EX-10.2






Exhibit 10.2




SECURITY AGREEMENT




SECURITY AGREEMENT (the “Security Agreement”), dated as of December 19, 2006, between
ST. ANDREW FUNDING TRUST, a Delaware statutory trust (the “Issuer”), and DEUTSCHE BANK
TRUST COMPANY AMERICAS, as Collateral Agent (the “Collateral Agent”).



W I T N E S S E T H:




WHEREAS, the Issuer is entering into this Security Agreement with the Collateral Agent for the
purpose of, among other things, providing for the issuance of Secured Liquidity Notes and securing
and providing for the repayment of all amounts at any time and from time to time owing by the
Issuer to the Collateral Agent, the Indenture Trustee, any Swap Counterparty, the holders of the
Secured Liquidity Notes (including the Depositary as provided in Section 2(b)(ii) of the Depositary
Agreement), the holders of the Extended Notes and the holders of the Subordinated Notes (such
Persons, collectively, the “Secured Parties” and each, a “Secured Party”);



NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants expressed
herein, it is hereby agreed by and between the Issuer and the Collateral Agent as follows:



ARTICLE I




DEFINITIONS




Section 1.01 Definitions. For all purposes of this Security Agreement, except as
otherwise expressly provided herein or unless the context otherwise requires, capitalized terms not
otherwise defined herein shall have the meanings assigned to such terms in the Definitions List
attached hereto as Schedule I (the “Definitions List”). All other capitalized terms used
herein shall have the meanings specified herein.



ARTICLE II




OBLIGATIONS SECURED




Section 2.01 Obligations Secured Hereby. (a) This Security Agreement is made to
provide for and secure repayment and performance of the indebtedness, obligations and liabilities
of the Issuer whether now existing or hereinafter incurred (such indebtedness and liabilities being
herein called the “Obligations”) specified in paragraph (b).



(b) Following an Event of Default and acceleration of the Notes or exercise of remedies
pursuant to Section 9 of the Indenture, all payments or proceeds with respect to the
Assigned Collateral and any amounts on deposit in the Collateral Account shall be applied by the
Collateral Agent in the following order:



First, the repayment of amounts advanced, incurred or expended (including fees and
expenses of agents and counsel) by (a) the Collateral Agent, the Indenture Trustee, or the
Custodian, up to an aggregate amount of $25,000, and (b) the Owner Trustee, up to a maximum of
$5,000;



Second, the payment, in accordance with the allocation set forth in Section
2.02 below, of all amounts due and owing to each Swap Counterparty under the Interest Rate
Swaps (other than (x) termination payments in connection with the early termination of each such
Interest Rate Swap as provided for in Part 6 of the Confirmation, (y) Party B Third Floating
Amounts and (z) the Party B Fixed Amount; if any);



Third, pro rata, (x) to the Depositary for repayment of any
unreimbursed advances and (y) to the payment of all indebtedness (including principal and all
interest thereon), whether absolute, fixed or contingent, at any time and from time to time due and
owing by the Issuer to the holders from time to time of the outstanding Secured Liquidity Notes and
Extended Notes;



Fourth, the payment of all Reimbursable Expenses, subject to the Maximum Indemnity
Amount, provided, that no Reimbursable Expenses shall be paid with funds withdrawn from the Reserve
Fund;



Fifth, the payment, in accordance with the allocation set forth in Section 2.02
below, of all amounts due and owing to each Swap Counterparty under the Interest Rate Swaps in
connection with the early termination of each such Interest Rate Swap as provided for in Part 6 of
the Confirmation in circumstances where the Issuer is the sole Defaulting Party or sole Affected
Party under such Interest Rate Swap (which amounts shall not, for the avoidance of doubt, include
the Party B Fixed Amount; if any);



Sixth, the payment (pro rata, in accordance with the allocations set
forth in Section 2.03 hereof, to each Series of Subordinated Notes) of all amounts due and
owing (including all principal and interest) under all outstanding Series of Subordinated Notes
including the aggregate amount, if any, of Principal Amount Charge-Offs which have not been
reinstated and interest thereon;



Seventh, the payment, in accordance with the allocation set forth in Section 2.02
below, of all amounts due and owing to each Swap Counterparty under the Interest Rate Swaps in
connection with the early termination of each such Interest Rate Swap as provided for in Part 6 of
the Confirmation to the extent not paid pursuant to clause Fifth above (which amounts shall
not, for the avoidance of doubt, include the Party B Fixed Amount; if any);



Eighth, the payment of all Reimbursable Expenses and all unpaid Allocated Expenses
without giving effect to any Maximum Indemnity Amount or the Budget Expense Limit;



Ninth, the payment of any unreimbursed Monthly Advances and Servicing Advances with
respect to any Mortgage Loan which has been sold, up to a maximum amount of the sale proceeds;



Tenth, the payment, in accordance with the allocation set forth in Section 2.02
below, of (x) the Party B Fixed Amount, if any, due and owing to each Swap Counterparty under
the Interest Rate Swaps, and (y) to the extent a Swap Default shall have occurred, an amount equal
to the lesser of (i) the amount necessary to cure such Swap Default and (ii) the sum of all amounts
remaining from amounts previously on deposit in the Reserve Fund, plus all amounts otherwise
available for distribution pursuant to this clause Tenth; and



Eleventh, any amounts remaining shall be paid to the Issuer.



Section 2.02 Allocations among Swap Counterparties. Amounts payable under
Second, Fifth, Seventh and Tenth of Section 2.01(b) and
amounts payable under Section 6.03(a)(i), 6.03(b)(i) and 6.03(b)(xiii)
shall be allocated to each Swap Counterparty in accordance with such Swap Counterparty’s Sharing
Percentage.



The Issuer shall cause the Servicer to provide the Collateral Agent in writing with
determinations of amounts due and payable, and such other information as the Collateral Agent may
require in order to make the allocations specified in this Section 2.02.



Section 2.03 Allocations among the Subordinated Noteholders. Amounts payable under
Sixth of Section 2.01(b) and amounts payable under Sections 6.03(b)(v),
6.03(b)(vi) and 6.03(b)(x) shall be allocated pro rata to each
Subordinated Noteholder of all Series of Subordinated Notes.



The Issuer shall cause the Servicer to provide the Collateral Agent in writing with
determinations of amounts due and payable, and such other information as the Collateral Agent may
require in order to make the allocations specified in this Section 2.03.



ARTICLE III




REPRESENTATIONS AND WARRANTIES;




COMPANY AGENTS AND DEPOSITARY AGENTS; COVENANTS




Section 3.01 Representations and Warranties of the Issuer. The Issuer hereby
represents and warrants, for the benefit of the Collateral Agent and the other Secured Parties, as
follows as of the date hereof, and with respect to any of the following representations and
warranties which refers to another date, as of such date also in the terms of such representation
and warranty:



(a) Existence and Power. The Issuer (a) is a statutory trust duly formed, validly
existing and in good standing under the laws of the State of Delaware, (b) prior to the initial
issuance of any Secured Liquidity Notes hereunder, will be duly qualified to do business as a
foreign trust and in good standing under the laws of each jurisdiction where the character of its
property, the nature of its business or the performance of its obligations make such qualification
necessary, and (c) has all trust powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted and for purposes of the
transactions contemplated by this Security Agreement and the other Program Documents.



(b) Trust and Governmental Authorization. The execution, delivery and performance by
the Issuer of this Security Agreement and the other Program Documents to which it is a party (a)
are within the Issuer’s trust powers, (b) have been duly authorized by all necessary trust action,
(c) require no action by or in respect of, or filing with, any governmental body, agency or
official which has not been obtained and (d) do not contravene, or constitute a default under, any
provision of applicable law or regulation or of the certificate of trust or the Trust Agreement of
the Issuer or of any law or governmental regulation, rule, contract, agreement, judgment,
injunction, order, decree or other instrument binding upon the Issuer or any of its Assets or
result in the creation or imposition of any Lien on any Asset of the Issuer, except for Liens
created by this Security Agreement or the other Program Documents. This Security Agreement and
each of the other Program Documents to which the Issuer is a party have been executed and delivered
by a duly authorized signatory of the Issuer.



(c) Binding Effect. This Security Agreement and each other Program Document, and each
Secured Liquidity Note when executed and delivered in accordance with the Depositary Agreement, is
a legal, valid and binding obligation of the Issuer enforceable against the Issuer in accordance
with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors’
rights generally or by general equitable principles, whether considered in a proceeding at law or
in equity, including without limitation (i) the possible unavailability of specific performance,
injunctive relief or any other equitable remedy, (ii) concepts of materiality, reasonableness, good
faith and fair dealing, and (iii) that certain remedial or procedural provisions contained in this
Security Agreement may be limited or rendered unenforceable by applicable law, but such limitations
do not make the remedies and procedures that are afforded to the Collateral Agent inadequate for
the practical realization of the substantive benefits purported to be provided by this Security
Agreement).



(d) Financial Information; Financial Condition. All balance sheets, all statements of
operations, of shareholders’ equity and of cash flow, and other financial data (other than
projections) which have been or shall hereafter be furnished by the Issuer to the Collateral Agent
and the Rating Agencies pursuant to Section 3.05(c) have been and will be prepared in
accordance with GAAP (to the extent applicable) and do and will present fairly the financial
condition of the entities involved as of the dates thereof and the results of their operations for
the periods covered thereby, subject, in the case of all unaudited statements, to normal year-end
adjustments and lack of footnotes and presentation items.



(e) Litigation. Other than as disclosed in the most recent 10-K and 10-Q filings with
the Securities Exchange Commission by New Century Financial Corporation prior to the date hereof,
there is no action, suit or proceeding pending against or, to the knowledge of the Issuer,
threatened against or affecting the Issuer or its Assets before any court or arbitrator or any
Governmental Authority which (x) is reasonably likely to be adversely determined, and (y), if
adversely determined, would be reasonably likely, either in any one instance or in the aggregate,
to (i) materially adversely affect the financial position, results of operations, business,
properties, performance, prospects or condition (financial or otherwise) of the Issuer or (ii) in
any manner draw into question the validity or enforceability of this Security Agreement or any
other Program Document or the ability of the Issuer to perform its obligations hereunder or
thereunder.



(f) Compliance with ERISA. Each member of the ERISA Group has fulfilled its
obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect
to each Benefit Plan and is in compliance in all material respects with the presently applicable
provisions of ERISA and the Internal Revenue Code with respect to each Benefit Plan. No member of
the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Benefit Plan, (ii) failed to make any contribution or
payment to any Benefit Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made
any amendment to any Benefit Plan or Benefit Arrangement, which in any such case has resulted or
could reasonably be expected to result in the imposition of a Lien or the posting of a bond or
other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title
IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA.



(g) Tax Filings and Expenses. The Issuer has filed all Federal, state and local tax
returns and all other tax returns which, to the knowledge of the Issuer, are required to be filed
(whether informational returns or not), and has paid all taxes due, if any, pursuant to said
returns or pursuant to any assessment received by the Issuer, except such taxes, if any, as are
being contested in good faith and for which adequate reserves have been set aside on its books.
The Issuer has paid all fees and expenses required to be paid by it in connection with the conduct
of its business, the maintenance of its existence and its qualification as a foreign trust
authorized to do business in each State and jurisdiction in which it is required to so qualify,
except where the failure to pay any such fees and expenses is not reasonably likely to have a
material adverse effect.



(h) Full Disclosure. All certificates, reports, statements, documents and other
information furnished to the Collateral Agent by or on behalf of the Issuer pursuant to any
provision of this Security Agreement or any Program Document, or in connection with or pursuant to
any amendment or modification of, or waiver under, this Security Agreement or any Program Document,
shall, at the time the same are so furnished, be complete and correct to the extent necessary to
give the Collateral Agent true and accurate knowledge of the subject matter thereof in all material
respects, and the furnishing of the same to the Collateral Agent shall constitute a representation
and warranty by the Issuer made on the date the same are furnished to the Collateral Agent to the
effect specified herein.



(i) Investment Company Act; Trust Indenture Act; Securities Act. The Issuer is not,
and is not controlled by, an “investment company” within the meaning of, and is not required to
register as an “investment company” under, the Investment Company Act. It is not necessary in
connection with the offer, issuance and sale of the Senior Notes under the circumstances
contemplated in this Security Agreement to register any security under the Securities Act or to
qualify any indenture under the Trust Indenture Act.



(j) Regulations T, U and X. The proceeds of the Senior Notes will not be used to
purchase or carry any “margin stock” (as defined or used in the regulations of the Board of
Governors of the Federal Reserve System, including Regulations T, U and X thereof). The Issuer is
not engaged in the business of extending credit for the purpose of purchasing or carrying any
margin stock.



(k) No Consent. No consent, action by or in respect of, approval or other
authorization of, or registration, declaration or filing with, any Governmental Authority or other
Person is required for the valid execution and delivery of this Security Agreement or for the
performance of any of the Issuer’s obligations hereunder or under any other Program Document other
than such consents, approvals, authorizations, registrations, declarations or filings as shall have
been obtained by the Issuer prior to the date hereof or as contemplated in Section 3.01(n).



(l) Solvency. Both before and after giving effect to the transactions contemplated by
this Security Agreement and the other Program Documents, the Issuer is solvent within the meaning
of the Bankruptcy Code and the Issuer is not the subject of any voluntary or involuntary case or
proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy or insolvency law and no Event of Bankruptcy has occurred with respect to the
Issuer.



(m) Subsidiary. The Issuer has no subsidiaries and owns no capital stock of, or other
interest in, any other Person, and during the term of this Security Agreement, the Issuer shall not
acquire or otherwise come to have one or more subsidiaries without the prior consent of the
Collateral Agent (on behalf of the holders of the Senior Notes).



(n) Security Interests.




(i) All action necessary (including the filing of UCC-1 financing statements for the
Collateral Agent’s Lien for the benefit of the Secured Parties) to protect, perfect, and
maintain the first-priority status of, the Collateral Agent’s security interest in the
Collateral now in existence and hereafter acquired or created hereby has been duly and
effectively taken.




(ii) No security agreement, financing statement, equivalent security or lien instrument
or continuation statement listing the Issuer as debtor covering all or any part of the
Collateral is on file or of record in any jurisdiction, except such as may have been filed,
recorded or made by the Issuer in favor of the Collateral Agent on behalf of the Secured
Parties in connection with this Security Agreement.




(iii) This Security Agreement creates a valid and continuing Lien on the Collateral in
favor of the Collateral Agent on behalf of the Secured Parties, which Lien is prior to all
other Liens (other than Permitted Liens), and is enforceable as such as against creditors of
and purchasers from the Issuer in accordance with its terms, except as such enforceability
may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws affecting creditors’ rights generally or by general equitable
principles, whether considered in a proceeding at law or in equity and by an implied
covenant of good faith and fair dealing. All action necessary to perfect such prior
security interest has been duly taken.




(iv) The Issuer’s principal place of business and chief executive office shall be at:
18400 Von Karman, Suite 1000, Irvine, CA 92612-1514. The Issuer does not transact, and has
not transacted, business under any other name. The Issuer’s exact legal name is the name
set forth for it on the signature page below.




(v) All authorizations in this Security Agreement for the Collateral Agent to endorse
checks, instruments and securities and to execute, deliver and file financing statements,
continuation statements, security agreements and other instruments with respect to the
Collateral are powers coupled with an interest and are irrevocable.




(vi) The representations and warranties contained in Schedule III hereof are
incorporated herein by reference as though they were fully stated herein.




(vii) The Issuer is, and at all times has been, a statutory trust organized exclusively
under the laws of the State of Delaware, with its principal place of business being in the
State of California.




(viii) The Issuer is not bound under Section 9-203(d) of the Uniform Commercial Code by
a Security Agreement previously entered into by another person or entity.



(o) Offering Memorandum. No offering memorandum or information circular used by the
Issuer in connection with the offer or sale of the Senior Notes contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not misleading.



(p) Non-Existence of Other Agreements. As of the date of the issuance of the first
Secured Liquidity Notes, other than as permitted by Section 3.05(w) hereof (i) the Issuer
is not a party to any contract or agreement of any kind or nature and (ii) the Issuer is not
subject to any obligations or liabilities of any kind or nature in favor of any third party,
including, without limitation, Contingent Obligations.



(q) Eligible Mortgage Loans. Based upon the representations of each Seller in the
Mortgage Loan Purchase and Servicing Agreement, each Mortgage Loan purchased by the Issuer is an
Eligible Loan.



(r) Other Representations. All representations and warranties of the Issuer made in
each Program Document to which it is a party are true and correct and are repeated herein as though
fully set forth herein.



(s) Special Purpose Entity. The Issuer is a special purpose entity formed exclusively
to enter into the Program Documents and the transactions contemplated thereby or incident thereto.



Section 3.02 Additional Representations and Warranties of the Issuer. The Issuer
represents and warrants to the Collateral Agent and the other Secured Parties that:



(a) (i) At the date of each deposit of Deposited Funds in the Collateral Account, the Issuer
was, is or will then be the lawful owner of, and had, has or will then have good title to, such
Deposited Funds free and clear of all Liens except the lien and security interest granted pursuant
to this Security Agreement in favor of the Collateral Agent; and (ii) the Issuer is and will be the
lawful owner of, and has and will have beneficial ownership of, all Collateral, free and clear of
all Liens except the lien and security interest granted pursuant to this Security Agreement in
favor of the Collateral Agent.



(b) The Issuer will warrant and defend the Collateral Agent’s right, title and interest in and
to the Collateral, for the benefit of the Collateral Agent and the Secured Parties and the income,
distributions and proceeds thereof against the claims and demands of all Persons whomsoever.



Section 3.03 Issuer Agents and Depositary Agents. (a) With the delivery of this
Security Agreement, the Issuer is furnishing to the Collateral Agent, and from time to time
thereafter may furnish to the Collateral Agent, a certificate (hereinafter called an “Issuer
Incumbency Certificate”) of an authorized signatory of the Issuer certifying the incumbency and
specimen signatures of officers and agents (such officers and agents being hereinafter called the
“Issuer Agents”) of the Issuer authorized to act, and to give instructions and notices, on
behalf of the Issuer hereunder. Until the Collateral Agent receives a subsequent Issuer Incumbency
Certificate, or unless a Trust Officer of the Collateral Agent shall have actual knowledge of the
lack of authority of any individual, the Collateral Agent shall be entitled conclusively to rely on
the last such Issuer Incumbency Certificate delivered to it for purposes of determining the
authorized Issuer Agents.



(b) The Collateral Agent acknowledges that each of the Persons specified in Section 3(e) of
the Depositary Agreement shall be deemed to be an authorized “Authenticating Representative” and
“Designated Representative” for purposes hereof.



Section 3.04 Representations and Warranties of the Collateral Agent. The Collateral
Agent represents and warrants to the Issuer and the Secured Parties that it has been duly organized
and is validly existing and in good standing under the laws of the State of New York and that this
Security Agreement has been duly authorized, executed and delivered by it.



Section 3.05 Covenants of the Issuer.



(a) Payment of Senior Notes. The Issuer shall pay the principal of (and premium, if
any) and interest on the Senior Notes pursuant to the provisions of this Security Agreement.
Principal and interest shall be considered paid on the date due to the extent that the Collateral
Agent holds on that date money designated for and sufficient to pay the principal and interest then
due.



(b) Maintenance of Office or Agency. The Issuer will maintain an office or agency
(which may be an office of the Collateral Agent or Depositary) where Senior Notes may be
surrendered for registration of transfer or exchange, where notices and demands to or upon the
Issuer in respect of the Senior Notes and this Security Agreement may be served, and where, at any
time when the Issuer is obligated to make a payment of principal and premium upon the Senior Notes,
the Senior Notes may be surrendered for payment. The Issuer will give prompt written notice to the
Collateral Agent of the location, and any change in the location, of such office or agency. If at
any time the Issuer shall fail to maintain any such required office or agency or shall fail to
furnish the Collateral Agent with the address thereof, such presentations and surrenders may be
made or served at the offices of the Collateral Agent’s agent, C/O DB Services Tennessee, 648
Grassmere Park Road, Nashville, TN 37211-3658.



The Issuer may also from time to time designate one or more other offices or agencies where
the Senior Notes may be presented or surrendered for any or all such purposes and may from time to
time rescind such designations. The Issuer will give prompt written notice to the Collateral Agent
of any such designation or rescission and of any change in the location of any such other office or
agency.



(c) Information. The Issuer will:




(i) promptly provide the Collateral Agent, each Swap Counterparty and the Rating
Agencies with all financial and operational information with respect to the Program
Documents or the Issuer as the Collateral Agent may reasonably request; and will promptly
provide the Rating Agencies, the Collateral Agent, each Swap Counterparty, the Indenture
Trustee (on behalf of the holders of Subordinated Notes), the SLN Placement Agents and the
Depositary with all statements delivered under the Interest Rate Swaps, this Security
Agreement and the Mortgage Loan Purchase and Servicing Agreement;




(ii) deliver to the Collateral Agent and each Swap Counterparty, if and when any member
of the ERISA Group (i) gives or is required to give notice to the PBGC of any “reportable
event” (as defined in Section 4043 of ERISA) with respect to any Benefit Plan which might
constitute grounds for a termination of such Benefit Plan under Title IV of ERISA, or knows
that the plan administrator of any Benefit Plan has given or is required to give notice of
any such reportable event, a copy of the notice of such reportable event given or required
to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability
under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is
insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC
under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums
under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Benefit
Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under
Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of
intent to terminate any Benefit Plan under Section 4041(c) of ERISA, a copy of such notice
and other information filed with the PBGC; (vi) gives notice of withdrawal from any Benefit
Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any
payment or contribution to any Benefit Plan or Multiemployer Plan or in respect of any
Benefit Arrangement or makes any amendment to any Benefit Plan or Benefit Arrangement which
has resulted or could result in the imposition of a Lien or the posting of a bond or other
security, a certificate of the Administrator setting forth details as to such occurrence and
action, if any, which the Issuer or applicable member of the ERISA Group is required or
proposes to take;




(iii) provide the Collateral Agent (on behalf of the holders of the Senior Notes), the
Indenture Trustee (on behalf of the Subordinated Noteholders), and each Swap Counterparty
with access to the books and records of the Issuer, and the books and records of the
Servicer, the Custodian, the Depositary and the Collateral Agent relating to the assets of
the Issuer, without charge, but only (i) upon the reasonable request of any requesting Swap
Counterparty or the Collateral Agent (acting at the direction of the Required Senior
Noteholders (or, if the Senior Notes have been paid in full, the Indenture Trustee on behalf
of the Required Subordinated Noteholders)) (for which purpose one Business Day shall be
deemed reasonable during the occurrence and continuation of an Event of Default), (ii)
during normal business hours, (iii) subject to the relevant party’s normal security and
confidentiality procedures and (iv) at offices designated by the relevant party;




(iv) provide the Rating Agencies, the Collateral Agent, each Swap Counterparty, the SLN
Placement Agents, the Depositary, the Indenture Trustee (on behalf of the holders of the
Subordinated Notes) and the Collateral Agent with any information that it may have with
respect to an Event of Default hereunder or provide notice to the Collateral Agent of any
default or event of default under any other agreement between the Issuer and any of the
Sellers, the Servicer, the Depositary, each Swap Counterparty or the Collateral Agent as
promptly as practicable after the Issuer becomes aware of the occurrence of any Event of
Default or other default or event of default;




(v) promptly furnish to the Collateral Agent (on behalf of the holders of the Senior
Notes), each Swap Counterparty, the Indenture Trustee (on behalf of the holders of the
Subordinated Notes) and the SLN Placement Agents after receipt thereof copies of all written
communications received from the Rating Agencies with respect to the Senior Notes;




(vi) promptly upon its knowledge thereof give notice to the Collateral Agent (on behalf
of the holders of the Senior Notes), the Indenture Trustee (on behalf of the holders of the
Subordinated Notes), the SLN Placement Agents, each Swap Counterparty and the Rating
Agencies of the existence of any litigation against the Issuer;




(vii) give prompt notice to the Collateral Agent (on behalf of the holders of the
Senior Notes), each Swap Counterparty, the Rating Agencies, the Indenture Trustee (on behalf
of the holders of the Subordinated Notes) and the SLN Placement Agents of any material
change to the articles of incorporation or by-laws of the Sellers; and




(viii) provide, on or prior to June 30 of each year beginning in 2007, to the
Collateral Agent, the Indenture Trustee, the SLN Placement Agents and each Swap Counterparty
a certificate of the Issuer certifying that the ratings assigned by the Rating Agencies in
respect of any outstanding Notes have not been withdrawn or downgraded since the date
hereof.



Delivery of such reports, information and documents to the Collateral Agent, the Custodian or the
Depositary under this section is for informational purposes only and each recipient’s receipt of
such shall not constitute constructive notice of any information contained therein or determinable
from information contained therein, including the Issuer’s compliance with any of its covenants.



(d) Payment of Obligations. The Issuer will pay and discharge in a timely manner in
accordance with the terms of the Program Documents, at or before maturity, all of its respective
material obligations and liabilities, including, without limitation, tax liabilities and other
governmental claims, except where the same may be contested in good faith by appropriate
proceedings, will maintain, in accordance with GAAP, reserves as appropriate for the accrual of any
of the same, and will comply in all material respects with its obligations in the Program
Documents.



(e) Conduct of Business and Maintenance of Existence. The Issuer will maintain its
existence as a statutory trust validly existing and in good standing under the laws of the State of
Delaware and duly qualified as a foreign trust licensed under the laws of each state in which the
failure to so qualify would have a material adverse effect on the business and operations of the
Issuer.



(f) Compliance with Laws. The Issuer will comply in all respects with all
Requirements of Law and all applicable laws, ordinances, rules, regulations, and requirements of
Governmental Authorities except where the necessity of compliance therewith is contested in good
faith by appropriate proceedings and where such noncompliance would not materially and adversely
affect the condition, financial or otherwise, operations, performance, properties or prospects of
the Issuer or its ability to carry out the transactions contemplated in this Security Agreement and
each other Program Document; provided, however, such noncompliance will not result
in a Lien (other than a Permitted Lien) on any Assets of the Issuer.



(g) Inspection of Property, Books and Records. The Issuer will keep proper books of
record and account in which full, true and correct entries shall be made of all dealings and
transactions in relation to its Assets, business and activities in accordance with GAAP; and will
permit the Collateral Agent and its agents and representatives to visit and inspect any of its
properties, to examine and make abstracts from any of its books and records and to discuss its
affairs, finances and accounts with its representatives, employees and independent public
accountants, all at such reasonable times upon reasonable notice and as often as may reasonably be
requested.



(h) Compliance with Program Documents. The Issuer will perform and comply with each
and every obligation, covenant and agreement required to be performed or observed by it in or
pursuant to this Security Agreement and each other Program Document to which it is a party and will
not take any action which would permit any party to have the right to refuse to perform any of its
respective obligations under any Program Document.



(i) Notice of Defaults.




(i) Promptly upon becoming aware of any Potential Event of Default or Event of Default
under this Security Agreement, the Issuer shall give the Collateral Agent (on behalf of the
holders of the Senior Notes), each Swap Counterparty, any SLN Placement Agent, the
Depositary, the Indenture Trustee (on behalf of the holders of the Subordinated Notes) and
the Rating Agencies notice thereof, together with a certificate of the Issuer setting forth
the details thereof and any action with respect thereto taken or contemplated to be taken by
the Issuer.




(ii) Promptly upon becoming aware of any default under any Program Document other than
this Security Agreement, the Issuer shall give the Collateral Agent, any SLN Placement
Agent, each Swap Counterparty, the Depositary, the Indenture Trustee (on behalf of the
holders of the Subordinated Notes) and the Rating Agencies notice thereof.



(j) Notice of Material Proceedings. Promptly upon becoming aware thereof, the Issuer
shall give the Indenture Trustee, the Collateral Agent, the SLN Placement Agents, each Swap
Counterparty and the Rating Agencies written notice of the commencement or existence of any
proceeding by or before any Governmental Authority against or affecting the Issuer which is
reasonably likely to have a material adverse effect on the business, condition (financial or
otherwise), results of operations, properties or performance of the Issuer or the ability of the
Issuer to perform its obligations under this Security Agreement or under any other Program Document
to which it is a party.



(k) Further Requests. The Issuer will promptly furnish to the Depositary, the
Indenture Trustee, the Collateral Agent, any Swap Counterparty and the Rating Agencies such other
information as, and in such form as such Swap Counterparty, the Depositary, the Collateral Agent or
the Rating Agencies may reasonably request in connection with the transactions contemplated hereby.



(l) Further Assurances.




(i) The Issuer shall do such further acts and things, and execute and deliver to the
Depositary, the Collateral Agent, any Swap Counterparty and the Secured Parties such
additional assignments, agreements, powers and instruments, as the Depositary, the
Collateral Agent, such Swap Counterparty or the Required Senior Noteholders (or, if the
Senior Notes have been paid in full, the Required Subordinated Noteholders) reasonably
determine to be necessary to carry into effect the purposes of this Security Agreement or
the other Program Documents or to better assure and confirm unto the Depositary, the
Collateral Agent or the Secured Parties their rights, powers and remedies hereunder
including, without limitation, the filing of any financing statement, amendment statement or
continuation statement under the UCC in effect in any jurisdiction with respect to the liens
and security interests granted hereby. The Issuer also hereby acknowledges that the
Collateral Agent has the right but not the obligation to file any such financing statement,
amendment statement or continuation statement without further authorization of the Issuer to
the extent permitted by applicable law. If any amount payable under or in connection with
any of the Collateral shall be or become evidenced by any promissory note, chattel paper or
other instrument, such note, chattel paper or instrument shall be deemed to be held in trust
and immediately pledged and physically delivered to the Collateral Agent hereunder, and
shall, subject to the rights of any Person in whose favor a prior Lien has been perfected,
be duly endorsed in a manner satisfactory to the Collateral Agent and delivered to the
Collateral Agent promptly. Without limiting the generality of the foregoing provisions of
this Section 3.05(1), the Issuer shall take all actions that are required to
maintain the security interest of the Collateral Agent on behalf of the Secured Parties in
the Collateral pledged pursuant to this Security Agreement as a perfected security interest
subject to no prior Liens, including, without limitation, filing all UCC financing
statements, continuation statements and amendments thereto necessary to achieve the
foregoing. The Issuer further agrees that it will not, without Rating Agency Confirmation
and the prior written consent of the Collateral Agent and each Swap Counterparty, exercise
any right, remedy, power or privilege available to it with respect to any obligor under the
Collateral, take any action to compel or secure performance or observance by any obligor of
its obligations to the Issuer, or give any consent, request, notice, direction, approval,
extension or waiver with respect to any obligor, except as otherwise expressly permitted by
the Program Documents. Notwithstanding anything herein to the contrary, the Collateral
Agent shall be under no obligation to file or prepare any financing statement or
continuation statement or to take any action or to execute any further documents or
instruments in order to create, preserve, or perfect the security interest granted herein,
such obligations being solely the obligations of the Issuer.




(ii) The Issuer will warrant and defend the Collateral Agent’s right, title and
interest in and to the Collateral and the income, distributions and proceeds thereof, for
the benefit of the Collateral Agent on behalf of the Secured Parties, against the claims and
demands of all Persons whomsoever.




(iii) The Issuer will provide to the Collateral Agent and the Swap Counterparties, no
more frequently than on June 30 of each year beginning 2007, an Opinion of Counsel to the
effect that no UCC financing or continuation statements are required to be filed with
respect to any of the Collateral in which a security interest may be perfected by the filing
of UCC financing statements.



(m) Certain Documents. The Issuer will not take any action that would permit (i) the
Sellers or the Servicer to refuse to perform any of their respective obligations under the Program
Documents or (ii) the Depositary to refuse to perform its obligations under any Program Documents
to which it is a party. The Issuer will not terminate the SLN Placement Agent Agreement or the
Depositary Agreement before entering into a secured liquidity note placement agreement or
depositary agreement, as the case may be, which is substantially similar to the SLN Placement Agent
Agreement or the Depositary Agreement, as the case may be.



(n) Liens. The Issuer will not create, incur, assume or permit to exist any Lien upon
any of its Assets (including the Collateral), other than (i) Liens in favor of the Collateral Agent
for the benefit of the Secured Parties, (ii) Permitted Liens, (iii) Liens permitted under the
Program Documents and (iv) liabilities for services supplied or furnished to the Issuer (including
reasonable accountants’ and attorneys’ fees); provided, that the aggregate amount of the
liabilities described in subpart (iv) shall not exceed $500,000 at any one time outstanding.



(o) Other Indebtedness. The Issuer will not (A) issue or sell any securities other
than the Notes in accordance with the Program Documents, or (B) create, assume, incur, suffer to
exist or otherwise become or remain liable in respect of any Indebtedness other than
(i) Indebtedness hereunder and (ii) Indebtedness permitted under any other Program Document.



(p) Mergers. The Issuer will not merge or consolidate with or into any other Person.



(q) Sales of Assets. The Issuer will not sell, lease, transfer, liquidate or
otherwise dispose of any Assets, except as contemplated by the Program Documents.



(r) Capital Expenditures. The Issuer will not make any expenditure (by long-term or
operating lease or otherwise) for, or otherwise own, capital assets (both realty and personalty).



(s) Dividends. The Issuer shall not make any distributions to any holders of its
securities without the consent of each Swap Counterparty and the Collateral Agent, acting at the
direction of the Required Senior Noteholders (or, if the Senior Notes have been paid in full, the
Required Subordinated Noteholders) except as provided under the Program Documents.



(t) Name; Principal Office. The Issuer will neither (a) change the location of its
organization, chief executive office or principal place of business (within the meaning of the
applicable UCC) without sixty (60) days’ prior written notice to the Depositary and the Collateral
Agent, (b) change its name, (c) change its identity or jurisdiction of organization, nor (d) become
bound as a debtor under Section 9-203(d) of the Uniform Commercial Code by a security agreement
previously entered into by another person or entity without prior written notice to the Depositary
and the Collateral Agent sufficient to allow it to make all filings (including filings of financing
statements on form UCC-1) and recordings necessary to maintain the perfection of the interest of
the Collateral Agent on behalf of the Secured Parties in the Collateral pursuant to this Security
Agreement. In the event that the Issuer desires to so change its office or change its name, the
Issuer will make any required filings and prior to actually changing its office or its name, the
Issuer will deliver to the Collateral Agent, each Swap Counterparty and the Depositary (i) an
Officer’s Certificate and (except with respect to a change of the location of the Issuer’s chief
executive office or principal place of business to a new location in the same county) an Opinion of
Counsel confirming that all required filings have been made to continue the perfected interest of
the Collateral Agent on behalf of the Secured Parties in the Collateral in respect of the new
office or new name of the Issuer and (ii) copies of all such required filings with the filing
information duly noted thereon by the office in which such filings were made.



(u) Organizational Documents. The Issuer will not amend any of its organizational
documents, including its certificate of trust or Trust Agreement, unless, prior to such amendment,
Rating Agency Confirmation shall have been obtained and the Collateral Agent and each Swap
Counterparty consent to such amendment.



(v) Investments. The Issuer will not make, incur, or suffer to exist any loan,
advance, guarantee, extension of credit or other investment in any Person other than pursuant to
the Program Documents and with respect to Eligible Investments and, in addition, without limiting
the generality of the foregoing, the Issuer will not direct the Collateral Agent to make any
Eligible Investments on the Issuer’s behalf that would have the effect of causing the Issuer to be
an “investment company” within the meaning of the Investment Company Act.



(w) No Other Agreements. The Issuer will not (a) enter into or be a party to any
agreement or instrument other than any Program Document, agreements entered into in the ordinary
course of its business or documents and agreements incidental thereto or (b) except as provided for
in Section 10.01, amend, modify or waive any provision of any Program Document to which it
is a party, or (c) give any approval or consent or permission not provided for in any Program
Document.



(x) Other Business. The Issuer will not engage in any business or enterprise or enter
into any transaction other than (i) as contemplated by the Program Documents or (ii) activities
related to or incidental to any of the foregoing.



(y) Secured Liquidity Notes. The Issuer shall not issue Secured Liquidity Notes to
the Sellers, any Affiliate of the Sellers or any trust or other entity to which the Sellers or any
Affiliate of the Sellers is a depositor or servicer bearing interest (or at a discount) in excess
of a commercially reasonable rate.



(z) Rule 144A Information Requirement. For so long as any of the Notes remain
outstanding and are “restricted securities” within the meaning of Rule 144(a)(3) under the
Securities Act, the Issuer covenants and agrees that it shall, during any period in which it is not
subject to Section 13 or 15(d) under the Exchange Act, make available to any holder of Notes in
connection with any sale thereof and any prospective purchaser of Notes from such holder of Notes
in each case upon request, the information specified in, and meeting the requirements of, Rule
144A(d)(4) under the Securities Act.



(aa) Use of Proceeds of Notes. The Issuer shall use the proceeds of Notes solely for
one or more of the following purposes: (a) to pay the Issuer’s Obligations when due, in accordance
with this Security Agreement; and (b) to acquire Eligible Loans from the Sellers.



(bb) Program Document Information. The Issuer shall, or shall cause the Sellers or
the Servicer to, provide the Collateral Agent and each Swap Counterparty with copies of all
reports, notices, statements and certificates delivered under the Program Documents, and any other
information that the Collateral Agent or each Swap Counterparty shall reasonably request. Delivery
of such reports, notices, information and documents to the Collateral Agent under this section and
Section 3.05(z) is for informational purposes only and the Collateral Agent’s receipt of
such shall not constitute constructive notice of any information contained therein or determinable
from information contained therein, including the Issuer’s compliance with any of its covenants.



(cc) Non-Petition Agreement. The Issuer shall cause each party to the Program
Documents and each party to any other document incidental or related to any Program Document, to
covenant and agree that it shall not, prior to the date which is one year and one day (or if
longer, the applicable preference period then in effect) after the payment in full of the latest
maturing Note, acquiesce, petition or otherwise, directly or indirectly, invoke or cause the Issuer
to invoke the process of any governmental authority for the purpose of commencing or sustaining a
case against the Issuer under any federal or state bankruptcy, insolvency or similar law or
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar
official of the Issuer or any substantial part of its property or ordering the winding up or
liquidation of the affairs of the Issuer.



ARTICLE IV




SECURED LIQUIDITY NOTES




Section 4.01 Conditions to Effectiveness. The ability of the Issuer to issue Secured
Liquidity Notes shall commence on the first day (the “Effective Date”) on which all of the
following conditions have been satisfied (or waived in accordance with this Security Agreement):



(a) Depositary Agreement. The Issuer and the Depositary shall have executed and
delivered the Depositary Agreement, which shall be in full force and effect, and the Collateral
Agent shall have received a fully executed counterpart thereof.



(b) Mortgage Loan Purchase and Servicing Agreement. The Sellers, the Servicer, the
Performance Guarantor and the Issuer shall have executed and delivered the Mortgage Loan Purchase
and Servicing Agreement, which shall be in full force and effect, and the Collateral Agent shall
have received a fully executed counterpart thereof.



(c) Indenture and Subordinated Note Purchase Agreement. The Issuer and the Indenture
Trustee shall have executed and delivered the Indenture, and the Collateral Agent shall have
received a fully executed copy thereof, which shall be in full force and effect. The Issuer and
the Initial Purchaser of the Subordinated Notes shall have executed and delivered the Subordinated
Note Purchase Agreement, and the Collateral Agent shall have received a fully executed copy
thereof, which shall be in full force and effect, and the closing thereunder shall have occurred
(including the purchase of the Subordinated Notes by such purchaser). The Subordinated Notes shall
have been issued in an aggregate Principal Amount of not less than $27,295,000.



(d) Trust Agreement. The Owner Trustee, the Depositor and the Administrator shall
have executed and delivered the Trust Agreement, and the Collateral Agent shall have received a
fully executed copy thereof, which shall be in full force and effect.



(e) Security Agreement. The Issuer and the Collateral Agent shall have executed and
delivered this Security Agreement, which shall be in full force and effect, and the Collateral
Agent shall have received a fully executed counterpart thereof.



(f) Custodial Agreement. The Issuer, the Sellers, the Servicer, the Collateral Agent
and the Custodian shall have executed and delivered the Custodial Agreement, which shall be in full
force and effect, and the Collateral Agent shall have received a fully executed counterpart
thereof.



(g) SLN Placement Agent Agreement. The Issuer and the SLN Placement Agents shall have
executed and delivered the SLN Placement Agent Agreement in respect of the Secured Liquidity Notes,
which shall be in full force and effect, and the Collateral Agent shall have received a fully
executed counterpart thereof.



(h) No Event of Default or Servicer Event of Default. No Event of Default or Servicer
Event of Default shall have occurred and be continuing on the Effective Date nor will any Event of
Default or Servicer Event of Default result from the consummation of the initial issuance of
Secured Liquidity Notes on such date.



(i) Representations and Warranties. All representations and warranties of (i) the
Issuer contained in this Security Agreement and in the other Program Documents or in any document,
certificate or financial or other statement delivered in connection herewith or therewith, (ii) the
Servicer contained in the Servicer Documents, (iii) the Sellers contained in the Seller Documents
and (iv) the Performance Guarantor contained in the Mortgage Loan and Purchasing Agreement shall be
true and correct in all material respects and with the same force and effect as though such
representations and warranties had been made as of the Effective Date.



(j) Opinions of Counsel. The Collateral Agent shall have received signed opinions,
addressed to the Collateral Agent from Mayer, Brown, Rowe & Maw LLP, special counsel to the
Sellers, the Servicer, the Performance Guarantor and the Issuer, an opinion of counsel for each
Swap Counterparty (which may be an opinion from in-house counsel to such Swap Counterparty), as to
such matters as the Collateral Agent may reasonably request, and an opinion of counsel for each of
the Collateral Agent, the Indenture Trustee, the Owner Trustee and the Custodian (which may be an
opinion from in-house counsel to such party), as to such matters as the Collateral Agent may
reasonably request. The Collateral Agent shall have also received a copy, addressed to the
Collateral Agent or if not addressed to the Collateral Agent, then the Collateral Agent shall have
received a letter stating that the Collateral Agent shall be entitled to rely thereon, of each
opinion delivered to the Rating Agencies in connection with the rating of the Secured Liquidity
Notes.



(k) Closing Certificates. The Collateral Agent shall have received a certificate
dated the date hereof and executed by the chairman of the board, vice chairman of the board,
president, the Administrator, any vice president, secretary, treasurer, assistant secretary or any
assistant treasurer (or a Person with a delegation of authority from any such officer) of (i) the
Issuer stating that all of the conditions with respect to the Issuer specified in this Section
4.01 are then satisfied, (ii) the Servicer stating that the conditions with respect to the
Servicer specified in this Section 4.01 are then satisfied, (iii) each Seller stating that
the conditions with respect to such Seller specified in this Section 4.01 are then
satisfied and (iv) the Performance Guarantor stating that the conditions with respect to the
Performance Guarantor are then satisfied.



(l) Filings, etc. All filings (including, without limitation, pursuant to the UCC)
and recordings shall have been accomplished with respect to this Security Agreement in such
jurisdictions as may be required by law to establish, perfect, protect and preserve the rights,
titles, interests, remedies, powers, privileges, first priority liens and security interests of the
Collateral Agent in the Collateral covered by this Security Agreement and any giving of notice or
the taking of any other action to such end (whether similar or dissimilar) required by law shall
have been given or taken (it being understood that no filings of Assignments of Mortgages relating
to the Mortgage Loans purchased by the Issuer will be required except as provided in the Program
Documents). On or prior to the Effective Date, the Collateral Agent shall have received
satisfactory evidence as to any such filing, recording, registration, giving of notice or other
action so taken or made.



(m) Authorizations, etc. The Collateral Agent shall have received certificates of
good standing and copies of the organizational documents of the Issuer, the Sellers, the Servicer
and the Performance Guarantor, Board of Directors resolutions or similar authorizing resolutions of
the Sellers, the Servicer and the Performance Guarantor in respect of the Program Documents to
which each is a party, as applicable, and incumbency certificates of the Issuer, the Sellers, the
Servicer and the Performance Guarantor, all certified by appropriate authorities.



(n) Bank Accounts. The Collateral Account, the Collection Account, the Allocated
Expense Account, the Extended Note Distribution Account and the Secured Liquidity Note Account
shall have been established.



(o) Secured Liquidity Notes Ratings. The Secured Liquidity Notes shall have been
rated “A-l+” by S&P and “P-1” by Moody’s, the Collateral Agent shall have received a copy of each
letter evidencing any such rating and such ratings shall continue in full force and effect on the
Effective Date.



(p) Other Instruments and Documents. The Collateral Agent shall have received such
other instruments and documents as the Collateral Agent may have reasonably requested, and all
instruments and documents delivered pursuant to this Section 4.01 shall be reasonably
satisfactory in form and substance to the Collateral Agent.



(q) Fees. The invoiced fees and expenses of the Depositary, the Custodian, the Owner
Trustee, the Indenture Trustee and the Collateral Agent, and the fees and expenses of their
counsel, and the up-front invoiced fees payable to the Rating Agencies and the SLN Placement
Agents, shall have been paid on or prior to the Effective Date.



(r) Effective Date. The Issuer shall have given notice to the Collateral Agent and
the Depositary of the Effective Date, in the form of a certificate in the form of Exhibit A
hereto.



(s) Interest Rate Swaps. The Issuer and each Swap Counterparty shall have executed
and delivered the applicable Interest Rate Swap, which shall be in full force and effect, and the
Collateral Agent shall have received a fully executed counterpart thereof. No Event of Default or
Additional Termination Event (each as defined in the Interest Rate Swaps) shall have occurred and
be continuing.



(t) Reserve Fund. The Collateral Agent shall have received evidence not later than
the date on which the Issuer first purchases a Mortgage Loan under the Mortgage Loan Purchase and
Servicing Agreement that the Reserve Fund has been established and funded in an amount equal to the
Required Reserve Fund Amount.



(u) Disbursement Account Agreement. The Owner Trustee and the Custodian shall have
executed and delivered the Disbursement Account Agreement, which shall be in full force and effect,
and the Collateral Agent shall have received a fully executed counterpart thereof.



(v) Rated Bidder Letter. The Issuer, the Servicer, the Collateral Agent and Deutsche
Bank AG, New York Branch, shall have executed and delivered the Rated Bidder Letter, which shall be
in full force and effect, and the Collateral Agent shall have received a fully executed counterpart
thereof.



Section 4.02 Issuance of Secured Liquidity Notes. The issuance and payment provisions
of the Secured Liquidity Notes, to the extent not covered in this Security Agreement, will be as
set forth in the Depositary Agreement.



(a) The Issuer shall have the right to issue or deliver Classes of Secured Liquidity Notes
from time to time on and after the Effective Date, unless (i) any condition precedent specified in
Section 4.03 with respect to the issuance of Classes of Secured Liquidity Notes has not
been satisfied or waived or (ii) the issuance of Classes of Secured Liquidity Notes is prohibited
by the provisions of Section 4.02(c) hereof. If any of the events described in clauses (i)
and (ii) of the immediately preceding sentence has occurred, then the Issuer shall not direct the
Collateral Agent or the Depositary to issue or deliver Classes of Secured Liquidity Notes.



(b) The Issuer agrees that each note constituting Secured Liquidity Notes shall (i) be in the
form attached to the Depositary Agreement and be completed in accordance with this Security
Agreement and the Depositary Agreement, (ii) be dated the date of issuance thereof, (iii) be made
payable to the order of a named payee or bearer, (iv) be in a face amount (if issued on a discount
basis) or a principal amount (if issued on an interest-bearing basis) of $250,000 or an integral
multiple of $1,000 in excess thereof and (v) be exempt from or sold in a transaction exempt from
the registration requirements of the Securities Act. Subject to the provisions of the Depositary
Agreement, all Secured Liquidity Notes shall be delivered and issued against payment therefor in
collected funds which are immediately available on the date of issuance, and otherwise in
accordance with the terms of this Security Agreement and the Depositary Agreement.



(c) (i) After their initial sale, any Class of Secured Liquidity Notes or Extended Notes, or
any portion of any such Class, may be resold only (1) to the Issuer (upon redemption thereof or
otherwise), (2) in a transaction meeting the requirements of Rule 144A to a person whom the
transferor reasonably believes is a qualified institutional buyer (as defined in Rule 144A) that
purchases for its own account or for the account of a qualified institutional buyer to whom notice
is given that the transfer is being made in reliance on Rule 144A, (3) pursuant to an exemption
from the registration requirements of the Securities Act to an “accredited investor” within the
meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 of Regulation D under the Securities
Act (each, an “Institutional Accredited Investor” that is acquiring such Note for its own
account, or for the account of such an Institutional Accredited Investor; or (4) in a transaction
complying with or exempt from the registration requirements of the Securities Act (subject in the
case of this clause (4) to receipt of an opinion of counsel, in form and substance acceptable to
the Issuer, the Collateral Agent, the Depositary and each SLN Placement Agent, to the effect that
such reoffer, resale, pledge or other transfer has been made in compliance with or pursuant to an
exemption from registration under the Securities Act), in each case in accordance with any
applicable securities laws of any state of the United States or any other jurisdiction. The holder
will, and each subsequent holder is required to, notify any purchaser from it of the resale
restrictions set forth above.




(ii) In furtherance of the foregoing, each purchaser of any Class of Secured Liquidity
Notes, Extended Notes, or any portion of any such Class, sold to an Institutional Accredited
Investor shall be deemed to have represented and agreed that:




(A) It understands that the Notes purchased by it will be offered, and may be
transferred, only in a transaction not involving any public offering within the
meaning of the Securities Act, and that, if in the future it decides to resell,
pledge or otherwise transfer any such Notes, such Notes may be resold, pledged or
transferred only in accordance with the transfer restrictions set forth in this
Security Agreement, the Depositary Agreement and such Notes;




(B) the purchaser is (A) an “accredited investor” as that term is defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act or is a
fiduciary or agent (other than a U.S. bank or savings and loan association) that is
purchasing such Secured Liquidity Note or Extended Note either for its own account
or for the account of one or more Institutional Accredited Investors, (B) has such
knowledge and experience (or is a fiduciary or agent with sole investment discretion
having such knowledge and experience) in financial and business matters that it (or
such fiduciary or agent) is capable of evaluating the merits and risks of investing
in such Secured Liquidity Note or Extended Note, (C) has had access to such
information (including without limitation information with respect to the Mortgage
Loans and the Swap Counterparties) as the purchaser deems necessary in order to make
an informed investment decision, (D) is purchasing such Secured Liquidity Note or
Extended Note for investment and not with a view to distribution; and (E) the
purchaser understands that, although the Issuer and the SLN Placement Agents may
repurchase Secured Liquidity Notes or Extended Notes, the Issuer and the SLN
Placement Agents are not obligated to do so, and accordingly the purchaser (or any
such other investor) should be prepared to hold such Notes until their Final
Maturity;




(C) Either (i) no part of the assets used by it to acquire such Notes
constitutes assets of any Benefit Plan, or (ii) its acquisition and holding of such
Notes will not result in a non-exempt prohibited transaction under ERISA or Section
 4975 of the Code (or, in the case of a governmental plan, non-U.S. plan, or church
plan, will not violate any law substantially similar to the fiduciary responsibility
provisions of ERISA or Section 4975 of the Code);




(D) It acknowledges that the Collateral Agent, the Depositary, the Issuer, each
SLN Placement Agent, and their Affiliates, and others will rely exclusively upon the
truth and accuracy of the foregoing acknowledgements, representations and agreements
and shall be under no duty or obligation to verify the accuracy of the same; and




(E) If it is acquiring any such Notes for the account of one or more
Institutional Accredited Investors, it represents that it has sole investment
discretion with respect to each such account and that it has full power to make the
foregoing acknowledgements, representations and agreements on behalf of each such
account.




(iii) In furtherance of the foregoing, each purchaser of any Class of Secured Liquidity
Notes, Extended Notes, or any portion of any such Class, sold in the United States to a
qualified institutional buyer within the meaning of, and in reliance on, Rule 144A, shall be
deemed to have represented and agreed that:




(A) It is a qualified institutional buyer as that term is defined in Rule 144A
and is acquiring such Notes for its own institutional account or for the account of
a qualified institutional buyer;




(B) It understands that the Notes purchased by it will be offered, and may be
transferred, only in a transaction not involving any public offering within the
meaning of the Securities Act, and that, if in the future it decides to resell,
pledge or otherwise transfer any such Notes, such Notes may be resold, pledged or
transferred only in accordance with the transfer restrictions set forth in this
Security Agreement, the Depositary Agreement and such Notes;




(C) Either (i) no part of the assets used by it to acquire such Notes
constitutes assets of any Benefit Plan, or (ii) its acquisition and holding of such
Notes will not result in a non-exempt prohibited transaction under ERISA or
Section 4975 of the Code (or, in the case of a governmental plan, non-U.S. plan or
church plan, will not violate any law substantially similar to the fiduciary
responsibility provisions of ERISA or Section 4975 of the Code);




(D) It acknowledges that the Collateral Agent, the Depositary, the Issuer, each
SLN Placement Agent, and their Affiliates, and others will rely exclusively upon the
truth and accuracy of the foregoing acknowledgements, representations and agreements
and shall be under no duty or obligation to verify the accuracy of the same; and




(E) If it is acquiring any such Notes for the account of one or more qualified
institutional buyers, it represents that it has sole investment discretion with
respect to each such account and that it has full power to make the foregoing
acknowledgements, representations and agreements on behalf of each such account.



(d) In the event that (i) an injunction suspending the issuance of Secured Liquidity Notes
shall have been issued or proceedings therefor shall have been initiated by the Securities and
Exchange Commission, (ii) the Issuer or any other Person shall have been found in a judicial or
administrative proceeding to have violated the Securities Act in connection with the issuance of
the Secured Liquidity Notes, or (iii) the Issuer or the SLN Placement Agents shall have filed a
registration statement with the Securities and Exchange Commission seeking to register the Secured
Liquidity Notes under the Securities Act, then, in any such event, the Issuer shall not thereafter
issue or sell any Secured Liquidity Notes. The Issuer shall give the Collateral Agent, the SLN
Placement Agents, the Depositary, each Swap Counterparty and the Rating Agencies notice of any of
the events described in this Section 4.02(d).



Section 4.03 Conditions Precedent to Issuance of Secured Liquidity Notes. The right
of the Issuer to issue Secured Liquidity Notes is subject to the conditions that at the time of
each such issuance and after giving effect thereto:



(a) Ratings. The Secured Liquidity Notes shall be rated “A-1+” by S&P, and “P-1” by
Moody’s.



(b) No Event of Default. No event of default under any Program Document and no Event
of Default and no Termination Event shall have occurred and be continuing and the Issuer shall have
made a determination that no event of default under any Program Document and no Event of Default
and no Termination Event will result from the issuance of such Secured Liquidity Notes.



(c) Representations and Warranties. All representations and warranties of the Issuer
contained in this Security Agreement and in the other Program Documents or in any document,
certificate or financial or other statement delivered in connection herewith or therewith shall be
true and correct in all material respects with the same force and effect as though such
representations and warranties had been made on and as of the day of such issuance.



(d) Accounts. The Reserve Fund, the Collateral Account, the Collection Account, the
Extended Notes Distribution Account and the Secured Liquidity Note Account, and any funds on
deposit in, or otherwise to the credit of, the Reserve Fund, Collateral Account, the Collection
Account, the Extended Notes Distribution Account and the Secured Liquidity Note Account shall not
be subject to any writ, order, stay, judgment, warrant of attachment or execution or similar
process.



(e) Borrowing Base Test. After giving effect to such issuance of Secured Liquidity
Notes on such day, the payment of Secured Liquidity Notes maturing or matured on such day, the
payment of outstanding Extended Notes on such day, the issuance of the Subordinated Notes on such
day, the payment of outstanding Subordinated Notes maturing or matured on such day and the purchase
of additional Mortgage Loans on such day, the Borrowing Base Test shall be satisfied.



(f) Authorized Amount of Secured Liquidity Notes. After giving effect to such
issuance of Secured Liquidity Notes on such day, the payment of Secured Liquidity Notes maturing or
matured on such day, and the payment of outstanding Extended Notes on such day, the Credits
Outstanding on such day plus the aggregate outstanding Principal Amount of the Subordinated Notes
are not greater than the Program Size.



(g) Downgrade. No downgrade, qualification or withdrawal of the long-term unsecured
debt rating of any Swap Counterparty below “AA-” by S&P, “Aa3” by Moody’s or, if rated by Fitch,
“AA-” by Fitch or of its short-term unsecured debt rating below “A-1+” by S&P, “P-1” by Moody’s or,
if rated by Fitch, “F1+” by Fitch shall have occurred and be continuing.



(h) Mortgage Loans Purchased. The aggregate amount of all Mortgage Loans purchased
and held by the Issuer at any given time does not, and will not, exceed the maximum amount set
forth in the Mortgage Loan Purchase and Servicing Agreement.



(i) Mortgage Loans Sold. The Issuer shall be in compliance with the Portfolio Aging
Limitations and the Portfolio Criteria.



(j) SLN Maturity. Each Secured Liquidity Note has an Expected Maturity that is not
more than one hundred and eighty (180) calendar days after its issuance date and a Final Maturity
that is one hundred and twenty (120) calendar days after its Expected Maturity.



(k) No Extended Notes. No Extended Notes are outstanding unless after giving effect
to such new issuance of Secured Liquidity Notes, sufficient funds will be available to fully repay
(x) all outstanding Extended Notes and (y) all Secured Liquidity Notes maturing on such date.



The Issuer hereby agrees that each issuance of Secured Liquidity Notes constitutes a
representation and warranty by the Issuer that the conditions specified above are then satisfied
and will be satisfied immediately after giving effect thereto.



Section 4.04 Conversion to Extended Notes. (a) Upon the failure of any Class of
Secured Liquidity Notes to be fully paid on its Expected Maturity, without any notice or other
further action by any Person, the Issuer shall be deemed to have advised the Clearing Agency that
such Class of Secured Liquidity Notes has been converted, as of such Expected Maturity, to a Class
of Extended Notes.



(b) Upon any such conversion with respect to any Class of Secured Liquidity Notes, the
Collateral Agent shall notify the Depositary of such conversion to a Class of Extended Notes. The
initial aggregate principal amount of each Class of Extended Notes deemed issued upon conversion of
the related Class of Secured Liquidity Notes shall be equal to the aggregate face amount of such
Class of Secured Liquidity Notes (or, in the case of Secured Liquidity Notes issued on an interest
bearing basis, the aggregate principal and accrued interest of such Class of Secured Liquidity
Notes). The Issuer shall provide written notice to the Rating Agencies, the SLN Placement Agents
and each Swap Counterparty of any conversion of a Class of Secured Liquidity Notes to a Class of
Extended Notes.



Section 4.05 Proceeds. The proceeds of Secured Liquidity Notes shall be used by the
Issuer only to (i) acquire Mortgage Loans, (ii) pay matured and maturing Secured Liquidity Notes,
including interest and/or discount thereon, (iii) pay outstanding Extended Notes, including
interest thereon, in accordance with the terms of the Program Documents, and (iv) make payments in
accordance with Sections 2.01 and 6.03 hereof.



Section 4.06 Calculation of Extended Note Interest. (a) For purposes of calculating
the Extended Note Rate for each Class of Extended Notes, the Issuer hereby appoints the Collateral
Agent as the Extended Note Calculation Agent. The Extended Note Calculation Agent may be removed
by the Issuer at any time. If the Extended Note Calculation Agent is unable or unwilling to act as
such or is removed by the Issuer, or if the Extended Note Calculation Agent fails to determine the
Extended Note Rate for each Class of Extended Notes and the Aggregate Extended Note Monthly
Interest for any Interest Period, the Issuer will promptly appoint as a replacement Extended Note
Calculation Agent a leading bank which is engaged in transactions in Eurodollar deposits in the
international Eurodollar market. The Extended Note Calculation Agent may not resign its duties
without a successor having been duly appointed by the Issuer.



(b) LIBOR shall be determined by the Extended Note Calculation Agent in accordance with the
following provisions:




(i) On the second Business Day prior to the commencement of the applicable Interest
Period (or, in the case of the initial Interest Period, on the related Expected Maturity)
(each such day, a “LIBOR Determination Date”), “LIBOR” shall equal the rate, as
obtained by the Extended Note Calculation Agent, for one-month Eurodollar deposits which
appears on Telerate Page 3750 (as defined in the publication “2000 ISDA Definitions”
published by the International Swaps and Derivatives Association, Inc.) or such other page
as may replace Telerate Page 3750, as it relates to U.S. dollars, as of 11:00 a.m. (London
time) on such LIBOR Determination Date.




(ii) If, on any LIBOR Determination Date, such rate does not appear on Telerate
Page 3750, the Extended Note Calculation Agent shall determine the arithmetic mean of the
offered quotations of the Reference Banks to leading banks in the London interbank market
for one-month Eurodollar deposits in an amount determined by the Extended Note Calculation
Agent by reference to requests for quotations as of approximately 11:00 a.m. (London time)
on the LIBOR Determination Date made by the Extended Note Calculation Agent to the Reference
Banks. If, on any LIBOR Determination Date, at least two of the Reference Banks provide
such quotations, LIBOR shall equal the arithmetic mean of such quotations. If, on any LIBOR
Determination Date, only one or none of the Reference Banks provide such quotations, LIBOR
shall be deemed to be the arithmetic mean of the offered quotations that leading banks in
The City of New York selected by the Extended Note Calculation Agent are quoting on the
relevant LIBOR Determination Date for one-month Eurodollar deposits in an amount determined
by the Extended Note Calculation Agent by reference to the principal London offices of
leading banks in the London interbank market; provided, however, that if the
Extended Note Calculation Agent is required but is unable to determine a rate in accordance
with at least one of the procedures provided above, “LIBOR” shall be LIBOR as
determined on the previous LIBOR Determination Date. As used herein, “Reference
Banks” means four major banks in the London interbank market selected by the Extended
Note Calculation Agent.



As soon as possible after 11:00 a.m. (London time) on each LIBOR Determination Date, but in no
event later than 11:00 a.m. (London time) on the Business Day immediately following each LIBOR
Determination Date, the Extended Note Calculation Agent will cause the Extended Note Rate for the
next Interest Period and the applicable Aggregate Extended Note Monthly Interest for such Interest
Period payable in respect of the Extended Notes on the related Distribution Date to be given to the
Issuer, the Depositary and any paying agent. The Extended Note Calculation Agent will also specify
to the Issuer and the Depositary the quotations upon which the Extended Note Rate is based, and in
any event the Extended Note Calculation Agent shall notify the Issuer before 5:00 p.m. (London
time) on each LIBOR Determination Date that either: (i) it has determined or is in the process of
determining the Extended Note Rate and the applicable Aggregate Extended Note Monthly Interest or
(ii) it has not determined and is not in the process of determining the Extended Note Rate and the
applicable Aggregate Extended Note Monthly Interest, together with its reasons therefor. For the
sole purpose of calculating the Extended Note Rate, “Business Day” shall be any day on
which dealings in deposits in U.S. dollars are transacted in the London interbank market.



Section 4.07 Payment of Extended Note Interest. (a) The discount representing
interest on each Secured Liquidity Note will be payable pursuant to the terms of the Depositary
Agreement on the related Expected Maturity or redemption date (if such Secured Liquidity Note is
redeemed prior to such Expected Maturity in accordance with Section 7.02 hereof) with funds
provided therefor pursuant to Section 6.03 of this Security Agreement; provided,
however, that if such funds provided under this Security Agreement are insufficient to
repay the face amount of all outstanding Secured Liquidity Notes having the same Expected Maturity
on such Expected Maturity, then no interest will be paid in respect of such Classes on such date
and such Classes shall thereupon be converted into Extended Notes pursuant to Section 4.04
hereof. With respect to the payment of interest on the Extended Notes, on each Distribution Date
commencing with the second Distribution Date following such Expected Maturity, the Collateral
Agent, in accordance with a certificate or other statement based upon the Servicer Report, shall
withdraw the amounts required to be withdrawn from the Collateral Account and deposit such amounts
in the Extended Notes Distribution Account, maintained with the Depositary, pursuant to this
Section 4.07 in respect of all funds available for such Interest Period and allocated to
the holders of the Extended Notes pursuant to Section 6.03(b) of this Security Agreement.



On each Determination Date, the Collateral Agent shall notify the Depositary and the Servicer
in writing as to the amount to be withdrawn and paid pursuant to this Section 4.07 from the
Collateral Account to the extent funds are anticipated to be available and allocable to the
Extended Notes in respect of (x) first, an amount equal to Extended Note Monthly Interest for the
related Interest Period and (y) second, an amount equal to the amount of any unpaid Extended Note
Shortfall as of the preceding Distribution Date (together with any accrued interest on such
Extended Note Shortfall). If the amounts described in this Section 4.07 are not sufficient
to pay Extended Note Monthly Interest on any Distribution Date, payments of interest to the holders
of Extended Notes will be reduced on a pro rata basis by the amount of such
deficiency. The aggregate amount, if any, of such deficiency on any Distribution Date shall be
referred to as the “Extended Note Shortfall.” Interest shall accrue on the Extended Note
Shortfall at the Extended Note Rate. On each Distribution Date, the Collateral Agent shall
withdraw the amounts described in this Section 4.07 from the Collateral Account and deposit
such amounts in the Extended Notes Distribution Account.



Section 4.08 Payment of Senior Note Principal. The principal in respect of each
Secured Liquidity Note will be payable pursuant to the terms of the Depositary Agreement on the
related Expected Maturity or redemption date (if such Secured Liquidity Note is redeemed prior to
such Expected Maturity in accordance with Section 7.02 hereof) with funds provided therefor
pursuant to Section 6.03 of this Security Agreement; provided, however,
that if such funds provided under this Security Agreement are insufficient to repay the face amount
of all outstanding Secured Liquidity Notes having the same Expected Maturity on such Expected
Maturity, then no principal will be paid in respect of such Classes on such date and such Classes
shall thereupon be converted into Extended Notes pursuant to Section 4.04 hereof;
provided, further, the principal in respect of the Secured Liquidity Notes may only
be paid if no Extended Notes would be outstanding after giving effect to all payments made on such
date. The principal in respect of any Extended Note (x) upon at least five (5) Business Days’
notice to DTC, the Depositary and the Collateral Agent, may be paid in whole, but not in part, on
any day at the option of the Issuer to the extent of available principal payments on the Mortgage
Loans, sale proceeds in respect of the Mortgage Loans, payments to the Issuer under the Interest
Rate Swaps in respect of the Mortgage Loans and proceeds from the issuance of new Classes of
Secured Liquidity Notes, provided that after giving effect to all payments made on such
date, no outstanding Class of Extended Notes has the same or an earlier Final Maturity and (y)
unless earlier redeemed, will be repaid in full on the Final Maturity of such Extended Note. With
respect to each Class of Extended Notes, on the applicable principal payment date, in accordance
with a certificate or other statement based upon the related report generated by the Servicer, the
Collateral Agent shall withdraw the amount set forth therein as principal payable in respect of the
applicable Class of Extended Notes from the Collateral Account and deposit such amount in the
Extended Notes Distribution Account maintained with the Depositary, to be paid to the holders of
the applicable Class of Extended Notes on such date. On the Determination Date prior to the
related Final Maturity, the Collateral Agent shall notify the Servicer in writing as to the amount
of remaining principal outstanding in respect of the applicable Class of Extended Notes. On each
Final Maturity, in accordance with the related Servicer Report, the Collateral Agent shall withdraw
such amount of remaining principal in respect of the applicable Class of Extended Notes from the
Collateral Account and deposit such amount in the Extended Notes Distribution Account maintained
with the Depositary, to be paid to the holders of the applicable Class of Extended Notes.



Section 4.09 Series Program Size of the Secured Liquidity Notes and Extended Notes.
The “Series Program Size” with respect to the Secured Liquidity Notes and Extended Notes,
collectively, as of the date hereof, shall be $1,030,000,000 (as such Series Program Size may be
increased or decreased following the Effective Date in accordance with the Program Documents). The
Issuer may, with the consent of each Swap Counterparty and the Collateral Agent, increase or
decrease the Series Program Size; provided, however, that no increase or decrease
in the Series Program Size may be made unless (i) after giving effect to such increase or decrease,
the aggregate maximum notional amount of the Interest Rate Swaps shall be at least equal to the
Facility Size and (ii) in the case of an increase, the Issuer shall obtain written confirmation
from each of the Rating Agencies that such increase shall not cause the reduction or withdrawal of
any rating on any Series of Senior Notes or Subordinated Notes.



ARTICLE V




ASSIGNMENT




Section 5.01 Assignment. In order to secure and to provide for the repayment of the
Obligations, each of the Issuer and the Owner Trustee hereby assigns, conveys, transfers, delivers
and sets over unto the Collateral Agent for the benefit of the Secured Parties and hereby grants to
the Collateral Agent for the benefit of each Secured Party a security interest in, control over,
and lien on all of the following, including, without limitation, all accounts, money, chattel
paper, securities, investment property, instruments, documents, deposit accounts, certificates of
deposit, letters of credit, letter of credit rights, advices of credit, banker’s acceptances,
uncertificated securities, securities accounts, security entitlements, investment property, general
intangibles, contract rights, goods and other property consisting of, arising from or relating to
the following whether currently existing or hereafter acquired (all of the following indicated in
(i) through (v) being referred to as the “Assigned Collateral”):




(i) all right, title and interest of the Issuer in, to and under the Mortgage Loans
(including the contents of the Mortgage Loan Files) purchased by the Issuer from time to
time pursuant to the Mortgage Loan Purchase and Servicing Agreement, including without
limitation, all monies due and to become due to the Issuer under or in connection with such
Mortgage Loans, all dividends, earnings, income, rents, issues, profits or other
distributions of cash or other property in respect of such Mortgage Loans and all rights,
remedies, powers, privileges and claims of the Issuer, as holder of such Mortgage Loans,
against (i) the Sellers under or with respect to the Mortgage Loan Purchase and Servicing
Agreement (whether arising pursuant to the terms of the Mortgage Loan Purchase and Servicing
Agreement or otherwise available to the Issuer at law or in equity), and (ii) the Servicer
under or with respect to the Mortgage Loan Purchase and Servicing Agreement (whether arising
pursuant to the terms of the Mortgage Loan Purchase and Servicing Agreement or otherwise
available to the Issuer at law or in equity), including, without limitation, the rights of
the Issuer to enforce the Mortgage Loan Purchase and Servicing Agreement and the respective
obligations of the Sellers, the Servicer and the Performance Guarantor thereunder and to
give or withhold any and all consents, requests, notices, directions, approvals, extensions
or waivers under or with respect to the Mortgage Loan Purchase and Servicing Agreement or
the respective obligations of the Sellers, the Servicer or the Performance Guarantor
thereunder to the same extent as the Issuer could but for the assignment and security
interest granted to the Collateral Agent in this Section 5.01;




(ii) all right, title and interest of the Issuer in, to and under the Program
Documents, including, without limitation, all monies due and to become due to the Issuer
thereunder or in connection therewith, whether payable as fees, expenses, costs,
indemnities, insurance recoveries, damages for the breach of any of the Program Documents or
otherwise, and all rights, remedies, powers, privileges and claims of the Issuer under or
with respect to the Program Documents (whether arising pursuant to the terms of the Program
Documents or otherwise available to the Issuer at law or in equity), including, without
limitation, the rights of the Issuer to enforce the Program Documents and to give or
withhold any and all consents, requests, notices, directions, approvals, extensions or
waivers under or with respect to the Program Documents to the same extent as the Issuer
could but for the assignment and security interest granted to the Collateral Agent in this
Section 5.01;




(iii) all right, title and interest of the Issuer in and to (x) monies on deposit in,
or securities, financial assets, investment property or other assets credited to, (A) the
Reserve Fund, (B) the Allocated Expenses Account, (C) any account maintained pursuant to the
Depositary Agreement and (D) the Collection Account (other than interest earned on amounts
deposited therein) and any other accounts maintained pursuant to the Mortgage Loan Purchase
and Servicing Agreement (excluding any escrow accounts maintained for obligors under the
Mortgage Loans), the Indenture, or this Security Agreement, (y) all Eligible Investments
held by the Issuer and (z) all cash held by the Issuer;




(iv) all additional property that may from time to time hereafter be subjected to the
grant and pledge hereof by the Issuer or by anyone on its behalf, including the deposit with
the Collateral Agent of additional monies by the Issuer; and




(v) all proceeds of any of the foregoing.



Notwithstanding the assignment and security interest so granted to the Collateral Agent, the
Issuer shall nevertheless be permitted, subject to the provisions of Sections 5.03 and
5.04 and of Article VII hereof, to give all consents, requests, notices,
directions, approvals, extensions or waivers, if any, which are required to be given by the Issuer
by the specific terms of the Mortgage Loan Purchase and Servicing Agreement and the Program
Documents and the assignment and security interest so granted to the Collateral Agent shall not
relieve the Issuer from the performance of any term, covenant, condition or agreement on the
Issuer’s part to be performed or observed under or in connection with the Program Documents, or
from any liability to the Sellers or the Servicer, or impose any obligation on the Collateral Agent
or the Secured Parties to perform or observe any such term, covenant, condition or agreement on the
Issuer’s part to be so performed or observed or impose any liability on the Collateral Agent or the
Secured Parties for any act or omission on the part of the Issuer relative thereto or from any
breach of any representation or warranty on the part of the Issuer contained in the Program
Documents, or made in connection therewith.



Section 5.02 Application of Assigned Collateral. The Issuer hereby acknowledges and
agrees that, until this Security Agreement is terminated, all monies and other cash proceeds due
and to become due to the Issuer under or in connection with the Assigned Collateral shall be paid
directly to the Collateral Agent for deposit into the Collateral Account and that the Issuer agrees
if any such monies or other cash proceeds shall be received by the Issuer, such monies and other
cash proceeds will not be commingled by the Issuer with any of its other funds or property, but
will be held separate and apart therefrom and shall be held in trust by the Issuer for, and
promptly paid over to, the Collateral Agent. Unless and until an Event of Default shall have
occurred and be continuing, and provided the Collateral Account or any funds on deposit in, or
otherwise to the credit of, the Collateral Account are not then subject to any writ, order,
judgment, warrant of attachment, execution or similar process, all monies and other cash proceeds
received by the Collateral Agent pursuant to this Article shall be deposited in the Collateral
Account for application as provided in Section 6.03 hereof. All monies and other cash
proceeds held or deposited in the Collateral Account after the occurrence and during the
continuance of an Event of Default and all monies and other cash proceeds received by the
Collateral Agent pursuant to this Article V while the Collateral Account or any funds on
deposit in, or otherwise to the credit of, the Collateral Account are subject to any writ, order,
judgment, warrant of attachment, execution or similar process, shall be applied by the Collateral
Agent to the payment or repayment in full of all outstanding Obligations, whether or not then due,
in the order of priority specified in Section 2.01 hereof; provided,
however, that any monies or other cash proceeds remaining after the payment or repayment in
full of all outstanding Obligations shall be paid to the Issuer.



For purposes of determining the application to be made of such monies and other cash proceeds
to the Servicer pursuant to clause Ninth of Section 2.01(b) hereof, the Collateral
Agent may rely exclusively upon a certificate or other statement (a copy of which shall also be
provided to the Issuer) of the Servicer as to the amount then owing to the Servicer. For purposes
of determining the application to be made of such monies and other cash proceeds to any holder of
any Secured Liquidity Notes pursuant to clause Third of Section 2.01(b) hereof, the
Collateral Agent may rely exclusively upon a certificate or other statement (a copy of which shall
also be provided to the Issuer) of the Depositary as to the amount then owing to such holder. For
purposes of determining the application to be made of such monies and other cash proceeds to any
holder of any Extended Notes pursuant to clause Third of Section 2.01(b) hereof,
the Collateral Agent may rely exclusively on a certificate or other statement (a copy of which
shall also be provided to the Issuer) of the Depositary as to the amount then owing to such holder.
For purposes of determining the application to be made of such monies and other cash proceeds to
the Subordinated Noteholders pursuant to clause Sixth of Section 2.01(b) hereof,
the Collateral Agent may rely exclusively upon a certificate or other statement (a copy of which
shall also be provided to the Issuer) of the Indenture Trustee as to the amount then owing to such
holder. For purposes of determining the application to be made of such monies and other cash
proceeds to each Swap Counterparty pursuant to clauses Second, Fifth,
Seventh and Tenth of Section 2.01(b) hereof, the Collateral Agent may rely
exclusively upon a certificate or other statement (a copy of which shall also be provided to the
Issuer) of the Servicer, acting as Calculation Agent under the related Interest Rate Swap, as to
the amount then owing to each Swap Counterparty. Any application to be made by the Collateral
Agent of such monies and other cash proceeds pursuant to clauses First, Third,
Fourth or Eighth of Section 2.01(b) hereof may be made upon the Collateral
Agent’s, the Depositary’s, the Indenture Trustee’s or the Custodian’s certificate or statement
delivered to the Issuer setting forth in reasonable detail the nature of the Collateral Agent’s,
the Depositary’s, the Indenture Trustee’s or the Custodian’s claim and the amount owing to the
Collateral Agent, the Indenture Trustee, the Depositary’s or the Custodian on account thereof.



The Collateral Agent shall not be liable for any application of the monies and other cash
proceeds received by the Collateral Agent pursuant to this Article V made in accordance
with any certificate or direction delivered pursuant to this Section 5.02;
provided, however, that no application of the monies and other cash proceeds
received by the Collateral Agent pursuant to this Article V in accordance with any
certificate delivered pursuant to this Section 5.02 shall be deemed to restrict or limit
the right of the Issuer to contest with the purported obligee its respective liability in respect
of the amount set forth in such certificate.



Section 5.03 Performance of Agreements. Promptly, whether or not following a request
from the Collateral Agent to do so, and in any event at the Issuer’s own expense, the Issuer agrees
(a) to take all such lawful action as the Collateral Agent may reasonably request to compel or
secure the performance and observance by (i) the Sellers, the Servicer or the Performance Guarantor
of their respective obligations to the Issuer under or in connection with the Mortgage Loan
Purchase and Servicing Agreement in accordance with the terms thereof, and (ii) any party to any
Program Document in accordance with the terms thereof, and (b) to exercise any and all rights,
remedies, powers and privileges lawfully available to the Issuer (i) under or in connection with
the Mortgage Loan Purchase and Servicing Agreement and (ii) under or in connection with any Program
Document, in every case to the extent and in the manner directed by the Collateral Agent,
including, without limitation, the transmission of notices of default on the part of the Sellers or
the Servicer or any party to any Program Document and the institution of legal or administrative
actions or proceedings to compel or secure performance by the Sellers, the Servicer or the
Performance Guarantor or any party to any Program Document of their respective obligations.
Subject to Section 7.02, the Issuer further agrees that it will not, without the prior
written consent of the Collateral Agent (on behalf of the holders of the Senior Notes) and each
Swap Counterparty, (a) exercise any right, remedy, power or privilege available to it under or in
connection with the Mortgage Loan Purchase and Servicing Agreement, (b) take any action to compel
or secure performance or observance by (i) the Sellers, the Servicer or the Performance Guarantor
of its obligations to the Issuer under or in connection with the Mortgage Loan Purchase and
Servicing Agreement or (ii) any party to any Program Document, or (c) give any consent, request,
notice, direction, approval, extension or waiver to the Sellers, the Servicer or the Performance
Guarantor under the Mortgage Loan Purchase and Servicing Agreement not required to be exercised,
taken, observed or given by the Issuer pursuant to the terms of the Mortgage Loan Purchase and
Servicing Agreement.



Section 5.04 Amendments; Waivers. Without intending in any manner to derogate from
the absolute nature of the assignment granted to the Collateral Agent by this Security Agreement or
the rights of the Collateral Agent hereunder, the Issuer agrees that it will not, without Rating
Agency Confirmation and the prior written consent of the Collateral Agent and each Swap
Counterparty (such consent not to be unreasonably withheld), agree to amend, modify, supplement,
terminate, waive or surrender (x) the terms of the Custodial Agreement or (y) the definition of
“Assigned Collateral”, or assign its rights under any of the Program Documents or agree to any
amendment, modification, supplement, termination, except as provided in Section 8.02 or
10.01 hereof, or surrender which would result in the release of any security interest
granted in the Assigned Collateral, the Collateral Account or the Deposited Funds. If any such
amendment, modification, supplement or waiver, as applicable, shall be so consented to by the
required consenting parties, the Issuer agrees, promptly following a request by the required
consenting parties to do so, to prepare, execute and deliver, in its own name and at its own
expense, such agreements, instruments, consents and other documents as the required consenting
parties may deem necessary or appropriate in the circumstances. Upon provision of such direction
by the required consenting parties, the Collateral Agent shall also execute and deliver any such
agreements, instruments, consents and other documents. The Issuer shall give prior notice of any
amendment to each of the Rating Agencies.



Section 5.05 Location of Records. The Issuer hereby covenants and agrees that its
chief place of business and chief executive office, and the place where its records pertaining to
the Assigned Collateral will be kept, shall at all times be located in the offices of St. Andrew
Funding Trust, whose address is: 18400 Von Karman, Suite 1000, Irvine, CA 92612-1514.



Section 5.06 Notice of Default under Program Documents. The Issuer agrees, at its own
expense, to give the Collateral Agent, the Depositary, the SLN Placement Agents, each Swap
Counterparty and the Rating Agencies as soon as practicable (and in no event more than two Business
Days thereafter) written notice of each default coming to the Issuer’s attention on the part of any
Person, and of such Person’s obligations under or in respect of the Program Documents.



Section 5.07 Custody of Program Documents. Simultaneously with the execution and
delivery by the Issuer of this Security Agreement, the Issuer is delivering to the Collateral Agent
a counterpart of each Program Document currently in effect, which at all times shall be retained in
the custody and possession of the Collateral Agent until the termination of this Security
Agreement.



Section 5.08 Delivery of Assigned Collateral Including Eligible Investments. All
certificates representing or evidencing the Assigned Collateral (other than Mortgage Loans),
including, without limitation, Eligible Investments, from time to time shall be delivered to and
held by or on behalf of the Collateral Agent pursuant hereto and shall, in the case of Assigned
Collateral (other than Mortgage Loans), be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Collateral Agent. The Collateral Agent may appoint agents for the
purpose of holding Eligible Investments.



Section 5.09 Deliveries of Mortgage Loans. Each Mortgage Note, Mortgage and
Assignment of Mortgage in respect of each Mortgage Loan purchased by the Issuer from time to time
shall be delivered to and held by the Custodian in accordance with Sections 2 and 4
of the Custodial Agreement.



Section 5.10 No Liability. Neither the Collateral Agent, nor any director, officer,
employee, agent or stockholder of the Collateral Agent, shall be liable for any action taken or
omitted to be taken by it or them relative to any of the Collateral, except for its or their own
gross negligence, fraud, bad faith or willful misconduct, and the Collateral Agent shall not be
liable for any action or omission to act with respect to the Collateral (or any part thereof) on
the part of any agent, nominee, custodian or attorney of the Collateral Agent appointed and
selected by the Collateral Agent with reasonable care.



ARTICLE VI




COLLATERAL ACCOUNT;




RESERVE FUND; PAYMENT OF ALLOCATED EXPENSES




Section 6.01 Establishment of Collateral Account. For purposes of this Security
Agreement and the Depositary Agreement, the Collateral Agent shall at all times during the term of
this Security Agreement maintain in the State of New York, a special purpose, segregated,
non-interest bearing trust account in the name of and under the control of the Collateral Agent on
behalf of the Secured Parties as a general collateral account (said account being herein called the
“Collateral Account” and being identified as Account No. [     ]). The operation of the
Collateral Account shall be governed by this Article VI.



It is understood and agreed by the Issuer, the Collateral Agent and the Depositary that there
shall be deposited in the Collateral Account the following monies, cash and proceeds: (a) the net
proceeds from the sale of Secured Liquidity Notes payable to the Issuer pursuant to the Depositary
Agreement, to the extent not required to repay advances made by the Depositary in accordance with
the Depositary Agreement, maturing Secured Liquidity Notes or outstanding Extended Notes on the
date of issuance of such Secured Liquidity Notes, whether or not presented to the Depositary for
payment, and to the extent not maintained in the Secured Liquidity Note Account pursuant to the
terms of the Depositary Agreement, (b) all monies received by the Collateral Agent pursuant to this
Security Agreement and required by the terms hereof to be deposited by or on behalf of the Issuer
in the Collateral Account (including, without limitation, interest on the Eligible Investments),
(c) all monies received by or on behalf of the Issuer under the Mortgage Loan Purchase and
Servicing Agreement, (d) all monies received by or on behalf of the Issuer as proceeds from the
sale of Mortgage Loans and payments of the Repurchase Price of any Mortgage Loan, and all Principal
Prepayments in full, (e) all monies required to be transferred to the Collateral Account from the
Collection Account, including principal and interest payments on Mortgage Loans, (f) all monies
received by or on behalf of the Issuer under the Interest Rate Swaps, (g) all monies received by or
on behalf of the Issuer from the sale of Subordinated Notes, and (h) any and all monies at any time
and from time to time received by or on behalf of the Issuer, and required by the terms of this
Security Agreement, or any related document to be deposited in the Collateral Account.



The Collateral Agent shall have complete dominion and control over the Collateral Account, and
the Issuer hereby agrees that only the Collateral Agent may make withdrawals from the Collateral
Account; provided, however, that the Issuer and the Depositary may request
withdrawals from the Collateral Account in accordance with the terms of Section 6.03
hereof.



Except for the Collateral Account, the Reserve Fund, the Collection Account, the Allocated
Expenses Account, the Secured Liquidity Note Account, the Extended Notes Distribution Account and
the accounts established pursuant to the Indenture, the Issuer agrees that it will not open or
maintain a bank account with any Person. The Collateral Agent shall give the Issuer, each Swap
Counterparty, the Indenture Trustee, and the Depositary immediate notice if the Collateral Account,
the Reserve Fund, the Collection Account, the Allocated Expenses Account, the Secured Liquidity
Note Account, the Extended Notes Distribution Account and any account established pursuant to the
Indenture, or any Deposited Funds become subject to any writ, order, judgment, warrant of
attachment, execution or similar process to which it has notice. The Collateral Agent shall have
no right of set-off against amounts on deposit in the Collateral Account, the Reserve Fund, any
account established pursuant to the Indenture, or the Allocated Expenses Account, and shall have no
right to impose a lien on any such account other than on behalf of the Secured Parties.



Section 6.02 Assignment of Collateral Account. In order to secure and to provide for
the repayment of the Obligations, the Issuer hereby assigns, pledges, transfers and sets over unto
the Collateral Agent for the benefit of the Secured Parties, and hereby grants the Collateral Agent
for the benefit of the Secured Parties a security interest in the Collateral Account, and all
checks, instruments, notes, documents, securities, securities entitlements, other investment
property or funds at any time and from time to time on deposit in or otherwise to the credit of
such account or otherwise held by the Collateral Agent and all dividends, earnings, income, rents,
issues, profits or other distributions of cash or other property in respect of such checks,
instruments, documents, notes, securities, security entitlements, other investment property or
funds and all proceeds thereof (all such checks, instruments, documents, notes, securities,
security entitlements, other investment property, funds and dividends, earnings, income, rents,
issues, profits or other distributions of cash or other property in respect of such checks,
instruments, documents, notes, securities, security entitlements, other investment property or
funds and all proceeds being herein called the “Deposited Funds”) and all claims of the
Issuer in and to the Deposited Funds. Throughout the term of this Security Agreement, the
Collateral Agent shall be a pledgee in possession and control of the Deposited Funds and shall have
the sole and exclusive right to endorse any check or any other instrument or security presented for
deposit in the Collateral Account and to withdraw or order a transfer of Deposited Funds from the
Collateral Account, subject to the provisions of Section 6.03, and the Issuer hereby
appoints the Collateral Agent the true and lawful attorney of the Issuer, with full power of
substitution, for the purpose of such endorsement or making any such withdrawal or ordering any
such transfer of Deposited Funds from such account, which appointment is coupled with an interest
and is irrevocable.



Section 6.03 Withdrawals and Transfers from the Collateral Account, Reserve Fund. (a)
It is understood that so long as no Event of Default shall have occurred and then be continuing,
the Issuer (by an Issuer Agent) with respect to each clause below, and the Depositary (by a
Designated Representative) with respect to clauses (ii) and (iii) below, shall each have the right
on any given day (other than a Payment Date) to instruct the Collateral Agent to withdraw, or order
the transfer of, Deposited Funds (other than funds deposited into the Collateral Account for a
Payment Date pursuant to Section 4.6(c) of the Mortgage Loan Purchase and Servicing
Agreement) (first to the extent of the funds originally deposited in the Collateral Account, then
to the extent of the funds originally deposited in the Collection Account and, thereafter, from the
remaining proceeds) from the Collateral Account for the following purposes in the following order
of priority:




(i) to the payment of any amounts due and owing to the Swap Counterparties in respect
of an Interim Payment Date under the Interest Rate Swaps, in respect of sales of Mortgage
Loans (provided that all termination payments due and payable to any Swap Counterparty in
accordance with an early termination of the related Interest Rate Swap shall be paid
pursuant to Section 2.01(b) of this Security Agreement);




(ii) provided no Extended Notes would be outstanding after giving effect to all
payments made on such date, pro rata, to the Secured Liquidity Note Account
for the payment of amounts in respect of the Principal Component of, and accrued and unpaid
interest or accreted and unpaid discount on, any Classes of Secured Liquidity Notes with an
Expected Maturity on such date (but only to the extent that such holders of Secured
Liquidity Notes cannot be paid, first, from amounts deposited into the SLN Account on a
prior Payment Date pursuant to Section 6.03(b)(iii) hereof, and second, from the
proceeds derived through the issuance of additional Classes of Secured Liquidity Notes);




(iii) to the Extended Note Distribution Account for the payment of the principal and
accrued and unpaid interest on all Extended Notes that have a Final Maturity on or before
such day;




(iv) at the option of the Issuer, upon at least five (5) Business Days notice to DTC,
the Depositary and the Collateral Agent, to the payment of principal and accrued and unpaid
interest on any Extended Note, provided such Extended Note is paid in full on such
date and after giving effect to all payments made on such date, no outstanding Class of
Extended Notes has the same or an earlier Final Maturity than the Final Maturity of the
Extended Notes being prepaid pursuant to this clause (iv);




(v) unless an Extended Note Amortization Event, Termination Event or Event of Default
would be continuing after giving effect to all payments made on such date, to the payment of
all remaining Deposited Funds to the Issuer to purchase additional Mortgage Loans;



provided, however, no withdrawals from the Collateral Account shall be made on any
day for the purposes set forth in clause (v) above unless, after giving effect to the issuance of
Secured Liquidity Notes on such day, the payment of Secured Liquidity Notes maturing or matured on
such day, the payment of outstanding Extended Notes on such day, the issuance of the Subordinated
Notes on such day, the payment of outstanding Subordinated Notes maturing or matured on such day
and the purchase and sale of Mortgage Loans on such day the Borrowing Base Test shall be satisfied.



Any instruction delivered by the Issuer or the Depositary pursuant to the provisions of the
foregoing paragraph of this Section 6.03(a) shall be effective upon receipt of written
instructions from an Issuer Agent or, with respect to clauses (ii) and (iii) above, a Designated
Representative.



The Collateral Agent shall promptly comply with any such approved instructions made by the
Issuer or the Depositary in accordance with the provisions of the foregoing paragraphs of this
Section 6.03(a); provided, that any withdrawal and transfer pursuant to an
instruction received prior to 2:00 p.m. (New York City time) on any day shall be made on such day.



Upon the occurrence and during the continuance of an Event of Default, all rights of the
Issuer and the Depositary to request the Collateral Agent to withdraw, or order the transfer of,
Deposited Funds from the Collateral Account shall cease, and the Collateral Agent shall appropriate
and apply the Deposited Funds then, or at any time thereafter, on deposit in the Collateral
Account, in accordance with the provisions of Section 7.02.



(b) It is understood that so long as no Event of Default shall have occurred and then be
continuing, the Issuer (by an Issuer Agent) with respect to each clause below, and the Depositary
(by a Designated Representative) with respect to clauses (ii) and (iii) below, shall each have the
right on any Payment Date to instruct the Collateral Agent to withdraw, or order the transfer of,
Deposited Funds (first to the extent of the funds originally deposited in the Collateral Account,
then to the extent of the funds originally deposited in the Collection Account and, thereafter,
from the remaining proceeds) from the Collateral Account for the following purposes in the
following order of priority:




(i) to the payment of any amounts due and owing to the Swap Counterparties under the
Interest Rate Swaps (other than Party B Second Floating Amounts) (provided that all
termination payments due and payable to any Swap Counterparty in accordance with an early
termination of the related Interest Rate Swap, and any Party B Fixed Amount, shall be paid
pursuant to Section 2.01(b) of this Security Agreement);




(ii) pro rata (x) provided no Extended Notes would be
outstanding after giving effect to all payments made on such date, to the Secured Liquidity
Note Account for the payment of amounts in respect of the accrued and unpaid Interest
Component and Capitalized Interest Component of the Secured Liquidity Notes outstanding as
of the close of business on the last day of the Remittance Period which was not distributed
pursuant to this clause (ii)(x) on a prior Payment Date, and (y) to the Extended Notes
Distribution Account for the payment of any interest due on any Extended Notes in accordance
with this Security Agreement and the Depositary Agreement (including any shortfall
interest);




(iii) pro rata (x) provided no Extended Notes would be outstanding
after giving effect to all payments made on such date, to the Secured Liquidity Note Account
for the payment of amounts in respect of the Principal Component of any Classes of Secured
Liquidity Notes with an Expected Maturity on such date (but only to the extent that such
holders of Secured Liquidity Notes cannot be paid, in accordance with the terms of the
Program Documents, from the proceeds derived through the issuance of additional Classes of
Secured Liquidity Notes), (y) to the Extended Notes Distribution Account for the payment of
principal in respect of any outstanding Class of Extended Notes if such day is on or after
the Final Maturity for such Extended Notes and (z) at the option of the Issuer, to the
Extended Notes Distribution Account for the payment of principal and accrued interest on any
unpaid Extended Note on such Payment Date; provided such Extended Note is paid in
full on such date and after giving effect to all payments made on such Payment Date, no
outstanding Class of Extended Notes has the same or an earlier Final Maturity than the Final
Maturity of the Extended Notes being prepaid pursuant to this clause (z);




(iv) to the payment of all unpaid Reimbursable Expenses; provided, that
Reimbursable Expenses shall not be paid with any amounts withdrawn from the Reserve Fund and
deposited in the Collateral Account;




(v) to the payment (pro rata, in accordance with the allocations set
forth in Section 2.03 hereof, to each Series of Subordinated Notes) of all interest
due and owing on the Principal Amount of all outstanding Series of Subordinated Notes
(including interest on overdue interest, if any);




(vi) to the payment (pro rata, in accordance with the allocations set
forth in Section 2.03 hereof, to each Series of Subordinated Notes) of all
Carry-Over Interest Shortfall, if any;




(vii) subject to Section 4.25 of the Mortgage Loan Purchase and Servicing
Agreement, to the payment of any unreimbursed Monthly Advance and Servicing Advance with
respect to any Mortgage Loan which has been sold, to the extent of sale proceeds on deposit
in the Collateral Account in respect of such Mortgage Loan;




(viii) to fund any increase in the amount on deposit in the Reserve Fund up to the
Required Reserve Fund Amount;




(ix) to the extent the Available Amount in the Reserve Fund exceeds the Required Draw
Amount, to purchase additional Mortgage Loans or to deposit funds in the Collateral Account,
in each case in an amount equal to the Principal Amount Charge-Offs, if any, reinstated on
such Payment Date, and to withdraw any such amount from the Reserve Fund;




(x) on the Scheduled Payment Date of any Series of Subordinated Notes, to pay
(pro rata, in accordance with the allocations set forth in Section
2.03 hereof, to each Series of Subordinated Notes) the Principal Amount of such Series
of Subordinated Notes;




(xi) to the payment of all unpaid Reimbursable Expenses not paid under (iv)
above; provided, that for purposes of this clause (xi), Reimbursable Expenses (x)
shall be calculated without regard to the limitation imposed by the Maximum Indemnity
Amount, and (y) shall not be paid with any amounts withdrawn from the Reserve Fund and
deposited in the Collateral Account;




(xii) to the Swap Counterparties, in accordance with the allocation set forth in
Section 2.02, to the extent a Swap Default shall have occurred, an amount equal to
the lesser of (x) the amount necessary to cure such Swap Default, and (y) the sum of (A) the
Designated Excess Spread Amount for such Payment Date, (B) any amounts otherwise available
for distribution pursuant to this clause (xiii) on such Payment Date and (C) if a
Termination Event shall have occurred, and all the Notes have been paid in full (including,
without limitation, any Unreimbursed Charge-Offs in respect of the Subordinated Notes) such
that no Notes or amounts owing in respect of the Notes are outstanding, all amounts
remaining from amounts previously on deposit in the Reserve Fund;




(xiii) so long as no Extended Note Amortization Event, Termination Event or Event of
Default has occurred and is continuing, to the Issuer to purchase additional Mortgage Loans
and Additional Balances; and




(xiv) so long as no Extended Note Amortization Event, Termination Event or Event of
Default has occurred and is continuing, to the payment of all remaining Deposited Funds to
the Issuer, free and clear of the lien of this Security Agreement or any claim of the
Secured Parties;



provided, however, no withdrawals from the Collateral Account shall be made on any
day for the purposes set forth in clauses (iv) through (xiv) above unless, after giving effect to
the issuance of Secured Liquidity Notes on such day, the payment of Secured Liquidity Notes
maturing or matured on such day, the payment of outstanding Extended Notes on such day, the
issuance of the Subordinated Notes on such day, the payment of outstanding Subordinated Notes
maturing or matured on such day and the purchase and sale of Mortgage Loans on such day, the
Borrowing Base Test shall be satisfied.



Any instruction delivered by the Issuer or the Depositary pursuant to the provisions of the
foregoing paragraph of this Section 6.03(b) shall be effective upon receipt of written
instructions from an Issuer Agent or, with respect to clauses (ii) and (iii) above, a Designated
Representative.



The Collateral Agent shall promptly comply with any such approved instructions made by the
Issuer or the Depositary in accordance with the provisions of the foregoing paragraphs of this
Section 6.03(b); provided, that any withdrawal and transfer pursuant to an
instruction received prior to 2:00 p.m. (New York City time) on any day shall be made on such day.



Upon the occurrence and during the continuance of an Event of Default, all rights of the
Issuer and the Depositary to request the Collateral Agent to withdraw, or order the transfer of,
Deposited Funds from the Collateral Account shall cease, and the Collateral Agent shall appropriate
and apply the Deposited Funds then, or at any time thereafter, on deposit in the Collateral
Account, in accordance with the provisions of Section 7.02.



Section 6.04 Eligible Investments. (a) Monies held in the Collateral Account shall be
invested and the proceeds of investments shall be reinvested by the Collateral Agent in Eligible
Investments pursuant to the written direction of the Servicer prior to the occurrence and
continuation of an Event of Default. The Collateral Agent shall not be responsible or liable for
any loss resulting from the investment performance of any investment or reinvestment of monies held
in the Collateral Account or any other account maintained by the Collateral Agent for the purposes
of this Security Agreement in Eligible Investments. The Collateral Agent from time to time shall
provide the Issuer with statements of account relative to the Collateral Account or any other
account maintained by the Collateral Agent for the purposes of this Security Agreement in
accordance with the Collateral Agent’s customary practices. The parties recognize that the
statements of account to be provided by the Collateral Agent pursuant to the immediately preceding
sentence shall be derived from information to be supplied by the institution or institutions
maintaining such accounts; and the Collateral Agent shall not be required to prepare any statements
of account containing information which cannot be so derived and shall not be responsible for the
correctness or accuracy of the information received by it.



(b) Prior to the occurrence and continuation of an Event of Default, monies held in the
Collateral Account shall be invested at the direction of the Servicer in Eligible Investments
having maturities of no greater than one day; provided, that if there is no Secured
Liquidity Note or Extended Note then outstanding, monies held in the Collateral Account shall be
invested in Eligible Investments either payable on demand or having maturities of no greater than
the earlier of thirty (30) days or the next following Payment Date. All such Eligible Investments
shall be made in the name of, and shall be payable to, the Collateral Agent. If any Event of
Default shall have occurred and be continuing, monies held in the Collateral Account shall be
invested in the Default Investment.



(c) The Collateral Agent or its Affiliates are permitted to receive additional compensation
that could be deemed to be in the Collateral Agent’s economic self-interest for (i) serving as
investment advisor with respect to certain of the Eligible Investments where it is retained by the
Servicer to perform that role; or as administrator, shareholder, servicing agent, custodian or
sub-custodian with respect to certain Eligible Investments (provided that nothing in the foregoing
shall entitle the Collateral Agent to seek or recover such compensation from the Servicer, the
Issuer or any other party to the Program Documents), (ii) using Affiliates to effect transactions
in certain Eligible Investments, and (iii) effecting transactions in certain Eligible Investments.
The Collateral Agent does not guarantee the performance of any Eligible Investment.



Section 6.05 Reserve Fund. (a) The Collateral Agent shall establish and maintain, in
the name of the Collateral Agent, for the benefit of the Secured Parties, with an Eligible
Institution, a segregated, non-interest bearing trust account (the “Reserve Fund”) bearing
a designation clearly indicating that the funds deposited therein are held for the benefit of the
Secured Parties. The Reserve Fund shall at all times be an Eligible Account. The Reserve Fund
shall initially be established with the Collateral Agent. An initial deposit shall be made in the
Reserve Fund by the Issuer in the amount of the Initial Required Reserve Fund Amount not later than
the Initial Closing Date. The Collateral Agent shall possess all right, title and interest in all
funds on deposit from time to time in the Reserve Fund and in all proceeds thereof. The Reserve
Fund shall be under the sole dominion and control of the Collateral Agent for the benefit of the
Secured Parties. If, at any time, the institution holding the Reserve Fund ceases to be an
Eligible Institution, the Collateral Agent shall within five (5) Business Days establish a new
Reserve Fund meeting the conditions specified above with an Eligible Institution and shall transfer
or cause to be transferred any cash and/or any investments to such new Reserve Fund. The
Collateral Agent, at the direction of the Issuer, shall make deposits to and withdrawals from the
Reserve Fund in the amounts and at the times set forth in this Security Agreement. All withdrawals
from the Reserve Fund shall be made as set forth below.



(b) Prior to the occurrence and continuation of an Event of Default, funds on deposit in the
Reserve Fund shall be invested at the direction of the Servicer by the Collateral Agent in Eligible
Investments. Funds on deposit in the Reserve Fund on any Payment Date, after giving effect to any
withdrawals from the Reserve Fund on such Payment Date, shall be invested in such investments that
will mature so that such funds will be available for withdrawal on or prior to the following
Payment Date; provided, however, the Issuer shall instruct the Collateral Agent to
allow for Eligible Investments to mature on a daily basis sufficient to fund anticipated
withdrawals from the Reserve Fund under subsection (c) below in respect of Interim Payment
Date losses on the sale of Defaulted Loans and Delinquent Loans. No Eligible Investment shall be
disposed of prior to its maturity. The proceeds of any such investments shall be invested in such
investments that will be payable on demand or mature so that such funds will be available for
withdrawal on or prior to the Payment Date immediately following the date of such investment. If
any Event of Default shall have occurred and be continuing, monies held in the Reserve Fund shall
be invested in the Default Investment. The Collateral Agent shall maintain or cause to be
maintained by another Eligible Institution for the benefit of the Secured Parties possession or
control of the negotiable instruments or securities, if any, evidencing such Eligible Investments.
On each Payment Date, all interest and earnings (net of losses and investment expenses) on funds on
deposit in the Reserve Fund shall be deposited into the Reserve Fund until the amount on deposit in
the Reserve Fund equals the Required Reserve Fund Amount. On each Payment Date, after giving
effect to the withdrawals from the Collateral Account pursuant to Section 6.03(b) hereof,
the Collateral Agent shall pay any amounts on deposit in the Reserve Fund in excess of the Required
Reserve Fund Amount (x) if such amounts represent investment or reinvestment income, by depositing
the same into the Collateral Account for payment to the Swap Counterparties in accordance with the
priority of payments set forth in Section 2.01(b) or Section 6.03(b), as the case
may be, (y) if such amounts represent principal amounts, to the Issuer free and clear of the lien
of this Security Agreement; provided, however, no withdrawals from the Reserve Fund
pursuant to this clause (y) shall be made unless no Event of Default shall have occurred and, after
giving effect to the issuance of Secured Liquidity Notes on such day, the payment of Secured
Liquidity Notes maturing or matured on such day, the payment of outstanding Extended Notes on such
day, the issuance of the Subordinated Notes on such day, the payment of outstanding Subordinated
Notes maturing or matured on such day and the purchase and sale of Mortgage Loans on such day, the
Borrowing Base Test shall be satisfied.



(c) The Collateral Agent, acting in accordance with the written directions of the Servicer,
shall on each Interim Payment Date withdraw from the Reserve Fund an amount equal to the lesser of
(x) the amount (each, a “Required Draw Amount”) by which the sum of (I) the aggregate cash
proceeds of sales of Mortgage Loans on such Interim Payment Date (plus or minus the amount of any
payments due under the Interest Rate Swaps on such Interim Payment Date) plus (II) the amount of
Deposited Funds in the Collateral Account representing the Overcollateralization Amount (if any),
is less than the aggregate Outstanding Purchase Price of such Mortgage Loans, and (y) the Available
Amount (exclusive of unmatured Eligible Investments) in the Reserve Fund, and deposit such amounts
into the Collateral Account; provided, that such amounts may not be used to pay
Reimbursable Expenses except under “Eighth” in Section 2.01(b).



(d) On each Payment Date, the Servicer, in accordance with the instructions set forth in the
Servicer Report delivered to the Collateral Agent, shall calculate (i) the amount (each, a
“Required Draw Amount”) equal to shortfalls in amounts received by the Issuer under the
Interest Rate Swaps in respect of Delinquent Loans and Defaulted Loans for which no Monthly
Advances were paid by the Servicer during such month, net of the amount of Deposited Funds in the
Collateral Account representing the Overcollateralization Amount (if any), and (ii) the Available
Amount in the Reserve Fund available to pay such amounts as specified below in this
Section 6.05(d). In the event that for any Payment Date the Required Draw Amount is
greater than zero, the Issuer shall give written notice to the Collateral Agent of such positive
Required Draw Amount on the related Payment Date. On the Payment Date, the Required Draw Amount,
if any, up to the Available Amount in the Reserve Fund, shall be withdrawn by the Collateral Agent
from the Reserve Fund, deposited into the Collateral Account, and applied to pay shortfalls in
amounts payable under Section 6.03(b)(ii), (v) and (vi); provided,
that the Required Draw Amount shall not be used to pay Reimbursable Expenses. In addition, on each
Payment Date, the Collateral Agent, in accordance with the instructions set forth in the Servicer
Report, shall withdraw from the Reserve Fund any amounts payable under Section 6.03(b)(ix)
hereof.



(e) If any Event of Default shall have occurred and be continuing, at the direction of the
Collateral Agent on behalf of the Secured Parties, any amounts remaining in the Reserve Fund shall
be deposited into the Collateral Account and applied to the payment of the Obligations in the order
of priority set forth in Section 2.01 hereof.



(f) Upon the payment in full of all amounts owing to the Secured Liquidity Noteholders, the
Extended Noteholders, the Subordinated Noteholders and each Swap Counterparty, the Collateral
Agent, acting in accordance with the instructions of the Servicer, shall withdraw from the Reserve
Fund and pay to the Issuer all amounts, if any, held in the Reserve Fund, and the Reserve Fund
shall be deemed to have terminated for all purposes of this Security Agreement.



Section 6.06 Payment of Allocated Expenses. The Collateral Agent shall establish and
maintain, in the name of the Issuer, for the benefit of the Issuer, with an Eligible Institution a
segregated trust account (the “Allocated Expenses Account”) bearing a designation clearly
indicating that the funds deposited therein are held for the benefit of the Issuer. The Allocated
Expenses Account shall initially be established with the Collateral Agent. The Collateral Agent
shall possess all right, title and interest in all funds on deposit from time to time in the
Allocated Expenses Account and in all proceeds thereof. The Allocated Expenses Account shall be
under the sole dominion and control of the Collateral Agent for the benefit of the Issuer. If, at
any time, the institution holding the Allocated Expenses Account ceases to be an Eligible
Institution, the Collateral Agent shall within five (5) Business Days establish a new Allocated
Expenses Account meeting the conditions specified above with an Eligible Institution and shall
transfer or cause to be transferred any cash and/or any investments to such new Allocated Expenses
Account. On each Payment Date prior to giving effect to the payments pursuant to
Section 6.03(b) hereof, the Collateral Agent, acting at the written direction of the
Servicer, shall, from the amount of net interest collections on Mortgage Loans and Eligible
Investments, make a deposit to the Allocated Expenses Account in the amount set forth in the
Servicer Report received from the Servicer as the Allocated Expenses to be due and owing on such
Payment Date; provided, however, that the sum of the aggregate Allocated Expenses
paid during any calendar year shall never exceed the Budget Expense Limit. Allocated Expenses for
any given calendar year in excess of the Budget Expense Limit shall accrue unpaid and,
subsequently, shall be paid, if at all, from amounts included in the Budget Expense Limit for any
subsequent calendar year as each Swap Counterparty and the Issuer may agree. The Collateral Agent,
at the direction of the Issuer, shall make withdrawals from the Allocated Expenses Account in the
amounts and at the times set forth in written payment instructions received from the Issuer. Upon
the termination of this Agreement and the payment in full of all Allocated Expenses, the Allocated
Expenses Account shall be deemed to have terminated for all purposes.



ARTICLE VII




DEFAULT




Section 7.01 Events of Default. Each of the following events shall constitute an
event of default under this Security Agreement with respect to the Senior Notes (or, if the Senior
Notes have been paid in full, the Subordinated Notes) (each, an “Event of Default”):



(a) Failure on the part of either Seller (or the Performance Guarantor on behalf of such
Seller) (i) subject to the Repurchase Trigger, to perform its obligations under Section 3.5(c) of
the Mortgage Loan Purchase and Servicing Agreement to repurchase any Mortgage Loan with a defective
Mortgage Loan File, which failure continues unremedied for a period of five (5) Business Days after
the date on which such Seller’s repurchase obligation arises, or (ii) to observe or perform in any
material respect any of the material terms, covenants or agreements of such Seller contained in the
Program Documents (other than terms, covenants or agreements specifically referred to in this
Section 7.01) which continues unremedied for a period of thirty (30) days after the date on
which such Seller has actual knowledge or written notice of such incorrect representation,
warranty, statement or certification;



(b) Any representation, warranty, statement, or certification made by a Seller or the
Performance Guarantor (excluding any representations or warranties made pursuant to Section 3.2 of
the Mortgage Loan Purchase and Servicing Agreement) in any Program Document shall prove to have
been incorrect in any material respect as of the time when made, and which continues to be
incorrect in any material respect for a period of sixty (60) days after the date on which such
Seller has actual knowledge or written notice of such incorrect representation, warranty, statement
or certification;



(c) The Issuer defaults in the payment of any interest on any Note when the same becomes due
and payable;



(d) The Issuer defaults in the payment of any principal or premium on any Note when the same
becomes due and payable;



(e) The Issuer fails to comply with any of its other agreements or covenants in, or provisions
of, the Senior Notes (or, if the Senior Notes have been paid in full, the Subordinated Notes) or
this Security Agreement and the failure to so comply materially and adversely affects the interests
of the Senior Noteholders (or, if the Senior Notes have been paid in full, the holders of the
Subordinated Notes) and continues to materially and adversely affect the interests of the Senior
Noteholders (or, if the Senior Notes have been paid in full, the holders of the Subordinated Notes)
for a period of thirty (30) days after the earlier of (i) the date on which the Issuer obtains
knowledge thereof or (ii) the date on which written notice of such failure, requiring the same to
be remedied, shall have been given to the Issuer by the Collateral Agent or to the Issuer and the
Collateral Agent by the Required Senior Noteholders (or, if the Senior Notes have been paid in
full, the Required Subordinated Noteholders);



(f) The occurrence of an Event of Bankruptcy with respect to the Issuer, either Seller, the
Servicer, or the Performance Guarantor;



(g) The Issuer shall have become an “investment company” or shall have become under the
“control” of an “investment company” under the Investment Company Act;



(h) Any representation or warranty or statement made or deemed made by the Issuer in this
Security Agreement or in any other Program Document or in any written certificate or statement made
or entered into in connection herewith or therewith shall prove to have been incorrect when made in
any material respect, and, if such breach of representation, warranty or statement is able to be
corrected, continues to be incorrect in any material respect for a period of sixty (60) days after
the earlier of the Issuer having actual knowledge, or written notice of such incorrect
representation, warranty or statement;



(i) Failure by the Issuer to observe or perform any covenant or agreement contained in any
Program Document which failure would materially and adversely affect the interests of the Secured
Parties and not constituting an Event of Default under any other clause of this
Section 7.01 and the continuance of such failure for thirty (30) days after the Issuer
shall have obtained actual knowledge or received written notice;



(j) A Servicer Event of Default not constituting an Event of Default under any other clause of
this Section 7.01 shall have occurred and be continuing and such default shall not have
been cured or waived or the Issuer shall not have replaced such Servicer in accordance with Section
10.1 of the Mortgage Loan Purchase and Servicing Agreement for a period of sixty (60) days after
the Issuer has notified the Collateral Agent of such Servicer Event of Default;



(k) The Issuer shall not be in compliance with Sections 3.2, 3.4, 5.2 or 7.3 of the Trust
Agreement in any material respect and such noncompliance shall continue for a period of thirty (30)
days after the Issuer receives notice or has actual knowledge of such noncompliance;



(l) This Security Agreement shall cease, for any reason, to be in full force and effect in
accordance with its terms;



(m) There shall fail to be or remain in full force and effect on any day (each such day a
“Measuring Date”), Interest Rate Swaps (other than Interest Rate Swaps with respect to
which an Interest Rate Swap Termination Event or Interest Rate Swap Event of Default has occurred
and is continuing after giving effect to any applicable grace period or which are otherwise for any
reason not in full force and effect in accordance with their terms) (i) the aggregate maximum
notional amount of which is at least equal to the then-current Facility Size; (ii) the scheduled
termination dates of which are no earlier than the latest Final Maturity of any outstanding Secured
Liquidity Notes plus thirty (30) days; and (iii) the scheduled termination dates of which are no
earlier than eighty (80) days from such Measuring Date;



(n) At any time the sum of the Credit Amounts shall be (i) less than the Required Enhancement
Amount for sixty (60) consecutive days or more, or (ii) in the case of a Credit Amount Increase
Condition less than the Required Enhancement Amount for twenty-five (25) consecutive days or more;



(o) At any time the funds on deposit in the Reserve Fund shall be less than the Required
Reserve Fund Amount for thirty (30) consecutive days or more;



(p) The failure of the Purchaser to maintain an agreement (in substantially the form attached
as Exhibit B to the Mortgage Loan Purchase and Servicing Agreement) with a Rated Bidder to the
effect that such Rated Bidder agrees to submit a binding bid for all non-Delinquent Loans and
non-Defaulted Loans in a Termination Event Auction, Principal Paydown Auction or Junior Loan
Exposure Trigger Event Auction, and, where such failure occurs as a result of a withdrawal or
reduction of the rating assigned to the Rated Bidder below “P-1” by Moody’s, such failure continues
for a period of thirty (30) days or more; and



(q) The failure of any Swap Counterparty to pay amounts due and owing under its Interest Rate
Swap.



Section 7.02 Rights of the Collateral Agent upon Default. If an Event of Default
described in clause (f), or (n) through (q), of Section 7.01 hereof shall have occurred and
be continuing, or if an Event of Default specified in any other clause of Section 7.01
hereof shall have occurred and be continuing and the Required Senior Noteholders (or, in the event
the Senior Notes have been paid in full, the Required Subordinated Noteholders) shall have given
the Collateral Agent written instructions to such effect, the Collateral Agent shall, by written
notice to the Issuer, the holders of the Notes and the Depositary (with a copy to each SLN
Placement Agent), (w) declare the principal and premium (if applicable) of and accrued or accreted
interest in respect of the Senior Notes to be, whereupon the same shall become, forthwith due and
payable without presentment, demand, protest or further notice of any kind, all of which are hereby
expressly waived by the Issuer, anything contained herein or in any Senior Note to the contrary
notwithstanding, (x) instruct the Issuer to cease purchasing Mortgage Loans and the Issuer and the
Depositary to cease issuing Secured Liquidity Notes, (y) notify the Servicer, the Sellers, the
Indenture Trustee, the SLN Placement Agents and each Swap Counterparty that an Event of Default has
occurred, and (z) appropriate and apply the Deposited Funds then, or at any time thereafter, on
deposit in the Collateral Account to the payment in full of all outstanding Obligations, whether or
not then due, in the order of priority specified in Section 2.01 hereof; provided,
that the Collateral Agent shall comply with the requirements of Section 5.02 hereof;
provided, further, that if such Event of Default is not an Event of Default
described in clause (c) or (d) of Section 7.01 hereof, or an Event of Default described in
clause (f) of Section 7.01 hereof with respect to the Issuer, and so long as the Collateral
Agent has not disposed of or sold all of the Assigned Collateral pursuant to Section 7.03
hereof, the amounts to be distributed pursuant to clauses Second and Third of
Section 2.01(b) hereof shall be distributed, in that order, prior to the amounts to be
distributed pursuant to clause First of Section 2.01(b) hereof. Any amounts
obtained by the Collateral Agent on account of or as a result of the exercise by the Collateral
Agent of any right of offset or banker’s lien or right of attachment or garnishment with respect to
any funds at any time and from time to time on deposit in, or otherwise to the credit of, the
Collateral Account, shall be held by the Collateral Agent as additional collateral security for the
repayment of the Obligations and shall be applied as provided in Sections 2.01,
5.02 and 6.03 hereof.



If any Event of Default shall have occurred and be continuing, the Collateral Agent may,
subject to Section 9.01 and at the direction (which direction shall be in writing) of the
Required Senior Noteholders (or, if the Senior Notes have been paid in full, the Required
Subordinated Noteholders) shall, exercise all rights, remedies, powers, privileges and claims of
the Issuer under the Mortgage Loan Purchase and Servicing Agreement or any Program Document,
including the right to give any consent, request, notice, direction, approval, extension or waiver
under the Mortgage Loan Purchase and Servicing Agreement or any Program Document, and any right of
the Issuer to take such action shall be suspended.



Except as provided in Section 7.03, no holder of a Secured Liquidity Note or an
Extended Note shall have any right to require the Collateral Agent to take or fail to take any
action under this Security Agreement.



Section 7.03 Realization upon Collateral; Remedies. If any Event of Default specified
in Section 7.01 hereof shall have occurred and be continuing, the Collateral Agent may, and
at the direction (which direction shall be in writing) of the Required Senior Noteholders (or, if
the Senior Notes have been paid in full, the Required Subordinated Noteholders) shall, subject to
the proviso in Section 11.2 of the Mortgage Loan Purchase and Servicing Agreement, exercise any
rights and remedies available to it under applicable law, including taking possession of the
Collateral and leasing, assigning, optioning, discounting, disposing of or selling the whole, or
from time to time any part of, the Collateral by private or public sale or sales in such order or
otherwise in such manner as the Collateral Agent may reasonably elect in its sole discretion;
provided, that any such sale shall be conducted in a commercially reasonable manner;
provided further, that from and after the date of an Event of Default, in the event
of a sale or disposition of a Defaulted Loan, a Delinquent Loan or a portfolio of Defaulted Loans
and/or Delinquent Loans (each, a “Pool”), the Collateral Agent shall use commercially
reasonable efforts to obtain three or more bids for each such Defaulted Loan, Delinquent Loan or
Pool; provided, however, that such bids shall be received within ten (10) Business
Days of one another. The Collateral Agent shall promptly notify the Subordinated Note
Representative, if any, of the highest bid price obtained on each such Defaulted Loan, Delinquent
Loan or Pool and the Subordinated Note Representative, if any, shall have up to two (2) Business
Days from the time of notification to elect to purchase such Defaulted Loan, Delinquent Loan or
Pool at a price at least equal to 102% of such highest bid price but in no event more than the
amount of the Outstanding Purchase Price of such Mortgage Loan or Mortgage Loans (plus accrued
interest thereon) after giving effect to amounts payable by the Swap Counterparties with respect to
the sale of such Mortgage Loan or Mortgage Loans (the “Purchase Price”). If the
Subordinated Note Representative elects to purchase such Defaulted Loan, Delinquent Loan or Pool
within such two Business Day time period, the Subordinated Note Representative shall pay the
Purchase Price for such Defaulted Loan, Delinquent Loan or Pool within two (2) Business Days of the
date of such election. In the event that the Subordinated Note Representative fails to pay such
Purchase Price or fails to affirmatively elect to purchase such Defaulted Loan, Delinquent Loan or
Pool, in either case, within the applicable two Business Day time period, the Collateral Agent
shall have the right to sell such Defaulted Loan, Delinquent Loan or Pool to the highest bidder.
Without limitation of the Servicer’s obligations under Section 3.5(g) of the Mortgage Loan Purchase
and Servicing Agreement, the Collateral Agent shall use commercially reasonable efforts to arrange
sales such that all Defaulted Loans and Delinquent Loans are sold within the same applicable
timeframe as is set forth in Section 11.2 of the Mortgage Loan Purchase and Servicing Agreement for
non-Delinquent Loans and non-Defaulted Loans, and, in any event prior to the Final Maturity of the
Notes. The Collateral Agent may use the services of an investment bank in connection with any such
sale.



The Collateral Agent shall have, with respect to the Collateral, in addition to any other
rights and remedies which may be available to it at law or in equity or pursuant to this Security
Agreement or any other contract or agreement, all rights and remedies of a secured party under any
applicable version of the UCC of the relevant jurisdictions relating to the Collateral, and it is
expressly agreed that if the Collateral Agent should proceed to dispose of, utilize or sell the
Collateral, or any part thereof, in accordance with the provisions of relevant versions of the UCC,
ten (10) Business Days’ notice by the Collateral Agent to the Issuer shall be deemed to be
reasonable notice under any such provision requiring such notice.



The Issuer hereby expressly agrees that no notice of any sale or disposition of any Eligible
Investments need be given. Any sale or other disposition of Collateral by the Collateral Agent may
be made on such commercially reasonable terms as it may choose, without assuming any credit risk
and without any obligation to advertise or give notice of any kind other than that necessary under
applicable law. The Collateral Agent shall incur no liability as a result of the sale of the
Collateral, or any part thereof, at any private or public sale conducted in accordance with this
Security Agreement. The Collateral Agent, any Swap Counterparty, or the holders of the Senior
Notes may buy any Collateral at any public sale conducted in accordance with this Security
Agreement free of any right or equity of redemption of the Issuer, which right or equity is hereby
waived or released.



The Collateral Agent’s sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession shall be to deal with it in the same manner as the
Collateral Agent deals with similar property for its accounts generally, subject to Section 9-207
of the UCC. Neither the Collateral Agent nor any of its directors, officers, employees or agents
shall be liable for failure to demand, collect or realize upon all or any part of the Collateral or
for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any
Collateral, provided that it has acted in accordance with the instructions of the Secured Parties
and in compliance with applicable law and this Security Agreement.



Section 7.04 Waiver of Stays, etc. To the full extent that the Issuer may lawfully so
agree, the Issuer agrees that it will not at any time plead, claim or take the benefit of any
appraisement, valuation, stay, extension, moratorium or redemption law now or hereafter in force to
prevent or delay the enforcement of this Security Agreement in accordance with its terms or the
absolute sale of any portion of or all of the Collateral in accordance with this Security Agreement
or the possession thereof by any purchaser at any sale under and in compliance with this Security
Agreement, and the Issuer, for itself and all who may claim under the Issuer, as far as the Issuer
now or hereafter lawfully may do so, hereby waives the benefit of all such laws.



ARTICLE VIII




ADDITIONAL COLLATERAL DISPOSITION PROVISIONS




Section 8.01 Disposition of Mortgage Loans. (a) Upon two (2) Business Days’ notice to
the Collateral Agent, the Servicer may arrange for the sale of one or more Mortgage Loans and the
Custodian in accordance with the Custodial Agreement shall deliver each Mortgage Note, Mortgage and
Assignment of Mortgage in respect of each Mortgage Loan being sold to the purchaser on a delivery
versus payment basis, or, in the case of a whole-loan sale against delivery of a duly executed
bailee letter (which payment shall be made directly to the Collateral Account in accordance with
Section 4.6(b) of the Mortgage Loan Purchase and Servicing Agreement). The Collateral
Agent shall deposit all payments received by it from the Servicer in connection with the sale from
time to time of Mortgage Loans into the Collateral Account.



(b) The Servicer shall arrange for sales of Mortgage Loans owned by the Issuer to allow
compliance with Section 4.03(h) hereof and Section 4.1(a)(i) of the Mortgage Loan Purchase
and Servicing Agreement.



Section 8.02 Release of Security Interest. Any reduction in the amounts on deposit in
the Reserve Fund and the sale or disposition of any Mortgage Loans in accordance with
Section 8.01 shall result in a release of the security interest in such reduction amount
and such Mortgage Loans granted pursuant to Section 5.01(i) and (iii) hereof. In
the case of any sale or disposition of Mortgage Loans by the Issuer, the security interest granted
hereunder in such Mortgage Loans shall be released concurrent with such sale or disposition. The
remaining portion of the amounts on deposit in the Reserve Fund and Mortgage Loans not sold or
otherwise disposed of shall remain subject to this Security Agreement in all respects.



Section 8.03 Termination Event Auction and Principal Paydown Auction. In the event a
Termination Event under the Mortgage Loan Purchase and Servicing Agreement or other event requires
that a Termination Event Auction or Principal Paydown Auction be conducted pursuant to Section 11.2
or Section 4.1(a) of the Mortgage Loan Purchase and Servicing Agreement, the Collateral Agent
hereby agrees to perform, on behalf of the Secured Parties, those actions which it is called upon
to perform in such Section 11.2 or Section 4.1(a).



ARTICLE IX




THE COLLATERAL AGENT




Section 9.01 Appointment and Powers of Collateral Agent. The Issuer and the Secured
Parties hereby appoint the Collateral Agent to take such action and to exercise such rights,
remedies, powers and privileges hereunder as are specifically authorized to be exercised by the
Collateral Agent by the terms hereof, together with such rights, remedies, powers and privileges as
are reasonably incidental thereto. The Collateral Agent may execute any of its duties as agent
hereunder by or through agents, nominees, attorneys, Affiliates or employees and shall be entitled
to retain experts (including counsel which may be counsel to the Issuer) and to act in reliance
upon the advice of such experts concerning all matters pertaining to the agencies hereby created
and its duties hereunder, and shall not be liable for any action taken or omitted to be taken by it
in good faith in accordance with the advice of such experts selected by it. The relationship
between the Collateral Agent and each Secured Party is that of agent and principal only, and
nothing herein shall be deemed to constitute the Collateral Agent a trustee for any Secured Party
or impose on the Collateral Agent any obligations other than those for which express provision is
made herein. Holders of the Secured Liquidity Notes, by their acceptance of their Secured
Liquidity Notes (or a beneficial interest therein), holders of the Extended Notes, by their
acceptance of their Extended Notes (or a beneficial interest therein), and holders of the
Subordinated Notes, by their acceptance of their Subordinated Notes (or a beneficial interest
therein), consent to the appointment of the Collateral Agent or any successor Collateral Agent
hereunder.



Except as required by the specific terms of this Security Agreement, the Collateral Agent
shall have no duty (of a fiduciary nature or otherwise) to exercise any right, power, remedy or
privilege granted to it hereby, or to take any affirmative action hereunder, unless directed to do
so by the Required Senior Noteholders (or, if the Senior Notes have been paid in full, the Required
Subordinated Noteholders) (and shall be fully protected in acting or refraining from acting
pursuant to such directions or lack of directions which shall be binding on the Secured Parties),
and shall not, except as expressly provided herein, without the prior approval of the Required
Senior Noteholders (or, if the Senior Notes have been paid in full, the Required Subordinated
Noteholders and the Swap Counterparties), consent to any material departure by the Issuer from the
terms hereof or of any other agreement or instrument relating to the Assigned Collateral, waive any
default on the part of the Issuer under the terms hereof or under the Assigned Collateral, or
amend, modify, supplement or terminate, or agree to any surrender of, this Security Agreement or
the Assigned Collateral, the Collateral Account or the Deposited Funds, except as expressly
provided herein; provided, that the foregoing limitation on the authority of the Collateral
Agent is for the benefit of the Secured Parties and shall not impose any obligation on the Issuer
to investigate or inquire into the authority of the Collateral Agent in any circumstances, and the
Issuer shall be fully protected in carrying out any request, direction or instruction made or given
to the Issuer by the Collateral Agent in the exercise of any right, power, remedy or privilege
granted to the Collateral Agent hereby, receiving or acting upon any consent or waiver granted to
the Issuer hereunder by the Collateral Agent, or entering into any amendment or modification of, or
supplement to, this Security Agreement, and the Issuer shall not be subject to the claims of any
Secured Party by reason of the lack of authority of the Collateral Agent to take any such action
nor shall the lack of authority on the part of the Collateral Agent in any circumstances give rise
to any claim on the part of the Issuer against such Secured Party; provided
further, that the Collateral Agent shall not be required to take any action which is
contrary to this Security Agreement or any other agreement or instrument relating to the Assigned
Collateral or applicable law.



Neither the Collateral Agent, nor any of its respective directors, officers, employees,
Affiliates or agents, shall be liable to any Secured Party or the Issuer for any action taken or
omitted to be taken by it or them hereunder, or in connection herewith, except for its own gross
negligence, fraud, bad faith or willful misconduct; nor shall the Collateral Agent be responsible
to any other Secured Party for the validity, effectiveness, value, sufficiency or enforceability
against the Issuer of this Security Agreement or any other document furnished pursuant hereto or in
connection herewith, or of the Collateral (or any part thereof). In no event shall the Collateral
Agent be liable for special, indirect or consequential loss or damage of any kind whatsoever
(including, but not limited to, lost profits). Without limiting the generality of the foregoing,
the Collateral Agent (i) makes no warranty or representation to any Secured Party (other than as
set forth in Section 3.04) and shall not be responsible to any Secured Party for any
statements, warranties or representations made in or in connection with this Security Agreement or
any other document relating to the Collateral, and (ii) shall not have any duty, except as
expressly provided herein, to ascertain or to inquire as to the performance or observance of any of
the terms, covenants or conditions of this Security Agreement, any other Program Document or any
other agreements or instruments relating to the Collateral on the part of any party hereto or
thereto or to inspect any books and records relating to the Collateral.



In the absence of bad faith on the part of the Collateral Agent, the Collateral Agent shall be
entitled to conclusively rely, and shall be fully protected in such reliance, on any communication,
direction, instrument, resolution, certificate, affidavit, paper or other document reasonably
believed by it to be genuine and correct and to have been signed or sent by the proper Person or
Persons. The Collateral Agent shall be entitled to assume that no Event of Default hereunder shall
have occurred and be continuing, unless a Trust Officer of the Collateral Agent charged by the
Collateral Agent with the administration of any of its obligations under this Security Agreement or
with knowledge of and familiarity with the Collateral Agent’s obligations under this Security
Agreement has actual knowledge thereof or the Collateral Agent has received written notice from the
Secured Parties or the Issuer that they consider that such an Event of Default has occurred and is
continuing and specifying the nature thereof. The Collateral Agent shall be fully justified in
failing or refusing to take any action under this Security Agreement upon the advice of counsel or
unless the Collateral Agent shall be indemnified to its satisfaction against any and all liability
and expense which may be incurred by it by reason of taking or continuing to take any such action.
Nothing herein shall require the Collateral Agent to risk or expend its own funds, or to make
advances. The Collateral Agent may accept deposits from, lend money to and generally engage in any
kind of business with the Issuer and its Affiliates as if it were not the agent of the Secured
Parties.



The Collateral Agent may consult with counsel, and the advice of such counsel or any opinion
of counsel as to matters of law shall be full and complete authorization and protection to such
extent in respect of any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon. The Collateral Agent may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or Affiliates. The Assigned
Collateral held by the Collateral Agent in trust hereunder need not be segregated from other
collateral except to the extent required by law or the specific provisions hereof. Unless
otherwise specified herein, the Collateral Agent shall be under no obligation to invest money
received by it hereunder and shall have no liability for interest on any such money. The
Collateral Agent shall not be responsible for recording, re-recording, filing or re-filing this
Security Agreement, or any amendment hereto or any financing statement or continuation statement.



The Collateral Agent shall be under no obligation to exercise any of the trusts or powers
vested in it by this Security Agreement or to make any investigation of matters arising hereunder
or to institute, conduct or defend any litigation hereunder or in relation hereto at the request,
order or direction of any of the Secured Parties, pursuant to the provisions of this Security
Agreement, unless such Secured Parties shall have offered to the Collateral Agent reasonable
security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities
which may be incurred therein or thereby; the Collateral Agent shall not be required to expend or
risk its own funds or otherwise incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.



In order to comply with laws, rules, regulations and executive orders in effect from time to
time applicable to banking institutions, including those relating to the funding of terrorist
activities and money laundering (“Applicable Law”), the Collateral Agent is required to
obtain, verify and record certain information relating to individuals and entities which maintain a
business relationship with the Collateral Agent. Accordingly, each of the parties agrees to
provide to the Collateral Agent upon its request from time to time such identifying information and
documentation as may be available for such party in order to enable the Collateral Agent to comply
with Applicable Law.



The Collateral Agent hereby acknowledges that it has been notified of the terms of Section
4.25 of the Mortgage Loan Purchase and Servicing Agreement, and is hereby specifically authorized
and directed by the Secured Parties to comply with any notice submitted to it regarding
reimbursement of Monthly Advances and/or Servicing Advances to an Advancing Person (as defined in
that Section) (or nominee), as contemplated by and given in compliance with that Section.



Section 9.02 Successor Collateral Agent. The Collateral Agent acting hereunder at any
time may resign by an instrument in writing addressed and delivered to the Issuer, the Indenture
Trustee and the Depositary, and may be removed at any time with or without cause by an instrument
in writing duly executed by or on behalf of the Issuer. Subject to the provisions of Section
9.03 hereof, the Issuer shall have the right to appoint a successor to the Collateral Agent
upon any such resignation or removal by an instrument of substitution complying with the
requirements of applicable law, or in the absence of any such requirements, without other formality
than appointment and designation in writing; provided, however, that no such
appointment shall be effective until receipt of written consent of each Swap Counterparty and
written confirmation from the Rating Agencies that such appointment would not result in the
reduction or withdrawal of its then current rating, if any, of the Secured Liquidity Notes, the
Extended Notes or the Subordinated Notes. Upon the making and acceptance of such appointment, the
execution and delivery by such successor Collateral Agent of a ratifying instrument pursuant to
which such successor Collateral Agent agrees to assume the duties and obligations imposed on the
Collateral Agent by the terms of this Security Agreement, and the delivery to such successor
Collateral Agent of the Assigned Collateral, any Deposited Funds and documents and instruments then
held by the retiring Collateral Agent, such successor Collateral Agent shall thereupon succeed to
and become vested with all the estate, rights, powers, remedies, privileges, immunities,
indemnities, duties and obligations hereby granted to or conferred or imposed upon the Collateral
Agent named herein, and one such appointment and designation shall not exhaust the right to appoint
and designate further successor Collateral Agents hereunder. No Collateral Agent shall be
discharged from its duties or obligations hereunder until the Assigned Collateral, any Deposited
Funds and documents and instruments then held by such Collateral Agent shall have been transferred
or delivered to the successor Collateral Agent, until all Deposited Funds held in the Collateral
Account (if maintained with the retiring Collateral Agent) shall have been transferred to a new
Collateral Account, and until such retiring Collateral Agent shall have executed and delivered to
the successor Collateral Agent appropriate instruments substituting such successor Collateral Agent
as attorney-in-fact of the Issuer for purposes of this Security Agreement and assigning the
retiring Collateral Agent’s security or other interest in the Assigned Collateral, the Collateral
Account, the Deposited Funds and Eligible Investments to the successor Collateral Agent. If no
successor Collateral Agent shall be appointed, as aforesaid, or if appointed, shall not have
accepted its appointment within thirty (30) days after resignation or removal of the retiring
Collateral Agent, then, subject to the provisions of Section 9.03 hereof, the Collateral
Agent may at the expense of the Issuer petition a court of competent jurisdiction to appoint a
successor Collateral Agent. Each such successor Collateral Agent shall provide the Issuer with its
address and telephone and telecopier numbers to be used for purposes of Section 11.04
hereof, in a notice complying with the terms of said Section. Notwithstanding the resignation or
removal of any Collateral Agent hereunder, the provisions of this Article IX shall continue
to inure to the benefit of such Collateral Agent in respect of any action taken or omitted to be
taken by such Collateral Agent in its capacity as such while it was Collateral Agent under this
Security Agreement.



Subject to Section 9.03 hereof, any corporation into which the Collateral Agent may be
merged or converted or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Collateral Agent shall be a party, or any
corporation succeeding to the business of the Collateral Agent as a result of any of the foregoing
shall be the successor of the Collateral Agent hereunder without the execution or filing of any
paper with any party hereto or any further act on the part of any of the parties hereto except
where an instrument of transfer or succession is required by law to effect such succession,
anything herein to the contrary notwithstanding.



Section 9.03 Qualifications of Collateral Agent; Collateral Account. (a) Any
Collateral Agent at any time acting hereunder must at all times be a commercial bank or trust
company having its principal office in the District of Columbia or one of the States located in the
United States, be authorized to accept deposits and offer checking account facilities, have capital
and surplus of at least $100,000,000 and have a long-term unsecured debt rating from each of
Moody’s and S&P and, if rated by Fitch, Fitch, in each case in one of its generic credit rating
categories which signifies investment grade.



(b) The Collateral Account, if not held by the Collateral Agent, shall be held by a commercial
bank or trust company meeting the qualifications of the Collateral Agent set forth in
Section 9.03(a). The Collateral Account shall at all times be an Eligible Account.



Section 9.04 Instructions. In any instance in which the Collateral Agent is permitted
to take action hereunder or under the Program Documents, the Collateral Agent shall, except as
expressly provided herein or in the Indenture, act in accordance with the written instructions
received, if any, from the Required Senior Noteholders (or, if the Senior Notes have been paid in
full, the Required Subordinated Noteholders), or, to the extent the same shall not conflict with
written instructions received from the Required Senior Noteholders (or, if the Senior Notes have
been paid in full, the Required Subordinated Noteholders), the Swap Counterparties.



Section 9.05 Duties of Collateral Agent. The Collateral Agent shall have no duty to
monitor the Servicer nor any liability for the actions or inactions of the Servicer,
provided that nothing in this Section 9.05 shall excuse the Collateral Agent from
performing its obligations under this Agreement.



ARTICLE X




AMENDMENTS, MODIFICATIONS,




WAIVERS AND CONSENTS




Section 10.01 Execution of Amendments, etc. No amendment, modification, supplement,
termination or waiver of or to any provision of this Security Agreement, nor any consent to any
departure by the Issuer from any provision of this Security Agreement, shall be effective unless
such amendment, modification, supplement, termination or waiver shall be in writing and signed by
each Swap Counterparty (such consent not to be unreasonably withheld), the Collateral Agent and the
Issuer; and Rating Agency Confirmation with respect to such action shall have been given. Any
waiver of any provision of this Security Agreement, and any consent to any departure by the Issuer
from the terms of any provision of this Security Agreement, shall be effective (i) only in the
specific instance and for the specific purpose for which given and (ii) after the Issuer has
provided prior notice thereof to the Rating Agencies. No notice to or demand upon the Issuer in
any instance hereunder shall entitle the Issuer to any other or further notice or demand in similar
or other circumstances.



ARTICLE XI




MISCELLANEOUS




Section 11.01 Sale of Certain Collateral. The Issuer recognizes that the Collateral
Agent may be unable to effect a public sale of the Assigned Collateral by reason of certain
prohibitions contained in the Securities Act and applicable state securities laws, and instead may
resort to one or more private sales of the Assigned Collateral to a restricted group of purchasers
who will be obliged to agree, among other things, to acquire such security for their own account
for investment and not with a view to the distribution or resale thereof. The Issuer acknowledges
and agrees that any such private sale or sales may result in prices and other terms less favorable
to the seller than if the disposition were made pursuant to a public sale and, notwithstanding such
circumstances, agrees that any such private sale or sales made in an otherwise commercially
reasonable manner shall not be deemed commercially unreasonable solely because of the private
nature of such sale or sales. The Collateral Agent is hereby authorized to use the services of an
investment bank in connection with any such sale. The Collateral Agent and the Secured Parties
shall be under no obligation to delay a sale of any of the Assigned Collateral for the period of
time necessary to permit the issuer of any securities to register them for public sale under the
Securities Act or under applicable state securities laws, even if such issuers would agree to do
so.



Section 11.02 Further Assurances. The Issuer agrees that it will join with the
Collateral Agent in executing and, at its own expense, filing and re-filing such financing
statements, amendments thereto, continuation statements and other documents (including this
Security Agreement) in such offices as may be necessary or appropriate and wherever required in
order to perfect and preserve the rights and interests granted to the Collateral Agent hereby, and
hereby authorizes the Collateral Agent to arrange for the filing of financing statements and
amendments thereto and continuation statements relative to all or any part thereof without further
authorization of the Issuer where permitted by law, and agrees to do such further acts and things,
and to execute and deliver to the Collateral Agent such additional assignments, agreements, powers
and instruments, as are necessary to carry into effect the purposes of this Security Agreement or
to better assure and confirm unto the Collateral Agent its rights, powers and remedies hereunder
(including as the Collateral Agent or any Swap Counterparty may request). Notwithstanding the
foregoing, the Collateral Agent shall have no obligation in respect of the filing, re-filing,
recording or monitoring of any financing statements, amendments thereto, or continuation
statements, or of any other similar document or instrument relating to the security interest
granted herein.



Section 11.03 No Waiver; Cumulative Remedies. No failure on the part of the
Collateral Agent to exercise, and no delay on the part of the Collateral Agent in exercising, any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy by the Collateral Agent preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies that may be available to the Collateral
Agent, whether at law, in equity or otherwise.



Section 11.04 Notices, etc. Except where telephonic instructions or notices are
authorized herein to be given, all notices, demands, instructions and other communications required
or permitted to be given to or made upon any party hereto shall be in writing (including by
electronic or facsimile transmission) and shall be sent by prepaid first class mail, personally
delivered or sent by guaranteed overnight delivery or by electronic or facsimile transmission (to
be followed by prepaid first class mail, personal or guaranteed overnight delivery) and shall be
deemed to be given for purposes of this Security Agreement on the date that such writing is
received by the intended recipient thereof in accordance with the provisions of this
Section 11.04. Unless otherwise specified in a notice sent or delivered in accordance with
the foregoing provisions of this Section 11.04, notices, demands, instructions and other
communications in writing shall be given to or made upon the parties at their respective addresses
(or to their respective facsimile numbers) indicated on Schedule II hereto, and, in the case of
telephonic instructions or notices, by calling the telephone number or numbers indicated for such
party on Schedule II hereto.



Section 11.05 Fees, Costs and Expenses, etc. The Issuer shall pay the Collateral
Agent such fees for its services as shall be agreed upon by the Issuer and the Collateral Agent,
provided however that the annual fees (which shall not include extraordinary fees)
shall not exceed 0.01% per annum on the average Outstanding Program Amount. Subject to
Section 2.01, Section 6.03 and Section 6.06, the Issuer hereby agrees to
(a) pay or reimburse the Collateral Agent for all of its reasonable out-of-pocket costs and
expenses incurred in connection with the preparation and execution of, and any amendment,
supplement or modification to, this Security Agreement and any other documents prepared in
connection herewith or therewith, and the consummation of the transactions contemplated hereby and
thereby, including, without limitation, the reasonable fees and disbursements of counsel to the
Collateral Agent, (b) reimburse the Collateral Agent for all reasonable out-of-pocket costs and
expenses (excluding expenses solely attributable to internal overhead) incurred by the Collateral
Agent in connection with the enforcement of or preservation of any rights under this Security
Agreement, (c) pay, indemnify, and hold the Collateral Agent harmless from any and all recording
and filing fees and any and all liabilities with respect to, or resulting from any delay in paying
stamp and other documentary taxes, if any, which may be payable or determined to be payable in
connection with the execution and delivery of, or consummation of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or
in respect of, this Security Agreement, and any such other documents, and (d) indemnify and hold
harmless the Owner Trustee, the Collateral Agent and their respective officers, directors,
employees and agents against any and all liabilities, losses, damages, costs and expenses of any
kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be
incurred by the Owner Trustee or the Collateral Agent, relating to or arising out of this Security
Agreement or under the other Program Documents, or by the Owner Trustee or the Collateral Agent (as
applicable) relating to or arising out of the enforcement of this Security Agreement or the
preservation of any of its rights to the Assigned Collateral, the Collateral Account or any
Deposited Funds; provided, that the Owner Trustee or the Collateral Agent (as applicable)
shall not have the right to be indemnified hereunder for its own gross negligence, fraud, bad faith
or willful misconduct. If the Issuer shall fail to do any act or thing which it has covenanted to
do hereunder or any representation or warranty on the part of the Issuer contained herein or
repeated and reaffirmed herein shall be breached, the Collateral Agent may, with the consent of the
Required Senior Noteholders (or if the Senior Notes have been paid, then the Required Subordinated
Noteholders) (but shall not be obligated to), do the same or cause it to be done or remedy any such
breach, and may expend its funds for such purpose. Any and all amounts so expended by the
Collateral Agent shall be repayable to it by the Issuer. Subject to Section 2.01,
Section 6.03 and Section 6.06, amounts payable to the Collateral Agent pursuant to
this Section 11.05 shall be paid as follows: (A) if the Collateral Agent provides the
Issuer with notice of such amounts on or before the last Business Day of the calendar month in
which such amount arose, the Issuer shall pay such amounts on the Payment Date occurring in the
immediately succeeding calendar month and (B) if the Collateral Agent provides such notice after
the last Business Day of the calendar month in which such amount arose, the Issuer shall pay such
amounts on the Payment Date occurring in the calendar month after the month in which the demand was
made. The obligations of the Issuer under this Section 11.05 shall survive the resignation
or removal of the Collateral Agent and the termination of this Security Agreement and the discharge
of the other obligations of the Issuer hereunder and shall also survive the termination of the
Indenture in accordance with its provisions.



Section 11.06 Collateral Agent Appointed Attorney-in-Fact. The Issuer hereby appoints
the Collateral Agent its attorney-in-fact, with full power of substitution, for the purpose of
taking such action and executing agreements, instruments and other documents, in the name of the
Issuer, as the Collateral Agent, the Swap Counterparties or the holders of the Senior Notes may
deem necessary or advisable to accomplish the purposes hereof, which appointment is coupled with an
interest and is irrevocable.



Section 11.07 Termination. Except as expressly otherwise provided herein, this
Security Agreement, and the assignments, pledges and security interests created or granted hereby,
shall terminate when (a) all Obligations shall have been fully paid and satisfied, and (b) all
Notes shall have been fully paid and satisfied, at which time the Collateral Agent shall, at the
written request of the Issuer, reassign (without recourse upon, or any warranty whatsoever by, the
Collateral Agent), and deliver to the Issuer all Assigned Collateral and documents then in the
custody or possession of the Collateral Agent and, if so requested by the Issuer, shall execute and
deliver to the Issuer for filing in each office in which any financing statement relative to the
Assigned Collateral or the agreements relating thereto or any part thereof shall have been filed, a
termination statement under the UCC releasing the Collateral Agent’s interest therein, and such
other documents and instruments as the Issuer may reasonably request, all without recourse upon or
warranty whatsoever by, the Collateral Agent, and at the cost and expense of the Issuer.



The Issuer and the Collateral Agent hereby agree that, if any Deposited Funds remain on
deposit in the Collateral Account after the payment in full of all of the Obligations, such amounts
shall, at the written request of the Issuer, be released by the Collateral Agent and paid to the
Servicer.



Section 11.08 Successors and Assigns; Benefit of Agreement. This Security Agreement
shall be binding upon and inure to the benefit of the Issuer and the Secured Parties and their
respective successors and assigns; provided, however, that the Issuer may not
assign any of its rights or obligations hereunder except with the prior written consent of the
Collateral Agent (on behalf of the holders of the Senior Notes), each Swap Counterparty, each of
the Rating Agencies and each Subordinated Noteholder. This Security Agreement shall also inure to
the benefit of the holders of the Notes, which are hereby expressly declared to be third party
beneficiaries hereof. Subject to the foregoing, no Person not a party to this Security Agreement
shall be deemed to be a third party beneficiary hereof nor shall any Person be empowered to enforce
the provisions of this Security Agreement, except as set forth in the preceding sentence, or in
Section 11.17, and to the extent such Person becomes a permitted successor or assign
hereunder.



Section 11.09 GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL. THIS
SECURITY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK. EACH PARTY HERETO HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW
YORK CITY FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF
ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH
A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY CONSENTS TO PROCESS
BEING SERVED IN ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS SECURITY AGREEMENT OR ANY
DOCUMENT DELIVERED PURSUANT HERETO BY THE MAILING OF A COPY THEREOF BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, RETURN RECEIPT REQUESTED, TO ITS RESPECTIVE ADDRESS SPECIFIED AT THE TIME
FOR NOTICES UNDER THIS SECURITY AGREEMENT OR TO ANY OTHER ADDRESS OF WHICH IT SHALL HAVE GIVEN
WRITTEN NOTICE TO THE OTHER PARTIES. THE FOREGOING SHALL NOT LIMIT THE ABILITY OF ANY PARTY HERETO
TO BRING SUIT IN THE COURTS OF ANY JURISDICTION.



EACH OF THE PARTIES HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO A TRIAL BY JURY WITH
RESPECT TO ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.



Section 11.10 Execution in Counterparts. This Security Agreement may be executed in
any number of counterparts and by different parties hereto on separate counterparts, each of which
counterparts, when so executed and delivered, shall be deemed to be an original and all of which
counterparts, taken together, shall constitute one and the same instrument.



Section 11.11 Section Headings. Section headings used in this Security Agreement are
for convenience only and shall not affect the construction of this Security Agreement.



Section 11.12 Non-petition Covenant. Notwithstanding any prior termination of this
Security Agreement, the Collateral Agent as such shall not, prior to the date which is one year and
one day (or if longer, the applicable preference period then in effect) after the payment in full
of the last rated obligation of the Issuer including but not limited to the last Secured Liquidity
Note, Extended Note and Subordinated Note outstanding, acquiesce, petition or otherwise, directly
or indirectly, invoke or cause the Issuer to invoke the process of any governmental authority for
the purpose of commencing or sustaining a case against the Issuer under any Federal or state
bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, owner
trustee, custodian, sequestrator or other similar official of the Issuer or any substantial part of
its property or ordering the winding up or liquidation of the affairs of the Issuer. This
Section 11.12 shall survive the termination of this Security Agreement.



Section 11.13 Severability. In case one or more of the provisions contained in this
Security Agreement shall be or shall be deemed to be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions contained herein
shall not in any way be affected or impaired thereby. If any provision of this Security Agreement
shall be or shall be deemed to be illegal, invalid or unenforceable under the applicable laws and
regulations of one jurisdiction, such provision shall not thereby be rendered illegal, invalid or
unenforceable in any other jurisdiction.



Section 11.14 Entire Agreement. The parties hereto agree that the applicable
provisions of the Side Letter shall form a part of this Security Agreement for all purposes, as
though set forth herein. This Security Agreement constitutes the entire agreement between the
parties hereto with respect to the matters covered hereby and supersedes all prior agreements and
understandings with respect to such matters between the parties.



Section 11.15 Limited Recourse to the Issuer. Notwithstanding anything to the
contrary contained herein, all Obligations of the Issuer shall be payable by the Issuer only to the
extent of funds available therefor under Sections 2.01 6.03, and 6.06, and,
to the extent such funds are not available or are insufficient for the payment thereof, shall not
constitute a claim, as defined under Section 101 of the Bankruptcy Code, against the Issuer to the
extent of such unavailability or insufficiency until such time as the Issuer has assets sufficient
to pay such prior deficiency. This Section 11.15 shall survive the termination of this
Security Agreement.



Section 11.16 No Recourse. The obligations of the Issuer hereunder are solely the
obligations of the Issuer and no recourse shall be had with respect to this Security Agreement, any
of the obligations of the Issuer hereunder or for the payment of any fee or other amount payable
hereunder or for any claim based on, arising out of or relating to any provision of this Security
Agreement against any employee, officer, settlor, Affiliate, agent or servant of the Issuer. This
Section 11.16 shall survive the termination of this Security Agreement.



Section 11.17 Third Party Beneficiary. The parties hereto agree that each Swap
Counterparty shall be an express third party beneficiary of this Security Agreement, and entitled
to enforce any rights granted to it hereunder, except to the extent of its rights as a Secured
Party (which rights shall be enforced by the Collateral Agent on its behalf).



Section 11.18 No Recourse to Owner Trustee. It is expressly understood and agreed by
the parties hereto that (a) this Security Agreement is executed and delivered by Christiana Bank &
Trust Company, not individually or personally but solely as Owner Trustee of the Issuer, in the
exercise of the powers and authority conferred and vested in it as trustee, (b) each of the
representations, undertakings and agreements herein made on the part of the Issuer is made and
intended not as a personal representation, undertaking and agreement by Christiana Bank & Trust
Company but is made and intended for the purpose of binding only the Issuer, (c) nothing herein
contained shall be construed as creating any liability on Christiana Bank & Trust Company,
individually or personally, to perform any covenant either expressed or implied contained herein,
all such liability, if any, being expressly waived by the parties hereto and by any Person claiming
by, through or under the parties hereto and (d) under no circumstances shall Christiana Bank &
Trust Company be personally liable for the payment of any indebtedness or expenses of the Issuer or
be liable for the breach or failure of any obligation, representation, warranty or covenant made or
undertaken by the Issuer under this Security Agreement or any other related documents.



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IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be executed by
their respective officers or agents thereunto duly authorized, as of the date first above written.



ST. ANDREW FUNDING TRUST



By: CHRISTIANA BANK & TRUST COMPANY, not in its individual capacity, but solely as Owner Trustee

By: /s/ James M. Young

Name: James M. Young

Title: Vice President

DEUTSCHE BANK TRUST COMPANY AMERICAS,



as Collateral Agent


By: /s/ Eileen M. Hughes


Name: Eileen M. Hughes

Title: Vice President


By: /s/ James P. Bowden


Name: James P. Bowden

Title: Associate




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