any representation, statement, or warranty made
or furnished in any manner to the Bank by or on behalf of the Member in
connection with any Advance, any specification or description of Qualifying
Collateral or any report or certification concerning the status, principal
balance or Collateral Value of any item of Collateral was false in any material
respect when made or furnished, provided however, if such condition is capable
of being cured (i) by the substitution of Qualifying Collateral, then Member may
immediately substitute Qualifying Collateral; or (ii) Member may immediately pay
down Member’s Indebtedness so that the amount of Qualifying Collateral has a
Collateral Value that is at least equal to the then current required Collateral
Maintenance Level in order to cure the condition.;

(d) Failure of the Member to maintain Qualifying Collateral free of any
encumbrances or claims as required herein;

(e) The issuance of any material tax, levy, seizure, attachment, garnishment,
levy of execution, or other process with respect to the Collateral; provided
however, if such condition is capable of being cured (i) by the substitution of
Qualifying Collateral, then Member may immediately substitute Qualifying
Collateral; or (ii) Member may immediately pay down Member’s Indebtedness so
that the amount of Qualifying Collateral has a Collateral Value that is at least
equal to the then current required Collateral Maintenance Level, in order to
cure the condition;

(f) Any suspension of payment by the Member or an Affiliate to any creditor of
material sums due, unless such amount is being disputed in good faith by the
Member, or the occurrence of any event which results (or which with the giving
of notice or passage of time, or both, will result) in another creditor having
the right to accelerate the maturity of any indebtedness of the Member or an
Affiliate under any security agreement, indenture, loan agreement, instrument,
or comparable agreement or the early termination or close-out of any Swap
Transaction or other derivatives contract (other than in the normal course of
business);

(g) The Member or any Affiliate of the Member:

(1) becomes insolvent or is unable to pay its debts or fails or admits in
writing its inability generally to pay its debts as they become due;

(2) makes a general assignment, arrangement or composition with or for the
benefit of its creditors;

(3)(A)    institutes or has instituted against it, by a regulator, supervisor or
any similar official with primary insolvency, rehabilitative or regulatory
jurisdiction over it, a proceeding seeking a judgment of insolvency or
bankruptcy or any other relief under any bankruptcy or insolvency law or other
similar law affecting creditors’ rights, or a petition is presented for its
winding-up or liquidation by it or such regulator, supervisor or similar
official, or

(B)    has such a proceeding instituted against it by a person or entity not
described in clause (3)(A) herein and such proceeding either results in a
judgment of insolvency or bankruptcy or the entry of an order for relief or the
making of an order for its winding-up or liquidation or is not appealed,
dismissed, discharged, stayed or restrained within 45 days;

(4) commences winding-up, official management or liquidation (other than
pursuant to a consolidation, amalgamation, merger or the orderly winding-up of a
material subsidiary of an Affiliate of the Member in the ordinary course of the
business of the Member or of any such Affiliate);

 

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(5) seeks or becomes subject to the appointment of an administrator, provisional
liquidator, conservator, receiver, trustee, custodian or other similar official
for it or for all or substantially all its assets;

(6) has a secured party take possession of all or substantially all its assets
or has a distress, execution, attachment, sequestration or other legal process
levied, enforced or sued on or against all or substantially all its assets, or
in the case of a suit which suit is not dismissed or unwound within 90 days
after its commencement; or

(7) takes any action in furtherance of, or indicating its consent to, approval
of, or acquiescence in, any of the foregoing acts;

(h) Sale by the Member of all or a material part of the Member’s assets (other
than in connection with a securitization transaction or other portfolio sale of
mortgage loans or mortgage-backed securities) or the taking of any other action
by the Member to liquidate or dissolve;

(i) Termination for any reason of the Member’s membership in the Bank, or the
Member’s ceasing to be a type of entity that is eligible under the Act to become
a member of the Bank, in each case, at such time as the Member has any
outstanding Indebtedness due to the Bank;

(j) Merger, consolidation, or other combination of the Member with an entity
which is not a member of the Bank if the nonmember entity is the surviving
entity;

(k) The Bank reasonably and in good faith determines that a material adverse
change has occurred in the financial condition of the Member or an Affiliate
from that disclosed at the time of the making of any Advance or from the
condition of the Member or an Affiliate as theretofore most recently disclosed
to the Bank which could either (1) affect the ability of the Member to perform
its obligations under this Agreement or (2) impair the prospect of repayment of
any portion of the Indebtedness;

(l) Any Official Body takes any action with respect to the Member or an
Affiliate which (i) is in anticipation of a takeover or assumption of control of
the Member or an Affiliate by any Official Body; (ii) is a takeover or
assumption of control of the Member or Affiliate by any Official Body; or
(iii) results in the supervision of the Member’s operations pursuant to an order
of any court or Official Body or results in the supervision of Affiliate’s
operations pursuant to an order of any court of Official Body to the extent such
supervision (a) would materially adversely affect the Member’s ability to
perform its obligations under this Agreement or (b) actually impairs the
prospect of repayment of any portion of the Indebtedness by the Member;
provided, however, supervision of the Member’s or an Affiliate’s operations by
an Official Body shall encompass significant orders covering a material portion
of such Member’s or Affiliate’s operations and shall not include immaterial
regulatory actions or memoranda of understanding, written agreements and orders
that relate to compliance matters such as reporting and commercial or consumer
lending issues;

(m) [Reserved].

(n) With respect to the Member’s RBC Level, the occurrence of a violation of
(i) state insurance Law applicable to the Member, or (ii) the policies and
procedures of the state insurance department or a federal regulatory body having
regulator authority over the Member, whether or not having the force and effect
of Law.

Section 4.02 REMEDIES.

(a) Upon the occurrence of any Event of Default, the Bank shall have all of the
rights and remedies provided by applicable law which shall include, but not be
limited to, all of the remedies of a secured party under the UCC.

(b) Without limiting or affecting other rights of the Bank pertaining to the
Collateral contained herein or as may be otherwise provided under a control
agreement executed by the parties, upon the occurrence of any Event of Default,
the Bank, at its option and in its discretion, may take or cause its agent to
take immediate possession or control of any of the Collateral or any part
thereof wherever the same may be found by suit or otherwise. The Bank may sell,
assign, and deliver the Collateral or any part thereof at public or private sale
(at the sole option of the Bank), without recourse for such price as the Bank
deems appropriate without any liability for any loss due to a decrease in the
market value of the Collateral during the period held. The Bank shall have the
right to purchase all or part of the Collateral at such sale free of any right
of

 

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redemption on the part of the Member which right is expressly waived and
released to the fullest extent permitted by law. If the Collateral includes
insurance or securities which will be redeemed by the issuer upon surrender, or
any deposits or other accounts in the possession or control of the Bank, the
Bank may realize upon such Collateral without notice to the Member.

(c) Upon the occurrence of any Event of Default, the Member waives any demand,
advertisement, or notice of the time or place of intended disposition of any of
the Collateral except to the extent required by applicable law. Any such
notification shall be deemed reasonably and properly given if given as provided
by applicable law or in accordance with Section 5.06 hereof at least 10 days
before any such disposition. The Member agrees that the Bank may exercise its
rights of setoff upon the occurrence of an Event of Default in the same manner
as if the Advances and other Indebtedness were unsecured.

(d) Notwithstanding any other provision hereof, upon the occurrence of any Event
of Default at any time when all or part of the obligations of the Member to the
Bank hereunder shall be the subject of any guarantee by a third party for the
Bank’s benefit and there shall be other outstanding obligations of the Member to
the Bank that are not so guaranteed but that are secured by the Collateral, then
any sums realized by the Bank from the Collateral, or from any other collateral
pledged or furnished to the Bank by the Member under any other agreement, shall
be applied first to the satisfaction of such other nonguaranteed obligations and
then to the Member’s guaranteed obligations hereunder.

(e) The Member agrees to pay all the reasonable costs and expenses of the Bank
in the collection of the Indebtedness and enforcement and preservation of the
Bank’s rights and remedies in case of default, including, without limitation,
reasonable attorneys’ fees. Any sums owed to the Bank under this Section 4.02(e)
may be collected by the Bank, at its option, by debiting the Member’s DID
Account with the Bank.

Section 4.03 PAYMENT OF PREPAYMENT CHARGES. Any prepayment fees or charges
applicable to an Advance shall be calculated in accordance with the formula set
forth in the Bank’s Credit Policy and shall be payable at the time of any
voluntary or involuntary payment of all or part of the principal of such Advance
prior to the originally scheduled maturity thereof, including without limitation
payments that are made as part of a liquidation of the Member or that become due
as a result of an acceleration pursuant to Section 4.01 hereof, whether such
payment is made by the Member, by a conservator, receiver, liquidator,
Affiliates or trustee of or for the Member, or by any successor to or any
assignee of the Member.

Section 4.04 CERTAIN PROVISIONS AS TO SALE OF COLLATERAL. In view of the
possibility that Federal and state securities laws and Federal and state laws
applicable to the Member may impose certain restrictions on the method by which
a sale of the Collateral may be effected, the Bank and the Member agree that any
sale of the Collateral as a result of an Event of Default shall be deemed
“commercially reasonable” irrespective of whether the notice or manner of such
sale contains provisions, or imposes, or is subject to, conditions or
restrictions deemed appropriate to comply with the Securities Act of 1933 or any
other applicable Federal or state securities law or any state or Federal law
applicable to the Member. It is further agreed that from time to time the Bank
may attempt to sell the Collateral by means of private placement. In so doing,
the Bank may restrict the bidders and prospective purchasers to those who will
represent and agree that they are purchasing for investment only and not for
distribution or otherwise impose restrictions deemed appropriate by the Bank for
the purpose of complying with the requirements of applicable securities laws.
The Bank may solicit offers to buy such Collateral, for cash or otherwise, from
a limited number of investors deemed by the Bank to be responsible parties who
might be interested in purchasing such Collateral. If the Bank solicits offers
from not less than three such investors, then the acceptance by the Bank of the
highest offer obtained therefrom (whether or not three offers are obtained)
shall be deemed to be a commercially reasonable method of disposing of the
Collateral.

Section 4.05 APPLICATION OF PAYMENTS. Upon the occurrence of any Event of
Default, the Bank shall apply any payment by or recovery from the Member, or any
sum realized from Collateral which shall be received by the Bank (a) to payment
of all costs of collection and enforcement; (b) to payment of the Indebtedness
in such manner as the Bank shall choose; and (c) to offset any amounts to be
paid or advanced under Outstanding Commitments. The Bank shall, unless otherwise
required by applicable law, remit any surplus to the Member.

 

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ARTICLE V

MISCELLANEOUS

Section 5.01 GENERAL REPRESENTATIONS AND WARRANTIES BY THE MEMBER; COVENANTS.
The Member hereby represents, warrants, and covenants that, as of the date
hereof and the date of each Advance hereunder, and so long as any Indebtedness
remains unpaid:

(a) The Member is not, and neither the execution of nor the performance of any
of the transactions or obligations of the Member under this Agreement shall,
with the passage of time, the giving of notice or otherwise, cause the Member to
be: (1) in violation of its charter or articles of incorporation, bylaws, the
Act or the Regulations, any other law or administrative regulation, including,
but not limited to, any applicable anti-predatory lending law or regulation, any
court decree, or any order of an Official Body; provided however, Member’s
representation that it is not in violation of any administrative regulation
refers to regulatory violations that could have a material impact on the
financial condition of the Member and does not include immaterial regulatory
violations that may be raised as part of a regulatory examination such as
reporting and commercial or consumer lending compliance matters; or (2) in
default under or in breach of any indenture, contract, or other instrument or
agreement to which the Member is a party or by which it or any of its property
is bound which would have a material adverse effect on Member;

(b)  The Member has full corporate power and authority and has received all
corporate and governmental authorizations and approvals (including without
limitation those required under the Act and the Regulations) as may be required
to enter into and perform its obligations under this Agreement, to borrow each
Advance, and to obtain each Commitment for an Advance;

(c) The information given by the Member in any document provided, or in any oral
statement made, in connection with an Application, request for an Advance,
Commitment for an Advance, a pledge, specification, or delivery of Collateral,
is, at the time made, be true, accurate, and complete in all material respects;

(d) The Member, unless otherwise exempted, is in compliance with any Regulations
pertaining to community investment or service adopted pursuant to Section 10(g)
of the Act (12 U.S.C. 1430(g), as amended);

(e) All long-term Advances shall be utilized solely for the purpose of providing
funds for residential housing finance. “Long-term” is defined as greater than
five years in term or as defined by the Federal Housing Finance Agency;

(f)  The Member shall notify the Bank immediately if it becomes aware of a
material adverse event affecting the Member or its business or operations,
including an event, which with a lapse of time, could cause the Collateral Value
of Qualifying Collateral to fall below the Collateral Maintenance Level;

(g)  The Member and the Bank each consents to the recording of telephone
conversations in connection with this Agreement and any Advances and any other
products and services that the Member may receive from time to time from the
Bank;

(h) The Member’s board of directors approved the execution of this Agreement and
such approval is recorded in its official minutes and this Agreement has been,
continuously, from the time of its execution, an official record of the Member;

(i)  The Member shall deliver to the Bank, simultaneously with the Member’s
delivery thereof to the appropriate federal or state Official Body, a copy of
each Form 10-K, 10-Q or other filing with the Securities and Exchange
Commission, if any, with respect to Member and a copy of all financial
statements, including without limitation all actuarial certifications required
in accordance with applicable Law to be filed with any Official Body, such
financial statements to be prepared in accordance with all of the requirements
of applicable Law (without limitation, as to format, accounting methods and
otherwise) or, in the event that there are no such requirements of applicable
Law, then to be prepared in accordance with generally accepted accounting
principles;

(j)  If prepared by the Member, the Member shall provide to the Bank, as soon as
available and in any event within forty-five (45) calendar days after the end of
each of the first three (3) fiscal quarters in each fiscal year, and sixty
(60) days after the end of each fiscal year, a detailed calculation of Member’s
estimated Risk-Based Capital and consolidated and consolidating financial
statements of the Member, consisting of a balance sheet as of the end of such
fiscal quarter and related statements of income, stockholders’ equity and cash
flows for the fiscal quarter then ended and the fiscal year through that

 

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date, all in reasonable detail and certified (subject to normal year-end audit
adjustments) by the Chief Executive Officer, President or Chief Financial
Officer of the Member as having been prepared in accordance with, and in a form
required by, applicable law and regulations of the applicable insurance
regulatory authority, consistently applied, and setting forth in comparative
form the respective financial statements for the corresponding date and period
in the previous fiscal year;

(k)  If prepared by the Member, the Member shall provide to the Bank, as soon as
available in any event within one hundred twenty (120) days after the end of
each fiscal year of the Member, consolidated and consolidating financial
statements of the Member, which are provided to the applicable insurance
regulatory authority, consisting of a balance sheet as of the end of such fiscal
year, and related statements of income, stockholders’ equity and cash flows for
the fiscal year then ended, all in reasonable detail and setting forth in
comparative form the financial statements as of the end of and for the preceding
fiscal year, and certified by independent certified public accountants
reasonably satisfactory to the Bank. The certificate or report of accountants
shall be free of qualifications (other than any consistency qualification that
may result from a change in the method used to prepare the financial statements
as to which such accountants concur) and shall not indicate the occurrence or
existence of any event, condition or contingency which would materially impair
the prospect of payment or performance of any covenant, agreement or duty of the
Member under this Agreement or the related documents evidencing or in connection
with the Indebtedness;

(l)  Concurrently with the financial statements of the Member furnished to the
Bank pursuant to Sections 5.01(i), (j) and (k) hereof, a certificate of the
Member signed by the Chief Executive Officer, President or Chief Financial
Officer of the Member, to the effect that, (i) the representations and
warranties of the Member contained in this Agreement and the related documents
evidencing or in connection with the Indebtedness are true in all material
respects on and as of the date of such certificate with the same effect as
though such representations and warranties had been made on and as of such date
and the Member has performed and complied in all material respects with all
covenants and conditions hereof, and (ii) no Event of Default or event which
with the passing of time or the giving of notice or both would become an Event
of Default exists and is continuing on the date of such certificate;

(m)   The Member shall automatically deliver to the Bank, without any request
therefore by the Bank, a copy of each RBC Report of the Member, if any, and, if
any, each RBC Plan of the Member, in each case, as filed in accordance with
(i) the state insurance law applicable to Member or (ii) the policies and
procedures of the state insurance department having regulatory authority over
the Member, whether or not having the force and effect of Law;

(n)  The Member shall deliver to the Bank within five (5) days of the occurrence
thereof, a copy of any amendment to the Member’s by-laws, articles or
certificate of incorporation or other charter documents;

(o)  The Member shall deliver to the Bank as soon as reasonably practicable such
other information as the Bank’s Credit Policy may from time to time require the
Member to deliver to the Bank or as the Bank may otherwise from time to time
reasonably request;

(p)  The Member shall provide written notice to the Bank upon the occurrence of
an Event of Default;

(q)  Upon request from the Bank, the Member shall deliver to the Bank, in form
and substance satisfactory to the Bank, an opinion of legal counsel of the
Member, such legal counsel to be satisfactory to the Bank and such opinion to be
as to those matters which the Bank may request, in its sole discretion,
including without limitation: (i) confirming the power and authority of the
Member to enter into this Agreement and the other related loan documents with
respect to the Indebtedness and to consummate the transactions contemplated
hereby and thereby; (ii) confirming the due authorization and execution of this
Agreement and the other documents in connection with the Indebtedness to
consummate the transactions contemplated thereby; and (iii) confirming the
creation and perfection of the security interest of the Bank in the Collateral;

(r) The Member shall at all times comply with all applicable Law, including,
without limitation, all Laws relating to: (i) the purchase or holding by the
Member of those investments permitted by Law; (ii) transactions with affiliates;
(iii) payment of dividends; and (iv) contributions to the Member’s surplus
except, in each case, where the failure to comply could not reasonably be
expected to have a material adverse impact on the Collateral and/or the Bank’s
rights under this Agreement;

(s) The Member shall notify the Bank of any change in law generally applicable
to insurance companies the result of which may have a material adverse impact
upon the Member;

(t) The Member has no material litigation pending against the Member that
materially adversely affect the Member’s ability to perform its obligations
under this Agreement and there is no regulatory order which has been issued by
any Official Body that prohibits the Member from entering into this Agreement
and the other related loan documents in respect of the Indebtedness and
consummating the transactions contemplated hereby and thereby; and

(u) The Member shall not amend its by-laws, articles or certificate of
incorporation or other charter documents in such a way that materially adversely
impacts the Bank or its rights and remedies arising out of this Agreement.

 

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287054 NonStandard-RWT Financial, LLC    Form No. 300-010 (4-17-12)

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Section 5.01A FINANCIAL COVENANTS.

(a) The Member covenants and agrees that as of the date hereof and the date of
each Advance hereunder, and so long as any Indebtedness remains unpaid, that:

(i)        the ratio of the sum of Member’s total liabilities, but excluding
debt subordinated to the Bank and any non-recourse debt, to Capital, as such
amounts are reflected on Member’s most recent unaudited quarterly financial
statements or audited annual financial statements, as applicable, in each case
prepared in accordance with generally accepted accounting principles (“GAAP”),
is equal to or less than 9.00:1.00.

For purposes of this Section 5.01A(a)(i), Capital is defined to include
stockholders equity and debt subordinated to the Bank.

(ii)       Member shall at all times maintain unencumbered (A) Eligible
Collateral (other than Capital Stock), (B) cash not included in Collateral
Maintenance Level, and (C) cash held in the DID Account not included in
Collateral Maintenance Level, with an aggregate Collateral Value that is greater
than or equal to 25% of the difference between (y) Collateral Maintenance Level
and (z) Indebtedness.

(b) Member shall deliver to the Bank, within seven (7) calendar days after the
last day of each calendar quarter a certification signed by an authorized signer
stating whether it has been in compliance throughout the quarter and whether it
remains in compliance with the covenants set forth in Section 5.01 and the
financial covenants set forth in Section 5.01A of this Agreement.
Notwithstanding the quarterly certification requirement set forth in this
Section 5.01A(b), Member shall notify Bank promptly at any time intra-quarter if
Member is not in compliance with the covenants set forth in Sections 5.01 or
5.01A of this Agreement.

(c)   Member shall deliver to Bank monthly, along with its listing file, a
schedule identifying the assets that demonstrate Member’s compliance with
Section 5.01A(a)(ii).

Section 5.02 CHANGES TO CREDIT POLICY.   The Bank reserves the right to amend,
supplement, restate or otherwise modify the Credit Policy, including but not
limited to, changes in underwriting criteria, collateral eligibility, reporting
requirements, and collateral margins (each, a “Policy Modification”) at any
time, in its sole discretion, without the consent of the Member, and the Member
(i) acknowledges and agrees that each such Policy Modification shall apply to
all Advances and other Indebtedness (whether outstanding on the date of such
Policy Modification or incurred after the date thereof) and (ii) agrees to be
bound by each and every Policy Modification occurring on, prior to, or after the
date of this Agreement. Each Policy Modification shall become effective
immediately upon adoption by the Bank; provided, however, no Event of Default
shall occur as a result of any Policy Modification until 45 days after the
effective date of such Policy Modification. The Bank shall provide notice of any
Policy Modification in writing, which may include by electronic mail, to the
Member no later than 30 days after to the effective date of such Policy
Modification; provided, however, such notice shall be deemed effective when
given by the Bank. Notwithstanding the provisions of this Section, the Bank
shall not amend, supplement, restate or otherwise modify the terms and
conditions of any Advance specified in an Application or Confirmation of Advance
without the consent of the Member.

Section 5.03 ASSIGNMENT.   The Member hereby gives the Bank the full right,
power, and authority to assign or transfer all or any part of the Bank’s right,
title, and interest in and to this Agreement, and to pledge, assign, or
negotiate to any other Federal Home Loan Bank or to any other person or entity,
with or without recourse, all or any part of the Indebtedness or participations
therein; provided however, if the Bank assigns or transfers its interest in this
Agreement or any Indebtedness to a third party other than another Federal Home
Loan Bank or Federal Reserve Bank, the Bank will obtain the prior written
consent of the Member. Assignment or transfer of this Agreement by the Bank to
another Federal Home Loan Bank shall not be deemed to be an Event of Default
under Section 4.01(i). In connection therewith, the Bank may assign and deliver
the whole or any part of the Collateral to the transferee, which shall succeed
to all the powers and rights of the Bank in respect thereof, and the Bank shall
thereafter be forever relieved and fully discharged from any liability or
responsibility with respect to the Collateral so assigned or pledged, and all
references herein to the Bank shall be read to refer to the pledgee or assignee.
The Member may not assign or transfer any of its rights or obligations hereunder
without the express prior written consent of the Bank, which shall not be
unreasonably withheld.

 

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287054 NonStandard-RWT Financial, LLC    Form No. 300-010 (4-17-12)

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Section 5.04 AMENDMENT; WAIVERS. No modification, amendment, or waiver of any
provision of this Agreement or consent to any departure therefrom shall be
effective unless in a writing executed by an authorized officer of the party
against whom such change is asserted and shall be effective only in the specific
instance and for the purpose of which given. The terms of this Agreement may not
be modified or amended unless both parties execute a written agreement. No
notice to or demand on the Member in any case shall entitle the Member to any
other or further notice or demand in the same, or similar or other
circumstances. Any forbearance, failure, or delay by the Bank in exercising any
right, power, or remedy hereunder shall not be deemed to be a waiver thereof,
and any single or partial exercise by the Bank of any right, power, or remedy
hereunder shall not preclude the further exercise thereof. Every right, power,
and remedy of the Bank shall continue in full force and effect until
specifically waived by the Bank in writing and no such waiver shall extend to
any subsequent matter or impair any right consequent thereon except to the
extent expressly so waived.

Section 5.05 JURISDICTION; LEGAL FEES. In any action or proceeding brought by
the Bank or the Member in order to enforce any right or remedy under this
Agreement, the parties hereby consent to, and agree that they will submit to,
the exclusive jurisdiction of the United States District Court for the Northern
District of Illinois or, if such action or proceeding may not be brought in
Federal court, the jurisdiction of the courts of the State of Illinois located
in the City of Chicago. The Member hereby waives, to the fullest extent
permitted by law, any objection that it may now or hereafter have to the laying
of venue in any such action or proceeding in such courts and any defense or
objection based upon any such court being an inconvenient forum for purposes of
any such action or proceeding. The parties agree that if any action or
proceeding is brought by either party seeking to obtain any legal or equitable
relief against the other party under or arising out of this Agreement or any
transaction contemplated hereby and such relief is not granted by the final
decision, after any and all appeals, of a court of competent jurisdiction, the
losing party will pay all reasonable attorneys’ fees and other costs incurred by
the prevailing party in connection therewith. Each party agrees to reimburse the
other party for all reasonable costs and expenses (including reasonable fees and
out-of-pocket expenses of outside counsel) incurred by the former party in
connection with the enforcement or preservation of the Bank’s rights under this
Agreement, including, but not limited to, its rights in respect of any
Collateral and the audit or possession thereof. Any sums owed to the Bank under
this Section 5.05 may be collected by the Bank, at its option, by debiting the
Member’s DID Account with the Bank.

Section 5.06 NOTICES. Any notice, advice, request, consent, or direction given,
made, or withdrawn pursuant to this Agreement shall be given in writing or by an
electronic transmission in such form and provided in accordance with such
security procedures or similar protocols as may be established by the Bank, and
must be delivered by: (a) hand delivery; (b) certified mail, return receipt
requested; (c) internationally recognized overnight courier service, or
(d) electronically, to the other party’s respective address given below:

 

If to Member:   RWT Financial, LLC   155 North Wacker Drive, Suite 4250  
Chicago, Illinois 60606   Attention:  Secretary  
email:  notices@redwoodtrust.com and to:   RWT Financial, LLC   155 North Wacker
Drive, Suite 4250   Chicago, Illinois 60606   Attention:  Treasurer  
email:  notices@redwoodtrust.com With a copy to:   Kaye Scholer LLP   3 First
National Plaza   70 West Madison Street, Suite 4200   Chicago, Illinois 60602  
Attention:  Daniel J. Hartnett   email:  daniel.hartnett@kayescholer.com and, in
the case of a notice of an Event of Default, with a copy to:   Cenlar FSB   425
Phillips Blvd.   Ewing, New Jersey 08618  

Attention:  Legal Department

email:  mfahywoehr@Cenlar.com

 

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287054 NonStandard-RWT Financial, LLC    Form No. 300-010 (4-17-12)

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If to Bank:   Federal Home Loan Bank of Chicago   200 E. Randolph Drive, 18th
Floor   Chicago, Illinois 60601   Attention:  Member Product Support  
Email:  membernotices@fhlbc.com

All notices, except for electronic notices, shall be deemed to have been
delivered when the notice is either refused to be accepted or is received by the
party to whom the notice is directed. Notices sent electronically shall be
deemed delivered on the same business day on which it is sent electronically (or
on the next business day, if such notification is sent out after 5:00 p.m.
recipient’s time).

Section 5.07 SIGNATURES OF MEMBER.  For purposes of this Agreement, documents
and electronic records shall be deemed signed by the Member when a signature or
an electronic signature of the Member or an authorized signatory or an
authorized facsimile thereof appears on or is associated with the document or
electronic record. The Bank may rely on any signature or facsimile thereof which
reasonably appears to the Bank to be the signature of an authorized person,
including signatures appearing on documents transmitted electronically to and
reproduced mechanically at the Bank. The secretary or an assistant secretary of
the Member shall from time to time furnish to the Bank, on forms provided by the
Bank, a certified copy of the resolution of the Board of Directors of the Member
authorizing persons to apply on behalf of the Member to the Bank for Advances
and Commitments and otherwise act for and on behalf of the Member in accordance
with this Agreement together with specimen signatures or specimen electronic
signatures of such persons. Such certifications are incorporated herein and made
a part of this Agreement and shall continue in effect until expressly revoked in
writing by the Member notwithstanding that subsequent certifications may
authorize additional persons to act for and on behalf of the Member.

Section 5.08 APPLICABLE LAW; SEVERABILITY.  In addition to the terms and
conditions specifically set forth herein and in any Application or Confirmation
of an Advance between the Bank and the Member, this Agreement and all Advances
and all Commitments for Advances shall be governed by the statutory and common
law of the United States and, to the extent Federal law incorporates or defers
to state law, the laws (exclusive of the choice of law provisions) of the State
of Illinois. Notwithstanding the foregoing, the Uniform Commercial Code as in
effect in the State of Illinois shall be deemed applicable to this Agreement and
to any Advance hereunder and shall govern the attachment and perfection of any
security interest granted hereunder to the extent that the Act, Regulations, or
other statutory law of the United States is not applicable. In the event that
any portion of this Agreement conflicts with applicable law, such conflict shall
not affect other provisions of this Agreement which can be given effect without
the conflicting provision, and to this end the provisions of this Agreement are
declared to be severable.

Section 5.09 SUCCESSORS AND ASSIGNS.  This Agreement shall be binding upon and
inure to the benefit of the successors and permitted assigns of the Member and
Bank.

Section 5.10 ENTIRE AGREEMENT.  This Agreement embodies the entire agreement and
understanding between the parties hereto relating to the subject matter hereof
and, except as specified in the next sentence, supersedes all prior agreements
between such parties which relate to such subject matter. To the extent the
Member and the Bank have entered into an Advances, Collateral Pledge and
Security Agreement prior to the date hereof (the “Existing Agreement”): (a) any
Advances and Commitments made by the Bank to the Member under the Existing
Agreement shall continue to be governed by the terms of the Application or
Confirmation of Advance pursuant to which such Advances and Commitments were
made, and otherwise by the terms and conditions of this Agreement and (b) this
Agreement shall not supersede or terminate any assignment or transfer of, pledge
to or grant of a security interest in property made by the Member under the
Existing Agreement to secure Advances or other Indebtedness by the Bank.

Section 5.11 CAPTIONS AND HEADINGS.  The captions and headings in this Agreement
are for convenience only and shall not be considered as part of or affect the
construction or interpretation of any provision of this Agreement.

Section 5.12 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS.    All
representations, warranties, and covenants by the Member contained in this
Agreement or made in writing in connection herewith, shall be continuing and
shall survive execution and delivery of this Agreement and the incurrence of any
Indebtedness.

 

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287054 NonStandard-RWT Financial, LLC    Form No. 300-010 (4-17-12)

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IN WITNESS WHEREOF, the Member and the Bank have caused this Agreement to be
signed in their names by their duly authorized officers as of the date first
above mentioned.

 

MEMBER:    RWT FINANCIAL, LLC    By: /s/ Christopher J. Abate    Name:
Christopher J. Abate    Title: Chief Financial Officer    Member
Number:  03024-7 FEDERAL HOME LOAN BANK OF CHICAGO By:  /s/ Michelle Jonson   
By: /s/ Agnes Hardison Name: Michelle Jonson    Name: Agnes Hardison Title:
Senior Vice President    Title: Senior Vice President

 

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287054 NonStandard-RWT Financial, LLC    Form No. 300-010 (4-17-12)

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EXHIBIT A

IRREVOCABLE LIMITED POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS THAT, RWT Financial, LLC (the “Member”),
hereby irrevocably constitutes and appoints the Federal Home Loan Bank of
Chicago (the “Bank”) its true and lawful attorney-in-fact and agent with full
power and authority, to prepare, execute, acknowledge, verify, swear to,
deliver, endorse, assign, record and file and take every other necessary action
with respect to, in its name, place and stead, all of the following:

a.       Any and all promissory notes or any item of collateral (collectively,
the “Notes”) pledged by the Member to the Bank pursuant to the terms of the
Advances, Collateral Pledge, and Security Agreement (“Advances Agreement”),
dated as of                           , 2014, between the Member and the Bank;

b.       Any and all amendments, assignments, and/or releases of any mortgage,
deed of trust, or deed to secure debt, or other security instrument, securing
any of the Notes pledge by the Member to the Bank pursuant to the terms of the
Advances Agreement; and

c.       All such other documents as the Bank may deem necessary to (i) maintain
and protect its security interest in any real and personal property, tangible or
intangible, securing the Notes; or (ii) otherwise satisfy the Member’s
obligations under the Advances Agreement with respect to the Notes or any
security instruments or agreements executed to secure the Notes.

Further, the Member hereby gives and grants to the Bank the authority to do or
perform every lawful act necessary or proper in connection with the Notes as
fully as the Member might or could do, and without limiting the foregoing, also
authorizes the Bank to endorse the Notes using the following form of endorsement
which may be hand written, stamped or imprinted, and Member hereby adopts the
following as its signature for the purpose of authorizing the Bank to endorse
the Notes:

 

PAY TO THE ORDER OF

  

WITHOUT RECOURSE

  

 

  

BY FEDERAL HOME LOAN BANK OF CHICAGO,

ITS ATTORNEY-IN-FACT

  

It is expressly understood and intended by the Member that the Power of Attorney
hereby granted is coupled with an interest, is granted for a period commencing
on the date of the incurrence of any Indebtedness (as defined in the Advances
Agreement) and continuing until the discharge of all Indebtedness and all other
obligations of the Member under the Advances Agreement regardless of any event
of default thereunder, and is irrevocable for the period granted. This Power of
Attorney shall survive the dissolution, liquidation, termination, or transfer of
the interests of the Member.

 

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287054 NonStandard-RWT Financial, LLC    Form No. 300-010 (4-17-12)

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IN WITNESS WHEREOF, I have hereunto set my hand and seal this        day of
                 , 20    .

  RWT FINANCIAL, LLC   By:  

 

 

  Name:  

 

 

  Title:  

 

 

 

SWORN AND WITNESSED in the presence of:   

 

  

Acknowledgment

(Illinois)

STATE OF ILLINOIS,

                            County ss:

The foregoing instrument was acknowledged before me this day      of
                          , 20    

by                                       
                              ,          
                                                        
of RWT Financial, LLC, a               [name of signer]    [title of signer]   
[name of member]  

special purpose captive insurance company under the laws of the State of
Delaware, on behalf of RWT Financial, LLC.

[bank/corporation/association]

 

My Commission Expires:

 

 

    Notary Public  

This instrument was drafted by:

Federal Home Loan Bank of Chicago

 

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287054 NonStandard-RWT Financial, LLC    Form No. 300-010 (4-17-12)