Exhibit 4.10


 


EXECUTION COPY


 


 


AMENDED AND RESTATED SERVICING AGREEMENT


 


 


DATED 12th March, 2004


 


 


HALIFAX plc


as Servicer


 


and


 


PERMANENT
MORTGAGES TRUSTEE LIMITED


as Mortgages
Trustee


 


and


 


HALIFAX plc


as Seller


 


and


 


PERMANENT
FUNDING (NO. 1) LIMITED


as Funding 1


 


and


 


THE BANK OF
NEW YORK


as
Security Trustee


 


 





 


London


 

















 


CONTENTS


 


	
  Clause

  	
   

  
	
   

  	
   

  	
   

  
	
  1.

  	
  Definitions and Interpretation

  	
   

  
	
  2.

  	
  Appointment of Servicer

  	
   

  
	
  3.

  	
  The Administration Services

  	
   

  
	
  4.

  	
  Mortgages
  Trustee Variable Base Rate/Mortgages Trustee Tracker Rate

  	
   

  
	
  5.

  	
  Administration of Mortgages

  	
   

  
	
  6.

  	
  No Liability

  	
   

  
	
  7.

  	
  New
  Loans

  	
   

  
	
  8.

  	
  Product
  Switching and Further Advances

  	
   

  
	
  9.

  	
  Redemption of Mortgages

  	
   

  
	
  10.

  	
  Powers of Attorney

  	
   

  
	
  11.

  	
  Costs and Expenses

  	
   

  
	
  12.

  	
  Information

  	
   

  
	
  13.

  	
  Remuneration

  	
   

  
	
  14.

  	
  Insurances

  	
   

  
	
  15.

  	
  Halifax Insurance Policies

  	
   

  
	
  16.

  	
  Buildings Policies

  	
   

  
	
  17.

  	
  Title Deeds and Customer
  Files

  	
   

  
	
  18.

  	
  Data Protection

  	
   

  
	
  19.

  	
  Covenants of Servicer

  	
   

  
	
  20.

  	
  Services Non-Exclusive

  	
   

  
	
  21.

  	
  Termination

  	
   

  
	
  22.

  	
  Further Assurance

  	
   

  
	
  23.

  	
  Miscellaneous

  	
   

  
	
  24.

  	
  Confidentiality

  	
   

  
	
  25.

  	
  Notices

  	
   

  
	
  26.

  	
  Variation and Waiver

  	
   

  
	
  27.

  	
  No Partnership

  	
   

  
	
  28.

  	
  Assignment

  	
   

  
	
  29.

  	
  Change of Security Trustee

  	
   

  
	
  30.

  	
  Amendments

  	
   

  
	
  31.

  	
  Exclusion of Third
  Party Rights

  	
   

  
	
  32.

  	
  Counterparts and
  Severability

  	
   

  
	
  33.

  	
  Governing Law and
  Jurisdiction

  	
   

  
	
  34.

  	
  Process Agent

  	
   

  



 


	
  Schedule

  	
   

  
	
   

  	
   

  	
   

  
	
  1.

  	
  The Services

  	
   

  
	
  2.

  	
  Form of
  Quarterly Pool Cut

  	
   

  
	
   

  	
   

  	
   

  
	
  Signatories

  	
   

  



 

















 


THIS AMENDED AND RESTATED SERVICING AGREEMENT is made as a deed on 12th
March, 2004


 


BETWEEN:


 


(1)                                  HALIFAX
plc
(registered number 02367076), a public limited company incorporated under the
laws of England and Wales whose registered office is at Trinity Road, Halifax,
West Yorkshire HX1 2RG in its capacity as the Servicer of the Loans and their
Related Security;


 


(2)                                  PERMANENT
MORTGAGES TRUSTEE LIMITED (registered number 83116), a private limited company
incorporated under the laws of Jersey, Channel Islands whose registered office
is at 47 Esplanade, St. Helier, Jersey JE1 0BD, Channel Islands, in its
capacity as the Mortgages Trustee;


 


(3)                                  HALIFAX
plc
(registered number 02367076), a public limited company incorporated under the
laws of England and Wales whose registered office is at Trinity Road, Halifax,
West Yorkshire HX1 2RG in its capacity as the Seller and as one of the
Beneficiaries;


 


(4)                                  PERMANENT
FUNDING (NO. 1) LIMITED (registered number 4267660), a private limited
company incorporated under the laws of England and Wales whose registered
office is at Blackwell House, Guildhall Yard, London EC2V 5AE in its capacity
as Funding 1 and one of the Beneficiaries; and


 


(5)                                  THE
BANK OF NEW YORK, a New York banking corporation acting through its
office at 48th Floor, One Canada Square, London E14 5AL, the Security Trustee,
which expression shall include such company and all other persons or companies
for the time being acting as security trustee (or co-trustee) pursuant to the
terms of the Funding 1 Deed of Charge.


 


WHEREAS:


 


(A)                              The Servicer carries on the business of, inter alia,
administering mortgage loans secured on residential properties within the
United Kingdom.


 


(B)                                By the Mortgage Sale Agreement, the Seller
agreed to sell certain mortgage loans it had originated to individual borrowers
together with their Related Security to the Mortgages Trustee.  The Mortgages Trustee holds those mortgage
loans as bare trustee for Funding 1 and the Seller pursuant to the terms of the
Mortgages Trust Deed.


 


(C)                                The Servicer has agreed to provide
administration and management services to the Mortgages Trustee, the Seller and
Funding 1 on the terms and subject to the conditions contained in the Servicing
Agreement dated 14th June, 2002, as amended and restated on 6th March, 2003,
25th November, 2003 and as further amended and restated by this Agreement and
from time to time (the Servicing Agreement) in relation to, inter alia,
the Loans and their Related Security sold to the Mortgages Trustee by the
Seller.


 


(D)                               The parties to the Servicing Agreement have
agreed to amend and restate the terms of that Agreement as set out herein.


 


1

















 


IT IS HEREBY AGREED as follows:


 


1.                                      DEFINITIONS
AND INTERPRETATION


 


1.1                                 The amended and restated
master definitions and construction schedule signed by, amongst others, the
parties to this Agreement and dated 12th March, 2004 (as the same may be
amended, varied or supplemented from time to time with the consent of the
parties to this Agreement) (the Master Definitions and Construction Schedule)
is expressly and specifically incorporated into this Agreement and,
accordingly, the expressions defined in the Master Definitions and Construction
Schedule (as so amended, varied or supplemented from time to time) shall,
except where the context otherwise requires and save where otherwise defined
herein, have the same meanings in this Agreement, including the Recitals
hereto, and this Agreement shall be construed in accordance with the
interpretation provisions set out in Clause 2 of the Master Definitions and
Construction Schedule.


 


1.2                                 Any reference in this
Agreement to any discretion, power or right on the part of the Mortgages
Trustee shall be as exercised by the Mortgages Trustee only as directed by the
Beneficiaries but subject in each case to the provisions of Clause 16.2
of the Mortgages Trust Deed.


 


1.3                                 Save as expressly provided
herein, any warranties or undertakings provided under this Agreement are made
to each other party to this Agreement.


 


1.4                                 This Agreement amends and
restates the Servicing Agreement made on 14th June, 2002 as amended and
restated on 6th March 2003 and as further amended on 25th November, 2003 (the Principal
Agreement).  As of the date
of this Agreement, any future rights or obligations (excluding such obligations
accrued to the date of this Agreement) of a party under the Principal Agreement
shall be extinguished and shall instead be governed by this Agreement.  The parties agree that this amended and
restated Agreement shall have effect and be operational as from 14th June,
2002.


 


2.                                      APPOINTMENT OF SERVICER


 


2.1                                 Subject to Clauses 2.3 and 4.3(d),
and until termination pursuant to Clause 21, the Mortgages Trustee, the
Seller and Funding 1 (according to their respective estates and interests) each
hereby appoints the Servicer as its lawful agent on their respective behalfs to
administer the Loans and their Related Security, to provide certain other
administration and management services and to exercise their respective rights,
powers and discretions, and to perform their respective duties, under and in
relation to the Loans and their Related Security.  The Servicer in each case hereby accepts such appointment on the
terms and subject to the conditions of this Agreement.  The Security Trustee consents to the
appointment of the Servicer on the terms of and subject to the conditions of
this Agreement.


 


2.2                                 For the avoidance of doubt and
in connection with the rights, powers and discretions conferred under Clause 2.1,
during the continuance of its appointment hereunder, the Servicer shall,
subject to the terms and conditions of this Agreement, the Mortgage Conditions,
the Mortgage Sale Agreement and the Mortgages Trust Deed, have the full power,
authority and right to do or cause to be done any and all things which it
reasonably considers necessary, convenient or incidental to the administration
of the Loans and their Related Security or the exercise of such rights, powers
and discretions, provided however that neither the Mortgages Trustee nor
Funding 1 nor their respective directors shall be required or obliged at any time
to enter into any transaction or to comply with any directions which the
Servicer may give with respect to the operating and financial policies of the
Mortgages Trustee or Funding 1 and the


 


2

















 


Servicer hereby acknowledges that all
powers to determine such policies (including the determination of whether or
not any particular policy is for the benefit of the Mortgages Trustee or
Funding 1) are, and shall at all times remain, vested, as the case may be, in the
Mortgages Trustee and/or Funding 1 (and their respective directors) and none of
the provisions of this Agreement shall be construed in a manner inconsistent
with this proviso.


 


2.3                                 The appointment pursuant to Clause 2.1
is conditional upon the issue of the First Issuer Notes having taken place and
shall take effect upon and from the Initial Closing Date automatically without
any further action on the part of any person PROVIDED THAT if the issue of
the First Issuer Notes has not occurred by the 14th June, 2002, or such later
date as the First Issuer and the Joint Lead Managers may agree, this Agreement
shall cease to be of further effect.


 


3.                                      THE ADMINISTRATION SERVICES


 


3.1                               General


 


(a)                                  The duty of the Servicer shall
be to provide the services set out in this Agreement including SCHEDULE 1
hereto (the Services).


 


(b)                                 If and when the Servicer is
requested to confirm or state the capacity in which it is administering and
servicing the Loans, their Related Security and related matters pursuant to
this Agreement by any Borrower or any third party not being a party to this
Agreement and to whom the Servicer is obliged by law to disclose such
information, the Servicer shall confirm or state that it is acting in its
capacity as servicer of the Loans, their Related Security and related matters
as agent for and on behalf of the Mortgages Trustee and the Beneficiaries and
not on its own behalf.


 


3.2                               Sub-contracts


 


(a)                                  The Servicer may sub-contract
or delegate the performance of all or any of its powers and obligations under
this Agreement, provided that (but subject to Clause 3.2(b)):


 


(i)                                     the prior written consent of
Funding 1 and the Security Trustee to the proposed arrangement (including, if
Funding 1 and the Security Trustee consider it necessary, approving any contract
which sets out the terms on which such arrangements are to be made) has been
obtained and written notification has been given to each of the Rating
Agencies;


 


(ii)                                  where the arrangements involve
the custody or control of any Customer Files and/or Title Deeds relating to the
Portfolio for the purpose of performing any delegated Services the
sub-contractor or delegate has executed an acknowledgement in form and
substance acceptable to Funding 1 and the Security Trustee to the effect that
any such Customer Files and/or Title Deeds are and will be held to the order of
the Mortgages Trustee (as trustee for the Beneficiaries);


 


(iii)                               where the arrangements involve
or may involve the receipt by the sub-contractor or delegate of monies
belonging to the Beneficiaries which, in accordance with this Agreement, are to
be paid into the Mortgages Trustee GIC Account and/or the Funding 1 GIC
Account, the sub-contractor or delegate has executed a declaration in form and
substance acceptable to the Beneficiaries that any such monies held by it or to
its order are held on trust for the Beneficiaries and will be paid forthwith
into, as applicable, the Mortgages Trustee GIC Account and/or the Funding 1 GIC
Account in accordance with the terms of the Mortgages Trust Deed;


 


3

















 


(iv)                              any such sub-contractor or
delegate has executed a written waiver of any Security Interest arising in
connection with such delegated Services (to the extent that such Security
Interest relates to the Portfolio or any amount referred to in (iii) above);
and


 


(v)                                 neither the Security Trustee,
the Mortgages Trustee nor Funding 1 shall have any liability for any costs,
charges or expenses payable to or incurred by such sub-contractor or delegate
or arising from the entering into, the continuance or the termination of any
such arrangement.


 


(b)                                 The provisos to Clause
3.2(a)(i), (ii) and (iii) shall not apply:


 


(i)                                     to the engagement by the
Servicer of:


 


(A)                              any receiver, solicitor,
insurance broker, valuer, surveyor, accountant, estate agent, insolvency
practitioner, auctioneer, bailiff, sheriff officer, debt counsellor, tracing
agent, property management agent, licensed conveyancer, qualified conveyancer
or other professional adviser acting as such; or


 


(B)                                any locksmith, builder or
other contractor acting as such in relation to a Property,


 


in any
such case being a person or persons whom the Servicer would be willing to
appoint in respect of its own mortgages in connection with the performance by
the Servicer of any of its obligations or functions or in connection with the
exercise of its powers under this Agreement; or


 


(ii)                                  to any delegation to any
wholly-owned subsidiary of the Seller or HBOS plc from time to time.


 


(c)                                  The Mortgages Trustee and/or
Funding 1 and the Security Trustee may by notice in writing require the
Servicer to assign to the Mortgages Trustee any rights which the Servicer may
have against any sub-contractor or delegate arising from the performance of
services by such person relating to any matter contemplated by this Agreement
and the Servicer acknowledges that such rights assigned to the Mortgages
Trustee will be exercised by the Mortgages Trustee as trustee for the
Beneficiaries subject to the terms of the Mortgages Trust Deed.


 


(d)                                 Notwithstanding any
sub-contracting or delegation of the performance of its obligations under this
Agreement, the Servicer shall not thereby be released or discharged from any
liability hereunder and shall remain responsible for the performance of all of
the obligations of the Servicer under this Agreement, and the performance or
non-performance or the manner of performance of any sub-contractor or delegate
of any of the Services shall not affect the Servicer’s obligations under this
Agreement and any breach in the performance of the Services by such
sub-contractor or delegate shall, subject to the Servicer being entitled for a
period of 20 London Business Days from receipt of any notice of the breach to
remedy such breach by any sub-contractor or delegate, be treated as a breach of
this Agreement by the Servicer.


 


3.3                               Notices etc.


 


(a)                                  Within 20 London Business Days
of the Initial Closing Date, the Servicer will give notice (or procure that
notice is given) by courier or by special delivery to HBOS Insurance (PCC)
Guernsey Limited of the assignment to the Mortgages Trustee by the Seller of
its interests in the Halifax Mortgage Re Limited MIG Policies pursuant to the
Assignment of Halifax Mortgage Re Limited MIG Policies, which shall be held by
the Mortgages Trustee absolutely


 


4

















 


as bare trustee for the Beneficiaries
pursuant to the Mortgages Trust Deed, and the Servicer shall take all
reasonable steps to ensure the return by the relevant recipient of the
duplicate notices of assignment by way of acknowledgement thereof.


 


(b)                                 Promptly upon request by
Funding 1 and the Security Trustee, the Servicer shall procure that any notices
permitted to be given by the Mortgages Trustee under Clause 6.4 of the Mortgage
Sale Agreement are so given by the Servicer on the Mortgages Trustee’s behalf.


 


3.4                               Liability of Servicer


 


(a)                                  The Servicer shall indemnify
each of the Mortgages Trustee and the Beneficiaries on demand on an after-tax
basis for any loss, liability, claim, expense or damage suffered or incurred by
any of them in respect of the negligence or wilful default of the Servicer in
carrying out its functions as Servicer under this Agreement or the other
Transaction Documents or as a result of a breach by the Servicer of the terms
and provisions of this Agreement or the other Transaction Documents in relation
to such functions.


 


(b)                                 For the avoidance of doubt,
the Servicer shall not be liable in respect of any loss, liability, claim,
expense or damage suffered or incurred by the Mortgages Trustee and/or the
Beneficiaries and/or any other person as a result of the proper performance of
the Services by the Servicer save where such loss, liability, claim, expense or
damage is suffered or incurred as a result of any negligence or wilful default
of the Servicer or as a result of a breach by the Servicer of the terms and
provisions of this Agreement or the other Transaction Documents in relation to
such functions.


 


(c)                                  Any indemnification under this
Clause
3.4 in respect of loss suffered by the Beneficiaries shall be paid
for by reducing the Seller Share of the Trust Property by an amount equal to
the relevant loss incurred by the Beneficiaries in accordance with Clause 8.4
of the Mortgages Trust Deed and Schedule 2 to the Cash Management
Agreement.


 


4.                                      MORTGAGES TRUSTEE VARIABLE BASE
RATE/MORTGAGES TRUSTEE TRACKER RATE


 


4.1                                 The Mortgages Trustee and each
of the Beneficiaries each hereby grants the Servicer full right, liberty and
authority from time to time, in accordance with the relevant Mortgage Terms, to
determine and set the Mortgages Trustee Variable Base Rate and any variable
margin incorporated within the Mortgages Trustee Tracker Rate above the Bank of
England repo rate applicable in relation to Tracker Rate Loans chargeable to
Borrowers from time to time.  In
exercising such right, liberty and authority the Servicer undertakes to each of
the other parties to this Agreement that it shall not at any time, without the
prior consent of the Mortgages Trustee and Funding 1, set or maintain the
Mortgages Trustee Variable Base Rate at a rate which is higher than (although
it may be lower than or equal to) the then prevailing Seller’s Variable Base
Rate, nor will it set or maintain a margin incorporated within the Mortgages
Trustee Tracker Rate above the Bank of England repo rate in respect of any
Tracker Rate Loan, which is higher than the margin above the Bank of England
repo rate then applying to those Tracker Rate Loans beneficially owned by the
Seller outside the Portfolio except in the limited circumstances described in
this paragraph when the Mortgages Trustee will be entitled to do so.  The Servicer will not at any time, without
the prior consent of the Mortgages Trustee and Funding 1, set or maintain:


 


(a)                                  the Mortgages Trustee Variable
Base Rate at a rate which is higher than (although it may be lower than or
equal to) the then prevailing Seller’s Variable Base Rate which applies to
loans beneficially owned by the Seller outside the Portfolio;


 


5

















 


(b)                                 the margin incorporated within
the Mortgages Trustee Tracker Rate in respect of any Tracker Rate Loan in the
Portfolio which, where the offer conditions for that Tracker Rate Loan provide
that the margin above the Bank of England repo rate shall be the same as the
margin above the Bank of England repo rate applicable to all other loans having
the same offer conditions in relation to interest rate setting as that Tracker
Rate Loan, is higher or lower than the margin above the Bank of England repo
rate then applying to those Tracker Rate Loans beneficially owned by the Seller
outside the Portfolio; and


 


(c)                                  the margin incorporated within
the Mortgages Trustee Tracker Rate above the Bank of England repo rate in
respect of any other Tracker Rate Loan which is higher than the margin above
the Bank of England repo rate which would then be set in accordance with the
Seller’s Policy from time to time in relation to that Tracker Rate Loan,


 


unless
the Servicer is required to do so pursuant to Clause 4.3, and, subject to
that requirement, that it shall not change the Mortgages Trustee Variable Base
Rate nor the Mortgages Trustee Tracker Rate save for the same reasons as the
Seller was entitled, under the Mortgage Conditions, to change the Seller’s Variable
Base Rate and the Seller’s Tracker Rate prior to the sale to the Mortgages
Trustee of the Loans comprised in the Portfolio and their Related
Security.  Each of the Mortgages Trustee
and the Beneficiaries shall be bound by the Mortgages Trustee Variable Base
Rate and the Mortgages Trustee Tracker Rate set in accordance with this
Agreement.


 


4.2                                 The Servicer shall take the
steps rendered necessary by the relevant Mortgage Terms and applicable law
(including, without limitation, the Guidance Note on Interest Variation Terms
issued by the Office of Fair Trading in February 2000 and any successor
guideline or applicable additional guidelines) to bring each change in such
rate or rates of interest to the attention of the relevant Borrowers, whether
due to a change in the Mortgages Trustee Variable Base Rate or the Mortgages
Trustee Tracker Rate or as a consequence of any provisions of the Mortgage
Terms.  Any change in the Mortgages
Trustee Variable Base Rate or the Mortgages Trustee Tracker Rate shall be notified
in writing to each of the Mortgages Trustee, the Security Trustee and the
Beneficiaries as soon as reasonably practicable and shall, upon receipt of a
request from any of such parties, notify such requesting party of any changes
in the Monthly Payments in relation to the Loans.  All costs arising in relation to such a notification of a change
in such rate or rates of interest shall be borne by the Servicer.


 


4.3                                 (a)           On each Funding 1 Interest Payment Date the
Servicer shall determine, having regard to the aggregate of:


 


(i)                                     the revenue which Funding 1
would expect to receive during the next succeeding Interest Period;


 


(ii)                                  the Mortgages Trustee Variable
Base Rate, any variable margins applicable in relation to any Tracker Rate
Loans and the Variable Mortgage Rates in respect of the Loans which the
Servicer proposes to set under this Clause 4; and


 


(iii)                               the other resources available
to Funding 1 including the Funding 1 Swap Agreement, the Funding 1 Liquidity
Facility, the General Reserve Fund and the Liquidity Reserve Fund,


 


whether
Funding 1 would receive an amount of revenue during that Loan Interest Period
which when aggregated with the funds otherwise available to it is less than the


 


6

















 


amount
which is the aggregate of (A) the amount of interest which will be payable in
respect of the Term AAA Advances on the Funding 1 Interest Payment Date falling
at the end of such Loan Interest Period and (B) the other senior expenses of
Funding 1 which rank in priority thereto (the amount (if any) by which it is
less being the Interest Rate Shortfall).


 


(b)                                 If the Servicer determines
that there will be an Interest Rate Shortfall, it will within one London
Business Day of such determination give written notice thereof to the Mortgages
Trustee, Funding 1 and the Security Trustee of such Interest Rate Shortfall and
of the Mortgages Trustee Variable Base Rate and/or the Mortgages Trustee
Tracker Rate which would (taking into account the applicable Mortgage Conditions),
in the Servicer’s reasonable opinion, need to be set in order for no Interest
Rate Shortfall to arise, having regard to the date(s) (which shall be specified
in the notice) on which such change to the Mortgages Trustee Variable Base Rate
and the Mortgages Trustee Tracker Rate would take effect and at all times
acting in accordance with the standards of a Reasonable, Prudent Mortgage
Lender as regards the competing interests of Borrowers with Mortgage Trustee
Variable Base Rate Loans and Borrowers with Mortgages Trustee Tracker Rate
Loans.


 


(c)                                  If the Mortgages Trustee,
Funding 1 and the Security Trustee notify the Servicer that, having regard to
the obligations of Funding 1, the Mortgages Trustee Variable Base Rate and/or
the Mortgages Trustee Tracker Rate should be increased, the Servicer, as agent
for and on behalf of, inter alia, the Mortgages Trustee and the
Beneficiaries, shall take all steps which are necessary, including publishing
any notice which is required in accordance with the Mortgage Terms, to effect
such change in the Mortgages Trustee Variable Base Rate and/or the Mortgages
Trustee Tracker Rate on the date(s) specified in the notice referred to in Clause
4.3(b).


 


(d)                                 The Mortgages Trustee and/or
Funding 1 and the Security Trustee may terminate the authority of the Servicer
under Clause
4.1 and Clause 4.3 to determine the Mortgages
Trustee Variable Base Rate and the Mortgages Trustee Tracker Rate on or after
the occurrence of a Servicer Termination Event, in which case the Mortgages
Trustee shall set the Mortgages Trustee Variable Base Rate and the Mortgages
Trustee Tracker Rate in accordance with this Clause 4.


 


5.                                      ADMINISTRATION OF MORTGAGES


 


5.1                               Direct Debiting Scheme


 


(a)                                  For the purposes of collecting
amounts due from Borrowers under the Loans and their Related Security comprised
in the Portfolio in accordance with this Agreement the Servicer will unless
otherwise agreed in writing with the Beneficiaries:


 


(i)                                     act, or procure that another
person approved in writing by the Beneficiaries (such approval not to be
unreasonably withheld) (the Third Party Collection Agent) acts, as
collection agent for the Mortgages Trustee and the Beneficiaries under the
Direct Debiting Scheme and remains a member of the Direct Debiting Scheme or
any scheme which replaces the Direct Debiting Scheme;


 


(ii)                                  subject to Clauses
5.1(b) and 5.1(c), deliver to the Bankers Automated
Clearing System (BACS) or to the Account Bank such instructions as may be
necessary from time to time for the debit of the account of each Borrower in
respect of which there is a direct debit mandate (the date of such delivery
being the D.D.
Date) with the Monthly Payment due from such Borrower, and for the
amount of such Monthly


 


7

















 


Payment to be credited to the Mortgages
Trustee GIC Account on the day after the D.D. Date or, if such is not a London
Business Day, the following London Business Day unless the short-term ratings
of the Account Bank fall below A-1 by S&P, P-1 by Moody’s or F-1 by Fitch,
in which case all further instructions by the Servicer to debit the accounts of
Borrowers that are subject to direct debit bank mandates shall be made to
another bank which has a rating of at least A-1 by S&P, P-1 by Moody’s or
F-1 by Fitch, or directly to the Mortgages Trustee GIC Account;


 


(iii)                               subject to Clauses
5.1(b) and 5.1(c), deliver to the Account Bank or BACS
(as appropriate) instructions for the debit of the account of each Borrower in
respect of which there is a direct debit mandate and the Monthly Payment due
and owing from such Borrower on the D.D. Date immediately preceding the next
succeeding Monthly Payment Date remains outstanding to the extent that, on the
date of presentation of such instructions, such Monthly Payment has not been received
in full by the Servicer on behalf of the Mortgages Trustee and where the
instructions for the debit of the account of the relevant Borrower for the
Monthly Payment due and owing from such Borrower was returned to the Servicer
marked “insufficient funds” within 10 London Business Days of receipt by the
Servicer of any such returned instructions;


 


(iv)                              subject to Clauses
5.1(b) and 5.1(c), deliver to the Account Bank or BACS
(as appropriate) such other instructions for the debit of the account of each Borrower
in respect of which there is a direct debit mandate in accordance with the
Direct Debiting Scheme as may be appropriate for the recovery of sums due by
such Borrower;


 


(v)                                 comply in all material
respects with the requirements from time to time of the Direct Debiting Scheme
including “The Originator’s Guide and Rules to the Direct Debiting Scheme” as
amended from time to time,


 


and
take all such other steps as are reasonably appropriate, including in
particular the preparation and administration of appropriate computer tapes in
connection with BACS, to ensure that all monies received from Borrowers during
banking hours on any particular day are credited on the next day to the
Mortgages Trustee GIC Account.


 


(b)                                 The Servicer may agree with a
Borrower that the Direct Debiting Scheme shall not apply to Monthly Payments to
be made by such Borrower, provided, subject to Clause 5.1(d), that (i)
alternative payment arrangements are made which are intended to ensure timely
payment of Monthly Payments due from the Borrower to the Mortgages Trustee on
behalf of the Beneficiaries, and (ii) the change in arrangements was made at
the instigation of the Borrower or by the Servicer in accordance with the
procedures which would be adopted by a Reasonable, Prudent Mortgage Lender.


 


(c)                                  The Servicer may,
notwithstanding the proviso to Clause 5.1(b), agree such procedures for
the payment by a Borrower of (i) overdue amounts and (ii) amounts payable on
redemption of a Mortgage in whole or in part other than through the Direct
Debiting Scheme as would be agreed by a Reasonable, Prudent Mortgage Lender.


 


(d)                                 The Servicer shall,
notwithstanding the proviso to Clause 5.1(b), use its reasonable
endeavours to credit Monthly Payments made by a Borrower under a payment
arrangement other than the Direct Debiting Scheme to the Mortgages Trustee GIC
Account as follows:


 


(i)                                     where the Borrower pays by
standing order, by close of business on the second London Business Day
following the day on which such amount is received or credited by the Servicer;


 


8

















 


(ii)                                  where the Borrower pays by
payment of cash, by transfer payment from another account of the Seller or by
cheque where reference to the relevant Borrower is provided or payments are made
by way of paying-in book, by close of business on the London Business Day which
immediately follows the day on which such amount is received or credited by the
Servicer; and


 


(iii)                               where the Borrower pays by
cheque where a reference to the relevant Borrower is not provided, by close of
business on the next London Business Day after notification from the banks
operating the Seller Bank Accounts of the identity of the Borrower.


 


(e)                                  Where a Borrower permits a
direct debit to be made to his bank account, the Servicer will endeavour to
procure that such Borrower maintains a valid and effective mandate relating to
such direct debit in relation to each Monthly Payment due from that Borrower,
provided that in any case where a Borrower will not permit a direct debit to be
made to his bank account the Servicer will endeavour to make alternative
arrangements acceptable to a Reasonable, Prudent Mortgage Lender so that such
Borrower nevertheless pays each Monthly Payment within the month in which it
falls due.


 


(f)                                    In the event that the BACS
system ceases to operate for any reason the Servicer will use reasonable
endeavours to make alternative arrangements for the use of the back up systems
available to each Account Bank.


 


(g)                                 If at any time the Servicer
shall receive notice whether under the Direct Debiting Scheme or otherwise that
any amount (or part thereof), which was paid in or credited pursuant to Clause 5.1
and which has been transferred to the Mortgages Trustee GIC Account has not
been received as cleared funds or has otherwise been recalled, the Servicer
shall notify the Cash Manager and instruct the Cash Manager forthwith to debit
the Mortgages Trustee GIC Account and credit the relevant collection account
for the whole or any part of such amount (such amount hereinafter referred to
as the shortfall)
and, an amount equal to any costs which are irrecoverable by the Servicer from
the relevant Borrower incurred by the Servicer as a result of such shortfall; PROVIDED
THAT no debit from the Mortgages Trustee GIC Account for the credit
of the collection accounts in respect of any shortfall may be made on or after
a Calculation Date in respect of the relevant period between that Calculation
Date and the next Distribution Date unless sufficient funds are available after
providing or making provision for all payments to be made on the next
succeeding Distribution Date.  After
that following Distribution Date the Mortgages Trustee shall transfer, or
procure on its behalf the transfer, from the Mortgages Trustee GIC Account to
the relevant collection account of an amount equal to such shortfall subject to
it having sufficient funds available to it or the Servicer shall deduct an
amount equal to such shortfall from payments otherwise due on a daily basis
from the Seller to the Mortgages Trustee in respect of Principal Receipts and
Interest Receipts received under the Loans.


 


5.2                               Administration and Enforcement
of Mortgages


 


(a)                                  The Mortgages Trustee and the
Beneficiaries hereby direct the Servicer to administer the Loans comprised in
the Portfolio and carry out its specific obligations under this Agreement in
accordance with the Seller’s Policy.


 


(b)                                 The Servicer will, in relation
to any default by a Borrower under or in connection with a Loan or a Mortgage
comprised in the Portfolio, comply with the Enforcement Procedures or, to the
extent that the Enforcement Procedures are not applicable having regard to the
nature of the default in question, take such action as is not materially
prejudicial to the interests of the Mortgages Trustee (as trustee for the
Beneficiaries) and the Beneficiaries under the relevant MIG Policy, provided
that:


 


9

















 


(i)                                     the Servicer shall only become
obliged to comply with the Enforcement Procedures (to the extent applicable) or
to take action as aforesaid after it has become aware of the default;


 


(ii)                                  it is acknowledged by the
Beneficiaries that mortgage lenders generally exercise discretion in pursuing
their respective enforcement procedures and that the Servicer may exercise such
discretion as would a Reasonable, Prudent Mortgage Lender in applying the
Enforcement Procedures to any particular defaulting Borrower or taking action
as aforesaid, provided that in exercising such discretion the interest of Funding
1 in the Portfolio is not materially prejudiced; and


 


(iii)                               in any case where any of the
Insurance Policies requires exact compliance with certain enforcement
procedures the Servicer shall procure the prior written consent of the relevant
insurance company for any deviation by it from such enforcement procedures.


 


5.3                               Records


 


The
Servicer shall keep and maintain records in relation to the Portfolio, on a
Loan by Loan basis, for the purposes of identifying amounts paid by each
Borrower, any amount due from a Borrower and the principal balance (and, if
different, the total balance) from time to time outstanding on a Borrower’s
account and such other records as would be kept by a Reasonable, Prudent
Mortgage Lender.  The Servicer will
provide such information to the Mortgages Trustee and/or Funding 1 and/or the
Security Trustee or to their order at any time upon reasonable notice subject
to the Servicer being reasonably capable of providing such information without
significant additional cost and subject to the provisions of the Data
Protection Act 1998 and other applicable legislation from time to time and
provided that no duty of confidence and no industry code of practice will or
may be breached thereby.


 


5.4                               Trust


 


(a)                                  If the Servicer in carrying
out its functions as Servicer under this Agreement receives (including in its
capacity as agent for the Mortgages Trustee and the Beneficiaries) any money
whatsoever arising from the Loans and their Related Security, which money
belongs to the Mortgages Trustee (as trustee for the Beneficiaries) and is to
be paid to the Mortgages Trustee GIC Account pursuant to this Agreement or any
of the other Transaction Documents or otherwise, it will hold such monies on
trust for the Mortgages Trustee and shall keep such money separate from all
other monies held by the Servicer and shall, as soon as reasonably practicable
and in any event within the time limits referred to in Clause 5.1, pay the monies
into the Mortgages Trustee GIC Account.


 


(b)                                 All other sums received by the
Servicer in respect of the Loans and their Related Security shall be held by
the Servicer for itself.


 


6.                                      NO LIABILITY


 


6.1                                 The Servicer shall have no
liability for any obligation of a Borrower under any Loan comprised in the
Portfolio or any Related Security and nothing herein shall constitute a
guarantee, or similar obligation, by the Servicer of any Loan, Mortgage or any
Borrower.


 


6.2                                 Save as otherwise provided in
this Agreement, the Servicer shall have no liability for the obligations of the
Mortgages Trustee or the Beneficiaries under any of the Transaction Documents
or otherwise and nothing herein shall constitute a guarantee, or similar
obligation, by the Servicer of the Mortgages Trustee or the Beneficiaries in
respect of any of them.


 


10

















 


7.                                      NEW LOANS


 


7.1                                 The Portfolio may be augmented
from time to time by the sale to the Mortgages Trustee on any Sale Date of a
New Portfolio by the Seller.


 


7.2                                 The sale of each New Portfolio
to the Mortgages Trustee will in all cases be subject to the terms set out in
the Mortgage Sale Agreement including, without limitation, the conditions set
out in Clauses
4 of the Mortgage Sale Agreement and the representations and
warranties set out in Clause 8 of the Mortgage Sale Agreement.


 


8.                                      PRODUCT SWITCHING AND FURTHER
ADVANCES


 


8.1         (a)                                        The Servicer shall not accept
an application for a Further Advance without first having received confirmation
in writing from the Seller that the Seller would, if so offered by the Mortgages
Trustee, purchase the relevant Loan and its Related Security from the Mortgages
Trustee.


 


(b)                                 The Servicer shall not accept
an application for a Product Switch without first having received confirmation
in writing from the Seller save where the Seller and the Servicer are both
Halifax plc that the Seller would, if so offered by the Mortgages Trustee,
purchase the relevant Loan and its Related Security from the Mortgages Trustee
if on the immediately preceding Distribution Date, the Seller is in breach of
the conditions referred to in Clauses 4.2(a) to (o) inclusive of the Mortgage
Sale Agreement as if references therein to “New Loans” and “New
Portfolio” were references to the Loan which would result from the
implementation of such Product Switch and as if references to “Sale
Date”
were references to the date when the Seller and relevant Borrower complete such
Product Switch.


 


8.2                                 Subject to complying with the
terms of Clause
8.1, where the Servicer accepts a Product Switch or a Further
Advance, the Servicer shall then notify the Seller and the Mortgages Trustee in
writing.


 


8.3                                 Notwithstanding Clause 8.2,
subject to complying with the terms of Clause 8.1, the Servicer, on behalf of and
as agent for the Mortgages Trustee (or, in the case of Product Switches and
Further Advances relative to Scottish Loans, on behalf of and as agent for the
Seller, in its capacity as trustee for the Mortgages Trustee under the relevant
Scottish Declaration of Trust) may accept requests from Borrowers for Product
Switches and Further Advances provided that the Servicer acts in accordance
with its then procedure which would be acceptable to a Reasonable, Prudent
Mortgage Lender.


 


9.                                      REDEMPTION OF MORTGAGES


 


9.1                                 Upon repayment in full of all
sums secured by a Mortgage and/or other Related Security comprised in the
Portfolio, the Servicer shall, and is hereby authorised by the Mortgages
Trustee and the Beneficiaries to execute a receipt or discharge or relevant
H.M. Land Registry Form DS1 of the Mortgage and any such other or further
instrument or deed of satisfaction regarding such Mortgage and/or the Related
Security as it considers to be necessary or advisable, to implement an
Electronic Notification of Discharge to H.M. Land Registry and to release the
relevant Title Deeds to the person or persons entitled thereto.


 


9.2                                 The Servicer undertakes that
prior to any actual release by it of the relevant Title Deeds it will take
reasonable and appropriate steps to satisfy itself that the relevant Title
Deeds are being released to the person or persons entitled thereto.


 


11

















 


9.3                                 The Servicer shall procure
that if, upon completion of the Enforcement Procedures, an amount in excess of
all sums due by the relevant Borrower is recovered or received, the balance,
after discharge of all sums due by the Borrower, is paid to the person or
persons next entitled thereto.


 


10.                               POWERS OF ATTORNEY


 


10.1                           For good and valuable
consideration and as security for the interests of the Mortgages Trustee and
the Beneficiaries hereunder, each of the Seller, the Mortgages Trustee and the
Beneficiaries hereby appoints the Servicer as its attorney on its behalf, and
in its own or the attorney’s name, for the following purposes:


 


(a)                                  executing all documents necessary
for the purpose of discharging a Mortgage comprised in the Portfolio which has
been repaid in full and any Related Security or for the sale of a Property as
Mortgagee;


 


(b)                                 executing all documents and
implementing all Electronic Notifications of Discharge to H.M. Land Registry
necessary for the purpose of releasing a Borrower in accordance with Clause 9;


 


(c)                                  executing all documents and
doing all such acts and things which in the reasonable opinion of the Servicer
are necessary or desirable for the efficient provision of the Services
hereunder; and


 


(d)                                 exercising its rights, powers
and discretion under the Mortgages including the right to fix the Mortgages
Trustee Variable Base Rate and the Mortgages Trustee Tracker Rate or any
related rights,


 


provided that, for the avoidance of doubt,
these Powers of Attorney shall not authorise the Servicer to sell any of the
Loans and/or their Related Security comprised in the Portfolio except as
specifically authorised in the Transaction Documents.  For the avoidance of doubt, neither the Seller (where the
Servicer is not Halifax plc), the Mortgages Trustee nor Funding 1 shall be
liable or responsible for the acts of the Servicer or any failure by the
Servicer to act under or in respect of these Powers of Attorney.


 


10.2                           The appointments contained in Clause 10.1
shall be irrevocable unless and until following a Termination Event the
Mortgages Trustee and/or Funding 1 and the Security Trustee serves notice
pursuant to Clause 21 to terminate the Servicer’s appointment under this
Agreement upon which the appointments contained in Clause 10.1 shall be
automatically revoked.


 


11.                               COSTS AND EXPENSES


 


11.1                           The Mortgages Trustee (on
behalf of the Beneficiaries) will on each Distribution Date reimburse, in
accordance with Clause 10.2 of the Mortgages Trust Deed, the Servicer for all
out-of-pocket costs, expenses and charges (together with any amounts in respect
of Irrecoverable Value Added Tax due thereon) properly incurred by the Servicer
in the performance of the Services including any such costs, expenses or
charges not reimbursed to the Servicer on any previous Distribution Date and
the Servicer shall supply the Mortgages Trustee with a copy of an appropriate
VAT invoice issued by the person making the supply.


 


11.2                           The Servicer will use
reasonable endeavours to recover from the relevant Borrowers all costs and
expenses incurred by the Servicer which are properly recoverable from those
Borrowers under the relevant Mortgage Conditions.


 


12

















 


12.                               INFORMATION


 


12.1                        Maintenance of Records


 


(a)                                  Subject to Clause 18,
the Servicer shall keep the Customer Files relating to the Portfolio in safe
custody and shall take appropriate technical and organisational measures
against the unauthorised or unlawful processing of personal data and against
accidental loss or destruction of, or damage to, personal data.  The Servicer shall maintain in an adequate
form such records as are necessary to enforce each Mortgage comprised in the
Portfolio and, where relevant, any other Related Security.


 


(b)                                 A duplicate of any computer
records held by the Servicer which contains information relating to the Loans
and the Related Security shall be lodged by the Servicer on a daily basis at
the offices of the Seller at the Pudsey Data Centre or at such other locations
selected by the Servicer, so long as such location is a location separate from
that in which the original computer records are stored and in an environment
conducive to the safe storage of electronic media, such records to be held to
the order of the Mortgages Trustee and to be replaced by a revised duplicate as
and when the original records are revised. 
The Servicer shall keep the Mortgages Trustee informed of the location
of the Customer Files and duplicate computer records.


 


12.2                        Use of I.T. systems


 


(a)                                  The Servicer covenants that at
the date hereof in respect of the software which is used by the Servicer in
providing the Services, it shall for the duration of this Agreement:


 


(i)                                     ensure that it has in place
all necessary licences and/or consents from the respective licensor or
licensors (if any) of such software; and


 


(ii)                                  except in so far as it would
breach any other of its legal obligations, grant to any person to whom it may
sub-contract or delegate the performance of all or any of its powers and
obligations under this Agreement and/or to such person as the Mortgages Trustee
and the Beneficiaries elect as a substitute servicer in accordance with the
terms of this Agreement a licence to use any proprietary software together with
any updates which may be made thereto from time to time.


 


(b)                                 The Servicer shall use
reasonable endeavours to maintain in working order the information technology
systems used by the Servicer in providing the Services.


 


(c)                                  The Servicer shall pass to any
person to whom it may sub-contract or delegate the performance of all or any of
its powers and obligations under this Agreement and/or to such person as the
Mortgages Trustee and the Beneficiaries elect as a substitute servicer in
accordance with the terms of this Agreement the benefit of any warranties in
relation to the software insofar as the same are capable of assignment.


 


12.3                        Access to Books and Records


 


Subject
to all applicable laws, the Servicer shall permit the Mortgages Trustee and
Funding 1 (and their auditors) and the Security Trustee and any other person
nominated by the Beneficiaries (to whom the Servicer has no reasonable
objection) upon reasonable notice during normal office hours to have access, or
procure that such person or persons are granted access, to all books of record
and account (including, for the avoidance of doubt, the Title Deeds and
Customer Files) relating to the administration of the Loans and their Related
Security comprised in the Portfolio and related matters in accordance with this
Agreement.


 


13

















 


12.4                        Information Covenants


 


(a)                                  The Servicer shall provide the
Mortgages Trustee, the Beneficiaries, each Manager (as set out in each Issuer
Master Definitions and Construction Schedule) (if requested by such Manager to
do so) and the Rating Agencies quarterly with a report in, or substantially in,
the form set out in SCHEDULE 2 and shall assist the Cash
Manager in the production of quarterly reports substantially in the forms set
out in Schedule 3 of the Cash Management Agreement.


 


The
Servicer shall notify the Rating Agencies in writing of the details of (i) any
material amendment to the Transaction Documents, (ii) any proposed material
change in the valuation procedures or policies applied or to be applied in
relation to Properties by it in connection with its mortgage business (details
of which change may be included in a report provided under paragraph ((a)) and
(iii) any other information relating to its mortgage business and financial
condition as the Rating Agencies may reasonably request in connection with the
ratings of the Notes and other matters contemplated by the Transaction
Documents, provided that such request does not adversely interfere with the
Servicer’s day to day provision of the Services under the other terms of this
Agreement.


 


(b)                                 The Servicer shall, at the
request of Funding 1 and the Security Trustee (where the Servicer is the
Seller) and at the request of the Beneficiaries (where the Servicer is no
longer the Seller), furnish Funding 1, the Security Trustee and/or the
Beneficiaries (as appropriate) and the Rating Agencies with such other
information relating to its business and financial condition as it may be
reasonable for Funding 1, the Security Trustee and/or the Beneficiaries (as
appropriate) to request in connection with the ratings of the Notes and other
matters contemplated by the Transaction Documents, provided that Funding 1, the
Security Trustee or the Beneficiaries (as appropriate) shall not make such a
request more than once every three months unless, in the belief of Funding 1,
the Security Trustee or the Beneficiaries (as appropriate), an Intercompany
Loan Event of Default or a Termination Event shall have occurred and is
continuing or may reasonably be expected to occur.


 


(c)                                  The Servicer shall make
available to beneficial owners of the Notes, who have provided beneficial
ownership certification as described herein, on a monthly basis a report
containing information about the loans in the Mortgages Trust.


 


13.                               REMUNERATION


 


The
Mortgages Trustee (on behalf of the Beneficiaries) shall pay to the Servicer
for its Services hereunder an administration fee (the Administration Fee)
(inclusive of Value Added Tax) which:


 


(a)                                  shall be calculated in
relation to each Distribution Period on the basis of the number of days elapsed
and a 365 day year at the rate of 0.05 per cent. per annum, inclusive of Value
Added Tax, on the aggregate amount of the Trust Property as at close of business
on the preceding Funding 1 Interest Payment Date (or, as applicable, the
Initial Closing Date); and


 


(b)                                 shall be paid to the Servicer
in arrear on each Distribution Date in the manner contemplated by and in
accordance with the provisions of Clause 10.2 of the Mortgages Trust Deed.


 


14.                               INSURANCES


 


14.1                           The Servicer will administer
the arrangements for insurance to which the Mortgages Trustee is a party or in
which either the Seller or the Mortgages Trustee (on behalf of the


 


14

















 


Beneficiaries) has an interest and which
relate to the Loans and the Mortgages comprised in the Portfolio or the
business of the Mortgages Trustee.  In
particular, but without limitation, the Servicer shall promptly notify the
Mortgages Trustee and the Beneficiaries and the Trustee of the existence of any
insurance policies to which the Seller is a party or in which it has an
interest in addition to those specifically referred to in the definition of
“Halifax Insurance Policies” in the Master Definitions and Construction
Schedule.


 


14.2                           The Servicer shall use its
reasonable endeavours to credit to the Mortgages Trustee GIC Account all
proceeds received from any claim made under any Insurance Policy in relation to
any Loan or its Related Security by close of business on the London Business
Day which immediately follows the day on which such amounts are received or
credited by the Servicer and which is to be applied either in whole or in part
in repayment of a Loan.


 


15.                               HALIFAX INSURANCE POLICIES


 


15.1                           The Servicer shall not
knowingly take or omit to take any action which would:


 


(a)                                  result in the avoidance or
termination of any of the Halifax Insurance Policies in relation to any Loans
and Mortgages to which any Halifax Insurance Policy applies; or


 


(b)                                 reduce the amount payable on
any claim made on behalf of the Mortgages Trustee (as trustee for the
Beneficiaries) under any Halifax Insurance Policy; or


 


(c)                                  invalidate any Halifax
Insurance Policy.


 


15.2                           The Servicer shall prepare and
submit any claim under the Halifax Insurance Policies in accordance with the
requirements of the relevant Halifax Insurance Policy and otherwise with the
usual procedures undertaken by a Reasonable, Prudent Mortgage Lender on behalf
of the Mortgages Trustee and the Beneficiaries and shall comply with the other
requirements of the insurer under the relevant Halifax Insurance Policy.


 


15.3                           If the Seller’s Policy
requires the Servicer to make a claim under the relevant MIG Policy and the
Servicer has failed to make such a claim, then the Beneficiaries may direct the
Mortgages Trustee on their behalf to direct the Servicer to make a claim or, in
default thereof by the Servicer, the Beneficiaries may direct the Mortgages
Trustee to itself make a claim under such policy and the Servicer shall, within
10 London Business Days of receiving a written request from the Mortgages
Trustee (as trustee for the Beneficiaries), provide the Mortgages Trustee with
such information as the Mortgages Trustee may require to enable it to make a
claim under the relevant MIG Policy.


 


16.                               BUILDINGS POLICIES


 


16.1                           The Servicer shall not
knowingly take any action or omit to take any action which would result in the
avoidance or termination of any applicable Buildings Policy or would reduce the
amount payable on any claim thereunder.


 


16.2                           Upon receipt of notice that
any Borrower whose Loan is secured by a mortgage of or a standard security over
a leasehold Property including a Property in Scotland held under a long lease
has failed to make a payment when due of any sums due under the relevant lease
in respect of the insurance of the property the Servicer may debit that
Borrower’s account with the relevant amount which shall then be paid to the
landlord.


 


15

















 


16.3                           If the Servicer becomes aware
that a Borrower has failed to pay premiums due under any Buildings Policy, the
Servicer shall take such action as would a Reasonable, Prudent Mortgage Lender
with a view to ensuring that the relevant Property continues to be insured in
accordance with the applicable Mortgage Terms or the Alternative Insurance
Recommendations.


 


17.                               TITLE DEEDS AND CUSTOMER FILES


 


17.1                           The Servicer shall keep the
Title Deeds, Customer Files and (where applicable) Insurance Policies and the
receipt of notes of assignment relating to the Portfolio in safe custody and
shall not without the prior written consent of the Mortgages Trustee and the
Beneficiaries part with possession, custody or control of them otherwise than
to a sub-contractor or delegate appointed pursuant to Clause 3.2 or to a solicitor,
licensed conveyancer, qualified conveyancer or authorised practitioner, subject
to the usual undertaking to hold them to the order of the Servicer (who in turn
will hold them to the order of the Mortgages Trustee (as trustee for the
Beneficiaries) or in the case of Scottish Loans, to the order of the Seller, in
its capacity as trustee for the Mortgages Trustee (as trustee for the
Beneficiaries) or to H.M. Land Registry or Registers of Scotland or, upon
redemption of the relevant Loan, to the order of the Borrower.


 


17.2                           The Title Deeds and Customer
Files relating to the Portfolio shall be kept in such manner so that a computer
record is maintained of their location and they are identifiable and
retrievable by reference to an account number and pool identifier and
identifiable and distinguishable from the title deeds relating to other
properties and mortgages and standard securities in respect of which the
Servicer is mortgagee or heritable creditor or servicer.  In the event of receipt by the Servicer of
notice that the short-term, unsecured, unsubordinated and unguaranteed debt of
the Servicer is rated less than A-1 by S&P and P-1 by Moody’s and F1 by
Fitch, the Servicer shall use reasonable endeavours to ensure that the Title
Deeds are identified as distinct from the title deeds of other properties and
mortgages and standard securities which do not form part of the Portfolio.


 


17.3                           The Servicer shall provide
access or procure that access is provided to the Title Deeds, Customer Files
and other records relating to the administration of the Loans and Mortgages in
the Portfolio to the Mortgages Trustee, the Beneficiaries, the Security Trustee
and their respective agents at all reasonable times and upon reasonable written
notice.  The Servicer acknowledges that
the Title Deeds and Customer Files relating to the Portfolio in its possession,
custody or control will be held to the order of the Mortgages Trustee (as
trustee for the Beneficiaries) or in the case of Scottish Loans, to the order
of the Seller, in its capacity as trustee for the Mortgages Trustee (as trustee
for the Beneficiaries), and that it has, in its capacity as Servicer, no
beneficial interest therein and the Servicer (in its capacity as such but not
in its capacity as a Beneficiary) irrevocably waives any rights or any Security
Interest which it might have therein or to which it might at any time be
entitled.


 


17.4                           The Servicer shall, forthwith
on the termination of the appointment of the Servicer pursuant to Clause 21,
deliver the Title Deeds and Customer Files in its possession, custody or
control or that of its sub-contractors or agents to or to the order of the
Mortgages Trustee or to such person as the Mortgages Trustee elects as a
substitute servicer in accordance with the terms of this Agreement upon written
request by the Mortgages Trustee made at any time on or after notice of, or on
or after, termination of the appointment of the Servicer pursuant to Clause 21.


 


17.5                           The Servicer undertakes that
it will use all reasonable efforts to obtain as soon as reasonably practicable:


 


16

















 


(a)                                  the title number to each
Property in respect of which a Mortgage is registered at H.M. Land Registry to
the extent that such title number does not appear in the Exhibit to the
Mortgage Sale Agreement (or, as the case may be, the Schedule to the relevant
New Portfolio Notice); and


 


(b)                                 The title number to each
Property in respect of which a Mortgage is registered in the Land Register of
Scotland to the extent that such title number does not appear in the Schedule
to the relevant New Portfolio Notice.


 


The
Servicer shall include in the quarterly report to be delivered in accordance
with Clause
12.4 of this Agreement (i) details of such title numbers relating to
the Initial Portfolio as are then known to the Servicer at the time of such
report and (ii) details of such title numbers relating to any New Loans
purchased from the Seller as are then known to the Seller at the time of such
report, together with such other information relating thereto as the Mortgages
Trustee may reasonably request.


 


18.                               DATA PROTECTION


 


18.1                           The Servicer and the Mortgages
Trustee each represents that as at the date hereof it has and hereafter it will
maintain all appropriate registrations, licences, consents and authorities (if
any) required under the Data Protection Act 1998 together, with its ancillary
legislation (the Data Protection Act) to enable it to perform its respective
obligations under this Agreement.  In
addition to the foregoing and notwithstanding any of the other provisions of
this Agreement, each of the Servicer and the Mortgages Trustee hereby agree and
covenant as follows:


 


(a)                                  that only data that is not
“personal data” (as described in the Data Protection Act) may be transferred by
the Servicer to the Mortgages Trustee or any other entity located in Jersey
(unless: (i) Jersey is determined, on the basis of Article 25(b) of Directive
95/46/EC, a third country which ensures an adequate level of protection of
“personal data” by the European Commission or (ii) the Servicer and the
Mortgages Trustee have entered into a data transfer agreement in a form
approved by the EC Commission as meeting the requirements of Article 26(2) of
Directive 95/46/EC for the transfer of personal data to third countries which
do not ensure an adequate level of protection (the Standard Contractual Clauses)
in which case, subject to Clause 18(e), the Servicer may transfer such personal
data to the Mortgages Trustee in Jersey);


 


(b)                                 that if, at the date at which
circumstances enable the Mortgages Trustee to exercise its right to demand that
the Servicer transfer inter alia personal data to the Mortgages
Trustee, (i) Jersey has been determined, on the basis of Article 25(b) of
Directive 95/46/EC a third country which ensures an adequate level of
protection of personal data by the European Commission or (ii) the Servicer and
the Mortgages Trustee have entered into the Standard Contractual Clauses then,
subject to the Clause 18(e), the Servicer shall transfer the relevant
personal data to the Mortgages Trustee or to its order;


 


(c)                                  that the Servicer will, if the
Mortgages Trustee requires the Servicer to do so, take all reasonable steps to
notify each Borrower that the Mortgages Trustee is a “data controller” (as
defined in the Data Protection Act) and provide each such Borrower with such
details as the Mortgage Trustee shall reasonably request including but not
limited to the Mortgages Trustee’s contact details for the purposes of the Data
Protection Act;


 


17

















 


(d)                                 that the Servicer and the
Mortgages Trustee will only use any data in relation to the Loans and the
related Borrowers for the purposes of administering and/or managing the
Portfolio, and will not sell such data to any third party or allow any third
party to use such data other than in compliance with the Data Protection Act,
the conditions stated in this Clause 18 and for the sole purpose of
administering and/or managing the Portfolio;


 


(e)                                  that the Mortgages Trustee
will comply with the provisions of the Data Protection (Jersey) Law 1987 (as
amended) or any law which supersedes or replaces the Data Protection (Jersey)
Law 1987 and (so long as the provisions of the Data Protection Act do not
conflict with the provisions of the Data Protection (Jersey) Law 1987 (as
amended) or any law which supersedes or replaces the Data Protection (Jersey)
Law 1987) with the provisions of the Data Protection Act;


 


(f)                                    that the Mortgages Trustee
shall maintain a written record of its reasons for applying the Data Protection
Order 2000/185 (as set forth under the Conditions under paragraph 3 of Part II
of Schedule I of the Data Protection Act).


 


18.2                           The Servicer will use all
reasonable endeavours to ensure that, in the event of the appointment of a
sub-contractor in accordance with Clause 3.2 such sub-contractor shall obtain
and maintain all appropriate registrations, licences, consents and authorities
required (including, without limitation, those required under the Data
Protection Act), and comply with obligations equivalent to those imposed on the
Servicer in this Clause 18, to enable it to perform its obligations.


 


19.                               COVENANTS OF SERVICER


 


19.1                           The Servicer hereby covenants
with and undertakes to each of the Mortgages Trustee, the Beneficiaries and the
Security Trustee that without prejudice to any of its specific obligations
hereunder it will:


 


(a)                                  administer the Loans and their
Related Security as if the same had not been sold to the Mortgages Trustee but
had remained on the books of the Seller;


 


(b)                                 provide the Services in such
manner and with the same level of skill, care and diligence as would a
Reasonable, Prudent Mortgage Lender;


 


(c)                                  comply with any proper
directions, orders and instructions which the Mortgages Trustee or the
Beneficiaries may from time to time give to it in accordance with the
provisions of this Agreement and, in the event of any conflict, those of the
Mortgages Trustee shall prevail;


 


(d)                                 keep in force all licences,
approvals, authorisations and consents which may be necessary in connection
with the performance of the Services and prepare and submit on a timely basis
all necessary applications and requests for any further approval,
authorisation, consent or licence required in connection with the performance
of the Services and in particular any necessary registrations under the Data
Protection Act;


 


(e)                                  save as otherwise agreed with
the Mortgages Trustee and each of the Beneficiaries, provide free of charge to
the Mortgages Trustee and the Beneficiaries, office space, facilities,
equipment and staff sufficient to fulfil the obligations of the Mortgages
Trustee and the Beneficiaries under this Agreement;


 


18

















 


(f)                                    not knowingly fail to comply
with any legal requirements in the performance of the Services;


 


(g)                                 make all payments required to
be made by it pursuant to this Agreement on the due date for payment thereof in
sterling (or as otherwise required under the Transaction Documents) in
immediately available funds for value on such day without set-off (including,
without limitation, in respect of any fees owed to it) or counterclaim but
subject to any deductions required by law;


 


(h)                                 not without the prior written
consent of the Security Trustee amend or terminate any of the Transaction
Documents save in accordance with their terms; and


 


(i)                                     forthwith upon becoming aware
of any event which may reasonably give rise to an obligation of the Seller to
repurchase any Loan pursuant to the Mortgage Sale Agreement, notify the
Mortgages Trustee and the Beneficiaries in writing of such event.


 


19.2                           The covenants of the Servicer
in Clause
19.1 shall remain in force until this Agreement is terminated but
without prejudice to any right or remedy of the Mortgages Trustee and/or the
Seller and/or Funding 1 arising from breach of any such covenant prior to the
date of termination of this Agreement.


 


20.                               SERVICES NON-EXCLUSIVE


 


Nothing
in this Agreement shall prevent the Servicer from rendering or performing
services similar to those provided for in this Agreement to or for itself or
other persons, firms or companies or from carrying on business similar to or in
competition with the business of the Mortgages Trustee and the Beneficiaries.


 


21.                               TERMINATION


 


21.1                           If any of the following events
(Servicer
Termination Events) shall occur:


 


(a)                                  default is made by the
Servicer in the payment on the due date of any payment due and payable by it
under this Agreement and such default continues unremedied for a period of five
London Business Days after the earlier of the Servicer becoming aware of such
default and receipt by the Servicer of written notice from Funding 1, the
Security Trustee and the Mortgages Trustee requiring the same to be remedied;
or


 


(b)                                 default is made by the
Servicer in the performance or observance of any of its other covenants and
obligations under this Agreement, which in the reasonable opinion of the
Security Trustee is materially prejudicial to the interests of Funding 1 and/or
the Issuers under the Intercompany Loans and/or the interests of the holders of
the Notes from time to time and such default continues unremedied for a period
of 20 London Business Days after becoming aware of such default provided
however that where the relevant default occurs as a result of a default by any
person to whom the Servicer has sub-contracted or delegated part of its
obligations hereunder, such default shall not constitute a Termination Event
if, within such period of 10 London Business Days of receipt of such notice
from Funding 1 and the Security Trustee, the Servicer terminates the relevant
sub-contracting or delegation arrangements and takes such steps as Funding 1
and the Security Trustee may in their absolute discretion specify to remedy
such default or to indemnify the Mortgages Trustee and the Beneficiaries
against the consequences of such default; or


 


19

















 


(c)                                  the occurrence of an
Insolvency Event in relation to the Servicer; or


 


(d)                                 the Board of Funding 1
resolves, after due consideration and acting reasonably, that the appointment
of the Servicer should be terminated,


 


then
the Mortgages Trustee and/or Funding 1 and the Security Trustee may at once or
at any time thereafter while such default continues by notice in writing to the
Servicer terminate its appointment as Servicer under this Agreement with effect
from a date (not earlier than the date of the notice) specified in the notice.  Upon termination of the Servicer as servicer
under this Agreement, the Security Trustee shall use its reasonable endeavours
to appoint a substitute servicer that satisfies the conditions set forth in Clauses
21.2(c), (d) and (e).


 


21.2                           The appointment of the
Servicer under this Agreement may be terminated upon the expiry of not less
than 12 months’ notice of termination given by the Servicer to the Mortgages
Trustee and the Beneficiaries provided that:


 


(a)                                  the Mortgages Trustee and the
Beneficiaries consent in writing to such termination;


 


(b)                                 a substitute servicer shall be
appointed, such appointment to be effective not later than the date of such
termination and the Servicer shall notify the Rating Agencies in writing of the
identity of such substitute servicer;


 


(c)                                  such substitute servicer has
experience of administering mortgages of and standard securities over
residential property in the United Kingdom and is approved by the Mortgages
Trustee and the Beneficiaries;


 


(d)                                 such substitute servicer
enters into an agreement substantially on the same terms as the relevant
provisions of this Agreement and the Servicer shall not be released from its
obligations under the relevant provisions of this Agreement until such
substitute servicer has entered into such new agreement; and


 


(e)                                  the then current ratings (if
any) of the Notes are not adversely affected as a result thereof, unless
otherwise agreed by an Extraordinary Resolution (as defined in the Note Trust
Deed) of the holders of the relevant series and class of Notes.


 


21.3                           On and after termination of
the appointment of the Servicer under this Agreement pursuant to this Clause 21,
all authority and power of the Servicer under this Agreement shall be
terminated and be of no further effect and the Servicer shall not thereafter
hold itself out in any way as the agent of the Mortgages Trustee and/or the
Beneficiaries pursuant to this Agreement.


 


21.4                           Upon termination of the
appointment of the Servicer under this Agreement pursuant to this Clause 21
(but subject to Clause 18(e)), the Servicer shall:


 


(a)                                  forthwith deliver (and in the
meantime hold on trust for, and to the order of, the Mortgages Trustee) to the
Mortgages Trustee or as it shall direct the Customer Files, the Title Deeds,
all books of account, papers, records, registers, correspondence and documents
in its possession or under its control relating to the affairs of or belonging
to the Mortgages Trustee (as trustee for the Beneficiaries) and the Mortgages
in the Portfolio and any other Related Security, (if practicable, on the date
of receipt) any monies then held by the Servicer on behalf of the Mortgages
Trustee and any other assets of the Mortgages Trustee and the Beneficiaries;


 


20

















 


(b)                                 take such further action as the
Mortgages Trustee, Funding 1 and the Security Trustee may reasonably direct at
the expense of the Beneficiaries (including in relation to the appointment of a
substitute servicer) provided that the Mortgages Trustee shall not be required
to take or direct to be taken such further action unless it has been
indemnified to its satisfaction;


 


(c)                                  provide all relevant
information contained on computer records in the form of magnetic tape,
together with details of the layout of the files encoded on such magnetic
tapes;


 


(d)                                 co-operate and consult with
and assist the Mortgages Trustee, Funding 1, the Security Trustee and their
nominees (which shall, for the avoidance of doubt, include any new servicer
appointed by any of them) for the purposes of explaining the file layouts and
the format of the magnetic tapes generally containing such computer records on
the computer system of the Mortgages Trustee or such nominee; and


 


(e)                                  permit the Mortgages Trustee,
Funding 1 and the Security Trustee to have access at reasonable times to the
Halifax Insurance Policies.


 


21.5                           The Servicer shall deliver to
the Mortgages Trustee and the Beneficiaries as soon as reasonably practicable
but in any event within five days of becoming aware thereof a notice of any
Termination Event or any event which with the giving of notice or lapse of time
or certification would constitute the same. 
Such notification shall specify which event in Clause 21 has occurred and
was the cause of such Termination Event (or any event which the giving of notice
or lapse of time or certification would constitute a Termination Event), a
description of the details of such Termination Event, and, if relevant, a
reference to the provision in this Agreement or the other Transaction Documents
which the Servicer has breached.


 


21.6                           Termination of this Agreement
or the appointment of the Servicer under this Agreement shall be without
prejudice to the liabilities of the Mortgages Trustee and the Beneficiaries to
the Servicer or vice versa incurred before the date of such
termination.  The Servicer shall have no
right of set-off or any lien in respect of such amounts against amounts held by
it on behalf of the Mortgages Trustee.


 


21.7                           This Agreement shall terminate
at such time as Funding 1 has no further interest in any of the Loans or the
Mortgages which have been comprised in the Portfolio.


 


21.8                           On termination of the
appointment of the Servicer under the provisions of this Clause 21, the Servicer shall
be entitled to receive all fees and other monies accrued up to the date of
termination but shall not be entitled to any other or further
compensation.  Such monies so receivable
by the Servicer shall be paid by the Mortgages Trustee on the dates on which
they would otherwise have fallen due hereunder.  For the avoidance of doubt, such termination shall not affect the
Servicer’s rights to receive payment of all amounts (if any) due to it from the
Mortgages Trustee other than under this Agreement.


 


21.9                           Prior to termination of this
Agreement, the Servicer, the Seller, the Security Trustee, the Mortgages
Trustee and Funding 1 shall co-operate to obtain the agreement of the Borrowers
to a new bank mandate permitting the Mortgages Trustee to operate the Direct
Debiting Scheme.


 


21.10                     Any provision of this Agreement which is
stated to continue after termination of the Agreement shall remain in full
force and effect notwithstanding termination.


 


21

















 


22.                               FURTHER ASSURANCE


 


22.1                           The parties hereto agree that
they will co-operate fully to do all such further acts and things and execute
any further documents as may be necessary or desirable to give full effect to
the arrangements contemplated by this Agreement.


 


22.2                           Without prejudice to the
generality of Clause 21.1, the Mortgages Trustee and the Beneficiaries shall
upon request by the Servicer forthwith give to the Servicer such further powers
of attorney or other written authorisations, mandates or instruments as are
necessary to enable the Servicer to perform the Services.


 


22.3                           In the event that there is any
change in the identity of the Mortgages Trustee or an additional Mortgages
Trustee is appointed, the remaining Mortgages Trustee and/or the retiring
Mortgages Trustee, as the case may be, shall execute such documents with any
other parties to this Agreement and take such actions as such new Mortgages
Trustee may reasonably require for the purposes of vesting in such new
Mortgages Trustee the rights of the Mortgages Trustee under this Agreement and
releasing the retiring Mortgages Trustee from further obligations thereunder
and while any Note remains outstanding shall give notice thereof to the Rating
Agencies.


 


22.4                           Nothing herein contained shall
impose any obligation or liability on the Mortgages Trustee to assume or
perform any of the obligations of the Servicer hereunder or render it liable
for any breach thereof.


 


23.                               MISCELLANEOUS


 


23.1                           Subject to Clause 23.2,
in the event that the funds available to the Mortgages Trustee on any Funding 1
Interest Payment Date are not sufficient to satisfy in full the aggregate
amount payable to the Servicer by the Mortgages Trustee on such Funding 1
Interest Payment Date then the amount payable to the Servicer on such Funding 1
Interest Payment Date shall be reduced by the amount of the shortfall and such
shortfall shall (subject always to the provisions of this Clause 23) be payable on the
immediately succeeding Funding 1 Interest Payment Date.


 


23.2                           In the event that:


 


(a)                                  after redemption in full of
the Intercompany Loans; or


 


(b)                                 after service of an
Intercompany Loan Acceleration Notice and payment of all other prior claims,


 


the
remaining sums available to the Mortgages Trustee or remaining proceeds of
enforcement are insufficient to satisfy in full the outstanding fees or other
claims of the Servicer, such fees shall be reduced by the amount of the
deficiency.


 


23.3                           Each of the Seller and the
Servicer agrees that it will not:


 


(a)                                  set off or purport to set off
any amount which the Mortgages Trustee, Funding 1 or each Issuer is or will
become obliged to pay to it under any of the Transaction Documents against any
amount from time to time standing to the credit of or to be credited to the
Mortgages Trustee GIC Account, the Funding 1 GIC Account, the Funding 1
Transaction Account or any Issuer Transaction Account or in any other account
prior to transfer to the Mortgages Trustee GIC Account, the Funding 1 GIC


 


22

















 


Account, the Funding 1 Transaction Account
or any Issuer Account, as appropriate; or


 


(b)                                 make or exercise any claims or
demands, any rights of counterclaim or any other equities against or withhold
payment of any and all sums of money which may at any time and from time to
time be standing to the credit of the Mortgages Trustee GIC Account, the
Funding 1 GIC Account, the Funding 1 Transaction Account or the relevant Issuer
Account.


 


23.4                           The Servicer agrees that for
so long as any Notes are outstanding it will not petition nor commence
proceedings for the administration or winding up of the Mortgages Trustee or
Funding 1 or any Issuer nor participate in any ex parte proceedings with regard
thereto.


 


23.5                           In relation to all sums due
and payable by the Mortgages Trustee to the Servicer, the Servicer agrees that
it shall have recourse only to sums paid to or received by (or on behalf of)
the Mortgages Trustee pursuant to the provisions of the Mortgage Sale
Agreement, the other Transaction Documents and in relation to the Mortgages.


 


23.6                           For the avoidance of doubt,
neither Beneficiary shall be liable to pay any amounts due under Clauses 11
and 13
without prejudice to the obligations of the Mortgages Trustee in respect of
such amounts.


 


23.7                           Notwithstanding any other
provisions of this Agreement, all obligations to, and rights of, Funding 1
under or in connection with this Agreement (other than its obligations under Clause 24)
shall automatically terminate upon the discharge in full of all amounts owing
by it under any Intercompany Loan Agreement, provided that this shall be
without prejudice to any claims in respect of such obligations and rights
arising on or prior to such date.


 


24.                               CONFIDENTIALITY


 


During
the continuance of this Agreement or after its termination, each of the
Mortgages Trustee and the Beneficiaries shall use its best endeavours not to
disclose to any person, firm or company whatsoever any information relating to
the business, finances or other matters of a confidential nature of any other
party hereto of which it may exclusively by virtue of being party to the
Transaction Documents have become possessed and shall use all reasonable
endeavours to prevent any such disclosure as aforesaid, provided however that
the provisions of this Clause 24 shall not apply:


 


(a)                                  to any information already
known to the Mortgages Trustee or the Beneficiaries otherwise than as a result
of entering into any of the Transaction Documents;


 


(b)                                 to any information
subsequently received by the Mortgages Trustee or the Beneficiaries which it
would otherwise be free to disclose;


 


(c)                                  to any information which is or
becomes public knowledge otherwise than as a result of the conduct of the
Mortgages Trustee or the Beneficiaries;


 


(d)                                 to any extent that the
Mortgages Trustee or the Beneficiaries is required to disclose the same
pursuant to any law or order of any court or pursuant to any direction, request
or requirement (whether or not having the force of law) of any central bank or
any governmental or other authority (including, without limitation, any
official bank examiners or regulators);


 


23

















 


(e)                                  to the extent that the
Mortgages Trustee or the Beneficiaries needs to disclose the same for
determining the existence of, or declaring, an Intercompany Loan Event of
Default or a Termination Event, the protection or enforcement of any of its
rights under any of the Transaction Documents or in connection herewith or
therewith or for the purpose of discharging, in such manner as it thinks fit,
its duties under or in connection with such agreements in each case to such persons
as require to be informed of such information for such purposes; or


 


(f)                                    in relation to any information
disclosed to the professional advisers of the Mortgages Trustee or the
Beneficiaries or (in connection with the review of current ratings of the Notes
or with a prospective rating of any debt to be issued by an Issuer) to any
credit rating agency or any prospective new Servicer or Mortgages Trustee.


 


25.                               NOTICES


 


Any
notices to be given pursuant to this Agreement to any of the parties hereto
shall be sufficiently served if sent by prepaid first class post, by hand or
facsimile transmission and shall be deemed to be given (in the case of
facsimile transmission) when despatched, (where delivered by hand) on the day
of delivery if delivered before 5.00 p.m. on a London Business Day or on the
next London Business Day if delivered thereafter or (in the case of first class
post) when it would be received in the ordinary course of the post and shall be
sent:


 


(a)                                  in the case of the Servicer,
to Halifax plc, Trinity Road, Halifax, West Yorkshire HX1 2RG (facsimile
number +44 (0) 1422 391777) for the attention of Mortgage
Securitisation Manager with a copy to HBOS Treasury Services plc, 33 Old Broad
Street, London EC2N 1HZ (facsimile number
+44 (020) 7574 8784) for the attention of Head of Capital
Markets and Securitisation;


 


(b)                                 in the case of the Mortgages
Trustee, to Permanent Mortgages Trustee Limited, 47 Esplanade, St. Helier,
Jersey JE1 0BD (facsimile number +44 (0) 1534 726391) for
the attention of the Secretary with a copy to HBOS Treasury Services plc, 33
Old Broad Street, London EC2N 1HZ (facsimile number
+44 (020) 7574 8784) for the attention of Head of Capital
Markets and Securitisation;


 


(c)                                  in the case of the Seller, to
Halifax plc, Trinity Road, Halifax, West Yorkshire HX1 2RG (facsimile
number +44 (0) 1422 391777) for the attention Mortgage
Securitisation Manager with a copy to HBOS Treasury Services PLC, 33 Old Broad
Street, London EC2N 1HZ (facsimile number +44 (020) 7574 8784)
for the attention of Head of Capital Markets and Securitisation;


 


(d)                                 in the case of Funding 1, to
Permanent Funding (No. 1) Limited, Blackwell House, Guildhall Yard, London
EC2V 5AE (facsimile number +44 (020) 7556 0975) for the
attention of the Secretary with a copy to HBOS Treasury Services plc, 33 Old
Broad Street, London EC2N 1HZ (facsimile number
+44 (020) 7574 8784) for the attention of Head of Capital
Markets and Securitisation;


 


(e)                                  in the case of the Security
Trustee, to the Bank of New York, 48th Floor, One Canada Square,
London E14 5AL (facsimile number + 44 (20) 7964 6061 or + 44 (20) 7964 6399,
for the attention of Global Structured Finance – Corporate Trust:


 


(f)                                    or to such other address or
facsimile number or for the attention of such other person or entity as may
from time to time be notified by any party to the others by written notice in
accordance with the provisions of this Clause 25. 
All notices served under


 


24

















 


this Agreement shall be simultaneously
copied to the Security Trustee by the person serving the same.


 


26.                               VARIATION AND WAIVER


 


No
variation or waiver of this Agreement shall be effective unless it is in
writing and signed by (or by some person duly authorised by) each of the
parties.  No single or partial exercise
of, or failure or delay in exercising, any right under this Agreement shall
constitute a waiver or preclude any other or further exercise of that or any
other right.  No variation or waiver of
this Agreement shall be made if the same would adversely affect the then
current ratings of any of the Notes.


 


27.                               NO PARTNERSHIP


 


It is
hereby acknowledged and agreed by the parties that nothing in this Agreement
shall be construed as giving rise to any partnership between any of the
parties.


 


28.                               ASSIGNMENT


 


28.1                           The Mortgages Trustee may not
assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of each of the Beneficiaries.


 


28.2                           The Servicer may not assign or
transfer any of its rights and obligations under this Agreement without the
prior written consent of the Mortgages Trustee (as trustee for the
Beneficiaries) and each of the Beneficiaries.


 


28.3                           The Servicer acknowledges that
Funding 1 has assigned its rights under this Agreement to the Security Trustee
pursuant to the Funding 1 Deed of Charge and acknowledges that pursuant to the
terms of the Funding 1 Deed of Charge, Funding 1 has, inter alios, authorised the
Security Trustee, prior to the Funding 1 Security becoming enforceable, to
exercise, or refrain from exercising, all rights, powers, authorities,
discretions and remedies under or in respect of the Transaction Documents,
including this Agreement, in such manner as in its absolute discretion it shall
think fit.


 


29.                               CHANGE OF SECURITY TRUSTEE


 


29.1                           If there is any change in the
identity of the Security Trustee in accordance with the Funding 1 Deed of
Charge, the Servicer, the Seller, Funding 1 and the Mortgages Trustee shall
execute such documents and take such action as the successor Security Trustee
and the outgoing Security Trustee may reasonably require for the purpose of
vesting in the successor Security Trustee the rights and obligations of the
outgoing Security Trustee under this Agreement and releasing the outgoing
Security Trustee from its future obligations under this Agreement.


 


29.2                           It is hereby acknowledged and
agreed that by its execution of this Agreement the Security Trustee shall not
assume or have any of the obligations or liabilities of the Servicer, the
Seller, Funding 1 or the Mortgages Trustee under this Agreement.


 


30.                               AMENDMENTS


 


Subject
to Clause
25 of the Funding 1 Deed of Charge (Supplemental Provisions
Regarding the Security Trustee), any amendments to this Agreement will be made
only with the prior written consent of each party to this Agreement.


 


25

















 


31.                               EXCLUSION OF THIRD PARTY RIGHTS


 


The
parties to this Agreement do not intend that any term of this Agreement should
be enforced, by virtue of the Contracts (Rights of Third Parties) Act 1999, by
any person who is not a party to this Agreement.


 


32.                               COUNTERPARTS AND SEVERABILITY


 


32.1                           This Agreement may be executed
in any number of counterparts (manually or by facsimile) and by different
parties hereto in separate counterparts, each of which when so executed shall
be deemed to be an original and all of which when taken together shall
constitute one and the same instrument.


 


32.2                           Where any provision in or
obligation under this Agreement shall be invalid, illegal or unenforceable in
any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations under this Agreement, or of such provision or
obligation in any other jurisdiction, shall not be affected or impaired
thereby.


 


33.                               GOVERNING LAW AND JURISDICTION


 


33.1                           This Agreement is governed by
the laws of England (provided that any terms of this Agreement which are
particular to Scots law shall be construed in accordance with the laws of
Scotland).


 


33.2                           Each party to this Agreement
hereby irrevocably submits to the non-exclusive jurisdiction of the English
courts in any action or proceeding arising out of or relating to this
Agreement, and hereby irrevocably agrees that all claims in respect of such
action or proceeding may be heard and determined by such courts.  Each party to this Agreement hereby
irrevocably waives, to the fullest extent it may possibly do so, any defence or
claim that the English courts are an inconvenient forum for the maintenance or
hearing of such action or proceeding.


 


34.                               PROCESS AGENT


 


The
Mortgages Trustee irrevocably and unconditionally appoints Structured Finance
Management Limited of Blackwell House, Guildhall Yard, London EC2V 5AE for
the time being as its agent for service of process in England in respect of any
proceedings in respect of this Agreement and undertakes that in the event of
Structured Finance Management Limited ceasing so to act it will appoint another
person with a registered office in London as its agent for service of process.


 


IN WITNESS WHEREOF the parties have caused this Agreement to
be executed as a deed the day and year first before written.


 


26

















 


SCHEDULE 1


THE SERVICES


 


In addition to
the Services set out in the body of the Servicing Agreement, the Servicer
shall:


 


(a)                                  keep records and books of account for the
Mortgages Trustee in relation to the Loans and their Related Security comprised
in the Portfolio;


 


(b)                                 keep records for all taxation purposes and
Value Added Tax;


 


(c)                                  notify relevant Borrowers of any change in
their Monthly Payments;


 


(d)                                 assist the auditors of the Mortgages
Trustee and provide information to them upon reasonable request;


 


(e)                                  provide a redemption statement upon the
request of a Borrower or the Borrower’s solicitor, licensed conveyancer or
qualified conveyancer;


 


(f)                                    notify relevant Borrowers of any other
matter or thing which the applicable Mortgage Conditions or Offer Conditions
require them to be notified of in the manner and at the time required by the
relevant Mortgage Terms;


 


(g)                                 subject to the provisions of this Agreement
(including without limitation Clause 5.2) take all reasonable steps to
recover all sums due to the Mortgages Trustee including without limitation by
the institution of proceedings and/or the enforcement of any Loan comprised in
the Portfolio or any Related Security;


 


(h)                                 take all other action and do all other
things which it would be reasonable to expect a Reasonable, Prudent Mortgage
Lender to do in administering its loans and their related security; and


 


(i)                                     act as collection agent for the Mortgages
Trustee under the Direct Debiting Scheme in accordance with the provisions of
this Agreement.


 


27

















 


SCHEDULE 2


FORM OF QUARTERLY POOL CUT


 


	
  FIELD

  	
   

  	
  DESCRIPTION

  
	
  Year/Month

  	
   

  	
  Processing year and month in YYYYMM format

  
	
  Account Number

  	
   

  	
  Unique Mortgage Account Identifier

  
	
  Original Advance

  	
   

  	
   

  
	
  Current Loan balance

  	
   

  	
  Includes Capital, Interest, Arrears and Unpaid
  Charges

  
	
  Latest Property Valuation

  	
   

  	
  Most recent valuation. It will be equal to original
  valuation if no further valuation was done

  
	
  Completion Date

  	
   

  	
  The date the advance was completed

  
	
  Outstanding Monthly Periods

  	
   

  	
  The number of monthly periods remaining on the Loan

  
	
  Method of Repayment

  	
   

  	
  Code to signify types of Loans: e.g. Endowment,
  Interest Only, Repayment, Pension, Investment Linked based on worst case
  reporting

  
	
  First Income

  	
   

  	
  First applicant’s primary income

  
	
  Second Income

  	
   

  	
  Second applicant’s primary income

  
	
  Post Code

  	
   

  	
  Property postcode

  
	
  MIG Cover Amount

  	
   

  	
  Amount of MIG Policy cover

  
	
  Current Arrears Balance

  	
   

  	
  Includes unpaid interest, unpaid capital, unpaid
  charges

  
	
  Arrears Multiplier (Current)

  	
   

  	
  Arrears at previous month end divided by current
  month payment due

  
	
  Arrears Multiplier (1 to 2 months)

  	
   

  	
  Arrears at previous month end divided by current
  month payment due

  
	
  Arrears Multiplier (2 to 3 months)

  	
   

  	
  Arrears at previous month end divided by payment due
  for that month

  
	
  Arrears Multiplier (3 to 6 months)

  	
   

  	
  As above, but for 3 months prior to current month

  
	
  Arrears Multiplier (6 to 12 months)

  	
   

  	
  As above, but for 6 months prior to current month

  
	
  Arrears Multiplier (1 to 2 years)

  	
   

  	
  As above, but for 1 year prior to current month

  
	
  Arrears Multiplier (2 years plus)

  	
   

  	
  As above, but for 2 years prior to current month

  
	
  Property type

  	
   

  	
  Terraced, semi-detached, detached, other (flats,
  maisonettes, etc.) or unknown

  
	
  Loan Use

  	
   

  	
  House purchase or remortgage

  
	
  Property Use

  	
   

  	
  Owner occupied, rental, etc.

  
	
  Product code(s)

  	
   

  	
  Code identifier for the product(s)

  
	
  MAR

  	
   

  	
  Monthly payment amount

  
	
  Arrangement term

  	
   

  	
  Where an arrangement exists for the primary account
  the period of the arrangement from the start of the arrangement

  
	
  Arrangement amount

  	
   

  	
  Amount of the arrangement made

  
	
  Arrangement type

  	
   

  	
  Code for the arrangement type

  



 


28

















 


SIGNATORIES


 


	
  Servicer

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  EXECUTED as
  a DEED by

  	
  )

  	
   

  
	
  HALIFAX plc

  	
  )

  	
   

  
	
  acting by its attorney

  	
  )

  	
   

  
	
  in the presence of:

  	
  )

  	
  (as attorney for HALIFAX PLC)

  
	
   

  	
   

  	
   

  
	
  Witness’s
  signature:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Mortgages Trustee

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  EXECUTED as
  a DEED on behalf of

  	
  )

  	
   

  
	
  PERMANENT  MORTGAGES

  	
  )

  	
   

  
	
  TRUSTEE LIMITED,

  	
  )

  	
   

  
	
  a company incorporated in Jersey,

  	
  )

  	
   

  
	
  Channel Islands, by

  	
  )

  	
   

  
	
  being a person who,

  	
  )

  	
   

  
	
  in accordance with the laws of that

  	
  )

  	
   

  
	
  territory is acting under the authority of

  	
  )

  	
   

  
	
  the company in the presence of:

  	
  )

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Witness’s
  signature:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Seller

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  EXECUTED as
  a DEED by

  	
  )

  	
   

  
	
  HALIFAX plc

  	
  )

  	
   

  
	
  acting by its attorney

  	
  )

  	
  (as attorney for HALIFAX PLC)

  
	
  in the presence of

  	
  )

  	
   

  
	
   

  	
   

  	
   

  
	
  Witness’s
  signature:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
   

  



 


29

















 


	
  Funding 1

  
	
   

  
	
  EXECUTED as
  a DEED by

  	
  )

  
	
  PERMANENT FUNDING (NO. 1)

  	
  )

  
	
  LIMITED acting by two directors/

  	
  )

  
	
  a director and the secretary

  	
  )

  
	
   

  	
   

  
	
  Director

  	
   

  
	
   

  	
   

  
	
  Director/Secretary

  	
   

  
	
   

  	
   

  
	
  Security Trustee

  	
   

  
	
   

  	
   

  
	
  EXECUTED as
  a DEED by an authorised

  	
  )

  
	
  signatory for and on behalf of

  	
  )

  
	
  THE BANK OF NEW YORK

  	
  )

  
	
   

  
	
  Authorised
  signatory

  
			



 


30