As filed with the Securities and Exchange Commission on November 21, 2012

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

Amendment No. 2 to
FORM 10

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

PURSUANT TO SECTION 12(b) OR 12(g)

OF THE SECURITIES EXCHANGE ACT OF 1934

 


 

ALTISOURCE RESIDENTIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

Maryland

 

46-0633510

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. employer

identification number)

 

c/o Altisource Asset Management Corporation

402 Strand St.

Frederiksted, United States Virgin Islands 00840-3531

(Address of Principal Executive Offices)

 

Registrant’s telephone number, including area code:

(340) 692-1055

 


 

Securities to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which each class is to be
registered

 

Class B Common Stock, par value $0.01 per share

 

New York Stock Exchange

 

 

Securities to be registered pursuant to Section 12(g) of the Act:  None

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-

accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,”

“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large accelerated filer o

 

Accelerated filer o

 

Non-accelerated filer o
(Do not check if a smaller reporting company)

 

Smaller reporting company x

 

 

 



 

ALTISOURCE RESIDENTIAL CORPORATION

 

Cross-Reference Sheet Between the Information Statement and Items of Form 10

 

Our information statement is filed as Exhibit 99.1 to this Form 10.  For your convenience, we have provided below a cross-reference sheet identifying where the items required by Form 10 can be found in our information statement.

 

Item No.

 

Caption

 

Location in Information Statement

 

 

 

 

 

1.  

 

Business

 

See “Summary,” “Forward-Looking Statements,” “The Separation,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business”

 

 

 

 

 

1A.

 

Risk Factors

 

See “Risk Factors” and “Forward-Looking Statements”

 

 

 

 

 

2.  

 

Financial Information

 

See “Summary,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”

 

 

 

 

 

3.  

 

Properties

 

See “Business—Properties and Facilities”

 

 

 

 

 

4.  

 

Security Ownership of Certain Beneficial Owners

 

See “Security Ownership of Certain Beneficial Owners”

 

 

 

 

 

5.  

 

Directors and Executive Officers

 

See “Management”

 

 

 

 

 

6.  

 

Executive Compensation

 

Not applicable

 

 

 

 

 

7.  

 

Certain Relationships and Related Transactions, and Director Independence

 

See “Summary,” “Risk Factors,” “Relationship between Altisource and Us Following the Separation,” “Management” and “Certain Relationships and Related Party Transactions”

 

 

 

 

 

8.  

 

Legal Proceedings

 

See “Business—Legal Proceedings”

 

 

 

 

 

9.  

 

Market Price of and Dividends on the Registrant’s Common Equity and Related Shareholder Matters

 

See “The Separation, “Description of Capital Stock” and “Security Ownership of Certain Beneficial Owners”

 

 

 

 

 

10.    

 

Recent Sales of Unregistered Securities

 

None

 

 

 

 

 

11.    

 

Description of Registrant’s Securities to be Registered

 

See “Description of Capital Stock” and “Certain Provisions of our Charter and Bylaws”

 

 

 

 

 

12.    

 

Indemnification of Directors and Officers

 

See “Indemnification of Directors”

 

 

 

 

 

13.    

 

Financial Statements and Supplementary Data

 

See “Summary” and “Index to Financial Statements” and the financial statements referenced therein

 

 

 

 

 

14.    

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None

 

ii



 

Item No.

 

Caption

 

Location in Information Statement

15.    

 

Financial Statements and Exhibits

 

See “Index to Financial Statements” and the financial statements referenced therein

 

(a)                                 List of Financial Statements and Schedules.

 

The following financial statements are included in the information statement and filed as part of this Registration Statement on Form 10:

 

(1)                                 Financial Statements of Altisource Residential, L.P., including Report of Independent Registered Certified Public Accounting Firm.

 

(b)                                 Exhibits.  The following documents are filed as exhibits hereto.

 

Exhibit
Number

 

Exhibit Description

 

 

 

 

2.1

*

 

Form of Separation Agreement between Altisource Residential Corporation and Altisource Portfolio Solutions S.A.

 

 

 

 

3.1

^

 

Altisource Residential Corporation Articles of Amendment and Restatement.

 

 

 

 

3.2

^

 

Bylaws of Altisource Residential Corporation.

 

 

 

 

8.1

^

 

Tax Opinion of Kramer Levin Naftalis & Frankel LLP.

 

 

 

 

10.1

*

 

Form of Support Services Agreement between Altisource Residential Corporation and Altisource Solutions S.à r.l.

 

 

 

 

10.2

*

 

Form of Tax Matters Agreement between Altisource Residential Corporation and Altisource Solutions S.à r.l.

 

 

 

 

10.3

*

 

Form of Asset Management Agreement between Altisource Residential Corporation and Altisource Asset Management Corporation

 

 

 

 

10.4

*

 

Form of Master Services Agreement between Altisource Residential Corporation and Altisource Solutions S.à r.l.

 

 

 

 

10.5

#

 

Form of Servicing Agreement between Altisource Residential Corporation and Ocwen Loan Servicing, LLC.

 

 

 

 

10.6

*

 

Form of Trademark License Agreement between Altisource Residential Corporation and Altisource Solutions S.à r.l.

 

 

 

 

10.7

*

 

Form of Shareholders’ Agreement among Altisource Residential Corporation, Altisource Asset Management Corporation and NewSource Reinsurance Company Ltd.

 

 

 

 

10.8

*

 

Form of Title Insurance Services Agreement between NewSource Reinsurance Company Ltd. and Altisource Solutions S.à r.l.

 

 

 

 

10.9

^

 

Altisource Residential Corporation Conversion Option Plan.

 

 

 

 

10.10

^

 

Altisource Residential Corporation Special Conversion Option Plan.

 

 

 

 

99.1

#

 

Preliminary Information Statement of Altisource Residential Corporation, subject to completion, dated [ ], 2012.

 


 

 

 

*    Previously filed.

 

 

 

^    To be filed by amendment.

 

 

 

#    Filed herewith.

 

iii



 

SIGNATURE

 

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement on Form 10 to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Altisource Residential Corporation

 

 

 

 

 

By:

/s/ William C. Erbey

 

Name:

William C. Erbey

 

Title:

Chairman

 

 

Dated:  November 21, 2012

 

 

iv


 

EXHIBIT 10.5

 

 

SERVICING AGREEMENT

 

between

 

ALTISOURCE RESIDENTIAL, L.P.
Owner

 

and

 

OCWEN LOAN SERVICING, LLC
Servicer

 

FIXED RATE AND ADJUSTABLE RATE
MORTGAGE LOANS AND REO PROPERTIES

 

Dated as of [                            ], 2012

 

 



 

TABLE OF CONTENTS

 

 

 

 

 

Page

 

ARTICLE I

 

DEFINITIONS

 

 

 

 

 

Section 1.01.

 

Definitions

 

1

 

ARTICLE II

 

RECORD TITLE AND POSSESSION OF MORTGAGE SERVICING FILES:  BOOKS AND RECORDS

 

 

 

 

 

Section 2.01.

 

Servicing Transfer; Record Title and Possession of Mortgage Servicing Files

 

13

Section 2.02.

 

Books and Records

 

14

Section 2.03.

 

Transfer of Mortgage Loans

 

14

Section 2.04.

 

Tax Service Contracts

 

15

 

ARTICLE III

 

REPRESENTATIONS

 

 

 

 

 

Section 3.01.

 

Representations, Warranties and Covenants of the Servicer

 

15

Section 3.02.

 

Representations, Warranties and Covenants of the Owner

 

17

 

ARTICLE IV

 

SERVICING OF MORTGAGE LOANS

 

 

 

 

 

Section 4.01.

 

Servicer to Act as the Servicer

 

18

Section 4.02.

 

Collection of Mortgage Loan Payments

 

19

Section 4.03.

 

Realization Upon Defaulted Mortgage Loans

 

19

Section 4.04.

 

Establishment of Custodial Accounts; Deposits in Custodial Accounts

 

21

Section 4.05.

 

Permitted Withdrawals From the Custodial Account

 

22

Section 4.06.

 

Establishment of Escrow Accounts; Deposits in Escrow Accounts

 

23

Section 4.07.

 

Permitted Withdrawals From Escrow Account

 

23

Section 4.08.

 

Payment of Taxes, Insurance, and Other Charges; Maintenance of Primary Insurance Policies and LPMI Policies; Collections Thereunder

 

24

Section 4.09.

 

Transfer of Accounts

 

25

Section 4.10.

 

Maintenance of Hazard Insurance

 

25

Section 4.11.

 

Maintenance of Mortgage Impairment Insurance Policy

 

26

Section 4.12.

 

Restoration and Repair

 

26

Section 4.13.

 

Fidelity Bond, Errors and Omissions Insurance

 

27

Section 4.14.

 

Title, Management and Disposition of REO Property

 

28

Section 4.15.

 

Notification of Adjustments

 

29

Section 4.16.

 

Permitted Investments

 

29

Section 4.17.

 

Government Sponsored Programs and Legislation

 

30

 

i



 

ARTICLE V

 

PAYMENTS TO THE OWNER

 

 

 

 

 

Section 5.01.

 

Distributions

 

30

Section 5.02.

 

Statements to the Owner

 

31

Section 5.03.

 

Real Estate Owned Property and Specially Serviced Loan Reports

 

32

Section 5.04.

 

Nonrecoverability; Reimbursement of the Servicer

 

32

Section 5.05.

 

Principal and Interest Advances

 

32

 

ARTICLE VI

 

GENERAL SERVICING PROCEDURES

 

 

 

 

 

Section 6.01.

 

Assumption Agreements

 

33

Section 6.02.

 

Satisfaction of Mortgages and Release of Mortgage Servicing Files

 

34

Section 6.03.

 

Servicing Compensation

 

34

Section 6.04.

 

Statement of Compliance

 

34

Section 6.05.

 

Annual Independent Certified Public Accountants’ Servicing Report

 

35

Section 6.06.

 

Sarbanes-Oxley Compliance and Back-up Certifications

 

35

Section 6.07.

 

Reports of Foreclosures and Abandonment of Mortgaged Property

 

36

Section 6.08.

 

Compliance with Gramm-Leach-Bliley Act of 1999

 

36

Section 6.09.

 

Reporting

 

36

 

ARTICLE VII

 

THE SERVICER

 

 

 

 

 

Section 7.01.

 

Indemnification; Third Party Claims

 

37

Section 7.02.

 

Merger or Consolidation of the Servicer

 

38

Section 7.03.

 

Limitation on Liability of the Servicer and Others

 

39

Section 7.04.

 

Transactions with Related Persons

 

39

Section 7.05.

 

Servicer Not to Resign

 

40

 

ARTICLE VIII

 

DEFAULT

 

 

 

 

 

Section 8.01.

 

Events of Default

 

40

Section 8.02.

 

Waiver of Defaults

 

41

 

ARTICLE IX

 

TERMINATION

 

 

 

 

 

Section 9.01.

 

Term

 

41

Section 9.02.

 

Termination

 

41

Section 9.03.

 

Termination Without Cause

 

42

Section 9.04.

 

Termination with Cause

 

42

Section 9.05.

 

Transfer Procedures

 

42

 

ii



 

ARTICLE X

 

MISCELLANEOUS PROVISIONS

 

 

 

 

 

Section 10.01.

 

Successor to the Servicer

 

43

Section 10.02.

 

Amendment

 

44

Section 10.03.

 

Governing Law

 

44

Section 10.04.

 

Notices

 

44

Section 10.05.

 

Severability Provisions

 

44

Section 10.06.

 

Exhibits

 

44

Section 10.07.

 

General Interpretive Principles

 

44

Section 10.08.

 

Reproduction of Documents

 

45

Section 10.09.

 

Provision of Information

 

45

Section 10.10.

 

Further Assurances

 

45

Section 10.11.

 

No Solicitations

 

46

Section 10.12.

 

Financial Statements; Servicing Facilities

 

46

Section 10.13.

 

Reconstitution

 

46

Section 10.14.

 

Jurisdiction; Waiver of Jury Trial

 

48

Section 10.15.

 

Assignment by the Owner

 

49

Section 10.16.

 

Limitation on Assignment by the Servicer

 

49

Section 10.17.

 

Compliance with REMIC Provisions

 

49

Section 10.18.

 

Third Party Beneficiary

 

50

Section 10.19.

 

Confidentiality

 

50

Section 10.20.

 

Counterparts

 

51

 

ARTICLE XI

 

COMPLIANCE WITH REGULATION AB

 

 

 

 

 

Section 11.01.

 

Intent of the Parties; Reasonableness

 

51

Section 11.02.

 

Additional Representations and Warranties of the Servicer

 

53

Section 11.03.

 

Information to Be Provided by the Servicer

 

53

Section 11.04.

 

Servicer Compliance Statement

 

57

Section 11.05.

 

Report on Assessment of Compliance and Attestation

 

57

Section 11.06.

 

Use of Subservicers and Subcontractors

 

58

Section 11.07.

 

Indemnification; Remedies

 

59

Section 11.08.

 

Third Party Beneficiary

 

62

 

iii



 

EXHIBITS

 

EXHIBIT A

 

MORTGAGE LOAN SCHEDULE

EXHIBIT B

 

CUSTODIAL ACCOUNT LETTER AGREEMENT

EXHIBIT C

 

ESCROW ACCOUNT LETTER AGREEMENT

EXHIBIT D

 

CONTENTS OF EACH MORTGAGE SERVICING FILE

EXHIBIT E

 

FORM OF MONTHLY REPORT

EXHIBIT F

 

FORM OF POWER OF ATTORNEY

EXHIBIT G

 

LIST OF TAX SERVICER CONTRACT PROVIDERS

EXHIBIT H

 

SERVICING TRANSFER PROCEDURES

EXHIBIT I

 

FORM OF ANNUAL SARBANES CERTIFICATION

EXHIBIT J

 

DATA TAPE FIELDS

EXHIBIT K

 

SERVICING CRITERIA

 

iv



 

THIS SERVICING AGREEMENT, dated as of the [    ] day of [                        ], 2012, between Altisource Residential, L.P., a Delaware limited partnership (the “Owner”), having an office at c/o Altisource Asset Management Corporation, 402 Strand St., Frederiksted, VI  00840-3531, and OCWEN LOAN SERVICING, LLC, a Delaware limited liability company (the “Servicer”), having an office at 1661 Worthington Road, Centrepark West, West Palm Beach, FL 33409.

 

W I T N E S S E T H:

 

WHEREAS, the Owner from time to time intends to acquire nonperforming Mortgage Loans pursuant to the terms of certain mortgage loan purchase agreements between the Owner and certain third party sellers on a servicing-released basis; and

 

WHEREAS, the Servicer and the Owner have agreed that the Servicer shall service certain of such Mortgage Loans and REO Properties on behalf of the Owner commencing on the related Servicing Transfer Date (as defined herein) and terminating on the related Transfer Date (as defined herein), and the parties hereto desire to provide the mechanics of such servicing by the Servicer.

 

NOW, THEREFORE, in consideration of the mutual covenants made herein, and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

Section 1.01.         Definitions.  Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings specified in this Article:

 

Acceptable Servicing Practices”:  With respect to any Mortgage Loan or REO Property, those servicing, collection, resolution or disposition practices in accordance with Applicable Regulations and terms of the Mortgage and Mortgage Note that are undertaken to maximize the net present value to the Owner of the Owner’s investment in any Mortgage Loan or REO Property by prudent mortgage lending institutions which service mortgage loans, defaulted mortgage loans and REO properties of the same type as such Mortgage Loan or REO Property in the jurisdiction where the related Mortgaged Property or REO Property is located, and in all cases without regard to:

 

1.     any relationship that the Servicer, any sub-servicer or any affiliate of the Servicer or any other sub-servicer may have with the related Mortgagor; or

 

2.     the ownership, or servicing or management for others, by the Servicer or any sub-servicer, of any other mortgage loans or property; provided, however, that such services are performed in compliance with the terms of this Agreement.

 



 

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

 

Adjustment Date”:  With respect to each Adjustable Rate Mortgage Loan, the date set forth in the related Mortgage Note on which the Mortgage Interest Rate on the Adjustable Rate Mortgage Loan will be adjusted in accordance with the terms of the related Mortgage Note.

 

Agreement”:   This Servicing Agreement including all exhibits hereto, amendments hereof and supplements hereto.

 

Ancillary Income”:  Income from the Mortgage Loans which the Servicer is legally entitled to collect (exclusive of the Servicing Fee), including, without limitation, late charges, prepayment penalties, reconveyance fees, insufficient fund fees, assumption fees, modification fees, HAMP servicer incentive fees (or similar servicer incentive fees under other government programs). fees associated with any repayment plan or forbearance agreement, Fannie Mae and Freddie Mac loss mitigation fees, fees associated with any payoff, interest on escrow accounts (but only to the extent that applicable laws or regulations or the Mortgage Loan Documents do not require that such interest be paid to the applicable Mortgagor under a Mortgage Loan), interest on the Custodial Account, and all other incidental fees with respect to the Mortgage Loans.

 

Annual Statement of Compliance”:  Shall have the meaning set forth in Section 6.06.

 

Annual Independent Certified Public Accountants’ Servicing Report”:  Shall have the meaning set forth in Section 6.05.

 

Applicable Regulations”:  As to any Mortgage Loan, all federal, state and local laws, statutes, rules and regulations applicable thereto.

 

Appraised Value”:  With respect to any Mortgage Loan, the value of the related Mortgaged Property based upon the appraisal made, if any, for the originator at the time of origination of the Mortgage Loan or the sales price of the Mortgaged Property at such time of origination, whichever is less; provided, however, that in the case of a Refinanced Mortgage Loan, such value is based solely upon the appraisal made, if any, at the time of origination of such Refinanced Mortgage Loan.

 

Assignment of Mortgage”:  An individual assignment of the Mortgage, notice of transfer or equivalent instrument to give record notice of the sale of the Mortgage to the Owner, if required.

 

Boarding Fee”:  For each Mortgage Loan, an amount equal set forth in the Fee Letter.

 

Business Day”:  Any day other than a Saturday, a Sunday or a day on which banking or savings and loan institutions in the State of Florida, the State of New York, or the state in which the servicing operations of the Servicer are located are authorized or obligated by law or executive order to be closed.

 

Certifying Party”:  Shall have the meaning set forth in Section 6.06.

 

2



 

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

 

Commission”:  The United States Securities and Exchange Commission.

 

Condemnation Proceeds”:  All awards or settlements in respect of a taking of a Mortgaged Property or REO Property by exercise of the power of eminent domain or condemnation.

 

Current Loan”:  A Mortgage Loan that is less than thirty (30) days past due as of the related Servicing Transfer Date.

 

Custodial Account”:  The separate account or accounts created and maintained pursuant to Section 4.04.

 

Custodial Agreement”:  With respect to any Mortgage Loan, the agreement governing the retention of the originals of the related Mortgage Note, Mortgage, Assignment of Mortgage and each other Mortgage Loan Document.

 

Custodian”:   With respect to any Custodial Agreement, the custodian thereunder or its successor in interest or permitted assign, or any successor to the Custodian under the Custodial Agreement, as therein provided.

 

Cut-off Date”:  With respect to each Mortgage Loan, the first day of the month in which the Servicing Transfer Date occurs or such other date as the parties mutually agree as set forth on the related Mortgage Loan Schedule.

 

Deboarding Fee”:  The Deboarding Fee shall be an amount equal to per Mortgage Loan or REO Property shall be an amount set forth in the Fee Letter.

 

Delinquent Loan”:  A Mortgage Loan that is thirty (30) days or more delinquent as of the related Servicing Transfer Date.

 

Depositor”:   With respect to any Securitization Transaction, the Person identified in writing to the Servicer by the Owner as depositor for such Securitization Transaction.

 

Determination Date”:  The last day of each calendar month preceding a Remittance Date.

 

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

 

Eligible Account”:  Either (a) a segregated account or accounts maintained with an institution whose deposits are insured by the FDIC, the unsecured and uncollateralized short term debt obligations of which (or, in the case of a depository institution or trust company that is the principal subsidiary of a holding company, the short-term unsecured obligations of such holding company) institution shall be rated “A-1” or higher by Standard & Poor’s Ratings Group and “P-1” or higher by Moody’s Investors Service, Inc., or (b) a segregated trust account or accounts maintained with the trust department of a federal or state chartered depository institution, having

 

3



 

capital and surplus of not less than $100,000,000, acting in its fiduciary capacity.  Eligible Accounts may bear interest.

 

Environmental Problem Property”:  A Mortgaged Property or REO Property that is in violation of any environmental law, rule or regulation.

 

Environmental Liability”:  Any and all claims, losses, damages liabilities, judgments, penalties, fines, forfeitures, reasonable legal fees and expenses, and any and all related costs and/or expenses of litigation, administrative and/or regulatory agency proceedings, and any other costs, fees and expenses, suffered or incurred by the Servicer arising out of or resulting from the introduction of such materials on any Mortgaged Property or REO Property before and/or after the date hereof, including, without limitation, (i) any liability under or on account of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., as the same may be amended from time to time, and/or any other federal or state environmental laws, and specifically including, without limitation, any liability relating to asbestos and asbestos containing materials, polychlorinated biphenyls, radon gas, petroleum and petroleum products, urea formaldehyde and any substances classified as being “in inventory,” “usable work in process” or similar classification that would, if classified as unusable, be included in the foregoing definition, including the assertion of any lien thereunder, (ii) claims brought by third parties for loss or damage incurred or sustained subsequent to the date hereof, and (iii) liability with respect to any other matter affecting a Mortgaged Property or REO Property within the jurisdiction of the federal Environmental Protection Agency or state environmental regulatory agencies pursuant to any state laws, and in the regulations adopted pursuant to any of said laws.

 

Escrow Account”:  The separate trust account or accounts created and maintained pursuant to Section 4.06.

 

Escrow Payments”:  The amounts constituting ground rents, taxes, assessments, water charges, mortgage insurance premiums, fire and hazard insurance premiums and other payments required to be escrowed by a Mortgagor with a Mortgagee pursuant to the terms of any Mortgage Loan.

 

Event of Default”:  Any one of the conditions or circumstances enumerated in Section 8.01.

 

Exchange Act”:  The Securities Exchange Act of 1934, as amended.

 

Fannie Mae”:  Fannie Mae, or any successor organization.

 

FDIC”:   The Federal Deposit Insurance Corporation or any successor organization.

 

Fee Letter”:  The fee letter between the Servicer and the Owner as of the date hereof, as the same may be amended, modified or supplemented from time to time.

 

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

 

4



 

First Mortgage Loan”:  A Mortgage Loan that is secured by a first lien on the Mortgaged Property.

 

Fixed Rate Mortgage Loan”:  A Mortgage Loan wherein the Mortgage Interest Rate set forth in the Mortgage Note is fixed for the term of such Mortgage Loan.

 

Freddie Mac”:  Freddie Mac, or any successor organization.

 

HAMP”:  The Home Affordability Modification Program implemented by the U.S. Department of Treasury.

 

HUD”:   The United States Department of Housing and Urban Development, or any successor thereto.

 

Initial Term”: As defined in Section 9.01.

 

Investment Account”: As defined in Section 4.16.

 

Lender Paid Mortgage Insurance Policy” or “LPMI Policy”:  A policy of mortgage guaranty insurance issued by a Mortgage Insurer in which the Owner or the Servicer of the Mortgage Loan is responsible for the premiums associated with such mortgage insurance policy.

 

LPMI Policy Proceeds”:  Proceeds of any Lender Paid Mortgage Insurance Policy.

 

Liquidation Proceeds”:  Amounts, other than Primary Insurance Proceeds, LPMI Policy Proceeds, Condemnation Proceeds and Other Insurance Proceeds, received by the Servicer in connection with the liquidation of a defaulted Mortgage Loan through trustee’s sale, foreclosure sale, sale of the Mortgaged Property or otherwise, other than amounts received following the acquisition of an REO Property pursuant to Section 4.14.

 

Loan-to-Value Ratio”:  With respect to any First Mortgage Loan, the original principal balance of such Mortgage Loan divided by the Appraised Value of the related Mortgaged Property.

 

Master Servicer”:  With respect to any Securitization Transaction, the “master servicer,” if any, specified by the Owner and identified in the related transaction documents.

 

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

 

MERS Designated Mortgage Loan”:  A Mortgage Loan for which (a) the Servicer has designated or will designate MERS as, and has taken or will take such action as is necessary to cause MERS to be, the mortgagee of record, as nominee for the Owner, in accordance with MERS Procedure Manual and (b) the Servicer has designated or will designate the Owner as the Investor on the MERS System.

 

MERS Procedures Manual”:  The MERS Procedures Manual, as it may be amended, supplemented or otherwise modified from time to time.

 

5



 

MERS System”:  MERS mortgage electronic registry system, as more particularly described in the MERS Procedures Manual.

 

Monthly Payment”:  The scheduled monthly payment of principal and interest on a Mortgage Loan which is payable by a Mortgagor under the related Mortgage Note as modified pursuant to any forbearance plan or bankruptcy plan agreement.

 

Monthly Report”:  A monthly report substantially in the form of Exhibit E hereto.

 

Mortgage”:   The mortgage, deed of trust or other instrument creating a first or second lien on Mortgaged Property securing the Mortgage Note.

 

Mortgage Impairment Insurance Policy”:  A mortgage impairment or blanket hazard insurance policy as described in Section 4.11.

 

Mortgage Insurer”:  Any issuer of private mortgage insurance.

 

Mortgage Interest Rate”:  With respect to each Fixed Rate Mortgage Loan, the fixed annual rate of interest provided for in the related Mortgage Note and, with respect to each Adjustable Rate Mortgage Loan, the annual rate that interest accrues on such Adjustable Rate Mortgage Loan from time to time in accordance with the provisions of the related Mortgage Note, which rate, as of the Cut-off Date, shall be the rate set forth in the related Mortgage Loan Schedule as the Mortgage Interest Rate.

 

Mortgage Loan”:  An individual mortgage loan subject to the terms of this Agreement and identified on the Mortgage Loan Schedule attached hereto as of the date hereof and all additional mortgage loans subjected to this Agreement pursuant to Section 2.01, but excluding any individual mortgage loans withdrawn from the loans being serviced hereunder pursuant to the terms of this Agreement.

 

Mortgage Loan Documents”:  With respect to each Mortgage Loan, the documents delivered to the related Custodian pursuant to the related Custodial Agreement.

 

Mortgage Loan Schedule”:  The list of Mortgage Loans subject to this Agreement and identified on the schedule attached hereto as Exhibit A as of the date of this Agreement, as amended or supplemented from time to time to reflect the delivery of additional Mortgage Loans hereunder pursuant to Section 2.01 or the withdrawal of Mortgage Loans pursuant to the terms of this Agreement.  Such Mortgage Loan Schedule shall, among other things, identify whether any Mortgage Loan is covered under a PMI or LPMI Policy.

 

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

 

Mortgaged Property”:  A fee simple interest in, or a leasehold estate with respect to, real properties located in jurisdictions in which the use of leasehold estates for residential properties is a widely accepted practice, the real property (including all improvements, buildings, fixtures, building equipment and personal property thereon and all additions, alterations and replacements

 

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made at any time with respect to the foregoing) and all other collateral securing repayment of the debt evidenced by a Mortgage Note.

 

Mortgage Servicing File”:  The documents pertaining to each Mortgage Loan referred to on Exhibit D attached hereto, to the extent available, which are delivered to the Servicer in connection with the servicing of the Mortgage Loans, as well as any documents and information accumulated by Servicer in its role as servicer.

 

Mortgagee”:  The mortgagee or beneficiary named in the related Mortgage and the successors and assigns of such mortgagee or beneficiary.

 

Mortgagor”:  The obligor on a Mortgage Note, the owner of the Mortgaged Property and the grantor or mortgagor named in the related Mortgage and such grantor’s or mortgagor’s successors in title to the Mortgaged Property.

 

Net Investment Earnings”:  With respect to any Custodial Account or Escrow Account, for any period from any Remittance Date to the immediately succeeding Remittance Date, the amount, if any, by which the aggregate of all interest and other income realized during such period on funds held in such account, exceeds the aggregate of all losses, if any, incurred during such period in connection with the investment of such funds in accordance with Section 4.16.  Such losses shall include, and the Servicer shall be responsible for, any shortfalls in any Custodial Account or Escrow Account caused by a late payment on a Permitted Investment.

 

Net Investment Loss”:  With respect to any Custodial Account or Escrow Account, for any period from any Remittance Date to the immediately succeeding Remittance Date, the amount by which the aggregate of all losses, if any, incurred during such period in connection with the investment of funds held in such account in accordance with Section 4.16, exceeds the aggregate of all interest and other income realized during such period on such funds.  Such losses shall include, and the Servicer shall be responsible for, any shortfalls in any Custodial Account or Escrow Account caused by a late payment on a Permitted Investment.

 

Nonrecoverable Servicing Advance”:  Any Servicing Advance previously made or proposed to be made in respect of a Mortgage Loan or REO Property that, in the reasonable business judgment of the Servicer, will not, or, in the case of a proposed Servicing Advance, would not be, ultimately recoverable from related late payments, Other Insurance Proceeds, Primary Insurance Proceeds, LPMI Policy Proceeds, Condemnation Proceeds or Liquidation Proceeds on such Mortgage Loan or REO Property as provided herein.

 

Officers’ Certificate”:  A certificate signed by the Chief Executive Officer, Chief Operating Officer, Vice President or an Assistant Vice President of the Servicer and delivered to the Owner as required by this Agreement.  On or prior to the date hereof, the Servicer shall deliver to the Owner an incumbency certificate with respect to all such authorized signatories.

 

Other Insurance Proceeds”:  Proceeds of any title policy, hazard policy or other insurance policy covering a Mortgage Loan, other than the Primary Insurance Proceeds or LPMI Policy Proceeds, if any, to the extent such proceeds are not to be applied to the restoration of the related Mortgaged Property or released to the Mortgagor in accordance with the procedures that the Servicer would follow in servicing mortgage loans held for its own account.

 

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Owner”:  Altisource Residential, L.P., a Delaware limited partnership, and its successors in interest, and any Person who assumes the obligations of the Owner hereunder with respect to one or more Mortgage Loans.

 

Party”:  Each of the Owner and the Servicer.

 

Permitted Investments”:  Any one or more of the following obligations or securities having the required ratings, if any, provided for in this definition and which provides for a date of maturity as set forth in Section 4.16:

 

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

 

(ii)           demand and time deposits in, certificates of deposit of, bankers’ acceptances issued by or federal funds sold by any depository institution or trust company (including the Trustee or its agent acting in their respective commercial capacities) incorporated under the laws of the United States of America or any state thereof and subject to supervision and examination by federal and/or state authorities, so long as, at the time of such investment or contractual commitment providing for such investment, such depository institution or trust company (or, if the only Rating Agency is S&P, in the case of the principal depository institution in a depository institution holding company, debt obligations of the depository institution holding company) or its ultimate parent has a short-term uninsured debt rating in the highest available rating category of Moody’s and S&P and provided that each such investment has an original maturity of no more than 365 days; and provided further that, if the only Rating Agency is S&P and if the depository or trust company is a principal subsidiary of a bank holding company and the debt obligations of such subsidiary are not separately rated, the applicable rating shall be that of the bank holding company; and, provided further that, if the original maturity of such short-term obligations of a domestic branch of a foreign depository institution or trust company shall exceed 30 days, the short-term rating of such institution shall be A-1+ in the case of S&P if S&P is the Rating Agency; and (B) any other demand or time deposit or deposit which is fully insured by the FDIC;

 

(iii)          repurchase obligations with a term not to exceed 30 days with respect to any security described in clause (i) above and entered into with a depository institution or trust company (acting as principal) rated A-1+ or higher by S&P and A2 or higher by Moody’s; provided, however, that collateral transferred pursuant to such repurchase obligation must be of the type described in clause (i) above and must (A) be valued daily at current market prices plus accrued interest, (B) pursuant to such valuation, be equal, at all times, to 105% of the cash transferred in exchange for such collateral and (C) be delivered in such a manner as to accomplish perfection of a security interest in the collateral by possession of certificated securities;

 

(iv)          securities bearing interest or sold at a discount that are issued by any corporation incorporated under the laws of the United States of America or any state thereof and that are rated by each Rating Agency that rates such securities in its highest

 

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long-term unsecured rating categories at the time of such investment or contractual commitment providing for such investment;

 

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

 

(vi)          units of money market funds that are rated in the highest rating category by S&P or Moody’s; and

 

(vii)         if previously confirmed in writing to the Trustee, any other demand, money market or time deposit, or any other obligation, security or investment, as may be acceptable to the Rating Agencies as a permitted investment of funds backing securities rated in the highest rating category of such Rating Agencies;

 

provided, however, that in each case (a) if the investment is rated by S&P, it shall not have an “r” highlighter affixed to its rating, (b) it shall have a predetermined fixed dollar of principal due at maturity that cannot vary or change and (c) any such investment that provides for a variable rate of interest must have an interest rate that is tied to a single interest rate index plus a fixed spread, if any, and move proportionately with such index; and provided, further, however, that no such instrument shall be a Permitted Investment (a) if both principal and interest payments derived from obligations underlying such instrument and the principal and interest payments with respect to such instrument provide a yield to maturity at the time of acquisition of greater than 120% of the yield to maturity at par of such underlying obligations or (b) if such instrument may be redeemed at a price below the purchase price.  Permitted Investments that are subject to prepayment or call may not be purchased at a price in excess of par.

 

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

 

Primary Insurance Policy”:  Each policy of primary guaranty of mortgage insurance issued by a Qualified Insurer in effect with respect to any Mortgage Loan, or any replacement policy therefor obtained by the Servicer pursuant to Section 4.08.

 

Primary Insurance Proceeds”:  Proceeds of any Primary Insurance Policy.

 

Prime Rate”:  The prime rate announced to be in effect from time to time, as published as the average rate in The Wall Street Journal.

 

Principal Prepayment”:  Any payment or other recovery of principal on a Mortgage Loan which is received in advance of its scheduled Due Date, 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 and which reduces the Unpaid Principal Balance of such Mortgage Loans.

 

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Qualified Insurer”:  Any insurance company acceptable to Fannie Mae or Freddie Mac.

 

Rating Agency”:  Any one of Fitch, Inc., Moody’s Investors Service, Inc. or S&P.

 

Reconstitution”:  The actions required by Section 10.13 in connection with any Securitization Transaction or Whole Loan Transfer.

 

Reconstitution Agreement”:  The agreement or agreements entered into by the Servicer and the Owner and/or certain third parties on the Reconstitution Date or Dates with respect to any or all of the Mortgage Loans serviced hereunder, in connection with a Whole Loan Transfer or a Securitization Transaction as provided in Section 10.13.

 

Reconstitution Date”:  The date or dates on which any or all of the Mortgage Loans subject to this Agreement shall be removed from this Agreement and reconstituted as part of a Whole Loan Transfer or Securitization Transaction pursuant to Section 10.13.

 

Refinanced Mortgage Loan”:   A Mortgage Loan which was made to a Mortgagor who owned the Mortgaged Property prior to the origination of such Mortgage Loan.

 

Regulation AB”:  Means Subpart 229.1100 - Asset Backed Securities (Regulation AB), 17 C.F.R. §§229.1100-229.1123, as such may be amended from time to time, and subject to such clarification and interpretation as have been provided by the Securities Exchange Commission in the adopting release (Asset-Backed Securities, Securities Act Release No. 33-8518, 70 Fed. Reg. 1,506, 1,531 (Jan. 7, 2005)) or by the staff of the Securities Exchange Commission, or as may be provided by the Securities Exchange Commission or its staff from time to time.

 

REMIC”:  A “real estate mortgage investment conduit” within the meaning of Section 860D of the Code.

 

REMIC Provisions”:  Provisions of the federal income tax law relating to REMICs, which appear in Sections 860A through 860G of the Code, and related provisions, and proposed, temporary and final regulations and published rulings, notices and announcements promulgated thereunder, as the foregoing may be in effect from time to time.

 

Remittance Date”:  The [             ] (  ) Business Day of each month.

 

Renewal Term”: As defined in Section 9.01.

 

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

 

REO Property”:  (a) as of any Determination Date for the purpose of calculating the relevant Servicing Fee, and (b) as of the actual date of acquisition of title for all other purposes:  any Mortgaged Property that was subject to a Mortgage Loan, after the Mortgaged Property has been acquired on behalf of the Owner pursuant to this Agreement through foreclosure or similar proceedings, acceptance of deed-in-lieu of foreclosure, acquisition of title in lieu of foreclosure or the acquisition of title by operation of law.

 

Reporting Date”:  The tenth (10th) Business Day of each month.

 

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Requirements”:  All federal, state or local laws, rules and regulations and any other requirements of any government or agency or instrumentality thereof applicable to the servicing of the Mortgage Loans, the management of the REO Properties or the provision of services hereunder by the Servicer.

 

S&P”:  Standard and Poor’s, a division of The McGraw-Hill Companies, Inc.

 

Securities Act”:  The Securities Act of 1933, as amended.

 

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

 

Servicer”:  Ocwen Loan Servicing, LLC, a Delaware limited liability company, and its successors in interest, and any successor servicer under this Agreement appointed as herein provided.

 

Servicer Information”:  As defined in Section 11.07(a).

 

Servicing Advances”:  All customary, reasonable and necessary “out of pocket” costs and expenses incurred by the Servicer in the performance of its servicing obligations, including, but not limited to, the cost of (i) the preservation, restoration and protection of the Mortgaged Property and the REO Property, (ii) any enforcement or judicial proceedings, including foreclosures, (iii) the management and liquidation of any REO Property, (iv) performance of the obligations under Sections 2.03, 2.04, 4.03, 4.08 and, only to the extent related to the costs associated with recording instruments of satisfaction, 6.02, (v) any amounts associated with third party credit counseling for a Mortgagor and (vi) any amounts required to be reimbursed to a Mortgagor upon a Principal Prepayment on a related Mortgage Loan for prepaid points, finance charges, fees and any other amounts pursuant to applicable law.  Servicing Advances also include any reasonable “out-of-pocket” costs and expenses (including legal fees) incurred by the Servicer in connection with executing and recording instruments of satisfaction, deeds of reconveyance or Assignments of Mortgage in connection with any satisfaction or foreclosures in respect of any Mortgage Loan to the extent not recovered from the Mortgagor or otherwise payable under this Agreement and obtaining or correcting any legal documentation required to be included in the Mortgage Files and necessary for the Servicer to perform its obligations under this Agreement, including correcting any outstanding title issues (i.e., any lien or encumbrance on the Mortgaged Property that prevents the effective enforcement of the intended lien position).  The Servicer shall not be required to make any Nonrecoverable Servicing Advances.

 

Servicing Criteria”:  The “servicing criteria” set forth in Item 1122(d) of Regulation AB for which the Servicer or a Subservicer, as applicable, is responsible in its capacity as servicer as identified on a certification substantially in the form of Exhibit K hereto, provided that such certification may be amended from time to time to reflect changes in Regulation AB.

 

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Servicing Fee”:  With respect to each Mortgage Loan, the fee payable to the Servicer as set forth in the Fee Letter.

 

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

 

Servicing Transfer Date”:  With respect to each Mortgage Loan, the date on which the Owner transfers the servicing of such Mortgage Loan to the Servicer or, to the extent servicing of such Mortgage Loan was previously transferred by the prior servicer to the Servicer prior to the Owner becoming owner of such Mortgage Loan, the Servicing Transfer Date shall be deemed to be the date that the Servicer and the Owner agree shall be the date that such Mortgage Loan becomes subject to this Agreement.

 

Servicing Transfer Procedures”:  The provisions set forth in Exhibit H attached hereto.

 

Sponsor”:  With respect to any Securitization Transaction, the Person identified in writing to the Servicer by the Owner as sponsor for such Securitization Transaction.

 

Subcontractor”:  Any vendor, subcontractor or other Person that is not responsible for the overall servicing (as “servicing” is commonly understood by participants in the mortgage-backed securities market) of Mortgage Loans but performs one or more discrete functions identified in Item l122(d) of Regulation AB with respect to Mortgage Loans under the direction or authority of the Servicer or a Subservicer.

 

Subservicer:  Any Person that services Mortgage Loans on behalf of the Servicer or any Subservicer and is responsible for the performance (whether directly or through Subservicers or Subcontractors) of a substantial portion of the material servicing functions identified in Item 1122(d) of Regulation AB that are required to be performed by the Servicer under this Agreement or any Reconstitution Agreement.

 

Transfer Date”:  With respect to each Mortgage Loan or REO Property, the date designated by the Owner in a writing delivered to the Servicer, which date shall not be earlier than thirty (30) days after the Servicer’s receipt of such written notice, on which the Servicer transfers the servicing responsibilities of such Mortgage Loan or REO Property to the Owner or its designee.

 

Unpaid Principal Balance”:  As to each Mortgage Loan on any date of determination, the unpaid principal balance of the Mortgage Loan.

 

Whole Loan Transfer”:  Any sale or transfer of some or all of the Mortgage Loans by the Owner to a third party, which sale or transfer is not a Securitization Transaction.

 

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ARTICLE II

 

RECORD TITLE AND POSSESSION OF MORTGAGE SERVICING FILES:  BOOKS AND RECORDS

 

Section 2.01.                          Servicing Transfer; Record Title and Possession of Mortgage Servicing Files.  The Owner shall notify the Servicer not less than fifteen (15) days prior to any proposed Servicing Transfer Date that it desires to have the Servicer service the related mortgage loans pursuant to the terms of this Agreement and shall forward to the Servicer with such notice by computer readable electronic transmission, a schedule of such mortgage loans and data tapes with respect to such loans, containing the information specified in Exhibit J.  In the event that the Servicer elects not to service such mortgage loans pursuant to the terms hereof, the Servicer shall advise the Owner in writing of such election within two (2) Business Days of receipt of such schedule and data tapes.  Otherwise, each such mortgage loan shall constitute a “Mortgage Loan” hereunder and shall be subject to this Agreement as of the related Servicing Transfer Date.  On each Servicing Transfer Date, the Owner shall pay to the Servicer, in immediately available funds wired to an account designed by the Owner, the Boarding Fee attributable to each Mortgage Loan transferred to the Servicer on such Servicing Transfer Date.  The Servicer reserves the right, in its sole discretion, to refuse to service any Mortgage Loan determined to be a “predatory loan” under any applicable state, federal or local law.

 

With respect to each Mortgage Loan to be serviced hereunder, the Owner shall cause the prior servicer to comply with the Servicing Transfer Procedures and shall cause the prior servicer to deliver to the Servicer the Mortgage Servicing File for each related Mortgage Loan and, by computer readable electronic transmission, the related Mortgage Loan Schedule not later than five (5) Business Days after the Servicing Transfer Date.  Any fees and expenses incurred in transferring the Mortgage Servicing File to the Servicer shall be the obligation of the Owner.  In the event that the Mortgage Servicing File fails to contain all of those items set forth in Exhibit D hereof on the date on which the Mortgage Servicing File is required to be delivered to the Servicer which are necessary to service the related Mortgage Loans, the Servicer shall notify the Owner, and the Owner shall use reasonable efforts, at the Owner’s sole expense, to cause to be delivered promptly to the Servicer any necessary missing documents therefrom, or, upon the request of the Owner and at the Owner’s sole expense, the Servicer may, for a fee acceptable to the Owner, undertake to obtain any missing documents therefrom.  Notwithstanding anything to the contrary contained in this Agreement or otherwise, the Servicer shall have no liability for any breach of this Agreement resulting, directly or indirectly, from the Owner’s failure to deliver to the Servicer, or the Servicer’s failure to receive, the complete Mortgage Servicing File for each Mortgage Loan, including but not limited to those items listed on Exhibit D, to the extent that any such documents are required to service the Mortgage Loans in accordance with the terms of this Agreement or any Reconstitution Agreement and the Servicer has provided the Owner with notice of any such missing documents.  In the event the Servicer notifies the Owner that it is reasonably necessary to correct or cure any title or document defects prior to or following a Reconstitution with respect to a Mortgage Loan, in order for the Servicer to properly service such Mortgage Loan in accordance with this Agreement, the Owner shall either (i) cause, at its expense, a third party vendor to correct or cure such defects or (ii) direct the Servicer to do so and shall reimburse the Servicer for its reasonable costs incurred in connection with such

 

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correction or cure within thirty (30) Business Days following the receipt of an invoice from the Servicer evidencing such cost.

 

With respect to each Mortgage Loan to be serviced hereunder, the Owner will use reasonable efforts to cause all funds, if any, in any escrow or custodial account kept by the prior servicer to be transferred to the Servicer not later than the Business Day following the Servicing Transfer Date.  In the event that such funds are not delivered to the Servicer within one (1) Business Day following the Servicing Transfer Date, the Servicer will notify the Owner, and, notwithstanding anything to the contrary contained in this Agreement or otherwise, the Servicer shall have no liability for any breach of this Agreement resulting, directly or indirectly, from the Owner’s failure to deliver to the Servicer by such date all of such funds with respect to each Mortgage Loan.  Notwithstanding any provision in this Agreement to the contrary, this paragraph shall not be applicable with respect to any Mortgage Loans to the extent servicing of such Mortgage Loans was previously transferred by the prior servicer to the Servicer prior to the Owner becoming owner of such Mortgage Loans.

 

Record title to the Mortgage Loans shall be retained by the Owner, and possession of any Mortgage Servicing Files delivered to the Servicer shall be held in trust for the Owner as the owner thereof, for the sole purpose of servicing the Mortgage Loans.  The ownership of each Mortgage Loan, including the Mortgage Note, the Mortgage, the Mortgage Loan Documents, the contents of the related Mortgage Servicing File and all rights, benefits, proceeds and obligations arising therefrom or in connection therewith, is vested in the Owner.  All rights arising out of the Mortgage Loans including, but not limited to, all funds received on or in connection with the Mortgage Loans and all records or documents with respect to the Mortgage Loans prepared by or which come into the possession of the Servicer shall be received and held by the Servicer in trust for the benefit of the Owner as the owner of the Mortgage Loans.  Any portion of the Mortgage Servicing Files held by the Servicer shall be segregated from the other books and records of the Servicer and shall be appropriately marked to clearly reflect the ownership of the Mortgage Loans by the Owner.  The Servicer shall release its custody of the contents of the Mortgage Servicing Files only in accordance with written instructions of the Owner, except when such release is required as incidental to the Servicer’s servicing of the Mortgage Loans.  Except as provided herein, the original Mortgage Loan Documents for each Mortgage Loan shall be retained by the Custodian pursuant to the Custodial Agreement.  Any fees and expenses of the Custodian shall not be payable by the Servicer.

 

Section 2.02.                          Books and Records.  The Servicer shall be responsible for maintaining, and shall maintain, a complete set of books and records for the Mortgage Loans which shall be clearly marked to reflect the ownership of the Mortgage Loans by the Owner.

 

The Owner and its agents may, from time to time and at the Owner’s cost and expense, upon reasonable prior notice, inspect any of the Servicer’s books and records pertaining to this Agreement, including without limitation all Mortgage Servicing Files, at reasonable times during the Servicer’s normal business hours at the Servicer’s offices.

 

Section 2.03.                          Transfer of Mortgage Loans.  The Owner shall have the right, without the consent of the Servicer, to assign its interest under this Agreement with respect to the Mortgage Loans, and designate any Person to exercise any rights of the Owner hereunder, and the assignee

 

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or designee shall accede to the rights and obligations hereunder of the Owner with respect to such Mortgage Loans; provided, however, that, unless otherwise agreed to by the parties hereto, there shall be no more than two (2) separate Owners with respect to the Mortgage Loans (not included in a Reconstitution) subject to this Agreement at any one time without the consent of the Servicer.  All references to the Owner shall be deemed to include its assignee or designee. The Servicer shall not be responsible for the preparation or recording of mortgage assignments or financing statement amendments in connection with such assignments; provided, however, that in the event the Servicer agrees to record any mortgage assignment or financing statement, any expense, including the fees of third party service providers, incurred by the Servicer in connection with the recordation of mortgage assignments shall be reimbursable as a Servicing Advance. In cases where the prior servicer or owner prepared all or any part of the assignment, the Servicer shall not be liable for, and shall be indemnified by the Owner against, any losses, costs, penalties and damages incurred as a result of incorrect or incomplete, or untimely submission of, assignments and applicable recording information provided by the prior servicer or the Owner.

 

The Servicer shall keep at its servicing office books and records in which, subject to such reasonable regulations as the Servicer may prescribe, the Servicer shall note transfers of Mortgage Loans.  For the purposes of this Agreement, the Servicer shall be under no obligation to deal with any Person with respect to this Agreement or the Mortgage Loans except for the Owner unless the Owner provides prior written notice to the Servicer of a sale of one or more Mortgage Loans to such Person and the assumption by such Person of the obligations of the Owner hereunder with respect to such Mortgage Loan(s).  Upon receipt of such written notice, the Servicer shall mark its books and records to reflect the ownership of such Mortgage Loan(s) by such assignee, and the previous Owner shall be released from its obligations hereunder attributable to the period after such assignment to the extent such obligations relate to such Mortgage Loan(s) sold by the Owner.  The Owner shall be responsible for all costs incurred by the Servicer in transferring the Mortgage Loans to such assignee.

 

Section 2.04.                          Tax Service Contracts.  In the event that a Mortgage Loan is not subject to a fully assignable life of loan tax service contract issued by a tax service contract provider listed on Exhibit G attached hereto which is assignable to the Servicer or any subsequent Servicer without the payment of any cost or fee, the Servicer shall acquire a tax service contract for any such Mortgage Loan at a cost set forth in the Fee Letter.  The Servicer shall deliver an invoice on a monthly basis to the Owner with respect to the costs of acquiring any tax service contracts and shall deduct the cost of such tax service contracts from amounts deposited in the Custodial Account.

 

ARTICLE III

 

REPRESENTATIONS

 

Section 3.01.                          Representations, Warranties and Covenants of the Servicer.  The Servicer represents and warrants to, and covenants with, the Owner as of the date hereof and as of each Servicing Transfer Date that:

 

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(a)                                 The Servicer (i) is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its organization (ii) has all licenses necessary to carry on its business as now being conducted, except for such licenses, the absence of which individually or in the aggregate, would not have a material adverse effect on the ability of the Servicer to conduct its business as it is presently conducted, (iii) is licensed, qualified and in good standing under the laws of each state where a Mortgaged Property or REO Property is located if the laws of such state require licensing or qualification in order to conduct business of the type conducted by the Servicer and (iv) is in compliance with the laws of any such state to the extent necessary to permit the servicing of the Mortgage Loans in accordance with the terms of this Agreement.

 

(b)                                 The Servicer has the full power and authority to execute and deliver this Agreement, and to enter into and consummate all transactions contemplated by this Agreement.  The Servicer has duly authorized the execution, delivery and performance of this Agreement, has duly executed and delivered this Agreement, and this Agreement, assuming due authorization, execution and delivery by the Owner, constitutes a legal, valid and binding obligation of the Servicer, enforceable against it in accordance with its terms, subject to applicable bankruptcy and insolvency laws affecting the rights of creditors generally and to general principles of equity (regardless of whether enforcement of such remedies is considered in a proceeding in equity or law).

 

(c)                                  The execution and delivery of this Agreement by the Servicer, the servicing of the Mortgage Loans by the Servicer hereunder, the consummation of any other of the transactions contemplated hereunder, and the fulfillment of or compliance with the terms hereof are in the ordinary course of business of the Servicer, and will not (i) result in a breach of any term or provision of the organizational documents of the Servicer or (ii) conflict with, result in a breach, violate, or result in a default under or acceleration of, the terms of any material agreement, indenture or loan or credit agreement or other material instrument to which the Servicer is a party or by which it may be bound, or (iii) constitute a violation of any statute, rule, regulation, order, judgment or decree applicable to the Servicer of any court, regulatory body, administrative agency or governmental body having jurisdiction over the Servicer.

 

(d)                                 The Servicer is an approved seller/servicer of mortgage loans for Fannie Mae and Freddie Mac and has the facilities, procedures and experienced personnel necessary for the sound servicing of mortgage loans of the same type as the Mortgage Loans.  The Servicer is a HUD-approved servicer of mortgage loans.  No event has occurred, including but not limited to a change in insurance coverage, which would make the Servicer unable to comply with Fannie Mae, Freddie Mac or HUD eligibility requirements.

 

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

 

(f)                                   There is no action, suit, proceeding or investigation pending or, to its best knowledge, threatened against the Servicer that, either individually or in the aggregate, may result in any material adverse change in the business, operations, financial condition, properties or assets of the Servicer, or in any material impairment of the right or ability of the Servicer to carry on its business substantially as now conducted or in any material liability on the part of the Servicer, or that would draw into question the validity of this Agreement or of any action taken

 

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or to be taken in connection with the obligations of the Servicer contemplated herein, or that would be likely to impair materially the ability of the Servicer to perform under the terms of this Agreement.

 

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

 

(h)                                 The Servicer is in good standing, and will comply in all material respects with the rules and procedures of MERS in connection with the servicing of the MERS Designated Mortgage Loans.

 

Section 3.02.                          Representations, Warranties and Covenants of the Owner.  The Owner represents and warrants to, and covenants with, the Servicer as of the date hereof and as of each Servicing Transfer Date that:

 

(a)                                 The Owner is a limited partnership duly organized, validly existing, and in good standing under the laws of the State of Delaware and is in good standing under the laws of each state where required in order to perform its obligations hereunder.

 

(b)                                 The Owner has the full power and authority to execute and deliver this Agreement, and to enter into and consummate all transactions contemplated by this Agreement.  The Owner has duly authorized the execution, delivery and performance of this Agreement, has duly executed and delivered this Agreement, and this Agreement, assuming due authorization, execution and delivery by the Servicer, constitutes a legal, valid and binding obligation of the Owner, enforceable against it in accordance with its terms, subject to applicable bankruptcy and insolvency laws affecting the rights of creditors generally and to general principles of equity (regardless of whether enforcement of such remedies is considered in a proceeding in equity or law).

 

(c)                                  The execution and delivery of this Agreement by the Owner, the consummation of any other transactions contemplated hereunder, and the fulfillment of or compliance with the terms hereof are in the ordinary course of business of the Owner and will not (i) result in a breach of any term or provision of the organizational documents of the Owner or (ii) conflict with, result in a breach, violate, or result in a default under or acceleration of, the terms of any agreement, indenture or loan or credit agreement or other material instrument to which the Owner is a party or by which it is bound, or (iii) constitute a material violation of any statute, rule or regulation, order, judgment or decree applicable to the Owner of any court, regulatory body, administrative agency or governmental body having jurisdiction over the Owner.

 

(d)                                 There is no action, suit, proceeding or investigation pending or, to its best knowledge, threatened against the Owner that, either individually or in the aggregate, would draw into question the validity of this Agreement or that would impair materially the ability of the Owner to perform under the terms of this Agreement.

 

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(e)                                  With respect to each Mortgage Loan,

 

(i)                                     the Owner is the owner of all the right, title and interest in and to the Mortgage Loan and the servicing rights attributable to such Mortgage Loan free and clear of any claims or encumbrances;

 

(ii)                                  each Mortgage Loan has been originated and serviced in material compliance with all applicable federal, state and local laws and regulations and the terms of the Mortgage Loans and all related Mortgage Loan Documents;

 

(iii)                               none of the Mortgage Loans is (A) a “high cost” loan under the Home Ownership and Equity Protection Act of 1994 or (B) a “high cost”, “threshold” or “predatory” loan under any applicable state, federal or local law;

 

(iv)                              the information set forth on each Mortgage Loan Schedule or data tapes, and on any updates thereof or other document, instrument or schedule furnished to the Servicer by the Owner pursuant to, or prior to and in connection with, this Agreement is accurate and complete in all material respects;

 

(v)                                 all documents required hereby or by Applicable Regulations to be in the custodial file maintained by the Custodian are contained therein; and

 

(vi)                              each Mortgage Loan has been funded in the amount set forth in the Mortgage Note.

 

ARTICLE IV

 

SERVICING OF MORTGAGE LOANS

 

Section 4.01.                          Servicer to Act as the Servicer.  The Servicer, as independent contract servicer, shall service and administer the Mortgage Loans on an actual/actual basis in accordance with this Agreement, the terms of the applicable Mortgage Loan Documents and Acceptable Servicing Practices, and 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 which the Servicer may deem necessary or desirable and consistent with the terms of this Agreement.  The Servicer may perform its servicing responsibilities through agents or independent contractors, but shall not thereby be released from any of its responsibilities hereunder, and the Servicer shall diligently pursue all of its rights against such agents or independent contractors.

 

Consistent with the terms of this Agreement, the Servicer may waive, modify or vary any term of any Mortgage Loan or consent to the postponement of strict 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 Owner; provided, however, that the Servicer shall not, unless the Mortgage Loan is in default or, in the sole judgment of the Servicer, such default is reasonably foreseeable, or otherwise, without the prior written consent of the Owner, permit any modification with respect to any Mortgage Loan that would change the Mortgage Interest Rate, forgive the payment thereof of any principal or interest payments, reduce the outstanding principal amount (except for

 

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actual payments of principal), extend the final maturity date with respect to such Mortgage Loan or any other act that could reasonably be expected to affect adversely the Owner’s interest in the Mortgage Note, Mortgage Loan, Mortgage, Mortgaged Property, Mortgage Loan Documents or Mortgage Servicing File related to a Mortgage Loan.  The Servicer shall take such actions as it shall deem to be in the best interest of the Owner and which are consistent with Accepted Servicing Practices, the terms of this Agreement and all applicable laws and regulations.  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 Owner, all instruments of satisfaction or cancellation, or of partial or full release, discharge and all other comparable instruments, with respect to the Mortgage Loans and with respect to the Mortgaged Properties.  The Servicer shall make all required Servicing Advances and shall service and administer the Mortgage Loans in accordance with Acceptable Servicing Practices, Applicable Regulations, the terms of this Agreement and the terms of the Mortgage Loan Documents and shall provide to the Mortgagor any reports required to be provided to it thereby.  If reasonably required by the Servicer, the Owner shall furnish the Servicer with any powers of attorney in a form attached hereto as Exhibit F and other documents necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties under this Agreement.

 

In servicing and administering the Mortgage Loans, the Servicer shall employ collection procedures consistent with Acceptable Servicing Practices and Applicable Regulations.  The Servicer shall have an internal quality control program that generally satisfies Fannie Mae, Freddie Mac and HUD requirements.

 

The Servicer shall not consent to the placement of any additional lien on the Mortgaged Property or any REO Property without notifying and obtaining the written consent of the Owner.  The Servicer shall not consent to the placement of a lien on the Mortgaged Property or any REO Property senior to that of the related Mortgage.

 

Section 4.02.                          Collection of Mortgage Loan Payments.  Continuously from the related Servicing Transfer Date until the principal and interest on the related Mortgage Loan are paid in full or the termination of this Agreement pursuant to Section 9.02 hereof, the Servicer will diligently collect all payments due under each Mortgage Loan when the same shall become due and payable and shall, to the extent such procedures shall be consistent with this Agreement, act in accordance with the terms and provisions of any related Primary Insurance Policy, LPMI Policy, Acceptable Servicing Practices and Applicable Regulations.  Further, with respect to each Mortgage Loan which provides for Escrow Payments to be made, in accordance with Acceptable Servicing Practices and Applicable Regulations, the Servicer will use commercially reasonable efforts to ascertain and estimate annual ground rents, taxes, assessments, water rates, fire and hazard insurance premiums, mortgage insurance premiums, and all other charges that, as provided in the Mortgage, will become due and payable such that the installments payable by the Mortgagor will be sufficient to pay such charges as and when they become due and payable.  Notwithstanding anything herein to the contrary, the Servicer shall have no obligation to collect, or make payments to the Owner with respect to, any prepayment penalties, late charges, fees or other items which are prohibited under applicable law.

 

Section 4.03.                          Realization Upon Defaulted Mortgage Loans.  In the event that any payment due under any Mortgage Loan is not paid when the same becomes due and payable, or

 

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in the event the Mortgagor fails to perform any other covenant or obligation under the Mortgage Loan and such failure continues beyond any applicable grace period, the Servicer shall take such action as is consistent with Acceptable Servicing Practices.

 

In connection with a foreclosure or other conversion, the Servicer shall exercise such rights and powers vested in it hereunder and use the same degree of care and skill in its exercise as prudent mortgage servicers would exercise or use under the circumstances in the conduct of their own affairs and consistent with Applicable Regulations and the Acceptable Servicing Practices with respect to mortgage loans in foreclosure or similar proceedings.  In the event that foreclosure results in a deficiency and applicable law permits, at the Owners’ option, the Servicer shall continue to perform collection services in accordance with a receivable collection agreement to be entered into with the Owner.

 

In the event that the Owner directs the Servicer to charge off any Mortgage Loan or the Servicer, in accordance with Accepted Servicing Practices, charges off any Mortgage Loan, the Servicer, at the Owner’s option, shall perform collection services with respect to such charged-off Mortgage Loan in accordance with a receivable collection agreement to be entered into with the Owner.

 

Notwithstanding the foregoing provisions of this Section 4.03, with respect to any Mortgage Loan as to which the Servicer has received notice of, or has knowledge of, the presence of any toxic or hazardous substance on the related Mortgaged Property, the Servicer shall not either (i) obtain title to such Mortgaged Property as a result of or in lieu of foreclosure or otherwise, or (ii) otherwise acquire possession of, or take any other action with respect to, such Mortgaged Property if, as a result of any such action, either the Servicer or the Owner would be considered to hold title to, to be a mortgagee-in-possession of, or to be an owner or operator of such Mortgaged Property within the meaning of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time, or any comparable law, unless the Servicer has also previously determined, based on its reasonable judgment and a prudent report prepared by a Person who regularly conducts environmental audits using customary industry standards, that:

 

(A)                               such Mortgaged Property is in compliance with applicable environmental laws or, if not, it would be in accordance with Acceptable Servicing Practices to take such action as necessary in order to bring the Mortgaged Property into compliance therewith; and

 

(B)                               there are no circumstances present at such Mortgaged Property relating to the use, management or disposal of any hazardous substances, hazardous materials, hazardous wastes, or petroleum-based materials for which investigation, testing, monitoring, containment, clean-up or remediation could be required under any federal, state or local law or regulation, or that if any such materials are present for which such action could be required, that it would be in accordance with Acceptable Servicing Practices to take such action with respect to the affected Mortgaged Property.

 

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The cost of the environmental audit report contemplated by this Section 4.03 and any opinion of counsel the Servicer reasonably determines that it needs to make a reasonable judgment with respect to its duties under this Section 4.03 shall be advanced by the Servicer, subject to the Servicer’s right to be reimbursed therefor from the Custodial Account as provided in Section 4.05(ii) but subject to the provisions of Section 5.04 regarding nonrecoverability.

 

If the Servicer determines, as described above, that it would be in accordance with Acceptable Servicing Practices to take such actions as are necessary to bring any such Mortgaged Property into compliance with applicable environmental laws, or to take such action with respect to the containment, clean-up or remediation of hazardous substances, hazardous materials, hazardous wastes, or petroleum-based materials affecting any such Mortgaged Property, then the Servicer shall take such action as it deems to be in accordance with Acceptable Servicing Practices. The cost of any such compliance, containment, cleanup or remediation shall be advanced by the Servicer, subject to the Servicer’s right to be reimbursed therefor from the Custodial Account as provided in Section 4.05(ii) but subject to the provisions of Section 5.04 regarding nonrecoverability.

 

Section 4.04.                          Establishment of Custodial Accounts; Deposits in Custodial Accounts.  The Servicer shall segregate and hold all funds collected and received pursuant to each Mortgage Loan separate and apart from any of its own funds and general assets and shall establish and maintain one (1) or more Custodial Accounts, in the form of time deposit or demand accounts.  The creation of any Custodial Account shall be evidenced by a letter agreement in the form set forth in Exhibit B hereto.  A copy of such letter agreement shall be sent to the Owner promptly after a Custodial Account is set up.  The Custodial Account shall be an Eligible Account.

 

The Servicer shall deposit in the Custodial Account on a daily basis within two (2) Business Days of receipt and acceptance, and retain therein, the following payments and collections received or made by it after the Cut-off Date with respect to the Mortgage Loans:

 

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

 

(ii)                                  all payments on account of interest on the Mortgage Loans net of the Servicing Fee payable as provided in Section 6.03;

 

(iii)                               all Liquidation Proceeds;

 

(iv)                              all Primary Insurance Proceeds, LPMI Policy Proceeds and Other Insurance Proceeds including amounts required to be deposited pursuant to Sections 5.10 and 5.11, 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 the Servicer’s normal servicing procedures, the Mortgage Loan Documents or Applicable Regulations;

 

(v)                                 all Condemnation Proceeds affecting any Mortgaged Property which are not released to the Mortgagor in accordance with the Servicer’s normal servicing procedures, the Mortgage Loan Documents or Applicable Regulations;

 

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(vi)                              any amounts required to be deposited by the Servicer pursuant to Section 4.11 in connection with the deductible clause in any blanket hazard insurance policy, such deposit being made from the Servicer’s own funds, without reimbursement therefor;

 

(vii)                           any amounts required to be deposited by the Servicer in connection with any REO Property pursuant to Section 4.14; and

 

(viii)                        any amounts required to be deposited in the Custodial Account pursuant to Section 4.01.

 

Any interest paid on funds deposited in the Custodial Account by the depository institution shall accrue to the benefit of the Servicer and the Servicer shall be entitled to retain and withdraw such interest from the Custodial Account pursuant to Section 4.05(iii).  Any funds on deposit in the Custodial Account may only be invested in accordance with Section 4.16.

 

Section 4.05.                          Permitted Withdrawals From the Custodial Account.  The Servicer may, from time to time, withdraw from the Custodial Account for the following purposes:

 

(i)                                     to make payments to the Owner in the amounts and in the manner provided for in Section 5.01 after payments or reimbursements to the Servicer are made in accordance with this Agreement;

 

(ii)                                  to reimburse itself for Servicing Advances and any advances of principal and interest made with respect to any Mortgage Loan or REO Property pursuant to this Agreement and not previously reimbursed to the Servicer;

 

(iii)                               to pay to itself as servicing compensation any interest earned on funds in the Custodial Account (all such interest to be withdrawn monthly not later than each Remittance Date) and to pay itself any accrued but unpaid Servicing Fees, any unpaid Boarding Fees or Deboarding Fees with respect to any Mortgage Loan or REO Property, any other unpaid fees payable to the Servicer hereunder;

 

(iv)                              to reimburse itself for Nonrecoverable Servicing Advances made pursuant to this Agreement;

 

(v)                                 to reimburse itself for any litigation expenses, including attorneys’ fees, relating to the Mortgage Loans in connection with the performance of its duties as Servicer;

 

(vi)                              to pay the premiums with respect to any Lender Paid Mortgage Insurance Policy;

 

(vii)                           to reimburse itself for expenses incurred or reimbursable to itself pursuant to Section 7.01;

 

(viii)                        to reimburse itself for any deposits made by mistake or in error; and

 

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(ix)                              to clear and terminate the Custodial Account upon the termination of this Agreement with the balance to be paid to the Owner.

 

The foregoing requirements for withdrawal from the Custodial Account shall be exclusive, it being understood and agreed that, without limiting the generality of the foregoing, payments in the nature of late payment charges, assumption fees and related Ancillary Income need not be deposited by the Servicer in the Custodial Account.  Additionally, in the event that amounts on deposit in the Custodial Account are insufficient at any time to cover the payment of any servicing compensation or reimbursement of Servicing Advances or other amounts payable to the Servicer under this Agreement, the Owner shall promptly reimburse the Servicer for such deficient amounts upon receipt of an invoice for the same from the Servicer.

 

Section 4.06.                          Establishment of Escrow Accounts; Deposits in Escrow Accounts.  The Servicer shall segregate and hold all funds collected and received pursuant to each First Mortgage Loan which constitute Escrow Payments separate and apart from any of its own funds and general assets and shall establish and maintain one (1) or more Escrow Accounts, in the form of time deposit or demand accounts.  The creation of any Escrow Account shall be evidenced by a letter agreement in the form set forth in Exhibit C hereto.  A copy of such letter agreement shall be furnished to the Owner upon request.  The Escrow Account shall be an Eligible Account.  Any funds on deposit in any Escrow Account may only be invested in accordance with Section 4.16.

 

The Servicer shall deposit in the Escrow Account or Accounts on a daily basis within two (2) Business Days of receipt and acceptance, and retain therein, (i) all Escrow Payments collected on account of the Mortgage Loans, for the purpose of effecting timely payment of any such items as required under the terms of this Agreement, and (ii) all Other Insurance Proceeds and any applicable Condemnation Proceeds which are to be applied only to the restoration or repair of any Mortgaged Property and not to ground rents, taxes, assessments, water rates, hazard insurance premiums, Primary Insurance Policy premiums, if applicable, and similar items.  The Servicer shall make withdrawals therefrom only to effect such payments as are required under this Agreement, and for such other purposes as shall be set forth in, or in accordance with, Section 4.07.  The Servicer shall be entitled to retain any interest paid on funds deposited in the Escrow Account by the depository institution other than interest on escrowed funds required by law to be paid to the Mortgagors and, to the extent required by the related Mortgage Loan or Applicable Regulations, the Servicer shall pay from its own funds interest on escrowed funds to the Mortgagor notwithstanding that the Escrow Account is non-interest bearing or that interest paid thereon is insufficient for such purposes, provided that the accounts are Eligible Accounts.

 

Section 4.07.                          Permitted Withdrawals From Escrow Account.  Withdrawals from the Escrow Account may be made by the Servicer (i) to effect timely payments of ground rents, taxes, assessments, water rates, hazard insurance premiums, Primary Insurance Policy premiums, if applicable, and similar items, (ii) to reimburse the Servicer for any unreimbursed Servicing Advance made by the Servicer with respect to a related Mortgage Loan but only from amounts received on the related Mortgage Loan which represent late payments of Escrow Payments thereunder, (iii) to refund to the Mortgagor any funds as may be determined to be overages, (iv) for transfer to the Custodial Account in accordance with the terms of this Agreement, (v) for application to restoration or repair of the Mortgaged Property, (vi) to pay to the Servicer, or to

 

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the Mortgagor to the extent required by the related Mortgage Loan or Applicable Regulations, any interest paid on the funds deposited in the Escrow Account, (vii) to clear and terminate the Escrow Account on the termination of this Agreement or (viii) to transfer to the Custodial Account any Other Insurance Proceeds.

 

Section 4.08.                          Payment of Taxes, Insurance, and Other Charges; Maintenance of Primary Insurance Policies and LPMI Policies; Collections Thereunder.  With respect to each Mortgage Loan which provides for Escrow Payments to be made, the Servicer shall maintain accurate records reflecting the status of ground rents, taxes, assessments, water rates and other charges which are or may become a lien upon the Mortgaged Property and the status of Primary Mortgage Insurance premiums 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 or Applicable Regulations.  To the extent that any First Mortgage Loan does not provide for Escrow Payments, the Servicer shall determine that any such payments are made by the Mortgagor.  With respect to each First Mortgage Loan, subject to Acceptable Servicing Practices, the Servicer assumes full responsibility for the payment of all such bills and shall effect payments of all such bills irrespective of the Mortgagor’s faithful performance in the payment of same or the making of the Escrow Payments and shall make Servicing Advances from its own funds to effect such payments within the time period required to avoid the loss of the related Mortgaged Property by foreclosure from a tax or other lien.  Additionally, for all tax penalties and interest levied prior to the transfer of the Mortgage Loans to the Servicer or as a result of the actions of the prior servicer or the Owner, the Servicer shall make Servicing Advances to effect such payments.  Notwithstanding the foregoing, if the Servicer reasonably determines that such Servicing Advance would be a Nonrecoverable Servicing Advance, the Servicer shall have no obligation to make such Servicing Advance.  The Servicer shall be entitled to immediate reimbursement for any Servicing Advance from any and all funds deposited in the Custodial Account whether or not the funds deposited in the Custodial Account relate to the Mortgage Loans or REO Properties for which the Servicing Advances were made.

 

With respect to each First Mortgage Loan, the Servicer will maintain or cause to be maintained in full force and effect (to the extent a Mortgage Loan has a Primary Insurance Policy as of the Servicing Transfer Date and the prior servicer or Owner has provided the relevant information related to the Primary Insurance Policy to the Servicer) a Primary Insurance Policy issued by a Qualified Insurer with respect to each Mortgage Loan for which such coverage is required.  Such coverage will be maintained until the Loan-to-Value Ratio of the related Mortgage Loan is reduced to 80% or less or such lesser percentage as may be stated in the related Primary Insurance Policy.  The Servicer will not cancel or refuse to renew any Primary Insurance Policy in effect on the Servicing Transfer Date that is required to be kept in force under this Agreement unless a replacement Primary Insurance Policy for such cancelled or non-renewed policy is obtained from and maintained with a Qualified Insurer.  The Servicer will maintain or cause to be maintained in full force and effect any LPMI Policy issued by a Mortgage Insurer with respect to each Mortgage Loan for which such coverage is in existence or is obtained.  The Owner shall notify the Servicer of any Mortgage Loan covered under an LPMI Policy.  The Servicer shall not take any action which would result in non-coverage under any

 

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applicable Primary Insurance Policy or LPMI Policy of any loss which, but for the actions of the Servicer, would have been covered thereunder.  In connection with any assumption or substitution agreement entered into or to be entered into pursuant to Section 6.01, the Servicer shall promptly notify the insurer under the related Primary Insurance Policy or LPMI Policy, if any, of such assumption or substitution of liability in accordance with the terms of such policy and shall take all actions which may be required by such insurer as a condition to the continuation of coverage under the Primary Insurance Policy or LPMI Policy, as applicable.  If such Primary Insurance Policy or LPMI Policy is terminated as a result of such assumption or substitution of liability, the Servicer shall obtain a replacement Primary Insurance Policy or LPMI Policy, as applicable, as provided above.

 

In connection with its activities as servicer, the Servicer agrees to prepare and present, on behalf of itself and the Owner, claims to the insurer under any Primary Insurance Policy and LPMI Policy in a timely fashion in accordance with the terms of such policies and, in this regard, to take such action as shall be necessary to permit recovery under any Primary Insurance Policy or LPMI Policy, as applicable, respecting a defaulted Mortgage Loan.  Pursuant to Section 4.04, any amounts collected by the Servicer under any Primary Insurance Policy or LPMI Policy shall be deposited in the Custodial Account, subject to withdrawal pursuant to Section 4.05.

 

Section 4.09.                          Transfer of Accounts.  The Servicer may transfer the Custodial Account or the Escrow Account to a different depository institution from time to time with notice to the Owner; provided that each such account shall be an Eligible Account.  Within three (3) Business Days of such transfer, the Servicer shall deliver to the Owner a new letter agreement, as required pursuant to Sections 4.04 and 4.06.

 

Section 4.10.                          Maintenance of Hazard Insurance.  The Servicer shall cause to be maintained for each First Mortgage Loan fire and hazard insurance with extended coverage as is customary in the area where the Mortgaged Property is located in an amount which is at least equal to the lesser of (i) the amount necessary to fully compensate for any damage or loss to the improvements which are a part of such property on a replacement cost basis or (ii) the Unpaid Principal Balance of the Mortgage Loan and any mortgage loan senior to the Mortgage Loan, in each case in an amount not less than such amount as is necessary to prevent the Mortgagor and/or the Mortgagee from becoming a co-insurer.  If the Mortgaged Property is in an area identified in the Federal Register by the Flood Emergency Management Agency as having special flood hazards and flood insurance has been made available, the Servicer will cause to be maintained a flood insurance policy meeting the requirements of the current guidelines of the Federal Insurance Administration with a generally acceptable insurance carrier, in an amount representing coverage not less than the least of (i) the Unpaid Principal Balance of the Mortgage Loan and any mortgage loan senior to the Mortgage Loan, (ii) the maximum insurable value of the improvements securing such Mortgage Loan or (iii) the maximum amount of insurance which is available under the National Flood Insurance Act of 1968, as amended.  The Servicer shall also maintain on the REO Property for the benefit of the Owner, (x) fire and hazard insurance with extended coverage in an amount which is at least equal to the replacement cost of the improvements which are a part of such property, (y) public liability insurance and, (z) to the extent required and available under the National Flood Insurance Act of 1968, as amended, flood insurance in an amount as provided above.  Any amounts collected by the Servicer under any such policies other than amounts to be deposited in the Escrow Account and applied to the

 

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restoration or repair of the Mortgaged Property or REO Property, or released to the Mortgagor in accordance with the Servicer’s normal servicing procedures, shall be deposited in the Custodial Account, subject to withdrawal pursuant to Section 4.05.  It is understood and agreed that no earthquake or other additional insurance is required to be maintained by the Servicer or the Mortgagor or maintained on property acquired in respect of the Mortgage Loan, other than pursuant to such Applicable Regulations as shall at any time be in force and as shall require such additional insurance.  All such policies shall be endorsed with standard mortgagee clauses with loss payable to the Servicer and shall provide for at least thirty (30) days prior written notice of any cancellation, reduction in the amount of or material change in coverage to the Servicer.  The Servicer shall not interfere with the Mortgagor’s freedom of choice in selecting either his insurance carrier or agent, provided, however, that the Servicer shall not accept any such insurance policies from insurance companies unless such companies currently reflect a general policy rating of B:VI or better in Best’s Key Rating Guide or are otherwise acceptable to Fannie Mae or Freddie Mac and are licensed to do business in the state wherein the Mortgaged Property is located.

 

If a Mortgage is secured by a unit in a condominium project, the Servicer shall verify that the coverage required of the owner’s association, including hazard, flood, liability, fidelity coverage and coverage for common areas, is being maintained in accordance with Acceptable Servicing Practices, and secure from the owner’s association its agreement to notify the Servicer promptly of any change in the insurance coverage or of any condemnation or casualty loss that may have a material effect on the value of the Mortgaged Property as security.

 

Section 4.11.                          Maintenance of Mortgage Impairment Insurance Policy.  In the event that the Servicer shall obtain and maintain, at its own expense, a blanket policy issued by an insurer that has a general policy rating of B:VI or better in Best’s Key Rating Guide or is otherwise acceptable to Fannie Mae or Freddie Mac (a “Qualified Insurer”) insuring against fire and hazard losses on all of the Mortgage Loans, then, to the extent such policy provides coverage in an amount equal to the amount required pursuant to Section 4.10 and otherwise complies with all other requirements of Section 4.10, it shall conclusively be deemed to have satisfied its obligations as set forth in Section 4.10, it being understood and agreed that such policy may contain a deductible clause, in which case the Servicer shall, in the event that there shall not have been maintained on the related Mortgaged Property or REO Property a policy complying with Section 4.10, and there shall have been a loss which would have been covered by such policy, deposit in the Custodial Account the amount not otherwise payable under the blanket policy because of such deductible clause.  Any amounts collected by the Servicer under any such policy relating to a Mortgage Loan shall be deposited in the Custodial Account to the extent such amounts are not deposited in the Escrow Account.  In connection with its activities as servicer of the Mortgage Loans, the Servicer agrees to prepare and present, on behalf of the Owner, claims under any such blanket policy in a timely fashion in accordance with the terms of such policy.  Upon request of the Owner, the Servicer shall cause to be delivered to the Owner a certified true copy of such policy and a statement from the insurer thereunder that such policy shall in no event be terminated or materially modified without thirty (30) days prior written notice to the Owner.

 

Section 4.12.                          Restoration and Repair.  The Servicer need not obtain the approval of the Owner prior to releasing any Insurance Proceeds or Condemnation Proceeds to the Mortgagor to be applied to the restoration or repair of the Mortgaged Property or REO Property if such release

 

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is in accordance with Acceptable Servicing Practices and the terms of this Agreement.  At a minimum, the Servicer shall comply with the following conditions in connection with any such release of Insurance Proceeds or Condemnation Proceeds:

 

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

 

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

 

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

 

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

 

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

 

The Servicer shall inspect the Mortgaged Property as often as is deemed necessary by the Servicer to assure itself that the value of the Mortgaged Property is being preserved.  In addition, if any Mortgage Loan is more than ninety (90) days delinquent, the Servicer shall immediately inspect the Mortgaged Property and shall conduct subsequent inspections in accordance with Accepted Servicing Practices.  The Servicer shall keep a written report of each such inspection.

 

If the Servicer hereafter becomes aware that a Mortgaged Property is, or an REO Property becomes, an Environmental Problem Property, the Servicer will notify the Owner of the existence of the Environmental Problem Property. Additionally, the Servicer shall set forth in such notice a description of such problem, a recommendation to the Owner relating to the proposed action regarding the Environmental Problem Property and the Servicer shall carry out the recommendation set forth in such notice unless otherwise directed by the Owner in writing within five (5) Business Days after the Owner’s receipt (or deemed receipt) of such notice but subject to the provisions of Section 5.04 regarding nonrecoverability.

 

Section 4.13.                          Fidelity Bond, Errors and Omissions Insurance.  The Servicer shall maintain, at its own expense, a blanket Fidelity Bond and an errors and omissions insurance policy, with broad coverage with a Qualified Insurer on all officers, employees or other Persons acting in any capacity with regard to the Mortgage Loans to handle funds, money, documents and papers relating to the Mortgage Loans.  The Fidelity Bond and errors and omissions insurance 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 Persons.  Such Fidelity Bond and errors and omissions insurance policy shall also protect and insure the Servicer against losses in connection with the failure to maintain any insurance policies required pursuant to this Agreement and the release or satisfaction of a Mortgage Loan without having obtained payment in full of the indebtedness secured thereby.  No provision of this Section 4.13 requiring the 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

 

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policy shall be at least equal to the corresponding amounts required by Fannie Mae in the Fannie Mae MBS Selling and Servicing Guide or by Freddie Mac in the Freddie Mac Servicer’s Guide.  Upon request of the Owner, the Servicer shall cause to be delivered to the Owner a certified true copy of the Fidelity Bond and errors and omissions insurance policy and a statement from the surety and the insurer that such Fidelity Bond and errors and omissions insurance policy shall in no event be terminated or materially modified without thirty (30) days’ prior written notice to the Owner.

 

Section 4.14.                          Title, Management and Disposition of REO Property.  In the event that title to a Mortgaged Property is acquired in foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale shall be issued in the name of the Owner or such other party (other than the Servicer) designated by the Owner, as nominee on behalf of the Owner.

 

The Servicer shall manage, conserve, protect and operate each REO Property (and may temporarily rent the same) for the Owner solely for the purpose of its prompt disposition and sale.  The Servicer shall cause each REO Property to be inspected promptly upon the acquisition of title thereto and shall cause each REO Property to be inspected at least annually thereafter.  The Servicer shall make or cause to be made a written report of each such inspection.  Such reports shall be retained in the Mortgage Servicing File and copies thereof shall be forwarded by the Servicer to the Owner upon request.  The Servicer shall attempt to sell the same (and may temporarily rent the same) on such terms and conditions as the Servicer deems to be in the best interest of the Owner.

 

The Servicer shall deposit or cause to be deposited, on a daily basis in the Custodial Account, all revenues received with respect to each REO Property and shall withdraw therefrom funds necessary for the proper operation, management and maintenance of the REO Property, including the cost of maintaining any hazard insurance pursuant to Section 4.10 hereof and the reasonable fees of any managing agent acting on behalf of the Servicer.

 

The Servicer shall use commercially reasonable efforts to dispose of the REO Property as promptly as is practically consistent with protecting the Owner’s interest.

 

The Servicer shall also maintain on each REO Property fire and hazard insurance with extended coverage, liability insurance and, to the extent required and available under the National Flood Insurance Act of 1968, as amended, flood insurance, and all other insurance coverage required under Section 4.10 and in the amounts specified in Section 4.10.

 

Each REO Disposition shall be carried out by the Servicer at such price and upon such terms and conditions as the Servicer reasonably determines to be in the best interest of the Owner and provided the sales price and the related terms and conditions are results of arm’s-length negotiation.  If as of the date title to any REO Property was acquired by the Servicer there were outstanding unreimbursed Servicing Advances with respect to the REO Property, the Servicer, upon an REO Disposition of such REO Property, shall be entitled to reimbursement for any related unreimbursed Servicing Advances from proceeds received in connection with such REO Disposition.  The proceeds from the REO Disposition, net of any amounts reimbursable to the Servicer hereunder, shall be deposited promptly in the Custodial Account following receipt thereof for distribution on the next Remittance Date in accordance with Section 5.01.  The

 

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Owner acknowledges and agrees that the Servicer or an affiliate may receive usual and customary real estate referral fees from real estate brokers in connection with the listing and disposition of REO Property to the extent permitted pursuant to Applicable Regulations.

 

Together with the statement furnished pursuant to the following paragraph, the Servicer shall furnish to the Owner on or before each Remittance Date a statement with respect to any REO Property covering the operation of such REO Property for the previous month 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 for the previous month.  That statement shall be accompanied by such other information as the Owner shall reasonably request.

 

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

 

Section 4.15.                          Notification of Adjustments.  On each Adjustment Date, the Servicer shall make interest rate adjustments for each Adjustable Rate Mortgage Loan and shall adjust the Monthly Payment in compliance with the requirements of the related Mortgage and Mortgage Note and Applicable Regulations.  The Servicer shall execute and deliver the notices required by each Mortgage and Mortgage Note and Applicable Regulations regarding interest rate adjustments.  The Servicer also shall provide timely notification to the Owner of all applicable data and information regarding such interest rate and Monthly Payment adjustments and the Servicer’s methods of implementing such interest rate adjustments.

 

Section 4.16.                          Permitted Investments.

 

(a)                                 The Servicer may direct any depository institution maintaining any Custodial Account or Escrow Account (for purposes of this Section 4.16, an “Investment Account”) to invest, or if it is such depository institution, may itself invest, the funds held therein only in one (1) or more Permitted Investments bearing interest or sold at a discount, and maturing, unless payable on demand, (i) no later than the Business Day immediately preceding the next succeeding date on which such funds are required to be withdrawn from such account pursuant to this Agreement, if a Person other than the depository institution maintaining such account is the obligor thereon and (ii) no later than the date on which such funds are required to be withdrawn from such account pursuant to this Agreement, if the depository institution maintaining such account is the obligor thereon.  All such Permitted Investments shall be held to maturity, unless payable on demand.  In the event amounts on deposit in an Investment Account are at any time invested in a Permitted Investment payable on demand, the Servicer shall:

 

(i)                                     consistent with any notice required to be given thereunder, demand that payment thereon be made on the last day such Permitted Investment may otherwise mature hereunder in an amount equal to the lesser of (a) all amounts then payable thereunder and (b) the amount required to be withdrawn on such date; and

 

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(ii)                                  demand payment of all amounts due thereunder promptly upon determination by the Servicer that such Permitted Investment would not constitute a Permitted Investment in respect of funds thereafter on deposit in the Investment Account.

 

(b)                                 Interest and investment income realized on funds deposited in any Custodial Account or Escrow Account, to the extent of the Net Investment Earnings, if any, with respect to such account for the period from the immediately preceding Determination Date to such Determination Date, shall be for the sole and exclusive benefit of the Servicer.  In the event that any loss or late payment shall be incurred in respect of any Permitted Investment on deposit in any Custodial Account or Escrow Account, the Servicer shall deposit therein, no later than the Remittance Date, without right of reimbursement, the amount of Net Investment Loss, if any, with respect to such account for the period from the immediately preceding Determination Date to the current Determination Date.  If the Servicer advances funds to cover a shortfall in any Custodial Account or Escrow Account due to a late payment on a Permitted Investment, the Servicer may withdraw the amount of such advance when the late payment on the Permitted Investment is made.

 

(c)                                  Except as otherwise expressly provided in this Agreement, if any default occurs in the making of a payment due under any Permitted Investment, or if a default occurs in any other performance required under any Permitted Investment, the Servicer may and, upon the request of the Owner shall, take such action as may be appropriate to enforce such payment or performance, including the institution and prosecution of appropriate proceedings, it being understood that the Servicer will duly observe subsection (b) of this Section 4.16 notwithstanding any action taken or to be taken by the Servicer in accordance with this subsection (c).  The Servicer shall be responsible for all costs, expenses, fees, loss and damages, if any, resulting from taking any action contemplated under this Section 4.16(c).

 

Section 4.17.                          Government Sponsored Programs and Legislation.  In response to economic events, federal, state and local authorities have proposed new legislation, rules, programs and regulations relating to the origination, servicing and modification of mortgage loans.  The Servicer is participating in HAMP and the HOPE NOW programs and will make it available to all applicable Mortgagors.  Additionally, the parties hereto agree that the Servicer may be required to participate in other government or industry-sponsored programs or be bound by government legislation or regulations that may materially affect the terms of this Agreement.

 

ARTICLE V

 

PAYMENTS TO THE OWNER

 

Section 5.01.                          Distributions.  On each Remittance Date, the Servicer shall remit to the Owner all amounts credited to the Custodial Account as of the close of business on the preceding Determination Date (net of charges against or withdrawals from the Custodial Account pursuant to Section 4.05).

 

All remittances made to the Owner on each Remittance Date shall be made by wire transfer of immediately available funds to the account designated by the Owner at a bank or

 

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other entity having appropriate facilities therefor identified by the Owner to the Servicer or by check mailed to the address of the Owner.

 

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

 

The Servicer shall prepare and file any and all tax returns, information statements or other filings required to be delivered to any governmental taxing authority pursuant to any applicable law with respect to the Mortgage Loans relating to the period the related Mortgage Loans are serviced under this Agreement.

 

Section 5.02.                          Statements to the Owner.  On each Reporting Date, the Servicer shall submit a Monthly Report in electronic format substantially in the form set forth on Exhibit E hereto (or in such other form and manner as may be hereafter mutually agreed upon by the Owner and the Servicer), showing all collections of interest and principal (from whatever source) on the Mortgage Loans and all collections in respect of the Mortgaged Properties and REO Properties (including sale proceeds and rental payments) during the calendar month preceding the Reporting Date as well as the amounts, and a detailed description of all Servicing Advances incurred during such calendar month and all distributions from the Custodial Account during such calendar month.

 

With respect to each month, the corresponding individual loan accounting report shall be received by the Owner no later than the Reporting Date occurring in the following month, which report shall contain the following:

 

(i)                                     with respect to each Monthly Payment, the amount of such remittance allocable to principal (including a separate breakdown of any Principal Prepayment, including the date of such prepayment, and any prepayment penalties or premiums, along with a detailed report of interest on principal prepayment amounts);

 

(ii)                                  with respect to each Monthly Payment, the amount of such remittance allocable to interest and assumption fees;

 

(iii)                               the amount of servicing compensation received by the Servicer since the preceding Determination Date;

 

(iv)                              the aggregate outstanding principal balance of the Mortgage Loans;

 

(v)                                 the aggregate of any Servicing Advances and other expenses reimbursed to the Servicer during the prior distribution period;

 

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(vi)                              a listing of (a) the paid-through date of each Mortgage Loan, (b) the Mortgage Loans as to which foreclosure has commenced, (c) the Mortgage Loans with respect to which the related borrowers that have declared bankruptcy;  and (d) the Mortgage Loans as to which REO Property has been acquired; and

 

(vii)                           a trial balance, sorted in the Owner’s assigned loan number order.

 

Section 5.03.                          Real Estate Owned Property and Specially Serviced Loan Reports.  Together with the statement furnished pursuant to Section 5.02, with respect to any REO Property, the Servicer shall furnish to the Owner a statement covering 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 for the previous month, together with an operating statement.  Such statement shall be in electronic media which will include the listing price, the anticipated sale price and the anticipated closing date.  Additionally, with respect to any Mortgage Loan which has been delinquent for ninety (90) days or more and any REO Property, the Servicer shall furnish to the Owner a statement in electronic media which will include all information reasonably required by the Owner including, but not limited to:  the reason for default, the current status of such Mortgage Loan (whether in foreclosure, bankruptcy, work-out or being resolved), the last comment on the account, the last paid date, the template dates from the servicing system (such as the estimated sale date), and the first legal action.

 

Section 5.04.                          Nonrecoverability; Reimbursement of the Servicer.  Notwithstanding anything herein to the contrary, no Servicing Advance shall be required to be made hereunder if such Servicing Advance would, if made, constitute a Nonrecoverable Servicing Advance.  The determination by the Servicer that any proposed Servicing Advance would constitute a Nonrecoverable Servicing Advance shall be evidenced by an Officers’ Certificate of the Servicer, delivered to the Owner with the following month’s Remittance Report, which details the reasons for such determination and contains an appraisal of the value of the Mortgaged Property.  As of each Determination Date, to the extent that amounts deposited into the Custodial Account since the preceding Determination Date are insufficient to reimburse the Servicer for any unreimbursed Servicing Advance previously made by the Servicer and to pay the Servicing Fee to the Servicer, the Owner shall reimburse the Servicer for such unreimbursed amount and such accrued and unpaid Servicing Fee within five (5) Business Days of receipt from the Servicer of an invoice for such unreimbursed amount.  In the event that such amount is not paid within five (5) Business Days of receipt from the Servicer of such invoice, such amount shall accrue interest commencing on the date of receipt from the Servicer of such invoice at an annual rate equal to the Prime Rate, adjusted as of the date of each change, plus three percentage points, but in no event greater than the maximum amount permitted by applicable law.

 

Section 5.05.                          Principal and Interest Advances.  The Servicer shall not have any obligations to advance payments of delinquent principal and interest on the Mortgage Loans unless the Servicer and the Owner agree by amendment to this Agreement to provide for such obligations.

 

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ARTICLE VI

 

GENERAL SERVICING PROCEDURES

 

Section 6.01.                          Assumption Agreements.  With respect to each Mortgage Loan the Servicer will, to the extent it has knowledge of any conveyance or prospective conveyance by any Mortgagor of the Mortgaged Property (whether by absolute conveyance or contract of sale, and whether or not the Mortgagor remains or is to remain liable under the Mortgage Note and/or the Mortgage), exercise its right to accelerate the maturity of such Mortgage Loan under any “due-on-sale” clause applicable thereto; provided, however, that the Servicer shall not exercise any such rights (a) if prohibited by law from doing so, or (b) if the exercise of such rights would impair or threaten to impair any recovery under the related Primary Insurance Policy or LPMI Policy, if any.  If the Servicer reasonably believes it is unable under applicable law to enforce such “due-on-sale” clause, the Servicer will enter into an assumption agreement with the Person to whom the Mortgaged Property has been conveyed or is proposed to be conveyed, pursuant to which such Person becomes liable under the Mortgage Note and, to the extent permitted by applicable state law, the Mortgagor remains liable thereon.  Where an assumption is allowed pursuant to this Section 6.01, the Servicer, with the prior written consent of the primary mortgage insurer, if any, and to the extent required by the applicable Primary Insurance Policy, is authorized to prepare a substitution of liability agreement and any other document required in connection therewith to be entered into by the Owner and the Person to whom the Mortgaged Property has been conveyed or is to be proposed to be conveyed pursuant to which the original Mortgagor is released from liability and such Person is substituted as Mortgagor and becomes liable under the related Mortgage Note.  Any such substitution of liability agreement shall be in lieu of an assumption agreement.

 

Notwithstanding anything herein to the contrary, prior to its entering into any such assumption or substitution of liability, the Servicer shall notify the Owner in writing and obtain the written consent of the Owner; provided that the Owner’s consent shall be deemed given if not denied within five (5) Business Days of Owner’s receipt of such notice.  In connection with any such assumption or substitution of liability, the Servicer shall follow the underwriting practices and procedures of prudent mortgage lenders in the respective states where the Mortgaged Properties are located.  With respect to an assumption or substitution of liability, no material term of the Mortgage Loan may be changed, including without limitation, the Mortgage Interest Rate borne by the related Mortgage Note and the amount of the Monthly Payment.  The Servicer shall notify the Owner that any such substitution of liability or assumption agreement has been completed and forward to the Custodian the original of any such substitution of liability or assumption agreement, which document shall be added to the related Mortgage Loan Documents and shall, for all purposes, be considered a part of such Mortgage Servicing File to the same extent as all other documents and instruments constituting a part thereof.

 

The Servicer shall forward to the Custodian or, at the request of the Owner, to the Owner or its designee, original documents evidencing an assumption, modification, consolidation or extension of any Mortgage Loan entered into in accordance with this Agreement within ten (10) Business Days of their execution; provided, however, that the Servicer shall provide the Custodian with the certified true copy of any such documents submitted for recordation within two weeks of its execution, and shall provide the original of any document submitted for

 

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recordation or copy of such document certified by the appropriate public recording office to be a true and complete copy of the original within ninety days of its submission for recordation.

 

Section 6.02.                          Satisfaction of Mortgages and Release of Mortgage Servicing Files.  Upon the payment in full of any Mortgage Loan, or the receipt by the Servicer of a notification that payment in full will be escrowed in a manner customary for such purposes, the Servicer shall notify the Owner in the monthly remittance report, or at such earlier time as required in order to enable the Owner to comply with its obligations under applicable law, that all amounts received or to be received in connection with such payment which are required to be deposited in the Custodial Account pursuant to Section 4.04 have been or will be so deposited, and shall request execution of any document necessary to satisfy the Mortgage Loan and delivery to it of the portion of the Mortgage File held by the Owner or the Custodian.  Upon receipt of such notice, the Owner shall, or shall instruct the Custodian to, promptly release the related mortgage documents to the Servicer and the Servicer shall prepare and process any satisfaction or release.  The Owner agrees to use its reasonable efforts to cause the Custodian to deliver to the Servicer the original Mortgage Note for any Mortgage Loan not later than ten (10) Business Days after notification, or such earlier time necessary to assure that the Servicer will not be penalized under applicable law, following its receipt of a notice from the Servicer that such a payment in full has been received or that a notification has been received that such a payment in full shall be made.  The Servicer shall use reasonable efforts to provide a follow-up notice to the Owner in the event that the Owner (or Custodian, as applicable) does not provide any such Mortgage Note to the Servicer within five (5) Business Days following its receipt of such notice from the Servicer to the extent that the Servicer determines that the Owner would otherwise miss a deadline for delivery of the satisfaction of such Mortgage Note.

 

From time to time and as appropriate for the servicing or foreclosure of each Mortgage Loan, including for this purpose collection under any Primary Insurance Policy or LPMI Policy, the Owner or the Custodian, as the case may be, shall, upon request of the Servicer and delivery to the Owner or the Custodian, as the case may be, of a servicing receipt signed by a Servicing Officer, release the Mortgage Loan Documents held by the Owner or the Custodian, as the case may be, to the Servicer.  Such servicing receipt shall obligate the Servicer to return the related Mortgage documents to the Owner or the Custodian, as the case may be, when the need therefor by the Servicer no longer exists, unless the Mortgage Loan has been liquidated and the Liquidation Proceeds relating to the Mortgage Loan have been deposited in the Custodial Account.

 

Section 6.03.                          Servicing Compensation.  As part of its compensation for its services hereunder, the Servicer shall be entitled to the Servicing Fees and shall be entitled to withdraw the same from the Custodial Account if not retained from payments on the related Mortgage Loans, to retain from payments on such Mortgage Loan prior to depositing such funds into the Custodial Account, or to be paid by the Owner to the extent not otherwise paid to, or received by, the Servicer, the Servicing Fee attributable to each Mortgage Loan.  Additionally, the Servicer also shall be entitled to retain all Ancillary Income paid with respect to each Mortgage Loan.

 

Section 6.04.                          Statement of Compliance.  Not later than March 15th of each calendar year commencing in 201[_], the Servicer shall deliver to the Owner an Officer’s Certificate (each, an

 

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“Annual Statement of Compliance”) stating, as to each signatory thereof, that (i) a review of the activities of the Servicer during the preceding year and of performance under this Agreement has been made under such officers’ supervision and (ii) to the best of such officer’s knowledge, based on such review, the Servicer has fulfilled all of its obligations under this Agreement in all material respects throughout such year, or, if there has been a default in the fulfillment of any such obligation in any material respect, specifying each such default known to such officer and the nature and status thereof.

 

Section 6.05.                          Annual Independent Certified Public Accountants’ Servicing Report.  On or before March 15th of each year, beginning with March 15, 201[  ], 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 Owner (each, an “Annual Independent Certified Public Accountants’ Servicing Report”) to the effect that such firm has obtained a representation regarding certain matters from the management of the Servicer, which includes an assertion that the Servicer has complied with the relevant servicing critieria as described in Regulation AB and on the basis of an examination conducted by such firm in accordance with the standard for attestation engagements issued or adopted by the Public Company Accounting Oversight Board, it is expressing an opinion as to whether the Servicer’s compliance with the relevant servicing criteria was fairly stated in all material respects, or it cannot express an overall opinion regarding the Servicer’s assessment of compliance with the relevant servicing criteria.  In the event that an overall opinion cannot be expressed, such registered public accounting firm shall state in such report why it was unable to express such an opinion.

 

Section 6.06.                          Sarbanes-Oxley Compliance and Back-up Certifications.

 

(a)                                 Notwithstanding anything to the contrary set forth in this Agreement, with respect to any Mortgage Loan subject to a Securitization Transaction, the Servicer shall deliver to the related depositor (the “Depositor”) and any other entity that is required, pursuant to the related pooling and servicing agreement, to file a certification with the Securities and Exchange Commission (the “Commission”) pursuant to the Sarbanes-Oxley Act of 2002 (each, a “Certifying Party”), on or before March 15th of each calendar year beginning in 200[  ] (or, if any such day is not a Business Day, the immediately preceding Business Day) or such alternative date reasonably specified by the Certifying Party which shall occur not earlier than 15 days prior to the date any Form 10-K is required to be filed with the Commission in connection with the transactions contemplated by this Agreement, (i) an Annual Statement of Compliance, (ii) an Annual Independent Certified Public Accountants’ Servicing Report and (iii) a certification in the form attached hereto as Exhibit I.  The certification required pursuant to subpart (iii) of the prior sentence shall be signed by the senior officer in charge of servicing of the Servicer.  In addition, the Servicer shall provide such other information with respect to the Mortgage Loans and the servicing and administration thereof within the control of the Servicer which shall be required to enable the Certifying Party to comply with the reporting requirements of the Securities and Exchange Act of 1934, as amended.

 

(b)                                 The Servicer shall indemnify and hold harmless the Owner, the related Certifying Party, the related trustee, the related depositor and their respective officers, directors, agents and affiliates (the “Indemnified Parties”) from and against any losses, damages, penalties, fines,

 

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forfeitures, reasonable legal fees and related costs, judgments and other costs and expenses arising out of or based upon a breach by the Servicer or any of its officers, directors, agents or affiliates of its obligations under this Section 6.06 or the Servicer’s negligence, bad faith or willful misconduct in connection therewith.  Such indemnity shall survive the termination or resignation of the parties hereto or the termination of this Agreement. If the indemnification provided for herein is unavailable or insufficient to hold harmless any Indemnified Party, then the Servicer agrees that it shall contribute to the amount paid or payable by such Indemnified Party as a result of the losses, claims, damages or liabilities of such Indemnified Party in such proportion as is appropriate to reflect the relative fault of each Indemnified Party on the one hand and the Servicer on the other in connection with a breach of the Servicer’s obligations under this Section 6.06.

 

Section 6.07.                          Reports of Foreclosures and Abandonment of Mortgaged Property.  The Servicer shall file, or cause to be filed, the information returns with respect to the receipt of mortgage interest received in a trade or business, the reports of foreclosures and abandonments of any Mortgaged Property and the information returns relating to cancellation of indebtedness income with respect to any Mortgaged Property required by Sections 6050H, 6050J, 6050P and any comparable or successor provisions of the Code, respectively.  Such reports shall be in form and substance sufficient to meet the reporting requirements imposed by Sections 6050H, 6050J, 6050P of the Code and any comparable or successor provisions.

 

Section 6.08.                          Compliance with Gramm-Leach-Bliley Act of 1999.  With respect to each Mortgage Loan and related Mortgagor, the Servicer shall comply with Title V of the Gramm-Leach-Bliley Act of 1999 and all applicable regulations promulgated thereunder, and shall provide all notices required thereunder with respect to the Servicer and the Owner.

 

Section 6.09.                          Reporting.  With respect to the period that the related Mortgage Loans are being serviced by the Servicer, the Servicer shall prepare promptly each report required by Applicable Regulations including reports to be delivered to all governmental agencies having jurisdiction over the servicing of the Mortgage Loans and the Escrow Accounts, shall execute such reports or, if the Owner must execute such reports, shall deliver such reports to the Owner for execution prior to the date on which such reports are due and shall file such reports with the appropriate Persons. The Servicer shall timely prepare and deliver to the appropriate Persons Internal Revenue Service forms 1098, 1099 and 1099A (or any similar replacement, amended or updated Internal Revenue Service forms) relating to any Mortgage Loan for the time period such Mortgage Loan has been serviced by the Servicer. The Owner shall be solely responsible for filing any other forms including, without limitation and to the extent applicable, forms 1041 and K-1 or any similar replacement, amended or updated Internal Revenue Service forms. The reports to be provided under this subsection shall cover the period through the end of the month following the termination of this Agreement or, in the case of reports to be sent to the Internal Revenue Service, the end of the calendar year following termination of the Agreement. To the extent it is an Acceptable Servicing Practice, the Servicer shall promptly prepare all reports or other information required to respond to any inquiry from, or give any necessary instructions to, any mortgage insurer, provider of hazard insurance or other insurer or guarantor, taxing authority, tax service, or the Mortgagor.  In addition to the foregoing, with respect to each Mortgage Loan, the Servicer shall fully furnish, in accordance with the Fair Credit Reporting Act and its implementing regulations, accurate and complete information (e.g., favorable and

 

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unfavorable) on its borrower credit files to Equifax, Experian and Trans Union Credit Information Company or their successors on a monthly basis.

 

ARTICLE VII

 

THE SERVICER

 

Section 7.01.                          Indemnification; Third Party Claims.  (a) Subject to Section 7.03, the Servicer agrees to indemnify the Owner and its present and former officers, directors, employees and agents and hold them harmless against any and all claims, losses, penalties, fines, forfeitures, legal fees (including legal fees incurred in connection with the enforcement of the Servicer’s indemnification obligation under this Section 7.01) and related costs, judgments, and any other costs, fees and expenses that the Owner or such Persons may sustain in any way which arise from (i) the failure of the Servicer to perform its duties and service the Mortgage Loans in compliance with the terms of this Agreement or (ii) in connection with the breach of any representation or warranty made by the Servicer hereunder.  The Servicer shall not be liable, and assumes no liability, arising out of any act or omission to act of any servicer, sub-servicer, owner, holder or originator of the Mortgage Loans or Mortgaged Properties before the Servicing Transfer Date and, to the maximum extent permitted by applicable law, the Servicer expressly disclaims such liability.  Furthermore, the Servicer shall not be liable to the Owner with respect to action taken by the Servicer, or for refraining from taking any action, with respect to any Mortgage Loan or REO Property at and in conformity with the written direction of the Owner or for liability caused by or resulting from a delay occasioned by the Owner’s objection to a proposal by the Servicer hereunder, or for any liability caused by or resulting from the Owner’s breach of a representation or warranty herein or for any liability incurred by reason of the Owner’s willful misfeasance, bad faith or negligence in acting or refraining from acting or any failure of performance.

 

(b)                                 The Owner agrees to indemnify the Servicer and its respective present and former officers, directors, employees and agents and hold them harmless against any and all claims, losses, penalties, fines, forfeitures, legal fees (including legal fees incurred in connection with the enforcement of the Owner’s indemnification obligation under this Section 7.01) and related costs, judgments, and any other costs, fees and expenses that the Servicer or such Persons may sustain in any way which arise from or are in connection with (i) any act or omission of the Owner or any employee, agent or representative authorized to act or acting on the Owner’s behalf with respect to the Mortgage Loans, that constitutes negligence, bad faith or willful misconduct on the part of the Owner, (ii) any actions or omissions in respect of any Mortgage Loan or REO Property of any prior servicer, sub-servicer, owner or originator of a Mortgage Loan or REO Property, (iii) the Servicer’s taking of any action, or refraining from the taking of any action, with respect to any Mortgage Loan or REO Property in conformity with this Agreement or at the written direction of the Owner, its employees, or agents, (iv) the material breach of any representation, warranty, covenant or agreement made by the Owner hereunder and (v) any Environmental Liability; provided, however, the indemnity for Environmental Liability shall not be effective with respect any liability directly and solely caused by the Servicer that would otherwise be imposed by reason of the Servicer’s negligence, bad faith or willful misconduct in the performance of, or failure to perform, its duties under this Agreement.

 

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(c)                                  Promptly after receipt by an indemnified party under this Section 7.01 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 7.01, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party will not relieve the indemnifying party from any liability which it may have to any indemnified party under this Section 7.01, except to the extent that it has been prejudiced in any material respect, or from any liability which it may have, otherwise than under this Section 7.01.  In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent that it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party; provided that if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party or parties shall have reasonably concluded that there may be legal defenses available to it or them and/or other indemnified parties which are different from or additional to those available to the indemnifying party, then the indemnified party or parties shall have the right to select separate counsel to assert such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties.  Upon receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party for expenses incurred by the indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed separate counsel in connection with the assertion of legal defenses in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel (together with one local counsel, if applicable), approved by the Owner in the case of subsection (a), (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action or (iii) the indemnifying party has authorized in writing the employment of counsel for the indemnified party at the expense of the indemnifying party; and except that, if clause (i) or (iii) is applicable, such liability shall be only in respect of the counsel referred to in such clause (i) or (iii).

 

Section 7.02.                          Merger or Consolidation of the Servicer.  The Servicer will keep in full effect its existence, rights and authorizations to service the Mortgage Loans in all states in which Mortgaged Property is located, and will obtain and preserve its qualification to do business 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 Mortgage Loans and to perform its duties under this Agreement.

 

Any Person into which the Servicer may be merged or consolidated, or any corporation, limited partnership or other entity resulting from any merger, conversion or consolidation to which the Servicer shall be a party, or any Person succeeding to the business of the Servicer, or any Person acquiring all or substantially all of the assets of the Servicer, shall be the successor of the Servicer hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding; provided, however, that the successor or surviving party (i) be an established mortgage loan servicing institution that

 

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is a Fannie Mae or Freddie Mac approved seller/servicer in good standing and (ii) have a net worth of not less than $30,000,000.

 

Section 7.03.                          Limitation on Liability of the Servicer and Others.  Except as otherwise provided in Section 7.01, neither the Servicer nor any of the directors, officers, employees or agents of the Servicer shall be liable to the Owner 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 failure to perform its obligations in compliance with any standard of care set forth in this Agreement.  The Servicer and any director, officer, employee or agent of the Servicer may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising hereunder. The Servicer shall be entitled to rely upon any notice, document, correspondence, request, directives or other communication received by it from the Owner that the Servicer believes to be genuine and to have been signed or presented by an authorized officer or representative of the Owner, and shall not be obligated to inquire as to the authority or power of any Person so executing or presenting any notice, document, correspondence, request, directive or other communication or as to the truthfulness of any statements therein.  Except as otherwise set forth herein, the Servicer shall not be under any obligation to appear in, prosecute or defend any legal action which is not incidental to its duties to service the Mortgage Loans in accordance with this Agreement and which in its opinion may involve it in any expenses or liability; provided, however, that the Servicer may undertake any such action which it may deem necessary or desirable in respect to this Agreement and the rights and duties of the parties hereto.  In such event, the reasonable legal expenses and reasonable costs of such action and any liability resulting therefrom shall be expenses, costs and liabilities for which the Owner will be liable, and the Servicer shall be entitled to be reimbursed therefor from the Owner upon written demand.

 

NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, THE PARTIES AGREE HERETO THAT NO PARTY HERETO SHALL BE LIABLE TO ANY OTHER PARTY HERETO FOR ANY SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES WHATSOEVER, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY) OR ANY OTHER LEGAL OR EQUITABLE PRINCIPLES; PROVIDED THAT, THE FOREGOING PROVISION SHALL NOT LIMIT OR RELIEVE ANY PARTY HERETO OF ANY OBLIGATION UNDER THIS AGREEMENT TO INDEMNIFY ANY OTHER PARTY HERETO AGAINST ANY DAMAGES IMPOSED UPON SUCH PARTY BY A FINAL ORDER OF ANY COURT OF COMPETENT JURISDICTION IN CONNECTION WITH ANY LEGAL ACTION BROUGHT AGAINST SUCH PARTY HERETO BY ANY THIRD PARTY.

 

Section 7.04.                          Transactions with Related Persons.  In carrying out its obligations and duties under this Agreement, the Servicer may contract with its affiliates on condition that all Persons with whom the Servicer may contract, enter into arrangements with, or otherwise deal with, shall be engaged on a commercially reasonable, arm’s-length basis and at competitive rates of compensation.  Nothing contained in this Agreement will prevent the Servicer or its affiliates from engaging in other business or from acting in a similar capacity for any other Person even though such Person may engage in business activities similar to those of the Owner or its affiliates.

 

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Section 7.05.                          Servicer Not to Resign.  The Servicer shall not assign this Agreement or resign from the obligations and duties hereby imposed on it except:  (a) as otherwise set forth in this Agreement, (b) by mutual consent of the Servicer and the Owner, or (c) upon the determination that its duties hereunder are no longer permissible under applicable law and such incapacity cannot be cured by the Servicer; provided, however, that the Servicer shall not be entitled to any Deboarding Fees in connection with a resignation pursuant to this clause (c).  Any such determination permitting the resignation of the Servicer shall be evidenced by an opinion of counsel to such effect delivered to the Owner which opinion of counsel shall be in form and substance acceptable to the Owner.  No such resignation shall become effective until a successor shall have assumed the Servicer’s responsibilities and obligations hereunder in the manner provided in Section 10.01.

 

ARTICLE VIII

 

DEFAULT

 

Section 8.01.                          Events of Default.  Each of the following shall constitute an Event of Default on the part of the applicable Party:

 

(a)                                 any failure by a Party to remit to the other Party any payment required to be made under the terms of this Agreement which continues unremedied for a period of five (5) days after the date upon which written notice of such failure, requiring the same to be remedied, shall have been given to such Party;

 

(b)                                 any failure by either Party duly to observe or perform in any material respect any other of the covenants or agreements on the part of such Party set forth in this Agreement which continues un-remedied for a period of 60 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to such Party;

 

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

 

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

 

(e)                                  with respect to Servicer only, the Servicer ceases to meet the qualifications of a Fannie Mae and Freddie Mac servicer and such approvals are not reinstated within thirty (30) days;

 

(f)                                   a Party shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of any applicable insolvency or reorganization

 

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statute, make an assignment for the benefit of its creditors or voluntarily suspend payment of its obligations; or

 

(g)                                  any failure by a Party to maintain the material licenses to do business in any jurisdiction where the Mortgaged Property is located, but only to the extent such non-qualification materially and adversely affects such Party’s ability to perform its obligations hereunder.

 

In each and every such case, so long as an Event of Default shall not have been remedied, in addition to any rights a Party may have at law or equity to damages, including injunctive relief and specific performance, a Party, by notice in writing to the defaulting Party, may terminate all the rights and obligations of the other Party under this Agreement and in and to the Mortgage Loans and the proceeds thereof.  If a Party obtains knowledge of an Event of Default, it shall promptly notify the non-defaulting party thereof.

 

Section 8.02.                          Waiver of Defaults.  The non-defaulting Party may waive in writing any default by the defaulting Party in the performance of its obligations hereunder and its consequences.  Upon any such waiver of a past default, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been remedied for every purpose of this 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.

 

ARTICLE IX

 

TERM; TERMINATION

 

Section 9.01.                          Term.  The initial term of this Agreement shall commence on the date of this Agreement and shall continue in full force and effect until the date that is fifteen (15) years from the date of this Agreement (the “Initial Term”), or the earlier date upon which this Agreement has been otherwise terminated in accordance with this Article IX.  This Agreement will automatically renew for successive two (2) year terms (each, a “Renewal Term”) unless either Party decides that it does not wish to renew this Agreement before the expiration of the Initial Term or any Renewal Term, as applicable, by notifying the other Party in writing at least nine (9) months before the completion of the Initial Term or Renewal Term, as applicable.

 

Section 9.02.                          Termination.  This Agreement shall terminate upon any of the following:  (i) the later of the final payment or other liquidation (or any advance with respect thereto) of the last Mortgage Loan or the disposition of any remaining REO Property and the remittance of all funds due hereunder; (ii) mutual consent of the Servicer and the Owner in writing; (iii) termination by the servicer or the Owner with or without cause under the terms of this Agreement; (iv) with respect to the related Mortgage Loans, a Securitization Transfer pursuant to Section 10.13; or (v) as soon as practicable, but no longer than thirty (30) days, after the expiration or earlier termination of that certain Asset Management Agreement, dated as of [          ], 2012, between Altisource Residential Corporation and Altisource Asset Management Corporation.  The termination of this Agreement pursuant to this Article IX shall not release either party from liability for its own misrepresentation or for any breach by it of any covenant, agreement, representation or warranty herein arising prior to such termination.

 

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Section 9.03.         Termination Without Cause.  The Owner may terminate, at its sole option, any rights the Servicer may have hereunder, without cause, as provided in this Section 9.03 with respect to one or more Mortgage Loans (provided however, that Owner shall not adversely select such Mortgage Loans) upon sixty (60) days prior written notice.  Any such notice of termination shall be in writing and delivered to the Servicer by registered mail as provided in Section 10.04.  In the event that the Servicer is terminated pursuant to this Section 9.03, the Owner shall pay the Servicer an amount equal to (1) the applicable Deboarding Fees, (2) the costs and expenses of Servicer to transfer the servicing with respect to the related Mortgage Loans to a successor servicer and (3) all outstanding Servicing Advances and other Servicer expenditures for which Servicer is entitled to reimbursement hereunder, Servicing Fees and other servicing compensation as set forth herein.

 

The Servicer may terminate, at its sole option, its obligations under this Agreement upon sixty (60) days prior written notice.   Any such notice of termination shall be in writing and delivered to the Owner by registered mail as provided in Section 10.04.  If the event the Servicer terminates this Agreement pursuant to this Section 9.03, the Owner shall pay the Servicer the amounts set forth in clauses (2) and (3) in the preceding paragraph, provided, however, that the Owner shall not be required to pay any Deboarding Fees.

 

Section 9.04.         Termination with Cause.  So long as an Event of Default shall have occurred and shall not have been remedied, the non-breaching Party, by notice in writing to the other Party, may, in addition to whatever rights such party may have at law or equity to damages, including injunctive relief and specific performance, terminate all the rights and obligations of the breaching Party under this Agreement; provided, however, that any termination by Servicer in respect of an Owner Event of Default shall be effective sixty (60) days after the notice of termination or such lesser time as the Owner may require to find a successor servicer.

 

Section 9.05.         Transfer Procedures.  In the event the Servicer is replaced or otherwise transfers servicing with respect to one or more Mortgage Loans pursuant to the terms of this Agreement, the Servicer agrees to cooperate with the Owner and with any party designated as the successor servicer or subservicer in transferring the servicing to such successor servicer.  In addition, the Servicer shall be responsible for notifying the related mortgagors of any transfer of servicing in accordance with the requirements of the RESPA and the Cranston Gonzalez National Affordable Housing Act of 1990.  On or before the Transfer Date with respect to one or more Mortgage Loans, the Servicer shall prepare, execute and deliver to the successor servicer any and all documents and other instruments, place in such successor’s possession all Mortgage Loan Documents 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 related Mortgage Loans and related documents.  If such transfer of servicing relates to a termination of the Servicer pursuant to Section 7.05(c),  Section 9.03(b) or an Event of Default of the Servicer, such actions shall be undertaken at the Servicer’s sole expense, but shall otherwise be at the sole expense of the Owner, including payment of the applicable Deboarding Fees.  The Servicer shall reasonably cooperate with the Owner and such successor in effecting the termination of the Servicer’s responsibilities and rights hereunder with respect to one or more Mortgage Loans.

 

The Servicer shall be entitled to be reimbursed for all unreimbursed Servicing Advances and/or other advances made by the Servicer pursuant to this Agreement with respect to any

 

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Mortgage Loan on the related Transfer Date.  In addition, the Owner shall cause the Servicer to be reimbursed for any accrued and unpaid Servicing Fees and other servicing compensation and for any trailing expenses representing Servicing Advances or other costs or expenses incurred by the Servicer and for which invoices are received by the Owner after the Transfer Date.  The Owner shall cause the Servicer to be reimbursed for such trailing expenses within five (5) Business Days of receipt of such invoices.

 

ARTICLE X

 

MISCELLANEOUS PROVISIONS

 

Section 10.01.      Successor to the Servicer.  Prior to the termination of the Servicer’s responsibilities and duties under this Agreement pursuant to Section 7.05, 8.01 or Article IX, the Owner shall succeed to and assume all of the Servicer’s responsibilities, rights, duties and obligations under this Agreement or 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 Owner may make such arrangements for the compensation of such successor out of payments on Mortgage 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 and responsibilities during the period from the date it acquires knowledge of such termination until the effective date thereof with the same 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 the Owner succeeds to or a successor is appointed pursuant to this Section 10.01.

 

Any successor servicer appointed as provided herein shall execute, acknowledge and deliver to the Servicer and to the Owner an instrument accepting such appointment, whereupon such successor servicer shall become fully vested with all the rights, powers, duties, responsibilities, obligations and liabilities of the Servicer from and after such appointment, but 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 shall not affect any claims that the Owner may have against the Servicer, or any claims that the Servicer may have against the Owner, arising prior to any such termination or resignation.

 

The Servicer shall timely deliver to the successor the funds in the Custodial Account and the Escrow Account and the Mortgage Servicing Files and Mortgage Notes, if any, and related documents and statements held by it hereunder and the Servicer shall account for all funds.  The Servicer shall comply with Section 9.05 and execute and deliver such instruments and do such other things all as may reasonably be required to more fully and definitely vest and confirm in the successor all such rights, powers, duties, responsibilities, obligations and liabilities of the Servicer.

 

If any of the Mortgage Loans are MERS Designated Mortgage Loans, in connection with the termination or resignation of the Servicer hereunder, the Servicer shall cooperate with the

 

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successor servicer either (x) in causing MERS to execute and deliver an assignment of Mortgage in recordable form to transfer the Mortgage from MERS to the Owner and to execute and deliver such other notices, documents and other instruments as may be necessary or desirable to effect a transfer of such Mortgage Loan or servicing of such Mortgage Loan on the MERS System to the successor servicer or (y) in causing MERS to designate on the MERS System the successor servicer as the servicer of such Mortgage Loan.

 

Upon a successor’s acceptance of appointment as such, the Owner shall notify the Servicer in writing of such appointment.

 

On the effective date of termination, replacement or resignation of the Servicer under this Agreement, the Owner shall cause the Servicer to be paid any unpaid Servicing Fees and reimbursed any unreimbursed Servicing Advances.

 

Section 10.02.      Amendment.  This Agreement may be amended from time to time by the Servicer and the Owner by written agreement signed by the Servicer and the Owner.

 

Section 10.03.      Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflicts of law principles (other than New York General Obligations Law § 5-1401).

 

Section 10.04.      Notices.  All demands, notices and communications hereunder shall be in writing and shall be deemed conclusively to have been given if personally delivered at or mailed by registered mail, postage prepaid, and return receipt requested or transmitted by facsimile or email and confirmed by a similar mailed writing, if (i) in the case of the Servicer, 1661 Worthington Road Centrepark West, Suite 100, West Palm Beach, FL 33409, Attention:  Secretary, Facsimile Number:  (561) 682-8177 or such other address as may hereafter be furnished to the Owner in writing by the Servicer and (ii) in the case of the Owner, Altisource Residential, L.P., at c/o Altisource Asset Management Corporation, 402 Strand St., Frederiksted, VI  00840-3531, Attention: Corporate Secretary, Facsimile Number: [                      ], or such other address as may be furnished to the Servicer in writing by the Owner.

 

Section 10.05.      Severability Provisions.  If any one or more of the covenants, agreements, provisions or terms of this Agreement shall be for any reason whatsoever held invalid, the invalidity of any such covenant, agreement, provision or term of this Agreement shall in no way affect the validity or enforceability of the other provisions of this Agreement, provided, however, that if the invalidity of any covenant, agreement or provision shall deprive any party of the economic benefit intended to be conferred by this Agreement, the parties shall negotiate in good faith to develop a structure the economic effect of which is identical to the economic effect of this Agreement.

 

Section 10.06.      Exhibits.  The exhibits of this Agreement are hereby incorporated and made a part hereof and are an integral part of this Agreement.

 

Section 10.07.      General Interpretive Principles.  For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:

 

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(i)            the terms defined in this Agreement have the meanings assigned to them in this Agreement and include the plural as well as the singular, and the use of any gender herein shall be deemed to include the other gender;

 

(ii)           accounting terms not otherwise defined herein have the meaning assigned to them in accordance with generally accepted accounting principles;

 

(iii)          references herein to “Articles,” “Sections,” “Subsections,” “Paragraphs,” and other subdivisions without reference to a document are to designated Articles, Sections, Subsections, Paragraphs and other subdivisions of this Agreement;

 

(iv)          a reference to a Subsection without further reference to a Section is a reference to such Subsection as contained in the same Section in which the reference appears, and this rule shall also apply to Paragraphs and other subdivisions;

 

(v)           the words “herein,” “hereof,” “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular provision; and

 

(vi)          the term “include” or “including” shall mean without limitation by reason of enumeration.

 

Section 10.08.      Reproduction of Documents.  This Agreement and all documents relating thereto, including, without limitation, (i) consents, waivers and modifications which may hereafter be executed, (ii) documents received by any party at the closing, and (iii) financial statements, certificates and other information previously or hereafter furnished, may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process.  The parties agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence.

 

Section 10.09.      Provision of Information.  In addition to the reports required under Section 5.02 during the term of this Agreement, the Servicer shall furnish to the Owner such other periodic, special, or other reports or information, whether or not provided for herein, as shall be necessary, reasonable, and appropriate with respect to the Owner or the purposes of this Agreement.  All such other reports or information shall be provided by and in accordance with all reasonable instructions and directions which the Owner may give.  The Servicer shall notify the Owner with respect to the estimated cost of preparing any such other reports prior to their preparation.  If any such other reports or information require the Servicer to perform any additional programming functions to prepare such reports or information, the costs to prepare such reports or information shall be a Servicing Advance and the Servicer shall be reimbursed for such Servicing Advances pursuant to Section 4.05(ii).

 

Section 10.10.      Further Assurances.  Each party to this Agreement agrees to execute and deliver such instruments and take such actions as the other party may, from time to time, reasonably request to effect the purpose and carry out the terms of this Agreement.

 

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Section 10.11.      No Solicitations.  From and after the related Servicing Transfer Date, the Servicer agrees that it will not take any action or permit or cause any action to be taken by any of its agents or affiliates, or by any independent contractors on the Servicer’s behalf, to personally, by telephone or mail, solicit the Mortgagor under any Mortgage Loan to refinance a Mortgage Loan without the prior written consent of the Owner.  Notwithstanding the foregoing, it is understood and agreed that the following shall not constitute solicitations under this Section 10.11 (i) promotions undertaken by the Servicer or any affiliate thereof which are directed to the general public at large, including, without limitation, mass mailing based on commercially acquired mailing lists, newspaper, radio, Internet and television advertisements, (ii) offers to refinance a Mortgage Loan following the Servicer’s receipt of a request for verification of mortgage or payoff demand related to a Mortgagor (other than those initiated in response to a solicitation initiated by the Servicer or any of its agents or affiliates) and (iii) any solicitations made as part of a loss mitigation strategy for any defaulted Mortgage Loan.

 

Section 10.12.      Financial Statements; Servicing Facilities.  In connection with marketing the Mortgage Loans, the Owner may make available to a prospective purchaser consolidated financial statements of the Servicer that are generally available to the public such as those financial statements of the Servicer or its affiliates, filed with the United States Securities and Exchange Commission and those financial statements of the Servicer, or its affiliates, available at http://www.ocwen.com, or at such other internet site of the Servicer or its affiliates.  The Servicer shall make available to the Owner or any prospective purchaser a knowledgeable financial or accounting officer for the purpose of answering questions respecting recent developments affecting the Servicer or the financial statements of the Servicer (to the extent such information is generally available to the public), and to permit any prospective purchaser, upon reasonable written notice to the Servicer and at a reasonable time during normal hours of operation for the Servicer, to inspect the Servicer’s servicing facilities for the purpose of satisfying such prospective purchaser that the Servicer has the ability to service the Mortgage Loans and REO Properties in accordance with the provisions of this Agreement.

 

Section 10.13.      Reconstitution.

 

(a)           The Servicer and the Owner agree that with respect to some or all of the Mortgage Loans, the Owner may effect one or more Whole Loan Transfers, and/or one or more Securitization Transactions. With respect to each Whole Loan Transfer or Securitization Transaction, as the case may be, entered into by the Owner, the Servicer agrees:

 

(i)            to cooperate fully with the Owner and any prospective purchaser with respect to all reasonable requests and due diligence procedures including participating in meetings with rating agencies, bond insurers and such other parties as the Owner shall designate and participating in meetings with prospective purchasers of the Mortgage Loans or interests therein and providing information reasonably requested by such purchasers;

 

(ii)           to execute all Reconstitution Agreements provided that each of the Servicer and the Owner is given an opportunity to review and reasonably negotiate in good faith the content of such documents not specifically referenced or provided for herein, including the Servicer’s obligations, compensation and rights to finance any

 

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principal and interest advances, servicing advances and purchased mortgage servicing rights with a third party creditor, if applicable;

 

(iii)          to deliver to the Owner for inclusion in any prospectus or other offering material such publicly available information regarding the Servicer, its financial condition and its mortgage loan delinquency, foreclosure and loss experience and any additional information reasonably requested by the Owner (collectively, the “Servicer Information”), and to indemnify the Owner and its affiliates for material misstatements or omissions contained in such information, provided that the Owner shall provide indemnification to the Servicer for material misstatements and omissions contained in such offering material other than the Servicer Information;

 

(iv)          to cooperate with the Owner and any prospective purchaser with respect to the preparation, endorsement, assignment, or delivery, as the case may be, of any of the Mortgage Loan Documents and other related documents, with respect to servicing requirements reasonably requested by the rating agencies and credit enhancers;

 

(v)           to negotiate and execute one or more subservicing agreements between the Servicer and the Owner and/or any master servicer which is generally considered to be a prudent master servicer in the secondary mortgage market, designated by the Owner in its sole discretion and/or one or more custodial and servicing agreements among the Owner, the Servicer and a third party custodian/trustee which is generally considered to be a prudent custodian/trustee in the secondary mortgage market designated by the Owner in its sole discretion, in either case for the purpose of pooling the Mortgage Loans with other mortgage loans for resale or securitization;

 

(vi)          in connection with any securitization of any Mortgage Loans, to execute a pooling and servicing agreement, which pooling and servicing agreement may, at the Owner’s direction, contain contractual provisions including, but not limited to, a customary certificate payment delay, servicer advances of delinquent scheduled payments of principal and interest through liquidation (unless deemed non-recoverable) and prepayment interest shortfalls (to the extent of the monthly servicing fee payable thereto), servicing representations and warranties which in form and substance conform to the representations and warranties in this Agreement and to secondary market standards for securities backed by mortgage loans and property similar to the Mortgage Loans and such provisions with regard to servicing responsibilities, investor reporting, segregation and deposit of principal and interest payments, custody of the Mortgage Loans, and other covenants as are required by the Owner and one or more Rating Agencies. If the Owner deems it advisable at any time to pool the Mortgage Loans with other mortgage loans for the purpose of resale or securitization, the Servicer agrees to execute one or more servicing agreements between itself and a master servicer designated by the Owner at the Owner’s sole discretion, and/or one or more servicing agreements among the Servicer, the Owner and a trustee designated by the Owner at the Owner’s sole discretion, such agreements in each case incorporating terms and provisions substantially identical to those described in this paragraph; and

 

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(vii)         to negotiate and execute a credit risk management agreement with a credit risk manager designated by the Owner at the Owner’s sole discretion.

 

Notwithstanding anything to the contrary contained in this Section 10.13 or elsewhere in this Agreement, the Servicer shall have no obligation to enter into any agreement obligating the Servicer to service the Mortgage Loans unless such agreement is acceptable to the Servicer in all respects (including, without limitation, matters relating to the obligations imposed on the Servicer thereunder, the compensation to which the Servicer is entitled thereunder and the Servicer’s ability to both make and reimburse itself for servicing advances and principal and interest advances from funds held for future distribution in the related collection account) in the Servicer’s sole and absolute discretion.

 

In the event that the Servicer is not the master servicer, servicer or sub-servicer with respect to a Reconstitution, any and all reasonable out-of-pocket costs, fees and expenses incurred by the Servicer in connection with the foregoing shall be reimbursed by the Owner after receipt of an invoice therefor and the Owner shall be liable to the Servicer for any applicable Deboarding Fee.  All Mortgage Loans not sold or transferred pursuant to a Whole Loan Transfer or Securitization Transaction shall be subject to this Agreement and shall continue to be serviced in accordance with the terms of this Agreement and with respect thereto this Agreement shall remain in full force and effect.

 

(b)           Notwithstanding any provision to the contrary in this Agreement, in the event that the Servicer is the master servicer, servicer or sub-servicer with respect to a Reconstitution, the Owner agrees that in such Reconstitution (i) the Servicer shall be entitled to servicing compensation at least as favorable as the servicing compensation customarily received by the Servicer in comparable transactions and (ii) the Servicer shall be able to reasonably negotiate any servicing performance triggers required in connection with such Reconstitution.  In the event any terms of the proposed Reconstitution shall materially and adversely affect the economic terms bargained for by the Servicer, then the Owner and the Servicer shall renegotiate in good faith the terms under which the Servicer services the Mortgage Loans to take into account the effects of the Reconstitution and, if in the Servicer’s reasonable judgment a satisfactory adjustment of such terms is not made, the Servicer may resign from the duties imposed by this Agreement with respect to the related Mortgage Loans and shall be paid the Deboarding Fee with respect to such Mortgage Loans subject to the provisions set forth herein. In addition, in the event that any Mortgage Loans are sold in a servicing-released Whole Loan Transfer, the Owner shall pay the Deboarding Fee to the Servicer in connection with such Mortgage Loans subject to the provisions set forth herein.

 

Section 10.14.      Jurisdiction; Waiver of Jury Trial.  Each of the Owner and the Servicer hereby irrevocably submits to the non-exclusive jurisdiction of the courts of the State of New York sitting in the borough of Manhattan and the Federal Courts of the United States of America for the Southern District of New York and any appellate court thereof in any action or proceeding arising out of or relating to this Agreement, and each of the Owner and the Servicer hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such New York State court or in such Federal court.  Each of the Owner and the Servicer hereby irrevocably consents to the fullest extent permitted under applicable law, to the service of any summons and complaint and any other process by the mailing of copies of

 

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such process to them at their respective address specified in this Agreement.  Each of the Owner and the Servicer hereby agrees, to the fullest extent permitted under applicable law, that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.  TO THE FULLEST EXTENT PERMITTED UNDER APPLICABLE LAW, EACH OF THE OWNER AND THE SERVICER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.

 

Section 10.15.      Assignment by the Owner.  Subject to Section 2.03, the Owner shall have the right, without the consent of the Servicer, to assign, in whole or in part, its interest under this Agreement with respect to some or all of the Mortgage Loans and/or REO Properties, and designate any Person to exercise any rights of the Owner hereunder, and the assignee or designee shall accede to the rights, and shall assume all of obligations hereunder, of the Owner with respect to such Mortgage Loans and the REO Properties, including, without limitation the obligation to reimburse the Servicer for any Servicing Advances, with respect to the period following the date of assignment.  All references to the Owner in this Agreement shall be deemed to include its assignee or designee.

 

Section 10.16.      Limitation on Assignment by the Servicer.  The Owner has entered into this Agreement with the Servicer and, if applicable, subsequent purchasers will purchase the Mortgage Loans in reliance upon the independent status of the Servicer, and the representations as to the adequacy of its servicing facilities, plant, personnel, records and procedures, its integrity, reputation and financial standing, and the continuance thereof.  Therefore, the Servicer shall not assign this Agreement or the servicing hereunder or delegate its rights or duties hereunder or any portion hereof without the prior written consent of the Owner, except:  (a) as otherwise provided for in this Agreement, (b) in the case where such assignment, delegation, sale or disposition is to the corporate parent of the Servicer or to an affiliate of the Servicer or (c) the Servicer, without the consent of the Owner, may retain third party contractors to perform certain servicing and loan administration functions, including without limitation, hazard insurance administration, tax payment and administration, flood certification and administration, collection services and similar functions; provided that the retention of such contractors by the Servicer shall not limit the obligation of the Servicer to service the Mortgage Loans pursuant to the terms and conditions of this Agreement.

 

Section 10.17.      Compliance with REMIC Provisions.  If a REMIC election has been made with respect to the arrangement under which the Mortgage Loans and REO Properties are held, the Servicer shall not take any action, cause the REMIC to take any action or fail to take (or fail to cause to be taken) any action that, under the REMIC Provisions, if taken or not taken, as the case may be, could (i) endanger the status of the REMIC as a REMIC or (ii) result in the imposition of a tax upon the REMIC (including but not limited to the tax on “prohibited transactions” as defined in Section 860F(a)(2) of the Code and the tax on “contributions” to a REMIC set forth in Section 860G(d) of the Code) unless the Servicer has received an opinion of counsel (at the expense of the party seeking to take such action) to the effect that the contemplated action will not endanger such REMIC status or result in the imposition of any such tax.

 

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Section 10.18.      Third Party Beneficiary.  For purposes of Section 6.06, any Certifying Party shall be considered a third party beneficiary to Section 6.06 of this Agreement with respect to the related Mortgage Loans, entitled to all the rights and benefits accruing to any Certifying Party as if it were a direct party to this Agreement under such Sections.

 

Section 10.19.      Confidentiality.

 

(a)           In connection with this Agreement, the Servicer on one hand and the Owner on the other, intend to disclose to each other and their respective officers, agents, advisors, directors, representatives and employees (“Representatives”) certain information regarding the operation, businesses, properties, finances, contractual relationships, policies, procedures and practices of the Servicer and its affiliates on one hand and Owner on the other. The terms of this Agreement and any and all such information disclosed by the Servicer and/or its agents or advisors to the Owner or its Representatives on one hand and by the Owner and/or its agents or advisors to the Servicer or its respective Representatives, whether before or after the date of this Agreement and whether oral or written in whatever form provided, is hereinafter referred to as “Confidential Information.” Such Confidential Information shall remain the sole property of the Servicer on one hand and the Owner on the other, as applicable and shall be used and handled in accordance with the terms and conditions set forth in this Agreement.

 

(b)           Notwithstanding anything to the contrary herein, the term Confidential Information shall not include any such information that is or becomes available on a non-confidential basis from a source other than the Servicer on one hand or the Owner on the other or is or becomes generally available to the public other than as a result of an unauthorized disclosure by the Owner or its Representatives on one hand or the Servicer or its Representatives on the other.

 

(c)           Without the Servicer’s prior written consent, the Owner shall not, or permit any of its Representatives to, disclose to any person or entity the fact that the Servicer has made any Confidential Information available to the Owner, except to the extent that it is appropriate to do so in working with legal counsel, auditors and taxing authorities.

 

(d)           Without the Owner’s prior written consent, the Servicer shall not, or permit any of its Representatives to, disclose to any person or entity the fact that the Owner has made any Confidential Information available to the Servicer, except to the extent that it is appropriate to do so in working with legal counsel, auditors and taxing authorities.

 

(e)           The Owner may disclose any part or portion of the Confidential Information that the Owner is required to disclose pursuant to applicable law, rule, regulation, subpoena, or similar court process; provided that the Owner shall (i) notify, to the extent permitted under law, the Servicer in writing prior to any such disclosure so as to provide the Servicer with a reasonable opportunity to seek to enjoin, prevent, stay or defer such disclosures, (ii) to the extent permissible under law, consult and cooperate with the Servicer as to the content, nature, and timing of such disclosure, and (iii) in the event a protective order or another remedy is not timely obtained, disclose only such part or portion of such Confidential Information as is reasonably required pursuant to such law, rule, regulation, subpoena, or other similar process.  The Owner and its Representatives shall reasonably cooperate with any of the Servicer’s efforts to obtain

 

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reasonable assurance that confidential treatment will be accorded the Confidential Information so disclosed.

 

(f)            The Servicer may disclose any part or portion of the Confidential Information that the Servicer is required to disclose pursuant to applicable law, rule, regulation, subpoena, or similar court process; provided that the Servicer shall (i) notify, to the extent permitted under law, the Owner in writing prior to any such disclosure so as to provide the Owner with a reasonable opportunity to seek to enjoin, prevent, stay or defer such disclosures, (ii) to the extent permissible under law, consult and cooperate with the Owner as to the content, nature, and timing of such disclosure, and (iii) in the event a protective order or another remedy is not timely obtained, disclose only such part or portion of such Confidential Information as is reasonably required pursuant to such law, rule, regulation, subpoena, or other similar process.  The Servicer and its Representatives shall reasonably cooperate with any of the Owner’s efforts to obtain reasonable assurance that confidential treatment will be accorded the Confidential Information so disclosed.

 

(g)           The Owner on one hand and the Servicer on the other, acknowledge that money damages may not be a sufficient remedy for any breach of this Section 10.19 by the other party or their Representatives.  Accordingly, in the event of any such breach of this Section 10.19, in addition to any other remedies at law or in equity that the Servicer may have on one hand and the Owner may have on the other, the other party shall be entitled to seek equitable relief, including injunctive relief or specific performance or both.

 

(h)           Notwithstanding anything herein to the contrary, the Servicer or the Owner (or any officers, agents, advisors, directors, representatives and employees of the Servicer or the Owner) may disclose to any and all persons, without limitation, the tax treatment and tax structure of the transactions contemplated by this Agreement and all materials of any kind that are provided to it relating to such tax treatment and tax structure.

 

(i)            Each party’s obligations under this Section 10.19 shall terminate not later than six (6) months after the termination of this Agreement.

 

Section 10.20.      Counterparts.  This Agreement may be executed simultaneously in any number of counterparts. Each counterpart shall be deemed to be an original, and all such counterparts shall constitute one and the same instrument.  Delivery of an executed signature page by facsimile shall constitute delivery of an original signature for the purposes of this Agreement.

 

ARTICLE XI

 

COMPLIANCE WITH REGULATION AB

 

Section 11.01.      Intent of the Parties; Reasonableness.  The Owner and the Servicer acknowledge and agree that the purpose of Article XI of this Agreement is to facilitate compliance by the Owner and any Depositor with the provisions of Regulation AB and related rules and regulations of the Securities and Exchange Commission (the “Commission”). Although Regulation AB is applicable by its terms only to offerings of asset-backed securities that are

 

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registered under the Securities Act of 1933, as amended (the “Securities Act”), the Servicer acknowledges that investors in privately offered securities may require that the Servicer or any Depositor provide comparable disclosure in unregistered offerings.  References in this Agreement to compliance with Regulation AB include provision of comparable disclosure in private offerings.

 

Neither the Owner nor any Depositor shall exercise its right to request delivery of information or other performance under these provisions other than in good faith, or for purposes other than compliance with the Securities Act, the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and, in each case, the rules and regulations of the Commission thereunder (or the provision in a private offering of disclosure comparable to that required under the Securities Act) and the Sarbanes-Oxley Act. The Servicer acknowledges that interpretations of the requirements of Regulation AB may change over time, whether due to interpretive guidance provided by the Commission or its staff, consensus among participants in the asset-backed securities markets, advice of counsel, or otherwise, and agrees to comply with reasonable requests made by the Owner, any Master Servicer or any Depositor in good faith for delivery of information under these provisions on the basis of established and evolving interpretations of Regulation AB. In connection with any Securitization Transaction, the Servicer shall reasonably cooperate with the Owner and any Master Servicer to deliver to the Owner (including any of its assignees or designees), any Master Servicer and any Depositor, any and all statements, reports, certifications, records and any other information necessary in the good faith determination of the Owner, the Master Servicer or any Depositor to permit the Owner, such Master Servicer or such Depositor to comply with the provisions of Regulation AB, together with such disclosures relating to the Servicer, any Subservicer and the Mortgage Loans, or the servicing of the Mortgage Loans, reasonably believed by the Owner or any Depositor to be necessary in order to effect such compliance.

 

The Owner (including any of its assignees or designees) shall cooperate with the Servicer by providing timely written notice of requests for information under these provisions and by reasonably limiting such requests to information required, in the Owner’s reasonable judgment, to comply with Regulation AB.

 

The Owner and the Servicer also acknowledge and agree Section 11.02(a)(i)-(v), Section 11.03(d) and (e), Section 11.04, Section 11.05 and Section 11.06 of this Reg AB Addendum shall only be applicable with respect to any Mortgage Loan if the Servicer (or Subservicer, if any) services such Mortgage Loan for a period following the closing date of a related Securitization Transaction.  The Owner and the Servicer also acknowledge and agree that this Article XI is intended to supplement the terms of the Agreement and, to the extent inconsistent, the rights and obligations under the Agreement shall continue to apply with respect to any Reconstitution (as defined herein) that is not covered by the definition of “Securitization Transfer” herein.

 

Any notice or request that must be “in writing” or “written” may be made by electronic mail.

 

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Section 11.02.                   Additional Representations and Warranties of the Servicer.

 

(a)                                 The Servicer shall be deemed to represent to the Owner, to any Master Servicer and to any Depositor, as of the date on which information is first provided to the Owner, any Master Servicer or any Depositor under Section 11.03 that, except as disclosed in writing to the Owner, such Master Servicer or such Depositor prior to such date: (i) the Servicer is not aware and has not received notice that any default, early amortization or other performance triggering event has occurred during the three-year period immediately preceding the related Securitization Transaction as to any other securitization due to any act or failure to act of the Servicer; (ii) the Servicer has not been terminated as servicer in a residential loan securitization, either due to a servicing default or to application of a servicing performance test or trigger during the three-year period immediately preceding the related Securitization Transaction; (iii) no material noncompliance with the applicable servicing criteria with respect to other securitizations of residential mortgage loans involving the Servicer as servicer has been disclosed or reported by the Servicer; (iv) no material changes to the Servicer’s policies or procedures with respect to the servicing function it will perform under this Agreement and any Reconstitution Agreement for loans of a type similar to the Mortgage Loans have occurred during the three-year period immediately preceding the related Securitization Transaction; (v) there are no aspects of the Servicer’s financial condition that are reasonably expected to have a material adverse effect on the performance by the Servicer of its servicing obligations under this Agreement or any Reconstitution Agreement; (vi) there are no legal or governmental proceedings pending (or known to be contemplated) against the Servicer or any Subservicer that would be material to securityholders; and (vii) there are no affiliations, relationships or transactions relating to the Servicer or any Subservicer with respect to any Securitization Transaction and any party thereto identified by the related Depositor of a type described in Item 1119 of Regulation AB.

 

(b)                                 If so requested in writing by the Owner, any Master Servicer or any Depositor on any date following the date on which information is first provided to the Owner, any Master Servicer or any Depositor under Section 11.03, the Servicer shall use its reasonable best efforts to, within ten (10) Business Days following such request, confirm in writing the accuracy of the representations and warranties set forth in paragraph (a) of this Section 11.02 or, if any such representation and warranty is not accurate as of the date of such request, provide reasonably adequate disclosure of the pertinent facts, in writing, to the requesting party.

 

Section 11.03.                   Information to Be Provided by the Servicer.  In connection with any Securitization Transaction, the Servicer shall use its reasonable best efforts to (i) within five (5) Business Days, but in no event later than ten (10) Business Days following written request by the Owner or any Depositor, provide to the Owner and such Depositor (or, as applicable, cause each Subservicer to provide), in writing and in form and substance reasonably satisfactory to the Owner and such Depositor, the information and materials specified in paragraphs (a), (b) and (e) of this Section, and (ii) as promptly as practicable following notice to or discovery by the Servicer, provide to the Owner and any Depositor (in writing and in form and substance reasonably satisfactory to the Owner and such Depositor) the information specified in paragraph (c) of this Section.

 

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(a)                                 If so requested in writing by the Owner or any Depositor, the Servicer shall provide such information regarding (i) the Servicer or (ii) each Subservicer, as applicable, as is reasonably requested for the purpose of compliance with Item 1103(a)(1).

 

(b)                                 If so requested in writing by the Owner or any Depositor with respect to any Securitization Transaction for which 20% or more of the pool assets (measured by cut-off date principal balance) are serviced by the Servicer and any Subservicer, the Servicer shall provide such information regarding the Servicer, as servicer of the Mortgage Loans, and each Subservicer (each of the Servicer and each Subservicer, for purposes of this paragraph, a “Servicer”), as is reasonably requested for the purpose of compliance with Item 1108, 1117 and 1119 of Regulation AB.  Such information shall include, at a minimum:

 

(A)                               the Servicer’s form of organization;

 

(B)                               a description of how long the Servicer has been servicing residential mortgage loans; a general discussion of the Servicer’s experience in servicing assets of any type as well as a more detailed discussion of the Servicer’s experience in, and procedures for, the servicing function it will perform under this Agreement and any Reconstitution Agreements; information regarding the size, composition and growth of the Servicer’s portfolio of residential mortgage loans of a type similar to the Mortgage Loans and information on factors related to the Servicer that may be material, in the good faith judgment of the Owner or any Depositor, to any analysis of the servicing of the Mortgage Loans or the related asset-backed securities, as applicable, including, without limitation:

 

(1)                                 whether any prior securitizations of mortgage loans of a type similar to the Mortgage Loans involving the Servicer have defaulted or experienced an early amortization or other performance triggering event because of servicing during the three-year period immediately preceding the related Securitization Transaction;

 

(2)                                 the extent of outsourcing the Servicer utilizes;

 

(3)                                 whether there has been previous disclosure of material noncompliance with the applicable servicing criteria with respect to other securitizations of residential mortgage loans involving the Servicer as a servicer during the three-year period immediately preceding the related Securitization Transaction;

 

(4)                                 whether the Servicer has been terminated as servicer in a residential mortgage loan securitization, either due to a servicing default or to application of a servicing performance test or trigger; and

 

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(5)                                 such other information as the Owner or any Depositor may reasonably request for the purpose of compliance with Item 1108(b)(2) of Regulation AB;

 

(C)                               a description of any material changes during the three-year period immediately preceding the related Securitization Transaction to the Servicer’s policies or procedures with respect to the servicing function it will perform under this Agreement and any Reconstitution Agreements for mortgage loans of a type similar to the Mortgage Loans;

 

(D)                               information regarding the Servicer’s financial condition, to the extent that there is a material risk that an adverse financial event or circumstance involving the Servicer could have a material adverse effect on the performance by the Servicer of its servicing obligations under this Agreement or any Reconstitution Agreement;

 

(E)                                information regarding advances made by the Servicer on the Mortgage Loans and the Servicer’s overall servicing portfolio of residential mortgage loans for the three-year period immediately preceding the related Securitization Transaction, which may be limited to a statement by an authorized officer of the Servicer to the effect that the Servicer has made all advances required to be made on residential mortgage loans serviced by it during such period, or, if such statement would not be accurate, information regarding the percentage and type of advances not made as required, and the reasons for such failure to advance;

 

(F)                                 a description of the Servicer’s processes and procedures designed to address any special or unique factors involved in servicing loans of a similar type as the Mortgage Loans;

 

(G)                               a description of the Servicer’s processes for handling delinquencies, losses, bankruptcies and recoveries, such as through liquidation of mortgaged properties, sale of defaulted mortgage loans or workouts;

 

(H)                              information as to how the Servicer defines or determines delinquencies and charge-offs, including the effect of any grace period, re-aging, restructuring, partial payments considered current or other practices with respect to delinquency and loss experience;

 

(I)                                   a description of any legal or governmental proceedings pending (or known to be contemplated) against the Servicer that would be material to securityholders; and

 

(J)                                   a description of any affiliation or relationship between the Servicer and any of the following parties to a Securitization Transaction, as such parties are identified to the Servicer by the Owner or any Depositor in writing in advance of such Securitization Transaction:

 

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(1)                                 the sponsor;

 

(2)                                 the depositor;

 

(3)                                 the issuing entity;

 

(4)                                 any servicer;

 

(5)                                 any trustee;

 

(6)                                 any originator;

 

(7)                                 any significant obligor;

 

(8)                                 any enhancement or support provider; and

 

(9)                                 any other material transaction party.

 

(c)                                  For the purpose of satisfying the reporting obligation under the Exchange Act with respect to any class of asset-backed securities, the Servicer shall (or shall cause each Subservicer to) (i) provide prompt notice to the Owner, any Master Servicer and any Depositor in writing of (A) any litigation or governmental proceedings involving the Servicer or any Subservicer that would be material to securityholders and (B) any affiliations or relationships that develop following the closing date of a Securitization Transaction between the Servicer or any Subservicer and any of the parties specified in clause (J) of paragraph (b) of this Section 11.03 (and any other parties identified in writing by the requesting party) with respect to such Securitization Transaction, (C) any Event of Default under the terms of this Agreement or any Reconstitution Agreement, (D) any merger, consolidation or sale of substantially all of the assets of the Servicer, and (E) the Servicer’s entry into an agreement with a Subservicer to perform or assist in the performance of any of the Servicer’s obligations under this Agreement or any Reconstitution Agreement, and (ii) provide to the Owner and any Depositor a description of such proceedings, affiliations or relationships.

 

(d)                                 As a condition to the succession to the Servicer or any Subservicer as servicer or subservicer under this Agreement or any Reconstitution Agreement by any Person (i) into which the Servicer or such Subservicer may be merged or consolidated, or (ii) which may be appointed as a successor to the Servicer or any Subservicer, the Servicer shall provide to the Owner and any Depositor, at least 15 calendar days prior to the effective date of such succession or appointment, (x) written notice to the Owner and any Depositor of such succession or appointment and (y) in writing and in form and substance reasonably satisfactory to the Owner and such Depositor, all information reasonably requested in writing by the Owner or any Depositor in order to comply with its reporting obligation under Item 6.02 of Form 8-K with respect to any class of asset-backed securities.

 

(e)                                  In addition to such information as the Servicer, as servicer, is obligated to provide pursuant to other provisions of this Agreement, not later than ten days prior to the deadline for the filing of any distribution report on Form 10-D in respect of any Securitization Transaction that includes any of the Mortgage Loans serviced by the Servicer or any Subservicer, the

 

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Servicer or such Subservicer, as applicable, shall, to the extent such Servicer or Subservicer has knowledge, provide to the party responsible for filing such report (including, if applicable, the Master Servicer) notice of the occurrence of any of the following events along with all information, data, and materials related thereto as may be required to be included in the related distribution report on Form 10-D (as specified in the provisions of Regulation AB referenced below):

 

(i)                                     any material modifications, extensions or waivers of pool asset terms, fees, penalties or payments during the distribution period or that have cumulatively become material over time (Item 1121(a)(11) of Regulation AB);

 

(ii)                                  material breaches of pool asset representations or warranties or transaction covenants (Item 1121(a)(12) of Regulation AB); and

 

(iii)                               information regarding any material pool asset changes (such as, additions, substitutions or repurchases)  (Item 1121(a)(14) of Regulation AB).

 

(f)                                   The Servicer shall provide to the Owner, any Master Servicer and any Depositor, such additional information as such party may reasonably request, including evidence of the authorization of the person signing any certification or statement, financial information and reports, and such other information related to the Servicer or any Subservicer or the Servicer’s or such Subservicer’s performance hereunder.

 

Section 11.04.                   Servicer Compliance Statement.  On or before March 15th of each calendar year, commencing in 200[    ], the Servicer shall deliver to the Owner, any Master Servicer and any Depositor a statement of compliance addressed to the Owner, such Master Servicer and such Depositor and signed by an authorized officer of the Servicer, to the effect that (i) a review of the Servicer’s activities during the immediately preceding calendar year (or applicable portion thereof) and of its performance under this Agreement and any applicable Reconstitution Agreement during such period has been made under such officer’s supervision, and (ii) to the best of such officer’s knowledge, based on such review, the Servicer has fulfilled all of its obligations under this Agreement and any applicable Reconstitution Agreement in all material respects throughout such calendar year (or applicable portion thereof) or, if there has been a failure to fulfill any such obligation in any material respect, specifically identifying each such failure known to such officer and the nature and the status thereof.

 

Section 11.05.                   Report on Assessment of Compliance and Attestation.

 

(a)                                 On or before March 15th of each calendar year, commencing in 200[    ], the Servicer shall:

 

(i)                                     deliver to the Owner, any Master Servicer and any Depositor a report regarding the Servicer’s assessment of compliance with the Servicing Criteria during the immediately preceding calendar year, as required under Rules 13a-18 and 15d-18 of the Exchange Act and Item 1122 of Regulation AB.  Such report shall be addressed to the Owner, such Master Servicer and such Depositor and signed by an authorized officer of the Servicer, and shall address each of the “Applicable Servicing Criteria” specified on Exhibit L hereto;

 

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(ii)                                  deliver to the Owner, any Master Servicer and any Depositor a report of a registered public accounting firm that attests to, and reports on, the assessment of compliance made by the Servicer and delivered pursuant to the preceding paragraph.  Such attestation shall be in accordance with Rules 1-02(a)(3) and 2-02(g) of Regulation S-X under the Securities Act and the Exchange Act;

 

(iii)                               cause each Subservicer, to deliver to the Owner, any Master Servicer and any Depositor an assessment of compliance and accountants’ attestation as and when provided in paragraphs (a) and (b) of this Section 11.05 and, to the extent required of such Subservicer or such Subcontractor under Item 1123 of Regulation AB, an annual compliance certificate as and when required under Section 11.04; and

 

(iv)                              if requested by the Owner, any Master Servicer or any Depositor not later than March 15th of the calendar year in which such certification is to be delivered, deliver to the Owner, any Master Servicer, any Depositor and any other Person that will be responsible for signing the certification (a “Sarbanes Certification”) required by Rules 13a-14(d) and 15d-14(d) under the Exchange Act (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002) on behalf of an asset-backed issuer with respect to a Securitization Transaction a certification, signed by the appropriate officer of the Servicer, in the form attached hereto as Exhibit I.

 

The Servicer acknowledges that the parties identified in clause (a)(iv) above may rely on the certification provided by the Servicer pursuant to such clause in signing a Sarbanes Certification and filing such with the Commission.

 

None of the Owner, any Master Servicer nor any Depositor will request delivery of a certification under clause (a)(iv) above unless a Depositor or Master Servicer is required under the Exchange Act to file an annual report on Form 10-K with respect to an issuing entity whose asset pool includes Mortgage Loans.

 

(b)                                 Each assessment of compliance provided by a Subservicer pursuant to Section 11.05(a)(iii) shall address each of the Servicing Criteria specified on a certification substantially in the form of Exhibit K hereto.  An assessment of compliance provided by a Subcontractor pursuant to Section 11.05(a)(iii) need not address any elements of the Servicing Criteria other than those specified by the Servicer pursuant to Section 11.06.

 

Section 11.06.                   Use of Subservicers and Subcontractors.  The Servicer shall not hire or otherwise utilize the services of any Subservicer to fulfill any of the obligations of the Servicer as servicer under this Agreement or any Reconstitution Agreement unless the Servicer complies with the provisions of paragraph (a) of this Section 11.06. The Servicer shall not hire or otherwise utilize the services of any Subcontractor, and shall not permit any Subservicer to hire or otherwise utilize the services of any such Subcontractor, to fulfill any of the obligations of the Servicer as servicer under this Agreement or any Reconstitution Agreement unless the Servicer complies with the provisions of paragraph (b) of this Section 11.06.

 

(a)                                 It shall not be necessary for the Servicer to seek the consent of the Owner, any Master Servicer or any Depositor to the utilization of any Subservicer.  The Servicer shall cause

 

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any Subservicer used by the Servicer (or by any Subservicer) for the benefit of the Owner and any Depositor to comply with the provisions of this Section 11.06 and with Sections 11.02, 11.03(d), 11.04, 11.05 and 11.07 of this Agreement to the same extent as if such Subservicer were the Servicer, and to provide the information required with respect to such Subservicer under Section 11.03(d), (e) and (f) of this Agreement.  The Servicer shall be responsible for obtaining from each Subservicer and delivering to the Owner and any Depositor any servicer compliance statement required to be delivered by such Subservicer under Section 11.04, any assessment of compliance and attestation required to be delivered by such Subservicer under Section 11.05 and any certification required to be delivered to the Person that will be responsible for signing the Sarbanes Certification under Section 11.05 as and when required to be delivered.

 

(b)                                 It shall not be necessary for the Servicer to seek the consent of the Owner, any Master Servicer or any Depositor to the utilization of any Subcontractor.  The Servicer shall promptly upon written request provide to the Owner, any Master Servicer and any Depositor (or any designee of the Depositor, such as an administrator) a written description (in form and substance reasonably satisfactory to the Owner, such Master Servicer and such Depositor) of the role and function of each Subcontractor utilized by the Servicer or any Subservicer, specifying (i) the identity of each such Subcontractor that is “participating in the servicing function” within the meaning of Item 1122 of Regulation AB and (ii) which elements of the Servicing Criteria will be addressed in assessments of compliance provided by each Subcontractor identified pursuant to clause (i) of this paragraph.

 

As a condition to the utilization of any Subcontractor determined to be “participating in the servicing function” within the meaning of Item 1122 of Regulation AB, the Servicer shall cause any such Subcontractor used by the Servicer (or by any Subservicer) for the benefit of the Owner and any Depositor to comply with the provisions of Sections 11.05 and 11.07 of this Agreement to the same extent as if such Subcontractor were the Servicer.  The Servicer shall be responsible for obtaining from each Subcontractor and delivering to the Owner and any Depositor any assessment of compliance and attestation and the other certifications required to be delivered by such Subcontractor under Section 11.05, in each case as and when required to be delivered.

 

Section 11.07.                   Indemnification; Remedies.

 

(a)                                 The Servicer shall indemnify the Owner and each of the following parties participating in a Securitization Transaction: each Sponsor; each Person (including, but not limited to, any Master Servicer if applicable) responsible for the preparation, execution or filing of any report required to be filed with the Commission with respect to such Securitization Transaction, or for execution of a certification pursuant to Rule 13a-14(d) or Rule 15d-14(d) under the Exchange Act with respect to such Securitization Transaction; each broker dealer acting as underwriter, placement agent or initial purchaser, each Person who controls any of such parties or the Depositor (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act); and the respective present and former directors and officers of each of the foregoing and of the Depositor (each, an “Indemnified Party”), and shall hold each of them harmless from and against any claims, losses, damages, penalties, fines, forfeitures, legal fees and expenses and related costs, judgments, and any other costs, fees and expenses that any of them may sustain arising out of or based upon:

 

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(i)                                     (A) any untrue statement of a material fact contained or alleged to be contained in any information, report, certification, data, accountants’ letter or other material provided in written or electronic form under this Article XI by or on behalf of the Servicer, or provided under this Article XI by or on behalf of any Subservicer or Subcontractor (collectively, the “Servicer Information”), or (B) the omission or alleged omission to state in the Servicer Information a material fact required to be stated in the Servicer Information or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, by way of clarification, that clause (B) of this paragraph shall be construed solely by reference to the Servicer Information and not to any other information communicated in connection with a sale or purchase of securities, without regard to whether the Servicer Information or any portion thereof is presented together with or separately from such other information;

 

(ii)                                  any breach by the Servicer of its obligations under this Article XII, including particularly any failure by the Servicer, any Subservicer or any Subcontractor to deliver any information, report, certification, accountants’ letter or other material when and as required under this Article XI, including any failure by the Servicer to identify pursuant to Section 11.06(b) any Subcontractor “participating in the servicing function” within the meaning of Item 1122 of Regulation AB;

 

(iii)                               any breach by the Servicer of a representation or warranty set forth in Section 11.02(a) or in a writing furnished pursuant to Section 11.02(b) and made as of a date prior to the closing date of the related Securitization Transaction, to the extent that such breach is not cured by such closing date, or any breach by the Servicer of a representation or warranty in a writing furnished pursuant to Section 11.02(b) to the extent made as of a date subsequent to such closing date; or

 

(iv)                              the negligence, bad faith or willful misconduct of the Servicer in connection with its performance under this Article XI.

 

If the indemnification provided for herein is unavailable or insufficient to hold harmless an Indemnified Party, then the Servicer agrees that it shall contribute to the amount paid or payable by such Indemnified Party as a result of any claims, losses, damages or liabilities incurred by such Indemnified Party in such proportion as is appropriate to reflect the relative fault of such Indemnified Party on the one hand and the Servicer on the other.

 

In the case of any failure of performance described in clause (a)(ii) of this Section 11.07, the Servicer shall promptly reimburse the Owner, any Depositor, as applicable, and each Person responsible for the preparation, execution or filing of any report required to be filed with the Commission with respect to such Securitization Transaction, or for execution of a certification pursuant to Rule 13a-14(d) or Rule 15d-14(d) under the Exchange Act with respect to such Securitization Transaction, for all costs reasonably incurred by each such party in order to obtain the information, report, certification, accountants’ letter or other material not delivered as required by the Servicer, any Subservicer or any Subcontractor.

 

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This indemnification shall survive the termination of this Agreement or the termination of any party to this Agreement.

 

(b)                                 (i)                                     Any failure by the Servicer, any Subservicer or any Subcontractor to deliver any information, report, certification, accountants’ letter or other material when and as required under this Article XI, or any breach by the Servicer of a representation or warranty set forth in Section 11.02(a) or in a writing furnished pursuant to Section 11.02(b) and made as of a date prior to the closing date of the related Securitization Transaction, to the extent that such breach is not cured by such closing date, or any breach by the Servicer of a representation or warranty in a writing furnished pursuant to Section 11.02(b) to the extent made as of a date subsequent to such closing date, shall, except as provided in clause (ii) of this paragraph, immediately and automatically, without notice or grace period, constitute an Event of Default with respect to the Servicer under the Agreement and any applicable Reconstitution Agreement, and shall entitle the Owner, any Master Servicer or any Depositor, as applicable, in its sole discretion to terminate the rights and obligations of the Servicer as servicer under the Agreement and/or any applicable Reconstitution Agreement without payment (notwithstanding anything in this Agreement or any applicable Reconstitution Agreement to the contrary) of any compensation to the Servicer and if the Servicer is servicing any of the Mortgage Loans in a Securitization Transaction, appoint a successor servicer reasonably acceptable to any Master Servicer of such Securitization Transaction; provided that to the extent that any provision of the Agreement and/or any applicable Reconstitution Agreement expressly provides for the survival of certain rights or obligations following termination of the Servicer as servicer, such provision shall be given effect.

 

(ii)                                  Any failure by the Servicer, any Subservicer or any Subcontractor to deliver any information, report, certification or accountants’ letter when and as required under Section 11.04 or 11.05, including (except as provided below) any failure by the Servicer to identify pursuant to Section 11.06(b) any Subcontractor “participating in the servicing function” within the meaning of Item 1122 of Regulation AB, which continues unremedied for ten (10) calendar days after the date on which such information, report, certification or accountants’ letter was required to be delivered shall constitute an Event of Default with respect to the Servicer under the Agreement and any applicable Reconstitution Agreement, and shall entitle the Owner, any Master Servicer or any Depositor, as applicable, in its sole discretion to terminate the rights and obligations of the Servicer as servicer under the Agreement and/or any applicable Reconstitution Agreement without payment (notwithstanding anything in this Agreement to the contrary) of any compensation to the Servicer; provided that to the extent that any provision of the Agreement and/or any applicable Reconstitution Agreement expressly provides for the survival of certain rights or obligations following termination of the Servicer as servicer, such provision shall be given effect.

 

None of the Owner, any Master Servicer or any Depositor shall be entitled to terminate the rights and obligations of the Servicer pursuant to this subparagraph (b)(ii) if a failure of the Servicer to identify a Subcontractor “participating in the servicing function” within the meaning of Item 1122 of Regulation AB was attributable solely to the role or functions of such Subcontractor with respect to mortgage loans other than the Mortgage Loans.

 

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Notwithstanding the provisions set forth in this Agreement, the Servicer shall not be obligated to provide any indemnification or reimbursement hereunder to any of the parties described in Section 11.07(a) or any other party for any losses, damages, penalties, fines, forfeitures, legal fees and expenses and related costs, judgments, and any other costs, fees and expenses that any of them may sustain where are indirect, consequential, punitive or special in nature.

 

(iii)                               The Servicer shall promptly reimburse the Owner (or any designee of the Owner, such as a master servicer) and any Depositor, as applicable, for all reasonable expenses incurred by the Owner (or such designee) or such Depositor, as such are incurred, in connection with the termination of the Servicer as servicer and the transfer of servicing of the Mortgage Loans to a successor servicer.

 

Section 11.08.                   Third Party Beneficiary.  For purposes of this Article XI and any related provisions thereto, each Master Servicer shall be considered a third-party beneficiary of this Agreement, entitled to all the rights and benefits hereof as if it were a direct party to this Agreement.

 

[Signature Page Follows]

 

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IN WITNESS WHEREFORE, this Agreement has been executed as of the day and year first above written.

 

 

 

ALTISOURCE RESIDENTIAL, L.P.

 

 

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

 

 

 

 

OCWEN LOAN SERVICING, LLC

 

 

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

[Signature Page to Ocwen - ALTRES SSRPA]

 



 

EXHIBIT A

 

MORTGAGE LOAN SCHEDULE

 

The Mortgage Loan Schedule shall include the following fields to the extent applicable and available:

 

(1)                                 the Mortgage Loan identifying number;

 

(2)                                 the Mortgagor’s first and last name;

 

(3)                                 the street address of the Mortgaged Property including the state and zip code;

 

(4)                                 a code indicating whether the Mortgaged Property is owner-occupied;

 

(5)                                 the type of residential dwelling constituting the Mortgaged Property;

 

(6)                                 the original months to maturity;

 

(7)                                 the original date of the Mortgage Loan and the remaining months to maturity from the Cut-off Date, based on the original amortization schedule;

 

(8)                                 as to any Mortgage Loan the Loan-to-Value Ratio at origination;

 

(9)                                 the Mortgage Interest Rate in effect immediately following the Cut-off Date;

 

(10)                          the date on which the first Monthly Payment was due on the Mortgage Loan;

 

(11)                          the stated maturity date;

 

(12)                          the amount of the Monthly Payment at origination;

 

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

 

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

 

(15)                          the stated principal balance of the Mortgage Loan as of the close of business on the Cut-off Date;

 

(16)                          with respect to each Adjustable Rate Mortgage Loan, the first Adjustment Date;

 

(17)                          with respect to each adjustable rate Mortgage Loan, the Gross Margin;

 

(18)                          a code indicating the purpose of the loan (i.e., purchase financing, rate/term refinancing, cash-out refinancing);

 

(19)                          with respect to each Adjustable Rate Mortgage Loan, the maximum Mortgage Interest Rate under the terms of the Mortgage Note;

 

A-1



 

(20)                          with respect to each Adjustable Rate Mortgage Loan, the minimum Mortgage Interest Rate under the terms of the Mortgage Note;

 

(21)                          the Mortgage Interest Rate at origination;

 

(22)                          with respect to each Adjustable Rate Mortgage Loan, the periodic rate cap;

 

(23)                          with respect to each Adjustable Rate Mortgage Loan, the first Adjustment Date immediately following the Cut-off Date;

 

(24)                          with respect to each Adjustable Rate Mortgage Loan, the index;

 

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

 

(26)                          a code indicating whether the Mortgage Loan is an Adjustable Rate Mortgage Loan or a Fixed Rate Mortgage Loan;

 

(27)                          a code indicating the documentation style (i.e., full, alternative or reduced);

 

(28)                          a code indicating if the Mortgage Loan is subject to a primary insurance policy;

 

(29)                          the appraised value of the Mortgaged Property;

 

(30)                          the sale price of the Mortgaged Property, if applicable;

 

(31)                          a code indicating whether the Mortgage Loan is subject to a Prepayment Charge;

 

(32)                          the term of any Prepayment Charge;

 

(33)                          the amount of any Prepayment Charge;

 

(34)                          the product type (e.g., 2/28, 15 year fixed, 30 year fixed, etc.);

 

(35)                          the Mortgagor’s debt to income ratio;

 

(36)                          a code indicating that the Mortgaged Property is subject to a first lien; and

 

(37)                          the MERS identification number, if applicable.

 

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EXHIBIT B

 

CUSTODIAL ACCOUNT LETTER AGREEMENT

(Date)

 

To:                            
                                                           
                                                            
(the “Depository”)

 

As the “Servicer” under the Servicing Agreement, dated as of [                            ]    , 200[  ], by and between [NAME OF OWNER] and Ocwen Loan Servicing, LLC (the “Agreement”), we hereby authorize and request you to establish an account, as a Custodial Account pursuant to Section 4.04 of the Agreement, to be designated as “Ocwen Loan Servicing, LLC, Custodial Account in trust for [                                                          ] - Residential Mortgage Loans.”  All deposits in the account shall be subject to withdrawal therefrom by order signed by the Servicer.  This letter is submitted to you in duplicate.  Please execute and return one original to us.

 

 

OCWEN LOAN SERVICING, LLC

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

The undersigned, as “Depository,” hereby certifies that the above described account has been established under Account Number                                       , at the office of the depository indicated above, and agrees to honor withdrawals on such account as provided above.

 

 

[Name of Depository]

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

B-1



 

EXHIBIT C

 

ESCROW ACCOUNT LETTER AGREEMENT

(date)

 

To:                            
                                                            
                                                           
(the “Depository”)

 

As the “Servicer” under the Servicing Agreement, dated as of [                            ]    , 200[  ], by and between [NAME OF OWNER] and Ocwen Loan Servicing, LLC (the “Agreement”), we hereby authorize and request you to establish an account, as an Escrow Account pursuant to Section 4.06 of the Agreement, to be designated as “Ocwen Loan Servicing, LLC, Escrow Account in trust for [                                                        ] - Residential Mortgage Loans and various Mortgagors.”  All deposits in the account shall be subject to withdrawal therefrom by order signed by the Servicer.  This letter is submitted to you in duplicate.  Please execute and return one original to us.

 

 

OCWEN LOAN SERVICING, LLC

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

The undersigned, as “Depository,” hereby certifies that the above described account has been established under Account Number                                       , at the office of the depository indicated above, and agrees to honor withdrawals on such account as provided above.

 

 

[Name of Depository]

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

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EXHIBIT D

 

CONTENTS OF EACH MORTGAGE SERVICING FILE

 

With respect to each Mortgage Loan, the Mortgage Servicing File shall include each of the following items, to the extent such items were delivered to the Servicer, which shall be available for inspection by the Owner or such other party designated by the Owner:

 

1.                                      Copies of the Mortgage Loan Documents.

 

2.                                      Residential loan application.

 

3.                                      Mortgage Loan closing statement.

 

4.                                      Verification of employment and income.

 

5.                                      Verification of acceptable evidence of source and amount of down payment.

 

6.                                      Credit report on Mortgagor.

 

7.                                      Residential appraisal report.

 

8.                                      Photograph of the Mortgaged Property.

 

9.                                      Survey of the Mortgaged Property.

 

10.                               Copy of each instrument necessary to complete identification of any exception set forth in the exception schedule in the title policy, i.e., map or plat, restrictions, easements, sewer agreements, home association declarations, etc.

 

11.                               All required disclosure statements and statement of Mortgagor confirming receipt thereof.

 

12.                               If available, termite report, structural engineer’s report, water potability and septic certification.

 

13.                               Sales contract.

 

14.                               Hazard insurance policy.

 

15.                               Tax receipts, insurance premium receipts, ledger sheets, payment history from date of origination, insurance claim files, correspondence, current and historical computerized data files, and all other processing, underwriting and closing papers and records which are customarily contained in a mortgage loan file and which are required to document the Mortgage Loan or to service the Mortgage Loan.

 

16.                               Amortization schedule, if available.

 

17.                               Payment history for Mortgage Loans.

 

D-1



 

EXHIBIT E

 

MONTHLY REPORT AND DELINQUENCY REPORT

 

[TO BE DELIVERED AS SEPARATE EXCEL FILE]

 

E-1



 

EXHIBIT F

 

FORM OF POWER OF ATTORNEY

 

LIMITED POWER OF ATTORNEY

 

[NAME OF OWNER], a national banking association, having its principal place of business at [                                                                                            ], as the Owner (hereinafter called the “Owner”) hereby appoints Ocwen Loan Servicing, LLC (hereinafter called “Ocwen”), as its true and lawful attorney-in-fact to act in the name, place and stead of the Owner for the purposes set forth below.

 

The said attorneys-in-fact, and each of them, are hereby authorized, and empowered, as follows:

 

1.                                      To execute, acknowledge, seal and deliver deed of trust/mortgage note endorsements, lost note affidavits, assignments of deed of trust/mortgage and other recorded documents, satisfactions/releases/reconveyances of deed of trust/mortgage, subordinations and modifications, tax authority notifications and declarations, deeds, bills of sale, and other instruments of sale, conveyance, and transfer, appropriately completed, with all ordinary or necessary endorsements, acknowledgments, affidavits, and supporting documents as may be necessary or appropriate to effect its execution, delivery, conveyance, recordation or filing.

 

2.                                      To execute and deliver insurance filings and claims, affidavits of debt, substitutions of trustee, substitutions of counsel, non-military affidavits, notices of rescission, foreclosure deeds, transfer tax affidavits, affidavits of merit, verifications of complaints, notices to quit, bankruptcy declarations for the purpose of filing motions to lift stays, and other documents or notice filings on behalf of the Owner in connection with insurance, foreclosure, bankruptcy and eviction actions.

 

3.                                      To endorse any checks or other instruments received by Ocwen and made payable to the Owner.

 

4.                                      To pursue any deficiency, debt or other obligation, secured or unsecured, including but not limited to those arising from foreclosure or other sale, promissory note or check.  This power also authorizes Ocwen to collect, negotiate or otherwise settle any deficiency claim, including interest and attorney’s fees.

 

5.                                      To do any other act or complete any other document that arises in the normal course of servicing of all Mortgage Loans and REO Properties, as defined in, and subject to the terms of, the Servicing Agreement, by and between Ocwen and the Owner, dated as of [                            ]    , 200[  ].

 

In the event of any conflict between the terms of the Servicing Agreement and the terms hereof, the provisions of the Servicing Agreement shall control, and this Limited Power of Attorney does not constitute a waiver of any provisions of the Servicing Agreement.

 

F-1



 

Dated:                        , 200  .

 

[                                                                          ]

 

 

 

 

 

 

Witness:

 

 

 

 

Name:

 

 

 

Title:

 

Name:

 

 

 

 

 

 

 

 

 

 

 

Name:

 

 

 

 

F-2



 

State of [                ])

:       ss

County of                       )

 

BEFORE ME,                                               , a Notary Public in and for the jurisdiction aforesaid, on this              day of                                     , 200  , personally appeared                                                    who resides at                                                               and who is personally known to me (or sufficiently proven) to be a                                                    and the person who executed the foregoing instrument by virtue of the authority vested in him/her and he/she did acknowledge the signing of the foregoing instrument to be his/her free and voluntary act and deed as a                                                   , for the uses, purposes and consideration therein set forth.

 

Witness my hand and official seal this            day of                               , 200  .

 

 

 

 

 

NOTARY STAMP

 

 

My Commission Expires:

 

F-3



 

EXHIBIT G

 

LIST OF TAX SERVICE CONTRACT PROVIDERS

 

First American Real Estate Tax Service

 

LSI Tax Service

 

G-1



 

EXHIBIT H

 

SERVICING TRANSFER PROCEDURES

 

A.            Prior to each Servicing Transfer Date:

 

1.             The Owner or the prior servicer shall inform all hazard, flood, earthquake, private mortgage and any other insurance companies and/or their agents providing insurance with respect to any Mortgage Loan of the transfer and request a change in the loss payee mortgage endorsement clause to the Servicer’s name.  With respect to each Mortgage Loan which is covered by a force placed insurance policy, the Owner or the prior servicer shall cause such policy to be canceled as of the Servicing Transfer Date and the Servicer shall cause such insurance to be provided by its force placed carrier as of such Servicing Transfer Date.  On the Servicing Transfer Date, the Owner or the prior servicer shall provide to the Servicer a list of all Mortgage Loans covered by force placed insurance that will be canceled in connection with the transfer of the servicing to the Servicer.  The Owner or the prior servicer shall deliver all force placed cancellation refunds via wire or check with applicable loan level detail within five (5) Business Days after the Servicing Transfer Date.

 

2.             The Owner or the prior servicer shall transfer all transferable life-of-loan real estate tax service contracts on the Mortgage Loans to the extent such contracts are in place, and shall assign and transfer all such contracts to the Servicer at no expense to the Servicer. In the event that a Mortgage Loan is not subject to a fully assignable life of loan tax service contract issued by a tax service contract provider listed on Exhibit G to the Agreement which is assignable to the Servicer or any subsequent Servicer without the payment of any cost or fee, the Servicer shall acquire a tax service contract for any such Mortgage Loan and shall be entitled to reimbursement from the Owner for the cost thereof.  The Owner also agrees to reimburse the Servicer for its actual cost in obtaining life of loan flood zone determination tracking from First American Flood Data Services with respect to Mortgage Loans transferred to the Servicing Portfolio without such tracking service.

 

3.             The Owner shall, no later than fifteen (15) days prior to the Servicing Transfer Date, cause the prior servicer to inform all Mortgagors of the change in servicer from the Owner (or its designee) to the Servicer by written notice in accordance with applicable law; provided, however, the content and format of such letters shall have the prior approval of the Servicer.  The Owner or the prior servicer shall promptly provide the Servicer with copies of all such notices.

 

4.             The Owner or the prior servicer shall pay all private mortgage insurance premiums and all hazard, flood, earthquake and other insurance premiums for insurance covering any of the Mortgage Loans, and real estate taxes for which bills have been received by the Owner or the prior servicer prior to the Servicing Transfer Date, on all Mortgage Loans with impound/escrow accounts, to the extent such premiums or taxes would be delinquent if unpaid within thirty (30) days after the Servicing Transfer Date.  The Owner or the prior servicer will send to the Servicer, and the Servicer will pay, any bills received by the Owner or the prior servicer on or after the Servicing Transfer Date, and any such bills received by the Owner or the prior servicer prior to the Servicing Transfer Date, which the Owner or the prior servicer is not required to pay pursuant to this subparagraph.

 

H-1



 

5.             The Owner or the prior servicer shall deliver to the Servicer available computer or like records of the Owner and the prior servicer which contain each item of information specified in Exhibit A to the Agreement and reflect the status of payments, balances and other pertinent information on the Mortgage Loans as of the Servicing Transfer Date (such information shall include, but not be limited to, comprehensive tax and insurance information for each Mortgage Loan, identifying payee, payee address, next payment due date, next amount payable, policy number/parcel number).  Such records shall include magnetic tapes, if available, reflecting all computer files maintained by the Owner and the prior servicer with respect to the Mortgage Loans, shall include hard copy trial balance reports and schedules if requested and, as reasonably required by the Servicer, shall be in a format and storage medium acceptable for conversion to the Servicer’s servicing computer system, and shall be delivered within one (1) Business Day prior to the Servicing Transfer Date.

 

6.             The Owner shall deliver a hard copy of the Servicing File for each Mortgage Loan, including copies of pertinent credit files held by the prior servicer within five (5) Business Days after the Servicing Transfer Date.  In addition, upon the Servicer’s reasonable request, the Owner or the prior servicer shall assist the Servicer in all reasonable respects in the Servicer’s efforts to obtain any additional documents or information necessary to enable the Servicer to service the Mortgage Loans properly.  If a document deficiency has not been cured in a timely manner and is preventing the proper servicing of a Mortgage Loan, upon the Owner’s request, the Servicer may cure such deficiencies and shall be reimbursed by the Owner for costs incurred in connection therewith, which reimbursement may be netted by the Servicer from its remittance to the Owner.

 

7.             With respect to Mortgage Loans for which the Mortgagor is in bankruptcy, the Owner or the prior servicer shall provide the Servicer with the following information to the extent available:  attorney name, address and phone number, foreclosure status, bankruptcy status and bankruptcy case number, filing date and chapter.  In addition, the Owner or the prior servicer shall notify the bankruptcy trustee with respect to each related Mortgage Loan of the change in servicer from the prior servicer to the Servicer and shall provide the Servicer with copies of such notices.

 

B.            After each Servicing Transfer Date:

 

1.             Within one (1) Business Day after the Servicing Transfer Date, the Owner or the prior servicer will deliver to the Servicer reports setting forth all Mortgage Loan escrow/impound balances as of the Servicing Transfer Date, reporting all unposted payments and unearned fees which are deemed collected as of the Servicing Transfer Date, and including a reconciliation of such escrow/impound balances.

 

2.             Within one (1) Business Day after the Servicing Transfer Date, the Owner or the prior servicer will deliver to the Servicer all Mortgage Loan histories in bulk or electronically from origination to the Servicing Transfer Date to the extent available.  In addition, the Owner shall cause the prior servicer to make Mortgage Loan histories available to the related Mortgagors upon request made during the twelve (12) months following the Servicing Transfer Date to the extent available.

 

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3.             The Owner or the prior servicer shall deliver to the Servicer any correspondence received by the Owner or the prior servicer relating to the Mortgage Loans after the Servicing Transfer Date, such as tax bills, insurance bills, borrower letters and the like.  Such items shall be forwarded to the Servicer within one (1) Business Day following the day on which the correspondence is received by the Owner or the prior servicer, or as soon thereafter as is practicable.  The correspondence shall be forwarded to the Servicer via overnight courier for the first sixty (60) days subsequent to the Servicing Transfer Date and via regular mail thereafter.

 

4.             The Owner or the prior servicer shall deliver to the Servicer any payments on the Mortgage Loans received by the Owner or the prior servicer from the related Mortgagors for a period of sixty (60) days following the Servicing Transfer Date.  The Owner shall forward or cause the prior servicer to forward any such payment to the Servicer within one (1) Business Days after the Owner’s or the prior servicer’s receipt thereof, or as soon thereafter as is practicable.  Such payments shall be forwarded to the Servicer via overnight courier for the first thirty (30) days subsequent to the Servicing Transfer Date and via regular mail for the following thirty (30) days.  Thereafter, the Owner may return or cause the prior servicer to return to the related Mortgagors any payments on the Mortgage Loans received by the Owner or prior servicer.

 

5.             The Owner will reimburse the Servicer for any outstanding Servicing Advances for which there are insufficient proceeds in the Custodial Account and will reimburse the Servicer for trailing expenses incurred by a prior servicer prior to but invoiced after the Transfer Date within ten (10) Business Days of notification of such trailing expenses. The Owner shall reimburse the Servicer for trailing expenses incurred by the Servicer prior to but invoiced after the date of termination, replacement or resignation of the Servicer or the date of transfer of servicing to a successor Servicer, upon presentation of invoices or other reasonable documentation of such expenses, such reimbursement to be made within 10 Business Days of presentation of such documentation.

 

6.             The Owner or the prior servicer shall prepare and send Internal Revenue Service Form 1098 and 1099 forms to all Mortgagors for the period from January 1 of the year in which the Servicing Transfer Date occurs through the Servicing Transfer Date.

 

7.             No later than one (1) Business Days after the Servicing Transfer Date, the Owner or the prior servicer shall deliver to the Servicer, copies of all cut-off or accounting reports relating to the Mortgage Loans as of the Servicing Transfer Date, including a trial balance and reports of collections, delinquencies, prepayments, curtailments, escrow payments, escrow balances, partial payments, partial payment balances and other like information on the Mortgage Loans.

 

8.             The Owner or the prior servicer shall mail year-end statements reporting interest income and interest expense statements to the Mortgagors for the period from January 1 of the year in which the Servicing Transfer Date occurs through the Servicing Transfer Date.

 

H-3



 

EXHIBIT I

 

FORM OF ANNUAL SARBANES CERTIFICATION

 

Re:         The [                         ] agreement dated as of [    ], 200[    ] (the “Agreement”), among [IDENTIFY PARTIES]

 

I,                                                                 , the                                            of [NAME OF COMPANY] (the “Company”), certify to [the Owner], [the Depositor], and the [Master Servicer] [Securities Administrator] [Trustee], and their officers, with the knowledge and intent that they will rely upon this certification, that:

 

(1)                                 I have reviewed the servicer compliance statement of the Company provided in accordance with Item 1123 of Regulation AB (the “Compliance Statement”), the report on assessment of the Company’s compliance with the servicing criteria set forth in Item 1122(d) of Regulation AB and identified as the responsibility of the Company on Exhibit B to the Regulation AB Compliance Addendum to the Agreement (the “Servicing Criteria”), provided in accordance with Rules 13a-18 and 15d-18 under Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Item 1122 of Regulation AB (the “Servicing Assessment”), the registered public accounting firm’s attestation report provided in accordance with Rules 13a-18 and 15d-18 under the Exchange Act and Section 1122(b) of Regulation AB (the “Attestation Report”), and all servicing reports, officer’s certificates and other information relating to the servicing of the Mortgage Loans by the Company during 200[ ] that were delivered by the Company to the [Depositor] [Master Servicer] [Securities Administrator] [Trustee] pursuant to the Agreement (collectively, the “Company Servicing Information”);

 

(2)                                 Based on my knowledge, the Company Servicing Information, taken as a whole, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in the light of the circumstances under which such statements were made, not misleading with respect to the period of time covered by the Company Servicing Information;

 

(3)                                 Based on my knowledge, all of the Company Servicing Information required to be provided by the Company under the Agreement has been provided to the [Depositor] [Master Servicer] [Securities Administrator] [Trustee];

 

(4)                                 I am responsible for reviewing the activities performed by the Company as servicer under the Agreement, and based on my knowledge and the compliance review conducted in preparing the Compliance Statement and except as disclosed in the Compliance Statement, the Servicing Assessment or the Attestation Report, the Company has fulfilled its obligations under the Agreement in all material respects; and

 

(5)                                 The Compliance Statement required to be delivered by the Company pursuant to this Agreement, and the Servicing Assessment and Attestation Report required to be provided by the Company and by any Subservicer and Subcontractor pursuant to the Agreement, have been provided to the [Depositor] [Master Servicer].  Any material instances of noncompliance

 

I-1



 

described in such reports have been disclosed to the [Depositor] [Master Servicer].  Any material instance of noncompliance with the Servicing Criteria has been disclosed in such reports.

 

 

 

Date:

 

 

 

 

 

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

I-2



 

EXHIBIT J

 

DATA TAPE FIELDS/CONTENTS OF MORTGAGE LOAN SCHEDULE

 

FIELD NAME

LOAN NUMBER

UNPAID PRIN BAL

ESCROW BALANCE

UNAPPLIED BALANCE (SUSPENSE) — If Applicable

HAZARD LOSS BALANCE — If applicable

CORPORATE ADVANCE BALANCE — If applicable

ORIGINAL LOAN AMOUNT

P&I PAYMENT

BORROWER 1 NAME

BORROWER 2 NAME

PROPERTY STREET

CITY

STATE

ZIP

PROPERTY TYPE

CURRENT RATE

ORIGINATION DATE

1ST PAYMENT DUE DATE

MATURITY DATE

NEXT PAYMENT DUE DATE

INTEREST PAID TO DATE

INTEREST CALCULATION METHOD

PMI POLICY NUMBER

APPRAISAL VALUE

APPRAISAL DATE

LIEN POSITION

NOTE TYPE

LOAN TERM MONTHS

BALLOON PAYMENTS (If applicable)

OCCUPANCY STATUS

BORROWER HOME TELEPHONE

BORROWER BUSINESS TELEPHONE

MAIL ADDRESS

MAIL CITY

MAIL STATE

MAIL ZIP

BWR 1 SOCIAL SEC

BWR 2 SOCIAL SEC

 

J-1



 

PREPAY PENALTY Y/N

LATE CHARGE DAYS

LATE CHARGE RATE

ESCROW (T&I) PAYMENT

FICO SCORE

1ST ADJUSTMENT PERIOD CAPS MAX

1ST ADJUSTMENT PERIOD CAPS MIN

REG CAPS MAX

REG CAPS MIN

1ST ADJUSTMENT PERIOD IN MONTHS

REG ADJ PERIOD IN MONTHS

ROUNDING BASIS

MARGIN

CEILING

FLOOR

NEXT CHG DATE

ROUNDING CODE

INDEX TYPE

LOOKBACK PERIOD IN DAYS

FLOOD Y/N

FLOOD_ZONE_NBR

MERS I.D.#

 

J-2



 

EXHIBIT K

 

SERVICING CRITERIA TO BE ADDRESSED IN ASSESSMENT OF COMPLIANCE

 

The assessment of compliance to be delivered by the Servicer shall address, at a minimum, the criteria identified as below as “Applicable Servicing Criteria”:

 

Servicing Criteria

 

Applicable
Servicing

Reference

 

Criteria

 

Criteria

 

 

General Servicing Considerations

 

 

 

 

 

 

 

1122(d)(1)(i)

 

Policies and procedures are instituted to monitor any performance or other triggers and events of default in accordance with the transaction agreements.

 

X

1122(d)(1)(ii)

 

If any material servicing activities are outsourced to third parties, policies and procedures are instituted to monitor the third party’s performance and compliance with such servicing activities.

 

X

1122(d)(1)(iii)

 

Any requirements in the transaction agreements to maintain a back-up servicer for the mortgage loans are maintained.

 

 

1122(d)(1)(iv)

 

A fidelity bond and errors and omissions policy is in effect on the party participating in the servicing function throughout the reporting period in the amount of coverage required by and otherwise in accordance with the terms of the transaction agreements.

 

X

 

 

Cash Collection and Administration

 

 

1122(d)(2)(i)

 

Payments on mortgage loans are deposited into the appropriate custodial bank accounts and related bank clearing accounts no more than two business days following receipt, or such other number of days specified in the transaction agreements.

 

X

1122(d)(2)(ii)

 

Disbursements made via wire transfer on behalf of an obligor or to an investor are made only by authorized personnel.

 

X

1122(d)(2)(iii)

 

Advances of funds or guarantees regarding collections, cash flows or distributions, and any interest or other fees charged for such advances, are made, reviewed and approved as specified in the transaction agreements.

 

X

1122(d)(2)(iv)

 

The related accounts for the transaction, such as cash reserve accounts or accounts established as a form of overcollateralization, are separately maintained (e.g., with respect to commingling of cash) as set forth in the transaction agreements.

 

X

1122(d)(2)(v)

 

Each custodial account is maintained at a federally insured depository institution as set forth in the transaction agreements. For purposes of this criterion, “federally insured depository institution” with respect to a foreign financial institution means a foreign financial institution that meets the requirements of Rule 13k-1(b)(1) of the Securities Exchange Act.

 

X

 

K-1



 

1122(d)(2)(vi)

 

Unissued checks are safeguarded so as to prevent unauthorized access.

 

X

1122(d)(2)(vii)

 

Reconciliations are prepared on a monthly basis for all asset-backed securities related bank accounts, including custodial accounts and related bank clearing accounts. These reconciliations are (A) mathematically accurate; (B) prepared within 30 calendar days after the bank statement cutoff date, or such other number of days specified in the transaction agreements; (C) reviewed and approved by someone other than the person who prepared the reconciliation; and (D) contain explanations for reconciling items. These reconciling items are resolved within 90 calendar days of their original identification, or such other number of days specified in the transaction agreements.

 

X

 

 

Investor Remittances and Reporting

 

 

1122(d)(3)(i)

 

Reports to investors, including those to be filed with the Commission, are maintained in accordance with the transaction agreements and applicable Commission requirements. Specifically, such reports (A) are prepared in accordance with timeframes and other terms set forth in the transaction agreements; (B) provide information calculated in accordance with the terms specified in the transaction agreements; (C) are filed with the Commission as required by its rules and regulations; and (D) agree with investors’ or the trustee’s records as to the total unpaid principal balance and number of mortgage loans serviced by the Servicer.

 

 

1122(d)(3)(ii)

 

Amounts due to investors are allocated and remitted in accordance with timeframes, distribution priority and other terms set forth in the transaction agreements.

 

 

1122(d)(3)(iii)

 

Disbursements made to an investor are posted within two business days to the Servicer’s investor records, or such other number of days specified in the transaction agreements.

 

 

1122(d)(3)(iv)

 

Amounts remitted to investors per the investor reports agree with cancelled checks, or other form of payment, or custodial bank statements.

 

 

 

 

Pool Asset Administration

 

 

1122(d)(4)(i)

 

Collateral or security on mortgage loans is maintained as required by the transaction agreements or related mortgage loan documents.

 

 

1122(d)(4)(ii)

 

Mortgage loan and related documents are safeguarded as required by the transaction agreements.

 

 

1122(d)(4)(iii)

 

Any additions, removals or substitutions to the asset pool are made, reviewed and approved in accordance with any conditions or requirements in the transaction agreements.

 

 

1122(d)(4)(iv)

 

Payments on mortgage loans, including any payoffs, made in accordance with the related mortgage loan documents are posted to the Servicer’s obligor records maintained no more than two business days after receipt, or such other number of days specified in the transaction agreements, and allocated to principal, interest or other items (e.g., escrow) in accordance with the related mortgage loan documents.

 

X

1122(d)(4)(v)

 

The Servicer’s records regarding the mortgage loans agree with the Servicer’s records with respect to an obligor’s unpaid principal balance.

 

X

1122(d)(4)(vi)

 

Changes with respect to the terms or status of an obligor’s mortgage

 

X

 

K-2



 

 

 

loans (e.g., loan modifications or re-agings) are made, reviewed and approved by authorized personnel in accordance with the transaction agreements and related pool asset documents.

 

 

1122(d)(4)(vii)

 

Loss mitigation or recovery actions (e.g., forbearance plans, modifications and deeds in lieu of foreclosure, foreclosures and repossessions, as applicable) are initiated, conducted and concluded in accordance with the timeframes or other requirements established by the transaction agreements.

 

X

1122(d)(4)(viii)

 

Records documenting collection efforts are maintained during the period a mortgage loan is delinquent in accordance with the transaction agreements. Such records are maintained on at least a monthly basis, or such other period specified in the transaction agreements, and describe the entity’s activities in monitoring delinquent mortgage loans including, for example, phone calls, letters and payment rescheduling plans in cases where delinquency is deemed temporary (e.g., illness or unemployment).

 

X

1122(d)(4)(ix)

 

Adjustments to interest rates or rates of return for mortgage loans with variable rates are computed based on the related mortgage loan documents.

 

X

1122(d)(4)(x)

 

Regarding any funds held in trust for an obligor (such as escrow accounts): (A) such funds are analyzed, in accordance with the obligor’s mortgage loan documents, on at least an annual basis, or such other period specified in the transaction agreements; (B) interest on such funds is paid, or credited, to obligors in accordance with applicable mortgage loan documents and state laws; and (C) such funds are returned to the obligor within 30 calendar days of full repayment of the related mortgage loans, or such other number of days specified in the transaction agreements.

 

X

1122(d)(4)(xi)

 

Payments made on behalf of an obligor (such as tax or insurance payments) are made on or before the related penalty or expiration dates, as indicated on the appropriate bills or notices for such payments, provided that such support has been received by the servicer at least 30 calendar days prior to these dates, or such other number of days specified in the transaction agreements.

 

X

1122(d)(4)(xii)

 

Any late payment penalties in connection with any payment to be made on behalf of an obligor are paid from the servicer’s funds and not charged to the obligor, unless the late payment was due to the obligor’s error or omission.

 

X

1122(d)(4)(xiii)

 

Disbursements made on behalf of an obligor are posted within two business days to the obligor’s records maintained by the servicer, or such other number of days specified in the transaction agreements.

 

X

1122(d)(4)(xiv)

 

Delinquencies, charge-offs and uncollectible accounts are recognized and recorded in accordance with the transaction agreements.

 

X

1122(d)(4)(xv)

 

Any external enhancement or other support, identified in Item 1114(a)(1) through (3) or Item 1115 of Regulation AB, is maintained as set forth in the transaction agreements.

 

 

 

K-3



 

L-1


Exhibit 99.1

 

 

[   ], 2012

 

Dear Shareholders of Altisource Portfolio Solutions S.A.:

 

In April 2012, Altisource Portfolio Solutions S.A., which we refer to as Altisource, announced a plan to separate two closely-related development stage companies.  Upon the separation (the “Separation”), both companies will become separate public companies.  The enclosed information statement specifically addresses one of the two new companies that will, following the separation from Altisource, conduct its operations as Altisource Residential Corporation, a Maryland corporation (“Residential”).

 

Altisource recently formed Residential to acquire and own single-family rental assets.  Residential will engage Altisource Asset Management Corporation, a United States Virgin Islands corporation, recently formed by us and being spun off contemporaneously with Residential, to provide Residential with asset management and corporate governance services.  Residential expects it will elect and qualify to be taxed as a REIT for U.S. federal income tax purposes.

 

The Separation is expected to occur in the fourth quarter of 2012, subject to certain customary closing conditions, by way of a taxable pro rata distribution of Residential common stock to Altisource shareholders. Each Altisource shareholder will receive 1 share of Class B common stock of Residential for every 3 shares of Altisource common stock held by such shareholder as of [    ], 2012, the record date for the Separation.

 

As an Altisource shareholder, you will automatically receive shares of Class B common stock of Residential unless you sell your Altisource shares before the separation date in the “regular way” market as described in the enclosed information statement. If the number of shares of Altisource common stock that you own is not a multiple of 3, you will receive a cash payment in lieu of any fractional share that you otherwise are entitled to receive. The number of shares of Altisource common stock that you currently own will not change as a result of the Separation.  You do not need to take any action or pay any consideration to receive the shares of Class B common stock of Residential in the Separation.

 

Residential has applied to list its Class B common stock on the New York Stock Exchange under the symbol “RESI.” The common stock of Altisource will continue to trade on the NASDAQ Global Select Market under the symbol “ASPS.”

 

The enclosed information statement, which is being mailed to all Altisource shareholders, describes the Separation in detail and contains important information about Residential. We encourage you to carefully read this information statement.

 

We believe the Separation will enable Altisource and Residential to maximize the strengths of their respective core businesses.  We are proud of what we have built at Altisource and want to ensure you that we will continue to capitalize on innovative ideas and business opportunities.  This is an exciting time for Altisource and Residential, and we believe this Separation is in the best interests of Altisource shareholders. We remain committed to working on behalf of you, our shareholders, to build long-term value.

 

 

Sincerely,

 

 

 

 

 

 

 

William B. Shepro

 

Chief Executive Officer and Director

 

Altisource Portfolio Solutions S.A.

 

i



 

 

[   ], 2012

 

Dear Prospective Shareholders of Altisource Residential Corporation:

 

We look forward to welcoming you as a shareholder of Altisource Residential Corporation, a Maryland corporation (“Residential”). We believe that our independence will allow us to focus on establishing our core business and provide us with the financial and operational flexibility to focus on opportunities to acquire and own single-family rental assets.

 

We expect Residential to become a stand-alone public company on or about [   ], 2012, upon receipt of all required approvals and satisfaction of all other conditions. We anticipate that our Class B common stock will be listed on the New York Stock Exchange under the symbol “RESI.”

 

I encourage you to learn more about Residential and the objectives that we will pursue as a stand-alone public company by reading the enclosed information statement. It describes the separation in detail, including the conditions to the separation.

 

We look forward to creating long-term value for you, our shareholders.

 

 

 

Sincerely,

 

 

 

 

 

 

 

William C. Erbey

 

Chairman

 

Altisource Residential Corporation

 

ii



 

Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission.

 

Subject to Completion, Dated November 21, 2012

 

INFORMATION STATEMENT RELATING TO THE DISTRIBUTION OF COMMON STOCK OF

 

ALTISOURCE RESIDENTIAL CORPORATION
by
ALTISOURCE PORTFOLIO SOLUTIONS S.A.
to Shareholders of Altisource Portfolio Solutions S.A.

 

This information statement is being furnished in connection with the spin-off (the “Spin-Off”) of Altisource Residential Corporation, a Maryland corporation (including Altisource Residential, L.P., its operating partnership through which it will acquire and hold its assets, “Residential”) from Altisource Portfolio Solutions S.A. (“Altisource”) by way of a taxable pro rata distribution of all of the common stock of Residential to Altisource shareholders (the “Distribution”). We refer to the Spin-Off and the Distribution collectively as the “Separation.”  Immediately after the Separation is completed, Residential will be a stand-alone public company.

 

For every 3 shares of Altisource common stock, par value $1.00 per share, which we refer to as Altisource common stock, that you hold as of 5:00 p.m. Eastern Time on [   ], 2012, the record date for the Distribution (the “Record Date”), you will receive 1 share of Class B common stock of Residential, par value $0.01 per share, which we refer to as Residential common stock or our common stock. We expect Altisource to distribute shares of our common stock to Altisource’s shareholders at 5:00 p.m. Eastern Time on [   ], 2012 (the “Separation Date”). As discussed more fully in this information statement, if you sell shares of Altisource common stock in the “regular way” market, and the sale of the shares settles before the Separation Date, you will be selling your right to receive shares of Residential common stock in the Separation. For additional information, see “The Separation.”

 

You will not be required to pay any consideration for the Residential common stock or surrender any of your Altisource common stock.  We are not asking you for a proxy and request that you do not send us one.

 

All of the outstanding shares of our common stock are currently owned by Altisource.  Accordingly, there is no current trading market for our common stock.  We expect, however, that a limited trading market for our common stock, known as a “when-issued” trading market, will develop [   ] days prior to the Separation Date, and we expect that “regular way” trading of our common stock will begin the first trading day after the Separation Date. We expect to list the Residential common stock on the New York Stock Exchange (“NYSE”) under the symbol “RESI.”

 

In reviewing this information statement, you should carefully consider the matters described under the caption “Risk Factors” beginning on page 11.

 

We are an Emerging Growth Company as defined in the Jumpstart Our Business Startups Act.  See “Risk FactorsRisks Related to our Business in General,” “BusinessEmerging Growth Company Status” and “Critical Accounting Policies and EstimatesEmerging Growth Company Status.”

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined that this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

 


 

This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

 


 

The date of this information statement is [    ], 2012.

 

This information statement was first mailed to Altisource shareholders on or about [   ], 2012.

 

iii



 

TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT ALTISOURCE RESIDENTIAL CORPORATION AND THE SEPARATION

 

1

SUMMARY

 

6

RISK FACTORS

 

10

FORWARD-LOOKING STATEMENTS

 

24

THE SEPARATION

 

25

RELATIONSHIP BETWEEN ALTISOURCE AND US FOLLOWING THE SEPARATION

 

49

DISTRIBUTION POLICY

 

51

CAPITALIZATION

 

52

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

53

BUSINESS

 

60

MANAGEMENT

 

65

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

 

70

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

71

DESCRIPTION OF CAPITAL STOCK

 

72

CERTAIN PROVISIONS OF OUR CHARTER AND BYLAWS

 

74

INDEMNIFICATION OF DIRECTORS

 

77

WHERE YOU CAN FIND MORE INFORMATION

 

78

INDEX TO FINANCIAL STATEMENTS

 

F-1

 

We are furnishing this information statement solely to provide information to Altisource shareholders who will receive our common stock in the Separation. It is not and should not be construed as an inducement or encouragement to buy or sell any of our securities or any securities of Altisource. This information statement describes our business, the relationship between Altisource and Residential, and how the Separation affects Altisource and its shareholders, and it also provides other information to assist you in evaluating the benefits and risks of holding or disposing of our common stock that you will receive in the Separation. You should be aware of certain risks relating to the Separation, our business and ownership of our common stock, which are described under the heading “Risk Factors.”

 

You should not assume that the information contained in this information statement is accurate as of any date other than the date on the cover. Changes to the information contained in this information statement may occur after that date, and we undertake no obligation to update the information except in the normal course of our public disclosure obligations and practices.

 

iv



 

QUESTIONS AND ANSWERS ABOUT ALTISOURCE RESIDENTIAL CORPORATION AND THE SEPARATION

 

What assets, liabilities and operations will comprise Residential in connection with the Separation?

 

In connection with the Separation, we expect to enter into a “Separation Agreement” with Altisource that will contain the key provisions relating to the transaction including identification of the assets to be transferred, and that will describe the material terms of when and how this transfer will occur. We anticipate that the only significant assets to be transferred will be cash.  We do not anticipate the transfer of significant liabilities, and there are no operations included in the transfer.  In addition, we expect to enter into a “Tax Matters Agreement” with Altisource setting out each party’s rights and obligations with respect to Luxembourg and United States (“U.S.”) federal, state and local taxes for tax periods before the Separation and related matters, certain indemnification rights and obligations with respect to taxes for the tax periods before the Separation and for any taxes and associated adverse consequences resulting from the Separation. See “Risk Factors—Risks Related to the Separation,” “Relationship between Altisource and Us Following the Separation” and “Certain Relationships and Related Party Transactions.”

 

 

 

What will Residential’s relationship with Altisource be after the Separation?

 

In connection with the Separation, we expect to enter into a two year “Support Services Agreement” under which Altisource will provide certain services to Residential. There are other arrangements between us and Altisource that will continue following the Separation. See “Relationship between Altisource and Us Following the Separation” for additional details.

 

 

 

Although Altisource is a separate company, Altisource and Residential have the same Chairman, William C. Erbey. Mr. Erbey currently owns 26.48% of Altisource common stock and will own the same percentage of our common stock as he holds of Altisource immediately following the Separation.  This arrangement with Altisource may involve, or may appear to involve, conflicts of interest. See “Certain Relationships and Related Party Transactions” and “Risk Factors—Risks Related to Conflicts of Interest.”

 

Do Residential’s organizational documents contain any anti-takeover provisions?

 

Our Charter and Bylaws and Maryland law contain provisions that may delay, defer or prevent a change in control or other transaction that might involve a premium price for shares of our common stock or otherwise not be in the best interests of our shareholders, including business combination provisions, stock ownership limitations, supermajority vote requirements and advance notice requirements for director nominations and shareholder proposals. See “Description of Capital Stock” and “Certain Provisions of our Charter and Bylaws.”

 

 

 

What are the U.S. federal income tax consequences of the Separation?

 

The Separation will be a taxable distribution for U.S. shareholders for U.S. federal income tax purposes. The taxable distribution will be equal to the fair market value of the Residential common stock you receive in the Distribution.  That amount will be taxable as a dividend to the extent of Altisource’s current and accumulated earnings and profits, calculated under U.S. tax law.  If the Distribution is in excess of your allocable share of Altisource’s earnings and profits, it will be treated as a tax-free return of capital to the extent of the tax-basis in your Altisource shares, and then as a capital gain.

 

1



 

What are the U.S. federal withholding tax consequences of the Separation?

 

The Distribution by Altisource to its shareholders will not be subject to U.S. federal withholding taxes.

 

 

 

What are the Luxembourg income tax consequences of the Separation?

 

A non-Luxembourg resident holder will not be subject to Luxembourg income taxes on the Distribution received from Altisource unless the shares are attributable to a permanent establishment or a fixed place of business maintained in Luxembourg by such non-Luxembourg shareholder. A Luxembourg resident individual holder will be subject to Luxembourg income taxes on dividend income and similar distributions with respect to shares in Altisource. A Luxembourg resident corporation may benefit from the Luxembourg participation exemption with respect to the receipt of the Distribution, if certain conditions are met. See “The Separation—Luxembourg Income Tax Consequences of the Distribution.”

 

 

 

What are the Luxembourg withholding tax consequences of the Separation?

 

The Distribution by Altisource to its holders will not be subject to Luxembourg withholding taxes. See “The Separation—Certain Luxembourg Tax Consequences of the Separation.”

 

 

 

 

 

Each shareholder is urged to consult a tax advisor as to the specific tax consequences of the Distribution to that shareholder, including the effect of any Luxembourg, U.S. federal, state, local or other foreign tax laws and of changes in applicable tax laws.

 

 

 

What are the risks associated with Residential and the Separation?

 

You should review the risks relating to the Separation, our business and ownership of our common stock described in “Risk Factors.”

 

 

 

What will I receive as a result of the Separation?

 

For every 3 shares of Altisource common stock that you own on the Record Date, you will receive 1 share of Residential common stock, which is referred to as the “Separation Ratio.” If you would be entitled to a fractional share of Residential common stock, you will instead receive a cash payment in lieu of the fractional share. See “The Separation—Treatment of Fractional Shares.”

 

 

 

When will the Separation occur?

 

Altisource currently anticipates completing the Separation at 5:00 p.m. Eastern Time on [   ], 2012, which we refer to as the “Separation Date.”  When we refer to the “Separation Date,” we are referring to that date and time.

 

 

 

What is the Record Date for the Separation?

 

The Record Date is [   ], 2012, and ownership of Altisource common stock is determined as of 5:00 p.m. Eastern Time on that date. When we refer to the “Record Date,” we are referring to that date and time.

 

 

 

Is shareholder approval required for the Separation?

 

Shareholder approval is not required for the Separation. Subsequent to final approval by the Altisource Board of Directors and regulatory approval, Altisource will distribute its ownership interest in Residential to its existing shareholders as of the Record Date.

 

 

 

What do I have to do to receive my shares of Residential common stock?

 

Nothing. Your shares of Residential common stock will be either reflected in an account statement that our transfer agent, American Stock Transfer & Trust Company, will send to you shortly after [   ], 2012 or credited to your account with your broker or nominee on or about [   ], 2012.

 

 

 

When will I receive my shares of Residential common stock?

 

If you hold your shares of Altisource common stock through your broker or other nominee, you are probably not a shareholder of record, and your receipt of your shares of Residential common stock will depend on your

 

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arrangements with the nominee that holds your shares of Altisource common stock for you.  Altisource anticipates that brokers and other nominees generally will credit their customers’ accounts with shares of Residential common stock on or about [   ], 2012, but you should check with your broker or other nominee. See “The Separation—When and How You Will Receive Your Shares of Residential Common Stock.”

 

How will shares of Residential common stock be distributed to me?

 

Altisource will distribute shares of Residential common stock by book entry. If you were a record holder of Altisource common stock on the Record Date, then you will receive from our transfer agent shortly after the Separation Date a statement of your book entry account for the shares of Residential common stock that are distributed to you. You will not receive a physical certificate evidencing your ownership of Residential common stock. If you were not a record holder of Altisource common stock on the Record Date because your shares are held on your behalf by your broker or other nominee, then your shares of Residential common stock should be credited to your account with your broker or nominee shortly after the Separation Date.

 

Will Altisource distribute fractional shares of Residential common stock?

 

Fractional shares of Residential common stock will not be issued in the Separation. If you would be entitled to receive a fractional share in the Separation, then you will instead receive a cash payment in lieu of the fractional share, which cash payment may be taxable to you. See “The Separation—Treatment of Fractional Shares.”

 

 

 

Will the Separation affect the market price of my shares of Altisource common stock?

 

Following the Separation, Altisource common stock will continue to be listed and traded on the NASDAQ Global Select Market under the symbol “ASPS.” As a result of the Separation, the trading price of Altisource shares immediately following the Separation may be lower than immediately prior to the Separation.  Until the market has fully analyzed the operations of Altisource without Residential, the price of Altisource common stock may fluctuate significantly. See “The Separation—Listing and Trading of the Shares of Residential Common Stock.”

 

Where will my shares of Residential common stock trade?

 

We expect that Residential common stock will be authorized for listing on the NYSE under the trading symbol “RESI” following completion of the Separation. Trading of Residential common stock will begin on a “when-issued” basis on [   ], 2012. See “The Separation—Listing and Trading of the Shares of Residential Common Stock” and “Description of Capital Stock.”

 

When will I be able to trade shares of Residential common stock?

 

Trading of Residential common stock will begin on a “when-issued” basis on [   ], 2012. “Regular-way” trading will begin on the first trading day after the Separation Date. In the context of a spin-off, when-issued trading refers to securities transactions made on or before the Separation Date and made conditionally because the securities of the distributed entity have not yet been distributed. When-issued trades generally settle within three trading days after the Separation Date. On the first trading day following the Separation Date, all when-issued trading, if any, will end and regular-way trading in shares of Altisource common stock will begin. Regular-way trading refers to trading after the security has been distributed and typically involves a trade that settles on the third full trading day following the date of the transaction. Residential common stock generally will be freely tradable after the Separation Date although the share price may be subject to greater trading volatility than Altisource shares historically have experienced. See “The Separation—Listing and Trading of the Shares of

 

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Residential Common Stock.”

 

 

 

What is Residential’s distribution policy?

 

We intend to elect and qualify to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes and to make regular distributions in the future to our shareholders. However, any distributions we make in the future will be at the discretion of our Board of Directors and will depend upon, among other things, our actual results of operations, financial condition and such other factors that our Board of Directors may deem relevant. These results and our ability to pay distributions will be affected by various factors. See “Distribution Policy.” 

 

 

 

How will Residential be managed?

 

After the Separation, we will initially be managed by our Board of Directors consisting of five directors. William C. Erbey is the Chairman of our Board of Directors. See “Management.”

 

 

 

How will existing stock options be treated in the Separation?

 

Currently, stock options are outstanding under Altisource’s 2009 Equity Incentive Plan and other equity incentive plans.  The exercise price of each outstanding stock option of Altisource will be adjusted to reflect the value of Residential common stock distributed to Altisource shareholders. At the Separation Date, all holders of Altisource stock options will receive the following:

 

·                  stock options (issued by Residential) to acquire the number of shares of Residential common stock equal to the product of (a) the number of Altisource stock options held on the Separation Date and (b) the distribution ratio of 1 share of Residential common stock for every 3 shares of Altisource common stock and

·                  an adjusted Altisource stock option, replacing the original Altisource option for the same number of shares of Altisource common stock with a reduced exercise price per stock option.

 

We will determine the exercise price of the new Residential stock option and the adjusted Altisource stock option in a manner so that the intrinsic value of the stock option to its holder will be the same as of the Separation Date.

 

 

 

Do I have appraisal rights in connection with the Separation?

 

No.  Shareholders of Altisource common stock have no appraisal rights in connection with the Separation. See “The Separation—No Appraisal Rights.”

 

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What is the difference between Class A Common Stock and Class B Common Stock?

 

Beginning on the date Class A common stock is first issued and ending on the third anniversary of such issuance (the “Priority Period”), holders of Class A common stock shall be entitled to receive, prior to any distribution to the holders of Class B common stock, cumulative dividends in an amount equal to $0.644 per year (the “Priority Distribution”).  Prior to the commencement of the Priority Period, holders of Class B common stock shall be entitled to receive unsubordinated dividends, if any. During the Priority Period, after the holders of Class A common stock have received an amount equal to the Priority Distribution, the holders of Class B common stock shall be entitled to receive, prior to any further distributions to the holders of Class A common stock, cumulative dividends in an amount equal to the Priority Distribution. After the holders of Class B common stock have received an amount equal to the Priority Distribution, the holders of Class A common stock and Class B common stock shall receive distributions on a pro rata basis. Currently, there are no shares of Class A common stock outstanding.  See “Description of Capital Stock.”

 

 

 

Who is the transfer agent for Residential common stock?

 

The transfer agent for Residential common stock is American Stock Transfer & Trust Company. You can contact the transfer agent at the following address and telephone number:

 

American Stock Transfer & Trust Company

59 Maiden Lane

New York, New York 10038

Telephone: 718-921-8200

Fax: 718-259-1144

 

Please contact the transfer agent with any questions about the Separation or if you need any additional information.

 

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SUMMARY

 

This summary highlights selected information contained elsewhere in this information statement relating to the separation of Residential from Altisource and the distribution of Residential common stock by Altisource to Altisource’s shareholders. This summary may not contain all of the information that is important to you. To better understand the Separation and Residential, you should carefully read this entire information statement including the risks described in “Risk Factors” and the financial statements and the notes thereto beginning on page F-1.

 

Except as otherwise indicated or unless the context otherwise requires, “Altisource Residential Corporation,” “Residential,” “we,” “us,” “our” and “the Company” refer to Altisource Residential Corporation, a Maryland corporation, and its subsidiaries. All references to “Altisource” are to Altisource Portfolio Solutions S.A., a Luxembourg société anonyme and its subsidiaries.

 

Our Business

 

We are organized as a Maryland corporation and intend to elect and qualify to be taxed as a REIT for U.S. federal income tax purposes. We were formed on July 19, 2012 by Altisource to acquire and own single-family rental assets.  Our primary sourcing strategy to obtain single-family rental assets includes acquiring sub-performing and non-performing loans as well as single-family homes at or following the foreclosure sale (“REO” or “REO Properties”).  We intend to pursue opportunities to acquire single-family rental assets and sub-performing and non-performing loans throughout the United States as long as such assets meet our desired property characteristics and provide acceptable long term returns. Consequently, neither the allocation of the assets within our portfolio nor the geographic allocation of the assets will be predetermined.

 

The AAMC Asset Management Agreement

 

As compensation for the Services, we will pay AAMC a quarterly incentive fee as follows: (i) 2% of all cash available for distribution by us to our shareholders until the aggregate amount of such cash dividends paid during the quarter divided by the average number of shares of our common stock outstanding during the quarter (the "Quarterly Per Share Distribution Amount") exceeds $0.161, then (ii) 15% of all additional cash available for distribution by us to our shareholders until the Quarterly Per Share Distribution Amount exceeds $0.193, then (iii) 25% of all additional cash available for distribution by us to our shareholders until the Quarterly Per Share Distribution Amount exceeds $0.257, and thereafter (iv) 50% of all additional cash available for distribution by us to our shareholders (in each case as such amounts may be appropriately adjusted from time to time to take into account the effect of any stock split, reverse stock split or stock dividend). The foregoing thresholds will be reduced to the extent that we pay or are deemed to pay dividends of cash from capital transactions and in the event that we pay or are deemed to pay dividends of cash from capital transactions so that a hypothetical holder of one share of our Class B common stock acquired on the Separation Date has received with respect to such share of Class B common stock, since the Separation Date, distributions of cash that are deemed to be cash from capital transactions in an aggregate amount equal to $12.74 (the approximate book value of single share of our Class B common stock as of the Separation Date), then all of the foregoing thresholds will be reduced to zero and we will pay AAMC a quarterly incentive fee equal to 50% of all additional cash available for distribution by us to our shareholders. For the purpose of this calculation, any Class A common stock dividend priority will be disregarded.

 

In the event that we pay or are deemed to pay our shareholders dividends of cash from capital transactions, AAMC will not receive an incentive fee with respect to such capital transactions dividends until a hypothetical holder of one share of our Class B Common stock acquired on the Separation Date has received with respect to such share of Class B common stock, since the Separation Date, distributions of cash that are deemed to be cash from capital transactions in an aggregate amount equal to $12.74. For the purpose of this calculation, any Class A common stock dividend priority will be disregarded. Thereafter, AAMC will be entitled to an incentive fee with respect to any dividends of cash from capital transactions in accordance with the calculation in the preceding paragraph.

 

In addition, we intend to make a preferred investment in NewSource Reinsurance Company Ltd., a title insurance and reinsurance company that will be formed following the Separation and domiciled in Bermuda (“NewSource”). We will engage Altisource Asset Management Corporation, a United States Virgin Islands corporation (“AAMC”), recently formed by Altisource and being spun off contemporaneously with us, to provide us with asset management and corporate governance services (the “Services”) under an asset management agreement (the “AAMC Asset Management Agreement”).

 

Our Business Strategy

 

Our business strategy is to provide a growing stream of dividends to our shareholders by:

 

·            Acquiring single-family rental assets at an attractive cost relative to the REO market through the purchase of non-performing loan portfolios.  Our goal will be to capture what we view as the positive arbitrage in today’s market between the price of non-performing loans, adjusted for carrying costs, and the value of the underlying real estate assets when sold as REO and

·            Managing single-family rental assets nationwide at a lower cost than that of our competitors.

 

To help us achieve this strategy, we will leverage AAMC’s strategic relationships with Altisource and Ocwen Financial Corporation (“Ocwen”).  These relationships provide us with what we believe are two significant competitive advantages.

 

First, we expect that our 15-year Servicing Agreement with Ocwen (the “Ocwen Servicing Agreement”), will enable us to obtain single-family rental assets at a discount to the typical REO acquisition price by acquiring sub-performing or non-performing loans.  This arbitrage exists because there are extended timelines, complexities and uncertainties in managing non-performing and sub-performing loans resulting from the loan modification, foreclosure and REO sale processes.  We believe that Ocwen’s extensive mortgage servicing experience will enable us to shorten non-performing loan resolution timelines by effectively and efficiently (1) converting a portion of the non-performing loan portfolio to performing status and (2) managing the foreclosure process and timelines with respect to the remainder of the portfolio.

 

Based on the industry experience of AAMC’s management team, we believe non-performing loans often sell for as low as 55% of the estimated value of the underlying property securing the loan.  We expect that a portion of the non-performing loans will be returned to performing status primarily through loan modifications.  After the loans are

 

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modified, and following a short seasoning period, we expect the borrowers to refinance these loans near the estimated value of the underlying property — generating very attractive returns for us.

 

We expect that, despite efforts to modify or return the mortgage loans to a performing status, a portion of these mortgage loans will enter into foreclosure, ultimately becoming REO that can be converted into single-family rental assets.  Even after considering the foreclosure expenses and the time value of money, we believe we will be able to acquire REO through the mortgage loan default process at a discount to the typical REO acquisition price.  Additionally, as we intend to retain the majority of the underlying real estate assets, we will avoid some of the typical REO costs (such as real estate brokerage commissions).

 

We expect that our second competitive advantage will be our relationship with Altisource through our 15-year Master Services Agreement with Altisource for construction management, leasing and property management services (the “Altisource Master Services Agreement”).  We believe that Altisource’s real property management experience and centralized vendor management model will allow us to operate single-family rental assets at a lower cost than our competitors.  Our goal is to minimize our property management expenses for a single-family rental asset so that those expenses will be similar to that for an apartment unit managed by a multi-family REIT.  Further, because of Altisource’s distributed vendor model, we can acquire assets nationwide.  This allows us to competitively bid on large sub-performing or non-performing mortgage portfolios with assets dispersed throughout the United States.  Altisource has extensive property management operational experience, managing and maintaining over 90,000 REO Properties for others over the last three years, which represents approximately $9 billion of estimated value in such properties.

 

 

While the Ocwen Servicing Agreement and Altisource Master Services Agreements are not exclusive arrangements, we believe that these relationships will provide us with significant competitive advantages with respect to acquiring and maintaining single-family rental assets, which represent a $3 trillion growth market.  We expect to acquire single-family rental assets with the intention to hold these assets over the long-term with a focus on developing brand and franchise value.  We also believe that the forecasted growth for the single-family rental marketplace, in combination with our projected asset management and acquisition costs and our ability to acquire assets nationwide provide us with a significant opportunity to establish the Company as a leading, externally-managed residential REIT.

 

The Separation

 

We describe in this information statement the assets of Residential that will be contributed by Altisource in connection with the Spin-Off as if Residential were a separate business.  As Residential is a development stage company and has not commenced operations, no historical results of operations are presented. For additional information, see “The Separation—Introduction.”

 

Altisource sent this document to you because you were the holder of Altisource common stock on the Record Date. On April 26, 2012, Altisource announced its intention to spin-off a development stage company into a stand-alone public company that will acquire and own single-family rental assets. Accordingly, upon consummation of the Separation, you will be entitled to receive 1 share of Residential common stock for every 3 shares of Altisource common stock that you held on the Record Date.  We expect the Separation to occur at 5:00 p.m. Eastern Time on [   ], 2012.

 

You do not have to surrender or exchange your shares of Altisource common stock or pay cash or any other consideration to receive your shares of Residential common stock.  The number of shares of Altisource common stock that you currently own will not change as a result of the Separation.

 

This information statement describes our business, our relationship with Altisource and how this transaction affects Altisource and its shareholders.  In addition, it provides other information to assist you in evaluating the benefits and risks of holding or disposing of the shares of our common stock that you will receive in the Distribution.

 

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References in this information statement to our historical assets generally refer to the historical assets of Altisource and its subsidiaries before the Separation. As we are a development stage company and have not commenced operations, there are no historical financial results of operations contained in this information statement. We cannot predict what our financial results will be in the future as a stand-alone public company.

 

Reasons for the Separation

 

Altisource’s Board of Directors determined that separating our business from Altisource is in the best interests of Altisource shareholders. In arriving at its decision, the Board of Directors considered, among other factors, the following:

 

Differing Business Strategies

 

The Company plans to be engaged in a capital intensive business, inconsistent with the business strategy of Altisource.  While we intend to generate revenues by acquiring and owning single-family rental assets at an attractive cost by purchasing sub-performing and non-performing loan portfolios and renting out such single family REO properties, Altisource does not engage in the business of purchasing or renting single family REO properties.  Altisource is primarily a provider of fee based services focused on high value, technology-enabled, knowledge-based functions principally related to real estate and mortgage portfolio management, asset recovery and customer relationship management.

 

Greater Strategic Focus of Financial Resources and Management’s Efforts

 

The Company will have different financial and operating characteristics than Altisource’s other businesses. Owing to these and other factors, we and Altisource will employ different capital structures and financing strategies. Consequently, Altisource has determined that its current structure may not be optimized to design and implement the distinct strategies necessary to operate its businesses in a manner that maximizes the long-term value of each business. We and Altisource believe that our respective management resources would be more efficiently utilized if Altisource’s management concentrates solely on its success as a provider of services focused on high value, technology-enabled, knowledge-based functions and our management concentrates solely on our business. The dilution of attention involved in managing these businesses with competing goals and needs will thus be eliminated.

 

Direct and Differentiated Access to Capital Resources

 

After the Separation, we will no longer need to compete with Altisource for capital resources. Both we and Altisource believe that direct and differentiated access to capital resources will allow us to better optimize the amounts and terms of the capital needed for our respective businesses, aligning financial and operational characteristics with investor and market expectations.

 

Enhanced Investor Choices by Offering Investment Opportunities in Separate Entities

 

We believe investors in the Company will be better positioned to evaluate our financial performance and strategy within the context of our particular field of operations and peer groups and that this will enhance the likelihood that we achieve an appropriate market valuation. Both we and Altisource believe that our investment characteristics may appeal to types of investors who differ from Altisource’s current investors. Both we and Altisource expect that, as a result of the Separation, our management will be better positioned to implement goals and evaluate strategic opportunities in light of investor expectations within the context of our particular field of operation.

 

In determining whether to effect the Separation, Altisource’s Board of Directors also considered the costs and risks associated with the transaction, including:

 

·                  the potential costs and disruptions as a result of the Separation;

·                  the risks of being unable to achieve the benefits expected from the Separation;

·                  the increased significance to the Company of certain costs and liabilities;

 

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·                  the risk that the Separation might not be completed and the one-time and ongoing costs of the Separation; and

·                  certain other risks associated with the Separation and the operation of our business following the Separation, as described under the heading “Risk Factors” of this information statement.

 

Regulatory Approval

 

Apart from the registration under U.S. federal securities laws of the Residential common stock that will be issued in the Separation, we do not believe that any other material governmental or regulatory filings or approvals will be necessary to consummate the Separation.

 

No Appraisal Rights

 

Altisource shareholders will not have appraisal rights in connection with the Separation.

 

Risk Factors

 

You should carefully consider the matters discussed under the heading “Risk Factors” of this information statement.

 

Corporate Information

 

We are a Maryland corporation that conducts its operations in the U.S.  Our principal executive offices are c/o Altisource Asset Management Corporation, 402 Strand St., Frederiksted, United States Virgin Islands 00840-3531, and our main telephone number is (340) 692-1055.  Our corporate website is located at www.altisourceresi.com. The information contained in, or that can be accessed through, our website is not part of this information statement.

 

Emerging Growth Company Status

 

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we are eligible to avail ourselves of certain exemptions from various reporting requirements of public companies that are not “emerging growth companies,” including, but not limited to an exemption from complying with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We have not made a decision whether to avail ourselves of certain of these exemptions.

 

In addition, the JOBS Act provides that an “emerging growth company” can utilize an extended transition period for complying with new or revised accounting standards, allowing it to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for all public companies which are not emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

 

We could remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

 

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RISK FACTORS

 

RISKS RELATED TO OUR BUSINESS IN GENERAL

 

We are a development stage company and have generated no revenue since our inception. We have not acquired single-family rental assets or sub-performing and non-performing loans, and we will not commence operations until immediately after the Separation. If we are unable to implement our business strategy or operate our business as we currently expect to do, our operating results may be adversely affected.

 

We are a development stage company and our business model is untested. Businesses like ours, which are starting up or in their initial stages of development, present substantial business and financial risks and may suffer significant losses. We cannot predict what our results of operations, financial condition and cash flows will be once we commence operations and operate as a stand-alone public company. We have generated no revenue to date and may not have sufficient capital to implement our business model. In addition, there are increased costs associated with being a stand-alone public company, including maintaining a separate Board of Directors and obtaining a separate audit, in addition to accounting, tax, legal, insurance, and compliance costs and other professional fees.  Currently, we are unable to estimate the amount of such expenses. As a result of these circumstances, we cannot assure you that the business will become profitable, or, if we become profitable, that it will be sustainable. The income potential of our proposed business is unproven, and the absence of an operating history makes it difficult to evaluate our prospects. We may not be able to execute our business strategy as planned which may adversely impact our financial performance.

 

We will depend on AAMC, agreements AAMC has negotiated on our behalf and AAMC’s key personnel for our success. We may not be able to retain our exclusive engagement of AAMC if (i) the AAMC Asset Management Agreement is terminated or (ii) we fail to maintain enough capital to acquire REO Properties and sub-performing and non-performing loans.

 

Our success will be dependent upon our relationships with, and the performance of, AAMC and its key personnel.  Key personnel may leave the employment of AAMC, may become distracted by adverse financial or operational issues in connection with their business and activities unrelated to us and over which we have no control or may fail to perform for any reason.  The AAMC Asset Management Agreement will provide that AAMC will not offer the Services to another person or entity that invests in REO Properties and/or sub-performing and non-performing loans provided we maintain available capital to acquire such assets. In the event that, for any reason, the AAMC Asset Management Agreement is terminated or AAMC is unable to retain its key personnel, it may be difficult for us to secure suitable replacements on acceptable terms.  Further, in the event we are unable to maintain sufficient available capital to acquire REO Properties and sub-performing and non-performing loans, AAMC may provide its Services to a competitor, and it may be difficult for us to secure a suitable replacement or maintain our exclusive engagement of AAMC.  We are unable to terminate the AAMC Asset Management Agreement during the first two years of its term except “for cause” (as defined therein).  In the event we terminate the AAMC Asset Management Agreement without cause or AAMC terminates the Asset Management Agreement due to our default in the performance of any material term of the AAMC Asset Management Agreement, we will be required to pay a significant termination fee and the Ocwen Servicing Agreement and the Residential Negotiated Agreements (as defined below) may simultaneously terminate.  The occurrence of any of the above-described events would adversely impact the value of your investment.

 

AAMC will have a contractually defined duty to us rather than a fiduciary duty.

 

Under the AAMC Asset Management Agreement, AAMC will have a contractual as opposed to a fiduciary relationship with us which limits AAMC’s obligations to us to those specifically set forth in the AAMC Asset Management Agreement.  The ability of AAMC and its officers and employees to engage in other business activities may reduce the time AAMC spends managing us. In addition, unlike for directors, there is no statutory standard of conduct under the Maryland General Corporation Law (the “MGCL”) for officers of a Maryland corporation. Instead, officers of a Maryland corporation, including officers who are employees of AAMC, are subject to general

 

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agency principals, including the exercise of reasonable care and skill in the performance of their responsibilities, as well as the duties of loyalty, good faith and candid disclosure.

 

The continuing unpredictability of the credit markets may restrict our access to capital and may make it difficult or impossible for us to obtain any required additional financing.

 

The domestic and international credit markets continue to experience significant unpredictability. In the event that we need additional capital for our business, we may face challenges in obtaining it and/or the terms upon which we can obtain it would have an adverse impact on our financial performance.

 

Failure of Altisource to effectively perform its obligations under various agreements with AAMC, and us, including the Altisource Master Services Agreement, could have an adverse effect on AAMC’s and our business and performance.

 

Both AAMC and we will engage Altisource to provide services subsequent to the Separation.  If for any reason Altisource is unable to perform the services described under these agreements at the level and/or the cost that the Company anticipates, alternate service providers may not be readily available on acceptable terms or at all, which could adversely affect AAMC’s and our operating results as well as our ability to execute our business plan.

 

In addition, we will be required to pay Altisource for the services it provides pursuant to the Altisource Master Services Agreement.  If we fail to pay Altisource or otherwise default under the Altisource Master Services Agreement, Altisource may cease to act under the Altisource Master Services Agreement which would adversely affect our operating results and our ability to execute our business plan.

 

Failure of Ocwen to effectively perform its servicing obligations under the Ocwen Servicing Agreement could have an adverse effect on our business and performance.

 

We will be contractually obligated to service the residential mortgage loans that we ultimately acquire.  We will not have any employees, servicing platform, licenses or technical resources necessary to service our acquired loans.  Consequently, we will engage Ocwen to service the loans we acquire.  If for any reason Ocwen is unable to service the acquired loans at the level and/or the cost that the Company anticipates, an alternate servicer may not be readily available on acceptable terms or at all, which could adversely affect our operating results, thereby having an adverse effect on our ability to execute our business plan.

 

In addition, under the Ocwen Servicing Agreement, we will be required to pay Ocwen fees for servicing our acquired mortgage loans.  If we fail to pay Ocwen or otherwise default under the Ocwen Servicing Agreement, Ocwen may cease to act as the servicer under the Ocwen Servicing Agreement which would adversely affect our operating results and our ability to execute our business plan.

 

Your investment return may be reduced if we are deemed to be an investment company under the Investment Company Act.

 

We do not intend or expect to be an investment company under the Investment Company Act of 1940 (the “Investment Company Act”), since we will not engage primarily or hold ourselves out as being engaged primarily in the business of investing, reinvesting or trading in securities.  Rather, we will be primarily engaged in the business of purchasing or otherwise acquiring real estate and mortgages on real estate, specifically single-family rental assets and sub-performing and non-performing loans.

 

To the extent that the Securities and Exchange Commission (the “SEC”) determines that we are in fact an investment company, we intend to rely on the exception from the Investment Company Act set forth in Section 3(c)(5)(C) of the Investment Company Act, which excludes from the definition of investment company “[a]ny person who is not engaged in the business of issuing redeemable securities, face-amount certificates of the installment type or periodic payment plan certificates, and who is primarily engaged in one or more of the following businesses: . . . (C) purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.”  The SEC has historically taken the position that an issuer may rely on the exception provided by Section 3(c)(5)(C) as long as at least 55% of its assets consist of “qualifying interests,” such as mortgage loans which are secured by real

 

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estate and other liens on and interests in real estate, and an additional 25% consists of real estate-type interests.  The SEC has also historically indicated that up to 20% of an issuer’s total assets may be invested in miscellaneous investments.  Other than our investment in NewSource, we believe that all of our assets will fall within the definition of “qualifying assets”.  Additionally, we do not currently expect to issue redeemable securities, face-amount certificates of the installment type or periodic payment plan certificates, as those terms are defined by the Investment Company Act.  Consequently, we believe that we will not be required to register under the Investment Company Act.

 

If we are deemed to be an investment company and our investment in NewSource accounts for more than 20% of our assets, we could be required to dispose of our NewSource investment (or a portion thereof) in order to qualify for the 3(c)(5)(C) exception.  We expect that our investment in NewSource will constitute less than 20% of our assets shortly after the Separation Date.  Consequently, we do not believe that our investment in NewSource will impact our ability to continue to rely on the Section 3(c)(5)(C) exemption.

 

However, in August 2011, the SEC issued a concept release which indicated that the SEC is reviewing whether issuers who own certain mortgage related investments which rely on the exception from registration under Section 3(c)(5)(C), which we similarly rely upon, should continue to be allowed to rely on such exception from registration.  Since our primary investment strategy is to directly invest in REO Properties and mortgages secured by real estate, we do not believe that the SEC’s review will have a material impact on our status as a non-investment company business or our ability to continue to rely on the Section 3(c)(5)(C) exception; however, we cannot provide you with any assurance that the outcome of the SEC’s review will not require us to register under the Investment Company Act.  If we are determined to be an investment company and we fail to qualify for this exception from registration as an investment company, or the SEC determines that companies that engage in businesses similar to ours are no longer able to rely on this exception, we may be required to register as an investment company under the Investment Company Act.

 

Registration under the Investment Company Act would require us to comply with a variety of substantive requirements that impose, among other things:

 

·                  limitations on capital structure;

·                  restrictions on specified investments;

·                  restrictions on retaining earnings;

·                  restrictions on leverage or senior securities;

·                  restrictions on unsecured borrowings;

·                  requirements that our income be derived from certain types of assets;

·                  prohibitions on transactions with affiliates; and

·                  compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly increase our operating expenses.

 

If we were required to register as an investment company but failed to do so, we would be prohibited from engaging in our business, and criminal and civil actions could be brought against us.

 

Registration with the SEC as an investment company would be costly, would subject us to a host of complex regulations and would divert attention from the conduct of our business. In addition, if we purchase or sell any real estate assets to avoid becoming an investment company under the Investment Company Act, we could materially adversely affect our net asset value, the amount of funds available for investment and our ability to pay distributions to our shareholders.

 

The reduced disclosure requirements applicable to us as an “emerging growth company” or a “smaller reporting company” may make our common stock less attractive to investors.

 

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we may avail ourselves of certain exemptions from various reporting requirements of public companies that are not “emerging growth companies,” including, but not limited to, an exemption from complying with the auditor attestation requirements