Document:

Exhibit 10.3

 

 

MANAGEMENT AGREEMENT

 

by and among

 

PENNYMAC MORTGAGE
INVESTMENT TRUST,

 

PENNYMAC OPERATING
PARTNERSHIP, L.P.

 

and

 

PNMAC CAPITAL MANAGEMENT,
LLC

 

Dated as of [·], 2009

 

 

 

MANAGEMENT AGREEMENT, dated as of [·], 2009, by and among PennyMac Mortgage Investment
Trust, a Maryland real estate investment trust (the “Trust”),
PennyMac Operating Partnership, L.P., a Delaware limited partnership (the “Operating Partnership”), and PNMAC Capital Management, LLC,
a Delaware limited liability company (the “Manager”).

 

W I T N E S S E T H:

 

WHEREAS, the Trust is a newly-formed Maryland
real estate investment trust which intends to invest primarily in residential
mortgage loans and mortgage-related assets and intends to qualify as a real
estate investment trust for federal income tax purposes and will elect to
receive the tax benefits accorded by Sections 856 through 860 of the Internal
Revenue Code of 1986, as amended (the “Code”);

 

WHEREAS, the Trust conducts substantially all
of its operations, and makes substantially all of its investments, through the
Operating Partnership, which is a Subsidiary of the Trust; and

 

WHEREAS, the Trust and the Operating
Partnership desire to retain the Manager to manage the business and investment
affairs of the Trust and the Subsidiaries (as defined below) and to perform
services for the Trust and the Subsidiaries in the manner and on the terms set
forth herein and the Manager wishes to be retained to provide such services.

 

NOW THEREFORE, in consideration of the
premises and agreements hereinafter set forth, the parties hereto hereby agree
as follows:

 

Section 1.  Definitions.  (a)  The following
terms shall have the meanings set forth in this Section 1(a):

 

“Affiliate”
means (1) any Person directly or indirectly controlling, controlled by or
under common control with such other Person, (2) any executive officer or
general partner of such other Person and (3) any legal entity for which
such Person acts as an executive officer or general partner.

 

“Agreement”
means this Management Agreement, as amended, supplemented or otherwise modified
from time to time.

 

“Allocation Policy”
means the allocation policy for the Trust and the Manager, a copy of which is
attached hereto as Exhibit A, as the same may be amended, restated,
modified, supplemented or waived by the Board of Trustees as specified therein.

 

 “Automatic Renewal Term” has the meaning set forth in Section 11(b) hereof.

 

“Bankruptcy”
means, with respect to any Person, (a) the filing by such Person of a
voluntary petition seeking liquidation, reorganization, arrangement or
readjustment, in any form, of its debts under Title 11 of the United States
Code or any other federal, state or foreign insolvency law, or such Person’s
filing an answer consenting to or acquiescing in any such petition, (b) the
making by such Person of any assignment for the benefit of its creditors, (c) the
expiration of 60 days after the filing of an involuntary petition under Title
11 of the Unites States 

 

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Code, an application for the
appointment of a receiver for a material portion of the assets of such Person,
or an involuntary petition seeking liquidation, reorganization, arrangement or
readjustment of its debts under any other federal, state or foreign insolvency
law, provided, that the same
shall not have been vacated, set aside or stayed within such 60-day period or (d) the
entry against it of a final and non-appealable order for relief under any
bankruptcy, insolvency or similar law now or hereinafter in effect.

 

“Base Management Fee”
means the base management fee, calculated and payable (in cash) quarterly in
arrears, in an amount equal to 1.50% per annum of the Trust’s Shareholders’
Equity.  For purposes of
calculating the Base Management Fee, outstanding limited partnership interests
in the Operating Partnership (other than limited partnership interests held by
the Trust) shall be treated as outstanding Common Shares.

 

“Board of Trustees”
means the board of trustees of the Trust.

 

“Business Day”
means any day except a Saturday, a Sunday or a day on which banking
institutions in New York, New York are not required to be open.

 

“Change in Control of the
Manager” means the occurrence of any of the following: (1) the
sale, lease or transfer, in one or a series of related transactions, of all or
substantially all of the assets of the Manager, taken as a whole, to any Person
other than one or more Affiliates of the Manager, the Trust or a Subsidiary; or
(2) the acquisition by any Person or group (within the meaning of Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act, or any successor provision),
including any group acting for the purpose of acquiring, holding or disposing
of securities (within the meaning of Rule 13d-5(b)(1) under the
Exchange Act), other than one or more Affiliates of the Manager, the Trust or a
Subsidiary, in a single transaction or in a related series of transactions, by
way of merger, consolidation or other business combination or purchase of
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange
Act, or any successor provision) of 50% or more of the total voting power
of the voting securities of the Manager.

 

“Claim” has the
meaning set forth in Section 9(c) hereof.

 

“Closing Date”
means the date of closing of the Initial Public Offering.

 

“Code” has the
meaning set forth in the Recitals.

 

“Common Shares”
means the common shares of beneficial interest, par value $0.01, of the Trust.

 

“Conditional
Payments” means the Manager Conditional Payment and the
Underwriter Conditional Payment.

 

“Conduct
Policies” has the meaning set forth in Section 2(t) hereof.

 

“Confidential Information”
has the meaning set forth in Section 6(a) hereof.

 

“Core Earnings”
means:

 

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(A) GAAP net income (loss) excluding
non-cash equity compensation expense;

 

(B) excluding any unrealized gains,
losses or other non-cash items recorded in the period, regardless of whether
such items are included in other comprehensive income or loss, or in net income;
and

 

(C) adjusted to exclude one-time events
pursuant to changes in GAAP and certain other non-cash charges after
discussions between the Manager and the Independent Trustees and after approval
by a majority of the Independent Trustees.

 

For the initial four fiscal quarters following the
Initial Public Offering, Core Earnings will be calculated on the basis of each
of the previously completed fiscal quarters on an annualized basis.  Core Earnings for the initial fiscal quarter
following the Initial Public Offering will be calculated from the Closing Date
on an annualized basis.

 

In the event the Conditional Payments are made
pursuant to the terms of the Underwriting Fee Reimbursement Agreement and the
Underwriting Agreement, respectively, such Conditional Payments shall be
excluded from the calculation of Core Earnings.

 

“Core
Earnings Offset” means any portion of a Core Loss from a period
prior to the Rolling Four Quarters Period that has not been taken into account
in reducing the amount of Core Earnings (but not below zero) from a period
subsequent to the period in which such Core Loss occurred in connection with
the calculation of the Incentive Fee for any period.

 

“Core Loss”
means a loss with regard to any period as calculated in accordance with the
definition of Core Earnings.

 

“Effective Termination Date”
has the meaning set forth in Section 11(c) hereof.

 

“Excess Funds”
has the meaning set forth in Section 2(u) hereof.

 

“Exchange Act”
means the Securities Exchange Act of 1934, as amended.

 

“GAAP” means
generally accepted accounting principles in effect in the United States on the
date such principles are applied.

 

“Governing Instruments”
means, with regard to any entity, the trust instrument in the case of a trust,
the articles of incorporation or certificate of incorporation and bylaws in the
case of a corporation, the certificate of limited partnership (if applicable)
and the partnership agreement in the case of a general or limited partnership,
the certificate of formation and operating agreement in the case of a limited
liability company, or similar governing documents, in each case as amended.

 

“Incentive Fee”
means an incentive management fee calculated and payable (in cash) each fiscal
quarter in arrears in an amount equal to 20% of the dollar amount by which the
Trust’s Core Earnings, for the Rolling Four Quarters Period, plus the amount of
the Incentive Fee, if any, during any of the fiscal quarters in such Rolling
Four Quarters Period and less the amount of any Core Earnings Offset, exceeds
the product of:

 

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(1) the
weighted average of the issue price per Common Share of all of the Trust’s
public offerings of Common Shares (including the Initial Public Offering)
multiplied by the weighted average number of Common Shares outstanding
(including, for the avoidance of doubt, restricted Common Shares granted under
one or more of the Trust’s equity incentive plans) in the four-quarter period;
and

 

(2) 8.0%.

 

For purposes of calculating
the Incentive Fee, outstanding limited partnership interests in the Operating
Partnership (other than limited partnership interests held by the Trust) shall
be treated as outstanding Common Shares.

 

“Indemnified Party”
has the meaning set forth in Section 9(b) hereof.

 

“Independent Trustee”
means a member of the Board of Trustees who is not an officer or employee of
the Manager or any Affiliate thereof and who otherwise is “independent” in
accordance with the rules of the NYSE or such other securities exchange on
which the Common Shares may be listed.

 

“Initial Public Offering”
means the sale by the Trust of up to [·] Common Shares
in the initial public offering of the Trust registered with the SEC.

 

“Initial Term”
has the meaning set forth in Section 11(a) hereof.

 

“Investment Company Act”
means the Investment Company Act of 1940, as amended.

 

“Investment Policies”
means the Trust’s investment policies, a copy of which is attached hereto as Exhibit B,
as the same may be amended, restated, modified, supplemented or waived by the
Board of Trustees as specified therein.

 

“Losses” has the
meaning set forth in Section 9(a) hereof.

 

“Manager
Conditional Payment” means the conditional obligation of the Trust
and the Manager pursuant to the terms of the Underwriting Fee Reimbursement
Agreement to reimburse the Manager an amount equal to the Manager Offering
Payments (as such term is defined in the Underwriting Agreement) if the
conditions set forth in the Underwriting Fee Reimbursement Agreement are met
during the Conditional Payment Period (as defined in the Underwriting Fee
Reimbursement Agreement).

 

“Manager Indemnified Party”
has the meaning set forth in Section 9(a) hereof.

 

“Manager Permitted
Disclosure Parties” has the meaning set forth in Section 6(a) hereof.

 

“Nonrenewal Termination”
has the meaning set forth in Section 11(c) hereof.

 

“Notice of Proposal to
Negotiate” has the meaning set forth in Section 11(c) hereof.

 

“NYSE” means the
New York Stock Exchange, Inc.

 

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“PennyMac
Brand” has the meaning set forth in Section 17(a) hereof.

 

“Person” means
any natural person, corporation, partnership, association, limited liability
company, estate, trust, joint venture, unincorporated association, any federal,
state, county or municipal government or any bureau, department or agency
thereof or any other legal entity and any fiduciary acting in such capacity on
behalf of the foregoing.

 

“Portfolio Management
Services” has the meaning set forth in Section 2(b) hereof.

 

“REIT” means a “real
estate investment trust” as defined under the Code.

 

“Rolling
Four Quarters Period” means the most recently completed fiscal
quarterly period and the three fiscal quarters immediately preceding the most
recently completed fiscal quarter.

 

“SEC” means the
United States Securities and Exchange Commission.

 

“Securities Act”
means the Securities Act of 1933, as amended.

 

“Shareholder”
means a shareholder of the Trust.

 

“Shareholders’ Equity”
means:

 

(A) the sum of the net proceeds from any
issuances of the Trust’s equity securities since inception (allocated on a pro
rata daily basis for such issuances during the fiscal quarter of any such
issuance); plus

 

(B) the Trust’s retained earnings at the
end of such quarter (without taking into account any non-cash equity
compensation expense incurred in current or prior periods); less

 

(C) any amount that the Trust pays for
repurchases of its Common Shares; excluding

 

(D) any unrealized gains, losses or
other non-cash items that have impacted the Trust’s shareholders’ equity as
reported in the Trust’s financial statements prepared in accordance with GAAP,
regardless of whether such items are included in other comprehensive income or
loss, or in net income; and excluding

 

(E) one-time events pursuant to changes
in GAAP and certain other non-cash charges after discussions between the
Manager and the Independent Trustees and after approval by a majority of the
Independent Trustees.

 

The Conditional Payments shall be taken into account
in the calculation of Shareholders’ Equity only from and after the payment
thereof, if any.

 

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For purposes of calculating the Base
Management Fee, outstanding limited partnership interests in the Operating
Partnership (other than limited partnership interests held by the Trust) shall
be treated as outstanding Common Shares.

 

“Subsidiary”
means any subsidiary of the Trust, any partnership (including the Operating
Partnership), the general partner of which is the Trust or any subsidiary of
the Trust; any limited liability company, the managing member of which is the
Trust or any subsidiary of the Trust; and any corporation or other entity of
which a majority of (i) the voting power of the voting equity securities
or (ii) the outstanding equity interests is owned, directly or indirectly,
by the Trust or any subsidiary of the Trust.

 

“Termination Fee”
means a termination fee equal to three (3) times the sum of (a) the
average annual Base Management Fees and (b) the average annual (or, if the
period is less than 24 months, annualized) Incentive Fees earned by the Manager
during the 24-month period immediately preceding the date of termination,
calculated as of the end of the most recently completed fiscal quarter before
the date of termination.

 

“Termination Notice”
has the meaning set forth in Section 11(c) hereof.

 

“Trust Account”
has the meaning set forth in Section 5 hereof.

 

“Trust Indemnified Party”
has the meaning set forth in Section 9(b) hereof.

 

“Trust Permitted Disclosure
Parties” has the meaning set forth in Section 6(b) hereof.

 

“Underwriter Conditional Payment” means the conditional obligation
of the Trust pursuant to the terms of the Underwriting Agreement to pay to the
Underwriters the Conditional Payment (as defined in the Underwriting Agreement)
if the conditions set forth in the Underwriting Agreement are met during the
Conditional Payment Period (as defined in the Underwriting Agreement).

 

“Underwriters” means the underwriters named in the
Underwriting Agreement.

 

“Underwriting Agreement” means the purchase agreement, dated July [·], 2009, among the Trust, the Operating Partnership,
the Manager and the Underwriters relating to the Initial Public Offering.

 

“Underwriting Fee Reimbursement Agreement” means the
Underwriting Fee Reimbursement Agreement, dated as of July [·], 2009, among the Trust, the Operating Partnership
and the Manager.

 

(b)           As
used herein, accounting terms relating to the Trust and the Subsidiaries, if
any, not defined in Section 1(a) and accounting terms partly defined
in Section 1(a), to the extent not defined, shall have the respective
meanings given to them under GAAP.

 

(c)           The
words “hereof,” “herein” and “hereunder” and words of similar import when used
in this Agreement shall refer to this Agreement as a whole and not to any 

 

6

 

particular provision of this Agreement, and Section references are
to this Agreement unless otherwise specified.

 

(d)           The
meanings given to terms defined herein shall be equally applicable to both the
singular and plural forms of such terms. 
The words include, includes and including shall be deemed to be followed
by the phrase “without limitation.”

 

Section 2.  Appointment and
Duties of the Manager.  (a)  The
Trust and the Operating Partnership hereby appoint the Manager to manage the
investments and day-to-day operations of the Trust and the Subsidiaries,
subject at all times to the further terms and conditions set forth in this
Agreement and to the supervision of, and such further limitations or parameters
as may be imposed from time to time by, the Board of Trustees.  The Manager hereby agrees to use its
commercially reasonable efforts to perform each of the duties set forth herein,
except where a specific standard of care is specified, in which case such
specific standard of care shall apply. 
The appointment of the Manager shall be exclusive to the Manager, except
to the extent that the Manager elects, in its sole and absolute discretion, in
accordance with the terms of this Agreement, to cause the duties of the Manager
as set forth herein to be provided by third parties.

 

(b)           The
Manager, in its capacity as manager of the investments and the day-to-day
operations of the Trust and the Subsidiaries, at all times will be subject to
the supervision and direction of the Board of Trustees and will have only such
functions and authority as the Board of Trustees may delegate to it, including,
without limitation, the functions and authority identified herein and delegated
to the Manager hereby.  The Manager will
be responsible for the day-to-day operations of the Trust and the Subsidiaries
and will perform (or cause to be performed) such services and activities
relating to the operations of the Trust and the Subsidiaries, including the
investments of the Trust and the Subsidiaries and their financing, as may be
appropriate, which may include, without limitation:

 

(i)            serving as the Trust’s and
the Subsidiaries’ consultant with respect to the periodic review of the
Investment Policies and Allocation Policy, which review shall occur no less
often than annually, any modifications to which shall be approved by a majority
of the Independent Trustees, and other policies and recommendations with
respect thereto for approval by the Board of Trustees;

 

(ii)           serving as the Trust’s and
the Subsidiaries’ consultant with respect to the identification, investigation,
evaluation, analysis, underwriting, selection, purchase, origination,
negotiation, structuring, monitoring and disposition of the Trust’s and the
Subsidiaries’ investments;

 

(iii)          serving as the Trust’s and
the Subsidiaries’ consultant with respect to decisions regarding any
financings, securitizations and hedging activities undertaken by the Trust or
any Subsidiary, including (1) assisting the Trust or any Subsidiary in
developing criteria for debt and equity financing that is specifically tailored
to the Trust’s or such Subsidiary’s investment objectives, (2) advising
the Trust and the Subsidiaries with respect to obtaining appropriate short-term
financing arrangements for their investments and pursuing a particular
arrangement for each 

 

7

 

individual
investment, if necessary, and (3) advising the Trust and the Subsidiaries
with respect to pursuing and structuring long-term financing alternatives for
their investments, in each case consistent with the Investment Policies;

 

(iv)          serving as the Trust’s and
the Subsidiaries’ consultant with respect to arranging for the issuance of
mortgage-backed securities from pools of mortgage loans or mortgage-backed
securities owned by the Trust or any Subsidiary;

 

(v)           representing and making
recommendations to the Trust and the Subsidiaries in connection with the
purchase and finance and commitment to purchase and finance investments and the
sale and commitment to sell such investments;

 

(vi)          negotiating and entering into,
on behalf of the Trust or any Subsidiary, credit finance agreements, repurchase
agreements, securitization agreements, agreements relating to borrowings under
temporary programs established by the U.S. government, commercial paper,
interest rate swap agreements, warehouse facilities and all other agreements
and instruments required for the Trust and the Subsidiaries to conduct their
business;

 

(vii)         advising the Trust and the
Subsidiaries on, preparing, negotiating and entering into, on behalf of the Trust
or any Subsidiary, applications and agreements relating to programs established
by the U.S. government;

 

(viii)        with respect to any
prospective investment by the Trust or any Subsidiary and any sale, exchange or
other disposition of any investment by the Trust or any Subsidiary, conducting
negotiations on behalf of the Trust or such Subsidiary with real estate brokers,
sellers and purchasers and their respective agents, representatives and
investment bankers and owners of privately and publicly held real estate
companies;

 

(ix)           evaluating and
recommending to the Trust and the Subsidiaries hedging strategies and engaging
in hedging activities on their behalf that are consistent with such strategies,
as so modified from time to time, and with the Trust’s qualification as a REIT
and with the Investment Policies;

 

(x)            making available to the
Trust and the Subsidiaries the Manager’s knowledge and experience with respect
to mortgage loans, mortgage-related securities, real estate, real estate
securities, other real estate-related assets and non-real estate-related assets
and real estate operating companies;

 

(xi)           investing and
re-investing any funds of the Trust and the Subsidiaries (including in
short-term investments) and advising the Trust and the Subsidiaries as to its
capital structure and capital-raising activities;

 

8

 

(xii)          monitoring
the operating performance of the Trust’s and the Subsidiaries’ investments and
providing periodic reports with respect thereto to the Board of Trustees,
including comparative information with respect to such operating performance
and budgeted or projected operating results;

 

(xiii)         engaging
and supervising, on behalf of the Trust or any Subsidiary, and at the expense
of the Operating Partnership (except to the extent determined by the Operating
Partnership, in its sole discretion, to be the expense of a Subsidiary other
than the Operating Partnership), independent contractors that provide real
estate, investment banking, mortgage brokerage, securities brokerage,
appraisal, engineering, environmental, seismic, insurance, legal, accounting, transfer
agent, registrar, leasing, due diligence and such other services as may be
required relating to the operations of the Trust and the Subsidiaries,
including their investments (or potential investments);

 

(xiv)        coordinating
and managing operations of any joint venture or co-investment interests held by
the Trust or any Subsidiary and conducting all matters with the joint venture
or co-investment partners;

 

(xv)         providing
executive and administrative personnel, office space and office services
required in rendering services to the Trust and the Subsidiaries;

 

(xvi)        performing
and supervising the performance of administrative functions necessary in the
management of the Trust and the Subsidiaries as may be agreed upon by the
Manager and the Board of Trustees, including, without limitation, the services
in respect of any of the equity incentive plans, the collection of revenues and
the payment of the Trust’s or any Subsidiary’s debts and obligations and
maintenance of appropriate information technology services to perform such
administrative functions;

 

(xvii)       furnishing
reports and statistical and economic research to the Trust and the Subsidiaries
regarding their activities and services performed for the Trust and the
Subsidiaries by the Manager;

 

(xviii)      counseling
the Trust and the Subsidiaries in connection with policy decisions to be made
by the Board of Trustees;

 

(xix)         communicating
on behalf of the Trust or any Subsidiary with the holders of any equity or debt
securities of the Trust or such Subsidiary as required to satisfy the reporting
and other requirements of any governmental bodies or agencies or trading
exchanges or markets and to maintain effective relations with such holders,
including website maintenance, logo design, analyst presentations, investor
conferences and annual meeting arrangements;

 

(xx)          counseling
the Trust and the Subsidiaries regarding the maintenance of their exclusions
and, if applicable, exemptions from status as an 

 

9

 

investment company under the Investment Company Act, monitoring
compliance with the requirements for maintaining such exclusions and exemptions
and using commercially reasonable efforts to cause the Trust and the
Subsidiaries to maintain their exclusions and exemptions from such status;

 

(xxi)         assisting
the Trust and the Subsidiaries in complying with all regulatory requirements
applicable to them in respect of their business activities, including preparing
or causing to be prepared all financial statements required under applicable
regulations and all reports and documents, if any, required under the Exchange
Act, the Securities Act and by the NYSE;

 

(xxii)        counseling
the Trust regarding the maintenance of its qualification as a REIT and
monitoring compliance with the various REIT qualification tests and other rules set
out in the Code and Treasury Regulations promulgated thereunder;

 

(xxiii)       causing
the Trust and the Subsidiaries to retain qualified accountants and legal
counsel, as applicable, to (1) assist in developing appropriate accounting
procedures, compliance procedures and testing systems with respect to financial
reporting obligations and compliance with the provisions of the Code applicable
to REITs and, if applicable, taxable REIT subsidiaries and (2) conduct
quarterly compliance reviews with respect thereto;

 

(xxiv)       taking
all necessary actions to enable the Trust and any Subsidiary to make required
tax filings and reports, including soliciting Shareholders or interest holders
in any such Subsidiary for required information to the extent necessary under
the Code and Treasury Regulations promulgated thereunder applicable to REITs;

 

(xxv)        causing
the Trust and the Subsidiaries to qualify to do business in all jurisdictions
in which such qualification is required or advisable and to obtain and maintain
all appropriate licenses;

 

(xxvi)       using
commercially reasonable efforts to cause the Trust and the Subsidiaries to
comply with all applicable laws;

 

(xxvii)      handling
and resolving on the Trust’s or any Subsidiary’s behalf all claims, disputes or
controversies (including all litigation, arbitration, settlement or other
proceedings or negotiations) in which the Trust or such Subsidiary may be
involved or to which the Trust or such Subsidiary may be subject arising out of
its day-to-day operations (other than with the Manager or its Affiliates),
subject to such limitations or parameters as may be imposed from time to time
by the Board of Trustees;

 

10

 

(xxviii)     arranging
marketing materials, advertising, industry group activities (such as conference
participations and industry organization memberships) and other promotional
efforts designed to promote the Trust’s and the Subsidiaries’ business;

 

(xxix)       using
commercially reasonable efforts to cause expenses incurred by or on behalf of
the Trust and the Subsidiaries to be commercially reasonable or commercially
customary and within any budgeted parameters or expense guidelines set by the
Board of Trustees from time to time; and

 

(xxx)        performing
such other services as may be required from time to time for the management and
other activities relating to the operations, including investments, of the
Trust and the Subsidiaries as the Board of Trustees reasonably requests or the
Manager deems appropriate under the particular circumstances.

 

Without
limiting the foregoing, the Manager will perform portfolio management services
(the “Portfolio Management Services”) on
behalf of the Trust and the Subsidiaries with respect to their investments.
Such services will include, but not be limited to, consulting with the Trust
and the Subsidiaries on the purchase and sale of, and other investment
opportunities in connection with, the Trust’s and the Subsidiaries’ portfolio
of assets; the collection of information and the submission of reports
pertaining to the Trust’s and the Subsidiaries’ assets, interest rates and
general economic conditions; periodic review and evaluation of the performance
of the Trust’s and the Subsidiaries’ portfolio of assets; acting as liaison
between the Trust and the Subsidiaries and banking, mortgage banking,
investment banking and other parties with respect to the purchase, financing
and disposition of assets; and other customary functions related to portfolio
management.

 

(c)           For
the period and on the terms and conditions set forth in this Agreement, each of
the Trust and the Operating Partnership hereby constitutes, appoints and
authorizes the Manager as its true and lawful agent and attorney-in-fact and as
the true and lawful agent and attorney-in-fact of any other Subsidiary, in its
name, place and stead, to negotiate, execute, deliver and enter into such
credit agreements, repurchase agreements, securitization agreements, agreements
relating to borrowings under temporary programs established by the U.S.
government, commercial paper, interest rate swap agreements, warehouse
facilities, brokerage agreements, custodial agreements and such other
agreements, instruments and authorizations on their behalf, on such terms and
conditions as the Manager, acting in its sole and absolute discretion, deems
necessary or appropriate. This power of attorney is deemed to be coupled with
an interest.

 

(d)           The
Manager may enter into agreements with other parties, including its Affiliates,
for the purpose of engaging one or more parties for and on behalf of the Trust
and/or one or more of the Subsidiaries, and at the sole cost and expense of the
Operating Partnership (except to the extent determined by the Operating
Partnership, in its sole discretion, to be the expense of a Subsidiary other
than the Operating Partnership), to provide property management, asset
management, securitization, leasing, development and/or other services to the
Trust and the Subsidiaries (including, without limitation, Portfolio Management
Services) pursuant to 

 

11

 

agreement(s) with terms which are then
customary for agreements regarding the provision of services to companies that
have assets similar in type, quality and value to the assets of the Trust and
the Subsidiaries; provided, that (i) any
such agreements entered into with Affiliates of the Manager shall be (A) on
terms no more favorable to such Affiliates than would be obtained from a third
party on an arm’s-length basis and (B) to the extent the same do not fall
within the provisions of the Investment Policies, approved by a majority of the
Independent Trustees and (ii) with respect to Portfolio Management
Services, (A) any such agreements shall be subject to the Trust’s prior
written approval and (B) the Manager shall remain liable for the
performance of such Portfolio Management Services.

 

(e)           To
the extent that the Manager deems necessary or advisable, the Manager may, from
time to time, propose to retain one or more additional entities for the
provision of sub-advisory services to the Manager in order to enable the
Manager to provide the services to the Trust and the Subsidiaries specified by
this Agreement; provided, that
any such agreement (1) shall be on terms and conditions substantially
identical to the terms and conditions of this Agreement or otherwise not
adverse to the Trust and the Subsidiaries, (2) shall not result in an
increased Base Management Fee, Incentive Fee or expenses payable hereunder and (3) shall
be approved by a majority of the Independent Trustees.

 

(f)            The
Manager may retain, for and on behalf of the Trust and/or one or more of the
Subsidiaries, and at the sole cost and expense of the Operating Partnership
(except to the extent determined by the Operating Partnership, in its sole
discretion, to be the expense of a Subsidiary other than the Operating
Partnership), such services of accountants, legal counsel, appraisers,
insurers, brokers, transfer agents, registrars, financial printers, developers,
investment banks, financial advisors, internal audit service providers, due
diligence firms, underwriting review firms, banks and other lenders, surveyors,
engineers, environmental and seismic consultants, information technology
consultants, tax advisors and preparers, other consultants, agents,
contractors, vendors, advisors and others as the Manager deems necessary or
advisable in connection with the management and operations of the Trust and the
Subsidiaries. Notwithstanding anything contained herein to the contrary, the
Manager shall have the right to cause any such services to be rendered by its
employees or Affiliates. Except as otherwise provided herein, the Operating
Partnership (or such other Subsidiary) shall pay or reimburse the Manager or
its Affiliates performing such services for the cost thereof; provided, that such costs and
reimbursements are no greater than those which would be payable to outside
professionals or consultants engaged to perform such services pursuant to
agreements negotiated on an arm’s-length basis.

 

(g)           The
Manager may effect transactions by or through the agency of another person with
it or its Affiliates which have an arrangement under which that party or its
Affiliates will from time to time provide to or procure for the Manager and/or
its Affiliates goods, services or other benefits (including, but not limited
to, research and advisory services; economic and political analysis, including
valuation and performance measurement; market analysis, data and quotation
services; computer hardware and software incidental to the above goods and
services; clearing and custodian services and investment related publications),
the nature of which is such that provision can reasonably be expected to
benefit the Trust and the Subsidiaries as a whole and may contribute to an
improvement in the performance of the Trust and the Subsidiaries or the Manager
or its Affiliates in providing services to the Trust and the Subsidiaries on
terms that 

 

12

 

no direct payment is made but instead the
Manager and/or its Affiliates undertake to place business with that party.

 

(h)           In
executing portfolio transactions and selecting brokers or dealers, the Manager
will use its best efforts to seek on behalf of the Trust and the Subsidiaries
the best overall terms available. In assessing the best overall terms available
for any transaction, the Manager shall consider all factors that it deems
relevant, including, without limitation, the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission,
if any, both for the specific transaction and on a continuing basis. In evaluating
the best overall terms available, and in selecting the broker or dealer to
execute a particular transaction, the Manager may also consider whether such
broker or dealer furnishes research and other information or services to the
Manager.

 

(i)            The
Manager has no duty or obligation to seek in advance competitive bidding for
the most favorable commission rate applicable to any particular purchase, sale
or other transaction, or to select any broker-dealer on the basis of its
purported or “posted” commission rate, but will endeavor to be aware of the
current level of charges of eligible broker-dealers and to minimize the expense
incurred for effecting purchases, sales and other transactions to the extent
consistent with the interests and policies of the Trust and the
Subsidiaries.  Although the Manager will
generally seek competitive commission rates, it is not required to pay the
lowest commission or commission equivalent, provided,
that such decision is made in good faith to promote the best interests of the
Trust and the Subsidiaries.

 

(j)            The
Manager shall refrain from any action that, in its sole judgment made in good
faith, (1) is not in compliance with the Investment Policies, (2) would
adversely affect the qualification of the Trust as a REIT under the Code or the
status of the Trust or any Subsidiary as an entity excluded or exempted from
investment company status under the Investment Company Act, or (3) would
violate any law, rule or regulation of any governmental body or agency
having jurisdiction over the Trust or any Subsidiary or of any exchange on
which the securities of the Trust may be listed or that would otherwise not be
permitted by the Governing Instruments of the Trust or such Subsidiary.  If the Manager is ordered to take any action
by the Board of Trustees, the Manager shall promptly notify the Board of
Trustees if it is the Manager’s judgment that such action would adversely
affect such status or violate any such law, rule or regulation or the
Governing Instruments.  Notwithstanding the
foregoing, the Manager, its Affiliates and their respective managers, officers,
trustees, directors, employees and members and any Person providing
sub-advisory services to the Manager shall not be liable to the Trust, the
Subsidiaries, the Board of Trustees, the Shareholders or the interest holders
in any Subsidiary for any act or omission by such Person except as provided in Section 9
of this Agreement.

 

(k)           The
Trust (including the Board of Trustees) and the Operating Partnership agree to
take all actions reasonably required to permit and enable the Manager to carry
out its duties and obligations under this Agreement, including, without
limitation, all steps reasonably necessary to allow the Manager to file any
registration statement or other filing required to be made under the Securities
Act, the Exchange Act, rules of the NYSE or such other securities exchange
on which the Common Shares may be listed, the Code or other applicable law, rule or

 

13

 

regulation on behalf of the Trust and any
applicable Subsidiary in a timely manner. 
The Trust and the Operating Partnership further agree to use
commercially reasonable efforts to make available to the Manager all resources,
information and materials reasonably requested by the Manager to enable the
Manager to satisfy its obligations hereunder, including its obligations to
deliver financial statements and any other information or reports with respect
to the Trust and the Subsidiaries.  If
the Manager is not able to provide a service, or in the reasonable judgment of
the Manager it is not prudent to provide a service, without the approval of the
Board of Trustees, as applicable, then the Manager shall be excused from
providing such service (and shall not be in breach of this Agreement) until the
applicable approval has been obtained, which the Manager shall seek promptly
upon determining an approval is required.

 

(l)            The
Manager shall require each seller or transferor of investment assets to the
Trust and the Subsidiaries to make such representations and warranties
regarding such assets as may, in the judgment of the Manager, be necessary and
appropriate. In addition, the Manager shall take such other action as it deems
necessary or appropriate with regard to the protection of the investments of
the Trust and the Subsidiaries.

 

(m)          The
Board of Trustees shall periodically review the Investment Policies and the
Trust’s and the Subsidiaries’ portfolio of investments but will not review each
proposed investment, except as otherwise provided herein. If a majority of the
Independent Trustees determines in such periodic review of transactions that a
particular transaction does not comply with the Investment Policies, then a
majority of the Independent Trustees will consider what corrective action, if
any, can be taken. The Manager shall be permitted to rely upon the direction of
the Secretary of the Trust to evidence the approval of the Board of Trustees or
the Independent Trustees with respect to a proposed investment.

 

(n)           Neither
the Trust nor the Subsidiaries shall invest in any security structured or
issued by an entity managed by the Manager or any Affiliate thereof, unless (i) the
investment is made in accordance with the Investment Policies; (ii) such
investment is approved in advance by a majority of the Independent Trustees;
and (iii) the investment is made in accordance with applicable laws.

 

(o)           Reporting Requirements.

 

(i)            As
frequently as the Manager may deem reasonably necessary or advisable, or at the
direction of the Board of Trustees, the Manager shall prepare, or, at the sole
cost and expense of the Operating Partnership (except to the extent determined
by the Operating Partnership, in its sole discretion, to be the expense of a
Subsidiary other than the Operating Partnership), cause to be prepared, with
respect to any investment, reports and other information with respect to such
investment as may be reasonably requested by the Trust.

 

(ii)           The
Manager shall prepare, or, at the sole cost and expense of the Operating
Partnership (except to the extent determined by the Operating Partnership, in
its sole discretion, to be the expense of a Subsidiary other than the Operating
Partnership), cause to be prepared, all reports, financial or otherwise, with
respect to the Trust and the Subsidiaries reasonably 

 

14

 

required by the Board of Trustees in order for the Trust and the
Subsidiaries to comply with their Governing Instruments, or any other materials
required to be filed with any governmental body or agency, and shall prepare,
or, at the sole cost and expense of the Operating Partnership (except to the
extent determined by the Operating Partnership, in its sole discretion, to be
the expense of a Subsidiary other than the Operating Partnership), cause to be
prepared, all materials and data necessary to complete such reports and other
materials including, without limitation, an annual audit of the Trust’s and the
Subsidiaries’ books of account by a nationally recognized independent
accounting firm.

 

(iii)          The
Manager shall prepare, or, at the sole cost and expense of the Operating
Partnership (except to the extent determined by the Operating Partnership, in
its sole discretion, to be the expense of a Subsidiary other than the Operating
Partnership), cause to be prepared, regular reports for the Board of Trustees
to enable the Board of Trustees to review the Trust’s and the Subsidiaries’
acquisitions, portfolio composition and characteristics, credit quality,
performance and compliance with the Investment Policies and policies approved
by the Board of Trustees.

 

(p)           Managers,
officers, trustees, directors, members, employees and agents of the Manager or
Affiliates of the Manager may serve as trustees, officers, agents, nominees or
signatories for the Trust and the Subsidiaries, to the extent permitted by
their Governing Instruments, as from time to time amended, or by any
resolutions duly adopted by the Board of Trustees pursuant to the Trust’s
Governing Instruments or, to the extent applicable, the governing body of any
Subsidiary, pursuant to the Governing Instruments of such Subsidiary.  When executing documents or otherwise acting
in such capacities for the Trust or any Subsidiary, such Persons shall indicate
in what capacity they are executing on behalf of the Trust or such
Subsidiary.  Without limiting the
foregoing, but subject to Section 13 below, the Manager will be obligated
to supply the Trust with a management team, including a Chief Executive
Officer, Chief Financial Officer and Chief Operating Officer or similar
positions, along with appropriate support personnel, to provide the management
services to be provided by the Manager to the Trust and the Subsidiaries
hereunder, who shall devote such of their time to the management of the Trust
and the Subsidiaries as is necessary and appropriate, commensurate with the
level of activity of the Trust from time to time.

 

(q)           The
Manager shall provide personnel for service on an investment or similar type of
committee.

 

(r)            The
Manager shall maintain reasonable and customary “errors and omissions”
insurance coverage and other customary insurance coverage.

 

(s)           The
Manager shall provide such internal audit, compliance and control services as
may be required for the Trust and the Subsidiaries to comply with applicable
law (including the Securities Act and the Exchange Act), regulation (including
SEC regulations) and the rules and requirements of the NYSE or such other
securities exchange on which the Common 

 

15

 

Shares may be listed and as otherwise
reasonably requested by the Trust, the Operating Partnership or the Board of
Trustees from time to time.

 

(t)            The
Manager acknowledges receipt of the Trust’s Code of Business Conduct and Ethics
and Policy Against Insider Trading (collectively, the “Conduct
Policies”) and agrees to require its officers and employees who
provide services to the Trust to comply with such Conduct Policies in the
performance of such services hereunder or such comparable policies as shall in
substance hold officers and employees of the Manager to at least the standards
of conduct set forth in the Conduct Policies.

 

(u)           Notwithstanding
anything contained in this Agreement to the contrary, except to the extent that
the payment of additional moneys is proven by the Trust to have been required
as a direct result of the Manager’s acts or omissions which result in the right
of the Trust to terminate this Agreement pursuant to Section 13 of this
Agreement, the Manager shall not be required to expend money (“Excess Funds”) in connection with any expenses that are
required to be paid for or reimbursed by the Operating Partnership (or any
other Subsidiary) pursuant to Section 8 in excess of that contained in any
applicable Trust Account (as herein defined) or otherwise made available by the
Operating Partnership (or such other Subsidiary) to be expended by the Manager
hereunder.  Failure of the Manager to
expend Excess Funds out-of-pocket shall not give rise or be a contributing
factor to the right of the Trust under Section 11(c) of this
Agreement to terminate this Agreement due to the Manager’s unsatisfactory
performance.

 

(v)           In
performing its duties under this Section 2, the Manager shall be entitled
to rely reasonably on qualified experts and professionals (including, without
limitation, accountants, legal counsel and other professional service
providers) hired by the Manager at the sole cost and expense of the Operating
Partnership (except to the extent determined by the Operating Partnership, in
its sole discretion, to be the expense of a Subsidiary other than the Operating
Partnership).

 

Section 3.  Additional Activities of the Manager.  Except as otherwise
provided in this Section 3, the Allocation Policy and the Investment
Policies, nothing in this Agreement shall (i) prevent the Manager or any
of its Affiliates, managers, officers, trustees, directors, employees or
members from engaging in other businesses or from rendering services of any
kind to any other Person or entity, whether or not the investment objectives or
policies of any such other Person or entity are similar to those of the Trust
or (ii) in any way bind or restrict the Manager or any of its Affiliates,
managers, officers, trustees, directors, employees or members from buying,
selling or trading any securities or commodities for their own accounts or for
the account of others for whom the Manager or any of its Affiliates, managers,
officers, trustees, directors, employees or members may be acting.  Notwithstanding the foregoing, during the
term of this Agreement, neither the Manager nor any of its Affiliates may act
as the manager to, or otherwise provide investment advisory services to, any
other entity the primary investment objective of which is to invest in
distressed residential mortgage loans, excluding (a) the two private fund
vehicles managed by the Manager as of the date of this Agreement, (b) any
entity in which the Trust or any of its Subsidiaries is an investor and (c) any
government-related entity; provided, however, that the Manager
and/or any of its Affiliates may act as manager to an entity that it would
otherwise not be permitted to manage pursuant to the foregoing if the Trust and
its Subsidiaries are not able to pursue additional investment in distressed
residential mortgage loans due to 

 

16

 

limitations on available capital and the
Trust and its Subsidiaries determine not to raise additional capital, as long
as the Independent Trustees do not determine that such activities would be
detrimental to the Trust and its Subsidiaries.

 

While information and recommendations supplied to the Trust and the
Subsidiaries shall, in the Manager’s reasonable and good faith judgment, be
appropriate under the circumstances and in light of the investment objectives
and policies of the Trust and the Subsidiaries, they may be different from the
information and recommendations supplied by the Manager or any Affiliate of the
Manager to others.  The Trust and the Subsidiaries
shall be entitled to equitable treatment under the circumstances in receiving
information, recommendations and any other services, but the Trust and the
Operating Partnership recognize that the Trust and the Subsidiaries are not
entitled to receive preferential treatment as compared with the treatment given
by the Manager or any Affiliate of the Manager to others.  The Trust and the Subsidiaries shall have the
benefit of the Manager’s best judgment and effort in rendering services
hereunder and, in furtherance of the foregoing, the Manager shall not undertake
activities that, in its good faith judgment, will adversely affect the
performance of its obligations under this Agreement.

 

Section 4.  Agency. The Manager shall act as agent of the Trust and
the Subsidiaries in making, acquiring, financing and disposing of investments,
disbursing and collecting the funds of the Trust and the Subsidiaries, paying
the debts and fulfilling the obligations of the Trust and the Subsidiaries,
supervising the performance of professionals engaged by or on behalf of the
Trust and the Subsidiaries and handling, prosecuting and settling any claims of
or against the Trust and the Subsidiaries, the Board of Trustees, holders of
the Trust’s or any Subsidiary’s securities or representatives or properties of
the Trust and the Subsidiaries.

 

Section 5.  Bank Accounts.  At the direction of
the Board of Trustees, the Manager may establish and maintain one or more bank
accounts in the name of the Trust or any Subsidiary (any such account, a “Trust Account”), and may collect and deposit into any such
account or accounts, and disburse funds from any such account or accounts,
under such terms and conditions as the Board of Trustees may approve; and the
Manager shall from time to time render appropriate accountings of such
collections and payments to the Board of Trustees and, upon request, to the
auditors of the Trust or any Subsidiary.

 

Section 6.  Records; Confidentiality.  (a)  The
Manager shall maintain appropriate books of accounts and records relating to
services performed hereunder, and such books of account and records shall be
accessible for inspection by representatives of the Trust or any Subsidiary at
any time during normal business hours upon reasonable advance notice.  The Manager shall keep confidential any and
all non-public information, written or oral, obtained by it in connection with
the services rendered hereunder (“Confidential Information”)
and shall not use Confidential Information except in furtherance of its duties
under this Agreement or disclose Confidential Information, in whole or in part,
to any Person other than (1) to its Affiliates, managers, officers,
trustees, directors, employees, members, agents, representatives or advisors
who need to know such Confidential Information for the purpose of rendering
services hereunder, (2) to appraisers, financing sources and others in the
ordinary course of the Trust’s and any Subsidiary’s business ((1) and (2) collectively,
“Manager Permitted Disclosure Parties”), (3) in
connection with any governmental or regulatory filings of the Trust or any
Subsidiary or disclosure or presentations to Trust investors, (4) to
governmental officials having 

 

17

 

jurisdiction over the Trust, (5) as
required by law or legal process to which the Manager or any Person to whom
disclosure is permitted hereunder is a party, or (6) with the consent of
the Board of Trustees.  The Manager
agrees to inform each of its Manager Permitted Disclosure Parties of the
non-public nature of the Confidential Information and to direct such Persons to
treat such Confidential Information in accordance with the terms hereof.  Nothing herein shall prevent the Manager from
disclosing Confidential Information (1) upon the order of any court or
administrative agency, (2) upon the request or demand of, or pursuant to
any law or regulation, any regulatory agency or authority, (3) to the
extent reasonably required in connection with the exercise of any remedy
hereunder, or (4) to its legal counsel or independent auditors; provided, however,
that with respect to clauses (1) and (2), it is agreed that the Manager
will provide the Trust and the Operating Partnership with prompt written notice
of such order, request or demand so that the Trust and the Operating
Partnership may seek an appropriate protective order and/or waive the Manager’s
compliance with the provisions of this Agreement.  If, failing the entry of a protective order
or the receipt of a waiver hereunder, the Manager is, in the opinion of
counsel, required to disclose Confidential Information, the Manager may
disclose only that portion of such information that its counsel advises is
legally required without liability hereunder; provided,
that the Manager agrees to exercise its best efforts to obtain reliable
assurance that confidential treatment will be accorded such information.  Notwithstanding anything herein to the
contrary, each of the following shall be deemed to be excluded from the
provisions hereof:  any Confidential
Information that (A) is available to the public from a source other than
the Manager, (B) is released in writing by the Trust to the public or to
Persons who are not under similar obligation of confidentiality to the Trust
and the Subsidiaries, or (C) is obtained by the Manager from a third party
without breach by such third party of an obligation of confidence with respect
to the Confidential Information disclosed.

 

(b)           Each
of the Trust and the Operating Partnership shall keep confidential, and shall
cause any other Subsidiary to keep confidential, any and all Confidential
Information and shall not use, and shall cause any other Subsidiary not to use,
Confidential Information except in furtherance of the terms of this Agreement
or disclose Confidential Information, in whole or in part, to any Person other
than (1) to its Affiliates, officers, trustees, directors, employees,
members, agents, representatives or advisors who need to know such Confidential
Information for the purpose of fulfilling the Trust’s and the Operating
Partnership’s obligations hereunder (collectively, “Trust
Permitted Disclosure Parties”), (2) as required by law or legal
process to which the Trust or any Subsidiary or any Person to whom disclosure
is permitted hereunder is a party, or (3) with the consent of the
Manager.  Each of the Trust and the
Operating Partnership agrees to (1) inform each of its Trust Permitted
Disclosure Parties of the non-public nature of the Confidential Information and
to direct such Persons to treat such Confidential Information in accordance
with the terms hereof and (2) not disclose any Confidential Information to
its Trust Permitted Disclosure Parties upon the termination of this Agreement
in accordance with Section 11 hereof. 
Nothing herein shall prevent the Trust or any Subsidiary from disclosing
Confidential Information (1) upon the order of any court or administrative
agency, (2) upon the request or demand of, or pursuant to any law or
regulation, any regulatory agency or authority, (3) to the extent
reasonably required in connection with the exercise of any remedy hereunder, or
(4) to its legal counsel or independent auditors; provided, however,
that with respect to clauses (1) and (2), it is agreed that the Trust and
the Operating Partnership will provide the Manager with prompt written notice
of such order, request or demand so that the Manager may seek an appropriate
protective order and/or waive the Trust’s and the Operating 

 

18

 

Partnership’s compliance with the provisions
of this Section.  If, failing the entry
of a protective order or the receipt of a waiver hereunder, the Trust or any
Subsidiary is, in the opinion of counsel, required to disclose Confidential
Information, the Trust or such Subsidiary may disclose only that portion of
such information that its counsel advises is legally required without liability
hereunder; provided, that each of
the Trust and the Operating Partnership shall exercise, and shall cause any
other Subsidiary to exercise, its best efforts to obtain reliable assurance
that confidential treatment will be accorded such information.  Notwithstanding anything herein to the
contrary, each of the following shall be deemed to be excluded from the
provisions hereof:  any Confidential
Information that (A) is available to the public from a source other than
the Trust or any Subsidiary, (B) is released in writing by the Manager to
the public or to Persons who are not under similar obligation of
confidentiality to the Manager, or (C) is obtained by the Trust or any
Subsidiary from a third party without breach by such third party of an
obligation of confidence with respect to the Confidential Information
disclosed.  For the avoidance of doubt,
information about the systems, employees, policies, procedures and investment
portfolio (other than investments in which the Trust or any Subsidiary and the
Manager have co-invested) shall be deemed to be included within the meaning of “Confidential
Information” for purposes of the Trust’s and the Subsidiaries’ obligations
pursuant to this Section 6(b).

 

(c)           The provisions of this Section 6
shall survive the expiration or earlier termination of this Agreement for a
period of one year.

 

Section 7.  Compensation. 
(a)  For the services rendered under this
Agreement, the Operating Partnership shall pay to the Manager the Base
Management Fee and the Incentive Fee. 
Notwithstanding the foregoing or any other provision contained in this
Agreement, in the event that any of the services provided hereunder by the
Manager are rendered to or for the benefit of any Subsidiary other than the
Operating Partnership, then, in the sole discretion of the Operating
Partnership, a portion of the Base Management Fee and/or the Incentive Fee, as
determined by the Operating Partnership, shall be payable by such Subsidiary.

 

(b)           The parties acknowledge that the Base
Management Fee is intended to compensate the Manager for the costs and expenses
of its executive officers and employees (and certain related overhead and
employee costs not otherwise reimbursable under Section 8 below) incurred
in providing to the Trust the investment advisory services and certain general
management services rendered under this Agreement.

 

(c)           The Manager will not receive any compensation
for the period prior to the Closing Date other than expenses incurred and
reimbursed pursuant to the provisions of Section 8 hereunder.

 

(d)           The Base Management Fee shall be
payable in arrears in cash, in quarterly installments commencing with the
fiscal quarter in which this Agreement was executed (with such initial payment
pro-rated based on the number of days during such quarter that this Agreement
was in effect).   The Manager shall
calculate each installment of the Base Management Fee within thirty (30) days
after the end of the fiscal quarter with respect to which such installment is
payable.  A copy of the computations made
by the Manager to calculate such installment shall thereafter, for informational
purposes only, promptly be delivered to the Board of Trustees and, upon such
delivery, payment of such installment of the Base Management Fee 

 

19

 

shown therein shall be due and payable no
later than the date which is five (5) Business Days after the date of
delivery to the Board of Trustees of such computations.

 

(e)           The Manager shall compute each
installment of the Incentive Fee within 30 days after the end of the fiscal
quarter with respect to which such installment is payable.  A copy of the computations made by the
Manager to calculate such installment shall thereafter, for informational
purposes only, promptly be delivered to the Board of Trustees and, upon such
delivery, payment of such installment of the Incentive Fee shown therein shall
be due and payable no later than the date which is five (5) Business Days
after the date of delivery to the Board of Trustees of such computations.

 

Section 8.  Expenses of the Trust.  (a)  The
Manager shall be responsible for compensation and related expenses of the
Manager’s employees (including the officers of the Trust who are also employees
of the Manager), including, without limitation, salaries, bonus and other
wages, payroll taxes and the cost of employee benefit plans of such personnel; provided, however,
that the Operating Partnership (or any other Subsidiary, as provided below)
shall pay or reimburse the Manager or any Affiliate of the Manager for the
costs and expenses (including any employment expenses) incurred in connection
with the performance by the Manager or such Affiliate of any services performed
by the Manager or such Affiliate pursuant to Section 2(d) or 2(f) hereof.

 

(b)           The Trust and the Subsidiaries shall
pay all of their costs and expenses and the Operating Partnership (or any other
Subsidiary, as provided below) shall reimburse the Manager or its Affiliates
for expenses of the Manager and its Affiliates incurred on behalf of the Trust
or any Subsidiary, excepting only those expenses that are specifically the
responsibility of the Manager pursuant to Section 8(a) of this
Agreement.  Without limiting the
generality of the foregoing, it is specifically agreed that the following costs
and expenses of the Trust or any Subsidiary shall be paid by the Operating
Partnership (or such other Subsidiary) and shall not be paid by the Manager or
Affiliates of the Manager:

 

(i)                                     all costs and
expenses associated with the formation and capital raising activities of the
Trust and the Subsidiaries, if any, including, without limitation, the costs and
expenses of the preparation of the Trust’s registration statements, any and all
costs and expenses of the Initial Public Offering, any subsequent offerings and
any filing fees and costs of being a public company, including, without
limitation, filings with the SEC, the Financial Industry Regulatory Authority
and the NYSE (or any other exchange or over-the-counter market), among other
such entities;

 

(ii)                                  all costs and
expenses in connection with the acquisition, origination, disposition,
development, modification, protection, maintenance, financing, refinancing,
hedging, administration and ownership of the Trust’s or any Subsidiary’s
investment assets (including costs and expenses incurred for transactions that
are not subsequently completed), including, without limitation, costs and
expenses incurred in contracting with third parties, including Affiliates of
the Manager, to provide such services, such as legal fees, accounting fees,
consulting fees, loan 

 

20

 

servicing fees, trustee fees, appraisal fees, insurance premiums,
commitment fees, brokerage fees, guaranty fees, ad valorem taxes, costs of
diligence, foreclosure, maintenance, repair and improvement of property and
premiums for insurance on property owned or leased by the Trust or any
Subsidiary;

 

(iii)                               all legal, audit,
accounting, consulting, underwriting, brokerage, listing, filing, custodian,
transfer agent, rating agency, registration and other fees and charges,
printing, engraving and other expenses and taxes incurred in connection with
the issuance, distribution, transfer, registration and stock exchange listing
of the Trust’s or any Subsidiary’s equity securities or debt securities;

 

(iv)                              all costs and expenses in
connection with legal, accounting, due diligence (including due diligence costs
for assets that are not subsequently acquired), asset management,
securitization, property management, brokerage, leasing and other services that
outside professionals or outside consultants perform or otherwise would perform
on the Trust’s behalf and that are performed by the Manager or an Affiliate
thereof, as provided in Section 2(d) or 2(f);

 

(v)                                 all expenses relating
to communications to holders of equity securities or debt securities issued by
the Trust or any Subsidiary and the other third party services utilized in
maintaining relations with holders of such securities and in complying with the
continuous reporting and other requirements of governmental bodies or agencies
(including, without limitation, the SEC), including any costs of computer
services in connection with this function, the cost of printing and mailing
certificates for such securities and proxy solicitation materials and reports
to holders of the Trust’s or any Subsidiary’s securities and the cost of any
reports to third parties required under any indenture to which the Trust or any
Subsidiary is a party;

 

(vi)                              all costs and expenses of
money borrowed by the Trust or any Subsidiary, including, without limitation,
principal, interest and the costs associated with the establishment and
maintenance of any credit facilities, warehouse loans, repurchase agreements
and other indebtedness of the Trust or any Subsidiary (including commitment
fees, accounting fees, legal fees, closing and other costs and expenses);

 

(vii)                           all taxes and license fees
applicable to the Trust or any Subsidiary, including interest and penalties
thereon;

 

(viii)                        all fees paid to and expenses
of third-party advisors and independent contractors, consultants, managers and
other agents (including real estate underwriters, brokers and special
servicers) engaged by the Trust or any 

 

21

 

Subsidiary or by the Manager for the account of the Trust or any
Subsidiary;

 

(ix)                                all insurance costs
incurred by the Trust or any Subsidiary, including, without limitation, any
costs to obtain liability or other insurance to indemnify the Manager and
underwriters of any securities of the Trust;

 

(x)                                   all costs and
expenses relating to the acquisition of, and maintenance and upgrades to, the
portfolio accounting systems of the Trust or any Subsidiary;

 

(xi)                                all compensation and
fees paid to trustees or directors of the Trust or any Subsidiary (excluding
those trustees or directors who are also officers or employees of the Manager),
all expenses of trustees or directors of the Trust or any Subsidiary (including
those trustees or directors who are also employees of the Manager), the cost of
trustees and officers liability insurance and premiums for errors and omissions
insurance, and any other insurance deemed necessary or advisable by the Board
of Trustees for the benefit of the Trust and its trustees and officers
(including those trustees who are also employees of the Manager);

 

(xii)                             all third-party legal,
accounting and auditing fees and expenses and other similar services relating
to the Trust’s or any Subsidiary’s operations (including, without limitation,
all quarterly and annual audit or tax fees and expenses);

 

(xiii)                          all third-party legal, expert
and other fees and expenses relating to any actions, proceedings, lawsuits,
demands, causes of action and claims, whether actual or threatened, made by or
against the Trust or any Subsidiary, or which the Trust or any Subsidiary is
authorized or obligated to pay under applicable law or its Governing
Instruments or by the Board of Trustees;

 

(xiv)                         subject to Section 9
below, any judgment or settlement of pending or threatened proceedings (whether
civil, criminal or otherwise) against the Trust or any Subsidiary, or against
any trustee, director or officer of the Trust or any Subsidiary in his capacity
as such for which the Trust or any Subsidiary is required to indemnify such
trustee, director or officer by any court or governmental agency, or settlement
of pending or threatened proceedings;

 

(xv)                            all travel and related
expenses of trustees, directors, officers and employees of the Trust or any
Subsidiary and the Manager, incurred in connection with attending meetings of
the Board of Trustees or holders of securities of the Trust or any Subsidiary
or performing other business activities that relate to the Trust or any
Subsidiary, including, without limitations, travel and expenses incurred in
connection with the purchase, 

 

22

 

consideration for purchase, financing, refinancing, sale or other
disposition of any investment or potential investment of the Trust or any
Subsidiary; provided, however, that the Operating Partnership
(or any other Subsidiary, as provided below) shall only be responsible for a
proportionate share of such expenses, as determined by the Manager in good
faith, where such expenses were not incurred solely for the benefit of the
Trust or any Subsidiary;

 

(xvi)                         all expenses of organizing,
modifying or dissolving the Trust or any Subsidiary and costs preparatory to
entering into a business or activity, or of winding up or disposing of a
business activity of the Trust or any Subsidiary, if any;

 

(xvii)                      all expenses relating to payments
of dividends or interest or distributions in cash or any other form made or
caused to be made by the Board of Trustees to or on account of holders of the
securities of the Trust or any Subsidiary, including, without limitation, in
connection with any dividend reinvestment plan;

 

(xviii)                   all costs and expenses related to
the design and maintenance of the Trust’s website or sites and associated with
any computer software, hardware, electronic equipment or purchased information
technology services from third party vendors that is used primarily for the
Trust or any Subsidiary;

 

(xix)                           costs and expenses incurred
with respect to market information systems and publications, research
publications and materials, and settlement, clearing and custodial fees and
expenses; provided, however, that the Operating Partnership
(or any other Subsidiary, as provided below) shall only be responsible for a
proportionate share of such expenses, as determined by the Manager in good
faith, where such expenses were not incurred solely for the benefit of the
Trust or any Subsidiary;

 

(xx)                              the costs and expenses
incurred with respect to administering the Trust’s incentive plans;

 

(xxi)                           the costs and expenses of
maintaining compliance with all U.S. federal, state, local and applicable
regulatory body rules and regulations; provided,
however, that the Operating
Partnership (or any other Subsidiary, as provided below) shall only be
responsible for a proportionate share of such costs and expenses, as determined
by the Manager in good faith, where such costs and expenses were not incurred
solely for the benefit of the Trust or any Subsidiary;

 

(xxii)                        expenses relating to any office
or office facilities, including disaster backup recovery sites and facilities,
maintained for the Trust or any Subsidiary separate from the offices of the
Manager;

 

23

 

(xxiii)                     all other expenses of the Trust or
any Subsidiary relating to the business and investment operations of the Trust
and the Subsidiaries, including, without limitation, the costs and expenses of
acquiring, originating, owning, protecting, maintaining, financing,
refinancing, developing, modifying and disposing of investments that are not
the responsibility of the Manager under Section 9(a) of this
Agreement; and

 

(xxiv)                    all other expenses actually
incurred by the Manager or its Affiliates or their respective managers,
officers, trustees, directors, employees, members, representatives or agents,
or any Affiliates thereof, that are reasonably necessary for the performance by
the Manager of its duties and functions under this Agreement.

 

In addition,
the Operating Partnership (or any other Subsidiary, as provided below) will be
required to pay the Trust’s and the Subsidiaries’ pro rata portion of rent,
telephone, utilities, office furniture, equipment, machinery and other office,
internal and overhead expenses of the Manager and its Affiliates required for
the Trust’s and the Subsidiaries’ operations. These expenses will be allocated
between the Manager, on the one hand, and the Operating Partnership (or such
other Subsidiary), on the other hand, based on the ratio of the Trust’s and the
Subsidiaries’ proportion of gross assets compared to all remaining gross assets
managed by the Manager as calculated at each fiscal quarter end. The Manager,
the Trust and the Operating Partnership will modify this allocation
methodology, subject to the Board of Trustees’ approval, if the allocation
becomes inequitable.

 

Notwithstanding
the foregoing or any other provision contained in this Agreement, in the event
that any of the services provided hereunder by the Manager are rendered to or
for the benefit of any Subsidiary other than the Operating Partnership, then,
in the sole discretion of the Operating Partnership, a portion of the expense
reimbursements to the Manager and/or its Affiliates hereunder, as determined by
the Operating Partnership, shall be payable by such Subsidiary.

 

(c)           Costs and expenses incurred by the
Manager or an Affiliate thereof on behalf of the Trust or any Subsidiary shall
be reimbursed quarterly to the Manager. 
The Manager shall prepare a written statement in reasonable detail
documenting the costs and expenses of the Trust and the Subsidiaries and those
incurred by the Manager on behalf of the Trust or any Subsidiary during each
fiscal quarter, and shall deliver such written statement to the Trust within 30
days after the end of each fiscal quarter. 
The Operating Partnership (or any other Subsidiary, as provided in the
immediately preceding paragraph) shall pay all amounts payable to the Manager
pursuant to this Section 8 within five (5) Business Days after the
date of delivery of such written statement without demand, deduction, offset or
delay.  Cost and expense reimbursement to
the Manager shall be subject to adjustment at the end of each calendar year in
connection with the annual audit of the Trust and the Subsidiaries.  The provisions of this Section 8 shall
survive the expiration or earlier termination of this Agreement to the extent
such expenses have previously been incurred or are incurred in connection with
such expiration or termination.

 

24

 

(d)           Notwithstanding the foregoing, the
Manager may, at its option, elect not to seek reimbursement for certain expenses
during a given quarterly period, which determination shall not be deemed to
construe a waiver of reimbursement for similar expenses in future periods.

 

Section 9.  Limits of the Manager’s Responsibility;
Indemnification.  (a) 
The Manager assumes no responsibility under this Agreement other than to
provide the services specified hereunder in good faith and shall not be
responsible for any action of the Board of Trustees in following or declining
to follow any advice or recommendations of the Manager.  None of the Manager or its Affiliates or
their respective managers, officers, trustees, directors, employees or members
or any Person providing sub-advisory services to the Manager will be liable to
the Trust, any Subsidiary, the Board of Trustees, or the Shareholders or
interest holders of any Subsidiary for any acts or omissions performed under
this Agreement, except because of acts constituting bad faith, willful
misconduct, gross negligence or reckless disregard of the Manager’s duties
under this Agreement.  The Trust and the
Operating Partnership shall, to the full extent lawful, reimburse, indemnify
and hold harmless the Manager and its Affiliates and their respective managers,
officers, trustees, directors, employees and members and any Person providing
sub-advisory services to the Manager (each, a “Manager
Indemnified Party”), with respect to all expenses, losses, damages,
liabilities, demands, charges and claims of any nature whatsoever (including
reasonable attorneys’ fees) (collectively “Losses”) in
respect of or arising from any acts or omissions of such Manager Indemnified
Party, performed in good faith under this Agreement and not constituting bad
faith, willful misconduct, gross negligence or reckless disregard of the duties
of the Manager under this Agreement.

 

(b)           The Manager shall, to the full extent
lawful, reimburse, indemnify and hold harmless the Trust (or any Subsidiary),
and the trustees, officers and Shareholders and each Person, if any,
controlling the Trust (each, a “Trust Indemnified Party”;
a Manager Indemnified Party and a Trust Indemnified Party are each sometimes
hereinafter referred to as an “Indemnified Party”)
with respect to all Losses in respect of or arising from any acts or omissions
under this Agreement constituting bad faith, willful misconduct, gross
negligence or reckless disregard of the duties of the Manager under this
Agreement or any claims by the Manager’s employees relating to the terms and
conditions of their employment by the Manager.

 

(c)           In case any such claim, suit, action
or proceeding (a “Claim”) is brought against any
Indemnified Party in respect of which indemnification may be sought by such
Indemnified Party pursuant hereto, the Indemnified Party shall give prompt
written notice thereof to the indemnifying party, which notice shall include
all documents and information in the possession of or under the control of such
Indemnified Party reasonably necessary for the evaluation and/or defense of
such Claim and shall specifically state that indemnification for such Claim is
being sought under this Section; provided,
however, that the failure of the
Indemnified Party to so notify the indemnifying party shall not limit or affect
such Indemnified Party’s rights to be indemnified pursuant to this
Section.  Upon receipt of such notice of
Claim (together with such documents and information from such Indemnified
Party), the indemnifying party shall, at its sole cost and expense, in good
faith defend any such Claim with counsel reasonably satisfactory to such Indemnified
Party, which counsel may, without limiting the rights of such Indemnified Party
pursuant to the next succeeding sentence of this Section, also represent the
indemnifying party in such investigation, action or proceeding.  In the alternative, such 

 

25

 

Indemnified Party may elect to conduct the
defense of the Claim, if (1) such Indemnified Party reasonably determines
that the conduct of its defense by the indemnifying party could be materially
prejudicial to its interests, (2) the indemnifying party refuses to defend
(or fails to give written notice to the Indemnified Party within ten (10) days
of receipt of a notice of Claim that the indemnifying party assumes such
defense), or (3) the indemnifying party shall have failed, in such
Indemnified Party’s reasonable judgment, to defend the Claim in good
faith.  The indemnifying party may settle
any Claim against such Indemnified Party without such Indemnified Party’s
consent, provided, (1) such
settlement is without any Losses whatsoever to such Indemnified Party, (2) the
settlement does not include or require any admission of liability or
culpability by such Indemnified Party and (3) the indemnifying party
obtains an effective written release of liability for such Indemnified Party
from the party to the Claim with whom such settlement is being made, which
release must be reasonably acceptable to such Indemnified Party, and a
dismissal with prejudice with respect to all claims made by the party against
such Indemnified Party in connection with such Claim.  The applicable Indemnified Party shall
reasonably cooperate with the indemnifying party, at the indemnifying party’s
sole cost and expense, in connection with the defense or settlement of any
Claim in accordance with the terms hereof. 
If such Indemnified Party is entitled pursuant to this Section to
elect to defend such Claim by counsel of its own choosing and so elects, then
the indemnifying party shall be responsible for any good faith settlement of
such Claim entered into by such Indemnified Party.  Except as provided in the immediately
preceding sentence, no Indemnified Party may pay or settle any Claim and seek
reimbursement therefor under this Section.

 

(d)           The provisions of this Section 9
shall survive the expiration or earlier termination of this Agreement.

 

Section 10.  No Joint Venture.  The Trust, the
Operating Partnership and the Manager are not partners or joint venturers with
each other and nothing herein shall be construed to make them such partners or
joint venturers or impose any liability as such on any of them.

 

Section 11.  Term; Termination.

 

(a)           Initial Term.  This Agreement shall become effective on the
Closing Date and shall continue in operation, unless terminated in accordance
with the terms hereof, until [·], 2012 (the “Initial Term”).

 

(b)           Automatic Renewal Terms.  After the Initial Term, this Agreement shall
be deemed renewed automatically each year for an additional one-year period (an
“Automatic Renewal Term”) unless the
Trust or the Manager terminates this Agreement in accordance with Section 11(c) of
this Agreement.

 

(c)           Termination of this
Agreement.  Notwithstanding
any other provision of this Agreement to the contrary, upon the expiration of
the Initial Term or any Automatic Renewal Term and upon at least 180 days’
prior written notice to the Manager or the Trust, as applicable (the “Termination Notice”), either (A) the Trust (without
cause), upon the affirmative vote of at least two-thirds of the Independent
Trustees or by a vote of the holders of at least two-thirds of the Trust’s
outstanding Common Shares (other than those Common Shares held by the Manager
or any Affiliate thereof), in each case based upon (1) unsatisfactory
performance by the 

 

26

 

Manager that is materially detrimental to the
Trust and the Subsidiaries or (2) the determination that the compensation
payable to the Manager under this Agreement is not fair; or (B) the
Manager (without cause) may, in connection with the expiration of the Initial
Term or any Automatic Renewal Term, decline to renew this Agreement (any such
nonrenewal, a “Nonrenewal Termination”); provided, that the Trust shall not have
the right to terminate this Agreement under clause (2) above if the Manager
agrees to continue to provide services under this Agreement at fees that at
least two-thirds of the Independent Trustees determine to be fair pursuant to
the procedures set forth below.

 

If the Trust
(but not the Manager) issues the Termination Notice, the Operating Partnership
shall be obligated to pay the Manager the Termination Fee within 90 days of the
last day of the Initial Term or Automatic Renewal Term, as applicable (the “Effective Termination Date”); provided, however,
that in the event a Termination Notice is given in connection with a
determination that the compensation payable to the Manager is not fair, the
Manager shall have the right to renegotiate such compensation by delivering to
the Trust and the Operating Partnership, no fewer than 45 days prior to the
prospective Effective Termination Date, written notice (any such notice, a “Notice of Proposal to Negotiate”) of its intention to
renegotiate its compensation under this Agreement.  Thereupon, the Trust (represented by the
Independent Trustees), the Operating Partnership and the Manager shall
endeavor to negotiate in good faith the revised compensation payable to the
Manager under this Agreement. Provided that the Manager, the Trust and the
Operating Partnership agree to the terms of the revised compensation to be
payable to the Manager within 45 days following the receipt of the Notice
of Proposal to Negotiate, the Termination Notice shall be deemed of no force
and effect and this Agreement shall continue in full force and effect on the
terms stated in this Agreement, except that the compensation payable to the
Manager hereunder shall be the revised compensation then agreed upon by the
parties to this Agreement. The Trust, the Operating Partnership and the Manager
agree to execute and deliver an amendment to this Agreement setting forth such
revised compensation promptly upon reaching an agreement regarding the same. In
the event that the Trust, the Operating Partnership and the Manager are unable
to agree to the terms of the revised compensation to be payable to the Manager
during such 45-day period, this Agreement shall terminate, such termination to
be effective on the date which is the later of (A) 10 days following
the end of such 45-day period and (B) the Effective Termination Date originally
set forth in the Termination Notice.  In
the event of any Nonrenewal Termination, after delivery of the Termination
Notice, the Manager shall thereafter have the authority to invest only such
capital that represents the return of capital resulting from the liquidation or
repayment of investments of the Trust or any Subsidiary existing at the time of
the Termination Notice, and subject to the Investment Policies and all other
existing investment and other policies of the Trust.  The Manager shall cooperate with the Trust
and the Subsidiaries in executing an orderly transition of the management of
the Trust’s assets to a new manager.  The
Trust may terminate this Agreement for cause pursuant to Section 13 of
this Agreement even after a Nonrenewal Termination and no Termination Fee shall
be payable.

 

(d)           If this Agreement is terminated
pursuant to this Section 11 or pursuant to Section 12, 13 or 14, such
termination shall be without any further liability or obligation of any party
to the other, except with respect to the payment of a Termination Fee, if
applicable, and except as provided in Sections 6, 8 and 15 of this
Agreement. In addition, Sections 9, 17(b) and 18(e) of this
Agreement shall survive termination of this Agreement.

 

27

 

Section 12.  Assignments. 
(a) Except as set forth in Section 12(b) of
this Agreement, this Agreement shall terminate automatically without payment of
the Termination Fee in the event of its assignment, in whole or in part, by the
Manager, unless such assignment is consented to in writing by the Trust with
the consent of a majority of the Independent Trustees.  Any such permitted assignment shall bind the
assignee under this Agreement in the same manner as the Manager is bound, and
the Manager shall be liable to the Trust and the Subsidiaries for all errors or
omissions of the assignee under any such assignment.  In addition, the assignee shall execute and
deliver to the Trust and the Operating Partnership a counterpart of this
Agreement naming such assignee as the Manager. 
This Agreement shall not be assigned by the Trust or the Operating
Partnership without the prior written consent of the Manager, except in the
case of assignment by the Trust or the Operating Partnership to another REIT
(in the case of the Trust) or other organization which is a successor (by
merger, consolidation, purchase of assets, or similar transaction) to the Trust
or the Operating Partnership, in which case such successor organization shall
be bound under this Agreement and by the terms of such assignment in the same
manner as the Trust and the Operating Partnership are bound under this
Agreement.

 

(b)           Notwithstanding any provision of this
Agreement, the Manager may subcontract and assign any or all of its
responsibilities under this Agreement to any of its Affiliates in accordance
with the terms of this Agreement applicable to any such subcontract or
assignment, and the Trust and the Operating Partnership hereby consent to any
such assignment and subcontracting. In addition, provided that the Manager
provides prior written notice to the Trust and the Operating Partnership for
informational purposes only, nothing contained in this Agreement shall preclude
any pledge, hypothecation or other transfer of any amounts payable to the
Manager under this Agreement. In addition, the Manager may assign one or more
of its duties under this Agreement to any of its Affiliates without the Trust’s
or the Operating Partnership’s approval if such assignment does not require
their approval under the Investment Advisers Act of 1940, as amended.

 

Section 13.  Termination by the Trust for Cause.  At the option of the
Trust and at any time during the term of this Agreement, this Agreement shall
be and become terminated upon at least 30 days’ prior written notice of
termination from the Board of Trustees to the Manager, without payment of the
Termination Fee, if any of the following events shall occur, which shall be
determined by a majority of the Board of Trustees:

 

(i)                                     the Manager shall
materially breach any provision of this Agreement and such breach shall
continue for a period of 30 days after the Manager’s receipt of written notice
thereof specifying such breach and requesting that the same be remedied in such
30-day period (or 45 days after the Manager’s receipt of written notice of such
breach if the Manager takes steps to cure such breach within 30 days of the
written notice);

 

(ii)                                  the Manager shall
commit any act of fraud, misappropriation of funds, or embezzlement against the
Trust or any Subsidiary;

 

(iii)                               the Manager shall commit
any act of gross negligence in the performance of its duties under this
Agreement;

 

28

 

(iv)                              upon the commencement of
any proceeding relating to the Manager’s Bankruptcy or insolvency;

 

(v)                                 upon the dissolution
of the Manager; or

 

(vi)                              upon a Change in Control
of the Manager.

 

If any of the events specified above shall
occur, the Manager shall give prompt written notice thereof to the Board of
Trustees.

 

Section 14.  Termination by the Manager for Cause.

 

(a)           At the option of the Manager and at
any time during the term of this Agreement, this Agreement shall be and become
terminated upon at least 60 days’ prior written notice of termination from the
Manager to the Trust and the Operating Partnership, with payment of the
Termination Fee, if the Trust or the Subsidiaries shall have defaulted in the
performance of any material term of this Agreement, and such default has
continued uncured for a period of 30 days after the Trust’s and the Operating
Partnership’s receipt of written notice of such default from the Manager.

 

(b)           At the option of the Manager and at
any time during the term of this Agreement, this Agreement shall be and become
terminated, without payment of the Termination Fee, if the Trust becomes
required to register as an investment company under the Investment Company Act,
with such termination deemed to occur immediately before such event.

 

Section 15.  Action Upon Termination.  From and after the
effective date of termination of this Agreement pursuant to Sections 11, 12, 13
or 14 of this Agreement, the Manager shall not be entitled to compensation for
further services hereunder, but shall be paid all compensation accruing to the
date of termination and, if the Manager is so entitled in accordance with the
terms of this Agreement, the Termination Fee. 
Upon any such termination, the Manager shall forthwith:

 

(a)           after deducting any accrued
compensation and reimbursement for its expenses to which it is then entitled,
pay over to the Trust or a Subsidiary all money collected and held for the
account of the Trust or a Subsidiary pursuant to this Agreement;

 

(b)           deliver to the Board of Trustees a
full accounting, including a statement showing all payments collected by it and
a statement of all money held by it, covering the period following the date of
the last accounting furnished to the Board of Trustees with respect to the
Trust and any Subsidiary; and

 

(c)           deliver to the Board of Trustees all
property and documents of the Trust and any Subsidiary then in the custody of
the Manager.

 

Section 16.  Release of Money or Other Property Upon
Written Request.  The
Manager agrees that any money or other property of the Trust or any Subsidiary
held by the Manager shall be held by the Manager as custodian for the Trust or
such Subsidiary, and the Manager’s records shall be appropriately and clearly
marked to reflect the ownership of such 

 

29

 

money or other property by the Trust or such
Subsidiary.  Upon the receipt by the
Manager of a written request signed by a duly authorized officer of the Trust
requesting the Manager to release to the Trust any money or other property then
held by the Manager for the account of the Trust or any Subsidiary under this
Agreement, the Manager shall release such money or other property to the Trust
or any Subsidiary within a reasonable period of time, but in no event later
than 45 days following such request. 
Upon delivery of such money or other property to the Trust, the Manager
shall not be liable to the Trust, any Subsidiary, the Board of Trustees, or the
Shareholders or the interest holders of any Subsidiary for any acts or
omissions by the Trust or any Subsidiary in connection with the money or other
property released in accordance with this Section.  The Trust and the Operating Partnership shall
indemnify the Manager and its Affiliates and their respective managers,
officers, trustees, directors, employees and members and any Person providing
sub-advisory services to the Manager against any and all expenses, losses,
damages, liabilities, demands, charges and claims of any nature whatsoever,
which arise in connection with the Manager’s release of such money or other
property in accordance with the terms of this Section 16.  Indemnification pursuant to this provision
shall be in addition to any right of the Manager to indemnification under Section 9
of this Agreement.

 

Section 17.  Use of Name.

 

(a)           The Manager hereby grants to the
Trust and the Subsidiaries during the term of this Agreement a non-exclusive,
royalty-free license to use the “PennyMac” brand, trademark, logo and service
marks and any derivation thereof related thereto (the “PennyMac Brand”) in the United
States.  Notwithstanding the foregoing,
it is acknowledged and agreed that the Manager and its other Affiliates retain
the right to continue to use the PennyMac Brand during the term of this
Agreement.  It is further acknowledged
and agreed that under no circumstances shall the Manager be prohibited from
licensing or transferring the ownership of the PennyMac Brand to third parties.

 

(b)           In the event of the termination of
this Agreement, the Trust shall be required to cease using the PennyMac Brand
as promptly as possible, including by changing its name to remove the word “PennyMac”
therefrom as promptly as practicable. 
The provisions of this Section 17(b) shall survive the
expiration or earlier termination of this Agreement.

 

Section 18.  Miscellaneous.

 

(a)           Notices.  All notices, requests and demands to or upon
the respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered against receipt or upon actual
receipt of (1) personal delivery, (2) delivery by reputable overnight
courier, (3) delivery by facsimile transmission with telephonic
confirmation or (4) delivery by registered or certified mail, postage
prepaid, return receipt requested, addressed as set forth below (or to such
other address as may be hereafter notified by the respective parties hereto in
accordance with this Section 18):

 

30

 

	
  The Trust and the

  	
   

  
	
  Operating Partnership:

  	
  PennyMac Mortgage Investment Trust

  
	
   

  	
  PennyMac Operating Partnership, L.P.

  
	
   

  	
  27001 Agoura Road, Third Floor

  
	
   

  	
  Calabasas, California 91301

  
	
   

  	
  Attention: Chief Executive Officer

  
	
   

  	
  Fax: (818) 337-2138

  
	
   

  	
   

  
	
  with a copy to:

  	
  Sidley Austin LLP

  
	
   

  	
  787 Seventh Avenue

  
	
   

  	
  New York, New York 10019

  
	
   

  	
  Attention: Edward J. Fine and J. Gerard Cummins

  
	
   

  	
  Fax: (212) 839-5599

  
	
   

  	
   

  
	
  The Manager:

  	
  PNMAC Capital Management, LLC

  
	
   

  	
  27001 Agoura Road, Third Floor

  
	
   

  	
  Calabasas, California 91301

  
	
   

  	
  Attention: Chief Executive Officer

  
	
   

  	
  Fax: (818) 337-2138

  
	
   

  	
   

  
	
  with a copy to:

  	
  PNMAC Capital Management, LLC

  
	
   

  	
  27001 Agoura Road, Third Floor

  
	
   

  	
  Calabasas, California 91301

  
	
   

  	
  Attention: Chief Legal Officer

  
	
   

  	
  Fax: (818) 337-2138

  

 

(b)           Binding Nature of
Agreement; Successors and Assigns. 
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, personal representatives, successors
and assigns as provided herein.

 

(c)           Integration.  This Agreement contains the entire agreement
and understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements,
understandings, inducements and conditions, express or implied, oral or written,
of any nature whatsoever with respect to the subject matter hereof.  The express terms hereof control and
supersede any course of performance and/or usage of the trade inconsistent with
any of the terms hereof.

 

(d)           Amendments.  Neither this Agreement, nor any terms hereof,
may be amended, supplemented or modified except in an instrument in writing
executed by the parties hereto.

 

(e)           GOVERNING LAW.  THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW. 
EACH OF THE PARTIES HERETO IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA AND 

 

31

 

THE UNITED STATES DISTRICT COURT FOR ANY
DISTRICT WITHIN SUCH STATE FOR THE PURPOSE OF ANY ACTION OR JUDGMENT RELATING
TO OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED
HEREBY AND TO THE LAYING OF VENUE IN SUCH COURT.

 

(f)            WAIVER OF JURY TRIAL.  EACH PARTY HERETO ACKNOWLEDGES AND AGREES
THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO
INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND, THEREFORE, EACH SUCH PARTY
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN
RESPECT TO ANY ACTION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN
CONNECTION WITH OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
BY THIS AGREEMENT.

 

(g)           No Waiver; Cumulative
Remedies.  No failure to
exercise and no delay in exercising, on the part of a party hereto, any right,
remedy, power or privilege hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. 
The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.

 

(h)           Costs and Expenses.  Each party hereto shall bear its own costs
and expenses (including the fees and disbursements of counsel and accountants)
incurred in connection with the negotiations and preparation of and the closing
under this Agreement, and all matters incident thereto.

 

(i)            Section Headings.  The section and subsection headings in this
Agreement are for convenience of reference only and shall not be deemed to
alter or affect the interpretation of any provisions hereof.

 

(j)            Counterparts.  This Agreement may be executed by the parties
to this Agreement on any number of separate counterparts (including by
telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.

 

(k)           Severability.  Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

32

 

IN WITNESS
WHEREOF, each of the parties hereto have executed this Management Agreement as
of the date first written above.

 

	
   

  	
  PENNYMAC
  MORTGAGE INVESTMENT TRUST

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PENNYMAC
  OPERATING PARTNERSHIP, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  PENNYMAC GP
  OP, INC.,

  
	
   

  	
   

  	
  its General
  Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PNMAC
  CAPITAL MANAGEMENT, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

33Exhibit 10.4

 

 

FLOW SERVICING AGREEMENT

 

between

 

PENNYMAC OPERATING PARTNERSHIP, L.P.,

as Owner

 

and

 

PENNYMAC LOAN SERVICES, LLC,

as Servicer

 

Dated as of                  
   , 2009

 

FIXED- AND ADJUSTABLE-RATE RESIDENTIAL
MORTGAGE LOANS

 

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE I

  	
  DEFINITIONS

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 1.01

  	
   

  	
  Definitions

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
  SERVICING

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 2.01

  	
   

  	
  Servicer to Act as Servicer

  	
   

  	
  18

  
	
  Section 2.02

  	
   

  	
  Liquidation of Mortgage Loans

  	
   

  	
  20

  
	
  Section 2.03

  	
   

  	
  Collection of Mortgage Loan Payments; Payment Clearing Account

  	
   

  	
  20

  
	
  Section 2.04

  	
   

  	
  Establishment of and Deposits to Custodial Account

  	
   

  	
  21

  
	
  Section 2.05

  	
   

  	
  Permitted Withdrawals From Custodial Account

  	
   

  	
  22

  
	
  Section 2.06

  	
   

  	
  Establishment of and Deposits to Escrow Account

  	
   

  	
  23

  
	
  Section 2.07

  	
   

  	
  Permitted Withdrawals From Escrow Account

  	
   

  	
  24

  
	
  Section 2.08

  	
   

  	
  Payment of Taxes, Insurance and Other Charges

  	
   

  	
  25

  
	
  Section 2.09

  	
   

  	
  Protection of Accounts

  	
   

  	
  25

  
	
  Section 2.10

  	
   

  	
  Maintenance of Hazard Insurance

  	
   

  	
  26

  
	
  Section 2.11

  	
   

  	
  Maintenance of Mortgage Impairment Insurance Policy

  	
   

  	
  27

  
	
  Section 2.12

  	
   

  	
  Maintenance of Fidelity Bond and Errors and Omissions Insurance

  	
   

  	
  28

  
	
  Section 2.13

  	
   

  	
  Inspections

  	
   

  	
  28

  
	
  Section 2.14

  	
   

  	
  Restoration of Mortgaged Property

  	
   

  	
  29

  
	
  Section 2.15

  	
   

  	
  Title, Management and Disposition of REO Property

  	
   

  	
  29

  
	
  Section 2.16

  	
   

  	
  Costs and Expenses

  	
   

  	
  30

  
	
  Section 2.17

  	
   

  	
  Liquidity and Litigation Reserves

  	
   

  	
  31

  
	
  Section 2.18

  	
   

  	
  [Reserved]

  	
   

  	
  32

  
	
  Section 2.19

  	
   

  	
  [Reserved]

  	
   

  	
  32

  
	
  Section 2.20

  	
   

  	
  Notification of Adjustments

  	
   

  	
  32

  
	
  Section 2.21

  	
   

  	
  Recordation of Assignments of Mortgage

  	
   

  	
  32

  
	
  Section 2.22

  	
   

  	
  [Reserved]

  	
   

  	
  32

  
	
  Section 2.23

  	
   

  	
  Credit Reporting

  	
   

  	
  32

  
	
  Section 2.24

  	
   

  	
  Superior Liens

  	
   

  	
  32

  
	
  Section 2.25

  	
   

  	
  Prepayments in Full

  	
   

  	
  33

  
	
  Section 2.26

  	
   

  	
  Tax and Flood Service Contracts

  	
   

  	
  33

  
	
  Section 2.27

  	
   

  	
  Maintenance of PMI Policies and LPMI Policies; Collections Thereunder

  	
   

  	
  34

  
	
  Section 2.28

  	
   

  	
  Obligations of the Owner and the Servicer Related to Servicing
  Transfers

  	
   

  	
  34

  
	
  Section 2.29

  	
   

  	
  Reliability of Information/Exceptional Expenses

  	
   

  	
  36

  
	
  Section 2.30

  	
   

  	
  Escrow Obligations

  	
   

  	
  36

  
	
  Section 2.31

  	
   

  	
  [Reserved]

  	
   

  	
  37

  
	
  Section 2.32

  	
   

  	
  Additional Activities of the Servicer

  	
   

  	
  37

  
	
  Section 2.33

  	
   

  	
  No Obligation to Advance Delinquent Payments

  	
   

  	
  37

  

 

i

 

	
  ARTICLE III

  	
  PAYMENTS; REPORTS

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 3.01

  	
   

  	
  Remittances

  	
   

  	
  38

  
	
  Section 3.02

  	
   

  	
  Monthly Reports to the Owner

  	
   

  	
  38

  
	
  Section 3.03

  	
   

  	
  [Reserved]

  	
   

  	
  39

  
	
  Section 3.04

  	
   

  	
  Cost of Funds

  	
   

  	
  39

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
  GENERAL SERVICING PROCEDURES

  	
   

  	
  40

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.01

  	
   

  	
  Transfers of Mortgaged Property

  	
   

  	
  40

  
	
  Section 4.02

  	
   

  	
  Satisfaction of Mortgages and Release of Mortgage Files

  	
   

  	
  41

  
	
  Section 4.03

  	
   

  	
  Servicing Compensation

  	
   

  	
  42

  
	
  Section 4.04

  	
   

  	
  Annual Statement as to Compliance

  	
   

  	
  43

  
	
  Section 4.05

  	
   

  	
  Annual Independent Public Accountants’ Servicing Report

  	
   

  	
  43

  
	
  Section 4.06

  	
   

  	
  [Reserved]

  	
   

  	
  43

  
	
  Section 4.07

  	
   

  	
  Right to Examine Servicer Records

  	
   

  	
  44

  
	
  Section 4.08

  	
   

  	
  Compliance with Gramm-Leach-Bliley Act of 1999

  	
   

  	
  44

  
	
  Section 4.09

  	
   

  	
  On-Line Access

  	
   

  	
  44

  
	
  Section 4.10

  	
   

  	
  [Reserved]

  	
   

  	
  45

  
	
  Section 4.11

  	
   

  	
  Use of Subservicers

  	
   

  	
  45

  
	
  Section 4.12

  	
   

  	
  Mortgage Loans Held by Wholly Owned Subsidiaries of Owner

  	
   

  	
  45

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
  SERVICER TO COOPERATE

  	
   

  	
  46

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 5.01

  	
   

  	
  Provision of Information

  	
   

  	
  46

  
	
  Section 5.02

  	
   

  	
  Financial Statements; Servicing Facilities

  	
   

  	
  46

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
  TERMINATION

  	
   

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 6.01

  	
   

  	
  Termination

  	
   

  	
  47

  
	
  Section 6.02

  	
   

  	
  Transfer of Servicing

  	
   

  	
  47

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
  BOOKS AND RECORDS

  	
   

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 7.01

  	
   

  	
  Possession of Servicing Files Prior to the Related Servicing Transfer
  Date

  	
   

  	
  51

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
  INDEMNIFICATION AND ASSIGNMENT

  	
   

  	
  52

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 8.01

  	
   

  	
  Indemnification; Remedies

  	
   

  	
  52

  
	
  Section 8.02

  	
   

  	
  Limitation on Liability of Servicer and Others

  	
   

  	
  53

  
	
  Section 8.03

  	
   

  	
  Limitation on Resignation and Assignment by Servicer

  	
   

  	
  54

  
	
  Section 8.04

  	
   

  	
  Assignment by Owner

  	
   

  	
  55

  
	
  Section 8.05

  	
   

  	
  Merger or Consolidation of the Servicer

  	
   

  	
  55

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IX

  	
  REPRESENTATIONS, WARRANTIES AND COVENANTS OF OWNER

  	
   

  	
  56

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 9.01

  	
   

  	
  Organization and Good Standing; Licensing

  	
   

  	
  56

  
	
  Section 9.02

  	
   

  	
  Authorization; Binding Obligations

  	
   

  	
  56

  
	
  Section 9.03

  	
   

  	
  No Consent Required

  	
   

  	
  56

  
	
  Section 9.04

  	
   

  	
  No Violations

  	
   

  	
  56

  
	
  Section 9.05

  	
   

  	
  Litigation

  	
   

  	
  56

  

 

ii

 

	
  ARTICLE X

  	
  REPRESENTATIONS AND WARRANTIES OF SERVICER

  	
   

  	
  58

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 10.01

  	
   

  	
  Due Organization and Authority

  	
   

  	
  58

  
	
  Section 10.02

  	
   

  	
  Ordinary Course of Business

  	
   

  	
  58

  
	
  Section 10.03

  	
   

  	
  No Conflicts

  	
   

  	
  58

  
	
  Section 10.04

  	
   

  	
  Ability to Service

  	
   

  	
  58

  
	
  Section 10.05

  	
   

  	
  Ability to Perform

  	
   

  	
  59

  
	
  Section 10.06

  	
   

  	
  No Litigation Pending

  	
   

  	
  59

  
	
  Section 10.07

  	
   

  	
  No Consent Required

  	
   

  	
  59

  
	
  Section 10.08

  	
   

  	
  No Untrue Information

  	
   

  	
  59

  
	
  Section 10.09

  	
   

  	
  [Reserved]

  	
   

  	
  59

  
	
  Section 10.10

  	
   

  	
  MERS

  	
   

  	
  59

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XI

  	
  DEFAULT

  	
   

  	
  61

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 11.01

  	
   

  	
  Events of Default

  	
   

  	
  61

  
	
  Section 11.02

  	
   

  	
  Waiver of Defaults

  	
   

  	
  62

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XII

  	
   

  	
  CLOSING

  	
   

  	
  64

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 12.01

  	
   

  	
  Closing Documents

  	
   

  	
  64

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XIII

  	
  MISCELLANEOUS PROVISIONS

  	
   

  	
  65

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 13.01

  	
   

  	
  Notices

  	
   

  	
  65

  
	
  Section 13.02

  	
   

  	
  Waivers

  	
   

  	
  65

  
	
  Section 13.03

  	
   

  	
  Entire Agreement; Amendment

  	
   

  	
  66

  
	
  Section 13.04

  	
   

  	
  Execution; Binding Effect

  	
   

  	
  66

  
	
  Section 13.05

  	
   

  	
  Headings

  	
   

  	
  66

  
	
  Section 13.06

  	
   

  	
  Applicable Law

  	
   

  	
  66

  
	
  Section 13.07

  	
   

  	
  Relationship of Parties

  	
   

  	
  66

  
	
  Section 13.08

  	
   

  	
  Severability of Provisions

  	
   

  	
  67

  
	
  Section 13.09

  	
   

  	
  Recordation of Assignments of Mortgage

  	
   

  	
  67

  
	
  Section 13.10

  	
   

  	
  Exhibits

  	
   

  	
  67

  
	
  Section 13.11

  	
   

  	
  Counterparts

  	
   

  	
  67

  
	
  Section 13.12

  	
   

  	
  Cooperation of Servicer with a Reconstitution

  	
   

  	
  67

  
	
  Section 13.13

  	
   

  	
  Trademarks

  	
   

  	
  69

  
	
  Section 13.14

  	
   

  	
  Confidentiality of Information

  	
   

  	
  70

  
	
  Section 13.15

  	
   

  	
  [Reserved]

  	
   

  	
  70

  
	
  Section 13.16

  	
   

  	
  WAIVER OF TRIAL BY JURY

  	
   

  	
  70

  
	
  Section 13.17

  	
   

  	
  LIMITATION OF DAMAGES

  	
   

  	
  70

  
	
  Section 13.18

  	
   

  	
  SUBMISSION TO JURISDICTION; WAIVERS

  	
   

  	
  70

  

 

iii

 

EXHIBITS

 

	
  EXHIBIT 1

  	
   

  	
  LIST OF
  MONTHLY AND DAILY REPORTS

  
	
  EXHIBIT 2

  	
   

  	
  FORM OF
  CUSTODIAL ACCOUNT CERTIFICATION

  
	
  EXHIBIT 3

  	
   

  	
  FORM OF
  CUSTODIAL ACCOUNT LETTER AGREEMENT

  
	
  EXHIBIT 4

  	
   

  	
  FORM OF
  ESCROW ACCOUNT CERTIFICATION

  
	
  EXHIBIT 5

  	
   

  	
  FORM OF
  ESCROW ACCOUNT LETTER AGREEMENT

  
	
  EXHIBIT 6

  	
   

  	
  FORM OF
  OFFICER’S CERTIFICATE

  
	
  EXHIBIT 7

  	
   

  	
  MORTGAGE
  LOAN DOCUMENTS

  
	
  EXHIBIT 8

  	
   

  	
  FORM OF
  LIMITED POWER OF ATTORNEY

  
	
  EXHIBIT 9

  	
   

  	
  TERM SHEET

  
	
  EXHIBIT 10

  	
   

  	
  DELEGATION OF AUTHORITY MATRIX

  

 

iv

 

FLOW SERVICING AGREEMENT

 

This Flow
Servicing Agreement (this “Servicing Agreement”) is entered into as
of 
                    
    , 2009, by and between PennyMac Loan Services, LLC, a
Delaware limited liability company (the “Servicer”), and PennyMac
Operating Partnership, L.P., a Delaware limited partnership (the “Owner”).

 

WHEREAS, the
Servicer is in the business of servicing residential mortgage loans similar to
the Mortgage Loans; and

 

WHEREAS, the
Owner may from time to time desire that some or all of the Mortgage Loans be
serviced pursuant to the terms of this Agreement, and the Servicer has agreed
to service and administer the Mortgage Loans that become subject to this
Agreement, and the parties desire to provide the terms and conditions of such
servicing by the Servicer.

 

NOW,
THEREFORE, in consideration of the mutual premises and agreements set forth
herein and for other good and valuable consideration, the receipt and the
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:

 

 

ARTICLE I

 

DEFINITIONS

 

Section 1.01           Definitions.

 

The following terms are defined as follows:

 

Accepted
Servicing Practices: 
With respect to any Mortgage Loan (including any related REO Property),
each of those mortgage servicing practices (including collection procedures) of
prudent mortgage lending institutions which service mortgage loans of the same
type as such Mortgage Loan in the jurisdiction where the related Mortgaged
Property is located, which servicing practices (i) are in compliance with
all federal, state and local laws and regulations, (ii) shall be in
accordance with the Servicer’s policies and procedures as amended from time to
time for mortgage loans of the same type, (iii) are in accordance with the
terms of the related Mortgage and Mortgage Note and (iv) are at a minimum
based on the requirements set forth from time to time by Fannie Mae.

 

Actual/Actual
Basis: 
Remittance to the Owner or its designee which requires the Servicer to
remit to the Owner or such designee the actual interest and actual principal
collected from each Mortgagor.

 

Adjustable-Rate
Mortgage Loan: 
A Mortgage Loan which provides for the adjustment of the Mortgage
Interest Rate payable in respect thereto.

 

Affiliate:  With respect to any specified Person, any
other Person controlling or controlled by or under common control with such
specified Person.  For the purposes of
this definition, “control” when used with respect to any specified Person means
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise and the terms “controlling” and “controlled” have meanings
correlative to the foregoing.

 

Ancillary
Income:  All
income derived from the Mortgage Loans (other than payments or other
collections in respect of principal, interest, Escrow Payments and Prepayment
Penalties attributable to the Mortgage Loans) including, but not limited to,
the Servicer’s share of all late charges, all interest received on funds deposited
in the Custodial Account or any Escrow Account (subject to applicable law),
assumption fees, reconveyance fees, subordination fees, speedpay fees, mortgage
pay on the web fees, automatic clearing house fees, demand statement fees,
modification fees, if any, fees received with respect to checks on bank drafts
returned by the related bank for insufficient funds, assumption fees and other
similar types of fees arising from or in connection with any Mortgage Loan to
the extent not otherwise payable to the Mortgagor under applicable law or
pursuant to the terms of the related Mortgage Note.  In no event shall the Servicer be entitled to
any Prepayment Penalties.

 

Appraised
Value:  With
respect to any Mortgaged Property, the lesser of (i) the value thereof as
determined by an appraisal made for the originator of the Mortgage Loan at the
time of origination of the Mortgage Loan and (ii) the purchase price for
the related Mortgaged Property paid by the Mortgagor with the proceeds of the
Mortgage Loan; provided, however, in 

 

2

 

the case of a Refinanced Mortgage Loan, such value of the Mortgaged
Property is based solely upon the value determined by an appraisal made for the
originator of such Refinanced Mortgage Loan at the time of origination of such
Refinanced Mortgage Loan.

 

Asset Balance:  On any day for any Mortgage Loan, other than
a liquidated Mortgage Loan, the total unpaid outstanding principal balance of
such Mortgage Loan on such date.

 

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

 

Base Servicing
Fee Percentage: 
The Base Servicing Fee Percentage set forth in Exhibit 9
hereto.

 

BPO:  A broker price opinion.

 

Business Day:  Any day other than (i) a Saturday or
Sunday, or (ii) a day on which banking and savings and loan institutions
in the States of New York or California are authorized or obligated by law or
executive authority to be closed.

 

Combined
Loan-to-Value Ratio or CLTV:  With respect to any Second Lien Mortgage
Loan, the ratio (expressed as a percentage) of the sum
of the outstanding principal amount of such Second Lien Mortgage Loan plus the outstanding principal amount of the related First
Lien Mortgage Loan to the lesser of (a) the Appraised Value of the
Mortgaged Property at origination or (b) if such Second Lien Mortgage Loan
was made to finance part of the acquisition of the related Mortgaged Property,
the purchase price of the Mortgaged Property.

 

Code:  The Internal Revenue Code of 1986, as
amended.

 

Competitors:
Any entity whose business includes, as a primary strategy, acquiring and
modifying distressed mortgage loans.

 

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

 

Cost of Funds:  The amount payable by the Owner to the
Servicer pursuant to Section 3.04, which amount shall be equal to
one-twelfth of the product of (x) the
average daily balance of Servicing Advances and (y) the sum of (i) the Cost of Funds Index plus
0 basis points.

 

Cost of Funds
Index:  A per
annum rate equal to the London interbank offered rate for one-month United
States dollar deposits as such rate appears, in The Wall
Street Journal (West Coast edition), as of the first Business Day of
such calendar month.  If the rate above
is unavailable, the Servicer shall select a comparable source mutually
agreeable to the Servicer and the Owner from which to determine such rate.

 

3

 

Custodial
Account:  The
separate trust account or accounts created and maintained pursuant to Section 2.04
at a Qualified Depository.

 

Custodial
Agreement:  The
agreement governing the retention of the originals of each Mortgage Note,
Mortgage, Assignment of Mortgage and other Mortgage Loan Documents.

 

Custodian:  The custodian of the Mortgage Loan Documents
as specified under the related Custodial Agreement.

 

Cut-off Date:  The date set forth in the related Purchase
Agreement, if applicable.

 

Delinquent
Mortgage Loan: 
As defined in Section 6.01(c).

 

Due Date:  The day of the month on which the Monthly
Payment is due on a Mortgage Loan, exclusive of any days of grace.

 

Due Period:  With respect to amounts collected by the
Servicer and required to be remitted to the Owner (or as otherwise directed in
writing by the Owner) on each Remittance Date, the period commencing on the
first day of the month and ending on the last day of the month preceding the
month of the Remittance Date.

 

Eligible Investments:  Any one or more of the obligations or
securities listed below, acquired at a purchase price of not greater than par
which investment provides for a date of maturity not later than one day prior
to the Remittance Date in each month (or such other date as permitted under
this Servicing Agreement):

 

(i)            direct obligations of, and
obligations fully guaranteed as to timely payment of principal and interest by,
the United States of America or any agency or instrumentality thereof,  provided such the obligations are backed by
the full faith and credit of the United States of America (“Direct
Obligations”);

 

(ii)           (A) federal funds, demand and
time deposits in, certificates of deposits of, or bankers’ acceptances issued
by, any depository institution or trust company (including U.S. subsidiaries of
foreign depositories) incorporated or organized under the laws of the United
States of America or any state thereof and subject to supervision and
examination by federal and/or state authorities, so long as at the time of such
investment or the contractual commitment providing for such investment, such
depository institution or trust company has a short-term uninsured debt rating
in the highest available rating category of Moody’s and S&P  and provided that each such investment has an
original maturity of no more than 365 days; and (B) any other demand or
time deposit or deposit which is fully insured by the FDIC;

 

(iii)          repurchase obligations with a term not
to exceed 30 days with respect to any security described in clause (i) above
and entered into with a depository institution or trust company (acting as
principal) rated A-1+ or higher by S&P, and A2 or higher by Moody’s,
provided, however, that collateral transferred pursuant to such repurchase
obligation must be of the type described 

 

4

 

in clause (i) above and must (A) be valued daily at current
market prices plus accrued interest, (B) pursuant to such valuation, be
equal, at all times, to 105% of the cash transferred by a party in exchange for
such collateral and (C) be delivered to such party or, if such party is
supplying the collateral, an agent for such party, in such a manner as to
accomplish perfection of a security interest in the collateral by possession of
certificated securities;

 

(iv)          securities bearing interest or sold at
a discount issued by any corporation incorporated under the laws of the United
States of America or any state thereof which have a credit rating from each
Rating Agency, that rates such securities in its highest long-term unsecured
rating categories at the time of investment or the contractual commitment
providing for such investment;

 

(v)           commercial paper (including both non
interest bearing discount obligations and interest bearing obligations payable
on demand or on a specified date not more than thirty (30) days after the date
of issuance thereof) that is rated by each Rating Agency that rates such
securities in its highest short term rating category available at the time of
such investment;

 

(vi)          certificates or receipts representing
direct ownership interests in future interest or principal payments on
obligations of the United States of America or its agencies or
instrumentalities (which obligations are backed by the full faith and credit of
the United States of America) held by a custodian in safekeeping on behalf of
the holders of such receipts; and

 

(vii)         any other demand, money market, common
trust fund or time deposit or obligation, or interest bearing or other security
or investment rated in the highest rating category by each Rating Agency;

 

provided, however,
that no such instrument shall be an Eligible Investment if such instrument
evidences either (i) a right to receive only interest payments with
respect to the obligations underlying such instrument, or (ii) both
principal and interest payments derived from obligations underlying such
instrument and the principal and interest payments with respect to such
instrument provide a yield to maturity of greater than 120% of the yield to
maturity at par of such underlying obligations.

 

Eligible
Mortgage Loan: 
A mortgage loan that is a fixed-rate or Adjustable-Rate Mortgage Loan
that is secured by either a 1st lien or 2nd lien Mortgage on a single family (i.e., one- to four-unit) residential Mortgaged Property
located in any of the 50 states of the United States or in the District of
Columbia; provided, however, that such mortgage
loan shall not be a High Cost Loan or a HOEPA Loan.  Notwithstanding  the foregoing, an Eligible Mortgage Loan
shall be one of the types of mortgage loans that the Servicer currently
services on its servicing platform.

 

Errors and
Omissions Insurance Policy:  An errors and omissions insurance policy to
be maintained by the Servicer pursuant to Section 2.12.

 

5

 

Escrow Account:  The separate trust account or accounts
created and maintained pursuant to Section 2.06 at a Qualified
Depository.

 

Escrow Payment:  With respect to any Mortgage Loan, the
amounts constituting ground rents, taxes, assessments, water rates, sewer
rents, municipal charges, mortgage insurance premiums, flood insurance
premiums, fire and hazard insurance premiums, condominium charges, and any
other payments required to be escrowed by the Mortgagor with the mortgagee
pursuant to the related Mortgage or any other document.

 

Event of
Default:  Any
one of the conditions or circumstances enumerated in Section 11.01.

 

Fannie Mae:  The Federal National Mortgage Association, or
any successor thereto.

 

Fannie Mae
Guides:  The
Fannie Mae Sellers’ Guide and the Fannie Mae Servicers’ Guide and all
amendments or additions thereto.

 

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

 

Fidelity Bond:  A fidelity bond to be maintained by the
Servicer pursuant to Section 2.12.

 

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

 

Fitch:  Fitch, Inc., or any successor thereto.

 

Fixed-Rate
Mortgage Loan: 
A fixed-rate mortgage loan serviced pursuant to this Servicing
Agreement.

 

Flood Zone
Service Contract: 
A transferable contract maintained for a Mortgaged Property with a
nationally recognized flood zone service provider for the purpose of obtaining
the current flood zone status relating to such Mortgaged Property.

 

Foreclosure
Commencement: 
With respect to any Mortgage Loan, the delivery of the applicable file
to the Servicer’s foreclosure counsel for initiation of foreclosure
proceedings.

 

Freddie Mac:  The Federal Home Loan Mortgage Corporation,
or any successor thereto.

 

Gross Margin:  With respect to each Adjustable-Rate Mortgage
Loan, the fixed percentage amount set forth in the related Mortgage Note which
amount is added to the Index in accordance with the terms of such Mortgage Note
to determine on each Interest Rate Adjustment Date the Mortgage Interest Rate
for such Mortgage Loan.

 

High Cost Loan:  A Mortgage Loan (a) covered by HOEPA or (b) classified
as a “high cost,” “threshold,” “covered,” “predatory” or similar loan under any
other applicable state, 

 

6

 

federal or local law (or a similarly classified loan using different
terminology under a law imposing heightened regulatory scrutiny or additional
legal liability for residential mortgage loans having high interest rates,
points and/or fees).

 

HOEPA:  The Federal Home Ownership and Equity
Protection Act of 1994, as amended.

 

HOEPA Loan:  A Mortgage Loan which (a) is subject to
HOEPA or (b) which the Servicer discovers is subject to HOEPA.

 

Index:  With respect to each Adjustable-Rate Mortgage
Loan, the index set forth in the related Mortgage Note.

 

Insurance
Proceeds:  With
respect to each Mortgage Loan, proceeds of insurance policies insuring such
Mortgage Loan or the related Mortgaged Property.

 

Interest Rate
Adjustment Date: 
With respect to each Adjustable-Rate Mortgage Loan, the date specified
in the related Mortgage Note on which the Mortgage Interest Rate is adjusted.

 

Interim
Servicing Period: 
With respect to any Mortgage Loan, the period commencing on the related
Servicing Transfer Date and ending on the Reconstitution Date.

 

Lender Paid
Mortgage Insurance Policy or LPMI Policy:  A policy of mortgage guaranty insurance
issued by an insurer which meets the requirements of Fannie Mae and Freddie Mac
in which the owner or servicer of the Mortgage Loan is responsible for the
premiums associated with such mortgage insurance policy.

 

Lifetime Rate
Cap:  With
respect to each Adjustable-Rate Mortgage Loan, the provision of the related
Mortgage Note that provides for an absolute maximum Mortgage Interest Rate
thereunder.  The Mortgage Interest Rate
during the terms of each Adjustable-Rate Mortgage Loan shall not at any time
exceed the Mortgage Interest Rate at the time of origination of such
Adjustable-Rate Mortgage Loan by more than the amount per annum set forth on
the Mortgage Loan Schedule.

 

Liquidation
Proceeds: 
Amounts, other than Condemnation Proceeds and Insurance Proceeds,
received in connection with the liquidation of a defaulted Mortgage Loan,
whether through the sale or assignment of such Mortgage Loan, trustee’s sale,
foreclosure sale or otherwise, or the sale of the related Mortgaged Property if
the Mortgaged Property is acquired in satisfaction of the Mortgage Loan, other
than amounts received following the acquisition of an REO Property pursuant to Section 2.15
and prior to such liquidation.

 

Liquidity
Reserve:  As
defined in Section 2.17.

 

Liquidity
Reserve Account: 
The separate trust account or accounts to be created and maintained
under the circumstances described in Section 2.17.

 

Litigation
Reserve:  As
defined in Section 2.17.

 

7

 

Litigation
Reserve Account: 
The separate trust account or accounts to be created and maintained
under the circumstances described in Section 2.17.

 

Loan-to-Value
Ratio or LTV: 
With respect to any First Lien Mortgage Loan, the ratio (expressed as a
percentage) of the outstanding principal amount of such First Lien Mortgage
Loan to the lesser of (a) the Appraised Value of the related Mortgaged
Property at origination or (b) if such First Lien Mortgage Loan was made
to finance the acquisition of the related Mortgaged Property, the purchase
price of such Mortgaged Property.

 

Management
Agreement:  The
Management Agreement dated as of
                
    , 2009 by and among PennyMac Mortgage Investment Trust,
PennyMac Operating Partnership, L.P. and PNMAC Capital Management, LLC, as such
agreement may be amended from time to time.

 

MERS:  Mortgage Electronic Registration Systems, Inc.,
a corporation organized and existing under the laws of the State of Delaware,
or any successor thereto.

 

MERS Mortgage
Loan:  Any
Mortgage Loan as to which the related Mortgage or Assignment of Mortgage has
been recorded in the name of MERS, as agent for the holder from time to time of
the Mortgage Note and which is identified as a MERS Mortgage Loan on the
related Mortgage Loan Schedule.

 

MERS® System: 
The system of recording transfers of mortgages electronically maintained
by MERS.

 

MOM Loan:  Any Mortgage Loan as to which MERS acts as
the mortgagee of record of such Mortgage Loan, solely as nominee for the
originator of such Mortgage Loan and its successors and assigns, at the
origination thereof.

 

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

 

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

 

Mortgage:  The mortgage, deed of trust or other
instrument securing a Mortgage Note, which creates a first or second lien, as
applicable, on an unsubordinated estate in fee simple in real property securing
such Mortgage Note; except that with respect to real property located in
jurisdictions in which the use of leasehold estates for residential properties
is a widely accepted practice, the mortgage, deed of trust or other instrument
securing the Mortgage Note may secure and create a first or second lien, as
applicable, upon a leasehold estate of the Mortgagor.

 

Mortgage File:  The items pertaining to a particular Mortgage
Loan referred to as the Mortgage File in Exhibit 7 annexed hereto,
and any additional documents required to be added to the Mortgage File pursuant
to this Servicing Agreement.

 

Mortgage
Impairment Insurance Policy:  A mortgage impairment or blanket hazard
insurance policy as described in Section 2.11.

 

8

 

Mortgage
Interest Rate: 
With respect to each Mortgage Loan, the annual rate of interest borne on
the related Mortgage Note.

 

Mortgage Loan:  An individual mortgage loan to be serviced
pursuant to this Servicing Agreement, as identified on the Mortgage Loan
Schedule, which mortgage loan shall be an Eligible Mortgage Loan and includes
without limitation the Mortgage File, the Monthly Payments, Principal
Prepayments, Liquidation Proceeds, Condemnation Proceeds, Insurance Proceeds,
Servicing Rights and all other rights, benefits, proceeds and obligations
arising from or in connection with such mortgage loan, excluding replaced or
repurchased mortgage loans.

 

Mortgage Loan
Documents:  The
documents listed on Exhibit 7 attached hereto pertaining to any
Mortgage Loan.

 

Mortgage Loan
Remittance Rate: 
With respect to each Mortgage Loan, the annual rate of interest remitted
to the Owner (or as otherwise directed in writing by the Owner), which shall be
equal to the related Mortgage Interest Rate.

 

Mortgage Loan Schedule:  The schedule of Mortgage Loans in the form
attached as a schedule to the Notice of Transfer of Mortgage Loans, to be
delivered from time to time by the Owner to the Servicer, which schedule shall
include, but not be limited to, the following information with respect to each
Mortgage Loan:

 

(1)                                  the name of the Seller and
the Seller’s Mortgage Loan identifying number;

 

(2)                                  the
Mortgagor’s name;

 

(3)                                  the
street address of the Mortgaged Property including the city, state and ZIP
code;

 

(4)                                  a
code indicating whether the Mortgaged Property is owner-occupied, a second home
or investment property;

 

(5)                                  the
number and type of residential units constituting the Mortgaged Property (i.e., a one-family residence, a two- to four-family
residence, a unit in a condominium project or a unit in a planned unit
development);

 

(6)                                  the
original months to maturity or the remaining months to maturity from the
related Cut-off Date, in any case based on the original amortization schedule
and, if different, the maturity expressed in the same manner but based on the
actual amortization schedule;

 

(7)                                  the
LTV at origination in the case of a First Lien Mortgage Loan;

 

(8)                                  the
CLTV at origination in the case of a Second Lien Mortgage Loan;

 

(9)                                  the
Mortgage Interest Rate as of the related Cut-off Date;

 

(10)                            the
date on which the Monthly Payment was due on the Mortgage Loan and, if such
date is not consistent with the Due Date currently in effect, such Due Date;

 

(11)                            the
stated maturity date;

 

9

 

(12)                            the
amount of the Monthly Payment as of the related Cut-off Date;

 

(13)                            the
last payment date on which a Monthly Payment was actually applied to pay
interest and the outstanding principal balance;

 

(14)                            the
original principal amount of the Mortgage Loan;

 

(15)                            the
principal balance of the Mortgage Loan as of the close of business on the
related Cut-off Date, after deduction of payments of principal due and
collected on or before the related Cut-off Date;

 

(16)                            in the
case of an Adjustable-Rate Mortgage Loan, the next Interest Rate Adjustment
Date;

 

(17)                            in the
case of an Adjustable-Rate Mortgage Loan, the Gross Margin;

 

(18)                            in the
case of an Adjustable-Rate Mortgage Loan, the Lifetime Rate Cap under the terms
of the Mortgage Note;

 

(19)                            in the
case of an Adjustable-Rate Mortgage Loan, a code indicating the type of Index;

 

(20)                            in the
case of an Adjustable-Rate Mortgage Loan, the Periodic Rate Cap under the terms
of the Mortgage Note;

 

(21)                            in the
case of an Adjustable-Rate Mortgage Loan, the Periodic Rate Floor under the
terms of the Mortgage Note;

 

(22)                            the
type of Mortgage Loan (i.e.,
Fixed-Rate, Adjustable-Rate, First Lien, Second Lien);

 

(23)                            a code
indicating the purpose of the loan (i.e., purchase,
rate and term refinance, equity take-out refinance);

 

(24)                            a code
indicating the related documentation program (i.e.
full, alternative or reduced);

 

(25)                            the
loan credit classification (as described in the related Underwriting
Guidelines);

 

(26)                            whether
the Mortgage Loan provides for a Prepayment Penalty;

 

(27)                            the
Prepayment Penalty period of the Mortgage Loan, if applicable;

 

(28)                            a
description of the Prepayment Penalty, if applicable;

 

(29)                            the
Mortgage Interest Rate as of origination;

 

(30)                            the
credit risk score (FICO score) of the related Mortgagor at origination;

 

(31)                            the
date of origination;

 

(32)                            in the
case of an Adjustable-Rate Mortgage Loan, the Mortgage Interest Rate adjustment
period;

 

(33)                            in the
case of an Adjustable-Rate Mortgage Loan, the Mortgage Interest Rate adjustment
percentage;

 

10

 

(34)                            in the
case of an Adjustable-Rate Mortgage Loan, the Mortgage Interest Rate floor;

 

(35)                            the
Mortgage Interest Rate calculation method (i.e., 30/360,
simple interest, other);

 

(36)                            a code
indicating whether the Mortgage Loan is assumable;

 

(37)                            a code
indicating whether the Mortgage Loan has been modified;

 

(38)                            the
one year payment history;

 

(39)                            the
Due Date for the first Monthly Payment;

 

(40)                            the
original Monthly Payment due;

 

(41)                            with
respect to the related Mortgagor, the debt-to-income ratio;

 

(42)                            the
Appraised Value of the Mortgaged Property;

 

(43)                            the
sales price of the Mortgaged Property if the Mortgage Loan was originated in
connection with the purchase of the Mortgaged Property;

 

(44)                            the
MERS identification number;

 

(45)                            a code
indicating whether the Mortgage Loan has borrower paid, lender paid or deep
primary mortgage insurance coverage and, if so, (i) the insurer’s name, (ii) the
policy or certification number, (iii) the premium rate and (iv) the
coverage percentage;

 

(46)                            in the
case of a Second Lien Mortgage Loan, the outstanding principal balance of the
superior lien;

 

(47)                            a code
indicating whether the Mortgage Loan is a HOEPA Loan;

 

(48)                            a code
indicating whether the Mortgage Loan is a High Cost Loan;

 

(49)                            a code
indicating whether the Mortgage Loan is a subject to a buydown;

 

(50)                            flood
zone and flood insurance coverage information with respect to the Mortgage Loan
(to the extent known by the Owner);

 

(51)                            whether
the Mortgage Loan is subject to a repurchase agreement;

 

(52)                            if the
Mortgage Loan is subject to a repurchase agreement, the name of the
counterparty; and

 

(53)                            in the
case of a negative amortization Mortgage Loan, the next payment adjustment date
and the maximum negative amortization.

 

With respect
to the Mortgage Loans in the aggregate, the Mortgage Loan Schedule shall set
forth the following information, as of the related Cut-off Date:

 

(a)                                  the number of Mortgage
Loans;

 

(b)                                 the current aggregate
outstanding principal balance of the Mortgage Loans;

 

(c)                                  the weighted average
Mortgage Interest Rate of the Mortgage Loans; and

 

(d)                                 the weighted
average maturity of the Mortgage Loans.

 

11

 

Mortgage Note:  The note or other evidence of the
indebtedness of a Mortgagor under a Mortgage Loan secured by a Mortgage.

 

Mortgaged
Property:  The
real property (or leasehold estate, if applicable) securing repayment of the
debt evidenced by a Mortgage Note.

 

Mortgagor:  The obligor on a Mortgage Note.

 

Nonrecoverable
Advance:  Any
Servicing Advance previously made or proposed to be made in respect of a
Mortgage Loan or REO Property which, in the good faith judgment of the
Servicer, will not or, in the case of a proposed advance, would not, be
ultimately recoverable from related Insurance Proceeds, Liquidation Proceeds or
otherwise from such Mortgage Loan or REO Property.  The determination by the Servicer that it has
made a Nonrecoverable Advance or that any proposed Servicing Advance or advance
of principal and interest, if made, would constitute a Nonrecoverable Advance
shall be evidenced by an Officer’s Certificate delivered to the Owner.

 

Notice of
Transfer of Mortgage Loans:  A written instrument in the form mutually
agreed upon by the Owner and the Servicer prior to a pending transfer whereby
the Owner notifies the Servicer of the addition of the Mortgage Loans specified
therein to the coverage of this Servicing Agreement.

 

Notice Date:
As defined in Section 11.01(b).

 

Officer’s
Certificate:  A
certificate signed by the Chairman of the Board or the Vice Chairman of the
Board or a President or Vice President or the Treasurer or the Secretary or one
of the Assistant Treasurers or Assistant Secretaries of the Servicer, and
delivered to the Owner.

 

Opinion of
Counsel:  A
written opinion of counsel, who may be counsel for the Servicer, reasonably
acceptable to the Owner; provided, however,
that any Opinion of Counsel relating to the qualification of any account
required to be maintained pursuant to this Servicing Agreement at a Qualified
Depository must be (unless otherwise stated in such Opinion of Counsel) an
opinion of counsel who (i) is in fact independent of the Servicer, (ii) does
not have any material direct or indirect financial interest in the related
Servicer or is an Affiliate of either of them and (iii) is not connected
with the Servicer as an officer, employee, director or person performing
similar functions.

 

Originator:  With respect to a Mortgage Loan, the
originator of such Mortgage Loan.

 

Other Fees:  With respect to each Mortgage Loan, those
fees set forth in Exhibit 9 for the specific services described
therein.

 

Outstanding
Owner Servicing Advances:  As defined in Section 2.28(f).

 

Parent:  As defined in Section 13.14.

 

12

 

Payment
Clearing Account: 
The account established and maintained pursuant to the second paragraph
of Section 2.03.

 

PennyMac
Property Preservation Program:  The proprietary property preservation
programs designed by PNMAC Capital Management, LLC to modify and enhance the
value of Mortgage Loans or mitigate losses to Mortgage Loans, as amended from
time to time, and presented to the Servicer by the program technology and other
documentation administered and provided by the PennyMac REIT Manager.

 

PennyMac REIT:  PennyMac Mortgage Investment Trust, a
Maryland real estate investment trust.

 

PennyMac REIT
Manager:  PNMAC
Capital Management, LLC, a Delaware corporation.

 

Periodic Rate
Cap:  With
respect to each Adjustable-Rate Mortgage Loan, the provision of the Mortgage
Note which provides for an absolute maximum amount by which the Mortgage
Interest Rate specified therein may increase on an Interest Rate Adjustment
Date above the Mortgage Interest Rate previously in effect.

 

Periodic Rate
Floor:  With
respect to each Adjustable-Rate Mortgage Loan, the provision of the related
Mortgage Note which provides for an absolute maximum amount by which the
related Mortgage Interest Rate may decrease on an Interest Rate Adjustment Date
below the Mortgage Interest Rate previously in effect.

 

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

 

PMI Policy:  A policy of primary mortgage guaranty
insurance issued by a Qualified Insurer.

 

Prepayment
Penalty:  Any
prepayment premium, penalty or charge collected by the Servicer with respect to
a Mortgage Loan from a Mortgagor in connection with any Principal Prepayment
pursuant to the terms of such Mortgage Loan.

 

Prime Rate:  The prime rate in effect from time to time as
published as the average rate in The Wall Street Journal
(West Coast edition).

 

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

 

Private
Securitization Transaction:  Any transaction involving either (1) a
sale of some or all of the Mortgage Loans directly or indirectly to an entity
that issues privately offered, rated mortgage-backed securities or (2) an
entity that issues privately offered, rated securities, 

 

13

 

the payments of which are determined primarily by reference to one or
more portfolios of mortgage loans consisting, in whole or in part, of some or
all of the Mortgage Loans.

 

Public
Securitization Transaction:  Any transaction subject to Regulation AB
involving either (1) a sale or other transfer of some or all of the
Mortgage Loans directly or indirectly to an issuing entity in connection with
an issuance of publicly offered, rated mortgage-backed securities or (2) an
issuance of publicly offered, rated securities, the payments on which are
determined primarily by reference to one or more portfolios of residential
mortgage loans consisting, in whole or in part, of some or all of the Mortgage
Loans.

 

Purchase
Agreement:  The
agreement pursuant to which the Owner purchased Mortgage Loans from the related
Seller, if applicable.

 

Qualified
Depository: 
Either (i) an account or accounts maintained with a federal or
state chartered depository institution or trust company the short-term
unsecured debt obligations of which (or, in the case of a depository institution
or trust company that is the principal subsidiary of a holding company, the
short-term unsecured debt obligations of such holding company of which) are
rated A-2 by S&P or Prime-2 by Moody’s (or a comparable rating if another
rating agency is specified by the Owner by written notice to the Servicer) at
the time any amounts are held on deposit therein, (ii) an account or
accounts the deposits in which are fully insured by the FDIC or (iii) a
trust account or accounts maintained with a federal or state chartered
depository institution or trust company acting in its fiduciary capacity.

 

Qualified
Insurer:  Any
insurer which meets the requirements of Fannie Mae and Freddie Mac.

 

Rating Agency:  Any of Fitch, Moody’s or S&P, or their
respective successors, designated by the Owner.

 

Reconstitution:  A Whole Loan Transfer, a Private
Securitization Transaction or a Public Securitization Transaction, as the case
may be.

 

Reconstitution
Date:  As
defined in Section 13.12.

 

Refinanced
Mortgage Loan: 
A Mortgage Loan the proceeds of which were not used to purchase the
related Mortgaged Property.

 

Remittance
Date:  With
respect to each Mortgage Loan, not later than the 20th day of the month
following the month in which payments in respect of such Mortgage Loan are received
and credited.

 

REO Marketing
Fee:  With
respect to each REO Property being managed by the Servicer, that fee set forth
in Exhibit 9.

 

REO Property:  A Mortgaged Property acquired by the Servicer
on behalf of the Owner through foreclosure or by deed in lieu of foreclosure,
as described in Section 2.15.

 

RESPA:  Real Estate Settlement Procedures Act, as
amended from time to time.

 

14

 

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

 

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

 

Seller:  With respect to each Mortgage Loan, the
Seller set forth in the related Mortgage Loan Schedule, if applicable.

 

Service
Release Fee: 
With respect to each Mortgage Loan, the fee set forth in Exhibit 9
hereto payable by the Owner to the Servicer upon the release of such Mortgage
Loan from the Servicer’s loan administration system; provided,
however, that no such fee shall be payable by the Owner if the
Mortgage Loan is transferred (i) to the Servicer or an Affiliate of the
Servicer or (ii) pursuant to an Event of Default.

 

Servicer:
PennyMac Loan Services, LLC or its successor in interest or any permitted
assignee or designee of under this Servicing Agreement as herein provided and
as provided in Section 6.02. 
Unless the context requires otherwise, all references to “Servicer” in
this Servicing Agreement shall be deemed to include such Servicer’s successors
in interest or permitted assignees or designees.

 

Servicer
Employees:  As
defined in Section 2.12.

 

Servicer
Information:  As
defined in Section 13.12(b)(ii)(A).

 

Servicing
Advances:  All
customary, reasonable and necessary “out-of-pocket” costs and expenses
(including reasonable attorneys’ fees and disbursements) incurred (regardless
if any such advance is not, in the reasonable determination of the Servicer, a
Nonrecoverable Advance when made but, thereafter, becomes a Nonrecoverable
Advance) in the performance by the Servicer of its servicing obligations,
including, but not limited to, the cost of (a) the preservation,
restoration and protection of the Mortgaged Property or REO Property, (b) any
fees relating to any enforcement or judicial proceedings, excluding
foreclosures, (c) amounts advanced to correct defaults on any mortgage
loan which is senior to the Mortgage Loan and amounts advanced to keep current
or pay off a mortgage loan that is senior to the Mortgage Loan, (d) any appraisals,
valuations, broker price opinions, inspections, or environmental assessments, (e) the
management and liquidation of the Mortgaged Property if the Mortgaged Property
is acquired in satisfaction of the Mortgage, (f) taxes, assessments, water
rates, sewer rents, mortgage insurance premiums, fire and hazard insurance
premiums, flood insurance premiums and other charges which are or may become a
lien upon the Mortgaged Property, and (g) executing and recording
instruments of satisfaction, deeds of reconveyance.

 

Servicing Fee:  With respect to each Mortgage Loan, the
product of (i) the Base Servicing Fee Percentage and (ii) the unpaid
principal balance of such Mortgage Loan as of the first day of each month for
which the Mortgage Loan is serviced.  With
respect to each newly boarded Mortgage Loan, boarded on or before the 15th day
of month, the Servicer shall be entitled to receive the full monthly Servicing
Fee for each newly boarded Mortgage Loan. 
With respect to each newly boarded Mortgage Loan boarded after the 15th
day of the month, the Servicer shall be entitled to one-half of the monthly
Servicing Fee for each newly boarded 

 

15

 

Mortgage Loan.  With respect to
each Mortgage Loan released from servicing, Servicer shall be entitled to
receive the full monthly Servicing Fee irrespective of the applicable release
date.

 

Servicing File:  With respect to each Mortgage Loan, the file
retained by the Servicer consisting of originals, if provided, or copies of all
documents in the related Mortgage File which are not delivered to the Owner,
its designee or the Custodian and copies of the related Mortgage Loan
Documents.

 

Servicing
Officer:  Any
officer of the Servicer involved in or responsible for, the administration and
servicing of the Mortgage Loans whose name appears on a list of servicing
officers that is required to be furnished by the Servicer to the Owner, as such
list may from time to time be amended.

 

Servicing
Rights:  Any and
all of the following:  (a) any and
all rights to service the Mortgage Loans; (b) any payments to or monies
received by the Servicer for servicing the Mortgage Loans; (c) any
Ancillary Income with respect to the Mortgage Loans; (d) all agreements or
documents creating, defining or evidencing any such servicing rights to the
extent they relate to such servicing rights and all rights of the Servicer
thereunder; (e) any and all rights to and in the Escrow Payments or other
similar payments with respect to the Mortgage Loans and any amounts actually
collected by the Servicer with respect thereto; (f) all accounts and other
rights to payment related to any of the property described in this paragraph;
and (g) any and all documents, files, records, servicing files, servicing
documents, servicing records, data tapes, computer records, or other
information pertaining to the Mortgage Loans or pertaining to the past, present
or prospective servicing of the Mortgage Loans.

 

Servicing
Transfer Date: 
The date on which the Servicer begins servicing the related Mortgage
Loans pursuant to this Servicing Agreement.

 

Special
Deposit Account: 
An account which the Owner and the Servicer agree shall be a special
deposit account for the benefit of the Owner under applicable law.

 

Subservicer:  Any Person that services Mortgage Loans on
behalf of the Servicer or any Subservicer and is responsible for the
performance (whether directly or through Subservicers) of a substantial portion
of the material servicing functions required to be performed by the Servicer
under this Servicing Agreement.

 

Tax Service
Contract:  A
life of loan tax service contract maintained for a Mortgaged Property with a
tax service provider for the purpose of obtaining current information from
local taxing authorities relating to such Mortgaged Property.

 

Transfer Date:  With respect to a Mortgage Loan, the date on
which the physical servicing of such Mortgage Loan is transferred from the
Servicer pursuant to this Servicing Agreement to a successor servicer.

 

Underwriting
Guidelines:  The
underwriting guidelines of the applicable Originator, as identified or
specified in the related Purchase Agreement, if applicable.

 

16

 

Whole Loan
Transfer:  The
sale or transfer by Owner of some or all of the Mortgage Loans in a whole loan
or participation format other than a Private Securitization Transaction or a
Public Securitization Transaction.

 

[THE REMAINDER
OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

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ARTICLE II

 

SERVICING

 

Section 2.01                                Servicer
to Act as Servicer.

 

The Servicer
shall service the Mortgage Loans in accordance with the provisions of this
Servicing Agreement and its obligations in respect of the Mortgage Loans shall
be limited to those set forth in this Servicing Agreement.  In accordance with and subject to the
Delegation of Authority Matrix attached as Exhibit 10 hereto, the
Owner shall delegate authority to the Servicer to carry out the Servicer’s
servicing and administration duties without obtaining the Owner’s prior written
approval.

 

Consistent
with the terms of this Servicing Agreement, the PennyMac Property Preservation
Program, and Accepted Servicing Practices, the Servicer may (i) waive any
late payment charge or, if applicable, any penalty interest, or (ii) extend
the due dates for the Monthly Payments due on a Mortgage Note, or waive, in
whole or in part, a Prepayment Penalty. 
Unless in compliance with the PennyMac Property Preservation Program,
the terms of any Mortgage Loan may only be modified, varied or forgiven with
the prior written consent of the Owner while the Mortgage Loan remains
outstanding.  The Servicer’s analysis
supporting any forbearance and the conclusion that any forbearance meets the
standards of this section shall be reflected in writing or electronically in
the Servicing File.  The Servicer is
hereby authorized and empowered to execute and deliver on behalf of itself and
the Owner, all instruments of satisfaction or cancellation, or of partial or
full release, discharge and all other comparable instruments, with respect to
the Mortgage Loans and with respect to the Mortgaged Properties.  If reasonably required by the Servicer, the
Owner shall furnish the Servicer with a fully executed Power of Attorney and
other documents necessary or appropriate to enable the Servicer to carry out
its servicing and administrative duties under this Servicing Agreement.  The Servicer may request the consent of the
Owner in writing by certified mail, overnight courier or such other means as
may be agreed to by the parties to a course of action that the Servicer
proposes to take under this Servicing Agreement.  Unless the Owner shall give written notice to
the Servicer that it objects to any recommended course of action within ten (10) Business
Days immediately following the day on which the Owner received the Servicer’s
written consent request (together with its recommended course of action and
relevant supporting documentation), the Owner shall be deemed to have consented
to such recommended course of action, and Servicer may take the action
recommended to the Owner, unless the Servicer determines, in its reasonable
discretion, that such action is no longer prudent or applicable and the
Servicer notifies the Owner of such decision not to act.  In the event that the Owner shall object to
the Servicer’s recommended course of action, Servicer shall take such action as
is required by the Owner, and the Servicer shall have no liability therefor if
it is not negligent in performing such action. 
Further, to the extent the Servicer has provided the Owner with
reasonably timely notice, the Owner shall indemnify and hold harmless the
Servicer from and against any penalty, fine or damages that may result from the
Owner’s decision to wait for any period of time up to ten (10) Business
Days before providing Servicer with direction as to the course of action to be
taken as permitted in the second immediately preceding sentence.  In addition, except in accordance with the
PennyMac Property Preservation Program, notwithstanding the foregoing, the
Servicer may not waive any Prepayment Penalty or portion thereof required by
the terms of the related Mortgage Note unless 

 

18

 

(i) the Servicer determines that such waiver would maximize
recovery of Liquidation Proceeds for such Mortgage Loan, taking into account
the value of such Prepayment Penalty and such Mortgage Loan, and the waiver of
such Prepayment Penalty is standard and customary in servicing similar Mortgage
Loans (including the waiver of a Prepayment Penalty in connection with a
refinancing of the Mortgage Loan related to a default or a reasonably
foreseeable default) or (ii) the enforceability thereof is limited (1) by
bankruptcy, insolvency, moratorium, receivership or other similar laws relating
to creditor’s rights or (2) due to acceleration in connection with a
foreclosure or other involuntary payment, or (iii) in the Servicer’s
reasonable judgment, (1) the waiver of such prepayment penalty relates to
a default or a reasonably foreseeable default, (2) such waiver would
maximize recovery of total proceeds taking into account the value of such
Prepayment Penalty and such Mortgage Loan and (3) such waiver is standard
and customary in servicing similar mortgage loans similar to such Mortgage Loan
(including any waiver of a prepayment penalty in connection with a refinancing
of a Mortgage Loan that is related to a default or a reasonably foreseeable
default). In no event will the Servicer waive a Prepayment Penalty in
connection with a refinancing of a Mortgage Loan that is not related to a
default or a reasonably foreseeable default. 
In servicing and administering the Mortgage Loans, the Servicer shall
employ procedures (including collection procedures) and exercise the same care
that it customarily employs and exercises in servicing and administering
mortgage loans for its own account, where such procedures do not conflict with
the requirements of this Servicing Agreement, and the Owner’s reliance on the
Servicer.  In addition, the Servicer
shall retain adequate personnel to effect such servicing and administration of
the Mortgage Loans.  Servicer shall have
no obligation to collect a Prepayment Penalty with respect to a Mortgage Loan
unless the Servicer is provided with such information electronically; provided, however, that the Servicer shall compare the
Notice of Transfer of Mortgage Loans provided by the Owner and any electronic
data regarding the Mortgage Loans provided by the previous servicer of such
Mortgage Loans and provide the Owner with prompt written notice of any
discrepancies with respect to information regarding Prepayment Penalties.

 

The Owner may
sell and transfer, in whole or in part, some or all of the Mortgage Loans at
any time and from time to time (including, without limitation, in connection
with a Private Securitization Transaction or a Public Securitization
Transaction). Upon such execution, the Servicer shall mark its books and
records to reflect the ownership of the Mortgage Loans by such transferee.

 

The Servicer
shall notify MERS of the ownership interest of Owner in each MOM Loan.  At any time during the term of this Servicing
Agreement, Owner may direct the Servicer to cause any MOM Loan to be
deactivated from the MERS System.

 

The Servicing
File maintained by the Servicer pursuant to this Servicing Agreement shall be
appropriately marked and identified in the Servicer’s computer system to
clearly reflect the ownership of the related Mortgage Loan by the Owner.  The Servicer shall release from its custody
the contents of any Servicing File maintained by it only in accordance with
this Servicing Agreement.

 

The Servicer
shall be responsible for the actions of any vendors which the Servicer utilizes
to carry out its obligations hereunder. 
The Owner shall promptly reimburse the Servicer for any fees paid to
such vendors by the Servicer.

 

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The Servicer
shall maintain adequate capacity to service the Mortgage Loans, as well as other
mortgage loans that it may service (including mortgage loans held by other
entities managed by the PennyMac REIT Manager or any of it Affiliates).

 

Section 2.02                                Liquidation
of Mortgage Loans.

 

In the event
that any payment due under any Mortgage Loan and not postponed pursuant to Section 2.01
is not paid when the same becomes due and payable, or in the event the
Mortgagor fails to perform any other covenant or obligation under the Mortgage
Loan and such failure continues beyond any applicable grace period, the
Servicer shall take such action as the Servicer shall determine reasonably to
be in the best interest of the Owner in accordance with Accepted Servicing
Practices.  In the event that any payment
due under any Mortgage Loan is not postponed pursuant to Section 2.01
and remains delinquent for a period of ninety (90) days or any other default
continues for a period of ninety (90) days beyond the expiration of any grace
or cure period (or such other period as is required by law in the jurisdiction
where the related Mortgaged Property is located) or earlier as determined by
the Servicer, the Servicer is granted authority to effect Foreclosure
Commencement in accordance with and subject to Exhibit 10 hereto
and Accepted Servicing Practices.  In
such connection, the Servicer shall, acting in accordance with Accepted
Servicing Practices, advance on behalf of the Owner such funds as are necessary
and proper in connection with any foreclosure or towards the restoration or
preservation of any Mortgaged Property. Notwithstanding anything herein to the
contrary, no Servicing Advance shall be required to be made hereunder if such
Servicing Advance would, if made, constitute a Nonrecoverable Advance.  The determination by the Servicer that it has
made a Nonrecoverable Advance or that any proposed Servicing Advance would
constitute a Nonrecoverable Advance shall be evidenced by an Officers’
Certificate of the Servicer, delivered to the Owner, which details the reasons
for such determination.

 

The Servicer
acknowledges and agrees that it shall take and initiate any legal actions with
respect to any Mortgage Loans and REO Properties, including, without
limitation, any foreclosure actions, acceptance of deeds in lieu of
foreclosure, and any collection actions with respect to any Mortgage Loans or
REO Properties on behalf of the Owner, but only in the name of the Servicer or
its nominee and without reference to the Owner. 
Except as otherwise required by law or with the consent of the Owner,
under no circumstances shall any such action be taken in the name of, or with
any reference to, the Owner.  The
Servicer shall provide prior written notice to the Owner, if the Servicer is
required by applicable law to take any legal actions with respect to the
Mortgage Loan or REO Properties in the name of, or with reference to, the
Owner.

 

Section 2.03                                Collection
of Mortgage Loan Payments; Payment Clearing Account.

 

Continuously
from the related Servicing Transfer Date until the principal and interest on
all Mortgage Loans are paid in full (unless otherwise provided herein), the
Servicer shall proceed diligently to collect all payments due under each of the
Mortgage Loans when the same shall become due and payable and shall take
special care in ascertaining and estimating Escrow Payments, to the extent
applicable, and all other charges that will become due and payable with respect
to the Mortgage Loans and each related Mortgaged Property, to the end that 

 

20

 

the installments payable by the Mortgagors will be sufficient to pay
such charges as and when they become due and payable.  Notwithstanding anything herein to the
contrary, the Servicer shall not be required to institute or join in litigation
with respect to collection of any payment (whether under a Mortgage, Mortgage
Note, PMI Policy or otherwise or against any public or governmental authority
with respect to a taking or condemnation) if in its reasonable judgment it
believes that it will be unable to enforce the provision of the Mortgage or
other instrument pursuant to which payment is required.  Further, the Servicer shall take special care
in ascertaining and estimating annual ground rents, taxes, assessments, water
rates, flood insurance premiums, fire and hazard insurance premiums, mortgage
insurance premiums, and all other charges that, as provided in the Mortgage,
will become due and payable to the end that the installments payable by the
Mortgagors will be sufficient to pay such charges as and when they become due
and payable.

 

The Servicer
shall establish and maintain a Payment Clearing Account into which it shall
deposit on a daily basis all payments received in respect of mortgage loans
serviced by the Servicer (whether or not serviced pursuant to this Servicing
Agreement).  Not later than the second
Business Day following the receipt of a payment in respect of a Mortgage Loan
subject to this Servicing Agreement, the Servicer shall withdraw the amount
such payment form the Payment Clearing Account and shall immediately deposit (1) in
the Custodial Account, the portion of such payment required to be deposited
therein pursuant to Section 2.04, and (2) in the Escrow
Account, the portion of such payment required to be deposited therein pursuant
to Section 2.06.

 

Section 2.04                                Establishment
of and Deposits to Custodial Account.

 

The Servicer
shall establish one or more Custodial Accounts, in the form of time deposit or
demand accounts, titled “PNMAC Loan Svc LLC ITF
PennyMac Operating Partnership, L.P. ttee and/or bailee for PNMAC LLC  - and/or pmnts of var mtgrs and/or other
owners of int in loans- P&I” 
The Custodial Account shall be established with a Qualified Depository
acceptable to the Owner as a Special Deposit Account.  Any funds deposited in the Custodial Account
shall at all times be fully insured to the full extent permitted by the FDIC
and any amounts therein may be invested in Eligible Investments.  The creation of any Custodial Account shall
be evidenced by a certification in the form of Exhibit 2 hereto, in
the case of an account established with the Servicer (provided the Servicer
qualifies as a Qualified Depository), or by a letter agreement in the form of Exhibit 3
hereto, in the case of an account held by a depository other than the
Servicer.  A copy of such certification or
letter agreement shall be furnished to the Owner on or prior to the execution
of this Servicing Agreement.  The
Servicer shall segregate and hold all funds in the Custodial Account separate
and apart from the Servicer’s own funds and general assets.

 

The Servicer shall deposit in the Custodial Account and retain therein
the following collections received by the Servicer, together with any payments
made by the Servicer subsequent to the Servicing Transfer Date pursuant to this
Servicing Agreement:

 

(i)            all payments on account of principal on the Mortgage
Loans, including all Principal Prepayments;

 

21

 

(ii)           all
payments on account of interest on the Mortgage adjusted to the Mortgage Loan
Remittance Rate;

 

(iii)          all
Liquidation Proceeds and any amount received with respect to REO Property;

 

(iv)          all
Insurance Proceeds including amounts required to be deposited pursuant to Section 2.10
(other than proceeds to be held in the Escrow Account and applied to the
restoration or repair of the Mortgaged Property or released to the Mortgagor in
accordance with Section 2.14), and Section 2.11;

 

(v)           all
Condemnation Proceeds affecting any Mortgaged Property that are not applied to
the restoration or repair of the Mortgaged Property or released to the
Mortgagor in accordance with Section 2.14;

 

(vi)          any
amount required to be deposited in the Custodial Account pursuant to Section 2.15
or 4.02;

 

(vii)         [reserved];

 

(viii)        [reserved];

 

(ix)           any
Prepayment Penalties received with respect to any Mortgage Loan; and

 

(x)            any
amounts required to be deposited by the Servicer pursuant to Section 2.11
in connection with the deductible clause in any blanket hazard insurance
policy.  Such deposit shall be made from
Servicer’s own funds, without reimbursement therefor.

 

The foregoing requirements
for deposit into the Custodial Account shall be exclusive, it being understood
and agreed that, without limiting the generality of the foregoing, Ancillary
Income and Prepayment Penalties need not be deposited by the Servicer into the
Custodial Account.  Any interest paid by
the depository institution on funds deposited in the Custodial Account shall
accrue to the benefit of the Servicer and the Servicer may retain any such
interest.

 

Section 2.05                   Permitted Withdrawals From
Custodial Account.

 

Subject to Section 3.01,
the Servicer shall be entitled to withdraw funds from the Custodial Account for
the following purposes:

 

(i)            to
make payments to the Owner (or as otherwise directed by the Owner in writing)
in the amounts and in the manner provided in Section 3.01;

 

(ii)           to
fund any Liquidity Reserve Account or any Litigation Reserve Account as and to
the extent required by Section 2.17;

 

22

 

(iii)          [reserved];

 

(iv)          following
the liquidation of a Mortgage Loan, to reimburse itself for (a) any unpaid
Servicing Advances to the extent recoverable from Liquidation Proceeds,
Insurance Proceeds or other amounts received with respect to the related
Mortgage Loan plus (b) unreimbursed Nonrecoverable Advances made by the
Servicer in accordance with this Agreement;

 

(v)           [reserved];

 

(vi)          [reserved];

 

(vii)         to
invest funds in Eligible Investments in accordance with Section 2.09;

 

(viii)        to
withdraw funds deposited in the Custodial Account in error;

 

(ix)           to
pay to itself any interest earned on funds deposited in the Custodial Account
(all such interest to be withdrawn monthly not later than each Remittance
Date);

 

(x)            [reserved];

 

(xi)           [reserved];
and

 

(xii)          to
clear and terminate the Custodial Account upon the termination of the Servicing
Agreement.

 

The Servicer shall keep and
maintain separate accounting, on a Mortgage Loan by Mortgage Loan basis, for
the purpose of justifying any withdrawal from the Custodial Account pursuant to
such subclause (iv) above.

 

Section 2.06                   Establishment of and
Deposits to Escrow Account.

 

The Servicer shall establish
and maintain one or more Escrow Accounts, in the form of time deposit or demand
accounts, titled “PNMAC Loan Svc LLC ttee
and/or bailee for PNMAC LLC and/or pmts of var mtgrs and/or other owners of int
in loans- T&I”.  The
Escrow Account shall be established with a Qualified Depository as a Special
Deposit Account.  Funds deposited in the
Escrow Accounts may be drawn on by the Servicer in accordance with Section 2.07.  The creation of any Escrow Account shall be
evidenced by a certification in the form of Exhibit 4 hereto, in
the case of an account established with the Servicer (provided the Servicer
qualifies as a Qualified Depository), or by a letter agreement in the form of Exhibit 5
hereto, in the case of an account held by a depository other than the
Servicer.  A copy of such certification
shall be furnished to the Owner on or prior to the execution of this Servicing
Agreement.  The Servicer shall segregate
and hold all funds in any Escrow Account separate and apart from the Servicer’s
own funds and general assets.

 

The Servicer shall deposit
in the Escrow Account or Accounts and retain therein the following collections
received by the Servicer:

 

23

 

(i)            all
Escrow Payments collected on account of the Mortgage Loans, for the purpose of
effecting timely payment of any such items as required under the terms of this
Servicing Agreement;  and

 

(ii)           all
amounts representing Insurance Proceeds or Condemnation Proceeds which are to
be applied to the restoration or repair of any Mortgaged Property.

 

The Servicer shall make
withdrawals from the Escrow Account only to effect such payments as are
required under this Servicing Agreement, as set forth in Section 2.07.  Any interest paid on funds deposited in the
Escrow Account by the depository institution shall accrue to the benefit of the
Servicer, other than interest on escrowed funds required by law to be paid to
the Mortgagor.  To the extent required by
law, the Servicer shall be responsible to pay from its own funds interest on escrowed
funds to the Mortgagor notwithstanding that the Escrow Account may be non
interest bearing or that interest paid thereon is insufficient for such
purposes.

 

Section 2.07                   Permitted Withdrawals From
Escrow Account.

 

Withdrawals from the Escrow
Account or Accounts may be made by the Servicer only:

 

(i)            to
effect timely payments of ground rents, taxes, assessments, water rates,
mortgage insurance premiums, condominium charges, flood insurance, fire and
hazard insurance, premiums or other items constituting Escrow Payments for the
related Mortgage;

 

(ii)           to
reimburse the Servicer for any Servicing Advance made by the Servicer pursuant
to Section 2.08 with respect to a Mortgage Loan, but only from
amounts received on the related Mortgage Loan which represent late payments or
collections of Escrow Payments thereunder;

 

(iii)          to
refund to any Mortgagor any funds found to be in excess of the amounts required
under the terms of the related Mortgage Loan or applicable federal or state law
or judicial or administrative ruling;

 

(iv)          for
transfer to the Custodial Account in accordance with the terms of the related
Mortgage and Mortgage Note or this Servicing Agreement;

 

(v)           for
application to restoration or repair of the Mortgaged Property in accordance
with the procedures outlined in Section 2.14;

 

(vi)          to
pay the Servicer, or any Mortgagors to the extent required by law, any interest
paid on the funds deposited in the Escrow Account;

 

(vii)         to
reimburse itself for any amounts deposited in the Escrow Account in error; and

 

(viii)        to
clear and terminate the Escrow Account on the termination of this Servicing
Agreement.

 

24

 

Section 2.08                   Payment of Taxes,
Insurance and Other Charges.

 

With respect to each First
Lien Mortgage Loan that provides for Escrow Payments to be made, the Servicer
shall maintain accurate records reflecting the status of ground rents, taxes,
assessments, water rates and other charges which are or may become a lien upon
the Mortgaged Property and the status of PMI Policy premiums, flood insurance,
and fire and hazard insurance coverage and shall obtain, from time to time, all
bills for the payment of such charges (including renewal premiums) and shall
effect payment thereof prior to the applicable penalty or termination date and
at a time appropriate for securing maximum discounts allowable, employing for
such purpose deposits of the Mortgagor in the Escrow Account which shall have
been estimated and accumulated by the Servicer in amounts sufficient for such
purposes, as allowed under the terms of the related Mortgage.

 

To the extent that any First
Lien Mortgage Loan does not provide for Escrow Payments, the Servicer shall
determine that any such payments are made by the related Mortgagor when
due.  With respect to each First Lien
Mortgage Loan that provides for Escrow Payments, subject to Accepted Servicing
Practices, the Servicer assumes full responsibility for the payment of all such
bills and shall effect payments of all such bills irrespective of the Mortgagor’s
faithful performance in the payment of same or the making of the Escrow
Payments and shall make Servicing Advances from its own funds to effect such
payments within the time period required to avoid penalties and interest and
avoid the loss of the related Mortgaged Property by foreclosure from a tax or
other lien. Notwithstanding the foregoing, if Servicer reasonably determines
that such Servicing Advance would be a Nonrecoverable Advance, Servicer shall
have no obligation to make such Servicing Advance.  Solely with respect to Mortgage Loans that
require escrow payments, if Servicer fails to make a Servicing Advance with
respect to any payment prior to the date on which late payment penalties or
costs related to protecting the lien accrue, the Servicer shall pay any such
penalties or costs which accrued.

 

Section 2.09                   Protection of Accounts.

 

The Servicer may transfer
the Custodial Account, the Escrow Account, any Liquidity Reserve Account or any
Litigation Reserve Account to a different Qualified Depository from time to
time.  Such transfer shall be made only
upon obtaining consent of the Owner, which shall not be unreasonably
withheld.  The Servicer shall notify the
Owner in writing of any such transfer fifteen (15) Business Days prior to such transfer.

 

Amounts on deposit in the
Custodial Account, the Escrow Account, any Liquidity Reserve Account or any
Litigation Reserve Account may at the option of the Servicer be invested in
Eligible Investments.  Any such Eligible
Investment shall mature no later than one day prior to the Remittance Date in
each month; provided, however, that if such Eligible
Investment is an obligation of a Qualified Depository (other than the Servicer)
that maintains the Custodial Account, the Escrow Account, any Liquidity Reserve
Account or any Litigation Reserve Account, then such Eligible Investment may
mature on the related Remittance Date. 
Any such Eligible Investment shall be made in the name of the Servicer
in trust for the benefit of the Owner. 
All income on or gain realized from any such Eligible Investment shall
be for the benefit of the Servicer and may be withdrawn at any time by the
Servicer.  Any losses incurred in respect
of any such investment shall be deposited in the Custodial Account, the Escrow 

 

25

 

Account,
any Liquidity Reserve Account or any Litigation Reserve Account, by the
Servicer out of its own funds immediately as realized with no right to
reimbursement.

 

Section 2.10                   Maintenance of Hazard
Insurance.

 

The Servicer shall cause to
be maintained for each First Lien Mortgage Loan, hazard insurance (with
extended coverage as is customary in the area where the Mortgaged Property is
located) such that all buildings upon the Mortgaged Property are insured by a
generally acceptable insurer acceptable under the Fannie Mae Guides against
loss by fire, hazards of extended coverage and such other hazards as are
required to be insured pursuant to the Fannie Mae Guides, in an amount which is
at least equal to the lesser of (i) the maximum insurable value of the
improvements securing such Mortgage Loan and (ii) the greater of (a) the
outstanding principal balance of the Mortgage Loan or (b) an amount such
that the proceeds thereof shall be sufficient to prevent the Mortgagor or the
loss payee from becoming a co-insurer (or, in the case of REO Property,
the fair market value of such REO Property).

 

If required by the National
Flood Insurance Act of 1968 or Flood Disaster Prevention Act of 1973, as
amended, each Mortgage Loan is, and shall continue to be, covered by a flood
insurance policy meeting the requirements of the current guidelines of the
Federal Insurance Administration with a generally acceptable insurance carrier
acceptable under the Fannie Mae Guides in an amount representing coverage not
less than the least of (i) the aggregate unpaid principal balance of the
Mortgage Loan (or, in the case of REO Property, the fair market value of
such REO Property), (ii) maximum amount of insurance which is
available under the National Flood Insurance Act of 1968 or Flood Disaster
Prevention Act of 1973, as amended (regardless of whether the area in which
such Mortgaged Property is located is participating in such program), or (iii) the
full replacement value of the improvements which are part of such Mortgaged
Property.  If a Mortgaged Property is
located in a special flood hazard area and is not covered by flood insurance or
is covered in an amount less than the amount required by the National Flood
Insurance Act of 1968 or Flood Disaster Prevention Act of 1973, as amended, the
Servicer shall notify the related Mortgagor that the Mortgagor must obtain such
flood insurance coverage, and if said Mortgagor fails to obtain the required
flood insurance coverage within forty-five (45) days after such notification,
the Servicer shall immediately force place the required flood insurance on the
Mortgagor’s behalf.  Notwithstanding the
foregoing, Servicer shall have no liability to Owner or any third party for any
penalties or fines imposed based on Servicer’s failure to timely notify the
Director of FEMA and the flood insurance provider related to a servicing
transfer if Servicer is not provided with flood insurance information; provided
that, the Servicer shall have promptly provided Owner with notice of such
missing flood insurance information. 
Notwithstanding the foregoing, the Servicer shall maintain a blanket
insurance policy in sufficient amounts to cover any uninsured loss due to any
gap in Mortgagor provided coverage.

 

If a First Lien Mortgage
Loan is secured by a unit in a condominium project, the Servicer shall verify
that the coverage required of the homeowners’ association, including hazard,
flood, liability, and fidelity coverage, is being maintained in accordance with
then current Fannie Mae requirements, and secure from the homeowners’
association its agreement to notify the Servicer promptly of any change in the
insurance coverage or of any condemnation or casualty loss that may have a
material effect on the value of the Mortgaged Property as security.

 

26

 

The Servicer shall cause to
be maintained on each Mortgaged Property such other or additional insurance as
may be required pursuant to such applicable laws and regulations as shall at
any time be in force and as shall require such additional insurance, or
pursuant to the requirements of any private mortgage guaranty insurer, or as
may be required to conform with Accepted Servicing Practices.

 

In the event that the Owner
or the Servicer shall determine that the Mortgaged Property should be insured
against loss or damage by hazards and risks not covered by the insurance
required to be maintained by the Mortgagor pursuant to the terms of the
Mortgage, the Servicer shall in accordance with the Fannie Mae Guides make
commercially reasonable efforts to communicate and consult with the Mortgagor
with respect to the need for such insurance and bring to the Mortgagor’s
attention the desirability of protection of the Mortgaged Property.

 

All policies required
hereunder shall name the Servicer and its successors and assigns as a mortgagee
and loss payee and shall be endorsed with non contributory standard or New York
mortgagee clauses which shall provide for at least thirty (30) days prior
written notice of any cancellation, reduction in amount or material change in
coverage.

 

The Servicer shall not
interfere with the Mortgagor’s freedom of choice in selecting either his
insurance carrier or agent, provided, however,
that the Servicer shall not accept any such insurance policies from insurance
companies unless such companies currently reflect a General Policy Rating of
A:VI or better under Best’s Key Rating Guides, are acceptable under the Fannie
Mae Guides and are licensed to do business in the jurisdiction in which the
Mortgaged Property is located.  The
Servicer shall determine that such policies provide sufficient risk coverage
and amounts as required pursuant to the Fannie Mae Guides, that they insure the
property owner, and that they properly describe the property address.  The Servicer shall furnish to the Mortgagor a
formal notice of expiration of any such insurance in sufficient time for the
Mortgagor to arrange for renewal coverage by the expiration date; provided, however, that in the event that no such notice is
furnished by the Servicer, the Servicer shall ensure that replacement insurance
policies are in place in the required coverages and the Servicer shall be
solely liable for any losses in the event coverage is not provided.

 

Pursuant to Section 2.04,
any amounts collected by the Servicer under any such policies (other than
amounts to be deposited in the Escrow Account and applied to the restoration or
repair of the related Mortgaged Property, or property acquired in liquidation
of the Mortgage Loan, or to be released to the Mortgagor, in accordance with
the Servicer’s normal servicing procedures as specified in Section 2.14)
shall be deposited in the Custodial Account subject to withdrawal pursuant to Section 2.05.

 

Section 2.11                   Maintenance of Mortgage
Impairment Insurance Policy.

 

In the event that the
Servicer shall obtain and maintain a blanket policy insuring against losses
arising from flood, fire and hazards covered under extended coverage on all of
the Mortgage Loans, then, to the extent such policy provides coverage in an
amount equal to the amount required pursuant to Section 2.10 and
otherwise complies with all other requirements of Section 2.10, it
shall conclusively be deemed to have satisfied its obligations as set forth in Section 2.10.  Any amounts collected by the Servicer under
any such policy relating to a 

 

27

 

Mortgage
Loan shall be deposited in the Custodial Account subject to withdrawal pursuant
to Section 2.05.  Such policy
may contain a deductible clause, in which case, in the event that there shall
not have been maintained on the related Mortgaged Property a policy complying
with Section 2.10, and there shall have been a loss which would
have been covered by such policy, the Servicer shall deposit in the Custodial
Account at the time of such loss the amount not otherwise payable under the
blanket policy because of such deductible clause, such amount to be deposited
from the Servicer’s funds, without reimbursement therefor.  The Servicer may seek reimbursement from the
Owner for the costs and premiums associated with obtaining and maintaining any
such blanket policy.

 

Section 2.12                   Maintenance of Fidelity
Bond and Errors and Omissions Insurance.

 

The Servicer shall maintain
with responsible companies that would meet the requirements of Fannie Mae, at
its own expense, a blanket Fidelity Bond and an Errors and Omissions Insurance
Policy, with broad coverage on all officers, employees or other persons acting
in any capacity requiring such persons to handle funds, money, documents or
papers relating to the Mortgage Loans (“Servicer Employees”).  Any such Fidelity Bond and Errors and
Omissions Insurance Policy shall be in the form of the Mortgage Banker’s
Blanket Bond and shall protect and insure the Servicer against losses,
including forgery, theft, embezzlement, fraud, errors and omissions and
negligent acts of such Servicer Employees. 
Such Fidelity Bond and Errors and Omissions Insurance Policy also shall
protect and insure the Servicer against losses in connection with the failure
to maintain any insurance policies required pursuant to this agreement and the
release or satisfaction of a Mortgage Loan without having obtained payment in
full of the indebtedness secured thereby. 
No provision of this Section 2.12 requiring such Fidelity
Bond and Errors and Omissions Insurance Policy shall diminish or relieve the
Servicer from its duties and obligations as set forth in this Servicing
Agreement.  Any such Fidelity Bond and
Errors and Omissions Insurance Policy shall be comply with the applicable
requirements from time to time of Fannie Mae. Upon request, the Servicer shall
cause to be delivered to the Owner a certified true copy of such Fidelity Bond
and Errors and Omissions Insurance Policy and shall obtain a statement from the
surety and insurer that such Fidelity Bond and Errors and Omissions Insurance
Policy shall in no event be terminated or materially modified without thirty
(30) days’ prior written notice to the Owner.

 

Section 2.13                   Inspections.

 

The Servicer shall order an
inspection of the Mortgaged Property when the related Mortgage Loan becomes 45
days delinquent and every 30 days thereafter so long as such Mortgage Loan
remains delinquent to assure itself that the value of the Mortgaged Property is
being preserved, provided that
the Servicer shall be required to take such action only if it determines that
the proceeds to the Owner (after giving effect to the recovery of the Servicer’s
out-of-pocket expenses) from payment on, or disposition of, the related
Mortgage Loan or REO Property would be increased as a result of the taking
of such action.  The Servicer shall
document on its servicing system each such inspection.  The costs of such inspections shall be
treated as Servicing Advances for which the Servicer shall be entitled to full
reimbursement for in accordance with Section 2.05(iv).

 

28

 

Section 2.14                   Restoration of Mortgaged
Property.

 

The
Servicer need not obtain the approval of the Owner prior to releasing any
Insurance Proceeds or Condemnation Proceeds to the Mortgagor to be applied to
the restoration or repair of the Mortgaged Property if such release is in
accordance with Accepted Servicing Practices and the terms of this Servicing
Agreement.  At a minimum, the Servicer
shall comply with the following conditions in connection with any such release
of Insurance Proceeds or Condemnation Proceeds:

 

(i)            the
Servicer shall receive satisfactory independent verification of completion in
all material respects of repairs and issuance of any required approvals with
respect thereto;

 

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

 

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

 

(iv)          pending
repairs or restoration, the Servicer shall place the Insurance Proceeds or
Condemnation Proceeds in the Escrow Account.

 

If the Owner is named as an
additional loss payee, the Servicer is hereby empowered to endorse any loss
draft issued in respect of such a claim in the name of the Owner.

 

Section 2.15                   Title, Management and
Disposition of REO Property.

 

In the event that title to
any Mortgaged Property is acquired in foreclosure or by deed in lieu of
foreclosure, the deed or certificate of sale shall be taken in the name of the
Servicer on behalf of the Owner and without reference to the Owner except as otherwise
required by law, or in the event the Servicer is not authorized or permitted to
hold title to real property in the state where the REO Property is located, or
would be adversely affected under the “doing business” or tax laws of such
state by so holding title, the deed or certificate of sale shall be taken in
the name of such Person(s) as shall be consistent with an Opinion of
Counsel obtained by Servicer from an attorney duly licensed to practice law in
the state where the REO Property is located. 
The Person or Persons holding such title other than the Owner shall
acknowledge in writing that such title is being held as nominee for the Owner.

 

Upon approval by Owner, the
Servicer shall manage, conserve, protect and operate each REO Property for the
Owner solely for the purpose of its prompt disposition and sale.  In consideration therefor, the Owner shall
pay the Servicer the REO Marketing Fee per month as set forth in Exhibit 9.  The Servicer, either itself or through an
agent selected by the Servicer, shall manage, conserve, protect and operate the
REO Property in accordance with Accepted Servicing Practices and in the same
manner that similar property in the same locality as the REO Property is
managed.  The Servicer shall attempt to
sell the same (and may temporarily rent the same, except as otherwise provided
below) on such terms and conditions as the Servicer deems to be in the best
interest of the Owner in accordance with Accepted Servicing 

 

29

 

Practices.  The Servicer shall provide the Owner on a
monthly basis with a report on the status of each REO Property.

 

In consideration therefor,
the Owner shall pay the Servicer the REO Marketing Fee per month as set forth
in Exhibit 9.

 

The Servicer shall also
maintain on each REO Property fire and hazard insurance with extended coverage
in an amount which is at least equal to the maximum insurable value of the
improvements which are a part of such property, liability insurance and, to the
extent required and available under the National Flood Insurance Act of 1968 or
Flood Disaster Prevention Act of 1973, as amended, flood insurance in the
amount required in Section 2.10 hereof, provided that the Servicer shall be required to maintain
such insurance only if it determines that the proceeds to the Owner (after
giving effect to the recovery of the Servicer’s out-of-pocket expenses) from
payment on, or disposition of, the related REO Property would be increased
as a result of the maintenance of such insurance.  Such costs to maintain appropriate insurance
coverage shall be treated as Servicing Advances for which the Servicer shall be
entitled to full reimbursement in accordance with Section 2.05(iv).

 

The disposition of REO
Property shall be carried out by the Servicer at such price, and upon such
terms and conditions, as the Servicer deems to be in the best interests of the
Owner in accordance with Accepted Servicing Practices.  The proceeds of sale of the REO Property shall
be promptly deposited in the Custodial Account pursuant to the terms of this
Servicing Agreement but not later than the second Business Day following
receipt thereof.  As soon as practical
thereafter, the expenses of such sale shall be paid and the Servicer shall
reimburse itself for any related unreimbursed Servicing Advances and unpaid
Servicing Fees made pursuant to this Section.

 

With respect to each REO
Property, the Servicer shall segregate and hold all funds collected and
received in connection with the operation of the REO Property in the Custodial
Account.  The Servicer shall cause to be
deposited on a daily basis in each Custodial Account all revenues received by
Servicer (such revenues being those received by Servicer within two Business
Days prior to actual deposit into the Escrow Account) with respect to the
conservation and disposition of the related REO Property.  Any advances made to maintain appropriate
insurance coverage shall be treated as Servicing Advances for which the
Servicer shall be entitled to full reimbursement in accordance with Section 2.05(iv).

 

The Servicer shall furnish
to the Owner on a monthly basis the Servicer’s standard REO report on REO
Property then serviced by the Servicer.

 

Section 2.16                   Costs and Expenses.

 

Owner will be responsible
for all losses including but not limited to unrecoverable interest, “out-of-pocket”
costs and expenses from either the Mortgagor or Owner that are normal and
customary that occur as the result of normal business activity associated with
owning the loans.

 

30

 

Section 2.17                   Liquidity and Litigation
Reserves.

 

(a)           Liquidity Reserve. 
The Servicer, in its discretion, may establish a liquidity reserve (the “Liquidity
Reserve”) from which to fund Servicing Advances (other than litigation
costs and expenses (including attorneys’ fees), which may be funded through the
use of a Litigation Reserve pursuant to Section 2.17(b)).  If the Servicer elects to establish a
Liquidity Reserve it shall establish a Liquidity Reserve Account at a Qualified
Depository.  The Liquidity Reserve
Account shall be held in trust for the benefit of the Owner and shall be
established and maintained for the sole purpose of holding and distributing the
Liquidity Reserve funds.  The Servicer
may fund the Liquidity Reserve with such portion of distributions on the
Mortgage Loans as it deems appropriate, in the exercise of its reasonable
discretion.  At the termination of this
Servicing Agreement, all remaining funds held in the Liquidity Reserve shall be
distributed to the Owner.  Amounts on
deposit in the Liquidity Reserve Account shall be invested in Eligible
Investments, shall not be used to pay costs or expenses other than Servicing
Advances (excluding litigation costs and expenses), and shall be used to pay
Servicing Advances (other than litigation costs and expenses) only in any month
in which the distributions on the Mortgage Loans received during that month are
insufficient to provide sufficient cash to pay all Servicing Advances due and
payable (without prepayment) during that month. 
No funds from any other source (other than interest or earnings on the
funds held in the Liquidity Reserve Account) shall be commingled in the
Liquidity Reserve Account.  Amounts on
deposit in the Liquidity Reserve Account (including interest and earnings
thereon) shall be used and may be withdrawn and disbursed only in accordance
with the provisions of this paragraph. 
The Servicer shall be authorized and directed to withdraw funds from the
Liquidity Reserve Account only to make disbursements in accordance with this
Servicing Agreement and not for any other purpose.

 

(b)           Litigation Reserve. 
The Servicer, in its discretion, may establish a litigation reserve (the
“Litigation Reserve”) from which to fund litigation costs and expenses (including
attorneys’ fees) that constitute Servicing Advances.  If the Servicer elects to establish a
Litigation Reserve it shall establish a Litigation Reserve Account at a
Qualified Depository.  The Litigation
Reserve Account shall be held in trust for the benefit of the Owner and shall
be established and maintained for the sole purpose of holding and distributing
the Litigation Reserve funds.  The
Servicer may fund the Litigation Reserve with such portion of distributions on
the Mortgage Loans as it deems appropriate, in the exercise of its reasonable
discretion.  At the termination of this
Servicing Agreement, all remaining funds held in the Litigation Reserve shall
be distributed to the Owner.  Amounts on
deposit in the Litigation Reserve Account shall be invested in Eligible
Investments, shall not be used to pay costs or expenses other than litigation
costs and expenses that constitute Servicing Advances, and shall be used to pay
such litigation costs and expenses only in any month in which distributions on
the Mortgage Loans received during that month are insufficient to provide
sufficient cash to pay all Servicing Advances due and payable (without
prepayment) during that month.  No funds
from any other source (other than interest or earnings on the funds held in the
Litigation Reserve Account) shall be commingled in the Litigation Reserve
Account.  Amounts on deposit in the
Litigation Reserve Account (including interest and earnings thereon) shall be
used and may be withdrawn and disbursed only in accordance with the provisions
of this paragraph.  The Servicer shall be
authorized and directed to withdraw funds from the Litigation Reserve Account
only to make disbursements in accordance with this Servicing Agreement and not
for any other purpose.

 

31

 

Section 2.18                   [Reserved].

 

Section 2.19                   [Reserved].

 

Section 2.20                   Notification of
Adjustments.

 

With respect to each
Adjustable-Rate Mortgage Loan, the Servicer shall adjust the Mortgage Interest
Rate on the related Interest Rate Adjustment Date in compliance with the
requirements of applicable law and the related Mortgage and Mortgage Note. If,
pursuant to the terms of the Mortgage Note, another Index is selected for
determining the Mortgage Interest Rate because the original Index is no longer
available, the same Index will be used with respect to each Mortgage Note which
requires a new Index to be selected provided that such selection does not
conflict with the terms of the related Mortgage Note.  The Servicer shall execute and deliver any
and all necessary notices required under applicable law and the terms of the
related Mortgage Note and Mortgage regarding the Mortgage Interest Rate and the
Monthly Payment adjustments.  The
Servicer shall promptly deliver to the Owner such notifications and any
additional applicable data regarding such adjustments and the methods used to
calculate and implement such adjustments. 
Upon the discovery by the Servicer or the Owner that the Servicer has
failed to adjust a Mortgage Interest Rate or a Monthly Payment pursuant to the
terms of the related Mortgage Note and Mortgage, the Servicer shall immediately
deposit in the Custodial Account from its own funds the amount of any interest
loss caused the Owner thereby without reimbursement therefor.

 

Section 2.21                   Recordation of Assignments
of Mortgage.

 

Except in connection with
Accepted Servicing Practices for defaulted Mortgage Loans, the Servicer shall
not be responsible for the preparation or recording of the Assignments of
Mortgage relating to the Mortgage Loans to the Owner, or any other party; provided, however, that in the event the Servicer agrees
(which agreement shall be in Servicer’s sole discretion) to record any mortgage
assignment, any expense, including the fees of third party service providers,
incurred by the Servicer in connection with the preparation and recordation of
Assignments of Mortgage shall be reimbursable by the Owner, or if not
reimbursed by the Owner, as a Servicing Advance.

 

Section 2.22                   [Reserved].

 

Section 2.23                   Credit Reporting.

 

The Servicer shall fully
furnish, in accordance with the Fair Credit Reporting Act and its implementing
regulations, accurate and complete information (e.g. favorable and unfavorable)
on the Mortgagor credit files to Equifax, Experian and Trans Union Credit
Information Company (or their respective successors) on a monthly basis and in
accordance with applicable federal, state and local laws.

 

Section 2.24                   Superior Liens.

 

If the Servicer is notified
that any superior lienholder has accelerated or intends to accelerate the
obligations secured by the superior lien, or has declared or intends to declare
a 

 

32

 

default
under the superior mortgage or the promissory note secured thereby, or has
filed or intends to file an election to have the Mortgaged Property sold or
foreclosed, the Servicer shall take whatever actions are necessary to protect
the interests of the Owner, and/or to preserve the security of the related
Mortgage Loan, subject to any requirements applicable to real estate mortgage
investment conduits pursuant to the Code. 
The Servicer shall make a Servicing Advance of the funds necessary to
cure the default or reinstate the superior lien if the Servicer determines that
such Servicing Advance is in the best interests of the Owner and would be in
accordance with Accepted Servicing Practices. 
The Servicer shall not make such a Servicing Advance except to the
extent that it determines that such advance would not be a Nonrecoverable
Advance from Liquidation Proceeds on the related Mortgage Loan.  The Servicer shall thereafter take such
action as is necessary to recover the amount so advanced.

 

If
a Mortgage Loan is identified on the Notice of Transfer of Mortgage Loans as a
Second Lien Mortgage Loan, then the Servicer, may consent to the refinancing of
the prior senior lien on the related Mortgaged Property, provided that the
following requirements are met:

 

1.             the resulting CLTV of such Second Lien is no higher than
its CLTV prior to such refinancing; and

 

2.             the interest rate, or, in the case of an adjustable-rate
existing senior lien, the maximum interest rate, for the loan evidencing the
refinanced senior lien is no more than 2.0% (or such higher rate that the
Servicer determines to be in the Owner’s best interest) higher than the
interest rate or the maximum interest rate, as the case may be, on the loan
evidencing the existing senior lien immediately prior to the date of such
refinancing; and

 

3.             the loan evidencing the refinanced senior lien is not
subject to the possibility of negative amortization.

 

Section 2.25                   Prepayments in Full.

 

With respect to each
Mortgage Loan, the Servicer agrees to deliver on or prior to the fifth (5th)
Business Day of each month to the Owner, a report setting forth information
with respect to any prepayments in full with respect to such Mortgage Loan.

 

Section 2.26                   Tax and Flood Service
Contracts.

 

The
Servicer, at the Owner’s expense, shall cause each First Lien Mortgage Loan
that is transferred to the Servicer for servicing to be covered to the extent
not covered by a Tax Service Contract and/or Flood Service Contract, by (a) a
Tax Service Contract and/or (b) a Flood Zone Service Contract.  If any Mortgage Loan is missing a required
Tax Service Contract or if any Mortgage Loan is missing a required Flood Zone
Service Contract at the time of the Servicing Transfer Date, Servicer shall
place such Tax Service Contract or Flood Zone Service Contract, as applicable,
and shall be entitled to the fee associated with acquiring such contracts as
set forth in Exhibit 9.

 

33

 

Section 2.27                   Maintenance of PMI
Policies and LPMI Policies; Collections Thereunder.

 

The Servicer shall maintain
in full force and effect, a PMI Policy, issued by a Qualified Insurer, with
respect to each Mortgage Loan for which such coverage is required, provided that the Servicer’s obligations
to pay premiums in respect of any such Policy shall terminate if the Servicer
determines that the related insurer is unwilling or unable to make all payments
due under such policy.  Such coverage
shall be maintained until the LTV Ratio or CLTV, as applicable, of the related
Mortgage Loan is reduced to that amount for which Fannie Mae no longer requires
such insurance to be maintained. The Servicer will not cancel or refuse to
renew any PMI Policy in effect on the related Servicing Transfer Date that is
required to be kept in force under this Servicing Agreement unless a
replacement PMI Policy or LPMI Policy for such cancelled or non-renewed policy
is obtained from and maintained with a Qualified Insurer.  The Servicer shall not take any action which
would result in non-coverage under any applicable PMI Policy or LPMI Policy of
any loss which, but for the actions of the Servicer, would have been covered
thereunder.  In connection with any
assumption or substitution agreement entered into or to be entered into
pursuant to Section 4.01, the Servicer shall promptly notify the
insurer under the related PMI Policy or LPMI Policy, if any, of such assumption
or substitution of liability in accordance with the terms of such policy and
shall take all actions which may be required by such insurer as a condition to
the continuation of coverage under the PMI Policy or LPMI Policy. If such PMI
Policy is terminated as a result of such assumption or substitution of
liability, the Servicer shall obtain a replacement PMI Policy as provided
above.

 

In connection with its
activities as servicer, the Servicer agrees to prepare and present, on behalf
of itself, and the Owner, claims to the insurer under any PMI Policy or LPMI
Policy in a timely fashion in accordance with the terms of such policies and,
in this regard, to take such action as shall be necessary to permit recovery
under any PMI Policy or LPMI Policy respecting a defaulted Mortgage Loan.  Pursuant to Section 2.04, any
amounts collected by the Servicer under any PMI Policy or LPMI Policy shall be
deposited in the related Custodial Account, subject to withdrawal pursuant to Section 2.05.

 

Section 2.28                   Obligations
of the Owner and the Servicer Related to Servicing Transfers.

 

The Owner and the Servicer
shall take the following actions with respect to each Mortgage Loan that the
Owner desires to have serviced by the Servicer hereunder in order to effect the
transfer of servicing to the Servicer on the related Servicing Transfer Date:

 

(a)           Delivery of Mortgage Loan Data.  With respect to each pool of Mortgage Loans
to be serviced under this Servicing Agreement, no later than thirty (30)
calendar days prior to the Servicing Transfer Date, the Owner shall furnish or
cause to be furnished to the Servicer complete and accurate Mortgage Loan data
reflecting the status of payments, balances and other pertinent information
necessary to service such Mortgage Loans including but not limited to: (i) master
file; (ii) Adjustable-Rate Mortgage Loan master file; (iii) escrow
file; (iv) tax and insurance payee file; (v) Adjustable-Rate Mortgage
Loan history file; (vi) servicing activities; and (vii) any other
pertinent information reasonably required by the Servicer.  Such information shall be provided to the
Servicer in such electronic format as is mutually agreed upon by both 

 

34

 

parties. 
Not later than one (1) Business Day following the Servicing
Transfer Date, the Owner shall provide the Servicer with computer or like
records (final data) reflecting the status of payments, balances and other
pertinent information as set forth above and necessary to service the Mortgage
Loans as of the Servicing Transfer Date.

 

(b)           Delivery of Notification Letter. With respect to
each pool of Mortgage Loans to be serviced under this Servicing Agreement, the
Owner shall use its best efforts to deliver or cause to be delivered to the
Servicer a Notice of Transfer of Mortgage Loans for such Mortgage Loans not
less than forty-five (45) days prior to the related Servicing Transfer Date,
the Servicer shall provide its written approval or denial within five (5) Business
Days of receipt of such Notice, which approval shall not be unreasonably
withheld.

 

(c)           Delivery of Servicing and Other Files.  The Owner shall use its reasonable best
efforts to provide Servicer with hard copies (or imaged copies if available) of
the Servicing File with respect to each Mortgage Loan transferred to Servicer
within fifteen (15) Business Days prior to the applicable Servicing Transfer
Date.  The Owner shall use its reasonable
best efforts to provide Servicer with hard copies (or imaged copies if
available) of any default file with respect to each Mortgage Loan transferred
to Servicer within five (5) Business Days of the applicable Servicing
Transfer Date.  Any costs and expenses to
deliver the aforementioned files shall be borne by the Owner.

 

(d)           Notice to Mortgagors.  The Owner shall cause to be provided to each
Mortgagor a “Notice of assignment, sale or transfer of servicing” to the
Servicer.  Upon boarding of each Mortgage
Loan originated by a third-party originator, the Servicer shall deliver to each
related Mortgagor a “Welcome Letter” in accordance with RESPA and Accepted
Servicing Practices.

 

(e)           Transfer of Escrow Funds and Other Proceeds.  The Owner shall use its best efforts to
transfer or cause to be transferred to the Servicer, within one (1) Business
Day and not later than three (3) Business Days following the Servicing
Transfer Date by wire transfer to the account designated by the Servicer, an
amount equal to the sum of (i) Escrow Payments collected from each
Mortgagor; and if applicable (ii) all undistributed insurance loss draft
funds; (iii) all unapplied funds received by the Owner or any prior
servicer; (iv) all unapplied interest on escrow balances accrued through
the related Servicing Transfer Date; (v) all buydown funds held by the
Owner or any prior servicer as of the related Servicing Transfer Date; and (vi) all
other related amounts held by the respective owner of the Mortgage Loan or any
prior servicer of such Mortgage Loan as of the related Servicing Transfer Date
that the Owner or any prior servicer is not entitled to retain.  The Owner shall be responsible for any
interest on escrow amounts held by the Owner prior to the related Servicing
Transfer Date.  The Servicer shall be
entitled to deduct from Servicer’s monthly remittance to the Owner any
shortfalls in Escrow Payments that result from Owner’s failure to deliver any Escrow
Payment in full to the Servicer.  To the
extent the Custodial Account has insufficient funds to fully fund such
shortfalls in the Escrow Payments plus all other amounts due to the Servicer as
set forth in Section 4.03 herein, the Owner shall wire such
shortfall amount to the Servicer promptly upon receipt of notice of such
shortfalls from the Servicer.

 

35

 

(f)            Outstanding Servicing Advances. Not later than ten
(10) Business Days following the Servicing Transfer Date, the Owner shall
deliver to the Servicer a schedule, certified by an authorized officer of the
Owner as being true and correct and setting forth, in all material respects,
those Servicing Advances made by the Owner with respect to the Mortgage Loans
as of the related Servicing Transfer Date for which the Owner has not been
reimbursed (the “Outstanding Owner Servicing Advances”).  The Servicer agrees to reimburse the prior
servicer within thirty (30) days following the Servicing Transfer Date for all
Outstanding Owner Servicing Advances with which the prior servicer or the Owner
has provided the Servicer with reasonably detailed documentation evidencing
such advances.  The Servicer shall have
no obligation to board Outstanding Owner Servicing Advances or reimburse the
prior servicer unless the Servicer has received reasonably detailed
documentation allowing the Servicer to collect such advances from the
Mortgagor.

 

Section 2.29                   Reliability
of Information/Exceptional Expenses.

 

The Servicer may rely on all
data and materials relating to the Mortgage Loans supplied to it by the Owner
or the Owner’s designee(s) and the authenticity and accuracy of such data
and materials, including any signatures contained therein.  The Servicer shall not be obligated to
conduct an independent investigation of any data materials or audit of any
data, materials or Mortgage File, and may rely on the authenticity and accuracy
of such data and materials as provided, including any signatures contained
therein and shall not be held accountable for data integrity, missing
information or missing documents that prevent the boarding of a Mortgage Loan
to the Servicer’s mortgage loan administration system.  The Servicer shall deliver notification to
the Owner of any material data deficiencies discovered by the Servicer. If such
error was identified prior to the Servicing Transfer Date, the Owner shall have
the ability to correct such errors or provide missing data at no additional
cost to Servicer. Should the Owner decline to provide such data corrections or
provide such missing data, Servicer shall be entitled to charge the Owner a
manual data backfill fee as set forth on Exhibit 9.  If such error was identified after the
Servicing Transfer Date and such error was not the result of Servicer’s
negligence, the Servicer shall provide the Owner with a written cost estimate
to correct such errors, and upon the Owner’s approval, which approval should
not be unreasonably withheld, the Owner shall reimburse the Servicer for all
documented costs and expenses incurred by the Servicer, including but not
limited to, costs and expenses resulting from the Owner’s actions, instructions
or any failure by the Owner to provide the Servicer complete, accurate and
timely Mortgage Loan information.

 

Section 2.30                   Escrow
Obligations.

 

In connection with impounded
Mortgage Loans, the Owner shall (i) cause all taxes and assessments with
respect to which the related tax bill is due within thirty (30) days following
the related Servicing Transfer Date to be paid prior to such Servicing Transfer
Date, and (b) cause all hazard, flood, earthquake, PMI Policy and other
insurance premiums that are due on or prior to the thirtieth (30th) day
following such Servicing Transfer Date to be paid on or prior to such Servicing
Transfer Date.  The Owner shall be
responsible for any losses including but not limited to tax penalties
(including any loss of discount for which any Mortgagor or any third party for
the benefit of the Mortgagor has a legal claim) for the current tax due period
or for any tax period that ends no more than twelve (12) months earlier than
the date of the last paid 

 

36

 

installment
of the Mortgage Loan, as well as for its advances to pay the delinquent taxes
themselves in connection with any Mortgage Loan for which the Owner failed to
pay taxes as required by this Section 2.30 as the result of an
action or inaction of a previous servicer.

 

Section 2.31                   [Reserved].

 

Section 2.32                   Additional
Activities of the Servicer.

 

Subject
to the following paragraph, nothing herein shall prevent the Servicer or any of
its Affiliates from engaging in other businesses of any kind, including the
issuance of mortgage-backed securities, or from rendering services of any kind
to any other person or entity, including the performance of monitoring,
administering or servicing activities for others investing in any type of real
estate investment.

 

The
Servicer shall not (i) act as servicer or subservicer for distressed
residential mortgage loans held by Competitors, and (ii) act as the
servicer or subservicer on a portfolio of distressed mortgage loans acquired in
a competitive bidding process where the Servicer or another entity managed by
the PennyMac REIT Manager or an Affiliate thereof does not have an interest in
any part of the portfolio. 
Notwithstanding the foregoing, the Servicer may act as servicer or
subservicer where a majority of the independent members of the board of
trustees of PennyMac REIT determines that (i) the Servicer has sufficient
capacity to service the loans without negatively affecting the quality of the
services provided by the Servicer hereunder, and (ii) by acting in such
capacity the Servicer will not competitively disadvantage the Owner or PennyMac
REIT.  The Servicer may act as servicer
or subservicer of residential mortgage loans for government-sponsored entities
and other government-related entities and in other circumstances not prohibited
by the limitations set forth in this paragraph.

 

Section 2.33                   No
Obligation to Advance Delinquent Payments.

 

The Servicer shall have no
obligation to advance amounts constituting delinquent principal and interest
payments on any Mortgage Loan.

 

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37

 

ARTICLE III

 

PAYMENTS; REPORTS

 

Section 3.01                   Remittances.

 

On each Remittance Date the
Servicer shall remit by wire transfer of immediately available funds to the
Owner (or as otherwise directed in writing by the Owner) all amounts deposited
in the Custodial Account related to the Due Period (net of charges against or
withdrawals from the Custodial Account pursuant to Section 2.05).  The Servicer shall remit to the Owner (or as
otherwise directed in writing by the Owner) all Principal Prepayments, in full
or in part, on the Remittance Date pursuant to Section 2.05.

 

With respect to any
remittance received by the Owner after the day on which such payment was due,
the Servicer shall pay to the Owner interest on any such late payment at an
annual rate equal to the Prime Rate, adjusted as of the date of each change,
plus one percentage point, but in no event greater than the maximum amount
permitted by applicable law.  Such
interest shall be remitted to the Owner by the Servicer on the date such late
payment is made and shall cover the period commencing with the day such payment
was due and ending with the Business Day on which such payment is made, both
inclusive.  The payment by the Servicer
of any such interest shall not be deemed an extension of time for payment or a
waiver of any Event of Default.

 

All distributions made to
the Owner pursuant to this Section 3.01 in accordance with the
following wire transfer instructions:

 

	
  BANK:

  	
   

  	
  Bank of America

  
	
  ABA:

  	
   

  	
  026009593

  
	
  ACCT #:

  	
   

  	
  1257205359

  
	
  ACCT NAME:

  	
   

  	
  PennyMac Operating Partnership LP

  
	
   

  	
   

  	
  Operating Account

  

 

Section 3.02                   Monthly
Reports to the Owner.

 

Not later than the twentieth
(20th) calendar day of each month or, if the 10th day is not a Business Day,
the next succeeding Business Day, the Servicer shall furnish to the Owner
standard monthly reports as set forth on Exhibit 1 attached hereto
or in a format mutually agreed upon (which shall be provided in Excel format
and be accessible by the Owner via the Servicer’s secured website).  For all purposes of this Servicing Agreement,
delinquency status shall be determined in accordance with standard MBA
methodology, as is appropriate, as determined by the Owner for the applicable
Mortgage Loan type.  At the time when a
Mortgage Loan becomes subject to this Servicing Agreement, the Owner will
include in the related Notice of Transfer of Mortgage Loans a statement of the
related delinquency methodology to be used for such Mortgage Loan.

 

In addition, on or before March 15th
of each calendar year, the Servicer shall furnish to each Person who was an
Owner (or subsequent owner of a Mortgage Loans subject to 

 

38

 

this
Servicing Agreement) at any time during such calendar year an annual statement
in accordance with the requirements of applicable federal income tax law as to
the aggregate of remittances for the applicable portion of such year.

 

Such obligation of the
Servicer shall be deemed to have been satisfied to the extent that
substantially comparable information shall be provided by the Servicer pursuant
to any requirements of the Code as from time to time are in force.

 

The Servicer shall prepare
and file any and all tax returns, information statements or other filings
required to be delivered to any governmental taxing authority or to the Owner
pursuant to any applicable law with respect to the Mortgage Loans and the
transactions contemplated hereby.  In
addition, the Servicer shall provide the Owner with such information concerning
the Mortgage Loans as is necessary for the Owner to prepare its federal income
tax return as the Owner may reasonably request from time to time and which is
reasonably available to the Servicer.

 

Section 3.03                   [Reserved]

 

Section 3.04                   Cost
of Funds.

 

With respect to Servicing
Advances made by Servicer under the terms of this Servicing Agreement, the
Servicer shall be entitled to collect from the Owner monthly for the Cost of
Funds on such Servicing Advances.

 

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INTENTIONALLY LEFT BLANK]

 

39

 

ARTICLE IV

 

GENERAL SERVICING PROCEDURES

 

Section 4.01                   Transfers
of Mortgaged Property.

 

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

 

If the Servicer reasonably
believes it is unable under applicable law to enforce such “due-on-sale”
clause, the Servicer, shall, to the extent permitted by applicable law, enter
into (i) an assumption and modification agreement with the Person to whom
such property has been conveyed, pursuant to which such Person becomes liable
under the Mortgage Note and the original Mortgagor remains liable thereon or (ii) in
the event the Servicer is unable under applicable law to require that the
original Mortgagor remain liable under the Mortgage Note and the Servicer has
the prior consent of the primary mortgage guarantee insurer, a substitution of
liability agreement with the purchaser of the Mortgaged Property pursuant to
which the original Mortgagor is released from liability and the purchaser of
the Mortgaged Property is substituted as Mortgagor and becomes liable under the
Mortgage Note.  If an assumption fee is
collected by the Servicer for entering into an assumption agreement, such fee
will be retained by the Servicer as additional servicing compensation.  In connection with any such assumption,
neither the Mortgage Interest Rate borne by the related Mortgage Note, the term
of the Mortgage Loan nor the outstanding principal amount of the Mortgage Loan
shall be changed. Where an assumption is allowed pursuant to this Section 4.01,
the Servicer, with the prior written consent of the insurer under the PMI
Policy or LPMI Policy, if any, is authorized to enter into a substitution of
liability agreement with the Person to whom the Mortgaged Property has been
conveyed or is proposed to be conveyed pursuant to which the original Mortgagor
is released from liability and such Person is substituted as Mortgagor and
becomes liable under the related Mortgage Note. Any such substitution of
liability agreement shall be in lieu of an assumption agreement.  The Servicer shall notify the Owner that any
such substitution of liability or assumption agreement has been completed by
forwarding to the Owner, or its designee, the original of any such substitution
of liability or assumption agreement, which document shall be added to the
related Mortgage File and shall, for all purposes, be considered a part of such
Mortgage File to the same extent as all other documents and instruments
constituting a part thereof.

 

To the extent that any
Mortgage Loan is assumable, the Servicer shall inquire diligently into the
creditworthiness of the proposed transferee, and shall follow Accepted
Servicing Practices and the underwriting practices and procedures of prudent
mortgage lenders in the respective states where the Mortgaged Properties are
located including but not limited to Servicer conducting a review of the credit
and financial capacity of the individual receiving the property, and may
approve the assumption if it believes the recipient is capable of assuming the 

 

40

 

mortgage
obligations.  If the credit of the
proposed transferee does not satisfy the relevant underwriting criteria and the
transfer of ownership actually occurs, the Servicer diligently shall, to the
extent permitted by the Mortgage or the Mortgage Note and by applicable law,
accelerate the maturity of the Mortgage Loan.

 

The Servicer shall be
required to take any action otherwise required by this Section 4.01
only if it determines that the proceeds to the Owner (after giving effect to
the recovery of the Servicer’s out-of-pocket expenses) from payment on, or
disposition of the related Mortgage Loan or REO Property would be
increased as a result of the taking of such action.

 

Section 4.02                   Satisfaction
of Mortgages and Release of Mortgage Files.

 

Upon the payment in full of
any Mortgage Loan, or the receipt by the Servicer of a notification that
payment in full will be escrowed in a manner customary for such purposes, the
Servicer shall notify the Owner in the Monthly Remittance Advice as provided in
Section 3.02, and may request the release of any Mortgage Loan
Documents from the Owner in accordance with this Section 4.02.  The Servicer shall obtain discharge of the
related Mortgage Loan as of record within any related time limit required by
applicable law (unless prevented from complying as a result of the failure of
the local recording office to comply with its obligations on a timely basis).

 

In connection with any
instrument of satisfaction or deed of reconveyance, the Servicer shall be
entitled to a reconveyance fee.  Such
reconveyance fee shall only be reimbursable to the Servicer by the Owner to the
extent the reconveyance fee is uncollectible from the Mortgagor based on the
terms of the security instrument or in the Servicer’s reasonable opinion that
such fee is not allowable by statute.

 

Upon receipt of such
request, the Owner or its designee shall within five (5) Business Days
release or cause to be released the related Mortgage Loan Documents to Servicer
and Servicer shall prepare and process any satisfaction or release.  If the Owner or its designee or the Custodian
does not release the related Mortgage Loan Documents to Servicer within five (5) Business
Days of receipt of request to do so, Servicer may retain a third party to
complete the reconveyance and charge the Owner the actual cost of services
provided by such third party.  Except as
set forth in this paragraph, Servicer shall have no liability for third party
delays that may result in assessed penalties.

 

If the Servicer satisfies or
releases a Mortgage without first having obtained payment in full of the indebtedness
secured by the Mortgage (or such lesser amount in connection with a discounted
payoff accepted by the Servicer with respect to a defaulted Mortgage Loan) or
should the Servicer otherwise prejudice any rights the Owner may have under the
mortgage instruments, the Servicer shall deposit the shortfall amount of the
paid indebtedness in the Custodial Account (unless such shortfall is $500 or
less, in which case no deposit shall be required) within five (5) Business
Days of receipt of such demand by the Owner.

 

The Servicer shall maintain
the Fidelity Bond and Errors and Omissions Insurance Policy as provided for in Section 2.12
insuring the Servicer against any loss it may 

 

41

 

sustain
with respect to any Mortgage Loan not satisfied in accordance with the
procedures set forth herein.

 

Section 4.03                   Servicing
Compensation.

 

As consideration for
servicing the Mortgage Loans, the Owner shall pay the Servicer the applicable
Servicing Fee and Other Fees the Servicer is entitled to each month.  The obligation of the Owner to pay the
Servicing Fee and Other Fees with regard to the Mortgage Loans shall be
irrespective of Monthly Payments collected by the Servicer on the Mortgage
Loans.  The Servicer shall deliver to the
Owner on the tenth (10th) calendar day of each month or, if the 10th day is not
a Business Day, the next succeeding Business Day, an invoice setting forth the
Servicing Fees and Other Fees, including accrued and unpaid Servicing Fees and
Other Fees, with respect to the Mortgage Loans serviced by the Servicer during
the preceding calendar month, and the Owner shall pay such invoice via wire
transfer (in accordance with written instructions to be provided by the
Servicer) no later than the related Distribution Date.  With respect to amounts due to the Servicer
that remain unpaid after the Distribution Date pursuant to this section,
interest shall be due on such late payment at an annual rate equal to the Prime
Rate, adjusted as of the date of each change, plus one percentage point, but in
no event greater than the maximum amount permitted by applicable law.  Such interest shall be paid on the date such
late payment is made and shall cover the period commencing with the day
following the Business Day on which such payment was due and ending with the
Business Day on which such payment is made, both inclusive.  The Servicer shall be entitled to deduct such
unpaid amounts due to Servicer on the Remittance Date following the
Distribution Date that such amounts were due if Owner has not already made
payment.

 

Additional servicing
compensation in the form of Ancillary Income shall be retained by the Servicer
to the extent not required to be deposited in the Custodial Account.  The Servicer shall be required to pay all
expenses incurred by it in connection with its servicing activities hereunder
and shall not be entitled to reimbursement thereof except as specifically
provided for herein.

 

Notwithstanding anything set
forth in this section related to Ancillary Income, the Servicer shall not
collect from the Mortgagor, pass through as an advance or as a liquidation
expense any charges other than bona fide fees, which fees must be in compliance
with local law.  Servicer can not add on
a processing, or review fee or any additional fee, mark up or otherwise
directly make a profit on or from services or activities rendered by a third
party or affiliate (examples include but not limited to:  letters and notices, force placed insurance, BPOs,
appraisals, inspections, property preservation costs).  Servicer may collect any third party fees
which are charged in accordance with Accepted Servicing Practices.  In no event shall Servicer retain the
Prepayment Penalties.

 

In the event of a dispute
arising from any act or omission by the Servicer or the Owner hereunder during
the course of this Servicing Agreement, the Servicer and the Owner shall use
best efforts to work together in good faith to resolve such dispute within a
time period that is reasonable in the context of the cause of the dispute.  Except in the case of a monetary error, the
Owner and the Servicer shall both work together in good faith to resolve the
dispute within thirty (30) days of a formal notice from either party.  In the case of a monetary error, the 

 

42

 

party
holding the amounts due the other party shall use reasonable efforts to submit
the amount in error within ten (10) Business Days from the date the error
was uncovered.  With respect to amounts
due a party after the tenth (10th) Business Day after the date the error was
uncovered, interest shall be due on such late payment at an annual rate equal
to the federal funds rate as is publicly announced from time to time, plus
three hundred basis points (3.00%) but in no event greater than the maximum
amount permitted by applicable law.  Such
interest shall be paid on the date such late payment is made and shall cover
the period commencing with the day following the Business Day on which such
payment was due and ending with the Business Day on which such payment is made,
both inclusive.

 

Section 4.04                   Annual
Statement as to Compliance.

 

(a)           So long as any Mortgage Loans are being serviced
hereunder, or were serviced hereunder during the prior calendar year, the
Servicer shall, at its own expense, deliver to the Owner, on or before March 28th
of each year beginning March 28, 2010 (but in no event later than the next
to the last Business Day of such month), a statement of compliance addressed to
the Owner and signed by a Servicing Officer, to the effect that (i) a
review of the Servicer’s servicing activities during the immediately preceding
calendar year (or applicable portion thereof) and of its performance under the
servicing provisions of this Servicing Agreement during such period has been
made under such officer’s supervision, and (ii) to the best of such
officer’s knowledge, based on such review, the Servicer has fulfilled all of
its servicing obligations under this Servicing Agreement in all material
respects throughout such calendar year (or applicable portion thereof) or, if
there has been a failure to fulfill any such obligation in any material
respect, specifically identifying each such failure known to such officer, the
nature and the status thereof.

 

Section 4.05                   Annual
Independent Public Accountants’ Servicing Report.

 

(a)           So long as any Mortgage Loans are being serviced
hereunder, or were serviced hereunder during the prior calendar year, the
Servicer shall, at its own expense, deliver to the Owner, on or before March 28th
of each year beginning March 28, 2010 (but in no event later than the next
to the last Business Day of such month), a report of a registered public
accounting firm stating that (i) it has obtained a letter of
representation regarding certain matters from the management of the Servicer
which includes an assertion that the Servicer has complied with certain minimum
residential mortgage loan servicing standards, identified in the Uniform Single
Attestation Program for Mortgage Bankers established by the Mortgage Bankers
Association of America, with respect to the servicing of residential mortgage
loans during the most recently completed fiscal year and (ii) on the basis
of an examination conducted by such firm in accordance with standards established
by the American Institute of Certified Public Accountants, such representation
is fairly stated in all material respects, subject to such exceptions and other
qualifications that may be appropriate. 
In rendering its report such firm may rely, as to matters relating to
the direct servicing of residential mortgage loans by Subservicers, upon
comparable reports of firms of independent certified public accountants
rendered on the basis of examinations conducted in accordance with the same
standards (rendered within one year of such report) with respect to those
Subservicers.

 

Section 4.06                   [Reserved].

 

43

 

Section 4.07                   Right
to Examine Servicer Records.

 

The Owner shall have the
right during the term of this Servicing Agreement to examine and audit any and
all of the books, records, or other information of the Servicer, whether held
by the Servicer or by another on its behalf, with respect to or concerning this
Servicing Agreement or the Mortgage Loans, during normal business hours, upon
reasonable advance notice and at the sole cost and expense of the Owner; provided, however, that unless otherwise required by law,
the Servicer shall not be required to provide access to such information if the
provision thereof would violate any law or legal obligation of the Servicer, or
would compromise the Servicer’s information disclosure and security policies,
including the legal right to privacy of any Mortgagor.

 

Section 4.08                   Compliance
with Gramm-Leach-Bliley Act of 1999.

 

With respect to each
Mortgage Loan and the related Mortgagor, each party shall comply with Title V
of the Gramm-Leach-Bliley Act of 1999 and all applicable regulations and
guidelines promulgated thereunder, and shall provide all notices required of
the party thereunder.

 

Section 4.09                   On-Line
Access.

 

Servicer shall provide to
the Owner internet access (via a secure portfolio management website) to
certain computer screens in the Servicer’s loan administration computer system
or view Mortgage Loan information.  In
addition the Servicer shall update such Mortgage Loan information on a “real
time” basis.  The Servicer shall provide
to the Owner internet access (via secure report and data transmission website)
to the Servicer’s loan administration computer system to transmit and receive
Mortgage Loan information relating to new loan boardings, service releases and
to download portfolio management reports. 
With respect to access to Servicer’s portfolio management website, the
Servicer shall provide the Owner with the tools to create and administer log-in
identifications and passwords for each of its authorized users.  In accessing Servicer’s websites, the Owner
agrees that it will: (i) only log-in with the identification assigned by
the Servicer; (ii) correctly and completely log off the system immediately
upon completion of each session of service; (iii) not allow any
unauthorized employee or agent of the Owner, to use the assigned log in
identification or improperly access the Servicer’s computer system; (iv) keep
the assigned log in identification and all other information enabling such
access strictly confidential; (v) not access, or attempt to access any
Servicer systems or data other than that which is specifically authorized; (vi) not
intentionally spread viruses or other malicious computer codes to the Servicer’s
computer systems; (vii) not copy or infringe upon any content contained on
the Servicer’s loan administration computer system; (vii) designate in
writing an administrator who shall maintain on a quarterly basis a current list
of employees or agents of the Owner who have been authorized to access the
Servicer’s loan administration computer system and assigned log in
identifications and passwords pursuant to this Section 4.09 (each
an “Authorized User”); (viii) conduct a quarterly review to ensure
that each Authorized User is currently an employee or agent of the Owner and
whose employment or function as agent of the Owner requires the Authorized User
to have continued access to the Servicer’s loan administration computer system;
(ix) immediately remove from the list of authorized users, and deny access
to, any individual who is not currently an employee or agent of the Owner or
whose employment or function as agent no longer requires such employee or agent
of the Owner to 

 

44

 

remain
an Authorized User and to have access to the Servicer’s loan administration
computer system; and (x) deliver to the Servicer on or before the end of
the month following each anniversary of the date of execution of this Servicing
Agreement, beginning on the first such anniversary following the execution of
this Servicing Agreement, an officer’s certification stating that the Owner has
fully complied and satisfied the obligations as set forth above in clauses (i) through
(ix).

 

Access to the Servicer’s
administration system shall be available 24 hours a day and seven days a
week.  Notwithstanding the foregoing, the
Servicer shall have no liability to the Owner in the event that access to the
Servicer’s loan administration system becomes limited or otherwise unavailable
during periods of heavy use, upgrades, maintenance to address security concerns
or otherwise.  The Owner acknowledges
that Mortgage Loan information may only be accessible for viewing during such
time the Mortgage Loan is being serviced under this Servicing Agreement.  The Servicer shall purge all reports and
files from websites that are aged more than sixty (60) days and the Servicer
shall not be responsible to store, maintain, or archive such reports and files
unless otherwise agreed upon in writing by both parties.

 

Section 4.10                   [Reserved].

 

Section 4.11                   Use
of Subservicers.

 

It shall not be necessary
for the Servicer to seek the consent of the Owner to the utilization of any
Subservicer or Affiliate.  The Servicer
shall be responsible for obtaining from each Subservicer and delivering to the
Owner any servicer compliance statement required to be delivered by such
Subservicer under Section 4.04 and any assessment of compliance and
attestation required to be delivered by such Subservicer under Section 4.05.

 

Section 4.12                   Mortgage
Loans Held by Wholly Owned Subsidiaries of Owner.

 

The Servicer acknowledges
that certain Mortgage Loans may be held by the Owner through one or more of its
wholly owned subsidiaries.  The Servicer
shall service such Mortgage Loans in accordance with the provisions of this
Servicing Agreement in the same manner as it services Mortgage Loans held
directly by the Owner.  The Servicing Fee
and Other Fees in respect of Mortgage Loans held through wholly owned
subsidiaries of the Owner may, at the option of the Owner, be paid directly by
the Owner or by the subsidiary holding the related Mortgage Loan.

 

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45

 

ARTICLE V

 

SERVICER TO COOPERATE

 

Section 5.01                   Provision
of Information.

 

During the term of this
Servicing Agreement, the Servicer shall furnish to the Owner all reports
required hereunder, and such other periodic, special, or other reports or
information, whether or not provided for herein, as shall be necessary,
reasonable, or appropriate with respect to the Owner or the purposes of this
Servicing Agreement to the extent such reports or information are readily
accessible to the Servicer without undue expense.  All such reports or information shall be
provided by and in accordance with all reasonable instructions and directions
which the Owner may give and to the extent the Servicer incurs any material
cost or expense related to this Section 5.01 not otherwise required
to be incurred pursuant to this Servicing Agreement, such expense shall be at
the sole cost and expense of the Owner.

 

The Servicer shall execute
and deliver all such instruments and take all such action as the Owner may
reasonably request from time to time to the extent such action is in accordance
with Accepted Servicing Practices, in order to effectuate the purposes and to
carry out the terms of this Servicing Agreement.

 

Section 5.02                   Financial
Statements; Servicing Facilities.

 

In connection with marketing
the Mortgage Loans or a proposed Reconstitution, the Owner shall make available
to a prospective purchaser audited financial statements of the consolidated
group that includes the Servicer for the most recently completed three fiscal years
for which such statements are available, as well as a “Consolidated Statement
of Condition” at the end of the last two fiscal years for which such statements
are available covered by any “Consolidated Statement of Operations”.  The Servicer also shall make available any
comparable interim statements to the extent any such statements have been
prepared by or on behalf of the corporate group that includes the Servicer (and
are available upon request to the public at large).  The Servicer shall furnish to the Owner or a
prospective purchaser copies of the statements specified above.

 

The Servicer shall make
available to the Owner or any prospective purchaser a knowledgeable
representative for the purpose of answering questions respecting recent
developments affecting the Servicer or the financial statements of the
corporate group that includes the Servicer, and to permit any prospective
purchaser (upon reasonable notice) to inspect the Servicer’s servicing
facilities (no more than 6 times per year unless mutually agreed to between the
parties) for the purpose of satisfying such prospective purchaser that the
Servicer has the ability to service the Mortgage Loans as provided in this
Servicing Agreement provided that
such access is necessary, reasonable, or appropriate with respect to the Owner
or the purposes of this Servicing Agreement to the extent such access or
information are readily accessible to the Servicer without undue expense.

 

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46

 

ARTICLE VI

 

TERMINATION

 

Section 6.01                   Termination.

 

(a)           This Servicing Agreement shall continue in full force and
effect until terminated in accordance with the provisions of this
paragraph.  This Servicing Agreement shall
terminate, without the payment of any termination fee, upon the earlier
of:  (i) the termination of the
Servicer pursuant to this Section 6.01, 8.03 or 11.01
and (ii) the termination of the Management Agreement.

 

(b)           Notwithstanding and in addition to the foregoing, the
Servicer shall have the right to terminate this Servicing Agreement for cause,
after thirty (30) days’ written notice thereof by Servicer, if (i) Owner
fails to remit any compensation due to the Servicer within the time periods
specified pursuant to the terms of this Servicing Agreement, (ii) the
Owner fails to perform any material obligations hereunder or (iii) the
Owner has not transferred any Mortgage Loan to the Servicer upon the expiration
of ninety (90) days after the execution of this Servicing Agreement.

 

(c)           Notwithstanding and in addition to the foregoing, in the
event that (i) a Mortgage Loan becomes delinquent for a period of one
hundred and twenty (120) days or more (a “Delinquent Mortgage Loan”) or (ii) a
Mortgage Loan becomes an REO Property, the Owner may at its election terminate
this Servicing Agreement with respect to such Delinquent Mortgage Loan or REO
Property upon thirty (30) days’ written notice to the Servicer, provided, however, upon such transfer and assignment which
shall be in accordance with all applicable laws, the Owner shall reimburse the
Servicer for its Servicing Fee, any outstanding and unreimbursed Servicing
Advances, and any other outstanding, unreimbursed fees and costs of the
Servicer with respect to such Delinquent Mortgage Loan or REO Property.

 

(d)           In the event that the Servicer’s duties, responsibilities
and liabilities under this Servicing Agreement should be terminated pursuant to
the aforementioned sections, the Servicer shall discharge such duties and
responsibilities during the period from the date it acquires knowledge of such
termination until the Transfer Date with the same degree of diligence and
prudence which it is obligated to exercise under this Servicing Agreement, and
shall take no action whatsoever that might impair or prejudice the rights or
financial condition of its successor. 
Following any such termination, the Owner shall act diligently to
appoint a successor servicer.  The
resignation or removal of the Servicer pursuant to the aforementioned sections
shall not become effective until a successor shall be appointed by the
Owner.  Notwithstanding anything to the
contrary contained herein, in no event shall a termination of this Servicing
Agreement or the Servicer hereunder terminate any indemnification obligations
of the Servicer, which obligations shall survive any such termination.

 

Section 6.02                   Transfer
of Servicing.

 

On the Transfer Date or upon
any termination of the Servicer as Servicer pursuant to Section 6.01,
the Owner or a successor servicer appointed by the Owner, shall assume all 

 

47

 

servicing
responsibilities related to, and the Servicer shall cease all servicing
responsibilities related to the Mortgage Loans. 
Any successor servicer shall have the right to negotiate a new Servicing
Fee with the Owner.

 

Owner shall provide the
Servicer not less than twenty (20) days’ prior written notice of the Transfer
Date.  Any Mortgage Loan service released
by the Servicer shall be released on actual balances as of the Transfer
Date.  Upon receipt of such notification
from Owner the Servicer shall, at its sole cost and expense, take such steps as
may be necessary or appropriate to effectuate and evidence the transfer of the
servicing of the related Mortgage Loans to the successor servicer, including
but not limited to the following:

 

(a)           Notice to Mortgagors.  The Servicer shall mail to the Mortgagor of
each related Mortgage Loan a letter advising such Mortgagor of the transfer of
the servicing of the related Mortgage Loan to the Owner, or its designee, in
accordance with RESPA; provided, however,
such letters shall be in the form mutually agreed upon by the Owner and the
Serciver prior to a pending transfer.

 

(b)           Mortgage Loans in Foreclosure.  The servicing with respect to Mortgage Loans
in foreclosure on or before the related Transfer Date shall not be transferred
from the Servicer to the Owner or the successor servicer, as the case may be,
and such Mortgage Loans shall continue to be serviced by the Servicer pursuant
to the terms of this Servicing Agreement. 
However, if the Owner so elects, the Owner may waive the provisions of
this paragraph (a) and accept transfer of servicing of such Mortgage Loans
and all amounts received by the Servicer thereunder.

 

(c)           Servicing Advances. 
Subject to the limitations set forth in the definition of “Nonrecoverable
Advances”, the Servicer shall be entitled to be reimbursed for all unreimbursed
Servicing Advances and any other advances made by the Servicer pursuant to this
Servicing Agreement with respect to any Mortgage Loan on the related Transfer
Date, but only if the successor servicer after the related Transfer Date is not
the Servicer or an affiliate.  In addition,
the Owner shall cause the Servicer to be reimbursed for any accrued and unpaid
Servicing Fees, unpaid Ancillary Income, Other Fees and for any trailing
expenses representing Servicing Advances for which invoices are received by the
Servicer after the Transfer Date.  The
Owner shall cause the Servicer to be reimbursed for such trailing expenses
within five (5) Business Days of receipt of such invoice.

 

Anything to the contrary in
this Section 6.02(c) notwithstanding, in the event that Servicer is
terminated for cause as a result of the occurrence of an Event of Default under
this Servicing Agreement, the payments required in this Section 6.02(c)
shall be made in the amounts and at the times otherwise provided in this
Servicing Agreement.

 

(d)           Notice to Taxing Authorities and Insurance Companies.  The Servicer shall transmit to the applicable
taxing authorities and insurance companies (including primary mortgage
insurance policy insurers, if applicable) and/or agents, notification of the
transfer of the servicing to the Owner, or its designee, and instructions to
deliver all notices, tax bills and insurance statements, as the case may be, to
the Owner from and after the related Transfer Date.

 

48

 

(e)                                Delivery of
Servicing Records.  The
Servicer shall forward to the Owner, or its designee, all servicing records and
the Servicing File in the Servicer’s possession relating to each related
Mortgage Loan.

 

(f)                                  Escrow Payments.  The Servicer shall provide the Owner, or its
designee, with immediately available funds by wire transfer in the amount of
the net Escrow Payments and suspense balances and all loss draft balances
associated with the related Mortgage Loans. 
The Servicer shall also provide the Owner with an accounting statement
of Escrow Payments and suspense balances and loss draft balances sufficient to
enable the Owner to reconcile the amount of such payment with the accounts of
the Mortgage Loans.  Additionally, the
Servicer shall wire transfer to the Owner the amount of any agency, trustee or
prepaid Mortgage Loan payments and all other similar amounts held by the
Servicer.

 

(g)                               Payoffs and
Assumptions.  The
Servicer shall provide to the Owner, or its designee, copies of all assumption
and payoff statements generated by the Servicer on the related Mortgage Loans
from the related Cut-off Date to the related Transfer Date.

 

(h)                               Mortgage
Payments Received Prior to the Related Transfer Date.  Prior to the related Transfer Date all
payments received by the Servicer on each related Mortgage Loan shall be
properly applied to the account of the particular Mortgagor.

 

(i)                                   Mortgage
Payments Received After Transfer Date.  The amount of any related Monthly Payments
received by the Servicer after the related Transfer Date shall be forwarded to
the Owner or its designee within two (2) Business Days after the date of
receipt.  The Servicer shall notify the
Owner or its designee of the particulars of the payment, which notification
requirement shall be satisfied if the Servicer forwards with its payment
sufficient information to permit appropriate processing of the payment by the
Owner or its designee.  The Servicer
shall assume full responsibility for the necessary and appropriate legal
application of such Monthly Payments received by the Servicer after the related
Transfer Date with respect to related Mortgage Loans then in foreclosure or
bankruptcy; provided, however,
that for purposes of this Servicing Agreement, necessary and appropriate legal
application of such Monthly Payments shall include, but not be limited to,
endorsement of a Monthly Payment to the Owner with the particulars of the
payment such as the account number, dollar amount, date received and any
special Mortgagor application instructions and the Servicer shall comply with
the foregoing requirements with respect to all Monthly Payments received by it.

 

(j)                                   Misapplied
Payments.  Misapplied
payments shall be processed as follows:

 

(i)            All
parties shall cooperate in correcting misapplication errors;

 

(ii)           The
party receiving notice of a misapplied payment occurring prior to the related
Transfer Date and discovered after the related Transfer Date shall immediately
notify the other party;

 

(iii)          If
a misapplied payment which occurred prior to the related Transfer Date cannot
be identified and said misapplied payment has resulted in a shortage in a
Custodial Account or Escrow Account, and such misapplied 

 

49

 

payment was the direct result of the Servicer’s error, the Servicer
shall be liable for the amount of such shortage.  In such case, the Servicer shall reimburse
the Owner for the amount of such shortage within thirty (30) days after receipt
of written demand therefor from the Owner;

 

(iv)          If
a misapplied payment which occurred prior to the related Transfer Date has
created an improper Purchase Price as the result of an inaccurate outstanding
principal balance and such misapplied payment was the direct result of the
Servicer’s error, a check shall be issued to the party shorted by the improper
payment application within thirty (30) days after notice thereof by the other
party; and

 

(v)           Any
check issued under the provisions of this Section 6.02(j) shall be
accompanied by a statement indicating the Owner Mortgage Loan identification
number and an explanation of the allocation of any such payments.

 

(k)           Books and Records. 
On the related Transfer Date, the books, records and accounts of the
Servicer with respect to the related Mortgage Loans shall be in accordance with
all Accepted Servicing Practices.

 

On the related Transfer
Date, the Servicer shall comply with all of the provisions of this Servicing
Agreement to effect a complete transfer of the servicing with respect to the
related Mortgage Loans.  Except as
otherwise provided in this Servicing Agreement, on the related Transfer Date
for each related Mortgage Loan, this Servicing Agreement, except for Articles
VI, VIII, IX, and X, and Sections 13.04, 13.06,
13.07, 13.08, 13.12, 13.13, 13.14, 13.16,
13.17 and 13.18 which shall survive the related Transfer Date,
shall terminate with respect to such Mortgage Loan.

 

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50

 

ARTICLE VII

 

BOOKS AND RECORDS

 

Section 7.01                   Possession
of Servicing Files Prior to the Related Servicing Transfer Date.

 

The contents of each
Servicing File are and shall be held in trust by the Servicer for the benefit
of the Owner as the owner thereof.  The
Servicer shall maintain in the Servicing File a hard or electronic copy, if available,
of each Mortgage Loan Document received by the Owner or its designee and the
originals or copies of documents not delivered to the Owner in the Servicer’s
possession received during the term of this Servicing Agreement.  The possession of the Servicing File by the
Servicer is at the will of the Owner for the sole purpose of servicing the
related Mortgage Loan, pursuant to this Servicing Agreement, and such retention
and possession by the Servicer is in its capacity as Servicer only and at the
election of the Owner.  The Servicer
shall release its custody of the contents of any Servicing File only in
accordance with written instructions from the Owner, unless such release is
required as incidental to the Servicer’s servicing of the Mortgage Loans
pursuant to this Servicing Agreement.

 

The Servicer shall be
responsible for maintaining, and shall maintain, a complete set of books and
records for each Mortgage Loan which shall be marked clearly to reflect the
ownership of each Mortgage Loan by the Owner. 
In particular, the Servicer shall maintain in its possession, available
for inspection by the Owner, and shall deliver to the Owner if so directed by
the Owner, upon written demand, evidence of compliance with all federal, state
and local laws, rules and regulations, and requirements of Fannie Mae,
including but not limited to documentation as to the method used in determining
the applicability of the provisions of the National Flood Insurance Act of 1968
or Flood Disaster Prevention Act of 1973, as amended, to the Mortgaged
Property, documentation evidencing insurance coverage and eligibility of any
condominium project for approval by Fannie Mae and periodic inspection reports
as required by Section 2.13, as applicable.

 

The Servicer shall keep at
its servicing office books and records in which, subject to such reasonable
regulations as it may prescribe, the Servicer shall note transfers of Mortgage
Loans.

 

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51

 

ARTICLE VIII

 

INDEMNIFICATION AND
ASSIGNMENT

 

Section 8.01                   Indemnification;
Remedies.

 

(a)                                The Servicer
agrees to indemnify and hold the Owner and any successor servicer harmless from
any liability, claim, loss or damage (including, without limitation, any reasonable
legal fees, judgments or expenses relating to such liability, claim, loss or
damage) to the Owner directly or indirectly resulting from the Servicer’s
failure:

 

(i)            to
observe and perform any or all of the Servicer’s duties, obligations, covenants,
agreements, warranties or representations contained in this Servicing
Agreement; or

 

(ii)           to
comply with all applicable requirements with respect to the servicing of the
Mortgage Loans as set forth herein.

 

The Servicer immediately
shall notify the Owner if a claim is made by a third party with respect to this
Servicing Agreement.  For purposes of
this Section 8.01(a), “Owner” shall mean the Person then acting as
the Owner under this Servicing Agreement and any and all Persons who previously
were “Owners” under this Servicing Agreement.

 

(b)           The Owner agrees to indemnify and hold the Servicer
harmless from any liability, claim, loss or damage (including without
limitation, any reasonable legal fees, judgments or expenses relating to such
liability, claim, loss or damage) to the Servicer (a) directly or
indirectly resulting from the Owner’s failure to observe and perform any or all
of the Owner’s duties, obligations, covenants, agreements, warranties or
representations contained in this Servicing Agreement or (b) directly
resulting from the Servicer taking any legal actions with respect to any
Mortgage Loans and/or REO Properties in the name of the Servicer and without
reference to the Owner, or (c) any act or omission on the part of any
prior servicer or (d) directly resulting from any third party act or
omission which occurred in connection with the origination, processing, funding
or servicing of a mortgage loan; but, in each case set forth in subparts (a) - (d)
above, only to the extent such loss does not result from the Servicer’s own
gross negligence, bad faith or willful misconduct or failure of the Servicer (i) to
observe and perform any or all of Servicer’s duties, obligations, covenants,
agreements, warranties or representations contained in this Servicing
Agreement; or (ii) to comply with all applicable requirements with respect
to the servicing of the Mortgage Loans as set forth herein.

 

(c)           (i)            Any
failure by the Servicer or any Subservicer to deliver any information, report,
certification, accountants’ letter or other material when and as required under
Sections 4.04, 4.05, or 5.02, which continues unremedied
for three Business Days after receipt by the Servicer and the applicable
Subservicer or subcontractor, of written notice of such failure from the Owner,
shall, except as provided in clause (ii) of this paragraph, constitute an
Event of Default with respect to the Servicer under this Servicing Agreement,
and shall entitle the Owner in its sole discretion to terminate the rights and
obligations of the Servicer as servicer under this Servicing Agreement without
payment (notwithstanding anything in this Agreement 

 

52

 

related thereto to the contrary) of any
compensation to the Servicer; provided, however, it is understood that the
Servicer shall remain entitled to receive reimbursement for all unreimbursed
Servicing Advances made by the Servicer under this Servicing Agreement.  Notwithstanding anything to the contrary set
forth herein, to the extent that any provision of this Servicing Agreement
expressly provides for the survival of certain rights or obligations following
termination of the Servicer as servicer, such provision shall be given effect.

 

(ii)           Any
failure by the Servicer or any Subservicer to deliver any information, report,
certification or accountants’ letter or other material when and as required
under this Servicing Agreement, which continues unremedied for three (3) Business
Days after receipt by the applicable Subservicer of written notice of such
failure from the Owner shall constitute an Event of Default with respect to the
Servicer under this Servicing Agreement, and shall entitle the Owner in its
sole discretion to terminate the rights and obligations of the Servicer as
servicer under this Servicing Agreement without payment (notwithstanding
anything in this Agreement to the contrary) of any compensation to the
Servicer; provided, however, it is understood that the Servicer shall remain
entitled to receive reimbursement for all unreimbursed Servicing Advances made
by the Servicer under this Servicing Agreement. 
Notwithstanding anything to the contrary set forth herein, to the extent
that any provision of this Servicing Agreement expressly provides for the
survival of certain rights or obligations following termination of the Servicer
as servicer, such provision shall be given effect.

 

(d)           If the indemnification provided for herein is unavailable
or insufficient to hold harmless the indemnified party, then the indemnifying
party agrees that it shall contribute to the amount paid or payable by such
indemnified party as a result of any claims, losses, damages or liabilities
uncured by such indemnified party in such proportion as is appropriate to
reflect the relative fault of such indemnified party on the one hand and the
indemnifying party on the other.

 

(e)           The foregoing indemnifications provided for in this Section
are not intended by the parties to encompass “normal” litigation relating to
servicing operations conducted in accordance with Standard Servicing Practices
including, without limitation, foreclosure litigation.

 

(f)            The indemnifications provided for in this Section shall
survive the termination of Servicing Agreement or the termination of any party
to this Servicing Agreement.

 

Section 8.02                   Limitation
on Liability of Servicer and Others.

 

Neither the Servicer nor any
of the directors, officers, employees or agents of the Servicer shall be under
any liability to the Owner for any action taken or for refraining from the
taking of any action in good faith pursuant to this Servicing Agreement, or for
errors in judgment, provided, however,
that this provision shall not protect the Servicer or any such person against
any breach of warranties or representations made herein, its own grossly
negligent actions, or failure to perform its obligations in compliance with any
standard of care set forth in this Servicing Agreement, or any liability which
would otherwise be imposed by reason of any 

 

53

 

breach
of the terms and conditions of this Servicing Agreement.  The Servicer and any director, officer,
employee or agent of the Servicer may rely in good faith on any document of any
kind prima facie properly executed and submitted by any Person respecting any
matters arising hereunder.  The Servicer
shall not be under any obligation to appear in, prosecute or defend any legal
action which is not incidental to its duties to service the Mortgage Loans in
accordance with this Servicing Agreement and which in its opinion may involve
it in any expense or liability, provided, however, that
the Servicer may undertake any such action which it may deem necessary or
desirable in respect to this Servicing Agreement and the rights and duties of
the parties hereto.  In such event, the
Servicer shall be entitled to reimbursement from the Owner of the reasonable
legal expenses and costs of such action.

 

Section 8.03                   Limitation
on Resignation and Assignment by Servicer.

 

The Owner has entered into
this Servicing Agreement with the Servicer and subsequent purchasers will
purchase the Mortgage Loans in reliance upon the independent status of the
Servicer, and the representations as to the adequacy of its servicing
facilities, plant, personnel, records and procedures, its integrity, reputation
and financial standing, and the continuance thereof.  Therefore, the Servicer shall not assign this
Servicing Agreement or the servicing hereunder or delegate its rights or duties
hereunder or any portion hereof or sell or otherwise dispose of all or
substantially all of its property or assets without the prior written consent
of the Owner, which consent shall be granted or withheld in the reasonable
discretion of the Owner.

 

The Servicer may, without
the consent of the Owner, retain third party contractors to perform certain
servicing and loan administration functions, including without limitation,
hazard insurance administration, tax payment and administration, flood
certification and administration, collection services and similar functions; provided,  however, that
the retention of such contractors by Servicer shall not limit the obligation of
the Servicer to service the Mortgage Loans pursuant to the terms and conditions
of this Servicing Agreement.

 

The Servicer shall not
resign from the obligations and duties hereby imposed on it except by mutual
consent of the Servicer and the Owner or upon the determination that its duties
hereunder are no longer permissible under applicable law and such incapacity
cannot be cured by the Servicer.  Any
such determination permitting the resignation of the Servicer shall be
evidenced by an Opinion of Counsel to such effect delivered to the Owner which
Opinion of Counsel shall be in form and substance acceptable to the Owner.  No such resignation shall become effective
until a successor shall have assumed the Servicer’s responsibilities and
obligations hereunder in the manner provided in Section 6.02.

 

Without in any way limiting
the generality of this Section 8.03, in the event that the Servicer
either shall assign this Servicing Agreement or the servicing responsibilities
hereunder or delegate its duties hereunder or any portion thereof or sell or
otherwise dispose of all or substantially all of its property or assets without
the prior written consent of the Owner, then the Owner shall have the right to
terminate this Servicing Agreement upon notice given as set forth in Section 6.01(a),
11.01(g) and 13.01, without any payment of any penalty or damages
and without any liability whatsoever to the Servicer or any third party.

 

54

 

Section 8.04                   Assignment
by Owner.

 

Subject to the limitations
and requirements set forth in the third paragraph of Section 2.01,
the Owner shall have the right, to assign, in whole or in part, its interest
under this Agreement with respect to some or all of the Mortgage Loans, and
designate any Person to exercise any rights of the Owner hereunder.

 

Section 8.05                   Merger
or Consolidation of the Servicer.

 

The Servicer will keep in full
effect its existence, rights and franchises as a limited partnership under the
laws of the state of its filing except as permitted herein, and will obtain and
preserve its qualification to do business as a foreign corporation in each
jurisdiction in which such qualification is or shall be necessary to protect
the validity and enforceability of this Servicing Agreement, or any of the
Mortgage Loans and to perform its duties under this Servicing Agreement.  Any Person into which the Servicer may be
merged or consolidated, or any corporation resulting from any merger,
conversion or consolidation (including by means of the sale of all or
substantially all of the Servicer’s assets to such Person) to which the
Servicer shall be a party, or any Person succeeding to the business of the
Servicer (whether or not related to loan servicing), shall be the successor of
the Servicer hereunder, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding

 

The Servicer shall give
ninety (90) days’ prior written notice to the Owner to the extent permitted by
applicable law of any such merger, conversion, consolidation, sale or other
disposition to which the Servicer proposes to be a party.  In the event that any successor entity to the
Servicer fails to meet the requirements set forth in this Section 8.05
and the Owner does not consent to such successor becoming the servicer
hereunder, then the Servicer shall have the right to terminate this Servicing
Agreement with respect to the Servicer and any such successor upon notice given
as set forth in Section 6.01, without any payment of any
termination penalty or termination damages and without any additional liability
whatsoever to the Servicer or any third party, except for liabilities accrued
under this Servicing Agreement prior to the date of termination and for
liabilities resulting from Owner’s obligations hereunder, including the payment
of the Servicing Fee pursuant to Section 4.03.

 

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55

 

ARTICLE IX

 

REPRESENTATIONS, WARRANTIES
AND COVENANTS OF OWNER

 

As of the date hereof and on
each date on which a Mortgage Loan becomes subject to the terms of this
Servicing Agreement, the Owner warrants and represents to, and covenants and
agrees with, the Servicer as follows:

 

Section 9.01           Organization and Good Standing;
Licensing.

 

The Owner is a Delaware
limited partnership, duly organized, validly existing and has the power and
authority to own its assets and to transact the business in which it is currently
engaged.

 

Section 9.02           Authorization; Binding Obligations.

 

The Owner has the power and
authority to make, execute, deliver and perform this Servicing Agreement, and
perform all of the transactions contemplated to be performed by it under this
Servicing Agreement, and has taken all necessary action to authorize the
execution, delivery and performance of this Servicing Agreement.  When executed and delivered, this Servicing
Agreement will constitute the legal, valid and binding obligation of the Owner
enforceable in accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency or similar laws affecting the enforcement of
creditors’ rights generally and by the availability of equitable remedies.

 

Section 9.03           No Consent Required.

 

The Owner is not required to
obtain the consent of any other party or any consent, license, approval or
authorization from, or registration or declaration with, any governmental
authority, bureau or agency in connection with the execution, delivery,
performance, validity or enforceability of this Servicing Agreement, except
such as have been obtained or made or as to which the failure to obtain or make
will not materially adversely affect the ability of the Owner to perform all
obligations hereunder.

 

Section 9.04           No Violations.

 

The execution, delivery and
performance of this Servicing Agreement by the Owner will not violate any
provision of any existing law or regulation or any order or decree of any court
applicable to the Owner, except for violations that will not adversely affect
the Owner’s ability to perform its obligations under this Servicing Agreement
or the certificate of incorporation of the Owner, or constitute a material
breach of any mortgage, indenture, contract or other agreement to which the
Owner is a party or by which the Owner may be bound.

 

Section 9.05           Litigation.

 

No litigation or
administrative proceeding of or before any court, tribunal or governmental body
is currently pending or to the knowledge of the Owner threatened, against the 

 

56

 

Owner
or with respect to this Servicing Agreement, which if adversely determined
would have a material adverse effect on the transactions contemplated by this
Servicing Agreement.

 

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57

 

ARTICLE X

 

REPRESENTATIONS AND
WARRANTIES OF SERVICER

 

As of the date hereof and on
each date on which a Mortgage Loan becomes subject to the terms of this Servicing
Agreement, the Servicer warrants and represents to, and covenants and agrees
with, the Owner as follows:

 

Section 10.01         Due Organization and Authority.

 

The Servicer is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Delaware as now being conducted and is licensed,
qualified and in good standing in each state where a Mortgaged Property is
located if the laws of such state require licensing or qualification in order
to conduct business of the type conducted by the Servicer, and in any event the
Servicer is in compliance with the laws of any such state to the extent
necessary to ensure the enforceability of the related Mortgage Loan in
accordance with the terms of this Servicing Agreement; the Servicer has the
full power and authority to execute and deliver this Servicing Agreement and to
perform in accordance herewith; the execution, delivery and performance of this
Servicing Agreement (including all instruments or transfer to be delivered
pursuant to this Servicing Agreement) by the Servicer and the consummation of
the transactions contemplated hereby have been duly and validly authorized;
this Servicing Agreement evidences the valid, binding and enforceable
obligation of the Servicer; and all requisite action has been taken by the
Servicer to make this Servicing Agreement valid and binding upon the Servicer
in accordance with its terms.

 

Section 10.02         Ordinary Course of Business.

 

The consummation of the
transactions contemplated by this Servicing Agreement are in the ordinary
course of business of the Servicer.

 

Section 10.03         No Conflicts.

 

Neither the execution and
delivery of this Servicing Agreement, nor the fulfillment of or compliance with
the terms and conditions of this Servicing Agreement, will conflict with or
result in a breach of any of the terms, conditions or provisions of the
Servicer’s organizational documents or any legal restriction or any agreement
or instrument to which the Servicer is now a party or by which it is bound, or
constitute a default or result in an acceleration under any of the foregoing,
or result in the violation of any law, rule, regulation, order, judgment or
decree to which the Servicer or its property is subject, or impair the ability
of the Owner to realize on the Mortgage Loans, or impair the value of the
Mortgage Loans.

 

Section 10.04         Ability to Service.

 

The Servicer has the
facilities, procedures, and experienced personnel necessary for the sound
servicing of mortgage loans of the same type as the Mortgage Loans.  The Servicer is in good standing to enforce
and service mortgage loans in the jurisdiction wherein the Mortgaged Properties
are located.

 

58

 

Section 10.05         Ability to Perform.

 

The Servicer does not
believe, nor does it have any reason or cause to believe, that it cannot
perform each and every covenant contained in this Servicing Agreement.

 

Section 10.06         No Litigation Pending.

 

There is no action, suit,
proceeding or investigation pending or to the best of Servicer’s knowledge
threatened against the Servicer, before any court, administrative agency or
other tribunal asserting the invalidity of this Servicing Agreement, seeking to
prevent the consummation of any of the transactions contemplated by this
Servicing Agreement or 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 the Servicer, or in any material
impairment of the right or ability of the Servicer to carry on its business
substantially as now conducted, or in any material liability on the part of the
Servicer, or which would draw into question the validity of this Servicing
Agreement, or the Mortgage Loans or of any action taken or to be taken in
connection with the obligations of the Servicer contemplated herein, or which
would be likely to impair materially the ability of the Servicer to perform
under the terms of this Servicing Agreement.

 

Section 10.07         No Consent Required.

 

No consent, approval,
authorization or order of any court or governmental agency or body is required
for the execution, delivery and performance by the Servicer of or compliance by
the Servicer with this Servicing Agreement, or the servicing of the Mortgage
Loans as evidenced by the consummation of the transactions contemplated by this
Servicing Agreement, or if required, such approval has been obtained prior to
the date hereof.

 

Section 10.08         No Untrue Information.

 

No statement, report or
other document relating to the Servicer furnished or to be furnished by the
Servicer pursuant to this Servicing Agreement or in connection with the
transactions contemplated hereby contains any untrue statement of material fact
or omits to state a material fact necessary to make the statements contained
therein not misleading.

 

Section 10.09         [Reserved].

 

Section 10.10         MERS.

 

The Servicer is a member of
MERS in good standing, and will comply in all material respects with the rules and
procedures of MERS in connection with the servicing of the MERS Mortgage Loans
for as long as such Mortgage Loans are registered with MERS.

 

To the extent the Owner
requests the Servicer to register or transfer a Mortgage Loan with Mortgage
Electronic Registration System, Inc., the Owner shall transfer or cause to
be transferred to Servicer the required mortgage loan information within five (5) Business
Days of the Servicing Transfer Date.  For
such services, the Owner agrees to pay the Servicer the fee set 

 

59

 

forth
on Exhibit 9 upon the boarding or release of such Mortgage Loan on
the Servicer’s mortgage loan administration system.

 

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60

 

ARTICLE XI

 

DEFAULT

 

Section 11.01         Events of Default.

 

The following shall
constitute an Event of Default under this Agreement on the part of the
Servicer:

 

(a)           any failure by the Servicer to remit to the Owner (or as
otherwise directed by the Owner) any payment required to be made under the
terms of this Servicing Agreement which continues unremedied for a period of
five (5) Business Days after the date upon which notice of such failure is
given to the Servicer, requiring the same to be remedied, shall have been given
to the Servicer by the Owner; or

 

(b)           the failure by the Servicer duly to observe or perform in
any material respect any other of the covenants or agreements on the part of
the Servicer set forth in this Servicing Agreement which continues unremedied
for a period of thirty (30) days (except that such number of days shall be
fifteen (15) in the case of a failure to pay any premium for any insurance
policy under this Servicing Agreement) after the date on which notice of such
failure, requiring the same to be remedied, shall have been given to the
Servicer by the Owner (the date of delivery of such notice, the “Notice Date”);
provided, however, that in the case of a
failure that cannot be cured within thirty (30) days after the Notice Date, the
cure period may be extended if the Servicer can demonstrate to the reasonable
satisfaction of the Owner that the failure can be cured and the Servicer is
diligently pursuing remedial action; or

 

(c)           a decree or order of a court or agency or supervisory authority
having jurisdiction for the appointment of a conservator or receiver or
liquidator in any insolvency, bankruptcy, readjustment of debt, marshaling of
assets and liabilities or similar proceedings, or for the winding up or
liquidation of its affairs, shall have been entered against the Servicer and
such decree or order shall have remained in force undischarged or unstayed for
a period of 60 days; or

 

(d)           the Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, bankruptcy,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings of or relating to the Servicer or of or relating to all or
substantially all of its property; or

 

(e)           the Servicer shall admit in writing its inability to pay
its debts generally as they become due, file a petition to take advantage of
any applicable insolvency or reorganization statute, make an assignment for the
benefit of its creditors, or voluntarily suspend payment of its obligations; or

 

(f)            the Servicer fails to maintain its license to do business
or service residential mortgage loans in any jurisdiction where the Mortgaged
Properties are located for more than ninety (90) days after receiving notice
from any Person thereof, provided
that such failure shall not constitute an Event of Default if, prior to the
expiration of such ninety (90) day period, that Servicer transfers the
affected Mortgaged Properties to one or more Subservicers that 

 

61

 

satisfy the licensing requirements for the
jurisdiction where such Mortgaged Properties are located;

 

(g)           the Servicer attempts to assign its right to servicing
compensation hereunder or the Servicer attempts, without the consent of the
Owner, to sell or otherwise dispose of all or substantially all of its property
or assets or to assign this Servicing Agreement or the servicing
responsibilities hereunder or to delegate its duties hereunder or any portion
thereof in a manner not permitted under this Servicing Agreement; or

 

(h)           any of those failures specified in Section 8.01(c)(i) or
(ii) as constituting an Event of Default under this Servicing
Agreement.

 

In each and every such case,
so long as an Event of Default shall not have been remedied, in addition to
whatsoever rights the Owner may have at law or equity to damages, including
injunctive relief and specific performance, the Owner, by notice in writing to
the Servicer, may terminate without compensation all the rights and obligations
of the Servicer under this Servicing Agreement and in and to the Mortgage Loans
and the proceeds thereof.

 

In case one or more Events
of Default by Servicer occur and shall not have been remedied, the Owner, by
notice in writing to Servicer may, in addition to whatever rights the Owner may
have at law or equity to damages, including injunctive relieve and specific
performance, terminate all the rights and obligations of Servicer under this
Servicing Agreement and in and to the Mortgage Loans and the proceeds thereof.  The Servicer shall not be entitled to any
Service Release Fees upon such termination; provided, however, that  the Servicer shall be entitled to any accrued and unpaid
Servicing Fees, Servicing Advances, Other Fees and Ancillary Income to the date
of such termination.  Upon receipt by the
Servicer of such written notice, all authority and power of the Servicer under
this Servicing Agreement, whether with respect to the Mortgage Loans or
otherwise, shall pass to and be vested in the successor appointed pursuant to Section 6.02.  Upon written request from the Owner, the
Servicer shall prepare, execute and deliver any and all documents and other
instruments, place in such successor’s possession all Mortgage Files to the
extent initially provided to the Servicer, and do or accomplish all other acts
or things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement or assignment of
the Mortgage Loans and related documents, or otherwise, at the Servicer’s sole
expense or as otherwise provided under Accepted Servicing Practices.  The Servicer agrees to cooperate with the
Owner and such successor in effecting the termination of the Servicer’s
responsibilities and rights hereunder, including, without limitation, the
transfer to such successor for administration by it of all cash amounts which
shall at the time be credited by the Servicer to the Custodial Account or
Escrow Account or thereafter received with respect to the Mortgage Loans.

 

Section 11.02         Waiver of Defaults.

 

The Owner may waive any
default by the Servicer in the performance of its obligations hereunder and its
consequences.  Upon any such waiver of a
past default, such default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been remedied for every purpose of
this Servicing Agreement.  No such waiver
shall extend to 

 

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any
subsequent or other default or impair any right consequent thereon except to
the extent expressly so waived.

 

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63

 

ARTICLE XII

 

CLOSING

 

Section 12.01         Closing Documents.

 

The Closing Documents shall
consist of fully executed originals of the following documents:

 

1.                                       this Servicing
Agreement;

 

2.                                       a Custodial
Account Certification or a Custodial Account Letter Agreement, as applicable,
as required hereunder, in the form of either Exhibit 2 or 3;

 

3.                                       an Escrow
Account Certification or an Escrow Account Letter Agreement, as applicable, as
required hereunder, in the form of either Exhibit 4 or Exhibit 5;

 

4.                                       an Officer’s
Certificate, in the form of Exhibit 6, with respect to the
Servicer, including all attachments thereto.

 

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ARTICLE XIII

 

MISCELLANEOUS PROVISIONS

 

Section 13.01         Notices.

 

All notices, requests,
demands and other communications which are required or permitted to be given
under this Agreement shall be in writing and shall be deemed to have been duly
given upon the delivery or mailing thereof, as the case may be, sent by
registered or certified mail, return receipt requested:

 

(a)                                  If to the Owner
to:

 

PennyMac Operating
Partnership L.P.

Attn: Chief Operating
Officer

27001 Agoura Road

Calabasas, CA 91301

 

With a copy to:

 

PennyMac Operating
Partnership L.P.

Attn:  General Counsel

27001 Agoura Road

Calabasas, CA 91301

 

(b)                                 If to the
Servicer:

 

PennyMac Loan Services, LLC

Attn: Director, Servicing
Operations

27001 Agoura Road

Calabasas, CA 91301

 

With a copy to:

 

PennyMac Loan Services, LLC

Attn: General Counsel

27001 Agoura Road

Calabasas, CA 91301

 

Section 13.02         Waivers.

 

Any
of the Servicer or the Owner may upon consent of all parties, by written notice
to the others:

 

(a)           Waive compliance with any of the terms, conditions or
covenants required to be complied with by the others hereunder; and

 

65

 

(b)           Waive or modify performance of any of the obligations of
the others hereunder.

 

The waiver by any party
hereto of a breach of any provision of this Servicing Agreement shall not
operate or be construed as a waiver of any other subsequent breach.

 

Section 13.03                          Entire
Agreement; Amendment.

 

This Servicing Agreement,
including all documents and exhibits incorporated by reference herein,
constitutes the entire agreement between the parties with respect to servicing
of the Mortgage Loans.  This Servicing Agreement
may be amended and any provision hereof waived, but, only in writing signed by
the party against whom such enforcement is sought.

 

Section 13.04                          Execution;
Binding Effect.

 

This Servicing Agreement may
be executed in one or more counterparts and by the different parties hereto on
separate counterparts, each of which, when so executed, shall be deemed to be
an original; such counterparts, together, shall constitute one and the same
agreement.  Subject to Sections 8.02
and 8.03, this Servicing Agreement shall inure to the benefit of and be
binding upon the Servicer and the Owner and their respective permitted
successors and assigns.

 

Section 13.05                          Headings.

 

Headings of the Articles and
Sections in this Servicing Agreement are for reference purposes only and shall
not be deemed to have any substantive effect.

 

Section 13.06                          Applicable Law.

 

THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE
OBLIGATIONS, RIGHTS AND REMEDIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE
WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK
GENERAL OBLIGATIONS LAW), EXCEPT TO THE EXTENT PREEMPTED BY FEDERAL LAW.

 

Section 13.07                          Relationship of
Parties.

 

Nothing herein contained
shall be deemed or construed to create a partnership or joint venture between
the parties.  The duties and
responsibilities of the Servicer shall be rendered by it as an independent
contractor and not as an agent of the Owner. 
The Servicer shall have full control of all of its acts, doings,
proceedings, relating to or requisite in connection with the discharge of its
duties and responsibilities under this Servicing Agreement.

 

66

 

Section 13.08                                                  Severability of
Provisions.

 

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

 

Section 13.09                                                  Recordation of
Assignments of Mortgage.

 

To the extent permitted by
applicable law, each of the Assignments of Mortgage is subject to recordation
in all appropriate public offices for real property records in all the counties
or other comparable jurisdictions in which any or all of the Mortgaged
Properties are situated, and in any other appropriate public recording office
or elsewhere, such recordation to be effected by the Owner or the Owner’s
designee.

 

Section 13.10                                                  Exhibits.

 

The exhibits to this
Servicing Agreement are hereby incorporated and made a part hereof and are
integral parts of this Servicing Agreement.

 

Section 13.11                                                  Counterparts.

 

This Agreement may be
executed simultaneously in any number of counterparts.  Each counterpart shall be deemed to be an original,
and all such counterparts shall constitute one and the same instrument.

 

Section 13.12                                                  Cooperation of
Servicer with a Reconstitution.

 

(a)           The Servicer and the Owner agree that with respect to some
or all of the Mortgage Loans, on one or more dates (each a “Reconstitution
Date”), at the Owner’s sole option, the Owner may effect a sale (each, a “Reconstitution”)
of some or all of the Mortgage Loans then subject to this Servicing Agreement,
without recourse, to:

 

(i)            Fannie
Mae or Freddie Mac in one or more Whole Loan Transfers;

 

(ii)           one
or more other third-party purchasers in one or more Whole Loan Transfers;

 

(iii)          one
or more trusts or other entities to be formed as part of one or more Private
Securitization Transactions; or

 

(iv)          one
or more trusts or other entities to be formed as part of one or more Public
Securitization Transactions.

 

(b)           With respect to each Whole Loan Transfer, Private
Securitization Transaction or Public Securitization Transaction, as the case
may be, entered into by the Owner, the Servicer shall:

 

67

 

(i)                                     upon request of
the Owner, service the Mortgage Loans included in such Reconstitution pursuant
to a security servicing agreement or other agreement;

 

(ii)                                  if the Servicer
will continue servicing the Mortgage Loans included in the Reconstitution,
provide as applicable:

 

(A)          information pertaining to the Servicer of the type and
scope customarily included in offering documents for residential
mortgage-backed securities transactions involving single or multiple loan
originators including information regarding financial condition and mortgage
loan delinquency, foreclosure and loss experience or other information as is
otherwise reasonably requested by the Owner, and to deliver to the Owner any
non-public, unaudited financial information, in which case the Owner shall bear
the cost of having such information audited by certified public accountants if
the Owner desires such an audit, or as is otherwise reasonably requested by the
Owner and which the Servicer is capable of providing without unreasonable
effort or expense (collectively “Servicer Information”), and to
indemnify the Owner and its affiliates for material misstatements or omissions
contained in the Servicer Information; provided, however, Owner shall indemnify
and hold harmless Servicer and its affiliates for material misstatements or
omissions contained in all other information in any offering document, other
than Servicer Information; and

 

(B)           such opinions of counsel, letters from auditors, and
certificates of public officials or officers of Servicer as are reasonably
believed necessary by the trustee, any rating agency or the Owner, as the case
may be, in connection with such Private Securitization Transaction or Public Securitization
Transaction.  The Owner shall pay all
third party costs associated with the preparation of the information described
in clause (ii)(A) above and the delivery of any opinions (other than
opinions by in-house counsel), letters or certificates described in this clause
(ii)(B).

 

(iii)                               if the Servicer
will continue servicing the Mortgage Loans included in the Reconstitution, to
negotiate and execute one or more custodial agreements among the Owner, the
Servicer and a third party custodian/trustee which is generally considered to
be a prudent custodian/trustee in the secondary mortgage market designated by
the Owner in its sole discretion after consultation with the Servicer, in
either case for the purpose of pooling the Mortgage Loans with other Mortgage
Loans for resale or securitization; and

 

(iv)                              if the Servicer
will continue servicing the Mortgage Loans included in the Reconstitution, (1) cooperate
fully with the Owner, any prospective purchaser, any Rating Agency or any party
to any agreement to be executed in connection with such Whole Loan Transfer,
Private Securitization Transaction or Public Securitization Transaction, with
respect to all reasonable 

 

68

 

requests and due diligence procedures, including participating in
meetings with Rating Agencies, bond insurers and such other parties as the
Owner shall designate and participating in meetings with prospective purchasers
of the Mortgage Loans or interests therein and providing information reasonably
requested by such purchasers; (2) to execute, deliver and perform all
reconstitution agreements required by the Owner, and to use its best
reasonable, good faith efforts to facilitate such Whole Loan Transfer, Private
Securitization Transaction or Public Securitization Transaction, as the case
may be; (3) (a) to restate the representations and warranties set
forth in this Servicing Agreement as of the Reconstitution Date which shall not
be materially more onerous than those required under this Servicing Agreement
or (b) make the representations and warranties with respect to the
servicing of the Mortgage Loans set forth in the related selling/servicing
guide of the master servicer or issuer, as the case may be, or such
representations and warranties with respect to the servicing of the Mortgage
Loans as may be required by any Rating Agency or prospective purchaser of the
related securities or such Mortgage Loans, in connection with such
Reconstitution; provided, however, that such
representations and warranties shall not be materially more onerous than those
required under this Servicing Agreement. 
The Servicer shall use its reasonable best efforts to provide to such
master servicer or issuer, as the case may be, and any other participants in
such Reconstitution:  (i) any and
all information and appropriate verification of information which may be
reasonably available to the Servicer or its affiliates, whether through letters
of its auditors and counsel or otherwise, as the Owner or any such other
participant shall reasonably request and (ii) subject to the provisions of
this Section 13.12(b), to execute, deliver and satisfy all
conditions set forth in any indemnity agreement required by the Owner or any
such participant; provided that the Servicer is given an opportunity to review
and reasonably negotiate in good faith provisions of such indemnity.

 

(c)           Any execution of a security servicing agreement or
reconstitution agreement by the Servicer shall be conditioned on the Servicer
receiving the Servicing Fee or such other servicing fee acceptable to
Servicer.  All Mortgage Loans not sold or
transferred pursuant to a Whole Loan Transfer, Private Securitization
Transaction or Public Securitization Transaction shall be subject to this
Servicing Agreement and shall continue to be serviced in accordance with the
terms of this Servicing Agreement and with respect thereto this Servicing
Agreement shall remain in full force and effect.  Notwithstanding any provision to the contrary
in this Servicing Agreement, in the event that the Servicer is the servicer
with respect to a Reconstitution, the Owner agrees that in such Reconstitution
any servicing performance termination triggers shall be substantially similar
to those contained in this Servicing Agreement or otherwise subject to approval
by the Servicer in its reasonable discretion

 

Section 13.13                          Trademarks.

 

The Owner and the Servicer
agree that they and their employees, subcontractors and agents, shall not,
without the prior written consent of the other party in each instance, (i) use
in advertising, publicity or otherwise the name of each and every other party
to this Servicing Agreement or their Affiliates or any of their managing
directors, partners or employees, nor any 

 

69

 

trade
name, trademark, trade device, service mark, symbol or any abbreviation,
contraction or simulation thereof owned by the other party or their Affiliates,
or (ii) represent, directly or indirectly, any product or any service
provided by the Owner and the Servicer as approved or endorsed by the other
parties to this Servicing Agreement or their Affiliates.

 

Section 13.14                          Confidentiality
of Information.

 

If, during the term of this
Servicing Agreement, the Owner requests that the Servicer provide to the Owner
non-public, confidential information related to the Servicer and other
affiliates of the Servicer (collectively, “Parent”), and if Parent, in
its sole discretion agrees to provide this information, the parties agree that
they shall enter into a confidentiality agreement in form and substance
mutually agreeable to the parties prior to the release of such information
(which obligation shall not be assigned by the Owner).

 

Section 13.15                          [Reserved]

 

Section 13.16                          WAIVER OF TRIAL
BY JURY.

 

THE SERVICER AND THE OWNER
EACH KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF
ANY DISPUTE ARISING UNDER OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.

 

Section 13.17                          LIMITATION OF
DAMAGES.

 

NOTWITHSTANDING ANYTHING
CONTAINED HEREIN TO THE CONTRARY, THE PARTIES AGREE THAT NEITHER PARTY SHALL BE
LIABLE TO THE OTHER FOR ANY SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES
WHATSOEVER, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT
LIABILITY), OR ANY OTHER LEGAL OR EQUITABLE PRINCIPLE, PROVIDED, HOWEVER, THAT
SUCH LIMITATION SHALL NOT BE APPLICABLE WITH RESPECT TO THIRD PARTY CLAIM MADE
AGAINST A PARTY.

 

Section 13.18                          SUBMISSION TO
JURISDICTION; WAIVERS.

 

The
Servicer and the Owner hereby irrevocably and unconditionally:

 

(a)           SUBMITS FOR ITSELF IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT
IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF
THE STATE OF CALIFORNIA, THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA FOR
THE CENTRAL DISTRICT OF CALIFORNIA AND APPELLATE COURTS FROM ANY THEREOF;

 

(b)           CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE
BROUGHT IN SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF 

 

70

 

ANY SUCH ACTION OR PROCEEDING IN ANY SUCH
COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT
AND AGREES NOT TO PLEAD OR CLAIM THE SAME;

 

(c)           AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT
THE RIGHT TO SUE IN ANY OTHER JURISDICTION.

 

[SIGNATURES APPEAR ON NEXT PAGE]

 

71

 

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

 

	
   

  	
  PENNYMAC OPERATING
  PARTNERSHIP, L.P., a Delaware limited partnership

  
	
   

  	
  (Owner)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PENNYMAC LOAN SERVICES, LLC, a Delaware limited liability company

  
	
   

  	
  (Servicer)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

72

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