Document:

Exhibit 10.6

 

KIMBALL HILL HOMES

FORM OF NONSTATUTORY STOCK OPTION AGREEMENT

 

This Kimball
Hill Homes Nonstatutory Stock Option Agreement (“Agreement”) dated effective as
of December 31, 2001 by and between Kimball Hill, Inc., an Illinois corporation
(“Company”) and
                                               
(“Optionee”).

 

R E C I T A L S

 

A.            The
Company has adopted, effective as of December 31, 1997, the Kimball Hill Homes
Nonstatutory Stock Option Plan (as amended, the “Plan”) for the purpose of giving
the Company the opportunity to designate certain nonemployee members of the
Board of Directors and certain employees of the Company or of any subsidiary of
the Company to have the opportunity to acquire common stock of the Company
through nonstatutory stock options (“Options”).

 

B.            The
Company modified the Plan effective as of December 31, 1998, October 31, 1999,
December 31, 2000 and December 31, 2001 for the purpose of, among other things,
making additional Options available to eligible participants including the
Optionee.

 

C.            The
Company has pursuant to the intent and provisions of the Plan designated the
Optionee again as an eligible and appropriate member of the Board of Directors
to be eligible for such Option rights.

 

D.            The
Company and the Optionee entered into previous Nonstatutory Stock Option
Agreements under which various Options were granted to the Optionee.

 

E.             The
Company desires to make available to the Optionee additional Options pursuant
to the Plan.

 

G.            The
Company and the Optionee desire to provide in this Agreement, which includes
the Plan, for all of the terms and conditions of the additional Options granted
to the Optionee.

 

NOW,
THEREFORE, in consideration of the mutual promises contained in this Agreement,
the parties agree as follows:

 

 

1.             Grant
of Option.

 

(a)           The
Optionee is granted by the Company an Option to acquire stock of the Company,
commencing as of the effective date of this Agreement, as follows:

 

(i)            Number of shares
subject to Option:              

 

(ii)           Option exercise price
per share:  $17.00 

 

(iii)          Expiration of Option:   December 31, 2005 

 

(b)           This
Option is intended to be treated as a nonstatutory, nonqualified stock option.

 

2.             Date
When Option Is Exercisable.

 

This Option
may be exercised in the manner provided in this Agreement at any time from the
date of this Agreement but not after the expiration date indicated in paragraph
1 above.

 

3.             Exercise
of Option in Installments.

 

This Option
may be exercised in installments but in not less than 1,000 share increments.  Accordingly, the Optionee may at any time
exercise the Option for less than all of the Option shares as long as no single
exercise is for less than 1,000 shares or for any amounts other than in 1,000
share increments.  In any event the total
shares acquired by exercise of the Option cannot exceed the amount indicated in
paragraph 1 above.

 

4.             Termination
of Option Rights.

 

The right to
exercise this Option is subject to additional restrictions and limitations as
follows:

 

(a)           If
the Optionee’s membership on the Board of Directors or employment by the
Company or any of its subsidiaries is terminated for cause or by reason of
resignation by the Optionee, then all Option rights granted under this
Agreement shall immediately terminate. 
Termination for cause as used in this Agreement shall be determined in
the sole discretion of the Company and shall be liberally construed.  Without limiting acts or omissions which can
or may constitute

 

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cause, termination for cause
includes (i) the commission of a criminal or other act that causes or probably
will cause substantial economic damage to the Company or a subsidiary or
affiliated company or substantial injury to the business reputation of the
Company or a subsidiary or affiliated company; (ii) the commission by the
Optionee of an act of fraud in the performance of such Optionee’s duties; (iii)
the continuing failure of Optionee to perform the duties of the Optionee that
are assigned to him; (iv) a violation of Company personnel manuals or similar
or other directives; (v) a material breach by Optionee of any obligation of him
under any contract with or other commitment to the Company or any of its
subsidiaries or affiliates; (vi) any act or failure to act of or by the
Optionee which is or could be materially injurious to or not in the best
interests of the Company or a subsidiary or affiliated company; or (vii)
failure to meet goals and targets established by the Company for the Optionee
which causes material loss to the Company or which otherwise materially and
adversely affects the Company.

 

(b)           If
an Optionee’s membership on the Board of Directors or employment by the Company
or any of its subsidiaries terminates by reason of death, permanent retirement,
or permanent, total disability, then the Optionee’s Option rights under this
Agreement shall continue but shall terminate on the earlier of (i) three months
after such termination of membership on the Board of Directors or employment or
(ii) the expiration date indicated in paragraph 1 above.

 

(c)           All
Option rights of the Optionee under this Agreement shall immediately terminate
if the Optionee attempts to or does transfer any Option rights granted in
violation of the Plan or if the Optionee is otherwise in breach of any of the
terms and conditions of the Plan including this Agreement or if the Optionee
has for any reason sold stock of the Company previously acquired pursuant to
the Plan in violation of applicable securities laws or this Agreement or any
other contract between the Company and the Optionee.

 

(d)           Optionee’s
right to exercise the Option rights shall not be terminated solely because the
Company has made a public offering of any of its voting stock subject, however,
in all cases to all restrictions and limitations which may be applicable to the
public offering and to the Option rights granted under this Agreement by all
applicable securities laws.

 

5.             Exercise
of Option.

 

This Option
shall be exercised by the Optionee by giving written notice of exercise to the
Company.  Such notice shall be directed
to the President and the Chief Executive Officer of the Company with a copy to
the Chief Financial Officer of the Company and shall specify the number of
shares to be purchased.  Such notice
shall either include Optionee’s check payable to the Company representing
payment in full for all of the shares being acquired pursuant to the exercise
of such Option or with a check payable to the Company for fifty percent (50%)
of the total cost of the number of shares

 

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so being acquired by such
exercise with an acknowledgment that Optionee shall pay the balance pursuant to
the terms of the following paragraph 6. 
All notices of exercise of Options must be given by the expiration date
provided for in paragraph 1 above.

 

6.             Installment
Payments.

 

(a)           If
in Optionee’s notice of exercise of Optionee’s right to acquire stock of the
Company the Optionee requests installment payment privileges for such stock,
then the Optionee shall pay for all such stock subject to such exercise as
follows:

 

(i)            50% of the total cost
of such stock to be paid by check of the Optionee payable to the Company and
which shall be sent with Optionee’s notice of exercise of such Option shares.

 

(ii)           25% of the total cost
of such shares shall be payable not later than six (6) months from the date of
exercise of such Option.

 

(iii)          The remaining balance of
25% shall be payable not later than twelve (12) months from such date of
exercise of such Option.

 

(b)           There
shall be simple interest on the unpaid balance of the cost of such stock
payable by the Optionee for such extended payment terms.  Interest shall be at the prime rate from
time-to-time as published by The Wall Street Journal and shall be payable
when installments of the purchase price are payable as provided for in
subparagraph (a) above.

 

(c)           If
the Optionee fails to timely pay to the Company all of the installments,
including interest, due under the installment payment privileges outlined above,
then upon written demand of the Company the Optionee shall promptly retransfer
all stock acquired as a result of such Option exercise to the Company.  Upon receipt of such stock, the Company
shall, to the extent Optionee has already paid for such stock, compensate the
Optionee for such stock at a price equal to the lesser of (i) the per share
price paid by the Optionee as provided for in paragraph 1 above or (ii) the
then Fair Market Value of the stock of the Company as determined and provided
for most recently in the Plan.

 

(d)           The
Optionee may not sell or offer to sell any stock of the Company while Optionee
has any outstanding debt to the Company for the purchase of stock as permitted
under subparagraph (a) above.

 

(e)           The
Optionee may not request or pay for any of such stock on the installment basis
if Optionee is not still either a member of the Board of Directors of or

 

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employed by the Company.  If the Optionee’s membership on the Board of
Directors or employment, as applicable, with the Company terminates after the
Optionee has requested installment payment and while any such installment
payments are still due to the Company, all such installment obligations and
accrued and unpaid interest shall immediately upon written demand of the
Company be due and payable in full.

 

7.             Restrictions
and Other Provisions Regarding Transfer of Stock.

 

Upon receipt
of the stock from the Company after exercise by Optionee of the Option, such
stock shall be subject to limitations on transfer and related provisions as
follows:

 

(a)           Under
no circumstances, notwithstanding anything in this Agreement to the contrary,
may an Optionee transfer any stock, even if such transfer is otherwise
permitted under this Agreement, if in the opinion of the Company such transfer
would be in violation of or cause the Company to incur any liability under any
federal, state or other securities law, or any other requirement of law or of
any regulatory body within jurisdiction over the Company, or if doing same
would constitute a breach by the Company of any loan agreement or similar
contract or commitment of the Company.

 

(b)           No
sale, transfer, pledge, gift, assignment, encumbrance, disposition or other
acts, either voluntary or involuntary, by express action or operation of law or
otherwise, of any stock may be made by any Optionee at any time unless
expressly permitted under the terms of this Agreement or consented to in
writing by the Company.

 

(c)           No
transfer which is otherwise expressly permitted under the terms of this
Agreement may nevertheless be made if (i) such transfer is a sham or device to
evade the provisions and intent of this Agreement or if (ii) the Company
reasonably determines that such transfer is to a transferee who is a convicted
felon or of poor financial or moral character or reputation or is a competitor,
directly or indirectly, of the Company or any of its subsidiaries, or if such
transfer or transferee reasonably could otherwise materially jeopardize the
business or operations of the Company of if (iii) Optionee’s membership on the
Board of Directors of or employment with the Company has terminated and the
Company is required to or has the right to purchase the Optionee’s stock under
any of the circumstances required or permitted in any of the following
provisions of this paragraph 7.

 

(d)           Any
stock otherwise transferable pursuant to the express provisions of this
Agreement shall, notwithstanding anything in this Agreement to the contrary,
nevertheless be subject to the Company’s right of first refusal.  If the Optionee has obtained an offer to
purchase his stock of the Company, the Optionee shall notify the Company of
such offer with a copy of such offer including the price, terms and

 

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conditions of the offer.  The Optionee shall also submit to the Company
reasonable information regarding the prospective purchaser.  The Company may, but is not required to, accept
such offer of sale.  The Company shall,
within thirty (30) days after receipt of such written offer and all other
required information, notify the Optionee as to whether or not it shall
exercise its right of first refusal by accepting such offer.  If the offer is accepted by the Company, then
the Company and the Optionee shall close the sale of such stock in accordance
with the terms and conditions of such offer from such third party.  If such offer is not accepted by the Company,
then the Optionee may sell such stock to the bona fide purchaser but strictly
and only in accordance with the offer that was made to the Company except that,
notwithstanding anything in such offer to the contrary, the closing of the
transfer of title to the stock and payment in full by such bona fide purchaser
must be completed within forty-five (45) days of the original receipt by the
Company of such offer from the Optionee even if such offer provides for a
longer time for such closing and payment. 
No such transfer may be made unless the Optionee has first paid all
advances, debt and other obligations to the Company whether due then or at any
later date.  In that event, subject to
the other terms of this Agreement, such purchaser shall be a stockholder of the
Company subject to all of the terms and conditions of this Agreement.  However, if the Optionee and such bona fide
purchaser make any material modification to the terms of that original offer,
then the Optionee must proceed again with offering the revised terms and
conditions for the stock to the Company in the same manner as provided above.  The Optionee may only offer to sell and so
sell all of the Optionee’s stock of the Company; no sale by the Optionee may be
made at any time without the written consent of the Company which constitutes a
sale of less than all of the stock owned by the Optionee.  Upon such sale of stock, Optionee’s rights to
acquire any additional stock of the Company shall thereupon terminate without
further action and notwithstanding any other provision of this Agreement to the
contrary.  If the Optionee has, pursuant
to the foregoing provisions, sold his stock of the Company, then any advances
and other debts and obligations of the Optionee to the Company shall
immediately be due and payable by acceleration.

 

(e)           Upon
termination of Optionee’s membership on the Board of Directors or employment
with the Company or any subsidiary of the Company for any reason other than as
provided for in subparagraph (f) or (g) below, the Optionee shall sell, and the
Company shall purchase, all of the stock of the Company owned by the Optionee.  The purchase price shall be the Fair Market
Value of the stock as of the termination of Optionee’s membership on the Board
of Directors or employment with the Company and as determined under the Plan as
then in force and effect.  The Company
shall pay for all such stock within six (6) months of such termination of
membership on the Board of Directors or employment.

 

(f)            Upon
termination of Optionee’s membership on the Board of Directors or employment
with the Company or any subsidiary of the Company by resignation of the
Optionee or by retirement from service on the Board of Directors or employment
with the Company prior to age 60 or before completion of 20 years of service
with the Company, the Company may, but shall not be required to, purchase all

 

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of the stock of the Optionee at
the Fair Market Value of the stock as of the termination of Optionee’s
membership on the Board of Directors or employment with the Company and as
determined under the Plan as then in force and effect.  Such option shall be exercised by the Company
within one (1) year of such termination of membership on the Board of Directors
or employment by the Optionee, and transfer of the stock to the Company and
payment by the Company for such stock shall occur within six (6) months of such
notice by the Company of its exercise of its option to reacquire such
stock.  If the Company does not exercise
its right within such time to acquire all of the stock of the Optionee, all of
the provisions of this Agreement shall continue to bind such Optionee including
the Company’s right of first refusal to acquire the stock of the Optionee as
provided for in paragraph 7(d) above.

 

(g)           Upon
termination of Optionee’s membership on the Board of Directors or employment
with the Company by reason of the Optionee’s death or permanent and total
disability, then the Optionee shall sell to the Company, and the Company shall
purchase, all of the stock of the Optionee. 
Upon termination of Optionee’s membership on the Board of Directors or
employment with the Company by reason of the Optionee’s retirement from such
service with the Company at or after age 60 or after completion of 20 years of
service with the Company, then the Optionee may elect by notice to the Company
within six (6) months of such retirement to retain such Optionee’s stock, and
if such Optionee fails to give such notice within such six (6) months then the
Optionee shall sell to the Company, and the Company shall purchase, all of the
stock of the Optionee.  The price of such
stock under any of the foregoing provisions shall be the higher of (i) the
stock’s Fair Market Value as of the termination of Optionee’s membership on the
Board of Directors or employment with the Company and as determined under the
Plan as then in force and effect or (ii) the stock’s prorata share of five
times the Company’s average net income before tax for the Company’s three
fiscal years immediately preceding termination of Optionee’s membership on the
Board of Directors or employment.  The
Company shall make payment in full for such stock within nine (9) months of
Optionee’s such termination of membership on the Board of Directors or
employment.

 

(h)           Within
ten (10) days of any event described in subparagraphs (e), (f) or (g) above
which requires the sale of the Optionee’s stock to the Company, all
certificates representing such stock shall be delivered by Optionee to the
Company with appropriate executed stock transfers conveying, representing and
warranting good title to the Company for all such stock in compliance with the
terms of this Agreement and free and clear of all liens, encumbrances or claims
of any third party.  No payments made by
the Company for Optionee’s stock as provided for in subparagraphs (e), (f) and (g)
above shall require payment by the Company of any interest on the unpaid
purchase price.  Notwithstanding anything
in this Agreement to the contrary, all repurchases of stock by the Company from
the Optionee shall be subject to any applicable restrictions contained from
time-to-time in the Company’s debt and equity financing agreements.  If any such restrictions prohibit the
repurchase of such stock which the Company is otherwise entitled or required to
make, then the time periods

 

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provided for in this Agreement
for such repurchase shall be suspended at the election of the Company, and the
Company may make such repurchases as soon as it is permitted to do so under
such restrictions.

 

(i)            Any
purchase price otherwise payable by the Company to the Optionee upon the
purchase of stock by the Company which is owned by the Optionee under any of
the circumstances provided for in this paragraph 7 shall be subject to set off
and deduction for any advances, debt or other obligations of the Optionee to
the Company by acceleration and notwithstanding any other arrangements which
Optionee may have made with the Company previously in connection with repayment
of any such obligation.

 

(j)            If
at any time the Company sells any stock of the same class of stock owned by the
Optionee which constitutes a public offering and which is registered under the
Securities Act of 1993 or any other applicable law, then, as long as any such
stock is issued and outstanding, and even if the Optionee’s stock is not so
registered, all of the foregoing definitions and references to Fair Market
Value or any other formula or determination of the stock’s value shall be
considered deleted and there shall be substituted for such provisions the market
price, at the applicable time, of the Company’s stock subject to such public
offering and registration.

 

(k)           Notwithstanding anything to the contrary, none
of the provisions of this paragraph 7 shall be applicable, and all such
restrictions and other provisions shall be considered null and void, as to any
and all stock of the Company owned by the Optionee, which is registered under
the Securities Act of 1933 or any other applicable law and a sale or other
transfer of such stock may then be lawfully made without cost or liability to
the Company as determined by it.

 

(l)            If at the time
Optionee exercises his Option the Company has elected under the Code to be
taxed as a Subchapter S corporation, then Optionee shall promptly execute any
consent as a shareholder of the Company to maintain such Subchapter S tax
status which the Company may request and shall not at any time, voluntarily or
involuntarily, make or permit any transfer of stock of the Company owned by the
Optionee which causes or permits such stock to be owned by any entity which is
not a permitted Subchapter S shareholder under the Code.

 

(m)          The Optionee may transfer title to any stock in
the Company owned by him to a grantor-type, revocable trust as a part of
Optionee’s estate planning provided that, during Optionee’s life and while he
is legally competent, Optionee is the sole trustee of such trust.  Upon the death or incompetence of Optionee,
the successor trustee of such trust shall, in the same manner as the Optionee,
be bound by all of the terms and conditions of this Agreement.  In all such cases, any permitted or required
rights and obligations of the Optionee and the Company under this Agreement
shall continue to apply, and the Optionee shall for such purposes nevertheless
be considered the owner of such stock notwithstanding such transfer of such
stock to such trust. No

 

8

 

such
transfer to or ownership by a trust, whether before or after Optionee’s life,
shall deny or restrict any right of the Company with respect to such stock of
the Optionee.  Notwithstanding anything
in this Agreement to the contrary, such trust shall at all times constitute an
eligible and qualified Subchapter S trust under the Code.  No transfer by Optionee to such trust, and no
amendment to any such trust, shall be effective under this Agreement unless and
until the Optionee , at his or her option, either (i) submits to the Company a
true and complete copy of the trust agreement as amended and the Company
determines that the trust is an eligible and qualified Subchapter S trust and
so notifies the Optionee or (ii) obtains and delivers to the Company, at the
Optionee’s cost, an unconditional and unqualified opinion of competent legal
counsel that such trust, as amended, constitutes an eligible Subchapter S
trust.  Selection of such counsel and the
content of such opinion shall be subject to the approval of the Company
exercised in its sole discretion.  If at
any time such trust for any reason does not so qualify as an eligible
Subchapter S trust, then the Company may disregard such trust for all purposes
as an owner of the stock.

 

(n)           If and to the extent of any inconsistency
between the restrictions and other provisions regarding transfer of stock
contained in paragraph 7 of this Agreement with any such provision in any prior
Nonstatutory Stock Option Agreements entered into between the Company and the
Optionee for previous Options, the terms of paragraph 7 of this Agreement shall
control and shall be applicable to all stock of the Company acquired by the
Optionee whether acquired pursuant to the terms of this Agreement or any such
previous Nonstatutory Stock Option Agreement. 
All of the provisions of this paragraph 7 shall apply to all stock owned
by the Optionee whether acquired pursuant to any Stock Option Agreement or
otherwise unless and to the extent there is a written contract signed by the
Optionee and the Company which specifically states that it supercedes this
Agreement or exempts the stock subject to such contract from this Agreement.

 

8.             Stock
Option Plan.

 

(a)           This
Agreement has been entered into between the Company and the Optionee subject to
all of the terms and conditions of the Plan. 
Optionee expressly acknowledges that the Optionee has received and had
an opportunity to review and consider both the Plan and this Agreement.  All provisions of the Plan, as it may be
amended, are at all times considered to be adopted by reference as a part of
this Agreement.

 

(b)           The
Plan is intended to be consistent with all of the provisions of this Agreement,
but to the extent of any conflict between the provisions of this Agreement and
the provisions of the Plan, the provisions of the Plan shall be deemed to be
controlling.

 

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9.             Acknowledgments
by Optionee.

 

The Optionee
acknowledges to the Company, as a material inducement to the Company to enter
into this Agreement, the following:

 

(a)           No
guaranty or other assurances of any kind have at any time been made to the
Optionee by the Company or any officer, director, or other representative of
the Company regarding the present or possible future value of any stock of the
Company or of the business prospects of the Company or of possible terms and
conditions of any subsequent option rights or of the number of shares of common
stock or of other classes of stock which may be outstanding from
time-to-time.  There are no preemptive
rights of the Optionee.  Neither this
Agreement nor the Options gives the Optionee any rights whatsoever with respect
to any operations of the Company or any acquisitions, divestitures, corporate
reorganizations, asset transfers, liability assumptions or other activities of
the Company.

 

(b)           The
Optionee, by reason of such Optionee’s business and financial experience, has
the capacity to protect the Optionee’s own interests in connection with this
Agreement.  The Optionee has been
encouraged to consult with his own attorney, accountant, tax and financial
advisor in connection with this Agreement prior to its execution.  No guaranty or other assurances of any
particular income or other tax incidence, consequences, or amount or category
is or has ever been made by the Company.  
The Optionee acknowledges that the Company reserves the right at any
time to elect be taxed as a Subchapter S corporation under and subject to the
requirements of the Code.   All taxable consequences to the
Optionee of the grant and exercise of any Option and the ownership and sale of
any stock so acquired shall be determined by Optionee and not the Company.

 

(c)           The
Optionee has substantial other net assets and has adequate means of providing
for his current needs and possible personal contingencies and has no need for
liquidity of any investment in stock of the Company.  The Optionee can bear the economic risk of
exercising any Option and owning stock of the Company.

 

(d)           The
Optionee can bear the economic risk of losing his entire investment in the
Company and has, alone or together with a competent professional advisor, such
knowledge and experience in financial matters that such Optionee is capable of
evaluating the relative risks and merits of an investment in the stock of the
Company and had an adequate opportunity to ask questions of and receive answers
from the Company and its directors and officers concerning the terms and
conditions of such an investment.  Stock
of the Company is highly speculative and involves a high degree of financial
risk.

 

(e)           Any
stock obtained upon exercise of the Option would be acquired by the Optionee
solely for the Optionee’s account, for investment purposes only, and would not
being purchased with a view to or for the resale, distribution, subdivision or

 

10

 

fractionization of it.  The Optionee has no present plans or
commitments to enter into any such contract, undertaking, agreement or
arrangement.

 

(f)            The
Optionee acknowledges that any stock obtained under this Agreement and which
would be issued to the Optionee would be issued without registration under the Securities
Act of 1933 or any other law, and no transfer or sale of such stock or of any
interest in it may be made except under an effective registration statement
under such act or unless made pursuant to an exemption from such registration,
including any exemption which may be required under any applicable state laws
including, without limitation, those of the State of Illinois.  No assurances of any future registration of
the stock have been made to the Optionee. 
The Optionee understands and acknowledges that no offering literature,
prospectus or investment memorandum or similar other document has been or will
be furnished in connection with any stock of the Company.

 

(g)           The
Optionee acknowledges that no governmental agency has made any finding or determination
relating to the appropriateness of the Fair Market Value of any stock of the
Company, and that no governmental agency has recommended or will recommend such
stock.

 

(h)           The
Optionee acknowledges that he is elected as a member of the Board of Directors
only for the term provided for in the By-Laws of the Company or is an “at-will”
employee of the Company or a subsidiary of the Company and is entering into
this Agreement voluntarily and not under duress of any kind.

 

(i)            The
Optionee acknowledges that this Agreement and the Plan were discussed, executed
and delivered in the State of Illinois, and that no action in connection with
any of these transactions occurred outside of the State of Illinois.

 

10.           No
Commissions or Fees.

 

The parties
acknowledge and agree that no entity is entitled to or has received or will be
paid any commission or brokers or finders fee or similar payment, contingent or
otherwise, by reason of the Options granted under this Agreement or the
acquisition of stock of the Company pursuant to exercise of the Options.

 

11.           Stock
Legend.

 

All of the
stock issued pursuant to this Agreement shall contain a legend on the
certificate stating, among other things, 
that it was issued pursuant to the terms and conditions of this
Agreement and the Plan.

 

11

 

12.           Activities
by David K. Hill

 

The Optionee acknowledges that David K. Hill and
his family may continue to engage in residential, commercial and other real
estate development, sale, ownership and other activities through companies
other than the Company.  Neither the
Optionee nor the Company shall have any rights or claims based on such
activities whether based on alleged lost corporate opportunity of the Company
or otherwise.  The Optionee also
acknowledges that the restrictions and other provisions regarding transfer of
stock contained in paragraph 7 above shall not apply to any stock owned at any
time by or for the benefit of David K. Hill and his family whether such stock
was acquired by the exercise of Options or otherwise.

 

13.           Amendment
and Complete Agreement.

 

(a)           The
parties acknowledge that subject to the provisions of the Plan, no rights or
obligations under this Agreement may be cancelled, terminated or revoked by
either party, and this Agreement may not be amended, unless both parties
execute a written modification or consent to any such action.  This Agreement with the Plan contains the
entire understanding of the parties with respect to its subject matter and
supersedes any prior understandings the parties may have made regarding its
subject matter.

 

(b)           The
parties acknowledge that, subject to the provisions of paragraph 7(n) above,
this Agreement does not replace any previous Stock Option Agreements but rather
is in addition to them.

 

14.           Costs
and Expenses.

 

In the event a
party to this Agreement fails to perform such parties’ obligations under the
Agreement or in the event a dispute arises concerning the meaning,
interpretation or application of any provision of this Agreement, the
prevailing party in any such dispute shall be entitled to payment by the other
party or parties of all costs and expenses incurred by the prevailing party in
enforcing or establishing the prevailing parties’ rights under this Agreement,
including, without limitation, reasonable attorney’s fees, whether suit be
brought or not, and whether incurred in trial or appellate proceedings.

 

15.           Miscellaneous.

 

(a)           This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of Illinois. 
Jurisdiction and venue for any disputes regarding them shall be in the
Circuit Court of Cook County, in Chicago, Illinois.

 

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(b)           Time
is of the essence in this Agreement.  The
Company may, but is not required to, extend any deadline provided for in this
Agreement.

 

(c)           The
parties intend and believe that each provision of this Agreement complies with
all applicable federal, state and local laws and judicial decisions.  However, if any provision or portion of any
provision is found by a court of law to violate any applicable federal, state
or local law, judicial decision or public policy and such court declares such
provision illegal, invalid, unlawful, void or unenforceable as written, then it
is the intent of the parties that such portion shall be given force to the
fullest extent possible that it is legal, valid and enforceable, and the
remainder of this Agreement shall be construed as if such illegal, invalid,
unlawful, void or unenforceable portion were not contained in this
Agreement.  In such event, the rights,
obligations and interests of the parties under the remainder of this Agreement
shall continue in full force and effect.

 

(d)           This
Agreement may be executed in one or more counterparts all of which shall be
taken to be one and the same instrument and all of which shall have the force
and effect as if all of the parties have executed the same counterpart.

 

(e)           The
parties shall promptly execute and deliver all documents and provide all
information as shall be reasonable, necessary or appropriate to carry out the
purpose and intent of this Agreement.

 

(f)            This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective and applicable legal representatives, trustees, beneficiaries,
heirs, devisees, executors, administrators, successors and assigns.

 

(g)           The
Recitals at the beginning of this Agreement are an integral part of and
incorporated in this Agreement.

 

IN WITNESS
WHEREOF, the parties have executed this Agreement as of the date first
indicated above.

 

	
  COMPANY:

  	
  Kimball
  Hill, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  David K.
  Hill, Chairman and CEO

  
	
   

  	
   

  
	
  OPTIONEE:

  	
   

  
	
   

  	
   

  	
   

  
					

 

13Exhibit 10.7

 

FLEXIBLE EARLY PURCHASE FACILITY

(Purchase and Sale Contract)

 

MORTGAGE LOAN PURCHASE AND SALE AGREEMENT

by and between

WASHINGTON MUTUAL BANK, FA

and

 

KH FINANCIAL, L.P., an Illinois limited partnership

 

dated as of October 14, 2004

 

Table of Contents

	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Page

  
	
  1.

  	
  Definitions

  	
   

  	
  7

  
	
  2.

  	
  Purchase and Sale

  	
   

  	
  19

  
	
  3.

  	
  Purchase Procedures

  	
  19

  
	
   

  	
  3.1

  	
  Initial Conditions
  Precedent

  	
  19

  
	
   

  	
  3.2

  	
  Conditions Precedent

  	
  20

  
	
   

  	
  3.3

  	
  Deliverables

  	
  20

  
	
   

  	
  3.4

  	
  Assignment of Takeout
  Commitment

  	
  21

  
	
   

  	
  3.5

  	
  Dry Funding Closing

  	
  21

  
	
   

  	
  3.6

  	
  Wet Funding Closing

  	
  21

  
	
   

  	
  3.7

  	
  Post-Closing

  	
  22

  
	
  4.

  	
  Warehouse Lender
  Arrangements

  	
  22

  
	
  5.

  	
  Servicing of Mortgage
  Loans and Related Provisions

  	
  22

  
	
   

  	
  5.1

  	
  Servicing of Mortgage
  Loans

  	
  22

  
	
   

  	
  5.2

  	
  Custodial Account

  	
  23

  
	
  6.

  	
  Seller’s Continuing Duties

  	
  25

  
	
   

  	
  6.1

  	
  Takeout Commitments

  	
  25

  
	
   

  	
  6.2

  	
  Administrative and
  Successor Servicer Costs

  	
  25

  
	
  7.

  	
  Takeout Funding Procedures

  	
  26

  
	
   

  	
  7.1

  	
  Note Shipment

  	
  26

  
	
   

  	
  7.2

  	
  Takeout
  Funding Advice

  	
  26

  
	
   

  	
  7.3

  	
  Takeout Funding

  	
  27

  
	
   

  	
  7.4

  	
  The Servicing Fee and
  Settlement Amount

  	
  28

  
	
   

  	
  7.5

  	
  Use of Custodial Account
  Funds

  	
  22

  
					

 

 

	
  8.

  	
  Seller’s Repurchase
  Obligations; Other Remedies

  	
  28

  
	
   

  	
  8.1

  	
  Sale Not Caveat Emptor

  	
  28

  
	
   

  	
  8.2

  	
  Early Repurchases

  	
  28

  
	
   

  	
  8.3

  	
  Other Remedies

  	
  30

  
	
  9.

  	
  True Sales of Mortgage
  Loans

  	
  31

  
	
   

  	
  9.1

  	
  True Sales

  	
  31

  
	
   

  	
  9.2

  	
  Precautionary Security
  Interest

  	
  31

  
	
  10.

  	
  Seller Representations 

  	
  31

  
	
  11.

  	
  Representations and
  Warranties Concerning Mortgage Loans 

  	
  32

  
	
  12.

  	
  Representations and
  Warranties Concerning Seller 

  	
  32

  
	
   

  	
  12.1

  	
  Organization and Good
  Standing

  	
  32

  
	
   

  	
  12.2

  	
  Authority and Capacity

  	
  32

  
	
   

  	
  12.3

  	
  No Conflict

  	
  33

  
	
   

  	
  12.4

  	
  Performance

  	
  33

  
	
   

  	
  12.5

  	
  Ordinary Course
  Transaction

  	
  33

  
	
   

  	
  12.6

  	
  Litigation; Compliance
  with Laws

  	
  33

  
	
   

  	
  12.7

  	
  Statements Made

  	
  33

  
	
   

  	
  12.8

  	
  Approved Company

  	
  33

  
	
   

  	
  12.9

  	
  Fidelity Bonds

  	
  33

  
	
   

  	
  12.10

  	
  Solvency

  	
  34

  
	
   

  	
  12.11

  	
  Reporting

  	
  34

  
	
   

  	
  12.12

  	
  Financial Condition

  	
  34

  
	
   

  	
  12.13

  	
  Regulation U

  	
  34

  
	
   

  	
  12.14

  	
  Investment Company Act

  	
  34

  
	
   

  	
  12.15

  	
  Agreements

  	
  34

  
	
   

  	
  12.16

  	
  Title to Properties

  	
  34

  
	
   

  	
  12.17

  	
  ERISA

  	
  35

  

 

3

 

	
   

  	
  12.18

  	
  Proper Names

  	
  35

  
	
   

  	
  12.19

  	
  No Undisclosed Liabilities

  	
  35

  
	
   

  	
  12.20

  	
  Tax Returns and Payments

  	
  35

  
	
   

  	
  12.21

  	
  Subsidiaries

  	
  35

  
	
   

  	
  12.22

  	
  Holding Company

  	
  35

  
	
   

  	
  12.23

  	
  Credit Information

  	
  36

  
	
   

  	
  12.24

  	
  No Discrimination

  	
  36

  
	
   

  	
  12.25

  	
  Home Ownership and Equity
  Protection Act

  	
  36

  
	
   

  	
  12.26

  	
  CL Program

  	
  36

  
	
  13.

  	
  Seller’s Covenants

  	
  36

  
	
   

  	
  13.1

  	
  Maintenance of Existence;
  Conduct of Business

  	
  36

  
	
   

  	
  13.2

  	
  Compliance with Applicable
  Laws

  	
  36

  
	
   

  	
  13.3

  	
  Inspection of Properties
  and Books

  	
  37

  
	
   

  	
  13.4

  	
  Notices

  	
  37

  
	
   

  	
  13.5

  	
  Payment of Debt, Taxes,
  etc

  	
  37

  
	
   

  	
  13.6

  	
  Insurance

  	
  38

  
	
   

  	
  13.7

  	
  Financial Statements and
  Other Reports

  	
  38

  
	
   

  	
  13.8

  	
  Limits on Corporate
  Distributions

  	
  38

  
	
   

  	
  13.9

  	
  Use of Washington Mutual’s
  Name

  	
  39

  
	
   

  	
  13.10

  	
  Reporting

  	
  39

  
	
   

  	
  13.11

  	
  Debt to Adjusted Tangible
  Net Worth Ratio

  	
  39

  
	
   

  	
  13.12

  	
  Minimum Adjusted Tangible
  Net Worth

  	
  39

  
	
   

  	
  13.13

  	
  Minimum Current Ratio

  	
  39

  
	
  14.

  	
  Term

  	
  39

  
	
  15.

  	
  Notices; Service

  	
  39

  
	
   

  	
  15.1

  	
  Notices

  	
  39

  

 

4

 

	
   

  	
  15.2

  	
  Service

  	
  40

  
	
   

  	
  16.

  	
  Fees and Expenses;
  Indemnity.

  	
  40

  
	
   

  	
  16.1

  	
  Fees and Expenses

  	
  40

  
	
   

  	
  16.2

  	
  Indemnity

  	
  40

  
	
  17.

  	
  Confidential Information

  	
  40

  
	
   

  	
  17.1

  	
  Restrictions on Use of
  Confidential Information

  	
  41

  
	
   

  	
  17.2

  	
  Controls on Confidential
  Information

  	
  41

  
	
   

  	
  17.3

  	
  Audits

  	
  41

  
	
   

  	
  17.4

  	
  Confidential Information
  Not Subject to Restrictions

  	
  41

  
	
   

  	
  17.5

  	
  Tax Disclosures

  	
  42

  
	
   

  	
  17.6

  	
  Required Disclosures

  	
  42

  
	
   

  	
  17.7

  	
  Continued Restrictions

  	
  42

  
	
   

  	
  17.8

  	
  Injunctive Relief
  Permitted

  	
  42

  
	
  18.

  	
  Modifications, Consents
  and Waivers; Entire Agreement

  	
  43

  
	
  19.

  	
  Remedies Cumulative

  	
  43

  
	
  20.

  	
  Counterparts

  	
  43

  
	
  21.

  	
  Governing Law

  	
  43

  
	
  22.

  	
  Severability

  	
  43

  
	
  23.

  	
  Binding Effect; Assignment
  or Delegation

  	
  43

  
	
  24.

  	
  Annexes, Exhibits and
  Riders

  	
  44

  
	
  25.

  	
  Time of the Essence

  	
  44

  

 

	
  Annex 1

  	
  Customized Terms

  	
   

  	
   

  
	
  Annex 2

  	
  Representations and
  Warranties Concerning Mortgage Loans

  	
   

  	
   

  
	
  Annex 3

  	
  Mortgage Loans Subject to
  CL Commitments

  	
   

  	
   

  
	
  Annex 4

  	
  Provisions Relating to
  Type 1 Nonconforming Loans

  	
   

  	
   

  
	
  Annex 5

  	
  Provisions Relating to
  Type 2 Nonconforming Loans

  	
   

  	
   

  
	
  Annex 6

  	
  Provisions Relating to
  Type 3 Nonconforming Loans

  	
   

  	
   

  

 

5

 

	
  Annex 7

  	
  Provisions Relating to
  Undesignated Loans

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Exhibit A

  	
  Administrative Costs

  	
   

  	
   

  
	
  Exhibit B

  	
  Loan Purchase Detail

  	
   

  	
   

  
	
  Exhibit C

  	
  Loan Sale Confirmation

  	
   

  	
   

  
	
  Exhibit D

  	
  Dry Funding Documents
  Package/Wet Funding Documents Package

  	
   

  	
   

  
	
  Exhibit E

  	
  Seller’s Power of Attorney

  	
   

  	
   

  
	
  Exhibit F

  	
  Warehouse Lender’s Release

  	
   

  	
   

  
	
  Exhibit G

  	
  Guaranty

  	
   

  	
   

  
	
  Exhibit H

  	
  Compliance Certificate

  	
   

  	
   

  
	
  Exhibit I

  	
  Takeout Investors

  	
   

  	
   

  
	
  Exhibit J

  	
  Electronic Tracking
  Agreement

  	
   

  	
   

  
	
  Exhibit K

  	
  Bailee Letter

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Directory of Defined Terms

  	
   

  	
   

  

 

6

 

FLEXIBLE EARLY PURCHASE FACILITY

(Purchase and Sale Contract)

 

MORTGAGE LOAN PURCHASE AND SALE AGREEMENT

 

THIS MORTGAGE LOAN PURCHASE
AND SALE AGREEMENT (“Agreement”), dated as of October 14, 2004, is by and
between WASHINGTON MUTUAL BANK, FA (“Washington Mutual” or “MBF”) and KH
FINANCIAL, L.P., an Illinois limited partnership (“Seller”).

 

Recitals

 

A.            Seller originates residential whole mortgage loans and
sells such loans to one or more Takeout Investors (as defined herein) pursuant
to purchase agreements and related purchase commitments.

 

B.            A sale of mortgage loan to a Takeout Investor is normally
completed some days or weeks after the mortgage loan was originated.  The period of time between the origination of
the mortgage loan and sale of it to the Takeout Investor is referred to herein
as the “Post-Origination Period.” 
Normally the Post-Origination Period does not exceed ninety (90)
days.  During the Post-Origination
Period, Seller continues to service the mortgage loan, Seller assembles documents
and information concerning the mortgage loan and submits related files, and the
Takeout Investor reviews the files for compliance with the applicable
requirements.  Seller normally completes
the sale of the mortgage loan one (1) Business Day after the Takeout Investor
approves the files and determines that all other conditions precedent to the
sale have been satisfied or waived.  The
sale of the mortgage loan may be completed on a servicing-released basis.

 

C.            Washington Mutual now wishes to offer to purchase certain
qualifying mortgage loans after such a mortgage loan has been originated, on a
servicing-retained basis, subject to the obligation to sell the mortgage loan
to a Takeout Investor and further subject to the terms and conditions of this
Agreement.

 

Agreement

 

1.             Definitions. 
The following definitions apply (except to the extent such definitions
are modified in an Annex):

 

“Acquisition Date” means, with respect to any Mortgage Loan, the date of payment by MBF to
Seller of the Acquisition Price.

 

“Acquisition Price” means, with respect to each Mortgage Loan, an amount equal to the
percentage specified in Annex 1 of the amount which the Takeout
Investor has provisionally committed to pay for such Mortgage Loan in its
Takeout Commitment, but in no event more than the Par Value of the Mortgage
Loan.

 

7

 

“Act of Insolvency” means (a) the commencement by Seller or Guarantor as debtor of
any case or proceeding under any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar law, or a request by Seller or Guarantor
for the appointment of a receiver, trustee, custodian or similar official for
Seller or Guarantor or any substantial part of its property; (b) the
commencement of any such case or proceeding against Seller or Guarantor, or
another’s seeking such appointment, or the filing against Seller or Guarantor
of an application for a protective decree which (i) is consented to or not
timely contested by Seller or Guarantor, or (ii) results in the entry of
an order for relief, such an appointment, the issuance of such a protective
decree or the entry of an order having a similar effect, or (iii) is not
dismissed within sixty (60) days; (c) the making by Seller or Guarantor of
a general assignment for the benefit of creditors; or (d) the admission in
writing by Seller or Guarantor that it is unable to pay its debts as they
become due, or the nonpayment of its debts generally as they become due.

 

“Adjusted Acquisition Price” means, for any Mortgage Loan, the
Acquisition Price for such Mortgage Loan, plus the aggregate amount
obtained by the daily application of the Investment Return Rate to the
Acquisition Price for such Mortgage Loan on a 360-day-per-year-basis for the
actual number of days in the period from the Acquisition Date to and excluding
the Takeout Funding Date or the date on which Seller repurchases the Mortgage
Loan, plus the amount of any then-unpaid Administrative Costs with
respect to such Mortgage Loan, plus the amount of any then-unpaid
Successor Servicer Costs with respect to such Mortgage Loan, if any, plus
the amount of any accrued but unpaid Default Rate interest under subsection
5.2(h).

 

“Adjusted Tangible Net Worth” means, with respect to any Person at any
date, the sum of the Tangible Net Worth of such Person at such date, plus one
percent (1%) of the unpaid principal balances of all Mortgage Loans at such
date for which such Person owns the servicing rights, plus the unpaid principal
amount of all Subordinated Debt of such Person at such date.

 

“Administrative Costs” means those fees, charges and expenses
listed on Exhibit A.

 

“Affiliate” means, as to a specified Person, any other Person (a) that
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with the specified Person;
(b) that is a director, trustee, general partner or executive officer of
the specified Person or serves in a similar capacity in respect of the
specified Person; (c) that, directly or indirectly through one or more
intermediaries, is the beneficial owner of ten percent (10%) or more of any
class of equity securities of the specified Person; or (d) of which the
specified Person is directly or indirectly the owner of ten percent (10%) or
more of any class of equity securities.

 

“Agencies” means FHA, FNMA, GNMA, FHLMC and VA.

 

“Agency Guidelines” means those requirements, standards and procedures which may be
adopted by the Agencies from time to time with respect to their purchase or
guaranty of residential mortgage loans, which requirements govern the Agencies’
willingness to purchase and/or guaranty such loans.

 

“Agreement” is defined in the preamble.

 

“Annual Reporting Date” is defined in Annex 1.

 

8

 

“Assignment in Blank” means each assignment of mortgage in
recordable form and otherwise in form and substance satisfactory to MBF,
executed in blank by Seller and delivered to MBF as part of the Dry Funding
Documents Package or the Wet Funding Documents Package.

 

“Bailee Letter” means a letter substantially in the form of Exhibit K, or
such other form as may be acceptable to MBF in its sole discretion, pursuant to
which it will release a Mortgage Note to a Takeout Investor before it has
received the Takeout Proceeds for the related Mortgage Loan.

 

“Business Day” means any day other than a Saturday, Sunday or other day on which MBF
is closed for business.

 

“Capitalized Lease” means any lease under which rental payments are required to be
capitalized on a balance sheet of the lessee in accordance with GAAP.

 

“Capitalized Rentals” means the amount of aggregate rentals due
and to become due under all Capitalized Leases under which Seller is a lessee
that would be reflected as a liability on a balance sheet of Seller.

 

“CL”
means Washington Mutual, operating through its unincorporated division commonly
known as its Correspondent Lending group.

 

“CL Program” means Washington Mutual’s Correspondent Lending Program pursuant to
which it may act as a Takeout Investor and purchase mortgage loans.

 

“Compliance Certificate” means a compliance certificate substantially
in the form of Exhibit H, completed, executed and submitted by
Seller pursuant to subsection 13.7(c) and satisfactory in form and
substance to MBF.

 

“Confidential Information” means, with respect to a party, information
about hardware, software, screens, specifications, designs, plans, drawings,
data, prototypes, discoveries, research, developments, methods, processes,
procedures, improvements, “know-how”, compilations, market research, marketing
techniques and plans, business plans and strategies, customer names and all
other information related to customers, price lists, pricing policies and
financial information or other business and/or technical information and
materials, in oral, demonstrative, written, graphic or machine-readable form,
which is unpublished, not available to the general public or trade, and
maintained as confidential and proprietary information by the disclosing party
for regulatory, customer relations, and/or competitive reasons.  Confidential Information also includes such
confidential and proprietary information or material belonging to a disclosing
party or to which the other party may obtain knowledge or access through or as
a result of the performance of its obligations under the Agreement.  Confidential Information also includes any
information described above which the disclosing party has obtained in
confidence from another party who treats it as proprietary or designates it as
Confidential Information, whether or not owned or developed by the disclosing
party.  Without limiting the foregoing,
Confidential Information includes all such information provided to each party
by the other party both before and after the date of this Agreement and also includes
the terms of this Agreement.

 

9

 

“Credit File” means, with respect to a Mortgage Loan, all of the paper and documents
required to be maintained pursuant to the related Takeout Commitment, and all
other papers and records of whatever kind or description, whether developed or
originated by Seller or others, required to originate, document or service the
Mortgage Loan.

 

“Current Assets” means, with respect to any person at any date, those assets set forth
in the consolidated balance sheet of the Person, prepared in accordance with
GAAP, as current assets, defined as those assets that are now cash or will be
by their terms or disposition be converted to cash within one year of the date
of calculation.

 

“Current Liabilities” means, with respect to any person at any
date, those liabilities set forth in the consolidated balance sheet of the
Person, prepared in accordance with GAAP, as current liabilities, defined as
those liabilities due upon demand or within one year from the date of
calculation.

 

“Current Ratio” means, with respect to any person at any date, the sum of the amounts
set forth in the consolidated balance sheet of the Person, prepared in
accordance with GAAP, as Current Assets divided by the sum of the amounts set
forth in such consolidated balance sheet as Current Liabilities.

 

“Custodial Account” is defined in Section 5.2.

 

“Debt”
means, with respect to any Person, at any date (a) all indebtedness or
other obligations of such Person which, in accordance with GAAP, would be
included in determining total liabilities as shown on the liabilities side of a
balance sheet of such Person at such date; and (b) all indebtedness or
other obligations of such Person for borrowed money or for the deferred
purchase price of property or services; provided, however, that,
for purposes of this Agreement, there shall be excluded from Debt at any date
loan loss reserves, deferred taxes arising from capitalized excess service
fees, operating leases and Subordinated Debt.

 

“Default” means the occurrence or non-occurrence of any event that, with the
giving of notice, the lapse of time, or both, would become an Event of Default.

 

“Default Rate” means four percent (4%) per annum over the Investment Return Rate.

 

“Defective Mortgage Loan” means a Mortgage Loan (i) that does not
conform to any one or more of the representations or warranties made by Seller
pursuant to Section 11, (ii) that is sold in a transaction in which
any one or more of the representations and warranties of Seller contained in
Section 12 are not true, correct and complete on the Acquisition Date,
(iii) that is subject to a Takeout Commitment with respect to which Seller
is in default, (iv) that is rejected or excluded for any reason (other
than default by MBF) from the related Takeout Commitment by the Takeout
Investor, (v) that is not purchased by the Takeout Investor in compliance
with the Takeout Commitment and this Agreement at or prior to the expiration or
termination of the Takeout Commitment for any reason (other than default by MBF),
or (vi) that is purported to be purchased by the Takeout Investor in
compliance with the Takeout Commitment and this Agreement at or prior to the
expiration or termination of the Takeout Commitment but for which (A) the
Takeout Proceeds paid to MBF pursuant to Section 7 are not sufficient to
pay the amount owed to MBF with respect thereto and (B) Seller does not
promptly provide to MBF, whether through a remittance from either of Seller’s
Accounts or otherwise, the shortfall.

 

10

 

“Defective Takeout Funding Advice” means any advice by a Takeout Investor that
does not constitute a Takeout Funding Advice because (i) it does not
accurately identify a Mortgage Loan by the Mortgagor’s name, (ii) the
aggregate amount to be disbursed to MBF according to the statement does not
equal the precise dollar amount due under the Takeout Commitment, or
(iii) it otherwise does not meet the definition of “Takeout Funding
Advice.”

 

“Dry Funding Documents Package” means, with respect to any Mortgage Loan,
the applicable documents designated as such on Exhibit D, each in
form and substance satisfactory to MBF in its sole discretion.

 

“Effective Date” means the date this Agreement is executed by both parties (which shall
conclusively be deemed to be the date appearing in the preamble absent manifest
error), unless a contrary intent specifically appears herein.

 

“Electronic Tracking Agreement” means the Electronic Tracking Agreement
substantially in the form set forth as Exhibit J hereto, by and among
MBF, Seller, MERS and MERSCORP, Inc. (the “Electronic Agent”), as the same
shall be amended, supplemented or otherwise modified from time to time.

 

“Eligible Bank” means a bank selected by Seller and approved by MBF in writing and
licensed to conduct trust and other banking business in any state in which Seller conducts operations.

 

“ERISA” means the Employee Retirement Income Security Act of 1974 and all
rules and regulations promulgated thereunder, as amended from time to time and
any successor statute.

 

“Event of Default” means any of the following events shall have occurred and be
continuing:

 

(i)             Seller fails to remit any sum due
to MBF under subsection 5.2(c) or Section 6.2 on a Remittance Date;
or

 

(ii)            Seller fails to repurchase any Mortgage
Loan at the time and for the amount required under Section 8; or

 

(iii)           in any thirty (30) day period, MBF
requires Seller to repurchase Mortgage Loans pursuant to Section 8 having
an aggregate Adjusted Acquisition Price in excess of $1 million; or

 

(iv)          any representation or warranty made by
Seller in connection with this Agreement or contained herein is inaccurate or
incomplete in any material respect on or as of the date made or hereafter
becomes untrue; or

 

(v)           Seller fails in the observance or performance
of any duty, responsibility or obligation contained in this Agreement, other
than a duty to remit on a Remittance Date or to repurchase a Mortgage Loan, and
such failure continues unremedied for a period of thirty (30) days; or

 

11

 

(vi)          any Act of Insolvency occurs; or

 

(vii)         one or more judgments or decrees are
entered against Seller involving claims not paid or not fully covered by
insurance and all such judgments or decrees are not vacated, discharged, or
stayed or bonded pending appeal within sixty (60) days from entry thereof; or

 

(viii)        any Agency, or private investor, or any
other party seizes or takes control of Seller’s servicing portfolio, for breach
of any servicing agreement applicable to such servicing portfolio or for any
other reason whatsoever; or

 

(ix)           any Agency or Regulatory Authority
revokes Seller’s authority to originate Mortgage Loans; or

 

(x)            Seller defaults under the warehouse
credit agreement, if any, that Seller holds with MBF as Warehouse Lender;

 

(xi)           Seller or any of its Subsidiaries
fails to pay when due any other Indebtedness beyond any period of grace
provided, or there occurs any breach or default with respect to any material
term of any other Indebtedness, if the effect of such failure, breach or
default is to cause, or to permit the holder or holders thereof (or a trustee
on behalf of such holder or holders) to cause, Indebtedness of Seller or one of
its Subsidiaries in the aggregate amount equal to or greater than the amount
specified in Annex 1 to become or be declared due prior to its
stated maturity (upon the giving or receiving of notice, lapse of time, both,
or otherwise);

 

(xii)          there is a Material Adverse Change; or

 

(xiii)         Seller defaults under any mortgage loan
purchase arrangement similar to this Agreement which it may have with any other
purchaser, under any mortgage loan repurchase arrangement which it may have
with any party under which Seller sells mortgage loans subject to a future
obligation to repurchase (including, if applicable, a “repo contract” with MBF
itself), or under any warehouse lending or correspondent lending arrangement
which may support its residential loan program, beyond applicable notice and
grace periods.

 

“FDIC” means the Federal Deposit Insurance Corporation or any successor.

 

“FHA”
means the organization known as the Federal Housing Association or any
successor.

 

“FHLMC” means the organization known as the Federal Home Loan Mortgage
Corporation or any successor.

 

“FNMA”
means the organization known as the Federal National Mortgage Association or
any successor.

 

“GAAP”
means generally accepted accounting principles in the United States
consistently applied.

 

12

 

“GLB Act” means the Gramm-Leach Bliley Act of 1999 (Public Law 106-102, 113 Stat
1138), as it may be amended from time to time.

 

“GNMA”
means the organization known as the Government National Mortgage Association or
any successor.

 

“Guarantor” means the Person, if any, specified in Annex 1.

 

“Guaranty” means a Guaranty substantially in the form of Exhibit G,
executed by Guarantor and delivered pursuant to Section 3.1.

 

“Indebtedness” means and includes, without duplication, (i) all items which in
accordance with GAAP, consistently applied, would be included on the
liabilities side of a balance sheet on the date as of which Indebtedness is to
be determined (excluding shareholders’ equity), (ii) Capitalized Rentals
under any Capitalized Lease, (iii) guaranties, endorsements and other contingent
obligations in respect of, or any obligations to purchase or otherwise acquire,
indebtedness of others, and (iv) indebtedness secured by any mortgage,
pledge, security interest or other Lien existing on any property owned by the
Person with respect to which indebtedness is being determined, whether or not
the indebtedness secured thereby shall have been assumed.

 

“Interim Date” is defined is Annex 1.

 

“Investment Return Rate” means the LIBOR Rate plus the number of
basis points specified in Annex 1 per annum.

 

“LIBOR Rate” means the rate of interest equal to the London Interbank Offered Rate
for U.S. dollar deposits for an interest period of one (1) month as quoted or
published by Telerate, Bloomberg or any other rate quoting service, selected by
MBF in its sole discretion for an interest period of one (1) month, effective
two (2) Business Days from the date of quotation.  In the event such rate quoting service ceases
to be selected by MBF, MBF’s determination of the LIBOR Rate shall be
conclusive and binding on Seller absent manifest error.

 

“Lien”
means any lien, mortgage, deed of trust, pledge, security interest, charge or
encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to give
any security interest.)

 

“Litigation” means, as to any Person,
any action, lawsuit, investigation, claim, proceeding, judgment, order, decree
or resolution pending or threatened against or affecting such Person or the
business, operations, properties or assets of such Person before, or by, any
Regulatory Authority.

 

“Loan Purchase Detail” means a loan purchase detail, transmitted by
facsimile in the form of Exhibit B (and as MBF may change said form from
time to time) or transmitted electronically in an appropriate data layout,
prepared by Seller, containing certain information regarding the
characteristics of all Mortgage Loans being offered for sale by Seller to MBF
on a particular Business Day.

 

“Loan Sale Confirmation” means, with respect to each Mortgage Loan
purchased by MBF from Seller, a sale confirmation confirming the completion of
MBF’s purchase of such 

 

13

 

Mortgage Loan, prepared by Seller and
delivered to MBF by facsimile in the form of Exhibit C (and as MBF may
change said form from time to time) or delivered electronically in an
appropriate data layout.

 

“Margin Stock” has the meaning assigned to that term in Regulation U of the
Board of Governors of the Federal Reserve Systems as in effect from time to
time.

 

“Market Value” means, as of any date in respect of a Mortgage Loan, the price at
which such Mortgage Loan could readily be sold as determined by MBF in its sole
discretion, which price may be determined to be zero.  MBF’s good faith determination of Market
Value shall be conclusive upon the parties.

 

“Material Adverse Change” means any (i) material adverse effect
upon the validity, performance or enforceability of this Agreement,
(ii) material adverse effect upon the properties, business or condition,
financial or otherwise, of Seller, or (iii) material adverse effect upon
the ability of Seller to fulfill its obligations under this Agreement.

 

“Maximum Takeout Commitment Expiration Date” is defined in Annex 1.

 

“MBF”
means Washington Mutual, operating through its unincorporated division commonly
known as its Mortgage Banker Finance group, identified more completely by the
contact information provided in Section 15.1.

 

“MERS”
means the Mortgage Electronic Registration Systems, Inc., and its successors in
interest.

 

“MERS Designated Mortgage Loan” means a Mortgage Loan that satisfies the
definition of the term “MERS Designated Mortgage Loan” contained in the
Electronic Tracking Agreement.

 

“MERS® System” has the meaning given that term in the Electronic Tracking Agreement.

 

“MIN” means
the eighteen digit MERS Identification Number permanently assigned to each MERS
Designated Mortgage Loan.

 

“MOM Loan” means a MERS Designated Mortgage Loan that was registered on the MERS®
System at the time of its origination and for which MERS appears as the record
mortgagee or beneficiary on the related Mortgage.

 

“Monthly Reporting Date” is defined in Annex 1.

 

“Mortgage” means the mortgage, deed of trust or other instrument creating a lien
on an estate in real property securing a Mortgage Note.

 

“Mortgage Loan” means any residential whole mortgage loan, originated not more than
thirty (30) days prior to delivery to MBF, that is eligible for sale to a
Takeout Investor under its Takeout Guidelines.

 

14

 

“Mortgage Note” means the note or other evidence of the indebtedness evidencing a
Mortgage Loan.

 

“Mortgage Note Rate” means the per annum rate of interest stated in the Mortgage Note.

 

“Mortgaged Property” means the property subject to the lien of the Mortgage securing a
Mortgage Note.

 

“Mortgagor” means the obligor on a Mortgage Note.

 

“Mortgagor Payments” means, with respect to a Mortgage Loan, the sum of all payments of
principal or interest (or both), due from the Mortgagor to MBF as the owner of
the Mortgage Loan during the period from the Acquisition Date to the Takeout
Funding Date or the date on which Seller repurchases the Mortgage Loan (as
applicable), whether or not received by Seller.

 

“NASD”
means the National Association of Securities Dealers or any successor agency or
authority.

 

“OTS”
means the Office of Thrift Supervision or any successor agency or authority.

 

“Par Value” means the unpaid principal balance of a Mortgage Loan on the date of
determination.

 

“Person” means an individual, partnership, corporation, business trust, limited
liability company,  joint stock company,
trust, unincorporated association, joint venture, governmental authority, or
other entity of whatever nature.

 

“Post-Origination Period” is defined in Recital B.

 

“Property Charges” means all taxes, fees, assessments, water, sewer and municipal charges
(general or special) and all insurance premiums, leasehold payments or ground
rents.

 

“Regulatory Authority” means, with respect to any Person, any
governmental or quasi-governmental department, commission, board, regulatory
authority, bureau, agency or instrumentality, domestic, foreign, federal, state
or municipal (including, without limitation, the OTS, FDIC, SEC or the NASD),
any court or arbitration panel, or any private body having regulatory
jurisdiction over such Person or its business or assets (including any
insurance company or underwriter through whom such Person has obtained
insurance coverage).

 

“Remittance Date” means, with respect to each Mortgage Loan, the first day of each month
beginning with the month following the month in which the Acquisition Date
occurred and ending with the month in which the Mortgage Loan is repurchased by
Seller.

 

“Requirement of Law” means, with respect to any Person, any law, ordinance, requirement,
order, direction, rule, regulation, decision, ruling, writ, injunction,
instruction, resolution, decree, or other similar document, instrument or
directive, whether currently existing

 

15

 

or promulgated hereafter, of any Regulatory
Authority, or any requirement of the organizational documents of such Person.

 

“SEC”
means the United States Securities and Exchange Commission or any successor
agency or authority.

 

“Seller” is defined in the preamble.

 

“Seller Guide” means the Washington Mutual Correspondent Lending Seller Guide used in
the CL Program, as it may be revised by CL from time to time.  (On the Effective Date, the Seller Guide is
available in a hard copy format from CL and may be downloaded from CL’s
website, www.wamubuys.com.)  In the event
CL issues a revised version of the Seller Guide or makes other revisions after
the Effective Date which change the chapter numbers of the Seller Guide, the
references to certain chapter number of the Seller Guide in this document shall
be read as references to the successor numbers, for the same text, in the
revised Seller Guide.

 

“Seller’s Account” means Seller’s Funding Account or Seller’s Operating Account.

 

“Seller’s Concentration Limit” means the amount specified in Annex 1.

 

“Seller’s Funding Account” means the account established by Seller at
Washington Mutual and under the control of MBF, through which Acquisition
Prices will be paid by deposit, and amounts due from Seller to MBF may be paid
by withdrawal.

 

“Seller’s Operating Account” means the account established by Seller at
Washington Mutual and under the control of Seller, to which funds will be
transferred from Seller’s Funding Account, from time to time, through which
Servicing Fees due from MBF to Seller will be paid by deposit, and through
which amounts due from Seller to MBF may be paid by withdrawal.

 

“Seller’s Power of Attorney” means a limited power of attorney
substantially in the form of Exhibit E, executed by Seller with
regard to Mortgage Loans and delivered pursuant to Section 3.1.

 

“Servicing Fee” means, with respect to a Mortgage Loan, (i) the sum of all
amounts deposited in the Custodial Account between the Acquisition Date and the
Takeout Funding Date (or the date on which Seller repurchases the Mortgage
Loan) plus (ii) (in the case of a Takeout Funding only) the amount, if
any, by which the Takeout Proceeds for such Mortgage Loan exceed the Adjusted
Acquisition Price for such Mortgage Loan on the Takeout Funding Date.

 

“Settlement Amount” is defined in subsection 8.2(c).

 

“Shipping Instructions” mean the advice prepared by Seller and sent
to MBF by facsimile or electronically which instructs MBF to send Mortgage Note(s)
to a Takeout Investor.  This advice shall
include, for each such Mortgage Note, the loan number of the corresponding
Mortgage Loan, the Mortgagor’s name, the current loan amount, and applicable
delivery instructions for the Takeout Investor.

 

“Statement Date” is defined in subsection 3.1(c).

 

16

 

“Subordinated Debt” means, with respect to any Person, all Indebtedness of such Person,
for borrowed money, which is, by its terms (which terms shall have been approved
by MBF) or by the terms of a subordination agreement, in form and substance
satisfactory to MBF, effectively subordinated in right of payment to all other
present and future obligations and all indebtedness of such Person, of every
kind and character, owed to MBF.

 

“Subsidiary” means any corporation, association or other business entity in which
more than fifty percent (50%) of the total voting power or shares of stock
entitled to vote in the election or directors, managers or trustees thereof is
at the time owned or controlled, directly or indirectly, by any Person or one
or more of the other Subsidiaries of that Person or a combination thereof

 

“Successor Servicer” is defined in subsection 5.1(d).

 

“Successor Servicer Costs” means the costs incurred by MBF in
transferring the servicing of a Mortgage Loan to a Successor Servicer pursuant
to subsection 5.1(d) and all the amounts paid or payable to the Successor
Servicer for servicing the Mortgage Loan until the earlier of the Takeout
Funding Date for the Mortgage Loan or the date on which the Mortgage Loan is
repurchased by Seller.

 

“Takeout Commitment” means an irrevocable commitment issued by a Takeout Investor to
acquire one or more Mortgage Loans on or before a specified delivery date or
expiration date, which shall in no event exceed the Maximum Takeout Commitment
Expiration Date, which commitment shall be assignable by its terms to MBF and
MBF’s successors and assigns, and which shall be otherwise in form and
substance acceptable to MBF in its sole discretion.

 

“Takeout Funding” means the completion of the transactions described in
Section 7.3.

 

“Takeout Funding Advice” means the statement, in form and substance
acceptable to MBF, prepared either by the Takeout Investor pursuant to the
applicable Takeout Commitment or Seller, as the case may be, and delivered to
Seller or MBF on or before the Takeout Funding Date itemizing, for a particular
Mortgage Loan or group of Mortgage Loans, the aggregate net funds that will be
paid by the Takeout Investor to MBF. 
This statement will identify each Mortgage Loan to be purchased by the
Takeout Investor as part of the proposed Takeout Funding by the Mortgagor’s
name, confirm that net amount to be disbursed to MBF at the Takeout Funding for
each such Loan, and state the Business Day on which the Takeout Funding shall
occur.

 

“Takeout Funding Date” means the date on which the Takeout Funding
occurs.

 

“Takeout Guidelines” means (i) the eligibility requirements established by the Takeout
Investor that must be satisfied by a mortgage loan originator to sell mortgage
loans to the Takeout Investor, and (ii) the specifications that a mortgage
loan must meet, and the requirements that it must satisfy, for the mortgage
loan to qualify for the Takeout Investor’s program of mortgage loan purchases,
as such requirements and specifications may be revised or supplemented from
time to time.

 

17

 

“Takeout Investor” means any of the investors listed on Exhibit I, subject to
such deletions from the list as MBF may hereafter make from time to time in its
sole discretion, and such other investors as may be hereafter approved by MBF
in writing from time to time in its sole discretion.  Without limitation to the foregoing, at the
request of Seller, MBF may add Washington Mutual Bank, FA, or any Affiliate or
Subsidiary thereof, to Exhibit I if said entity conducts a mortgage
loan purchase program that Seller wishes to utilize, and, in that event, such
Washington Mutual entity shall be treated as an unrelated “Takeout Investor” by
both parties for all purposes hereunder. 
MBF may (but is not required to) issue an amended and restated Exhibit I
from time to time to reflect its deletions from and additions to this list.

 

“Takeout Proceeds” means, with respect to a Mortgage Loan, the net amount of funds the
Takeout Investor is obligated to pay for a Mortgage Loan on the Takeout Funding
Date according to the Takeout Commitment for that Mortgage Loan.

 

“Tangible Net Worth” means, without respect to any Person at any date, the sum of total
shareholders’ equity in such Person (including capital stock, additional
paid-in capital, and retained earnings, but excluding treasury stock, if any),
on a consolidated basis; provided, however, that, for purposes of
this definition, there shall be excluded from assets the following:  the aggregate book value of all intangible
assets of such Person (as determined in accordance with GAAP), including,
without limitation, goodwill, trademarks, trade names, service marks, copyrights,
patents, licenses, franchises, and capitalized servicing rights, each to be
determined in accordance with GAAP consistent with those applied in the
preparation of the financial statements referred to in subsection 3.1(c)
hereof; advances of loans to Affiliates; investments in Affiliates; assets
pledged to secure any liabilities not included in the Debt of such Person; and
those other assets which would be deemed by the Agencies to be non-acceptable
in calculating adjusted net worth in accordance with their requirements as in
effect as of such date.

 

“Term”
means the period between the Effective Date and the date on which this
Agreement shall be terminated in accordance with the provisions of
Section 14.

 

“UCC”
means the Uniform Commercial Code as then in effect in the applicable
jurisdiction.

 

“VA”
means the organization known as the Department of Veteran Affairs or any
successor.

 

“Warehouse Lender” means any party (including MBF) providing interim financing to Seller
in any fractional amount for the purpose of originating or purchasing mortgage
loans, which lender has a security interest in the Mortgage Loan(s) as
collateral for the obligations of Seller to such lender.

 

“Warehouse Lender’s Release” means a letter or document, substantially in
the form of Exhibit F or in such other form as MBF may have approved in
advance, from a third-party Warehouse Lender to MBF conditionally releasing (or
agreeing to release) all of said Warehouse Lender’s right, title and interest
in the Mortgage Loan(s) identified therein upon receipt of payment by the
Warehouse Lender.

 

“Warehouse Lender’s Wire Instructions” means written or electronic instructions in
form reasonably acceptable to MBF, delivered by a Warehouse Lender to MBF and
setting forth

 

18

 

the bank wire coordinates to be used for the
payment of all amounts due and payable to such Warehouse Lender hereunder.

 

“Washington Mutual” is defined in the preamble.

 

“Wet Funding” means the purchase of a Mortgage Loan that is originated by Seller on
the Acquisition Date under escrow arrangements satisfactory to MBF pursuant to
which Seller is permitted to use the Acquisition Price proceeds to close the
Mortgage Loan.

 

“Wet Funding Deadline” means the Business Day specified in Annex 1.

 

“Wet Funding Documents Package” means, with respect to any Mortgage Loan,
the documents designated as such on Exhibit D, each in form and
substance satisfactory to MBF in its sole discretion.

 

“Wet Funding Sublimit” means the amount specified in Annex 1.

 

2.             Purchase and Sale.  Seller agrees to sell to MBF, and MBF agrees
to purchase from Seller, from time to time, on a servicing-retained basis,
Mortgage Loans on the terms and conditions of this Agreement.  In no event shall MBF be required to purchase
any Mortgage Loan if the Acquisition Price of such Mortgage Loan, when combined
with the aggregate Acquisition Price of all Mortgage Loans purchased hereunder
and then held by MBF (and then serviced by Seller or a Successor Servicer), is in
excess of the Seller’s Concentration Limit. 
In no event shall MBF be required to purchase any Mortgage Loan in a Wet
Funding if the Acquisition Price of such Mortgage Loan, when combined with the
aggregate Acquisition Price of all Mortgage Loans purchased in Wet Fundings and
then held by MBF (and then serviced by Seller or a Successor Servicer), is in
excess of the Wet Funding Sublimit.  With
respect to any Mortgage Loans sold hereunder that were originated for sale to
CL under the CL Program, additional terms and conditions applicable to the
purchase and sale of such Mortgage Loans are contained in Annex 3.

 

3.             Purchase Procedures.

 

3.1           Initial Conditions Precedent.  MBF shall not be obligated to purchase any
Mortgage Loan under this Agreement until MBF shall have first received the
following documents, each of which shall be in form and substance satisfactory
to MBF, except to the extent waived by MBF in its sole discretion:

 

(a)           this Agreement and the Seller’s Power of Attorney, each
duly executed by Seller, and the Guaranty, duly executed by Guarantor, each
dated as of the date hereof;

 

(b)           one or more certificates of Seller’s corporate secretary
attesting to certain factual matters, certifying the text of Seller’s articles
or certificate of incorporation and bylaws, certifying the text of the
resolution(s) of the board of directors of Seller authorizing the execution,
delivery and performance of this Agreement, and certifying the incumbency and
the signatures of those officers of Seller authorized to execute and deliver,
on behalf of Seller, this Agreement, each Mortgage Note endorsement, each
Assignment in Blank, and all other instruments or documents to be executed and
delivered pursuant hereto (MBF being entitled to 

 

19

 

rely thereon until a new certificate has been
furnished to MBF upon which MBF shall thereafter be entitled to rely);

 

(c)           financial statements of Seller (and, if applicable, its
Subsidiaries, on a consolidated basis) containing a balance sheet as of the
most recent fiscal year-end of Seller (the “Statement Date”) and related
statements of income, changes in stockholders’ equity and cash flows for the
period ended on the Statement Date, and a balance sheet as of the Interim Date
and related statement of income for the period ended on the Interim Date, all
prepared in accordance with GAAP applied on a basis consistent with prior
periods and, in the case of the statements as of the Statement Date, audited by
independent certified public accountants of recognized standing acceptable to
MBF; and

 

(d)           such other financial statements, public record search
reports, legal opinions and other documents and statements as MBF may require
under the circumstances.

 

3.2           Conditions Precedent.  MBF’s obligation to purchase any Mortgage
Loan shall be subject to satisfaction (or waiver by MBF in its sole discretion)
of the following conditions precedent:

 

(a)           the Loan Purchase Detail, the Loan Sale Confirmation, and
the documents in the Dry Funding Documents Package or the Wet Funding Documents
Package for the Mortgage Loan have been received by MBF and are in form and
substance satisfactory to MBF;

 

(b)           no Default or Event of Default has occurred and is
continuing;

 

(c)           all of Seller’s representations and warranties are (and
will be on the proposed Acquisition Date) accurate in all respects;

 

(d)           purchase of the Mortgage Loan shall not cause the Seller’s
Concentration Limit or the Wet Funding Sublimit to be exceeded;

 

(e)           this Agreement, the applicable Takeout Commitment, the
Seller’s Power of Attorney, and the Guaranty have not been terminated or
revoked, and each remains in full force and effect; and

 

(f)            If any Mortgage Loan to be purchased by MBF is a MERS
Designated Mortgage Loan, then (i) MBF shall have received in form and
substance satisfactory to MBF the Electronic Tracking Agreement duly executed
by Seller, MERS and the Electronic Agent, (ii) Seller shall be a member of
MERS in good standing, and (iii) the Takeout Investor shall be a member of
MERS in good standing.

 

3.3           Deliverables. 
Seller will give MBF not less than one (1) Business Day prior
notice that it intends to offer a particular Mortgage Loan for sale to MBF
hereunder.  Seller shall transmit (either
electronically or via facsimile transmission) or deliver to MBF a Loan Purchase
Detail and a Loan Sale Confirmation for the Mortgage Loan, and it shall deliver
or cause to be delivered to MBF either the Dry Funding Documents Package or the
Wet Funding Documents Package for the Mortgage Loan.  At its request for its convenience, Seller is
authorized to deliver to MBF each Loan Sale Confirmation electronically without
an original 

 

20

 

signature thereon, and each Loan Sale Confirmation
so delivered is incorporated herein by this reference and fully effective and
binding on Seller even though without such a signature when it is released to
MBF at closing pursuant to Section 3.5 or Section 3.6, as applicable.

 

3.4           Assignment of Takeout Commitment.  The sale of each Mortgage Loan to MBF shall
include Seller’s rights under the applicable Takeout Commitment to deliver the
Mortgage Loan to the Takeout Investor and to receive the net sum therefor
specified in the Takeout Commitment from the Takeout Investor.  Effective on and after the Acquisition Date
for each Mortgage Loan purchased by MBF hereunder, Seller assigns to MBF, free
and clear of any security interest, lien, claim or encumbrance of any kind, all
of Seller’s right, title and interest in any applicable Takeout Commitment for
such Mortgage Loan.

 

3.5           Dry Funding Closing.  The provisions of this Section 3.5 shall
apply only to the purchase of Mortgage Loans with respect to which
Section 3.6 does not apply.  Not
later than one (1) Business Day after receipt of the Loan Purchase Detail, the
Loan Sale Confirmation and a Dry Funding Documents Package, and subject to
satisfaction or waiver of the conditions precedent stated in Sections 3.1
and 3.2, MBF shall complete the purchase of the Mortgage Loan by payment of the
Acquisition Price for the Mortgage Loan, by transfer of immediately available
funds into Seller’s Funding Account or as provided in Section 4, as
applicable.  Simultaneously with payment
by MBF of the Acquisition Price, Seller shall convey to MBF absolutely, and not
by way of collateral assignment, all rights, title and interest in and to the
Mortgage Loan, free and clear of any lien, claim or encumbrance (such
conveyance in the case of MERS Designated Mortgage Loans shall be made in
accordance with the requirements of the MERS® System), subject to Seller’s
retention of servicing rights with respect to the Mortgage Loan and subject
also to any applicable Takeout Commitment. 
The Loan Sale Confirmation and the documents in the Dry Funding
Documents Package previously delivered by Seller are unconditionally released
to MBF upon payment of the Acquisition Price. 
MBF may elect, in its sole discretion, not to complete and record an
Assignment in Blank for the sole purpose of facilitating the servicing of the
related Mortgage Loan.  In such event,
Seller agrees until further notice to remain the last named payee or endorsee
of such Mortgage Note and the mortgagee or assignee of record of such Mortgage
in trust for the sole and exclusive benefit of MBF.

 

3.6           Wet Funding Closing.  The provisions of this Section 3.6 shall
apply only to the purchase of Mortgage Loans with respect to which “Wet Funding”
is indicated as the purchase method in the applicable Loan Purchase
Detail.  Not later than one (1) Business
Day after receipt of the Loan Purchase Detail, the Loan Sale Confirmation and a
Wet Funding Documents Package, and subject to satisfaction or waiver of the
conditions precedent stated in Sections 3.1 and 3.2, MBF shall
complete the purchase of the Mortgage Loan by payment of the Acquisition Price
for the Mortgage Loan, by transfer of immediately available funds into Seller’s
loan closing escrow and the closing of that escrow in accordance with escrow
instructions.  Simultaneously with
release of the Acquisition Price proceeds in such escrow, Seller shall convey
to MBF absolutely, and not by way of collateral assignment, all rights, title
and interest in and to the Mortgage Loan free and clear of any lien, claim or
encumbrance (such conveyance in the case of MERS Designated Mortgage Loans
shall be made in accordance with the requirements of the MERS® System), subject
to Seller’s retention of servicing rights with respect to the Mortgage Loan and
subject also to any applicable Takeout Commitment.  The Loan Sale Confirmation and the documents
in the Wet Funding Documents Package previously delivered by Seller are
unconditionally released to MBF upon close of the escrow.  Seller shall deliver a

 

21

 

Dry Funding Documents Package for the Mortgage Loan
not later than the Wet Funding Deadline after the loan closing.  MBF may elect, in its sole discretion, not to
complete and record an Assignment in Blank for the sole purpose of facilitating
the servicing of the related Mortgage Loan. 
In such event, Seller agrees until further notice to remain the last
named payee or endorsee of such Mortgage Note and the mortgagee or assignee of
record of such Mortgage in trust for the sole and exclusive benefit of MBF.

 

3.7           Post-Closing. 
If, at any time after payment of the Acquisition Price, Seller holds or
receives any documents or funds relating to a purchased Mortgage Loan, Seller
agrees to immediately notify MBF and to segregate and hold such documents
and/or funds in trust for MBF and to deliver such documents or funds at the
time and as required by other provisions of this Agreement or as directed by
MBF.  The parties acknowledge that, so
long as Seller is servicing the Mortgage Loan pursuant to Section 5,
Seller may be required to retain possession of such documents or funds solely
in its capacity as Mortgage Loan servicer.

 

4.             Warehouse Lender Arrangements.  If a Mortgage Loan to be sold and purchased
hereunder has been previously assigned or pledged by Seller to a Warehouse
Lender in connection with any interim financing thereof, then, as applicable
(i) if MBF is the Warehouse Lender, the amount owing to the Warehouse
Lender on the Acquisition Date shall be satisfied by internal application of
sale proceeds, in which event MBF will transfer into Seller’s Funding Account
only the balance, if any, of the Acquisition Price after such application; or
(ii) if the Warehouse Lender is a third party, MBF will transfer the full
amount of the Acquisition Price in Seller’s Funding Account but will promptly
wire transfer from that account the amount due to the third party Warehouse
Lender in accordance with the Warehouse Lender’s Wire Instructions.  If any balance of the Acquisition Price
remains in Seller’s Funding account after the Warehouse Lender has been repaid
in full in accordance with the foregoing, that balance shall be transferred by
MBF in immediately available funds, from Seller’s Funding Account to Seller’s
Operating Account.

 

5.             Servicing of Mortgage Loans and
Related Provisions.

 

5.1           Servicing of Mortgage Loans.

 

(a)           As a condition of purchasing a Mortgage Loan, MBF requires
Seller to service such Mortgage Loan as agent for MBF for the entire
Post-Origination Period on the following terms and conditions:

 

(i)            Seller shall service and administer the Mortgage Loan on
behalf of MBF in accordance with prudent mortgage loan servicing standards and
procedures generally accepted in the mortgage banking industry and in
accordance with all applicable requirements of the Agencies, Requirements of
Law and the requirements of any applicable Takeout Commitment and the Takeout
Investor, so that the eligibility of the Mortgage Loan for purchase under such
Takeout Commitment is not voided or reduced by such servicing and
administration;

 

(ii)           Subject to subsection 5.1(d), Seller shall at all
times maintain and safeguard the Credit File for the Mortgage Loan (including
copies of the documents delivered to MBF pursuant to Section 3.3), and
accurate and complete records of its servicing of

 

22

 

the Mortgage Loan; Seller’s possession of such
Credit File being for the sole purpose of servicing such Mortgage Loan and such
retention and possession by Seller being in a custodial capacity only;

 

(iii)          MBF may, at any time during Seller’s business hours on
reasonable notice, examine and make copies of such documents and records;

 

(iv)          At MBF’s request, Seller shall promptly deliver to MBF
reports regarding the status of any Mortgage Loan being serviced by Seller,
which reports shall include, but shall not be limited to, a description of any
default thereunder for more than thirty (30) days or such other circumstances
that could cause a material adverse effect on such Mortgage Loan, MBF’s title
to such Mortgage Loan or the collateral securing such Mortgage Loan; Seller may
be required to deliver such reports until completion of the Takeout Funding or
repurchase of the Mortgage Loan by Seller; and

 

(v)           Seller shall immediately notify MBF if it becomes aware of
any payment default that occurs under the Mortgage Loan.

 

(b)           Seller shall not attempt to sell or transfer any rights to
service a Mortgage Loan without the prior consent of MBF except to (or as
directed by) any Takeout Investor in accordance with the applicable Takeout
Commitment.

 

(c)           Seller shall release its custody of the contents of any
Credit File only in accordance with the written instructions of MBF, except
when such release is required as incidental to Seller’s servicing of the
Mortgage Loan, is required to complete the Takeout Funding or comply with the
Takeout Guidelines, or as required by Requirements of Law.

 

(d)           MBF reserves the right to appoint a successor servicer to
service any Mortgage Loan (each a “Successor Servicer”) in its sole
discretion.  In the event of such an
appointment, Seller shall perform all acts and take all action so that any part
of the Credit File and related servicing records held by Seller, together with
all funds in the Custodial Account and other receipts relating to such Mortgage
Loan, are promptly delivered to Successor Servicer.  Seller shall have no claim for lost servicing
income, lost profits or other damages if MBF appoints a Successor Servicer
hereunder and the Servicing Fee is reduced or eliminated.

 

5.2           Custodial Account.

 

(a)           Seller shall establish and maintain a segregated time or
demand deposit account for the benefit of MBF (the “Custodial Account”) with an
Eligible Bank and shall promptly deposit into the Custodial Account all
interest and/or principal payments received with respect to each Mortgage Loan
sold hereunder (but not any interest accrued on such Mortgage Loan up to but
not including the Acquisition Date for such Mortgage Loan), and all other
receipts in respect of each Mortgage Loan sold hereunder that are payable for
the benefit of the owner of such loan (including, without limitation, all
escrow withholds and escrow payments for Property Charges).  Seller may use a deposit account at an
Eligible Bank established to serve as a custodial account for mortgage loans
that Seller services for other parties, but under no circumstances shall Seller
deposit any of its own funds into the Custodial Account or otherwise commingle
its own funds with funds belonging to MBF as owner of any Mortgage Loans.  In the event Seller establishes a deposit
account solely for use in connection with collections on the

 

23

 

Mortgage Loans, Seller shall name the account “[Name
of Seller] as agent for Washington Mutual Bank, FA.”  In the event Seller elects to use a deposit
account maintained for collections on the Mortgage Loans and other mortgage
loans owned by third parties, MBF shall approve the title of the account in
advance of use by Seller hereunder.

 

(b)           Any interest and/or principal payments, and other amounts
received with respect to a Mortgage Loan purchased hereunder (but not any
interest accrued on such Mortgage Loan up to but not including the Acquisition
Date for such Mortgage Loan), whether or not deposited in the Custodial Account,
shall be held in trust for the exclusive benefit of MBF as the owner of such
Mortgage Loan and shall be released only as follows:

 

(i)            after a Takeout Funding for such Mortgage Loan has
occurred, all amounts previously deposited in the Custodial Account with
respect to such Mortgage Loan and then in the Custodial Account shall be:  released by MBF to Seller in full or partial
payment of the payment obligation described in Section 7.5 or in the
exercise of Seller’s right of set-off in subsection 5.2(d); transferred to
the Takeout Investor or its designee if authorized by Seller; or remitted to
MBF;

 

(ii)           if a Successor Servicer is appointed by MBF, all amounts
deposited in the Custodial Account with respect to Mortgage Loans to be so
serviced shall be transferred into an account established by the Successor
Servicer pursuant to its agreement with MBF;

 

(iii)          if the Takeout Funding does not occur prior to the
termination or expiration of any applicable Takeout Commitment for a Mortgage
Loan (as the same may have been extended in accordance with such Takeout
Commitment), all amounts deposited in the Custodial Account with respect to
such Mortgage Loan shall be released to Seller upon closing of repurchase of
the Mortgage Loan pursuant to Section 8;

 

(iv)          upon the occurrence of an Event of Default hereunder,
Seller shall remit all funds then held in the Custodial Account with respect to
Mortgage Loans to or at the direction of MBF; and

 

(v)           funds shall be remitted to MBF as provided in
subsection 5.2(c).

 

(c)           On each Remittance Date, subject to
subsection 5.2(d), Seller shall remit to MBF a portion of the funds held
in the Custodial Account with respect to a Mortgage Loan for which the Takeout
Funding Date has not yet occurred (other than principal payments on the
Mortgage Note and escrow payments for Property Charges) equal to the sum
determined by the daily application of the Investment Return Rate to the
Acquisition Price for such Mortgage Loan on a 360-day per year basis for the
actual number of days in the period since the Acquisition Date or the
immediately preceding Remittance Date (whichever is later).  Such remittances shall be by wire transfer in
accordance with wire transfer instructions previously given to Seller.

 

(d)           In lieu of the monthly wire transfer remittances of funds
in the Custodial Account described in subsection 5.2(c), Seller authorizes
MBF to withdraw the remittance amount each month from Seller’s Operating
Account.  MBF shall notify Seller of each

 

24

 

such withdrawal, and Seller shall have the right to
set-off such withdrawn amount(s) against funds in the Custodial Account to be
released to or for the benefit of MBF pursuant to
subsection 5.2(b)(i).  Seller may
release funds in the Custodial Account to itself in an amount equal to such
withdrawal amount(s), in the exercise of such set-off right, at the time all
funds in the Custodial Account are distributed pursuant to
subsection 5.2(b)(i).  In the event
funds in the Custodial Account are insufficient to fully reimburse Seller for
such withdrawn amount(s) upon the exercise of this set-off right, MBF shall pay
Seller the deficit.

 

(e)           Seller shall not change the identity or location of the
Custodial Account without thirty (30) days prior notice to MBF.  Seller shall from time to time, at its own
cost and expense, execute such directions to the depository Eligible Bank, and
other papers, documents or instruments as may be reasonably requested by MBF to
reflect MBF’s partial or complete ownership interest in the Custodial Account.

 

(f)            If MBF so requests, Seller shall promptly notify MBF of
each deposit in the Custodial Account, and each withdrawal from the Custodial
Account, made by it with respect to Mortgage Loans owned by MBF and serviced by
Seller.  Seller shall also promptly
deliver to MBF copies of all periodic bank statements and other records
relating to the Custodial Account as MBF may from time to time request.

 

(g)           The amount of any remittance or transfer of funds by
Seller pursuant to this Section 5, any Administrative Costs or Successor
Servicer Costs payable pursuant to Section 6.2, and any repurchase price
or other sum payable by Seller pursuant to Section 8, not made when due
shall bear interest from the due date until the remittance, transfer or payment
is made, payable by Seller, at the lesser of (i) the Default Rate or
(ii) the maximum rate of interest permitted by law.  If there is no maximum rate of interest
specified by applicable law, interest on such sums shall accrue at the Default
Rate.

 

6.             Seller’s Continuing Duties.

 

6.1           Takeout Commitments.  Except to the extent superceded by this
Agreement, Seller shall continue to perform all of its duties and obligations
to the Takeout Investor under any applicable Takeout Commitment and otherwise,
with respect to a purchased Mortgage Loan as if such Mortgage Loan were still
owned by Seller and to be sold directly by Seller to the Takeout Investor
pursuant to such Takeout Commitment on the Takeout Funding Date without the
intervening ownership of MBF pursuant to this Agreement.  Without limiting the generality of the
foregoing, Seller shall timely assemble all records and documents concerning
the Mortgage Loan required under any applicable Takeout Commitment (except that
photocopies instead of originals shall be used for those documents already
provided to MBF in the Dry Funding Documents Package or any Wet Funding
Documents Package) and all other documents and information that may have been
required or requested by the Takeout Investor, and Seller shall make all
representations and warranties required to be made to the Takeout Investor.

 

6.2           Administrative and Successor Servicer Costs.  Not later than each Remittance Date, Seller
shall pay to MBF all then-unpaid Administrative Costs incurred by it and
invoiced by MBF.  Not later than the
Remittance Date, Seller shall pay to MBF all Successor

 

25

 

Servicer Costs incurred by MBF and invoiced to
Seller by MBF for which reimbursement has not yet been made.

 

7.             Takeout Funding Procedures.

 

7.1           Note Shipment. 
Seller shall prepare and send to MBF Shipping Instructions to instruct
MBF when and how to send each Mortgage Note to a Takeout Investor.  MBF shall use its best efforts to send each
Mortgage Note on or before the date specified for shipment in the Shipping
Instructions, which date shall be on or before the Takeout Funding Date.  If Seller instructs MBF to send a Mortgage
Note before the Takeout Funding Date, MBF will send the Mortgage Note under a
Bailee Letter.

 

7.2           Takeout Funding Advice.  Seller shall request the Takeout Investor to
provide the Takeout Funding Advice with respect to each Mortgage Loan prior to
or on the day of the related Takeout Funding, and Seller shall immediately forward
the Takeout Funding Advice to MBF.  If a
Takeout Investor delivers funds but fails to provide the Takeout Funding
Advice, or provides a Defective Takeout Funding Advice, MBF will notify Seller.  If Seller fails to obtain and provide the
Takeout Funding Advice, or to correct the Defective Takeout Funding Advice,
within one (1) Business Day after receipt of such notification, MBF may, in its
sole discretion and without limiting its rights under any other provision of
this Agreement (i) place such funds in a non-interest bearing account
until the requisite Takeout Funding Advice is provided, or (ii) return the
funds to the Takeout Investor (in which case Seller agrees such Mortgage Loan
shall be deemed a Defective Mortgage Loan). 
Seller shall cause the Takeout Investor to pay the net funds for the
Mortgage Loan due under the Takeout Commitment directly to MBF on the Takeout
Funding Date.

 

7.3           Takeout Funding.

 

(a)           On a Takeout Funding Date, Seller shall (i) unless
MBF has appointed a Successor Servicer with respect to the subject Mortgage
Loan, transfer the servicing of the subject Mortgage Loan to the Takeout
Investor in accordance with the terms of the applicable Takeout Commitment,
(ii) provide to the Takeout Investor on behalf of MBF the related Credit File
in accordance with the terms of such Takeout Commitment, and
(iii) instruct the Takeout Investor to pay the Takeout Proceeds to MBF in
accordance with wire transfer instructions provided by MBF.  On a Takeout Funding Date, Seller shall
transfer the servicing rights for the subject Mortgage Loan to the Takeout
Investor or its designee by recordation, in the applicable jurisdiction, of an
assignment of the Mortgage Loan (except in the case of a MERS Designated
Mortgage Loan, which such transfer shall be made in accordance with the
requirements of the MERS® System if the Takeout Investor or designee is a
member of MERS in good standing) and by execution of such other documents (and
completion of such other actions) as would have been required of Seller under
the applicable Takeout Commitment had Seller sold the Mortgage Loan directly to
the Takeout Investor pursuant to such Takeout Commitment (or as the Takeout
Investor or MBF may otherwise reasonably request).  The parties agree that any recordation of an
assignment on or after the Takeout Funding Date is for administrative
convenience only and does not signify that Seller had any ownership interest in
a Mortgage Loan purchased hereunder (other than Seller’s retained servicing
rights) after the Acquisition Date, nor does this procedure affect in any way
the effectiveness of the endorsement to the Mortgage Note, the Assignment in
Blank and the Loan Sale Confirmation executed and

 

26

 

delivered by Seller to MBF on the Acquisition Date
in order to transfer ownership of the Mortgage Loan at that time.

 

(b)           Subject to Section 7.2, on the Takeout Funding Date,
in consideration of receipt of Takeout Proceeds that, when added to the
Mortgagor Payments, are equal to or exceed the Adjusted Acquisition Price, MBF
shall (i) release its interest in the Mortgage Loan to the Takeout
Investor and (ii) if a Successor Servicer has been appointed with respect
to the Mortgage Loan, transfer, or cause the transfer of, the servicing of such
Mortgage Loan to the Takeout Investor in accordance with the terms of the
applicable Takeout Commitment.  MBF shall
have no responsibility for the ownership or servicing of a Mortgage Loan
following delivery of the Mortgage Loan to the Takeout Investor.

 

(c)           On the Takeout Funding Date, the Takeout Investor shall
(i) accept delivery of the subject Mortgage Loan in accordance with the
applicable Takeout Commitment, and (ii) complete the purchase of the
Mortgage Loan by payment of the net funds for the Mortgage Loan in accordance
with such Takeout Commitment by transfer of immediately available funds into an
account specified by MBF not later than 3:00 p.m. Central Time on such
date.  (Funds received by MBF after said
time shall be deemed received on the next Business Day.)

 

(d)           A Takeout Investor may aggregate Takeout Proceeds for
several Mortgage Loans in one wire transfer, and a Takeout Investor may choose
to pay to MBF, in a single wire transfer, Takeout Proceeds relating to Mortgage
Loans owned by MBF and purchase price proceeds for Mortgage Loans not owned by
MBF.  Upon receipt by MBF of such
proceeds, MBF will attend to identify its Takeout Proceeds by reviewing the
Takeout Funding Advice(s) or other settlement information that has been
supplied by Seller or the Takeout Investor in advance.  MBF will place all unidentified proceeds in a
non-interest bearing account and will promptly contact Seller.

 

7.4           The Servicing Fee and Settlement Amount.  MBF shall pay to Seller the then-unpaid
Servicing Fee, accrued to the Takeout Funding Date, for each Mortgage Loan
purchased hereunder for which there is a Takeout Funding.  This Servicing Fee shall be paid as follows:

 

(a)           Immediately upon its receipt of the Takeout Funding Advice
for a transaction, Seller shall provide a copy of such Takeout Funding Advice
to MBF.  Within one (1) Business Day
after the Takeout Funding Date, and subject to Section 7.5, MBF shall make
a provisional payment to Seller of such Servicing Fee (if any) by releasing to
Seller any sum then on deposit in the Custodial Account with respect to such
Mortgage Loan and, if necessary, by depositing in Seller’s Operating Account
such additional amount that MBF estimates in its sole discretion is due to
Seller in order that Seller shall have received the estimated Servicing Fee for
such Mortgage Loan.  Seller acknowledges
that this provisional payment of the Servicing Fee is without prejudice to the
final calculations of the Servicing Fee for such Mortgage Loan.

 

(b)           After the close of the month in which the Takeout Funding
occurs for a Mortgage Loan, MBF shall make a final calculation of the Takeout
Proceeds received on the Takeout Funding Date, all unpaid Administrative Costs
and Successor Servicer Costs as of that date, and the Servicing Fee (if any)
due to Seller with respect to such Mortgage Loan on

 

27

 

such date. 
MBF shall compare the final calculation of the Servicing Fee to the
estimated Servicing Fee, if any, provisionally paid to Seller pursuant to
subsection 7.4(a); and, if there is a difference between the estimated
amount that was provisionally paid and the final calculation of the Servicing
Fee actually due, MBF shall determine the final amount due from one party to
the other (the “Settlement Amount”).  MBF’s
final calculations of the Takeout Proceeds, the Servicing Fee and the
Settlement Amount hereunder shall be final and binding on the parties in the
absence of manifest error.

 

(c)           If MBF determines that the Settlement Amount with respect
to a Mortgage Loan is an amount due to MBF, MBF is authorized to charge either
or both of Seller’s Accounts in the amount of the Settlement Amount in order to
reconcile the final payment made to Seller with the amount determined by MBF’s
final calculations to have been the Servicing Fee due with respect to such
Mortgage Loan.  In the event that Seller’s
Accounts do not contain sufficient funds to satisfy in whole any amount due to
MBF under this subsection 7.4(c), Seller shall promptly deposit funds in the
Seller’s Funding Account sufficient to satisfy such amount due to MBF, and
Seller shall notify MBF of each such deposit. 
If MBF determines that the Settlement Amount with respect to a Mortgage
Loan is an amount due to Seller, then, subject to Section 7.5 and
subsection 8.3(a), MBF shall promptly pay to Seller the amount of the
deficit by deposit of funds in the amount of the Settlement Amount in Seller’s
Operating Account in order to reconcile the final payment made to Seller with
the amount determined by MBF’s final calculations to have been the Servicing
Fee due with respect to such Mortgage Loan.

 

7.5           Use of Custodial Account Funds.  Seller is authorized to withdraw from the
Custodial Account funds held with respect to a Mortgage Loan for which a Takeout
Funding has occurred, in whole or partial satisfaction of MBF’s payment
obligation to Seller under Section 7.4, in which event MBF’s deposit in
Seller’s Operating Account pursuant to such provision may be reduced by the
amount of such authorized withdrawal funds.

 

8.             Seller’s Repurchase Obligations;
Other Remedies.

 

8.1           Sale Not Caveat Emptor.  The sale of a Mortgage Loan hereunder is not caveat emptor, it being understood that
MBF is expressly relying on the representations by Seller as to each Mortgage
Loan provided in Section 11 and in any applicable Annex, and the
representations about Seller itself provided in Section 12, in any
applicable Annex, and in the Electronic Tracking Agreement, if applicable.

 

8.2           Early Repurchases.

 

(a)           If, after MBF purchases a Mortgage Loan, MBF determines or
receives notice (whether from Seller or otherwise) that a purchased Mortgage
Loan is (or has become) a Defective Mortgage Loan, MBF shall promptly notify
Seller and Seller shall repurchase such purchased Mortgage Loan at the Adjusted
Acquisition Price on the date of repurchase. 
In the case of a Wet Funding, if Seller fails to deliver a Dry Funding
Documents Package for the Mortgage Loan not later than the Wet Funding Deadline,
MBF may notify Seller, in which event Seller shall repurchase such purchased
Mortgage Loan at the Adjusted Acquisition Price on the date of repurchase.  If a Takeout Investor refuses to honor its
Takeout Commitment and complete the purchase of a Mortgage Loan, for any
reason, MBF may notify

 

28

 

Seller and Seller shall repurchase such Mortgage
Loan at the Adjusted Acquisition Price on the date of repurchase.

 

(b)           If Seller becomes obligated to repurchase a Mortgage Loan
pursuant to subsection (a) above, MBF shall promptly give Seller notice of
such repurchase obligation and a provisional calculation of the Adjusted
Acquisition Price as of the last day of the preceding month.  Within two (2) Business Days after such
notice, Seller shall repurchase the Mortgage Loan by making a provisional
payment of the estimated Adjusted Acquisition Price, and MBF is authorized to
charge either or both of Seller’s Accounts in such amount unless the parties
have agreed in writing to a different method of payment.  (In the event that Seller’s Accounts do not
contain sufficient funds to satisfy in whole any amount due to MBF under this
subsection 8.2(b) or if the amounts due are not provided by any applicable
alternative method of payment agreed by the parties, Seller shall promptly
deposit funds in Seller’s Funding Account sufficient to satisfy such amount due
to MBF, and Seller shall notify MBF of each such deposit.)  Upon receipt of the provisional payment of
the estimated Adjusted Acquisition Price from Seller, MBF shall deliver, or
cause to be delivered, to Seller all documents for the Mortgage Loan previously
delivered to MBF and, in the case of a MERS Designated Mortgage Loan, to take
such steps as are necessary and appropriate to effect the transfer of the Mortgage
Loan on the MERS® System.  MBF shall pay
to Seller the Servicing Fee for each Mortgage Loan repurchased by Seller under
this Section 8.  Subject to
subsection 8.3(a), within one (1) Business Day after the completion of the
repurchase of a Mortgage Loan by Seller in accordance with this
subsection 8.2(b), MBF shall make a provisional payment to Seller of such
Servicing Fee (if any), by releasing to Seller any sum then on deposit in the
Custodial Account with respect to such Mortgage Loan and, if necessary, by
depositing in Seller’s Operating Account of such additional amount as MBF may
estimate in its sole discretion is due to Seller in order that Seller shall
have received the estimated Servicing Fee for such Mortgage Loan.  Seller acknowledges that the provisional
payment of this Servicing Fee is without prejudice to the final calculation of
the Servicing Fee.

 

(c)           After the close of the month in which the repurchase was
completed, MBF shall make a final calculation of the Adjusted Acquisition Price
for the repurchased Mortgage Loan on the date of repurchase, all Administrative
Costs and Successor Servicer Costs as of that date, and the Servicing Fee (if
any) due to Seller with respect to such Mortgage Loan as of that date.  MBF shall compare the final calculation of
the Adjusted Acquisition Price to the estimated Adjusted Acquisition Price
provisionally paid to MBF pursuant to subsection 8.2(b) and the final
calculation of the Servicing Fee to the estimated Servicing Fee, if any,
provisionally paid to Seller pursuant to subsection 8.2(b); and, if there
is a difference between one or both of the estimated amounts that were
provisionally paid and the final calculations of such amounts actually due, MBF
shall, by netting the amounts due from one party to the other, determine the
final amount due from one party to the other (the “Settlement Amount”).  MBF’s final calculations of the Adjusted
Acquisition Price, the Servicing Fee and the Settlement Amount hereunder shall
be final and binding on the parties in the absence of manifest error.  If MBF determines that the Settlement Amount
with respect to a Mortgage Loan is an amount due to MBF, MBF is authorized to
charge either or both of Seller’s Accounts in the amount of the Settlement
Amount in order to reconcile the final payment made to MBF with the amount
determined by MBF’s final calculations to have been the Adjusted Acquisition
Price and the final payment made to Seller with the amount determined by MBF’s
final calculations to have been the Servicing Fee with respect to such Mortgage
Loan.  (In the event that Seller’s
Accounts

 

29

 

do not contain sufficient funds to satisfy in whole
any amount due to MBF under this subsection 8.2(c), Seller shall promptly
deposit funds in Seller’s Funding Account sufficient to satisfy such amount due
to MBF, and Seller shall notify MBF of each such deposit.)  If MBF determines that the Settlement Amount
with respect to a Mortgage Loan is an amount due to Seller, and subject to
subsection 8.3(a), MBF shall promptly pay to Seller the amount of the
deficit by deposit of funds in the amount of the Settlement Amount in Seller’s
Operating Account in order to reconcile the final payment made to MBF with the
amount determined by MBF’s final calculations to have been the Adjusted
Acquisition Price and the final payment made to Seller with the amount
determined by MBF’s final calculations to have been the Servicing Fee with
respect to such Mortgage Loan.

 

(d)           Any repurchase of a Mortgage Loan pursuant to
Section 8 shall include, and MBF hereby assigns to Seller, MBF’s rights
under the applicable Takeout Commitment to deliver the applicable Mortgage Loan
to the Takeout Investor and to receive the net sum therefor specified in the
Takeout Commitment from the Takeout Investor.

 

8.3           Other Remedies.

 

(a)           Seller hereby grants to MBF a right of set-off against the
payment of any amounts that may be due and payable to MBF from Seller, such
right to be upon any and all monies and property of Seller held or received by
MBF or due and owing from MBF to Seller.

 

(b)           During the existence of an Event of Default,
notwithstanding any other provision of this Agreement, Seller shall have no
right to withdraw or release any funds in the Custodial Account to itself or
for its benefit, nor shall it have any right to set-off any amount owed to it
by MBF against funds held by it for MBF in the Custodial Account.  During the existence of an Event of Default,
Seller shall promptly remit to or at the direction of MBF all funds related to
the Mortgage Loans in the Custodial Account (i) on the date of the Event
of Default first occurs (as required by subsection 5.2(b)(iv)) and
(ii) deposited by Seller in the Custodial Account after such date pursuant
to other provisions of this Agreement.

 

(c)           During the existence of an Event of Default, MBF may at
any time, without further notice to Seller, (i) require Seller to
immediately repurchase all the Mortgage Loans then owned by MBF and declare the
Adjusted Acquisition Price for each such Mortgage Loan immediately due and
payable, (ii) immediately sell, without demand or notice of any kind, at a
public or private sale and at such price or prices as MBF may deem
satisfactory, any or all the Mortgage Loans owned by MBF and apply the proceeds
thereof (net of any expenses of sale) to any amounts owing by Seller hereunder,
and (iii) in its sole discretion, in lieu of selling all or a portion of
such Mortgage Loans, to give Seller credit for those Mortgage Loans not sold in
an amount equal to the Market Value therefor on such date.  Upon receipt by MBF of all amounts owing by
Seller hereunder, MBF shall transfer any remaining portion of such Mortgage
Loans and proceeds thereof to Seller; provided, however, that
Seller shall be liable to MBF for any deficiency if the net proceeds from sales
and other dispositions of all such Mortgage Loans are insufficient to pay all
amounts owing by Seller to MBF hereunder.

 

30

 

9.             True Sales of Mortgage Loans.

 

9.1           True Sales. 
FOR THE AVOIDANCE OF DOUBT, MBF AND SELLER CONFIRM THAT THE TRANSACTIONS
CONTEMPLATED HEREIN ARE INTENDED TO BE TRUE SALES AND ABSOLUTE ASSIGNMENTS OF
THE MORTGAGE LOANS BY SELLER TO MBF AND NOT BORROWINGS SECURED BY THE MORTGAGE
LOANS.  MBF shall own each Mortgage Loan
acquired pursuant to Section 3 hereof and have all right and entitlement
appurtenant thereto, including, without limitation, the right to pledge or
transfer the Mortgage Loan (subject only to any continuing obligations MBF may
have to Seller hereunder), and the right to replace Seller as the servicing
agent with respect to such Mortgage Loan, all on such terms as it deems
appropriate.  Seller shall not take any
action inconsistent with MBF’s ownership of a Mortgage Loan purchased hereunder
and shall not claim any legal, beneficial or other interest in such a Mortgage
Loan other than its limited right and obligation, under Section 5 hereof,
to provide servicing for such Mortgage Loan. 
For the avoidance of doubt, MBF may, in its sole discretion, assign all
of its right, title and interest in, or grant a security interest in, any
Mortgage Loan purchased hereunder, subject only to its obligation to transfer
such Mortgage Loan to the Takeout Investor pursuant to Section 7.3.  No notice of such assignment need be given by
MBF to Seller.  Assignment by MBF of a
Mortgage Loan as provided in this Section 9.1 shall not release MBF from
its obligations under this Agreement.

 

9.2           Precautionary Security Interest.  Without prejudice to the provisions of
Section 9.1 and the expressed intent of the parties, in the event that,
for any reason, any transaction hereunder concerning a Mortgage Loan is
construed by any Regulatory Authority as a borrowing or financing, rather than
a true sale and absolute conveyance of the Mortgage Loan, Seller and MBF intend
and agree that MBF shall have a perfected first priority security interest in
such Mortgage Loan purchased hereunder. 
In such case, Seller shall be deemed to have hereby granted to MBF (and
possession of any promissory notes, instruments or documents by Seller or any
Successor Servicer as servicer shall constitute possession on behalf of MBF for
this purpose) a security interest in and lien upon the Mortgage Loan, the
Mortgage Note, any applicable Takeout Commitment, all servicing rights and
other rights and privileges appurtenant thereto, the Custodial Account, and all
proceeds of any and all of the foregoing. 
In such an event, Seller agrees that such security interest shall be of
first priority and shall be free and clear of adverse claims, liens and
interests.  In such event, this Agreement
shall constitute a security agreement, and MBF shall have all of the rights of
a secured party under applicable law. 
Without prejudice to the provisions of Section 9.1 and the
expressed intent of the parties, and merely as a precaution in the event that
any transaction hereunder may be so construed, Seller authorizes MBF to file a
financing statement for the above-described collateral and, at MBF’s request,
Seller and MBF will enter into a precautionary control agreement with the
depository Eligible Bank with respect to the Custodial Account.

 

10.           Seller Representations.  All the representations and warranties made
by Seller to MBF in this Agreement are binding on Seller regardless whether the
subject matter thereof was under the control of Seller or a third party.  Seller acknowledges that MBF will rely upon
all such representations and warranties with respect to each Mortgage Loan
purchased by MBF hereunder, and Seller makes such representations and
warranties in order to induce MBF to purchase the Mortgage Loans.  The representations and warranties by Seller
in this Agreement with respect to a Mortgage Loan shall be unaffected by, and
shall supercede, any provision in any endorsement of any Mortgage Loan or in
any assignment with respect to such Mortgage

 

31

 

Loan to the effect that such endorsement or
assignment is without recourse or without representation or warranty.  All Seller representations and warranties
shall survive delivery of the Dry Funding Documents Packages, the Wet Funding
Documents Packages, and the Loan Sale Confirmations, purchase by MBF of
Mortgage Loans, delivery of the Credit Files, transfer of the servicing for the
Mortgage Loans to a Successor Servicer, the Takeout Fundings (if any),
repurchases of the Mortgage Loans by Seller (if any), and termination of this
Agreement. The representations and warranties of Seller in this Agreement shall
inure to the benefit of MBF and its successors and assigns, notwithstanding any
examination by MBF of any Mortgage Loan documents or related files.

 

11.           Representations and Warranties Concerning Mortgage
Loans.  By each delivery of a Loan
Sale Confirmation, Seller shall be deemed to make, as of the effective date of
the described sale of the Mortgage Loan or Loans (or, if another date is
expressly provided in such 
representation or warranty, as of such other date), each of the
representations and warranties set forth in Annex 2 concerning each
Mortgage Loan then sold to MBF (as such representations and warranties may be
modified by another Annex), and each representation and warranty concerning the
Mortgage Loan set forth in another applicable Annex.

 

12.           Representations and Warranties Concerning Seller.  As a material inducement to enter into this
Agreement and the transactions contemplated hereby, Seller represents and
warrants as of the Effective Date and as of each Acquisition Date as follows:

 

12.1         Organization and Good Standing.  Seller and each of its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction under which it was organized, has full legal power and
authority to own its property and to carry on its business as currently
conducted, and is duly qualified as a foreign corporation to do business and is
in good standing in each jurisdiction in which the transaction of its business
makes such qualification necessary, except in jurisdictions, if any, where a
failure to be in good standing has no material adverse effect on the business,
operations, assets or financial condition of Seller or any such
Subsidiary.  For the purposes hereof,
good standing shall include qualification for any and all licenses and payment
of any and all taxes required in the jurisdiction of its incorporation and in
each jurisdiction in which Seller transacts business.  Seller has no Subsidiaries except those
identified by Seller to MBF in writing. 
With respect to each such Subsidiary, Seller has accurately described to
MBF its name, address, place of incorporation, each state in which it is
qualified as a foreign corporation, and the percentage ownership of Seller in
such Subsidiary.

 

12.2         Authority and Capacity.  Seller has all requisite power, authority and
capacity to enter into this Agreement and to perform the obligations required
of it thereunder.  This Agreement
constitutes a valid and legally binding agreement of Seller enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization, conservatorship and similar
laws, and by equitable principles.  No
consent, approval, authorization or order of or registration or filing with, or
notice to, any Regulatory Authority is required under state or federal law
prior to the execution, delivery and performance of or compliance by Seller
with this Agreement or the consummation by Seller of any transaction
contemplated thereby.  If Seller is a
depository institution, this Agreement shall be maintained in Seller’s official
records.

 

32

 

12.3         No Conflict. 
Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated by this Agreement, nor compliance
with its terms and conditions, shall conflict with or result in the breach of,
or constitute a default under, or result in the creation or imposition of any
lien, charge or encumbrance of any nature upon the properties or assets of
Seller, any of the terms, conditions or provisions of Seller’s charter or
by-laws or any similar corporate documents of Seller, or any mortgage,
indenture, deed of trust, loan or credit agreement or other agreement or
instrument to which Seller is now a party or by which it is bound (other than
this Agreement).

 

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

 

12.5         Ordinary Course Transaction.  The consummation of the transactions
contemplated by this Agreement are in the ordinary course of business of
Seller, and the sale, transfer, assignment and conveyance of Mortgage Loans by
Seller pursuant to this Agreement are not subject to the bulk transfer or any
similar statutory provisions in effect in any applicable jurisdiction.

 

12.6         Litigation; Compliance with Laws.  There is no Litigation pending or, to Seller’s
knowledge threatened, that might cause a Material Adverse Change or that might
materially and adversely affect the Mortgage Loans to be sold pursuant to this
Agreement.  Seller has not violated any
Requirement of Law applicable to Seller that would, if violated, materially and
adversely affect the Mortgage Loans to be sold pursuant to this Agreement or
that might cause a Material Adverse Change.

 

12.7         Statements Made. 
No representation, warranty or written statement made by Seller in this
Agreement or in any schedule, written statement or certificate furnished to MBF
by Seller in connection with this Agreement or the transactions contemplated
thereunder contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
contained herein or therein not misleading.

 

12.8         Approved Company. 
Seller currently holds all approvals, authorizations and other licenses
from the Takeout Investors and the Agencies required under the Takeout
Guidelines (or otherwise) to originate Mortgage Loans of the types to be
offered for sale to MBF hereunder.

 

12.9         Fidelity Bonds. 
Seller has purchased fidelity bonds and policies of insurance, all of
which are in full force and effect, insuring Seller, MBF and the successors and
assigns of MBF in the greater of (a) $500,000, (b) that amount
required by the Takeout Investor, and (c) that amount required by any
other Takeout Guidelines, against loss or damage from any breach of fidelity by
Seller or any officer, director, employee or agent of Seller, and against any
loss or damage from loss or destruction of documents, fraud, theft,
misappropriation, or errors or omissions.

 

12.10       Solvency.  Seller
is solvent.  Seller will be solvent at
all relevant times prior to, will not be rendered insolvent by, will have a
valid business reason for and not have any intent to hinder, delay or defraud
any of Seller’s creditors in connection with, any sale of a Mortgage Loan
pursuant to this Agreement.

 

33

 

12.11       Reporting.  In its financial statements
and for federal income tax purposes, Seller intends to report each sale of a
Mortgage Loan hereunder as a sale of such loan. 
Seller has been advised by or confirmed with its independent public
accountants that such sales can be so reported under GAAP on its financial
statements and on its federal income tax returns.

 

12.12       Financial Condition.  The
balance sheets of Seller provided to MBF pursuant to subsection 3.1(c)
hereof (and, if applicable, its Subsidiaries, on a consolidated basis) as at
the Statement Date and the Interim Date, and the related statements of income,
changes in stockholders’ equity, and cash flows for the periods ended on the
Statement Date and the Interim Date heretofore furnished to MBF, fairly present
the financial condition of Seller and its Subsidiaries as at the Statement Date
and the Interim Date and the results of its and their operations for the
periods ended on the Statement Date and the Interim Date.  On the Statement Date and on the Interim
Date, Seller had no known material liabilities, direct or indirect, fixed or
contingent, matured or unmatured, or liabilities for taxes, long-term leases or
unusual forward or long-term commitments not disclosed by, or reserved against
on, said balance sheets and related statements, and at the present time there
are no material unrealized or anticipated losses from any loans, advances or
other commitments of Seller except as heretofore disclosed to MBF in writing.  Said financial statements were prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved.  Since the Statement Date,
there has been no Material Adverse Change, nor is Seller aware of any state of
facts particular to Seller which (with or without notice or lapse of time or
both) would or could result in any such Material Adverse Change.

 

12.13       Regulation U. 
Seller is not engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing
or carrying Margin Stock, and no part of the proceeds of any sales made
hereunder will be used to purchase or carry any Margin Stock or to extend
credit to others for the purpose of purchasing or carrying any Margin Stock.

 

12.14       Investment Company Act. 
Neither Seller nor any of its Subsidiaries is an “investment company” or
controlled by an “investment company” within the meaning of the Investment
Company Act of 1940, as amended.

 

12.15       Agreements.  Neither Seller nor any of its
Subsidiaries is a party to any agreement, instrument or indenture, or subject
to any restriction, materially or adversely affecting its business, operations,
assets or financial condition, except as disclosed in the financial statements
described in subsection 3.1(c) hereof. 
Seller and each Subsidiary are not in default in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any agreement, instrument, or indenture which default would or
could result in Material Adverse Change. 
No holder of any Indebtedness of Seller or of any of its Subsidiaries
has given notice of any alleged default thereunder, or, if given, the same has
been cured or will be cured by Seller within the cure period provided
therein.  No liquidation or dissolution
of Seller or any of its Subsidiaries and no receivership, insolvency,
bankruptcy, reorganization or other similar proceedings relative to Seller or
any of its Subsidiaries or any of their respective properties is pending or, to
the knowledge of Seller, threatened.

 

12.16       Title to Properties. 
Seller and each Subsidiary of Seller has good, valid, insurable (in the
case of real property) and marketable title to all of its properties and assets

 

34

 

(whether real or personal, tangible or intangible)
reflected on the financial statements described in subsection 3.1(c)
hereof, and all such properties and assets are free and clear of all Liens
except as disclosed in such financial statements and not prohibited under this
Agreement.

 

12.17       ERISA.  All plans (“Plans”) of a type
described in Section 3(3) of ERISA in respect of which Seller or any
Subsidiary of Seller is an “employer,” as defined in Section 3(5) of
ERISA, are in substantial compliance with ERISA, and none of such Plans is
insolvent or in reorganization, has an accumulated or waived funding deficiency
within the meaning of Section 412 of the Internal Revenue Code, and
neither Seller nor any Subsidiary of Seller has incurred any material liability
(including any material contingent liability) to or on account of any such Plan
pursuant to Sections 4062, 4063, 4064, 4201 or 4204 of ERISA; and no
proceedings have been instituted to terminate any such Plan, and no condition
exists which presents a material risk to Seller or a Subsidiary of Seller of
incurring a liability to or on account of any such Plan pursuant to any of the
foregoing Sections of ERISA.  No Plan or
trust forming a part thereof has been terminated since December 1, 1974.

 

12.18       Proper Names.  Seller
does not operate in any jurisdiction under a trade name, division, division
name or name other than those names previously disclosed in writing by Seller
to MBF, and all such names are utilized by Seller only in the jurisdiction(s)
identified in such writing.

 

12.19       No Undisclosed Liabilities. 
Other than as disclosed in the financial statements delivered pursuant
to subsection 3.1(c) and Section 13.7 hereof, Seller does not have
any liabilities or Indebtedness, direct or contingent, except for liabilities
or Indebtedness which, in the aggregate, do not exceed the amount specified in Annex 1.

 

12.20       Tax Returns and Payments.  All
federal, state and local income, excise, property and other tax returns
required to be filed with respect to Seller’s operations and those of its
Subsidiaries in any jurisdiction have been filed on or before the due date
thereof (plus any applicable extensions); all such returns are true and
correct; all taxes, assessments, fees and other governmental charges upon
Seller, and Seller’s Subsidiaries and upon its property, income or franchises,
which are due and payable have been paid, including, without limitation, all
FICA payments and withholding taxes, if appropriate, other than those which are
being contested in good faith by appropriate proceedings, diligently pursued
and as to which Seller has established adequate reserves determined in
accordance with GAAP, consistently applied. 
The amounts reserved, as a liability for income and other taxes payable,
in the financial statements described in subsection 3.1(c) are sufficient
for payment of all unpaid federal, state and local income, excise, property and
other taxes, whether or not disputed, of Seller and its Subsidiaries, accrued
for or applicable to the period and on the dates of such financial statements
and all years and periods prior thereto and for which Seller, and Seller’s
Subsidiaries may be liable in their own right or as transferee of the assets
of, or as successor to, any other Person.

 

12.21       Subsidiaries. 
Seller has not issued, and does not have outstanding, any warrants,
options, rights or other obligations to issue or purchase any shares of its
capital stock or other securities.  The
outstanding shares of capital stock of Seller have been duly authorized and
validly issued and are fully paid and nonassessable.

 

35

 

12.22       Holding Company. 
Seller is not a “holding company” or a “subsidiary company” of a “holding
company” within the meaning of the Public Utility Holding Company Act of 1935,
as amended.

 

12.23       Credit Information. 
Seller has full right and authority and is not precluded by law or
contract from furnishing to MBF the applicable consumer report (as defined in
the Fair Credit Reporting Act, Public Law 91-508) and all other credit
information relating to each Mortgage Loan sold hereunder, and MBF will not be
precluded from furnishing such materials to the related Takeout Investor by
such laws.  The foregoing shall not be construed
to impose any obligation on MBF to keep the above described materials
confidential or to otherwise comply with the Fair Credit Reporting Act or any
similar laws.

 

12.24       No Discrimination. 
Seller makes credit accessible to all qualified applicants in accordance
with all applicable laws and regulations. 
Seller has not discriminated, and will not discriminate, against credit
applicants on the basis of any prohibited characteristic, including race,
color, religion, national origin, sex, marital or familial status, age
(provided that the applicant has the ability to enter into a binding contract),
handicap, sexual orientation or because all or part of the applicant’s income
is derived from a public assistance program or because of the applicant’s good
faith exercise of rights under the Federal Consumer Protection Act.  Furthermore, Seller has not discouraged, and
will not discourage, the completion of any credit application based on any of
the foregoing prohibited bases.  In
addition, Seller has complied with all anti-redlining provisions and equal
credit opportunity laws applicable under state and federal statute and
regulation.

 

12.25       Home Ownership and Equity Protection Act. 
There is no litigation, proceeding or governmental investigation
existing or pending or to the knowledge of Seller threatened, or any order,
injunction or decree outstanding against or relating to Seller, relating to any
violation of the Home Ownership and Equity Protection Act or any state, city or
district high cost home mortgage or predatory lending law.

 

12.26       CL Program.  If Seller currently originates
Mortgage Loans for sale to CL under the CL Program, Seller makes each of the
representations and warranties concerning Seller set forth in Annex 3.

 

13.           Seller’s Covenants. 
Seller shall perform the following duties during the term of this
Agreement:

 

13.1         Maintenance of Existence; Conduct of Business. 
Seller shall preserve and maintain its corporate or other existence in
good standing and all of its rights, privileges, licenses and franchises
necessary in the normal conduct of its business, including without limitation
its eligibility as lender, seller/servicer and issuer described under
Section 12.8 hereof; and it shall conduct its business in an orderly and
efficient manner; and make no material change in the nature or character of its
business or engage in any business in which it was not engaged on the date of
this Agreement.  At any time that MBF
owns MERS Designated Mortgage Loans, Seller shall remain a member of MERS in good
standing.

 

13.2         Compliance with Applicable Laws. 
Seller shall comply with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority,

 

36

 

a breach of which could materially adversely affect
its business, operations, assets, or financial condition, except where
contested in good faith and by appropriate proceedings, and with sufficient
reserves established therefor.

 

13.3         Inspection of Properties and Books. 
Seller shall permit authorized representatives of MBF to
(a) discuss the business, operations, assets and financial condition of
Seller and Seller’s Subsidiaries with their officers and employees and to
examine their books of account, records, reports and other papers and make
copies or extracts thereof, and (b) inspect all of Seller’s property and
all related information and reports at Seller’s expense, all at such reasonable
times as MBF may request.  Seller will
provide its accountants with a copy of this Agreement promptly after the
execution hereof and will instruct its accountants to answer candidly any and
all questions that the officers of MBF or any authorized representatives of MBF
may address to them in reference to the financial condition or affairs of
Seller and Seller’s Subsidiaries.  Seller
may have its representatives in attendance at any meetings between the officers
or other representatives of MBF and Seller’s accountants held in accordance
with this authorization.

 

13.4         Notices.  Seller shall give prompt
notice to MBF of (a) any action, suit or proceeding instituted by or
against Seller or any of its Subsidiaries in any federal or state court or
before any commission or other regulatory body (federal, state or local,
domestic or foreign) which action, suit or proceeding has at issue in excess of
the amount specified in Annex 1 (except for normal collection and
foreclosure proceedings initiated by Seller in connection with a Mortgage Loan
or any other mortgage loan), or any such proceedings threatened against Seller
or any of Seller’s Subsidiaries in writing, (b) the filing, recording or
assessment of any federal, state or local tax Lien against it, or any of its
assets or any of its Subsidiaries, (c) the occurrence of any Event of
Default hereunder or the occurrence of any Default and continuation thereof for
five (5) days, (d) the suspension, revocation or termination of any of
Seller’s licenses or eligibility as described under Section 12.8 hereof,
and (e) any other action, event or condition of any nature which may
result in a Material Adverse Change or which, with or without notice or lapse
of time or both, will constitute a default under any other agreement,
instrument or indenture to which Seller is a party or to which its properties
or assets may be subject.

 

13.5         Payment of Debt, Taxes, etc. 
Seller shall pay and perform all obligations and Indebtedness of Seller,
and cause to be paid and performed all obligations and Indebtedness of its
Subsidiaries in accordance with the terms thereof, and pay and discharge or
cause to be paid and discharged all taxes, assessments and governmental charges
or levies imposed upon Seller or its Subsidiaries, or upon their respective
income, receipts or properties, before the same shall become past due, as well
as all lawful claims for labor, materials or supplies or otherwise which, if
unpaid, might become a Lien or charge upon such properties or any part thereof;
provided, however, that Seller and its Subsidiaries shall not be
required to pay obligations, Indebtedness, taxes, assessments or governmental
charges or levies or claims for labor, materials or supplies for which Seller
or its Subsidiaries shall have obtained an adequate bond or adequate insurance
or which are being contested in good faith and by proper proceedings that are
being reasonably and diligently pursued, if such proceedings do not involve any
likelihood of the sale, forfeiture or loss of any such property or any interest
therein while such proceedings are pending; and provided  further
that book reserves adequate under GAAP shall have been established with respect
thereto.

 

37

 

13.6         Insurance.  Seller shall maintain
(a) errors and omissions insurance or mortgage impairment insurance and
blanket bond coverage, with such companies and in such amounts as satisfy
prevailing Agency requirements applicable to a qualified mortgage originating
institution; (b) liability insurance and fire and other hazard insurance
on its properties, with responsible insurance companies approved by MBF, in such
amounts and against such risks as is customarily carried by similar businesses
operating in the same vicinity; and (c) within thirty (30) days after
notice from MBF, obtain such additional insurance as MBF shall reasonably
require, all at the sole expense of Seller. 
Copies of such policies shall be furnished to MBF without charge upon
obtaining such coverage or any renewal of or modification to such coverage.

 

13.7         Financial Statements and Other Reports. 
Seller shall deliver or cause to be delivered to MBF:

 

(a)           As soon as available and in any event not
later than the Monthly Reporting Date, statements of income and changes in
stockholders’ equity and cash flow of Seller and, if applicable, Seller’s
Subsidiaries, on a consolidated basis for the immediately preceding month, and
related balance sheet as at the end of the immediately preceding month, all in
reasonable detail, prepared in accordance with GAAP applied on a consistent
basis, and certified as to the fairness of presentation by the president and chief
financial officer of Seller, subject, however, to normal year-end audit
adjustments;

 

(b)           As soon as available and in any event not
later than the Annual Reporting Date, statements of income, changes in
stockholders’ equity and cash flows of Seller, and, if applicable, Seller’s
Subsidiaries, on a consolidated basis for the preceding fiscal year, the
related balance sheet as at the end of such year (setting forth in comparative
form the corresponding figures for the preceding fiscal year), all in reasonable
detail, prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved, and accompanied by an opinion in form and
substance satisfactory to MBF and prepared by an accounting firm reasonably
satisfactory to MBF, or other independent certified public accountants of
recognized standing selected by Seller and acceptable to MBF, as to said
financial statements and a certificate signed by the president and chief
financial officer of Seller stating that said financial statements fairly
present the financial condition and results of operations of Seller and, if
applicable, Seller’s Subsidiaries as at the end of, and for, such year;

 

(c)           Together with each delivery of financial
statements required in this Section, a Compliance Certificate;

 

(d)           Copies of all regular or periodic financial
and other reports, if any, which Seller shall file with the SEC or any
governmental agency successor thereto and copies of any audits completed by any
Agency; and

 

(e)           From time to time, with reasonable
promptness, such further information regarding the business, operations,
properties or financial condition of Seller as MBF may reasonably request.

 

13.8         Limits on Corporate Distributions. 
Seller shall not pay, make or declare or incur any liability to pay,
make or declare any dividend (excluding stock dividends) or other

 

38

 

distribution, direct or indirect, on or on account
of any shares of its stock or any redemption or other acquisition, direct or
indirect, of any shares of its stock or of any warrants, rights or other
options to purchase any shares of its stock, nor purchase, acquire, redeem or
retire any stock or ownership interest in itself whether now or hereafter
outstanding, except that so long as no Default or Event of Default exists at
such time, or would exist immediately thereafter, Seller may declare and pay
cash dividends to its shareholders.

 

13.9         Use of Washington Mutual’s Name. 
Seller shall confine its use of Washington Mutual’s logo and the “Washington
Mutual” name to those uses specifically authorized by Washington Mutual in
writing.  In no instance may Seller
disclose to any prospective Mortgagor, or the agents of the Mortgagor, that
such Mortgagor’s mortgage loan will be offered for sale to Washington
Mutual.  Seller may not use Washington
Mutual’s name or logo to obtain any mortgage-related services.

 

13.10       Reporting.  In its financial statements
and for federal income tax purposes, Seller will report each sale of a Mortgage
Loan hereunder as a sale of such loan.

 

13.11       Debt to Adjusted Tangible Net Worth Ratio. 
Seller shall not permit the ratio of Debt to Adjusted Tangible Net Worth
of Seller (and, if applicable, its Subsidiaries, on a consolidated basis) to
exceed the ratio specified in Annex 1 computed as of the end of
each calendar month.

 

13.12       Minimum Adjusted Tangible Net Worth. 
Seller shall not permit the Adjusted Tangible Net Worth of Seller (and,
if applicable, its Subsidiaries, on a consolidated basis), computed as of the end
of each calendar month, to be less than the amount specified in Annex 1.

 

13.13       Minimum Current Ratio. 
Seller shall not permit the Current Ratio of Seller (and, if applicable,
its Subsidiaries, on a consolidated basis), computed as of the end of each calendar
month, to be less than the ratio specified in Annex 1.

 

14.           Term.  This Agreement shall continue
indefinitely unless and until terminated as to future transactions (a) by
notice signed by either Seller or MBF and delivered to the other in compliance
with Annex 1, in which event termination will not affect the
obligations hereunder and under the Guaranty as to any Mortgage Loan with
respect to which a Loan Purchase Detail, a Loan Sale Confirmation, a Dry
Funding Documents Package, or a Wet Funding Documents Package has been
delivered by Seller pursuant to the terms of this Agreement prior to said
notice; or (b) by notice of immediate termination from MBF following the
occurrence of, and during the continuance of, an Event of Default; provided,
however, that termination shall be immediately effective, without the
necessity of a notice from MBF, upon the occurrence of an Act of
Insolvency.  Termination will not affect
the obligations hereunder and under the Guaranty as to any Mortgage Loans
purchased prior to the effective date of such termination.

 

15.           Notices; Service.

 

15.1         Notices.  All notices, demands,
consents, requests and other communications required or permitted to be given
or made hereunder shall, except as otherwise expressly provided hereunder, be
in writing and shall be delivered in person or mailed, first class, return
receipt requested, postage prepaid, or delivered by overnight courier,
addressed to the

 

39

 

respective parties hereto at their respective
addresses hereinafter set forth or, as to any such party, at such other address
as may be designated by it in a notice to the other.  All such communications shall be conclusively
deemed to have been properly given or made when duly delivered, in person or by
overnight courier, or if mailed on the third Business Day after being deposited
in the mails, addressed to the applicable address specified in Annex 1,
or to such other address(es) or telex or telecopier number(s) as the party to
be served may direct by notice to the other party in the manner hereinabove
provided.

 

15.2         Service.  SELLER IRREVOCABLY CONSENTS TO
THE SERVICE OF ANY PLEADING OR DOCUMENT IN ANY LITIGATION BY DELIVERY THEREOF
TO IT BY HAND OR BY MAIL IN THE MANNER PROVIDED FOR UNDER SECTION 15.1
HEREOF.  NOTHING CONTAINED HEREIN SHALL
AFFECT MBF’S RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.

 

16.           Fees and Expenses; Indemnity.

 

16.1         Fees and Expenses. 
Seller will promptly pay all out-of-pocket costs and expenses incurred
by MBF, including without limitation reasonable attorneys’ fees, in connection
with (i) preparation, negotiation, documentation and administration of
this Agreement and the Guaranty and purchase and resale of Mortgage Loans by
MBF hereunder, (ii) protection of the Mortgage Loans purchased hereunder
(including, without limitation, all costs of filing or recording any
assignments, financing statements and other documents), and
(iii) enforcement of MBF’s rights hereunder and under the Guaranty
(including, without limitation, costs and expenses suffered or incurred by MBF
in connection with any Act of Insolvency related to Seller, appeals and any
anticipated post-judgment collection services).

 

16.2         Indemnity.  In addition to its other
rights hereunder, Seller shall indemnify MBF and MBF’s directors, officers,
agents and employees against, and hold MBF and each of them harmless from, any
loss, liabilities, damages, claims, costs and expenses (including reasonable
attorneys’ fees and disbursements) suffered or incurred by MBF or any of them
arising out of, resulting from, or in any manner connected with, the purchase
by MBF of any Defective Mortgage Loans. 
The provisions of Section 16 shall survive the termination of this
Agreement.

 

17.           Confidential Information.

 

17.1         Restrictions on Use of Confidential
Information.  Seller and MBF agree not to use Confidential
Information of the other for any purpose other than the fulfillment of its
obligations under the Agreement.  Seller
and MBF shall not disclose, publish, release, transfer or otherwise make
available Confidential Information of the other in any form to, or for the use
or benefit of, any person or entity without the other’s consent.  Seller and MBF shall, however, be permitted
to disclose relevant aspects of the other’s Confidential Information to its
officers, agents, subcontractors, and employees to the extent that such
disclosure is reasonably necessary for the performance of its duties and
obligations under the Agreement and such disclosure is not prohibited by the
GLB Act, the regulations promulgated thereunder or other applicable law; provided,
however, that Seller and MBF shall take all reasonable measures
to ensure that Confidential Information of the other is not disclosed or
duplicated in contravention of these provisions by such officers, agents,
subcontractors and employees.  Seller and
MBF further agree

 

40

 

promptly to advise the other in writing of any
misappropriation, or unauthorized disclosure or use by any person of
Confidential Information which may come to its attention and to take all steps
reasonably requested by the other to limit, stop or otherwise remedy such
misappropriation, or unauthorized disclosure or use.  If the GLB Act, the regulations promulgated
hereunder or other applicable law now or hereafter in effect imposes a higher
standard of confidentiality to the Confidential Information, such standard
shall prevail over the provisions of this Section.

 

17.2         Controls on Confidential Information. 
Seller and MBF shall establish commercially reasonable controls to
ensure that the confidentiality of the Confidential Information and to ensure
that the Confidential Information is not disclosed contrary to the provisions
of this Section, the GLB Act or any other applicable privacy laws and
regulations.  Without limiting the
foregoing, Seller and MBF shall implement such physical and other security
measures as are necessary to (i) ensure the security and confidentiality
of the Confidential Information, protect against any threats or hazards to the
security and integrity of the Confidential Information and (ii) protect
against any unauthorized access to or use of the Confidential Information.  Seller and MBF shall, at a minimum establish
and maintain such data security program as is necessary to meet the objectives
of the Interagency Guidelines Establishing Standards for Safeguarding Customer
Information as set forth in the Code of Federal Regulations at 12 C.F.R.
Parts 30, 208, 211, 225, 263, 308 364, 568 and 570.  To the extent that any duties and
responsibilities under the Agreement are delegated to an agent or other
subcontractor, reasonable steps shall be taken to ensure that such agents and
subcontractor adhere to the same requirements. 
Seller and MBF will not make any more copies of the other’s written or
graphic materials containing Confidential Information than is necessary for its
use under the terms of the Agreement, and each such copy shall be marked with
the same proprietary notices as appear on the originals.

 

17.3         Audits.  Seller and MBF shall have the
right, during regular office hours and upon reasonable notice, to audit the
other party to ensure compliance with the terms of the Agreement, GLB and other
privacy laws and regulations.

 

17.4         Confidential Information Not Subject to
Restrictions.  Notwithstanding anything to the contrary
contained herein, neither Seller nor MBF shall have any obligation with respect
to any Confidential Information of the other party, or any portion thereof, which
the receiving party can establish by competent proof:

 

(a)           is or becomes generally known to companies
engaged in the same or similar businesses as the parties hereto on a
non-confidential basis, through no wrongful act of the receiving party;

 

(b)           is lawfully obtained by the receiving party
from a third party which has no obligation to maintain the information as
confidential and which provides it to the receiving party without any
obligation to maintain the information as proprietary or confidential;

 

(c)           was known prior to its disclosure to the
receiving party without any obligation to keep it confidential as evidenced by
the tangible records kept by the receiving party in the ordinary course of its
business;

 

41

 

(d)           is independently developed by the receiving
party without reference to the disclosing party’s Confidential Information; or

 

(e)           is the subject of a written agreement whereby
the disclosing party consents to the use or disclosure of such Confidential
Information.

 

17.5         Tax Disclosures. 
Notwithstanding the foregoing, either Seller or MBF (and any employee,
representative or other agent of either party) may disclose to any and all
persons, without limitation of any kind, the tax treatment and tax structure of
the transactions contemplated by this Agreement and all materials of any kind
(including opinions or other tax analyses) that are provided to any party
relating to such tax treatment and tax structure; provided, however,
that any such information and materials shall be kept confidential to the
extent necessary to comply with any applicable securities laws.

 

17.6         Required Disclosures.  If a
receiving party or any of its representatives shall be under a legal obligation
in any administrative or judicial circumstance to disclose any Confidential
Information, the receiving party shall give the disclosing party prompt notice
so that the disclosing party may seek a protective order and/or waive the duty
of nondisclosure; provided that in the absence of such order or waiver, if the
receiving party or any such representative shall, in the opinion of its
counsel, stand liable for contempt or suffer other censure or penalty for
failure to disclose, disclosure pursuant to the order of such tribunal may be
made by the receiving party or its representative without liability
hereunder.  Notwithstanding anything
herein to the contrary, any party to this Agreement (and any employee,
representative, or other agent of any party to this Agreement) may disclose to
any and all persons, without limitation of any kind, the tax treatment and tax
structure of the transactions contemplated by this Agreement and all materials
of any kind (including opinions or other tax analyses) that are provided to it
relating to such tax treatment and tax structure.

 

17.7         Continued Restrictions.  For
as long as Seller or MBF continues to possess or control Confidential
Information furnished by the other, and for so long as the Confidential
Information remains unpublished, confidential and legally protectable as the
property of the disclosing party, except as otherwise specified herein, the
receiving party shall make no use of such Confidential Information whatsoever,
notwithstanding the termination or expiration of the Agreement.  Seller and MBF acknowledge their
understanding that the termination or expiration of the Agreement shall not be
deemed to give either a right or license to use or disclose the Confidential
Information of the other.  Any materials
or documents, including copies that contain Confidential Information, shall be
promptly returned when necessary to prevent disclosure of the Confidential
Information to third parties.

 

17.8         Injunctive Relief Permitted.  It
is agreed that the unauthorized disclosure or use of any Confidential
Information may cause immediate or irreparable injury to the party providing
the Confidential Information, and that such party may not be adequately
compensated for such injury in monetary damages.  Seller and MBF therefore acknowledge and
agree that, in such event, the other shall be entitled to seek any temporary or
permanent injunctive relief necessary to prevent such unauthorized disclosure
or use, or threat of disclosure or use, and each consents to the jurisdiction
of any federal or state court of competent jurisdiction sitting in Seattle,
Washington for purpose of any suit hereunder and to service of process therein
by certified or registered mail, return receipt requested.

 

42

 

18.           Modifications, Consents and Waivers; Entire
Agreement.  No modification, amendment or waiver of, or
with respect to, any provision of this Agreement or any other instruments and
documents delivered pursuant hereto or thereto, nor consent to any departure by
Seller from any of the terms or conditions hereof or thereof, shall in any
event be effective unless it shall be in writing and signed by MBF.  Any such waiver or consent shall be effective
only in the specific instance and for the purpose for which given.  No consent to or demand on Seller in any case
shall, of itself, entitle it to any other or further notice or demand in
similar or other circumstances.  This
Agreement embodies the entire agreement and understanding between MBF and
Seller on the subject hereof and supercedes all prior agreements and
understandings relating to the subject matter hereof.

 

19.           Remedies Cumulative.  Each
and every right granted to MBF hereunder or under any other document delivered
hereunder or in connection herewith, or allowed MBF by law or equity, shall be
cumulative and may be exercised from time to time.  No course of dealing on the part of MBF, nor
any failure on MBF’s part to exercise, nor any delay in exercising, any right
shall operate as a waiver thereof or otherwise prejudice the rights, powers and
remedies of MBF.  No single or partial
exercise of any right shall preclude any other or future exercise thereof or
the exercise of any other right.  The due
payment and performance of Seller’s obligations hereunder shall be without regard
to any counterclaim, right of offset or any other claim whatsoever which Seller
may have against MBF and without regard to any other obligation of any nature
whatsoever which MBF may have to Seller, and no such counterclaim or offset
shall be asserted by Seller, in any action, suit or proceeding instituted by
MBF to enforce this Agreement.

 

20.           Counterparts.  This
Agreement may be signed in any number of counterparts with the same effect as
if the signatures thereto and hereto were upon the same instrument.

 

21.           Governing Law.  THIS
AGREEMENT IN ALL RESPECTS, INCLUDING, WITHOUT LIMITATION, ALL MATTERS OF
CONSTRUCTION, INTERPRETATION, VALIDITY, ENFORCEMENT AND PERFORMANCE SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF TEXAS, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAW.

 

22.           Severability.  The
provisions of this Agreement are severable, and if any clause or provision
hereof shall be held invalid or unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall affect only such
clause or provision, or part thereof, in such jurisdiction and shall not in any
manner affect any other clause or provision or such clause or provision in any
other jurisdiction.

 

23.           Binding Effect; Assignment or Delegation.  This
Agreement shall be binding upon and shall inure to the benefit of Seller, MBF
and their respective successors and permitted assigns. It is expressly agreed
that MBF may assign its right to enforce this Agreement as to any Mortgage Loan
to any party that subsequently purchases such Mortgage Loan from MBF or
provides financing to MBF with respect to such Mortgage Loan.  The rights and obligations of Seller under
this Agreement shall not be assigned or delegated without the prior written
consent of MBF, which consent may be withheld in MBF’s sole discretion, and any
purported assignment or delegation without such consent shall be void.

 

43

 

24.           Annexes, Exhibits and Riders.  All
Annexes, Exhibits and Contract Riders attached hereto are incorporated in this
Agreement by this reference.

 

25.           Time of the Essence.  Any
payment, remittance or transfer of funds due hereunder by one party to the
other (or to a designated third party) due on a day that is not a Business Day
shall be made on the next succeeding Business Day.  TIME IS OF THE ESSENCE WITH REGARD TO THE
PERFORMANCE OF SELLER’S OBLIGATIONS UNDER THIS AGREEMENT.

 

[Signature Page Follows]

 

44

 

	
   

  	
  WASHINGTON MUTUAL BANK, FA

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ben R. Culver

  
	
   

  	
  Name:

  	
  Ben Culver

  
	
   

  	
  Title:

  	
  VP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  KH FINANCIAL, L.P.,

  
	
   

  	
  an Illinois limited partnership

  
	
   

  	
   

  
	
   

  	
  By:

  	
  KH FINANCIAL HOLDING COMPANY,

  
	
   

  	
   

  	
  an Illinois corporation,

  
	
   

  	
   

  	
  its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Hal H. Barber

  
	
   

  	
   

  	
  Name:

  	
  Hal H. Barber

  
	
   

  	
   

  	
  Title:

  	
  Sr. Vice President

  
									

 

Applicable Annexes

 

ý            Annex 1 Customized Terms
ý            Annex 2 Representations and Warranties Concerning
Mortgage Loans
ý            Annex 3 Mortgage Loans Subject to CL Commitments
ý            Annex 4 Provisions Relating to Type 1 Nonconforming
Loans
ý            Annex 5 Provisions Relating to Type 2 Nonconforming
Loans
ý            Annex 6 Provisions Relating to Type 3 Nonconforming
Loans
ý            Annex 7 Provisions Relating to Undesignated Loans

 

45

 

Annex 1

 

Customized Terms

 

1.             Additional Definitions.  The
following definitions are added to Section 1 of the Agreement:

 

“Annual Reporting Date” means the date which is ninety (90) days
after the end of  each fiscal year of Seller
(see subsection 13.7(b)).

 

“Interim Date” means August 31, 2004.

 

“Maximum Takeout Commitment Expiration Date” means the date which is ninety (90) days
after the Acquisition Date for a particular Mortgage Loan.

 

“Monthly Reporting Date” means the date which is thirty (30) days
after the end of each calendar month (see subsection 13.7(a)).

 

“Seller’s Concentration Limit” means $150,000,000.00 at any one time.

 

“Wet Funding Deadline” means five (5) Business Days after the
closing of the Mortgage Loan.

 

“Wet Funding Sublimit” means 25% of the Seller’s Concentration
Limit at any one time.

 

2.             Modified or Clarified Definitions Terms.  The
following definitions and terms are clarified or modified, as applicable, as
follows:

 

“Acquisition Price”:  The percentage referenced in
the definition of “Acquisition Price” in Section 1 of the Agreement is
ninety-eight percent (98%).

 

“Event of Default”:  The amount of Indebtedness
referenced in clause (x) of the definition of “Event of Default” in Section 1
of the Agreement is Fifty Thousand and No/100 Dollars ($50,000.00).

 

“Guarantor” means, Kimball Hill, Inc., an Illinois corporation.

 

“Investment Return Rate”:  The
number of basis points referenced in the definition of “Investment Return Rate”
in Section 1 of the Agreement is 212.5 basis points (2.125%).

 

No Undisclosed Liabilities:  The
amount of liabilities and Indebtedness referenced in Section 12.19 of the
Agreement is Twenty-Five Thousand and No/100 Dollars ($25,000.00).

 

Notices of Actions, Suits or Proceedings:  The
amount at issue referenced in Section 13.4 of the Agreement is Twenty-Five
Thousand and No/100 Dollars ($25,000.00).

 

Debt to Adjusted Tangible Net Worth Ratio:  The
ratio referenced in Section 13.11 of the Agreement is 12:1.

 

1 - 1

 

Minimum Adjusted Tangible Net Worth:  The
amount referenced in Section 13.12 of the Agreement is Four Million Two
Hundred Thousand and No/100 Dollars ($4,200,000.00).

 

Minimum Current Ratio:  The
ratio referenced in Section 13.13 of the Agreement is 1.05:1.0.

 

3.             Deposit Credit. 
Section 6 of the Agreement is amended by the addition of the
following Section:

 

6.3           Deposit Credit.  Each
month MBF shall credit to Seller against the amounts otherwise payable to MBF
hereunder a credit based on the Monthly Available Deposits.  This credit shall be the sum obtained by the
daily application of the LIBOR Rate to the Monthly Available Deposit for the
month, multiplied by the number of days in such month, and the credit so
calculated shall be applied against amounts due from Seller on the next
Remittance Date.  The “Monthly Available
Deposits” means the arithmetic daily average of the collected balances (after
deducting float and balances required by MBF under its normal practices to compensate
MBF for the maintenance of such accounts and taking into consideration reserve
requirements, insurance premiums and other assessments applicable to such
accounts) in non-interest bearing accounts in the name of Seller with MBF.  MBF shall calculate the Monthly Available
Deposits and the resulting credit in its sole discretion promptly on the last
Business Day of each month.

 

4.             Additional Seller Representation: Place of
Business and Formation.  Section 12 of the Agreement is amended
by the addition of the following Section 12.27:

 

12.27       Place of Business and Formation.  The
principal place of business of Seller is 5999 New Wilke Road, Suite 205,
Rolling Meadows, Illinois  60005.  As of the Effective Date, and during the four
(4) months immediately preceding that date, the chief executive office of
Seller and the office where it keeps its financial books and records relating
to its property and all contracts relating thereto and all accounts arising
therefrom is and has been located at the address set forth for Seller in
Section 6 of Annex 1. 
As of the Effective Date, Seller’s jurisdiction of organization is
Illinois.

 

5.             Limits on Corporate Distributions. 
Section 13.8 of the Agreement is amended to read:

 

13.8  Limits on Corporate Distributions.  Seller shall not pay, make or declare or
incur any liability to pay, make or declare any distribution, cash or
otherwise, direct or indirect, to any of its partners.

 

6.             Termination.  For the purposes of
clause (a) of Section 14 of the Agreement, notice of termination must
be delivered not less than thirty (30) days prior to the date of termination.

 

1 - 2

 

7.             Notices.  Notices to Seller made
pursuant to Section 15.1 of the Agreement shall be addressed as follows:

 

KH Financial, L.P.

5999 New Wilke Road, Suite 205

Rolling Meadows, Illinois  60008

Attention: Bernard J. Stock

Telecopy No.: (847) 756-6283

 

Notices to MBF made pursuant to Section 15.1 of the Agreement
shall be addressed as follows:

 

Washington Mutual Bank, FA

Mortgage Banker Finance

620 W. Germantown Pike, Suite 200

Plymouth Meeting, PA 19462

Attention:  Joseph Meehan

Telecopy No.: (610) 828-9657

 

with a copy to:

 

Washington Mutual Bank, FA

Legal Department

9200 Oakdale Avenue

Chatsworth, CA 91311

Attention:  Carol A. Robertson

Telecopy No.: (818) 349-2734

 

1 - 3

 

Annex 2

 

Representations and Warranties Concerning Mortgage Loans

 

[Loan Characteristics]

 

1.             Valid Lien.  The Mortgage is a valid,
subsisting, enforceable and perfected first lien (if the Mortgage Loan is
indicated by Seller to be a first lien Mortgage Loan on the Loan Purchase
Detail) or second lien (if the Mortgage Loan is indicated by Seller to be a
second lien Mortgage Loan on the Loan Purchase Detail) on the Mortgaged
Property, including all buildings on the Mortgaged Property and all
installations and mechanical, electrical, plumbing, heating and air
conditioning systems located in or annexed to such buildings, and all
additions, alterations and replacements made at any time with respect to the
foregoing, and the Mortgaged Property is owned by the Mortgagor in fee simple
or is a leasehold estate, subject only to:

 

(a)           if the Mortgage Loan is indicated by Seller to be a second lien
Mortgage Loan on the Loan Purchase Detail, a prior mortgage lien on the
Mortgaged Property;

 

(b)           the lien of current real property taxes and assessments not yet due and
payable;

 

(c)           covenants, conditions and restrictions, rights of way, easements and
other matters of public record as of the date of recording acceptable to
mortgage lending institutions generally and specifically referred to in the
lender’s title insurance policy delivered to the originator of the Mortgage
Loan and

 

(i)            referred to or otherwise considered in the
appraisal made for the originator of the Mortgage Loan or

 

(ii)           which do not adversely affect the appraised value of the Mortgaged
Property set forth in such appraisal; and

 

(d)           other matters to which like properties are commonly subject to which do
not individually or in the aggregate materially interfere with the benefits of
the security intended to be provided by the Mortgage or the use, enjoyment,
value or marketability of the Mortgaged Property.

 

Any security agreement,
chattel mortgage or equivalent document related to and delivered in connection
with the Mortgage Loan establishes and creates a valid, subsisting and
enforceable first lien and first priority security interest (if the Mortgage
Loan is indicated by Seller to be a first lien Mortgage Loan on the Loan
Purchase Detail) or second lien and second priority security interest (if the
Mortgage Loan is indicated by Seller to be a second lien Mortgage Loan on the
Loan Purchase Detail) on the Mortgaged Property described therein, and Seller
has full right to sell and assign the same to MBF.  All tax identifications and property
descriptions are legally sufficient; and tax segregations, where required, have
been completed.  The Mortgaged Property
is not, and as of the date of the origination of the Mortgage Loan was not,
subject to a mortgage, deed of trust, deed to secure debt or other security
instrument creating a lien subordinate to the lien of the Mortgage, except to
the extent permitted by the Takeout Investor under any applicable Takeout
Commitment.

 

2 - 1

 

2.             Deeds of Trust.  If
the Mortgage constitutes a deed of trust, a trustee, duly qualified under
applicable law to serve as such, has been properly designated and currently so
serves and is named in the deed of trust, and no fees or expenses are or will
become payable by MBF to the trustee under the deed of trust, except in
connection with a trustee’s sale after default by the Mortgagor.

 

3.             Buydown Loans.  If
the Mortgage Loan is a “buydown loan”, the amount of the buydown is fully
funded, the period of the buydown does not exceed three years, and the change
in the Mortgagor’s interest rate will not exceed 1 percent per annum as a
result of the buydown.

 

4.             Full Disbursement of Proceeds.  The
Mortgage Loan has been closed, the proceeds of the Mortgage Loan have been
fully disbursed and there is no requirement for future advances thereunder,
and, except as specifically permitted by MBF in writing, any and all
requirements as to completion of any on-site or off-site improvement and as to
disbursements of any escrow funds therefor have been satisfied.  All costs, fees and expenses incurred in
making or closing the Mortgage Loan and the recording of the Mortgage have been
paid, the FHA mortgage insurance premium or the VA guaranty fee, if applicable,
has been paid, and the Mortgagor is not entitled to any refund of any amounts
paid or due under the Mortgage Note or Mortgage.  There is no obligation on the part of Seller,
or of any other party, to make supplemental payments in addition to those made
by the Mortgagor.  All future advances,
if any, made in connection with the Mortgage Loan have been consolidated with
the outstanding principal amount secured by the Mortgage, and the secured
principal amount, as consolidated, bears a single interest rate and single
repayment term.  The consolidated
principal amount does not exceed the original principal amount of the Mortgage
Loan.

 

5.             No Defenses.  The Mortgage Loan is not
subject to any right of rescission, set-off, counterclaim or defense, including
without limitation the defense of usury, nor will the operation of any of the
terms of the Mortgage Note or the Mortgage, or the exercise of any right
thereunder, render either the Mortgage Note or the Mortgage unenforceable, in
whole or in part, or subject to any right of rescission, set-off, counterclaim
or defense, including without limitation the defense of usury.  No such right of rescission, set-off, counterclaim
or defense has been asserted with respect thereto, and no Mortgagor was a
debtor in any state or federal bankruptcy or insolvency proceeding at the time
the Mortgage Loan was originated.  The
Mortgage Loan is not subject to a bankruptcy plan, nor has the Mortgagor filed
bankruptcy.  The Mortgagor has not
notified Seller or any prior servicer of the Mortgage Loan, and Seller has no
knowledge, of any relief requested or allowed to the Mortgagor under the
Soldiers’ and Sailors’ Civil Relief Act of 1940.

 

6.             Payments Current.  All
payments due on the Mortgage Loan, if any, have been made by the Mortgagor, the
Mortgage Loan has not been delinquent (i.e. was more than thirty days past due)
more than once in the preceding 12 months, and any such delinquency lasted
for no more than 30-days.

 

7.             No Defaults.  There is no default, breach,
violation or event of acceleration existing under the Mortgage or the Mortgage
Note and no event which, with the passage of time or with notice and the
expiration of any grace or cure period, would constitute a default, breach,

 

2 - 2

 

violation or event of
acceleration, and neither Seller nor its predecessors have waived any default,
breach, violation or event of acceleration.

 

8.             No Outstanding Charges. 
There are no defaults in complying with the terms of the Mortgage, and
all taxes, governmental assessments, insurance premiums, water, sewer and
municipal charges, leasehold payments or ground rents which previously became
due and owing have been paid.  Seller has
not advanced funds, or induced, solicited or knowingly received any advance of
funds by a party other than the Mortgagor, directly or indirectly, for the
payment of any amount required under the Mortgage Loan, except of interest
accruing from the date of the Mortgage Note or date of disbursement of the
Mortgage Loan proceeds, whichever is earlier, to the day which precedes by one
month the due date of the first installment of principal and interest.  No subordinate financing was used by the
Mortgagor to acquire the Mortgaged Property, except to the extent permitted by
the Takeout Investor under any applicable Takeout Commitment.

 

9.             No Mechanics’ Liens. 
There are no mechanics’ or similar liens or claims which have been filed
for work, labor or material (and no rights are outstanding that under the law
could give rise to such liens) affecting the Mortgaged Property which are or
may be liens prior to, or equal or coordinate with, the lien of the Mortgage.

 

10.           Ownership.  Immediately prior to MBF’s
purchase of the Mortgage Loan, Seller was the sole legal, beneficial and
equitable owner of record and holder of the Mortgage Loan.  Except for any applicable Takeout Commitment,
the Mortgage Loan has not been assigned or pledged and Seller has good and
marketable title thereto and full right to transfer and sell the Mortgage Loan
to MBF free and clear of any encumbrance, equity, participation interests,
lien, pledge, charge, claim or security interest.  Seller has full right and authority subject
to no interest or participation of, or agreement with, any other party, to sell
and assign the Mortgage Loan pursuant to the Agreement, and upon its purchase
of the Mortgage Loan MBF has received good and marketable title to the Mortgage
Loan free of any encumbrance, equity, participation interest, lien, pledge,
charge, claim or security interest, but subject to any applicable Takeout
Commitment.  There is no litigation
pending or, to the best of Seller’s knowledge, threatened, affecting or
relating to Seller which may in any way affect, by attachment or otherwise, the
title or interest of MBF in and to the Mortgage Loan, the Mortgaged Property or
the Mortgage Note or security instrument. 
Each MERS Designated Mortgage Loan is registered on the MERS® System.

 

11.           Occupancy of the Mortgaged Property. 
Except to the extent MBF has specifically agreed in writing to the
contrary, the Mortgaged Property is lawfully occupied by the Mortgagor under
applicable law.  All inspections,
licenses and certificates required to be made or issued with respect to all
occupied portions of the Mortgaged Property and, with respect to the use and
occupancy of the same, including but not limited to certificates of occupancy
and fire underwriting certificates, have been made or obtained from the
appropriate authorities.

 

12.           No Satisfaction of Mortgage.  The
Mortgage has not been satisfied, canceled, subordinated or rescinded, in whole
or in part, and the Mortgaged Property has not been released from the lien of
the Mortgage, in whole or in part, nor has any instrument been executed that
would effect any such release, cancellation, subordination or rescission.  Seller has not waived

 

2 - 3

 

the performance by the
Mortgagor of any action, if the Mortgagor’s failure to perform such action
would cause the Mortgage Loan to be in default resulting from any action or
inaction by the Mortgagor.

 

13.           No Servicing Restrictions. 
Except as may be set forth in any applicable Takeout Commitment, no
servicing agreement has been entered into with respect to the Mortgage Loan, or
if any such servicing agreement has been entered into it has been terminated,
and there are no restrictions, contractual, statutory or otherwise, which would
impair the ability of MBF to appoint a Successor Servicer with respect to the
Mortgage Loan.

 

14.           No Refinance Agreements. 
Neither Seller nor any of its Affiliates have entered into an agreement,
formal or informal, with the Mortgagor during the initial origination process
of the Mortgage Loan to refinance the Mortgage Loan at some future date as an
inducement for the Mortgagor to enter into the original mortgage transaction.

 

15.           No Adverse Selection. 
Seller used no adverse selection procedures in selecting the Mortgage
Loan from among the outstanding first lien and second lien residential mortgage
loans owned by it which were available for sale to MBF.

 

16.           Right of Rescission.  With
respect to refinance loans, the borrower’s right of rescission has not been
waived.

 

17.           No Graduated Payment or Shared Appreciation
Feature.  The Mortgage Loan is not a graduated payment
mortgage loan, and the Mortgage Loan does not have a shared appreciation or
other contingent interest feature.

 

18.           No Construction Loan. 
Except as may be permitted by MBF in writing, the Mortgage Loan was not
made in connection with the construction or rehabilitation of the Mortgaged
Property.

 

19.           No Liabilities. 
There are no liabilities of Seller with respect to the Mortgage Loan or
with respect to facts or circumstances prior to the date on which MBF purchased
the Mortgage Loan for which MBF would be responsible as a result of its
purchase of the Mortgage Loan.

 

20.           Fair/Predatory Lending.  The
Mortgage Loan does not meet the definition of “mortgage” set forth in
Section 1602(aa) of the Truth-in-Lending Act.  The Mortgage Loan was originated in full
compliance with all state, city or district “high cost” home mortgage or “predatory”
lending laws, ordinances, rules or regulations, and would not be considered a “high
cost” or “predatory” mortgage loan under any federal, state, local or municipal
laws, ordinances, rules or regulations. 
No form of predatory lending has been used in connection with the
origination of the Mortgage Loan.  For
purposes of this paragraph, “predatory lending” includes, but it is not limited
to, any deceptive and/or abusive lending practice that is not in the best
interest of the borrower(s), including (but not limited to) any one or more of
the following practices:

 

2 - 4

 

•              making loans: 
(i) strictly on the basis of the borrower’s equity without regard
to the proper underwriting of the borrower’s payment ability, and (ii) in
a manner that unreasonably jeopardizes the borrower’s equity;

 

•              frequent refinancing of loans with fees that
can strip the equity from a borrower and which simply generate fee income with
no benefit to a borrower;

 

•              using pricing terms that far exceed the true
risk and cost of making the loan;

 

•              including in the loan unearned or otherwise unwarranted
fees for services;

 

•              making it difficult for borrowers to reduce
their indebtedness by adding unreasonably restrictive loan terms and
structures; and/or

 

•              targeting customers who are less financially
sophisticated or otherwise are vulnerable to abusive practices.

 

21.           Compliance with 5 Percent Fee Limitation.  The
origination points, non-pass-through fees and yield spread premium collected on
the Mortgage Loan combined do not exceed five (5) points.

 

22.           Third Party Originations.  If
the Mortgage Loan was completely or partially originated, underwritten, closed,
funded or packaged by any entity other than Seller (each such mortgage loan, a “TPO
Mortgage Loan”):

 

(a)           Seller has received written authorization from the Takeout Investor to
sell to MBF TPO Mortgage Loans which comply with the terms and conditions set
forth in such authorization, such authorization has not been rescinded,
terminated or revoked, and the sale of such TPO Mortgage Loan by MBF to the
Takeout Investor will not be inconsistent with, or exceed, any limitations or
restrictions stated in such authorization;

 

(b)           Seller has implemented, and the TPO Mortgage Loan was subject to,
prudent third-party origination risk management procedures which identify
potential deficiencies in TPO Mortgage Loans including, but not limited to,
misrepresentations of borrower income and assets and inaccuracies in appraisal
reports;

 

(c)           during the time the TPO Mortgage Loan was being originated, and at the
Acquisition Date, each entity that participated in the origination of the TPO
Mortgage Loan (each a “TPO”)

 

(i)            was duly organized, validly existing and in
good standing under the laws of such TPO’s state of organization and

 

2 - 5

 

(ii)           had all licenses, registrations and certifications in all applicable
jurisdictions and such licenses, registrations and certifications were in full
force and effect at such times;

 

(d)           each TPO complied with all applicable agreements, contracts, laws and
regulations with respect to, and the violation of which might adversely affect,
the TPO Mortgage Loan or result in any cost or liability to MBF; and

 

(e)           the TPO and the TPO Mortgage Loan comply with all FNMA and FHLMC
requirements for third party originated mortgage loans.  For purposes of this representation and
warranty, Seller’s use of a “contract underwriter” will not, by itself, cause a
Mortgage Loan to be considered a TPO Mortgage Loan.  In addition, a Mortgage Loan that is
partially originated or funded by Seller’s parent corporation, or any other
Affiliate of Seller, will not be considered a TPO Mortgage Loan as long as no
unaffiliated third party participated in any aspect of the origination or
funding of the Mortgage Loan.

 

23.           Conformity to Takeout Commitment.  The
Mortgage Loan conforms in all respects with the requirements of the Takeout
Investor under any applicable Takeout Commitment.  The applicable Takeout Commitment, if any, is
a legal, valid and binding obligation of Seller and the Takeout Investor, respectively,
enforceable against Seller and the Takeout Investor in accordance with its
terms (except as enforceability may be limited by bankruptcy, insolvency,
moratorium, reorganization, conservatorship and similar laws, and by equitable
principles affecting the enforceability of the rights of creditors, including
those relating to specific performance). 
The applicable Takeout Commitment is a bona fide current, unused and
unexpired commitment by the Takeout Investor pursuant to which such Takeout
Investor has irrevocably agreed to acquire the Mortgage Loan not later than the
Maximum Takeout Commitment Expiration Date, upon the satisfaction only of those
terms and conditions contained in the Takeout Commitment, all of which, in the
reasonably anticipated course of events, can be complied with and satisfied
prior to such date.

 

24.           Assignment of Takeout Commitment.  Any
Takeout Commitment related to the Mortgage Loan has been duly assigned to
MBF.  The assignment of the Takeout
Commitment with respect to such Mortgage Loan does not violate the terms of the
Takeout Commitment.

 

[Mortgage Loan Information and Documentation]

 

25.           Mortgage Loan as Described.  The
information contained in all commitments, advises, schedules, computer tapes or
other documents or media prepared by Seller or on behalf of Seller or otherwise
furnished to MBF relating to the Mortgage Loan is complete, true and
correct.  Each of the documents contained
in the Wet Funding Documents Package or the Dry Funding Documents Package for
each Mortgage Loan is an authentic original document, except that, if a
photocopy of such document is permitted to be provided under the Agreement (as
indicated on Exhibit D), then such photocopy contained therein is a
true, correct and complete photocopy of the original document.

 

2 - 6

 

26.           Documents.  The Mortgage Note and the
Mortgage are on forms acceptable to the Takeout Investor or are instruments
approved by MBF, and Seller has not made any representation to the Mortgagor
which is inconsistent with the mortgage instruments used.  The Mortgage contains customary and
enforceable provisions such as to render the rights and remedies of the holder
thereof adequate for the realization against the Mortgaged Property of the
benefits of the security provided thereby, including, (a) in the case of a
Mortgage designated as a deed of trust, by trustee’s sale and
(b) otherwise, by judicial foreclosure. 
Upon default by the Mortgagor and foreclosure on, or trustee’s sale of,
the Mortgaged Property pursuant to the proper procedures, the holder of the
Mortgage Loan will be able to deliver good and merchantable title to the
Mortgaged Property.  There is no
homestead or other exemption available to the Mortgagor which would interfere
with the right to sell the Mortgaged Property at a trustee’s sale or the right
to foreclose the Mortgage subject to applicable federal and state laws and
judicial precedent with respect to bankruptcy and right of redemption.  Payments under the Mortgage Note are due on
the first day of each month with interest payable in arrears.

 

27.           Due on Sale.  The Mortgage contains an
enforceable provision for the acceleration of the payment of the unpaid
principal balance of the Mortgage Loan in the event that the Mortgaged Property
is sold or transferred without the prior written consent of the mortgagee
thereunder; by the terms of the Mortgage Note, however, the provision for
acceleration may not be exercised at the time of a transfer if prohibited by
federal law or, in the event that the mortgage interest rate for the Mortgage
Loan is adjustable, if the prospective purchaser is the transferee of the
original mortgagor, meets the applicable creditworthiness standards of the
mortgagee and pays an agreed upon fee.

 

28.           Appraisals.  The appraisal obtained in
connection with the origination of the Mortgage Loan, as well as the appraiser
who performed it, meet all of the applicable requirements of the Takeout
Investor and all applicable Agency Guidelines. 
The value of the Mortgaged Property is at least equal to the appraised
value stated in the appraisal.

 

29.           Original Terms Unmodified.  The
terms of the Mortgage and Mortgage Note have not been impaired, waived, altered
or modified in any respect, except by a written instrument which has been
recorded, if necessary, to protect the interests of MBF and which has been
delivered to and approved by MBF or its designee.  The substance of any such waiver, alteration
or modification has been approved by any applicable issuer of a title insurance
policy or a primary mortgage insurance policy covering the Mortgage Loan, to
the extent required by the policy, and by the Takeout Investor, and its terms
are reflected in the Credit File.  No
Mortgagor has been released, in whole or in part, except in connection with an
assumption agreement approved by MBF, the Takeout Investor and any applicable
issuer of a title insurance policy or a primary mortgage insurance policy
covering the Mortgage Loan, to the extent required by the policy, and which
assumption agreement is part of the Credit File.

 

30.           Validity of Mortgage Documents.  The
Mortgage Note and the Mortgage are genuine, and each is the legal, valid and
binding obligation of the maker thereof enforceable in accordance with its
terms, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or other similar laws relating to or
affecting the rights of creditors generally, and by general equity principles
(regardless of whether such enforcement is considered in a proceeding in equity
or at law).  All parties to the Mortgage
Note

 

2 - 7

 

and the Mortgage and any
other related agreement had legal capacity to enter into the Mortgage Loan and
to execute and deliver the Mortgage Note and the Mortgage and any other related
agreement, and the Mortgage Note and the Mortgage and any other related
agreement have been duly and properly executed by such parties.  The documents, instruments and agreements submitted
for loan underwriting were not falsified and contain no untrue statement of
material fact or omit to state a material fact required to be stated therein or
necessary to make the information and statements therein not misleading.  Seller has reviewed all of the documents
constituting the Credit File and has made such inquiries as it deems necessary
to make and confirm the accuracy of the representations and warranties set
forth herein.  There has been no misrepresentation,
error or fraud committed in connection with the origination of the Mortgage
Loan.

 

31.           Assignment of Mortgage.  The
assignment of mortgage to MBF or MERS is in recordable form and is acceptable
for recording under the laws of the jurisdiction in which the Mortgaged
Property is located.

 

32.           Escrow Holdback Loans.  In
the event that an escrow holdback was established in connection with the
Mortgage Loan, Seller represents and warrants that:

 

(a)           a temporary or final certificate of occupancy has been issued for the
Mortgaged Property;

 

(b)           a valid and enforceable written escrow holdback agreement has been
executed by the appropriate parties and is in the Credit File.  The escrow holdback agreement includes, among
other things:

 

(i)            a specific description of the work to be
completed;

 

(ii)           a date on which such work must be completed;

 

(iii)          provisions for completion of the work and disbursement of escrow funds
in the event of non-completion or dispute among the parties, and

 

(iv)          a provision that the mortgagee’s rights under the escrow holdback
agreement, including the mortgagee’s rights to the escrow funds, are
automatically transferred to any assignee of the escrow holdback loan;

 

(c)           the escrow funds initially retained in connection with the escrow
holdback loan equal at least 100 percent of the amount estimated by the
contractor to complete the required improvements;

 

(d)           the escrow funds do not exceed the lesser of (i) $100,000 or
(ii) 5 percent of the lower of (iii) the sales price of the
Mortgaged Property or (iv) the appraised value of the Mortgaged Property
assuming the improvements or repairs for which the escrow holdback was
established were completed;

 

(e)           the escrow funds are separately identified an itemized on the final
HUD-1 Settlement Statement;

 

2 - 8

 

(f)            no loan-to-value ratio or other collateral
exceptions have been granted by MBF in connection with the Mortgage Loan;

 

(g)           the title insurance and mortgage insurance (if applicable) have not
been, and shall not be, impaired or adversely affected during the escrow
holdback period;

 

(h)           any and all requirements for completion of the improvements on the
Mortgaged Property shall be satisfied, and all escrow funds shall be fully
disbursed, as required by any applicable Takeout Commitment;

 

(i)            as of the date of the certificate of
completion, there shall be no mechanics’ or similar liens or claims that have
been filed for work, labor or material (and no rights are outstanding that
under the law could give rise to such liens) affecting the Mortgaged Property
which are or may be liens prior to, or equal or coordinate with, the lien of
the Mortgage;

 

(j)            no litigation, proceeding, claim, dispute,
demand, or investigation is or shall become pending or threatened relating to
the escrow holdback agreement, the work to be performed in accordance
therewith, the escrow funds or any other matter related thereto; and

 

(k)           all other representations and warranties made by Seller with respect to
the Mortgage Loan are true and correct.

 

[Compliance]

 

33.           Compliance with Applicable Laws.  The
origination of the Mortgage Loan was in compliance with all federal, state,
local and municipal laws, ordinances, rules and regulations including, without
limitation, usury, truth-in-lending, real estate settlement procedures,
consumer credit protection, equal credit opportunity, fair housing and lending
disclosure laws.

 

34.           Servicing Performance. 
Prior to the Acquisition Date, the Mortgage Loan has been properly
serviced in accordance with all applicable laws, the terms of the Mortgage,
Mortgage Note and related documents. 
With respect to escrow deposits and escrow payments, all such payments
are in the possession of Seller and there exist no deficiencies in connection
therewith for which customary arrangements for repayment thereof have not been
made.  All escrow payments have been
collected in full compliance with all applicable laws, the Agreement and any
applicable Takeout Commitment.  An escrow
of funds has been established in an amount sufficient to pay for every item
which remains unpaid and which has been assessed but is not yet due and
payable.  No escrow deposits or escrow
payments or other charges or payments due Seller have been capitalized under
the Mortgage or the Mortgage Note.  All
mortgage payment and mortgage interest rate adjustments and notices thereof
have been made in strict compliance with all applicable laws and the terms of
the related Mortgage Note and any applicable riders or modifications to the
Mortgage Note.  Any interest required to be
paid pursuant to all applicable laws has been properly paid and credited.  All taxes, governmental assessments,
insurance premiums, water, sewer and municipal charges, leasehold payments,
ground rents relating to the Mortgage Loan have been paid to the extent such
items are required to be paid pursuant to prudent mortgage banking standards
and as herein provided.

 

2 - 9

 

35.           Acceptable Investment. 
Seller has no knowledge of any circumstances or conditions with respect
to the Mortgage Note, the Mortgage, the Mortgaged Property, the Mortgagor or
the Mortgagor’s credit standing that could be expected to cause private
institutional investors to regard the Mortgage Loan as an unacceptable
investment, cause the Mortgage Loan to become delinquent, or adversely affect
the value or marketability of the Mortgage Loan.

 

36.           Agency Requirements.  If
the Mortgage Loan is to be acquired by the Takeout Investor under its
(a) FHA or VA mortgage loan purchase programs, the mortgage loan complies
with all applicable HUD and VA guidelines and regulations, including those
relating to underwriting, is insured or guaranteed by FHA or VA, as applicable,
complies with all GNMA requirements relating to mortgage loans included in the GNMA
mortgage-backed securities pools, and complies or shall comply, on or before
the prescribed dates with all GNMA document custodian requirements; and
(b) conventional conforming mortgage loan purchase program, the Mortgage
Loan complies with all applicable Fannie Mae and Freddie Mac guidelines,
including those relating to underwriting, all Fannie Mae and Freddie Mac
requirements relating to mortgage loans included in Fannie Mae or Freddie Mac
mortgage-backed securities pools, and complies or shall comply, on or before
the prescribed dates, with all Fannie Mae or Freddie Mac document custodian
requirements.

 

37.           Doing Business.  All
parties which have had any interest in the Mortgage Loan, whether as mortgagee,
assignee, pledgee or otherwise, are (or, during the period in which they held
and disposed of such interest, were) (a) in compliance with any and all
applicable licensing requirements of the laws of the state wherein the
Mortgaged Property is located and (b) (i) organized under the laws of
such state, (ii) qualified to do business in such state, (iii) a
federal savings and loan association or national bank having principal offices
in such state, or (iv) not doing business in such state.

 

38.           Origination; Loan Terms.  The
Mortgage Loan was originated by a mortgagee approved by the Secretary of
Housing and Urban Development pursuant to Sections 203 and 211 of the
National Housing Act or a savings and loan association, a savings bank, a
commercial bank or similar banking institution which is supervised and examined
by a federal or state authority.

 

39.           Underwriting.  The
Mortgage Loan was underwritten in accordance with CL’s underwriting guidelines
and any underwriting conditions relating to the Mortgage Loan were fully
satisfied, the satisfaction of those underwriting conditions is properly
documented in accordance with standard industry practices, and such
documentation has been submitted to the Takeout Investor.

 

40.           Compliance with Seller Guide.  The
Mortgage Loan and all documents related thereto comply, in all material
respects, to all applicable terms, conditions and requirements set forth in the
Seller Guide, whether or not the Takeout Investor will be CL.

 

41.           Prepayment Fees.  In
the event that the Mortgage Note requires the Mortgagor to pay a fee if the
Mortgage Loan is prepaid in full or part within the time periods specified in
the Mortgage Note, the provision in the Mortgage Note requiring the payment of
such fee (the “Prepayment Provision”) complies with all applicable local, state
and federal law, all disclosures

 

2 - 10

 

required under all
applicable law in connection with the Prepayment Provision have been properly
provided to the Mortgagor and the enforcement of the Prepayment Provision in
accordance with the terms set forth in the mortgage note will be in compliance
with all applicable laws and regulations.

 

[Insurance]

 

42.           Primary Mortgage Insurance.  In
the event the Mortgage Loan has a loan-to-value ratio greater than 80%, the
excess of the principal balance of the Mortgage Loan over 75% of the appraised
value is and will be insured as to payment defaults by a primary mortgage
insurance policy issued by a mortgage insurer approved by MBF.  All provisions of such primary mortgage
insurance policy have been and are being complied with, such policy is in full
force and effect, and all premiums due thereunder have been paid.  If the Mortgage Loan provides for negative
amortization or for the potential for negative amortization, the primary mortgage
insurance policy insures any increase in the principal balance from the
original balance of the mortgage note. 
If the Mortgage Loan is subject to a primary mortgage insurance policy
the Mortgagor is obligated thereunder to maintain the primary mortgage
insurance policy and to pay all premiums and charges in connection
therewith.  There has been no act or
omission which would or may invalidate any such primary mortgage insurance
policy.  The primary mortgage insurance
policy is eligible for reinsurance by MBF and its Affiliates.  There are no defenses, counterclaims, or
rights of set-off against MBF affecting the validity or enforceability of the
primary mortgage insurance policy.

 

43.           Government Loans.  If
the Mortgage Loan is subject to a commitment which provides that such Mortgage
Loan will be guaranteed by the VA or insured by the FHA, the Mortgage Loan is
fully guaranteed or insured, as applicable, and all insurance premiums or
guarantee fees due on or before the purchase date have been paid in full.

 

44.           Title Insurance.  The
Mortgage Loan is covered by an ALTA form of lender’s title insurance policy or
other generally acceptable form of policy of insurance acceptable to FNMA or
FHLMC, issued by, and the binding obligation of, a title insurer acceptable to
FNMA or FHLMC and qualified to do business in the jurisdiction where the
Mortgaged Property is located, insuring Seller, its successors and assigns, as
to the first priority lien (if the Mortgage Loan is indicated by Seller to be a
first lien Mortgage Loan on the Loan Purchase Detail) of the Mortgage in the
original principal amount of the Mortgage Loan (or, to the extent that the
Mortgage Note provides for negative amortization, the sum of such original
principal amount and the maximum amount of negative amortization permitted in
accordance with the Mortgage Note), or as to the second priority lien (if the
Mortgage Loan is indicated by Seller to be a second lien Mortgage Loan on the
Loan Purchase Detail) of the Mortgage in the combined original principal amount
of the Mortgage Loan and the original principal amount of the first lien
mortgage loan (or, to the extent that the Mortgage Note provides for negative
amortization, the sum of the original principal amount of the Mortgage Loan,
the original principal amount of the first lien mortgage loan and the maximum
amount of negative amortization permitted in accordance with the Mortgage
Note), and against any loss by reason of the invalidity or unenforceability of
the lien resulting from the provisions for the Mortgage providing for
adjustment in the mortgage interest rate and monthly payment.  Where required by state law or regulation,
the Mortgagor has been given the opportunity to choose the carrier of the
required

 

2 - 11

 

title insurance unless the
premium for such insurance was not paid by the Mortgagor.  Additionally, such lender’s title insurance
policy affirmatively insures ingress and egress, and against encroachments by
or upon the Mortgaged Property or any interest therein.  Seller is the sole insured of such lender’s
title insurance policy, and such lender’s title insurance policy is in full
force and effect and will inure to the benefit of MBF without any further
act.  No claims have been made under such
lender’s title insurance policy, and no prior holder of the Mortgage, including
Seller, has done, by act or omission, anything which would impair the coverage
of such lender’s title insurance policy. 
If the Mortgage Loan has a negative amortization feature, the lender’s
title insurance policy provides coverage in the amount of 110 percent of
the initial amount of the Mortgage Loan (if the Mortgage Loan is indicated by
Seller to be a first lien Mortgage Loan on the Loan Purchase Detail) or
110 percent of the combined initial amounts of the first lien mortgage
loan and the Mortgage Loan (if the Mortgage Loan is indicated by Seller to be a
second lien Mortgage Loan on the Loan Purchase Detail).

 

45.           Hazard and Flood Insurance.  The
improvements upon the Mortgaged Property are insured against loss by fire and
other hazards as required by the Takeout Investor, including flood insurance if
required under the National Flood Insurance Act of 1968, as amended.  The Mortgage requires Mortgagor to maintain
such casualty insurance at the Mortgagor’s expense, and upon the Mortgagor’s
failure to do so, authorizes the holder of the Mortgage to obtain and maintain
such insurance at the Mortgagor’s expense and to seek reimbursement therefore
from the Mortgagor.  The hazard insurance
policy is the valid and binding obligation of the insurer, and is in full force
and effect and will inure to the benefit of MBF upon its purchase of the
Mortgage Loan.  All flood insurance and
hazard insurance premiums have been paid when due.  Where required by state law or regulation,
the Mortgagor has been given the opportunity to choose the carrier of the
hazard insurance unless either a “master” or “blanket” hazard insurance policy
covering the condominium project or planned unit development in which the
Mortgaged Property is located was obtained. 
Additionally, if the Mortgaged Property is an individual unit in a
condominium project or an individual unit in a planned unit development, then
general liability, fidelity and all other insurance required by the Takeout
Investor is maintained in connection with the condominium project or planned
unit development, and each required insurance policy is in a form and amount,
and is issued by an insurer, that is acceptable to the Takeout Investor .  Seller has not engaged in, and has no
knowledge of the Mortgagor’s or of any prior servicer of the Mortgage Loan
having engaged in, any act or omission which would impair the coverage of any
such policy, the benefits of the endorsement provided for therein or the
validity and binding effect of either.

 

46.           Coverage of Insurance.  No
action, inaction, or event has occurred and no state of facts exists or has
existed that has resulted or will result in the exclusion from, denial of, or
defense to coverage under any applicable insurance policy or guarantee
including, but not limited to, a title insurance policy, a hazard insurance
policy, a primary mortgage insurance policy, FHA insurance coverage, a VA
guarantee or a mortgage pool insurance policy obtained in connection with the
Mortgage Loan.  In connection with the
placement of any such insurance or guarantee, no commission, fee, other
unlawful compensation or value of any kind has been or will be received by
Seller or any designee of Seller or any corporation in which Seller or any
officer, director or employee of Seller had a financial interest at the time of
placement of such insurance and, to the best of Seller’s knowledge, no such
commission, fee, other unlawful compensation or value of any kind has been
received by any attorney, firm or other person or entity.

 

2 - 12

 

[Mortgaged Property]

 

47.           No Additional Collateral.  The
Mortgage Note is not and has not been secured by any collateral except the lien
of the Mortgage.

 

48.           Location of Improvements.  All
improvements which were considered in determining the appraised value of the
Mortgaged Property lay wholly within the boundaries and building restriction
lines of the Mortgaged Property, no improvements on adjoining properties
encroach upon the Mortgaged Property, or the policy of title insurance
affirmatively insures against loss or damage by reason of any violation,
variation, encroachment or adverse circumstance which is either disclosed or
would have been disclosed by an accurate survey.  No improvement located on or being part of
the Mortgaged Property is in violation of any applicable zoning law or
regulation.

 

49.           Environmental Matters.  The
Mortgaged Property is free from any and all toxic or hazardous substances, and
there exists no violation of any local, state or federal environmental law,
rule or regulation.  The Mortgaged
Property is not within a one-mile radius of any site listed in the National
Priorities List as defined under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or on any similar state
list of hazardous wastes that are known to contain any hazardous substances or
hazardous wastes.

 

50.           No Encroachments.  No
improvements on adjoining properties encroach upon the Mortgaged Property in
any respect so as to effect the value or marketability of the Mortgage Loan or
the Mortgaged Property.

 

51.           Condominiums/Planned Unit Developments.  If
the Mortgaged Property is a condominium unit or a planned unit development,
such condominium or planned unit development project has been approved by the
Takeout Investor, meets FNMA, FHLMC or FHA eligibility requirements for sale to
FNMA, FHLMC or FHA (as applicable) or is located in a condominium or planned unit
development project which has received FNMA, FHLMC or FHA project approval, and
the representations and warranties required by FNMA, FHLMC or FHA with respect
to such condominium or planned unit developments are deemed to have been made
by Seller to MBF and remain true and correct in all respects.  The Credit File contains all required
condominium and planned unit development riders to the Mortgage and Mortgage
Note.

 

52.           No Condemnation and Mortgaged Property
Undamaged.  There is no proceeding pending or threatened
for the total or partial condemnation of the Mortgaged Property.  The Mortgaged Property is undamaged by waste,
fire, earthquake or earth movement, windstorm, flood, tornado or other casualty
so as to affect adversely the value of the Mortgaged Property as security for
the Mortgage Loan or the use for which the premises were intended.

 

53.           Detrimental Conditions.  As
of the origination date and the Acquisition Date of the Mortgage Loan, Seller
did not know, nor did Seller have any reason to know, that the Mortgaged
Property and the improvements constructed thereon were subject to any
detrimental conditions which could reasonably be expected to adversely affect
the market value of the Mortgaged Property. 
The term “detrimental conditions” includes, but is not limited to,
expansive soils, underground mines, soil subsidence, landfills, superfund
sites, special study zones, and

 

2 - 13

 

other conditions which affect the stability
of the improvements erected on the Mortgaged Property or the drainage on or
from the Mortgaged Property.

 

54.           Location and Type of Mortgaged Property.  The
Mortgaged Property consists of a single parcel of real property with a detached
single family residence erected thereon, or a two-to-four family dwelling, or
an individual condominium unit in a condominium project, or an individual unit
in a planned unit development. No portion of the Mortgaged Property is used for
commercial purposes.

 

55.           Land Trust Loans.  If
legal and equitable title to the Mortgaged Property is held by a land trust,
Seller represents the following:

 

(a)           the Mortgaged Property is located in the
State of Illinois;

 

(b)           the land trust is duly formed and validly
existing under the laws of the State of Illinois;

 

(c)           the documents relating to the Mortgage are
the binding obligations of the land trust and the beneficiaries of the land
trust and such documents are enforceable against the parties in accordance with
their respective terms;

 

(d)           the beneficiaries of the land trust have
covenanted to perform or to cause the land trustee to perform, as applicable,
all of the obligations imposed upon the borrower under the security instrument;

 

(e)           neither the Mortgaged Property nor the
interests of the beneficiaries in the land trust may be transferred except in
accordance with the provisions of the security instrument;

 

(f)            to the extent permitted by law, the
beneficiaries of the land trust have directed the land trustee to waive, and
the land trustee has waived, any and all rights of redemption from sale in
accordance with the terms of the security instrument;

 

(g)           the interests of the beneficiaries are deemed
personal property under Illinois law;

 

(h)           Seller has assigned to MBF Seller’s rights
under a binding, valid and enforceable agreement among the trustee of the land
trust, the beneficiaries of the land trust and Seller pursuant to which the
trustee agreed to notify Seller in writing in the event that any beneficiary
attempts to transfer, assign or otherwise convey a beneficial interest in the
land trust to a third party; and

 

(i)            the Mortgage Loan complies with all of the
requirements of FNMA for land trust loans.

 

56.           Leasehold Loans.  If
the Mortgage Loan is secured by a leasehold estate, Seller represents the following:

 

2 - 14

 

(a)           the property subject to the lease is located
in an area in which leasehold loans have received market acceptance;

 

(b)           the Mortgage and the title insurance policy
cover the improvements to the property and the Mortgagor’s leasehold interest
in the land;

 

(c)           the term of the leasehold estate exceeds the
maturity of the Mortgage Note by at least 10 years unless fee simple title
vests in the Mortgagor or an owner’s association on an earlier date;

 

(d)           the leasehold estate, and any purchase option
with respect to the land, is assignable or transferable;

 

(e)           the lease does not contain any default
provisions that could give rise to termination of the lease except for
non-payment of the lease rents;

 

(f)            the lease is valid, and in full force and
effect and there is no default under any provision of the lease;

 

(g)           the lease provides that:

 

(i)            the Mortgagor will pay taxes, insurance and
homeowner’s association dues related to the land, in addition to those the
Mortgagor is paying with respect to the improvements;

 

(ii)           the Mortgagor retains voting rights in any
homeowner’s association;

 

(iii)          if the lease contains an option for the
Mortgagor to purchase the fee interest in the land, the purchase is at the
Mortgagor’s sole option, there is no time limit within which the option must be
exercised and the purchase price is the lower of (x) the current appraised
value of the land and (y) the product of the percentage of the total
original appraised value that represented the land alone and the appraised
value of the land and improvements

 

(iv)          the leasehold can be transferred, mortgaged
and sublet an unlimited number of times either without restriction or on
payment of a reasonable fee and delivery of reasonable documentation to the
lessor; and

 

(v)           the lessor will provide the mortgagee with at
least thirty (30) days notice of the Mortgagor’s default under the lease and
give the mortgagee the option to (x) cure the default or (y) take
over the Mortgagor’s rights under the lease.

 

(h)           the lessor may not require a credit review or
impose other qualifying criteria on any transferee, mortgagee or sublessee;

 

2 - 15

 

(i)            the leasehold estate and the Mortgage may not
be impaired by any merger of title between lessor and lessee or by any default
of a sublessor; and

 

(j)            the lease and the leasehold estate meet all
of the requirements of FNMA for leasehold loans.

 

2 - 16

 

Annex 3

 

Mortgage Loans Subject to CL Commitments

 

1.             Additional
Definitions. In addition to the definitions set forth in Section 1 of the
Agreement, the following definitions apply:

 

“AOT Commitment”
means a CL Commitment issued by CL under its Assignment of Trade (AOT)
commitment option program, which is part of the CL Program.

 

“CL Commitment”
means any irrevocable commitment issued by CL pursuant to CL Program to acquire
one or more Mortgage Loans on or before a specified delivery date.

 

“CL Funding” means,
with respect to a Mortgage Loan subject to a CL Commitment, the completion of
the transactions required to be completed on the CL Funding Date.

 

“CL Funding Advice” means the
Takeout Funding Advice prepared by CL and delivered to Seller and MBF on or
after the CL Funding Date (as provided in Section 7.2 of the Agreement)
itemizing, for a particular Mortgage Loan, the net amount payable by CL.

 

“CL Funding Date”
means the date on which the CL Funding occurs.

 

“Option ARM Loan”
means a Mortgage Loan that is an adjustable rate product tied to either the
12-MTA Index (Monthly Treasury Averaged), the 11th District Cost of Funds Index
(COFI), or another variable index approved for use in Mortgage Loans by CL and
originated for sale to CL.

 

2.             Modified
or Clarified Definitions. The definitions set forth in Section 1 of
the Agreement are clarified or modified, as applicable, as follows:

 

“Credit File”: 
In the case of a Mortgage Loan originated for sale to CL under the CL
Program, the “Credit File” shall contain all of the records required to be
included in the “Credit File” or “credit package” described in Chapter 400 and
other portions of the Seller Guide.

 

“Investment Return Rate”: 
For an Option ARM Loan only, the “Investment Return Rate” means the
lesser of (i) the interest rate specified in the promissory note for that
Mortgage Loan and (ii) the LIBOR Rate plus 212.5 basis points (2.125%) per
annum.

 

“Takeout Commitment”:  A CL Commitment is one form of a Takeout
Commitment.

 

“Takeout Funding”:  A CL Funding is one form of Takeout Funding.

 

“Takeout Funding Advice”:  A CL Funding Advice is one form of a Takeout
Funding Advice.

 

“Takeout Guidelines”:  In the case of the CL Program, the Takeout
Guidelines include (but are not limited to) the Seller Guide.

 

3 - 1

 

“Takeout Investor”:  In addition to the to the investors listed on
Exhibit I, “Takeout Investor” includes CL.

 

3.             Seller’s
Continuing Duties. Without limiting the generality of Section 6 of the
Agreement, Seller shall obtain and timely deliver to CL the additional
documents required under the AOT Commitment option program for each purchased
Mortgage Loan for which an AOT Commitment had been issued.

 

4.             Second
Closing. In the case of a Mortgage Loan originated for sale to CL under the
CL Program which MBF has purchased under the Agreement on a servicing-retained
basis, the CL Funding shall be considered the functional equivalent of a sale
and transfer of the Mortgage Loan by Seller to CL, pursuant to the CL
Commitment, for purpose of establishing Seller’s obligations to complete
certain post-sale obligations (and the time periods therefor described in the
CL Program). For example, Seller’s obligation under the CL Program to deliver
to CL all final closing documents in connection with a Mortgage Loan within the
time period described in the Seller Guide shall be measured from the CL Funding
Date. On and after the CL Funding Date, CL shall have all rights, privileges
and remedies with respect to a Mortgage Loan purchased under the Agreement as
it has for Mortgage Loans purchased directly from Seller under the CL Program,
including the post-sale remedies described in Chapter 600 of the Seller
Guide, and CL shall manage the ownership and servicing of Mortgage Loans
purchased under the Agreement as it does all Mortgage Loans purchased directly
by it in the first instance under the CL Program.

 

5.             Note
Shipment. Notwithstanding Section 7.1 of the Agreement, if the
Mortgage Loan is subject to a CL Commitment, the parties agree that MBF shall
retain the Mortgage Note for the benefit of CL.

 

6.             Seller’s
Repurchase Obligations. Notwithstanding subsection 8.2(a) of the
Agreement, the refusal of CL to honor its Takeout Commitment and complete the
purchase of a Mortgage Loan shall not give MBF the right to require the early
repurchase of the Mortgage Loan as provided in Section 8.2 of the
Agreement; provided, however, that if CL has rejected a Mortgage
Loan, for any reason, then MBF shall have the right to require the early
repurchase of the Mortgage Loan pursuant to subsection 8.2(a) of the
Agreement. Seller acknowledges that CL has reserved broad discretion, under the
CL Program, to reject any Mortgage Loan offered for purchase thereunder.
Chapter 500 of the Seller Guide provides, on the Effective Date, that

 

Washington Mutual may, in its sole and absolute
discretion, reject any mortgage loan for purchase for any reason including, but
not limited to:

 

•      Failure
of the mortgage loan to meet Washington Mutual published loan parameters,

•      Failure
of the mortgage loan to satisfy all of the applicable underwriting standards,

•      Improper
documentation of the mortgage loan,

•      Suspected
fraud in the origination of the mortgage loan or a breach of any other
representation, warranty or covenant

 

3 - 2

 

made with respect to the
mortgage loan as stated in this Guide.

 

CL shall have the equivalent discretion hereunder to
reject a Mortgage Loan originated for sale to CL under the CL Program, in which
event CL shall have no obligation to complete a CL Funding. Each party shall
notify the other as soon as it learns that CL has rejected a Mortgage Loan. In
addition to its obligations under Section 8(c) of the Agreement, upon
receipt of the Adjusted Acquisition Price from Seller, MBF shall deliver, or
cause to be delivered, to Seller all documents for the Mortgage Loan previously
delivered to CL.

 

7.             CL
Program Obligations. On or after the CL Funding Date for a Mortgage Loan
originated for sale to CL under the CL Program but purchased under the
Agreement, Seller shall have such continuing repurchase obligations for such
Mortgage Loan as are provided in the CL Program and all purchase and sale
agreements entered thereunder, and nothing in the Agreement shall relieve
Seller of its duties and obligations under the CL Program (or similar program)
during the Post-Origination Period.

 

8.             Additional
Representations and Warranties Concerning Seller. Seller represents and
warrants as of the Effective Date and as of each Acquisition Date as follows:
Seller meets all of the eligibility requirements set forth in the Seller Guide
for participation in the CL Program and is currently approved by CL to
participate in the CL Program.

 

9.             Additional
Representations and Warranties Concerning Mortgage Loans. With respect to a
Mortgage Loan for which a CL Commitment has been issued under the CL Program,
in addition to each of the representations and warranties set forth in Annex 2,
Seller makes each of the additional Seller representations and warranties about
the Mortgage Loan contained in the Seller Guide, which are hereby incorporated
by this reference.

 

3 - 3

 

Annex 4

 

Provisions Relating to Type 1 Nonconforming Loans

 

1.             Additional Definitions. In
addition to the definitions set forth in Section 1 of the Agreement, the
following definitions apply:

 

“Type 1
Nonconforming Loan” means a Mortgage Loan about which not all of
representations and warranties set forth in Annex 2 are true and
correct but about which all of the representations and warranties in Section 7
of Annex 4 are true and correct.

 

“Type 1
Nonconforming Loan Sublimit” means 25% of the Seller’s Concentration
Limit at any one time; provided, however, within such Type 1
Nonconforming Loan Sublimit, Type 1 Nonconforming Loans secured by a second
lien on the Mortgaged Property shall not exceed 5% of the Seller’s
Concentration Limit at any one time.

 

2.             Modified or Clarified
Definitions. The definitions set forth in Section 1 of the Agreement
are clarified or modified, as applicable, as follows:

 

“Acquisition Price”: 
For a Type 1 Nonconforming Loan, the “Acquisition Price” means an
amount equal to ninety-eight percent (98%) of the lesser of (a) the amount which the
Takeout Investor has provisionally committed to pay for such Type 1
Nonconforming Loan in its Takeout Commitment, and (b) the Par Value of such
Type 1 Nonconforming Loan.

 

“Investment Return Rate”: 
For a Type 1 Nonconforming Loan only, the “Investment Return Rate”
means the LIBOR Rate plus 212.5 basis points (2.125%) per annum.

 

“Maximum Takeout Commitment
Expiration Date”:  For
a Type 1 Nonconforming Loan only, the “Maximum Takeout Commitment Expiration
Date” means the date which is ninety (90) days after the Acquisition Date for
such a Mortgage Loan.

 

3.             Purchase and Sale. The
following sentence is added to Section 2 of the Agreement:

 

In no event shall MBF be required to purchase any
Type 1 Nonconforming Loan if the Acquisition Price of such Type 1
Nonconforming Loan, when combined with the aggregate Acquisition Price of all
Type 1 Nonconforming Loans then held by MBF (and then serviced by Seller
or a Successor Servicer), is in excess of the Type 1 Nonconforming Loan
Sublimit.

 

4.             Conditions Precedent. Subsection 3.2(d)
of the Agreement is amended to read:

 

(d)           purchase
of the Mortgage Loan shall not cause Seller to exceed any of the Seller’s
Concentration Limit, the Wet Funding Sublimit, or the Type 1 Nonconforming Loan
Sublimit.

 

4 - 1

 

5.             Seller’s Repurchase Obligations.
The following sentence is added to the end of subsection 8.2(a) of the
Agreement:

 

In the case of a Type 1 Nonconforming Loan, if
Seller fails to obtain a Takeout Commitment for such Loan, or fails to provide
to MBF either a true and correct photocopy of it or information about it as
required by Section 13.14, within ninety (90) days after the Acquisition
Date, MBF may notify Seller, and Seller shall promptly repurchase such Mortgage
Loan at the Adjusted Acquisition Price on the date of repurchase.

 

6.             Additional Seller’s Covenants.
Section 13 of the Agreement is amended by the addition of the following
Section 13.14:

 

13.14       Takeout
Commitment. Seller shall make a commercially reasonable effort to obtain a
Takeout Commitment for each Type 1 Nonconforming Loan, and Seller shall
provide to MBF a true and correct photocopy of it or information about it (in
such format and by such media as MBF may from time to time determine) as soon
as practicable after Seller has obtained the Takeout Commitment. MBF
acknowledges that a Takeout Commitment for a Type 1 Nonconforming Loan may
take the form of a bulk trade commitment concerning a number of Type 1
Nonconforming Loans and certain other loans.

 

7.             Representations and Warranties
Concerning Type 1 Nonconforming Loans. Notwithstanding anything to the
contrary in Section 11 of the Agreement, with respect to a Type 1
Nonconforming Loan, Seller only makes each of the following representations and
warranties set forth in Annex 2: 1-38 (inclusive), 41 and 43-57
(inclusive). In addition, Seller also makes each of the additional
representations and warranties with respect to each Type 1 Nonconforming Loan
set forth below:

 

(1)                                  First
or Second Lien Loan. The Mortgage is a first lien or a second lien on the
Mortgaged Property.

 

(2)                                  FICO
Scores. At the time of origination the Obligor had a score on the FICO
scale of at least 620.

 

(3)                                  Loan-to-Value
Ratio. If the Mortgage Loan is indicated by Seller to be a first lien
Mortgage Loan on the Loan Purchase Detail, the loan-to-value ratio of the
Mortgage Loan is not in excess of 100%. If the Mortgage Loan is indicated by
Seller to be a second lien Mortgage Loan on the Loan Purchase Detail, the
loan-to-value ratio of the first lien mortgage loan and the Mortgage Loan
combined is not in excess of 100%.

 

(4)                                  Debt-to-Income
Ratio. At the time of origination of the Mortgage Loan, the ratio of the
annual principal payments on the Mortgage Loan to the income of the Obligor(s)
was not in excess of 50%.

 

(5)                                  Mississippi
Loans. The Mortgaged Property is not located in the State of Mississippi.

 

4 - 2

 

(6)                                  Documentation.
The Mortgage Loan was documented in compliance with Seller’s full or stated
documentation program.

 

(7)                                  Maximum
Cash Out. If the Mortgage Loan was made to a Mortgagor who owned the
Mortgaged Property prior to the origination of such Mortgage Loan and the
proceeds of which were used in whole or part to satisfy an existing mortgage,
the proceeds of the Mortgage Loan did not exceed the amount of the existing
mortgage by more than $150,000.00.

 

(8)                                  No
Mobile Home/Manufactured Housing Loans. The Mortgage Loan is not secured by
a mobile home or by manufactured housing.

 

(9)                                  No
Negative Amortization. The Mortgage Loan does not provide for negative
amortization or for the potential for negative amortization.

 

(10)                            Loan
Size Limit. If the Mortgage Loan is indicated by Seller to be a first lien
Mortgage Loan on the Loan Purchase Detail, the principal amount of the Mortgage
Loan is not in excess of $1,000,000.00 on the Acquisition Date for such
Mortgage Loan; if it is indicated by Seller to be a second lien Mortgage Loan
on the Loan Purchase Detail, the principal amount of the Mortgage Loan is not
in excess of $500,000.00 on the Acquisition Date for such Mortgage Loan.

 

4 - 3

 

Annex 5

 

Provisions Relating to Type 2 Nonconforming Loans

 

1.             Additional Definitions. In
addition to the definitions set forth in Section 1 of the Agreement, the
following definitions apply:

 

“Type 2
Nonconforming Loan” means a Mortgage Loan about which not all of
representations and warranties set forth in Annex 2 are true and
correct but about which all of the representations and warranties in
Section 7 of Annex 5 are true and correct.

 

“Type 2
Nonconforming Loan Sublimit” means 10% of the Seller’s Concentration
Limit at any one time.

 

2.             Modified or Clarified
Definitions. The definitions set forth in Section 1 of the Agreement are
clarified or modified, as applicable, as follows:

 

“Acquisition Price”: 
For a Type 2 Nonconforming Loan, the “Acquisition Price” means an
amount equal to ninety-six percent (96%) of the lesser of (a) the amount which the
Takeout Investor has provisionally committed to pay for such Type 2
Nonconforming Loan in its Takeout Commitment, and (b) the Par Value of such
Type 2 Nonconforming Loan.

 

“Investment Return Rate”: 
For a Type 2 Nonconforming Loan only, the “Investment Return Rate”
means the LIBOR Rate plus 262.5 basis points (2.625%) per annum.

 

“Maximum Takeout Commitment
Expiration Date”:  For
a Type 2 Nonconforming Loan only, the “Maximum Takeout Commitment
Expiration Date” means the date which is ninety (90) days after the Acquisition
Date for such a Mortgage Loan.

 

3.             Purchase and Sale. The
following sentence is added to Section 2 of the Agreement:

 

In no event shall MBF be required to purchase any
Type 2 Nonconforming Loan if the Acquisition Price of such Type 2
Nonconforming Loan, when combined with the aggregate Acquisition Price of all
Type 2 Nonconforming Loans then held by MBF (and then serviced by Seller
or a Successor Servicer), is in excess of the Type 2 Nonconforming Loan
Sublimit.

 

4.             Conditions Precedent. Subsection 3.2(d)
of the Agreement is amended to read:

 

(d)           purchase
of the Mortgage Loan shall not cause Seller to exceed any of the Seller’s
Concentration Limit, the Wet Funding Sublimit, the Type 1 Nonconforming
Loan Sublimit, or the Type 2 Nonconforming Loan Sublimit.

 

5.             Seller’s Repurchase Obligations.
The following sentence is added to the end of subsection 8.2(a) of the
Agreement:

 

5 - 1

 

In the case of a Type 2 Nonconforming Loan, if
Seller fails to obtain a Takeout Commitment for such Loan, or fails to provide
to MBF a true and correct photocopy of it or information about it as required
by Section 13.15, within ninety (90) days after the Acquisition Date, MBF
may notify Seller, and Seller shall promptly repurchase such Mortgage Loan at
the Adjusted Acquisition Price on the date of repurchase.

 

6.             Additional Seller’s Covenants.
Section 13 of the Agreement is amended by the addition of the following
Section 13.15:

 

13.15       Takeout
Commitment. Seller shall make a commercially reasonable effort to obtain a
Takeout Commitment for each Type 2 Nonconforming Loan, and Seller shall
provide to MBF a true and correct photocopy of it or information about it (in
such format and by such media as MBF may from time to time determine) as soon
as practicable after Seller has obtained the Takeout Commitment. MBF
acknowledges that a Takeout Commitment for a Type 2 Nonconforming Loan may
take the form of a bulk trade commitment concerning a number of Type 2
Nonconforming Loans and certain other loans.

 

7.             Representations and Warranties
Concerning Type 2 Nonconforming Loans. Notwithstanding anything to the
contrary in Section 11 of the Agreement, with respect to a Type 2
Nonconforming Loan, Seller only makes each of the following representations and
warranties set forth in Annex 2: 1-38 (inclusive), 41 and 43-57
(inclusive). In addition, Seller also makes each of the additional
representations and warranties with respect to each Type 2 Nonconforming Loan
set forth below:

 

(1)                                  First
Lien Loan. The Mortgage is a first lien on the Mortgaged Property.

 

(2)                                  FICO
Scores. If the Mortgage Loan is indicated by Seller to be a first lien
Mortgage Loan on the Loan Purchase Detail, at the time of origination the
Obligor had a score on the FICO scale of at least 550.

 

(3)                                  Loan-to-Value
Ratio. If the Mortgage Loan is indicated by Seller to be a first lien
Mortgage Loan on the Loan Purchase Detail, the loan-to-value ratio of the
Mortgage Loan is not in excess of 90%.

 

(4)                                  Debt-to-Income
Ratio. At the time of origination of the Mortgage Loan, the ratio of the
annual principal payments on the Mortgage Loan to the income of the Obligor(s)
was not in excess of 50%.

 

(5)                                  Mississippi
Loans. The Mortgaged Property is not located in the State of Mississippi.

 

(6)                                  Documentation.
The Mortgage Loan was documented in compliance with Seller’s full or stated
documentation program.

 

(7)                                  Maximum
Cash Out. If the Mortgage Loan was made to a Mortgagor who owned the
Mortgaged Property prior to the origination of such Mortgage Loan and the
proceeds of which were used in whole or part to satisfy an existing mortgage,
the

 

5 - 2

 

proceeds of the Mortgage Loan did not exceed the amount
of the existing mortgage by more than $150,000.00.

 

(8)                                  No
Mobile Home/Manufactured Housing Loans. The Mortgage Loan is not secured by
a mobile home or by manufactured housing.

 

(9)                                  No
Negative Amortization. The Mortgage Loan does not provide for negative
amortization or for the potential for negative amortization.

 

(10)                            Loan
Size Limit. The principal amount of the Mortgage Loan is not in excess of
$500,000.00 on the Acquisition Date for such Mortgage Loan.

 

5 - 3

 

Annex 6

 

Provisions Relating to Type 3 Nonconforming Loans

 

1.             Additional Definitions. In
addition to the definitions set forth in Section 1 of the Agreement, the
following definitions apply:

 

“Type 3
Nonconforming Loan” means a Mortgage Loan about which not all of
representations and warranties set forth in Annex 2 are true and
correct but about which all of the representations and warranties in
Section 7 of Annex 6 are true and correct.

 

“Type 3
Nonconforming Loan Sublimit” means 5% of the Seller’s Concentration
Limit at any one time.

 

2.             Modified or Clarified
Definitions. The definitions set forth in Section 1 of the Agreement
are clarified or modified, as applicable, as follows:

 

“Acquisition Price”: 
For a Type 3 Nonconforming Loan, the “Acquisition Price” means an
amount equal to ninety-six percent (96%) of the lesser of (a) the amount which the
Takeout Investor has provisionally committed to pay for such Type 3
Nonconforming Loan in its Takeout Commitment, and (b) the Par Value of such
Type 3 Nonconforming Loan.

 

“Investment Return Rate”: 
For a Type 3 Nonconforming Loan only, the “Investment Return Rate”
means the LIBOR Rate plus 262.5 basis points (2.625%) per annum.

 

“Maximum Takeout Commitment
Expiration Date”:  For
a Type 3 Nonconforming Loan only, the “Maximum Takeout Commitment
Expiration Date” means the date which is ninety (90) days after the Acquisition
Date for such a Mortgage Loan.

 

3.             Purchase and Sale. The
following sentence is added to Section 2 of the Agreement:

 

In no event shall MBF be required to purchase any
Type 3 Nonconforming Loan if the Acquisition Price of such Type 3
Nonconforming Loan, when combined with the aggregate Acquisition Price of all
Type 3 Nonconforming Loans then held by MBF (and then serviced by Seller
or a Successor Servicer), is in excess of the Type 3 Nonconforming Loan
Sublimit.

 

4.             Conditions Precedent. Subsection 3.2(d)
of the Agreement is amended to read:

 

(d)           purchase
of the Mortgage Loan shall not cause Seller to exceed any of the Seller’s
Concentration Limit, the Wet Funding Sublimit, the Type 1 Nonconforming
Loan Sublimit, the Type 2 Nonconforming Loan Sublimit, or the Type 3
Nonconforming Loan Sublimit.

 

5.             Seller’s Repurchase Obligations.
The following sentence is added to the end of subsection 8.2(a) of the
Agreement:

 

6 - 1

 

In the case of a Type 3 Nonconforming Loan, if
Seller fails to obtain a Takeout Commitment for such Loan, or fails to provide
to MBF a true and correct photocopy of it or information about it as required
by Section 13.16, within ninety (90) days after the Acquisition Date, MBF
may notify Seller, and Seller shall promptly repurchase such Mortgage Loan at
the Adjusted Acquisition Price on the date of repurchase.

 

6.             Additional Seller’s Covenants.
Section 13 of the Agreement is amended by the addition of the following
Section 13.16:

 

13.16       Takeout
Commitment. Seller shall make a commercially reasonable effort to obtain a
Takeout Commitment for each Type 3 Nonconforming Loan, and Seller shall
provide to MBF a true and correct photocopy of it or information about it (in
such format and by such media as MBF may from time to time determine) as soon
as practicable after Seller has obtained the Takeout Commitment. MBF
acknowledges that a Takeout Commitment for a Type 3 Nonconforming Loan may
take the form of a bulk trade commitment concerning a number of Type 3
Nonconforming Loans and certain other loans.

 

7.             Representations and Warranties
Concerning Type 3 Nonconforming Loans. Notwithstanding anything to the
contrary in Section 11 of the Agreement, with respect to a Type 3
Nonconforming Loan, Seller only makes each of the following representations and
warranties set forth in Annex 2: 1-38 (inclusive), 41 and 43-57
(inclusive). In addition, Seller also makes each of the additional
representations and warranties with respect to each Type 3 Nonconforming
Loan set forth below:

 

(1)                                  First
or Second Lien Loan. The Mortgage is a first lien or a second lien on the
Mortgaged Property.

 

(2)                                  FICO
Scores. If the Mortgage Loan is indicated by Seller to be a first lien
Mortgage Loan on the Loan Purchase Detail, at the time of origination the
Obligor had a score on the FICO scale of at least 500. If the Mortgage Loan is
indicated by Seller to be a second lien Mortgage Loan on the Loan Purchase
Detail, at the time of origination the Obligor had a score on the FICO scale of
at least 600.

 

(3)                                  Loan-to-Value
Ratio. If the Mortgage Loan is indicated by Seller to be a first lien
Mortgage Loan on the Loan Purchase Detail, the loan-to-value ratio of the
Mortgage Loan is not in excess of 100%. If the Mortgage Loan is indicated by
Seller to be a second lien Mortgage Loan on the Loan Purchase Detail, the
loan-to-value ratio of the first lien mortgage loan and the Mortgage Loan
combined is not in excess of 100%.

 

(4)                                  Debt-to-Income
Ratio. At the time of origination of the Mortgage Loan, the ratio of the
annual principal payments on the Mortgage Loan to the income of the Obligor(s)
was not in excess of 55%.

 

(5)                                  Mississippi
Loans. The Mortgaged Property is not located in the State of Mississippi.

 

6 - 2

 

(6)                                  Documentation.
The Mortgage Loan was documented in compliance with Seller’s full or stated
documentation program.

 

(7)                                  Maximum
Cash Out. If the Mortgage Loan was made to a Mortgagor who owned the
Mortgaged Property prior to the origination of such Mortgage Loan and the
proceeds of which were used in whole or part to satisfy an existing mortgage,
the proceeds of the Mortgage Loan did not exceed the amount of the existing
mortgage by more than $150,000.00.

 

(8)                                  No
Mobile Home/Manufactured Housing Loans. The Mortgage Loan is not secured by
a mobile home or by manufactured housing.

 

(9)                                  No
Negative Amortization. The Mortgage Loan does not provide for negative
amortization or for the potential for negative amortization.

 

(10)                            Loan
Size Limit. The principal amount of the Mortgage Loan is not in excess of
$500,000.00 on the Acquisition Date for such Mortgage Loan.

 

6 - 3

 

Annex 7

 

Provisions Relating to Undesignated Loans

 

1.             Additional Definitions. In
addition to the definitions set forth in Section 1 of the Agreement, the
following definition applies:

 

“Undesignated Loan”
means a Mortgage Loan (i) that is not a Type 1 Nonconforming Loan, a
Type 2 Nonconforming Loan, or a Type 3 Nonconforming Loan and (ii) that is
not subject to or covered by a Takeout Commitment on the applicable Acquisition
Date.

 

2.             Modified or Clarified Definitions.
The definition of “Acquisition Price” set forth in Section 1 of the Agreement
is modified as follows:

 

“Acquisition Price”: 
For an Undesignated Loan, the “Acquisition Price” means an amount equal
to ninety-eight percent (98%) of the amount which the Takeout Investor has
provisionally committed to pay for such Undesignated Loan in its Takeout
Commitment, but in no event more than the Par Value of such Undesignated Loan.

 

“Maximum Takeout Commitment
Expiration Date”:  For
an Undesignated Loan only, the “Maximum Takeout Commitment Expiration Date”
means the date which is ninety (90) days after the Acquisition Date for such a
Mortgage Loan.

 

3.             Seller’s Repurchase Obligations.
The following sentence is added to the end of subsection 8.2(a) of the
Agreement:

 

In the case of an Undesignated Loan, if Seller fails
to obtain a Takeout Commitment for such Mortgage Loan, or fails to provide to
MBF either a true and correct photocopy of it or information about it as
required by Section 13.17, within ninety (90) days after the Acquisition
Date, MBF may notify Seller, and Seller shall promptly repurchase such Mortgage
Loan at the Adjusted Acquisition Price on the date of repurchase.

 

4.             Additional Seller’s Covenants.
Section 13 of the Agreement is amended by the addition of the following
Sections 13.17 and 13.18:

 

13.17       Takeout
Commitment. Seller shall make a commercially reasonable effort to obtain a
Takeout Commitment for each Undesignated Loan, and Seller shall provide to MBF
a true and correct photocopy of it or information about it (in such format and
by such media as MBF may from time to time determine) as soon as practicable
after Seller has obtained the Takeout Commitment. MBF acknowledges that a
Takeout Commitment for an Undesignated Loan may take the form of a bulk trade
commitment concerning a number of Undesignated Loans and certain other loans.

 

13.18       Hedging
of Undesignated Loans. Seller shall provide to MBF, no less frequently than
every two weeks, or more frequently as MBF may require at its sole discretion,
a summary in form and substance satisfactory to MBF of all Seller’s hedging
arrangements and commitments with respect to Undesignated Loans.

 

7 - 1

 

5.             Representations and Warranties
Concerning Undesignated Loans. In addition to the other representations and
warranties of Seller set forth in the Agreement, Seller represents and warrants
that, as of the Acquisition Date of each Undesignated Loan, it has made
arrangements (whether through the use of forward sales contracts or otherwise)
to hedge its obligation under the terms of the Agreement to repurchase such
Undesignated Loan or sell such Undesignated Loan pursuant to a Takeout
Commitment, that such arrangements are adequate to fully hedge such obligations,
and that Seller shall continue to fully hedge such obligations until such time
as the Undesignated Loan becomes subject to a Takeout Commitment or is
repurchased by Seller.

 

7 - 2

 

Exhibit
A

 

Administrative Costs

 

All usual and customary cost and expenses incurred by
MBF in connection with processing, administering and settling of a Mortgage
Loan, currently including without limitation:

 

(a)           an internal allocation for processing
expense for each Mortgage Loan in the following amounts (as applicable):

 

(i)                                     Mortgage
Loan purchased under Section 3.5 with a Dry Funding Documents Package or
under Section 3.6 with a Wet Funding Documents Package:  $20.00; and

 

(ii)                                  Mortgage
Loan purchased requiring release of warehouse lender lien and interest held by

 

(x)                                   MBF:  $5.00; or

 

(y)                                 a
third party warehouse lender:  $20.00.

 

(b)           $250.00 internal allocation for
processing files regarding a repurchased Mortgage Loan (unless the repurchase
is financed by MBF as Warehouse Lender);

 

(c)           a monthly administration fee on the
Monthly Unused Portion. This fee shall be calculated each month at the rate of
zero basis points (0.00%) per annum of the Monthly Unused Portion for such
month, payable in arrears on or before the later of (a) the next
Remittance Date or (b) the date on which MBF notifies Seller of the amount
of the administration fee that has accrued since the Effective Date or the date
of the last payment. The “Monthly Unused Portion” means the amount equal to the
Seller’s Concentration Limit minus
the arithmetic daily average of the (i) Acquisition Price of all Mortgage
Loans previously purchased by MBF but not yet either repurchased by Seller or
purchased by a Takeout Investor as of such day plus (ii) if MBF is a
Warehouse Lender to Seller, the principal balance of all loans made by MBF to
Seller in such capacity outstanding on such day. MBF shall calculate the
Monthly Unused Portion in its sole discretion; and

 

(d)           messenger and overnight courier fees.

 

A - 1

 

Exhibit
B

 

Loan Purchase Detail

 

Required Fields: W - Wires  C -
Checks  CC – Cashiers Checks

 

	
  Excel Cell

  	
   

  	
  Field

  	
   

  	
  Type

  	
   

  	
  Req

  	
   

  	
  Description

  
	
  A

  	
   

  	
  Customer Code

  	
   

  	
  (C-4)

  	
   

  	
  W,C,CC

  	
   

  	
  Constant. Will be assigned to you by us.

  
	
  B

  	
   

  	
  Line

  	
   

  	
  (C-4)

  	
   

  	
  W,C,CC

  	
   

  	
  Credit Line Codes will be assigned to you
  by us.

  
	
  C

  	
   

  	
  Sublimit

  	
   

  	
  (C-4)

  	
   

  	
  W,C,CC

  	
   

  	
  Sublimit Codes will be assigned to you by
  us.

  
	
  D

  	
   

  	
  Loan Number

  	
   

  	
  (C-20)

  	
   

  	
  W,C,CC

  	
   

  	
  Your loan identification number, right
  justified.

  
	
  E

  	
   

  	
  Alt Loan ID

  	
   

  	
  (C-13)

  	
   

  	
  W,C,CC

  	
   

  	
  Social Security Number.

  
	
  F

  	
   

  	
  Name

  	
   

  	
  (C-28)

  	
   

  	
  W,C,CC

  	
   

  	
  Primary Borrower Name (Last, First).

  
	
  G

  	
   

  	
  Address

  	
   

  	
  (C-35)

  	
   

  	
  W,C,CC

  	
   

  	
  Property Address.

  
	
  H

  	
   

  	
  City

  	
   

  	
  (C-15)

  	
   

  	
  W,C,CC

  	
   

  	
  City.

  
	
  I

  	
   

  	
  State

  	
   

  	
  (C-2)

  	
   

  	
  W,C,CC

  	
   

  	
  State abbreviation.

  
	
  J

  	
   

  	
  Zip

  	
   

  	
  (C-5)

  	
   

  	
  W,C,CC

  	
   

  	
  Zip Code.

  
	
  K

  	
   

  	
  County

  	
   

  	
  (C-15)

  	
   

  	
  W,C,CC

  	
   

  	
  Name of County.

  
	
  L

  	
   

  	
  Loan Amount

  	
   

  	
  (N-12-2)

  	
   

  	
  W,C,CC

  	
   

  	
  Original face amount of the Note.

  
	
  M

  	
   

  	
  Warehouse Amt.

  	
   

  	
  (N-12-2)

  	
   

  	
  W,C,CC

  	
   

  	
  Requested warehouse amount.

  
	
  N

  	
   

  	
  Loan Term

  	
   

  	
  (N-4)

  	
   

  	
  W,C,CC

  	
   

  	
  Term to maturity of the underlying loan,
  expressed in months.

  
	
  O

  	
   

  	
  Interest Rate

  	
   

  	
  (N-6-3)

  	
   

  	
  W,C,CC

  	
   

  	
  Note Rate.

  
	
  P

  	
   

  	
  Mortgage Date

  	
   

  	
  (C-8)

  	
   

  	
  W,C,CC

  	
   

  	
  Date the loan closed. Date of the Note.

  
	
  Q

  	
   

  	
  Loan Purpose

  	
   

  	
  (C-20)

  	
   

  	
  W,C,CC

  	
   

  	
  P = Purchase R = Refinance S = Second Mtg

  X = FHA/VA Streamline Refinance

  
	
  R

  	
   

  	
  Original LTV

  	
   

  	
  (N-6-2)

  	
   

  	
  W,C,CC

  	
   

  	
  Original Loan to Value, (Original Loan
  Amount / Original Sales Price or Appraised Value)

  
	
  S

  	
   

  	
  Original CLTV

  	
   

  	
  (N-6-2)

  	
   

  	
  W,C,CC

  	
   

  	
  Original Combined Loan to Value, (Original
  Loan Amount + Sr Lien Balance / Original Sales Price or Appraised Value)

  
	
  T

  	
   

  	
  DTI Ratio

  	
   

  	
  (N-6-2)

  	
   

  	
  W,C,CC

  	
   

  	
  Debt to Income Ratio (Back-End Ratio)

  
	
  U

  	
   

  	
  Product

  	
   

  	
  (C-20

  	
   

  	
  W,C,CC

  	
   

  	
  Product Code. We will assign product codes.

  
	
  V

  	
   

  	
  Lien Type

  	
   

  	
  (C-20)

  	
   

  	
  W,C,CC

  	
   

  	
  1=First 2=Second

  
	
  W

  	
   

  	
  Property Type

  	
   

  	
  (C-20)

  	
   

  	
  W,C,CC

  	
   

  	
  1FAM = Single Family Residence

  2/4 = Two to Four Family Residences

  COND = Condominium

  TOWN = Townhome

  COOP = Cooperative

  MF = Multi-family

  CRE = Commercial Real Estate

  
	
  X

  	
   

  	
  Occupancy Code

  	
   

  	
  (C-20)

  	
   

  	
  W,C,CC

  	
   

  	
  O = Owner Occupied, N = Non-owner Occupied

  
	
  Y

  	
   

  	
  FICO Score

  	
   

  	
  (C-4)

  	
   

  	
  W,C,CC

  	
   

  	
  Fair Isaac Credit score (lowest of 2 or
  middle of 3 scores). Leave blank if property is MF or CRE.

  
	
  Z

  	
   

  	
  MIN #

  	
   

  	
  (C-20)

  	
   

  	
  W,C,CC

  	
   

  	
  MERS / MIN number. Leave blank if property
  is MF or CRE.

  
	
  AA

  	
   

  	
  Investor Code

  	
   

  	
  (C-20)

  	
   

  	
  W,C,CC

  	
   

  	
  We will assign investor codes.

  
	
  AB

  	
   

  	
  Commitment

  	
   

  	
  (C-16)

  	
   

  	
  W,C,CC

  	
   

  	
  Investor takeout commitment number or if
  portfolio hedging place PH in the field.

  
	
  AC

  	
   

  	
  Price

  	
   

  	
  (N-10-6)

  	
   

  	
  W,C,CC

  	
   

  	
  Investor takeout price.

  
	
  AD

  	
   

  	
  Expiration

  	
   

  	
  (C-8)

  	
   

  	
  W,C,CC

  	
   

  	
  Expiration date of the investor takeout
  commitment.

  

 

B - 1

	
  Excel Cell

  	
   

  	
  Field

  	
   

  	
  Type

  	
   

  	
  Req

  	
   

  	
  Description

  
	
  AE

  	
   

  	
  Wire Comments

  	
   

  	
  (C-35)

  	
   

  	
  W

  	
   

  	
  Additional comments in wire instructions.

  
	
  AF

  	
   

  	
  Payee Name

  	
   

  	
  (C-60)

  	
   

  	
  W, CC

  	
   

  	
  Name of the beneficiary of the funding
  proceeds.

  
	
  AG

  	
   

  	
  Payee Address

  	
   

  	
  (C-35)

  	
   

  	
  W, CC

  	
   

  	
  Address.

  
	
  AH

  	
   

  	
  Payee City

  	
   

  	
  (C-15)

  	
   

  	
  W, CC

  	
   

  	
  City.

  
	
  AI

  	
   

  	
  Payee State

  	
   

  	
  (C-2)

  	
   

  	
  W, CC

  	
   

  	
  State abbreviation.

  
	
  AJ

  	
   

  	
  Payee Zip

  	
   

  	
  (C-5)

  	
   

  	
  W, CC

  	
   

  	
  Zip Code.

  
	
  AK

  	
   

  	
  Payee Bank

  	
   

  	
  (C-12)

  	
   

  	
  W

  	
   

  	
  Receiver Bank for wires.

  
	
  AL

  	
   

  	
  Funding Type

  	
   

  	
  (C-2)

  	
   

  	
  W,C,CC

  	
   

  	
  01 = Outgoing Wire, 03 = Check, 04 =
  Cashiers Check

  
	
  AM

  	
   

  	
  Payee Account

  	
   

  	
  (C-60)

  	
   

  	
  W

  	
   

  	
  Beneficiary Account for wires.

  
	
  AN

  	
   

  	
  ABA Number

  	
   

  	
  (C-15)

  	
   

  	
  W

  	
   

  	
  Receiver Bank ABA number.

  
	
  AO

  	
   

  	
  Funding Amount

  	
   

  	
  (N-12-2)

  	
   

  	
  W,C,CC

  	
   

  	
  Amount of the wire or draft.

  
	
  AP

  	
   

  	
  Further Credit Bank

  	
   

  	
  (C-60)

  	
   

  	
  W

  	
   

  	
  Intermediary wire instructions to further
  credit a second bank.

  
	
  AQ

  	
   

  	
  Further Credit Account

  	
   

  	
  (C-60)

  	
   

  	
  W

  	
   

  	
  Intermediary wire instructions to further
  credit a second bank.

  
	
  AR

  	
   

  	
  Advance Ref. #

  	
   

  	
  (C-12)

  	
   

  	
  C,CC

  	
   

  	
  Draft number if draft, blank if wire.

  

 

B - 2

 

Exhibit
C

 

Loan Sale Confirmation

 

	
  Parties

  	
   

  	
  The parties to this Loan Sale Confirmation are the following:

  
	
   

  	
   

  	
   

  
	
  Seller:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Purchaser:

  	
   

  	
  Washington Mutual Bank, FA

  
	
   

  	
   

  	
   

  
	
  Mortgage Loans

  	
   

  	
  THE MORTGAGE LOAN(S) COVERED BY THIS LOAN SALE CONFIRMATION ARE
  LISTED AND DESCRIBED IN THE ATTACHED SCHEDULE OF MORTGAGE LOAN(S).

  
	
   

  	
   

  	
   

  
	
  Sale:

  	
   

  	
  For value received, Seller hereby conveys to the Purchaser all
  rights, title and interest in and to the following

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (a) The Mortgage Note and the related Mortgage for each Mortgage
  Loan; (b) all rights to payment thereunder; (c) all rights related
  thereto, such as financing statements, guaranties and insurance policies
  (issued by governmental agencies or otherwise), including (i) mortgage
  and title insurance policies, (ii) fire and extended coverage insurance
  policies (including the right, if any, to any return premiums), and
  (iii) if applicable, FHA insurance, VA guaranties, or private mortgage
  insurance and all rights, if any, in escrow deposits consisting of impounds,
  insurance premiums, or other funds held in account thereof; (d) all
  right, title and interest of the owner of such loan in the real property,
  including all improvements thereon, and the personal property (tangible and intangible)
  that are encumbered by such mortgage (or deed of trust) and/or security
  agreements; (e) all rights to service, administer and/or collect such
  loan and all rights to the payment of money on account of such servicing,
  administration and/or collection appraisals, computer programs, tapes, discs,
  cards, accounting records, and other books, records, information, and data
  relating to such loan necessary to the administration or servicing of such
  loan (subject to Seller’s right to service set forth in the Mortgage Loan
  Purchase and Sale Agreement described below); and (f) all accounts,
  contract rights (including rights under any applicable Takeout Commitment),
  and general intangibles constituting or relating to such loan.

  

 

C - 1

 

	
  Price

  	
   

  	
  The price paid for the above-described rights is described (as the
  “Acquisition Price”) in the attached Schedule of Mortgage Loans.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Seller hereby reaffirms the representations, warranties and covenants
  made in that certain Mortgage Loan Purchase and Sale Agreement between Seller
  and Purchaser with respect to Seller on and as of the Effective Date stated
  therein and with respect to the sold Mortgage Loans on the Acquisition Date,
  and it hereby remakes all such representations, warranties and covenants on
  and as of the Acquisition Date.

  
	
   

  	
   

  	
   

  
	
  Definitions

  	
   

  	
  Terms used but not defined herein shall have the meanings assigned to
  them in the above-referenced Mortgage Loan Purchase and Sale Agreement.

  
	
   

  	
   

  	
   

  
	
  NAME OF SELLER:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  AUTHORIZED SIGNATURE:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  NAME AND TITLE:

  	
   

  	
   

  

 

C - 2

 

Schedule to
Exhibit C, Loan Sale Confirmation

 

SCHEDULE OF
MORTGAGE LOANS

 

SELLER:

 

DATE:

 

	
  Mortgage Loan

  Number

  	
   

  	
  Mortgagor Last

  Name

  	
   

  	
  Principal

  Amount

  	
   

  	
  Acquisition

  Price

  	
   

  	
  Takeout

  Investor

  	
   

  	
  Takeout

  Funding

  Amount

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TOTAL

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

THIS FORM NOT NECESSARY IF SELLER IS TRANSMITTING DATA
ELECTRONICALLY

 

C - 3

 

Exhibit
D

 

Dry Funding Documents Package

 

1.                                       Photocopy
of Takeout Commitment, or Takeout Commitment information in format acceptable
to MBF, except to the extent provided to the contrary in an Annex to this
Agreement.

 

2.                                       The
original Mortgage Note as signed and bearing all intervening endorsements,
endorsed “Pay to the order of                     
without recourse” and signed in the name of the last endorsee (the “Last
Endorsee”) by an authorized Person (in the event that the Mortgage Loan was
acquired by the Last Endorsee in a merger, the signature must be in the
following form:  “[Last Endorsee],
successor by merger to [name of predecessor]”; in the event that the Mortgage
Loan was acquired or originated by the Last Endorsee while doing business under
another name, the signature must be in the following form:  “[Last Endorsee], formerly known as [previous
name]”).

 

3.                                       Unless
such Mortgage Loan is a MERS Designated Mortgage Loan, an original Assignment
in Blank for the Mortgage Loan, in form and substance acceptable for recording
and signed in the name of the Last Endorsee by an authorized Person (in the
event that the Mortgage Loan was acquired by the Last Endorsee in a merger, the
signature must be in the following form: 
“[Last Endorsee], successor by merger to [name of predecessor]”; in the
event that the Mortgage Loan was acquired or originated by the Last Endorsee
while doing business under another name, the signature must be in the following
form:  “[Last Endorsee], formerly known
as [previous name]”). In the case of a MERS Designated Mortgage Loan that is
not a MOM Loan, original assignment(s) showing a complete chain of title from
the originator to MERS.

 

4.                                       An
original Warehouse Lender’s Release (if the Mortgage Loan is subject to a lien
held by a third party Warehouse Lender).

 

5.                                       Photocopy
of Mortgage as signed (with or without recording information on face of
document but in the case of a MERS Designated Mortgage Loan, with evidence of
the MIN).

 

Wet Funding Documents Package

 

1.                                       Photocopy
of Takeout Commitment, or Takeout Commitment information in format acceptable
to MBF, except to the extent provided to the contrary in an Annex to this
Agreement.

 

2.                                       Unless
such Mortgage Loan is a MERS Designated Mortgage Loan, a photocopy of
Assignment in Blank for the Mortgage Loan, in form and substance acceptable for
recording and signed in the name of the Last Endorsee by an authorized Person
(in the event that the Mortgage Loan was acquired by the Last Endorsee in a
merger, the signature must be in the

 

D - 1

 

following form: 
“[Last Endorsee], successor by merger to [name of predecessor]”; in the
event that the Mortgage Loan was acquired or originated by the Last Endorsee
while doing business under another name, the signature must be in the following
form:  “[Last Endorsee], formerly known
as [previous name]”). In the case of a MERS Designated Mortgage Loan that is
not a MOM Loan, original assignment(s) showing a complete chain of title from
the originator to MERS.

 

3.                                       Photocopy
of Mortgage Note prepared for signature of Mortgagor.

 

4.                                       Photocopy
of Mortgage prepared for signature of Mortgagor (but in the case of a MERS
Designated Mortgage Loan, with evidence of the MIN).

 

5.                                       Closing
Agent’s Wire Instructions.

 

6.                                       Photocopy
of Escrow Instructions from MBF, acknowledged by Closing Agent.

 

D - 2

 

Exhibit
E

 

Seller’s Power of Attorney

 

LIMITED POWER OF
ATTORNEY

 

 (“Seller”) has entered into that certain
Mortgage Loan Purchase and Sale Agreement dated as of                     ,
200      , as the same may be amended or
supplemented from time to time (the “Purchase Agreement”), by and between
Seller and WASHINGTON MUTUAL BANK, FA. All capitalized terms not defined herein
shall have the meanings given them in the Purchase Agreement.

 

Seller hereby appoints Washington Mutual Bank, FA as
special attorney-in-fact (“Attorney-in-Fact”) to supply missing Mortgage Note
endorsements and missing assignments of Mortgages, on an as needed basis, with
regard to Mortgage Loans sold to Washington Mutual Bank, FA pursuant to the
Purchase Agreement.

 

Attorney-in-Fact accepts such appointment and appoints
the persons named on that certain Power of Attorney dated as of                     ,
of which a facsimile is attached hereto and incorporated herein by reference,
as same may be amended by Attorney-in-Fact from time to time, as its agents.

 

This Limited Power of Attorney shall commence and be
in full force and effect as of the date hereof and shall remain and be in full
force and effect until revoked in writing by Attorney-in-Fact or revoked in
writing by Seller, in a format acceptable to Attorney-in-Fact, such as the form
of Revocation of Limited Power of Attorney attached hereto as Exhibit E-1,
effective as of the date signed by Attorney-in-Fact.

 

This Limited Power of Attorney is coupled with the
interest of Washington Mutual Bank, FA, in each such Mortgage Loan as the
purchaser and owner thereof pursuant to the terms of the Purchase Agreement.

 

Seller does hereby ratify and confirm that the
Attorney-in-Fact may exercise any power or authority granted hereunder,
irrespective of whether or not a default or an Event of Default has occurred
under the Purchase Agreement. The rights and powers of Attorney-in-Fact
hereunder are cumulative of all other rights, remedies, and recourse of
Washington Mutual Bank, FA under the Purchase Agreement.

 

Seller hereby covenants and agrees that it will
indemnify, defend, and hold harmless the Attorney-in-Fact and its officers
acting hereunder from and against any and all claims, demands, or causes of
action, in any way associated with or related to the acts performed under this
Limited Power of Attorney.

 

E - 1

 

IN WITNESS WHEREOF, this instrument is executed by
Seller on this            
day of                             ,
200     .

 

	
   

  	
  SELLER:

  
	
   

  	
   

  
	
   

  	
  [

  	
  ]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  
	
   

  
	
  STATE OF 

  	
   

  	
   

  
	
   

  
	
  COUNTY OF 

  	
   

  	
   

  
										

 

	
  This instrument was acknowledged before me
  this            day
  of                     ,
  200     , by 

  
	
   

  	
  on behalf of

  
	
   

  	
  .

  
	
   

  
	
   

  	
   

  
	
  [SEAL]

  	
  Notary Public in and for the State of

  	
   

  
	
   

  	
   

  
	
  ACKNOWLEDGED BY

  	
   

  
	
  ATTORNEY-IN-FACT:

  	
   

  
	
   

  	
   

  
	
  WASHINGTON MUTUAL BANK, FA,

  	
   

  
	
  a federal association

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
								

 

E - 2

 

Exhibit
E-1

 

Revocation of Limited Power of Attorney

 

[date]

 

WASHINGTON MUTUAL BANK, FA

Attn: Carol A. Robertson

Legal Department

9200 Oakdale Avenue

Chatsworth, CA 91311

Phone: (818) 775-3392

Fax: (818) 349-2734

 

Reference is made herein to that Limited Power of
Attorney granted by                                                          

                                                                           (“Seller”)
to WASHINGTON MUTUAL BANK, FA,a federal association

(“Attorney-in-Fact”) dated as of                    ,
200     .

 

This document acknowledges and constitutes that Seller
hereby revokes, rescinds, and terminates said Limited Power of Attorney and all
authority, rights, and power thereto, effective this date. Grantor hereby
reaffirms and agrees that it will indemnify, defend, and hold harmless the
Attorney-in-Fact and its officers acting under said Limited Power of Attorney
from and against any and all claims, demands, or causes of action, in any way
associated with or related to the acts performed under the Limited Power of
Attorney. This Revocation of Limited Power of Attorney is effective as of the
date signed by Attorney-in-Fact.

 

Signed under seal as of the date above written:

 

	
   

  	
   

  
	
   

  	
  [

  	
   

  	
  ]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
							

 

E-1 - 1

 

STATE OF 

COUNTY OF 

 

This instrument was acknowledged before me this       
day of                              ,
200     , by 

                                                    ,
                                                               
on behalf of .                                                                                                                  .

 

 

	
   

  	
   

  
	
  [SEAL]

  	
  Notary Public in and for the State of

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ACKNOWLEDGED BY

  
	
   

  	
  ATTORNEY-IN-FACT:

  
	
   

  	
   

  
	
   

  	
  WASHINGTON MUTUAL BANK, FA,

  
	
   

  	
  a federal association

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
  Date:

  	
   

  
						

 

E-1 - 2

 

Exhibit
F

 

Warehouse Lender’s Release

 

Ladies and Gentlemen:

 

We hereby release all right, interest or claim of any
kind with respect to the mortgage loan(s) referenced below, such release to be
effective automatically without any further action by any part, upon receipt of
payment/funding, in one or more installments, from Washington Mutual Bank, FA,
in accordance with the wire instructions which we delivered to you in a letter
dated                          ,
200     , in immediately available funds.

 

	
  Loan
  #

  	
   

  	
  Mortgagor

  	
   

  	
  Note Amount

  	
   

  	
  Warehouse Amount

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  [WAREHOUSE LENDER]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

F - 1

 

Exhibit G

 

Guaranty

 

THIS GUARANTY (this
“Guaranty”) dated as of                      ,
200    , is made by                                                         
(“Guarantor”) in favor of WASHINGTON MUTUAL BANK, FA, a federal association
(“Washington Mutual”).

 

WITNESSETH

 

WHEREAS, Washington Mutual
has completed or may hereafter complete certain transactions with                                   
(“Seller”) pursuant to the terms of a Mortgage Loan Purchase and Sale Agreement
of even date herewith (the “Purchase Agreement”);

 

WHEREAS, Washington Mutual
may have completed, or may hereafter complete, certain secured loans to Seller
pursuant to one or more warehouse line of credit agreements (collectively, the
“Loan Agreement”)

 

WHEREAS, the Guarantor will
derive substantial benefits from the completion of such transactions with
Seller and such loans to Seller;

 

AGREEMENT

 

NOW, THEREFORE, (i) to
induce MBF, at any time from time to time, to complete such transactions,
(ii) at the special insistence and request of MBF, and (iii) for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Guarantor hereby agrees as follows:

 

1.             Guarantor hereby absolutely and unconditionally
guarantees the prompt and punctual payment and performance when due (whether at
its maturity, by lapse of time, by acceleration or otherwise) of the Guaranteed
Obligations (hereinafter defined).  This
is a specific guaranty applicable to and guaranteeing any and all amounts
(including interest accrued subsequent to the filing of any petition under any
bankruptcy, insolvency or similar law) owing or which hereafter become owing to
MBF under the Purchase Agreement or the Loan Agreement, or in connection with
any Mortgage Loan sold and purchased under the Purchase Agreement or pledged
under the Loan Agreement, together with all renewals, extensions, increases,
replacements, and rearrangements thereof, including all present and future
amounts that would become due but for the operation of §502 or §506 or any
other provision of Title 11 of the United States Code (hereinafter called
the “Guaranteed Obligations”).

 

2.             Guarantor hereby waives marshalling of assets and
liabilities, sale in inverse order of alienation, notice of acceptance of this
Guaranty and of any indebtedness, obligation or liability to which it applies
or may apply, and waives presentment and demand for payment thereof, notice of
dishonor or nonpayment thereof, notice of intention to accelerate, notice of
acceleration, protest, and notice thereof and all other notices and demands,
collection or instigation of suit or any other action by MBF in collection
thereof, including any notice of default in payment thereof or other notice to,
or demand of payment therefor on, any party other than demand on Guarantor for
payment under this Guaranty.  Further,
Guarantor expressly

 

G
- 1

 

waives each and every right to which it may
be entitled by virtue of the suretyship law of the State of Texas including
without limitation, any rights it may have pursuant to Rule 31, Texas
Rules of Civil Procedure, V.T.C.A., Civil Practice and Remedies Code §17.001
and Chapter 34 of the Texas Business and Commerce Code.

 

3.             Guarantor agrees to pay to MBF its collection costs,
including reasonable attorneys’ fees, but in no event to exceed the maximum
amount permitted by law, if the Guaranteed Obligations are not paid by
Guarantor upon demand when due as required herein or if this Guaranty is
enforced by suit or through probate or bankruptcy court or through any judicial
proceedings whatsoever, and should it be necessary to reduce MBF’s claim to
judgment, such judgment shall bear interest at the rate of 10% per annum or
such greater maximum rate, if any, allowed by applicable laws.

 

4.             This is an absolute and unconditional guaranty of payment
and not of collection, by Guarantor, jointly and severally with any other
guarantor of the Guaranteed Obligations in each and every particular, and
Guarantor waives any right to require that (a) any action be brought
against Seller or any other person or entity, (b) MBF enforce its rights
against any other guarantor of the Guaranteed Obligations, (c) MBF proceed
or enforce its rights against or exhaust any security given to secure the
Guaranteed Obligations, (d) MBF has Seller joined with Guarantor or any
other guarantor of all or part of the Guaranteed Obligations in any suit
arising out of this Guaranty and/or the Guaranteed Obligations, or (e) MBF
pursue any other remedy in MBF’s powers whatsoever.  MBF shall not be required to mitigate damages
or take any action to reduce, collect or enforce the Guaranteed
Obligations.  Guarantor waives any
defense arising by reason of any disability, lack of corporate authority or
power, or other defense of Seller or any other guarantor of the Guaranteed
Obligations, and shall remain liable hereon regardless of whether Seller or any
other guarantor be found not liable thereon for any reason other than payment
in full of the Obligations, subject to Paragraph 7 of this Guaranty.  Should MBF seek to enforce the obligations of
Guarantor by action in any court, Guarantor waives any necessity, substantive
or procedural, that a judgment previously be rendered against Seller or any
other person or entity or that Seller or any other person or entity be joined
in such cause or that a separate action be brought against Seller or any other
person or entity.  The obligations of
Guarantor hereunder are several from those of Seller or any other person or
entity (including without limitation any other surety for Seller), and are primary
obligations concerning which Guarantor is the principal obligor.  All waivers herein contained shall be without
prejudice to MBF at its option to proceed against Seller or any other person or
entity, whether by separate action or by joinder.  The payment by Guarantor of any amount
pursuant to this Guaranty shall not in anywise entitle Guarantor to any right,
title or interest (whether by way of subrogation or otherwise) in and to any of
the Guaranteed Obligations or any proceeds thereof, or any security therefor,
unless and until the full amount owing to MBF on the Guaranteed Obligations has
been fully paid, but when the same has been fully paid Guarantor shall be
subrogated as to any payments made by the Guarantor to the rights of MBF as
against Seller and/or any endorsers, sureties or other guarantors.

 

5.             Guarantor agrees that suit may be brought against
Guarantor and any other guarantors of the Guaranteed Obligations, jointly and
severally, and against one or more of them, less than all, without impairing
the rights of MBF, its successors or assigns, against the other guarantors; nor
shall MBF be required to join Seller or any other guarantor or liable party in
a

 

G
- 2

 

suit against a particular guarantor; and MBF
may release Seller and/or one or more guarantor(s) or settle with such persons
or entities as MBF deems fit without releasing or impairing the rights of MBF
to demand and collect the balance of such indebtedness from the other remaining
guarantors not so released.

 

6.             Guarantor hereby consents and agrees to each of the
following to the fullest extent permitted by law, and agrees that the
Guarantor’s obligations under this Guaranty shall not be released, diminished,
impaired, reduced or adversely affected by any of the following, and waives any
rights (including without limitation rights to notice) which Guarantor might
otherwise have as a result of or in connection with any of the following:

 

(a)           Any renewal, extension, modification,
increase, decrease, alteration or rearrangement of all or any part of the
Guaranteed Obligations or the Purchase Agreement, the Loan Agreement or any
other contract or understanding between Seller and MBF, or any other person or
entity, pertaining to the Guaranteed Obligations;

 

(b)           Any adjustment, indulgence,
forbearance or compromise that might be granted or given by MBF to Seller or
Guarantor or any person or entity liable on the Guaranteed Obligations;

 

(c)           The insolvency, bankruptcy
arrangement, adjustment, composition, liquidation, disability, dissolution,
death or lack of power of Seller or Guarantor or any other person or entity at
any time liable for the payment of all or part of the Guaranteed Obligations;
or any dissolution of Seller or Guarantor, or any sale, lease or transfer of
any or all of the assets of Seller or Guarantor, or any changes in the
shareholders, partners, or members of Seller or Guarantor; or any
reorganization of Seller or Guarantor;

 

(d)           The invalidity, illegality or
unenforceability of all or any part of the Guaranteed Obligations or the
Purchase Agreement, the Loan Agreement or any other document or agreement
executed in connection with the Guaranteed Obligations, for any reason
whatsoever, including without limitation the fact that the Guaranteed
Obligations, or any part thereof, exceed the amount permitted by law, the act
of creating the Guaranteed Obligations or any part thereof is ultra vires, the
officers or representatives executing the documents or otherwise creating the
Guaranteed Obligations acted in excess of their authority, the Guaranteed
Obligations violate applicable usury laws, Seller has valid defenses, claims or
offsets (whether at law, in equity or by agreement) which render the Guaranteed
Obligations wholly or partially uncollectible from Seller, the creation,
performance or repayment of the Guaranteed Obligations (or the execution,
delivery and performance of any document or instrument representing part of the
Guaranteed Obligations or executed in connection with the Guaranteed
Obligations, or given to secure the repayment of the Guaranteed Obligations) is
illegal, uncollectible, legally impossible or unenforceable, or the documents
or instruments pertaining to the Guaranteed Obligations have been forged or
otherwise are irregular or not genuine or authentic;

 

(e)           Any full or partial release of the
liability of Seller on the Guaranteed Obligations or any part thereof, of any
co-guarantors, or any other person or entity now

 

G
- 3

 

or hereafter liable, whether
directly or indirectly, jointly, severally, or jointly and severally, to pay,
perform, guarantee or assure the payment of the Guaranteed Obligations or any
part thereof, it being recognized, acknowledged and agreed by Guarantor that
Guarantor may be required to pay the Guaranteed Obligations in full without
assistance or support of any other person or entity, and Guarantor has not been
induced to enter into this Guaranty on the basis of a contemplation, belief,
understanding or agreement that other parties other than Seller will be liable
to perform the Guaranteed Obligations, or MBF will look to other parties to
perform the Guaranteed Obligations;

 

(f)            The taking or accepting of any other
security, collateral or guaranty, or other assurance of payment, for all or any
part of the Guaranteed Obligations;

 

(g)           Any release, surrender, exchange,
subordination, deterioration, waste, loss or impairment of any collateral,
property or security, at any time existing in connection with, or assuring or
securing payment of, all or any part of the Guaranteed Obligations;

 

(h)           The failure of MBF or any other
person or entity to exercise diligence or reasonable care in the preservation,
protection, enforcement, sale or other handling or treatment of all or any part
of such collateral, property or security;

 

(i)            The fact that any collateral,
security, security interest or lien contemplated or intended to be given,
created or granted as security for the repayment of the Guaranteed Obligations
shall not be properly perfected or created, or shall prove to be unenforceable
or subordinate to any other security interest or lien, it being recognized and
agreed by Guarantor that Guarantor is not entering into this Guaranty in
reliance on, or in contemplation of the benefits of, the validity,
enforceability, collectability or value of any of the collateral for the
Guaranteed Obligations;

 

(j)            Any payment by Seller to MBF is held
to constitute a preference under the bankruptcy laws, or for any reason MBF is
required to refund such payment or pay such amount to Seller or someone else;

 

(k)           Any other action taken or omitted to
be taken with respect to the Guaranteed Obligations, or the security and
collateral therefor, whether or not such action or omission prejudices
Guarantor or increases the likelihood that Guarantor will be required to pay
the Guaranteed Obligations pursuant to the terms hereof; it being the
unambiguous and unequivocal intention of Guarantor that Guarantor shall be
obligated to pay the Guaranteed Obligations when due, notwithstanding any
occurrence, circumstance, event, action, or omission whatsoever, whether
contemplated or uncontemplated, and whether or not otherwise or particularly
described herein, except for the full and final payment and satisfaction of the
Guaranteed Obligations; or

 

(l)            The fact that all or any of the
Guaranteed Obligations cease to exist by operation of law, including without
limitation by way of a discharge, limitation or tolling thereof under
applicable bankruptcy laws.

 

7.             In the event any payment by Seller
or any other guarantor of all or part of the Guaranteed Obligations to MBF is
held to be a preference under the bankruptcy laws, or if for

 

G - 4

 

any other reason MBF is
required to refund such payment or pay the amount thereof to any other party,
such payment by Seller or by such guarantor to MBF shall not constitute a
release of Guarantor from any liability respecting payment of the Guaranteed
Obligations, and Guarantor agrees to pay such amount to MBF upon demand.

 

8.             It is the intention of the parties
hereto to comply with applicable usury laws; accordingly, it is agreed that
notwithstanding any provision to the contrary in the Guaranteed Obligations or
in this Guaranty, in any note or other instrument, or in any documents securing
payment thereof or hereof, or otherwise relating thereto or hereto, no such
provision shall require the payment or permit the collection of interest in
excess of the maximum permitted by such laws. 
If any excess of interest in such respect is provided for, or shall be
adjudged to be so provided for, then in such event (a) the provisions of
this paragraph shall govern and control, (b) neither Guarantor nor
Guarantor’s heirs, successors, or assigns or any other party liable for the
payment hereof shall be obligated to pay the amount of such interest to the
extent that it is the excess of the maximum amount permitted by such laws,
(c) any such excess which may have been collected shall be, at MBF’s
option, either applied as a credit against the then unpaid principal amount
owing on the Guaranteed Obligations, or refunded, and (d) the effective
rate of interest covered by this Guaranty shall be automatically subject to
reduction to the maximum lawful rate allowed under applicable usury laws.

 

9.             This Guaranty is for the benefit of
MBF, and for such other persons and entities as may from time to time become or
be the holders of any Guaranteed Obligations; and this Guaranty shall be
transferable and negotiable, with the same force and effect and to the same
extent as the Guaranteed Obligations may be transferable, it being understood
that upon the assignment or transfer by MBF of any Guaranteed Obligations, the
legal holder of such Guaranteed Obligations shall have all of the rights
granted to MBF under this Guaranty.

 

10.           Payment of all amounts hereunder
shall be made at the offices of MBF.

 

11.           The term “Other Indebtedness” as used
herein means all indebtedness, if any, of Seller to MBF other than the
Guaranteed Obligations.  If, at any time,
there is Other Indebtedness, (a) MBF, without in any manner impairing its
rights hereunder, may at its option, but subject to the requirements of the
Purchase Agreement or the Loan Agreement which shall prevail in the case of any
conflict between the Purchase Agreement or the Loan Agreement and this
Guaranty, exercise rights of offset by applying any deposit balances to the
credit of Seller, first, to the Other Indebtedness, and the balance, if any, to
the Guaranteed Obligations, and (b) except as stated in the last sentence
of this paragraph, MBF may apply all amounts realized by MBF from collateral or
security held by MBF of the payment of Seller’s indebtedness, first, to the
Other Indebtedness and the balance, if any, to the Guaranteed Obligations.  If a particular security instrument expressly
requires an application different from that permitted under the preceding
sentence, proceeds realized by MBF from such security instrument shall be
applied as provided in such instrument.

 

12.           Any notice, request or other
communication required or permitted to be given hereunder shall be given in
writing by delivering the same against receipt therefor or by depositing the
same in the United States Postal Service, postage prepaid, registered or
certified mail, return receipt requested, addressed to the respective parties
at the address shown below or

 

G - 5

 

to such other address as the
intended recipient may have specified in a prior written notice received by the
sender (and if so given, shall be deemed given when mailed).

 

13.           This Guaranty shall not be wholly or
partially satisfied or extinguished by Guarantor’s partial payment of any
amount due on the Guaranteed Obligations, but shall continue in full force and
effect as against Guarantor for the full amount of the Guaranteed Obligations
until payment in full thereof.

 

14.           This Guaranty shall be binding upon
Guarantor, its successors and assigns and shall inure to the benefit of, and be
enforceable by MBF and its successors and assigns and each and every other
person who shall from time to time be or become the owner or holder of any of
the Guaranteed Obligations.

 

15.           The release by MBF of Seller or one
or more other guarantors of all or part of the Guaranteed Obligations shall not
affect the Guarantor, who shall remain fully liable in accordance with the
terms of this Guaranty.

 

16.           This Guaranty, whether continuing,
specific, and/or limited, shall be in addition to and cumulative of, and not in
substitution, novation or discharge of, any and all prior or contemporaneous
guaranty agreements by Guarantor or other persons or entities, in favor of MBF
or assigned to MBF by others.  This
Guaranty is in addition to and not in substitution, replacement or
extinguishment of any other prior guaranties of the Guarantor covering the
Guaranteed Obligations.

 

17.           Guarantor represents and warrants
that (i) this Guaranty is not given with actual intent to hinder, delay or
defraud any entity to which Guarantor is or will become, on or after the date
hereof, indebted; (ii) Guarantor is not engaged in a business or
transaction, nor is about to engage in a business or transaction, for which any
property remaining with Guarantor constitutes an unreasonably small amount of
capital; or (iii) Guarantor does not intend to incur debts that will be
beyond the Guarantor’s ability to pay as such debts mature.

 

18.           This Guaranty shall be governed by
and construed and interpreted in accordance with the laws of the United States
of America and the State of Texas.

 

19.           Guarantor
hereby represents and warrants to MBF as follows:

 

(a)           Financial Statements.  Any financial statements and data which have
heretofore been given to MBF with respect to the Guarantor fairly present in
all material respects the financial condition of the Guarantor as of the date
thereof, and, since the date thereof, there has been no material adverse change
in the financial condition of the Guarantor. 
Guarantor shall promptly deliver to MBF, or Seller in time for Seller to
deliver the same to MBF, all financial statements of the Guarantor required to
be delivered to MBF pursuant to the Purchase Agreement.

 

(b)           Address.  The address of the Guarantor as specified
below is true and correct and until MBF shall have actually received a written
notice specifying a change of address and specifically requesting that notices
be issued to such changed address, MBF may rely on the address stated as being
accurate.

 

G - 6

 

20.           No delay on the part of MBF in
exercising any right hereunder or failure to exercise the same shall operate as
a waiver of such right, nor shall any single or partial exercise of any right,
power or privilege bar any further or subsequent exercise of the same or any
other right, power or privilege.

 

21.           This Guaranty shall not be changed
orally, but shall be changed only by agreement in writing signed by the person
against whom enforcement of such change is sought.

 

22.           The masculine and neuter genders used
herein shall each include the masculine, feminine and neuter genders and the
singular number used herein shall include the plural number.  The words “person” and “entity” shall include
without limitation individuals, corporations, partnerships, joint ventures,
associations, joint stock companies, trusts, unincorporated organizations, and
governments and any agency or political subdivision thereof.

 

23.           If any provision of this Guaranty is
determined to be invalid by any court of competent jurisdiction or to be in
violation of any applicable law, such invalidity or violation shall have no
effect on any other provisions of this Guaranty (which shall remain valid and
binding and in full force and effect) or in any other jurisdiction, and to that
end the provisions of this Guaranty shall be considered severable.

 

24.           If this Guaranty is given by a
corporation, then the undersigned guaranteeing corporation does hereby
acknowledge that it has investigated fully the benefits and advantages which
will be derived by the undersigned from execution of this Guaranty, and the
Board of Directors of the undersigned corporation has decided that, and the
undersigned corporation does hereby acknowledge, warrant and represent that, a
direct or an indirect benefit will accrue to the undersigned by reason of
execution of this Guaranty.

 

25.           Guarantor hereby expressly waives any
right to a trial by jury in any action or legal proceeding arising out of or
relating to this Guaranty or the Purchase Agreement or the Loan Agreement for
the transactions contemplated hereby or thereby.

 

26.           All terms used herein that are not
defined in this Guaranty shall have the meanings assigned to them in the
Purchase Agreement or the Loan Agreement.

 

27.           With
respect to any and all disputes arising hereunder, the Guarantor hereby
irrevocably and unconditionally:

 

(a)           Submits
for himself and his property in any legal action or proceeding relating to this
Guaranty or for recognition and enforcement of any judgment in respect of any
thereof, to the non-exclusive general jurisdiction of the courts of the State
of Texas, the courts of the United States of America for the Southern District
of Texas, and appellate courts from any thereof;

 

(b)           Consents
that any such action or proceeding may be brought in such courts, and waives
any objection that it may now or hereafter have to the venue of 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;

 

G - 7

 

(c)           Agrees
that service of process in any such action or proceeding may be effected by
mailing a copy thereof by first class registered or certified mail (or any
substantially similar form and mail), postage prepaid, to it at its address
specified on the signature page hereof; and

 

(d)           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.

 

(e)           Agrees
that this Guaranty represents the final, entire agreement among the parties
hereto and supersedes any and all prior commitments, agreements,
representations and understandings, whether written or oral, relating to the subject
matter hereof and thereof and may not be contradicted or varied by evidence of
prior, contemporaneous or subsequent oral agreements or discussions of the
parties hereto.  There are no unwritten
oral agreements among the parties hereto.

 

 

[Signature page follows]

 

G - 8

 

	
   

  	
  GUARANTOR:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  STATE OF                                                                      )

  	
   

  
	
                                                                                           )
  ss

  	
   

  
	
  COUNTY OF                                                                  )

  	
   

  
						

 

 

This instrument was acknowledged before me on
this          day of                                              ,
200     ,

by                                                                                                                                       .

 

	
   

  	
   

  
	
  NOTARY PUBLIC, STATE OF

  	
   

  	
   

  
			

 

 

[SEAL]

 

G - 9

 

Exhibit H

 

Compliance Certificate

	
  SELLER:

  	
   

  	
  KH FINANCIAL, L.P., an Illinois limited partnership

  
	
  MBF:

  	
   

  	
  WASHINGTON MUTUAL BANK, FA,  a federal association

  
	
  TODAY’S DATE:

  	
   

  	
          /        /20        

  
	
  REPORTING PERIOD ENDED:

  	
   

  	
         /        /        

  

 

This
certificate is delivered to MBF pursuant to the Mortgage Loan Purchase and Sale
Agreement dated as of October 14, 2004 between Seller and MBF (the “Agreement”).
All the defined terms of which have the same meanings when used herein.

 

I
hereby certify that:  (a) I am, and
at all times mentioned herein have been, the duly elected, qualified, and
acting officer of Seller designated below; (b) to the best of my
knowledge, the financial statements of Seller from the period shown about (the “Reporting
Period”) and which accompany this certificate were prepared in accordance with
GAAP and present fairly the financial condition of Seller as of the end of the
Reporting Period and the results of its operations for Reporting Period; (c) a
review of the Agreement and of the activities of Seller during the Reporting
Period has been made under my supervision with a view to determining Seller’s
compliance with the covenants, requirements, terms, and conditions of the
Agreement, and such review has not disclosed the existence during or at the end
of the Reporting Period (and I have no knowledge of the existence as of the
date hereof) of any Default or Event of Default, except as disclosed herein
(which specifies the nature a d period of existence of each Default or Event of
Default, if any, and what action Seller has taken, is taking, and proposes to
take with respect to each); and (d) the calculations described herein
evidence that Seller is in compliance with the requirements of
Sections 13.11, 13.12 and 13.13 of the Agreement at the end of the
Reporting Period (or if Seller is not in compliance, showing the extent of
non-compliance and specifying the period of non-compliance and what actions
Seller proposes to take with respect thereto).

 

	
  [NAME OF SELLER]

  
	
  By:

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  

 

	
  SELLER:

  	
  [NAME OF SELLER]

  
	
  REPORTING PERIOD ENDED:

  	
          /        /                

  

 

H - 1

 

All
financial calculations set forth herein are as of the end of the Reporting
Period.

 

I.                                         ADJUSTED TANGIBLE NET WORTH

 

	
  The Tangible
  Net Worth of Seller is:

  	
   

  
	
  Shareholder’s
  Equity:

  	
   

  	
  $

  	
   

  
	
  Minus:
  Intangible Assets:

  	
   

  	
  $

  	
   

  
	
  Minus:
  Advances of loans to Affiliates:

  	
   

  	
  $

  	
   

  
	
  Minus:
  Investments in Affiliates:

  	
   

  	
  $

  	
   

  
	
  Minus:
  Assets pledged to secure liabilities not included in Debt:

  	
   

  	
  $

  	
   

  
	
  Minus: Any
  other Agency nonacceptable assets:

  	
   

  	
  $

  	
   

  
	
  TANGIBLE NET
  WORTH:

  	
   

  	
  $

  	
   

  
	
  The Adjusted Tangible Net Worth of Seller
  is:

  
	
  Tangible Net
  Worth (from above):

  	
   

  	
  $

  	
   

  
	
  Plus:
  Subordinated Debt:

  	
   

  	
  $

  	
   

  
	
  Plus: 1.00%
  times unpaid principal balance of Mortgage Loans for which Seller owns the
  servicing rights:

  	
   

  	
  $

  	
   

  
	
  ADJUSTED
  TANGIBLE NET WORTH:

  	
   

  	
  $

  	
   

  
	
  REQUIRED MINIMUM

  	
   

  	
  $4,200,000.00

  	
   

  
	
  In
  compliance?

  	
   

  	
  [Yes or No]

  	
   

  

 

II.                                     DEBT OF SELLER

 

	
  Total
  Liabilities

  	
   

  	
  $

  	
   

  	
   

  
	
  Minus: Loan loss reserves:

  	
   

  	
  $

  	
   

  	
   

  
	
  Minus: Deferred taxes arising from
  capitalized excess servicing fees, operating leases and Subordinated Debt:

  	
   

  	
  $

  	
   

  	
   

  
	
  DEBT:

  	
   

  	
  $

  	
   

  	
   

  

 

III.                                 DEBT TO ADJUSTED TANGIBLE
NET WORTH

 

	
  Debt (from
  above):

  	
   

  	
  $

  	
   

  	
   

  
	
  Adjusted Tangible Net Worth (from above)

  	
   

  	
  $

  	
   

  	
   

  
	
  RATIO OF DEBT TO ADJUSTED TANGIBLE NET
  WORTH:

  	
   

  	
       :1

  	
   

  
	
  Maximum permitted

  	
   

  	
  12:1

  	
   

  
	
  In compliance?

  	
   

  	
  [Yes or No]

  	
   

  

 

H - 2

 

IV.                                CURRENT RATIO

 

	
  Current Assets (assets that are now cash or will
  be by their terms or disposition be to cash within one year of the date of
  calculation)

  	
   

  	
  $

  
	
  Current Liabilities (liabilities due upon demand
  or within one year from the date of calculation)

  	
   

  	
  $

  
	
  RATIO OF CURRENT ASSETS TO
  CURRENT LIABILITIES

  	
   

  	
        :1

  
	
  Minimum Required

  	
   

  	
  1.05:1

  
	
  In compliance?

  	
   

  	
  [Yes or No]

  

 

V.                                    THIRD PARTY REPORTS

 

All reports received from third parties (such
as the SEC, FNMA, GNMA, FHLMC) subsequent to the last reporting period are
attached hereto. These reports include the following (if none, write “None”):

 

VI.                                DEFAULTS OR EVENTS OF
DEFAULT

 

Disclose nature and period of
existence and action being taken in connection therewith; if none, write “None”:

 

H - 3

 

Exhibit I

 

Takeout Investors

(effective as of            ,
200    )

 

[to be
provided]

 

I - 1

 

Exhibit J

 

ELECTRONIC
TRACKING AGREEMENT

 

This ELECTRONIC TRACKING AGREEMENT dated as of                      ,
200    (this “Agreement”) is by and among WASHINGTON MUTUAL BANK, FA (“Bank”), MERSCORP, INC. (“Electronic Agent”), MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.
(“MERS”) and                                                                ,
a                            
(“Company”).

 

WHEREAS, the Bank has agreed to extend a line of
credit to the Company for the purpose of the Company lending money to potential
homeowners for Mortgage Loans pursuant to the terms and conditions of the
Warehousing Credit and Security Agreement dated                             ,
20     , between the Bank and Company, as amended from
time to time (the “Credit Agreement”) and the Bank has agreed to purchase from
the Company, from time to time at its election, certain residential Mortgage
Loans pursuant to the terms and conditions of the Mortgage Loan Purchase and
Sale Agreement dated as of
                            ,
200   , between the Bank and the Company, as amended from time
to time (the “Early Purchase Agreement”); and

 

WHEREAS, pursuant to the Credit Agreement, the
Company is obligated to pledge Mortgage Loans to the Bank and service the
Mortgage Loans pursuant to the terms and conditions of the Credit Agreement and
to complete all actions necessary to cause the issuance and delivery to the
Bank of the Mortgage Notes (the “Mortgage Notes”); and

 

WHEREAS, pursuant to the Early Purchase Agreement,
the Company is obligated to sell Mortgage Loans to the Bank and service the
Mortgage Loans pursuant to the terms and conditions of the Early Purchase
Agreement and to complete all actions necessary to cause the Takeout Funding of
Mortgage Loans as defined in the Early Purchase Agreement and/or the issuance
and delivery to the Purchaser of mortgage-backed securities based upon the
Mortgage Loans issued or guaranteed by an Agency.

 

WHEREAS, the Bank and the Company desire to have all
Mortgage Loans registered on the MERS® System (defined below) such that the
mortgagee of record under each Mortgage (defined below) shall be identified as
MERS;

 

NOW, THEREFORE, the parties, intending to be legally
bound, agree as follows:

 

1.                                       Definitions.

 

Capitalized terms used in this Agreement shall have
the meanings ascribed to them below.

 

“Affected Loans” shall have the meaning
assigned to such term in Section 4(b).

 

“Agency” shall mean Fannie Mae, FHLMC, and/or
GNMA.

 

J - 1

 

“Agency Guide” shall mean, respecting GNMA
Securities, the GNMA Mortgage-Backed Securities Guide; respecting Fannie Mae
Securities, the Fannie Mae Selling Guide and the Fannie Mae Servicing Guide;
and respecting FHLMC Securities, the Freddie Mac Sellers’ and Servicers’ Guide;
in each case as such Agency Guide may be amended from time to time.

 

“Agency Program” shall mean the specific
mortgage-backed securities swap or purchase program under the relevant Agency
Guide or as otherwise approved by the Agency pursuant to which the Agency
Security for a given transaction is to be issued.

 

“Agency Security” shall mean a fully modified
pass-through mortgage-backed certificate guaranteed by GNMA, a guaranteed
mortgage pass-through certificate issued by Fannie Mae, or a mortgage
participation certificate issued by FHLMC, in each case representing or backed
by the Mortgage Pool which is the subject of a transaction. The particular
Agency Securities for the relevant Agency are alternatively referred to
as:  “GNMA Securities” (in the case of
GNMA), “Fannie Mae Securities” (in the case of Fannie Mae) and “FHLMC
Securities” (in the case of FHLMC).

 

“Agreement” shall have the meaning assigned
to it in the preamble hereof.

 

“Assignment of Mortgage” shall mean, with
respect to any 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 effect the
assignment of the Mortgage upon recordation.

 

“Company” shall have the meaning assigned to
it in the preamble hereof.

 

“Confidential Information” shall mean, with
respect to any party, all data and information submitted to any party or
obtained by any party in connection with the services, including information
relating to the Company’s, technology, operations, facilities, consumer
markets, products, capacities, systems, procedures, security practices,
research, development, business affairs, ideas, concepts, innovations,
inventions, designs, business methodologies, improvements, trade secrets,
copyrightable subject matter and other proprietary information, of any party.

 

“Credit Agreement” shall have the meaning
assigned to such term in the preamble hereof.

 

“Early Purchase Agreement” shall have the
meaning assigned to such term in the preamble hereof.

 

“Electronic Agent” shall have the meaning
assigned to it in the preamble hereof.

 

J - 2

 

“Event of Default” shall mean an “Event of
Default” as defined in the Credit Agreement and/or Early Purchase Agreement.

 

“Fannie Mae” shall mean the Federal National
Mortgage Association.

 

“FHLMC” shall mean the Federal Home Loan
Mortgage Corporation.

 

“GLB Act” shall mean the Gramm-Leach-Bliley
Act of 1999 (Public Law 106-102, 113 Stat. 1138), as it may be amended
from time to time.

 

“FHA” shall mean the Federal Housing
Administration.

 

“GNMA” shall mean the Government National
Mortgage Association.

 

“MERS” shall have the meaning assigned to it
in the preamble hereof.

 

“MERS Procedures Manual” shall mean the MERS
Procedures Manual attached as Exhibit B hereto, as it may be amended
from time to time.

 

“MERS Designated Mortgage Loan” shall mean
each Mortgage Loan for which MERS is the registered mortgagee of record, as
nominee for the Company, the Company is the registered servicer or subservicer,
and the Bank is the registered interim funder of record on the MERS®  System, all in accordance with the MERS
Procedures Manual.

 

“MERS® System” shall mean the Electronic
Agent’s mortgage electronic registry system, as more particularly described in
the MERS Procedures Manual.

 

“Mortgage” shall mean a lien, mortgage or
deed of trust securing a Mortgage Note.

 

“Mortgage Loan” shall mean each mortgage loan
that is pledged by Company to Bank pursuant to the Credit Agreement or
purchased by the Bank pursuant to the Early Purchase Agreement, secured by a
one- to four-family residence.

 

“Mortgage Loan Documents” shall mean the
originals of the Mortgage Notes and other documents and instruments.

 

“Mortgage Note” shall mean a promissory note
or other evidence of indebtedness of the obligor thereunder, representing a
Mortgage Loan, and secured by the related Mortgage.

 

“Mortgage Pool” shall mean a designated pool
of fully amortizing Mortgage Loans.

 

“Mortgagor” shall mean the obligor on a
Mortgage Note.

 

“Notice of Default” shall mean a notice from
the Bank that an Event of Default has occurred and is continuing.

 

J - 3

 

“Opinion of Counsel” shall mean a written
opinion of counsel in form and substance reasonably acceptable to the
Bank.

 

“Person” shall mean any individual,
corporation, company, voluntary association, partnership, joint venture,
limited liability company, trust, unincorporated association or government (or
any agency, instrumentality or political subdivision thereof).

 

“Third Party Claim” shall mean any action or
claim is brought against Bank by a third party, including the Company.

 

“VA” shall mean the Department of Veterans
Affairs.

 

2.                                       Appointment of the Electronic Agent.

 

(a)                                  The Bank and the Company, by execution and
delivery of this Agreement, each does hereby appoint MERSCORP, Inc. as the
Electronic Agent, subject to the terms of this Agreement, to perform the
obligations set forth herein.

 

(b)                                 MERSCORP, Inc., by execution and
delivery of this Agreement, does hereby (i) agree with the Bank and the
Company, subject to the terms of this Agreement, to perform the services
set forth herein, and (ii) accept its appointment as the Electronic Agent.

 

3.                                       Designation Mortgagee of Record, Servicer,
and Interim Funder.

 

The Company represents and warrants that it
has taken or will take such action with respect to each MERS Designated
Mortgage Loan as is necessary to cause MERS to be the registered mortgagee of
record as nominee for the Company, cause the Company to be the registered
servicer or subservicer, and the Bank to be the registered interim funder of
record on the MERS®  System, all in
accordance with the MERS Procedures Manual.

 

4.                                       Obligations of the Electronic Agent.

 

(a)                                  The Electronic Agent shall ensure that MERS,
as the mortgagee of record under each MERS Designated Mortgage Loan, shall
promptly forward all properly identified notices MERS receives in such capacity
to the person or persons identified on the MERS® System as the servicer or if a
subservicer is identified on the MERS® System, the subservicer for such MERS
Designated Mortgage Loan.

 

(b)                                 Upon receipt of a Notice of Default, in the form of
Exhibit C, from the Bank in which the Bank shall identify the MERS
Designated Mortgage Loans with respect to which the Company’s right to act as
servicer or subservicer thereof has been terminated by the Bank (the “Affected
Loans”), the Electronic Agent shall modify the investor fields and/or servicer
fields to reflect the investor and/or servicer on the MERS® System as the Bank
or the Bank’s designee with respect to such Affected Loans. Following such
Notice of Default, the Electronic Agent shall promptly follow the instructions
of the Bank with respect to the Affected Loans without further consent of or

 

J - 4

 

notice to the Company, and shall deliver to the Bank
any documents and/or information (to the extent such documents or information
are in the possession or control of the Electronic Agent) with respect to the
Affected Loans requested by the Bank.

 

(c)                                  Upon the Bank’s request and instructions, and
at the Company’s sole cost and expense, the Electronic Agent shall deliver to
the Bank or the Bank’s designee, with respect to each Affected Loan as to which
a request is made, an Assignment of Mortgage from MERS, in blank, in recordable
form but unrecorded with respect to each Affected Loan; provided however,
that the Electronic Agent shall not be required to comply with the foregoing
unless the costs and expenses of doing so shall be paid by the Company or a
third party.

 

(d)                                 The Electronic Agent shall promptly notify the
Bank in writing if it has actual knowledge that any mortgage, pledge, lien,
security interest or other charge or encumbrance exists with respect to any of
the Mortgage Loans. Upon the reasonable request of the Bank, the Electronic
Agent shall review the MERS field designated “interim funder” and shall notify
the Bank in writing if any Person (other than the Bank) is identified in the
field designated “interim funder”.

 

(e)                                  In the event that (i) the Company, the
Electronic Agent or MERS shall be served by a third party with any type of
levy, attachment, writ or court order with respect to any MERS Designated
Mortgage Loan or (ii) a third party shall institute any court proceeding
by which any MERS Designated Mortgage Loan shall be required to be delivered otherwise
than in accordance with the provisions of this Agreement, the Electronic Agent
shall promptly deliver or cause to be delivered to the other parties to this
Agreement copies of all court papers, orders, documents and other materials
concerning such proceedings.

 

(f)                                    Upon the request of the Bank, the Electronic
Agent shall run a query with respect to any and all specified fields with
respect to any or all of the MERS Designated Mortgage Loans and, if requested
by the Bank, shall change the information in such fields in accordance with the
Bank’s instructions.

 

(g)                                 MERS, as mortgagee of record for the MERS
Designated Mortgage Loans, shall promptly take all such actions as may be
required by a mortgagee in connection with servicing the MERS Designated Mortgage
Loans at the request of the applicable servicer identified on the MERS® System,
including, but not limited to, executing and/or recording, any modification,
waiver, subordination agreement, instrument of satisfaction or cancellation,
partial or full release, discharge or any other comparable instruments, at the
sole cost and expense of the Company and only if such costs and expenses are
paid by the Company or a third party.

 

(h)                                 MERS has caused certain officers of the Bank
to be appointed officers of MERS with respect to the MERS Designated Mortgage
Loans, with the power to wield all of the powers specified in the Corporate
Resolution dated November 20, 2003, of which a facsimile thereof is
attached hereto as Exhibit D.

 

J - 5

 

5.                                       Audits and Access to Information.

 

(a)                                  Upon reasonable notice from Bank or any
regulatory authority, the Electronic Agent and MERS shall provide such auditors
and inspectors as Bank or the regulatory authority may designate, with
reasonable access during normal business days and hours to the Company’s
service locations for the purpose of performing audits or inspections of the
Company’s business with the Bank with regard to this Agreement. The Electronic
Agent and MERS shall provide such auditors and inspectors any assistance that
they may reasonably require. The Company shall pay all out-of-pocket costs
and expenses of MERS, the Electronic Agent, or the Bank with regard to such
audit or inspection. The Electronic Agent and MERS shall not be required to
provide such auditors and inspectors access to data or any information other
than that related to loans pledged to or purchased by Bank. Neither the
Electronic Agent nor MERS is under the authority of any regulatory agency. Therefore,
if any audit by an auditor designated by Bank or a regulatory authority results
in the auditor or regulatory authority determining under their own guidelines
that the Electronic Agent and MERS is not in compliance with any regulation or
other audit requirement that the auditor or regulatory authority may have
relating to similar services provided, the Electronic Agent and MERS shall have
the option of either voluntarily within the period of time specified by such
auditor or regulatory authority, comply with such auditor or regulatory
authority, bearing all such costs of compliance, or may terminate this
Agreement with no penalties or costs incurred.

 

(b)                                 The Electronic Agent and MERS shall (1) retain
records and supporting documentation sufficient to document the services
provided to Bank under this Agreement during the term of the Agreement and for
a period of time following expiration or termination of this Agreement
consistent with the Electronic Agent’s and MERS’ record retention practices,
and (2) upon notice from Bank, provide Bank with reasonable access to such
records and documentation, provided that such documentation does not disclose
Confidential Information.

 

(c)                                  The Electronic Agent and MERS will ensure
continuity of services by continuing to maintain a disaster recovery plan for
recovery of the services. The Electronic Agent and MERS have provided Bank with
a written summary of its disaster recovery plan. The Electronic Agent and MERS
shall test its disaster recovery plan at least once annually. Upon request, the
Electronic Agent and MERS shall notify Bank of the summary results of any tests
which include Bank’s loans. The Electronic Agent and MERS shall implement the
plan upon the occurrence of a disaster. In the event of a disaster, the Electronic
Agent and MERS shall not increase its charges under this Agreement or charge
Bank any additional fees. Bank shall also maintain a Disaster Recovery Plan,
and in the event of a disaster, Electronic Agent and MERS shall not be liable
for any damages or penalties incurred to the extent that they are caused by
Bank’s inability or failure to perform its duties and responsibilities
under this Agreement as a result of such disaster. If a disaster causes the Electronic Agent and MERS to allocate limited resources between or
among its customers, Bank shall receive at least the same priority as such
other customers in respect of such allocation.

 

J - 6

 

(d)                                 All Confidential Information relating to a
party shall be held in confidence by the other party to the same extent and in
at least the same manner as such party protects its own confidential or
proprietary information. Except as required by this Agreement, the Credit
Agreement, or the Early Purchase Agreement, no party shall disclose, publish,
release, transfer or otherwise make available Confidential Information of the
other party in any form to, or for the use or benefit of, any person or
entity without the other party’s consent. Each party shall, however, be permitted
to disclose relevant aspects of the other party’s Confidential Information to
its officers, agents, subcontractors and employees to the extent that such
disclosure is reasonably necessary for the performance of its duties and
obligations under this Agreement and such disclosure is not prohibited by the
GLB Act, the regulations promulgated thereunder or other applicable law;
provided, however, that such party shall take all reasonable measures to ensure
that Confidential Information of the other party is not disclosed or duplicated
in contravention of the provisions of this Agreement by such officers, agents,
subcontractors and employees. The obligations in this Section shall not
restrict any disclosure by either party pursuant to any applicable law, or by
order of any court or government agency (provided that the disclosing party
shall give prompt notice to the non-disclosing party of such order) and shall
not apply with respect to information which (1) is developed by the other
party without violating the disclosing party’s proprietary rights, (2) is
or becomes publicly known (other than through unauthorized disclosure), (3) is
disclosed by the owner of such information to a third party free of any
obligation of confidentiality, (4) is already known by such party without
an obligation of confidentiality other than pursuant to this Agreement or any
confidentiality agreements entered into before the effective date between the
parties or (5) is rightfully received by a party free of any obligation of
confidentiality. If the GLB Act, the regulations promulgated thereunder or
other applicable law now or hereafter in effect imposes a higher standard of
confidentiality to the Confidential Information, such standard shall prevail
over the provisions of this section.

 

6.                                       Representations of the Electronic Agent and
MERS.

 

The Electronic Agent and MERS hereby
represent and warrant as of the date hereof that:

 

(a)                                  each of the Electronic Agent and MERS has the
corporate power and authority and the legal right to execute and deliver, and
to perform its obligations under this Agreement, and has taken all
necessary corporate action to authorize its execution, delivery and performance
of this Agreement;

 

(b)                                 no consent or authorization of, filing with,
or other act by or in respect of, any arbitrator or governmental authority and
no consent of any other Person is required in connection with the execution,
delivery, performance, validity or enforceability of this Agreement;

 

(c)                                  this Agreement has been duly executed and delivered
on behalf of the Electronic Agent and MERS and constitutes a legal, valid and
binding obligation of the Electronic Agent and MERS enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or

 

J - 7

 

similar laws affecting the enforcement of creditors’
rights generally and by general principles of equity (whether enforcement is
sought in proceedings in equity or at law);

 

(d)                                 the Electronic Agent and MERS will maintain
at all times insurance policies for fidelity and errors and omissions in
amounts of at least three million dollars ($3,000,000) and five million dollars
($5,000,000) respectively, and a certificate and policy of the insurer shall be
furnished to the Bank upon request and shall contain a statement of the insurer
that such insurance will not be terminated prior to 30 days’ written notice to
the Bank.

 

7.                                       Covenants of MERS.

 

(a)                                  MERS shall (i) not incur any indebtedness
other than in the ordinary course of its business, (ii) not engage in any
dissolution, liquidation, consolidation, merger or sale of assets, (iii) not
engage in any business activity in which it is not currently engaged, (iv) not
take any action that might cause MERS to become insolvent, (v) not form,
or cause to be formed, any subsidiaries, (vi) maintain books and records
separate from any other person or entity, (vii) maintain its bank accounts
separate from any other person or entity, (viii) not commingle its assets
with those of any other person or entity and hold all of its assets in its own
name, (ix) conduct its own business in its own name, (x) pay its own
liabilities and expenses only out of its own funds, (xi) observe all
corporate formalities, (xii) enter into transactions with affiliates only
on each such transaction is intrinsically fair, commercially reasonable, and on
the same terms as would be available in an arm’s length transaction with a
person or entity that is not an affiliate, (xiii) pay the salaries of its
own employees from its own funds, (xiv) maintain a sufficient number of
employees in light of its contemplated business operations, (xv) not
guarantee or become obligated for the debts of any other entity or person,
(xvi) not hold out its credit as being available to satisfy the obligation
of any other person or entity, (xvii) not acquire the obligations or
securities of its affiliates or owners, including partners, members or
shareholders, as appropriate, (xviii) not make loans to any other person
or entity or buy or hold evidence of indebtedness issued by any other person or
entity (except for cash and investment-grade securities), (ixx) allocate
fairly and reasonably any overhead expenses that are shared with an affiliate,
including paying for office space and services performed by any employee of any
affiliate, (xx) use separate stationery, invoices, and checks bearing its
own name, (xxi) not pledge its assets for the benefit of any other person
or entity, (xxii) hold itself out as a separate identity,
(xxiii) correct any known misunderstanding regarding its separate
identity, (xxiv) not identify itself as a division of any other person or
entity, (xxv) maintain adequate capital in light of its contemplated business
operations, and (xxvi) conduct all operations in compliance with any
federal, state or local laws and regulations and shall maintain all necessary
licenses, permits and the like required to conduct its operations as set forth
in this Agreement.

 

(b)                                 MERS agrees that in no event shall MERS’
status as mortgagee of record with respect to any MERS Designated Mortgage Loan
confer upon MERS any rights or obligations as an owner of any MERS Designated
Mortgage Loan or the servicing rights related thereto, and MERS will not exercise
such rights unless directed to do so by the Bank.

 

J - 8

 

 

8.                                       Covenants of Company.

 

(a)                                  The Company covenants and agrees with the
Bank that with respect to each MERS Designated Mortgage Loan, it will not
identify any party except the Bank in the field “interim funder” on the MERS®
System.

 

(b)                                 The Company will provide the Bank with MERS
Identification Numbers for each MERS Designated Mortgage Loan that the Bank has
extended credit on, for which MERS is the mortgagee of record.

 

9.                                       No Adverse Interest of the Electronic Agent
or MERS.

 

By execution of this Agreement, the
Electronic Agent and MERS each represents and warrants that it currently holds,
and during the existence of this Agreement shall hold, no adverse interest, by
way of security or otherwise, in any MERS Designated Mortgage Loan. The MERS
Designated Mortgage Loans shall not be subject to any security interest, lien
or right to set-off by the Electronic Agent, MERS, or any third party claiming
through the Electronic Agent or MERS, and neither the Electronic Agent nor MERS
shall pledge, encumber, hypothecate, transfer, dispose of, or otherwise grant
any third party interest in, the MERS Designated Mortgage Loans.

 

10.                                 Indemnification of the Bank.

 

The Electronic Agent agrees to indemnify and
hold the Bank and its designees harmless against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements, including reasonable attorneys’ fees, that the Bank may sustain
arising out of any breach by the Electronic Agent of this Agreement, the
Electronic Agent’s negligence, bad faith or willful misconduct, its failure to
comply with the Bank’s instructions hereunder or to the extent caused by delays
or failures arising out of the inability of the Bank or the Electronic Agent to
access information on the MERS® System. In the event of a Third Party Claim for
which the Electronic Agent or MERS is responsible for indemnification under
this section, the Bank, at its sole discretion, may request by written
notice that the Electronic Agent or MERS indemnify and assume the defense of
any such Third Party Claim. The Electronic Agent or MERS shall have thirty (30)
days from the receipt of such notice to agree in writing to indemnify and
assume the defense of any such Third Party Claim. The parties shall cooperate
in the defense of any Third Party Claims. The foregoing indemnification shall
survive any termination or assignment of this Agreement.

 

11.                                 Reliance of the Electronic Agent.

 

(a)                                  In the absence of bad faith on the part of
the Electronic Agent, the Electronic Agent may conclusively rely, as to
the truth of the statements and the correctness of the opinions expressed
therein, upon any request, instruction, certificate or other document furnished
to the Electronic Agent, reasonably believed by the Electronic Agent to be
genuine and to have been signed or presented by the proper party or parties and
conforming to the requirements of this Agreement.

 

(b)                                 Notwithstanding any contrary information
which may be delivered to the Electronic Agent by the Company, the
Electronic Agent may conclusively rely on any

 

J - 9

 

information or Notice of Default delivered by the
Bank, and the Company shall indemnify and hold the Electronic Agent harmless
for any and all claims asserted against it for any actions taken in good faith
by the Electronic Agent in connection with the delivery of such information or
Notice of Default.

 

12.                                 Fees.

 

It is understood that the Electronic Agent or
its successor will charge such fees and expenses for its services hereunder as
set forth in a separate agreement between the Electronic Agent and the Company.
The Electronic Agent shall give prompt written notice of any disciplinary
action instituted with respect to the Company’s failure to pay any fees
required in connection with its use of the MERS® System, and will give written
notice at least thirty (30) days’ prior to any revocation of the Company’s
membership in the MERS® System

 

13.                                 Resignation of the Electronic Agent;
Termination.

 

(a)                                  The Bank has entered into this Agreement with
the Electronic Agent and MERS in reliance upon the independent status of the
Electronic Agent and MERS, and the representations as to the adequacy of their
facilities, personnel, records and procedures, its integrity, reputation and
financial standing, and the continuance thereof. Neither the Electronic Agent
nor MERS shall assign this Agreement or the responsibilities hereunder or
delegate their rights or duties hereunder (except as expressly disclosed in
writing to, and approved by, the Bank) or any portion hereof or sell or
otherwise dispose of all or substantially all of its property or assets without
providing the Bank with at least 60 days’ prior written notice thereof.

 

(b)                                 Neither the Electronic Agent nor MERS shall
resign from the obligations and duties hereby imposed on them except by written
mutual consent of the Electronic Agent, MERS and the Bank, or upon the
determination that the duties of the Electronic Agent and MERS hereunder are no
longer permissible under applicable law or regulation and such incapacity
cannot be cured by the Electronic Agent and MERS. Any such determination
permitting the resignation of the Electronic Agent and MERS shall be evidenced
by an Opinion of Counsel to such effect delivered to the Bank which Opinion of
Counsel shall be in form and substance acceptable to the Bank. No such
resignation shall become effective until the Electronic Agent and MERS have
delivered to the Bank all of the Assignments of Mortgage, in blank, in
recordable form but unrecorded for each MERS Designated Mortgage Loan
identified by the Bank as collateralized by the Bank.

 

14.                                 Removal of the Electronic Agent.

 

(a)                                  The Bank, with or without cause, may remove
and discharge the Electronic Agent and MERS from the performance of its duties
under this Agreement with respect to some or all of the MERS Designated
Mortgage Loans by written notice from the Bank to the Electronic Agent and the
Company.

 

(b)                                 In the event of termination of this
Agreement, at the Company’s sole cost and expense, the Electronic Agent shall
follow the instructions of the Bank for the disposition of the documents in its
possession pursuant to this Agreement, and deliver to

 

J - 10

 

the Bank an Assignment of Mortgage, in blank, in
recordable form but unrecorded for each MERS Designated Mortgage Loan
identified by the Bank as collateralized by the Bank. Notwithstanding the
foregoing, in the event that the Bank terminates this Agreement with respect to
some, but not all, of the MERS Designated Mortgage Loans, this Agreement shall
remain in full force and effect with respect to any MERS Designated Mortgage
Loans for which this Agreement is not terminated hereunder. Notwithstanding any
termination of this Agreement, the provisions of Sections 10 shall survive any
termination.

 

15.                                 Notices.

 

All written communications hereunder shall be
delivered, via facsimile or by overnight courier, to the Electronic Agent
and/or the Bank and/or the Company and/or MERS as indicated on the signature page hereto,
or at such other address as designated by such party in a written notice to the
other parties. All such communications shall be deemed to have been duly given
when transmitted by facsimile and the receipt of which is acknowledged, or in
the case of a mailed/couriered notice, upon receipt, in each case given or
addressed as aforesaid.

 

16.                                 Term of Agreement.

 

(a)                                  Unless otherwise terminated pursuant to Section 14(a),
this Agreement shall continue to be in effect until terminated by either the
Bank or the Electronic Agent sending written notice to the other parties of
this Agreement at least thirty (30) days prior to said termination.

 

(b)                                 Upon the termination of this Agreement by the
Electronic Agent, the Electronic Agent shall, at the Electronic Agent’s sole
cost and expense, execute and deliver to the Bank or its designee an Assignment
of Mortgage with respect to each MERS Designated Mortgage Loan identified by
the Bank, in blank, in recordable form but unrecorded. In the event that
this Agreement is terminated by the Bank without cause, the duties of the
Electronic Agent in the preceding sentence shall be at the sole cost and
expense of the Company. In addition, the Bank and the Electronic Agent may, at
the sole option of the Bank, enter into a separate agreement which shall be
mutually acceptable to the parties with respect to any or all of the MERS
Designated Mortgage Loans with respect to which this Agreement is terminated.

 

17.                                 Authorizations.

 

Any of the persons whose signatures and titles
appear on Exhibit A-1 and Exhibit A-2 hereto are authorized, acting
singly, to act for the Bank, the Company or the Electronic Agent, as the case may be,
under this Agreement. The parties may change the information on Exhibit A-1
and Exhibit A-2 hereto from time to time but each of the parties shall be
entitled to rely conclusively on the then current exhibit until receipt of
a superseding exhibit.

 

18.                                 Amendments.

 

This Agreement may be amended from time to time
only by written agreement of the Bank, the Company and the Electronic Agent.

 

J - 11

 

19.                                 Severability.

 

If any provision of this Agreement is declared
invalid by any court of competent jurisdiction, such invalidity shall not
affect any other provision, and this Agreement shall be enforced to the fullest
extent required by law.

 

20.                                 Binding Effect.

 

This Agreement shall be binding and inure to the
benefit of the parties hereto and their respective successors and assigns.

 

21.                                 Governing Law.

 

THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH, AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. THE BANK, THE COMPANY,
THE ELECTRONIC AGENT AND MERS EACH IRREVOCABLY AGREES THAT ANY ACTION OR
PROCEEDING ARISING OUT OF OR IN ANY MANNER RELATING TO THIS AGREEMENT MAY BE
BROUGHT IN ANY COURT OF THE STATE OF NEW YORK, OR IN THE U.S. DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK OR EASTERN DISTRICT OF NEW YORK, AND BY
THE EXECUTION AND DELIVERY OF THIS AGREEMENT EXPRESSLY AND IRREVOCABLY ASSENT
AND SUBMIT TO THE NONEXCLUSIVE JURISDICTION OF ANY SUCH COURTS IN ANY SUCH
ACTION OR PROCEEDING.

 

22.                                 Waiver of Jury Trial.

 

THE BANK, THE COMPANY, THE ELECTRONIC AGENT AND MERS
EACH IRREVOCABLY AGREES TO WAIVE ITS RIGHT TO A JURY TRIAL IN ANY ACTION OR
PROCEEDING AGAINST IT ARISING OUT OF, OR RELATED IN ANY MANNER TO, THIS
AGREEMENT OR ANY RELATED AGREEMENT.

 

23.                                 Execution.

 

This 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.

 

24.                                 Cumulative Rights.

 

The rights, powers and remedies of the Electronic
Agent, MERS, the Company and the Bank under this Agreement shall be in addition
to all rights, powers and remedies given to the Electronic Agent, MERS, the
Company and the Bank by virtue of any statute or rule of law, or any other
agreement, all of which rights, powers and remedies shall be cumulative and may be
exercised successively or concurrently without impairing the Bank’s rights in
the Mortgage Loans.

 

J - 12

 

25.                                 Status of Electronic Agent.

 

Nothing herein contained shall be deemed or
construed to create a partnership, joint venture between the parties hereto and
the services of the Electronic Agent and MERS shall be rendered as independent
contractors for the Bank and the Company. Other than the obligations of the
Electronic Agent and MERS expressly set forth herein, the Electronic Agent and
MERS shall have no power or authority to act as agent for the Bank or the
Company pursuant to any grant of authority made under or pursuant to this
Agreement.

 

J - 13

 

IN WITNESS WHEREOF, the Bank, the Company, the
Electronic Agent and MERS have duly executed this Agreement as of the date
first above written.

 

	
   

  	
                                                            ,
  as Company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
  :

  	
  Address for Notices

  
	
   

  	
   

  
	
   

  	
  Attn:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
  Telecopier:

  	
   

  	
   

  
	
   

  	
  Telephone:

  	
   

  	
   

  
						

 

 

	
   

  	
  WASHINGTON MUTUAL BANK, FA, as Bank

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Attn:

  	
   

  
	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
  Telecopier:

  	
   

  	
   

  
	
   

  	
  Telephone:

  	
   

  	
   

  
						

 

J - 14

 

	
   

  	
  MERSCORP, INC., as Electronic Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Sharon M. Horstkamp

  
	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
  1595 Spring Hill Road, Suite 310

  
	
   

  	
  Vienna, Virginia 22182

  
	
   

  	
  Attn:

  	
  Sharon M. Horstkamp

  
	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
  Telecopier:

  	
  (703)748-0183

  
	
   

  	
  Telephone:

  	
  (703)761-1280

  

 

 

	
   

  	
  MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.,
  as MERS

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  William C. Hultman

  
	
   

  	
  Title:

  	
  Treasurer

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
  1595 Spring Hill Road, Suite 310

  
	
   

  	
  Vienna, Virginia 22182

  
	
   

  	
  Attn:

  	
  Sharon M. Horstkamp

  
	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
  Telecopier:

  	
  (703)748-0183

  
	
   

  	
  Telephone:

  	
  (703)761-1280

  
					

 

J - 15

 

EXHIBIT A-1
to EXHIBIT J

 

LIST OF
AUTHORIZED PERSONS OF COMPANY

 

 

COMPANY
AUTHORIZATIONS:

 

Any
of the persons whose signatures and titles appear below are authorized, acting
singly, to act for the Company under this Agreement:

 

	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  

 

 

	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  

 

A-1 to J - 1

 

EXHIBIT A-2
to EXHIBIT J

 

LIST OF AUTHORIZED
PERSONS OF BANK, ELECTRONIC AGENT, AND MERS

 

A-2 to J -1

 

EXHIBIT B
to EXHIBIT J

 

MERS
PROCEDURES MANUAL

 

 

Shall be
found on the MERS website: http://www.mersinc.org

 

B to J - 1

 

EXHIBIT C
to EXHIBIT J

 

NOTICE OF
DEFAULT

 

                                        
       ,              

 

 

Attention:  Sharon M. Horstkamp

MERSCORP, Inc.

1595 Spring Hill Road, Suite 310

Vienna, VA 22182

 

Ladies and Gentlemen:

 

Please
be advised that this Notice of Default is being issued pursuant to Section 4(b) of
that certain Electronic Tracking Agreement (the “Electronic Tracking Agreement”),
dated as of                                      ,
200    , by and among Washington Mutual Bank, FA (the “Bank”),
                                                 
(the “Company”), MERSCORP, Inc. (the “Electronic Agent”) and Mortgage
Electronic Registration Systems, Inc. (“MERS”). The Affected Loans are
listed on the attached Schedule 1 (including the mortgage identification
numbers). Accordingly, the Electronic Agent shall not accept instructions from
the Company, the servicer, any subservicer and from no party other than the
Bank with respect to such Mortgage Loans, until otherwise notified in writing
by the Bank.

 

Any
terms used herein and not otherwise defined shall have such meaning specified
in the Electronic Tracking Agreement.

 

	
   

  	
  By:

  	
   

  
	
   

  
	
   

  
	
   

  	
  Title:

  	
   

  
				

 

C to J - 1

 

EXHIBIT D
to EXHIBIT J

 

CORPORATE
RESOLUTION

 

Be it Resolved that the attached list of candidates
are employees of Washington Mutual Bank, FA,
a federal association, a Member of Mortgage Electronic Registration
Systems, Inc. (MERS), and are hereby appointed as assistant secretaries
and vice presidents of MERS, and, as such, are authorized to:

 

1.                                       release the lien of any mortgage loan
registered on the MERS System that is shown to be registered to the Member;

 

2.                                       assign the lien of any mortgage loan naming
MERS as the mortgagee when the Member is also the current promissory
note-holder, or if the mortgage loan is registered on the MERS System, is shown
to be registered to the Member;

 

3.                                       execute any and all documents necessary to
foreclose upon the property securing any mortgage loan registered on the MERS
System that is shown to be registered to the Member, including but not limited
to (a) substitution of trustee on Deeds of Trust, (b) Trustee’s Deeds
upon sale on behalf of MERS, (c) Affidavits of Non-military Status, (d) Affidavits
of Judgment, (e) Affidavits of Debt, (f) quitclaim deeds, (g) Affidavits
regarding lost promissory notes, and (h) endorsements of promissory notes
to VA or HUD on behalf of MERS as a required part of the claims process;

 

4.                                       take any and all actions and execute all
documents necessary to protect the interest of the Member, the beneficial owner
of such mortgage loan, or MERS in any bankruptcy proceeding regarding a loan
registered on the MERS System that is shown to be registered to the Member, including
but not limited to: (a) executing Proofs of Claim and Affidavits of Movant
under 11 U.S.C. Sec. 501-502, Bankruptcy Rule 3001-3003, and
applicable local bankruptcy rules, (b) entering a Notice of Appearance, (c) vote
for a trustee of the estate of the debtor, (d) vote for a committee of
creditors, (e) attend the meeting of creditors of the debtor, or any
adjournment thereof, and vote on behalf of the Member, the beneficial owner of
such mortgage loan, or MERS, on any question that may be lawfully submitted
before creditors in such a meeting, (f) complete, execute, and return a
ballot accepting or rejecting a plan, and (g) execute reaffirmation
agreements;

 

5.                                       take any and all actions and execute all
documents necessary to refinance, subordinate, amend or modify any mortgage
loan registered on the MERS System that is shown to be registered to the
Member;

 

6.                                       endorse checks made payable to Mortgage
Electronic Registration Systems, Inc. to the Member that are received by
the Member for payment on any mortgage loan registered on the MERS System that
is shown to be registered to the Member;

 

7.                                       take any such actions and execute such
documents as may be necessary to fulfill the Member’s servicing
obligations to the beneficial owner of such mortgage loan (including mortgage
loans that are removed from the MERS System as a result of the transfer thereof
to a non-member of MERS).

 

D to J - 1

 

I, William C. Hultman, being the Corporate
Secretary of Mortgage Electronic Registration Systems, Inc., hereby
certify that the foregoing is a true copy of a Resolution duly adopted by the
Board of Directors of said corporation effective as of the 20th day of November, 2003, which is in full force and effect on this date
and does not conflict with the Certificate of Incorporation or By-Laws of said
corporation.

 

 

	
   

  	
   

  
	
   

  	
  William C. Hultman, Secretary

  

 

D to J - 2

 

Washington
Mutual Bank, FA, a federal association

 

 

Mortgage
Electronic Registration Systems, Inc

Certifying Officers

 

 

	
   

  	
  FAIVRE, Sonya L.

  
	
   

  	
   

  
	
   

  	
  LINKLETTER, Deidre J.

  
	
   

  	
   

  
	
   

  	
  MCAULEY, Michael D.

  
	
   

  	
   

  
	
   

  	
  MEEHAN, Joseph D.

  
	
   

  	
   

  
	
   

  	
  TORRES, Eva

  

 

 

(in alphabetical order by last name)

 

D to J - 3

 

Exhibit K

 

Bailee Letter

 

[date]

 

[Investor name and address]

Ladies and Gentlemen:

 

Pursuant to the terms and conditions set forth below, we hereby deliver
to you, with this letter, an original promissory note (a “Mortgage Note”)
evidencing each mortgage loan (a “Mortgage Loan”) listed on the attached
schedule, to facilitate your purchase of such Mortgage Loan. Each Mortgage Loan
is owned by Washington Mutual Bank, FA (the “Bank”) as successor in interest to
[Company Name] (the “Seller”), pursuant to that certain Mortgage Loan Purchase
and Sale Agreement dated [date], as the same may be amended, modified,
extended, or renewed from time to time.

 

By taking physical possession of this letter and each Mortgage Note
delivered hereunder, you hereby agree to the following terms and conditions:

 

1.                                       You
will hold the Mortgage Note(s) and all related Mortgage Loan files in trust as
custodian, agent, and bailee, solely on behalf of the Bank, until your status
as bailee is terminated as set forth below. You agree not to release or deliver
the Mortgage Note(s) or any other Mortgage Loan document(s) to any party except
the Bank, without Bank’s prior written consent. You will not take any action
that may jeopardize the ownership interest of the Bank in the Mortgage
Note(s) and related Mortgage Loan.

 

2.                                       You
acknowledge and consent to the assignment by the Seller to the Bank of the
Seller’s rights under the commitment(s) it received from you to purchase the
Mortgage Loans and to pay the takeout purchase proceeds for such Mortgage Loans
specified on the attached schedule. You acknowledge that, until there is a
completed sale to you pursuant to the commitment, the Bank is the exclusive
owner of all right, title and interest in the Mortgage Loan, the related Mortgage
Note and Mortgage Loan documents, and the related Mortgage Loan files.

 

3.                                       You
are responsible for making certain that all of the takeout purchase proceeds
are paid to the Bank in accordance with the wire transfer instructions in this
Bailee Letter, and you shall have no right, title or interest, legal or
equitable, in a Mortgage Loan, the Mortgage Note and related Mortgage Loan
documents, or the related Mortgage Loan files, until the Bank receives the
takeout purchase proceeds. Upon receipt of the full amount of takeout purchase
proceeds, by wire transfer as specified below, the Bank’s ownership interest in
the Mortgage Loan shall be fully released and your responsibilities as bailee
shall terminate.

 

4.                                       The
Bank reserves the right at any time, until a Mortgage Loan has been purchased
by you and the takeout purchase proceeds have been received by the Bank, to
demand

 

K - 1

 

immediate return of the Mortgage Note, and
you agree to return the Mortgage Note immediately upon such demand.

 

5.                                       Within 30 days of the date of this letter, you will
either:

 

	
  Wire the purchase funds to:

  	
  Washington Mutual Bank, FA, Coppell TX

  
	
  ABA:

  	
  111-993-776

  
	
  Account Name:

  	
  [Company Name] Funding Account

  
	
  Account Number:

  	
  [Funding Account Number]

  
	
  Reference:

  	
  [Mortgagor Last Name or Loan Number]

  
	
   

  	
   

  
	
  -or-

  	
   

  

 

Return the Mortgage Note to Theri Dufour,
Washington Mutual Bank, National Operations Center, 555 Dividend Drive, Suite 150,
3545BFTX, Coppell, Texas 75019, phone 800/543-1601.

 

6.                                       You
shall not honor any further communication from the Bank regarding any Mortgage
Loan, while still owned by the Bank, unless it comes from (or is confirmed in
writing or in a telephone conversation by) the person signing this Bailee
Letter or by any of the following persons: 
Leslie J. Collard, Eva L. Torres, Jacquelyn M. West.

 

7.                                       You
agree to pay, indemnify, and hold the Bank and Bank’s officers, directors,
employees, counsel, agents and attorneys-in-fact (each, an “Indemnified Person”)
harmless from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suites, costs, charges, expenses or
disbursements (including reasonable attorney’s fees and the allocated cost of
in-house counsel) of any kind or nature whatsoever incurred with respect to any
investigation, litigation or proceeding (including any case, action or
proceeding before any court or other governmental authority relating to
bankruptcy, reorganization, insolvency, liquidation, dissolution or relief of debtors
or any appellate proceeding) (collectively, the “Proceedings”) arising from
your noncompliance with the terms of this Bailee Letter, whether or not you are
a party to the related Proceedings.

 

8.                                       If
for any reason you are not able to comply with the terms of this Bailee Letter,
you are directed to immediately return each Mortgage Note delivered hereunder,
and any other documents or records previously received by you from the Bank
with respect to the Mortgage Note(s) or the Mortgage Loan evidenced thereby, to
the address set forth in paragraph 5 above.

 

K - 2

 

Sincerely,

 

WASHINGTON MUTUAL BANK, FA, a federal association

 

 

	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
					

 

K - 3

 

Directory of
Defined Terms

 

	
  “Acquisition Date”

  	
  Section 1

  
	
  “Acquisition Price”

  	
  Section 1, Annex 1; Annex 3; Annex 4; Annex 5; Annex 6; Annex 7

  
	
  “Act of Insolvency” 

  	
  Section 1

  
	
  “Adjusted Acquisition Price”

  	
  Section 1

  
	
  “Adjusted Tangible Net Worth” 

  	
  Section 1

  
	
  “Administrative Costs” 

  	
  Section 1

  
	
  “Affiliate” 

  	
  Section 1

  
	
  “Agencies” 

  	
  Section 1

  
	
  “Agency Guidelines” 

  	
  Section 1

  
	
  “Agreement”

  	
  Section 1

  
	
  “Annual Reporting Date”

  	
  Annex 1

  
	
  “AOT Commitment”

  	
  Annex 3

  
	
  “Assignment in Blank” 

  	
  Section 1

  
	
   

  	
   

  
	
  “Bailee Letter”

  	
  Section 1

  
	
  “Business Day” 

  	
  Section 1

  
	
   

  	
   

  
	
  “Capitalized Lease” 

  	
  Section 1

  
	
  “Capitalized Rentals”

  	
  Section 1

  
	
  “CL”

  	
  Section 1

  
	
  “CL Commitment”

  	
  Annex 3

  
	
  “CL Funding”

  	
  Annex 3

  
	
  “CL Funding Advice”

  	
  Annex 3

  
	
  “CL Funding Date”

  	
  Annex 3

  
	
  “CL Program” 

  	
  Section 1

  
	
  “Compliance Certificate” 

  	
  Section 1

  
	
  “Confidential Information” 

  	
  Section 1

  
	
  “Credit File”

  	
  Section 1; Annex 3

  
	
  “Current Assets” 

  	
  Section 1

  
	
  “Current Liabilities” 

  	
  Section 1

  
	
  “Current Ratio” 

  	
  Section 1

  
	
  “Custodial Account” 

  	
  Section 1

  
	
   

  	
   

  
	
  “Debt” 

  	
  Section 1

  
	
  “Default” 

  	
  Section 1

  
	
  “Default Rate”

  	
  Section 1

  
	
  “Defective Mortgage Loan” 

  	
  Section 1

  
	
  “Defective Takeout Funding Advice”

  	
  Section 1

  
	
  “Dry Funding Documents Package” 

  	
  Section 1

  
	
   

  	
   

  
	
  “Effective Date” 

  	
  Section 1

  
	
  “Electronic Tracking Agreement” 

  	
  Section 1

  
	
  “Eligible Bank” 

  	
  Section 1

  
	
  “ERISA” 

  	
  Section 1

  

 

i

 

	
  “Event of Default”

  	
  Section 1

  
	
   

  	
   

  
	
  “FDIC” 

  	
  Section 1

  
	
  “FHA” 

  	
  Section 1

  
	
  “FHLMC” 
  

  	
  Section 1

  
	
  “FNMA” 

  	
  Section 1

  
	
   

  	
   

  
	
  “GAAP” 

  	
  Section 1

  
	
  “GLB Act” 

  	
  Section 1

  
	
  “GNMA” 

  	
  Section 1

  
	
  “Guarantor”

  	
  Section 1, Annex 1

  
	
  “Guaranty” 

  	
  Section 1

  
	
   

  	
   

  
	
  “Indebtedness”

  	
  Section 1

  
	
  “Interim Date”

  	
  Section 1; Annex 1

  
	
  “Investment Return Rate”

  	
  Section 1; Annex 1; Annex 3; Annex 4; Annex 5; Annex 6

  
	
   

  	
   

  
	
  “LIBOR Rate” 

  	
  Section 1

  
	
  “Lien” 

  	
  Section 1

  
	
  “Litigation” 

  	
  Section 1

  
	
  “Loan Purchase Detail” 

  	
  Section 1

  
	
  “Loan Sale Confirmation” 

  	
  Section 1

  
	
   

  	
   

  
	
  “Margin Stock” 

  	
  Section 1

  
	
  “Market Value”

  	
  Section 1

  
	
  “Material Adverse Change” 

  	
  Section 1

  
	
  “Maximum
  Takeout Commitment Expiration Date”

  	
  Annex 1; Annex 4; Annex 5; Annex 6; Annex 7

  
	
  “MBF” 

  	
  Section 1

  
	
  “MERS” 

  	
  Section 1

  
	
  “MERS Designated Mortgage Loan” 

  	
  Section 1

  
	
  “MERS® System” 

  	
  Section 1

  
	
  “MIN” 

  	
  Section 1

  
	
  “MOM Loan”

  	
  Section 1

  
	
  “Monthly Available Deposits”

  	
  Annex 1

  
	
  “Monthly Reporting Date”

  	
  Annex 1

  
	
  “Mortgage” 

  	
  Section 1

  
	
  “Mortgage Loan” 

  	
  Section 1

  
	
  “Mortgage Note” 

  	
  Section 1

  
	
  “Mortgage Note Rate”

  	
  Section 1

  
	
  “Mortgaged Property” 

  	
  Section 1

  
	
  “Mortgagor”

  	
  Section 1

  
	
  “Mortgagor Payments” 

  	
  Section 1

  
	
   

  	
   

  
	
  “NASD” 

  	
  Section 1

  
	
   

  	
   

  
	
  “Option ARM Loan”

  	
  Annex 3

  

 

ii

 

	
  “OTS” 

  	
  Section 1

  
	
   

  	
   

  
	
  “Par Value” 

  	
  Section 1

  
	
  “Person” 

  	
  Section 1

  
	
  “Post-Origination Period” 

  	
  Section 1

  
	
  “Property Charges” 

  	
  Section 1

  
	
   

  	
   

  
	
  “Regulatory Authority” 

  	
  Section 1

  
	
  “Remittance Date” 

  	
  Section 1

  
	
  “Requirement of Law”

  	
  Section 1

  
	
   

  	
   

  
	
  “SEC” 

  	
  Section 1

  
	
  “Seller” 

  	
  Section 1

  
	
  “Seller Guide” 

  	
  Section 1

  
	
  “Seller’s Account”

  	
  Section 1

  
	
  “Seller’s Concentration Limit”

  	
  Annex 1

  
	
  “Seller’s Funding Account” 

  	
  Section 1

  
	
  “Seller’s Operating Account” 

  	
  Section 1

  
	
  “Seller’s Power of Attorney” 

  	
  Section 1

  
	
  “Servicing Fee” 

  	
  Section 1

  
	
  “Settlement Amount” 

  	
  Section 1

  
	
  “Shipping Instructions” 

  	
  Section 1

  
	
  “Statement Date”

  	
  Section 1

  
	
  “Subordinated Debt” 

  	
  Section 1

  
	
  “Subsidiary” 

  	
  Section 1

  
	
  “Successor Servicer” 

  	
  Section 1

  
	
  “Successor Servicer Costs” 

  	
  Section 1

  
	
   

  	
   

  
	
  “Takeout Commitment” 

  	
  Section 1; Annex 3

  
	
  “Takeout Funding” 

  	
  Section 1; Annex 3

  
	
  “Takeout Funding Advice” 

  	
  Section 1; Annex 3

  
	
  “Takeout Funding Date” 

  	
  Section 1

  
	
  “Takeout Guidelines” 

  	
  Section 1; Annex 3

  
	
  “Takeout Investor” 

  	
  Section 1; Annex 3

  
	
  “Takeout Proceeds” 

  	
  Section 1

  
	
  “Tangible Net Worth” 

  	
  Section 1

  
	
  “Term” 

  	
  Section 1

  
	
  “Type 1 Nonconforming Loan”

  	
  Annex 4

  
	
  “Type 1 Nonconforming Loan Sublimit”

  	
  Annex 4

  
	
  “Type 2 Nonconforming Loan”

  	
  Annex 5

  
	
  “Type 2 Nonconforming Loan Sublimit”

  	
  Annex 5

  
	
  “Type 3 Nonconforming Loan”

  	
  Annex 6

  
	
  “Type 3 Nonconforming Loan Sublimit”

  	
  Annex 6

  
	
   

  	
   

  
	
  “UCC” 

  	
  Section 1

  
	
  “Undesignated Loan”

  	
  Annex 7

  

 

iii

 

	
  “VA”

  	
  Section 1

  
	
   

  	
   

  
	
  “Warehouse Lender” 

  	
  Section 1

  
	
  “Warehouse Lender’s Release” 

  	
  Section 1

  
	
  “Warehouse Lender’s Wire Instructions” 

  	
  Section 1

  
	
  “Washington Mutual” 

  	
  Section 1

  
	
  “Wet Funding” 

  	
  Section 1

  
	
  “Wet Funding Deadline”

  	
  Annex 1

  
	
  “Wet Funding Documents Package”

  	
  Section 1

  
	
  “Wet Funding Sublimit”

  	
  Annex 1

  

 

iv

 

FIRST
AMENDMENT TO

MORTGAGE LOAN PURCHASE AND SALE AGREEMENT

 

This
First Amendment to Mortgage Loan Purchase and Sale Agreement (“Amendment”) is
dated as of March 3, 2005, by and between KH FINANCIAL, L.P., an Illinois
limited partnership (“Seller”), KIMBALL HILL, INC., an Illinois
corporation (“Guarantor”), and WASHINGTON MUTUAL BANK, FA (“Washington Mutual”).

 

BACKGROUND

 

A.                                   Seller
and Washington Mutual are parties to a certain Mortgage Loan Purchase and Sale
Agreement dated as of October 14, 2004 (as amended or modified from time
to time, the “Flex Agreement”) and related agreements, instruments and
documents (collectively, with the Flex Agreement, the “Existing Purchase
Documents”). Capitalized terms used but not otherwise defined in this Amendment
shall have the meanings respectively ascribed to them in the Flex Agreement.

 

B.                                     Seller
and Guarantor have requested that Washington Mutual amend the Flex Agreement in
certain respects, all on the terms and conditions set forth herein.

 

NOW,
THEREFORE, the parties hereto, intending to be legally bound, hereby promise
and agree as follows:

 

26.                                 Amendments.

 

26.1                           The
following definition in Annex 1, Section 1 is hereby amended and restated
as follows:

 

“Seller’s Concentration Limit” means
$155,000,000.00 at any one time.

 

26.2                           The
following definition in Annex 1, Section 2 is hereby amended and restated
as follows:

 

“Investment Return Rate”:  The number of basis points referenced in the
definition of “Investment Return Rate” in Section 1 of the Agreement is
175 basis points (1.75%).

 

26.3                           Annex
1, Section 5 is hereby amended and restated as follows:

 

5.                                       Limits
on Corporate Distributions. Section 13.8 of the Agreement is amended
to read:

 

Limits
on Partnership Distributions. Seller shall not pay, make or
declare or incur any liability to pay, make or declare any distribution, cash
or otherwise, direct or indirect, to any of its partners; provided, however,
Seller may pay cash distributions to

 

5

 

its
partners provided that (i) no Default or Event of Default exists at time
of such distribution, or would exist immediately thereafter and (ii) such
distributions shall not exceed, in the aggregate during any fiscal year, fifty
percent (50%) of Seller’s net income for the immediately preceding fiscal year.

 

26.4                           The
following definition in Annex 3, Section 2 is hereby amended and restated
as follows:

 

“Investment Return Rate”:  For an Option ARM Loan only, the “Investment
Return Rate” means the lesser of (i) the interest rate specified in the
promissory note for that Mortgage Loan and (ii) the LIBOR Rate plus 175
basis points (1.75%) per annum.

 

26.5                           The
following definitions in Annex 4, Section 2 are hereby amended and
restated as follows:

 

“Acquisition Price”:  For a Type 1 Nonconforming Loan, the “Acquisition
Price” means an amount equal to ninety-eight percent (98%) of the amount which
the Takeout Investor has provisionally committed to pay for such Type 1
Nonconforming Loan in its Takeout Commitment, but in no event more than the Par
Value of such Type 1 Nonconforming Loan.

 

“Investment Return Rate”:  For a Type 1 Nonconforming Loan only,
the “Investment Return Rate” means the LIBOR Rate plus 200 basis points (2.00%)
per annum.

 

26.6                           The
following definition in Annex 5, Section 2 is hereby amended and restated
as follows:

 

“Investment Return Rate”:  For a Type 2 Nonconforming Loan only,
the “Investment Return Rate” means the LIBOR Rate plus 250 basis points (2.50%)
per annum.

 

26.7                           The
following definition in Annex 6, Section 2 is hereby amended and restates
as follows:

 

“Investment Return Rate”:  For a Type 3 Nonconforming Loan only,
the “Investment Return Rate” means the LIBOR Rate plus 250 basis points (2.50%)
per annum.

 

27.                                 Effectiveness
Conditions. This Amendment shall be effective upon the completion of the
following conditions precedent (all agreements, documents and instruments to be
in form and substance satisfactory to Washington Mutual and Washington
Mutual’s counsel):

 

27.1                           Execution
and delivery by Seller and Guarantor of this Amendment to Washington Mutual;
and

 

6

 

27.2                           Execution
and/or delivery of all other agreements, instruments and documents requested by
Washington Mutual to effectuate and implement the terms hereof and the Existing
Purchase Documents.

 

28.                                 Representations
and Warranties. Seller and Guarantor represent and warrant to Washington
Mutual that:

 

28.1                           All
warranties and representations made to Washington Mutual under the Flex
Agreement and the Existing Purchase Documents are true and correct as to the
date hereof.

 

28.2                           The
execution and delivery by Seller and Guarantor of this Amendment and the
performance by Seller and Guarantor of the transactions herein contemplated (i) are
and will be within such party’s powers, (ii) have been authorized by all
necessary organizational action, and (iii) are not and will not be in
contravention of any order of any court or other agency of government, of law
or any other indenture, agreement or undertaking to which Seller and/or
Guarantor is a party or by which the property of Seller and/or Guarantor is
bound, or be in conflict with, result in a breach of, or constitute (with due
notice and/or lapse of time) a default under any such indenture, agreement or
undertaking or result in the imposition of any lien, charge or encumbrance of
any nature on any of the properties of Seller and/or Guarantor.

 

28.3                           This
Amendment and any assignment, instrument, document, or agreement executed and
delivered in connection herewith, will be valid, binding, and enforceable in
accordance with its respective terms.

 

28.4                           No
Event of Default or Default has occurred under the Flex Agreement or any of the
other Existing Purchase Documents.

 

29.                                 Ratification
of Existing Purchase Documents. Except as expressly set forth herein, all
of the terms and conditions of the Flex Agreement and Existing Purchase
Documents are hereby ratified and confirmed and continue unchanged and in full
force and effect. All references to the Flex Agreement shall mean the Flex
Agreement as modified by this Amendment.

 

30.                                 Governing
Law. This Amendment, and all matters arising out of or related to this
Amendment, shall be governed by, construed and enforced in accordance with the
laws of the State of Texas, without reference to its principles of conflicts of
laws.

 

31.                                 Counterparts.
This Amendment may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original, and such counterparts
together shall constitute one and the same respective agreement. Signature by
facsimile shall also bind the parties hereto.

 

 

[Signatures Appear on Following Page]

 

7

 

Dated
the date and year first written above.

 

SELLER:

 

KH
FINANCIAL, L.P.,

an Illinois limited partnership

	
   

  	
  By:

  	
  KH FINANCIAL
  HOLDING COMPANY,

  
	
   

  	
  an Illinois
  corporation,

  
	
   

  	
  its general
  partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  William E. Long

  	
   

  
	
   

  	
  Name:

  	
    William
  E. Long

  	
   

  
	
   

  	
  Title:

  	
    President
  and CEO

  	
   

  
								

 

i

 

	
   

  	
  GUARANTOR:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  KIMBALL HILL, INC.,

  an Illinois corporation

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Hal H. Barber

  	
   

  
	
   

  	
  Name:

  	
  Hal H. Barber

  	
   

  
	
   

  	
  Title:

  	
  Vice President

  	
   

  
						

 

ii

 

WASHINGTON MUTUAL:

WASHINGTON
MUTUAL BANK, FA, 

a federal association

 

	
   

  	
  By:

  	
    /s/
  Ben R. Culver

  	
   

  
	
   

  	
  Name:

  	
  Ben R. Culver

  	
   

  
	
   

  	
  Title:

  	
  VP

  	
   

  
						

 

iii

 

SECOND
AMENDMENT TO

MORTGAGE LOAN PURCHASE AND SALE AGREEMENT

 

This
Second Amendment to Mortgage Loan Purchase and Sale Agreement (“Amendment”) is
dated as of s, 2006, by and between KH FINANCIAL, L.P., an Illinois limited
partnership (“Seller”), KIMBALL HILL, INC., an Illinois corporation (“Guarantor”),
and WASHINGTON MUTUAL BANK, FA (“Washington Mutual”).

 

BACKGROUND

 

A.                                   Seller
and Washington Mutual are parties to a certain Mortgage Loan Purchase and Sale
Agreement dated as of October 14, 2004 (as amended or modified from time
to time, the “Flex Agreement”) and related agreements, instruments and
documents (collectively, with the Flex Agreement, the “Existing Purchase
Documents”). Capitalized terms used but not otherwise defined in this Amendment
shall have the meanings respectively ascribed to them in the Flex Agreement.

 

B.                                     Seller
and Guarantor have requested that Washington Mutual amend the Flex Agreement in
certain respects, all on the terms and conditions set forth herein.

 

NOW,
THEREFORE, the parties hereto, intending to be legally bound, hereby promise
and agree as follows:

 

32.                                 Amendments.

 

32.1                           The
following definition in Section 1 of the Flex Agreement is hereby amended
and restated as follows:

 

Hedging Arrangement
means any forward sales contract, forward trade contract, interest rate swap
agreement, interest rate cap agreement, or other contract pursuant to which
Seller has protected itself from the consequences of a loss in the value of a
Mortgage Loan because of changes in interest rates or in the market value of
mortgage loan assets.

 

32.2                           The
following definition in Section 1 of the Flex Agreement is hereby amended
and restated as follows:

 

Material Adverse Change
means any (i) material adverse effect upon the validity, performance or
enforceability of this Agreement or the Guaranty (if any), (ii) material
adverse effect upon the properties, business or condition, financial or
otherwise, of Seller or Guarantor (if any), or (iii) material adverse
effect upon the ability of Seller to fulfill its obligations under this
Agreement or the

 

4

 

ability
of Guarantor (if any) to fulfill its obligations under the Guaranty (if any).

 

32.3                           Section 9.2
of the Agreement is hereby amended and restated as follows:

 

9.2                               Precautionary
Security Interest. Without prejudice to the provisions of Section 9.1
and the expressed intent of the parties, in the event that, for any reason, any
transaction hereunder concerning a Mortgage Loan is construed by any Regulatory
Authority as a borrowing or financing, rather than a true sale and absolute
conveyance of the Mortgage Loan, Seller and MBF intend and agree that MBF shall
have a perfected first priority security interest in such Mortgage Loan
purchased hereunder. In such case, Seller shall be deemed to have hereby
granted to MBF (and possession of any promissory notes, instruments or
documents by Seller or any Successor Servicer as servicer shall constitute
possession on behalf of MBF for this purpose) a security interest in and lien
upon the Mortgage Loan, the Mortgage Note, any applicable Takeout Commitment,
all servicing rights and other rights and privileges appurtenant thereto, the
Custodial Account, and all proceeds of any and all of the foregoing. Seller
shall also be deemed to have granted to MBF a security interest in and lien
upon all Hedging Arrangements applicable to such Mortgage Loan, all accounts in
which those Hedging Arrangements are held, all rights to payments arising under
such Hedging Arrangements, and all proceeds of any of the foregoing, except
that this security interest shall apply only to rights and benefits, including
rights to payments, related to that Mortgage Loan. In such an event, Seller
agrees that such security interest shall be of first priority and shall be free
and clear of adverse claims, liens and interests. In such event, this Agreement
shall constitute a security agreement, and MBF shall have all of the rights of
a secured party under applicable law. Without prejudice to the provisions of Section 9.1
and the expressed intent of the parties, and merely as a precaution in the
event that any transaction hereunder may be so construed, Seller
authorizes MBF to file a financing statement for the above-described collateral
and, at MBF’s request, Seller and MBF will enter into a precautionary control
agreement with the depository Eligible Bank with respect to the Custodial
Account and any account in which a Hedging Arrangement is held.

 

5

 

32.4                           Section 13.7
of the Flex Agreement is modified by re-designating current subsection ”(e)”
as subsection ”(f)” and adding a new subsection ”(e)” as follows:

 

(e)  not less frequently that once every two (2) weeks
(and more often if requested by MBF), a report in form and substance
satisfactory to MBF summarizing the Hedging Arrangements then in effect with
respect to all Mortgage Loans then owned by MBF and serviced by Seller (or a
Successor Servicer); and

 

32.5                           Section 13.8
of the Flex Agreement is hereby deleted in its entirety and the following shall
hereby replace it:

 

13.8                           Limits
on Corporate Distributions. Seller shall not pay, make or declare or incur
any liability to pay, make or declare any dividend (excluding stock dividends)
or other distribution, direct or indirect, on or on account of any shares of
its stock or any redemption or other acquisition, direct or indirect, of any shares
of its stock or of any warrants, rights or other options to purchase any shares
of its stock, nor purchase, acquire, redeem or retire any stock or ownership
interest in itself whether now or hereafter outstanding, except that, so long
as no Default or Event of Default exists at such time or will occur as a result
of such payment, Seller may pay Permitted Dividends as described in Annex 1.

 

32.6                           Section 13.14
of the Flex Agreement is hereby deleted in its entirety and the following shall
hereby replace it:

 

13. 14                  Hedging Arrangements. Seller
shall maintain Hedging Arrangements with respect to all Mortgage Loans not the
subject of Takeout Commitments reasonably satisfactory to MBF, with Persons
reasonably satisfactory to MBF, in order to mitigate the risk that the market
value of any such Mortgage Loan will change as a result of a change in interest
rates or the market for mortgage loan assets before the Mortgage Loan is
purchased by a Takeout Investor or repurchased by Seller. Seller will use its
best efforts to cause a Person providing such a Hedging Arrangement to
acknowledge MBF’s precautionary security interest in the Hedging Arrangement
and related collateral granted pursuant to Section 9.2, by agreement
reasonably satisfactory to MBF.

 

32.7                           Annex 2
of the Flex Agreement is hereby amended by adding the following provision in
its entirety:

 

6

 

57.                                 Hedging
Arrangements. If the Mortgage Loan is not the subject of a Takeout
Commitment at the time of purchase hereunder, Seller has entered into a Hedging
Arrangement applicable to it which has been disclosed to (and approved by) MBF
with a Person reasonably satisfactory to MBF.

 

32.8                           Annexes
1, 4, 5, and 6 of the Flex Agreement are hereby deleted and Annexes 1, 4, 5,
and 6 attached to this Amendment shall hereby respectively replace them.

 

32.9                           Exhibit A
(Administrative Costs) and Exhibit H (Compliance Certificate) of
the Flex Agreement are hereby deleted and Exhibit A (Administrative
Costs) and Exhibit H (Compliance Certificate) attached to this
Amendment shall hereby respectively replace them.

 

33.                                 Effectiveness
Conditions. This Amendment shall be effective upon the completion of the
following conditions precedent (all agreements, documents and instruments to be
in form and substance satisfactory to Washington Mutual and Washington
Mutual’s counsel):

 

33.1                           Execution
and delivery by Seller and Guarantor of this Amendment to Washington Mutual;
and

 

33.2                           Execution
and/or delivery of all other agreements, instruments and documents requested by
Washington Mutual to effectuate and implement the terms hereof and the Existing
Purchase Documents.

 

34.                                 Representations
and Warranties. Seller and Guarantor represent and warrant to Washington
Mutual that:

 

34.1                           All
warranties and representations made to Washington Mutual under the Flex
Agreement and the Existing Purchase Documents are true and correct as to the
date hereof.

 

34.2                           The
execution and delivery by Seller and Guarantor of this Amendment and the
performance by Seller and Guarantor of the transactions herein contemplated (i) are
and will be within such party’s powers, (ii) have been authorized by all
necessary organizational action, and (iii) are not and will not be in
contravention of any order of any court or other agency of government, of law
or any other indenture, agreement or undertaking to which Seller and/or
Guarantor is a party or by which the property of Seller and/or Guarantor is
bound, or be in conflict with, result in a breach of, or constitute (with due notice
and/or lapse of time) a default under any such indenture, agreement or
undertaking or result in the imposition of any lien, charge or encumbrance of
any nature on any of the properties of Seller and/or Guarantor.

 

34.3                           This
Amendment and any assignment, instrument, document, or agreement executed and
delivered in connection herewith, will be valid, binding, and enforceable in
accordance with its respective terms.

 

34.4                           No
Event of Default or Default has occurred under the Flex Agreement or any of the
other Existing Purchase Documents.

 

7

 

35.                                 Ratification
of Existing Purchase Documents. Except as expressly set forth herein, all
of the terms and conditions of the Flex Agreement and Existing Purchase Documents
are hereby ratified and confirmed and continue unchanged and in full force and
effect. All references to the Flex Agreement shall mean the Flex Agreement as
modified by this Amendment.

 

36.                                 Governing
Law. This Amendment, and all matters arising out of or related to this
Amendment, shall be governed by, construed and enforced in accordance with the
laws of the State of Texas, without reference to its principles of conflicts of
laws.

 

37.                                 Counterparts.
This Amendment may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original, and such counterparts
together shall constitute one and the same respective agreement. Signature by
facsimile shall also bind the parties hereto.

 

 

[Signatures Appear on Following Page]

 

8

 

Dated
the date and year first written above.

 

SELLER:

 

KH
FINANCIAL, L.P.,

an Illinois limited partnership

	
   

  	
  By:

  	
  KH FINANCIAL
  HOLDING COMPANY,

  
	
   

  	
  an Illinois
  corporation,

  
	
   

  	
  its general
  partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  William E. Long

  	
   

  
	
   

  	
  Name:

  	
    William
  E. Long

  	
   

  
	
   

  	
  Title:

  	
    President
  and CEO

  	
   

  
								

 

 

Signature Page

Second Amendment to Warehousing Credit and
Security Agreement

 

 

	
   

  	
  GUARANTOR:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  KIMBALL HILL, INC.,

  an Illinois corporation

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Hal H. Barber

  	
   

  
	
   

  	
  Name:

  	
  Hal H. Barber

  	
   

  
	
   

  	
  Title:

  	
  Vice President

  	
   

  
						

 

 

Signature Page

Second Amendment to Warehousing Credit and
Security Agreement

 

 

WASHINGTON MUTUAL:

WASHINGTON
MUTUAL BANK, FA, 

a federal association

 

	
   

  	
  By:

  	
    /s/
  Ben R. Culver

  	
   

  
	
   

  	
  Name:

  	
  Ben Culver

  	
   

  
	
   

  	
  Title:

  	
  VP

  	
   

  
						

 

 

Signature Page

Second Amendment to Warehousing Credit and
Security Agreement

 

 

Annex 1

 

Customized Terms

 

1.                                       Additional
Definitions. The following definitions are added to Section 1 of the
Agreement:

 

“Annual Reporting Date” means the date that
is ninety (90) days after the end of each fiscal year (see subsection 13.7(b)).

 

“Interim Date” means August 31, 2004.

 

“Maximum Takeout Commitment Expiration Date”
means the date that is ninety (90) days after the Acquisition Date for a particular
Mortgage Loan.

 

“Monthly Reporting Date” means the date
that is thirty (30) days after the end of each calendar month (see subsection 13.7(a)).

 

“Permitted Dividend” means a regular cash
dividend declared by Seller and paid to its shareholders, provided that such
dividends do not exceed, in the aggregate, during any fiscal year seventy-five
percent (75%) of Seller’s net income for the immediately preceding fiscal year
(as calculated on its annual statement of income).

 

“Seller’s Concentration Limit” means
$100,000,000.00 at any one time.

 

“Wet Funding Deadline” means five (5) Business
Days after the closing of the Mortgage Loan.

 

“Wet Funding Sublimit” means 25% of the
Seller’s Concentration Limit at any one time.

 

2.                                       Modified
or Clarified Definitions Terms. The following definitions and terms are
clarified or modified, as applicable, as follows:

 

“Acquisition Price”:  The percentage referenced in the definition
of “Acquisition Price” in Section 1 of the Agreement is ninety-eight
percent (98%).

 

“Event of Default”:  The amount of Indebtedness referenced in
clause (xi) of the definition of “Event of Default” in Section 1 of the
Agreement is Fifty Thousand and No/100 Dollars ($50,000.00).

 

“Guarantor” means, Kimball Hill, Inc.,
an Illinois corporation.

 

“Investment Return Rate”:  The number of basis points referenced in the
definition of “Investment Return Rate” in Section 1 of the Agreement is
175 basis points (1.75%).

 

No Undisclosed Liabilities:  The amount of liabilities and Indebtedness
referenced in Section 12.19 of the Agreement is Fifty Thousand and
No/100 Dollars ($50,000.00).

 

1 - 1

 

Notices of Actions, Suits or Proceedings:  The amount at issue referenced in Section 13.4
of the Agreement is Fifty Thousand and No/100 Dollars ($50,000.00).

 

Debt to Adjusted Tangible Net Worth Ratio:  The ratio referenced in Section 13.11 of
the Agreement is 10:1.

 

Minimum Adjusted Tangible Net Worth:  The amount referenced in Section 13.12
of the Agreement is Five Million and No/100 Dollars ($5,000,000.00).

 

Minimum Current Ratio:  The ratio referenced in Section 13.13 of
the Agreement is 1.05:1.

 

3.                                       Defective
Mortgage Loan.    The following
definition set forth in Section 1 of the Agreement is hereby amended and
restated to read as follows:

 

“Defective Mortgage Loan”
means a Mortgage Loan (i) that does not conform to any one or more of
the representations or warranties made by Seller pursuant to Section 11, (ii) that
is sold in a transaction in which any one or more of the representations and
warranties of Seller contained in Section 12 are not true, correct and
complete on the Acquisition Date, (iii) that is subject to a Takeout
Commitment with respect to which Seller is in default, (iv) that is
rejected or excluded for any reason (other than default by MBF) from the
related Takeout Commitment by the Takeout Investor, (v) that is not
purchased by the Takeout Investor in compliance with the Takeout Commitment and
this Agreement at or prior to the expiration or termination of the Takeout
Commitment for any reason (other than default by MBF), (vi) that is
purported to be purchased by the Takeout Investor in compliance with the
Takeout Commitment and this Agreement at or prior to the expiration or
termination of the Takeout Commitment but for which (A) the Takeout
Proceeds paid to MBF pursuant to Section 7 are not sufficient to pay the
amount owed to MBF with respect thereto and (B) Seller does not promptly
provide to MBF, whether through a remittance from either of Seller’s Accounts
or otherwise, the shortfall, or (vii) that was delivered to the Takeout
Investor for examination and purchase but has not been purchased upon
expiration of thirty (30) days from the date the Mortgage Loan was delivered to
the Takeout Investor.

 

4.                                       Deposit
Credit. Section 6 of the Agreement is amended by the addition of the
following Section:

 

6.3                                 Deposit
Credit. Each month MBF shall credit to Seller against the amounts otherwise
payable to MBF hereunder a credit based on the Monthly Available Deposits. This
credit shall be the sum obtained by the daily application of the LIBOR Rate to
the Monthly Available Deposit for the month, multiplied by the number of days
in such month, and the credit so calculated shall be applied against amounts
due from Seller on the next Remittance Date. The “Monthly Available Deposits”
means the arithmetic daily average of the collected balances (after deducting
float and balances required by MBF under its normal practices to compensate MBF
for the maintenance of such accounts and taking into

 

1 - 2

 

consideration
reserve requirements, insurance premiums and other assessments applicable to
such accounts) in non-interest bearing accounts in the name of Seller with MBF.
MBF shall calculate the Monthly Available Deposits and the resulting credit in
its sole discretion promptly after the last Business Day of each month.

 

5.                                       Additional
Seller Representation: Place of Business and Formation. Section 12 of
the Agreement is amended by the addition of the following Section 12.27:

 

12.27                     Place of Business and Formation.
The principal place of business of Seller is 5999 New Wilke Road, Suite 205,
Rolling Meadows, Illinois 60005. As of the Effective Date, and during the four (4) months
immediately preceding that date, the chief executive office of Seller and the
office where it keeps its financial books and records relating to its property
and all contracts relating thereto and all accounts arising therefrom is and
has been located at the address set forth for Seller in Section 6 of Annex 1.
As of the Effective Date, Seller’s jurisdiction of organization is Illinois.

 

6.                                       Termination.
For the purposes of clause (a) of Section 14 of the Agreement,
notice of termination must be delivered not less than thirty (30) days prior to
the date of termination.

 

7.                                       Notices.
Notices to Seller made pursuant to Section 15.1 of the Agreement shall be
addressed as follows:

 

KH
Financial, L.P.

5999 New Wilke Road, Suite 205

Rolling Meadows, Illinois 60005

Attention: Bernard J. Stock

Telecopy No.: (847) 756-6283

 

Notices to MBF made
pursuant to Section 15.1 of the Agreement shall be addressed as follows:

 

Washington
Mutual Bank

Mortgage Banker Finance

620 W. Germantown Pike, Suite 200

Plymouth Meeting, PA 19462

Attention:  Joseph Meehan

Telecopy No.: (610) 828-9657

 

with a
copy to:

Washington Mutual Bank

Legal Department

9200 Oakdale Avenue

Chatsworth, CA 91311

Attention:  Carol A. Robertson

Telecopy No.: (818) 349-2734

 

1 - 3

 

8.                                       Representations
and Warranties Concerning Mortgage Loans. Without limiting or modifying
anything contained in Section 11 of the Agreement and in addition to each
of the representations and warranties set forth in Annex 2
concerning each Mortgage Loan then sold to MBF (as such representations and
warranties may be modified by another Annex) and each representation and
warranty concerning the Mortgage Loan set forth in another applicable Annex,
Seller also makes the following additional representation and warranty: The
principal amount of the Mortgage Loan is not in excess of $1,000,000.00 on the
Acquisition Date for such Mortgage Loan.

 

1 - 4

 

Annex 4

 

Provisions Relating to Type 1 Nonconforming Loans

 

1.                                       Additional
Definitions. In addition to the definitions set forth in Section 1 of
the Agreement, the following definitions apply:

 

“Type 1 Nonconforming Loan” means a Mortgage
Loan about which not all of representations and warranties set forth in Annex
2 are true and correct but about which all of the representations and
warranties in Section 7 of Annex 4 are true and correct.

 

“Type 1 Nonconforming Loan Sublimit” means
$100,000,000.00 at any one time.

 

“1NC1 Loan” means a Type 1 Nonconforming
Loan that is a first lien Mortgage Loan.

 

“2NC1 Loan” means a Type 1 Nonconforming
Loan that is a second lien Mortgage Loan.

 

“1NC1 Sub-sublimit” means $100,000,000.00 at
any one time.

 

“2NC1 Sub-sublimit” means $7,750,000.00 at
any one time.

 

2.                                       Modified
or Clarified Definitions. The definitions set forth in Section 1 of
the Agreement are clarified or modified, as applicable, as follows:

 

“Acquisition Price”:  For a 1NC1 Loan, the “Acquisition Price”
means an amount equal to ninety-eight percent (98%) of the amount which the
Takeout Investor has provisionally committed to pay for such Mortgage Loan in
its Takeout Commitment, but in no event more than the Par Value of such a
Mortgage Loan. For a 2NC1 Loan, the “Acquisition Price” means an amount equal
to ninety-eight percent (98%) of the amount which the Takeout Investor has
provisionally committed to pay for such Mortgage Loan in its Takeout
Commitment, but in no event more than the Par Value of such a Mortgage Loan.

 

“Investment Return Rate”:  For a 1NC1 Loan only, the “Investment Return
Rate” means the LIBOR Rate plus 200 basis points (2.00%) per annum. For a 2NC1
Loan only, the “Investment Return Rate” means the LIBOR Rate plus 200 basis
points (2.00%) per annum.

 

“Maximum Takeout Commitment Expiration Date”:  For a 1NC1 Loan only, the “Maximum Takeout
Commitment Expiration Date” means the date that is ninety (90) days after the
Acquisition Date for such a Mortgage Loan. For a 2NC1 Loan only, the “Maximum
Takeout Commitment Expiration Date” means the date that is ninety (90) days
after the Acquisition Date for such a Mortgage Loan.

 

3.                                       Purchase
and Sale. The following sentence is added to Section 2 of the
Agreement:

 

4 - 1

 

In no
event shall MBF be required to purchase any Type 1 Nonconforming Loan if the
Acquisition Price of such Type 1 Nonconforming Loan, when combined with the
aggregate Acquisition Price of all Type 1 Nonconforming Loans then held by MBF
(and then serviced by Seller or a Successor Servicer), is in excess of the Type
1 Nonconforming Loan Sublimit. In no event shall MBF be required to purchase
any 1NC1 Loan if the Acquisition Price of such 1NC1 Loan, when combined with
the aggregate Acquisition Price of all 1NC1 Loans then held by MBF (and then
serviced by Seller or a Successor Servicer), is in excess of the 1NC1
Sub-sublimit. In no event shall MBF be required to purchase any 2NC1 Loan if
the Acquisition Price of such 2NC1 Loan, when combined with the aggregate
Acquisition Price of all 2NC1 Loans then held by MBF (and then serviced by
Seller or a Successor Servicer), is in excess of the 2NC1 Loan Sub-sublimit.

 

4.                                       Seller’s
Repurchase Obligations. The following sentence is added to the end of subsection 8.2(a) of
the Agreement:

 

In the
case of a Type 1 Nonconforming Loan, if Seller fails to obtain a Takeout
Commitment for such Type 1 Nonconforming Loan, or fails to provide to MBF a
true and correct photocopy of it or information about it required by Section 13.15,
within ninety (90) days after the Acquisition Date, MBF may notify Seller,
and notify Seller, and Seller shall promptly repurchase such Mortgage Loan at
the Adjusted Acquisition Price on the date of repurchase.

 

5.                                       Additional
Seller’s Covenants. Section 13 of the Agreement is amended by the addition
of the following Section 13.15:

 

13.15                     Takeout Commitment—Type 1. Seller
shall make a commercially reasonable effort to obtain a Takeout Commitment for
each Type 1 Nonconforming Loan, and Seller shall provide to MBF a true and
correct photocopy of it or information about it (in such format and by such
media as MBF may from time to time determine) as soon as practicable after
Seller has obtained the Takeout Commitment. MBF acknowledges that a Takeout
Commitment for a Type 1 Nonconforming Loan may take the form of
a bulk trade commitment concerning a number of Type 1 Nonconforming Loans and
certain other loans.

 

6.                                       Representations
and Warranties Concerning Type 1 Nonconforming Loans. Notwithstanding
anything to the contrary in Section 11 of the Agreement, with respect to a
Type 1 Nonconforming Loan, Seller only makes each of the following
representations and warranties set forth in Annex 2: 1-38 (inclusive),
41, and 43-end (inclusive). In addition, Seller also makes each of the
additional representations and warranties with respect to each Type 1
Nonconforming Loan set forth below:

 

4 - 2

 

(1)                                  First
or Second Lien Loan. The Mortgage is a first lien or a second lien on the
Mortgaged Property.

 

(2)                                  FICO
Scores. At the time of origination Mortgagor had a score on the FICO scale
of at least 620.

 

(3)                                  Loan-to-Value
Ratio. If the Mortgage Loan is indicated by Seller to be a first lien
Mortgage Loan on the Loan Purchase Detail, the loan-to-value ratio of the
Mortgage Loan is not in excess of 100%. If the Mortgage Loan is indicated by
Seller to be a second lien Mortgage Loan on the Loan Purchase Detail, the
loan-to-value ratio of the first lien mortgage loan and the Mortgage Loan
combined is not in excess of 100%.

 

(4)                                  Debt
Service-to-Income Ratio. At the time of origination of the Mortgage Loan,
the ratio of the scheduled aggregate annual principal payment on the Mortgage
Loan to the annual income of Mortgagor was not in excess of 50%.

 

(5)                                  Mississippi
Loans. The Mortgaged Property is not located in the State of Mississippi.

 

(6)                                  Documentation.
The Mortgage Loan was documented in compliance with Seller’s full or stated
documentation program.

 

(7)                                  Maximum
Cash Out. If the Mortgage Loan was made to a Mortgagor who owned the
Mortgaged Property prior to the origination of such Mortgage Loan and the
proceeds of which were used in whole or part to satisfy an existing
mortgage, the proceeds of the Mortgage Loan did not exceed the amount of the
existing mortgage by more than $150,000.00.

 

(8)                                  No
Mobile Home/Manufactured Housing Loans. The Mortgage Loan is not secured by
a mobile home or by manufactured housing.

 

(9)                                  No
Negative Amortization. The Mortgage Loan does not provide for negative
amortization or for the potential for negative amortization.

 

(10)                            Loan
Size Limit. If the Mortgage Loan is indicated by Seller to be a first lien
Mortgage Loan on the Loan Purchase Detail, the principal amount of the Mortgage
Loan is not in excess of $1,000,000.00 on the Acquisition Date for such
Mortgage Loan; if it is indicated by Seller to be a second lien Mortgage Loan
on the Loan Purchase Detail, the principal amount of the Mortgage Loan is not
in excess of $500,000.00 on the Acquisition Date for such Mortgage Loan.

 

4 - 3

 

Annex 5

 

Provisions Relating to Type 2 Nonconforming Loans

 

1.                                       Additional
Definitions. In addition to the definitions set forth in Section 1 of
the Agreement, the following definitions apply:

 

“Type 2 Nonconforming Loan” means a Mortgage
Loan about which not all of representations and warranties set forth in Annex
2 are true and correct but about which all of the representations and
warranties in Section 7 of Annex 5 are true and correct.

 

“Type 2 Nonconforming Loan Sublimit” means
$10,000,000.00 at any one time.

 

“1NC2 Loan” means a Type 2 Nonconforming
Loan that is a first lien Mortgage Loan.

 

“2NC2 Loan” means a Type 2 Nonconforming
Loan that is a second lien Mortgage Loan.

 

“1NC2 Sub-sublimit” means $10,000,000.00 at
any one time.

 

“2NC2 Sub-sublimit” means $0.00 at any one
time.

 

2.                                       Modified
or Clarified Definitions. The definitions set forth in Section 1 of
the Agreement are clarified or modified, as applicable, as follows:

 

“Acquisition Price”:  For a 1NC2 Loan, the “Acquisition Price”
means an amount equal to ninety-six percent (96%) of the lesser of (a) the
Par Value of such 1NC2 Loan and (b) the Market Value of such 1NC2 Loan.

 

“Investment Return Rate”:  For a 1NC2 Loan only, the “Investment Return
Rate” means the LIBOR Rate plus 250 basis points (2.50%) per annum.

 

“Maximum Takeout Commitment Expiration Date”:  For a 1NC2 Loan only, the “Maximum Takeout
Commitment Expiration Date” means the date that is ninety (90) days after the
Acquisition Date for such a Mortgage Loan.

 

3.                                       Purchase
and Sale. The following sentence is added to Section 2 of the
Agreement:

 

In no
event shall MBF be required to purchase any Type 2 Nonconforming Loan if the
Acquisition Price of such Type 2 Nonconforming Loan, when combined with the
aggregate Acquisition Price of all Type 2 Nonconforming Loans then held by MBF
(and then serviced by Seller or a Successor Servicer), is in excess of the Type
2 Nonconforming Loan Sublimit. In no event shall MBF be required to purchase
any 1NC2 Loan if the Acquisition Price of such 1NC2 Loan, when combined with
the aggregate Acquisition Price of all 1NC2 Loans then held by MBF

 

5 - 1

 

(and
then serviced by Seller or a Successor Servicer), is in excess of the 1NC2
Sub-sublimit. In no event shall MBF be required to purchase any 2NC2 Loan if
the Acquisition Price of such 2NC2 Loan, when combined with the aggregate
Acquisition Price of all 2NC2 Loans then held by MBF (and then serviced by
Seller or a Successor Servicer), is in excess of the 2NC2 Loan Sub-sublimit.

 

4.                                       Seller’s
Repurchase Obligations. The following sentence is added to the end of subsection 8.2(a) of
the Agreement:

 

In the
case of a Type 2 Nonconforming Loan, if Seller fails to obtain a Takeout
Commitment for such Loan, or fails to provide to MBF a true and correct
photocopy of it or information about it as required by Section 13.16,
within ninety (90) days after the Acquisition Date, MBF may notify Seller,
and Seller shall promptly repurchase such Mortgage Loan at the Adjusted
Acquisition Price on the date of repurchase.

 

5.                                       Additional
Seller’s Covenants. Section 13 of the Agreement is amended by the
addition of the following Section 13.16:

 

13.16                     Takeout Commitment—Type 2. Seller
shall make a commercially reasonable effort to obtain a Takeout Commitment for
each Type 2 Nonconforming Loan, and Seller shall provide to MBF a true and
correct photocopy of it or information about it (in such format and by such
media as MBF may from time to time determine) as soon as practicable after
Seller has obtained the Takeout Commitment. MBF acknowledges that a Takeout
Commitment for a Type 2 Nonconforming Loan may take the form of a
bulk trade commitment concerning a number of Type 2 Nonconforming Loans
and certain other loans.

 

6.                                       Representations
and Warranties Concerning Type 2 Nonconforming Loans. Notwithstanding
anything to the contrary in Section 11 of the Agreement, with respect to a
Type 2 Nonconforming Loan, Seller only makes each of the following
representations and warranties set forth in Annex 2: 1-38 (inclusive),
41, and 43-end (inclusive). In addition, Seller also makes each of the
additional representations and warranties with respect to each Type 2
Nonconforming Loan set forth below:

 

(1)                                  First
Lien Loan. The Mortgage is a first lien on the Mortgaged Property.

 

(2)                                  FICO
Scores. At the time of origination the Mortgagor had a score on the FICO
scale of at least 550.

 

(3)                                  Loan-to-Value
Ratio. The loan-to-value ratio of the Mortgage Loan is not in excess of
90%.

 

(4)                                  Debt
Service-to-Income Ratio. At the time of origination of the Mortgage Loan,
the ratio of the scheduled aggregate annual principal payment on the Mortgage
Loan to the annual income of the Mortgagor was not in excess of 50%.

 

5 - 2

 

(5)                                  Mississippi
Loans. The Mortgaged Property is not located in the State of Mississippi.

 

(6)                                  Documentation.
The Mortgage Loan was documented in compliance with Seller’s full or stated
documentation program.

 

(7)                                  Maximum
Cash Out. If the Mortgage Loan was made to a Mortgagor who owned the
Mortgaged Property prior to the origination of such Mortgage Loan and the
proceeds of which were used in whole or part to satisfy an existing
mortgage, the proceeds of the Mortgage Loan did not exceed the amount of the
existing mortgage by more than $150,000.00.

 

(8)                                  No
Mobile Home/Manufactured Housing Loans. The Mortgage Loan is not secured by
a mobile home or by manufactured housing.

 

(9)                                  No
Negative Amortization. The Mortgage Loan does not provide for negative
amortization or for the potential for negative amortization.

 

(10)                            Loan
Size Limit. The principal amount of the Mortgage Loan is not in excess of
$500,000.00 on the Acquisition Date for such Mortgage Loan.

 

5 - 3

 

Annex 6

 

Provisions Relating to Type 3 Nonconforming Loans

 

1.                                       Additional
Definitions. In addition to the definitions set forth in Section 1 of
the Agreement, the following definitions apply:

 

“Type 3 Nonconforming Loan” means a Mortgage
Loan about which not all of representations and warranties set forth in Annex
2 are true and correct but about which all of the representations and
warranties in Section 7 of Annex 6 are true and correct.

 

“Type 3 NC/Aged Loan Sublimit” means $5,000,000.00
at any one time.

 

“1NC3 Loan” means a Type 3 Nonconforming
Loan that is a first lien Mortgage Loan.

 

“2NC3 Loan” means a Type 3 Nonconforming
Loan that is a second lien Mortgage Loan.

 

“1NC3 Sub-sublimit” means $5,000,000.00 at
any one time.

 

“2NC3 Sub-sublimit” means $5,000,000.00 at
any one time.

 

2.                                       Modified
or Clarified Definitions. The definitions set forth in Section 1 of
the Agreement are clarified or modified, as applicable, as follows:

 

“Acquisition Price”:  For a 1NC3 Loan, the “Acquisition Price”
means an amount equal to ninety-six percent (96%) of the lesser of (a) the
Par Value of such 1NC3 Loan and (b) the Market Value of such 1NC3 Loan. For
a 2NC3 Loan, the “Acquisition Price” means an amount equal to ninety-six
percent (96%) of the lesser of (a) the Par Value of such 2NC3 Loan and (b) the
Market Value of such 2NC3 Loan.

 

“Investment Return Rate”:  For a 1NC3 Loan only, the “Investment Return
Rate” means the LIBOR Rate plus 250 basis points (2.50%) per annum. For a 2NC3
Loan only, the “Investment Return Rate” means the LIBOR Rate plus 250 basis
points (2.50%) per annum.

 

“Maximum Takeout Commitment Expiration Date”:  For a 1NC3 Loan only, the “Maximum Takeout
Commitment Expiration Date” means the date that is ninety (90) days after the
Acquisition Date for such a Mortgage Loan. For a 2NC3 Loan only, the “Maximum
Takeout Commitment Expiration Date” means the date that is ninety (90) days
after the Acquisition Date for such a Mortgage Loan.

 

3.                                       Purchase
and Sale. The following sentence is added to Section 2 of the
Agreement:

 

In no
event shall MBF be required to purchase any Type 3 Nonconforming Loan if the
Acquisition Price of such Type 3 Nonconforming Loan, when combined with the
aggregate Acquisition Price of all Type 3 Nonconforming Loans and all Aged
Mortgage Loans then held by MBF (and then serviced by

 

6 - 4

 

Seller
or a Successor Servicer), is in excess of the Type 3 NC/Aged Loan Sublimit. In
no event shall MBF be required to purchase any 1NC3 Loan if the Acquisition
Price of such 1NC3 Loan, when combined with the aggregate Acquisition Price of
all 1NC3 Loans then held by MBF (and then serviced by Seller or a Successor
Servicer), is in excess of the 1NC3 Sub-sublimit. In no event shall MBF be
required to purchase any 2NC3 Loan if the Acquisition Price of such 2NC3 Loan,
when combined with the aggregate Acquisition Price of all 2NC3 Loans then held
by MBF (and then serviced by Seller or a Successor Servicer), is in excess of
the 2NC3 Loan Sub-sublimit.

 

4.                                       Seller’s
Repurchase Obligations. The following sentence is added to the end of subsection 8.2(a) of
the Agreement is amended to read in full as follows:

 

In the
case of a Type 3 Nonconforming Loan, if Seller fails to obtain a Takeout Commitment
for such Loan, or fails to provide to MBF a true and correct photocopy of it or
information about it as required by Section 13.17, within ninety (90) days
after the Acquisition Date, MBF may notify Seller, and Seller shall
promptly repurchase such Mortgage Loan at the Adjusted Acquisition Price on the
date of repurchase.

 

5.                                       Additional
Seller’s Covenants. Section 13 of the Agreement is amended by the
addition of the following Section 13.17:

 

13.17                     Takeout Commitment—Type 3. Seller
shall make a commercially reasonable effort to obtain a Takeout Commitment for
each Type 3 Nonconforming Loan, and Seller shall provide to MBF a true and
correct photocopy of it or information about it (in such format and by such
media as MBF may from time to time determine) as soon as practicable after
Seller has obtained the Takeout Commitment. MBF acknowledges that a Takeout
Commitment for a Type 3 Nonconforming Loan may take the form of a
bulk trade commitment concerning a number of Type 3 Nonconforming Loans
and certain other loans.

 

6.                                       Representations
and Warranties Concerning Type 3 Nonconforming Loans. Notwithstanding
anything to the contrary in Section 11 of the Agreement, with respect to a
Type 3 Nonconforming Loan, Seller only makes each of the following representations
and warranties set forth in Annex 2: 1-38 (inclusive), 41, and 43-end
(inclusive). In addition, Seller also makes each of the additional
representations and warranties with respect to each Type 3 Nonconforming Loan
set forth below:

 

(1)                                  First
or Second Lien Loan. The Mortgage is a first lien or a second lien on the
Mortgaged Property.

 

(2)                                  FICO
Scores. If the Mortgage Loan is indicated by Seller to be a first lien
Mortgage Loan on the Loan Purchase Detail, at the time of origination the
Mortgagor had a score on the FICO scale of at least 500. If the Mortgage Loan
is 

 

6 - 5

 

indicated
by Seller to be a second lien Mortgage Loan on the Loan Purchase Detail, at the
time of origination the Mortgagor had a score on the FICO scale of at least
600.

 

(3)                                  Loan-to-Value
Ratio. If the Mortgage Loan is indicated by Seller to be a first lien
Mortgage Loan on the Loan Purchase Detail, the loan-to-value ratio of the
Mortgage Loan is not in excess of 100%. If the Mortgage Loan is indicated by
Seller to be a second lien Mortgage Loan on the Loan Purchase Detail, the
loan-to-value ratio of the first lien mortgage loan and the Mortgage Loan
combined is not in excess of 100%.

 

(4)                                  Debt
Service-to-Income Ratio. At the time of origination of the Mortgage Loan,
the ratio of the scheduled aggregate annual principal payment on the Mortgage
Loan to the annual income of the Mortgagor was not in excess of 55%.

 

(5)                                  Mississippi
Loans. The Mortgaged Property is not located in the State of Mississippi.

 

(6)                                  Documentation.
The Mortgage Loan was documented in compliance with Seller’s full or stated
documentation program.

 

(7)                                  Maximum
Cash Out. If the Mortgage Loan was made to a Mortgagor who owned the
Mortgaged Property prior to the origination of such Mortgage Loan and the
proceeds of which were used in whole or part to satisfy an existing
mortgage, the proceeds of the Mortgage Loan did not exceed the amount of the
existing mortgage by more than $150,000.00.

 

(8)                                  No
Mobile Home/Manufactured Housing Loans. The Mortgage Loan is not secured by
a mobile home or by manufactured housing.

 

(9)                                  No
Negative Amortization. The Mortgage Loan does not provide for negative
amortization or for the potential for negative amortization.

 

(10)                            Loan
Size Limit. If the Mortgage Loan is indicated by Seller to be a first lien
Mortgage Loan on the Loan Purchase Detail, the principal amount of the Mortgage
Loan is not in excess of $500,000.00 on the Acquisition Date for such Mortgage
Loan; if it is indicated by Seller to be a second lien Mortgage Loan on the
Loan Purchase Detail, the principal amount of the Mortgage Loan is not in
excess of $500,000.00 on the Acquisition Date for such Mortgage Loan.

 

6 - 6

 

Exhibit A

 

Administrative Costs

 

All
usual and customary cost and expenses incurred by MBF in connection with
processing, administering and settling of a Mortgage Loan, currently including
without limitation:

 

(a)                                  an
internal allocation for processing expense for each Mortgage Loan in the
following amounts (as applicable):

 

(i)                                     Mortgage
Loan purchased under Section 3.5 with a Dry Funding Documents Package or
under Section 3.6 with a Wet Funding Documents Package:  $20.00; and

 

(ii)                                  Mortgage
Loan purchased requiring release of warehouse lender lien and interest held by

 

(x)                                   MBF:  $5.00; or

 

(y)                                 a
third party warehouse lender:  $20.00.

 

(b)                                 $50.00
internal allocation for processing files regarding a repurchased Mortgage Loan
(unless the repurchase is financed by MBF as Warehouse Lender);

 

(c)                                  a
monthly administration fee on the Monthly Unused Portion. This fee shall be
calculated each month at the rate of zero basis points (0.00%) per annum of the
Monthly Unused Portion for such month, payable in arrears on or before the later
of (a) the next Remittance Date or (b) the date on which MBF notifies
Seller of the amount of the administration fee that has accrued since the
Effective Date or the date of the last payment. The “Monthly Unused Portion”
means the amount equal to the Seller’s Concentration Limit minus the arithmetic daily average of the (i) Acquisition
Price of all Mortgage Loans previously purchased by MBF but not yet either
repurchased by Seller or purchased by a Takeout Investor as of such day plus (ii) if
MBF is a Warehouse Lender to Seller, the principal balance of all loans made by
MBF to Seller in such capacity outstanding on such day. MBF shall calculate the
Monthly Unused Portion in its sole discretion; and

 

(d)                                 messenger
and overnight courier fees.

 

A- 1

 

Exhibit H

 

COMPLIANCE CERTIFICATE

 

 

	
  SELLER:

  	
  KH FINANCIAL,
  L.P.

  
	
   

  	
  WASHINGTON
  MUTUAL BANK,

  
	
  MBF:

  	
  a federal
  association

  
	
  TODAY’S DATE:

  	
        /      /200

  
	
  REPORTING PERIOD
  ENDED:

  	
        
  month(s) ended       /      /200  

  

 

This
certificate is delivered to MBF under the Mortgage Loan Purchase and Sale
Agreement dated effective as of October 14, 2004, between the Seller and
MBF (the “Agreement”), all the defined terms of which have the same meanings
when used herein.

 

I
hereby certify that: (a) I am, and at all times mentioned herein have
been, the duly elected, qualified, and acting officer of Seller designated
below; (b) to the best of my knowledge, the Financial Statements of Seller
from the period shown about (the “Reporting Period”) and which accompany this
certificate were prepared in accordance with GAAP and present fairly the
financial condition of Seller as of the end of the Reporting Period and the
results of its operations for the Reporting Period; (c) a review of the
Agreement and of the activities of Seller during the Reporting Period has been
made under my supervision with a view to determining Seller’s compliance with
the covenants, requirements, terms, and conditions of the Agreement, and such
review has not disclosed the existence during or at the end of the Reporting
Period (and I have no knowledge of the existence as of the date hereof) of any
Default or Event of Default, except as disclosed herein (which specifies the
nature a d period of existence of each Default or Event of Default, if any, and
what action Seller has taken, is taking, and proposes to take with respect to
each); (d) the calculations described herein evidence that the Seller is
in compliance with the requirements of the Agreement at the end of the
Reporting Period (or if Seller is not in compliance, showing the extent of
non-compliance and specifying the period of non-compliance and what actions
Seller proposes to take with respect thereto); (e) Seller was, as of the
end of the Reporting Period, in compliance and good standing with applicable
FNMA, GNMA, FHLMC, and HUD net worth requirements.

 

	
  KH FINANCIAL,
  L.P., an Illinois limited partnership

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  

 

A - i

 

	
  SELLER:

  	
  KH FINANCIAL,
  L.P.

  
	
   

  	
   

  
	
  REPORTING PERIOD ENDED:

  	
       /     /200 

  

 

All
financial calculations set forth herein are as of the end of the Reporting
Period.

 

I.                                         TANGIBLE NET
WORTH

 

	
  The Tangible Net Worth of Seller is:

  	
   

  	
   

  	
   

  
	
  Shareholder’s Equity:

  	
   

  	
  $

  	
   

  
	
  Minus: Intangible Assets

  	
   

  	
  $

  	
   

  
	
  Minus: Capitalized Servicing Rights

  	
   

  	
  $

  	
   

  
	
  Minus: Advances of loans to shareholders, officers
  or Affiliates:

  	
   

  	
  $

  	
   

  
	
  Minus: Investments in Affiliates:

  	
   

  	
  $

  	
   

  
	
  Minus: Assets pledged to secure liabilities not
  included in Debt:

  	
   

  	
  $

  	
   

  
	
  Minus: Net Investment in Real Estate

  	
   

  	
  $

  	
   

  
	
  Minus: Any other HUD nonacceptable assets:

  	
   

  	
  $

  	
   

  
	
  TANGIBLE NET WORTH:

  	
   

  	
  $

  	
   

  

 

II.                                     ADJUSTED TANGIBLE
NET WORTH

 

	
  Adjusted Tangible Net Worth of Seller is:

  	
   

  	
   

  	
   

  
	
  Tangible Net Worth (from above):

  	
   

  	
  $

  	
   

  
	
  Plus: Subordinated Debt:

  	
   

  	
  $

  	
   

  
	
  Plus: 1.00% times UPB of Servicing Rights:

  	
   

  	
  $

  	
   

  
	
  ADJUSTED TANGIBLE NET WORTH:

  	
   

  	
  $

  	
   

  
	
  REQUIRED MINIMUM (through
  Termination Date)

  	
   

  	
  $5,000,000.00

  	
   

  
	
  In compliance?

  	
   

  	
  oYes  oNo

  	
   

  

 

A - ii

 

III.                                 DEBT OF SELLER

 

	
  Total Liabilities

  	
   

  	
  $

  	
   

  
	
  Minus: Loan loss reserves:

  	
   

  	
  $

  	
   

  
	
  Minus: Deferred taxes arising from capitalized
  excess servicing fees:

  	
   

  	
  $

  	
   

  
	
  DEBT:

  	
   

  	
  $

  	
   

  

 

IV.                                DEBT TO ADJUSTED
TANGIBLE NET WORTH

 

	
  Debt (from above):

  	
   

  	
  $

  	
   

  
	
  Adjusted Tangible Net Worth

  	
   

  	
  $

  	
   

  
	
  RATIO OF ADJUSTED TANGIBLE NET WORTH:

  	
   

  	
    :1

  	
   

  
	
  Maximum permitted

  	
   

  	
  10:1

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  In compliance?

  	
   

  	
  oYes  oNo

  	
   

  

 

V.                                    CURRENT RATIO

 

	
  Current Assets (assets that are now cash or will be
  by their terms or disposition be to cash within one year of the date of
  calculation and all assets excluded from Tangible Net Worth in Section I. Above)

  	
   

  	
  $

  	
   

  
	
  Current Liabilities (liabilities due upon demand or
  within one year from the date of calculation)

  	
   

  	
  $

  	
   

  
	
  RATIO OF CURRENT ASSETS TO CURRENT LIABILITIES

  	
   

  	
    :1

  	
   

  
	
  Minimum required (through
  Termination Date)

  	
   

  	
  1.05:1

  	
   

  
	
  In compliance?

  	
   

  	
  oYes  oNo

  	
   

  

 

VI.                                OWNER COMPENSATION

 

	
   

  	
   

  	
  Current Month

  	
   

  	
  Year-to-Date

  	
   

  
	
  Expensed Compensation

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Plus: Dividends

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Plus: Loans to Owners

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TOTAL

  	
   

  	
  $

  	
   

  	
  $

  	
   

  

 

A - iii

 

VII.                            PRODUCTION

 

	
   

  	
   

  	
  Current Month

  	
   

  	
  Year-to-Date

  	
   

  
	
  Total Mortgage Loans Funded

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Wholesale as % of Total

  	
   

  	
   

  	
  %

  	
   

  	
  %

  
	
  Retail as % of Total

  	
   

  	
   

  	
  %

  	
   

  	
  %

  

 

	
  By Category

  	
   

  	
  Current Month

  	
   

  	
  Year-to-Date

  	
   

  
	
  Government as % of Total

  	
   

  	
   

  	
  %

  	
   

  	
  %

  
	
  Conventional as % of Total

  	
   

  	
   

  	
  %

  	
   

  	
  %

  
	
  Jumbo as % of Total

  	
   

  	
   

  	
  %

  	
   

  	
  %

  
	
  Subprime as % of Total

  	
   

  	
   

  	
  %

  	
   

  	
  %

  
	
  Second Mortgages as %

  	
   

  	
   

  	
  %

  	
   

  	
  %

  
	
  Other (Describe)

  	
   

  	
   

  	
  %

  	
   

  	
  %

  
	
  Total (Must = 100%)

  	
   

  	
   

  	
  %

  	
   

  	
  %

  

 

VIII.                        TRANSACTIONS
WITH AFFILIATES

 

	
  Transactions with Affiliates (year-to-date)

  	
   

  	
  $

  	
   

  
	
  Maximum permitted

  	
   

  	
  $N/A

  	
   

  
	
  (a)In compliance?

  	
   

  	
  oYes  oNo

  	
   

  

 

IX.                                NO LOANS OR INVESTMENTS
(EXCEPT APPROVED
INVESTMENTS)

 

	
  Investments (year-to-date)

  	
   

  	
  $

  	
   

  
	
  Maximum permitted

  	
   

  	
  $N/A

  	
   

  
	
  (b)In compliance?

  	
   

  	
  oYes  oNo

  	
   

  

 

X.                                    THIRD PARTY REPORTS

 

All reports
received from third parties (such as the SEC, FNMA, GNMA, FHLMC) subsequent to
the last reporting period are attached hereto. These reports include the
following (if none, write “None”):

 

XI.                                DEFAULTS OR EVENTS OF
DEFAULT

 

Disclose nature and period
of existence and action being taken in connection therewith; if none, write “None”:

 

A - iv

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