Master Repurchase Agreement Governing Purchases and Sales



 Exhibit 10.11 
  

  
 MASTER REPURCHASE AGREEMENT 
 GOVERNING PURCHASES AND SALES OF MORTGAGE LOANS 
  

  
 Dated as of January 18, 2005 
  

  
 LEHMAN BROTHERS BANK, FSB 
 as Buyer 
  
 and 
  
 AAMES CAPITAL CORPORATION 
  
 and

  
 AAMES INVESTMENT CORPORATION 
 Collectively, as Seller 
  








 Table of Contents 
  

					
	 	 	 	  	Page


	1.	 	APPLICABILITY	  	1
	2.	 	DEFINITIONS	  	1
	3.	 	INITIATION; CONFIRMATION; TERMINATION; MAXIMUM TRANSACTION AMOUNTS	  	15
	4.	 	COLLATERAL AMOUNT MAINTENANCE	  	19
	5.	 	INCOME PAYMENTS	  	20
	6.	 	SECURITY INTEREST	  	21
	7.	 	PAYMENT, TRANSFER AND CUSTODY	  	22
	8.	 	REHYPOTHECATION OR PLEDGE OF PURCHASED MORTGAGE LOANS	  	24
	9.	 	SUBSTITUTION	  	24
	10.	 	REPRESENTATIONS AND WARRANTIES	  	25
	11.	 	NEGATIVE COVENANTS OF THE SELLER	  	29
	12.	 	AFFIRMATIVE COVENANTS OF THE SELLER	  	31
	13.	 	EVENTS OF DEFAULT	  	35
	14.	 	REMEDIES	  	37
	15.	 	ADDITIONAL CONDITION	  	41
	16.	 	SINGLE AGREEMENT	  	41
	17.	 	NOTICES AND OTHER COMMUNICATIONS	  	42
	18.	 	ENTIRE AGREEMENT; SEVERABILITY	  	42
	19.	 	NON-ASSIGNABILITY; PARTICIPATIONS	  	42
	20.	 	TERMINABILITY	  	43
	21.	 	INDEMNIFICATION	  	43
	22.	 	GOVERNING LAW	  	44
	23.	 	CONSENT TO JURISDICTION AND ARBITRATION	  	44
	24.	 	NO WAIVERS, ETC.	  	44
	25.	 	INTENT	  	44
	26.	 	SERVICING	  	44
	27.	 	DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS	  	46
	28.	 	NETTING	  	46
	29.	 	MISCELLANEOUS	  	47

  
  

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 EXHIBITS 
  

			
	EXHIBIT I	 	Confirmation
	EXHIBIT II	 	Form of Custodial Delivery
	EXHIBIT III	 	Form of Power of Attorney
	EXHIBIT IV	 	Opinion of Counsel to Seller
	EXHIBIT V	 	Representations and Warranties Regarding Mortgage Loans
	EXHIBIT VI	 	A-MI LOANS
	EXHIBIT VII	 	Authorized Officers of Seller
	EXHIBIT VIII	 	Form of Monthly Report
	EXHIBIT IX	 	Form of Request for Purchase
	EXHIBIT X	 	Underwriting Guidelines

  

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 MASTER REPURCHASE AGREEMENT 
 GOVERNING PURCHASES AND SALES OF MORTGAGE LOANS 
  
 Dated as of January 18, 2005 
  
 Between 
  
 LEHMAN BROTHERS BANK,
FSB 
  
 as Buyer 
  
 and 
  
 AAMES CAPITAL CORPORATION 
  
 and 
  
 AAMES INVESTMENT CORPORATION 
 collectively, as Seller 
  
 1. APPLICABILITY 
  
 From time to time until the Final Repurchase Date, Lehman Brothers Bank, FSB (“Buyer”) shall, subject to
the terms hereof, enter into transactions upon the request of Aames Capital Corporation and Aames Investment Corporation (individually and collectively, “Seller”) in which Seller agrees to transfer to Buyer Mortgage Loans against
the transfer of funds by Buyer, with a simultaneous agreement by Buyer to transfer to Seller such Mortgage Loans at a date certain not later than 30 days after the date of transfer or on demand, as specified in the Confirmation, against the transfer
of funds by Seller. Each such transaction shall be referred to herein as a “Transaction” and shall be governed by this Agreement and the related Confirmation, unless otherwise agreed in writing. Notwithstanding anything in this
Agreement to the contrary, Buyer shall have no obligation to enter into any Transaction hereunder if there shall have occurred any material adverse change, as determined by Buyer in its reasonable judgment, in the financial condition of Seller, the
financial markets generally or the secondary market for Mortgage Loans. Buyer shall promptly notify Seller of any determination by Buyer that any of the foregoing has occurred. All obligations under the Transactions shall be recourse to Seller.

  
 2. DEFINITIONS 
  
 “ACC” shall mean Aames Capital Corporation. 







 “Act of Insolvency” means, with respect to any party and its Affiliates, (i) the filing
of a petition, commencing, or authorizing the commencement of any case or proceeding under any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar law relating to the protection of creditors, or suffering any such petition or
proceeding to be commenced by another which is consented to, not timely contested or results in entry of an order for relief, (ii) the seeking of the appointment of a receiver, trustee, custodian or similar official for such party or an Affiliate or
any substantial part of the property of either, (iii) the appointment of a receiver, conservator, or manager for such party or an Affiliate by any governmental agency or authority having the jurisdiction to do so, (iv) the making or offering by such
party or an Affiliate of a composition with its creditors or a general assignment for the benefit of creditors, (v) the admission by such party or an Affiliate of such party of its inability to pay its debts or discharge its obligations as they
become due or mature, or (vi) that any governmental authority or agency or any person, agency or entity acting or purporting to act under governmental authority shall have taken any action to condemn, seize or appropriate, or to assume custody or
control of, all or any substantial part of the property of such party or of any of its Affiliates, or shall have taken any action to displace the management of such party or of any of its Affiliates or to curtail its authority in the conduct of the
business of such party or of any of its Affiliates. 
  
 “Additional Costs” has the meaning specified in Section 3(k). 
  
 “Additional Loans” means Mortgage Loans provided by Seller to Buyer or its designee pursuant to Section 4(a). 
  

“Adjusted Leverage Ratio” means, at any time, the ratio of (i) the aggregate principal amount of all indebtedness (other than
outstanding non-recourse real estate investment trust portfolio debt) of AIC and its Subsidiaries at such time which on a consolidated basis in accordance with GAAP would be required to be reflected on a consolidated balance sheet of AIC and its
Subsidiaries as a liability to (ii) the Tangible Net Worth of AIC and its Subsidiaries. 
  
 “Affiliate” means, with respect to any Person, another Person that directly or indirectly controls, or is under common control with, or is controlled by, such Person. As used in this definition,
“control” (including, with is correlative meanings, “controlled by” and “under common control with”) means possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests, by contract or otherwise). 
  
 “Agreement” means this Master Repurchase Agreement Governing Purchases and Sales of Mortgage Loans between Buyer and Seller, as amended
from time to time. 
  
 “AIC” shall mean Aames
Investment Corporation. 
  
 “A-MI Loan” shall
mean a Mortgage Loan described in Exhibit VI hereto. 
  
 “Backup Servicer” means a Person designated by Buyer, in its sole discretion, to act as a backup servicer of the Purchased Mortgage Loans in accordance with Section 26. 
  

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 “Balloon Mortgage Loan” means any Mortgage Loan that provided on the date of origination
for scheduled payments by the Mortgagor based upon an amortization schedule extending beyond its maturity date. 
  
 “Breakage Costs” has the meaning specified in Section 3(j). 
  
 “Business Day” means a day other than (i) a Saturday or Sunday, or (ii) a day in which the New York Stock
Exchange or any state or federally-chartered bank depository institutions operating in the State of New York are authorized or obligated by law or executive order to be closed. 
  
 “Buyer” has the meaning specified in Section 1. 
  
 “Capital Lease”, as applied to any Person or entity, shall
mean any lease of any property (whether real, personal or mixed) by that Person or entity as lessee that, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person or entity. 
  
 “Capital Stock” means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing
Person. 
  
 “Cash Equivalents” shall mean (a)
securities with maturities of 90 days or less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit and eurodollar time deposits with maturities of 90
days or less from the date of acquisition and overnight bank deposits of any commercial bank having capital and surplus in excess of $500,000,000, (c) repurchase obligations of any commercial bank satisfying the requirements of clause (b) of this
definition, having a term of not more than seven days with respect to securities issued or fully guaranteed or insured by the United States Government, (d) commercial paper of a domestic issuer rated at least A-1 or the equivalent thereof by
Standard and Poor’s Ratings Group (“S&P”) or P-1 or the equivalent thereof by Moody’s Investors Service, Inc. (“Moody’s”) and in either case maturing within 90 days after the day of acquisition,
(e) securities with maturities of 90 days or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth
or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody’s, (f)
securities with maturities of 90 days or less from the date of acquisition backed by standby letters of credit issued by any commercial bank satisfying the requirements of clause (b) of this definition or (g) shares of money market mutual or similar
funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition. 
  
 “Collateral” has the meaning specified in Section 6. 
  

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 “Collateral Amount” means, with respect to any Transaction, the amount obtained by
application of the applicable Collateral Amount Percentage to the Repurchase Price for such Transaction. 
  
 “Collateral Amount Percentage” means the amount set forth in the related Confirmation with respect to each Mortgage Loan which, (1) in
determining whether a Market Value Collateral Deficit exists pursuant to the second sentence of Section 4(a) hereof shall, for each type of Mortgage Loan set forth in the first column below, equal the applicable percentage set forth in the second
column below and (2) in determining whether a Securitization Value Collateral Deficit exists pursuant to the third sentence of Section 4(a) hereof shall, for each type of Mortgage Loan set forth in the first column below, equal the applicable
percentage set forth in the third column below. 
  

									
	 Mortgage Loan Type

	  	 Percentage for
 Market Value
 Collateral Deficit
 Determination

	 	 	 Percentage for
 Securitization Value
 Collateral Deficit
 Determination

	 
	 (a)
	 	Purchased Mortgage Loan that has been subject to Transactions for less than 121 days	  	103.6	%	 	105.8	%
				
	 (b)
	 	Purchased Mortgage Loan that has been subject to Transactions for 121 or more days but not more than 150 days	  	105.3	%	 	107.5	%

  
 “Collateral
Deficit” means either a Market Value Collateral Deficit or a Securitization Value Collateral Deficit. 
  
 “Collateral Information” means the following information with respect to each Mortgage Loan: (i) Seller’s loan number, (ii) the
Mortgagor’s name, (iii) the address of the Mortgaged Property, (iv) the current interest rate, (v) the original balance, (vi) current balance as of the first day of the current month, (vii) the paid to date and the next payment date, (viii) the
appraised value of the Mortgaged Property at the time the Mortgage Loan was originated, (ix) whether interest rate is fixed or adjustable (and if adjustable, the ARM code, which includes the index, adjustment frequency, spread and caps), (x) the
lien position of the Mortgage Loan on the 

  

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Mortgaged Property (and if a second lien, the outstanding principal balance of the first lien at the time the Mortgage Loan was originated), (xi) the
occupancy status of the Mortgaged Property (including whether owner occupied), (xii) whether the Mortgage Loan is a Balloon Mortgage Loan, (xiii) the first payment date, (xiv) the maturity date, (xv) the principal and interest payment, (xvi) the
note date, (xvii) pre-payment penalty, (xviii) pre-payment penalty type, (xix) loan purpose, (xx) the property type of the Mortgaged Property, (xxi) the Mortgagor’s credit score (where available in the Mortgage File), (xxii) the Mortgage Loan
grade and FICO score (where available in the Mortgage File), (xxiii) the delinquency status, (xxiv) whether the Mortgage Loan is an A-MI Loan, and (xxv) if the Mortgage Loan is an A-MI Loan, the identity of the mortgage insurance company insuring
the A-MI Loan and the percentage of insurance coverage so provided. 
  
 “Collection Account” and “Collection Account Bank” have the meanings specified in Section 5(b). 
  
 “Confirmation” has the meaning specified in Section 3(c). 
  
 “Contractual Obligation” shall mean as to any Person, any provision of any security issued by such Person
or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. 
  
 “Costs” has the meaning specified in Section 21. 
  

“Custodial Agreement” means that custodial agreement, dated as of December 1, 2000, as amended, modified or supplemented from time to
time, by and among Buyer, Seller and the Custodian. 
  
 “Custodial Delivery” means the form executed by the Seller in order to deliver a Mortgage Loan Schedule and/or Mortgage Files to Buyer or its designee (including the Custodian) pursuant to Section 7, a form of which is
attached hereto as Exhibit II. 
  
 “Custodian”
means the custodian under the Custodial Agreement. The initial custodian is Deutsche Bank Americas, Trust Company. 
  
 “Delinquent” means, with respect to any Mortgage Loan, the period of time from the date on which a Mortgagor fails to pay an obligation
under the terms of such Mortgage Loan to the date on which such payment is made. 
  
 “Depository Acknowledgment” has the meaning specified in section 5(b). 
  
 “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time. 
  
 “ERISA Affiliate” shall mean any trade or business (whether
or not incorporated) which, together with the Seller, is treated as single employer under Section 414(b) or (c) of the Internal Revenue Code, or solely for purposes of Section 302 of ERISA and Section 412 of the Internal Revenue Code, is treated as
a single employer under Section 414 of the Internal Revenue Code. 
  

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 “ERISA Event” shall mean (a) any “reportable event”, as defined in Section
4043 of ERISA or the regulations issued thereunder, with respect to a Plan; (b) the adoption of any amendment to a Plan that would require the provision of security pursuant to Section 401(a)(29) of the Internal Revenue Code or Section 307 of ERISA;
(c) the existence with respect to any Plan of an “accumulated funding deficiency” (as defined in Section 412 of the Internal Revenue Code or Section 302 of ERISA), whether or not waived; (d) the filing pursuant to Section 412(d) of the
Internal Revenue Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (e) the incurrence of any liability under Title IV of ERISA upon the termination of any Plan or the withdrawal
or partial withdrawal of the Seller or any ERISA Affiliates from any Plan or Multiemployer Plan; (f) the receipt by the Seller or any ERISA Affiliate from the Pension Benefit Guaranty Corporation of any notice relating to the intention to terminate
any Plan or to appoint a trustee to administer any Plan; (g) the receipt by the Seller or any ERISA Affiliate of any notice concerning the imposition of withdrawal liability or a determination that a Multiemployer Plan is, or is expected to be,
insolvent or in reorganization, within the meaning of Title IV of ERISA; and (h) the occurrence of a “prohibited transaction” with respect to which the Seller or any Affiliates is a “disqualified person” (within the meaning of
Section 4975 of the Internal Revenue Code) or with respect to which the Seller or any such Affiliate could otherwise be liable. 
  
 “Event of Default” has the meaning specified in Section 13. 
  
 “Facility Documents” shall mean the Agreement, the Custodial Agreement, any related financing statements
under the Uniform Commercial Code as set forth in Section 6 and any other related documents. 
  
 “Final Repurchase Date” means the Business Day prior to the first anniversary of the date of this Agreement or such earlier date on which all Purchased Mortgage Loans are required to be immediately
repurchased pursuant to Section 14(a). 
  
 “First
Mortgage” means the Mortgage that is the first lien on the Mortgaged Property. 
  
 “Forward Commitment Provider” means a Person who enters into a formal commitment to purchase Mortgage Loans from the Seller and who is approved by Buyer in its sole discretion. 
  
 “GAAP” means with respect to the financial statements or
other financial information of any Person, generally accepted accounting principles in the United States which are in effect from time to time. 
  
 “Governmental Authority” means any nation or government, any state or other political subdivision thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any court or arbitrator having jurisdiction over Seller, any of its Affiliates or any of its properties. 
  
 “Guarantee Obligation” means a guarantee, an endorsement, a
contingent agreement to purchase or to furnish funds for the payment or maintenance of, or otherwise to be or become contingently liable under or with respect to, the Indebtedness, other obligations, net worth, working capital or earnings of any
Person, or a guarantee of the payment of dividends or other distributions upon the stock or equity interests of any Person, or an agreement to purchase, sell or 

  

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lease (as lessee or lessor) property, products, materials, supplies or services primarily for the purpose of enabling a debtor to make payment of such
debtor’s obligations or an agreement to assure a creditor against loss, and including causing a bank or other financial institution to issue a letter of credit or other similar instrument for the benefit of another Person, but excluding
endorsements for collection or deposit in the ordinary course of business. 
  
 “Hedge” means, with respect to any or all of the Mortgage Loans, any interest rate swap, cap or collar agreement or similar arrangements providing for protection against fluctuations in interest rates
or the exchange of nominal interest obligations, either generally or under specific contingencies, entered into by Seller, and reasonably acceptable to the Buyer. 
  
 “HUD” means the United States Department of Housing and Urban Development. 
  
 “Income” means, with respect to any Mortgage Loan at any
time, any principal thereof then payable and all interest, dividends or other distributions payable thereon less any related servicing fee(s) charged by the Servicer. 
  
 “Indebtedness” means, for any Person: (a) obligations created, issued or incurred by such Person for
borrowed money (whether by loan, the issuance and sale of debt securities or the sale of property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such property from such Person); (b) obligations of
such Person to pay the deferred purchase or acquisition price of property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade
accounts payable are payable within ninety (90) days of the date the respective goods are delivered or the respective services are rendered; (c) Indebtedness of others secured by a Lien on the property of such Person, whether or not the respective
indebtedness so secured has been assumed by such Person; (d) obligations of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for account of such Person; (e) Capital
Leases of such Person; and (f) any of the foregoing types of indebtedness of others guaranteed by such Person (without duplication). 
  
 “Interest Reset Date” means each Business Day on which any Transaction is outstanding under this Agreement (it being the understanding of
Buyer and Seller that the Pricing Rate applicable to each Transaction shall change on each Business Day based on any change in LIBOR) or, at the election of Buyer specified in the related Confirmation, Interest Reset Date shall have the meaning
specified in the definition of Interest Period for which a written confirmation has been delivered to Seller prior to or on the date of the change disclosing the new interest rate. 
  
 “Interest Period” means, with respect to any Transaction, (i) initially, the period commencing on the
related Purchase Date and ending on the day immediately preceding the next Payment Date (the “Interest Reset Date”), and (ii) thereafter, each period from and including the day following the immediately preceding Interest Reset Date
up to and including the succeeding Interest Reset Date or such shorter period as agreed among Buyer and Seller when the current Interest Period expires. Notwithstanding the foregoing, each Interest Period that commences on the last Business Day of a
calendar month (or on any day for which there is no numerically corresponding day in the appropriate calendar month when the Interest Period expires) shall end 

  

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on the last Business Day of the appropriate calendar month. Notwithstanding the foregoing, each Interest Period that would otherwise end on a day that is not
a Business Day shall end on the next succeeding Business Day (or, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day). 
  
 “Leverage Ratio” means, at any time, the ratio of (i) the aggregate principal amount of all indebtedness of
AIC and its Subsidiaries at such time which on a consolidated basis in accordance with GAAP would be required to be reflected on a consolidated balance sheet of AIC, and its Subsidiaries as a liability to (ii) the Tangible Net Worth of AIC, and its
Subsidiaries. 
  
 “LIBOR” means the rate per
annum calculated with respect to each Transaction and the relevant Interest Period as set forth below: 
  
 (i) Two (2) Business Days prior to each Interest Reset Date, LIBOR shall be determined by Buyer on the basis of the offered rate for one
month deposits of not less than U.S. $1,000,000, that appears on the date of determination on Dow Jones Market Service Page 3750 as of 11:00 a.m., London time (or such other page as may replace the Dow Jones Market Service Page on that service for
the purposes of displaying London interbank offered rates of major banks). If no such offered rate appears, LIBOR with respect to the relevant Interest Period shall be determined as described in (ii) below. 
  
 (ii) With respect to an Interest Reset Date on which no such
offered rate appears two (2) Business Days prior thereto on Dow Jones Market Service Page 3750 as described in (i) above, LIBOR shall be the arithmetic mean, expressed as a percentage, of the offered rates for one month deposits in U.S. Dollars that
appears on the Reuters Screen LIBOR Page as of 11:00 a.m., London time, on the date of determination. If, in turn, such rate is not displayed on the Reuters Screen LIBOR Page at such time, then LIBOR for such date shall be reasonably determined by
Buyer to be the arithmetic mean of the offered quotations to first-class banks in the Interbank LIBOR Market. 
  
 All percentages resulting from any calculations of LIBOR referred to in this Agreement shall be rounded up to the nearest multiple of 1/100 of 1% and all U.S. Dollar amounts used in or resulting from such calculations
shall be rounded to the next higher cent. 
  
 “Licensed
Title Company” has the meaning specified in Section 10(b)(xxii). 
  
 “Loan-to-Value Ratio” means with respect to any Mortgage Loan, the fraction, expressed as a percentage, the numerator of which is the principal balance of such Mortgage Loan at the date of origination
and the denominator of which is the lowest of (a) the value of the related Mortgaged Property as set forth in the appraisal of such Mortgaged Property obtained in connection with the origination of such Mortgage Loan, (b) the purchase price of the
Mortgaged Property or (c) the review appraisal, if any, provided that the appraised value shown in the review appraisal is less than the appraised value at origination by a variance of 10% or greater. For purposes of calculating the Loan-to-Value
Ratio of a Mortgage Loan secured by a second Mortgage, the principal balance of the related First Mortgage as well as the second Mortgage shall be included in the numerator. 
  
 “Lockbox Bank” has the meaning specified in Section 5(a). 
  

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 “Market Value” means as of any date with respect to any Mortgage Loan, the price at
which such Mortgage Loan could readily be sold as determined by Buyer in its sole discretion; provided, that Buyer may take into consideration the price at which the Forward Commitment Provider will buy such Mortgage Loan from Seller and any
Hedges with respect to such Mortgage Loans; provided, further, that Buyer shall not take into account, for purposes of calculating Market Value, any Mortgage Loan, 
  
 (i) which has been subject to Transactions for more than 60 days (provided that this clause (i) (x) shall
not apply to Purchased Mortgage Loans which do not exceed in the aggregate 20% of the aggregate outstanding principal balance of Purchased Mortgage Loans subject to then outstanding Transactions which Purchased Mortgage Loans that have been subject
to Transactions for more than 60 days may be subject to Transactions for up to 90 days, (y) shall not apply to Purchased Mortgage Loans which do not exceed in the aggregate 10% of the aggregate outstanding principal balance of Purchased Mortgage
Loans subject to then outstanding Transactions which Purchased Mortgage Loans that have been subject to Transactions for more than 90 days may be subject to Transactions for up to 120 days and (z) shall not apply to Purchased Mortgage Loans which do
not exceed in the aggregate 10% of the aggregate outstanding principal balance of Purchased Mortgage Loans subject to then outstanding Transactions which Purchased Mortgage Loans that have been subject to Transactions for more than 120 days may be
subject to Transactions for up to 150 days), 
  
 (ii) which, together with the other Mortgage Loans subject to then outstanding Transactions, would cause the 30+ Delinquency Percentage to exceed 3.0%, 
  
 (iii) which is more than 59 days Delinquent, 
  
 (iv) which is a Wet Ink Mortgage Loan for more than 7 Business Days, 
  
 (v) with respect to which there is a breach of a
representation, warranty or covenant made by Seller in this Agreement that materially adversely affects Buyer’s interest in such Mortgage Loan and which breach has not been cured, 
  
 (vi) as to which a foreclosure proceeding has been commenced or where the related Mortgagor has entered a
bankruptcy proceeding, 
  
 (vii) as to which the
related Mortgagor failed to make the first monthly debt service payment within thirty-one (31) days after the due date of the payment under the terms of the Mortgage Note, or 
  
 (viii) as to which the Purchase Price of a Wet Ink Mortgage Loan together with the Purchase Price of
Purchased Mortgage Loans which are Wet Ink Mortgage Loans exceed, during the period beginning on the third from last Business Day of each calendar month, through and including the seventh Business Day of the next succeeding calendar month,
$125,000,000 and, at all other times, $100,000,000; provided that such amounts referred to above in this clause (viii) shall be reduced to $75,000,000 and $50,000,000, respectively, in the event that AIC has cash, Cash Equivalents and unused
borrowing capacity on unencumbered assets that could be drawn against (taking into account required haircuts) under committed warehouse and repurchase facilities in an amount less than $65,000,000. 
  

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 “Market Value Collateral Deficit” has the meaning specified in Section 4(a). 

 
 “Mortgage” means a mortgage, deed of trust, deed to
secure debt or other instrument, creating a valid and enforceable first or second lien on or a first or second priority ownership interest in an estate in fee simple in real property and the improvements thereon, securing a mortgage note or similar
evidence of indebtedness. 
  
 “Mortgage File”
means the documents specified as the “Mortgage File” in Section 7(d). 
  
 “Mortgage Loan” means (i) non-securitized whole loan, namely a conventional mortgage loan secured by a first or second lien on a one to four family residential property or mixed-use property which
conforms to Seller’s underwriting guidelines (including, without limitation, a Wet Ink Mortgage Loan), or (ii) other type of non-securitized whole loan as may be agreed upon in writing by the parties hereto from time to time. 
  
 “Mortgage Loan Schedule” means a schedule of Mortgage Loans
attached to each Trust Receipt, Confirmation and Custodial Delivery. 
  
 “Mortgage Note” means a note or other evidence of indebtedness of a Mortgagor secured by a Mortgage. 
  
 “Mortgaged Property” means the real property securing repayment of the debt evidenced by a Mortgage Note. 
  
 “Mortgagee” means the record holder of a Mortgage Note
secured by a Mortgage. 
  
 “Mortgagor” means the
obligor on a Mortgage Note and the grantor of the related Mortgage. 
  
 “Multiemployer Plan” shall mean a Plan which is a multiemployer plan as defined in Section 4001(a) of ERISA. 
  
 “Net Income” means, for any period, the consolidated net income (or loss) for such period, determined on a consolidated basis in
accordance with GAAP. 
  
 “Net Worth” mean the
amount which would be included under stockholders’ equity on a consolidated balance sheet of AIC and its Subsidiaries determined on a consolidated basis in accordance with GAAP 
  
 “Periodic Payment” has the meaning specified in Section 5(c). 
  
 “Permitted Securitization” means any transaction or series
of related transactions for the sale or financing of Purchased Mortgage Loans (the “Sold Loans”) pursuant to which the Sold Loans are securitized in a transaction involving a special purpose entity which enhances the credit or
diminishes the bankruptcy risks attendant upon creditors of such entity (any such entity 

  

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so structured, a “Special Purpose Entity”), and such transaction or transactions would not violate or be inconsistent with any statute, law,
rule, regulation, judgment, order or decree applicable to the Seller, any of its Subsidiaries or any of their respective properties (including, without limitation, any thereof respecting fraudulent transfers or conveyances set forth in any
applicable laws of any jurisdiction respecting the bankruptcy or insolvency of debtors). 
  
 “Person” means an individual, partnership, corporation, joint stock company, trust or unincorporated organization or a governmental agency or political subdivision thereof. 
  
 “Plan” shall mean any employee pension benefit plan (other
than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 112 of the Internal Revenue Code or Section 307 of ERISA and in respect of which the Seller or any ERISA Affiliate is (or if such plan were terminated would under
Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA. 
  
 “Predatory Lending Practices” means any and all underwriting and lending policies, procedures and practices defined or enumerated in any
local or municipal ordinance or regulation or any state or federal regulation or statute prohibiting, limiting or otherwise relating to the protection of consumers from such policies, procedures and practices. Such policies, practices and procedures
may include, without limitation, charging excessive loan, broker, and closing fees, charging excessive rates of loan interest, making loans without regard to a consumer’s ability to repay the loan, refinancing loans with no material benefit to
the consumer, charging fees for services not actually performed, discriminating against consumers on the basis of race, gender, or age, failing to make proper disclosures to the consumer of the consumer’s rights under federal and state law, and
any other predatory lending policy, practice or procedure as defined by ordinance, regulation or statute. 
  
 “Price Differential” means, with respect to any Transaction hereunder as of any date, the aggregate amount obtained by daily application
of the Pricing Rate for such Transaction to the Purchase Price for such Transaction on a 360 day per year basis for the actual number of days during the period commencing on (and including) the Purchase Date for such Transaction and ending on (but
excluding) the Repurchase Date (reduced by any amount of such Price Differential previously paid by Seller to Buyer with respect to such Transaction). 
  
 “Pricing Rate” means, with respect to a Transaction, the per annum percentage rate specified in the related Confirmation for
determination of the Price Differential which shall not exceed LIBOR plus the applicable Pricing Spread. Unless the Confirmation expressly indicates otherwise, the Pricing Rate shall be adjusted on each Business Day that the Transaction remains
outstanding based on any change in LIBOR. 
  
 “Pricing
Spread” means the rate specified in the Confirmation, which shall be equal to (i) on each date prior to the delivery to the Custodian of the complete Mortgage Files with respect to the related Purchased Mortgage Loans, 1.45% and (ii) on
each date on and after the delivery to the Custodian of such Mortgage Files, 0.95%. 
  
 “Prime Rate” means the rate of interest published by The Wall Street Journal, northeast edition, as the “prime rate.” 
  

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 “Purchase Date” means the date on which Purchased Mortgage Loans are transferred by
Seller to Buyer or its designee (including the Custodian) as specified in the Confirmation. 
  
 “Purchase Price” means on each Purchase Date, the price at which Purchased Mortgage Loans are transferred by Seller to Buyer or its designee (including the Custodian) which shall be equal to, with
respect to each Purchased Mortgage Loan, the lower of (a) 96.5% of the Market Value of such Purchased Mortgage Loan as determined by the Buyer in its sole discretion, and (b) 99.5% (or, with respect to a Wet Ink Mortgage Loan, 98.5%) of the
outstanding principal amount of such Purchased Mortgage Loan; provided, that with respect to each Purchased Mortgage Loan that has been subject to Transactions for 121 or more days but not more than 150 days, the Purchase Price shall equal the lower
of (x) 95.0% of the Market Value of such Purchased Mortgage Loan as determined by the Buyer in its sole discretion, and (y) 97.5% of the outstanding principal amount of such Purchased Mortgage Loan. 
  
 “Purchased Mortgage Loans” means the Mortgage Loans sold by
Seller to Buyer in a Transaction, any Additional Loans and any Substituted Mortgage Loans. 
  
 “Q-1 Loan” means a Mortgage Loan that (i) is available only to borrowers of A, A– and B credit grades and (ii) provides for a hold back of proceeds or future advances to be applied to minor
property repairs restricted to roofing, plumbing, electrical or carpentry repairs in an amount that does not exceed the lesser of $10,000 or 10% of the aggregate Purchase Price for such Q-1 Loan. 
  
 “Replacement Loans” has the meaning specified in Section
14(b)(ii). 
  
 “Repurchase Date” means the date
on which Seller is to repurchase the Purchased Mortgage Loans from Buyer, including any date determined by application of the provisions of Sections 3 or 14, as specified in the Confirmation; provided that in no event shall such date be more than 30
days after the Purchase Date. 
  
 “Repurchase
Price” means the price at which Purchased Mortgage Loans are to be transferred from Buyer or its designee (including the Custodian) to Seller upon termination of a Transaction, which will be determined in each case (including Transactions
terminable upon demand) as the sum of the Purchase Price and the Price Differential as of the date of such determination decreased by all cash, Income and Periodic Payments actually received by Buyer pursuant to Sections 4(a), 5(a) and 5(b),
respectively, with respect to such Transaction. 
  
 “Request for Purchase” means written notice of a Seller’s request to enter into a Transaction in the form of Exhibit IX. Such Request for Purchase shall specify the requested Purchase Date and include the
Mortgage Loan Schedule containing information with respect to the Mortgage Loans that Seller proposes to sell to Buyer in connection with such Transaction. 
  
 “Requirement of Law” means as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents
of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its
property is subject. 
  

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 “Securitization Value” means, as of any date with respect to any Mortgage Loans, the
price at which such Mortgage Loans could be securitized and sold in a securitization as determined by Buyer in its sole discretion; provided, that the Buyer may take into consideration any Hedges with respect to such Mortgage Loans;
provided, however, that Buyer shall not take into account, for purposes of calculating Securitization Value, any Mortgage Loan, 
  
 (i) which has been subject to Transactions for more than 60 days (provided this clause (i) (x) shall not apply to Purchased Mortgage Loans
which do not exceed in the aggregate 20% of the aggregate outstanding principal balance of Purchased Mortgage Loans subject to then outstanding Transactions which Purchased Mortgage Loans that have been subject to Transactions for more than 60 days
may be subject to Transactions for up to 90 days, (y) shall not apply to Purchased Mortgage Loans which do not exceed in the aggregate 10% of the aggregate outstanding principal balance of Purchased Mortgage Loans subject to then outstanding
Transactions which Purchased Mortgaged Loans that have been subject to Transactions for more than 90 days may be subject to Transactions for up to 120 days and (z) shall not apply to Purchased Mortgage Loans which do not exceed in the aggregate 10%
of the aggregate outstanding principal balance of Purchased Mortgage Loans subject to then outstanding Transactions which Purchased Mortgage Loans that have been subject to Transactions for more than 120 days may be subject to Transactions for up to
150 days), 
  
 (ii) which, together with the
other Mortgage Loans subject to then outstanding Transactions, would cause the 30+ Delinquency Percentage to exceed 3.0%, 
  
 (iii) which is more than 59 days Delinquent, 
  
 (iv) which is a Wet Ink Mortgage Loan for more than 7 Business Days, 
  
 (v) with respect to which there is a breach of a representation, warranty or covenant made by Seller in this
Agreement that materially adversely affects Buyer’s interest in such Mortgage Loan and which breach has not been cured, 
  
 (vi) as to which a foreclosure proceeding has been commenced or where the related Mortgagor has entered a bankruptcy proceeding,

  
 (vii) as to which the related Mortgagor
failed to make the first monthly debt service payment within thirty-one (31) days after the due date of the payment under the terms of the Mortgage Note, or 
  
 (viii) as to which the Purchase Price of a Wet Ink Mortgage Loan together with the Purchase Price of Purchased Mortgage Loans which are
Wet Ink Mortgage Loans exceed, during the period beginning on the third from last Business Day of each calendar month, through and including the seventh Business Day of the next succeeding calendar month, $125,000,000 and, at all other times,
$100,000,000; provided that such amounts referred to above in this clause (viii) shall be reduced to $75,000,000 and $50,000,000, respectively, in the event that AIC has cash, Cash Equivalents and unused borrowing capacity on unencumbered
assets that could be drawn against (taking into account required haircuts) under committed warehouse and repurchase facilities in an amount less than $65,000,000. 
  

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 “Securitization Value Collateral Deficit” has the meaning specified in Section 4(a).

  
 “Seller” has the meaning specified in Section
1. 
  
 “Servicing Records” has the meaning
specified in Section 26(b). 
  
 “Sold Loans” and
“Special Purpose Entity” have the meaning specified in the definition of “Permitted Securitization”. 
  
 “Subsidiary” means, as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests
having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or
other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a “Subsidiary” or to
“Subsidiaries” in this Agreement shall refer to a Subsidiary or Subsidiaries of Seller. 
  
 “Substituted Mortgage Loans” means any Mortgage Loans substituted for Purchased Mortgage Loans in accordance with Section 9 hereof.

  
 “Tangible Net Worth” means, at any time, Net
Worth at such time, minus intangible assets (in accordance with GAAP) included in determining Net Worth. 
  
 “30+ Delinquency Percentage” means the fraction, expressed as a percentage, the numerator of which is the aggregate outstanding principal
balance of Purchased Mortgage Loans subject to then outstanding Transactions which are more than 30 days Delinquent and the denominator of which is the aggregate outstanding principal balance of all Purchased Mortgage Loans subject to then
outstanding Transactions. 
  
 “Transaction” has
the meaning specified in Section 1. 
  
 “Transferable
Interest” shall mean Buyer’s rights and obligations under this Agreement and the other Facility Documents (including all or a portion of any Transactions). 
  
 “Trust Receipt” means a trust receipt issued by Custodian to Buyer confirming the Custodian’s
possession of certain mortgage loan files which are the property of and held by Custodian for the benefit of the Buyer or the registered holder of such trust receipt. 
  
 “Underwriting Guidelines” means the underwriting guidelines attached as Exhibit X hereto, as
amended, modified or supplemented from time to time. 
  
 “Wet Ink Mortgage Loan” means a Mortgage Loan for which a Mortgage File has not been delivered to the Custodian. 
  

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 “Whole Loan Sale” means a sale of the Purchased Mortgage Loans by the Seller (other than
in connection with a Permitted Securitization). 
  
 3. INITIATION;
CONFIRMATION; TERMINATION; MAXIMUM TRANSACTION AMOUNTS 
  
 (a) Conditions Precedent to Initial Transaction. Buyer’s obligation to enter into the initial Transaction hereunder is subject to the satisfaction, immediately prior to or concurrently with the making of such Transaction, of the
condition precedent that Buyer shall have received all of the following documents, each of which shall be satisfactory to Buyer and its counsel in form and substance: 
  
 (i) Agreement. This Agreement, duly completed, executed and delivered by each Seller; 
  
 (ii) Custodial Agreement. The Custodial Agreement,
duly executed and delivered by each Seller and Custodian; 
  
 (iii) Uniform Commercial Code Filing. Any filings requested or required under the Uniform Commercial Code duly completed and executed and such other actions as Buyer shall have requested in order to perfect the
security interests created pursuant to this Agreement; 
  
 (iv) Opinion of Counsel. An opinion or opinions of counsel favorable to Buyer with respect to each Seller; 
  
 (v) Secretary’s Certificate. A certificate of the Secretary of each Seller certifying to such matters as may be required by
Buyer; and 
  
 (vi) Other Documents. Such
other documents as Buyer may reasonably request. 
  
 (b)
Conditions Precedent to all Transactions. Except as provided below, Buyer’s obligation to enter into each Transaction (including the initial Transaction) is subject to the satisfaction of the following further conditions precedent, both
immediately prior to entering into such Transaction and also after giving effect thereto to the intended use thereof: 
  
 (i) Seller shall have delivered to Buyer and Custodian a Request for Purchase at least one Business Day prior to the proposed Purchase
Date specified in such Request for Purchase, except in the case of Wet Ink Mortgage Loans in which case notice may be given the same day (including in the Mortgage Loan Schedule attached thereto the Collateral Information, which may be transmitted
by direct electronic transmission or via a computer diskette, in either case in Excel format); 
  
 (ii) other than with respect to Wet Ink Mortgage Loans, Buyer shall have received from Custodian a Trust Receipt with exceptions as are
acceptable to Buyer in its discretion in respect of Mortgage Loans to be sold hereunder on the applicable Purchase Date and a Mortgage Loan Schedule, in each case dated such Purchase Date and duly completed; 
  

 15 








 (iii) with respect to each Purchased Mortgage Loan included in such Transaction pursuant
to which any Person has a security interest, pledge, hypothecation or Lien for the benefit of such Person prior to such loan being subject to such Transaction, Seller shall have delivered to Buyer either (x) a security release certification executed
by an authorized officer of the Person that had a security interest, pledge, hypothecation or Lien for the benefit of such person in a form approved by Buyer or (y) a bailee letter in a form reasonably acceptable to Buyer and executed by an
authorized officer of the Person that had a security interest, pledge, hypothecation or Lien for the benefit of such Person, which letter states the payoff amount for such Purchased Mortgage Loan; 
  
 (iv) Buyer shall have completed its due diligence to its
reasonable satisfaction with respect to each Mortgage Loan to be purchased on such Purchase Date; 
  
 (v) no Default or Event of Default shall have occurred and be continuing; 
  
 (vi) Buyer shall have approved Seller’s Underwriting Guidelines applicable to such Transaction; and

  
 (vii) no Collateral Deficit exists.

  
 (c) Each agreement to enter into a Transaction must be entered
into in writing at the initiation of Seller. In any event, Buyer shall confirm the terms of each Transaction by issuing a written confirmation to Seller promptly after the parties enter into such Transaction in the form of Exhibit I attached hereto
(a “Confirmation”). Such Confirmation shall describe the Purchased Mortgage Loans, identify Buyer and Seller and set forth (i) the Purchase Date, (ii) the Purchase Price, (iii) the Repurchase Date, unless the Transaction is stated
to be terminable on demand as stated in the Confirmation, (iv) the Pricing Rate applicable to the Transaction, (v) the applicable Collateral Amount Percentages and (vi) additional terms or conditions not inconsistent with this Agreement. After
receipt of the Confirmation, Seller shall, subject to the provisions of subsection (c) below, sign the Confirmation and promptly return it to Buyer. The Purchase Price for any Transaction shall exceed $750,000. 
  
 (d) Any Confirmation by Buyer shall be deemed to have been received by Seller
on the date actually received by Seller. 
  
 (e) Each
Confirmation, together with this Agreement, shall be conclusive evidence of the terms of the Transaction(s) covered thereby unless objected to in writing by Seller no more than two (2) Business Days after the date the Confirmation was received by
Seller or unless a corrected Confirmation is sent by Buyer. An objection sent by Seller must state specifically that writing which is an objection, must specify the provision(s) being objected to by Seller, must set forth such provision(s) in the
manner that the Seller believes they should be stated, and must be received by Buyer no more than two (2) Business Days after the Confirmation was received by Seller. Buyer shall promptly respond to any such objection raised by Seller. 

 
 (f) In the case of Transactions terminable upon demand, such demand shall
be made by Buyer or Seller by telephone or otherwise, no later than 1:00 p.m. (New York Time) on the Business Day prior to the Repurchase Date. 
  

 16 








 (g) On the Repurchase Date, termination of the Transaction will be effected by transfer to Seller or its
designee of the Purchased Mortgage Loans (and any Income in respect thereof received by Buyer not previously credited or transferred to, or applied to the obligations of, Seller pursuant to Section 5) against the simultaneous transfer of the
Repurchase Price to an account of Buyer. Seller is obligated to obtain the Mortgage Files from Buyer or its designee at Seller’s expense on the Repurchase Date. 
  
 (h) With respect to all Transactions hereunder, the aggregate Purchase Price for all Purchased Mortgage Loans at any one
time subject to then outstanding Transactions shall not exceed $500,000,000. The Purchase Price for any individual Purchased Mortgage Loan under this Agreement shall not exceed the unpaid principal balance of such Purchased Mortgage Loan.

  
 (i) Buyer shall not be obligated to enter into any Transaction
until such time as Buyer shall have received copies of each material agreement or instrument entered into by Seller or any of its Subsidiaries with respect to indebtedness for borrowed money, certified by the chief financial officer or vice
president of finance of Seller as being a true and correct copy of such agreement or instrument, as the case may be, and in full force and effect. 
  
 (j) If Seller repurchases the Purchased Mortgage Loans subject to a Transaction on any day or otherwise transfers funds to Buyer pursuant to its
obligations hereunder on any day that is not a Repurchase Date, Seller shall indemnify Buyer and hold Buyer harmless from any loss or expense that Buyer sustains or incurs arising from the reemployment of funds obtained by Buyer hereunder or from
fees actually paid by Buyer to terminate the deposits from which such funds were obtained, but not including loss of profit (“Breakage Costs”). Buyer shall deliver to Seller a statement setting forth the amount and basis of
determination of any Breakage Costs in such detail as reasonably determined in good faith by Buyer, it being agreed that such statement and the method of its calculation shall be conclusive and binding upon Seller, absent manifest error. This
Section shall survive termination of this Agreement and repurchase of all Purchased Mortgage Loans subject to Transactions hereunder.” 
  
 (k) Additional Costs. Seller shall pay directly to Buyer from time to time such amounts as Buyer may determine to be necessary to compensate Buyer
for any costs that Buyer determines are attributable to its using a LIBOR-based Pricing Rate or its obligation to use a LIBOR-based Pricing Rate hereunder, or any reduction in any amount receivable by Buyer hereunder in respect of the Pricing Rate
(such increases in costs and reductions in amounts receivable being herein called “Additional Costs”), in each case resulting from any change occurring after the date hereof that: 
  
 (i) shall subject Buyer to any tax, duty or other charge in
respect of such LIBOR-based Pricing Rate or changes the basis of taxation of any amounts payable to such Buyer under this Agreement in respect of any of such LIBOR-based Pricing Rate (excluding changes in the rate of tax on the overall net income of
such Buyer by the jurisdiction in which Buyer has its principal office); or 
  
 (ii) imposes or modifies any reserve, special deposit or similar requirements relating to any LIBOR-based Pricing Rate; or 
  

 17 








 (iii) imposes any other condition affecting this Agreement or the transactions
contemplated hereby or thereby. 
  
 Buyer shall deliver to Seller a statement
setting forth the amount and basis of determination of any Additional Costs in such detail as determined in good faith by Buyer to be adequate, it being agreed that such statement and the method of its calculation shall be adequate and shall be
conclusive and binding upon Seller, absent manifest error. 
  
 (l)
Seller Payment Obligations Absolute. Subject to the provisions of Section 5(d), clause (ii) of Section 16 and of Section 28 (if applicable) of this Agreement, the obligation of Seller to make payment of the Repurchase Price and to make any
and all other payments required to be made by Seller to Buyer under this Agreement, any Confirmation or any other Facility Document shall be unconditional and irrevocable and shall be paid under all circumstances strictly in accordance with the
terms of this Agreement, notwithstanding the existence of any claim, set-off right, defense or other right that Seller, any of its Subsidiaries or Affiliates or any other Person may at any time have against Buyer or any other Person, whether in
connection with this Agreement or any other related or unrelated agreements or transactions, and Seller hereby waives its right to exercise any such claim, set-off right, defense or other right to the extent such exercise would have the purpose or
effect of offsetting any or all of Seller’s payment obligations under this Agreement, any Confirmation or any other Facility Document.” 
  
 (m) Limitation on Pricing Rate Used; Illegality. Anything herein to the contrary notwithstanding, if, on or prior to the determination of the
Pricing Rate: 
  
 (i) Buyer reasonably
determines, which determination shall be conclusive, that quotations of interest rates for the relevant deposits referred to in the definition of “LIBOR” in Section 2 hereof are not being provided in the relevant amounts or for the
relevant maturities for purposes of determining the Pricing Rates as provided herein; or 
  
 (ii) Buyer reasonably determines, which determination shall be conclusive, that the relevant rate of interest referred to in the
definition of “Pricing Rate” in Section 2 hereof upon the basis of which the Pricing Rate is to be determined is not likely to equal the cost to Buyer of purchasing the Purchased Mortgage Loans using such Pricing Rate; or 
  
 (iii) it becomes unlawful for Buyer to honor its obligation
to purchase Mortgage Loans hereunder using a Pricing Rate based upon LIBOR; 
  
 then Buyer shall give Seller prompt notice thereof and, so long as such condition remains in effect, Buyer shall be under no obligation to enter into additional Transactions, and Seller shall, at Seller’s option, either repurchase all
Purchased Mortgage Loans then subject to then outstanding Transactions or the Pricing Rate shall be determined based upon the rate selected by Buyer in a manner that is reasonably satisfactory to Buyer so as to adequately reflect the cost to Buyer
of purchasing the Purchased Mortgage Loans using such substituted Pricing Rate (in which case Buyer shall continue to be obligated to enter into additional Transactions using that substituted Pricing Rate). 
  

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 (n) Termination and Repurchase. 
  
 (i) Seller may at any time and from time to time repurchase the Purchased Mortgage Loans subject to a
Transaction, in whole or in part, upon irrevocable notice to Buyer by 4:00 p.m. (New York City time) on the Business Day of such repurchase specifying the amount required to be paid in connection with such repurchase pursuant to Section 5(d). If any
such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with any amounts payable pursuant to the succeeding paragraph. 
  
 (ii) On the Repurchase Date, termination of the Transaction will be effected by transfer to Seller or its
designee of the Purchased Mortgage Loans (and any Income in respect thereof received by Buyer not previously credited or transferred to, or applied to the obligations of, Seller pursuant to Section 5) against the simultaneous transfer of the amount
required to be paid in connection with such repurchase plus any Breakage Costs payable by Seller to Buyer pursuant to the succeeding paragraph to an account of Buyer. Seller is obligated to obtain the Mortgage Files from Buyer or its designee at
Seller’s expense on the Repurchase Date. 
  
 4. COLLATERAL AMOUNT
MAINTENANCE 
  
 (a) Buyer shall mark to market the Mortgage
Loans in its sole discretion, but at least monthly if it shall so determine. If at any time the aggregate Market Value of all Purchased Mortgage Loans subject to all Transactions is less than the aggregate Collateral Amount for all such Transactions
(a “Market Value Collateral Deficit”), then Buyer may by notice to Seller require Seller to transfer to Buyer or its designee (including the Custodian) Mortgage Loans (“Additional Loans”) or cash or other collateral
acceptable to Buyer, so that the cash and aggregate Market Value of the Purchased Mortgage Loans and other collateral, including any such Additional Loans, will thereupon equal or exceed the aggregate Collateral Amount. If at any time the aggregate
Securitization Value of all Mortgage Loans subject to Transactions is less than the aggregate Collateral Amount for all such Transactions (a “Securitization Value Collateral Deficit”), then Buyer may by notice to Seller require
Seller to transfer to Buyer or its designee (including the Custodian) Additional Loans or cash or other collateral acceptable to Buyer, so that the cash and aggregate Securitization Value of the Purchased Mortgage Loans and other collateral,
including any such Additional Loans, will thereupon equal or exceed the aggregate Collateral Amount. 
  
 (b) Notice required pursuant to subsection (a) above may be given by any means of facsimile, telegraphic transmission or any other means to which Buyer
and Seller agree. Seller shall transfer Additional Loans or cash pursuant to subsection (a) above not later than 5:00 p.m. on Business Day following the receipt of such notice. The failure of Buyer, on any one or more occasions, to exercise its
rights under subsection (a) of this Section shall not change or alter the terms and conditions to which this Agreement is subject or limit the right of the Buyer to do so at a later date. Buyer and Seller agree that a failure or delay to exercise
its rights under subsection (a) of this Section shall not limit Buyer’s rights under this Agreement or otherwise existing by law or in any way create additional rights for Seller. 
  

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 (c) In the event that Seller fails to comply with the provisions of this Section 4, Buyer shall not enter
into any additional Transactions hereunder after the date of such failure. 
  
 5. INCOME PAYMENTS 
  
 (a) Where a particular
Transaction’s term extends over an Income payment date on the Purchased Mortgage Loans subject to that Transaction, such Income shall be the property of Buyer. Upon the occurrence of an Event of Default on the part of Seller, Seller shall
instruct each Mortgagor to remit all Income (including all tax and insurance escrow payments) to one or more lockboxes under the sole dominion and control of a financial institution (each a “Lockbox Bank”) reasonably acceptable to
Buyer. The initial Lockbox Bank shall be Bank One, N.A. A Lockbox Bank shall upon receipt thereof deposit all cash, checks, and other near cash items received in the lockbox to a lockbox account, and shall promptly remit all Income (other than tax
and insurance escrow payments) on deposit in such lockbox account to an account at the Collection Account Bank. 
  
 (b) Immediately following the occurrence of an Event of Default on the part of Seller, AIC shall establish and maintain for the Buyer’s benefit one
or more collection accounts pledged to the Buyer with a financial institution (the “Collection Account Bank”) reasonably acceptable to the Buyer, which may be interest-bearing and entitled “Aames Investment Corporation in trust
for Lehman Brothers Bank, FSB”. Immediately following the occurrence of an Event of Default on the part of Seller, ACC shall establish and maintain for the Buyer’s benefit one or more collection accounts pledged to the Buyer with a
financial institution (the “Collection Account Bank”) reasonably acceptable to the Buyer, which may be interest-bearing and entitled “Aames Capital Corporation in trust for Lehman Brothers Bank, FSB”. The AIC collection
account and the ACC collection account are each a “Collection Account.” Immediately following the occurrence of an Event of Default on the part of Seller, Seller shall cause the Collection Account Bank to deliver to the Buyer an
acknowledgment of the Buyer’s security interest in the Collection Account (the “Depository Acknowledgment”). The Depository Acknowledgment shall provide that upon notice to the Collection Account Bank, the Collection Account
Bank shall promptly remit all Income (other than tax and insurance escrow payments) on deposit with the Collection Account Bank and all Income thereafter received to the Collection Account and that only Buyer shall be permitted to withdraw funds
from the Collection Account. Such funds shall be applied by Buyer to reduce the outstanding Repurchase Price and to realize other obligations entitled to it hereunder. 
  
 (c) Notwithstanding that Buyer and Seller intend that the Transactions hereunder be sales to Buyer of the Purchased Mortgage
Loans, Seller shall pay by wire transfer to Buyer the accreted value of the Price Differential (less any amount of such Price Differential previously paid by Seller to Buyer) (each such payment, a “Periodic Payment”) on the earlier
of (x) the fifth day of each month (or if such day is not a Business Day, the following Business Day) or (y) the related Repurchase Date. The Price Differential shall accrue, be calculated and be compounded on a daily basis for each Purchased
Mortgage Loan. 
  
 (d) In the event the Seller repurchases the
Purchased Mortgage Loans, Seller shall simultaneously pay: (i) the accreted value of the Price Differential (less any amount of such Price Differential previously paid by Seller to Buyer) and (ii) the Repurchase Price (exclusive of such Price
Differential) of all related Transactions. 
  

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 (e) In the event the Seller repurchases the Purchased Mortgage Loans in connection with a Permitted
Securitization or Whole Loan Sale, Seller shall simultaneously with the closing thereof apply the net proceeds (after payment of all reasonable costs and expenses incurred in connection therewith) from such Permitted Securitization or Whole Loan
Sale to pay: (i) first, the accreted value of the Price Differential (less any amount of such Price Differential previously paid by Seller to Buyer) and (ii) second, the Repurchase Price (exclusive of such Price Differential) of all related
Transactions. Seller shall be permitted to retain the remainder, if any. 
  
 (f) Subject to the provisions hereof and to the extent available for distribution, if an Event of Default shall have occurred and be continuing, all Income held in the Collection Account on each Business Day shall be
distributed by the Buyer in the following order of priority: 
  
 FIRST: To the Custodian to pay the Custodian’s fees under the Custodial Agreement; 
  
 SECOND: To the Buyer in an amount sufficient to pay: 
  
 (i) any Periodic Payment due and owing; 
  
 (ii) the amount of any Collateral Deficit; and 
  

(iii) the amount of any fees or expenses or any other amounts due and owing to the Buyer hereunder or in the Facility Documents;

  
 THIRD: To payment of any then outstanding and due Repurchase
Price for all Transactions; and 
  
 FOURTH: Any surplus then
remaining shall be paid to the Seller or its successors or assigns or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. 
  
 (g) Buyer shall offset against the Repurchase Price of each Transaction all Income and Periodic Payments actually received
by Buyer pursuant to Sections 5(a) – (f).” 
  
 6. SECURITY INTEREST

  
 (a) Buyer and the Seller intend that the Transactions
hereunder be sales to Buyer of the Purchased Mortgage Loans and not loans from Buyer to Seller secured by the Purchased Mortgage Loans. However, in order to preserve Buyer’s rights under this Agreement in the event that a court or other forum
recharacterizes the Transactions hereunder as loans and as security for the performance by Seller of all of Seller’s obligations to Buyer under this Agreement and the Transactions entered into pursuant to this Agreement, Seller grants Buyer a
first priority security interest in the Purchased Mortgage Loans, Servicing Records, insurance relating to the Purchased Mortgage Loans, Income, any and all Hedges, any and all custodial accounts and escrow accounts relating to the Purchased
Mortgage Loans, the Lockbox Account, 

  

 21 








 
the Collection Account and all cash or other property or amounts on deposit therein and any other contract rights, general intangibles and other assets
relating to the Purchased Mortgage Loans or any interest in the Purchased Mortgage Loans and the servicing of the Purchased Mortgage Loans and any and all replacements, substitutions, distributions on or proceeds of any and all of the foregoing
(collectively, the “Collateral”). 
  
 (b) Seller
shall pay all fees and expenses associated with perfecting Buyer’s security interest in the Collateral, including, without limitation, the cost of filing financing statements under the Uniform Commercial Code and, upon the occurrence of an
Event of Default, recording assignments of Mortgage, as and when required by Buyer in its sole discretion. 
  
 7. PAYMENT, TRANSFER AND CUSTODY 
  
 (a) Unless otherwise mutually agreed in writing, all transfers of funds hereunder shall be in immediately available funds. 
  
 (b) On or before each Purchase Date, Seller shall deliver or cause to be delivered to Buyer or its designee the Custodial Delivery in the form attached
hereto as Exhibit II. 
  
 (c) On the Purchase Date for each
Transaction, ownership of the Purchased Mortgage Loans shall be transferred to the Buyer or its designee (including the Custodian) against the simultaneous transfer of the Purchase Price to an account of Seller specified in the Confirmation. Seller,
simultaneously with the delivery to Buyer or its designee (including the Custodian) of the Purchased Mortgage Loans relating to each Transaction hereby sells, transfers, conveys and assigns to Buyer or its designee (including the Custodian) without
recourse, but subject to the terms of this Agreement, all the right, title and interest of Seller in and to the Purchased Mortgage Loans together with all right, title and interest in and to the proceeds of any related insurance policies.

  
 (d) In connection with each sale, transfer, conveyance and
assignment, on or prior to each Purchase Date with respect to each Mortgage Loan which is not a Wet Ink Mortgage Loan (or with respect to item (vii) below within seven Business Days after the Purchase Date), the Seller shall deliver or cause to be
delivered and released to the Custodian the following original documents (collectively the “Mortgage File”), pertaining to each of the Purchased Mortgage Loans identified in the Custodial Delivery delivered therewith: 
  
 (i) the original Mortgage Note bearing all intervening
endorsements (or allonges), endorsed “Pay to the order of             , without recourse” and signed in the name of the last endorsee (the “Last Endorsee”)
by an authorized officer (in the event that the Mortgage Loan was acquired by the Last Endorsee in a merger, the signature must be in the following form: “[the Last Endorsee], successor by merger to [name of predecessor]”; in the event
that the Mortgage Loan was acquired or originated while doing business under another name, the signature must be in the following form: “[the Last Endorsee], formerly known as [previous name]”); 
  
 (ii) the original of any guarantee executed in connection
with the Mortgage Note (if any); 
  

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 (iii) the original Mortgage with evidence of recording thereon or a copy certified by
Seller to have been sent for recording; 
  
 (iv)
the originals of all assumption, modification, consolidation or extension agreements, with evidence of recording thereon or copies certified by Seller to have been sent for recording; 
  
 (v) the original assignment of Mortgage in blank for each Mortgage Loan, in form and substance acceptable
for recording and signed in the name of the Last Endorsee (in the event that the Mortgage Loan was acquired by the Last Endorsee in a merger, the signature must be in the following form: “[the Last Endorsee], successor by merger to [name of
predecessor]”; in the event that the Mortgage Loan was acquired or originated while doing business under another name, the signature must be in the following form: “[the Last Endorsee], formerly known as [previous name]”); 

 
 (vi) the originals of all intervening assignments of
mortgage with evidence of recording thereon or copies certified by Seller to have been sent for recording; 
  
 (vii) the original policy of title insurance or a true copy thereof or, if such policy has not yet been delivered by the insurer, the
commitment or binder to issue the same; and 
  
 (viii) the original of any security agreement, chattel mortgage or equivalent document executed in connection with the Mortgage (if any). 
  
 (e) In connection with each sale, transfer, conveyance and assignment, on or prior to the seventh Business Day following each Purchase Date with respect
to each Mortgage Loan which is a Wet Ink Mortgage Loan, Seller shall deliver or cause to be delivered to the Custodian a complete Mortgage File. On the date on which the Buyer receives a Trust Receipt from the Custodian certifying that a complete
Mortgage File with respect to a Wet Ink Mortgage Loan is in the possession of the Custodian, such Wet Ink Mortgage Loan be deemed a standard Mortgage Loan (and no longer a Wet Ink Mortgage Loan) for all purposes hereunder, including, without
limitation, determination of the Pricing Spread and compliance with subsection (zz) of Exhibit V. 
  
 (f) With respect to each Mortgage Loan delivered by Seller to Buyer or its designee (including the Custodian), Seller shall have executed an omnibus power
of attorney substantially in the form of Exhibit III attached hereto irrevocably appointing Buyer its attorney-in-fact with full power to complete and record the assignment of Mortgage, complete the endorsement of the Mortgage Note and take such
other steps as may be necessary or desirable to enforce Buyer’s rights against such Mortgage Loans, the related Mortgage Files and the Servicing Records. 
  

(g) Buyer shall deposit the Mortgage Files representing the Purchased Mortgage Loans, or direct that the Mortgage Files be deposited directly, with the
Custodian. The Mortgage Files shall be maintained in accordance with the Custodial Agreement. 
  
 (h) Any Mortgage Files not delivered to Buyer or its designee (including the Custodian) are and shall be held in trust by Seller or its designee for the benefit of Buyer as the 

  

 23 








 
owner thereof. Seller or its designee shall maintain a copy of the Mortgage File and the originals of the Mortgage File not delivered to Buyer or its
designee. The possession of the Mortgage File by Seller or its designee is at the will of the Buyer for the sole purpose of servicing the related Purchased Mortgage Loan, and such retention and possession by the Seller or its designee is in a
custodial capacity only. The books and records (including, without limitation, any computer records or tapes) of Seller or its designee shall be marked appropriately to reflect clearly the sale of the related Purchased Mortgage Loan to Buyer. Seller
or its designee (including the Custodian) shall release its custody of the Mortgage File only in accordance with written instructions from Buyer, unless such release is required as incidental to the servicing of the Purchased Mortgage Loans or is in
connection with a repurchase of any Purchased Mortgage Loan by Seller. 
  
 8.
REHYPOTHECATION OR PLEDGE OF PURCHASED MORTGAGE LOANS 
  
 Title to all Purchased Mortgage Loans shall pass to Buyer and Buyer shall have free and unrestricted use of all Purchased Mortgage Loans. Nothing in this Agreement shall preclude Buyer from engaging in repurchase transactions with the
Purchased Mortgage Loans or otherwise assigning, syndicating, participating, sub-participating, pledging, repledging, hypothecating, or rehypothecating the Purchased Mortgage Loans, but no such transaction shall relieve Buyer of its obligations to
transfer Purchased Mortgage Loans to Seller pursuant to Section 3. Seller shall cooperate with Buyer’s reasonable requests to complete such assignments, syndication, participation or pledge. Nothing contained in this Agreement shall obligate
Buyer to segregate any Purchased Mortgage Loans delivered to Buyer by Seller. In the event that there is a material adverse change or other development in the repurchase markets which results in Buyer being unable to finance its position through the
repurchase market with its traditional repurchase counterparties, Buyer may accelerate the Repurchase Date for any outstanding Transactions following reasonable notice to Seller of the occurrence of such event. 
  
 9. SUBSTITUTION 
  
 (a) Subject to Section 9(b) and the agreement of Buyer, Seller may, upon one (1) Business Days’ written notice to
Buyer, with a copy to Custodian, substitute Mortgage Loans or other assets for any Purchased Mortgage Loans. Such substitution shall be made by transfer to Buyer or its designee (including the Custodian) of the Mortgage File of such other Mortgage
Loans together with a Custodial Delivery and transfer to Seller or its designee of the Purchased Mortgage Loans requested for release. After substitution, the substituted Mortgage Loans, shall be deemed to be Purchased Mortgage Loans subject to the
same Transaction as the released Mortgage Loans. 
  
 (b)
Notwithstanding anything to the contrary in this Agreement, Seller may not substitute other Mortgage Loans or other assets for any Purchased Mortgage Loans if (i) after taking into account such substitution, a Collateral Deficit would occur, (ii)
such substitution would cause a breach of any provision of this Agreement or (iii) the Market Value of the Mortgage Loans or assets substituted is less than the Market Value of such Purchased Mortgage Loans. 
  

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 10. REPRESENTATIONS AND WARRANTIES 
  
 (a) Each of Buyer and each Seller represents and warrants to the other that (i) it is duly authorized to execute and deliver
this Agreement, to enter into the Transactions contemplated hereunder and to perform its obligations hereunder and has taken all necessary action to authorize such execution, delivery and performance; (ii) it will engage in such Transactions as
principal; (iii) the person signing this Agreement on its behalf is duly authorized to do so on its behalf; (iv) no approval, consent or authorization of the Transactions contemplated by this Agreement from any federal, state, or local regulatory
authority having jurisdiction over it is required or, if required, such approval, consent or authorization has been or will, prior to the first Purchase Date, be obtained; (v) the execution, delivery, and performance of this Agreement and the
Transactions hereunder will not violate any law, regulation, order, judgment, decree, ordinance, charter, by-law, or rule applicable to it or its property or constitute a default (or an event which, with notice or lapse of time, or both would
constitute a default) under or result in a breach of any agreement or other instrument by which it is bound or by which any of its assets are affected; (vi) it has received approval and authorization to enter into this Agreement and each and every
Transaction actually entered into hereunder pursuant to its internal policies and procedures; and (vii) neither this Agreement nor any Transaction pursuant hereto are entered into in contemplation of insolvency or with intent to hinder, delay or
defraud any creditor. 
  
 (b) Each Seller represents and warrants
to Buyer that as of the Purchase Date for the purchase of any Purchased Mortgage Loans by Buyer from Seller and as of the date of this Agreement and any Transaction hereunder and at all times while this Agreement and any Transaction hereunder is in
full force and effect: 
  
 (i)
Organization. AIC is duly organized, validly existing and in good standing under the laws and regulations of the state of Maryland. ACC is duly organized, validly existing and in good standing under the laws and regulations of the state of
California. Each Seller is duly licensed, qualified, and in good standing in every state where Seller transacts business and in any state where any Mortgaged Property is located if the laws of such state require licensing or qualification in order
to conduct business of the type conducted by Seller therein. 
  
 (ii) No Litigation. Other than as disclosed by AIC in its filings with the Securities and Exchange Commission, there is no action, suit, proceeding, arbitration or investigation pending or, to Seller’s
knowledge, threatened against Seller which, either in any one instance or in the aggregate, may result in any material adverse change in the business, operations, financial condition, properties or assets of Seller, or in any material impairment of
the right or ability of Seller to carry on its business substantially as now conducted, or in any material liability on the part of Seller, or which if adversely determined would affect the validity of this Agreement or any of the Purchased Mortgage
Loans or of any action taken or to be taken in connection with the obligations of Seller contemplated herein, or which would be likely to impair materially the ability of Seller to perform under the terms of this Agreement. 
  

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 (iii) No Broker. Seller has not dealt with any broker, investment banker, agent,
or other person, except for Buyer, who may be entitled to any commission or compensation in connection with the sale of Purchased Mortgage Loans pursuant to this Agreement. 
  
 (iv) Good Title to Collateral. Purchased Mortgage Loans shall be free and clear of any lien,
encumbrance or impediment to transfer, and Seller has good, valid and marketable title and the right to sell and transfer such Purchased Mortgage Loans to Buyer. 
  
 (v) Delivery of Mortgage File. With respect to each Purchased Mortgage Loan (other than a Wet Ink
Mortgage Loan), the Mortgage Note, the Mortgage, the assignment of Mortgage and any other documents required to be delivered under this Agreement and the Custodial Agreement for the Mortgage Loans have been delivered to the Custodian. Seller or its
designee is in possession of a complete, true and accurate Mortgage File with respect to the Mortgage Loans, except for such documents the originals of which have been delivered to the Custodian. 
  
 (vi) Selection Process. The Purchased Mortgage Loans
were selected from among the outstanding mortgage loans in Seller’s portfolio as to which the representations and warranties set forth in this Agreement could be made and such selection was not made in a manner so as to affect adversely the
interests of Buyer. 
  
 (vii) No Untrue
Statements. To the best of Seller’s knowledge, neither this Agreement nor any written statement made, or any report or other document issued or delivered or to be issued or delivered by Seller pursuant to this Agreement or in connection
with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading. 
  
 (viii) Origination Practices. The origination
practices used by Seller with respect to each Mortgage Loan (i) have been and are in all respects legal and proper in the mortgage origination business and (ii) are in accordance with the underwriting guidelines previously supplied by Seller to
Buyer. 
  
 (ix) Performance of Agreement.
Seller does not believe, nor does it have any reason or cause to believe, that it cannot perform each and every covenant contained in this Agreement on its part to be performed. 
  
 (x) Seller Not Insolvent. Seller is not, and with the passage of time does not expect to become,
insolvent. 
  
 (xi) No Event of Default.
No Event of Default has occurred and is continuing hereunder. 
  
 (xii) Financial Condition. 
  

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 (A) The consolidated balance sheet of Aames Financial Corporation and its consolidated
Subsidiaries, as at June 30, 2004, and the related consolidated statements of income and of cash flows for the fiscal year ended on each such date, copies of which have heretofore been furnished to Buyer, are complete and correct and present fairly
in accordance with GAAP the consolidated or consolidating financial condition of each such Person and its Subsidiaries as at such dates, and the results of their operations and their cash flows for the fiscal year then ended. 
  
 (B) The consolidated balance sheet of AIC and its
consolidated Subsidiaries, as at November 30, 2004, and the related consolidated statements of income and of cash flows for the period ended on each such date, copies of which have heretofore been furnished to Buyer, are complete and correct and
present fairly in accordance with GAAP the consolidated or consolidating financial condition of each such Person and its Subsidiaries as at such date, and the results of their operations and their cash flows for the period then ended. 
  
 (C) All such financial statements, including the related
schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved. 
  
 (D) AIC nor any of its Subsidiaries had not, at the date of the most recent financial statements referred to above, any material Guarantee
Obligation, contingent liability or liability for taxes, or any long-term lease or unusual forward or long-term commitment (including any interest rate or foreign currency swap or exchange transaction, or other financial derivative), that is not
reflected in the foregoing statements or in the notes thereto. 
  
 (xiii) No Change. Since November 30, 2004, there has been no development or event nor any prospective development or event, which has had or is reasonably expected to have a material adverse effect. 

 
 (xiv) Corporate Power; Compliance with Law. Seller
(a) has the corporate power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee, to carry on its business as now being or as proposed to be conducted, to originate, acquire and own
Mortgage Loans, to sell and repurchase such Mortgage Loans pursuant to this Agreement, and to make, deliver and perform this Agreement and each other Facility Document to which Seller is a party, and (b) is in compliance in all material respects
with all Requirements of Law (including environmental law and the Real Estate Settlement Procedures Act, the Home Ownership and Equity Protection Act and related state law). 
  
 (xv) Enforceability. This Agreement has been duly and validly executed and delivered by Seller and
constitutes, and each other Facility Document to which Seller is a party when executed and delivered on behalf of Seller will constitute, a legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency, 

  

 27 








 
reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law). 
  
 (xvi) Collateral; Collateral Security. 
  
 (A) If the Transactions are recharacterized as secured financings, the provisions of this Agreement are effective to create in favor of Buyer a valid security interest in all right, title and interest of Seller in, to
and under the Collateral. 
  
 (B) Upon receipt by
Custodian of each Mortgage Note, endorsed in blank by a duly authorized officer of Seller, Buyer shall have a fully perfected first priority security interest therein, in the Purchased Mortgage Loan evidenced thereby, and Seller’s interest in
the related Mortgaged Property. 
  
 (C) Financing
Statements on Form UCC-1 having been filed naming Buyer as “Secured Party” and Seller as “Debtor”, and describing the Collateral, the security interests granted hereunder in the Collateral (other than Mortgage Notes) will
constitute fully perfected first priority security interests under the Uniform Commercial Code in all right, title and interest of Seller in, to and under such Collateral, which can be perfected by filing under the Uniform Commercial Code.

  
 (xvii) No Burdensome Restrictions. No
Requirement of Law or Contractual Obligation of Seller or any of its Subsidiaries has a Material Adverse Effect. 
  
 (xviii) Taxes. Seller has filed all Federal income tax returns and all other material tax returns that are required to be filed by
it and has paid all taxes due pursuant to such returns or pursuant to any claims or assessment received by it, except for any such taxes or assessments, if any, that are being appropriately contested in good faith by appropriate proceedings
diligently conducted and with respect to which adequate reserves in conformity with GAAP have been established. No material tax lien has been filed against Seller and non-material tax lien filed against Seller is less than $250,000. 
  
 (xix) Investment Company Act; Other Regulations.
Seller is not an “investment company”, or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended. 
  
 (xx) Subsidiaries. As of the date of this Agreement,
AIC has no material Subsidiaries other than ACC, Aames Financial Corporation, Aames Funding Corporation and Aames Investment Acceptance Corporation. 
  
 (xxi) ERISA. Each of Seller and its ERISA Affiliates is in compliance in all material respects with the applicable provisions of
ERISA and the Internal Revenue Code and regulations and published interpretations thereunder. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events, is reasonably expected to result
in liability of the Seller or any of its ERISA affiliates which would be material to the Seller or any of its ERISA Affiliates on a consolidated basis. 
  

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 (xxii) Closing Letters for Wet Ink Mortgage Loans. Other than in states where
prohibited or where other insurance applies, for each Wet Ink Mortgage Loan: (a) Seller has entered into an escrow agreement or closing instruction letter with a closing agent pursuant to which such closing agent is required to obtain a complete
Mortgage File for such Wet Ink Mortgage Loan as a condition to disbursing Seller’s funds on account of the principal amount of such Mortgage Loan; and (b) such closing agent is either a title insurance company licensed to do business in the
state where such Mortgaged Property is located (a “Licensed Title Company”) or an abstract company or other agent for a Licensed Title Company, in connection with which a Licensed Title Company has issued to Seller an insured
closing letter in customary form by which such Licensed Title Company assumes responsibility for (among other things) such closing agent’s compliance with clause “a” above. 
  
 (c) Seller represents and warrants to the Buyer that each Purchased Mortgage Loan sold hereunder and each pool of Purchased
Mortgage Loans sold in a Transaction hereunder, as of the related Purchase Date, conforms to the representations and warranties set forth in Exhibit V attached hereto and that each Mortgage Loan delivered hereunder as Additional Loans or Substituted
Mortgage Loans, as of the date of such delivery, conforms to the representations and warranties set forth in Exhibit V hereto. Seller further represents and warrants to the Buyer that, as of the seventh Business Day of each month, the Collateral
Information delivered on such day with respect to each Purchased Mortgage Loan is complete, true and correct. It is understood and agreed that the representations and warranties set forth in Exhibit V hereto, if any, shall survive delivery of the
respective Mortgage File to Buyer or its designee (including the Custodian). 
  
 (d) On the Purchase Date for any Transaction, Buyer and Seller shall each be deemed to have made all the foregoing representations with respect to itself as of such Purchase Date. 
  
 11. NEGATIVE COVENANTS OF THE SELLER 
  
 On and as of the date of this Agreement and each Purchase Date and until
this Agreement is no longer in force with respect to any Transaction, Seller covenants that it will not: 
  
 (a) take any action which would directly or indirectly impair or adversely affect Buyer’s title to or the value of the Purchased Mortgage Loans;

  
 (b) pledge, assign, convey, grant, bargain, sell, set over,
deliver or otherwise transfer any interest in the Purchased Mortgage Loans to any person not a party to this Agreement (other than in connection with a Whole Loan Sale or Permitted Securitization consummated as provided herein) nor will the Seller
create, incur or permit to exist any lien, encumbrance or security interest in or on the Purchased Mortgage Loans except as described in Section 6 of this Agreement; or 
  
 (c) (i) enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation, winding up or dissolution), (ii) sell 

  

 29 








 
all or substantially all of its assets or otherwise sell assets other than in the ordinary course of business, (iii) change its name, identity, corporate
structure, state of incorporation or taxable status, or (iv) change its chief executive office or its principal place of business. 
  
 (d) engage in any line or lines of business activity other than the businesses now generally carried on by it; 
  
 (e) enter into any transaction (including any purchase, sale, lease or
exchange of property or the rendering of any service), with any Affiliate unless such transaction is (i) otherwise permitted under this Agreement, (ii) in the ordinary course of Seller’s business, and (iii) upon fair and reasonable terms no
less favorable to Seller than it would obtain in a comparable arm’s length transaction with a Person that is not an Affiliate, or make a payment to any Affiliate that is not otherwise permitted by this Agreement; 
  
 (f) except in the absence of the occurrence and continuance of an Event of
Default and so long as no Event of Default would result from such actions, make any advance, loan (other than residential mortgage loans in the ordinary course of business), extension of credit or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities of or any assets constituting a business unit of, or make any other investment in, any Person, except for advances, loans or investments in consolidated subsidiaries or to and among Sellers; 

 
 (g) make any changes to its fiscal year except after prior written notice
to Buyer and Seller’s agreement to Buyer’s recalculation, in Buyer’s discretion, of the financial covenants in Section 12(m); 
  
 (h) except in the absence of the occurrence and continuance of an Event of Default and so long as no Event of Default would result from such actions, (i)
make any optional payment or prepayment on or redemption or purchase of any Indebtedness, other than in the ordinary course of business or (ii) amend, modify or change, or consent or agree to any amendment, modification or change to any of the terms
of any Indebtedness (other than any such amendment, modification or change that would extend the maturity or reduce the amount of any payment of principal thereof or that would reduce the rate or extend the date for payment of interest thereon),
other than in the ordinary course of business under any such mortgage warehouse repurchase or financing facility; 
  
 (i) enter into any arrangement with any Person providing for the leasing by Seller of real or personal property that has been or is to be sold or
transferred by Seller to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of Seller, other than in the ordinary course of business and after
written notice to Buyer; 
  
 (j) except in the absence of the
occurrence and continuance of an Event of Default and so long as no Event of Default would result from such actions, declare or pay any dividend or make any other distribution on, or make any payment on account of, or set apart assets for a sinking
or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of any shares of any class of Capital Stock of the Seller or any warrants or options to purchase any such Capital Stock, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Seller; 
  

 30 








 (k) enter into any agreement, other than this Agreement or an agreement entered into pursuant to Section
11(l) below, that prohibits or limits the ability of Seller to create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired; 
  
 (l) be liable for or create, assume, incur, guarantee, or in any manner
become liable, contingently or otherwise, in respect of any Indebtedness (including Guarantee Obligations), except: 
  
 (i) the Transactions; 
  
 (ii) other Indebtedness to Buyer arising under this Agreement and the other Facility Documents; 
  
 (iii) obligations in connection with operating expenses
arising in the ordinary course of Seller’s business; 
  
 (iv) Indebtedness relating solely to the acquisition or leasing of equipment (including computers) used in the ordinary course of business and which may be secured by such equipment, to the extent that such leases are
ordinary and customary in Seller’s industry, and the proceeds of which are not distributed to Seller except as reimbursement for monies expended to fund the financing, acquisition or leasing of such equipment; 
  
 (v) customary mortgage warehouse financing or repurchase
facilities in the ordinary course of business, after notice to Buyer and provided that Seller provides to Buyer’s reasonable satisfaction a certification setting forth the counterparty, maximum amount of borrowings or repurchases permitted
under the facility, and the original maturity date within five days of the closing thereof; and 
  
 (vi) customary non-recourse mortgage financing through on balance sheet securitization transactions by Seller in the ordinary course of
business, after notice to Buyer and provided that Seller provides to Buyer’s reasonable notice setting forth the amount of the securitization within five days of the closing thereof. 
  
 (m) amend or modify the Underwriting Guidelines in any material manner that will relate to any new Transaction without first
delivering the notice required under Section 12(g) and obtaining Buyer’s prior written consent to any such amendment or modification. 
  
 12. AFFIRMATIVE COVENANTS OF THE SELLER 
  
 For so long as this Agreement is in effect: 
  
 (a) Seller covenants that it will promptly notify Buyer of any material adverse change in its business operations and/or financial condition. 

 

 31 








 (b) Seller shall provide Buyer with copies of such documentation as Buyer may reasonably request
evidencing the truthfulness of the representations set forth in Section 10, including but not limited to resolutions evidencing the approval of this Agreement by Seller’s board of directors or loan committee and copies of the minutes of the
meetings of Seller’s board of directors or loan committee at which this Agreement and the Transactions contemplated by this Agreement were approved. 
  
 (c) Seller shall, at Buyer’s request, take all action necessary to ensure that Buyer will have a first priority security interest in the Purchased
Mortgage Loans, including, among other things, filing such Uniform Commercial Code financing statements as Buyer may reasonably request. 
  
 (d) Seller acknowledges that Buyer has the right to perform continuing due diligence reviews with respect to the Purchased Mortgage Loans, for purposes of
verifying compliance with the representations, warranties and specifications made hereunder, or otherwise. Seller agrees that upon reasonable prior notice to Seller, Buyer or its authorized representatives will be permitted during normal business
hours to examine, inspect, make copies of, and make extracts of, the Mortgage Files and any and all documents, records, agreements, instruments or information relating to the Mortgage Loans in the possession, or under the control, of Seller. Seller
shall reimburse Buyer for any and all out-of-pocket costs and expenses reasonably incurred by Buyer and its designees in connection with Buyer’s on-going due diligence and auditing activities pursuant to this Section 12(d). 
  
 (e) Seller shall notify Buyer no later than one (1) Business Day after
obtaining actual knowledge thereof, (i) if any event has occurred that constitutes an Event of Default with respect to Seller or any event that with the giving of notice or lapse of time, or both, would become an Event of Default with respect to
Seller and (ii) of any change if the Lockbox Bank, or any change affecting the distribution of any Income between the Lockbox Bank and the Collection Account Bank. 
  
 (f) Seller covenants that each Purchased Mortgage Loan subject to this Agreement shall be serviced in accordance with
Section 26 hereof. 
  
 (g) Seller covenants to provide Buyer with
an advance copy of any proposed material changes to Seller’s Underwriting Guidelines prior to the effectiveness of any such change. Buyer shall use commercially reasonable efforts to notify Seller within 7 Business Days of receipt of such
notice of changes if such changes are acceptable. If such changes are not acceptable to Buyer in its sole discretion, Buyer shall not be obligated to purchase Mortgage Loans hereunder that are originated in accordance with such changed Underwriting
Guidelines. 
  
 (h) Seller covenants, upon request of Buyer after
the occurrence of a Collateral Deficit, which has not been cured by the immediately following day, to enter into hedging transactions with respect to fixed rate Purchased Mortgage Loans in order to protect adequately, in the reasonable judgment
against interest rate risks. 
  
 (i) Seller shall provide Buyer on
each Purchase Date (with respect to Mortgage Loan purchased on such date) and by no later than the seventh (7th)
Business Day of each month (with 

  

 32 








 
respect to all Mortgage Loans that are subject to Transactions as of the last day of the preceding month), either by direct modem electronic transmission or
via a computer diskette, the Collateral Information in computer readable Excel format with respect to all Purchased Mortgage Loans then subject to Transactions and shall provide Buyer with other information with respect to the Mortgage Loans and any
additional reports as Buyer may reasonably request with respect to the Mortgage Loans. 
  
 (j) Seller covenants to provide Buyer with the following financial and reporting information: 
  
 (i) Within 90 days after the last day of its fiscal year, AIC’s audited consolidated statements of income and balance sheets and
statements of changes in cash flow for such year and balance sheets as of the end of such year in each case presented fairly in accordance with GAAP, and accompanied, in all cases, by an unqualified report of Ernst & Young LLP or another
nationally recognized independent certified public accounting firm consented to by Buyer (which consent shall not be unreasonably withheld); 
  
 (ii) Within 90 days after the last day of its fiscal year, AIC’s audited consolidated statements of income and balance sheets as of
the end of such year in each case presented fairly in accordance with GAAP, and accompanied, in all cases, by an unqualified report of Ernst & Young LLP or another nationally recognized independent certified public accounting firm consented to
by Buyer (which consent shall not be unreasonably withheld); 
  
 (iii) Within 45 days after the last day of the first three fiscal quarters in any fiscal year, AIC’s unaudited consolidated statements of income and balance sheets and statements of changes in cash flow for such
year and balance sheets as of the end of such quarter in each case certified by a Responsible Officer as fairly presenting the consolidated financial position of AIC and AIC’s Subsidiaries as at the dates indicated and the results of their
operations and cash flow for the periods indicated in accordance with GAAP; 
  
 (iv) Within 45 days after the last day of the first three fiscal quarters in any fiscal year, ACC’s unaudited consolidated statements of income and balance sheets and statements of changes in cash flow for such
year and balance sheets as of the end of such quarter in each case certified by a Responsible Officer as fairly presenting the consolidated financial position of ACC and ACC’s Subsidiaries as at the dates indicated and the results of their
operations and cash flow for the periods indicated in accordance with GAAP; 
  
 (v) [Reserved] 
  
 (vi) Within 30 days after the last day of each calendar month, in any fiscal year, Seller’s monthly report in substantially the form attached hereto as Exhibit VIII; 
  
 (vii) As soon as available, copies of all proxy statements, financial statements, and reports which AIC
sends to its stockholders, and copies of all regular, periodic and special reports, and all registration statements under the Securities Act of 1933, as 

  

 33 








 
amended, which it files with the Securities and Exchange Commission or any government authority which may be substituted therefor, or with any national
securities exchange; 
  
 (viii) Within 45 days
after the last day of each of the first three fiscal quarters and within 90 days after the last day of the fourth fiscal quarter in any fiscal year, an officer’s certificate from the chief financial officer or vice president of finance of AIC
addressed to Buyer certifying the calculation of Tangible Net Worth, including the valuation (and the assumptions used to derive such valuation) of residual certificates, interest-only certificates and other comparable instruments with respect to
securitizations of mortgage loans included in the calculation of such Tangible Net Worth; 
  
 (ix) Within 45 days after the last day of each of the first three fiscal quarters and within 90 days after the last day of the fourth
fiscal quarter in any fiscal year, an officer’s certificate from the chief financial officer or vice president of finance of Seller addressed to Buyer certifying that, as of such fiscal quarter, (x) an officer of the Seller has completed a
review of Seller’s activities under the terms of this Agreement, and based on such review Seller is in compliance with all of the terms, conditions and requirements of this Agreement (such certification to include a calculation on a quarterly
basis of the financial tests set forth in Sections 13(xii) – (xviii)), and (y) no Event of Default exists, except as disclosed in such officer’s certificate; 
  
 (x) Within 3 days after entering into any hedging transactions described in subsection (h) above, evidence
of such hedging transactions reasonably satisfactory to Buyer. 
  
 (k) Seller covenants to repurchase or substitute pursuant to Section 9 hereof any Mortgage Loan, within two Business Days following written notice from Buyer, which as to a representation or warranty made by Seller set forth in Exhibit V
hereto proves to be incorrect or untrue in any material respect. 
  
 (l) Each Seller covenants to notify in writing to Buyer, within seven Business Days following the execution thereof by the parties thereto, of each material agreement or instrument entered into after the date of this Agreement by Seller or
any of its Subsidiaries with respect to indebtedness for borrowed money. 
  
 (m) Each Seller shall (i) preserve and maintain its legal existence and all of its material rights, privileges, licenses and franchises; (ii) comply in all material respects with all Requirements of Laws (including,
without limitation, all environmental laws and local, municipal, state or Federal ordinances, regulations or statutes regarding Predatory Lending Practices) and Contractual Obligations; and (iii) keep adequate records and books of account, in which
complete entries will be made in accordance with GAAP consistently applied. Seller shall maintain, and shall make available to Buyer upon request, written policies and procedures to determine whether any Mortgage Loan contains any terms, or carries
or carried any fees, charges or other costs, such that the requirements of the Home Ownership Equity Protection Act, 15 U.S.C. Section 1639 and 12 C.F.R. Section 226.32 – Requirements for Certain Closed-End Home Mortgages, are applicable.

  

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 (n) In the event that the Seller or any of its Affiliates enters into a warehouse facility or other
funding vehicle with any other Person (including, without limitation, a transaction with a new counterparty or a renewal of an existing relationship) that is structured utilizing a “true sale” of mortgage loans to a bankruptcy-remote
non-consolidated special purpose entity (“SPE”), Buyer shall have the right to restructure the Agreement and replace the Agreement with a facility structured through an SPE. 
  
 (o) In the event the Seller proposes to amend any material economic or
financial terms of any of the Seller’s other lending or financing facilities (including, without limitation, mortgage loan warehouse, residual financing, working capital or repurchase facilities) with other lenders, then the Seller shall notify
the Buyer of such amendment. 
  
 (p) Seller shall maintain
insurance with financially sound and reputable insurance companies, and with respect to property and risks of a character usually maintained by entities engaged in the same or similar business similarly situated, against loss, damage and liability
of the kinds and in the amounts customarily maintained by such entities. In addition, Seller shall obtain and maintain at its own expense and keep in full force and effect throughout the term of this Agreement a blanket fidelity bond and an errors
and omissions insurance policy covering its officers and employees and other Persons acting on behalf of it in amounts at least equal to such amounts as are required by criteria set forth by Fannie Mae for its approved Seller/Servicers. 

 
 (q) Seller shall give notice to Buyer, immediately upon (and in any event
not more than one Business Day after) Seller obtaining notice thereof, of 
  
 (i) the occurrence of any default or Event of Default on the part of Seller; 
  
 (ii) any default or litigation related to any Collateral, any event or change in circumstances that has a material adverse effect and any
event or change in circumstances that could reasonably be expected to have a material adverse effect; 
  
 (iii) with respect to any Purchased Mortgage Loan, if Seller acquires knowledge that the Mortgaged Property violates environmental law or
has been materially damaged so as to affect adversely the value as collateral of such Mortgage Loan; and 
  
 (iv) any representation or warranty as to any Purchased Mortgage Loan (as set forth in Exhibit V) becomes incorrect or untrue in
any material respect. 
  
 Each notice pursuant to this Section
shall be accompanied by a statement of a Responsible Officer of Seller setting forth details of the occurrence referred to therein and stating what action Seller has taken or proposes to take with respect thereto. 
  
 13. EVENTS OF DEFAULT 
  
 (a) If any of the following events (each an “Event of Default”) occur, Seller and Buyer shall have the
rights set forth in Section 14, as applicable: 
  
 (i) Seller or Buyer fails to satisfy or perform any material obligation or covenant under this Agreement; 
  

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 (ii) an Act of Insolvency occurs with respect to Seller; 
  
 (iii) any representation (excluding the representations and
warranties made with respect to the Mortgage Loans set forth on Exhibit V hereto) made by Seller shall have been incorrect or untrue in any material respect when made or repeated or deemed to have been made or repeated; 
  
 (iv) Seller or Buyer shall admit its inability to, or its
intention not to, perform any of its obligations hereunder; 
  
 (v) any governmental, regulatory, or self-regulatory authority takes any action to remove, limit, restrict, suspend or terminate the rights, privileges, or operations of the Seller or any of its Affiliates, including
suspension as an issuer, lender or seller/servicer of mortgage loans, which suspension has a material adverse effect on the ordinary business operations of Seller, and which continues for more than 24 hours; 
  
 (vi) Seller dissolves, merges or consolidates with another
entity (unless (A) it is the surviving party or (B) the entity into which it mergers has equity and a market value of at least that of the Seller immediately prior to such merger and such entity expressly assumes the obligations of the Seller at the
time of such merger), or sells, transfers, or otherwise disposes of a material portion of its business or assets, except for the sale or transfer of Mortgage Loans in the ordinary course of business; 
  
 (vii) Buyer, in its good faith judgment, believes that there
has been a material adverse change in the business, operations, corporate structure or financial condition of Seller or that Seller will not meet any of its obligations under any Transaction pursuant to this Agreement, this Agreement or any other
agreement between the parties; 
  
 (viii) Seller
or any of its Subsidiaries shall fail to perform or shall violate any other material agreement or instrument between any of them and Buyer or any of its Affiliates and such failure or violation continues unremedied after any applicable grace period
therefor, or Seller or any of its Subsidiaries shall fail to pay when due or within any applicable grace period therefor any portion of any single obligation constituting indebtedness of Seller or any of its Subsidiaries in excess of $1,000,000; or
any default or other event shall occur under or with respect to any agreement under which any single obligation constituting indebtedness of Seller or any of its Subsidiaries in excess of $1,000,000 was created or is governed, the effect of which is
to cause, or to permit the holder or holder of such indebtedness to cause, such indebtedness to become due prior to its stated maturity; or any single obligation constituting indebtedness of Seller or any of its Subsidiaries in excess of $1,000,000
shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled payment), prior to the stated maturity thereof; 
  
 (ix) a final judgment by any competent court in the United States of America for the payment of money in an amount of at least $1,000,000
is rendered against the Seller, and the same remains undischarged or unpaid for a period of sixty (60) days during which execution of such judgment is not effectively stayed; 
  

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 (x) this Agreement shall for any reason cease to create a valid, first priority security
interest in any of the Purchased Mortgage Loans purported to be covered hereby or the Buyer’s security interest shall become unperfected; 
  
 (xi) a Market Value Collateral Deficit or Securitization Value Collateral Deficit occurs with respect to Seller or Buyer, as applicable,
and is not eliminated within the time period specified in Section 4(b); 
  
 (xii) Tangible Net Worth of AIC shall at any time be less than $250,000,000 plus 50% of any additional equity raised in a public offering by AIC; 
  
 (xiii) [Reserved]; 
  

(xiv) the Leverage Ratio shall exceed 15.0 to 1.0 at any time; 
  
 (xv) the Adjusted Leverage Ratio shall exceed 5.50 to 1.0 at any time thereafter; 
  
 (xvi) the aggregate amount of the AIC’s cash, Cash
Equivalents and available borrowing capacity on unencumbered assets that could be drawn against (taking into account required haircuts) under committed warehouse or working capital facilities, on a consolidated basis and on any given day, shall be
less than $65,000,000 at any time; 
  
 (xvii)
[Reserved]; 
  
 (xviii) for any two consecutive
fiscal quarters of AIC, commencing with respect to the two consecutive fiscal quarters ending on June 30, 2005 AIC and its Subsidiaries shall incur a loss on a consolidated basis in accordance with GAAP; or 
  
 (xix) any Person or entity or any group (within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of Persons and/or entities, shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange
Act of 1934, as amended), directly or indirectly, in one or more transactions, of securities of either Seller (or other securities convertible into such securities) representing more than 50% of the combined voting power of all securities of Seller
entitled to vote in the election of directors (other than the Person or entities owning such securities on the date of this Agreement). 
  
 14. REMEDIES 
  
 (a) If an Event of Default occurs with respect to Seller, the following rights and remedies are available to Buyer: 
  
 (i) At the option of Buyer, exercised by written notice to
Seller (which option shall be deemed to have been exercised, even if no notice is given, immediately upon the occurrence of an Act of Insolvency), the Repurchase Date for each Transaction hereunder shall be deemed immediately to occur. 

 

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 (ii) If Buyer exercises or is deemed to have exercised the option referred to in
subsection (a)(i) of this Section, 
  
 (A)
Seller’s obligations hereunder to repurchase all Purchased Mortgage Loans in such Transactions shall thereupon become immediately due and payable, 
  
 (B) to the extent permitted by applicable law, the Repurchase Price with respect to each such Transaction shall be increased by the
aggregate amount obtained by daily application of, on a 360 day per year basis for the actual number of days during the period from and including the date of the exercise or deemed exercise of such option to but excluding the date of payment of the
Repurchase Price as so increased, (x) for each such Transaction, the related Pricing Rate plus 2.0% to (y) the Repurchase Price for such Transaction as of the Repurchase Date as determined pursuant to subsection (a)(i) of this Section (decreased as
of any day by (I) any amounts actually in the possession of Buyer pursuant to clause (C) of this subsection, (II) any proceeds from the sale of Purchased Mortgage Loans applied to the Repurchase Price pursuant to subsection (a)(xii) of this Section,
and (III) any amounts applied to the Repurchase Price pursuant to subsection (a)(iii) of this Section), and 
  
 (C) all Income actually received by the Buyer or its designee (including the Custodian) pursuant to Section 5 shall be applied to the
aggregate unpaid Repurchase Price owed by Seller. 
  
 (iii) After one Business Day’s notice to Seller (which notice need not be given if an Act of Insolvency shall have occurred, and which may be the notice given under subsection (a)(i) of this Section), Buyer may (A) immediately sell,
without notice or demand of any kind, at a public or private sale and at such price or prices Buyer may reasonably deem satisfactory any or all Purchased Mortgage Loans subject to a Transaction hereunder or (B) in its sole discretion elect, in lieu
of selling all or a portion of such Purchased Mortgage Loans, to give Seller credit for such Purchased Mortgage Loans in an amount equal to the Market Value of the Purchased Mortgage Loans against the aggregate unpaid Repurchase Price and any other
amounts owing by Seller hereunder. The proceeds of any disposition of Purchased Mortgage Loans shall be applied first to the costs and expenses incurred by Buyer in connection with Seller’s default; second to costs of cover and/or related
hedging transactions relating to Transactions and to losses, damages, costs or expenses directly arising or resulting from the occurrence of the Event of Default; third to the Repurchase Price; and fourth to any other outstanding obligation of
Seller to Buyer or its Affiliates. 
  
 (iv) The
parties recognize that it may not be possible to purchase or sell all of the Purchased Mortgage Loans on a particular Business Day, or in a transaction with the same purchaser, or in the same manner because the market for such Purchased Mortgage
Loans may not be liquid. In view of the nature of the Purchased Mortgage Loans, the parties agree that liquidation of a Transaction or the underlying Purchased Mortgage Loans does not require a public purchase or sale and that a good faith private
purchase or 

  

 38 








 
sale shall be deemed to have been made in a commercially reasonable manner. Accordingly, Buyer may elect, in its sole discretion, the time and manner of
liquidating any Purchased Mortgage Loan and nothing contained herein shall (A) obligate Buyer to liquidate any Purchased Mortgage Loan on the occurrence of an Event of Default or to liquidate all Purchased Mortgage Loans in the same manner or on the
same Business Day or (B) constitute a waiver, in whole or in part, of any right or remedy of Buyer. However, in recognition of the parties’ agreement that the Transactions hereunder have been entered into in consideration of and in reliance
upon the fact that all Transactions hereunder constitute a single business and contractual relationship and that each Transaction has been entered into in consideration of the other Transactions, the parties further agree that Buyer shall use its
reasonable efforts to liquidate all Transactions hereunder upon the occurrence of an Event of Default as quickly as is prudently possible in the reasonable judgment of Buyer. 
  
 (v) Buyer shall, without regard to the adequacy of the security for the Seller’s obligations under this
Agreement, be entitled to the appointment of a receiver by any court having jurisdiction, without notice, to take possession of and protect, collect, manage, liquidate, and sell the Collateral or any portion thereof, and collect the payments due
with respect to the Collateral or any portion thereof. Seller shall pay all costs and expenses incurred by Buyer in connection with the appointment and activities of such receiver. 
  
 (vi) Seller agrees that Buyer may obtain an injunction or an order of specific performance to compel Seller
to fulfill its obligations as set forth in Section 25, if Seller fails or refuses to perform its obligations as set forth therein. 
  
 (vii) Seller shall be liable to Buyer for the amount of all expenses, reasonably incurred by Buyer in connection with or as a consequence
of an Event of Default, including, without limitation, reasonable legal fees and expenses and reasonable costs incurred in connection with hedging or covering transactions relating to Transactions. 
  
 (viii) Buyer shall have all the rights and remedies provided
herein, provided by applicable federal, state, foreign, and local laws (including, without limitation, the rights and remedies of a secured party under the Uniform Commercial Code of the State of New York, to the extent that the Uniform Commercial
Code is applicable, and the right to offset any mutual debt and claim), in equity, and under any other agreement between Buyer and Seller. 
  
 (ix) Buyer may exercise one or more of the remedies available to Buyer immediately upon the occurrence of an Event of Default and, except
to the extent provided in subsections (a)(i) and (iii) of this Section, at any time thereafter without notice to Seller. All rights and remedies arising under this Agreement as amended from time-to-time hereunder are cumulative and not exclusive of
any other rights or remedies which Buyer may have. 
  
 (x) In addition to its rights hereunder, Buyer shall have the right to proceed against any assets of Seller which may be in the possession of Buyer or its agent on 

  

 39 








 
Buyer’s behalf including the right to liquidate such assets and to set off the proceeds against monies owed by Seller to Buyer pursuant to this
Agreement. Buyer may set off cash, the proceeds of the liquidation of the Purchased Mortgage Loans, any Collateral or its proceeds, and all other sums or obligations owed by Seller to Buyer against all of Seller’s obligations to Buyer, whether
under this Agreement, under a Transaction, or under any other agreement between the parties, or otherwise, whether or not such obligations are then due, without prejudice to Buyer’s right to recover any deficiency. Any cash, proceeds, or
property in excess of any amounts due, or which Buyer reasonably believes may become due, to it from Seller shall be returned to Seller after satisfaction of all obligations of Seller to Buyer. 
  
 (xi) Buyer may enforce its rights and remedies hereunder
without prior judicial process or hearing, and Seller hereby expressly waives any defenses Seller might otherwise have to require Buyer to enforce its rights by judicial process. Seller also waives any defense Seller might otherwise have arising
from the use of nonjudicial process, enforcement and sale of all or any portion of the Collateral, or from any other election of remedies. Seller recognizes that nonjudicial remedies are consistent with the usages of the trade, are responsive to
commercial necessity and are the result of a bargain at arm’s length. 
  
 (xii) Buyer and Seller hereby agree that sales of the Purchased Mortgage Loans shall be deemed to include and permit the sales of Purchased Mortgaged Loans pursuant to a securities offering. The net proceeds of any
such sale shall be applied to reduce the Repurchase Price of outstanding Transactions. 
  
 (b) If an Event of Default occurs with respect to Buyer, the following rights and remedies are available to Seller upon advance written notice of the same to Buyer: 
  
 (i) Upon tender by Seller of payment of the aggregate
Repurchase Price for all such Transactions, Buyer’s right, title and interest in all Purchased Mortgage Loans subject to such Transactions shall be deemed transferred to Seller, and Buyer shall deliver or cause to be transferred all such
Purchased Mortgage Loans to Seller or its designee at Buyer’s expense. 
  
 (ii) If Seller exercises the option referred to in subsection (b)(i) of this Section and Buyer fails to deliver or cause to be delivered the Purchased Mortgage Loans to Seller or its designee, after one Business
Day’s notice to Buyer, Seller may (A) purchase Mortgage Loans (“Replacement Loans”) that are as similar as is reasonably practicable in characteristics, outstanding principal amounts (as a pool) and interest rate to any
Purchased Mortgage Loans that are not delivered by Buyer to Seller or its designee as required hereunder or (B) in its sole discretion elect, in lieu of purchasing Replacement Loans, to be deemed to have purchased Replacement Loans at a price
therefor on such date, equal to the Market Value of the Purchased Mortgage Loans. 
  
 (iii) Buyer shall be liable to the Seller (A) with respect to Purchased Mortgage Loans (other than Additional Loans), for any excess of
the price paid (or deemed paid) by Seller for Replacement Loans therefor over the Repurchase Price for such Purchased 

  

 40 








 
Mortgage Loans and (B) with respect to Additional Loans, for the price paid (or deemed paid) by Seller for the Replacement Loans therefor. In addition, Buyer
shall be liable to Seller for interest on such remaining liability with respect to each such purchase (or deemed purchase) of Replacement Loans calculated on a 360-day year basis for the actual number of days during the period from and including the
date of such purchase (or deemed purchase) until paid in full by Buyer. Such interest shall be at the greater of the Pricing Rate or the Prime Rate. 
  
 (iv) Buyer shall be liable to Seller for the amount of all expenses reasonably incurred by Seller in connection with or as a consequence
of an Event of Default with respect to Buyer, including, without limitation, reasonable legal fees and expenses and reasonable costs incurred in connection with covering existing hedging transactions with respect to the Purchased Mortgage Loans.

  
 (v) Seller shall have all the rights and
remedies provided herein, provided by applicable federal, state, foreign, and local laws, in equity, and under any other agreement between Buyer and Seller, other than as set forth in Section 3(j). 
  
 (vi) Seller may exercise one or more of the remedies
available to Seller immediately upon the occurrence of an Event of Default with respect to Buyer and at any time thereafter without notice to Buyer. All rights and remedies arising under this Agreement as amended from time-to-time hereunder are
cumulative and not exclusive of any other rights or remedies which Seller may have. 
  
 15. ADDITIONAL CONDITION 
  
 Seller shall, on the
date of the initial Transaction hereunder and, upon the request of Buyer, on the date of any subsequent Transaction, cause to be delivered to Buyer, with reliance thereon permitted as to any Person that purchases the Purchased Mortgage Loan from
Buyer in a repurchase transaction, a favorable opinion or opinions of counsel with respect to the matters set forth in Exhibit IV attached hereto. 
  
 16. SINGLE AGREEMENT 
  
 Buyer and Seller acknowledge that, and have entered hereunto and will enter into each Transaction hereunder in consideration of and in reliance upon the
fact that, all Transactions hereunder constitute a single business and contractual relationship and that each has been entered into in consideration of the other Transactions. Accordingly, each of Buyer and Seller agrees (i) to perform all of its
obligations in respect of each Transaction hereunder, and that a default in the performance of any such obligations shall constitute a default by it in respect of all Transactions hereunder, (ii) that each of them shall be entitled to set off claims
and apply property held by them in respect of any Transaction against obligations owing to them in respect of any other Transactions hereunder and (iii) that payments, deliveries, and other transfers made by either of them in respect of any
Transaction shall be deemed to have been made in consideration of payments, deliveries, and other transfers in respect of any other Transactions hereunder, and the obligations to make any such payments, deliveries, and other transfers may be applied
against each other and netted; provided, however, that the parties hereto acknowledge and agree that 

  

 41 








 
each Purchased Mortgage Loan is identified and unique and nothing in this Agreement should limit or reduce Buyer’s obligation to deliver the Purchased
Mortgage Loans to Seller as and when provided herein. 
  
 17. NOTICES AND OTHER
COMMUNICATIONS 
  
 Unless another address is specified in
writing by the respective party to whom any written notice or other communication is to be given hereunder, all such notices or communications shall be in writing or confirmed in writing and delivered at the respective addresses set forth in the
form of Confirmation set forth in Exhibit I. 
  
 18. ENTIRE AGREEMENT;
SEVERABILITY 
  
 This Agreement together with the applicable
Confirmation constitutes the entire understanding between Buyer and Seller with respect to the subject matter it covers and shall supersede any existing agreements between the parties containing general terms and conditions for repurchase
transactions involving Purchased Mortgage Loans. By acceptance of this Agreement, Buyer and Seller acknowledge that they have not made, and are not relying upon, any statements, representations, promises or undertakings not contained in this
Agreement. Each provision and agreement herein shall be treated as separate and independent from any other provision or agreement herein and shall be enforceable notwithstanding the unenforceability of any such other provision or agreement.

  
 19. NON-ASSIGNABILITY; PARTICIPATIONS 
  
 (a) The rights and obligations of the parties under this Agreement and under
any Transaction shall not be assigned by Seller without the prior written consent of Buyer. Subject to the foregoing, this Agreement and any Transactions shall be binding upon and shall inure to the benefit of the parties and their respective
successors and assigns. Nothing in this Agreement express or implied, shall give to any person, other than the parties to this Agreement and their successors hereunder, any benefit or any legal or equitable right, power, remedy or claim under this
Agreement. 
  
 (b) Without limiting the foregoing or any other
provision of this Agreement, Buyer may sell participations to one or more entities in or to all or a portion of its Transferable Interests; provided, that (i) Buyer’s obligations under this Agreement shall remain unchanged; and (ii) Buyer shall
remain solely responsible to Seller for the performance of such obligations, and Seller shall continue to deal solely and directly with Buyer in connection with Buyer’s rights and obligations under this Agreement and the other Facility
Documents. Seller agrees that each participant shall be entitled to the benefits of Sections 3(h), 3(i) and 21 of this Agreement with respect to its participation in any portion of the Transactions and this facility as if it were Buyer hereunder;
provided, however, that such benefits shall not exceed in the aggregate that amount the Buyer would have been entitled to receive had Buyer sold no such participations. Buyer may furnish information concerning Seller in accordance with Section 30(g)
of this Agreement from time to time to participants (including prospective participants); provided that such participant or prospective participant agrees to hold such information subject to the confidentiality provisions of this Agreement.

  

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 20. TERMINABILITY 
  
 (a) This Agreement shall terminate upon the earlier of (i) the Final Repurchase Date or (ii) written notice from Seller to Buyer to such effect pursuant
to Section 14 hereof, except that this Agreement shall, notwithstanding the above clauses, remain applicable to any Transaction then outstanding. 
  
 (b) Buyer may, in its sole and absolute discretion, terminate this Agreement if, within 30 days after notice from Buyer to Seller stating that Buyer does
not agree with the valuation (and the assumptions used to derive such valuation) of residual certificates, interest-only certificates and other comparable instruments with respect to securitizations of mortgage loans included in the calculation of
Tangible Net Worth as certified in the certificate delivered to Buyer pursuant to Section 12(j)(viii), Buyer and Seller do not agree on such valuation. Upon any such termination, the Repurchase Price of all Transactions shall become immediately due
and payable. 
  
 (c) Notwithstanding any termination of this
Agreement or the occurrence of an Event of Default, all of the representations and warranties hereunder (including those made in Exhibit V) shall continue and survive. 
  
 21. INDEMNIFICATION 
  
 Seller agrees to hold Buyer harmless from and indemnify Buyer (and its directors, officers, employees and agents) against all liabilities, losses,
damages, judgments, reasonably incurred out-of-pocket costs and expenses of any kind which may be imposed on, incurred by or asserted against Buyer (collectively, the “Costs”) relating to or arising out of the Transactions or this
Agreement, including reasonable legal costs and settlement costs, except if such losses, liabilities, claims, damages or expenses result from the gross negligence or willful misconduct of the indemnified party. Without limiting the generality of the
foregoing, Seller agrees to hold Buyer harmless from and indemnify Buyer against all Costs with respect to all Mortgage Loans relating to or arising out of any violation or alleged violation of any environmental law, rule or regulation or any
consumer credit laws, including without limitation ERISA, the Truth in Lending Act, the Home Ownership and Equity Protection Act and/or the Real Estate Settlement Procedures Act, that, in each case, results from anything other than Buyer’s
gross negligence or willful misconduct. In any suit, proceeding or action brought by Buyer in connection with any Mortgage Loan for any sum owing thereunder, or to enforce any provisions of any Mortgage Loan, Seller will save, indemnify and hold
Buyer harmless from and against all expense, loss or damage suffered by reason of any defense, set-off, counterclaim, recoupment or reduction or liability whatsoever of the account debtor or obligor thereunder or arising out of any other agreement,
indebtedness or liability at any time owing to or in favor of such account debtor or obligor or its successors from Seller. Seller also agrees to reimburse Buyer as and when billed by Buyer for all Buyer’s ongoing due diligence and auditing
expenses and costs and expenses incurred in connection with the enforcement or the preservation of Buyer’s rights under this Agreement or any Transaction contemplated hereby, including without limitation the reasonable fees and disbursements of
its counsel and other third party agents. Seller hereby acknowledges that the obligation of Seller hereunder is a recourse obligation of Seller. 
  

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 22. GOVERNING LAW 
  
 THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT
OF LAW PRINCIPLES THEREOF. 
  
 23. CONSENT TO JURISDICTION AND ARBITRATION

  
 The parties irrevocably agree to submit to the personal
jurisdiction of the United States District Court for the Southern District of New York, the parties irrevocably waiving any objection thereto. If, for any reason, federal jurisdiction is not available, and only if federal jurisdiction is not
available, the parties irrevocably agree to submit to the personal jurisdiction of the Supreme Court of the State of New York, the parties irrevocably waiving any objection thereto. Notwithstanding the foregoing two sentences, at either party’s
sole option exercisable at any time not later than thirty (30) days after an action or proceeding has been commenced, the parties agree that the matter may be submitted to binding arbitration in accordance with the commercial rules of the American
Arbitration Association then in effect in the State of New York and judgment upon any award rendered by the arbitrator may be entered in any court having jurisdiction thereof within the City, County and State of New York; provided,
however, that the arbitrator shall not amend, supplement, or reform in any regard this Agreement or the terms of any Confirmation, the rights or obligations of any party hereunder or thereunder, or the enforceability of any of the terms
hereof or thereof. Any arbitration shall be conducted before a single arbitrator who shall be reasonably familiar with repurchase transactions and the secondary mortgage market in the City, County, and State of New York. 
  
 24. NO WAIVERS, ETC. 
  
 No express or implied waiver of any Event of Default by either party shall constitute a waiver of any other Event of Default
and no exercise of any remedy hereunder by any party shall constitute a waiver, in whole or in part, of its right to exercise any other remedy hereunder. No modification or waiver of any provision of this Agreement and no consent by any party to a
departure herefrom shall be effective unless and until such shall be in writing and duly executed by both of the parties hereto. Any such waiver or modification shall be effective only in the specific instance and for the specific purpose for which
it was given. 
  
 25. INTENT 
  
 The parties understand and intend that this Agreement and each Transaction
hereunder constitute a “repurchase agreement” and a “securities contract” as those terms are defined under the relevant provisions of Title 11 of the United States Code, as amended. 
  
 26. SERVICING 
  
 (a) Notwithstanding the purchase and sale of the Purchased Mortgage Loans hereby, Seller shall continue to service the
Purchased Mortgage Loans for the benefit of Buyer and, if Buyer shall exercise its rights to pledge or hypothecate the Purchased Mortgage Loan prior to the related Repurchase Date pursuant to Section 8, Buyer’s assigns; provided,
however, that the obligations of Seller to service the Purchased Mortgage Loans shall cease upon the payment by 

  

 44 








 
Seller to Buyer of the Repurchase Price therefor. Seller shall service the Purchased Mortgage Loans in accordance with the servicing standards maintained by
other prudent mortgage lenders with respect to mortgage loans similar to the Purchased Mortgage Loans. 
  
 (b) Seller agrees that Buyer is the owner of all servicing records, including but not limited to any and all servicing agreements, files, documents,
records, data bases, computer tapes, copies of computer tapes, proof of insurance coverage, insurance policies, appraisals, other closing documentation, payment history records, and any other records relating to or evidencing the servicing of
Purchased Mortgage Loans (the “Servicing Records”). Seller grants Buyer a security interest in all servicing fees and rights relating to the Mortgage Loans and all Servicing Records to secure the obligation of the Seller or its
designee to service in conformity with this Section and any other obligation of Seller to Buyer. Seller covenants to, and will cause each servicer and subservicer to, segregate such Servicing Records from any and all servicing agreements, files,
documents, records, data bases, computer tapes, copies of computer tapes, proof of insurance coverage, insurance policies, appraisals, other closing documentation, payment history records, and any other records relating to or evidencing the
servicing of Mortgage Loans which are not Purchased Mortgage Loans and to safeguard such Servicing Records and to deliver them promptly to Buyer or its designee (including the Custodian) at Buyer’s request. 
  
 (c) Upon the occurrence and continuance of an Event of Default, Buyer may, in
its sole discretion, (i) sell its right to the Purchased Mortgage Loans on a servicing released basis or (ii) terminate the Seller as servicer of the Purchased Mortgage Loans with or without cause, in each case without payment of any termination
fee. 
  
 (d) Seller shall not employ sub-servicers (other than an
Affiliate of Seller) to service the Purchased Mortgage Loans without the prior written approval of Buyer. 
  
 (e) Seller shall cause any sub-servicer hereunder to execute a letter agreement with Buyer acknowledging Buyer’s security interest and agreeing that,
upon notice from Buyer (or the Custodian on its behalf) that an Event of Default has occurred and in continuing hereunder, it shall deposit all Income with respect to the Purchased Mortgage Loans in the account specified in the third sentence of
Section 5(a). 
  
 (f) Upon the occurrence and continuance of an
Event of Default, Buyer shall have the right, in its sole discretion, to appoint a Backup Servicer that will (i) become the successor servicer of the Purchased Mortgage Loans or (ii) serve as a backup servicer of the Purchased Mortgage Loans until
such time as Buyer shall elect to appoint the Backup Servicer as successor servicer of the Purchased Mortgage Loans. In connection with the appointment of a Backup Servicer, Buyer may make such arrangements for the compensation of Backup Servicer
out of Income on the Mortgage Loans or otherwise as Buyer and such Backup Servicer shall agree. If Backup Servicer is appointed to act as a “backup servicer” of the Purchased Mortgage Loans, Seller shall provide Backup Servicer with such
data, files and information, in form, format and content as Backup Servicer may request, in order to permit Backup Servicer to service the Mortgage Loans in accordance with Accepted Servicing Practices; all such data, files and information shall be
updated by Seller on a monthly basis as required by Backup Servicer. 
  

 45 








 (g) If Backup Servicer is appointed by Buyer to act as a successor servicer of the Purchased Mortgage
Loans in accordance with Section 25(f), Seller (in its capacity as servicer hereunder) shall discharge its servicing duties and responsibilities during the period from the date it acquires knowledge of such transfer of servicing until the effective
date thereof with the same degree of diligence and prudence that it is obligated to exercise under this Agreement, and shall take no action whatsoever that might impair or prejudice the rights or financial condition of Backup Servicer. Within five
(5) Business Days of the appointment of Backup Servicer to act as successor servicer of the Mortgage Loans, Seller shall prepare, execute and deliver to Backup Servicer any and all documents and other instruments, place in such successor’s
possession all Servicing Records, and do or cause to be done all other acts or things necessary or appropriate to effect the transfer of servicing to Backup Servicer, including but not limited to the transfer and endorsement of the Mortgage Notes
and related documents, and the preparation and recordation of Assignments of Mortgage. Seller shall cooperate with Buyer and Backup Servicer in effecting the transfer of servicing responsibilities to Backup Servicer, including execution and delivery
of servicing transfer notices to Mortgagors, taxing authorities and insurance companies, the transfer to Backup Servicer for administration by it of all Income with respect to the Mortgage Loans which shall at the time be held or received by Seller.
Seller shall deliver immediately to Backup Servicer the funds in the Collection Account and Escrow Account not held pursuant to Collection Account Agreements and all Mortgage Loan documents and related documents and statements held by it hereunder
and Seller shall account for all funds and shall execute and deliver such instruments and do such other things as may reasonably be required to more fully and definitively vest in Backup Servicer all such rights, powers, duties, responsibilities,
obligations and liabilities of Seller as servicer of the Purchased Mortgage Loans. 
  
 27. DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS 
  
 The parties acknowledge that they have been advised that in the case of Transactions in which one of the parties is an “insured depository institution” as that term is defined in Section 1831(a) of Title 12 of the United States
Code, as amended, funds held by the financial institution pursuant to a Transaction hereunder are not a deposit and therefore are not insured by the Federal Deposit Insurance Corporation, the Savings Association Insurance Fund or the Bank Insurance
Fund, as applicable. 
  
 28. NETTING 
  
 If Buyer and Seller are “financial institutions” as now or
hereinafter defined in Section 4402 of Title 12 of the United States Code (“Section 4402”) and any rules or regulations promulgated thereunder: 
  
 (a) All amounts to be paid or advanced by one party to or on behalf of the other under this Agreement or any Transaction
hereunder shall be deemed to be “payment obligations” and all amounts to be received by or on behalf of one party from the other under this Agreement or any Transaction hereunder shall be deemed to be “payment entitlements”
within the meaning of Section 4402, and this Agreement shall be deemed to be a “netting contract” as defined in Section 4402. 
  

 46 








 (b) The payment obligations and the payment entitlements of the parties hereto pursuant to this Agreement
and any Transaction hereunder shall be netted as follows. In the event that either party (the “Defaulting Party”) shall fail to honor any payment obligation under this Agreement or any Transaction hereunder, the other party (the
“Nondefaulting Party”) shall be entitled to reduce the amount of any payment to be made by the Nondefaulting Party to the Defaulting Party by the amount of the payment obligation that the Defaulting Party failed to honor.

  
 29. JOINT AND SEVERAL 
  
 Each of the Sellers signatory hereto shall be jointly and severally liable
for the obligations of Seller hereunder and under the other Transaction Documents. 
  
 30. MISCELLANEOUS 
  
 (a) Time is of the essence
under this agreement and all Transactions and all references to a time shall mean New York time in effect on the date of the action unless otherwise expressly stated in this Agreement. 
  
 (b) Buyer shall be authorized to accept orders and take any other action affecting any accounts of the Seller in response to
instructions given in writing by any authorized officer of Seller listed on Exhibit VII hereto, as such list may be amended in writing from time to time. Seller shall indemnify Buyer, defend, and hold Buyer harmless from and against any and all
liabilities, losses, damages, costs, and expenses of any nature arising out of or in connection with any action taken by Buyer in response to such instructions received or reasonably believed to have been received from such authorized officers of
Seller. 
  
 (c) If there is any conflict between the terms of this
Agreement or any Transaction entered into hereunder and the Custodial Agreement, this Agreement shall prevail. 
  
 (d) If there is any conflict between the terms of a Confirmation or a corrected Confirmation issued by the Buyer and this Agreement, the Confirmation
shall prevail. 
  
 (e) This Agreement may be executed in
counterparts, each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument. 
  
 (f) The Seller shall be responsible for the reasonable out-of-pocket costs and expenses incurred by Buyer in connection with
the preparation, execution, delivery and administration of the Facility Documents. Seller agrees to reimburse Buyer for all reasonable out-of-pocket costs and expenses of Buyer incurred in connection with any amendment or waiver with respect thereto
of this Agreement requested by Seller (including, without limitation, the fees, expenses and disbursement of outside counsel to Buyer). 
  
 (g) Seller and Buyer agree to maintain the confidentiality of this Agreement and its terms and agree not to disclose this Agreement or its terms to any
other party other than (i) participants or prospective participants who agree to hold this Agreement and any such information in confidence in accordance with the provisions hereof, (ii) principals of the parties 

  

 47 








 
hereto or of such participants or proposed participants, (iii) proposed transferees of all or any portion of the Mortgage Loans and (iv) financial and legal
advisors for any of the parties described in (i), (ii) and (iii) above, and other agents and representatives of the parties described in (i), (ii) and (iii) above who need to know such information in connection with the transactions contemplated
hereby and except that the Buyer, or any successors thereto, may disclose any facilities in place and/or may describe provisions of this Agreement in the ordinary course of business. In addition, Buyer and Seller shall be permitted to disclose
information regarding this Agreement as required for the enforcement of its terms or as required by law, regulatory requirements or court order or discovery. In the event Seller determines that the Agreement must be filed with the Securities and
Exchange Commission pursuant to applicable law, such filing may only be made after consultation with Buyer. 
  
 (h) The headings in this Agreement are for convenience of reference only and shall not affect the interpretation or construction of this Agreement.

  
 [Signature page follows] 
  

 48 








 IN WITNESS WHEREOF, the parties have entered into this Agreement as of the date set forth above.

  

			
	 LEHMAN BROTHERS BANK, FSB, as Buyer

		
	 By:
	 	  


	 Name:
	 	 
	 Title:
	 	 
	
	 AAMES INVESTMENT CORPORATION, as Seller

		
	 By:
	 	 /s/    JON D. VAN DEUREN


	 Name:
	 	Jon D. Van Deuren
	 Title:
	 	Senior Vice President
	
	 AAMES CAPITAL CORPORATION, as Seller

		
	 By:
	 	 /s/    JON D. VAN DEUREN


	 Name:
	 	Jon D. Van Deuren
	 Title:
	 	Senior Vice President









 EXHIBIT I 
  
 Form of Confirmation Letter 
  
 (date) 
  
 [Aames Capital Corporation 
 350 South Grand Avenue 
 Los Angeles, California 90071 
 Attention:
                                ] 
  
 [Aames Investment Corporation 
 350 South Grand Avenue 
 Los Angeles, California 90071 
 Attention:                                 ] 

 
 Confirmation No.:
                                        

  
 Ladies/Gentlemen: 
  
 This letter confirms our agreement to purchase from you the Mortgage Loans
listed in Appendix I hereto, pursuant to the Master Repurchase Agreement Governing Purchases and Sales of Mortgage Loans between us, dated as of             , 2004 (the
“Agreement”), as follows: 
  

			
	Purchase Date:	 	 
		
	Mortgage Loans to be Purchased:	 	See Appendix I hereto.1
	
	Aggregate Principal Amount of Purchased Mortgage Loans:
		
	Purchase Price:	 	 
		
	Pricing Rate:	 	 
		
	Repurchase Date:	 	 
		
	Repurchase Price:	 	 
	
	Collateral Amount Percentage with respect to Market Value:
	
	Collateral Amount Percentage with respect to Securitization Value:
	
	Names and addresses for communications:



	1	Appendix I to Confirmation Letter will list Mortgage Loans. 









	
	 Buyer:

	
	 Lehman Brothers Bank, FSB
 745 Seventh Avenue
 New York, New York 10019
 Attention: Central Funding Department

	  
 Seller:

	
	 [Aames Capital Corporation
 350 South Grand Avenue
 Los Angeles, California 90071
 Attention: Michelle Treasure, Finance
Department]

	  
 [Aames Investment
Corporation
 [address]
  
 Attention:
                        ]


  

			
	 LEHMAN BROTHERS BANK, FSB, as Buyer

		
	 By:
	 	  


	 Name:
	 	 
	 Title:
	 	 


  
 Agreed and Acknowledged:

  

			
	 AAMES CAPITAL CORPORATION, as Seller

		
	 By:
	 	  


	 Name:
	 	 
	 Title:
	 	 

  

			
	 AAMES INVESTMENT CORPORATION, as Seller

		
	 By:
	 	  


	 Name:
	 	 
	 Title:
	 	 

  

 2 








 EXHIBIT II 
  
 Form of Custodial Delivery 
  
 On this              day of
                    , 20     , [Aames Capital Corporation] [Aames Investment Corporation] (“Seller”), as
the Seller under that certain Master Repurchase Agreement Governing Purchases and Sales of Mortgage Loans, dated as of             , 2004 (the “Repurchase Agreement”)
between the Seller and Lehman Brothers Bank, FSB (“Buyer”), does hereby deliver to [Deutsche Bank Americas Trust Company] (“Custodian”), as custodian under that certain Custodial Agreement, dated as of December
    , 2000, among Buyer, Seller and Custodian the Mortgage Files with respect to the Mortgage Loans to be purchased by Buyer pursuant to the Repurchase Agreement, which Mortgage Loans are listed on the Mortgage Loan
Schedule attached hereto and which Mortgage Loans shall be subject to the terms of the Custodial Agreement on the date hereof. 
  
 With respect to the Mortgage Files delivered hereby, for the purposes of issuing the Trust Receipt, the Custodian shall review the Mortgage Files to
ascertain delivery of the documents listed in Schedule 1 to the Custodial Agreement. 
  
 [The Mortgage Loans delivered hereby constitute Additional Loans delivered pursuant to Section 4(a) of the Repurchase Agreement].][The Mortgage Loans delivered hereby constitute substituted Collateral pursuant to
Section 9(a) of the Repurchase Agreement and are intended to be substituted for the Purchased Mortgage Loans listed on the [schedule attached hereto][Request for Release of Documents and receipt delivered herewith]. The Purchased Mortgage Loans to
be released shall be delivered to                     .] 
  
 Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Repurchase Agreement or the
Custodial Agreement. 







 IN WITNESS WHEREOF, the Seller has caused its name to be signed hereto by its officer thereunto duly
authorized as of the day and year first above written. 
  

			
	 [AAMES CAPITAL CORPORATION]

	
	 [AAMES INVESTMENT CORPORATION]

		
	 Seller
	 	 
		
	 By:
	 	  


		
	 Title:
	 	  


		
	 Name:
	 	  



  

 2 








 EXHIBIT III 
  
 Form of Power of Attorney 
  
 “Know All Men by These Presents, that [Aames Capital Corporation] [Aames Investment Corporation] (“Seller”), does hereby appoint Lehman
Brothers Bank, FSB (“Buyer”), its attorney-in-fact to act in Seller’s name, place and stead in any way which Seller could do with respect to (i) the completion of the endorsements of the Mortgage Notes and the Assignments of
Mortgages, (ii) the recordation of the assignments of Mortgages and (iii) the enforcement of the Seller’s rights under the Mortgage Loans purchased by Buyer pursuant to an Master Repurchase Agreement Governing Purchases and Sales of Mortgage
Loans dated as of             , 2004 between Seller and Buyer and to take such other steps as may be necessary or desirable to enforce Buyer’s rights against such Mortgage
Loans, the related Mortgage Files and the Servicing Records to the extent that Seller is permitted by law to act through an agent. 
  
 TO INDUCE ANY THIRD PARTY TO ACT HEREUNDER, SELLER HEREBY AGREES THAT ANY THIRD PARTY RECEIVING A DULY EXECUTED COPY OR FACSIMILE OF THIS INSTRUMENT MAY
ACT HEREUNDER, AND THAT REVOCATION OR TERMINATION HEREOF SHALL BE INEFFECTIVE AS TO SUCH THIRD PARTY UNLESS AND UNTIL ACTUAL NOTICE OR KNOWLEDGE OF SUCH REVOCATION OR TERMINATION SHALL HAVE BEEN RECEIVED BY SUCH THIRD PARTY, AND SELLER ON ITS OWN
BEHALF AND ON BEHALF OF SELLER’S ASSIGNS, HEREBY AGREES TO INDEMNIFY AND HOLD HARMLESS ANY SUCH THIRD PARTY FROM AND AGAINST ANY AND ALL CLAIMS THAT MAY ARISE AGAINST SUCH THIRD PARTY BY REASON OF SUCH THIRD PARTY HAVING RELIED ON THE
PROVISIONS OF THIS INSTRUMENT. 
  
 IN WITNESS WHEREOF Seller has
caused this Power of Attorney to be executed and the Seller’s seal to be affixed this              day of December, 2004. 
  

			
	 [AAMES CAPITAL CORPORATION, as Seller]

	
	 [AAMES INVESTMENT CORPORATION, as Seller]

		
	 By:
	 	  


	 Name:
	 	 
	 Title:
	 	 


  
 (Seal) 







 EXHIBIT IV 
  
 Opinion Of Seller’s Counsel 
  
 1. Seller is duly organized and validly existing as a corporation in good standing under the laws of California and has power and authority to enter into
and perform its obligations under the Agreement and the Custodial Agreement. Seller is duly qualified to do business and is in good standing in each jurisdiction in which the character of the business transacted by it requires such qualification and
in which the failure so to qualify would have a material adverse effect on the business, properties, assets or condition (financial or other) of Seller and its Subsidiaries, considered as a whole. 
  
 2. The Agreement and the Custodial Agreement have each been duly authorized,
executed and delivered by Seller, and each constitutes a valid and legally binding obligation of Seller enforceable against Seller in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors’ rights generally and to general equity principles. 
  
 3. No consent, approval, authorization or order of any state or federal court or government agency or body is required to be obtained by Seller for the
consummation of the transactions contemplated by the Agreement or the Custodial Agreement. 
  
 4. The consummation of any of the transactions contemplated by the Agreement and the Custodial Agreement will not conflict with, result in a breach of, or constitute a default under the charter or bylaws of Seller or
the terms of any indenture or other agreement or instrument known to us to which Seller is party or bound, or any order known to such counsel to be applicable to Seller or any regulations applicable to Seller, of any state or federal court,
regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over Seller. 
  
 5. There is no pending or, to such counsel’s knowledge, threatened action, suit or proceeding before any court or governmental agency, authority or
body or any arbitrator involving Seller or relating to the transactions contemplated by the Agreement or the Custodial Agreement which, if adversely determined, would have a material adverse effect on Seller. 
  
 6. The Agreement together with (a) the delivery of such related Mortgage
Loans to Custodian; (b) the endorsement of such Mortgage Loans in blank; and (c) the delivery of the assignments of Mortgages related to the Mortgage Loans to the Custodian in recordable form assigning such Mortgages to Custodian, creates a valid,
perfected security interest in such Mortgage Loans in favor of Buyer. 







 EXHIBIT V 
  
 Representations and Warranties Regarding Mortgage Loans 
  
 The Seller represents and warrants to the Buyer that, with respect to each Mortgage Loan sold in a Transaction hereunder, as of the related Purchase Date:

  
 (a) Mortgage Loans as Described. The information set
forth in the Mortgage Loan Schedule is complete, true and correct and complies with the terms of the Repurchase Agreement in all material respects. 
  
 (b) Payments Current Within 59 Days; Delinquency. The Mortgage Loan (i) together with the other Purchased Mortgage Loans subject to Transactions,
would not cause the 30+ Delinquency Percentage for all Mortgage Loans to exceed 3% and (ii) is not more than 59 days Delinquent. 
  
 (c) No Outstanding Charges. There are no defaults in complying with the terms of the Mortgage, and all taxes, governmental assessments, insurance
premiums, water, sewer and municipal charges, leasehold payments or ground rents which previously became due and owing have been paid, or an escrow of funds has been established in an amount sufficient to pay for every such item which remains unpaid
and which has been assessed but is not yet due and payable. Seller has not advanced funds, or induced, solicited or knowingly received any advance of funds by a party other than the Mortgagor, directly or indirectly, for the payment of any amount
required under the Mortgage Loan, except for interest accruing from the date of the Mortgage Note or date of disbursement of the Mortgage Loan proceeds, whichever is greater, to the day which precedes by one month the due date of the first
installment of principal and interest. 
  
 (d) Original Terms
Unmodified. The terms of the Mortgage Note and Mortgage have not been impaired, waived, altered or modified in any respect, except by a written instrument which has been recorded, if necessary to protect the interests of Buyer and which has been
delivered to Buyer or its designee (including the Custodian). The substance of any such waiver, alteration or modification has been approved by the title insurer, to the extent required by the policy, and its terms are reflected on the Mortgage Loan
Schedule. No Mortgagor has been released, in whole or in part, except in connection with an assumption agreement approved by the title insurer, and which assumption agreement is included in the Mortgage File delivered to Buyer or its designee
(including the Custodian) and the terms of which are reflected in the Mortgage Loan Schedule. 
  
 (e) No Defenses. The Mortgage Loan is not subject to any right of rescission, set-off, counterclaim or defense, including without limitation the defense of usury, nor will the operation of any of the terms of
the Mortgage Note or the Mortgage, or the exercise of any right thereunder, render either the Mortgage Note or the Mortgage unenforceable, in whole or in part, or subject to any right of rescission, set-off, counterclaim or defense, including
without limitation the defense of usury, and no such right of rescission, set-off, counterclaim or defense has been asserted with respect thereto. 







 (f) Insurance Policies in Effect. The fire and casualty insurance policy covering the Mortgaged
Property (1) affords (and will afford) sufficient insurance against fire and such other risks as are usually insured against in the broad form of extended coverage insurance from time to time available, as well as insurance against flood hazards if
the Mortgaged Property is an area identified by the Federal Emergency Management Agency as having special flood hazards; (2) is a standard policy of insurance for the locale where the Mortgaged Property is located, is in full force and effect, and
the amount of the insurance is in the amount of the full insurable value of the Mortgaged Property on a replacement cost basis or the unpaid balance of the Mortgage Loans, whichever is less; (3) names (and will name) the present owner of the
Mortgaged Property as the insured; and (4) contains a standard mortgagee loss payable clause in favor of Seller. All individual insurance policies with respect to the Mortgage Loan are the valid and binding obligation of the insurer and contain a
standard mortgage clause naming Seller, its successors and assigns, as Mortgagee. All premiums thereon have been paid. The Mortgage obligates the Mortgagor thereunder to maintain all such insurance policies at the Mortgagor’s cost and expense,
and upon the Mortgagor’s failure to do so, authorizes the holder of the Mortgage to obtain and maintain such insurance at the Mortgagor’s cost and expense and to seek reimbursement therefor from the Mortgagor. 
  
 (g) Compliance with Applicable Laws. Any and all requirements of any
federal, state or local law including, without limitation, usury, truth-in-lending, real estate settlement procedures, consumer credit protection, equal credit opportunity or disclosure laws applicable to the origination and servicing of the
Mortgage Loan have been complied with, and Seller shall maintain in its possession, available for Buyer’s inspection, and shall deliver to Buyer upon demand, evidence of compliance with all such requirements. No Purchased Mortgage Loan is
subject to the Home Ownership and Equity Protection Act of 1994. 
  
 (h) No Satisfaction of Mortgage. The Mortgage has not been satisfied, canceled, subordinated or rescinded, in whole or in part, and the Mortgaged Property has not been released from the lien of the Mortgage, in whole or in part, nor
has any instrument been executed that would effect any such release, cancellation, subordination or rescission. 
  
 (i) Location and Type of Mortgaged Property. The Mortgaged Property is located in the state identified in the Mortgage Loan Schedule and consists
of a parcel of real property with a detached single family residence erected thereon, or a two- to four-family dwelling, or an individual condominium unit in a condominium project, or an individual unit in a planned unit development and no residence
or dwelling is a mobile home or a manufactured dwelling (other than a mobile home or a manufactured dwelling permanently affixed to real property). No portion of the Mortgaged Property is used for commercial purposes (except for home offices).

  
 (j) Valid First or Second Lien. The Mortgage is a
valid, subsisting and enforceable first or second lien on the Mortgaged Property, including all buildings on the Mortgaged Property and all installations and mechanical, electrical, plumbing, heating and air conditioning systems located in or
annexed to such buildings, and all additions, alterations and replacements made at any time with respect to the foregoing. The lien of the Mortgage is subject only to: 
  
 (i) the lien of current real property taxes and special assessments not yet due and payable; 
  

 2 








 (ii) covenants, conditions and restrictions, rights of way, easements and other matters
of the public record as of the date of recording acceptable to mortgage lending institutions generally and specifically referred to in the lender’s title insurance policy delivered to the originator of the Mortgage Loan and (i) referred to or
otherwise considered in the appraisal made for the originator of the Mortgage Loan or (ii) which do not adversely affect the appraised value of the Mortgaged Property set forth in such appraisal; 
  
 (iii) in the case of a Mortgaged Property that is a
condominium or an individual unit in a planned unit development, liens for common charges permitted by statute; 
  
 (iv) in the case where the Mortgage Loan is secured by a second mortgage lien on the Mortgaged Property (and represented on the Mortgage
Loan Schedule as such), the lien of the First Mortgage; and 
  
 (v) other matters to which like properties are commonly subject which do not materially interfere with the benefits of the security intended to be provided by the mortgage or the use, enjoyment, value or marketability
of the related Mortgaged Property. 
  
 Any security agreement,
chattel mortgage or equivalent document related to and delivered in connection with the Mortgage Loan establishes and creates a valid, subsisting and enforceable first or second lien and first or second priority security interest on the property
described therein and Seller has full right to pledge and assign the same to Buyer or its designee (including the Custodian). 
  
 (k) Validity of Mortgage Documents. The Mortgage Note and the Mortgage are genuine, and each is the legal, valid and binding obligation of the
maker thereof enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium or other similar laws relating to or affecting the rights of creditor’s
generally, and by general equity principles (regardless of whether such enforcement is considered in a proceeding in equity or at law.) All parties to the Mortgage Note and the Mortgage had legal capacity to enter into the Mortgage Loan and to
execute and deliver the Mortgage Note and the Mortgage, and the Mortgage Note and the Mortgage have been duly and properly executed by such parties. The Mortgagor is a natural person or living trust who is a party to the Mortgage Note and the
Mortgage in an individual or trustee capacity, respectively. 
  
 (l) Full Disbursement of Proceeds. The proceeds of the Mortgage Loan have been fully disbursed and there is no requirement for future advances thereunder, and any and all requirements as to completion of any on-site or off-site
improvement and as to disbursements of any escrow funds therefor have been complied with, except with respect to the proceeds of a Q-1 Loan; provided, that the Purchase Price of such Q-1 Loan, together with the aggregate Purchase Price for
all such Q-1 Loans subject to then outstanding Transactions does not exceed 5% of the aggregate Purchase Price for all Purchased Mortgage Loans subject to then outstanding Transactions (after giving effect to the purchase of such Q-1 Loan). All
costs, fees and expenses incurred in making or closing the Mortgage Loan and the recording of the Mortgage were paid, and the Mortgagor is not entitled to any refund of any amounts paid or due under the Mortgage Note or Mortgage. 
  

 3 








 (m) Ownership. Seller is the sole owner of record and holder of the Mortgage Loan. The Mortgage
Loan is not assigned or pledged except as provided in this Agreement, and Seller has good and marketable title thereto, and has full right to pledge and assign the Mortgage Loan to Buyer or its designee (including the Custodian) free and clear of
any encumbrance, equity, participation interest, lien, pledge, charge, claim or security interest, and has full right and authority subject to no interest or participation of, or agreement with, any other party, to sell and assign each Mortgage Loan
pursuant to this Agreement. 
  
 (n) Doing Business. All
parties which have had any interest in the Mortgage Loan, whether as mortgagee, assignee, pledgee or otherwise, are (or, during the period in which they held and disposed of such interest, were) (1) in compliance with any and all applicable
licensing requirements of the laws of the state wherein the Mortgaged Property is located, and (2) organized under the laws of such state, or (3) qualified to do business in such state, or (4) federal savings and loan associations or national banks
having principal offices in such state, or (5) not doing business in such state. 
  
 (o) Loan-to-Value Ratio. The Mortgage Loans subject to Transactions do not have a weighted average cumulative Loan-to-Value Ratio in excess of 85%. If a Mortgage Loan has a Loan-to-Value Ratio greater than 90%
and less than or equal to 100%, the Purchase Price of such Mortgage Loan together with the Purchase Price of Purchased Mortgage Loans secured by a first or a second lien on the related Mortgaged Properties subject to then outstanding Transactions
having a Loan-to-Value Ratio greater than 90% and less than or equal to 100% does not exceed the greater of (x) 10% of the aggregate Purchase Price for all Mortgage Loans which are subject to then outstanding Transactions and (y) $25,000,000. For
purposes of this paragraph, the Loan-to-Value Ratio for A-MI loans is reduced by the amount of coverage of Mortgage Insurance. 
  
 (p) Title Insurance. The Mortgage Loan is covered by an ALTA mortgage title insurance policy or such other form of policy acceptable to FNMA or
FHLMC, issued by and constituting the valid and binding obligation of a title insurer generally acceptable to prudent mortgage lenders that regularly originate or purchase mortgage loans comparable to the Mortgage Loans for sale to prudent investors
in the secondary market that invest in mortgage loans such as the Mortgage Loans and qualified to do business in the jurisdiction where the Mortgaged Property is located, insuring Seller, its successors and assigns, as to the first priority lien of
the Mortgage in the case of a First Mortgage Loan secured by a First Mortgage and the second priority lien of the Mortgage in the case of a Mortgage Loan secured by a second lien on the related Mortgaged Property, in the original principal amount of
the Mortgage Loan. Seller is the sole named insured of such mortgage title insurance policy, the assignment to Buyer or the Custodian as assignee of Buyer of Seller’s interest in such mortgage title insurance policy does not require the consent
of or notification to the insurer or the same has been obtained, and such mortgage title insurance policy is in full force and effect and will be in full force and effect and inure to the benefit of Buyer upon the consummation of the transactions
contemplated by this Agreement. No claims have been made under such mortgage title insurance policy and no prior holder of the related Mortgage, including Seller, has done, by act or omission, anything that would impair the coverage of such mortgage
title insurance policy. 
  

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 (q) No Defaults. Other than a payment default, there is no default, breach, violation or event of
acceleration existing under the Mortgage or the Mortgage Note and no event which, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a default, breach, violation or event of acceleration, and
neither Seller nor its predecessors have waived any default, breach, violation or event of acceleration. 
  
 (r) No Mechanics’ Liens. There are no mechanics’ or similar liens or claims which have been filed for work, labor or material (and no
rights are outstanding that under the law could give rise to such liens) affecting the Mortgaged Property which are or may be liens prior to, or equal or coordinate with, the lien of the Mortgage. 
  
 (s) Location of Improvements; No Encroachments. All improvements which
were considered in determining the appraised value of the mortgaged property lay wholly within the boundaries and building restriction lines of the mortgaged property and no improvements on adjoining properties encroach upon the mortgaged property.
No improvement located on or being part of the mortgaged property is in violation of any applicable zoning law or regulation. 
  
 (t) Origination. The Mortgage Loan was originated by Seller, an affiliate of Seller or by an originator not affiliated with the Seller licensed to
originate such Mortgage Loan. The documents, instruments and agreements submitted for loan underwriting were not falsified and contain no untrue statement of material fact or omit to state a material fact required to be stated therein or necessary
to make the information and statements therein not misleading. 
  
 (u) Customary Provisions. The Mortgage contains customary and enforceable provisions such as to render the rights and remedies of the holder thereof adequate for the realization against the Mortgaged Property of the benefits of the
security provided thereby, including, (i) in the case of a Mortgage designated as a deed of trust, by trustee’s sale, and (ii) otherwise by judicial foreclosure. There is no homestead or other exemption available to a Mortgagor which would
interfere with the right to sell the Mortgaged Property at a trustee’s sale or the right to foreclose the Mortgage. 
  
 (v) Occupancy of the Mortgaged Property. As of the related Purchase Date the Mortgaged Property is capable of being lawfully occupied under
applicable law. All inspections, licenses and certificates required to be made or issued with respect to all occupied portions of the Mortgaged Property and, with respect to the use and occupancy of the same, including but not limited to
certificates of occupancy and fire underwriting certificates, have been made or obtained from the appropriate authorities. Either that the Mortgagor represented at the time of origination of the Mortgage Loan that the Mortgagor would occupy the
Mortgaged Property as the Mortgagor’s primary residence or second home or the Mortgaged Property is capable of being occupied pursuant to terms that approximate current standard market rental terms and rates. 
  
 (w) No Additional Collateral. The Mortgage Note is not and has not
been secured by any collateral except the lien of the corresponding Mortgage and the security interest of any applicable security agreement or chattel mortgage referred to in (j) above. 
  

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 (x) Deeds of Trust. In the event the Mortgage constitutes a deed of trust, a trustee, duly
qualified under applicable law to serve as such, has been properly designated and currently so serves and is named in the Mortgage, and no fees or expenses are or will become payable by Buyer to the trustee under the deed of trust, except in
connection with a trustee’s sale after default by the Mortgagor. 
  
 (y) Acceptable Investment. Seller has no knowledge of any circumstances or conditions with respect to the Mortgage, the Mortgaged Property, the Mortgagor (other than the Mortgagor’s credit standing) that can reasonably be
expected to cause private institutional investors that regularly invest in subprime or high loan-to-value mortgage loans similar to the Mortgage Loans to regard the Mortgage Loan as an unacceptable investment or adversely affect the value or
marketability of the Mortgage Loan to other similar institutional investors. 
  
 (z) Purchase of Mortgage Documents. The Mortgage File and any other documents required by Buyer to be delivered for the Mortgage Loan by Seller under this Agreement have been delivered (or with respect to Wet
Ink Mortgage Loans, will be delivered within seven Business Days) to the Custodian. Seller is in possession of a complete, true and accurate Mortgage File except for such documents the originals of which have been delivered to the Buyer or its
designee (including the Custodian). Each of the documents and instruments included in the Mortgage File is duly executed and in due and proper form and each such document or instrument is in a form generally acceptable to prudent institutional
mortgage lenders that regularly originate and purchase subprime or high loan-to-value mortgage loans. 
  
 (aa) Condominiums/Planned Unit Developments. If the Mortgaged Property is a condominium unit or a planned unit development (other than a de minimus
planned unit development) such condominium or planned unit development project meets Seller’s Underwriting Guidelines. 
  
 (bb) Transfer of Mortgage Loans. The assignment of Mortgage is in recordable form and is acceptable for recording under the laws of the
jurisdiction in which the Mortgaged Property is located. 
  
 (cc)
Due on Sale. The Mortgage contains an enforceable provision for the acceleration of the payment of the unpaid principal balance of the Mortgage Loan in the event that the Mortgaged Property is sold or transferred without the prior written
consent of the Mortgagee thereunder. 
  
 (dd) No Buydown
Provisions; No Graduated Payments or Contingent Interests. The Mortgage Loan does not contain provisions pursuant to which monthly payments are paid or partially paid with funds deposited in any separate account established by Seller, the
Mortgagor or anyone on behalf of the mortgagor, or paid by any source other than the Mortgagor nor does it contain any other similar provisions currently in effect which may constitute a “buydown” provision. The Mortgage Loan is not a
graduated payment mortgage loan and the Mortgage Loan does not have a shared appreciation or other contingent interest feature. 
  
 (ee) Consolidation of Future Advances. Any future advances made prior to the Purchase Date have been consolidated with the outstanding principal
amount secured by the 

  

 6 








 
Mortgage, and the secured principal amount, as consolidated, bears a single interest rate and single repayment term. The lien of the Mortgage securing the
consolidated principal amount is expressly insured as having first or second lien priority, as the case may be, by a title insurance policy or an endorsement to the policy insuring the mortgagee’s consolidated interest. The consolidated
principal amount does not exceed the original principal amount of the Mortgage Loan. 
  
 (ff) Mortgaged Property Undamaged. There is no proceeding pending or, to Seller’s knowledge, threatened for the total or partial condemnation of the Mortgaged Property. The Mortgaged Property is undamaged
by waste, fire, earthquake or earth movement, windstorm, flood, tornado or other casualty so as to affect adversely the value of the Mortgaged Property as security for the Mortgage Loan or the use for which the premises were intended. 
  
 (gg) Collection Practices; Escrow Deposits; Interest Rate Adjustments.
The origination and collection practices used with respect to the Mortgage Loan have been in all respects in accordance with industry custom and practice, and have been in all respects legal and proper. With respect to escrow deposits and escrow
payments, all such payments are in the possession of Seller and there exist no deficiencies in connection therewith for which customary arrangements for repayment thereof have not been made. All escrow payments have been collected in full compliance
with state and federal law. If an escrow of funds has been established, it is not prohibited by applicable law and has been established in an amount sufficient to pay for every item that remains unpaid and has been assessed but is not yet due and
payable. No escrow deposits or escrow payments or other charges or payments due Seller have been capitalized under the Mortgage or the Mortgage Note. All mortgage interest rate adjustments have been made in strict compliance with state and federal
law and the terms of the related Mortgage Note. Any interest required to be paid pursuant to state and local law has been properly paid and credited. 
  
 (hh) Conversion to Fixed Interest Rate. With respect to the aggregate outstanding principal balance of the Mortgage Loans on the related Purchase
Date, no more than 50% of the Mortgage Notes contain a provision allowing the Mortgagor to convert the Mortgage Note from an adjustable interest rate Mortgage Note to a fixed interest rate Mortgage Note for the remaining term thereof all in
accordance with the terms of a rider to the related Mortgage Note. 
  
 (ii) Appraisal. The Mortgage File for each Mortgage Loan contains an appraisal of the related Mortgaged Property signed prior to the approval of the Mortgage Loan application by a qualified appraiser, duly appointed by the originator
of the Mortgage Loan, who had no interest, direct or indirect in the mortgaged property or in any loan made on the security thereof, other than as an employee of the lender, and whose compensation is not affected by the approval or disapproval of
the Mortgage Loan, and the appraisal and appraiser both satisfy the requirements of Title XI of the Federal Institutions Reform, Recovery, and Enforcement Act of 1989 and the regulations promulgated thereunder, all as in effect on the date the
Mortgage Loan was originated. 
  
 (jj) Servicemembers’
Civil Relief Act of 2003. The Mortgagor has not notified Seller, and Seller has no knowledge of any relief requested or allowed to the Mortgagor under the Servicemembers’ Civil Relief Act of 2003. 
  

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 (kk) Environmental Matters. To the best of Seller’s knowledge based on customary residential
mortgage industry practices the mortgaged Property is free from any and all toxic or hazardous substances and there exists no violation of any local, state or federal environmental law, rule or regulation. 
  
 (ll) Seller Origination. The Mortgage Loan was originated by Seller or
an Affiliate of Seller or was purchased and reunderwritten by Seller. 
  
 (mm) Balloon Mortgage Loans. Each Balloon Mortgage Loan has an original term of not less than 7 years and which provides for level monthly payments based on a thirty (30) year amortization schedule and a final Monthly Payment
substantially greater than the preceding Monthly Payments. 
  
 (nn) No Construction Loans. No Mortgage Loan is a construction loan or relates to manufactured housing which is not permanently affixed to real property. 
  
 (oo) Selection by Seller. No Mortgage Loan was selected for inclusion under this Agreement on any basis which was
intended to have a material adverse effect on Buyer. 
  
 (pp)
Second Mortgages. With respect to each Mortgage Loan secured by a second lien on the related Mortgaged Property: 
  
 (i) if the Loan-to-Value Ratio is higher than 70%, either the related first lien does not provide for a balloon payment or the maturity
date of each Mortgage Loan with respect to which a first lien on the related Mortgaged Property provides for a balloon payment is prior to the maturity date of the mortgage loan relating to such first lien; 
  
 (ii) the related first lien on any Mortgaged Property with
respect to which the related Mortgage Loan secured by a second lien does not provide for negative amortization; 
  
 (iii) either no consent for the Mortgage Loan secured by a second lien on the related Mortgaged Property is required by the holder of the
related first lien or such consent has been obtained and is contained in the Mortgage File; 
  
 (iv) the related first lien is not held by an individual; 
  
 (v) the Purchase Price of such Mortgage Loan together with the Purchase Price of Purchased Mortgage Loans
subject to then outstanding Transactions secured by a second lien on the related Mortgaged Properties does not exceed 10% of the aggregate Purchase Price for all Mortgage Loans subject to then outstanding Transactions. 
  
 (qq) CERCLA. To the best of the Seller’s knowledge, no Mortgaged
Property was, as of the Purchase Date or, with respect to Additional Loans or Substitute Mortgage Loans, as of the related date of addition or substitution, located within a one-mile radius of any site listed in the National Priorities List as
defined under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or on any similar state list of hazardous waste sites which are known to contain any hazardous substance or hazardous waste. 
  

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 (rr) No Bankruptcy of Mortgagor. None of the Mortgage Loans are subject to a bankruptcy plan.

  
 (ss) Conformance to Underwriting Standards. Each
Mortgage Loan was underwritten in accordance with the underwriting guidelines supplied to Buyer by Seller. 
  
 (tt) Qualified Mortgage. Each Mortgage Loan constitutes a “qualified mortgage” within the meaning of Section 860G(a)(3) of the Code.

  
 (uu) Balloon Loan Concentration. If the Mortgage Loan
is a Balloon Loan, it, together with the other Purchased Mortgage Loans which are Balloon Loans subject to Transactions, constitutes less than 10% of the aggregate outstanding Repurchase Price of all Purchased Mortgage Loans subject to Transactions.

  
 (vv) No Short Maturity Balloon Loans. The Mortgage Loan
is not a Balloon Loan with a maturity date occurring within five years from its origination date of the related Purchase Date. 
  
 (ww) Owner Occupied. In the event the Purchased Mortgage Loan relates to a Mortgaged Property which is non-owner occupied, it, together with the
other Purchased Mortgage Loans subject to Transactions relating to Mortgaged Properties which are non-owner occupied, does not exceed 20% of the aggregate outstanding Repurchase Price of all Purchased Mortgage Loans subject to Transactions.

  
 (xx) Payment Terms. With respect to adjustable rate
Mortgage Loans, following any applicable initial fixed rate period of 2, 3 or 5 years, the mortgage interest rate is adjusted annually or semi-annually on each interest rate adjustment date to equal the index plus the gross margin, rounded up or
down to the nearest 1/8%, subject to the mortgage interest rate cap. With respect to fixed rate Mortgage Loans, the mortgage note is payable each month in equal monthly installments of principal and interest. With respect to adjustable rate Mortgage
Loans, installments of interest are subject to change due to the adjustments to the mortgage interest rate on each interest rate adjustment date, with interest calculated and payable in arrears, sufficient to amortize the Mortgage Loan fully by the
stated maturity date, over an original term of not more than thirty years from commencement of amortization. 
  
 (yy) Securitization Standards. Each of the Mortgage Loans conforms to the then current standards of securitization applicable to similar assets as
determined in the reasonable judgment of Buyer. 
  
 (zz) Wet
Ink Mortgage Loans. The Purchase Price of a Wet Ink Mortgage Loan together with the Purchase Price of Purchased Mortgage Loans which are Wet Ink Mortgage Loans does not exceed, during the period beginning on the third from last Business Day of
each calendar month, through and including the seventh Business Day of the next succeeding calendar month, $125,000,000 and, at all other times, $100,000,000; provided that such amounts referred to above in this clause (zz) shall be reduced
to $75,000,000 and $50,000,000, respectively, in the event that the AIC has cash, Cash Equivalents and unused borrowing capacity on unencumbered assets that could be drawn against (taking into account required haircuts) under committed warehouse and
repurchase facilities in an amount less than $65,000,000. 
  

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 (aaa) A-MI Loan Concentration. If the Mortgage Loan is an A-MI Loan, it, together with the other
Purchased Mortgage Loans which are A-MI Loans subject to the Transactions, constitutes the lesser of (i) 20% of the aggregate outstanding Repurchase Price of all Purchased Mortgage Loans subject to the Transactions or (ii) $65,000,000. 

 
 (bbb) Mortgage Loans Purchased Through Clean-up Calls of Affiliate
Securitizations. The Purchase Price of Mortgage Loans subject to then outstanding Transactions which Mortgage Loans have been purchased by the Seller through clean-up calls of securitizations of Affiliates of the Seller and are Delinquent for 29
or fewer days does not exceed $20,000,000. No Mortgage Loans subject to then outstanding Transactions which Mortgage Loans have been purchased by the Seller through clean-up calls of securitizations of Affiliates of the Seller are Delinquent for 30
or more days. Seller acknowledges and agrees that in determining the Market Value of any Mortgage Loans subject to then outstanding Transactions which were purchased by the Seller through clean-up calls of securitizations of Affiliates of the
Seller, the Buyer may in its sole and absolute discretion determine the Market Value of such Mortgage Loans separate and apart from the Market Value of any other Mortgage Loans. 
  
 (ccc) Non-Eligible Mortgage Loans. No Mortgage Loan (w) is classified as a “high cost” loan under the Home
Ownership and Equity Protection Act of 1994 or “high cost,” “threshold,” or “predatory” loans under any other applicable state, federal or local law, (x) is a “stated income” Mortgage Loan to a Mortgagor with
a credit rating of “C” or lower or (y) is a cash-out refinancing secured by a Mortgaged Property located in Texas. None of the proceeds of the Mortgage Loan were used to finance single-premium credit life insurance policies. Each Mortgage
Loan at the time it was made complied in all material respects with applicable local, state, and federal laws, including, but not limited to, all applicable predatory and abusive lending laws. 
  
 (ddd) Compliance with Anti-Money Laundering Laws. With respect to each
Mortgage Loan, Seller has complied with all applicable anti-money laundering laws and regulations, including the USA Patriot Act of 2001 (collectively, the “Anti-Money Laundering Laws”); Seller has established an anti-money
laundering compliance program as required by the Anti-Money Laundering Laws, has conducted the requisite due diligence in connection with the origination of each Mortgage Loan for purposes of the Anti-Money Laundering Laws, including with respect to
the legitimacy of the applicable Mortgagor and the origin of the assets used by the said Mortgagor to purchase the property in question, and maintains, and will maintain, sufficient information to identify the applicable Mortgagor for purposes of
the Anti-Money Laundering Laws; 
  
 (eee) Lost Instrument
Affidavits. In the event any Mortgage File contains a lost note affidavit in lieu of a Mortgage Note, such lost note affidavit, when assigned, will be sufficient to effect the transfer of title to the related Mortgage Loan, without the need for
a judicial proceeding, administrative action, court or regulatory order, or similar action or order. 
  
 (fff) Credit Reporting. For each Mortgage Loan, Seller or its designee has accurately and fully furnished, in accordance with the Fair Credit
Reporting Act and its implementing regulations, accurate and complete information (e.g., favorable and unfavorable) on its borrower credit files to one of the following credit repositories: Equifax Credit Information Services, Inc., Trans Union, LLC
and Experian Information Solution, Inc. 
  

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 (ggg) Georgia Mortgage Loan. No Mortgage Loan originated between October 1, 2002 and March 7, 2003
(both inclusive) and secured by a Mortgaged Property located in the State of Georgia is a “home loan” and is either a “covered” or “high cost loan” as defined in the Georgia Fair Lending Act, as amended. No Mortgage
Loan originated after March 7, 2003 and secured by a Mortgaged Property located in the State of Georgia is a “home loan” and is a “high cost loan” as defined in the Georgia Fair Lending Act, as amended. 
  
 It is understood and agreed that the representations and warranties set forth
in this Exhibit V shall survive delivery of the respective Mortgage Files to the Custodian on behalf o Buyer. 
  

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