10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2009
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from                     to

Commission File No. 1-7797

PHH CORPORATION

(Exact name of registrant as specified in its charter)

MARYLAND	52-0551284
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
3000 LEADENHALL ROAD	08054
MT. LAUREL, NEW JERSEY	(Zip Code)
(Address of principal executive offices)

856-917-1744

(Registrant’s telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

	NAME OF EACH EXCHANGE
TITLE OF EACH CLASS	ON WHICH REGISTERED
Common Stock, par value $0.01 per share	The New York Stock Exchange
Preference Stock Purchase Rights	The New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act.  Yes o     No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ

The aggregate market value of our Common stock held by non-affiliates of the registrant as of June 30, 2009 was $988.295 million.

As of February 17, 2010, 54,774,639 shares of PHH Common stock were outstanding.

Documents Incorporated by Reference: Portions of the registrant’s definitive Proxy Statement for the 2010 Annual Meeting of Stockholders, which will be filed by the registrant on or prior to 120 days following the end of the registrant’s fiscal year ended December 31, 2009 are incorporated by reference in Part III of this Report.

TABLE OF CONTENTS

Item		Description	Page
		Cautionary Note Regarding Forward-Looking Statements		2
PART I
	1	Business		5
	1A	Risk Factors		17
	1B	Unresolved Staff Comments		32
	2	Properties		32
	3	Legal Proceedings		32
	4	Reserved		33
PART II
	5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		33
	6	Selected Financial Data		34
	7	Management’s Discussion and Analysis of Financial Condition and Results of Operations		35
	7A	Quantitative and Qualitative Disclosures About Market Risk		84
	8	Financial Statements and Supplementary Data		89
	9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		163
	9A	Controls and Procedures		163
		Report of Independent Registered Public Accounting Firm		164
	9B	Other Information		165
PART III
	10	Directors, Executive Officers and Corporate Governance		165
	11	Executive Compensation		167
	12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		167
	13	Certain Relationships and Related Transactions, and Director Independence		167
	14	Principal Accounting Fees and Services		167
PART IV
	15	Exhibits and Financial Statement Schedules		167
		Signatures		168
		Exhibit Index		169
EX-4.8
EX-4.8.1
EX-10.15
EX-10.15.1
EX-10.15.2
EX-12
EX-21
EX-23
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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Except as expressly indicated or unless the context otherwise requires, the “Company,” “PHH,” “we,” “our” or “us” means PHH Corporation, a Maryland corporation, and its subsidiaries.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements in this Annual Report on Form 10-K for the year ended December 31, 2009 (this “Form 10-K”) that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are subject to known and unknown risks, uncertainties and other factors and were derived utilizing numerous important assumptions that may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements.

Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans,” “may increase,” “may fluctuate” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could” are generally forward-looking in nature and are not historical facts. Forward-looking statements in this Form 10-K include, but are not limited to, the following: (i) our belief that we have developed an industry-leading technology infrastructure; (ii) our belief that any existing legal claims or proceedings would not have a material adverse effect on our business, financial position, results of operations or cash flows; (iii) our continued belief that the amount of securities held in trust related to our potential obligation from our reinsurance agreements will be significantly higher than claims expected to be paid; (iv) our belief that the Homeowner Affordability Stability Plan (“HASP”) programs had a favorable impact on mortgage industry originations during 2009 and may continue into 2010; (v) our expectations regarding origination volumes, including refinance originations, and loan margins in the mortgage industry; (vi) our belief that the higher margins experienced in the mortgage industry are reflective of a longer-term view of the returns required to manage the underlying risk of a mortgage production business; (vii) our belief that HASP’s loan modification program provides additional opportunities for our Mortgage Servicing segment and could reduce our exposure to future foreclosure-related losses; (viii) our expectation that the reorganized General Motors and Chrysler may be more financially viable suppliers in the future and our belief that any disruption in vehicle production by the North American automobile manufacturers would have little impact on our ability to provide our clients with vehicle leases as we would have the alternative to rely on foreign suppliers; (ix) our belief that trends in the North American automobile industry have been reflected in our Fleet Management Services segment; (x) our expectation that as the fleets of our Fleet Management Services segment’s clients age, they may require greater levels of maintenance services; (xi) our belief that the modifications in our lease pricing are reflective of revised pricing throughout the industry; (xii) our belief that our sources of liquidity are adequate to fund operations for the next 12 months; (xiii) our expected capital expenditures for 2010; (xiv) our belief that we would have various periods to cure an event of default if one or more notices of default were to be given by our lenders or trustees under certain of our financing agreements; (xv) our expectation that the London Interbank Offered Rate (“LIBOR”) and commercial paper, long-term United States (“U.S.”) Treasury Department (the “Treasury”) and mortgage interest rates will remain our primary benchmark for market risk for the foreseeable future; (xvi) our expectations regarding access to and spreads on future securities that may be issued by our wholly owned subsidiary, Chesapeake Funding LLC; (xvii) our expectation that U.S. and Canadian asset backed securities markets will continue to improve during the remainder of 2010 and that we will be able to take advantage of this improvement; (xviii) our expectation that increased reliance on the natural business hedge could result in greater volatility in the results of our Mortgage Servicing segment; (xix) our expectations regarding the impact of the adoption of recently issued accounting pronouncements on our financial statements;

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(xx) the anticipated amounts of amortization expense for amortizable intangible assets for the next five fiscal years and (xxi) our expected contribution to our defined benefit pension plan during 2010.

The factors and assumptions discussed below and the risk factors in “Part I—Item 1A. Risk Factors” in this Form 10-K could cause actual results to differ materially from those expressed in any such forward-looking statements:

§	the effects of environmental, economic or political conditions on the international, national or regional economy, the outbreak or escalation of hostilities or terrorist attacks and the impact thereof on our businesses;
§	the effects of continued market volatility or continued economic decline on the availability and cost of our financing arrangements, the value of our assets and the price of our Common stock;
§	the effects of a continued decline in the volume or value of U.S. home sales and home prices, due to adverse economic changes or otherwise, on our Mortgage Production and Mortgage Servicing segments;
§	the effects of changes in current interest rates on our business and our financing costs;
§	our decisions regarding the use of derivatives related to mortgage servicing rights (“MSRs”), if any, and the resulting potential volatility of the results of operations of our Mortgage Servicing segment;
§	the effects of increases in our actual and projected repurchases of, indemnification given in respect of, or related losses associated with, sold mortgage loans for which we have provided representations and warranties or other contractual recourse to purchasers and insurers of such loans, including increases in our loss severity and reserves associated with such loans;
§	the effects of reinsurance claims in excess of projected levels and in excess of reinsurance premiums we are entitled to receive or amounts currently held in trust to pay such claims;
§	the effects of any significant adverse changes in the underwriting criteria of government-sponsored entities, including the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”);
§	the effects of the insolvency of any of the counterparties to our significant customer contracts or financing arrangements or the inability or unwillingness of such counterparties to perform their respective obligations under such contracts;
§	the ability to develop and implement operational, technological and financial systems to manage our operations and to achieve enhanced earnings or effect cost savings;
§	the effects of competition in our existing and potential future lines of business, including the impact of consolidation within the industries in which we operate and competitors with greater financial resources and broader product lines;
§	the effects of the decline in the results of operations or financial condition of automobile manufacturers and/or their willingness or ability to make new vehicles available to us on commercially favorable terms, if at all;
§	the ability to quickly reduce overhead and infrastructure costs in response to a reduction in revenue;
§	the ability to implement fully integrated disaster recovery technology solutions in the event of a disaster;
§	the ability to obtain financing on acceptable terms, if at all, to finance our operations or growth strategy, to operate within the limitations imposed by our financing arrangements and to maintain the amount of cash required to service our indebtedness;
§	the ability to maintain our relationships with our existing clients;
§	a deterioration in the performance of assets held as collateral for secured borrowings;
§	the impact of the failure to maintain our credit ratings;

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§	any failure to comply with certain financial covenants under our financing arrangements;
§	the effects of the declining health of the U.S. and global banking systems, the consolidation of financial institutions and the related impact on the availability of credit;
§	the impact of the Emergency Economic Stabilization Act of 2008 (the “EESA”) enacted by the U.S. government on the securities markets and valuations of mortgage-backed securities (“MBS”);
§	the impact of actions taken or to be taken by the Treasury and the Federal Reserve Bank on the credit markets and the U.S. economy;
§	the impact of the adverse conditions in the North American automotive industry and
§	changes in laws and regulations, including changes in accounting standards, mortgage- and real estate-related regulations and state, federal and foreign tax laws.

Other factors and assumptions not identified above were also involved in the derivation of these forward-looking statements, and the failure of such other assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. Most of these factors are difficult to predict accurately and are generally beyond our control. In addition, we operate in a rapidly changing and competitive environment. New risk factors may emerge from time to time, and it is not possible to predict all such risk factors.

The factors and assumptions discussed above may have an impact on the continued accuracy of any forward-looking statements that we make. Except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless required by law. For any forward-looking statements contained in any document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

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PART I

Item 1.  Business

History

We were incorporated in 1953 as a Maryland corporation. For periods between April 30, 1997 and February 1, 2005, we were a wholly owned subsidiary of Cendant Corporation (now known as Avis Budget Group, Inc., but is referred to herein as “Cendant”) and its predecessors that provided and serviced mortgage loans for homeowners, facilitated employee relocations and provided vehicle fleet management and fuel card services to commercial clients. On February 1, 2005, we began operating as an independent, publicly traded company pursuant to our spin-off from Cendant (the “Spin-Off”).

Overview

We are a leading outsource provider of mortgage and fleet management services. We conduct our business through three operating segments: a Mortgage Production segment, a Mortgage Servicing segment and a Fleet Management Services segment.

Our Mortgage Production segment originates, purchases and sells mortgage loans through PHH Mortgage Corporation and its subsidiaries (collectively, “PHH Mortgage”), which includes PHH Home Loans, LLC (together with its subsidiaries, “PHH Home Loans” or the “Mortgage Venture”) and Speedy Title & Appraisal Review Services LLC (“STARS”). PHH Home Loans is a mortgage venture that we maintain with Realogy Corporation (“Realogy”) that began operations in October 2005. We own 50.1% of PHH Home Loans through our wholly owned subsidiary, PHH Broker Partner Corporation (“PHH Broker Partner”), and Realogy owns the remaining 49.9% through its wholly owned subsidiary, Realogy Services Venture Partner, Inc. (“Realogy Venture Partner”). PHH Mortgage, STARS and PHH Home Loans conduct business throughout the U.S. Our Mortgage Production segment focuses on providing private-label mortgage services to financial institutions and real estate brokers.

Our Mortgage Servicing segment services mortgage loans originated by PHH Mortgage and PHH Home Loans, purchases MSRs and acts as a subservicer for certain clients that own the underlying MSRs. Mortgage loan servicing consists of collecting loan payments, remitting principal and interest payments to investors, managing escrow funds for the payment of mortgage-related expenses, such as taxes and insurance, and otherwise administering our mortgage loan servicing portfolio. Our Mortgage Servicing segment also includes our mortgage reinsurance business, Atrium Insurance Corporation (“Atrium”), a wholly owned subsidiary and monoline mortgage guaranty insurance company.

Our Fleet Management Services segment provides commercial fleet management services to corporate clients and government agencies throughout the U.S. and Canada through our wholly owned subsidiary, PHH Vehicle Management Services Group LLC (“PHH Arval”) (our Fleet Management Services segment). PHH Arval is a fully integrated provider of fleet management services with a broad range of product offerings. These services include management and leasing of vehicles and other fee-based services for our clients’ vehicle fleets, which include vehicle maintenance services, fuel card services and accident management services.

Available Information

Our principal offices are located at 3000 Leadenhall Road, Mt. Laurel, NJ 08054. Our telephone number is (856) 917-1744. Our corporate website is located at www.phh.com, and our reports filed or furnished pursuant to Section 13(a) of the Exchange Act are available free of charge on our website under the tabs “Investor Relations—SEC Reports” as soon as reasonably practicable after such reports are electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”). Our Corporate Governance Guidelines, our Code of Business Conduct and the charters of the committees of our Board of Directors are also available on our corporate website and printed copies are available upon request. The information contained on our corporate website is not part of this Form 10-K.

Interested readers may also read and copy any materials that we file at the SEC’s Public Reference Room at 100 F Street, N.E., Washington D.C., 20549. Readers may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site (www.sec.gov) that contains our filings.

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OUR BUSINESS

The following table sets forth the composition of our Net revenues by segment for the years ended December 31, 2009, 2008 and 2007:

	Year Ended December 31,
	2009			2008			2007
Mortgage Production		34	%		22	%		9	%
Mortgage Servicing(1)		3	%		(13	)%		8	%
Combined Mortgage Services Segments		37	%		9	%		17	%
Fleet Management Services		63	%		89	%		83	%
Other(2)		—			2	%		—

(1)	As a result of unfavorable Valuation adjustments related to mortgage servicing rights, net, our Mortgage Servicing segment generated negative net revenues for the year ended December 31, 2008.
(2)	Represents certain income and expenses not allocated to the three reportable segments, primarily related to a terminated merger agreement with General Electric Capital Corporation, for the year ended December 31, 2008.

Mortgage Services

Our combined mortgage services segments consist of our Mortgage Production and Mortgage Servicing segments. Our Mortgage Production segment focuses on providing mortgage services, including private-label mortgage services, to financial institutions and real estate brokers through PHH Mortgage and PHH Home Loans, which conduct business throughout the U.S. PHH Mortgage generally sells all mortgage loans that it originates to secondary market investors, which include a variety of institutional investors, within 60 days of origination and typically retains the MSRs on the mortgage loans that it sells. MSRs are the rights to receive a portion of the interest coupon and fees collected from the mortgagors for performing specified mortgage servicing activities, which consist of collecting loan payments, remitting principal and interest payments to investors, managing escrow funds for the payment of mortgage-related expenses such as taxes and insurance and otherwise administering our mortgage loan servicing portfolio. We principally generate revenue in our Mortgage Servicing segment through fees earned for servicing mortgage loans held by investors where we retain the MSRs on sold mortgage loans or act as a subservicer for certain clients that own the underlying MSRs. Our Mortgage Servicing segment also includes the results of our reinsurance activities from our wholly owned subsidiary, Atrium.

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The following table sets forth the Net revenues, segment profit (loss) (as described in Note 21, “Segment Information” in the accompanying Notes to Consolidated Financial Statements included in this Form 10-K) and Assets for our Mortgage Production and Mortgage Servicing segments for each of the years ended and as of December 31, 2009, 2008 and 2007:

	Year Ended and As of December 31,
	2009			2008(1)(2)(3)			2007
	(In millions)
Net Revenues:
Mortgage Production	$	880		$	462		$	205
Mortgage Servicing		82			(276	)		176
Combined Mortgage Services Segments	$	962		$	186		$	381
Segment Profit (Loss):
Mortgage Production	$	306		$	(90	)	$	(226	)
Mortgage Servicing		(85	)		(430	)		75
Combined Mortgage Services Segments	$	221		$	(520	)	$	(151	)
Assets:
Mortgage Production	$	1,464		$	1,228		$	1,840
Mortgage Servicing		2,269			2,056			2,498
Combined Mortgage Services Segments	$	3,733		$	3,284		$	4,338

(1)	The Mortgage Servicing segment generated negative Net revenues for 2008 primarily due to a net loss on MSR risk management activities of $466 million.
(2)	See “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—2008 vs 2007—Segment Results—Mortgage Production Segment” for a discussion regarding fair value accounting principles adopted on January 1, 2008, which impact the comparability of 2007 results to subsequent periods.
(3)	During 2008, we recorded a non-cash Goodwill impairment of $61 million related to the PHH Home Loans reporting unit. Net loss attributable to noncontrolling interest for 2008 was impacted by $30 million as a result of the Goodwill impairment. Segment loss for 2008 was impacted by $31 million as a result of the Goodwill impairment.

Mortgage Production Segment

The Mortgage Production segment principally generates revenue through fee-based mortgage loan origination services and sales of mortgage loans into the secondary market. During 2009, 95% of our mortgage loan sales were to Fannie Mae, Freddie Mac or the Government National Mortgage Association (“Ginnie Mae”) (collectively, “Government-Sponsored Enterprises” or “GSEs”) and the remaining 5% were sold to private investors. For the nine months ended September 30, 2009, PHH Mortgage was the 4th largest retail originator of residential mortgage loans and the 9th largest overall residential mortgage originator, according to Inside Mortgage Finance. We are a leading outsource provider of mortgage loan origination services to financial institutions and the only mortgage company authorized to use the Century 21, Coldwell Banker and ERA brand names in marketing our mortgage loan products through the Mortgage Venture and other arrangements that we have with Realogy. For the year ended December 31, 2009, we originated mortgage loans for approximately 19% of the transactions in which real estate brokerages owned by Realogy represented the home buyer and approximately 3% of the transactions in which real estate brokerages franchised by Realogy represented the home buyer.

We originate mortgage loans through three principal business channels: financial institutions (on a private-label basis), real estate brokers (including brokers associated with brokerages owned or franchised by Realogy and Third-Party Brokers, as defined below) and relocation (mortgage services for clients of Cartus Corporation (together with its subsidiaries, “Cartus”)).

§   Financial Institutions Channel:  We are a leading provider of private-label mortgage loan originations for financial institutions and other entities throughout the U.S. In this channel, we offer a complete

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outsourcing solution, from processing applications through funding for clients that wish to offer mortgage services to their customers, but are not equipped to handle all aspects of the process cost-effectively. Representative clients include Merrill Lynch Credit Corporation (“Merrill Lynch”) and Charles Schwab Bank (“Charles Schwab”), which represented approximately 16% and 15% of our mortgage loan originations for the year ended December 31, 2009, respectively.

§

Real Estate Brokers Channel:  We work with real estate brokers to provide their customers with mortgage loans. Through our affiliations with real estate brokers, we have access to home buyers at the time of purchase. In this channel, we work with brokers associated with NRT Incorporated, Realogy’s owned real estate brokerage business (together with its subsidiaries, “NRT”), brokers associated with Realogy’s franchised brokerages (“Realogy Franchisees”) and brokers that are not affiliated with Realogy (“Third-Party Brokers”). Realogy has agreed that the residential and commercial real estate brokerage business owned and operated by NRT and the title and settlement services business owned and operated by Title Resource Group LLC (together with its subsidiaries, “TRG”) will exclusively recommend the Mortgage Venture as provider of mortgage loans to: (i) the independent sales associates affiliated with Realogy Services Group LLC and Realogy Venture Partner (together with Realogy Services Group LLC and their respective subsidiaries, the “Realogy Entities”), excluding the independent sales associates of any Realogy Franchisee acting in such capacity and (ii) all customers of the Realogy Entities (excluding Realogy Franchisees or any employee or independent sales associate thereof acting in such capacity). In general, our capture rate of mortgage loans where we are the exclusive recommended provider is much higher than in other situations. Realogy Franchisees, including Coldwell Banker Real Estate Corporation, Century 21 Real Estate LLC, ERA Franchise Systems, Inc. and Sotheby’s International Affiliates, Inc. have agreed to recommend exclusively PHH Mortgage as provider of mortgage loans to their respective independent sales associates. Additionally, for Realogy Franchisees and Third-Party Brokers, we endeavor to enter into separate marketing service agreements (“MSAs”) or other arrangements whereby we are the exclusive recommended provider of mortgage loans to each franchise or broker. We have entered into exclusive MSAs with 7% of Realogy Franchisees as of December 31, 2009. Following the Realogy Spin-Off, Realogy is a leading franchisor of real estate brokerage services in the U.S. In this channel, we primarily operate on a private-label basis, incorporating the brand name associated with the real estate broker, such as Coldwell Banker Mortgage, Century 21 Mortgage or ERA Mortgage. Substantially all of the originations through this channel during the years ended December 31, 2009, 2008 and 2007 were originated from Realogy and the Realogy Franchisees.

§

Relocation Channel:  In this channel, we work with Cartus, Realogy’s relocation business, to provide mortgage loans to employees of Cartus’ clients. Cartus is the industry leader of outsourced corporate relocation services in the U.S. Substantially all of the originations through this channel during the years ended December 31, 2009, 2008 and 2007 were from Cartus.

Included in the Real Estate Brokers and Relocation Channels described above is the Mortgage Venture that we have with Realogy.

Our mortgage loan origination channels are supported by three distinct platforms:

§

Teleservices:  We operate a teleservices operation (also known as our Phone In, Move In program) that provides centralized processing along with consistent customer service. We utilize Phone In, Move In for all three origination channels described above. We also maintain multiple internet sites that provide online mortgage application capabilities for our customers.

§

Field Sales Professionals:  Members of our field sales force are generally located in real estate brokerage offices or are affiliated with financial institution clients around the U.S., and are equipped to provide product information, quote interest rates and help customers prepare mortgage applications. Through our MyChoicetm program, certain of our mortgage advisors are assigned a dedicated territory for marketing efforts and customers are provided with the option of applying for mortgage loans over the telephone, in person or online through the internet.

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§   Closed Mortgage Loan Purchases:  We purchase closed mortgage loans from community banks, credit unions, mortgage brokers and mortgage bankers. We also acquire mortgage loans from mortgage brokers that receive applications from and qualify the borrowers.

The following table sets forth the composition of our mortgage loan originations by channel and platform for each of the years ended December 31, 2009, 2008 and 2007:

	Year Ended December 31,
	2009		2008		2007
	(Dollars in millions)
Loans closed to be sold	$	29,370	$	20,753	$	29,207
Fee-based closings		8,194		13,166		10,338
Total closings	$	37,564	$	33,919	$	39,545
Loans sold	$	29,002	$	21,079	$	30,346
Total Mortgage Originations by Channel:
Financial institutions		63%		63%		55%
Real estate brokers		35%		33%		40%
Relocation		2%		4%		5%
Total Mortgage Originations by Platform:
Teleservices		47%		58%		54%
Field sales professionals		38%		27%		23%
Closed mortgage loan purchases		15%		15%		23%

Fee-based closings are comprised of mortgage loans originated for others (including brokered loans and loans originated through our financial institutions channel). Loans originated by us and purchased from financial institutions are included in loans closed to be sold while loans originated by us and retained by financial institutions are included in fee-based closings.

The following table sets forth the composition of our mortgage loan originations by product type for each of the years ended December 31, 2009, 2008 and 2007:

	Year Ended December 31,
	2009		2008		2007
Fixed rate		81%		59%		65%
Adjustable rate		19%		41%		35%
Purchase closings		41%		63%		65%
Refinance closings		59%		37%		35%
Conforming(1)		82%		64%		60%
Non-conforming:
Jumbo(2)		13%		19%		24%
Alt-A(3)		—		—		4%
Second lien		5%		15%		9%
Other		—		2%		3%
Total Non-conforming		18%		36%		40%

(1)	Represents mortgage loans that conform to the standards of the GSEs.
(2)	Represents mortgage loans that have loan amounts exceeding the GSE guidelines.
(3)	Represents mortgage loans that are made to borrowers with prime credit histories, but do not meet the documentation requirements of a conforming loan.

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Appraisal Services Business

Our Mortgage Production segment includes our appraisal services business, STARS, which provides appraisal services utilizing a network of approximately 4,600 third-party professional licensed appraisers offering local coverage throughout the U.S. and also provides credit research, flood certification and tax services. The appraisal services business is closely linked to the processes by which our mortgage operations originate mortgage loans and derives substantially all of its business from our various channels. The results of operations and financial position of STARS are included in our Mortgage Production segment for all periods presented.

Mortgage Servicing Segment

The following table sets forth summary data of our mortgage loan servicing activities for the years ended and as of December 31, 2009, 2008 and 2007:

	Year Ended and As of December 31,
	2009		2008		2007
	(Dollars in millions, except average loan size)
Average loan servicing portfolio	$	149,628	$	152,681	$	163,107
Ending loan servicing portfolio(1)	$	151,481	$	149,750	$	159,183
Number of loans serviced(1)		954,063		975,120		1,063,187
Average loan size	$	158,775	$	153,571	$	149,723
Weighted-average interest rate		5.3%		5.8%		6.1%
Delinquent Mortgage Loans:(2)
30 days		2.26%		2.31%		1.93%
60 days		0.69%		0.62%		0.46%
90 days or more		1.73%		0.74%		0.41%
Total delinquencies		4.68%		3.67%		2.80%
Foreclosures/real estate owned/bankruptcies		2.84%		1.83%		0.87%
Major Geographical Concentrations:
California		13.6%		12.4%		11.4%
Florida		7.1%		7.2%		7.3%
New Jersey		6.7%		7.1%		7.7%
New York		6.5%		6.7%		7.0%
Other		66.1%		66.6%		66.6%

(1)

As of December 31, 2007, approximately 130,000 loans with an unpaid principal balance of $19.3 billion for which the underlying MSRs had been sold were included in our loan servicing portfolio. We subserviced these loans until the MSRs were transferred from our systems to the purchaser’s systems during the second quarter of 2008.

(2)

Represents the loan servicing portfolio delinquencies as a percentage of the total unpaid principal balance of the portfolio. See “Part II—Item 7A. Quantitative and Qualitative Disclosures About Market Risk—Consumer Credit Risk—Loan Recourse” for information regarding the delinquency of loans sold with recourse by us and those for which a breach of representation or warranty provision was identified subsequent to sale.

Mortgage Guaranty Reinsurance Business

Our Mortgage Servicing segment also includes our mortgage reinsurance business, Atrium, a wholly owned subsidiary and monoline mortgage guaranty insurance company. We provide mortgage reinsurance to certain third-party insurance companies that provide primary mortgage insurance (“PMI”) on loans originated in our Mortgage Production segment, which generally includes conventional loans with an original loan amount in excess of 80% of the property’s original appraised value. PMI benefits mortgage lenders as well as investors in asset-backed securities (“ABS”) and/or pools of whole loans that are backed by insured mortgage loans. While we do not underwrite PMI directly, we provide reinsurance that covers losses in excess of a specified percentage of the

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principal balance of a given pool of mortgage loans, subject to a contractual limit. In exchange for assuming a portion of the risk of loss related to the reinsured loans, Atrium receives a portion of borrowers’ premiums from the third-party insurance companies.

As of December 31, 2009, Atrium had outstanding reinsurance agreements that were inactive and in runoff with two primary mortgage insurers. While in runoff, Atrium will continue to collect premiums and have risk of loss on the existing population of loans reinsured, but may not add to that population of loans. (See “Part II—Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in this Form 10-K for additional information regarding mortgage reinsurance.)

Competition

The principal factors for competition for our Mortgage Production and Mortgage Servicing segments are service, quality, products and price. Competitive conditions also can be impacted by shifts in consumer preference between variable-rate and fixed-rate mortgage loans, depending on the interest rate environment. In our Mortgage Production segment, we work with our clients to develop new and competitive loan products that address their specific customer needs. In our Mortgage Servicing segment, we focus on customer service while working to enhance the efficiency of our servicing platform. Excellent customer service is also a critical component of our competitive strategy to win new clients and maintain existing clients. We, along with our clients, consistently track and monitor customer service levels and look for ways to improve customer service.

According to Inside Mortgage Finance, PHH Mortgage was the 4th largest retail mortgage loan originator in the U.S. with a 3.6% market share as of September 30, 2009 and the 10th largest mortgage loan servicer with a 1.4% market share as of September 30, 2009. Some of our largest competitors include Bank of America, Wells Fargo Home Mortgage, Chase Home Finance and CitiMortgage. The consolidation or elimination of several of our largest competitors has resulted in reduced industry capacity and higher loan margins. Additionally, more restrictive underwriting standards and the elimination of Alt-A and subprime products has resulted in a more homogenous product offering, which has increased competition across the industry. Many of our competitors are larger than we are and have access to greater financial resources than we do, which can place us at a competitive disadvantage. In addition, many of our largest competitors are banks or affiliated with banking institutions, the advantages of which include, but are not limited to, the ability to hold new mortgage loan originations in an investment portfolio and have access to lower rate bank deposits as a source of liquidity.

Many smaller and mid-sized financial institutions may find it difficult to compete in the mortgage industry due to the consolidation in the industry and the need to invest in technology in order to reduce operating costs while maintaining compliance in an increasingly complex regulatory environment.

We are party to a strategic relationship agreement dated as of January 31, 2005 between PHH Mortgage, PHH Home Loans, PHH Broker Partner, Realogy Venture Partner and Cendant (the “Strategic Relationship Agreement”), which, among other things, restricts us and our affiliates, subject to limited exceptions, from engaging in certain residential real estate services, including any business conducted by Realogy. The Strategic Relationship Agreement also provides that we will not directly or indirectly sell any mortgage loans or mortgage loan servicing to certain competitors in the residential real estate brokerage franchise businesses in the U.S. (or any company affiliated with them).

See “— Our Business—Mortgage Production and Mortgage Servicing Segments—Mortgage Production Segment” and “— Item 1A. Risk Factors—Risks Related to our Business—The industries in which we operate are highly competitive and, if we fail to meet the competitive challenges in our industries, it could have a material adverse effect on our business, financial position, results of operations or cash flows.” for more information.

Seasonality

Our Mortgage Production segment is generally subject to seasonal trends. These seasonal trends reflect the pattern in the national housing market. Home sales typically rise during the spring and summer seasons and decline during the fall and winter seasons. Seasonality has less of an effect on mortgage refinancing activity, which is primarily driven by prevailing mortgage rates. Our Mortgage Servicing segment is generally not subject to seasonal trends.

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Trademarks and Intellectual Property

The trade names and related logos of our financial institution clients are material to our Mortgage Production and Mortgage Servicing segments. Our financial institution clients license the use of their names to us in connection with our private-label business. These trademark licenses generally run for the duration of our origination services agreements with such financial institution clients and facilitate the origination services that we provide to them. Realogy’s brand names and related items, such as logos and domain names, of its owned and franchised residential real estate brokerages are material to our Mortgage Production and Mortgage Servicing segments. Realogy licenses its real estate brands and related items, such as logos and domain names, to us for use in our mortgage loan origination services that we provide to Realogy’s owned real estate brokerage, relocation and settlement services businesses. In connection with the Spin-Off, TM Acquisition Corp., Coldwell Banker Real Estate Corporation, ERA Franchise Systems, Inc. and PHH Mortgage entered into a trademark license agreement pursuant to which PHH Mortgage was granted a license to use certain of Realogy’s real estate brand names and related items, such as domain names, in connection with our mortgage loan origination services on behalf of Realogy’s franchised real estate brokerage business. PHH Home Loans is party to its own trademark license agreement with TM Acquisition Corp., Coldwell Banker Real Estate Corporation and ERA Franchise Systems, Inc. pursuant to which PHH Home Loans was granted a license to use certain of Realogy’s real estate brand names and related items, such as domain names, in connection with our mortgage loan origination services on behalf of Realogy’s owned real estate brokerage business owned and operated by NRT, the relocation business owned and operated by Cartus and the settlement services business owned and operated by TRG.

Mortgage Regulation

Our Mortgage Production and Mortgage Servicing segments are subject to numerous federal, state and local laws and regulations and may be subject to various judicial and administrative decisions imposing various requirements and restrictions on our business. These laws, regulations and judicial and administrative decisions to which our Mortgage Production and Mortgage Servicing segments are subject include those pertaining to: real estate settlement procedures; fair lending; fair credit reporting; truth in lending; compliance with net worth and financial statement delivery requirements; compliance with federal and state disclosure requirements; the establishment of maximum interest rates, finance charges and other charges; secured transactions; collection, foreclosure, repossession and claims-handling procedures; other trade practices and privacy regulations providing for the use and safeguarding of non-public personal financial information of borrowers and guidance on non-traditional mortgage loans issued by the federal financial regulatory agencies. By agreement with our financial institution clients, we are required to comply with additional requirements that our clients may be subject to through their regulators.

(See “— Item 1A. Risk Factors—Risks Related to our Business—The businesses in which we engage are complex and heavily regulated, and changes in the regulatory environment affecting our businesses could have a material adverse effect on our business, financial position, results of operations or cash flows.” for more information.)

Insurance Regulation

Atrium, our wholly owned insurance subsidiary, is subject to insurance regulations relating to, among other things: standards of solvency that must be met and maintained; the licensing of insurers and their agents; the nature of and limitations on investments; premium rates; restrictions on the size of risks that may be insured under a single policy; reserves and provisions for unearned premiums, losses and other obligations; deposits of securities for the benefit of policyholders; approval of policy forms and the regulation of market conduct, including the use of credit information in underwriting as well as other underwriting and claims practices. State insurance regulators also conduct periodic examinations and require the filing of annual and other reports relating to the financial condition of companies and other matters.

As a result of our ownership of Atrium, we are subject to state insurance laws and regulations, as well as certain other laws, which, among other things, limit Atrium’s ability to declare and pay dividends except from cash in excess of the aggregate of Atrium’s paid-in capital, paid-in surplus and contingency reserve. Additionally, anyone

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seeking to acquire, directly or indirectly, 10% or more of Atrium’s outstanding common stock, or otherwise proposing to engage in a transaction involving a change in control of Atrium, may be required to obtain the prior approval of the applicable state insurance regulator. (See “— Item 1A. Risk Factors—Risks Related to our Business—The businesses in which we engage are complex and heavily regulated, and changes in the regulatory environment affecting our businesses could have a material adverse effect on our business, financial position, results of operations or cash flows.” for more information.)

Fleet Management Services Segment

We provide fleet management services to corporate clients and government agencies through PHH Arval throughout the U.S. and Canada. We are a fully integrated provider of these services with a broad range of product offerings. We are the third largest provider of outsourced commercial fleet management services in the U.S. and Canada, combined, according to the Automotive Fleet 2009 Fact Book. We primarily focus on clients with fleets of greater than 75 vehicles. As of December 31, 2009, we had more than 300,000 vehicles leased, primarily consisting of cars and light trucks and, to a lesser extent, medium and heavy trucks, trailers and equipment and approximately 245,000 additional vehicles serviced under fuel cards, maintenance cards, accident management services arrangements and/or similar arrangements. During the year ended December 31, 2009, we purchased approximately 41,000 vehicles. The following table sets forth the Net revenues, segment profit (as described in Note 21, “Segment Information” in the accompanying Notes to Consolidated Financial Statements included in this Form 10-K) and Assets for our Fleet Management Services segment for each of the years ended and as of December 31, 2009, 2008 and 2007:

	Year Ended and As of December 31,
	2009		2008		2007
	(In millions)
Fleet Management Services Net revenues	$	1,649	$	1,827	$	1,861
Fleet Management Services Segment profit		54		62		116
Fleet Management Services Assets		4,331		4,956		5,023

We offer fully integrated services that provide solutions to clients subject to their business objectives. We place an emphasis on customer service and focus on a consultative approach with our clients. Our employees support each client in achieving the full benefits of outsourcing fleet management, including lower costs and increased productivity. We offer 24-hour customer service for the end-users of our products and services. We believe we have developed an industry-leading technology infrastructure. Our data warehousing, information management and online systems provide clients access to customized reports to better monitor and manage their corporate fleets.

We provide corporate clients and government agencies the following services and products:

§   Fleet Leasing and Fleet Management Services.  These services include vehicle leasing, fleet policy analysis and recommendations, benchmarking, vehicle recommendations, ordering and purchasing vehicles, arranging for vehicle delivery and administration of the title and registration process, as well as tax and insurance requirements, pursuing warranty claims and remarketing used vehicles. We also offer various leasing options, financed primarily through the issuance of variable-rate notes and borrowings through an asset-backed structure. For the year ended December 31, 2009, we averaged 314,000 leased vehicles. Substantially all of the residual risk on the value of the vehicle at the end of the lease term remains with the lessee for approximately 95% of our Net investment in fleet leases. These leases typically have a minimum lease term of 12 months and can be continued after that at the lessee’s election for successive monthly renewals. Upon return of the vehicle by the lessee, we typically sell the vehicle into the secondary market and the client receives a credit or pays the difference between the sale proceeds and the undepreciated book value. For the remaining 5% of our Net investment in fleet leases, we retain the residual risk of the value of the vehicle at the end of the lease term. We maintain rigorous standards with respect to the creditworthiness of our clients. Net credit losses as a percentage of the ending balance of Net investment in fleet leases have not exceeded 0.01% in any of the last three fiscal years. During the years ended December 31, 2009, 2008 and 2007, our fleet leasing and fleet management servicing generated approximately 90%, 89% and 88%, respectively, of our Net revenues for our Fleet Management Services segment.

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§	Maintenance Services.  We offer clients vehicle maintenance service cards that are used to facilitate payment for repairs and maintenance. We maintain an extensive network of third-party service providers in the U.S. and Canada to ensure ease of use by the clients’ drivers. The vehicle maintenance service cards provide clients with the following benefits: (i) negotiated discounts off of full retail prices through our convenient supplier network; (ii) access to our in-house team of certified maintenance experts that monitor transactions for policy compliance, reasonability and cost-effectiveness and (iii) inclusion of vehicle maintenance transactions in a consolidated information and billing database, which assists clients with the evaluation of overall fleet performance and costs. For the year ended December 31, 2009, we averaged 275,000 maintenance service cards outstanding in the U.S. and Canada. We receive a fixed monthly fee for these services from our clients as well as additional fees from service providers in our third-party network for individual maintenance services.
§	Accident Management Services.  We provide our clients with comprehensive accident management services such as immediate assistance upon receiving the initial accident report from the driver (e.g., facilitating emergency towing services and car rental assistance), an organized vehicle appraisal and repair process through a network of third-party preferred repair and body shops and coordination and negotiation of potential accident claims. Our accident management services provide our clients with the following benefits: (i) convenient, coordinated 24-hour assistance from our call center; (ii) access to our relationships with the repair and body shops included in our preferred supplier network, which typically provide clients with favorable terms and (iii) expertise of our damage specialists, who ensure that vehicle appraisals and repairs are appropriate, cost-efficient and in accordance with each client’s specific repair policy. For the year ended December 31, 2009, we averaged 305,000 vehicles that were participating in accident management programs with us in the U.S. and Canada. We receive fees from our clients for these services as well as additional fees from service providers in our third-party network for individual incident services.
§	Fuel Card Services.  We provide our clients with fuel card programs that facilitate the payment, monitoring and control of fuel purchases through PHH Arval. Fuel is typically the single largest fleet-related operating expense. By using our fuel cards, our clients receive the following benefits: access to more fuel brands and outlets than other private-label corporate fuel cards, point-of-sale processing technology for fuel card transactions that enhances clients’ ability to monitor purchases and consolidated billing and access to other information on fuel card transactions, which assists clients with the evaluation of overall fleet performance and costs. Our fuel cards are offered through relationships with Wright Express LLC and another third party in the U.S. and a proprietary card in Canada, which offer expanded fuel management capabilities on one service card. For the year ended December 31, 2009, we averaged 282,000 fuel cards outstanding in the U.S. and Canada. We receive both monthly fees from our fuel card clients and additional fees from fuel partners and providers.

The following table sets forth the Net revenues attributable to our domestic and foreign operations for our Fleet Management Services segment for each of the years ended December 31, 2009, 2008 and 2007:

	Year Ended December 31,
	2009		2008		2007
	(In millions)
Net revenues:
Domestic	$	1,489	$	1,702	$	1,781
Foreign		160		125		80

The following table sets forth our Fleet Management Services segment’s Assets located domestically and in foreign countries as of December 31, 2009, 2008 and 2007:

	As of December 31,
	2009		2008		2007
	(In millions)
Assets:
Domestic	$	3,756	$	4,494	$	4,699
Foreign		575		462		324

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Leases

We lease vehicles to our clients under both open-end and closed-end leases. The majority of our leases are with corporate clients and are open-end leases, a form of lease in which the client bears substantially all of the vehicle’s residual value risk.

Our open-end operating lease agreements provide for a minimum lease term of 12 months. At any time after the end of the minimum term, the client has the right to terminate the lease for a particular vehicle at which point, we generally sell the vehicle into the secondary market. If the net proceeds from the sale are greater than the vehicle’s book value, the client receives the difference. If the net proceeds from the sale are less than the vehicle’s book value, the client pays us substantially all of the difference. Closed-end leases, on the other hand, are generally entered into for a designated term of 24, 36 or 48 months. At the end of the lease, the client returns the vehicle to us. Except for excess wear and tear or excess mileage, for which the client is required to reimburse us, we then bear the risk of loss upon resale.

Open-end leases may be classified as operating leases or direct financing leases depending upon the nature of the residual guarantee. For operating leases, lease revenues, which contain a depreciation component, an interest component and a management fee component, are recognized over the lease term of the vehicle, which encompasses the minimum lease term and the month-to-month renewals. For direct financing leases, lease revenues contain an interest component and a management fee component. The interest component is recognized using the effective interest method over the lease term of the vehicle, which encompasses the minimum lease term and the month-to-month renewals. Amounts charged to the lessees for interest are determined in accordance with the pricing supplement to the respective master lease agreement and are calculated on a variable-rate basis, for approximately 76% of our Net investment in fleet leases as of December 31, 2009, that varies month-to-month in accordance with changes in the variable-rate index. Amounts charged to the lessees for interest on the remaining 24% of our Net investment in fleet leases as of December 31, 2009 are based on a fixed rate that would remain constant for the life of the lease. Amounts charged to the lessees for depreciation are based on the straight-line depreciation of the vehicle over its expected lease term. Management fees are recognized on a straight-line basis over the life of the lease. Revenue for other services is recognized when such services are provided to the lessee.

We originate certain of our truck and equipment leases with the intention of syndicating to banks and other financial institutions. When we sell operating leases, we sell the underlying assets and assign any rights to the leases, including future leasing revenues, to the banks or financial institutions. Upon the transfer and assignment of the rights associated with the operating leases, we record the proceeds from the sale as revenue and recognize an expense for the undepreciated cost of the asset sold. Upon the sale or transfer of rights to direct financing leases, the net gain or loss is recorded. Under certain of these sales agreements, we retain a portion of the residual risk in connection with the fair value of the asset at lease termination.

From time to time, we utilize certain direct financing lease funding structures, which include the receipt of substantial lease prepayments, for lease originations by our Canadian fleet management operations. The component of Net investment in fleet leases related to direct financing leases represents the lease payment receivable less any unearned income.

Trademarks and Intellectual Property

The service mark “PHH” and related trademarks and logos are material to our Fleet Management Services segment. All of the material marks used by us are registered (or have applications pending for registration) with the U.S. Patent and Trademark Office. All of the material marks used by us are also registered in Canada, and the “PHH” mark and logo are registered (or have applications pending) in those major countries where we have strategic partnerships with local providers of fleet management services. Except for the “Arval” mark, which we license from a third party so that we can do business as PHH Arval, we own the material marks used by us in our Fleet Management Services segment.

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Competition

We differentiate ourselves from our competitors primarily on three factors: the breadth of our product offering; customer service and technology. Unlike certain of our competitors that focus on selected elements of the fleet management process, we offer fully integrated services. In this manner, we are able to offer customized solutions to clients regardless of their needs. We believe we have developed an industry-leading technology infrastructure. Our data warehousing, information management and online systems enable clients to download customized reports to better monitor and manage their corporate fleets. Our competitors in the U.S. and Canada include GE Commercial Finance Fleet Services, Wheels Inc., Automotive Resources International, Lease Plan International, and other local and regional competitors, including numerous competitors who focus on one or two products. Certain of our competitors are larger than we are and have access to greater financial resources than we do. Additionally, to the extent that our competitors have access to financing with more favorable terms than we do, we could be placed at a competitive disadvantage. (See “— Item 1A. Risk Factors—Risks Related to our Business—The businesses in which we engage are complex and heavily regulated, and changes in the regulatory environment affecting our businesses could have a material adverse effect on our business, financial position, results of operations or cash flows.” for more information.)

Seasonality

The revenues generated by our Fleet Management Services segment are generally not seasonal.

Commercial Fleet Leasing Industry Regulation

We are subject to federal, state and local laws and regulations including those relating to taxing and licensing of vehicles and certain consumer credit and environmental protection. Our Fleet Management Services segment could be liable for damages in connection with motor vehicle accidents under the theory of vicarious liability in certain jurisdictions in which we do business. Under this theory, companies that lease motor vehicles may be subject to liability for the tortious acts of their lessees, even in situations where the leasing company has not been negligent. Our Fleet Management Services segment is subject to unlimited liability as the owner of leased vehicles in one major province in Canada, Alberta, and is subject to limited liability (e.g. in the event of a lessee’s failure to meet certain insurance or financial responsibility requirements) in two major provinces, Ontario and British Columbia, and as many as fifteen jurisdictions in the U.S. Although our lease contracts require that each lessee indemnifies us against such liabilities, in the event that a lessee lacks adequate insurance coverage or financial resources to satisfy these indemnity provisions, we could be liable for property damage or injuries caused by the vehicles that we lease.

See “Part I—Item 1A. Risk Factors—Risks Related to our Business—The businesses in which we engage are complex and heavily regulated, and changes in the regulatory environment affecting our businesses could have a material adverse effect on our business, financial position, results of operations or cash flows.” and “— Unanticipated liabilities of our Fleet Management Services segment as a result of damages in connection with motor vehicle accidents under the theory of vicarious liability could have a material adverse effect on our business, financial position, results of operations or cash flows.” for more information.

Employees

As of December 31, 2009, we employed a total of approximately 5,120 persons. Management considers our employee relations to be satisfactory. As of December 31, 2009, none of our employees were covered under collective bargaining agreements.

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Item 1A.  Risk Factors

Risks Related to our Business

The termination of our status as the exclusive recommended provider of mortgage products and services promoted by the residential and commercial real estate brokerage business owned and operated by Realogy’s affiliate, NRT, the title and settlement services business owned and operated by Realogy’s affiliate, TRG and the relocation business owned and operated by Realogy’s affiliate, Cartus, could have a material adverse effect on our business, financial position, results of operations or cash flows.

Under the Strategic Relationship Agreement, we are the exclusive recommended provider of mortgage loans to the independent sales associates affiliated with the residential and commercial real estate brokerage business owned and operated by Realogy’s affiliates and certain customers of Realogy. The marketing agreement entered into between Coldwell Banker Real Estate Corporation, Century 21 Real Estate LLC, ERA Franchise Systems, Inc., Sotheby’s International Affiliates, Inc. and PHH Mortgage (the “Marketing Agreement”) similarly provides that we are the exclusive recommended provider of mortgage loans and related products to the independent sales associates of Realogy’s real estate brokerage franchisees, which include Coldwell Banker Real Estate Corporation, Century 21 Real Estate LLC, ERA Franchise Systems, Inc. and Sotheby’s International Affiliates, Inc. For the year ended December 31, 2009, approximately 37% of loans originated by our Mortgage Production segment were derived from Realogy’s affiliates.

Pursuant to the terms of the Mortgage Venture Operating Agreement, beginning on February 1, 2015, Realogy will have the right at any time upon two years’ notice to us to terminate its interest in the Mortgage Venture. A termination of Realogy’s interest in the Mortgage Venture could have a material adverse effect on our business, financial position, results of operations or cash flows. In addition, the Strategic Relationship Agreement provides that Realogy has the right to terminate the covenant requiring it to exclusively recommend us as the provider of mortgage loans to the independent sales associates affiliated with the residential and commercial real estate brokerage business owned and operated by Realogy’s affiliates and certain customers of Realogy, following notice and a cure period, if:

§	we materially breach any representation, warranty, covenant or other agreement contained in the Strategic Relationship Agreement, the Marketing Agreement, trademark license agreements (the “Trademark License Agreements”) or certain other related agreements;
§	we or the Mortgage Venture become subject to any regulatory order or governmental proceeding and such order or proceeding prevents or materially impairs the Mortgage Venture’s ability to originate mortgage loans for any period of time (which order or proceeding is not generally applicable to companies in the mortgage lending business) in a manner that adversely affects the value of one or more of the quarterly distributions to be paid by the Mortgage Venture pursuant to the Mortgage Venture Operating Agreement;
§	the Mortgage Venture otherwise is not permitted by law, regulation, rule, order or other legal restriction to perform its origination function in any jurisdiction, but in such case exclusivity may be terminated only with respect to such jurisdiction or
§	the Mortgage Venture does not comply with its obligations to complete an acquisition of a mortgage loan origination company under the terms of the Strategic Relationship Agreement.

If Realogy were to terminate its exclusivity obligations with respect to us, it could have a material adverse effect on our business, financial position, results of operations or cash flows.

Continued or worsening general business, economic, environmental and political conditions could have a material adverse effect on our business, financial position, results of operations or cash flows.

Our businesses and operations are sensitive to general business and economic conditions in the U.S. The U.S. economic recession has impacted, and could further impact, the general condition of the U.S. economy including short-term and long-term interest rates, deflation, fluctuations in debt and equity capital markets, including the secondary market for mortgage loans and the housing market, both nationally and in the regions in which we conduct our businesses. These factors and certain other factors described in this “Risk Factors” section

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have negatively impacted our recent results of operations and could have a material adverse effect on our future business, financial position, results of operations or cash flows. A significant portion of our mortgage loan originations are made in a small number of geographical areas which include: California, Illinois and New Jersey. Some of these geographical areas have been significantly impacted by the U.S. economic recession which has impacted our results of operations, and any continuation or worsening of the current economic downturn in any of these geographical areas could have a material adverse effect on our business, financial position, results of operations or cash flows.

Adverse economic conditions have impacted and could continue to negatively impact home sales, real estate values and mortgage loan delinquency rates, which has impacted our results of operations and could have a material adverse effect on our business, financial position, results of operations or cash flows of our Mortgage Production and Mortgage Servicing segments. In addition, prolonged economic weakness that affects the industries in which the clients of our Fleet Management Services segment operate could continue to negatively impact our clients’ demand for vehicles and could adversely impact our ability to retain existing clients or obtain new clients. Any inability of the automobile manufacturers to make new vehicles available to us on commercially favorable terms, or if at all, could have a further material adverse effect on our business, financial position, results of operations or cash flows of our Fleet Management Services segment.

Our business is significantly affected by monetary and related policies of the federal government, its agencies and government-sponsored entities. We are particularly affected by the policies of the Federal Reserve Board which regulates the supply of money and credit in the U.S. The Federal Reserve Board’s policies, including initiatives to stabilize the U.S. housing market and to stimulate overall economic growth, affect the size of the mortgage loan origination market, the pricing of our interest-earning assets and the cost of our interest-bearing liabilities. Changes in any of these policies are beyond our control, difficult to predict, particularly in the current economic environment, and could have a material adverse effect on our business, financial position, results of operations or cash flows.

A host of other factors beyond our control could cause fluctuations in these conditions, including political events, such as civil unrest, war, acts or threats of war or terrorism and environmental events, such as hurricanes, earthquakes and other natural disasters could have a material adverse effect on our business, financial position, results of operations or cash flows.

Adverse developments in the secondary mortgage market could have a material adverse effect on our business, financial position, results of operations or cash flows.

We historically have relied on selling or securitizing our mortgage loans into the secondary market in order to generate liquidity to fund maturities of our indebtedness, the origination and warehousing of mortgage loans, the retention of MSRs and for general working capital purposes. We bear the risk of being unable to sell or securitize our mortgage loans at advantageous times and prices or in a timely manner. Demand in the secondary market and our ability to complete the sale or securitization of our mortgage loans depends on a number of factors, many of which are beyond our control, including general economic conditions. If it is not possible or economical for us to complete the sale or securitization of our mortgage loans held for sale (“MLHS”), we may lack liquidity under our debt arrangements to fund future loan commitments, which could have a material adverse effect on our business, financial position, results of operations or cash flows.

During 2009, secondary market demand and prevailing mortgage interest rates for conforming mortgage loans were positively impacted by the Federal Reserve’s purchase of MBS issued by the GSEs, which is scheduled to end in the first quarter of 2010. The cessation of this program could result in adverse conditions in the secondary mortgage market, which may change the trend of prevailing mortgage interest rates experienced in 2009. This development could negatively impact our Mortgage Production and Mortgage Servicing segments during 2010.

The foregoing factors could negatively affect our revenues and margins on new loan originations, and our access to the secondary mortgage market may be reduced, restricted or less profitable in comparison to our historical experience. Any of the foregoing could have a material adverse effect on our business, financial position, results of operations or cash flows.

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We are highly dependent upon programs administered by GSEs such as Fannie Mae, Freddie Mac and Ginnie Mae to generate revenues through mortgage loan sales to institutional investors. Any changes in existing U.S. government-sponsored mortgage programs could materially and adversely affect our business, financial position, results of operations or cash flows.

Our ability to generate revenues through mortgage loan sales to institutional investors depends to a significant degree on programs administered by GSEs such as Fannie Mae, Freddie Mac, Ginnie Mae and others that facilitate the issuance of MBS in the secondary market. These GSEs play a powerful role in the residential mortgage industry, and we have significant business relationships with them. Almost all of the conforming loans that we originate for sale qualify under existing standards for inclusion in guaranteed mortgage securities backed by GSEs. We also derive other material financial benefits from these relationships, including the assumption of credit risk by these GSEs on loans included in such mortgage securities in exchange for our payment of guarantee fees and the ability to avoid certain loan inventory finance costs through streamlined loan funding and sale procedures.

Any discontinuation of, or significant reduction in, the operation of these GSEs or any significant adverse change in the level of activity in the secondary mortgage market or the underwriting criteria of these GSEs could have a material adverse effect on our business, financial position, results of operations or cash flows.

Continued or worsening conditions in the real estate market could adversely impact our business, financial position, results of operations or cash flows.

The U.S. economic recession has resulted and could continue to result in further increased delinquencies, home price depreciation and lower home sales. In response to these trends, the U.S. government has taken several actions which are intended to stabilize the housing market and the banking system, maintain lower interest rates, and increase liquidity for lending institutions. These actions by the federal government are intended to: increase the access to mortgage lending for borrowers by expanding the Federal Housing Administration lending; continue and expand the mortgage lending activities of Fannie Mae and Freddie Mac through the conservatorship and guarantee of GSE obligations and increase bank lending capacity by injecting capital in the banking system. While it is too early to tell how and when these initiatives may impact the industry, there can be no assurance that these actions will achieve their intended effects.

Consistent with Fannie Mae’s Economic and Mortgage Market Analysis, we believe that overall refinance originations for the mortgage industry and our Mortgage Production segment may decrease during 2010 from 2009 levels, which may have a negative impact on overall origination volumes during 2010 in comparison to 2009 due to relatively higher interest rates. The level of interest rates is a key driver of refinancing activity; however, there are other factors which influence the level of refinance originations, including home prices, underwriting standards and product characteristics. We anticipate a continued challenging environment for purchase originations in 2010 as an excess inventory of homes, declining home values and increased foreclosures may make it difficult for many homeowners to sell their homes or qualify for a new mortgage.

The declining housing market, general economic conditions and a significant increase in loan payoffs have continued to negatively impact our Mortgage Servicing segment. Industry-wide mortgage loan delinquency rates have increased and we expect they will continue to increase over 2009 levels in correlation with unemployment rates. We expect foreclosure costs to remain elevated during 2010 due to an increase in borrower delinquencies and declining home prices. During 2009, we experienced increases in actual and projected repurchases, indemnifications and related loss severity associated with the representations and warranties that we provide to purchasers and insurers of our loans sold, which we expect may continue in 2010, primarily due to increased delinquency rates and declining housing prices during 2009 compared to 2008. Realized foreclosure losses during 2009 were $73 million compared to $37 million during 2008. In addition, the outstanding balance of loans sold with specific recourse by us and those for which a breach of representation or warranty provision was identified subsequent to sale was $228 million as of December 31, 2009, 16.13% of which were at least 90 days delinquent (calculated based on the unpaid principal balance of the loans). As a result of the continued weakness in the housing market and increasing delinquency and foreclosure experience, we may experience increased foreclosure losses and may need to increase our provision for foreclosure losses associated with loans sold with recourse during 2010.

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As a result of the continued weakness in the housing market and increasing delinquency and foreclosure experience, our provision for reinsurance losses may increase during 2010 as anticipated losses become incurred. Additionally, we began to pay claims for certain book years and reinsurance agreements during the second quarter of 2009 and we expect to continue to pay claims during 2010. We hold securities in trust related to our potential obligation to pay such claims, which were $281 million and were included in Restricted cash in the accompanying Consolidated Balance Sheet as of December 31, 2009. We continue to believe that this amount is significantly higher than the expected claims.

These factors could have a material adverse effect on our business, financial position, results of operations or cash flows.

Adverse developments in the asset-backed securities market may negatively affect the availability of funding and our costs of funds, which could have a material and adverse effect on our business, financial position, results of operations or cash flows.

The availability of funding and our cost of debt associated with asset-backed commercial paper issued by the multi-seller conduits, which funded the Chesapeake Funding LLC (“Chesapeake”) Series 2006-2 variable funding notes and the Series 2009-1, Series 2009-2, Series 2009-3 and Series 2009-4 term notes (the “Chesapeake Term Notes”) were negatively impacted by disruption in the ABS market. The impact continued in 2009 as the costs associated with the Series 2006-2 variable funding notes and the Chesapeake Term Notes reflected debt fees that were higher than prior to the disruption in the ABS market.

We are exposed to foreign exchange risk associated with the use of domestic borrowings to fund Canadian leases, and have entered into foreign exchange forward contracts to manage such risk. However, there can be no assurance that we will manage our foreign exchange risk effectively, which could have a material adverse impact on our business, results of operations or cash flows.

The demand for ABS by investors in both the U.S. and Canada has continued to dramatically increase during 2009 and into 2010. Likewise, the spread levels required by investors in the primary and secondary markets for ABS, along with spread compression, have improved during 2009. In addition, participation in the ABS markets by traditional investors has risen dramatically. Worsening conditions in the ABS market may negatively affect the availability of funding and our cost of funds.

Any of the foregoing factors could have a material adverse effect on our business, financial position, results of operations or cash flows.

Certain hedging strategies that we may use to manage interest rate risk associated with our MSRs and other mortgage-related assets and commitments may not be effective in mitigating those risks.

From time to time, we may employ various economic hedging strategies to attempt to mitigate the interest rate and prepayment risk inherent in many of our assets, including our MLHS, interest rate lock commitments (“IRLCs”) and our MSRs. Our hedging activities may include entering into derivative instruments. Our hedging decisions in the future will be determined in light of the facts and circumstances existing at the time and may differ from our current hedging strategy. We also seek to manage interest rate risk in our Mortgage Production and Mortgage Servicing segments partially by monitoring and seeking to maintain an appropriate balance between our loan production volume and the size of our mortgage servicing portfolio, as the value of MSRs and the income they provide tend to be counter-cyclical to the changes in production volumes and gain or loss on loans that result from changes in interest rates.

During the third quarter of 2008, we assessed the composition of our capitalized mortgage servicing portfolio and its relative sensitivity to refinance if interest rates decline, the costs of hedging and the anticipated effectiveness of the hedge given the current economic environment. Based on that assessment, we made the decision to close out substantially all of our derivatives related to MSRs during the third quarter of 2008. As of December 31, 2009, there were no open derivatives related to MSRs, which resulted in increased volatility in the results of operations for our Mortgage Servicing segment. Our decisions regarding the levels, if any, of our derivatives related to MSRs could result in continued volatility in the results of operations for our Mortgage Servicing segment.

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Our hedging strategies may not be effective in mitigating the risks related to changes in interest rates. Poorly designed strategies or improperly executed transactions could actually increase our risk and losses. There have been periods, and it is likely that there will be periods in the future, during which we incur losses after consideration of the results of our hedging strategies. As stated earlier, the success of our interest rate risk management strategy is largely dependent on our ability to predict the earnings sensitivity of our loan servicing and loan production activities in various interest rate environments. Our hedging strategies also rely on assumptions and projections regarding our assets and general market factors. If these assumptions and projections prove to be incorrect or our hedges do not adequately mitigate the impact of changes including, but not limited to, interest rates or prepayment speeds, we may incur losses that could have a material adverse effect on our business, financial position, results of operations or cash flows.

We are exposed to counterparty risk and there can be no assurances that we will manage or mitigate this risk effectively.

We are exposed to counterparty risk in the event of non-performance by counterparties to various agreements and sales transactions. The insolvency, unwillingness or inability of a significant counterparty to perform its obligations under an agreement or transaction, including, without limitation, as a result of the rejection of an agreement or transaction by a counterparty in bankruptcy proceedings, could have a material adverse effect on our business, financial position, results of operations or cash flows.

As a result of the recent economic decline in the U.S., including the pronounced downturn in the debt and equity capital markets and the U.S. housing market, and unprecedented levels of credit market volatility, many financial institutions, real estate companies and companies within the industries served by our Fleet Management Services segment have consolidated with competitors, commenced bankruptcy proceedings, shut down or severely curtailed their activities. The insolvency or inability of any of our counterparties to our significant client or financing arrangements to perform its obligations under our agreements could have a material adverse effect on our business, financial position, results of operations or cash flows.

In January 2009, Bank of America Corporation announced the completion of its merger with Merrill Lynch & Co., Inc., the parent company of Merrill Lynch, which is one of our largest private-label clients, accounting for approximately 16% of our mortgage loan originations during the year ended December 31, 2009. We have several agreements with Merrill Lynch, including the OAA, pursuant to which we provide Merrill Lynch mortgage origination services on a private-label basis. The initial terms of the OAA expire on December 31, 2010; however, provided we remain in compliance with its terms, the OAA will automatically renew for an additional five-year term, expiring on December 31, 2015. There can be no assurances, however, that our relationship with Merrill Lynch or any of our other private label customers who may consolidate with our competitors or other financial institutions will remain unchanged following the completion of such transactions.

In connection with the Spin-Off, we entered into the Mortgage Venture Operating Agreement, the Strategic Relationship Agreement, the Management Services Agreement, the Trademark Licensing Agreements and the Marketing Agreement (collectively, the “Realogy Agreements”). During the year ended December 31, 2009, approximately 37% of our mortgage loan originations were derived through our relationship with Realogy and its affiliates.

There can be no assurances that we will be effective in managing or mitigating our counterparty risk, which could have a material adverse effect on our business, financial position, results of operations or cash flows.

Conditions in the North American automotive industry may adversely affect the business, financial condition, results of operations or cash flows of our Fleet Management Services Segment.

Our Fleet Management Services segment depends upon the North American automotive industry to supply our clients with vehicles. North American automobile manufacturers have experienced declining market shares; challenging labor relations and labor costs; and significant structural costs that have affected their profitability which ultimately resulted in two major U.S. automobile manufacturers filing for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. Although these U.S. auto manufacturers have emerged from bankruptcy, if our clients reduce their orders to us due to the struggling financial condition of the North American automobile manufacturers,

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or if we are unable to collect amounts due to us, it could adversely affect the business, financial condition, results of operations or cash flows of our Fleet Management Services segment.

Losses incurred in connection with actual or projected repurchases and indemnification payments may exceed our financial statement reserves and we may be required to increase such reserves in the future. Increases to our reserves and losses incurred in connection with actual loan repurchases and indemnification payments could have a material adverse effect on our business, financial position, results of operation or cash flows.

In connection with the sale of mortgage loans, we make various representations and warranties concerning such loans that, if breached, may require us to repurchase such loans or indemnify the purchaser of such loans for actual losses incurred in respect of such loans. Due, in part, to recent increased mortgage payment delinquency rates and declining housing prices, we have experienced, and may in the future continue to experience, an increase in loan repurchases, loan repurchase demands, indemnification payments and indemnification requests due to actual or alleged breaches of representations and warranties in connection with the sale of mortgage loans. Given these trends, losses incurred in connection with such actual or projected loan repurchases and indemnification payments may be in excess of our financial statement reserves, and we may be required to increase such reserves and may sustain additional losses associated with such loan repurchases and indemnification payments in the future. Increases to our reserves and losses incurred by us in connection with actual loan repurchases and indemnification payments in excess of our reserves could have a material adverse effect on our business, financial position, results of operations or cash flows.

Changes in interest rates could reduce the value of a substantial portion of our assets, including our MSRs, and could have a material adverse effect on our business, financial position, results of operations or cash flows.

The values of a substantial portion of our assets, including our MSRs, are sensitive to changes in interest rates. As interest rates fluctuate, the fair value of such assets as determined in accordance with GAAP also fluctuates, with changes in fair value being included in our consolidated results of operations. Because we do not currently utilize derivatives to hedge against changes in the fair value of certain of our assets, including our MSRs, we are susceptible to significant fluctuations in the fair value of our assets, including our MSRs, as interest rates change. Volatility in interest rates could have a material adverse effect on our business, financial position, results of operations or cash flows.

The values of a substantial portion of our assets, including our MSRs, are determined based upon significant estimates and assumptions made by our management that, if subsequently proven incorrect or inaccurate, could have a material adverse effect on our business, financial position, results of operations or cash flows.

A substantial portion of our assets, including our MSRs, are recorded at fair value with changes in fair value included in our accompanying Consolidated Statements of Operations. The determination of the fair value of such assets, including our MSRs, involves numerous estimates and assumptions made by our management. Such estimates and assumptions, include, without limitation, estimates of future cash flows associated with our MSRs based upon assumptions involving interest rates as well as the prepayment rates and delinquencies and foreclosure rates of the underlying serviced mortgage loans. The use of different estimates or assumptions could produce materially different fair values for our assets. Incorrect or inaccurate management’s estimates or assumptions involving the fair value of our assets could have a material adverse effect on our financial position, results of operations or cash flows.

Our business relies on various sources of funding, including unsecured credit facilities and other unsecured debt, as well as secured funding arrangements, including asset-backed securities, mortgage repurchase facilities and other secured credit facilities. If any of our funding arrangements are terminated, not renewed or made unavailable to us, we may be unable to find replacement financing on commercially favorable terms, if at all, which could have a material adverse effect on our business, financial position, results of operations or cash flows.

Our business relies on various sources of funding, including unsecured credit facilities and other unsecured debt, as well as secured funding arrangements, including asset-backed securities, mortgage repurchase facilities and other secured credit facilities to fund mortgage loans and vehicle acquisitions, a significant portion of which is

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short-term. Renewal of existing series or issuance of new series of Chesapeake notes on terms acceptable to us, or our ability to enter into alternative vehicle management asset-backed debt arrangements could be adversely affected in the event of: (i) the deterioration in the quality of the assets underlying the asset-backed debt arrangement; (ii) increased costs associated with accessing or our inability to access the asset-backed debt market; (iii) termination of our role as servicer of the underlying lease assets in the event that we default in the performance of our servicing obligations or we declare bankruptcy or become insolvent or (iv) our failure to maintain a sufficient level of eligible assets or credit enhancements, including collateral intended to provide for any differential between variable-rate lease revenues and the underlying variable-rate debt costs. In addition, the availability of the mortgage asset-backed debt could suffer in the event of: (i) the deterioration in the performance of the mortgage loans underlying the asset-backed debt arrangement; (ii) our failure to maintain sufficient levels of eligible assets or credit enhancements; (iii) our inability to access the asset-backed debt market to refinance maturing debt; (iv) our inability to access the secondary market for mortgage loans or (v) termination of our role as servicer of the underlying mortgage assets in the event that (a) we default in the performance of our servicing obligations or (b) we declare bankruptcy or become insolvent. Certain of our secured sources of funding could require us to post additional collateral or require us to fund assets that become ineligible under those secured funding arrangements. These funding requirements could negatively impact availability under our unsecured sources of funds, which could have a material adverse effect on our business, financial position, results of operations or cash flows. If any of our warehouse, repurchase or other credit facilities are terminated, including as a result of our breach, or are not renewed, we may be unable to find replacement financing on commercially favorable terms, if at all, which could have a material adverse effect on our business, financial position, results of operations or cash flows.

Certain of our debt arrangements require us to comply with certain financial covenants and other affirmative and restrictive covenants. An uncured default of one or more of these covenants could result in a cross-default between and amongst our various debt arrangements. Consequently, an uncured default under any of our debt arrangements could have a material adverse effect on our business, financial position, results of operations or cash flows. See “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for additional information regarding our debt arrangements and related financial covenants and other affirmative and restrictive covenants.

Our access to credit markets is subject to prevailing market conditions. During 2008 and into 2009, dramatic declines in home prices, adverse developments in the secondary mortgage market and volatility in certain asset-backed securities (“ABS”) markets, including Canadian ABS markets, negatively impacted the availability of funding and limited our access to one or more of the funding sources discussed above. However, conditions in the ABS markets in the U.S. and Canada and the credit markets have improved significantly during 2009 and into 2010. While we expect that the costs associated with our borrowings, including relative spreads and conduit fees, will be higher during 2010 compared to such costs prior to the disruption in the credit markets, relative spreads have tightened significantly during 2009. If conditions in the credit markets worsen dramatically, they could also impair our ability to renew or replace some or all of our financing arrangements beyond the then existing maturity dates. Any of the foregoing factors could have a material adverse effect on our business, financial position, results of operations or cash flows.

The industries in which we operate are highly competitive and, if we fail to meet the competitive challenges in our industries, it could have a material adverse effect on our business, financial position, results of operations or cash flows.

We operate in highly competitive industries that could become even more competitive as a result of economic, legislative, regulatory and technological changes. Certain of our competitors are larger than we are and have access to greater financial resources than we do. Competition for mortgage loans comes primarily from large commercial banks and savings institutions, which typically have lower funding costs, are less reliant than we are on the sale of mortgage loans into the secondary markets to maintain their liquidity.

Many of our competitors are larger than we are and continue to have access to greater financial resources than we do, which places us at a competitive disadvantage. The advantages of our largest competitors include, but are not limited to, their ability to hold new mortgage loan originations in an investment portfolio and have access to lower rate bank deposits as a source of liquidity. Additionally, more restrictive underwriting standards and the elimination

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of Alt-A and subprime products have resulted in a more homogenous product offering, which has increased competition across the industry.

The fleet management industry in which we operate is highly competitive. We compete against large national competitors, such as GE Commercial Finance Fleet Services, Wheels, Inc., Automotive Resources International, Lease Plan International and other local and regional competitors, including numerous competitors who focus on one or two products. Growth in our Fleet Management Services segment is driven principally by increased market share in fleets greater than 75 units and increased fee-based services. Due to the U.S. economic recession, U.S. automobile manufacturers experienced a dramatic decline in the demand for new vehicle production during 2009 and they expect a continued softening in the market during 2010. We believe that this trend may be reflected in the Fleet Management industry, and as such, the volume of our leased units may continue to decrease in 2010. Competitive pressures could adversely affect our revenues and results of operations by decreasing our market share or depressing the prices that we can charge.

The businesses in which we engage are complex and heavily regulated, and changes in the regulatory environment affecting our businesses could have a material adverse effect on our business, financial position, results of operations or cash flows.

Our Mortgage Production and Mortgage Servicing segments are subject to numerous federal, state and local laws and regulations and may be subject to various judicial and administrative decisions imposing various requirements and restrictions on our business. These laws, regulations and judicial and administrative decisions to which our Mortgage Production and Mortgage Servicing segments are subject include those pertaining to: real estate settlement procedures; fair lending; fair credit reporting; truth in lending; compliance with net worth and financial statement delivery requirements; compliance with federal and state disclosure requirements; the establishment of maximum interest rates, finance charges and other charges; secured transactions; collection, foreclosure, repossession and claims-handling procedures; other trade practices and privacy regulations providing for the use and safeguarding of non-public personal financial information of borrowers and guidance on non-traditional mortgage loans issued by the federal financial regulatory agencies. By agreement with our financial institution clients, we are required to comply with additional requirements that our clients may be subject to through their regulators.

We are also subject to privacy regulations. We manage highly sensitive non-public personal information in all of our operating segments, which is regulated by law. Problems with the safeguarding and proper use of this information could result in regulatory actions and negative publicity, which could materially and adversely affect our reputation, business, financial position, results of operations or cash flows.

Some local and state governmental authorities have taken, and others are contemplating taking, regulatory action to require increased loss mitigation outreach for borrowers, including the imposition of waiting periods prior to the filing of notices of default and the completion of foreclosure sales and, in some cases, moratoriums on foreclosures altogether. Such regulatory changes in the foreclosure process could increase servicing costs and reduce the ultimate proceeds received on these properties if real estate values continue to decline. These changes could also have a negative impact on liquidity as we may be required to repurchase loans without the ability to sell the underlying property on a timely basis.

With respect to our Fleet Management Services segment, we could be subject to unlimited liability as the owner of leased vehicles in Alberta, Canada and are subject to limited liability in two major provinces, Ontario and British Columbia, and as many as fifteen jurisdictions in the U.S. under the legal theory of vicarious liability.

Congress, state legislatures, federal and state regulatory agencies and other professional and regulatory entities review existing laws, rules, regulations and policies and periodically propose changes that could significantly affect or restrict the manner in which we conduct our business. It is possible that one or more legislative proposals may be adopted or one or more regulatory changes, changes in interpretations of laws and regulations, judicial decisions or governmental enforcement actions may be implemented that could have a material adverse effect on our business, financial position, results of operations or cash flows. For example, certain trends in the regulatory environment could result in increased pressure from our clients for us to assume more residual risk on the value of the vehicles at the end of the lease term. If this were to occur, it could have a material adverse effect on our results of operations.

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Our failure to comply with such laws, rules or regulations, whether actual or alleged, could expose us to fines, penalties or potential litigation liabilities, including costs, settlements and judgments, any of which could have a material adverse effect on our business, financial position, results of operations or cash flows.

The U.S. economic recession has resulted, and could continue to result, in increased delinquencies, home price depreciation and lower home sales. In response to these trends, the U.S. government has taken several actions that are intended to stabilize the housing market and the banking system, maintain lower interest rates, and increase liquidity for lending institutions. Certain of these actions are also intended to make it easier for borrowers to obtain mortgage financing or to avoid foreclosure on their current homes. Some of these key actions that have impacted, and may continue to impact, the U.S. mortgage industry include the enactment of the Housing and Economic Recovery Act (“HERA”), the conservatorship of Fannie Mae and Freddie Mac, the enactment of the EESA, the Troubled Asset Relief Program (“TARP”), the implementation of the Home Affordability Modification Program (“HAMP”) and the Home Affordable Refinance Program (“HARP”) as part of the HASP, the purchase by the Federal Reserve of direct obligations of the GSEs, the enactment of the American Recovery and Reinvestment Act of 2009 (“AARA”), and the implementation of the Public-Private Investment Program (“PPIP”).

These specific actions by the federal government are intended, among other things, to stabilize domestic residential real estate markets by increasing the availability of credit for homebuyers and existing homeowners and reduce the foreclosure rates through mortgage loan modification programs. Although the federal government’s HASP programs are intended to improve the current trends in home foreclosures, some local and state governmental authorities have taken, and others are contemplating taking, regulatory action to require increased loss mitigation outreach for borrowers, including the imposition of waiting periods prior to the filing of notices of default and the completion of foreclosure sales and, in some cases, moratoriums on foreclosures altogether. Such regulatory changes in the foreclosure process could increase servicing costs and reduce the ultimate proceeds received on these properties if real estate values continue to decline. These changes could also have a negative impact on liquidity as we may be required to repurchase loans without the ability to sell the underlying property on a timely basis.

Additionally, on June 17, 2009, the Treasury issued a report recommending the enactment of sweeping financial regulatory reform legislation. While we are continuing to evaluate the proposed legislation, it is too early to tell when or if any of the provisions will be enacted and what impact any such provisions could have on the mortgage industry. If enacted as proposed, this legislation could materially affect the manner in which we conduct our businesses and result in federal regulation and oversight of our business activities.

While it is too early to tell whether the foregoing governmental initiatives will achieve their intended effect, there can be no assurance that any of these programs will improve the effects of the current economic recession on our business. We also may be at a competitive disadvantage in the event that our competitors are able to participate in these federal programs and it is determined that we are not eligible to participate in these programs.

See “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Mortgage Production and Mortgage Servicing Segments—Regulatory Trends” for additional information regarding proposed legislation.

Our Fleet Management Services segment contracts with various government agencies, which may be subject to audit and potential reduction of costs and fees.

Contracts with federal, state and local government agencies may be subject to audits, which could result in the disallowance of certain fees and costs. These audits may be conducted by government agencies and can result in the disallowance of significant costs and expenses if the auditing agency determines, in its discretion, that certain costs and expenses were not warranted or were excessive. Disallowance of costs and expenses, if pervasive or significant, could have a material adverse effect on our business, financial position, results of operations or cash flows.

If certain change in control transactions occur, some of our mortgage loan origination arrangements with financial institutions could be subject to termination at the election of such institutions.

For the year ended December 31, 2009, approximately 63% of our mortgage loan originations were derived from our financial institutions channel, pursuant to which we provide outsourced mortgage loan services for customers of our financial institution clients such as Merrill Lynch and Charles Schwab. Our agreements with some

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of these financial institutions provide the applicable financial institution with the right to terminate its relationship with us prior to the expiration of the contract term if we complete a change in control transaction with certain third-party acquirers. Accordingly, if we are unable to obtain consents to or waivers of certain rights of certain of our clients in connection with certain change in control transactions, it could have a material adverse effect on our business, financial position, results of operations or cash flows. Although in some cases these contracts would require the payment of liquidated damages in such an event, such amounts may not fully compensate us for all of our actual or expected loss of business opportunity for the remaining duration of the contract term. The existence of these termination provisions could discourage third parties from seeking to acquire us or could reduce the amount of consideration they would be willing to pay to our stockholders in an acquisition transaction.

Unanticipated liabilities of our Fleet Management Services segment as a result of damages in connection with motor vehicle accidents under the theory of vicarious liability could have a material adverse effect on our business, financial position, results of operations or cash flows.

Our Fleet Management Services segment could be liable for damages in connection with motor vehicle accidents under the theory of vicarious liability in certain jurisdictions in which we do business. Under this theory, companies that lease motor vehicles may be subject to liability for the tortious acts of their lessees, even in situations where the leasing company has not been negligent. Our Fleet Management Services segment is subject to unlimited liability as the owner of leased vehicles in Alberta, Canada and is subject to limited liability (e.g., in the event of a lessee’s failure to meet certain insurance or financial responsibility requirements) in two major provinces, Ontario and British Columbia, and as many as fifteen jurisdictions in the U.S. Although our lease contracts require that each lessee indemnifies us against such liabilities, in the event that a lessee lacks adequate insurance coverage or financial resources to satisfy these indemnity provisions, we could be liable for property damage or injuries caused by the vehicles that we lease.

On August 10, 2005, a federal law was enacted in the U.S. which preempted state vicarious liability laws that imposed unlimited liability on a vehicle lessor. This law, however, does not preempt existing state laws that impose limited liability on a vehicle lessor in the event that certain insurance or financial responsibility requirements for the leased vehicles are not met. Prior to the enactment of this law, our Fleet Management Services segment was subject to unlimited liability in the District of Columbia, Maine and New York. At this time, none of these three jurisdictions have enacted legislation imposing limited or an alternative form of liability on vehicle lessors. The scope, application and enforceability of this federal law continue to be tested. For example, shortly after its enactment, a state trial court in New York ruled that the federal law is unconstitutional. On April 29, 2008, New York’s highest court, the New York Court of Appeals, overruled the trial court and upheld the constitutionality of the federal law. In a 2008 decision relating to a case in Florida, the U.S. Court of Appeals for the 11th Circuit upheld the constitutionality of the federal law, but the plaintiffs filed a petition seeking review of the decision by the U.S. Supreme Court. The outcome of this case and cases that are pending in other jurisdictions and their impact on the federal law are uncertain at this time.

Additionally, a law was enacted in the Province of Ontario setting a cap of $1 million on a lessor’s liability for personal injuries for accidents occurring on or after March 1, 2006. A similar law went into effect in the Province of British Columbia effective November 8, 2007. The British Columbia law also includes a cap of $1 million on a lessor’s liability. In December 2007, the Province of Alberta legislature adopted a vicarious liability bill with provisions similar to the Ontario and British Columbia statutes, including a cap of $1 million on a lessor’s liability. Although draft regulations have recently been circulated for comment, an effective date has not yet been established for enactment of this Alberta legislation. The scope, application and enforceability of these provincial laws have not been fully tested.

Our failure to maintain our credit ratings could impact our ability to obtain financing on favorable terms and could negatively impact our business.

As of February 17, 2010, our senior unsecured long-term debt credit ratings from Moody’s Investors Service, Standard & Poor’s and Fitch Ratings were Ba2, BB+ and BB+, respectively, and our short-term debt credit ratings were NP, B and B, respectively. Also as of February 17, 2010, the ratings outlook on our unsecured debt provided by Moody’s Investors Service, Standard & Poor’s and Fitch were Negative. As a result of our senior unsecured long-term debt credit ratings no longer being investment grade, our access to the public debt markets may be severely

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limited. We may be required to rely on alternative financing, such as bank lines and private debt placements and pledge otherwise unencumbered assets. There can be no assurances that we would be able to find such alternative financing on terms acceptable to us, if at all. Furthermore, we may be unable to retain all of our existing bank credit commitments beyond the then-existing maturity dates. As a consequence, our cost of financing could rise significantly, thereby negatively impacting our ability to finance our MLHS, MSRs and net investment in fleet leases. Any of the foregoing could have a material adverse effect on our business, financial position, results of operations or cash flows.

There can be no assurances that our credit rating by the primary ratings agencies reflects all of the risks of an investment in our common stock or our debt securities. Our credit ratings are an assessment by the rating agency of our ability to pay our obligations. Actual or anticipated changes in our credit ratings will generally affect the market value of our common stock and our debt securities. Our credit ratings, however, may not reflect the potential impact of risks related to market conditions generally or other factors on the market value of, or trading market for our common stock or our debt securities.

Given the nature of the industries in which we operate, our businesses are, and in the future may become, involved in various legal proceedings the ultimate resolution of which is inherently unpredictable and could have a material adverse effect on our business, financial position, results of operations or cash flows.

Due, in part, to the heavily regulated nature of the industries in which we operate, we are, and in the future may become, involved in various legal proceedings. The ultimate resolution of such legal proceedings is inherently unpredictable. In accordance with GAAP, reserves are established for legal claims only when it is both probable that a loss has actually been incurred and an amount of such loss is reasonably estimable. Irrespective of whether we have established a reserve with respect to a particular legal proceeding, we may nevertheless incur legal costs and expenses in connection with the defense of such proceeding. In addition, the actual cost of resolving our pending and any future legal proceedings may be substantially higher than any amounts reserved for such matters. Depending on the remedy sought and the outcome of such proceedings, the ultimate resolution of our pending and any future legal proceedings, could have a material adverse effect on our business, financial position, results of operations or cash flows.

Our accounting policies and methods are fundamental to how we record and report our financial position and results of operations, and they require management to make assumptions and estimates about matters that are inherently uncertain.

Our accounting policies and methods are fundamental to how we record and report our financial position and results of operations. We have identified several accounting policies as being critical to the presentation of our financial position and results of operations because they require management to make particularly subjective or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be recorded under different conditions or using different assumptions.

Because of the inherent uncertainty of the estimates and assumptions associated with these critical accounting policies, we cannot provide any assurance that we will not make subsequent significant adjustments to the related amounts recorded in this Form 10-K, which could have a material adverse effect on our financial position, results of operations or cash flows. See “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in this Form 10-K for more information on our critical accounting policies.

Changes in accounting standards issued by the Financial Accounting Standards Board (the “FASB”) or other standard-setting bodies may adversely affect our reported revenues, profitability or financial position.

Our financial statements are subject to the application of GAAP, which are periodically revised and/or expanded. The application of accounting principles is also subject to varying interpretations over time. Accordingly, we are required to adopt new or revised accounting standards or comply with revised interpretations when issued by recognized authoritative bodies, including the FASB and the SEC. Those changes could adversely affect our reported revenues, profitability or financial position. In addition, new or revised accounting standards may impact certain of our leasing or lending products, which could adversely affect our profitability.

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We depend on the accuracy and completeness of information provided by or on behalf of our customers and counterparties.

In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information furnished to us by or on behalf of customers and counterparties, including financial statements and other financial information. We also may rely on representations of customers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. Our financial position and results of operations could be negatively impacted to the extent we rely on financial statements that do not comply with GAAP or are materially misleading.

An interruption in or breach of our information systems may result in lost business, regulatory actions or litigation or may otherwise have an adverse effect on our reputation, business, business prospects, financial position, results of operations or cash flows.

We rely heavily upon communications and information systems to conduct our business. Any failure or interruption of our information systems or the third-party information systems on which we rely could cause underwriting or other delays and could result in fewer loan applications being received, slower processing of applications and reduced efficiency in loan servicing in our Mortgage Production and Mortgage Servicing segments, as well as business interruptions in our Fleet Management Services segment. We are required to comply with significant federal, state and foreign laws and regulations in various jurisdictions in which we operate, with respect to the handling of consumer information, and a breach in the security of our information systems could result in regulatory actions and litigation against us. If a failure, interruption or breach occurs, it may not be adequately addressed by us or the third parties on which we rely. Such a failure, interruption or breach could have a material adverse effect on our reputation, business, business prospects, financial position, results of operations or cash flows.

The success and growth of our business may be adversely affected if we do not adapt to and implement technological changes.

Our business is dependent upon technological advancement, such as the ability to process loan applications over the internet, accept electronic payments and provide immediate status updates to our clients and customers. To the extent that we become reliant on any particular technology or technological solution, we may be harmed if the technology or technological solution:

§	becomes non-compliant with existing industry standards or is no longer supported by vendors;
§	fails to meet or exceed the capabilities of our competitors’ corresponding technologies or technological solutions;
§	becomes increasingly expensive to service, retain and update; or
§	becomes subject to third-party claims of copyright or patent infringement.

Our failure to acquire necessary technologies or technological solutions could limit our ability to remain competitive and could also limit our ability to increase our cost efficiencies, which could have a material adverse effect on our business, financial position, results of operations or cash flows.

Risks Related to the Spin-Off

Our agreements with Cendant and Realogy may not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated parties.

The agreements related to our separation from Cendant and the continuation of certain business arrangements with Cendant and Realogy, including a separation agreement, a strategic relationship agreement, a marketing agreement and other agreements, were not the result of arm’s-length negotiations and thus may not reflect terms that would have resulted from arm’s-length negotiations between two unaffiliated parties. This could include, among other things, the allocation of assets, liabilities, rights, indemnities and other obligations between Cendant, Realogy and us.

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We may be required to satisfy certain indemnification obligations to Cendant or Realogy, or we may not be able to collect on indemnification rights from Cendant or Realogy.

In connection with the Spin-Off, we and Cendant and our respective affiliates have agreed to indemnify each other for certain liabilities and obligations. Our indemnification obligations could be significant. We are required to indemnify Cendant for any taxes incurred by it and its affiliates as a result of any action, misrepresentation or omission by us or one of our subsidiaries that causes the distribution of our Common stock by Cendant or transactions relating to the internal reorganization to fail to qualify as tax-free. We are also responsible for 13.7% of any taxes resulting from the failure of the Spin-Off or transactions relating to the internal reorganization to qualify as tax-free, which failure is not due to the actions, misrepresentations or omissions of Cendant or us or our respective subsidiaries. Such percentage was based on the relative pro forma net book values of Cendant and us as of September 30, 2004, without giving effect to any adjustments to the book values of certain long-lived assets that may be required as a result of the Spin-Off and the related transactions. We cannot determine whether we will have to indemnify Cendant or its current or former affiliates for any substantial obligations in the future. There also can be no assurance that if Cendant or Realogy is required to indemnify us for any substantial obligations, they will be able to satisfy those obligations.

Certain arrangements and agreements that we have entered into with Cendant in connection with the Spin-Off could impact our tax and other assets and liabilities in the future, and our financial statements are subject to future adjustments as a result of our obligations under those arrangements and agreements.

In connection with the Spin-Off, we entered into certain arrangements and agreements with Cendant that could impact our tax and other assets and liabilities in the future. For example, we are party to the Amended Tax Sharing Agreement with Cendant that contains provisions governing the allocation of liabilities for taxes between Cendant and us, indemnification for certain tax liabilities and responsibility for preparing and filing tax returns and defending contested tax positions, as well as other tax-related matters including the sharing of tax information and cooperating with the preparation and filing of tax returns. Pursuant to the Amended Tax Sharing Agreement, our tax assets and liabilities may be affected by Cendant’s future tax returns and may also be impacted by the results of audits of Cendant’s prior tax years, including the settlement of any such audits. See Note 14, “Commitments and Contingencies” in the accompanying Notes to Consolidated Financial Statements included in this Form 10-K. Consequently, our financial statements are subject to future adjustments which may not be fully resolved until the audits of Cendant’s prior years’ returns are completed.

Risks Related to our Common Stock

There may be a limited public market for our Common stock and our stock price may experience volatility.

In connection with the Spin-Off, our Common stock was listed on the New York Stock Exchange (the “NYSE”) under the symbol “PHH.” From February 1, 2005 through February 15, 2010, the closing trading price for our Common stock has ranged from $4.67 to $31.40. The stock market has experienced extreme price and volume fluctuations over the past year that has, in part, depressed the trading price of our Common stock below net book value. There can be no assurance that the trading price of our Common stock will bear any relationship to our net book value. Changes in earnings estimates by analysts and economic and other external factors may have a significant impact on the market price of our Common stock. Fluctuations or decreases in the trading price of our Common stock may adversely affect the liquidity of the trading market for our Common stock and our ability to raise capital through future equity financing.

Future issuances of our Common stock or securities convertible into our Common stock and hedging activities may depress the trading price of our Common stock.

If we issue any shares of our Common stock or securities convertible into our Common stock in the future, including the issuance of shares of Common stock upon conversion of our 4.0% Convertible Senior Notes due 2012 (the “2012 Convertible Notes”) and 4.0% Convertible Senior Notes due 2014 (the “2014 Convertible Notes”), such issuances will dilute the interests of our stockholders and could substantially decrease the trading price of our Common stock. We may issue shares of our Common stock or securities convertible into our Common stock in the future for a number of reasons, including to finance our operations and business strategy (including in connection

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with acquisitions, strategic collaborations or other transactions), to increase our capital, to adjust our ratio of debt to equity, to satisfy our obligations upon the exercise of outstanding warrants or options or for other reasons.

In addition, the price of our Common stock could also be negatively affected by possible sales of our Common stock by investors who engage in hedging or arbitrage trading activity that we expect to develop involving our Common stock following the issuance of the 2012 Convertible Notes and 2014 Convertible Notes (collectively, the “Convertible Notes”).

The convertible note hedge and warrant transactions may negatively affect the value of our Common stock.

In connection with our offering of the 2012 Convertible Notes and 2014 Convertible Notes, we entered into convertible note hedge transactions with affiliates of the initial purchasers of the 2012 Convertible Notes and 2014 Convertible Notes (the “Option Counterparties”). The convertible note hedge transactions are expected to reduce the potential dilution upon conversion of the 2012 Convertible Notes and 2014 Convertible Notes.

In connection with hedging these transactions, the Option Counterparties and/or their respective affiliates entered into various derivative transactions with respect to our Common stock. The Option Counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various derivative transactions with respect to our Common stock or by selling or purchasing our Common stock in secondary market transactions while the Convertible Notes are convertible, which could adversely impact the price of our Common stock. In order to unwind its hedge position with respect to those exercised options, the Option Counterparties and/or their respective affiliates are likely to sell shares of our Common stock in secondary transactions or unwind various derivative transactions with respect to our Common stock during the observation period for the converted 2012 Convertible Notes and 2014 Convertible Notes. These activities could negatively affect the value of our Common stock.

The accounting for the Convertible Notes will result in our having to recognize interest expense significantly more than the stated interest rate of the Convertible Notes and may result in volatility to our accompanying Consolidated Statement of Operations.

Upon issuance of the 2012 Convertible Notes and 2014 Convertible Notes, we recognized an original issue discount, which will be accreted to Mortgage interest expense through October 15, 2011 and March 1, 2014, respectively, or the earliest conversion date of the Convertible Notes resulting in effective interest rates reported in our accompanying Consolidated Statements of Operations significantly in excess of the stated coupon rates of the Convertible Notes. This will reduce our earnings and could adversely affect the price at which our Common stock trades, but will have no effect on the amount of cash interest paid to the holders of the Convertible Notes or on our cash flows.

Holders of the 2012 Convertible Notes and 2014 Convertible Notes may convert prior to October 15, 2011 and March 1, 2014 (the “2012 Conversion Option” and “2014 Conversion Option”, respectively, and the “Conversion Option” collectively), respectively, in the event of the occurrence of certain triggering events. Additionally, in connection with the issuance of the 2012 Convertible Notes and the 2014 Convertible Notes, we entered into convertible note hedging transactions with respect to our Common stock (the “2012 Purchased Options” and the “2014 Purchased Options,” respectively and the “Purchased Options,” collectively) and warrant transactions whereby we sold warrants to acquire, subject to certain anti-dilution adjustments, shares of our Common stock (the “2012 Sold Warrants” and the “2014 Sold Warrants,” respectively and the “Sold Warrants,” collectively). The 2012 Conversion Option, 2012 Purchased Options and Sold Warrants are derivative instruments that meet the criteria for equity classification and are included within Additional paid-in capital in the accompanying Consolidated Statement of Changes in Equity. Therefore, we do not currently recognize a gain or loss in our accompanying Consolidated Statements of Operations for changes in their fair values. In the event that one or all of the derivative instruments no longer meets the criteria for equity classification, changes in their fair value may result in volatility to our accompanying Consolidated Statements of Operations.

See “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness” for further discussion regarding our 2012 Convertible Notes and 2014 Convertible Notes and related Conversion Options, Purchased Options and Sold Warrants.

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Provisions in our charter and bylaws, the Maryland General Corporation Law (the “MGCL”), our stockholder rights plan and the indentures for the 2012 Convertible Notes and 2014 Convertible Notes may delay or prevent our acquisition by a third party.

Our charter and by-laws contain several provisions that may make it more difficult for a third party to acquire control of us without the approval of our Board of Directors. These provisions include, among other things, a classified Board of Directors, advance notice for raising business or making nominations at meetings and “blank check” preferred stock. Blank check preferred stock enables our Board of Directors, without stockholder approval, to designate and issue additional series of preferred stock with such dividend, liquidation, conversion, voting or other rights, including the right to issue convertible securities with no limitations on conversion, as our Board of Directors may determine, including rights to dividends and proceeds in a liquidation that are senior to the Common stock.

We are also subject to certain provisions of the MGCL which could delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that might otherwise result in our stockholders receiving a premium over the market price for their Common stock or may otherwise be in the best interest of our stockholders. These include, among other provisions:

§	The “business combinations” statute which prohibits transactions between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder for five years after the most recent date on which the interested stockholder becomes an interested stockholder and
§	The “control share” acquisition statute which provides that control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter.

Our by-laws contain a provision exempting any share of our capital stock from the control share acquisition statute to the fullest extent permitted by the MGCL. However, our Board of Directors has the exclusive right to amend our by-laws and, subject to their fiduciary duties, could at any time in the future amend the by-laws to remove this exemption provision.

In addition, we entered into the Rights Agreement, dated as of January 28, 2005, with The Bank of New York, as rights agent (the “Rights Agreement”). This agreement entitles our stockholders to acquire shares of our Common stock at a price equal to 50% of the then-current market value in limited circumstances when a third party acquires beneficial ownership of 15% or more of our outstanding Common stock or commences a tender offer for at least 15% of our Common stock, in each case, in a transaction that our Board of Directors does not approve. Because, under these limited circumstances, all of our stockholders would become entitled to affect discounted purchases of our Common stock, other than the person or group that caused the rights to become exercisable, the existence of these rights would significantly increase the cost of acquiring control of our company without the support of our Board of Directors. The existence of the Rights Agreement could therefore prevent or deter potential acquirers and reduce the likelihood that stockholders receive a premium for our Common stock in an acquisition.

Finally, if certain changes in control or other fundamental changes under the terms of the Convertible Notes occur prior to their respective maturity date, holders of the Convertible Notes will have the right, at their option, to require us to repurchase all or a portion of their Convertible Notes and, in some cases, such a transaction will cause an increase in the conversion rate for a holder that elects to convert its Convertible Notes in connection with such a transaction. In addition, the indentures for the 2012 Convertible Notes and 2014 Convertible Notes (the “2012 Convertible Notes Indenture” and the “2014 Convertible Notes Indenture,” respectively and the “Convertible Notes Indentures,” collectively) prohibit us from engaging in certain changes in control unless, among other things, the surviving entity assumes our obligations under the Convertible Notes. These and other provisions of the indenture could prevent or deter potential acquirers and reduce the likelihood that stockholders receive a premium for our Common stock in an acquisition.

Certain provisions of the Mortgage Venture Operating Agreement and the Strategic Relationship Agreement that we have with Realogy and certain provisions in our other mortgage loan origination agreements could discourage third parties from seeking to acquire us or could reduce the amount of consideration they would be willing to pay our stockholders in an acquisition transaction.

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Pursuant to the terms of the Mortgage Venture Operating Agreement, Realogy has the right to terminate the Mortgage Venture, at its election, at any time on or after February 1, 2015 by providing two years’ notice to us. In addition, under the Mortgage Venture Operating Agreement, Realogy may terminate the Mortgage Venture if we effect a change in control transaction involving certain competitors or other third parties. In connection with such termination, we would be required to make a liquidated damages payment in cash to Realogy of an amount equal to the sum of (i) two times the Mortgage Venture’s trailing 12 months net income (except that, in the case of a termination by Realogy following a change in control of us, we may be required to make a cash payment to Realogy in an amount equal to the Mortgage Venture’s trailing 12 months net income multiplied by (a) if the Mortgage Venture Operating Agreement is terminated prior to its twelfth anniversary, the number of years remaining in the first 12 years of the term of the Mortgage Venture Operating Agreement, or (b) if the Mortgage Venture Operating Agreement is terminated on or after its tenth anniversary, two years), and (ii) all costs reasonably incurred by Cendant and its subsidiaries in unwinding its relationship with us pursuant to the Mortgage Venture Operating Agreement and the related agreements, including the Strategic Relationship Agreement, the Marketing Agreement and the Trademark License Agreements. Pursuant to the terms of the Strategic Relationship Agreement, we are subject to a non-competition provision, the breach of which could result in Realogy having the right to terminate the Strategic Relationship Agreement, seek an injunction prohibiting us from engaging in activities in breach of the non-competition provision or result in our liability for damages to Realogy. In addition, our agreements with some of our financial institution clients, such as Merrill Lynch and Charles Schwab, provide the applicable financial institution client with the right to terminate its relationship with us prior to the expiration of the contract term if we complete certain change in control transactions with certain third parties. The existence of these provisions could discourage certain third parties from seeking to acquire us or could reduce the amount of consideration they would be willing to pay to our stockholders in an acquisition transaction.

Item 1B.  Unresolved Staff Comments

None.

Item 2.  Properties

Our principal offices are located at 3000 Leadenhall Road, Mt. Laurel, New Jersey 08054.

Mortgage Production and Mortgage Servicing Segments

Our Mortgage Production and Mortgage Servicing segments have centralized operations in approximately 555,000 square feet of shared leased office space in the Mt. Laurel, New Jersey area. We have a second area of centralized offices that are shared by our Mortgage Production and Mortgage Servicing segments in Jacksonville, Florida, where approximately 150,000 square feet is occupied. In addition, our Mortgage Production segment leases 50 smaller offices located throughout the U.S. and our Mortgage Servicing segment leases one additional office located in New York.

Fleet Management Services Segment

Our Fleet Management Services segment maintains a headquarters office in a 210,000 square-foot office building in Sparks, Maryland. Our Fleet Management Services segment also leases office space and marketing centers in five locations in Canada and has four smaller regional locations throughout the U.S.

Item 3.  Legal Proceedings

We are party to various claims and legal proceedings from time to time related to contract disputes and other commercial, employment and tax matters. We are not aware of any pending legal proceedings that we believe could have, individually or in the aggregate, a material adverse effect on our business, financial position, results of operations or cash flows.

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Item 4.  Reserved

PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Price of Common Stock

Shares of our Common stock are listed on the NYSE under the symbol “PHH.” The following table sets forth the high and low sales prices for our Common stock for the periods indicated as reported by the NYSE:

	Stock Price
	High		Low
January 1, 2008 to March 31, 2008	$	21.88	$	14.91
April 1, 2008 to June 30, 2008		20.58		15.25
July 1, 2008 to September 30, 2008		18.87		11.79
October 1, 2008 to December 31, 2008		13.76		4.27
January 1, 2009 to March 31, 2009		14.87		8.50
April 1, 2009 to June 30, 2009		19.98		13.60
July 1, 2009 to September 30, 2009		22.88		15.78
October 1, 2009 to December 31, 2009		19.77		13.49

As of February 17, 2010, there were approximately 7,050 holders of record of our Common stock. As of that date, there were approximately 54,250 total holders of our Common stock including beneficial holders whose securities are held in the name of a registered clearing agency or its nominee.

Dividend Policy

No dividends were declared during the years ended December 31, 2009 or 2008.

The declaration and payment of future dividends by us will be subject to the discretion of our Board of Directors and will depend upon many factors, including our financial condition, earnings, capital requirements of our operating subsidiaries, legal requirements, regulatory constraints and other factors deemed relevant by our Board of Directors. Many of our subsidiaries (including certain consolidated partnerships, trusts and other non-corporate entities) are subject to restrictions on their ability to pay dividends or otherwise transfer funds to other consolidated subsidiaries and, ultimately, to PHH Corporation (the parent company). These restrictions relate to loan agreements applicable to certain of our asset-backed debt arrangements and to regulatory restrictions applicable to the equity of our insurance subsidiary, Atrium. The aggregate restricted net assets of these subsidiaries totaled $1.0 billion as of December 31, 2009. These restrictions on net assets of certain subsidiaries, however, do not directly limit our ability to pay dividends from consolidated Retained earnings. Pursuant to the MTN Indenture (as defined in “— Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness”), we may not pay dividends on our Common stock in the event that our debt to equity ratio exceeds 6.5:1, after giving effect to the dividend payment. The MTN Indenture also requires that we maintain a debt to tangible equity ratio of not more than 10:1. In addition, the Amended Credit Facility and the RBS Repurchase Facility (each as defined in “— Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness”) each include various covenants that may restrict our ability to pay dividends on our Common stock, including covenants which require that we maintain: (i) on the last day of each fiscal quarter, net worth of $1.0 billion plus 25% of net income, if positive, for each fiscal quarter ended after December 31, 2004 and (ii) at any time, a ratio of indebtedness to tangible net worth no greater than 10:1. In addition, the RBS Repurchase Facility requires PHH Mortgage to maintain a minimum of $3.0 billion in mortgage repurchase or warehouse facilities, comprised of any uncommitted facilities provided by Fannie Mae and any committed mortgage repurchase or warehouse facility, including the RBS Repurchase Facility. Based on our assessment of these requirements as of December 31, 2009, we do not believe that these restrictions will materially limit our ability to make dividend payments on our Common stock in

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the foreseeable future. Since the Spin-Off, we have not paid any cash dividends on our Common stock nor do we anticipate paying any cash dividends on our Common stock in the foreseeable future.

Issuer Purchases of Equity Securities

There were no share repurchases during the quarter ended December 31, 2009.

Item 6.  Selected Financial Data

As discussed under “Part I—Item 1. Business,” on February 1, 2005, we began operating as an independent, publicly traded company pursuant to the Spin-Off from Cendant. During 2005, prior to the Spin-Off, we underwent an internal reorganization whereby we distributed our former relocation and fuel card businesses to Cendant, and Cendant contributed its former appraisal business, STARS, to us.

Cendant’s contribution of STARS to us was accounted for as a transfer of net assets between entities under common control and, therefore, the financial position and results of operations for STARS are included in all periods presented. The financial position and results of operations of our former relocation and fuel card businesses have been segregated and reported as discontinued operations for all periods presented.

The selected consolidated financial data set forth below is derived from our audited Consolidated Financial Statements for the periods indicated. Because of the inherent uncertainties of our business, the historical financial information for such periods may not be indicative of our future results of operations, financial position or cash flows.

	Year Ended and As of December 31,
	2009		2008(1)			2007			2006			2005(2)
			(In millions, except per share data)
Consolidated Statements of Operations Data:
Net revenues	$	2,606	$	2,056		$	2,240		$	2,288		$	2,471
Net income (loss) from continuing operations	$	153	$	(254	)	$	(12	)	$	(16	)	$	73
Loss from discontinued operations, net Of income taxes		—		—			—			—			(1	)
Net income (loss) attributable to PHH Corporation	$	153	$	(254	)	$	(12	)	$	(16	)	$	72
Basic earnings (loss) per share attributable to PHH Corporation:
Income (loss) from continuing operations	$	2.80	$	(4.68	)	$	(0.23	)	$	(0.29	)	$	1.38
Loss from discontinued operations		—		—			—			—			(0.02	)
Net income (loss)	$	2.80	$	(4.68	)	$	(0.23	)	$	(0.29	)	$	1.36
Diluted earnings (loss) per share attributable to PHH Corporation:
Income (loss) from continuing operations	$	2.77	$	(4.68	)	$	(0.23	)	$	(0.29	)	$	1.36
Loss from discontinued operations		—		—			—			—			(0.02	)
Net income (loss)	$	2.77	$	(4.68	)	$	(0.23	)	$	(0.29	)	$	1.34
Consolidated Balance Sheets Data:
Total assets	$	8,123	$	8,273		$	9,357		$	10,760		$	9,965
Debt		5,160		5,764			6,279			7,647			6,744
PHH Corporation stockholders’ equity		1,492		1,266			1,529			1,515			1,521

⁽¹⁾ Loss from continuing operations and Net loss for the year ended December 31, 2008 included $42 million of income related to a terminated merger agreement with General Electric Capital Corporation and a $61 million non-cash charge for Goodwill impairment ($26 million net of a $5 million income tax benefit and a $30 million impact in noncontrolling interest). See Note 3, “Goodwill and Other Intangible Assets” in the accompanying Notes to Consolidated Financial Statements included in this Form 10-K.

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⁽²⁾ Income from continuing operations and Net income for the year ended December 31, 2005 included pre-tax Spin-Off related expenses of $41 million. In connection with and in order to consummate the Spin-Off, on January 27, 2005, our Board of Directors authorized and approved a 52,684-for-one Common stock split, to be effected by a stock dividend at such ratio. The record date with regard to such stock split was January 28, 2005.

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with “Part I—Item 1. Business” and our Consolidated Financial Statements and the notes thereto included in this Form 10-K. The following discussion should also be read in conjunction with the “Cautionary Note Regarding Forward-Looking Statements” and the risks and uncertainties described in “Part I—Item 1A. Risk Factors” set forth above.

Overview

We are a leading outsource provider of mortgage and fleet management services. We conduct our business through three operating segments: a Mortgage Production segment, a Mortgage Servicing segment and a Fleet Management Services segment. Our Mortgage Production segment originates, purchases and sells mortgage loans through PHH Mortgage which includes PHH Home Loans. Our Mortgage Production segment generated 34%, 22% and 9% of our Net revenues for 2009, 2008 and 2007, respectively. Our Mortgage Servicing segment services mortgage loans originated by PHH Mortgage and PHH Home Loans. Our Mortgage Servicing segment also purchases MSRs and acts as a subservicer for certain clients that own the underlying MSRs. Our Mortgage Servicing segment generated 3% and 8% of our Net revenues for 2009 and 2007, respectively. As a result of our net loss on MSRs risk management activities our Mortgage Servicing segment generated negative Net revenues for 2008. Our Fleet Management Services segment provides commercial fleet management services to corporate clients and government agencies throughout the U.S. and Canada through PHH Arval. Our Fleet Management Services segment generated 63%, 89% and 83% of our Net revenues for 2009, 2008 and 2007, respectively. During 2008, 2% of our Net revenues were generated from a terminated merger agreement with General Electric Capital Corporation, which were not allocated to our reportable segments.

In 2009, after assessing our cost structure and processes we initiated a transformation effort directed towards creating greater operational efficiencies, improving scalability of our operating platforms and reducing our operating expenses. This effort involves evaluating and improving operational and administrative processes, eliminating inefficiencies and targeting areas of the market where we can leverage our competitive strengths. Our efforts are expected to result in $40 million in expense reductions in 2010 and $100 million of annual operating expense reductions beginning in 2011. These reductions in expenses represent approximately 17% of the $570 million of expenses targeted to date in our transformation effort. In addition, we accrued severance costs of approximately $10 million in the fourth quarter of 2009 reflecting expected headcount reductions associated with our planned expense reductions.

Executive Summary

During 2009 and 2008, our consolidated results were as follows:

	Year Ended
	December 31,
	2009		2008
	(In millions)
Net income (loss) attributable to PHH Corporation	$	153	$	(254	)
Basic earnings (loss) per share attributable to PHH Corporation		2.80		(4.68	)
Diluted earnings (loss) per share attributable to PHH Corporation		2.77		(4.68	)

During 2009 in comparison to 2008, segment profit (loss) (as described under “— Results of Operations—2009 vs. 2008—Segment Results”) was primarily driven by:

§   Combined Mortgage Services of $221 Million vs. $(520) Million:  strong mortgage production results from higher margins on mortgage loans and higher volumes of more profitable first mortgage retail originations and interest rate lock commitments (“IRLCs”) expected to close and our ongoing cost

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reduction initiatives that provided for a more scalable mortgage production platform coupled with a favorable change in Valuation adjustments related to mortgage servicing rights, net resulting from declines in mortgage interest rates at the end of 2008.

§	Mortgage Production Segment of $306 Million vs. $(90) Million:  higher margins on mortgage loans, higher volumes of more profitable first mortgage retail originations and IRLCs expected to close, the impact of ongoing cost reduction initiatives and a more scalable mortgage production platform. Segment loss for 2008 was also negatively impacted by a Goodwill impairment related to PHH Home Loans.
§	Mortgage Servicing Segment of $(85) Million vs. $(430) Million: a favorable change in Valuation adjustments related to mortgage servicing rights, net resulting from declines in mortgage interest rates at the end of 2008 and a net derivative loss related to MSRs that was recognized during 2008, partially offset by a greater reduction in the value of MSRs due to prepayments and changes in portfolio delinquencies and foreclosures. Lower earnings from escrow balances resulting from historically low short-term interest rates caused further deterioration in the segment’s results. Foreclosure-related and reinsurance-related charges also continued to negatively impact segment results.
§	Fleet Management Services Segment of $54 Million vs. $62 Million:  during 2008, we recognized a gain of $7 million on the early termination of a technology development and licensing arrangement. Additionally, segment profit during 2009 compared to 2008 was driven by improved lease margins and the impact of ongoing cost reduction initiatives partially offset by volume declines.

See “— Results of Operations—2009 vs. 2008” for additional information regarding our consolidated results and the results of each of our reportable segments for the respective period.

Mortgage Services

Regulatory Trends

The U.S. economic recession has resulted, and could continue to result, in increased delinquencies, home price depreciation and lower home sales. In response to these trends, the U.S. government has taken several actions that are intended to stabilize the housing market and the banking system, maintain lower interest rates, and increase liquidity for lending institutions. Certain of these actions are also intended to make it easier for borrowers to obtain mortgage financing or to avoid foreclosure on their current homes. Some of these key actions that have impacted, and may continue to impact, the U.S. mortgage industry include the enactment of the HERA, the conservatorship of Fannie Mae and Freddie Mac, the enactment of the EESA, TARP, the implementation of HAMP and HARP as part of HASP, the purchase by the Federal Reserve of direct obligations of the GSEs, the enactment of the AARA, and the implementation of the PPIP.

These specific actions by the federal government are intended, among other things, to stabilize domestic residential real estate markets by increasing the availability of credit for homebuyers and existing homeowners and reduce the foreclosure rates through mortgage loan modification programs. Although the federal government’s HASP programs are intended to improve the current trends in home foreclosures, some local and state governmental authorities have taken, and others are contemplating taking, regulatory action to require increased loss mitigation outreach for borrowers, including the imposition of waiting periods prior to the filing of notices of default and the completion of foreclosure sales and, in some cases, moratoriums on foreclosures altogether. Such regulatory changes in the foreclosure process could increase servicing costs and reduce the ultimate proceeds received on these properties if real estate values continue to decline. These changes could also have a negative impact on liquidity as we may be required to repurchase loans without the ability to sell the underlying property on a timely basis.

Additionally, on June 17, 2009, the Treasury issued a report recommending the enactment of sweeping financial regulatory reform legislation. While we are continuing to evaluate the proposed legislation, it is too early to tell when or if any of the provisions will be enacted and what impact any such provisions could have on the mortgage industry. If enacted as proposed, this legislation could materially affect the manner in which we conduct our businesses and result in federal regulation and oversight of our business activities.

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While it is too early to tell whether the foregoing governmental initiatives will achieve their intended effects, there can be no assurance that any of these programs will improve the effects of the current economic recession on our business. We also may be at a competitive disadvantage in the event that our competitors are able to participate in these federal programs and it is determined that we are not eligible to participate in these programs.

See “Part I—Item 1. Business—Mortgage Production and Mortgage Servicing Segments—Mortgage Regulation,” “Part I—Item 1. Business—Mortgage Production and Mortgage Servicing Segments—Insurance Regulation” and “Part I—Item 1A. Risk Factors—Risks Related to our Business—The businesses in which we engage are complex and heavily regulated, and changes in the regulatory environment affecting our businesses could have a material adverse effect on our business, financial position, results of operations or cash flows.” for additional information regarding the impact of regulatory environments on our Mortgage Production and Mortgage Servicing segments.

Mortgage Industry Trends

Overall Trends

The aggregate demand for mortgage loans in the U.S. is a primary driver of the Mortgage Production and Mortgage Servicing segments’ operating results. The demand for mortgage loans is affected by external factors including prevailing mortgage rates, the strength of the U.S. housing market and investor underwriting standards for borrower credit and LTVs. During 2009, secondary market demand and prevailing mortgage interest rates have been positively impacted by the Federal Reserve’s purchase of MBS issued by the GSEs, which is scheduled to end in the first quarter of 2010. The cessation of this program could result in adverse conditions in the secondary mortgage market, which may change the trend of prevailing mortgage interest rates experienced in 2009. This development could negatively impact our Mortgage Production and Mortgage Servicing segments during 2010, as further discussed below.

In 2009, the mortgage industry continued to utilize more restrictive underwriting standards that made it more difficult for borrowers with less than prime credit records, limited funds for down payments or a high LTV to qualify for a mortgage. While there is uncertainty regarding their long-term impact, the HASP programs, discussed above under “— Regulatory Trends,” expands the population of eligible borrowers by expanding the maximum LTV to 125% for existing Fannie Mae loans which we believe had a favorable impact on mortgage industry origination volumes in 2009 and may continue into 2010.

As of February 2010, Fannie Mae’s Economics and Mortgage Market Analysis forecasted a decrease in industry loan originations of approximately 32% in 2010 from forecasted 2009 levels, which was comprised of a 56% decrease in forecasted refinance activity partially offset by a 17% increase in forecasted purchase originations.

See “— Liquidity and Capital Resources—General” for a discussion of trends relating to the credit markets and the impact of these trends on our liquidity.

Mortgage Production Trends

As a result of the government programs discussed above under “— Regulatory Trends,” mortgage rates reached historically low levels during 2009. Consistent with Fannie Mae’s Economics and Mortgage Market Analysis forecast, we believe that overall refinance originations for the mortgage industry and our Mortgage Production segment may decrease during 2010 from 2009 levels, which may have a negative impact on overall origination volumes during 2010 in comparison to 2009. The level of interest rates is a key driver of refinancing activity; however, there are other factors which influence the level of refinance originations, including home prices, underwriting standards and product characteristics. Refinancing activity during 2010 may also be impacted by many borrowers who have existing adjustable-rate mortgage loans (“ARMs”) that will have their rates reset. Although short-term interest rates are at or near historically low levels, lower fixed interest rates may provide an incentive for those borrowers to seek to refinance loans subject to interest rate changes.

Given the level of industry consolidation and competitive environment, loan margins across the industry have increased as compared to prior years. Although we expect loan margins to decline from the highs of 2009 given the forecasted decline in the industry origination volume, we believe that they will remain higher than prior years,

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which we believe is reflective of a longer term view of the returns required to manage the underlying risk of a mortgage production business.

Although we continue to anticipate a challenging environment for purchase originations in 2010, home affordability is at higher levels driven by both declines in home prices and historically low mortgage interest rates. This greater level of housing affordability, coupled with the availability of tax incentives for first time homebuyers and qualified repeat buyers, which were expanded to home purchases with a binding sales contract signed by April 30, 2010, could improve expected purchase originations for the mortgage industry during 2010.

The majority of industry loan originations during 2009 were fixed-rate conforming loans and substantially all of our loans closed to be sold during 2009 were conforming. We continued to observe a lack of liquidity and lower valuations in the secondary mortgage market for non-conforming loans during 2009 and we expect that this trend may continue in 2010.

The components of our MLHS, recorded at fair value, were as follows:

	December 31,
	2009
	(In millions)
First mortgages:
Conforming(1)	$	1,106
Non-conforming		27
Alt-A(2)		2
Construction loans		16
Total first mortgages		1,151
Second lien		24
Scratch and Dent(3)		41
Other		2
Total	$	1,218

(1)	Represents mortgage loans that conform to the standards of the GSEs.
(2)	Represents mortgage loans that are made to borrowers with prime credit histories, but do not meet the documentation requirements of a conforming loan.
(3)	Represents mortgage loans with origination flaws or performance issues.

Mortgage Servicing Trends

The historically low mortgage interest rates experienced during 2009 resulted in a significant increase in refinance activity in our Mortgage Servicing segment. Although we experienced a significant increase in loan payoffs during 2009, we were able to increase our loan servicing portfolio by capturing the opportunity for refinance activity in our Mortgage Production segment. In addition to the significant increase in refinance activity, the declining housing market and general economic conditions, including elevated unemployment rates, have continued to negatively impact our Mortgage Servicing segment. Industry-wide mortgage loan delinquency rates have increased and we expect they will continue to increase over 2009 levels in correlation with unemployment rates. We expect foreclosure costs to remain elevated during 2010 due to an increase in borrower delinquencies and declining home prices. During 2009, we experienced increases in actual and projected repurchases, indemnifications and related loss severity associated with the representations and warranties that we provide to purchasers and insurers of our sold loans, which we expect may continue in 2010, primarily due to increased delinquency rates and a decline in housing prices in 2009 compared to 2008.

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A summary of the activity in foreclosure-related reserves is as follows:

Balance, January 1, 2008	$	49
Realized foreclosure losses		(37	)
Increase in foreclosure reserves		69
Balance, December 31, 2008		81
Realized foreclosure losses(1)		(73	)
Increase in foreclosure reserves		78
Balance, December 31, 2009	$	86

⁽¹⁾ Realized foreclosure losses for 2009 include an $11 million settlement with an individual investor for all future potential repurchase liabilities.

HAMP, discussed above under “— Regulatory Trends,” provides an opportunity for mortgage servicers to modify existing mortgage loans, subject to certain requirements, in return for a modification fee and additional financial incentives if the modified loan remains current. Specifically for Fannie Mae loans, servicers will receive compensation of $1,000 per loan modified under this program with an additional incentive of $500 if the loan is current at the time of modification. We will earn an additional $1,000 per year for three years under certain circumstances depending upon the extent of the modification and performance of the modified loan. Additionally, HAMP could provide additional guidelines for refinancing loans that may not be eligible for modification. We believe that these programs provide additional opportunities for our Mortgage Servicing segment and could reduce our exposure to future foreclosure-related losses. As of December 31, 2009, we have approximately 13,500 borrowers that are in the trial modification period. During the fourth quarter of 2009, servicer incentives received from the Treasury were not significant and did not significantly impact our results of operations.

During the third quarter of 2008, we assessed the composition of our capitalized mortgage servicing portfolio and its relative sensitivity to refinance if interest rates decline, the costs of hedging and the anticipated effectiveness of the hedge given the economic environment. Based on that assessment, we made the decision to close out substantially all of our derivatives related to MSRs during the third quarter of 2008, which resulted in volatility in the results of operations for our Mortgage Servicing segment during 2009. As of December 31, 2009, there were no open derivatives related to MSRs. Our decisions regarding the use of derivatives related to MSRs, if any, could result in continued volatility in the results of operations for our Mortgage Servicing segment.

As of December 31, 2009, Atrium had outstanding reinsurance agreements that were inactive and in runoff with two primary mortgage insurers. While in runoff, Atrium will continue to collect premiums and have risk of loss on the current population of loans reinsured, but may not add to that population of loans. During the third quarter of 2009, we commuted the reinsurance agreements with two other primary mortgage insurers. Pursuant to these commutations, Atrium has remitted the associated balance of securities held in trust in its entirety to the primary mortgage insurers. Atrium is no longer at risk for losses related to the commuted reinsurance agreements. (See “— Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in this Form 10-K for additional information regarding mortgage reinsurance.)

Although HAMP could reduce our exposure to reinsurance losses through the loan modification and refinance programs, continued increases in mortgage loan delinquency rates and lower home prices could continue to have a further negative impact on our reinsurance business.

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A summary of the activity in reinsurance-related reserves is as follows:

Balance, January 1, 2008	$	32
Realized reinsurance losses		—
Increase in reinsurance reserves		51
Balance, December 31, 2008		83
Realized reinsurance losses(1)		(10	)
Increase in reinsurance reserves		35
Balance, December 31, 2009	$	108

⁽¹⁾ Realized reinsurance losses include a $7 million payment associated with the commutation of reinsurance agreements during 2009.

As a result of the continued weakness in the housing market and increasing delinquency and foreclosure experience, our provision for reinsurance losses may increase during 2010 in comparison to 2009 as anticipated losses become incurred. Additionally, we began to pay claims for certain book years and reinsurance agreements during 2009 and we expect to continue to pay claims during 2010. We hold securities in trust related to our potential obligation to pay such claims, which were $281 million and were included in Restricted cash in the accompanying Consolidated Balance Sheet as of December 31, 2009. We continue to believe that this amount is significantly higher than the expected claims.

Seasonality

Our Mortgage Production segment is generally subject to seasonal trends. These seasonal trends reflect the pattern in the national housing market. Home sales typically rise during the spring and summer seasons and decline during the fall and winter seasons. Seasonality has less of an effect on mortgage refinancing activity, which is primarily driven by prevailing mortgage rates. Our Mortgage Servicing segment is generally not subject to seasonal trends.

Inflation

An increase in inflation could have a significant impact on our Mortgage Production and Mortgage Servicing segments. Interest rates normally increase during periods of rising inflation. Historically, as interest rates increase, mortgage loan production decreases, particularly production from loan refinancing. An environment of gradual interest rate increases may, however, signify an improving economy or increasing real estate values, which in turn may stimulate increased home buying activity. Generally, in periods of reduced mortgage loan production, the associated profit margins also decline due to increased competition among mortgage loan originators, which further pressures mortgage production profitability. Conversely, in a rising interest rate environment, our mortgage loan servicing revenues generally increase because mortgage prepayment rates tend to decrease, extending the average life of our servicing portfolio and increasing the value of our MSRs. See discussion below under “— Market and Credit Risk,” “Part I—Item 1A. Risk Factors— Risks Related to our Business—Certain hedging strategies that we may use to manage interest rate risk associated with our MSRs and other mortgage-related assets and commitments may not be effective in mitigating those risks.” and “— Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”

Fleet Management Services Segment

Fleet Industry Trends

Growth in our Fleet Management Services segment is driven principally by increased market share in fleets greater than 75 units and increased fee-based services. The U.S. commercial fleet management services market has continued to experience minimal growth over the last several years as reported by the Automotive Fleet. Our Fleet Management Services segment currently depends upon the North American automotive industry to supply us with new vehicles for our clients. We expect that the reorganized General Motors and Chrysler may be more financially

40

viable suppliers in the future. We believe any disruption in vehicle production by the North American automobile manufacturers will have little impact on our ability to provide our clients with vehicle leases, as we would have the alternative to rely on foreign suppliers. Notwithstanding a short-term increase in consumer demand for new vehicles resulting from a federal stimulus program during the third quarter of 2009, the impact of the U.S. economic recession is expected to cause the North American automobile manufacturers to continue to experience a continued softening in the demand for new vehicle production in 2010.

We believe that these trends have been reflected in our Fleet Management Services segment, as we experienced a decline in our leased units in 2009 and we expect that this trend will also continue in 2010. However, we expect that as clients elect to delay the timing of obtaining replacement vehicles and the fleets of our Fleet Management Services segment’s clients continue to age, they may require greater levels of maintenance services.

The credit markets have experienced extreme volatility over the past year; however, the demand for ABS by investors in the U.S. and Canada has continued to dramatically increase during 2009 and into 2010. Likewise, the spread levels required by investors in the primary and secondary markets for ABS, along with spread compression, have improved during 2009 and into 2010. In addition, participation in the ABS markets by traditional investors has risen dramatically. These trends have positively impacted our outlook for both our access to the ABS market and expectations for spreads on securities issued by, or conduit funding obtained by, our U.S. wholly owned subsidiary, Chesapeake, and our Canadian special purpose trust, Fleet Leasing Receivables Trust (“FLRT”). In January 2010, FLRT issued $343 million senior term notes backed by leases originated by our Canadian fleet management services operations. Overall, ABS markets have improved during 2009 and into 2010, and we anticipate this improvement will result in greater demand for ABS in both the U.S. and Canadian markets during the remainder of 2010. See “— Liquidity and Capital Resources” for a discussion of trends relating to the credit markets, the impact of these trends on our liquidity and term notes issued in January 2010.

In response to the foregoing trends, we have worked to modify the lease pricing associated with billings to the clients of our Fleet Management Services segment to correlate more closely with our underlying cost of funds, which we believe is also reflective of revised pricing throughout the fleet management industry.

Seasonality

The results of operations of our Fleet Management Services segment are generally not seasonal.

Inflation

Inflation does not have a significant impact on our Fleet Management Services segment.

Market and Credit Risk

We are exposed to market and credit risks. See “— Item 7A. Quantitative and Qualitative Disclosures About Market Risk” and “Part I—Item 1A. Risk Factors—Risks Related to our Business—Certain hedging strategies that we may use to manage interest rate risk associated with our MSRs and other mortgage-related assets and commitments may not be effective in mitigating those risks.”

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Results of Operations—2009 vs. 2008

Consolidated Results

Our consolidated results of operations for 2009 and 2008 were comprised of the following:

	Year Ended
	December 31,
	2009			2008			Change
	(In millions)
Net fee income	$	425		$	371		$	54
Fleet lease income		1,441			1,585			(144	)
Gain on mortgage loans, net		610			259			351
Mortgage net finance (expense) income		(58	)		2			(60	)
Loan servicing income		431			430			1
Valuation adjustments related to mortgage servicing rights, net		(280	)		(733	)		453
Other income		37			142			(105	)
Net revenues		2,606			2,056			550
Depreciation on operating leases		1,267			1,299			(32	)
Fleet interest expense		89			162			(73	)
Goodwill impairment		—			61			(61	)
Total other expenses		970			977			(7	)
Total expenses		2,326			2,499			(173	)
Income (loss) before income taxes		280			(443	)		723
Provision for (benefit from) income taxes		107			(162	)		269
Net income (loss)		173			(281	)		454
Less: net income (loss) attributable to noncontrolling interest		20			(27	)		47
Net income (loss) attributable to PHH Corporation	$	153		$	(254	)	$	407

During 2009, our Net revenues increased by $550 million (27%) compared to 2008 due to increases of $418 million and $358 million in our Mortgage Production and Mortgage Servicing segments, respectively, that were partially offset by a decrease of $178 million in our Fleet Management Services segment and a $48 million unfavorable change in other revenue not allocated to our reportable segments, primarily related to a terminated merger agreement with General Electric Capital Corporation during 2008. Our Income (loss) before income taxes changed favorably by $723 million during 2009 compared to 2008 due to favorable changes of $443 million and $345 million in our Mortgage Production and Mortgage Servicing segments, respectively, that were partially offset by unfavorable changes of $57 million in other (expense) income not allocated to our reportable segments, primarily related to a terminated merger agreement with General Electric Capital Corporation during 2008 and $8 million in our Fleet Management Services segment.

Our effective income tax rates were 38.3% and (36.6)% for 2009 and 2008, respectively. The Provision for (benefit from) income taxes changed unfavorably by $269 million to $107 million in 2009 from $(162) million in 2008 primarily due to the following: (i) a $253 million increase in federal income tax expense due to the favorable change in Income (loss) before income taxes, (ii) a $37 million increase in the state income tax expense due to the favorable change in Income (loss) before income taxes and (iii) a $5 million unfavorable change in deferred income tax expense representing the change in estimated state apportionment factors and tax rates in 2009 compared to 2008. All of these factors were partially offset by the following: (i) a $19 million favorable change in the impact of Realogy’s noncontrolling interest in the profit or loss of the Mortgage Venture on the calculated effective tax rate, (ii) a $4 million decrease in expense related to the valuation allowance for deferred tax assets during 2009 compared

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to 2008 and (iii) a portion of the PHH Home Loans’ Goodwill impairment charge was not deductible for federal and state income tax purposes, which impacted the calculated effective tax rate for 2008 by $7 million.

Segment Results

Discussed below are the results of operations for each of our reportable segments. Our management evaluates the operating results of each of our reportable segments based upon Net revenues and segment profit or loss, which is presented as the income or loss before income tax provision or benefit and after net income or loss attributable to noncontrolling interest. The Mortgage Production segment profit or loss excludes Realogy’s noncontrolling interest in the profits and losses of the Mortgage Venture.

Mortgage Services

Profit (loss) for our combined Mortgage Services segments changed favorably by $741 million during 2009 compared to 2008 primarily due to a $776 million increase in Net revenues and a $12 million decrease in Total expenses.

Net revenues for our combined Mortgage Services segments increased by $776 million during 2009 compared to 2008 due to an increase of $418 million in our Mortgage Production segment primarily attributable to higher margins on mortgage loans and higher volumes of more profitable first mortgage retail originations and IRLCs expected to close and an increase of $358 million in our Mortgage Servicing segment primarily due to a favorable change in Valuation adjustments related to mortgage servicing rights.

The following tables present the key drivers and related components of Total expenses for 2009 and 2008:

	Year Ended
	December 31,
	2009		2008		Change			% Change
	($ in millions)
First mortgage closings (units)		153,694		115,873		37,821			33	%
Second-lien closings (units)		10,692		30,176		(19,484	)		(65	)%
Total number of loans closed (units)		164,386		146,049		18,337			13	%
Average loan servicing portfolio	$	149,628	$	152,681	$	(3,053	)		(2	)%

	Year Ended December 31,
	2009		2008		Change			% Change
	(In millions)
Production-related expenses(1)	$	435	$	380	$	55			14	%
Servicing-related expenses		73		64		9			14	%
Foreclosure costs		70		73		(3	)		(4	)%
Other expenses		143		155		(12	)		(8	)%
Goodwill impairment		—		61		(61	)		(100	)%
Total expenses	$	721	$	733	$	(12	)		(2	)%

⁽¹⁾ Approximately 83% of production-related expenses for 2009 are scalable with origination volumes.

Production-related expenses represent direct costs associated with the origination of mortgage loans, including commissions, appraisal expenses, automated underwriting and other closing costs, as well as production support costs, including underwriting, processing and secondary marketing. Due to the marginal costs associated with the origination of second-lien loan originations, production-related expenses are primarily driven by first mortgage closings. Production-related expenses increased by 14%, despite a 33% increase in the total number of first mortgage closings (units), which is reflective of our ongoing cost reduction initiatives and our efforts to make the Mortgage Production segment’s expenses more scalable with volumes. Servicing-related expenses represent the

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operating costs of our Mortgage Servicing segment for performing the related servicing activities associated with our loan servicing portfolio. The increase in servicing related expenses is primarily due to the higher costs associated with the increase in delinquencies and defaults in our loan servicing portfolio. Other expenses consist of support functions, including information technology, finance, human resources, legal and corporate allocations. The reduction in other expenses is attributable to our ongoing cost reduction activities.

The following table presents a summary of our financial results for our combined Mortgage Services segments and is followed by a discussion of each of the key components of Net revenues and Total expenses for the two reportable segments individually:

	Year Ended
	December 31,
	2009			2008			Change			% Change
	(In millions)
Mortgage fees	$	275		$	208		$	67			32		%
Gain on mortgage loans, net		610			259			351			136		%
Mortgage interest income		91			175			(84	)		(48	)	%
Mortgage interest expense		(151	)		(171	)		20			12		%
Mortgage net finance (expense) income		(60	)		4			(64	)		n/m(1	)
Loan servicing income		431			430			1			—
Change in fair value of mortgage servicing rights		(280	)		(554	)		274			49		%
Net derivative loss related to mortgage servicing rights		—			(179	)		179			100		%
Valuation adjustments related to mortgage servicing
rights		(280	)		(733	)		453			62		%
Net loan servicing income (loss)		151			(303	)		454			n/m(1	)
Other (expense) income		(14	)		18			(32	)		n/m(1	)
Net revenues		962			186			776			417		%
Salaries and related expenses		375			328			47			14		%
Occupancy and other office expenses		41			55			(14	)		(25	)	%
Other depreciation and amortization		15			14			1			7		%
Other operating expenses		290			275			15			5		%
Goodwill impairment		—			61			(61	)		(100	)	%
Total expenses		721			733			(12	)		(2	)	%
Income (loss) before income taxes		241			(547	)		788			n/m(1	)
Less: net income (loss) attributable to noncontrolling interest		20			(27	)		47			n/m(1	)
Combined Mortgage Services segments profit (loss)	$	221		$	(520	)	$	741			n/m(1	)

⁽¹⁾ n/m—Not meaningful.

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Mortgage Production Segment

The following tables present a summary of our financial results and key related drivers for the Mortgage Production segment, and are followed by a discussion of each of the key components of Net revenues and Total expenses:

	Year Ended
	December 31,
	2009		2008		Change			% Change
	(Dollars in millions, except
	average loan amount)
Loans closed to be sold	$	29,370	$	20,753	$	8,617			42		%
Fee-based closings		8,194		13,166		(4,972	)		(38	)	%
Total closings	$	37,564	$	33,919	$	3,645			11		%
Purchase closings	$	15,401	$	21,403	$	(6,002	)		(28	)	%
Refinance closings		22,163		12,516		9,647			77		%
Total closings	$	37,564	$	33,919	$	3,645			11		%
Fixed rate	$	30,512	$	20,008	$	10,504			52		%
Adjustable rate		7,052		13,911		(6,859	)		(49	)	%
Total closings	$	37,564	$	33,919	$	3,645			11		%
First mortgage closings (units)		153,694		115,873		37,821			33		%
Second-lien closings (units)		10,692		30,176		(19,484	)		(65	)	%
Total number of loans closed (units)		164,386		146,049		18,337			13		%
Average loan amount	$	228,510	$	232,241	$	(3,731	)		(2	)	%
Loans sold	$	29,002	$	21,079	$	7,923			38		%
Applications	$	54,283	$	48,545	$	5,738			12		%
IRLCs expected to close	$	26,210	$	19,790	$	6,420			32		%

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	Year Ended
	December 31,
	2009			2008			Change			% Change
	(In millions)
Mortgage fees	$	275		$	208		$	67			32	%
Gain on mortgage loans, net		610			259			351			136	%
Mortgage interest income		79			92			(13	)		(14	)%
Mortgage interest expense		(90	)		(99	)		9			9	%
Mortgage net finance expense		(11	)		(7	)		(4	)		(57	)%
Other income		6			2			4			200	%
Net revenues		880			462			418			90	%
Salaries and related expenses		336			297			39			13	%
Occupancy and other office expenses		32			44			(12	)		(27	)%
Other depreciation and amortization		14			13			1			8	%
Other operating expenses		172			164			8			5	%
Goodwill impairment		—			61			(61	)		(100	)%
Total expenses		554			579			(25	)		(4	)%
Income (loss) before income taxes		326			(117	)		443			n/m(1	)
Less: net income (loss) attributable to noncontrolling interest		20			(27	)		47			n/m(1	)
Segment profit (loss)	$	306		$	(90	)	$	396			n/m(1	)

⁽¹⁾ n/m—Not meaningful.

Mortgage Production Statistics

Loans closed to be sold and fee-based closings are the key drivers of Mortgage fees, whereas IRLCs expected to close are the primary driver of Gain on mortgage loans, net.

Loans purchased from financial institutions are included in loans closed to be sold while loans originated by us and retained by financial institutions are included in fee-based closings. The change in mix between fee-based closings and loans closed to be sold was primarily due to a decrease in fee-based closings from our financial institutions clients during 2009 compared to 2008. Long-term mortgage interest rates declined to historic lows during the fourth quarter of 2008 and remained historically low throughout 2009, which resulted in a greater percentage of fixed-rate conforming mortgage loan originations, whereas our fee-based closings from our financial institutions clients have historically consisted of a greater percentage of ARMs. The change in mix of first and second-lien originations is attributable to the product offerings of our financial institutions clients during 2009 as compared to 2008, which is reflective of the general economic trends including home price depreciation, which has reduced the available equity of potential borrowers.

The increase in IRLCs expected to close was primarily attributable to an increase in refinance activity resulting from historically low mortgage interest rates during 2009 and the change in mix between fee-based closings and loans closed to be sold.

Mortgage Fees

Mortgage fees consist of fee income earned on all loan originations, including loans closed to be sold and fee-based closings. Fee income consists of amounts earned related to application and underwriting fees, fees on cancelled loans and appraisal and other income generated by our appraisal services business. Fee income also consists of amounts earned from financial institutions related to brokered loan fees and origination assistance fees

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resulting from our private-label mortgage outsourcing activities. Fees associated with the origination and acquisition of MLHS are recognized as earned.

Mortgage fees increased by $67 million (32%) primarily due to an 11% increase in total closings, an increase in first mortgage retail originations and the impact of a decrease in second-lien originations that was partially offset by a change in mix between fee-based closings and loans closed to be sold during 2009 compared to 2008. Mortgage fees associated with first mortgage retail originations are generally higher than those associated with second-lien originations and closed mortgage loan purchases, as we have a greater involvement in the origination process.

Gain on Mortgage Loans, Net

Gain on mortgage loans, net includes realized and unrealized gains and losses on our MLHS, as well as the changes in fair value of all loan-related derivatives, including our IRLCs and freestanding loan-related derivatives. The fair value of our IRLCs is based upon the estimated fair value of the underlying mortgage loan, adjusted for: (i) estimated costs to complete and originate the loan and (ii) an adjustment to reflect the estimated percentage of IRLCs that will result in a closed mortgage loan. The valuation of our IRLCs and MLHS approximates a whole-loan price, which includes the value of the related MSRs. MSRs are recognized and capitalized at the date the loans are sold and subsequent changes in the fair value of MSRs are recorded in Change in fair value of mortgage servicing rights in the Mortgage Servicing segment.

Prior to January 1, 2008, our IRLCs and loan-related derivatives were initially recorded at zero value at inception with changes in fair value recorded as a component of Gain on mortgage loans, net. Pursuant to the transition provisions of updates to Accounting Standards Codification (“ASC”) 815, “Derivatives and Hedging” (“ASC 815”), we recognized a benefit to Gain on mortgage loans, net during 2008 of approximately $30 million, as the value attributable to servicing rights related to IRLCs as of January 1, 2008 was excluded from the transition adjustment for the adoption of ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”). (See Note 1, “Summary of Significant Accounting Policies” in the accompanying Notes to Consolidated Financial Statements included in this Form 10-K.)

The components of Gain on mortgage loans, net were as follows:

	Year Ended
	December 31,
	2009			2008			Change			% Change
	(In millions)
Gain on loans	$	552		$	353		$	199			56	%
Change in fair value of MLHS and related derivatives:
ARMs		—			(20	)		20			100	%
Scratch and Dent and Alt-A loans		(7	)		(28	)		21			75	%
Second-lien loans		(6	)		(6	)		—			—
Construction loans		(5	)		—			(5	)		n/m(1	)
Jumbo loans		(2	)		(15	)		13			87	%
Economic hedge results		78			(55	)		133			n/m(1	)
Total change in fair value of MLHS and related derivatives		58			(124	)		182			n/m(1	)
Benefit of transition provision of updates to ASC 815		—			30			(30	)		(100	)%
Gain on mortgage loans, net	$	610		$	259		$	351			136	%

⁽¹⁾ n/m—Not meaningful.

Gain on mortgage loans, net increased by $351 million (136%) from 2008 to 2009 due to a $199 million increase in gain on loans and a $182 million favorable variance from the change in fair value of MLHS and related derivatives that were partially offset by the $30 million benefit of the transition provision of updates to ASC 815 during 2008.

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The $199 million increase in gain on loans during 2009 compared to 2008 was primarily due to significantly higher margins and a 32% increase in IRLCs expected to close. The significantly higher margins during 2009 were primarily attributable to an increase in industry refinance activity for conforming first mortgage loans, resulting from lower mortgage interest rates, coupled with lower overall industry capacity. Loan margins generally widen when mortgage interest rates decline and tighten when mortgage interest rates increase, as loan originators balance origination volume with operational capacity.

The $182 million favorable variance from the change in fair value of MLHS and related derivatives was due to a $133 million favorable variance from economic hedge results and a $49 million reduction in unfavorable valuation adjustments for certain mortgage loans. The favorable variance from economic hedge results was primarily due to a decrease in hedge costs during 2009 compared to 2008 and a favorable change in mortgage interest rates whereby the increase in value of IRLCs and MLHS exceeded the decrease in value of the related derivatives. The reduction in unfavorable valuation adjustments for certain mortgage loans was primarily due to a reduction in unfavorable adjustments related to Scratch and Dent and Alt-A, ARMs and jumbo loans that were partially offset by an increase in unfavorable adjustments related to construction loans. The unfavorable valuation adjustments for Scratch and Dent and Alt-A, second-lien, construction and jumbo loans during 2009 were primarily due to decreases in the collateral values and credit performance of these loans. The unfavorable valuation adjustment for Scratch and Dent and Alt-A, ARMs, jumbo and second-lien loans during 2008 was the result of a continued decrease in demand for these types of loans due to the adverse secondary mortgage market conditions unrelated to changes in interest rates.

Mortgage Net Finance Expense

Mortgage net finance expense allocable to the Mortgage Production segment consists of interest income on MLHS and interest expense allocated on debt used to fund MLHS and is driven by the average balance of loans held for sale, the average volume of outstanding borrowings, the note rate on loans held for sale and the cost of funds rate of our outstanding borrowings. Mortgage net finance expense allocable to the Mortgage Production segment increased by $4 million (57%) during 2009 compared to 2008 due to a $13 million (14%) decrease in Mortgage interest income that was partially offset by a $9 million (9%) decrease in Mortgage interest expense. The $13 million decrease in Mortgage interest income was primarily due to lower interest rates related to loans held for sale. The $9 million decrease in Mortgage interest expense was attributable to a lower cost of funds from our outstanding borrowings. The lower cost of funds from our outstanding borrowings was primarily attributable to a decrease in short-term interest rates. A significant portion of our loan originations are funded with variable-rate short-term debt. The average daily one-month LIBOR, which is used as a benchmark for short-term rates, was 235 basis points (“bps”) lower during 2009 compared to 2008.

Salaries and Related Expenses

Salaries and related expenses allocable to the Mortgage Production segment consist of commissions paid to employees involved in the loan origination process, as well as compensation, payroll taxes and benefits paid to employees in our mortgage production operations and allocations for overhead. Salaries and related expenses increased by $39 million (13%) during 2009 compared to 2008 due to a $22 million increase in commissions expense, a $19 million increase in management incentives and an $8 million increase in costs associated with temporary and contract personnel that were partially offset by a $10 million decrease in salaries and related benefits. The increase in commissions expense was primarily attributable to an 11% increase in total closings and an increase in first mortgage retail originations during 2009 compared to 2008, as there is higher commission cost associated with these loans. The increase in costs associated with temporary and contract personnel was due to the modification of our cost structure to a more flexible workforce. The decrease in salaries and related benefits was primarily attributable to a reduction in average permanent employees for 2009 compared to 2008.

Occupancy and Other Office Expenses

Occupancy and other office expenses decreased by $12 million (27%) during 2009 compared to 2008 primarily due to the reduction of leased space resulting from our continued efforts to reduce overall costs.

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Other Operating Expenses

Other operating expenses allocable to the Mortgage Production segment consist of production-related direct expenses, appraisal expense and allocations for overhead. Other operating expenses increased by $8 million (5%) during 2009 compared to 2008. This increase was primarily attributable to a $16 million increase in production-related direct expenses as a result of the increase in total closings and first mortgage retail originations, which was partially offset by an $8 million reduction in other expenses resulting from our continued efforts to reduce overall costs.

Mortgage Servicing Segment

The following tables present a summary of our financial results and a key related driver for the Mortgage Servicing segment, and are followed by a discussion of each of the key components of Net revenues and Total expenses:

	Year Ended
	December 31,
	2009		2008		Change			% Change
	(In millions)
Average loan servicing portfolio	$	149,628	$	152,681	$	(3,053	)		(2	)	%

	Year Ended
	December 31,
	2009			2008			Change			% Change
	(In millions)
Mortgage interest income	$	12		$	83		$	(71	)		(86	)%
Mortgage interest expense		(61	)		(72	)		11			15	%
Mortgage net finance (expense) income		(49	)		11			(60	)		n/m(1	)
Loan servicing income		431			430			1			—
Change in fair value of mortgage servicing rights		(280	)		(554	)		274			49	%
Net derivative loss related to mortgage servicing rights		—			(179	)		179			100	%
Valuation adjustments related to mortgage servicing rights		(280	)		(733	)		453			62	%
Net loan servicing income (loss)		151			(303	)		454			n/m(1	)
Other (expense) income		(20	)		16			(36	)		n/m(1	)
Net revenues		82			(276	)		358			n/m(1	)
Salaries and related expenses		39			31			8			26	%
Occupancy and other office expenses		9			11			(2	)		(18	)%
Other depreciation and amortization		1			1			—			—
Other operating expenses		118			111			7			6	%
Total expenses		167			154			13			8	%
Segment loss	$	(85	)	$	(430	)	$	345			80	%

⁽¹⁾ n/m—Not meaningful.

Mortgage Net Finance (Expense) Income

Mortgage net finance (expense) income allocable to the Mortgage Servicing segment consists of interest income credits from escrow balances, income from investment balances (including investments held by Atrium) and interest expense allocated on debt used to fund our MSRs, which is driven by the average volume of outstanding borrowings and the cost of funds rate of our outstanding borrowings. Mortgage net finance (expense) income changed unfavorably by $60 million during 2009 compared to 2008 due to a $71 million (86%) decrease in

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Mortgage interest income that was partially offset by an $11 million (15%) decrease in Mortgage interest expense. The decrease in Mortgage interest income was due to lower short-term interest rates and lower average escrow balances in 2009 compared to 2008. Escrow balances earn income based on one-month LIBOR, which was 235 bps lower, on average, during 2009 compared to 2008. The lower average escrow balances were due to the 2% decrease in the average loan servicing portfolio. The ending one-month LIBOR rate at December 31, 2009 was 23 bps, which has significantly reduced the earnings opportunity related to our escrow balances compared to historical periods. The decrease in Mortgage interest expense was due to lower cost of funds from our outstanding borrowings, primarily due to the decrease in short-term interest rates, and lower average borrowings allocable to our Mortgage Servicing segment.

Loan Servicing Income

Loan servicing income includes recurring servicing fees, other ancillary fees and net reinsurance loss from Atrium. Recurring servicing fees are recognized upon receipt of the coupon payment from the borrower and recorded net of guaranty fees. Net reinsurance loss represents premiums earned on reinsurance contracts, net of ceding commission and adjustments to the reserve for reinsurance losses. The primary driver for Loan servicing income is the average loan servicing portfolio.

The components of Loan servicing income were as follows:

	Year Ended
	December 31,
	2009			2008			Change			% Change
	(In millions)
Net service fee revenue	$	422		$	431		$	(9	)		(2	)%
Late fees and other ancillary servicing revenue		58			43			15			35	%
Curtailment interest paid to investors		(44	)		(27	)		(17	)		(63	)%
Net reinsurance loss		(5	)		(17	)		12			71	%
Loan servicing income	$	431		$	430		$	1			—

Loan servicing income increased by $1 million from 2008 to 2009 due to an increase in late fees and other ancillary servicing revenue and a decrease in net reinsurance loss that were nearly offset by an increase in curtailment interest paid to investors and a decrease in net service fee revenue. The $15 million increase in late fees and other ancillary servicing revenue was primarily due to a $7 million gain recognized from the sale of excess servicing associated with a portion of our MSRs as well as an increase in the expected proceeds from the sale of MSRs during 2007, coupled with an increase in loss mitigation revenue and recording fees. The $12 million decrease in net reinsurance loss during 2009 compared to 2008 was primarily due to a decrease in the provision for reinsurance losses. The $17 million increase in curtailment interest paid to investors was primarily due to a 68% increase in loans included in our loan servicing portfolio that paid off during 2009 compared to 2008. The $9 million decrease in net service fee revenue was primarily due to the 2% decrease in the average loan servicing portfolio coupled with the impact of higher delinquencies in our loan servicing portfolio.

Valuation Adjustments Related to Mortgage Servicing Rights

Valuation adjustments related to mortgage servicing rights include Change in fair value of mortgage servicing rights and Net derivative loss related to mortgage servicing rights. The components of Valuation adjustments related to mortgage servicing rights are discussed separately below.

Change in Fair Value of Mortgage Servicing Rights:  The fair value of our MSRs is estimated based upon projections of expected future cash flows from our MSRs considering prepayment estimates, our historical prepayment rates, portfolio characteristics, interest rates based on interest rate yield curves, implied volatility and other economic factors. Generally, the value of our MSRs is expected to increase when interest rates rise and decrease when interest rates decline due to the effect those changes in interest rates have on prepayment estimates. Other factors noted above as well as the overall market demand for MSRs may also affect the MSRs valuation.

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The components of Change in fair value of mortgage servicing rights were as follows:

	Year Ended
	December 31,
	2009			2008			Change			% Change
	(In millions)
Actual prepayments of the underlying mortgage loans	$	(244	)	$	(144	)	$	(100	)		(69	)%
Actual receipts of recurring cash flows		(56	)		(65	)		9			14	%
Credit-related fair value adjustments(1)		(91	)		(58	)		(33	)		(57	)%
Market-related fair value adjustments(2)		111			(287	)		398			n/m(3	)
Change in fair value of mortgage servicing rights	$	(280	)	$	(554	)	$	274			49	%

(1)	Represents the change in fair value of MSRs primarily due to changes in portfolio delinquencies and foreclosures.
(2)	Represents the change in fair value of MSRs due to changes in market inputs and assumptions used in the valuation model.
(3)	n/m—Not meaningful.

The fluctuation in the decline in value of our MSRs due to actual prepayments during 2009 compared to 2008 was primarily attributable to higher prepayment rates. The actual prepayment rate of mortgage loans in our capitalized servicing portfolio was 19% and 11% of the unpaid principal balance of the underlying mortgage loans during 2009 and 2008, respectively.

The increase in credit-related fair value adjustments during 2009 compared to 2008 was primarily due to the deteriorating economic conditions in the broader U.S. economy.

The $111 million favorable change during 2009 due to market-related fair value adjustments was primarily due to an increase in mortgage interest rates leading to lower expected prepayments. The $287 million unfavorable change during 2008 was primarily due to a decrease in mortgage interest rates leading to higher expected prepayments. (See “— Critical Accounting Policies—Fair Value Measurements” for an analysis of the impact of 10% variations in key assumptions on the fair value of our MSRs.)

Net Derivative Loss Related to Mortgage Servicing Rights:  From time to time, we use a combination of derivatives to protect against potential adverse changes in the value of our MSRs resulting from a decline in interest rates. (See Note 7, “Derivatives and Risk Management Activities” in the accompanying Notes to Consolidated Financial Statements included in this Form 10-K.) The amount and composition of derivatives, if any, that we may use will depend on the exposure to loss of value on our MSRs, the expected cost of the derivatives, our expected liquidity needs and the expected increased earnings generated by origination of new loans resulting from the decline in interest rates (the natural business hedge). During periods of increased interest rate volatility, we anticipate increased costs associated with derivatives related to MSRs that are available in the market. The natural business hedge provides a benefit when increased borrower refinancing activity results in higher production volumes which would partially offset declines in the value of our MSRs thereby reducing the need to use derivatives. The benefit of the natural business hedge depends on the decline in interest rates required to create an incentive for borrowers to refinance their mortgage loans and lower their interest rates; however, the benefit of the natural business hedge may not be realized under certain circumstances regardless of the change in interest rates. Reliance on the natural business hedge during 2009 resulted in greater volatility in the results of our Mortgage Servicing segment. During 2008, we assessed the composition of our capitalized mortgage loan servicing portfolio and its related relative sensitivity to refinance if interest rates decline, the costs of hedging and the anticipated effectiveness given the economic environment. Based on that assessment, we made the decision to close out substantially all of our derivatives related to MSRs during the third quarter of 2008. As of December 31, 2009, there were no open derivatives related to MSRs. (See “Part I—Item 1A. Risk Factors—Risks Related to our Business—Certain hedging strategies that we may use to manage interest rate risk associated with our MSRs and other mortgage-related assets and commitments may not be effective in mitigating those risks.” in this Form 10-K for more information.)

The value of derivatives related to our MSRs decreased by $179 million during 2008. As described below, our net results from MSRs risk management activities were gains of $111 million and losses of $466 million during 2009 and 2008, respectively. Refer to “— Item 7A. Quantitative and Qualitative Disclosures About Market Risk”

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for an analysis of the impact of 25 bps, 50 bps and 100 bps changes in interest rates on the valuation of our MSRs at December 31, 2009.

The following table outlines Net gain (loss) on MSRs risk management activities:

	Year Ended
	December 31,
	2009		2008
	(In millions)
Change in fair value of mortgage servicing rights due to changes in market inputs or assumptions used in the valuation model	$	111	$	(287	)
Net derivative loss related to mortgage servicing rights		—		(179	)
Net gain (loss) on MSRs risk management activities	$	111	$	(466	)

Although we did not use derivative instruments to hedge our MSRs during 2009, we were able to effectively replenish the lost servicing value from payoffs with new originations. During 2009, we experienced $24.3 billion in loan payoffs in our capitalized servicing portfolio, representing $244 million of MSRs, whereas we were able to add $27.7 billion mortgage loans to our capitalized loan servicing portfolio, with an initial MSR value of $497 million.

Other (Expense) Income

Other (expense) income allocable to the Mortgage Servicing segment consists primarily of net gains or losses on Investment securities and changed unfavorably by $36 million during 2009 compared to 2008. Our Investment securities consist of interests that continue to be held in the sale or securitization of mortgage loans, or retained interests. The realized and unrealized losses during 2009 were primarily attributable to significant increases in the delinquency of the underlying mortgage loans and an acceleration of our assumption of projected losses, which caused a decline in the expected cash flows from the underlying securities. The unrealized gains during 2008 were primarily attributable to a favorable progression of trends in expected prepayments and realized losses as compared to our initial estimates, leading to greater expected cash flows from the underlying securities. (See “— Critical Accounting Policies” below for more information.)

Salaries and Related Expenses

Salaries and related expenses allocable to the Mortgage Servicing segment consist of compensation, payroll taxes and benefits paid to employees in our mortgage loan servicing operations and allocations for overhead. Salaries and related expenses increased by $8 million (26%) during 2009 compared to 2008, primarily due to an increase in employees in our mortgage loan servicing operations associated with higher delinquencies and foreclosures, as well as an increase in management incentives.

Other Operating Expenses

Other operating expenses allocable to the Mortgage Servicing segment include servicing-related direct expenses, costs associated with mortgage loans in foreclosure and REO and allocations for overhead. Other operating expenses increased by $7 million (6%) during 2009 compared to 2008. This increase was primarily attributable to increased expenses due to managing the increased delinquencies in our mortgage servicing portfolio.

Fleet Management Services Segment

Net revenues decreased by $178 million (10%) during 2009 compared to 2008. As discussed in greater detail below, the decrease in Net revenues was due to decreases of $144 million in Fleet lease income, $21 million in Other income and $13 million in Fleet management fees.

Segment profit decreased by $8 million (13%) during 2009 compared to 2008 as the $178 million decrease in Net revenues was offset by a $170 million (10%) decrease in Total expenses. The $170 million decrease in Total expenses was primarily due to decreases of $74 million in Fleet interest expense, $49 million in Other operating expenses, $32 million in Depreciation on operating leases and $14 million in Salaries and related expenses.

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For 2009 compared to 2008, the primary drivers for the reduction in segment profit were volume declines partially offset by improved lease margins and the impact of ongoing cost reduction initiatives. Additionally, during 2008, we recognized a gain of $7 million on the early termination of a technology development and licensing arrangement.

The following tables present a summary of our financial results and related drivers for the Fleet Management Services segment, and are followed by a discussion of each of the key components of our Net revenues and Total expenses:

	Average for the
	Year Ended
	December 31,
	2009		2008		Change			% Change
	(In thousands of units)
Leased vehicles		314		335		(21	)		(6	)%
Maintenance service cards		275		299		(24	)		(8	)%
Fuel cards		282		296		(14	)		(5	)%
Accident management vehicles		305		323		(18	)		(6	)%

	Year Ended
	December 31,
	2009		2008		Change			%Change
			(In millions)
Fleet management fees	$	150	$	163	$	(13	)		(8	)	%
Fleet lease income		1,441		1,585		(144	)		(9	)	%
Other income		58		79		(21	)		(27	)	%
Net revenues		1,649		1,827		(178	)		(10	)	%
Salaries and related expenses		86		100		(14	)		(14	)	%
Occupancy and other office expenses		18		19		(1	)		(5	)	%
Depreciation on operating leases		1,267		1,299		(32	)		(2	)	%
Fleet interest expense		95		169		(74	)		(44	)	%
Other depreciation and amortization		11		11		—			—
Other operating expenses		118		167		(49	)		(29	)	%
Total expenses		1,595		1,765		(170	)		(10	)	%
Segment profit	$	54	$	62	$	(8	)		(13	)	%

Fleet Management Fees

Fleet management fees consist primarily of the revenues of our principal fee-based products: fuel cards, maintenance services, accident management services and monthly management fees for leased vehicles. Fleet management fees decreased by $13 million (8%) during 2009 compared to 2008 primarily due to declines in average unit counts, which resulted in an $11 million decrease in revenues from our principal fee-based products. The decline in average unit counts, as detailed in the chart above, was primarily attributable to deteriorating economic conditions in the broader U.S. economy.

Fleet Lease Income

Fleet lease income decreased by $144 million (9%) during 2009 compared to 2008, primarily due to decreases in billings and lease syndication volume. The decrease in billings was primarily attributable to lower interest rates on variable-rate leases and a decline in average leased vehicles, as detailed in the chart above.

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Other Income

Other income decreased by $21 million (27%) during 2009 compared to 2008, primarily due to a decrease in interest income. Other income for 2008 included a $7 million gain recognized on the early termination of a technology development and licensing arrangement.

Salaries and Related Expenses

Salaries and related expenses decreased by $14 million (14%) during 2009 compared to 2008, primarily due to a decrease in headcount as a result of management’s efforts to reduce costs. Salaries and related expenses for 2009 and 2008 included a severance charge of $4 million and $5 million, respectively.

Depreciation on Operating Leases

Depreciation on operating leases is the depreciation expense associated with our leased asset portfolio. Depreciation on operating leases decreased by $32 million (2%) during 2009 compared to 2008, primarily due to a decrease in vehicles under operating leases.

Fleet Interest Expense

Fleet interest expense decreased by $74 million (44%) during 2009 compared to 2008, primarily due to decreasing short-term interest rates related to borrowings associated with leased vehicles. The average daily one-month LIBOR, which is used as a benchmark for short-term rates, was 235 bps lower during 2009 compared to 2008.

Other Operating Expenses

Other operating expenses decreased by $49 million (29%) during 2009 compared to 2008, primarily due to a decrease in cost of goods sold as a result of the decreases in lease syndication volume.

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Results of Operations—2008 vs. 2007

Consolidated Results

Our consolidated results of operations for 2008 and 2007 were comprised of the following:

	Year Ended
	December 31,
	2008			2007			Change
				(In millions)
Net fee income	$	371		$	291		$	80
Fleet lease income		1,585			1,598			(13	)
Gain on mortgage loans, net		259			94			165
Mortgage net finance income		2			84			(82	)
Loan servicing income		430			489			(59	)
Valuation adjustments related to mortgage servicing rights, net		(733	)		(413	)		(320	)
Other income		142			97			45
Net revenues		2,056			2,240			(184	)
Depreciation on operating leases		1,299			1,264			35
Fleet interest expense		162			213			(51	)
Goodwill impairment		61			—			61
Total other expenses		977			808			169
Total expenses		2,499			2,285			214
Loss before income taxes		(443	)		(45	)		(398	)
Benefit from income taxes		(162	)		(35	)		(127	)
Net loss		(281	)		(10	)		(271	)
Less: net (loss) income attributable to noncontrolling interest		(27	)		2			(29	)
Net loss attributable to PHH Corporation	$	(254	)	$	(12	)	$	(242	)

During 2008, our Net revenues decreased by $184 million (8%) compared to 2007, due to decreases of $452 million and $34 million in our Mortgage Servicing and Fleet Management Services segments, respectively, that were partially offset by an increase of $257 million in our Mortgage Production segment and a $45 million favorable change in other revenue not allocated to our reportable segments, primarily related to a terminated merger agreement with General Electric Capital Corporation. Our Loss before income taxes changed unfavorably by $398 million during 2008 compared to 2007 due to unfavorable changes of $505 million and $54 million in our Mortgage Servicing and Fleet Management Services segments, respectively, that were partially offset by favorable changes of $107 million in our Mortgage Production segment and $54 million in other income not allocated to our reportable segments, primarily related to a terminated merger agreement with General Electric Capital Corporation.

In April 2008, we received approval from the IRS regarding an accounting method change (the “IRS Method Change”). We recorded a net increase to our Benefit from income taxes for 2008 of $11 million as a result of recording the effect of the IRS Method Change.

Our effective income tax rates were (36.6)% and (78.4)% for 2008 and 2007, respectively. The Benefit from income taxes increased by $127 million to a Benefit from income taxes of $162 million in 2008 from a Benefit from income taxes of $35 million in 2007 primarily due to the following: (i) a $139 million increase in federal income tax benefit due to the increase in Loss before income taxes, (ii) a $14 million increase in the state income tax benefit due to the increase in Loss before income taxes (due to our mix of income and loss from our operations by entity and state income tax jurisdictions, there was a significant difference between the state income tax effective rates during 2008 and 2007) and (iii) a $7 million favorable increase in deferred state income tax benefit representing the change in estimated state apportionment factors that were partially offset by (i) a $25 million increase in expense related to the valuation allowance for deferred tax assets as there was a $5 million increase in the valuation allowance during

55

2008 ($14 million of the increase was primarily due to loss carryforwards generated during 2008 for which we believe is more likely than not that the loss carryforwards will not be realized that were partially offset by a $9 million reduction in certain loss carryforwards as a result of the IRS Method Change) as compared to a $20 million decrease in the valuation allowance during 2007 (primarily due to the utilization of loss carryforwards as a result of taxable income generated during 2007), (ii) an $11 million unfavorable change in the impact of Realogy’s noncontrolling interest in the profit or loss of the Mortgage Venture on the calculated effective tax rate and (iii) a portion of the PHH Home Loans’ Goodwill impairment charge was not deductible for federal and state income tax purposes, which impacted the calculated effective tax rate for 2008 by $7 million.

Segment Results

Discussed below are the results of operations for each of our reportable segments. Our management evaluates the operating results of each of our reportable segments based upon Net revenues and segment profit or loss, which is presented as the income or loss before income tax provision or benefit and after net income or loss attributable to noncontrolling interest. The Mortgage Production segment profit or loss excludes Realogy’s noncontrolling interest in the profits and losses of the Mortgage Venture.

Mortgage Production Segment

Net revenues increased by $257 million (125%) during 2008 compared to 2007. As discussed in greater detail below, the increase in Net revenues was due to a $165 million increase in Gain on mortgage loans, net, an $81 million increase in Mortgage fees and a $12 million decrease in Mortgage net finance expense, that were partially offset by a $1 million decrease in Other income.

Segment loss decreased by $136 million (60%) during 2008 compared to 2007 as the $257 million increase in Net revenues was partially offset by a $150 million (35%) increase in Total expenses. The $150 million increase in Total expenses was primarily due to a $102 million increase in Salaries and related expenses and a $61 million non-cash charge for Goodwill impairment, related to the PHH Home Loans reporting unit, recorded during 2008, which were partially offset by decreases of $6 million in Other operating expenses and $5 million in Occupancy and other office expenses. Net loss attributable to noncontrolling interest for 2008 was impacted by $30 million as a result of the PHH Home Loans’ Goodwill impairment. The impact of the PHH Home Loans’ Goodwill impairment on segment loss for 2008 was $31 million. (See Note 3, “Goodwill and Other Intangible Assets” in the accompanying Notes to Consolidated Financial Statements for additional information.)

We adopted ASC 820, ASC 825, “Financial Instruments” (“ASC 825”) and updates to ASC 815 on January 1, 2008. ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. ASC 825 permits entities to choose, at specified election dates, to measure certain eligible items at fair value (the “Fair Value Option”). Unrealized gains and losses on items for which the Fair Value Option has been elected are reported in earnings. Additionally, fees and costs associated with the origination and acquisition of MLHS are no longer deferred, which was our policy prior to the adoption of ASC 825. The updates to ASC 815 require the expected net future cash flows related to the associated servicing of a loan to be included in the measurement of all written loan commitments that are accounted for at fair value.

Accordingly, as a result of the adoption of ASC 820, ASC 825 and updates to ASC 815, there have been changes in the timing of the recognition, as well as the classification, of certain components of our Mortgage Production segment’s Net revenues and Total expenses in comparison to periods prior to January 1, 2008, which are described in further detail below.

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The following tables present a summary of our financial results and key related drivers for the Mortgage Production segment, and are followed by a discussion of each of the key components of Net revenues and Total expenses:

	Year Ended December 31,
	2008		2007		Change			% Change
	(Dollars in millions, except
	average loan amount)
Loans closed to be sold	$	20,753	$	29,207	$	(8,454	)		(29	)	%
Fee-based closings		13,166		10,338		2,828			27		%
Total closings	$	33,919	$	39,545	$	(5,626	)		(14	)	%
Purchase closings	$	21,403	$	25,692	$	(4,289	)		(17	)	%
Refinance closings		12,516		13,853		(1,337	)		(10	)	%
Total closings	$	33,919	$	39,545	$	(5,626	)		(14	)	%
Fixed rate	$	20,008	$	25,525	$	(5,517	)		(22	)	%
Adjustable rate		13,911		14,020		(109	)		(1	)	%
Total closings	$	33,919	$	39,545	$	(5,626	)		(14	)	%
Number of loans closed (units)		146,049		182,885		(36,836	)		(20	)	%
Average loan amount	$	232,241	$	216,228	$	16,013			7		%
Loans sold	$	21,079	$	30,346	$	(9,267	)		(31	)	%
Applications	$	48,545	$	52,533	$	(3,988	)		(8	)	%

	Year Ended December 31,
	2008			2007			Change			% Change
	(In millions)
Mortgage fees	$	208		$	127		$	81			64		%
Gain on mortgage loans, net		259			94			165			176		%
Mortgage interest income		92			171			(79	)		(46	)	%
Mortgage interest expense		(99	)		(190	)		91			48		%
Mortgage net finance expense		(7	)		(19	)		12			63		%
Other income		2			3			(1	)		(33	)	%
Net revenues		462			205			257			125		%
Salaries and related expenses		297			195			102			52		%
Occupancy and other office expenses		44			49			(5	)		(10	)	%
Other depreciation and amortization		13			15			(2	)		(13	)	%
Other operating expenses		164			170			(6	)		(4	)	%
Goodwill impairment		61			—			61			n/m(1	)
Total expenses		579			429			150			35		%
Loss before income taxes		(117	)		(224	)		107			48		%
Less: net (loss) income attributable to noncontrolling interest		(27	)		2			(29	)		n/m(1	)
Segment loss	$	(90	)	$	(226	)	$	136			60		%

⁽¹⁾ n/m—Not meaningful.

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Mortgage Fees

Loans closed to be sold and fee-based closings are the key drivers of Mortgage fees. Loans purchased from financial institutions are included in loans closed to be sold while loans originated by us and retained by financial institutions are included in fee-based closings.

Mortgage fees consist of fee income earned on all loan originations, including loans closed to be sold and fee-based closings. Fee income consists of amounts earned related to application and underwriting fees, fees on cancelled loans and appraisal and other income generated by our appraisal services business. Fee income also consists of amounts earned from financial institutions related to brokered loan fees and origination assistance fees resulting from our private-label mortgage outsourcing activities.

Prior to the adoption of ASC 825 on January 1, 2008, fee income on loans closed to be sold was deferred until the loans were sold and was recognized in Gain on mortgage loans, net. Subsequent to electing the Fair Value Option under ASC 825 for our MLHS, fees associated with the origination and acquisition of MLHS are recognized as earned, rather than deferred, as presented in the following table:

	Year Ended
	December 31,
	2008		2007			Change			% Change
	(In millions)
Mortgage fees prior to the deferral of fee income	$	208	$	228		$	(20	)		(9	)%
Deferred fees		—		(101	)		101			n/m	(1)
Mortgage fees	$	208	$	127		$	81			64	%

⁽¹⁾ n/m—Not meaningful.

Mortgage fees prior to the deferral of fee income decreased by $20 million (9%) primarily due to the 14% decrease in total closings, which was the result of a 29% decrease in loans closed to be sold that was partially offset by a 27% increase in fee-based closings. The change in mix between fee-based closings and loans closed to be sold was primarily due to an increase in fee-based closings from our financial institution clients during 2008 compared to 2007. As a result of the continued lack of liquidity in the secondary market for non-conforming loans, several of our financial institution clients increased their investment in jumbo loan originations, which caused a decline in our loans closed to be sold that was partially offset by an increase in our fee-based closings. Refinance closings decreased during 2008 compared to 2007. Refinancing activity is sensitive to interest rate changes relative to borrowers’ current interest rates, and typically increases when interest rates fall and decreases when interest rates rise. Although the level of interest rates is a key driver of refinancing activity, there are other factors which influenced the level of refinance originations, including home prices, underwriting standards and product characteristics. The decline in purchase closings was due to the decline in overall housing purchases during 2008 compared to 2007.

Gain on Mortgage Loans, Net

Subsequent to the adoption of ASC 825 and updates to ASC 815 on January 1, 2008, Gain on mortgage loans, net includes realized and unrealized gains and losses on our MLHS, as well as the changes in fair value of all loan-related derivatives, including our IRLCs and freestanding loan-related derivatives. The fair value of our IRLCs is based upon the estimated fair value of the underlying mortgage loan, adjusted for: (i) estimated costs to complete and originate the loan and (ii) an adjustment to reflect the estimated percentage of IRLCs that will result in a closed mortgage loan. The valuation of our IRLCs and MLHS approximates a whole-loan price, which includes the value of the related MSRs. MSRs are recognized and capitalized at the date the loans are sold and subsequent changes in the fair value of MSRs are recorded in Change in fair value of mortgage servicing rights in the Mortgage Servicing segment.

Prior to the adoption of ASC 825 and updates to ASC 815 on January 1, 2008, our IRLCs and loan-related derivatives were initially recorded at zero value at inception with changes in fair value recorded as a component of

58

Gain on mortgage loans, net. Changes in the fair value of our MLHS were recorded to the extent the loan-related derivatives were considered effective hedges.

Pursuant to the transition provisions of updates to ASC 815, we recognized a benefit to Gain on mortgage loans, net during 2008 of approximately $30 million, as the value attributable to servicing rights related to IRLCs as of January 1, 2008 was excluded from the transition adjustment for the adoption of ASC 820. (See Note 1, “Summary of Significant Accounting Policies” in the accompanying Notes to Consolidated Financial Statements included in this Form 10-K.)

Prior to the adoption of ASC 825, we recorded our MLHS at the lower of cost or market value (“LOCOM”), computed by the aggregate method. Gain on mortgage loans, net was negatively impacted during 2007 by an increase in the valuation reserve to record MLHS at LOCOM primarily due to declines in the value of Scratch and Dent loans during the second quarter of 2007. As a result of this increase in the valuation reserve, all MLHS as of the beginning of the third quarter of 2007 were recorded at their respective market values. Subsequently during the second half of 2007, there was a further decline in the valuation of Scratch and Dent loans, as well as Alt-A and other non-conforming mortgage loans, which is illustrated in the chart below.

The components of Gain on mortgage loans, net were as follows:

	Year Ended
	December 31,
	2008			2007			Change			% Change
	(In millions)
Gain on loans	$	353		$	324		$	29			9	%
Economic hedge results:
Decline in valuation of ARMs		(20	)		(11	)		(9	)		(82	)%
Decline in valuation of Scratch and Dent loans		(27	)		(48	)		21			44	%
Decline in valuation of Alt-A loans		(1	)		(8	)		7			88	%
Decline in valuation of second-lien loans		(6	)		(28	)		22			79	%
Decline in valuation of jumbo loans		(15	)		(4	)		(11	)		(275	)%
Other economic hedge results		(55	)		(38	)		(17	)		(45	)%
Total economic hedge results		(124	)		(137	)		13			9	%
Increase in LOCOM reserve		—			(17	)		17			n/m(1	)
Recognition of deferred fees and costs, net		—			(76	)		76			n/m(1	)
Benefit of transition provision of updates to ASC 815		30			—			30			n/m(1	)
Gain on mortgage loans, net	$	259		$	94		$	165			176	%

⁽¹⁾ n/m—Not meaningful.

Gain on mortgage loans, net increased by $165 million (176%) from 2007 to 2008 due to $76 million of previously deferred fees and costs recognized during 2007, the $30 million benefit of the transition provision of updates to ASC 815, a $29 million increase in gain on loans, a $17 million valuation reserve related to declines in the value of our MLHS during 2007 and a $13 million favorable variance from our risk management activities related to IRLCs and MLHS.

The $29 million increase in gain on loans during 2008 compared to 2007 was primarily due to higher margins during 2008, particularly during the fourth quarter of 2008, compared to 2007 partially offset by the lower volume of IRLCs expected to close during 2008 compared to loans sold during 2007. Subsequent to the adoption of ASC 825 on January 1, 2008, the primary driver of Gain on mortgage loans, net is new IRLCs that are expected to close, rather than loans sold which was the primary driver prior to the adoption of ASC 825. We had new IRLCs expected to close of $19.8 billion in 2008 compared to loans sold during 2007 of $30.3 billion. IRLCs expected to close in 2008 were negatively impacted by the change in mix between fee-based closings and loans closed to be sold, as well as the decline in overall industry origination volumes.

59

During 2007, we experienced a significant decline in the valuation of ARMs, Scratch and Dent, Alt-A, jumbo and second-lien loans. This decline reflected the initial indications of illiquidity in the secondary mortgage market and the most significant decline in valuations for these types of loans. Although we continued to observe a lack of liquidity and lower valuations in the secondary mortgage market for these types of loans during 2008, the population of these types of loans during 2008 declined significantly in comparison to 2007, due to the fact that subsequent to September 30, 2007, we sold many of these loans at discounted pricing, revised our underwriting standards and consumer loan pricing, or eliminated the offering of these products. The $17 million unfavorable variance from other economic hedge results related to our risk management activities for IRLCs and other mortgage loans was the result of an increase in hedge losses associated with increased interest rate volatility during 2008, which resulted in higher hedge costs.

Mortgage Net Finance Expense

Mortgage net finance expense allocable to the Mortgage Production segment consists of interest income on MLHS and interest expense allocated on debt used to fund MLHS and is driven by the average balance of loans held for sale, the average volume of outstanding borrowings, the note rate on loans held for sale and the cost of funds rate of our outstanding borrowings. Mortgage net finance expense allocable to the Mortgage Production segment decreased by $12 million (63%) during 2008 compared to 2007 due to a $91 million (48%) decrease in Mortgage interest expense that was partially offset by a $79 million (46%) decrease in Mortgage interest income. The $91 million decrease in Mortgage interest expense was attributable to decreases of $55 million due to lower cost of funds from our outstanding borrowings and $36 million due to lower average borrowings. The lower cost of funds from our outstanding borrowings was primarily attributable to a decrease in short-term interest rates. A significant portion of our loan originations are funded with variable-rate short-term debt. The average daily one-month LIBOR, which is used as a benchmark for short-term rates, decreased by 256 bps during 2008 compared to 2007. The lower average borrowings were primarily attributable to the decline in loans closed to be sold during 2008 compared to 2007. The $79 million decrease in Mortgage interest income was primarily due to a lower average volume of loans held for sale and lower interest rates related to loans held for sale.

Salaries and Related Expenses

Salaries and related expenses allocable to the Mortgage Production segment consist of commissions paid to employees involved in the loan origination process, as well as compensation, payroll taxes and benefits paid to employees in our mortgage production operations and allocations for overhead. Prior to the adoption of ASC 825 on January 1, 2008, Salaries and related expenses allocable to the Mortgage Production segment were reflected net of loan origination costs deferred, as presented in the following table:

	Year Ended
	December 31,
	2008		2007			Change			% Change
	(In millions)
Salaries and related expenses prior to the deferral of loan origination costs	$	297	$	343		$	(46	)		(13	)%
Deferred loan origination costs		—		(148	)		148			n/m	(1)
Salaries and related expenses	$	297	$	195		$	102			52	%

⁽¹⁾ n/m—Not meaningful.

Salaries and related expenses prior to the deferral of loan origination costs decreased by $46 million (13%) during 2008 compared to 2007. This decrease was due to decreases of $24 million in commission expense and $22 million in salaries and related benefits. The decrease in salaries and related benefits and incentives was primarily due to a combination of employee attrition and job eliminations, which reduced average full-time equivalent employees for 2008 compared to 2007. The decrease in commission expense was the result of the restructuring of commission plans during 2008 and a 14% decrease in total closings.

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Other Operating Expenses

Other operating expenses allocable to the Mortgage Production segment consist of production-related direct expenses, appraisal expense and allocations for overhead. Prior to January 1, 2008, Other operating expenses were reflected net of loan origination costs deferred, as presented in the following table:

	Year Ended December 31,
	2008		2007			Change			% Change
	(In millions)
Other operating expenses prior to the deferral of loan origination costs	$	164	$	182		$	(18	)		(10	)%
Deferred loan origination costs		—		(12	)		12			n/m	(1)
Other operating expenses	$	164	$	170		$	(6	)		(4	)%

⁽¹⁾ n/m—Not meaningful.

Other operating expenses prior to the deferral of loan origination costs decreased by $18 million (10%) during 2008 compared to 2007 primarily due to a decrease in corporate overhead costs and the 14% decrease in total closings.

Mortgage Servicing Segment

Net revenues changed unfavorably by $452 million during 2008 compared to 2007. As discussed in greater detail below, the unfavorable change in Net revenues was due to unfavorable changes of $320 million in Valuation adjustments related to mortgage servicing rights, $86 million in Mortgage net finance income and $59 million in Loan servicing income that were partially offset by an increase of $13 million in Other income.

Segment (loss) profit changed unfavorably by $505 million during 2008 compared to 2007 due to the $452 million decrease in Net revenues and a $53 million (52%) increase in Total expenses. The $53 million increase in Total expenses was primarily due to increases of $51 million in Other operating expenses and $2 million in Salaries and related expenses.

The following tables present a summary of our financial results and a key related driver for the Mortgage Servicing segment, and are followed by a discussion of each of the key components of Net revenues and Total expenses:

	Year Ended December 31,
	2008		2007		Change			% Change
	(In millions)
Average loan servicing portfolio	$	152,681	$	163,107	$	(10,426	)		(6	)%

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	Year Ended December 31,
	2008			2007			Change			% Change
				(In millions)
Mortgage interest income	$	83		$	182		$	(99	)		(54	)%
Mortgage interest expense		(72	)		(85	)		13			15	%
Mortgage net finance income		11			97			(86	)		(89	)%
Loan servicing income		430			489			(59	)		(12	)%
Change in fair value of mortgage servicing rights		(554	)		(509	)		(45	)		(9	)%
Net derivative (loss) gain related to mortgage servicing rights		(179	)		96			(275	)		n/m(1	)
Valuation adjustments related to mortgage servicing rights		(733	)		(413	)		(320	)		(77	)%
Net loan servicing (loss) income		(303	)		76			(379	)		n/m(1	)
Other income		16			3			13			433	%
Net revenues		(276	)		176			(452	)		n/m(1	)
Salaries and related expenses		31			29			2			7	%
Occupancy and other office expenses		11			10			1			10	%
Other depreciation and amortization		1			2			(1	)		(50	)%
Other operating expenses		111			60			51			85	%
Total expenses		154			101			53			52	%
Segment (loss) profit	$	(430	)	$	75		$	(505	)		n/m(1	)

⁽¹⁾ n/m—Not meaningful.

Mortgage Net Finance Income

Mortgage net finance income allocable to the Mortgage Servicing segment consists of interest income credits from escrow balances, income from investment balances (including investments held by Atrium) and interest expense allocated on debt used to fund our MSRs, which is driven by the average volume of outstanding borrowings and the cost of funds rate of our outstanding borrowings. Mortgage net finance income decreased by $86 million (89%) during 2008 compared to 2007, primarily due to lower interest income from escrow balances. This decrease was primarily due to lower short-term interest rates in 2008 compared to 2007 as escrow balances earn income based on one-month LIBOR, coupled with lower average escrow balances resulting from the sale of MSRs during the third and fourth quarters of 2007. The average daily one-month LIBOR, which is used as a benchmark for short-term rates, decreased by 256 bps during 2008 compared to 2007.

Loan Servicing Income

Loan servicing income includes recurring servicing fees, other ancillary fees and net reinsurance (loss) income from Atrium. Recurring servicing fees are recognized upon receipt of the coupon payment from the borrower and recorded net of guaranty fees. Net reinsurance (loss) income represents premiums earned on reinsurance contracts, net of ceding commission and adjustments to the reserve for reinsurance losses. The primary driver for Loan servicing income is the average loan servicing portfolio.

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The components of Loan servicing income were as follows:

	Year Ended
	December 31,
	2008			2007			Change			% Change
				(In millions)
Net service fee revenue	$	431		$	494		$	(63	)		(13	)%
Late fees and other ancillary servicing revenue		43			21			22			105	%
Curtailment interest paid to investors		(27	)		(40	)		13			33	%
Net reinsurance (loss) income		(17	)		14			(31	)		n/m	(1)
Loan servicing income	$	430		$	489		$	(59	)		(12	)%

⁽¹⁾ n/m—Not meaningful.

Loan servicing income decreased by $59 million (12%) from 2007 compared to 2008 primarily due to a decrease in net service fee revenue and an unfavorable change in net reinsurance (loss) income partially offset by an increase in late fees and other ancillary servicing revenue and a decrease in curtailment interest paid to investors. The $63 million decrease in net service fee revenue was primarily related to a decrease in the capitalized servicing portfolio resulting from sales of MSRs during the third and fourth quarters of 2007. The $31 million unfavorable change in net reinsurance (loss) income during 2008 compared to 2007 was primarily due to an increase in the liability for reinsurance losses driven by higher delinquencies and declines in home values for loans subject to reinsurance. The $22 million increase in late fees and other ancillary servicing revenue was primarily due to a $21 million realized loss, including direct expenses, on the sale of MSRs during the second half of 2007. The decrease in curtailment interest paid to investors was primarily due to a decrease in loan prepayments as well as the 6% decrease in the average servicing portfolio during 2008 compared to 2007.

Valuation Adjustments Related to Mortgage Servicing Rights

Valuation adjustments related to mortgage servicing rights include Change in fair value of mortgage servicing rights and Net derivative (loss) gain related to mortgage servicing rights. The components of Valuation adjustments related to mortgage servicing rights are discussed separately below.

Change in Fair Value of Mortgage Servicing Rights:  The fair value of our MSRs is estimated based upon projections of expected future cash flows from our MSRs considering prepayment estimates, our historical prepayment rates, portfolio characteristics, interest rates based on interest rate yield curves, implied volatility and other economic factors. Generally, the value of our MSRs is expected to increase when interest rates rise and decrease when interest rates decline due to the effect those changes in interest rates have on prepayment estimates. Other factors noted above as well as the overall market demand for MSRs may also affect the MSRs valuation.

The components of Change in fair value of mortgage servicing rights were as follows:

	Year Ended
	December 31,
	2008			2007			Change			% Change
				(In millions)
Realization of expected cash flows	$	(267	)	$	(315	)	$	48			15	%
Changes in market inputs or assumptions used in the valuation model		(287	)		(194	)		(93	)		(48	)%
Change in fair value of mortgage servicing rights	$	(554	)	$	(509	)	$	(45	)		(9	)%

Realization of Expected Cash Flows:  The realization of expected cash flows represents the reduction in the value of MSRs due to the performance of the underlying mortgage loans, including prepayments and portfolio decay. Portfolio decay represents the reduction in the value of MSRs from the receipt of monthly payments, the recognition of servicing expense and the impact of delinquencies and foreclosures.

63

The continued weakness in the housing market, increasing delinquency and foreclosure experience and more restrictive underwriting standards made it more difficult, or expensive, for borrowers to prepay or refinance their mortgage loans during 2008. During 2008 and 2007, the value of our MSRs was reduced by $144 million and $211 million, respectively, due to the prepayment of the underlying mortgage loans. The fluctuation in the decline in value of our MSRs due to prepayments during 2008 in comparison to 2007 was attributable to slower prepayment rates coupled with a lower average capitalized servicing portfolio primarily due to the sale of MSRs during 2007. The actual prepayment rate of mortgage loans in our capitalized servicing portfolio was 11% and 12% of the unpaid principal balance of the underlying mortgage loan during 2008 and 2007, respectively.

During 2008 and 2007, the value of our MSRs was reduced by $123 million and $104 million, respectively, due to portfolio decay. The unfavorable change during 2008 in comparison to 2007 was primarily due to higher portfolio delinquencies. The decline in value due to portfolio decay as a percentage of the average value of MSRs was 7.5% and 5.1% during 2008 and 2007, respectively.

Changes in market inputs or assumptions used in the valuation model:  Of the $287 million unfavorable change during 2008, $192 million was due to a decrease in mortgage interest rates during 2008 and increased expected prepayment speeds, which were adjusted to reflect current market factors including, but not limited to, declines in home prices, underwriting standards and product characteristics. The remaining $95 million unfavorable change during 2008 was primarily due to increased volatility. The unfavorable change during 2007 was primarily due to the impact of a decrease in the spreads between mortgage coupon rates and the underlying risk-free interest rates and a decrease in mortgage interest rates leading to lower expected prepayments. (See “— Critical Accounting Policies—Fair Value Measurements” for an analysis of the impact of 10% variations in key assumptions on the fair value of our MSRs.)

Net Derivative (Loss) Gain Related to Mortgage Servicing Rights:  From time to time, we use a combination of derivatives to protect against potential adverse changes in the value of our MSRs resulting from a decline in interest rates. (See Note 7, “Derivatives and Risk Management Activities” in the accompanying Notes to Consolidated Financial Statements included in this Form 10-K.) The amount and composition of derivatives, if any, that we may use will depend on the exposure to loss of value on our MSRs, the expected cost of the derivatives, our expected liquidity needs and the expected increased earnings generated by origination of new loans resulting from the decline in interest rates (the natural business hedge). During periods of increased interest rate volatility, we anticipate increased costs associated with derivatives related to MSRs that are available in the market. The natural business hedge provides a benefit when increased borrower refinancing activity results in higher production volumes which would partially offset declines in the value of our MSRs thereby reducing the need to use derivatives. The benefit of the natural business hedge depends on the decline in interest rates required to create an incentive for borrowers to refinance their mortgage loans and lower their interest rates; however, the benefit of the natural business hedge may not be realized under certain circumstances regardless of the change in interest rates. Reliance on the natural business hedge during 2008 resulted in greater volatility in the results of our Mortgage Servicing segment. During 2008, we assessed the composition of our capitalized mortgage loan servicing portfolio and its related relative sensitivity to refinance if interest rates decline, the costs of hedging and the anticipated effectiveness given the economic environment. Based on that assessment, we made the decision to close out substantially all of our derivatives related to MSRs during the third quarter of 2008. As of December 31, 2008, there were no open derivatives related to MSRs. (See “Part I—Item 1A. Risk Factors—Risks Related to our Business—Certain hedging strategies that we may use to manage interest rate risk associated with our MSRs and other mortgage-related assets and commitments may not be effective in mitigating those risks.” in this Form 10-K for more information.)

The value of derivatives related to our MSRs decreased by $179 million and increased by $96 million during 2008 and 2007, respectively. As described below, our net results from MSRs risk management activities were losses of $466 million and $98 million during 2008 and 2007, respectively.

64

The following table outlines Net loss on MSRs risk management activities:

	Year Ended
	December 31,
	2008			2007
	(In millions)
Net derivative (loss) gain related to mortgage servicing rights	$	(179	)	$	96
Change in fair value of mortgage servicing rights due to changes in market inputs or assumptions used in the valuation model		(287	)		(194	)
Net loss on MSRs risk management activities	$	(466	)	$	(98	)

Other Income

Other income allocable to the Mortgage Servicing segment consists primarily of net gains or losses on Investment securities and increased by $13 million (433%) during 2008 compared to 2007. Our Investment securities consist of interests that continue to be held in the sale or securitization of mortgage loans, or retained interests. The unrealized gains during 2008 were primarily attributable to greater expected cash flows from the underlying securities resulting from a favorable progression of trends in expected prepayments, partially offset by unfavorable expected losses as compared to our initial estimates. (See “— Critical Accounting Policies” below for more information.)

Salaries and Related Expenses

Salaries and related expenses allocable to the Mortgage Servicing segment consist of compensation, payroll taxes and benefits paid to employees in our mortgage loan servicing operations and allocations for overhead. Salaries and related expenses increased by $2 million (7%) during 2008 compared to 2007, primarily due to an increase in base compensation and benefits costs.

Other Operating Expenses

Other operating expenses allocable to the Mortgage Servicing segment include servicing-related direct expenses, costs associated with mortgage loans in foreclosure and REO and allocations for overhead. Other operating expenses increased by $51 million (85%) during 2008 compared to 2007. This increase was primarily attributable to an increase in foreclosure losses and reserves associated with loans sold with recourse primarily due to an increase in loss severity and foreclosure frequency resulting primarily from a decline in housing prices in 2008 compared to 2007. As of December 31, 2008, the gross foreclosure and REO balance included in Other assets in the accompanying Consolidated Balance Sheet was $30 million higher than December 31, 2007. In addition, the estimated loss severity on the related assets as of December 31, 2008 was 89% greater than as of December 31, 2007.

Fleet Management Services Segment

Net revenues decreased by $34 million (2%) during 2008 compared to 2007. As discussed in greater detail below, the decrease in Net revenues was due to decreases of $20 million in Other income, $13 million in Fleet lease income and $1 million in Fleet management fees.

Segment profit decreased by $54 million (47%) during 2008 compared to 2007 due to the $34 million decrease in Net revenues and a $20 million (1%) increase in Total expenses. The $20 million increase in Total expenses was due to an increase of $35 million in Depreciation on operating leases, a $23 million increase in Other operating expenses, an $8 million increase in Salaries and related expenses and a $1 million increase in Occupancy and other office expenses that were partially offset by decreases of $46 million in Fleet interest expense and $1 million in Other depreciation and amortization.

For 2008 compared to 2007, the primary driver for the reduction in segment profit was the impact of an increase in debt fees and increased spreads between the indices used for billings and the index associated with our vehicle management asset-backed debt of $40 million. For 2008 compared to 2007, the decline in average unit counts, as detailed in the chart below, was primarily attributable to deteriorating economic conditions and the timing

65

associated with the roll-off of leased units due to the uncertainty generated by the announcement of a merger agreement with General Electric Capital Corporation during 2007, which was ultimately terminated in 2008.

The following tables present a summary of our financial results and related drivers for the Fleet Management Services segment, and are followed by a discussion of each of the key components of our Net revenues and Total expenses:

	Average for the
	Year Ended
	December 31,
	2008		2007		Change			% Change
	(In thousands of units)
Leased vehicles		335		342		(7	)		(2	)%
Maintenance service cards		299		326		(27	)		(8	)%
Fuel cards		296		330		(34	)		(10	)%
Accident management vehicles		323		334		(11	)		(3	)%

	Year Ended
	December 31,
	2008		2007		Change			% Change
			(In millions)
Fleet management fees	$	163	$	164	$	(1	)		(1	)%
Fleet lease income		1,585		1,598		(13	)		(1	)%
Other income		79		99		(20	)		(20	)%
Net revenues		1,827		1,861		(34	)		(2	)%
Salaries and related expenses		100		92		8			9	%
Occupancy and other office expenses		19		18		1			6	%
Depreciation on operating leases		1,299		1,264		35			3	%
Fleet interest expense		169		215		(46	)		(21	)%
Other depreciation and amortization		11		12		(1	)		(8	)%
Other operating expenses		167		144		23			16	%
Total expenses		1,765		1,745		20			1	%
Segment profit	$	62	$	116	$	(54	)		(47	)%

Fleet Management Fees

Fleet management fees consist primarily of the revenues of our principal fee-based products: fuel cards, maintenance services, accident management services and monthly management fees for leased vehicles. Fleet management fees decreased by $1 million (1%) during 2008 compared to 2007, due to a $1 million decrease in revenue from our principal fee-based products.

Fleet Lease Income

Fleet lease income decreased by $13 million (1%) during 2008 compared to 2007, due to a decrease in billings partially offset by an increase in lease syndication volume. The decrease in billings was attributable to lower interest rates on variable-rate leases, which was partially offset by higher billings as a result of an increase in the depreciation component of Fleet lease income related to vehicles under operating leases. For operating leases, Fleet lease income contains a depreciation component, an interest component and a management fee component.

Other Income

Other income decreased by $20 million (20%) during 2008 compared to 2007, primarily due to decreased vehicle sales at our dealerships and decreased interest income that were partially offset by a $7 million gain

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recognized on the early termination of a technology development and licensing arrangement during 2008. The decrease in vehicle sales at our dealerships was primarily due to an overall decline in vehicle sales within the industry and the deterioration of general economic conditions.

Salaries and Related Expenses

Salaries and related expenses increased by $8 million (9%) during 2008 compared to 2007, primarily due to $5 million of severance costs incurred during 2008 and an increase in variable compensation as a result of an increase in Stock compensation expense.

Depreciation on Operating Leases

Depreciation on operating leases is the depreciation expense associated with our leased asset portfolio. Depreciation on operating leases during 2008 increased by $35 million (3%) compared to 2007, primarily due to an increase in vehicles under operating leases.

Fleet Interest Expense

Fleet interest expense decreased by $46 million (21%) during 2008 compared to 2007, primarily due to decreasing short-term interest rates related to borrowings associated with leased vehicles that was partially offset by increases in ABCP spreads and program and commitment fee rates on our vehicle management asset-backed debt. The average daily one-month LIBOR, which is used as a benchmark for short-term rates, decreased by 256 bps during 2008 compared to 2007.

Other Operating Expenses

Other operating expenses increased by $23 million (16%) during 2008 compared to 2007, primarily due to an increase in cost of goods sold as a result of the increase in lease syndication volume that was partially offset by a decrease in cost of goods sold as a result of a decrease in vehicle sales at our dealerships. Other operating expenses during 2007 include a $10 million reduction in accruals due to the resolution of foreign non-income based tax contingencies.

Liquidity and Capital Resources

General

Our liquidity is dependent upon our ability to fund maturities of indebtedness, to fund growth in assets under management and business operations and to meet contractual obligations. We estimate how these liquidity needs may be impacted by a number of factors including fluctuations in asset and liability levels due to changes in our business operations, levels of interest rates and unanticipated events. Our primary operating funding needs arise from the origination and warehousing of mortgage loans, the purchase and funding of vehicles under management and the retention of MSRs. Sources of liquidity include equity capital including retained earnings, the unsecured debt markets, committed and uncommitted credit facilities, secured borrowings including the asset-backed debt markets and the liquidity provided by the sale or securitization of assets.

During 2008 and into 2009, dramatic declines in home prices, adverse developments in the secondary mortgage market and volatility in ABS markets, including the Canadian ABS markets, negatively impacted the availability of funding and limited our access to one or more of the funding sources used to fund MLHS and Net investment in fleet leases. However, conditions in the ABS markets in the U.S. and Canada and the credit markets have improved significantly during 2009 and into 2010. While we expect that the costs associated with our borrowings, including relative spreads and conduit fees, will be higher during 2010 compared to such costs prior to the disruption in the credit markets, relative spreads have tightened significantly during 2009 and into 2010. (See “— Debt Maturities” below for more information regarding the contractual maturity dates for our borrowing arrangements.)

Due to disruptions in the credit markets, specifically the Canadian ABS markets, beginning in the second half of 2007, we were unable to utilize certain direct financing lease funding structures, which include the receipt of

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substantial lease prepayments, for new lease originations by our Canadian fleet management operations. This resulted in an increase in the use of unsecured funding for the origination of operating leases in Canada during 2009. Vehicles under operating leases are included within Net investment in fleet leases in the accompanying Consolidated Balance Sheets net of accumulated depreciation, whereas the component of Net investment in fleet leases related to direct financing leases represents the lease payment receivable related to those leases net of any unearned income. Approximately $357 million of capacity under our unsecured credit facilities was being used to fund Canadian operating leases as of December 31, 2009. In January 2010, FLRT issued $343 million of senior asset-backed term notes.

In order to provide adequate liquidity throughout a broad array of operating environments, our funding plan relies upon multiple sources of liquidity and considers our projected cash needs to fund mortgage loan originations, purchase vehicles for lease, hedge our MSRs (if any) and meet various other obligations. We maintain liquidity at the parent company level through access to the unsecured debt markets and through unsecured committed bank facilities. Unsecured debt markets include commercial paper issued by the parent company which we fully support with committed bank facilities; however, there has been limited funding available to us in the commercial paper market since January 2008. During the third quarter of 2009, we accessed the unsecured debt markets through the issuance of the 2014 Convertible Notes. See “— Indebtedness—Unsecured Debt” for further discussion regarding the 2014 Convertible Notes. These various unsecured sources of funds are utilized to provide for a portion of the operating needs of our mortgage and fleet management businesses. In addition, secured borrowings, including asset-backed debt, asset sales and securitization of assets, are utilized to fund both vehicles under management and mortgages held for resale. Our inability to renew such financing arrangements would eliminate a significant source of liquidity for our operations and there can be no assurance that we would be able to find replacement financing on terms acceptable to us, if at all. We intend to continue to evaluate our funding strategies.

Given our expectation for business volumes, we believe that our sources of liquidity are adequate to fund our operations for the next 12 months. We expect aggregate capital expenditures for 2010 to be between $25 million and $38 million, in comparison to $11 million for 2009.

Cash Flows

At December 31, 2009, we had $150 million of Cash and cash equivalents, an increase of $41 million from $109 million at December 31, 2008. The following table summarizes the changes in Cash and cash equivalents during the years ended December 31, 2009 and 2008:

	Year Ended
	December 31,
	2009			2008			Change
	(In millions)
Cash provided by (used in):
Operating activities	$	1,283		$	1,893		$	(610	)
Investing activities		(550	)		(1,408	)		858
Financing activities		(655	)		(553	)		(102	)
Effect of changes in exchange rates on Cash and cash equivalents		(37	)		28			(65	)
Net increase (decrease) in Cash and cash equivalents	$	41		$	(40	)	$	81

Operating Activities

During 2009, we generated $610 million less cash from our operating activities than during 2008 primarily due to a $334 million decrease in net cash inflows related to the origination and sale of mortgage loans. Cash flows related to the origination and sale of mortgage loans may fluctuate significantly from period to period due to the timing of the underlying transactions.

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Investing Activities

During 2009, we used $858 million less cash in our investing activities than during 2008. The decrease in cash used in investing activities was primarily attributable to a $772 million decrease in net cash outflows related to the acquisition and sale of investment vehicles and a $129 million decrease in cash paid on derivatives related to MSRs that were partially offset by an $87 million decrease in proceeds from the sale of MSRs and excess servicing and an $18 million decrease in net settlement proceeds from derivatives related to MSRs. Cash flows related to the acquisition and sale of vehicles fluctuate significantly from period to period due to the timing of the underlying transactions.

Financing Activities

During 2009, we used $102 million more cash in our financing activities than during 2008 primarily due to a $230 million increase in principal payments on borrowings, net of proceeds that were partially offset by a $133 million net decrease in short-term borrowings during 2008. The fluctuations in the components of Cash used in financing activities during 2009 in comparison to 2008 were primarily due to a lower decrease in the funding requirements for assets under management programs.

Secondary Mortgage Market

We rely on the secondary mortgage market for a substantial amount of liquidity to support our mortgage operations. Nearly all mortgage loans that we originate are sold in the secondary mortgage market, primarily in the form of MBS, ABS and whole-loan transactions. A large component of the MBS we sell is guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae (collectively, “Agency MBS”). Historically, we have also issued non-agency (or non-conforming) MBS and ABS. We have also publicly issued both non-conforming MBS and ABS that are registered with the SEC, in addition to private non-conforming MBS and ABS. However, secondary market liquidity for all non-conforming products has been severely limited since the second quarter of 2007. Generally, these types of securities have their own credit ratings and require some form of credit enhancement, such as over-collateralization, senior-subordinated structures, PMI, and/or private surety guarantees.

The Agency MBS, whole-loan and non-conforming markets for mortgage loans have historically provided substantial liquidity for our mortgage loan production operations. Because certain of these markets are illiquid, including those for jumbo, Alt-A, and other non-conforming loan products, we have modified the types of loans that we originated and expect to continue to modify the types of mortgage loans that we originate in accordance with secondary market liquidity. We focus our business process on consistently producing quality mortgage loans that meet investor requirements to continue to access these markets. Substantially all of our loans closed to be sold originated during 2009 were conforming.

See “— Overview—Mortgage Production and Mortgage Servicing Segments—Mortgage Industry Trends” and “Part I—Item 1A. Risk Factors—Risks Related to our Business—Adverse developments in the secondary mortgage market could have a material adverse effect on our business, financial position, results of operations or cash flows.” included in this Form 10-K for more information regarding the secondary mortgage market.

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Indebtedness

We utilize both secured and unsecured debt as key components of our financing strategy. Our primary financing needs arise from our assets under management programs which are summarized in the table below:

	December 31,
	2009		2008
	(In millions)
Restricted cash	$	596	$	614
Mortgage loans held for sale		1,218		1,006
Net investment in fleet leases		3,610		4,204
Mortgage servicing rights		1,413		1,282
Investment securities		12		37
Assets under management programs	$	6,849	$	7,143

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The following tables summarize the components of our indebtedness as of December 31, 2009:

	December 31, 2009
												Assets Held as Collateral(1)
																Mortgage		Net
								Maturity/								Loans		Investment
					Interest			Expiry				Accounts		Restricted		Held for		in Fleet
	Balance		Capacity(2)		Rate(3)			Date(4)				Receivable		Cash		Sale		Leases(5)
	(Dollars in millions)
Chesapeake Series 2006-2 Variable Funding Notes	$	657	$	657					2/26/2009	(6	)
Chesapeake Series 2009-1 Term Notes		1,000		1,000					5/20/2010
Chesapeake Series 2009-2 Class A Term Notes		850		850					2/17/2011
Chesapeake Series 2009-2 Class B Term Notes(7)		28		28					2/17/2011
Chesapeake Series 2009-2 Class C Term Notes(7)		24		24					2/17/2011
Chesapeake Series 2009-3 Class A Term Notes		50		50					10/20/2011
Chesapeake Series 2009-4 Class A Term Notes		250		250					2/18/2010
Other		33		33					3/2010- 6/2016
Total Vehicle Management Asset-Backed Debt		2,892		2,892		2.0	%(8)					$	21	$	297	$	—	$	3,082
RBS Repurchase Facility(9)		622		1,500		3.0	%		6/24/2010				—		1		667		—
Fannie Mae Repurchase Facilities(10)		325		325		1.0	%		N/A				—		—		333		—
Other(11)		49		60		2.7	%		9/2010- 10/2010				52		—		5		—
Total Mortgage Warehouse Asset-Backed Debt		996		1,885									52		1		1,005		—
						6.5	%-		4/2010-
Term Notes(12)		439		439		7.9	%(13)		4/2018				—		—		—		—
Credit Facilities(14)		432		1,305		1.0	%(15)		1/6/2011				—		—		—		—
Convertible Notes due 2012(16)		221		221		4.0	%		4/15/2012				—		—		—		—
Convertible Notes due 2014(17)		180		180		4.0	%		9/1/2014				—		—		—		—
Total Unsecured Debt		1,272		2,145									—		—		—		—
Total Debt	$	5,160	$	6,922								$	73	$	298	$	1,005	$	3,082

(1)	Assets held as collateral are not available to pay our general obligations.
(2)	Capacity is dependent upon maintaining compliance with, or obtaining waivers of, the terms, conditions and covenants of the respective agreements. With respect to asset-backed funding arrangements, capacity may be further limited by the asset eligibility requirements under the respective agreements. The Chesapeake Term Notes have revolving periods during which time the pro-rata share of lease cash flows pledged to Chesapeake will create availability to fund the acquisition of vehicles to be leased to customers of our Fleet Management Services segment. See “Asset-Backed Debt—Vehicle Management Asset-Backed Debt” below for additional information.
(3)	Represents the variable interest rate as of the respective date, with the exception of total vehicle management asset-backed debt, term notes and the Convertible Notes.

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(4)	The maturity date for the Chesapeake Term Notes represents the end of the respective revolving period, during which time the respective notes’ pro-rata share of lease cash flows pledged to Chesapeake will create availability to fund the acquisition of vehicles to be leased to customers of our Fleet Management Services segment. Subsequent to the revolving period, the notes will amortize in accordance with their terms (as further discussed below). See “Asset-Backed Debt—Vehicle Management Asset-Backed Debt” below for additional information.
(5)	The titles to all the vehicles collateralizing the debt issued by Chesapeake are held in a bankruptcy remote trust and we act as a servicer of all such leases. The bankruptcy remote trust also acts as a lessor under both operating and direct financing lease agreements.
(6)	We elected to allow the Series 2006-2 notes to amortize in accordance with their terms on the Scheduled Expiry Date (as defined below). During the Amortization Period (as defined below), we are unable to borrow additional amounts under these notes. See “Asset-Backed Debt—Vehicle Management Asset-Backed Debt” below for additional information.
(7)	The carrying amount of the Chesapeake Series 2009-2 Series B and Series C term notes as of December 31, 2009 is net of an unamortized discount of $3 million and $5 million, respectively. See “Asset-Backed Debt—Vehicle Management Asset-Backed Debt” below for additional information.
(8)	Represents the weighted-average interest rate of our vehicle management asset-backed debt arrangements as of December 31, 2009.
(9)	We maintain a variable-rate committed mortgage repurchase facility (the “RBS Repurchase Facility”) with The Royal Bank of Scotland plc (“RBS”). At our election, subject to compliance with the terms of the Amended and Restated Master Repurchase Agreement (the “Amended Repurchase Agreement”) and payment of renewal fees, the RBS Repurchase Facility was renewed for an additional 364-day term on June 25, 2009.
(10)	The balance and capacity represents amounts outstanding under our variable-rate uncommitted mortgage repurchase facilities (the “Fannie Mae Repurchase Facilities”) with Fannie Mae. Total uncommitted capacity was approximately $3.0 billion as of December 31, 2009.
(11)	Represents the variable interest rate on the majority of other mortgage warehouse asset-backed debt as of December 31, 2009. The outstanding balance as of December 31, 2009 also includes $5 million outstanding under another variable-rate mortgage warehouse facility that bore interest at 3.1%.
(12)	Represents medium-term notes (the “MTNs”) publicly issued under the indenture, dated as of November 6, 2000 (as amended and supplemented, the “MTN Indenture”) by and between PHH and The Bank of New York, as successor trustee for Bank One Trust Company, N.A.
(13)	Represents the range of stated interest rates of the MTNs outstanding as of December 31, 2009. The effective rate of interest of our outstanding MTNs was 7.2% as of December 31, 2009.
(14)	Credit facilities primarily represents a $1.3 billion Amended and Restated Competitive Advance and Revolving Credit Agreement (the “Amended Credit Facility”), dated as of January 6, 2006, among PHH, a group of lenders and JPMorgan Chase Bank, N.A., as administrative agent.
(15)	Represents the interest rate on the Amended Credit Facility as of December 31, 2009, excluding per annum utilization and facility fees. The outstanding balance as of December 31, 2009 also includes $72 million outstanding under another variable-rate credit facility that bore interest at 1.0%. See “Unsecured Debt—Credit Facilities” below for additional information.
(16)	On April 2, 2008, we completed a private offering of our 2012 Convertible Notes with an aggregate principal amount of $250 million and a maturity date of April 15, 2012 to certain qualified institutional buyers. The carrying amount as of December 31, 2009 is net of an unamortized discount of $29 million. The effective rate of interest of the 2012 Convertible Notes was 12.4% as of December 31, 2009, which represents the 4.0% semiannual cash payment and the non-cash accretion of discount and issuance costs. There were no conversions of the 2012 Convertible Notes during 2009.
(17)	On September 29, 2009, we completed a private offering of our 2014 Convertible Notes with an aggregate principal balance of $250 million and a maturity date of September 1, 2014 to certain qualified institutional buyers. The carrying amount as of December 31, 2009 is net of an unamortized discount of $70 million. The effective rate of interest of the 2014 Convertible Notes was 13.0% as of December 31, 2009, which represents the 4.0% semiannual cash payment and the non-cash accretion of discount and issuance costs. There were no conversions of the 2014 Convertible Notes during 2009.

Asset-Backed Debt

Vehicle Management Asset-Backed Debt

Vehicle management asset-backed debt primarily represents variable-rate debt issued by our wholly owned subsidiary, Chesapeake, to support the acquisition of vehicles used by our Fleet Management Services segment’s

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U.S. leasing operations. On February 27, 2009, we amended the agreement governing the Series 2006-1 notes to extend the scheduled expiry date to March 27, 2009 in order to provide additional time for us and the lenders of the Chesapeake notes to evaluate the long-term funding arrangements for its Fleet Management Services segment. The amendment also included a reduction in the total capacity of the Series 2006-1 notes from $2.5 billion to $2.3 billion and the payment of certain extension fees. Additionally, on February 26, 2009 (the “Scheduled Expiry Date”), we elected to allow the Series 2006-2 notes to amortize in accordance with their terms, as further discussed below. On October 8, 2009, the remaining obligations under the Series 2006-1 Chesapeake variable funding notes were paid in full. (See “Part I—Item 1A. Risk Factors—Risks Related to our Business—Adverse developments in the asset-backed securities market have negatively affected the availability of funding and our cost of funds, which could have a material and adverse effect on our business, financial position, results of operations or cash flows.”)

During the amortization period, we will be unable to borrow additional amounts under the variable funding notes or use the pro-rata share of lease cash flows to fund the acquisition of vehicles to be leased under the Chesapeake Term Notes, and monthly repayments will be made on the notes through the earlier of 125 months following the Scheduled Expiry Date, or when the respective series of notes are paid in full based on an allocable share of the collection of cash receipts of lease payments from its clients relating to the collateralized vehicle leases and related assets (the “Amortization Period”). The allocable share is based upon the outstanding balance of those notes relative to all other outstanding series notes issued by Chesapeake as of the commencement of the Amortization Period. After the payment of interest, servicing fees, administrator fees and servicer advance reimbursements, any monthly lease collections during the Amortization Period of a particular series would be applied to reduce the principal balance of the series notes.

On September 11, 2009, Chesapeake issued $31 million and $29 million of Class B and Class C, respectively, of Chesapeake Term Notes under Series 2009-2, which were purchased by another of our wholly owned subsidiaries. Subsequently, on September 29, 2009, the Series 2009-2 Class B and Series 2009-2 Class C notes were resold to certain qualified institutional buyers. In addition, $300 million of Class A Chesapeake Term Notes were issued under Series 2009-3 and 2009-4 during the fourth quarter of 2009, as detailed in the chart above. Proceeds from the Chesapeake Term Notes issued during 2009 were primarily used to repay a portion of the Series 2006-1 notes, fund the acquisition of vehicles to be leased to customers of our Fleet Management Services segment and reduce the amounts outstanding under the Amended Credit Facility.

As of December 31, 2009, 84% of the carrying value of our fleet leases collateralized the debt issued by Chesapeake. These leases include certain eligible assets representing the borrowing base of the variable funding and term notes issued by Chesapeake (the “Chesapeake Lease Portfolio”). Approximately 99% of the Chesapeake Lease Portfolio as of December 31, 2009 consisted of open-end leases, in which substantially all of the residual risk on the value of the vehicles at the end of the lease term remains with the lessee. As of December 31, 2009, the Chesapeake Lease Portfolio consisted of 23% and 77% fixed-rate and variable-rate leases, respectively. As of December 31, 2009, the top 25 client lessees represented approximately 50% of the Chesapeake Lease Portfolio, with no client exceeding 5%.

Renewal of existing series or issuance of new series of Chesapeake notes on terms acceptable to us, or our ability to enter into alternative vehicle management asset-backed debt arrangements could be adversely affected in the event of: (i) the deterioration in the quality of the assets underlying the asset-backed debt arrangement; (ii) increased costs associated with accessing or our inability to access the asset-backed debt market; (iii) termination of our role as servicer of the underlying lease assets in the event that we default in the performance of our servicing obligations or we declare bankruptcy or become insolvent or (iv) our failure to maintain a sufficient level of eligible assets or credit enhancements, including collateral intended to provide for any differential between variable-rate lease revenues and the underlying variable-rate debt costs. (See “Part I—Item 1A. Risk Factors—Adverse developments in the asset-backed securities market have negatively affected the availability of funding and our costs of funds, which could have a material and adverse effect on our business, financial position, results of operations or cash flows.” for more information.)

On January 27, 2010, FLRT issued approximately $119 million of senior Class A-1 term asset-backed notes which was comprised of two subclasses of senior term asset-backed notes (the “Series 2010-1 Class A-1 Notes”) and approximately $224 million of senior Class A-2 term asset-backed notes under Series 2010-1 which was comprised of two subclasses of senior term asset backed notes (the “Series 2010-1 Class A-2 Notes” and together with the Series 2010-1 Class A-1 Notes, collectively the “Series 2010-1 Class A Notes”) to finance a fixed pool of eligible lease assets in Canada. The proceeds of the issuance were primarily used to reduce amounts outstanding under our Amended Credit Facility. Three of the four subclasses of Series 2010-1 Class A Notes were denominated in Canadian dollars with the remaining subclass of Series 2010-1 Class A Notes denominated in U.S. dollars. The

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Series 2010-1 Class A-1 notes and Class A-2 notes are amortizing notes and have maturity dates of February 15, 2011 and November 15, 2013, respectively. The Series 2010-1 Class A Notes are collateralized by approximately $377 million of leased vehicles and related assets, which are not available to pay our general obligations. The lease cash flows related to the underlying collateralized leases will be used to repay the principal outstanding under the Series 2010-1 Class A Notes. FLRT is a Canadian special purpose trust and its primary business activities include the acquisition, disposition and administration of purchased or acquired lease assets from our other Canadian subsidiaries and the borrowing of funds or the issuance of securities to finance such acquisitions.

Mortgage Warehouse Asset-Backed Debt

We maintained a 364-day $500 million variable-rate committed mortgage repurchase facility with Citigroup Global Markets Realty Corp. (the “Citigroup Repurchase Facility”). We repaid all outstanding obligations under the Citigroup Repurchase Facility as of February 26, 2009.

The Mortgage Venture maintained a variable-rate committed repurchase facility (the “Mortgage Venture Repurchase Facility”) with Bank of Montreal and Barclays Bank PLC as Bank Principals and Fairway Finance Company, LLC and Sheffield Receivables Corporation as Conduit Principals. On December 15, 2008, the parties agreed to amend the Mortgage Venture Repurchase Facility to, among other things, reduce the total committed capacity to $125 million by March 31, 2009 through a series of commitment reductions. Additionally, the parties elected not to renew the Mortgage Venture Repurchase Facility beyond its maturity date and we repaid all outstanding obligations under the Mortgage Venture Repurchase Facility on May 28, 2009. Although the Mortgage Venture continues to evaluate potential alternative sources of committed mortgage warehouse asset-backed debt, there can be no assurance that such alternative sources of funding will be obtained on terms that are commercially agreeable to us, if at all. Alternatively, during the first half of 2009, the Mortgage Venture undertook a variety of actions in order to shift its mortgage loan production primarily to mortgage loans that are brokered through third party investors, including PHH Mortgage, in order to decrease its reliance on committed mortgage warehouse asset-backed debt unless and until an alternative source of funding is obtained.

The availability of the mortgage warehouse asset-backed debt could suffer in the event of: (i) the continued deterioration in the performance of the mortgage loans underlying the asset-backed debt arrangement; (ii) our failure to maintain sufficient levels of eligible assets or credit enhancements; (iii) our inability to access the asset-backed debt market to refinance maturing debt; (iv) our inability to access the secondary market for mortgage loans; (v) termination of our role as servicer of the underlying mortgage assets in the event that (a) we default in the performance of our servicing obligations or (b) we declare bankruptcy or become insolvent or (vi) our failure to comply with certain financial covenants (see “— Debt Covenants” below for additional information). (See “Part I—Item 1A. Risk Factors—Risks Related to our Business—Adverse developments in the asset-backed securities market have negatively affected the availability of funding and our costs of funds, which could have a material and adverse effect on our business, financial position, results of operations or cash flows.” in this Form 10-K for more information.)

Unsecured Debt

Historically, the public debt markets have been an important source of financing for us, due to their efficiency and low cost relative to certain other sources of financing. The credit markets have experienced extreme volatility and disruption, which has resulted in a significant tightening of credit, including with respect to unsecured debt. Prior to the disruption in the credit markets, we typically accessed these markets by issuing unsecured commercial paper and MTNs. During 2009, there was no funding available to us in the commercial paper markets, and availability is unlikely given our short-term credit ratings. It is our policy to maintain available capacity under our committed unsecured credit facilities to fully support our outstanding unsecured commercial paper. However, given that the commercial paper markets are unavailable to us, our committed unsecured credit facilities have provided us with an alternative source of liquidity. During 2008 and 2009, we also accessed the institutional debt market through the issuance of the Convertible Notes. As of December 31, 2009, we had a total of approximately $840 million in unsecured public and institutional debt outstanding.

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Our credit ratings as of February 15, 2010 were as follows:

	Moody’s
	Investors		Standard			Fitch
	Service		& Poor’s			Ratings
Senior unsecured debt		Ba2		BB	+		BB	+
Short-term debt		NP		B			B

As of February 15, 2010, the ratings outlooks on our senior unsecured debt provided by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings were Negative. There can be no assurance that the ratings and ratings outlooks on our senior unsecured long-term debt and other debt will remain at these levels.

A security rating is not a recommendation to buy, sell or hold securities, may not reflect all of the risks associated with an investment in our debt securities and is subject to revision or withdrawal by the assigning rating organization. Each rating should be evaluated independently of any other rating.

Moody’s Investors Service’s rating of our senior unsecured long-term debt was lowered to Ba2 on March 2, 2009. In addition, Standard and Poor’s rating of our senior unsecured long-term debt was lowered to BB+ on February 11, 2009, and Fitch Ratings’ rating of our senior unsecured long-term debt was also lowered to BB+ on February 26, 2009. As a result of our senior unsecured long-term debt no longer being investment grade, our access to the public debt markets may be severely limited. We may be required to rely upon alternative sources of financing, such as bank lines and private debt placements and pledge otherwise unencumbered assets. There can be no assurance that we will be able to find such alternative financing on terms acceptable to us, if at all. Furthermore, we may be unable to retain all of our existing bank credit commitments beyond the then-existing maturity dates. As a consequence, our cost of financing could rise significantly, thereby negatively impacting our ability to finance some of our capital-intensive activities, such as our ongoing investment in MSRs and other retained interests.

Credit Facilities

Pricing under the Amended Credit Facility is based upon our senior unsecured long-term debt ratings. If the ratings on our senior unsecured long-term debt assigned by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings are not equivalent to each other, the second highest credit rating assigned by them determines pricing under the Amended Credit Facility. On February 11, 2009, Standard & Poor’s downgraded its rating of our senior unsecured long-term debt from BBB- to BB+, and Fitch Ratings’ rating of our senior unsecured long-term debt was lowered to BB+ on February 26, 2009. In addition, on March 2, 2009, Moody’s Investors Service downgraded its rating of our senior unsecured long-term debt from Ba1 to Ba2. As of December 31, 2009, borrowings under the Amended Credit Facility bore interest at a margin of 70.0 bps over a benchmark index of either LIBOR or the federal funds rate. The Amended Credit Facility also requires us to pay utilization fees if its usage exceeds 50% of the aggregate commitments under the Amended Credit Facility and per annum facility fees. As of December 31, 2009, the per annum utilization and facility fees were 12.5 bps and 17.5 bps, respectively.

Convertible Notes

The Convertible Notes are senior unsecured obligations, which rank equally with all of our existing and future senior debt. The 2014 Convertible Notes are governed by the 2014 Convertible Notes Indenture, dated September 29, 2009, between us and The Bank of New York Mellon, as trustee. The 2012 Convertible Notes are governed by the 2012 Convertible Notes Indenture, dated April 2, 2008, between us and The Bank of New York Mellon, as trustee.

Under the Convertible Notes Indentures, the Conversion Options allow holders to convert all or any portion of the 2014 Convertible Notes and the 2012 Convertible Notes at any time from, and including, March 1, 2014 and October 15, 2011, respectively, through the third business day immediately preceding their maturity on September 1, 2014 and April 15, 2012, respectively, or prior to March 1, 2014 and October 15, 2011, respectively, in the event of the occurrence of certain triggering events related to the price of the Convertible Notes, the price of our Common stock or certain corporate events. Upon conversion, we will deliver the principal portion in cash and, if the conversion price calculated for each business day over a period of 60 consecutive business days exceeds the principal amount (the “Conversion Premium”), shares of our Common stock or cash for the Conversion Premium,

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but currently only in cash for the 2014 Convertible Notes, as further discussed below. Subject to certain exceptions, the holders of the Convertible Notes may require us to repurchase all or a portion of their Convertible Notes upon a fundamental change, as defined under the Convertible Notes Indentures. We will generally be required to increase the conversion rate for holders that elect to convert their Convertible Notes in connection with a make-whole fundamental change. In addition, the conversion rate may be adjusted upon the occurrence of certain events. We may not redeem the 2014 Convertible Notes or the 2012 Convertible Notes prior to their maturity on September 1, 2014 and April 15, 2012, respectively.

In connection with the issuance of the 2014 Convertible Notes and the 2012 Convertible Notes, we entered into convertible note hedging transactions with respect to the Conversion Premium (the “2014 Purchased Options” and the “2012 Purchased Options,” respectively) and warrant transactions whereby we sold warrants to acquire, subject to certain anti-dilution adjustments, shares of our Common stock (the “2014 Sold Warrants” and the “2012 Sold Warrants,” respectively). The 2014 Purchased Options and 2014 Sold Warrants are intended to reduce the potential dilution of our Common stock upon potential future conversion of the 2014 Convertible Notes and generally have the effect of increasing the conversion price of the 2014 Convertible Notes from $25.805 (based on the initial conversion rate of 38.7522 shares of our Common stock per $1,000 principal amount of the 2014 Convertible Notes) to $34.74 per share. The 2012 Purchased Options and 2012 Sold Warrants are intended to reduce the potential dilution to our Common stock upon potential future conversion of the 2012 Convertible Notes and generally have the effect of increasing the conversion price of the 2012 Convertible Notes from $20.50 (based on the initial conversion rate of 48.7805 shares of our Common stock per $1,000 principal amount of the 2012 Convertible Notes) to $27.20 per share.

The 2014 Convertible Notes and 2012 Convertible Notes bear interest at 4.0% per year, payable semiannually in arrears in cash on March 1^st and September 1^st and April 15^th and October 15^th, respectively. In connection with the issuance of the 2014 Convertible Notes and 2012 Convertible Notes, we recognized an original issue discount and issuance costs of $74 million and $60 million, respectively, which are being accreted to Mortgage interest expense in the accompanying Consolidated Statements of Operations through March 1, 2014 and October 15, 2011, respectively, or the earliest conversion date of the 2014 Convertible Notes and 2012 Convertible Notes.

The NYSE regulations require stockholder approval prior to the issuance of shares of common stock or securities convertible into common stock that will, or will upon issuance, equal or exceed 20% of outstanding shares of common stock. Unless and until stockholder approval to exceed this limitation is obtained, we will settle conversion of the 2014 Convertible Notes entirely in cash. Based on these settlement terms, we determined that at the time of issuance of the 2014 Convertible Notes, the 2014 Conversion Option and 2014 Purchased Options did not meet all the criteria for equity classification and, therefore, recognized the Conversion Option and Purchased Options as a derivative liability and derivative assets, respectively, with the offsetting changes in their fair value recognized in Mortgage interest expense in the accompanying Consolidated Financial Statements. (See Note 7, “Derivatives and Risk Management Activities” in these accompanying Notes to Consolidated Financial Statements for additional information regarding the 2014 Conversion Option and 2014 Purchased Options.) As of December 31, 2009 and 2008, we determined that the 2014 Sold Warrants, 2012 Sold Warrants, 2012 Conversion Option and 2012 Purchased Options are all indexed to our own stock and met all the criteria for equity classification. As such, these derivative instruments are recorded within Additional paid-in capital in the accompanying Consolidated Financial Statements and have no impact on our accompanying Consolidated Statements of Operations.

The net proceeds from the 2014 Convertible Notes offering were approximately $242 million. We used a portion of such proceeds from the offering to pay for the cost of the Purchased Options, taking into account the proceeds from the Sold Warrants. The remainder of the proceeds from the offering and the Sold Warrants were used to reduce amounts outstanding under the Amended Credit Facility.

See Note 11, “Debt and Borrowing Arrangements” in the accompanying Notes to Consolidated Financial Statements for additional information regarding the terms of our Convertible Notes.

Debt Maturities

The following table provides the contractual maturities of our indebtedness at December 31, 2009. The maturities of our vehicle management asset-backed notes, a portion of which are amortizing in accordance with

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their terms, represent estimated payments based on the expected cash inflows related to the securitized vehicle leases and related assets:

	Asset-Backed		Unsecured		Total
	(In millions)
Within one year	$	1,682	$	5	$	1,687
Between one and two years		906		432		1,338
Between two and three years		669		250		919
Between three and four years		378		420		798
Between four and five years		218		250		468
Thereafter		44		8		52
	$	3,897	$	1,365	$	5,262

As of December 31, 2009, available funding under our asset-backed debt arrangements and unsecured committed credit facilities consisted of:

			Utilized		Available
	Capacity(1)		Capacity		Capacity
	(In millions)
Asset-Backed Funding Arrangements
Vehicle management(2)	$	2,892	$	2,892	$	—
Mortgage warehouse(3)		1,885		996		889
Unsecured Committed Credit Facilities(4)		1,305		448		857

(1)	Capacity is dependent upon maintaining compliance with, or obtaining waivers of, the terms, conditions and covenants of the respective agreements. With respect to asset-backed funding arrangements, capacity may be further limited by the asset eligibility requirements under the respective agreements.
(2)	On February 27, 2009, the Amortization Period of the Series 2006-2 notes began during which time we are unable to borrow additional amounts under these notes. Amounts outstanding under the Series 2006-2 notes were $657 million as of December 31, 2009. The Chesapeake Term Notes have revolving periods during which time the pro-rata share of lease cash flows pledged to Chesapeake will create availability to fund the acquisition of vehicles to be leased to customers of our Fleet Management Services segment. See “Asset-Backed Debt—Vehicle Management Asset-Backed Debt” above for additional information.
(3)	Capacity does not reflect $2.7 billion undrawn under the $3.0 billion Fannie Mae Repurchase Facilities, as these facilities are uncommitted.
(4)	Utilized capacity reflects $16 million of letters of credit issued under the Amended Credit Facility, which are not included in Debt in our accompanying Consolidated Balance Sheet.

Debt Covenants

Certain of our debt arrangements require the maintenance of certain financial ratios and contain restrictive covenants, including, but not limited to, material adverse change, liquidity maintenance, restrictions on indebtedness of material subsidiaries, mergers, liens, liquidations and sale and leaseback transactions. The Amended Credit Facility and the RBS Repurchase Facility require that we maintain: (i) on the last day of each fiscal quarter, net worth of $1.0 billion plus 25% of net income, if positive, for each fiscal quarter ended after December 31, 2004 and (ii) at any time, a ratio of indebtedness to tangible net worth no greater than 10:1. The MTN Indenture requires that we maintain a debt to tangible equity ratio of not more than 10:1. The MTN Indenture also restricts us from paying dividends if, after giving effect to the dividend payment, the debt to equity ratio exceeds 6.5:1. In addition, the RBS Repurchase Facility requires PHH Mortgage to maintain a minimum of $3.0 billion in mortgage repurchase or warehouse facilities, comprised of any uncommitted facilities provided by Fannie Mae and any committed mortgage repurchase or warehouse facility, including the RBS Repurchase Facility. At December 31, 2009, we were in compliance with all of our financial covenants related to our debt arrangements.

Under certain of our financing, servicing, hedging and related agreements and instruments (collectively, the “Financing Agreements”), the lenders or trustees have the right to notify us if they believe we have breached a

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covenant under the operative documents and may declare an event of default. If one or more notices of default were to be given, we believe we would have various periods in which to cure certain of such events of default. If we do not cure the events of default or obtain necessary waivers within the required time periods, the maturity of some of our debt could be accelerated and our ability to incur additional indebtedness could be restricted. In addition, events of default or acceleration under certain of our Financing Agreements would trigger cross-default provisions under certain of our other Financing Agreements.

Restrictions on Paying Dividends

Many of our subsidiaries (including certain consolidated partnerships, trusts and other non-corporate entities) are subject to restrictions on their ability to pay dividends or otherwise transfer funds to other consolidated subsidiaries and, ultimately, to PHH Corporation (the parent company). These restrictions relate to loan agreements applicable to certain of our asset-backed debt arrangements and to regulatory restrictions applicable to the equity of our insurance subsidiary, Atrium. The aggregate restricted net assets of these subsidiaries totaled $1.0 billion as of December 31, 2009. These restrictions on net assets of certain subsidiaries, however, do not directly limit our ability to pay dividends from consolidated Retained earnings. Pursuant to the MTN Indenture, we may not pay dividends on our Common stock in the event that our debt to equity ratio exceeds 6.5:1, after giving effect to the dividend payment. The MTN Indenture also requires that we maintain a debt to tangible equity ratio of not more than 10:1. In addition, the Amended Credit Facility and the RBS Repurchase Facility each include various covenants that may restrict our ability to pay dividends on our Common stock, including covenants which require that we maintain: (i) on the last day of each fiscal quarter, net worth of $1.0 billion plus 25% of net income, if positive, for each fiscal quarter ended after December 31, 2004 and (ii) at any time, a ratio of indebtedness to tangible net worth no greater than 10:1. In addition, the RBS Repurchase Facility requires PHH Mortgage to maintain a minimum of $3.0 billion in mortgage repurchase or warehouse facilities, comprised of any uncommitted facilities provided by Fannie Mae and any committed mortgage repurchase or warehouse facility, including the RBS Repurchase Facility. Based on our assessment of these requirements as of December 31, 2009, we believe that these restrictions could limit our ability to make dividend payments on our Common stock in the foreseeable future. However, since the Spin-Off, we have not paid any cash dividends on our Common stock nor do we anticipate paying any cash dividends on our Common stock in the foreseeable future.

Contractual Obligations

The following table summarizes our future contractual obligations as of December 31, 2009:

	2010		2011		2012		2013		2014		Thereafter		Total
	(In millions)
Asset-backed debt(1)(2)	$	1,682	$	906	$	669	$	378	$	218	$	44	$	3,897
Unsecured debt(1)(3)		5		432		250		420		250		8		1,365
Operating leases(4)		18		17		16		14		11		74		150
Capital leases(1)		1		1		—		—		—		—		2
Other purchase commitments (5)(6)		96		1		—		—		—		—		97
	$	1,802	$	1,357	$	935	$	812	$	479	$	126	$	5,511

(1)

The table above excludes future cash payments related to interest expense. Interest payments during 2009 totaled $164 million. Interest is calculated on most of our debt obligations based on variable rates referenced to LIBOR or other short-term interest rate indices. A portion of our interest cost related to vehicle management asset-backed debt is charged to lessees pursuant to lease agreements.

(2)

Represents the contractual maturities for asset-backed debt arrangements as of December 31, 2009, except for our vehicle management asset-backed notes, where estimated payments have been used based on the expected cash inflows related to the securitized vehicle leases and related assets. See “— Liquidity and Capital Resources—Indebtedness” and Note 11, “Debt and Borrowing Arrangements” in the accompanying Notes to Consolidated Financial Statements included in this Form 10-K.

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(3)	Represents the contractual maturities for unsecured debt arrangements as of December 31, 2009. See “— Liquidity and Capital Resources—Indebtedness” and Note 11, “Debt and Borrowing Arrangements” in the accompanying Notes to Consolidated Financial Statements included in this Form 10-K.
(4)	Includes operating leases for our Mortgage Production and Servicing segments in Mt. Laurel, New Jersey; Jacksonville, Florida and other smaller regional locations throughout the U.S. Also includes leases for our Fleet Management Services segment for its headquarters office in Sparks, Maryland, office space and marketing centers in five locations in Canada and four smaller regional locations throughout the U.S. See Note 14, “Commitments and Contingencies” in the accompanying Notes to Consolidated Financial Statements included in this Form 10-K.
(5)	Includes various commitments to purchase goods or services from specific suppliers made by us in the ordinary course of our business, including those related to capital expenditures. See Note 14, “Commitments and Contingencies” in the accompanying Notes to Consolidated Financial Statements included in this Form 10-K.
(6)	Excludes our liability for unrecognized income tax benefits, which totaled $8 million as of December 31, 2009, since we cannot predict with reasonable certainty or reliability of the timing of cash settlements to the respective taxing authorities for these estimated contingencies. See Note 1, “Summary of Significant Accounting Policies” in the accompanying Notes to Consolidated Financial Statements included in this Form 10-K for more information regarding our liability for unrecognized income tax benefits.

As of December 31, 2009, we had commitments to fund mortgage loans with agreed-upon rates or rate protection amounting to $4.4 billion.

Commitments to sell loans generally have fixed expiration dates or other termination clauses and may require the payment of a fee. We may settle the forward delivery commitments on MBS or whole loans on a net basis; therefore, the commitments outstanding do not necessarily represent future cash obligations. Our $6.9 billion of forward delivery commitments on MBS or whole loans as of December 31, 2009 generally will be settled within 90 days of the individual commitment date.

See Note 7, “Derivatives and Risk Management Activities” in the accompanying Notes to Consolidated Financial Statements included in this Form 10-K.

Off-Balance Sheet Arrangements and Guarantees

In the ordinary course of business, we enter into numerous agreements that contain guarantees and indemnities whereby we indemnify another party for breaches of representations and warranties. Such guarantees or indemnifications are granted under various agreements, including those governing leases of real estate, access to credit facilities, use of derivatives and issuances of debt or equity securities. The guarantees or indemnifications issued are for the benefit of the buyers in sale agreements and sellers in purchase agreements, landlords in lease contracts, financial institutions in credit facility arrangements and derivative contracts and underwriters in debt or equity security issuances. While some of these guarantees extend only for the duration of the underlying agreement, many survive the expiration of the term of the agreement or extend into perpetuity (unless subject to a legal statute of limitations). There are no specific limitations on the maximum potential amount of future payments that we could be required to make under these guarantees and we are unable to develop an estimate of the maximum potential amount of future payments to be made under these guarantees, if any, as the triggering events are not subject to predictability. With respect to certain of the aforementioned guarantees, such as indemnifications of landlords against third-party claims for the use of real estate property leased by us, we maintain insurance coverage that mitigates any potential payments to be made.

Critical Accounting Policies

In presenting our financial statements in conformity with GAAP, we are required to make estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. However, events that are outside of our control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a significant unfavorable change to current conditions, it could have a material adverse effect on our business, financial position, results of operations and cash flows. We believe that the estimates and assumptions we used when preparing our financial statements were the most appropriate at that time. Presented

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below are those accounting policies that we believe require subjective and complex judgments that could potentially affect reported results.

Fair Value Measurements

We adopted the provisions of ASC 820 for assets and liabilities that are measured at fair value on a recurring basis effective January 1, 2008 and for nonfinancial assets and nonfinancial liabilities measured at fair value on a non-recurring basis effective January 1, 2009. ASC 820 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820 also prioritizes the use of market-based assumptions, or observable inputs, over entity-specific assumptions or unobservable inputs when measuring fair value and establishes a three-level hierarchy based upon the relative reliability and availability of the inputs to market participants for the valuation of an asset or liability as of the measurement date. The fair value hierarchy designates quoted prices in active markets for identical assets or liabilities at the highest level and unobservable inputs at the lowest level. Pursuant to ASC 820, when the fair value of an asset or liability contains inputs from different levels of the hierarchy, the level within which the fair value measurement in its entirety is categorized is based upon the lowest level input that is significant to the fair value measurement in its entirety.

In classifying assets and liabilities recorded at fair value on a recurring basis within the valuation hierarchy, we consider the volume and pricing levels of trading activity observed in the market as well as the age and availability of other market-based assumptions. When utilizing bids observed on instruments recorded at fair value, we assess whether the bid is executable given current market conditions relative to other information observed in the market. Assets and liabilities recorded at fair value are classified in Level Two of the valuation hierarchy when current market-based information is observable in an active market. Assets and liabilities recorded at fair value are classified in Level Three of the valuation hierarchy when current, market-based assumptions are not observable in the market or when such information is not indicative of a fair value transaction between market participants.

We determine fair value based on quoted market prices, where available. If quoted prices are not available, fair value is estimated based upon other observable inputs, and may include valuation techniques such as present value cash flow models, option-pricing models or other conventional valuation methods. In addition, when estimating the fair value of liabilities, we may use the quoted price of an identical liability when traded and as an asset and quoted prices for similar liabilities or similar liabilities when traded as assets, if available. We use unobservable inputs when observable inputs are not available. These inputs are based upon our judgments and assumptions, which are our assessment of the assumptions market participants would use in pricing the asset or liability, which may include assumptions about risk, counterparty credit quality and liquidity and are developed based on the best information available. The incorporation of counterparty credit risk did not have a significant impact on the valuation of our assets and liabilities recorded at fair value on a recurring basis as of December 31, 2009. The use of different assumptions may have a material effect on the estimated fair value amounts recorded in our financial statements. (See “— Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for a sensitivity analysis based on hypothetical changes in interest rates.)

As of December 31, 2009, 34% of our Total assets were measured at fair value on a recurring basis, and less than 1% of our Total liabilities were measured at fair value on a recurring basis. Approximately 43% of our assets and liabilities measured at fair value were valued using primarily observable inputs and were categorized within Level Two of the valuation hierarchy. Our assets and liabilities categorized within Level Two of the valuation hierarchy are comprised of the majority of our MLHS and derivative assets and liabilities.

Approximately 58% of our assets and liabilities measured at fair value were valued using significant unobservable inputs and were categorized within Level Three of the valuation hierarchy. Approximately 86% of our assets and liabilities categorized within Level Three of the valuation hierarchy are comprised of our MSRs. See “— Mortgage Servicing Rights” below.

The remainder of our assets and liabilities categorized within Level Three of the valuation hierarchy is comprised of Investment securities, certain MLHS, IRLCs and the 2014 Conversion Option and 2014 Purchased Options associated with the 2014 Convertible Notes. Our Investment securities are comprised of interests that

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continue to be held in the sale or securitization of mortgage loans, or retained interests, and are included in Level Three of the valuation hierarchy due to the inactive, illiquid market for these securities and the significant unobservable inputs used in their valuation. Certain MLHS are classified within Level Three due to the lack of observable pricing data. The fair value of our IRLCs is based upon the estimated fair value of the underlying mortgage loan, adjusted for: (i) estimated costs to complete and originate the loan and (ii) an adjustment to reflect the estimated percentage of IRLCs that will result in a closed mortgage loan. The valuation of our IRLCs approximates a whole-loan price, which includes the value of the related MSRs. Due to the unobservable inputs used by us and the inactive, illiquid market for IRLCs, our IRLCs are classified within Level Three of the valuation hierarchy. The estimated fair value of the 2014 Conversion Option and 2014 Purchased Options uses an option pricing model and is primarily impacted by changes in the market price and volatility of our Common stock.

Updates to ASC 815 express the view of the SEC staff that the expected net future cash flows related to the associated servicing of a loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. As a result, the expected net future cash flows related to the servicing of mortgage loans associated with our IRLCs issued from January 1, 2008 forward are included in the fair value measurement of the IRLCs at the date of issuance. Prior to the adoption of updates to ASC 815, we did not include the net future cash flows related to the servicing of mortgage loans associated with the IRLCs in their fair value.

See Note 18, “Fair Value Measurements” in the accompanying Notes to Consolidated Financial Statements for additional information regarding the fair value hierarchy, our assets and liabilities carried at fair value and activity related to our Level Three financial instruments.

Mortgage Servicing Rights

An MSR is the right to receive a portion of the interest coupon and fees collected from the mortgagor for performing specified mortgage servicing activities, which consist of collecting loan payments, remitting principal and interest payments to investors, managing escrow funds for the payment of mortgage-related expenses such as taxes and insurance and otherwise administering our mortgage loan servicing portfolio. MSRs are created through either the direct purchase of servicing from a third party or through the sale of an originated loan.

The fair value of our MSRs is estimated based upon projections of expected future cash flows. We use a third-party model as a basis to forecast prepayment rates at each monthly point for each interest rate path calculated using a probability weighted option adjusted spread (“OAS”) model. Prepayment rates used in the development of expected future cash flows are based on historical observations of prepayment behavior in similar periods, comparing current mortgage rates to the mortgage interest rate in our servicing portfolio, and incorporates loan characteristics (e.g., loan type and note rate) and factors such as recent prepayment experience, the relative sensitivity of our capitalized servicing portfolio to refinance if interest rates decline and estimated levels of home equity. We validate assumptions used in estimating the fair value of our MSRs against a number of third-party sources, which may include peer surveys, MSR broker surveys and other market-based sources. Key assumptions include prepayment rates, discount rate and volatility. If we experience a 10% adverse change in prepayment rates, OAS and volatility, the fair value of our MSRs would be reduced by $74 million, $57 million and $28 million, respectively. These sensitivities are hypothetical and discussed for illustrative purposes only. Changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in fair value may not be linear. Also, the effect of a variation in a particular assumption is calculated without changing any other assumption; in reality, changes in one assumption may result in changes in another, which may magnify or counteract the sensitivities. Further, this analysis does not assume any impact resulting from management’s intervention to mitigate these variations.

Mortgage Loans Held for Sale

With the adoption of ASC 825, we elected to measure certain eligible items at fair value, including all of our MLHS existing at the date of adoption. We also made an automatic election to record future MLHS at fair value. The fair value election for MLHS is intended to better reflect the underlying economics of our business, as well as eliminate the operational complexities of our risk management activities related to MLHS and applying hedge accounting.

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MLHS represent mortgage loans originated or purchased by us and held until sold to secondary market investors. Prior to our election to measure MLHS at fair value under ASC 825, MLHS were recorded in our accompanying Consolidated Balance Sheet at LOCOM, which was computed by the aggregate method, net of deferred loan origination fees and costs. The fair value of MLHS is estimated by utilizing either: (i) the value of securities backed by similar mortgage loans, adjusted for certain factors to approximate the value of a whole mortgage loan, including the value attributable to mortgage servicing and credit risk, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics. As of December 31, 2009, we classified Scratch and Dent, second-lien, certain non-conforming and construction loans within Level Three of the valuation hierarchy due to the relative illiquidity observed in the market and lack of trading activity between willing market participants. The valuation of our MLHS classified within Level Three of the valuation hierarchy is based upon either the collateral value or expected cash flows of the underlying loans using assumptions that reflect the current market conditions. When determining the value of these Level Three assets, we considered our own loss experience related to these assets, as well as discount factors that we observed when the market for these assets was active, which included increasing historical loss severities as well as lowering expectations for home sale prices.

Subsequent to our election to measure MLHS at fair value under ASC 825, loan origination fees are recorded when earned, the related direct loan origination costs are recognized when incurred and interest receivable on MLHS is included as a component of the fair value of Mortgage loans held for sale in the accompanying Consolidated Balance Sheets. Unrealized gains and losses on MLHS are included in Gain on mortgage loans, net in the accompanying Consolidated Statements of Operations. Interest income, which is accrued as earned, is included in Mortgage interest income in the accompanying Consolidated Statements of Operations, which is consistent with the classification of these items prior to our election to measure MLHS at fair value under ASC 825. Our policy for placing loans on non-accrual status is consistent with our policy prior to our election to measure MLHS at fair value under ASC 825. Loans are placed on non-accrual status when any portion of the principal or interest is 90 days past due or earlier if factors indicate that the ultimate collectibility of the principal or interest is not probable. Interest received from loans on non-accrual status is recorded as income when collected. Loans return to accrual status when principal and interest become current and it is probable the amounts are fully collectible.

Goodwill

We assess the carrying value of our Goodwill for impairment annually, or more frequently if circumstances indicate impairment may have occurred. We assess Goodwill for such impairment by comparing the carrying value of our reporting units to their fair value. Our reporting units are the Fleet Management Services segment, PHH Home Loans, the Mortgage Production segment excluding PHH Home Loans and the Mortgage Servicing segment. When determining the fair value of our reporting units, we may apply an income approach, using discounted cash flows, or a combination of an income approach and a market approach, wherein comparative market multiples are used.

The carrying value of our Goodwill was $25 million as of December 31, 2009 and is attributable entirely to our Fleet Management Services segment. See Note 3, “Goodwill and Other Intangible Assets” in the accompanying Notes to Consolidated Financial Statements included in this Form 10-K.

Income Taxes

We account for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”), which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of the temporary differences between the book and tax basis of recorded assets and liabilities. As of December 31, 2009 and 2008, we had net deferred income tax liabilities of $702 million and $579 million, respectively, primarily resulting from the temporary differences created from originated MSRs and depreciation and amortization (primarily related to accelerated Depreciation on operating leases for tax purposes), which are expected to reverse in future periods creating taxable income. We make estimates and judgments with regard to the calculation of certain tax assets and liabilities. ASC 740 also requires that deferred tax assets be reduced by valuation allowances if it is more likely than not that some portion of the deferred tax asset will not be realized. We assess the likelihood that the benefits of a

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deferred tax asset will be realized by considering historical and projected taxable income and income tax planning strategies, including the reversal of deferred income tax liabilities.

ASC 740 suggests that additional scrutiny should be given to deferred tax assets of an entity with cumulative pre-tax losses during the three most recent fiscal years and is widely considered as significant negative evidence that is objective and verifiable and therefore, difficult to overcome. During the three fiscal years ended December 31, 2009, we had cumulative pre-tax losses and considered this factor in our analysis of deferred tax assets. However, pre-tax income or loss under GAAP does not closely correlate with taxable income or loss as a result of the tax regulations associated with certain income and expenses of our mortgage and fleet operations. Based on projections of taxable income and prudent tax planning strategies available at our discretion, we determined that it is more-likely-than-not that certain deferred tax assets would be realized. For those deferred tax assets that we determined it is more likely than not that they will not be realized, a valuation allowance was established.

Should a change in circumstances lead to a change in our judgments about the realization of deferred tax assets in future years, we adjust the valuation allowances in the period that the change in circumstances occurs, along with a charge or credit to income tax expense. Significant changes to our estimates and assumptions may result in an increase or decrease to our tax expense in a subsequent period. As of December 31, 2009 and 2008, we had valuation allowances of $70 million and $74 million, respectively, which primarily represent state net operating loss carryforwards that we believe that it is more likely than not that the loss carryforwards will not be realized. As of December 31, 2009 and 2008, we had no valuation allowances for deferred tax assets generated from federal net operating losses.

We adopted updates to ASC 740 effective January 1, 2007. The updates to ASC 740 prescribed a recognition threshold and measurement attribute for the financial statement recognition and measurement of an income tax position taken in a tax return. We must presume the income tax position will be examined by the relevant tax authority and determine whether it is more likely than not that the income tax position will be sustained upon examination, including the resolution of any related appeals or litigation processes, based on the technical merits of the position. An income tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of the benefit to recognize in the financial statements. We are required to record a liability for unrecognized income tax benefits for the amount of the benefit included in our previously filed income tax returns and in our financial results expected to be included in income tax returns to be filed for periods through the date of our accompanying Consolidated Financial Statements for income tax positions for which it is more likely than not that a tax position will not be sustained upon examination by the respective taxing authority.

Liabilities for income tax contingencies are reviewed periodically and are adjusted as events occur that affect our estimates, such as the availability of new information, the lapsing of applicable statutes of limitations, the conclusion of tax audits, the measurement of additional estimated liabilities based on current calculations (including interest and/or penalties), the identification of new income tax contingencies, the release of administrative tax guidance affecting our estimates of income tax liabilities or the rendering of relevant court decisions.

To the extent we prevail in matters for which income tax contingency liabilities have been established or are required to pay amounts in excess of our income tax contingency liabilities, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable income tax settlement would require the use of our cash and may result in an increase in our effective income tax rate in the period of resolution if the settlement is in excess of our income tax contingency liabilities. An income tax settlement for an amount lower than our income tax contingency liabilities would be recognized as a reduction in our income tax expense in the period of resolution and would result in a decrease in our effective income tax rate. Liabilities for income tax contingencies, including accrued interest and penalties, were $8 million as of both December 31, 2009 and 2008 and are reflected in Other liabilities in the accompanying Consolidated Balance Sheets.

Recently Issued Accounting Pronouncements

For detailed information regarding recently issued accounting pronouncements and the expected impact on our financial statements, see Note 1, “Summary of Significant Accounting Policies” in the accompanying Notes to Consolidated Financial Statements included in this Form 10-K.

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Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

Our principal market exposure is to interest rate risk, specifically long-term Treasury and mortgage interest rates due to their impact on mortgage-related assets and commitments. We also have exposure to LIBOR interest rates due to their impact on variable-rate borrowings, other interest rate sensitive liabilities and net investment in variable-rate lease assets. We anticipate that such interest rates will remain our primary benchmark for market risk for the foreseeable future.

Interest Rate Risk

Mortgage Servicing Rights

Our MSRs are subject to substantial interest rate risk as the mortgage notes underlying the MSRs permit the borrowers to prepay the loans. Therefore, the value of MSRs generally tends to diminish in periods of declining interest rates (as prepayments increase) and increase in periods of rising interest rates (as prepayments decrease). Although the level of interest rates is a key driver of prepayment activity, there are other factors that influence prepayments, including home prices, underwriting standards and product characteristics. From time to time, we use a combination of derivative instruments to offset potential adverse changes in the fair value of our MSRs that could affect reported earnings. During 2008, we assessed the composition of our capitalized mortgage loan servicing portfolio and its relative sensitivity to refinance if interest rates decline, the cost of hedging and the anticipated effectiveness of the hedge given the economic environment. Based on that assessment, we made the decision to close out substantially all of our derivatives related to MSRs during the third quarter of 2008, which resulted in volatility in the results of operations for our Mortgage Servicing segment during 2009 and 2008. As of December 31, 2009, there were no open derivatives related to MSRs. Our decisions regarding the use of derivatives related to MSRs, if any, could result in continued volatility in the results of operations for our Mortgage Servicing segment during 2010. See “— Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” for an analysis of the impact of a 10% change in key assumptions on the valuation of our MSRs.

Other Mortgage-Related Assets

Our other mortgage-related assets are subject to interest rate and price risk created by (i) our IRLCs and (ii) loans held in inventory awaiting sale into the secondary market (which are presented as Mortgage loans held for sale in the accompanying Consolidated Balance Sheets). We use forward delivery commitments on MBS or whole loans to economically hedge our commitments to fund mortgages and MLHS. These forward delivery commitments fix the forward sales price that will be realized in the secondary market and thereby reduce the interest rate and price risk to us.

Indebtedness

The debt used to finance much of our operations is also exposed to interest rate fluctuations. We use various hedging strategies and derivative financial instruments to create a desired mix of fixed- and variable-rate assets and liabilities. Derivative instruments used in these hedging strategies include swaps and interest rate caps.

Consumer Credit Risk

Loan Recourse

We sell a majority of our loans on a non-recourse basis. We also provide representations and warranties to purchasers and insurers of the loans sold. In the event of a breach of these representations and warranties, we may be required to repurchase a mortgage loan or indemnify the purchaser, and any subsequent loss on the mortgage loan may be borne by us. If there is no breach of a representation and warranty provision, we have no obligation to repurchase the loan or indemnify the investor against loss. The unpaid principal balance of loans sold by us represents the maximum potential exposure related to representation and warranty provisions; however, we cannot estimate our maximum exposure because we do not service all of the loans for which we have provided a representation or warranty.

84

We had a program that provided credit enhancement for a limited period of time to the purchasers of mortgage loans by retaining a portion of the credit risk. We are no longer selling loans into this program. The retained credit risk related to this program, which represents the unpaid principal balance of the loans, was $8 million as of December 31, 2009. In addition, the outstanding balance of other loans sold with specific recourse by us and those for which a breach of representation or warranty provision was identified subsequent to sale was $228 million as of December 31, 2009, 16.13% of which were at least 90 days delinquent (calculated based upon the unpaid principal balance of the loans).

As of December 31, 2009, we had a liability of $51 million, included in Other liabilities in the accompanying Consolidated Balance Sheet, for probable losses related to our recourse exposure.

Mortgage Loans in Foreclosure

Mortgage loans in foreclosure represent the unpaid principal balance of mortgage loans for which foreclosure proceedings have been initiated, plus recoverable advances made by us on those loans. These amounts are recorded net of an allowance for probable losses on such mortgage loans and related advances. As of December 31, 2009, mortgage loans in foreclosure were $93 million, net of an allowance for probable losses of $20 million, and were included in Other assets in the accompanying Consolidated Balance Sheet.

Real Estate Owned

REO, which are acquired from mortgagors in default, are recorded at the lower of the adjusted carrying amount at the time the property is acquired or fair value. Fair value is determined based upon the estimated net realizable value of the underlying collateral less the estimated costs to sell. As of December 31, 2009, real estate owned were $36 million, net of a $15 million adjustment to record these amounts at their estimated net realizable value, and were included in Other assets in the accompanying Consolidated Balance Sheet.

Mortgage Reinsurance

Through our wholly owned mortgage reinsurance subsidiary, Atrium, we have two outstanding contracts with PMI companies to provide mortgage reinsurance on certain mortgage loans that are inactive and in runoff. Through these contracts, we are exposed to losses on mortgage loans pooled by year of origination. As of December 31, 2009, the contractual reinsurance period for each pool was 10 years and the weighted-average remaining reinsurance period was 5.7 years. Loss rates on these pools are determined based on the unpaid principal balance of the underlying loans. We indemnify the primary mortgage insurers for losses that fall between a stated minimum and maximum loss rate on each annual pool. In return for absorbing this loss exposure, we are contractually entitled to a portion of the insurance premium from the primary mortgage insurers. We are required to hold securities in trust related to this potential obligation, which were $281 million and were included in Restricted cash in the accompanying Consolidated Balance Sheet as of December 31, 2009. As of December 31, 2009, a liability of $108 million was included in Other liabilities in the accompanying Consolidated Balance Sheet for incurred and incurred but not reported losses associated with our mortgage reinsurance activities, which was determined on an undiscounted basis. During 2009, we recorded expense associated with the liability for estimated losses of $35 million within Loan servicing income in the accompanying Consolidated Statement of Operations.

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The following table summarizes certain information regarding mortgage loans that are subject to reinsurance by year of origination:

	Year of Origination
	2003
	and
	Prior			2004			2005			2006			2007			2008			2009			Total
	(Dollars in millions)
Unpaid principal balance(1)	$	1,994		$	1,142		$	1,084		$	724		$	1,465		$	2,577		$	484		$	9,470
Unpaid principal balance as a percentage of original unpaid principal balance(1)		10	%		32	%		51	%		61	%		79	%		86	%		98	%		N/A
Maximum potential exposure to reinsurance losses(1)	$	295		$	104		$	62		$	31		$	49		$	63		$	7		$	611
Average FICO score(2)		697			693			696			693			701			727			759			708
Delinquencies(2)(3)		7.20	%		6.76	%		8.54	%		9.78	%		8.84	%		4.17	%		0.00	%		6.67	%
Foreclosures/REO/ bankruptcies(2)(4)		3.84	%		6.49	%		8.97	%		12.34	%		8.93	%		1.81	%		0.00	%		5.55	%

(1)	As of December 31, 2009.
(2)	Calculated based on September 30, 2009 data.
(3)	Represents delinquent mortgage loans for which payments are 60 days or more outstanding as a percentage of the total unpaid principal balance.
(4)	Calculated as a percentage of the total unpaid principal balance.

The projections that are used in the development of our liability for mortgage reinsurance assume that we will incur losses related to reinsured mortgage loans originated from 2004 through 2009. Based on these projections, we expect that the cumulative losses for the loans originated from 2005 through 2007 will reach their maximum potential exposure for each respective year.

See Note 14, “Commitments and Contingencies” in the accompanying Notes to Consolidated Financial Statements included in this Form 10-K.

Commercial Credit Risk

We are exposed to commercial credit risk for our clients under the lease and service agreements for PHH Arval. We manage such risk through an evaluation of the financial position and creditworthiness of the client, which is performed on at least an annual basis. The lease agreements generally allow PHH Arval to refuse any additional orders; however, PHH Arval would remain obligated for all units under contract at that time. The service agreements can generally be terminated upon 30 days written notice. PHH Arval had no significant client concentrations as no client represented more than 5% of the Net revenues of the business during 2009. PHH Arval’s historical net credit losses as a percentage of the ending balance of Net investment in fleet leases have not exceeded 0.01% in any of the last three fiscal years. There can be no assurance that we will manage or mitigate our commercial credit risk effectively.

Counterparty Credit Risk

We are exposed to counterparty credit risk in the event of non-performance by counterparties to various agreements and sales transactions. We manage such risk by evaluating the financial position and creditworthiness of such counterparties and/or requiring collateral, typically cash, in instances in which financing is provided. We attempt to mitigate counterparty credit risk associated with our derivative contracts by monitoring the amount for which we are at risk with each counterparty to such contracts, requiring collateral posting, typically cash, above established credit limits, periodically evaluating counterparty creditworthiness and financial position, and where possible, dispersing the risk among multiple counterparties. However, there can be no assurance that we will manage or mitigate our counterparty credit risk effectively.

86

As of December 31, 2009, there were no significant concentrations of credit risk with any individual counterparty or group of counterparties with respect to our derivative transactions. Concentrations of credit risk associated with receivables are considered minimal due to our diverse client base. With the exception of the financing provided to customers of our mortgage business, we do not normally require collateral or other security to support credit sales.

During 2009, approximately 37% of our mortgage loan originations were derived from our relationship with Realogy and its affiliates, and Merrill Lynch and Charles Schwab accounted for approximately 16% and 15%, respectively, of our mortgage loan originations. Additionally, 95% of our loan sales during 2009 were to the GSEs. The insolvency or inability for Realogy, Merrill Lynch, Charles Schwab or the GSEs to perform their obligations under their respective agreements with us could have a negative impact on our Mortgage Production segment.

Sensitivity Analysis

We assess our market risk based on changes in interest rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential impact on fair values based on hypothetical changes (increases and decreases) in interest rates.

We use a duration-based model in determining the impact of interest rate shifts on our debt portfolio, certain other interest-bearing liabilities and interest rate derivatives portfolios. The primary assumption used in these models is that an increase or decrease in the benchmark interest rate produces a parallel shift in the yield curve across all maturities.

We utilize a probability weighted OAS model to determine the fair value of MSRs and the impact of parallel interest rate shifts on MSRs. The primary assumptions in this model are prepayment speeds, OAS (discount rate) and implied volatility. However, this analysis ignores the impact of interest rate changes on certain material variables, such as the benefit or detriment on the value of future loan originations, non-parallel shifts in the spread relationships between MBS, swaps and Treasury rates and changes in primary and secondary mortgage market spreads. For mortgage loans, IRLCs and forward delivery commitments on MBS or whole loans, we rely on market sources in determining the impact of interest rate shifts. In addition, for IRLCs, the borrower’s propensity to close their mortgage loans under the commitment is used as a primary assumption.

Our total market risk is influenced by a wide variety of factors including market volatility and the liquidity of the markets. There are certain limitations inherent in the sensitivity analysis presented, including the necessity to conduct the analysis based on a single point in time and the inability to include the complex market reactions that normally would arise from the market shifts modeled.

We used December 31, 2009 market rates on our instruments to perform the sensitivity analysis. The estimates are based on the market risk sensitive portfolios described in the preceding paragraphs and assume instantaneous, parallel shifts in interest rate yield curves. These sensitivities are hypothetical and presented for illustrative purposes only. Changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in fair value may not be linear.

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The following table summarizes the estimated change in the fair value of our assets and liabilities sensitive to interest rates as of December 31, 2009 given hypothetical instantaneous parallel shifts in the yield curve:

	Change in Fair Value
	Down			Down			Down			Up			Up			Up
	100 bps			50 bps			25 bps			25 bps			50 bps			100 bps
	(In millions)
Mortgage assets:
Mortgage loans held for sale	$	34		$	24		$	13		$	(15	)	$	(32	)	$	(69	)
Interest rate lock commitments		62			47			26			(33	)		(71	)		(153	)
Forward loan sale commitments		(123	)		(79	)		(42	)		49			102			212
Total Mortgage loans held for sale, interest rate lock commitments and related derivatives		(27	)		(8	)		(3	)		1			(1	)		(10	)
Mortgage servicing rights		(500	)		(210	)		(92	)		74			135			225
Total mortgage assets		(527	)		(218	)		(95	)		75			134			215
Total vehicle assets		17			9			4			(4	)		(8	)		(17	)
Total liabilities		(26	)		(13	)		(6	)		7			13			26
Total, net	$	(536	)	$	(222	)	$	(97	)	$	78		$	139		$	224

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Item 8.   Financial Statements and Supplementary Data

Index to the Consolidated Financial Statements

	Page
Report of Independent Registered Public Accounting Firm		90
Consolidated Statements of Operations		91
Consolidated Balance Sheets		92
Consolidated Statements of Changes in Equity		93
Consolidated Statements of Cash Flows		95
Notes to Consolidated Financial Statements		97
Note 1. Summary of Significant Accounting Policies		97
Note 2. Earnings (Loss) Per Share		106
Note 3. Goodwill and Other Intangible Assets		107
Note 4. Mortgage Servicing Rights		108
Note 5. Loan Servicing Portfolio		110
Note 6. Mortgage Loan Sales		111
Note 7. Derivatives and Risk Management Activities		114
Note 8. Vehicle Leasing Activities		118
Note 9. Property, Plant and Equipment, Net		119
Note 10. Accounts Payable and Accrued Expenses		119
Note 11. Debt and Borrowing Arrangements		120
Note 12. Pension and Other Post Employment Benefits		127
Note 13. Income Taxes		128
Note 14. Commitments and Contingencies		131
Note 15. Stock-Related Matters		135
Note 16. Accumulated Other Comprehensive Income (Loss)		136
Note 17. Stock-Based Compensation		136
Note 18. Fair Value Measurements		141
Note 19. Variable Interest Entities		147
Note 20. Related Party Transactions		151
Note 21. Segment Information		152
Note 22. Selected Quarterly Financial Data—(unaudited)		154
Note 23. Subsequent Events		154
Schedules:
Schedule I—Condensed Financial Information of Registrant		155
Schedule II—Valuation and Qualifying Accounts		162

89

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of PHH Corporation:

We have audited the accompanying consolidated balance sheets of PHH Corporation and subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related consolidated statements of operations, changes in equity, and cash flows for each of the three years in the period ended December 31, 2009. Our audits also included the financial statement schedules listed in Items 8 and 15. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of PHH Corporation and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, on January 1, 2008, the Company changed its method of accounting for certain financial assets and liabilities measured at fair value.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2010 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/  Deloitte & Touche LLP

Philadelphia, PA

March 1, 2010

90

PHH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)

	Year Ended December 31,
	2009			2008			2007
Revenues
Mortgage fees	$	275		$	208		$	127
Fleet management fees		150			163			164
Net fee income		425			371			291
Fleet lease income		1,441			1,585			1,598
Gain on mortgage loans, net		610			259			94
Mortgage interest income		89			173			351
Mortgage interest expense		(147	)		(171	)		(267	)
Mortgage net finance (expense) income		(58	)		2			84
Loan servicing income		431			430			489
Change in fair value of mortgage servicing rights		(280	)		(554	)		(509	)
Net derivative (loss) gain related to mortgage servicing rights		—			(179	)		96
Valuation adjustments related to mortgage servicing rights, net		(280	)		(733	)		(413	)
Net loan servicing income (loss)		151			(303	)		76
Other income		37			142			97
Net revenues		2,606			2,056			2,240
Expenses
Salaries and related expenses		482			440			326
Occupancy and other office expenses		59			74			77
Depreciation on operating leases		1,267			1,299			1,264
Fleet interest expense		89			162			213
Other depreciation and amortization		26			25			29
Other operating expenses		403			438			376
Goodwill impairment		—			61			—
Total expenses		2,326			2,499			2,285
Income (loss) before income taxes		280			(443	)		(45	)
Provision for (benefit from) income taxes		107			(162	)		(35	)
Net income (loss)		173			(281	)		(10	)
Less: net income (loss) attributable to noncontrolling interest		20			(27	)		2
Net income (loss) attributable to PHH Corporation	$	153		$	(254	)	$	(12	)
Basic earnings (loss) per share attributable to PHH Corporation	$	2.80		$	(4.68	)	$	(0.23	)
Diluted earnings (loss) per share attributable to PHH Corporation	$	2.77		$	(4.68	)	$	(0.23	)

See Notes to Consolidated Financial Statements.

91

PHH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)

	December 31,
	2009		2008
ASSETS
Cash and cash equivalents	$	150	$	109
Restricted cash		596		614
Mortgage loans held for sale		1,218		1,006
Accounts receivable, net of allowance for doubtful accounts of $6 and $6		469		468
Net investment in fleet leases		3,610		4,204
Mortgage servicing rights		1,413		1,282
Investment securities		12		37
Property, plant and equipment, net		49		63
Goodwill		25		25
Other assets		581		465
Total assets	$	8,123	$	8,273
LIABILITIES AND EQUITY
Accounts payable and accrued expenses	$	495	$	451
Debt		5,160		5,764
Deferred income taxes		702		579
Other liabilities		262		212
Total liabilities		6,619		7,006
Commitments and contingencies (Note 14)		—		—
EQUITY
Preferred stock, $0.01 par value; 1,090,000 shares authorized at December 31, 2009 and 2008; none issued or outstanding at December 31, 2009 or 2008		—		—
Common stock, $0.01 par value; 273,910,000 and 108,910,000 shares authorized at December 31, 2009 and 2008, respectively; 54,774,639 shares issued and outstanding at December 31, 2009; 54,256,294 shares issued and outstanding at December 31, 2008		1		1
Additional paid-in capital		1,056		1,005
Retained earnings		416		263
Accumulated other comprehensive income (loss)		19		(3	)
Total PHH Corporation stockholders’ equity		1,492		1,266
Noncontrolling interest		12		1
Total equity		1,504		1,267
Total liabilities and equity	$	8,123	$	8,273

See Notes to Consolidated Financial Statements.

92

PHH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In millions, except share data)

	PHH Corporation Stockholders
											Accumulated
											Other
					Additional						Comprehensive
	Common Stock				Paid-In			Retained			Income			Noncontrolling			Total
	Shares		Amount		Capital			Earnings			(Loss)			Interest			Equity
Balance at December 31, 2006		53,506,822	$	1	$	961		$	540		$	13		$	31		$	1,546
Effect of adoption of updates to ASC 740		—		—		—			(1	)		—			—			(1	)
Comprehensive income:
Net (loss) income		—		—		—			(12	)		—			2
Currency translation adjustment		—		—		—			—			17			—
Unrealized losses on available-for-sale securities, net of income taxes of $(2)		—		—		—			—			(3	)		—
Reclassification of realized holding gains on sales of available-for-sale securities, net of income taxes of $1		—		—		—			—			1			—
Change in unfunded pension liability, net of income taxes of $1		—		—		—			—			1			—
Total comprehensive income		—		—		—			(12	)		16			2			6
Contributions from noncontrolling interest		—		—		—			—			—			3			3
Distributions to noncontrolling interest		—		—		—			—			—			(4	)		(4	)
Stock compensation expense		—		—		6			—			—			—			6
Stock options exercised, including excess tax benefit of $(1)		323,186		—		7			—			—			—			7
Restricted stock award vesting, net of excess tax benefit of $(1)		248,629		—		(2	)		—			—			—			(2	)
Balance at December 31, 2007		54,078,637	$	1	$	972		$	527		$	29		$	32		$	1,561
Adjustments to distributions of assets and liabilities to Cendant related to the Spin-Off		—		—		—			4			—			—			4
Effect of adoption of ASC 820 and ASC 825, net of income taxes of $(10)		—		—		—			(14	)		—			—			(14	)
Comprehensive loss:
Net loss		—		—		—			(254	)		—			(27	)
Currency translation adjustment		—		—		—			—			(26	)		—
Change in unfunded pension liability, net of income taxes of $(4)		—		—		—			—			(6	)		—
Total comprehensive loss		—		—		—			(254	)		(32	)		(27	)		(313	)
Distributions to noncontrolling interest		—		—		—			—			—			(4	)		(4	)
Proceeds on sale of 2012 Sold Warrants (Note 11)		—		—		24			—			—			—			24
Reclassification of 2012 Purchased Options and 2012 Conversion Option, net of income taxes of $(1) (Note 11)		—		—		(1	)		—			—			—			(1	)
Stock compensation expense		—		—		11			—			—			—			11
Stock options exercised, including excess tax benefit of $0		28,765		—		1			—			—			—			1
Restricted stock award vesting, net of excess tax benefit of $0		148,892		—		(2	)		—			—			—			(2	)
Balance at December 31, 2008		54,256,294	$	1	$	1,005		$	263		$	(3	)	$	1		$	1,267

Continued.

93

PHH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY—(Continued)
(In millions, except share data)

	PHH Corporation Stockholders
										Accumulated
										Other
					Additional					Comprehensive
	Common Stock				Paid-In			Retained		(Loss)			Noncontrolling			Total
	Shares		Amount		Capital			Earnings		Income			Interest			Equity
Balance at December 31, 2008 (continued from previous page)		54,256,294	$	1	$	1,005		$	263	$	(3	)	$	1		$	1,267
Comprehensive income:
Net income		—		—		—			153		—			20
Currency translation adjustment		—		—		—			—		21			—
Change in unfunded pension liability, net of income taxes of $1		—		—		—			—		1			—
Total comprehensive income		—		—		—			153		22			20			195
Distributions to noncontrolling interest		—		—		—			—		—			(9	)		(9	)
Proceeds on sale of 2014 Sold Warrants (Note 11)		—		—		35			—		—			—			35
Stock compensation expense		—		—		13			—		—			—			13
Stock options exercised, including excess tax benefit of $0		302,760		—		4			—		—			—			4
Restricted stock award vesting, net of excess tax benefit of $0		215,585		—		(1	)		—		—			—			(1	)
Balance at December 31, 2009		54,774,639	$	1	$	1,056		$	416	$	19		$	12		$	1,504

See Notes to Consolidated Financial Statements.

94

PHH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)

	Year Ended December 31,
	2009			2008			2007
Cash flows from operating activities:
Net income (loss)	$	173		$	(281	)	$	(10	)
Adjustments to reconcile Net income (loss) to net cash provided by operating activities:
Goodwill impairment charge		—			61			—
Capitalization of originated mortgage servicing rights		(496	)		(328	)		(433	)
Net unrealized loss on mortgage servicing rights and related derivatives		280			733			413
Vehicle depreciation		1,267			1,299			1,264
Other depreciation and amortization		26			25			29
Origination of mortgage loans held for sale		(29,592	)		(20,580	)		(29,320	)
Proceeds on sale of and payments from mortgage loans held for sale		29,930			21,252			30,643
Net (gain) loss on interest rate lock commitments, mortgage loans held for sale and related derivatives		(638	)		(190	)		54
Deferred income tax provision (benefit)		123			(118	)		(69	)
Other adjustments and changes in other assets and liabilities, net		210			20			92
Net cash provided by operating activities		1,283			1,893			2,663
Cash flows from investing activities:
Investment in vehicles		(1,073	)		(1,959	)		(2,255	)
Proceeds on sale of investment vehicles		418			532			869
Purchase of mortgage servicing rights		(1	)		(6	)		(40	)
Proceeds on sale of mortgage servicing rights and excess servicing		92			179			235
Cash paid on derivatives related to mortgage servicing rights		—			(129	)		(252	)
Net settlement proceeds from derivatives related to mortgage servicing rights		—			18			280
Purchases of property, plant and equipment		(11	)		(21	)		(23	)
Decrease (increase) in Restricted cash		18			(35	)		(20	)
Other, net		7			13			—
Net cash used in investing activities		(550	)		(1,408	)		(1,206	)
Cash flows from financing activities:
Net decrease in short-term borrowings		—			(133	)		(992	)
Proceeds from borrowings		44,347			30,291			23,684
Principal payments on borrowings		(44,913	)		(30,627	)		(24,108	)
Issuances of Company Common stock		4			1			6
Proceeds from the sale of Sold Warrants (Note 11)		35			24			—
Cash paid for Purchased Options (Note 11)		(66	)		(51	)		—
Cash paid for debt issuance costs		(54	)		(54	)		(17	)
Other, net		(8	)		(4	)		(5	)
Net cash used in financing activities	$	(655	)	$	(553	)	$	(1,432	)

Continued.

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CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
(In millions)

	Year Ended December 31,
	2009			2008			2007
Effect of changes in exchange rates on Cash and cash equivalents	$	(37	)	$	28		$	1
Net increase (decrease) in Cash and cash equivalents		41			(40	)		26
Cash and cash equivalents at beginning of period		109			149			123
Cash and cash equivalents at end of period	$	150		$	109		$	149
Supplemental Disclosure of Cash Flows Information:
Interest payments	$	164		$	292		$	487
Income tax (refunds) payments, net		(21	)		28			(13	)

See Notes to Consolidated Financial Statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Summary of Significant Accounting Policies

Basis of Presentation

PHH Corporation and subsidiaries (collectively, “PHH” or the “Company”) is a leading outsource provider of mortgage and fleet management services operating in the following business segments:

§	Mortgage Production — provides mortgage loan origination services and sells mortgage loans.
§	Mortgage Servicing — performs servicing activities for originated and purchased loans.
§	Fleet Management Services — provides commercial fleet management services.

The Consolidated Financial Statements include the accounts and transactions of PHH and its subsidiaries, as well as entities in which the Company directly or indirectly has a controlling interest and variable interest entities of which the Company is the primary beneficiary. PHH Home Loans, LLC and its subsidiaries (collectively, “PHH Home Loans” or the “Mortgage Venture”) are consolidated within PHH’s Consolidated Financial Statements, and Realogy Corporation’s ownership interest is presented as a noncontrolling interest in the Consolidated Financial Statements.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions include, but are not limited to, those related to the valuation of mortgage servicing rights (“MSRs”), mortgage loans held for sale (“MLHS”), other financial instruments and goodwill and the determination of certain income tax assets and liabilities and associated valuation allowances. Actual results could differ from those estimates.

Changes In Accounting Policies

Fair Value Measurements.  In September 2006, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820 also prioritizes the use of market-based assumptions, or observable inputs, over entity-specific assumptions or unobservable inputs when measuring fair value and establishes a three-level hierarchy based upon the relative reliability and availability of the inputs to market participants for the valuation of an asset or liability as of the measurement date. The fair value hierarchy designates quoted prices in active markets for identical assets or liabilities at the highest level and unobservable inputs at the lowest level. (See Note 18, “Fair Value Measurements” for additional information regarding the fair value hierarchy.) ASC 820 also nullified the guidance which required the deferral of gains and losses at the inception of a transaction involving a derivative financial instrument in the absence of observable data supporting the valuation technique.

The Company adopted the provisions of ASC 820 for assets and liabilities that are measured at fair value on a recurring basis effective January 1, 2008. As a result of the adoption of ASC 820 for assets and liabilities that are measured at fair value on a recurring basis, the Company recorded a $9 million decrease in Retained earnings as of January 1, 2008. This amount represents the transition adjustment, net of income taxes, resulting from recognizing gains and losses related to the Company’s interest rate lock commitments (“IRLCs”) that were previously deferred. The fair value of the Company’s IRLCs, as determined for the January 1, 2008 transition adjustment, excluded the value attributable to servicing rights, in accordance with the transition provisions of updates to ASC 815, “Derivatives and Hedging” (“ASC 815”). The fair value associated with the servicing rights is included in the fair value measurement of all written loan commitments issued after January 1, 2008.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes the transition adjustment at the date of adoption of ASC 820:

	Balance					Balance
	January 1, 2008		Transition			January 1, 2008
	Prior to Adoption		Adjustment			After Adoption
	(In millions)
Derivative assets	$	177	$	(3	)	$	174
Derivative liabilities		121		(12	)		133
Income tax benefit				6
Cumulative-effect adjustment, net of income taxes			$	(9	)

In February 2008, the FASB updated ASC 820 to delay the effective date for one year for nonfinancial assets and nonfinancial liabilities, except for those that are recognized or disclosed at fair value on a recurring basis. The Company elected the deferral for nonfinancial assets and nonfinancial liabilities and adopted the provisions of ASC 820 for its assessment of impairment of its Goodwill, other intangible assets, net investment in operating leases, net investment in off-lease vehicles, real estate owned (“REO”) and Property, plant and equipment, net effective January 1, 2009. The Company’s measurement of fair value for these nonfinancial assets, when applicable, incorporates the assumptions market participants would use in pricing the asset considering its highest and best use, where available, which may differ from the Company’s own intended use of such assets and related assumptions and therefore may result in a different fair value than the fair value measured on a basis prior to the application of ASC 820. There were no events or circumstances resulting in the measurement of fair value for any significant nonfinancial assets other than REO during 2009. See Note 18, “Fair Value Measurements” for additional information.

In August 2009, the FASB issued ASU No. 2009-05, “Measuring Liabilities at Fair Value” (“ASU No. 2009-05”), an update to ASC 820. ASU No. 2009-05 clarifies that in circumstances in which a quoted price in an active market for the identical liability is not available, fair value measurement of the liability is to be estimated with one or more valuation techniques that use (i) the quoted price of an identical liability when traded as an asset, (ii) quoted prices for similar liabilities or similar liabilities when traded as assets or (iii) another valuation technique consistent with the principles of ASC 820, such as an income or market approach. The Company adopted ASU No. 2009-05 effective October 1, 2009. The adoption of ASU No. 2009-05 did not impact the Company’s Consolidated Financial Statements.

Fair Value Option.  In February 2007, the FASB issued ASC 825, “Financial Instruments” (“ASC 825”). ASC 825 permits entities to choose, at specified election dates, to measure eligible items at fair value (the “Fair Value Option”). Unrealized gains and losses on items for which the Fair Value Option has been elected are reported in earnings. Additionally, fees and costs associated with instruments for which the Fair Value Option is elected are recognized as earned and expensed as incurred, rather than deferred. The Fair Value Option is applied instrument by instrument (with certain exceptions), is irrevocable (unless a new election date occurs) and is applied only to an entire instrument.

The Company adopted the provisions of ASC 825 effective January 1, 2008. Upon adopting ASC 825, the Company elected to measure certain eligible items at fair value, including all of its MLHS and Investment securities existing at the date of adoption. The Company also made an automatic election to record future MLHS and retained interests in the sale or securitization of mortgage loans at fair value. The Company’s fair value election for MLHS is intended to better reflect the underlying economics of the Company as well as eliminate the operational complexities of the Company’s risk management activities related to its MLHS and applying hedge accounting pursuant to ASC 815. The Company’s fair value election for Investment securities enables it to record all gains and losses on these investments through the Consolidated Statements of Operations.

With the election of the Fair Value Option for MLHS, fees and costs associated with the origination and acquisition of MLHS are no longer deferred, which was the Company’s policy prior to this election. Prior to the election of the Fair Value Option for MLHS, interest receivable related to the Company’s MLHS was included in

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Accounts receivable, net in the Consolidated Balance Sheets; however, subsequent to the election, interest receivable is recorded as a component of the fair value of the underlying MLHS and is included in Mortgage loans held for sale in the Consolidated Balance Sheet. The Company’s Investment securities were classified as either available-for-sale or trading securities or hybrid financial instruments prior to the election of the Fair Value Option for these securities. The recognition of unrealized gains and losses in earnings related to the Company’s investments classified as trading securities and hybrid financial instruments is consistent with the recognition prior to the election of the Fair Value Option. However, prior to this election, available-for-sale securities were carried at fair value with unrealized gains and losses reported net of income taxes as a separate component of Equity. Unrealized gains or losses included in Equity as of January 1, 2008, prior to the election of the Fair Value Option, were not significant. As a result of the election of the Fair Value Option, the Company recorded a $5 million decrease in Retained earnings as of January 1, 2008, which represents the transition adjustment, net of income taxes, resulting from the recognition of fees and costs, net associated with the origination and acquisition of MLHS that were previously deferred. (See Note 18, “Fair Value Measurements” for additional information.)

The following table summarizes the transition adjustment at the date of adoption of ASC 825:

	Balance					Balance
	January 1, 2008		Transition			January 1, 2008
	Prior to Adoption		Adjustment			After Adoption
	(In millions)
Mortgage loans held for sale	$	1,564	$	(4	)	$	1,560
Accounts receivable, net		686		(5	)		681
Income tax benefit				4
Cumulative-effect adjustment, net of income taxes			$	(5	)

Noncontrolling Interests.  In December 2007, the FASB updated ASC 810, “Consolidation” (“ASC 810”), which establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, ASC 810 requires a noncontrolling interest in a subsidiary to be reported as equity, separate from the parent’s equity, in the consolidated statement of financial position and the amount of net income or loss and comprehensive income or loss attributable to the parent and noncontrolling interest to be presented separately on the face of the consolidated financial statements. Changes in a parent’s ownership interest in its subsidiary in which a controlling financial interest is retained are accounted for as equity transactions. If a controlling financial interest in the subsidiary is not retained, the subsidiary is deconsolidated and any retained noncontrolling equity interest is initially measured at fair value. The Company adopted the updates to ASC 810 effective January 1, 2009, including retrospective application for the presentation of periods prior to January 1, 2009. The adoption of the updates to ASC 810 did not have a significant impact on the Company’s Consolidated Financial Statements.

Written Loan Commitments.  In November 2007, the Securities and Exchange Commission (the “SEC”) issued updates to ASC 815. Updates to ASC 815 express the view of the SEC staff that, consistent with the guidance in ASC 860, “Transfers and Servicing” (“ASC 860”) and ASC 825, the expected net future cash flows related to the associated servicing of a loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. Updates to ASC 815 also retain the view of the SEC staff that internally developed intangible assets should not be recorded as part of the fair value of a derivative loan commitment and broadens its application to all written loan commitments that are accounted for at fair value through earnings. The Company adopted the provisions of updates to ASC 815 effective January 1, 2008. Updates to ASC 815 require prospective application to derivative loan commitments issued or modified after the date of adoption. Upon adoption of updates to ASC 815 on January 1, 2008, the expected net future cash flows related to the servicing of mortgage loans associated with the Company’s IRLCs issued from the adoption date forward are included in the fair value measurement of the IRLCs at the date of issuance. Prior to the adoption of updates to ASC 815, the Company did not include the net future cash flows related to the servicing of mortgage loans associated with the IRLCs in their fair value. This change in accounting policy results in the recognition of earnings on the date the IRLCs are issued

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

rather than when the mortgage loans are sold or securitized. Pursuant to the transition provisions of updates to ASC 815, the Company recognized a benefit to Gain on mortgage loans, net in the Consolidated Statement of Operations for the year ended December 31, 2008 of approximately $30 million, as the value attributable to servicing rights related to IRLCs as of January 1, 2008 was excluded from the transition adjustment for the adoption of ASC 820.

Recently Issued Accounting Pronouncements

Transfers of Financial Assets.  In June 2009, the FASB updated ASC 860 to eliminate the concept of a qualifying special-purpose entity (“QSPE”), modify the criteria for applying sale accounting to transfers of financial assets or portions of financial assets, differentiate between the initial measurement of an interest held in connection with the transfer of an entire financial asset recognized as a sale and participating interests recognized as a sale and remove the provision allowing classification of interests received in a guaranteed mortgage securitization transaction that does not qualify as a sale as available-for-sale or trading securities. The updates to ASC 860 clarify (i) that an entity must consider all arrangements or agreements made contemporaneously or in contemplation of a transfer, (ii) the isolation analysis related to the transferor and its consolidated subsidiaries and (iii) the principle of effective control over the transferred financial asset. The updates to ASC 860 also enhance financial statement disclosures. The updates to ASC 860 are effective for fiscal years beginning after November 15, 2009 with earlier application prohibited. Revised recognition and measurement provisions are to be applied to transfers occurring on or after the effective date and the disclosure provisions are to be applied to transfers that occurred both before and after the effective date. The Company does not expect the adoption of the updates to ASC 860 to have an impact on its Consolidated Financial Statements.

Consolidation of Variable Interest Entities.  In June 2009, the FASB updated ASC 810 to modify certain characteristics that identify a variable interest entity (“VIE”), revise the criteria for determining the primary beneficiary of a VIE, add an additional reconsideration event to determining whether an entity is a VIE, eliminating troubled debt restructurings as an excluded reconsideration event and enhance disclosures regarding involvement with a VIE. Additionally, with the elimination of the concept of QSPEs in the updates to ASC 860, entities previously considered QSPEs are now within the scope of ASC 810. Entities required to consolidate or deconsolidate a VIE will recognize a cumulative effect in retained earnings for any difference in the carrying amount of the interest recognized. The updates to ASC 810 are effective for fiscal years beginning after November 15, 2009 with earlier application prohibited. The Company is currently evaluating the impact of adopting the updates to ASC 810 on its Consolidated Financial Statements. However, the Company does not expect the adoption of the updates to ASC 810 to have a significant impact on its Consolidated Financial Statements.

Revenue Recognition.  In October 2009, the FASB issued ASU No. 2009-13, “Multiple Deliverable Arrangements” (“ASU No. 2009-13”), an update to ASC 605, “Revenue Recognition” (“ASC 605”). ASU No. 2009-13 amends ASC 605 for how to determine whether an arrangement involving multiple deliverables (i) contains more than one unit of accounting and (ii) how the arrangement consideration should be (a) measured and (b) allocated to the separate units of accounting. ASU No. 2009-13 is effective prospectively for arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU No. 2009-13 on its Consolidated Financial Statements.

Fair Value Measurements.  In January 2010, the FASB updated ASC 820 to add disclosures for transfers in and out of level one and level two of the valuation hierarchy and to present separately information about purchases, sales, issuances and settlements in the reconciliation for assets and liabilities classified within level three of the valuation hierarchy. The updates to ASC 820 also clarify existing disclosure requirements about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The updates to ASC 820 are effective for fiscal years and interim periods beginning after December 15, 2009, except for the disclosures about activity in the reconciliation of level 3 activity, which are effective for fiscal years and interim periods beginning after December 15, 2010. The updates to ASC 820 enhance disclosure requirements and will not impact the Company’s financial position, results of operations or cash flows.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Revenue Recognition

Mortgage Production.  Mortgage production includes the origination (funding either a purchase or refinancing) and sale of residential mortgage loans. Mortgage loans are originated through a variety of marketing channels, including relationships with corporations, financial institutions and real estate brokerage firms. The Company also purchases mortgage loans originated by third parties. Mortgage fees consist of fee income earned on all loan originations, including loans closed to be sold and fee-based closings. Fee income consists of amounts earned related to application and underwriting fees, fees on cancelled loans and appraisal and other income generated by the Company’s appraisal services business. Fee income also consists of amounts earned from financial institutions related to brokered loan fees and origination assistance fees resulting from the Company’s private-label mortgage outsourcing activities. Prior to January 1, 2008, fee income on loans closed to be sold was deferred until the loans were sold and was recognized in Gain on mortgage loans, net. Subsequent to January 1, 2008, fees associated with the origination and acquisition of MLHS are recognized as earned, rather than deferred, and the related direct loan origination costs are recognized when incurred.

Subsequent to January 1, 2008, Gain on mortgage loans, net includes the realized and unrealized gains and losses on the Company’s MLHS, as well as the changes in fair value of all loan-related derivatives, including the Company’s IRLCs and freestanding loan-related derivatives. The fair value of the Company’s IRLCs is based upon the estimated fair value of the underlying mortgage loan, adjusted for: (i) estimated costs to complete and originate the loan and (ii) an adjustment to reflect the estimated percentage of IRLCs that will result in a closed mortgage loan. The valuation of the Company’s IRLCs and MLHS approximates a whole-loan price, which includes the value of the related MSRs. Prior to January 1, 2008, the Company’s IRLCs and loan-related derivatives were initially recorded at zero value at inception with changes in the fair value recorded as a component of Gain on mortgage loans, net. Changes in the fair value of the Company’s MLHS were recorded to the extent the loan-related derivatives were considered effective hedges. Subsequent to January 1, 2008, the expected net future cash flows related to the servicing of mortgage loans associated with the Company’s IRLCs issued from the adoption date forward are included in the fair value measurement of the IRLCs at the date of issuance. Prior to January 1, 2008, the Company did not include the net future cash flows related to the servicing of mortgage loans associated with the IRLCs in their fair value.

The Company principally sells its originated mortgage loans directly to government-sponsored entities and other investors; however, in limited circumstances, the Company sells loans through a wholly owned subsidiary’s public registration statement. The Company evaluates each type of sale or securitization for sales treatment. This review includes both an accounting and a legal analysis to determine whether or not the transferred assets have been isolated from the transferor. To the extent the transfer of assets qualifies as a sale, the Company derecognizes the asset and records the gain or loss on the sale date. In the event the Company determines that the transfer of assets does not qualify as a sale, the transfer would be treated as a secured borrowing.

Loans are placed on non-accrual status when any portion of the principal or interest is 90 days past due or earlier if factors indicate that the ultimate collectability of the principal or interest is not probable. Interest received from loans on non-accrual status is recorded as income when collected. Loans return to accrual status when the principal and interest become current and it is probable that the amounts are fully collectible.

Mortgage Servicing.  Mortgage servicing is the servicing of residential mortgage loans. Loan servicing income represents recurring servicing and other ancillary fees earned for servicing mortgage loans owned by investors as well as net reinsurance income or loss from the Company’s wholly owned reinsurance subsidiary, Atrium Insurance Corporation (“Atrium”). Servicing fees received for servicing mortgage loans owned by investors are based on a stipulated percentage of the outstanding monthly principal balance on such loans, or the difference between the weighted-average yield received on the mortgage loans and the amount paid to the investor, less guaranty fees, expenses associated with business relationships and interest on curtailments. Loan servicing income is receivable only out of interest collected from mortgagors, and is recorded as income when collected. Late charges

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and other miscellaneous fees collected from mortgagors are also recorded as income when collected. Costs associated with loan servicing are charged to expense as incurred.

Fleet Leasing Services.  The Company provides fleet management services to corporate clients and government agencies. These services include management and leasing of vehicles and other fee-based services for clients’ vehicle fleets. The Company leases vehicles primarily to corporate fleet users under open-end operating and direct financing lease arrangements where the client bears substantially all of the vehicle’s residual value risk. The lease term under the open-end lease agreements provides for a minimum lease term of 12 months and after the minimum term, the leases may be continued at the lessees’ election for successive monthly renewals. In limited circumstances, the Company leases vehicles under closed-end leases where the Company bears all of the vehicle’s residual value risk. Gains or losses on the sales of vehicles under closed-end leases are recorded in Other income in the period of sale. For operating leases, lease revenues, which contain a depreciation component, an interest component and a management fee component, are recognized over the lease term of the vehicle, which encompasses the minimum lease term and the month-to-month renewals. For direct financing leases, lease revenues contain an interest component and a management fee component. The interest component is recognized using the effective interest method over the lease term of the vehicle, which encompasses the minimum lease term and the month-to-month renewals. From time to time, the Company utilizes certain direct financing lease funding structures, which include the receipt of substantial lease prepayments, for lease originations by its Canadian fleet management operations. Amounts charged to the lessees for interest are determined in accordance with the pricing supplement to the respective lease agreement and are generally calculated on a variable-rate basis that varies month-to-month in accordance with changes in the variable-rate index. Amounts charged to lessees for interest may also be based on a fixed rate that would remain constant for the life of the lease. Amounts charged to the lessees for depreciation are based on the straight-line depreciation of the vehicle over its expected lease term. Management fees are recognized on a straight-line basis over the life of the lease. Revenue for other services is recognized when such services are provided to the lessee.

Revenue for certain services, including fuel card, accident management services and maintenance services, is based on a negotiated percentage of the purchase price for the underlying products or services provided by third-party suppliers and is recognized when the service is provided by the supplier. Revenue for other services, including management fees for leased vehicles, is recognized when such services are provided to the lessee.

The Company originates certain of its truck and equipment leases with the intention of syndicating to banks and other financial institutions. When the Company sells operating leases, it sells the underlying assets and assigns any rights to the leases, including future leasing revenues, to the banks or financial institutions. Upon the transfer and assignment of the rights associated with the operating leases, the Company records the proceeds from the sale as revenue and recognizes an expense for the undepreciated cost of the asset sold. Upon the sale or transfer of rights to direct financing leases, the net gain or loss is recorded in Other income. Under certain of these sales agreements, the Company retains a portion of residual risk in connection with the fair value of the asset at lease termination and may recognize a liability for the retention of this risk.

Depreciation on Operating Leases and Net Investment in Fleet Leases

Vehicles are stated at cost, net of accumulated depreciation. The initial cost of the vehicles is recorded net of incentives and allowances from vehicle manufacturers. Leased vehicles are depreciated on a straight-line basis over a term that generally ranges from 3 to 6 years.

Advertising Expenses

Advertising costs are expensed in the period incurred. Advertising expenses, recorded within Other operating expenses in the Consolidated Statements of Operations, were $3 million, $5 million and $6 million during the years ended December 31, 2009, 2008 and 2007, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Income Taxes

The Company files consolidated federal and state income tax returns. The Company recognizes deferred tax assets and liabilities. The Company regularly reviews its deferred tax assets to assess their potential realization and establishes a valuation allowance for such assets when the Company believes it is more likely than not that some portion of the deferred tax asset will not be realized. Generally, any change in the valuation allowance is recorded in income tax expense; however, if the valuation allowance is adjusted in connection with an acquisition, such adjustment is recorded concurrently through Goodwill rather than the Provision for (benefit from) income taxes. Income tax expense includes (i) deferred tax expense, which generally represents the net change in the deferred tax asset or liability balance during the year plus any change in the valuation allowance and (ii) current tax expense, which represents the amount of taxes currently payable to or receivable from a taxing authority plus amounts accrued for income tax contingencies (including both tax and interest). Income tax expense excludes the tax effects related to adjustments recorded to Accumulated other comprehensive income (loss) as well as the tax effects of cumulative effects of changes in accounting principles.

The Company must presume that an income tax position taken in a tax return will be examined by the relevant tax authority and determine whether it is more likely than not that the income tax position will be sustained upon examination, including the resolution of any related appeals or litigation processes, based on the technical merits of the position. An income tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of the benefit to recognize in the financial statements. The Company is required to record a liability for unrecognized income tax benefits for the amount of the benefit included in its previously filed income tax returns and in its financial results expected to be included in income tax returns to be filed for periods through the date of its Consolidated Financial Statements for income tax positions for which it is more likely than not that a tax position will not be sustained upon examination by the respective taxing authority. The Company recognizes interest and penalties related to unrecognized income tax benefits in the Provision for (benefit from) income taxes in the Consolidated Statements of Operations.

Cash and Cash Equivalents

Marketable securities with original maturities of three months or less are included in Cash and cash equivalents.

Restricted Cash

Restricted cash primarily relates to (i) amounts specifically designated to purchase assets, to repay debt and/or to provide over-collateralization within the Company’s asset-backed debt arrangements, (ii) funds collected and held for pending mortgage closings and (iii) accounts held for the capital fund requirements of and potential claims related to the Company’s mortgage reinsurance subsidiary.

Mortgage Loans Held for Sale

MLHS represent mortgage loans originated or purchased by the Company and held until sold to secondary market investors. Upon the closing of a residential mortgage loan originated or purchased by the Company, the mortgage loan is typically warehoused for a period of up to 60 days and then sold into the secondary market. Prior to January 1, 2008, MLHS were recorded in the Consolidated Balance Sheet at the lower of cost or market value, which was computed by the aggregate method, net of deferred loan origination fees and costs. Subsequent to January 1, 2008, MLHS are recorded at fair value. The fair value of MLHS is estimated by utilizing either: (i) the value of securities backed by similar mortgage loans, adjusted for certain factors to approximate the value of a whole mortgage loan, including the value attributable to mortgage servicing and credit risk, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Upon the sale of the underlying mortgage loans, the MSRs and servicing obligations of those loans are generally retained by the Company.

Mortgage Servicing Rights

An MSR is the right to receive a portion of the interest coupon and fees collected from the mortgagor for performing specified mortgage servicing activities, which consist of collecting loan payments, remitting principal and interest payments to investors, managing escrow funds for the payment of mortgage-related expenses such as taxes and insurance and otherwise administering the Company’s mortgage loan servicing portfolio. MSRs are created through either the direct purchase of servicing from a third party or through the sale of an originated loan. The Company services residential mortgage loans, which represent its single class of servicing rights, and has elected the fair value measurement method for subsequently measuring these servicing rights. The initial value of capitalized servicing is recorded as an addition to Mortgage servicing rights in the Consolidated Balance Sheets and has a direct impact on Gain on mortgage loans, net in the Consolidated Statements of Operations. Valuation changes in MSRs are recognized in Change in fair value of mortgage servicing rights in the Consolidated Statements of Operations and the carrying amount of MSRs is adjusted in the Consolidated Balance Sheets. The fair value of MSRs is estimated based upon projections of expected future cash flows considering prepayment estimates (developed using a model described below), the Company’s historical prepayment rates, portfolio characteristics, interest rates based on interest rate yield curves, implied volatility and other economic factors. The Company incorporates a probability weighted option adjusted spread (“OAS”) model to generate and discount cash flows for the MSR valuation. The OAS model generates numerous interest rate paths, then calculates the MSR cash flow at each monthly point for each interest rate path and discounts those cash flows back to the current period. The MSR value is determined by averaging the discounted cash flows from each of the interest rate paths. The interest rate paths are generated with a random distribution centered around implied forward interest rates, which are determined from the interest rate yield curve at any given point of time.

A key assumption in the Company’s estimate of the fair value of MSRs is forecasted prepayments. The Company uses a third-party model as a basis to forecast prepayment rates at each monthly point for each interest rate path in the OAS model. Prepayment rates used in the development of expected future cash flows are based on historical observations of prepayment behavior in similar periods, comparing current mortgage interest rates to the mortgage interest rates in the Company’s servicing portfolio, and incorporates loan characteristics (e.g., loan type and note rate) and factors such as recent prepayment experience, the relative sensitivity of the Company’s capitalized loan servicing portfolio to refinance if interest rates decline and estimated levels of home equity. On a quarterly basis, the Company validates the assumptions used in estimating the fair value of MSRs against a number of third-party sources, which may include peer surveys, MSR broker surveys and other market-based sources.

Property, Plant and Equipment

Property, plant and equipment (including leasehold improvements) are recorded at cost, net of accumulated depreciation and amortization. Depreciation, recorded as a component of Other depreciation and amortization in the Consolidated Statements of Operations, is computed utilizing the straight-line method over the estimated useful lives of the related assets. Amortization of leasehold improvements, also recorded as a component of Other depreciation and amortization, is computed utilizing the straight-line method over the estimated benefit period of the related assets or the lease term, if shorter. Estimated useful lives are 30 years for the Company’s building and range from 3 to 5 years for capitalized software, 1 to 20 years for leasehold improvements and 3 to 10 years for furniture, fixtures and equipment.

The Company capitalizes internal software development costs during the application development stage. The costs capitalized by the Company relate to external direct costs of materials and services and employee costs related to the time spent on the project during the capitalization period. Capitalized software costs are evaluated for impairment annually or when changing circumstances indicate that amounts capitalized may be impaired. Impaired items are written down to their estimated fair values at the date of evaluation.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Acquisitions

Assets acquired, liabilities assumed and noncontrolling interest in an acquiree, if applicable, in business combinations are recorded in the Consolidated Balance Sheets as of their respective acquisition dates based upon their estimated fair values at such dates. The results of operations of businesses acquired by the Company are included in the Consolidated Statements of Operations beginning on their respective dates of acquisition. The excess of the purchase price over the estimated fair values of the underlying assets acquired and liabilities assumed is allocated to Goodwill. Acquisition-related costs are expensed as incurred.

Goodwill and Other Intangible Assets

The Company assesses the carrying value of its Goodwill and indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred. The Company assesses Goodwill for such impairment by comparing the carrying value of its reporting units to their fair value. The Company’s reporting units are the Fleet Management Services segment, PHH Home Loans, the Mortgage Production segment excluding PHH Home Loans and the Mortgage Servicing segment. When determining the fair value of its reporting units, the Company may apply an income approach, using discounted cash flows or a combination of an income approach and a market approach, wherein comparative market multiples are used.

The Company’s indefinite-lived intangible assets are comprised entirely of trademarks for all periods presented. Fair value of the Company’s trademarks is determined by discounting cash flows determined from applying a hypothetical royalty rate to projected revenues associated with these trademarks.

Intangible assets subject to amortization are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Amortizable intangible assets included on the Company’s Consolidated Balance Sheets consist primarily of customer lists that are amortized on a straight-line basis over a 20-year period.

The Company’s accounting policy is to expense the costs to renew or extend recognized intangible assets as the costs are incurred.

Derivative Instruments

The Company uses derivative instruments as part of its overall strategy to manage its exposure to market risks primarily associated with fluctuations in interest rates. As a matter of policy, the Company does not use derivatives for speculative purposes. All of the Company’s derivative instruments that are measured at fair value on a recurring basis are included in Other assets or Other liabilities in the Consolidated Balance Sheets. The changes in the fair value of derivative instruments are included in the following line items in the Consolidated Statements of Operations: (i) mortgage loan-related derivatives, including IRLCs, are included in Gain on mortgage loans, net, (ii) debt-related derivatives are included in Mortgage interest expense or Fleet interest expense (iii) derivatives related to MSRs are included in Net derivative (loss) gain related to mortgage servicing rights and (iv) foreign exchange contracts are included in Fleet interest expense.

Generally, the fair value of the Company’s derivative instruments are measured at fair value on a recurring basis determined by utilizing quoted prices from dealers in such securities or internally-developed or third-party models utilizing observable market inputs. Due to the inactive, illiquid market for IRLCs and the 2014 Conversion Option and the 2014 Purchased Options, the Company uses unobservable inputs in determining their fair values.

The fair value of the Company’s IRLCs is based upon the estimated fair value of the underlying mortgage loan (determined consistent with “— Mortgage Loans Held for Sale” above), adjusted for: (i) estimated costs to complete and originate the loan and (ii) an adjustment to reflect the estimated percentage of IRLCs that will result in a closed mortgage loan. The valuation of the Company’s IRLCs approximates a whole-loan price, which includes the value of the related MSRs.

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The estimated fair value of the 2014 Conversion Option and 2014 Purchased Options uses an option pricing model and is primarily impacted by changes in the market price and volatility of the Company’s Common stock. The Company’s Convertible Notes and related Purchased Options and Conversion Option are defined and further discussed in Note 11, “Debt and Borrowing Arrangements.”

Impairment or Disposal of Long-Lived Assets

If circumstances indicate an impairment may have occurred, the Company evaluates the recoverability of its long-lived assets by comparing the respective carrying values of the assets, or asset group, to the current and expected future cash flows, on an undiscounted basis, to be generated from such assets, or asset group.

Custodial Accounts

The Company has a fiduciary responsibility for servicing accounts related to customer escrow funds and custodial funds due to investors aggregating approximately $2.3 billion and $1.7 billion as of December 31, 2009 and 2008, respectively. These funds are maintained in segregated bank accounts, which are not included in the assets and liabilities of the Company. The Company receives certain benefits from these deposits, as allowable under federal and state laws and regulations. Income earned on these escrow accounts is recorded in Mortgage interest income in the Consolidated Statements of Operations.

Subsequent Events

The Company evaluates subsequent events with respect to the Consolidated Financial Statements through the respective date of issuance.

2.   Earnings (Loss) Per Share

Basic earnings (loss) per share attributable to PHH Corporation was computed by dividing Net income (loss) attributable to PHH Corporation during the period by the weighted-average number of shares outstanding during the period. Diluted earnings (loss) per share attributable to PHH Corporation was computed by dividing Net income (loss) attributable to PHH Corporation by the weighted-average number of shares outstanding, assuming all potentially dilutive common shares were issued. The weighted-average computation of the dilutive effect of potentially issuable shares of Common stock under the treasury stock method for the years ended December 31, 2009, 2008 and 2007 excludes approximately 2.8 million, 4.2 million and 3.3 million outstanding stock-based compensation awards, respectively, as their inclusion would be anti-dilutive. The assumed conversion of the Company’s 2012 Convertible Notes, 2012 Purchased Options and 2012 Sold Warrants were excluded from the computation of the dilutive effect of potentially issuable shares of Common stock under the treasury stock method for both of the years ended December 31, 2009 and 2008, as their inclusion would be anti-dilutive. Additionally, the 2014 Sold Warrants were excluded from the computation of the dilutive effect of potentially issuable shares of Common stock under the treasury stock method for the year ended December 31, 2009, as their inclusion would be anti-dilutive. The 2014 Convertible Notes and 2014 Purchased Options are also excluded from the weighted-average computation of the dilutive effect of potentially issuable shares of Common stock under the treasury stock method for the year ended December 31, 2009 as they are currently to be settled only in cash. The Company’s Convertible Notes and related Purchased Options and Sold Warrants are defined and further discussed in Note 11, “Debt and Borrowing Arrangements.”

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The following table summarizes the calculations of basic and diluted earnings (loss) per share attributable to PHH Corporation for the periods indicated:

	Year Ended December 31,
	2009		2008			2007
	(In millions, except share and per share data)
Net income (loss) attributable to PHH Corporation	$	153	$	(254	)	$	(12	)
Weighted-average common shares outstanding — basic		54,625,178		54,284,089			53,938,844
Effect of potentially dilutive securities:
Stock options		49,143		—			—
Restricted stock units		541,113		—			—
Weighted-average common shares outstanding — diluted		55,215,434		54,284,089			53,938,844
Basic earnings (loss) per share attributable to PHH Corporation	$	2.80	$	(4.68	)	$	(0.23	)
Diluted earnings (loss) per share attributable to PHH Corporation	$	2.77	$	(4.68	)	$	(0.23	)

3.   Goodwill and Other Intangible Assets

Intangible assets consisted of:

	December 31, 2009						December 31, 2008
	Gross				Net		Gross				Net
	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount
	(In millions)
Amortized Intangible Assets:
Customer lists	$	40	$	18	$	22	$	40	$	16	$	24
Other		13		12		1		13		12		1
	$	53	$	30	$	23	$	53	$	28	$	25
Unamortized Intangible Assets:
Goodwill	$	25					$	25
Trademarks		15						15
	$	40					$	40

The following table summarizes the activity associated with Goodwill, by segment, during the years ended December 31, 2009 and 2008:

	Fleet
	Management		Mortgage
	Services		Production			Total
	(In millions)
Goodwill at January 1, 2008	$	25	$	61		$	86
Goodwill impairment during 2008		—		(61	)		(61	)
Goodwill at December 31, 2009 and 2008	$	25	$	—		$	25

Due to deteriorating market conditions, the Company assessed the carrying value of its Goodwill for each of its reporting units and its indefinite-lived intangible assets as of September 30, 2008 and determined that there was an indication of impairment of Goodwill associated with its PHH Home Loans reporting unit, which is included in the

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Company’s Mortgage Production segment. The Company performed a valuation of the PHH Home Loans reporting unit as of September 30, 2008 utilizing a discounted cash flow approach with its most recent short-term projections and long-term outlook for the business and the industry. This valuation, and the related allocation of fair value to the assets and liabilities of the reporting unit, indicated that the entire amount of Goodwill related to the PHH Home Loans reporting unit was impaired and the Company recorded a non-cash charge for Goodwill impairment of $61 million, $56 million net of a $5 million income tax benefit, during the year ended December 31, 2008. Net loss attributable to noncontrolling interest for the year ended December 31, 2008 was impacted by $30 million as a result of the Goodwill impairment. The Goodwill impairment increased Net loss for the year ended December 31, 2008 by $26 million. The primary cause of the impairment was the continued weakness in the housing market, coupled with continued adverse conditions in the mortgage market during the year ended December 31, 2008.

Amortization expense included within Other depreciation and amortization relating to intangible assets was as follows:

	Year Ended December 31,
	2009		2008		2007
	(In millions)
Customer lists	$	2	$	2	$	3
Other		—		1		1
	$	2	$	3	$	4

Based on the Company’s amortizable intangible assets as of December 31, 2009, the Company expects the related amortization expense to approximate $2 million for each of the next five fiscal years.

4.   Mortgage Servicing Rights

The activity in the Company’s loan servicing portfolio associated with its capitalized MSRs consisted of:

	Year Ended December 31,
	2009			2008			2007
	(In millions)
Balance, beginning of period	$	129,078		$	126,540		$	146,836
Additions		27,739			20,156			32,316
Payoffs, sales and curtailments(1)		(29,117	)		(17,618	)		(52,612	)
Balance, end of period	$	127,700		$	129,078		$	126,540

⁽¹⁾ Payoffs, sales and curtailments during the year ended December 31, 2007 includes $29.2 billion of the unpaid principal balance of the underlying mortgage loans for which the associated MSRs were sold.

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The activity in the Company’s capitalized MSRs consisted of:

	Year Ended December 31,
	2009			2008			2007
	(In millions)
Mortgage Servicing Rights:
Balance, beginning of period	$	1,282		$	1,502		$	1,971
Additions		497			334			473
Changes in fair value due to:
Realization of expected cash flows		(391	)		(267	)		(315	)
Changes in market inputs or assumptions used in the valuation model		111			(287	)		(194	)
Sales		(86	)		—			(433	)
Balance, end of period	$	1,413		$	1,282		$	1,502

The significant assumptions used in estimating the fair value of MSRs at December 31, 2009 and 2008 were as follows (in annual rates):

	December 31,
	2009		2008
Prepayment speed (CPR)		16%		19%
Option adjusted spread (in basis points)		587		456
Volatility		30%		29%

The value of the Company’s MSRs is driven by the net positive cash flows associated with the Company’s servicing activities. These cash flows include contractually specified servicing fees, late fees and other ancillary servicing revenue. The Company recorded contractually specified servicing fees, late fees and other ancillary servicing revenue within Loan servicing income in the Consolidated Statements of Operations as follows:

	Year Ended December 31,
	2009		2008		2007
	(In millions)
Net service fee revenue	$	422	$	431	$	494
Late fees		18		20		21
Other ancillary servicing revenue(1)		40		23		—

⁽¹⁾ Includes a $3 million gain on the sale of excess servicing during the year ended December 31, 2009 and realized net losses of $21 million, including direct expenses, on the sale of $433 million of MSRs during the year ended December 31, 2007.

As of December 31, 2009, the Company’s MSRs had a weighted-average life of approximately 5.3 years. Approximately 70% of the MSRs associated with the loan servicing portfolio as of December 31, 2009 were restricted from sale without prior approval from the Company’s private-label clients or investors.

The following summarizes certain information regarding the initial and ending capitalization rates of the Company’s MSRs:

	Year Ended December 31,
	2009		2008
Initial capitalization rate of additions to MSRs		1.79%		1.66%
Weighted-average servicing fee of additions to MSRs (in basis points)		33		36

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	December 31,
	2009		2008
Capitalized servicing rate		1.11%		0.99%
Capitalized servicing multiple		3.6		3.0
Weighted-average servicing fee (in basis points)		31		33

5.   Loan Servicing Portfolio

The following tables summarize certain information regarding the Company’s mortgage loan servicing portfolio for the periods indicated. Unless otherwise noted, the information presented includes both loans held for sale and loans subserviced for others.

Portfolio Activity

	Year Ended December 31,
	2009			2008			2007
	(In millions)
Balance, beginning of period	$	149,750		$	159,183		$	160,222
Additions		33,892			28,693			35,350
Payoffs, sales and curtailments(1)		(32,161	)		(38,126	)		(36,389	)
Balance, end of period(2)	$	151,481		$	149,750		$	159,183

Portfolio Composition

	December 31,
	2009			2008
	(In millions)
Owned servicing portfolio	$	129,663		$	130,572
Subserviced portfolio		21,818			19,178
Total servicing portfolio	$	151,481		$	149,750
Fixed rate	$	102,036		$	94,066
Adjustable rate		49,445			55,684
Total servicing portfolio	$	151,481		$	149,750
Conventional loans	$	129,840		$	132,347
Government loans		14,872			10,905
Home equity lines of credit		6,769			6,498
Total servicing portfolio	$	151,481		$	149,750
Weighted-average interest rate		5.3	%		5.8	%

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Portfolio Delinquency⁽³⁾

	December 31,
	2009						2008
	Number			Unpaid			Number			Unpaid
	of Loans			Balance			of Loans			Balance
30 days		2.57	%		2.26	%		2.61	%		2.31	%
60 days		0.73	%		0.69	%		0.67	%		0.62	%
90 or more days		1.62	%		1.73	%		0.75	%		0.74	%
Total delinquency		4.92	%		4.68	%		4.03	%		3.67	%
Foreclosure/real estate owned/bankruptcies		2.80	%		2.84	%		1.90	%		1.83	%

(1)	Payoffs, sales and curtailments for the year ended December 31, 2008 includes $18.3 billion of the unpaid principal balance of the underlying mortgage loans for which the associated MSRs were sold during the year ended December 31, 2007, but the Company subserviced these loans until the MSRs were transferred from the Company’s system to the purchasers’ systems during the second quarter of 2008.
(2)	During the year ended December 31, 2007, the Company sold the MSRs associated with $19.3 billion of the unpaid principal balance of underlying mortgage loans; however, because the Company subserviced these loans until the MSRs were transferred from the Company’s systems to the purchasers’ systems in the second quarter of 2008, these loans were included in the Company’s mortgage loan servicing portfolio balance as of December 31, 2007.
(3)	Represents the loan servicing portfolio delinquencies as a percentage of the total number of loans and the total unpaid balance of the portfolio.

As of December 31, 2009 and 2008, the Company had outstanding servicing advance receivables of $141 million and $117 million, respectively, which were included in Accounts receivable, net in the Consolidated Balance Sheets.

6.   Mortgage Loan Sales

The Company sells its residential mortgage loans through one of the following methods: (i) sales to the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and loan sales to other investors guaranteed by the Government National Mortgage Association (“Ginnie Mae”) (collectively, “Government-Sponsored Entities” or “GSEs”), or (ii) sales to private investors, or sponsored securitizations through the Company’s wholly owned subsidiary, PHH Mortgage Capital, LLC (“PHHMC”), which maintains securities issuing capacity through a public registration statement. During the year ended December 31, 2009, 95% of the Company’s mortgage loan sales were to the GSEs and the remaining 5% were sold to private investors. The Company did not execute any sales or securitizations through PHHMC during the year ended December 31, 2009.

The Company may have continuing involvement in mortgage loans sold by retaining one or more of the following: MSRs and servicing obligations, recourse obligations and/or beneficial interests (such as interest-only strips, principal-only strips, or subordinated interests). Through its continuing involvement with mortgage loans sold, the Company is exposed to interest rate risks related to its MSRs and other retained interests, as the value of those instruments fluctuate as changes in interest rates impact borrower prepayments on the underlying mortgage loans. The Company is also subject to credit risk related to its retained interests as those instruments are generally subordinate and absorb credit losses on the underlying loans. (See Note 7, “Derivatives and Risk Management Activities” for additional information regarding interest rate risk and credit risk.)

During the year ended December 31, 2009, the Company retained MSRs on approximately 96% of mortgage loans sold. Conforming conventional loans serviced by the Company are sold or securitized through Fannie Mae or Freddie Mac programs. Such servicing is generally performed on a non-recourse basis, whereby foreclosure losses

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are the responsibility of Fannie Mae or Freddie Mac. The government loans serviced by the Company are generally sold or securitized through Ginnie Mae programs. These government loans are either insured against loss by the Federal Housing Administration or partially guaranteed against loss by the Department of Veteran Affairs. Additionally, non-conforming mortgage loans are serviced for various private investors on a non-recourse basis. See Note 4, “Mortgage Servicing Rights” for further information related to the Company’s capitalized servicing portfolio and MSRs.

The Company sells a majority of its mortgage loans on a non-recourse basis; however, the Company has made representations and warranties customary for loan sale transactions, including eligibility characteristics of the mortgage loans and underwriting responsibilities, in connection with the sales of these assets. See Note 14, “Commitments and Contingencies” for a further description of the Company’s representation and warranty obligations. In addition to providing representations and warranties on loans sold, the Company had a program that provided credit enhancement for a limited period of time to the purchasers of certain mortgage loans as more fully described in Note 14, “Commitments and Contingencies.”

The Company did not retain any interests from sales or securitizations other than MSRs during the year ended December 31, 2009. The Company’s Investment securities held as of December 31, 2009 represent retained interests in sales or securitizations of mortgage loans to private investors or mortgage loans securitized through PHHMC. The mortgage loans underlying the Investment securities held by the Company as of December 31, 2009 consist primarily of second lien mortgage loans. The Company’s exposure to loss from its retained interests is limited to the value of the investments.

Key economic assumptions used in measuring the fair value of the Company’s retained interests in sold or securitized mortgage loans at December 31, 2009 and the effect on the fair value of those interests from adverse changes in those assumptions were as follows:

	Investment
	Securities			MSRs
	(Dollars in millions)
Fair value of retained interests	$	12		$	1,413
Weighted-average life (in years)		8.3			5.3
Weighted-average servicing fee (in basis points)		N/A			31
Prepayment speed (annual rate)		9	%		16	%
Impact on fair value of 10% adverse change	$	—		$	(74	)
Impact on fair value of 20% adverse change		(1	)		(142	)
Discount rate/Option adjusted spread (annual rate and basis points, respectively)		21-30	%		587
Impact on fair value of 10% adverse change	$	(1	)	$	(57	)
Impact on fair value of 20% adverse change		(2	)		(110	)
Volatility (annual rate)		N/A			30	%
Impact on fair value of 10% adverse change		N/A		$	(28	)
Impact on fair value of 20% adverse change		N/A			(57	)
Credit losses (cumulative rate)		9	%		N/A
Impact on fair value of 10% adverse change	$	(1	)		N/A
Impact on fair value of 20% adverse change		(2	)		N/A

These sensitivities are hypothetical and presented for illustrative purposes only. Changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption is calculated without changing any other assumption; in reality, changes in one assumption may result in changes in another, which may magnify or counteract the sensitivities. Further, this analysis does not assume any impact resulting from management’s intervention to attempt to mitigate these variations.

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The following table presents information about delinquencies and components of sold or securitized residential mortgage loans for which the Company has retained interests (except for MSRs) as of and for the year ended December 31, 2009:

			Principal
	Total		Amount 60
	Principal		Days or More		Net Credit
	Amount		Past Due(1)		Losses
	(In millions)
Residential mortgage loans(2)	$	94	$	3	$	8

(1)	Amounts are based on total sold or securitized assets at December 31, 2009 for which the Company has a retained interest as of December 31, 2009.
(2)	Excludes sold or securitized mortgage loans that the Company continues to service but to which it has no other continuing involvement.

The following table sets forth information regarding cash flows relating to the Company’s loan sales in which it has continuing involvement.

	Year Ended December 31,
	2009			2008			2007
	(In millions)
Proceeds from new loan sales or securitizations	$	28,000		$	19,049		$	27,588
Servicing fees received(1)		422			431			494
Other cash flows received on retained interests(2)		4			12			4
Purchases of delinquent or foreclosed loans		(104	)		(102	)		(136	)
Servicing advances		(1,085	)		(735	)		(605	)
Repayment of servicing advances		1,050			678			591

(1)	Excludes late fees and other ancillary servicing revenue.
(2)	Represents cash flows received on retained interests other than servicing fees.

During the years ended December 31, 2009, 2008 and 2007, the Company recognized pre-tax gains of $582 million, $233 million and $94 million, respectively, related to the sale or securitization of residential mortgage loans which are recorded in Gain on mortgage loans, net in the Consolidated Statements of Operations.

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7.   Derivatives and Risk Management Activities

The Company did not have any derivative instruments designated as hedging instruments as of and during the year ended December 31, 2009. The following table summarizes the amounts recorded in the Company’s Consolidated Balance Sheet for derivative instruments not designated as hedging instruments as of December 31, 2009:

	Asset Derivatives						Liability Derivatives
	Balance						Balance
	Sheet	Fair			Notional		Sheet	Fair			Notional
	Presentation	Value			Amount		Presentation	Value			Amount
	(In millions)
Interest rate lock commitments	Other assets	$	31		$	3,507	Other liabilities	$	5		$	934
Forward delivery commitments not subject to master netting arrangements:
Related to interest rate and price risk for MLHS and IRLCs	Other assets		44			3,121	Other liabilities		9			855
Forward delivery commitments subject to master netting arrangements(1):
Related to interest rate and price risk for MLHS and IRLCs	Other assets		34			2,415	Other assets		4			483
Contracts related to interest rate risk for debt arrangements and variable-rate leases	Other assets		8			911	N/A		—			—
Derivative instruments related to the issuance of the 2014 Convertible Notes(2)	Other assets		37			—	Other liabilities		37			—
Foreign exchange contracts	N/A		—			—	Other liabilities		2			285
Total derivative instruments			154						57
Impact of master netting arrangements(1)			(4	)					(4	)
Cash collateral			(6	)					(1	)
Net fair value of derivative instruments		$	144					$	52

(1)	Represents derivative instruments that are executed with the same counterparties and subject to master netting arrangements between the Company and its counterparties.
(2)	The notional amount of the derivative instruments related to the issuance of the 2014 Convertible Notes represents 9.6881 million shares of the Company’s Common stock at December 31, 2009.

The following table summarizes the amounts recorded in the Company’s Consolidated Statement of Operations for derivative instruments not designated as hedging instruments:

	Year Ended
	December 31, 2009
	Statement of
	Operations
	Presentation	Gain (Loss)
	(In millions)
Interest rate lock commitments	Gain on mortgage loans, net	$	667
Forward delivery commitments related to interest rate and price risk for MLHS and IRLCs	Gain on mortgage loans, net		(30	)
Contracts related to interest rate risk for debt arrangements and variable-rate leases	Fleet interest expense		(3	)
Foreign exchange contracts	Fleet interest expense		41
Total derivative instruments		$	675

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Market Risk

The Company’s principal market exposure is to interest rate risk, specifically long-term United States (“U.S”) Department of the Treasury (“Treasury”) and mortgage interest rates due to their impact on mortgage-related assets and commitments. The Company also has exposure to the London Interbank Offered Rate (“LIBOR”) due to their impact on variable-rate borrowings, other interest rate sensitive liabilities and net investment in variable-rate lease assets. From time to time, the Company uses various financial instruments, including swap contracts, forward delivery commitments on mortgage-backed securities (“MBS”) or whole loans, futures and options contracts to manage and reduce this risk.

The following is a description of the Company’s risk management policies related to IRLCs, MLHS, MSRs, debt and foreign exchange risk:

Interest Rate Lock Commitments.  IRLCs represent an agreement to extend credit to a mortgage loan applicant whereby the interest rate on the loan is set prior to funding. The loan commitment binds the Company (subject to the loan approval process) to lend funds to a potential borrower at the specified rate, regardless of whether interest rates have changed between the commitment date and the loan funding date. As such, the Company’s outstanding IRLCs are subject to interest rate risk and related price risk during the period from the date of the IRLC through the loan funding date or expiration date. The Company’s loan commitments generally range between 30 and 90 days; however, the borrower is not obligated to obtain the loan. The Company is subject to fallout risk related to IRLCs, which is realized if approved borrowers choose not to close on the loans within the terms of the IRLCs. The Company uses forward delivery commitments on MBS or whole loans to attempt to manage the interest rate and price risk. The Company considers historical commitment-to-closing ratios to estimate the quantity of mortgage loans that will fund within the terms of the IRLCs. (See Note 1, “Summary of Significant Accounting Policies” and Note 18, “Fair Value Measurements” for further discussion regarding IRLCs.)

Mortgage Loans Held for Sale.  The Company is subject to interest rate and price risk on its MLHS from the loan funding date until the date the loan is sold into the secondary market. The Company primarily uses mortgage forward delivery commitments on MBS or whole loans to fix the forward sales price that will be realized upon the sale of mortgage loans into the secondary market. Forward delivery commitments on MBS or whole loans may not be available for all products that the Company originates; therefore, the Company may use a combination of derivative instruments, including forward delivery commitments for similar products or treasury futures, to minimize the interest rate and price risk. (See Note 18, “Fair Value Measurements” for additional information regarding MLHS and related forward delivery commitments.)

Mortgage Servicing Rights.  The Company’s MSRs are subject to substantial interest rate risk as the mortgage notes underlying the MSRs permit the borrowers to prepay the loans. Therefore, the value of MSRs generally tends to diminish in periods of declining interest rates (as prepayments increase) and increase in periods of rising interest rates (as prepayments decrease). Although the level of interest rates is a key driver of prepayment activity, there are other factors that influence prepayments, including home prices, underwriting standards and product characteristics. The amount and composition of derivatives, if any, that the Company may use will depend on the exposure to loss of value on the Company’s MSRs, the expected cost of the derivatives, the Company’s expected liquidity needs and the expected increased earnings generated by the origination of new loans resulting from the decline in interest rates. This serves as an economic hedge of the Company’s MSRs, which provides a benefit when increased borrower refinancing activity results in higher production volumes which would partially offset declines in the value of the Company’s MSRs thereby reducing the need to use derivatives. The benefit of this economic hedge depends on the decline in interest rates required to create an incentive for borrowers to refinance their mortgage loans and lower their interest rates; however, this benefit may not be realized under certain circumstances regardless of the change in interest rates.

During the year ended December 31, 2008, the Company assessed the composition of its capitalized mortgage loan servicing portfolio and its relative sensitivity to refinance if interest rates decline, the cost of hedging and the anticipated effectiveness of the hedge given the economic environment. Based on that assessment, the Company

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made the decision to close out substantially all of its derivatives related to MSRs during the three months ended September 30, 2008. As of both December 31, 2009 and 2008, the Company did not have any outstanding derivatives used to offset potential adverse changes in the fair value of MSRs that could affect reported earnings.

During the years ended December 31, 2008 and 2007, the Company used a combination of derivative instruments to offset potential adverse changes in the fair value of its MSRs. The change in fair value of derivatives is intended to react in the opposite direction of the change in the fair value of MSRs. MSRs derivatives generally increase in value as interest rates decline and decrease in value as interest rates rise. The effectiveness of derivatives related to MSRs is dependent upon the level at which the change in fair value of the derivatives, which is primarily driven by changes in interest rates, correlates to the change in fair value of MSRs, which is influenced by changes in interest rates as well as other factors, including home prices, underwriting standards and product characteristics. These derivatives included interest rate swap contracts, interest rate futures contracts, interest rate forward contracts, mortgage forward contracts, options on forward contracts, options on futures contracts, options on swap contracts and principal-only swaps. During the years ended December 31, 2008 and 2007, all of the derivatives associated with MSRs were freestanding derivatives and were not designated in a hedge relationship. These derivatives were classified as Other assets or Other liabilities in the Consolidated Balance Sheet with changes in their fair values recorded in Net derivative (loss) gain related to mortgage servicing rights in the Consolidated Statements of Operations.

Debt.  The Company uses various hedging strategies and derivative financial instruments to create a desired mix of fixed- and variable-rate assets and liabilities. Derivative instruments used in these hedging strategies include swaps and interest rate caps. To more closely match the characteristics of the related assets, including the Company’s net investment in variable-rate lease assets, the Company either issues variable-rate debt or fixed-rate debt, which may be swapped to variable LIBOR-based rates. From time to time, the Company uses derivatives that convert variable cash flows to fixed cash flows to manage the risk associated with its variable-rate debt and net investment in variable-rate lease assets. Such derivatives may include freestanding derivatives and derivatives designated as cash flow hedges.

In conjunction with the issuance of the 2014 Convertible Notes (as defined and further discussed in Note 11, “Debt and Borrowing Arrangements”), the Company recognized the Conversion Option (derivative liability) and Purchased Options (derivative asset) (both of which are defined and further discussed in Note 11, “Debt and Borrowing Arrangements”), each of which are indexed to the Company’s Common stock, in Other liabilities and Other assets, respectively, with the offsetting changes in their fair value recognized in Mortgage interest expense in the Consolidated Financial Statements. The Conversion Option allowed the Company to reduce the coupon rate of the 2014 Convertible Notes and the associated semiannual interest payments. The Purchased Options and Sold Warrants (as defined and further discussed in Note 11, “Debt and Borrowing Arrangements”) are intended to reduce the potential dilution to the Company’s Common stock upon conversion of the 2014 Convertible Notes and generally have the effect of increasing the conversion price from $25.805 to $34.74 per share. See Note 11, “Debt and Borrowing Arrangements” for further discussion regarding the 2014 Convertible Notes and the related Conversion Option, Purchased Options and Sold Warrants.

Foreign Exchange.  Due to disruptions in the credit markets, the Company has been unable to utilize certain direct financing lease funding structures, which include the receipt of substantial lease prepayments, for new lease originations by its Canadian fleet management operations. Alternatively, approximately $285 million of additional leases are being funded by the Company’s unsecured borrowings as of December 31, 2009 in comparison to before the disruptions in the credit markets. As such, the Company is subject to foreign exchange risk associated with the use of domestic borrowings to fund Canadian leases, and has entered into foreign exchange forward contracts to manage such risk. During the year ended December 31, 2009, the Company recorded net foreign exchange transaction losses of $41 million and net gains of $41 million related to the foreign exchange forward contracts, both of which were included in Fleet interest expense in the Consolidated Statement of Operations, and as such the net foreign exchange impact related to the use of domestic borrowings to fund additional Canadian leases was not

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significant. See Note 23, “Subsequent Events” for a discussion regarding the issuance of asset-backed term notes subsequent to December 31, 2009.

Credit Risk and Exposure

The Company originates loans in all 50 states and the District of Columbia. Concentrations of credit risk are considered to exist when there are amounts loaned to multiple borrowers with similar characteristics, which could cause their ability to meet contractual obligations to be similarly impacted by economic or other conditions. California was the only state that represented more than 10% of the unpaid principal balance in the Company’s loan servicing portfolio, accounting for approximately 14% of the balance as of December 31, 2009. For the year ended December 31, 2009, approximately 37% of loans originated by the Company were derived from Realogy Corporation’s owned real estate brokerage business, NRT Incorporated (“NRT”), and relocation business, Cartus Corporation (“Cartus”) or its franchisees. In addition, approximately 16% and 15% of the Company’s mortgage loan originations during the year ended December 31, 2009 were from two private-label partners, Merrill Lynch Credit Corporation and Charles Schwab Bank, respectively.

The Company is exposed to commercial credit risk for its clients under the lease and service agreements for PHH Vehicle Management Services Group LLC (“PHH Arval”) (the Company’s Fleet Management Services segment). The Company manages such risk through an evaluation of the financial position and creditworthiness of the client, which is performed on at least an annual basis. The lease agreements generally allow PHH Arval to refuse any additional orders; however, PHH Arval would remain obligated for all units under contract at that time. The service agreements can generally be terminated upon 30 days written notice. PHH Arval had no significant client concentrations as no client represented more than 5% of the Net revenues of the segment during the year ended December 31, 2009. PHH Arval’s historical net credit losses as a percentage of the ending balance of Net investment in fleet leases have not exceeded 0.01% in any of the last three fiscal years.

The Company is exposed to counterparty credit risk in the event of non-performance by counterparties to various agreements and sales transactions. The Company manages such risk by evaluating the financial position and creditworthiness of such counterparties and/or requiring collateral, typically cash, in instances in which financing is provided. The Company attempts to mitigate counterparty credit risk associated with its derivative contracts by monitoring the amount for which it is at risk with each counterparty to such contracts, requiring collateral posting, typically cash, above established credit limits, periodically evaluating counterparty creditworthiness and financial position, and where possible, dispersing the risk among multiple counterparties.

As of December 31, 2009, there were no significant concentrations of credit risk with any individual counterparty or groups of counterparties with respect to the Company’s derivative transactions. Concentrations of credit risk associated with receivables are considered minimal due to the Company’s diverse client base. With the exception of the financing provided to customers of its mortgage business, the Company does not normally require collateral or other security to support credit sales.

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8.   Vehicle Leasing Activities

The components of Net investment in fleet leases were as follows:

	December 31,
	2009			2008
	(In millions)
Operating Leases:
Vehicles under open-end operating leases	$	7,446		$	7,542
Vehicles under closed-end operating leases		263			266
Vehicles under operating leases		7,709			7,808
Less: Accumulated depreciation		(4,382	)		(3,999	)
Net investment in operating leases		3,327			3,809
Direct Financing Leases:
Lease payments receivable		121			141
Less: Unearned income		(4	)		(7	)
Net investment in direct financing leases		117			134
Off-Lease Vehicles:
Vehicles not yet subject to a lease		164			254
Vehicles held for sale		9			18
Less: Accumulated depreciation		(7	)		(11	)
Net investment in off-lease vehicles		166			261
Net investment in fleet leases	$	3,610		$	4,204

	December 31,
	2009			2008
Vehicles under open-end leases		95	%		94	%
Vehicles under closed-end leases		5	%		6	%
Vehicles under variable-rate leases		76	%		73	%
Vehicles under fixed-rate leases		24	%		27	%

At December 31, 2009, future minimum lease payments to be received on the Company’s operating and direct financing leases were as follows:

	Future Minimum
	Lease Payments(1)
			Direct
	Operating		Financing
	Leases		Leases
	(In millions)
2010	$	688	$	22
2011		42		4
2012		32		4
2013		24		2
2014		16		—
Thereafter		13		—
	$	815	$	32

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⁽¹⁾ Amounts included for the interest component of the future minimum lease payments are based on the interest rate in effect at the inception of each lease. Any changes in the interest rates associated with variable-rate leases in periods subsequent to the inception of the lease are used to calculate contingent rentals. Contingent rentals from operating leases were $(9) million and $(16) million for the years ended December 31, 2009 and 2008, respectively. Contingent rentals from operating leases were not significant for the year ended December 31, 2007. Contingent rentals from direct financing leases were not significant for the years ended December 31, 2009, 2008 and 2007.

The future minimum lease payments disclosed above include the monthly payments for the unexpired portion of the minimum lease term, which is 12 months under the Company’s open-end lease agreements, and the residual values guaranteed by the lessees during the minimum lease term. These leases may be continued after the minimum lease term at the lessee’s election.

9.   Property, Plant and Equipment, Net

Property, plant and equipment, net consisted of:

	December 31,
	2009			2008
	(In millions)
Furniture, fixtures and equipment	$	76		$	80
Capitalized software		119			112
Building and leasehold improvements		10			10
		205			202
Less: Accumulated depreciation and amortization		(156	)		(139	)
	$	49		$	63

10.   Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of:

	December 31,
	2009		2008
	(In millions)
Accounts payable	$	241	$	242
Accrued interest		20		23
Accrued payroll and benefits(1)		59		38
Other		175		148
	$	495	$	451

⁽¹⁾ Accrued payroll and benefits as of December 31, 2009 included a $10 million accrued employee severance liability associated with the Company’s transformation effort to create a cost efficient and highly scalable operating platform, which began in 2009.

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11.   Debt and Borrowing Arrangements

The following tables summarize the components of the Company’s indebtedness as of December 31, 2009 and 2008:

	December 31, 2009
											Assets Held as Collateral(1)
															Mortgage		Net
								Maturity/							Loans		Investment
					Interest			Expiry			Accounts		Restricted		Held for		in Fleet
	Balance		Capacity(2)		Rate(3)			Date(4)			Receivable		Cash		Sale		Leases(5)
	(Dollars in millions)
Chesapeake Series 2006-2 Variable Funding Notes	$	657	$	657					2/26/2009	(6)
Chesapeake Series 2009-1 Term Notes		1,000		1,000					5/20/2010
Chesapeake Series 2009-2 Class A Term Notes		850		850					2/17/2011
Chesapeake Series 2009-2 Class B Term Notes(7)		28		28					2/17/2011
Chesapeake Series 2009-2 Class C Term Notes(7)		24		24					2/17/2011
Chesapeake Series 2009-3 Class A Term Notes		50		50					10/20/2011
Chesapeake Series 2009-4 Class A Term Notes		250		250					2/18/2010
Other		33		33					3/2010- 6/2016
Total Vehicle Management Asset-Backed Debt		2,892		2,892		2.0	%(8)				$	21	$	297	$	—	$	3,082
RBS Repurchase Facility(9)		622		1,500		3.0	%		6/24/2010			—		1		667		—
Fannie Mae Repurchase Facilities(10)		325		325		1.0	%		N/A			—		—		333		—
									9/2010-
Other(11)		49		60		2.7	%		10/2010			52		—		5		—
Total Mortgage Warehouse Asset-Backed Debt		996		1,885								52		1		1,005		—
Term Notes(12)		439		439		6.5 7.9	%- %(13)		4/2010- 4/2018			—		—		—		—
Credit Facilities(14)		432		1,305		1.0	%(15)		1/6/2011			—		—		—		—
Convertible Notes due 2012(16)		221		221		4.0	%		4/15/2012			—		—		—		—
Convertible Notes due 2014(17)		180		180		4.0	%		9/1/2014			—		—		—		—
Total Unsecured Debt		1,272		2,145								—		—		—		—
Total Debt	$	5,160	$	6,922							$	73	$	298	$	1,005	$	3,082

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	December 31, 2008
										Assets Held as Collateral(1)
														Mortgage		Net
								Maturity/						Loans		Investment
					Interest			Expiry		Accounts		Restricted		Held for		in Fleet
	Balance		Capacity(2)		Rate(3)			Date		Receivable		Cash		Sale		Leases(5)
								(Dollars in millions)
Chesapeake Series 2006-1 Variable Funding Notes	$	2,371	$	2,500					2/26/2009
Chesapeake Series 2006-2 Variable Funding Notes		1,000		1,000					2/26/2009
Other		5		5					3/2010- 5/2014
Total Vehicle Management Asset-Backed Debt		3,376		3,505		3.6	%(8)			$	22	$	320	$	—	$	3,692
RBS Repurchase Facility(9)		411		1,500		4.0	%		6/24/2010		—		—		456		—
Citigroup Repurchase Facility(18)		10		500		1.7	%		2/26/2009		—		—		12		—
Fannie Mae Repurchase Facilities(10)		149		149		1.0	%		N/A		—		—		149		—
Mortgage Venture Repurchase Facility(19)		115		225		1.7	%		5/28/2009		—		25		128		—
Other(11)		7		7		5.3	%		10/29/2009		—		—		7		—
Total Mortgage Warehouse Asset-Backed Debt		692		2,381							—		25		752		—
						6.5	%-		4/2010-
Term Notes(12)		441		441		7.9	%(13)		4/2018		—		—		—		—
Credit Facilities(14)		1,035		1,303		1.3	%(15)		1/6/2011		—		—		—		—
Convertible Notes due 2012(16)		208		208		4.0	%		4/15/2012		—		—		—		—
Other		12		12							—		—		—		—
Total Unsecured Debt		1,696		1,964							—		—		—		—
Total Debt	$	5,764	$	7,850						$	22	$	345	$	752	$	3,692

(1)	Assets held as collateral are not available to pay the Company’s general obligations.
(2)	Capacity is dependent upon maintaining compliance with, or obtaining waivers of, the terms, conditions and covenants of the respective agreements. With respect to asset-backed funding arrangements, capacity may be further limited by the availability of asset eligibility requirements under the respective agreements. The Series 2009-1, Series 2009-2, Series 2009-3 and Series 2009-4 notes (the “Chesapeake Term Notes”) have revolving periods during which time the pro-rata share of lease cash flows pledged to Chesapeake will create availability to fund the acquisition of vehicles to be leased to customers of the Company’s Fleet Management Services segment. See “Asset-Backed Debt — Vehicle Management Asset-Backed Debt” below for additional information.
(3)	Represents the variable interest rate as of December 31 of the respective year, with the exception of total vehicle management asset-backed debt, term notes, the 2014 Convertible Notes and the 2012 Convertible Notes.
(4)	The maturity date for the Chesapeake Term Notes represents the end of the respective revolving period, during which time the respective notes’ pro-rata share of lease cash flows pledged to Chesapeake will create availability to fund the acquisition of vehicles to be leased to customers of our Fleet Management Services segment. Subsequent to the revolving period, the notes will amortize in accordance with their terms (as further discussed below). See “Asset-Backed Debt — Vehicle Management Asset-Backed Debt” below for additional information.

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(5)	The titles to all the vehicles collateralizing the debt issued by Chesapeake Funding LLC (“Chesapeake”) are held in a bankruptcy remote trust and the Company acts as a servicer of all such leases. The bankruptcy remote trust also acts as a lessor under both operating and direct financing lease agreements.
(6)	The Company elected to allow the Series 2006-2 notes to amortize in accordance with their terms on their Scheduled Expiry Date (as defined below). During the Amortization Period (as defined below), the Company is unable to borrow additional amounts under these notes. See “Asset-Backed Debt — Vehicle Management Asset-Backed Debt” below for additional information.
(7)	The carrying amount of the Chesapeake Series 2009-2 Series B and Series C term notes as of December 31, 2009 is net of an unamortized discount of $3 million and $5 million, respectively. See “Asset-Backed Debt — Vehicle Management Asset-Backed Debt” below for additional information.
(8)	Represents the weighted-average interest rate of the Company’s vehicle management asset-backed debt arrangements for the years ended December 31, 2009 and 2008, respectively.
(9)	The Company maintains a variable-rate committed mortgage repurchase facility (the “RBS Repurchase Facility”) with The Royal Bank of Scotland plc (“RBS”). At the Company’s election, subject to compliance with the terms of the Amended Repurchase Agreement and payment of renewal fees, the RBS Repurchase Facility was renewed for an additional 364-day term on June 25, 2009. See “Asset-Backed Debt — Mortgage Warehouse Asset-Backed Debt” below for additional information.
(10)	The balance and capacity represents amounts outstanding under the Company’s variable-rate uncommitted mortgage repurchase facilities (the “Fannie Mae Repurchase Facilities”) with Fannie Mae. Total uncommitted capacity was approximately $3.0 billion and $1.5 billion as of December 31, 2009 and 2008, respectively.
(11)	Represents the variable interest rate on the majority of other mortgage warehouse asset-backed debt as of December 31, 2009 and 2008, respectively. The outstanding balance as of December 31, 2009 also includes $5 million outstanding under another variable-rate mortgage warehouse facility that bore interest at 3.1%.
(12)	Represents medium-term notes (the “MTNs”) publicly issued under the indenture, dated as of November 6, 2000 (as amended and supplemented, the “MTN Indenture”) by and between PHH and The Bank of New York, as successor trustee for Bank One Trust Company, N.A. During the year ended December 31, 2008, MTNs with a carrying value of $200 million were repaid upon maturity.
(13)	Represents the range of stated interest rates of the MTNs outstanding as of December 31, 2009 and 2008, respectively. The effective rate of interest of the Company’s outstanding MTNs was 7.2% as of both December 31, 2009 and 2008.
(14)	Credit facilities primarily represents a $1.3 billion Amended and Restated Competitive Advance and Revolving Credit Agreement (the “Amended Credit Facility”), dated as of January 6, 2006, among PHH, a group of lenders and JPMorgan Chase Bank, N.A., as administrative agent.
(15)	Represents the interest rate on the Amended Credit Facility as of December 31, 2009 and 2008, respectively, excluding per annum utilization and facility fees. The outstanding balance as of December 31, 2009 and 2008 also includes $72 million and $78 million, respectively, outstanding under another variable-rate credit facility that bore interest at 1.0% and 2.8%, respectively. See “Unsecured Debt — Credit Facilities” below for additional information.
(16)	On April 2, 2008, the Company completed a private offering of the 4.0% Convertible Notes due 2012 (the “2012 Convertible Notes”) with an aggregate principal amount of $250 million and a maturity date of April 15, 2012 to certain qualified institutional buyers. The carrying amount as of December 31, 2009 and 2008 is net of an unamortized discount of $29 million and $42 million, respectively. The effective rate of interest of the 2012 Convertible Notes was 12.4% as of both December 31, 2009 and 2008, which represents the 4.0% semiannual cash payment and the non-cash accretion of discount and issuance costs. There were no conversions of the 2012 Convertible Notes during the year ended December 31, 2009. See “Unsecured Debt — Convertible Notes” below for additional information.
(17)	On September 29, 2009, the Company completed a private offering of the 4.0% Convertible Senior Notes due 2014 (the “2014 Convertible Notes”) with an aggregate principal balance of $250 million and a maturity date of September 1, 2014 to certain qualified institutional buyers. The carrying amount as of December 31, 2009 is net of an unamortized discount of $70 million. The effective rate of interest of the 2014 Convertible Notes was 13.0% as of December 31, 2009, which represents the 4.0% semiannual cash payment and the non-cash accretion of discount and issuance costs. There were no conversions of the 2014 Convertible Notes during the year ended December 31, 2009.
(18)	On February 28, 2008, the Company entered into a 364-day $500 million variable-rate committed mortgage repurchase facility by executing a Master Repurchase Agreement and Guaranty with Citigroup Global Markets Realty Corp. (together,

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the “Citigroup Repurchase Facility”). The Company repaid all outstanding obligations under the Citigroup Repurchase Facility as of February 26, 2009.

(19)

The Mortgage Venture maintained a variable-rate committed repurchase facility (the “Mortgage Venture Repurchase Facility”) with Bank of Montreal and Barclays Bank PLC as Bank Principals and Fairway Finance Company, LLC and Sheffield Receivables Corporation as Conduit Principals. The balance as of December 31, 2008 represents variable-funding notes outstanding under the facility. See “Asset-Backed Debt — Mortgage Warehouse Asset-Backed Debt” below for additional information.

The fair value of the Company’s debt was $5.1 billion and $4.8 billion as of December 31, 2009 and 2008, respectively, which is primarily determined based upon quoted prices in active markets for similar liabilities.

Asset-Backed Debt

Vehicle Management Asset-Backed Debt

Vehicle management asset-backed debt primarily represents variable-rate debt issued by the Company’s wholly owned subsidiary, Chesapeake, to support the acquisition of vehicles used by the Fleet Management Services segment’s U.S. leasing operations.

On February 27, 2009, the Company amended the agreement governing the Series 2006-1 notes to extend the scheduled expiry date to March 27, 2009 in order to provide additional time for the Company and the lenders of the Chesapeake notes to evaluate the long-term funding arrangements for its Fleet Management Services segment. The amendment also included a reduction in the total capacity of the Series 2006-1 notes from $2.5 billion to $2.3 billion and the payment of certain extension fees. Additionally, on February 26, 2009 (the “Scheduled Expiry Date”), the Company elected to allow the Series 2006-2 notes to amortize in accordance with their terms, as further discussed below. On October 8, 2009, the remaining obligations under the Series 2006-1 Chesapeake variable funding notes were paid in full.

On September 11, 2009, Chesapeake issued $31 million and $29 million of Class B and Class C, respectively, of Chesapeake Term Notes under Series 2009-2, which were purchased by another wholly owned subsidiary of PHH Corporation. Subsequently, on September 29, 2009, the Series 2009-2 Class B and Series 2009-2 Class C notes were resold to certain qualified institutional buyers. In addition, $300 million of Class A Chesapeake Term Notes were issued under Series 2009-3 and 2009-4 during the fourth quarter of 2009, as detailed in the chart above. Proceeds from the Chesapeake Term Notes issued during 2009 were primarily used to repay a portion of the Series 2006-1 notes, fund the acquisition of vehicles to be leased to customers of the Company’s Fleet Management Services segment and reduce the amounts outstanding under the Amended Credit Facility.

During the amortization period, the Company will be unable to borrow additional amounts under the variable funding notes or use the pro-rata share of lease cash flows to fund the acquisition of vehicles to be leased under the Chesapeake Term Notes, and monthly repayments will be made on the notes through the earlier of 125 months following the Scheduled Expiry Date, or when the respective series of notes are paid in full based on an allocable share of the collection of cash receipts of lease payments from its clients relating to the collateralized vehicle leases and related assets (the “Amortization Period”). The allocable share is based upon the outstanding balance of those notes relative to all other outstanding series notes issued by Chesapeake as of the commencement of the Amortization Period. After the payment of interest, servicing fees, administrator fees and servicer advance reimbursements, any monthly lease collections during the Amortization Period of a particular series would be applied to reduce the principal balance of the series notes.

As of December 31, 2009, 84% of the carrying value of the Company’s fleet leases collateralized the debt issued by Chesapeake. These leases include certain eligible assets representing the borrowing base of the variable funding and term notes (the “Chesapeake Lease Portfolio”). Approximately 99% of the Chesapeake Lease Portfolio as of December 31, 2009 consisted of open-end leases, in which substantially all of the residual risk on the value of the vehicles at the end of the lease term remains with the lessee. As of December 31, 2009, the Chesapeake Lease Portfolio consisted of 23% and 77% fixed-rate and variable-rate leases, respectively. As of December 31, 2009, the

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top 25 client lessees represented approximately 50% of the Chesapeake Lease Portfolio, with no client exceeding 5%.

See Note 23, “Subsequent Events” for a discussion regarding the issuance of vehicle management asset-backed term notes subsequent to December 31, 2009.

Mortgage Warehouse Asset-Backed Debt

On December 15, 2008, the parties agreed to amend the Mortgage Venture Repurchase Facility to, among other things, reduce the total committed capacity to $125 million by March 31, 2009 through a series of commitment reductions. Additionally, the parties elected not to renew the Mortgage Venture Repurchase Facility beyond its maturity date and the Company repaid all outstanding obligations under the Mortgage Venture Repurchase Facility on May 28, 2009. Prior to May 28, 2009, the Mortgage Venture undertook a variety of actions in order to shift its mortgage loan production primarily to mortgage loans that are brokered through third party investors, including PHH Mortgage Corporation (“PHH Mortgage”), in order to decrease its reliance on committed mortgage warehouse asset-backed debt unless and until an alternative source of funding is obtained.

Unsecured Debt

Credit Facilities

Pricing under the Amended Credit Facility is based upon the Company’s senior unsecured long-term debt ratings. If the ratings on the Company’s senior unsecured long-term debt assigned by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings are not equivalent to each other, the second highest credit rating assigned by them determines pricing under the Amended Credit Facility. On February 11, 2009, Standard & Poor’s downgraded its rating of the Company’s senior unsecured long-term debt from BBB- to BB+, and Fitch Ratings’ rating of the Company’s senior unsecured long-term debt was lowered to BB+ on February 26, 2009. In addition, on March 2, 2009, Moody’s Investors Service downgraded its rating of the Company’s senior unsecured long-term debt from Ba1 to Ba2. As of December 31, 2009 and 2008, borrowings under the Amended Credit Facility bore interest at a margin of 70.0 basis points (“bps”) and 47.5 bps, respectively, over a benchmark index of either LIBOR or the federal funds rate. The Amended Credit Facility also requires the Company to pay utilization fees if its usage exceeds 50% of the aggregate commitments under the Amended Credit Facility and per annum facility fees. As of both December 31, 2009 and 2008, the per annum utilization fees were 12.5 bps. As of December 31, 2009 and 2008, the facility fees were 17.5 bps and 12.5 bps, respectively.

Convertible Notes

The 2014 Convertible Notes and the 2012 Convertible Notes (collectively, the “Convertible Notes”) are senior unsecured obligations of the Company, which rank equally with all of its existing and future senior debt. The 2014 Convertible Notes are governed by an indenture (the “2014 Convertible Notes Indenture”), dated September 29, 2009, between the Company and The Bank of New York Mellon, as trustee. The 2012 Convertible Notes are governed by an indenture (the “2012 Convertible Notes Indenture”), dated April 2, 2008, between the Company and The Bank of New York Mellon, as trustee.

Under the 2014 Convertible Notes Indenture and the 2012 Convertible Notes Indenture (collectively, the “Convertible Notes Indentures”), holders may convert (the “2014 Conversion Option” and the “2012 Conversion Option,” respectively) all or any portion of the 2014 Convertible Notes and the 2012 Convertible Notes at any time from, and including, March 1, 2014 and October 15, 2011, respectively, through the third business day immediately preceding their maturity on September 1, 2014 and April 15, 2012, respectively, or prior to March 1, 2014 and October 15, 2011, respectively, in the event of the occurrence of certain triggering events related to the price of the Convertible Notes, the price of the Company’s Common stock or certain corporate events. Upon conversion, the Company will deliver the principal portion in cash and, if the conversion price calculated for each business day over a period of 60 consecutive business days exceeds the principal amount (the “Conversion Premium”), shares of its

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Common stock or cash for the Conversion Premium, but currently only in cash for the 2014 Convertible Notes, as further discussed below. Subject to certain exceptions, the holders of the Convertible Notes may require the Company to repurchase all or a portion of their Convertible Notes upon a fundamental change, as defined under the Convertible Notes Indentures. The Company will generally be required to increase the conversion rate for holders that elect to convert their Convertible Notes in connection with a make-whole fundamental change. In addition, the conversion rate may be adjusted upon the occurrence of certain events. The Company may not redeem the 2014 Convertible Notes or the 2012 Convertible Notes prior to their maturity on September 1, 2014 and April 15, 2012, respectively.

In connection with the issuance of the 2014 Convertible Notes and the 2012 Convertible Notes, the Company entered into convertible note hedging transactions with respect to the Conversion Premium (the “2014 Purchased Options” and the “2012 Purchased Options,” respectively) and warrant transactions whereby the Company sold warrants to acquire, subject to certain anti-dilution adjustments, shares of its Common stock (the “2014 Sold Warrants” and the “2012 Sold Warrants,” respectively). The 2014 Purchased Options and 2014 Sold Warrants are intended to reduce the potential dilution of the Company’s Common stock upon potential future conversion of the 2014 Convertible Notes and generally have the effect of increasing the conversion price of the 2014 Convertible Notes from $25.805 (based on the initial conversion rate of 38.7522 shares of the Company’s Common stock per $1,000 principal amount of the 2014 Convertible Notes) to $34.74 per share. The 2012 Purchased Options and 2012 Sold Warrants are intended to reduce the potential dilution to the Company’s Common stock upon potential future conversion of the 2012 Convertible Notes and generally have the effect of increasing the conversion price of the 2012 Convertible Notes from $20.50 (based on the initial conversion rate of 48.7805 shares of the Company’s Common stock per $1,000 principal amount of the 2012 Convertible Notes) to $27.20 per share.

The 2014 Convertible Notes and 2012 Convertible Notes bear interest at 4.0% per year, payable semiannually in arrears in cash on March 1^st and September 1^st and April 15^th and October 15^th, respectively. In connection with the issuance of the 2014 Convertible Notes and 2012 Convertible Notes, the Company recognized an original issue discount and issuance costs of $74 million and $60 million, respectively, which are being accreted to Mortgage interest expense in the Consolidated Statements of Operations through March 1, 2014 and October 15, 2011, respectively, or the earliest conversion date of the 2014 Convertible Notes and 2012 Convertible Notes.

The New York Stock Exchange regulations require stockholder approval prior to the issuance of shares of common stock or securities convertible into common stock that will, or will upon issuance, equal or exceed 20% of outstanding shares of common stock. Unless and until stockholder approval to exceed this limitation is obtained, the Company will settle conversion of the 2014 Convertible Notes entirely in cash. Based on these settlement terms, the Company determined that at the time of issuance of the 2014 Convertible Notes, the 2014 Conversion Option and 2014 Purchased Options did not meet all the criteria for equity classification and, therefore, recognized the Conversion Option and Purchased Options as a derivative liability and derivative assets, respectively, with the offsetting changes in their fair value recognized in Mortgage interest expense in the Consolidated Financial Statements. (See Note 7, “Derivatives and Risk Management Activities” in these Notes to Consolidated Financial Statements for additional information regarding the 2014 Conversion Option and 2014 Purchased Options.) As of December 31, 2009 and 2008, the Company determined that the 2014 Sold Warrants, 2012 Sold Warrants, 2012 Conversion Option and 2012 Purchased Options are all indexed to its own stock and met all the criteria for equity classification. As such, these derivative instruments are recorded within Additional paid-in capital in the Consolidated Financial Statements and have no impact on the Company’s Consolidated Statements of Operations.

Debt Maturities

The following table provides the contractual maturities of the Company’s indebtedness at December 31, 2009. The maturities of the Company’s vehicle management asset-backed notes, a portion of which are amortizing in

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accordance with their terms, represent estimated payments based on the expected cash inflows related to the securitized vehicle leases and related assets:

	Asset-Backed		Unsecured		Total
	(In millions)
Within one year	$	1,682	$	5	$	1,687
Between one and two years		906		432		1,338
Between two and three years		669		250		919
Between three and four years		378		420		798
Between four and five years		218		250		468
Thereafter		44		8		52
	$	3,897	$	1,365	$	5,262

As of December 31, 2009, available funding under the Company’s asset-backed debt arrangements and unsecured committed credit facilities consisted of:

			Utilized		Available
	Capacity(1)		Capacity		Capacity
	(In millions)
Asset-Backed Funding Arrangements
Vehicle management(2)	$	2,892	$	2,892	$	—
Mortgage warehouse(3)		1,885		996		889
Unsecured Committed Credit Facilities(4)		1,305		448		857

(1)	Capacity is dependent upon maintaining compliance with, or obtaining waivers of, the terms, conditions and covenants of the respective agreements. With respect to asset-backed funding arrangements, capacity may be further limited by the asset eligibility requirements under the respective agreements.
(2)	On February 27, 2009, the Amortization Period of the Series 2006-2 began during which time the Company is unable to borrow additional amounts under these notes. Amount outstanding under the Series 2006-2 notes was $657 million as of December 31, 2009. The Chesapeake Term Notes have revolving periods during which time the pro-rata share of lease cash flows pledged to Chesapeake will create availability to fund the acquisition of vehicles to be leased by customers of the Company’s Fleet Management Services segment. See “Asset-Backed Debt — Vehicle Management Asset-Backed Debt” above for additional information.
(3)	Capacity does not reflect $2.7 billion undrawn under the $3.0 billion Fannie Mae Repurchase Facilities, as these facilities are uncommitted.
(4)	Utilized capacity reflects $16 million of letters of credit issued under the Amended Credit Facility, which are not included in Debt in the Company’s Consolidated Balance Sheet.

Debt Covenants

Certain of the Company’s debt arrangements require the maintenance of certain financial ratios and contain restrictive covenants, including, but not limited to, material adverse change, liquidity maintenance, restrictions on indebtedness of material subsidiaries, mergers, liens, liquidations and sale and leaseback transactions. The Amended Credit Facility and the RBS Repurchase Facility require that the Company maintain: (i) on the last day of each fiscal quarter, net worth of $1.0 billion plus 25% of net income, if positive, for each fiscal quarter ended after December 31, 2004 and (ii) at any time, a ratio of indebtedness to tangible net worth no greater than 10:1. The MTN Indenture requires that the Company maintain a debt to tangible equity ratio of not more than 10:1. The MTN Indenture also restricts the Company from paying dividends if, after giving effect to the dividend payment, the debt to equity ratio exceeds 6.5:1. In addition, the RBS Repurchase Facility requires PHH Mortgage to maintain a minimum of $3.0 billion in mortgage repurchase or warehouse facilities, comprised of any uncommitted facilities provided by Fannie Mae and any committed mortgage repurchase or warehouse facility, including the RBS

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Repurchase Facility. At December 31, 2009, the Company was in compliance with all of its financial covenants related to its debt arrangements.

Under certain of the Company’s financing, servicing, hedging and related agreements and instruments (collectively, the “Financing Agreements”), the lenders or trustees have the right to notify the Company if they believe it has breached a covenant under the operative documents and may declare an event of default. If one or more notices of default were to be given, the Company believes it would have various periods in which to cure certain of such events of default. If it does not cure the events of default or obtain necessary waivers within the required time periods, the maturity of some of its debt could be accelerated and its ability to incur additional indebtedness could be restricted. In addition, events of default or acceleration under certain of the Company’s Financing Agreements would trigger cross-default provisions under certain of its other Financing Agreements.

12.   Pension and Other Post Employment Benefits

Defined Contribution Savings Plans

The Company and the Mortgage Venture sponsor separate defined contribution savings plans that provide certain eligible employees of the Company and the Mortgage Venture an opportunity to accumulate funds for retirement. The Company and the Mortgage Venture match the contributions of participating employees on the basis specified by these plans. The Company’s cost for contributions to these plans was $9 million, $13 million and $15 million during the years ended December 31, 2009, 2008 and 2007, respectively.

Defined Benefit Pension Plan and Other Employee Benefit Plan

The Company sponsors a domestic non-contributory defined benefit pension plan, which covers certain eligible employees. Benefits are based on an employee’s years of credited service and a percentage of final average compensation, or as otherwise described by the plan. In addition, the Company maintains an other post employment benefits (“OPEB”) plan for retiree health and welfare for certain eligible employees. Both the defined benefit pension plan and the OPEB plan are frozen plans, wherein the plans only accrue additional benefits for a very limited number of the Company’s employees.

The measurement date for all of the Company’s benefit obligations and plan assets is December 31. The following table provides benefit obligations, plan assets and the funded status of the Company’s defined benefit pension and OPEB plans:

							Other Post Employment
	Pension Benefits						Benefits
	2009			2008			2009			2008
	(In millions)
Benefit obligation — December 31	$	34		$	31		$	2		$	2
Fair value of plan assets — December 31		27			21			—			—
Unfunded status		(7	)		(10	)		(2	)		(2	)
Unfunded pension liability recorded in Accumulated other comprehensive income (loss):
Net loss		12			15			—			—
Transition obligation		—			—			—			—
Net amount recognized — December 31	$	5		$	5		$	(2	)	$	(2	)

During the years ended December 31, 2009, 2008 and 2007, both the net periodic benefit cost related to the defined benefit pension plan and the expense recorded for the OPEB plan were not significant.

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As of December 31, 2009, future expected benefit payments to be made from the plan’s assets, which reflect expected future service, as appropriate, under the Company’s defined benefit pension plan were $1 million in each of the years ending December 31, 2010 through 2012, $2 million in the years ending December 31, 2013 and 2014 and $11 million for the five years ending December 31, 2019.

The Company’s policy is to contribute amounts sufficient to meet minimum funding requirements as set forth in employee benefit and tax laws and additional amounts at the discretion of the Company. The Company made contributions of $2 million and $4 million to its defined benefit pension plan during the years ended December 31, 2009 and 2008, respectively. The Company expects to make contributions estimated between $1 million and $2 million to its defined benefit pension plan during the year ending December 31, 2010.

13.   Income Taxes

The Provision for (benefit from) income taxes consisted of the following:

	Year Ended December 31,
	2009			2008			2007
	(In millions)
Current:
Federal	$	(28	)	$	(24	)	$	28
State		1			(14	)		(4	)
Foreign		11			7			16
		(16	)		(31	)		40
Income Tax Contingencies:
Change in income tax contingencies		—			(11	)		(8	)
Interest and penalties		—			(2	)		2
		—			(13	)		(6	)
Deferred:
Federal		109			(123	)		(56	)
State		20			6			(8	)
Foreign		(6	)		(1	)		(5	)
		123			(118	)		(69	)
Provision for (benefit from) income taxes	$	107		$	(162	)	$	(35	)

Income (loss) before income taxes consisted of the following:

	Year Ended December 31,
	2009		2008			2007
	(In millions)
Domestic operations	$	265	$	(465	)	$	(78	)
Foreign operations		15		22			33
Income (loss) before income taxes	$	280	$	(443	)	$	(45	)

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Deferred income taxes were comprised of the following:

	December 31,
	2009			2008
	(In millions)
Deferred income tax assets:
Accrued liabilities, provisions for losses and deferred income	$	60		$	76
Federal loss carryforwards and credits		171			133
State loss carryforwards and credits		69			81
Alternative minimum tax credit carryforward		24			27
Other		10			10
Deferred income tax assets		334			327
Valuation allowance		(70	)		(74	)
Deferred income tax assets, net of valuation allowance		264			253
Deferred income tax liabilities:
Originated mortgage servicing rights		390			315
Purchased mortgage servicing rights		43			19
Depreciation and amortization		533			498
Deferred income tax liabilities		966			832
Net deferred income tax liability	$	702		$	579

The deferred income tax assets valuation allowance of $70 million and $74 million at December 31, 2009 and 2008, respectively, primarily relate to federal and state loss carryforwards. The valuation allowance will be reduced when and if the Company determines that it is more likely than not that all or a portion of the deferred income tax assets will be realized. The federal and state loss carryforwards expire from 2013 to 2029 and from 2009 to 2029, respectively. Due to the Company’s mix of income and loss from its operations by entity and state income tax jurisdiction, there was a significant difference between the state income tax effective rates during the years ended December 31, 2009, 2008 and 2007.

The Company has an alternative minimum tax credit of $24 million that is not subject to limitations. The credits existing at the time of a spin-off from Cendant Corporation (the “Spin-Off”) of $23 million were evaluated, and the appropriate actions were taken by Cendant Corporation (now known as Avis Budget Group, Inc., but referred to as “Cendant” within these Notes to Consolidated Financial Statements) and the Company to make the credits available to the Company after the Spin-Off. The Company has determined at this time that it can utilize all alternative minimum tax carryforwards in future years; therefore, no reserve or valuation allowance has been recorded.

No provision has been made for federal deferred income taxes on approximately $92 million of accumulated and undistributed earnings of the Company’s foreign subsidiaries at December 31, 2009 since it is the present intention of management to reinvest the undistributed earnings indefinitely in those foreign operations. The determination of the amount of unrecognized federal deferred income tax liability for unremitted earnings is not practicable.

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The Company’s total income taxes differ from the amount that would be computed by applying the U.S. federal statutory rate as follows:

	Year Ended December 31,
	2009			2008			2007
	(In millions, except for percentages)
Income (loss) before income taxes	$	280		$	(443	)	$	(45	)
Statutory federal income tax rate		(35	)%		(35	)%		(35	)%
Income taxes computed at statutory federal rate	$	98		$	(155	)	$	(16	)
State and local income taxes, net of federal tax benefits		15			(22	)		(8	)
Liabilities for income tax contingencies		—			(2	)		2
Changes in state apportionment factors		2			(3	)		4
Changes in valuation allowance		1			5			(20	)
Non-deductible portion of Goodwill impairment		—			7			—
Noncontrolling interest		(9	)		10			(1	)
Other		—			(2	)		4
Provision for (benefit from) income taxes	$	107		$	(162	)	$	(35	)
Calculated effective tax rate		38.3	%		(36.6	)%		(78.4	)%

During the year ended December 31, 2009, the Company recorded a net deferred income tax charge of $2 million representing the change in estimated deferred state income taxes for state apportionment factors and tax rates, which impacted its effective tax rate for that year. In addition, the Company recorded a state income tax provision of $15 million. Realogy’s noncontrolling interest in the profit of the Mortgage Venture impacted the calculated effective tax rate by $9 million.

During the year ended December 31, 2008, the Company recorded a $5 million increase in valuation allowances for deferred tax assets ($14 million of this increase was primarily due to loss carryforwards generated during the year ended December 31, 2008 for which the Company believed it was more likely than not that the loss carryforwards would not be realized, partially offset by a $9 million reduction in certain loss carryforwards as a result of the receipt of approval from the Internal Revenue Service (the “IRS”) in April 2008 regarding an accounting method change (the “IRS Method Change”)), a $3 million deferred state income tax benefit representing the change in estimated deferred state income taxes for state apportionment factors and a $2 million decrease in liabilities for income tax contingencies, all of which significantly impacted its effective tax rate for that year. A portion of the Goodwill impairment charge was not deductible for federal and state income tax purposes, which impacted the calculated effective tax rate for the year ended December 31, 2008 by $7 million. In addition, the Company recorded a state income tax benefit of $22 million and Realogy’s noncontrolling interest in the loss of the Mortgage Venture impacted the calculated effective tax rate by $10 million.

During the year ended December 31, 2007, the Company recorded a $20 million decrease in valuation allowances for deferred tax assets (primarily due to the utilization of loss carryforwards as a result of taxable income generated during the year ended December 31, 2007), a $2 million increase in liabilities for income tax contingencies and a net deferred income tax charge of $4 million representing the change in estimated deferred state income taxes for state apportionment factors, all of which significantly impacted its effective tax rate for that year. In addition, the Company recorded a state income tax benefit of $8 million.

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The activity in the Company’s liability for unrecognized income tax benefits (including the liability for potential payment of interest and penalties) consisted of (in millions):

Balance, January 1, 2007 (prior to the adoption of updates to ASC 740)	$	27
Effect of adoption of updates to ASC 740		1
Current year activity related to tax positions taken during prior years		(6	)
Balance, December 31, 2007		22
Activity related to the IRS Method Change		(20	)
Current year activity related to tax positions taken during prior years		6
Balance, December 31, 2008 and 2009	$	8

The Company recorded a net increase to its Benefit from income taxes for the year ended December 31, 2008 of $11 million as a result of recording the effect of the IRS Method Change.

As of both December 31, 2009 and 2008, approximately $10 million of the Company’s unrecognized income tax benefits would impact the Company’s effective income tax rate if these unrecognized income tax benefits were recognized or if valuation allowances were reduced if the Company determined that it is more likely than not that all or a portion of the deferred income tax assets will be realized. All of the Company’s unrecognized income tax benefits, as of January 1, 2007, subsequent to the adoption of updates to ASC 740, and December 31, 2007, would have impacted the Company’s effective income tax rate.

It is expected that the amount of unrecognized income tax benefits will change in the next twelve months primarily due to activity in future reporting periods related to income tax positions taken during prior years. This change may be material; however, the Company is unable to project the impact of these unrecognized income tax benefits on its results of operations or financial position for future reporting periods due to the volatility of market and other factors.

The estimated liability for the potential payment of interest and penalties included in the liability for unrecognized income tax benefits was not significant as of both December 31, 2009 and 2008.

On February 1, 2005, the Company began operating as an independent, publicly traded company pursuant to the Spin-Off. The Company became a consolidated income tax filer with the IRS and certain state jurisdictions subsequent to the Spin-Off. All federal and certain state income tax filings prior thereto were part of Cendant’s consolidated income tax filing group and the Company is indemnified subject to the Amended Tax Sharing Agreement (as defined and discussed in Note 14, “Commitments and Contingencies”). All periods subsequent to the Spin-Off are subject to examination by the IRS and state jurisdictions. In addition to filing federal income tax returns, the Company files income tax returns in numerous states and Canada. As of December 31, 2009, the Company’s foreign and state income tax filings were subject to examination for periods including and subsequent to 2004, dependent upon jurisdiction.

On June 2, 2009, the IRS concluded its audit of the Company and its subsidiaries for the tax year ended December 31, 2005, which included the eleven months subsequent to the Spin-Off, with no adjustments. The Company and its subsidiaries are currently undergoing an IRS audit for the tax years ended December 31, 2006 and 2007.

14.   Commitments and Contingencies

Tax Contingencies

On February 1, 2005, the Company began operating as an independent, publicly traded company pursuant to the Spin-Off. In connection with the Spin-Off, the Company and Cendant entered into a tax sharing agreement dated January 31, 2005, which was amended on December 21, 2005 (the “Amended Tax Sharing Agreement”). The Amended Tax Sharing Agreement governs the allocation of liabilities for taxes between Cendant and the Company,

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indemnification for certain tax liabilities and responsibility for preparing and filing tax returns and defending tax contests, as well as other tax-related matters. The Amended Tax Sharing Agreement contains certain provisions relating to the treatment of the ultimate settlement of Cendant tax contingencies that relate to audit adjustments due to taxing authorities’ review of income tax returns. The Company’s tax basis in certain assets may be adjusted in the future, and the Company may be required to remit tax benefits ultimately realized by the Company to Cendant in certain circumstances. Certain of the effects of future adjustments relating to years the Company was included in Cendant’s income tax returns that change the tax basis of assets, liabilities and net operating loss and tax credit carryforward amounts may be recorded in equity rather than as an adjustment to the tax provision.

Also, pursuant to the Amended Tax Sharing Agreement, the Company and Cendant have agreed to indemnify each other for certain liabilities and obligations. The Company’s indemnification obligations could be significant in certain circumstances. For example, the Company is required to indemnify Cendant for any taxes incurred by it and its affiliates as a result of any action, misrepresentation or omission by the Company or its affiliates that causes the distribution of the Company’s Common stock by Cendant or the internal reorganization transactions relating thereto to fail to qualify as tax-free. In the event that the Spin-Off or the internal reorganization transactions relating thereto do not qualify as tax-free for any reason other than the actions, misrepresentations or omissions of Cendant or the Company or its respective subsidiaries, then the Company would be responsible for 13.7% of any taxes resulting from such a determination. This percentage was based on the relative pro forma net book values of Cendant and the Company as of September 30, 2004, without giving effect to any adjustments to the book values of certain long-lived assets that may be required as a result of the Spin-Off and the related transactions. The Company cannot determine whether it will have to indemnify Cendant or its affiliates for any substantial obligations in the future. The Company also has no assurance that if Cendant or any of its affiliates is required to indemnify the Company for any substantial obligations, they will be able to satisfy those obligations.

Cendant disclosed in its Annual Report on Form 10-K for the year ended December 31, 2009 (the “Cendant 2009 Form 10-K”) (filed on February 24, 2010 under Avis Budget Group, Inc.) that it and its subsidiaries are the subject of an IRS audit for the tax years ended December 31, 2003 through 2006. The Company, since it was a subsidiary of Cendant through January 31, 2005, is included in this IRS audit of Cendant. Under certain provisions of the IRS regulations, the Company and its subsidiaries are subject to several liability to the IRS (together with Cendant and certain of its affiliates (the “Cendant Group”) prior to the Spin-Off) for any consolidated federal income tax liability of the Cendant Group arising in a taxable year during any part of which they were members of the Cendant Group. Cendant also disclosed in the Cendant 2009 Form 10-K that it settled the IRS audit for the taxable years 1998 through 2002 that included the Company. As provided in the Amended Tax Sharing Agreement, Cendant is responsible for and required to pay to the IRS all taxes required to be reported on the consolidated federal returns for taxable periods ended on or before January 31, 2005. Pursuant to the Amended Tax Sharing Agreement, Cendant is solely responsible for separate state taxes on a significant number of the Company’s income tax returns for years 2003 and prior. In addition, Cendant is solely responsible for paying tax deficiencies arising from adjustments to the Company’s federal income tax returns and for the Company’s state and local income tax returns filed on a consolidated, combined or unitary basis with Cendant for taxable periods ended on or before the Spin-Off, except for those taxes which might be attributable to the Spin-Off or internal reorganization transactions relating thereto, as more fully discussed above. The Company will be solely responsible for any tax deficiencies arising from adjustments to separate state and local income tax returns for taxable periods ending after 2003 and for adjustments to federal and all state and local income tax returns for periods after the Spin-Off.

Legal Contingencies

The Company is party to various claims and legal proceedings from time to time related to contract disputes and other commercial, employment and tax matters. The Company is not aware of any pending legal proceedings that it believes could have, individually or in the aggregate, a material adverse effect on its business, financial position, results of operations or cash flows.

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Loan Recourse

The Company sells a majority of its loans on a non-recourse basis. The Company also provides representations and warranties to purchasers and insurers of the loans sold. In the event of a breach of these representations and warranties, the Company may be required to repurchase a mortgage loan or indemnify the purchaser, and any subsequent loss on the mortgage loan may be borne by the Company. If there is no breach of a representation and warranty provision, the Company has no obligation to repurchase the loan or indemnify the investor against loss. The unpaid principal balance of the loans sold by the Company represents the maximum potential exposure related to representation and warranty provisions; however, the Company cannot estimate its maximum exposure because it does not service all of the loans for which it has provided a representation or warranty.

The Company had a program that provided credit enhancement for a limited period of time to the purchasers of mortgage loans by retaining a portion of the credit risk. The Company is no longer selling loans into this program. The retained credit risk related to this program, which represents the unpaid principal balance of the loans, was $8 million as of December 31, 2009. In addition, the outstanding balance of other loans sold with specific recourse by the Company and those for which a breach of a representation or warranty provision was identified subsequent to sale was $228 million as of December 31, 2009, 16.13% of which were at least 90 days delinquent (calculated based upon the unpaid principal balance of the loans).

As of December 31, 2009, the Company had a liability of $51 million, included in Other liabilities in the Consolidated Balance Sheet, for probable losses related to the Company’s recourse exposure.

Mortgage Reinsurance

Through the Company’s wholly owned mortgage reinsurance subsidiary, Atrium, the Company’s two contracts with primary mortgage insurance companies to provide mortgage reinsurance on certain mortgage loans are inactive and in runoff. Through these contracts, the Company is exposed to losses on mortgage loans pooled by year of origination. As of December 31, 2009, the contractual reinsurance period for each pool was 10 years and the weighted-average reinsurance period was 5.7 years. Loss rates on these pools are determined based on the unpaid principal balance of the underlying loans. The Company indemnifies the primary mortgage insurers for losses that fall between a stated minimum and maximum loss rate on each annual pool. In return for absorbing this loss exposure, the Company is contractually entitled to a portion of the insurance premium from the primary mortgage insurers. The Company is required to hold securities in trust related to this potential obligation, which were $281 million and were included in Restricted cash in the Consolidated Balance Sheet as of December 31, 2009. During 2009, the Company commuted its reinsurance agreements with two other primary mortgage insurers. Atrium has remitted the associated balance of securities held in trust in its entirety to both of the primary mortgage insurers. The Company’s contractual reinsurance payments outstanding as of December 31, 2009 were not significant. As of December 31, 2009, a liability of $108 million was included in Other liabilities in the Consolidated Balance Sheet for incurred and incurred but not reported losses associated with the Company’s mortgage reinsurance activities, which was determined on an undiscounted basis.

A summary of the activity in reinsurance-related reserves is as follows:

	Year Ended December 31,
	2009			2008
	(In millions)
Balance, January 1,	$	83		$	32
Realized reinsurance losses(1)		(10	)		—
Increase in reinsurance reserves		35			51
Balance, December 31,	$	108		$	83

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⁽¹⁾ Realized reinsurance losses include $7 million of payments associated with the commutation of reinsurance agreements during the year ended December 31, 2009.

Lease Commitments

The Company is committed to making rental payments under noncancelable operating leases related to various facilities and equipment. Future minimum lease payments required under noncancelable operating leases as of December 31, 2009 were as follows:

	Future
	Minimum
	Lease
	Payments
	(In millions)
2010	$	18
2011		17
2012		16
2013		14
2014		11
Thereafter		74
	$	150

Commitments under capital leases as of December 31, 2009 and 2008 were not significant. The Company incurred rental expense of $21 million, $32 million and $37 million during the years ended December 31, 2009, 2008 and 2007, respectively. Rental expense for each of the years ended December 31, 2008 and 2007 included $1 million of sublease rental income.

Purchase Commitments

In the normal course of business, the Company makes various commitments to purchase goods or services from specific suppliers, including those related to capital expenditures. Aggregate purchase commitments made by the Company as of December 31, 2009 were as follows:

	Purchase
	Commitments
	(In millions)
2010	$	96
2011		1
2012		—
2013		—
2014		—
Thereafter		—
	$	97

Indemnification of Cendant

In connection with the Spin-Off, the Company entered into a separation agreement with Cendant (the “Separation Agreement”), pursuant to which, the Company has agreed to indemnify Cendant for any losses (other than losses relating to taxes, indemnification for which is provided in the Amended Tax Sharing Agreement) that any party seeks to impose upon Cendant or its affiliates that relate to, arise or result from: (i) any of the Company’s liabilities, including, among other things: (a) all liabilities reflected in the Company’s pro forma balance sheet as of

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September 30, 2004 or that would be, or should have been, reflected in such balance sheet, (b) all liabilities relating to the Company’s business whether before or after the date of the Spin-Off, (c) all liabilities that relate to, or arise from any performance guaranty of Avis Group Holdings, Inc. in connection with indebtedness issued by Chesapeake Funding LLC (which changed its name to Chesapeake Finance Holdings LLC effective March 7, 2006), (d) any liabilities relating to the Company’s or its affiliates’ employees and (e) all liabilities that are expressly allocated to the Company or its affiliates, or which are not specifically assumed by Cendant or any of its affiliates, pursuant to the Separation Agreement or the Amended Tax Sharing Agreement; (ii) any breach by the Company or its affiliates of the Separation Agreement or the Amended Tax Sharing Agreement and (iii) any liabilities relating to information in the registration statement on Form 8-A filed with the SEC on January 18, 2005, the information statement filed by the Company as an exhibit to its Current Report on Form 8-K filed on January 19, 2005 (the “January 19, 2005 Form 8-K”) or the investor presentation filed as an exhibit to the January 19, 2005 Form 8-K, other than portions thereof provided by Cendant.

There are no specific limitations on the maximum potential amount of future payments to be made under this indemnification, nor is the Company able to develop an estimate of the maximum potential amount of future payments to be made under this indemnification, if any, as the triggering events are not subject to predictability.

Off-Balance Sheet Arrangements and Guarantees

In the ordinary course of business, the Company enters into numerous agreements that contain guarantees and indemnities whereby the Company indemnifies another party for breaches of representations and warranties. Such guarantees or indemnifications are granted under various agreements, including those governing leases of real estate, access to credit facilities, use of derivatives and issuances of debt or equity securities. The guarantees or indemnifications issued are for the benefit of the buyers in sale agreements and sellers in purchase agreements, landlords in lease contracts, financial institutions in credit facility arrangements and derivative contracts and underwriters in debt or equity security issuances. While some of these guarantees extend only for the duration of the underlying agreement, many survive the expiration of the term of the agreement or extend into perpetuity (unless subject to a legal statute of limitations). There are no specific limitations on the maximum potential amount of future payments that the Company could be required to make under these guarantees, and the Company is unable to develop an estimate of the maximum potential amount of future payments to be made under these guarantees, if any, as the triggering events are not subject to predictability. With respect to certain of the aforementioned guarantees, such as indemnifications of landlords against third-party claims for the use of real estate property leased by the Company, the Company maintains insurance coverage that mitigates any potential payments to be made.

15.   Stock-Related Matters

Charter Amendment

On June 12, 2009, following approval by the Company’s stockholders, the Company’s Charter was amended to increase the number of authorized shares of capital stock from 110,000,000 shares to 275,000,000 shares and authorized shares of Common stock from 108,910,000 shares to 273,910,000 shares.

Reclassification of Authorized Unissued Shares

On March 27, 2008, the Company announced that it had reclassified 8,910,000 shares of its unissued $0.01 par value Preferred stock into the same number of authorized and unissued shares of its $0.01 par value Common stock, subject to further classification or reclassification and issuance by the Company’s Board of Directors. The Company reclassified the shares in order to ensure that a sufficient number of authorized and unissued shares of the Company’s Common stock will be available to satisfy the exercise rights under the 2012 Convertible Notes, Purchased Options and Sold Warrants (as further discussed in Note 11, “Debt and Borrowing Arrangements”).

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Rights Agreement

The Company entered into a rights agreement, dated as of January 28, 2005, with the Bank of New York, (the “Rights Agreement”) which entitles the Company’s stockholders to acquire shares of its Common stock at a price equal to 50% of the then-current market value in limited circumstances when a third party acquires beneficial ownership of 15% or more of the Company’s outstanding Common stock or commences a tender offer for at least 15% of the Company’s Common stock, in each case, in a transaction that the Company’s Board of Directors does not approve. Under these limited circumstances, all of the Company’s stockholders, other than the person or group that caused the rights to become exercisable, would become entitled to effect discounted purchases of the Company’s Common stock which would significantly increase the cost of acquiring control of the Company without the support of the Company’s Board of Directors.

Restrictions on Paying Dividends

Many of the Company’s subsidiaries (including certain consolidated partnerships, trusts and other non-corporate entities) are subject to restrictions on their ability to pay dividends or otherwise transfer funds to other consolidated subsidiaries and, ultimately, to PHH Corporation (the parent company). These restrictions relate to loan agreements applicable to certain of the Company’s asset-backed debt arrangements and to regulatory restrictions applicable to the equity of the Company’s insurance subsidiary, Atrium. The aggregate restricted net assets of these subsidiaries totaled $1.0 billion as of December 31, 2009. These restrictions on net assets of certain subsidiaries, however, do not directly limit the Company’s ability to pay dividends from consolidated Retained earnings. As discussed in Note 11, “Debt and Borrowing Arrangements,” certain of the Company’s debt arrangements require maintenance of ratios and contain restrictive covenants applicable to consolidated financial statement elements that potentially could limit its ability to pay dividends.

16.   Accumulated Other Comprehensive Income (Loss)

The after-tax components of Accumulated other comprehensive income (loss) were as follows:

				Unrealized
	Currency			Gains (Losses)						Accumulated
	Translation			on Available-			Pension			Other Comprehensive
	Adjustment			for-Sale Securities			Adjustment			Income (Loss)
	(In millions)
Balance at December 31, 2006	$	15		$	2		$	(4	)	$	13
Change during 2007		17			(2	)		1			16
Balance at December 31, 2007		32			—			(3	)		29
Change during 2008		(26	)		—			(6	)		(32	)
Balance at December 31, 2008		6			—			(9	)		(3	)
Change during 2009		21			—			1			22
Balance at December 31, 2009	$	27		$	—		$	(8	)	$	19

All components of Accumulated other comprehensive income (loss) presented above are net of income taxes except for currency translation adjustment, which excludes income taxes on undistributed earnings of foreign subsidiaries, which are considered to be indefinitely invested.

17.   Stock-Based Compensation

Prior to the Spin-Off, the Company’s employees were awarded stock-based compensation in the form of Cendant common shares, stock options and restricted stock units (“RSUs”). On February 1, 2005, in connection with the Spin-Off, certain Cendant stock options and RSUs previously granted to the Company’s employees were

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converted into stock options and RSUs of the Company under the PHH Corporation Amended and Restated 2005 Equity and Incentive Plan (the “Plan”).

Since the Spin-Off, certain Company employees have been awarded stock-based compensation in the form of RSUs and stock options to purchase shares of the Company’s Common stock under the Plan. The stock option awards have a maximum contractual term of ten years from the grant date. Service-based stock awards may vest upon the fulfillment of a service condition (i) ratably over a period of up to five years from the grant date, (ii) four years after the grant date or (iii) ratably over a period of up to three years beginning four years after the grant date with the possibility of accelerated vesting of 17% to 33% of the total award annually if certain performance criteria are achieved. Performance-based stock awards require the fulfillment of a service condition and the achievement of certain performance criteria and (i) vest ratably over four years from the grant date or (ii) vest three years from the grant date if both conditions are met. The performance criteria also impact the number of awards that may vest. All outstanding and unvested stock options and RSUs vest immediately upon a change in control. In addition, the Company grants RSUs to its non-employee Directors as part of their compensation for services rendered as members of the Company’s Board of Directors. These RSUs vest immediately when granted. The Company issues new shares of Common stock to employees and Directors to satisfy its stock option exercise and RSU conversion obligations. The Plan also allows awards of stock appreciation rights, restricted stock and other stock- or cash-based awards. RSUs granted by the Company entitle the Company’s employees to receive one share of PHH Common stock upon the vesting of each RSU. As of December 31, 2009, the maximum number of shares of PHH Common stock issuable under the Plan is 11,050,000, including those Cendant awards that were converted into PHH awards in connection with the Spin-Off.

The Company generally recognizes compensation cost for service-based stock awards on a straight-line basis over the requisite service period, subject to accelerated recognition of compensation cost for the portion of the award for which the Company determines it is probable that the performance criteria will be achieved.

Compensation cost for performance-based stock awards is recognized over the requisite service period for the portion of the award for which the Company determines it is probable that the performance condition will be achieved. The Company recognizes compensation cost net of estimated forfeitures.

Stock options vested and expected to vest and RSUs expected to be converted into shares of Common stock reflected in the tables below summarizing stock option and RSU activity exclude the awards estimated to be forfeited. There are no outstanding performance-based stock awards that vest ratably over four years from the grant date or serviced-based stock awards that vest four years from the grant date that are unvested at December 31, 2009.

The Company executed a Transition Services and Separation Agreement with a former Chief Executive Officer in August 2009. Under the terms of the Transition Services and Separation Agreement, the former Chief Executive Officer’s stock-based awards were modified to extend the vesting period for unvested awards and the exercise period for vested stock options (the “2009 Modified Awards”). The 2009 Modified Awards resulted in incremental compensation cost of approximately $2 million, which was recorded in Salaries and related expenses in the Consolidated Statement of Operations for the year ended December 31, 2009.

During the year ended December 31, 2008, the Company revised certain RSU and stock option agreements affecting 274 and three employees, respectively, to provide for vesting based solely on a service condition. The modification (the “2008 Modified Awards”) resulted in incremental compensation cost of approximately $2 million, which was recorded in Salaries and related expenses in the Consolidated Statement of Operations for the year ended December 31, 2008.

During the year ended December 31, 2007, the Company extended the contractual exercise period of certain stock options for 18 employees who were unable to exercise their stock options during the period the Company was not a current filer with the SEC, and the Company revised certain stock options for three employees to correct an administrative oversight. The modifications made to these stock options (the “2007 Modified Stock Options”) resulted in an incremental compensation cost of approximately $2 million, which was recorded in Salaries and

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related expenses in the Consolidated Statement of Operations for the year ended December 31, 2007. Due to an extended black-out period for certain employees, the 2007 Modified Stock Options expired unexercised. The Company granted 37,760 shares of unrestricted Common stock as replacement awards, recognizing approximately $1 million of compensation cost, which was included in Salaries and related expenses in the Consolidated Statement of Operations for the year ended December 31, 2008.

The tables below summarize stock option activity as follows:

Performance-Based Stock Options

					Weighted-
					Average
			Weighted-		Remaining		Aggregate
			Average		Contractual		Intrinsic
	Number		Exercise		Term		Value
	of Options		Price		(In years)		(In millions)
Outstanding at January 1, 2009		18,409	$	21.16
Outstanding at December 31, 2009		18,409	$	21.16		3.5	$	—
Exercisable at December 31, 2009		18,409	$	21.16		3.5	$	—
Stock options vested and expected to vest		18,409	$	21.16		3.5	$	—

Service-Based Stock Options

						Weighted-
						Average
				Weighted-		Remaining		Aggregate
				Average		Contractual		Intrinsic
	Number			Exercise		Term		Value
	of Options			Price		(In years)		(In millions)
Outstanding at January 1, 2009		2,745,341		$	18.89
Granted		565,851			16.50
Granted due to modification(1)		487,014			18.91
Exercised		(302,760	)		18.11
Forfeited or expired		(162,044	)		18.76
Forfeited or expired due to modification(1)		(487,014	)		18.91
Outstanding at December 31, 2009		2,846,388		$	18.51		3.6	$	—
Exercisable at December 31, 2009		2,234,059		$	19.12		2.3	$	—
Stock options vested and expected to vest		2,831,633		$	18.52		3.6	$	—

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Total Stock Options

						Weighted-
						Average
				Weighted-		Remaining		Aggregate
				Average		Contractual		Intrinsic
	Number			Exercise		Term		Value
	of Options			Price		(In years)		(In millions)
Outstanding at January 1, 2009		2,763,750		$	18.91
Granted		565,851			16.50
Granted due to modification(1)		487,014			18.91
Exercised		(302,760	)		18.11
Forfeited or expired		(162,044	)		18.76
Forfeited or expired due to modification(1)		(487,014	)		18.91
Outstanding at December 31, 2009		2,864,797		$	18.53		3.6	$	—
Exercisable at December 31, 2009		2,252,468		$	19.14		2.3	$	—
Stock options vested and expected to vest		2,850,042		$	18.54		3.6	$	—

⁽¹⁾ Represents a component of the 2009 Modified Awards.

Generally, it is the Company’s policy to grant options with exercise prices at fair market value of the Company’s shares of Common stock. The Company’s policy for calculating the fair market value for purposes of determining exercise prices for options granted is that the fair market value is equal to the closing share price for the Company’s Common stock on the date of grant. However, the exercise price of certain stock options granted during the year ended December 31, 2009 is equal to 1.2 times the closing share price of the Company’s Common stock on the grant date.

The weighted-average grant-date fair value per stock option for awards granted or modified during the years ended December 31, 2009, 2008 and 2007 was $7.17, $3.94 and $5.46, respectively. The weighted-average grant-date fair value of stock options was estimated using the Black-Scholes option valuation model with the following assumptions:

	Year Ended December 31,
	2009(1)			2008(2)			2007(3)
Expected life (in years)		4.0			6.0			0.5
Risk-free interest rate		1.70	%		3.30	%		4.90	%
Expected volatility		60.6	%		38.4	%		16.9	%
Dividend yield		—			—			—

(1)	Includes 487,014 stock options included in the 2009 Modified Awards for which the fair value at the modification date was used to calculate the weighted-average grant-date fair value.
(2)	Includes 9,207 stock options included in the 2008 Modified Awards for which the fair value at the modification date was used to calculate the weighted-average grant-date fair value.
(3)	For the 2007 Modified Stock Options, the fair values at the modification dates were used to calculate the weighted-average grant-date fair value.

The Company estimated the expected life of the stock options based on their vesting and contractual terms. The risk-free interest rate reflected the yield on zero-coupon Treasury securities with a term approximating the expected life of the stock options. The expected volatility was based on the historical volatility of the Company’s Common stock.

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The intrinsic value of options exercised was not significant during the years ended December 31, 2009 and 2008. The intrinsic value of options exercised was $3 million during the year ended December 31, 2007.

The tables below summarize RSU activity as follows:

Performance-Based RSUs

				Weighted-
				Average
				Grant-
	Number			Date Fair
	of RSUs(1)			Value
Outstanding at January 1, 2009		—		$	—
Granted		364,030			13.79
Granted due to modification(2)		54,000			19.64
Forfeited		(13,833	)		13.79
Forfeited or expired due to modification(2)		(54,000	)		13.79
Outstanding at December 31, 2009		350,197		$	14.69
RSUs expected to be converted into shares of Common stock		135,138		$	14.76

Service-Based RSUs

				Weighted-
				Average
				Grant-
	Number			Date Fair
	of RSUs			Value
Outstanding at January 1, 2009		1,568,934		$	18.83
Granted(3)		419,870			14.08
Granted due to modification(2)		44,466			19.64
Converted		(322,625	)		19.63
Forfeited		(83,931	)		18.09
Forfeited or expired due to modification(2)		(44,466	)		18.30
Outstanding at December 31, 2009		1,582,248		$	17.49
RSUs expected to be converted into shares of Common stock		1,452,142		$	17.58

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Total RSUs

				Weighted-
				Average
				Grant-
	Number			Date Fair
	of RSUs(1)			Value
Outstanding at January 1, 2009		1,568,934		$	18.83
Granted(3)		783,900			13.95
Granted due to modification(2)		98,466			19.64
Converted		(322,625	)		19.63
Forfeited		(97,764	)		17.48
Forfeited or expired due to modification(2)		(98,466	)		15.83
Outstanding at December 31, 2009		1,932,445		$	16.98
RSUs expected to be converted into shares of Common stock		1,587,280		$	17.34

(1)	The performance criteria impact the number of awards that may vest. The number of RSUs represents the maximum number that can be earned, at 1.2 times a 100% target level, except for the number expected to be converted into shares of the Company’s Common stock.
(2)	Represents a component of the 2009 Modified Awards.
(3)	These grants include 38,388 RSUs earned by the Company’s non-employee Directors for services rendered as members of the Company’s Board of Directors.

The weighted-average grant-date fair value per RSU for awards granted or modified during the years ended December 31, 2009, 2008 and 2007 was $14.58, $17.18 and $25.07, respectively. The total fair value of RSUs converted into shares of Common stock during the years ended December 31, 2009, 2008 and 2007 was $6 million, $3 million and $10 million, respectively.

The table below summarizes expense recognized related to stock-based compensation arrangements during the years ended December 31, 2009, 2008 and 2007:

	Year Ended December 31,
	2009			2008			2007
	(In millions)
Stock-based compensation expense	$	13		$	11		$	6
Income tax benefit related to stock-based compensation expense		(5	)		(4	)		(2	)
Stock-based compensation expense, net of income taxes	$	8		$	7		$	4

As of December 31, 2009, there was $19 million of total unrecognized compensation cost related to outstanding and unvested stock options and RSUs all of which would be recognized upon a change in control. As of December 31, 2009, there was $13 million of unrecognized compensation cost related to outstanding and unvested stock options and RSUs that are expected to vest and be recognized over a weighted-average period of 2.8 years.

18.   Fair Value Measurements

As of December 31, 2009 and 2008, all of the Company’s financial instruments were either recorded at fair value or the carrying value approximated fair value, with the exception of Debt and derivative instruments included in Equity. See Note 11, “Debt and Borrowing Arrangements” for the fair value of Debt as of December 31, 2009 and 2008. For financial instruments that were not recorded at fair value as of December 31, 2009 and 2008, such as Cash

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and cash equivalents and Restricted cash, the carrying value approximates fair value due to the short-term nature of such instruments.

ASC 820 prioritizes the inputs to the valuation techniques used to measure fair value into a three-level valuation hierarchy. The valuation hierarchy is based upon the relative reliability and availability of the inputs to market participants for the valuation of an asset or liability as of the measurement date. Pursuant to ASC 820, when the fair value of an asset or liability contains inputs from different levels of the hierarchy, the level within which the fair value measurement in its entirety is categorized is based upon the lowest level input that is significant to the fair value measurement in its entirety. The three levels of this valuation hierarchy consist of the following:

Level One.  Level One inputs are unadjusted, quoted prices in active markets for identical assets or liabilities which the Company has the ability to access at the measurement date.

Level Two.  Level Two inputs are observable for that asset or liability, either directly or indirectly, and include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, observable inputs for the asset or liability other than quoted prices and inputs derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified contractual term, the inputs must be observable for substantially the full term of the asset or liability.

Level Three.  Level Three inputs are unobservable inputs for the asset or liability that reflect the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, and are developed based on the best information available.

The Company determines fair value based on quoted market prices, where available. If quoted prices are not available, fair value is estimated based upon other observable inputs. The Company uses unobservable inputs when observable inputs are not available. These inputs are based upon the Company’s judgments and assumptions, which are the Company’s assessment of the assumptions market participants would use in pricing the asset or liability, which may include assumptions about risk, counterparty credit quality, the Company’s creditworthiness and liquidity and are developed based on the best information available. The incorporation of counterparty credit risk did not have a significant impact on the valuation of the Company’s assets and liabilities recorded at fair value on a recurring basis as of December 31, 2009.

See Note 1, “Summary of Significant Accounting Policies” for a description of the valuation methodologies used by the Company for assets and liabilities measured at fair value on a recurring basis. The Company has classified such assets and liabilities pursuant to the valuation hierarchy as follows:

Mortgage Loans Held for Sale.  The Company’s mortgage loans are generally classified within Level Two of the valuation hierarchy; however, as of December 31, 2009 and 2008, the Company’s Scratch and Dent (as defined below), second-lien, certain non-conforming and construction loans are classified within Level Three due to the lack of observable pricing data.

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The following table reflects the difference between the carrying amount of MLHS, measured at fair value, and the aggregate unpaid principal amount that the Company is contractually entitled to receive at maturity as of December 31, 2009:

					Excess
					Aggregate Unpaid
					Principal
			Aggregate		Balance
			Unpaid		Over
	Carrying		Principal		Carrying
	Amount		Balance		Amount
	(In millions)
Mortgage loans held for sale:
Total	$	1,218	$	1,257	$	39
Loans 90 or more days past due and on non-accrual status		14		26		12

The components of the Company’s MLHS, recorded at fair value, were as follows:

	December 31,
	2009
	(In millions)
First mortgages:
Conforming(1)	$	1,106
Non-conforming		27
Alt-A(2)		2
Construction loans		16
Total first mortgages		1,151
Second lien		24
Scratch and Dent(3)		41
Other		2
Total	$	1,218

(1)	Represents mortgage loans that conform to the standards of the GSEs.
(2)	Represents mortgage loans that are made to borrowers with prime credit histories, but do not meet the documentation requirements of a conforming loan.
(3)	Represents mortgage loans with origination flaws or performance issues.

Investment Securities.  Due to the inactive, illiquid market for these securities and the significant unobservable inputs used in their valuation, the Company’s Investment securities are classified within Level Three of the valuation hierarchy.

Derivative Instruments.  Generally, the fair values of the Company’s derivative instruments that are measured at fair value on a recurring basis are classified within Level Two of the valuation hierarchy. Due to the unobservable inputs used by the Company and the inactive, illiquid market for IRLCs and the 2014 Conversion Option and 2014 Purchased Options associated with the 2014 Convertible Notes, these derivative instruments are classified within Level Three of the valuation hierarchy.

In connection with the issuance of the 2012 Convertible Notes and prior to receiving stockholder approval to issue shares of its Common stock to satisfy the rules of the New York Stock Exchange (the “NYSE”), the Company recognized a derivative asset for the 2012 Purchased Options and a derivative liability for the 2012 Conversion Option, with changes in fair value included in Mortgage interest expense in the Consolidated Statements of Operations. Upon receiving stockholder approval to issue shares to satisfy the rules of the NYSE (as discussed in

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

more detail in Note 11 “Debt and Borrowing Arrangements”), the Purchased Options and Conversion Option were adjusted to their respective fair values of approximately $64 million each and reclassified to equity as an adjustment to Additional paid-in capital in the Consolidated Financial Statements. Their fair value measurement was classified within Level Three of the valuation hierarchy and included $13 million of unrealized gains and unrealized losses for the 2012 Purchased Options and 2012 Conversion Option, respectively, during the year ended December 31, 2008.

Mortgage Servicing Rights.  The Company’s MSRs are classified within Level Three of the valuation hierarchy due to the use of significant unobservable inputs and the inactive market for such assets.

The Company’s assets and liabilities that are measured at fair value on a recurring basis were as follows:

	December 31, 2009
							Cash
	Level		Level		Level		Collateral
	One		Two		Three		and Netting(1)			Total
	(In millions)
Assets:
Mortgage loans held for sale	$	—	$	1,107	$	111	$	—		$	1,218
Mortgage servicing rights		—		—		1,413		—			1,413
Investment securities		—		—		12		—			12
Other assets:
Derivative assets		—		86		68		(10	)		144
Liabilities:
Other liabilities:
Derivative liabilities		—		15		42		(5	)		52

	December 31, 2008
	Level		Level		Level
	One		Two		Three		Netting(1)			Total
	(In millions)
Assets:
Mortgage loans held for sale	$	—	$	829	$	177	$	—		$	1,006
Mortgage servicing rights		—		—		1,282		—			1,282
Investment securities		—		—		37		—			37
Other assets:
Derivative assets		—		18		71		(2	)		87
Other assets		1		—		—		—			1
Liabilities:
Other liabilities:
Derivative liabilities		—		36		1		(2	)		35

⁽¹⁾ Adjustments to arrive at the carrying amounts of assets and liabilities presented in the Consolidated Balance Sheets, which represent the effect of netting the payable or receivable with the same counterparties under master netting arrangements between the Company and its counterparties.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The activity in the Company’s assets and liabilities that are classified within Level Three of the valuation hierarchy consisted of:

	Year Ended December 31, 2009
						Purchases,			Transfers
	Balance,		Realized			Issuances			Out of			Balance,
	Beginning		and Unrealized			and			Level			End
	of		(Losses)			Settlements,			Three,			of
	Period		Gains			net			net			Period
	(In millions)
Mortgage loans held for sale	$	177	$	(24	)	$	(27	)	$	(15	)(1)	$	111
Mortgage servicing rights		1,282		(280	)(2)		411			—			1,413
Investment securities		37		(21	)		(4	)		—			12
Derivatives, net		70		667			(711	)		—			26

	Year Ended December 31, 2008
							Purchases,			Transfers
	Balance,			Realized			Issuances			Into			Balance,
	Beginning			and Unrealized			and			Level			End
	of			(Losses)			Settlements,			Three,			of
	Period			Gains			net			net			Period
	(In millions)
Mortgage loans held for sale	$	59		$	(9	)	$	(11	)	$	138	(3)	$	177
Mortgage servicing rights		1,502			(554	)(2)		334			—			1,282
Investment securities		34			16			(13	)		—			37
Derivatives, net		(9	)		201			(122	)		—			70

(1)	Represents Scratch and Dent loans that were foreclosed upon and construction loans that converted to first mortgages, net of transfers into the Scratch and Dent population from the conforming or foreclosure populations during the year ended December 31, 2009. The Company’s mortgage loans in foreclosure are measured at fair value on a non-recurring basis, as discussed in further detail below.
(2)	Represents the reduction in the fair value of MSRs due to the realization of expected cash flows from the Company’s MSRs and the change in fair value of the Company’s MSRs due to changes in market inputs and assumptions used in the MSR valuation model.
(3)	Represents Scratch and Dent, second-lien and other non-conforming mortgage loans that were reclassified from Level Two to Level Three due to the lack of observable market data net of construction loans that converted to first mortgages during the year ended December 31, 2008.

During the year ended December 31, 2008, the Company transferred Scratch and Dent, second-lien and certain non-conforming loans from Level Two to Level Three. Throughout the years ended December 31, 2009 and 2008, the Company observed a continuation in the lack of secondary market activity for these loan products as well as a decline in the amount and quality of executable market bids. These observations were intensified, in part, by worsening economic conditions, lack of available credit and declines in the housing market. Due to the lack of observable market data, the valuation of MLHS categorized in Level Three of the valuation hierarchy is based on either discounted cash flow techniques or the underlying collateral values utilizing the Company’s own assumptions that reflect loss frequencies and severities, home prices and liquidity and risk premiums.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company’s realized and unrealized gains and losses related to assets and liabilities classified within Level Three of the valuation hierarchy were included in the Consolidated Statements of Operations as follows:

	Year Ended December 31, 2009
	Mortgage
	Loans			Mortgage
	Held for			Servicing			Investment			Derivatives,
	Sale			Rights			Securities			net
	(In millions)
Gain on mortgage loans, net	$	(31	)	$	—		$	—		$	667
Change in fair value of mortgage servicing rights		—			(280	)		—			—
Mortgage interest income		7			—			—			—
Other income		—			—			(21	)		—

	Year Ended December 31, 2008
	Mortgage
	Loans			Mortgage
	Held for			Servicing			Investment		Derivatives,
	Sale			Rights			Securities		net
	(In millions)
Gain on mortgage loans, net	$	(15	)	$	—		$	—	$	201
Change in fair value of mortgage servicing rights		—			(554	)		—		—
Mortgage interest income		6			—			—		—
Other income		—			—			16		—

The Company’s unrealized gains and losses included in the Consolidated Statements of Operations related to assets and liabilities classified within Level Three of the valuation hierarchy that are included in the Consolidated Balance Sheets as of December 31, 2009 and 2008 were as follows:

	Year Ended December 31, 2009
				Change in
				Fair Value
	Gain on			of Mortgage		Mortgage
	Mortgage			Servicing		Interest		Other
	Loans, net			Rights		Income		Income
				(In millions)
Unrealized (loss) gain	$	(11	)	$	111	$	1	$	2

	Year Ended December 31, 2008
			Change in
			Fair Value
	Gain on		of Mortgage			Mortgage
	Mortgage		Servicing			Interest		Other
	Loans, net		Rights			Income		Income
			(In millions)
Unrealized gain (loss)	$	54	$	(287	)	$	1	$	16

When a determination is made to classify an asset or liability within Level Three of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement of the asset or liability. The fair value of assets and liabilities classified within Level Three of the valuation hierarchy also typically includes observable factors. In the event that certain inputs to the valuation of assets and liabilities are actively quoted and can be validated to external sources, the realized and unrealized gains and losses included in the tables above include changes in fair value determined by observable factors.

Changes in the availability of observable inputs may result in the reclassification of certain assets or liabilities. Such reclassifications are reported as transfers in or out of Level Three in the period that the change occurs.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company’s mortgage loans in foreclosure and REO, which are included in Other assets in the Consolidated Balance Sheets, are evaluated for impairment using a fair value measurement on a non-recurring basis. The evaluation of impairment reflects an estimate of losses currently incurred at the balance sheet date, which will likely not be recoverable from guarantors, insurers or investors. The impairment of mortgage loans in foreclosure, which represents the unpaid principal balance of mortgage loans for which foreclosure proceedings have been initiated, plus recoverable advances made by the Company on those loans, is based on the fair value of the underlying collateral, determined on a loan level basis, less costs to sell. The Company estimates the fair value of the collateral by considering appraisals and broker price opinions, which are updated on a periodic basis to reflect current housing market conditions. The Company records REO, which are acquired from mortgagors in default, at the lower of adjusted carrying amount at the time the property is acquired or fair value of the property, less estimated costs to sell. The Company estimates the fair value of REO using appraisals and broker price opinions, which are updated on a periodic basis to reflect current housing market conditions.

The carrying value of the Company’s mortgage loans in foreclosure and REO were as follows:

	December 31,
	2009			2008
	(In millions)
Mortgage loans in foreclosure	$	113		$	113
Allowance for probable losses		(20	)		(24	)
Mortgage loans in foreclosure, net	$	93		$	89
REO	$	51		$	55
Adjustment to estimated net realizable value		(15	)		(25	)
REO, net	$	36		$	30

The allowance for probable losses associated with the Company’s mortgage loans in foreclosure as of December 31, 2009 and December 31, 2008 and the adjustment to record REO at their estimated net realizable value as of December 31, 2009 were determined based upon fair value measurements from Level Two of the valuation hierarchy. During the years ended December 31, 2009 and 2008, the Company recorded total foreclosure-related charges of $70 million and $73 million, respectively, in Other operating expenses in the Consolidated Statements of Operations, which included the provision for probable losses related to the Company’s off-balance sheet recourse exposure in addition to the provision for valuation adjustments for mortgage loans in foreclosure and REO. See Note 14, “Commitments and Contingencies” for further discussion regarding the Company’s off-balance sheet recourse exposure.

19.   Variable Interest Entities

The Company determines whether an entity is a VIE and whether it is the primary beneficiary at the date of initial involvement with the entity. The Company reassesses whether it is the primary beneficiary of a VIE upon certain events that affect the VIE’s equity investment at risk and upon certain changes in the VIE’s activities. In determining whether it is the primary beneficiary, the Company considers the purpose and activities of the VIE, including the variability and related risks the VIE incurs and transfers to other entities and their related parties. Based on these factors, the Company makes a qualitative assessment and, if inconclusive, a quantitative assessment of whether it would absorb a majority of the VIE’s expected losses or receive a majority of the VIE’s expected residual returns. If the Company determines that it is the primary beneficiary of the VIE, the VIE is consolidated within the Company’s Consolidated Financial Statements.

Mortgage Venture

In connection with the Spin-Off, PHH Broker Partner Corporation (“PHH Broker Partner”), a wholly owned subsidiary of the Company, entered into an operating agreement for the Mortgage Venture with a wholly owned

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

subsidiary of Realogy Corporation (“Realogy”), Realogy Services Venture Partner, Inc. (“Realogy Venture Partner”) (as amended, the “Mortgage Venture Operating Agreement”). The Company owns 50.1% of the Mortgage Venture, through PHH Broker Partner, and Realogy owns the remaining 49.9% through Realogy Venture Partner. The Mortgage Venture was formed for the purpose of originating and selling mortgage loans primarily sourced through Realogy’s owned real estate brokerage business, NRT, and corporate relocation business, Cartus.

For the year ended December 31, 2009, approximately 37% of the mortgage loans originated by the Company were derived from Realogy Corporation’s affiliates, of which approximately 74% were originated by the Mortgage Venture. All mortgage loans originated by the Mortgage Venture are sold to PHH Mortgage or to unaffiliated third-party investors at arm’s-length terms. The Mortgage Venture Operating Agreement provides that at least 15% of the total number of all mortgage loans originated by the Mortgage Venture be sold to unaffiliated third party investors. The Mortgage Venture does not hold any mortgage loans for investment purposes or retain MSRs for any loans it originates. During the year ended December 31, 2009, the Mortgage Venture brokered or sold $11.1 billion of mortgage loans to the Company under the terms of a loan purchase agreement with the Mortgage Venture, whereby the Mortgage Venture has committed to sell or broker, and the Company has agreed to purchase or fund, certain loans originated by the Mortgage Venture. As of December 31, 2009, the Company had outstanding commitments to purchase or fund $876 million of MLHS and fulfilled IRLCs resulting in closed mortgage loans from the Mortgage Venture.

The Company manages the Mortgage Venture through PHH Broker Partner with the exception of certain specified actions that are subject to approval by Realogy through the Mortgage Venture’s board of advisors, which consists of representatives of Realogy and PHH. The Mortgage Venture’s board of advisors has no managerial authority, and its primary purpose is to provide a means for Realogy to exercise its approval rights over those specified actions of the Mortgage Venture for which Realogy’s approval is required. PHH Mortgage operates under a management services agreement between PHH Mortgage and the Mortgage Venture (the “Management Services Agreement”), pursuant to which PHH Mortgage provides certain mortgage origination processing and administrative services for the Mortgage Venture. In exchange for such services, the Mortgage Venture pays PHH Mortgage a fee per service and a fee per loan, subject to a minimum amount.

The Mortgage Venture is financed through equity contributions, mortgage loans brokered through PHH Mortgage and unsecured subordinated indebtedness. The Company maintains a $75 million unsecured subordinated Intercompany Line of Credit with the Mortgage Venture. This indebtedness is not collateralized by the assets of the Mortgage Venture. The Company entered into the subordinated financing due to the disruptions in the credit markets and the limited availability of external financing. The Intercompany Line of Credit increases the Mortgage Venture’s borrowing capacity to fund MLHS and supports certain covenants of the entity. There were no borrowings outstanding under this Intercompany Line of Credit as of December 31, 2009. As of December 31, 2008, there was $11 million outstanding under the variable-rate Intercompany Line of Credit that bore interest at 3.4%.

Subject to certain regulatory and financial covenant requirements, net income generated by the Mortgage Venture is distributed quarterly to its members pro rata based upon their respective ownership interests. The Mortgage Venture may also require additional capital contributions from the Company and Realogy under the terms of the Mortgage Venture Operating Agreement if it is required to meet minimum regulatory capital and reserve requirements imposed by any governmental authority or any creditor of the Mortgage Venture or its subsidiaries. During the years ended December 31, 2009 and 2008, the Company received $8 million and $4 million, respectively, of distributions from the Mortgage Venture. The Company did not make any capital contributions to support the Mortgage Venture during the years ended December 31, 2009 and 2008.

The Company is the primary beneficiary of the Mortgage Venture and the Mortgage Venture is therefore consolidated within the Company’s Consolidated Financial Statements. Realogy’s ownership interest is presented in the Consolidated Financial Statements as a noncontrolling interest. The Company’s determination of the primary beneficiary was based on both quantitative and qualitative factors, which indicated that its variable interests will absorb a majority of the expected losses and receive a majority of the expected residual returns of the Mortgage

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Venture. The Company has maintained the most significant variable interests in the entity, which include the majority ownership of common equity interests, the outstanding Intercompany Line of Credit, the Mortgage Venture Loan Purchase and Sale Agreement, and the Management Services Agreement. The Company has been the primary beneficiary of the Mortgage Venture since its inception, and there have been no current period events that would change the decision regarding whether or not to consolidate the Mortgage Venture.

The assets and liabilities of the Mortgage Venture, consolidated with its subsidiaries, included in the Company’s Consolidated Balance Sheets are as follows:

	December 31,
	2009		2008
	(In millions)
ASSETS
Cash	$	40	$	9
Restricted cash		—		25
Mortgage loans held for sale		60		152
Accounts receivable, net		2		3
Property, plant and equipment, net		1		1
Other assets		6		8
Total assets(1)	$	109	$	198
LIABILITIES
Accounts payable and accrued expenses	$	14	$	10
Debt		—		116
Other liabilities		2		2
Total liabilities(2)	$	16	$	128

(1)	See Note 11, “Debt and Borrowing Arrangements” for assets held as collateral related to the Mortgage Venture’s borrowing arrangements, which are not available to pay the Mortgage Venture’s general obligations.
(2)	Total liabilities exclude $15 million and $10 million of intercompany payables as of December 31, 2009 and 2008, respectively, and $11 million outstanding under the Intercompany Line of Credit as of December 31, 2008.

As of December 31, 2009 and 2008, the Company’s investment in the Mortgage Venture was $77 million and $86 million, respectively. In addition to this investment, the Company had $15 million and $21 million in receivables, including $11 million outstanding under the Intercompany Line of Credit as of December 31, 2008, from the Mortgage Venture as of December 31, 2009 and 2008, respectively.

During the years ended December 31, 2009 and 2008, the Mortgage Venture originated $10.3 billion and $8.7 billion, respectively, of residential mortgage loans.

The Company’s Consolidated Statement of Operations for the year ended December 31, 2009 includes Net income for the Mortgage Venture of $38 million (net of $8 million of income eliminated for MLHS brokered or sold by the Mortgage Venture to PHH Mortgage and before $19 million of net income attributable to noncontrolling interest, which represents Realogy Corporation’s share of the Net income).

The Company is not obligated to provide additional financial support to the Mortgage Venture; however, the termination of the Mortgage Venture could have a material adverse effect on the Company’s business, financial position, results of operations or cash flows. Additionally, the insolvency or inability for Realogy to perform its obligations under the Mortgage Venture Operating Agreement, or its other agreements with the Company, could have a material adverse effect on the Company’s business, financial position, results of operations or cash flows. The net assets of the Mortgage Venture are not available to pay the Company’s general obligations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Pursuant to the Mortgage Venture Operating Agreement, Realogy Venture Partner has the right to terminate the Strategic Relationship Agreement and terminate the Mortgage Venture upon the occurrence of certain events. If Realogy were to terminate its exclusivity obligations with respect to the Company or terminate the Mortgage Venture, it could have a material adverse impact on the Company’s business, financial position, results of operations or cash flows.

In addition, beginning on February 1, 2015, Realogy Venture Partner may terminate the Mortgage Venture Operating Agreement at any time by giving two years’ notice to the Company. Upon termination of the Mortgage Venture Operating Agreement by Realogy Venture Partner, Realogy will have the option either to require that PHH purchase Realogy’s interest in the Mortgage Venture at fair value, plus, in certain cases, liquidated damages, or to cause the Company to sell its interest in the Mortgage Venture to a third party designated by Realogy at fair value plus, in certain cases, liquidated damages. In the case of a termination by Realogy following a change in control of PHH, the Company may be required to make a cash payment to Realogy in an amount equal to the Mortgage Venture’s trailing 12 months net income multiplied by the greater of (i) the number of years remaining in the first 12 years of the term of the Mortgage Venture Operating Agreement or (ii) two years.

The Company has the right to terminate the Mortgage Venture Operating Agreement upon, among other things, a material breach by Realogy of a material provision of the Mortgage Venture Operating Agreement, in which case the Company has the right to purchase Realogy’s interest in the Mortgage Venture at a price derived from an agreed-upon formula based upon fair market value (which is determined with reference to that trailing 12 months earnings before interest, taxes, depreciation and amortization (“EBITDA”)) for the Mortgage Venture and the average market EBITDA multiple for mortgage banking companies.

Upon termination of the Mortgage Venture, all of the Mortgage Venture agreements will terminate automatically (excluding certain privacy, non-competition, venture-related transition provisions and other general provisions), and Realogy will be released from any restrictions under the Mortgage Venture agreements that may restrict its ability to pursue a partnership, joint venture or another arrangement with any third-party mortgage operation.

Chesapeake and D.L. Peterson Trust

The Company’s Fleet Management Services segment provides fleet management services to corporate clients and government agencies. Vehicle acquisitions are primarily financed through the issuance of asset-backed variable funding notes issued by the Company’s wholly owned subsidiary Chesapeake Funding LLC (as previously defined “Chesapeake”). D.L. Peterson Trust (“DLPT”), a bankruptcy remote statutory trust holds the title to all vehicles that collateralize the debt issued by Chesapeake. DLPT also acts as a lessor under both operating and direct financing lease agreements. Chesapeake’s assets primarily consist of a loan made to a wholly owned subsidiary of the Company, Chesapeake Finance Holdings LLC (“Chesapeake Finance”). Chesapeake Finance owns all of the special units of beneficial interest in the leased vehicles and eligible leases and certain other assets issued by DLPT, representing all interests in DLPT.

The Company determined that each of Chesapeake, Chesapeake Finance and DLPT are VIEs due to insufficient equity investment at risk. The Company considered the nature and purpose of each of the entities and how the risk transferred to interest holders through their variable interests. The Company determined on a qualitative basis that it is the primary beneficiary of each of these entities. The Company holds the significant variable interests, which include its equity interests, the asset-backed debt issued by Chesapeake and its interests in DLPT. There are no significant variable interests that would absorb losses prior to the Company or that hold variable interests that exceed those of the Company.

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PHH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The consolidated assets and liabilities of Chesapeake, Chesapeake Finance Holdings LLC and DLPT included in the Company’s Balance Sheets are as follows:

	December 31,
	2009		2008
	(In millions)
ASSETS
Cash and cash equivalents	$	3	$	4
Restricted cash(1)		297		320
Accounts receivable		21		22
Net investment in fleet leases		3,046		3,690
Other assets		22		4
Total assets(2)	$	3,389	$	4,040
LIABILITIES
Accounts payable and accrued expenses		3		13
Debt(3)		2,859		3,371
Total liabilities	$	2,862	$	3,384

(1)	Restricted cash primarily relates to amounts specifically designated to purchase assets, to repay debt and/or to provide over-collateralization related to the Company’s vehicle management asset-backed debt arrangements.
(2)	See Note 11, “Debt and Borrowing Arrangements” for assets held as collateral related to Chesapeake’s borrowing arrangements, which are not available to pay the Company’s general obligations.
(3)	See Note 11, “Debt and Borrowing Arrangements” for additional information regarding the variable funding and term notes issued by Chesapeake.

See Note 23, “Subsequent Events” for a discussion regarding the issuance of vehicle management asset-backed term notes by the Company’s special purpose trust subsequent to December 31, 2009.

20.   Related Party Transactions

Spin-Off from Cendant

Prior to the Spin-Off, the Company entered into various agreements with Cendant and Realogy in connection with the Spin-Off. The Company continues to operate under certain of these agreements, including: (i) the Mortgage Venture Operating Agreement, the related trademark license agreements with PHH Mortgage (the “PHH Mortgage Trademark License Agreement”) and the Mortgage Venture (the “Mortgage Venture Trademark License Agreement”) (collectively, the “Trademark License Agreements”), the Management Services Agreement, the marketing agreement between PHH Mortgage and Coldwell Banker Real Estate Corporation, Century 21 Real Estate LLC, ERA Franchise Systems, Inc. and Sotheby’s International Affiliates, Inc. (the “Marketing Agreement”) and other agreements for the purpose of originating and selling mortgage loans primarily sourced through NRT and Cartus; (ii) a strategic relationship agreement between PHH Mortgage, PHH Home Loans, PHH Broker Partner, Realogy, Realogy Venture Partner and Cendant (the “Strategic Relationship Agreement”) and (iii) the Amended Tax Sharing Agreement governing the allocation of liability for taxes between Cendant and the Company, indemnification for liability for taxes and responsibility for preparing and filing tax returns and defending tax contests, as well as other tax-related matters.

See Note 19, “Variable Interest Entities” for disclosure regarding the potential impacts to the Company in the event of a termination of the Strategic Relationship Agreement and the Mortgage Venture.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Certain Business Relationships

James W. Brinkley, one of the Company’s Directors, was Vice Chairman of Smith Barney’s Global Private Client Group (“SBGPCG”) until May 31, 2009, at which time, Citigroup Inc. (“Citigroup”) and Morgan Stanley created a joint venture entity known as Morgan Stanley Smith Barney Holdings LLC (“MSSB Holdings”) in which Citigroup holds a minority ownership interest and to which Citigroup contributed, among other things, the business of SBGPCG. Since May 31, 2009, Mr. Brinkley has served as Vice Chairman of the Morgan Stanley Smith Barney Global Wealth Management division of MSSB Holdings. The Company has no relationships with MSSB Holdings. The Company has certain relationships with the Corporate and Investment Banking segment of Citigroup. The fees paid to Citigroup, including interest expense, were approximately $20 million, $53 million and $56 million during the years ended December 31, 2009, 2008 and 2007, respectively. During the years ended December 31, 2009 and 2008, the Company paid a net payment of $11 million and $8 million, respectively, for the 2014 Purchased Options and 2014 Sold Warrants and the 2012 Purchased Options and 2012 Sold Warrants, respectively. Citigroup is a lender, along with various other lenders, in several of the Company’s credit facilities and vehicle management asset-backed debt. The Company’s indebtedness to Citigroup was $103 million and $702 million as of December 31, 2009 and 2008, respectively, and was made in the ordinary course of business upon terms, including interest rates and collateral, substantially the same as those prevailing at the time for comparable loans. The Company also executed derivative transactions through Citigroup during the year ended December 31, 2008 with total notional amounts of $6.5 billion. These derivative transactions were entered into in the ordinary course of business through a competitive bid process. In addition, during the year ended December 31, 2007, the Company sold MSRs associated with $19.6 billion of the unpaid principal balance of the underlying mortgage loans to CitiMortgage, Inc., a subsidiary of Citigroup, in the ordinary course of business through an arm’s-length transaction. MSRs sold to Citigroup during the year ended December 31, 2008 were not significant.

21.   Segment Information

The Company conducts its operations through three business segments: Mortgage Production, Mortgage Servicing and Fleet Management Services. Certain income and expenses not allocated to the three reportable segments and intersegment eliminations are reported under the heading Other.

The Company’s management evaluates the operating results of each of its reportable segments based upon Net revenues and segment profit or loss, which is presented as the income or loss before income tax provision or benefit and after net income or loss attributable to noncontrolling interest. The Mortgage Production segment profit or loss excludes Realogy Corporation’s noncontrolling interest in the profit or loss of the Mortgage Venture.

The Company’s segment results were as follows:

	Year Ended December 31, 2009
						Combined		Fleet
	Mortgage		Mortgage			Mortgage		Management
	Production		Servicing			Services		Services
	Segment		Segment			Segments		Segment		Other(1)(2)			Total
	(In millions)
Net revenues	$	880	$	82		$	962	$	1,649	$	(5	)	$	2,606
Segment profit (loss)(3)		306		(85	)		221		54		(15	)		260
Interest income		79		12			91		9		(2	)		98
Interest expense		90		61			151		95		(10	)		236
Depreciation on operating leases		—		—			—		1,267		—			1,267
Other depreciation and amortization		14		1			15		11		—			26
Total assets		1,464		2,269			3,733		4,331		59			8,123

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Year Ended December 31, 2008
							Combined			Fleet
	Mortgage			Mortgage			Mortgage			Management
	Production			Servicing			Services			Services
	Segment			Segment			Segments			Segment		Other(1)(2)			Total
							(In millions)
Net revenues	$	462		$	(276	)	$	186		$	1,827	$	43		$	2,056
Segment (loss) profit (3)(4)		(90	)		(430	)		(520	)		62		42			(416	)
Interest income		92			83			175			16		(2	)		189
Interest expense		99			72			171			169		(7	)		333
Depreciation on operating leases		—			—			—			1,299		—			1,299
Other depreciation and amortization		13			1			14			11		—			25
Total assets		1,228			2,056			3,284			4,956		33			8,273

	Year Ended December 31, 2007
						Combined			Fleet
	Mortgage			Mortgage		Mortgage			Management
	Production			Servicing		Services			Services
	Segment			Segment		Segments			Segment		Other(1)(2)			Total
						(In millions)
Net revenues	$	205		$	176	$	381		$	1,861	$	(2	)	$	2,240
Segment (loss) profit(3)		(226	)		75		(151	)		116		(12	)		(47	)
Interest income		171			182		353			28		(10	)		371
Interest expense		190			85		275			215		(10	)		480
Depreciation on operating leases		—			—		—			1,264		—			1,264
Other depreciation and amortization		15			2		17			12		—			29
Total assets		1,840			2,498		4,338			5,023		(4	)		9,357

(1)	Amounts included under the heading Other represent intersegment eliminations and amounts not allocated to the Company’s reportable segments.
(2)	Segment loss of $15 million reported under the heading Other for the year ended December 31, 2009 represents expenses not allocated to the Company’s reportable segments, approximately $3 million of which represents severance for the Company’s former chief executive officer. Segment profit of $42 million and segment loss of $12 million reported under the heading Other for the years ended December 31, 2008 and 2007, respectively, represent income and expenses related to a terminated agreement with General Electric Capital Corporation. On January 2, 2008, the Company entered into a settlement agreement with the respective parties and received a reverse termination fee of $50 million, which is included in Other income in the Statement of Operations for the year ended December 31, 2008, partially offset by $4.5 million for the reimbursement of certain fees for third-party consulting services.
(3)	The following is a reconciliation of Income (loss) before income taxes to segment profit (loss):

	Year Ended December 31,
	2009		2008			2007
	(In millions)
Income (loss) before income taxes	$	280	$	(443	)	$	(45	)
Less: net income (loss) attributable to noncontrolling interest		20		(27	)		2
Segment profit (loss)	$	260	$	(416	)	$	(47	)

⁽⁴⁾ During the year ended December 31, 2008, the Company recorded a non-cash Goodwill impairment of $61 million related to the PHH Home Loans reporting unit, which is included in the Mortgage Production segment. Net loss attributable to

153

PHH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

noncontrolling interest for the year ended December 31, 2008 was impacted by $30 million as a result of the Goodwill impairment. Segment loss for the year ended December 31, 2008 was impacted by $31 million as a result of the Goodwill impairment.

The Company’s operations are substantially located in the U.S.

22.   Selected Quarterly Financial Data — (unaudited)

Provided below is selected unaudited quarterly financial data for 2009 and 2008.

	Quarter Ended
	March 31,		June 30,		September 30,			December 31,
	2009		2009		2009			2009
	(In millions, except per share data)
Net revenues	$	587	$	768	$	507		$	744
Income (loss) before income taxes		5		186		(80	)		169
Net income (loss)		5		111		(48	)		105
Net income (loss) attributable to PHH Corporation		2		106		(52	)		97
Basic earnings (loss) per share attributable to PHH Corporation	$	0.04	$	1.93	$	(0.94	)	$	1.76
Diluted earnings (loss) per share attributable to PHH Corporation		0.04		1.91		(0.94	)		1.74

	Quarter Ended
	March 31,		June 30,		September 30,			December 31,
	2008		2008		2008			2008
	(In millions, except per share data)
Net revenues	$	642	$	663	$	533		$	218
Income (loss) before income taxes		44		32		(141	)		(378	)
Net income (loss)		34		15		(113	)		(217	)
Net income (loss) attributable to PHH Corporation		30		16		(84	)		(216	)
Basic earnings (loss) per share attributable to PHH Corporation	$	0.55	$	0.31	$	(1.56	)	$	(3.98	)
Diluted earnings (loss) per share attributable to PHH Corporation		0.55		0.30		(1.56	)		(3.98	)

23.   Subsequent Events

On January 27, 2010, Fleet Leasing Receivables Trust (“FLRT”) issued approximately $119 million of senior Class A-1 term asset-backed notes which was comprised of two subclasses of senior term asset backed notes (the “Series 2010-1 Class A-1 Notes”) and approximately $224 million of senior Class A-2 term asset-backed notes under Series 2010-1 which was comprised of two subclasses of senior term asset backed notes (the “Series 2010-1 Class A-2 Notes” and together with the Series 2010-1 Class A-1 Notes, collectively the “Series 2010-1 Class A Notes”) to finance a fixed pool of eligible lease assets in Canada. Three of the four subclasses of Series 2010-1 Class A Notes were denominated in Canadian dollars with the remaining subclass of Series 2010-1 Class A Notes denominated in U.S. dollars. The Series 2010-1 Class A-1 notes and Class A-2 notes are amortizing notes and have maturity dates of February 15, 2011 and November 15, 2013, respectively. The Series 2010-1 Class A Notes are collateralized by approximately $377 million of leased vehicles and related assets, which are not available to pay our general obligations. The lease cash flows related to the underlying collateralized leases will be used to repay the principal outstanding under the Series 2010-1 Class A Notes. FLRT is a Canadian special purpose trust and its primary business activities include the acquisition, disposition and administration of purchased or acquired lease assets from our other Canadian subsidiaries and the borrowing of funds or the issuance of securities to finance such acquisitions.

154

PHH CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY FINANCIAL DATA
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT

PHH CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(In millions)

	Year Ended December 31,
	2009			2008			2007
Revenues:
Net revenues from consolidated subsidiaries	$	52		$	61		$	119
Other income		—			50			—
Net revenues		52			111			119
Expenses:
Salaries and related expenses		22			12			10
Interest expense		79			83			145
Interest income		—			—			(4	)
Other operating expenses		20			23			35
Total expenses		121			118			186
Loss before income taxes and equity in earnings of subsidiaries		(69	)		(7	)		(67	)
Benefit from income taxes		(26	)		(3	)		(26	)
Loss before equity in earnings of subsidiaries		(43	)		(4	)		(41	)
Equity in earnings (loss) of subsidiaries		196			(250	)		29
Net income (loss)	$	153		$	(254	)	$	(12	)

See Notes to Condensed Financial Statements.

155

PHH CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY FINANCIAL DATA
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT

PHH CORPORATION
CONDENSED BALANCE SHEETS
(In millions)

	December 31,
	2009		2008
ASSETS
Cash and cash equivalents	$	2	$	2
Due from consolidated subsidiaries		833		887
Investment in consolidated subsidiaries		2,571		2,351
Other assets		204		177
Total assets	$	3,610	$	3,417
LIABILITIES AND EQUITY
Debt	$	1,200	$	1,606
Due to consolidated subsidiaries		784		498
Other liabilities		134		47
Total liabilities		2,118		2,151
Commitments and contingencies		—		—
EQUITY
Preferred stock		—		—
Common stock		1		1
Additional paid-in capital		1,056		1,005
Retained earnings		416		263
Accumulated other comprehensive income (loss)		19		(3	)
Total PHH Corporation stockholders’ equity		1,492		1,266
Total liabilities and equity	$	3,610	$	3,417

See Notes to Condensed Financial Statements.

156

PHH CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY FINANCIAL DATA
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT

PHH CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(In millions)

	Year Ended December 31,
	2009			2008			2007
Net cash provided by (used in) operating activities	$	48		$	2		$	(18	)
Cash flows from investing activities:
Investment in consolidated subsidiaries		—			(2	)		(31	)
Dividends from consolidated subsidiaries		19			2			23
Net cash provided by (used in) investing activities		19			—			(8	)
Cash flows from financing activities:
Net cash provided by (used in) consolidated subsidiaries		315			(81	)		601
Net decrease in short-term borrowings		—			(133	)		(304	)
Proceeds from borrowings		2,762			3,505			1,512
Principal payments on borrowings		(3,118	)		(3,262	)		(1,794	)
Proceeds from the sale of Sold Warrants (See Note 1)		35			24			—
Cash paid for Purchased Options		(66	)		(51	)		—
Cash paid for debt issuance costs		(1	)		(9	)		(2	)
Issuances of Company Common stock		4			—			6
Other, net		2			—			3
Net cash (used in) provided by financing activities		(67	)		(7	)		22
Net decrease in Cash and cash equivalents		—			(5	)		(4	)
Cash and cash equivalents at beginning of period		2			7			11
Cash and cash equivalents at end of period	$	2		$	2		$	7

See Notes to Condensed Financial Statements.

157

PHH CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY FINANCIAL DATA
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT

PHH CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS

1.   Debt and Borrowing Arrangements

The following tables summarize the components of the Company’s unsecured indebtedness:

	December 31, 2009
								Maturity/
					Interest			Expiry
	Balance		Capacity(1)		Rate(2)			Date
			(Dollars in millions)
Term Notes(3)	$	439	$	439		6.5%- 7.9%(4	)		4/2010- 4/2018
Credit Facilities(5)		360		1,225		1.0%(6	)		1/6/2011
Convertible Notes(7)		401		401		4.0%			4/2012- 9/2014
Total Debt	$	1,200	$	2,065

	December 31, 2008
								Maturity/
					Interest			Expiry
	Balance		Capacity(1)		Rate(2)			Date
			(Dollars in millions)
Term Notes(3)	$	441	$	441		6.5%- 7.9%(4	)		4/2010- 4/2018
Credit Facilities(5)		957		1,223		1.3%(6	)		1/6/2011
Convertible Notes(7)		208		208		4.0%			4/15/2012
Total Debt	$	1,606	$	1,872

⁽¹⁾ Capacity is dependent upon maintaining compliance with, or obtaining waivers of, the terms, conditions and covenants of the respective agreements.

(2)	Interest rate as of December 31, 2009 and 2008 represents the stated interest rates of the Company’s term notes outstanding as of that date, the variable rate of the credit facilities, the stated interest rate of the Convertible Notes (as defined below) and the weighted-average interest rate on the Company’s outstanding unsecured commercial paper.
(3)	Represents medium-term notes (the “MTNs”) publicly issued under the indenture, dated as of November 6, 2000 (as amended and supplemented, the “MTN Indenture”) by and between PHH and The Bank of New York, as successor trustee for Bank One Trust Company, N.A. During the year ended December 31, 2008, MTNs with a carrying value of $200 million were repaid upon maturity.
(4)	The effective rate of interest of the Company’s outstanding MTNs was 7.2% as of both December 31, 2009 and 2008.
(5)	Credit facilities primarily represents a $1.3 billion Amended and Restated Competitive Advance and Revolving Credit Agreement (the “Amended Credit Facility”), dated as of January 6, 2006, among PHH, a group of lenders and JPMorgan Chase Bank, N.A., as administrative agent.
(6)	Represents the interest rate on the Amended Credit Facility as of December 31, 2009 and 2008 excluding per annum utilization and facility fees. See “— Unsecured Debt — Credit Facilities” below for additional information.
(7)	On April 2, 2008, the Company completed a private offering of the 4.0% Convertible Notes due 2012 (the “2012 Convertible Notes”) with an aggregate principal amount of $250 million and a maturity date of April 15, 2012 to certain qualified institutional buyers. The effective rate of interest of the 2012 Convertible Notes was 12.4% as of December 31, 2009. On September 29, 2009, the Company completed a private offering of the 4.0% Convertible Senior Notes due 2014 (the “2014 Convertible Notes”) with an aggregate principal balance of $250 million and a maturity date of September 1, 2014 to certain qualified institutional buyers. The effective rate of interest of the 2014 Convertible Notes was 13.0% as of December 31, 2009.

158

PHH CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY FINANCIAL DATA
SCHEDULE I — CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF REGISTRANT

PHH CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS — (Continued)

Unsecured Debt

Credit Facilities

Pricing under the Amended Credit Facility is based upon the Company’s senior unsecured long-term debt ratings. If the ratings on the Company’s senior unsecured long-term debt assigned by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings are not equivalent to each other, the second highest credit rating assigned by them determines pricing under the Amended Credit Facility. On February 11, 2009, Standard & Poor’s downgraded its rating of the Company’s senior unsecured long-term debt from BBB- to BB+, and Fitch Ratings’ rating of the Company’s senior unsecured long-term debt was lowered to BB+ on February 26, 2009. In addition, on March 2, 2009, Moody’s Investors Service downgraded its rating of the Company’s senior unsecured long-term debt from Ba1 to Ba2. As of December 31, 2009 and 2008, borrowings under the Amended Credit Facility bore interest at a margin of 70.0 basis points (“bps”) and 47.5 bps, respectively, over a benchmark index of either the London Interbank Offered Rate (“LIBOR”) or the federal funds rate (the “Benchmark Rate”). The Amended Credit Facility also requires the Company to pay utilization fees if its usage exceeds 50% of the aggregate commitments under the Amended Credit Facility and per annum facility fees. As of both December 31, 2009 and 2008, the per annum utilization fees were 12.5 bps. As of December 31, 2009 and 2008, the facility fees were 17.5 bps and 12.5 bps, respectively.

Convertible Notes

The 2014 Convertible Notes and the 2012 Convertible Notes (collectively, the “Convertible Notes”) are senior unsecured obligations of the Company, which rank equally with all of its existing and future senior debt. The 2014 Convertible Notes are governed by an indenture (the “2014 Convertible Notes Indenture”), dated September 29, 2009, between the Company and The Bank of New York Mellon, as trustee. The 2012 Convertible Notes are governed by an indenture (the “2012 Convertible Notes Indenture”), dated April 2, 2008, between the Company and The Bank of New York Mellon, as trustee.

Under the 2014 Convertible Notes Indenture and the 2012 Convertible Notes Indenture (collectively, the “Convertible Notes Indentures”), holders may convert (the “2014 Conversion Option” and the “2012 Conversion Option,” respectively) all or any portion of the 2014 Convertible Notes and the 2012 Convertible Notes at any time from, and including, March 1, 2014 and October 15, 2011, respectively, through the third business day immediately preceding their maturity on September 1, 2014 and April 15, 2012, respectively, or prior to March 1, 2014 and October 15, 2011, respectively, in the event of the occurrence of certain triggering events related to the price of the Convertible Notes, the price of the Company’s Common stock or certain corporate events. Upon conversion, the Company will deliver the principal portion in cash and, if the conversion price calculated for each business day over a period of 60 consecutive business days exceeds the principal amount (the “Conversion Premium”), shares of its Common stock or cash for the Conversion Premium, but currently only in cash for the 2014 Convertible Notes, as further discussed below. Subject to certain exceptions, the holders of the Convertible Notes may require the Company to repurchase all or a portion of their Convertible Notes upon a fundamental change, as defined under the Convertible Notes Indentures. The Company will generally be required to increase the conversion rate for holders that elect to convert their Convertible Notes in connection with a make-whole fundamental change. In addition, the conversion rate may be adjusted upon the occurrence of certain events. The Company may not redeem the 2014 Convertible Notes or the 2012 Convertible Notes prior to their maturity on September 1, 2014 and April 15, 2012, respectively.

In connection with the issuance of the 2014 Convertible Notes and the 2012 Convertible Notes, the Company entered into convertible note hedging transactions with respect to the Conversion Premium (the “2014 Purchased Options” and the “2012 Purchased Options,” respectively) and warrant transactions whereby the Company sold

159

PHH CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY FINANCIAL DATA
SCHEDULE I — CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF REGISTRANT

PHH CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS — (Continued)

warrants to acquire, subject to certain anti-dilution adjustments, shares of its Common stock (the “2014 Sold Warrants” and the “2012 Sold Warrants,” respectively). The 2014 Purchased Options and 2014 Sold Warrants are intended to reduce the potential dilution of the Company’s Common stock upon potential future conversion of the 2014 Convertible Notes and generally have the effect of increasing the conversion price of the 2014 Convertible Notes from $25.805 (based on the initial conversion rate of 38.7522 shares of the Company’s Common stock per $1,000 principal amount of the 2014 Convertible Notes) to $34.74 per share. The 2012 Purchased Options and 2012 Sold Warrants are intended to reduce the potential dilution to the Company’s Common stock upon potential future conversion of the 2012 Convertible Notes and generally have the effect of increasing the conversion price of the 2012 Convertible Notes from $20.50 (based on the initial conversion rate of 48.7805 shares of the Company’s Common stock per $1,000 principal amount of the 2012 Convertible Notes) to $27.20 per share.

The 2014 Convertible Notes and 2012 Convertible Notes bear interest at 4.0% per year, payable semiannually in arrears in cash on March 1^st and September 1st and April 15th and October 15^th, respectively. In connection with the issuance of the 2014 Convertible Notes and 2012 Convertible Notes, the Company recognized an original issue discount and issuance costs of $74 million and $60 million, respectively, which are being accreted to Mortgage interest expense in the Condensed Statements of Operations through March 1, 2014 and October 15, 2011, respectively, or the earliest conversion date of the 2014 Convertible Notes and 2012 Convertible Notes.

The New York Stock Exchange regulations require stockholder approval prior to the issuance of shares of common stock or securities convertible into common stock that will, or will upon issuance, equal or exceed 20% of outstanding shares of common stock. Unless and until stockholder approval to exceed this limitation is obtained, the Company will settle conversion of the 2014 Convertible Notes entirely in cash. Based on these settlement terms, the Company determined that at the time of issuance of the 2014 Convertible Notes, the 2014 Conversion Option and 2014 Purchased Options did not meet all the criteria for equity classification and, therefore, recognized the Conversion Option and Purchased Options as a derivative liability and derivative assets, respectively, with the offsetting changes in their fair value recognized in Mortgage interest expense in the Condensed Financial Statements. As of December 31, 2009 and 2008, the Company determined that the 2014 Sold Warrants, 2012 Sold Warrants, 2012 Conversion Option and 2012 Purchased Options are all indexed to its own stock and met all the criteria for equity classification. As such, these derivative instruments are recorded within Additional paid-in capital in the Condensed Financial Statements and have no impact on the Company’s Condensed Statements of Operations.

Debt Maturities

The following table provides the contractual maturities of the Company’s indebtedness at December 31, 2009:

	Unsecured
	Debt
	(In millions)
Within one year	$	5
Between one and two years		360
Between two and three years		250
Between three and four years		420
Between four and five years		250
Thereafter		8
	$	1,293

160

PHH CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY FINANCIAL DATA
SCHEDULE I — CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF REGISTRANT

PHH CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS — (Continued)

As of December 31, 2009, available funding under the Company’s unsecured committed credit facilities consisted of:

			Utilized		Available
	Capacity(1)		Capacity		Capacity
			(In millions)
Unsecured committed credit facilities(2)	$	1,225	$	374	$	851

⁽¹⁾ Capacity is dependent upon maintaining compliance with, or obtaining waivers of, the terms, conditions and covenants of the respective agreements.

⁽²⁾ Utilized capacity includes $14 million of letters of credit issued under the Amended Credit Facility. This excludes capacity of the Amended Credit Facility’s Canadian sub-facility.

Debt Covenants

Certain of the Company’s debt arrangements require the maintenance of certain financial ratios and contain restrictive covenants, including, but not limited to, material adverse change, liquidity maintenance, restrictions on indebtedness of material subsidiaries, mergers, liens, liquidations and sale and leaseback transactions. The Amended Credit Facility requires that the Company maintain: (i) on the last day of each fiscal quarter, net worth of $1.0 billion plus 25% of net income, if positive, for each fiscal quarter ended after December 31, 2004 and (ii) at any time, a ratio of indebtedness to tangible net worth no greater than 10:1. The MTN Indenture requires that the Company maintain a debt to tangible equity ratio of not more than 10:1. The MTN Indenture also restricts the Company from paying dividends if, after giving effect to the dividend payment, the debt to equity ratio exceeds 6.5:1. At December 31, 2009, the Company was in compliance with all of its financial covenants related to its debt arrangements.

Under certain of the Company’s financing, servicing, hedging and related agreements and instruments (collectively, the “Financing Agreements”), the lenders or trustees have the right to notify the Company if they believe it has breached a covenant under the operative documents and may declare an event of default. If one or more notices of default were to be given, the Company believes it would have various periods in which to cure certain of such events of default. If it does not cure the events of default or obtain necessary waivers within the required time periods, the maturity of some of its debt could be accelerated and its ability to incur additional indebtedness could be restricted. In addition, events of default or acceleration under certain of the Company’s Financing Agreements would trigger cross-default provisions under certain of its other Financing Agreements.

2.   Guarantees and Indemnifications

PHH Corporation provides guarantees to third parties on behalf of its consolidated subsidiaries. These include guarantees of payments under derivative contracts that are used to manage interest rate risk, rent payments to landlords under operating lease agreements, payments of principal under certain borrowing arrangements and guarantees of performance under certain service arrangements.

161

PHH CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY FINANCIAL DATA
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

PHH CORPORATION AND SUBSIDIARIES
(In millions)

			Additions
	Balance at		Charged to			Charged						Balance at
	Beginning		Costs and			to Other						End of
Description	of Period		Expenses			Accounts			Deductions			Period
Year Ended December 31, 2009:
Deferred tax asset valuation allowance	$	74	$	2		$	—		$	(6	)	$	70
Year Ended December 31, 2008:
Deferred tax asset valuation allowance		69		5			—			—			74
Year Ended December 31, 2007:
Deferred tax asset valuation allowance		63		(20	)		26	(1)		—			69

⁽¹⁾ As a result of the implementation of updates to Accounting Standards Codification 740 “Income Taxes,” the Company recorded a $26 million increase to its deferred income tax assets and a $26 million increase to its valuation allowance against those deferred income tax assets.

PHH CORPORATION
(In millions)

			Additions
	Balance at		Charged to		Charged				Balance at
	Beginning		Costs and		to Other				End of
Description	of Period		Expenses		Accounts		Deductions		Period
Year Ended December 31, 2009:
Deferred tax asset valuation allowance	$	6	$	2	$	—	$	—	$	8
Year Ended December 31, 2008:
Deferred tax asset valuation allowance		6		—		—		—		6
Year Ended December 31, 2007:
Deferred tax asset valuation allowance		6		—		—		—		6

162

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.   Controls and Procedures

Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report on Form 10-K for the year ended December 31, 2009 (the “Form 10-K”), management performed, with the participation of our Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Based on that evaluation, management concluded that our disclosure controls and procedures were effective as of December 31, 2009.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”). The effectiveness of any system of internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating and evaluating our internal control over financial reporting. Because of these inherent limitations, internal control over financial reporting cannot provide absolute assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that our internal control over financial reporting may become inadequate because of changes in conditions or other factors, or that the degree of compliance with the policies or procedures may deteriorate.

Management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2009 as required under Section 404 of the Sarbanes-Oxley Act of 2002. Management’s assessment of the effectiveness of our internal control over financial reporting was conducted using the criteria in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management concluded that our internal control over financial reporting was effective as of December 31, 2009. The effectiveness of our internal control over financial reporting as of December 31, 2009 has been audited by Deloitte & Touche LLP, our independent registered public accounting firm, as stated in their attestation report which is included in this Form 10-K.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

163

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of PHH Corporation:

We have audited the internal control over financial reporting of PHH Corporation and subsidiaries (the “Company”) as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2009 of the Company and our report dated March 1, 2010 expressed an unqualified opinion on those financial statements and financial statement schedules and included an explanatory paragraph regarding the change in the Company’s method for accounting for certain financial assets and liabilities measured at fair value on January 1, 2008.

/s/ Deloitte & Touche LLP

Philadelphia, PA

March 1, 2010

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Item 9B.   Other Information

None.

PART III

Item 10.   Directors, Executive Officers and Corporate Governance

Information required by this Item and not otherwise set forth below is incorporated herein by reference to the information under the headings “Board of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance” and “Committees of the Board” in the Company’s definitive Proxy Statement related to the Company’s 2010 Annual Meeting of Stockholders, which the Company expects to file with the Commission, pursuant to Regulation 14A, no later than 120 days after December 31, 2009 (the “2010 Proxy Statement”).

Executive Officers

Our executive officers as of March 1, 2010 are set forth in the table below. All executive officers are appointed by and serve at the pleasure of the Board of Directors.

Name	Age		Position(s)
Jerome J. Selitto		68		President and Chief Executive Officer
Sandra E. Bell		52		Executive Vice President and Chief Financial Officer
Mark R. Danahy		50		Executive Vice President, Mortgage
George J. Kilroy		62		Executive Vice President, Fleet
Adele T. Barbato		61		Senior Vice President and Chief Human Resources Officer
Jeff S. Bell		39		Senior Vice President and Chief Information Officer
William F. Brown		52		Senior Vice President, General Counsel and Secretary
Mark E. Johnson		50		Senior Vice President and Treasurer
Jonathan T. McGrain		46		Senior Vice President, Corporate Communications
Milton S. Prime		47		Senior Vice President
Michael D. Orner		42		Vice President and Controller

Jerome J. Selitto serves as our President and Chief Executive Officer, a position he has held since October 2009. From 2000 to October 2009, Mr. Selitto worked at Ellie Mae as a senior consultant and as a member of the senior management team. In 2000, Mr. Selitto founded DeepGreen Financial, an innovative web-based federal savings bank and mortgage company that grew to become one of the nation’s most successful online home equity lenders. From 1992 to 1999, he served as founder and Vice Chairman of Amerin Guaranty Corporation (now Radian Guaranty), a mortgage insurance company. Mr. Selitto previously served as a Managing Director at First Chicago Corporation and PaineWebber Inc., and as a senior executive at Kidder, Peabody & Co., William R. Hough & Company, and the Florida Federal Savings and Loan Association.

Sandra E. Bell serves as our Executive Vice President and Chief Financial Officer, a position she has held since October 2008. From the end of 2006 to October 2008, Ms. Bell was the Managing Partner of Taurus Advisors, LLC, a strategic financial advisory firm involved in advising clients on investments in the financial sector. From 2004 to 2006, Ms. Bell served as Executive Vice President and Chief Financial Officer of the Federal Home Loan Bank of Cincinnati where she managed the development, profitability and risk of its core business lines and led the strategic financial management and reporting functions. Ms. Bell also served as Managing Director at Deutsche Bank Securities from 1991 to 2004.

Mark R. Danahy serves as our Executive Vice President, Mortgage and as President and Chief Executive Officer of PHH Mortgage, a position he has held since December 2008. From April 2001 to December 2008, Mr. Danahy served as Senior Vice President and Chief Financial Officer of PHH Mortgage, during which time he

165

was responsible for directing the mortgage accounting and financial planning teams, which include financial reporting, asset valuation and capital markets accounting, planning and forecasting. Mr. Danahy joined Cendant Mortgage in December 2000 as Controller. From 1999 to 2000, Mr. Danahy served as Senior Vice President, Capital Market Operations for GE Capital Market Services, Inc.

George J. Kilroy serves as our Executive Vice President, Fleet and as President and Chief Executive Officer of PHH Arval, a position he has held since March 2001. Mr. Kilroy is responsible for the management of PHH Arval. From June 2009 to October 2009, Mr. Kilroy also served as our Acting Chief Executive Officer and President. From May 1997 to March 2001, Mr. Kilroy served as Senior Vice President, Business Development and was responsible for new client sales, client relations and marketing for PHH Arval’s United States operations. Mr. Kilroy joined PHH Arval in 1976 as an Account Executive in the Truck and Equipment Division and has held positions of increasing responsibility, including head of Diversified Services and Financial Services.

Adele T. Barbato serves as our Senior Vice President and Chief Human Resources Officer, responsible for driving business growth and shareholder value through an effective human capital strategy across the Company. Ms. Barbato is accountable for human resources strategy, change management, staffing, talent management including learning and development, compensation and benefits, employee relations, human resources information systems and payroll. Ms. Barbato has global expertise in transformational leadership aligning talent with the business strategy across several industries including technology and services, clinical health information management and higher education. Prior to joining PHH in 2010, Ms. Barbato was the first senior vice president, human resources of Drexel University and established a strategic and business oriented HR function. Ms. Barbato previously held senior management roles with MedQuist, Inc., Unisys Corporation and Sperry Corporation.

Jeff S. Bell serves as Senior Vice President and Chief Information Officer, responsible for developing and executing operational strategies to promote organizational growth and optimal utilization of emerging technologies across the Company. Before joining PHH in 2010, Mr. Bell had more than 15 years of technology experience including large scale acquisition integrations, one of which was the seamless transition of combining the former Countrywide and Bank of America’s technology platforms. Prior to the acquisition, Mr. Bell was the executive vice president of eCommerce within Countrywide’s Consumer Markets Division and was responsible for web properties, platforms, and systems for consumer direct channel, joint ventures; including private labeled and cobranded properties with several national builders, realtors, and brokerage houses. He also managed over 2,000 wholesale websites for individual brokers originating Countrywide products. Mr. Bell previously held senior management roles with AndersonBell Partners, Kaleidico, LLC and DeepGreen Bank.

William F. Brown serves as our Senior Vice President, General Counsel and Secretary, a position he has held since February 2005. Mr. Brown has served as Senior Vice President and General Counsel of Cendant Mortgage since June 1999 and oversees its legal, contract, licensing and regulatory compliance functions. From June 1997 to June 1999, Mr. Brown served as Vice President and General Counsel of Cendant Mortgage. From January 1995 to June 1997, Mr. Brown served as Counsel in the PHH Corporate Legal Department.

Mark E. Johnson serves as our Senior Vice President and Treasurer, a position he has held since December 2008. Mr. Johnson served as Vice President and Treasurer from February 2005 to December 2008. Prior to the Spin-Off, Mr. Johnson served as Vice President, Secondary Marketing of Cendant Mortgage since May 2003 and was responsible for various funding initiatives and financial management of certain subsidiary operations. From May 1997 to May 2003, Mr. Johnson served as Assistant Treasurer of Cendant, where he had a range of responsibilities, including banking and rating agency relations and management of unsecured funding and securitization.

Jonathan T. McGrain serves as our Senior Vice President, Corporate Communications, a position he has held since January 2010. Mr. McGrain is responsible for all internal and external communications, media and investor relations, company branding and marketing and communication strategies. Prior to joining us, Mr. McGrain served as a consultant to financial services clients in Asia and the United States, where he developed the brand identity of the first private mortgage insurance company to be launched since the start of the financial crisis. He previously held senior management roles with VinaCapital Investment Management Ltd., Clayton Holdings, Inc. and Radian Group Inc.

166

Milton S. Prime serves as our Senior Vice President, a position he has held since December 2009. From April 2006 to December 2009, Mr. Prime served as Vice President of Internal Audit, during which time he was responsible for directing the internal audit activities of PHH Corporation. From February 2005 to April 2006, Mr. Prime served as Vice President of Internal Audit for PHH Mortgage Corporation. Prior to joining us, Mr. Prime served as Vice President of Financial Control for Mizuho Corporate Bank, USA, where he was employed from August 1996 to June 2004.

Michael D. Orner serves as our Vice President and Controller, a position he has held since March 2005. Prior to joining us, Mr. Orner was employed by Millennium Chemicals, Inc. as Corporate Controller from January 2003 through March 2005 and Director of Accounting and Financial Reporting from December 1999 through December 2002. Prior to joining Millennium Chemicals, Inc., Mr. Orner served as a Senior Manager, Audit and Business Advisory Services for PricewaterhouseCoopers LLP, where he was employed from September 1989 through November 1999.

Item 11.   Executive Compensation

Information required under this Item is incorporated herein by reference to the information under the headings “Executive Compensation,” “Director Compensation” and “Compensation Committee Report” in the Company’s 2010 Proxy Statement.

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information required under this Item is incorporated herein by reference to the information under the headings “Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and Management” in the Company’s 2010 Proxy Statement.

Item 13.   Certain Relationships and Related Transactions, and Director Independence

Information required under this Item is incorporated herein by reference to the information under the headings “Certain Relationships and Related Transactions” and “Board of Directors — Independence of the Board of Directors” in the Company’s 2010 Proxy Statement.

Item 14.   Principal Accounting Fees and Services

Information required under this Item is incorporated herein by reference to the information under the heading “Principal Accountant Fees and Services” in the Company’s 2010 Proxy Statement.

PART IV

Item 15.   Exhibits and Financial Statement Schedules

(a)(1). Financial Statements

Information in response to this Item is included in Item 8 of Part II of this Form 10-K.

(a)(2). Financial Statement Schedules

Information in response to this Item is included in Item 8 of Part II of this Form 10-K and incorporated herein by reference to Exhibit 12 attached to this Form 10-K.

(a)(3) and (b). Exhibits

Information in response to this Item is incorporated herein by reference to the Exhibit Index to this Form 10-K.

167

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on this 1st day of March, 2010.

PHH CORPORATION

By:  /s/  JEROME J. SELITTO

Name:     Jerome J. Selitto

Title:  President and Chief Executive Officer

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. The undersigned hereby constitute and appoint Jerome J. Selitto, Sandra E. Bell and William F. Brown, and each of them, their true and lawful agents and attorneys-in-fact with full power and authority in said agents and attorneys-in-fact, and in any one or more of them, to sign for the undersigned and in their respective names as Directors and officers of PHH Corporation, any amendment or supplement hereto. The undersigned hereby confirm all acts taken by such agents and attorneys-in-fact, or any one or more of them, as herein authorized.

Signature	Title	Date
/s/  JEROME J. SELITTO Jerome J. Selitto	President, Chief Executive Officer and Director (Principal Executive Officer)	March 1, 2010
/s/  SANDRA E. BELL Sandra E. Bell	Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	March 1, 2010
/s/  JAMES O. EGAN James O. Egan	Non-Executive Chairman of the Board of Directors	March 1, 2010
/s/  JAMES W. BRINKLEY James W. Brinkley	Director	March 1, 2010
/s/  GEORGE J. KILROY George J. Kilroy	Director	March 1, 2010
/s/  ANN D. LOGAN Ann D. Logan	Director	March 1, 2010
/s/  CARROLL R. WETZEL, JR. Carroll R. Wetzel, Jr.	Director	March 1, 2010
/s/  ALLAN Z. LOREN Allan Z. Loren	Director	March 1, 2010
/s/  GREGORY J. PARSEGHIAN Gregory J. Parseghian	Director	March 1, 2010

168

EXHIBIT INDEX

Exhibit
No.			Description	Incorporation by Reference
	2	.1*	Agreement and Plan of Merger dated as of March 15, 2007 by and among General Electric Capital Corporation, a Delaware corporation, Jade Merger Sub, Inc., a Maryland corporation, and PHH Corporation, a Maryland corporation.	Incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on March 15, 2007.
	3	.1	Amended and Restated Articles of Incorporation.	Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on February 1, 2005.
	3	.2	Articles Supplementary.	Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on March 27, 2008.
	3	.3	Articles of Amendment to the Charter of PHH Corporation effective as of June 12, 2009.	Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on June 16, 2009.
	3	.4	Amended and Restated By-Laws.	Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on April 2, 2009.
	4	.1	Specimen common stock certificate.	Incorporated by reference to Exhibit 4.1 to our Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 15, 2005.
	4	.2	See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions of the Amended and Restated Articles of Incorporation, as amended, and Amended and Restated By-laws of the registrant defining the rights of holders of common stock of the registrant.	Incorporated by reference to Exhibit 3.1 to our Current Reports on Form 8-K filed on February 1, 2005, March 27, 2008, June 16, 2009 and April 2, 2009, respectively.
	4	.3	Rights Agreement, dated as of January 28, 2005, by and between PHH Corporation and The Bank of New York Mellon (formerly known as The Bank of New York).	Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on February 1, 2005.
	4	.4	Indenture dated as of November 6, 2000 between PHH Corporation and The Bank of New York Mellon (formerly known as The Bank of New York, as successor in interest to Bank One Trust Company, N.A.), as Trustee.	Incorporated by reference to Exhibit 4.3 to our Annual Report on Form 10-K for the year ended December 31, 2005 filed on November 22, 2006.
	4	.4.1	Supplemental Indenture No. 1 dated as of November 6, 2000 between PHH Corporation and The Bank of New York Mellon (formerly known as The Bank of New York, as successor in interest to Bank One Trust Company, N.A.), as Trustee.	Incorporated by reference to Exhibit 4.4 to our Annual Report on Form 10-K for the year ended December 31, 2005 filed on November 22, 2006.
	4	.4.2	Supplemental Indenture No. 2 dated as of January 30, 2001 between PHH Corporation and The Bank of New York Mellon (formerly known as The Bank of New York, as successor in interest to Bank One Trust Company, N.A.), as Trustee.	Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on February 8, 2001.
	4	.4.3	Supplemental Indenture No. 3 dated as of May 30, 2002 between PHH Corporation and The Bank of New York Mellon (formerly known as The Bank of New York, as successor in interest to Bank One Trust Company, N.A.), as Trustee.	Incorporated by reference to Exhibit 4.5 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007 filed on August 8, 2007.

169

Exhibit
No.			Description	Incorporation by Reference
	4	.4.4	Supplemental Indenture No. 4 dated as of August 31, 2006 between PHH Corporation and The Bank of New York Mellon (formerly known as The Bank of New York, as successor in interest to Bank One Trust Company, N.A.), as Trustee.	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on September 1, 2006.
	4	.4.5	Form of PHH Corporation Internotes.	Incorporated by reference to Exhibit 4.6 to our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008 filed on May 9, 2008.
	4	.4.6	Form of 7.125% Note due 2013.	Incorporated by reference to Exhibit 4.5 to our Current Report on Form 8-K filed on February 24, 2003.
	4	.5‡‡	Amended and Restated Base Indenture dated as of December 17, 2008 among Chesapeake Finance Holdings LLC, as Issuer, and JP Morgan Chase Bank, N.A., as Indenture Trustee.	Incorporated by reference to Exhibit 10.76 to our Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 2, 2009.
	4	.5.1	Series 2006-1 Indenture Supplement, dated as of March 7, 2006, among Chesapeake Funding LLC (now known as Chesapeake Finance Holdings LLC), as Issuer, PHH Vehicle Management Services, LLC, as Administrator, JPMorgan Chase Bank, N.A., as Administrative Agent, Certain CP Conduit Purchasers, Certain APA Banks, Certain Funding Agents, and JPMorgan Chase Bank, N.A., as Indenture Trustee.	Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on March 13, 2006.
	4	.5.2	Series 2006-2 Indenture Supplement, dated as of March 7, 2006, among Chesapeake Funding LLC (now known as Chesapeake Finance Holdings LLC), as Issuer, PHH Vehicle Management Services, LLC, as Administrator, JPMorgan Chase Bank, N.A., as Administrative Agent, Certain CP Conduit Purchasers, Certain APA Banks, Certain Funding Agents, and JPMorgan Chase Bank, N.A., as Indenture Trustee.	Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on March 13, 2006.
	4	.5.3	Amended and Restated Series 2006-2 Indenture Supplement, dated as of December 1, 2006, among Chesapeake Funding LLC, as Issuer, PHH Vehicle Management Services, LLC, as Administrator, JPMorgan Chase Bank, N.A., as Administrative Agent, Certain CP Conduit Purchasers, Certain APA Banks, Certain Funding Agents as set forth therein, and The Bank of New York as successor to JPMorgan Chase Bank, N.A., as indenture trustee.	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on December 7, 2006.
	4	.5.4	First Amendment, dated as of March 6, 2007, to the Series 2006-1 Indenture Supplement, dated as of March 7, 2006, among Chesapeake Funding LLC, as Issuer, PHH Vehicle Management Services, LLC, as Administrator, JPMorgan Chase Bank, N.A., as Administrative Agent, Certain CP Conduit Purchasers, Certain Banks, Certain Funding Agents as set forth therein, and The Bank of New York as Successor to JPMorgan Chase Bank, N.A., as Indenture Trustee.	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 8, 2007.

170

Exhibit
No.			Description	Incorporation by Reference
	4	.5.5	First Amendment, dated as of March 6, 2007, to the Amended and Restated Series 2006-2 Indenture Supplement, dated as of December 1, 2006, among Chesapeake Funding LLC, as Issuer, PHH Vehicle Management Services, LLC, as Administrator, JPMorgan Chase Bank, N.A., as Administrative Agent, Certain CP Conduit Purchasers, Certain Banks, Certain Funding Agents as set forth therein, and The Bank of New York as Successor to JPMorgan Chase Bank, N.A., as Indenture Trustee.	Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on March 8, 2007.
	4	.5.6	Second Amendment, dated as of November 30, 2007, to the Amended and Restated Series 2006-2 Indenture Supplement, dated as of December 1, 2006, as amended as of March 6, 2007, among Chesapeake, as issuer, PHH Vehicle Management Services, LLC, as administrator, The Bank of New York Mellon (formerly known as The Bank of New York), as successor to JP Morgan Chase Bank, N. A., as indenture trustee, certain commercial paper conduit purchasers, certain banks and certain funding agents as set forth therein, and JPMorgan Chase Bank, N. A., in its capacity as administrative agent for the CP Conduit Purchasers, the APA Banks and the Funding Agents.	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on December 6, 2007.
	4	.5.7‡‡	Second Amendment, dated as of February 28, 2008, to the Series 2006-1 Indenture Supplement, dated as of March 7, 2006, as amended as of March 6, 2007, among Chesapeake Funding LLC, as Issuer, PHH Vehicle Management Services, LLC, as Administrator, JPMorgan Chase Bank, N.A., as Administrative Agent, Certain CP Conduit Purchasers, Certain Banks, Certain Funding Agents as set forth therein, and The Bank of New York as Successor to JPMorgan Chase Bank, N.A., as Indenture Trustee.	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 4, 2008.
	4	.5.8‡‡	Third Amendment, dated as of December 17, 2008, to the Series 2006-1 Indenture Supplement, dated as of March 7, 2006, as amended as of March 6, 2007 and as of February 28, 2008, among Chesapeake, as issuer, PHH Vehicle Management Services, LLC, as administrator, The Bank of New York Mellon (formerly known as The Bank of New York), as successor to JPMorgan Chase Bank, N. A., as indenture trustee, certain commercial paper conduit purchasers, certain banks and certain funding agents as set forth therein, and JPMorgan Chase Bank, N. A., in its capacity as administrative agent for the CP Conduit Purchasers, the APA Banks and the Funding Agents.	Incorporated by reference to Exhibit 10.74 to our Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 2, 2009.

171

Exhibit
No.			Description	Incorporation by Reference
	4	.5.9‡‡	Third Amendment, dated as of December 17, 2008, to the Amended and Restated Series 2006-2 Indenture Supplement, dated as of December 1, 2006, as amended as of March 6, 2007 and as of November 30, 2007, among Chesapeake, as issuer, PHH Vehicle Management Services, LLC, as administrator, The Bank of New York Mellon (formerly known as The Bank of New York), as successor to JP Morgan Chase Bank, N. A., as indenture trustee, certain commercial paper conduit purchasers, certain banks and certain funding agents as set forth therein, and JPMorgan Chase Bank, N. A., in its capacity as administrative agent for the CP Conduit Purchasers, the APA Banks and the Funding Agents.	Incorporated by reference to Exhibit 10.75 to our Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 2, 2009.
	4	.5.10‡‡	Fourth Amendment, dated as of February 26, 2009, to the Series 2006-1 Indenture Supplement, dated as of March 7, 2006, as amended as of March 6, 2007, February 28, 2008 and December 17, 2008, among Chesapeake, as issuer, PHH Vehicle Management Services, LLC, as administrator, The Bank of New York Mellon (formerly known as The Bank of New York) as successor to JP Morgan Chase Bank N.A., as indenture trustee, certain commercial paper conduit purchasers, certain banks and certain funding agents as set forth therein, and JP Morgan Chase Bank, N.A., in its capacity as administrative agent for the CP Conduit Purchasers, the APA Banks and the Funding Agents.	Incorporated by reference to Exhibit 10.78 to our Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 2, 2009.
	4	.5.11‡	Series 2009-1 Indenture Supplement, dated as of June 9, 2009, among Chesapeake Funding LLC, as issuer, and The Bank of New York Mellon, as indenture trustee.	Incorporated by reference to Exhibit 4.5.11 to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 5, 2009.
	4	.5.12‡	Series 2009-2 Indenture Supplement, dated as of September 11, 2009, among Chesapeake Funding LLC, as issuer, and The Bank of New York Mellon, as indenture trustee.	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on September 16, 2009.
	4	.6	Indenture dated as of April 2, 2008, by and between PHH Corporation and The Bank of New York, as Trustee.	Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on April 4, 2008.
	4	.6.1	Form of Global Note 4.00% Convertible Senior Note Due 2012 (included as part of Exhibit 4.6).	Incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed on April 4, 2008.
	4	.7	Indenture dated as of September 29, 2009, by and between PHH Corporation and The Bank of New York Mellon, as Trustee.	Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on October 1, 2009.
	4	.7.1	Form of Global Note 4.00% Convertible Senior Note Due 2014 (included as part of Exhibit 4.7).	Incorporated by reference to Exhibit A of Exhibit 4.1 to our Current Report on Form 8-K filed on October 1, 2009.

172

Exhibit
No.			Description	Incorporation by Reference
	4	.8	Trust Indenture dated as of November 16, 2009, between BNY Trust Company of Canada as issuer trustee of Fleet Leasing Receivables Trust and ComputerShare Trust Company Of Canada, as indenture trustee.	Filed herewith.
	4	.8.1	Series 2010-1 Supplemental Indenture dated as of January 27, 2010, between BNY Trust Company of Canada as issuer trustee of Fleet Leasing Receivables Trust and ComputerShare Trust Company Of Canada, as indenture trustee.	Filed herewith.
	4	.8.2	Fleet Leasing Receivables Trust Series 2010-1 Class A-1a Asset-Backed Note (included as part of Exhibit 4.8.1).	Incorporated by reference to Exhibit 4.8.1 filed herewith.
	4	.8.3	Fleet Leasing Receivables Trust Series 2010-1 Class A-1b Asset-Backed Note (included as part of Exhibit 4.8.1).	Incorporated by reference to Exhibit 4.8.1 filed herewith.
	4	.8.4	Fleet Leasing Receivables Trust Series 2010-1 Class A-2a Asset-Backed Note (included as part of Exhibit 4.8.1).	Incorporated by reference to Exhibit 4.8.1 filed herewith.
	4	.8.5	Fleet Leasing Receivables Trust Series 2010-1 Class A-2b Asset-Backed Note (included as part of Exhibit 4.8.1).	Incorporated by reference to Exhibit 4.8.1 filed herewith.
	4	.8.6	Fleet Leasing Receivables Trust Series 2010-1 Class B Asset-Backed Note (included as part of Exhibit 4.8.1)(a)	Incorporated by reference to Exhibit 4.8.1 filed herewith.
	10	.1	Amended and Restated Competitive Advance and Revolving Credit Agreement, dated as of January 6, 2006, by and among PHH Corporation and PHH Vehicle Management Services, Inc., as Borrowers, J.P. Morgan Securities, Inc. and Citigroup Global Markets, Inc., as Joint Lead Arrangers, the Lenders referred to therein (the “Lenders”), and JPMorgan Chase Bank, N.A., as a Lender and Administrative Agent for the Lenders.	Incorporated by reference to Exhibit 10.47 to our Annual Report on Form 10-K for the year ended December 31, 2005 filed on November 22, 2006.
	10	.1.1	Second Amendment, dated as of November 2, 2007, to the Amended and Restated Competitive Advance and Revolving Credit Agreement, as amended, dated as of January 6, 2006, by and among PHH Corporation and PHH Vehicle Management Services, Inc., as Borrowers, J.P. Morgan Securities, Inc. and Citigroup Global Markets, Inc., as Joint Lead Arrangers, the Lenders referred to therein, and JPMorgan Chase Bank, N.A., as a Lender and Administrative Agent for the Lenders.	Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on November 2, 2007.

173

Exhibit
No.			Description	Incorporation by Reference
	10	.1.2	Third Amendment, dated as of March 27, 2008, to the Amended and Restated Competitive Advance and Revolving Credit Agreement, as amended, dated as of January 6, 2006, by and among PHH Corporation and PHH Vehicle Management Services, Inc., as Borrowers, J.P. Morgan Securities, Inc. and Citigroup Global Markets, Inc., as Joint Lead Arrangers, the Lenders referred to therein, and JPMorgan Chase Bank, N.A., as a Lender and Administrative Agent for the Lenders.	Incorporated by reference to Exhibit 10.1.2 to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 5, 2009.
	10	.2	Separation Agreement, dated as of January 31, 2005, by and between Cendant Corporation and PHH Corporation.	Incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K filed on February 1, 2005.
	10	.3‡‡	Amended and Restated Tax Sharing Agreement dated as of December 21, 2005 between PHH Corporation and Cendant Corporation.	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on December 28, 2005.
	10	.4	Amended and Restated Limited Liability Company Operating Agreement, dated as of January 31, 2005, of PHH Home Loans, LLC, by and between PHH Broker Partner Corporation and Cendant Real Estate Services Venture Partner, Inc.	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on February 1, 2005.
	10	.4.1	Amendment No. 1 to the Amended and Restated Limited Liability Company Operating Agreement of PHH Home Loans, LLC, dated May 12, 2005, by and between PHH Broker Partner Corporation and Cendant Real Estate Services Venture Partner, Inc.	Incorporated by reference to Exhibit 3.3.1 to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2005 filed on November 14, 2005.
	10	.4.2	Amendment No. 2, dated as of March 31, 2006 to the Amended and Restated Limited Liability Company Operating Agreement of PHH Home Loans, LLC, dated as of January 31, 2005, as amended.	Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Cendant Corporation (now known as Avis Budget Group, Inc.) filed on April 4, 2006.
	10	.4.3‡‡	Strategic Relationship Agreement, dated as of January 31, 2005, by and among Cendant Real Estate Services Group, LLC, Cendant Real Estate Services Venture Partner, Inc., PHH Corporation, Cendant Mortgage Corporation, PHH Broker Partner Corporation and PHH Home Loans, LLC.	Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on February 1, 2005.
	10	.4.4	Trademark License Agreement, dated as of January 31, 2005, by and among TM Acquisition Corp., Coldwell Banker Real Estate Corporation, ERA Franchise Systems, Inc. and Cendant Mortgage Corporation.	Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on February 1, 2005.
	10	.4.5	Marketing Agreement, dated as of January 31, 2005, by and between Coldwell Banker Real Estate Corporation, Century 21 Real Estate LLC, ERA Franchise Systems, Inc., Sotheby’s International Affiliates, Inc. and Cendant Mortgage Corporation.	Incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on February 1, 2005.
	10	.4.6‡‡	Management Services Agreement, dated as of March 31, 2006, between PHH Home Loans, LLC and PHH Mortgage Corporation.	Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on April 6, 2006.

174

Exhibit
No.			Description	Incorporation by Reference
	10	.4.7	Trademark License Agreement, dated as of January 31, 2005, by and between Cendant Real Estate Services Venture Partner, Inc., and PHH Home Loans, LLC.	Incorporated by reference to Exhibit 10.66 to our Annual Report on Form 10-K for the year ended December 31, 2005 filed on November 22, 2006.
	10	.5‡‡	Origination Assistance Agreement, dated as of December 15, 2000, as amended through March 24, 2006, by and between Merrill Lynch Credit Corporation and Cendant Mortgage Corporation (renamed PHH Mortgage Corporation).	Incorporated by reference to Exhibit 10.67 to our Annual Report on Form 10-K for the year ended December 31, 2005 filed on November 22, 2006.
	10	.5.1‡‡	Portfolio Servicing Agreement, dated as of January 28, 2000, as amended through October 27, 2004, by and between Merrill Lynch Credit Corporation and Cendant Mortgage Corporation (renamed PHH Mortgage Corporation).	Incorporated by reference to Exhibit 10.68 to our Annual Report on Form 10-K for the year ended December 31, 2005 filed on November 22, 2006.
	10	.5.2‡‡	Loan Purchase and Sale Agreement, dated as of December 15, 2000, as amended through March 24, 2006, by and between Merrill Lynch Credit Corporation and Cendant Mortgage Corporation (renamed PHH Mortgage Corporation).	Incorporated by reference to Exhibit 10.69 to our Annual Report on Form 10-K for the year ended December 31, 2005 filed on November 22, 2006.
	10	.5.3‡‡	Equity Access® and Omegasm Loan Subservicing Agreement, dated as of June 6, 2002, as amended through March 14, 2006, by and between Merrill Lynch Credit Corporation, as servicer, and Cendant Mortgage Corporation (renamed PHH Mortgage Corporation), as subservicer.	Incorporated by reference to Exhibit 10.70 to our Annual Report on Form 10-K for the year ended December 31, 2005 filed on November 22, 2006.
	10	.5.4‡‡	Servicing Rights Purchase and Sale Agreement, dated as of January 28, 2000, as amended through March 29, 2005, by and between Merrill Lynch Credit Corporation and Cendant Mortgage Corporation (renamed PHH Mortgage Corporation).	Incorporated by reference to Exhibit 10.71 to our Annual Report on Form 10-K for the year ended December 31, 2005 filed on November 22, 2006.
	10	.5.5	Letter Agreement dated August 8, 2008 by and between PHH Mortgage Corporation and Merrill Lynch Credit Corporation relating to the Servicing Rights Purchase and Sale Agreement dated January 28, 2000, as amended.	Incorporated by reference to Exhibit 10.69 to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008 filed on November 10, 2008.
	10	.5.6‡‡	Mortgage Loan Subservicing Agreement by and between Merrill Lynch Credit Corporation and PHH Mortgage Corporation dated as of August 8, 2008.	Incorporated by reference to Exhibit 10.70 to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008 filed on November 10, 2008.
	10	.6	Master Exchange Agreement, dated as of March 7, 2006, by and among PHH Funding, LLC, Chesapeake Finance Holdings LLC (f/k/a Chesapeake Funding LLC) and D.L. Peterson Trust.	Incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on March 13, 2006.
	10	.7	Settlement Agreement, dated as of January 4, 2008, by, between and among PHH Corporation, Pearl Mortgage Acquisition 2 L.L.C. and Blackstone Capital Partners V L.P.	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on January 7, 2008.
	10	.8	Master Repurchase Agreement, dated as of February 28, 2008, among PHH Mortgage Corporation, as Seller, and Citigroup Global Markets Realty Corp., as Buyer.	Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on March 4, 2008.

175

Exhibit
No.			Description	Incorporation by Reference
	10	.8.1	Guaranty, dated as of February 28, 2008, by PHH Corporation in favor of Citigroup Global Markets Realty, Corp., party to the Master Repurchase Agreement, dated as of February 28, 2008, among PHH Mortgage Corporation, as Seller, and Citigroup Global Markets Realty Corp., as Buyer.	Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on March 4, 2008.
	10	.9	Purchase Agreement dated March 27, 2008 by and between PHH Corporation, Citigroup Global Markets Inc., J.P. Morgan Securities Inc. and Wachovia Capital Markets, LLC, as representatives of the Initial Purchasers.	Incorporated by reference to Exhibit 10.1 to our Current Report of Form 8-K filed on April 4, 2008.
	10	.9.1	Master Terms and Conditions for Convertible Bond Hedging Transactions dated March 27, 2008 by and between PHH Corporation and J.P. Morgan Chase Bank, N.A.	Incorporated by reference to Exhibit 10.2 to our Current Report of Form 8-K filed on April 4, 2008.
	10	.9.2	Master Terms and Conditions for Warrants dated March 27, 2008 by and between PHH Corporation and J.P. Morgan Chase Bank, N.A.	Incorporated by reference to Exhibit 10.3 to our Current Report of Form 8-K filed on April 4, 2008.
	10	.9.3	Confirmation of Convertible Bond Hedging Transactions dated March 27, 2008 by and between PHH Corporation and J.P. Morgan Chase Bank, N.A.	Incorporated by reference to Exhibit 10.4 to our Current Report of Form 8-K filed on April 4, 2008.
	10	.9.4	Confirmation of Warrant dated March 27, 2008 by and between PHH Corporation and J.P. Morgan Chase Bank, N.A.	Incorporated by reference to Exhibit 10.5 to our Current Report of Form 8-K filed on April 4, 2008.
	10	.9.5	Master Terms and Conditions for Convertible Debt Bond Hedging Transactions dated March 27, 2008 by and between PHH Corporation and Wachovia Bank, N.A.	Incorporated by reference to Exhibit 10.6 to our Current Report of Form 8-K filed on April 4, 2008.
	10	.9.6	Master Terms and Conditions for Warrants dated March 27, 2008 by and between PHH Corporation and Wachovia Bank, N.A.	Incorporated by reference to Exhibit 10.7 to our Current Report of Form 8-K filed on April 4, 2008.
	10	.9.7	Confirmation of Convertible Bond Hedging Transactions dated March 27, 2008 by and between PHH Corporation and Wachovia Bank, N.A.	Incorporated by reference to Exhibit 10.8 to our Current Report of Form 8-K filed on April 4, 2008.
	10	.9.8	Confirmation of Warrant dated March 27, 2008 by and between PHH Corporation and Wachovia Bank, N.A.	Incorporated by reference to Exhibit 10.9 to our Current Report of Form 8-K filed on April 4, 2008.
	10	.9.9	Master Terms and Conditions for Convertible Bond Hedging Transactions dated March 27, 2008 by and between PHH Corporation and Citibank, N.A.	Incorporated by reference to Exhibit 10.10 to our Current Report of Form 8-K filed on April 4, 2008.
	10	.9.10	Master Terms and Conditions for Warrants dated March 27, 2008 by and between PHH Corporation and Citibank, N.A.	Incorporated by reference to Exhibit 10.11 to our Current Report of Form 8-K filed on April 4, 2008.
	10	.9.11	Confirmation of Convertible Bond Hedging Transactions dated March 27, 2008 by and between PHH Corporation and Citibank, N.A.	Incorporated by reference to Exhibit 10.12 to our Current Report of Form 8-K filed on April 4, 2008.
	10	.9.12	Confirmation of Warrant dated March 27, 2008 by and between PHH Corporation and Citibank, N.A.	Incorporated by reference to Exhibit 10.13 to our Current Report of Form 8-K filed on April 4, 2008.

176

Exhibit
No.			Description	Incorporation by Reference
	10	.10‡‡	Amended and Restated Master Repurchase Agreement, dated as of June 26, 2008, between PHH Mortgage Corporation, as seller, and The Royal Bank of Scotland plc, as buyer and agent.	Incorporated by reference to Exhibit 10.65 to our Quarterly Report of Form 10-Q for the quarterly period ended on September 30, 2008 filed on November 10, 2008.
	10	.10.1	Second Amended and Restated Guaranty, dated as of June 26, 2008, by PHH Corporation in favor of The Royal Bank of Scotland plc and Greenwich Capital Financial Products, Inc.	Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on July 1, 2008.
	10	.11‡‡‡	Purchase Agreement dated June 2, 2009 by and among PHH Corporation, PHH Vehicle Management Services, LLC, Chesapeake Funding LLC and J.P. Morgan Securities, Inc, Banc of America Securities LLC and Citigroup Global Markets, Inc., as representatives of several initial purchasers.	Incorporated by reference to Exhibit 10.11 to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 filed on November 5, 2009.
	10	.12‡‡	Purchase Agreement dated September 2, 2009 by and among PHH Corporation, PHH Vehicle Management Services, LLC, Chesapeake Funding LLC and J.P. Morgan Securities, Inc, Banc of America Securities LLC and Citigroup Global Markets, Inc., as representatives of several initial purchasers.	Incorporated by reference to Exhibit 10.12 to our Quarterly Report on Form 10-Q/A for the quarterly period ended September 30, 2009 filed on January 12, 2010.
	10	.13	Purchase Agreement dated September 23, 2009, by and between PHH Corporation, Citigroup Global Markets Inc., J.P. Morgan Securities Inc. and Wells Fargo Securities, LLC, as representatives of the Initial Purchasers	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on September 29, 2009.
	10	.13.1	Master Terms and Conditions for Convertible Bond Hedging Transactions dated September 23, 2009, by and between PHH Corporation and JPMorgan Chase Bank, National Association, London Branch	Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on September 29, 2009.
	10	.13.2	Master Terms and Conditions for Warrants dated September 23, 2009, by and between PHH Corporation and JPMorgan Chase Bank, National Association, London Branch	Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on September 29, 2009.
	10	.13.3	Confirmation of Convertible Bond Hedging Transactions dated September 23, 2009, by and between PHH Corporation and JPMorgan Chase Bank, National Association, London Branch	Incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on September 29, 2009.
	10	.13.4	Confirmation of Warrants dated September 23, 2009, by and between PHH Corporation and JPMorgan Chase Bank, National Association, London Branch	Incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K filed on September 29, 2009.
	10	.13.5	Master Terms and Conditions for Convertible Bond Hedging Transactions dated September 23, 2009, by and between PHH Corporation and Wachovia Bank, National Association	Incorporated by reference to Exhibit 10.6 to our Current Report on Form 8-K filed on September 29, 2009.
	10	.13.6	Master Terms and Conditions for Warrants dated September 23, 2009, by and between PHH Corporation and Wachovia Bank, National Association	Incorporated by reference to Exhibit 10.7 to our Current Report on Form 8-K filed on September 29, 2009.

177

Exhibit
No.			Description	Incorporation by Reference
	10	.13.7	Confirmation of Convertible Bond Hedging Transactions dated September 23, 2009, by and between PHH Corporation and Wachovia Bank, National Association	Incorporated by reference to Exhibit 10.8 to our Current Report on Form 8-K filed on September 29, 2009.
	10	.13.8	Confirmation of Warrants dated September 23, 2009, by and between PHH Corporation and Wachovia Bank, National Association	Incorporated by reference to Exhibit 10.9 to our Current Report on Form 8-K filed on September 29, 2009.
	10	.13.9	Master Terms and Conditions for Convertible Bond Hedging Transactions dated September 23, 2009, by and between PHH Corporation and Citibank, N.A.	Incorporated by reference to Exhibit 10.10 to our Current Report on Form 8-K filed on September 29, 2009.
	10	.13.10	Master Terms and Conditions for Warrants dated September 23, 2009, by and between PHH Corporation and Citibank, N.A.	Incorporated by reference to Exhibit 10.11 to our Current Report on Form 8-K filed on September 29, 2009.
	10	.13.11	Confirmation of Convertible Bond Hedging Transactions dated September 23, 2009, by and between PHH Corporation and Citibank, N.A.	Incorporated by reference to Exhibit 10.12 to our Current Report on Form 8-K filed on September 29, 2009.
	10	.13.12	Confirmation of Warrants dated September 23, 2009, by and between PHH Corporation and Citibank, N.A.	Incorporated by reference to Exhibit 10.13 to our Current Report on Form 8-K filed on September 29, 2009.
	10	.13.13	Amendment to Convertible Bond Hedging Transaction Confirmation dated September 29, 2009, by and between PHH Corporation and JPMorgan Chase Bank, National Association, London Branch	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on October 1, 2009.
	10	.13.14	Confirmation of Additional Warrants dated September 29, 2009, by and between PHH Corporation and JPMorgan Chase Bank, National Association, London Branch	Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on October 1, 2009.
	10	.13.15	Amendment to Convertible Bond Hedging Transaction Confirmation dated September 29, 2009, by and between PHH Corporation and Wachovia Bank, National Association	Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on October 1, 2009.
	10	.13.16	Confirmation of Additional Warrants dated September 29, 2009, by and between PHH Corporation and Wachovia Bank, National Association	Incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on October 1, 2009.
	10	.13.17	Amendment to Convertible Bond Hedging Transaction Confirmation dated September 29, 2009, by and between PHH Corporation and Citibank, N.A.	Incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K filed on October 1, 2009.
	10	.13.18	Confirmation of Additional Warrants dated September 29, 2009, by and between PHH Corporation and Citibank, N.A.	Incorporated by reference to Exhibit 10.6 to our Current Report on Form 8-K filed on October 1, 2009.
	10	.14†	PHH Corporation Non-Employee Directors Deferred Compensation Plan.	Incorporated by reference to Exhibit 10.10 to our Current Report on Form 8-K filed on February 1, 2005.
	10	.14.1†	PHH Corporation Officer Deferred Compensation Plan.	Incorporated by reference to Exhibit 10.11 to our Current Report on Form 8-K filed on February 1, 2005.
	10	.14.2†	PHH Corporation Savings Restoration Plan.	Incorporated by reference to Exhibit 10.12 to our Current Report on Form 8-K filed on February 1, 2005.

178

Exhibit
No.			Description	Incorporation by Reference
	10	.14.3†	PHH Corporation 2005 Equity and Incentive Plan.	Incorporated by reference to Exhibit 10.9 to our Current Report on Form 8-K filed on February 1, 2005.
	10	.14.4†	Form of PHH Corporation 2005 Equity and Incentive Plan Non-Qualified Stock Option Agreement, as amended.	Incorporated by reference to Exhibit 10.28 to our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005 filed on May 16, 2005.
	10	.14.5†	Form of PHH Corporation 2005 Equity and Incentive Plan Non-Qualified Stock Option Conversion Award Agreement.	Incorporated by reference to Exhibit 10.29 to our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005 filed on May 16, 2005.
	10	.14.6†	Resolution of the PHH Corporation Board of Directors dated March 31, 2005, adopting non-employee director compensation arrangements.	Incorporated by reference to Exhibit 10.32 to our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005 filed on May 16, 2005.
	10	.14.7†	Amendment Number One to the PHH Corporation 2005 Equity and Incentive Plan.	Incorporated by reference to Exhibit 10.35 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005 filed on August 12, 2005.
	10	.14.8†	Form of PHH Corporation 2005 Equity and Incentive Plan Non-Qualified Stock Option Award Agreement, as revised June 28, 2005.	Incorporated by reference to Exhibit 10.36 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005 filed on August 12, 2005.
	10	.14.9†	Form of PHH Corporation 2005 Equity and Incentive Plan Restricted Stock Unit Award Agreement, as revised June 28, 2005.	Incorporated by reference to Exhibit 10.37 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005 filed on August 12, 2005.
	10	.14.10†	Form of PHH Corporation Amended and Restated Severance Agreement for Certain Executive Officers as approved by the PHH Corporation Compensation Committee on January 10, 2008.	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on January 14, 2008.
	10	.14.11†	PHH Corporation Change in Control Severance Agreement by and between the Company and Sandra Bell dated as of October 13, 2008.	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on October 14, 2008.
	10	.14.12†‡‡	Form of 2009 Performance Unit Award Notice and Agreement for Certain Executive Officers, as approved by the Compensation Committee on March 25, 2009.	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 31, 2009.
	10	.14.13†	Amended and Restated 2005 Equity and Incentive Plan (as amended and restated through June 17, 2009).	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on June 22, 2009.
	10	.14.14†	Transition Services and Separation Agreement by and between PHH Corporation and Terence W. Edwards dated August 5, 2009.	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on August 5, 2009.
	10	.14.15†	Amendment to the Transition Services and Separation Agreement by and between PHH Corporation and Terence W. Edwards dated as of September 11, 2009.	Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on September 16, 2009.
	10	.14.16†	Release by and between PHH Corporation and Terence W. Edwards dated as of September 11, 2009.	Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on September 16, 2009.

179

Exhibit
No.			Description	Incorporation by Reference
	10	.14.17†	Employment Agreement dated as of October 26, 2009, between Jerome J. Selitto and PHH Corporation.	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on October 30, 2009.
	10	.15	Trust Purchase Agreement dated January 27, 2010 between Fleet Leasing Receivables Trust, as purchaser, PHH Fleet Lease Receivables L.P., as seller, PHH Vehicle Management Services Inc., as servicer and PHH Corporation, as performance guarantor.	Filed herewith.
	10	.15.1	Agency Agreement dated as of January 25, 2010, between BNY Trust Company of Canada as trustee of Fleet Leasing Receivables Trust, PHH Vehicle Management Services Inc., as financial services agent of Fleet Leasing Receivables Trust and as originator, PHH Fleet Lease Receivables L.P., as seller and Merrill Lynch Canada Inc., CIBC World Markets Inc., RBC Dominion Securities Inc. and Scotia Capital Inc., as agents.	Filed herewith.
	10	.15.2‡	Agency Agreement dated as of January 25, 2010, between BNY Trust Company of Canada as trustee of Fleet Leasing Receivables Trust, PHH Vehicle Management Services Inc., as financial services agent of Fleet Leasing Receivables Trust and as originator, PHH Fleet Lease Receivables L.P., as seller and Merrill Lynch Canada Inc. and Banc of America Securities LLC, as agents.	Filed herewith.
	12		Computation of Ratio of Earnings to Fixed Charges.	Filed herewith.
	21		Subsidiaries of Registrant.	Filed herewith.
	23		Consent of Independent Registered Public Accounting Firm.	Filed herewith.
	24		Powers of Attorney	Incorporated by reference to the signature page to this Annual Report on Form 10-K.
	31	.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith.
	31	.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith.
	32	.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith.
	32	.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith.

*	Schedules and exhibits of this Exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K which portions will be furnished upon the request of the Commission.
‡	Confidential treatment has been requested for certain portions of this Exhibit pursuant to Rule 24b-2 of the Exchange Act which portions have been omitted and filed separately with the Commission.
‡‡	Confidential treatment has been granted for certain portions of this Exhibit pursuant to an order under the Exchange Act which portions have been omitted and filed separately with the Commission.
‡‡‡	Confidential treatment has been granted for certain portions of this Exhibit which was filed as Exhibit 10.79 to the registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 4, 2009. This Exhibit was re-filed with fewer redactions as Exhibit 10.11 to the registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 5, 2009. The redacted portions of this Exhibit have been filed separately with the Commission.
†	Management or compensatory plan or arrangement required to be filed pursuant to Item 601(b)(10) of Regulation S-K.

180

EX-4.8

Exhibit 4.8

TRUST INDENTURE

between

FLEET LEASING RECEIVABLES TRUST

by

BNY TRUST COMPANY OF CANADA

as Issuer Trustee

and

COMPUTERSHARE TRUST COMPANY OF CANADA

as Indenture Trustee

Made as of November 16, 2009

TRUST INDENTURE

TABLE OF CONTENTS

	Page
ARTICLE 1 INTERPRETATION		1
1.1 Definitions		1
1.2 Meaning of “Outstanding” for Certain Purposes		14
1.3 References to Statutes		14
1.4 Extended Meanings		15
1.5 Sections and Headings		15
1.6 Governing Law of Indenture		15
1.7 Invalidity of Provisions		15
1.8 Computation of Time Periods		15
1.9 Non-Business Days		15
1.10 Accounting Principles		16
1.11 Currency		16
1.12 Time of the Essence		16
1.13 Approvals and Consents		16
1.14 Discontinuance and Changes in Designation of Ratings		16
1.15 References to Acts of the Trust		17
1.16 References to Rating Agency Condition		17
1.17 Language		17
ARTICLE 2 THE NOTES		17
2.1 Notes		17
2.2 Requirements for Initial Creation of Notes		18
2.3 Creation and Issuance in Series		18
2.4 Execution, Certification and Delivery		19
2.5 Temporary Notes		20
2.6 Registration, Transfer and Exchange		21
2.7 Persons Entitled to Payment		22
2.8 Mutilated, Destroyed, Lost or Stolen Notes		22
2.9 Cancellation and Destruction of Notes		23

-i-

TABLE OF CONTENTS
(continued)

	Page
2.10 Protection of Notes		23
2.11 Access to List of Noteholders’ Names and Addresses		23
2.12 Certifying Agent		24
2.13 Book-Entry Notes		25
2.14 Payment of Notes		28
2.15 Payment Agreement for Notes		29
2.16 Interest Act		29
2.17 Repayment of Unclaimed Money		29
2.18 Maintenance of Records		30
2.19 Acknowledgements		30
ARTICLE 3 SUBORDINATION		31
3.1 Subordination		31
3.2 Rights of Noteholders Preserved		31
3.3 Renewal or Extension of Senior Notes		31
ARTICLE 4 SECURITY		32
4.1 Security for the Obligations Secured		32
4.2 Habendum		33
4.3 Reservation of Last Day of Leasehold Terms		33
4.4 Security Valid Irrespective of Advance of Moneys		33
4.5 Satisfaction and Discharge		34
4.6 Other Security Documents		34
ARTICLE 5 POSSESSION AND USE OF COLLATERAL		34
5.1 General		34
5.2 Collection Accounts		35
5.3 Location of Accounts		36
ARTICLE 6 COVENANTS OF THE TRUST		36
6.1 Positive Covenants		36
6.2 Negative Covenants		40
6.3 Indenture Trustee May Perform Covenants		41

-ii-

TABLE OF CONTENTS
(continued)

	Page
6.4 Right of Audit		42
6.5 Notices Regarding Financial Services Sub-Agent		42
ARTICLE 7 REPRESENTATIONS AND WARRANTIES		42
7.1 Representations and Warranties of the Trust		42
7.2 Representation and Warranty of Indenture Trustee		45
7.3 Survival of Representations and Warranties		45
ARTICLE 8 EVENTS OF DEFAULT		45
8.1 Related Event of Default		45
8.2 Acceleration of Maturity; Rescission and Annulment		47
8.3 Notice of Related Default or Related Event of Default		49
ARTICLE 9 REMEDIES		49
9.1 Collection Of Indebtedness And Suits For Enforcement By Indenture Trustee		49
9.2 Remedies; Priorities		52
9.3 Performance And Enforcement Of Certain Obligations		53
9.4 Optional Preservation Of The Related Collateral		54
9.5 Application of Moneys		54
9.6 Trust Moneys		54
9.7 Restoration Of Rights And Remedies		55
9.8 Delay Or Omission Not A Waiver		55
9.9 Control By Noteholders		55
9.10 Purchase by Specified Creditors		56
9.11 Protection of Persons Dealing with Indenture Trustee		56
9.12 Remedies Cumulative		56
9.13 The Trust to Execute Confirmatory Deed		56
9.14 Indenture Trustee Appointed Attorney		56
9.15 Credit Enhancement Agreements		57
9.16 Disclaimer of Marshalling		57
9.17 Appointment of Receiver		58
9.18 Holding in Trust		59

-iii-

TABLE OF CONTENTS
(continued)

	Page
ARTICLE 10 SUITS BY SPECIFIED CREDITORS AND INDENTURE TRUSTEE		60
10.1 Specified Creditors May Not Sue		60
10.2 Indenture Trustee Not Required to Possess Notes		61
10.3 Indenture Trustee May Institute All Proceedings		61
10.4 Application of Proceeds		61
ARTICLE 11 MEETINGS OF NOTEHOLDERS		61
11.1 Right to Convene Meetings		61
11.2 Record Dates		62
11.3 Notice of Meetings		62
11.4 Chairperson		62
11.5 Quorum		62
11.6 Power to Adjourn		63
11.7 Show of Hands		63
11.8 Poll		63
11.9 Voting		63
11.10 Regulations		64
11.11 The Trust and Indenture Trustee		65
11.12 Powers Exercisable by Extraordinary Resolution of all Noteholders		65
11.13 Powers Exercisable by Extraordinary Resolution of Holders of Series		67
11.14 Powers Exercisable by Extraordinary Resolution of Holders of Class		68
11.15 Meaning of “Extraordinary Resolution”		69
11.16 Powers Cumulative		70
11.17 Minutes		70
11.18 Instruments in Writing		70
11.19 Binding Effect of Resolutions		71
ARTICLE 12 THE INDENTURE TRUSTEE		71
12.1 Trust Indenture Legislation		71
12.2 Rights and Duties of Indenture Trustee		71
12.3 Conditions Precedent to Indenture Trustee’s Obligation to Act		72

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TABLE OF CONTENTS
(continued)

	Page
12.4 Experts and Advisors; Remuneration		72
12.5 Evidence of Compliance, Certificates of the Trust and Written Orders		74
12.6 Instruments Held By Indenture Trustee		75
12.7 Protection of Indenture Trustee		76
12.8 Resignation or Removal of Indenture Trustee; Conflict of Interest		78
12.9 Authority to Carry on Business		79
12.10 Power of Attorney for Quebec Registrations		80
12.11 Sub-attorney for Quebec Discharges		81
12.12 Revocation of Appointment		81
12.13 Acknowledgement by Specified Creditors		81
12.14 Successor Indenture Trustee By Merger		81
12.15 Eligibility; Disqualification		82
12.16 Acceptance of Trusts by Indenture Trustee		82
12.17 Confidentiality		82
ARTICLE 13 SUPPLEMENTAL INDENTURES AND AMENDMENTS		83
13.1 Supplemental Indentures		83
13.2 Automatic Amendment		84
13.3 Amendments to Programme Agreements		84
13.4 Determination of Material Adverse Effect		85
ARTICLE 14 NOTICES		86
14.1 Notice to Trust and Issuer Trustee		86
14.2 Notice to Indenture Trustee		87
14.3 Notice to Noteholders		88
14.4 Notice to Other Specified Creditors		88
14.5 Notice to Rating Agencies		88
14.6 Change of Address		88
ARTICLE 15 GENERAL		89
15.1 Evidence of Rights of Specified Creditors		89
15.2 Trust Obligation		89

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TABLE OF CONTENTS
(continued)

	Page
15.3 No Petition		89
15.4 Subordination		90
15.5 Limited Recourse		90
15.6 Execution of Counterparts		91
15.7 Delivery of Executed Copies		91

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TRUST INDENTURE

          TRUST INDENTURE made as of November 16, 2009, between BNY TRUST COMPANY OF CANADA, a trust company established under the laws of Canada and licensed to carry on business in each of the provinces and territories of Canada in its capacity as trustee of FLEET LEASING RECEIVABLES TRUST, a trust established under the laws of the Province of Ontario pursuant to a declaration of trust made November 2, 2009 as amended and restated on November 16, 2009 (in such capacity, the “Trust”), and COMPUTERSHARE TRUST COMPANY OF CANADA, a trust company established under the laws of Canada and licensed to carry on business in each of the provinces and territories of Canada.

          WHEREAS the Trust is desirous of creating and issuing from time to time asset-backed notes in the manner hereinafter provided;

          NOW THEREFORE THIS INDENTURE WITNESSES that, in consideration of the covenants and agreements herein contained, the parties hereto agree as follows:

ARTICLE 1
INTERPRETATION

1.1 Definitions.

          In this Indenture, the following terms will have the following meanings:

“Act” means the Securities Act (Ontario), as in effect from time to time;

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

“Asset Interests” means whole or undivided percentage interests in, or interests in pools of, (i) rights to the payment of money arising from accounts, intangibles, chattel paper, conditional sales contracts, leases, instruments and securities, mortgages, charges or hypothecs of land or immovable property or of personal or movable property or evidenced in some other manner, including all rights to payment of interest or financing charges with respect thereto and all proceeds thereof which are purchased or otherwise acquired by; (ii) contracts or lease rights evidencing or giving rise to rights described in (i) which are purchased or otherwise acquired by; (iii) securities collateralized by or securities evidencing interests (whether undivided or otherwise) in, rights described in (i) which are purchased or otherwise acquired by; and (iv) loans or other obligations secured by rights described above (together with such security) and unsecured loans or other obligations extended by or in favour of, the Trust pursuant to Securitization Agreements and further includes, without limitation, all security (including, without limitation, cash collateral and policies of insurance) and guarantees of or held by any Person pertaining to the assets of, or other rights against, such Person or any other Person which the Trust has

purchased or otherwise acquired in connection with any of the foregoing and all Reserves;

“Back-Up Servicer” means Wells Fargo Bank, National Association, or any successor or assign, or any other Person who may be appointed as back-up servicer for purposes hereof or of any Securitization Agreement, in place thereof;

“Beneficiary” has the meaning ascribed thereto in the Declaration of Trust;

“Book-Entry Noteholder” means, with respect to a Book-Entry Note, the Person who is the beneficial owner of a Book-Entry Note;

“Book-Entry Notes” means the Notes held through the Book-Entry System as described in Section 2.13; provided that after the occurrence of an event whereupon book-entry transfers are no longer permitted and Definitive Notes have been issued to holders of any Book-Entry Notes, such Book-Entry Notes shall no longer be effective;

“Book-Entry System” means the record entry securities transfer and pledge system administered by the Clearing Agency in accordance with its operating rules and procedures;

“Business Day” means any day of the year, other than a Saturday, Sunday or statutory or civic holiday, on which banks are open for business in Toronto, Ontario;

“Canadian Dollars” and “Cdn. $” means the lawful money of Canada;

“CDS” means CDS Clearing and Depository Services Inc., its successors and assigns;

“Certificate of the Trust” means a certificate executed by an authorized officer of the Issuer Trustee as trustee of the Trust or of the Financial Services Agent or the Financial Services Sub-Agent on behalf of the Trust;

“Class” means, in respect of a Series, a class of Notes of such Series issued pursuant to this Indenture and the Related Supplement;

“Clearing Agency” means CDS or, if otherwise specified in the Related Supplement with respect to the Notes of any particular Series, any other “clearing agency” as defined in the Act or as registered with the Securities and Exchange Commission;

“Clearing Agency Letter of Representation” means any letter of representation, book entry only securities services agreement, book entry only acknowledgement or similar document provided by the Trust to a Clearing Agency with respect to procedures under the Book-Entry System;

“Collateral” means the property, assets, undertaking and agreements of the Trust and all rights and benefits accruing thereunder mortgaged, charged, pledged, granted,

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transferred, assigned, hypothecated and set over as security for the Obligations Secured in accordance with Article 4;

“Collections” means all cash collections and other cash proceeds of Asset Interests including, without limitation, (i) all payments by a Credit Enhancer under any Credit Enhancement Agreement, (ii) all proceeds of any Related Collateral and any collection of such Asset Interests or any proceeds of sale of such Asset Interests deemed to have been received pursuant to a Securitization Agreement by the Trust, or any agent on behalf of the Trust, including the Financial Services Agent, the Financial Services Sub-Agent or any Servicer of such Asset Interests, and (iii) without limitation to the foregoing (but only to the extent so provided in a Related Securitization Agreement), any amounts paid to the Trust under any Hedging Transaction entered into in connection with such Asset Interests or any Notes, but (iv) with respect to any Asset Interests acquired under a particular Securitization Agreement, excluding any amounts expressly excluded from “Collections” under and as defined in such Securitization Agreement;

“Counsel” means any barrister or solicitor or firm of barristers and solicitors retained by the Indenture Trustee, which may include counsel to the Trust;

“Credit Enhancement” means any form of credit enhancement (howsoever characterized) for any Obligations Secured or any Asset Interests including, without limitation, any letter of credit, insurance policy, surety bond, cash reserve account, spread account, guaranteed rate agreement, liquidity facility, tax protection agreement or other similar agreement established for the benefit of the Notes (or a Series or Class), as applicable, and including any facility provided by a Person to the Trust which is specified or acknowledged in writing by the Trust as “Credit Enhancement” for purposes hereof but excluding, for greater certainty, Subordinated Notes and Reserves;

“Credit Enhancement Agreement” means any agreement entered into between the Trust or a Custodian and one or more Persons providing Credit Enhancement to the Trust or a Custodian;

“Credit Enhancer” means any Person providing Credit Enhancement to the Trust or a Custodian pursuant to a Credit Enhancement Agreement and any successor or assign of such Person;

“Custodial Agreement” means a custodial agreement entered into among, inter alia, an Originator and a Custodian;

“Custodian” means a Person appointed as custodian of assets for the benefit of an Originator and one or more other Persons in accordance with a Custodial Agreement, which may include a Securitization Agreement, and any successor custodian appointed in accordance with the terms of such agreement;

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“Dealer” means one or more Persons (other than the Trust, an Originator or a Credit Enhancer) who are parties to an Underwriting Agreement for the purpose of facilitating the sale and distribution of the Notes referred to in an Underwriting Agreement;

“Declaration of Trust” means the declaration of trust made on November 2, 2009 (and amended and restated on November 16, 2009) providing for the establishment of the Trust as a trust under the laws of the Province of Ontario;

“Definitive Notes” means fully registered certificates (not in temporary form) representing Notes in the form specified in the Related Supplement;

“Distribution Date” means, in respect of any Notes, any day in a month upon which periodic payments of principal and/or interest are to be paid on such Notes;

“Eligible Institution” means, with respect to any Series of Notes, a bank, trust company or loan company chartered or licensed under the laws of Canada or any province thereof (including an Affiliate of the Issuer Trustee or the Indenture Trustee) which (a) has, or has its obligations guaranteed by an institution that has, the long-term or short-term debt rating then required by the Related Rating Agencies, or (b) satisfies the Rating Agency Condition;

“Eligible Investments” means investments permitted to be made by the Trust under a Securitization Agreement;

“Equivalent Amount” means, on any given date, the amount of Canadian Dollars resulting from the conversion of a specified amount of any other currency converted (i) at the spot rate quoted on such date for wholesale transactions by Bank of New York; or (ii) if the specified amount of such other currency is the subject of a Hedging Transaction which provides for the delivery of or conversion to an equivalent amount of Canadian Dollars, the specified amount of such other currency shall be deemed to be converted to an amount in Canadian Dollars at the effective rate under such Hedging Transaction;

“Extraordinary Resolution” means a resolution described in Section 11.15;

“Financial Services Agent” means PHH Vehicle Management Services Inc., its assigns and any successor financial services agent to the Trust appointed in replacement thereof as permitted under the Financial Services Agreement;

“Financial Services Agreement” means the financial services agreement made as of November 16, 2009 between the Trust and the Financial Services Agent;

“Financial Services Sub-Agency Agreement” means the financial services sub-agency agreement made as of November 16, 2009 between the Trust, the Financial Services Agent and the Financial Services Sub-Agent;

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“Financial Services Sub-Agent” means BNY Trust Company of Canada, its assigns and any successor financial services sub-agent appointed in replacement thereof as permitted under the Financial Services Sub-Agency Agreement;

“Hedging Transaction” means any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, forward exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option, total return swap transaction and any other similar transaction or any combination of these transactions entered into from time to time by the Trust in connection with or related to the Notes or any Asset Interests;

“Hypothec” means a deed of hypothec to be granted by the Trust in favour of the Indenture Trustee under the laws of the Province of Quebec for the purposes of further assuring the Collateral, or a part thereof, to the Indenture Trustee for the benefit of Specified Creditors;

“Indenture Trustee” means Computershare Trust Company of Canada, as indenture trustee hereunder or as the fondé de pouvoir under a Hypothec, and its successors and assigns in such capacity, or any successor or replacement thereto appointed pursuant to Article 12;

“Issuer Trustee” means BNY Trust Company of Canada and its successors and assigns, as issuer trustee of the Trust, or any successor or replacement thereto appointed pursuant to the Declaration of Trust;

“ITA” means the Income Tax Act (Canada);

“Limited Recourse Condition” has the meaning ascribed thereto in the Declaration of Trust;

“Note Purchase Agreement” means any agreement which may be entered into from time to time between the Trust and a Person or Persons providing for the purchase and sale of Notes;

“Note Registers” means the registers, which may be in electronic or physical form, providing for the registration of the Notes which the Indenture Trustee is required to maintain pursuant to Section 2.6;

“Noteholder” means the Person in whose name the Note is registered in the applicable Note Register from time to time in accordance with the provisions of this Indenture;

“Notes” means the asset-backed notes from time to time issued in Series pursuant to this Indenture and any Related Supplement, which Series may include one or more Classes of Notes;

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“Obligations Secured” means all present and future debts, expenses and liabilities, direct or indirect, absolute or contingent, due, owing or accruing due or owing from time to time by the Trust to the Specified Creditors in their capacity as such, including, without limitation, (i) the unpaid face amount, outstanding at such time, of any Notes issued on a discount basis, discounted to their present value using a discount rate equivalent to the yield to maturity of such Notes when they were issued; (ii) the principal amount owing at such time, together with the accrued and unpaid interest on interest-bearing Notes; and (iii) accrued fees, whether or not then due and payable;

“Obligor” means a Person obligated to make payments with respect to Asset Interests, whether as principal debtor or guarantor thereof, and its successors and assigns;

“Originator” means PHH VMS, PHH LP or any of their respective Affiliates, and their respective successors and assigns;

“Participant” means a broker, dealer, bank or other financial institution or other Person who is a participant in the Book-Entry System and on whose behalf a Clearing Agency or its nominee holds Notes;

“Paying Agent” means any paying agent or co-paying agent appointed pursuant to, or in accordance with, the Related Supplement;

“Permitted Investment” means, in relation to the investment of funds on deposit in Series Accounts, investments which satisfy the criteria for Eligible Investments in the Related Securitization Agreement;

“Permitted Liens” means (i) liens for taxes, assessments or other governmental charges, levies, or imposts on the assets of the Trust not at the time delinquent or thereafter payable without penalty or contested in good faith by appropriate proceedings and for which adequate reserves, in accordance with generally accepted accounting principles shall have been set aside on the Trust’s books; (ii) the security constituted hereby; and (iii) such liens or other encumbrances expressly permitted in any of the other Programme Agreements;

“Person” means any individual, corporation, estate, partnership, trust (including any beneficiary thereof), joint venture, association, joint stock company, unincorporated organization, government (or any agency or political subdivision thereof), or any other entity whether acting as an individual, fiduciary or in any other capacity;

“PHH LP” means PHH Fleet Lease Receivables L.P., and its successors and permitted assigns under any applicable Securitization Agreement;

“PHH VMS” means PHH Vehicle Management Services Inc., and its successors and permitted assigns under any applicable Securitization Agreement;

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“PPSA” means (a) the personal property security legislation as in effect in each province or territory of Canada (other than Quebec), and (b) the Civil Code of Quebec as in effect in Quebec (but excluding any portions of the Civil Code of Quebec which are not equivalent to the PPSA of the provinces or territories described in clause (a));

“Principal Terms” means, with respect to the Notes of any particular Series:

(a) the name or designation of each Class of Notes of such Series and, if such Series consists of more than one Class, the rights and priorities of each such Class;

(b) the aggregate principal amount of each Class of Notes of such Series which may be issued;

(c) the interest rates, if any, applicable to each Class of Notes of such Series and the period over which any interest is to accrue;

(d) the Distribution Dates, if any, applicable to each Class of Notes of such Series;

(e) the language and currency of such Notes;

(f) the method for allocating principal and interest and other Collections to fund payments to each Class of Notes of such Series;

(g) the forms of each Class of Notes of such Series;

(h) the final maturity dates of each Class of Notes of such Series and any expected final payment dates;

(i) a description of the items, if any, required to be delivered to the Indenture Trustee on the Related Series Issuance Date in addition to those specified in Section 2.3(2);

(j) whether such Notes are to be Definitive Notes or Book-Entry Notes and any limitations imposed thereon;

(k) the minimum amounts and denominations in which such Notes may be issued, if applicable;

(l) any additional or alternative Related Events of Default;

(m) provisions which this Indenture requires or permits to be specified in a Related Supplement;

(n) any terms which amend, supplement, modify, restate or replace the terms of this Indenture as such pertain to such Notes;

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(o) any other provisions expressing or referring to the terms or conditions upon which the Notes of such Series are to be issued or obtained under this Indenture and the Related Supplement;

(p) the designation of any Series Accounts and the terms governing the operation of such Series Accounts;

(q) the priority of such Series with respect to any other Series;

(r) the specification of any Related Securitization Agreement; and

(s) the Rating Agency or Rating Agencies, if any, rating such Series;

 “Proceeding” means, with respect to any Series and the Related Obligations Secured, any suit in equity, action at law or other judicial or administrative proceeding;

 “Programme Agreements” means, at any time, collectively, this Indenture, any Related Supplement, any Hypothec, the Declaration of Trust, the Financial Services Agreement, the Financial Services Sub-Agency Agreement, any agreements relating to Hedging Transactions, Securitization Agreements, Credit Enhancement Agreements, Servicing Agreements, agreements under which a Back-Up Servicer is engaged to act in such capacity, Subordinated Loan Agreements, Custodial Agreements, Note Purchase Agreements, Underwriting Agreements and indemnities of Originators in favour of the Trust, in each case, in effect at such time;

 “Rating Agencies” means, with respect to any Notes at any time, each credit rating agency which at the request of the Trust are rating such Notes;

 “Rating Agency Condition” means, with respect to any Series, a condition which is met when, after the delivery of notice of any action or proposed action has been provided to each Related Rating Agency, such Related Rating Agencies notify the Trust in writing that such action, or proposed action, will not result in the downgrade or withdrawal of such Rating Agencies’ then current rating of the Notes of such Series which are then outstanding;

 “Receiver” means one or more of a receiver, receiver-manager or receiver and manager of all or a portion of any Collateral appointed pursuant to Article 9;

 “Record Date” means, for any Distribution Date, the close of business on the date immediately preceding the Distribution Date, or if the relevant Notes are Definitive Notes, the last day of the month preceding such Distribution Date or, in respect of any Series of Notes, such other date as may be specified in the Related Supplement;

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 “Related” is used in reference to the Notes of a particular Series and means, when used in conjunction with:

(a) “Asset Interests”: the Asset Interests the purchase or other acquisition by the Trust, or creation, of which is financed or refinanced, in whole or in part, by the issuance of such Notes;

(b) “Back-Up Servicer”: a Back-Up Servicer of Related Asset Interests;

(c) “Class”: each Class of such Series;

(d) “Collateral”: that portion of the Collateral comprising (i) the Related Asset Interests; (ii) any Related Collections thereof; (iii) all amounts in the Series Accounts in respect of such Series; (iv) all amounts available under any Related Credit Enhancement Agreement; (v) all amounts in the Related Collateral Accounts and Related Payment Accounts; (vi) all investments thereof and the proceeds of such investments; and (vii) all rights under the Related Programme Agreements;

(e) “Collateral Accounts”: those accounts into which the proceeds of Related Collection Accounts, any further Related Collections and the proceeds of sale of any Related Collateral are to be deposited pursuant to Section 9.5;

(f) “Collection Accounts”: those accounts of the Trust or a Custodian specified in the Related Supplement or Related Securitization Agreement as “Collection Accounts” into which Related Collections are to be deposited;

(g) “Collections”: all Collections with respect to Related Asset Interests;

(h) “Credit Enhancement”: Credit Enhancement provided pursuant to a Related Credit Enhancement Agreement in respect of such Notes or the Related Asset Interests;

(i) “Credit Enhancement Agreement”: a Credit Enhancement Agreement pursuant to which Credit Enhancement has been provided in respect of such Notes or the Related Asset Interests;

(j) “Credit Enhancer”: a Credit Enhancer under a Related Credit Enhancement Agreement;

(k) “Custodial Agreement”: a Custodial Agreement pursuant to which custodial services are being provided in respect of Related Asset Interests and/or Related Obligations Secured;

(l) “Custodian”: a Custodian under a Related Custodial Agreement or Related Securitization Agreement;

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(m) “Dealers”: the Dealers party to the Related Underwriting Agreement in respect of such Notes;

(n) “Default”: any occurrence that is, or with notice or the lapse of time or both would become, a Related Event of Default;

(o) “Distribution Date”: a Distribution Date specified in the Related Supplement;

(p) “Event of Default”: each Related Event of Default described in Section 8.1 in respect of such Notes or specified in the Related Supplement;

(q) “Hedging Transaction”: a Hedging Transaction relating to such Notes or to the Related Asset Interests;

(r) “Hypothec”: a Hypothec granted by the Trust in favour of the Indenture Trustee under the laws of the Province of Quebec for the purposes of further securing the Related Collateral, or a part thereof, in favour of the Indenture Trustee for the benefit of the Related Specified Creditors;

(s) “Note Purchase Agreement”: a Note Purchase Agreement pursuant to which one or more Classes of such Notes are being sold by the Trust to one or more Persons;

(t) “Noteholder”: a Noteholder of or with respect to such Series;

(u) “Notes”: a Note of such Series;

(v) “Obligations Secured”: all Obligations Secured relating to the holders of such Notes and to Related Specified Creditors under the Related Programme Agreements, including the Related Trust Expenses;

(w) “Originator”: the Originator under a Related Securitization Agreement;

(x) “Paying Agent”: a Paying Agent under a Related Supplement;

(y) “Payment Account”: an account which may be established and maintained by the Trust for the Notes of such Series, which may be a Related Collection Account;

(z) “Programme Agreements”: this Indenture, the Declaration of Trust, the Financial Services Agreement, the Financial Services Sub-Agency Agreement and any other Programme Agreement to which the Trust is a party relating to such Notes or the Related Asset Interests;

(aa) “Proportionate Share”: at any time the outstanding principal amount of Notes of such Series at such time divided by the outstanding principal amount of all Notes of all Series at such time;

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(bb)	“Rating Agency”: a Rating Agency which has established a rating for all or any Classes of such Notes;
(cc)	“Reserve”: a Reserve under or relating to a Related Securitization Agreement and specified as such in the Related Supplement;
(dd)	“Securitization Agreement”: a Securitization Agreement entered into by the Trust in connection with the purchase, other acquisition, creation, sale or other disposition of Related Asset Interests;
(ee)	“Series Issuance Date”: the date upon which the first of such Notes are issued or to be issued;
(ff)	“Servicer”: the Servicer of Related Asset Interests under a Related Securitization Agreement, a Related Servicing Agreement or other agreement entered into by the Trust and any Person providing for the servicing of Related Asset Interests, including a Back-Up Servicer of Related Asset Interests who, at the time in question, has assumed the role of Servicer thereof or any other replacement Servicer of Related Asset Interests;
(gg)	“Servicing Agreement”: a Servicing Agreement providing for the servicing of the Related Asset Interests;
(hh)	“Significant Event”: a Significant Event affecting such Notes or the Related Asset Interests;
(ii)	“Specified Creditors”: collectively, the holders of such Notes, Related Credit Enhancers, Swap Counterparties with respect to Related Hedging Transactions, Related Servicers (including any Originator which is a Related Servicer), Related Back-Up Servicers, Related Originators (in respect of amounts owing under Related Securitization Agreements or Related Subordinated Loan Agreements or otherwise for Related Reserves), Related Custodians, Related Dealers, and the Indenture Trustee, Issuer Trustee, the Financial Services Sub-Agent and Financial Services Agent to the extent their claims relate to such Notes or the Related Asset Interests;
(jj)	“Subordinated Loan Agreement”: a Subordinated Loan Agreement in respect of such Notes and the Related Asset Interests;
(kk)	“Supplement”: a supplement to this Indenture executed in connection with the issuance of such Notes;

(ll)	“Trust Expenses”: those expenses of the Trust which are attributable to a specific Series or otherwise on a Related Proportionate Share basis; and
(mm)	“Underwriting Agreement”: an Underwriting Agreement in respect of such Notes;

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“Reserve” means an amount or amounts paid or otherwise contributed by, or held back from payments otherwise due to an Originator under or relating to a Securitization Agreement, and includes, without limiting the foregoing, amounts characterized as deferred purchase prices, deferred rentals, deposits, premiums, recourse provisions, commitments to purchase assets in default, spread accounts, subordinated loans, senior/subordinated security structures, subordinated standby lines of credit, letters of credit, equity and over-collateralization;

“Securitization Agreements” means any pooling and servicing agreement, sale and servicing agreement, receivables purchase agreement, co-ownership agreement, co-ownership series purchase agreement, concurrent lease agreement, collateral covenant agreement, loan agreement or other agreement (howsoever named) entered into by the Trust or a Custodian, and an Originator or any other Person, in connection with a program structured by or on behalf of the Trust to provide for one or more advances or payments to such Originator or other Person in connection with the purchase or other acquisition by, or the creation, sale or other disposition of Asset Interests to, the Trust as or otherwise provided for therein, and includes any agreement specified as a Related Securitization Agreement in a Related Supplement;

“Security Interests” means any security interest, mortgage, pledge, hypothec, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever, including any conditional sale or title retention agreement and any financing lease having substantially the same economic effect as any of the foregoing;

“Senior Notes” means any Class of Notes of a Series which has been designated as such in the Related Supplement or, failing which, any Class of Notes which is senior in right of payment to the Notes of all other Related Classes and, for purposes of Article 3, includes any Notes of any Related Class which, pursuant to the Related Supplement, are senior in right of payment to the Notes of any other Related Class;

“Series” means any series of Notes issued pursuant to this Indenture and any Related Supplement;

“Series Accounts” has, with respect to any Series or Class, the meaning specified in the Related Supplement or Related Securitization Agreement and includes the Related Collection Accounts for such Series or Class;

“Servicer” means a Person designated to collect payments in respect of Asset Interests and to perform other tasks associated therewith under a Securitization Agreement or a Servicing Agreement, and its successors and assigns, including a Back-Up Servicer of Asset Interests who, at the time in question, has assumed the role of Servicer thereof or any other replacement Servicer;

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“Servicing Agreement” means any agreement (including a Securitization Agreement) entered into between the Trust and any Person providing for the administration or servicing of Asset Interests;

“Significant Event” means any event which would or, with the passage of time or giving of notice would, permit the Trust or a Custodian to exercise any remedy against any other party to a Programme Agreement or change the manner in which the proceeds of Asset Interests would be applied to repay any Obligations Secured, including, without limitation, those owing to any Noteholder, or change the manner in which the proceeds of Asset Interests would be allocated to the Trust pursuant to a Securitization Agreement;

“Specified Creditors” means, collectively, Noteholders, Credit Enhancers, the Financial Services Agent, the Financial Services Sub-Agent, the Indenture Trustee, Custodians, Swap Counterparties, the Issuer Trustee, the Originators (in respect of amounts owing under Securitization Agreements or Subordinated Loan Agreements or otherwise for Reserves), Dealers, Back-Up Servicers and Servicers (including any Originator which is a Servicer);

“Subordinated Loan Agreement” means any loan agreement between an Originator and the Trust, pursuant to which such Originator (or its Affiliate) lends money to the Trust for the purpose of financing the payment by the Trust of expenses payable by the Trust in connection with the transactions contemplated pursuant to the Programme Agreements;

“Subordinated Notes” means any Class of Notes of a Series which are, pursuant to the Related Supplement, subordinate and junior in right of payment to the Notes of any other Class of such Series;

“Swap Counterparty” means a party (other than the Trust) to a Hedging Transaction, and its successors and assigns;

“Trust Property” means, as of any particular time, all assets of the Trust and all property, real, personal or otherwise, tangible or intangible, which has been transferred, conveyed or paid to, or acquired by the Trust, including all Asset Interests and all income, earnings, profits and gains therefrom, and which at such time are owned or held by the Trust;

“Underwriting Agreement” means any underwriting, agency or other agreement which may be entered into from time to time between the Trust and one or more Dealers providing for the sale and distribution of Notes of the Trust; and

“Written Order” means an order of the Trust duly executed by the Issuer Trustee, the Financial Services Sub-Agent or the Financial Services Agent delivered in writing or sent by facsimile or electronic mail.

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1.2 Meaning of “Outstanding” for Certain Purposes.

          Subject to the terms of a Related Supplement, each Note issued and certified in accordance with the terms hereof will be deemed to be outstanding until it has been surrendered by the holder thereof to the Indenture Trustee and cancelled by the Indenture Trustee, or until money for the payment thereof in the necessary amount has been deposited with the Indenture Trustee for the Noteholders; provided, however, that:

(a)	Notes which have been partially redeemed, purchased, converted or exchanged shall be deemed to be outstanding only to the extent of the unredeemed, unpurchased, unconverted or unexchanged part of the principal amount thereof; and
(b)	where a new Note has been issued in substitution for a Note which has been mutilated, destroyed, lost or stolen, only the substituted Note will be counted for the purpose of determining the aggregate principal amount of Notes outstanding.

          In determining whether Noteholders holding the requisite percentage of Notes of any Class have given any request, demand, authorization, direction, notice, consent, vote or waiver pursuant to this Indenture, Notes owned by any Originator, any Servicer or an Affiliate of either, shall be disregarded and deemed not to be outstanding, except that:

(a)	in determining whether the Trust and the Indenture Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, vote or waiver, only the Notes which the Trust or the Indenture Trustee, as the case may be, knows to be so owned shall be so disregarded;
(b)	Notes so owned which have been pledged in good faith, other than to the Trust or the Issuer Trustee, as trustee of the Trust, shall not be disregarded and may be regarded as outstanding if the pledgee establishes to the satisfaction of the Trust or the Indenture Trustee the pledgee’s right so to act with respect to such Notes and that the pledgee is not an Originator or an Affiliate of an Originator; and
(c)	such Originator, Servicer or an Affiliate of either that is a holder of Subordinated Notes shall be entitled to take any such actions as holders of such Subordinated Notes held by any of them.

1.3 References to Statutes.

          Unless otherwise specified herein, all references herein to any statute or any provision thereof shall mean such statute or provision as the same may be amended, re-enacted or replaced from time to time.

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1.4 Extended Meanings.

          Words importing the singular number only will include the plural and vice versa and words importing any gender will include all genders. Unless the context requires otherwise, a reference in this Indenture to any agreement, instrument or declaration means such agreement, instrument or declaration as the same may be amended, supplemented, modified, restated or replaced from time to time. Any reference herein to “include”, “includes” or “including” means “include without limitation”, “includes without limitation” or “including without limitation”, as applicable.

1.5 Sections and Headings.

          The table of contents does not form part of this Indenture. The division of this Indenture into Articles and Sections and the insertion of headings are for convenience of reference only and will not affect the construction or interpretation of this Indenture. The terms “this Indenture”, “hereof”, “hereunder” and similar expressions refer to this Indenture and not to any particular Article, Section or other portion of this agreement and include any agreement or instrument supplemental or ancillary hereto. Unless something in the subject matter or context is inconsistent therewith, references herein to Articles and Sections are to Articles and Sections of this Indenture.

1.6 Governing Law of Indenture.

          This Indenture will be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein and each of the parties hereto attorn to the non-exclusive jurisdiction of the Courts of the Province of Ontario.

1.7 Invalidity of Provisions.

          Except for any provision or covenant contained herein which is fundamental to the subject matter of this Indenture (including, without limitation, those that relate to the payment of money), if one or more provisions of this Indenture is for any reason whatever held invalid, such provision will be deemed severable from the remaining covenants, agreements and provisions of this Indenture and will in no way affect the validity or enforceability of such remaining provisions or the rights of any parties hereto.

1.8 Computation of Time Periods.

          In this Indenture, with respect to the computation of periods of time from a specified date to a later specified date, unless otherwise expressly stated, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding”.

1.9 Non-Business Days.

          Whenever any payment to be made hereunder shall be stated to be due, any calculation is to be made or any other action to be taken hereunder shall be stated to be required to be taken on a day other than a Business Day, such payment shall be made, such calculation

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shall be made and such other action shall be taken on the next succeeding Business Day and an extension of time shall be included for such purposes.

          Any payment made after 3:00 p.m. (Toronto time) on a Business Day shall be deemed to be made on the next following Business Day.

1.10 Accounting Principles.

          Where the character or amount of any asset or liability or item of revenue or expense is required to be determined, or any consolidation or other accounting computation is required to be made for the purpose of this Indenture, such determination or calculation will, to the extent applicable and except as otherwise specified herein or as otherwise agreed in writing by the parties, be made in accordance with generally accepted accounting principles applied on a consistent basis. Wherever in this Indenture reference is made to generally accepted accounting principles, such reference will be deemed to be to Canadian generally accepted accounting principles from time to time approved by the Canadian Institute of Chartered Accountants, or, where so elected by the relevant Person, as approved by the Financial Accounting Standards Board, or in either event any successor institute, until such time as the reporting entity in question is required to or chooses to adopt International Financial Reporting Standards, in which case such reference will be deemed to be to the International Financial Reporting Standards as published by the International Accounting Standards Board, or any successor accounting standards board, in each case, applicable as at the date on which such calculation is made or required to be made in accordance with such generally accepted accounting principles. To the extent that the definitions of accounting terms in this Indenture or in any certificate or other documents are inconsistent with the meaning of such terms under generally accepted accounting principles, the definitions in this Indenture or in any such certificate or other document shall prevail.

1.11 Currency.

          Unless stated otherwise, all amounts herein are stated in Canadian Dollars.

1.12 Time of the Essence.

          Time shall be of the essence of this Indenture.

1.13 Approvals and Consents.

          All references in this Indenture that require the approval or consent of any Person shall mean the approval or consent of such person in writing. Except to the extent a contrary intention is expressly set forth herein, whenever a party is to provide its approval or consent, such approval or consent shall not be unreasonably withheld or delayed.

1.14 Discontinuance and Changes in Designation of Ratings.

          In applying any definition or other term or provision hereof which contemplates a specific rating of a rating agency at a time, (a) each rating agency specified will include any

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successor thereof at the time (whether as a result of a change in name, an amalgamation, merger or other reorganization, or otherwise), (b) if a specified rating agency and any successor ceases to exist, the reference to such rating agency and its ratings shall not be applicable, and (c) if a specified rating agency changes the designation of its debt rating categories, the debt rating categories specified will refer to each debt rating category of the rating agency at the time which can reasonably be determined to be equivalent to the specified rating categories of the rating agency.

1.15 References to Acts of the Trust.

          For greater certainty, where any reference is made in this Indenture, or in any other instrument executed pursuant hereto or contemplated hereby to which the Trust or the Issuer Trustee, as trustee of the Trust, is party, to an act to be performed by, an appointment to be made by, an obligation or liability of, an asset or right of, a discharge or release to be provided by, a suit or proceeding to be taken by or against, or a covenant, representation or warranty (other than relating to the constitution or existence of the Trust or the Issuer Trustee) by or with respect to (i) the Trust; or (ii) the Issuer Trustee, such reference shall be construed and applied for all purposes as if it referred to an act to be performed by, an appointment to be made by, an obligation or liability of, an asset or right of, a discharge or release to be provided by, a suit or proceeding to be taken by or against or a covenant, representation or warranty (other than relating to the constitution or existence of the Trust) by or with respect to, the Issuer Trustee as trustee of the Trust or any agent appointed by it to act on its behalf.

1.16 References to Rating Agency Condition.

          Wherever there is reference to satisfaction of a Rating Agency Condition in this Indenture or any other Programme Agreement, subject to the terms of the specific Programme Agreement which shall govern, such condition need not be satisfied if there is no Rating Agency then rating the applicable Notes.

1.17 Language.

          The parties hereto express a request and require that this document be drawn up in English. Les parties aux présentes conviennent et exigent que la présente entente et tous les documents qui s’y rattachent soient rédigés en anglais. In the event of any contradiction, discrepancy or difference between the English language version and the French language version, if any, of the text of the forms of the Notes, the English language version shall govern.

ARTICLE 2
THE NOTES

2.1 Notes.

          The aggregate principal amount of Notes which may be created and issued pursuant to this Indenture is unlimited. The aggregate principal amount of Notes of a particular

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Series or any Related Class which may be created and issued pursuant to this Indenture is limited to the aggregate principal amount of Notes, if any, specified in the Related Supplement.

2.2 Requirements for Initial Creation of Notes.

            Notes may be created by the Trust, in accordance with the provisions hereof, provided that on or prior to the initial creation and issuance of Notes hereunder, the Trust shall have delivered to the Indenture Trustee:

(a)	the Declaration of Trust;
(b)	the Financial Services Agreement and the Financial Services Sub-Agency Agreement; and
(c)	a Certificate of the Trust, dated the date of issuance of such Notes, stating that the issuance of the Notes will not result in the occurrence of a Related Event of Default;

and the provisions of Section 2.3(2) shall have been satisfied.

2.3 Creation and Issuance in Series.

(1)

Notes may, at the election of the Trust, be created and issued in one or more Series and in one or more Classes of such Series with such further particular designations added or incorporated in such title for the Notes of any particular Series or Class as the Trust may determine. All Notes of the same Class of any Series at any time outstanding shall be identical in all respects except for the denominations and dates thereof and as may be otherwise specified in the Related Supplement. All Notes of a particular Class of a Series created and issued under this Indenture shall be in all respects entitled, equally and rateably with all other Notes of such Class of such Series, to the benefits hereof and of the Related Supplement without preference, priority or distinction on account of the actual time or times of certification and delivery, all in accordance with the terms and provisions of this Indenture and the Related Supplement.

(2)

In order to create Notes of any particular Series hereunder, the Trust and the Indenture Trustee shall, on or before the Related Series Issuance Date, execute and deliver a Related Supplement. The terms of such Related Supplement may amend, supplement, modify, restate or replace the terms of this Indenture solely as applied to such Notes. The obligation of the Indenture Trustee to execute and deliver the Related Supplement is subject to the satisfaction of the following conditions (other than in respect of the first Series for which (c) and (i) below are inapplicable):

(a) copies of any Related Securitization Agreement, Related Credit Enhancement Agreement, agreements in respect of any Related Hedging

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Transaction, Related Subordinated Loan Agreement, Related Note Purchase Agreement and Related Underwriting Agreement then in effect shall have been delivered to the Indenture Trustee;

(b)	a Clearing Agency Letter of Representation, if any, to the extent applicable to such Notes shall have been delivered to the Indenture Trustee and the Clearing Agency by the Trust;
(c)	the Rating Agency Condition shall have been satisfied with respect to the Notes then outstanding;
(d)	the Indenture Trustee shall have received a Certificate of the Trust certifying that, as of the date of such execution and delivery, (i) the representations and warranties set forth in Section 7.1 are true and correct in all material respects; and (ii) the Trust has established or caused to be established the Series Accounts prior to the Related Series Issuance Date;
(e)	in the event that an offering memorandum, prospectus or other similar document is required or is to be provided to prospective purchasers of any such Notes (as to which the Indenture Trustee shall have no duty or role in determining), the Related Originator shall have executed and delivered to the Issuer Trustee an indemnity relating to any misrepresentations contained therein in form and substance satisfactory to the Trust;
(f)	any other items specified in the Related Supplement shall have been executed by and delivered to the appropriate Persons;
(g)	the Indenture Trustee shall have received an opinion of counsel to the Trust, in form and substance acceptable to the Indenture Trustee, acting reasonably, stating that all requirements imposed by the terms of this Indenture for the creation of such Notes have been fulfilled in accordance with the terms of this Indenture;
(h)	the Related Supplement shall set out, at a minimum, the Principal Terms; and
(i)	the issuance of such Notes does not constitute or result in the occurrence of a Related Event of Default in respect of any Notes then outstanding.

2.4 Execution, Certification and Delivery.

(1) The form of Notes of any particular Series and the certificate of the Indenture Trustee to be endorsed thereon shall be substantially in the forms set out in the Related Supplement, with such appropriate insertions, omissions, substitutions and variations as may be approved by or permitted under the terms hereof or of the Related Supplement or as the Trust and the Indenture Trustee may approve.

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(2)	The Trust may at any time and from time to time deliver Notes executed by it to the Indenture Trustee for certification.
(3)	Subject to Section 2.13, the Indenture Trustee shall certify Notes from time to time and make such Notes available for pick-up without receiving any consideration therefor upon receipt by and deposit with the Indenture Trustee of a Written Order for the certification and delivery of the Notes specifying for each such Note the name and address of the payee and the date, principal amount and interest rate, if applicable, of the Note.
(4)	No Noteholder shall be entitled to any benefit under this Indenture and no Note shall be issued or, if issued, shall be valid or obligatory for any purpose unless there appears on the Note a certificate executed by the Indenture Trustee, by the manual signature of its authorized officers, representatives or employees, and such certificate upon any Note shall be conclusive evidence that the Note has been duly certified and delivered hereunder. Any signature on behalf of the Trust or any guarantor of the Notes may be manual or by facsimile. Notes bearing the manual or facsimile signature of an individual who was at the time of execution a proper authorized signatory of the Issuer Trustee in respect of the Trust, any guarantor or the Indenture Trustee shall be valid and binding notwithstanding that any such individual shall have ceased to hold such office prior to the certification and delivery of such Notes or shall not have held such office at the date of issue of such Notes. Any certification of Notes issued hereunder shall not be construed as a representation or warranty as to the validity of this Indenture, the Related Supplement or the Notes (except as to the due certification thereof) and the Indenture Trustee shall in no respect be liable or answerable for the use made of the Notes or of the proceeds thereof. The certification of the Indenture Trustee signed on any Notes shall however be a representation and warranty by the Indenture Trustee that such Notes have been duly certified and delivered by or on behalf of the Indenture Trustee pursuant to the provisions of this Indenture and the Related Supplement.
(5)	The certification and delivery of any Note by the Indenture Trustee shall constitute the issuance of such Note pursuant to the terms of this Indenture and the Related Supplement as of the date of such delivery.

2.5 Temporary Notes.

(1) Pending the preparation of Definitive Notes, the Trust may execute, and upon Written Order the Indenture Trustee shall certify and deliver, temporary Notes which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially in the form of the Definitive Notes in lieu of which they are issued and with such variations as the Trust and the Indenture Trustee may determine, as evidenced by the Indenture Trustee’s certification of such Notes.

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(2)

If temporary Notes are certified and delivered, the Trust shall cause Definitive Notes to be prepared without unreasonable delay. After the preparation of Definitive Notes, the temporary Notes shall be exchangeable for Definitive Notes upon surrender of the temporary Notes at the office or agency of the Indenture Trustee to be maintained as provided in Section 2.6, without charge to the holder. Upon surrender for cancellation of any one or more temporary Notes, the Trust shall execute and the Indenture Trustee shall certify and deliver in exchange therefor a like principal amount of Definitive Notes of authorized denominations. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits under this Indenture as Definitive Notes.

(3)

The provisions of this Section 2.5 do not apply with respect to Book-Entry Notes.

2.6 Registration, Transfer and Exchange.

(1)

The Indenture Trustee shall at all times while Notes are outstanding cause to be kept by and at its corporate trust office in the City of Toronto, or such other location as it may designate from time to time, Note Registers in which will be entered the name of each Noteholder or Clearing Agency or its nominees, as the case may be, and particulars of each of the Notes (including Notes issued under the Book-Entry System). The Indenture Trustee shall also at all times while any Notes are outstanding cause to be provided by and at its corporate trust office in the City of Toronto or such other location as it may designate from time to time facilities for the exchange and transfer of Notes. The Indenture Trustee may from time to time provide additional facilities at its other offices or, with the approval of the Trust, at the offices of third parties for such registration, exchange and transfer. No transfer of a Note in registered form nor any transmission thereof by death will be valid unless made at one of such offices by the Noteholder or by his or her executors, administrators or other legal representatives, or his or her or their attorney duly appointed by an instrument in writing, in form and as to execution satisfactory to the Indenture Trustee and upon compliance with such reasonable requirements as the Indenture Trustee may prescribe and upon surrender of the Note to the Indenture Trustee for cancellation, whereupon a new Note in an aggregate principal amount, currency and interest rate, if any, and with the same maturity date, will be issued to the transferee in exchange therefor. The Note Registers will, at all reasonable times on Business Days, be open for inspection by the Trust, the Financial Services Agent, the Financial Services Sub-Agent and any Noteholder.

(2)

Notes in any authorized denomination may be exchanged for an equal aggregate principal amount of Notes of the same Series and Class and having the same Principal Terms in any other authorized denomination or denominations. In every case of exchange of Notes of any denomination for other Notes and of any transfer and registration of Notes, the Indenture Trustee may make a sufficient charge to reimburse it for any stamp taxes or governmental charge for its services and a reasonable sum per Note issued upon such exchange or transfer. Payment

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of such taxes and charges will be made by the party requesting the exchange or transfer as a condition precedent thereto.

(3)	In every case of exchange or transfer of a Note, the surrendered Note shall be cancelled.
(4)	Except to the extent provided in the Related Supplement, the Indenture Trustee shall not be required to make transfers or exchanges of any Notes for the period beginning on the close of business on the day which is 15 days prior to a Related Distribution Date (or the next succeeding Business Day if such day is not a Business Day) through to and including such Related Distribution Date.

2.7 Persons Entitled to Payment.

(1)	The registered holder of any Note registered to a named payee or the transferee thereof, if such Note has been transferred in accordance with the provisions of Section 2.6, shall upon presentation of such Note be entitled to the principal money and interest, if any, when due and payable, evidenced by such Note, free from all equities or rights of set-off or counterclaim between the Trust and the original or any intermediate holder thereof, and all Persons may act accordingly.
(2)	Delivery of a Note to the Indenture Trustee by the holder of such Note shall, upon payment in full of all amounts outstanding on such Note, be a good discharge to the Trust of all obligations evidenced by such Note. The Indenture Trustee shall not be bound to enquire into the title of any such holder, save as ordered by a court of competent jurisdiction or as required by statute, nor shall it be bound to see to the execution of any trust affecting the ownership of any Note or be affected by notice of any equity that may be subsisting in respect thereof.
(3)	In the case of the death of one or more joint registered owners, the principal money of and interest, if any, on a Note may be paid to the survivor or survivors of such registered holders whose receipt thereof, accompanied by the delivery of such Note, shall constitute a valid discharge to the Trust and the Indenture Trustee.
(4)	Any payment of principal or interest on any Note which is due on a day other than a Business Day shall be payable on the next succeeding Business Day without adjustment for interest thereon and such payment shall be deemed to have been made with the same force and effect as if made on the due date.

2.8 Mutilated, Destroyed, Lost or Stolen Notes.

          If any of the Notes outstanding hereunder shall become mutilated or be lost, destroyed or stolen, the applicable Noteholder shall deliver to the Indenture Trustee a sworn affidavit of loss. Upon receipt of such affidavit, the Indenture Trustee shall certify and deliver a new Note of the same Series and Class and having the same Principal Terms and an equivalent

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principal amount as the one mutilated, lost, destroyed or stolen in exchange for and in place of and upon surrender and cancellation of such mutilated Note or in lieu of and in substitution for such lost, destroyed or stolen Note and the substituted Note shall be entitled to the security hereof and rank equally in accordance with its terms with all other Notes of the same Series and Class issued hereunder. The applicant for a new Note shall bear the cost of the issue thereof, and in case of loss, destruction or theft, as a condition precedent to the issue thereof shall furnish such an affidavit of loss in form satisfactory to the Trust and the Indenture Trustee, and an indemnity in amount and form satisfactory to the Trust and the Indenture Trustee, in each case, as they may require, and shall pay the reasonable charges of the Trust and the Indenture Trustee in connection therewith.

2.9 Cancellation and Destruction of Notes.

          All Notes surrendered or delivered to the Indenture Trustee for cancellation under this Indenture shall be cancelled by it as soon as practicable. If required by the Trust, the Indenture Trustee shall furnish to it a cancellation certificate setting forth the numbers and denominations of the Notes so cancelled. All Notes which have been surrendered or delivered to and cancelled by the Indenture Trustee will be destroyed by the Indenture Trustee, subject to its relevant record retention policies, and the Indenture Trustee will, upon request by the Trust, furnish to the Trust a destruction certificate on request setting forth the numbers and denominations of the Notes so destroyed.

2.10 Protection of Notes.

(1)

The Indenture Trustee shall hold in safekeeping the Notes which have not been issued (but which have been delivered to the Indenture Trustee by or on behalf of the Issuer Trustee) pending receipt of a Written Order. The Indenture Trustee shall acknowledge receipt of the Notes so delivered by signing and returning to the Trust an acknowledgement of receipt of the Notes, such acknowledgement to be in a form satisfactory to the Trust.

(2)

The Indenture Trustee’s responsibility for any Notes held in its custody hereunder shall be limited to using the same diligence in physically safeguarding such Notes as it does for its own securities. The Indenture Trustee shall account for the unissued Notes held in its custody whenever so required by the Trust. If at any time the Indenture Trustee shall discover that any of such Notes have been lost, damaged, destroyed, stolen or misappropriated, it shall promptly advise the Trust thereof and identify, to the extent practicable, such Notes.

2.11 Access to List of Noteholders’ Names and Addresses.

          The Indenture Trustee will furnish or cause to be furnished to the Trust or the Related Paying Agent, within five Business Days after receipt by the Indenture Trustee of a request therefor, a list in such form as the Trust or the Related Paying Agent may reasonably require, of the names and addresses of the current Noteholders of any particular Series or Classes. If any one or more Noteholders of any Class, as the case may be, holding not less than

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20% of the aggregate unpaid principal amount of the Notes of such Class or of all outstanding Classes, as applicable (the “Applicants”), applies to the Indenture Trustee, and such application states that the Applicants desire to communicate with other Noteholders with respect to their rights under this Indenture or under the Notes and such application is accompanied by a copy of the communication which such Applicants propose to transmit, then the Indenture Trustee, after having received sufficient funds and/or having been adequately indemnified by such Applicants for its costs and expenses, shall afford or shall cause to afford to such Applicants access during normal business hours to the most recent list of Noteholders of such Class or all outstanding Classes, as applicable, held by the Indenture Trustee within five Business Days after the receipt of such application. Such list shall be as of a date no more than 45 days prior to the date of receipt of such Applicants’ request.

          Every Noteholder, by receiving and holding a Note, agrees with the Indenture Trustee that none of the Trust, the Indenture Trustee, the Financial Services Agent, the Financial Services Sub-Agent, any Related Paying Agent, or any of their respective agents, shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Noteholders hereunder, regardless of the sources from which such information was derived.

2.12 Certifying Agent.

(1)

The Indenture Trustee may appoint one or more certifying agents with respect to the Notes which shall be authorized to act on behalf of the Indenture Trustee in certifying the Notes in connection with the issuance, delivery, registration of transfer, exchange or repayment of the Notes. Whenever reference is made in this Indenture to the certification of Notes by the Indenture Trustee or the Indenture Trustee’s certification, such reference shall be deemed to include certification on behalf of the Indenture Trustee by a certifying agent and certification executed on behalf of the Indenture Trustee by a certifying agent. Each certifying agent must be acceptable to the Trust.

(2)

Any institution succeeding to the corporate agency business of a certifying agent shall continue to be a certifying agent without any further act on the part of the Indenture Trustee or such certifying agent. A certifying agent may at any time resign by giving 30 days’ notice to the Trust and the Indenture Trustee. The Indenture Trustee may at any time terminate the agency of a certifying agent by giving notice of termination to such certifying agent and the Trust. Upon receiving such a notice of resignation or upon such a termination, or in case at any time a certifying agent shall cease to be acceptable to the Trust or the Indenture Trustee, the Indenture Trustee promptly may appoint a successor certifying agent. Any successor certifying agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as a certifying agent. No successor certifying agent shall be appointed unless acceptable to the Trust and the Indenture Trustee. The Trust agrees to pay to each certifying agent from time to time reasonable compensation for its services under this Section 2.12. The

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provisions of Article 12 shall be applicable, mutatis mutandis, to any certifying agent.

(3)	Pursuant to an appointment made under this Section 2.12, the Notes may have endorsed thereon, in lieu of the Indenture Trustee’s certification, an alternate certification in substantially the following form:
	This is one of the Notes described in the Indenture.

as Certifying Agent for the Indenture Trustee,

By
	Authorized Officer

2.13 Book-Entry Notes.

(1) Except as provided in the Related Supplement for any Notes of a particular Series and subject to Section 2.13(5), Notes of a particular Class of a Series, upon original issuance, shall be issued under the Book-Entry System, in the form of a global Note certificate representing the Book-Entry Notes, to be delivered to the Clearing Agency by or on behalf of the Trust in respect of such Class of Notes of such Series. The Notes shall initially be registered on the Note Registers in the name of the Clearing Agency or its nominee and no Book-Entry Noteholder will receive Definitive Notes representing such Noteholder’s interest in the Notes, except as provided in Section 2.13(5) or the Related Supplement. Unless and until Definitive Notes have been issued to the applicable Noteholders pursuant to Section 2.13(5) or as otherwise specified in the Related Supplement for any Notes:

(a)	the provisions of this Section 2.13 shall be in full force and effect;
(b)	the Issuer Trustee, the Indenture Trustee, the Trust, the Financial Services Sub-Agent and the Financial Services Agent may deal with the Clearing Agency for all purposes (including the making of payments and the delivery of any notice, report or other communication) as the registered holder of the Notes and as the authorized representative of the respective Book-Entry Noteholders;
(c)	to the extent that the provisions of this Section 2.13 conflict with any other provisions of this Indenture, the provisions of this Section 2.13 shall prevail;

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(d)	the rights of the respective Book-Entry Noteholders shall be exercised only through the Clearing Agency (directly or by proxy in favour of the respective Participants) and shall be limited to those established herein and by law;
(e)	all transfers and exchanges of Book-Entry Notes must be made through the Book-Entry System and any person transferring a Book-Entry Note in such manner shall be deemed to have transferred to the transferee all of such Person’s rights and obligations in respect thereof; all transferees of Book-Entry Notes shall be deemed to have received and accepted such transfer and be deemed to have agreed to be bound by the provisions of this Indenture; and
(f)	for purposes of any provision of this Indenture requiring or permitting actions with the consent of, or at the direction of, holders of Notes evidencing a specified percentage of the aggregate unpaid principal amount of Notes then outstanding, the Indenture Trustee is entitled to act and rely upon the instructions of the Clearing Agency that it has received instructions, directly or indirectly through their respective Participants, to such effect from Book-Entry Noteholders owning or representing, respectively, the requisite percentage of Notes.

(2)	Subject to Section 2.13(1), each of the parties hereto acknowledges and agrees that the Book-Entry Noteholders through their respective Participants are collectively entitled, under the terms hereof, to all of the rights accorded to registered holders of Notes and are bound by all of the obligations of such Noteholders.
(3)	When a Book-Entry Note has been deposited with the Clearing Agency, the rights of the Book-Entry Noteholders represented by a Book-Entry Note, with respect to the interest acquired, the time at which it is acquired, the method of transfer and the ability and procedure to enforce payment shall be as determined by the rules of the Clearing Agency.
(4)	Payments of interest on Book-Entry Notes and payments of amounts due upon maturity of Book-Entry Notes will be made in accordance with the rules of the Clearing Agency.
(5)	If Book-Entry Notes have been issued and (i) the Trust advises the Indenture Trustee that the Clearing Agency is no longer willing or able to discharge properly its responsibilities as the Clearing Agency with respect to such Notes and the Clearing Agency is unable to locate a qualified successor; or (ii) after the occurrence and during the continuance of a Related Event of Default, Book-Entry Noteholders representing, in aggregate, not less than 50% of the aggregate unpaid principal amount then outstanding of the Notes of the affected Series advise the Indenture Trustee through the Clearing Agency and the Participants in writing,

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	that the continuation of the Book-Entry System with respect to such Notes is no longer in the best interests of the Book-Entry Noteholders with respect to such Notes, then the Indenture Trustee shall notify the relevant Book-Entry Noteholders of such Notes, through the Clearing Agency, of the occurrence of any such event and of the availability of Definitive Notes to Book-Entry Noteholders requesting the same. Upon surrender by the Clearing Agency of the single global certificate or certificates representing the Notes and accompanied by registration instructions from the Clearing Agency for re-registration, the Indenture Trustee shall certify and deliver such Definitive Notes. None of the Issuer Trustee, the Trust or the Indenture Trustee shall be liable for any delay in delivery of such instructions and may conclusively act and rely on, and shall be protected in acting and relying on, such instructions. Upon the issuance of such Definitive Notes, the Issuer Trustee, the Indenture Trustee, the Trust, the Financial Services Sub-Agent and the Financial Services Agent shall recognize the registered holders of such Definitive Notes as Noteholders hereunder.
(6)	If Definitive Notes have been issued and thereafter the Trust advises the Indenture Trustee of the availability of the Book-Entry System in regard to such Notes, the Indenture Trustee and the Trust may agree to allow for the re-registration of such Definitive Notes under the Book-Entry System and the Indenture Trustee shall forthwith deliver notice thereof to each registered holder of such Notes. Upon surrender by any such Noteholder of its Definitive Note accompanied by instructions for re-registration of the Note under the Book-Entry System, such Note shall thereafter be re-issued under the Book-Entry System and be subject to Sections 2.13(1), (2), (3), (4), (5) and (7), mutatis mutandis.
(7)	Whenever any notice or other communication is required to be given to the Noteholders of any Series, unless and until Definitive Notes shall have been issued to the applicable Noteholders, the Trust or the Indenture Trustee, as the case may be, shall give all such notices and communications to the applicable Clearing Agency.
(8)	The Trust and the Indenture Trustee may provide in a Related Supplement for the issuance by the Trust of Book-Entry Notes in electronic uncertificated form in accordance with the rules of the applicable Clearing Agency, which Notes shall for all purposes under this Indenture be Book-Entry Notes, except as otherwise provided in this Section 2.13(8). In such case, the Related Supplement shall provide for the procedures to be followed by the Trust and the Indenture Trustee in connection with the issuance, authentication, registration, exchange, transfer of, and making payments on, such Book-Entry Notes and the terms of the Related Supplement relating to the procedures to be followed in connection with the issuance, authentication, registration, exchange, transfer of, and making payments, on such Book-Entry Notes shall, to the extent inconsistent with the terms of this Indenture, govern such Book-Entry Notes.

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2.14 Payment of Notes.

(1)	The entire principal amount of each Note, except as otherwise specified in the Related Supplement, shall be due and payable on the maturity thereof unless such Note becomes due and payable at an earlier date by acceleration, call, redemption or otherwise.
(2)	The Notes shall accrue interest as specified in the Related Supplement.
(3)	Subject to Sections 2.14(6) and 2.15, any amount payable on any Note shall be paid to the Noteholder as of the Record Date, if any, for the Related Distribution Date by cheque mailed at least one Business Day prior to the Related Distribution Date to such Noteholder’s address as it appears in the Note Register at the close of business on such Record Date. The forwarding of such cheque shall satisfy and discharge the liability for the payment due on such Note to the extent of the sum represented thereby, unless such cheque is not paid on presentation. In the event of non-receipt of such cheque by such Noteholder or the loss or destruction thereof, the Trust and/or the Indenture Trustee, upon being furnished with reasonable evidence of such non-receipt, loss or destruction and an indemnity satisfactory to the Trust and the Indenture Trustee in their discretion, shall issue or cause to be issued to such Noteholder a replacement cheque for the amount of such cheque. Notwithstanding the foregoing, if a Book-Entry Note is deposited with the Clearing Agency, then, unless and until the rules of the Clearing Agency are amended to permit the discharge from liability of the Trust upon the deposit or making available of funds, the deposit or making available of such amount to the Related Payment Account or mailing of cheques shall neither satisfy nor discharge the liability of the Trust for the Note represented by such Book-Entry Note to which the deposit or making available of funds relates to the extent of the amount deposited or made available (plus the amount of any taxes deducted as aforesaid). Until the rules of the Clearing Agency are amended as aforesaid, the liability of the Trust for a Book-Entry Note will be discharged upon payment by the Trust in accordance with the provisions of Section 2.13(4). Notwithstanding the foregoing or any provision in any Note to the contrary, the Trust will pay, if so requested in writing by a Noteholder or if required by the rules, by-laws, procedures or guidelines of the Canadian Payments Association or similar body, all amounts payable to such Noteholder, by wire transfer of immediately available funds on the Related Distribution Date to such account or accounts as specified by the Noteholder.
(4)	The Trust shall deposit to the Related Payment Account not later than each Related Distribution Date such sums as may be sufficient to pay all amounts then due to the Noteholders of the Related Series on such Related Distribution Date. To the extent that the amounts on deposit in the Related Payment Account on any Related Distribution Date (including proceeds of Notes issued) are insufficient to pay all amounts then due on the Related Series on such Related Distribution Date,

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	the amount so deposited shall be paid to the Noteholders of such Related Series in accordance with the Related Supplement.
(5)	The final payment on any Note shall, if such Note is a Definitive Note be made only upon presentation and surrender of such Note on or after the Related Distribution Date at one or more chartered banks in the City of Toronto identified by the Trust or any branch of the Indenture Trustee designated for such purpose from time to time by the Trust and the Indenture Trustee, or if such Note has been called for redemption or repayment, at any other place as may be specified in the notice of redemption or repayment. If such Note is a Book-Entry Note on deposit with a Clearing Agency, such final payment shall be deposited with such Clearing Agency and paid to the beneficial owners thereof in accordance with the Clearing Agency’s practices and procedures and the Clearing Agency shall deliver such Note to the Indenture Trustee for cancellation.
(6)	Notwithstanding any of the foregoing provisions, if a Related Event of Default has occurred, then payments shall be made in accordance with the Related Supplement.

2.15 Payment Agreement for Notes.

          Notwithstanding anything contained in this Indenture, the Trust may enter into an agreement with the holder of any Note or with the Person for whom such holder is acting as nominee providing for the payment to such holder of the principal of and premium, if any, and interest on any such Note at a place and in a manner other than the place or manner specified herein and in such Note. Any payment of principal of and premium, if any, and interest on any Note at such other place or in such other manner pursuant to such agreement shall, notwithstanding any other provision of this Indenture, be valid and binding on the Trust, the Indenture Trustee and such Noteholder.

2.16 Interest Act.

          For the purpose of disclosure pursuant to the Interest Act (Canada), the yearly rate of interest to which any rate of interest payable under this Indenture that is calculated on any basis other than a full calendar year is equivalent may be determined by multiplying such rate by a fraction the numerator of which is the actual number of days in the calendar year in which such yearly rate of interest is to be ascertained and the denominator of which is the number of days comprising such other basis. The parties further agree that for the purposes of the Interest Act (Canada), (i) the principle of deemed reinvestment of interest shall not apply to any interest calculation under this Indenture or the Notes, and (ii) the rates of interest stipulated in this Indenture or the Notes are intended to be nominal rates and not effective rates or yields.

2.17 Repayment of Unclaimed Money.

          Subject to applicable law, any money deposited to the Related Note Payment Accounts pursuant to Sections 2.14 or 2.15 and not claimed by and paid to Noteholders as

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provided in such sections within six years after the date on which payment first becomes due and payable, shall be repaid to the Trust, with interest, if any, on demand, and thereupon the Trust shall be released from all further liability with respect to such money, and thereafter the holders of the Notes in respect of which such moneys were so repaid to the Trust shall have no rights in respect thereof and the Trust shall be discharged from its obligations in respect thereof.

2.18 Maintenance of Records.

          The Indenture Trustee shall open and maintain appropriate records with respect to each outstanding Note. The Indenture Trustee shall record by appropriate entries therein each payment made on account of interest and principal owing with respect to each such Note. For the purposes thereof, the Trust shall to the extent applicable provide to the Indenture Trustee satisfactory evidence of each payment as soon as practicable after making such payment. Such records of payment shall be conclusive evidence of the unpaid principal balance and interest owing in the absence of demonstrable error. The failure to record, or any error in recording, any such payment shall not, however, limit or otherwise affect the obligations of the Trust as to the principal amount or accrued interest owing with respect to any such Note.

2.19 Acknowledgements.

(1)

The Indenture Trustee acknowledges that the Trust has entered into the Financial Services Agreement which provides, among other things, for the provision of certain services and the performance by the Financial Services Agent of certain obligations of the Trust under this Indenture connected with the issuance of the Notes. Accordingly, any obligation of the Trust hereunder performed by the Financial Services Agent on behalf of the Trust will be deemed to have been performed by the Trust and any payments referred to hereunder received or received and applied against the Notes by the Financial Services Agent on behalf of the Trust will be deemed to have been received or received and applied by the Trust. The Indenture Trustee may act and rely on any instrument or report referred to hereunder prepared by the Financial Services Agent on behalf of the Trust as if the instrument or report had been prepared by the Trust.

(2)

The Indenture Trustee acknowledges that the Financial Services Agent and the Trust have entered into the Financial Services Sub-Agency Agreement which provides, among other things, for the provision of certain services and the performance by the Financial Services Sub-Agent of certain obligations of the Trust under this Indenture connected with the issuance of the Notes. Accordingly, any obligation of the Trust hereunder performed by the Financial Services Sub-Agent on behalf of the Financial Services Agent, as agent of the Trust, will be deemed to have been performed by the Trust and any payments referred to hereunder received or received and applied against the Notes by the Financial Services Sub-Agent on behalf of the Financial Services Agent, as agent of the Trust, will be deemed to have been received or received and applied by the Trust. The Indenture Trustee may act and rely on any instrument or report referred to hereunder prepared by the Financial Services Sub-Agent on behalf of the

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	Financial Services Agent, as agent of the Trust, as if the instrument or report had been prepared by the Trust.
(3)	The Indenture Trustee also acknowledges that the Trust may designate one or more Servicers to provide, among other things, certain services and perform certain obligations of the Trust pursuant to the terms of a Securitization Agreement.

ARTICLE 3
SUBORDINATION

3.1 Subordination.

          Payments to be made on a particular Class of Notes of a Series may be made subordinate and rank junior to payments to be made on one or more other Classes of Notes of such Series.

3.2 Rights of Noteholders Preserved.

          In respect of a particular Class of Notes of a Series, nothing in this Article 3 is intended to or shall impair the obligation of the Trust, subject to the rights of the Noteholders of a different Class of Notes of such Series to receive payments in priority, to pay such Notes as and when the same shall become due and payable in accordance herewith, or affect the relative rights of the holders of such Notes and creditors of the Trust other than the holders of the Class of Notes of such Series entitled to priority in payment, nor shall anything in this Article 3 prevent the Indenture Trustee or the holder of any Notes from exercising all remedies otherwise permitted by this Indenture, subject to the rights (if any) under this Indenture of the holders of the Class of Notes of such Series entitled to priority in payment and the Indenture Trustee on their behalf in respect of any payment or distribution of cash, property or securities of the Trust received upon the exercise of any such remedy.

3.3 Renewal or Extension of Senior Notes.

(1)

Except as provided in the Related Supplement, the holders of Senior Notes of any Series may at any time in their discretion renew or extend the time of payment of the Senior Notes or exercise any other of their rights in respect thereof, including, without limitation, the waiver of a Related Event of Default thereunder, all without notice to or assent from the holders of the Subordinated Notes or the Indenture Trustee.

(2)

No compromise, alteration, amendment, modification, extension, renewal or other change of, or waiver, consent or other action in respect of, any liability or obligation under or in respect of any Senior Notes or of any of the terms, covenants or conditions of an indenture or other document under which any Senior Notes shall have been issued, shall in any way alter or affect any of the provisions of this Article 3.

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ARTICLE 4
SECURITY

4.1 Security for the Obligations Secured.

(1) Subject to Section 4.1(2), as security for the due payment and performance of all Obligations Secured including, without limitation, all principal of and interest, if any, on the Notes from time to time issued and certified under this Indenture, and the performance by the Trust of all of the obligations of the Trust contained herein or in any Related Supplement in relation thereto, the Trust hereby:

(a)

mortgages, charges, pledges, grants, transfers, assigns, hypothecates and sets over unto the Indenture Trustee for the benefit of the Specified Creditors as and by way of a fixed and specific mortgage, assignment, pledge, hypothec and charge and grants to the Indenture Trustee for the benefit of the Specified Creditors a security interest in (i) all right, title and interest of the Trust in and to all Asset Interests now owned or hereafter acquired by the Trust and all Programme Agreements to which the Trust is now or hereafter may become party; (ii) all debts, accounts, claims, moneys and choses in action which now are or which may at any time hereafter be due or owing to or owned by the Trust, and also all securities, bills, notes, evidences of deposits of money, and other documents now held or owned or which may be hereafter taken, held or owned by the Trust, or anyone on behalf of the Trust, and all renewals thereof, accretions thereto, substitutions therefor and all interest, income and revenue arising therefrom or by virtue thereof, including, without limitation, all debts, collections, demands and choses in action now or hereafter owing to the Trust pursuant to any Programme Agreement, and all amounts now or hereafter in all Series Accounts and Related Collateral Accounts and interest on amounts held in such accounts, all Permitted Investments thereof and the proceeds of such Permitted Investments; and (iii) all proceeds in respect of the property described in (i) and (ii) now owned or hereafter acquired by the Trust; and

(b)

mortgages, charges, pledges, grants, transfers, assigns, hypothecates and sets over unto the Indenture Trustee for the benefit of the Specified Creditors, a floating charge over and grants to the Indenture Trustee for the benefit of the Specified Creditors a security interest in all of the property, assets and undertaking now owned or hereafter acquired by the Trust (other than such property, assets and undertaking which are at all times validly subjected to the fixed and specific mortgage, assignment, pledge, hypothec and charge hereby created).

(2) Notwithstanding Section 4.1(1), (i) the Related Collateral shall be held as security for the due payment of the Related Obligations Secured alone; (ii) the Related Obligations Secured shall be secured solely by the Related Collateral and recourse

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in respect of such Related Obligations Secured shall be limited to the Related Collateral and to amounts derived therefrom expressly allocated to fund payments to the applicable Related Specified Creditors under Related Securitization Agreements, this Indenture and the Related Supplement, including Section 9.5 and any similar provision in the Related Supplement dealing with allocation of available funds; and (iii) the Related Specified Creditors shall not have the right to enforce a claim against the Trust or initiate or participate in the insolvency of the Trust as unsecured creditors other than, and only to the extent that, such claim or initiation or participation is necessary to permit recourse to the Related Collateral.

(3)

For greater certainty, and without limiting Section 4.1(2), the Credit Enhancement, Reserve(s) and Series Accounts in respect of a particular Series shall not constitute part of the Related Collateral for any other Series and the Related Specified Creditors in respect of such other Series shall not have any recourse to or claim against any such Credit Enhancement, Reserve(s) and Series Accounts.

4.2 Habendum.

          To have and to hold the Collateral and all rights hereby conferred unto the Indenture Trustee, its successors and assigns forever but in trust nevertheless for the benefit of the Specified Creditors and for the uses and purposes and subject to the terms and conditions set forth in this Indenture.

4.3 Reservation of Last Day of Leasehold Terms.

          It is hereby declared that the last day of any term of years reserved by any lease, verbal or written, or any agreement therefor, now held or hereafter acquired by the Trust or forming part of the Asset Interests, and whether falling within the general or particular description of the Collateral hereunder, is hereby and shall be excepted out of the charge of security created hereunder or by any other instrument created, and does not and shall not form any part of the Collateral, but the Trust shall stand possessed of the reversion remaining in the Trust of any leasehold premises, for the time being demised, as aforesaid, upon trust to assign and dispose thereof as the purchaser of such leasehold premises shall direct.

4.4 Security Valid Irrespective of Advance of Moneys.

          The Trust acknowledges that value has been given and that the security granted pursuant to Section 4.1 shall attach and be effective on the date of execution of this Indenture and when the Trust acquires rights in the Collateral, whether or not the moneys and the Notes or any other evidence of Obligations Secured or any part thereof hereby secured or intended to be hereby secured shall be advanced or issued before or after or upon the date of the execution of this Indenture.

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4.5 Satisfaction and Discharge.

(1)

The Indenture Trustee will from time to time, upon the receipt of a Written Order and at the expense of the Trust, cancel and discharge any of the security constituted by, or pursuant to, this Indenture and execute and deliver to the Trust such assignments or other instruments as are required to discharge any of the security constituted hereby and reconvey to the Trust any property subject to any of the security constituted hereby, free and clear of such security, and to effect the cancellation or partial discharge of any registration or recording of the security interest or other encumbrance created hereby, and to release the Trust from this Indenture and the obligations hereof and the covenants herein contained (other than the provisions relating to the indemnification of the Indenture Trustee) at such time as the Trust has paid and satisfied all Obligations Secured to which such security relates at the times and in the manner therein and herein provided.

(2)

If, (i) pursuant to the terms of a Credit Enhancement Agreement or Securitization Agreement, any Asset Interest is to be conveyed to the Related Credit Enhancer, the Related Originator or to any other Person; or (ii) with respect to the Notes of any particular Series, any payment is made from the Related Collateral Accounts or the Series Accounts in accordance with the terms of this Indenture, the Related Supplement or the Related Securitization Agreement, such conveyance or payment shall be effective immediately, free and clear of the security constituted hereby and any other provision hereof, without the necessity of any Written Order, whether such conveyance or payment shall occur before or after any Related Event of Default, and the Indenture Trustee shall be deemed to have taken all action contemplated by Section 4.5(1) to effect such conveyance.

4.6 Other Security Documents.

          The Trust acknowledges that, in order to give full force and effect to Section 4.1, it may be necessary or advisable from time to time to execute other forms of security documents for particular jurisdictions, and the Trust agrees to forthwith execute any such other security document to similar effect as Section 4.1 as the Indenture Trustee, relying on the advice of Counsel, may reasonably request from time to time. All rights acquired by the Indenture Trustee under any such other security documents shall be held by the Indenture Trustee for the benefit of the Specified Creditors and shall be subject to the terms of this Indenture and for the same purposes as it holds the security granted to it pursuant to Section 4.1.

ARTICLE 5
POSSESSION AND USE OF COLLATERAL

5.1 General.

(1) Subject to the express terms of this Indenture and the Related Supplement, until, in respect of the Notes of any Series, the Related Obligations Secured have become due and payable pursuant to Section 8.2, the Trust will be permitted to

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	possess and use the Related Collateral in connection with the activities of the Trust, including, without limitation, the right to exercise all of its rights and perform all of its obligations under each Related Programme Agreement and enter into Related Hedging Transactions without consultation with or the consent of the Indenture Trustee.
(2)	Each Note is issued on the express understanding and acknowledgement that the rights under such Note are subject in all respects to the priority and sharing arrangements set forth herein and in the Related Supplements, and to the provisions set forth herein and therein regarding allocation of payments. The benefit of this Indenture shall be allocated and shared among the Trust and the Noteholders in accordance with the terms hereof and any Related Supplement.
(3)	The Indenture Trustee shall be entitled to amounts received by the Indenture Trustee pursuant to this Indenture or any enforcement thereof, for its own account, to the extent of any amounts owing to the Indenture Trustee pursuant hereto or in connection herewith, for which the Indenture Trustee is expressly provided the benefit of the security hereby constituted, and any amounts so paid to the Indenture Trustee shall reduce the amounts otherwise available under this Indenture to each other Noteholder on a pro rata basis, based on their relative entitlement to such amounts.

5.2 Collection Accounts.

(1)	With respect to the Notes of any particular Series, the Trust shall deposit all cash proceeds received by it in connection with the Related Collateral, including, without limitation, any Related Collections, all Permitted Investments thereof and all proceeds of such Permitted Investments, to the Related Collection Accounts. Until the Related Obligations Secured have become due and payable pursuant to Section 8.2, the Trust shall have access to such Related Collection Accounts and may use the funds in such accounts for any purpose not in violation of this Indenture or the Related Programme Agreements, including, without limitation, payment of the Related Trust Expenses.
(2)	All amounts payable by the Trust hereunder shall, prior to the occurrence of a Related Event of Default, be paid: (i) out of the Related Collection Accounts of the appropriate Series to the extent attributable to the Notes of a particular Series, or the Related Collateral, the Related Obligations Secured or the Related Programme Agreements; and (ii) out of all Related Collection Accounts, to the extent not attributable to the Notes of a particular Series, in an amount per Series equal to the Related Proportionate Share thereof.
(3)	All such amounts deposited in the Related Collection Accounts shall be allocated only to the Related Specified Creditors of the appropriate Series, except as otherwise expressly provided herein or in the Related Supplement.

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5.3 Location of Accounts.

          On or before any Related Series Issuance Date, the Trust will establish or cause to be established and thereafter maintain or cause to be maintained the Series Accounts and any other account required by the Related Supplement. Each of the Series Accounts and any other account (if required to be established) shall be maintained at an Eligible Institution.

ARTICLE 6
COVENANTS OF THE TRUST

6.1 Positive Covenants.

          The Trust hereby covenants and agrees with the Indenture Trustee that, so long as any Obligations Secured remain outstanding and except as otherwise permitted by the prior written consent of the Indenture Trustee and satisfaction of the Rating Agency Condition in respect of the Related Rating Agencies, or as contemplated herein or in the Programme Agreements, it shall:

(a)	Pay Obligations. Duly and punctually pay or cause to be paid to every Noteholder the principal of and interest and premium, if any, on the Notes held by such Noteholder on the date, at the places and in the manner provided for in this Indenture, each Related Supplement and the Notes and duly and punctually pay all other Obligations Secured to the Specified Creditors in the manner provided for in the Programme Agreements;
(b)	Maintain Collateral. Subject to the express terms of this Indenture, diligently maintain and protect the Collateral;
(c)	Maintain Existence. Do or cause to be done all things necessary to keep in full force and effect the existence of the Trust as a trust validly existing under the laws of the Province of Ontario and all properties, rights, franchises, licences and qualifications required to carry on its business in each jurisdiction in which it owns property or carries on business from time to time;
(d)	Compliance with Laws, etc. Comply with all applicable governmental restrictions and regulations and obtain and maintain in good standing all licences, permits, qualifications and approvals from any and all governments, governmental commissions, boards or agencies of jurisdictions in which it carries on business required in respect of the operations of the Trust;
(e)	Pay Taxes. Pay or cause to be paid all taxes, government fees and dues levied, assessed or imposed upon the Trust and its property or any part thereof, as and when the same become due and payable; provided that the Trust may protest the payment of any such taxes, fees or dues if it is acting

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	in good faith and if (i) it either provides the Indenture Trustee with cash in an amount sufficient to satisfy the same or otherwise satisfies the Indenture Trustee that its interests are not prejudiced thereby; and (ii) if DBRS Limited is then a Rating Agency, it provides notice to DBRS Limited thereof;
(f)	Further Assurances. From time to time execute and deliver all financing statements, instruments of further assurance and other instruments and take such other or further action as the Indenture Trustee, relying on the advice of Counsel, may consider necessary or advisable in connection with the security granted hereby;
(g)	Pay Indenture Trustee. Pay the Indenture Trustee in accordance with the terms of this Indenture reasonable remuneration as agreed from time to time for its services as Indenture Trustee hereunder and pay to the Indenture Trustee on demand all reasonable expenses, disbursements and advances properly incurred by the Indenture Trustee in connection with the trusts hereof (including, without limitation, legal fees and expenses and the reasonable compensation and disbursements of all other advisors, agents and experts not regularly in its employ);
(h)	Appoint Successors. Upon the written request of the Indenture Trustee, use its best efforts, following any (i) termination or resignation of a Servicer, Back-Up Servicer, Custodian, the Financial Services Sub-Agent, as standby financial services agent, or the Financial Services Agent; or (ii) termination, non-renewal or expiration of a Credit Enhancement Agreement (other than a termination, non-renewal or expiration which occurs because the Related Asset Interests have been collected or assigned to the Related Credit Enhancer and neither party thereto has any further obligation thereunder), to appoint and enter into an agreement with a successor to such Servicer, Back-Up Servicer, Custodian, the Financial Services Sub-Agent, as standby financial services agent, or Financial Services Agent, or replace or renew such Credit Enhancement Agreement, in form and substance the same as the applicable provisions in the Programme Agreement so replaced or renewed (subject, in each case, to such amendments as may be consented to by the Indenture Trustee) and, in each such case, the Trust will notify the Indenture Trustee and each of the Related Rating Agencies of each such occurrence and new agreement and will deliver a copy of any such agreement to the Indenture Trustee for its approval and satisfy the Rating Agency Condition before executing the same, and will execute and deliver all supplemental indentures and amendments hereto and all instruments of further assurance and other instruments and will take such other and further action as the Indenture Trustee, relying on the advice of Counsel, may consider necessary or

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	advisable to assign and render subject to this Indenture any such agreement;
(i)	Deliver Information. Deliver or cause to be delivered to the Indenture Trustee and the Related Rating Agencies, (i) such financial statements, reports and other information relating to the conduct of the business and affairs of the Trust as the Indenture Trustee may reasonably require including, without limitation, information pertaining to any actual or anticipated Related Event of Default or other event which could reasonably be anticipated to have a material adverse effect on the affairs of the Trust and copies of all Programme Agreements (including any amendments thereto) in effect from time to time; and (ii) in respect of the Notes of any Series, the information specified in the Related Supplement;
(j)	Security Interest. The Trust shall defend the Security Interest of the Indenture Trustee in and to the Collateral, whether now existing or hereafter acquired, against all claims of third parties claiming through or under the Trust or an Originator, other than under Permitted Liens described in clause (i) or (iii) of the definition thereof. The Trust will notify the Indenture Trustee promptly upon becoming aware of a security interest claimed against the Collateral other than the Security Interest provided for herein or any other Permitted Liens;
(k)	Change of Name. Immediately notify the Indenture Trustee and each of the Rating Agencies of (i) any change in name of the Issuer Trustee or the Trust and (ii) the name of any successor or replacement Issuer Trustee;
(l)	Change of Address. Immediately notify the Indenture Trustee and each of the Rating Agencies of any change in address of the Issuer Trustee or the Trust;
(m)	Register Financing Statements. Take all necessary action to ensure the due registration of all requisite financing statements, financing change statements or other instruments to properly maintain, preserve and perfect the security provided hereunder or pursuant to any Hypothec in favour of the Indenture Trustee;
(n)	Performance of Contractual Obligations. Perform in all material respects all of its obligations under all contracts, indentures and instruments to which it is a party (including the Programme Agreements);
(o)	Exercise of Rights under Programme Agreements. Exercise its rights provided in the Programme Agreements in good faith in accordance with the provisions thereof with a view to maximizing amounts available to pay Obligations Secured of the relevant Series;

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(p)	Delivery of Notice of Related Significant Event or Related Event of Default. Promptly (and in any event, within 1 Business Day) notify each of the Related Rating Agencies and the Indenture Trustee of the occurrence, in respect of Notes of a particular Series, of a Related Significant Event, a Related Event of Default or a Related Default;
(q)	Backup or Standby Servicer. If at any time the Back-Up Servicer is not then acting as backup or standby Servicer for Related Asset Interests, then upon the passing of an Extraordinary Resolution of the holders of the Class of Notes set out in the Related Supplement which are authorized in such Related Supplement to negotiate and settle the terms of an agreement with a backup or standby Servicer for the Related Asset Interests, use its best efforts (provided such efforts shall not require the expenditure of the Trust’s own funds beyond any amount provided for in the Related Securitization Agreement) to appoint and enter into an agreement with a backup or standby Servicer for the Related Asset Interests, in form and substance satisfactory to the holders of the Class of Notes specified in the Related Supplement which approval shall be evidenced by an Extraordinary Resolution; and
(r)	Separateness Covenants. Take all reasonable steps to maintain the Trust’s identity as a distinct entity with assets and liabilities distinct from those of any Originator and any of their respective Affiliates (collectively, the “Originator Entities”). Without limiting the generality of the foregoing and in addition to the other covenants set forth herein, the Trust shall:

(i)	conduct its own business in its own name and not commingle its assets with those of any other Person, except for any commingling of Collections expressly permitted by a Related Securitization Agreement;
(ii)	in accordance with the Related Securitization Agreement, compensate all consultants and agents directly from the Trust’s bank accounts, for services provided to the Trust by such consultants and agents and, to the extent any consultant or agent of the Trust is also an employee, consultant or agent of any Originator Entity, allocate the compensation of such employee, consultant or agent between the Trust and such Originator Entity on a basis that reflects the services rendered to the Trust and such Originator Entity;
(iii)	not identify the offices of any Originator Entity as its offices (by signage or otherwise);

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(iv)	not identify the telephone number of any Originator Entity as its telephone number and it will not utilize the stationery, invoices or cheques of any Originator Entity;
(v)	conduct all transactions with each Originator Entity strictly on an arm’s length basis, allocate all overhead expenses for items shared between the Trust and such Originator Entity on the basis of actual use to the extent practicable and, to the extent such allocation is not practicable, on a basis reasonably related to actual use;
(vi)	conduct its affairs strictly in accordance with its trust documents, and observe all necessary, appropriate and trust formalities;
(vii)	maintain the Trust’s books and records separate from those of any Originator Entity and otherwise readily identifiable as its own assets rather than assets of any such Originator Entity;
(viii)	prepare its financial statements separately from those of any Originator Entity and ensure that any consolidated financial statements of any Originator Entity that include the Trust and that are filed pursuant to applicable securities laws have notes clearly stating that the Trust is a separate entity;
(ix)	only maintain bank accounts or other depository accounts to which the Trust alone (or its agent) is the account party, and from which only the Trust or its agent has the power to make withdrawals;
(x)	pay all of the Trust’s operating expenses from the Trust’s own assets in accordance with the Related Securitization Agreement; and
(xi)	continuously maintain the resolutions, agreements and other instruments of the Trust underlying the transactions described in the Programme Agreements as official records of the Trust separately identified and held apart from the records of any Originator Entity.

6.2 Negative Covenants.

          The Trust hereby covenants and agrees with the Indenture Trustee that, so long as any Obligations Secured remain outstanding and, unless it first satisfies the Rating Agency Condition in respect of each outstanding Series of Notes (in the case of (b) and (e) below) or in respect of any affected Series of Notes (in the case of (a), (c), (d) and (f) below), it shall not engage in any of the following activities, except with the consent of the Indenture Trustee or to the extent otherwise expressly permitted herein or in the Programme Agreements:

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(a)	No Sale. Sell, transfer, exchange or otherwise dispose of any of the Collateral;
(b)	Limit Activities. Engage in any activity other than the activities contemplated by the Programme Agreements;
(c)	Impair Security. Permit the validity or effectiveness hereof or of the Collateral to be impaired or permit the security created by this Indenture to be amended, hypothecated, subordinated, terminated or discharged, or permit any Person to be released from any covenants or obligations under this Indenture;
(d)	Create Encumbrances. Create, incur, assume or suffer to exist any Security Interest in respect of any of the Trust’s undertaking, property or assets, except Permitted Liens;
(e)	Create Indebtedness. Create, incur, assume or guarantee any indebtedness or obligation or enter into any Hedging Transaction, which does not comply with the Limited Recourse Condition; or
(f)	Amend Programme Agreements. Without limiting Sections 11.12, 11.13, 11.14 or 13.3, amend, supplement, modify, terminate, restate or replace or waive or consent to a postponement of compliance with the terms and conditions on the part of the other party to any of the Programme Agreements if any such, amendment, supplement, modification, termination, restatement or replacement or waiver or consent could reasonably be expected to, individually or in the aggregate, materially adversely affect the rights or interests of any Specified Creditor which has not consented thereto; provided that this Section 6.2(f), Section 11.12(1)(e) and Section 13.3 shall not apply to nor prevent any such amendment, supplement, modification, termination, restatement, replacement, waiver or consent to or of any such Programme Agreement where the consent or agreement of the Trust is not required pursuant to the terms of such Programme Agreement and is not otherwise sought by any party to such Programme Agreement.

6.3 Indenture Trustee May Perform Covenants.

          If the Trust fails to perform any of its covenants herein contained, the Indenture Trustee may, subject to the receipt of indemnification and funding reasonably acceptable to the Indenture Trustee as provided in Sections 12.3(2) and 12.3(3), itself perform the covenant if the covenant is capable of being performed by the Indenture Trustee (but will be under no obligation to do so) and, if the covenant requires the payment or expenditure of money, the Indenture Trustee may make the payment or expenditure with its own funds or with money borrowed by or advanced to it for such purpose, but will be under no obligation so to do; and all sums so expended or advanced will bear interest at a rate per annum equal to the then current rate of

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interest charged by the Indenture Trustee from time to time so long as the same is commercially reasonable, from the date of expenditure until repayment and will (together with such interest) be paid by the Trust upon demand and will until paid form part of the Obligations Secured and constitute a charge or lien on the Collateral to which such covenant related in priority to the security hereby constituted and will be payable out of any funds coming into possession of the Indenture Trustee hereunder. No performance or payment will be deemed to release the Trust from the consequences of the occurrence of any Related Event of Default hereunder.

6.4 Right of Audit.

          The Indenture Trustee may, in its discretion, and shall upon the request of the holders of 25% of the Notes then outstanding, at any reasonable time upon five Business Days’ written notice to the Trust but, prior to a Related Event of Default, not more than once in any three month period, cause an audit to be made of the Trust’s books and records for the purpose of confirming the accuracy of all information and reports, if any, delivered to the Indenture Trustee, the Financial Services Agent, the Financial Services Sub-Agent or the Custodians, as the case may be.

6.5 Notices Regarding Financial Services Sub-Agent.

          If at any time the Indenture Trustee learns of any circumstance in respect of which a reasonably prudent person would consider terminating the Financial Services Sub-Agency Agreement pursuant to Section 6.1 thereof, it shall promptly notify all Noteholders thereof in writing, which notice shall also contain a request for direction from such Noteholders as to what, if any, action to take in respect of such circumstances.

ARTICLE 7
REPRESENTATIONS AND WARRANTIES

7.1 Representations and Warranties of the Trust.

          The Trust hereby represents and warrants to the Indenture Trustee and shall be deemed to represent and warrant to the Indenture Trustee on the issuance of Notes of any particular Series hereunder that:

(a) Valid Existence and Due Qualification. The Trust is a trust duly constituted and validly existing under the laws of the Province of Ontario, is duly qualified to carry on its business in each jurisdiction in which it carries on business, has the power and authority to enter into and perform its obligations under this Indenture and the other Programme Agreements executed by it and all instruments and agreements delivered pursuant hereto and thereto and to own its property and carry on its business as currently conducted including, without limitation, the power and authority and legal right to acquire Asset Interests, and has obtained all material licences, permits and approvals from all governments, governmental

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	commissions, boards and other agencies required in respect of its operations;
(b)	Due Authorization and Enforceability. The execution, delivery and performance of this Indenture, the other Programme Agreements executed by it and every instrument or agreement delivered pursuant hereto and thereto has been duly authorized by all requisite action under the Declaration of Trust and by all necessary corporate action on the part of the Issuer Trustee and this Indenture and such other Programme Agreements, instruments and agreements have been duly executed and delivered by the Trust and constitute valid and binding obligations of the Trust enforceable against the Trust in accordance with their respective terms subject to (i) applicable bankruptcy, insolvency, moratorium and similar laws at the time in effect affecting the rights of creditors generally, and (ii) equitable principles which may limit the availability of certain remedies, including the remedy of specific performance;
(c)	No Litigation. There are no actions, suits or proceedings pending or, to the knowledge of the Trust, threatened against the Trust at law or in equity or before or by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or before any arbitrator of any kind, which would result in any material adverse change in the business, operations, prospects, properties, assets or condition, financial or otherwise, of the Trust or in the ability of the Trust to perform its obligations under this Indenture, the other Programme Agreements executed by it or any agreement or instrument delivered pursuant hereto or thereto; and the Trust is not aware of any existing ground on which any such action, suit or proceeding might be commenced with any reasonable likelihood of success; and the Trust is not in default with respect to any judgment, order, writ, injunction, decree, award, rule or regulation of any court, arbitrator or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which, either separately or in the aggregate, would result in any such material adverse change;
(d)	No Burdensome Agreements. It is not a party to any agreement or instrument which materially adversely affects its ability to perform its obligations under this Indenture, the other Programme Agreements executed by it or any agreements or instruments delivered pursuant hereto or thereto or materially adversely affects the business, operations, prospects, properties, assets or condition, financial or otherwise, of the Trust;
(e)	No Restriction. It is not subject to any restriction or any judgment, order, writ, injunction, decree, award, rule or regulation which materially adversely affects, or in the future may materially adversely affect, the business, operations, prospects, properties, assets or condition, financial or

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	otherwise, of the Trust or its ability to perform its obligations under this Indenture, the other Programme Agreements executed by it or any agreements or instruments delivered pursuant hereto or thereto;
(f)	No Conflict. Neither the execution nor delivery of this Indenture, the other Programme Agreements executed by it or any agreements or instruments delivered pursuant hereto or thereto, the consummation of the transactions herein and therein contemplated, nor compliance with the terms, conditions and provisions hereof or thereof conflicts with or will conflict with, or results or will result in any breach of, or constitutes a default under, (i) any of the provisions of the Declaration of Trust or any agreements or instruments to which the Trust is a party or by which it or any of its property and assets are bound, or (ii) the constating documents or by-laws of the Issuer Trustee or any resolution of the board of directors (or any committee thereof) or shareholders of the Issuer Trustee, or results or will result in the creation or imposition of any mortgage, lien, charge or encumbrance of any nature whatsoever (except as contemplated herein) upon any of the property or assets of the Trust or in contravention of any applicable law, rule or regulation of Canada or of any of the Provinces or Territories of Canada;
(g)	No Consents Required. No consent, approval or authorization of, or declaration, registration, filing or qualification with, or giving of notice to, or taking of any other action in respect of, any governmental authority or agency on the part of the Trust is required in connection with the execution and delivery of this Indenture, the other Programme Agreements executed by it or any agreements or instruments delivered pursuant hereto or thereto or the consummation of any of the transactions contemplated hereby or in connection with the enforcement of this Indenture, the other Programme Agreements executed by it or any agreements or instruments delivered pursuant hereto or thereto other than as may be required under applicable securities laws and regulations or such as have been previously obtained, made, given or taken, as the case may be;
(h)	Collateral. The Collateral is free from all encumbrances, except those arising pursuant to this Indenture, any Hypothec or any other Permitted Lien;
(i)	No Default. No event has occurred which constitutes, or with notice or lapse of time or both, would constitute a Related Event of Default; and
(j)	Residency. The Issuer Trustee and the Trust are not a non-resident of Canada within the meaning of the ITA.

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7.2 Representation and Warranty of Indenture Trustee.

          The Indenture Trustee hereby represents and warrants to the Trust that the execution, delivery and performance by the Indenture Trustee of this Indenture are (a) within the powers of the Indenture Trustee, (b) have been duly authorized by all necessary action on the part of the Indenture Trustee, (c) do not contravene any law in effect on the date of this Indenture or contractual restriction binding on or affecting the Indenture Trustee, (d) have been duly executed and delivered by the Indenture Trustee, and (e) constitute valid and binding obligations of the Indenture Trustee enforceable against the Indenture Trustee in accordance with its terms subject to (i) applicable bankruptcy, insolvency, moratorium and similar laws at the time in effect affecting the rights of creditors generally, and (ii) equitable principles which may limit the availability of certain remedies, including the remedy of specific performance.

7.3 Survival of Representations and Warranties.

          The representations and warranties of the Trust and the Indenture Trustee in Sections 7.1 and 7.2 shall survive the execution of this Indenture.

ARTICLE 8
EVENTS OF DEFAULT

8.1 Related Event of Default.

          A “Related Event of Default” means, with respect to the Related Notes, (i) the happening of any event specified as such in the Related Supplement; or (ii) the happening of one or more of the following events:

(a) Default in Payment. The Trust fails to pay any of the Related Obligations Secured when the same becomes due and payable under any provision of this Indenture, the Related Supplement or such Notes (other than where the Trust has advised the Indenture Trustee in writing that such failure resulted from inadvertence or error on the part of the Trust and which failure is capable of timely rectification without having a material adverse effect on the ability of the Trust to satisfy its obligations under such Notes (which determination shall be made without regard to the availability of any Credit Enhancement)) and such failure continues for a period of three Business Days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Trust by the Indenture Trustee or by the holders of not less than 25% of the aggregate principal amount of the Related Notes then outstanding; provided that, for greater certainty, no such failure shall be considered to occur by reason or in consequence or as a result of amounts that may be deducted or withheld under the ITA or any other applicable taxation statute by the Trust or the Indenture Trustee from any payment to be made to any holder of such Notes having been so deducted or withheld and such

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	amounts having been remitted to the appropriate governmental authorities on behalf of such Noteholder;
(b)	Insolvency. The Trust admits the inability of the Trust to pay its liabilities generally as they become due or makes a general assignment for the benefit of the creditors of the Trust or otherwise acknowledges the insolvency of the Trust or any proceeding shall be instituted by or against the Trust seeking to adjudicate it a bankrupt or insolvent or seeking liquidation, winding up, dissolution, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency, re-organization, moratorium or relief of debtors or seeking the entry of an order for relief by the appointment of a receiver, trustee, liquidator or other similar official for the Trust or for any substantial part of its property and if such proceeding has been instituted against the Trust either such proceeding has not been stayed or dismissed within 45 days or any of the actions sought in such proceeding (including the entry of an order for relief or the appointment of a receiver), are granted in whole or in part or if a receiver is privately appointed in respect of the Trust or of the property of the Trust or any substantial part thereof;
(c)	Levy of Execution. An encumbrancer, other than the Indenture Trustee, takes possession of the Related Collateral or any material part thereof, or any process or execution is levied or enforced upon or against the Related Collateral or any material part thereof, and remains unsatisfied for such period as would permit any such property to be sold thereunder, unless such process is in good faith disputed by the Trust and the Trust gives or causes to be given security which is sufficient to pay in full the amount thereby claimed in case the claim is held to be valid;
(d)	Winding-Up Order. An order is made or an effective resolution passed for the winding up, liquidation or dissolution of the Trust;
(e)	Default in Performance. The Trust defaults in the performance of any covenant contained in this Indenture not covered by Section 8.1(a) (except to any extent which has not had and which could not reasonably be expected to have a material adverse effect on the ability of the Trust to pay any Related Obligations Secured when the same become due) and such default remains unremedied for a period of 30 days after notice thereof is given in writing by the Indenture Trustee or by the holders of not less than 25% of the aggregate principal amount of the Related Notes then outstanding specifying the nature of the default and requiring that it be remedied; provided that such 30 day grace period shall only be applicable if (i) the Trust is proceeding with all due diligence to cure or cause to be cured such failure; (ii) its proceedings can be reasonably expected to cure

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or cause to be cured such failure within such period and (iii) it has delivered a Certificate of the Trust to such effect; or

(f)

Breach of Representation or Warranty. Any representation or warranty made by the Trust in or pursuant to this Indenture, any Related Supplement or any other document or instrument delivered hereunder proves to have been incorrect when made, and such incorrect representation or warranty could reasonably be expected to have a material adverse effect on the ability of the Trust to satisfy its obligations under the Related Notes (such material adverse effect to be determined without reference to any available Credit Enhancement) and continues to be unremedied for a period of 30 days after delivery by the Indenture Trustee or by the holders of not less than 25% of the aggregate principal amount of the Related Notes then outstanding of written notice thereof to the Trust specifying the nature of the incorrectness and requiring that it be remedied; provided that such 30 day grace period shall only be applicable if (i) the Trust is proceeding with all due diligence to cure or cause to be cured such incorrectness; (ii) its proceedings can be reasonably expected to cure or cause to be cured such incorrectness within such period and (iii) it has delivered a Certificate of the Trust to such effect.

8.2 Acceleration of Maturity; Rescission and Annulment.

(1) Subject to the terms of the Related Supplement for any Series, if a Related Event of Default for any Series should occur and be continuing, then and in every such case (other than in the case of a Related Event of Default described in Section 8.1(b), Section 8.1(d) or as provided in the Related Supplement for any Series) the Indenture Trustee or the Noteholders of such Series representing not less than 25% of the aggregate principal amount of Notes of such Series then outstanding may declare all the Notes of such Series to be immediately due and payable, by a notice in writing to the Trust (and to the Indenture Trustee if given by the Noteholders), and upon any such declaration or upon the occurrence of a Related Event of Default described in Section 8.1(b), Section 8.1(d) or as provided in the Related Supplement for any Series, the aggregate principal amount of Notes of such Series then outstanding, together with accrued and unpaid interest thereon through the date of acceleration, shall become immediately due and payable and the security hereby constituted shall forthwith become enforceable. Subject to the provisions of Section 8.2(2), if such declaration of or other acceleration of maturity of a Series has been made, the Trust will forthwith pay to the Indenture Trustee and the Related Specified Creditors in accordance with Section 9.5, all Related Obligations Secured together with all accrued and unpaid interest thereon to the date of such payment. The Indenture Trustee shall give prompt notice of any acceleration of maturity pursuant to this Section 8.2(1) to the Related Rating Agencies.

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(2) At any time after such declaration of or other acceleration of maturity of a Series has been made and before a judgment or order for payment of the money due has been obtained by the Indenture Trustee as provided in Article 9, the Noteholders representing not less than 50% of the aggregate principal amount of the Notes of such Series then outstanding may, by written notice to the Trust and the Indenture Trustee, rescind and annul such declaration or other acceleration and its consequences if:

(a) the Trust has paid or deposited with the Indenture Trustee a sum sufficient to pay:

(i)	all payments of principal of and interest that are then due on all Notes of the affected Series and all other amounts that would then be due hereunder or upon such Notes if the Related Event of Default giving rise to such acceleration had not occurred;
(ii)	all sums paid or advanced by the Indenture Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee and its agents and Counsel; and
(iii)	all amounts then due and payable to the other Related Specified Creditors; and

(b)	all Related Events of Default, other than the non-payment of the principal of the Notes that have become due solely by such acceleration, have been cured or waived in accordance with this Section 8.2(2).
No such rescission shall affect any subsequent Related Default or Related Event of Default or impair any right consequent thereto. The Indenture Trustee shall give prompt notice of any such rescission or annulment to the Related Rating Agencies.

(3) If a Related Event of Default for any Series should occur and be continuing and an acceleration of maturity of such Series pursuant to Section 8.2(1) has not been made, the holders of the Notes of such Series shall have the right and power (exercisable by resolution of the holders of not less than 50% of the aggregate outstanding principal amount of the affected Notes) to instruct the Indenture Trustee to waive a Related Event of Default arising solely from: (i) a Related Event of Default specified in the Related Supplement as being an event which may be waived pursuant to this Section 8.2(3); or (ii) an event described in Section 8.1(e) or 8.1(f), and upon the receipt of such instruction, the Indenture Trustee will thereupon waive the Related Event of Default upon the terms and conditions as such holders of Notes prescribe, provided always that no act or omission by either the Indenture Trustee or such holders of Notes will extend to or be taken in any manner whatsoever to affect any subsequent Related Event of

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Default or the rights resulting therefrom. The Indenture Trustee shall give prompt notice of any such waiver to the Related Rating Agencies.

8.3 Notice of Related Default or Related Event of Default.

(1)	The Indenture Trustee shall give notice to the applicable Noteholders of the occurrence of a Related Event of Default, within a reasonable time, but not exceeding in any event 10 days, after the Indenture Trustee receives notice of the occurrence thereof, unless the Indenture Trustee in good faith determines that the withholding of such notice is in the best interests of the Noteholders and so advises the Trust in writing. The Indenture Trustee shall give notice of the occurrence of every Related Event of Default to the Related Rating Agencies as soon as possible but in any event within five Business Days after the Indenture Trustee receives notice of the occurrence thereof.
(2)	The Indenture Trustee shall give notice to the applicable Noteholders of the occurrence of a Related Default to which it has actual knowledge, within a reasonable time, but not exceeding in any event 5 days, after the Indenture Trustee receives notice of the occurrence thereof, unless the Indenture Trustee in good faith determines that the withholding of such notice is in the best interests of the Noteholders and so advises the Trust in writing. The Indenture Trustee shall give notice of the occurrence of every Related Default to which it has actual knowledge to the Related Rating Agencies as soon as possible but in any event within five Business Days after the Indenture Trustee receives notice of the occurrence thereof.
(3)	When such notice of an occurrence of a Related Default or Related Event of Default has been given and the Related Default or Related Event of Default, as applicable, is thereafter cured, notice that the Related Default or Related Event of Default, as applicable, is no longer continuing shall be given by the Indenture Trustee to Persons to whom notice was sent pursuant to Section 8.3(1) or Section 8.3(2) as soon as practicable after the curing of such Related Default or Related Event of Default, as applicable, but not exceeding in any event 30 days, after the Indenture Trustee receives notice that the Related Default or Related Event of Default, as applicable, has been cured.

ARTICLE 9
REMEDIES

9.1 Collection Of Indebtedness And Suits For Enforcement By Indenture Trustee.

(1) The Trust covenants that upon the acceleration of any Series pursuant to Section 8.2, the Trust will, upon demand of the Indenture Trustee, pay to it, for the benefit of the Noteholders of such Series, the whole amount then due and payable on such Notes for principal and interest, with interest upon the overdue

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	principal and interest at the applicable interest rate, and in addition thereto such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee and its agents, experts, advisors and Counsel (less any taxes required to be deducted pursuant to applicable laws).
(2)	If the Trust shall fail forthwith to pay such amounts upon such demand, the Indenture Trustee, in its own name and as trustee of an express trust, may institute a Proceeding for the collection of the sums so due and unpaid, and may prosecute such Proceeding to judgment, and may enforce the same against the Trust and collect in the manner provided by law out of the Related Collateral, wherever situated, the moneys adjudged or ordered to be payable.
(3)	If any Related Event of Default in respect of any Series occurs and is continuing, the Indenture Trustee may, as more particularly provided in Section 9.4, proceed to protect and enforce its rights and the rights of the Related Noteholders and other Related Specified Creditors, by such appropriate Proceedings as such Noteholders shall specify to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy or legal or equitable right vested in the Indenture Trustee by this Indenture or by law.
(4)	In case there shall be pending, relative to the Trust upon the Related Obligations Secured for any Series or any Person having or claiming an ownership interest in the Related Collateral, Proceedings under any applicable bankruptcy, insolvency or other similar law, or in case a receiver, assignee, trustee in bankruptcy, liquidator, sequestrator or similar official shall have been appointed for or taken possession of the Trust or its property, or in case of any other comparable judicial Proceedings relative to the Trust upon such Related Obligations Secured, or to the creditors or property of the Trust, the Indenture Trustee, irrespective of whether the principal of any affected Obligations Secured shall then be due and payable as therein expressed or by acceleration or otherwise and irrespective of whether the Indenture Trustee shall have made any demand pursuant to this Section 9.1, shall be entitled and empowered, by intervention in such Proceedings or otherwise:

(a) to file and prove a claim or claims for the whole amount of principal and interest owing and unpaid in respect of the Related Obligations Secured and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Indenture Trustee (including any claim for reasonable compensation to the Indenture Trustee and each predecessor Indenture Trustee, and their respective agents, attorneys and Counsel, and for reimbursement of all expenses and liabilities incurred, and all advances made, by the Indenture Trustee and each predecessor Indenture Trustee, except to the extent resulting from their own wilful

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	misconduct or negligence) and of the Related Specified Creditors allowed in such Proceedings;
(b)	unless prohibited by applicable law or regulations, to vote on behalf of the Specified Creditors for any affected Series in any election of a receiver, trustee, a monitor, an interim trustee or any Person performing similar functions in any such Proceedings;
(c)	to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute in accordance with this Indenture all amounts received with respect to the claims of the affected Noteholders and other Related Specified Creditors and of the Indenture Trustee on their behalf; and
(d)	to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Indenture Trustee or the Related Specified Creditors allowed in any Proceedings relative to the Trust, its creditors and its property;

and any receiver, trustee, liquidator, assignee, custodian, sequestrator or other similar official in any such Proceeding is hereby authorized by each of such Related Specified Creditors to make payments to the Indenture Trustee, and, in the event that the Indenture Trustee shall consent to the making of payments directly to such Related Specified Creditors, to pay to the Indenture Trustee such amounts as shall be sufficient to cover reasonable compensation to the Indenture Trustee, each predecessor Indenture Trustee and their respective agents, attorneys and Counsel, and all other expenses and liabilities incurred, and all advances made, by the Indenture Trustee and each predecessor Indenture Trustee except as a result of wilful misconduct or negligence.

(5)

Nothing herein contained shall be deemed to authorize the Indenture Trustee to authorize or consent to or vote for or accept or adopt on behalf of any Related Specified Creditor any plan of reorganization, arrangement, adjustment or composition affecting the Related Obligations Secured or the rights of any Related Specified Creditor or to authorize the Indenture Trustee to vote in respect of the claim of any Related Specified Creditor in any Proceedings except, as aforesaid, to vote for the election of a trustee in bankruptcy or similar Person.

(6)

All rights of action and of asserting claims under this Indenture and any Related Supplement, or under any of the Related Obligations Secured, may be enforced by the Indenture Trustee without the possession of any of the Related Obligations Secured or the production thereof in any trial or other Proceedings relative thereto, and any such Proceedings instituted by the Indenture Trustee shall be brought in its own name and as trustee of an express trust, and any recovery of judgment, subject to the payment of the expenses, disbursements and compensation of the Indenture Trustee, each predecessor Indenture Trustee and

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	their respective agents and attorneys, shall be for the benefit of the Related Specified Creditors.
(7)	In any Proceedings brought by the Indenture Trustee (and also any Proceedings involving the interpretation of any provision of this Indenture to which the Indenture Trustee shall be a party), the Indenture Trustee shall be held to represent all Related Specified Creditors, and it shall not be necessary to make any Related Specified Creditor a party to any such Proceedings.

9.2 Remedies; Priorities.

(1) If a Related Event of Default in respect of any Series shall have occurred and be continuing, the Indenture Trustee may do one or more of the following (subject to Section 9.4):

(a)	institute Proceedings in its own name and as trustee of an express trust for the collection of all amounts then payable on the Related Obligations Secured or under this Indenture and the Related Supplement with respect thereto, whether by declaration or otherwise, enforce any judgment obtained, and collect upon such Obligations Secured moneys adjudged due;
(b)	institute Proceedings from time to time for complete or partial foreclosure with respect to the Related Collateral;
(c)	exercise any remedies of a secured party under the PPSA, including taking possession of and using the Related Collateral or any portion thereof, and take any other appropriate action to protect and enforce the rights and remedies of the Indenture Trustee and the Specified Creditors of such Series;
(d)	appoint a Receiver with respect to the Related Collateral; and
(e)	sell the Related Collateral, or any portion thereof or rights or interest therein, at one or more public or private sales called and conducted in any manner permitted by law;

provided, however, that the Indenture Trustee may not sell or otherwise liquidate the Related Collateral in respect of any Series following a Related Event of Default, other than a Related Event of Default described in Section 8.1(b), Section 8.1(d) or a Related Event of Default so specified in the Related Supplement, unless: (A) the Noteholders of such Series by Extraordinary Resolution consent thereto, (B) the proceeds of such sale or liquidation distributable to the Noteholders of such Series and the other Related Specified Creditors (other than the Related Originators) will be sufficient to discharge in full all amounts then due and unpaid upon the Related Obligations Secured or

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(C) the Indenture Trustee determines that the Related Collateral will not continue to provide sufficient funds for the payment of principal of and interest on the Related Obligations Secured as they would have become due if the Related Obligations Secured had not been declared due and payable, and the Indenture Trustee obtains the consent of Noteholders of such Series by Extraordinary Resolution of such Noteholders. In determining such sufficiency or insufficiency with respect to clauses (B) and (C), the Indenture Trustee may, but need not, obtain and rely upon an opinion of an independent investment banking or accounting firm of national reputation as to the feasibility of such proposed action and as to the sufficiency of the Related Collateral for such purpose.

(2) If the Indenture Trustee collects any money or property pursuant to this Article 9 in respect of any Series or the Related Collateral, it shall pay out such money or property in accordance with the Related Supplement.

9.3 Performance And Enforcement Of Certain Obligations.

(1)

Promptly following a request from the Indenture Trustee to do so, the Trust shall take all such lawful action as the Indenture Trustee may request to compel or secure the performance and observance by an Originator, a Servicer or a Back-Up Servicer, as applicable, of its obligations to the Trust under or in connection with any applicable Securitization Agreement, Servicing Agreement or agreement with the Back-Up Servicer in accordance with the terms thereof, and to exercise any and all rights, remedies, powers and privileges lawfully available to the Trust under or in connection with such Securitization Agreement, Servicing Agreement or other agreement to the extent and in the manner directed by the Indenture Trustee, including the transmission of notices of default on the part of the Originator, the Servicer or Back-Up Servicer thereunder and the institution of legal or administrative actions or proceedings to compel or secure performance by the Originator, the Servicer or Back-Up Servicer of each of their obligations under the affected Securitization Agreement, Servicing Agreement or other agreement.

(2)

If a Related Event of Default has occurred and is continuing, the Indenture Trustee may, and at the direction (which direction shall be in writing) of the Noteholders of such Series upon an Extraordinary Resolution of such Noteholders shall, subject to Section 12.3, exercise all rights, remedies, powers, privileges and claims of the Trust against the Related Originator or the Related Servicer under or in connection with the Related Securitization Agreement or Related Servicing Agreement, including the right or power to take any action to compel or secure performance or observance by the Related Originator or the Related Servicer of each of their obligations to the Trust thereunder and to give any consent, request, notice, direction, approval, extension or waiver under the Related Securitization Agreement or Related Servicing Agreement, and any right of the Trust to take such action shall be suspended.

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9.4 Optional Preservation Of The Related Collateral.

          If the Notes of any Series have been declared to be due and payable under Section 8.2 following a Related Event of Default, and such declaration and its consequences have not been rescinded and annulled, the Indenture Trustee may, but need not, elect to permit the Trust to maintain possession of the Related Collateral. It is the desire of the parties hereto and the Noteholders of each Series that there be at all times sufficient funds for the payment of principal of and interest on the Related Notes, and the Indenture Trustee shall take such desire into account when determining whether or not to permit the Trust to maintain possession of the Related Collateral. In determining whether to permit the Trust to maintain possession of the Related Collateral for any Series, the Indenture Trustee may, but need not, obtain and rely upon an opinion of an independent investment banking or accounting firm of national reputation in Canada as to the feasibility of such proposed action and as to the sufficiency of such Related Collateral for such purpose.

9.5 Application of Moneys.

          Upon the occurrence and during the continuance of a Related Event of Default, the Indenture Trustee shall establish and maintain one or more Related Collateral Accounts in respect of the Notes of each particular Series into which shall be deposited all Related Collections (and the proceeds of and interest on any Permitted Investments thereof) such that the Related Collections required herein to be applied to the payment of Related Obligations Secured shall be segregated. All moneys standing in the Related Collection Accounts attributable to the Related Asset Interests at the time of a Related Event of Default shall be transferred to the appropriate Related Collateral Accounts in accordance with the Related Securitization Agreements. All further Related Collections and the proceeds of sale of any Related Collateral shall be deposited to the Related Collateral Account in accordance with the Related Securitization Agreement, all as determined by the Indenture Trustee, which determination shall be conclusive for purposes of this Indenture, absent manifest error. The Indenture Trustee (and any receiver appointed by it pursuant to this Indenture) shall have sole access to such accounts and shall apply the moneys therein for the benefit of the Specified Creditors as provided in the Related Supplement and the Related Securitization Agreement. Notwithstanding the foregoing, all moneys received on account of Related Asset Interests which have been assigned to a Related Credit Enhancer pursuant to a Related Credit Enhancement Agreement shall not be deposited to a Related Collateral Account but shall be remitted by the Trust or the Indenture Trustee to the Related Credit Enhancer entitled thereto. All moneys standing in a Related Collateral Account or otherwise received by the Indenture Trustee (or any receiver appointed by it pursuant to this Indenture) pursuant to this Article 9 shall be applied in the manner and priorities indicated in the Related Supplement and the Related Securitization Agreement.

9.6 Trust Moneys.

          All moneys held by the Indenture Trustee pursuant to the provisions of this Indenture and any Related Supplement shall, subject to any provision herein to the contrary, be held by the Indenture Trustee as part of the Collateral as security for the Related Specified Creditors as herein provided. Any moneys held by the Indenture Trustee under the trusts of this

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Indenture shall be invested by the Indenture Trustee in Permitted Investments upon written direction of the Trust. Upon receipt of (i) a Certificate of the Trust stating that no Related Event of Default has occurred and is continuing; and (ii) a Written Order for payment to the Trust, the Indenture Trustee shall pay or cause to be paid all interest earned on moneys so deposited to the Trust.

9.7 Restoration Of Rights And Remedies.

          If the Indenture Trustee or any Noteholder has instituted any Proceeding to enforce any right or remedy under this Indenture and any Related Supplement and such Proceeding has been discontinued or abandoned for any reason or has been determined adverse to the Indenture Trustee or to such Noteholder, then and in every such case the Trust, the Indenture Trustee and the Noteholders shall, subject to any determination in such Proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Indenture Trustee and the Noteholders shall continue as though no such Proceeding had been instituted.

9.8 Delay Or Omission Not A Waiver.

          No delay or omission of the Indenture Trustee or any Specified Creditor to exercise any right or remedy accruing upon any Related Default or Related Event of Default shall impair any such right or remedy or constitute a waiver of any such Related Default or Related Event of Default or an acquiescence therein. Every right and remedy given by this Article 9 or by law to the Indenture Trustee or to the Specified Creditors may be exercised from time to time, and as often as may be deemed expedient, by the Indenture Trustee or by the Specified Creditors, as the case may be.

9.9 Control By Noteholders.

          Subject to Section 12.3(3), the Noteholders of a Series by Extraordinary Resolution shall have the right to direct the time, method and place of conducting any Proceeding for any remedy available to the Indenture Trustee with respect to the Notes of such Series or exercising any trust or power conferred on the Indenture Trustee with respect to the Related Collateral; provided, that:

(a)	such direction shall not be in conflict with any rule of law or with this Indenture or the Related Supplement;
(b)	any direction to the Indenture Trustee to sell or liquidate the Related Collateral shall be subject to the express terms of Section 9.2;
(c)	if the Indenture Trustee elects to allow the Trust to retain the Related Collateral pursuant to Section 9.4, then any contrary direction shall require the approval of holders of Notes of such series by Extraordinary Resolution; and

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(d) the Indenture Trustee may take any other action deemed proper by the Indenture Trustee that is not inconsistent with such direction;

provided, however, that, subject to Sections 12.2 and 12.3, the Indenture Trustee need not take any action that it determines might involve it in liability.

9.10 Purchase by Specified Creditors.

          Any one or more of the Specified Creditors or any agent or representative thereof may become purchasers at any sale of any Collateral whether made under the power of sale herein contained or pursuant to judicial proceedings.

9.11 Protection of Persons Dealing with Indenture Trustee.

          No Person dealing with the Indenture Trustee or its agents will be obliged to inquire as to whether any of the security hereby constituted has become enforceable, or whether the powers which the Indenture Trustee is purporting to exercise have become exercisable, or whether any money remains due upon such security hereby constituted or the Obligations Secured, or as to the necessity or expediency of the stipulations and conditions subject to which any sale is made, or otherwise as to the propriety or regularity of any sale or of any other dealing by the Indenture Trustee with any of the Collateral, or to see to the application of any money paid to the Indenture Trustee; and in the absence of fraud on the part of the Person, the dealing will be deemed, so far as regards the safety and protection of the Person, to be within the powers hereby conferred and to be valid and effectual accordingly.

9.12 Remedies Cumulative.

          No right or remedy herein conferred upon or reserved to the Indenture Trustee, or upon or to the Specified Creditors is intended to be exclusive of any other right or remedy, and every right and remedy shall be cumulative and is in addition to every other right and remedy given hereunder or now existing or hereafter to exist by law, in equity or by statute.

9.13 The Trust to Execute Confirmatory Deed.

          In case of any sale hereunder, whether by the Indenture Trustee or under judicial proceedings, the Trust will execute and deliver to the purchaser on demand any instrument reasonably necessary to confirm to the purchaser its title to the property so sold, and in case of any such sale, the Indenture Trustee is hereby irrevocably authorized to carry the sale into effect and to execute on its behalf and in its name any such confirmatory instrument.

9.14 Indenture Trustee Appointed Attorney.

          The Trust irrevocably constitutes and appoints the Indenture Trustee and any officer, representative or employee thereof, with full power of substitution, as its true and lawful attorney with full power and authority in the name of the Trust or in its own name, in its discretion, upon the occurrence and during the continuance of any Related Event of Default, for the purpose of carrying out the terms of this Indenture to take all appropriate action and to

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execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes hereof, and without limiting the generality of the foregoing, hereby gives the Indenture Trustee the power and right on behalf of the Trust, without notice to or assent by the Trust, to the extent permitted by applicable law, to do the following:

(a)	to ask for, demand, sue for, collect and receive all and any moneys due or becoming due with respect to the Related Collateral;
(b)	to receive, take, endorse, assign and deliver any and all cheques, notes, drafts, acceptances, documents and other negotiable and non-negotiable instruments, documents and chattel paper taken or received by the Indenture Trustee in connection therewith and herewith; and
(c)	to commence, file, prosecute, defend, settle, compromise or adjust any claim, suit, action or proceeding with respect to the Related Collateral.

The foregoing power of attorney shall be coupled with an interest and survive any dissolution, liquidation or winding-up of the Trust.

9.15 Credit Enhancement Agreements.

          Notwithstanding any other provision of this Indenture, where, with respect to the Notes of any particular Series, (i) the unutilized portion of the Credit Enhancement available under any Related Credit Enhancement Agreement is greater than zero; or (ii) the Related Credit Enhancer is owed any amount thereunder, in making any disposition of the Related Collateral, the Indenture Trustee shall, if so set out in a Related Supplement, exercise its rights and privileges under this Article 9 in accordance with those sections of such Related Credit Enhancement Agreement specifically identified in the Related Supplement, and the Related Credit Enhancer shall have the right upon giving written notice to the Indenture Trustee and the Related Rating Agencies to initiate at any time any action, suit, or proceeding to enforce its rights under such agreement. Without limiting the generality of the foregoing, any conflict between the provisions of this Indenture and those provisions of the Credit Enhancement Agreement specifically identified in the Related Supplement shall be resolved by applying such provisions of the Credit Enhancement Agreement so long as the unutilized portion of the Credit Enhancement available thereunder is greater than zero or the Related Credit Enhancer is owed any amount thereunder. Any funds received by way of Related Collections of amounts payable in respect of Related Asset Interests which have been purchased by the Related Credit Enhancer shall, notwithstanding any other provision hereof, be held in trust separate and apart in a segregated account for the benefit of the Related Credit Enhancer and remitted to the Related Credit Enhancer as it may direct as soon as practicable.

9.16 Disclaimer of Marshalling.

          In the event that the security hereby constituted shall become enforceable and the Indenture Trustee shall have determined or become bound to enforce the same, the Trust covenants not to invoke the doctrine of marshalling or any other equitable principle for the

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purpose of requiring the Indenture Trustee to realize or to have realized on any particular asset forming part of the Collateral.

9.17 Appointment of Receiver.

          If the Indenture Trustee determines under the provisions of this Indenture to appoint a Receiver in respect of any Series, the following provisions will apply:

(a)	the Indenture Trustee may from time to time in the same manner remove any Receiver so appointed and appoint another in its stead; in making any appointment the Indenture Trustee will be deemed to be acting as the agent of the Trust;
(b)	any appointment will be limited to the Related Collateral and may be made either before or after the Indenture Trustee has taken possession of such Related Collateral;
(c)	every Receiver may in the discretion of the Indenture Trustee be vested with all or any of the powers and discretions of the Indenture Trustee;
(d)	the Indenture Trustee may from time to time fix the reasonable remuneration of every Receiver and direct the payment thereof out of such Related Collateral, the income therefrom or the proceeds thereof;
(e)	the Indenture Trustee may from time to time require any Receiver to give security for the performance of its duties and may fix the nature and amount thereof, but will not be bound to require security;
(f)	every Receiver may, with the consent in writing of the Indenture Trustee, borrow money and grant security for the purposes of the maintenance, protection or preservation of such Related Collateral or any part thereof with any amount so borrowed and any interest thereon to be a charge or lien on such Related Collateral in priority to the security hereby constituted;
(g)	every Receiver will, so far as concerns responsibility for its acts or omissions, be deemed the agent of the Trust and in no event the agent of the Indenture Trustee, and the Indenture Trustee will not, in making or consenting to the appointment, incur any liability to the Receiver for its remuneration or otherwise, provided that the Trust hereby irrevocably authorizes the Indenture Trustee to give instructions to the Receiver relating to the performance of its duties as set out herein;
(h)	except as may be otherwise directed by the Indenture Trustee or as otherwise specifically provided in this Indenture, all money from time to

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time received by any Receiver will be paid over to the Indenture Trustee to be held by it on the trusts of this Indenture; and

(i) the Indenture Trustee may pay over to any Receiver any money constituting part of such Related Collateral to the extent that the same may be required to be applied for the purposes hereof by such Receiver, and the Indenture Trustee may from time to time determine what funds such Receiver is at liberty to keep in hand with a view to the performance of its duty as Receiver.

9.18 Holding in Trust.

          If, with respect to the Notes of any particular Series, a Related Event of Default shall have occurred and be continuing and the Indenture Trustee or any holder of the Related Notes shall receive from the Trust, or the Indenture Trustee shall hold, any amount for payment of the principal of or interest on such Notes, the Indenture Trustee or such holder, as the case may be, shall hold such amount in trust for the benefit of the Related Specified Creditors, as their interests may appear in the Related Securitization Agreements, in accordance with and to the extent of their respective priorities. The Indenture Trustee or any such holder of Related Notes, as the case may be, shall from time to time, in accordance with Section 9.5 and the Related Supplement, pay over to the appropriate Related Specified Creditors from the amount so held in trust for the benefit of such Related Specified Creditors, so much as shall at the time of such payment by the Indenture Trustee or such holder of Related Notes, as the case may be, have become due, and remain unpaid, of the Related Obligations Secured or, if the amount so due and remaining unpaid shall be greater than the amount so held in trust for the benefit of such Related Specified Creditors, then the entire amount so held; provided, however, that if such Related Event of Default shall be waived in accordance with Section 8.2, or all amounts that shall have become due for payment of the Related Obligations Secured shall have been paid or duly provided for to the satisfaction of the Indenture Trustee, such trusts for the benefit of such Related Specified Creditors shall terminate and any amount still held by the Indenture Trustee or any Related Noteholder, as the case may be, shall be applied by it for the purposes originally intended. In the event that the Indenture Trustee shall make any payment to any holder of Related Notes contrary to the provisions of this Section 9.18, then such holder shall repay any amount so received to the Indenture Trustee, to be held and applied by the Indenture Trustee in accordance with the provisions of this Section 9.18.

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ARTICLE 10
SUITS BY SPECIFIED CREDITORS AND INDENTURE TRUSTEE

10.1 Specified Creditors May Not Sue.

          Subject to Section 9.15, no Specified Creditor will have any right to institute any Proceeding for payment of any part of the Obligations Secured or for the purpose of bringing Collateral to sale, or for the execution of any trust or power hereunder in relation thereto, or for the appointment of a Receiver of such Collateral or for any other remedy hereunder, unless the following conditions precedent have been fulfilled:

(a)	the Specified Creditor previously has given to the Indenture Trustee written notice of the happening of a Related Event of Default;
(b)	in the case of any Proceeding by the Noteholders of any particular Series, such Noteholders, by Extraordinary Resolution, have made a request to the Indenture Trustee and the Indenture Trustee has been afforded reasonable opportunity itself to either proceed to exercise the powers hereinbefore granted or to institute a Proceeding in its name for the purpose requested;
(c)	in the case of any Proceeding by a Specified Creditor other than the Noteholders of any particular Series, such Specified Creditor has made a written request to the Indenture Trustee and the Indenture Trustee has been afforded reasonable opportunity itself to either proceed to exercise the powers hereinbefore granted or to institute a Proceeding in its name for the purpose requested;
(d)	the Specified Creditors referred to in (b) or (c) above have offered to the Indenture Trustee, when so requested by the Indenture Trustee, sufficient funds and security and indemnity satisfactory to the Indenture Trustee, acting reasonably, against the costs, expenses and liabilities to be incurred therein or thereby; and
(e)	the Indenture Trustee has failed to act hereunder within a reasonable time which shall, for the purposes hereof, not exceed a period of 60 days in any event after notification, request and offer of sufficient funds and indemnity by such Specified Creditors;

it being understood and intended that no Related Specified Creditor with respect to a Series shall have any right in any manner whatsoever to take any action against any Collateral other than the Related Collateral or to effect, disturb or prejudice the rights of any other Specified Creditor (of the same or any other Series), or to obtain or seek to obtain priority over or preference to any other Specified Creditor (of the same or any other Series), or to enforce any right under this Indenture, except in the manner herein provided and for the equal, rateable and common benefit of all Related Specified Creditors of the same Series, except as otherwise expressly provided in this Indenture and the Related Supplement.

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10.2 Indenture Trustee Not Required to Possess Notes.

          All rights of action under this Indenture may be enforced by the Indenture Trustee without the possession of any of the Notes or the production thereof at any trial or other proceedings relative thereto and any such Proceeding instituted by the Indenture Trustee may be brought in its own name as trustee of an express trust. Any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee, its agents and Counsel, be for the benefit of the Specified Creditors in respect of which such judgment has been recovered in the manner herein provided.

10.3 Indenture Trustee May Institute All Proceedings.

          The Indenture Trustee will have the power to institute and maintain any and all Proceedings as it may consider necessary or expedient to enforce the security hereby constituted or pursuant to any Hypothec or to prevent any impairment of such security by any acts of the Trust or of others in contravention of this Indenture or the Programme Agreements or in violation of law, or as the Indenture Trustee may be advised by Counsel are necessary or expedient to preserve and to protect its interest and the security and interests of the Specified Creditors in respect of the Collateral or in respect of the income, earnings, issues and profits therefrom. Following the occurrence of a Related Event of Default, any suit or proceedings may be instituted by the Indenture Trustee against others in the name of the Trust and the Indenture Trustee is hereby irrevocably constituted and appointed the agent of the Trust for this purpose.

10.4 Application of Proceeds.

          If, following the occurrence of a Related Event of Default which is then continuing, any Related Specified Creditor receives any amount in satisfaction of any part of the Related Obligations Secured from any source whatsoever other than pursuant hereto, such amount shall be held in trust for and immediately remitted to the Indenture Trustee and shall be applied by the Indenture Trustee in the manner provided in Section 9.5.

ARTICLE 11
MEETINGS OF NOTEHOLDERS

11.1 Right to Convene Meetings.

          The Indenture Trustee may at any time and from time to time and will on receipt of a Written Order or a written request signed by the holders of not less than 25% of the aggregate principal amount of the Notes then outstanding to which such meeting relates and upon receiving sufficient funds and on being indemnified to its reasonable satisfaction by the Trust or by the Noteholders signing such order or request against the costs which may be incurred in connection with the calling and holding of such meeting, convene a meeting of the Noteholders. In the event of the Indenture Trustee failing within 15 days after receipt of any such order or request and such sufficient funds and indemnity to give notice convening a meeting, the Trust or such Noteholders, as the case may be, may convene such meeting. Every

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such meeting shall be held in the Municipality of Metropolitan Toronto or at such other place as the Indenture Trustee shall approve or determine.

11.2 Record Dates.

          For the purpose of determining the Noteholders entitled to receive notice of a meeting of Noteholders to be held pursuant to this Article 11, the Issuer Trustee (or the Financial Services Agent on behalf of the Trust or the Financial Services Sub-Agent on behalf of the Financial Services Agent, as agent of the Trust) or the Indenture Trustee may fix in advance a date as the record date for determining such Noteholders, which date shall not precede by more than 45 days or be less than 15 days prior to the date on which the meeting is to be held.

11.3 Notice of Meetings.

          At least 15 days’ notice of any meeting will be given to (a) the Noteholders to which such meeting relates in the manner provided in Section 14.3, (b) the other Related Specified Creditors in the manner provided in Section 14.4, and (c) the Related Rating Agencies in the manner provided in Section 14.5, and a copy thereof will be sent to the Indenture Trustee in the manner provided in Section 14.2, unless the meeting has been called by it, and to the Trust, unless the meeting has been called by it. Such notice will state the time when and the place where the meeting is to be held and will state briefly the general nature of the business to be transacted thereat. It will not be necessary for any such notice to set out the terms of any resolution to be proposed or any of the provisions of this Article 11. Such notice will also state that any Noteholder may be represented at any meeting of Noteholders by a proxy duly appointed by instrument in writing in accordance with the regulations made from time to time by the Indenture Trustee pursuant to Section 11.10 and that the appointment of any proxy may be revoked at any time before the commencement of the meeting to which the appointment relates. The non-receipt of any such notice by a Noteholder shall not invalidate any resolution passed at such meeting.

11.4 Chairperson.

          The Indenture Trustee shall appoint in writing an individual, who need not be a Noteholder, to be the chairperson of the meeting; provided, however, that the holders of not less than 50% of the aggregate principal amount of the Notes then outstanding to which such meeting relates may elect at such meeting another individual, who need not be a Noteholder, to be the chairperson of the meeting. No vote shall be cast or counted at any meeting in respect of any Notes challenged as not outstanding and ruled by the chairperson of the meeting to be not outstanding. The chairperson of the meeting shall have no right to vote except as a holder of a Note or a proxyholder.

11.5 Quorum.

          Subject to the provisions of Section 11.15, at any meeting of the Noteholders a quorum will consist of Noteholders present in person or by proxy and representing at least 25% of the aggregate principal amount of the Notes then outstanding to which such meeting relates.

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If a quorum of the Noteholders is not present in person or by proxy within 30 minutes after the time fixed for holding the meeting, then the meeting, if convened by or on the request of the Noteholders, will be dissolved; but in any other case the meeting will be adjourned to the same day in the next calendar week (unless such day is not a Business Day in which case it will be adjourned to the next following Business Day thereafter) at the same time and place and no notice will be required to be given in respect of such adjourned meeting. At the adjourned meeting the Noteholders present in person or by proxy will constitute a quorum and may transact the business for which the meeting was originally convened notwithstanding that they may not represent 25% of the aggregate principal amount of the Notes then outstanding to which such meeting relates. Where a Noteholder has executed a document in writing appointing a Person as proxy and such Person who is a proxyholder is present at the meeting, the Noteholder shall be deemed to be present for the purposes of determining a quorum and be deemed to have voted; provided, that such Noteholder shall be considered as present or voting only with respect to the matters covered by such document in writing.

11.6 Power to Adjourn.

          The chairperson of any meeting at which a quorum of Noteholders is present may, with the consent of the holders of a majority of the principal amount of the Notes then outstanding represented thereat, adjourn any such meeting and no notice of such adjournment need be given except such notice, if any, as the meeting may prescribe.

11.7 Show of Hands.

          Every question submitted to a meeting will be decided in the first place by a majority of the votes given on a show of hands except that votes on Extraordinary Resolutions will be given in the manner provided in Section 11.8. At any such meeting, unless a poll is duly demanded as hereinafter provided, a declaration by the chairperson that a resolution had been carried or carried unanimously or by a particular majority or lost or not carried by a particular majority will be conclusive evidence of the fact.

11.8 Poll.

          On every Extraordinary Resolution, and on any other question submitted to a meeting when demanded by the chairperson or by one or more Noteholders or proxies for Noteholders holding at least 5% of the aggregate principal amount of the Notes then outstanding to which such meeting relates, a poll will be taken in such manner and either at once or after an adjournment as the chairperson directs. Questions other than Extraordinary Resolutions will, if a poll be taken, be decided by the votes of the holders of a majority in principal amount of the Notes then outstanding represented at the meeting and voting on the poll.

11.9 Voting.

          On a show of hands, every person who is present and entitled to vote, whether as a Noteholder or as proxy for one or more Noteholders or both, will have one vote. On a poll, each Noteholder present in person or represented by a proxy will be entitled to one vote in

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respect of each $1,000 principal amount (or the Equivalent Amount in any other currency) of Notes of which he is then the holder or which he represents by proxy. A proxy need not be a Noteholder. In the case of joint registered holders of a Note, any one of them present in person or by proxy at the meeting may vote in the absence of the other or others but in case more than one of them be present in person or by proxy, they will vote together in respect of the Notes of which they are joint registered holders and failing agreement among themselves as to how to vote, shall not be permitted to vote.

11.10 Regulations.

          The Indenture Trustee may from time to time make reasonable regulations and may make reasonable variations to the regulations as it thinks fit with respect to:

(a)	the voting by proxy by Noteholders and the form of instrument appointing proxies and the manner in which the same will be executed and with respect to the production of the authority of any Person signing on behalf of the giver of the proxy;
(b)	the lodging of instruments appointing proxies at any place or places and in such custody as the Indenture Trustee directs and the time, if any, before the holding of the meeting or adjourned meeting by which the same must be deposited;
(c)	the forwarding by the custodian thereof of particulars of instruments appointing proxies by letter, cable, telegraph, facsimile or electronic messaging system before the meeting to the Trust or to the Indenture Trustee or to the chairperson of the meeting;
(d)	the issue of voting certificates to holders of Book-Entry Notes which voting certificates shall entitle the holders named therein to be present and vote at any such meeting and at any adjournment thereof or to appoint a proxy or proxies to represent them and vote for them at any such meeting and at any adjournment thereof, in the same manner and with the same effect as though the holders so named in such voting certificates were the actual registered holders of Definitive Notes; and
(e)	any other matters it deems necessary for the proper conduct of the meeting.

Any regulations so made will be binding and effective and votes given in accordance therewith will be valid and will be counted. Instruments appointing proxies, the particulars of which are forwarded in accordance with the regulations, will confer the same right to vote as though the instruments themselves were produced at the meeting. Save as herein otherwise specified, the only Persons who will be recognized at any meeting of Noteholders as the holders of Notes or as entitled to vote or be present at the meeting in respect thereof will be Noteholders to which such meeting relates and holders of proxies of such Noteholders.

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11.11 The Trust and Indenture Trustee.

          Each of the Issuer Trustee, the Financial Services Agent, the Financial Services Sub-Agent, the Indenture Trustee, the Related Credit Enhancers and the Related Rating Agencies, by their respective employees, representatives, officers and directors, and the legal advisors of such parties, may attend any meeting of any Noteholders, but will not as such have a vote.

11.12 Powers Exercisable by Extraordinary Resolution of all Noteholders.

(1) In addition to any powers hereinbefore given, the Noteholders generally shall by Extraordinary Resolution of all Noteholders have the power to:

(a)	subject to Sections 9.9, 12.3(2) and 12.3(3), require the Indenture Trustee to exercise or refrain from exercising any of the powers conferred upon it by this Indenture;
(b)	sanction the release of the Trust from its covenants and obligations hereunder;
(c)	remove the Indenture Trustee from office and appoint a new Indenture Trustee hereunder;
(d)	without limiting Section 13.3, permit or direct the Indenture Trustee to sanction or consent to any amendment, supplement, modification, termination, restatement, replacement, waiver or consent to or postponement of compliance with, any Programme Agreement (including this Indenture but other than a Related Supplement) which would otherwise not be permitted hereunder, provided however that where such amendment, supplement, modification, termination, restatement, replacement, waiver or consent to or postponement of compliance, would, in the opinion of the Indenture Trustee materially adversely affect the rights or interests of a Credit Enhancer or any other Specified Creditor, the consent of such Credit Enhancer or other Specified Creditor shall be required;
(e)	assent to any compromise or arrangement by the Trust with any creditor, creditors or class or classes of creditors or with the holder of any securities of the Trust;
(f)	restrain any holder of any Note from taking or instituting any suit, action or proceeding for the recovery of amounts payable under such Note or hereunder or for the execution of any trust or power hereunder or for the appointment of a Receiver or trustee in bankruptcy or the winding up of the Trust or for any other remedy hereunder and to direct such holder of

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any Note to waive any Related Event of Default on which any suit or proceeding is founded;

(g)	direct any Noteholder bringing any action, suit or proceeding and the Indenture Trustee to waive the Related Event of Default in respect of which such action, suit or proceeding shall have been brought;
(h)	direct the Indenture Trustee to request the appointment of a successor Financial Services Agent or Financial Services Sub-Agent pursuant to Section 6.1(h), or to terminate the Financial Services Sub-Agency Agreement or Section 2.2 thereof in accordance with Section 6.1 thereof;
(i)	appoint a committee with power and authority (subject to such limitations, if any, as may be prescribed in the Extraordinary Resolution) to exercise, and to direct the Indenture Trustee to exercise, on behalf of the Noteholders, such of the powers of the Noteholders as are exercisable by Extraordinary Resolution or other resolution as shall be included in the Extraordinary Resolution appointing the committee. The Extraordinary Resolution making such appointment may provide for payment of the expenses and disbursements of and compensation to such committee. Such committee shall consist of such number of persons as shall be prescribed in the Extraordinary Resolution appointing it and the members need not be themselves Noteholders. Every such committee may elect its chairperson and may make regulations respecting its quorum, the calling of its meetings, the filling of vacancies occurring in its number and its procedures generally. Such regulations may provide that the committee may act at a meeting at which a quorum is present or may act by minutes signed by the number of members thereof necessary to constitute a quorum. All acts of any such committee within the authority delegated to it shall be binding upon all Noteholders. Neither the committee nor any member thereof shall be liable for any loss arising from or in connection with any action taken or omitted to be taken by them in good faith; and
(j)	take any other action authorized by this Indenture or directed under any other Programme Agreement to be taken by Extraordinary Resolution.

(2) Notwithstanding any other provision of this Indenture, (i) no change whatsoever to (x) the payee of a Note may be made without the consent of the holder of such Note; (y) the date of maturity of a Note, the principal amount or currency of a Note, the interest rate or premium payable on a Note, if any, the place of payment of a Note, or the amount or timing of distributions which are required to be made on a Note, may be made without the consent of the holders of not less than 95% of the aggregate principal amount of each Series or Class of Notes affected by such change; or (z) the percentage specified in the definition of “Extraordinary Resolution” in Section 11.15 for passage of a resolution may be made without the consent of the holders of not less than 95% of the aggregate principal amount of

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each Series or Class adversely affected; and (ii) no Extraordinary Resolution may be adopted which adversely affects the rights, duties or immunities under this Indenture or otherwise of the Indenture Trustee without the express written consent of the Indenture Trustee.

11.13 Powers Exercisable by Extraordinary Resolution of Holders of Series.

(1)

The Noteholders of each particular Series shall, in addition to any powers herein given to holders of Notes generally and to the exclusion of the Noteholders of all other Series, have the power, exercisable from time to time by Extraordinary Resolution, to sanction and agree to (and to direct the Indenture Trustee to sanction and agree, or, as applicable, consent, to) any amendment, supplement, modification, termination, restatement, replacement, waiver or consent to or postponement of compliance with, any of the provisions of any Programme Agreement (including this Indenture or the Related Supplement) to the extent affecting such Notes (as compared to Notes of another Series) solely or otherwise in a manner or to an extent differing from that in or to which it affects the rights of the Noteholders of any other affected Series (including waiving any Related Event of Default), or to sanction the sale, exchange or other disposition of Related Collateral or any part thereof for such consideration as may be specified in the Extraordinary Resolution; provided, in each case, that (i) such amendment, supplement, modification, termination, restatement, replacement, waiver or consent to or postponement of compliance, or sale, exchange or other disposition, does not adversely affect the rights or interests of the Noteholders of any other Series, as determined by the Indenture Trustee relying on the advice of Counsel; and (ii) where such amendment, supplement, modification, termination, restatement, replacement, waiver or consent to or postponement of compliance, would, in the opinion of the Indenture Trustee materially adversely affect the rights or interests of a Credit Enhancer or any other Specified Creditor (other than a Noteholder of such Series), the consent of such Credit Enhancer or other Specified Creditor shall be required.

(2)

If any business to be transacted at a meeting of Noteholders, or any action to be taken or power to be exercised by instrument in writing under Section 11.18, affects the rights of the Noteholders of one or more Series in the manner described in Section 11.13(1), then:

(a)	reference to such fact, indicating each Series so affected, shall be made in the notice of such meeting and the meeting shall be and is herein called a “serial meeting”; and
(b)	the Noteholders of a Series so affected shall not be bound by an action taken or power exercised at a meeting of Noteholders generally, or at a serial meeting or by instrument in writing under Section 11.18 unless, in addition to compliance with the other provisions of this Article 11, such

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action is taken or power exercised by resolution of the Noteholders of such Series as follows:

(i) at such serial meeting:

(A)	there is present a quorum consisting of Noteholders holding either in person or by proxy not less than 25% of the aggregate principal amount then outstanding of the Notes of such Series so affected (subject to the provisions of this Article 11 as to adjourned meetings); and
(B)	the resolution is passed by an Extraordinary Resolution of the Noteholders of such Series so affected; or

(ii) by a written instrument signed in one or more counterparts by the holders of not less than 66 2/3% of the aggregate principal amount then outstanding of the Notes of such Series so affected.

(3) Notwithstanding any of the provisions hereof, if any business to be transacted at any meeting, or any action to be taken or power to be exercised by instrument in writing under Section 11.18, does not in the opinion of the Indenture Trustee materially adversely affect the rights or interests of the Noteholders of one or more particular Series, the provisions of this Article 11 shall apply as if the Notes of such Series were not outstanding and no notice of any such meeting need be given to the Noteholders of such Series. For greater certainty, but without limiting the generality of the foregoing:

(a)	a proposal to modify or terminate any covenant or agreement which by its terms is effective only so long as Notes of a particular Series are outstanding shall be deemed not to adversely affect the rights of the Noteholders of any other Series; and
(b)	the Noteholders of any Series not adversely affected by any proposal to be submitted to a serial meeting in accordance with Section 11.13(2) shall not have the right to attend at such serial meeting or to vote on or otherwise approve or reject such proposal.

11.14 Powers Exercisable by Extraordinary Resolution of Holders of Class.

            If any business to be transacted at a meeting, or any action to be taken or power to be exercised by an instrument in writing under Section 11.13(2), affects the rights relating to a Class of Notes of a particular Series in a manner or to an extent substantially differing from the manner in or to an extent differing from that in or to which it affects the rights of the Noteholders of another affected Class of Notes of such particular Series (as determined by the Indenture Trustee, relying on the advice of Counsel) then:

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(1)

reference to such fact, indicating the Class of Notes so affected, shall be made in the notice of such meeting and the meeting shall be and is herein called a “Class meeting”; and

(2)

the Noteholders of the Class of Notes so affected shall not be bound by any action taken or power exercised at a meeting of Noteholders generally or at a serial meeting or by an instrument in writing under Section 11.18, unless in addition to compliance with the other provisions of this Article 11, such action is taken or power exercised by resolution of the Noteholders of such Class of Notes as follows:

(a) at such Class meeting:

(i)	there is present a quorum consisting of Noteholders holding in person or by proxy not less than 25% of the aggregate principal amount then outstanding of the Notes of such Class so affected (subject to the provisions of this Article 11 as to adjourned meetings); and
(ii)	the resolution is passed by an Extraordinary Resolution of the Noteholders of such Class so affected; or

(b) by a written instrument signed in one or more counterparts by the holders of not less than 66 2/3% of the aggregate principal amount then outstanding of the Notes of such Class so affected.

11.15 Meaning of “Extraordinary Resolution”.

          “Extraordinary Resolution”, wheresoever used herein, subject as hereinafter in this Article 11 provided, means a resolution proposed to be passed as an Extraordinary Resolution at a meeting of Noteholders (or the applicable Series or Class of Notes, as the case may be) at which there are Noteholders present in person or by proxy representing at least 25% of the aggregate principal amount of the applicable Notes (or applicable Series or Class of Notes, as the case may be) then outstanding to which such meeting relates and passed by the favourable votes of the holders of not less than 66 2/3% of the aggregate principal amount of the applicable Notes (or applicable Series or Class of Notes, as the case may be) represented at the meeting and voted on a poll upon such resolution. If, at any such meeting, the holders of 25% of the aggregate principal amount of such Notes (or applicable Series or Class of Notes, as the case may be) then outstanding to which such meeting relates are not present in person or by proxy within 30 minutes after the time fixed for holding the meeting, then the meeting, if convened by or on the requisition of Noteholders, will be dissolved; but in any other case the meeting will stand adjourned to such date, being not less than 15 days nor more than 60 days later and to such place and time as may be appointed by the chairperson. Not less than 10 days’ notice will be given to Noteholders of the time and place of such adjourned meeting, in the manner provided in Section 14.3. Such notice will state that at the adjourned meeting, the Noteholders present in person or by proxy will constitute a quorum but it will not be necessary to set forth the purposes

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for which the meeting was originally called or any other particulars. At the adjourned meeting, the Noteholders present in person or by proxy will constitute a quorum and may transact the business for which the meeting was originally convened and a resolution proposed at such adjourned meeting and passed by the requisite vote as provided in this Section 11.15 will be an Extraordinary Resolution within the meaning of this Indenture notwithstanding that they may not represent 25% of the aggregate principal amount of the Notes (or applicable Series or Class of Notes, as the case may be) then outstanding to which such meeting relates. Votes on an Extraordinary Resolution will always be given on a poll and no demand for a poll on an Extraordinary Resolution will be necessary. The Trust shall give notice to the Related Rating Agencies, the Related Originators and the Related Credit Enhancers of any resolution passed as an Extraordinary Resolution.

11.16 Powers Cumulative.

          It is hereby declared and agreed that any one or more of the powers or any combination of the powers in this Indenture stated to be exercisable by the Noteholders by Extraordinary Resolution or otherwise may be exercised from time to time and the exercise of any one or more of such powers or any combination of powers from time to time will not be deemed to exhaust the rights of the Noteholders to exercise the same or any other power or combination of powers thereafter from time to time.

11.17 Minutes.

          Minutes of all resolutions and proceedings at every meeting as aforesaid will be made and duly entered in books to be provided for that purpose by the Indenture Trustee at the expense of the Trust and any such minutes as aforesaid, if signed by the chairperson of the meeting at which such resolutions were passed or proceedings taken, or by the chairperson of the next succeeding meeting of Noteholders to which such meeting relates, will be prima facie evidence of the matters therein stated and, until the contrary is proved, every such meeting, with respect to the proceedings of which minutes have been made, will be determined to have been duly held and convened, and all resolutions passed thereat or proceedings taken thereat to have been duly passed and taken.

11.18 Instruments in Writing.

          All actions which may be taken and all powers that may be exercised by the Noteholders at a meeting held as provided in this Article 11 may also be taken and exercised by a document in writing signed in one or more counterparts by the holders of the applicable percentage of aggregate principal amount of Notes (or applicable Series or Class of Notes, as the case may be) then outstanding. Every such document relating to any or all of such actions or powers shall have the same force and effect as a resolution duly passed at a meeting of the holders of the Notes (or applicable Series or Class of Notes, as the case may be), called for purpose of providing such action or power, and for greater certainty, the term “Extraordinary Resolution” when used herein shall include any such document signed by the applicable percentage of the aggregate principal amount of Notes (or applicable Series or Class of Notes, as the case may be) then outstanding.

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11.19 Binding Effect of Resolutions.

           Subject to Sections 11.13 and 11.14, every resolution and every Extraordinary Resolution passed in accordance with the provisions of this Article 11 at a meeting of Noteholders will be binding upon all the Noteholders, whether present at or absent from such meeting, and every instrument in writing signed by Noteholders in accordance with Section 11.18 will be binding upon all the Noteholders whether signatories thereto or not, and each and every Noteholder and the Indenture Trustee (subject to the provisions for its indemnity contained in Section 12.3(2)) will be bound to give effect accordingly to every such resolution, Extraordinary Resolution and instrument in writing.

ARTICLE 12
THE INDENTURE TRUSTEE

12.1 Trust Indenture Legislation.

(1)	In this Article 12, the term “applicable legislation” means the provisions, if any, of the Trust and Loan Companies Act (Canada) and any other statute of Canada or a province thereof, and of regulations under any such statute, relating to trust indentures and to the rights, duties and obligations of trustees under trust indentures and of entities issuing debt obligations under trust indentures, to the extent that in the opinion of counsel to the Trust such provisions are at the time in force and applicable to this Indenture.
(2)	If and to the extent that any provision of this Indenture limits, qualifies or conflicts with a mandatory requirement of applicable legislation, such mandatory requirement shall prevail.
(3)	The Trust and the Indenture Trustee agree that each will at all times in relation to this Trust Indenture and any action to be taken hereunder, observe and comply with and be entitled to the benefits of applicable legislation.

12.2 Rights and Duties of Indenture Trustee.

(1)

In the exercise of the rights and duties prescribed or conferred by the terms of this Indenture, the Indenture Trustee will act honestly and in good faith with a view to the best interests of the Specified Creditors as a whole and exercise that degree of care, diligence and skill that a reasonably prudent trustee would exercise in comparable circumstances. The Indenture Trustee shall not be liable for any error in judgment or for any act done or step taken or omitted by it in good faith or for any mistake, in fact or law, made in good faith by it or for anything which it may do or refrain from doing in good faith in connection herewith, except arising out of its own wilful misconduct or negligence.

(2)

Every provision of this Indenture that by its terms relieves the Indenture Trustee of liability or entitles it to rely upon any evidence submitted to it, is subject to the

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provisions of applicable legislation and of Sections12.2(1) and Sections 12.3 and 12.4.

12.3 Conditions Precedent to Indenture Trustee’s Obligation to Act.

(1)	The Indenture Trustee shall not be bound to give any notice or do or take any act, action or proceeding pursuant hereto unless and until it shall have been required so to do under the terms hereof. The Indenture Trustee shall not be required to take notice of any Related Event of Default or Related Default hereunder, other than in payment of any money required by any provision hereof to be paid to it, unless and until notified in writing of such Related Event of Default or Related Default, which notice shall distinctly specify the Related Event of Default or Related Default desired to be brought to the attention of the Indenture Trustee and, in the absence of any such notice, the Indenture Trustee may for all purposes of this Indenture conclusively assume that the Trust is not in default hereunder and that no Related Event of Default or Related Default has occurred.
(2)	The Indenture Trustee will not be bound to do, observe or perform or see to the observance or performance by the Trust of any of the obligations herein imposed upon the Trust or of the covenants on the part of the Trust herein contained, nor to take or continue any steps to enforce the security hereof, nor in any way to supervise or interfere with any of the activities of the Trust, unless and until the Related Obligations Secured have become due and payable pursuant to Section 8.2 and then only after it has been indemnified and provided with sufficient funds, in each case, to its reasonable satisfaction against all actions, proceedings, claims and demands to which it may render itself liable and all costs, charges, damages and expenses which it may incur by so doing.
(3)	None of the provisions contained in this Indenture shall require the Indenture Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties or in the exercise of any of its rights or powers unless indemnified and funded as aforesaid or to give any bond or security in respect of the trust and powers of this Indenture.
(4)	The Indenture Trustee may, before commencing or at any time during the continuance of any such act, action or proceeding, require the Noteholders at whose instance it is acting to deposit with the Indenture Trustee the Notes held by them, for which Notes the Indenture Trustee shall issue receipts.

12.4 Experts and Advisors; Remuneration.

(1) The Indenture Trustee may, in the exercise of all or any of the trusts, powers and discretions vested in it hereunder act by its officers, representatives or employees. The Indenture Trustee may delegate to any Person the performance of any of the trusts and powers vested in it by this Indenture, and any delegation may be made

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upon terms and conditions and subject to regulations as the Indenture Trustee may think to be in the best interests of the Specified Creditors as a whole.

(2)

The Indenture Trustee may rely and act upon any statement, report or opinion prepared by or any advice received from the Financial Services Agent, the Financial Services Sub-Agent or from the auditors, Counsel or other professional advisors or experts of the Indenture Trustee, the Financial Services Sub-Agent or the Financial Services Agent and shall not be responsible or held liable for any loss or damage resulting from so relying or acting if the Indenture Trustee acted in good faith in relying upon the advice received. The Indenture Trustee is entitled to rely and act upon the genuineness and authenticity of any writing, paper, document or instrument submitted to it by any Person, not only as to its due execution and the validity and the effectiveness of its provisions but also as to the truth and acceptability of any information therein contained, which it in good faith believes to be genuine and what it purports to be.

(3)

The Indenture Trustee may, but is not required to, employ or consult any agents or other assistants (including, without limitation, Counsel, accountants, appraisers, other experts, agencies and advisors) as it may reasonably require for the proper determination and discharge of its duties hereunder or any agreement entered into in connection herewith, and will not be responsible for any negligence or wilful misconduct on the part of any agents or other assistants or for any liability incurred by any Person as a result of not appointing such agents or other assistants, provided that in appointing such agents or other assistants it has acted in accordance with Section 12.2(1), and may pay reasonable remuneration for all services performed for it in the discharge of the trusts hereof without taxation of any costs or fees of any Counsel, and the Indenture Trustee will be entitled to receive reasonable remuneration for all services performed by it in the discharge of the trusts hereof and compensation for all disbursements, costs, liabilities and expenses made or incurred by it in the discharge of its duties hereunder and in the management of the trusts hereof. All such remuneration, disbursements, costs, liabilities and expenses and all remuneration and expenses incidental to the preparation, execution and recording of this Indenture, any Related Supplement or any instrument ancillary or supplemental hereto and to the creation of the Notes, whether done by or owing to the Indenture Trustee or done or incurred at the request of the Indenture Trustee or the Trust, will bear interest at a rate per annum equal to the then current rate of interest charged by the Indenture Trustee from time to time so long as the same is commercially reasonable, from the date of invoice in the case of Indenture Trustee’s remuneration until the date of reimbursement and will (together with such interest) be payable by the Trust upon demand and will until paid form part of the Obligations Secured entitled to the security hereby constituted and will be payable out of any funds coming into the possession of the Indenture Trustee in accordance with the terms of this Indenture and the Related Supplement.

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(4) Wherever by this Indenture the Indenture Trustee is authorized to employ or consult Counsel and to pay costs secured by the security constituted hereby, the costs need not be taxed unless the Indenture Trustee deems it necessary to tax the same but may be agreed to by the Indenture Trustee and paid as a lump sum. No costs paid by the Indenture Trustee pursuant to this Section 12.4(4) in good faith will be disallowed in the taking of any accounts by reason only of the fact that the costs are greater than they might have been if taxed, or by reason of their not being taxed, but the costs so paid by the Indenture Trustee will, if not improperly incurred by it, be allowed and paid to the Indenture Trustee and will until paid form part of the Obligations Secured entitled to the security created by the applicable Related Supplement and will be payable out of any funds coming into the possession of the Indenture Trustee in accordance with the terms of this Indenture and such Related Supplement. Any Counsel employed or consulted by the Indenture Trustee may be, but need not be, counsel for the Trust.

12.5 Evidence of Compliance, Certificates of the Trust and Written Orders.

(1) The Trust will furnish, on or before March 31 of each year, to the Indenture Trustee:

(a)	a Certificate of the Trust stating that the conditions of this Indenture with respect to the satisfaction and discharge of this Indenture and each Related Supplement have been complied with in accordance with the terms of this Indenture or, to the extent not complied with, outlining such non-compliance and what the Trust proposes to do with respect thereto; and
(b)	a Certificate of the Trust stating the balance outstanding of the Obligations Secured, including, without limitation, the particulars and amounts of any Notes outstanding as at December 31 of the previous year.

(2)

The Certificates of the Trust referred to in Section 12.5(1) shall include a statement by the individual in his stated capacity certifying that he or she has read and understands the conditions of the Indenture and each Related Supplement relating to the matter in question and declaring that he or she has made such examinations or investigations as he or she believes necessary to enable him or her to make the statements or give the opinions contained or expressed therein.

(3)

Except where some other mode of proof is required by this Indenture, the Indenture Trustee will be at liberty to accept a Certificate of the Trust (i) as to any statement of facts as conclusive evidence of the truth of the statement; (ii) as to any particular act or transaction or step or thing which, in the opinion of the individual or officer so certifying, is expedient, as sufficient evidence that the act, transaction, step or thing is expedient; and (iii) as to any expenditure made or indebtedness incurred by the Trust or any successor trustee to the Trust as sufficient evidence that the expenditure or indebtedness was made or incurred for

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the purpose set forth in the Certificate of the Trust, and, in each case, the Indenture Trustee will be in no way bound to call for further evidence or be responsible for any loss that may be occasioned by its failing to do so. However, the Indenture Trustee may cause to be made any independent investigations as it may reasonably require and the expense thereof (together with interest at a rate per annum equal to the then current rate of interest charged by the Indenture Trustee from time to time so long as the same is commercially reasonable, from the date of the Indenture Trustee’s expenditure to the date of its reimbursement) will be paid by the Trust upon demand and will until paid by the Trust form part of the Obligations Secured entitled to the security constituted by the applicable Related Supplement and will be payable out of any funds coming into the possession of the Indenture Trustee in accordance with the terms of this Indenture and such Related Supplement. If, as a result of any independent investigation, the Indenture Trustee is not satisfied as to any matter or thing set forth in the Certificate of the Trust, the Indenture Trustee may refuse to act thereon.

(4)	Wherever applicable legislation requires that evidence be in the form of a statutory declaration, the Indenture Trustee may accept such statutory declaration in lieu of a Certificate of the Trust.
(5)	The Indenture Trustee will not be bound to act in accordance with any order, direction or request of the Trust, the Issuer Trustee, the Financial Services Sub-Agent or the Financial Services Agent until a Written Order has been delivered to the Indenture Trustee, and the Indenture Trustee will be fully empowered to act and will be fully protected from all liability in acting upon any instruments purporting to be Written Orders and believed by the Indenture Trustee to be genuine.
(6)	The regularity and validity of all acts, consents, requests and directions of the Trust will, for the protection of the Indenture Trustee, be deemed conclusively proved by a Certificate of the Trust or a Written Order, as the case may be.

12.6 Instruments Held By Indenture Trustee.

           The Indenture Trustee will be at liberty to place all instruments or other securities or deeds or other documents of title comprising part of the Collateral in safekeeping with any Canadian chartered bank or trust company (which may be an Affiliate of the Indenture Trustee) and the Indenture Trustee will not be responsible for any loss incurred in connection with any such placement. The Indenture Trustee may pay out of any funds in the possession of the Indenture Trustee all sums required to be paid on account of or in respect of any such placing.

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12.7 Protection of Indenture Trustee.

              By way of supplement to any law for the time being relating to trustees, it is expressly declared and agreed as follows:

(a)	the Indenture Trustee will not be bound to give notice to any Person of the execution hereof or of the charge of this Indenture unless and until any of the security hereby constituted has become enforceable and the Indenture Trustee has determined or become obliged to enforce the same;
(b)	the Indenture Trustee will not be liable for or by reason of any failure or defect of title to or any lien, charge or encumbrance upon any of the Collateral or for or by reason of the statements or implications of fact or law contained in or arising out of anything contained in this Indenture or in the Notes or be required to verify the same, but all statements or implications will be deemed to have been made by the Trust only, and it will not be the duty of the Indenture Trustee, except as herein otherwise specifically provided, to see to or require evidence of the registration or filing or renewal of this Indenture, or any other indenture or writing by way of mortgage, pledge, charge, transfer or assignment of or upon any of the Collateral or any part thereof or upon any other property of the Trust or to procure any mortgage, pledge or charge or other additional instrument of further assurance or to do any other act for the continuance of the security constituted hereby or for giving notice of the existence of any of the security constituted hereby or for extending or supplementing the same, or to insure or keep insured or require evidence of insurance against loss or damage by fire or otherwise the Collateral or any part thereof, or to keep itself informed or advised as to the payment by the Trust of any taxes or assessments or premiums of insurance or other payments which the Trust should make or to require payments to be made;
(c)	the Indenture Trustee will not be responsible for any error made or act done by it resulting from reliance upon the signature of any Person on behalf of the Trust or of any Person on whose signature the Indenture Trustee may be called upon or entitled to act or refrain from acting under this Indenture;
(d)	the Indenture Trustee will not incur any liability or responsibility whatsoever in consequence of permitting or suffering the Trust to retain or to be in possession of any part of any of the Collateral and to use and enjoy the same unless herein expressly otherwise provided; nor will the Indenture Trustee be or become responsible or liable for any destruction, deterioration, loss, injury or damage which may occur or be done by the Trust or by any other Person to any of the Collateral, or be in any way responsible for the consequence of any breach on the part of the Trust of

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any of the covenants herein contained or of any acts of servants or agents of the Trust;

(e)	the Indenture Trustee may buy, sell, lend upon and deal in the Notes and generally contract and enter into financial transactions with the Trust, the Financial Services Agent, the Financial Services Sub-Agent or the Issuer Trustee without being liable to account for any profits made thereby;
(f)	the Indenture Trustee shall not be liable for or by reason of any statements of fact or recital in this Indenture or in the Notes or required to verify the same, but all said statements or recitals are and shall be deemed to be made by the Trust;
(g)	subject to Section 12.2(1), no property or assets of the Indenture Trustee owned in its personal capacity will be subject to levy, execution or other enforcement procedure arising under or in connection with this Indenture;
(h)	the Indenture Trustee shall not incur any liability or responsibility whatsoever or be in any way responsible for the consequences of any breach on the part of the Trust of any of the representations, warranties or covenants herein contained or of any acts of the agents or servants of the Trust;
(i)	the Trust hereby indemnifies and saves harmless the Indenture Trustee, its directors, officers, representatives, employees and agents from and against any and all claims, demands, losses, actions, causes of action, costs, charges, expenses, damages, liabilities and obligations whatsoever, including without limitation, legal fees and disbursements on a solicitor and his own client basis and costs and expenses incurred in connection with enforcement of this indemnity, which the Indenture Trustee or any of the foregoing Persons may suffer or incur, whether at law or in equity, in any way caused by or arising, directly, or indirectly, in respect of anything done, omitted to be done or permitted to be done by the Indenture Trustee or any of the foregoing Persons in or about or in relation to the execution of the Indenture Trustee’s duties as Indenture Trustee including, without limitation, anything done or omitted to be done in relation to the registration, perfection, release or discharge of security; provided that the foregoing indemnification shall not apply in respect of anything done, omitted to be done or permitted to be done by the Indenture Trustee arising from or in connection with the wilful misconduct or negligence of the Indenture Trustee, its officers or employees. The Trust hereby agrees that the Indenture Trustee is the trustee for its directors, officers, representatives, employees and agents for the purpose of the foregoing indemnification and that this indemnification shall survive the termination or discharge of this Indenture and the resignation or replacement of the Indenture Trustee;

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(j)	the Indenture Trustee shall not be required to give security for the execution of the trusts or its conduct or administration under this Indenture; and
(k)	the Indenture Trustee will not be required to disburse money according to this Indenture except to the extent that money has been deposited with it.

12.8 Resignation or Removal of Indenture Trustee; Conflict of Interest.

(1)

The Indenture Trustee may resign its trust upon giving 60 days’ prior notice in writing to the Trust, the Financial Services Agent, the Financial Services Sub-Agent and the Rating Agencies or such shorter notice as the Trust and the Rating Agencies may accept as sufficient, provided that no such voluntary resignation shall be effective until a replacement Indenture Trustee acceptable to the Trust and the Rating Agencies, acting reasonably, has been appointed and has executed a written agreement whereby such replacement Indenture Trustee agrees to assume the obligations of the Indenture Trustee hereunder. The Indenture Trustee shall resign if a material conflict of interest arises in its role as a trustee under this Indenture that is not eliminated within 90 days after the Indenture Trustee becomes aware that it has such a material conflict of interest; provided that no such resignation shall be effective until a replacement Indenture Trustee acceptable to the Trust and that satisfies the Rating Agency Condition has been appointed and has executed a written agreement whereby such replacement Indenture Trustee agrees to assume the obligations of the Indenture Trustee hereunder. Forthwith after the Indenture Trustee becomes aware that it has a material conflict of interest it shall provide the Trust, the Financial Services Agent, the Financial Services Sub-Agent and the Rating Agencies with written notice of the nature of that conflict. Upon resignation in accordance with this Section 12.8(1) or removal in accordance with Section 12.8(2), the Indenture Trustee shall be discharged from all further duties under this Indenture. If, notwithstanding the foregoing provisions of this Section 12.8(1), the Indenture Trustee has such a material conflict of interest, the validity and enforceability of this Indenture and of the Notes issued hereunder shall not be affected in any manner whatsoever by reason only of the existence of such material conflict of interest. If the Indenture Trustee contravenes the foregoing provisions of this Section 12.8(1), any interested party may apply to the Ontario Superior Court of Justice for an order that the Indenture Trustee be replaced as trustee hereunder. The Indenture Trustee represents to the Trust and to each Noteholder that at the time of the execution and delivery hereof no material conflict of interest exists in the Indenture Trustee’s role as a fiduciary hereunder.

(2)

The Noteholders of all outstanding Series and Classes may at any time, by Extraordinary Resolution, remove the Indenture Trustee and appoint a replacement Indenture Trustee.

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(3)	In the event of the Indenture Trustee resigning or being removed or being dissolved or wound-up, becoming bankrupt, going into liquidation or otherwise becoming incapable of acting hereunder, the Trust shall forthwith appoint a replacement Indenture Trustee that satisfies the Rating Agency Condition unless a replacement Indenture Trustee has already been appointed by the Noteholders pursuant to Section 12.8(2); failing which the retiring Indenture Trustee, at the expense of the Trust, or any Specified Creditor may apply to a Judge of the Ontario Superior Court of Justice, on such notice as such Judge may direct, for the appointment of a replacement Indenture Trustee. Any replacement Indenture Trustee so appointed by the Issuer Trustee or by the Court shall be subject to removal by the Noteholders. Any replacement Indenture Trustee appointed under any provision of this Section 12.8 shall be a corporation authorized to carry on a trust business as contemplated hereby in each of the provinces and territories of Canada.
(4)	The expense of any act, document or other instrument or thing required under this Section 12.8 will be satisfied from the Asset Interests according to their Related Proportionate Shares.
(5)	Subject to Section 12.8(1), any replacement Indenture Trustee shall, forthwith upon appointment, become vested with all the estates, properties, rights, powers and trusts of its predecessor in the trusts hereunder, with like effect as if originally named as Indenture Trustee herein. Nevertheless, upon the written request of the replacement Indenture Trustee or of the Trust, the Indenture Trustee ceasing to act shall, upon payment of its outstanding remuneration and expenses, execute and deliver an instrument assigning and transferring to such replacement Indenture Trustee, upon the trusts herein expressed, all the rights, powers and trusts of the Indenture Trustee so ceasing to act, and shall duly assign, transfer and deliver all property and money held by such Indenture Trustee to the replacement Indenture Trustee so appointed in its place. Should any deed, conveyance or instrument in writing from the Trust be required by any replacement Indenture Trustee for more fully and certainly vesting in and confirming to it such estates, properties, rights, powers and trusts, then any and all such deeds, conveyances and instruments in writing shall, on the request of the replacement Indenture Trustee, be made, executed, acknowledged and delivered by the Trust.

12.9 Authority to Carry on Business.

           The Indenture Trustee represents to the Trust that at the date of execution and delivery by it of this Indenture it is authorized to carry on the business of a trust company in each of the provinces and territories of Canada. If, notwithstanding the provisions of this Section 12.9, the Indenture Trustee ceases to be so authorized to carry on business, the validity and enforceability of this Indenture and the Notes issued hereunder shall not be affected in any manner whatsoever by reason only of such event but the Indenture Trustee shall, within 90 days after ceasing to be authorized to carry on a trust business as contemplated hereby in each of the provinces and territories of Canada, either become so authorized or resign in the manner and

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with the effect specified in Section 12.8 and subject to the provisions thereof in respect of the date on which such resignation will be effective.

12.10 Power of Attorney for Quebec Registrations.

(1)

The Indenture Trustee is hereby appointed and accepts its appointment as fonde de pouvoir (power of attorney) of all present and future Specified Creditors as contemplated by article 2692 of the Civil Code of Quebec to enter into, to take and to hold, on behalf of and for the benefit of each of the Specified Creditors, any hypothec granted to secure payment of bonds or other titles of indebtedness issued to secure or evidence the Obligations Secured, and to exercise such powers and duties which are conferred upon the Indenture Trustee under any deed of hypothec or herein or under any other agreement. The Indenture Trustee is hereby appointed and accepts such appointment as the bondholder and mandatary for the Specified Creditors with respect to bonds or other titles of indebtedness issued and pledged in favour of the Indenture Trustee, for the benefit of the Specified Creditors, to secure or evidence the Obligations Secured. Any Person who becomes a Specified Creditor shall be deemed to have consented to and confirmed the Indenture Trustee as fonde de pouvoir and to have ratified as of the date such Person becomes a Specified Creditor all actions taken by the fonde de pouvoir. For greater certainty, the purchase of any Note by any Noteholder shall constitute ratification by such Noteholder of the power of attorney of the Indenture Trustee constituted hereunder and the incurrence of any debt by the Trust with the other Specified Creditors pursuant to the applicable Programme Agreement shall constitute such ratification by such Specified Creditor of such power of attorney constituted hereunder. The execution by the Indenture Trustee, acting as fonde de pouvoir and bondholder and mandatary, prior to the execution of this Indenture of any deeds of hypothec, pledges or other similar documents is hereby ratified and confirmed. Notwithstanding the provisions of Section 32 of An Act respecting the special powers of legal persons (Quebec), the Indenture Trustee may acquire and be the holder of any bond issued by the Trust (i.e. the fonde de pouvoir may acquire and hold the first bond issued under any deed of hypothec by the Trust). The Indenture Trustee, acting as fonde de pouvoir, shall have the same rights, powers, immunities, indemnities and exclusions from liability as are prescribed in favour of the Indenture Trustee in this Indenture, which shall apply mutatis mutandis. Without limitation, the provisions of the Indenture regarding the resignation and appointment of a successor to the Indenture Trustee shall apply mutatis mutandis to the resignation and appointment of a successor to the Indenture Trustee acting as fondé de pouvoir.

(2)

The Indenture Trustee hereby appoints the Trust and its duly authorized agents and their successors to be its attorney in the Province of Quebec specifically for the purposes of doing only those things which the Trust may lawfully do by attorney for the purpose of (i) discharging, releasing, reassigning, retroceding, waiving or subordinating any Security Interest in respect of any of the Asset

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Interests forming part of the Collateral where full or partial payment of such Asset Interest is made to an Originator or Servicer in the ordinary course of business and such payment would entitle the obligor of such account receivable to the registration of a full or partial discharge pursuant to article 3065 of the Civil Code of Quebec; and (ii) consenting to the discharge, release, reassignment, retrocession, waiver or subordination of any Security Interest in respect of any personal or moveable real rights not forming part of the Collateral including in the case of both (i) and (ii) endorsing the Indenture Trustee’s name on any consents, filings, registrations or other documents in furtherance thereof.

12.11 Sub-attorney for Quebec Discharges.

            The Indenture Trustee hereby authorizes the Trust and its duly authorized agents to appoint any other Person as sub-attorney and to delegate its powers pursuant to Section 12.10 provided that the Trust is solely responsible for the acts and omissions of any of its duly authorized agents and their successors, agents and sub-attorneys who have been delegated powers under Section 12.10.

12.12 Revocation of Appointment.

            The appointment of the Trust pursuant to Section 12.10(2) may be revoked by the Indenture Trustee at any time in respect of Related Collateral by notice in writing to the Trust upon a Significant Event having occurred in respect of Related Programme Agreements, but only so long as it is continuing, and shall be automatically revoked in respect of Related Collateral upon a Related Event of Default.

12.13 Acknowledgement by Specified Creditors.

            The Specified Creditors shall be deemed to have consented to and confirmed the Indenture Trustee’s appointment of the Trust and its duly authorized agents as its attorney in accordance with Section 12.10(2) and any subdelegation as contemplated by Section 12.11.

12.14 Successor Indenture Trustee By Merger.

            If the Indenture Trustee consolidates with, amalgamates, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation, the resulting successor or transferee corporation without any further act, formality or instrument shall be the successor Indenture Trustee under this Indenture and each other Programme Agreement to which the Indenture Trustee is a party; provided, that such corporation shall be otherwise qualified and eligible under Section 12.15. The Indenture Trustee shall provide the Rating Agencies and the Trust written notice of any such transaction.

            If at the time such successor(s) by amalgamation, merger, conversion, consolidation or transfer to the Indenture Trustee shall succeed to the trusts created by this Indenture any of the Notes shall have been certified but not delivered, any such successor to the Indenture Trustee may adopt the certificate of authentication of any predecessor trustee, and

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deliver such Notes so certified; and if at that time any of the Notes shall not have been certified, any successor to the Indenture Trustee may certify such Notes either in the name of any predecessor trustee hereunder or in the name of the successor to the Indenture Trustee; and in all such cases such certificates of authentication shall have the full force and effect to the same extent given to the certificate of authentication of the Indenture Trustee anywhere in the Notes or in this Indenture.

12.15 Eligibility; Disqualification.

          An Indenture Trustee must at all times (a) be a corporation organized under the laws of Canada or any province thereof, (b) be licensed, qualified or authorized to carry on business in all provinces and territories of Canada, (c) be authorized under such laws to exercise corporate trust powers, (d) be subject to supervision or examination by federal or provincial authority, (e) (i) if there is no Rating Agency then rating any Notes, (x) have risk-based capital of at least $50,000,000 or, in the case of an entity that is not subject to risk-based capital adequacy requirements, have a combined capital and surplus of at least $50,000,000 or (y) be a wholly owned subsidiary of a Canadian or United States entity which has risk-based capital of at least $50,000,000 or, in the case of an entity that is not subject to risk-based capital adequacy requirements, have a combined capital and surplus of at least $50,000,000, and have long-term unsecured debt obligations that are rated by two or more rating agencies in a generic rating category which denotes investment grade, or (ii) if any Rating Agency is then rating any Notes, satisfy the Rating Agency Condition, (f) (i) be a wholly-owned direct or indirect subsidiary of a Canadian chartered bank listed in Schedule I of the Bank Act (Canada), a trust company organized under the Trust and Loan Companies Act (Canada) or a United States banking or trust institution or (ii) be wholly-owned directly or indirectly by any such Person, and (g) be a resident of Canada for purposes of the ITA.

12.16 Acceptance of Trusts by Indenture Trustee.

          The Indenture Trustee hereby accepts the trusts in this Indenture declared and provided and agrees to perform the same upon the terms and conditions herein set forth.

12.17 Confidentiality.

          At all times (including, without limitation, at any time after the Indenture Trustee should resign or be discharged from the trusts and powers reposed in or conferred on it by this Indenture), the Indenture Trustee (or the trustee so resigning and being discharged, as the case may be) will treat as confidential all information relating to the Trust, the Trust Property and the transactions contemplated by the Programme Agreements obtained by it in its capacity as Indenture Trustee. The Indenture Trustee shall have the right to disclose any information disclosed or released to it if in the opinion of legal counsel to the Indenture Trustee it is required to disclose such information under any applicable laws, court order or administrative directions; provided that it shall, as soon as reasonably practical in the circumstances, give written notice to the Trust of its intention to so disclose such information. The Indenture Trustee shall not be responsible or liable to any party for any loss or damage arising out of or in any way sustained or incurred or in any way relating to such disclosure.

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ARTICLE 13
SUPPLEMENTAL INDENTURES AND AMENDMENTS

13.1 Supplemental Indentures.

(1) From time to time, the Indenture Trustee and the Trust may, in addition to any Related Supplements, without the consent of the Specified Creditors, make, execute, acknowledge and deliver deeds or indentures supplemental hereto which thereafter will form part hereof, for any one or more of the following purposes:

(a)	mortgaging, pledging, assuring, confirming or transferring to, or vesting in, the Indenture Trustee, or charging in favour of the Indenture Trustee, any property now owned or hereafter acquired by the Trust, and providing that the same will become and be part of any Related Collateral;
(b)	correcting or amplifying the description of any property in which security is hereby specifically granted or intended so to be;
(c)	adding to the limitations or restrictions herein specified further limitations or restrictions thereafter to be observed upon the amount of the issue of Notes hereunder or upon the dealing with the property of the Trust, or upon the release of property forming part of the Collateral; provided that, in each case, the Indenture Trustee is of the opinion that the further limitations or restrictions will not materially adversely affect the rights or interests of the Specified Creditors;
(d)	adding to the covenants of the Trust herein contained for the protection of the Specified Creditors or providing for Related Events of Default in addition to those herein specified;
(e)	making such provisions not inconsistent with this Indenture as may be necessary or desirable with respect to matters or questions arising hereunder, including the making of any modifications in the form of the Notes which do not affect the substance thereof and which, in the opinion of the Indenture Trustee, will not materially adversely affect the rights or interests of the Specified Creditors;
(f)	evidencing the succession, or successive successions, of any other Person to the Trust or the Issuer Trustee and the covenants of and obligations assumed by any such successor in accordance with the provisions of this Indenture;
(g)	providing for altering the provisions of this Indenture in respect of the issuance, certification, exchange or transfer of Notes;

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(h)	giving effect to any Extraordinary Resolution passed as provided for in Article 11;
(i)	subject to satisfaction of the Rating Agency Condition in respect of each Series then outstanding, any other purposes considered appropriate by the Indenture Trustee and which, in the opinion of the Indenture Trustee will not materially adversely affect the rights and interests of the Specified Creditors;

provided, however, that the Indenture Trustee may, in its sole discretion, decline to enter into any such supplemental indenture which adversely affects its own rights, duties or immunities under this Indenture or otherwise at such time when it becomes operative.

(2) Subject to Section 11.12(2), amendments to this Indenture for any purpose other than specified above may be made by the Indenture Trustee and the Trust upon (a) satisfaction of the Rating Agency Condition in respect of each Series then outstanding and (b) approval by Extraordinary Resolution of the Noteholders (or if only some Series or Classes of Notes are affected thereby, the applicable Series or Class of Notes).

13.2 Automatic Amendment.

            Upon the Issuer Trustee ceasing to be the trustee of the Trust, this Indenture will be automatically amended to delete any reference to the name of the trustee so ceasing to be the trustee of the Trust and to substitute therefor the name or names of the successor trustee or trustees as the continuing trustee or trustees of the Trust, as the case may be.

13.3 Amendments to Programme Agreements.

(1) Subject to Section 13.1, the Indenture Trustee will from time to time, upon receipt of a Written Order, enter into or consent to, as applicable, any proposed amendment, supplementation, modification, restatement, termination, replacement, waiver or consent of or with respect to or postponement of compliance with any term of any of the Programme Agreements, which action may be taken or made without the necessity of obtaining the consent of the Related Specified Creditors with respect to any and all Series if the Trust has delivered a Certificate of the Trust certifying that such amendment, supplementation, modification, restatement, termination, replacement, waiver or consent or postponement could not reasonably be expected to, individually or in the aggregate, materially adversely affect the rights or interests of the holders of the Notes then outstanding of any and all Series and the Rating Agency Condition in respect of any affected Series (or Class thereof) has been satisfied; provided further that if, in the opinion of the Indenture Trustee such amendment, supplement, modification, termination, restatement, replacement, waiver or consent to or postponement of compliance with would adversely affect the rights

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or interests of the Noteholders (or any Series or Class thereof), the Indenture Trustee will not enter into or consent to, as applicable, such amendment, supplement, modification, termination, restatement, replacement, waiver or consent to or postponement without, subject to Sections 11.12(2) and 13.3(2), the approval by Extraordinary Resolution of the Noteholders (or applicable Series or Class) that would be adversely affected. Notwithstanding the foregoing, the Indenture Trustee may decline to enter into or consent to, as applicable, a proposed amendment, supplement, modification, termination, restatement, replacement, waiver or consent to or postponement of compliance that adversely affects its own rights, duties or immunities under this Indenture or otherwise.

(2)

Notwithstanding anything in Section 13.3(1) to the contrary, no proposed amendment, supplement, modification, termination, restatement, replacement, waiver or consent to or postponement of compliance with, any provision of any Programme Agreement may be taken or made pursuant to Section 13.3(1) without the consent of any Related Specified Creditor where such Related Specified Creditor’s consent is expressly required under the Related Supplement.

(3)

It shall not be necessary for the consent of the Noteholders (or of any Series or Class of Notes) under this Section 13.3 or, unless expressly provided in a Related Supplement, the other Related Specified Creditors with respect to any such Notes (or Series or Class of Notes) whose consent is required as contemplated in Section 13.3(2), to approve the particular form of any proposed amendment, supplement, modification, termination, restatement, replacement, waiver or consent to or postponement of compliance but it shall be sufficient if such consent shall approve the substance thereof. The manner of obtaining such consent and of evidencing the authorization of the execution thereof shall be subject to such reasonable requirements as the Indenture Trustee, relying upon the advice of Counsel, may prescribe from time to time.

13.4 Determination of Material Adverse Effect.

            At any time that the Indenture Trustee is required to make a determination as to whether any amendment, supplementation, modification, restatement, termination, replacement, waiver or consent of or with respect to or postponement of compliance with any term of this Indenture or any of the Programme Agreements would (or would in the opinion of the Indenture Trustee) materially adversely affect the rights or interests of any Specified Creditor it may, without limitation, conclusively rely upon, (i) if the matter relates to the rights or interests of any Specified Creditor other than the Noteholders, the written consent of such affected Specified Creditor; and (ii) in any event, a favourable opinion of Counsel, which opinion may rely on such matters as Counsel considers appropriate and reasonable in the circumstances. The receipt of any of the foregoing shall, again, without limitation, be conclusive proof that the respective Specified Creditors will not be materially adversely affected by the amendment or waiver to the Programme Agreements.

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ARTICLE 14
NOTICES

14.1 Notice to Trust and Issuer Trustee.

          Any notice, document or other communication required or permitted to be given or delivered to the Trust or the Issuer Trustee hereunder will be in writing and will be valid and effective if delivered or sent by facsimile transmission (with receipt confirmed) or by electronic mail, to the Trust at:

To the Trust:
	Fleet Leasing Receivables Trust
	c/o BNY Trust Company of Canada
	4 King Street West, Suite 1101
	Toronto, ON M5H 1B6
	CANADA
	Facsimile No.: 416-360-1711
	Attention:        George Bragg
	Email:             george.bragg@bnymellon.com
with a copy to the Financial Services Agent:
	PHH Vehicle Management Services Inc.
	2233 Argentia Road
	Suite 400
	Mississauga ON L5N2X7
	CANADA
	Facsimile No.: 905-286-5363
	Attention:        Mark Johnson
	Email:              mark.johnson@phhmail.com
	With a copy to
	PHH Arval
	940 Ridgebrook Road
	Sparks, MD 21152-9390
	USA
	Facsimile No.:  410-771-2530
	Attention:        Joseph Weikel
	Email:             Joseph.weikel@phh.com

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     with a copy to the Financial Services Sub-Agent:

BNY Trust Company of Canada

4 King Street West, Suite 1101

Toronto, ON M5H 1B6

CANADA

Facsimile No.: 416-360-1711

Attention:        George Bragg

Email:             george.bragg@bnymellon.com

and such notice shall be deemed to have been received, where given by delivery, on the day of delivery, and, where sent by facsimile or by electronic mail, on the day of transmittal thereof if given prior to 5:00 p.m. (Toronto time) and on the following Business Day if transmitted on or after 5:00 p.m. (Toronto time). Notwithstanding the foregoing, the Trust may, in its discretion, agree to accept notices and other communications to it hereunder by other means pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

14.2 Notice to Indenture Trustee.

            Any notice, document or other communication required or permitted to be given or delivered to the Indenture Trustee hereunder will be in writing and will be valid and effective if delivered or sent by facsimile transmission (with receipt confirmed) or by electronic mail, to the Indenture Trustee at:

Computershare Trust Company of Canada

100 University Avenue

8^th floor

Toronto, Ontario

M5J 2Y1

Facsimile No.: 416-981-9777

Attention:        Manager, Corporate Trust

Email:             corporatetrust.toronto@computershare.com

and such notice shall be deemed to have been received, where given by delivery, on the day of delivery, and, where sent by facsimile or by electronic mail, on the day of transmittal thereof if given prior to 5:00 p.m. (Toronto time) and on the following Business Day if transmitted on or after 5:00 p.m. (Toronto time). Notwithstanding the foregoing, the Indenture Trustee may, in its discretion, agree to accept notices and other communications to it hereunder by other means pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

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14.3 Notice to Noteholders.

          Any notice, document or other communication required or permitted to be given or delivered hereunder to the Noteholders in registered form will be deemed to be validly given if sent to a destination within Canada by first class mail and if sent to a destination outside of Canada by airmail, postage prepaid in each case, or sent by facsimile transmission or electronic mail and confirmed by first class mail in the case of a destination within Canada and airmail in the case of a destination outside of Canada, addressed in each case to the Noteholder at its post office address appearing in the Note Register. Every notice sent by mail will be deemed to have been given on the fifth Business Day following the mailing of the same, unless at the time or within five Business Days following the mailing of the same, postal service is disrupted in which case notice shall be effectively given only when received. Every notice sent by facsimile transmission or electronic mail will be deemed to have been received on the day of transmittal thereof if given prior to 5:00 p.m. (Toronto time) and on the following Business Day if transmitted on or after 5:00 p.m. (Toronto time). Notwithstanding the foregoing, any Noteholder may, in its discretion, agree to accept notices and other communications to it hereunder by other means pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

14.4 Notice to Other Specified Creditors.

          Any notice, document or other communication required or permitted to be given or delivered to (i) a Credit Enhancer will be given in accordance with the Related Credit Enhancement Agreement; (ii) the Financial Services Agent will be given in accordance with the Financial Services Agreement; (iii) the Financial Services Sub-Agent will be given in accordance with the Financial Services Sub-Agency Agreement; (iv) a Servicer or Back-Up Servicer will be given in accordance with the Related Servicing Agreement or agreement with such Back-Up Servicer; (v) an Originator will be given in accordance with the Related Securitization Agreement;(vi) a counterparty pursuant to a Hedging Transaction will be given in accordance with the Related Hedging Transaction; and (vii) any other Specified Creditor will be given in accordance with the relevant document to which such Specified Creditor and the Trust are parties.

14.5 Notice to Rating Agencies.

          Any notice, document or other communication required or permitted to be given or delivered to the Rating Agencies hereunder will be in writing and will be given by delivery to the applicable address provided to the parties hereto by the Rating Agencies or by facsimile transmission or electronic mail. Any such notice delivered 5:00 p.m. (Toronto time) shall be deemed to have been given on the next Business Day.

14.6 Change of Address.

          Any Person referenced above may from time to time notify any other interested Person, in accordance with the provisions hereof, of any change of address which thereafter,

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until changed by like notice, shall be the address of such Person for all purposes of this Indenture.

ARTICLE 15
GENERAL

15.1 Evidence of Rights of Specified Creditors.

          Any request, direction, notice, consent or other instrument which this Indenture may require or permit to be executed by the Specified Creditors may be in any number of concurrent instruments of similar tenor and may be signed or executed by the Specified Creditors in person or by attorney duly appointed in writing. The Indenture Trustee may act and rely upon either of the following as proof of the execution of any instrument or of a writing appointing an attorney:

(a)	the certificate of a notary public or other officer, authorized to take acknowledgements of deeds to be recorded at the place where the certificate was made, to the effect that the Person signing the instrument or writing acknowledged to him the execution thereof; or
(b)	an affidavit of a witness of the execution.

15.2 Trust Obligation.

          No recourse may be taken, directly or indirectly, with respect to the obligations of the Trust, the Issuer Trustee or the Indenture Trustee on the Notes or the other debts, liabilities or obligations of the Trust to the other Specified Creditors under this Indenture, any Related Supplement, any Related Programme Agreement or any certificate or other writing delivered in connection herewith or therewith, against: (i) the Indenture Trustee, the Issuer Trustee, the Financial Services Sub-Agent or the Financial Services Agent in their individual capacities, (ii) any owner of a beneficial interest in the Trust or (iii) any partner, owner, beneficiary, officer, director, employee, representative or agent of: (a) the Indenture Trustee, the Issuer Trustee, the Financial Services Sub-Agent or the Financial Services Agent in their individual capacities, (b) any owner of a beneficial interest in the Issuer Trustee, the Indenture Trustee, the Financial Services Sub-Agent or the Financial Services Agent or (c) any successor or assign of the Indenture Trustee, the Issuer Trustee, the Financial Services Sub-Agent or the Financial Services Agent in their individual capacities, except as any such Person may have expressly agreed.

15.3 No Petition.

          The Indenture Trustee, by entering into this Indenture, and each Noteholder and other Specified Creditor, by accepting, making or acquiring a Note or becoming a Specified Creditor, hereby covenants and agrees that they will not at any time institute or encourage against the Trust, or join or acquiesce in any institution against the Trust of, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any federal or provincial bankruptcy, insolvency, winding-up or similar law in connection with

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any obligations relating to the Obligations Secured, this Indenture or any of the other Programme Agreements. The foregoing shall not limit the rights of the Indenture Trustee to file any claim in or otherwise take any action with respect to any insolvency proceeding that was instituted against the Trust by any Person other than the Indenture Trustee. Notwithstanding anything to the contrary contained in this Indenture, no supplemental indenture hereto may modify or amend this Section 15.3 with respect to rights of the Noteholders or the rights of any other Specified Creditors.

15.4 Subordination.

          The Indenture Trustee, by entering into this Indenture, and each Noteholder and other Specified Creditor, by accepting, making or acquiring a Note or becoming a Specified Creditor, acknowledges and agrees that the Obligations Secured represent indebtedness of the Trust and do not represent an interest in any assets (other than the Related Collateral for such Obligations Secured) of the Trust (including by virtue of any deficiency claim in respect of Related Obligations Secured not paid or otherwise satisfied from the Related Collateral for such Obligations Secured and proceeds thereof). In furtherance of and not in derogation of the foregoing, to the extent the Trust enters into other securitization transactions or issues any Series of Notes, the Indenture Trustee as well as each Related Specified Creditor acknowledges and agrees that it shall have no right, title or interest in or to any assets (or interests therein) of the Trust other than the Related Collateral for such Series and the Related Obligations Secured. To the extent that, notwithstanding the agreements and provisions contained in the preceding sentences of this section, the Indenture Trustee or any Related Specified Creditor either (i) asserts an interest or claim to, or benefit from, assets of the Trust other than the Related Collateral for the Related Obligations Secured due or owing to the Indenture Trustee or such Related Specified Creditor (“Other Assets”) or (ii) is deemed to have any such interest, claim or benefit in or from Other Assets, whether by operation of law, legal process, pursuant to applicable provisions of bankruptcy or insolvency laws or otherwise, and whether deemed asserted against or through the Trust or any other Person, the Indenture Trustee and each such Related Specified Creditor further acknowledges and agrees that any such interest, claim or benefit in or from Other Assets is and shall be expressly subordinated to the indefeasible payment in full of all obligations and liabilities of the Trust which, under the terms of the relevant documents relating to the securitization of such Other Assets, are entitled to be paid from, entitled to the benefits of, or otherwise secured by such Other Assets (whether or not any such entitlement or security interest is legally perfected or otherwise entitled to a priority of distribution or application under applicable law, including bankruptcy or insolvency laws, and whether asserted against the Trust or any other Person). Each Specified Creditor further acknowledges and agrees that no adequate remedy at law exists for a breach of this Section 15.4 and the terms of this Section 15.4 may be enforced by an action for specific performance.

15.5 Limited Recourse.

          The Issuer Trustee has entered into this Indenture solely in its capacity as trustee of the Trust and not in its personal capacity. Any and all of the representations, warranties, undertakings, covenants, indemnities, agreements and other obligations made on the part of the Issuer Trustee herein are made and intended not as personal representations, warranties,

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undertakings, covenants, indemnities, agreements and other obligations by the Issuer Trustee or for the purpose or with the intention of binding the Issuer Trustee in its personal capacity, but are made and intended for the purpose of binding only the property and assets of the Trust or a specific portion thereof. No property or assets of the Issuer Trustee, whether owned beneficially by it in its personal capacity or otherwise (other than the Trust Property), will be subject to levy, execution or other enforcement procedures with regard to any of the representations, warranties, undertakings, covenants, indemnities, agreements and other obligations of the Trust or the Issuer Trustee hereunder. No recourse may be had or taken, directly or indirectly against the Issuer Trustee in its personal capacity, any Beneficiary or any incorporator, Affiliate, shareholder, director, officer, representative, employee or agent of the Issuer Trustee or any predecessor or successor of the Issuer Trustee with regard to the representations, warranties, undertakings, covenants, indemnities, agreements and other obligations of the Trust or the Issuer Trustee hereunder provided, however, that nothing in this Section 15.5 shall relieve any of the foregoing persons from any liability which such person may otherwise have in such capacity for his/her wilful misconduct or negligence.

15.6 Execution of Counterparts.

          This Indenture may be executed in several counterparts, each of which when so executed shall be deemed to be an original and the counterparts together shall constitute one and the same instrument.

15.7 Delivery of Executed Copies.

          Each party acknowledges delivery of a fully executed copy of this Indenture.

[Signature page follows]

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          IN WITNESS WHEREOF the parties hereto have duly executed this Indenture.

)	BNY TRUST COMPANY OF
)	CANADA in its capacity as trustee of
)	FLEET LEASING RECEIVABLES
)	TRUST, by its Financial Services Agent,
	PHH VEHICLE MANAGEMENT
	SERVICES INC.

)
)	By:	/s/ Mark E. Johnson
)		Name: Mark E. Johnson
)		Title: Senior Vice President & Treasurer

)
)
)	COMPUTERSHARE TRUST
)	COMPANY OF CANADA, as
)	Indenture Trustee

)
)	By:	/s/ David Ha
)		Name: David Ha
)		Title: Professional, Corporate Trust
)
)
)
)	By:	/s/ Mircho Mirchev
)		Name: Mircho Mirchev
)		Title: Professional, Corporate Trust

EX-4.8.1

Exhibit 4.8.1

BNY TRUST COMPANY OF CANADA

as Issuer Trustee
of

FLEET LEASING RECEIVABLES TRUST

and

COMPUTERSHARE TRUST COMPANY OF CANADA

as Indenture Trustee and Paying Agent

SERIES 2010-1 SUPPLEMENTAL INDENTURE

January 27, 2010

SERIES 2010-1 SUPPLEMENTAL INDENTURE

TABLE OF CONTENTS

		Page
ARTICLE 1
INTERPRETATION
Section 1.1	Definitions		1
Section 1.2	Interpretation		2
Section 1.3	Extended Meanings		3
Section 1.4	Sections and Headings		3
Section 1.5	Proper Law of Supplemental Indenture		3
Section 1.6	Invalidity of Provisions		3
Section 1.7	Computation of Time Periods		3
Section 1.8	Non-Business Days		4
Section 1.9	Accounting Principles		4
Section 1.10	Currency		4
Section 1.11	References to Acts of the Trust		4
ARTICLE 2
PRINCIPAL TERMS
Section 2.1	Principal Terms		5
Section 2.2	Application of Moneys		11
Section 2.3	Voting		11
Section 2.4	Clean-Up Provision		12
Section 2.5	Notice of Sale of Related Collateral		12
Section 2.6	Noteholder Resolutions		12
ARTICLE 3
COVENANTS AND ACKNOWLEDGMENTS
Section 3.1	Covenants		13
Section 3.2	Noteholder Agreements and Acknowledgments		14
ARTICLE 4
GENERAL
Section 4.1	Confirmation of Trust Indenture		20
Section 4.2	Obligations of the Trust		20
Section 4.3	Acceptance		20

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TABLE OF CONTENTS
(continued)

		Page
Section 4.4	Limitation of Liability of Issuer Trustee		20
Section 4.5	Execution in Counterparts		21
Section 4.6	Formal Date		21
Section 4.7	Delivery of Executed Copies		21
Section 4.8	Rule 144A Information		21

Schedules
Schedule A-1a	—	Form of Series 2010-1 Class A-1a Asset-Backed Note
Schedule A-1b	—	Form of Series 2010-1 Class A-1b Asset-Backed Note
Schedule A-2a	—	Form of Series 2010-1 Class A-2a Asset-Backed Note
Schedule A-2b	—	Form of Series 2010-1 Class A-2b Asset-Backed Note
Schedule B	—	Form of Series 2010-1 Class B Asset-Backed Note

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SERIES 2010-1
SUPPLEMENTAL INDENTURE

     SERIES 2010-1 SUPPLEMENTAL INDENTURE made as of January 27, 2010, between BNY TRUST COMPANY OF CANADA, a trust company established under the laws of Canada (the “Issuer Trustee”), as Issuer Trustee of FLEET LEASING RECEIVABLES TRUST, a trust established under the laws of the Province of Ontario pursuant to a Declaration of Trust made November 2, 2009, amended and restated on November 16, 2009 and further amended on January 27, 2010 (the “Trust”), and COMPUTERSHARE TRUST COMPANY OF CANADA, a trust company established under the laws of Canada (the “Indenture Trustee”).

     WHEREAS, pursuant to the Trust Indenture, provision was made for the issuance of Notes from time to time;

     AND WHEREAS, pursuant to Section 2.3 of the Trust Indenture, the Notes may, at the election of the Issuer Trustee, be issued in one or more Series by the execution and delivery of a Related Supplement;

     AND WHEREAS the Issuer Trustee has authorized the issuance of a Series of Notes to be known as the “Series 2010-1 Notes”;

     AND WHEREAS the parties are executing and delivering this Supplemental Indenture to provide for the issuance of the Series 2010-1 Notes;

     AND WHEREAS the foregoing recitals and statements of fact are made by the Trust and not by the Indenture Trustee;

     NOW THEREFORE THIS SUPPLEMENTAL INDENTURE WITNESSES and it is hereby covenanted, agreed and declared as follows:

ARTICLE 1
INTERPRETATION

Section 1.1 Definitions.

(1)	In this Supplemental Indenture the following terms will have the following meanings:
	“Accrual Period” means, with respect to any Distribution Date, the period from and including the immediately preceding Distribution Date to but excluding such Distribution Date (or, in the case of the initial Accrual Period, from and including the Related Series Issuance Date for the Series 2010-1 Notes to but excluding February 15, 2010).
	“Business Days” shall have the meaning set out in the Purchase Agreement.
	“Class A-1a Interest Rate” has the meaning set forth in Section 2.1(f) hereof.

	“Class A-1b Interest Rate” has the meaning set forth in Section 2.1(g) hereof.
	“Class A-2a Interest Rate” has the meaning set forth in Section 2.1(h) hereof.
	“Class A-2b Interest Rate” has the meaning set forth in Section 2.1(i) hereof.
	“Class B Interest Rate” has the meaning set forth in Section 2.1(j) hereof.
	“Purchase Agreement” means the trust purchase agreement made as of January 27, 2010 among BNY Trust Company of Canada as trustee of the Trust, PHH VMS, PHH LP and PHH Corporation.
	“Series 2010-1 Notes” means the Notes to be created and issued hereunder, in five Classes, to be known as Class A-1a Asset-Backed Notes, Class A-1b Asset-Backed Notes, Class A-2a Asset-Backed Notes, Class A-2b Asset-Backed Notes and Class B Asset-Backed Notes.
	“Series Accounts” means any bank or other depository accounts maintained by or on behalf of the Trust from time to time with respect to the Series 2010-1 Notes, including the Related Collection Account, any Related Collateral Account, the Cash Spread Account and the Yield Supplement Account.
	“Supplemental Indenture” means this Supplemental Indenture, together with the Schedules hereto, as amended, supplemented, modified, restated or replaced from time to time, together with all schedules hereto.
	“Trust Indenture” means the trust indenture made as of November 16, 2009 between the Trust and the Indenture Trustee as amended, supplemented, modified, restated or replaced from time to time, including pursuant to the terms of this Supplemental Indenture.
(2)	Unless otherwise defined in Section 1.1(1), all capitalized terms used in this Supplemental Indenture shall have the meanings attributed thereto in the Trust Indenture, and if not defined therein, shall have the meanings attributed thereto in the Purchase Agreement.

Section 1.2 Interpretation.

        Subject to the next following sentences, this Supplemental Indenture is supplemental to the Trust Indenture and the Trust Indenture shall be read in conjunction with this Supplemental Indenture and all of the provisions of the Trust Indenture, shall apply to and shall have effect in connection with this Supplemental Indenture in the same manner as if all of the provisions of the Trust Indenture and of this Supplemental Indenture were contained in one instrument. If any terms of the Trust Indenture are inconsistent with the express terms hereof (including for greater certainty, Section 2.1(bb) hereof), the terms of the Trust Indenture shall be, solely in respect of the Series 2010-1 Notes, amended and supplemented so as to be consistent herewith. The

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provisions of this Supplemental Indenture are applicable only in respect of the Series 2010-1 Notes and not the Notes of any other Series.

Section 1.3 Extended Meanings.

     Words importing the singular number only will include the plural and vice versa and words importing any gender will include all genders. Unless the context requires otherwise, a reference in this Supplemental Indenture to any agreement, instrument or declaration means such agreement, instrument or declaration as the same may be amended, supplemented, modified, restated or replaced from time to time. Any reference herein to “include”, “includes” or “including” means “include without limitation”, “includes without limitation” or “including without limitation”, as applicable.

Section 1.4 Sections and Headings.

     The table of contents does not form part of this Supplemental Indenture. The division of this Supplemental Indenture into Articles and Sections and the insertion of headings are for convenience of reference only and will not affect the construction or interpretation of this Supplemental Indenture. The terms “this Supplemental Indenture”, “hereof”, “hereunder” and similar expressions refer to this Supplemental Indenture and not to any particular Article, Section or other portion of this agreement and include any agreement or instrument supplemental or ancillary hereto. Unless something in the subject matter or context is inconsistent therewith, references herein to Articles and Sections are to Articles and Sections of this Supplemental Indenture.

Section 1.5 Proper Law of Supplemental Indenture.

     This Supplemental Indenture will be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein and each of the parties hereto attorn to the non-exclusive jurisdiction of the Courts of the Province of Ontario.

Section 1.6 Invalidity of Provisions.

     Except for any provision or covenant contained herein which is fundamental to the subject matter of this Supplemental Indenture (including, without limitation, those that relate to the payment of money), if one or more provisions of this Supplemental Indenture is for any reason whatever held invalid, such provision will be deemed severable from the remaining covenants, agreements and provisions of this Supplemental Indenture and will in no way affect the validity or enforceability of such remaining provisions or the rights of any parties hereto.

Section 1.7 Computation of Time Periods.

     In this Supplemental Indenture, with respect to the computation of periods of time from a specified date to a later specified date, unless otherwise expressly stated, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding”.

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Section 1.8 Non-Business Days.

     Whenever any payment to be made hereunder shall be stated to be due, any calculation is to be made or any other action to be taken hereunder shall be stated to be required to be taken on a day other than a Business Day, such payment shall be made, such calculation shall be made and such other action shall be taken on the next succeeding Business Day and an extension of time shall be included for such purposes. Any payment made after 3:00 p.m. (Toronto time) on a Business Day shall be deemed to be made on the next following Business Day.

Section 1.9 Accounting Principles.

     Where the character or amount of any asset or liability or item of revenue or expense is required to be determined, or any consolidation or other accounting computation is required to be made for the purpose of this Supplemental Indenture, such determination or calculation will, to the extent applicable and except as otherwise specified herein or as otherwise agreed in writing by the parties, be made in accordance with GAAP applied on a consistent basis. Wherever in this Supplemental Indenture reference is made to “GAAP”, such reference will be deemed to be to generally accepted accounting principles from time to time approved by the Canadian Institute of Chartered Accountants, or, where so elected by the relevant Person, as approved by the Financial Accounting Standards Board, or in either event any successor institute, until such time as the reporting entity in question is required to or chooses to adopt International Financial Reporting Standards, in which case such reference will be deemed to be to the International Financial Reporting Standards as published by the International Accounting Standards Board, or any successor accounting standards board, in each case, applicable as at the date on which such calculation is made or required to be made in accordance with GAAP. To the extent that the definitions of accounting terms in this Supplemental Indenture or in any certificate or other documents are inconsistent with the meaning of such terms under GAAP, the definitions in this Supplemental Indenture or in any such certificate or other document shall prevail.

Section 1.10 Currency.

     Unless stated otherwise, all amounts herein are stated in Canadian Dollars.

Section 1.11 References to Acts of the Trust.

     For greater certainty, where any reference is made in this Supplemental Indenture to an act to be performed by, an appointment to be made by, an obligation or liability of, an asset or right of, a discharge or release to be provided by, a suit or proceeding to be taken by or against, or a covenant, representation or warranty (other than relating to the constitution or existence of the Trust) by or with respect to either: (i) the Trust; or (ii) the Issuer Trustee, such reference will be construed and applied for all purposes as if it referred to an act to be performed by, an appointment to be made by, an obligation or liability of, an asset or right of, a discharge or release to be provided by, a suit or proceeding to be taken by or against, or a covenant, representation or warranty (other than relating to the constitution or existence of the Trust) by or

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with respect to, the Issuer Trustee as trustee of the Trust or any agent appointed by it to act on its behalf.

ARTICLE 2
PRINCIPAL TERMS

Section 2.1 Principal Terms.

       The Principal Terms of the Series 2010-1 Notes are as follows:

(a)	Name of Notes. The Notes to be issued hereunder shall be designated as “Series 2010-1 Notes” and such Notes shall be issued in five Classes, designated as Class A-1a Asset-Backed Notes, Class A-1b Asset-Backed Notes, Class A-2a Asset-Backed Notes, Class A-2b Asset-Backed Notes and Class B Asset-Backed Notes;
(b)	Types of Notes. The Class A-1a Asset-Backed Notes, Class A-1b Asset-Backed Notes, Class A-2a Asset-Backed Notes and Class A-2b Asset-Backed Notes shall be Senior Notes, and the Class B Asset-Backed Notes shall be Subordinated Notes;
(c)	Aggregate Principal Amount. The aggregate principal amount of (i) the Class A-1a Asset-Backed Notes of the Series 2010-1 Notes which may be issued is limited to $40,000,000, (ii) the Class A-1b Asset-Backed Notes of the Series 2010-1 Notes which may be issued is limited to U.S.$81,585,066.16, (iii) the Class A-2a Asset-Backed Notes of the Series 2010-1 Notes which may be issued is limited to $90,740,000, (iv) the Class A-2b Asset-Backed Notes of the Series 2010-1 Notes which may be issued is limited to $145,900,000, and (v) the Class B Asset-Backed Notes of the Series 2010-1 Notes which may be issued is limited to $16,952,000;
(d)	Series Issuance Date. The Related Series Issuance Date for the Series 2010-1 Notes shall be January 27, 2010;
(e)	Distribution Dates. The Distribution Dates for the Series 2010-1 Notes, shall be each Distribution Date under the Purchase Agreement;
(f)	Class A-1a Interest. The Class A-1a Asset-Backed Notes shall bear interest on the outstanding principal balance thereof at a rate per annum (based on a year of 365 days) equal to 1.08354% (the “Class A-1a Interest Rate”). Interest on the Class A-1a Asset-Backed Notes shall accrue from the Related Series Issuance Date for the Series 2010-1 Notes until the payment in full of the Class A-1a Asset-Backed Notes, shall be payable monthly in arrears on each Distribution Date and shall be calculated: (i) with respect to the first Accrual Period and the related Distribution Date, as an amount equal to the product of (A) the Class A-1a Interest Rate, (B) the outstanding principal amount of the Class A-1a Asset-

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Backed Notes on the first day of such Accrual Period, and (C) a fraction equal to the actual number of days in such Accrual Period divided by 365, and (ii) with respect to each subsequent Accrual Period and the related Distribution Date, as an amount equal to the product of (A) the Class A-1a Interest Rate, (B) the outstanding principal amount of the Class A-1a Asset-Backed Notes on the immediately preceding Distribution Date, after giving effect to all payments of principal to Class A-1a Asset-Backed Noteholders on or prior to the immediately preceding Distribution Date, and (C) a fraction equal to the actual number of days in such Accrual Period divided by 365;

(g)

Class A-1b Interest. The Class A-1b Asset-Backed Notes shall bear interest on the outstanding principal balance thereof at a rate per annum (based on a year of 360 days) equal to 0.46945% (the “Class A-1b Interest Rate”). Interest on the Class A-1b Asset-Backed Notes shall accrue from the Related Series Issuance Date for the Series 2010-1 Notes until the payment in full of the Class A-1b Asset-Backed Notes, shall be payable monthly in arrears on each Distribution Date and shall be calculated: (i) with respect to the first Accrual Period and the related Distribution Date, as an amount equal to the product of (A) the Class A-1b Interest Rate, (B) the outstanding principal amount of the Class A-1b Asset-Backed Notes on the first day of such Accrual Period, and (C) a fraction equal to the actual number of days in such Accrual Period divided by 360, and (ii) with respect to each subsequent Accrual Period and the related Distribution Date, an amount equal to the product of (A) the Class A-1b Interest Rate, (B) the outstanding principal amount of the Class A-1b Asset-Backed Notes on the immediately preceding Distribution Date, after giving effect to all payments of principal to Class A-1b Asset-Backed Noteholders on or prior to the immediately preceding Distribution Date, and (C) a fraction equal to the actual number of days in such Accrual Period divided by 360;

(h)

Class A-2a Interest. The Class A-2a Asset-Backed Notes shall bear interest on the outstanding principal balance thereof at a rate per annum (based on a year of 365 days) equal to 2.409% (the “Class A-2a Interest Rate”). Interest on the Class A-2a Asset-Backed Notes shall accrue from the Related Series Issuance Date for the Series 2010-1 Notes until the payment in full of the Class A-2a Asset-Backed Notes, shall be payable monthly in arrears on each Distribution Date and shall be calculated: (i) with respect to the first Accrual Period and the related Distribution Date, as an amount equal to the product of (A) the Class A-2a Interest Rate, (B) the outstanding principal amount of the Class A-2a Asset-Backed Notes on the first day of such Accrual Period, and (C) a fraction equal to the actual number of days in such Accrual Period divided by 365, and (ii) with respect to each subsequent Accrual Period and the related Distribution Date, as an amount equal to the product of (A) the Class A-2a Interest Rate, (B) the outstanding principal amount of the Class A-2a Asset-Backed Notes on the immediately preceding Distribution Date, after giving effect to all payments of

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principal to Class A-2a Asset-Backed Noteholders on or prior to the immediately preceding Distribution Date, and (C) a fraction equal to the actual number of days in such Accrual Period divided by 365;

(i)	Class A-2b Interest. The Class A-2b Asset-Backed Notes shall bear interest on the outstanding principal balance thereof at a rate per annum (based on a year of 365 days) equal to 2.175% (the “Class A-2b Interest Rate”). Interest on the Class A-2b Asset-Backed Notes shall accrue from the Related Series Issuance Date for the Series 2010-1 Notes until the payment in full of the Class A-2b Asset-Backed Notes, shall be payable monthly in arrears on each Distribution Date and shall be calculated: (i) with respect to the first Accrual Period and the related Distribution Date, as an amount equal to the product of (A) the Class A-2b Interest Rate, (B) the outstanding principal amount of the Class A-2b Asset-Backed Notes on the first day of such Accrual Period, and (C) a fraction equal to the actual number of days in such Accrual Period divided by 365, and (ii) with respect to each subsequent Accrual Period and the related Distribution Date, as an amount equal to the product of (A) the Class A-2b Interest Rate, (B) the outstanding principal amount of the Class A-2b Asset-Backed Notes on the immediately preceding Distribution Date, after giving effect to all payments of principal to Class A-2b Asset-Backed Noteholders on or prior to the immediately preceding Distribution Date, and (C) a fraction equal to the actual number of days in such Accrual Period divided by 365;
(j)	Class B Interest. The Class B Asset-Backed Notes shall bear interest on the outstanding principal balance thereof at a rate per annum (based on a year of 365 days) equal to 6.000% (the “Class B Interest Rate”). Interest on the Class B Asset-Backed Notes shall accrue from the Related Series Issuance Date for the Series 2010-1 Notes until the payment in full of the Class B Asset-Backed Notes, shall be payable monthly in arrears on each Distribution Date and shall be calculated: (i) with respect to the first Accrual Period and the related Distribution Date, as an amount equal to the product of (A) the Class B Interest Rate, (B) the outstanding principal amount of the Class B Asset-Backed Notes on the first day of such Accrual Period, and (C) a fraction equal to the actual number of days in such Accrual Period divided by 365, and (ii) with respect to each subsequent Accrual Period and the related Distribution Date, as an amount equal to the product of (A) the Class B Interest Rate, (B) the outstanding principal amount of the Class B Asset-Backed Notes on the immediately preceding Distribution Date, after giving effect to all payments of principal to Class B Asset-Backed Noteholders on or prior to the immediately preceding Distribution Date, and (C) a fraction equal to the actual number of days in such Accrual Period divided by 365;
(k)	Overdue Interest. Without limiting any obligation of the Trust to make payments of interest when due, interest due on the Series 2010-1 Notes but not

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paid on any Distribution Date shall be due on the next Distribution Date, together with additional interest on such overdue interest at the same rate;

(l)	Interest pari passu. The Class A-1a Asset-Backed Notes, the Class A-1b Asset-Backed Notes, the Class A-2a Asset-Backed Notes and Class A-2b Asset-Backed Notes rank pari passu in right of payment of interest, and senior in right of payment of interest to the Class B Notes.
(m)	Payment of Principal. The principal amount of each Series 2010-1 Note of a particular Class payable on each Distribution Date shall be an amount equal to the pro rata portion of the aggregate amount available (and required) to be applied by the Trust to such Class of Series 2010-1 Notes on such Distribution Date pursuant to Section 6.1(2)(b)(ii)(B) of the Purchase Agreement; provided that payment of such principal amounts shall be made (i) first, on a pari passu basis, to the Class A-1a Asset-Backed Notes and the Class A-1b Asset-Backed Notes, until all principal owing in respect thereof is paid in full, (ii) second, on a pari passu basis, to the Class A-2a Asset-Backed Notes and the Class A-2b Asset-Backed Notes, until all principal owing in respect thereof is paid in full, and (iii) thereafter to the Class B Asset-Backed Notes; provided further that, on the maturity date for each Class of Series 2010-1 Notes, all outstanding principal owing in respect of the Notes of each such Class shall be payable by the Trust;
(n)	Language and Currency. The Class A-1b Asset-Backed Notes of the Series 2010-1 Notes shall be denominated in U.S. Dollars and the Class A-1a Asset-Backed Notes, Class A-2a Asset-Backed Notes, Class A-2b Asset-Backed Notes and Class B Asset-Backed Notes of the Series 2010-1 Notes shall be denominated in Canadian Dollars, and such Notes may be in the English language or the English and the French languages;
(o)	Form of Notes. The Series 2010-1 Notes and the certificate of the Paying Agent to be endorsed thereon shall be substantially in the form of (i) Schedule A-1a in the case of Class A-1a Asset-Backed Notes of the Series 2010-1 Notes, (ii) Schedule A-1b in the case of Class A-1b Asset-Backed Notes of the Series 2010-1 Notes, (iii) Schedule A-2a in the case of Class A-2a Asset-Backed Notes of the Series 2010-1 Notes, (iv) Schedule A-2b in the case of Class A-2b Asset-Backed Notes of the Series 2010-1 Notes and (v) Schedule B in the case of Class B Asset-Backed Notes of the Series 2010-1 Notes, in each case with such appropriate insertions, omissions, substitutions and variations as may be approved by the Issuer Trustee and the Paying Agent;
(p)	Maturity Date. The maturity date of the Class A-1a Asset-Backed Notes and the Class A-1b Asset-Backed Notes is February 15, 2011, the maturity date of the Class A-2a Asset-Backed Notes and the Class A-2b Asset-Backed Notes is November 15, 2013, and the maturity date of the Class B Asset-Backed Notes is January 15, 2018;

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(q)	Other Deliveries. The Related Hedging Transaction with respect to the Series 2010-1 Notes is the transaction under the Swap Agreement, and the execution and delivery of the Swap Agreement by the Trust and the Swap Counterparty is a condition to the issuance of the Series 2010-1 Notes;
(r)	Book-Entry Notes and Definitive Notes. The Series 2010-1 Notes shall initially be Book-Entry Notes;
(s)	Minimum Amounts. The Series 2010-1 Notes shall be issued in minimum denominations of $150,000 (or U.S. $150,000, as applicable) and, except for the Class A-1b Asset-Backed Notes, integral multiples of $1,000 (or U.S. $1,000, as applicable) thereafter;
(t)	Security for Related Obligations Secured. The Related Collateral with respect to the Series 2010-1 Notes (including the Portfolio of Assets acquired pursuant to the Purchase Agreement, the Cash Spread Account and the Yield Supplement Account) shall be held as security for the due payment of the Related Obligations Secured alone and shall not be available for the Related Specified Creditors with respect to any other Series. For greater certainty, the Related Collateral includes all rights of the Trust under the Swap Agreement including in respect of any cash collateral or similar account established pursuant to the Swap Agreement. The Related Obligations Secured shall be secured solely by the Related Collateral and recourse in respect of the Related Obligations Secured shall be limited to such Related Collateral;
(u)	Related Rating Agencies. DBRS and Moody’s are the Rating Agencies in respect of the Series 2010-1 Notes;
(v)	Related Securitization Agreement. The Related Securitization Agreement in respect of the Series 2010-1 Notes is the Purchase Agreement and the Master Lease delivered thereunder;
(w)	Initial Rating of Notes. The Series 2010-1 Notes will initially be rated (i) P-1 by Moody’s and R-1 (high) by DBRS for Class A-1a Asset-Backed Notes and Class A-1b Asset-Backed Notes, (ii) Aaa by Moody’s and AAA by DBRS for Class A-2a Asset-Backed Notes and Class A-2b Asset-Backed Notes, and (iii) A2 by Moody’s and A by DBRS for Class B Asset-Backed Notes;
(x)	Reserves. The Reserves with respect to Series 2010-1 shall be any Deferred Rent from time to time payable under the Purchase Agreement, and all amounts from time to time in the Cash Spread Account or the Yield Supplement Account;
(y)	Paying Agent. The Paying Agent for the Series 2010-1 Notes will be Computershare Trust Company of Canada;

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(z)	Renewal or Extension of Senior Notes. For purposes of Section 3.3(1) of the Trust Indenture, the holders of Series 2010-1 Notes which are Senior Notes may at any time in their discretion renew or extend the time of payment of such Senior Notes or exercise any other of their rights in respect thereof, including, without limitation, the waiver of a Related Event of Default thereunder, all without assent from the holders of Series 2010-1 Notes which are Subordinated Notes or the Indenture Trustee; provided however that the holders of such Senior Notes or the Indenture Trustee shall provide not less than 10 Business Days prior written notice to the holders of such Subordinated Notes and the Related Rating Agencies of any such actions;
(aa)	Events of Default that Can be Waived. For purposes of Section 8.2(3) of the Trust Indenture, all Related Events of Default may be waived pursuant to Section 8.2(3) of the Trust Indenture; and
(bb)	Related Events of Default. In addition to those specified in the Trust Indenture, the happening of any of the following events shall constitute a Related Event of Default in respect of the Series 2010-1 Notes:

(i)

the Trust defaults in the payment of the outstanding principal owing on any Class of Series 2010-1 Notes on the maturity date therefor; and

(ii)

the Swap Agreement is terminated prior to the payment in full of all principal and interest owing in respect of the Class A-1b Asset-Backed Notes and, whether or not the Trust is in breach of Section 3.1(e) hereof, the Trust fails to have a replacement currency swap agreement satisfactory to the Noteholders of Class A-1b Asset-Backed Notes (as confirmed by an Extraordinary Resolution of such Noteholders), acting reasonably, in place within 30 days of such termination; provided that the Trust shall give prompt notice of any such termination of the Swap Agreement to the Related Rating Agencies;

provided that failure to pay interest when due on the Class B Asset-Backed Notes shall not be a Related Event of Default to the extent such failure was a result of there not being sufficient funds available for the payment thereof pursuant to the application of Collections in accordance with Section 2.2 hereof.

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Section 2.2 Application of Moneys.

(1) For purposes of Section 9.5 of the Trust Indenture, all moneys standing at any time in any Related Collateral Account with respect to Series 2010-1 Notes or otherwise received by the Indenture Trustee or by the Receiver pursuant to Article 9 of the Trust Indenture with respect to Series 2010-1 Notes or any Related Collateral shall be applied as follows:

       (a) first, in payment or reimbursement:

(i)

to each of the Indenture Trustee, the Paying Agent and the Issuer Trustee of the Related Proportionate Share of all fees and expenses payable to each of them under the provisions hereof and the Declaration of Trust, respectively (or to any Specified Creditor who has advanced or paid any such sums in the amount of such sums); and

(ii)

to the Indenture Trustee, of the Related Proportionate Share of all costs, charges and expenses of and incidental to the appointment of a Receiver of the Related Collateral (including legal fees and disbursements on a full indemnity basis) and the exercise by such Receiver or the Indenture Trustee of all or any of the powers granted to them under this Indenture, including the reasonable remuneration of such Receiver or any agent or employee of such Receiver or any agent of the Indenture Trustee and all outgoings properly paid by such Receiver or the Indenture Trustee in exercising their powers as aforesaid; and

       (b) thereafter, in accordance with Section 6.1 of the Purchase Agreement.

(2) The Trust has no right to prepay or redeem the Series 2010-1 Notes, other than pursuant to the application of Collections in accordance with Section 6.1 of the Purchase Agreement or as otherwise contemplated herein.

(3) Prior to a Related Event of Default, Collections shall be applied in accordance with Article 6 of the Purchase Agreement.

Section 2.3 Voting.

(1) For so long as part of the Series 2010-1 Notes are Book-Entry Notes, the voting rights of the Series 2010-1 Noteholders holding interests in those Book-Entry Notes may be exercised through the Clearing Agency (pursuant to the rules and procedures of the Clearing Agency) or by the beneficial owners of the Series 2010-1 Notes; provided however that the Trust or the Indenture Trustee, as applicable, may require such beneficial owners to provide proof satisfactory to the Trust and the Indenture Trustee (i) of such ownership (whether by the provision of a statutory declaration or such other

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evidence as may reasonably be requested); and (ii) that such beneficial owner has not exercised its voting rights through the Clearing Agency.

(2)

Notwithstanding Section 1.2 of the Trust Indenture, in determining whether Noteholders holding the requisite percentage of Notes of any Class have given any request, demand, authorization, direction, notice, consent, vote or waiver pursuant to the Trust Indenture, Notes owned by any Originator, any Servicer or an Affiliate of either, shall not be disregarded and shall be deemed to be outstanding if (i) in the case of an Originator or its Affiliates, there are no Noteholders at such time other than an Originator or its Affiliates, and (ii) in the case of any Servicer or an Affiliate, the subject matter of the request, demand, authorization, direction, notice, consent, vote or waiver in question does not relate to its role as Servicer, any replacement of it as Servicer or any Servicer Default.

Section 2.4 Clean-Up Provision.

     If the Seller exercises its option to purchase the Purchased Assets pursuant to Section 7.3 of the Purchase Agreement, the Trust shall, out of the proceeds thereof and any amounts then in the Cash Spread Account and the Yield Supplement Account, pay all amounts outstanding in respect of the Series 2010-1 Notes on the related Distribution Date and all other Related Obligations Secured on the date such rights are exercised, subject to and in accordance with the priority of payments provided for in Section 6.1 of the Purchase Agreement.

Section 2.5 Notice of Sale of Related Collateral.

     So long as no Event of Termination (other than under Sections 7.1(e), (f), (g) or (i) of the Purchase Agreement) has occurred and is continuing, the Seller shall be entitled to notice of the sale of the Related Asset Interests or any part thereof by the Indenture Trustee and to purchase Related Asset Interests at their then fair market value.

Section 2.6 Noteholder Resolutions.

     For purposes of determining whether the requisite amount of Series 2010-1 Noteholders have approved, or are present in person or by proxy at a meeting to approve, any matter, Class A-1b Asset-Backed Notes shall be deemed at any time to have a principal amount in Canadian Dollars equal to the Equivalent Amount at such time of the principal amount thereof in U.S. Dollars.

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ARTICLE 3
COVENANTS AND ACKNOWLEDGMENTS

Section 3.1 Covenants.

       The Trust hereby covenants in favour of the Indenture Trustee and the Series 2010-1 Noteholders that:

(a)	Provision of Information. Upon the reasonable request to the Trust of any Series 2010-1 Noteholder who has provided current contact details to the Financial Services Agent, the Trust shall deliver or make available to each such Series 2010-1 Noteholder, promptly following receipt of same, all such notices, information, reports, statements and other documentation as the Trust may receive pursuant to the Purchase Agreement or the Financial Services Agreement or provide to the Indenture Trustee pursuant to the Trust Indenture and which are not otherwise publicly available;
(b)	Termination of Servicer or other Parties and New Programme Agreements. The Trust shall not (i) terminate PHH VMS as Servicer under the Purchase Agreement or designate and appoint a Replacement Servicer thereunder; (ii) terminate PHH VMS as Financial Services Agent under the Financial Services Agreement, (iii) terminate the Paying Agent, or (iv) enter into any additional Related Programme Agreements with respect to Series 2010-1 after the date hereof, except in each case, where (x) it has been directed to do so by the Series 2010-1 Noteholders by Extraordinary Resolution notice of which has been concurrently (or previously) been provided to the Related Rating Agencies, or (y) such action satisfies the Rating Agency Condition in respect of DBRS and of which not less than 10 Business Day notice has been give to Moody’s (and in the case of the appointment of a Replacement Servicer, such Replacement Servicer is the Back-Up Servicer (and/or a Substitute Servicer appointing pursuant to the Back-Up Servicer Agreement) or an established financial institution having a net worth of at least $50,000,000 and whose regular business includes the servicing of contracts similar to the contracts included in the Portfolio of Assets);
(c)	Notification of Certain Events. The Trust will promptly advise each Series 2010-1 Noteholder who has provided current contact details to the Financial Services Agent and the Related Rating Agencies, by written notice (in reasonable detail), upon becoming aware of the occurrence of any of the following:

(i)	an Event of Termination under the Purchase Agreement;
(ii)	a Related Event of Default in respect of the Series 2010-1 Notes;
(iii)	the termination or resignation of (w) the Issuer Trustee as trustee of the Trust; (x) the Indenture Trustee under the Trust Indenture; (y) the

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Financial Services Agent under the Financial Services Agreement; or (z) the Financial Services Sub-Agent under the Financial Services Sub-Agency Agreement; and

(iv) the receipt from the Seller of notice of its intention to exercise its rights under Section 7.3 of the Purchase Agreement; and

(d)

Eligible Accounts. If at any time an institution maintaining one of the Series Accounts ceases to be an Eligible Institution, the Trust will, within 10 Business Days, move such Series Account to an Eligible Institution.

(e)

Swap Agreements. Without limiting Section 2.1(bb)(ii), if at any time the Swap Agreement is terminated prior to the payment in full of all principal and interest owing in respect of the Class A-1b Asset-Backed Notes, the Trust shall use all reasonable commercial efforts to enter into, as soon as reasonably practicable, a replacement currency swap agreement which satisfies the Rating Agency Condition.

Section 3.2 Noteholder Agreements and Acknowledgments.

       By acceptance of any Series 2010-1 Note (other than a Class A-2a Asset-Backed Note) (including any beneficial ownership of any such 2010-1 Notes held through the Book-Entry System), the Noteholder thereof specifically agrees with and represents and acknowledges to the Trust, the Indenture Trustee and the Paying Agent that:

(a)	no transfer of such Note will be made unless the registration and prospectus requirements of all applicable securities laws are complied with, or such transfer is otherwise exempt from any registration and prospectus requirements of all applicable securities laws;
(b)	Class A-1b Asset-Backed Notes will bear a legend to the following effect unless determined otherwise by the Trust:
	THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED (THE “1933 ACT”) OR ANY STATE SECURITIES LAWS. NONE OF THIS CERTIFICATE, SUCH SECURITIES, OR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE REOFFERED, SOLD, TRANSFERRED, PLEDGED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.

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THE HOLDER OF THIS CERTIFICATE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER THIS CERTIFICATE ONLY IN ACCORDANCE WITH THE REQUIREMENTS OF THE TRUST INDENTURE, (A)(1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE 1933 ACT, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE 1933 ACT OR (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE 1933 ACT AND, IN THE CASE OF CLAUSE (1), THAT (U) IS A QUALIFIED PURCHASER WITHIN THE MEANING OF SECTION 3(c)(7) OF THE INVESTMENT COMPANY ACT, (V) WAS NOT FORMED FOR THE PURPOSE OF INVESTING IN THE TRUST (EXCEPT WHEN EACH BENEFICIAL OWNER OF THE PURCHASER IS A QUALIFIED PURCHASER), (W) UNDERSTANDS AND AGREES THAT THE TRUST MAY RECEIVE A LIST OF PARTICIPANTS IN THE SECURITIES FROM ONE OR MORE BOOK-ENTRY DEPOSITORIES, (X) IS NOT A BROKER-DEALER THAT OWNS AND INVESTS ON A DISCRETIONARY BASIS LESS THAN U.S.$25,000,000 IN SECURITIES OF UNAFFILIATED ISSUERS, (Y) IS NOT A PENSION, PROFIT-SHARING OR OTHER RETIREMENT TRUST FUND OR PLAN IN WHICH THE PARTNERS, BENEFICIARIES OR PARTICIPANTS OR AFFILIATES MAY DESIGNATE THE PARTICULAR INVESTMENT TO BE MADE AND (Z) HAS RECEIVED THE NECESSARY CONSENT FROM ITS BENEFICIAL OWNERS WHEN THE PURCHASER IS A PRIVATE INVESTMENT COMPANY FORMED ON OR BEFORE APRIL 30, 1996, AND IN A TRANSACTION THAT MAY BE EFFECTED WITHOUT LOSS OF ANY APPLICABLE INVESTMENT COMPANY ACT EXEMPTION OR EXCLUSION, (B) IN A PRINCIPAL AMOUNT OF NOT LESS THAN THE MINIMUM DENOMINATION SET FORTH IN THE INDENTURE AND (C) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES OR OTHER APPLICABLE JURISDICTION. ANY TRANSFER IN VIOLATION OF THE FOREGOING WILL BE OF NO FORCE AND EFFECT, WILL BE VOID AB INITIO AND WILL NOT OPERATE TO TRANSFER ANY RIGHTS TO

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THE TRANSFEREE, NOTWITHSTANDING ANY INSTRUCTIONS TO THE CONTRARY TO THE TRUST, THE INDENTURE TRUSTEE OR ANY INTERMEDIARY. THE HOLDER OF THIS CERTIFICATE WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THIS CERTIFICATE OF THE RESALE RESTRICTIONS SET FORTH HEREIN AND IN THE INDENTURE.

(c) (i) no prospectus or other public offering document relating to any Class of Notes (other than the Class A-2a Asset-Backed Notes) has been delivered under any applicable securities laws, (ii) no other offering document has been delivered to such Noteholder in connection with the offering or issuance of the Notes held by such Noteholder, other than (A) the private placement memorandum of the Trust in respect of any Class A-1b Asset-Backed Notes held by such Noteholder, and (B) the offering memorandum of the Trust for private placements in Alberta in respect of any Class A-1a Asset-Backed Notes held by such Noteholder or for private placements in Ontario in respect of any Class A-2b Asset-Backed Notes or Class B Asset-Backed Notes held by such Noteholder, (iii) the Noteholder agrees that it has received a copy of the applicable completed final prospectus (including prospectus supplement), private placement memorandum or offering memorandum pertaining to the Class of Notes which has been purchased, (iv) the Notes (other than the Class A-2a Asset-Backed Notes) are being sold on a private placement basis exempt from the prospectus requirements of applicable securities laws and (v) the resale of the Notes (other than the Class A-2a Asset-Backed Notes) may be restricted under applicable securities laws;

(d) with regard to any Class A-1b Asset-Backed Note initially sold to a U.S. investor:

(i)

such Noteholder is a “qualified institutional buyer” (a “Qualified Institutional Buyer”) as defined in Rule 144A (“Rule 144A”) under the Securities Act of 1933, as amended (the “1933 Act”) and is aware that the seller of such Class A-1b Asset-Backed Note may be relying on the exemption from the registration requirements of the 1933 Act provided by Rule 144A and is acquiring such Class A-1b Asset-Backed Note for its own account or for the account of one or more qualified institutional buyers for whom it is authorized to act;

(ii)

such Noteholder understands that such Class A-1b Asset-Backed Note has not been registered under the 1933 Act, and that, if in the future it decides to offer, resell, pledge or otherwise transfer such Class A-1b Asset-Backed Note, such Class A-1b Asset-Backed Note may be offered, resold, pledged or otherwise transferred only to a person which the seller reasonably believes is a Qualified Institutional Buyer that is purchasing such Class A-1b Asset-Backed Note for its own

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	account or for the account of a Qualified Institutional Buyer to which notice is given that the transfer is being made in reliance on Rule 144A, in each case in compliance with the requirements of this Trust Indenture;
(iii)	such Noteholder understands that such Class A-1b Asset-Backed Note may be offered, resold, pledged or otherwise transferred only to a person that is a qualified purchaser within the meaning of section 3(c)(7) of the United States Investment Company Act of 1940, as amended (the “Investment Company Act”), was not formed for the purpose of investing in the Trust (except when each beneficial owner of the purchaser is a qualified purchaser), understands and agrees that the Trust may receive a list of participants in the securities from one or more book-entry depositories, is not a broker-dealer that owns and invests on a discretionary basis less than U.S.$25,000,000 in securities of unaffiliated issuers, is not a pension, profit-sharing or other retirement trust fund or plan in which the partners, beneficiaries or participants or affiliates may designate the particular investment to be made, and has received the necessary consent from its beneficial owners when the purchaser is a private investment company formed on or before April 30, 1996, and in a transaction that may be effected without loss of any applicable Investment Company Act exemption or exclusion;
(iv)	such Noteholder is duly authorized to purchase such Class A-1b Asset-Backed Note and its purchase of investments having the characteristics of such Class A-1b Asset-Backed Note, is authorized under, and not directly or indirectly in contravention of, any law, charter, trust instrument or other operative document, investment guidelines or list of permissible or impermissible investments that is applicable to the Noteholder;
(v)	such Noteholder understands that each holder of a Class A-1b Asset-Backed Note, by virtue of its acceptance thereof, assents to the terms, provisions and conditions of this Trust Indenture; and
(vi)	in the event that the transfer of a Class A-1b Asset-Backed Note is not to be made through a transfer of beneficial ownership through the Book-Entry System, the prospective transferee shall make such certifications to the Trust, the Indenture Trustee and the Paying Agent in writing as may be required in order to assure compliance with the 1933 Act and state securities laws;

(e) as a further condition to the registration of any sale, transfer, assignment, participation, pledge or other disposition or encumbrance of a Series 2010-1 Note

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(other than transfers of beneficial ownership through the Book-Entry System, in which prospective transferees will be deemed to so represent when it becomes a holder), the prospective transferee of such Note will be required to represent to the Indenture Trustee, the Paying Agent and the Trust the following, unless determined otherwise by the Trust (as certified to the Indenture Trustee in an Officer’s Certificate):

(i)	it understands that no subsequent transfer of the Note is permitted unless the proposed transferee complies with the requirements of this section; and
(ii)	it understands that any purported transfer of the Note (or any interest therein) in contravention of any of the restrictions and conditions contained in this Section 3.2 will be null and void, and the purported transferee in any such purported transfer will not be recognized by the Trust or any other person as a Noteholder for any purpose; and

(f) that it has been, and may in the future be, entrusted with certain information which is non-public, confidential, or proprietary in nature, and that,

(i)

without the prior written consent of the Seller, except as required by law or, after any Related Event of Default, to enforce its rights and remedies hereunder, it will keep all Information confidential and will not disclose any Information to any one other than such Noteholder or its affiliates, or their respective directors, officers, employees, agents, advisors or representatives (collectively, “Representatives”), in any manner whatsoever, in whole or in part, and will not use any Information and will ensure that its Representatives do no use any Information, for any purpose other than for the purpose of evaluating and administering such Noteholder’s ownership of Notes;

(ii)

“Information” means any and all information, data, documents and materials relating to the business and operations of the Seller or its other affiliates (including any other entity identified by the Seller in writing as an affiliate), whether oral, in writing or other tangible or intangible form, including any information relating to accounts, Obligations, assets, profitability, methods of operation, vendors, service providers, suppliers, systems, procedures, algorithms or computer hardware or software, and other confidential information of the Seller or its affiliates, including any confidential information of third parties in the possession of the Seller or its affiliates, and any copies, analyses, compilations, forecasts, studies, reports, memoranda, notes or other documents prepared by the Noteholder or its affiliates or the Representatives that contain or are based, in whole or in part, on such information, including the computer tapes or files upon which

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such information is stored, and including further any reports or other information provided from time to time by the Seller under the Purchase Agreement or by the Trust under the Trust Indenture, but Information will not include any item of Information, which: (w) is or becomes publicly available (either to the general public or to any relevant trade or industry group), other than as a result of a breach of this Agreement by such Noteholder, its affiliates or Representatives; (x) is or becomes available to the Noteholder, its affiliates or Representatives on a non-confidential basis, provided that such Noteholder its affiliates or Representatives has no knowledge or notice that the source of such information was bound by a confidentiality agreement with respect to such information; (y) has been otherwise independently acquired or developed by the Noteholder, its affiliates or Representatives without the aid, application or use of any Information; or (z) is known by the Noteholder, its affiliates or Representatives without restriction prior to its disclosure to the Noteholder. The burden for establishing that any Information falls within one of the foregoing exceptions shall be the responsibility of the Noteholder; and

(iii)

if such Noteholder, its affiliates, or Representatives becomes legally compelled to disclose any of the Information, the Noteholder will provide the Seller with prompt notice (unless the Noteholder is prohibited by law or court order from doing so) so that the Seller may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this confidentiality provision. If such protective order or other remedy is not obtained, or if the Seller waives compliance with the provisions of this confidentiality provision, the Noteholder will furnish only that portion of the Information which the Noteholder is advised by its counsel is legally required and will take commercially necessary steps to obtain assurance that confidential treatment will be accorded the Information. Notwithstanding the foregoing, the Noteholder may (without notifying the Seller) disclose Information to any regulatory authority having jurisdiction over the Noteholder in the course of any routine regulatory examination of such Noteholder conducted by such authority; provided, however, that such authority is notified of the confidential nature of the Information and of the need to keep the Information confidential.

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ARTICLE 4
GENERAL

Section 4.1 Confirmation of Trust Indenture.

     The Trust Indenture as supplemented by this Supplemental Indenture, shall and does continue in full force and effect, otherwise unamended, and the Trust Indenture, as so supplemented together with all the grants created thereby, are hereby ratified and confirmed.

Section 4.2 Obligations of the Trust.

     Nothing contained in this Supplemental Indenture shall in any way modify or relieve the Trust from its obligations to carry out its covenants contained in the Trust Indenture.

Section 4.3 Acceptance.

     The Indenture Trustee hereby accepts the trust in this Supplemental Indenture declared and provided for and agrees to perform the same on the terms and conditions herein set forth.

Section 4.4 Limitation of Liability of Issuer Trustee.

(1)

The Issuer Trustee has entered into this Supplemental Indenture solely in its capacity as trustee of the Trust and not in its personal capacity, and any and all of the representations, warranties, undertakings, covenants, indemnities, agreements and other obligations made on the part of or by the Issuer Trustee herein are made and intended not as personal representations, warranties, undertakings, covenants, indemnities, agreements and other obligations of or by the Issuer Trustee or for the purpose or with the intention of binding the Issuer Trustee in its personal capacity, but are made and intended for the purpose of binding only the Trust and the Trust Property or a specific portion thereof. No property or assets of the Issuer Trustee, whether owned beneficially by it in its personal capacity or otherwise (other than the Trust Property), will be subject to levy, execution or other enforcement procedures with regard to any of the representations, warranties, undertakings, covenants, indemnities, agreements or other obligations of the Trust or the Issuer Trustee hereunder, and no recourse may be had or taken, directly or indirectly against the Issuer Trustee in its personal capacity, any beneficiary of the Trust or any affiliate, shareholder, director, officer, representative, employee or agent of the Issuer Trustee or any predecessor or successor of the Issuer Trustee with regard to the representations, warranties, undertakings, covenants, indemnities, agreements and other obligations of the Trust or the Issuer Trustee hereunder.

(2)

This Supplemental Indenture shall be deemed and construed for all purposes as if made by the Financial Services Agent in and only in its capacity as agent of the Issuer Trustee. Any liability of the Financial Services Agent under this Supplemental Indenture is non-recourse to the Financial Services Agent in its personal capacities and limited solely to the property of the Trust. No other property or assets of the Financial Services Agent,

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whether owned by it in its personal capacity or otherwise, will be subject to levy, execution or other enforcement procedure with regard to any obligation under this Agreement.

(3)

The foregoing will not in any way affect any rights that the other parties hereto may have hereunder to (a) proceed against any person with respect to the enforcement of any guarantee of, or collateral security for, payment of such obligations or (b) recover any funds, damages, expenses or costs as a result of fraud, wilful misconduct, bad faith, negligence or misrepresentation by the Issuer Trustee or the Financial Services Agent in its personal capacity.

Section 4.5 Execution in Counterparts.

     This Supplemental Indenture may be executed in several counterparts, each of which when so executed shall be deemed to be an original and the counterparts together shall constitute one and the same instrument.

Section 4.6 Formal Date.

     For purpose of convenience, this Supplemental Indenture may be referred to as bearing a formal date of January 27, 2010, irrespective of the actual date of its execution.

Section 4.7 Delivery of Executed Copies.

     Each party acknowledges delivery of an executed copy of this Supplemental Indenture.

Section 4.8 Rule 144A Information.

     For so long as any of the Class A-1b Asset-Backed Notes are “restricted securities” within the meaning of Rule 144(a)(3) under the 1933 Act, the Trust agrees to provide to any Noteholder of such Class A-1b Asset-Backed Notes and to any prospective purchaser of such Class A-1b Asset-Backed Notes designated by such a Noteholder, upon the request of such Noteholder or prospective purchaser, the information specified below, which is intended to satisfy the condition set forth in Rule 144A(d)(4) under the 1933 Act:

(a)	the Private Placement Memorandum dated January 25, 2010 and any amendments and supplements thereto;
(b)	the Related Programme Agreements and any amendments thereto;
(c)	copies of each statement or report sent to Noteholders pursuant to Section 3.1(a) during the 12 months immediately prior to such request; and
(d)	such other information as is reasonably available to the Trust and is directly related to the payments on the Notes and the servicing and performance of the Related Collateral.

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Any recipient of information provided pursuant to this Section shall agree that such information shall not be disclosed or used for any purpose other than the evaluation of such Notes by the prospective purchaser. The Trust, the Indenture Trustee and the Paying Agent shall have no responsibility for the sufficiency under Rule 144A of any information so provided by the Trust to any Noteholder of Class A-1b Asset-Backed Notes or any prospective purchaser of such Notes.

[Signature page follows]

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         IN WITNESS WHEREOF the parties hereto have duly executed this Supplemental Indenture.

BNY TRUST COMPANY OF CANADA in its capacity as trustee of FLEET LEASING RECEIVABLES TRUST, by its Financial Services Agent, PHH VEHICLE MANAGEMENT SERVICES INC.
By:	/s/	Mark E. Johnson
	Name:	Mark E. Johnson
	Title:	Senior Vice-President and Treasurer
COMPUTERSHARE TRUST COMPANY OF CANADA, as Indenture Trustee and Paying Agent
By:	/s/ David Ha
	Authorized Signatory
By:	/s/ Michelle Schultz
	Authorized Signatory

Signature Page to Series 2010-1 Supplemental Indenture

SCHEDULE A-1a

Issue Date: [ ] No.  [ ]

FLEET LEASING RECEIVABLES TRUST
SERIES 2010-1 CLASS A-1A ASSET-BACKED NOTE

CUSIP # [ ]

FLEET LEASING RECEIVABLES TRUST (the “Trust”) for value received and subject to the following, hereby promises to pay to or to the order of

CDS & CO.

the principal sum of $[ ] in lawful money of Canada or such other amount as may from time to time be reflected in the records of the Trust (or its agents) (which records shall be prima facie evidence of the principal amount outstanding hereunder in the absence of manifest mathematical error) with interest on the outstanding principal amount hereof at a per annum rate, based on a year of 365 days, equal to 1.08354%. Payments of interest shall be payable in accordance with the provisions of the Trust Indenture (as defined below). Except to the extent repaid prior to such date in accordance with the Trust Indenture, the outstanding principal amount of the Series 2010-1 Class A-1a Asset-Backed Notes shall be due and payable on the maturity date of the Series 2010-1 Class A-1a Asset-Backed Notes. The maturity date of this Series 2010-1 Class A-1a Asset-Backed Note shall be February 15, 2011. Capitalized terms used in this Note and not defined herein shall have the meanings assigned thereto in the Trust Indenture.

This Series 2010-1 Class A-1a Asset-Backed Note is one of the duly authorized Series 2010-1 Class A-1a Asset-Backed Notes of the Trust issued under the trust indenture made as of November 16, 2009, and the supplemental indenture made as of January 27, 2010 relating to the Series 2010-1 Notes, among the Trust and Computershare Trust Company of Canada, as Indenture Trustee (the said trust indenture and supplemental indenture, as further amended and supplemented by instruments supplemental thereto, are hereinafter referred to as the “Trust Indenture”). Reference is hereby made to the Trust Indenture for the rights of the holders of the Series 2010-1 Notes issued and to be issued thereunder. The Issuer Trustee has entered into the Trust Indenture and issued this Series 2010-1 Class A-1a Asset-Backed Note in its capacity as trustee of the Trust and not in its personal capacity. The liability of the Issuer Trustee hereunder and under the Trust Indenture is limited to the Related Collateral. No other property or assets of the Issuer Trustee, whether owned by it in its personal capacity or otherwise, will be subject to levy, execution or other enforcement procedures with regard to any obligation hereunder or under the Trust Indenture. This Series 2010-1 Class A-1a Asset-Backed Note shall be governed by and construed in accordance with the laws of the Province of Ontario.

Unless this certificate is presented by an authorized representative of CDS Clearing and Depository Services Inc. (“CDS”) to the Trust or its agent for registration of transfer, exchange or payment, and any certificate issued in respect thereof is registered in the name of CDS & CO., or in such other name as is requested by an authorized representative of CDS (and any payment is made to CDS & CO. or to such other entity as is requested by an authorized representative of CDS), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered holder hereof, CDS & CO., has a property interest in the securities represented by this certificate herein and it is a violation of its rights for another person to hold, transfer or deal with this certificate. This certificate is issued pursuant to a Book Entry Only Securities Services Agreement between the Trust and CDS, as such agreement may be replaced or amended from time to time.

UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE [INSERT DATE THAT IS FOUR MONTHS AND ONE DAY AFTER ISSUANCE].

Countersigned by Computershare Trust Company of Canada, as Indenture Trustee		BNY TRUST COMPANY OF CANADA, in its capacity as trustee of FLEET LEASING RECEIVABLES TRUST
By:		By:
	Authorized Signing Officer		Authorized Signing Officer

Date of Countersignature:	By:
		Authorized Signing Officer

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SCHEDULE A-1b

Issue Date: [ ] No. [ ]

FLEET LEASING RECEIVABLES TRUST
SERIES 2010-1 CLASS A-1B ASSET-BACKED NOTE

CUSIP # [ ]

FLEET LEASING RECEIVABLES TRUST (the “Trust”) for value received and subject to the following, hereby promises to pay to or to the order of

CDS & CO.

the principal sum of $[ ] in lawful money of the United States or such other amount as may from time to time be reflected in the records of the Trust (or its agents) (which records shall be prima facie evidence of the principal amount outstanding hereunder in the absence of manifest mathematical error) with interest on the outstanding principal amount hereof at a per annum rate, based on a year of 360 days, equal to 0.46945%. Payments of interest shall be payable in accordance with the provisions of the Trust Indenture (as defined below). Except to the extent repaid prior to such date in accordance with the Trust Indenture, the outstanding principal amount of the Series 2010-1 Class A-1b Asset-Backed Notes shall be due and payable on the maturity date of the Series 2010-1 Class A-1b Asset-Backed Notes. The maturity date of this Series 2010-1 Class A-1b Asset-Backed Note shall be February 15, 2011. Capitalized terms used in this Note and not defined herein shall have the meanings assigned thereto in the Trust Indenture.

This Series 2010-1 Class A-1b Asset-Backed Note is one of the duly authorized Series 2010-1 Class A-1b Asset-Backed Notes of the Trust issued under the trust indenture made as of November 16, 2009, and the supplemental indenture made as of January 27, 2010 relating to the Series 2010-1 Notes, among the Trust and Computershare Trust Company of Canada, as Indenture Trustee (the said trust indenture and supplemental indenture, as further amended and supplemented by instruments supplemental thereto, are hereinafter referred to as the “Trust Indenture”). Reference is hereby made to the Trust Indenture for the rights of the holders of the Series 2010-1 Notes issued and to be issued thereunder. The Issuer Trustee has entered into the Trust Indenture and issued this Series 2010-1 Class A-1b Asset-Backed Note in its capacity as trustee of the Trust and not in its personal capacity. The liability of the Issuer Trustee hereunder and under the Trust Indenture is limited to the Related Collateral. No other property or assets of the Issuer Trustee, whether owned by it in its personal capacity or otherwise, will be subject to levy, execution or other enforcement procedures with regard to any obligation hereunder or under the Trust Indenture. This Series 2010-1 Class A-1b Asset-Backed Note shall be governed by and construed in accordance with the laws of the Province of Ontario.

Unless this certificate is presented by an authorized representative of CDS Clearing and Depository Services Inc. (“CDS”) to the Trust or its agent for registration of transfer, exchange or payment, and any certificate issued in respect thereof is registered in the name of CDS & CO., or in such other name as is requested by an authorized representative of CDS (and any payment is made to CDS & CO. or to such other entity as is requested by an authorized representative of CDS), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered holder hereof, CDS & CO., has a property interest in the securities represented by this certificate herein and it is a violation of its rights for another person to hold, transfer or deal with this certificate. This certificate is issued pursuant to a Book Entry Only Securities Services Agreement between the Trust and CDS, as such agreement may be replaced or amended from time to time.

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED (THE “1933 ACT”) OR ANY STATE SECURITIES LAWS. NONE OF THIS CERTIFICATE, SUCH SECURITIES, OR ANY INTEREST OR

PARTICIPATION HEREIN OR THEREIN MAY BE REOFFERED, SOLD, TRANSFERRED, PLEDGED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.

THE HOLDER OF THIS CERTIFICATE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER THIS CERTIFICATE ONLY IN ACCORDANCE WITH THE REQUIREMENTS OF THE TRUST INDENTURE, (A)(1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE 1933 ACT, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE 1933 ACT OR (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE 1933 ACT AND, IN THE CASE OF CLAUSE (1), THAT (U) IS A QUALIFIED PURCHASER WITHIN THE MEANING OF SECTION 3(c)(7) OF THE INVESTMENT COMPANY ACT, (V) WAS NOT FORMED FOR THE PURPOSE OF INVESTING IN THE TRUST (EXCEPT WHEN EACH BENEFICIAL OWNER OF THE PURCHASER IS A QUALIFIED PURCHASER), (W) UNDERSTANDS AND AGREES THAT THE TRUST MAY RECEIVE A LIST OF PARTICIPANTS IN THE SECURITIES FROM ONE OR MORE BOOK-ENTRY DEPOSITORIES, (X) IS NOT A BROKER-DEALER THAT OWNS AND INVESTS ON A DISCRETIONARY BASIS LESS THAN U.S.$25,000,000 IN SECURITIES OF UNAFFILIATED ISSUERS, (Y) IS NOT A PENSION, PROFIT-SHARING OR OTHER RETIREMENT TRUST FUND OR PLAN IN WHICH THE PARTNERS, BENEFICIARIES OR PARTICIPANTS OR AFFILIATES MAY DESIGNATE THE PARTICULAR INVESTMENT TO BE MADE AND (Z) HAS RECEIVED THE NECESSARY CONSENT FROM ITS BENEFICIAL OWNERS WHEN THE PURCHASER IS A PRIVATE INVESTMENT COMPANY FORMED ON OR BEFORE APRIL 30, 1996, AND IN A TRANSACTION THAT MAY BE EFFECTED WITHOUT LOSS OF ANY APPLICABLE INVESTMENT COMPANY ACT EXEMPTION OR EXCLUSION, (B) IN A PRINCIPAL AMOUNT OF NOT LESS THAN THE MINIMUM DENOMINATION SET FORTH IN THE INDENTURE AND (C) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES OR OTHER APPLICABLE JURISDICTION. ANY TRANSFER IN VIOLATION OF THE FOREGOING WILL BE OF NO FORCE AND EFFECT, WILL BE VOID AB INITIO AND WILL NOT OPERATE TO TRANSFER ANY RIGHTS TO THE TRANSFEREE, NOTWITHSTANDING ANY INSTRUCTIONS TO THE CONTRARY TO THE TRUST, THE INDENTURE TRUSTEE OR ANY INTERMEDIARY. THE HOLDER OF THIS CERTIFICATE WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THIS CERTIFICATE OF THE RESALE RESTRICTIONS SET FORTH HEREIN AND IN THE INDENTURE.

Countersigned by Computershare Trust Company of Canada, as Indenture Trustee		BNY TRUST COMPANY OF CANADA, in its capacity as trustee of FLEET LEASING RECEIVABLES TRUST
By:		By:
	Authorized Signing Officer		Authorized Signing Officer

Date of Countersignature:	By:
		Authorized Signing Officer

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SCHEDULE A-2a

Issue Date: [ ] No. [ ]

FLEET LEASING RECEIVABLES TRUST
SERIES 2010-1 CLASS A-2A ASSET-BACKED NOTE

CUSIP # [ ]

FLEET LEASING RECEIVABLES TRUST (the “Trust”) for value received and subject to the following, hereby promises to pay to or to the order of

CDS & CO.

the principal sum of $[ ] in lawful money of Canada or such other amount as may from time to time be reflected in the records of the Trust (or its agents) (which records shall be prima facie evidence of the principal amount outstanding hereunder in the absence of manifest mathematical error) with interest on the outstanding principal amount hereof at a per annum rate, based on a year of 365 days, equal to 2.409%. Payments of interest shall be payable in accordance with the provisions of the Trust Indenture (as defined below). Except to the extent repaid prior to such date in accordance with the Trust Indenture, the outstanding principal amount of the Series 2010-1 Class A-2a Asset-Backed Notes shall be due and payable on the maturity date of the Series 2010-1 Class A-2a Asset-Backed Notes. The maturity date of this Series 2010-1 Class A-2a Asset-Backed Note shall be November 15, 2013. Capitalized terms used in this Note and not defined herein shall have the meanings assigned thereto in the Trust Indenture.

This Series 2010-1 Class A-2a Asset-Backed Note is one of the duly authorized Series 2010-1 Class A-2a Asset-Backed Notes of the Trust issued under the trust indenture made as of November 16, 2009, and the supplemental indenture made as of January 27, 2010 relating to the Series 2010-1 Notes, among the Trust and Computershare Trust Company of Canada, as Indenture Trustee (the said trust indenture and supplemental indenture, as further amended and supplemented by instruments supplemental thereto, are hereinafter referred to as the “Trust Indenture”). Reference is hereby made to the Trust Indenture for the rights of the holders of the Series 2010-1 Notes issued and to be issued thereunder. The Issuer Trustee has entered into the Trust Indenture and issued this Series 2010-1 Class A-2a Asset-Backed Note in its capacity as trustee of the Trust and not in its personal capacity. The liability of the Issuer Trustee hereunder and under the Trust Indenture is limited to the Related Collateral. No other property or assets of the Issuer Trustee, whether owned by it in its personal capacity or otherwise, will be subject to levy, execution or other enforcement procedures with regard to any obligation hereunder or under the Trust Indenture. This Series 2010-1 Class A-2a Asset-Backed Note shall be governed by and construed in accordance with the laws of the Province of Ontario.

Unless this certificate is presented by an authorized representative of CDS Clearing and Depository Services Inc. (“CDS”) to the Trust or its agent for registration of transfer, exchange or payment, and any certificate issued in respect thereof is registered in the name of CDS & CO., or in such other name as is requested by an authorized representative of CDS (and any payment is made to CDS & CO. or to such other entity as is requested by an authorized representative of CDS), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered holder hereof, CDS & CO., has a property interest in the securities represented by this certificate herein and it is a violation of its rights for another person to hold, transfer or deal with this certificate. This certificate is issued pursuant to a Book Entry Only Securities Services Agreement between the Trust and CDS, as such agreement may be replaced or amended from time to time.

Countersigned by Computershare Trust Company of Canada, as Indenture Trustee		BNY TRUST COMPANY OF CANADA, in its capacity as trustee of FLEET LEASING RECEIVABLES TRUST
By:		By:
	Authorized Signing Officer		Authorized Signing Officer

Date of Countersignature:	By:
		Authorized Signing Officer

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SCHEDULE A-2b

Issue Date: [ ] No. [ ]

FLEET LEASING RECEIVABLES TRUST
SERIES 2010-1 CLASS A-2B ASSET-BACKED NOTE

CUSIP # [ ]

FLEET LEASING RECEIVABLES TRUST (the “Trust”) for value received and subject to the following, hereby promises to pay to or to the order of

CDS & CO.

the principal sum of $[ ] in lawful money of Canada or such other amount as may from time to time be reflected in the records of the Trust (or its agents) (which records shall be prima facie evidence of the principal amount outstanding hereunder in the absence of manifest mathematical error) with interest on the outstanding principal amount hereof at a per annum rate, based on a year of 365 days, equal to 2.175%. Payments of interest shall be payable in accordance with the provisions of the Trust Indenture (as defined below). Except to the extent repaid prior to such date in accordance with the Trust Indenture, the outstanding principal amount of the Series 2010-1 Class A-2b Asset-Backed Notes shall be due and payable on the maturity date of the Series 2010-1 Class A-2b Asset-Backed Notes. The maturity date of this Series 2010-1 Class A-2b Asset-Backed Note shall be November 15, 2013. Capitalized terms used in this Note and not defined herein shall have the meanings assigned thereto in the Trust Indenture.

This Series 2010-1 Class A-2b Asset-Backed Note is one of the duly authorized Series 2010-1 Notes of the Trust issued under the trust indenture made as of November 16, 2009, and the supplemental indenture made as of January 27, 2010 relating to the Series 2010-1 Notes, among the Trust and Computershare Trust Company of Canada, as Indenture Trustee (the said trust indenture and supplemental indenture, as further amended and supplemented by instruments supplemental thereto, are hereinafter referred to as the “Trust Indenture”). Reference is hereby made to the Trust Indenture for the rights of the holders of the Series 2010-1 Notes issued and to be issued thereunder. The Issuer Trustee has entered into the Trust Indenture and issued this Series 2010-1 Class A-2b Asset-Backed Note in its capacity as trustee of the Trust and not in its personal capacity. The liability of the Issuer Trustee hereunder and under the Trust Indenture is limited to the Related Collateral. No other property or assets of the Issuer Trustee, whether owned by it in its personal capacity or otherwise, will be subject to levy, execution or other enforcement procedures with regard to any obligation hereunder or under the Trust Indenture. This Series 2010-1 Class A-2b Asset-Backed Note shall be governed by and construed in accordance with the laws of the Province of Ontario.

Unless this certificate is presented by an authorized representative of CDS Clearing and Depository Services Inc. (“CDS”) to the Trust or its agent for registration of transfer, exchange or payment, and any certificate issued in respect thereof is registered in the name of CDS & CO., or in such other name as is requested by an authorized representative of CDS (and any payment is made to CDS & CO. or to such other entity as is requested by an authorized representative of CDS), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered holder hereof, CDS & CO., has a property interest in the securities represented by this certificate herein and it is a violation of its rights for another person to hold, transfer or deal with this certificate. This certificate is issued pursuant to a Book Entry Only Securities Services Agreement between the Trust and CDS, as such agreement may be replaced or amended from time to time.

UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE [INSERT DATE THAT IS FOUR MONTHS AND ONE DAY AFTER ISSUANCE].

Countersigned by Computershare Trust Company of Canada, as Indenture Trustee		BNY TRUST COMPANY OF CANADA, in its capacity as trustee of FLEET LEASING RECEIVABLES TRUST
By:		By:
	Authorized Signing Officer		Authorized Signing Officer

Date of Countersignature:	By:
		Authorized Signing Officer

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SCHEDULE B

Issue Date: [ ] No. [ ]

FLEET LEASING RECEIVABLES TRUST
SERIES 2010-1 CLASS B ASSET-BACKED NOTE

CUSIP # [ ]

FLEET LEASING RECEIVABLES TRUST (the “Trust”) for value received and subject to the following, hereby promises to pay to or to the order of

CDS & CO.

the principal sum of $[ ] in lawful money of Canada or such other amount as may from time to time be reflected in the records of the Trust (or its agents) (which records shall be prima facie evidence of the principal amount outstanding hereunder in the absence of manifest mathematical error) with interest on the outstanding principal amount hereof at a per annum rate, based on a year of 365 days, equal to 6.000%. Payments of interest shall be payable in accordance with the provisions of the Trust Indenture (as defined below). Except to the extent repaid prior to such date in accordance with the Trust Indenture, the outstanding principal amount of the Series 2010-1 Class B Asset-Backed Notes shall be due and payable on the maturity date of the Series 2010-1 Class B Asset-Backed Notes. The maturity date of this Series 2010-1 Class B Asset-Backed Note shall be January 15, 2018. Capitalized terms used in this Note and not defined herein shall have the meanings assigned thereto in the Trust Indenture.

This Series 2010-1 Class B Asset-Backed Note is one of the duly authorized Series 2010-1 Class B Asset-Backed Notes of the Trust issued under the trust indenture made as of November 16, 2009, and the supplemental indenture made as of January 27, 2010 relating to the Series 2010-1 Notes, among the Trust and Computershare Trust Company of Canada, as Indenture Trustee (the said trust indenture and supplemental indenture, as further amended and supplemented by instruments supplemental thereto, are hereinafter referred to as the “Trust Indenture”). Reference is hereby made to the Trust Indenture for the rights of the holders of the Series 2010-1 Notes issued and to be issued thereunder. The Issuer Trustee has entered into the Trust Indenture and issued this Series 2010-1 Class B Asset-Backed Note in its capacity as trustee of the Trust and not in its personal capacity. The liability of the Issuer Trustee hereunder and under the Trust Indenture is limited to the Related Collateral. No other property or assets of the Issuer Trustee, whether owned by it in its personal capacity or otherwise, will be subject to levy, execution or other enforcement procedures with regard to any obligation hereunder or under the Trust Indenture. This Series 2010-1 Class B Asset-Backed Note shall be governed by and construed in accordance with the laws of the Province of Ontario.

Unless this certificate is presented by an authorized representative of CDS Clearing and Depository Services Inc. (“CDS”) to the Trust or its agent for registration of transfer, exchange or payment, and any certificate issued in respect thereof is registered in the name of CDS & CO., or in such other name as is requested by an authorized representative of CDS (and any payment is made to CDS & CO. or to such other entity as is requested by an authorized representative of CDS), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered holder hereof, CDS & CO., has a property interest in the securities represented by this certificate herein and it is a violation of its rights for another person to hold, transfer or deal with this certificate. This certificate is issued pursuant to a Book Entry Only Securities Services Agreement between the Trust and CDS, as such agreement may be replaced or amended from time to time.

UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE [INSERT DATE THAT IS FOUR MONTHS AND ONE DAY AFTER ISSUANCE].

Countersigned by Computershare Trust Company of Canada, as Indenture Trustee		BNY TRUST COMPANY OF CANADA, in its capacity as trustee of FLEET LEASING RECEIVABLES TRUST
By:		By:
	Authorized Signing Officer		Authorized Signing Officer

Date of Countersignature:	By:
		Authorized Signing Officer

- 2 -

EX-10.15

Exhibit 10.15

FLEET LEASING RECEIVABLES TRUST

as Purchaser

and

PHH FLEET LEASE RECEIVABLES L.P.

as Seller

and

PHH VEHICLE MANAGEMENT SERVICES INC.

as Servicer

and

PHH CORPORATION

as Performance Guarantor

TRUST PURCHASE AGREEMENT

January 27, 2010

TRUST PURCHASE AGREEMENT

TABLE OF CONTENTS

ARTICLE 1
INTERPRETATION
Section 1.1	Definitions	1
Section 1.2	References to Statutes	22
Section 1.3	Extended Meanings	22
Section 1.4	Sections and Headings	22
Section 1.5	Accounting Principles	23
Section 1.6	References to Acts of the Trust or the Issuer Trustee	23
Section 1.7	Proper Law of Agreement	23
Section 1.8	Invalidity of Provisions	23
Section 1.9	Currency	24
Section 1.10	Computation of Time Periods	24
Section 1.11	Entire Agreement	24
Section 1.12	Summary of the Transactions	24
ARTICLE 2
PURCHASE OF LEASED EQUIPMENT
Section 2.1	Purchase	24
Section 2.2	Payments	25
Section 2.3	Adjustment to Portfolio	25
Section 2.4	Grant of Security	25
Section 2.5	Intercreditor Agreement	26
ARTICLE 3
CONDITIONS PRECEDENT
Section 3.1	Conditions Precedent to Trust’s Delivery of Agreement	26
Section 3.2	Trust’s Conditions Precedent to the Purchase	27
Section 3.3	Seller’s Condition Precedent to the Purchase	28
ARTICLE 4
GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 4.1	Representations and Warranties of the Seller and Servicer	29
Section 4.2	Ineligible Leases	34
Section 4.3	General Covenants of the Seller	34
Section 4.4	General Covenants of the Performance Guarantor	36
Section 4.5	Representations and Warranties of the Trust	37
ARTICLE 5
SERVICING OF PORTFOLIO
Section 5.1	Appointment of Servicer	38

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TABLE OF CONTENTS
(continued)

Section 5.2	Servicing of Portfolio	38
Section 5.3	Power of Attorney	49
Section 5.4	Deemed Collections	50
Section 5.5	Servicer Advances	51
Section 5.6	Back-Up Servicer	51
Section 5.7	Servicer Indemnity	51
Section 5.8	Designation of Replacement Servicer	53
Section 5.9	Replacement Servicer Fee	54
Section 5.10	Payment Terms	55
ARTICLE 6
APPLICATION OF PROCEEDS
Section 6.1	Application of Proceeds	56
Section 6.2	GST on Fees	62
ARTICLE 7
EVENTS OF TERMINATION
Section 7.1	Events of Termination	63
Section 7.2	Segregation of Payments	64
Section 7.3	Clean-Up Provision	64
ARTICLE 8
PERFORMANCE GUARANTEE
Section 8.1	Performance of Obligations	65
Section 8.2	Payments Free of Set-Off	65
Section 8.3	Modifications	65
Section 8.4	Guarantee Unconditional	66
Section 8.5	No Subrogation	68
Section 8.6	Settlement of Accounts	68
Section 8.7	Stay of Acceleration	68
Section 8.8	Reinstatement	68
Section 8.9	Representations and Warranties	69
Section 8.10	Waiver	70
Section 8.11	Costs and Expenses	70
Section 8.12	Termination	71
ARTICLE 9
MISCELLANEOUS
Section 9.1	Notice	71
Section 9.2	Amendments and Waivers	73
Section 9.3	Successors and Assigns	74
Section 9.4	Indemnification	74

-ii-

TABLE OF CONTENTS
(continued)

Section 9.5	Costs, Expenses and Taxes	76
Section 9.6	Correction of Errors	76
Section 9.7	Change in Circumstance	76
Section 9.8	Time of Essence	77
Section 9.9	Failure to Perform	77
Section 9.10	Consent to Jurisdiction; Waiver of Immunities	77
Section 9.11	Confidentiality	77
Section 9.12	Further Assurances	78
Section 9.13	Remedies	78
Section 9.14	Limitation of Liability of Financial Services Agent and Issuer Trustee	78
Section 9.15	Limited Partnership	79
Section 9.16	Execution in Counterparts	79
Schedules
Schedule A	Eligibility Criteria
Schedule B	Master Lease Agreement
Schedule C	Form of Agreed Upon Procedures Report
Schedule D	Form of Portfolio Report
Schedule E	Closing Information
Schedule F-1	Form of Leased Equipment (Subject To Leases) Bill of Sale
Schedule F-2	Form of Leased Equipment Bill of Sale
Schedule G	Form of Back-Up Servicer Agreement
Schedule H	Form of Officer’s Certificate as to Certain Registrations
Schedule I	Form of Loan Acknowledgement

-iii-

TRUST PURCHASE AGREEMENT

          TRUST PURCHASE AGREEMENT made as of January 27, 2010 among BNY TRUST COMPANY OF CANADA in its capacity as trustee of FLEET LEASING RECEIVABLES TRUST, a trust established under the laws of the Province of Ontario pursuant to a Declaration of Trust dated November 2, 2009, as amended and restated on November 16, 2009 and as further amended on January 27, 2010 (the “Trust”), PHH FLEET LEASE RECEIVABLES L.P., a limited partnership formed under the laws of Manitoba (the “Seller”), PHH VEHICLE MANAGEMENT SERVICES INC., a corporation amalgamated under the laws of Canada (“PHH VMS”) as initial Servicer, and PHH CORPORATION, a corporation incorporated under the laws of the State of Maryland (the “Performance Guarantor”).

          RECITALS:

(a)	The Seller is the beneficial owner of Leased Equipment and wishes to sell to the Trust its beneficial interest in certain of such Leased Equipment, subject to the Leases thereof;
(b)	The Trust is willing to purchase the Seller’s beneficial interest in such Leased Equipment, subject to such Leases;
(c)	The Servicer is prepared to service the assets sold to the Trust; and
(d)	The Performance Guarantor is willing to provide to the Trust certain covenants contained herein, and the Trust is relying thereon.

          In consideration of the foregoing and the mutual agreements contained herein (the receipt and adequacy of which are acknowledged), the parties agree as follows:

ARTICLE 1
INTERPRETATION

Section 1.1       Definitions.

In this Agreement, the following terms will have the following meanings:

“Accounts” means each of the Cash Spread Account, the Collections Account, the U.S. Dollar Collections Account and the Yield Supplement Account.

“Affiliate” means, when used in respect of any Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person, and for the purposes of this definition, “control” when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities,

 - 2 - 

by contract or otherwise; and the terms “controlling” and “controlled” have corresponding meanings.

“Aggregate Lease Balance” means, as of any date during the period from and including a Distribution Date to but excluding the next Distribution Date, an amount equal to the sum of the Net Book Value of each Securitized Lease as of the last day of the Reporting Period preceding the first day of that period.

“Agreed Upon Procedures Report” means a letter addressed to the initial Noteholders and the Rating Agencies substantially in the form attached as Schedule C.

“Agreement” means this agreement, together with the schedules hereto, as the same may be amended, supplemented, modified, restated or replaced from time to time, and the expressions “hereof”, “herein”, “hereunder”, and “hereby” and similar expressions refer to this agreement and not to any specific article, section, paragraph, subparagraph or clause hereof.

“Annual Percentage Rate” means, with respect to a Lease, the annual rate of finance charges (whether fixed or floating) stated or implicit in such Lease, exclusive of any Management Fee.

“Applicable Law” means, at any time with respect to any Person, property, transaction or event, all applicable laws, statutes, regulations, treaties, judgments and decrees (whether or not having the force of law) and all applicable official directives, rules, consents, approvals, authorizations, guidelines, orders and policies of any Governmental Authority or Persons having authority over any of the parties hereto, in each case in effect at such time.

“Applicable Rate” means 2.25% per annum.

“Applicable Residual Percentage” means 16% or such other percentage as is acceptable to the Trust.

“Back-Up Servicer” means Wells Fargo Bank, National Association, or any other Person who may be engaged from time to time by the parties hereto to act as Back-Up Servicer hereunder.

“Back-Up Servicer Agreement” means an agreement between the Trust, the Seller, the Indenture Trustee, PHH VMS and the Back-Up Servicer substantiality in the form attached as Schedule G, as amended, supplemented, modified, restated or replaced from time to time.

“Back-Up Servicer Costs” means, on any Distribution Date, any costs, expenses, indemnification amounts and other amounts (other than the Back-Up Servicer Fee) (and all applicable taxes) in each case payable by the Trust to the Back-Up Servicer hereunder or pursuant to the Back-Up Servicer Agreement in respect of the immediately preceding

- 3 -

Reporting Period or any preceding period, to the extent not previously paid to the Back-Up Servicer.

“Back-Up Servicer Fee” means the “Back-Up Servicing Fee” described in the Back-Up Servicer Agreement.

“Balance Amounts” has the meaning set out in Section 6.1(3).

“Business Day” means any day, other than a Saturday, Sunday or a statutory or civic holiday, on which banks are open for business in Toronto, Ontario, Montreal, Quebec and New York City, New York, United States of America.

“Canadian Dollars” or “$” means the lawful currency of Canada.

“Cash Spread Account” means the account in the name of the Trust (or in the name of the Indenture Trustee in trust for the Trust) designated in Schedule E as the Cash Spread Account for purposes hereof (or such other account or accounts with an Eligible Institution which is designated by notice to the Seller from the Trust as the Cash Spread Account for purposes hereof), the balance of which shall be held subject to the sole control of the Trust or the Indenture Trustee and applied in accordance with the terms of this Agreement.

“Charge-Off Ratio” means, for any specified Distribution Date, twelve times the quotient, expressed as a percentage, of (a) the amount, if any, by which (i) the aggregate Net Book Value of all Securitized Leases that became Charged-Off Leases during the preceding Reporting Period exceeds (ii) the aggregate amount of recoveries on Charged-Off Leases from previous Reporting Periods received during that preceding Reporting Period, divided by (b) the Aggregate Lease Balance as of the last day of the second preceding Reporting Period.

“Charged-Off Lease” means a Securitized Lease which has been or should have been charged off by the Servicer in accordance with the Credit and Collection Policy or as to which any scheduled Lease rental payment in excess of $10.00 is 270 or more days past due.

“Class A-1a Notes” means the Notes designated under the Trust Indenture as Series 2010-1 Class A-1a Asset-Backed Notes.

“Class A-1b Notes” means the Notes designated under the Trust Indenture as Series 2010-1 Class A-1b Asset-Backed Notes.

“Class A-2a Notes” means the Notes designated under the Trust Indenture as Series 2010-1 Class A-2a Asset-Backed Notes.

“Class A-2b Notes” means the Notes designated under the Trust Indenture as Series 2010-1 Class A-2b Asset-Backed Notes.

- 4 -

“Class B Notes” means the Notes designated under the Trust Indenture as Series 2010-1 Class B Asset-Backed Notes.

“Closing Date” means January 27, 2010 or such other date as the parties hereto shall agree to.

“Closing Payment” means the amount identified as such in Schedule E plus applicable GST and QST.

“Collections” means, in respect of any Securitized Lease, all cash collections and other cash proceeds received after the Cut-Off Date in respect of such Securitized Lease, including, without duplication (in each case only to the extent received after the Cut-Off Date):

(i)	all cash proceeds of related Lease Rights (including prepayments in respect of such Lease Rights which are in respect of periods after the Cut-Off Date);
(ii)	all Management Fees under such Securitized Lease;
(iii)	all Servicer Advances and Servicer’s Pre-Funded Amounts to the extent related to such Lease;
(iv)	all prepayment fees or prepayment penalties related to any such prepayment referred to in clause (i);
(v)	if such Securitized Lease is an Ineligible Securitized Lease, all amounts paid by the Seller in connection with its repurchase;
(vi)	all Deemed Collections paid by the Seller or the initial Servicer in respect of such Securitized Lease; and
(vii)	all Net Proceeds in respect of the related Leased Equipment,

but excluding, in each case: (x) any security deposits, except to the extent included in Net Proceeds; and (y) any other Excluded Amounts.

“Collections Account” means the account of the Trust designated in Schedule E as the Collections Account for purposes hereof or such other account or accounts with an Eligible Institution which is designated by notice to the Seller from the Trust as the Collections Account for purposes hereof.

“Credit and Collection Policy” means at any time: (i) prior to the appointment of a Replacement Servicer, the credit and collection policies of the Seller and the initial Servicer relating to the Lease Rights as in effect on the Cut-off Date, as such policies may be amended in compliance with Section 5.2(1)(l); and (ii) after the appointment of a

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Replacement Servicer, the credit and collection policies of the Replacement Servicer at such time, as such policies may be amended in compliance with Section 5.2(2)(l).

“Cut-Off Date” means December 17, 2009.

“DBRS” means DBRS Limited and its successors.

“Deemed Collections” has the meaning set out in Section 5.4(1).

“Defaulted Lease” means, at any time, any Lease (i) under which the full amount required to be paid for a given month has been outstanding for a period greater than or equal to 120 days from the payment due date, or (ii) the Obligor (other than a guarantor) of which has sustained an Insolvency Event which is continuing, or (iii) in respect of which the Servicer has reasonably determined, in accordance with the Credit and Collection Policy, that eventual payment of amounts owing under such Lease is unlikely.

“Deferred Rent” means any amounts specified herein to be paid on account of Deferred Rent, including as provided in Sections 6.1(3)(c), (g) and (i) and Section 6.1(11).

“Delinquency Ratio” means, for any Distribution Date, the quotient, expressed as a percentage, of (a) the aggregate billings with respect to all Securitized Leases which were Delinquent Leases as of the last day of the immediately preceding Reporting Period divided by (b) the sum of (i) the aggregate billings with respect to all Securitized Leases which were unpaid as of the last day of the second preceding Reporting Period and (ii) the aggregate billings with respect to all Securitized Leases during the immediately preceding Reporting Period.

“Delinquent Lease” means, at any time, any Lease, other than a Defaulted Lease or Charged-Off Lease, (i) in respect of which an amount greater than $50 then remains unpaid for more than 60 days from the payment due date, or (ii) which would then be classified as delinquent in accordance with the Credit and Collection Policy.

“Distribution Date” means, in respect of any Reporting Period, the fifteenth day of the month immediately following the last day of such Reporting Period (or if such day is not a Business Day, the immediately following Business Day).

“Eligible Floating Rate Index” means one of the following:

(i)	the one-month bankers acceptance rate, based on the rate as published by the Bank of Canada on its web site or other market standard methodology;
(ii)	the one-month prime corporate paper rate, based on the rate as published by the Bank of Canada on its web site or other market standard methodology;
(iii)	the one-month asset-backed commercial paper rate, either for a particular securitization or across a class of conduits, as determined by PHH;

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(iv)	a rate based on PHH’s weighted average cost of funds (which may include or exclude funding costs under inter-corporate borrowing transactions (subject to any agreed upon caps) and/or securitization transactions); or
(v)	PHH’s commercial paper funding rate, as determined by PHH.

“Eligible Institution” has the meaning set out in the Trust Indenture.

“Eligible Lease” means a Lease which meets all of the criteria set out in Schedule A on the Cut-Off Date.

“Equipment” means an automobile, truck (light, medium or heavy duty), truck body, trailer, forklift or other material handling equipment or other equipment, together with all equipment, attachments and accessories attached thereto.

“Equivalent Amount” has the meaning set out in the Trust Indenture.

“Equivalent Rating” means, in respect of a rating from a Rating Agency, the equivalent thereof resulting from any change in the rating system of such Rating Agency.

“Estimated Residual Collections” means, in respect of any Reporting Period, an amount equal to the Servicer’s good faith estimate of the Net Proceeds to be received by the Servicer in such Reporting Period under the Securitized Leases.

“Event of Termination” has the meaning ascribed thereto in Section 7.1.

“Excluded Amounts” means all amounts excluded in the definition of “Receivables”.

“Extraordinary Resolution” has the meaning ascribed thereto in the Trust Indenture.

“Final Collection Date” means the date upon which the aggregate amounts owing pursuant to Sections 6.1(1), (2) and (3)(c), (d) and (e) have been satisfied in full.

“Financial Services Agent” means PHH VMS or any other Person appointed in its place pursuant to the Financial Services Agreement.

“Financial Services Agreement” has the meaning ascribed thereto in the Trust Indenture.

“Financing Transaction” has the meaning set out in the Intercreditor Agreement.

“Fleet Receivables” means, at any time, all amounts then payable under any Fleet Service Contract.

“Fleet Service Contract” means a fleet maintenance contract, fleet management contract, fuel card contract or any other service contract between PHH VMS and an Obligor.

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“GAAP” has the meaning set out in Section 1.5.

“Governmental Authority” means the government of any sovereign state or any political subdivision thereof, or of any political subdivision of a political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory, administrative or other functions of or pertaining to government.

“GST” means all goods and services tax payable under Part IX of the Excise Tax Act (Canada), and all harmonized sales tax in the Provinces of Nova Scotia, Newfoundland and New Brunswick (and upon harmonized sales tax becoming effective in any other provinces, including Ontario and British Columbia, such other provinces) payable under the Excise Tax Act (Canada), as such statutes may be amended, modified, supplemented or replaced from time to time, including any successor statute.

“Indenture Trustee” has the meaning set out in the Trust Indenture.

“Ineligible Master Lease” means, at any time, a PHH Master Lease Agreement in respect of which either (i) PHH has made a credit decision that it will not supply any further Equipment to the related Obligor, or (ii) 50% or greater of the billings to the Obligor thereof then remain unpaid for more than 60 days from the original due date.

“Ineligible Securitized Lease” has the meaning ascribed thereto in Section 4.2.

“Initial Pool Balance” means an amount equal to the Pool Balance as of the Cut-Off Date, as specified in Schedule E.

“Insolvency Event” means, with respect to a specified Person, (i) such Person generally not paying its liabilities as they become due or admitting in writing its inability to pay its liabilities generally as they become due, or making a general assignment for the benefit of creditors; or (ii) otherwise acknowledging its insolvency; or (iii) any proceedings being instituted by or against such Person seeking to adjudicate it as bankrupt or insolvent or seeking liquidation, winding-up, dissolution, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization, moratorium or relief of debtors, and, if such proceeding has been instituted against such Person, such proceeding has not been stayed or dismissed within 45 days; or (iv) such Person seeking the entry of an order for relief by the appointment of a receiver, trustee, custodian or similar official for it or a substantial part of its property and, if such proceeding has been instituted against such Person, such proceeding has not been stayed or dismissed within 45 days of a receiver, trustee, custodian or other similar official being appointed for it or any substantial part of its property; or (v) such Person taking any action to authorize any of the actions described above; or (vi) a receiver being privately appointed in respect of a substantial part of such Person’s assets.

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“Intercreditor Agreement” means the Intercreditor Agreement dated as of January 27, 2010 among the Seller, PHH VMS, the Trust and the other Persons that are or may in the future become party thereto from time to time in accordance with the terms thereof.

“Interest Period” means a period commencing on and including a Distribution Date and ending on and including the day preceding the next succeeding Distribution Date; provided, however, that the initial Interest Period shall commence on and include the Closing Date and end on and include February 15, 2010.

“Issuer Trustee” means BNY Trust Company of Canada in its capacity as trustee of the Trust, and its successors.

“Lease” means a written lease agreement (other than the Master Lease) relating to Equipment, between an Originator and a lessee, consisting of a lease schedule, supplement or new unit notice delivered by such lessee under a PHH Master Lease Agreement, pursuant to which such lessee is required to pay rent on the terms set out in such lease schedule, supplement or new unit notice and subject to the related terms of such PHH Master Lease Agreement.

“Lease Margin” means, at any time for any Securitized Lease under which the Annual Percentage Rate is then based on a floating rate of interest, the amount by which the Annual Percentage Rate for such Lease at such time exceeds the rate under the relevant Eligible Floating Rate Index applicable to such Lease at such time.

“Lease Principal” means, in respect of any payment on account of a Lease or the related Lease Rights, that portion thereof, if any, which is equal to or should be applied against, as the case may be, the depreciation rent owing in respect thereof (whether or not due under such Lease), as determined based on the depreciation rate contained in the lease schedule, supplement or new unit notice forming part of such Lease.

“Lease Rights” means, in respect of any Lease and the related Leased Equipment, the following:

(i)	all rights and benefits accruing to the Seller under such Lease, including all right, title and interest in and to the Receivables payable and Collections of other Lease Rights received under such Lease after the Cut-Off Date;
(ii)	all rights in or to payments (including both proceeds and, to the extent the Seller has any rights therein, premium refunds) under any insurance policies maintained by the Obligor pursuant to the terms of such Lease, to the extent the same indemnify for loss or damage to such Leased Equipment;

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(iii)	all rights in or to all payments made on account of any loss of or damage to such Leased Equipment, excess wear and tear thereon or excess use thereof, whether under such Lease or otherwise;
(iv)	all rights in or to all payments owing under the Lease as a result of the early termination of such Lease;
(v)	the benefit of all covenants with respect to such Leased Equipment by the Obligor under such Lease, including all indemnities and covenants with respect to maintenance and repair, use and insurance obligations, except to the extent that the same indemnify against liability to others;
(vi)	the right of the Seller to ask for, demand, sue for, collect, receive and enforce any and all sums payable under such Lease in respect of such Leased Equipment and to enforce all other covenants, obligations, rights and remedies thereunder with respect thereto, including any rights with respect thereto under the related PHH Master Lease Agreement, except to the extent that such rights indemnify against liability to others;
(vii)	all right, title and interest of the Seller under such Lease in, to and under all prepayments made after the Cut-Off Date, guarantees, indemnities (except to the extent that the same indemnify against liability to others), any vendor support agreements or arrangements and the benefit of any statutory indemnities, payment or reimbursement obligations or guarantees and all other agreements or arrangements of any character (including all security interests in all properties subject thereto) from time to time supporting or securing payment or performance of the Obligor’s obligations in respect of such Leased Equipment subject to such Lease (excluding any security deposits);
(viii)	all Records pertaining to such Lease, including the Lease itself; and
(ix)	all proceeds of or relating to the foregoing,

but for greater certainty shall not include the Master Lease Prepayment Amount or any Deferred Rent paid to the Seller under this Agreement or the Master Lease or any Excluded Amounts.

“Leased Equipment” means, in respect of any Lease, the Equipment forming the subject matter of such Lease.

“Limited Partner” means FLR LP Inc.

“Losses” has the meaning set out in Section 9.4.

“Lowest Case Benchmark” means 0.25% per annum, except for any floating rate Securitized Lease under which the relevant Eligible Floating Rate Index is then based on

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the rates described in clauses (iv) or (v) of the definition of Eligible Floating Rate Index, as to which it is 0.75% per annum.

“LP Partnership Agreement” means the limited partnership agreement dated as of December 22, 2009 among the Partners, as the same may be amended, supplemented, modified, restated or replaced from time to time.

“LP Transfer Agreements” means the First Asset Sale Agreement dated as of January 27, 2010 between PHH VMS and the Limited Partner, and the Second Asset Sale Agreement dated as of January 27, 2010 between the Limited Partner and the Seller, as the same may be amended, supplemented, modified, restated or replaced from time to time.

“Management Fee” means, in respect of any Lease, the monthly management fee payable thereunder by the related Obligor, as determined in accordance with the Seller’s customary practice.

“Management Fee Yield” means, with respect to any Securitized Lease for any Distribution Date, the product of (a) the percentage equivalent of a fraction, the numerator of which is equal to the Management Fee payable in respect of such Securitized Lease, and the denominator of which is the Net Book Value of such Lease as of the last day of the immediately preceding Reporting Period and (b) 12.

“Managing GP” means FLR GP 1 Inc., the managing general partner of the Seller under the LP Partnership Agreement.

“Master Lease” means the master lease agreement made as of January 27, 2010 between the Seller and the Trust, as amended, supplemented, modified, restated or replaced from time to time, including all supplements thereto.

“Master Lease Prepayment Amount” means an amount equal to 95.25% of the Initial Pool Balance less the aggregate amounts required to be deposited to the Cash Spread Account and the Yield Supplement Account on the Closing Date.

“Material Adverse Effect” means (i) any effect upon the business, operations, property or financial condition of the Seller, the Performance Guarantor or the Servicer (if other than the Seller), or (ii) any effect on the Securitized Leases or Leased Equipment (or a portion thereof) which, in the case of (i) or (ii), could reasonably be expected to materially adversely affect (v) the interest of the Trust in the Securitized Leases or Leased Equipment, (w) the collectability of the Securitized Leases, (x) the timing or amount of payments to be made to the Trust, (y) the enforceability of the Securitized Leases, or (z) the ability of the Seller, the Performance Guarantor, or the Servicer to perform its obligations under the Transaction Documents to which it is a party.

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“Minimum Yield Rate” means, for any Distribution Date, the amount determined in accordance with the following formula (rounded to the nearest 0.001%):

Servicing Fee + Back-Up Servicing Fee + A2 Coupon * greater of (nil, and (1 - actual ending OC Pct - actual ending B Pct * B Multiplier)) + B Coupon * lesser of (1 – actual ending OC Pct, and actual ending B Pct * B Multiplier)

where:

“Servicing Fee” means, on any date, the Servicer Fee on such date, or if a Replacement Servicer has then been appointed, the Replacement Servicer Fee,

“Back-Up Servicing Fee” means, on any date prior to the appointment of a Replacement Servicer, the Back-Up Servicer Fee, and after the appointment of a Replacement Servicer, means nil,

“A2 Coupon” means the weighted average of the Class A-2a Interest Rate and the Class A-2b Interest Rate (each as defined in the Series 2010-1 Supplement),

“actual ending OC Pct” means 1- ((the Outstanding Principal Note Balance) divided by (the Pool Balance)), in each case determined as of the last day of the immediately preceding Reporting Period,

“actual ending B Pct” means the outstanding principal balance of the Class B Notes divided by the Pool Balance, in each case determined as at the last day of the immediately preceding Reporting Period,

“B Multiplier” means 2.40, and

“B Coupon” means the Class B Interest Rate (as defined in the Series 2010-1 Supplement).

“Moody’s” means Moody’s Investors Services Inc. and its successors.

“Net Book Value” means, at any time in respect of any Securitized Equipment, the Seller’s Book Value thereof as of the close of business on the Cut-Off Date less the total of the following amounts received prior to such time and after the Cut-Off Date:

(i)	all Collections (without regard to Servicer’s Pre-Funded Amount Loans or Servicer Advances) on account of Lease Principal in respect of such Securitized Equipment (or the related Lease) in the form of billings;
(ii)	the Net Proceeds of disposition of such Securitized Equipment and any of the related Lease Rights allocable to Lease Principal;
(iii)	the Net Proceeds of settlement allocable to Lease Principal in accordance with the terms of the related Lease; and

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(iv) any other Collections allocable to Lease Principal in respect of the related Lease;

and when used with respect to any one or more Leases, means the Net Book Value of the related Securitized Equipment.

“Net Defaulted Lease Balance” means, for any Reporting Period, the aggregate Net Book Value of Securitized Leases which became Defaulted Leases in such Reporting Period less any Net Proceeds of Securitized Equipment under Defaulted Leases received during such Reporting Period.

“Net Proceeds” means, in respect of any Leased Equipment, the cash proceeds (other than amounts on account of sales taxes, goods and services taxes, harmonized taxes or other taxes) received by the Seller or the Servicer, including:

(i)	the amount of any security deposit applied by the Seller in partial satisfaction of the purchase price of such Leased Equipment or other obligations of the Obligor under the Securitized Lease, such as excess wear and tear charges or guaranteed residuals, and
(ii)	all monthly rental payments paid by the Obligor during any extension periods under the Securitized Lease,

from or in connection with the disposition of such Leased Equipment to the Obligor or otherwise or from insurance proceeds in respect of such Leased Equipment, less all out-of-pocket costs and expenses with respect to the enforcement of rights in respect of such Leased Equipment or otherwise in respect of any such disposition (including the repossession, storage, repair, maintenance, advertisement, remarketing, insuring, protection and/or refurbishing of such Leased Equipment and including such costs and expenses as are reimbursed by the application of any security deposits) or the collection of such insurance proceeds incurred by or on behalf of the Seller or the Servicer (it being agreed by the parties hereto, that the Seller or the Servicer (including for greater certainty, any Replacement Servicer), as applicable, shall be entitled to retain, out of any such cash proceeds, an amount equal to the amount of any such out-of-pocket costs and expenses, in reimbursement thereof), and excluding any amounts required to be paid to the Obligor or any other Person.

“Noteholders” means any holders of Notes.

“Notes” means the Class A-1a Notes, the Class A-1b Notes, the Class A-2a Notes, the Class A-2b Notes and the Class B Notes.

“Obligations” has the meaning set out in Section 8.1.

“Obligor” means any Person (other than an Originator) who is obligated to make payments under a Lease.

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“Obligor Option” means, in respect of any Lease, an option of a related Obligor to purchase the Leased Equipment on the terms and conditions described in such Lease.

“OC Amount” means:

(i)	on the Closing Date, an amount equal to 4.75% of the Initial Pool Balance;
(ii)	at any time thereafter up to the Final Collection Date, an amount equal to the greater of the Target OC Amount and the Floor OC Amount; and
(iii)	from and after the Final Collection Date, nil,

where the “Target OC Amount” on any Distribution Date, is 4.75% of the Pool Balance as of the end of the immediately preceding Reporting Period, and the “Floor OC Amount” is equal to 2.40% of the Initial Pool Balance.

“Originator” means PHH VMS, the Seller or any of their respective Affiliates, and their respective successors and assigns.

“Outstanding Note Balance” as at any date, the aggregate principal and accrued interest outstanding on the Notes as at such date as expressed in Canadian Dollars using, in the case of any Notes denominated in U.S. Dollars, the Equivalent Amount thereof.

“Outstanding Principal Note Balance” means, as at any date, an amount equal to the aggregate then outstanding principal balance of the Notes as expressed in Canadian Dollars using, in the case of any Notes denominated in U.S. Dollars, the Equivalent Amount thereof.

“Partners” means the Limited Partner, the Managing GP and FLR GP 2 Inc.

“Permitted Investments” are negotiable instruments or securities represented by instruments in bearer or registered form which evidence:

(i)	obligations issued or fully guaranteed as to both credit and timeliness by the Government of Canada;
(ii)	short-term or long-term unsecured debt obligations of a Province or Territory of Canada, or a bank under the Bank Act, provided that such obligations are rated at least as follows by the Rating Agencies:

(A)	“R-1 (middle)” (short term) or “AA (low)” (long term) by DBRS; and
(B)	“P-1” (short term) or “Aa3” (long term) by Moody’s; or

(iii) such other obligations which may satisfy the Rating Agency Condition;

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provided that (i) Permitted Investments at any time will not extend past the next scheduled Distribution Date; and (ii) investments in the obligations of any one issuer will be limited to a maximum amount of the lower of (A) 20% of the aggregate face amount of all Permitted Investments; and (B) $10,000,000, except that if the aggregate face amount of all Permitted Investments is (x) less than $10,000,000, all Permitted Investments may be in the securities of any one issuer in obligations that are rated “R-1 (high)” (short term) by DBRS and “P-1” by Moody’s; and (y) less than $25,000,000, up to 50% may be in the obligations of any one issuer.

“Permitted Liens” means (i) liens for taxes, assessments or other governmental charges, levies, or imposts on the assets of an Originator or the Trust, as applicable, not at the time delinquent or thereafter payable without penalty or contested in good faith by appropriate proceedings and for which adequate reserves, in accordance with GAAP shall have been set aside on the Originator’s or the Trust’s, as applicable, books; (ii) the rights of any Obligor under a Lease; (iii) any mechanics lien or other like Security Interests created by law (in contrast with Security Interests voluntarily granted), arising in connection with maintenance of Leased Equipment, in respect of obligations which are not due or which are being contested in good faith by proper proceedings diligently pursued ; and (iv) any other “Permitted Liens” as defined in the Trust Indenture.

“Person” means an individual, partnership, corporation, trust, joint venture, unincorporated association, proprietorship, board or body established by statute, Governmental Authority or other entity.

“PHH Master Lease Agreement” means a master lease agreement between PHH VMS and an Obligor under the terms of which individual items of Equipment may be leased from time to time on the terms set out in a related Lease.

“Pool Balance” means, at any time, the aggregate Net Book Value at such time of the Securitized Equipment, determined on the basis that the Net Book Value of the related Leased Equipment for a Defaulted Lease shall be deemed to be zero.

“Portfolio of Assets” means, at any time, the Securitized Leases, the Securitized Equipment, the related Lease Rights and the related Collections.

“Portfolio Report” means a report substantially in the form of Schedule D, prepared by the Servicer based on the information resulting from the application of the procedures described in Section 2.5 of the Intercreditor Agreement.

“PPSA” means the Personal Property Security Act (Ontario) and the comparable legislation of any other province or territory of Canada including the Register of Personal and Movable Real Rights in the Province of Quebec.

“Principal Distribution Amount” means, on any Distribution Date, an amount equal to the excess of the Required Amount in respect of the Securitized Leases over the Pool Balance.

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“Purchase” means the purchase of Leased Equipment subject to Leases by the Trust pursuant to Article 2.

“Purchased Assets” means, at any time, the Securitized Leases, the related Lease Rights, the related Collections and the assets described in Section 2.1(1)(ii).

“QST” means the Quebec sales tax imposed pursuant to the Act respecting the Québec sales tax.

“Rating Agencies” means DBRS and Moody’s and “Rating Agency” means either one of them.

“Rating Agency Condition” has the meaning set out in the Trust Indenture with respect to the Notes.

“Receivables” means, in respect of any Lease, all rentals and other monies payable with respect to such Lease (not including security deposits (except to the extent included in Net Proceeds), or rentals or other amounts which have been paid to the Seller or any other Originator in respect of any period ending on or before the Cut-Off Date) including all extra charges and fees (including Management Fees) and other monies payable to the Seller under such Lease, charges in respect of loss of or damage to the related Leased Equipment or for excess wear thereon, enforcement charges and other monies payable by the Obligor under such Lease (exclusive of costs, expenses and amounts payable by way of reimbursement or indemnity, and excluding any amounts required to be paid to the Obligor or any other Person other than the Trust) during the period from the Cut-Off Date until the date that all amounts payable under such Lease are paid.

“Records” means all contracts, books, records and other documents and information (including computer programs, tapes, diskettes and data processing software) maintained by or on behalf of the Seller or Servicer, as applicable, evidencing or otherwise relating to any Leases or to the related Leased Equipment, Obligors, Security Interests, Collections or any Accounts.

“Relevant Jurisdiction” means each of Ontario, Alberta, British Columbia, Quebec and Saskatchewan.

“Remaining Lease Term” means, with respect to any Yield Shortfall Lease for any Distribution Date, the remaining number of months over which the capitalized cost of the related Leased Equipment is being depreciated thereunder as of the last day of the immediately preceding Reporting Period.

“Replacement Servicer” means any Person appointed by the Trust to replace the initial or any subsequent Servicer upon the occurrence of a Servicer Default.

“Replacement Servicer Fee” has the meaning ascribed thereto in Section 5.9.

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“Reporting Period” means (i) initially, the period from and excluding the Cut-Off Date, to and including the last day of the month in which the Closing Date occurred; and (ii) thereafter each period from and excluding the last day of the immediately preceding Reporting Period to and including the last day in the month next following the month in which the previous Reporting Period ended.

“Required Amount” means, at any time, an amount equal to the sum of the Outstanding Principal Note Balance and the OC Amount.

“Required Cash Spread Amount” means an amount equal to 2.25% of the Initial Pool Balance.

“Required Insurance” means an insurance policy with respect to Leased Equipment (i) that has been issued to the Obligor by an insurance company acceptable to the Servicer, (ii) that provides comprehensive, collision, fire, theft and other physical damage coverage, (iii) that is for an amount not less than the Net Book Value of the applicable Leased Equipment at the relevant time, and (iv) that has the Servicer or the Seller noted as the loss payee or an additional insured thereon; provided that the Servicer or the Seller may permit an Obligor to self-insure for the matters described in (ii) in accordance with the Credit and Collections Policy.

“Required Yield Supplement Amount” means, (a) on the Closing Date, $2,830,793.45; and (b) for any Distribution Date thereafter, the sum, with respect to each Yield Shortfall Lease, of the excess of (i) the Yield Shortfall Lease Break Even Amount with respect to such Yield Shortfall Lease for such Distribution Date over (ii) the product of (A) the Management Fee payable in respect of such Yield Shortfall Lease and (B) the Yield Shortfall Lease Remaining Term with respect to such Yield Shortfall Lease for such Distribution Date.

“Responsible Officer” means, in respect of any Person, the chief financial officer, the treasurer, any assistant treasurer, any vice president or the controller of such Person (or in the case of the Seller, of a general partner of such Person).

“S&P” means Standard & Poor’s Ratings Services and its successors.

“Sale Price” means an amount equal to the Closing Payment.

“Securitization Collateral” has the meaning set out in Section 2.4.

“Securitization Security Interests” has the meaning set out in Section 2.4.

“Securitized Equipment” means at any time, all Leased Equipment which is then leased under the Master Lease.

“Securitized Lease” means initially, a Lease relating to the Securitized Equipment, but at any time excluding any such Lease that has been purchased by the Seller or the initial

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Servicer pursuant to this Agreement or in respect of which the Master Lease of the related Leased Equipment has been cancelled.

“Security Interest” means any mortgage, pledge, security interest, hypothec, assignment, deposit arrangement, encumbrance, lien (consensual, statutory or other), charge, security arrangement, or any other right or claim in, of or on any Person’s assets or properties in favour of any other Person of any kind or nature whatsoever.

“Seller’s Book Value” means, in respect of any Leased Equipment, the book value thereof on the Cut-Off Date determined based on the depreciation rate contained in the lease schedule, supplement or new unit notice forming part of such Lease (which depreciation rate was calculated as the rate required to depreciate the capitalized cost of such Leased Equipment (as determined by PHH VMS in accordance with its normal procedures and as set out in the related new unit notice but in any event, not to exceed the total out-of-pocket acquisition cost to PHH VMS of such Leased Equipment) to nil over the term of such Lease).

“Series 2010-1 Supplement” means the Series 2010-1 Supplemental Indenture (made as of January 27, 2010 between the Trust and the Indenture Trustee) to the Trust Indenture.

“Servicer” means, initially, PHH VMS, and upon any replacement of PHH VMS as Servicer, any Replacement Servicer.

“Servicer Advance” has the meaning set out in Section 5.5.

“Servicer Default” means the occurrence of any of the following:

(a)	the Servicer defaults in the payment or deposit of any amount due hereunder or under any other Transaction Document and such default remains unremedied for a period of three Business Days after written notice of such default has been received by the Servicer or the Servicer has knowledge of such default;
(b)	the Servicer defaults in the observance or performance in any material manner of any of its covenants or obligations contained in any of the Transaction Documents other than as referred to in (a) above and, if such default is capable of rectification, such default remains unremedied for a period of 30 days after (i) written notice of such default has been received by the Servicer or (ii) the Servicer has knowledge of such default;
(c)	any representation or warranty made by the Servicer (or any of its officers) in or pursuant to any of the Transaction Documents or any Portfolio Report proves to have been false or incorrect when made (except to any extent which has not had and which would not reasonably be expected to have a Material Adverse Effect) and, if the circumstances giving rise to such false or incorrect representation or warranty are capable of rectification (such that, thereafter, such representation and warranty would prove correct), such representation or warranty remains

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	uncorrected for a period of 30 days after (i) written notice specifying the incorrectness or (ii) the Servicer has knowledge of such false or incorrect representation or warranty;
(d)	while PHH VMS is the Servicer, either Rating Agency rates the long term unsecured debt of the Performance Guarantor at or below CCC (or its equivalent) or the Performance Guarantor no longer has a credit rating for its long term unsecured debt;
(e)	an Insolvency Event in respect of the Servicer or, if the Servicer is PHH VMS, the Performance Guarantor, has occurred; or
(f)	if the Servicer is PHH VMS, the Performance Guarantor defaults in the performance of its obligations hereunder or its obligations under Section 8.1 are no longer in full force and effect.

“Servicer Fee” means the fee payable to PHH VMS as Servicer hereunder, which shall be, for any Reporting Period, an amount equal to 0.225% of the aggregate Pool Balance as of the first day of such Reporting Period, divided by 12.

“Servicer’s Pre-Funded Amount” means, with respect to a Reporting Period, the amount, if any, by which (i) the sum of (a) the total scheduled rent payments payable by Obligors under the Securitized Leases which are not Defaulted Leases with respect to that Reporting Period and (b) the Estimated Residual Collections with respect to that Reporting Period, exceeds (ii) the amount, if any, by which the Servicer’s Pre-Funded Amount remitted for the immediately prior Reporting Period exceeds Collections received with respect to such prior Reporting Period.

“Servicer’s Pre-Funded Amount Loan” has the meaning set out in Section 5.2(5).

“Sub Prime Lease” means a Lease in respect of which the lessee is an individual with a FICO^Ò score below 620.

“Subsidiary” means, when used in respect of any Person, any other Person directly or indirectly controlled by such specified Person, where “control” has the meaning set out in the definition of “Affiliate”.

“Substitute Servicer” has the meaning set out in the Back-Up Servicer Agreement.

“Swap Agreement” means the ISDA master agreement dated as of January 27, 2010 between the Swap Counterparty and the Trust, together with any schedules and confirmations thereto, as amended, supplemented, modified, restated or replaced (whether or not with the same Swap Counterparty) from time to time.

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“Swap Counterparty” means Merrill Lynch Capital Services Inc. and its successors and permitted assigns, or, in the event the Trust at any time enters into a replacement Swap Agreement with a different counterparty, means such new counterparty.

“Term” means, in respect of a Lease, the period commencing on the commencement date thereof and ending on the day on which the Obligor is required under the terms of the Lease to return the Leased Equipment if the Obligor does not exercise any Obligor Option thereunder and, for greater certainty, includes any extension made in accordance with the terms of such Lease.

“Three Month Average Charge-Off Ratio” means, with respect to any Distribution Date, the average of the Charge-Off Ratios for such Distribution Date and the two immediately preceding Distribution Dates.

“Three Month Average Delinquency Ratio” means, with respect to any Distribution Date, the average of the Delinquency Ratios for such Distribution Date and the two immediately preceding Distribution Dates.

“Transaction Documents” means this Agreement, and any agreement, document, exhibit, notice or other communication which has at any time been delivered by the Seller to the Trust pursuant hereto, including the Master Lease, the Swap Agreement, and all agreements and documents required thereunder.

“Trust Expenses” means the fees and expenses payable to the following Persons: (i) the Issuer Trustee, (ii) the Indenture Trustee, (iii) auditors of the Trust, and (iv) legal counsel of the Trust, as well as all fees, costs and expenses related to the enforcement of the Trust’s rights under the Transaction Documents.

“Trust Indenture” means the Trust Indenture made as of November 16, 2009, among the Trust and Computershare Trust Company of Canada, a trust company established under the laws of Canada as Indenture Trustee, as in effect on the date hereof, and as amended, supplemented, modified, restated or replaced from time to time with the consent of the parties hereto, including pursuant to the Series 2010-1 Supplement.

“U.S. Dollar Collections Account” means the U.S. Dollar account (or U.S. Dollar sub-account of the account) of the Trust designated in Schedule E as the U.S. Dollar Collections Account for purposes hereof or such other account or accounts with an Eligible Institution which is designated by notice to the Seller from the Trust as the U.S. Dollar Collections Account for purposes hereof.

“U.S. Dollars” or “U.S. $” means the lawful currency of the United States of America.

“Weighted Average Cost of Funds” means, for any Distribution Date, the product of (a) the quotient of the aggregate amount of interest payable on the Notes on such Distribution Date, divided by the Outstanding Principal Note Balance as of the first day of the immediately preceding Interest Period (determined after all payments and

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applications on such date) and (b) a fraction, the numerator of which is the Weighted Average Day Count and the denominator of which is the number of days in the Interest Period ending on such Distribution Date.

“Weighted Average Day Count” means, for any Distribution Date, a fraction, (a) the numerator of which is the sum of (i) the product of 360 and the Outstanding Principal Note Balance of the Class A-1b Notes on such date, plus (ii) the product of 365 and the sum of the aggregate Outstanding Principal Note Balance of (A) the Class A-2a Notes, (B) the Class A-2b Notes, (C) the Class A-1a Notes and (D) the Class B Notes on such date, and (b) the denominator of which is the aggregate Outstanding Principal Note Balance of all Notes on such date.

“Yield Shortfall” means, with respect to any Yield Shortfall Lease for any Distribution Date, the quotient of (i) the excess of (x) the Minimum Yield Rate with respect to such Yield Shortfall Lease for such Distribution Date over (y) the sum of: (A) if the Annual Percentage Rate for such Lease at such time is then based on a floating rate (whether or not it can be converted to a fixed rate on certain terms as stated in the Lease) the Lowest Case Benchmark plus the applicable Lease Margin as of such Distribution Date, and (B) if the Annual Percentage Rate for such Lease at such time is then based on a fixed rate, the Annual Percentage Rate, in either event, divided by (ii) 12.

“Yield Shortfall Lease” means, as of any Distribution Date, each Securitized Lease in respect of which (i) if the Annual Percentage Rate for such Lease at such time is then based on a floating rate (whether or not it can be converted to a fixed rate on certain terms as stated in the Lease), the sum of (A) the Lowest Case Benchmark, plus (B) the applicable Lease Margin at such time, plus (C) the applicable Management Fee Yield at such time, is less than the Minimum Yield Rate for such Distribution Date; and (ii) if the Annual Percentage Rate for such Lease at such time is then based on a fixed rate, the Annual Percentage Rate plus the applicable Management Fee Yield is less than the Minimum Yield Rate for such Distribution Date.

“Yield Shortfall Lease Average Balance” means, with respect to any Yield Shortfall Lease for any Distribution Date, the excess of (a) the Net Book Value of such Yield Shortfall Lease as of the last day of the immediately preceding Reporting Period over (b) the product of (i) the quotient of (A) the Net Book Value of such Yield Shortfall Lease as of the last day of the immediately preceding Reporting Period divided by (B) the Remaining Lease Term with respect to such Yield Shortfall Lease for such Distribution Date, (ii) the Yield Shortfall Lease Remaining Term with respect to such Yield Shortfall Lease for such Distribution Date minus 1 and (iii) 50%.

“Yield Shortfall Lease Break Even Amount” means, with respect to any Yield Shortfall Lease for any Distribution Date, the product of (a) the Yield Shortfall Lease Remaining Term with respect to such Yield Shortfall Lease for such Distribution Date, (b) the Yield Shortfall with respect to such Yield Shortfall Lease for such Distribution Date and (c) the Yield Shortfall Lease Average Balance with respect to such Yield Shortfall Lease for such Distribution Date.

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“Yield Shortfall Lease Remaining Term” means, with respect to any Yield Shortfall Lease for any Distribution Date, the excess (rounded up to the next integer) of (a) the Remaining Lease Term with respect to such Yield Shortfall Lease for such Distribution Date over (b) the quotient of (i) the product of (A) the Management Fee payable in respect of such Yield Shortfall Lease and (B) the Remaining Lease Term with respect to such Yield Shortfall Lease for such Distribution Date divided by (ii) the product of (A) the Net Book Value of such Yield Shortfall Lease as of the last day of the immediately preceding Reporting Period and (B) the Yield Shortfall with respect to such Yield Shortfall Lease for such Distribution Date.

“Yield Supplement Account” means the account in the name of the Trust (or in the name of the Indenture Trustee in trust for the Trust) designated in Schedule E as the Yield Supplement Account for purposes hereof (or such other account or accounts with an Eligible Institution which is designated by notice to the Seller from the Trust as the Yield Supplement Account for purposes hereof), the balance of which shall be held subject to the sole control of the Trust or the Indenture Trustee and applied in accordance with the terms of this Agreement.

“Yield Supplement Draw Amount” means, for any Distribution Date, the aggregate, for each Securitized Lease of:

BLB * the greater of (i) nil; and (ii) [CMYR – (LCB + Lease Margin + (12 * (MF / BLB)))] / 12 (if the Annual Percentage Rate for such Lease at such time is then based on a floating rate (whether or not it can be converted to a fixed rate on certain terms as stated in the Lease)); and

BLB * the greater of (i) nil; and (ii) [CMYR – (APR + (12 * (MF / BLB)))] / 12 (if the Annual Percentage Rate for such Lease at such time is then based on a fixed rate)

where:

“BLB” means the Net Book Value of the relevant Lease as of the first day of the Reporting Period then most recently ended,

“CMYR” means Servicing Fee + Backup Servicing Fee + A2 Coupon * (1 - actual beginning OC Pct - actual beginning B Pct) + B Coupon * actual beginning B Pct

“LCB” means the Lowest Case Benchmark,

“Lease Margin” means the Lease Margin for such Lease as of such Distribution Date,

“MF” means the Management Fee for such Lease,

“APR” means the Annual Percentage Rate for such Lease,

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“Servicing Fee” means, on any date, the Servicer Fee on such date, or if a Replacement Servicer has then been appointed, the Replacement Servicer Fee,

“Back-Up Servicing Fee” means, on any date prior to the appointment of a Replacement Servicer, the Back-Up Servicer Fee, and after the appointment of a Replacement Servicer, means nil,

“A2 Coupon” means the weighted average of the Class A-2a Interest Rate and the Class A-2b Interest Rate (each as defined in the Series 2010-1 Supplement),

“actual beginning OC Pct” means 1- ((the Outstanding Principal Note Balance) divided by (the Pool Balance)), in each case determined as of the first day of the immediately preceding Reporting Period,

“actual beginning B Pct” means the outstanding principal balance of the Class B Notes divided by the Pool Balance, in each case determined as at the first day of the immediately preceding Reporting Period, and

“B Coupon” means the Class B Interest Rate (as defined in the Series 2010-1 Supplement).

Section 1.2       References to Statutes.

          Unless otherwise specified herein, all references herein to any statute or any provision thereof shall mean such statute or provision as the same may be amended, re enacted or replaced from time to time.

Section 1.3       Extended Meanings.

          Words importing the singular number only will include the plural and vice versa and words importing any gender will include all genders. Unless the context requires otherwise, a reference in this Agreement to any agreement, instrument or declaration means such agreement, instrument or declaration as the same may be amended, supplemented, modified, restated or replaced from time to time. Any reference herein to “include”, “includes” or “including” means “include without limitation”, “includes without limitation” or “including without limitation”, as applicable. References to a Person are also to its permitted successors and assigns.

Section 1.4       Sections and Headings.

          The table of contents does not form part of this Agreement. The division of this Agreement into Articles and Sections and the insertion of headings are for convenience of reference only and will not affect the construction or interpretation of this Agreement. The terms “this Agreement”, “hereof”, “hereunder” and similar expressions refer to this agreement and not to any particular Article, Section or other portion of this agreement and include any agreement or instrument supplemental or ancillary hereto. Unless something in the subject matter or context is inconsistent therewith, references herein to Articles and Sections are to Articles and Sections of this Agreement.

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Section 1.5       Accounting Principles.

          Where the character or amount of any asset or liability or item of revenue or expense is required to be determined, or any consolidation or other accounting computation is required to be made for the purpose of this Agreement, such determination or calculation will, to the extent applicable and except as otherwise specified herein or as otherwise agreed in writing by the parties, be made in accordance with GAAP applied on a consistent basis. Wherever in this Agreement reference is made to “GAAP”, such reference will be deemed to be to generally accepted accounting principles from time to time approved by the Canadian Institute of Chartered Accountants, or, where so elected by the relevant Person, as approved by the Financial Accounting Standards Board, or in either event any successor institute, until such time as the reporting entity in question is required to or chooses to adopt International Financial Reporting Standards, in which case such reference will be deemed to be to the International Financial Reporting Standards as published by the International Accounting Standards Board, or any successor accounting standards board, in each case, applicable as at the date on which such calculation is made or required to be made in accordance with GAAP. To the extent that the definitions of accounting terms in this Agreement or in any certificate or other documents are inconsistent with the meaning of such terms under GAAP, the definitions in this Agreement or in any such certificate or other document shall prevail.

Section 1.6       References to Acts of the Trust or the Issuer Trustee.

          For greater certainty, where any reference is made in this Agreement to an act to be performed by, an appointment to be made by, an obligation or liability of, an asset or right of, a discharge or release to be provided by, a suit or proceeding to be taken by or against, or a covenant, representation or warranty (other than relating to the constitution or existence of the Trust) by or with respect to either: (i) the Trust; or (ii) the Issuer Trustee, such reference will be construed and applied for all purposes as if it referred to an act to be performed by, an appointment to be made by, an obligation or liability of, an asset or right of, a discharge or release to be provided by, a suit or proceeding to be taken by or against, or a covenant, representation or warranty (other than relating to the constitution or existence of the Trust) by or with respect to, the Issuer Trustee as trustee of the Trust or any agent appointed by it to act on its behalf.

Section 1.7       Proper Law of Agreement.

          This Agreement will be governed by the laws of the Province of Ontario and the laws of Canada applicable therein.

Section 1.8       Invalidity of Provisions.

          Save and except for any provision or covenant contained herein which is fundamental to the subject matter of this Agreement (including those that relate to the payment of moneys), the invalidity or unenforceability of any provision or covenant hereof or herein contained will not affect the validity or enforceability of any other provision or covenant hereof or herein contained and any such invalid or unenforceable provision or covenant will be deemed to be severable.

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Section 1.9       Currency.

          Unless otherwise provided, all amounts herein are stated in Canadian Dollars.

Section 1.10      Computation of Time Periods.

          Unless otherwise provided herein or in any Transaction Documents, in the computation of a period of time from a specified date to a later specified date, the word “from” means “from and including” and each of the words “to” and “until” means “to but excluding”.

Section 1.11      Entire Agreement.

          This Agreement, together with the Transaction Documents, contains the entire agreement between the parties relative to the subject matter hereof and supersedes all prior and contemporaneous agreements, term sheets, commitments, understandings, negotiations, and discussions, whether oral or written. There are no warranties, representations or other agreements between the parties in connection with the subject matter hereof except as specifically set forth herein or in the Transaction Documents.

Section 1.12      Summary of the Transactions.

          The transactions described in this Agreement and the Transaction Documents involve firstly, the purchase by the Trust and the sale by the Seller of Leased Equipment subject to Leases for an amount equal to the Closing Payment and subject to the terms and conditions set forth in Article 2; secondly, the execution and delivery of the Master Lease applicable to such Leased Equipment; thirdly, the purchase by the Seller and the sale by the Trust of such Leased Equipment (but not the related Lease Rights) for a purchase price equal to the Sale Price and subject to the concurrent lease by the Trust from the Seller of such Leased Equipment pursuant to the terms of the Master Lease, the continuity of the Trust’s interest in the Leased Equipment being maintained by virtue of the Master Lease; and fourthly, the prepayment by the Trust of a portion of the rentals arising under the Master Lease in an amount equal to the Master Lease Prepayment Amount, with the balance of the rentals arising under the Master Lease to be paid on the terms and conditions set forth in Article 6.

ARTICLE 2
PURCHASE OF LEASED EQUIPMENT

Section 2.1       Purchase.

(1) On the Closing Date, and subject to the terms and conditions hereof (including compliance by the Seller with the conditions precedent set out in Sections 3.1 and 3.2 and compliance by the Trust with the conditions precedent set out in Section 3.3), the Seller shall sell to the Trust, and the Trust shall purchase from the Seller, (i) all of the Seller’s beneficial right, title and interest in and to the Leased Equipment listed in Schedule E hereto subject to Leases, including the related Lease Rights, and (ii) without limitation, all of the Seller’s rights under the LP Transfer Agreements (including the

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powers of attorney contained therein) but only to the extent relating to the Purchased Assets described in clause (i), for a total price equal to the Closing Payment.

(2)

Immediately upon the completion of the Purchase, the Seller and the Trust shall execute and deliver the Master Lease and the Seller shall pay to the Trust the Sale Price. Upon such payment, all of the Trust’s beneficial right, title and interest in and to the Securitized Equipment, but not any right, title or interest in or to the related Lease Rights or the assets described in Section 2.1(1)(ii), shall be sold, transferred, conveyed and assigned to the Seller effective as at the Closing Date, the continuity of the Trust’s interest in such Securitized Equipment being maintained by virtue of the Master Lease, and the Trust shall convey the Securitized Equipment, but not any right, title or interest in or to the related Lease Rights or the assets described in Section 2.1(1)(ii), to the Seller by delivering to the Seller a bill of sale substantially in the form of Schedule F-2.

Section 2.2       Payments.

          The Closing Payment and Sale Price will, as the Seller and the Trust mutually agree, be paid on the Closing Date in cash or by demand, non-interest bearing promissory notes. The Master Lease Prepayment Amount in respect of the Purchase will, as the Seller and the Trust mutually agree, be paid on the Closing Date in cash or in immediately available funds by cheque, bank draft or wire transfer. Any GST and or QST applicable to the Master Lease Prepayment Amount will be paid by the Trust by way of amounts loaned to it from the Seller, acknowledgement of which shall be substantially in the form of Schedule I.

Section 2.3       Adjustment to Portfolio.

          If, at any time after the Closing Date, the Trust and the Seller determine that, on the Cut-Off Date, the outstanding Net Book Value of the Securitized Equipment was, other than as a result of one or more Securitized Leases not constituting an Eligible Lease, inaccurately reflected in the Closing Payment, Sale Price or Master Lease Prepayment Amount, the Seller or the Trust, as applicable, shall pay the appropriate amount to the other on the next following Distribution Date, as an adjustment to the Closing Payment (and the Sale Price and Master Lease Prepayment Amount, if applicable). In the case of payment by the Seller, such payment shall be made, together with interest at an annual rate equal to the Applicable Rate calculated from the Cut-Off Date to such Distribution Date, by deposit to the Collections Account, and any such amount owing by the Trust shall be paid in accordance with Section 6.1 and only to the extent of amounts available to be paid to the Seller under Section 6.1(3)(h). Upon payment of such amount, any incorrectness in any representation or warranty of the Seller or the Servicer contained in the Transaction Documents in respect of which such payment has been made, and the occurrence of an Event of Termination or Servicer Default as a result thereof shall be deemed to have been rectified and waived.

Section 2.4       Grant of Security.

(1) As general and continuing collateral security for the due payment and performance of all present and future indebtedness, liabilities and obligations of every kind which the Seller

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	has from time to time incurred or may be under to the Trust under this Agreement, including any liability for damages arising from or relating to the breach, disclaimer, resiliation or repudiation of this Agreement or the Master Lease by the Seller, the Seller hereby grants to the Trust a security interest (and, with respect to corporeal movable property situated in the Province of Quebec and forming part of the Securitization Collateral (as defined below), grants a movable hypothec to the extent of the sum of $600,000,000 with interest thereon from the date hereof at the rate of 25% per annum) (collectively, the “Securitization Security Interests”) in all of its right, title and interest in, to and under all Securitized Equipment and all proceeds thereof (collectively, the “Securitization Collateral”).
(2)	The Seller confirms that value has been given. The Seller and the Trust agree that the Securitization Security Interests will attach immediately to any Securitization Collateral in which the Seller has any interest on the date of this Agreement and, in respect of any after-acquired Securitization Collateral, forthwith at the time that the Seller acquires an interest in such after-acquired Securitization Collateral, and that there is no agreement to postpone attachment.
(3)	Notwithstanding the grant of security in this Section 2.4, the Servicer will have the right to collect any claim forming part of the Securitization Collateral in accordance with and subject to the terms and conditions of this Agreement.

Section 2.5       Intercreditor Agreement.

          Each of the parties hereto acknowledges and agrees that this Agreement constitutes a Financing Transaction for purposes of the Intercreditor Agreement.

ARTICLE 3
CONDITIONS PRECEDENT

Section 3.1       Conditions Precedent to Trust’s Delivery of Agreement.

          Prior to the delivery of this Agreement by the Trust, the Seller shall deliver to the Trust, unless waived by it, the following documents, in form and substance satisfactory to the Trust:

(a) a certificate of an officer of each of (i) the Seller (or of a general partner of the Seller), (ii) each partner of the Seller, (iii)the Servicer and (iv) the Performance Guarantor, in each case attaching copies of its articles and by-laws (or limited partnership agreement, as applicable), an appropriate resolution of its directors or partners and the names and true signatures of the officers authorized to sign this Agreement and the other documents and certificates contemplated hereby on its behalf, on which certificate the Trust shall be entitled to conclusively rely until such time as the Trust receives from the Seller, such partners, the Servicer, or the Performance Guarantor, as the case may be, a replacement certificate meeting the requirements of this Section 3.1(a);

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(b)	a certificate of compliance issued under the Canada Business Corporations Act in respect of the Servicer, a certificate of status under the Manitoba Partnerships Act in respect of the Seller and a certificate of good standing issued by the State of Maryland in respect of the Performance Guarantor;
(c)	executed copies of this Agreement, the Swap Agreement, the Back-Up Servicer Agreement, the Intercreditor Agreement and the LP Transfer Agreements; and
(d)	such other approvals, opinions or documents as the Trust may reasonably request.

Section 3.2       Trust’s Conditions Precedent to the Purchase.

          The Trust’s obligation to make the Purchase of Purchased Assets and Securitized Equipment will be conditional upon the following:

(a)	no Event of Termination shall have occurred and be continuing;
(b)	all conditions precedent set out in the Trust Indenture to the issuance of the Notes shall have been satisfied;
(c)	the Class A-1a Notes and the Class A-1b Notes will have each been rated R-1 (high) by DBRS, and P-1 by Moody’s, the Class A-2a Notes and the Class A-2b Notes will have each been rated AAA by DBRS, and Aaa by Moody’s, and the Class B Notes will have been rated A by DBRS, and A2 by Moody’s;
(d)	the Seller having delivered the following:

(i)	the Agreed Upon Procedures Report in respect of the Securitized Leases addressed to, among others, the initial Noteholders and DBRS and dated within five business days of the Closing Date;
(ii)	a certificate of the Seller, the Servicer and the Performance Guarantor to the effect that, as of the Closing Date and after giving effect to the Purchase on the Closing Date (x) the representations and warranties of the Seller, the Servicer and the Performance Guarantor set out in Article 4 are true and correct; and (y) no event has occurred and is continuing, or would result from the Purchase, which constitutes an Event of Termination or would constitute an Event of Termination but for the requirement that notice be given or time elapse or both;
(iii)	an executed copy of the Master Lease in respect of the Purchase;
(iv)	a bill of sale substantially in the form of Schedule F-1;
(v)	a bill of sale substantially in the form of Schedule F-2;

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(vi)	purchase exemption certificates relating to the exigibility of provincial sales tax with respect to each applicable provincial jurisdiction in which any of the Securitized Equipment is located;
(vii)	favourable legal opinions of (i) Blake, Cassels & Graydon LLP, counsel for the Seller and the Servicer, (ii) in-house counsel for the Performance Guarantor, and (iii) as to certain matters of Manitoba law, Aikins, MacAulay & Thorvaldson LLP, in each case in form and substance satisfactory to the Trust;
(viii)	an executed copy of the appropriate confirmation under the Swap Agreement;
(ix)	evidence of compliance with or exemption from the Bulk Sales Act (Ontario), except sections 3 and 7 thereof;
(x)	reports showing the results of searches conducted against the Seller, the Servicer and the Limited Partner under applicable personal property security registers in each Relevant Jurisdiction, together with executed copies of all discharges or releases of prior Security Interests relating to Purchased Assets and Securitized Equipment that are then to be sold hereunder; provided that PHH VMS may establish that any particular registration does not affect any such Purchased Assets or Securitized Equipment, by delivering a letter or acknowledgment signed by the applicable secured party or, as to the matters addressed in the officer’s certificate attached at Schedule H hereto, by delivery of an officer’s certificate in such form signed by a Responsible Officer attesting thereto; and
(xi)	copies of verification statements or other filings filed in each Relevant Jurisdiction (other than Quebec, in respect of which such filings shall be made promptly (and in any event, within 5 Business Days) following the Closing Date) sufficient to perfect or render opposable the interests of the Trust in the related Lease Rights;

(e)	the Seller having made the loan to the Trust for the payment of any GST and or QST applicable to the Master Lease Prepayment Amount, as contemplated by Section 2.2; and
(f)	such other approvals, opinions and documents as the Trust may reasonably request.

Section 3.3       Seller’s Condition Precedent to the Purchase.

          Prior to the Purchase, (i) the Seller shall have received from the Trust, unless waived by it, purchase exemption certificates relating to the exigibility of provincial sales tax with respect

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to each applicable provincial jurisdiction in which any of the Securitized Equipment is located, and (ii) the Trust shall have entered into the Intercreditor Agreement.

ARTICLE 4
GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS

Section 4.1       Representations and Warranties of the Seller and Servicer.

(1) Seller Representations. The Seller represents and warrants to the Trust, and acknowledges that the Trust has in reliance thereon entered into this Agreement and will complete the Purchase hereunder, that, as at the Closing Date:

(a)	the Seller is a limited partnership validly formed and subsisting under the laws of Manitoba, in each case with full power and authority to enter into and perform its obligations under this Agreement and all Transaction Documents delivered by it hereunder and to do all acts and things as are required or contemplated hereunder and is duly qualified to carry on business in each jurisdiction in which the failure to do so could reasonably be expected to have a Material Adverse Effect;
(b)	each of the Partners is a subsisting corporation under the laws of Manitoba, with, (i) in the case of the Managing GP, full power and authority to, as general partner of the Seller, enter into and perform its obligations under this Agreement and all Transaction Documents delivered by it hereunder; and (ii) in the case of the Limited Partner, full power and authority to enter into and perform its obligations under the LP Transfer Agreements;
(c)	each of this Agreement and the Master Lease has been duly executed and delivered by (or on behalf of) it and constitutes a legally binding obligation of the Seller enforceable against it in accordance with its terms, and each of the LP Transfer Agreements has been duly executed and delivered by the Limited Partner and constitutes a legally binding obligation of the Limited Partner enforceable against it in accordance with its terms, in each case subject to applicable bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting creditors’ rights generally and equitable principles of general application (regardless of whether enforcement is sought in a proceeding at law or in equity);
(d)	the Seller will be registered for GST purposes under Part IX of the Excise Tax Act (Canada) and for QST purposes under the Act respecting the Quebec sales tax;
(e)	each of the Securitized Leases is an Eligible Lease and, as of the Cut-Off Date, the information in respect thereof set out in Schedule E is in all material respects true and correct;
(f)	the Securitized Leases (other than those whose Obligors are located in the Province of Quebec) have been randomly selected from the Eligible Leases available to be selected as Securitized Leases (or constitute all Eligible Leases

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	available to be selected as Securitized Leases), provided that, in connection with the selection of Securitized Leases originated before April 1, 2009, such Securitized Leases were selected from the available Eligible Leases in reverse order of their month of origination (or constitute all such Eligible Leases available to be selected as Securitized Leases);
(g)	the Seller or the Managing General Partner have taken all action necessary to authorize the execution, delivery and performance of all Transaction Documents to which the Seller is a party and the Limited Partner has taken all action necessary to authorize the execution, delivery and performance of the LP Transfer Agreements;
(h)	the execution, delivery, compliance with and performance by the Seller of the terms and conditions of the Transaction Documents to which it is a party, and the execution, delivery, compliance with and performance by the Limited Partner of the terms and conditions of the LP Transfer Agreements, will not, in either case:

(i)	result in a violation of any Applicable Laws (including any privacy laws) in any material respect;
(ii)	result in a breach of, conflict with or constitute a default under any loan agreement, indenture, trust deed or any other agreement or instrument to which the Seller or the Limited Partner is a party or by which it is bound (including the LP Partnership Agreement) which would reasonably be expected to have a Material Adverse Effect;
(iii)	require any authorization, order, approval or consent of, or any notice to or filing with, any Governmental Authority having jurisdiction except such as has already been given, filed or obtained, as the case may be; or
(iv)	result in or require the creation of any Security Interest, other than in favour of the Trust;

(i)

the documents and instruments delivered on the Closing Date will be effective to validly convey to the Trust a valid and perfected ownership interest in the Lease Rights related to the Securitized Leases, free and clear of any Security Interests arising through the Seller;

(j)

the Securitized Equipment (or, in the case of Securitized Equipment that was sold during the period from the Cut-Off Date to the Closing Date after the return thereof by the lessee under the related PHH Master Lease, the Lease Rights in connection therewith) was validly transferred to the Seller by the Limited Partner, and was transferred by PHH VMS to the Limited Partner, in each case, free and clear of any Security Interest;

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(k)	the location of the chief executive office and chief place of business of the Seller and of the Limited Partner is Ontario;
(l)	all information provided by the Servicer (on behalf of the Seller) to the Trust or its advisors or to the Rating Agencies (or known to the Servicer in the case of any document not furnished by or on behalf of the Servicer) in connection with the transactions contemplated by the Transaction Documents, taken as a whole, does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make such information, in light of the circumstances under which it was provided, not misleading;
(m)	all filings, recordings, notifications, registrations or other actions under all Applicable Law have been made or taken (subject to certain formalities under the Civil Code (Quebec)), and all approvals obtained, in each Relevant Jurisdiction to give legal effect to the transactions contemplated by the Transaction Documents and the LP Transfer Agreements (except where the failure to have done so would not have a Material Adverse Effect) and to validate, preserve, perfect and protect the ownership interest of the Trust in the Lease Rights relating to the Securitized Leases and the Securitization Security Interests;
(n)	there are no proceedings or investigations pending or, to the knowledge of the Seller, threatened against the Seller at law or in equity or before any arbitrator or before any Governmental Authority (i) asserting the invalidity of any Transaction Document; (ii) seeking to prevent consummation of any of the transactions contemplated in the Transaction Documents; (iii) seeking any determination or ruling that would reasonably be expected to have a Material Adverse Effect; or (iv) seeking to affect adversely, challenge or dispute filing positions taken by the Seller with respect to the income or capital tax attributes of the transactions contemplated by the Transaction Documents or the Securitized Leases under any federal or provincial tax legislation;
(o)	the Seller is a Canadian partnership within the meaning of the Income Tax Act (Canada);
(p)	no Person has any written or oral agreement or option or any right or privilege capable of becoming an option or agreement for the purchase or acquisition from the Seller of any of the Securitized Leases or related Leased Equipment, other than (i) the Trust, (ii) the Obligors pursuant to their Obligor Options, or (iii) any Person to whom PHH VMS has agreed to sell Securitized Equipment that was returned by the lessee on or after the Cut-Off Date and prior to the Closing Date (as a result of the return of such equipment to PHH VMS or the Servicer pursuant to the terms of the related Lease); and
(q)	none of the Securitized Leases is a Sub Prime Lease.

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(2) Servicer Representations. The Servicer represents and warrants to the Trust, and acknowledges that the Trust has in reliance thereon entered into this Agreement and will complete the Purchase hereunder, that, as at the Closing Date:

(a)	the Servicer is a subsisting corporation under the laws of Canada, with full corporate power and authority to enter into and perform its obligations under this Agreement and all Transaction Documents delivered by it hereunder and the LP Transfer Agreements to which it is a party and to do all acts and things as are required or contemplated hereunder and is duly qualified to carry on business in each jurisdiction in which the failure to do so would have a Material Adverse Effect;
(b)	the Servicer has taken all corporate action necessary to authorize the execution, delivery and performance of all Transaction Documents and the LP Transfer Agreements to which the Servicer is a party;
(c)	each of this Agreement and the LP Transfer Agreements to which the Servicer is a party has been duly executed and delivered by it and constitutes a legally binding obligation of the Servicer enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting creditors’ rights generally and equitable principles of general application (regardless of whether enforcement is sought in a proceeding at law or in equity);
(d)	its consolidated balance sheet as at the date of its most recently completed fiscal year and the related statements of income and retained earnings for such fiscal year, certified by its auditors, copies of which have been furnished to the Trust, fairly present its consolidated financial condition as at such date and the consolidated results of its operations for the period ended on such date, all in accordance with GAAP; and since such date, there has been no change in any such condition or operations which would have a Material Adverse Effect;
(e)	all information provided by the Servicer to the Trust or its advisors or to the Rating Agencies (or known to the Servicer in the case of any document not furnished by or on behalf of the Servicer) in connection with the transactions contemplated by the Transaction Documents, taken as a whole, does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make such information, in light of the circumstances under which it was provided, not misleading;
(f)	all information provided in each Portfolio Report is or will be accurate in all material respects on the date such Portfolio Report is delivered;
(g)	the records and materials containing particulars of the Obligors, the Securitized Leases and the Leased Equipment made available to the Trust from time to time, when taken as a whole, will be true and correct in all material respects;

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(h)	the computer records of the Servicer which contain particulars of the Securitized Leases and the Leased Equipment will contain notations, marks or other designations sufficient to identify that the Lease Rights have been assigned to the Trust and that the Leased Equipment has been sold to the Seller;
(i)	the location where the books, records, documents and originals of Securitized Leases are being maintained is in the custody of the Servicer at its address shown herein;
(j)	there are no proceedings or investigations pending or, to the knowledge of the Servicer, threatened against the Servicer at law or in equity or before any arbitrator or before any Governmental Authority (i) asserting the invalidity of any Transaction Document; (ii) seeking to prevent consummation of any of the transactions contemplated in the Transaction Documents; (iii) seeking any determination or ruling that would reasonably be expected to have a Material Adverse Effect; or (iv) seeking to affect adversely or challenge or dispute filing positions taken by the Servicer with respect to the income or capital tax attributes of the transactions contemplated by the Transaction Documents or the Securitized Leases under any federal or provincial tax legislation;
(k)	the Servicer is not a non-resident of Canada within the meaning of the Income Tax Act (Canada);
(l)	the Servicer is registered to collect provincial sales tax and harmonized sales tax in all applicable provinces of Canada;
(m)	the Servicer’s GST registration number under Part IX of the Excise Tax Act (Canada) is 104164223 RT0001;
(n)	the execution, delivery, compliance with and performance by the Servicer of the terms and conditions of the Transaction Documents and the LP Transfer Agreements to which it is a party, will not:

(i)	result in a violation of any Applicable Laws (including any privacy laws) in any material respect;
(ii)	result in a breach of, conflict with or constitute a default under any loan agreement, indenture, trust deed or any other agreement or instrument to which the Servicer is a party or by which it is bound which would reasonably be expected to have a Material Adverse Effect;
(iii)	require any authorization, order, approval or consent of, or any notice to or filing with, any Governmental Authority having jurisdiction except such as has already been given, filed or obtained, as the case may be; or

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(iv) result in or require the creation of any Security Interest, other than in favour of the Trust; and

(o) the Servicer’s QST registration number under the Act respecting the Quebec sales tax is 1001439118 TQ0001.

(3) Survival. The representations and warranties set forth in Sections 4.1(1) and 4.1(2) will survive the Closing Date and remain in full force and effect for the benefit of the Trust.

Section 4.2       Ineligible Leases.

(1) If, at any time after the Closing Date, the Seller or the Servicer determines that any Securitized Lease was not an Eligible Lease as at the Cut-off Date, or for any reason it is determined that the Trust did not acquire ownership of the related Lease Rights free and clear of any Security Interest arising through or under the Seller or the Servicer (in each case, an “Ineligible Securitized Lease”), the Seller or the Servicer, as applicable, will notify the Trust and the Financial Services Agent promptly in writing. On the Distribution Date next succeeding the Reporting Period in which such determination is made, the Seller will deposit to the Collections Account an amount equal to (i) the Net Book Value of the Ineligible Securitized Lease, plus (ii) all accrued and unpaid interest then owing under such Lease, whereupon (and in consideration thereof) the Trust will be deemed to have sold, without the necessity of any further instrument or formality, the rights of the Trust under the Master Lease in respect of the related Leased Equipment, together with the related Lease Rights to the Seller free and clear of all Security Interests arising through the Trust but otherwise on an “as is, where is” basis without recourse to, or representation or warranty of, the Trust. The amounts required to be deposited in the Collections Account pursuant to Section 4.2(1) constitute a refund of the Master Lease Prepayment Amount in respect of the related Leased Equipment.

(2) Upon such payment, any incorrectness of any representation and warranty of the Seller or the Servicer contained in the Transaction Documents by virtue of such Ineligible Securitized Lease shall be deemed to have been rectified.

Section 4.3       General Covenants of the Seller.

          The Seller covenants with the Trust:

(a)	to preserve and maintain its existence, rights, franchises and privileges and qualify and remain qualified to carry on business in each jurisdiction, except where the failure to do so would not reasonably be expected to have a Material Adverse Effect;
(b)	to provide the Trust with at least 10 Business Days prior notice of any change to its name or the location of its chief executive office;

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(c)	to comply in all respects with all Applicable Laws (including privacy laws) relating to the Seller, the Securitized Leases and the Securitized Equipment, except where the failure to do so would not have a Material Adverse Effect;
(d)	to not sell, assign (by operation of law or otherwise) or dispose of any part of the Securitized Leases or Securitized Equipment or create or suffer to exist any Security Interest upon or with respect to any of the Securitized Leases or Securitized Equipment except for Permitted Liens;
(e)	to permit the Trust, the Indenture Trustee or a Replacement Servicer, from time to time during normal business hours and on two Business Days prior written notice, to inspect, audit, check and make abstracts from the Seller’s books, accounts, records or other papers pertaining to the Securitized Leases or Securitized Equipment;
(f)	to make notations in its books, records, documents and instruments relating to the Securitized Leases or Securitized Equipment to evidence the interest of the Trust therein;
(g)	to, from time to time at its expense, promptly execute and deliver all instruments and documents and make or cause to be made all filings, recordings, registrations and take all other actions in each Relevant Jurisdiction necessary to validate, preserve, perfect or protect the ownership interest of the Trust in the Securitized Leases and Lease Rights and the Securitization Security Interests; provided that neither the Seller nor the Servicer shall be required, whether under this paragraph (g) or otherwise, to amend any registrations or make new registrations against any Obligors to reflect any of the transactions contemplated herein or in the LP Transfer Agreements, unless such amendments or new registrations are required under Applicable Law in order to ensure the continued perfection of the Trust’s interest in the Securitized Leases and Lease Rights and the Securitization Security Interests;
(h)	to maintain the Trust as a loss payee, as its interest may appear, or an additional named insured under all policies of insurance, if any, carried by the Seller (or by the Servicer on behalf of the Seller) in respect of third party liability claims applicable to or relating to the Leased Equipment;
(i)	to furnish to the Trust and the Indenture Trustee:

(i)	its unaudited financial statements within 120 days of each fiscal year end and its unaudited quarterly financial statements within 60 days of each fiscal quarter end;
(ii)	as soon as possible and in any event within two Business Days after the Seller becomes aware of the occurrence of an Event of Termination or an event which, with notice or lapse of time or both would constitute an

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	Event of Termination, a statement of an appropriate officer of the Seller setting forth the relevant details and any action which it has taken or is proposing to take in respect thereof; and
(iii)	as soon as possible and in any event within 10 Business days after the Seller becomes aware of a transfer of the direct ownership of a Partner or an Insolvency Event occurring with respect to a Partner;

(j)	to promptly notify the Trust and the Rating Agencies of any amendment, limitation or restriction of any license issued to the Seller by a regulatory authority relating to the carrying on by the Seller of its business if such amendment, limitation or restriction would have a Material Adverse Effect;
(k)	to ensure that the rate quoted to an Obligor upon receipt of the exercise of its right to fix the rate underlying any Securitized Lease shall be the rate provided for under the related Lease or PHH Master Lease Agreement;
(l)	subject to compliance with GAAP, to record the sale of the Purchased Assets to the Trust as a sale for financial accounting and other reporting purposes or, if GAAP does not permit such presentation, to disclose in its audited financial statements that the Purchased Assets have been sold to the Trust, in form and substance acceptable to the Trust;
(m)	to not enter into any Financing Transaction without satisfying the Rating Agency Condition in respect of the Notes; and
(n)	to timely and fully perform and comply with all material terms, covenants and other provisions of the Securitized Leases required to be performed by and observed by the Seller thereunder.

Section 4.4       General Covenants of the Performance Guarantor.

          The Performance Guarantor covenants with the Trust:

(a)

except as permitted pursuant to Section 9.3, to (i) preserve and maintain its corporate existence (except in the case of a merger or consolidation if the surviving entity assumes all of the Performance Guarantor’s obligations hereunder), rights, franchises and privileges and to qualify and remain qualified to carry on business in each jurisdiction in which the failure to do so would have a Material Adverse Effect; provided, however, nothing in this clause shall prohibit or limit in any respect transactions in the ordinary course of business of the Performance Guarantor or any of its Subsidiaries;

(b)

to comply with all Applicable Laws (including privacy laws) relating to the Performance Guarantor, except where the failure to do so would not have a Material Adverse Effect; and

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(c) to furnish to the Trust:

(i)	to the extent not publicly available, promptly after the sending or filing thereof, copies of all financial statements which the Performance Guarantor files with any securities commission or similar regulatory body;
(ii)	as soon as possible and in any event within ten Business Days after the Performance Guarantor becomes aware of the occurrence of an Event of Termination or an event which, with notice or lapse of time or both would constitute an Event of Termination, a statement of an appropriate officer of the Performance Guarantor setting forth the relevant details and any action which it has taken or is proposing to take in respect thereof; and
(iii)	promptly, from time to time, furnish to the Trust such documents, records, information or reports in respect of the Portfolio of Assets as may be in existence in written form, or, if available in databases maintained by the Performance Guarantor, as may be produced with existing software, as the Trust may from time to time reasonably request.

Section 4.5       Representations and Warranties of the Trust.

(1) The Trust represents and warrants to the Seller, the Servicer and the Performance Guarantor that, as at the Closing Date:

(a)	the Trust has been duly established as a trust pursuant to the laws of the Province of Ontario;
(b)	the Trust has all necessary power to enter into and perform its obligations under this Agreement and the Transaction Documents delivered by or on behalf of it hereunder;
(c)	the execution, delivery and performance by it or by the Financial Services Agent on its behalf, as applicable, of this Agreement and the Transaction Documents delivered by or on behalf of it hereunder and the consummation of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Trust;
(d)	the Trust is not a non-resident of Canada within the meaning of the Income Tax Act;
(e)	each of this Agreement, the Master Lease, the Back-Up Servicer Agreement and the Swap Agreement has been duly executed and delivered by it or by the Financial Services Agent on its behalf, as applicable, and constitutes a legally binding obligation of the Trust enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting creditors’ rights generally and to equitable principles of

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general application (regardless of whether enforcement is sought in a proceeding at law or in equity); and

(f)

the execution and delivery by it or by the Financial Services Agent on its behalf, as applicable, of this Agreement or any of the Transaction Documents delivered by or on behalf of it hereunder and compliance with their respective terms and conditions will not (i) result in a violation of its declaration of trust or any applicable law, rule, regulation, order, judgment, injunction, award or decree; (ii) result in a breach of, or constitute a default under, any loan agreement, indenture, trust deed or any other agreement or instrument to which the Trust is a party or by which it is bound; or (iii) require any approval or consent of, or any notice to or filing with, any Governmental Authority having jurisdiction except such as has already been given, filed or obtained, as the case may be.

(2) The representations and warranties set forth in Section 4.5(1) will survive the Closing Date and remain in full force and effect for the benefit of the Seller and the Performance Guarantor.

ARTICLE 5
SERVICING OF PORTFOLIO

Section 5.1       Appointment of Servicer.

          The Trust and the Seller each hereby appoint the Servicer to be its agent for the purposes of servicing the Securitized Leases and the rest of the Portfolio of Assets as set out in this Article 5. The Servicer may subcontract with any other Person for the performance of any of its duties hereunder, provided that such delegation will apply to all like Leases owned or serviced by the Servicer (except in connection with the enforcement of any particular Securitized Lease). If the Servicer delegates any of its duties under the Transaction Documents, the Servicer will remain liable to the Trust for the performance of all duties and obligations so delegated and the acts and omissions of any such delegatee (in its capacity as such) insofar as they affect the Trust.

Section 5.2       Servicing of Portfolio.

(1) During the term of this Agreement, the initial Servicer will (so long as it is Servicer) service the Portfolio of Assets in accordance with the Credit and Collection Policy and subject to and in accordance with the provisions of this Article 5, and, without limiting the generality of the foregoing, will:

(a)	perform its duties with reasonable care and diligence, using that degree of skill and attention that the Servicer exercises in managing, servicing, administering, collecting on and performing similar functions relating to comparable Leases that it services for itself and others;
(b)	administer the Securitized Leases on behalf of the Trust in accordance with the Credit and Collection Policy;

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(c)	in accordance with the Credit and Collection Policy, take or cause to be taken all such reasonable actions as may be necessary or desirable from time to time to collect all amounts payable under the Securitized Leases in accordance with the terms thereof;
(d)	deposit all Collections in respect of the Securitized Leases and Securitized Equipment to the Collections Account as required by the balance of this Section 5.2, regardless of any defence, set-off right, deduction or counterclaim;
(e)	remarket repossessed and returned Securitized Equipment in accordance with the Credit and Collection Policy or in such other manner as it determines, in its sole discretion acting reasonably, will maximize the Net Proceeds from such Leased Equipment, and care for all Securitized Equipment in its possession in the same manner as a prudent lessor thereof having a view to maximizing the proceeds of disposition thereof would care for similar equipment owned by it;
(f)	at least two Business Days prior to each Distribution Date, deliver or cause to be delivered to the Trust and to the Rating Agencies a Portfolio Report relating to the Securitized Leases and Securitized Equipment and the relevant Reporting Period, such report to be current as of the close of business on the last day of such Reporting Period, and on or before such Distribution Date cause a copy of that Portfolio Report (redacted as appropriate for confidential information) to be posted on SEDAR or on such other website as the Servicer may notify to the Trust and the Rating Agencies which is acceptable to the Indenture Trustee and on any additional websites as determined by the initial Servicer in its discretion, acting reasonably;
(g)	take such steps in accordance with the Credit and Collection Policy as are necessary to maintain the perfection and priority of the Seller’s Security Interests in the Securitized Equipment created pursuant to the Securitized Leases and to refrain from releasing any such Security Interests in whole or in part except in accordance with the Credit and Collection Policy or as may be expressly permitted herein or in the Trust Indenture; provided that neither the Seller nor the Servicer shall be required to amend any registrations or make new registrations against any Obligors to reflect any of the transactions contemplated herein or in the LP Transfer Agreements, unless such amendments or new registrations are required under Applicable Law in order to ensure the continued perfection of the Trust’s interest in the Securitized Leases and Lease Rights and the Securitization Security Interests;
(h)	determine the advisability of taking action and instituting and carrying out legal proceedings with respect to any Securitized Leases in case of default by the Obligor under such Securitized Leases and take such action, institute and carry out such legal proceedings determined by it to be advisable or required under the Credit and Collection Policy;

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(i)	maintain current and complete Records with respect to the Securitized Leases and Securitized Equipment and grant representatives of the Trust and the Indenture Trustee reasonable access on reasonable notice to examine and make copies of the Records and a reasonable opportunity to discuss matters relating to the administration and servicing of the Securitized Leases and Securitized Equipment with personnel of the Servicer involved in such administration and servicing during business hours, including the opportunity to see and review information systems and software in operation;
(j)	hold as trust property for and on behalf of the Trust, free of any Security Interest, all Records with respect to the Securitized Leases and Securitized Equipment at any one or more of the offices identified in writing to the Trust;
(k)	settle, compromise and otherwise deal with any claims under the Securitized Leases if necessary, advisable or otherwise permitted in accordance with the Credit and Collection Policy;
(l)	(i) not make any material change to the Credit and Collection Policy without either (A) satisfying the Rating Agency Condition in respect of DBRS and giving 10 days notice to Moody’s, or (B) approval by the holders of the Notes as expressed by Extraordinary Resolution; provided that not less than 10 Business Days notice shall be provided to the Rating Agencies of such approval before any such material change is made, and (ii) not apply different credit, collection and administration policies and procedures to the Securitized Leases and Securitized Equipment than it applies with respect to Leases and Leased Equipment owned or otherwise serviced by it; provided that, for greater certainty, the Servicer may make such other changes to the Credit and Collection Policy that are not prohibited under this paragraph (l) as it considers necessary or advisable from time to time;
(m)	other than in accordance with the Credit and Collection Policy or Section 5.4, not extend, amend, grant rebates or adjustments or otherwise modify the terms of any Securitized Lease, except that the Servicer will be permitted, in its discretion, to waive any prepayment charge, late payment charge or any other fees that may be collected in the ordinary course of servicing any Securitized Lease, and will be permitted to consent on behalf of the Trust to an assignment by an Obligor of one or more Securitized Leases so long as the assignee is approved in accordance with the Credit and Collection Policy and agrees to assume the obligations of the previous Obligor under such Securitized Leases;
(n)	to the extent the Records for the Securitized Leases consist in whole or in part of computer programs which are licensed by the Servicer, to forthwith upon the occurrence of a Servicer Default, use reasonable commercial efforts to arrange for the licence or sublicence of such programs to the Trust for the limited purpose of permitting the Trust or any Replacement Servicer to administer and collect the Securitized Leases;

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(o)	at all times retain in its possession in Canada any chattel paper related to the Securitized Leases;
(p)	on a timely basis (i) remit or loan funds to the Trust to make all payments of federal or provincial taxes owing with respect to Collections and not provided for out of Collections that may result in a statutory lien or deemed trust that may rank ahead of the interest of the Trust in the Lease Rights or Securitized Equipment or the Security Interest granted to the Indenture Trustee; provided that the Servicer may protest the payment of any such amounts if it is acting in good faith and it either provides the Trust with cash in an amount sufficient to satisfy the same or otherwise satisfies the Trust that its interests are not prejudiced thereby; and (ii) provide appropriate information to the Trust to prepare and file all returns and reports required to be filed by it in respect thereof;
(q)	pay from its own funds all general administrative expenses and other costs incurred by the Servicer in carrying out its obligations and all fees and expenses of any subcontractor retained by it;
(r)	provide to the Financial Services Agent and the Indenture Trustee its unaudited financial statements together with audited financial statements of the Performance Guarantor within 120 days of each fiscal year end and its unaudited quarterly financial statements (and those of the Performance Guarantor) within 60 days of each fiscal quarter end;
(s)	maintain and implement administrative and operating procedures (including an ability to recreate all material information contained in the Records for the Securitized Leases in the event of the destruction of the originals of such Records) to keep and maintain all such Records and other information reasonably necessary or advisable to enable the Servicer to produce the information required to be provided in each Portfolio Report or as may be reasonably necessary or advisable for the enforcement of all Securitized Leases and for the remarketing of all Securitized Equipment;
(t)	take all steps reasonably necessary, or in the opinion of the Trust or its counsel, advisable, (i) to validate, protect or perfect the ownership interest of the Trust in the Securitized Leases and related Lease Rights and the leasehold interest of the Trust in the Securitized Equipment, and (ii) to defeat the assertion by any third party (other than a third party claiming through or under the Trust) of any Security Interest in the Securitized Leases, related Lease Rights or Securitized Equipment;
(u)	as soon as possible and in any event within 2 Business Days after the Servicer becomes aware of the occurrence of an Event of Termination, furnish the Trust and the Rating Agencies with a notice from the Servicer setting forth the relevant details and any action which it has taken or is proposing to take in respect thereof;

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(v)	except as otherwise permitted by the Transaction Documents, not take any action that may cause the validity or enforceability of any Securitized Lease to be impaired or that may adversely affect the perfection, validity or protection of the Trust’s right to collect the related Lease Rights and Net Proceeds;
(w)	preserve and maintain its existence, rights, franchises and privileges and qualify and remain qualified to carry on business in each jurisdiction in which the failure to do so would have a Material Adverse Effect;
(x)	promptly provide the Trust with notice of any change to its name or any locations where Records with respect to the Securitized Leases are maintained;
(y)	comply in all respects with all Applicable Laws (including privacy laws) relating to the Servicer, the Securitized Leases and the Securitized Equipment, except where the failure to do so would not have a Material Adverse Effect;
(z)	not sell, assign (by operation of law or otherwise) or dispose of any part of the Securitized Leases and the related Leased Rights or create or suffer to exist any Security Interest upon or with respect to the Securitized Leases and the related Leased Rights except as expressly permitted in the Transaction Documents;
(aa)	permit the Trust or the Indenture Trustee from time to time, during normal business hours and on two Business Days prior written notice, to inspect, audit, check and make abstracts from the Records or any other books, accounts, records or other papers of the Servicer pertaining to the Securitized Leases and the Securitized Equipment;
(bb)	direct and require its auditors to assist the Trust’s auditors to the extent and in such manner as is reasonably required for the Trust’s auditors to report on the status of each Securitized Lease and the related Lease Rights; and
(cc)	from time to time at its expense, promptly execute and deliver all instruments and documents and make or cause to be made all filings, recordings, registrations and take all other actions in each jurisdiction necessary to validate, preserve, perfect or protect the interest of the Trust in the Securitized Leases and related Lease Rights; provided that neither the Seller nor the Servicer shall be required to amend any registrations or make new registrations against any Obligors to reflect any of the transactions contemplated herein or in the LP Transfer Agreement, unless such amendments or new registrations are required under Applicable Law in order to ensure the continued perfection of the Trust’s interest in the Securitized Leases and Lease Rights and the Securitization Security Interests.

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(2) Following the appointment of a Replacement Servicer, such Replacement Servicer (so long as it is Servicer) will service the Portfolio of Assets in accordance with the Credit and Collection Policy and subject to and in accordance with the provisions of this Article 5, and, without limiting the generality of the foregoing, will:

(a)	perform its duties with reasonable care and diligence, using that degree of skill and attention that the Replacement Servicer exercises in managing, servicing, administering, collecting on and performing similar functions relating to comparable Leases that it services for itself and others;
(b)	administer the Securitized Leases on behalf of the Trust in accordance with the Credit and Collection Policy;
(c)	in accordance with the Credit and Collection Policy, take or cause to be taken all such reasonable actions as may be necessary or desirable from time to time to collect all amounts payable under the Securitized Leases in accordance with the terms thereof;
(d)	deposit all Collections in respect of the Securitized Leases and Securitized Equipment to the Collections Account as required by the balance of this Section 5.2, regardless of any defence, set-off right, deduction or counterclaim;
(e)	remarket repossessed and returned Securitized Equipment in accordance with the Credit and Collection Policy or in such other manner as it determines, in its sole discretion acting reasonably, will maximize the Net Proceeds from such Leased Equipment, and care for all Securitized Equipment in its possession in the same manner as a prudent lessor thereof having a view to maximizing the proceeds of disposition thereof would care for similar equipment owned by it;
(f)	at least two Business Days prior to each Distribution Date, deliver or cause to be delivered to the Trust and to the Rating Agencies a Portfolio Report relating to the Securitized Leases and Securitized Equipment and the relevant Reporting Period, such report to be current (except to the extent that any Records provided to the Replacement Servicer were not current or complete and cannot be corrected using commercially reasonable efforts) as of the close of business on the last day of such Reporting Period, and on or before such Distribution Date cause a copy of that Portfolio Report (redacted as appropriate for confidential information) to be posted on SEDAR or on such other website as the Replacement Servicer may notify to the Trust and the Rating Agencies which is acceptable to the Indenture Trustee; the Trust shall reimburse the Replacement Servicer in accordance with Section 6.1 for its reasonable out-of-pocket costs and expenses incurred in connection with using its commercially reasonable efforts to correct incorrect or incomplete Records as described in this paragraph (f);
(g)	take such steps in accordance with the Credit and Collection Policy as are necessary to maintain the perfection of the Seller’s Security Interests in the

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	Securitized Equipment created pursuant to the Securitized Leases and to refrain from releasing any such Security Interests in whole or in part except in accordance with the Credit and Collection Policy or as may be expressly permitted herein or in the Trust Indenture; provided that the Replacement Servicer shall not be required, whether under this paragraph (g) or otherwise, to amend any registrations or make new registrations against any Obligors to reflect any of the transactions contemplated herein or in the LP Transfer Agreements (unless such amendments or new registrations are required under Applicable Law in order to ensure the continued perfection of the Seller’s Security Interests in the Securitized Equipment created pursuant to the Securitized Leases), but for greater certainty, shall have no liability hereunder for any lack or loss of the perfection of the Seller’s Security Interests in the Securitized Equipment as at the time that the Replacement Servicer was appointed or resulting from acts or omissions of the initial Servicer, any prior Replacement Servicer or any other Person (other than itself, any Substitute Servicer or any delegatee, agent, or subcontractor of either) (i) of which it is not aware, or (ii) which cannot be corrected using commercially reasonable efforts; the Trust shall reimburse the Replacement Servicer in accordance with Section 6.1 for its reasonable out-of-pocket costs and expenses incurred in connection with performing the duties described in this paragraph (g);
(h)	determine the advisability of taking action and instituting and carrying out legal proceedings with respect to any Securitized Leases in case of default by the Obligor under such Securitized Leases and, to the extent permitted under Applicable Law, take such action and institute and carry out such legal proceedings determined by it to be advisable or required under the Credit and Collection Policy, provided that the Trust shall reasonably cooperate with the Replacement Servicer in connection with any such proceedings; the Trust shall reimburse the Replacement Servicer in accordance with Section 6.1 for its reasonable out-of-pocket costs and expenses incurred in connection with performing the duties described in this paragraph (h);
(i)	maintain current and complete Records with respect to the Securitized Leases and Securitized Equipment (except to the extent that the Records provided to the Replacement Servicer were not current or complete and cannot be corrected using commercially reasonable efforts) and grant representatives of the Trust and the Indenture Trustee reasonable access on reasonable notice (as provided in clause (aa)) to examine and make copies of the Records it maintains and a reasonable opportunity to discuss matters relating to the administration and servicing of the Securitized Leases and Securitized Equipment with personnel of the Replacement Servicer involved in such administration and servicing during business hours, including the opportunity to see and review information systems and software in operation; the Trust shall reimburse the Replacement Servicer in accordance with Section 6.1 for its reasonable out-of-pocket costs and expenses incurred in connection with using its commercially reasonable efforts to correct incorrect or incomplete Records as described in this paragraph (i);

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(j)	hold as trust property for and on behalf of the Trust, free of any Security Interest created by the Replacement Servicer, all Records owned by the Trust and in the Replacement Servicer’s possession with respect to the Securitized Leases and Securitized Equipment at any one or more of the offices identified in writing to the Trust;
(k)	settle, compromise and otherwise deal with any claims under the Securitized Leases if necessary, advisable or otherwise permitted in accordance with the Credit and Collection Policy;
(l)	(i) not make any material change to its Credit and Collection Policy as applicable to the Lease Rights or the Securitized Equipment without either (A) satisfying the Rating Agency Condition in respect of DBRS and giving 10 days notice to Moody’s, or (B) approval by the holders of the Notes as expressed by Extraordinary Resolution; provided that not less than 10 Business Days notice shall be provided to the Rating Agencies of such approval before any such material change is made, and (ii) not apply different credit, collection and administration policies and procedures to the Securitized Leases and Securitized Equipment than it applies with respect to Leases and Leased Equipment owned or otherwise serviced by it; provided that, for greater certainty, the Replacement Servicer may make such other changes to the Credit and Collection Policy that are not prohibited under this paragraph (l) as it considers necessary or advisable from time to time;
(m)	other than in accordance with the Credit and Collection Policy or Section 5.4, not extend, amend, grant rebates or adjustments or otherwise modify the terms of any Securitized Lease, except that the Replacement Servicer will be permitted, in its discretion, to waive any prepayment charge, late payment charge or any other fees that may be collected in the ordinary course of servicing any Securitized Lease, and will be permitted to consent on behalf of the Trust to an assignment by an Obligor of one or more Securitized Leases so long as the assignee is approved in accordance with the Credit and Collection Policy and agrees to assume the obligations of the previous Obligor under such Securitized Leases;
(n)	to the extent the Records for the Securitized Leases consist in whole or in part of computer programs which are licensed by the Replacement Servicer, to forthwith upon the occurrence of a Servicer Default, use reasonable commercial efforts, without the requirement to incur any cost or expense, to arrange for the licence or sublicence of such programs to the Trust for the limited purpose of permitting the Trust or any Replacement Servicer to administer and collect the Securitized Leases;
(o)	at all times retain in its possession in Canada any chattel paper related to the Securitized Leases and delivered to it in Canada;

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(p)	on a timely basis, following request by the Trust, provide the Trust with appropriate information specified in such request and available from the Records maintained by the Replacement Servicer without material effort to assist the Trust to prepare and file all returns and reports required to be filed by it in respect of federal or provincial taxes owing with respect to Collections;
(q)	pay from its own funds all general administrative expenses and, except as otherwise provided herein, other costs incurred by the Replacement Servicer in carrying out its obligations and all fees and expenses of any subcontractor retained by it;
(r)	provide to the Financial Services Agent and the Indenture Trustee its audited financial statements within 120 days of each fiscal year end and its unaudited quarterly financial statements within 60 days of each fiscal quarter end;
(s)	maintain and implement administrative and operating procedures (including an ability to recreate all material information contained in the Records maintained by it for the Securitized Leases in the event of the destruction of the originals of such Records) to keep and maintain all such Records and other information reasonably necessary or advisable to enable the Replacement Servicer to produce the information required to be provided in each Portfolio Report or as may be reasonably necessary or advisable for the enforcement of all Securitized Leases and for the remarketing of all Securitized Equipment, except to the extent that any Records provided to the Replacement Servicer were not current or complete and cannot be corrected using commercially reasonable efforts; the Trust shall reimburse the Replacement Servicer in accordance with Section 6.1 for its reasonable out-of-pocket costs and expenses incurred in connection with using its commercially reasonable efforts to correct incorrect or incomplete Records as described in this paragraph (s);
(t)	take all steps reasonably necessary, or in the opinion of the Trust or its counsel, advisable, (i) to perfect (or for purposes of Quebec, make opposable) the ownership interest of the Trust in the Securitized Leases and related Lease Rights and the leasehold interest of the Trust in the Securitized Equipment, and (ii) to defend against the assertion by any third party (other than a third party claiming through or under the Trust) of any Security Interest (other than a Permitted Lien) in the Securitized Leases, related Lease Rights or Securitized Equipment; provided that the Replacement Servicer shall have no liability hereunder (x) for any lack or loss of the perfection (or for purposes of Quebec, for any lack or loss of the status of being opposable) of any such ownership or leasehold interest as at the time the Replacement Servicer was appointed or resulting from acts or omissions of the initial Servicer, any prior Replacement Servicer or any other Person (other than itself, any Substitute Servicer or any agent of either) or any other circumstances in effect as at the time the Replacement Servicer was appointed or (y) for failing to defend any such assertion of any such Security Interest that was in existence as at the time the Replacement Servicer was

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	appointed or resulting from acts or omissions of the initial Servicer, any prior Replacement Servicer or any other Person (other than itself, any Substitute Servicer or any agent of either) and, in the case of (x) or (y), (A) of which it is not aware or (B) which cannot be corrected or defended against using commercially reasonable efforts; the Trust shall reimburse the Replacement Servicer in accordance with Section 6.1 for its reasonable out of pocket costs and expenses incurred in connection with taking any such commercially reasonable efforts or defending the assertion of any Security Interest referred to in this paragraph (t);
(u)	as soon as possible and in any event within 2 Business Days after the Replacement Servicer becomes aware of the occurrence of an Event of Termination described in any of Sections 7.1(a), (e), (f), (g), (i) or (k), furnish the Trust and the Rating Agencies with a notice from the Replacement Servicer setting forth the relevant details and any action which it has taken or is proposing to take in respect thereof; provided that this clause (u) will not apply to any such Event of Termination that was the subject of a prior notice pursuant to this clause (u) or pursuant to Section 5.2(1)(u);
(v)	except as otherwise permitted by the Transaction Documents or the Credit and Collection Policy, not take any action that may cause the validity or enforceability of any Securitized Lease to be impaired or that may adversely affect the perfection, validity or protection of the Trust’s right to collect the related Lease Rights and Net Proceeds;
(w)	preserve and maintain its existence, rights, franchises and privileges, and qualify and remain qualified to carry on business, in each jurisdiction in which the failure to do so would reasonably be expected to have a Material Adverse Effect;
(x)	promptly provide the Trust with notice of any change to its name or any locations where Records with respect to the Securitized Leases are maintained by it;
(y)	comply in all respects with all Applicable Laws (including privacy laws) relating to the Replacement Servicer, the Securitized Leases and the Securitized Equipment, except where the failure to do so would not have a Material Adverse Effect or results from the acts or omission of the Trust, the initial Servicer or the Seller;
(z)	not sell, assign (by operation of law or otherwise) or dispose of any part of the Securitized Leases and the related Leased Rights or create any Security Interest upon or with respect to the Securitized Leases and the related Leased Rights except as expressly permitted in the Transaction Documents;
(aa)	permit the Trust or the Indenture Trustee from time to time, during normal business hours and on two Business Days prior written notice, to inspect, audit, check and make abstracts from the Records maintained by the Replacement

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	Servicer or any other books, accounts, records or other papers of the Replacement Servicer pertaining to the Securitized Leases and the Securitized Equipment; and
(bb)	assist the Trust’s auditors to the extent and in such manner as is reasonably requested for the Trust’s auditors to report on the status of each Securitized Lease and the related Lease Rights.

(3) So long as (i) no Servicer Default exists, and (ii) the Performance Guarantor has an unsecured debt rating of at least A+(long term) by S&P or A1 (short term) by S&P, and Aa3 (long term) by Moody’s or P-1 (short term) by Moody’s, then the initial Servicer may deposit Collections in respect of each Reporting Period to the Collections Account on a monthly basis on or prior to the applicable Distribution Date.

(4) So long as (i) no Servicer Default exists, and (ii) the Performance Guarantor has an unsecured debt rating from each of the two Rating Agencies of less than the ratings set out in paragraph (2) above but has a long-term unsecured debt rating of at least BB- by Fitch, Ba3 by Moody’s and BB- by S&P from at least two of such rating agencies, then the Servicer will deposit all Collections to the Collections Account on or before the second Business Day following the day such Collections are received by the Servicer. For purposes of this Agreement, Collections will not be considered “received” if they have been sent in error or, in any event, until the Servicer is provided information reasonably sufficient to identify the payor of the funds in question. Any Replacement Servicer shall also deposit all Collections to the Collections Account on or before the second Business Day following the day such Collections are received by the Replacement Servicer.

(5) Upon the occurrence and during the continuance of a Servicer Default or so long as the Performance Guarantor fails to maintain at least the following long-term unsecured debt ratings from at least two of the following rating agencies: BB- by Fitch, Ba3 by Moody’s and BB- by S&P, or if the Performance Guarantor does not have a credit rating from at least two of such rating agencies, then the Servicer (but not a Replacement Servicer) must deposit (by way of a loan to the Trust (a “Servicer’s Pre-Funded Amount Loan”)) the Servicer’s Pre-Funded Amount for the Purchased Assets with respect to each Reporting Period commencing thereafter and for so long as such condition continues to exist, to the Collections Account on or before the second Business Day following the end of the prior Reporting Period. Such loan shall not bear interest and shall be repayable as provided herein. The Servicer shall be entitled to retain, in repayment of Servicer’s Pre-Funded Amount Loans it has made to the Trust, any Collections received in a Reporting Period up to the amount of any such loans which are outstanding. The Servicer will deposit all additional Collections to the Collections Account on or before the second Business Day following the day such Collections are received by the Servicer.

(6) In addition, the Seller shall deposit to the Collections Account on the Distribution Date in respect of each Reporting Period, an amount equal to the sum of any amounts payable to the Trust during such Reporting Period pursuant to Section 5.10(2) or Section 9.7.

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(7) Interest earned on any Collections from the time of their receipt by the Servicer until deposit in the Collections Account as required hereunder shall be for the account of the Servicer.

(8) Notwithstanding the foregoing, the Trust, rather than the Servicer, shall be responsible for depositing into the Collections Account or U.S. Dollar Collections Account, as applicable, any amounts received under the Swap Agreement, and such amounts, to the extent in U.S. Dollars, shall be deposited by the Trust to the U.S. Dollar Collections Account.

(9) For greater certainty, and without limiting the foregoing, Collections (including Net Proceeds in respect of the Leased Equipment described in Schedule E) received by the Servicer during the period from the Cut-Off Date until the Closing Date are deemed to have been received on behalf of the Trust on the Closing Date, shall be deposited to the Collections Account in accordance with Section 5.2(4) and upon deposit of such Collections to the Collections Account, the amount so deposited shall constitute a refund of the Master Lease Prepayment Amount in respect of the related Leases. Any Net Proceeds deposited into the Collections Account shall constitute a refund of the Master Lease Prepayment Amount in respect of the related Leased Equipment.

(10) In consideration for the services to be performed by the Servicer hereunder, the Trust shall pay to the Servicer, in accordance with Section 6.1(2) (or in the case of a Replacement Servicer, Section 6.1(1)), the Servicer Fee or, as applicable, the Replacement Servicer Fee, plus all applicable taxes thereon.

Section 5.3       Power of Attorney.

(1) The Seller and Servicer each hereby grant to the Trust a power of attorney, with full power of substitution, to become effective immediately upon the occurrence (but only so long as it has not been waived, or otherwise cured to the satisfaction of the Trust) of a Servicer Default, to take such actions in the place of and in the name of the Seller or Servicer, as the case may be, or in the attorney’s own name, as the Trust, at the direction of the Indenture Trustee or otherwise, may deem necessary or advisable to collect, endorse, negotiate or otherwise realize on any Securitized Lease, the related Securitized Equipment, any related negotiable instrument or other related right of any kind, including transferring legal title to the Securitized Equipment to the Seller (to the extent not already in the Seller) and registering such transfer to the extent required under Section 5.8(2)(h).

(2) The Trust hereby constitutes and appoints the Servicer the true and lawful attorney of the Trust, with full power of substitution, to execute, deliver and register, for and on behalf of and in the name of the Trust, such documents, instruments or agreements which may be necessary or desirable to enable the Servicer to perform its obligations set out in this Agreement. The Servicer agrees that it will not exercise such power of attorney for any other purpose whatsoever. The Trust shall execute such other documents as may be reasonably required by any Replacement Servicer in order to provide such Replacement Servicer with a power of attorney to similar effect.

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(3) The powers of attorney granted hereby shall be coupled with an interest. The powers of attorney and other rights and privileges granted hereby shall survive any dissolution, liquidation or winding-up of the Seller, the Servicer or the Trust, as applicable.

Section 5.4       Deemed Collections.

(1) If, at any time after the Cut-Off Date, any Securitized Lease (i) is extended by the Seller or the initial Servicer beyond its original Term (other than any extension of the Term of a Securitized Lease which does not involve any reduction in the scheduled payments thereunder), (ii) has its Annual Percentage Rate, total number of scheduled payments or its aggregate amount payable reduced by the Seller or the initial Servicer (other than the conversion of the Annual Percentage Rate in respect of a Lease from one based on a floating rate of interest to one based on a fixed rate in accordance with the terms of the Lease), (iii) has the Security Interest created under such Lease in the Securitized Equipment impaired or released as a result of an action by the Seller or the initial Servicer that is not permitted under the Transaction Documents, (iv) is reduced or cancelled as a result of any breach by the Seller or the initial Servicer of the terms of the Lease or as a result of the exercise of any right of set-off by the Obligor against the Seller or the initial Servicer, or (v) has the amounts due from the Obligor upon the termination thereof reduced by the Seller or the initial Servicer (except that the Servicer may reduce the amount payable by the Obligor under its Obligor Option to the extent that the Servicer has determined, in its discretion, that the reduction of such purchase price is reasonably likely to maximize the Net Proceeds in connection with the sale or other liquidation of the related Securitized Equipment), the Seller will be deemed to have received for the account of the Trust a Collection in respect of such Securitized Lease (a “Deemed Collection”) equal to the related Net Book Value thereof at such time (or, at the option of the Seller (A) in the case of (ii) above, the amount of the payment reductions resulting from the actions of the Seller or initial Servicer, or (B) in the case of any reduction described in (iv) or (v) above, the amount of any such reduction) together with all accrued and unpaid interest thereon under the terms of such Lease and other accrued and unpaid amounts arising thereunder, whereupon (except if the Seller has elected to make the payment described in (A) or (B) above) the Trust will be deemed to have sold, without the necessity of any further instrument or formality, the rights of the Trust under the Master Lease in respect of the related Securitized Equipment, together with the related Lease Rights to the Seller free and clear of all Security Interests arising through the Trust but otherwise on an “as is, where is” basis without recourse to, or representation or warranty of, the Trust.

(2) The Seller shall promptly (and in any event, prior to the next Distribution Date) deposit the amount of any Deemed Collection to the Collections Account and such amount shall constitute a refund of the Master Lease Prepayment Amount in respect of the related Lease.

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Section 5.5       Servicer Advances.

          On each Distribution Date prior to the Final Collection Date (so long as the Seller or PHH VMS is then the Servicer and so long as the Servicer is not then required to deposit the Servicer’s Pre-Funded Amount in respect of such Reporting Period), the Servicer may (but shall not be required to) make an advance to the Trust, by depositing into the Collections Account, an amount equal to the sum (without duplication) for each Securitized Lease that is not then a Defaulted Lease, of the outstanding amounts which were due to be paid in respect of such Lease during the most recently completed Reporting Period and not paid by the Obligor thereof during such Reporting Period; provided, however, that for greater certainty, the Servicer has no obligation to make any such advances at any time or for any Lease. Any amount so advanced and deposited by the Servicer is referred to herein as a “Servicer Advance” and shall be deemed to be a Collection on account of such payment for purposes hereof. The Trust shall repay each Servicer Advance to the Servicer, without interest, in accordance with Section 6.1 and the Servicer’s recourse for repayment of each such Servicer Advance shall be limited solely to the amounts available in accordance with such Section.

Section 5.6       Back-Up Servicer.

(1) The Servicer will co-operate with the Back-Up Servicer to the extent necessary for the Back-Up Servicer to assume its duties and to facilitate the ability of the Back-Up Servicer to be prepared to become a Replacement Servicer, including delivering to the Back-Up Servicer on a monthly basis copies of all Records necessary for the Back-Up Servicer to perform these functions and providing all reasonable assistance to the Back-Up Servicer necessary for it to decipher the information contained in electronic form.

(2) Except as otherwise expressly stated in the Back-Up Servicer Agreement, the Seller and the Servicer will not be responsible for payment of the fees and expenses (including Back-Up Servicer Costs) of the Back-Up Servicer. Except as so stated, such fees and expenses will be payable out of Collections in accordance with Section 6.1.

Section 5.7       Servicer Indemnity.

(1) The initial Servicer will indemnify the Trust and its agents and save them harmless from and against any and all Losses arising out of or as a result of:

(a)	the failure of the initial Servicer to comply with any Applicable Law in respect of, or with any of the initial Servicer’s obligations under, any Securitized Leases or to perform its obligations under any of the Transaction Documents;
(b)	the failure of the initial Servicer to perform its duties, obligations or covenants, or the breach by the initial Servicer of any its representations or warranties, set out in any of the Transaction Documents or in any report or other document furnished by it pursuant to the Transaction Documents;

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(c)	the co-mingling of Collections by the initial Servicer with cash not arising from the transactions contemplated in the Transaction Documents; or
(d)	the disclosure of any personal information relating to any Obligor by the initial Servicer,

except, in each case, to the extent that such Losses arise out of or as a result of (i) the gross negligence, wilful misconduct, misfeasance or bad faith of the Trust or any of its agents, or (ii) as a direct result of the negligence, wilful misconduct, misfeasance or bad faith of the Financial Services Agent, the Financial Services Sub-Agent or any Replacement Servicer, which, in the case of either (i) or (ii) above, is not the Seller or any Affiliate of the Seller, or any of their agents.

(2) The Replacement Servicer will indemnify the Trust and its agents and save them harmless from and against any and all Losses arising out of or as a result of:

(a)	the failure of the Replacement Servicer to comply with any Applicable Law in respect of any Securitized Leases or to perform its obligations under any of the Transaction Documents;
(b)	the failure of the Replacement Servicer to perform its duties, obligations or covenants, or the breach by the Replacement Servicer of any its representations or warranties, set out in any of the Transaction Documents or in any report or other document furnished by it pursuant to the Transaction Documents;
(c)	the co-mingling of Collections by the Replacement Servicer with cash not arising from the transactions contemplated in the Transaction Documents; or
(d)	the disclosure of any personal information relating to any Obligor by the Replacement Servicer,

except, in each case, to the extent that such Losses arise out of or as a result of (i) the gross negligence, wilful misconduct, misfeasance or bad faith of the Trust, the Seller, the Financial Services Agent, the Financial Services Sub-Agent or any other Servicer or any of their agents, or (ii) as a direct result of the acts or omissions of the Trust, the Seller, the Financial Services Agent, the Financial Services Sub-Agent or any other Servicer, or any of their agents.

(3) The initial Servicer and the Trust each agree to provide reasonable assistance to the other party, at the request of such other party and, in either case, at the initial Servicer’s expense, in any action, suit or proceeding brought by or against, or any investigation involving such requesting party (including the Financial Services Agent in respect of the Trust but excluding any actions against each other) relating to any of the transactions contemplated hereby or to any part of the Portfolio of Assets. If the initial Servicer may be liable under Section 5.7(1) in respect of any Losses in connection with any such action, suit, proceeding or investigation, and, in the sole determination of the Trust,

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acting reasonably, the initial Servicer or the Performance Guarantor has the financial ability to pay such Losses, the initial Servicer will have the right, on behalf of the Trust or the Financial Services Agent but at the initial Servicer’s expense, to defend such action, suit or proceeding, or participate in such investigation, with counsel selected by it, and will have sole discretion as to whether to litigate, appeal or settle.

(4) The Replacement Servicer and the Trust each agree to provide reasonable assistance to the other party, at the request and expense of such other party, in any action, suit or proceeding brought by or against, or any investigation involving such requesting party (including the Financial Services Agent in respect of the Trust but excluding any actions against each other) relating to any of the transactions contemplated hereby or to any part of the Portfolio of Assets. If the Replacement Servicer may be liable under Section 5.7(2) in respect of any Losses in connection with any such action, suit, proceeding or investigation, and, in the sole determination of the Trust, acting reasonably, the Replacement Servicer has the financial ability to pay such Losses, the Replacement Servicer will have the right, on behalf of the Trust or the Financial Services Agent but at the Replacement Servicer’s expense, to defend such action, suit or proceeding, or participate in such investigation, with counsel selected by it, and will have sole discretion as to whether to litigate, appeal or settle.

Section 5.8       Designation of Replacement Servicer.

(1) At any time following the occurrence of and during the continuance of a Servicer Default, the Trust may effect a termination of the Servicer’s designation as Servicer under the Transaction Documents by giving notice to the Servicer of its decision to terminate the Servicer’s engagement as Servicer, which termination will take effect at the time specified in such notice or, failing the specification of time, upon the appointment of a Replacement Servicer. At any time following the occurrence and during the continuance of a Servicer Default, the Trust may by instrument in writing designate and appoint as the Replacement Servicer any Person which (i) satisfies the Rating Agency Condition in respect of DBRS and of whom not less than 10 Business Day notice has been given to Moody’s, or (ii) is acceptable to holders of the Notes as expressed by Extraordinary Resolution; provided that in the event of the approval of any such Replacement Servicer by Extraordinary Resolution, not less than 10 Business Days prior notice shall be provided to the Rating Agencies before such Person assumes its role as Replacement Servicer.

(2) Following the appointment by the Trust of a Replacement Servicer, the former Servicer will, on demand, in addition to any other obligations it has under the Transaction Documents:

(a) instruct the Obligor of each Securitized Lease to remit all payments due under the Securitized Lease to the Replacement Servicer;

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(b)	remit to the Replacement Servicer all payments received by the Servicer from Obligors and from other Persons, if applicable, pursuant to the Securitized Leases within two Business Days of receipt;
(c)	segregate all cash, cheques and other instruments received by it and constituting Collections of Purchased Assets in a manner acceptable to the Replacement Servicer and deposit all such cash, cheques and instruments (or the portion thereof relating to the Purchased Assets), duly endorsed or with duly executed instruments of transfer, to the Collections Account within two Business Days of receipt;
(d)	transfer all signing authority with respect to the Collections Account and U.S. Dollar Collections Account to the Replacement Servicer;
(e)	deliver copies or originals of all Records in its possession to the extent relating to the Purchased Assets to the Replacement Servicer and provide the Replacement Servicer with all reasonable assistance necessary to decipher the information contained in electronic form;
(f)	provide access to all software owned by the Servicer and used for monitoring, collection or administration of Securitized Leases and Securitized Equipment and use reasonable commercial efforts to obtain any required consents to allow the Replacement Servicer to use any software used by the Servicer for a similar purpose which is licensed to the Servicer by a third party;
(g)	in the case of the initial Servicer, notify issuers of insurance policies on the Securitized Equipment of the interest of the Trust in the Securitized Leases relating to such Leased Equipment; and
(h)	in the case of the initial Servicer, take all such action as may be reasonably requested by the Trust to transfer legal title to the Securitized Equipment to the Seller and, to the extent required by Applicable Law, register such transfer to the Seller under Applicable Law.

Section 5.9       Replacement Servicer Fee.

          A Replacement Servicer appointed by the Trust pursuant to Section 5.8 shall be entitled to a reasonable fee for services rendered, such fee to be settled by the Trust in its discretion with the Replacement Servicer but in any event not to exceed, for any Reporting Period, an amount equal to 1% of the aggregate Pool Balance as of the first day of such Reporting Period, divided by 12 (the “Replacement Servicer Fee”). Such Replacement Servicer Fee, together with applicable taxes, shall be payable to the Replacement Servicer in arrears on each Distribution Date out of the proceeds deposited to the Collections Account pursuant to Section 6.1(1)(b).

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Section 5.10 Payment Terms.

(1) All amounts to be paid or deposited by the Seller, the Servicer, any Replacement Servicer or the Trust hereunder will be paid or deposited not later than 11:00 a.m. (Toronto time) on the day when due in same day funds.

(2) The Seller and the Servicer (but not a Replacement Servicer, unless otherwise provided in the related agreement under which it has become the Replacement Servicer) will pay to the Trust interest (before and after default and judgment, with interest on overdue interest at the same rate) on all amounts not paid or deposited when due hereunder at a rate equal to the Applicable Rate.

(3) The Seller and the Servicer (but not a Replacement Servicer, unless otherwise provided in the related agreement under which it has become the Replacement Servicer) will make all payments required to be made hereunder without deduction or set-off (except as expressly permitted hereunder) regardless of any defence or counterclaim.

(4) Except as otherwise required by law or as specified by the applicable Obligor, where any Obligor under a Securitized Lease pays (or has prior to the date hereof paid) at any time amounts owing by such Obligor under such Securitized Lease or related Lease Rights together with other amounts it owes to an Originator, the Servicer shall allocate (and for purposes of determining if such Lease is an Eligible Lease, shall be deemed to have allocated) the amounts so paid as between amounts owing under such Securitized Lease (or related Lease Rights) and other Leases and any Fleet Receivables in accordance with Section 2.5 of the Intercreditor Agreement.

(5) In order to comply with the Replacement Servicer’s obligation to take into account the provisions of Section 2.5 of the Intercreditor Agreement for the purpose of complying with its obligations hereunder, including its obligations to deliver Portfolio Reports pursuant to Section 5.2(2)(f) and to allocate amounts pursuant to Section 5.10(4), the Replacement Servicer may consult counsel reasonably satisfactory to it and the written advice or opinion of such counsel as to the provisions of Section 2.5 of the Intercreditor Agreement shall be full and complete protection from liability in respect of any action taken or omitted by the Replacement Servicer hereunder in good faith and in accordance with such written advice or opinion of such counsel. The Trust shall reimburse the Replacement Servicer in accordance with Section 6.1 for its reasonable out-of-pocket costs and expenses incurred in connection with consulting such counsel, taking such action as such counsel advises, and/or using the commercially reasonable efforts contemplated by Section 2.5 of the Intercreditor Agreement.

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ARTICLE 6
APPLICATION OF PROCEEDS

Section 6.1       Application of Proceeds.

(1) On each Distribution Date, whether before or after the Final Collection Date but subject to Section 6.1(10), the Trust will apply all moneys deposited into the Collections Account or the U.S. Dollar Collections Account pursuant to Sections 2.3, 4.2, 5.2, 5.4, 5.5, and 8.1 of this Agreement or this Section 6.1, as follows:

(a)	first, to remit to the Servicer, (i) an amount equal to the amount of any Servicer Advances made by the Servicer prior to such Distribution Date and then still outstanding, first out of Collections under the Securitized Leases in respect of which such Servicer Advances were made, and thereafter from any other Collections, and (ii) the amount of any Servicer’s Pre-Funded Amount Loans made by the Servicer to the Trust for Reporting Periods prior to the Reporting Period then in effect, that have not then been repaid;
(b)	second, in payment to the Replacement Servicer of any Replacement Servicer Fee (and all applicable taxes) payable hereunder in respect of the immediately preceding Reporting Period or any prior Reporting Period;
(c)	third, to payment on a pari passu basis (A) of the Related Proportionate Share (as defined in the Trust Indenture) (with respect to Series 2010-1) of (i) any Trust Expenses, up to a maximum of $150,000 per year; and (ii) taxes or other charges that may result in a statutory lien or deemed trust that may rank ahead of the Security Interest granted to the Indenture Trustee in the Purchased Assets; and (B) to the Back-Up Servicer of the Back-Up Servicer Fee (and all applicable taxes) payable pursuant to the Back-Up Servicer Agreement in respect of the immediately preceding Reporting Period, or any prior Reporting Period;
(d)	fourth, to pay to the Replacement Servicer, (i) any costs, expenses, indemnification amounts and other amounts (other than the Replacement Servicer Fee) (and all applicable taxes) which are due and owing to the Replacement Servicer and payable by the Trust hereunder or pursuant to the Back-Up Servicer Agreement (or any Substitute Servicer Agreement (as defined therein)) in respect of the immediately preceding Reporting Period or any prior Reporting Period, to the extent not previously paid to the Replacement Servicer, excluding any such expenses incurred in connection with its activation as Replacement Servicer, up to a maximum of $15,000 per month; and (ii) its transition costs (as described, and subject to the $175,000 limit contained, in Schedule 1 to the Back-Up Servicer Agreement) in connection with its activation as Replacement Servicer and transition to such role hereunder.

(2) On each Distribution Date (whether before or after the Final Collection Date) after the applications in Section 6.1(1), the Trust will apply the balance of each of the Collections

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Account (including for greater certainty, any amounts deposited therein under Sections 6.1(4), (5) or (7) hereof) and the U.S. Dollar Collections Account as follows:

(a) first,

(i)	amounts payable to the Swap Counterparty under the “Fixed Amounts payable by Trust” provisions of the Swap Agreement in exchange for U.S. Dollar amounts required to pay interest due and owing in respect of the Class A-1b Notes on such date, as provided in Section 6.1(2)(a)(ii)(B);
(ii)	on a pari passu basis, in payment of:

(A)	the amount of interest then due and owing in respect of the Class A-1a Notes;
(B)	the amount of interest then due and owing in respect of the Class A-1b Notes;
(C)	the amount of interest then due and owing in respect of the Class A-2a Notes; and
(D)	the amount of interest then due and owing in respect of the Class A-2b Notes; and

(iii) after payment of all such amounts, but only if no Event of Termination has occurred and is then continuing, to payment of the amount of interest then due and owing in respect of the Class B Notes;

provided that for greater certainty, whenever in this Agreement there is a reference to the application of amounts on a pari passu basis as between obligations of the Trust in Canadian Dollars and obligations in U.S. Dollars, the Servicer shall determine the amount to be applied to each such amount on a pro rata basis based on the percentage amount equal to such Canadian Dollar amount or, in the case of such U.S. Dollar amount, the Equivalent Amount of such U.S. Dollar amount, divided by the total of (i) the Canadian Dollar amount plus (ii) the Equivalent Amount of the U.S. Dollar amount;

(b) second,

(i)	amounts payable to the Swap Counterparty under the Interim Exchange Amounts provisions of the Swap Agreement in exchange for U.S. Dollar amounts required to pay principal owing in respect of the Class A-1b Notes on such date as provided in Section 6.1(2)(b)(ii)(B); and
(ii)	on a pari passu basis, in payment of:

(A) any amounts owing by the Trust to the Swap Counterparty under the Swap Agreement in connection with an early termination of the

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Swap Agreement, except where such termination has been caused by an event of default or a termination event thereunder and the Swap Counterparty is the defaulting party or sole affected party thereunder; and

(B)

an amount or amounts with an aggregate value (with amounts denominated and payable in U.S. Dollars being treated for this purpose as having a value in Canadian Dollars equal to the Equivalent Amount of such U.S. Dollar amount) equal to the Principal Distribution Amount (or (x) if an Event of Termination has occurred and is continuing, (y) the Trust has made the election described in Section 6.1(12), or (z) the Seller has elected to purchase the remaining Purchased Assets from the Trust pursuant to Section 7.3 and has deposited the consideration therefor specified in Section 7.3 to the Collections Account, to apply the balance of the Collections Account and the U.S. Dollar Collections Account), as follows:

(I)	first, in payment on a pari passu basis of the amount of principal then outstanding in respect of the Class A-1a Notes and the Class A-1b Notes;
(II)	after payment of all principal outstanding in respect of the Class A-1a Notes and the Class A-1b Notes, in payment on a pari passu basis of the amount of principal then outstanding in respect of the Class A-2a Notes and the Class A-2b Notes; and
(III)	after payment of all principal outstanding in respect of the Class A-1a Notes, the Class A-1b Notes, the Class A-2a Notes and the Class A-2b Notes, in payment of the amount of principal and interest then outstanding in respect of the Class B Notes, and

(c) third, on a pari passu basis:

(i)	to the Back-Up Servicer of any Back-Up Servicer Costs (and all applicable taxes) payable hereunder or pursuant to the Back-Up Servicer Agreement in respect of the immediately preceding Reporting Period, or any prior Reporting Period, and
(ii)	to the Replacement Servicer (or any former Replacement Servicer) of any costs, expenses, indemnification amounts and other amounts (other than the Replacement Servicer Fee) (and all applicable taxes) which are due and owing to the Replacement Servicer (or any former Replacement Servicer) and payable by the Trust hereunder or pursuant to the Back-Up

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Servicer Agreement (or any Substitute Servicer Agreement (as defined therein)) in respect of the immediately preceding Reporting Period or any prior Reporting Period, to the extent not previously paid to the Replacement Servicer (or any former Replacement Servicer) and not paid under Section 6.1(1)(d) above as applicable; and

(d) fourth, of the Servicer Fee (and all applicable taxes) payable hereunder in respect of the immediately preceding Reporting Period.

(3) On each Distribution Date (whether before or after the Final Collection Date) after the applications in Section 6.1(2), the Trust will apply any remaining balance of each of the Collections Account and the U.S. Dollar Collections Account as follows:

(a)	first, by depositing to the Cash Spread Account an amount equal to the amount, if any, by which the Required Cash Spread Amount at such time exceeds the amount then on deposit in the Cash Spread Account (including investments thereof in Permitted Investments) (any such amount so deposited, being referred to collectively, as “Balance Amounts”);
(b)	second, by depositing to the Yield Supplement Account an amount equal to the amount, if any, by which the Required Yield Supplement Amount at such time exceeds the amount then on deposit in the Yield Supplement Account (including investments thereof in Permitted Investments) (any such amount so deposited, also being referred to collectively, as “Balance Amounts”);
(c)	third, to the extent that any amounts are due from the Seller to the Trust hereunder on account of expenses of the Trust that then remain unpaid (“Seller Obligations”), an amount equal to the remaining amount of such balance shall be payable by the Trust to the Seller as Deferred Rent for the Purchased Assets, but such Deferred Rent shall be paid by way of set off against such Seller Obligations; and the Trust shall apply an amount equal to such set-off Seller Obligations against any such expenses of the Trust which the Seller was required to have paid;
(d)	fourth, in payment of any amounts owing by the Trust to the Swap Counterparty in connection with an early termination of the Swap Agreement, where such termination has been caused by an event of default or a termination event thereunder and the Swap Counterparty is the defaulting party or sole affected party thereunder;
(e)	fifth, on a pari passu basis, (i) any amounts then owing by the Trust to the Financial Services Agent under the Financial Services Agreement in respect of the immediately preceding Reporting Period, (ii) any amounts then owing by the Trust to the Financial Services Sub-Agent under the Financial Services Sub-Agency Agreement in respect of the immediately preceding Reporting Period, and (iii) to payment of the Related Proportionate Share (as defined in the

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	Trust Indenture) (with respect to Series 2010-1) of any Trust Expenses not previously paid in accordance with this Section 6.1, plus in each case, all applicable taxes;
(f)	sixth, to the Trust, the sum of $10,000 (to an aggregate maximum of $10,000 in each fiscal year of the Trust), on account of the income of the Trust for such fiscal year, which amount will be distributed by the Trust to the appropriate beneficiary of the Trust in respect of such fiscal year in accordance with the Declaration of Trust;
(g)	seventh, to the Seller on account of all outstanding related Deferred Rent outstanding under Section 6.1(11) and interest thereon payable to the Seller as provided in Section 6.1(11);
(h)	eighth, (i) in repayment of any loans made to the Trust by the Seller or the Servicer to enable the Trust to pay amounts owing by the Trust and interest thereon; and (ii) to any amounts owing to the Seller or the Servicer under Sections 2.3 or 9.6 hereof; and
(i)	lastly, as to the balance of the Collections Account and the U.S. Dollar Collections Account, together with any amounts available for such purpose under Section 6.1(6) and (7), to the Seller on account of Deferred Rent.

(4) On each Distribution Date, the Trust shall withdraw from the Yield Supplement Account and deposit to the Collections Account an amount equal to the lesser of the amount then on deposit in the Yield Supplement Account and the Yield Supplement Draw Amount for such date. Such amount shall be applied by the Trust in accordance therewith. Any interest or other earnings on the Yield Supplement Account or Permitted Investments thereof, shall be deposited to the Yield Supplement Account, but subject to Section 6.1(6).

(5) The amounts held in the Cash Spread Account will be available to the Trust on each Distribution Date and deposited to the Collections Account, if and to the extent that the amount otherwise deposited to the Collections Account and the U.S. Dollar Collections Account and available for the payments and allocations under this Section 6.1 (including any amounts deposited therein under Section 6.1(4)) is less than the aggregate of the amounts owing or to be applied pursuant to Section 6.1(1) and Section 6.1(2) in respect of such Distribution Date in respect of the Purchased Assets and the Notes, and shall be applied by the Trust in accordance therewith. Following the occurrence of an Event of Termination, the Trust shall (and is authorized by the Seller to) withdraw all amounts then on deposit in the Cash Spread Account and shall deposit such amounts into the Collections Account. Any interest or other earnings on the Cash Spread Account or Permitted Investments thereof, shall be deposited to the Cash Spread Account, but subject to Section 6.1(6).

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(6) If on any Distribution Date when there is no continuing Event of Termination, the amount in the Cash Spread Account, including any interest or other earnings thereon, but determined after any application on such date of amounts in the Cash Spread Account under Section 6.1(5), exceeds the Required Cash Spread Amount, the Trust shall release its interest in such excess amounts and permit the Seller to withdraw such excess from the Cash Spread Account on account of Deferred Rent. If on any Distribution Date when there is no continuing Event of Termination, the amount in the Yield Supplement Account, including any interest or other earnings thereon, but determined after any application on such date of amounts in such Yield Supplement Account under Section 6.1(4), exceeds the Required Yield Supplement Amount, the Trust shall release its interest in such excess amounts and permit the Seller to withdraw such excess from the Yield Supplement Account on account of Deferred Rent.

(7) On the Final Collection Date, the Trust shall deposit to the Collections Account the balance, if any, remaining in the Cash Spread Account and the Yield Supplement Account, and shall apply the balance in the Collections Account in accordance with this Section 6.1.

(8) If the Trust or any Servicer (including any Replacement Servicer) should receive any Excluded Amounts, or any other amounts that do not constitute Collections or Net Proceeds of Purchased Assets (other than, in the case of a Servicer, as payment of amounts owing to it under this Section 6.1 which it does not know at the time of such payment derived from Excluded Amounts or from other amounts that do not constitute Collections or Net Proceeds of Purchased Assets), the Trust shall remit, or shall cause the Servicer to remit, within 3 Business Days of receipt of any such amounts, all of such amounts to the Seller. Until such remittance shall have been made, the Trust shall hold, or shall cause the Servicer to hold, all such amounts in trust for the Seller.

(9) On the Closing Date, the Trust shall (i) deposit to the Cash Spread Account from the proceeds of the sale of the Notes, an aggregate amount equal to the Required Cash Spread Amount and (ii) deposit to the Yield Supplement Account from the proceeds of the sale of the Notes, an aggregate amount equal to the Required Yield Supplement Amount. The initial Servicer may from time to time invest amounts in the Cash Spread Account and Yield Supplement Account in Permitted Investments. Following the appointment of any Replacement Servicer, the Trust shall invest such amounts in Permitted Investments. Any earnings on such investments shall be deposited to the Cash Spread Account or Yield Supplement Account, as applicable, for application in accordance herewith.

(10) Notwithstanding Section 6.1(1):

(a) any amounts in the U.S. Dollar Collections Account on a Distribution Date shall be used solely for the purpose of paying the U.S. Dollar amounts owed by the Trust in respect of the Class A-1b Notes, as provided for (and in the priority provided for) in Section 6.1(2)(a)(ii)(B) and 6.1(2)(b)(ii)(B), unless (a) other amounts available to pay prior amounts provided for in Sections 6.1(1) or 6.1(2) are not sufficient, in which case such U.S. Dollar amounts shall be applied for

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	such purpose as well, in the specified priority and to the extent required, and converted by the Servicer (or after the appointment of a Replacement Servicer, the Trust) to Canadian Dollars or (b) all principal and interest outstanding on the Class A-1 Notes has been repaid in full;
(b)	any GST collected by the Trust shall be used to pay GST owing by the Trust, and otherwise applied in accordance with Applicable Law; and
(c)	any settlement amounts paid under the Swap Agreement may be used by the Trust to enter into a replacement Hedging Transaction (as defined in the Trust Indenture).

(11) On each Distribution Date, an amount equal to the aggregate Balance Amounts for the period then ended shall become payable by the Trust to the Seller on account of Deferred Rent. Such amounts owing by the Trust to the Seller shall bear interest at a rate equal to the Applicable Rate and shall become due as provided in Section 6.1(3)(g) (and the Seller’s recourse therefor shall be limited to any amounts available to pay such amounts under Section 6.1(3)(g)); provided that the Trust has the option to prepay all or any portion of such amounts and interest thereon out of the proceeds of any loans made to the Trust for that purpose.

(12) If on any Distribution Date, (a) the sum of (i) the aggregate balance remaining in the Collections Account and the U.S. Dollar Collections Account after making all payments and allocations provided for under Section 6.1 (other than under Section 6.1(3)(f), (g), (h) or (i)) on such date, plus (ii) the total amount then on deposit in the Cash Spread Account, plus (iii) the total amount then on deposit in the Yield Supplement Account, is equal to or greater than (b) the Outstanding Principal Note Balance on such date, then the Trust may elect, by notice in writing to the Servicer and the Indenture Trustee, to deposit to the Collections Account the total amount then on deposit in the Cash Spread Account and the Yield Supplement Account and apply such amount, together with the balance otherwise remaining in the Collections Account and the U.S. Dollar Collections Account to the payments and allocations provided for under Section 6.1(2)(b)(ii) and, thereafter, Sections 6.1(3)(f), (g), (h) and (i).

Section 6.2       GST on Fees.

          Any reference in Section 6.1 to the payment or application of amounts on account of any fees owing to any Person, shall include as well the payment or application of amounts on account of any GST applicable to such fees, provided that such GST shall be paid in accordance with Section 6.1(10) where applicable.

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ARTICLE 7
EVENTS OF TERMINATION

Section 7.1       Events of Termination.

          The happening of any of the following shall constitute an “Event of Termination” hereunder:

(a)	a Servicer Default;
(b)	the Seller defaults in the payment of any amount due to the Trust hereunder or under any other Transaction Documents and such default remains unremedied for a period of three Business Days after written notice of such default has been received by the Seller or the Seller has knowledge of such default;
(c)	the Seller defaults in the observance or performance in any material manner of any of its covenants or obligations contained in any of the Transaction Documents (other than as referred to in (b) above) and, if such default is capable of rectification, such default remains unremedied for a period of 30 days after written notice of such default has been received by the Seller or after the Seller has knowledge of such default;
(d)	any representation or warranty made by the Seller (or any of its officers) in or pursuant to any of the Transaction Documents proves to have been false or incorrect when made (except to any extent which has not had and which would not reasonably be expected to have a Material Adverse Effect), and, if the circumstances giving rise to such incorrect representation or warranty are capable of rectification (such that, thereafter, such representation and warranty would prove correct), such representation or warranty remains uncorrected for a period of 30 days after written notice specifying the incorrectness or after the Seller has actual knowledge of such incorrectness;
(e)	the Net Book Value of all Securitized Leases (determined on the basis that the Net Book Value for a Defaulted Lease shall be deemed to be zero) is less than the Outstanding Note Balance minus the total of the Required Cash Spread Amount and the Required Yield Supplement Amount;
(f)	the Three-Month Average Charge-Off Ratio for any Distribution Date exceeds 1.0%;
(g)	the Three-Month Average Delinquency Ratio for any Distribution Date exceeds 7.0%;
(h)	an Insolvency Event occurs in respect of the Seller;
(i)	on three successive Distribution Dates, the amount on deposit in the Yield Supplement Account is less than the Required Yield Supplement Amount, in each

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	case after any deposits to or withdrawals from the Yield Supplement Account on such dates;
(j)	the Trust ceases at any time to own the Purchased Assets free of any Security Interest, other than Permitted Liens and other than as a result of action by the Trust; or
(k)	a Related Event of Default (as defined in the Trust Indenture) with respect to Series 2010-1 occurs under (i) Section 8.1(a) of the Trust Indenture or (ii) Section 2.1(bb)(i) of the Series 2010-1 Supplement, and in either event is continuing.

Section 7.2       Segregation of Payments.

          If an Event of Termination has occurred and is continuing, the Servicer shall hold all Collections received by it separate and apart from its general funds in a segregated account for the benefit of the Trust and remit such amounts to the Collections Account within two Business Days of receipt, unless Section 5.2(5) applies, in which case the initial Servicer shall continue to remit amounts as required under such section, whereupon neither the Seller nor the initial Servicer shall have any further obligations pursuant to Section 5.2 in respect of the funds so remitted. Interest earned on such amounts shall be for the account of the Servicer until remitted to the Trust.

Section 7.3       Clean-Up Provision.

          If the Outstanding Principal Note Balance at any time is (or will be as of the next following Distribution Date after the payments and applications on such date provided for hereunder) less than 10% of the Outstanding Principal Note Balance as of the Closing Date, the Seller may, on not less than 10 Business Days written notice to the Trust, elect to purchase as of the next following Distribution Date and the Trust shall, upon such next following Distribution Date, sell, assign and transfer to the Seller and the Seller shall purchase and accept transfer of all right, title and interest of the Trust in and to the Purchased Assets hereunder free and clear of all Security Interests arising through the Trust but otherwise on an “as is, where is” basis without recourse to, or representation and warranty of, the Trust, and in consideration therefor the Seller shall assume all of the Trust’s obligations thereunder and pay to the Trust, by deposit to the Collections Account, an amount equal to (A) the greater of (i) the Pool Balance at such time and (ii) the aggregate amount of principal and interest then owing in respect of the Notes (or to the extent any such amounts are denominated in U.S. Dollars, the Equivalent Amount thereof), plus (B) any amounts then owing by the Seller to the Trust, less (C) the total amount then in the Cash Spread Account and Yield Supplement Account. It is hereby confirmed that amounts deposited in the Collections Account pursuant to this Section 7.3 are a refund of a portion of the Master Lease Prepayment Amount under the Master Lease in respect of the related Leases, and such amounts together with any amounts in the Cash Spread Account and Yield Supplement Account shall be applied in accordance with Article 6.

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ARTICLE 8
PERFORMANCE GUARANTEE

Section 8.1       Performance of Obligations.

          The Performance Guarantor hereby unconditionally and irrevocably guarantees the due and prompt performance, payment and observance of all of the terms, conditions, covenants, agreements, liabilities and obligations of any kind whatsoever of the Seller and PHH VMS (whether as Servicer, Financial Services Agent or otherwise) contained in the Transaction Documents (the “Obligations”), and, without limiting such guarantee, in the event of any failure of the Seller or PHH VMS to perform any of such Obligations, the Performance Guarantor hereby covenants to assume and perform or cause to be performed all of such Obligations. The Performance Guarantor acknowledges that the Trust may proceed to enforce the obligations of the Performance Guarantor under this Section 8.1 without first pursuing or exhausting any right or remedy it may have against Seller or PHH VMS under the Transaction Documents.

Section 8.2       Payments Free of Set-Off.

          The Performance Guarantor will make all payments to be made by it in the performance of its obligations hereunder without set-off or counterclaim and without deduction or withholding for or on account of any present or future taxes, imposts, duties, charges, assessments or fees of any nature unless such deduction or withholding is required by any applicable treaty, law, rule or regulation (as modified by the practice of any relevant governmental revenue authority then in effect), in which case it will pay such additional amount as is necessary to ensure that the net amount actually received by the payee will equal the full amount the payee would otherwise have received had no such deduction or withholding been required.

Section 8.3       Modifications.

          The guarantee set forth in Section 8.1 shall be absolute and unconditional and shall not be affected by the transfer by the Performance Guarantor or any other person of all or any part of its or their interest in the Seller or PHH VMS, by any insolvency, bankruptcy, dissolution or other proceeding affecting the Seller or PHH VMS or any other person, by any defense or right of counterclaim or set-off that the Performance Guarantor may have against the Seller or PHH VMS or any other person or by any other fact or circumstance.

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Section 8.4       Guarantee Unconditional.

          The obligations of the Performance Guarantor under this Article 8 are continuing, unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged, diminished, limited, impaired or otherwise affected by (and the Performance Guarantor hereby waives, to the fullest extent permitted by applicable law):

(a)	any extension, other indulgence, renewal, settlement, discharge, compromise, waiver, subordination or release in respect of any Obligation, security, person or otherwise;
(b)	any modification or amendment of or supplement to the Obligations made in accordance with the Transaction Documents or otherwise, including, without limitation, any increase or decrease in any amount payable under this Agreement;
(c)	any release, non-perfection or invalidity of any direct, indirect or collateral security for any Obligation;
(d)	any change in the existence, structure, constitution, name, objects, powers, business or control of the Seller or PHH VMS or any other person, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Seller or PHH VMS or any other person, or any of their assets;
(e)	the existence of any claim, set-off or other rights which the Performance Guarantor may have at any time against the Seller or PHH VMS, the Trust, or any other person, whether in connection herewith or any unrelated transactions;
(f)	any invalidity, illegality or unenforceability relating to or against the Seller or PHH VMS or any provision of applicable law or regulation purporting to prohibit the payment or performance by the Seller or PHH VMS of any Obligation including, the payment of any principal or interest;
(g)	any limitation, postponement, prohibition, subordination or other restriction on the right of the Trust to payment and performance of the Obligations;
(h)	any release, substitution or addition of any co-signer, endorser or other guarantor, including, without limitation, the Seller or PHH VMS, of any of the Obligations;
(i)	any defence arising by reason of any failure by the Trust to make any presentment, demand for performance, notice of non-performance, protest or any other notice, including notice of any of the following: acceptance of this Agreement, partial payment or non-payment, a partial performance or non-performance of all or any part of the Obligations and the existence, creation or incurring of new or additional Obligations;
(j)	any defence arising by reason of any failure by the Trust to proceed against the Seller or PHH VMS or any other person, to proceed against, apply or exhaust any

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	security held, or granted by or from the Seller or PHH VMS or any other person, for any of the Obligations, to proceed against, apply or exhaust any security held from the Performance Guarantor or any other person for this Agreement or to pursue any other remedy in the power of the Trust whatsoever;
(k)	any law which provides that the obligation of a guarantor must neither be larger in amount nor in other respects more burdensome than that of the principal obligation or which reduces a guarantor’s obligation in proportion to the principal obligation;
(l)	any defence arising by reason of any incapacity, lack of authority or other defence of the Seller or PHH VMS or any other person, or by reason of any limitation, postponement, prohibition on the Trust’s right to payment of the Obligations or any part thereof, or by reason of the cessation from any cause whatsoever of the liability of the Seller or PHH VMS or any other person, with respect to all or any part of the Obligations, or by reason of any act or omission of the Trust or others which directly or indirectly results in the discharge or release of the Seller or PHH VMS or any other person, of all or any part of the Obligations or any security or guarantee therefor, whether by contract, operation of law or otherwise;
(m)	any defence arising by reason of any failure by the Trust to obtain, perfect or maintain a perfected or prior (or any) security interest in or lien or encumbrance upon any property of the Seller or PHH VMS or any other person, or by reason of any interest of the Trust in any property, whether as owner, lessee or bailee thereof or as the holder of a security interest therein or lien or encumbrance thereon, being invalidated, voided, declared fraudulent or preferential or otherwise set aside, or by reason of any impairment by the Trust of any right to recourse or collateral;
(n)	any defence arising by reason of the failure by the Trust to marshal any assets;
(o)	any defence based upon any failure by the Trust to give to the Seller or PHH VMS or the Performance Guarantor notice of any sale or other disposition of any property securing any or all of the Obligations or any guarantee thereof, or any defect in any notice that may be given in connection with any sale or other disposition of any such property, or any failure of the Trust to comply with any provision of applicable law in enforcing any security interest in or lien upon any such property, including, without limitation, any failure by the Trust to dispose of any such property in a commercially reasonable manner;
(p)	any dealing whatsoever with the Seller or PHH VMS or any other person, or any security, whether negligently or improvidently or not, or any failure to do so;
(q)	any defence based upon or arising out of any bankruptcy, insolvency, reorganization, moratorium, arrangement, readjustment of debt, liquidation or dissolution proceeding commenced by or against the Seller or PHH VMS or any

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other person, or any discharge of, or bar against collecting, any of the Obligations, in or as a result of any such proceeding; or

(r)

any other act or omission to act or delay of any kind by the Seller or PHH VMS, the Trust or any other person, or any other circumstance whatsoever, whether similar or dissimilar to the foregoing, which might, but for the provisions of this Section 8.4, constitute a legal or equitable discharge, limitation or reduction of the Performance Guarantor’s obligations hereunder (other than the payment and extinguishment in full of all of the Obligations).

The foregoing provisions apply (and the foregoing waivers by the Performance Guarantor will be effective) even if the effect of any action (or failure to take action) by the Trust is to destroy or diminish the Performance Guarantor’s subrogation rights, the Performance Guarantor’s right to proceed against the Seller or PHH VMS for reimbursement, the Performance Guarantor’s right to recover contribution from any other guarantor or any other right or remedy which may be available to the Performance Guarantor.

Section 8.5       No Subrogation.

          Until all of the Obligations have been paid or performed in full, the Performance Guarantor shall have no right of subrogation to, and waives, to the fullest extent permitted by law, any right to enforce any remedy which the Trust now has or may hereafter have against the Seller or PHH VMS in respect of the Obligations and the Performance Guarantor waives any benefit of, and any right to participate in, any security now or hereafter held by the Trust for the Obligations.

Section 8.6       Settlement of Accounts.

          Any account settled or stated between the Trust and the Seller or PHH VMS shall be accepted by the Performance Guarantor as prima facie evidence that the amount thereby appearing due by the Seller or PHH VMS to the Trust is so due.

Section 8.7       Stay of Acceleration.

          If acceleration of the time for payment of any amount payable by the Seller or PHH VMS in respect of the Obligations is stayed upon the insolvency, bankruptcy or reorganization of the Seller or PHH VMS or any moratorium affecting the payment of the Obligations, all such amounts otherwise subject to acceleration will nonetheless be payable by the Performance Guarantor hereunder forthwith upon demand by the Trust in accordance with this Agreement.

Section 8.8       Reinstatement.

          If, at any time, all or any part of any payment previously applied by the Trust to any Obligation is or must be rescinded or returned by the Trust for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of the Seller or PHH VMS), such Obligation shall, for purposes of this Agreement, to the extent that such payment is or must

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be rescinded or returned, be deemed to have continued in existence, notwithstanding such application by the Trust, and this Agreement shall continue to be effective or be reinstated, as the case may be, as to such Obligation, all as though such application by the Trust had not been made.

Section 8.9       Representations and Warranties.

          The Performance Guarantor represents and warrants to the Trust, upon each of which representations and warranties the Trust specifically relies, that as at the Closing Date:

(a)	the Performance Guarantor is a corporation validly existing under the laws of its jurisdiction of incorporation, has full corporate power and authority to own its properties and assets and to carry on its businesses, as presently owned and carried on by it, in every jurisdiction in which it is currently carrying on business;
(b)	the Performance Guarantor has full corporate power and capacity to execute and deliver this Agreement and to perform all of its obligations hereunder;
(c)	the Performance Guarantor has taken all necessary action to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder;
(d)	this Agreement has been duly executed and delivered by the Performance Guarantor;
(e)	this Agreement is a legal, valid and binding obligation of the Performance Guarantor and is enforceable against the Performance Guarantor by the Trust in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting creditors’ rights generally and equitable principles of general application (regardless of whether enforcement is sought in a proceeding at law or in equity;
(f)	the execution and delivery by the Performance Guarantor of this Agreement and the performance by the Performance Guarantor of its obligations hereunder and of the transactions contemplated hereby, does not and will not contravene, breach, constitute a default under, violate or conflict with, as the case may be:

(A)	the Performance Guarantor’s constating documents or by-laws or any resolution passed by the board of directors or shareholders of the Performance Guarantor;
(B)	any law, rule or regulation applicable to or binding on the Performance Guarantor or any of its property and assets; or
(C)	any order, writ, judgment, award, injunction or decree binding on the Performance Guarantor or affecting its property or assets,

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	and does not and will not result in or require the creation of any encumbrance upon any of the property and assets of the Performance Guarantor;
(g)	the execution and delivery by the Performance Guarantor of this Agreement and the performance of its obligations hereunder and of the transactions contemplated hereby, does not and will not contravene, breach, constitute a default under, violate or conflict with, as the case may be, any material indenture, loan or credit agreement, lease, mortgage, security agreement, bond, note, contract or other agreement or instrument to which the Performance Guarantor is a party or by which it, or its property and assets, are bound;
(h)	no authorization, approval or other action by, and no notice to or filing with, any governmental authority, agency or any other person is necessary in connection with the execution and delivery by the Performance Guarantor of this Agreement or the performance of its obligations hereunder or of the transactions contemplated hereby, or to give legal effect to the same other than such as have been obtained or made; and
(i)	there are no actions, suits or proceedings pending or, to the knowledge of the Performance Guarantor, threatened against or affecting the Performance Guarantor or any of its undertakings, property and assets, at law or in equity or before any arbitrator or before or by any governmental authority, governmental department, body, agency, commission, board, bureau, or instrumentality having jurisdiction in the premises in respect of which there is a reasonable possibility of a determination adverse to the Performance Guarantor which could, if determined adversely, materially and adversely affect the ability of the Performance Guarantor to perform any of its obligations hereunder.

Section 8.10      Waiver.

          Performance Guarantor hereby waives any failure or delay on the part of the Trust or any other person in asserting or enforcing any rights or in making any claims or demands hereunder.

Section 8.11      Costs and Expenses.

          The Performance Guarantor shall pay all reasonable out-of-pocket costs and expenses of the Trust (including without limitation legal fees and disbursements) in connection with the enforcement of the obligations of the Performance Guarantor under this Agreement or any related document. The Performance Guarantor agrees to indemnify and hold harmless the Trust from and against any and all liability incurred by the Trust or its nominee or agent or any of its employees hereunder or in connection with the enforcement of this Article 8 against the Performance Guarantor, unless such liability shall be due to the gross negligence, wilful misconduct, misfeasance or bad faith of the Trust or any of its agents, or the negligence, wilful misconduct, misfeasance or bad faith of the Financial Services Agent or any Replacement Servicer which is not the Seller or any Affiliate of the Seller.

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Section 8.12      Termination.

          Performance Guarantor’s guarantee and obligations under Section 8.1 shall terminate upon the Final Collection Date or when the Seller or PHH VMS has no remaining obligations under the Transaction Documents.

ARTICLE 9
MISCELLANEOUS

Section 9.1       Notice.

          Any notice, consent, request, agreement, approval, waiver or other communication required or permitted to be given or delivered hereunder will be in writing and will be given by delivery to the relevant address indicated below or by facsimile transmission to such address and such notice shall, if given on a day other than a Business Day or after the normal business hours of the recipient on a Business Day, be deemed to have been given on the next Business Day:

          To the Trust:

FLEET LEASING RECEIVABLES TRUST
c/o BNY Trust Company of Canada
4 King Street West, Suite 1101
Toronto, ON M5H 1B6
CANADA
Facsimile No.: 416-360-1711
Attention:        Farhan Mir
Email:              farhan.mir@bnymellon.com

with a copy to PHH Vehicle Management Services Inc. as Financial Services Agent at:

PHH VEHICLE MANAGEMENT SERVICES INC.
2233 Argentia Road
Suite 400
Mississauga ON L5N2X7
CANADA
Facsimile No.: 905-286-5363
Attention:        Mark Johnson
Email:             mark.johnson@phhmail.com

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With a copy to:

PHH ARVAL
940 Ridgebrook Road
Sparks, MD 21152-9390
USA
Facsimile No.: 410-771-2530
Attention:         Joseph Weikel
Email:              Joseph.weikel@phh.com

with a copy to the Financial Services Sub-Agent:

BNY TRUST COMPANY OF CANADA
4 King Street West, Suite 1101
Toronto, ON M5H 1B6
CANADA
Facsimile No.: 416-360-1711
Attention:         Farhan Mir
Email:              farhan.mir@bnymellon.com

To the Seller:

PHH FLEET LEASE RECEIVABLES L.P.
c/o Aikins, MacAulay & Thorvaldson LLP
Attention: E. Wells Peever, Q.C.
30th Floor Commodity Exchange Tower
360 Main Street
Winnipeg, Manitoba
R3C 4G1

with a copy to:

PHH FLEET LEASE RECEIVABLES L.P.
2233 Argentia Road, Suite 400, Room 4
Mississauga, Ontario
L5N 2X7

To the Performance Guarantor:

PHH Corporation
3000 Leadenhall Road
Mount Laurel, NJ 08054
Attention: Senior Vice President and Treasurer
Facsimile No.: 856-917-7295

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          With a copy to:

PHH Corporation
3000 Leadenhall Road
Mount Laurel, NJ 08054
Attention: Senior Vice President and Secretary
Facsimile No.: 856-917-7295

          To the initial Servicer:

PHH VEHICLE MANAGEMENT SERVICES INC.
2233 Argentia Road
Suite 400
Mississauga ON L5N2X7
CANADA

Facsimile No.: 905-286-5363
Attention:        Mark Johnson
Email:             mark.johnson@phhmail.com

With a copy to:

PHH ARVAL
940 Ridgebrook Road
Sparks, MD 21152-9390
USA

Facsimile No.: 410-771-2530
Attention:         Joseph Weikel
Email:              Joseph.weikel@phh.com

To the Replacement Servicer, at the address provided for in the Back-Up Servicer Agreement or Substitute Servicer Agreement (as defined therein), as applicable.

Any party may from time to time notify the other parties hereto, in accordance with the provisions hereof, of any change of address which thereafter, until changed by like notice, shall be the address of such party for all purposes of this Agreement.

Section 9.2       Amendments and Waivers.

(1) This Agreement and the Master Lease may be amended, supplemented, modified, restated or replaced by written instrument only signed by the Seller, the Servicer, the Trust and the Performance Guarantor, notice of which has been concurrently provided to the Rating Agencies.

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(2) No waiver of any provision of this Agreement, nor consent to any departure by any party therefrom, shall in any event be effective unless the same shall be in writing and signed by such party, and then said waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of any party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof.

(3) The Seller acknowledges that the Trust is restricted from agreeing to certain amendments and waivers in respect of this Agreement pursuant to Section 6.2(f) of the Trust Indenture.

Section 9.3       Successors and Assigns.

          This Agreement will be binding upon and enure to the benefit of the parties hereto and their respective successors and permitted assigns. Except as provided below, no party hereto may assign any of its rights hereunder without the prior consent of the other parties. The Trust may assign this Agreement and any of the Purchased Assets to (i) the Indenture Trustee under the Trust Indenture; and (ii) any Person after the occurrence of an Event of Termination (provided that it provides at least 10 Business Days’ prior written notice thereof to the Rating Agencies); for greater certainty, any proceeds from the assignment of any Purchased Assets shall constitute Collections and shall be applied in accordance with Section 6.1 hereof.

Section 9.4       Indemnification.

(1) The Seller will indemnify the Trust and its agents and save them harmless from and against any and all damages, losses, claims, liabilities, costs and expenses (collectively, “Losses”) awarded against or incurred by the Trust or such agents arising out of or as a result of:

(a)	the assignment of Lease Rights relating to Securitized Leases which are Ineligible Securitized Leases (except to the extent any such Ineligible Securitized Leases are repurchased by the Seller in accordance herewith);
(b)	the failure of PHH VMS, the Limited Partner or the Seller to transfer ownership in, and to vest in:

(i)	in the case of PHH VMS, the Limited Partner,
(ii)	in the case of the Limited Partner, the Seller, and
(iii)	in the case of the Seller, the Trust,

	the Lease Rights relating to the Securitized Leases free and clear of any Security Interest, other than any Security Interest created by or arising through the Trust;
(c)	the use, operation, maintenance or ownership of any Leased Equipment;

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(d)	the failure to comply with Applicable Laws with respect to the registered ownership of Securitized Equipment;
(e)	subject to taking into account any amounts paid by the Seller or the Servicer pursuant to Sections 2.3, 4.2 and 5.4, any representation or warranty made by the Seller in any Transaction Document or any other document furnished pursuant thereto which was incorrect in any material respect when made;
(f)	any failure of the Seller or PHH VMS to perform or observe any of its duties, obligations or covenants under any of the Transaction Documents;
(g)	disclosure of any personal information relating to any Obligor by the Seller or PHH VMS;
(h)	any taxes (or any interest or penalties with respect thereto) at any time being asserted against the Trust with respect to the assignment of the Purchased Assets or any other charges relating to the transactions contemplated hereby that may result in a statutory lien or deemed trust that may rank ahead of the interest of the Trust in the Purchased Assets or the Security Interest granted to the Indenture Trustee, other than any Security Interest created by or arising through the Trust;
(i)	the failure of the Trust to be recorded as an additional insured or loss payee in respect of the insurance required to be maintained by the Obligors of the Securitized Equipment; or
(j)	the commingling by the Seller of Collections with respect to Lease Rights forming part of the Portfolio of Assets at any time with other funds,

except, in each case, to the extent that such Losses arise out of or as a result of (i) the gross negligence, wilful misconduct, misfeasance or bad faith of the Trust or any of its agents, or (ii) as a direct result of the negligence, wilful misconduct, misfeasance or bad faith of the Financial Services Agent, the Financial Services Sub-Agent or any Replacement Servicer which, in the case of either (i) or (ii) above, is not the Seller or any Affiliate of the Seller.

(2) The Seller and the Trust each agree to provide reasonable assistance to the other party, at the request of such other party and, in either case, at the Seller’s expense, in any action, suit or proceeding brought by or against, or any investigation involving such requesting party (including the Financial Services Agent in respect of the Trust but excluding any actions against each other) relating to any of the transactions contemplated hereby or to any part of the Portfolio of Assets. If the Seller may be liable under Section 9.4(1) in respect of any Losses in connection with any such action, suit, proceeding or investigation, and, in the sole determination of the Trust, acting reasonably, the Seller or the Performance Guarantor has the financial ability to pay such damages, losses, claims, liabilities, costs and expenses, the Seller will have the right, on behalf of the Trust or the Financial Services Agent but at the Seller’s expense, to defend such action, suit or

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proceeding, or participate in such investigation, with counsel selected by it, and will have sole discretion as to whether to litigate, appeal or settle.

Section 9.5       Costs, Expenses and Taxes.

          In addition to the rights of indemnification provided for in Section 9.4, the Seller agrees to pay on demand all reasonable costs, expenses and taxes (excluding income taxes) incurred by the Trust in connection herewith (including costs and expenses incurred in the enforcement of any of the Trust’s rights and remedies hereunder or in the performance by the Trust of the obligations of the Seller, the Servicer (including any Replacement Servicer), the Performance Guarantor or the Trust, as the case may be, hereunder) and in connection with the occurrence of an Event of Termination or an event which, with the giving of notice or the lapse of time or both, would constitute an Event of Termination, in each case including the fees and out-of-pocket expenses, on a solicitor and client and substantial indemnity basis, of the Trust’s counsel in respect of advising the Trust as to its rights and remedies hereunder or under any Transaction Document.

Section 9.6       Correction of Errors.

          The Trust, the Servicer and the Seller each agree to reimburse the other for any loss resulting from a miscalculation or clerical error by it in the administration of this Agreement and the Transaction Documents; provided, however, that the party requesting such reimbursement shall explain, in reasonable detail, such miscalculation or clerical error, and the amount of such reimbursement shall not exceed the amount which should initially have been paid to the Trust, the Servicer or the Seller, as the case may be, but for such miscalculation or clerical error, plus, in the case of amounts paid by the Seller or the initial Servicer, interest at a rate equal to the Applicable Rate by deposit to the Collections Account. Any such amount owing by the Trust shall be paid in accordance with Section 6.1 and only to the extent of amounts available to be paid to the Seller or the Servicer under Section 6.1(3)(h) or any Replacement Servicer under Section 6.1(2)(c)(ii).

Section 9.7       Change in Circumstance.

          If either (i) the introduction of or any change (including any change by way of imposition of a capital or other tax) in or in the interpretation of any law, rule, regulation, order, judgment, injunction, award or decree by any court or governmental authority charged with the administration thereof; or (ii) the compliance by the Trust with any guideline or request from any Governmental Authority (whether or not having the force of law) has the effect of increasing the cost to the Trust of making, funding or maintaining or agreeing to make the Purchase hereunder, reducing the rate of return to the Trust in connection therewith or as a result of reserves (including reserves against capital) being required to be made therefor, reducing the amount of any Receivable payable in respect of any part of the Securitized Leases or requiring the Trust to make a payment calculated with reference to any part of the Portfolio of Assets, the Seller shall, from time to time, upon demand by the Trust, pay the Trust that portion of such increased costs incurred, amounts not received or receivable, or compensation for such reduction in rate of return or required payment which is attributable to making, funding or maintaining the Purchase. The

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Trust shall provide the Seller with a certificate setting forth its computation of such increased costs, amounts not received or receivable or reduction in rate of return or required payment, which computation may utilize such averaging and attribution methods the Trust believes to be reasonable. Such certificate shall be prima facie evidence, absent manifest error, of the amount payable to the Trust pursuant to this Section 9.7. The Trust shall, upon becoming aware of an event or circumstance that is likely to, with the passage of time or otherwise, entitle it to demand payment pursuant to this Section 9.7, promptly notify the Seller.

Section 9.8       Time of Essence.

          Time will be of the essence of this Agreement.

Section 9.9       Failure to Perform.

          If the Seller, the Servicer (including any Replacement Servicer) or the Performance Guarantor, as the case may be, fails to perform any of its agreements or obligations hereunder, the Trust may (but will not be required to) itself perform, or cause to be performed, such agreement or obligation.

Section 9.10      Consent to Jurisdiction; Waiver of Immunities.

(1) The parties hereto each hereby irrevocably (i) submit to the jurisdiction of any court sitting in Toronto in any action or proceeding arising out of or relating to this Agreement; (ii) agree that all claims in respect of such action or proceeding may be heard and determined in such Toronto court; (iii) waive, to the extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding; and (iv) agree that a final judgment in any 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.

(2) Nothing in this Section 9.10 shall affect the right of the Trust to serve legal process in any other manner permitted by law, or affect its right to enforce any action, proceeding or judgment against the Seller, the Servicer or the Performance Guarantor or their respective property in the courts of other jurisdictions.

(3) To the extent that the Seller, the Servicer or the Performance Guarantor has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, the Seller, the Servicer and the Performance Guarantor hereby irrevocably waive, to the extent permitted by law, such immunity in respect of their obligations hereunder.

Section 9.11      Confidentiality.

          The parties hereto each acknowledge that all data and information provided hereunder by one to any other shall be considered as confidential information of the other and shall not be disclosed by any party to any other Person except (i) as required to implement the terms of this

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Agreement or by Applicable Law; and (ii) that the Trust may disclose any such data and information to Rating Agencies, prospective secured lenders, prospective secondary purchasers, professional advisors and regulatory authorities as required to implement the terms of this Agreement or the financing thereof and the Seller, the Servicer and the Performance Guarantor may disclose any such data and information to each other or to professional advisors, taxing authorities and regulatory authorities.

Section 9.12      Further Assurances.

          The parties hereto agree, from time to time, to enter into such further agreements and to execute all such further instruments as may be reasonably necessary or desirable to give full effect to the terms of this Agreement and to the ability of the Trust to exercise or enforce any of its rights and remedies hereunder or under the Transaction Documents.

Section 9.13      Remedies.

          The remedies herein provided are cumulative and not exclusive of any remedies provided at law.

Section 9.14      Limitation of Liability of Financial Services Agent and Issuer Trustee.

(1) The Issuer Trustee has entered into this Agreement solely in its capacity as trustee of the Trust and not in its personal capacity, and any and all of the representations, warranties, undertakings, covenants, indemnities, agreements and other obligations made on the part of or by the Issuer Trustee herein are made and intended not as personal representations, warranties, undertakings, covenants, indemnities, agreements and other obligations of or by the Issuer Trustee or for the purpose or with the intention of binding the Issuer Trustee in its personal capacity, but are made and intended for the purpose of binding only the Trust and the Trust Property or a specific portion thereof. No property or assets of the Issuer Trustee, whether owned beneficially by it in its personal capacity or otherwise (other than the Trust Property), will be subject to levy, execution or other enforcement procedures with regard to any of the representations, warranties, undertakings, covenants, indemnities, agreements or other obligations of the Trust or the Issuer Trustee hereunder, and no recourse may be had or taken, directly or indirectly against the Issuer Trustee in its personal capacity, any beneficiary of the Trust or any affiliate, shareholder, director, officer, representative, employee or agent of the Issuer Trustee or any predecessor or successor of the Issuer Trustee with regard to the representations, warranties, undertakings, covenants, indemnities, agreements and other obligations of the Trust or the Issuer Trustee hereunder.

(2) This Agreement shall be deemed and construed for all purposes as if made by the Financial Services Agent in and only in its capacity as agent of the Issuer Trustee. Any liability of the Financial Services Agent under this Agreement is non-recourse to the Financial Services Agent in its personal capacities and limited solely to the property of the Trust. No other property or assets of the Financial Services Agent, whether owned by

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it in its personal capacity or otherwise, will be subject to levy, execution or other enforcement procedure with regard to any obligation under this Agreement.

(3) The foregoing will not in any way affect any rights that the other parties hereto may have hereunder to (a) proceed against any person with respect to the enforcement of any guarantee of, or collateral security for, payment of such obligations or (b) recover any funds, damages, expenses or costs as a result of fraud, wilful misconduct, bad faith, negligence or misrepresentation by the Issuer Trustee or the Financial Services Agent in its personal capacity.

Section 9.15      Limited Partnership.

          The parties hereto acknowledge that the Seller is a limited partnership formed under The Partnership Act (Manitoba), a limited partner of which is, except as expressly required by law, only liable for any of its liabilities or any of its losses to the extent of the amount that the limited partner has contributed or agreed to contribute to its capital.

Section 9.16      Execution in Counterparts.

          This Agreement may be executed in counterparts, each of which shall be deemed to be an original and which together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement or any such other agreement by facsimile or e-mail shall be effective as delivery of a manually executed counterpart of this Agreement or such other agreement.

[Signature pages follow]

          IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day and year first above written.

PHH VEHICLE MANAGEMENT SERVICES INC.
By:	/s/	Mark E. Johnson
	Name:	Mark E. Johnson
	Title:	Senior Vice-President and Treasurer
FLR GP 1 INC., as general partner on behalf of PHH FLEET LEASE RECEIVABLES L.P.
By:	/s/	Mark E. Johnson
	Name:	Mark E. Johnson
	Title:	Senior Vice-President and Treasurer

Schedule I
-1-

- 2 -

BNY TRUST COMPANY OF CANADA in its capacity as trustee of FLEET LEASING RECEIVABLES TRUST, by its Financial Services Agent, PHH VEHICLE MANAGEMENT SERVICES INC.
By:	/s/	Mark E. Johnson
	Name:	Mark E. Johnson
	Title:	Senior Vice-President and Treasurer
PHH CORPORATION
By:	/s/	Sandra E. Bell
	Name:	Sandra E. Bell
	Title:	Executive Vice-President and Chief Financial Officer

EX-10.15.1

Exhibit 10.15.1

FLEET LEASING RECEIVABLES TRUST

(the “Trust”)

and

PHH VEHICLE MANAGEMENT SERVICES INC.

(the “Originator”)

and

PHH FLEET LEASE RECEIVABLES L.P.

(the “Seller”)

and

MERRILL LYNCH CANADA INC., CIBC WORLD MARKETS INC., RBC DOMINION
SECURITIES INC. and SCOTIA CAPITAL INC.

(the “Agents”)

AGENCY AGREEMENT

January 25, 2010

Stikeman Elliott LLP

AGENCY AGREEMENT

          THIS AGENCY AGREEMENT (this “Agency Agreement”) dated as of January 25, 2010, among BNY TRUST COMPANY OF CANADA, in its capacity as trustee of FLEET LEASING RECEIVABLES TRUST (in such capacity, the “Trust”), by PHH VEHICLE MANAGEMENT SERVICES INC., in its capacity as financial services agent of the Trust , PHH VEHICLE MANAGEMENT SERVICES INC., in its capacity as originator (the “Originator”) of certain leases that will be transferred to the Trust as security for the Notes (as defined herein), PHH FLEET LEASE RECEIVABLES L.P. (the “Seller”) and MERRILL LYNCH CANADA INC., CIBC WORLD MARKETS INC., RBC DOMINION SECURITIES INC. and SCOTIA CAPITAL INC. (collectively, the “Agents”).

          WHEREAS the Agents understand that the Trust wishes to sell the principal amount of CAD90,740,000 of Series 2010-1 Class A-2a Asset-Backed Notes of the Trust (the “Notes”).

          AND WHEREAS the Agents understand that the Notes are to be offered and sold to the public in each of the provinces of Canada pursuant to a short form base shelf prospectus of the Trust dated January 7, 2010 qualifying the issuance of up to $1,000,000,000 principal amount of asset-backed notes of the Trust, as supplemented by a prospectus supplement dated January 25, 2010 (collectively, the “Prospectus”).

          AND WHEREAS the Agents, subject to the terms and conditions hereof, agree to act, and the Trust agrees to appoint the Agents as the agents of the Trust to solicit, on a “best efforts” basis (and without underwriting liability), offers to purchase the Notes on the Closing Date pursuant to the Prospectus. The Agents will be under no obligation to purchase the Notes.

          NOW THEREFORE in consideration for their services hereunder, and for other good and valuable consideration, the parties hereto agree as follows:

Section 1 DEFINITIONS

(1)	In this Agency Agreement, unless stated elsewhere in this Agency Agreement, the following terms have the following meanings:
	“Agents’ counsel” means Stikeman Elliott LLP;
	“Applicable Securities Laws” means all applicable securities laws and rules, regulations, instruments, notices, orders and written policies in the Selling Provinces to the offering and sale of the Notes, including but not limited to the securities legislation of the Selling Provinces, and the rules, instruments and policies of the Securities Commissions;
	“Business Day” means a day which is not Saturday or Sunday or a legal holiday in Toronto, Ontario;
	“Closing” means the closing of the purchase and sale of the Notes contemplated by this Agency Agreement;

-2-

“Closing Date” means January 27, 2010, or such other date as the Agents and the Trust may determine, acting reasonably;

“Closing Time” means 10:00 a.m. (Toronto time) or such other time, on the Closing Date, as the parties may agree;

“Condition” in respect of a person, means the assets, liabilities (contingent or otherwise), financial condition, properties, business, affairs, operations, results of operations, income, cash flow or capital of such person;

“Declaration of Trust” means the declaration of trust of the Trust dated November 2, 2009, as amended and restated on November 16, 2009;

“DBRS” means DBRS Limited and its successors;

“distribution” means “distribution” or “distribution to the public”, as the case may be, as defined under the Applicable Securities Laws of the Selling Provinces and “distribute” has a corresponding meaning;

“Governmental Authority” means any federal, provincial, state, municipal, county or regional governmental or quasi-governmental authority, domestic or foreign, and includes any ministry, department, court, tribunal, arbitral body, commission, bureau, board, administrative or other agency or regulatory body or instrumentality thereof, any quasi-governmental body or private body exercising regulatory, expropriation or taxing authority under or for the account, if any, of the foregoing and any stock exchange or self-regulatory authority and, for greater certainty, includes the Regulatory Authorities;

“Indenture” means the Trust Indenture made as of November 16, 2009 between Computershare Trust Company of Canada as indenture trustee, and BNY Trust Company of Canada, as issuer trustee, as supplemented by the 2010-1 Supplemental Indenture made as of January 27, 2010 among such parties, as amended, supplemented, modified, restated or replaced from time to time;

“Issuer Trustee” has the meaning assigned in the Indenture;

“laws” means any and all applicable (i) laws, constitutions, treaties, statutes, codes, ordinances, principles of common and civil law and equity, orders, decrees, rules, regulations and municipal by-laws whether domestic, foreign or international, (ii) judicial, arbitral, administrative, ministerial, departmental and regulatory judgments, orders, writs, injunctions, decisions, and awards of any Governmental Authority, and (iii) policies, practices and guidelines of, or contracts with, any Governmental Authority which, although not actually having the force of law, are considered by such Governmental Authority as requiring compliance as if having the force of law, in each case binding on or affecting the Person referred to in the context in which the word is used;

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“material change” means a material change within the meaning of any of the Applicable Securities Laws;

“material fact” means a material fact within the meaning of any one or more of the Applicable Securities Laws;

“misrepresentation” means a misrepresentation within the meaning of the Applicable Securities Laws;

“Moody’s” means Moody’s Investors Service, Inc. and its successors;

“NI 13-101” means National Instrument 13-101 — System for Electronic Document Analysis and Retrieval (SEDAR) of the Canadian Securities Administrators and includes without limitation any successor national instrument and companion policy to National Instrument 13-101;

“NI 44-102” means National Instrument 44-102 — Shelf Distributions of the Canadian Securities Administrators and includes without limitation any successor national instrument and companion policy to National Instrument 44-102;

“Passport Procedures” means the procedures provided for under National Policy 11-202 — Process for Prospectus Reviews in Multiple Jurisdictions among the securities commissions and other securities regulatory authorities in each of the provinces and territories of Canada;

“Preliminary Prospectus” means the preliminary short form base shelf prospectus of the Trust dated November 16, 2009;

“Prospectus Amendment” means an amendment to the Prospectus, in either or both of the English and French languages unless the context indicates otherwise, and includes an amendment by way of a material change report as contemplated by NI 44-102;

“Prospectus Supplement” means the prospectus supplement of the Trust dated January 25, 2010 qualifying the issuance of the Notes;

“Purchase Agreement” means the purchase agreement dated as of January 27, 2010 made among the Trust, the Seller, PHH Vehicle Services Inc. as servicer and PHH Corporation as performance guarantor, as the same may be amended, restated, modified or supplemented from time to time;

“Rating Agencies” shall have the meaning assigned in the Indenture;

“Related Collateral” shall have the meaning assigned in the Indenture;

“Securities Commissions” means the securities commissions or similar securities regulatory authorities in the Selling Provinces;

“Selling Provinces” means all of the provinces of Canada;

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“Shelf Prospectus” means the (final) short form base shelf prospectus of the Trust dated January 7, 2010 qualifying the issuance of up to $1,000,000,000 principal amount of asset-backed notes;

“Sub-Agents” means any other investment dealer and broker that the Agents may have retained, appointed or engaged pursuant to Section 2(d);

“Transaction Documents” means this Agency Agreement, the Purchase Agreement, the Indenture, the Prospectus, the Notes and any other document entered into from time to time by one or more of the parties hereto in connection with the issuance and sale of the Notes, in each case, as amended, supplemented, modified, restated or replaced from time to time;

“Trust’s auditors” means Deloitte LLP;

“Trust’s counsel” means Blake, Cassels & Graydon LLP, or such other counsel engaged by the Trust;

(2) Gender and Number

          Words importing the singular number include the plural, and vice versa; words importing the masculine gender include the feminine gender; and words importing individuals include partnerships, associations, bodies corporate, trustees, executors and legal representatives, and vice versa.

(3) Recitals

          Terms defined in the recitals to this Agency Agreement and used herein have the meanings assigned in the recitals.

Section 2 THE OFFERING

(a) Sale of the Notes.

(i)

Subject to the terms and conditions of this Agency Agreement, the Trust hereby appoints the Agents, and the Agents hereby agree to act as agents for the Trust, severally and not jointly, to offer the Notes for sale in the relevant Selling Provinces on behalf of the Trust. The Agents will use their best efforts to arrange for one or more purchasers to purchase the aggregate principal amount of the Notes.

(ii)

The Trust will create, issue and sell the Notes, as applicable, at the Closing Time, in accordance with and subject to the provisions of this Agency Agreement, the Indenture, the Prospectus and all applicable laws. It is understood and agreed by the parties that the Agents will act as agents only and at no time will the Agents have any obligation whatsoever to purchase, in whole or in part, the Notes.

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(iii) The Agents will not offer the Notes in any jurisdiction other than the Selling Provinces.

(b) Compensation. The Seller agrees to pay the Agents $805,551.03 representing 0.8877574% of the aggregate principal amount of Notes sold (collectively, the “Agency Fee”), payable by the Seller, or the Originator on behalf of the Seller, to Merrill Lynch Canada Inc. on behalf of the Agents, in cash at the Closing (provided that the Agency Fee will be recalculated and/or amounts reimbursed to the Seller if the Seller or an affiliate of the Seller purchases the Notes (either at Closing or during the statutory withdrawal period) such that the aggregate amount of agency fees which shall be payable in respect of all Series 2010-1 Notes sold to persons other than the Seller or an affiliate of the Seller (the “Fee Earning Notes”) shall equal the amount equal to the sum of (1) 1.00% of the first $200,000,000 of the aggregate principal amount of the Fee Earning Notes and (2) 0.75% of the aggregate principal amount of the Fee Earning Notes above the first $200,000,000), in consideration for the Agents, among other things:

(i)	acting as agents to solicit, on a best efforts basis, offers to purchase the Notes;
(ii)	advising the Trust with respect to the issuance and sale of the Notes;
(iii)	acting as the registered dealer and executing the trades in connection with the sale of Notes;
(iv)	assisting in the preparation of the offering materials, including the Prospectus; and
(v)	performing administrative services in connection with the sale of Notes.

	The Agents shall be under no obligation to provide any service not specifically enumerated herein.
	Such Agency Fee will be allocated amongst the Agents as follows: (A) to each of CIBC World Markets Inc., RBC Dominion Securities Inc. and Scotia Capital Inc., the amount of $241,663.31, and (B) to Merrill Lynch Canada Inc., the amount of $80,561.10, or as otherwise agreed between the Agents.
(c)	Appointment of Sub-Agent. The Trust agrees that the Agents may engage, appoint and retain such additional Sub-Agents in each of the Selling Provinces as the Agents may deem necessary to conduct or assist in the sale of the Notes. The Agents agree that such Sub-Agents must be acceptable to the Trust, acting reasonably, and that such additional Sub-Agents shall agree to sell the Notes on the same terms and conditions as the Agents. The Agents agree that they will ensure that any Sub-Agents offer the Notes for sale only in accordance with the terms of this Agency Agreement. The remuneration

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payable to such Sub-Agents will be paid by the Agents from the Agents’ compensation under this Agency Agreement.

Section 3 DELIVERY OF DOCUMENTS

(a) The Trust shall cause to be delivered to the Agents:

(i)	on the date of this Agency Agreement, the Preliminary Prospectus, the Shelf Prospectus and the Prospectus Supplement in the English and French languages as filed with the Securities Commissions in the Selling Provinces (along with copies of the certificates of authentication required by NI 13-101), signed as required by the Applicable Securities Laws and acceptable in form and substance to the Agents’ counsel, acting reasonably, unless publicly available on the System for Electronic Document Analysis and Retrieval (“SEDAR”) which shall be deemed to be delivered to the Agents;
(ii)	on the date of this Agency Agreement, all documents, in the English and French languages, incorporated or containing information incorporated by reference into the Preliminary Prospectus or the Shelf Prospectus and not previously delivered to the Agents and except as otherwise publicly available on SEDAR, which shall be deemed to be delivered to the Agents;
(iii)	forthwith when available, copies of such continuous disclosure documents or information as may have been or may be incorporated by reference, at the appropriate time or times, under the heading “Documents Incorporated by Reference” in the Shelf Prospectus and the Prospectus Supplement, as the case may be, except as otherwise publicly available on SEDAR which shall be deemed to be delivered to the Agents;
(iv)	forthwith when available, copies of any Prospectus Amendment as contemplated by NI 44-102, signed as required by Applicable Securities Laws (along with copies of the certificates of authentication required by NI 13-101) and acceptable in form and substance to the Agents and the Agents’ counsel, acting reasonably, including copies of any documents incorporated, or containing information incorporated, by reference therein and not previously delivered hereunder except as otherwise publicly available on SEDAR which shall be deemed to be delivered to the Agents;
(v)	at the time of the delivery to the Agents pursuant to this Section 3(a)(v) (or as soon as practicable thereafter) of the French language version of the Prospectus Supplement and any Prospectus Amendment (or as soon as practicable thereafter), an opinion of the Trust’s counsel dated the date of the Prospectus Supplement or any Prospectus Amendment, as applicable, and acceptable in form and

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	substance to the Agents and the Agents’ counsel, acting reasonably, to the effect that the Shelf Prospectus, the Prospectus Supplement and any Prospectus Amendment, together with each of the documents incorporated by reference therein, are in all material respects complete and proper translations of such documents in the English language;
(vi)	at the time of the delivery to the Agents pursuant to this Section 3(a) of the Shelf Prospectus, the Prospectus Supplement and any Prospectus Amendment (or as soon as practicable thereafter), a comfort letter of the Trust’s auditors, dated the date of the Prospectus Supplement or any Prospectus Amendment or the date of release of such information, as the case may be, and acceptable in form and substance to the Agents and the Agents’ counsel, acting reasonably, with respect to any financial and accounting information relating to the Trust contained in the Shelf Prospectus, the Prospectus Supplement and any Prospectus Amendment, or other material financial information, as the case may be. The comfort letter shall be in addition to any comfort letters which must be filed with Securities Commissions in the Selling Provinces pursuant to Applicable Securities Laws and shall be based on a review by the Trust’s auditors having a cut-off date not more than two Business Days prior to the date of the comfort letter;
(vii)	forthwith when available, in such cities in the Selling Provinces as the Agents may reasonably request, as soon as practicable after a receipt therefor has been issued by the Securities Commissions, and in any event within one Business Day from the date of the receipt for the Prospectus, any Prospectus Amendment and the Prospectus Supplement, that number of commercial copies of such document, including copies of any documents incorporated, or containing information incorporated, by reference therein as the Agents may reasonably require, without charge; and
(viii)	copies of all receipts received from time to time from the Securities Commissions in respect of the filing thereof for the Preliminary Prospectus, the Shelf Prospectus or any Prospectus Amendment as soon as they are available.

(b) The Trust’s delivery to the Agents of the documents referred to in Section 3(a)(i), (ii), (iii), (iv) and (vii) shall constitute the Trust’s consent to the use by the Agents and any Sub-Agents of such documents in connection with the distribution of the Notes in compliance with the provisions of this Agency Agreement.

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Section 4 COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE AGENTS

          Each of the Agents, severally and not jointly or jointly and severally, covenant, represent and warrant to the Trust and the Originator that:

(a)	it will offer the Notes for sale to the public, directly and through other Sub-Agents, if any, in the Selling Provinces, only as permitted by Applicable Securities Laws, upon the terms and conditions set forth in the Prospectus and this Agency Agreement and that it will not, directly or indirectly, offer Notes for sale in any jurisdiction, other than the Selling Provinces, that would require the filing of a prospectus, registration statement, offering memorandum or similar document or would result in the Trust having any reporting or other obligation in such jurisdiction, and it shall ensure that each Sub-Agent, prior to its appointment as such, has delivered to the Agents an undertaking to the foregoing effect. For the purposes of this Section 4(a), the Agents shall be entitled to assume that the Notes are qualified for distribution in the Selling Provinces where a receipt evidencing the receipt (and deemed receipt) of the Securities Commission in each of the Selling Provinces (under Passport Procedures) for the Shelf Prospectus shall have been obtained from the Ontario Securities Commission following the filing of the Shelf Prospectus and also where the Prospectus Supplement has been filed on SEDAR in each of the Selling Provinces;
(b)	it will provide on a timely basis all information and documentation required by the Trust to fulfil its obligations under the Applicable Securities Laws with such information and documents to be in a form acceptable to the Trust and the Trust’s counsel, acting reasonably, such information to include a breakdown of the number of Notes distributed in each of the Selling Provinces where such breakdown is required for the purpose of calculating fees payable to the Securities Commissions;
(c)	this Agency Agreement has been duly authorized, executed and delivered by it and is a valid and binding agreement of it, enforceable in accordance with its terms subject to applicable bankruptcy, insolvency, winding-up, moratorium or reorganization, or other similar laws affecting creditors’ rights generally and to the availability of equitable remedies;
(d)	it is in compliance with the dealer registration requirements of Applicable Securities Laws for purposes of the sale of the Notes in each of the Selling Provinces;
(e)	it will not make any representation or warranty with respect to the Trust, the Originator, the Related Collateral or the Notes other than as set forth in the Prospectus; and
(f)	if the Prospectus is amended, it will promptly send a copy of any such Prospectus Amendment to all persons who have previously received the

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Prospectus from it and will include such Prospectus Amendment in all further deliveries of the Prospectus.

Section 5 REPRESENTATIONS AND WARRANTIES OF THE ORIGINATOR

          The Originator represents and warrants to and agrees with the Agents that:

(a)	the Originator is a corporation amalgamated and validly existing under the laws of Canada;
(b)	the Originator has all requisite corporate power and authority to enter into, deliver and perform its obligations under this Agency Agreement and the other Transaction Documents to which the Originator is or on the Closing Date will be a party and all necessary action has been or will be taken on or before the Closing Date to authorize the execution, delivery and performance of this Agency Agreement and the other Transaction Documents to which the Originator is or on the Closing Date will be a party, in each case, by the Originator;
(c)	assuming the due authorization, execution and delivery of this Agency Agreement by the parties hereto other than the Originator, and the enforceability of this Agency Agreement against such parties, this Agency Agreement has been duly executed and delivered by the Originator and constitutes a legal, valid and binding obligation of the Originator, enforceable against the Originator in accordance with its terms, subject to applicable bankruptcy, insolvency, winding-up, moratorium or reorganization, or other similar laws affecting creditors’ rights generally and to the availability of equitable remedies;
(d)	the execution and delivery by the Originator of, and the performance by the Originator of its obligations under, the Transaction Documents to which it is a party will not result in any violation of the articles of amalgamation or by-laws of the Originator or any material violation of any agreement or other instrument binding upon the Originator or any of its assets or undertakings, will not result in any material violation of any statute or any order, rule or regulation of any governmental body, agency or court having jurisdiction over the Originator or of any law applicable to the Originator or any of its assets or undertakings;
(e)	no consent, approval, authorization or order of, or qualification with, any governmental body or agency having jurisdiction over the Originator or the Trust is required for the performance by the Originator or the Trust of their respective obligations under any Transaction Document;
(f)	there are no legal or governmental proceedings ongoing or, to the Originator’s knowledge, pending or threatened, to which the Originator, the Trust or any of the Originator’s subsidiaries is a party or to which any of the property of the Originator or the Trust is subject, which could have a material

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	adverse effect on the execution, delivery or performance of the Transaction Documents;
(g)	the Transaction Documents to which the Originator or the Trust is or on the Closing Date will be a party, when executed and delivered by the Originator or the Trust, as applicable, will be duly authorized by all necessary action and, assuming the due authorization, execution and delivery of the Transaction Documents to which the Originator or the Trust, as applicable, is or on the Closing Date will be a party by the parties thereto other than the Originator or the Trust, as applicable, and the enforceability of such Transaction Documents against such parties, will constitute legal, valid and binding obligations of the Originator or the Trust, as applicable, enforceable against the Originator or the Trust, as applicable, in accordance with their terms, subject to applicable bankruptcy, insolvency, winding-up, moratorium or reorganization, or other similar laws affecting creditors’ rights generally and to the availability of equitable remedies;
(h)	the representations and warranties of the Originator and the Trust contained in the Transaction Documents to which the Originator or the Trust, as applicable, is or on the Closing Date will be a party that are made or to be made on or with effect as of the Closing Date will be true and correct on or as of such date; and
(i)	the Notes issued under the Indenture, and any Notes to be issued, are when executed, duly executed and duly authorized by the Trust and when delivered and paid for by a purchaser in accordance with the terms of the Prospectus and the Indenture, will be valid and legally binding obligations of the Trust, enforceable in accordance with their terms except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors’ rights generally, and to the availability of equitable remedies.

Section 6 REPRESENTATIONS AND WARRANTIES OF THE TRUST

          The Trust represents and warrants to and agrees with the Agents that:

(a)

the Trust has been constituted as a trust under the laws of the Province of Ontario;

(b)

the Trust has all requisite power and authority to enter into, deliver and perform its obligations under this Agency Agreement, the Transaction Documents to which the Trust is or on the Closing Date will be a party and the Notes and all necessary action has been or will be taken on or before the Closing Date to authorize the execution, delivery and performance of this Agency Agreement, the Transaction Documents to which the Trust is or on the Closing Date will be a party and the Notes, in each case, by the Trust;

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(c)	assuming the due authorization, execution and delivery of this Agency Agreement by the parties hereto other than the Trust, and the enforceability of this Agency Agreement against such parties, this Agency Agreement has been duly executed and delivered by the Trust and constitutes a legal, valid and binding obligation of the Trust, enforceable against the Trust in accordance with its terms, subject to applicable bankruptcy, insolvency, winding-up, moratorium or reorganization, or other similar laws affecting creditors’ rights generally and to the availability of equitable remedies;
(d)	the delivery to the Agents of the documents referred to in Section 3(a)(i), Section 3(a)(ii), Section 3(a)(iii) and Section 3(a)(iv) hereof shall constitute the representation and warranty of the Trust to the Agents that: (i) each such document at the time of its respective delivery complied in all material respects with the requirements of the Applicable Securities Laws pursuant to which it was or is prepared and, as applicable, filed and that all the information and statements (other than information or statements that pertain to and/or have been provided by the Agents) contained or incorporated by reference therein were at the respective dates of delivery thereof, true and correct in all material respects, contained no misrepresentation and (in the case of the Preliminary Prospectus, the Shelf Prospectus and any Prospectus Amendment) constituted full, true and plain disclosure of all material facts relating to the Trust and the Notes as required by Applicable Securities Laws; and (ii) no material fact had been omitted (except for omissions in respect of facts relating to the Agents) from such disclosure which was required to be stated in such disclosure or was necessary to make the statements or information contained in such disclosure not misleading in light of the circumstances under which they were made;
(e)	the Notes issued under the Indenture, and any Notes to be issued, are when executed, duly executed and duly authorized by the Trust and when delivered and paid for by a purchaser in accordance with the terms of the Prospectus and the Indenture, will be valid and legally binding obligations of the Trust, enforceable in accordance with their terms except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors’ rights generally, and to the availability of equitable remedies;
(f)	the execution and delivery by the Trust of, and the performance by the Trust of its obligations under, the Transaction Documents will not result in any violation of the Declaration of Trust or any material violation of any agreement or other instrument binding upon the Trust or any of its assets or undertakings, will not result in any material violation of any statute or any order, rule or regulation of any governmental body, agency or court having jurisdiction over the Trust or of any law applicable to the Trust or any of its assets or undertakings;

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(g)	no consent, approval, authorization or order of, or qualification with, any governmental body or agency having jurisdiction over the Trust is required for the performance by the Trust of its obligations under any Transaction Document;
(h)	there are no legal or governmental proceedings ongoing or, to the Trust’s knowledge, pending or threatened, to which the Trust or any of its affiliates or subsidiaries is a party or to which any of the property of the Trust is subject, which could have a material adverse effect on the execution, delivery or performance of the Transaction Documents;
(i)	the Transaction Documents to which the Trust is or on the Closing Date will be a party, when executed and delivered by the Trust, as applicable, will be duly authorized by all necessary action and, assuming the due authorization, execution and delivery of the Transaction Documents to which the Trust is or on the Closing Date will be a party by the parties thereto other than the Trust, and the enforceability of such Transaction Documents against such parties, will constitute legal, valid and binding obligations of the Trust, enforceable against the Trust in accordance with their terms, subject to applicable bankruptcy, insolvency, winding-up, moratorium or reorganization, or other similar laws affecting creditors’ rights generally and to the availability of equitable remedies;
(j)	the Trust is a reporting issuer not in default of any requirement under the Applicable Securities Laws;
(k)	there are no reports or information that in accordance with the Applicable Securities Laws or the requirements of the Canadian Securities Regulators must be made publicly available or filed in connection with the offering of the Notes that have not been or will be made publicly available or filed as required; and
(l)	the representations and warranties of the Trust contained in the Transaction Documents to which the Trust is or on the Closing Date will be a party that are made or to be made on or with effect as of the Closing Date will be true and correct in all material respects on or as of such date.

Section 7 COVENANTS OF THE TRUST

          The Trust hereby covenants to the Agents that it will do the following:

(a)	endeavour to fulfil all legal requirements to permit the offering and sale of the Notes as contemplated in this Agency Agreement;
(b)	allow the Agents to participate fully and assist in the preparation of the Preliminary Prospectus, the Shelf Prospectus and the Prospectus Supplement and shall allow the Agents to conduct all “due diligence” investigations which the Agents may reasonably require to fulfil the Agents’ obligations as

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agents and to enable the Agents responsibly to execute any certificate required to be executed by the Agents in such documentation;

(c)

comply with the Securities Act (Ontario) and with the other comparable provisions of the Applicable Securities Laws, if any, in each of the Selling Provinces and during the period from the date of signing the Prospectus Supplement to the completion of distribution of the Notes will promptly inform the Agents in writing of the full particulars of any material change, actual, anticipated, contemplated or threatened, in the Condition of either the Trust or the Originator or of any change in any material fact contained or referred to in the Preliminary Prospectus, the Shelf Prospectus or the Prospectus Supplement, and of the existence or discovery of any material fact or any other event or circumstance which is, or may be, of such a nature as to render the Preliminary Prospectus, the Shelf Prospectus or the Prospectus Supplement untrue, false or misleading in a material respect or result in a misrepresentation. The Trust shall, to the satisfaction of the Agents and its legal counsel acting reasonably, promptly comply with all applicable filing and other requirements under the Applicable Securities Laws as a result of such fact, change, event or circumstance. The Trust shall, in good faith, first discuss with the Agents any actual or proposed change, event, circumstance or fact which is of such a nature that there is reasonable doubt whether notice need be given to the Agents pursuant to this Section 7(c) and, in any event, prior to making any filing referred to in this Section 7(c). For greater certainty, it is understood and agreed that if the Agents determine, after consultation with the Trust, acting reasonably, that a material change or change in a material fact has occurred which makes untrue or misleading any statement of a material fact contained in the Preliminary Prospectus, the Shelf Prospectus or the Prospectus Supplement, or which may result in a misrepresentation, the Trust will:

(i)	prepare and file promptly at the request of the Agents any Prospectus Amendment which in its opinion, acting reasonably, may be necessary or advisable; and
(ii)	contemporaneously with filing the Prospectus Amendment under the Applicable Securities Laws, deliver to the Agents:

(A)	a copy of the Prospectus Amendment, originally signed as required by the Applicable Securities Laws;
(B)	an originally signed copy of all documents relating to the proposed distribution of the Notes and filed with the Prospectus Amendment under the Applicable Securities Laws; and
(C)	such other documents as the Agents shall reasonably require.

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(d)	advise the Agents, promptly after receiving notice thereof, of the time when the Preliminary Prospectus, Shelf Prospectus, Prospectus Supplement and any Prospectus Amendment has been filed and receipts have been obtained and will provide evidence satisfactory to the Agents of each filing and the issuance of receipts.
(e)	advise the Agents, promptly after receiving notice or obtaining knowledge, of:

(i)	the issuance by any Securities Commission of any order suspending or preventing the use of the Preliminary Prospectus, the Shelf Prospectus or the Prospectus Supplement;
(ii)	any notice or other correspondence received by it from any Governmental Authority or person requesting any information, meeting or hearing relating to any event or state of affairs that the Trust reasonably believes may be material to the Agents;
(iii)	the suspension of the qualification of the Notes for offering, distribution or sale in any of the Selling Provinces;
(iv)	the institution, threat or contemplation of any proceeding for any of those purposes; or
(v)	any requests made by any Securities Commission for amending or supplementing the Preliminary Prospectus, the Shelf Prospectus or the Prospectus Supplement or for additional information and, unless otherwise agreed to by the Agents, will use its reasonable best efforts to prevent the issuance of any such order referred to in Section 7(e)(i) and, if any such order is issued, to obtain the withdrawal of the order promptly; and

(f) use reasonable best efforts to promptly do, make, execute, deliver or cause to be done, made, executed or delivered, all such acts, documents and things as the Agents may reasonably require from time to time for the purpose of giving effect to this Agency Agreement and the transactions contemplated by the Prospectus and take all such steps as may be reasonably within their power to implement to their full extent the provisions of this Agency Agreement and the transactions contemplated by the Prospectus.

Section 8 CONDITIONS OF CLOSING

          The obligations of the Trust to sell the Notes to purchasers, and for the purchasers to purchase the Notes from the Trust, will be subject to the following conditions, which conditions may be waived in writing in whole or in part by the party entitled to the benefit thereto:

(a) the Trust and the Agents shall have complied fully with all Applicable Securities Laws, prior to the Closing Time;

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(b)	all conditions precedent to the issuance of the Notes under the Indenture shall have been satisfied;
(c)	the Agents shall have received a legal opinion from the Trust’s counsel, in form and content satisfactory to the Agents and their counsel, acting reasonably, addressed to the Agents, as to (i) the establishment and existence of the Trust and the Seller; (ii) the due authorization, execution and delivery, and the enforceability of this Agency Agreement; (iii) the enforceability of the Notes against the Trust; (iv) that all necessary documents have been filed, all requisite proceedings have been taken and all necessary approvals, permits, consents and authorizations of the appropriate regulatory authority have been obtained by the Trust under the applicable securities laws of the Province of Ontario to qualify the Notes for distribution to the public in the Province of Ontario through registrants or dealers registered under the securities laws of the Province of Ontario who have complied with the relevant provisions of such applicable legislation and the terms of their registrations, and (v) true sale matters with respect to the transactions contemplated by the Purchase Agreement;
(d)	the Trust and the Agents shall have received from the Rating Agencies on or prior to the Closing Date confirmation in writing that the Notes will receive a rating of “Aaa” from Moody’s and a rating of “AAA” from DBRS;
(e)	the Agents shall have received a copy of the Agreed Upon Procedures letter;
(f)	the Agents shall have received such certificates, opinions and other documents as may reasonably be requested by the Agents and their counsel;
(g)	the closing for the issuance and sale of the Series 2010-1 Class A-1a Asset Backed Notes of the Trust (the “Class A-1a Notes”), the Series 2010-1 Class A-1b Asset Backed Notes of the Trust (the “Class A-1b Notes”), the Series 2010 Class A-2b Asset Backed Notes of the Trust (the “Class A-2b Notes”) and the Class B Asset Backed Notes of the Trust (the “Class B Notes”) shall occur contemporaneously with the Closing;
(h)	the Originator has satisfied the conditions of the amended and restated commitment letter dated September 30, 2009 between the Business Development Bank of Canada (“BDC”) and the Originator or there has been a waiver thereof, or as otherwise agreed with BDC (provided that Merrill Lynch Canada Inc. shall so confirm prior to the Closing Date); and
(i)	Merrill Lynch Canada Inc. and Banc of America Securities LLC shall have received irrevocable commitments (in the agreed form of subscription agreements) to purchase the aggregate principal amount of the Class A-1a Notes, the Class A-1b Notes, the Class A-2b Notes and the Class B Notes being offered by the Trust.

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Section 9 CLOSING

          The Closing will be completed at the offices of Blake, Cassels & Graydon LLP, 2800 Commerce Court West, 199 Bay Street, Toronto, Ontario or at such other place as the parties may agree, at the Closing Time.

          Subject to conditions set forth in Section 8, (i) the Agents, at the Closing Time, will deliver a wire transfer of immediately available funds payable to the Trust in an amount equal to the gross proceeds of all sales of the Notes (or effect payment in such other manner as the Trust and the Agents may agree), and (ii) the Seller, or the Originator on behalf of the Seller, will deliver a wire transfer of immediately available funds to the Agents in accordance with the Agents’ instructions equal to the amount of the Agency Fee payable in accordance with Section 2(b) hereof. Upon receipt by the Trust of the payment described in part (i), above, the Trust will deliver the Notes registered as instructed by the Agents.

Section 10 FEES AND EXPENSES

(a)

Fees. In consideration for the services of the Agents hereunder, the Seller, or the Originator on behalf of the Seller, agrees to pay to the Agents the fees set forth in Section 2(b) above.

(b)

Expenses. The Seller, or the Originator on behalf of the Seller, will pay all reasonable expenses and fees in connection with the sale of the Notes, including, without limitation, the fees set forth in Section 2(b) above, all expenses of or incidental to the sale of the Notes; the fees and expenses of the Trust’s counsel; all costs incurred in the Selling Provinces in connection with the preparation of documents or certificates relating to the offering of the Notes; all out-of-pocket expenses and fees reasonably incurred by the Agents, including the fees and expenses of Agents’ counsel, road show expenses and marketing fees; and except for the fees set forth in Section 2(b) above, the foregoing fees and expenses incurred by the Agents or on its behalf will be payable by the Seller, or the Originator on behalf of the Seller, immediately upon receiving an invoice therefore from the Agents, and will be payable whether or not the sale of the Notes is completed.

Section 11 INDEMNITIES

(1) Each of the Originator and the Trust, jointly and severally (each, for the purposes of this Section 11, the “Indemnitor”) will indemnify and save harmless the Agents and any Sub-Agents, and each of their respective directors, officers, employees, agents and affiliates (each, an “Indemnified Person”) from and against all actual or threatened claims, actions, suits, investigations and proceedings (collectively “Proceedings”) and all losses (other than losses of profit in connection with the distribution of the Notes), expenses, fees, damages, obligations, payments and liabilities (collectively “Liabilities”), including without limitation, all legal fees and disbursements actually and reasonably incurred in connection with defending or investigating such Proceeding, which now or any time hereafter exist by reason of:

(a) any misrepresentation or untrue statement or alleged misrepresentation or alleged untrue statement, or omission of or alleged omission to state any

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material fact or any other fact or information required to be stated or necessary to make any statement therein not misleading in light of the circumstances in which it was made, in the Shelf Prospectus, the Prospectus Supplement or any Prospectus Amendment or in any document incorporated by reference therein or supplementary thereto, including without limitation any investor presentation, marketing teaser, cashflows, prepay data, Bloomberg cashflows (if posted) or other material prepared for and disseminated to investors by or with the authorization of the Originator, its affiliates or the Trust, or otherwise made or alleged to have been made by the Indemnitor to the purchaser or any prospective purchaser, excluding any statement that pertains to the Indemnified Person or its directors, officers, employees, agents or affiliates and was provided by such Indemnified Person or its directors, officers, employees, agents or affiliates;

(b)	the breach by the Indemnitor of any of the representations, warranties or covenants set out in any Transaction Document;
(c)	any breach or violation or any alleged breach or violation of any applicable law or statute or any rule, regulation, policy, order or ruling made thereunder, whether in force in Canada or elsewhere, resulting from any action taken or omitted to be taken by the Indemnitor or any of its directors, officers or employees acting as such in connection with the sale of the Notes; and
(d)	the French language version of any document referred to in Section 11(1)(a) of this Agency Agreement being, or being alleged to be, other than a complete and proper translation of the English language version of the document,

provided, however, that this indemnity shall not apply in respect of an Indemnified Person to the extent such liabilities resulted from the gross negligence, dishonesty, fraudulent act or wilful misconduct of such Indemnified Person, and provided further that the indemnity set forth in Section 11(1)(a) will not apply if the Trust has complied with Section 7(c) and the Indemnified Person failed to deliver a Prospectus Amendment or other document correcting any misrepresentation or untrue statement, or omission of any material fact or any other fact or information required to be stated or necessary to make any statement in the Shelf Prospectus or Prospectus Supplement not misleading in light of the circumstances in which it was made.

(2)

If any Proceeding is brought against an Indemnified Person in respect of which indemnity may be sought from the Indemnitor pursuant to the indemnities set forth in this Section 11, the Indemnified Person will promptly notify the Indemnitor in writing, and the Indemnitor will assume the defence of the action or claim, including the employment of counsel acceptable to the Indemnified Person (acting reasonably) and the payment of all reasonable expenses. The Indemnified Person will have the right to employ separate counsel in any Proceeding if:

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(a)	the Indemnified Person has been advised by counsel that there may be legal defences available to the Indemnified Person which are in conflict with defences available to the Indemnitor (in which case the Indemnitor will not have the right to assume the defence of such proceedings on the Indemnified Person’s behalf);
(b)	the Indemnitor will not have assumed the defence of such proceedings and employed counsel within a reasonable time after notice of commencement of proceedings; or
(c)	the employment of such counsel has been authorized by the Indemnitor in connection with the defence of any proceedings;

	and the Indemnitor will pay the reasonable fees and expenses of the Indemnified Person’s counsel during the course of the investigation or defence, promptly as such expense, loss, damage or liability is incurred; provided that the Indemnitor will not in any event be required to pay more than one set of counsel fees for all Indemnified Persons. The Indemnitor shall not be liable for any settlement of any proceeding effected without its written consent, acting reasonably, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnitor agrees to indemnify the Indemnified Persons from and against any loss or liability by reason of such settlement or judgment. The Indemnitor shall not, without the prior written consent of the Indemnified Persons, make an admission of liability or effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Persons are or could have been a party and indemnity could have been sought hereunder by such Indemnified Persons, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding.
(3)	The right to indemnity herein provided will be in addition to and not in derogation of any other right to indemnity or contribution which any Indemnified Person may have by statute or otherwise at law.
(4)	The indemnities provided herein will remain in full force and effect until all possible liability of the Indemnified Persons arising out of the transactions contemplated by this Agency Agreement is extinguished by the operation of law and will not be limited to or affected by any other indemnity obtained by the Indemnified Persons from any other person.

Section 12 RIGHTS OF TERMINATION

(1) If prior to the Closing Date any inquiry, action, suit, investigation or other proceeding whether formal or informal is instituted, announced or threatened or any order is made by any federal, provincial or other governmental agency or body in relation to the Trust (other than an inquiry, action, suit, investigation or other proceeding based solely on the activities or alleged activities of the Agents) or any law or regulation (or the interpretation thereof) is promulgated, changed or announced, which, in the sole opinion of any Agent, acting reasonably, operates to

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prevent or materially adversely affect the distribution of the Notes or which, in the sole opinion of any Agent, acting reasonably, materially adversely affects the value, market price, ratings or the marketability of the Notes, such Agent shall be entitled, at its sole option, in accordance with Section 12(5), to terminate its obligations under this Agency Agreement by written notice to that effect given to the Trust at any time prior to the Closing Date.

(2)	If prior to the Closing Date (i) there should develop, occur or come into effect or existence, any event, action, state, condition or occurrence of national or international consequence, acts of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, or any law, action, regulation or other occurrence of any nature whatsoever which, in the sole opinion of any Agent, acting reasonably, materially adversely affects or involves or may materially adversely affect or involve the Canadian, U.S. or international financial markets or the business, affairs or operations of the Trust, or (ii) the state of the Canadian, U.S. or international financial markets is such that, in the sole opinion of any Agent, acting reasonably, the Notes cannot be profitably marketed; then, in any one or more of the foregoing cases, such Agent shall be entitled, at its sole option, in accordance with Section 12(5), to terminate its obligations under this Agency Agreement by written notice to that effect given to the Trust at any time prior to the Closing Date.
(3)	If prior to the Closing Date there should occur or be announced any material adverse change which results or, in the sole opinion of any Agent, acting reasonably, might reasonably be expected to result, in the purchasers of a material number of Notes exercising their right under applicable legislation to withdraw from their purchase of such notes or, in the sole opinion of any Agent, acting reasonably, might reasonably be expected to have a material adverse effect on the value, market price, ratings or the marketability of the Notes, such Agent shall be entitled, at its sole option, in accordance with Section 12(5), to terminate its obligations under this Agency Agreement by written notice to that effect given to the Trust at any time prior to the Closing Date.
(4)	The Trust agrees that all terms and conditions in this Agency Agreement shall be construed as conditions to be complied with so far as they relate to acts to be performed or caused to be performed by it, that it will use its best efforts to cause such conditions to be complied with and that any failure by it to comply with, or any breach of, or failure to satisfy, any such conditions shall entitle any of the Agents to terminate its obligations to offer the Notes for sale by notice to that effect given to the Trust at or prior to the Closing Date, unless otherwise expressly provided in this Agency Agreement. The Agents may waive, in whole or in part, or extend the time for compliance with, any terms and conditions without prejudice to their rights in respect of any other terms and conditions or any other or subsequent breach or non-compliance, provided that any such waiver or extension shall be binding upon the Agents only if such waiver or extension is in writing and signed by all of the Agents.

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(5)

The rights of termination contained in Section 12(1), (2), (3) and (4) may be exercised by any of the Agents and are in addition to any other rights or remedies any of the Agents may have in respect of any default, act or failure to act or non-compliance by Trust in respect of any of the matters contemplated by this Agency Agreement or otherwise. In the event of any such termination, there shall be no further liability on the part of the terminating Agent to the Trust hereunder or on the part of the Trust, the Seller or the Originator to the terminating Agent except in respect of any liability under Section 10 and Section 11. A notice of termination given by an Agent under Section 12(1), (2), (3) and (4) shall not be binding upon any other Agent. The parties hereto agree that if the any of the Agents terminate their obligations hereunder in accordance with the terms of this Agency Agreement, each of the Agents shall be entitled to terminate its obligations hereunder and the obligations of any purchaser to purchase Notes shall be terminated without any further act or formality.

(6)

No act of the Agents in offering the Notes for sale or in assisting in the preparation of, or joining in the execution of, the Preliminary Prospectus, the Shelf Prospectus, the Prospectus Supplement and any Prospectus Amendment shall constitute a waiver by or estoppel against the Agents.

Section 13 SEVERAL OBLIGATIONS

          The Trust and the Originator agree that the obligations of the Agents hereunder are several and not joint or joint and several.

Section 14 NOTICES

          Any notice under this Agency Agreement will be given in writing and either delivered or faxed to the party to receive such notice at the address or fax numbers indicated below:

To the Trust:

Fleet Leasing Receivables Trust
c/o PHH Vehicle Management Services Inc.
as financial services agent
2233 Argentia Road
Mississauga, Ontario
L5N 2X7

Attention:        Mark Johnson
Facsimile No.: 905-286-5363

To the Originator:

PHH Vehicle Management Services Inc.
2233 Argentia Road
Mississauga, Ontario
L5N 2X7
Attention:        Mark Johnson

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Facsimile No.: 905-286-5363

To the Seller:

Fleet Lease Receivables L.P.
2233 Argentia Road, Suite 400, Room 4
Mississauga, Ontario
L5N 2X7

Attention:        Mark Johnson

Facsimile No.: 905-286-5363

To the Agents:

Merrill Lynch Canada Inc.
Brookfield Place, 181 Bay Street, Suite 400
Toronto, Ontario M5J 2V8 Canada

Attention:        Office of the General Counsel

Facsimile No.: (416) 369-2004

CIBC World Markets Inc.
Brookfield Place
161 Bay Street, 5^th Floor
P.O. Box 500
Toronto ON M5J 2S8

Attention:        CIBC Securitization

Facsimile No.: (416) 956-6220

RBC Dominion Securities Inc.
Royal Bank Plaza
North Tower, 4^th Floor
200 Bay Street
Toronto ON M5J 2W7

Attention:        Nur Khan

Facsimile No.: (416) 842-3888

Scotia Capital Inc.
68^th Floor, Scotia Plaza
P.O. Box 4085, Station “A”
40 King Street West
Toronto ON M5W 2X6

Attention:        Structured Finance

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Facsimile No.: (416) 945-4534

or such other address or telecopy number as such party may hereafter designate by notice in writing, to the other party. If a notice is delivered, it will be effective from the date of delivery if delivered within normal business hours; and if such notice is faxed (with receipt confirmed), it will be effective on the Business Day following the date such notice is telecopied.

Section 15 SURVIVAL

          The representations and warranties of the Agents, the Originator and the Trust, the indemnities provided for in Section 11 hereof and covenants to be fulfilled by each party after the Closing Time, contained in this Agency Agreement will survive the Closing Date and notwithstanding such closing, will continue in full force and effect for a period of one year from the Closing Date. For greater certainty, nothing herein limits the time in which any action in respect hereof may be commenced.

Section 16 SEVERABILITY

          If one or more provisions contained herein will, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability will not affect any other provision of this Agency Agreement, but this Agency Agreement will be construed as if such invalid, illegal or unenforceable provision or provisions had never been contained herein.

Section 17 ENTIRE AGREEMENT

          The provisions herein contained constitute the entire agreement between the parties hereto and supersede all previous communications, representations, understandings and agreements between the parties with respect to the subject matter hereof, whether verbal or written.

Section 18 COUNTERPARTS

          This Agency Agreement and any amendments, waivers, consents or supplements hereto or in connection herewith may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered will be deemed an original, but all such counterparts together will constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Agency Agreement will become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by the parties of written or telephonic notification of authorization of delivery hereof. Delivery of an executed copy of this Agency Agreement by facsimile or e-mail shall be as effective as delivery of a manually executed counterpart of this Agency Agreement.

Section 19 GOVERNING LAW

          This Agency Agreement shall be governed by, and construed in accordance with, the laws of the Province of Ontario and the laws of Canada applicable therein.

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          Each party irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the courts of the Province of Ontario, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agency Agreement or for recognition or enforcement of any judgment, and each of the parties hereto irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such court. Each of the parties hereto agrees that a final, non-appealable 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 applicable laws.

          Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Agency Agreement in any court of the Province of Ontario. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, the defence of an inconvenient forum to the maintenance of such action or proceeding in any such court.

Section 20 TIME OF THE ESSENCE

          Time will be of the essence of this Agency Agreement.

Section 21 LANGUAGE

          At the request of the parties hereto, this Agency Agreement as well as all documents relating thereto, including notices, have been and will be drafted in English; à la demande des parties aux présentes, cette convention, de même que toutes conventions śy rapportant, y compris les avis, ont été et seront rédigés en anglais.

Section 22 INTERPRETATION

          For the purposes of this Agency Agreement, except as otherwise expressly provided or unless the context otherwise requires:

(a)	any reference in this Agency Agreement to a designated “Section”, “Subsection”, “Paragraph” or other subdivision refers to the designated section, subsection, paragraph or other subdivision of this Agency Agreement;
(b)	the words “herein” and “hereunder” and other words of similar import refer to this Agency Agreement as a whole and not to any particular section or other subdivision of this Agency Agreement;
(c)	the word “including”, when following any general statement, term or matter, is not to be construed to limit such general statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not non-limiting language (such as “without limitation” or “but not limited to” or words of similar import) is used with reference thereto but rather refers to all other items or matters that could reasonably fall within the broadest possible scope of such general statement, term or matter;

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(d)	any reference to a statute includes and, unless otherwise specified herein, is a reference to such statute and to the regulations made pursuant thereto, with all amendments made thereto and in force from time to time, and to any statute or regulations that may be passed which have the effect of supplementing or superseding such statute or such regulation;
(e)	any reference to “party” or “parties” means the Trust, the Originator and the Agents, or one of or both of the foregoing, as the context requires;
(f)	all amounts expressed herein in terms of money refer to lawful currency of Canada and all payments to be made hereunder will be made in such currency;
(g)	the headings in this Agency Agreement are for convenience of reference only and do not affect the interpretation of this Agency Agreement; and
(h)	words importing the masculine gender include the feminine or neuter gender and words in the singular include the plural, and vice versa.

Section 23 FURTHER ASSURANCES

          Each of the parties hereto will do or cause to be done all such acts and things and will execute or cause to be executed all such documents, agreements and other instruments as may be reasonably necessary or desirable for the purpose of carrying out the provisions and intent of this Agency Agreement.

Section 24 NO FIDUCIARY DUTY

          Each of the Originator and the Trust acknowledges and agrees that, in connection with the offering of the Notes contemplated hereunder or any other services the Agents may be deemed to be providing hereunder, notwithstanding any pre-existing relationship, advisory or otherwise, between the parties or any oral representations or assurances previously or subsequently made by the Agents: (i) no fiduciary relationship between the Originator, the Trust and any other person, on the one hand, and the Agents, on the other hand, exists; (ii) the Agents are not acting as advisors, experts or otherwise, to the Originator or the Trust, and such relationship between the Originator and the Trust on the one hand, and the Agents, other the other hand, is entirely and solely commercial, based on arms-length negotiations; (iii) any duties and obligations that the Agents may have to the Originator or the Trust shall be limited to those duties and obligations specifically stated herein; and (iv) the Agents and their respective affiliates may have interests that differ from those of the Originator and the Trust. The Originator and the Trust hereby waive any claims that the Originator or the Trust may have against the Agents with respect to any breach of fiduciary duty in connection with the offering of the Notes.

Section 25 LIMITATION OF LIABILITY

          Notwithstanding any other provision of this Agency Agreement, in enforcing any claim against the Trust for losses, costs, damages, expenses or other liabilities incurred by the Agents in connection with any breach of the Trust of its obligations hereunder in the event the purchase of the Notes is completed as contemplated herein, an Agent’s recourse

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against the Trust will be solely limited to recovery against the Related Collateral, subject to the prior payment of certain amounts as described in the Prospectus.

          Nothing in this Agency Agreement will be deemed to cause the Issuer Trustee personally to be liable for any obligations of the Trust hereunder and the Agents will not seek any personal or deficiency judgment on such obligations against the Issuer Trustee. Any liability of the Issuer Trustee hereunder is non-recourse to the Issuer Trustee in its personal capacity and limited solely to the Related Collateral. No other property or assets of the Issuer Trustee, whether owned by it in its personal capacity or otherwise, will be subject to levy, execution or other enforcement procedure with regard to any obligation hereunder. There will be no further liability against the Issuer Trustee.

[Remainder of the page intentionally left blank]

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IN WITNESS WHEREOF the parties hereto have caused this Agency Agreement to be executed as of the date first written above.

BNY TRUST COMPANY OF CANADA, in its capacity as Trustee of FLEET LEASING RECEIVABLES TRUST, by its Financial Services Agent, PHH VEHICLE MANAGEMENT SERVICES INC.
By:	(Signed) “Mark E. Johnson”
	Name:	Mark E. Johnson
	Title:	Senior Vice President & Treasurer
PHH VEHICLE MANAGEMENT SERVICES INC.
By:	(Signed) “Mark E. Johnson”
	Name:	Mark E. Johnson
	Title:	Senior Vice President & Treasurer
FLR GP 1 INC., as general partner on behalf of PHH FLEET LEASE RECEIVABLES L.P.
By:	(Signed) “Mark E. Johnson”
	Name:	Mark E. Johnson
	Title:	Senior Vice President & Treasurer
MERRILL LYNCH CANADA INC.
By:	(Signed) “Rasha Katabi”
	Name:	Rasha Katabi
	Title:	Managing Director

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CIBC WORLD MARKETS INC.
By:	(Signed) “Sean D. Mann”
	Name:	Sean D. Mann
	Title:	Managing Director
RBC DOMINION SECURITIES INC.
By:	(Signed) “Nur Khan”
	Name:	Nur Khan
	Title:	Managing Director
SCOTIA CAPITAL INC.
By:	(Signed) “Douglas J. Noe”
	Name:	Douglas J. Noe
	Title:	Managing Director

EX-10.15.2

Exhibit 10.15.2

FLEET LEASING RECEIVABLES TRUST

(the “Trust”)

and

PHH VEHICLE MANAGEMENT SERVICES INC.

(the “Originator”)

and

PHH FLEET LEASE RECEIVABLES L.P.

(the “Seller”)

and

MERRILL LYNCH CANADA INC. and BANC OF AMERICA SECURITIES LLC

(the “Agents”)

AGENCY AGREEMENT

January 25, 2010

Stikeman Elliott LLP

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED

AGENCY AGREEMENT

     THIS AGENCY AGREEMENT (this “Agency Agreement”) dated as of January 25, 2010, among BNY TRUST COMPANY OF CANADA, in its capacity as trustee of FLEET LEASING RECEIVABLES TRUST (in such capacity, the “Trust”), by PHH VEHICLE MANAGEMENT SERVICES INC., in its capacity as financial services agent of the Trust , PHH VEHICLE MANAGEMENT SERVICES INC., in its capacity as originator (the “Originator”) of certain leases that will be transferred to the Trust as security for the Notes (as defined herein), PHH FLEET LEASE RECEIVABLES L.P. (the “Seller”) and MERRILL LYNCH CANADA INC. and BANC OF AMERICA SECURITIES LLC (collectively, the “Agents”).

     WHEREAS the Agents understand that the Trust wishes to sell the principal amount of CAD40,000,000 of Series 2010-1 Class A-1a Asset-Backed Notes (the “Class A-1a Notes”), USD81,585,066.16 of Series 2010-1 Class A-1b Asset-Backed Notes (the “Class A-1b Notes”), CAD145,900,000 of Series 2010-1 Class A-2b Asset-Backed Notes (the “Class A-2b Notes”) and the principal amount of CAD16,952,000 of Series 2010-1 Class B Asset-Backed Notes (the “Class B Notes”, and together with the Class A-1a Notes, the Class A-1b Notes and the Class A-2b Notes, the “Notes”).

     AND WHEREAS the Agents understand that the Class A-1b Notes are to be issued and sold in the United States and the Class A-1a Notes, Class A-2b Notes and Class B Notes are to be issued and sold in Canada, in each case on a private placement basis to one or more purchasers.

     AND WHEREAS the Agents, subject to the terms and conditions hereof, agree to act, and the Trust agrees to appoint the Agents as the agents of the Trust to solicit, on a “best efforts” basis (and without underwriting liability), offers to purchase the Class A-1a Notes, Class A-2b Notes and Class B Notes on the Closing Date on a private placement basis to investors in Canada pursuant to the exemption contained in Section 2.3 of NI 45-106 (as defined herein), and the Class A-1b Notes on a private placement basis to Permitted Accredited Investors (as defined herein) in the United States. The Agents will be under no obligation to purchase the Notes.

     NOW THEREFORE in consideration for their services hereunder, and for other good and valuable consideration, the parties hereto agree as follows:

Section 1 DEFINITIONS

(1)	In this Agency Agreement, unless stated elsewhere in this Agency Agreement, the following terms have the following meanings:
	“Agents’ counsel” means Stikeman Elliott LLP;
	“Applicable Securities Laws” means all applicable securities laws and rules, regulations, instruments, notices, orders and written policies in the Jurisdictions to the offering and sale of the Notes, including but not limited to the securities legislation of the Selling Provinces, and the rules, instruments and policies of the Securities Commissions and/or the U.S. Securities Act, as applicable;

“Business Day” means a day which is not Saturday or Sunday or a legal holiday in Toronto, Ontario;

“Closing” means the closing of the purchase and sale of the Notes contemplated by this Agency Agreement;

“Closing Date” means January 27, 2010, or such other date as the Agents and the Trust may determine, acting reasonably;

“Closing Time” means 10:00 a.m. (Toronto time) or such other time, on the Closing Date, as the parties may agree;

“Condition” in respect of a person, means the assets, liabilities (contingent or otherwise), financial condition, properties, business, affairs, operations, results of operations, income, cash flow or capital of such person;

“DBRS” means DBRS Limited and its successors;

“Declaration of Trust” means the declaration of trust of the Trust dated November 2, 2009, as amended and restated on November 16, 2009;

“Directed Selling Efforts” means “directed selling efforts” as that term is defined in Regulation S. Without limiting the foregoing, but for greater clarity in this Agency Agreement, it means, subject to the exclusions from the definition of directed selling efforts contained in Regulation S, any activity undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for any of the Class A-1b Notes and includes the placement of any advertisement in a publication with a general circulation in the United States that refers to the offering of the Class A-1b Notes;

“distribution” means “distribution” or “distribution to the public”, as the case may be, as defined under the Applicable Securities Laws of the Jurisdictions and “distribute” has a corresponding meaning;

“General Solicitation” and “General Advertising” means “general solicitation or general advertising”, as used in Rule 502(c) under the U.S. Securities Act, including advertisements, articles, notices or other communications published in any newspaper, magazine or similar media or broadcast over radio, television or the Internet, or any seminar or meeting whose attendees had been invited by general solicitation or general advertising;

“Governmental Authority” means any federal, provincial, state, municipal, county or regional governmental or quasi-governmental authority, domestic or foreign, and includes any ministry, department, court, tribunal, arbitral body, commission, bureau, board, administrative or other agency or regulatory body or instrumentality thereof, any quasi-governmental body or private body exercising regulatory, expropriation or taxing authority under or for the account, if any, of the foregoing

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and any stock exchange or self-regulatory authority and, for greater certainty, includes the Regulatory Authorities;

“Indenture” means the Trust Indenture made as of November 16, 2009 between Computershare Trust Company of Canada as indenture trustee, and BNY Trust Company of Canada, as issuer trustee, as supplemented by the 2010-1 Supplemental Indenture made as of January 27, 2010 among such parties, as amended, supplemented, modified, restated or replaced from time to time;

“Issuer Trustee” has the meaning assigned in the Indenture;

“Jurisdictions” means, collectively, Canada and the United States;

“laws” means any and all applicable (i) laws, constitutions, treaties, statutes, codes, ordinances, principles of common and civil law and equity, orders, decrees, rules, regulations and municipal by-laws whether domestic, foreign or international, (ii) judicial, arbitral, administrative, ministerial, departmental and regulatory judgments, orders, writs, injunctions, decisions, and awards of any Governmental Authority, and (iii) policies, practices and guidelines of, or contracts with, any Governmental Authority which, although not actually having the force of law, are considered by such Governmental Authority as requiring compliance as if having the force of law, in each case binding on or affecting the Person referred to in the context in which the word is used;

“material change” means a material change within the meaning of any of the Applicable Securities Laws;

“material fact” means a material fact within the meaning of any one or more of the Applicable Securities Laws;

“misrepresentation” means a misrepresentation within the meaning of the Applicable Securities Laws;

“Moody’s” means Moody’s Investors Service, Inc. and its successors;

“NI 45-106” means National Instrument 45-106 — Prospectus and Registration Exemptions, as amended;

“Offering Memorandum” means the (final) offering memorandum of the Trust dated January 25, 2010, prepared for use in connection with the offer and sale of the Class A-1a, Class A-2b Notes and Class B Notes in Canada, in the form agreed by the Trust and the Agents;

“Preliminary Offering Memoranda” means the preliminary offering memoranda of the Trust prepared for use in connection with the offer and sale of the Class A-1a, Class A-2b Notes and Class B Notes in Canada, in the form agreed by the Trust and the Agents;

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“Preliminary Private Placement Memoranda” means the preliminary private placement memoranda of the Trust prepared for use in connection with the offer and sale of the Class A-1b Notes in the United States, in the form agreed by the Trust and the Agents;

“Private Placement Memorandum” means the (final) private placement memorandum of the Trust dated January 25, 2010, prepared for use in connection with the offer and sale of the Class A-1b Notes in the United States, in the form agreed by the Trust and the Agents;

“Purchase Agreement” means the purchase agreement dated as of January 27, 2010 made among the Trust, the Seller, PHH Vehicle Services Inc. as servicer and PHH Corporation as performance guarantor, as the same may be amended, restated, modified or supplemented from time to time;

“Rating Agencies” shall have the meaning assigned in the Indenture;

“Regulation D” means Regulation D adopted by the SEC under the U.S. Securities Act;

“Regulation S” means Regulation S adopted by the SEC under the U.S. Securities Act;

“Related Collateral” shall have the meaning assigned in the Indenture;

“SEC” means the U.S. Securities and Exchange Commission;

“Securities Commissions” means the securities commissions or similar securities regulatory authorities in the Jurisdictions;

“Selling Provinces” means the Provinces of Alberta and Ontario;

“Sub-Agents” means any other investment dealer and broker that the Agents may have retained, appointed or engaged pursuant to Section 2(d);

“Subscriber” means any entity subscribing for Class A-1a Notes, Class A-1b Notes, Class A-2b Notes or Class B Notes that is accepted by the Trust;

“Subscription Agreement” means, in respect of a Subscriber, the agreement between the Trust and the Subscriber pursuant to which Class A-1a Notes, Class A-1b Notes, Class A-2b Notes or Class B Notes, as applicable, are issued to that Subscriber;

“Substantial U.S. Market Interest” means “substantial U.S. market interest” as that term is defined in Regulation S;

“Transaction Documents” means this Agency Agreement, the Purchase Agreement, the Indenture, the Notes, the Preliminary Private Placement Memoranda, the Private Placement Memorandum, the Preliminary Offering Memoranda, the Offering

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Memorandum, the Subscription Agreements and any other document entered into from time to time by one or more of the parties hereto in connection with the issuance and sale of the Notes, in each case, as amended, supplemented, modified, restated or replaced from time to time;

“Trust’s auditors” means Deloitte LLP;

“Trust’s counsel” means Blake, Cassels & Graydon LLP, or such other counsel engaged by the Trust;

“United States” means the United States of America, its territories and possessions, including any State and the District of Columbia;

“U.S. Exchange Act” means the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder;

“U.S. Investment Company Act” means the United States Investment Company Act of 1940, as amended, and the rules and regulations promulgated thereunder;

“U.S. Person” means a U.S. Person as that term is defined in Regulation S;

“U.S. Securities Act” means the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder; and

“USD” means the lawful currency of the United States.

(2) Gender and Number

     Words importing the singular number include the plural, and vice versa; words importing the masculine gender include the feminine gender; and words importing individuals include partnerships, associations, bodies corporate, trustees, executors and legal representatives, and vice versa.

(3) Recitals

     Terms defined in the recitals to this Agency Agreement and used herein have the meanings assigned in the recitals.

Section 2 THE OFFERING

(a) Sale of the Notes.

(i) Subject to the terms and conditions of this Agency Agreement, the Trust hereby appoints the Agents, and the Agents hereby agree to act as agents for the Trust, severally and not jointly, to offer the Notes for sale in the relevant Jurisdictions on behalf of the Trust. The Agents will use their best efforts to arrange for one or more Subscribers to purchase the aggregate principal amount of the Notes in the relevant Jurisdictions.

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(ii)	The Trust will create, issue and sell the Notes, as applicable, at the Closing Time, in accordance with and subject to the provisions of this Agency Agreement, the Indenture and all applicable laws. It is understood and agreed by the parties that the Agents will act as agents only and at no time will the Agents have any obligation whatsoever to purchase, in whole or in part, the Notes.
(iii)	The Agents will not offer the Notes in any jurisdiction other than the Jurisdictions, and for greater certainty, the Agents will offer the Notes only to such Subscribers and in such manner, that pursuant to Applicable Securities Laws, no prospectus or registration statement need be delivered or filed in connection therewith, nor will the Trust be required to register in any jurisdiction.
(iv)	The sale of the Class A-1a Notes, Class A-2b Notes and Class B Notes to Subscribers in Canada will be effected in a manner exempt from the prospectus requirements of the Applicable Securities Laws in the Selling Provinces on the basis of the exemption available under Sections 2.3 of NI 45-106.
(v)	The sale of the Class A-1b Notes to Subscribers in the United States will be effected pursuant to Section 4(2) of the U.S. Securities Act and only to subscribers who are Permitted Accredited Investors (as defined below).

(b) Offering Procedures.

(i)	Subscribers will purchase the Notes under exemptions from applicable prospectus and registration requirements under the laws of the jurisdiction of residence of the Subscriber.
(ii)	The Trust will file or cause to be filed all documents required to be filed by the Trust in connection with the purchase and sale of the Notes so that the distribution of the Notes may lawfully occur without the necessity of filing a prospectus in Canada.

(c) Compensation. The Seller agrees to pay the Agents an aggregate cash commission of [***] per $1,000 principal amount of Notes sold, representing [***] of the aggregate principal amount of Notes (other than the Class B Notes) sold (collectively, the “Agency Fee”), payable by the Seller, or the Originator on behalf of the Seller, in cash at the Closing (provided that the Agency Fee will be recalculated and/or amounts reimbursed to the Seller if

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

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the Seller or an affiliate of the Seller purchases any of the Notes (either at Closing or during the statutory withdrawal period) such that the aggregate amount of agency fees which shall be payable in respect of all Series 2010-1 Notes sold to persons other than the Seller or an affiliate of the Seller (the “Fee Earning Notes”) shall equal the amount equal to the sum of (1) [***] of the first [***] of the aggregate principal amount of the Fee Earning Notes and (2) [***]of the aggregate principal amount of the Fee Earning Notes above the first [***]), in consideration for the Agents, among other things:

(i)	acting as Agents to solicit, on a best efforts basis, offers to purchase the Notes;
(ii)	advising the Trust with respect to the issuance and sale of the Notes;
(iii)	acting as the registered dealer and executing the trades in connection with the sale of Notes;
(iv)	assisting in the preparation of the offering materials, including the Preliminary Private Placement Memoranda, the Private Placement Memorandum, the Preliminary Offering Memoranda and the Offering Memorandum; and
(v)	performing administrative services in connection with the sale of Notes.

The Agents shall be under no obligation to provide any service not specifically enumerated herein.

For greater certainty, the Agency Fee in respect of the Class A-1b Notes will be denominated in Canadian dollars, based on the exchange rate specified in an ISDA Master Agreement to be dated January 27, 2009 between the Trust and Merrill Lynch Capital Services Inc., together with the schedule thereto and the confirmation thereon.

(d) Appointment of Sub-Agent. The Trust agrees that the Agents may engage, appoint and retain such additional Sub-Agents in each of the Jurisdictions as the Agents may deem necessary to conduct or assist in the sale of the Notes. The Agents agree that such Sub-Agents must be acceptable to the Trust, acting reasonably, and that such additional Sub-Agents shall agree to sell the Notes on the same terms and conditions as the Agents. The Agents agree that they will ensure that any Sub-Agents offer the Notes for sale only in accordance with the terms of this Agency Agreement. The remuneration

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

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payable to such Sub-Agents will be paid by the Agents from the Agents’ compensation under this Agency Agreement.

(e)

No Advertisement. The private placement of the Notes will not be advertised in any newspaper, magazine, printed media or similar medium of general and regular paid circulation, broadcast over radio or television or by means of the Internet (including but not limited to the Trust’s web sites, if any) and no seminar or meeting relating to the private placement whose attendees have been invited by general solicitation or advertising will be conducted.

Section 3 COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE AGENTS

     Each of the Agents, severally and not jointly or jointly and severally, covenant, represent and warrant to the Trust that:

(a)	it has complied and it will comply with all Applicable Securities Laws of the Jurisdictions in which it solicits offers to purchase Notes or procures subscriptions from Subscribers in connection with the private placement of the Notes;
(b)	it will not solicit or procure subscriptions for the Notes in any jurisdictions other than the relevant Jurisdictions or in any way which may result in a requirement of the Trust to register or file a prospectus or similar document with respect thereto in any jurisdiction;
(c)	the Agent and its representatives have not engaged in or authorized, and will not engage in or authorize, any form of General Solicitation or General Advertising in connection with or in respect of the Notes in any newspaper, magazine, printed media of general and regular paid circulation or any similar medium, or broadcast over radio or television or by means of the Internet or otherwise or conducted any seminar or meeting concerning the offer or sale of the Notes whose attendees have been invited by any General Solicitation or General Advertising;
(d)	it, or its Sub-Agent, is duly qualified as an investment dealer or broker-dealer in each of the Jurisdictions in which it solicits or procures subscriptions for the Notes in connection with the private placement;
(e)	it will only sell to or offer to sell the Class A-1a Notes, Class A-2b Notes and Class B Notes to Subscribers in Canada who pay cash consideration of at least $150,000, who are resident in one of the Selling Provinces, and who have acknowledged that they are purchasing as “principal” or “deemed principal” as defined in NI 45-106 and Applicable Securities Laws and that they have not been created or used solely for the purpose of relying on the exemption contained in Section 2.3 of NI 45-106, and will obtain from each Subscriber a Subscription Agreement and any other applicable forms, reports, undertakings and documentation required under the Applicable Securities

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	Laws in case in a form acceptable to the Trust and its respective counsel, acting reasonably;
(f)	it will only sell to or offer to sell the Class A-1b Notes to Subscribers in the United States who are both (i) an “accredited investor”, as defined in paragraphs (1), (2), (3) or (7) of Rule 501(a) under Regulation D, that is also a “qualified institutional buyer” within the meaning of Rule 144A under the U.S. Securities Act, who are aware that the sale or transfer to it is being made in reliance on Section 4(2) of the U.S. Securities Act, and (ii) qualified purchasers within the meaning of Section 3(c)(7) of the United States Investment Company Act (Subscribers meeting all of these requirements referred to as “Permitted Accredited Investors”), and will obtain from each Subscriber a Subscription Agreement in a form as already agreed or such forms as may be acceptable to the Trust and its counsel, acting reasonably;
(g)	it will provide on a timely basis all information and documentation required by the Trust to fulfil its obligations under the Applicable Securities Laws with such information and documents to be in a form acceptable to the Trust and the Trust’s counsel, acting reasonably;
(h)	this Agency Agreement has been duly authorized, executed and delivered by it and is a valid and binding agreement of it, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, winding-up, moratorium or reorganization, or other similar laws affecting creditors’ rights generally and to the availability of equitable remedies;
(i)	it acknowledges that the Notes have not been and will not be registered under the U.S. Securities Act and may be offered and sold only in transactions exempt from or not subject to the registration requirements of the U.S. Securities Act and state securities laws;
(j)	except with respect to offers and sales of Class A-1b Notes to Permitted Accredited Investors in reliance upon an exemption from the registration requirements under the U.S. Securities Act, in the manner described in this Agency Agreement, neither the Agent nor any of its affiliates, nor any person acting on its or their behalf, has made or will make, in connection with offers and sales of the Notes pursuant to this Agency Agreement: (A) any offer to sell, or any solicitation of an offer to buy, any Notes to a person in the United States; or (B) any sale of Notes unless, at the time the buy order was or will have been originated, either (i) the purchaser is outside the United States and not a U.S. Person or (ii) the Trust, its affiliates, and any person acting on their behalf reasonably believe that the purchaser is outside the United States and not a U.S. Person;
(k)	neither the Agent or any of its affiliates, or any person acting on its or their behalf, has made or will make any Directed Selling Efforts in the United States with respect to the Notes, or has taken or will take any action that would cause the exemption afforded by Section 4(2) of the U.S. Securities Act

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	or Regulation S, to be unavailable for offers and sales of the Notes pursuant to this Agency Agreement;
(l)	it is in compliance with the dealer registration requirements of Applicable Securities Laws for purposes of the sale of the Notes in each of the Selling Provinces;
(m)	it will not make any representation or warranty with respect to the Trust, the Originator, the Related Collateral or the Notes other than as set forth in the Private Placement Memorandum and Offering Memorandum; and
(n)	if either the Private Placement Memorandum or the Offering Memorandum is amended, it will promptly send a copy of any such amendment to all persons who have previously received the Private Placement Memorandum or Offering Memorandum, as applicable, from it and will include such amendment in all further deliveries of the Private Placement Memorandum or Offering Memorandum, as applicable.

Section 4 REPRESENTATIONS AND WARRANTIES OF THE ORIGINATOR

     The Originator represents and warrants to and agrees with the Agents that:

(a)	the Originator is a corporation amalgamated and validly existing under the laws of Canada;
(b)	the Originator has all requisite corporate power and authority to enter into, deliver and perform its obligations under this Agency Agreement, the other Transaction Documents to which the Originator is or on the Closing Date will be a party and all necessary action has been or will be taken on or before the Closing Date to authorize the execution, delivery and performance of this Agency Agreement, the other Transaction Documents to which the Originator is or on the Closing Date will be a party, in each case, by the Originator;
(c)	assuming the due authorization, execution and delivery of this Agency Agreement by the parties hereto other than the Originator, and the enforceability of this Agency Agreement against such parties, this Agency Agreement has been duly executed and delivered by the Originator and constitutes a legal, valid and binding obligation of the Originator, enforceable against the Originator in accordance with its terms, subject to applicable bankruptcy, insolvency, winding-up, moratorium or reorganization, or other similar laws affecting creditors’ rights generally and to the availability of equitable remedies;
(d)	the execution and delivery by the Originator of, and the performance by the Originator of its obligations under, the Transaction Documents to which it is a party will not result in any violation of the articles of amalgamation or by-laws of the Originator or any material violation of any agreement or other instrument binding upon the Originator or any of its assets or undertakings,

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	will not result in any material violation of any statute or any order, rule or regulation of any governmental body, agency or court having jurisdiction over the Originator or of any law applicable to the Originator or any of its assets or undertakings;
(e)	neither the Preliminary Private Placement Memoranda, the Private Placement Memorandum, the Preliminary Offering Memoranda, the Offering Memorandum nor any document incorporated by reference therein or supplementary thereto, including without limitation any investor presentation, marketing teaser, cashflows, prepay data, Bloomberg cashflows (if posted) or other material prepared for and disseminated to investors, contains any misrepresentation or untrue statement or alleged misrepresentation or alleged untrue statement, or omission or alleged omission to state any material fact or any other fact or information required to be stated or necessary to make any statement therein not misleading in light of the circumstances in which it was made, excluding any statement or omission that pertains to the Agents and/or was provided by the Agents;
(f)	assuming the accuracy of the representations and warranties of the Agents contained in Section 3 and their compliance with the agreements set forth therein, it is not necessary, in connection with the issuance and sale of the Notes to the Subscribers in the manner contemplated by this Agreement, the Preliminary Private Placement Memoranda, the Private Placement Memorandum, the Preliminary Offering Memoranda and the Offering Memorandum, to register the Notes under the U.S. Securities Act or to qualify the Indenture under the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”);
(g)	no consent, approval, authorization or order of, or qualification with, any governmental body or agency having jurisdiction over the Originator or the Trust is required for the performance by the Originator or the Trust of their respective obligations under any Transaction Document;
(h)	there are no legal or governmental proceedings ongoing or, to the Originator’s knowledge, pending or threatened, to which the Originator, the Trust or any of the Originator’s subsidiaries is a party or to which any of the property of the Originator or the Trust is subject, which could have a material adverse effect on the execution, delivery or performance of the Transaction Documents;
(i)	the Transaction Documents to which the Originator or the Trust is or on the Closing Date will be a party, when executed and delivered by the Originator or the Trust, as applicable, will be duly authorized by all necessary action and, assuming the due authorization, execution and delivery of the Transaction Documents to which the Originator or the Trust, as applicable, is or on the Closing Date will be a party by the parties thereto other than the Originator or the Trust, as applicable, and the enforceability of such Transaction Documents against such parties, will constitute legal, valid and

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	binding obligations of the Originator or the Trust, as applicable, enforceable against the Originator or the Trust, as applicable, in accordance with their terms, subject to applicable bankruptcy, insolvency, winding-up, moratorium or reorganization, or other similar laws affecting creditors’ rights generally and to the availability of equitable remedies;
(j)	the representations and warranties of the Originator and the Trust contained in the Transaction Documents to which the Originator or the Trust, as applicable, is or on the Closing Date will be a party that are made or to be made on or with effect as of the Closing Date will be true and correct on or as of such date;
(k)	none of the Originator, the Trust or any of the Originator’s affiliates or, assuming the representations, warranties and covenants of the Agents are true and accurate, any person acting on its or their behalf, has made or will make any Directed Selling Efforts in the United States with respect to the Notes, or has taken or will take any action that would cause the exemption afforded by Section 4(2) of the U.S. Securities Act or Regulation S, to be unavailable for offers and sales of the Notes pursuant to this Agency Agreement;
(l)	none of the Originator, the Trust or any of the Originator’s affiliates or, assuming the representations, warranties and covenants of the Agents are true and accurate, any person acting on its or their behalf has engaged or will engage in any form of General Solicitation or General Advertising or any manner involving a public offering within the meaning of Section 4(2) of the Applicable Securities Laws, with respect to offers or sales of the Notes in the United States;
(m)	none of the Originator, the Trust or any of the Originator’s affiliates or, assuming the representations, warranties and covenants of the Agents are true and accurate, any person acting on any of their behalf has taken or will take any action in violation of Regulation M under the U.S. Exchange Act in connection with the offer and sale of the Notes;
(n)	the Notes issued under the Indenture, and any Notes to be issued, are when executed, duly executed and duly authorized by the Trust and when delivered and paid for by a Subscriber in accordance with the terms of the Subscription Agreement and the Indenture, will be valid and legally binding obligations of the Trust, enforceable in accordance with their terms except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors’ rights generally, and to the availability of equitable remedies;
(o)	the Trust is not, and as a result of the sale of the Notes contemplated hereby will not be, registered or required to be registered as an “investment company” under the U.S. Investment Company Act; and

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(p) on and immediately after the Closing Date, the Trust (after giving effect to the issuance of the Notes and to the other transactions related thereto as described in the Private Placement Memorandum and Offering Memorandum) will be Solvent. As used in this paragraph, the term “Solvent” means, with respect to a particular date, that on such date (A) the present fair market value (or present fair saleable value of the assets of the Trust is not less than the total amount required to pay the probable liabilities of the Trust on its total existing debts and liabilities (including contingent liabilities) as they become absolute and matured, (B) the Trust is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and commitments as they mature and become due in the normal course of business, (C) assuming the sale of the notes as contemplated by this Agreement, the Private Placement Memorandum and the Offering Memorandum, the Trust is not incurring debts or liabilities beyond its ability to pay as such debts and liabilities mature, and (D) the Trust is not engaged in any business or transaction, and is not about to engage in any business or transaction, for which its property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which the Trust is engaged. In computing the amount of such contingent liabilities at any time, it is intended that such liabilities will be computed at the amount that, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

Section 5 REPRESENTATIONS AND WARRANTIES OF THE TRUST

     The Trust represents and warrants to and agrees with the Agents that:

(a)	the Trust has been constituted as a trust under the laws of the Province of Ontario;
(b)	the Trust has all requisite power and authority to enter into, deliver and perform its obligations under this Agency Agreement, the Transaction Documents to which the Trust is or on the Closing Date will be a party and the Notes and all necessary action has been or will be taken on or before the Closing Date to authorize the execution, delivery and performance of this Agency Agreement, the Transaction Documents to which the Trust is or on the Closing Date will be a party and the Notes, in each case, by the Trust;
(c)	assuming the due authorization, execution and delivery of this Agency Agreement by the parties hereto other than the Trust, and the enforceability of this Agency Agreement against such parties, this Agency Agreement has been duly executed and delivered by the Trust and constitutes a legal, valid and binding obligation of the Trust, enforceable against the Trust in accordance with its terms, subject to applicable bankruptcy, insolvency, winding-up, moratorium or reorganization, or other similar laws affecting creditors’ rights generally and to the availability of equitable remedies;

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(d)	the Notes issued under the Indenture, and any Notes to be issued, are when executed, duly executed and duly authorized by the Trust and when delivered and paid for by a Subscriber in accordance with the terms of the Subscription Agreement and the Indenture, will be valid and legally binding obligations of the Trust, enforceable in accordance with their terms except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors’ rights generally, and to the availability of equitable remedies;
(e)	the execution and delivery by the Trust of, and the performance by the Trust of its obligations under, the Transaction Documents will not result in any violation of the Declaration of Trust or any material violation of any agreement or other instrument binding upon the Trust or any of its assets or undertakings, will not result in any material violation of any statute or any order, rule or regulation of any governmental body, agency or court having jurisdiction over the Trust or of any law applicable to the Trust or any of its assets or undertakings;
(f)	neither the Preliminary Private Placement Memoranda, the Private Placement Memorandum, the Preliminary Offering Memoranda, the Offering Memorandum nor any document incorporated by reference therein or supplementary thereto, including without limitation any investor presentation, marketing teaser, cashflows, prepay data, Bloomberg cashflows (if posted) or other material prepared for and disseminated to investors, contains any misrepresentation or untrue statement or alleged misrepresentation or alleged untrue statement, or omission or alleged omission to state any material fact or any other fact or information required to be stated or necessary to make any statement therein not misleading in light of the circumstances in which it was made, excluding any statement or omission that pertains to the Agents and/or was provided by the Agents;
(g)	assuming the accuracy of the representations and warranties of the Agents contained in Section 3 and their compliance with the agreements set forth therein, it is not necessary, in connection with the issuance and sale of the Notes to the Subscribers in the manner contemplated by this Agreement, the Preliminary Private Placement Memoranda, the Private Placement Memorandum, the Preliminary Offering Memoranda and the Offering Memorandum, to register the Notes under the U.S. Securities Act or to qualify the Indenture under the Trust Indenture Act;
(h)	no consent, approval, authorization or order of, or qualification with, any governmental body or agency having jurisdiction over the Trust is required for the performance by the Trust of its obligations under any Transaction Document;
(i)	there are no legal or governmental proceedings ongoing or, to the Trust’s knowledge, pending or threatened, to which the Trust or any of its subsidiaries is a party or to which any of the property of the Trust is subject,

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	which could have a material adverse effect on the execution, delivery or performance of the Transaction Documents;
(j)	the Transaction Documents to which the Trust is or on the Closing Date will be a party, when executed and delivered by the Trust, will be duly authorized by all necessary action and, assuming the due authorization, execution and delivery of the Transaction Documents to which the Trust is or on the Closing Date will be a party by the parties thereto other than the Trust, and the enforceability of such Transaction Documents against such parties, will constitute legal, valid and binding obligations of the Trust, enforceable against the Trust in accordance with their terms, subject to applicable bankruptcy, insolvency, winding-up, moratorium or reorganization, or other similar laws affecting creditors’ rights generally and to the availability of equitable remedies;
(k)	the Trust is a reporting issuer not in default of any requirement under the Applicable Securities Laws;
(l)	there are no reports or information that in accordance with the Applicable Securities Laws or the requirements of the Canadian Securities Regulators must be made publicly available or filed in connection with the offering of the Notes that have not been or will be made publicly available or filed as required;
(m)	the representations and warranties of the Trust contained in the Transaction Documents to which the Trust is or on the Closing Date will be a party that are made or to be made on or with effect as of the Closing Date will be true and correct in all material respects on or as of such date;
(n)	the Trust is, and at the closing will be, a “foreign issuer” (as such term is defined in Regulation S) and reasonably believes that there is no Substantial U.S. Market Interest in the Notes;
(o)	the Trust is not, and as a result of the sale of the Notes contemplated hereby will not be, registered or required to be registered as an “investment company” under the U.S. Investment Company Act;
(p)	except with respect to offers and sales of Class A-1b Notes to Permitted Accredited Investors in reliance upon an exemption from the registration requirements under the U.S. Securities Act, in the manner described in this Agency Agreement, neither the Trust nor any of its affiliates, and assuming the representations, warranties and covenants of the Agents are true and accurate, nor any person acting on its or their behalf, has made or will make, in connection with offers and sales of the Notes pursuant to this Agency Agreement: (A) any offer to sell, or any solicitation of an offer to buy, any Notes to a person in the United States; or (B) any sale of Notes unless, at the time the buy order was or will have been originated, either (i) the purchaser is outside the United States and not a U.S. Person or (ii) the Trust, its

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	affiliates, and any person acting on their behalf reasonably believe that the purchaser is outside the United States and not a U.S. Person;
(q)	none of the Trust or any of its affiliates or, assuming the representations, warranties and covenants of the Agents are true and accurate, any person acting on its or their behalf, has made or will make any Directed Selling Efforts in the United States with respect to the Notes, or has taken or will take any action that would cause the exemption afforded by Section 4(2) of the U.S. Securities Act or Regulation S, to be unavailable for offers and sales of the Notes pursuant to this Agency Agreement;
(r)	none of the Trust, any of its affiliates or, assuming the representations, warranties and covenants of the Agents are true and accurate, any person acting on its or their behalf has engaged or will engage in any form of General Solicitation or General Advertising or any manner involving a public offering within the meaning of Section 4(2) of the Applicable Securities Laws, with respect to offers or sales of the Notes in the United States;
(s)	the Trust has not offered or sold, and will not offer or sell, any of its securities in a manner that would be integrated with offers and sales of the Notes in the United States pursuant to this Agency Agreement and that would cause such sales of such Notes to be ineligible for the exemption from registration provided by Regulation D or Section 4(2) of the U.S. Securities Act; and
(t)	none of the Trust, any of its affiliates or, assuming the representations, warranties and covenants of the Agents are true and accurate, any person acting on any of their behalf has taken or will take any action in violation of Regulation M under the U.S. Exchange Act in connection with the offer and sale of the Notes.

Section 6 COVENANTS OF THE TRUST

     The Trust hereby covenants to the Agents that it will endeavour to fulfil all legal requirements to permit the offering and sale of the Notes as contemplated in this Agency Agreement (including, without limitation, filing or causing to be filed, all forms or undertakings required in connection with the private placement of the Notes with the Securities Commissions so that the distribution of such notes may be conducted without a prospectus in the Jurisdictions).

Section 7 MATERIAL CHANGE

(1) The Trust will promptly inform the Agents during the period prior to Closing of the full particulars of:

(a)	any material change (whether actual, anticipated, contemplated or threatened) in the Condition of the Trust;
(b)	any occurrence of a material fact or the discovery of an existing material fact which, in any such case, is, or may be, of such nature as to (i) render the

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	Preliminary Private Placement Memoranda, the Private Placement Memorandum, the Preliminary Offering Memoranda or the Offering Memorandum untrue, false or misleading in a material respect, (ii) result in a misrepresentation contained in the Preliminary Private Placement Memoranda, the Private Placement Memorandum, the Preliminary Offering Memoranda or the Offering Memorandum, or (iii) result in the Preliminary Private Placement Memoranda, the Private Placement Memorandum, the Preliminary Offering Memoranda or the Offering Memorandum not complying with Applicable Securities Laws;
(c)	any change in any material fact contained in or referred to in any part of the Preliminary Private Placement Memoranda, the Private Placement Memorandum, the Preliminary Offering Memoranda or the Offering Memorandum; or
(d)	any other event, state of facts or circumstance which is, or may be, or has occurred after the date of this Agency Agreement, of such nature as to render the Preliminary Private Placement Memoranda, the Private Placement Memorandum, the Preliminary Offering Memoranda or the Offering Memorandum untrue or misleading in any material respect or which would result in any misrepresentation in the Preliminary Private Placement Memoranda, the Private Placement Memorandum, the Preliminary Offering Memoranda or the Offering Memorandum.

(2) In addition to discharging its obligations under Section 7(1), the Trust will, in good faith, discuss with the Agents any change, event, circumstance or fact contemplated in Section 7(1) which is of such nature that there may be reasonable doubt as to whether notice should be given to the Agents under Section 7(1).

(3) During the period prior to the completion of the sale of the Notes the Trust will notify the Agents of any notice or other correspondence received by it from any Securities Commission, Governmental Authority or person requesting any information, meeting or hearing relating to any event or state of affairs that the Trust reasonably believes may be material to the Agents.

(4) The Trust shall promptly comply with all applicable filing and other requirements under the Applicable Securities Laws arising as a result of any change, fact, event or circumstance referred to in Section 7(1).

Section 8 CONDITIONS OF CLOSING

     The obligations of the Trust to sell the Notes to purchasers, and for the purchasers to purchase the Notes from the Trust, will be subject to the following conditions, which conditions may be waived in writing in whole or in part by the party entitled to the benefit thereto:

(a)  the Trust and the Agents shall have complied fully with all Applicable Securities Laws, prior to the Closing Time;

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(b)	all conditions precedent to the issuance of the Notes under the Indenture shall have been satisfied;
(c)	the Agents shall have received a legal opinion from the Trust’s counsel, in form and content satisfactory to the Agents and their counsel, acting reasonably, addressed to the Agents and, with respect to item (iv) any Subscriber located in the United States, as to (i) the establishment and existence of the Trust and the Seller; (ii) the due authorization, execution and delivery, and the enforceability of this Agency Agreement and the Subscription Agreements; (iii) the enforceability of the Notes against the Trust; (iv) (A) the offer and sale of the Class A-1b Notes to purchasers in the United States being exempt from the registration requirements of the U.S. Securities Act, (B) the Indenture not being required to be qualified under the Trust Indenture Act of 1939, and (C) the Trust not being, and after giving effect to the offer and sale of the Notes and the application of the proceeds thereof as described in the Private Placement Memorandum and the Offering Memorandum, required to register as an “investment company” under the U.S. Investment Company Act; (v) the offer and sale of the Class A-1a, Class A-2b and Class B Notes in Canada being exempt from the prospectus requirements of the Applicable Securities Laws of the Selling Provinces, and (vi) true sale matters with respect to the transactions contemplated by the Purchase Agreement;
(d)	the Trust and the Agents shall have received from the Rating Agencies on or prior to the Closing Date confirmation in writing that (i) the Class A-1a Notes and Class A-1b Notes will each receive a rating of “P-1” from Moody’s and a rating of “R-1(high)” from DBRS, (ii) the Class A-2b Notes will receive a rating of “Aaa” from Moody’s and “AAA” from DBRS, and (iii) the Class B Notes will receive a rating of “A2” from Moody’s and a rating of “A” from DBRS;
(e)	the Agents shall have received a copy of the Agreed Upon Procedures letter;
(f)	the Agents shall have received such certificates, opinions and other documents as may reasonably be requested by the Agents and their counsel;
(g)	with respect to the Class A-1b Notes, the related Subscriber shall not have exercised its Termination Right (as defined in the related Subscription Agreement);
(h)	the closing for the issuance and sale of the Series 2010-1 Class A-2a Asset Backed Notes of the Trust shall occur contemporaneously with the Closing; and
(i)	the Agents shall have received irrevocable Subscription Agreements to purchase the aggregate principal amount of the Class A-1a Notes, Class A-1b Notes, Class A-2b Notes and Class B Notes being offered by the Trust.

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Section 9 CLOSING

     The Closing will be completed at the offices of Blake, Cassels & Graydon LLP, 2800 Commerce Court West, 199 Bay Street, Toronto, Ontario or at such other place as the parties may agree, at the Closing Time.

     Subject to conditions set forth in Section 8, (i) the Agents, at the Closing Time, will deliver a wire transfer of immediately available funds payable to the Trust in an amount equal to the gross proceeds of all sales of the Notes (or effect payment in such other manner as the Trust and the Agents may agree), and (ii) the Seller, or the Originator on behalf of the Seller, will deliver a wire transfer of immediately available funds to the Agents in accordance with the Agents’ instructions equal to the amount of the Agency Fee payable in accordance with Section 2(c) hereof. Upon receipt by the Trust of the payment described in part (i), above, the Trust will deliver the Notes registered as instructed by the Agents.

Section 10 FEES AND EXPENSES

(a)

Fees. In consideration for the services of the Agents hereunder, the Seller, or the Originator on behalf of the Seller, agrees to pay to the Agents the fees set forth in Section 2(c) above.

(b)

Expenses. The Seller, or the Originator on behalf of the Seller, will pay all reasonable expenses and fees in connection with the sale of the Notes, including, without limitation, the fees set forth in Section 2(c) above, all expenses of or incidental to the sale of the Notes; the fees and expenses of the Trust’s counsel; all costs incurred in the Jurisdictions in connection with the preparation of documents or certificates relating to the offering of the Notes; all out-of-pocket expenses and fees reasonably incurred by the Agents, including the fees and expenses of Agents’ counsel, road show expenses and marketing fees; and except for the fees set forth in Section 2(c) above, the foregoing fees and expenses incurred by the Agents or on its behalf will be payable by the Seller, or the Originator on behalf of the Seller, immediately upon receiving an invoice therefore from the Agents, and will be payable whether or not the sale of the Notes is completed.

Section 11 INDEMNITIES

(1) Each of the Originator and the Trust, jointly and severally (each, for the purposes of this Section 11, an “Indemnitor”) will indemnify and save harmless the Agents and any Sub-Agents, each person, if any, who controls the Agents or any Sub-Agents within the meaning of Section 15 of the U.S. Securities Act or Section 20(a) of the U.S. Exchange Act, and each of their respective directors, officers, employees, agents and affiliates (each, an “Indemnified Person”) from and against all actual or threatened claims, actions, suits, investigations and proceedings (collectively “Proceedings”) and all losses (including, without limitation, any loss, claim, damage, liability or action relating to purchases and sales), expenses, fees, damages, obligations, payments and liabilities (collectively “Liabilities”), including without limitation, all legal fees and disbursements actually and reasonably incurred in connection with defending or investigating such Proceeding, which now or any time hereafter exist by reason of:

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(a)	any misrepresentation or untrue statement or alleged misrepresentation or alleged untrue statement, or omission of or alleged omission to state any material fact or any other fact or information required to be stated or necessary to make any statement therein not misleading in light of the circumstances in which it was made, in the Preliminary Private Placement Memoranda, the Private Placement Memorandum, the Preliminary Offering Memoranda or the Offering Memorandum or in any document incorporated by reference therein or supplementary thereto, including without limitation any investor presentation, marketing teaser, cashflows, prepay data, Bloomberg cashflows (if posted) or other material prepared for and disseminated to investors by or with the authorization of the Originator, its affiliates or the Trust, or otherwise made or alleged to have been made by an Indemnitor to the purchaser or Subscriber or any prospective purchaser or Subscriber;
(b)	the breach by an Indemnitor of any of the representations, warranties or covenants set out in any Transaction Document; and
(c)	any breach or violation or any alleged breach or violation of any applicable law or statute or any rule, regulation, policy, order or ruling made thereunder, whether in force in Canada or elsewhere, resulting from any action taken or omitted to be taken by an Indemnitor or any of its directors, officers or employees acting as such in connection with the sale of the Notes,

provided, however, that this indemnity shall not apply in respect of an Indemnified Person to the extent such Liabilities arise out of or are based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any such documents in reliance upon and in conformity with any written information relating to such Indemnified Person furnished to the Issuer by or on behalf of the Indemnified Person specifically for use therein.

(2) If any Proceeding is brought against an Indemnified Person in respect of which indemnity may be sought from an Indemnitor pursuant to the indemnities set forth in this Section 11, the Indemnified Person will promptly notify the Indemnitor in writing, and the Indemnitor will assume the defence of the action or claim, including the employment of counsel acceptable to the Indemnified Person (acting reasonably) and the payment of all reasonable expenses. The Indemnified Person will have the right to employ separate counsel in any Proceeding if:

(a)	the Indemnified Person has been advised by counsel that there may be legal defences available to the Indemnified Person which are in conflict with defences available to the Indemnitor (in which case the Indemnitor will not have the right to assume the defence of such proceedings on the Indemnified Person’s behalf);
(b)	the Indemnitor will not have assumed the defence of such proceedings and employed counsel within a reasonable time after notice of commencement of proceedings; or

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(c) the employment of such counsel has been authorized by the Indemnitor in connection with the defence of any proceedings;

and the Indemnitor will pay the reasonable fees and expenses of the Indemnified Person’s counsel during the course of the investigation or defence, promptly as such expense, loss, damage or liability is incurred; provided that the Indemnitor will not in any event be required to pay more than one set of counsel fees for all Indemnified Persons. The Indemnitor shall not be liable for any settlement of any proceeding effected without its written consent, acting reasonably, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnitor agrees to indemnify the Indemnified Persons from and against any loss or liability by reason of such settlement or judgment. The Indemnitor shall not, without the prior written consent of the Indemnified Persons, make an admission of liability or effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Persons are or could have been a party and indemnity could have been sought hereunder by such Indemnified Persons, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding.

(3) The right to indemnity herein provided will be in addition to and not in derogation of any other right to indemnity or contribution which any Indemnified Person may have by statute or otherwise at law.

(4) The indemnities provided herein will remain in full force and effect until all possible liability of the Indemnified Persons arising out of the transactions contemplated by this Agency Agreement is extinguished by the operation of law and will not be limited to or affected by any other indemnity obtained by the Indemnified Persons from any other person.

Section 12 RIGHTS OF TERMINATION

(1) If prior to the Closing Date any inquiry, action, suit, investigation or other proceeding whether formal or informal is instituted, announced or threatened or any order is made by any federal, provincial or other governmental agency or body in relation to the Trust (other than an inquiry, action, suit, investigation or other proceeding based solely on the activities or alleged activities of the Agents) or any law or regulation (or the interpretation thereof) is promulgated, changed or announced, which, in the sole opinion of any Agent, acting reasonably, operates to prevent or materially adversely affect the distribution of the Notes or which, in the sole opinion of any Agent, acting reasonably, materially adversely affects the value, market price, ratings or the marketability of the Notes, such Agent shall be entitled, at its sole option, in accordance with Section 12(5), to terminate its obligations under this Agency Agreement by written notice to that effect given to the Trust at any time prior to the Closing Date.

(2) If prior to the Closing Date (i) there should develop, occur or come into effect or existence, any event, action, state, condition or occurrence of national or international consequence, acts of hostilities or escalation thereof or other calamity or

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crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, or any law, action, regulation or other occurrence of any nature whatsoever which, in the sole opinion of any Agent, acting reasonably, materially adversely affects or involves or may materially adversely affect or involve the Canadian, U.S. or international financial markets or the business, affairs or operations of the Trust, or (ii) the state of the Canadian, U.S. or international financial markets is such that, in the sole opinion of any Agent, acting reasonably, the Notes cannot be profitably marketed; then, in any one or more of the foregoing cases, such Agent shall be entitled, at its sole option, in accordance with Section 12(5), to terminate its obligations under this Agency Agreement by written notice to that effect given to the Trust at any time prior to the Closing Date.

(3) If prior to the Closing Date there should occur or be announced any material adverse change which, in the sole opinion of any Agent, acting reasonably, might reasonably be expected to have a material adverse effect on the value, market price, ratings or the marketability of the Notes, such Agent shall be entitled, at its sole option, in accordance with Section 12(5), to terminate its obligations under this Agency Agreement by written notice to that effect given to the Trust at any time prior to the Closing Date.

(4) The Trust agrees that all terms and conditions in this Agency Agreement shall be construed as conditions to be complied with so far as they relate to acts to be performed or caused to be performed by it, that it will use its best efforts to cause such conditions to be complied with and that any failure by it to comply with, or any breach of, or failure to satisfy, any such conditions shall entitle any of the Agents to terminate its obligations to offer the Notes for sale by notice to that effect given to the Trust at or prior to the Closing Date, unless otherwise expressly provided in this Agency Agreement. The Agents may waive, in whole or in part, or extend the time for compliance with, any terms and conditions without prejudice to their rights in respect of any other terms and conditions or any other or subsequent breach or non-compliance, provided that any such waiver or extension shall be binding upon the Agents only if such waiver or extension is in writing and signed by all of the Agents, provided, further, that in no event shall the Closing Date occur with respect to the Class A-1b Notes following the exercise by the related Subscriber of its Termination Right under its Subscription Agreement and no replacement Subscriber has executed a Subscription Agreement in respect of the Class A-1b Notes.

(5) The rights of termination contained in Section 12(1), (2), (3) and (4) may be exercised by any of the Agents and are in addition to any other rights or remedies any of the Agents may have in respect of any default, act or failure to act or non-compliance by Trust in respect of any of the matters contemplated by this Agency Agreement or otherwise. In the event of any such termination, there shall be no further liability on the part of the terminating Agent to the Trust hereunder or on the part of the Trust, the Seller or the Originator to the terminating Agent except in respect of any liability under Section 10 and Section 11. A notice of termination given by an Agent under any of Section 12(1), (2), (3) and (4) shall not be binding upon any other Agent. The

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parties hereto agree that if either of the Agents terminates its obligations hereunder with respect to the Class A-1b Notes in accordance with the terms of this Agency Agreement, each of the Agents shall be deemed to have terminated its obligations hereunder and the obligations of any purchaser or Subscriber to purchase or subscribe for the Class A-1bNotes shall be terminated without any further act or formality.

(6) No act of the Agents in offering the Notes for sale or in assisting in the preparation of, or joining in the execution of, the Preliminary Private Placement Memoranda, the Private Placement Memorandum, the Preliminary Offering Memoranda or the Offering Memorandum shall constitute a waiver by or estoppel against the Agents.

Section 13 SEVERAL OBLIGATIONS

     The Trust and the Originator agree that the obligations of the Agents hereunder are several and not joint or joint and several.

Section 14 NOTICES

     Any notice under this Agency Agreement will be given in writing and either delivered or faxed to the party to receive such notice at the address or fax numbers indicated below:

To the Trust:
	Fleet Leasing Receivables Trust
	c/o PHH Vehicle Management Services Inc.
	as financial services agent
	2233 Argentia Road
	Mississauga, Ontario
	L5N 2X7
	Attention: Mark Johnson
	Facsimile No.: 905-286-5363
To the Originator:
	PHH Vehicle Management Services Inc.
	2233 Argentia Road
	Mississauga, Ontario
	L5N 2X7
	Attention: Mark Johnson
	Facsimile No.: 905-286-5363
To the Seller:
	Fleet Lease Receivables L.P.
	2233 Argentia Road, Suite 400, Room 4
	Mississauga, Ontario
	L5N 2X7

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	Attention: Mark Johnson
	Facsimile No.: 905-286-5363
To the Agents:
	Merrill Lynch Canada Inc.
	Brookfield Place, 181 Bay Street, Suite 400
	Toronto, Ontario M5J 2V8 Canada
	Attention: Office of the General Counsel
	Facsimile No.: (416) 369-2004
	Banc of America Securities LLC
	One Bryant Park
	New York, NY 10036
	U.S.A.
	Attention: William Heskett
	Facsimile No.: (646) 855-5044

or such other address or telecopy number as such party may hereafter designate by notice in writing, to the other party. If a notice is delivered, it will be effective from the date of delivery if delivered within normal business hours; and if such notice is faxed (with receipt confirmed), it will be effective on the Business Day following the date such notice is telecopied.

Section 15 SURVIVAL

     The representations and warranties of the Agents, the Originator and the Trust, the indemnities provided for in Section 11 hereof, and covenants to be fulfilled by each party after the Closing Time, contained in this Agency Agreement will survive the Closing Date and notwithstanding such closing, will continue in full force and effect for a period of one year from the Closing Date. For greater certainty, nothing herein limits the time in which any action in respect hereof may be commenced.

Section 16 SEVERABILITY

     If one or more provisions contained herein will, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability will not affect any other provision of this Agency Agreement, but this Agency Agreement will be construed as if such invalid, illegal or unenforceable provision or provisions had never been contained herein.

Section 17 ENTIRE AGREEMENT

     The provisions herein contained constitute the entire agreement between the parties hereto and supersede all previous communications, representations, understandings and

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agreements between the parties with respect to the subject matter hereof, whether verbal or written.

Section 18 COUNTERPARTS

     This Agency Agreement and any amendments, waivers, consents or supplements hereto or in connection herewith may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered will be deemed an original, but all such counterparts together will constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Agency Agreement will become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by the parties of written or telephonic notification of authorization of delivery hereof. Delivery of an executed copy of this Agency Agreement by facsimile or e-mail shall be as effective as delivery of a manually executed counterpart of this Agency Agreement.

Section 19 GOVERNING LAW

     This Agency Agreement shall be governed by, and construed in accordance with, the laws of the Province of Ontario and the laws of Canada applicable therein.

     Each party irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the courts of the Province of Ontario, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agency Agreement or for recognition or enforcement of any judgment, and each of the parties hereto irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such court. Each of the parties hereto agrees that a final, non-appealable 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 applicable laws.

     Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Agency Agreement in any court of the Province of Ontario. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, the defence of an inconvenient forum to the maintenance of such action or proceeding in any such court.

Section 20 TIME OF THE ESSENCE

     Time will be of the essence of this Agency Agreement.

Section 21 LANGUAGE

     At the request of the parties hereto, this Agency Agreement as well as all documents relating thereto, including notices, have been and will be drafted in English; à la demande des parties aux présentes, cette convention, de même que toutes conventions s’y rapportant, y compris les avis, ont été et seront rédigés en anglais.

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Section 22 INTERPRETATION

     For the purposes of this Agency Agreement, except as otherwise expressly provided or unless the context otherwise requires:

(a)	any reference in this Agency Agreement to a designated “Section”, “Subsection”, “Paragraph” or other subdivision refers to the designated section, subsection, paragraph or other subdivision of this Agency Agreement;
(b)	the words “herein” and “hereunder” and other words of similar import refer to this Agency Agreement as a whole and not to any particular section or other subdivision of this Agency Agreement;
(c)	the word “including”, when following any general statement, term or matter, is not to be construed to limit such general statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not non-limiting language (such as “without limitation” or “but not limited to” or words of similar import) is used with reference thereto but rather refers to all other items or matters that could reasonably fall within the broadest possible scope of such general statement, term or matter;
(d)	any reference to a statute includes and, unless otherwise specified herein, is a reference to such statute and to the regulations made pursuant thereto, with all amendments made thereto and in force from time to time, and to any statute or regulations that may be passed which have the effect of supplementing or superseding such statute or such regulation;
(e)	any reference to “party” or “parties” means the Trust, the Originator and the Agents, or one of or both of the foregoing, as the context requires;
(f)	all amounts expressed herein in terms of money refer to lawful currency of Canada and all payments to be made hereunder will be made in such currency;
(g)	the headings in this Agency Agreement are for convenience of reference only and do not affect the interpretation of this Agency Agreement; and
(h)	words importing the masculine gender include the feminine or neuter gender and words in the singular include the plural, and vice versa.

Section 23 FURTHER ASSURANCES

     Each of the parties hereto will do or cause to be done all such acts and things and will execute or cause to be executed all such documents, agreements and other instruments as may be reasonably necessary or desirable for the purpose of carrying out the provisions and intent of this Agency Agreement.

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Section 24 NO FIDUCIARY DUTY

     Each of the Originator and the Trust acknowledges and agrees that, in connection with the offering of the Notes contemplated hereunder or any other services the Agents may be deemed to be providing hereunder, notwithstanding any pre-existing relationship, advisory or otherwise, between the parties or any oral representations or assurances previously or subsequently made by the Agents: (i) no fiduciary relationship between the Originator, the Trust and any other person, on the one hand, and the Agents, on the other hand, exists; (ii) the Agents are not acting as advisor, expert or otherwise, to the Originator or the Trust, and such relationship between the Originator and the Trust on the one hand, and the Agents, other the other hand, is entirely and solely commercial, based on arms-length negotiations; (iii) any duties and obligations that the Agents may have to the Originator or the Trust shall be limited to those duties and obligations specifically stated herein; and (iv) the Agents and their respective affiliates may have interests that differ from those of the Originator and the Trust. The Originator and the Trust hereby waive any claims that the Originator or the Trust may have against the Agents with respect to any breach of fiduciary duty in connection with the offering of the Notes.

Section 25 LIMITATION OF LIABILITY

     Notwithstanding any other provision of this Agency Agreement, in enforcing any claim against the Trust for losses, costs, damages, expenses or other liabilities incurred by the Agents in connection with any breach of the Trust of its obligations hereunder in the event the purchase of the Notes is completed as contemplated herein, an Agent’s recourse against the Trust will be solely limited to recovery against the Related Collateral, subject to the prior payment of certain amounts as described in the Prospectus.

     Nothing in this Agency Agreement will be deemed to cause the Issuer Trustee personally to be liable for any obligations of the Trust hereunder and the Agents will not seek any personal or deficiency judgment on such obligations against the Issuer Trustee. Any liability of the Issuer Trustee hereunder is non-recourse to the Issuer Trustee in its personal capacity and limited solely to the Related Collateral. No other property or assets of the Issuer Trustee, whether owned by it in its personal capacity or otherwise, will be subject to levy, execution or other enforcement procedure with regard to any obligation hereunder. There will be no further liability against the Issuer Trustee.

[Remainder of page intentionally left blank]

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     IN WITNESS WHEREOF the parties hereto have caused this Agency Agreement to be executed as of the date first written above.

BNY TRUST COMPANY OF CANADA, in its capacity as Trustee of FLEET LEASING RECEIVABLES TRUST, by its Financial Services Agent, PHH VEHICLE MANAGEMENT SERVICES INC.
By:	/s/ Mark E. Johnson
	Name:	Mark E. Johnson
	Title:	Senior Vice President & Treasurer
PHH VEHICLE MANAGEMENT SERVICES INC.
By:	/s/ Mark E. Johnson
	Name:	Mark E. Johnson
	Title:	Senior Vice President & Treasurer
FLR GP 1 INC., as general partner on behalf of PHH FLEET LEASE RECEIVABLES L.P.
By:	/s/ Mark E. Johnson
	Name:	Mark E. Johnson
	Title:	Senior Vice President & Treasurer
MERRILL LYNCH CANADA INC.
By:	/s/ Rasha Katabi
	Name:	Rasha Katabi
	Title:	Managing Director

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BANC OF AMERICA SECURITIES LLC
By:	/s/ William Heskett
	Name:	William Heskett
	Title:	Managing Director

- 29 -

EX-12

Exhibit 12

PHH CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)

	Year Ended December 31,
	2009		2008			2007			2006			2005
Earnings available to cover fixed charges:
Income (loss) from continuing operations before income taxes	$	280	$	(443	)	$	(45	)	$	(4	)	$	159
Plus: fixed charges		243		344			492			477			360
Earnings available to cover fixed charges	$	523	$	(99	)	$	447		$	473		$	519
Fixed charges(1):
Interest expense, including amortization of deferred financing costs	$	236	$	333		$	480		$	465		$	348
Interest portion of rental payment		7		11			12			12			12
Total fixed charges	$	243	$	344		$	492		$	477		$	360
Ratio of earnings to fixed charges		2.15x		—	(2)		0.91x	(2)		0.99x	(2)		1.44x

(1)

Consists of interest expense on all indebtedness (including amortization of deferred financing costs) and the portion of operating lease rental expense that is representative of the interest factor.

(2)

Earnings were deficient to cover fixed charges by $443 million, $45 million and $4 million for the years ended December 31, 2008, 2007 and 2006, respectively. Loss from continuing operations before income taxes was negatively impacted by Valuation adjustments related to mortgage servicing rights, net of $733 million, $413 million and $479 million for the years ended December 31, 2008, 2007 and 2006, respectively.

181

EX-21

Exhibit 21

Subsidiaries of Registrant
As of December 31, 2009

	Jurisdiction of
	Incorporation
Name of Subsidiary	or Formation
1st Elite Home Loans, LLC	DE
Atrium Insurance Corporation	NY
Axiom Financial, LLC	UT
Cartus Home Loans, LLC	DE
Canadian Lease Management Ltd.	Canada
Century 21 Mortgage Corporation	MA
Chesapeake Finance Holdings LLC	DE
Chesapeake Funding LLC	DE
Coldwell Banker Home Loans, LLC	DE
Coldwell Banker Mortgage Corporation	MA
D. L. Peterson Trust	DE
Dealers Holding, Inc.	MD
Domain Distinctive Property Finance Corporation	MA
DRH Funding LLC	DE
Driversshield.com FS Corp.	NY
Edenton Motors, Inc.	MD
ERA Home Loans, LLC	DE
ERA Mortgage Corporation	MA
First Fleet Corporation	MA
First Fleet Master Titling Trust	DE
FLR GP1 Inc.	Canada
FLR GP2 Inc.	Canada
FLR LP Inc.	Canada
Haddonfield Holding Corporation	DE
Instamortgage.com Corporation	MD
J.W. Geckle Trust	MD
JHH Partnership	MD
Landover Mortgage, LLC	WA
Logic Leasing, Inc.	MA
Long Island Mortgage Group, Inc. (dba Corcoran Capital; L’Argent Funding Consultants; Home Key Mortgage Bankers; Royal Capital; Manhattan Island Capital; Long Island Mortgage Resources; NYC Capital; Madison Avenue Capital)	NY
MortgageSave.com Corporation	MA
NE Moves Mortgage, LLC	MA
Pacific Access Mortgage, LLC	HI
PHH (Bermuda) Holdings Ltd.	Bermuda
PHH Auto Finance LLC	MD
PHH Broker Partner Corporation	MD
PHH Canadian Holdings, Inc.	DE

182

	Jurisdiction of
	Incorporation
Name of Subsidiary	or Formation
PHH Caribbean Leasing, Inc.	MD
PHH Charitable Trust	U.K.
PHH Continental Leasing, LLC	MD
PHH Corner Leasing, Inc.	MD
PHH Corporate Services, Inc.	DE
PHH CPA, Inc.	MD
PHH de Brasil Paricopaceos Ltda.	Brazil
PHH Financial Services LLC	MD
PHH Fleet Lease Receivables L.P.	Canada
PHH Home Loans, LLC (dba Sunbelt Lending Services; Hamera Home Loans; ERA Home Loans; Burnet Home Loans; Coldwell Banker Home Loans; Cartus Home Loans; First Capital; Preferred Mortgage Group)	DE
PHH Leasing of Canada Ltd	Canada
PHH Market Leasing, Inc.	MD
PHH Milford Leasing, Inc.	MD
PHH Mortgage Capital LLC	DE
PHH Mortgage Corporation	NJ
PHH Mortgage Services Corporation	MD
PHH National Leasing, Inc.	MD
PHH Personallease Corporation	MD
PHH Preferred Mortgage, LLC	DE
PHH Services B.V.	Netherlands
PHH St. Paul Leasing, Inc.	DE
PHH Sub 1 Inc.	DE
PHH Sub 2 Inc.	DE
PHH Vehicle Management Services Group LLC	DE
PHH Vehicle Management Services, Inc.	Canada
PHH Vehicle Management Services, LLC (dba PHH Arval)	DE
Preferred Mortgage Group, LLC	DE
Princeton Commercial Lending, Inc.	CA
Raven Funding LLC	DE
RMR Financial, LLC (dba Princeton Capital; Mortgage California)	CA
Speedy Title & Appraisal Review Services LLC	DE
Terrapin Funding LLC	DE
VMS Holdings LLC	DE
Williamsburg Motors, Inc.	MD

183

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-155751 on Form S-3 and Registration Statement Nos. 333-161020, 333-122477, 333-123055 and 333-128144 on Form S-8 of our reports dated March 1, 2010, relating to the consolidated financial statements and financial statement schedules of PHH Corporation (which included an explanatory paragraph regarding the change in the Company’s method of accounting for certain financial assets and liabilities measured at fair value on January 1, 2008), and the effectiveness of PHH Corporation’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of PHH Corporation and subsidiaries for the year ended December 31, 2009.

/s/  Deloitte & Touche LLP

Philadelphia, Pennsylvania

March 1, 2010

184

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jerome J. Selitto, certify that:

1. I have reviewed this Annual Report on Form 10-K of PHH Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:  /s/  Jerome J. Selitto

Jerome J. Selitto

President and Chief Executive Officer

Date: March 1, 2010

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EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Sandra E. Bell, certify that:

1. I have reviewed this Annual Report on Form 10-K of PHH Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:  /s/  Sandra E. Bell

Sandra E. Bell

Executive Vice President and
Chief Financial Officer

Date: March 1, 2010

186

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of PHH Corporation (the “Company”) hereby certifies, to such officer’s knowledge, that:

(i) the Annual Report on Form 10-K of the Company for the annual period ended December 31, 2009 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:   /s/  Jerome J. Selitto

Jerome J. Selitto

President and Chief Executive Officer

Date: March 1, 2010

A signed original of this written statement required by Section 906 has been provided to PHH Corporation and will be retained by PHH Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of PHH Corporation, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

187

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

Pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of PHH Corporation (the “Company”) hereby certifies, to such officer’s knowledge, that:

(i) the Annual Report on Form 10-K of the Company for the annual period ended December 31, 2009 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:   /s/  Sandra E. Bell

Sandra E. Bell

Executive Vice President and

Chief Financial Officer

Date: March 1, 2010

A signed original of this written statement required by Section 906 has been provided to PHH Corporation and will be retained by PHH Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of PHH Corporation, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

188