Document:

EX-10.2

 

EXHIBIT 10.2

MORTGAGE PURCHASE PROGRAM

MORTGAGE SELLING AND SERVICING MASTER AGREEMENT

 

Dated _______________________, 20 _________

THE FEDERAL HOME LOAN BANK OF
CINCINNATI (“FHLB”) and
[________________________]
(“Participating Financial

Insert Members Bank
Name

Institution” or “PFI”), agree to the terms and conditions of selling and Servicing Mortgages pursuant to this
agreement (the “Master Agreement”) as follows:

I. Recitals

     WHEREAS, the parties to this Master Agreement desire to establish the PFI as an approved
Seller of Mortgages to FHLB;

     WHEREAS, the PFI, once approved by FHLB, may sell Mortgages to FHLB pursuant to the terms and
conditions of sales contained herein;

     WHEREAS, the parties to this Master Agreement desire to establish the PFI as an approved
Servicer of Mortgages on behalf of FHLB; and

     WHEREAS, the PFI, once approved by FHLB, shall service Mortgages it sells to FHLB, agrees to
Service said Mortgages pursuant to the terms and conditions of Servicing contained herein and in
the Guide.

     NOW, THEREFORE, in consideration of the purpose of this Master Agreement and of all the
provisions and mutual promises contained herein, the PFI and FHLB agree as follows:

A. Definitions

     FHLB issues the Mortgage Purchase Program Guide (the “Guide”) detailing selling and Servicing
requirements for the Mortgage Purchase Program. Whenever there is a reference to the Guide in this
Master Agreement or any other Program Document, it means the Guide as it

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exists now and as it may be amended or supplemented in writing. FHLB may amend or supplement it, at
its sole discretion, by furnishing amendments or supplementary matter to the PFI. The term “Guide”
also includes anything that, in whole or in part, supersedes or is substituted for the Guide.
Capitalized terms as used herein without definition shall have the meanings set forth in the Guide.

     B. Incorporation by Reference

     Incorporated by reference herewith and herein are:

     1. The Guide

     2. Program Documents

     3. FHLB Guidelines

     C. Eligibility Requirements for PFIs

     Wherever or whenever the Master Agreement, Program Documents and/or the Guide conflict with
FHLB Guidelines, FHLB Guidelines shall control.

	 	1.	 	Meet FHLB Standards. The PFI must be an FHLB-approved
Mortgagee. The PFI must be a member or housing associate of the Federal Home
Loan Bank System. In addition, the PFI, in FHLB’s judgment, must have at all
times the capacity to originate and sell Mortgages that meet FHLB’s purchase
standards and the standards generally imposed by private institutional mortgage
investors, and must at all times have the capacity to Service such mortgages
for FHLB under those standards and the FHLB Guidelines.
	 
	 	2.	 	Have Qualified Staff and Adequate Facilities. The PFI
must, at all times, have employees who are well trained and qualified to
perform the functions required of the PFI under this Master Agreement. In
addition, the PFI must maintain facilities that are adequate to perform its
functions under this Master Agreement.
	 
	 	3.	 	Maintain Fidelity Bonds and Errors and Omissions
Coverage. The PFI must maintain, at its own expense, a fidelity bond and
errors and omissions insurance as required by the Guide.
	 
	 	4.	 	Report Basic Changes. The PFI must notify FHLB promptly
in writing of any changes that occur in its principal purpose, activities,
staffing or facilities that could adversely affect its ability to perform its
obligations hereunder.

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	 	5.	 	Failure To Comply With Eligibility Standards. It is a
breach of this Master Agreement if the PFI fails at any time to meet FHLB
standards set forth in the FHLB Guidelines for eligible Mortgage Sellers or
Servicers so that, in FHLB’s sole opinion, the PFI’s ability to comply with
FHLB Guidelines, this Master Agreement, any other Program Documents, or the
Guide is adversely affected.

     D. Status of PFI

The PFI must immediately
notify FHLB of a change in its status or ownership, including sale or transfer of a majority interest in it, merger, consolidation, or change in legal
structure.

     E. Access to PFI’s Records

     The PFI agrees to permit FHLB employees or designated representatives to examine or audit
records or accounts relating to Mortgages sold or Serviced under this Master Agreement. All records
relative to the PFI’s continued eligibility to sell or Service Mortgages under this Master
Agreement may also be examined or audited. Any examination or audit made on FHLB’s behalf will be
conducted during regular business hours unless the PFI agrees otherwise.

II. Sale of Mortgages

     A. Purchases

     Purchases of Mortgages will be governed by the Master Commitment Contract, the Mandatory
Delivery Contract, the Guide, this Master Agreement and the other Program Documents.

     B. Eligible Mortgages

     The Mortgages purchased by FHLB must meet the requirements in effect under the Guide, and this
Master Agreement, on the day FHLB executes a Mandatory Delivery Contract. Each Mortgage purchased
by FHLB under the Mortgage Purchase Program shall be either a 15- or 30-year fixed rate, fully-
amortizing, level-payment Mortgage that meets FHLB’s underwriting standards.

     C. FHLB Has No Obligation to Purchase

     This Master Agreement does not obligate FHLB to purchase or to make a commitment to purchase
any Mortgage from the PFI. The PFI must also execute a Master Commitment Contract, which is a best
efforts contract to sell Mortgages to FHLB, and pursuant thereto,

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Mandatory Delivery Contracts which obligate the PFI to sell a specified dollar amount of
Mortgages with specified characteristics to FHLB at a specified Purchase Price for a specified
Settlement Date.

     D. Delegated Underwriting

     By executing this agreement, FHLB hereby delegates underwriting authority to the PFI, and PFI
agrees to meet FHLB Underwriting Guidelines for each Mortgage.

III. Representations and Warranties

     A. Representations and Warranties Regarding the PFI

     All the representations, warranties and covenants contained in this Master Agreement are made
by the PFI to FHLB and its successors and assigns, with respect to such matters, and at such times,
as specified below unless expressly waived in writing by FHLB. Each representation, warranty and
covenant is binding on the PFI regardless of whether the subject matter thereof was under the
control of the PFI or a third party. The representations, warranties and covenants made in this
Master Agreement shall survive delivery of the Mortgages to FHLB and shall inure to the benefit of
FHLB notwithstanding any examination of the Mortgage documentation by FHLB. The PFI represents and
warrants the following as of the date of this Master Agreement, and as of each Mandatory Delivery
Date and Settlement Date under each Mandatory Delivery Contract:

	 	1.	 	Organization and Good Standing. The PFI is duly organized, validly
existing and in good standing under the laws of the jurisdiction under which it was
organized and is qualified to do business and is properly licensed or registered as a
mortgage banker or lender in each jurisdiction in which the PFI does business, or is
exempt under applicable law from such qualification or licensing and no demand for such
qualification or licensing has been made upon the PFI by any jurisdiction.
	 
	 	2.	 	Authority and Capacity. The PFI has all requisite corporate power,
authority and capacity to enter into each Program Document to which it is a party and
to perform the obligations required of it thereunder. Each Program Document (assuming
the due authorization and execution by FHLB) constitutes a valid and legally binding
agreement of the PFI enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization and
similar laws, and by equitable principles affecting the enforceability of the rights of
creditors. No consent, approval, authorization or order of or registration or filing
with, or notice to, any governmental authority or court is required, under state or
federal law prior to the execution, delivery and performance of or compliance by the
PFI with the Master Agreement or any other Program Document or the consummation by the
PFI of any other transaction contemplated thereby.

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	 	3.	 	No Conflict. Neither the execution and delivery of the Master
Agreement or any other Program Document nor the consummation of the transactions
contemplated by the Master Agreement or any other Program Document nor compliance with
the terms and conditions contained herein and therein, shall conflict with or result in
the breach of, or constitute a default under, or result in the creation or imposition
of any lien, charge or encumbrance of any nature upon the properties or assets of the
PFI (except as contemplated by the Program Documents), any of the terms, conditions or
provisions of the PFI’s charter or by-laws or any similar corporate documents of the
PFI or any mortgage, indenture, deed of trust, loan or credit agreement or other
agreement or instrument to which the PFI is now a party or by which it is bound.
	 
	 	4.	 	Compliance with Laws. There is no action, suit, proceeding or
investigation pending, or to the PFI’s knowledge threatened, against the PFI before any
court, administrative agency or other tribunal (a) asserting the invalidity of the
Master Agreement or other Program Document, (b) seeking to prevent the consummation of
any of the transactions contemplated hereby or thereby or (c) which might materially
and adversely affect the performance by the PFI of its obligations under, or the
validity or enforceability of, the Master Agreement or other Program Document.
	 
	 	5.	 	Performance. The PFI does not believe, nor does it have any reason or
cause to believe, that it cannot perform each and every covenant contained in the
Master Agreement or other Program Document.
	 
	 	6.	 	Ordinary Course Transaction. The consummation of the transactions
contemplated by the Master Agreement or any other Program Document are in the ordinary
course of business of the PFI, and the sale, transfer, assignment and conveyance of
Mortgages and the related Servicing rights, by the PFI pursuant to the Master Agreement
or other Program Documents are not subject to the bulk transfer or any similar
statutory provisions in effect in any applicable jurisdiction.
	 
	 	7.	 	Litigation; Compliance with Laws. There is no litigation, proceeding
or governmental investigation pending, or any order, injunction or decree outstanding
that might materially and adversely affect the Mortgages or the related Servicing
rights to be sold pursuant to the Master Agreement or other Program Document.
Additionally, there is no litigation, proceeding or governmental investigation existing
or pending or to the knowledge of the PFI threatened, or any order, injunction or
decree outstanding against or relating to the PFI, that has not been disclosed by the
PFI to FHLB in writing that could have an adverse effect upon the Mortgages or the
related Servicing rights to be purchased by FHLB under the Master Agreement or other
Program Document, nor does the PFI know of any basis for any such litigation,
proceeding or governmental investigation. The PFI has not violated any applicable law,
regulation, ordinance, order, injunction or decree, or any other requirement of any
governmental body or court, which may materially and adversely affect the Mortgages or
the related

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	 	 	 	Servicing rights to be sold pursuant to the Master Agreement or other Program
Document.
	 
	 	8.	 	Statements Made. No representation, warranty or written statement made
by the PFI in the Master Agreement or other Program Document, or in any schedule,
written statement, electronic media, or certificate furnished to FHLB by the PFI in
connection with the Master Agreement or other Program Documents or the transactions
contemplated hereunder or thereunder contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make the
statements contained herein or therein not misleading.
	 
	 	9.	 	Approved PFI. The PFI meets all of the eligibility requirements set
forth in the Guide, this Master Agreement, other Program Documents.

       B. Representations and Warranties Regarding the Mortgages

     With respect to each Mortgage sold by the PFI to FHLB, the PFI represents and warrants the
following as of each Settlement Date under each Mandatory Delivery Contract:

	 	1.	 	Mortgage Characteristics

	 	a)	 	Underwriting. The PFI represents that
the Mortgage is underwritten according to FHLB Guidelines.
	 
	 	b)	 	Valid First Lien. The Mortgage is a
valid, subsisting, enforceable and perfected first lien on the
Mortgaged Property and such Mortgaged Property is owned by the
Mortgagor in fee simple.
	 
	 	c)	 	Deeds of Trust. In the event the
Mortgage constitutes a deed of trust, a trustee, duly qualified under
applicable law to serve as such, has been properly designated and
currently so serves and is named in the deed of trust, and no fees or
expenses are or will become payable by FHLB to the trustee under the
deed of trust, except in connection with a trustee’s sale after default
by the Mortgagor.
	 
	 	d)	 	Full Disbursement of Proceeds. The
proceeds of the loan to which the Mortgage pertains have been fully
disbursed and there is no requirement for future advances of such loan
thereunder, and, except as specifically permitted by FHLB, any and all
requirements as to completion of any on-site or off-site improvement
and as to disbursements of any escrow funds therefore have been
complied with. All costs, fees, and expenses incurred in making or
closing of the loan to which the Mortgage pertains 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.

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	 	e)	 	No Defenses. The Mortgage is not
subject to any right of rescission, set-off, counterclaim or defense,
including without limitation the defense of usury; neither will the
operation of any of the terms of the mortgage note or any other
document comprising the Mortgage, or the exercise of any right
thereunder, render either the mortgage note or any other document
comprising the Mortgage unenforceable, in whole or in part, or subject
to any right of rescission, set-off, counterclaim or defense, including
without limitation the defense of usury, and no such right of
rescission, set-off, counterclaim or defense has been asserted with
respect thereto, and no Mortgagor was a debtor in any state or federal
bankruptcy or insolvency proceeding at the time the Mortgage was
originated.
	 
	 	f)	 	Payments Current. All payments due on
the Mortgage have been made by the related Mortgagor, the Mortgage has
not been delinquent (i.e. no payment due from Mortgagor was
more than 30 days past due) more than once in the preceding 12 months
and such delinquency lasted for no more than 30 days.
	 
	 	g)	 	No Defaults. There is no default,
breach, violation or event of acceleration existing under the Mortgage
or the mortgage note or any other document comprising the Mortgage, 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 PFI nor its
predecessors have waived any default, breach, violation or event of
acceleration.
	 
	 	h)	 	No Outstanding Charges. There are no
defaults in complying with the terms of the Mortgage, and all taxes,
governmental assessments, insurance premiums, water, sewer and
municipal charges, leasehold payments or ground rents which previously
became due and owing have been paid. The PFI has not advanced funds,
or induced, solicited or knowingly received any advance of funds by a
party other than the Mortgagor, directly or indirectly, for the payment
of any amount required under the Mortgage, except of interest accruing
from the date of the mortgage note or date of the first disbursement of
the proceeds of the loan to which the Mortgage pertains, whichever is
earlier, to the day which precedes by one (1) month the due date of the
first installment of principal and interest.

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	 	i)	 	No Mechanics’ Liens. There are no
mechanics’ or similar liens or claims which have been filed for work,
labor or material (and no rights are outstanding that under the law
could give rise to such liens) affecting the Mortgaged Property which
are or may be liens prior to, or equal or coordinate with, the lien of
the Mortgage.
	 
	 	j)	 	Ownership. Immediately prior to FHLB’s
purchase of the Mortgage, the PFI or its affiliate was the sole owner
of record and holder of the Mortgage. The Mortgage had not been
assigned or pledged, and the PFI had good and marketable title thereto,
and had full right to transfer and sell the Mortgage to FHLB free and
clear of any encumbrance, equity, participation interests, lien,
pledge, charge, claim or security interest, and had full right and
authority subject to no interest or participation of, or agreement
with, any other party, to sell and assign the Mortgage pursuant to the
Master Agreement and on the purchase date FHLB received good and
marketable title to the Mortgage free of any encumbrance, equity,
participation interest, lien, pledge, charge, claim or security
interest.
	 
	 	k)	 	Occupancy of the Mortgaged Property.
Except where FHLB has specifically agreed to the contrary, the
Mortgaged Property is lawfully occupied by the Mortgagor under
applicable law. All inspections, licenses and certificates required to
be made or issued with respect to all occupied portions of the
Mortgaged Property and, with respect to the use and occupancy of the
same, including but not limited to certificates of occupancy and fire
underwriting certificates, have been made or obtained from the
appropriate authorities.
	 
	 	l)	 	No Satisfaction of Mortgage. The
Mortgage has not been materially modified, satisfied, canceled,
subordinated or rescinded, in whole or in part, and the Mortgaged
Property has not been released from the lien of the Mortgage, in whole
or in part, nor has any instrument been executed that would effect any
such release, cancellation, modification, satisfaction, subordination
or rescission. The PFI has not waived the performance by the Mortgagor
of any action, if the Mortgagor’s failure to perform such action would
cause the Mortgage to be in default resulting from any action or
inaction by the Mortgagor.
	 
	 	m)	 	No Refinance Agreements. Neither the
PFI nor any of the PFI’s affiliates have entered into an agreement,
formal or informal, with the Mortgagor during the initial origination
process of the Mortgage to refinance the Mortgage at some future date
as an inducement for the Mortgagor to enter into the original Mortgage
transaction.

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	 	n)	 	No Adverse Selection. The PFI used no
adverse selection procedures in selecting the Mortgage from among the
outstanding first lien residential Mortgages owned by it which were
available for sale to FHLB.

	 	2.	 	Mortgage Information and Documentation

	 	a)	 	Mortgage as Described. The information
contained in all commitments, advices, schedules, computer tapes or
other documents or media prepared by the PFI or on behalf of the PFI
relating to the Mortgage is complete, true and correct.
	 
	 	b)	 	Documents. The mortgage note and the
other documents comprising the Mortgage are on forms acceptable to
FHLB, and the PFI has not made any representation to the Mortgagor
which are inconsistent with such documents. The Mortgage contains
customary and enforceable provisions such as to render the rights and
remedies of the holder thereof adequate for the realization against the
Mortgaged Property of the benefits of the security provided thereby,
including, (a) in the case of a Mortgage designated as a deed of trust,
by trustee’s sale and (b) otherwise, by judicial foreclosure. Upon
default by the Mortgagor and foreclosure sale, or trustee’s sale of,
the Mortgaged Property pursuant to the proper procedures, good and
merchantable title to the Mortgaged Property will be deliverable.
There is no homestead or other exemption available to the Mortgagor
which would interfere with the right to sell the Mortgaged Property at
a trustee’s sale or the right to foreclosure sale of the Mortgaged
Property pursuant to the Mortgage subject to applicable federal and
state laws and judicial precedent with respect to bankruptcy and right
of redemption. Payments under the mortgage note that is part of each
Mortgage are due on the first day of each calendar month with interest
payable in arrears.
	 
	 	c)	 	Due on Sale. The Mortgage contains an
enforceable provision for the acceleration of the payment of the UPB of
the Mortgage in the event that the Mortgaged Property is sold or
transferred without the prior written consent of the Mortgagee
thereunder; by the terms of the mortgage note that is part of each
Mortgage, however, the provision for acceleration may not be exercised
at the time of a transfer if prohibited by federal law.

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	 	d)	 	Appraisals. The appraisal obtained in
connection with the origination of the Mortgage, as well as the
appraiser who performed it, meet all of the applicable FHLB Guidelines.
The value of the Mortgaged Property is at least equal to the appraised
value stated in the appraisal.
	 
	 	e)	 	Original Terms Unmodified. The terms
of the mortgage note and the other documents comprising the Mortgage
have not been impaired, waived, altered or modified in any respect.
	 
	 	f)	 	Validity of Mortgage Documents. The
mortgage note and the other documents comprising the Mortgage, and any
security agreements, chattel mortgages, or equivalent documents
relating to it, are genuine, and each is the legal, valid and binding
obligation of the maker thereof enforceable in accordance with its
terms. All parties to the mortgage note and the other documents
comprising the Mortgage and any other related agreement had legal
capacity to enter into the Mortgage and to execute and deliver the
mortgage note and the other documents comprising the Mortgage and any
other related agreement, and the mortgage note and the other documents
comprising the Mortgage and any other related agreement have been duly
and properly executed by such parties. The documents, instruments and
agreements submitted for loan underwriting in connection with obtaining
the Mortgage were not falsified and contain no untrue statement of
material fact or omit to state a material fact required to be stated
therein or necessary to make the information and statements therein not
misleading. No fraud was committed in connection with the origination
of the Mortgage.

	 	3.	 	Compliance

	 	a)	 	Compliance with Applicable Laws. All
laws including, without limitation, usury, truth-in-lending, real
estate settlement procedures, consumer credit protection, equal credit
opportunity, fair housing and lending disclosure laws applicable to the
Mortgage have been complied with.
	 
	 	b)	 	Servicing Performance. Prior to the
purchase date, the Mortgage has been properly serviced in accordance
with all applicable FHLB Guidelines, all applicable laws, the terms of
the Mortgage, mortgage note and related Mortgage Documents. With
respect to escrow deposits and Escrow Payments, all such payments are
in the possession of the PFI and there exist no deficiencies in
connection

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	 	 	 	therewith for which customary arrangements for repayment thereof have
not been made. All Escrow Payments have been collected in full
compliance with all applicable laws. An escrow of funds has been
established in an amount sufficient to pay for every item which remains
unpaid and which has been assessed but is not yet due and payable. No
escrow deposits or Escrow Payments or other charges or payments due the
PFI have been capitalized under the Mortgage or the mortgage note
included in the Mortgage.
	 
	 	c)	 	Acceptable Investment. The PFI has no
knowledge of any circumstances or conditions with respect to the
mortgage note, the Mortgage, the Mortgaged Property, the Mortgagor or
the Mortgagor’s credit standing that could be expected to cause private
institutional investors to regard the Mortgage as an unacceptable
investment, cause the Mortgage to become delinquent, or adversely
affect the value or marketability of the Mortgage.
	 
	 	d)	 	Doing Business. All parties which have
had any interest in the Mortgage, whether as Mortgagee, assignee,
pledgee or otherwise, are (or, during the period in which they held and
disposed of such interest, were) (a) in compliance with any and all
applicable licensing requirements of the laws of the state wherein the
Mortgaged Property is located and (b) (i) organized under the laws of
such state, (ii) qualified to do business in such state, (iii) a
federal savings and loan association or national bank having principal
offices in such state, or (iv) not doing business in such state.
	 
	 	e)	 	Underwriting. The Mortgage was
underwritten in accordance with the FHLB Guidelines and any
underwriting conditions relating to the Mortgage were fully satisfied,
the satisfaction of those underwriting conditions is properly
documented in accordance with standard industry practices.
	 
	 	f)	 	Compliance with Guide and FHLB
Guidelines. The Mortgage and all documents related thereto,
comply, in all material respects, to all applicable terms, conditions
and requirements set forth in the Guide, Master Agreement, other
Program Documents, and FHLB Guidelines.

	 	4.	 	Insurance

	 	a)	 	Title Insurance. Except for the
Properties located in states in which title insurance policies are not
customarily issued, the Mortgage is covered by an ALTA form of lender’s
title insurance policy or other

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	 	 	 	generally acceptable form of policy of insurance acceptable to FHLB,
issued by, and the binding obligation of, a title insurer acceptable to
FHLB and qualified to do business in the jurisdiction where the
Mortgaged Property is located, insuring the PFI, its successors and
assigns, as to the first priority lien of the Mortgage in the original
principal amount of the Mortgage, and against any loss by reason of the
invalidity or unenforceability of the lien resulting from the
provisions for the Mortgage providing for adjustment in the Mortgage
Rate and monthly payment. The PFI, its successors and assigns, 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
the Master Agreement and the transfer of said Mortgage pursuant to the
applicable Master Commitment Contract and Mandatory Delivery Contract,
and will inure to the benefit of FHLB without any further act. No
claims have been made under such lender’s title insurance policy. For
Properties located in states where title insurance is not customarily
issued, the mortgage file must include an attorney’s opinion stating
that the Mortgage is a valid first lien.
	 
	 	b)	 	Hazard and Flood Insurance. The
improvements upon the Mortgaged Property are insured against loss by
fire and other hazards as required by the FHLB, including flood
insurance if required under the National Flood Insurance Act of 1968,
as amended. The Mortgage requires the Mortgagor to maintain such
casualty insurance at the Mortgagor’s expense, and upon the Mortgagor’s
failure to do so, authorizes the holder of the Mortgage to obtain and
maintain such insurance at the Mortgagor’s expense and to seek
reimbursement therefore from the Mortgagor. The hazard insurance
policy is the valid and binding obligation of the insurer, and is in
full force and effect. All flood insurance and hazard insurance
premiums have been paid when due.
	 
	 	c)	 	Coverage of Insurance. No action,
inaction, or event has occurred and no state of facts exists or has
existed that has resulted or will result in the exclusion from, denial
of, or defense to coverage under any applicable insurance policy or
guarantee including, but not limited to, a title insurance policy, a
hazard insurance policy, or MI coverage, obtained in connection with
the Mortgage. In connection with the placement of any such insurance
or guarantee, no commission, fee, other unlawful compensation or value
of any kind has been or will be received by the PFI or any designee of
the PFI or any corporation in which the PFI or any officer, director or
employee of the PFI had a financial interest at the time of placement
of such insurance and, to the best of PFI’s knowledge, no such, fee,
other

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	 	 	 	unlawful compensation or value of any kind has been received by any
attorney, firm or other person or entity.
	 
	 	d)	 	Primary Mortgage Insurance. All
Mortgages with loan-to-values greater than 80 percent must be insured
with primary MI at the time of origination, in accordance with the FHLB
Guidelines, and all insurance premiums due on or before the purchase
date shall be paid in full.

	 	5.	 	Mortgaged Property

	 	a)	 	No Additional Collateral. The mortgage
note included in the Mortgage is not and has not been secured by any
collateral except the collateral subject to the lien of the
corresponding Mortgage.
	 
	 	b)	 	Location of Improvements. All
improvements which were considered in determining the appraised value
of the Mortgaged Property lie wholly within the boundaries and building
restriction lines of the Mortgaged Property, or the policy of title
insurance affirmatively insures against loss or damage by reason of any
violation, variation, encroachment or adverse circumstance which is
either disclosed or would have been disclosed by an accurate survey.
No improvement located on or being part of the Mortgaged Property is in
violation of any applicable zoning law or regulation.
	 
	 	c)	 	Environmental Matters. There is no
action or proceeding pending, or to the best of the PFI’s knowledge,
threatened, involving the Mortgaged Property in which compliance with
any environmental law, rule or regulation is an issue. Nothing further
remains to be done to satisfy in full all requirements of each
applicable environmental law, rule or regulation which is a
prerequisite to use and enjoyment of the Mortgaged Property.
Notwithstanding the foregoing, this warranty shall be deemed not to
have been made if a title policy or other insurance acceptable to FHLB
affording, in substance, the same protection to FHLB is furnished to
FHLB by the PFI.
	 
	 	d)	 	No Encroachments. No improvements on
adjoining properties encroach upon the Mortgaged Property in any
respect so as to effect the value or marketability of the Mortgage or
the Mortgaged Property.
	 
	 	e)	 	No Condemnation and Mortgaged Property
Undamaged. There is no proceeding pending or threatened for the
total or partial condemnation of the Mortgaged Property. The Mortgaged
Property is undamaged by waste, fire, earthquake or earth movement,

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	 	 	 	windstorm, flood, tornado or other casualty so as to affect adversely
the value of the Mortgaged Property as security for the Mortgage or the
use for which the premises were intended.
	 
	 	f)	 	Detrimental Conditions. As of the
origination date and the purchase date of the Mortgage, the PFI did not
know, nor did the PFI have any reason to know, that the Mortgaged
Property and the improvements constructed thereon were subject to any
detrimental conditions which could reasonably be expected to adversely
affect the market value of the Mortgaged Property. The term
“detrimental conditions” includes, but is not limited to, expansive
soils, underground mines, soil subsidence, landfills, superfund sites,
special study zones, and other conditions which affect the stability of
the improvements erected on the Mortgaged Property or the drainage on
or from the Mortgaged Property.
	 
	 	g)	 	Location and Type of Mortgaged
Property. The Mortgaged Property consists of an owner-occupied
single parcel of real property with a detached single family residence
erected thereon, a one- to four-family dwelling, or an individual
condominium unit in a condominium project. No portion of the Mortgaged
Property is used for commercial purposes.

     C. Covenants Regarding Servicing

	 	1.	 	General Covenants

The PFI, without limitation and in addition to any other covenants made in
the Guide, the Master Agreement and other Program Documents with respect to
Mortgages sold to FHLB, covenants the following:

	 	a)	 	Documents. All information contained
in any form or communication sent or given to FHLB or its agents by or
on behalf of the PFI shall be true, correct and complete.
	 
	 	b)	 	Inspection of Records. The PFI shall
permit FHLB or its agents during normal business hours to inspect all
books and records of the PFI pertaining to its mortgage lending
operations, any Mortgage purchased by FHLB from the PFI or any Mortgage
Serviced by the PFI on behalf of FHLB, or such Servicing as has been
transferred to a subservicer in accordance with the Guide and Program
Documents.
	 
	 	c)	 	Credit Information. With respect to
each Mortgage offered for sale to FHLB by the PFI, the PFI has full
right and authority and is not precluded by law or contract from
furnishing FHLB with the applicable consumer report (as defined in the
Fair Credit Reporting Act, Public Law 91-508) and all other credit
information relating to such Mortgage. The foregoing shall not be
construed to impose any

14

 

	 	 	 	obligation on FHLB, or any of FHLB’s assignees of any Mortgage, to keep
the above described materials confidential or to otherwise comply with
the Fair Credit Reporting Act or any similar laws.

	 	2.	 	Servicing Covenants
	 
	 	 	 	With respect to each Mortgage Serviced by the PFI on behalf of FHLB:

	 	a)	 	Servicing of the Mortgages. The PFI
shall service the Mortgage in accordance with (a) all applicable FHLB
Guidelines, and all other applicable laws, (b) the terms of the
Mortgage, including the related mortgage note and related Mortgage
Documents and (c) the Guide, Master Agreement and other Program
Documents. Without limiting the foregoing, all escrow practices, as
well as all Mortgage payments, will be made in full compliance with all
applicable FHLB Guidelines, and all other applicable laws, and the
terms of the Mortgage, including the related mortgage note and related
Mortgage Documents.
	 
	 	b)	 	Compliance By Others. In the event
that any third party performs any of the PFI’s obligations to the
extent permitted by the Guide and Program Documents, the performance of
such obligations shall be in full compliance with the Guide, this
Master Agreement, and Program Documents.
	 
	 	c)	 	Normal Servicing Procedures Applied.
The PFI shall exercise the same degree of care in Servicing the
Mortgage as it exercises in connection with its overall Servicing
portfolio, but in no event less than the degree of care which would be
exercised by a prudent mortgage servicer Servicing mortgages for its
own account.
	 
	 	d)	 	Custodial Accounts. The Custodial
Accounts established pursuant to the Guide shall at all times be demand
accounts, shall not be pledged or encumbered in any manner and shall
otherwise meet all of the requirements of the Guide.
	 
	 	e)	 	Suspension or Disqualification. The
PFI shall immediately notify FHLB in writing by certified mail if its
Servicing rights are suspended or terminated by any institution
including, but not limited to, HUD, Fannie Mae, Freddie Mac or GNMA.
	 
	 	f)	 	Discovery of Fraud. In the event that
the PFI discovers or has reasonable grounds to suspect that fraud was
committed in connection with the origination of a Mortgage, the PFI
shall immediately notify FHLB in writing of such discovery. Upon
FHLB’s receipt of such notice or FHLB’s independent discovery or

15

 

	 	 	 	reasonable suspicion of fraud in connection with the origination of a
Mortgage, FHLB may, in its sole and absolute discretion, report such
fraud to investors, agencies, mortgage industry clearing houses and any
other third parties FHLB believes have an interest in the fraud.
	 
	 	g)	 	Failure To Properly Foreclose Or
Liquidate. In the event that a Mortgage is in default and the PFI
is required or has decided to seek foreclosure sale of the Mortgaged
Property or liquidate the Mortgage, the PFI must take prompt and
diligent action consistent with FHLB Guidelines to seek such sale or
otherwise appropriately liquidate such Mortgage and to perform all
incident actions.
	 
	 	h)	 	Failure To Properly Manage, Dispose Of, Or
Effect Proper Conveyance Of Title. In the event that any
foreclosure sale of the Mortgaged Property subject to any Mortgage
Serviced under this Master Agreement occurs or the possession or title
to the property has been taken by FHLB or on FHLB’s behalf, the PFI
must properly manage, dispose of or effect proper conveyance of title
to the Mortgaged Property in accordance with FHLB Guidelines.
	 
	 	i)	 	Escrow Custodial Accounts. The
Servicer must certify that it is complying with the Guide, and any
laws, regulations and contracts related to the Mortgagor’s Escrow
Custodial Accounts or other collateral accounts (including those that
require the PFI to pay interest on Mortgagor’s Escrow Custodial
Accounts). Some jurisdictions require that interest be paid on the
funds in the Mortgagor’s Escrow Custodial Account. In the event that
these requirements apply, the Servicer must pay the interest.

     D. Consequences of Untrue Warranties

     FHLB may require the PFI to repurchase a Mortgage sold to FHLB if any representation or
warranty made by the PFI about the Mortgage is untrue (whether the representation or
warranty is in this Master Agreement or other Program Document). FHLB may require
repurchase whether or not the PFI had actual knowledge of the untruth. FHLB may also enforce
any other available remedy. The PFI must pay FHLB as provided in the Guide. In addition,
untrue representations or warranties may be treated as a breach of contract that could
result in the withdrawal of FHLB approval of a PFI and the termination of this Master
Agreement or any other Program Document.

     E. Indemnification

     The PFI shall indemnify FHLB against, and hold FHLB harmless from, all costs arising
out of any breach of a representation, warranty or covenant made by the PFI under this
Master Agreement, the Guide or any Program Documents, or any breach or violation

16

 

of FHLB Guidelines. The foregoing indemnification shall include any costs incurred by
FHLB in connection with enforcing its rights under the Master Agreement, the Guide, any
Program Documents, or any breach or violation of FHLB Guidelines, or defending against any
claim, demand or assertion against FHLB by a third party arising out of a breach of a
representation, warranty or covenant made by the PFI in this Master Agreement, the Guide or
any Program Documents. The PFI’s indemnification pursuant to this section shall survive the
purchase and delivery of the Mortgages, their liquidation or repurchase and any suspension
or termination of the PFI’s selling privileges or the termination of this Master Agreement
or any other Program Documents.

     F. Offset

     FHLB may offset against the Purchase Proceeds for any Mortgage delivered for purchase
by the PFI, or against any other amounts owed by FHLB to the PFI pursuant to the Program
Documents or any other contract or instrument between FHLB and PFI, any outstanding amounts
owed to FHLB by the PFI or any affiliate of the PFI including, but not limited to:

	 	1.	 	Fees, penalties and expenses arising out of the
PFI’s failure to timely deliver any final documentation;
	 
	 	2.	 	Pair-off Fees, penalties or charges relating to
delivered or undelivered Mortgages;
	 
	 	3.	 	Costs and expenses arising out of the PFI’s
breach of any of its representations, warranties or covenants under the
Program Documents; and
	 
	 	4.	 	Costs and expenses incurred by FHLB as a result
of action taken by FHLB based on FHLB’s reasonable belief that the PFI
is no longer able to fulfill its obligations under this Master
Agreement or other Program Documents, including its repurchase and
indemnification obligations.

     G. Transfer, Suspension or Termination of Selling and Servicing Rights

     TERMINATON OF SERVICING RIGHTS

     1. Voluntary Transfer of Servicing Rights

     The PFI, with prior approval from FHLB, may transfer its Servicing rights to a
third party Servicer. A third party Servicer must comply with all Eligibility
Requirements in Chapter 2 of the Guide, except that the third party Servicer does
not need to be a Member. Third party Servicers, once approved, must comply with
FHLB Guidelines, this Guide, and applicable Program Documents. The assignment of
Servicing should be documented by a separate contract between the PFI and the
assignee servicer, which provides for a transfer of the Servicing of the

17

 

Mortgages and provides that by accepting an assignment of Servicing, the
assignee Servicer agrees to Service the Mortgages in accordance with FHLB
Guidelines, and applicable Program Documents, and assumes all contractual
obligations related to the Mortgages, including selling warranties and other
liabilities that arise in connection with the origination of the Mortgages or the
Servicing of the Mortgages prior to the assignment. An assignment of Servicing
does not release the PFI from any liabilities to FHLB with respect to the Mortgages
or the Servicing of them prior to the assignment of Servicing. Both the PFI and the
assignee Servicer will be jointly and severally liable to FHLB for the obligations
and liabilities related to the assigned Mortgages.

     2. Suspension or Termination of Selling Rights

     FHLB may, in its sole and absolute discretion, suspend or terminate the PFI’s
selling rights for any reason including, but not limited to, the PFI’s failure to
perform any of its obligations under the FHLB Guidelines, the Master Agreement, the
Guide, or Program Documents.

     Unless otherwise specified by FHLB, FHLB shall purchase Mortgages under
Mandatory Delivery Contracts outstanding at the time of termination or suspension.
FHLB shall, in its sole and absolute discretion, determine the duration of any
period of suspension and shall prescribe the terms and conditions for reinstatement.

     3. Termination of Servicing Rights

	 	a)	 	Termination of Servicing
Rights For Cause. FHLB may declare a termination of the
PFI’s Servicing rights if the PFI fails to perform any of its
obligations or meet any requirements under FHLB Guidelines, the
Master Agreement, the Guide, and all Program Documents.
	 
	 	 	 	If FHLBank declares a termination of Servicing for any of the
reasons set forth above, FHLBank and the PFI will mutually
determine the current fair market value of the servicing
privileges being terminated. FHLBank will then purchase the
Servicing, or cause the Servicing to be purchased, for such
amount minus any fees arising out of transfer and any
outstanding balances owed FHLBank. Servicing shall immediately
terminate and vest in FHLBank without further action by any
party.
	 
	 	 	 	In the event of a termination, the PFI shall promptly deliver
all documents, files, records (including computerized records)
and moneys (i.e., escrow funds) to an FHLB-approved designee
chosen by FHLB.

18

 

	 	b)	 	Termination Without
Cause. FHLB may declare a termination of the PFI’s
Servicing rights for any reason, at its sole discretion, and
compensation will be paid to the PFI and such Servicing rights
shall immediately terminate and vest in FHLB without further
action by any party. FHLB will notify the PFI in writing in the
event that FHLB elects to terminate the PFI’s Servicing rights
without cause. Within 60 days of its receipt of such
notification, the PFI shall sell FHLB’s Servicing portfolio to a
FHLB-approved Servicer. FHLB’s written approval of the
transaction must be obtained before the transfer. The PFI is
responsible for all costs incurred in connection with the
transfer and may retain any fees arising out of the transaction.
	 
	 	 	 	If the PFI does not arrange a voluntary transfer of the
Servicing rights within the period prescribed above, FHLB and
the PFI will mutually determine the current fair market value
of the Servicing privileges being terminated and FHLB will
purchase the Servicing privileges, or cause the Servicing
privileges to be purchased, for such amount.
	 
	 	 	 	If FHLB and the PFI cannot agree on a fair market value of the
Servicing rights, then each one will select an unaffiliated,
nationally recognized Servicing broker, and those two brokers
will independently estimate the current fair market value of
the Servicing rights. The average of the estimates provided by
the brokers will be used as the current fair market value. FHLB
and the PFI will be responsible for the respective cost of the
broker’s valuation solicited by such party.
	 
	 	 	 	In the event of a termination of Servicing rights without
cause, the PFI shall promptly deliver all Mortgage Documents,
file records (including computerized records) and moneys (i.e.,
escrow funds) (a) to an FHLB-approved Servicer to whom the PFI
has transferred the Servicing rights, if such a transfer has
occurred within the prescribed time period or (b) to FHLB or
its designee, if the Servicing rights have not been transferred
by the PFI within the prescribed time period.
	 
	 	 	 	Survival of Liability. No suspension of the PFI’s selling
privileges, or termination of the PFI’s selling or Servicing
privileges, shall release the PFI from any of its obligations
under the Master Agreement, the Guide or any other Program
Document, including without limitation the obligation of the
PFI to insure that payments due to FHLB, its successors and

19

 

	 	 	 	assigns, under Mortgagor that FHLB has purchased from the PFI,
are paid when due.

     H. Remedies Cumulative

     All rights and remedies of FHLB under the Master Agreement, Program Documents
and the Guide are in addition to all other rights and remedies available to FHLB in
law or equity. FHLB may exercise its rights and remedies concurrently, independently
or in succession and all such rights and remedies shall inure to the benefit of
FHLB, its successors and/or assigns. The failure of FHLB to exercise any of its
remedies under the Master Agreement or the Guide with respect to a breach or default
of the PFI does not constitute a waiver of such remedy with respect to such breach
or default or any subsequent breach or default.

I. Scope of Duties. The PFI will diligently perform all duties that are
necessary or incident to the Servicing of all Mortgages it is Servicing for FHLB on
the date this Master Agreement takes effect, and other Mortgages that the PFI is
required to Service by the terms of this Master Agreement or any other existing or
future agreement between FHLB and the PFI.

J. Service At PFI’s Own Expense. The cost of Servicing will be the PFI’s
expense.

K. Service Until Need Ends. The PFI must service each Mortgage continuously
for as long as FHLB owns the Mortgage, starting from the date its Servicing duties
begin until the Mortgage’s principal and interest have been paid-in-full, the
Mortgage has been liquidated and the Mortgaged Property properly disposed of (if the
PFI is required to do these things), the PFI’s Servicing duties are terminated, or
the PFI transfers Servicing in accordance with the Guide.

L. Compensation. The PFI’s compensation for Servicing Mortgages, including
the management and disposal of Properties, under this Master Agreement is specified
in the Mandatory Delivery Contract Confirmation.

M. Ownership of Records. All Mortgage records required by FHLB Guidelines
to document or properly Service any Mortgage owned by FHLB in its entirety are FHLB
property at all times. This is true whether or not the PFI developed or originated
them. The following are considered Mortgage records: all Mortgage Documents; tax
receipts; insurance policies; insurance premium receipts; ledger sheets; payment
records; insurance claim files and correspondence; foreclosure files and
correspondence; current and historical data files; and all other papers and records.

N. PFI as Document Custodian. The Mortgage records belong to FHLB. The PFI
can have possession of the Mortgage records only with FHLB approval and if the PFI
is acting as FHLB’s Document Custodian under a Custodial Agreement.

20

 

This is true whether the PFI receives the Mortgage records from an outside source or
prepares them itself.

O. Delivery. When asked in writing by FHLB, the PFI will deliver Mortgage
Documents to FHLB or someone FHLB chooses. The PFI must also send a list that
identifies each Mortgage, and must give other information requested to identify the
Mortgages so delivered. FHLB will not be required to sign or deliver any trust
receipts before the PFI delivers the Mortgage Documents requested. If FHLB asks the
PFI in writing for reproductions of any Mortgage records the PFI microfilmed or
condensed, the PFI will reproduce them promptly at no cost to FHLB or the party to
whom FHLB wants them delivered.

IV. Assignment

     The PFI may not, without prior written approval from FHLB, assign this Master Agreement under
any circumstances, either voluntarily or involuntarily, by operation of law, or otherwise, or
delegate its responsibility for Servicing individual Mortgages owned by FHLB.

V. Notice

     Any notice given under this Master Agreement must be in writing, delivered in person or sent
by registered or certified mail, with a return receipt requested; and addressed to the party to
which notice is being given. Delivery and notice is given when FHLB or the PFI mail or register
the notice with any post office.

VI. Address

     The addresses of the parties are those listed below. Any change of address must be given in
writing.

VII. Prior Agreements

     This Master Agreement supersedes any prior agreements between the PFI and FHLB that govern
selling or Servicing of Mortgages and to which this Master Agreement relates, except the Guide and
other Program Documents. In the event of conflict between this Master Agreement and the Guide and
other Program Documents, the Guide shall control. This section will not release the PFI from any
responsibility or liability under any prior agreements and understandings.

VIII. Severability and Enforcement

21

 

	     If any provision of this Master Agreement conflicts with applicable law, the other provisions
of this Master Agreement that can be carried out without the conflicting provision will not be
affected. All rights and remedies under this Master Agreement are distinct and cumulative not only
as to each other but as to any rights or remedies afforded by law or equity. They may be exercised
together, separately or successively. These rights and remedies are for FHLB’s benefit and its
successors and assigns.

IX. FHLB Capital Stock Purchase Requirement

     The FHLB and PFI recognize that the regulatory requirements regarding the capital structure of
FHLB are in transition. As such, PFI’s continued participation in the MPP may be dependent upon
PFI purchasing stock in FHLB. Any future requirement for stock purchase shall be as ultimately
established by the Board of Directors of FHLB.

X. Captions

     This Master Agreement’s captions and headings are for convenience only and are not part of the
Master Agreement.

XI. Scope of Master Agreement

     The following provisions apply, whether or not they are contrary to other provisions in this
Master Agreement.

	 	A.	 	Restriction of PFI. FHLB reserves the right to restrict the PFI’s
sale and Servicing of Mortgages to the type that the PFI and its employees have the
experience and ability to originate, sell or service.
	 
	 	B.	 	Types of Mortgage Products Covered. This Master Agreement covers only
the sale and Servicing of Mortgages within the following descriptions:
	 
	 	1.	 	15- or 30-year fixed rate, fully amortizing, level-payment mortgages for
primary, owner-occupied, detached residences, including single-family properties, and
2-, 3- and 4-unit properties;
	 
	 	2.	 	15- or 30-year fixed rate, fully amortizing, level-payment mortgages for
primary, owner-occupied, attached residences, including condominiums and PUDs;
	 
	 	3.	 	Second/vacation homes; and,
	 
	 	4.	 	All mortgages must meet FHLB Underwriting Guidelines.

22

 

XII. Signatures and Date

     By executing this Master Agreement, the PFI and FHLB agree to all of this Master Agreement’s
terms and provisions. This Master Agreement takes effect on the date first appearing above.

	 	 	 	 	 	 	 
	 	 	 	 	 
	PFI:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	Address	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	City, State, Zip Code	 	 	 	 
	 
	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	   Title	 	 	 	 
	 
	 	 	 	 	 	 
	Federal

	 	Home Loan Bank of Cincinnati	 	 	 	 
	 
	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	   Title	 	 	 	 
	 
	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	   Title	 	 	 	 

23EX-10.3

 

EXHIBIT 10.3

FEDERAL HOME LOAN BANK OF CINCINNATI

 

Executive Incentive Compensation Plan

Plan Document

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revised

February, 2005

 

FEDERAL HOME LOAN BANK OF CINCINNATI

 

Executive Incentive Compensation Plan

Table Of Contents

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 	1.0	 	 	Plan Objectives
	 	 	1	 
	 	2.0	 	 	Definitions
	 	 	1	 
	 	3.0	 	 	Eligibility
	 	 	2	 
	 	4.0	 	 	Incentive Award Opportunity
	 	 	3	 
	 	5.0	 	 	Performance Mix
	 	 	3	 
	 	6.0	 	 	Performance Measures
	 	 	3	 
	 	7.0	 	 	Award Determination
	 	 	4	 
	 	8.0	 	 	Award Conditions
	 	 	5	 
	 	9.0	 	 	Participant Performance Reviews
	 	 	6	 
	 	10.0	 	 	Plan Communication
	 	 	6	 
	 	11.0	 	 	Administrative Control
	 	 	6	 
	 	12.0	 	 	Miscellaneous Conditions
	 	 	6	 
	 	 	 	 	 
	 	 	 	 
	  Appendices	 	 	9	 
	 	 	 	 	 
	 	 	 	 
	 	 	 	 	Appendix A: Plan Participants
	 	 	10	 
	 	 	 	 	Appendix B: Award Opportunity and Performance Mix
	 	 	11	 
	 	 	 	 	Appendix C: Bank Performance Measures
	 	 	12	 

 

 

FEDERAL HOME LOAN BANK OF CINCINNATI

 

Executive Incentive Compensation Plan

PLAN DOCUMENT

	1.0	 	Plan Objectives
	 
	1.1	 	The purpose of the Federal Home Loan Bank of Cincinnati’s Executive Incentive Compensation
Plan is to achieve four objectives:

	 	1.1	 	Promote the achievement of the Bank’s profitability and business goals;
	 
	 	1.2	 	Link executive compensation to specific Bankwide and individual performance
measures;
	 
	 	1.3	 	Provide a competitive reward structure for senior officers and other key
employees; and
	 
	 	1.4	 	Provide a vehicle for closer Board involvement and communication with
management regarding Bank strategic plans.

	2.0	 	Definitions

	 	2.1	 	When used in the Executive Incentive Compensation Plan, the following words and
phrases shall have the following meaning:

	 	2.1.1	 	Bank means the Federal Home Loan Bank of Cincinnati;
	 
	 	2.1.2	 	Plan means this Executive Incentive Compensation Plan;
	 
	 	2.1.3	 	Board means the Bank’s Board of Directors;
	 
	 	2.1.4	 	The Personnel Committee means the Personnel Committee of the Board;
	 
	 	2.1.5	 	Participant means a person who, at the discretion of the Board, is
eligible to take part in the Plan for a designated Plan year, and who has been
named as a Participant for that Plan year by the President, with the concurrence
of the Personnel Committee;

1

 

	 	2.1.6	 	Plan year means the calendar year, January 1 through December 31,
over which both Bank and Participant performance is measured;
	 
	 	2.1.7	 	Disability means the complete and permanent inability by reason of
illness or accident to perform the duties of the occupation at which the
Participant was employed by the Bank when such disability commenced, as
determined by the Personnel Committee with Board approval. All determinations as
to the date and extent of disability shall be made upon the basis of such
evidence, including independent medical reports and data, as the Personnel
Committee deems necessary and desirable. All determinations shall be final and
binding.

	3.0	 	Eligibility

	 	3.1	 	Individual employees eligible for participation will be defined annually by the
President, with the concurrence of the Personnel Committee. (See Appendix A — Plan
Participants for current Plan year).
	 
	 	3.2	 	Eligibility shall normally be limited to officer positions whose functional
responsibility encompass the establishment of strategic direction and tactical action
plans for the Bank, or operating results at the divisional level. Other employees may
also be eligible to participate as defined by competitive compensation practices within
the Bank’s labor market.
	 
	 	3.3	 	Due to its unique role for the Bank and reporting relationship to the Board,
the Internal Auditor position will not be included as an eligible position under the
Plan, but will be eligible for a similar plan administered by the Audit Committee of
the Board.
	 
	 	3.4	 	There will be five levels of participation:

	 	 	 	 	 
	 

	 	 Level I:
	 	President
	 
	 	 	 	 
	 

	 	 Level II:
	 	Executive Vice Presidents
	 
	 	 	 	 
	 

	 	 Level III:
	 	Senior Vice Presidents with major profit center responsibilities
	 
	 	 	 	 
	 

	 	 Level IV:
	 	Vice Presidents with substantial profit center responsibilities
	 
	 	 	 	 
	 

	 	 Level V:
	 	Assistant Vice Presidents and Officers controlling departments having a major impact on costs or
other Bank functions.

2

 

	4.0	 	Incentive Award Opportunity

	 	4.1	 	Each Plan year, the Bank will provide an award opportunity to Participants.
The award opportunity shall be a percentage of each Participant’s annual base salary at
the end of the Plan year. Certain executive positions have a greater and more direct
impact than others on the annual success of the Bank; therefore, these differences are
recognized by varying award opportunities for each Participant level. (See Appendix B
 — Award Opportunity and Performance Mix for current Plan year award opportunities.)

	5.0	 	Performance Mix

	 	5.1	 	Participants will earn their incentive award by achieving a combination of
Bankwide objectives and individual goals. The Level I and Level II Participants will
earn an incentive award based solely on the achievement of Bankwide objectives.
	 
	 	5.2	 	Incentive awards will be weighted between Bankwide objectives and individual
goals for Participants in Levels III through V, and will vary by Participant level:
The more control and influence a Participant has on Bankwide goals, the greater the
Participant’s weighting on Bank goals will be. Likewise, the less control and
influence a Participant has on Bankwide goals, the greater the weighting on that
Participant’s individual goals. (See Appendix B — Award Opportunity and Performance
Mix for current Plan year weightings).

	6.0	 	Performance Measures

	 	6.1	 	Bankwide and individual performance measures will be established with respect
to each Plan year. Three achievement levels will be set for each Bankwide and
individual measure, and include:

	 	 	 	 	 
	 

	 	 Threshold
	 	The minimum achievement level accepted for the performance
measure.
	 
	 	 	 	 
	 

	 	 Target
	 	The planned achievement level for the performance measure.
	 
	 	 	 	 
	 

	 	 Maximum
	 	The achievement level for the performance measure which
substantially exceeds the planned level of achievement.

	 	6.2	 	Bankwide measures will be established by the Personnel Committee with Board
approval. (See Appendix C — Bank Performance Measures for current plan year Bank
measures).

3

 

	 	6.3	 	Participants in Levels III through V will typically have three to five major
goals established that reflect the priorities of the Participant for the Plan year.
Each goal will be weighted to reflect its relative importance, with a minimum weight of
10% per goal.
	 
	 	6.4	 	Participants must submit their individual goals in writing to the Executive
Vice President and receive written approval of such goals in order to be eligible to
receive an incentive award based on their individual performance.
	 
	 	6.5	 	All individual performance goals are to remain in effect for the entire plan
year. However, in their sole discretion, the Personnel Committee with Board approval
may revise Bank performance measures and the President may revise individual
performance goals for the Plan Year after the year commences.

	7.0	 	Award Determination

	 	7.1	 	The method of determining the incentive award will be according to the
following sequence:

	 	7.1.1	 	Define the dollar value of the target award opportunity for the
Participant.
	 
	 	7.1.2	 	Determine the amount of the target award opportunity that is
attributable to Bank performance and to individual performance.
	 
	 	7.1.3	 	After the Plan year ends, evaluate actual Bank performance against
the Bankwide performance measures stated in Appendix C. Assess Bank performance
as it relates to the threshold, target and maximum awards as necessary.
	 
	 	7.1.4	 	Using the award opportunity table described in Appendix B,
determine the Bank incentive award by relating the level of actual Bank
performance derived in 7.1.3 to the award opportunity for the Participant’s
level. Interpolate between the threshold, target and maximum awards as
necessary.
	 
	 	7.1.5	 	After the Plan year ends, evaluate actual individual Participant
performance against the individual performance goals. Assess performance as it
relates to the threshold, target and maximum performance measures.
	 
	 	7.1.6	 	Using the award opportunity table described in Appendix B,
determine the individual incentive award by relating the level of actual
individual performance derived in 7.1.5 to the award opportunity for the

4

 

	 	 	 	Participant’s level. Interpolate between the threshold, target and maximum
awards as necessary.
	 
	 	7.1.7	 	Sum the Bank and individual awards to determine a total award for
each Participant. The President with Personnel Committee approval may recommend
the Board adjust the awards of Participants.

	 	7.2	 	The Level I Participant shall not receive an award under this Plan
if during the most recent examination of the Bank by the Federal Housing Finance
Board (FHFB), an unsafe or unsound practice or condition with regard to the Bank
was identified. However, the Level I Participant may receive such award provided
that the finding of an unsafe or unsound practice or condition is subsequently
resolved in favor of the Bank by the FHFB.

	8.0	 	Award Conditions

	 	8.1	 	Three events must occur before an incentive award may be made to a Participant:

	 	8.1.1	 	The Bank must achieve one or more of the threshold measures of
performance as defined in Appendix C;
	 
	 	 	 	However, at the Personnel Committee’s sole discretion, an incentive award may
be recommended for Bank performance below threshold subject to final approval
by the Board of Directors.
	 
	 	8.1.2	 	The President must determine and the Personnel Committee must
concur that Bank performance is consistent with bestowing achievement awards;
and,
	 
	 	8.1.3	 	The Participant’s immediate supervisor and the President must
determine that the individual’s overall performance meets their expectations.

	 	8.2	 	Should any individual Participant’s performance meet these expectations but the
Bank fail to achieve one or more of its threshold performance measures no incentive
award will be made to any Participant. Likewise, if the Bank achieves all its
threshold performance measures but a Participant’s performance fails to meet these
expectations no incentive award will be made to the Participant.

5

 

	9.0	 	Participant Performance Reviews

	 	9.1	 	Participant performance reviews will be scheduled to occur quarterly with a
final assessment after the Plan year ends.
	 
	 	9.2	 	The President’s performance (Level I) will be appraised by the Personnel
Committee. All other Participants will be appraised by the President and the
Participant’s immediate supervisor, when applicable.

	10.0	 	Plan Communication

	 	10.1	 	Communications with Participants regarding the Plan should be made according to
the following schedule:

	 	 	 	 	 
	 

	 	Fourth quarter of the
prior year
	 	Communicate next year’s Bank and
department goals, and identify next year’s Plan Participants.
	 
	 	 	 	 
	 

	 	First quarter of the
Plan year
	 	Communicate Bankwide goals for the Plan Year.
Individual goal setting
	 
	 	 	 	 
	 

	 	Quarterly
	 	Interim assessments of progress toward achieving Bank and individual goals.
	 
	 	 	 	 
	 

	 	End of plan year
	 	Final assessment of Bank and individual performance.

	11.0	 	Administrative Control

	 	11.1	 	The Bank’s Director of Human Resources will assist, as requested, the
President in the administration of the Plan. Oversight of the Plan’s operation will
be provided by the Personnel Committee.
	 
	 	11.2	 	The Personnel Committee, in consultation with the President, and subject to
Board approval, is responsible for interpreting and applying the terms of the Plan.
These interpretations and applications shall be final and binding.

	12.0	 	Miscellaneous Conditions

	 	12.1	 	Except as provided in Section 12.4, Participants must be employed on the
last day of the Plan year to receive an award.

6

 

	 	12.2	 	Employees of the Bank who are hired, transferred or promoted into an
eligible position within the first six months of the Plan year may be nominated for
participation in the Plan in accord with Section 3.1, and receive a prorated
incentive award.
	 
	 	12.3	 	Employees of the Bank who are hired, transferred or promoted into an
eligible position during the last six months of the Plan year will be eligible for
nomination by the President to participate the following Plan year.
	 
	 	12.4	 	The President may nominate Participants who terminate employment, retire,
die or become disabled during the Plan year to receive a prorated award.
	 
	 	12.5	 	If a Participant ceases employment after the Plan year but before the Board
approves the incentive award for that Plan year, the President may recommend, with
the concurrence of the Personnel Committee, that the Participant receive an award.
	 
	 	12.6	 	Participation in the Plan will not entitle any Participant to an award.
	 
	 	12.7	 	The designation of an employee as a Participant in the Plan does not
guarantee employment. Nothing in this Executive Incentive Compensation Plan will
confer on any employee the right to be retained in the service of the Bank nor limit
the right of the Bank to terminate or otherwise deal with any employee.
	 
	 	12.8	 	In the event the Bank does not achieve threshold performance levels, the
President may recommend, with the concurrence of the Personnel Committee, incentive
awards for extraordinary individual performance.
	 
	 	12.9	 	All awards under the Plan will be paid out in cash and will be subject to
appropriate payroll tax withholdings.
	 
	 	12.10	 	No incentive award received by a Participant shall be considered as
compensation under any employee benefit plan of the Bank, except as otherwise
determined by the Bank.
	 
	 	12.11	 	Incentive awards will be made as soon as practical following the end of
the Plan year.
	 
	 	12.12	 	The Board has the right to revise, modify, or terminate the Plan in whole
or in part at any time or for any reason, and the right to modify any recommended
incentive award amount (including the determination of a lesser award or no award),
without the consent of any Participant.

7

 

	 	12.13	 	Since no employee has a guaranteed right to any award under this Executive
Incentive Compensation Plan, any attempt by an employee to sell, transfer, assign,
pledge, or otherwise encumber any anticipated award shall be void, and the Bank shall
not be liable in any manner for or subject to the debts, contracts, liabilities,
engagements or torts of any person who might anticipate an award under this program.
	 
	 	12.14	 	This Executive Incentive Compensation Plan shall at all times be entirely
unfunded and no provision shall at any time be made with respect to segregating
assets of the Bank for payment of any award under this program.

8

 

APPENDICES

9

 

APPENDIX A:

 

Plan Participants — 2005 Plan Year

Level                     Name                     Title

10

 

APPENDIX B:

 

Incentive Award Opportunity and Performance Mix

2005 Award Opportunity (as a percentage of base salary)1

Achievement Levels

	 	 	 	 	 	 	 	 	 	 	 	 	 
	Level	 	Threshold	 	 	Target	 	 	Outstanding	 
	I
	 	 	25.0	%	 	 	50.0	%	 	 	70.0	%
	II
	 	 	15.0	%	 	 	40.0	%	 	 	55.0	%
	III
	 	 	15.0	%	 	 	30.0	%	 	 	45.0	%
	IV
	 	 	10.0	%	 	 	20.0	%	 	 	35.0	%
	V
	 	 	5.0	%	 	 	10.0	%	 	 	20.0	%

Weightings (as a percentage of target award opportunity)

Measures

	 	 	 	 	 	 	 	 	 
	Level	 	Bank	 	 	Individual	 
	I
	 	 	100	%	 	 	0	%
	II
	 	 	100	%	 	 	0	%
	III
	 	 	75	%	 	 	25	%
	IV
	 	 	60	%	 	 	40	%
	V
	 	 	50	%	 	 	50	%

 

	1 Earned incentive awards that fall between any
of the designated achievement levels (i.e., threshold, target, and outstanding)
will be interpolated.

11

 

APPENDIX C:

 

Bank Performance Measures

There will be ten (10) Bank performance measures for the 2005 Plan Year.

	 	 	 	 	 	 	 	 	 
	 	 	Threshold	 	Target	 	Maximum
	 
	 	 	 	 

	 	I.	 	Member Asset Activity: Aggregate Incentive Weight — 30%
	 
	 	a)	 	Average Advances & Related LOCs
	 
	 	 	 	Incentive Weight: 5%
	 
	 	b)	 	Increase in Average Credit Balances with

Members with Current Assets < $600M
	 
	 	 	 	Incentive Weight: 7.5%
	 
	 	c)	 	New Credit Services Users
	 
	 	 	 	Incentive Weight: 7.5%
	 
	 	d)	 	MPP New Mandatory Delivery Contracts
	 
	 	 	 	Incentive Weight: 10%
	 
	 	e)	 	MPP Participating Financial Institutions – 2005 New Users
	 
	 	 	 	Incentive Weight: 5%
	 
	 	II.	 	Housing & Community Outreach: Aggregate Incentive Weight — 25%
	 
	 	a)	 	Members Using One or More Housing &

Community Investment Programs during 2005
	 
	 	 	 	Incentive Weight: 15%
	 
	 	b)	 	Community Outreach Events
	 
	 	 	 	Incentive Weight: 10%
	 
	 	III.	 	Profitability: Incentive Weight — 35%
	 
	 	 	 	Adjusted Net Income equal to 2005

Average Three-month LIBOR Rate

Plus Basis Points Spread
	 
	 	IV.	 	New Membership: Aggregate Incentive Weight — 10%
	 
	 	a)	 	2005 Membership Approvals
	 
	 	 	 	Incentive Weight: 7.5%
	 
	 	b)	 	2005 Insurance Membership Approvals
	 
	 	 	 	Incentive Weight: 2.5%

12

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