Document:

EX-10.4

 

Exhibit 10.4

 

 

BISHOP’S GATE RESIDENTIAL MORTGAGE TRUST,

as Purchaser,

CENDANT MORTGAGE CORPORATION,

as Seller and Servicer,

and

PHH CORPORATION,

as Guarantor

SECOND AMENDED AND RESTATED

MORTGAGE LOAN PURCHASE AND SERVICING AGREEMENT

dated as of October 31, 2000

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page
	
ARTICLE I
	 
	 	 	 	 	 	 
	DEFINITIONS

	 	 	 	 	2	 
	
ARTICLE II
	
SALE OF ELIGIBLE LOANS; POSSESSION OF MORTGAGE FILES;

BOOKS AND RECORDS; CUSTODIAL AGREEMENT;

DELIVERY OF DOCUMENTS
	 
	 	 	 	 	 	 
	Section 2.1

	 	Sale of Eligible Loans; Possession of Mortgage Loan Files; Maintenance of Mortgage
Loan Files
	 	 	22	 
	Section 2.2

	 	Determination of Purchase Price; Deposit by Seller and the Additional Seller
	 	 	26	 
	Section 2.3

	 	Purchase Commitment Term
	 	 	27	 
	Section 2.4

	 	Books and Records; Transfers of Eligible Loans
	 	 	27	 
	Section 2.5

	 	Custodial Agreement
	 	 	28	 
	
ARTICLE III
	
REPRESENTATIONS AND WARRANTIES;

COVENANTS; REMEDIES AND BREACH
	 
	 	 	 	 	 	 
	Section 3.1

	 	Representations and Warranties of the Company and the Additional Seller
	 	 	28	 
	Section 3.2

	 	Representations and Warranties Regarding Individual Mortgage Loans; Eligibility
Representations
	 	 	34	 
	Section 3.3

	 	Remedies for Breach of Representations and Warranties
	 	 	43	 
	Section 3.4

	 	Conditions to Closing
	 	 	44	 
	Section 3.5

	 	Covenants of the Purchaser, the Company and the Additional Seller
	 	 	45	 
	
ARTICLE IV
	
ADMINISTRATION AND SERVICING OF ELIGIBLE LOANS

ii

 

	 	 	 	 	 	 	 
	 	 	 	 	Page
	 
	Section 4.1

	 	The Company to Act as Servicer; Servicing and Administration of the Eligible Loans
	 	 	46	 
	Section 4.2

	 	Sales and Securitizations
	 	 	48	 
	Section 4.3

	 	Liquidation of Eligible Loans
	 	 	50	 
	Section 4.4

	 	Collection of Eligible Loan Payments
	 	 	51	 
	Section 4.5

	 	Establishment of, and Deposits to, Collection Account
	 	 	51	 
	Section 4.6

	 	Permitted Withdrawals From Collection Account; Deposit into the Collateral Account
	 	 	52	 
	Section 4.7

	 	Establishment of, and Deposits to, Escrow Account
	 	 	53	 
	Section 4.8

	 	Permitted Withdrawals From Escrow Account
	 	 	54	 
	Section 4.9

	 	Payment of Taxes, Insurance and Other Charges
	 	 	54	 
	Section 4.10

	 	Protection of Accounts
	 	 	55	 
	Section 4.11

	 	Maintenance of Hazard Insurance
	 	 	55	 
	Section 4.12

	 	Maintenance of Mortgage Impairment Insurance
	 	 	56	 
	Section 4.13

	 	Maintenance of Fidelity Bond and Errors and Omissions Insurance
	 	 	57	 
	Section 4.14

	 	Inspections
	 	 	57	 
	Section 4.15

	 	Restoration of Mortgaged Property
	 	 	57	 
	Section 4.16

	 	Maintenance of PMI Policy; Claims
	 	 	58	 
	Section 4.17

	 	Title, Management and Disposition of REO Property
	 	 	59	 
	Section 4.18

	 	Servicer Reports
	 	 	60	 
	Section 4.19

	 	Real Estate Owned Reports
	 	 	60	 
	Section 4.20

	 	Liquidation Reports
	 	 	60	 
	Section 4.21

	 	Reports of Foreclosures and Abandonments of Mortgaged Property
	 	 	60	 
	Section 4.22

	 	Servicer Advance Report
	 	 	60	 
	Section 4.23

	 	Secondary Market Trading Report
	 	 	60	 
	
ARTICLE V
	
SERVICER ADVANCES
	Section 5.1

	 	Servicer Monthly Advances
	 	 	61	 

iii

 

	 	 	 	 	 	 	 
	 	 	 	 	Page
	
ARTICLE VI
	
GENERAL SERVICING PROCEDURES
	 
	 	 	 	 	 	 
	Section 6.1

	 	Transfers of Mortgaged Property
	 	 	61	 
	Section 6.2

	 	Satisfaction of Mortgages and Release of Mortgage Loan Files
	 	 	62	 
	Section 6.3

	 	Servicing Compensation
	 	 	62	 
	Section 6.4

	 	Annual Statement as to Compliance
	 	 	63	 
	Section 6.5

	 	Annual Independent Public Accountants’ Servicing Report
	 	 	63	 
	Section 6.6

	 	Right to Examine Servicer Records
	 	 	63	 
	
ARTICLE VII
	
REPURCHASE OBLIGATION
	 
	 	 	 	 	 	 
	Section 7.1

	 	Servicer’s Repurchase Obligations
	 	 	64	 
	
ARTICLE VIII
	
SERVICER TO COOPERATE
	 
	 	 	 	 	 	 
	Section 8.1

	 	Provision of Information
	 	 	64	 
	
ARTICLE IX
	
THE SERVICER
	 
	 	 	 	 	 	 
	Section 9.1

	 	Indemnification of Third-Party Claims
	 	 	65	 
	Section 9.2

	 	Corporate Existence of the Servicer
	 	 	65	 
	Section 9.3

	 	Limitation on Liability of Servicer and Others
	 	 	66	 
	Section 9.4

	 	Limitation on Resignation and Assignment by the Servicer
	 	 	66	 
	Section 9.5

	 	Limitation on Assignment of Right
	 	 	66	 
	
ARTICLE X
	
DEFAULT

iv

 

	 	 	 	 	 	 	 
	 	 	 	 	Page
	 
	Section 10.1

	 	Servicer Events of Default
	 	 	67	 
	Section 10.2

	 	Waiver of Defaults
	 	 	69	 
	
ARTICLE XI
	
TERMINATION
	 
	 	 	 	 	 	 
	Section 11.1

	 	Termination of Agreement
	 	 	69	 
	Section 11.2

	 	Termination of Purchase Obligations
	 	 	69	 
	Section 11.3

	 	Termination of Servicing With Respect to Any Eligible Loan
	 	 	72	 
	
ARTICLE XII
	
MISCELLANEOUS PROVISIONS
	 
	 	 	 	 	 	 
	Section 12.1

	 	Successor to Servicer
	 	 	73	 
	Section 12.2

	 	Amendment
	 	 	74	 
	Section 12.3

	 	Governing Law
	 	 	74	 
	Section 12.4

	 	Duration of Agreement
	 	 	74	 
	Section 12.5

	 	Notices
	 	 	74	 
	Section 12.6

	 	Severability of Provisions
	 	 	75	 
	Section 12.7

	 	Relationship of Parties
	 	 	75	 
	Section 12.8

	 	Execution; Successors and Assigns
	 	 	75	 
	Section 12.9

	 	Recordation of Assignments of Mortgage
	 	 	76	 
	Section 12.10

	 	Assignment by Purchaser
	 	 	76	 
	Section 12.11

	 	Non-Petition Agreement
	 	 	76	 
	Section 12.12

	 	Waiver of Offset
	 	 	76	 
	Section 12.13

	 	Limited Recourse
	 	 	76	 
	Section 12.14

	 	Limitation of Liability
	 	 	77	 
	Section 12.15

	 	Binding Effect on Voting Group
	 	 	77	 
	
ARTICLE XIII
	
PHH CORPORATION GUARANTEE
	 
	 	 	 	 	 	 
	Section 13.1

	 	Guarantee of Servicer’s Performance and Payment Obligations
	 	 	77	 

v

 

	 	 	 	 	 	 	 
	 	 	 	 	Page
	
ARTICLE XIV
	
ASSIGNMENT
	 
	 	 	 	 	 	 
	Section 14.1

	 	Assignment
	 	 	79	 
	
ARTICLE XV
	
COMMITMENT FEE
	 
	 	 	 	 	 	 
	Section 15.1

	 	Commitment Fee
	 	 	80	 
	
ARTICLE XVI
	
ADDITIONAL SELLER
	 
	 	 	 	 	 	 
	Section 16.1

	 	Criteria for Additional Seller
	 	 	80	 
	
EXHIBITS
	 
	 	 	 	 	 	 
	EXHIBIT A-1

	 	TRANSFER SUPPLEMENT
	 	 	A-1-1	 
	EXHIBIT A-2

	 	TRANSFER SUPPLEMENT
	 	 	A-2-1	 
	EXHIBIT B

	 	RATED BIDDER LETTER
	 	 	B-1	 
	EXHIBIT C

	 	FORM OF MONTHLY REPORT
	 	 	C-1	 
	EXHIBIT D

	 	FORM OF MONTHLY SERVICER ADVANCE REPORT
	 	 	D-1	 
	EXHIBIT E

	 	FORM OF ADDITIONAL SELLER OFFICER’S CERTIFICATE
	 	 	E-1	 
	EXHIBIT F

	 	FORM OF SERVICING RIGHTS PURCHASE AND SALE AGREEMENT
	 	 	F-1	 
	EXHIBIT G

	 	FORM OF ADDITIONAL SELLER AGREEMENT
	 	 	G-1	 
	EXHIBIT H

	 	FORM OF INSOLVENCY OPINION
	 	 	H-1	 

vi

 

          SECOND AMENDED AND RESTATED MORTGAGE LOAN PURCHASE AND SERVICING AGREEMENT, dated as of
October 31, 2000 (as amended, supplemented or otherwise modified and in effect from time to time,
the “Agreement” or the “Purchase Agreement”), between Bishop’s Gate Residential
Mortgage Trust, a Delaware business trust, as Purchaser (the “Purchaser” or the “Trust”),
Cendant Mortgage Corporation, a New Jersey corporation (the “Company”), as Seller and
Servicer (in its capacity as Seller hereunder, the “Seller,” and in its capacity as Servicer
hereunder, the “Servicer”), any additional seller of Eligible Loans pursuant to the terms
hereof (collectively, the “Additional Seller”), and PHH Corporation, a Maryland
corporation, as Guarantor (the “Guarantor”) of the Servicer’s obligations.

WITNESSETH

          WHEREAS, the Purchaser and the Seller have entered into that certain Amended and Restated
Mortgage Loan Purchase and Servicing Agreement, dated as of December 11, 1998 (the “Amended and
Restated Purchase Agreement”), and pursuant thereto the Purchaser has agreed to purchase from
the Seller and the Seller has agreed to sell to the Purchaser from time to time mortgage loans
constituting Eligible Loans;

          WHEREAS, pursuant to the Amended and Restated Purchase Agreement, the Purchaser and the
Company, as Seller and Servicer, have prescribed the manner of purchase of each Eligible Loan and
the management, control and servicing of the Eligible Loans, including the method and manner by
which the Servicer will arrange for the sale and Securitization of each Eligible Loan;

          WHEREAS, the Purchaser, the Seller and the Servicer desire to amend and restate the Amended
and Restated Purchase Agreement in its entirety for the purpose of, among other things, adding the
Additional Seller meeting the criteria described herein as a seller of Mortgage Loans to the Trust
pursuant to this Purchase Agreement; and

          WHEREAS, pursuant to Section 12.2 of the Amended and Restated Purchase Agreement, the
Purchaser, the Seller, the Controlling Majority, the Required Banks, the Swap Counterparties, the
holders of a majority of the principal amount of all Series of Certificates and the Servicer have
provided their written consent to the amendment and restatement of the Amended and Restated
Purchase Agreement, and written notice of such amendment has been provided to each Rating Agency.
In connection with the execution of this Purchase Agreement, the Purchaser has received Rating
Agency Confirmation.

          NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth, and for other
good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the Purchaser, the Seller, the Additional Seller, the Servicer and the Guarantor
agree as follows:

 

 

ARTICLE I

DEFINITIONS

          Whenever used herein, the following words and phrases, unless the context otherwise requires,
shall have the following meanings:

          Accepted Servicing Practices: The Servicer’s Customary Servicing Procedures and the
servicing practices required by the Guidelines.

          Acquisition Date Accrued Interest: With respect to any Eligible Loan, the amount of
interest, if any, accrued and unpaid on the date of acquisition of such Eligible Loan by the
Purchaser.

          Additional Seller: Collectively, any Affiliate of the Company meeting the criteria
specified in Article XVI herein.

          Administration Agreement: The Amended and Restated Administration Agreement, dated as
of December 11, 1998, between the Trust and the Administrator, as the same may at any time be
amended, modified or supplemented.

          Administrator: Cendant Mortgage Corporation, in its capacity as Administrator under
the Administration Agreement, or any successor Administrator under the Administration Agreement.

          Affiliate: With respect to the origination and sale of Eligible Loans pursuant to
this Purchase Agreement, Affiliate means any entity controlled by or under common control of
Cendant Mortgage Corporation. With respect to any specified Person, Affiliate means any other
Person controlling or controlled by or under common control with such specified Person. For the
purposes of this definition, “control” when used with respect to any specified Person means the
power to direct the management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities (including, without limitation, partnership interests), by
contract or otherwise and the terms “controlling” and “controlled” have meanings correlative to the
foregoing.

          Agency: Any of GNMA, FNMA or FHLMC, as applicable.

          Agency Custodial Agreement: The custodial agreement entered into with GNMA, FNMA or
FHLMC, as applicable, pursuant to which the Custodian will act as document custodian for a pool or
pools of mortgage loans to be formed to back Agency Securities.

          Agency Securities: Securities backed by a pool or pools of mortgage loans owned by
the Trust, which are issued and guaranteed by the applicable Agency.

2

 

          Agent: The Chase Manhattan Bank, in its capacity as Agent for the Liquidity Banks
under the Liquidity Agreement, or any successor Agent under the Liquidity Agreement.

          Agreement or Purchase Agreement: This Second Amended and Restated Mortgage
Loan Purchase and Servicing Agreement and all amendments hereof and supplements hereto, including
as the context requires, any Transfer Supplement.

          Appraised Value: The value set forth in an appraisal made in connection with the
origination of the related Eligible Loan as the value of the Mortgaged Property.

          Approved Seller/Servicer: An approved seller and servicer under the Guidelines.

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

          Base Indenture: The Base Indenture, dated as of December 11, 1998, between the
Purchaser and the Indenture Trustee, as the same may be at any time amended, modified or
supplemented, exclusive of Supplements creating a new Series of Notes.

          Base Trust Agreement: The Third Amended and Restated Trust Agreement, dated as of
December 11, 1998, between the Depositor and the Owner Trustee, as the same may at any time be
amended, modified or supplemented.

          Best’s: The meaning specified in Section 4.11 of this Agreement.

          BIF: The Bank Insurance Fund or any successor thereto.

          Business Day: Any day other than (i) Saturday and Sunday, or (ii) a day on which
banking institutions or foreign exchange markets in New York City are authorized or required by
law, regulation or executive order to be closed for business.

          Calculation Agent: The Servicer.

          Certificate Purchase Agreement: The certificate purchase agreements, dated as of
December 4, 1998 and November 4, 1999, respectively, by and among Lehman Brothers Inc., the
Purchaser and the Company, for the Variable Rate Residential Mortgage Loan Extendible Trust
Certificates, Series 1998-1 and Series 1998-2, and the Variable Rate Extendible Trust Certificates,
Series 1999-1, respectively, and each certificate purchase agreement, if any, entered into by the

3

 

Purchaser, the Company and the purchasers thereof in connection with the issuance of any Series of
Certificates.

          Certificates: The Variable Rate Residential Mortgage Loan Extendible Trust
Certificates, Series 1998-1, Variable Rate Residential Mortgage Loan Extendible Trust Certificates,
Series 1998-2, Variable Rate Extendible Trust Certificates, Series 1999-1, and any additional
Series of certificates that may be issued from time to time pursuant to the Base Trust Agreement
and any supplement thereto.

          Closing Date: The Closing Date specified in any Transfer Supplement, which is the
date as to which the sale of any Portfolio is designated to occur.

          Code: The Internal Revenue Code of 1986, as it may be amended from time to time or
any successor statute thereto, and applicable U.S. Department of the Treasury regulations issued
pursuant thereto.

          Collateral Account: A single, segregated trust account established and maintained by
the Collateral Agent pursuant to the terms of the Security Agreement for the purposes described in
Section 4.6 hereof.

          Collateral Agent: Bank One, National Association (formerly The First National Bank of
Chicago), as Collateral Agent for the Secured Parties under the Security Agreement, or any
successor Collateral Agent under the Security Agreement.

          Collection Account: As to any Eligible Loan, any separate account or accounts created
and maintained pursuant to Section 4.5 of this Agreement for the collection of all payments
made on such Eligible Loan.

          Commercial Paper or Commercial Paper Notes: The short-term promissory notes
of the Trust issued pursuant to the Depositary Agreement.

          Commercial Paper Dealer Agreement: The commercial paper dealer agreement, dated as of
July 21, 2000, among the Trust and the CP Dealers.

          Commitment Fee: The meaning assigned to such term in Section 15.1 hereof.

          Company: Cendant Mortgage Corporation, a New Jersey corporation, as Seller and
Servicer of the Eligible Loans purchased by the Purchaser pursuant to the terms of this Agreement.

          Company Employees: The meaning specified in Section 4.13 hereof.

4

 

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

          Conforming Loan: An Eligible Loan which conforms to the Guidelines of GNMA, FNMA or
FHLMC, as amended for the Seller.

          Controlling Majority: The Liquidity Banks and holders of the Notes holding 51% of the
sum of the (i) the aggregate principal amount of all Series of Notes outstanding, and (ii) Credits
Outstanding (for purposes of this calculation, (i) the Liquidity Banks percentage of the
Controlling Majority shall equal the Credits Outstanding divided by the sum of the (x) the
aggregate principal amount of all Series of Notes outstanding, and (y) the Credits Outstanding, and
(ii) the Noteholders’ percentage of the Controlling Majority shall equal the aggregate principal
amount of all Series of Notes outstanding divided by the sum of (x) the aggregate principal amount
of all Series of Notes outstanding, and (y) the Credits Outstanding). For the purposes of
determining the Controlling Majority, “Credits Outstanding” shall be determined without reference
to clause (3) of the definition thereof.

          CP Dealer: Lehman Commercial Paper Inc., Banc of America Securities LLC and Goldman,
Sachs & Co., each as a Commercial Paper dealer pursuant to the Program Documents.

          Credit-Adjusted Price: The hypothetical sales price (expressed as a percentage of
par), as determined in good faith by the Calculation Agent, as of each date of a Partial
Termination occurring with respect to a Delinquent or Defaulted Loan equal to the price that a
Reference Mortgage Loan would be sold to a Qualified Purchaser.

          Credits Outstanding: As of the close of business on any day, (i) the aggregate
principal amount of outstanding Commercial Paper, plus (ii) the aggregate principal amount of
outstanding Loans, minus (iii) funds allocable to Commercial Paper and Loans outstanding then on
deposit in the Collateral Account, except to the extent that such funds are then subject to any
writ, order, stay, judgment, warrant of attachment or execution or similar process.

          Custodial Agreement: The Amended and Restated Custodial Agreement, dated as of
December 11, 1998, among the Trust, the Custodian and the Collateral Agent, as the same may at any
time be amended, modified or supplemented.

          Custodian: Bank One, National Association (formerly The First National Bank of
Chicago), in its capacity as Custodian under the Custodial Agreement, or any successor Custodian
under the Custodial Agreement.

5

 

          Customary Servicing Procedures: Procedures (including collection procedures) that the
Servicer customarily employs and exercises in servicing and administering mortgage loans for its
own account and arranging for the sale and Securitization of mortgage loans and which are in
accordance with accepted mortgage servicing practices of prudent lending institutions in the
jurisdiction in which the Mortgaged Property is situated for properties of a similar type.

          Defaulted Loan: Any Eligible Loan where (i) the obligor thereon has failed to make a
required payment for 90 days or more after the Due Date of such required payment, (ii) such
Eligible Loan is a Delinquent Loan for which the Servicer has not made a Servicer Monthly Advance
and the Servicer has delivered a certificate pursuant to Section 5.1 hereof, or (iii) any
other event has occurred which gives the holder the right to accelerate payment and/or take steps
to foreclose on the mortgage securing the Eligible Loan under the Eligible Loan documentation.

          Delinquent Loan: Any Eligible Loan which has a payment which is 30 days or more past
its Due Date without giving effect to any Servicer Monthly Advance.

          Depositary: First Chicago Trust Company of New York, in its capacity as Depositary
under the Depositary Agreement, or any successor Depositary under the Depositary Agreement.

          Depositary Agreement: The Amended and Restated Depositary Agreement, dated as of
December 11, 1998, entered into by the Trust and the Depositary, as the same may at any time be
amended, modified or supplemented.

          Depositor: Cendant Mortgage Corporation, in its capacity as Depositor, or any
successor Depositor.

          Determination Date: With respect to a Due Period, the 16th day (or if such day is not
a Business Day, the Business Day immediately succeeding such day) of the calendar month following
such Due Period.

          Due Date: The first day of the month in which the related Monthly Payment is due on
an Eligible Loan, exclusive of any days of grace.

          Due Period: With respect to each Payment Date, the period commencing on the first day
of the month preceding the month of the Payment Date and ending on the last day of the month
preceding the month in which the Payment Date occurred.

          Early Amortization Event: With respect to each Series, if any of the following shall
have occurred prior to the applicable Final Scheduled Distribution Date: (i) a Termination Event,
(ii) the Trust’s commitment to purchase Mortgage Loans has terminated prior to the Final Scheduled

6

 

Distribution Date of any Series of Certificates, (iii) an Indenture Event of Default, (iv) a
Liquidity Agreement Event of Default (v) an Interest Rate Swap Termination Event, (vi) an Interest
Rate Swap Event of Default.

          Eligible Investments: Investments which mature no later than the next following
Payment Date in the following:(i) obligations issued by, or the full and timely payment of
principal of and interest on which is fully guaranteed by, the United States of America or any
agency or instrumentality thereof (which agency or instrumentality is backed by the full faith and
credit of the United States of America), (ii) commercial paper (other than the Commercial Paper)
rated (at the time of purchase) at least “A-l” by S&P, “P-1” by Moody’s and, if rated by Fitch,
“F1,” (iii) certificates of deposit, other deposits or bankers’ acceptances issued by or
established with commercial banks having short-term deposit ratings (at the time of purchase) of at
least “A-l” by S&P, “P-1” by Moody’s and, if rated by Fitch, “F1,” (iv) repurchase agreements
involving any of the Eligible Investments described in clauses (i) through (iii) hereof so long as
the other party to the repurchase agreement has short-term unsecured debt obligations or short-term
deposits rated (at the time of purchase) at least “A-l” by S&P, “P-1” by Moody’s and, if rated by
Fitch, “F1,” and (v) if approved in writing by Moody’s, direct obligations of any money market fund
or other similar investment company all of whose investments consist of obligations described in
the foregoing clauses of this definition and that is rated “AAm” by S&P, “Aam” by Moody’s and, if
rated by Fitch, “AA/V-1+” or higher. In addition, any such Eligible Investment shall not have an
“r” highlighter affixed to its rating, and its term shall have a predeter-mined fixed dollar amount
of principal due at maturity that cannot vary or change. Interest on any Eligible Investment shall
be tied to a single interest rate index plus a single fixed spread, if any, and move
proportionately with that index.

          Eligible Loan: Conforming Loans and Jumbo Loans that satisfy the Eligibility Criteria
and the Portfolio Criteria. An Eligible Loan includes, without limitation, the Mortgage Loan File,
the Monthly Payments, Principal Prepayments, Liquidation Proceeds, Condemnation Proceeds, Insurance
Proceeds, VA Guaranty Proceeds, REO Disposition Proceeds and all other rights, benefits, proceeds
and obligations arising from or in connection with such Eligible Loan.

          Eligibility Criteria: In connection with the Purchaser’s purchase of mortgage loans
on any day, the mortgage loans acquired on such day must satisfy the following criteria: (i) each
mortgage loan must be either a Conforming Loan or a Jumbo Loan, (ii) each mortgage loan must have
been originated or purchased by the Seller or the Additional Seller, as applicable, in accordance
with its then-current origination or acquisition underwriting practices within 60 days prior to the
acquisition thereof by the Purchaser, (iii) the aggregate Initial Purchase Price of all mortgage
loans secured by properties located in California and acquired on such day may not exceed 30% of
the aggregate Initial Purchase Price of all mortgage loans acquired on such day, (iv) the aggregate
Initial Purchase Price of all mortgage loans secured by properties located in any state other than
California and acquired on such day may not exceed 15% of the aggregate Initial Purchase Price of
all mortgage loans acquired

7

 

on such day, (v) the aggregate Initial Purchase Price of all mortgage loans guaranteed by either
the Federal Housing Authority or the Veterans Administration and acquired on such day may not
exceed 30% of the aggregate Initial Purchase Price of all mortgage loans acquired on such day, (vi)
the aggregate Initial Purchase Price of all Jumbo Loans acquired on such day may not exceed 35% of
the aggregate Initial Purchase Price of all mortgage loans acquired on such day and (vii) each
mortgage loan may not be made to a borrower that is generally referred to as “sub-prime borrower.”
In addition, the representations and warranties made by the Seller and the Servicer (in its own
capacity and on behalf of the Additional Seller) in this Agreement must be true and correct in all
material respects on such day.

          Eligibility Representations: The representations and warranties made by the Seller
and the Servicer (on behalf of the Additional Seller) with respect to each mortgage loan, set forth
in Section 3.2 herein.

          Equivalent Security: With respect to a mortgage loan, a mortgage-backed security
issued by FHLMC, FNMA or GNMA having a term to final maturity equal to the remaining term to
maturity of such mortgage loan and an interest or pass-through rate equal to the interest rate on
such mortgage loan (net of servicing fees).

          Equivalent Security Price: With respect to a mortgage loan, the price (expressed as a
percentage of the principal amount) of the Equivalent Security for such mortgage loan. The price
of an Equivalent Security shall be determined by the Servicer on any date by reference to an
independent market price reference such as Telerate.

          Errors and Omissions Insurance Policy: An errors and omissions insurance policy or
policies to be maintained by the Servicer pursuant to Section 4.13 hereof.

          Escrow Account: As to any Eligible Loan, any separate account or accounts created and
maintained pursuant to Section 4.7 hereof.

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

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

          FHA: The Federal Housing Administration, an agency within the United States
Department of Housing and Urban Development, or any successor thereto and including the Federal

8

 

Housing Commissioner and the Secretary of Housing and Urban Development where appropriate under the
FHA Regulations.

          FHA Approved Mortgagee: A corporation or institution approved as a mortgagee by the
FHA under the Act and applicable FHA Regulations, and eligible to own and service mortgage loans
such as the FHA Loans.

          FHA Loan: An Eligible Loan which is the subject of an FHA Mortgage Insurance
Contract.

          FHA Mortgage Insurance: Mortgage insurance authorized under Sections 203(b), 213,
221(d)(2), 222, and 235 of the Act and provided by the FHA.

          FHA Mortgage Insurance Contract: The contractual obligation of the FHA respecting the
insurance of an Eligible Loan.

          FHA Regulations: Regulations promulgated by HUD under the Federal Housing
Administration Act, codified in 24 Code of Federal Regulations, and other HUD issuances relating to
FHA Loans, including the related handbooks, circulars, notices and mortgagee letters.

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

          FHLMC Guides: The Federal Home Loan Mortgage Corporation Sellers’ Guide and the
Federal Home Loan Mortgage Corporation Servicers’ Guide and all amendments or additions thereto.

          FICO Score: A statistical credit score obtained by many mortgage lenders in
connection with a loan application to help assess a borrower’s creditworthiness. A FICO score is
generated by models developed by a third party and made available to lenders through three national
credit bureaus. The FICO score is based on a borrower’s historical credit data, including, among
other things, payment history, delinquencies on accounts, levels of outstanding indebtedness,
length of credit history, types of credit and bankruptcy experience.

          Fidelity Bond: A fidelity bond to be maintained by the Servicer pursuant to
Section 4.13 hereof.

          Final Scheduled Distribution Date: With respect to any Series of Certificates, the
final scheduled distribution date set forth in the applicable Series Trust Agreement Supplement, as
modified in the manner set forth in Section 3.4(b), 3.4(c) or 3.4(d) of the
Base Trust Agreement.

9

 

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

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

          FNMA Guides: The FNMA Selling and Servicing Guides and all amendments or additions
thereto.

          GNMA: The Government National Mortgage Association, or any successor thereto.

          GNMA Guides: The GNMA Handbooks 5500.1 and 5500.2 and all amendments or additions
thereto.

          Guarantee: The full, unconditional and irrevocable guarantee of the Servicer’s
performance and payment obligations, set forth in Article XIII hereof.

          Guarantor: PHH Corporation, a Maryland corporation, in its capacity as Guarantor, or
any successor Guarantor.

          Guidelines: The GNMA Guides, the FNMA Guides and the FHLMC Guides, as such Guides
have been amended from time to time with respect to the Seller.

          HUD: The Department of Housing and Urban Development, or any federal agency or
official thereof which may from time to time succeed to the functions thereof with regard to FHA
Mortgage Insurance. The term “HUD,” for purposes of this Agreement, is also deemed to include
subdivisions thereof such as the FHA and GNMA.

          Indenture: The Base Indenture, together with all Supplements thereto, as the same may
at any time be amended, modified or supplemented.

          Indenture Event of Default: An event of default under the Indenture.

          Indenture Trustee: The Bank of New York, not in its individual capacity, but solely
as Indenture Trustee under the Indenture, or any successor Indenture Trustee as provided in the
Indenture.

          Initial Purchase Price: The sum of the Original Principal Purchase Price of an
Eligible Loan plus the Acquisition Date Accrued Interest.

          Insurance Proceeds: With respect to any Eligible Loan, proceeds of insurance policies
insuring the Eligible Loan or the related Mortgaged Property.

10

 

          Insured Amount: The meaning specified in Section 4.10 of this Agreement.

          Interest Rate Swaps: The amended and restated interest rate swap agreements, each
dated as of December 11, 1998, and any other interest rate swap agreement entered into, between the
Trust and each Swap Counterparty separately or any substitute interest rate swaps entered into
pursuant to the provisions of the Interest Rate Swaps, as any of the same may at any time be
amended, modified or supplemented.

          Interest Rate Swap Event of Default: An event of default under an Interest Rate Swap.

          Interest Rate Swap Termination Event: A termination event under an Interest Rate
Swap.

          Jumbo Loan: A mortgage loan which substantially conforms to the Guidelines except (i)
the principal amount thereof may exceed the principal amount of a loan which conforms to the
Guidelines, and (ii) for other specified exceptions to the Guidelines which are consistent with the
Seller’s Jumbo Loan underwriting standards. Jumbo Loans will not include mortgage loans made to
borrowers that are generally referred to as “sub-prime” borrowers.

          Jumbo Price Spread: With respect to Jumbo Loans, the reduction in Equivalent Security
Price, as agreed to by the Seller, the Purchaser and the Agent.

          Liquidation Proceeds: All amounts received and retained in connection with the
liquidation of Defaulted Loans.

          Liquidity Agreement: The Amended and Restated Liquidity Agreement, dated as of
December 11, 1998, among the Purchaser, the Liquidity Banks and the Agent, as the same may at any
time be amended, modified or supplemented.

          Liquidity Agreement Event of Default: An event of default under the Liquidity
Agreement, as set forth in Section 9.01 of the Liquidity Agreement.

          Liquidity Banks: The banks or other financial institutions which are parties to the
Liquidity Agreement.

          Loan: A loan made by Liquidity Banks pursuant to the Liquidity Agreement.

          Loan Documents: The documents listed in Section 2.1 of this Agreement.

11

 

          Loan Termination Date: Each day on which a deposit is made into the Collateral
Account in respect of Terminated Loans.

          Loan-to-Value Ratio or LTV: With respect to any Eligible Loan, the ratio expressed as
a percentage of the Scheduled Principal Balance of the Eligible Loan as of the date of origination
(unless otherwise indicated) to the lesser of (i) the Appraised Value of the Mortgaged Property,
and (ii) if the Eligible Loan was made to finance the acquisition of the related Mortgaged
Property, the purchase price of the Mortgaged Property.

          Mark to Market Price: With respect to a mortgage loan, (i) the Mark to Market Price
of a Conforming Loan shall be the Equivalent Security Price multiplied by the unpaid principal
amount of such Conforming Loan and (ii) the Mark to Market Price of a Jumbo Loan shall be the
Equivalent Security Price reduced by the Jumbo Price Spread multiplied by the unpaid principal
amount of such Jumbo Loan.

          Material Adverse Effect: A material adverse effect on (a) the business, assets,
operations, prospects or condition, financial or otherwise, of the Purchaser, (b) the ability of
any of the Purchaser, the Seller, the Additional Seller, the Servicer or the Guarantor to perform
any of its obligations under this Mortgage Loan Purchase and Servicing Agreement or any of the
other Program Documents.

          Monthly Payment: The scheduled monthly payment of principal and interest on an
Eligible Loan.

          Monthly Servicer Advance Report: The meaning specified in Section 4.22
hereof.

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

          Mortgage: The mortgage, deed of trust or other instrument securing a Mortgage Note,
which creates a lien on an estate in fee simple in real property securing the Mortgage Note.

          Mortgage Impairment Insurance Policy: A mortgage impairment or blanket hazard
insurance policy as described in Section 4.12 hereof.

          Mortgage Interest Rate: The annualized regular rate of interest borne on a Mortgage
Note.

          Mortgage Loan File: The items pertaining to each Eligible Loan referred to in
Section 2.1 hereof, and any additional documents required to be added to the Mortgage Loan
File pursuant to this Agreement.

12

 

          Mortgage Loan Schedule: A schedule of Eligible Loans annexed to the Transfer
Supplement and delivered to the Purchaser on the related Closing Date, such schedule setting forth
the following information with respect to each Eligible Loan: (1) the identifying number for the
Eligible Loan; (2) the Mortgagor’s name; (3) the street address of the Mortgaged Property including
the state code; (4) a code indicating whether the Mortgaged Property is a one family residence or a
2-4 family residence; (5) the months to maturity from the Closing Date based on the amortization
schedule for such Eligible Loan; (6) the Loan-to-Value Ratio at the Closing Date; (7) the Mortgage
Interest Rate; (8) the stated maturity date; (9) the amount of the Monthly Payment; (10) the
original principal balance; (11) the PMI Policy certificate number, if any; (12) the Qualified
Insurer, if any; (13) the type of loan (FHA, VA, Conforming, Jumbo); (14) payment type (fixed rate
or adjustable rate); and (15) purchase price. With respect to any Portfolio in the aggregate, the
Mortgage Loan Schedule shall set forth the following information, as of the related Closing Date:
(1) the number of Eligible Loans; (2) the current aggregate outstanding principal balance of the
Eligible Loans; (3) the weighted average Mortgage Interest Rate of the Eligible Loans; and (4) the
weighted average maturity of the Eligible Loans.

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

          Mortgagee: The lender on a Mortgage Note.

          Mortgaged Property: The real property securing repayment of the debt evidenced by a
Mortgage Note.

          Mortgagor: The obligor on a Mortgage Note.

          MERS: Mortgage Electronic Registration Systems, Inc.

          Note Purchase Agreement: The note purchase agreements, dated as of December 4, 1998
and November 4, 1999, respectively, by and among the Purchaser, the Company, the Seller, the
Indenture Trustee and Lehman Brothers Inc., as representative of the initial purchasers, for the
Variable Rate Residential Mortgage Loan Medium-Term Notes, Series 1998-2 and the Variable Rate Term
Notes, Series 1999-1, respectively, and each note purchase agreement, if any, entered into by the
Purchaser, the Company, the Indenture Trustee and the purchasers thereof in connection with the
issuance of any Series of Notes.

          Notes: The Variable Rate Residential Mortgage Loan Medium-Term Notes, Series 1998-2,
the Variable Rate Term Notes, Series 1999-1 and any additional Series of notes issued pursuant to
the Base Indenture and any Supplement.

13

 

          Officer’s Certificate: A certificate signed by the Chairman of the Board and Chief
Executive Officer, the President, any Executive Vice President or any Senior Vice President or of
the Seller, the Additional Seller, the Servicer or the Guarantor, as applicable, and delivered to
the Purchaser as required by this Agreement.

          Opinion of Counsel: A written opinion of counsel, who may be an employee of the
Seller, the Additional Seller, the Servicer or the Guarantor, as applicable, in a form reasonably
acceptable to the Purchaser.

          Original Principal Purchase Price: With respect to each mortgage loan, the Mark to
Market Price at the close of business on the second Business Day immediately preceding the Closing
Date of the sale of such mortgage loan by the Seller or the Additional Seller to the Purchaser.

          Outstanding Purchase Price: With respect to any Eligible Loan and any date of
determination, (i) the Initial Purchase Price of such mortgage loan less (ii) the amount of any
payments received by the Purchaser and deposited in the Collateral Account in respect of
Acquisition Date Accrued Interest, less (iii) the product of (x) the aggregate of all previous
principal payments made on such mortgage loan and deposited into the Collateral Account on or prior
to such date of determina-tion, and (y) the related Purchase Price Adjustment Factor; provided,
however, the Outstanding Purchase Price of a mortgage loan (other than a Terminated Loan) shall
only be reduced on a Payment Date and the Outstanding Purchase Price of a Terminated Loan shall be
reduced on the related Loan Termination Date; provided, further, that solely for calculating a
Partial Termination Payment with respect to a Terminated Loan which is sold by the Servicer on
behalf of the Purchaser to a third party, the Outstanding Purchase Price shall be deemed to exclude
the product of (i) Retained Payment with respect to such Terminated Loan, and (ii) the Purchase
Price Adjustment Factor; provided, further, that after any Loan Termination Date the Outstanding
Purchase Price of a Terminated Loan shall be zero except that the Outstanding Purchase Price of a
Terminated Loan which is sold by the Servicer on behalf of the Purchaser to a third party shall be
the amount of the Retained Payment.

          Owner Trustee: First Union Trust Company, National Association, acting not in its
individual capacity, but solely on behalf of the Purchaser as owner trustee under the Base Trust
Agreement.

          Partial Termination Payment: An amount, which may be positive or negative, calculated
with respect to each Terminated Loan (I) which is sold by the Trust to a third party or securitized
equal to the product of (i) the unpaid principal balance of the Eligible Loan to which the loan
termination relates and (ii) the difference between (x) the Purchase Price Adjustment Factor for
such Eligible Loan and (y) (A) if the loan termination occurs with respect to a non-Delinquent or
non-Defaulted Loan, the sales price (expressed as a percentage of par) of the Eligible Loan to
which the loan termination relates (which sales price in the case of a bundled whole loan sale or a
Securitization shall equal the sales

14

 

price for the related bundle of loans or Securitization) or (B) if the loan termination occurs with
respect to a Delinquent or Defaulted Loan, the Credit-Adjusted Price or (II) which results from a
prepayment in full of such Eligible Loan equal to the product of (x) the related Purchase Price
Adjustment Factor less 100% and (y) the principal payments that were deposited in the Collateral
Account on such date.

          Payment Date: The 20th day (or if such day is not a Business Day, the
immediately succeeding Business Day) of any month.

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

          PHH Corporation: A Maryland corporation.

          PMI Policy: A policy of primary mortgage guaranty insurance issued by a Qualified
Insurer, as required by this Agreement with respect to certain Eligible Loans.

          Pooling Date: With respect to any Terminated Loan sold by the Servicer on behalf of
the Purchaser to a third party, the date on which the pool in which such Terminated Loan is
included is cut by the Servicer.

          Portfolio: An Eligible Loan or pool of Eligible Loans sold to the Purchaser on a
given day pursuant to the terms hereof and the applicable Transfer Supplement.

          Portfolio Aging Limitations: With respect to the age of the Eligible Loans owned by
the Purchaser on any day, the following limitations shall apply:

          (i) the aggregate Outstanding Purchase Price of Eligible Loans acquired by the Purchaser more
than three (3) months prior to such day may not exceed 30% of the then-current Program Size; (ii)
the aggregate Outstanding Purchase Price of Eligible Loans acquired by the Purchaser more than six
(6) months prior to such day may not exceed 5% of the then-current Program Size; and (iii) the
Purchaser must securitize or sell each Eligible Loan acquired by it within one (1) year of the date
of acquisition; provided, however, that, subject to Rating Agency Confirmation, the Controlling
Majority with the consent of the Required Banks and the Required Certificateholders may waive any
of the requirements of clauses (i) and (ii) above.

          Portfolio Criteria: On any day, after giving effect to the Purchaser’s purchase and
sale of mortgage loans on such day, the mortgage loans owned by the Purchaser in the aggregate must
satisfy the following criteria: (i) the aggregate Outstanding Purchase Price of mortgage loans
secured by property in California may not on such date exceed 30% of the then-current Program Size;
(ii) the

15

 

aggregate Outstanding Purchase Price of mortgage loans secured by property in a single state other
than California may not on such date exceed 15% of the then current Program Size; (iii) the
aggregate Outstanding Purchase Price of mortgage loans insured or guaranteed by either the FHA or
VA may not on such date exceed 30% of the then-current Program Size; (iv) the aggregate Outstanding
Purchase Price of Jumbo Loans may not on such date exceed 35% of the then-current Program Size; (v)
the mortgage loans owned by the Trust must have a weighted average FICO Score of at least 675
(excluding loans insured or guaranteed by the FHA or VA); and (vi) the weighted average loan to
value ratio of the mortgage loans owned by the Trust must not on such date exceed 85% (excluding
loans insured or guaranteed by the FHA or VA).

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

          Program Documents: The Liquidity Agreement, the Indenture, the Security Agreement,
the Custodial Agreement, this Purchase Agreement, the Guarantee, the Trust Agreement, the
Depositary Agreement, the Interest Rate Swaps, the Commercial Paper Dealer Agreement, the
Administration Agreement and the Note Purchase Agreement and the Certificate Purchase Agreement.

          Program Size: The sum of the Series Program Sizes, as such limit may be increased or
decreased in accordance with the Program Documents.

          Purchase Price Adjustment Factor: With respect to any Eligible Loan, the Original
Principal Purchase Price of such Eligible Loan expressed as a percentage of par.

          Purchaser or Trust: Bishop’s Gate Residential Mortgage Trust, a Delaware business
trust.

          Qualified Depository: Any depository the accounts of which are insured by the FDIC
through the BIF or the SAIF and the debt obligations of which are rated “A2” and “A” or better by
Moody’s and S&P, respectively, or such depository as shall be acceptable to Moody’s and S&P, as
applicable.

          Qualified Insurer: A mortgage guaranty insurance company duly authorized and licensed
where required by law to transact mortgage guaranty insurance business and approved as an insurer
by FHLMC, FNMA or GNMA.

16

 

          Qualified Purchaser: A leading purchaser in the market for mortgage loans having the
highest credit standing which satisfy all the criteria that the Calculation Agent would apply
generally at such time in determining whether to offer or make an extension of credit thereto.

          Rated Bidder: Shall have the meaning set forth in Section 11.3.

          Rating Agency: S&P, Moody’s and Fitch.

          Rating Agency Confirmation: A written confirmation from each Rating Agency that the
proposed action will not cause the reduction or withdrawal of their respective then current ratings
on any outstanding Series of Certificates, any outstanding Series of Notes or any outstanding
Commercial Paper.

          Reconciliation Date: The first and fifteenth day of each calendar month (or, if such
day is not a Business Day, the next following Business Day).

          Reference Mortgage Loan: A hypothetical mortgage loan used by the Calculation Agent
for the purposes of determining the Credit-Adjusted Price which is otherwise identical to the
Delinquent or Defaulted Loan in all respects, including interest rate, principal balance, cash
flows and all other payment characteristics except that such mortgage loan is not a Delinquent or
Defaulted Loan.

          Remarketing Agent: Lehman Brothers Inc., in its capacity as Remarketing Agent, or any
successor Remarketing Agent for all Series of Certificates, pursuant to a mutually acceptable
remarketing agent agreement.

          REO Disposition: The final sale by the Servicer of any REO Property.

          REO Disposition Proceeds: All amounts received with respect to an REO Disposition
(net of costs related thereto) pursuant to Section 4.17 hereof.

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

          Repurchase Price: With respect to any mortgage loan that is repurchased by the Seller
or Servicer in accordance with Sections 3.3, 6.2 and 7.1 hereof, the
Outstanding Purchase Price of such loan plus accrued interest through the date of repurchase.

          Required Banks: Liquidity Banks having an aggregate principal amount of outstanding
Liquidity Loans and available commitments under the Liquidity Agreement equal to 51% of the

17

 

aggregate principal amount of outstanding Liquidity Loans and available commitments for all
Liquidity Banks.

          Required Certificateholders: A majority in principal amount of all Series of
Certificates, voting together as a class.

          Required Noteholders: A majority in principal amount of all Series of Notes, voting
together as a single class.

          Reserve Fund: The segregated trust account established and maintained by the
Collateral Agent for the benefit of the Secured Parties and the holders of all Series of
Certificates, as set forth in Section 5.05 of the Security Agreement.

          Reserve Fund Available Amount: On any day, the amount on deposit in the Reserve Fund
as of such day.

          Retained Payment: With respect to any Terminated Loan sold by the Servicer on behalf
of the Purchaser to a third party or securitized, the sum of (A) with respect to any such
Terminated Loan which has a Pooling Date prior to the 15th day of the month, the amount of
principal payments which are scheduled to be received by the Purchaser in the month in which the
Loan Termination Date for such Terminated Loan occurs and (B) the amount of Principal Prepayments
not deposited into the Collateral Account and received by the Purchaser prior to the Pooling Date
where the next Reconciliation Date occurs prior to such Pooling Date.

          SAIF: The Savings Association Insurance Fund, or any successor thereto.

          Scheduled Principal Balance: With respect to any Eligible Loan, as of any date of
determination, the original principal balance thereof, reduced by the principal portion of all
Monthly Payments then due on or before such date of determination, whether or not received.

          Secured Parties: The Swap Counterparties, the Liquidity Banks, the Agent, the holders
of all Series of Notes, the Indenture Trustee and the holders of the Commercial Paper.

          Securities Act of 1933 or the 1933 Act: The Securities Act of 1933, as amended.

          Securities or Securitization Securities: Any note, bond or pass-through
certificate that is, directly or indirectly, secured by or represents an interest in any Eligible
Loan or pool of Eligible Loans.

18

 

          Securitization or Securitized: A transaction in which any Eligible Loan or
pool of Eligible Loans designated by the Purchaser is financed through or sold to a Securitization
Vehicle, which vehicle issues Securities in the capital markets.

          Securitization Vehicle: FHLMC, FNMA, GNMA or any trust, partnership, corporation,
limited liability corporation, limited liability partnership or other state law entity that is
created for the principal purpose of owning or holding an Eligible Loan or Eligible Loans which are
the subject of a Securitization.

          Security Agreement: The Amended and Restated Security Agreement, dated as of December
11, 1998, among the Purchaser, the Agent, the Indenture Trustee and the Collateral Agent, as the
same may at any time be amended, modified or supplemented.

          Seller: Cendant Mortgage Corporation, a New Jersey corporation.

          Series: Shall mean (x) any Series of Notes, (y) the Commercial Paper and Liquidity
Loans (such Commercial Paper and Liquidity Loans taken together as one Series), or (z) any Series
of Certificates, as the context may require.

          Series Program Size: Shall mean, with respect to each Series of Notes, the amount set
forth in the Series Supplement for such Series of Notes (including, without limitation, the amount
of Certificates required to be issued in connection therewith) and, with respect to the Series of
Liquidity Loans and Commercial Paper, $1,546,400,000 (as such size may be increased or decreased in
accordance with the Program Documents).

          Series Trust Agreement Supplement: With respect to each Series of Certificates, the
related supplement to the Base Trust Agreement.

          Servicer: Cendant Mortgage Corporation, a New Jersey corporation, or any successor
Servicer as provided herein.

          Servicer Event of Default: Any one of the conditions or circumstances enumerated in
Section 10.1 hereof.

          Servicer Monthly Advance: Amounts advanced by the Servicer in respect of Delinquent
Loans pursuant to Section 5.1 hereof.

          Servicer Report: The meaning specified in Section 4.18 hereof.

19

 

          Servicing Advances: All customary, reasonable and necessary “out of pocket” costs and
expenses other than Servicer Monthly Advances (including reasonable attorneys’ fees and
disbursements) incurred in the performance by the Servicer in connection with a default or other
unanticipated occurrence with respect to an Eligible Loan owned by the Purchaser (and not including
the performance of its ordinary and customary activities as Servicer), including, but not limited
to, the cost of (a) the preservation, restoration and protection of the Mortgaged Property, (b) any
enforcement or judicial proceedings, including foreclosures, (c) the management and liquidation of
any REO Property and (d) any advances of taxes and insurance premiums made pursuant to Section
4.9 hereof as a consequence of the default by the Mortgagor on its obligation to pay such
amounts.

          Servicing Fee: With respect to the services provided by the Servicer pursuant to this
Agreement, an annual servicing fee of 3/8 of 1% on the average monthly balance of Eligible Loans
held by the Purchaser during such month plus the excess fee, if any, pursuant to Section
5.03(b)(xi) of the Security Agreement.

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

          Supplement: A supplement to the Base Indenture with respect to any Series of Notes.

          Swap Counterparty: Each of The Bank of Nova Scotia, Bank of America, N.A. (formerly
NationsBank, N.A.), Barclay’s Bank or any other swap counterparty which is a commercial bank or
financial institutions having short-term credit ratings of “A-1+” and “P-1” from S&P and Moody’s
and “F1+,” if rated by Fitch, and long-term credit ratings of at least “AA-” and “Aa3” from S&P and
Moody’s and “AA-,” if rated by Fitch.

          Terminated Loan: Each Eligible Loan which is (1) sold or Securitized or (2) prepaid
in full.

          Termination Event: The meaning specified in Section 11.2 hereof.

          Termination Event Auction: Shall have the meaning set forth in Section 11.2
hereof.

          Transfer Supplement: The document pursuant to which each Eligible Loan or Eligible
Loans are sold by the Seller or the Additional Seller to the Purchaser, a form of which is attached
hereto as Exhibit A-1 and Exhibit A-2, respectively.

          Trust Agreement: The Base Trust Agreement, together with all Series Trust Agreement
Supplements thereto, as the same may at any time be amended, modified or supplemented.

20

 

          VA: The U.S. Department of Veterans Affairs, an agency of the United States of
America, or any successor thereto including the Secretary of Veterans Affairs.

          VA Approved Lender: Those lenders which are approved by the VA to act as a lender in
connection with the origination of VA Loans.

          VA Guaranty Proceeds: The proceeds of any payment of a VA Loan Guaranty Certificate.

          VA Loan: An Eligible Loan which is the subject of a VA Loan Guaranty Certificate as
evidenced by a VA Loan Guaranty Certificate, or an Eligible Loan which is a vendee loan sold by the
VA.

          VA Loan Guaranty Certificate: The obligation of the United States to pay a specific
percentage of an Eligible Loan (subject to a maximum amount) upon default of the Mortgagor pursuant
to the Servicemen’s Readjustment Act, as amended.

          VA Regulations: Regulations promulgated by the U.S. Department of Veterans Affairs
pursuant to the Servicemen’s Readjustment Act, as amended, codified in 38 Code of Federal
Regulations, and other VA issuances relating to VA Loans, including related handbooks, circulars
and notices.

          Voting Group: The meaning specified in Section 12.4 hereof.

          Wet Funded Loan: A mortgage loan that is originated by the Seller or the Additional
Seller and purchased by the Purchaser, prior to the delivery of the Mortgage Note to the Custodian.

          Wet Funded Loan Limitation: On any day, if the ratings of PHH Corporation are below
“BBB+” or “Baa1”, the aggregate Outstanding Purchase Price of Wet Funded Loans may not exceed 30%
of the then-current Program Size.

21

 

ARTICLE II

SALE OF ELIGIBLE LOANS; POSSESSION OF MORTGAGE FILES;

BOOKS AND RECORDS; CUSTODIAL AGREEMENT;

DELIVERY OF DOCUMENTS

          Section 2.1 Sale of Eligible Loans; Possession of Mortgage Loan Files; Maintenance of
Mortgage Loan Files.

          (a) (i) From time to time, pursuant to any Transfer Supplement, the Seller or the Additional
Seller, as applicable, may sell, transfer, assign, set over and convey to the Purchaser, without
recourse, but subject to the terms of this Agreement, all the right, title and interest (not
including servicing rights with respect to the Eligible Loans, which shall be retained by the
Seller or the Servicer, as applicable, subject to and in accordance with this Agreement) of the
Seller or the Additional Seller, as applicable, in and to any Eligible Loans, including Wet Funded
Loans, originated by the Seller or the Additional Seller, as applicable; provided, however, that
the Purchaser shall not at any time be required to purchase Eligible Loans having an aggregate
Outstanding Purchase Price greater than the then-current Program Size; provided, further, that
mortgage loans transferred on each Closing Date must satisfy the Eligibility Criteria. The Seller
or the Servicer (on behalf of the Additional Seller), as applicable, shall provide a notice to the
Purchaser, the Indenture Trustee, the Agent, the Collateral Agent and the Swap Counterparties not
later then 4:00 p.m., New York City time, one Business Day prior to the execution of any Transfer
Supplement of its intention to sell a Portfolio to the Purchaser pursuant to a Transfer Supplement.
In such notice, the Seller or the Servicer (on behalf of the Additional Seller), as applicable,
shall inform the Purchaser of the aggregate principal balance of the Eligible Loans that it intends
to sell on such date. The subject Portfolio shall be sold by the Seller or the Additional Seller,
as applicable, to the Purchaser as described in Section 2.2 hereof. Each Transfer
Supplement shall be executed by the Seller or the Servicer (on behalf of the Additional Seller), as
applicable, and the Purchaser at the time of the sale of the subject Portfolio. Notwithstand-ing
the foregoing, the Purchaser, the Seller, the Additional Seller and the Servicer, each acknowledge
and agree that, subject to and in accordance with this Agreement, the Seller or the Servicer, as
applicable, is the owner of the servicing rights with respect to the Eligible Loans sold to the
Purchaser by the Seller or the Additional Seller, as applicable, and the Seller or the Servicer, as
applicable, is responsible for all servicing duties.

     (ii) Upon execution of any Transfer Supplement by the Seller or the Servicer (on behalf of
the Additional Seller), as applicable, and the Trust and receipt of the purchase price therefor,
the Seller or the Additional Seller, as applicable, hereby sells, assigns, transfers, sets over and
conveys to the Trust all right, title and interest of the Seller or the Additional Seller, as
applicable, in, to and under each mortgage loan identified on the such Transfer Supplement. It is
intended that the transfer, assignment and conveyance herein contemplated constitute a sale of the
mortgage loans, conveying

22

 

good title thereto free and clear of any Liens, by the Seller or the Additional Seller, as
applicable, to the Trust and that the mortgage loans not be part of the Seller’s or the Additional
Seller’s, as applicable, estate in the event of insolvency. In the event that the mortgage loans
are held to be property of the Seller or the Additional Seller, as applicable, or if for any other
reason the Transfer Supplement is held or deemed to create a security interest in the mortgage
loans, the parties intend that the Seller or the Additional Seller, as applicable, shall be deemed
to have granted, and shall have granted, to the Trust a first-priority perfected security interest
in the mortgage loans and all Collateral related thereto now existing or hereafter arising for the
purpose of securing the rights of the Trust under this Agreement, and that this Agreement and the
Transfer Supplement shall each constitute a security agreement under applicable law.

          (b) Pursuant to Section 2.5, as soon as practicable, but in any event on or before the
date which is 21 days after any sale of Eligible Loans to the Purchaser, the Seller or the Servicer
(on behalf of the Additional Seller), as applicable, shall deliver each Mortgage Note, including
Mortgage Notes on Wet Funded Loans (subject to the Wet Funded Loan Limitation), to the Custodian as
agent of the Collateral Agent. The Seller or the Servicer (on behalf of the Additional Seller), as
applicable, shall deliver the related Loan Documents to the Servicer and the contents of each
Mortgage Loan File shall be held in trust by the Servicer for the benefit of the Purchaser. The
possession of each Mortgage Loan File by the Servicer is at the will of the Purchaser for the sole
purpose of servicing the related Eligible Loan and such retention and possession by the Servicer is
in a custodial capacity only. Upon the sale of the Eligible Loans, the ownership of each Mortgage
Note, the related Mortgage and the related Mortgage Loan File shall vest immediately in the
Purchaser, and the ownership of all records and documents with respect to the related Eligible Loan
prepared by or which come into the possession of the Servicer shall vest immediately in the
Purchaser and shall be retained and maintained by the Servicer, in trust, at the will of the
Purchaser and the Collateral Agent and only in such custodial capacity. Each Mortgage Loan File
and the Servicer’s books and records shall each be marked appropriately to reflect clearly the sale
of the related Eligible Loans to the Purchaser. The Custodian shall only release its custody of
the contents of any Mortgage Loan File in its possession accordance with the Custodial Agreement.

The Mortgage Loan File shall consist of the following documents (constituting, collectively, the
“Loan Documents”) and such other documents as Purchaser may require from time to time:

               (i) the original of any guarantee executed in connection with the Mortgage
Note (if any);

               (ii) the original Mortgage with evidence of recording thereon. If in
connection with any Eligible Loan, the Seller or the Servicer (on behalf of the
Additional Seller), as applicable, cannot deliver or cause to be delivered the
original Mortgage with evidence of recording thereon on or prior to the Closing
Date because

23

 

of a delay caused by the public recording office where such Mortgage has been
delivered for recordation or because such Mortgage has been lost or because such
public recording office retains the original recorded Mortgage, the Seller or the
Servicer (on behalf of the Additional Seller), as applicable, shall deliver or
cause to be delivered to the Servicer, a photocopy of such Mortgage, together with
(i) in the case of a delay caused by the public recording office, an officer’s
certificate of the Seller or the Servicer (on behalf of the Additional Seller), as
applicable, stating that such Mortgage has been dispatched to the appropriate
public recording office for recordation and that the original recorded Mortgage or
a copy of such Mortgage certified by such public recording office to be a true and
complete copy of the original recorded Mortgage will be promptly delivered to the
Servicer upon receipt thereof by the Seller or the Servicer (on behalf of the
Additional Seller), as applicable; or (ii) in the case of a Mortgage where a public
recording office retains the original recorded Mortgage or in the case where a
Mortgage is lost after recordation in a public recording office, a copy of such
Mortgage certified by such public recording office to be a true and complete copy
of the original recorded Mortgage;

               (iii) the originals of all assumption, modification, consolidation or
extension agreements, with evidence of recording thereon;

               (iv) unless the original Mortgage was recorded in the name of MERS, an
Assignment of Mortgage for each Eligible Loan, in form and substance acceptable for
recording, and all interim assignments with evidence of recording thereon, if any;
if the Eligible Loan was acquired by the Seller or the Additional Seller, as
applicable, in a merger, any Assignment of Mortgage (other than an original
Mortgage recorded in the name of MERS) must be made by “[Seller] [Additional
Seller], successor by merger to [name of predecessor].” If the Eligible Loan was
acquired or originated by the Seller or the Additional Seller, as applicable, while
doing business under another name, any Assignment of Mortgage (other than an
original Mortgage recorded in the name of MERS) must be by “[Seller] [Additional
Seller], formerly known as [previous name].” If the Eligible Loan was acquired by
the Seller or the Additional Seller, as applicable, as receiver for another entity,
any Assignment of Mortgage (other than an original Mortgage recorded in the name of
MERS) must be by “[Seller] [Additional Seller], receiver for [name of entity in
receivership].” Any Assignment of Mortgage must be duly recorded only if
recordation is either necessary under applicable law to perfect or on direction of
the Purchaser as provided in this Agreement. If any Assignment of Mortgage is to
be recorded, the Mortgage shall be assigned to the Servicer, as Custodian. If any
Assignment of Mortgage is not to be recorded, such Assignment of Mortgage shall be
delivered in blank;

24

 

               (v) the originals of all intervening assignments of mortgage with evidence of
recording thereon, or if any such intervening assignment has not been returned from
the applicable recording office or has been lost or if such public recording office
retains the original recorded assignments of mortgage, the Seller or the Servicer
(on behalf of the Additional Seller), as applicable, shall deliver or cause to be
delivered to the Servicer, a photocopy of such intervening assignment, together
with (i) in the case of a delay caused by the public recording office, an officer’s
certificate of the Seller or the Servicer (on behalf of the Additional Seller), as
applicable, stating that such intervening assignment of mortgage has been
dispatched to the appropriate public recording office for recordation and that such
original recorded intervening assignment of mortgage or a copy of such intervening
assignment of mortgage certified by the appropriate public recording office to be a
true and complete copy of the original recorded intervening assignment of mortgage
will be promptly delivered to the Servicer upon receipt thereof by the Seller or
the Servicer (on behalf of the Additional Seller), as applicable; or (ii) in the
case of an intervening assignment where a public recording office retains the
original recorded intervening assignment or in a case where an intervening
assignment is lost after recordation in a public recording office, a copy of such
intervening assignment certified by such public recording office to be a true and
complete copy of the original recorded intervening assignment;

               (vi) if available, the original mortgagee title insurance policy or attorney’s
opinion of title and abstract of title, or if the policy has not yet been issued,
(a) the irrevocable written commitment, interim binder or marked up binder for a
title insurance policy issued by the title insurance company dated and certified as
of the date the Eligible Loan was funded, or (b) a copy of the applicable escrow
instructions indicating the name of the title company with, in either case, a
statement by the title insurance company or closing attorney on such binder or
commitment or escrow instructions that the priority of the lien on the related
Mortgage during the period between the date of the funding of the related Eligible
Loan and the date of the related title policy is insured;

               (vii) the original of any security agreement, chattel mortgage or equivalent
document executed in connection with the Mortgage;

               (viii) the original of any primary mortgage insurance policy (if any); and

               (ix) if the Eligible Loans are sold to the Agencies, the originals of other
documents, forms, releases, certifications and papers required by the applicable
Agency Custodial Agreement.

25

 

          (c) On the date hereof and on the date of each other increase in the then-current Program
Size, the Seller or the Servicer (on behalf of the Additional Seller) shall deposit an amount into
the Reserve Fund from the proceeds of the sale of the Eligible Loans to the Purchaser so that the
amount on deposit in the Reserve Fund equals 0.60% of the then-current Program Size.

          (d) It is the intention of this Agreement that each conveyance of the Seller’s or the
Additional Seller’s, as applicable, right, title and interest in and to the Eligible Loans (not
including servicing rights with respect to the Eligible Loans, which shall be retained by the
Seller or the Servicer, as applicable) pursuant to this Agreement shall constitute a purchase and
sale and not a loan.

          Section 2.2 Determination of Purchase Price; Deposit by Seller and the Additional
Seller.

          (a) Upon notice from the Seller or the Servicer (on behalf of the Additional Seller), as
applicable, to the Purchaser of the prospective sale of a Portfolio by the Seller or the Additional
Seller, as applicable, to the Purchaser under Section 2.1 hereof, the Seller or the
Servicer (on behalf of the Additional Seller), as applicable, shall submit to the Purchaser (i) a
Mortgage Loan Schedule and (ii) the Closing Date for the sale of the Portfolio. The Seller or the
Servicer (on behalf of the Additional Seller), as applicable, shall not choose a preliminary
Closing Date which is less than one Business Day from the date that the Purchaser receives the
items specified in the preceding sentence. Not later than 8 a.m. on the Closing Date, the Seller
or the Servicer (on behalf of the Additional Seller), as applicable, shall notify the Purchaser of
its calculation of the Original Principal Purchase Price and the Initial Purchase Price for the
Portfolio. If the Purchaser does not agree with such calculation or the sale does not close for
any other reason, the Closing Date for the Portfolio shall be rescheduled to a later date, at its
option, by the Seller or the Servicer (on behalf of the Additional Seller), as applicable. The
Purchaser and the Seller or the Servicer (on behalf of the Additional Seller), as applicable, shall
use their best efforts to close the sale of any Portfolio on any such Closing Date. The Purchaser
shall pay to the Seller or the Servicer (on behalf of the Additional Seller), as applicable, the
Initial Purchase Price of any Eligible Loans purchased by it hereunder in immediately available
funds not later than 2:00 p.m., New York City time, on the Closing Date. Each mortgage loan must
satisfy the Eligibility Criteria and the Eligibility Representations.

          (b) With respect to any Eligible Loan which will not have a scheduled interest payment due on
the first day of the month following the month in which the Closing Date occurs for the purchase of
such Eligible Loan (the “Closing Month”), the Seller or the Servicer (on behalf of the
Additional Seller), as applicable, will deposit in the Collateral Account on the Closing Date an
amount equal to interest on the principal amount of such Eligible Loan for the number of days
remaining from and including the Closing Date to and including the last day of the Closing Month at
the contract rate for such Eligible Loan.

26

 

          Section 2.3 Purchase Commitment Term.

          Subject to the terms and conditions of the Program Documents, the commitment of the Purchaser
under this Agreement shall expire on the termination of this agreement, in accordance with
Section 11.1 or 11.2 herein.

          Section 2.4 Books and Records; Transfers of Eligible Loans.

          From and after each related Closing Date, all rights arising with respect to the Eligible
Loans sold (not including servicing rights with respect to the Eligible Loans, which shall be
retained by the Seller or the Servicer, as applicable, subject to and in accordance with this
Agreement) pursuant to any Transfer Supplement including but not limited to all funds received on
or in connection with the Eligible Loans, shall be received and held by the Servicer in trust for
the benefit of the Purchaser. Pursuant to the Custodial Agreement, the Custodian shall hold all of
the Mortgage Notes as described in such Custodial Agreement.

          The sale of each Eligible Loan shall be reflected on the Seller’s or the Additional Seller’s,
as applicable, balance sheet and other financial statements as a sale of assets by the Seller or
the Additional Seller, as applicable. The Seller or the Additional Seller, as applicable, intends
to treat the transfer of any Eligible Loans to the Purchaser pursuant to this Agreement as a sale
for accounting and tax purposes with respect to the Seller or the Additional Seller, as applicable.
The Servicer shall be responsible for maintaining, and shall maintain, a complete set of books and
records for each Eligible Loan which shall be marked clearly to reflect the ownership of each
Eligible Loan by the Purchaser. In particular, the Servicer shall maintain in its possession,
available for inspection by the Purchaser, the Collateral Agent, the Indenture Trustee (acting at
the written direction of the Required Noteholders), the Agent or their respective designees,
evidence of compliance with applicable laws, rules and regulations. To the extent that original
documents are not required for purposes of realization of Liquidation Proceeds, Insurance Proceeds,
VA Guaranty Proceeds, FHA Proceeds or Securitization proceeds, documents maintained by the Servicer
may be in the form of microfilm or microfiche or such other reliable means of recreating original
documents, including but not limited to, optical imagery techniques so long as the Servicer
complies with the requirements of the Guidelines.

          The Servicer shall maintain with respect to each Eligible Loan and shall make available for
inspection, upon reasonable advance notice, at the offices of the Servicer during normal business
hours by the Purchaser, the Collateral Agent, the Indenture Trustee (acting at the written
direction of the Required Noteholders), the Agent, the Remarketing Agent, any CP Dealer or their
respective designees the related Mortgage Loan File during the time the Purchaser retains ownership
of an Eligible Loan and thereafter in accordance with applicable laws and regulations.

27

 

          Section 2.5 Custodial Agreement.

          Pursuant to the Custodial Agreement delivered to the Purchaser in connection with the Amended
and Restated Purchase Agreement, the Seller or the Servicer (on behalf of the Additional Seller),
as applicable, shall, from time to time in connection with each purchase of Eligible Loans pursuant
to the terms of this Agreement, deliver to the Custodian, on or before the date which is 21 days
after the related Closing Date, the Mortgage Note with respect to each Eligible Loan transferred.
The Custodian shall hold all Mortgage Notes in trust for the Purchaser as agent for the Collateral
Agent.

ARTICLE III

REPRESENTATIONS AND WARRANTIES;

COVENANTS; REMEDIES AND BREACH

          Section 3.1 Representations and Warranties of the Company and the Additional
Seller.

          (a) The Company, as Seller and Servicer, represents and warrants to the Purchaser (and for the
benefit of the Collateral Agent) that as of each applicable Closing Date and as of the date of the
sale or Securitization of each Eligible Loan:

               (i) Due Organization and Authority. The Company is duly organized,
validly existing and in good standing under the laws of New Jersey and has all
licenses necessary to carry on its business as now being conducted and is licensed,
qualified and in good standing in each state where a Mortgaged Property is located
if required to conduct business of the type conducted by it, and in any event the
Company is in compliance with the laws of any such state to the extent necessary to
ensure the enforceability of any Eligible Loan sold hereunder and the servicing of
any such Eligible Loan in accordance with the terms of this Agreement and any
Transfer Supplement; the Company has the full power and authority to execute and
deliver this Agreement and any Transfer Supplement and to perform its obligations
in accordance herewith and therewith; the execution, delivery and performance of
this Agreement and any Transfer Supplement by the Company and the consummation of
the transactions contemplated hereby and thereby have been duly and validly
authorized by the Company; all requisite corporate action has been taken by the
Company to make this Agreement and any Transfer Supplement valid and binding upon
the Company in accordance with its terms; this Agreement and any Transfer
Supplement each evidences the valid, binding and enforceable obligation of the
Company, except that (i) the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium,

28

 

receivership and other similar laws relating to creditors’ rights generally and
(ii) the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.

               (ii) Ordinary Course of Business. The consummation of the
transactions contemplated by this Agreement are in the ordinary course of business
of the Company, and the transfer, assignment and conveyance of the Mortgage Notes
and the Mortgages by the Company pursuant to this Agreement are not subject to the
bulk transfer or any similar statutory provisions in effect in any applicable
jurisdiction.

               (iii) No Conflicts. Neither the execution and delivery of this
Agreement or any Transfer Supplement, the acquisition of Eligible Loans by the
Company, the sale of Eligible Loans to the Purchaser or the transactions
contemplated hereby or thereby, nor the fulfillment of or compliance with the terms
and conditions of this Agreement or any Transfer Supplement, will conflict with or
result in a breach of any of the terms, conditions or provisions of the Company’s
charter or by-laws or any material agreement or instrument to which the Company is
now a party or by which it is bound, or constitute a default or result in an
acceleration under any of the foregoing, or result in the violation in any material
respect of any applicable law, rule, regulation, order, judgment or decree to which
the Company or its property is subject, or impair the ability of the Purchaser to
realize on the Eligible Loans in any material respect, or impair the value of the
Eligible Loans in any material respect, or impair in any material respect the
ability of the Purchaser to realize the full mortgage insurance benefits (i) of the
FHA Mortgage Insurance Contract with respect to FHA Loans; (ii) of the VA Loan
Guaranty Certificate with respect to VA Loans; or (iii) other insurance benefits
accruing pursuant to this Agreement, including but not limited to any PMI Policy.

               (iv) Ability to Service. The Company is an Approved Seller/Servicer
of Eligible Loans for at least two of FNMA, FHLMC and GNMA with the facilities,
procedures, and experienced personnel necessary for the servicing of Eligible
Loans. The Company is in good standing to sell mortgage loans to and service
mortgage loans for at least two of FNMA, FHLMC and GNMA, and no event has occurred,
including but not limited to a change in insurance coverage, which would make the
Company unable to comply with the eligibility requirements in all material respects
of at least of two of FNMA, FHLMC and GNMA or which would require notification to
FNMA, FHLMC or GNMA. As of the Closing Date the Company is an FHA Approved
Mortgagee and a VA Approved Lender and has the facilities, procedures, and
experienced personnel necessary for the servicing of mortgage loans of the same
type

29

 

as the Eligible Loans. As of the Closing Date, the Company is in good standing to
service mortgage loans for FHA and VA, and no event has occurred, including but not
limited to a change in insurance coverage, which would make the Company unable to
comply with FHA or VA eligibility requirements in all material respects, or which
would require notification to either the FHA or VA.

               (v) Reasonable Servicing Fee. The Servicer acknowledges and agrees
that the Servicing Fee represents reasonable compensation for performing such
services as compensation for the servicing and administration and arranging for the
sale or Securitization of the Eligible Loans pursuant to this Agreement and shall
be treated by the Servicer, for accounting and tax purposes, as compensation for
the servicing and administration of the Eligible Loans pursuant to this Agreement.

               (vi) No Litigation Pending. There is no action, suit, proceeding or
investigation pending or to its knowledge threatened against the Company which,
either in any one instance or in the aggregate, may result in any material adverse
change in the business, operations, financial condition, properties or assets of
the Company, or in any material impairment of the right or ability of the Company
to carry on its business substantially as now conducted, or in any material
liability on the part of the Company, or which would draw into question the
validity of this Agreement or any Transfer Supplement or the Eligible Loans or of
any action taken or to be taken in connection with the obligations of the Company
contemplated herein, or which would be likely to impair materially the ability of
the Company to perform under the terms of this Agreement or any Transfer
Supplement.

               (vii) No Consent Required. No consent, approval, authorization or
order of any court or governmental agency or body including, without limitation,
HUD, FHA or VA, is required for the execution, delivery and performance by the
Company of or compliance by it with this Agreement or any Transfer Supplement or
the sale of the Eligible Loans, or if required, such approval has been obtained.

               (viii) Selection Process. Any Portfolio of mortgage loans sold
pursuant to a Transfer Supplement was selected from mortgage loans originated by
the Seller or purchased by the Seller from third parties and are Eligible Loans
which satisfy the Eligibility Representations and any selection process employed by
it was not made in a manner so as to materially adversely affect the interest of
the Purchaser.

               (ix) No Untrue Information. Neither this Agreement, any Transfer
Supplement nor any statement, report or other document prepared by the Seller or to
be prepared by the Seller pursuant to this Agreement or in connection with the

30

 

transactions contemplated hereby contains any untrue statement of a material fact
relating to the Seller or the Eligible Loans or omits to state a fact necessary to
make the statements herein or therein not materially misleading.

               (x) Financial Statements. The Company has delivered to the Purchaser
consolidated financial statements of PHH Corporation as to its last three complete
fiscal years and any later quarter ended more than 60 days prior to the execution
of this Agreement. All such financial statements fairly present the pertinent
results of operations and changes in financial position at the end of each such
period of PHH Corporation and its subsidiaries and have been prepared in accordance
with generally accepted accounting principles consistently applied throughout the
periods involved, except as set forth in the notes thereto. There has been no
change in the business, operations, financial condition, properties or assets of
the Company since the date of PHH Corporation’s most recently provided financial
statements that would have a material adverse effect on its ability to perform its
obligations under this Agreement.

               (xi) No Brokers’ Fees. The Seller has not dealt with any broker,
investment banker, agent or other Person that may be entitled to any commission or
compensation in connection with the sale of any Eligible Loans to the Purchaser.

               (xii) Fair Consideration. The consideration received by the Seller
upon the sale of the Eligible Loans under this Agreement constitutes fair
consideration and reasonably equivalent value for the Eligible Loans.

               (xiii) Ability to Perform. The Company 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 in all material respects. The Company is solvent and
the sale of the Eligible Loans is not undertaken to hinder, delay or defraud any of
the Company’s creditors.

               (xiv) Sale Treatment. The Seller has determined that the disposition
of the Eligible Loans pursuant to this Agreement will be afforded sale treatment
for accounting and tax purposes.

          (b) The Additional Seller represents and warrants to the Purchaser (and for the benefit of the
Collateral Agent) that as of each applicable Closing Date and as of the date of the sale or
Securitization of each Eligible Loan:

               (i) Due Organization and Authority. The Additional Seller is duly
formed, validly existing and in good standing under the laws of the jurisdiction
where

31

 

it was duly formed and has as all licenses necessary to carry on its business as
now being conducted and is licensed, qualified and in good standing in each state
where a Mortgaged Property is located if required to conduct business of the type
conducted by it, and in any event the Additional Seller is in compliance with the
laws of any such state to the extent necessary to ensure the enforceability of any
Eligible Loan sold hereunder and any Transfer Supplement; the Additional Seller has
the full power and authority to execute and deliver this Agreement and any Transfer
Supplement and to perform its obligations in accordance herewith and therewith; the
execution, delivery and performance of this Agreement and any Transfer Supplement
by the Additional Seller and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by the Additional Seller;
all requisite corporate action and/or limited liability company action has been
taken by the Additional Seller to make this Agreement and any Transfer Supplement
valid and binding upon the Additional Seller in accordance with its terms; this
Agreement and any Transfer Supplement each evidences the valid, binding and
enforceable obligation of the Additional Seller, except that (i) the enforceability
thereof may be limited by bankruptcy, insolvency, morato-rium, receivership and
other similar laws relating to creditors’ rights generally and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.

               (ii) Ordinary Course of Business. The consummation of the
transactions contemplated by this Agreement are in the ordinary course of business
of the Additional Seller, and the transfer, assignment and conveyance of the
Mortgage Notes and the Mortgages by the Additional Seller pursuant to this
Agreement are not subject to the bulk transfer or any similar statutory provisions
in effect in any applicable jurisdiction.

               (iii) No Conflicts. Neither the execution and delivery of this
Agreement or any Transfer Supplement, the acquisition of Eligible Loans by the
Additional Seller, the sale of Eligible Loans to the Purchaser or the transactions
contemplated hereby or thereby, nor the fulfillment of or compliance with the terms
and conditions of this Agreement or any Transfer Supplement, will conflict with or
result in a breach of any of the terms, conditions or provisions of the Additional
Seller’s charter and/or limited liability company agreement or any material
agreement or instrument to which the Additional Seller is now a party or by which
it is bound, or constitute a default or result in an acceleration under any of the
foregoing, or result in the violation in any material respect of any applicable
law, rule, regulation, order, judgment or decree to which the Additional Seller or
its property is subject, or impair the ability of the Purchaser to realize on the
Eligible Loans in any material respect, or

32

 

impair the value of the Eligible Loans in any material respect, or impair in any
material respect the ability of the Purchaser to realize the full mortgage
insurance benefits (i) of the FHA Mortgage Insurance Contract with respect to FHA
Loans; (ii) of the VA Loan Guaranty Certificate with respect to VA Loans; or (iii)
other insurance benefits accruing pursuant to this Agreement, including but not
limited to any PMI Policy.

               (iv) No Litigation Pending. There is no action, suit, proceeding or
investigation pending or to its knowledge threatened against the Additional Seller
which, either in any one instance or in the aggregate, may result in any material
adverse change in the business, operations, financial condition, properties or
assets of the Additional Seller, or in any material impairment of the right or
ability of the Additional Seller to carry on its business substantially as now
conducted, or in any material liability on the part of the Additional Seller, or
which would draw into question the validity of this Agreement or any Transfer
Supplement or the Eligible Loans or of any action taken or to be taken in
connection with the obligations of the Additional Seller contemplated herein, or
which would be likely to impair materially the ability of the Additional Seller to
perform under the terms of this Agreement or any Transfer Supplement.

               (v) No Consent Required. No consent, approval, authorization or order
of any court or governmental agency or body including, without limitation, HUD, FHA
or VA, is required for the execution, delivery and performance by the Additional
Seller of or compliance by it with this Agreement or any Transfer Supplement or the
sale of the Eligible Loans, or if required, such approval has been obtained.

               (vi) Selection Process. Any Portfolio of mortgage loans sold pursuant
to a Transfer Supplement was selected from mortgage loans originated by the
Additional Seller or purchased by the Additional Seller from third parties and are
Eligible Loans which satisfy the Eligibility Representations and any selection
process employed by it was not made in a manner so as to materially adversely
affect the interest of the Purchaser.

               (vii) No Untrue Information. Neither this Agreement, any Transfer
Supplement nor any statement, report or other document prepared by the Additional
Seller or to be prepared by the Additional Seller pursuant to this Agreement or in
connection with the transactions contemplated hereby contains any untrue statement
of a material fact relating to the Additional Seller or the Eligible Loans or omits
to state a fact necessary to make the statements herein or therein not materially
misleading.

33

 

               (viii) No Brokers’ Fees. The Additional Seller has not dealt with any
broker, investment banker, agent or other Person that may be entitled to any
commission or compensation in connection with the sale of any Eligible Loans to the
Purchaser.

               (ix) Fair Consideration. The consideration received by the Additional
Seller upon the sale of the Eligible Loans under this Agreement constitutes fair
consideration and reasonably equivalent value for the Eligible Loans.

               (x) Ability to Perform. The Additional 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 in all material respects. The Additional
Seller is solvent and the sale of the Eligible Loans is not undertaken to hinder,
delay or defraud any of the Additional Seller’s creditors.

               (xi) Sale Treatment. The Additional Seller has determined that the
disposition of the Eligible Loans pursuant to this Agreement will be afforded sale
treatment for accounting and tax purposes.

          Section 3.2 Representations and Warranties Regarding Individual Mortgage Loans;
Eligibility Representations.

          As to each Eligible Loan sold in each Portfolio, the Seller and the Servicer (on behalf of the
Additional Seller) hereby represents and warrants to the Purchaser that as of each applicable
Closing Date and (excluding Section 3.2(d) hereof) as of the date of the Securitization or
sale of each Eligible Loan:

          (a) Eligibility of Mortgage Loans. The mortgage loan is an Eligible Loan.

          (b) Eligible Loans as Described. The information set forth in the Mortgage Loan
Schedule attached to the applicable Transfer Supplement is complete, true and correct in all
material respects.

          (c) Valid First Lien. The Mortgage is a valid first lien on the Mortgaged Property.
The Mortgaged Property is free and clear of all prior liens and encumbrances and no rights or
condition may exist that could give rise to such liens, except for liens for real estate taxes and
special assessments not yet due and payable. The Mortgage is a legal, valid and binding obligation
of the related borrower, enforceable according to its terms and conditions, except that (i) the
enforceability thereof may be limited by bankruptcy, insolvency, moratorium, receivership and other
similar laws

34

 

relating to creditors’ rights generally and (ii) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought, and free from any right of set-off,
counterclaim or other claim or defense. No part of the Mortgaged Property has been released from
the Mortgage. The terms of the Mortgage have not in any material manner been modified, amended or
in any way waived or changed, except as stated in a written modification agreement that is
acceptable to and delivered to the Seller and Servicer (in its own capacity and on behalf of the
Additional Seller).

     Any security agreement, chattel mortgage or equivalent document related to and delivered in
connection with the Eligible Loan establishes and creates a valid, subsisting and enforceable first
lien and first priority security interest on the property described therein and the Seller or the
Additional Seller, as applicable, has full right to sell and assign the same to the Purchaser. The
Mortgaged Property was not, as of the date of origination of the Eligible Loan, subject to a
mortgage, deed of trust, deed to secure debt, or other security instrument creating a lien senior
to the lien of the Mortgage.

          (d) Ownership. The Seller or the Additional Seller, as applicable, is the sole owner
of record and holder of the Eligible Loan. The Eligible Loan is not assigned or pledged, and the
Seller or the Additional Seller, as applicable, has good and marketable title thereto, and has full
right to transfer and sell the Eligible Loan to the Purchaser free and clear of any encumbrance,
equity, participation interest, lien, pledge, charge, claim or security interest, and has full
right and authority subject to no interest or participation of, or agreement with, any other party,
to sell and assign each Eligible Loan pursuant to the related Transfer Supplement.

          (e) No Additional Collateral. The Mortgage Note is not and has not been secured by
any collateral except the lien of the corresponding Mortgage and the security interest of any
applicable security agreement or chattel mortgage referred to in Section 3.2(c) above.

          (f) Conformance with Underwriting Standards. The Eligible Loan was underwritten in
accordance with (i) the Seller’s underwriting standards in effect on the date of origination of
such Eligible Loan, and (ii) the Guidelines.

          (g) Payments Current. As of the Closing Date, no payments due with respect to the
Eligible Loan are 30 days or more past their contractual due date.

          (h) No Mortgagor Bankruptcy; Delinquencies. To the best of the Seller’s and the
Servicer’s (on behalf of the Additional Seller) knowledge and belief, no Mortgagor is the subject
of a bankruptcy or similar proceeding. All payments required to be made up to the Closing Date for
each Eligible Loan under the terms of the related Mortgage Note have been made. As of the Closing
date,

35

 

no payment required under any such purchased Eligible Loan has ever been delinquent more than 30
days.

          (i) No Outstanding Charges. There are no defaults in complying with the terms of the
Mortgages, and all taxes, governmental assessments, insurance premiums, water, sewer and municipal
charges, leasehold payments or ground rents which previously became due and owing have been paid,
or an escrow of funds has been established in an amount sufficient to pay for every such item which
remains unpaid and which has been assessed but is not yet due and payable. Neither the Seller nor
the Servicer (on behalf of the Additional Seller) has 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 Eligible Loan, except for interest
accruing from the date of the Mortgage Note or date of disbursement of the Eligible Loan proceeds,
whichever is greater, to the day which precedes by one month the Due Date of the first installment
of principal and interest.

          (j) Original Terms Unmodified. The terms of the Mortgage Note and Mortgage have not
been impaired, waived, altered or modified in any material respect (i) from the date of final
endorsement of the Mortgage Note by HUD with respect to FHA Loans, and (ii) from the date of
origination with respect to VA Loans, except by a written instrument which has been recorded, if
necessary to protect the interest of the Purchaser and which has been delivered to the Custodian.
The substance of any such waiver, alteration or modification has been approved by the issuer of any
related PMI Policy and the title insurer, to the extent required by the policy, and by the FHA for
the related FHA Loans, and the VA for the related VA Loans, and its terms are reflected on the
related Mortgage Loan Schedule. No Mortgagor has been released, in whole or in part, except in
connection with an assumption agreement approved by the issuer of any related PMI Policy and the
title insurer, to the extent required by the policy, and by the FHA for the related FHA Loans, and
the VA for the related VA Loans, and which assumption agreement is part of the Mortgage Loan File
delivered to the Custodian and the terms of which are reflected in the related Mortgage Loan
Schedule.

          (k) No Defenses. The Eligible 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,
with respect to FHA Loans, impair the Purchaser’s ability to collect full insurance benefits under
the FHA Mortgage Insurance Contract, without indemnity to HUD, or, with respect to VA Loans, impair
the Purchaser’s ability to collect full value under the VA Loan Guaranty Certificate upon the
Mortgagor’s default, or subject to any right of rescission, set-off, counterclaim or defense,
including without limitation the defense of usury, and no such right of rescission, set-off,
counterclaim or defense has been asserted with respect thereto, and no Mortgagor was a debtor in
any state or federal bankruptcy or insolvency proceeding at the time the Eligible Loan was
originated.

36

 

          (l) Hazard Insurance. Pursuant to the terms of the Mortgage, all buildings or other
improvements upon the Mortgaged Property are insured by (i) an FHA approved insurer with respect to
each FHA Loan, (ii) a VA approved insurer with respect to each VA Loan or (iii) a generally
acceptable insurer against loss by fire and extended coverage and coverage for such other hazards
as are customary in the area where the Mortgaged Property is located pursuant to insurance policies
conforming to the requirements of Section 4.11 hereof and of FHA and VA, if applicable. If
upon origination of the Eligible Loan, the Mortgaged Property was in an area identified in the
Federal Register by the Federal Emergency Management Agency as having special flood hazards (and
such flood insurance has been made available) a flood insurance policy meeting the requirements of
the current guidelines of the Flood Insurance Administration is in effect which policy conforms to
the requirements of Section 4.11 hereof and of FHA and VA, if applicable. All individual
insurance policies contain a standard mortgagee clause naming the Seller or the Additional Seller,
as applicable, and its respective successors and assigns as mortgagee, and all premiums thereon
have been paid. The Mortgage obligates the Mortgagor thereunder to maintain the hazard insurance
policy at the Mortgagor’s cost and expense, and on the Mortgagor’s failure to do so, authorizes the
holder of the Mortgage to obtain and maintain such insurance at such Mortgagor’s cost and expense,
and to seek reimbursement therefor from the Mortgagor. Where required by state law or regulation,
the Mortgagor has been given an opportunity to choose the carrier of the required hazard insurance,
provided the policy is not a “master” or “blanket” hazard insurance policy covering the common
facilities of a planned unit development. The hazard insurance policy is the valid and binding
obligation of the insurer and is in full force and effect. Neither the Seller nor the Additional
Seller has engaged in, and has no knowledge of the Mortgagor’s having engaged in, any act or
omission which would impair the coverage of any such policy, the benefits of the endorsement
provided for herein, or the validity and binding effect of either.

          (m) Compliance with Applicable Laws. Any applicable requirements of federal, state or
local law including, without limitation, usury, truth-in-lending, real estate settlement
procedures, consumer credit protection, equal credit opportunity or disclosure laws and FHA
Regulations and VA Regulations applicable to the Eligible Loan have been complied with in all
material respects.

          (n) No Satisfaction of Mortgage. The Mortgage has not been satisfied, cancelled,
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. Neither the Seller nor the
Servicer (on behalf of the Additional Seller) has waived the performance by the Mortgagor of any
action, if the Mortgagor’s failure to perform such action would cause the Eligible Loan to be in
default, nor has the Seller or the Servicer (on behalf of the Additional Seller) waived any default
resulting from any action or inaction by the Mortgagor.

37

 

          (o) Location and Type of Mortgaged Property. The Mortgaged Property is located in the
state identified in the Mortgage Loan Schedule and consists of a parcel of real property with a
detached single family residence erected thereon, or a two- to four-family dwelling, or an
individual condominium unit, or an individual unit in a planned unit development; provided,
however, that any condominium unit or planned unit development shall conform with the applicable
FHA and VA requirements regarding such dwellings, if applicable, and no residence or dwelling is a
mobile home or a manufactured dwelling. To the best of the Seller’s and the Servicer’s (on behalf
of the Additional Seller) knowledge and belief, no portion of the Mortgaged Property is used for
commercial purposes.

          (p) 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, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and similar laws of general applicability relating to or affecting creditors’ rights and to general
equity principles. All parties to the Mortgage Note and the Mortgage and any other related
agreement had legal capacity to enter into the Eligible Loan and to execute and deliver the
Mortgage Note and the Mortgage and any other related agreement, and the Mortgage Note and the
Mortgage have been duly and properly executed by such parties. To the best of the Seller’s and the
Servicer’s (on behalf of the Additional Seller) knowledge and belief, 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 materially misleading. No fraud was committed in
connection with the origination of the Eligible Loan.

          (q) Full Disbursement of Proceeds. Each Eligible Loan has been closed and its
proceeds have been fully disbursed and there is no requirement for future advances thereunder, and
any and all requirements as to completion of any on-site or off-site improvement and as to
disbursements of any escrow funds therefor have been complied with. All costs, fees and expenses
incurred in making or closing the Eligible Loan and the recording of the Mortgage were paid, and
the Mortgagor is not entitled to any refund of any amounts paid or due under the Mortgage Note or
Mortgage.

          (r) Doing Business. All parties which have had any interest in the Eligible Loan,
whether as mortgagee, assignee, pledgee or otherwise, are (or, during the period in which they held
and disposed of such interest, were) (1) in compliance with any applicable licensing requirements
of the laws of the state wherein the Mortgaged Property is located, and (2) organized under the
laws of such state, or (3) qualified to do business in such state, or (4) not required to qualify
to do business in such state.

          (s) LTV, PMI Policy. The original LTV of the Eligible Loan other than an FHA Loan or
a VA Loan either was not more than 80% or the excess over 80% is and will be insured as to

38

 

payment defaults by a PMI Policy until the LTV of such Eligible Loan is reduced to 80%. All
material provisions of such PMI Policy have been and are being complied with, such policy is in
full force and effect, and all premiums due thereunder have been paid. No action, inaction, or
event has occurred and no state of facts exists that has, or will result in the exclusion from,
denial of, or defense to coverage. Any Eligible Loan subject to a PMI Policy obligates the
Mortgagor thereunder to maintain the PMI Policy and to pay all premiums and charges in connection
therewith. The Mortgage Interest Rate for the Eligible Loan as set forth on the Mortgage Loan
Schedule is net of any such insurance premium.

          (t) Title Insurance. The Eligible Loan is covered by (i) an attorney’s opinion of
title and abstract of title, the form and substance of which is acceptable to mortgage lending
institutions making mortgage loans in the area where the Mortgaged Property is located; or (ii) an
ALTA lender’s title insurance policy or other generally acceptable form of policy of insurance
acceptable to FNMA or FHLMC, issued by a title insurer acceptable to FNMA or FHLMC and qualified to
do business in the jurisdiction where the Mortgaged Property is located or if applicable; (iii) an
attorney’s opinion of title and abstract of title, the form and substance of which is acceptable to
the FHA with respect to FHA Loans and the VA with respect to VA Loans; or (iv) an ALTA lender’s
title insurance policy or other generally acceptable form of policy of insurance acceptable to (a)
the FHA with respect to the FHA Loans; and (b) the VA with respect to the VA Loans, and each such
title insurance policy is issued by a title insurer acceptable to FHA or VA, as the case may be,
and qualified to do business in the jurisdiction where the Mortgaged Property is located, insuring
the Seller or the Additional Seller, as applicable, its successors and assigns, as to the first
priority lien of the Mortgage in the original principal amount of the Eligible Loan, and against
any loss by reason of the invalidity or unenforceability of the lien. 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. The Seller or the Additional Seller, as
applicable, 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 be in force and effect upon the consummation
of the transactions contemplated by this Agreement. No claims have been made under such lender’s
title insurance policy, and no prior holder of the Mortgage, including the Seller or the Additional
Seller, as applicable, has done, by act or omission, anything which would impair the coverage of
such lender’s title insurance policy.

          (u) No Defaults. To the best of the Seller’s and the Servicer’s (on behalf of the
Additional Seller) knowledge and belief, there is no default, breach, violation or event of
acceleration existing under the Mortgage or the Mortgage Note and no event which, with the passage
of time or with notice and the expiration of any grace or cure period, would constitute a default,
breach, violation or event of acceleration, and neither the Seller nor the Servicer (on behalf of
the Additional Seller) nor their respective predecessors have waived any default, breach, violation
or event of acceleration.

39

 

          (v) 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 related Mortgaged Property which are or may be liens prior
to, or equal or coordinate with, the lien of the related Mortgage.

          (w) Location of Improvements; No Encroachments. All improvements which were
considered in determining the Appraised Value of the Mortgaged Property lay wholly within the
boundaries and building restriction lines of the Mortgaged Property and, to the best of the
Seller’s and the Servicer’s (on behalf of the Additional Seller) knowledge and belief, no
improvements on adjoining properties encroach upon the Mortgaged Property. No improvement located
on or being part of the Mortgaged Property is in violation of any applicable zoning law or
regulation.

          (x) Customary Provisions. The Mortgage contains customary and enforceable provisions
such as to render the rights and remedies of the holder thereof adequate for the realization
against the Mortgaged Property of the benefits of the security provided thereby, including, (i) in
the case of a Mortgage designated as a deed of trust, by trustee’s sale, and (ii) otherwise by
judicial foreclosure. Upon default by a Mortgagor on an Eligible Loan and foreclosure on, or
trustee’s sale of, the Mortgaged Property pursuant to the proper procedures, the holder of the
Eligible Loan will be able to deliver good and marketable title to the Mortgaged Property. There
is no homestead or other exemption available to a Mortgagor which would interfere with the right to
sell the Mortgaged Property at a trustee’s sale or the right to foreclose the Mortgage.

          (y) Occupancy of the Mortgaged Property. As of the Closing Date, the Mortgaged
Property is lawfully occupied under applicable law. All inspections, licenses and certificates
required to be made or issued with respect to all occupied portions of the Mortgaged Property and,
with respect to the use and occupancy of the Eligible Loan, including but not limited to
certificates of occupancy and fire underwriting certificates, have been made or obtained from the
appropriate authorities. All of the Mortgagors represented at the time of origination of the
related Eligible Loan that any such Mortgagor would occupy the Mortgaged Property as the
Mortgagor’s primary residence.

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

          (aa) Acceptable Investment. The Seller and the Servicer (on behalf of the Additional
Seller) have no knowledge of any circumstances or conditions with respect to the Mortgage, the
Mortgaged Property, the Mortgagor or the Mortgagor’s credit-standing not reflected in the
representations set forth herein, or in the documents delivered to the Custodian or in the Mortgage

40

 

Loan File, that could reasonably be expected to cause private institutional investors to
regard the Eligible Loan as an unacceptable investment or cause the Eligible Loan to become
delinquent or materially adversely affect the value or the marketability of the Eligible Loan.

          (bb) Delivery of Mortgage Notes. With the exception of Wet Funded Loans, the Mortgage
Note endorsed in blank or to the Purchaser required to be delivered for the Eligible Loan by the
Seller or the Servicer (on behalf of the Additional Seller), as applicable, under the Custodial
Agreement has been delivered to the Custodian on or prior to Closing Date. With respect to Wet
Funded Loans, the Mortgage Note will be delivered as soon as practicable, but in no event later
than 21 days from the Closing Date.

          (cc) Transfer of Eligible Loans. The Assignment of Mortgage (other than an original
Mortgage recorded in the name of MERS) is in recordable form and is acceptable for recording under
the laws of the jurisdiction in which the Mortgaged Property is located.

          (dd) Due on Sale. The Mortgage contains an enforceable provision for the acceleration
of the payment of the unpaid principal balance of the Eligible Loan in the event that the Mortgaged
Property is sold or transferred without the prior written consent of the Mortgagee thereunder.

          (ee) No Graduated Payments or Contingent Interests. The Eligible Loan is not a
graduated payment mortgage loan and does not have a shared appreciation or other contingent
interest feature.

          (ff) Mortgaged Property Undamaged. There is no proceeding pending or, to the best of
the Seller’s and the Servicer’s (on behalf of the Additional Seller) knowledge and belief,
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 materially adversely the value of the Mortgaged Property as security for
the Eligible Loan or the use for which the premises were intended.

          (gg) Collection Practices; Escrow Deposits; Interest Rate Adjustments. The
origination and collection practices used with respect to the Eligible Loan have been in accordance
with Accepted Servicing Practices, and have been in compliance in all material respects with
applicable laws and regulations. With respect to escrow deposits and Escrow Payments, all such
payments are in the possession of the Seller or the Servicer (on behalf of the Additional Seller),
as applicable, and there exist no deficiencies in connection therewith for which customary
arrangements for repayment thereof have not been made or for which repayment is not provided for in
the Mortgage. All Escrow Payments have been collected in compliance with applicable state and
federal law. An escrow of funds is not prohibited by applicable law and has been established in an
amount sufficient

41

 

to pay for each applicable 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 the Seller or
the Servicer (on behalf of the Additional Seller), as applicable, have been capitalized under the
Mortgage or the Mortgage Note. All interest rate adjustments in respect of Eligible Loans have
been made in strict compliance with state and federal law and the terms of the related Mortgage and
Mortgage Note.

          (hh) Appraisal. The Mortgage Loan File contains an appraisal of the related Mortgaged
Property signed prior to the approval of the Eligible Loan application by a qualified appraiser,
duly appointed by or acceptable to the Seller or the Servicer (on behalf of the Additional Seller),
as applicable, who had no interest, direct or indirect in the Mortgaged Property or in any loan
made on the security thereof; and whose compensation is not affected by the approval or disapproval
of the Eligible Loan, and the appraisal and appraiser both satisfy the requirements of Title XI of
the Federal Institutions Reform, Recovery, and Enforcement Act of 1989 and the regulations
promulgated thereunder, all as in effect on the date that the Eligible Loan was originated and the
appraiser and appraisal both satisfy requirements of the FHA or VA, if applicable.

          (ii) Soldiers’ and Sailors’ Relief Act. The Mortgagor has not notified the Seller or
the Servicer (on behalf of the Additional Seller), as applicable, and the Seller and the Servicer
(on behalf of the Additional Seller) have no knowledge of any relief requested by the Mortgagor
under the Soldiers’ and Sailors’ Civil Relief Act of 1940.

          (jj) Environmental Matters. To the best of the Seller’s and the Servicer’s (on behalf
of the Additional Seller) knowledge and belief, 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. There is no pending action or proceeding directly involving
any Mortgaged Property of which the Seller or the Servicer (on behalf of the Additional Seller), as
applicable, is aware in which compliance with any environmental law, rule or regulation is an
issue; and, to the best of the Seller’s and the Servicer’s (on behalf of the Additional Seller)
knowledge, nothing further remains to be done to satisfy in full all requirements of each such law,
rule or regulation consisting of a prerequisite to use and enjoyment of said property.

          (kk) No Construction Loans. No Eligible Loan (i) was made in connection with the
construction or rehabilitation of a Mortgaged Property which has not been completed or (ii)
provides for future advances of funds by the Seller or the Additional Seller, as applicable, which
have not yet been advanced or (iii) facilitates the trade-in or exchange of a Mortgaged Property.

          (ll) No Denial of Insurance. No action, inaction, or event has occurred and no state
of facts exists or has existed that has resulted or would result in the exclusion from, denial of,
or defense to coverage under any applicable PMI Policy or bankruptcy bond, irrespective of the
cause of

42

 

such failure of coverage. In connection with the placement of any such insurance, no commission,
fee, or other compensation has been or will be received by the Seller or the Servicer (on behalf of
the Additional Seller), as applicable, or any designee of the Seller or the Servicer (on behalf of
the Additional Seller), as applicable, or any corporation in which the Seller or the Servicer (on
behalf of the Additional Seller), as applicable, or any officer, director, or employee had a
financial interest at the time of placement of such insurance.

          (mm) Regarding the Mortgagor. The Mortgagor is one or more natural persons.

          (nn) Condominiums/Planned Unit Developments. If the Mortgaged Property is a
condominium unit or a planned unit development (other than a de minimus planned unit development)
such condominium or planned unit development project meets FHA, VA and GNMA eligibility
requirements for sale to GNMA or is located in a condominium or planned unit development project
which has received FHA, VA and GNMA project approval and the representations and warranties
required by FHA, VA and GNMA with respect to such condominium or planned unit development have been
made and remain true and correct in all material respects.

          (oo) FHA Mortgage Insurance; VA Loan Guaranty. With respect to the FHA Loans, the FHA
Mortgage Insurance Contract is in full force and effect and there exist no material impairments to
full recovery without indemnity to HUD or the FHA under FHA Mortgage Insurance. With respect to
the VA Loans, the VA Loan Guaranty Certificate is in full force and effect to the maximum extent
stated therein. All necessary steps have been taken to keep such guaranty or insurance valid,
binding and enforceable as of the Closing Date and each of such is the binding, valid and
enforceable obligation of the FHA and the VA, respectively, to the full extent thereof, without
surcharge, set-off or defense as of the Closing Date.

          (pp) HUD Form 92080. With respect to each FHA Loan, a HUD Form 92080 has been duly
executed and delivered to HUD.

          Section 3.3 Remedies for Breach of Representations and Warranties.

          It is understood and agreed that the representations and warranties set forth in Sections
3.1(a), 3.1(b), and 3.2 hereof shall survive the sale of the Eligible Loans to
the Purchaser and the delivery of the Loan Documents to the Servicer and delivery of the Mortgage
Notes to the Custodian and shall inure to the benefit of the Purchaser notwithstanding any
restrictive or qualified endorsement on any Mortgage Note or Assignment of Mortgage or the
examination or failure to examine any Mortgage Loan File. Upon discovery by either the Seller, the
Servicer (in its own capacity and on behalf of the Additional Seller) or the Purchaser of a breach
of any of the foregoing representations and warranties which materially and adversely affects the
value of the Eligible Loans or the interest of the Purchaser (or which materially and adversely
affects the interest of the Purchaser in the related

43

 

Eligible Loan in the case of a representation and warranty relating to a particular Eligible Loan),
the party discovering such breach shall give prompt written notice to the other, the Agent, the
Indenture Trustee, the Collateral Agent and the Swap Counterparties.

          Within 60 days of the earlier of either discovery by or notice to the Seller or the Servicer
(on behalf of the Additional Seller), as applicable, of any breach of a representation or warranty
set forth in Section 3.2 hereof which materially and adversely affects the value of any
Eligible Loan, the Seller or the Servicer (on behalf of the Additional Seller), as applicable,
shall use its best efforts promptly to cure such breach in all material respects and, if such
breach cannot be cured, or is not cured, within such 60 day time period, the Seller or the Servicer
(on behalf of the Additional Seller), as applicable, shall repurchase such Eligible Loan at the
Repurchase Price. In the event that a breach shall involve any representation or warranty set
forth in Section 3.1 (a) and (b) hereof, and such breach cannot be cured, or is not
cured, within 60 days of the earlier of either discovery by or notice to the Seller or the Servicer
(on behalf of the Additional Seller), as applicable, of such breach, all of the Eligible Loans
shall, at the Liquidity Banks’ option, be repurchased by the Seller or the Servicer (on behalf of
the Additional Seller), as applicable, at the Repurchase Price. Upon receipt of the Repurchase
Price by the Collateral Agent, the Purchaser and the Seller or the Servicer (on behalf of the
Additional Seller) shall arrange for the reassignment of the Eligible Loan or Eligible Loans to the
Seller or the Servicer (on behalf of the Additional Seller), as applicable, and the delivery to the
Seller or the Servicer (on behalf of the Additional Seller), as applicable, of any documents held
by the Custodian relating to the reassigned Eligible Loan or Eligible Loans.

          In addition to such repurchase obligation, the Seller (with respect to representations and
warranties made by the Seller) or the Servicer (on behalf of the Additional Seller with respect to
representations and warranties made by the Additional Seller or the Servicer on behalf of the
Additional Seller), as applicable, shall indemnify the Purchaser and hold it harmless against any
losses, damages, penalties, fines, forfeitures, reasonable and necessary legal fees and related
costs, judgments, and other costs and expenses resulting from any claim, demand, defense or
assertion based on or grounded upon, or resulting from, a breach of the representations and
warranties of the Seller, the Additional Seller or the Servicer (on behalf of the Additional
Seller), as applicable, contained in this Agreement. It is understood and agreed that the
obligations of the Seller and the Servicer (on behalf of the Additional Seller) set forth in this
Section 3.3 to cure or repurchase an Eligible Loan and to indemnify the Purchaser
constitute the sole remedies of the Purchaser in respect of a breach of the foregoing
representations and warranties.

          Section 3.4 Conditions to Closing.

          The obligation of the Purchaser to purchase the mortgage loans that are the subject of any
Transfer Supplement shall be subject to satisfaction of each of the following conditions on or
before the related Closing Date:

44

 

          (a) To the best of Seller’s, the Additional Seller’s or the Servicer’s (on behalf of the
Additional Seller) knowledge and belief, all of the representations and warranties of the Seller,
the Additional Seller (with respect to Section 3.1(b) hereof) or the Servicer (on behalf of
the Additional Seller with respect to Sections 3.2 and 3.3 hereof) contained in
this Agreement shall be true and correct in all material respects as of such Closing Date and no
event shall have occurred which, with notice or the passage of time, would constitute a Servicer
Event of Default under this Agreement;

          (b) The Seller or the Servicer (on behalf of the Additional Seller), as applicable, shall have
delivered and released to the Custodian all documents required to be delivered to the Custodian
pursuant to the Custodial Agreement;

          (c) No Termination Event shall have occurred and be continuing; and

          (d) All other material terms and conditions of this Agreement shall have been satisfied.

          Section 3.5 Covenants of the Purchaser, the Company and the Additional Seller.

          (a) Licenses. The Company or the Additional Seller, as applicable, shall maintain its
qualifications to do business and all licenses necessary to perform its obligations hereunder.

          (b) Servicing Standards/Sales and Securitizations. The Servicer will administer and
service Eligible Loans, and arrange for the sale and Securitization of Eligible Loans, in
accordance with the terms of this Agreement, the Mortgage Notes and Accepted Servicing Practices.

          (c) Delivery of Mortgage Note. The Seller or the Servicer (on behalf of the
Additional Seller), as applicable, shall deliver each Mortgage Note, including Mortgage Notes on
Wet Funded Loans, to the Custodian as soon as practicable, but in any event within twenty-one (21)
days of the purchase and, if any Mortgage Note is not delivered within twenty-one (21) days of
purchase, it shall be repurchased on such twenty-first (21st) day by the Seller or the Servicer (on
behalf of the Additional Seller), as applicable, at the Repurchase Price.

          (d) Third Party Beneficiary. The Purchaser agrees that GNMA, FNMA and FHLMC shall
have all rights of a third-party beneficiary in respect of this Agreement and restates the
representations, warranties and covenants as set forth herein for the benefit of GNMA, FNMA and
FHLMC.

          (e) Portfolio Criteria and Limitations. As of any date of determination, the Company
and the Servicer (in its own capacity and on behalf of the Additional Seller) covenant that

45

 

the Eligible Loans, in the aggregate shall satisfy the Portfolio Criteria, the Portfolio Aging
Limitations and the Wet Funded Loan Limitation.

          (f) Changes in Origination and Underwriting Criteria. The Seller shall inform each
rating agency rating any outstanding Commercial Paper, any outstanding Notes or any outstanding
Certificates of any material changes (as determined by the Seller) in its origination and
underwriting practices and guidelines with respect to the Mortgage Loans.

ARTICLE IV

ADMINISTRATION AND SERVICING OF ELIGIBLE LOANS

          Section 4.1 The Company to Act as Servicer; Servicing and Administration of the Eligible
Loans.

          (a) The Company, as an independent contractor and owner of the servicing rights to the
Eligible Loans, shall diligently service and administer the Eligible Loans, and shall comply with
the Portfolio Criteria, Portfolio Aging Limitations and Wet Funded Loan Limitation, and arrange for
the sale and Securitization of the Eligible Loans on behalf of the Purchaser and in the best
interest of and for the benefit of the Purchaser in accordance with applicable law, the terms of
this Agreement and the terms of the respective Eligible Loans, with a view to the maximization of
timely recovery of principal and interest on the Mortgage Notes and in a manner which will realize
for the Purchaser the market value of any Securitization Securities with respect to any sales and
Securitizations of the Eligible Loans; provided, the Servicer shall arrange for the sale or
Securitization of all Eligible Loans (y) on or before the termination of the Indenture and the
Liquidity Agreement, and (z) upon the occurrence of a Mortgage Loan Purchase Agreement Termination
Event. The Servicer shall arrange for the sale or Securitization of Eligible Loans (y) in an
amount such that the proceeds from such sale or Securitization are sufficient to pay amounts due
and owing on any outstanding Liquidity Loans, Series of Notes (whether by maturity, optional
redemption, or upon an Indenture Event of Default) and Series of Certificates (whether by maturity,
optional redemption, or upon the occurrence of an Early Amortization Event) and (z) in an amount
equal to the notional amount of any expiring Interest Rate Swap to the extent that a replacement
Interest Rate Swap or Interest Rate Swaps have not been obtained and are needed. In furtherance of
and to the extent consistent with the sale foregoing, except to the extent that this Agreement
provides for a contrary specific course of action, the Servicer will be required to service and
administer the Eligible Loans (y) in the same manner in which, and with the same care, skill,
prudence and diligence with which it services and administers similar mortgage loans for other
third-party portfolios, giving due consideration to customary and usual standards of practice of
prudent institutional residential mortgage loan servicers used with respect to loans comparable to
the Eligible Loans, or (z) in the same manner in which, and with the same care, skill, prudence and

46

 

diligence with which, it services and administers similar mortgage loans which it owns, whichever
standard of care is higher, and taking into account its other obligations under this Agreement, but
without regard to (i) any other relationship that Servicer, any sub-servicer or any affiliate of
the Servicer or any sub-servicer may have with the borrowers or any affiliate of such borrowers;
(ii) the ownership of any Certificate by Servicer or any affiliate of either; (iii) the Servicer’s
obligations to make Advances or to incur servicing expenses with respect to the Eligible Loans;
(iv) the Servicer’s or any sub-servicer’s right to receive compensation for its services under this
Agreement or with respect to any particular transaction; or (v) the ownership, servicing or
management for others by the Servicer or any sub-servicer of any other mortgage loans or property.
The Servicer shall maintain its qualification to do business and all licences necessary to perform
its obligations hereunder.

          (b) During the Purchase Commitment Term, the Servicer shall be obligated to service and
administer the Eligible Loans. The Servicer may enter into additional servicing or sub-servicing
agreements with third parties with respect to any of its respective obligations hereunder, provided
that any such agreement shall be consistent with the provisions of this Agreement and no
sub-servicer (or its agent or subcontractors) shall grant any modification, waiver or amendment to
any Eligible Loan without the approval of the Servicer. Notwithstanding any servicing or
sub-servicing agreement, any of the provisions of this Agreement relating to agreements or
arrangements between the Servicer and any Person acting as servicer or sub-servicer (or its agents
or subcontractors) or any reference to action taken through any Person acting as servicer or
sub-servicer or otherwise, the Servicer shall remain obligated and primarily liable to the
Purchaser for the servicing and administering of the Eligible Loans and arranging for the sale and
Securitization of the Eligible Loans in accordance with the provisions of this Agreement without
diminution of such obligation or liability by virtue of such servicing or sub-servicing agreements
or arrangements or by virtue of indemnifica-tion from any Person acting as servicer or sub-servicer
(or its agents or subcontractors) to the same extent and under the same terms and conditions as if
the Servicer alone were engaging in such activities. In the event the Servicer is a sub-servicer,
the Purchaser shall be entitled to proceed directly against the Servicer as sub-servicer to enforce
the Servicer’s obligations to the Purchaser.

          (c) Subject to the above-described servicing standards, the further provisions of this
Agreement, including but not limited to the Wet Funded Loan Limitation, Portfolio Criteria and
Portfolio Aging Limitation, and the terms of the respective Eligible Loans, the Servicer shall have
full power and authority, acting alone, to do or cause to be done any and all things in connection
with such servicing and administration that it may deem necessary or desirable in connection with
the servicing and administration of the Eligible Loans. Without limiting the generality of the
foregoing, the Servicer is hereby authorized and empowered to waive, modify or vary any term of any
Eligible Loan or consent to the postponement of compliance with any such term or in any manner
grant indulgence to any Mortgagor if in the Servicer’s reasonable and prudent determination such
waiver, modification, postponement or indulgence is not materially adverse to the Purchaser;
provided, however, that the Servicer shall not make any future advances to a Mortgagor with respect
to an Eligible Loan and

47

 

(unless the Mortgagor is in default with respect to the Eligible Loan or such default is, in the
judgment of the Servicer, imminent) the Servicer shall not permit any modification with respect to
any Eligible Loan that would change the Mortgage Interest Rate, defer or forgive the payment of
principal or interest, reduce or increase the outstanding principal balance (except for actual
payments of principal), release any collateral from the Eligible Loan or change the final maturity
date on such Eligible Loan. Without limiting the generality of the foregoing, the Servicer shall
continue, and is hereby authorized and empowered, to execute and deliver on behalf of itself and
the Purchaser all instruments of satisfaction or cancellation, or of partial or full release,
discharge and all other comparable instruments, with respect to the Eligible Loans and with respect
to the Mortgaged Properties. If reasonably required by the Servicer, the Purchaser shall furnish
the Servicer with any powers of attorney, in recordable form, and other documents necessary or
appropriate to enable the Servicer to carry out its servicing and administrative duties under this
Agreement.

          Section 4.2 Sales and Securitizations.

          (a) Subject to the servicing standards described in Section 4.1, the Servicer shall
have full power and authority, acting alone, to do or cause to be done any and all things in
connection with such servicing and administration that it may deem necessary and desirable in
connection with arranging for the Securitization of Conforming Loans and conducting sales of Jumbo
Loans with either FNMA, FHLMC, GNMA or other Securitization Vehicles or third party purchasers. In
connection with any Securitization of Eligible Loans, in the event the Purchaser receives
securities from the Securitization Vehicle in exchange for the Eligible Loans subject to such
Securitization (“Securitiza-tion Securities”), the Servicer shall, on behalf of the
Purchaser, arrange for the sale of such Securitization Securities. The Servicer shall use its best
efforts to realize for the Purchaser the market value for the Securitization Securities but shall
have no liability to the Purchaser with respect to any Securitization or Securitization Security
provided that the Servicer arranges for such Securitization or sale in good faith in accordance
with the procedures utilized by the Servicer in connection with any Securitization and
Securitization Securities held for its own account. The proceeds of sale of any Securitization
Security and the proceeds of sale of any whole loan will be remitted to the Collateral Agent and
will be deposited into the Collateral Account maintained by the Collateral Agent on the day of
receipt.

          (b) With respect to each Securitization or sale, as the case may be, entered into by the
Purchaser, Servicer agrees, with prior notice to the Purchaser, the Agent, the Indenture Trustee,
the Collateral Agent and the Swap Counterparties:

          (i) To cooperate fully with the Purchaser, any prospective purchaser, any
Securitization Vehicle or any party to any agreement executed in connection with
such sale or Securitization, with respect to all reasonable requests and

48

 

due diligence procedures and to use its best efforts to facilitate such sale or
Securitiza-tion, as the case may be.

          (ii) To execute, if the Company has agreed to continue as servicer with
respect to the Eligible Loans sold or Securitized, all agreements executed in
connection with such sale or Securitization that govern the servicing and
administration of the Eligible Loans (and any agreements and other documents
incidental thereto) as the Purchaser shall request, which governing documents, in
the case of a Securitization, shall contain provisions customarily included in
publicly issued or privately placed rated secondary mortgage market transactions
with respect to like properties, or otherwise necessary to achieve the rating on
the securities to be offered thereunder sought by the Purchaser and, in the case of
a sale, shall contain servicing provisions that are substantially similar to those
set forth herein.

          (iii) At the direction of the Purchaser and in lieu of executing agreements as
described in the preceding clause (ii), to consent to the assignment of the
Purchaser’s right to receive the benefits of the servicing provisions of this
Agreement to a purchaser of any one or more of the Eligible Loans, or to a master
servicer, in each case with such modifications to the servicing provisions hereof
as shall be reasonably requested by the Purchaser, provided that the primary
servicing responsibility shall be substantially similar to those set forth herein.

          (iv) To restate as of each closing date of the sale or Securitization, as the
case may be, the representations and warranties contained in Section 3.1(a)
and (b) hereof and to state for the benefit of the owners of the Eligible
Loans, for the benefit of the Purchaser, that it has no knowledge, based on its
activities as servicer hereunder, that any representations and warranties contained
in Section 3.2 hereof (excluding Section 3.2(d) hereof) are untrue
as of the date thereof or stating an event or circumstance that arose after the
related Closing Date and that would cause such representation or warranty to be
inaccurate in any material respect.

          (v) To deliver to the Purchaser for inclusion in any prospectus or other
offering material such written information regarding the Seller, the Servicer, the
Additional Seller and PHH Corporation, their respective financial condition, their
mortgage loan origination and servicing experience, and their mortgage loan
delinquency, foreclosure and loss experience as shall be reasonably requested by
the Purchaser and to indemnify and hold harmless the Purchaser against any and all
liabilities, losses and expenses arising under the Securities Act of 1933 in
connection with any material misstatement contained in such written information or
any omission

49

 

of a material fact the inclusion of which was necessary to make such written
information not materially misleading.

          (vi) To deliver to the Purchaser and to any Person designated by the
Purchaser, such statements and audit letter of reputable, certified public
accountants pertaining to the written information provided by the Servicer pursuant
to clause (v) above as shall be reasonably requested by the Purchaser.

          (vii) To deliver to the Purchaser, and to any Person designated by the
Purchaser, such opinions of counsel as are customarily delivered by
origina-tors/servicers in connection with sales or Securitizations, as the case may
be.

          Notwithstanding clause (ii) and clause (iii) of this Section 4.2(b), no agreements,
consents or modifications referred to therein shall contain any provision that (A) reduces the
servicing fee as to any mortgage loan or affects the calculation of the servicing fee as to any
mortgage loan in a manner that is below the market standard and commercially unreasonable to the
Servicer based on customary practice or (B) affects the administration of Escrow Payments, in a
manner that is commercially unreasonable to the Servicer. In addition, in connection with any
sale, the Purchaser shall negotiate in good faith with any prospective purchaser of the beneficial
ownership of the mortgage loans to incorporate into any agreement relating to the servicing of the
mortgage loans on behalf of such prospective purchaser servicing provisions that are similar to
those set forth herein and to the industry and market standard.

          All mortgage loans not sold or transferred pursuant to a sale or Securitization shall continue
to be serviced in accordance with the terms of this Agreement.

          Section 4.3 Liquidation of Eligible Loans.

          In the event that any payment due under any Eligible Loan is not paid when the payment becomes
due and payable, by Servicer Advance or otherwise, or in the event that the Mortgagor fails to
perform any other covenant or obligation under the Eligible Loan and such failure continues beyond
any applicable grace period, the Servicer shall take such action as (1) the Servicer would take
under similar circumstances with respect to a similar Eligible Loan held for its own account for
investment, (2) shall be consistent with Accepted Servicing Practices, (3) the Servicer shall
determine in accordance with Accepted Servicing Practices to be in the best interest of the
Purchaser, and (4) is consistent with the related PMI Policy, if any; provided, however, any
Defaulted Loan will be sold by the Servicer on behalf of the Purchaser as soon as practicable after
becoming a Defaulted Loan.

50

 

          Section 4.4 Collection of Eligible Loan Payments.

          The Servicer shall proceed diligently, in accordance with Accepted Servicing Practices, to
collect all payments called for under the terms and provisions of the Eligible Loans it is
obligated to service hereunder and shall follow such collection procedures as are consistent with
this Purchase Agreement (including without limitation, the servicing standards set forth in
Section 4.1 hereof). The Servicer shall ascertain and estimate, in accordance with
Accepted Servicing Practices, Escrow Payments and all other charges that will become due and
payable with respect to the Eligible Loans and the Mortgaged Property, to the end that the
installments payable by the Mortgagors will be sufficient to pay such charges as and when they
become due and payable. The Servicer shall segregate and hold all payments received by it separate
and apart from any of its funds and general assets and in trust for the Secured Parties and shall
apply such payments as provided in Section 4.5 hereof. The accounts established by the
Servicer pursuant to this Article IV may include any number of sub-accounts for convenience
in administering the Eligible Loans.

          Section 4.5 Establishment of, and Deposits to, Collection Account.

          The Servicer shall establish a single, segregated trust account which shall be designated as
the Collection Account, which shall be held in trust in the name of the Collateral Agent for the
benefit of the Secured Parties, into which the Servicer shall from time to time deposit, within two
Business Days of the receipt thereof, and retain therein, the following collections received by the
Servicer: (a) all payments on account of scheduled principal on the Eligible Loans; (b) all
payments on account of interest on the Eligible Loans (including interest accrued on the Eligible
Loans prior to the applicable Closing Date); (c) any Principal Prepayments; (d) all Liquidation
Proceeds; (e) all Insurance Proceeds including amounts required to be deposited pursuant to
Section 4.11 (other than proceeds to be held in the Escrow Account and applied to the
restoration or repair of the Mortgaged Property or released to the Mortgagor in accordance with
Accepted Servicing Practices as specified in Section 4.15 hereof), Section 4.12 and
Section 4.16 hereof; (f) all Condemnation Proceeds which are not applied to the restoration
or repair of the Mortgaged Property or released to the Mortgagor in accordance with Section
4.15 hereof; (g) any amount required to be deposited in the Collection Account pursuant to
Section 3.3, 4.10, 6.2 or 7.1; (h) any amounts required to be
deposited by the Servicer pursuant to Section 4.11 hereof in connection with the deductible
clause in any blanket hazard insurance policy; (i) any amounts received with respect to or related
to any REO Property and all REO Disposition Proceeds pursuant to Section 4.17 hereof; and
(j) any other amounts received with respect to or related to the mortgage loan including but not
limited to late payment charges and interest paid on funds deposited in the Collection Account or
Escrow Account, to the extent permitted by applicable law. The Collection Account shall be
established with a Qualified Depository acceptable to the Purchaser. For so long as the Security
Agreement shall be in effect, the Collection Account shall be maintained with the Collateral Agent.
Any funds deposited in the Collection Account shall at all times be fully insured to the full
extent permitted under applicable law. Any interest earnings on amounts

51

 

on deposit from time to time in the Collection Account shall be remitted to the Servicer in
accordance with such arrangements, as shall be agreed upon by the Servicer and the Collateral
Agent.

          Section 4.6 Permitted Withdrawals From Collection Account; Deposit into the Collateral
Account.

          (a) In connection with any withdrawals of amounts deposited by the Servicer into the
Collection Account by mistake or overpayment or as otherwise required to make adjustments to
amounts deposited therein in accordance with ordinary and normal servicing adjustments the Servicer
shall provide the Collateral Agent with a written request, including such information with respect
to such withdrawals as such Collateral Agent may reasonably request to justify such withdrawal.
Upon receipt of such request, the Collateral Agent shall direct the Qualified Depository
maintaining the Collection Account to make such withdrawal from the Collection Account and deposit
it with the Servicer; provided that, if such request is for an amount less than $10,000 and the
aggregate amount withdrawn from the Collection Account under this proviso in the current Due Period
is less than $50,000, such request may be honored by the Qualified Depository upon a telephonic or
electronic request and without direction from the Collateral Agent.

          (b) Pursuant to the terms of the Security Agreement, the Collateral Agent shall establish a
single, segregated trust account which shall be designated as the “Collateral Account,”
which shall be held in trust for the benefit of the Secured Parties and over which the Collateral
Agent shall have exclusive control and the sole right of withdrawal. The proceeds of any sales and
Securitizations, the Repurchase Price of any Eligible Loans repurchased pursuant to Section
3.3, 6.2 or 7.1 and any other amounts payable in connection with the Seller’s
or Servicer’s repurchase of any Eligible Loan, repayments in full of Eligible Loans and certain
other amounts as more fully set forth in the Security Agreement, shall be deposited directly into
the Collateral Account on the same day of receipt. Any and all funds at any time on deposit in, or
otherwise to the credit of, the Collateral Account shall be held in trust by the Collateral Agent
for the benefit of the Secured Parties.

          (c) The Servicer shall, on each Payment Date (or if such day is not a Business Day the
immediately following Business Day), request the Collateral Agent to withdraw (i) all amounts
deposited in the Collection Account as of the close of business on the Determination Date (net of
charges against or withdrawals from the Collection Account pursuant to Section 4.6(d)
hereof), minus (ii) any amounts attributable to Monthly Payments collected but due on a Due Date
subsequent to the 15th day of the month of the Payment Date, which amounts shall be
remitted on the Payment Date next succeeding the Due Period for such amounts and deposit such funds
into the Collateral Account for application pursuant to the terms of the Security Agreement and
release funds in accordance with the Servicer Report delivered to the Collateral Agent for such
Payment Date.

52

 

          (d) The Servicer shall, on the day of receipt of any principal prepayments in full, request
the Collateral Agent to withdraw funds representing such principal prepayments from the Collection
Account and deposit such funds in the Collateral Account for application pursuant to the terms of
the Security Agreement.

          (e) The Servicer shall, from time to time, by delivery of a Monthly Servicer Advance Report,
request the Collateral Agent to withdraw funds from the Collection Account to reimburse the
Servicer for Servicer Monthly Advances pursuant to Section 5.1 hereof, the Servicer’s right
to reimbursement pursuant to this subclause (d) being limited to amounts received on the
related Eligible Loan which represent late payments of principal and/or interest respecting which
any such advance was made, it being understood that, in the case of any such reimbursement, the
Servicer’s right thereto shall be prior to the rights of the Purchaser, except that, where the
Servicer is required to repurchase an Eligible Loan pursuant to Sections 6.2 and
7.1 of this Purchase Agreement, the Servicer’s right to such reimbursement shall be
subsequent to the payment to the Purchaser of the Repurchase Price pursuant to such Sections
6.2 and 7.1 and all other amounts required to be paid to the Purchaser with respect to
such Eligible Loan.

          Section 4.7 Establishment of, and Deposits to, Escrow Account.

          The Servicer shall segregate and hold all funds collected and received pursuant to an Eligible
Loan constituting Escrow Payments separate and apart from any of its own funds and general assets
and shall establish and maintain one or more Escrow Accounts, in the form of time deposit or demand
accounts, in a manner which shall provide maximum available insurance thereunder. Funds deposited
in any Escrow Account may be invested by the Servicer which shall be entitled to any investment
income therefrom except as otherwise required by law. Funds deposited in any Escrow Account may be
drawn on by the Servicer in accordance with Section 4.8 hereof.

          The Servicer shall deposit in such Escrow Account within two Business Days and retain therein
(a) all Escrow Payments collected on account of the Eligible Loans, for the purpose of effecting
timely payment of any such items as required under the terms of this Agreement; and (b) all amounts
representing Insurance Proceeds or Condemnation Proceeds which are to be applied to the restoration
or repair of any Mortgaged Property.

          The Servicer shall make withdrawals from any Escrow Account only to effect such payments as
are required under this Agreement, as set forth in Section 4.8 hereof. To the extent
required by law, the Servicer shall pay interest on escrowed funds to the Mortgagor notwithstanding
that such Escrow Account may be non-interest bearing or that interest paid thereon is insufficient
for such purposes.

53

 

          Section 4.8 Permitted Withdrawals From Escrow Account.

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

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

          (2) To reimburse the Servicer for any Servicing Advances made by the Servicer
pursuant to Section 4.9 hereof with respect to a related Eligible Loan, but
only from amounts received on the related Eligible Loan which represent late
collections of Escrow Payments thereunder;

          (3) To refund to any Mortgagor any funds found to be in excess of the amounts
required under the terms of the related Eligible Loan;

          (4) For transfer to the Collection Account and application to reduce the
principal balance of the Eligible Loan in accordance with the terms of the related
Mortgage and Mortgage Note;

          (5) For application to restoration or repair of the Mortgaged Property in
accordance with the procedures outlined in Section 4.15 hereof; and

          (6) To pay to the Mortgagor, to the extent required by law, any interest paid
on the funds deposited in the Escrow Account.

          Section 4.9 Payment of Taxes, Insurance and Other Charges.

          With respect to each Eligible Loan, the Servicer shall maintain accurate records reflecting
the status of ground rents, taxes, assessments, water rates, sewer rents, and other charges which
are or may become a lien upon the Mortgaged Property and the status of PMI Policy premiums, if any,
and fire and hazard insurance coverage and shall obtain, from time to time, all bills for the
payment of such charges (including renewal premiums) and shall effect payment thereof prior to the
applicable penalty or termination date, employing for such purpose deposits of the Mortgagor in the
Escrow Account which shall have been estimated and accumulated by the Servicer in amounts
sufficient for such purposes, as allowed under the terms of the Mortgage. To the extent that a
Mortgage does not provide for Escrow Payments, the Servicer shall determine that any such payments
are made by the Mortgagor at the time they first become due. The Servicer assumes full
responsibility for the timely payment of all such bills and shall effect timely payment of all such
charges irrespective

54

 

of each Mortgagor’s faithful performance in the payment of an Eligible Loan or the making of the
Escrow Payments, and the Servicer shall make Servicing Advances.

          Section 4.10 Protection of Accounts.

          Amounts on deposit in the Collection Account may at the option of the Collateral Agent be
invested in Eligible Investments; provided that in the event that amounts on deposit in the
Collection Account (which shall be properly titled to insure the funds in such account on a
loan-by-loan basis) exceed the amount fully insured by the FDIC (the “Insured Amount”) the
Servicer shall be obligated to invest the excess amount over the Insured Amount in Eligible
Investments on the next Business Day as such excess amount becomes present in the Collection
Account. Monies held in the Collection Account shall be invested in Eligible Investments having
maturities of no greater than one day; provided, that if there is no Commercial Paper then
outstanding, monies held in the Collection Account shall be invested in Eligible Investments having
maturities of no greater than 30 days. So long as there are Eligible Investments having maturities
of greater than one day, the Purchaser shall not issue Commercial Paper. All such Eligible
Investments shall be made in the name of, and shall be payable to, the Collateral Agent.

          Section 4.11 Maintenance of Hazard Insurance.

          The Servicer shall cause to be maintained for each Eligible Loan hazard insurance such that
all buildings upon the Mortgaged Property are insured by a generally acceptable insurer rated A:VI
or better in the current Best’s Key Rating Guide (“Best’s”) against loss by fire, hazards
of extended coverage and such other hazards as are customary in the area where the Mortgaged
Property is located, in an amount which is at least equal to the lesser of (i) the maximum
insurable value of the improvements securing such Eligible Loan and (ii) the greater of (a) the
outstanding principal balance of the Eligible Loan and (b) an amount such that the proceeds thereof
shall be sufficient to prevent the Mortgagor or the loss payee from becoming a co-insurer.

          If upon origination or acquisition of the Eligible Loan, the related Mortgaged Property was
located in an area identified in the Federal Register by the Federal Emergency Management Agency as
having special flood hazards (and such flood insurance has been made available) the Servicer shall
cause to be in effect a flood insurance policy meeting the requirements of the current guidelines
of the Flood Insurance Administration with a generally acceptable insurance carrier rated A:VI or
better in Best’s in an amount representing coverage equal to the lesser of (i) the minimum amount
required, under the terms of coverage, to compensate for any damage or loss on a replacement cost
basis (or the unpaid balance of the mortgage if replacement cost coverage is not available for the
type of building insured) and (ii) the maximum amount of insurance which is available under the
Flood Disaster Protection Act of 1973, as amended. If at any time during the term of the Eligible
Loan, the Servicer determines in accordance with applicable law and pursuant to the Guidelines that
a Mortgaged

55

 

Property is located in a special flood hazard area and is not covered by flood insurance or is
covered in an amount less than the amount required by the Flood Disaster Protection Act of 1973, as
amended, the Servicer shall notify the related Mortgagor that the Mortgagor must obtain such flood
insurance coverage, and if said Mortgagor fails to obtain the required flood insurance coverage
within forty-five (45) days after such notification, the Servicer shall immediately force place the
required flood insurance on the Mortgagor’s behalf.

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

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

          The Servicer shall not interfere with the Mortgagor’s freedom of choice in selecting either
his insurance carrier or agent; provided, however, that the Servicer shall not accept any such
insurance policies from insurance companies unless such companies are rated A:VI or better in
Best’s and are licensed to do business in the jurisdiction in which the Mortgaged Property is
located. The Servicer shall determine that such policies provide sufficient risk coverage and
amounts, that they insure the property owner, and that they properly describe the property address.
The Servicer shall furnish to the Mortgagor a formal notice of expiration of any such insurance in
sufficient time for the Mortgagor to arrange for renewal coverage by the expiration date.

          Pursuant to Section 4.5 hereof, any amounts collected by the Servicer under any such
policies (other than amounts to be deposited in any Escrow Account and applied to the restoration
or repair of the related Mortgaged Property, or property acquired in liquidation of the Eligible
Loan, or to be released to the Mortgagor, in accordance with Accepted Servicing Practices as
specified in Section 4.15 hereof) shall be deposited in the Collection Account subject to
withdrawal pursuant to Section 4.6 hereof.

          Section 4.12 Maintenance of Mortgage Impairment Insurance.

          If the Servicer shall obtain and maintain a blanket policy insuring against losses arising
from fire and hazards covered under extended coverage on all of the Eligible Loans, then, to the
extent such policy provides coverage in an amount equal to the amount required pursuant to
Section 4.11

56

 

hereof and otherwise complies with all other requirements of Section 4.11, it shall
conclusively be deemed to have satisfied its obligations as set forth in such Section 4.11.
Any amounts collected by the Servicer under any such policy relating to an Eligible Loan shall be
deposited in the Collection Account subject to withdrawal pursuant to Section 4.6 hereof.
Such policy may contain a deductible clause, in which case, in the event that there shall not have
been maintained on the related Mortgaged Property a policy complying with Section 4.11
hereof, and there shall have been a loss which would have been covered by such policy, the Servicer
shall deposit in the Collection Account at the time of such loss the amount not otherwise payable
under the blanket policy because of such deductible clause, such amount to be deposited from the
Servicer’s funds, without reimbursement therefor. Upon request of the Purchaser, the Servicer
shall cause to be delivered to the Purchaser a certified true copy of such policy.

          Section 4.13 Maintenance of Fidelity Bond and Errors and Omissions Insurance.

          The Servicer shall maintain with responsible companies, at its own expense, a blanket Fidelity
Bond and an Errors and Omissions Insurance Policy, with broad coverage on all officers, employees
or other persons acting in any capacity requiring such persons to handle funds, money, documents or
papers relating to the Eligible Loans (“Company Employees”). Any such Fidelity Bond and
Errors and Omissions Insurance Policy shall be in the form of the Mortgage Banker’s Blanket Bond
and shall protect and insure the Servicer against losses, including forgery, theft, embezzlement,
fraud, errors and omissions and negligent acts of such Company Employees. Such Fidelity Bond and
Errors and Omissions Insurance Policy also shall protect and insure the Servicer against losses in
connection with the release or satisfaction of an Eligible Loan without having obtained payment in
full of the indebtedness secured thereby. No provision of this Section 4.13 requiring such
Fidelity Bond and Errors and Omissions Insurance Policy shall diminish or relieve the Servicer from
its duties and obligations as set forth in this Agreement. The minimum coverage under any such
bond and insurance policy shall be at least equal to the corresponding amounts required by the
Guidelines. Upon the request of the Purchaser, the Servicer shall cause to be delivered to the
Purchaser a certified true copy of such fidelity bond and insurance policy.

          Section 4.14 Inspections.

          The Servicer shall inspect the Mortgaged Property as often as deemed necessary by the Servicer
to assure itself that the value of the Mortgaged Property is being preserved.

          Section 4.15 Restoration of Mortgaged Property.

          The Servicer need not obtain the approval of the Purchaser prior to releasing any Insurance
Proceeds or Condemnation Proceeds to the Mortgagor to be applied to the restoration or repair of
the Mortgaged Property if such release is in accordance with Accepted Servicing Practices.

57

 

At a minimum, the Servicer shall comply with the following conditions in connection with any such
release of Insurance Proceeds or Condemnation Proceeds:

          (1) The Servicer shall receive satisfactory independent verification of
completion of repairs and issuance of any required approvals with respect thereto;

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

          (3) The Servicer shall verify that the Eligible Loan is not in default; and

          (4) Pending repairs or restoration, the Servicer shall place the Insurance
Proceeds or Condemnation Proceeds in any Escrow Account.

          Section 4.16 Maintenance of PMI Policy; Claims.

          With respect to each Eligible Loan with a LTV in excess of 80%, the Servicer shall, without
any cost to the Purchaser, maintain or cause the Mortgagor to maintain in full force and effect a
PMI Policy insuring that portion of the Eligible Loan in excess of 80% of value, and shall pay or
shall cause the Mortgagor to pay the premium thereon on a timely basis, until the LTV of such
Eligible Loan is reduced to 80% or less. In the event that such PMI Policy shall be terminated,
the Servicer shall, prior to any such termination, obtain from another Qualified Insurer a
comparable replacement policy, with a total coverage equal to the remaining coverage of such
terminated PMI Policy. If the insurer shall cease to be a Qualified Insurer, the Servicer shall
determine whether recoveries under the PMI Policy are jeopardized for reasons related to the
financial condition of such insurer, it being understood that the Servicer shall in no event have
any responsibility or liability for any failure to recover under the PMI Policy for such reason.
If the Servicer determines that recoveries are so jeopardized, it shall notify the Purchaser and
the Mortgagor, if required, and obtain from another Qualified Insurer a replacement insurance
policy. The Servicer shall not take any action which would result in noncoverage under any
applicable PMI Policy of any loss which, but for the actions of the Servicer, would have been
covered thereunder. In connection with any assumption or substitution agreement entered into or to
be entered into pursuant to Section 6.1 hereof, the Servicer shall promptly notify the
insurer under the related PMI Policy, if any, of such assumption or substitution of liability in
accordance with the terms of such PMI Policy and shall take all actions which may be required by
such insurer as a condition to the continuation of coverage under such PMI Policy. If such PMI
Policy is terminated as a result of such assumption or substitution of liability, the Servicer
shall obtain a replacement PMI Policy as provided above.

58

 

          In connection with its activities as Servicer, the Servicer agrees to prepare and present
claims to the insurer under any PMI Policy in a timely fashion in accordance with the terms of such
PMI Policy and, in this regard, to take such action as shall be necessary to permit recovery under
any PMI Policy respecting a Defaulted Loan. Pursuant to Section 4.5 hereof, any amounts
collected by the Servicer under any PMI Policy shall be deposited in the Collection Account,
subject to withdrawal pursuant to Section 4.6 hereof.

          Section 4.17 Title, Management and Disposition of REO Property.

          In the event that title to any Mortgaged Property is acquired in foreclosure or by deed in
lieu of foreclosure, the deed or certificate of sale shall be taken in the name of the Servicer as
agent for the Secured Parties, or in the event the Servicer is not authorized or permitted to hold
title to real property in the state where the REO Property is located, or would be adversely
affected under the “doing business” or tax laws of such state by so holding title, the deed or
certificate of sale shall be taken in the name of such Person or Persons as shall be reasonably
acceptable to the Purchaser. The Person or Persons holding such title other than the Servicer
shall acknowledge in writing that such title is being held as nominee for the Servicer.

          The Servicer shall manage, conserve, protect and operate each REO Property for the Purchaser
solely for the purpose of its prompt disposition and sale. The Servicer, either itself or through
an agent selected by the Servicer, shall manage, conserve, protect and operate the REO Property in
the manner that it manages, conserves, protects and operates other foreclosed property for its own
account, and in the manner that similar property in the locality as the REO Property is managed.
The Servicer shall attempt to sell the Eligible Loan on such terms and conditions as the Servicer
deems to be in the best interest of the Purchaser. The Servicer shall dispose of the REO Property
in accordance with Accepted Servicing Practices as soon as possible.

          The Servicer shall also maintain on each REO Property fire and hazard insurance with extended
coverage in an amount which is at least equal to the maximum insurable value of the improvements
which are a part of such property, liability insurance and, to the extent required and available
under the Flood Disaster Protection Act of 1973, as amended.

          The disposition of REO Property shall be carried out by the Servicer at such price and, upon
such terms and conditions, as the Servicer deems to be in the best interest of the Purchaser. The
proceeds of sale of the REO Property shall be promptly deposited in any Collection Account.

59

 

          Section 4.18 Servicer Reports.

          The Servicer shall deliver a report to the Purchaser, the Collateral Agent, the Custodian, the
Indenture Trustee, the Agent, the CP Dealers and the Remarketing Agent on each Payment Date (the
“Monthly Report”), a form of which is attached hereto as Exhibit C.

          Section 4.19 Real Estate Owned Reports.

          The Servicer shall furnish to the Purchaser on or before the Payment Date a statement with
respect to any REO Property covering the operation of such REO Property and the Servicer’s efforts
in connection with the sale of such REO Property and any rental of such REO Property incidental to
the sale thereof. That statement shall be accompanied by such other information as the Purchaser
shall reasonably request.

          Section 4.20 Liquidation Reports.

          Upon the foreclosure sale of any Mortgaged Property or the acquisition thereof by the
Purchaser pursuant to a deed in lieu of foreclosure, the Servicer shall submit to the Purchaser a
liquidation report with respect to such Mortgaged Property.

          Section 4.21 Reports of Foreclosures and Abandonments of Mortgaged Property.

          Following the foreclosure sale or abandonment of any Mortgaged Property, the Servicer shall
report such foreclosure or abandonment as required pursuant to Section 6050J of the Code.

          Section 4.22 Servicer Advance Report.

          The Servicer shall deliver a report (a “Monthly Servicer Advance Report”) to the
Collateral Agent from time to time pursuant to Section 4.6(e), a form of which is attached
hereto as Exhibit D.

          Section 4.23 Secondary Market Trading Report. The Servicer shall on each Payment Date
deliver to the Owner Trustee, the Indenture Trustee and to the Collateral Agent a report (the
“Monthly Secondary Market Trading Report”) setting forth the information described below
with respect to sales and Securitizations of Eligible Loans made by the Purchaser in the preceding
month. The Indenture Trustee shall have no duty to examine any such report.

          The information included in the Secondary Market Trading Report will include (i) a photocopy
of each confirmation or trading ticket with respect to Eligible Loans sold or Securitization
Securities sold in such month, (ii) a schedule indicating the other bids considered by the Servicer
on

60

 

behalf of the Trust with respect to the Eligible Loans sold or Securitization Securities sold in
such month or, if no other bids were considered by the Servicer, comparison materials indicating
substantially contemporaneous pricing of similar Securitization Securities or Eligible Loans to
those sold by the Trust.

          Each of the Owner Trustee, the Indenture Trustee (acting at the written direction of the
Required Noteholders) and the Collateral Agent shall have the right to request that the Servicer
provide additional comparative pricing information to establish that the Eligible Loans sold or
securitized by the Servicer on behalf of the Purchaser were sold at the market value thereof at the
time of sale or Securitization.

ARTICLE V

SERVICER ADVANCES

          Section 5.1 Servicer Monthly Advances.

          On each Determination Date, the Servicer shall deposit into the Collection Account from its
own funds an amount equal to all Monthly Payments which were due on the Eligible Loans with respect
to the applicable Due Period and which remain unpaid at the close of business on such Determination
Date or which were deferred pursuant to Section 4.1 hereof. The Servicer’s obligation to
make such Servicer Monthly Advances as to any Eligible Loan will continue through the last Monthly
Payment due prior to the payment in full of the Eligible Loan or through the Payment Date for the
distribution of all Liquidation Proceeds and other payments or recoveries (including Insurance
Proceeds and Condemnation Proceeds) with respect to the Eligible Loan unless the Servicer provides
an Officer’s Certificate stating that such Servicer Monthly Advance would not be recoverable;
provided, however, that the Servicer’s obligation to make such Servicer Monthly Advances shall not
continue if the Eligible Loan has become a Defaulted Loan.

ARTICLE VI

GENERAL SERVICING PROCEDURES

          Section 6.1 Transfers of Mortgaged Property.

          The Servicer shall enforce any “due-on-sale” provision in accordance with Accepted Servicing
Practices and applicable law contained in any Mortgage or Mortgage Note and to deny assumption by
the Person to whom the Mortgaged Property has been or is about to be sold whether

61

 

by absolute conveyance or by contract of sale, and whether or not the Mortgagor remains liable on
the Mortgage and the Mortgage Note. When the Mortgaged Property has been conveyed by the
Mortgagor, the Servicer shall, to the extent it has knowledge of such conveyance, exercise its
rights to accelerate the maturity of such Eligible Loan under the “due-on-sale” clause applicable
thereto; provided, however, that the Servicer shall not exercise such rights if prohibited by law
from doing so or if the exercise of such rights would impair or threaten to impair any recovery
under the related PMI Policy, if any.

          If the Servicer reasonably believes it is unable under applicable law to enforce such
“due-on-sale” clause, the Servicer shall enter into (i) an assumption and modification agreement
with the person to whom such property has been conveyed, pursuant to which such person becomes
liable under the Mortgage Note and the original Mortgagor remains liable thereon or (ii) in the
event that the Servicer is unable under applicable law to require that the original Mortgagor
remain liable under the Mortgage Note and the Servicer has the prior consent of the primary
mortgage guaranty insurer, a substitution of liability agreement with the purchaser of the
Mortgaged Property pursuant to which the original Mortgagor is released from liability and the
purchaser of the Mortgaged Property is substituted as Mortgagor and becomes liable under the
Mortgage Note.

          Section 6.2 Satisfaction of Mortgages and Release of Mortgage Loan Files.

          Upon the payment in full of any Eligible Loan, or the receipt by the Servicer of a
notification that payment in full will be escrowed in a manner customary for such purposes, the
Servicer shall notify the Purchaser and the Collateral Agent.

          If the Servicer satisfies or releases a Mortgage without first having obtained payment in full
of the indebtedness secured by the Mortgage or should the Servicer otherwise prejudice any rights
the Purchaser may have under the mortgage instruments, upon written demand of the Purchaser, the
Servicer shall repurchase the related Eligible Loan at the Repurchase Price by deposit thereof in
the Collateral Account within two Business Days of receipt of such demand by the Purchaser. The
Servicer shall maintain the Fidelity Bond and Errors and Omissions Insurance Policy as provided for
in Section 4.13 hereof insuring the Servicer against any loss it may sustain with respect
to any Eligible Loan not satisfied in accordance with the procedures set forth herein.

          Section 6.3 Servicing Compensation.

          As compensation for its services hereunder, Servicer shall be entitled to the Servicing Fee.

62

 

          Section 6.4 Annual Statement as to Compliance.

          The Servicer shall deliver to the Purchaser, the Indenture Trustee, the Owner Trustee, the
Liquidity Banks, the Remarketing Agent, the CP Dealers and the Swap Counterparties, on or before
April 5th each year beginning 1999, an Officer’s Certificate, stating that (i) a review of the
activities of the Servicer during the preceding fiscal year ended December 31st and of
performance under this Agreement has been made under such officer’s supervision, (ii) the Servicer
has complied with the provisions of Article II and Article IV hereof, and (iii) to
the best of such officer’s knowledge, based on such review, the Servicer has fulfilled its
obligations in all material respects under this Agreement throughout such year, or, if there has
been a default in the fulfillment of any such obligation, specifying each such default known to
such officer and the nature and status thereof and the action being taken by the Servicer to cure
such default.

          Section 6.5 Annual Independent Public Accountants’ Servicing Report.

          On or before April 5th of each year beginning 1999, the Servicer, at its expense, shall cause
a firm of independent public accountants which is a member of the American Institute of Certified
Public Accountants to furnish a statement to the Purchaser, the Indenture Trustee, the Liquidity
Banks, the CP Dealers, the Remarketing Agent and the Swap Counterparties to the effect that such
firm has examined certain documents and records relating to the servicing of the Eligible Loans and
this Agreement and that such firm is of the opinion that the provisions of Article II and
Article IV hereof have been complied with, and that, on the basis of such examination
conducted substantially in compliance with the Uniform Single Attestation Program for Mortgage
Bankers, nothing has come to their attention which would indicate that such servicing has not been
conducted in compliance therewith, except for (i) such exceptions as such firm shall believe to be
immaterial, and (ii) such other exceptions as shall be set forth in such statement. The Indenture
Trustee shall have no duty to examine such statement.

          Section 6.6 Right to Examine Servicer Records.

          The Purchaser, the Indenture Trustee (acting at the written direction of the Required
Noteholders), the Owner Trustee, the Agent and the Collateral Agent shall each have the right to
reasonable access to the books, records, or other information of the Servicer, whether held by the
Servicer or by another on its behalf, with respect to or concerning this Agreement or the Eligible
Loans, during regular business hours or at such other times as may be reasonable under applicable
circumstances, upon reasonable advance notice.

63

 

ARTICLE VII

REPURCHASE OBLIGATION

          Section 7.1 Servicer’s Repurchase Obligations.

          Upon receipt by the Servicer of notice from the Purchaser of a breach of any representation or
warranty of it contained in Sections 3.1 and 3.2 of this Agreement or any action
resulting in prejudice to the Purchaser in accordance with Section 6.2 hereof, the Servicer
shall promptly notify the Purchaser, the Agent, the Indenture Trustee, the Collateral Agent and the
Swap Counterparties and shall, at the direction of the Purchaser use its best efforts to cure and
correct any such breach, and, in the event such breach is not cured and corrected within the
applicable 60 day time period, the Servicer shall repurchase the Eligible Loans at the Repurchase
Price pursuant to Section 3.3 hereof.

          Upon deposit by the Servicer of the Repurchase Price in the Collateral Account, the Custodian
and the Servicer shall arrange for the reassignment of Eligible Loans adversely affected by such
breach to the Servicer (in its own capacity and on behalf of the Additional Seller) according to
the Servicer’s instructions, and the delivery to the Custodian of any documents held by the
Purchaser. In the event of a repurchase, the Servicer shall, simultaneously with such
reassignment, give written notice to the Seller, the Additional Seller, the Agent, the Collateral
Agent, the Indenture Trustee and the Swap Counterparties that such repurchase has taken place.
Upon receipt of the Repurchase Price by the Collateral Agent, the Purchaser and the Servicer shall
arrange for the reassignment of the Eligible Loans to the Servicer (in its own capacity and on
behalf of the Additional Seller) and the Delivery to the Servicer of any documents held by the
Custodian relating to the reassigned Eligible Loans.

ARTICLE VIII

SERVICER TO COOPERATE

          Section 8.1 Provision of Information.

          During the term of this Agreement, the Servicer shall furnish to the Purchaser, the holders of
all Series of Certificates, the holders of all Series of Notes and the Liquidity Banks such
periodic, special, or other reports or information, including the Servicer Report required to be
delivered to the Purchaser, the Collateral Agent, the Indenture Trustee, the Owner Trustee, the
Custodian, the CP Dealers, the Remarketing Agent and the Liquidity Banks on each Payment Date, and
copies or originals of any documents contained in the Mortgage Loan File for each Eligible Loan,
whether or

64

 

not provided for herein, as shall be necessary, reasonable, or appropriate with respect to the
Purchaser. All such reports, documents or information shall be provided by and in accordance with
all reasonable instructions and directions which the Purchaser may give.

          The Servicer shall execute and deliver all such instruments and take all such action as the
Purchaser, the Collateral Agent, the Indenture Trustee (acting at the written direction of the
Required Noteholders), the Owner Trustee, the Custodian, the Certificateholders and the Liquidity
Banks may reasonably request from time to time, in order to effectuate the purposes and to carry
out the terms of this Agreement.

ARTICLE IX

THE SERVICER

          Section 9.1 Indemnification of Third-Party Claims.

          The Servicer agrees to indemnify and hold harmless the Purchaser, the Collateral Agent, the
Indenture Trustee, the Owner Trustee, the Remarketing Agent, the CP Dealers and the Liquidity Banks
against any and all claims, losses, penalties, fines, forfeitures, reasonable legal fees and
related costs, judgments, and any other costs, fees and expenses that the Purchaser may sustain in
any way related to the failure of the Servicer to perform its duties and service the mortgage loans
in strict compliance with the terms of this Agreement. The Servicer shall immediately notify the
Purchaser, the Collateral Agent, the Remarketing Agent, the Indenture Trustee, the Owner Trustee,
the CP Dealers and the Liquidity Banks if a claim is made by a third party with respect to this
Agreement or the mortgage loans and the Servicer shall assume the defense of any such claim and pay
all expenses in connection therewith, including counsel fees, and promptly pay, discharge and
satisfy any judgment or decree which may be entered against the Servicer or the Purchaser in
respect of such claim. The Servicer’s indemnification obligation pursuant to this Section
9.1 shall survive the termination of this Agreement.

          Section 9.2 Corporate Existence of the Servicer.

          The Servicer shall keep in full effect its existence, rights and franchises as a corporation,
and shall obtain and preserve its qualification to do business as a foreign corporation in each
jurisdiction in which such qualification is or shall be necessary to protect the validity and
enforceability of this Agreement or any of the Eligible Loans and to perform its duties under this
Agreement.

65

 

          Section 9.3 Limitation on Liability of Servicer and Others.

          Neither the Servicer nor any of the directors, officers, employees or agents of the Servicer
shall be under any liability to the Purchaser for any action taken or for refraining from the
taking of any action in good faith pursuant to this Agreement, or for errors in judgment; provided,
however, that this provision shall not protect the Servicer or any such person against any breach
of warranties or representations made herein, or failure to perform its obligations in compliance
with any standard of care set forth in this Agreement, or any liability which would otherwise be
imposed by reason of any breach of the terms and conditions of this Agreement. The Servicer and
any director, officer, employee or agent of the Servicer may rely in good faith on any document
which it in good faith reasonably believes to be genuine and have been adopted or signed by the
proper authorities respecting any matters arising hereunder. The Servicer shall not be under any
obligation to appear in, prosecute or defend any legal action which is not incidental to its duties
to service the Eligible Loans in accordance with this Agreement and which in its opinion may
involve it in any expense or liability; provided, however, that the Servicer may, with the consent
of the Purchaser undertake any such action which it may deem necessary or desirable with respect to
this Agreement and the rights and duties of the parties hereto. In such event, the Servicer shall
be entitled to reimbursement from the Purchaser of the reasonable legal expenses and costs of such
action.

          Section 9.4 Limitation on Resignation and Assignment by the Servicer.

          The Purchaser has entered into this Agreement with the Servicer in reliance upon the
representations as to the adequacy of its servicing facilities, plant, personnel, records and
procedures, its integrity, reputation and financial standing, and the continuance thereof. The
Servicer shall not resign from the obligations and duties hereby imposed on it as to any Eligible
Loan except by consent of the Required Banks and the Required Noteholders, the Swap Counterparties,
the Collateral Agent and the holders of a majority in principal amount of all Series of
Certificates or upon the determination that its duties hereunder are no longer permissible under
applicable law and such incapacity cannot reasonably be cured by the Servicer. Notice of any such
determination permitting the resignation of the Servicer shall be delivered to each Rating Agency
and any such determination shall evidenced by an Opinion of Counsel to such effect delivered to the
Purchaser which Opinion of Counsel shall be in form and substance acceptable to the Purchaser. No
such resignation shall become effective until a successor shall have assumed the Servicer’s
responsibilities and obligations hereunder in the manner provided in Section 12.1 hereof,
subject to Rating Agency Confirmation.

          Section 9.5 Limitation on Assignment of Right. Except pursuant to a resignation
approved pursuant to Section 9.4 hereof, the Servicer shall not assign, sell or otherwise
transfer its right to receive any payments (including the Servicing Fee) hereunder.

66

 

ARTICLE X

DEFAULT

          Section 10.1 Servicer Events of Default.

          Each of the following shall constitute a “Servicer Event of Default” on the part of
the Servicer:

          (a) any failure by the Servicer to observe or perform in any material respect any of the
terms, covenants or agreements on the part of the Servicer set forth in this Agreement, any
Transfer Supplement or in the Custodial Agreement (other than those set forth in clauses
(h), (i) and (m) below) which continues unremedied for a period of 45 days
after the date on which the Purchaser, the Custodian or the Agent has actual knowledge of such
failure or written notice of such failure, requiring the failure to be remedied, shall have been
given to the Servicer, the Agent, the Collateral Agent, the Indenture Trustee, the Owner Trustee
and the Swap Counterparties by the Purchaser or by the Custodian or the Agent;

          (b) any representation, warranty, statement or certificate made by the Servicer shall prove to
have been incorrect in any material respect at the time when made, and which continues to be
incorrect in any material respect for 45 days after actual knowledge or written notice;

          (c) any failure by the Servicer to maintain any required licenses to do business in any
jurisdiction where the Mortgaged Property is located;

          (d) jurisdiction for the appointment of a conservator or receiver or liquidator in any
insolvency, readjustment of debt, including bankruptcy, marshalling of assets and liabilities or
similar proceedings, or for the winding-up or liquidation of its affairs, shall have been entered
against the Servicer and a decree or order shall have remained in force undischarged or unstayed
for a period of 45 days;

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

          (f) the Servicer shall admit in writing its inability to pay its debts generally as they
become due, file a petition to take advantage of any applicable insolvency, bankruptcy or
reorganiza-tion statute, make an assignment for the benefit of its creditors, voluntarily suspend
payment of its obligations or cease its normal business operations for six Business Days;

67

 

          (g) the Servicer or PHH Corporation enters into a consent agreement or otherwise agrees in
writing with any federal or state regulatory agency or authority to restrict its activities, if the
default of such agreement by the Servicer or PHH Corporation entitles such applicable federal or
state agency to place the Servicer in receivership or conservatorship;

          (h) failure of the Servicer to cause to be delivered to the Collateral Agent on the date of
sale or Securitization of an Eligible Loan the proceeds of any such sale or Securitization;

          (i) failure of the Servicer to cause to be delivered to the Collateral Agent for deposit into
the Collection Account not later than two Business Days after receipt by the Servicer of any
amounts required by Section 4.5 hereof to be deposited by the Servicer in the Collection
Account;

          (j) the Seller, the Additional Seller, Servicer or PHH Corporation shall default on any of its
debt obligations in excess of $50,000,000 in the aggregate;

          (k) failure of the Servicer to be an Approved Seller/Servicer by at least two of GNMA, FNMA
and FHLMC;

          (l) the ratings of PHH Corporation or its successors and assigns are withdrawn or are
downgraded below “BB+/Bal” by the Rating Agencies; or

          (m) the failure on the part of the Servicer to make any payment or deposit (not described in
clause (h) or (i) above) required under this Agreement on or before five Business
Days after the date such payment or deposit is required to be made.

          In each and every such case, so long as a Servicer Event of Default shall not have been
remedied, in addition to whatsoever rights the Purchaser may have at law or in equity to damages,
including injunctive relief and specific performance, the Purchaser, by notice in writing to the
Servicer, the Agent, the Collateral Agent, the Indenture Trustee, the Owner Trustee, the Swap
Counterparties and the Rating Agencies may terminate all of the rights and obligations of the
Servicer under this Agreement and in and to the Eligible Loans and the proceeds thereof other than
unpaid Servicing Fees. The Purchaser will only remove the Servicer as described above upon the
affirmative vote of the holders of a majority in principal amount of all Series of Certificates,
and the consent of the Swap Counterparties, the Collateral Agent and the Required Banks and
Required Noteholders.

          Upon receipt by the Servicer of such written notice, all authority and power of the Servicer
under this Agreement, whether with respect to the Eligible Loans or otherwise, shall pass to and be
vested in the successor appointed pursuant to Section 12.l hereof. Upon written request
from the Purchaser, the Servicer shall prepare, execute and deliver to the successor entity
designated by the Purchaser any and all documents and other instruments, place in such successor’s
possession all

68

 

Mortgage Loan Files, and do or cause to be done all other acts or things necessary or appropriate
to effect the purposes of such notice of termination, including but not limited to the transfer and
endorsement or assignment of the Eligible Loans and related documents, at the Servicer’s sole
expense. The Servicer shall cooperate with such successor in effecting the termination of the
Servicer’s responsibilities and rights hereunder, including without limitation, the transfer to
such successor for administration by it of all cash amounts which shall at the time be credited by
the Servicer to any Collection Account or Escrow Account or thereafter received with respect to the
Eligible Loans.

          Section 10.2 Waiver of Defaults.

          With the consent of Required Banks and Required Noteholders and the Swap Counterparties, the
Purchaser and the holders of a majority in principal amount of all Series of Certificates, by
written notice to the Collateral Agent, may waive any default by the Servicer in the performance of
its obligations hereunder and its consequences. Upon any waiver of a past default, such default
shall cease to exist, and any event of default arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend to any subsequent or
other default or impair any right consequent thereon except to the extent expressly so waived.
Notice of any such waiver shall be given to each Rating Agency.

ARTICLE XI

TERMINATION

          Section 11.1 Termination of Agreement.

          This Agreement shall terminate upon the final payment or other liquidation (or any advance
with respect thereto) of the last Eligible Loan sold hereunder.

          Section 11.2 Termination of Purchase Obligations.

          Upon the occurrence and continuance of any of the following conditions, the Purchaser shall
have the right subject to the consent of the holders of a majority in principal amount of the
Certificates and the Required Banks or Required Noteholders to notify the Seller and the Additional
Seller that the commitment of the Purchaser to purchase Eligible Loans from the Seller or the
Additional Seller, as applicable, shall terminate (each, a “Termination Event”):

          (a) any representation, warranty, statement, or certification made by PHH Corporation in its
capacity as Guarantor of the Servicer shall prove to have been false or misleading

69

 

in any material respect as of the time when made, and which continues to be incorrect in any
material respect for a period of forty-five (45) days after written notice;

          (b) the failure on the part of the Seller or the Servicer (on behalf of the Additional
Seller), as applicable, to observe or perform in any material respect any of the terms, covenants
or agreements of the Seller or the Servicer (on behalf of the Additional Seller), as applicable,
contained in the Program Documents which failure continues unremedied for a period of forty-five
(45) days after written notice;

          (c) the appointment of a conservator or receiver or liquidator in any insolvency, readjustment
of debt, including bankruptcy, marshalling of assets and liabilities or similar proceedings, or for
the winding-up or liquidation of its affairs, shall have been entered against the Seller or PHH
Corporation and such decree or order shall have remained in force undischarged or unstayed for a
period of forty-five (45) days;

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

          (e) the Seller or PHH Corporation shall admit in writing its inability to pay its debts
generally as they become due, file a petition to take advantage of any applicable insolvency,
bankruptcy or reorganization statute, make an assignment for the benefit of its creditors,
voluntarily suspend payment of its obligations or cease its normal business operations for six (6)
Business Days;

          (f) noncompliance with the Portfolio Aging Limitations;

          (g) the occurrence of an Interest Rate Swap Termination Event under the Interest Rate Swaps
has occurred or is continuing after giving effect to any applicable grace period;

          (h) a Liquidity Agreement Event of Default has occurred and is continuing after giving effect
to any applicable grace period;

          (i) an Indenture Event of Default has occurred and is continuing after giving effect to any
applicable grace period;

          (j) the Servicer or PHH Corporation enters into a consent agreement or otherwise agrees in
writing with any Federal or state regulatory agency or authority to restrict its activities, if a
default under such agreement by the Servicer or PHH Corporation entitles such applicable Federal or
state agency to place the Servicer in receivership or conservatorship;

70

 

          (k) failure of the Servicer to cause to be delivered to the Collateral Agent for deposit into
the Collateral Account on the date of sale or Securitization of any Mortgage Loans the proceeds of
any such sale or Securitization;

          (l) failure of the Servicer to cause to be delivered to the Collateral Agent for deposit into
the Collection Account not later than two (2) Business Days after receipt by the Servicer of any
amounts required to be deposited by the Servicer in the Collection Account;

          (m) any Servicer Event of Default has occurred and is continuing after giving effect to any
applicable grace period;

          (n) funds on deposit in the Reserve Fund shall be less than 0.60% of the Program Size for 120
days or more;

          (o) at any time either (i) the rolling three month average of the Outstanding Purchase Price
of all Delinquent Loans shall equal more than five percent (5%) of the rolling three month average
of the Outstanding Purchase Price of all Mortgage Loans owned by the Trust at such time or (ii) the
Outstanding Purchase Price of all Delinquent Loans shall equal more than seven percent (7%) of the
Outstanding Purchase Price of all Mortgage Loans owned by the Trust at such time;

          (p) the failure of the Trust to maintain an agreement (in substantially the form of
Exhibit B attached hereto) with a Rated Bidder to the effect that such Rated Bidder agrees
to submit a binding bid for all non-Delinquent and non-Defaulted Eligible Loans in a Termination
Event Auction which failure continues for a period of thirty (30) or more days;

          (q) the Remarketing Agent has failed to remarket any Series of Certificates for a period of
five (5) successive years; or

          (r) one or more Swap Counterparties fail to agree to any annual extension of any Interest Rate
Swap, resulting in the expiration of one or more Interest Rate Swaps prior to the maturity of all
the Trust’s outstanding obligations, and a replacement Swap Counterparty or Swap Counterparties
shall not have been obtained in a notional amount at least equal to the lesser of (x) the notional
amount of the Interest Rate Swap or Interest Rate Swaps represented by the non-extending Swap
Counterparty or Swap Counterparties, or (y) if the Program Size has been reduced, an amount equal
to (i) the then-current Program Size, less (ii) the notional amount of all effective (as of such
scheduled termination date) Interest Rate Swaps, at least one year prior to the scheduled
termination date.

71

 

          In the event that a Termination Event occurs and is continuing, the Purchaser will no longer
be permitted to purchase additional Eligible Loans and principal payments on Eligible Loans,
principal proceeds of sales and Securitizations of Eligible Loans and amounts received by the Swap
Counterparties will be used to pay the Obligations of the Purchaser, subject to the priorities set
forth in Section 2.01 of the Security Agreement.

          Notwithstanding anything in this Agreement to the contrary, in the event a Termination Event
described in paragraph (n), (o) or (p) occurs and is continuing, the
Collateral Agent shall use its best efforts to sell or Securitize all non-Delinquent and
non-Defaulted Eligible Loans within sixty (60) days of the date on which the Termination Event
occurs. In the event that all non-Delinquent and non-Defaulted Eligible Loans have not been so
sold or Securitized, on such sixtieth (60th) day the Collateral Agent shall hold an auction (a
“Termination Event Auction”) of the remaining non-Delinquent and non-Defaulted Eligible
Loans Eligible Loans for settlement not later than the eighty-fifth (85th) day following
the date on which such Termination Event occurred. At least one of the bidders in such auction
shall have a rating of “P-l” from Moody’s (a “Rated Bidder”).

          Section 11.3 Termination of Servicing With Respect to Any Eligible Loan

          This Agreement shall terminate with respect to any Eligible Loan upon the occurrence of the
following: (i) the receipt into the Collateral Account of the proceeds of any sale or
Securitization of such Eligible Loan or the Repurchase Price or Principal Prepayment in full of
such Eligible Loan; or (ii) the effectiveness of the termination of the Company pursuant to
Section 12.l hereof. No termination shall become effective until a successor shall have
assumed the Servicer’s responsibilities and obligations hereunder in the manner provided in
Section 12.l hereof.

          Upon written request from the Purchaser, the Servicer shall prepare, execute and deliver to
the successor entity designated by the Purchaser any and all documents and other instruments, place
in such successor’s possession all Mortgage Loan Files, and do or cause to be done all other acts
or things necessary or appropriate to effect the purposes of such notice of termination, including
but not limited to the transfer and endorsement or assignment of the Eligible Loans and related
documents, at the Servicer’s sole expense. The Servicer shall cooperate with such successor in
effecting the termination of the Servicer’s responsibilities and rights hereunder, including
without limitation, the transfer to such successor for administration by it of all cash amounts
which shall at the time be credited by the Servicer to any Collection Account or Escrow Account or
thereafter received with respect to the Eligible Loans.

72

 

ARTICLE XII

MISCELLANEOUS PROVISIONS

          Section 12.1 Successor to Servicer.

          Prior to termination of the Servicer’s responsibilities and duties under this Agreement
pursuant to Sections 9.4 or 10.l hereof, the Purchaser shall appoint a successor
which shall succeed to all rights and assume all of the responsibilities, duties and liabilities of
the Servicer under this Agreement prior to the termination of the Servicer’s responsibilities,
duties and liabilities under this Agreement. In connection with such appointment and assumption,
the Purchaser may make such arrangements for the compensation of such successor out of payments on
Eligible Loans as it and such successor shall agree. In the event that the Servicer’s duties,
responsibilities and liabilities under this Agreement should be terminated pursuant to the
aforementioned sections, the Servicer shall discharge such duties, responsibilities and liabilities
during the period from the date it acquires knowledge of such termination until the effective date
thereof with the degree of diligence and prudence which it is obligated to exercise under this
Agreement and shall take no action whatsoever that might impair or prejudice the rights or
financial condition of its successor. The resignation or removal of the Servicer pursuant to the
aforementioned Sections shall not become effective until (i) a successor shall be appointed
pursuant to this Section 12.l and (ii) notice thereof shall have been given to the Rating
Agencies and the Purchaser shall have received Rating Agency Confirmation, and such resignation or
removal shall in no event relieve the Servicer of the representations and warranties made pursuant
to Sections 3.1(a), 3.1(b) and 3.2 hereof and the remedies available to the
Purchaser under Section 3.3 hereof, it being understood and agreed that the provisions of
such Sections 3.1(a), 3.1(b), 3.2 and 3.3 shall be applicable to
the Servicer notwithstanding any such sale, assignment, resignation or termination of the Servicer,
or the termination of this Agreement.

          Any successor appointed as provided herein shall execute, acknowledge and deliver to the
Servicer and the Purchaser an instrument accepting such appointment, wherein the successor shall
make the representations and warranties set forth in Sections 3.1(a), 3.1(b) and
3.2 hereof, whereupon such successor shall become fully vested with all the rights, powers,
duties, responsibilities, obligations and liabilities of the Servicer, with like effect as if
originally named as a party to this Agreement. Any termination or resignation of the Servicer or
termination of this Agreement pursuant to Sections 9.4, or 10.l hereof shall not
affect any claims that the Purchaser may have against the Servicer arising out of the Servicer’s
actions or failure to act prior to any such termination or resignation.

          The Servicer shall deliver promptly to the successor Servicer the funds in any Collection
Account and Escrow Account and all Mortgage Loan Files and related documents and statements held by
it hereunder and the Servicer shall account for all funds and shall execute and

73

 

deliver such instruments and do such other things as may reasonably be required to more fully and
definitively vest in the successor all such rights, powers, duties, responsibilities, obligations
and liabilities of the Servicer.

          Section 12.2 Amendment.

          This Agreement may only be amended with the written consent of the Purchaser, the Seller, the
Controlling Majority with the consent of the Required Banks, the Swap Counterparties, the holders
of a majority in principal amount of all Series of Certificates and the Servicer, and written
notice of such amendment to each Rating Agency. Any material amendment shall be subject to Rating
Agency Confirmation. The costs and expenses associated with any such amendment shall be borne by
the party requesting the amendment.

          Section 12.3 Governing Law.

          THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCOR-DANCE WITH
SUCH LAWS.

          Section 12.4 Duration of Agreement.

          This Agreement shall continue in existence and effect until terminated as herein provided.

          Section 12.5 Notices.

          All demands, notices and communications hereunder shall be in writing and shall be deemed to
have been duly given if personally delivered at or mailed by registered mail, postage prepaid,
addressed as follows:

	 	(i)	 	if to Cendant Mortgage Corporation:

Cendant Mortgage Services

3000 Leaden-Hall Road

Mt. Laurel, NJ 08054

Attn: Joseph Suter

Telephone: (856) 414-4170

Telecopy: (856) 439-3742

74

 

or such other address as may hereafter be furnished to the Purchaser in writing;

	 	(ii)	 	if to the Purchaser:

Bishop’s Gate Residential Mortgage Trust

c/o Cendant Mortgage Corporation

3000 Leaden-Hall Road

Mt. Laurel, NJ 08054

Attn: Joseph Suter

Telephone: (856) 414-4170

Telecopy: (856) 439-3742

          Section 12.6
Severability of Provisions.

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

          Section 12.7 Relationship of Parties.

          Nothing herein contained shall be deemed or construed to create a partnership or joint venture
between the parties hereto and the services of the Servicer shall be rendered as an independent
contractor and not as agent for the Purchaser.

          Section 12.8 Execution; Successors and Assigns.

          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 agreement. This Agreement shall inure to the benefit
of and be binding upon the Servicer and the Purchaser and their respective successors and assigns;
provided, however, that the rights of the Purchaser to an indemnity from the Servicer pursuant to
Section 3.3 hereof are not assignable and shall inure only to the benefit of the Purchaser
and to no other Person.

75

 

          Section 12.9 Recordation of Assignments of Mortgage.

          To the extent permitted by applicable law, each of the Assignments of Mortgage is subject to
recordation in all appropriate public offices for real property records in all the counties or
other comparable jurisdictions in which any or all of the Mortgaged Properties are situated, and in
any other appropriate public recording office or elsewhere, such recordation to be effected at the
Purchaser’s expense in the event recordation is either necessary under applicable law or requested
by the Purchaser at its sole option.

          Section 12.10 Assignment by Purchaser.

          The Purchaser shall have the right, to assign its interest under this Agreement to the
Collateral Agent for the benefit of the Secured Parties.

          Section 12.11 Non-Petition Agreement.

          The Company and the Additional Seller agree not to cause the filing of a petition in
bankruptcy against the Purchaser for failure to pay amounts due under this Agreement until the
payment in full of the Obligations and not before one year and one day (or if longer, the
applicable preference period then in effect) have elapsed since such payment.

          Section 12.12 Waiver of Offset.

          The Servicer agrees to deliver to the Purchaser all amounts required by this Agreement to be
delivered by the Servicer to the Purchaser free and clear of any offset, counterclaim or other
deduction on account of, or in respect of, any Purchaser to the Servicer hereunder.

          Section 12.13 Limited Recourse.

          The Servicer agrees that the obligations of the Purchaser to the Servicer under this Agreement
are limited recourse obligations of the Purchaser payable solely from the assets of the Purchaser
available for such purposes under the Security Agreement and that, upon application of all assets
of the Purchaser available under the Security Agreement for, such purposes, the Servicer shall have
no recourse to the Purchaser for any obligations of the Purchaser to the Servicer to the extent
such application does not provide for full satisfaction and payment of such obligation.

76

 

          Section 12.14 Limitation of Liability.

          This document or instrument has been executed on behalf of a Delaware business trust by First
Union Trust Company, National Association solely in its capacity as trustee of such trust, and not
in its individual capacity. In no case shall First Union Trust Company, National Association (or
any entity acting as successor or additional trustee) be personally liable for or on account of any
of the statements, representations, warranties, covenants or obligations of such trust hereunder,
any right to assert any such liabilities against First Union Trust Company, National Association
(or any entity acting as successor or additional trustee) being hereby waived by the other parties
hereto; provided, however, that such waiver shall not affect the liability of First Union Trust
Company, National Association (or any entity acting as successor or additional trustee) to any
Person under any other agreement to which it is a party and to the extent expressly agreed to in
its individual capacity thereunder.

          Section 12.15 Binding Effect on Voting Group.

          If any provision hereof provides that either the Required Banks or the Required Noteholders
(in each case, a “Voting Group”), but not both, may consent, vote, direct or take other
action, the first of either Voting Group to so consent, vote, direct or take action shall bind the
other Voting Group with respect thereto.

ARTICLE XIII

PHH CORPORATION GUARANTEE

          Section 13.1 Guarantee of Servicer’s Performance and Payment Obligations. For value
received, and in consideration of the financial accommodation accorded to the Company by the
Purchaser under this Purchase Agreement, PHH Corporation (the “Guarantor”) hereby fully,
unconditionally, and irrevocably guarantees to the Purchaser, the holders of all Series of
Certificates, the holders of all Series of Notes, the holders of the Commercial Paper, the
Indenture Trustee and the Liquidity Banks the due performance of, and punctual payment of all
amounts payable by, the Company, in its capacity as Servicer under this Agreement when and as such
obligations hereunder shall become due and, in the case of any payments, payable. The Guarantor
will ensure the performance and payment of every act, duty, obligation, agreement and
responsibility of the Servicer set forth herein.

77

 

          In case of the inability of the Servicer to punctually perform any such act, duty, obligation,
responsibility or agreement or to pay punctually any such amounts, the Guarantor hereby agrees,
upon written demand by the Purchaser, to, as applicable, (i) perform any such act, duty,
obligation, responsibility or agreement and (ii) pay or cause to be paid any such amount,
punctually when and as the same shall become due and, in the case of any payment, payable
(exclusive of any grace period).

	 	i.	 	Guarantor hereby agrees that its obligations under this
Section 13.l constitute a guarantee of performance and payment when
due and not of collection.

	 
	 	ii.	 	Guarantor hereby agrees that its obligations under this
Section 13.l shall be unconditional, irrespective of the validity,
regularity or enforceability of this Purchase Agreement against the Servicer,
the absence of any action to enforce the Servicer’s obligations under this
Purchase Agreement, any waiver or consent by the Purchaser, the holders of all
Series of Certificates, the holders of all Series of Notes, the Indenture
Trustee or the Liquidity Banks with respect to any provisions thereof, the
entry by the Servicer and the Purchaser into additional transactions under
this Purchase Agreement or any other circum-stance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor (other
than the defenses of statute of limitations or payment, which are not waived);
provided, however, that the Guarantor shall be entitled to exercise any right
that the Servicer could have exercised under this Purchase Agreement to cure
any default in respect of its obligations under this Purchase Agreement or to
set-off, counterclaim or withhold payment in respect of any event of default
or potential event of default in respect of the Purchaser or any Affiliate,
but only to the extent such right is provided to the Servicer under this
Purchase Agreement. The Guarantor acknowledges that the Servicer and the
Purchaser may from time to time enter into one or more transactions pursuant
to this Purchase Agreement and agrees that the obliga-tions of the Guarantor
under this Section 13.l will upon the execution of any such
transaction by the Servicer and the Purchaser extend to all such
transact-tions without the taking of further action by the Guarantor.

	 
	 	iii.	 	The Guarantor hereby waives (i) promptness, diligence,
presentment, demand of payment, protest, order and, except as set forth in
paragraph (a) hereof, notice of any kind in connection with this
Purchase Agreement and this Section 13.1, or (ii) any requirement that
the Purchaser, the holders of all Series of Certificates, the holders of all
Series of Notes, the Indenture Trustee or the Liquidity Banks exhaust any
right to take any action against the Servicer or any

78

 

	 	 	 	other person prior to or contemporaneously with proceeding to exercise any
right against the Guarantor under this Section 13.l.

ARTICLE XIV

ASSIGNMENT

          Section 14.1 Assignment. Notwithstanding anything to the contrary contained in this
Purchase Agreement, the Purchaser hereby assigns, conveys, transfers, delivers and sets over unto
the Collateral Agent for the benefit of the Secured Parties, all of its right, title and interest
in, to and under, whether now owned or existing, or hereafter acquired, this Purchase Agreement.
The Purchaser acknowledges the security interest in the Eligible Loans of the Collateral Agent as
representative secured party for the Purchaser and the Persons or entities to whom Purchaser owes
the obligations secured by such Eligible Loans.

          The Purchaser, the Seller and the Additional Seller shall each treat the Collateral Agent as
the Purchaser under this Purchase Agreement and each consent to such assignment and acknowledge
that the Collateral Agent shall enjoy the Purchaser’s rights under this Agreement in accordance
with the provisions of this Section. Without limiting the generality of the foregoing, the
Purchaser, the Servicer (on behalf of the Additional Seller) and the Seller shall each report to
and correspond and communicate with the Collateral Agent and in all other regards treat the
Collateral Agent as the Purchaser hereunder with respect to the Eligible Loans. The Collateral
Agent shall have all rights of the Purchaser to enforce the covenants and conditions set forth in
this Purchase Agreement with respect to the Eligible Loans, and the Purchaser, the Servicer (on
behalf of the Additional Seller) and the Seller, respectively, shall each follow the instructions
of the Collateral Agent under this Purchase Agreement. The Collateral Agent shall have the right
to give any waivers or consents required or allowed under this Purchase Agreement, and such waivers
and consents shall be binding upon the Purchaser and any party for whom the Collateral Agent acts
as representative secured party as if the Purchaser or such party had given the same. All amounts
due the Purchaser under this Purchase Agreement shall be remitted to the Collateral Agent in
accordance with the Collateral Agent’s instructions and in accordance with this Purchase Agreement.

79

 

ARTICLE XV

COMMITMENT FEE

          Section 15.1 Commitment Fee. In consideration of the agreement of the Purchaser to
purchase Eligible Loans from the Seller from time to time, the Seller has paid to the Purchaser a
fee (the “Commitment Fee”) of $[3,801,500].

ARTICLE XVI

ADDITIONAL SELLER

          Section 16.1 Criteria for Additional Seller. Any Affiliate of the Company may be
added as an additional seller (each, an “Additional Seller”), provided that each Additional
Seller meets the following criteria:

	 	i.	 	The proposed Additional Seller provides an officer’s
certificate to the Trust substantially in the form attached hereto as
Exhibit E, with the following: (a) evidence of its form and state of
formation, (b) a copy of its by-laws or limited liability company agreement,
as applicable, (c) a copy of its resolutions authorizing the proposed
Additional Seller to enter into the transactions contemplated pursuant to this
Purchase Agreement, (d) a certificate of incumbency and specimen signature of
an officer, (e) evidence that it has all required licences and government
approvals, and (f) a good standing certificate;

	 
	 	ii.	 	The Servicer obtains on behalf of the proposed Additional
Seller, confirmation from the Rating Agencies that the addition of a
particular Affiliate of the Company as an Additional Seller will not adversely
affect the current ratings of the outstanding Series of Notes, Series of
Certificates and Series of Commercial Paper and Liquidity Loans;

	 
	 	iii.	 	Upon the sale of Eligible Loans by the proposed Additional
Seller to the Purchaser, the Additional Seller simultaneously sells its
servicing rights with respect to such Eligible Loans to the Company, as
Servicer, pursuant to a separate agreement substantially in the form attached
hereto as Exhibit F;

	 
	 	iv.	 	Each Eligible Loan that the proposed Additional Seller
intends to sell to the Trust is underwritten in accordance with: (a) the
Seller’s underwriting standards

80

 

	 	 	 	in effect on the date of origination of such Eligible Loan, and (b)
the Guide-lines;

	 
	 	v.	 	Each proposed Additional Seller executes an agreement,
substantially in the form attached hereto as Exhibit G, thereby
expressly assuming all of the obligations of an Additional Seller contained in
this Purchase Agreement and expressly making and assuming all of the
representations, warranties and covenants of an Additional Seller contained in
this Purchase Agreement;

	 
	 	vi.	 	The proposed Additional Seller provides the Trust with an
opinion to the effect that: (a) the assets and liabilities of the Trust would
not be substantively consolidated with those of the proposed Additional
Seller, the Seller or PHH Corporation if the proposed Additional Seller’s, the
Seller’s or PHH Corpora-tion’s operations were to become the subject of a case
under the Bankruptcy Code, and (b) if the proposed Additional Seller, the
Seller or PHH Corporation were to become the subject of a case under the
Bankruptcy Code, the Eligible Loans sold by the proposed Additional Seller to
the Trust pursuant to this Purchase Agreement would not be property of the
proposed Additional Seller’s, the Seller’s or PHH Corporation’s estate in such
bankruptcy proceeding, and such opinion shall be substantially in the form
attached hereto as Exhibit H;

	 
	 	vii.	 	The proposed Additional Seller provides an officer’s
certificate to the Trust stating that it is thereby making all of the
representations, warranties and covenants contained in Section 3.1(b)
of this Purchase Agreement, and that all of the conditions of this Article
XVI have been satisfied; and

	 
	 	viii.	 	The Servicer provides an officer’s certificate to the Trust
stating that it is thereby making all of the representations, warranties and
covenants on behalf of the Additional Seller contained in Sections 3.2,
3.3 and 3.5 of this Purchase Agreement, and that all of the
conditions of this Article XVI have been satisfied.

81

 

          IN WITNESS WHEREOF, the Company, the Purchaser and the Guarantor have caused their names to be
signed hereto by their respective officers thereunto duly authorized as of the day and year first
above written.

	 	 	 	 	 	 	 	 	 	 
	 	 	CENDANT MORTGAGE CORPORATION,
	 	 	as Seller and Servicer
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 	 	 
	 

	 	 	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	BISHOP’S GATE RESIDENTIAL MORTGAGE TRUST,
	 	 	as Purchaser
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	CENDANT MORTGAGE CORPORATION,
	 	 	 	 	as Administrator
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	Name:	 	 
	 

	 	 	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	PHH CORPORATION,
	 	 	solely in its capacity of Guarantor of the Servicer’s obligations
pursuant to Article XIII of this Agreement.
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 	 	 
	 

	 	 	 	Title:	 	 	 	 

 

 

EXHIBIT A-1

TRANSFER SUPPLEMENT

[          ], 2000

Bishop’s Gate Residential Mortgage Trust

Purchase Terms Letter

Ladies and Gentlemen:

          Cendant Mortgage Corporation (the “Company”) and Bishop’s Gate Residential Mortgage
Trust (the “Purchaser”) herewith confirm the terms and provisions of the Second Amended and
Restated Mortgage Loan Purchase and Servicing Agreement (the “Purchase Agreement”), entered
into on [          ], 2000, pursuant to which the Company and the Purchaser agreed upon the terms under
which the Company would from time to time sell mortgage loans to the Purchaser. In consideration
of the promises and the mutual agreements herein and therein set forth, the Company and the
Purchaser hereby agree to the terms and provisions of the sale of the Mortgage Loans described in
the Mortgage Loan Schedule attached hereto as Exhibit I, as set forth below and as
described in more detail in the Purchase Agreement. Upon execution of this Transfer Supplement by
the Company and the Purchaser and receipt of the Purchase Price therefor, the Company hereby sells,
assigns, transfers, sets over and conveys to the Purchaser all right, title and interest of the
Company in, to and under each mortgage loan identified on the attached Transfer Schedule
(collectively, the “Mortgage Loans”). It is intended that the transfer, assignment and
conveyance herein contemplated constitute a sale of the Mortgage Loans, conveying good title
thereto free and clear of any liens, by the Company to the Purchaser and that the Mortgage Loans
not be part of the Company’s estate in the event of insolvency. In the event that the Mortgage
Loans are held to be property of the Company or if for any other reason this Transfer Supplement is
held or deemed to create a security interest in the Mortgage Loans, the parties intend that the
Company shall be deemed to have granted, and does hereby grant, to the Purchaser a first-priority
perfected security interest in the Mortgage Loans and all Collateral related thereto now existing
or hereafter arising for the purpose of securing the rights of the Purchaser under the Purchase
Agreement, and that the Purchase Agreement and this Transfer Supplement shall each constitute a
security agreement under applicable law.

	 	i.	 	Closing Date: • The Purchase Price shall be paid by the
Purchaser to the Company in immediately available funds on such Closing Date.

A-1-1

 

	 	ii.	 	Purchase Price: The purchase price for the Mortgage Loan(s) shall be
$ •.

	 
	 	iii.	 	The Mortgage Loans: The Mortgage Loans have the characteristics set
forth on the Mortgage Loan Schedule, set forth as Exhibit I attached hereto.

	 
	 	iv.	 	Representations and Warranties: Each representation and warranty of
the Company set forth in Sections 3.l and 3.2 of the Purchase Agreement
will be true and correct on the Closing Date as they relate to the Mortgage Loans.

	 
	 	v.	 	Terms: All references herein to the Mortgage Loans shall be deemed to
refer only to the Mortgage Loans described in the Mortgage Loan Schedule attached
hereto. Capitalized terms used herein but not otherwise defined herein shall have the
meanings ascribed to such terms in the Purchase Agreement.

A-1-2

 

          Kindly acknowledge your agreement and consent to the terms of this letter by signing and
returning to us the enclosed duplicate copy hereof.

	 	 	 	 	 
	 	Very truly yours, 

CENDANT MORTGAGE CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

Date:                                         

	 	 	 	 	 
	
ACCEPTED AND AGREED: 

BISHOP’S GATE RESIDENTIAL MORTGAGE TRUST

By:   CENDANT MORTGAGE CORPORATION,

         as Administrator

 	 	 
	By:  	 	 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 

A-1-3

 

	 	 	 	 	 

Exhibit I to Transfer Supplement

Mortgage Loan Schedule

(1) identifying number for the Mortgage Loan:

(2) mortgagor’s name:

(3) street address of the mortgage property including the state code:

(4) mortgage interest rate:

(5) stated maturity date:

(6) amount of monthly payment:

(7) original principal balance:

(8) purchase price:

(9) closing date;

(10) FHA/VA Case Number, if applicable;

(11) Note date;

(12) first Due Date; and

(13) MERS MIN#.

I-1

 

EXHIBIT A-2

TRANSFER SUPPLEMENT

[          ], 2000

Bishop’s Gate Residential Mortgage Trust

Purchase Terms Letter

Ladies and Gentlemen:

     Cendant Mortgage Corporation, as Servicer (on behalf of [          ] (the “Company”)) and
Bishop’s Gate Residential Mortgage Trust (the “Purchaser”) herewith confirm the terms and
provisions of the Additional Seller Agreement (the “Agreement”), entered into on [          ],
pursuant to which the Purchaser, the Company and the Servicer, in accordance with the Second
Amended and Restated Mortgage Loan Purchase and Servicing Agreement, dated as of [          ] (the
“Mortgage Loan Purchase Agreement”), among the Purchaser, Cendant Mortgage Corporation, as
Seller and Servicer, and PHH Corporation, as Guarantor, agreed upon the terms under which the
Company would from time to time sell mortgage loans to the Purchaser. In consideration of the
promises and the mutual agreements herein and therein set forth, the Servicer (on behalf of the
Company) and the Purchaser hereby agree to the terms and provisions of the sale of the Mortgage
Loans described in the Mortgage Loan Schedule attached hereto as Exhibit I, as set forth
below and as described in more detail in the Mortgage Loan Purchase Agreement. Upon execution of
this Transfer Supplement by the Servicer (on behalf of the Company) and the Purchaser and receipt
of the Purchase Price therefor, the Company hereby sells, assigns, transfers, sets over and conveys
to the Purchaser all right, title and interest of the Company in, to and under each mortgage loan
identified on the attached Transfer Schedule (collectively, the “Mortgage Loans”). It is
intended that the transfer, assignment and conveyance herein contemplated constitute a sale of the
Mortgage Loans, conveying good title thereto free and clear of any liens, by the Company to the
Purchaser and that the Mortgage Loans not be part of the Company’s estate in the event of
insolvency. In the event that the Mortgage Loans are held to be property of the Company or if for
any other reason this Transfer Supplement is held or deemed to create a security interest in the
Mortgage Loans, the parties intend that the Company shall be deemed to have granted, and does
hereby grant, to the Purchaser a first-priority perfected security interest in the Mortgage Loans
and all Collateral related thereto now existing or hereafter arising for the purpose of securing
the rights of the Purchaser under the

A-2-1

 

Mortgage Loan Purchase Agreement, and that the Mortgage Loan Purchase Agreement and this Transfer Supplement shall each constitute a security
agreement under applicable law.

	 	i.	 	Closing Date: • The Purchase Price shall be paid by the Purchaser to
the Company in immediately available funds on such Closing Date.

	 
	 	ii.	 	Purchase Price: The purchase price for the Mortgage Loan(s) shall be $ •.

	 
	 	iii.	 	The Mortgage Loans: The Mortgage Loans have the characteristics set
forth on the Mortgage Loan Schedule, set forth as Exhibit I attached hereto.

	 
	 	iv.	 	Representations and Warranties: Each representation and warranty of
the Company set forth in Sections 3.l and 3.2 of the Mortgage Loan
Purchase Agreement will be true and correct on the Closing Date as they relate to the
Mortgage Loans.

	 
	 	v.	 	Terms: All references herein to the Mortgage Loans shall be deemed to
refer only to the Mortgage Loans described in the Mortgage Loan Schedule attached
hereto. Capitalized terms used herein but not otherwise defined herein shall have the
meanings ascribed to such terms in the Mortgage Loan Purchase Agreement.

A-2-2

 

     Kindly acknowledge your agreement and consent to the terms of this letter by signing and
returning to us the enclosed duplicate copy hereof.

	 	 	 	 	 
	 	Very truly yours, 

[          ],

as Additional Seller

By:  CENDANT MORTGAGE CORPORATION,

        as Servicer on behalf of the Additional Seller

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

Date:                                         

	 	 	 	 	 
	ACCEPTED AND AGREED:

BISHOP’S GATE RESIDENTIAL MORTGAGE TRUST

By:  CENDANT MORTGAGE CORPORATION,

        as Administrator

 	 	 
	By:  	 	 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 

A-2-3

 

	 	 	 	 	 

Exhibit I to Transfer Supplement

Mortgage Loan Schedule

(1) identifying number for the Mortgage Loan:

(2) mortgagor’s name:

(3) street address of the mortgage property including the state code:

(4) mortgage interest rate:

(5) stated maturity date:

(6) amount of monthly payment:

(7) original principal balance:

(8) purchase price:

(9) closing date;

(10) FHA/VA Case Number, if applicable;

(11) Note date;

(12) first Due Date; and

(13) MERS MIN#.

I-1

 

EXHIBIT B

[FORM OF RATED BIDDER LETTER]

[ADDRESS]

[Date]

Bishop’s Gate Residential Mortgage Trust

c/o Cendant Mortgage Corporation

3000 Leaden Hall

Mt. Laurel, NJ 08054

Attn: Richard Bradfield

[          ],

     as Collateral Agent

[          ]

[          ]

[          ]

Attn: [          ]

Dear Sirs:

     Reference is made to the Second Amended and Restated Mortgage Loan Purchase and Servicing
Agreement, dated as of [          ], 2000 (the “Purchase Agreement”), among Cendant Mortgage
Corporation, as seller and servicer (in each capacity, the “Seller” or “Servicer”),
PHH Corporation, as guarantor, and Bishop’s Gate Residential Mortgage Trust (the “Trust”),
as purchaser. Capitalized terms used and not defined herein shall have the meanings assigned to
such terms in the Purchase Agreement.

     Pursuant to Section 11.2 of the Purchase Agreement, if a Termination Event set forth
in paragraphs (n), (o) or (p) thereof occurs, the Servicer is required to
cause the Collateral Agent to use its best efforts to sell or Securitize all non-Delinquent and
non-Defaulted Eligible Loans for settlement within sixty (60) days following the date on which such
Termination Event occurs (“Termination Event Date”). With respect to any non-Delinquent
and non-Defaulted Eligible Loans which have not been so sold or Securitized on such sixtieth day
(60th) day following the related Termination Event Date, the Collateral Agent is
required to sell such Eligible Loans by auction for settlement not later than the eighty-fifth
(85th) day following the related Termination Event Date (the “Final Settlement
Date”).

     In connection with any such auction (“Termination Event Auction”), [          ] (the
“Bank”), the Servicer, the Collateral Agent and the Trust agree as follows:

B-1

 

     (i) the Bank shall participate in a Termination Event Auction and agrees to make a
binding bid (the “Bid”) for all Eligible Loans which, as of the Auction Date, are
non-Defaulted or non-Delinquent Eligible Loans. The amount the Bid shall be determined in
the sole discretion of the Bank and such Bid shall remain in effect until the Final
Settlement Date;

     (ii) if the Trust accepts the Bid, the Collateral Agent shall notify the Bank of such
acceptance and the amount of Mortgage Loans to be purchased by the Bank (which amount may
be all or a portion of the principal balance of the Eligible Loans) in writing not later
than two (2) Business Days prior to the Final Settlement Date. Any such purchase of
Mortgage Loans by the Bank shall be settled on or prior to the Final Settlement Date; and

     (iii) In consideration of the above agreement, the Trust shall pay the Bank such fee
as shall be separately agreed between the Trust and the Bank.

     This agreement shall be governed by the internal laws of the State of New York and may be
executed in counterparts.

B-2

 

	 	 	 	 	 
	 	Very truly yours,

[RATED BIDDER]

 	 
	 	By  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

	 	 	 	 	 	 	 	 
	Accepted and Agreed as of the date written above:
	 
	 	 	 	 	 	 
	BISHOP’S GATE RESIDENTIAL MORTGAGE TRUST
	 
	 	 	 	 	 	 
	By:	 	CENDANT MORTGAGE CORPORATION,
	 	 	as Administrator
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	CENDANT MORTGAGE CORPORATION,
	as Servicer
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	[          ],
	as Collateral Agent
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 

B-3

 

EXHIBIT C

FORM OF MONTHLY REPORT

(See Attached form)

C-1

 

EXHIBIT D

FORM OF MONTHLY SERVICER ADVANCE REPORT

(See attached form)

D-1

 

EXHIBIT E

FORM OF ADDITIONAL SELLER OFFICER’S CERTIFICATE

[          ], 2000

     The undersigned, a duly authorized officer of [          ], a [          ] [corporation/limited liability
company] (the “Company”), DOES HEREBY CERTIFY THAT:

	1.	 	Attached hereto as Exhibit A is a true and complete copy of the [Certificate of
Incorpora-tion/Formation] of the Company, as certified by the Secretary of State of [          ]. The
[Certificate of Incorporation/Formation] is in full force and effect as of the date hereof and
no steps as of the date hereof have been taken by the [Board of Directors/Members] or
stockholders of the Company to modify or amend such [Certificate of Incorporation/Formation].

	 
	2.	 	Attached hereto as Exhibit B is a true and complete copy of the [By-laws/Limited
Liability Company Agreement] of the Company in effect as of the date hereof.

	 
	3.	 	Attached hereto as Exhibit C is a true and complete copy of resolutions adopted by
the [Board of Directors/Members] of the Company. Such resolutions have not been amended,
rescinded or modified since their adoption and remain in full force and effect as of the date
hereof.

	 
	4.	 	Attached hereto as Exhibit D is a Certificate of Incumbency and Specimen Signature of
an Officer.

	 
	5.	 	Attached hereto as Exhibit E is a Certificate stating that all required licenses and
government approvals have been obtained.

	 
	6.	 	Attached hereto as Exhibit F is a Certificate from the Office of the Secretary of
State of [          ] as to the good standing and existence of the Company.

E-1

 

     IN WITNESS WHEREOF, the undersigned has executed this Officer’s Certificate of the Company.

	 	 	 	 	 
	 	[          ]
	 
	 	By: 	CENDANT MORTGAGE CORPORATION,

as Servicer on behalf of the Additional Seller

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

E-2

 

	 	 	 	 	 

EXHIBIT F

FORM OF SERVICING RIGHTS PURCHASE AND SALE AGREEMENT

          THIS SERVICING RIGHTS PURCHASE AND SALE AGREEMENT (“Purchase Agreement”), dated as of
_________, is entered into by and between
____________
(“Seller”),
and CENDANT MORTGAGE CORPORATION (“Cendant”), a corporation organized under the laws of the
State of New Jersey (collectively, the “Parties”).

WITNESSETH:

          WHEREAS, Seller is or will be duly licensed and authorized to originate, close and fund
Mortgage Loans;

          WHEREAS, Cendant is an Affiliate of Seller, and is a mortgage banking company duly licensed
and authorized to originate, purchase and service Mortgage Loans;

          WHEREAS, Cendant acts as administrator of, and sells mortgage loans servicing retained to,
Bishop’s Gate Residential Mortgage Trust, a Delaware business Trust (“BGRMT”), which loans
Cendant then services for BGRMT;

          WHEREAS, Seller desires to originate Mortgage Loans for sale in the secondary mortgage market,
to BGRMT, but retain the Servicing Rights associated with such Mortgage Loans for sale to Cendant;

          WHEREAS, Seller has or will execute an agreement with BGRMT and Cendant whereby Seller will
sell Mortgage Loans (but not the Servicing Rights relating thereto) to BGRMT;

          WHEREAS, Cendant desires to purchase from Seller the Servicing Rights associated with the
Mortgage Loans that have been closed and funded by Seller and that Seller has sold to BGRMT;

          NOW, THEREFORE, the Parties, in consideration of the terms, conditions, promises and
agreements set forth in this Purchase Agreement, agree as follows:

          1. Definitions. The following terms shall have the meanings described below for
purposes of this Purchase Agreement:

               “Affiliate,” when used with respect to any Person, shall mean any other Person directly or
indirectly controlling, controlled by or under common control with, such Person. For purposes of
this Agreement, “control” shall mean (a) the direct or indirect ownership of more than five percent
(5%) of the total voting securities or other evidences of ownership interest of such Person or (b)
the possession, directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person.

F-1

 

               “Damages” means and includes all obligations, liabilities, damages, penalties,
deficiencies, losses and judgments, in each case after the application of any amounts recoverable
under insurance contracts or similar arrangements and from third parties by the Person claiming
indemnity.

               “Effective Date” means ______ ___, 20__.

               “Mortgage” means a mortgage, deed of trust or other instrument creating a first lien
on an unsubordinated estate in fee simple in real property and the improvements thereon, which are
used for one- to four-family residential purposes, securing a Mortgage Note, including all riders
and side agreements supplemental thereto.

               “Mortgage Loan” means an individual mortgage loan comprising a Mortgage Note and the
related Mortgage, considered together.

               “Mortgage Note” means the note or other evidence of the indebtedness of a Mortgagor
secured by a Mortgage including all riders and side agreements supplemental thereto.

               “Mortgagor” means the obligor on a Mortgage Note.

               “Person” means any individual, corporation, partnership, joint venture, trust,
unincorporated organization, association, pool, syndicate, sole proprietorship, or governmental,
public or quasi-public entity, political subdivision, agency, instrumentality or office or any other
form of organization not specifically listed herein.

               “Servicing Rights” means, with respect to the Mortgage Loans, all of the rights and
obligations of the servicer, including but not limited to the right and obligation to service,
administer, collect the payments for the reduction of principal and application of interest, pay
taxes and insurance, remit collected payments, provide foreclosure services, provide full escrow
administration and any other obligations required by any investor or insurer in, of, or for such
Mortgage Loans, together with the right to receive (i) the servicing fee, (ii) the excess yield, if
any, on the Mortgage Loans, (iii) any ancillary fees (e.g. late charges, returned item charges,
conversion fees, etc.) arising from or connected to such Mortgage Loans and (iv) all applicable net
interest earnings on any related custodial funds account and related escrow funds account balances
(to the extent permitted by applicable law).

          2. Representations and Warranties of Seller. Seller represents and warrants to
Cendant that at the time it executes this Purchase Agreement and at the time it sells the Servicing
Rights associated with each Mortgage Loan to Cendant in accordance with the terms of this Purchase
Agreement:

               a. It is duly organized and existing, and in good standing, pursuant to the laws of the
____________;

               b. It has the requisite authority to enter into this Purchase Agreement under applicable
federal, state, and local laws, and is in compliance with the terms and conditions of this Purchase
Agreement;

F-2

 

               c. The terms and conditions of this Purchase Agreement do not violate any provision of its
articles of organization or any other organizational document;

               d. The terms and conditions of this Purchase Agreement do not violate any instrument relating
to the conduct of Seller’s business or any other agreement to which Seller is a party;

               e. In connection with all Servicing Rights sold to Cendant pursuant to this Purchase
Agreement, Seller has taken no action nor has it failed to take any action that reasonably could be
expected to cause the Servicing Rights associated with any Mortgage Loan not to be in compliance
with, or such Mortgage Loan not to have been originated in compliance with, all applicable federal,
state and local laws and regulations and the terms of this Purchase Agreement; and

               f. All actions of Seller pursuant to this Purchase Agreement will be conducted in a prudent
and competent manner.

          3. Representations and Warranties of Cendant. Cendant represents and warrants to
Seller that at the time it executes this Purchase Agreement and at the time it purchases the
Servicing Rights associated with each Mortgage Loan from Seller in accordance with the terms of
this Purchase Agreement:

               a. It is duly organized and existing, and in good standing, pursuant to the laws of the State
of New Jersey;

               b. It has the requisite authority to enter into this Purchase Agreement under applicable
federal, state, and local laws, and compliance with the terms and conditions of this Purchase
Agreement do not violate any provision of its articles of incorporation or its bylaws;

               c. The terms and conditions of this Purchase Agreement do not violate any instrument relating
to the conduct of Cendant’s business or any other agreement to which Cendant is a party; and no
consent or approval of any governmental entity or any third party is required for Cendant to
execute, or to purchase the Servicing Rights associated with the Mortgage Loans pursuant to, this
Purchase Agreement;

               d. It has made no misstatement or omission of material fact in any written or oral
representation it has made to Seller in connection with this Purchase Agreement; and

               e. All actions of Cendant pursuant to this Purchase Agreement will be conducted in a prudent
and competent manner.

          4. Purchase of Servicing Rights.

               a. The Seller agrees to sell to Cendant and Cendant agrees to purchase from Seller, the
Servicing Rights associated with all Mortgage Loans that have been sold by the Seller to BGRMT.

F-3

 

               b. Cendant shall purchase, and Seller shall sell, the Servicing Rights associated with each
Mortgage Loan, by wiring the “Servicing Release Premium,” as described in this Section
4(b), on the business day on which Seller sold the Mortgage Loan to BGRMT, to an account
designated by Seller. The amount of the Servicing Release Premium shall be established by Cendant,
with the consent of the Seller, from time to time but no more frequently than once per month (the
“Reset Period”). In the event the Parties, acting in good faith, are unable to reach
agreement as to the appropriate amounts of the Servicing Release Premium for a particular Reset
Period, the amount then in effect shall continue to apply for that Reset Period and thereafter
until such time as such agreement is reached.

          5. Assignment of Mortgage Loan. On the business day that Seller sells a Mortgage Loan
to BGRMT, the Seller shall execute all such documents necessary to make Cendant the mortgagee of
record and the servicer of the Mortgage Loan on behalf of BGRMT. Any recording fees or similar
expenses shall be at Cendant’s expense. Any Mortgage Loan documents in the possession or under the
control of Seller that are not delivered to BGRMT shall be delivered to Cendant as servicer for
BGRMT in accordance with the reasonable requirements of Cendant.

          6. Mortgage Loan Documents and Origination. In connection with the Mortgage Loans
relating to the Servicing Rights to be purchased by Cendant under the terms of this Purchase
Agreement, Seller agrees to use only Cendant approved documents, and to abide by methods and
procedures as mutually determined by Seller and Cendant. Seller may duplicate completed documents
for record keeping purposes.

          7. Term and Termination.

               a. This Purchase Agreement is effective on the Effective Date.

               b. This Purchase Agreement may be terminated by mutual agreement of the Parties hereto, and
shall be terminated upon the dissolution of Seller or the termination of the agreement between
Cendant, Seller and BGRMT in accordance with its terms; provided that such termination shall have
no effect on Servicing Rights associated with Mortgage Loans in the process of origination at the
time of such termination, which shall be purchased hereunder when the associated Mortgage Loans are
closed in accordance with the terms of this Purchase Agreement.

          8. Indemnification.

               a. Cendant shall indemnify, hold harmless and defend Seller, its directors, officers and
employees and its successors and assigns and their directors, officers and employees, with counsel
approved by Seller, from and against any and all losses, claims, damages, costs, expenses or
liabilities, including but not limited to attorneys’ fees and court costs, to which Seller or such
Parties may be subject in connection with any matter arising out of, relating to, or in connection
with any representation of Cendant that was not true when made or any breach by Cendant of its
warranties or covenants or the terms and conditions of this Purchase Agreement. Cendant’s
obligation to so indemnify, hold harmless and defend Seller and any such parties shall survive
termination of this Purchase Agreement. Seller’s right to indemnification, as provided herein,
shall be in addition to, and not in lieu of, all other rights and remedies it may have under law.

               b. Seller shall indemnify, hold harmless and defend Cendant, its directors, officers and
employees and its successors and assigns and their directors, officers and employees, with

F-4

 

counsel approved by Cendant, from and against any and all losses, claims, damages, costs, expenses
or liabilities, including but not limited to attorneys’ fees and court costs, to which Cendant or
any such parties may be subject in connection with any representation made by Seller that was not
true when made or any breach by Seller of its warranties or covenants or the terms and conditions
of this Purchase Agreement. Seller’s obligation to so indemnify, hold harmless and defend Cendant
and any such parties shall survive termination of this Purchase Agreement. Cendant’s right to
indemnification, as provided herein, shall be in addition to, and not in lieu of, all other rights
and remedies it may have under law.

               c. Before either Party is entitled to indemnification as provided in this Section 8, the Party
claiming indemnification shall give notice to the other Party of the claimed breach, and the other
Party shall have sixty (60) business days to cure such breach, which period of time shall
be allowed before any attempt is made to enforce rights to indemnification hereunder.

          9. Assignment. Neither Party may assign this Purchase Agreement without the express
written consent of the other Party.

          10. Governing Law. Both Cendant and Seller agree that this Purchase Agreement shall
be governed by federal law and the law of the State of New Jersey, as applicable, without reference
to the conflict of laws provisions thereof.

          11. Severability; Release. If any provisions of this Purchase Agreement are now, or
become, in violation of any local, state, or federal law, then said provisions shall be considered
null and void with all other provisions remaining in full force and effect. Each Party expressly
releases the other from any liability in the event either of said Parties cannot fulfill any
obligation hereunder due to any provisions of local, state, or federal laws governing same.

          12. Amendment. This Purchase Agreement may be amended and any provision hereof
waived, but only in writing signed by the Party against whom such amendment or waiver is sought to
be enforced.

          13. Captions. The headings and captions in this Purchase Agreement are for ease of
reference only and shall not be relied upon in construing any provision hereof.

          14. Notices. All notices and statements to be given under this Purchase Agreement are
to be in writing, delivered by hand, facsimile, telegram, overnight express or similar service, or
first class United States mail, postage prepaid and registered or certified with return receipt
requested, to the following addresses or facsimile numbers, as applicable (which addresses and
facsimile numbers may be revised by written notice):

	 	 	 	 	 	 	 	 	 
	 

	 	Seller:
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	Attention:	 	 	 	 
	 

	 	 	 	Facsimile:
	 	 

	 	 
	 

	 	 	 	 	 	 

	 	 

with a copy each to Cendant and to:

F-5

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	Attention:	 	 	 	 
	 

	 	 	 	Facsimile:
	 	 

	 	 
	 

	 	 	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 
	

	 	Cendant:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	Cendant Mortgage Corporation	 	 
	 	 	 	 	3000 Leaden-Hall Road	 	 
	 	 	 	 	Mt. Laurel, NJ 08054	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	Attention: President	 	 
	 	 	 	 	Facsimile: 856-917-6016	 	 

All written notices and statements shall be deemed given, delivered, received and effective upon
personal delivery or receipt of facsimile or telegram, one (1) calendar day after sending by
overnight express or any similar service or five (5) calendar days after mailing by first class
United States mail in the manner set forth above.

          15. Counterparts. This Purchase Agreement may be executed in any number of
counterparts. Each counterpart so executed shall be deemed an original, but all such counterparts
shall together constitute one and the same instrument.

          16. No Waivers; Remedies Cumulative. The waiver of any breach of this Purchase
Agreement shall not be construed to be a waiver of any other or subsequent breach. All remedies
afforded by this Purchase Agreement for a breach hereof shall be cumulative; that is, in addition
to all other remedies provided for herein or by law or in equity.

          17. Binding Effect. This Purchase Agreement shall inure to the benefit of and be
binding upon the Parties hereto and, except as otherwise limited herein, their respective
successors and assigns.

          18. Benefit of Parties Only. This Purchase Agreement is made for the sole benefit
of the Parties hereto and of their respective successors and assigns. Nothing herein shall
create, or be deemed to create, a relationship between the Parties hereto, or either of them, and
any third person in
the nature of a third-party beneficiary, equitable lien or fiduciary relationship.

          19. Construction. This Purchase Agreement shall be construed fairly as to both
Parties and not in favor of or against either Party, regardless of which Party prepared this
Purchase Agreement.

          20. Dispute Resolution. In the event of any disputes under this Purchase Agreement,
resolution shall occur as follows:

F-6

 

               a. Upon the declaration by any party of any material legal disagreement, dispute, controversy
or claim (for purposes of this Section 20, a “Legal Dispute”) arising out of or relating to
this Purchase Agreement, the interpretation hereof, the relationship contemplated hereby, or the
breach, termination or invalidity hereof, then either party may refer the Legal Dispute to the
American Arbitration Association (“AAA”) in New Jersey and shall give the other party
notice in writing of such action, all in accordance with the provisions of the Arbitration Program
appended hereto as an Exhibit and incorporated by this reference herein.

               b. The Legal Dispute shall be submitted to binding arbitration in New Jersey, and judgment
upon the award rendered by the arbitrators (including but not limited to the award of Damages) may
be entered in any court having jurisdiction thereof. The General Partners agree to use their best
efforts to assure that the arbitration procedure set forth herein, once commenced, shall be
completed as expeditiously as possible.

               c. The expenses of arbitration shall be borne by the party against whom the decision is
rendered, or apportioned in accordance with the decision of the arbitrators in the event of a
compromise decision. All notices from one party to the other relating to any arbitration hereunder
shall be in writing and shall be effective if given in accordance with the provisions of
Section 14. Notwithstanding anything to the contrary herein, the arbitration provisions
set forth herein, and any arbitration conducted thereunder, shall be governed exclusively by the
Federal Arbitration Act, Title 9, United States Code, to the exclusion of any state or municipal
law of arbitration.

               d. Nothing contained in this Section 20 shall be construed as prohibiting the parties from
agreeing upon an alternative procedure or forum for the resolution of any disagreement, dispute,
controversy or claim arising out of or relating to this Purchase Agreement or the breach hereof;
provided, that such agreement shall be embodied in a written instrument executed by each of the
Parties.

F-7

 

          IN WITNESS WHEREOF, each of the undersigned Parties has caused this Purchase Agreement to be
duly executed and delivered by one of its duly authorized officers, all as of the Effective Date.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	SELLER	 	 	 	CENDANT MORTGAGE	 	 
	 	 	 	 	 	 	 	 	CORPORATION	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	 	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 

	 	Printed:
	 	 	 	 	 	 	 	Printed:	 	 	 	 
	 

	 	Title:
	 	 

	 	 
	 	 	 	Title:
	 	 

	 	 
	 

	 	 	 	 

	 	 
	 	 	 	 	 	 

	 	 

F-8

 

EXHIBIT G 

FORM OF ADDITIONAL SELLER AGREEMENT

          Additional Seller Agreement, dated as of [          ], 2000 (as amended, supplemented, or otherwise
modified and in effect from time to time, this “Agreement”), among BISHOP’S GATE
RESIDENTIAL MORTGAGE TRUST, a Delaware business trust, as purchaser (the “Purchaser” or the
“Trust”), [          ], a [          ] [corporation/limited liability company], as affiliate and additional
seller (in each capacity, the “Affiliate” or the “Additional Seller”), and CENDANT
MORTGAGE CORPORATION, a New Jersey corporation, as servicer (“Servicer”).

PRELIMINARY STATEMENTS

          WHEREAS, the Purchaser, Cendant Mortgage Corporation, as seller (the “Seller”) and
Servicer, and PHH Corporation, as guarantor (the “Guarantor”), have entered into the Second
Amended and Restated Mortgage Loan Purchase and Servicing Agreement, dated as of [          ], 2000 (as
amended, supplemented or otherwise modified and in effect from time to time, the “Mortgage Loan
Purchase Agreement”); and

          WHEREAS, pursuant to the Mortgage Loan Purchase Agreement, the Purchaser has agreed to
purchase from an additional seller from time to time certain mortgage loans constituting
eligible loans (the “Eligible Loans”).

          NOW THEREFORE, in consideration of the mutual agreements hereinafter set forth, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the
Purchaser, the Additional Seller and the Servicer agree as follows:

               1. Definitions. Unless otherwise defined herein, all capitalized terms used in this
Agreement, including the Preliminary Statements hereof, shall have the meanings ascribed to such
terms in the Mortgage Loan Purchase Agreement.

               2. Affiliate as Additional Seller. Pursuant to the Mortgage Loan Purchase Agreement,
the Affiliate, as Additional Seller, hereby (i) agrees to be bound by all of the applicable terms
of, and fulfill all of its obligations as an Additional Seller under, the Mortgage Loan Purchase
Agreement (including the criteria required to be an additional seller from time to time of Eligible
Loans to the Trust, in accordance with Article XVI thereunder); (ii) makes all of the
representations, warranties and covenants of an Additional Seller contained in Section
3.1(b) of the Mortgage Loan Purchase Agreement and (iii) will be entitled to all of the rights
of an Additional Seller under the Mortgage Loan Purchase Agreement.

G-1

 

               3. Servicer to Act on Behalf of Additional Seller. The Additional Seller hereby
irrevocably and unconditionally appoints the Servicer as its agent for all purposes under the
Mortgage Loan Purchase Agreement insofar as the Mortgage Loan Purchase Agreement imposes
obligations on the Servicer (on behalf of the Additional Seller), and agrees to be bound by actions
taken by the Servicer (on behalf of the Additional Seller). Pursuant to the Mortgage Loan Purchase
Agreement, the Servicer hereby (i) agrees to be bound by all of the applicable terms of, and
fulfill all of its obligations as an Additional Seller under, the Mortgage Loan Purchase Agreement
and (ii) makes all of the representations, warranties and covenants contained in Sections
3.2 and 3.5 of the Mortgage Loan Purchase Agreement with respect to the Eligible Loans
(including the obligation to repurchase any Eligible Loan upon a breach of any representation,
warranty or covenant with respect to such Eligible Loan, in accordance with Section 3.3
thereunder) on behalf of the Additional Seller. The Servicer further agrees to (i) act as agent of
the Additional Seller with respect to the processing and transfer of the Eligible Loans to the
Trust and (ii) perform the obligations of the Servicer (on behalf of the Additional Seller) under
the Mortgage Loan Purchase Agreement, irrespective of the Additional Seller’s voluntary or
involuntary bankruptcy, insolvency, reorganization, receivership or other similar proceeding.

               4. Limitation of Liability. This Agreement has been executed on behalf
of the Purchaser, a Delaware business trust by the Owner Trustee acting on behalf of such
business trust, and not in its individual capacity. In no case shall the Owner Trustee (or any
entity acting as successor or additional owner trustee) be personally liable for or on account of
any of the statements, representa-tions, warranties, covenants or obligations of such Owner Trustee
hereunder, any right to assert any such liabilities against the Owner Trustee (or any entity acting
as successor or additional owner trustee) being hereby waived by the other parties hereto;
provided, however, that such waiver shall not affect the liability of the Owner Trustee (or any
entity acting as successor or additional owner trustee) to any Person under any other agreement to
which it is a party and to the extent expressly agreed to in its individual capacity thereunder.

               5. Term of Agreement. The Additional Seller’s obligations and the Servicer’s
obligations as agent of the Additional Seller under the Mortgage Loan Purchase Agreement shall
terminate on the date of the termination of the Mortgage Loan Purchase Agreement, as set forth in
Sections 11.1 and 11.2 thereunder.

               6. Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCOR-DANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

               7. Severability. Any provisions of this Agreement which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions hereof, and any
such

G-2

 

prohibition or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

               8. Counterparts. This Agreement may be executed in any number of copies, and by the
different parties hereto on the same or separate counterparts, each of which shall be deemed to be
an original instrument.

               9. Headings. Section headings used in this Agreement are for convenience of reference
only and shall not affect the construction or interpretation of this Agreement.

               10. Notices. All demand, notices and communications hereunder and under the Mortgage
Loan Purchase Agreement shall be in writing and shall be deemed to have been duly given personally
at or mailed by registered mail, postage prepaid, addressed as follows:

          (i)   if to the Additional Seller:

[          ]

c/o Cendant Mortgage Corporation

3000 Leaden-Hall Road

Mount Laurel, NJ 08054

Attention:

Telephone:

Facsimile:

          (ii)   if to the Purchaser:

Bishop’s Gate Residential Mortgage Trust

c/o Cendant Mortgage Corporation

3000 Leaden-Hall Road

Mount Laurel, NJ 08054

Attention:

Telephone:

Facsimile:

          (iii)   if
to the Servicer:

G-3

 

Cendant Mortgage Corporation

3000 Leaden-Hall Road

Mount Laurel, NJ 08054

Attention:

Telephone:

Facsimile:

          IN WITNESS WHEREOF, this Agreement has been duly executed by the Affiliate, the Additional
Seller, the Purchaser and the Servicer as of the day and year first above written.

	 	 	 	 	 
	 	BISHOP’S GATE RESIDENTIAL MORTGAGE TRUST,

as Purchaser

By: CENDANT MORTGAGE CORPORATION,

as Administrator

 	 
	 	 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	[          ],

as Affiliate and Additional Seller

 	 
	 	 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	CENDANT MORTGAGE CORPORATION,

as Servicer

 	 
	 	 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

G-4

 

EXHIBIT H

FORM OF INSOLVENCY OPINION

[                    ], 2000

The Persons listed on

Schedule A attached

hereto

			
	          Re:	 	[          ]
Bishop’s Gate Residential Mortgage Trust

Ladies and Gentlemen:

               We have acted as special counsel to [          ] (the “Additional Seller”), a Delaware limited
liability company, in connection with the preparation, execution and delivery of the Second Amended
and Restated Mortgage Loan Purchase and Servicing Agreement, dated as of [          ], 2000 (as amended and
supplemented thereafter by the Additional Seller Agreement, dated as of [          ], 2000 (the
“Additional Seller Agreement”), among the Additional Seller, Bishop’s Gate Residential
Mortgage Trust (the “Trust”) and Cendant Mortgage Corporation (“Cendant”), the
“Mortgage Loan Purchase Agreement”), among the Trust, Cendant, as Seller and Servicer (in
each such capacity, the “Seller” or “Servicer”), and PHH Corporation
(“PHH”), as performance guarantor, providing for the sale from time to time by the
Additional Seller to the Trust of Mortgage Loans. Capitalized terms not otherwise defined herein
have the meanings assigned to such terms in the Mortgage Loan Purchase Agreement. This opinion is
being furnished to you pursuant to Section 16.1(vi) of the Mortgage Loan Purchase
Agreement.

               In connection with the foregoing, we have been asked to provide our opinion to you as to
whether, in connection with any bankruptcy case concerning the Additional Seller under Title 11 of
the United States Code (the “Bankruptcy Code”), a court would have valid legal grounds to
disregard the sale by the Additional Seller to the Trust of Mortgage Loans as a “true sale” and
treat it as a loan from the Trust to the Additional Seller secured by a pledge of the Mortgage
Loans by the Additional Seller to the Trust such that the Mortgage Loans would constitute property
of the Additional Seller’s estate under Section 541 of the Bankruptcy Code, and, as a result, in
such a case, the provisions of Section 362 of the Bankruptcy Code would be applicable to the
Mortgage Loans. We also have been asked to provide our opinion to you as to whether a party in
interest, including a creditor or trustee of PHH (or PHH as debtor in possession),

H-1

 

[          ], 2000

Page 2

of Cendant (or Cendant as debtor in possession) or the Additional Seller (or the Additional
Seller as debtor in possession) would have valid legal grounds to have a court disregard the
corporate form so as to cause a substantive consolidation of the assets and liabilities of the
Trust with PHH, Cendant or the Additional Seller, as the case may be.

               We are admitted to practice law in the State of New York and the State of Delaware and, with
your permission, we express no opinion as to the laws of any other jurisdiction other than the
federal bankruptcy laws of the United States of America.

               In our examination we have assumed the genuineness of all signatures, the legal capacity of
natural persons, the authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such copies. As to any facts material to this opinion which we
did not independently establish or verify, we have relied upon statements and representations of
the Initial Member, the Trust and its officers, including the Officers’ Certificates attached
hereto as Exhibits A and B, and other representatives and of public officials.

               In rendering the opinions set forth herein, we have examined and relied on original or copies
of the following: (i) the certificate of trust, dated as of November 25, 1998; (ii) the Third
Amended and Restated Base Trust Agreement, dated as of December 11, 1998 (the “Base Trust
Agreement”), by and between First Union Trust Company, National Association, as owner trustee
(the “Owner Trustee”) and Cendant, as depositor (the “Depositor”); (iii) the Series
1999-1 Trust Agreement Supplement, dated as of November 22, 1999(the “Trust Agreement
Supplement” and, together with the Base Trust Agreement, the “Trust Agreement”), by and
between the Owner Trustee and the Depositor; (iv) the Base Indenture, dated as of December 11, 1998
(the “Base Indenture”), by and between the Trust and The Bank of New York, as indenture
trustee (the “Indenture Trustee”); (v) the Series 1999-2 Supplement to the Base Indenture,
dated as of November 22, 1999 (the “Series 1999-2 Supplement” and, together with the Base
Indenture, the “Indenture”), by and between the Trust and the Indenture Trustee; (vi) the
Amended and Restated Security Agreement, dated as of December 11, 1998, among the Trust, the
Indenture Trustee, Bank One, National Association, as collateral agent (the “Collateral
Agent”) and The Chase Manhattan Bank, as agent (the “Agent”); (vii) the Mortgage Loan
Purchase Agreement; (viii) the Amended and Restated Interest Rate Swap Agreements, dated as of
December 11, 1998 (the “Interest Rate Swaps”), each by and between the Trust and Bank of
America, N.A., The Bank of Nova Scotia and Barclays Bank PLC (each, a “Swap Counterparty”);
(ix) the Mirror Interest Rate Swap Agreements, dated as of December 11, 1998, by and between PHH
and the applicable Swap Counterparty; (x) the Amended and Restated Custodial Agreement, dated as of
December 11, 1998, among the Trust, Cendant, the Collateral Agent and Bank One, National
Association, as custodian (the “Custodian”);

H-2

 

[          ], 2000

Page 3

(xi) the Amended and Restated Administration Agreement, dated as of December 11, 1998, by and
between the Trust and Cendant, as administrator (the “Administrator”); (xii) the Amended
and Restated Liquidity Agreement, dated as of December 11, 1998, among the Trust, the Liquidity
Banks named therein and the Agent; (xiii) the Amended and Restated Depositary Agreement, dated as
of December 11, 1998, by and between the Trust and Bank One, National Association, as depositary;
(xiv) the Amended and Restated Remarketing Agreement, dated as of December 11, 1998, by and between
the Trust and Lehman Brothers Inc., as remarketing agent; and (xv) a certificate of the Secretary
of State of the State of Delaware as to the good standing of the Trust under the laws of the State
of Delaware.

               In addition, we have assumed, based upon the Officer’s Certificates, that the following
statements are true and the following actions have occurred on the date hereof:

               1. The Trust is a limited purpose Delaware business trust duly organized and validly existing
under the laws of the State of Delaware. The Trust maintains in full effect its existence, rights
and franchises as a Delaware business trust under the laws of the State of Delaware and obtains and
preserves its qualification to do business in each jurisdiction in which such qualification is or
shall be necessary to protect each instrument or agreement necessary or appropriate to effect
proper administration under the Mortgage Loan Purchase Agreement or the Trust Agreement and to
permit and effectuate the transactions contemplated thereby.

               2. The Trust was formed for the sole purpose of purchasing Mortgage Loans from time to time
from Cendant, the Additional Seller and certain other persons who may from time to time become
additional sellers (any such person, an “Other Additional Seller”), issuing from time to
time one or more Series of Notes, issuing from time to time one or more Series of Certificates,
issuing from time to time Commercial Paper, entering into Interest Rate Swaps, selling and
securitizing the acquired Mortgage Loans to third parties and engaging in certain related
transactions.

               3. The Trust conducts its affairs strictly in accordance with the Trust Agreement and the laws
of the State of Delaware, as well as those restrictions required under covenants contained in the
Trust Agreement, and observes all necessary, appropriate and customary formalities, including
taking all actions appropriate under the Trust Agreement to authorize its activities.

               4. The business and affairs of the Trust are managed by or under the direction of the Owner
Trustee.

H-3

 

[          ], 2000

Page 4

               5. All of the equity of the Trust is owned by investors unaffiliated with the Additional
Seller, Cendant and PHH.

               6. The Additional Seller is a limited liability company, duly formed and validly existing
under the laws of the State of Delaware and the Additional Seller will use its best efforts to
maintain its existence as a limited liability company and its good standing under the laws of the
State of Delaware. Cendant is a corporation duly incorporated and validly existing under the laws
of the State of New Jersey and Cendant will use its best efforts to maintain its existence as a
corporation and its good standing under the laws of the State of New Jersey. PHH is a corporation
duly incorporated and validly existing under the laws of Maryland and PHH will use its best efforts
to maintain its existence as a corporation and its good standing under the laws of the State of
Maryland.

               7. Covenants of the Trust contained in the Mortgage Loan Purchase Agreement and the Trust
Agreement provide that the Trust shall maintain accurate and separate books, records and accounts.
The Trust, the Additional Seller, Cendant and PHH each keeps or causes to be kept full and accurate
accounts of its transactions in proper books of account maintained separately from those of any
other person. The agreements and other instruments underlying the transactions contemplated by
this opinion will be continuously maintained as official records of the Trust, the Additional
Seller, Cendant and PHH.

               8. The Trust’s assets are not commingled with those of PHH, the Additional Seller or
Cendant or any affiliate of PHH, the Additional Seller, Cendant or any other entity.
Except for certain collections of Mortgage Loans by the Servicer on behalf of the Trust,
the Trust’s funds will be identifiable and will not be commingled with those of PHH, the
Additional Seller or Cendant. The Trust maintains its own bank account or accounts,
separate from those of PHH, the Additional Seller or Cendant.

               9. The Trust currently is capitalized with $[          ] aggregate amount of Variable Rate
Extendible Certificates, $[          ] aggregate principal amount of Variable Rate Term Notes and
up to $[          ] of Commercial Paper. From time to time, the Trust may issue additional series
of Certificates, Notes and Commercial Paper, provided that it complies with certain
conditions to issuance.

               10. On the date hereof, each of PHH, the Additional Seller, Cendant
and 

the Trust is solvent, has adequate capital to carry on its business, and intends to and
believes that it will be able to pay its debts as they mature. None of PHH, the

H-4

 

[          ], 2000

Page 5

Additional Seller, Cendant or the Trust intends to, or believes that it will, engage in
any business for which its respective capitalization would not be adequate. On the date
hereof, none of the transactions is being entered into with the intent to hinder, defraud
or delay any of the creditors of PHH, the Additional Seller, Cendant or the Trust.

               11. The Additional Seller shall not advance funds to the Trust and
the

Additional Seller will not otherwise supply funds to, or guaranty debts of, the Trust.

               12. The Trust is required to pay from its own separate assets all material
liabilities incurred by it, including material administrative expenses, provided that
expenses relating to the preparation, negotiation, execution and delivery of the
documentation with respect to the issuance of any Series of Notes, Series of Certificates
or Commercial Paper may be paid by the Additional Seller. Except as provided in the
foregoing sentence, the Trust will continue to provide for its own material operating
expenses and liabilities from its own funds, and none of PHH, the Additional Seller or
Cendant will provide for its own operating expenses or liabilities from the funds of the
Trust.

               13. The Trust conducts and will continue to conduct its business solely in its own
name and none of PHH, the Additional Seller or Cendant will conduct its respective
businesses in the name of the Trust. Without limiting the generality of the foregoing,
(i) all Persons who purchase Mortgage Loans from the Trust will be required to remit the
purchase price for such Mortgage Loans to the Collateral Account and to issue a
confirmation of such purchase to the Trust and (ii) all oral and written communications,
including without limitation letters, invoices, purchase orders, contracts, statements,
and applications are made and will continue to be made solely in the name of the Trust if
related to the Trust, and not in the name of the Trust if related to PHH, the Additional
Seller or Cendant.

               14. There will be no guarantees made by PHH, the Additional Seller or Cendant with
respect to obligations of the Trust and there will be no guarantees made by the Trust with
respect to obligations of PHH, the Additional Seller or Cendant. There will be no debt
between PHH, the Additional Seller and Cendant, on the one hand, and the Trust, on the
other.

               15. The Trust acts solely in its own name and through its own authorized agents,
including the Servicer in accordance with the provisions of the

H-5

 

[          ], 2000

Page 6

Mortgage Loan Purchase Agreement. Each of PHH, the Additional Seller, Cendant and the
Trust does not and will not (i) hold itself out as having agreed to pay or become liable
for the debts of the Trust, in the case of PHH, the Additional Seller and Cendant, or PHH,
the Additional Seller or Cendant, in the case of the Trust, (ii) fail to correct any known
misrepresentation with respect to the foregoing, (iii) seek or obtain credit or incur any
obligation to any third party based upon the assets of the Trust, in the case of PHH, the
Additional Seller and Cendant, or PHH, the Additional Seller or Cendant, in the case of
the Trust, or (iv) induce any such third party to reasonably rely on the creditworthiness
of the Trust, in the case of PHH, the Additional Seller and Cendant, or PHH, the
Additional Seller and Cendant, in the case of the Trust.

               16. PHH, the Additional Seller and Cendant, on the one hand, and the Trust, on the
other, maintain and will continue to maintain an arm’s length relationship among
themselves. The Initial Purchase Price payable by the Trust to the Additional Seller
under the Mortgage Loan Purchase Agreement in respect of Mortgage Loans acquired by the
Trust from the Additional Seller is intended to be consistent with the terms that would be
obtained in an arm’s length sale.

               17. The financial statements of PHH, the Additional Seller and Cendant, on the one
hand, and the Trust, on the other, will clearly indicate their separate existence and will
reflect each of their respective separate assets and liabilities, provided that the
consolidated financial statements of PHH may consolidate the Additional Seller in
accordance with generally accepted accounting principles. None of such financial
statements will suggest in any way that the assets of the Trust are available to pay the
claims of creditors of PHH, the Additional Seller or Cendant or any other entity.

               18. The Additional Seller intends the sale of the Mortgage Loans to constitute a true
sale to the Trust of all of the Additional Seller’s right, title and interest to and in
the Mortgage Loans. The Mortgage Loan Purchase Agreement utilizes language which is
consistent with an intent of the Additional Seller and the Trust that the Mortgage Loans
are intended to be sold by the Additional Seller to the Trust for consideration. Such
language reflects the intention of the respective parties that the transfers of such
Mortgage Loans by the Additional Seller to the Trust be sales.

               19. Immediately prior to the sale of the Mortgage Loans, the Additional Seller owned
the Mortgage Loans free and clear of any adverse claims or liens.

H-6

 

[          ], 2000

Page 7

               20. Subsequent to the sale of the Mortgage Loans, the Additional Seller will not take
any action or assert any position inconsistent with the Trust’s ownership of the Mortgage
Loans.

               21. The Additional Seller has taken all actions required under applicable law to sell
to the Trust at closing all of its right, title, and interest to and in the Mortgage
Loans.

               22. As of the date hereof, the Additional Seller reported on its financial records
the transfer of the Mortgage Loans made by it to the Trust as a sale under generally
accepted accounting principles (“GAAP”) and will continue to do so in the future. Such
GAAP financial statements, will either be appropriately footnoted or otherwise disclose
that the Mortgage Loans have been sold to the Trust. The financial records of the Trust
will report the transactions as the purchase of all Mortgage Loans from the Additional
Seller and will continue to do so in the future.

               23. The transfer of Mortgage Loans from the Additional Seller to the Trust will be
treated by the Additional Seller and the Trust as an absolute transfer in exchange for
cash for tax purposes.

               24. The mortgage notes evidencing the Mortgage Loans will be required to be delivered
to the Custodian, a party not affiliated with the Additional Seller or the Trust.

               25. Except for the Servicer’s (on behalf of the Additional Seller)

obligation in certain circumstances and upon breaches of certain representations or
warranties of the Additional Seller under the Mortgage Loan Purchase Agreement to
repurchase the subject Mortgage Loans, the sale of each Mortgage Loan by the Additional
Seller is irrevocable.

               26. The Additional Seller is not indebted to the Trust at the time
of, or as

a result of, the transactions and the Additional Seller does not have an obligation to pay
any amount to the Trust or in respect of any indebtedness of the Trust.

               27. No provision exists in the Mortgage Loan Purchase Agreement (except regarding the
Mortgage Loans, with respect to which the eligibility

H-7

 

[          ], 2000

Page 8

criteria are not met or a representation or warranty made by the Servicer (on behalf of
the Additional Seller) has been violated) for any modification after the date on which a
given Mortgage Loan is transferred of the amount of the consideration delivered to the
Additional Seller by the Trust in exchange for such Mortgage Loan, and we assume that no
such modifications will be made.

               28. The amount and timing of payments made to the Trust (or to the Servicer on behalf
of the Trust) from the obligors on the Mortgage Loans cannot be directly controlled by the
Additional Seller. The Trust, and not the Additional Seller, will bear the risk of the
ability to sell or securitize the Mortgage Loans and will bear the risk of a slower or
faster rate of payment on the Mortgage Loans than anticipated at the time of the transfer
of the Mortgage Loans.

               29. Except in limited circumstances of repurchase in connection with the failure to
meet specified eligibility criteria or the breach by the Servicer (on behalf of the
Additional Seller) of representations and warranties, neither the Additional Seller nor
any person on its behalf has any right or obligation to repurchase or accept reassignment
of the Mortgage Loans transferred by the Additional Seller. Similarly, because the Trust
cannot require the Additional Seller or any other person to repurchase Mortgage Loans
transferred by the Additional Seller, other than in connection with the failure to meet
specified eligibility criteria or the breach by the Servicer (on behalf of the Additional
Seller) of representations and warranties, the Trust cannot cause an early realization on
or payment of the Mortgage Loans.

               30. We understand that the Additional Seller has a valid business reason for the sale
of the Mortgage Loans. We have no reason to believe that such sale is made with any
intent to hinder, delay or defraud any entity to which the Additional Seller is or will
become indebted on or after the date of transfer. We have no reason to believe that the
Additional Seller is insolvent or that the sale of the Mortgage Loans will render the
Additional Seller insolvent on the date of the transfer or as a result of the transfer; we
have been informed that, on the date of the transfer, the Additional Seller is not engaged
in business or about to engage in business for which the assets remaining with it after
the sale of the Mortgage Loans will be an unreasonably small amount of capital; and we
understand that, on the date of the transfer, the Additional Seller does not intend to
incur or believe that it will incur debts beyond its ability to pay as such debts mature.
We have no reason to believe that the consideration received by the Additional Seller upon
the sale of the Mortgage Loans to the Trust will not constitute, in each case, reasonably
equivalent value and fair consideration for the

H-8

 

[          ], 2000

Page 9

property sold, consistent with terms that would be arrived at on an arm’s-length basis.
We have no reason to believe that the sale of the Mortgage Loans by the Additional Seller
is done with any intent to evade any applicable laws or public policy.

               31. The Additional Seller does not guarantee or otherwise pay to the Trust (or any
assignee) a specified yield, including without limitation if the sale or securitization of
a Mortgage Loan or the collection time differs from that anticipated at the time a
particular Mortgage Loan is transferred.

               32. To the extent that the terms of the documentation take into consideration the
credit of the Additional Seller, it is the intent of the parties that, because the
transactions are intended to be a sale of the Mortgage Loans and not a loan by the Trust
to the Additional Seller secured by Mortgage Loans, the credit of the Additional Seller is
only relevant to the extent of its obligations with respect to Mortgage Loans for which
there has been a breach of a representation or warranty.

               33. There is not and will not be any other agreement between the Additional Seller
and the Trust that supplements or otherwise modifies the agreements of the Additional
Seller and the Trust as expressed in the Mortgage Loan Purchase Agreement and the other
agreements delivered on or prior to the date hereof pursuant thereto and specifically
referred to therein.

               34. The Mortgage Loan Purchase Agreement provides that it is to be construed in
accordance with the laws of the State of New York and that the obligations, rights and
remedies of the parties thereto shall be determined in accordance with such laws.

“True Sale”

               There is limited judicial authority relating to the issue of when a transaction
styled as an absolute transfer constitutes an absolute transfer as opposed to a secured
loan, and we have not located any controlling precedent for the transactions described
herein. However, the existing case law indicates that the analysis should examine the
intent of the parties as well as the economic consequences of the transaction to determine
whether they are consistent with true sale characterization. Some of the most important
factors relevant to this economic analysis include whether the transferee has assumed the
risks inherent in the ownership of the assets purportedly transferred (that is, whether
the risk of loss has been borne by the transferee), the

H-9

 

[          ], 2000

Page 10

presence of fixed consideration that is not subject to further adjustment, the level of
recourse that the transferee has against the transferor, whether the transferee’s rights
in the assets transferred could be extinguished by repayment of a debt owed by the
transferor or by the recovery of the consideration and whether the transferor has the
right or the obligation to repurchase or otherwise reacquire the assets in any
circumstances.

               First, the intent of the parties is to treat the transaction as a sale of the
Mortgage Loans from the Additional Seller to the Trust and not as a secured loan. This
intent is evidenced by (i) the nomenclature used in the Mortgage Loan Purchase Agreement,
(ii) the accounting and tax treatment afforded the transaction by both the Additional
Seller and the Trust, (iii) the steps taken by the Additional Seller to ensure the
transfer of its right, title and interest in and to the Mortgage Loans to the Trust, (iv)
the computer records storing essential information on the Mortgage Loans and similar
assets of the Additional Seller will be appropriately coded to reflect the sale of the
Mortgage Loans to the Trust, and (v) the Additional Seller has indicated that upon inquiry
regarding the Mortgage Loans, it will promptly indicate that the Mortgage Loans have been
sold to the Trust and it will not claim any ownership interest in the Mortgage Loans.

               Second, the economics of the transfer indicate that such transfer is a true sale of
the Mortgage Loans and not a secured Loan. The economics of a true sale is evidenced by
(i) the Trust assuming all risk of loss inherent in the Mortgage Loans in that (a) the
Additional Seller has not guaranteed to the Trust (or to any assignee) the payment of any
Mortgage Loan, (b) the Additional Seller is not obligated to repurchase from the Trust any
Mortgage Loan which the Trust is not able to sell or securitize, (c) if losses occur upon
the sale or securitization of a Mortgage Loan or upon collection of payments on a Mortgage
Loan, such losses will be absorbed by the Trust except for non-credit related losses upon
sale or securitization of a Mortgage Loan which are absorbed by the Interest Rate Swaps,
and (d) the Trust will bear the risk of the ability to sell or securitize the Mortgage
Loans and will bear the risk of a slower or faster rate of payment on the Mortgage Loans
than anticipated at the time of the transfer of the Mortgage Loans, (ii) the Additional
Seller relinquishing all control over the Mortgage Loans and the Additional Seller does
not have the right to receive any proceeds allocable to any Mortgage Loan, and (iii) with
the exception of the Servicer’s (on behalf of the Additional Seller) duty to repurchase
Mortgage Loans in the event that the eligibility criteria or certain representations and
warranties are breached, the consideration paid by the Trust to the Additional Seller is
not subject to modification and the sale of each Mortgage Loan by the Additional Seller is
irrevocable.

H-10

 

[          ], 2000

Page 11

               With respect to (ii) above, the Additional Seller relinquishes all control and title
over the Mortgage Loans upon the transfer of each Mortgage Loan under the Mortgage Loan
Purchase Agreement. It should be noted that the Servicer is granted such rights with
respect to the Mortgage Loans as are necessary to allow it to fulfill its obligation to
the Trust to collect the payments on the Mortgage Loans and to otherwise fulfill its
obligations as Servicer. It is our understanding that the duties delegated by the Trust
to the Servicer are consistent with the delegation to a third party for consideration of
the day-to-day administration of assets that are not owned by such third party. The
Servicer will be compensated for these servicing activities by payment of the Servicing
Fee which we understand represents a fair market value servicing fee for the activities
undertaken by the Servicer under the Mortgage Loan Purchase Agreement.

               With respect to (iii) above, if the eligibility criteria with respect to a Mortgage
Loan have not been met or there is a breach of certain representations and warranties, the
Servicer is required to pay a certain amount to the Trust. The obligation to make
payments with respect to noncompliance with the such criteria or representa-tions and
warranties arises only if any such eligibility criteria or representation was untrue at
the time of transfer of the applicable Mortgage Loan or if based upon certain action or
inaction by the Servicer, and not as a result of any subsequent decline in value of such
Mortgage Loan. Moreover, the eligibility criteria or representations and warranties
contained in the Mortgage Loan Purchase Agreement reflect practical limitations on the
ability of any prospective purchaser of the Mortgage Loans to review fully every Mortgage
Loan prior to purchase of the Mortgage Loans, and the Servicer’s (on behalf of the
Additional Seller) superior knowledge of, and access to, facts concerning such Mortgage
Loans. These eligibility criteria or representations and warranties do not confer any
additional rights on a purchaser or impose any added burden on a seller beyond those
applicable under general contract law, as well as by analogy under Section 2-608 of the
Uniform Commercial Code. Furthermore, the Servicer (on behalf of the Additional Seller)
is not obligated to repurchase from the Trust any Mortgage Loan in default, unless any
such default is attributable to a breach of its representations and warranties with
respect to such Mortgage Loan under the Mortgage Loan Purchase Agreement.

               Based on the foregoing, and subject to the reasoned analysis of analogous case law
(although there is no precedent directly on point), it is our opinion that a court, in
connection with a bankruptcy case concerning the Additional Seller under Title 11 of the
Bankruptcy Code, would have no valid legal grounds to disregard

H-11

 

[          ], 2000

Page 12

the sale by the Additional Seller to the Trust of Mortgage Loans as a “true sale” of the
Mortgage Loans by the Additional Seller to the Trust and treat it as a loan from the Trust
to the Additional Seller secured by a pledge of the Mortgage Loans by the Additional
Seller to the Trust such that the Mortgage Loans would constitute property of the
Additional Seller’s estate under Section 541 of the Bankruptcy Code, and, as a result, in
such a case, the Mortgage Loans would not constitute property of the Additional Seller’s
estate under Section 541 of the Bankruptcy Code and the provisions of Section 362 of the
Bankruptcy Code would not be applicable to the Mortgage Loans. This conclusion is based
on the understanding that the opinion expressed herein is not a prediction as to what a
particular court would actually hold, but an opinion as to the decision a court would
reach if the issue were properly presented to it and the court following existing legal
precedents applicable to the subject matter or this opinion.

“Substantive Non-Consolidation”

               The nature and effect of the substantive consolidation of affiliated corporations
closely resembles a merger of the affected entities in which the rights of entities’
creditors and equity holders are affected:

Substantive consolidation usually results in,
inter alia, pooling the assets of, and claims
against, the two entities; satisfying liabilities
from the result-ing common fund; eliminating
inter-company claims; and combining the creditors
of the two companies . . . .

In re Augie/Restivo Baking Co., 860 F.2d 515, 518 (2d Cir. 1988).

               Because our opinion has been requested as to whether a court might substantively
consolidate the assets of the Trust with or into the estate of Cendant, PHH or the
Additional Seller in a case under Bankruptcy Code in which Cendant, PHH or the Additional
Seller is the debtor, we will focus our analysis primarily on the circumstances in which
courts have ordered substantive consolidation. There are, however, four general
qualifications that limit the ability to predict whether, on a given set of facts at some
time in the future, a court will order substantive consolidation and that therefore limit
the force of our opinion.

H-12

 

[          ], 2000

Page 13

               First, there is no statutory authority specifically authorizing substantive
consolidation. The authority of a bankruptcy court to order substantive consolidation
derives from its general discretionary equitable powers under section 105(a) of the
Bankruptcy Code, which provides that the court may issue orders necessary to carry out the
provisions of the Bankruptcy Code. In re DRW Property Co. 82, 54 B.R. 489, 494 (Bankr.
N.D. Tex. 1985). As in any matter that is based on the exercise of a court’s
discretionary equitable authority, there may be unique factors in a particular case that a
court will consider and rely upon that differ from prior precedents and that cannot be
determined in advance.

               Second, there are no statutorily prescribed standards for substantive consolidation.
Instead, judicially developed standards control whether substantive consolidation should
be granted in any given case, but the courts have not developed a clear legal standard
governing when the doctrine is to be applied. Rather, the analysis is highly
fact-specific. “[A]s to substantive consolidation, precedents are of little value,
thereby making each analysis on a case by case basis.” In re Crown Mach. & Welding, Inc.,
100 B.R. 25, 27-28 (Bankr. D. Mont. 1989); see FDIC v. Colonial Realty Co., 966 F.2d 57
(2d Cir. 1992) (substantive consolidation analysis requires “a searching review of the
record, on a case-by-case basis”); Central Claims Servs., Inc. v. Eagle-Picher Ind., Inc.
(In re Eagle-Picher Ind., Inc.), 192 B.R. 903, 905 (Bankr. S.D. Ohio 1996) (“[b]ecause the
cases so much turn on their individual facts, we find that the lists presented by the
several courts in their decisions, of factors which must be present in order to determine
the issue of substantive consolidation, are of limited use”). As a result the nature of
the appropriate standards to be applied, the relevant factors to be considered, the weight
to be attached to such factors, and the significance of competing considerations offered
by those opposing substantive consolidation are to some degree unsettled.

               Third, some courts have adopted the view that “[t]he power to consolidate should be
used sparingly” because of the potential harm to creditors of substantive consolidation.
Chemical Bank New York Trust Co. v. Kheel, 369 F.2d 845, 847 (2d Cir. 1966).
Notwithstanding the Kheel court’s admonition to use the power to consolidate sparingly,
other courts have expressed a greater willingness to consider the appropriateness of
substantive consolidation.

There is, however, a ‘modern’ or ‘liberal’ trend
toward allowing substantive consolidation, which
has its genesis in the increased judicial
recogni-

H-13

 

[          ], 2000

Page 14

tion of the widespread use of interrelated
corpo-rate structures by subsidiary corporations
operat-ing under a parent entity’s corporate
umbrella for tax and business purposes.

Eastgroup Properties v. Southern Motel Assoc., Ltd., 935 F.2d 245, 248-49 (11th Cir. 1991)
(citations omitted).

               Finally, as the court in Eastgroup Properties noted, the law of substantive
consolidation is continuing to evolve. Further evolution in the doctrine may lead to a
result as to this Transaction that differs from the analysis set forth in this opinion.

Alternative Tests for Substantive Consolidation

               Courts have developed two principal tests for determining whether the estates of two
or more related debtors should be substantively consolidated. The more traditional test
examines the extent to which certain elements that support substantive consolidation are
present. More recently, courts have moved away from a review only of the extent to which
the traditional elements are present. They have instead adopted a balancing test in which
they have attempted to synthesize the results of the traditional elements analysis into
general principles. No reported case since 1989 has relied solely on the traditional
elements test.

Elements Test

               Two sets of substantive consolidation elements are often cited. One set of elements
is similar to those that are relevant to a decision on whether to “pierce the corporate
veil” and hold a shareholder liable for the debts of a corporation. In the cases that
depend primarily on this analogy, the following factors are cited as relevant to the issue
of whether substantive consolidation should be ordered:

               •
Parent corporation owns all or a majority of the capital stock of the subsidiary;

               •
Parent and subsidiary have common officers and directors;

               •
Parent finances subsidiary;

H-14

 

[          ], 2000

Page 15

               • Parent is responsible for incorporation of subsidiary;

               • Subsidiary has grossly inadequate capital;

               • Parent pays salaries, expenses or losses of subsidiary;

               • Subsidiary has substantially no business except with parent;

               • Subsidiary has essentially no assets except for those conveyed by parent;

               • Parent refers to subsidiary as department or division of parent;

               • Directors or officers of subsidiary do not act in interests of subsidiary, but take
directions from parent; and

               • Formal legal requirements of the subsidiary as a separate and independent
corporation are not observed.

In re Tureaud, 45 B.R. 658, 662 (Bankr. N.D. Okla. 1985), aff’d, 59 B.R. 973 (N.D. Okla.
1986) (citing Fish v. East, 114 F.2d 177 (10th Cir. 1940) and In re Gulfco Inv. Corp., 593
F.2d 921 (10th Cir. 1979)).

               A second group of substantive consolidation elements, which are cited in some of the
more recent cases, appears in In re Vecco Constr. Industries:

               • The degree of difficulty in segregating and ascertaining individual assets and
liabilities;

               • The presence or absence of consolidated financial statements;

               • The profitability of consolidation at a single physical location;

               • The commingling of assets and business functions;

               • The unity of interests and ownership between the various corporate entities;

H-15

 

[          ], 2000

Page 16

               • The existence of parent and inter-corporate guarantees on loans; and

               • The transfer of assets without formal observance of corporate formalities.

In re Vecco Constr. Indus., 4 B.R. 407, 410 (Bankr. E.D. Va. 1980).

               No single element or group of elements is determinative in the court’s inquiry, and
no conclusion about whether a court will order substantive consolidation can be reached
based solely on the presence or absence of some or all of the elements. It is not,
therefore, a foregone conclusion that a party objecting to substantive consolidation can
defeat it simply by showing the absence of most (or a particular group) of the elements.

               A combination of elements showing a substantial relationship among the entities is a
predicate to substantive consolidation, but the existence of such a relationship alone
will not support substantive consolidation. For example, many of the elements are present
among affiliated companies. Common ownership or a parent/subsidiary relationship, common
directors and officers, inter-affiliate transfers, incorporation caused by parent, the
existence of inter-corporate claims, and consolidated financial statements or tax returns
are all typical of most affiliated corporations, yet substantive consolidation is not
typically ordered on the presence of the close corporate relationship represented by these
elements. Additional elements are required.

               Perhaps the most common group of additional elements whose presence will result in an
order for substantive consolidation are poor or nonexistent record keeping of, or
commingling of, separate assets (particularly cash and other liquid assets) and
liabilities and inter-affiliate transactions, whether by design or otherwise, that makes
it prohibitively expensive or impossible to sort out the proper allocation of assets and
liabilities. For example, in Chemical Bank New York Trust Co. v. Kheel, 369 F.2d 845 (2d
Cir. 1966), the Second Circuit approved substantive consolidation based on the benefits
that would be realized by all creditors upon substantive consolidation of estates whose
financial affairs had not been segregated:

[I]n the rare case such as this, where the
interrelationships of the group are hopelessly
obscured and the time and expense necessary even
to

H-16

 

[          ], 2000

Page 17

attempt to unscramble them so substantial as
to threaten the realization of any net assets for
all the creditors, equity is not helpless to
reach a rough approximation of justice to some
rather than deny any to all.

369 F.2d at 847 (emphasis added).

               However, the potentially prejudicial effect of substantive consolidation cannot be
justified based on a mere contention of administrative convenience. “The sole purpose of
substantive consolidation is to ensure the equitable treatment of all creditors,” In re
Augie/Restivo Baking Co., Ltd., 860 F.2d 515, 518 (2d Cir. 1988), so “[r]esort to
consolidation . . . should be used only after it has been determined that all creditors
will benefit because untangling is either impossible or so costly as to consume the
assets.” Id. at 519. Thus, creditors whose interests would be adversely and
unfairly affected by consolidation must be protected, as long as separate accounting can
be accomplished. In re Flora Mir Candy Corp., 432 F.2d 1060, 1063 (2d Cir. 1970)
(financial statements for each debtor had been prepared by accountants).

               Although the Second Circuit thus appears to have established a stringent standard for
the degree to which the debtors’ affairs must be entangled before consolidation is
appropriate, other courts have not always been so strict. The court in In re Vecco
Constr. Indus., 4 B.R. 407, 408-09 (Bankr. E.D. Va. 1980), ordered substantive
consolidation without a showing of inability to sort out assets and liabilities where the
debtors had a single operating account and consolidated financial statements, had made no
attempt to segregate receivables, disbursements or income, had inaccu-rately allocated
affiliate expenses through inter-company accounts, and had filed bankruptcy schedules on a
consolidated basis. The court ordered consolidation in part because of the absence of
opposition to consolidation and because consolidation would promote reorganization rather
than liquidation. Similarly, the court in In re I.R.C.C., Inc., 105 B.R. 237 (Bankr.
S.D.N.Y. 1989), ordered substantive consolidation where the evidence of financial
entanglement consisted primarily of representations by debtor’s counsel and the chapter 7
trustee of inadequate accounting practices, undocumented inter-affiliate loans, commingled
bank accounts, common use of assets, cross-funding of expenses, and consolidated tax
returns, without any showing of an inability to sort out assets and liabilities. Thus,
even though commingling of assets and liabilities and interchangeable use of assets
without a showing of an inability to sort out separate assets
and liabilities is generally not enough to warrant substantive consolidation under
the

H-17

 

[          ], 2000

Page 18

“elements” standard, there remains some risk that other factors will motivate a court to
order consolidation without the showing of inability to separate assets and liabilities.

               Also cited as one group of elements that may result in substantive consolidation
among affiliated companies is their failure to comply with corporate formalities in
connection with interaffiliate transfers, third-party transactions, or conduct of
directors and shareholders meetings, inadequate differentiation among affiliated entities
in dealings with and representations made to third parties, or noncompliance with any
other formal conduct required by corporate law. An examination of the cases shows,
however, that the presence of this group of elements results in substantive consolidation
only where other evidence shows that the entities were not functionally distinct. Most
typically, these are cases in which the court determines that a corporation is merely the
alter ego of its shareholder, that corporate and shareholder accounts were used
interchangeably, and that the entire corporate form was disregarded. Soviero v. Franklin
Natl. Bank, 328 F.2d 446 (2d Cir. 1964); In re Tureaud, 45 B.R. 658, 661 (Bankr. N.D.
Okla. 1985), aff’d, 59 B.R. 973 (N.D. Okla. 1986); In re 1438 Meridian Place, N.W., Inc.,
15 B.R. 89 (Bankr. D.D.C. 1981). Accord In re Baker & Getty Fin. Serv., 78 B.R. 139, 142
(Bankr. N.D. Ohio 1987) (same, but balancing test used). Extensive commingling and an
inability to sort out the separate assets and liabilities were also present in all of
these cases. By contrast, failure to observe corporate formalities alone does not
generally support substantive consolidation. E.g., In re Donut Queen, Ltd., 41 B.R. 706,
710 (Bankr. E.D.N.Y. 1984) (“[T]he absence of the corporate resolutions might be
indicative of both the corporate informality inherent in the operating of a small
corporation and the unity of ownership that exists between the debtors. Without further
evidence, . . . failure by these debtors to observe corporate formalities would [not]
warrant consolidation.”).

               Virtually every substantive consolidation involves prejudice to at least some
creditors of at least one of the entities:

This is so because separate debtors will almost
always have different ratios of assets to
liabili-ties. Thus, creditors of a debtor whose
asset-to-liability ratio is higher than that of
its affiliated debtor must lose to the extent
that the asset-to-liability ratio of the merged
estates will be lower.

H-18

 

[          ], 2000

Page 19

In re Snider Bros., 18 B.R. 230, 234 (Bankr. D. Mass. 1982) (citation omitted). Thus,
even when some of the more significant elements of substantive consolidation are present,
protection of the legitimate interests of creditors potentially affected by substantive
consolidation remains important. Flora Mir Candy Corp., 432 F.2d 1060, 1063 (2d Cir.
1970) (consolidation denied due to resulting unfair treatment of certain creditors); In re
Richton Int’l Corp., 12 B.R. 555, 558 (Bankr. S.D.N.Y. 1981) (after analyzing the Vecco
Constr. “elements,” court considered additional element: “substantive consolidation . . .
will yield an equitable treatment of creditors without any undue prejudice to any
particular group”); In re Food Fair, Inc., 10 B.R. 123, 127 (Bankr. S.D.N.Y. 1981)
(equitable treatment without undue prejudice is key factor).

               Thus, under the traditional elements test, strict adherence to maintaining separate
books and records, to clear differentiation among affiliated entities in dealings with
third parties, to proper segregation of assets, and to corporate policies designed to
preserve the separateness of corporate assets and liabilities as well as the ability to
determine the separate assets and liabilities, should make it substantially less likely
that the court would find grounds to order substantive consolidation of affiliated
companies.

Balancing Test

               More recent cases have synthesized the elements of substantive consolidation into an
analysis in which, to a certain extent, the impact on creditors of consolidation appears
to have been given a greater degree of significance. See, e.g., Reider v. FDIC (In re
Reider), 31 F.3d 1102 (11th Cir. 1994); Eastgroup Properties v. Southern Motel Assoc.,
Ltd., 935 F.2d 245, 249 (11th Cir. 1991); In re Snider Bros., 18 B.R. 230 (Bankr. D. Mass.
1982); In re DRW Property Co. 82, 54 B.R. 489 (Bankr. N.D. Tex. 1985) (partnership
consolidation case); In re Steury, 94 B.R. 553 (Bankr. N.D. Ind. 1988); In re Crown Mach.
& Welding, Inc., 100 B.R. 25 (Bankr. D. Mont. 1989). Three principal cases have led the
synthesis, Snider Bros., Eastgroup Properties, and Augie/Restivo Baking Co.

               In the earliest of these cases, Snider Bros., the court reviewed grounds for
substantive consolidation, including the various formulations of the “elements of
consolidation” that are largely attributable to the debtors’ pre-petition conduct. From
its review, the court concluded that:

H-19

 

[          ], 2000

Page 20

equity has provided the remedy of consolidation in those instances where
it has been shown that the possibility of economic prejudice which would
result from continued separateness outweighed the minimal prejudice that
consolidation would cause. While several courts have recently attempted
to delineate what might be called “the elements of consolidation”, [citing
Vecco Construction and Food Fair], I find that the only real criterion is
that which I have referred to, namely the economic prejudice of continued
debtor separateness versus the economic prejudice of consolidation.

In re Snider Bros., 18 B.R. 230, 234 (Bankr. D. Mass. 1982). Similarly focusing on issues
of prejudice, the Eleventh Circuit viewed the frequently cited list of elements “as
examples of information that may be useful to courts charged with deciding whether there
is substantial identity between the entities to be consolidated and whether consolidation
is necessary to avoid some harm or to realize some benefit.” Eastgroup Properties v.
Southern Motel Assoc., Ltd., 935 F.2d 245, 250 (11th Cir. 1991).

             Using this standard, Eastgroup and Snider permit consolidation only if:

(1) there is a substantial identity of the
entities to be consolidated;

(2) there is either a necessity for consolidation
or a harm to be prevented or a benefit to be
gained by consolidation;

(3) the objecting creditor did not rely on the
separate credit of one or more of the entities
and would thereby not be prejudiced by
consolidation; and

(4) the demonstrated benefits of consolidation
counterbalance or heavily outweigh the harm to
the objector.

The “elements” are only one factor in this showing, and the evidence must go beyond a mere
showing of commingling or unity of interest. In re Snider Bros., 18 B.R. 230,

H-20

 

[          ], 2000

Page 21

238 (Bankr. D. Mass. 1982); Eastgroup Properties v. Southern Motel Assoc., Ltd., 935 F.2d
245, 249 (11th Cir. 1991) (citations omitted); accord In re Reider, 31 F.3d 1102, 1108
(11th Cir. 1994); In re Eagle-Picher Industries, Inc., 192 B.R. 903 (Bankr. S.D. Ohio
1996) (adopting Reider).

               The balancing test formulated in Snider Bros. has been adopted by numerous courts,
either explicitly, In re Auto-Train Corp., 810 F.2d 270, 276 (D.C. Cir. 1987); In re F.A.
Potts & Co., 23 B.R. 569, 572 (Bankr. E.D. Pa. 1982); In re Lewellyn, 26 B.R. 246, 251
(Bankr. S.D. Iowa 1982); In re Donut Queen, Ltd., 41 B.R. 706, 709 (Bankr. E.D.N.Y. 1984);
In re DRW Property Co. 82, 54 B.R. 489, 495 (Bankr. N.D. Tex. 1985); Holywell Corp. v.
Bank of New York, 59 B.R. 340, 347 (S.D. Fla. 1986), appeal dismissed, 838 F.2d 1547 (11th
Cir. 1987); In re Baker & Getty Fin. Serv., Inc., 78 B.R. 139, 143 (Bankr. N.D. Ohio
1987); In re Steury, 94 B.R. 553, 554 (Bankr. N.D. Ind. 1988), or implicitly. In re Luth,
28 B.R. 564, 567 (Bankr. D. Idaho 1983) (citing Snider Bros. test as another “element”);
In re Helms, 48 B.R. 714, 717 (Bankr. D. Conn. 1985) (balancing interests is another
important factor); In re N.S. Garrott & Sons, 48 B.R. 13, 18 (Bankr. E.D. Ark. 1984)
(adopting Snider Bros. principles as important factors); In re Silver Falls Petroleum
Corp., 55 B.R. 495, 498 (Bankr. S.D. Ohio 1985).

               The Second Circuit synthesized the prior precedents slightly differently. It viewed
the extensive list of factors cited and relied upon by other courts as being “merely
variants on two critical factors: (i) whether creditors dealt with the entities as a
single economic unit and ‘did not rely on their separate
identity in extending credit, . . .’ or (ii) whether the affairs of the debtors are so entangled that consolidation will
benefit all creditors. . . .” Union Sav. Bank v. Augie/Restivo Baking Co., Ltd. (In re
Augie/Restivo Baking Co., Ltd.), 860 F.2d 515, 518 (2d Cir. 1988) (citations omitted).

               Under Augie/Restivo, a showing of substantial identity and creditor reliance appears
to suffice for substantive consolidation, without the additional showing of a necessity
for consolidation or a harm to be prevented or a benefit to be gained, which heavily
outweighs the harm to the objector. Alternatively, if “the affairs
of the debtors are so entangled that consolidation will benefit all creditors,” even
creditor reliance on the separate credit of the entities might not be required. Union
Sav. Bank v. Augie/Restivo Baking Co., Ltd. (In re Augie/Restivo Baking Co., Ltd.), 860
F.2d 515, 518 (2d Cir. 1988). Such a showing of entanglement would undoubtedly satisfy
the Eastgroup and Snider tests of necessity of consolidation to prevent harm or gain a
benefit.

H-21

 

[          ], 2000

Page 22

Alter Ego

               Some courts have ordered substantive consolidation in circumstances that would have
justified application of the “piercing the corporate veil” doctrine under applicable
nonbankruptcy law. See, e.g., In re Gulfco Inv. Corp., 593 F.2d 921 (10th Cir. 1979); In
re Baker & Getty FinServ., 78 B.R. 139 (Bankr. N.D. Ohio 1987); In re Stop & Go of
America, Inc., 49 B.R. 743 (Bankr. D. Mass. 1985); In re Tureaud, 45 B.R. 658 (Bankr. N.D.
Okla. 1985), aff’d, 59 B.R. 973 (N.D. Okla. 1986); In re 1438 Meridian Place, N.W., Inc.,
15 B.R. 89 (Bankr. D.D.C. 1981); In re Food Fair, Inc., 10 B.R. 123 (Bankr. S.D.N.Y.
1981); In re Vecco Constr. Indus., 4 B.R. 407 (Bankr. E.D. Va. 1980); see also In re S.I.
Acquisition, Inc., 58 B.R. 454, 460 n.3 (Bankr. W.D. Tex. 1986), rev’d on other grounds,
817 F.2d 1142 (5th Cir. 1987). But see, e.g., In re 599 Consumer Electronics, Inc., 195
B.R. 244, 249 (S.D.N.Y. 1996) (court noted that although proponents of substantive
consolidation “have possibly . . . rais[ed] issues that could be the subject of a
fraudulent conveyance action or possibly piercing the corporate veil, they have not proved
that the Debtors should be substan-tively consolidated,” thus suggesting that evidence
that will support veil piercing will not necessarily support substantive consolidation).

               The grounds for disregarding the corporate form are similar to the traditional
substantive consolidation elements. For example, under New York law, the grounds can be
either (i) fraud or (ii) complete domination of the corporation that results in harm to a
third party. See Wm. Passalacqua Builders, Inc. v. Resnick Developers South, Inc., 933
F.2d 131, 138 (2d Cir. 1991) (excessive control by majority shareholder justified piercing
corporate veil; court noted “critical question” of whether corporation is used by
individual to accomplish his own and not the corporation’s business); Itel Containers
Int’l Corp. v. Atlanttrafik Express Serv. Ltd., 909 F.2d 698, 703 (2d Cir. 1990) (“New
York law allows the corporate veil to be pierced either when there is fraud or when the
corporation has been used as an alter ego.”); Electronic Switching Indus., Inc. v.
Faradyne Elecs. Corp., 833 F.2d 418, 424 (2d Cir. 1987) (control and domination must
result in a “wrong, fraud or the breach of a legal duty, or a dishonest and unjust act”
before New York law will permit corporate disregard). Control over an entity which leads
to a finding of an alter ego has been determined by the following factors: “(1) the
absence of the formalities and paraphernalia that are part and parcel of the corporate
existence, (2) inadequate capitalization, (3) whether funds are put in and taken out of
the corporation for personal rather than corporate purposes, (4) overlap in ownership,
officers, directors and personnel, (5) common office space, address and telephone numbers
of corporate entities, (6) the amount of business discretion displayed

H-22

 

[          ], 2000

Page 23

by the allegedly dominated corporation, (7) whether the related corporations deal
with the dominated corporation at arms’ length, (8) whether the corporations are treated
as independent profit centers, (9) the payment or guarantee of debts of the dominated
corporation by other corporations in the group, and (10) whether the corporation in
question had property that was used by other of the corporations as if it were its own.”
Passalacqua, 933 F.2d at 139.

               Generally, the bankruptcy law does not grant the bankruptcy trustee of a corporation
the power to pierce the corporate veil to pursue claims against the shareholder
independent of any state law right that the corporation itself would have against the
shareholder on alter ego grounds. Spartan Tube and Steel, Inc. v. Himmelspach (In re RCS
Engineered Prods. Co., Inc.), 102 F.3d 223 (6th Cir. 1996). Substantive consolidation of
the corporation’s and the shareholder’s estate, however, can accomplish much the same
result as permitting a corporate trustee to pursue the shareholder and thus may animate
some of the substantive consolidation decisions in alter ego situations.

               Nevertheless, in the cases presenting an alter ego analysis in which substantive
consolidation was ordered, the fraud or domination and control that would have supported
an alter ego claim either was in addition to other, independently sufficient grounds for
substantive consolidation or itself created those grounds. That is, the cases involved either commingling and a complete inability to sort out assets
and liabilities, Soviero v. Franklin Natl. Bank, 328 F.2d 446 (2d Cir. 1964); In re Baker
& Getty Fin. Servs., Inc. 78 B.R. 139 (Bankr. N.D. Ohio 1987); In re Tureaud, 45 B.R. 658
(Bank. N.D. Okla. 1985), affd. 59 B.R. 973 (N.D. Okla. 1986); In re 1438 Meridian Place,
N.W., Inc. 15 B.R. 89 (Bankr. D.C. 1981); or some form of fraud resulting in creditor
reliance on the credit of the combined entities that justified substantive consolidation.
Murphy v. Stop & Go Shops, Inc. (In re Stop & Go of America, Inc.), 49 B.R. 743 (Bankr. D.
Mass. 1985).

Open issues

               Notwithstanding the widespread acceptance of the Snider Bros. and Eastgroup analysis,
three important issues remain unsettled: the importance of the traditional elements, what
constitutes necessity for consolidation, what constitutes prejudice to an objecting
creditor’s interests, and the relationship between creditor reliance and necessity.

H-23

 

[          ], 2000

Page 24

               Importance of the Elements. The precise significance of the traditional
substantive consolidation elements in the balancing analysis is unclear. Snider Bros. and
those cases directly following its balancing standard tend to relegate the substantive
consolidation elements to a secondary role. That is, the elements in aggregate may be
considered as a single factor in the balancing analysis. Snider Bros., 18 B.R. at 234.
Eastgroup Properties views the elements as factually relevant to a determination by the
court as to substantial identity between the entities and the necessity for consolidation.
The importance under the balancing test of factors other than the presence of the
elements of consolidation, that is, prejudice to creditors, necessity of consolidation,
and reliance by creditors on the separate credit of the separate entities, suggests that
the absence of even most of the traditional elements does not provide the same protection
against substantive consolidation that it did before the wide-spread adoption of the
balancing test.

               What Constitutes Necessity or Benefit. Snider Bros. and Eastgroup compel
proponents of substantive consolidation to prove the necessity of consolidation or the
benefits to be derived or the harm to be avoided from consolidation. The determination of
necessity, benefits, or avoided harm is, however, dependent on a court’s perspective of
the type of benefit that is promoted by consolidation.

               Some reported decisions require benefits that are distributional, i.e., reallocation
of certain creditors’ rights to a greater number of other creditors. In Eastgroup
Properties v. Southern Motel Assoc., Ltd., 935 F.2d 245, 250 (11th Cir. 1991), a relevant
factor supporting consolidation was that “absent substantive consolidation, the majority
of creditors will receive only a small portion of their claims, while the equity interest
holders may receive a substantial distribution.” The Eleventh Circuit also appears to
have viewed the fact that administrative and other priority claimants of one of the
estates would receive a larger portion of their claims, as opposed to pre-petition
unsecured creditors of the other estate, if consolidation were approved, as a factor
supporting its decision to consolidate. See also In re Baker & Getty Fin. Servs., Inc.,
78 B.R. 139, 141 (Bankr. N.D. Ohio 1987) (substantive consolidation “to effect a more
equitable distribution of property among creditors”) (emphasis added); In re Luth, 28 B.R.
564, 568 (Bankr. D. Idaho 1983) (“The likelihood of creditors [of one of the debtors]
receiving a dividend are small or nonexistent should consolidation be denied.”).

               Other decisions require a net collective benefit for all creditors, i.e., that
substantive consolidation results in an economic advantage for the consolidated

H-24

 

[          ], 2000

Page 25

estates that exceeds the extent of prejudice to certain creditors’ interests. In re
I.R.C.C., Inc., 105 B.R. 237, 242 (Bankr. S.D.N.Y. 1989) (“The critical issue is whether
the same trustee in bankruptcy of each entity may pool their assets for the benefit of all
their creditors collectively, rather than liquidating each debtor separately . . .;” “The
trustee’s motion for substantive consolidation . . . is made in furtherance of his duty to
ensure the equitable treatment of all creditors.”) (emphasis added); In re Augie/Restivo
Baking Co., Ltd., 860 F.2d 515, 518 (2d Cir. 1988) (purpose of substantive consolidation
is equitable treatment of all creditors).

               Some courts also consider whether consolidation will further the goal of
reorganization in a chapter 11 case. One court found that parent’s need for the
subsidiary’s cash in order to operate and the need to facilitate a consolidated plan
supported substantive consolidation, at least where the only objecting creditor was fully
secured and therefore would not be harmed. In re F.A. Potts & Co., Inc., 23 B.R. 569
(Bankr. E.D. Pa. 1982). Another court, after concluding that creditors in general and the
objecting creditor in particular could not have relied on the separate credit of the
separate entities, determined that the fact that the reorganization plan would fail
without consolidation satisfied the requirement of finding a benefit to be gained by
consolida-tion. Central Claims Servs., Inc. v. Eagle- Picher Ind., Inc. (In re
Eagle-Picher Ind., Inc.), 192 B.R. 903 (Bankr. S.D. Ohio 1996).

               Creditor Reliance and Prejudice. Another area of uncertainty is the approach
taken by the courts in analyzing asserted prejudice to an objecting creditor’s interests.
Some courts apply an objective standard, which compares the effect of consolidation to the
result in the bankruptcy case under applicable law without consolidation. Steury, 94 B.R.
at 555 (“Before embarking upon a broad discussion of the intricacies of bankruptcy law, it
is appropriate to first consider the relative rights of the debtors and their creditors
under state law. In this way we will have a standard against which any prejudice, that
might befall either of them, can be measured”) (emphasis added). Other courts apply a
subjective standard, which measures prejudice against a creditor’s subjective expectations
at the time credit was extended based on the creditor’s reliance on the separate credit of
the separate debtors. See Snider Bros., 18 B.R. at 238 (reference to harm to creditor who
looked solely to credit of single debtor); Donut Queen, 41 B.R. at 709 (when creditors
treat their debtor “as a distinct and separate entity, consolidation would be manifestly
prejudicial”); In re Helms, 48 B.R. at 717. Some courts seem to apply both subjective and
objective standards:

H-25

 

[          ], 2000

Page 26

In this case there has been no proof offered that
any creditor relied on solely one or the other of
the entities Tyler seeks to consolidate.
Further, there is no evidence that a
consolidation would tend to improve the financial
position of any group of creditors as compared
with another.

Lewellyn, 26 B.R. at 252.

               Nor have the courts given adequate guidance on what is required to show reliance on
the credit of separate debtors The objecting creditors in Eastgroup Properties, for
example, failed in their attempt to demonstrate adequate reliance on their debtor, with no
suggestion as to what type of proof would have sufficed:

[W]e do not believe that appellants have
estab-lished that they relied solely on SMA’s
separate credit in dealing with SMA. Appellants
point to two pieces of evidence which, they
contend, prove that they relied on the separate
credit of SMA: (1) . . . both GPH and SMA held
them-selves out to the public and to their
creditors as separate corporations and (2) the
fact that Eastgroup pursued a court fight over
the identity of the tenant in the lease contracts
with Eastgroup. . . . That GPH and SMA may have
held themselves out to the public and to their
creditors as separate corporations does not mean
that appellants did not rely on the credit of
both corporations. Nor does Eastgroup’s
litigations over the identity of its tenant
satisfy its burden. That litigation only proves
that Eastgroup’s tenant was SMA; it proves
nothing about whether Eastgroup relied on SMA’s
separate credit in deciding to deal with SMA.

935 F.2d at 251-52.

H-26

 

[          ], 2000

Page 27

               Relationship Between Creditor Reliance and Necessity. It also remains
unclear whether, under the Second Circuit Augie/Restivo balancing test, an Eastgroup or
Snider showing of necessity for consolidation is required in addition to substantial
identity and creditor reliance and whether, under the Eleventh Circuit Eastgroup balancing
test, creditor nonreliance is required in cases in which financial entanglement creates a
necessity of consolidation, as it did in Chemical Bank New York Trust Co. v. Kheel, 369
F.2d 845 (2d Cir. 1966).

Opinion and Analysis of the Transaction.

               Based on the facts set forth above, and subject to the discussion contained herein
and the reasoned analysis of analogous case law (although there is no precedent directly
on point), in the event that PHH, Cendant or the Additional Seller were to be a debtor in
a case under the Bankruptcy Code, for the reasons, among others, set forth below, it is
our opinion that regardless of which of the approaches or standards a court follows, it
would not be an appropriate exercise of a court’s equitable discretion to, and a creditor
or trustee of PHH or other party in interest (or PHH as debtor in possession), of Cendant
or other party in interest (or Cendant as debtor in possession) or of the Additional
Seller (or the Additional Seller as debtor in possession) as the case may be, would not
have valid legal grounds to have a court disregard, the separate existence of the Trust so
as to order substantive consolidation under the Bankruptcy Code of the assets and
liabilities of the Trust with the bankruptcy estate of PHH, Cendant or the Additional
Seller, as the case may be, and the court, accordingly, would not order such
consolidations.

               First, the facts set forth above indicate (and we have assumed) that the financial
and business affairs of the Trust will remain segregated and readily distinguishable from
those of PHH, Cendant and the Additional Seller. Thus, assets and liabilities of the
Trust and PHH, Cendant and the Additional Seller will be ascertainable in bankruptcy or
otherwise so as to preclude valid assertions of financial entanglement as support for
substantive consolidation under any of the standards discussed above.

               Second, regarding substantive consolidation between the Trust and PHH, Cendant or the
Additional Seller, as the case may be, we have assumed that each of the Trust, PHH,
Cendant and the Additional Seller will strictly observe all organizational and other
statutory formalities. As a result of strict compliance with appropriate formalities and
preservation of all indicia of separateness, third parties should not reasonably rely on
the assets of the Trust to satisfy obligations of PHH,

H-27

 

[          ], 2000

Page 28

Cendant or the Additional Seller, as the case may be. It should be difficult for any
such third party to persuade a court that substantive consolidation is warranted under the
balancing test or substantive consolidation “elements” approach because of the lack of any
actual prejudice to creditors’ interests associated with the recognition of separate
entities.

               Third, we have assumed the absence of the more egregious “elements” discussed above
which would support a finding that the Trust is an alter ego or instrumentality of PHH,
Cendant or the Additional Seller, and the absence of such “elements” favors denial of
substantive consolidation. Specifically, we have assumed that (1) on the date hereof, the
Trust should not have inadequate capital for its intended purposes, (2) the Trust will
provide for its expenses on an ongoing basis, and such expenses will not be routinely paid
by PHH, Cendant or the Additional Seller, (3) the Trust will not be referred to as a
division or department of PHH, Cendant or the Additional Seller, (4) the Administrator of
the Trust is expected to act in the interests of the Trust, and is not expected to act
contrary to those interests at the direction of PHH, Cendant or the Additional Seller, (5)
all formal legal requirements relating to the Trust will be strictly observed, (6) as
indicated above, there should be no difficulty in segregating and ascertaining respective
assets and liabilities, (7) there is no commin-gling of business functions or of assets
between the Trust, PHH, Cendant and the Additional Seller — the activities of the Trust
are expected to be entirely separate from whatever business activities PHH, Cendant and
the Additional Seller may otherwise be engaged in, (8) there will be no guarantees made by
the Trust or PHH, Cendant or the Trust and the Additional Seller with respect to
obligations of the other, and (9) there will be no transfers of assets without formal
observance of corporate formalities.

               Fourth, we do not believe that the cases in which the alter ego elements as well as
other independent elements were present affect our opinion as to the transaction. As
noted above, the courts have not ordered substantive consolidation in cases in which the
only grounds present were those that would have supported piercing the corporate veil.
Finally, the relationships of the Trust with PHH, Cendant and the Additional Seller in the
transaction are clear from the outset, and it is assumed that their relationships have
been and will be extensively disclosed.

               Fifth, in the case of a court applying some variation of the balancing test,
creditors of PHH, Cendant or the Additional Seller should be unable to demonstrate any
harm to be remedied by substantive consolidation with respect to creditor reliance and
expectations that the assets of the Trust would be available to

H-28

 

[          ], 2000

Page 29

satisfy their claims or otherwise served as a basis for extending credit. Moreover,
from a policy perspective, there would appear to be no incentive to collapse the Trust
into PHH, Cendant or the Additional Seller, as the case may be. The Trust was not
established for the purpose of perpetrating a fraud or circumventing public policy, nor
would the continued recognition of the Trust as an entity distinct from PHH, Cendant and
the Additional Seller lead to such a result.

               Sixth, we do not believe that the four open issues under the balancing test described
above would affect our opinion on the transaction.

	 	(a)	 	Importance of Elements. The structure of
the transaction, as it has been assumed, emphasizes the reliance by
the creditors of the Trust on the separate credit of the Trust and
assumes extensive and continuing disclosure of the separateness of
the Trust, PHH, Cendant and the Additional Seller and their assets,
which should provide the same level of protection against substantive
consolidation no matter what importance a court gives to the
traditional elements.

	 
	 	(b)	 	What Constitutes Necessity or Benefit. The
absence of limits on the kinds of matters that may properly be
introduced in showing the necessity for consolidation or a benefit to
be gained or harm to be avoided under the balancing test may
significantly reduce a proponent’s burden in meeting the requirements
of that test. The overall structure of the transaction, as assumed,
however, should minimize the ability to show that there is a
necessity, a benefit, or a harm to be avoided by consolidating the
Trust into PHH, Cendant or the Additional Seller, as the case may be,
in the absence of a court determination, such as was suggested in
Eagle-Picher and found in F.A. Potts & Co., that consolidation should
be ordered simply because it provides a better prospect for
reorganization.

	 
	 	(c)	 	Creditor Reliance and Prejudice. The lack
of clarity on the appropriate standard to be applied to the objecting
creditors’ principal defense to substantive consolidation is
addressed in this transaction, because creditor reliance on the
separate credit of the Trust is made clear throughout.

H-29

 

[          ], 2000

Page 30

	 	(d)	 	Relationship Between Creditor Reliance and Necessity.
Finally, the transaction has been structured so that (and we have
as-sumed) first, the manner in which the companies deal with
third parties will be such as to put them on appropriate notice
of their separateness and to create reliance on their separate
credit, and second, the financial affairs of the Trust, PHH,
Cendant and the Additional Seller will not become entangled,
separate books and records will be maintained, and the courts
will be able to sort out the assets and liabilities of each.

Conclusion and General Matters

               The foregoing opinion is expressly subject to there being no material change in the
law, and there being no additional facts which would materially affect the validity of the
assumptions and conclusions set forth herein or upon which this opinion is based.
However, in the course of our representation of PHH, Cendant, the Additional Seller and
the Trust, we have not become aware of any additional facts which would materially affect
the validity of such assumptions and conclusions.

               It is our and your understanding that the foregoing opinion is not a guaranty as to
what a particular court would actually hold, but an opinion as to whether a creditor or
trustee of PHH (or PHH as debtor in possession), of Cendant (or Cendant as debtor in
possession) or of the Additional Seller (or the Additional Seller as debtor in possession)
would have valid legal grounds to have a court disregard the separate existence of the
Trust so as to order substantive consolidation under the Bankruptcy Code of the assets and
liabilities of the Trust with the bankruptcy estate of PHH, Cendant or the Additional
Seller, as the case may be. Furthermore, the foregoing opinion relates solely to the
application of the matters discussed in this opinion in the event of a case under the
Bankruptcy Code concerning the Additional Seller.

               In that regard, you should be aware of the Special Report by the TriBar Opinion
Committee, Opinions in the Bankruptcy Context; Rating Agency, Structured Financing and
Chapter 11 Transactions, 46 Bus. Law. 717 (1991), and we hereby incorporate herein by
reference the discussion of the limitations and inherent uncertainties involved in
opinions of this nature discussed therein.

               We express no opinion as to whether a bankruptcy judge’s ruling with respect to the
subject matter of this opinion would be seen as a final order for the

H-30

 

[          ], 2000

Page 31

purpose of appeal or whether an appellate court would exercise its discretion to
grant leave to appeal. Furthermore, this opinion speaks only as to the ultimate outcome
of issues as a legal matter and does not deal with the availability of temporary
restraining orders, preliminary injunctions or similar orders pending determination on the
merits.

H-31

 

[          ], 2000

Page 32

               This letter is being furnished to you solely for your benefit in connection with the
transaction described herein and is not to be used, circulated, quoted, relied upon or
otherwise referred to for any other purpose or by any other person without our prior
express written permission.

	 	 	 	 	 
	 	Very truly yours, 

 	 
	 	 	 
	 	 	 
	 	 	 
	 

H-32exv4w1

 

Exhibit 4.1

EXECUTION COPY

INVESTMENT AGREEMENT

dated as of May 21, 2007

by and among

FREMONT GENERAL CORPORATION,

FREMONT INVESTMENT & LOAN

and

HUNTER’S GLEN/FORD, LTD.

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page
	
ARTICLE I
	
DEFINITIONS
	 
	 	 	 	 	 	 
	Section 1.1.

	 	Definitions
	 	 	1	 
	Section 1.2.

	 	General Interpretive Principles
	 	 	7	 
	
ARTICLE II
	
ISSUANCE AND SALE OF SECURITIES
	 
	 	 	 	 	 	 
	Section 2.1.

	 	Issuance and Sale of Securities
	 	 	7	 
	Section 2.2.

	 	Closing
	 	 	8	 
	
ARTICLE III
	
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
	 
	 	 	 	 	 	 
	Section 3.1.

	 	Corporate Organization and Qualification
	 	 	9	 
	Section 3.2.

	 	Authorization of Agreements
	 	 	9	 
	Section 3.3.

	 	Consents; No Conflicts
	 	 	10	 
	Section 3.4.

	 	Capitalization
	 	 	11	 
	Section 3.5.

	 	Subsidiaries
	 	 	12	 
	Section 3.6.

	 	SEC Reports; Financial Statements
	 	 	12	 
	Section 3.7.

	 	Absence of Changes
	 	 	13	 
	Section 3.8.

	 	Intellectual Property
	 	 	13	 
	Section 3.9.

	 	Litigation
	 	 	14	 
	Section 3.10.

	 	Compliance with Applicable Laws
	 	 	14	 
	Section 3.11.

	 	No Fraud or Misrepresentation
	 	 	15	 
	Section 3.12.

	 	Taxes
	 	 	15	 
	Section 3.13.

	 	Certain Contracts
	 	 	16	 
	Section 3.14.

	 	Disclosure Controls and Procedures
	 	 	16	 
	Section 3.15.

	 	Commercial Real Estate Transaction
	 	 	17	 
	Section 3.16.

	 	Broker’s Fees
	 	 	17	 
	Section 3.17.

	 	Exemption from Registration
	 	 	17	 
	
ARTICLE IV
	
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
	 
	 	 	 	 	 	 
	Section 4.1.

	 	Organization
	 	 	17	 

 

 

	 	 	 	 	 	 	 
	 	 	 	 	Page
	 	 	 	 	 
	Section 4.2.

	 	Authorization of Agreements
	 	 	17	 
	Section 4.3.

	 	Consents; No Conflicts
	 	 	18	 
	Section 4.4.

	 	Purchase for Purpose of Investment
	 	 	19	 
	Section 4.5.

	 	Financing
	 	 	19	 
	
ARTICLE V
	
COVENANTS
	 
	 	 	 	 	 	 
	Section 5.1.

	 	Taking of Necessary Action
	 	 	19	 
	Section 5.2.

	 	Conduct of Business
	 	 	19	 
	Section 5.3.

	 	Notifications
	 	 	21	 
	Section 5.4.

	 	Share Listing
	 	 	22	 
	Section 5.5.

	 	Charter Amendment; Certificate of Determination
	 	 	22	 
	Section 5.6.

	 	Shareholder Consent
	 	 	22	 
	Section 5.7.

	 	D&O Indemnification
	 	 	22	 
	
ARTICLE VI
	
ADDITIONAL AGREEMENTS
	 
	 	 	 	 	 	 
	Section 6.1.

	 	Access to Information
	 	 	22	 
	Section 6.2.

	 	Publicity
	 	 	23	 
	Section 6.3.

	 	Reservation of Shares
	 	 	23	 
	
ARTICLE VII
	
CONDITIONS
	 
	 	 	 	 	 	 
	Section 7.1.

	 	Conditions to Each Party’s Obligation
	 	 	23	 
	Section 7.2.

	 	Conditions to Investor’s Obligation
	 	 	23	 
	Section 7.3.

	 	Conditions to the Company’s and the Bank’s Obligations
	 	 	25	 
	
ARTICLE VIII
	
TERMINATION
	 
	 	 	 	 	 	 
	Section 8.1.

	 	Termination
	 	 	25	 
	Section 8.2.

	 	Effect of Termination
	 	 	26	 
	
ARTICLE IX
	
MISCELLANEOUS
	 
	 	 	 	 	 	 
	Section 9.1.

	 	Fees and Expenses
	 	 	26	 
	Section 9.2.

	 	Survival
	 	 	26	 
	Section 9.3.

	 	Indemnification
	 	 	27	 

iii

 

	 	 	 	 	 	 	 
	 	 	 	 	Page
	 	 	 	 	 
	Section 9.4.

	 	Notices
	 	 	27	 
	Section 9.5.

	 	Entire Agreement; Amendment
	 	 	28	 
	Section 9.6.

	 	Counterparts
	 	 	28	 
	Section 9.7.

	 	Governing Law
	 	 	28	 
	Section 9.8.

	 	Successors and Assigns
	 	 	28	 
	Section 9.9.

	 	Assignment
	 	 	28	 
	Section 9.10.

	 	Remedies; Waiver
	 	 	28	 
	Section 9.11.

	 	Specific Performance; Consent to Jurisdiction
	 	 	28	 
	Section 9.12.

	 	Severability
	 	 	28	 
	 
	 	 	 	 	 	 
	COMPANY DISCLOSURE SCHEDULE
	Section 1.1(a)

	 	Material Adverse Effect	 	 	 	 
	Section 1.1(b)

	 	Sale Transactions	 	 	 	 
	Section 3.2(a)

	 	Authorization of Agreements	 	 	 	 
	Section 3.3(a)

	 	Regulatory Approvals and Consents	 	 	 	 
	Section 3.3(b)

	 	Regulatory Approvals and Consents	 	 	 	 
	Section 3.4(b)

	 	Preemptive and Outstanding Capital Stock Rights	 	 	 	 
	Section 3.5(a)

	 	Subsidiaries	 	 	 	 
	Section 3.5(b)

	 	Other Investments	 	 	 	 
	Section 3.6(a)

	 	SEC Reports	 	 	 	 
	Section 3.6(b)(i)

	 	Regulatory Agency Reports	 	 	 	 
	Section 3.6(b)(ii)

	 	Regulatory Agency Proceedings	 	 	 	 
	Section 3.6(b)(iii)

	 	 Regulatory Agency Violations, Criticism or Exceptions	 	 	 	 
	Section 3.7

	 	Absence of Certain Changes	 	 	 	 
	Section 3.9

	 	Litigation	 	 	 	 
	Section 3.10

	 	Compliance with Applicable Laws	 	 	 	 
	Section 3.12

	 	Taxes	 	 	 	 
	Section 3.13(a)

	 	Company Contracts	 	 	 	 
	Section 3.13(b)

	 	Company Contracts; Default and Validity	 	 	 	 
	Section 3.14

	 	Disclosure Controls and Procedures	 	 	 	 
	Section 5.2

	 	Conduct of Business	 	 	 	 
	Section 7.2(g)

	 	D&O Insurance Policies	 	 	 	 
	 
	 	 	 	 	 	 
	INVESTOR DISCLOSURE SCHEDULE
	Section 2.1(b)

	 	Permitted Holders	 	 	 	 
	Section 3.2(a)

	 	Regulatory Approvals	 	 	 	 
	 
	 	 	 	 	 	 
	EXHIBITS
	Exhibit A — Certificate of Determination of Powers, Preferences and Rights
	Exhibit B — Exchange and Shareholder Rights Agreement
	Exhibit C — Original Warrant
	Exhibit D — Registration Rights Agreement
	Exhibit E — Charter Amendment

iv

 

INDEX OF DEFINED TERMS

	 	 	 	 	 
	 	 	Page	 
	Action
	 	 	1	 
	Additional Warrant
	 	 	1	 
	Additional Warrant Shares
	 	 	1	 
	Affiliate
	 	 	1	 
	Agreement
	 	 	1, 2	 
	Articles of Incorporation
	 	 	2	 
	Balance Sheet
	 	 	2	 
	Bank
	 	 	1, 2	 
	Business Day
	 	 	2	 
	Bylaws
	 	 	2	 
	Cease and Desist Orders
	 	 	2	 
	Certificate of Determination
	 	 	2	 
	Charter Amendment
	 	 	2, 23	 
	Closing
	 	 	2	 
	Closing Date
	 	 	2, 8	 
	Commercial Real Estate Transaction
	 	 	2	 
	Commission
	 	 	2	 
	Common Stock
	 	 	2	 
	Company
	 	 	1, 2	 
	Company Contract
	 	 	2, 16	 
	Company Disclosure Schedule
	 	 	2, 9	 
	Company Intellectual Property
	 	 	2	 
	Confidentiality Agreement
	 	 	3, 23	 
	Credit Suisse
	 	 	3, 17	 
	Damages
	 	 	3	 
	DFI
	 	 	3	 
	Directors and Officers Indemnification Agreement
	 	 	3, 22	 
	Exchange Act
	 	 	3	 
	Exchange Rights Agreement
	 	 	3	 
	Exchange Shares
	 	 	3	 
	Existing Policies
	 	 	26	 
	FDIC
	 	 	3	 
	GAAP
	 	 	3	 
	Governmental Entity
	 	 	3	 
	Group
	 	 	3	 
	HSR Act
	 	 	3	 
	Indemnified Persons
	 	 	27	 
	Initial Investor Nominees
	 	 	3	 
	Intellectual Property
	 	 	3	 
	Investor
	 	 	1, 4	 
	Investor Disclosure Schedule
	 	 	4, 17	 
	Law
	 	 	4	 
	Lien
	 	 	4	 

v

 

	 	 	 	 	 
	 	 	Page	 
	Material Adverse Effect
	 	 	4	 
	NYSE
	 	 	5	 
	Order
	 	 	5	 
	Original Warrant
	 	 	5	 
	Original Warrant Shares
	 	 	5	 
	Permitted Holder
	 	 	5, 7	 
	Permitted Holders
	 	 	5, 7	 
	Person
	 	 	5	 
	Preferred Shares
	 	 	5	 
	Purchase Price
	 	 	5	 
	Registration Rights Agreement
	 	 	5	 
	Regulatory Agencies
	 	 	12	 
	Regulatory Agency
	 	 	5	 
	Regulatory Approvals
	 	 	5	 
	Related Party
	 	 	5	 
	Representatives
	 	 	6	 
	Restraints
	 	 	6, 23	 
	Sale Transactions
	 	 	6	 
	SEC Reports
	 	 	6, 12	 
	Securities Act
	 	 	6	 
	Shareholder Approval
	 	 	6	 
	Shareholder Approval Date
	 	 	6	 
	Software
	 	 	4, 6	 
	Subsequent Reports
	 	 	6, 12	 
	Subsidiary
	 	 	6	 
	Tax
	 	 	6	 
	Tax Return
	 	 	6	 
	Taxes
	 	 	6	 
	Total Voting Power
	 	 	6	 
	Transaction Agreements
	 	 	7	 
	Warrant
	 	 	7	 
	Warrant Shares
	 	 	7	 

vi

 

INVESTMENT AGREEMENT

          INVESTMENT AGREEMENT (the “Agreement”), dated as of May 21, 2007, by and among
Hunter’s Glen/Ford, Ltd., a Texas limited partnership (the “Investor”), Fremont General
Corporation, a Nevada corporation (the “Company”), and Fremont Investment & Loan, a
California industrial banking corporation (the “Bank”).

WITNESSETH:

          WHEREAS, the Company, the Bank and the Investor have each determined to enter into this
Agreement pursuant to which the Investor has agreed to (i) purchase from the Bank, and the Bank has
agreed to issue and sell to the Investor, the Preferred Shares (as hereinafter defined) and (ii)
purchase from the Company, and the Company has agreed to issue and sell to the Investor, the
Warrants (as hereinafter defined);

          WHEREAS, the Company, the Bank and the Investor desire to make certain representations,
warranties, covenants and agreements in connection with the transactions contemplated herein;

          NOW, THEREFORE, in consideration of the premises and the mutual representations, warranties,
covenants and agreements contained herein, the parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS

          Section 1.1. Definitions. As used in this Agreement, the following terms shall have the meanings set
forth below:

          “Action” means any legal claim, inquiry, suit, action, proceeding, arbitration, audit
or investigation.

          “Additional Warrant” means the warrant to acquire up to 4,004,680 shares (plus the
number of shares, if any, that are subtracted from the Original Warrant Shares and Exchange Shares
for purposes of NYSE listing standards and regulations) of Common Stock, substantially in the form
of the Original Warrant (modified to reflect receipt of the Shareholder Approval), to be issued by
the Company to the Investor pursuant to Section 2.1(a) hereof upon receipt of the Shareholder
Approval.

          “Additional Warrant Shares” means the shares of Common Stock issuable upon the
exercise of the Additional Warrant.

          “Affiliate” of a Person has the meaning set forth in Rule 12b-2 under the Exchange
Act.

          “Agreement” has the meaning set forth in the preamble hereto.

 

 

          “Articles of Incorporation” means the Restated Articles of Incorporation of the
Company, as amended from time to time.

          “Bank” has the meaning set forth in the preamble hereto.

          “Balance Sheet” means the unaudited consolidated balance sheet of the Company and its
Subsidiaries as at September 30, 2006, and all related notes and schedules thereto.

          “Business Day” means any day, other than a Saturday, Sunday or a day on which banking
institutions in the State of California are authorized or obligated by law or executive order to
close.

          “Bylaws” means the Amended and Restated Bylaws of the Company, as amended from time to
time.

          “Cease and Desist Orders” means the Orders to Cease and Desist issued by the FDIC and
the DFI to the Bank, the Company and Fremont General Credit Corporation in March 2007.

          “Certificate of Determination” means the Certificate of Determination of Powers,
Preferences and Rights of 6.5% Series A Non-Cumulative Exchangeable Preferred Stock of the Bank,
substantially in the form of Exhibit A hereto.

          “Charter Amendment” has the meaning set forth in Section 5.5 hereof.

          “Closing” means the closing of the sale and purchase of the Preferred Shares and the
Warrant pursuant to Section 2.1(a) hereof.

          “Closing Date” has the meaning set forth in Section 2.2 hereof.

          “Commercial Real Estate Transaction” means the transactions contemplated by the Asset
Purchase Agreement, dated as of May 21, 2007, between the Bank and iStar Financial Inc.

          “Commission” means the Securities and Exchange Commission.

          “Common Stock” means the common stock, par value $1.00 per share, of the Company.

          “Company” has the meaning set forth in the preamble hereto.

          “Company Contract” has the meaning set forth in Section 3.13(a) hereof.

          “Company Disclosure Schedule” has the meaning set forth in Article III hereof.

          “Company Intellectual Property” means the Intellectual Property (as hereinafter
defined) used in or held for use in the conduct of the business of the Company or any of its
Subsidiaries (including the Bank).

2

 

          “Confidentiality Agreement” has the meaning set forth in Section 6.1(b) hereof.

          “Credit Suisse” has the meaning set forth in Section 3.16 hereof.

          “Damages” means any loss, liability, demand, claim, action, cause of action, cost,
damage, deficiency, amounts paid in settlement (with the approval of the Company which shall not be
unreasonably withheld), penalty, fine or expense (including reasonable attorneys’ fees and expenses
and all reasonable amounts paid in investigation or defense), whether or not involving a claim,
demand or action initiated by a Person that is not a party to this Agreement.

          “DFI” means the California Department of Financial Institutions.

          “Directors and Officers’ Indemnification Agreement” has the meaning set forth in
Section 5.7 hereof.

          “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
regulations promulgated thereunder.

          “Exchange and Shareholder Rights Agreement” means the agreement to be entered into
among the Company, the Bank and the Investor, substantially in the form of Exhibit B
hereto.

          “Exchange Shares” means the shares of Common Stock issuable upon the exchange of the
Preferred Shares in accordance with the Exchange and Shareholder Rights Agreement.

          “FDIC” means the Federal Deposit Insurance Corporation.

          “GAAP” means United States generally accepted accounting principles as in effect on
the date hereof.

          “Governmental Entity” means any government or any agency, bureau, board, commission,
court, department, political subdivision, tribunal, or other instrumentality of any government
(including any regulatory or administrative agency), whether federal, state, or local, domestic or
foreign.

          “Group” has the meaning set forth in Rule 13d-5 under the Exchange Act.

          “HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the regulations promulgated thereunder.

          “Initial Investor Nominees” has the meaning set forth in the Exchange and Shareholder
Rights Agreement.

          “Intellectual Property” means (i) trademarks, service marks, trade names, Internet
domain names, designs, logos, slogans, and general intangibles of like nature, together with all
goodwill, registrations and applications related to the foregoing; (ii) patents and industrial
designs (including any continuations, divisionals, continuations-in-part, renewals, reissues, and

3

 

applications for any of the foregoing); (iii) copyrights (including any registrations and
applications for any of the foregoing); (iv) computer programs, whether in source code or object
code form (including any and all software implementation of algorithms, models and methodologies),
databases and compilations (including any and all data and collections of data), and all
documentation (including user manuals and training materials) related to the foregoing
(collectively, “Software”); and (v) technology, trade secrets and other confidential
information, know-how, proprietary processes, formulae, algorithms, models, and methodologies.

          “Investor” has the meaning set forth in the preamble hereof.

          “Investor Disclosure Schedule” has the meaning set forth in Article IV hereof.

          “Law” means any law, treaty, statute, ordinance, code, rule or regulation of a
Governmental Entity.

          “Lien” means any mortgage, pledge, lien, security interest, claim, voting agreement,
restriction, hypothecation, charge, lease, easement, option, encumbrance or restriction (whether on
voting, sale, transfer, disposition or otherwise) of any kind, character and description
whatsoever.

          “Material Adverse Effect” means any material adverse effect on the retail deposit
business or financial condition of the Company and its Subsidiaries taken as a whole;
provided, however, that none of the following shall be deemed to constitute or
shall be taken into account in determining whether there has been a “Material Adverse
Effect”: any event, circumstance, change or effect arising out of or attributable to (a) any
decrease in the market price of the Common Stock (excluding any event, circumstance, change or
effect that is the basis for such decrease), (b) any changes in the United States or global economy
or capital, financial or securities markets generally, including changes in interest or exchange
rates, (c) any changes in general economic, legal, regulatory or political conditions in the
geographic regions in which the Company and its Subsidiaries operate, (d) any events,
circumstances, changes or effects arising from the consummation or anticipation of the transactions
contemplated by this Agreement or the Sale Transactions or the announcement of the execution of
this Agreement or the announcement of the Sale Transactions, (e) any events, circumstances, changes
or effects arising from the compliance with the terms of, or the taking of any action required by,
this Agreement, (f) any action taken by the Company or any of its Subsidiaries at the request or
with the consent of the Investor, (g) any litigation brought or threatened by the stockholders of
the Company arising out of or in connection with the existence, announcement or performance of this
Agreement or the transactions contemplated hereby or the Sale Transactions, (h) changes in law,
GAAP or applicable regulatory accounting requirements, or changes in interpretations thereof by any
Governmental Entity, (i) any outbreak of major hostilities in which the United States is involved
or any act of terrorism within the United States or directed against its facilities or citizens,
wherever located, (j) earthquakes, hurricanes, floods or other natural disasters, (k) a failure by
the Company to report earnings or revenue results in any quarter ending on or after the date hereof
consistent with the Company’s historic earnings or revenue results in any previous fiscal quarter,
including any failure to file with the Commission audited or unaudited financial statements for the
year ended December 31, 2006 or any subsequent period, (l) any loss, liability or expense arising
out of or relating to the contractual rights of third parties relating to the sale of

4

 

residential mortgage loans prior to the date of this Agreement, or (m) any matter set forth in
Section 1.1(a) of the Company Disclosure Schedule, except in the case of the foregoing clauses (i)
and (j), to the extent such changes or developments referred to therein would reasonably be
expected to have a materially disproportionate impact on the retail deposit business or financial
condition of the Company and its Subsidiaries, taken as a whole, relative to other industry
participants or enterprises (solely with respect to clause (i), located in the same geographic
region as the Company and its Subsidiaries).

          “NYSE” means the New York Stock Exchange.

          “Order” means any judgment, decree, order, writ, award, ruling, stipulation,
injunction or determination of an arbitrator or court or other Governmental Entity.

          “Original Warrant” means the warrant to purchase 7,129,326 shares of Common Stock,
substantially in the form of Exhibit C hereto, to be issued to the Investor on the Closing
Date.

          “Original Warrant Shares” means the shares of Common Stock issuable upon the exercise
of the Original Warrant.

          “Permitted Holder” or “Permitted Holders” have the meanings set forth in
Section 2.1(b) hereof.

          “Person” means any individual, corporation, company, association, partnership, joint
venture, trust or unincorporated organization, Group or Governmental Entity.

          “Preferred Shares” has the meaning set forth in Section 2.1 hereof.

          “Purchase Price” has the meaning set forth in Section 2.1 hereof.

          “Registration Rights Agreement” means the agreement to be entered into between the
Company and the Permitted Holders, substantially in the form of Exhibit D hereto.

          “Regulatory Agencies” has the meaning set forth in Section 3.6(b) hereof.

          “Regulatory Approvals” means any and all certificates, permits, licenses, franchises,
concessions, grants, consents, approvals, orders, registrations, authorizations, waivers, variances
or clearances from a Governmental Entity.

          “Related Party” with respect to any specified Person, means (i) any Affiliate of such
specified Person, or any director, executive officer, general partner or managing member of such
Affiliate; (ii) any Person who serves as a director, executive officer, partner, member or in a
similar capacity of such specified Person; (iii) any such Person’s spouse, parents, children and
siblings, including adoptive relationships and relationships through marriage, or any other
relative of such Person that shares such Person’s home; or (iv) any other Person who holds,
individually or together with any Affiliate of such other Person and any member(s) of such Person’s
Immediate Family, more than 5% of the outstanding voting equity or ownership interests of such
specified Person.

5

 

          “Representatives” means, with respect to any Person, any of such Person’s officers,
directors, partners, employees, agents, attorneys, accountants, consultants or financial or other
advisors or other Person associated with or acting on behalf of such Person.

          “Restraints” has the meaning set forth in Section 7.1(a) hereof.

          “Sale Transactions” means (i) the Commercial Real Estate Transaction and (ii) the
transaction described in Section 1.1(b) of the Company Disclosure Schedule.

          “SEC Reports” has the meaning set forth in Section 3.6(a) hereof.

          “Securities Act” means the Securities Act of 1933, as amended, and the regulations
promulgated thereunder.

          “Shareholder Approval” means the approval by the Company’s shareholders of the
issuance to the Permitted Holders of the Additional Warrant.

          “Shareholder Approval Date” means the date as of which the Shareholder Approval
occurs.

          “Software” has the meaning set forth in the definition of “Intellectual Property.”

          “Subsequent Reports” has the meaning set forth in Section 3.6(a) hereof.

          “Subsidiary” means, as to any Person, any other Person of which fifty percent (50%) or
more of the voting securities or other voting interests are owned or controlled, or the ability to
select or elect fifty percent (50%) or more of the directors or similar managers is held, directly
or indirectly, by such first Person or one or more of its Subsidiaries or by such first Person and
one or more of its Subsidiaries.

          “Tax” or “Taxes” means all taxes, charges, levies, penalties or other
assessments imposed by any United States federal, state, local or foreign taxing authority,
including, but not limited to income, gross receipts, excise, property, ad valorem, value added,
alternative minimum, stamp, occupation, use, service, license, intangible, net worth, sales,
transfer, franchise, payroll, employment, withholding, social security or other taxes, including
any interest, penalties or additions attributable thereto.

          “Tax Return” shall mean any return, report, information return or other document
(including any related or supporting information) with respect to Taxes, including but not limited
to information returns and any documents with respect to or accompanying payments of estimated
Taxes or requests for the extension of time in which to file any such return, report, information,
return or other document.

          “Total Voting Power” means the total number of votes entitled to be cast by the
holders of the outstanding Common Stock and any other securities entitled, in the ordinary course,
to vote on matters put before the holders of the Common Stock generally.

6

 

          “Transaction Agreements” means the Exchange and Shareholder Rights Agreement, the
Original Warrant and the Registration Rights Agreement.

          “Warrant” means the Original Warrant and the Additional Warrant.

          “Warrant Shares” means the Additional Warrant Shares and the Original Warrant Shares.

          Section 1.2. General Interpretive Principles. Whenever used in this Agreement, except as otherwise
expressly provided or unless the context otherwise requires, any noun or pronoun shall be deemed to
include the plural as well as the singular and to cover all genders. The name assigned this
Agreement and the section captions used herein are for convenience of reference only and shall not
be construed to affect the meaning, construction or effect hereof. Whenever the words “include,”
“includes,” or “including” are used in this Agreement, they shall be deemed to be followed by the
words “without limitation.” Unless otherwise specified, the terms “hereto,” “hereof,” “herein” and
similar terms refer to this Agreement as a whole (including the exhibits, schedules and disclosure
statements hereto), and references herein to Articles or Sections refer to Articles or Sections of
this Agreement.

ARTICLE II

ISSUANCE AND SALE OF SECURITIES

          Section 2.1. Issuance and Sale of Securities(a) Upon the terms and subject to the
conditions set forth in this Agreement, and in reliance upon the representations and warranties
hereinafter set forth, on the Closing Date, (i) the Bank will issue, sell and deliver to the
Investor (or its Affiliates,) and the Investor will purchase (or cause its Affiliates to purchase)
from the Bank, 8,899,410 shares of the Bank’s Series A Non-Cumulative Exchangeable Preferred Stock
(the “Preferred Shares”), free and clear of all Liens, and (ii) the Company will issue,
sell and deliver to the Investor, and the Investor will purchase from the Company, the Original
Warrant, free and clear of all Liens, for aggregate consideration of $80,094,690 (the “Purchase
Price”). The terms, limitations and relative rights and preferences of the Preferred Shares
shall be as set forth in the Certificate of Determination. Additionally, on the Shareholder
Approval Date, the Company will issue and deliver to the Investor the Additional Warrant, free and
clear of all Liens.

               (b) The Investor shall be permitted to designate in writing to the Company and the
Bank any of the Persons listed in Section 2.1(b) of the Investor Disclosure Schedule (each Person,
a “Permitted Holder” and such Persons, collectively with the Investor, the “Permitted
Holders”) who shall be permitted at the Closing to purchase from the Bank a portion of the
Preferred Shares and Warrants not in excess of 60% of the aggregate number of Preferred Shares and
Warrants being sold by the Bank pursuant to Section 2.1(a). Additionally, at or prior to the
Closing, the Investor shall be permitted to assign its rights and obligations pursuant to this
Agreement to any Permitted Holder that acquires Preferred Shares or Warrants pursuant to the
preceding sentence or to an Affiliate of the Investor; provided, however, that no
such assignment shall be permitted hereunder if such assignment could jeopardize or delay the
satisfaction of the condition set forth in Section 7.1(b), and the Investor shall be required to
make such an assignment to a non-consolidated Affiliate thereof, and to cause such Affiliate to
assume

7

 

the Investor’s purchase obligations hereunder, if necessary to satisfy such condition. At or
prior to the Closing, each Permitted Holder (other than the Investor) and any Affiliate to whom the
Investor has assigned its rights and obligations hereunder shall agree in writing with the Company
and the Bank to be bound by this Agreement and the Exchange and Shareholder Rights Agreement as
fully as if it were an initial signatory hereto, except that no Permitted Holder (other than the
Investor and its Affiliates) shall have any rights under Section 3 of the Exchange and Shareholder
Rights Agreement. Notwithstanding the above, no Person shall be permitted to be a Permitted Holder
if such Person’s status with respect thereto could reasonably be expected to jeopardize or delay
the satisfaction of the condition set forth in Section 7.1(b). Notwithstanding the foregoing, the
Investor shall not be permitted to designate any Person to purchase Preferred Shares as provided in
the first sentence of this Section 2.1(b) unless the Investor and such Person agree in writing that
if such Person is unable to comply fully and promptly with any requests for information by any
Governmental Entity in connection with any required Regulatory Approval, such Person will forfeit
its right to purchase any Preferred Shares and Warrants and the Investor (or an Affiliate thereof)
shall purchase such Preferred Shares and Warrants that had been proposed to be purchased by such
Person. The Investor shall provide the Company with a copy of such agreement, which shall
expressly name the Company as a third party beneficiary thereof. If a Permitted Holder (other than
the Investor and its Affiliates) is unable to obtain the approvals required by Section 7.1(b), then
the Investor agrees to acquire or cause an Affiliate to acquire any portion of the Warrants or the
Series A Preferred Stock from such Permitted Holder upon terms and conditions that shall be
mutually agreed upon by such parties.

          Section 2.2. Closing. (a) The Closing shall take place at the offices of Skadden, Arps, Slate, Meagher
& Flom LLP, 4 Times Square, New York, New York at 10:00 a.m., New York City time, on the first
business day following satisfaction or, if permissible, waiver of the conditions set forth in
Sections 7.1, 7.2 and 7.3 hereof (the “Closing Date”) or at such other time and place as
the parties may agree.

               (b) At the Closing (i) the Company on the one hand, and Investor and each of the
Permitted Holders designated by the Investor in accordance with Section 2.1(b) on the other hand
shall execute and deliver the Exchange and Shareholder Rights Agreement and the Registration Rights
Agreement, (ii) the Bank will deliver to the Investor and such Permitted Holders, certificates
representing the Preferred Shares, registered in the names of the Investor and such Permitted
Holders representing each Person’s pro rata portion of the Preferred Shares (in separate
certificates aggregating to the total number of Preferred Shares) together with the other
applicable documents and certificates to be delivered pursuant to Section 7.2 hereof, (iii) the
Company will enter into a warrant agreement in the form of the Original Warrant with the Investor
and each Permitted Holder designated by the Investor in accordance with Section 2.1(b) representing
each Person’s pro rata portion of the number of shares covered by the Original Warrant (in separate
agreements aggregating to the total number of shares under the Original Warrant), together with the
other applicable documents and certificates to be delivered pursuant to Section 7.2 hereof and (iv)
the Investor, in full payment for the Preferred Shares and the Original Warrant, will deliver or
cause to be delivered to the Bank and the Company an amount equal to the Purchase Price in
immediately available funds by wire transfer to the accounts designated by the Company at least two
Business Days prior to the Closing Date, or by such

8

 

other means as may be agreed by the parties, together with the other documents and certificates
to be delivered pursuant to Section 7.3 hereof. On the Shareholder Approval Date, the Company
will enter into a warrant agreement in the form of the Additional Warrant with the Investor and
each Permitted Holder designated by the Investor in accordance with Section 2.1(b) representing
each Person’s pro rata portion of the number of shares covered by the Additional Warrant (in
separate agreements aggregating to the total number of shares under the Additional Warrant).

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

          Except as set forth in the disclosure schedule delivered by the Company to the Investor prior
to the execution and delivery of this Agreement (the “Company Disclosure Schedule”), the
Company hereby represents and warrants to the Investor as follows:

          Section 3.1. Corporate Organization and Qualification. Each of the Company and its Subsidiaries
(including the Bank) is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has all requisite corporate power and
authority to own or lease and operate its properties and assets and to conduct its business as it
is now being conducted. Each of the Company and its Subsidiaries (including the Bank) is duly
licensed, authorized or qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which its ownership, lease or
operation of property or conduct of business requires such qualification, except where the failure
to be so licensed, authorized and qualified and in good standing would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. The Company has made
available to the Investor a complete and correct copy of the Articles of Incorporation, the Bylaws
and any other organizational documents of the Company and the comparable governing instruments of
the Bank, and, to the extent requested to do so, has also made available to the Investor complete
and correct copies of the comparable governing instruments of each other Company Subsidiary, in
each case as amended to date, and each of which as so delivered or made available, as the case may
be, is in full force and effect.

          Section 3.2. Authorization of Agreements. (a) Except as set forth in Section 3.2(a) of the Company
Disclosure Schedule, each of the Company and the Bank has all requisite corporate power and
authority to execute, deliver and perform its obligations under this Agreement and the Transaction
Agreements to which it is a party, to issue and sell the Preferred Shares and the Warrant, as
applicable, and to otherwise consummate the transactions contemplated hereby and thereby and such
issuance, sale and delivery of the Preferred Shares and the Warrant to the Investor will convey to
the Investor good and marketable title thereto free and clear of all Liens (other than as set forth
in this Agreement or the Transaction Agreements). The execution, delivery and performance of this
Agreement and the Transaction Agreements, and the consummation by the Company and the Bank of the
transactions contemplated hereby and thereby, have been approved by the respective boards of
directors of the Company and the Bank, and, except with respect to the matters requiring
Shareholder Approval and except as set forth in Section 3.2(a) of the Company Disclosure Schedule,
no other corporate proceedings on the part of the Company or the Bank are necessary to approve this
Agreement or the Transaction Agreements and the consummation by the Company and the Bank of the
transactions

9

 

contemplated hereby and thereby. The Company’s board of directors has taken, prior to the
execution of this Agreement, all such action required to be taken by it (to the extent that it has
the legal authority to do so) to provide that this Agreement and the Transaction Agreements and the
transactions contemplated hereby and thereby shall be exempt from the requirements of any
“moratorium,” “control share,” “fair price” or other anti-takeover laws or regulations of any
state.

               (b) This Agreement has been duly executed and delivered by a duly authorized officer
of each of the Company and the Bank and, assuming the due authorization, execution and delivery by
the Investor, constitutes a valid and binding obligation of the Company and the Bank, enforceable
against the Company and the Bank in accordance with its terms, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors’ rights generally and to general principles of
equity. The Transaction Agreements, when executed, will have been duly executed and delivered by a
duly authorized officer of the Company and the Bank, as applicable, and, assuming the due
authorization, execution and delivery by the Investor, will constitute a valid and binding
obligation of the Company and the Bank, as applicable, enforceable against the Company and the
Bank, as applicable, in accordance with their terms, subject to applicable bankruptcy, insolvency
and similar laws affecting creditors’ rights generally and to general principles of equity.

          Section 3.3. Consents; No Conflicts. (a) Except for (i) the expiration of the waiting period under the
HSR Act, if applicable, (ii) all consents, authorizations, orders and approvals of, and filing and
registrations, including the effectiveness of a registration statement and applicable “Blue Sky”
clearance required for, or in connection with, the consummation of the transactions contemplated by
the Registration Rights Agreement, (iii) the Regulatory Approvals set forth on Section 3.3(a) of
the Company Disclosure Schedule, and (iv) the filing of the Charter Amendment and the Certificate
of Determination with the California Secretary of State, no Regulatory Approval from, or
registration, declaration, notice or filing with, any Governmental Entity is required to be made or
obtained by the Company or any of its Subsidiaries (including the Bank) in connection with the
execution, delivery and performance of this Agreement and the Transaction Agreements and the
consummation of the transactions contemplated hereby and thereby, except for such Regulatory
Approvals, registrations, declarations, notices and filings which are applicable by reason of facts
specifically relating to, or the particular regulatory status of the Investor.

               (b) Assuming the receipt of all Regulatory Approvals set forth on Section 3.3(b) of
the Company Disclosure Schedule and the completion of all registrations, declarations, notices and
filings referred to in Section 3.3(a) and Section 3.3(b) of the Company Disclosure Schedule, the
execution and delivery of this Agreement does not, and the execution and delivery of the
Transaction Agreements will not, and the performance of the obligations set forth herein and
therein and the consummation of the transactions contemplated hereby and thereby will not, (i)
violate any provision of the Articles of Incorporation or the Bylaws of the Company or the
comparable governing instruments of any of its Subsidiaries (including the Bank); (ii) conflict
with, contravene or result in a breach or violation of any of the terms or provisions of, or
constitute a default (with or without notice or the passage of time) under, or result in or give
rise to a right of termination, cancellation, acceleration, amendment or modification of any right
or obligation under, any note, bond, debt instrument, indenture,

10

 

mortgage, deed of trust, lease, loan agreement, contract or any other agreement, instrument or obligation to which the Company or
any of its Subsidiaries (including the Bank) is a party or by
which the Company or any of its Subsidiaries (including the Bank) or any property of the
Company or any of its Subsidiaries (including the Bank) is bound; (iii) result in the creation or
imposition of any Lien upon any assets or properties of the Company or any of its Subsidiaries
(including the Bank); or (iv) violate or conflict with any Law or Order applicable to the Company
or any of its Subsidiaries (including the Bank) or any of their respective assets or properties of
any Governmental Entity having jurisdiction over the Company or any of its Subsidiaries (including
the Bank) or any of their respective assets or properties.

          Section 3.4. Capitalization. (a) The authorized capital stock of the Company consists of (i)
150,000,000 shares of Common Stock, of which 80,183,775 shares are issued and outstanding as of the
date of this Agreement and (ii) 2,000,000 shares of preferred stock, par value $0.01 per share, of
which no shares are outstanding. All of such outstanding shares of Common Stock were duly
authorized and validly issued and are fully paid and non-assessable. As of the date of this
Agreement, the authorized capital stock of the Bank consists of 300,000 shares of common stock, par
value $10.00 per share, of which 275,000 shares are issued and outstanding.

               (b) Other than as set forth in Section 3.4(b) of the Company Disclosure Schedule,
there are no preemptive or other outstanding rights, options, warrants, conversion rights, stock
appreciation rights, redemption rights, repurchase rights, agreements, arrangements, calls,
commitments or rights of any kind that obligate the Company to issue or sell any shares of its
capital stock or any securities or obligations convertible into or exchangeable or exercisable for,
or giving any person a right to subscribe for or acquire, any securities of the Company, and no
securities or obligations evidencing such rights are authorized, issued or outstanding. Other than
as contemplated herein, there are no restrictions on the transfer of shares of capital stock of the
Company, and no contract, agreement or understanding exists among holders of capital stock of the
Company with respect to the ownership, holding, voting or any other rights or obligations with
respect to such capital stock.

               (c) Prior to the Closing, the Preferred Shares will be duly and validly authorized
and, when issued as contemplated by this Agreement, will have been validly issued, fully paid and
non-assessable. The Original Warrant Shares have been, and upon receipt of Shareholder Approval,
the Additional Warrant Shares will have been, duly and validly authorized and, when issued as
contemplated by the Warrants, will have been validly issued, fully paid and non-assessable. There
are no, and the issuance and sale of the Preferred Shares and the Warrant pursuant to this
Agreement and the Warrant Shares pursuant to the Warrants will not give rise to any, preemptive
rights, rights of first refusal or other similar rights on behalf of any Person under any provision
of applicable Law or any provision of the Articles of Incorporation or Bylaws of the Company, the
comparable governing instruments of the Bank, or any agreement or instrument applicable to the
Company or the Bank in respect of any capital stock or other securities of the Company, the Bank or
their respective Subsidiaries.

               (d) The Company has reserved out of the authorized but unissued shares of its Common
Stock such number of shares of Common Stock as are sufficient for issuance upon exchange of the
Preferred Shares in accordance with the Exchange and

11

 

Shareholder Rights Agreement and the exercise
of the Warrant. The Company has taken all action necessary such that all shares of Common Stock
that may be issued upon exchange of the Preferred Shares pursuant to the Exchange and Shareholder
Rights Agreement and the exercise of the Warrants will upon issue be validly issued, fully paid and nonassessable, and free from
Liens in respect of the issuance and delivery thereof.

          Section 3.5. Subsidiaries. (a) Section 3.5 of the Company Disclosure Schedule lists the name of each
Subsidiary of the Company, together with the jurisdiction of its organization and the number of
shares of each class of its capital stock owned by the Company or any of its Subsidiaries. The
Company owns, directly or indirectly, all of the outstanding shares of capital stock of each of its
Subsidiaries, free and clear of all Liens, and all such shares are duly authorized, validly issued,
fully paid and non-assessable.

               (b) Except as set forth on Section 3.5(b) of the Company Disclosure Schedule, neither
the Company nor any of its Subsidiaries (including the Bank), directly or indirectly, (i) owns,
beneficially or of record, any shares of capital stock or any other security of any other Person;
(ii) has any other equity investment or other ownership interest in any other Person; or (iii) is
obligated to make any capital contribution or other investment in any Person.

          Section 3.6. SEC Reports; Financial Statements. (a) The Company has previously made available to the
Investor a true and complete copy of (i) the Company’s Annual Report on Form 10-K for the fiscal
years ended December 31, 2005, 2004 and 2003; (ii) the Company’s Quarterly Report on Form 10-Q for
the periods ended September 30, 2006, June 30, 2006 and March 31, 2006; and (iii) each registration
statement, report on Form 8-K and Form 8-A, proxy statement, information statement or other
document, report or statement filed by the Company or any of its Subsidiaries with the Commission
since December 31, 2004 and prior to the date of this Agreement, in each case in the form
(including financial statements, schedules, exhibits and any amendments thereto) filed with the
Commission (collectively, the “SEC Reports”). Except as set forth in Section 3.6(a) of the
Company Disclosure Schedule, as of their respective dates, the SEC Reports (i) were timely filed
with the Commission; (ii) complied in all material respects with the applicable requirements of the
Exchange Act and the Securities Act; and (iii) did not, or will not in the case of any registration
statement, report, proxy statement, information statement or other statement filed by the Company
with the Commission after the date of this Agreement and before the Closing Date (collectively,
“Subsequent Reports”), as the case may be, contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made, not misleading. No
executive officer of the Company has failed in any respect to make the certifications required of
him or her under Section 302 or 906 of the Sarbanes-Oxley Act of 2002 in connection with previously
filed SEC Reports.

               (b) Except as set forth in Section 3.6(b)(i) of the Company Disclosure Schedule, the
Company and each of its Subsidiaries (including the Bank) have timely filed all reports,
registrations and statements, together with any amendments required to be made with respect
thereto, that they were required to file since December 31, 2004 with (i) the FDIC, (ii) any state
banking commissions or any other state regulatory authority, (iii) any other self-regulatory
organization, and (iv) any other applicable federal or state authority regulating

12

 

financial institutions (including mortgage banks), including the Federal Home Loan Bank of San Francisco
(collectively, the “Regulatory Agencies”), and have paid all fees and assessments due and
payable in connection therewith. Except for normal examinations conducted by a Regulatory Agency
in the regular course of the business of the Company and its Subsidiaries, and except as set forth in Section 3.6(b)(ii) of the Company Disclosure Schedule, no
Regulatory Agency has initiated any proceeding or, to the knowledge of the Company, investigation
into the business or operations of the Company or any of its Subsidiaries (including the Bank)
since December 31, 2004. Except as set forth in Section 3.6(b)(iii) of the Company Disclosure
Schedule, there is no unresolved violation, criticism, or exception by any Regulatory Agency with
respect to any report or statement relating to any examinations of the Company or any of its
Subsidiaries (including the Bank).

               (c) Each of (i) the consolidated balance sheets (including the related notes and
schedules) included in or incorporated by reference into the SEC Reports or any Subsequent Reports
fairly presents, or will fairly present, as the case may be, the consolidated financial position of
the Company and its Subsidiaries as of the date thereof, and (ii) the consolidated statements of
income (or statements of results of operations), stockholders’ equity and cash flows (including the
related notes and schedules) included in or incorporated by reference into the SEC Reports or any
Subsequent Reports fairly presents, or will fairly present, as the case may be, subject, in the
case of the unaudited financial statements, to normal recurring year-end audit adjustments, the
results of operations, retained earnings and cash flows, as the case may be, of the Company and its
Subsidiaries (on a consolidated basis) for the periods set forth therein, in the case of each of
clause (i) and clause (ii), in all material respects in accordance with GAAP applied on a
consistent basis throughout the periods covered (except as stated therein or in the notes thereto)
and in compliance with the rules and regulations of the Commission; and each such financial
statement is in accordance with the books and records of the Company and its Subsidiaries as of the
dates and for the periods indicated and has been examined by the Company’s accountants (whose
reports thereon are included in such financial statements).

               (d) The books and records of the Company and its Subsidiaries have been, and are
being, maintained in accordance with applicable legal and accounting requirements and reflect only
actual transactions.

          Section 3.7. Absence of Changes. Since September 30, 2006, except as set forth in Section 3.7
of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has (i) issued
any capital stock, bonds or other corporate securities, (ii) borrowed any amount other than in the
ordinary course of business, in excess of $5,000,000, (iii) discharged or satisfied any Lien, other
than in the ordinary course of business, in excess of $5,000,000, (iv) declared or made any payment
or distribution to holders of capital stock (other than the Company) or purchased or redeemed any
shares of its capital stock or other securities, or (v) suffered any event or condition that has
had or is reasonably likely to have a Material Adverse Effect.

          Section 3.8. Intellectual Property. To the knowledge of the Company, the Company and its Subsidiaries
(including the Bank) own or have a valid license to use all of the Company Intellectual Property,
free and clear of all Liens, royalty or other payment obligations

13

 

(except for royalties or payments with respect to off-the-shelf Software at standard commercial rates). To the knowledge of the
Company, the Company Intellectual Property constitutes all of the Intellectual Property necessary
to carry on the business of the Company and its Subsidiaries as currently conducted. The Company
Intellectual Property owned by the Company or any of its Subsidiaries (including the Bank), and to
the knowledge of the Company, all other Company Intellectual Property, is valid and has not been cancelled, forfeited, expired or abandoned, and
neither the Company nor any of its Subsidiaries has received notice challenging the validity or
enforceability of the Company Intellectual Property. To the knowledge of the Company, the conduct
of the business of the Company and its Subsidiaries (including the Bank) does not violate,
misappropriate or infringe upon the Intellectual Property rights of any third party.

          Section 3.9. Litigation. Except as disclosed in the SEC Reports or Section 3.9 of the Company
Disclosure Schedule, as of the date of this Agreement: there are no Actions pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries
(including the Bank), nor any Actions pending or to the knowledge of the Company threatened against
any of the officers or directors of the Company or any of its Subsidiaries in regards to their
actions as such, nor is there any basis for any such action; nor are there any Orders outstanding
against or applicable to the Company or any of its Subsidiaries (including the Bank) or against or
applicable to any of their respective assets, properties or businesses.

          Section 3.10. Compliance with Applicable Laws. Other than as set forth in Section 3.10 of the Company
Disclosure Schedule the Company and each of its Subsidiaries (including the Bank):

               (a) is in material compliance, in the conduct of its business, with all applicable
federal, state, local and foreign Laws;

               (b) has all material permits, licenses, franchises, certificates, orders, and
approvals of, and has made material applications, and registrations with, Governmental Entities
that are required in order to permit the Company and its Subsidiaries (including the Bank) to carry
on their businesses as currently conducted;

               (c) has since December 31, 2004, received no notification or communication from any
Governmental Entity (i) asserting that the Company or any of its Subsidiaries (including the Bank)
is not in material compliance with any statutes, regulations or ordinances, (ii) threatening to
revoke any material permit, license, franchise, certificate of authority or other governmental
authorization, or (iii) threatening or contemplating revocation or limitation of, or which would
have the effect of revoking or limiting, FDIC deposit insurance; and

               (d) is not a party to or subject to any Order from any Governmental Entity charged
with the supervision or regulation of depository institutions or engaged in the insurance of
deposits or the supervision or regulation of the Company or any of its Subsidiaries (including the
Bank) and neither the Company nor any of its Subsidiaries (including the Bank) has been advised by
any such Governmental Entity that such Governmental Entity is contemplating issuing (or is
considering the appropriateness of issuing) any such order.

14

 

          Section 3.11.; No Fraud Or Misrepresentation. To the knowledge of the Company, neither the Company nor
any of its Subsidiaries (including the Bank), nor any director, officer, or Affiliate of the
Company or any of its Subsidiaries, is aware of or has taken any action, directly or indirectly,
that would constitute material fraud, misrepresentation, or other intentionally unlawful conduct.

          Section 3.12. Taxes. Except as set forth in Section 3.12 of the Company Disclosure Schedule:

               (a) the Company and each of its Subsidiaries (including the Bank) has (i) duly and
timely filed (including applicable extensions granted without penalty) all material Tax Returns
required to be filed by it, and such Tax Returns are true, correct and complete in all material
respects, and (ii) timely paid in full all material Taxes owed by the Company or any of its
Subsidiaries (whether or not shown on any Tax Return) except to the extent not yet due or for which
an adequate reserve has been provided in its financial statements (in accordance with GAAP);

               (b) no claim has been made in writing by a Governmental Authority in a jurisdiction
where the Company or any of its Subsidiaries does not file Tax Returns that the Company or any of
its Subsidiaries is or may be subject to taxation by that jurisdiction;

               (c) there are no Liens on any of the assets of the Company or any of its Subsidiaries
that arose in connection with any failure (or alleged failure) to pay any Tax;

               (d) each of the Company and its Subsidiaries has withheld and paid all Taxes require
to have been withheld and paid in connection with amounts paid or owing to any employee,
independent contractors, creditor, stockholder, or other third party;

               (e) there is no dispute or claim concerning any Tax liability of the Company or any of
its Subsidiaries either (i) claimed or raised by any Governmental Authority in writing or (ii) as
to which the Company has knowledge based upon personal contact with any agent of such authority.
Section 3.12 of the Company Disclosure Schedule lists all federal, state, local and foreign income
Tax Returns filed with respect to any of the Company and its Subsidiaries for taxable periods ended
on or after December 31, 2004, indicates those Tax Returns that have been audited, and indicates
those Tax Returns that currently are the subject of the audit. The Company has delivered to the
Investor correct and complete copies of all federal income Tax Returns, examination reports and
statements of deficiencies assessed against or agreed to by any of the Company and its Subsidiaries
since December 31, 2004;

               (f) neither the Company nor any of its Subsidiaries has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment
or deficiency that remains open;

               (g) neither the Company nor any of its Subsidiaries is a party to any Tax allocation
or sharing agreement. Neither the Company nor any of its Subsidiaries has been a member of an
affiliated group of corporations, within the meaning of Section 1504 of the

15

 

Internal Revenue Code of 1986, filing a consolidated federal income Tax Return other than a group consisting solely of
the Company and its current Subsidiaries;

               (h) neither the Company nor any of its Subsidiaries has any liability for the Taxes of
any person or entity other than the Company and its Subsidiaries (i) under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local or foreign law), (ii) as transferee or
successor, or (iii) by contract; and

               (i) for U.S. tax classification purposes pursuant to Treasury Regulation Section
301.7701-2, the Company is classified as an association taxable as a
corporation. No election has been made under Treasury Regulation Section 301.7701-3 to treat
the Company or any Subsidiary as a partnership or disregarded entity for U.S. tax purposes.

          Section 3.13. Certain Contracts. (a) Except (i) as set forth in Section 3.13(a) of the Company
Disclosure Schedule, or (ii) with respect to the Sale Transactions, as of the date hereof, neither
the Company nor any of its Subsidiaries (including the Bank) is a party to or bound by any oral or
written contract which is a material contract (as defined in Item 601(b)(10) of Regulation S-K of
the Commission) to be performed after the date of this Agreement that has not been filed or
incorporated by reference in the SEC Reports filed prior to the date of this Agreement (any such
contract, a “Company Contract”).

               (b) Except as set forth in Section 3.13(b) of the Company Disclosure Schedule, (i)
each Company Contract is valid and binding on the Company or a Subsidiary of the Company and in
full force and effect (except to the extent that any Company Contract expires in accordance with
its terms), (ii) the Company and each of its Subsidiaries has performed in all material respects
all obligations required to be performed by it to date under each Company Contract, (iii) no event
or condition exists which constitutes, or after notice or lapse of time or both would constitute, a
default on the part of the Company or any of its Subsidiaries under any Company Contract, and (iv)
to the knowledge of the Company no other party to any Company Contract is in default in any respect
thereunder, nor, to the knowledge of the Company, does any condition exist that with notice or
lapse of time or both would constitute a default.

          Section 3.14. Disclosure Controls and Procedures. Except as set forth in Section 3.14 of the Company
Disclosure Schedule, since December 31, 2002 the Company and each of its Subsidiaries has had in
place “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) promulgated
under the Exchange Act) reasonably designed and maintained to ensure that all information (both
financial and non-financial) required to be disclosed by the Company in the reports that it files
or submits to the Commission under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Commission and that such
information is accumulated and communicated to the Company’s management as appropriate to allow
timely decisions regarding required disclosure and to make the certifications of the Chief
Executive Officer and Chief Financial Officer of the Company required under the Exchange Act with
respect to such reports. The Company maintains internal accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with management’s general or
specific authorizations, (ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and to maintain accountability for assets, (iii)
access to assets is permitted only in

16

 

accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any differences. None of
the Company’s or its Subsidiaries records, systems, controls, data or information are recorded,
stored, maintained, operated or otherwise wholly or partly dependent on or held by any means
(including any electronic, mechanical or photographic process, whether computerized or not) which
(including all means of access thereto and therefrom) are not under the exclusive ownership and
direct control of the Company or its Subsidiaries or accountants.

          Section 3.15. Commercial Real Estate Transaction. The Company has delivered to the Investor true and
complete copies of all definitive agreements in existence as of the date of this Agreement with
respect to the Commercial Real Estate Transaction, each of which such agreements is in full force
and effect on the date of this Agreement.

          Section 3.16. Broker’s Fees. Neither the Company nor any Subsidiary of the Company (including the Bank)
nor any of their respective officers or directors has employed any broker or finder or incurred any
liability for any broker’s fees, commissions or finder’s fees in connection with any of the
transactions contemplated by this Agreement, except that the Company has engaged, and will pay a
fee or commission to, Credit Suisse Securities LLC (“Credit Suisse”) in accordance with the
terms of a letter agreement between the Company and Credit Suisse, a true, complete and correct
copy of which has been previously made available by the Company to the Investor.

          Section 3.17. Exemption from Registration. Assuming the representations and warranties of the Investor
set forth in Article IV hereof are true and correct, the offer and sale of the Preferred Shares and
the Warrant made pursuant to this Agreement will be in compliance with the Securities Act and any
applicable state securities laws and will be exempt from the registration requirements of the
Securities Act and such state securities laws.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE INVESTOR

          Except as set forth in the disclosure schedule delivered by the Investor to the Company and
the Bank prior to the execution and delivery of this Agreement (the “Investor Disclosure
Schedule”), the Investor hereby represents and warrants to the Company and the Bank as follows:

          Section 4.1. Organization. The Investor is a limited partnership duly organized, validly existing and
in good standing under the laws of the State of Texas and has all requisite power and authority to
own or lease and operate its properties and assets and to conduct its business as it is now being
conducted and is proposed to be conducted. The general partners of the Investor are Gerald J.
Ford, an individual and Ford Diamond Corporation, a Texas corporation. Gerald J. Ford is the sole
shareholder and President of Ford Diamond Corporation.

          Section 4.2. Authorization of Agreements. (a) The Investor has all requisite power and authority to
execute, deliver and perform its obligations under this Agreement, each

17

 

of the Transaction Agreements and each other document, instrument or certificate to be executed by the Investor in
connection with the consummation of the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement and each Transaction Agreement, and the
consummation by the Investor of the transactions contemplated hereby and thereby, have been
approved by the general partners of the Investor and no other limited partnership proceedings on
the part of the Investor are necessary to approve this Agreement or the Transaction Agreements and
the consummation by the Investor of the transactions contemplated hereby and thereby.

               (b) This Agreement has been duly executed and delivered by the Investor and, assuming
due authorization, execution and delivery by the Company and the Bank, constitutes a valid and
binding obligation of the Investor, enforceable against the Investor in accordance with its terms,
subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally
and to general principles of equity. The Transaction Agreements, when executed, will have been
duly executed and delivered by a duly authorized officer of the Investor, and, assuming the due
authorization, execution and delivery by the Company and the Bank (as applicable), will constitute
a valid and binding obligation of the Investor, enforceable against the Investor in accordance with
their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’
rights generally and to general principles of equity.

          Section 4.3. Consents; No Conflicts. (a) Except for (i) the expiration of the waiting period under the
HSR Act, (ii) all consents, authorizations, orders and approvals of, and filing and registrations
including the effectiveness of a registration statement and applicable “Blue Sky” clearance
required for, or in connection with, the consummation of the transactions contemplated by the
Registration Rights Agreement, and (iii) the Regulatory Approvals set forth on Section 4.3 of the
Investor Disclosure Schedule, no Regulatory Approval from, or registration, declaration or filing
with, any Governmental Entity is required to be made or obtained by the Investor in connection with
the execution, delivery and performance of this Agreement and the Transaction Agreements and the
consummation of the transactions contemplated hereby and thereby except for such Regulatory
Approvals, registrations, declarations, notices and filings, the failures of which to make or
obtain would not, individually or in the aggregate, reasonably be expected to have a material
adverse effect on the ability of the Investor to consummate the transactions contemplated hereby or
thereby.

               (b) Assuming the receipt of all Regulatory Approvals set forth on Section 4.3 of the
Investor Disclosure Schedule and the completion of all registrations, declarations, notices and
filings referred to in Section 4.3 of the Investor Disclosure Schedule, the execution and delivery
of this Agreement does not, and the execution and delivery of the Transaction Agreements will not,
and the performance of the obligations set forth herein and therein and the consummation of the
transactions contemplated hereby and thereby will not, (i) violate any provision of the charter or
bylaws or similar governing documents of the Investor; (ii) conflict with, contravene or result in
a breach or violation of any of the terms or provisions of, or constitute a default (with or
without notice or the passage of time) under, or result in or give rise to a right of termination,
cancellation, acceleration, amendment or modification of any right or obligation under, any note,
bond, debt instrument, indenture, mortgage, deed of trust, lease, loan

18

 

agreement, contract or any other agreement, instrument or obligation to which the Investor is a party or by which the Investor
or any property of the Investor is bound; (iii) result in the creation or imposition of any Lien
upon any assets or properties of the Investor; or (iv) violate or conflict with any Law or Order
applicable to the Investor or any of its assets or properties of any Governmental Entity having
jurisdiction over the Investor or any of its assets or properties, except in the case of clauses
(ii), (iii) and (iv), for such instances which would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the Investor’s ability to consummate
the transactions contemplated hereby.

          Section 4.4. Purchase for Purpose of Investment. The Investor acknowledges that the Preferred Shares
and the Warrant have not been registered under the Securities Act or under any state securities
laws. The Investor (i) is acquiring the Preferred Shares and the Warrant pursuant to an exemption
from registration under the Securities Act solely for investment with no present intention to
distribute any of the Preferred Shares, the Exchange Shares, the Warrant or the Warrant Shares to
any Person, (ii) will not sell or otherwise dispose of any of the Preferred Shares, the Exchange
Shares, the Warrant or the Warrant Shares except in compliance with the registration requirements
or exemption provisions of the Securities Act and any other applicable securities laws, (iii) has
such knowledge and experience in financial and business matters and in investments of this type
that it is capable of evaluating the merits and risks of its investment in the Preferred Shares and
the Warrant and of making an informed investment decision and (iv) is an “accredited investor” (as
that term is defined by Rule 501 under the Securities Act).

          Section 4.5. Financing. The Investor has, or will have prior to Closing, sufficient cash, available
lines of credit or other sources of immediately available funds to enable it to make payment of the
Purchase Price and any other amounts to be paid by it hereunder.

ARTICLE V

COVENANTS

          Section 5.1. Taking of Necessary Action. Each of the parties hereto agrees to use its reasonable best
efforts promptly to take or cause to be taken all action and promptly to do or cause to be done all
things necessary, proper or advisable under applicable Laws and regulations to consummate and make
effective the transactions contemplated by this Agreement. Without limiting the foregoing, the
Investor, the Company and the Bank will use their reasonable best efforts to make all filings,
including filings under the Change in Control Act and, if applicable, the HSR Act, and obtain all
other Regulatory Approvals necessary or, in the opinion of the Investor, the Company or the Bank,
advisable in order to permit the consummation of the transactions contemplated hereby. Each party
shall execute and deliver both before and after the Closing such further certificates, agreements
and other documents and take such other actions as the other party may reasonably request to
consummate or implement the transactions contemplated hereby or to evidence such events or matters.

          Section 4.2. Conduct of Business. From the date hereof until the Closing, the Company and the Bank
shall conduct the Bank’s retail branch banking operations in the ordinary course as currently
operated and in conformity in all material respects with all Laws and shall

19

 

use all reasonable efforts to preserve intact such operations and relationships with third parties and their
respective employees; provided, however, that nothing herein shall limit the
Company’s, the Bank’s or any of their Subsidiaries’ ability to (i) take actions to comply with the
Cease and Desist Orders and (ii) consummate the Sale Transactions. Except as set forth in Section
5.2 of the Company Disclosure Schedule or as contemplated by the Sale Transactions, from the date
hereof until the Closing, neither the Company nor the Bank shall:

               (a) (i) make any distributions in cash or in kind to its stockholders (other than
distributions by the Bank) or (ii) issue or repurchase any shares of its capital stock.

               (b) amend or otherwise change its certificate of incorporation or bylaws or equivalent
organizational documents other than as contemplated by this Agreement;

               (c) issue, sell, pledge, dispose of, or otherwise subject to any encumbrance (A) any
shares of its capital stock, or any options, warrants, convertible securities or other rights of
any kind to acquire any such shares, or any other ownership interest in the Company or the Bank or
(B) any assets of the Company or the Bank relating to the Bank’s retail branches, or any interests
received in the Sale Transactions;

               (d) reclassify, combine, split, subdivide or redeem, or purchase or otherwise acquire,
directly or indirectly, any of its capital stock or make any other change with respect to its
capital structure;

               (e) acquire any corporation, partnership, limited liability company, other business
organization or division thereof or any material amount of assets (other than investment
securities), or enter into any joint venture, strategic alliance, exclusive dealing,
non-competition or similar contract or arrangement (other than extensions of exclusivity
arrangements in effect on the date hereof);

               (f) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization, or otherwise alter its
corporate structure;

               (g) incur any indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse, or otherwise become responsible for, the obligations of any Person, or make
any loans or advances, except in the ordinary course of business; provided that in
no event shall the Company or the Bank (A) incur, assume or guarantee any long-term indebtedness
for borrowed money or (B) make any optional repayment of any indebtedness for borrowed money;

               (h) amend, waive, or modify any material provision of consent to the termination of
any contract that is material to the Company or the Bank, or amend, waive, modify or consent to the
termination of the Company’s or the Bank’s material rights thereunder, or enter into any contract
other than in the ordinary course of business;

20

 

               (i) enter into any lease of real or personal property or any renewals thereof
involving a term of more than one year or rental obligation exceeding $100,000 per year in any
single case;

               (j) increase the compensation payable or to become payable or the benefits provided to
its directors, officers or employees, except for normal merit and cost-of-living increases
consistent with past practice in salaries or wages of employees of the Company or any of its
Subsidiaries who are not directors or executive officers of the Company or any of its Subsidiaries
and who receive less than $125,000 in total annual cash compensation from the Company or any of its
Subsidiaries, or grant any severance or termination payment to, or pay, loan or advance any amount
to, any director, officer or employee of the Company or any of its Subsidiaries, or establish,
adopt, enter into or materially amend any material benefit plan;

               (k) enter into any contract with any Related Party of the Company or the Bank;

               (l) make any change in any method of accounting or accounting practice or policy,
except as required by GAAP;

               (m) make, revoke or modify any material Tax election, settle or compromise any
material Tax liability or file any material Return other than on a basis consistent with past
practice;

               (n) pay, discharge or satisfy any material claim, liability or obligation (whether
absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business, of liabilities
reflected or reserved against on the Balance Sheet or subsequently incurred in the ordinary course
of business;

               (o) cancel, compromise, waive or release any material right or claim other than in the
ordinary course of business;

               (p) commence or settle any material Action, including the Cease and Desist Orders;

               (q) take any action, or intentionally fail to take any action, that would cause any
representation or warranty made by the Company in this Agreement to be untrue or result in a breach
of any covenant made by the Company or the Bank in this Agreement or the Exchange and Shareholder
Rights Agreement, or that has or would reasonably be expected to have a Material Adverse Effect; or

               (r) announce an intention, enter into any formal or informal agreement, or otherwise
make a commitment to do any of the foregoing.

          Section 5.3. Notifications. At all times prior to the Closing Date, the Investor shall promptly notify the Company and the
Company shall promptly notify the Investor in writing of any fact, change, condition, circumstance
or occurrence or nonoccurrence of any event which will or is reasonably likely to (i) cause any
representation or warranty of such party

21

 

contained in this Agreement to be untrue or inaccurate in
any material respect prior to the Closing, (ii) result in the failure to satisfy the conditions to
be complied with or satisfied by it (or, in the case of the Company, the Bank) hereunder, or (iii)
in the case of the Company, result in a Material Adverse Effect, provided, that the
delivery of any notice pursuant to this Section 5.3 shall not limit or otherwise affect the
remedies available hereunder to any party receiving such notice.

          Section 5.4. Share Listing. The Company shall use its reasonable best efforts to cause, at or prior to the Closing Date, the
Exchange Shares and the Warrant Shares to be, upon official notice of issuance, listed on the NYSE
or other principal national securities exchange on which the Common Stock is then listed.

          Section 5.5. Charter Amendment; Certificate of Determination. At or prior to the Closing, the Bank shall (a) file with the Secretary of State of California an
amendment to its Amended and Restated Articles of Incorporation substantially in the form of
Exhibit E hereto (the “Charter Amendment”), and (b) adopt and file with the
Secretary of State of California, the Certificate of Determination.

          Section 5.6. Shareholder Consent. The Company shall use its commercially reasonable efforts to seek the Shareholder Approval and
the consent of its Shareholders to amend Article III, Section 2 of the Company’s Bylaws to permit
the Company’s board of directors to increase the authorized number of directors without the approval of the Company’s shareholders at the next meeting of the Company’s shareholders. Upon
the effectiveness of such amendment, the Board of Directors shall take all such action as is
necessary and appropriate to expand the size of the Board of Directors to not fewer than nine
members; provided that any vacancy created by such action, that remains vacant
after the Initial Investor Nominees have been elected to the Board of Directors, shall be filled by
an individual who qualifies as an “independent director” pursuant to Section 303A.02 of the NYSE
Listed Company Manual.

          Section 5.7. D&O Indemnification. On or before the Closing, the Company shall offer to enter into a customary Directors & Officers
Indemnification Agreement with each of Gerald Ford, Carl Webb, J. Randy Staff and any other
directors or officers of the Company or any of its Subsidiaries designated by or affiliated with
the Investor in form and substance reasonably satisfactory to such individuals. The Company shall
offer to enter into such an agreement with any person nominated by the Investor in accordance with
the Exchange and Shareholder Rights Agreement to serve as a Director of the Company or the Bank
after Closing.

ARTICLE VI

ADDITIONAL AGREEMENTS

          Section 6.1. Access to Information. (a) Each of the Company and the Bank agrees that, upon reasonable notice and subject to
applicable Laws relating to the exchange of information, it will (and will cause its Subsidiaries
to) afford to the Investor, and the Investor’s officers, employees, counsel, accountants and other
authorized Representatives, such access during normal business hours during the period prior to the
Closing to the books, records, properties, personnel and such other information as the Investor may
reasonably request, and

22

 

during such period, furnish promptly to the Investor all information
concerning its business, properties and personnel as the Investor may reasonably request. Neither
the Company, the Bank nor any of their Subsidiaries will be required to afford access or disclose
information that would jeopardize the attorney-client privilege, contravene any binding agreement
with any third party or violate any law or regulation. The parties will make appropriate
substitute arrangements in circumstances where the previous sentence applies.

               (b) The Investor agrees that it will hold any information furnished to it pursuant to
Section 6.1(a) in accordance with the Confidentiality Agreement, dated February 28, 2007, between
the Company and the Investor (the “Confidentiality Agreement”).

          Section 6.2. Publicity. Except as required by Law or by obligations pursuant to any listing agreement with any relevant
securities exchange, neither the Company or the Bank, on the one hand, nor the Investor, on the
other hand, shall, without the prior written consent of the other, which consent shall not be
unreasonably withheld or delayed, make any public announcement or issue any press release with respect to the transactions contemplated by this Agreement. Prior to making any public
disclosure required by applicable Law or pursuant to any listing agreement with any relevant
securities exchange, the disclosing party shall consult with the other party, to the extent
feasible, as to the content of such public announcement or press release.

          Section 6.3. Reservation of Shares. The Company will reserve such number of shares of its Common Stock sufficient for issuance upon
exchange of the Preferred Shares in accordance with the Exchange and Shareholder Rights Agreement
and the exercise of the Warrants.

ARTICLE VII

CONDITIONS

          Section 7.1. Conditions to Each Party’s Obligation. The respective obligation of each party to effect the transactions contemplated by this
Agreement is subject to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:

               (a) No Injunctions or Restraints. No temporary restraining order, preliminary
injunction or other judgment, order or decree issued by any Governmental Entity or other Law shall
be in effect that would prevent the Closing from occurring (collectively, “Restraints”).

               (b) Regulatory Approvals. All Regulatory Approvals required to consummate the
transactions contemplated hereby shall have been obtained and shall remain in full force and
effect, and all statutory waiting periods in respect thereof shall have expired.

          Section 7.2. Conditions to Investor’s Obligation. The obligation of the Investor to purchase and pay for the Preferred Shares and the Warrant at
the Closing is subject to satisfaction or waiver of each of the following conditions precedent:

23

 

               (a) Representations and Warranties; Covenants. (i) The representations and
warranties of the Company contained in Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.9, 3.10, 3.11,
3.15, 3.16 and 3.17 shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date as though made on the Closing Date, except to the extent such
representations and warranties expressly relate to an earlier date, in which case as of such
earlier date; and (ii) the representations and warranties of the Company contained in Sections 3.8,
3.12, 3.13 and 3.14 shall be true and correct (without regard to materiality or Material Adverse
Effect qualifiers contained therein) as of the date of this Agreement and as of the Closing Date as
though made on the Closing Date, except to the extent such representations and warranties expressly
relate to an earlier date, in which case as of such earlier date, except where the failure of such
representations and warranties to be true and correct would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Each of the Company and the Bank shall have in all material respects performed all obligations and
complied with all agreements, undertakings, covenants and conditions required hereunder to be
performed by it at or prior to the Closing. The Company shall have delivered to the Investor at
the Closing a certificate dated the Closing Date and signed by an officer of the Company to the
foregoing effects.

               (b) Transaction Agreements. The Investor shall have received fully executed
counterparts of each of the Transaction Agreements, each of which shall be in full force and
effect.

               (c) Certificate of Determination. The Bank shall have filed the Charter
Amendment and the Certificate of Determination with the Secretary of State of California.

               (d) Board Nominees. A majority of the board of directors of each of the
Company and the Bank shall have elected Gerald Ford and Carl Webb to serve as a director on the
boards of directors of each of the Company and the Bank, and Gerald Ford shall have been nominated
Chairman of the board of directors of each of the Company and the Bank, in each case effective as
of the Closing.

               (e) Board Approval. The board of directors of the Company shall have approved
the acquisition by the Investor and its Affiliates of the Preferred Shares, the Warrants and the
Common Stock issuable upon exchange or exercise thereof for purposes of Article Eleventh of the
Articles of Incorporation, as amended from time to time.

               (f) Listing of Shares. The Exchange Shares and the Warrant Shares shall have
been authorized for listing on the NYSE, subject to official notice of issuance.

               (g) D&O Insurance Coverage. (i) The directors and officers liability and
errors and omissions insurance policies set forth in Section 7.2(g) of the Company Disclosure
Schedule (the “Existing Policies”) shall remain in full force and effect as of the date
hereof and shall continue in full force and effect until they expire upon the expiration date set
forth therein and the insurers thereunder shall have provided to the Company an endorsement in
writing to the effect that neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereunder, nor the Sale Transactions shall result

24

 

in a termination of such policies, or a reduction in coverage of any such policies; or (ii) the
Company shall have obtained a policy (or policies) of directors and officers liability and errors
and omissions insurance coverage with insurance carriers believed to be financially sound and
reputable with coverage that provides coverage that is substantially identical to the coverage
provided by the Existing Policies.

               (h) Material Adverse Effect. There has not occurred, since September 30,
2006, any event, circumstance, change or effect that has had or is reasonably likely to have a
Material Adverse Effect.

          Section 7.3. Conditions to the Company’s and the Bank’s Obligations. The obligation of the Bank to issue and sell the Preferred Shares and the Company to issue and
sell the Warrant at the Closing are subject to satisfaction or waiver of each of the following
conditions precedent:

               (a) Representations and Warranties; Covenants. The representations and
warranties of the Investor contained in this Agreement shall be true and correct (without regard to
materiality qualifiers contained therein) as of the date of this Agreement and as of the Closing
Date as though made on the Closing Date, except to the extent such representations and warranties
expressly relate to an earlier date, in which case as of such earlier date, except where the
failure of the representations and warranties to be true and correct would not, individually or in
the aggregate, reasonably be expected to have a material adverse effect on the ability of the
Investor to consummate the transactions contemplated hereby. The Investor shall have in all
material respects performed all obligations and complied with all agreements, undertakings,
covenants and conditions required hereunder to be performed by it at or prior to the Closing. The
Investor shall have delivered to the Company and the Bank at the Closing a certificate dated the
Closing Date and signed by an officer of the Investor to the foregoing effects.

               (b) Transaction Agreements. Each of the Company and the Bank shall have
received fully executed counterparts of each of the Transaction Agreements to which it is a party,
each of which shall be in full force and effect.

               (c) The Bank shall have been notified by each of the FDIC and the DFI of their
non-objection to the transactions contemplated by this Agreement and by the Transaction Agreements.

ARTICLE VIII

TERMINATION

          Section 8.1. Termination. This Agreement may be terminated at any time prior to the Closing:

               (a) by the mutual written consent of the Company, the Bank and the Investor;

               (b) by either the Company or the Investor:

25

 

                    (i) if the Closing shall not have occurred on or prior to September 30, 2007;
provided, however, that the right to terminate this Agreement under this
Section 8.1(b)(i) shall not be available to any party whose action or failure to act (or, in
the case of the Company, the action or failure to act of the Bank) has been a principal
cause of or resulted in the failure of the Closing to occur on or before such date;

                    (ii) if any Restraint having the effect of permanently restraining, enjoining
or otherwise prohibiting the consummation of the transactions contemplated hereby shall be
in effect and shall have become final and nonappealable;

               (c) by the Investor if the Company shall have breached any of its representations or
warranties or the Company or the Bank shall have failed to perform any of its covenants or
agreements set forth in this Agreement, which breach of failure to perform (i) would give rise to
the failure of the condition set forth in Section 7.2(a) and (ii) is incapable of being cured, or
is not cured, by the Company or the Bank, as applicable, within thirty calendar days following
receipt of written notice from the Investor of such breach or failure to perform; or

               (d) by the Company if the Investor shall have breached or failed to perform any of its
representations, warranties, covenants or agreements set forth in this Agreement, which breach of
failure to perform (i) would give rise to the failure of the condition set forth in Section 7.3(a)
and (ii) is incapable of being cured, or is not cured, by the Investor within thirty calendar days
following receipt of written notice from the Company of such breach or failure to perform.

          Section 8.2. Effect of Termination. If this Agreement is terminated in accordance with Section 8.1 hereof and the transactions
contemplated hereby are not consummated, this Agreement shall become null and void and of no
further force and effect except that (i) the terms and provisions of this Section 8.2, Section
6.1(b) and Section 9.1 shall remain in full force and effect, and (ii) any termination of this
Agreement shall not relieve any party hereto from any liability for any willful breach of its
obligations hereunder.

ARTICLE IX

MISCELLANEOUS

          Section 9.1. Fees and Expenses. Each party shall bear its own expenses, including the fees and expenses of any Representatives
engaged by it, incurred in connection with this Agreement and the Transaction Agreements and the
transactions contemplated hereby and thereby.

          Section 9.2. Survival. The parties agree that the representations and warranties of the Company and the Investor
contained in this Agreement, or in any certificate, document or instrument delivered in connection
herewith, except for the representations and warranties set forth in Section 3.1, Section 3.2, and
Section 3.4 herein and any claim of fraud, intentional misrepresentation or intentional breach,
shall not survive the Closing.

26

 

          Section 9.3. Indemnification. The Company and the Bank will, jointly and severally, indemnify and hold harmless Investor, and
its officers, directors, Affiliates and controlling persons (including, but not limited to Gerald
J. Ford, Carl Webb and J. Randy Staff (collectively, the “Indemnified Persons”) for, and
will pay to such Indemnified Persons the amount of any Damages which any of such Indemnified Persons may incur or sustain, or which any of such Indemnified Persons may
be subjected, arising from or in connection with: (i) any litigation brought or threatened by the
stockholders of the Company arising out of or in connection with this Agreement or the transactions
contemplated hereby or the Sale Transactions, (ii) any material breach of Section 3.1, 3.2 and 3.4
and (iii) any fraud, intentional misrepresentation or intentional breach of this Agreement by the
Company.

          Section 9.4. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have
been duly given, if delivered personally, by telecopier or sent by first class mail, postage
prepaid, as follows:

	 	(a)
	 	If to the Company or the Bank, to:

Fremont General Corporation

2425 Olympic Boulevard

Santa Monica, CA 90404

Attention: Alan Faigin, Esq.

Fax: (310) 315-5593

With a copy to:

Skadden, Arps, Slate, Meagher & Flom LLP

Four Times Square

New York, NY 10036

Attention: William S. Rubenstein, Esq.

Fax: (917) 777-2642

	 	(b)
	 	If to the Investor, to:

Hunter’s Glen/Ford, Ltd.

200 Crescent Court, Suite 1350

Dallas, Texas 75201

Attention: J. Randy Staff

Fax: (214) 871-5122

With a copy to:

Gibson, Dunn & Crutcher LLP

333 South Grand Avenue

Los Angeles, CA 90071

Attention: Dhiya El-Saden, Esq.

Fax: (213) 229-6196

27

 

          Section 9.5. Entire Agreement; Amendment. This Agreement and the documents described herein or attached or delivered pursuant hereto and
the Confidentiality Agreement set forth the entire agreement between the parties hereto with
respect to the transactions contemplated by this Agreement. Any provision of this Agreement may be
amended or modified in whole or in part at any time by an agreement in writing among the parties
hereto executed in the same manner as this Agreement.

          Section 9.6. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to
constitute an original, but all of which together shall constitute one and the same document. This
Agreement may be executed by facsimile signature and a facsimile signature shall constitute an
original for all purposes.

          Section 9.7. Governing Law. This Agreement shall be governed by, and interpreted, in accordance with, the laws of the State
of New York applicable to contracts made and to be performed in that state.

          Section 9.8. Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit
of, and be binding upon, the Company’s successors and assigns.

          Section 9.9. Assignment. Other than as set forth in Section 2.1(b), neither this Agreement nor any rights or obligations
hereunder shall be assignable.

          Section 9.10. Remedies; Waiver. To the extent permitted by Law, all rights and remedies existing under this Agreement and any
related agreements or documents are cumulative to, and are exclusive of, any rights or remedies
otherwise available under applicable Law. No failure on the part of any party to exercise, or
delay in exercising, any right hereunder shall be deemed a waiver thereof, nor shall any single or
partial exercise preclude any further or other exercise of such or any other right.

          Section 9.11. Specific Performance; Consent to Jurisdiction. Each party hereto acknowledges that, in view of the uniqueness of the transactions contemplated
by this Agreement, the other party would not have an adequate remedy at law for money damages in
the event that this Agreement has not been performed in accordance with its terms. Each party
therefore agrees that the other party shall be entitled to specific enforcement of the terms hereof
in addition to any other remedy to which it may be entitled, at law or in equity, in any Federal
court located in the State of California or in any state court in the State of California. In
addition, each of the parties hereto (a) consents to submit itself to the personal jurisdiction of
any Federal or state court located in the State of California in the event any dispute arises out
of this Agreement or the transactions contemplated hereby, (b) agrees that it will not attempt to
deny or defeat such personal jurisdiction by motion or other request for leave from any such court and (c) agrees that it will not bring any action relating to this Agreement or
the transactions contemplated hereby in any court other than a Federal or state court located in
the State of California.

          Section 9.12. Severability. If any provision of this Agreement is determined to be invalid, illegal, or unenforceable, the
remaining provisions of this Agreement shall remain in full force and effect provided that
the economic and legal substance of the transactions

28

 

contemplated is not affected in any manner
materially adverse to any party. In the event of any such determination, the parties agree to
negotiate in good faith to modify this Agreement to fulfill as closely as possible the original
intent and purpose hereof. To the extent permitted by law, the parties hereby to the same extent
waive any provision of law that renders any provision hereof prohibited or unenforceable in any
respect.

29

 

          IN WITNESS WHEREOF, this Agreement has been executed on behalf of the parties hereto by their
respective duly authorized officers, all as of the date first above written.

	 	 	 	 	 
	 	FREMONT GENERAL CORPORATION

 	 
	 	By:  	/s/ Alan W. Faigin
 	 
	 	 	Name:  	Alan W. Faigin 	 
	 	 	Title:  	SVP, Secretary, General
Counsel & Chief Legal Officer 	 
	 
	 	FREMONT INVESTMENT & LOAN

 	 
	 	By:  	/s/ Alan W. Faigin
 	 
	 	 	Name:  	Alan W. Faigin 	 
	 	 	Title:  	Secretary & Chief Legal
Officer 	 

[SIGNATURE PAGE TO INVESTMENT AGREEMENT]

 

 

	 	 	 	 	 
	 	HUNTER’S GLEN/FORD, LTD.	 
	 	 	 
	 	By: 	Ford Diamond Corporation, its general partner 	 
	 	 	 
	 	By:  	/s/ Gerald J. Ford
 	 
	 	 	Name:  	Gerald J. Ford 	 
	 	 	Title:  	President 	 
	 	 	 
	 	By:  	                  /s/ Gerald J. Ford
 	 
	 	 	Gerald J. Ford, its general partner 	 

[SIGNATURE PAGE TO INVESTMENT AGREEMENT]

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00124-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00124-of-00352.parquet"}]]