-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BjhrgEpBCdzqHf0SSGBNvHdUj/zx6Kdzng4QJ6UsFX4o1EmTpUfHCyHvteTroGwA h8lqk/E5gjc/7o3iHDZprg== 0000914121-04-001553.txt : 20040809 0000914121-04-001553.hdr.sgml : 20040809 20040809172001 ACCESSION NUMBER: 0000914121-04-001553 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN HOME MORTGAGE INVESTMENT CORP CENTRAL INDEX KEY: 0001256536 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 200103914 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-31916 FILM NUMBER: 04962311 MAIL ADDRESS: STREET 1: 520 BROADHOLLOW ROAD CITY: MELVILLE STATE: NY ZIP: 11747 10-Q 1 am696881-10_q.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004. OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________. Commission File Number: 001-31916 AMERICAN HOME MORTGAGE INVESTMENT CORP. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) Maryland 20-0103914 - -------------------------------------------------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 520 Broadhollow Road, Melville, New York 11747 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (516) 949-3900 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 [X] No [__] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [__] As of August 4, 2004, there were 40,137,829 shares of the registrant's common stock, par value $0.01 per share, outstanding. AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES TABLE OF CONTENTS PART I-FINANCIAL INFORMATION Page ---- Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003.....................................................1 Consolidated Statements of Income for the Three and Six Months Ended June 30, 2004 and 2003...................................2 Consolidated Statements of Stockholders' Equity for the Six Months Ended June 30, 2004 and 2003...............................3 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003..........................................4 Notes to Consolidated Financial Statements ...........................5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................23 Item 3. Quantitative and Qualitative Disclosures About Market Risk ..........40 Item 4. Controls and Procedures..............................................42 PART II-OTHER INFORMATION Item 1. Legal Proceedings....................................................43 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.......................................43 Item 3. Defaults Upon Senior Securities......................................44 Item 4. Submission of Matters to a Vote of Security Holders..................44 Item 5. Other Information....................................................44 Item 6. Exhibits and Reports on Form 8-K ....................................44 SIGNATURES INDEX TO EXHIBITS
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands, except per share amounts) June 30, December 31, 2004 2003 -------------- -------------- Assets: Cash and cash equivalents $ 433,918 $ 53,148 Accounts receivable and servicing advances 100,489 84,311 Mortgage-backed securities (including securities pledged of $6,786,841 and $1,426,477 as of June 30, 2004 and December 31, 2003, respectively) 7,331,162 1,763,628 Mortgage loans held for sale, net 1,435,998 1,226,127 Derivative assets 44,608 20,837 Mortgage servicing rights, net 141,818 117,784 Premises and equipment, net 44,541 41,738 Goodwill 88,799 83,445 Other assets 13,788 13,672 -------------- -------------- Total assets $ 9,635,121 $3,404,690 ============== ============== Liabilities and Stockholders' Equity: Liabilities: Warehouse lines of credit $ 672,456 $1,121,760 Drafts payable 86,300 25,625 Commercial paper 1,047,036 - Reverse repurchase agreements 6,413,506 1,344,327 Payable for securities purchased 423,909 259,701 Derivative liabilities 10,098 12,694 Accrued expenses and other liabilities 119,885 76,156 Notes payable 107,237 99,655 Income taxes payable 41,128 66,802 -------------- -------------- Total liabilities 8,921,555 3,006,720 -------------- -------------- Commitments and contingencies - - Stockholders' Equity: Preferred stock, $0.01 per share par value, 10,000,000 shares authorized, none issued and outstanding - - Common stock, $0.01 per share par value, 100,000,000 shares authorized, 40,111,559 and 25,270,100 shares issued and outstanding as of June 30, 2004 and December 31, 2003, respectively 401 252 Additional paid-in capital 629,203 281,432 Retained earnings 134,515 121,029 Accumulated other comprehensive loss (50,553) (4,743) -------------- -------------- Total stockholders' equity 713,566 397,970 -------------- -------------- Total liabilities and stockholders' equity $ 9,635,121 $3,404,690 ============== ============== See notes to consolidated financial statements.
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AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share amounts) Three Months Ended June 30, Six Months Ended June 30, ---------------------------------- -------------------------------- 2004 2003 2004 2003 ---------------- ---------------- ---------------- --------------- Net interest income: Interest income $ 72,404 $ 25,446 $106,454 $ 46,424 Interest expense (52,318) (12,572) (73,596) (22,781) ---------------- ---------------- ---------------- --------------- Total net interest income 20,086 12,874 32,858 23,643 ---------------- ---------------- ---------------- --------------- Non-interest income: Gain on sales of mortgage loans and mortgage-backed securities 59,840 129,282 139,973 217,493 Loan servicing fees 8,730 9,821 19,048 20,949 Amortization (7,764) (17,286) (15,110) (30,055) Impairment reserve recovery (provision) 7,252 (6,472) (5,332) (12,185) ---------------- ---------------- ---------------- --------------- Net loan servicing fees (loss) 8,218 (13,937) (1,394) (21,291) ---------------- ---------------- ---------------- --------------- Other non-interest income 1,226 1,241 2,204 4,169 ---------------- ---------------- ---------------- --------------- Total non-interest income 69,284 116,586 140,783 200,371 ---------------- ---------------- ---------------- --------------- Non-interest expenses: Salaries, commissions and benefits, net 42,851 54,206 82,633 98,853 Occupancy and equipment 8,008 6,679 16,102 12,302 Data processing and communications 3,338 2,748 6,551 5,827 Office supplies and expenses 3,215 3,847 6,333 6,870 Marketing and promotion 2,196 2,805 4,408 5,604 Travel and entertainment 2,887 2,891 5,464 4,878 Professional fees 1,829 1,672 4,257 3,513 Other 4,082 8,423 9,520 12,088 ---------------- ---------------- ---------------- --------------- Total non-interest expenses 68,406 83,271 135,268 149,935 ---------------- ---------------- ---------------- --------------- Net income before income tax (benefit) expense 20,964 46,189 38,373 74,079 Income tax (benefit) expense (12,518) 19,312 (16,332) 30,889 ---------------- ---------------- ---------------- --------------- Net income $ 33,482 $ 26,877 $ 54,705 $ 43,190 ================ ================ ================ =============== Per share data: Basic $ 0.84 $ 1.58 $ 1.56 $ 2.56 Diluted $ 0.83 $ 1.55 $ 1.54 $ 2.51 Weighted average number of shares - basic 40,000 16,981 35,015 16,866 Weighted average number of shares - diluted 40,445 17,348 35,476 17,182 See notes to consolidated financial statements.
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AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) SIX MONTHS ENDED JUNE 30, 2004 AND 2003 Accumulated Shares of Additional Other Total Common Common Paid-in Retained Comprehensive Stockholders' (Dollars in thousands) Stock Stock Capital Earnings Loss Equity - ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2002 16,717,459 $ 167 $ 95,785 $ 68,144 $ - $ 164,096 ============== ========= ============ ============= =============== ============== Comprehensive income: Net income - - - 43,190 - 43,190 -------------- Comprehensive income 43,190 Issuance of common stock, earnouts 295,976 3 3,076 - - 3,079 Issuance of common stock, 1999 Omnibus Stock Incentive Plan 190,614 2 1,308 - - 1,310 Dividends declared - - - (2,515) - (2,515) -------------- --------- ------------ ------------- --------------- -------------- Balance at June 30, 2003 17,204,049 $ 172 $ 100,169 $ 108,819 $ - $ 209,160 ============== ========= ============ ============= =============== ============== Balance at December 31, 2003 25,270,100 $ 252 $ 281,432 $ 121,029 $ (4,743) $ 397,970 ============== ========= ============ ============= =============== ============== Comprehensive income: Net income - - - 54,705 - 54,705 Net unrealized loss on mortgage-backed securities available for sale - - - - (51,165) (51,165) Gross unrealized gain on interest rate swaps from cash flow hedges - - - - 5,355 5,355 -------------- Comprehensive income 8,895 Issuance of common stock, offering 14,375,000 144 339,647 - - 339,791 Issuance of common stock, earnouts 211,539 2 4,692 - - 4,694 Issuance of common stock, 1999 Omnibus Stock Incentive Plan 254,920 3 1,833 - - 1,836 Tax benefit from stock options exercised - - 1,599 - - 1,599 Dividends declared - - - (41,219) - (41,219) -------------- --------- ------------ ------------- --------------- -------------- Balance at June 30, 2004 40,111,559 $ 401 $ 629,203 $ 134,515 $ (50,553) $ 713,566 ============== ========= ============ ============= =============== ============== See notes to consolidated financial statements.
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AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Six Months Ended June 30, -------------------------------------------- 2004 2003 --------------------- --------------------- Cash flows from operating activities: Net income $ 54,705 $ 43,190 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 3,965 2,613 Amortization and impairment of mortgage servicing rights 20,442 42,240 Origination of mortgage loans held for sale (11,032,816) (10,483,716) Proceeds on sales and securitizations of mortgage loans 10,822,945 9,594,024 (Decrease) increase in income taxes payable (25,674) 19,443 Amortization of mortgage-backed securities premiums, net 10,282 - Unrealized gain on securities held in trading (16,486) - Unrealized gain on free standing derivatives (41,451) - Capitalization of mortgage servicing rights (44,476) (15,605) Other 633 339 (Increase) decrease in operating assets: Accounts receivable and servicing advances (16,178) 7,438 Derivative assets 14,715 (14,803) Other assets 128 (1,675) Increase (decrease) in operating liabilities: Accrued expenses and other liabilities 33,160 16,479 Forward delivery contracts 3,440 (7,204) --------------------- --------------------- Net cash used in operating activities (212,666) (797,237) --------------------- --------------------- Cash flows from investing activities: Purchases of premises and equipment, net (6,768) (5,149) Purchases and additions to mortgage-backed securities (7,701,843) - Sales of mortgage-backed securities 1,735,145 - Principal repayments on mortgage-backed securities 356,206 - Other (244) (402) --------------------- --------------------- Net cash used in investing activities (5,617,504) (5,551) --------------------- --------------------- Cash flows from financing activities: (Decrease) increase in warehouse lines of credit (449,304) 806,311 Increase in reverse repurchase agreements 5,069,179 - Increase in payable for securities purchased 164,208 - Increase in commercial paper 1,047,036 - Increase in drafts payable 60,675 25,169 Proceeds from issuance of capital stock 342,211 1,065 Dividends paid (30,647) (2,514) Increase (decrease) in notes payable 7,582 (12,825) --------------------- --------------------- Net cash provided by financing activities 6,210,940 817,206 --------------------- --------------------- Net increase in cash and cash equivalents 380,770 14,418 Cash and cash equivalents, beginning of period 53,148 24,416 --------------------- --------------------- Cash and cash equivalents, end of period $ 433,918 $ 38,834 ===================== ===================== Supplemental disclosure of cash flow information: Interest paid $ 36,598 $ 18,985 Income taxes paid 6,361 12,723 See notes to consolidated financial statements.
-4- AMERICAN HOME MORTGAGE INVESTMENT CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization - On December 3, 2003, American Home Mortgage Investment Corp. ("AHM Investment") completed its merger with Apex Mortgage Capital, Inc. ("Apex"), a Maryland corporation that operated and elected to be treated as a real estate investment trust, or REIT. Under the terms of the transaction, American Home Mortgage Holdings, Inc. ("AHM Holdings") reorganized through a reverse triangular merger that caused AHM Investment, a newly formed Maryland corporation that operates and will elect to be treated as a REIT, for federal income tax purposes, to become AHM Holdings' parent. AHM Investment was formed to combine the net assets of Apex, consisting primarily of mortgage-backed securities, with the mortgage origination and servicing businesses of AHM Holdings. As used herein, references to the "Company," "American Home," "we," "our" and "us" refer to AHM Investment collectively with its subsidiaries. AHM Investment is a mortgage REIT focused on earning net interest income from purchased and self-originated mortgage-backed securities, and through its taxable subsidiaries, on earning income from originating and selling mortgage loans and servicing mortgage loans for institutional investors. Mortgages are originated through a network of loan origination offices as well as through mortgage brokers and are serviced at the Company's Columbia, Maryland servicing center. Basis of Presentation - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company's estimates and assumptions primarily arise from risks and uncertainties associated with interest rate volatility, prepayment volatility, credit exposure and regulatory changes. Although management is not currently aware of any factors that would significantly change its estimates and assumptions in the near term, future changes in market trends and conditions may occur which could cause actual results to differ materially. When necessary, certain reclassifications of prior year financial statement amounts have been made to conform to the current year presentation. Due to the fact that the Company exercises significant influence on the operations of its joint ventures, their balances and operations have been fully consolidated in the accompanying consolidated financial statements and all intercompany accounts and transactions have been eliminated. Cash and Cash Equivalents - Cash and cash equivalents include cash on hand, amounts due from banks and overnight deposits. Mortgage-backed Securities - Mortgage-backed securities are classified as either trading or available for sale. Trading securities are reported at fair value, and changes in fair value are reported in gain on sales of mortgage loans and mortgage-backed securities in the statements of operations. Available for sale securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported in accumulated other comprehensive income (loss). Realized gains and losses on sales of available for sale securities are determined on an average cost basis and included in gain on sales of mortgage loans and mortgage-backed securities. When the fair value of an available for sale security is less than amortized cost, management considers whether there is an other-than-temporary impairment in the value of the security (e.g., whether the security will be sold prior to the recovery of fair value). If, in management's judgment, an other-than-temporary impairment exists, the cost basis of the security is written down to the then-current fair value, and the unrealized loss is transferred from accumulated other comprehensive income as an immediate reduction of current earnings (i.e., as if the loss had been realized in the period of impairment). Premiums and discounts on the Company's mortgage-backed securities held in available for sale are amortized to interest income using the level yield method over the estimated life of the security. Mortgage Loans Held for Sale - Mortgage loans held for sale are carried at the lower of cost or aggregate market value. The cost basis includes the capitalized value of the interest rate lock commitments ("IRLCs") related to the mortgage loans and any net deferred origination costs. For mortgage loans held for sale that are hedged with forward sale commitments, the carrying value is adjusted for the change in market during the time the hedge was deemed to be highly effective. The market value is determined by outstanding commitments from investors or current investor yield requirements calculated on the aggregate basis. Mortgage Servicing Rights - Mortgage servicing rights ("MSRs") are carried at the lower of cost or fair value, based on defined risk strata, and are amortized in proportion to and over the period of estimated net servicing income. When the Company sells certain loans -5- and retains the servicing rights, it allocates the cost basis of the loans between the assets sold and the MSRs based on their relative fair values on the date of sale. The Company estimates the fair value of its MSRs by obtaining market information from one of the primary MSR brokers. When the book value of capitalized MSRs exceeds its fair value, impairment is recognized through a valuation allowance. In determining impairment, our mortgage servicing portfolio is stratified by the predominant risk characteristic of the underlying mortgage loans. The Company has determined that the predominant risk characteristic is the interest rate on the underlying loans. The Company measures impairment for each stratum by comparing the estimated fair value to the recorded book value. Temporary impairment is recorded through a valuation allowance and amortization expense in the period of occurrence. In addition, the Company periodically evaluates its MSRs for other than temporary impairment to determine if the carrying value before the application of the valuation allowance is recoverable. The Company receives a sensitivity analysis of the estimated fair value of its MSRs assuming a 200-basis-point instantaneous increase in interest rates from an independent MSR broker. The fair value estimate includes changes in market assumptions that would be expected given the increase in mortgage rates (e.g., prepayment speeds would be lower). The Company believes this 200-basis-point increase in mortgage rates to be an appropriate threshold for determining the recoverability of the temporary impairment because that size rate increase is foreseeable and consistent with historical mortgage rate fluctuations. When using this instantaneous change in rates, if the fair value of the strata of MSRs is estimated to increase to a point where all of the impairment would be recovered, the impairment is considered to be temporary. When the Company determines that a portion of the MSRs is not recoverable, the related MSRs and the previously established valuation allowance are correspondingly reduced to reflect other than temporary impairment. Premises and Equipment - Premises and equipment is stated at cost less accumulated depreciation and amortization. Depreciation is provided using the straight-line method over their estimated service lives. Leasehold improvements are amortized over the lesser of the life of the lease or service lives of the improvements using the straight-line method. Depreciation and amortization are recorded within occupancy and equipment expense within the consolidated financial statements. Goodwill - Goodwill represents the excess purchase price over the fair value of net assets acquired from business acquisitions and which were being amortized over their initial estimated lives, generally 20 years. The Company does not amortize goodwill, but instead tests for impairment at least annually. The Company will test for impairment more frequently if events or circumstances indicate that an asset may be impaired. The Company tests for impairment by comparing the fair value of goodwill, as determined by using a discounted cash flow method, with its carrying value. Any excess of carrying value over the fair value of the goodwill would be recognized as an impairment loss in continuing operations. The discounted cash flow calculation related to the Company's loan origination segment includes a forecast of the expected future loan originations and the related revenues and expenses. The discounted cash flow calculation related to the Company's mortgage-backed securities holdings segment includes a forecast of the expected future net interest income, gain on mortgage-backed securities and the related revenues and expenses. These cash flows are discounted using a rate that is estimated to be a weighted-average cost of capital for similar companies. Reverse Repurchase Agreements - The Company has entered into reverse repurchase agreements to finance certain of its investments. These agreements are secured by a portion of the Company's investments and bear interest rates that have historically moved in close relationship to LIBOR. Reverse repurchase agreements are accounted for as short-term borrowings and recorded as a liability on the balance sheet. Commercial Paper - The Company formed a wholly owned special purpose entity for the purpose of issuing commercial paper in the form of short-term Secured Liquidity Notes ("SLNs") to finance certain portions of its mortgage loans held for sale. The commercial paper is secured by the Company's loans held for sale, mortgage-backed securities and cash and bears interest at prevailing money market rates approximating LIBOR. Commercial paper is accounted for as a short-term borrowing and recorded as a liability on the balance sheet. Drafts Payable - Drafts payable represent outstanding mortgage loan disbursements that the Company has provided to its customers for the purchase of a home. The amounts outstanding do not bear interest and are transferred into one of the warehouse facilities when they are presented to a bank. Derivative Financial Instruments - The Company has developed risk management programs and processes designed to manage market risk associated with normal business activities. Interest Rate Lock Commitments - Loans to be Sold. The Company's mortgage committed pipeline includes IRLCs that have been extended to borrowers who have applied for loan funding and meet certain defined credit and underwriting criteria. The Company classifies and accounts for the IRLCs associated with loans expected to be sold as free-standing derivatives. Accordingly, IRLCs are recorded at fair value with changes in fair value recorded to current earnings. The fair value of the IRLCs initiated on or before March 31, 2004 is determined by an estimate of the ultimate gain on sale of the loans, including the value of MSRs, net of estimated net costs to originate the loan. In March 2004, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 105 ("SAB No. 105"), which changed the timing of recognition of MSRs for IRLCs initiated after March 31, 2004. See "Recently Issued Accounting -6- Standards" in this note. IRLCs associated with loans held for securitization are not classified and accounted for as derivative financial instruments. Forward Delivery Commitments Used to Hedge IRLCs. The Company uses mortgage forward delivery contracts to economically hedge the IRLCs, which are also classified and accounted for as free-standing derivatives and thus are recorded at fair value with the changes in fair value recorded to current earnings. Forward Delivery Commitments Used to Hedge Mortgage Loans Held for Sale. The Company's risk management objective for its mortgage loans held for sale is to protect earnings from an unexpected charge due to a decline in value. The Company's strategy is to engage in a risk management program involving the use of mortgage forward delivery contracts designated as fair value hedging instruments to hedge 100% of its agency-eligible conforming loans and most of its non-conforming loans held for sale. At the inception of the hedge, the Company formally documents the relationship between the forward delivery contracts and the mortgage inventory as well as its objective and strategy for undertaking the hedge transaction. For conventional conforming fixed-rate loans, the notional amount of the forward delivery contracts, along with the underlying rate and terms of the contracts, are equivalent to the unpaid principal amount of the mortgage inventory being hedged; hence, the forward delivery contracts effectively fix the forward sales price and thereby substantially eliminate interest rate and price risk to the Company. The Company classifies and accounts for these forward delivery contracts as fair value hedges. The derivatives are carried at fair value with the changes in fair value recorded to current earnings. When the hedges are deemed highly effective, the book value of the hedged loans held for sale is adjusted for its change in fair value during the hedge period. Forward Purchase Contracts Used to Hedge MSRs. From time to time, the Company hedges its exposure to impairment of the MSRs by the use of mortgage forward purchase contracts. These derivatives are classified and accounted for as fair value hedges. The mortgage forward purchase contracts are carried at fair value with the changes in their fair value recorded to current earnings. When the hedges are deemed to be highly effective, the book value of the hedged MSRs is adjusted for its change in fair value attributable to the hedged risk during the hedge period. The Company assesses the effectiveness of the hedge by using statistical analysis to measure the correlation of the changes in the value of the forward purchase contract to the changes in the value of the MSRs being hedged during the hedge period. During the six months ended June 30, 2004 and the year ended December 31, 2003, the Company did not hedge its exposure to impairment of the MSRs by the use of mortgage forward purchase contracts. Interest Rate Swap Agreements - The Company classifies and accounts for interest rate swap agreements that are not designated as cash flow hedges as free-standing derivatives. Accordingly, these swap agreements are recorded at fair value with changes in fair value recorded to current earnings as "gain on sales of mortgage loans and mortgage-backed securities" as they are used to offset the price change exposure of mortgage-backed securities classified as trading. Certain swap agreements are designated as cash flow hedges against the benchmark interest rate risk associated with the Company's borrowings. Although the terms and characteristics of the Company's swap agreements and hedged borrowings are nearly identical, due to the explicit requirements of Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," the Company does not account for these hedges under a method defined in SFAS No. 133 as the "shortcut" method, but rather the Company calculates the effectiveness of these hedges on an ongoing basis, and, to date, has calculated effectiveness of approximately 100%. All changes in the unrealized gains and losses on swap agreements designated as cash flow hedges have been recorded in "accumulated other comprehensive loss" and are reclassified to earnings as interest expense is recognized on the Company's hedged borrowings. If it becomes probable that the forecasted transaction, which in this case refers to interest payments to be made under the Company's short-term borrowing agreements, will not occur by the end of the originally specified time period, as documented at the inception of the hedging relationship, or within an additional two-month time period thereafter, then the related gain or loss in accumulated other comprehensive loss would be reclassified to income. Termination of Hedging Relationships. The Company employs a number of risk management monitoring procedures to ensure that the designated hedging relationships are demonstrating, and are expected to continue to demonstrate, a high level of effectiveness. Hedge accounting is discontinued on a prospective basis if it is determined that the hedging relationship is no longer highly effective or expected to be highly effective in offsetting changes in fair value of the hedged item. Additionally, the Company may elect to de-designate a hedge relationship during an interim period and re-designate upon the rebalancing of a hedge profile and the corresponding hedge relationship. When hedge accounting is discontinued, the Company continues to carry the derivative instruments at fair value with changes in their value recorded in earnings. Gain on Sale of Loans - The Company recognizes gain on sale of loans for the difference between the sales price and the adjusted book value of the loans at the time of sale. The adjusted book value of the loans includes the original principal amount plus adjustments related to previously recognized income plus deferrals of fees and points received and direct loan origination costs. Loan Origination Fees and Direct Origination Costs - The Company records loan fees, discount points and certain direct origination costs as an adjustment of the cost of the loan or security and such amounts are included in revenues when the loan or security is sold. When loans are securitized and held, net deferred origination costs are amortized over the life of the security using the level-yield method and such amounts are included in interest income. Gain on sales of mortgage loans and salaries, commissions and benefits have been -7- reduced by $47.8 million and $43.7 million due to direct loan origination costs, including commission costs, incurred for the six months ended June 30, 2004 and 2003, respectively. Interest Recognition - The Company accrues interest income as it is earned. Loans are placed on a nonaccrual status when any portion of the principal or interest is 90 days past due or earlier when concern exists as to the ultimate collectibility of principal or interest. Loans return to accrual status when principal and interest become current and are anticipated to be fully collectible. Interest expense is recorded on outstanding lines of credit at a rate based on a spread to the LIBOR. Servicing Fees - The Company recognizes servicing fees when the fees are collected. Marketing and Promotion - The Company charges the costs of marketing, promotion and advertising to expense in the period incurred. Income Taxes - The Company accounts for income taxes in conformity with SFAS No. 109, "Accounting for Income Taxes," which requires an asset and liability approach for accounting and reporting of income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences ("temporary differences") attributable to the differences between the carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. A valuation allowance is provided for deferred tax assets where realization is not considered "more likely than not." The Company recognizes the effect of changes in tax laws or rates on deferred tax assets and liabilities in the period that includes the enactment date. Stock Option Plans - In 1999, the Company established the 1999 Omnibus Stock Incentive Plan, as amended (the "Plan"). The Company has elected to account for the Plan using Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and to provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants as if the fair-value based method, as required by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123," had been applied. Had compensation cost been determined based on the fair value at the grant dates for awards under the Plan, the Company's net income would have been $54.3 million and $42.9 million for the six months ended June 30, 2004 and 2003, respectively. Basic earnings per share would have been $1.55 and $2.54 for the six months ended June 30, 2004 and 2003, respectively. Diluted earnings per share would have been $1.53 and $2.50 for the six months ended June 30, 2004 and 2003, respectively.
Three Months Ended June 30, Six Months Ended June 30, ------------------------------ ------------------------------- (In thousands, except per share data) 2004 2003 2004 2003 ------------- ------------- ------------- -------------- Net income, as reported $ 33,482 $ 26,877 $ 54,705 $ 43,190 Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (179) (160) (366) (294) ------------- ------------- ------------- -------------- Pro forma net income $ 33,303 $ 26,717 $ 54,339 $ 42,896 ============= ============= ============= ============== Earnings per share: Basic - as reported $ 0.84 $ 1.58 $ 1.56 $ 2.56 Basic - pro forma $ 0.83 $ 1.57 $ 1.55 $ 2.54 Diluted - as reported $ 0.83 $ 1.55 $ 1.54 $ 2.51 Diluted - pro forma $ 0.82 $ 1.54 $ 1.53 $ 2.50
Earnings Per Share - Basic earnings per share excludes dilution and is computed by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Cash Flows - Cash and cash equivalents are demand deposits and short-term investments with a maturity of 90 days or less. -8- Recently Issued Accounting Standards - On March 9, 2004, the SEC issued SAB No. 105, which provides guidance regarding loan commitments that are accounted for as derivative instruments under SFAS No. 133 (as amended), "Accounting for Derivative Instruments and Hedging Activities." In SAB No. 105, the SEC stated that the value of expected future cash flows related to servicing rights should be excluded when determining the fair value of derivative IRLCs. This guidance must be applied to derivative IRLCs initiated after March 31, 2004. Under the new policy, the value of the expected future cash flow related to servicing rights is not recognized until the underlying loans are sold. The Company's second quarter of 2004 results of operations were reduced $18.7 million on a pre-tax basis by its adoption of SAB No. 105. NOTE 2 - MORTGAGE-BACKED SECURITIES The following table presents the Company's mortgage-backed securities as of June 30, 2004 and December 31, 2003:
June 30, 2004 ---------------------------------------------------------------- Trading Securities (In thousands) Securities Available for Sale Total Securities -------------------- -------------------- -------------------- Adjusted cost $ 2,205,480 $ 5,183,932 $ 7,389,412 Gross unrealized gains - 2,716 2,716 Gross unrealized losses (8,377) (52,589) (60,966) -------------------- -------------------- -------------------- Fair value $ 2,197,103 $ 5,134,059 $ 7,331,162 ==================== ==================== ==================== December 31, 2003 ---------------------------------------------------------------- Trading Securities (In thousands) Securities Available for Sale Total Securities ---------------------------------------------------------------- Adjusted cost $ 476,541 $ 1,282,523 $ 1,759,064 Gross unrealized gains 3,382 1,969 5,351 Gross unrealized losses (110) (677) (787) -------------------- -------------------- -------------------- Fair value $ 479,813 $ 1,283,815 $ 1,763,628 ==================== ==================== ====================
During the quarter ended June 30, 2004, the Company sold $947.7 million of mortgage-backed securities and realized $10.7 million in gains and $4.2 million in losses. During the six months ended June 30, 2004, the Company sold $1.7 billion of mortgage-backed securities and realized $20.1 million in gains and $5.1 million in losses. The Company's mortgage-backed securities with gross unrealized losses at June 30, 2004 have been in an unrealized loss position for less than three months. -9- The Company has credit exposure on loans it has securitized. The following table summarizes the loan delinquency information as of June 30, 2004 and December 31, 2003:
June 30, 2004 --------------------------------------------------------------------- (Dollars in thousands) Loan Loan Percent of Total Percent of Total Delinquency Status Count Balance Securitizations Assets - ----------------------------------------------------------------------------------------------- 60 to 89 days 8 $ 1,436 0.05% 0.01% 90 and greater days 5 500 0.02% 0.01% Foreclosure 6 1,196 0.05% 0.01% ---------- ------------- ---------------------- ------------------ 19 $ 3,132 0.12% 0.03% ========== ============= ====================== ==================
December 31, 2003 --------------------------------------------------------------------- (Dollars in thousands) Loan Loan Percent of Total Percent of Total Delinquency Status Count Balance Securitizations Assets - ----------------------------------------------------------------------------------------------- 60 to 89 days 1 $ 692 0.13% 0.02% ---------- ------------- ---------------------- ------------------ 1 $ 692 0.13% 0.02% ========== ============= ====================== ==================
As of June 30, 2004, the Company had a payable for securities purchased of $423.9 million of mortgage-backed securities. NOTE 3 - MORTGAGE LOANS HELD FOR SALE, NET The following table presents the Company's mortgage loans held for sale, net, as of June 30, 2004 and December 31, 2003: June 30, December 31, (In thousands) 2004 2003 -------------------- -------------------- Mortgage loans held for sale $ 1,414,417 $ 1,187,314 SFAS No. 133 basis adjustments 307 16,489 Deferred origination costs, net 21,274 22,324 -------------------- -------------------- Mortgage loans held for sale, net $ 1,435,998 $ 1,226,127 ==================== ==================== -10- NOTE 4 - DERIVATIVE ASSETS AND LIABILITIES The following table presents the Company's derivative assets and liabilities as of June 30, 2004 and December 31, 2003:
June 30, December 31, (In thousands) 2004 2003 ---------------- ---------------- Derivative Assets: Interest rate lock commitments $ 6,122 $ 20,837 Interest rate swaps 38,486 - ---------------- ---------------- Derivative assets $ 44,608 $ 20,837 ================ ================ Derivative Liabilities: Forward delivery contracts - loan commitments $ 5,683 $ 4,358 Forward delivery contracts - loans held for sale 4,415 2,300 Interest rate swaps - 6,036 ---------------- ---------------- Derivative liabilities $ 10,098 $ 12,694 ================ ================
The notional amount of the Company's interest rate swaps as of June 30, 2004 was $4.4 billion. At June 30, 2004, the notional amount of forward delivery contracts amounted to approximately $835.1 million. The forward delivery contracts have a high correlation to the price movement of the loans being hedged. The ineffectiveness recognized in hedging loans held for sale recorded on the balance sheet was insignificant as of June 30, 2004. NOTE 5 - MORTGAGE SERVICING RIGHTS, NET The following table presents the activity in the Company's mortgage servicing rights, net, for the three and six months ended June 30, 2004 and 2003:
Three Months Ended June 30, Six Months Ended June 30, ---------------------------------------- --------------------------------------- (In thousands) 2004 2003 2004 2003 ------------------- ------------------- ------------------ ------------------ Mortgage Servicing Rights: Balance at beginning of period $ 129,971 $ 112,288 $ 121,652 $ 119,225 Additions 28,811 9,773 44,476 15,605 Amortization (7,764) (17,286) (15,110) (30,055) ------------------- ------------------- ------------------ ------------------ Balance at end of period $ 151,018 $ 104,775 $ 151,018 $ 104,775 ------------------- ------------------- ------------------ ------------------ Impairment Allowance: Balance at beginning of period $ (16,452) $ (15,915) $ (3,868) $ (10,202) Impairment recovery (provision) 7,252 (6,472) (5,332) (12,185) ------------------- ------------------- ------------------ ------------------ Balance at end of period $ (9,200) $ (22,387) $ (9,200) $ (22,387) ------------------- ------------------- ------------------ ------------------ Mortgage servicing rights, net $ 141,818 $ 82,388 $ 141,818 $ 82,388 =================== =================== ================== ==================
-11- Aggregate Amortization Expense - ------------------------------ Six months ended June 30, 2004 $ 15,110 Estimated Amortization Expense - ------------------------------ Year ended June 30, 2005 $ 25,805 Year ended June 30, 2006 21,676 Year ended June 30, 2007 17,124 Year ended June 30, 2008 13,805 Year ended June 30, 2009 11,391 Thereafter 61,217 On a quarterly basis, the Company reviews MSRs for impairment based on risk strata. The MSRs are stratified based on the predominant risk characteristics of the underlying loans. The Company's predominant risk characteristic is interest rate. A valuation allowance is recognized for MSRs that have an amortized balance in excess of the estimated fair value for the individual risk stratification. The estimated fair value of MSRs is determined by obtaining a market valuation from an independent MSR broker. To determine the market value of MSRs, the MSR broker uses a valuation model which incorporates assumptions relating to the estimate of the cost of servicing the loan, a discount rate, a float value, an inflation rate, ancillary income per loan, prepayment speeds and default rates that market participants use for similar MSRs. Market assumptions are held constant over the life of the portfolio. The significant assumptions used in estimating the fair value of MSRs at June 30, 2004 and December 31, 2003 were as follows: June 30, 2004 December 31, 2003 ------------- ----------------- Weighted-average prepayment speed (PSA) 280 397 Weighted-average discount rate 10.02% 9.82% Weighted-average default rate 2.70% 4.02% The following table presents certain information regarding the Company's servicing portfolio of loans serviced for others at June 30, 2004 and December 31, 2003: June 30, 2004 December 31, 2003 ------------- ----------------- (Dollars in thousands) Loan servicing portfolio - loans sold or securitized $ 10,196,733 $ 8,272,294 Average loan size $ 146 $ 120 Weighted-average servicing fee 0.358% 0.347% Weighted-average note rate 5.39% 5.72% Weighted-average remaining term (in months) 313 298 Weighted-average age (in months) 20 27 NOTE 6 - GOODWILL The following table presents the activity in the Company's goodwill for the six months ended June 30, 2004: Loan Mortgage-Backed Origination Securities Holdings (In thousands) Segment Segment Total ----------- ------------------- ------- Balance at December 31, 2003 $ 58,605 $ 24,840 $ 83,445 Earnouts from previous acquisitions 5,354 - 5,354 ----------- ------------------- ------- Balance at June 30, 2004 $ 63,959 $ 24,840 $ 88,799 =========== =================== ======= -12- NOTE 7 - WAREHOUSE LINES OF CREDIT, REVERSE REPURCHASE AGREEMENTS AND COMMERCIAL PAPER Warehouse Lines of Credit As of June 30, 2004, the Company has a committed bank syndicated facility led by Residential Funding Corporation ("RFC") and a pre-purchase facility with UBS Real Estate Securities Inc. (formerly Paine Webber Real Estate Securities Inc.) ("UBS"). The Company also has committed facilities with CDC Mortgage Capital Inc. ("CDC"), Morgan Stanley Bank ("Morgan Stanley") and Credit Lyonnais. In addition, the Company has a gestation facility with Greenwich Capital Financial Products, Inc. The RFC facility is for $450 million, the UBS facility is for $1.2 billion, the CDC facility is for $450 million, the Morgan Stanley facility is for $350 million and the Credit Lyonnais facility is for $200 million. The interest rate on outstanding balances fluctuates daily based on a spread to the LIBOR and interest is paid monthly. The facilities are secured by mortgage loans and other assets of the Company. The facilities contain various covenants pertaining to maintenance of net worth, working capital and maximum leverage. At June 30, 2004, the Company was in compliance with respect to the loan covenants. Included within the RFC line of credit, the Company has a working capital sub-limit that allows for borrowings up to $35.0 million at a rate based on a spread to the LIBOR that may be adjusted for earnings on compensating balances on deposit at creditors' banks. As of June 30, 2004, borrowings under the working capital line of credit were $30.6 million. The following table presents the Company's warehouse lines of credit as of June 30, 2004 and December 31, 2003:
June 30, 2004 December 31, 2003 --------------------------------- ----------------------------------- Weighted Weighted Outstanding Average Outstanding Average (Dollars in thousands) Balance Rate Balance Rate --------------------------------- ----------------------------------- CDC $ 226,261 2.09 % $ 406,444 1.98 % Credit Lyonnais 199,540 1.92 200,702 1.88 RFC 199,362 2.56 293,344 2.06 Morgan Stanley 44,236 2.05 92,925 1.92 UBS 3,057 3.67 128,345 3.21 ---------------- ------------------ Warehouse lines of credit $ 672,456 2.18 % $1,121,760 2.12 % ================== ==================
Reverse Repurchase Agreements The Company has arrangements to enter into reverse repurchase agreements, a form of collateralized short-term borrowing, with 13 different financial institutions and on June 30, 2004 had borrowed funds from nine of these firms. Because the Company borrows money under these agreements based on the fair value of its mortgage-backed securities, and because changes in interest rates can negatively impact the valuation of mortgage-backed securities, the Company's borrowing ability under these agreements could be limited and lenders could initiate margin calls in the event interest rates change or the value of the Company's mortgage-backed securities declines for other reasons. As of June 30, 2004, the Company had $6.4 billion of reverse repurchase agreements outstanding with a weighted-average borrowing rate of 1.64% and a weighted-average remaining maturity of 6.5 months. As of December 31, 2003, the Company had $1.3 billion of reverse repurchase agreements outstanding with a weighted-average borrowing rate of 1.26% and a weighted-average remaining maturity of 6.9 months. -13- At June 30, 2004 and December 31, 2003, the Company's reverse repurchase agreements had the following remaining maturities: June 30, December 31, 2004 2003 ----------------- ------------------- (In thousands) Within 30 days $ 490,908 $ 184,302 31 to 89 days 1,285,198 - 90 to 365 days 4,637,400 1,160,025 ----------------- ------------------- Reverse repurchase agreements $ 6,413,506 $ 1,344,327 ================= =================== Commercial Paper In May 2004, the Company formed a wholly owned special purpose entity for the purpose of issuing commercial paper in the form of short-term Secured Liquidity Notes ("SLNs") to finance certain portions of its mortgage loans held for sale. The special purpose entity allows for issuance of short-term notes with maturities of up to 180 days, extendable up to 300 days. The SLNs bear interest at prevailing money market rates approximating LIBOR. The SLN program capacity, based on aggregate commitments of underlying credit enhancers, was $2.0 billion at June 30, 2004. As of June 30, 2004, the Company had $1.0 billion of SLNs outstanding, with an average interest cost of 1.58%. The SLNs were collateralized by loans held for sale, mortgage-backed securities and cash with a balance of $1.1 billion as of June 30, 2004. At June 30, 2004, the Company's commercial paper had the following remaining maturities: June 30, 2004 ------------------------- (In thousands) Within 30 days $ 706,241 31 to 89 days 291,149 90 to 365 days 49,646 ------------------------- Commercial paper $ 1,047,036 ========================= -14- NOTE 8 - EARNINGS PER SHARE The following is a reconciliation of the denominators used in the computations of basic and diluted earnings per share for the three and six months ended June 30, 2004 and 2003:
Three Months Ended June 30, Six Months Ended June 30, --------------------------------- --------------------------------- (Dollars in thousands, except per share amounts) 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Numerator for basic earnings per share - Net income $ 33,482 $ 26,877 $ 54,705 $ 43,190 ============== ============== ============== ============== Denominator: Denominator for basic earnings per share Weighted average number of common shares outstanding during the period 40,000,162 16,980,679 35,015,205 16,866,454 Net effect of dilutive stock options 445,015 367,154 461,088 315,938 -------------- -------------- -------------- -------------- Denominator for diluted earnings per share 40,445,177 17,347,833 35,476,293 17,182,392 ============== ============== ============== ============== Net income per share: Basic $ 0.84 $ 1.58 $ 1.56 $ 2.56 ============== ============== ============== ============== Diluted $ 0.83 $ 1.55 $ 1.54 $ 2.51 ============== ============== ============== ==============
NOTE 9 - STOCK OPTION PLANS In 1999, the Company established the 1999 Omnibus Stock Incentive Plan, as amended (the "Plan"). Pursuant to the Plan, eligible employees, officers and directors are offered the opportunity to acquire the Company's common stock through the grant of options and the award of restricted stock under the Plan. The total number of shares that may be optioned or awarded under the Plan is 3,000,000 shares of common stock. The Plan provides for the granting of options at the fair market value on the date of grant. The options issued primarily vest 50% on the two-year anniversary of the grant date and 50% on the three-year anniversary of the grant date, and expire ten years from the grant date. As of June 30, 2004, the Company has awarded 181,545 shares of restricted stock under the Plan. During the six months ended June 30, 2004 and 2003, the Company recognized compensation expense of $524 thousand and $245 thousand, respectively, relating to shares of restricted stock. At June 30, 2004, 111,085 shares are vested. In general, unvested restricted stock is forfeited upon the recipient's termination of employment. The Plan is a compensatory stock option plan. There was no intrinsic value of the options when granted, as the exercise price was equal to the quoted market price at the grant date. No compensation cost has been recognized for the six months ended June 30, 2004 and 2003. Pursuant to the terms of the Company's merger with Apex, which was consummated on December 3, 2003 (following the approval of the Company's stockholders at a special meeting held on November 21, 2003), the Company assumed the Amended and Restated 1997 Stock Option Plan of Apex (the "Apex Plan"). Upon the closing of the merger with Apex, Apex caused all unvested options granted under the Apex Plan to become vested, and each option granted under the Apex Plan that was not exercised as of December 3, 2003 was terminated and not assumed by the Company. An aggregate of 1 million shares of common stock were available for issuance upon exercise of stock options granted under the Apex Plan. As of the effective date of the merger, Apex had granted options to purchase 791,000 shares of common stock, which options were either (i) previously caused to become vested or (ii) terminated and not assumed by the Company. Accordingly, options to purchase an aggregate of 209,000 shares of the Company's common stock remain available for grant under the Apex Plan. -15- There were 204,691 and 378,014 options granted under the Plan in the three months and six months ended June 30, 2004. The weighted-average fair value per share of options granted during the three months and six months ended June 30, 2004 was $4.69 and $5.12, respectively. There were 174,376 options granted under the Plan in the three months and six months ended June 30, 2003. The weighted-average fair value of options granted in the three months and six months ended June 30, 2003 was $4.32. The fair value of the options granted is estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions used for the grants: Three Months Ended June 30, Six Months Ended June 30, ---------------------------- --------------------------- 2004 2003 2004 2003 ------------- ------------- ------------- ------------- Dividend yield 9.0 % 3.0 % 8.1 % 3.0 % Expected volatility 44.0 % 47.0% 47.3% 47.0% Risk-free interest rate 5.0 % 5.0% 5.0% 5.0% Expected life 3 years 3 years 3 years 3 years NOTE 10 - ACQUISITIONS Apex Mortgage Capital, Inc. On December 3, 2003, AHM Investment completed its merger with Apex, a Maryland corporation that operated and elected to be treated as a REIT for federal income tax purposes. Immediately prior to the merger, under the terms of the reorganization agreement between AHM Holdings and AHM Investment, AHM Holdings reorganized through a reverse triangular merger that caused AHM Investment, a newly formed Maryland corporation that operates and will elect to be treated as a REIT for federal income tax purposes, to become AHM Holdings' parent. The shares of AHM Investment issued to former Apex stockholders in the merger were valued at $177.3 million. The following table summarizes the required disclosures of the pro forma combined entity, as if the acquisition occurred at the beginning of the year for the six months ended June 30, 2003: Six Months Ended (In thousands, except per share amounts) June 30, 2003 --------------------- Revenue $ 250,237 Income before income taxes 96,838 --------------------- Net income $ 65,949 ===================== Earnings per share - basic $ 2.69 ===================== Earnings per share - diluted $ 2.65 ===================== Valley Bancorp, Inc. In August 2001, AHM Holdings entered into an agreement to acquire Valley Bancorp, Inc. ("Valley Bancorp") and its wholly-owned subsidiary, Valley Bank of Maryland, a federal savings bank located in suburban Baltimore, Maryland, for a combination of cash and stock, subject to certain adjustments. Under the terms of the definitive agreement, the Company will pay $46 for each share of Valley Bancorp common stock outstanding, or approximately $6.0 million. The acquisition agreement between AHM Holdings and Valley Bancorp has been extended through July 31, 2005. This transaction is subject to regulatory approval and no assurance can be given that such approval will be obtained or that the acquisition agreement with Valley Bancorp will be further extended if necessary. -16- NOTE 11 - SEGMENTS AND RELATED INFORMATION The Company has three segments, the Mortgage-Backed Securities Holdings segment, the Loan Origination segment and the Loan Servicing segment. The Mortgage-Backed Securities Holdings segment uses the Company's equity capital and borrowed funds to invest in mortgage-backed securities, thereby producing net interest income. The Loan Origination segment originates mortgage loans through the Company's retail and internet branches and loans sourced through mortgage brokers (wholesale channel). The Loan Servicing segment includes investments in MSRs as well as servicing operations primarily for other financial institutions. The Mortgage-Backed Securities Holdings segment includes realized gains or losses on sales of mortgage-backed securities, unrealized mark-to-market gains or losses subsequent to the securitization date on mortgage-backed securities classified as trading securities and realized and unrealized gains or losses on related interest rate swaps. The Loan Origination segment includes unrealized gains or losses that exist on the date of securitization of self-originated loans that are classified as trading securities and realized and unrealized gains or losses on related interest rate swaps. -17-
Three Months Ended June 30, 2004 --------------------------------------------------------------------- (In thousands) Mortgage-Backed Securities Loan Origination Loan Servicing Holdings Segment Segment Segment Total --------------------------------------------------------------------- Net interest income: Interest income $ 41,189 $ 31,215 $ - $ 72,404 Interest expense (30,490) (20,927) (901) (52,318) --------------------------------------------------------------------- Total net interest income 10,699 10,288 (901) 20,086 --------------------------------------------------------------------- Non-interest income: Gain on sales of mortgage loans and mortgage-backed securities - 59,840 - 59,840 Loan servicing fees - - 8,730 8,730 Amortization - - (7,764) (7,764) Impairment reserve recovery - - 7,252 7,252 --------------------------------------------------------------------- Net loan servicing fees - - 8,218 8,218 Other non-interest income - 1,226 - 1,226 --------------------------------------------------------------------- Total non-interest income - 61,066 8,218 69,284 --------------------------------------------------------------------- Non-interest expenses: Salaries, commissions and benefits, net 54 41,612 1,185 42,851 Occupancy and equipment - 7,898 110 8,008 Data processing and communications 4 3,250 84 3,338 Office supplies and expenses - 2,947 268 3,215 Marketing and promotion - 2,193 3 2,196 Travel and entertainment - 2,876 11 2,887 Professional fees 136 1,458 235 1,829 Other 2,028 1,129 925 4,082 --------------------------------------------------------------------- Total non-interest expenses 2,222 63,363 2,821 68,406 --------------------------------------------------------------------- Net income before income tax expense (benefit) 8,477 7,991 4,496 20,964 --------------------------------------------------------------------- Income tax expense (benefit) - (14,492) 1,974 (12,518) --------------------------------------------------------------------- Net income $ 8,477 $ 22,483 $ 2,522 $ 33,482 ===================================================================== June 30, 2004 --------------------------------------------------------------------- Segment assets $ 7,511,774 $ 1,921,370 $ 201,977 $ 9,635,121 =====================================================================
-18-
Three Months Ended June 30, 2003 -------------------------------------------------------------------------------- (In thousands) Mortgage-Backed Securities Loan Origination Loan Servicing Holdings Segment Segment Segment Total -------------------------------------------------------------------------------- Net interest income: Interest income $ - $ 25,446 $ - $ 25,446 Interest expense - (11,860) (712) (12,572) -------------------------------------------------------------------------------- Total net interest income - 13,586 (712) 12,874 -------------------------------------------------------------------------------- Non-interest income: Gain on sales of mortgage loans - 129,282 - 129,282 Loan servicing fees - - 9,821 9,821 Amortization - - (17,286) (17,286) Impairment reserve provision - - (6,472) (6,472) -------------------------------------------------------------------------------- Net loan servicing fees (loss) - - (13,937) (13,937) Other non-interest income - 1,241 - 1,241 -------------------------------------------------------------------------------- Total non-interest income - 130,523 (13,937) 116,586 -------------------------------------------------------------------------------- Non-interest expenses: Salaries, commissions and benefits, net - 53,284 922 54,206 Occupancy and equipment - 6,626 53 6,679 Data processing and communications - 2,725 23 2,748 Office supplies and expenses - 3,500 347 3,847 Marketing and promotion - 2,796 9 2,805 Travel and entertainment - 2,888 3 2,891 Professional fees - 1,491 181 1,672 Other - 7,182 1,241 8,423 -------------------------------------------------------------------------------- Total non-interest expenses - 80,492 2,779 83,271 -------------------------------------------------------------------------------- Net income before income tax expense (benefit) - 63,617 (17,428) 46,189 -------------------------------------------------------------------------------- Income tax expense (benefit) - 26,279 (6,967) 19,312 -------------------------------------------------------------------------------- Net income $ - $ 37,338 $ (10,461) $ 26,877 ================================================================================ December 31, 2003 -------------------------------------------------------------------------------- Segment assets $ 1,865,414 $ 1,375,276 $ 164,000 $ 3,404,690 ================================================================================
-19-
Six Months Ended June 30, 2004 ---------------------------------------------------------------------------- (In thousands) Mortgage-Backed Securities Loan Origination Loan Servicing Holdings Segment Segment Segment Total ---------------------------------------------------------------------------- Net interest income: Interest income $ 56,338 $ 50,116 $ - $ 106,454 Interest expense (39,902) (31,889) (1,805) (73,596) ---------------------------------------------------------------------------- Total net interest income 16,436 18,227 (1,805) 32,858 ---------------------------------------------------------------------------- Non-interest income: Gain on sales of mortgage loans and mortgage-backed securities 12,651 127,322 - 139,973 Loan servicing fees - - 19,048 19,048 Amortization - - (15,110) (15,110) Impairment reserve provision - - (5,332) (5,332) ---------------------------------------------------------------------------- Net loan servicing fees (loss) - - (1,394) (1,394) Other non-interest income - 2,204 - 2,204 ---------------------------------------------------------------------------- Total non-interest income 12,651 129,526 (1,394) 140,783 ---------------------------------------------------------------------------- Non-interest expenses: Salaries, commissions and benefits, net 104 80,212 2,317 82,633 Occupancy and equipment - 15,833 269 16,102 Data processing and communications 6 6,431 114 6,551 Office supplies and expenses - 5,694 639 6,333 Marketing and promotion - 4,405 3 4,408 Travel and entertainment 2 5,338 124 5,464 Professional fees 207 3,671 379 4,257 Other 3,073 4,453 1,994 9,520 ---------------------------------------------------------------------------- Total non-interest expenses 3,392 126,037 5,839 135,268 ---------------------------------------------------------------------------- Net income before income tax expense (benefit) 25,695 21,716 (9,038) 38,373 ---------------------------------------------------------------------------- Income tax expense (benefit) - (12,757) (3,575) (16,332) ---------------------------------------------------------------------------- Net income $ 25,695 $ 34,473 $ (5,463) $ 54,705 ============================================================================ June 30, 2004 ---------------------------------------------------------------------------- Segment assets $ 7,511,774 $ 1,921,370 $ 201,977 $ 9,635,121 ============================================================================
-20-
Six Months Ended June 30, 2003 ---------------------------------------------------------------------------- (in thousands) Mortgage-Backed Securities Loan Origination Loan Servicing Holdings Segment Segment Segment Total ---------------------------------------------------------------------------- Net interest income: Interest income $ - $ 46,424 $ - $ 46,424 Interest expense - (21,281) (1,500) (22,781) ---------------------------------------------------------------------------- Total net interest income - 25,143 (1,500) 23,643 ---------------------------------------------------------------------------- Non-interest income: Gain on sales of mortgage loans - 217,493 - 217,493 Loan servicing fees - - 20,949 20,949 Amortization - - (30,055) (30,055) Impairment reserve provision - - (12,185) (12,185) ---------------------------------------------------------------------------- Net loan servicing fees (loss) - - (21,291) (21,291) Other non-interest income - 4,169 - 4,169 ---------------------------------------------------------------------------- Total non-interest income - 221,662 (21,291) 200,371 ---------------------------------------------------------------------------- Non-interest expenses: Salaries, commissions and benefits, net - 97,125 1,728 98,853 Occupancy and equipment - 12,118 184 12,302 Data processing and communications - 5,777 50 5,827 Office supplies and expenses - 6,164 706 6,870 Marketing and promotion - 5,593 11 5,604 Travel and entertainment - 4,874 4 4,878 Professional fees - 3,200 313 3,513 Other - 10,441 1,647 12,088 ---------------------------------------------------------------------------- Total non-interest expenses - 145,292 4,643 149,935 ---------------------------------------------------------------------------- Net income before income tax expense (benefit) - 101,513 (27,434) 74,079 ---------------------------------------------------------------------------- Income tax expense (benefit) - 41,863 (10,974) 30,889 ---------------------------------------------------------------------------- Net income $ - $ 59,650 $ (16,460) $ 43,190 ============================================================================ December 31, 2003 ---------------------------------------------------------------------------- Segment assets $ 1,865,414 $ 1,375,276 $ 164,000 $ 3,404,690 ============================================================================
-21- NOTE 12 - SUBSEQUENT EVENTS Acquisition of Certain Home Loan Centers of Washington Mutual On July 28, 2004, the Company announced it signed a definitive agreement with Washington Mutual, Inc. and its subsidiaries to acquire certain residential mortgage home loan centers and associated satellite offices that Washington Mutual previously slated for closure in 18 states. Approximately 500 employees are currently supporting these home loan centers and associated satellite offices with the vast majority being sales professionals focused on retail loan originations. The Company is currently in the process of hiring a number of the Washington Mutual employees who work at the acquired home loan centers. Under the terms of the acquisition, the Company assumed Washington Mutual's lease obligations and purchased certain fixed assets in the acquired offices. The acquisition closed on August 2, 2004 and was funded from current cash reserves. The Company projects that the newly hired staff will add to its retail loan production in the third and fourth quarters of 2004. Preferred Stock Issuance In July 2004, the Company issued 2,150,000 shares of 9.75% Series A Cumulative Redeemable Preferred Stock ("Preferred Stock") at a price of $25 per share. The total number of shares of Preferred Stock outstanding includes: 1,400,000 shares of Preferred Stock issued in an underwritten public offering (the "Initial Offering"), which closed on July 7, 2004; 100,000 shares of Preferred Stock issued in connection with the underwriters' election to purchase a portion of the shares of Preferred Stock offered to them in connection with the Initial Offering to cover over-allotments, which closed on July 12, 2004; and 650,000 shares of Preferred Stock issued and sold to the underwriters in connection with a subsequent public offering of Preferred Stock, which closed on July 20, 2004. The total proceeds from both offerings to the Company were $53.8 million before underwriting discounts, commissions and other expenses. The Company intends to use the net proceeds of these offerings for general corporate purposes, including investing in mortgage-backed securities. The Preferred Stock, which has no stated maturity date, and is non-callable for five years, is listed on the New York Stock Exchange under the symbol "AHM PrA." -22- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Regarding Forward-Looking Statements This report, including, but not limited to, "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains certain forward-looking statements within the meaning of the federal securities laws. Some of the forward-looking statements can be identified by the use of forward-looking words. When used in this report, statements which are not historical in nature, including the words "anticipate," "may," "estimate," "should," "seek," "expect," "plan," "believe," "intend," and similar words, or the negatives of those words, are intended to identify forward-looking statements. Statements which also contain a projection of revenues, earnings (loss), capital expenditures, dividends, capital structure or other financial terms are intended to be forward-looking statements. Certain statements regarding the following particularly are forward-looking in nature: o our business strategy; o future performance, developments, market forecasts or projected dividends; o projected acquisitions or joint ventures; and o projected capital expenditures. It is important to note that the description of our business in general, and our mortgage-backed securities holdings in particular, is a statement about our operations as of a specific point in time. It is not meant to be construed as an investment policy, and the types of assets we hold, the amount of leverage we use, the liabilities we incur and other characteristics of our assets and liabilities are subject to reevaluation and change without notice. The forward-looking statements in this report are based on our management's beliefs, assumptions, and expectations of our future economic performance, taking into account the information currently available to it. These statements are not statements of historical fact. Forward-looking statements are subject to a number of factors, risks and uncertainties, some of which are not currently known to us, that may cause our actual results, performance or financial condition to be materially different from our expectations of future results, performance or financial position. These factors include, without limitation: o our limited operating history with respect to our proposed portfolio strategy; o our proposed portfolio strategy may be changed or modified by our management without advance notice to stockholders, and that we may suffer losses as a result of such modifications or changes; o our need for a significant amount of cash to operate our business; o risks associated with the use of leverage; o disruptions in the market for repurchase facilities; o failure to match the interest rates on our borrowings with the interest rates on the mortgage-backed securities we hold; o failure to maintain our status as a real estate investment trust; o changes in federal and state tax laws affecting real estate investment trusts; o general economic, political, market, financial or legal conditions; and o the other factors referenced in this report, including, without limitation, those under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations." In light of these risks, uncertainties and assumptions, any forward-looking events discussed in this report might not occur, and we qualify any and all of our forward-looking statements entirely by these cautionary factors. You are cautioned not to place undue reliance on forward-looking statements. Such forward-looking statements are inherently uncertain, and actual results may differ from expectations. -23- We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. Critical Accounting Policies and Estimates Our accounting policies are described in Note 1 to the Consolidated Financial Statements. We have identified the following accounting policies that are critical to the presentation of our financial statements and that require critical accounting estimates by management. Mortgage-Backed Securities - We record our mortgage-backed securities at fair value. The fair values of our mortgage-backed securities are generally based on market prices provided by certain dealers who make markets on these financial instruments or third-party pricing services. If the fair value of a mortgage-backed security is not reasonably available, management estimates the fair value, which requires management's judgment and may not be indicative of the amounts we could realize in a current market exchange. Mortgage Loans Held for Sale - Mortgage loans held for sale are carried at the lower of cost or aggregate market value. The cost basis includes the capitalized value of the IRLCs related to the mortgage loans and any net deferred origination costs. For mortgage loans held for sale that are hedged with forward sale commitments, the carrying value is adjusted for the change in market during the time the hedge was deemed to be highly effective. The market value is determined by outstanding commitments from investors or current yield requirements calculated on an aggregate basis. Mortgage Servicing Rights - When we acquire servicing assets through either purchase or origination of loans and sell or securitize those loans with servicing assets retained, the total cost of the loans is allocated to the servicing assets and the loans (without the servicing assets) based on their relative fair values. The amount attributable to the servicing assets is capitalized as MSRs on the consolidated balance sheets. The MSRs are amortized to expense in proportion to and over the period of estimated net servicing income. The MSRs are assessed for impairment based on the fair value of those assets. We estimate the fair value of the servicing assets by obtaining market information from a primary MSR broker. When the book value of capitalized servicing assets exceeds their fair value, impairment is recognized through a valuation allowance. In determining impairment, the mortgage servicing portfolio is stratified by the predominant risk characteristic of the underlying mortgage loans. We have determined that the predominant risk characteristic is the interest rate on the underlying loan. We measure impairment for each stratum by comparing the estimated fair value to the recorded book value. Temporary impairment is recorded through a valuation allowance and amortization expense in the period of occurrence. In addition, we periodically evaluate our MSRs for other than temporary impairment to determine if the carrying value before the application of the valuation allowance is recoverable. We receive a sensitivity analysis of the estimated fair value of our MSRs assuming a 200-basis-point instantaneous increase in interest rates from an independent MSR broker. The fair value estimate includes changes in market assumptions that would be expected given the increase in mortgage rates (e.g., prepayment speeds would be lower). We believe this 200-basis-point increase in mortgage rates to be an appropriate threshold for determining the recoverability of the temporary impairment because that size rate increase is foreseeable and consistent with historical mortgage rate fluctuations. When using this instantaneous change in rates, if the fair value of the strata of MSRs is estimated to increase to a point where all of the impairment would be recovered, the impairment is considered to be temporary. When we determine that a portion of the MSRs is not recoverable, the related MSRs and the previously established valuation allowance are correspondingly reduced to reflect other than temporary impairment. Derivative Assets and Derivative Liabilities - Our mortgage-committed pipeline includes IRLCs that have been extended to borrowers who have applied for loan funding and meet certain defined credit and underwriting criteria. IRLCs associated with loans expected to be sold are recorded at fair value with changes in fair value recorded to current earnings. The fair value of the IRLCs initiated on or before March 31, 2004 is determined by an estimate of the ultimate gain on sale of the loans, including the value of MSRs, net of estimated net costs remaining to originate the loan. In March 2004, the SEC issued SAB No. 105, which provides industry guidance which changed the timing of recognition of MSRs for IRLCs initiated after March 31, 2004. See "Recently Issued Accounting Standards" in Note 1 to the Consolidated Financial Statements. IRLCs associated with loans held for securitization are not classified and accounted for as derivative financial instruments. We use other derivative instruments, including mortgage forward delivery contracts and treasury futures options, to economically hedge the IRLCs, which are also classified and accounted for as free-standing derivatives and thus are recorded at fair value with the changes in fair value recorded to current earnings. We use mortgage forward delivery contracts designated as fair value hedging instruments to hedge 100% of our agency-eligible conforming fixed-rate loans and most of our non-conforming fixed-rate loans held for sale. At the inception of the hedge, we formally document the relationship between the forward delivery contracts and the mortgage inventory, as well as our objective and strategy for undertaking the hedge transactions. In the case of our conventional conforming fixed-rate loan products, the notional amount of the forward delivery contracts, along with the underlying rate and terms of the contracts, are equivalent to the unpaid principal amount of the -24- mortgage inventory being hedged; hence, the forward delivery contracts effectively fix the forward sales price and thereby substantially eliminate interest rate and price risk to us. We classify and account for these forward delivery contracts as fair value hedges. The derivatives are carried at fair value with the changes in fair value recorded to current earnings. When the hedges are deemed to be highly effective, the book value of the hedged loans held for sale is adjusted for its change in fair value during the hedge period. We enter into interest rate swap agreements to manage our interest rate exposure when financing our adjustable-rate mortgage loans and mortgage-backed securities. Certain swap agreements accounted for as cash flow hedges and certain swap agreements not designated as cash flow hedges are both carried on the balance sheet at fair value. The fair values of our swap agreements are generally based on market prices provided by certain dealers who make markets in these financial instruments or third-party pricing services. If the fair value of a trading security is not reasonably available, management estimates the fair value, which requires management's judgment and may not be indicative of the amounts we could realize in a current market exchange. Goodwill - Goodwill represents the excess purchase price over the fair value of net assets stemming from business acquisitions, including identifiable intangibles. We test for impairment by comparing the fair value of goodwill, as determined by using a discounted cash flow method, with its carrying value. Any excess of carrying value over the fair value of the goodwill would be recognized as an impairment loss in continuing operations. The discounted cash flow calculation related to our loan origination segment includes a forecast of the expected future loan originations and the related revenues and expenses. The discounted cash flow calculation related to our Mortgage-Backed Securities Holdings segment includes a forecast of the expected future net interest income, gain on mortgage-backed securities and the related revenues and expenses. These cash flows are discounted using a rate that is estimated to be a weighted-average cost of capital for similar companies. We further test to ensure that the fair value of all our business units does not exceed our total market capitalization. -25- Financial Condition At June 30, 2004, 76.1% of our total assets were mortgage-backed securities and 14.9% were mortgage loans held for sale, compared to 51.8% and 36.0%, respectively, at December 31, 2003. Total assets increased $6.2 billion to $9.6 billion at June 30, 2004 from $3.4 billion at December 31, 2003. The increase primarily reflects an increase in mortgage-backed securities of $5.6 billion and a $0.2 billion rise in mortgage loans held for sale. The growth in mortgage-backed securities was primarily funded by an increase in reverse repurchase agreements of $5.1 billion. We began issuing commercial paper in the quarter ended June 30, 2004, to fund our loans held for sale. As of June 30, 2004, we had $1.0 billion of commercial paper outstanding, which allowed us to reduce the amount of loans funded by warehouse lines of credit. The following table summarizes our mortgage-backed securities owned at June 30, 2004 and December 31, 2003, classified by type of issuer and by ratings categories:
June 30, 2004 ------------------------------------------------------------------------------------------------- Trading Securities Securities Available for Sale Total ------------------------------ ---------------------------------------------------------------- Carrying Portfolio Carrying Portfolio Carrying Portfolio Value Mix Value Mix Value Mix ------------------------------------------------------------------------------------------------- (Dollars in thousands) Agency securities $ 1,060,417 48.3% $ 1,544,723 30.1% $ 2,605,140 35.5% Privately issued: AAA 1,013,391 46.1 3,504,782 68.3 4,518,173 61.6 AA 55,372 2.5 31,821 0.6 87,193 1.2 A 19,805 0.9 19,972 0.4 39,777 0.5 BBB 8,286 0.4 10,218 0.2 18,504 0.3 Unrated (1) 39,832 1.8 22,543 0.4 62,375 0.9 ----------------- ----------- ----------------- ----------- ----------------- ------------ Total $ 2,197,103 100.0% $ 5,134,059 100.0% $ 7,331,162 100.0% ================= =========== ================= =========== ================= ============
(1) Unrated subordinated certificates retained by the Company as credit enhancements for its privately issued securities.
December 31, 2003 ------------------------------------------------------------------------------------------------- Trading Securities Securities Available for Sale Total ------------------------------ ---------------------------------------------------------------- Carrying Portfolio Carrying Portfolio Carrying Portfolio Value Mix Value Mix Value Mix ------------------------------------------------------------------------------------------------- (Dollars in thousands) Agency securities $ 287,577 60.0% $ 713,790 55.6% $ 1,001,367 56.8% Privately issued: AAA 167,974 35.0 570,025 44.4 737,999 41.8 AA 11,322 2.4 - - 11,322 0.6 A 6,470 1.3 - - 6,470 0.4 Unrated (1) 6,470 1.3 - - 6,470 0.4 -------------- ----------- ----------------- ----------- ------------------ ----------- Total $ 479,813 100.0% $ 1,283,815 100.0% $ 1,763,628 100.0% ============== =========== ================= =========== ================== ===========
(1) An unrated subordinated certificate retained by the Company as a credit enhancement for its privately issued securities. -26- The following table classifies our mortgage-backed securities portfolio by type of interest rate index at June 30, 2004 and December 31, 2003:
June 30, 2004 --------------------------------------------------------------------------- Securities Trading Securities Available for Sale Total ------------------------- ------------------------ ------------------------ Carrying Portfolio Carrying Portfolio Carrying Portfolio Value Mix Value Mix Value Mix --------------------------------------------------------------------------- (Dollars in thousands) Index: One-month LIBOR $ 239,667 10.9% $ 142,623 2.8% $ 382,290 5.2% Six-month LIBOR 336,197 15.3 2,331,786 45.4 2,667,983 36.4 One-year LIBOR 1,602,889 73.0 1,946,900 37.9 3,549,789 48.4 One-year constant maturity treasury 18,350 0.8 712,750 13.9 731,100 10.0 -------------- ---------- -------------- --------- -------------- --------- Total $ 2,197,103 100.0% $ 5,134,059 100.0% $ 7,331,162 100.0% ============== ========== ============== ========= ============== =========
December 31, 2003 ------------------------------------------------------------------------- Securities Trading Securities Available for Sale Total ----------------------- ------------------------ ------------------------ Carrying Portfolio Carrying Portfolio Carrying Portfolio Value Mix Value Mix Value Mix ------------------------------------------------------------------------- (Dollars in thousands) Index: One-month LIBOR $ 189,772 39.6% $ - - % $ 189,772 10.8% Six-month LIBOR - - 517,248 40.3 517,248 29.3 One-year LIBOR 261,548 54.5 610,963 47.6 872,511 49.5 One-year constant maturity treasury 28,493 5.9 155,604 12.1 184,097 10.4 ------------- --------- -------------- --------- -------------- --------- Total $ 479,813 100.0% $ 1,283,815 100.0% $ 1,763,628 100.0% ============= ========= ============== ========= ============== =========
-27- The following table classifies our mortgage-backed securities portfolio by product type at June 30, 2004 and December 31, 2003:
June 30, 2004 --------------------------------------------------------------------------------------------------- Securities Trading Securities Available for Sale Total -------------------------------- ------------------------------- -------------------------------- Carrying Portfolio Carrying Portfolio Carrying Portfolio Value Mix Value Mix Value Mix --------------------------------------------------------------------------------------------------- (Dollars in thousands) Product: ARM less than 3 years $ 374,157 17.0% $ 1,145,102 22.3% $ 1,519,259 20.8% 3/1 Hybrid ARM 805,466 36.7 882,901 17.2 1,688,367 23.0 5/1 Hybrid ARM 1,017,480 46.3 3,106,056 60.5 4,123,536 56.2 ---------------- ------------- ---------------- ------------- ---------------- -------------- Total $ 2,197,103 100.0% $ 5,134,059 100.0% $ 7,331,162 100.0% ================ ============= ================ ============= ================ ==============
December 31, 2003 --------------------------------------------------------------------------------------------------- Securities Trading Securities Available for Sale Total -------------------------------- ------------------------------- -------------------------------- Carrying Portfolio Carrying Portfolio Carrying Portfolio Value Mix Value Mix Value Mix --------------------------------------------------------------------------------------------------- (Dollars in thousands) Product: ARM less than 3 years $ 189,771 39.6% $ 212,897 16.6% $ 402,668 22.9% 3/1 Hybrid ARM 133,019 27.7 415,674 32.4 548,693 31.1 5/1 Hybrid ARM 133,140 27.7 619,688 48.2 752,828 42.6 7/1 Hybrid ARM 23,883 5.0 35,556 2.8 59,439 3.4 ---------------- ------------- ---------------- ------------- ---------------- -------------- Total $ 479,813 100.0% $ 1,283,815 100.0% $ 1,763,628 100.0% ================ ============= ================ ============= ================ ==============
During the six months ended June 30, 2004, we purchased $4.7 billion of mortgage-backed securities and added $3.1 billion of self-originated mortgage-backed securities. During the six months ended June 30, 2004, we sold $1.7 billion of mortgage-backed securities. The average cost basis of our mortgage-backed securities, excluding unrealized gains and losses, was 100.8% of par as of June 30, 2004 and 101.5% of par as of December 31, 2003. We had payables for securities purchased of $423.9 million and $259.7 million as of June 30, 2004 and December 31, 2003, respectively. -28-
Results of Operations - Comparison of the Three Months Ended June 30, 2004 and 2003 Three Months Ended June 30, 2004 --------------------------------------------------------------------- (In thousands) Mortgage-Backed Securities Loan Origination Loan Servicing Holdings Segment Segment Segment Total --------------------------------------------------------------------- Net interest income: Interest income $ 41,189 $ 31,215 $ - $ 72,404 Interest expense (30,490) (20,927) (901) (52,318) --------------------------------------------------------------------- Total net interest income 10,699 10,288 (901) 20,086 --------------------------------------------------------------------- Non-interest income: Gain on sales of mortgage loans and mortgage-backed securities - 59,840 - 59,840 Loan servicing fees - - 8,730 8,730 Amortization - - (7,764) (7,764) Impairment reserve recovery - - 7,252 7,252 --------------------------------------------------------------------- Net loan servicing fees - - 8,218 8,218 Other non-interest income - 1,226 - 1,226 --------------------------------------------------------------------- Total non-interest income - 61,066 8,218 69,284 --------------------------------------------------------------------- Non-interest expenses: Salaries, commissions and benefits, net 54 41,612 1,185 42,851 Occupancy and equipment - 7,898 110 8,008 Data processing and communications 4 3,250 84 3,338 Office supplies and expenses - 2,947 268 3,215 Marketing and promotion - 2,193 3 2,196 Travel and entertainment - 2,876 11 2,887 Professional fees 136 1,458 235 1,829 Other 2,028 1,129 925 4,082 --------------------------------------------------------------------- Total non-interest expenses 2,222 63,363 2,821 68,406 --------------------------------------------------------------------- Net income before income tax expense (benefit) 8,477 7,991 4,496 20,964 --------------------------------------------------------------------- Income tax expense (benefit) - (14,492) 1,974 (12,518) --------------------------------------------------------------------- Net income $ 8,477 $ 22,483 $ 2,522 $ 33,482 ===================================================================== June 30, 2004 --------------------------------------------------------------------- Segment assets $ 7,511,774 $ 1,921,370 $ 201,977 $ 9,635,121 =====================================================================
-29-
Three Months Ended June 30, 2003 ---------------------------------------------------------------------------- (in thousands) Mortgage-Backed Securities Loan Origination Loan Servicing Holdings Segment Segment Segment Total ---------------------------------------------------------------------------- Net interest income: Interest income $ - $ 25,446 $ - $ 25,446 Interest expense - (11,860) (712) (12,572) ---------------------------------------------------------------------------- Total net interest income - 13,586 (712) 12,874 ---------------------------------------------------------------------------- Non-interest income: Gain on sales of mortgage loans - 129,282 - 129,282 Loan servicing fees - - 9,821 9,821 Amortization - - (17,286) (17,286) Impairment reserve provision - - (6,472) (6,472) ---------------------------------------------------------------------------- Net loan servicing fees (loss) - - (13,937) (13,937) Other non-interest income - 1,241 - 1,241 ---------------------------------------------------------------------------- Total non-interest income - 130,523 (13,937) 116,586 ---------------------------------------------------------------------------- Non-interest expenses: Salaries, commissions and benefits, net - 53,284 922 54,206 Occupancy and equipment - 6,626 53 6,679 Data processing and communications - 2,725 23 2,748 Office supplies and expenses - 3,500 347 3,847 Marketing and promotion - 2,796 9 2,805 Travel and entertainment - 2,888 3 2,891 Professional fees - 1,491 181 1,672 Other - 7,182 1,241 8,423 ---------------------------------------------------------------------------- Total non-interest expenses - 80,492 2,779 83,271 ---------------------------------------------------------------------------- Net income before income tax expense (benefit) - 63,617 (17,428) 46,189 ---------------------------------------------------------------------------- Income tax expense (benefit) - 26,279 (6,967) 19,312 ---------------------------------------------------------------------------- Net income $ - $ 37,338 (10,461) $ 26,877 ============================================================================ December 31, 2003 ---------------------------------------------------------------------------- Segment assets $ 1,865,414 $ 1,375,276 $ 164,000 $ 3,404,690 ============================================================================
-30- Overview Net income for the quarter ended June 30, 2004 was $33.5 million, compared to $26.9 million for the quarter ended June 30, 2003, an increase of $6.6 million, or 24.5%. This increase was the result of a $31.8 million decrease in income tax expense, a $14.9 million decrease in non-interest expense and a $7.2 million increase in net interest income, partly offset by a $47.3 million decrease in non-interest income. Mortgage-Backed Securities Holdings Segment Our Mortgage-Backed Securities Holdings segment began operations on December 3, 2003 as a result of the reorganization of the Company into a REIT and the merger with Apex. The segment's business is the holding for net interest income of adjustable-rate mortgage ("ARM")-backed securities. The following table presents the average balances for the Mortgage-Backed Securities Holdings segment's mortgage-backed securities and reverse repurchase agreements, corresponding annualized effective rate of interest and the related interest income or expense:
Three Months Ended June 30, ------------------------------------------------------------------------ (Dollars in thousands) 2004 ------------------------------------------------------------------------ Average Balance Interest Average Yield/Cost ------------------------- ---------------- ----------------------------- Mortgage-backed securities, net (1) $ 4,812,343 $ 41,189 3.42% ------------------------- ---------------- ----------------------------- Reverse repurchase agreements (2) 4,500,076 30,490 2.70% ------------------------- ---------------- ----------------------------- Net interest income $ 10,699 ================ Interest rate spread 0.72% ============================= Net interest margin 0.90% =============================
(1) The average yield does not give effect to changes in the fair value that are reflected as a component of stockholders' equity. (2) Includes net interest expense on interest rate swaps. Revenues. Total revenues for the Mortgage-Backed Securities Holdings segment for the three months ended June 30, 2004 were $10.7 million, consisting entirely of net interest income. Loan Origination Segment The Loan Origination segment's primary business is the origination and sale of primarily one-to-four family residential mortgage loans. Total loan originations for the quarter ended June 30, 2004 were $6.6 billion compared to $6.2 billion for the second quarter of 2003, a 6.5% increase. Our retail originations, which are conducted through our community loan production offices and Internet call center, were 47% of our loan originations in the quarter ended June 30, 2004 compared to 80% of our originations in the quarter ended June 30, 2003. Mortgage brokers accounted for 53% of our loan originations in the quarter ended June 30, 2004 compared to 20% of our originations in the quarter ended June 30, 2003. Mortgage brokers accounted for an increased percentage of our originations in the quarter ended June 30, 2004 due to the opening of wholesale branches in the western United States. Gain on Sales of Mortgage Loans and Mortgage-Backed Securities. Gain on sales of mortgage loans and mortgage-backed securities for the quarter ended June 30, 2004 was $59.8 million compared to $129.3 million in the quarter ended June 30, 2003. The decrease in gain on sale of loans and mortgage-backed securities was primarily the result of a decrease in average volume of IRLCs and hedged loans held for sale, the Company's adoption of SAB No. 105, which reduced the fair value of IRLCs and loans held for sale and the increased percentage of wholesale originations in the quarter ended June 30, 2004 compared to the quarter ended June 30, 2003. The change in fair value of IRLCs included in gain on sale of loans in the second quarter of 2004 was reduced as a result of the Company's adoption of SAB No. 105. The change in fair value of IRLCs and hedged loans held for sale decreased by $27.8 million to a loss of $28.7 million in the quarter ended June 30, 2004 compared to a loss of $0.9 million in the quarter ended June 30, 2003. Brokers fee expenses included as a reduction to gain on sale of loans increased $18.6 million from $21.7 million in the quarter ended June 30, 2003 to $40.3 million in the -31- quarter ended June 30, 2004. The rise in fees paid to brokers on wholesale originations is the result of the increased percentage of wholesale originations in the second quarter of 2004 versus the second quarter of 2003. Net Interest Income. Total interest income for the quarter ended June 30, 2004 on our Loan Origination segment's mortgages held for sale was $31.2 million, compared to interest income for the quarter ended June 30, 2003 of $25.4 million, an increase of $5.8 million, or 22.7%. The increase was primarily due to higher average loan inventory in the second quarter of 2004 versus the second quarter of 2003. Our Loan Origination segment funds its loan inventory primarily through a $2.0 billion Secured Liquidity Note Program and borrowing facilities with several mortgage warehouse lenders. Total interest expense for the quarter ended June 30, 2004 was $20.9 million, compared to interest expense for the quarter ended June 30, 2003 of $11.9 million, a $9.1 million increase, which was primarily due to increased borrowings to fund our increased loan inventory. Other Revenue. Other revenue totaled $1.2 million for the quarter ended June 30, 2004 and the quarter ended June 30, 2003. For the quarter ended June 30, 2004, other income primarily includes revenue from rental income of $0.6 million, reinsurance premiums earned totaling approximately $0.4 million, and revenue from title services of $0.2 million. For the quarter ended June 30, 2003, other income primarily consists of volume incentive bonuses received from loan purchasers totaling approximately $0.6 million and revenue from title services of $0.4 million. Expenses. Total expenses of our Loan Origination segment for the quarter ended June 30, 2004 were $63.4 million, compared to $80.5 million for the quarter ended June 30, 2003. Our operating expenses represent costs that are not eligible to be added to the book value of the loans because they are not considered direct origination costs under the rules of SFAS No. 91, "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Costs of Leases." Direct origination costs are added to the book value of loans and either reduce the gain on sale of loans if the loans are sold or are amortized over the life of the loan. Salaries, commissions and benefits for the quarter ended June 30, 2004 were $41.6 million, or 63 basis points of total loan originations, compared to $53.3 million, or 85 basis points of total loan originations, for the quarter ended June 30, 2003. The decrease in expenses reflects the higher percentage of wholesale originations in the quarter ended June 30, 2004. Operating expenses, excluding salaries, commissions and benefits, were 33 basis points of total loan originations for the quarter ended June 30, 2004 and 44 basis points for the quarter ended June 30, 2003. Income Tax Expense. Income tax expense decreased to a benefit of $14.5 million for the quarter ended June 30, 2004 from expense of $26.3 million for the quarter ended June 30, 2003, a decrease of $40.8 million. The effective tax rate for the Loan Origination segment in the 2004 period includes permanent book-to-tax differences related to activity within the REIT and the transactions between our taxable REIT subsidiary ("TRS") and qualified REIT subsidiary ("QRS"). Loan Servicing Segment The Loan Servicing segment total revenues for the quarter ended June 30, 2004 were $7.3 million compared to a loss of $14.6 million for the quarter ended June 30, 2003, an increase of $21.9 million. Net loan servicing fees were $8.2 million for the quarter ended June 30, 2004, compared to a loss of $13.9 million for the quarter ended June 30, 2003. Loan servicing fees decreased to $8.7 million for the quarter ended June 30, 2004 from $9.8 million for the quarter ended June 30, 2003, a decrease of $1.1 million, or 11.1%. Included in loan servicing fees are gains on Ginnie Mae early buy-out sales of $0.6 million for the quarter ended June 30, 2004 compared to $3.2 million for the quarter ended June 30, 2003, a decrease of $2.6 million. Amortization decreased to $7.8 million for the quarter ended June 30, 2004 from $17.3 million for the quarter ended June 30, 2003, a decrease of $9.5 million. The decrease in amortization was due to a rise in interest rates which resulted in slower prepayment speeds in the quarter ended June 30, 2004 versus the quarter ended June 30, 2003. We recognized a temporary impairment recovery of $7.2 million for the quarter ended June 30, 2004 versus a temporary impairment provision of $6.5 million for the quarter ended June 30, 2003, resulting in an increase in net loan servicing fees of $13.7 million. The increase in impairment recovery in the quarter ended June 30, 2004 was due to an increase in the fair value of servicing rights attributable to a decrease in estimated future prepayment speeds. The decrease in estimated future prepayment speeds was a result of a rise in interest rates in the quarter ended June 30, 2004. -32- Expenses. Total expenses of our Loan Servicing segment for the quarter ended June 30, 2004 and the quarter ended June 30, 2003 were $2.8 million. Income Tax Expense. Income tax expense increased to $2.0 million for the quarter ended June 30, 2004 from a $6.9 million benefit for the quarter ended June 30, 2003, an increase of $8.9 million. -33- Results of Operations - Comparison of the Six Months Ended June 30, 2004 and 2003
Six Months Ended June 30, 2004 -------------------------------------------------------------------------------- (In thousands) Mortgage-Backed Securities Loan Origination Loan Servicing Holdings Segment Segment Segment Total -------------------------------------------------------------------------------- Net interest income: Interest income $ 56,338 $ 50,116 $ - $ 106,454 Interest expense (39,902) (31,889) (1,805) (73,596) -------------------------------------------------------------------------------- Total net interest income 16,436 18,227 (1,805) 32,858 -------------------------------------------------------------------------------- Non-interest income: Gain on sales of mortgage loans and mortgage-backed securities 12,651 127,322 - 139,973 Loan servicing fees - - 19,048 19,048 Amortization - - (15,110) (15,110) Impairment reserve provision - - (5,332) (5,332) -------------------------------------------------------------------------------- Net loan servicing fees (loss) - - (1,394) (1,394) Other non-interest income - 2,204 - 2,204 -------------------------------------------------------------------------------- Total non-interest income 12,651 129,526 (1,394) 140,783 -------------------------------------------------------------------------------- Non-interest expenses: Salaries, commissions and benefits, net 104 80,212 2,317 82,633 Occupancy and equipment - 15,833 269 16,102 Data processing and communications 6 6,431 114 6,551 Office supplies and expenses - 5,694 639 6,333 Marketing and promotion - 4,405 3 4,408 Travel and entertainment 2 5,338 124 5,464 Professional fees 207 3,671 379 4,257 Other 3,073 4,453 1,994 9,520 -------------------------------------------------------------------------------- Total non-interest expenses 3,392 126,037 5,839 135,268 -------------------------------------------------------------------------------- Net income before income tax expense (benefit) 25,695 21,716 (9,038) 38,373 -------------------------------------------------------------------------------- Income tax expense (benefit) - (12,757) (3,575) (16,332) -------------------------------------------------------------------------------- Net income $ 25,695 $ 34,473 $ (5,463) $ 54,705 ================================================================================ June 30, 2004 -------------------------------------------------------------------------------- Segment assets $ 7,511,774 $ 1,921,370 $ 201,977 $ 9,635,121 ================================================================================
-34-
Six Months Ended June 30, 2003 -------------------------------------------------------------------------------- (In thousands) Mortgage-Backed Securities Loan Origination Loan Servicing Holdings Segment Segment Segment Total ---------------------------------------------------------------------------- Net interest income: Interest income $ - $ 46,424 $ - $ 46,424 Interest expense - (21,281) (1,500) (22,781) ---------------------------------------------------------------------------- Total net interest income - 25,143 (1,500) 23,643 ---------------------------------------------------------------------------- Non-interest income: Gain on sales of mortgage loans - 217,493 - 217,493 Loan servicing fees - - 20,949 20,949 Amortization - - (30,055) (30,055) Impairment reserve provision - - (12,185) (12,185) ---------------------------------------------------------------------------- Net loan servicing fees (loss) - - (21,291) (21,291) Other non-interest income - 4,169 - 4,169 ---------------------------------------------------------------------------- Total non-interest income - 221,662 (21,291) 200,371 ---------------------------------------------------------------------------- Non-interest expenses: Salaries, commissions and benefits, net - 97,125 1,728 98,853 Occupancy and equipment - 12,118 184 12,302 Data processing and communications - 5,777 50 5,827 Office supplies and expenses - 6,164 706 6,870 Marketing and promotion - 5,593 11 5,604 Travel and entertainment - 4,874 4 4,878 Professional fees - 3,200 313 3,513 Other - 10,441 1,647 12,088 ---------------------------------------------------------------------------- Total non-interest expenses - 145,292 4,643 149,935 ---------------------------------------------------------------------------- Net income before income tax expense (benefit) - 101,513 (27,434) 74,079 ---------------------------------------------------------------------------- Income tax expense (benefit) - 41,863 (10,974) 30,889 ---------------------------------------------------------------------------- Net income $ - $ 59,650 $ (16,460) $ 43,190 ============================================================================ December 31, 2003 ---------------------------------------------------------------------------- Segment assets $ 1,865,414 $ 1,375,276 $ 164,000 $ 3,404,690 ============================================================================
-35- Overview Net income for the six months ended June 30, 2004 was $54.7 million, compared to $43.2 million for the six months ended June 30, 2003, an increase of $11.5 million, or 26.7%. This increase was the result of a $47.2 million decrease in income tax expense, a $14.7 million decrease in non-interest expense and a $9.2 million increase in net interest income, partly offset by a $59.6 million decrease in non-interest income. Mortgage-Backed Securities Holdings Segment The following table presents the average balances for the Mortgage-Backed Securities Holdings segment's mortgage-backed securities and reverse repurchase agreements, corresponding annualized effective rate of interest and the related interest income or expense:
Six Months Ended June 30, -------------------------------------------------------------- (Dollars in thousands) 2004 -------------------------------------------------------------- Average Average Balance Interest Yield/Cost ---------------------- ------------- ------------------------- Mortgage-backed securities, net (1) $ 3,385,341 $ 56,338 3.33% ---------------------- ------------- ------------------------- Reverse repurchase agreements (2) 3,147,704 39,902 2.53% ---------------------- ------------- ------------------------- Net interest income $ 16,436 ============= Interest rate spread 0.80% ========================= Net interest margin 0.98% =========================
(1) The average yield does not give effect to changes in the fair value that are reflected as a component of stockholders' equity. (2) Includes net interest expense on interest rate swaps. Revenues. Total revenues for the Mortgage-Backed Securities Holdings segment for the six months ended June 30, 2004 were $29.1 million, consisting entirely of $16.4 million of net interest income and $12.7 million of gain on mortgage-backed securities. Loan Origination Segment Total loan originations for the six months ended June 30, 2004 were $11.0 billion compared to $10.5 billion for the six months ended June 30, 2003, a 4.8% increase. Our retail originations, which are conducted through our community loan production offices and Internet call center, were 46% of our loan originations in the six months ended June 30, 2004 compared to 81% of our originations in the six months ended June 30, 2003. Mortgage brokers accounted for 54% of our loan originations in the six months ended June 30, 2004 compared to 19% of our originations in the six months ended June 30, 2003. Mortgage brokers accounted for an increased percentage of our originations in the six months ended June 30, 2004 due to the opening of wholesale branches in the western United States. Gain on Sales of Mortgage Loans and Mortgage-Backed Securities. Gain on sales of mortgage loans and mortgage-backed securities for the six months ended June 30, 2004 was $127.3 million compared to $217.5 million in the six months ended June 30, 2003. The decrease in gain on sale of loans and mortgage-backed securities was primarily the result of a decrease in average volume of IRLCs and hedged loans held for sale, the Company's adoption of SAB No. 105, which reduced the fair value of IRLCs and loans held for sale and the increased percentage of wholesale originations in the six months ended June 30, 2004 compared to the six months ended June 30, 2003. The change in fair value of IRLCs included in gain on sale of loans in the 2004 period was reduced as a result of the Company's adoption of SAB No. 105. The change in fair value of IRLCs and hedged loans held for sale decreased by $40.8 million to a loss of $30.9 million in the six months ended June 30, 2004 from a gain of $9.9 million in the six months ended June 30, 2003. Broker fee expenses included as a reduction to gain on sale of loans increased $41.1 million from $33.2 million in the six months ended June 30, 2003 to $74.3 million in the six months ended June 30, 2004. The rise in fees paid to brokers on wholesale originations is the result of the increased percentage of wholesale originations in the 2004 period versus the 2003 period. -36- Net Interest Income. Total interest income for the six months ended June 30, 2004 on our Loan Origination segment's mortgages held for sale was $50.1 million, compared to interest income for the six months ended June 30, 2003 of $46.4 million, an increase of $3.7 million, or 8.0%. The increase was primarily due to higher average loan inventory in 2004. Our Loan Origination segment funds its loan inventory primarily through a $2.0 billion Secured Liquidity Note Program and borrowing facilities with several mortgage warehouse lenders. Total interest expense for the six months ended June 30, 2004 was $31.9 million, compared to interest expense for the six months ended June 30, 2003 of $21.3 million, a $10.6 million increase, which was primarily due to increased borrowings to fund our increased loan inventory. Other Revenue. Other revenue totaled $2.2 million for the six months ended June 30, 2004 compared to $4.2 million for the six months ended June 30, 2003. For the six months ended June 30, 2004, other income primarily includes rental income of $1.2 million, reinsurance premiums earned totaling approximately $0.5 million and revenue from title services of $0.4 million. For the six months ended June 30, 2003, other income primarily consists of Principal fulfillment fees of $1.9 million, revenue from title services of $0.9 million and volume incentive bonuses received from loan purchasers totaling approximately $1.0 million. The Principal fulfillment fees represent non-recurring fees received from Principal Residential Mortgage, Inc. ("PRM") for loans closed by us on behalf of PRM. As part of the agreement to acquire the retail branches of PRM (the "Principal Branches"), we agreed to assume the costs incurred to close out PRM's application pipeline as of the date of the agreement on behalf of PRM for a per loan fee. Expenses. Total expenses of our Loan Origination segment for the six months ended June 30, 2004 were $126.0 million, compared to $145.3 million for the six months ended June 30, 2003. Our operating expenses represent costs that are not eligible to be added to the book value of the loans because they are not considered direct origination costs under the rules of SFAS No. 91, "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Costs of Leases." Direct origination costs are added to the book value of loans and either reduce the gain on sale of loans if the loans are sold or are amortized over the life of the loan. Salaries, commissions and benefits for the six months ended June 30, 2004 were $80.2 million, or 73 basis points of total loan originations, compared to $97.1 million, or 93 basis points of total loan originations, for the six months ended June 30, 2003. The decrease in expenses reflects the higher percentage of wholesale originations in the 2004 period. Operating expenses, excluding salaries, commissions and benefits, were 42 basis points of total loan originations for the six months ended June 30, 2004 and 46 basis points for the six months ended June 30, 2003. Income Tax Expense. Income tax expense decreased to a benefit of $12.8 million for the six months ended June 30, 2004 from an expense of $41.9 million for the six months ended June 30, 2003, a decrease of $54.6 million. The effective tax rate for the Loan Origination segment during the 2004 period includes permanent book-to-tax differences related to activity within the REIT and the transactions between the TRS and QRS. Loan Servicing Segment The Loan Servicing segment total revenues for the six months ended June 30, 2004 were a loss of $3.2 million compared to a loss of $22.8 million for the six months ended June 30, 2003, an increase of $19.6 million. Net loan servicing fees were a loss of $1.4 million for the six months ended June 30, 2004, compared to a loss of $21.3 million for the six months ended June 30, 2003. Loan servicing fees decreased to $19.0 million for the six months ended June 30, 2004 from $20.9 million for the six months ended June 30, 2003, a decrease of $1.9 million, or 9.1%. Included in loan servicing fees are gains on Ginnie Mae early buy-out sales of $3.0 million for the six months ended June 30, 2004 compared to $6.8 million for the six months ended June 30, 2003, a decrease of $3.8 million, or 55.9%. Amortization decreased to $15.1 million for the six months ended June 30, 2004 from $30.1 million for the six months ended June 30, 2003, a decrease of $15.0 million, or 49.7%. The decrease in amortization was due to a rise in interest rates which resulted in slower prepayment speeds in the six months ended June 30, 2004 versus the six months ended June 30, 2003. We recognized a temporary impairment provision of $5.3 million for the six months ended June 30, 2004 versus a temporary impairment provision of $12.2 million for the six months ended June 30, 2003, resulting in an increase in net loan servicing fees of $6.9 million. The decrease in impairment provision in the six months ended June 30, 2004 is due to an increase in the fair value of servicing rights -37- attributable to a decrease in estimated future prepayment speeds. The decrease in estimated future prepayment speeds was a result of a rise in interest rates in the six months ended June 30, 2004. Expenses. Total expenses of our Loan Servicing segment for the six months ended June 30, 2004 were $5.8 million, compared to $4.6 million for the six months ended June 30, 2003. Income Tax Benefit. Income tax benefit decreased to $3.6 million for the six months ended June 30, 2004 from an $11.0 million benefit for the six months ended June 30, 2003, a decrease of $7.4 million, or 67.3%. Liquidity and Capital Resources We have arrangements to enter into reverse repurchase agreements, a form of collateralized short-term borrowing, with 13 different financial institutions and on June 30, 2004 had borrowed funds from nine of these firms. Because we borrow money under these agreements based on the fair value of our mortgage-backed securities, and because changes in interest rates can negatively impact the valuation of mortgage-backed securities, our borrowing ability under these agreements could be limited and lenders could initiate margin calls in the event interest rates change or the value of our mortgage-backed securities declines for other reasons. As of June 30, 2004, we had $6.4 billion of reverse repurchase agreements outstanding with a weighted-average borrowing rate of 1.64% before the impact of interest rate swaps and a weighted-average remaining maturity of 6.5 months. To originate a mortgage loan, we draw against a $2.0 billion Secured Liquidity Note Program, $1.2 billion pre-purchase facility with UBS Real Estate Securities Inc. (formerly Paine Webber Real Estate Securities Inc.) ("UBS"), a $450 million bank syndicated facility led by Residential Funding Corporation ("RFC"), a $450 million facility with CDC Mortgage Capital Inc. ("CDC"), a facility of $350 million with Morgan Stanley Bank ("Morgan Stanley") and a facility of $200 million with Credit Lyonnais. In addition, the Company has a gestation facility with Greenwich Capital Financial Products, Inc. These facilities are secured by the mortgages owned by us and by certain of our other assets. Advances drawn under the facilities bear interest at rates that vary depending on the type of mortgages securing the advances. These loans are subject to sublimits, advance rates and terms that vary depending on the type of securing mortgages and the ratio of the Company's liabilities to its tangible net worth. At August 3, 2004, the aggregate outstanding balance under the warehouse facilities was $1.9 billion, the aggregate outstanding balance in drafts payable was $56.5 million and the aggregate maximum amount available for additional borrowings was $1.2 billion. The documents governing our warehouse facilities contain a number of compensating balance requirements and restrictive financial and other covenants that, among other things, require us to adhere to a maximum ratio of total liabilities to tangible net worth and maintain a minimum level of tangible net worth and liquidity, as well as to comply with applicable regulatory and investor requirements. The facility agreements also contain covenants limiting the ability of our subsidiaries to transfer or sell assets other than in the ordinary course of business and to create liens on the collateral without obtaining the prior consent of the lenders, which consent may not be unreasonably withheld. In addition, under our warehouse facilities, we cannot continue to finance a mortgage loan that we hold if: o the loan is rejected as "unsatisfactory for purchase" by the ultimate investor and has exceeded its permissible 120-day warehouse period; o we fail to deliver the applicable mortgage note or other documents evidencing the loan within the requisite time period; o the underlying property that secures the loan has sustained a casualty loss in excess of 5% of its appraised value; or o the loan ceases to be an eligible loan (as determined pursuant to the applicable warehousing agreement). As of June 30, 2004, our aggregate warehouse facility borrowings were $672.5 million (including $30.6 million of borrowings under a working capital sub-limit) and our outstanding drafts payable were $86.3 million, compared to $1.1 billion (including $29.0 million of borrowings under a working capital sub-limit) and our outstanding drafts payable were $25.6 million as of December 31, 2003. At June 30, 2004, our loans held for sale were $1.4 billion compared to $1.2 billion at December 31, 2003. In addition to the UBS, CDC, RFC, Morgan Stanley, and Credit Lyonnais warehouse facilities, we have a purchase and sale agreement with UBS. This agreement allows us to accelerate the sale of our mortgage loan inventory, resulting in a more effective use of the warehouse facility. Amounts sold and being held under this agreement at June 30, 2004 and December 31, 2003 were $96.9 million and -38- $236.0 million, respectively. The amount so held under this agreement at August 3, 2004 was $36.7 million. This agreement is not a committed facility and may be terminated at the discretion of the counterparty. We make certain representations and warranties under the purchase and sale agreements regarding, among other things, the loans' compliance with laws and regulations, their conformity with the ultimate investors' underwriting standards and the accuracy of information. In the event of a breach of these representations or warranties or in the event of an early payment default, we may be required to repurchase the loans and indemnify the investor for damages caused by that breach. We have implemented strict procedures to ensure quality control and conformity to underwriting standards and minimize the risk of being required to repurchase loans. From time to time we have been required to repurchase loans that we sold; however, the liability for the fair value of those obligations has been immaterial. We also have a $79.6 million term loan facility with a bank syndicate led by RFC which we use to finance our MSRs. The term loan facility expires on August 30, 2004. Interest is based on a spread to the LIBOR and may be adjusted for earnings on escrow balances. At June 30, 2004 and December 31, 2003, borrowings under our term loan facility were $79.6 million and $71.5 million, respectively. Cash and cash equivalents increased to $433.9 million at June 30, 2004 from $53.1 million at December 31, 2003. Our primary sources of cash and cash equivalents during the six months ended June 30, 2004, were as follows: o $5.1 billion increase in reverse repurchase agreements; o $1.0 billion increase in commercial paper; and o $342.2 million from the issuance of capital stock. Our primary uses of cash and cash equivalents during the six months ended June 30, 2004, were as follows: o $5.6 billion net increase in mortgage-backed securities; o $449.3 million net decrease in warehouse lines of credit; and o $209.9 million net increase in mortgage loans held for sale. Commitments The Company had the following commitments (excluding derivative financial instruments) at June 30, 2004:
Less Than After Total 1 Year 1 - 3 Years 4 - 5 Years 5 Years ------------------------------------------------------------------------- (In thousands) Warehouse facilities $ 672,456 $ 672,456 $ - $ - $ - Operating leases 47,290 7,871 23,198 12,726 3,495 Notes payable 107,237 81,213 707 792 24,525 Commercial paper 1,047,036 1,047,036 - - - Reverse repurchase agreements 6,413,506 6,413,506 - - - Payable for securities purchased 423,909 423,909 - - -
-39- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Movements in interest rates can pose a major risk to the Company in either a rising or declining interest rate environment. The Company depends on substantial borrowings to conduct its business. These borrowings are all done at variable interest rate terms which will increase as short-term interest rates rise. Additionally, when interest rates rise, loans held for sale and any applications in process with locked-in rates decrease in value. To preserve the value of such fixed-rate loans or applications in process with locked-in rates, agreements are executed for mandatory loan sales to be settled at future dates with fixed prices. These sales take the form of forward sales of mortgage-backed securities. When interest rates decline, fallout may occur as a result of customers withdrawing their applications. In those instances, the Company may be required to purchase loans at current market prices to fulfill existing mandatory loan sale agreements, thereby incurring losses upon sale. The Company uses an interest rate hedging program to manage these risks. Through this program, mortgage-backed securities are purchased and sold forward and options are acquired on treasury futures contracts. In the event that the Company does not deliver into the forward delivery commitments or exercise its option contracts, the instruments can be settled on a net basis. Net settlement entails paying or receiving cash based upon the change in market value of the existing instrument. All forward delivery commitments and option contracts to buy securities are to be contractually settled within six months of the balance sheet date. The Company's hedging program contains an element of risk because the counterparties to its mortgage and treasury securities transactions may be unable to meet their obligations. While the Company does not anticipate nonperformance by any counterparty, it is exposed to potential credit losses in the event the counterparty fails to perform. The Company's exposure to credit risk in the event of default by a counterparty is the difference between the contract and the current market price. The Company minimizes its credit risk exposure by limiting the counterparties to well-capitalized banks and securities dealers who meet established credit and capital guidelines. Movements in interest rates also impact the value of MSRs. When interest rates decline, the loans underlying the MSRs are generally expected to prepay faster, which reduces the market value of the MSRs. The Company considers the expected increase in loan origination volumes and the resulting additional origination related income as a natural hedge against the expected change in the value of MSRs. Lower mortgage rates generally reduce the fair value of the MSRs, as increased prepayment speeds are highly correlated with lower levels of mortgage interest rates. The Company enters into interest rate swap agreements ("Swap Agreements") to manage its interest rate exposure when financing its adjustable-rate loans and its mortgage-backed securities. The Company generally borrows money based on short-term interest rates, by entering into borrowings with maturity terms of less than one year, and frequently six to 12 months. The Company's adjustable-rate loans and mortgage-backed securities financing vehicles generally have an interest rate that reprices based on frequency terms of one to 12 months. The Company's mortgage-backed securities have an initial fixed interest rate period of three to five years. When the Company enters into a Swap Agreement, it generally agrees to pay a fixed rate of interest and to receive a variable interest rate, generally based on LIBOR. These Swap Agreements have the effect of converting the Company's variable-rate debt into fixed-rate debt over the life of the Swap Agreements. These instruments are used as a cost-effective way to lengthen the average repricing period of the Company's variable-rate and short-term borrowings such that the average repricing of the borrowings more closely matches the average repricing of the Company's mortgage-backed securities. The Company's duration gap was less than one month on June 30, 2004. -40- The following table summarizes the Company's interest rate sensitive instruments:
June 30, 2004 ------------------------------------------------------ Notional Carrying Estimated Amount Amount Fair Value ----------------- ------------------ ----------------- (In thousands) Assets: Mortgage-backed securities $ 7,389,412 $ 7,331,162 $ 7,331,162 Interest rate lock commitments - loans to be sold 903,735 6,122 18,492 Interest rate lock commitments - loans held for securitization 1,416,265 - 7,251 Mortgage loans held for sale, net 1,414,417 1,435,998 1,448,259 Mortgage servicing rights, net 10,196,733 141,818 145,122 Interest rate swaps 4,377,000 38,486 38,486 Liabilities: Reverse repurchase agreements $ 6,413,506 $ 6,413,506 $ 6,404,286 Forward delivery commitments- Loan commitments 469,991 5,683 5,683 Forward delivery commitments - Loans held for sale 365,109 4,415 4,415 December 31, 2003 ------------------------------------------------------ Notional Carrying Estimated Amount Amount Fair Value ----------------- ------------------ ----------------- (In thousands) Assets: Mortgage-backed securities $ 1,759,064 $ 1,763,628 $ 1,763,628 Interest rate lock commitments - loans to be sold 1,140,350 20,837 20,837 Mortgage loans held for sale, net 1,187,314 1,226,127 1,228,441 Mortgage servicing rights, net 8,272,294 117,784 117,784 Liabilities: Reverse repurchase agreements $ 1,344,327 $ 1,344,327 $ 1,344,327 Forward delivery commitments- Loan commitments 477,863 4,358 4,358 Forward delivery commitments - Loans held for sale 1,161,217 2,300 2,300 Interest rate swaps 755,000 6,036 6,036
The Company had total commitments to lend at June 30, 2004 and December 31, 2003 of $6.5 billion and $4.0 billion, respectively. -41- ITEM 4. CONTROLS AND PROCEDURES The Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of the end of the fiscal quarter covered by this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of the end of the fiscal quarter covered by this quarterly report. The Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the Company's internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to determine whether any changes occurred during the second quarter of 2004 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Based on that evaluation, there has been no such change during the second quarter of 2004. -42- PART II-OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In June 2002, the Company acquired Columbia National, Incorporated, a Maryland corporation ("Columbia"), which is a subsidiary of the Company and which recently changed its name to "American Home Mortgage Servicing, Inc." Before the Company acquired Columbia, Columbia discovered fraudulent loan activity at its Bensalem, Pennsylvania office and notified the U.S. Department of Housing and Urban Development ("HUD"). HUD then instituted an investigation into the loan originations of the Bensalem office. Shortly thereafter, several years before Columbia was acquired by the Company, Columbia closed the Bensalem office and terminated the employees involved in the alleged fraudulent activity. In 2000, Columbia settled with HUD, paying a fine to HUD in the amount of $24,000 and agreeing to indemnify HUD for certain losses. Columbia, as loan servicer for institutional investors, subsequently made FHA insurance claims with respect to approximately 60 loans that were originated by the Bensalem office between 1997 and 1999. The federal government is now seeking to recover insurance proceeds paid in connection with certain of those claims, along with potentially applicable fines and penalties. The Company is cooperating fully with respect to the federal government's review of these loans. While the amount of any potential settlement is not known at this time, the Company does not expect that such amount will materially affect its financial condition or results of operations. ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES Series A Preferred Stock In July 2004, we issued 2,150,000 shares of 9.75% Series A Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share ("Series A Preferred Stock"), in an underwritten public offering. The Series A Preferred Stock ranks senior to our common stock with respect to dividend rights, redemption rights and rights upon our voluntary or involuntary liquidation, dissolution or winding up. Accordingly, if we liquidate, dissolve or wind up, holders of the Series A Preferred Stock will have the right to receive the liquidation preference of $25.00 per share, plus all accumulated and unpaid dividends (whether or not declared) to the date of payment, before any payments are made to the holders of our common stock. For a complete description of the rights and preferences of the Series A Preferred Stock, refer to Exhibits 3.1 and 3.2 of this Quarterly Report on Form 10-Q. Issuance of Unregistered Securities The following is a description of the Company's securities that were not registered under the Securities Act of 1933, as amended (the "Securities Act"), which were sold during the quarter ended June 30, 2004. The Company acquired Marina Mortgage Company, Inc. ("Marina") on December 29, 1999. In addition to the shares paid to former Marina shareholders as initial consideration, the Company is required to issue unregistered shares of common stock to the former shareholders under the earnout provisions of the merger agreement. On May 12, 2004 pursuant to these earnout provisions, the Company issued an aggregate of 202,582 shares of common stock to such shareholders as additional consideration. These securities were exempt from registration under Section 4(2) of the Securities Act because they were issued pursuant to the terms of a private transaction rather than through a public offering. The Company acquired First Home Mortgage Corp. ("First Home") on June 30, 2000. In addition to the shares paid to former First Home shareholders as initial consideration, the Company is required to issue unregistered shares of common stock to the former shareholders as additional consideration under the earnout provisions of the merger agreement. On April 1, 2004, pursuant to these earnout provisions, the Company issued an aggregate of 1,888 shares of common stock to such shareholders as additional consideration. In addition, on May 15, 2004, the Company issued 2,311 shares of common stock to such shareholders. These securities were exempt from registration under Section 4(2) of the Securities Act because they were issued pursuant to the terms of a private transaction rather than through a public offering. -43- ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's 2004 Annual Meeting of Stockholders held on June 16, 2004, the following actions were proposed (which are described in greater detail in the Company's Definitive Proxy Statement on Schedule 14A filed with the SEC on April 29, 2004):
Proposal Votes For Votes Against Votes Abstained -------- --------- ------------- --------------- o To elect each of John A. Johnston and Michael A. McManus, Jr. as a Class II director to serve for a three-year term expiring at the 2007 Annual Meeting of Stockholders and to elect Irving J. Thau as a Class III director to serve for the remainder of the current term of office of the Class III directors, which expires at the 2005 Annual Meeting of Stockholders, and in each case until their respective successors are duly elected and qualify. o John A. Johnston 37,074,591 516,599 -- o Michael A. McManus, Jr. 37,351,843 239,347 -- o Irving J. Thau 37,351,843 239,347 -- o To consider and ratify Deloitte & Touche LLP as the Company's external auditor for the fiscal year ending December 31, 2004. 36,681,229 810,130 99,831
Each of the above proposals was approved by the Company's stockholders. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The following exhibits are filed as part of this Quarterly Report on Form 10-Q: Exhibit 3.1 Articles Supplementary of the Company establishing and fixing the rights and preferences of the Company's 9.75% Series A Cumulative Redeemable Preferred Stock, which the Company filed with the State Department of Assessments and Taxation of Maryland on July 6, 2004. Exhibit 3.2 Articles Supplementary of the Company establishing and fixing the rights and preferences of 747,000 additional shares of the Company's 9.75% Series A Cumulative Redeemable Preferred Stock, which the Company filed with the State Department of Assessments and Taxation of Maryland on July 19, 2004. -44- Exhibit 10.1 Second Amended and Restated Warehousing Credit, Term Loan and Security Agreement (Syndicated), dated as of May 27, 2004 (the "RFC Loan Agreement"), by and among Columbia National, Incorporated, American Home Mortgage Corp., and American Home Mortgage Acceptance, Inc., collectively "Borrowers," Residential Funding Corporation, as credit agent for the Lenders that are party thereto, and U.S. Bank National Association and Manufacturers and Traders Trust Company, together as co-agents. Exhibit 10.2 Guaranty, dated as of May 27, 2004, made by the Company, as Guarantor, on behalf of the Borrowers in favor of Residential Funding Corporation, as credit agent for the Lenders that are party to the RFC Loan Agreement. Exhibit 10.3 Second Amended and Restated Master Repurchase Agreement, dated as of June 1, 2004, by and among the Company, American Home Mortgage Acceptance, Inc., American Home Mortgage Holdings, Inc., American Home Mortgage Corp., Columbia National, Incorporated, and CDC Mortgage Capital Inc. Exhibit 10.4 Second Amended and Restated Custodial and Disbursement Agreement, dated as of June 1, 2004, by and among the Company, American Home Mortgage Acceptance, Inc., American Home Mortgage Holdings, Inc., American Home Mortgage Corp., Columbia National, Incorporated, CDC Mortgage Capital Inc., and Deutsche Bank National Trust Company, as custodian and disbursement agent. Exhibit 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K. During the fiscal quarter ended June 30, 2004, the Company filed with the SEC the following Current Reports on Form 8-K: o Current Report on Form 8-K, dated April 28, 2004, and furnished to the SEC on April 28, 2004, which disclosed that the Company issued a press release reporting its financial results for the fiscal quarter ended March 31, 2004. o Current Report on Form 8-K, dated June 21, 2004, and filed on June 21, 2004, which reported that the Company filed a Preliminary Prospectus Supplement to the Prospectus dated January 12, 2004, and included as part of the Registration Statement on Form S-3 of the Company (File No. 333-111546) as filed with the SEC on December 24, 2003, as amended by Amendment No. 1 to the Registration Statement filed with the Commission on January 8, 2004, relating to the offering of 3,000,000 shares of the Company's Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share. -45- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN HOME MORTGAGE INVESTMENT CORP. (Registrant) Date: August 9, 2004 By: /s/ Michael Strauss ------------------------------------------- Michael Strauss Chairman of the Board, Chief Executive Officer and President Date: August 9, 2004 By: /s/ Stephen A. Hozie ------------------------------------------- Stephen A. Hozie Executive Vice President and Chief Financial Officer (Principal Financial Officer) -46- INDEX TO EXHIBITS ----------------- Exhibit No. Description - ----------- ----------- 3.1 -- Articles Supplementary of the Company establishing and fixing the rights and preferences of the Company's 9.75% Series A Cumulative Redeemable Preferred Stock, which the Company filed with the State Department of Assessments and Taxation of Maryland on July 6, 2004. 3.2 -- Articles Supplementary of the Company establishing and fixing the rights and preferences of 747,000 additional shares of the Company's 9.75% Series A Cumulative Redeemable Preferred Stock, which the Company filed with the State Department of Assessments and Taxation of Maryland on July 19, 2004. 10.1 -- Second Amended and Restated Warehousing Credit, Term Loan and Security Agreement (Syndicated), dated as of May 27, 2004 (the "RFC Loan Agreement"), by and among Columbia National, Incorporated, American Home Mortgage Corp., and American Home Mortgage Acceptance, Inc., collectively "Borrowers," Residential Funding Corporation, as credit agent for the Lenders that are party thereto, and U.S. Bank National Association and Manufacturers and Traders Trust Company, together as co-agents. 10.2 -- Guaranty, dated as of May 27, 2004, made by the Company, as Guarantor, on behalf of the Borrowers in favor of Residential Funding Corporation, as credit agent for the Lenders that are party to the RFC Loan Agreement. 10.3 Second Amended and Restated Master Repurchase Agreement, dated as of June 1, 2004, by and among the Company, American Home Mortgage Acceptance, Inc., American Home Mortgage Holdings, Inc., American Home Mortgage Corp., Columbia National, Incorporated, and CDC Mortgage Capital Inc. 10.4 Second Amended and Restated Custodial and Disbursement Agreement, dated as of June 1, 2004, by and among the Company, American Home Mortgage Acceptance, Inc., American Home Mortgage Holdings, Inc., American Home Mortgage Corp., Columbia National, Incorporated, CDC Mortgage Capital Inc., and Deutsche Bank National Trust Company, as custodian and disbursement agent. 31.1 -- Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 -- Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 -- Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 -- Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
EX-3.1 2 am696881-ex3_1.txt ARTICLES SUPPLEMENTARY Exhibit 3.1 AMERICAN HOME MORTGAGE INVESTMENT CORP. ARTICLES SUPPLEMENTARY ESTABLISHING AND FIXING THE RIGHTS AND PREFERENCES OF 9.75% SERIES A CUMULATIVE REDEEMABLE PREFERRED STOCK American Home Mortgage Investment Corp., a corporation organized and existing under the laws of the State of Maryland (the "Corporation"), certifies to the State Department of Assessments and Taxation of Maryland (the "Department") that: FIRST: Pursuant to the authority expressly vested in the Board of Directors of the Corporation (sometimes referred to herein as the "Board") by Article V of the charter (the "Charter") of the Corporation and Section 2-105 of the Maryland General Corporation Law (the "MGCL"), the Board of Directors of the Corporation, on April 27, 2004, adopted resolutions authorizing the Corporation, among other things, to issue up to a stated maximum number of shares of preferred stock, par value $0.01 per share (the "Preferred Stock"), of the Corporation and appointing, pursuant to the MGCL and the powers contained in the Bylaws of the Corporation, a committee (the "Committee" or the "Preferred Stock Transaction Committee") of the Board of Directors comprised of Michael Strauss and delegating to the Committee, to the fullest extent permitted by Maryland law and the Charter and Bylaws of the Corporation, all powers of the Board of Directors with respect to classifying, authorizing, approving, ratifying and/or confirming the terms of the Preferred Stock to be issued, including, without limitation, the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption, and determining the consideration per share to be received in respect of the issuance and sale of each share of Preferred Stock to be issued and sold, and the number of shares of Preferred Stock to be so classified or reclassified and issued by the Corporation, subject to the limitations set forth in the resolutions of the Board of Directors adopted on April 27, 2004. SECOND: Pursuant to the authority conferred upon the Committee as aforesaid, the Committee has on June 29, 2004, adopted resolutions classifying and designating as a separate series of Preferred Stock the 9.75% Series A Cumulative Redeemable Preferred Stock, with the preferences, conversions and other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption and other terms and conditions of such 9.75% Series A Cumulative Redeemable Preferred Stock (within the limitations set by the Board of Directors in the resolutions adopted on April 27, 2004 and referred to in Article FIRST of these Articles Supplementary) and establishing 1,610,000 as the number of shares to be so classified and designated, and authorizing the issuance of up to 1,610,000 shares of 9.75% Series A Cumulative Redeemable Preferred Stock. Capitalized terms used in these Articles Supplementary and not otherwise defined in these Articles Supplementary shall have the meanings otherwise ascribed thereto in the Charter. THIRD: The separate series of Preferred Stock of the Corporation created by the resolutions duly adopted by the Board of Directors of the Corporation and by the Committee and referred to in Articles FIRST and SECOND of these Articles Supplementary shall have the designation, number of shares, preferences, conversion and other rights, voting powers, restrictions and limitations as to dividends, qualifications, terms and conditions of redemption and other terms and conditions as follows (and which, upon any restatement of the Charter, may be made a part of Article V thereof, with any necessary or appropriate changes to the numeration or lettering of the sections or subsections hereof): (1) Designation and Number. A series of Preferred Stock, designated the "9.75% Series A Cumulative Redeemable Preferred Stock" (the "Series A Preferred Stock"), is hereby established. Pursuant to the Charter of the Corporation, the Series A Preferred Stock is also a separate class of Preferred Stock. The number of shares of Series A Preferred Stock shall be 1,610,000 (the "Series A Preferred Shares"). (2) Rank. The Series A Preferred Shares will rank, with respect to dividend rights and rights upon voluntary or involuntary liquidation, dissolution or winding up of the Corporation, (a) senior to all classes or series of Common Stock (as defined in the Charter) and to all equity securities of the Corporation the terms of which provide that such equity securities shall rank junior to such Series A Preferred Shares; (b) on a parity with all equity securities issued by the Corporation other than those referred to in clauses (a) and (c) of this Section 2; and (c) junior to all equity securities issued by the Corporation the terms of which provide that such equity securities will rank senior to the Series A Preferred Shares in accordance with Section 6(d) of this Article THIRD, and to the existing and future debt of the Corporation, including, prior to conversion of such debt, any debt convertible into equity securities of the Corporation. (3) Dividends. (a) Holders of Series A Preferred Shares shall be entitled to receive, if, when and as declared by the Board, out of funds legally available for the payment of dividends, cumulative preferential cash dividends at the rate of 9.75% of the $25.00 liquidation preference per annum (equivalent to $2.4375 per annum per share). Such dividends shall accumulate on a daily basis computed on the basis of a 360-day year consisting of twelve 30-day months and be cumulative from July 7, 2004 and shall be payable quarterly (such quarterly periods for purposes of payment and accrual will be the quarterly periods ending on the dates specified in this sentence and not calendar year quarters) in equal amounts in arrears on the last calendar day of each January, April, July and October, or, if not a business day, the next succeeding business day, commencing October 31, 2004 (each, a "Dividend Payment Date") (it being acknowledged that by operation of the fourth sentence following, the dividend payable on the first Dividend Payment Date, October 31, 2004, will be paid on the first business day immediately following, that is, November 1, 2004). Dividends shall be payable to holders of record as they appear in the share records of the Corporation at the close of business on the applicable record date (each, a "Dividend Record Date"), which shall be the date designated by the Board for the payment of dividends that is not more than 30 nor less than 10 days prior to the applicable payment date therefor. Any dividend payable on the Series A Preferred Shares for any partial dividend period shall be prorated and computed on the basis of a 360-day year consisting of twelve 30-day months (it being understood that the dividend payable on October 31, 2004 (to be paid on 2 November 1, 2004) will be for greater than a regular full dividend period). A "dividend period" shall mean the period from and excluding July 7, 2004 to and including the first Dividend Payment Date, and each subsequent period from and excluding a Dividend Payment Date to and including the next succeeding Dividend Payment Date or other date as of which accumulated dividends are to be calculated. If any date on which distributions are to be made on the Series A Preferred Stock is not a business day, then payment of the distribution to be made on such date will be made on the next succeeding day that is a business day (and without any interest or other payment in respect of any such delay) except that, if such business day is in the next succeeding calendar year, such payment shall be made on the immediately preceding business day, in each case with the same force and effect as if made on such date. Notwithstanding any provision to the contrary contained herein, each outstanding share of Series A Preferred Stock shall be entitled to receive, and shall receive, a dividend with respect to any Dividend Record Date equal to the dividend paid with respect to each other share of Series A Preferred Stock which is outstanding on such date which shall be equal to the greatest dividend per share payable on any such share on such date. Accordingly, notwithstanding anything to the contrary set forth herein, each share of Series A Preferred Stock issued and outstanding on the record date for the first dividend payment on the Series A Preferred Stock following the initial issuance of shares of Series A Preferred Stock on July 7, 2004, shall accrue dividends from and excluding the earliest date on which any shares of the Series A Preferred Stock were issued (July 7, 2004), and shall receive the same dividend payment regardless of the date on which such share was actually issued. (b) No dividend on the Series A Preferred Shares shall be declared by the Board or be paid or set apart for payment by the Corporation at such time as the terms and provisions of any agreement of the Corporation, including any agreement relating to its indebtedness, prohibits such authorization, payment or setting apart for payment or provides that such authorization, payment or setting apart for payment would constitute a breach thereof, or a default thereunder, or if such authorization or payment shall be restricted or prohibited by law. (c) Notwithstanding anything to the contrary contained herein, dividends on the Series A Preferred Shares shall accumulate whether or not restrictions exist in respect thereof, whether or not there are funds legally available for the payment thereof and whether or not such dividends are declared. Accumulated but unpaid dividends on the Series A Preferred Shares will accumulate as of the Dividend Payment Date on which they first become payable or on the date of redemption, as the case may be. (d) Except as provided in Section 3(e) below, no dividends shall be declared or paid or set apart for payment and no other distribution of cash or other property may be declared or made, directly or indirectly, on or with respect to any Common Stock or any other equity securities of the Corporation of any other class or series ranking, as to dividends or upon voluntary or involuntary liquidation, dissolution or winding up of the Corporation, on a parity with or junior to the Series A Preferred Shares (other than a dividend paid in Common Stock or other equity securities of the Corporation ranking junior to the Series A Preferred Stock as to dividends and upon voluntary or involuntary liquidation, dissolution and winding up of the Corporation) for any period, nor shall any Common Stock or any other equity securities of the Corporation ranking junior to or on a parity with the Series A Preferred Stock as to dividends or upon voluntary or involuntary liquidation, dissolution or winding up of the Corporation be 3 redeemed, purchased or otherwise acquired for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such securities) by the Corporation (except by conversion into or exchange for other equity securities of the Corporation ranking junior to the Series A Preferred Stock as to dividends and upon voluntary or involuntary liquidation, dissolution and winding up of the Corporation, and except pursuant to Article V of the Charter to ensure the Corporation's continued status as a real estate investment trust (a "REIT") for federal income tax purposes or comparable Charter provisions with respect to other classes or series of the Corporation's stock under which, among other things, the Series A Preferred Stock owned in excess of the Ownership Limit or Series A Preferred Stock Ownership Limit (as defined in Section 7 of this Article THIRD) will be transferred to a Share Trust and may be purchased by the Corporation under certain circumstances), unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series A Preferred Shares for all past dividend periods. (e) When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series A Preferred Shares and any other equity securities ranking as to dividends on a parity with the Series A Preferred Shares, all dividends declared upon the Series A Preferred Shares and any other equity securities of the Corporation ranking on a parity with the Series A Preferred Shares as to dividends and upon voluntary or involuntary liquidation, dissolution or winding up of the Corporation shall be declared pro rata so that the amount of dividends declared per Series A Preferred Share and each share of such other equity securities shall in all cases bear to each other the same ratio that accumulated dividends per Series A Preferred Share and such share of other equity securities (which shall not include any accumulation in respect of unpaid dividends for prior dividend periods if such other equity securities do not have a cumulative dividend) bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on Series A Preferred Shares which may be in arrears. (f) Accumulated but unpaid dividends on the Series A Preferred Shares will not bear interest, and holders of Series A Preferred Shares shall not be entitled to any dividend in excess of full cumulative dividends as described above. Any dividend payment made on the Series A Preferred Shares shall first be credited against the earliest accumulated but unpaid dividend due with respect to such shares which remains payable. (g) In determining whether a distribution (other than upon voluntary or involuntary liquidation, dissolution or winding up of the Corporation) by dividend, redemption or other acquisition of shares of stock of the Corporation or otherwise is permitted under the MGCL, no effect shall be given to amounts that would be needed, if the Corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of holders of the Series A Preferred Stock whose preferential rights upon dissolution are superior to those receiving the distribution. (h) If, for any taxable year, the Corporation elects to designate as a "capital gain dividend" (as defined in Section 857 of the Internal Revenue Code of 1986, as amended), any portion (the "Capital Gains Amount") of the dividends paid or made available for the year to holders of any class or series of stock of the Corporation, the portion of the Capital Gains 4 Amount that shall be allocable to holders of the Series A Preferred Stock shall be equal to the total Capital Gains Amount times the amount that the total dividends (as determined for federal income tax purposes) paid or made available to the holders of the Series A Preferred Stock for the year bears to the aggregate amount of dividends (as determined for federal income tax purposes) paid or made available to the holders of all classes or series of stock of the Corporation for such year. (4) Liquidation Preference. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of Series A Preferred Shares then outstanding shall be entitled to receive out of the assets of the Corporation legally available for distribution to its stockholders remaining after payment or provision for payment of all debts and liabilities of the Corporation, a liquidation preference in cash of $25.00 per share, plus an amount equal to any accumulated and unpaid dividends to the date of such payment, before any distribution of assets is made to holders of Common Stock or any other equity securities of the Corporation that rank junior to the Series A Preferred Shares as to liquidation rights. (b) If, upon any such voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the assets of the Corporation are insufficient to make full payment to holders of Series A Preferred Shares and the corresponding amounts payable on all shares of other classes or series of equity securities of the Corporation ranking on a parity with the Series A Preferred Shares as to liquidation rights, then the holders of the Series A Preferred Shares and all other such classes or series of equity securities shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. (c) Written notice of any such liquidation, dissolution or winding up of the Corporation, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 30 nor more than 60 days prior to the payment date stated therein, to each record holder of the Series A Preferred Shares at the respective addresses of such holders as the same shall appear on the stock transfer records of the Corporation. (d) After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series A Preferred Shares will have no right or claim to any of the remaining assets of the Corporation. (e) The consolidation or merger of the Corporation with or into another entity, a merger of another entity with or into the Corporation, a statutory share exchange by the Corporation or a sale, lease, transfer or conveyance of all or substantially all of the Corporation's property or business shall not be deemed to constitute a liquidation, dissolution or winding up of the Corporation. (5) Optional Redemption. (a) The Series A Preferred Shares are not redeemable prior to July 7, 2009. To ensure that the Corporation remains a qualified REIT for federal income tax purposes, however, 5 the Series A Preferred Shares shall be subject to the provisions of Article V of the Charter and Section 7 of this Article THIRD pursuant to which, among other things, Series A Preferred Shares owned by a stockholder in excess of the Ownership Limit applicable with respect to the Equity Stock (as such terms are defined in Article V of the Charter) of the Corporation or the Series A Preferred Stock Ownership Limit (as defined in Section 7 of this Article THIRD), or certain other limitations, shall automatically be transferred to a Share Trust for the benefit of a Charitable Beneficiary (as such terms are defined in Article V of the Charter) and the Corporation shall have the right to purchase such shares, as provided in Article V of the Charter. On and after July 7, 2009, the Corporation, at its option, upon giving notice as provided below, may redeem the Series A Preferred Shares, in whole or from time to time in part, for cash, at a redemption price of $25.00 per share, plus all accumulated and unpaid dividends (except as contemplated in Section 5(d) below in respect of dividends declared as of a Dividend Record Date prior to the date of redemption and to be paid as of a Dividend Payment Date subsequent to the date of redemption) on such Series A Preferred Shares to the date fixed for redemption. (b) If fewer than all of the outstanding Series A Preferred Shares are to be redeemed, the shares to be redeemed shall be selected pro rata (as nearly as practicable without creating fractional shares) or by lot or by any other equitable method determined by the Corporation. If such redemption is to be by lot and, as a result of such redemption, any holder of Series A Preferred Shares would become a holder of a number of Series A Preferred Shares in excess of the Ownership Limit (or Excepted Holder Limit, as applicable) applicable with respect to the Equity Stock of the Corporation, or the Series A Preferred Stock Ownership Limit (or Series A Preferred Stock Excepted Holder Limit, as applicable) imposed by application of Section 7 of this Article THIRD and Article V of the Charter (or other limitations set forth in Article V of the Charter) because such holder's Series A Preferred Shares were not redeemed, or were only redeemed in part, then, except as otherwise provided in the Charter, the Corporation will redeem the requisite number of Series A Preferred Shares of such holder such that no holder will hold in excess of such Ownership Limit or Series A Preferred Stock Ownership Limit (or such other limits, as applicable) subsequent to such redemption. (c) Notwithstanding anything to the contrary contained herein, unless full cumulative dividends on all Series A Preferred Shares shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods and the then current dividend period, no Series A Preferred Shares shall be redeemed unless all outstanding Series A Preferred Shares are simultaneously redeemed; and unless full cumulative dividends on all outstanding Series A Preferred Shares have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods, the Corporation shall not purchase or otherwise acquire directly or indirectly any Series A Preferred Shares or any equity securities of the Corporation ranking junior to or on a parity with the Series A Preferred Shares as to dividends or upon voluntary or involuntary liquidation, dissolution or winding up of the Corporation (except by conversion into or exchange for equity securities of the Corporation ranking junior to the Series A Preferred Shares as to dividends and upon voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and except pursuant to Article V of the Charter (including by application of Section 7 of this Article THIRD) or comparable Charter provisions with respect to other classes or series of the Corporation's stock); provided, however, that the foregoing shall not prevent the purchase by the Corporation of Series A Preferred Shares pursuant to Article V of the Charter (including by application of Section 7 of this Article THIRD) or otherwise in order to ensure that the Corporation remains qualified as a REIT for federal or state income tax purposes, or the purchase or acquisition of Series A Preferred Shares pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series A Preferred Shares. (d) The holders of shares of Series A Preferred Stock at the close of business on a Dividend Record Date will be entitled to receive the dividend payable with respect to the shares of Series A Preferred Stock held on the corresponding Dividend Payment Date notwithstanding the redemption thereof between such Dividend Record Date and the corresponding Dividend Payment Date or the Corporation's default in the payment of the dividend due. Except as provided herein, and except to the extent the redemption price includes all accumulated and unpaid dividends, the Corporation will make no payment or allowance for unpaid dividends, whether or not in arrears, on Series A Preferred Shares to be redeemed. (e) The following provisions set forth the procedures for redemption: (i) Notice of redemption will be mailed by the Corporation, postage pre-paid, not less than 30 nor more than 60 days prior to the redemption date, addressed to the respective holders of record of the Series A Preferred Shares to be redeemed at their respective addresses as they appear on the share records of the Corporation. No failure to give such notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series A Preferred Shares except as to the holder to whom notice was defective or not given. (ii) In addition to any information required by law or by the applicable rules of any exchange or automated quotation system upon which the Series A Preferred Shares may be listed or admitted to trading, such notice shall state: (A) the redemption date; (B) the redemption price; (C) the number of Series A Preferred Shares to be redeemed; (D) the place or places where the certificates evidencing shares of Series A Preferred Shares are to be surrendered for payment of the redemption price; and (E) that dividends on the Series A Preferred Shares to be redeemed will cease to accumulate on such redemption date. If fewer than all of the Series A Preferred Shares held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of Series A Preferred Shares to be redeemed from such holder. (iii) On or after the redemption date, each holder of Series A Preferred Shares to be redeemed shall present and surrender the certificates representing such holder's Series A Preferred Shares to the Corporation at the place designated in the notice of redemption and shall be entitled to the redemption price and any accumulated and unpaid dividends payable upon such redemption upon such surrender and thereupon the redemption price of such shares (including all accumulated and unpaid dividends up to the redemption date) shall be paid to or on the order of the person whose name appears on such certificate representing Series A Preferred Shares as the owner thereof and each surrendered certificate shall be canceled. If fewer than all the shares represented by any such certificate representing Series A Preferred Shares are to be redeemed, a new certificate shall be issued representing the unredeemed shares. (iv) If notice of redemption of any Series A Preferred Shares has been given and if the funds necessary for such redemption have been set aside by the Corporation in trust for 7 the benefit of the holders thereof, then from and after the redemption date all dividends on such Series A Preferred Shares shall cease to accumulate and any such Series A Preferred Shares will no longer be deemed outstanding and all rights of the holders thereof will terminate, except the right to receive the redemption price (including all accumulated and unpaid dividends up to the redemption date) and such shares shall not thereafter be transferred (except with the consent of the Corporation) on the Corporation's stock transfer records. At its election, the Corporation, prior to a redemption date, may irrevocably deposit the redemption price (including accumulated and unpaid dividends to the redemption date) of the Series A Preferred Shares so called for redemption in trust for the holders thereof with a bank or trust company, in which case the redemption notice to holders of the Series A Preferred Shares to be redeemed shall (A) state the date of such deposit, (B) specify the office of such bank or trust company as the place of payment of the redemption price and (C) require such holders to surrender the certificates representing such shares at such place on or about the date fixed in such redemption notice (which may not be later than the redemption date) against payment of the redemption price (including all accumulated and unpaid dividends to the redemption date). Any monies so deposited which remain unclaimed by the holders of the Series A Preferred Shares at the end of two years after the redemption date shall be returned by such bank or trust company to the Corporation. (f) Any Series A Preferred Shares that shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued Preferred Stock, without further designation as to series or class until such shares are once more designated as part of a particular series or class by the Board. (6) Voting Rights. (a) Holders of the Series A Preferred Shares will not have any voting rights, except as set forth below. (b) (i) Whenever dividends on any Series A Preferred Shares shall remain unpaid for six or more quarterly periods (whether or not consecutive) (a "Preferred Dividend Default"), the number of directors then constituting our Board of Directors shall be increased by two members (if not already increased by two members by reason of the election of directors by the holders of any other class or series of our stock upon which like voting rights have been conferred and are exercisable and with which the Series A Preferred Stock is entitled to vote as a class with respect to the election of such two directors), and the holders of such Series A Preferred Shares (voting as a single class with all other equity securities of the Corporation ranking on a parity with the Series A Preferred Shares as to dividends and upon voluntary or involuntary liquidation, dissolution or winding up of the Corporation upon which like voting rights have been conferred and are exercisable ("Parity Preferred Stock")) will be entitled to vote for the election of two additional directors of the Corporation (the "Preferred Stock Directors"), who will be elected by a plurality of the votes cast in such election for a one-year term and until their successors are duly elected and shall qualify (or until such director's right to hold such office terminates as provided herein, whichever occurs earlier, subject to such director's earlier death, disqualification, resignation or removal), at a special meeting called by or at the request of the holders of at least 20% of the outstanding Series A Preferred Shares or the holders of shares of any other class or series of Parity Preferred Stock with respect to which dividends are so unpaid 8 (unless such request is received less than 120 days before the date fixed for the next annual or special meeting of stockholders) or, if the request for a special meeting is received by the Corporation less than 120 days before the date fixed for the next annual or special meeting of stockholders, at the next annual or special meeting of stockholders, and at each subsequent annual meeting until all dividends accumulated on the Series A Preferred Shares for all past dividend periods shall have been fully paid or declared and a sum sufficient for the payment thereof set aside for payment in full. (ii) At any time when the voting rights described in Section 6(b)(i) above shall have vested, and in the event that a request for a special meeting shall have first been made in a manner contemplated by Section 6(b)(i) above, a proper officer of the Corporation shall thereupon and with reasonable promptness, call or cause to be called, a special meeting of the holders of Series A Preferred Stock and all the series of Parity Preferred Stock upon which like voting rights have been conferred and are exercisable (collectively, the "Parity Securities") by mailing or causing to be mailed to such holders a notice of such special meeting to be held not more than 90 days after delivery of such request. The record date for determining holders of the Parity Securities entitled to notice of and to vote at such special meeting will be the close of business on the third business day preceding the day on which such notice is mailed. At any such special meeting, all of the holders of the Parity Securities, by plurality vote, voting together as a single class without regard to series, will be entitled to elect two directors on the basis of one vote per $25.00 of liquidation preference to which such Parity Securities are entitled by their terms (excluding amounts in respect of accumulated and unpaid dividends) and not cumulatively. Notice of all meetings at which holders of the Series A Preferred Stock shall be entitled to vote will be given to such holders at their addresses as they appear in the transfer records. If a Preferred Dividend Default shall terminate after the notice of a special meeting has been given but before such special meeting has been held, the Corporation shall, as soon as practicable after such termination, mail or cause to be mailed notice of such termination to holders of the Series A Preferred Stock that would have been entitled to vote at such special meeting. So long as otherwise relatively timely, any such special meeting may be combined and held contemporaneously with the next special or annual meeting of the stockholders of the Corporation. (c) If and when all dividends accumulated on the Series A Preferred Shares in respect of all past dividend periods shall have been paid in full or declared by the Corporation and set aside for payment in full, the holders of Series A Preferred Shares shall be divested of the voting rights set forth in Section 6(b) above (subject to revesting in the event of each and every Preferred Dividend Default) and, if all dividends accumulated in respect of all past dividend periods have been paid in full or declared by the Corporation and set aside for payment in full on all other classes or series of Parity Preferred Stock upon which like voting rights have been conferred and are exercisable, the term of office of each Preferred Stock Director so elected shall forthwith terminate and the number of directors constituting our Board of Directors will be reduced accordingly. Any Preferred Stock Director elected by the holders of Series A Preferred Shares and any other such Parity Preferred Stock may be removed at any time with or without cause by the vote of, and shall not be removed otherwise than by the vote of, the holders of a majority of the outstanding Series A Preferred Shares when they only have the voting rights set forth, or like those set forth, in Section 6(b) above and by the majority vote of the outstanding Series A Preferred Shares and all other classes or series of Parity Preferred Stock upon which 9 like voting rights have been conferred and are exercisable (voting as a single class) when the Series A Preferred Shares and such Parity Preferred Stock is entitled to vote thereon. So long as a Preferred Dividend Default shall continue, any vacancy in the office of a Preferred Stock Director so elected may be filled by written consent of the Preferred Stock Director so elected remaining in office, or if none remains in office, by a vote of the holders of a majority of the outstanding Series A Preferred Shares when they only have the voting rights set forth, or like those set forth, in Section 6(b) and by the majority vote of the outstanding Series A Preferred Shares and other classes or series of Parity Preferred Stock upon which like voting rights have been conferred and are exercisable (voting as a single class) when the Series A Preferred Shares and such Parity Preferred Stock is entitled to vote thereon. (d) So long as any Series A Preferred Stock remains outstanding, the Corporation shall not, without the affirmative vote or consent of the holders of at least two-thirds of the Series A Preferred Stock outstanding at the time, given in person or by proxy, either in writing or at a meeting (such Series A Preferred Stock voting separately as a class), (i) authorize or create, or increase the authorized or issued amount of, any class or series of shares ranking senior to the Series A Preferred Stock with respect to payment of dividends or the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the Corporation or reclassify any authorized shares of the Corporation into any such shares, or create, authorize or issue any obligation or security convertible into, exchangeable or exercisable for, or evidencing the right to purchase any such shares; or (ii) amend, alter or repeal the provisions of the Charter (including these Articles Supplementary), whether by merger or consolidation or otherwise (each, an "Event"), so as to materially and adversely affect any right, preference, privilege or voting power of the Series A Preferred Stock or the holders thereof; provided, however, that with respect to the occurrence of any of the Events set forth in (ii) above, so long as shares of Series A Preferred Stock (or shares issued by a surviving entity in substitution for the Series A Preferred Stock) remain outstanding with the terms thereof materially unchanged, taking into account that upon the occurrence of such an Event, the Corporation may not be the surviving entity, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers of the holders of the Series A Preferred Stock; and provided further that (x) any increase in the amount of the authorized Preferred Stock or Series A Preferred Stock or any issuance of Series A Preferred Stock or (y) the creation or issuance of any other class or series of Preferred Stock or any increase in the amount of authorized shares of any other class or series of Preferred Stock in each case ranking on a parity with or junior to the Series A Preferred Stock with respect to payment of dividends or the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the Corporation, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers. (e) The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series A Preferred Shares shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption. (7) Restrictions on Ownership and Transfer to Preserve Tax Benefit. (a) The Series A Preferred Stock constitutes a class of Preferred Stock, and shares of Preferred Stock constitute Equity Stock of the Corporation. Therefore, the Series A Preferred 10 Stock, being Equity Stock, shall be subject to the Ownership Limit applicable with respect to Equity Stock generally and all other restrictions and limitations on the ownership and Transfer of Equity Stock set forth in the Charter and applicable to Equity Stock, including without limitation Section 2 and Section 4 of Article V (or any successor provision of similar import) of the Articles of Amendment and Restatement filed with the Department on December 3, 2003 (the "Articles of Amendment and Restatement") and comprising a portion of the Charter. Capitalized terms used in this Section 7 and not otherwise defined in these Articles Supplementary shall have the meanings otherwise ascribed thereto in the Charter. (b) In addition to the application of the Ownership Limit and all other restrictions and limitations on Transfer otherwise imposed by or provided for under the Charter in respect of the Series A Preferred Stock as Preferred Stock and, therefore, Equity Stock, there shall be, and there hereby is, imposed on the Series A Preferred Stock a separate and additional Series A Preferred Stock Ownership Limit as hereinbelow provided, where "Series A Preferred Stock Ownership Limit" shall initially mean, with respect to the Series A Preferred Stock, as a separate class, 9.8% of the more restrictive of (i) the total number of and (ii) value of the total number of, outstanding shares of Series A Preferred Stock. The Series A Preferred Stock Ownership Limit is hereby imposed upon the Series A Preferred Stock and shall be applied separately to the Series A Preferred Stock (and without regard to any other class or series of Preferred Stock or other Equity Stock of the Corporation) in the same manner as the Ownership Limit is applied separately to the Common Stock pursuant to or by application of Section 2 and Section 4 of Article V (or any successor provisions of the Charter of similar import) of the Articles of Amendment and Restatement. Accordingly, the Series A Preferred Stock is subject to two (2) ownership limits: one, the Ownership Limit as defined in and otherwise imposed pursuant to the Charter and applicable to the Series A Preferred Stock as Preferred Stock (and, therefore, Equity Stock), which generally has the effect of, among other things, initially limiting Beneficial Ownership of Equity Stock to 6.5%; and, two, the Series A Preferred Stock Ownership Limit hereinabove imposed separately on the Series A Preferred Stock, which generally has the effect of, among other things, initially limiting Beneficial Ownership of the Series A Preferred Stock to 9.8%. (c) The application of the Series A Preferred Stock Ownership Limit to the Series A Preferred Stock as hereinabove provided shall be subject to all of the terms and provisions of Section 2 and Section 4 of Article V (or any successor provision of the Charter of similar import) of the Articles of Amendment and Restatement, including but not limited to the provisions thereof allowing the Board of Directors (or as provided below in respect of the Series A Preferred Stock Ownership Limit, the Preferred Stock Transaction Committee) of the Corporation to waive in whole or in part application of the Ownership Limit (and accordingly the Series A Preferred Stock Ownership Limit) or establish and/or waive any Excepted Holder Limit (which as applied to the Series A Preferred Stock Ownership Limit may be referred to as a "Series A Preferred Stock Excepted Holder Limit") to any Person; provided, however, that any waiver of the Series A Preferred Stock Ownership Limit and /or the establishment of a Series A Preferred Stock Excepted Holder Limit may be granted or established, and all determinations with respect thereto may be made, by the Preferred Stock Transaction Committee and need not be granted, established or made by the Board of Directors acting as a whole. 11 (d) Each certificate for shares of Series A Preferred Stock shall bear substantially the following legend : "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO SIGNIFICANT RESTRICTIONS ON OWNERSHIP AND TRANSFER. EXCEPT AS OTHERWISE PROVIDED PURSUANT TO THE CHARTER OF THE CORPORATION, NO PERSON MAY BENEFICIALLY OWN (I) SHARES OF SERIES A PREFERRED STOCK OF THE CORPORATION IN EXCESS OF 9.8% OF THE MORE RESTRICTIVE OF THE TOTAL NUMBER OF AND VALUE OF THE TOTAL NUMBER OF OUTSTANDING SHARES OF SERIES A PREFERRED STOCK OF THE CORPORATION, (II) SHARES OF COMMON STOCK OF THE CORPORATION IN EXCESS OF 6.5% OF THE MORE RESTRICTIVE OF THE TOTAL NUMBER OR VALUE OF THE OUTSTANDING SHARES OF COMMON STOCK OF THE CORPORATION, (III) SHARES OF EQUITY STOCK OF THE CORPORATION IN EXCESS OF 6.5% OF THE MORE RESTRICTIVE OF THE TOTAL NUMBER OR VALUE OF THE OUTSTANDING SHARES OF EQUITY STOCK OF THE CORPORATION, (IV) SHARES OF THE CORPORATION'S EQUITY STOCK IF SUCH ACQUISITION WOULD RESULT IN THE TRUST BEING "CLOSELY HELD" UNDER SECTION 856(h) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), (V) SHARES OF THE CORPORATION'S EQUITY STOCK IF SUCH ACQUISITION WOULD RESULT IN THE EQUITY STOCK BEING BENEFICIALLY OWNED BY FEWER THAN 100 PERSONS (DETERMINED WITHOUT REFERENCE TO ANY RULES OF ATTRIBUTION UNDER THE CODE), (VI) SHARES OF THE CORPORATION'S EQUITY STOCK IF SUCH ACQUISITION WOULD CAUSE THE CORPORATION TO FAIL TO QUALIFY AS A REAL ESTATE INVESTMENT TRUST UNDER THE CODE, OR (VII) SHARES OF THE CORPORATION'S COMMON STOCK OR EQUITY STOCK (INCLUDING SERIES A PREFERRED STOCK) IN VIOLATION OF ANY OF THE FURTHER RESTRICTIONS SET FORTH IN THE CORPORATION'S CHARTER. ANY PERSON WHO ATTEMPTS OR PROPOSES TO BENEFICIALLY OWN SHARES OF THE CORPORATION'S COMMON STOCK, SERIES A PREFERRED STOCK OR EQUITY STOCK IN EXCESS OF THE ABOVE LIMITATIONS MUST IMMEDIATELY NOTIFY THE CORPORATION IN WRITING. IF AN ATTEMPT IS MADE TO VIOLATE OR THERE IS A VIOLATION OF THESE RESTRICTIONS, (A) ANY PURPORTED TRANSFER WILL BE VOID AB INITIO AND WILL NOT BE RECOGNIZED BY THE CORPORATION AND (B) THE SHARES OF THE CORPORATION'S COMMON STOCK, SERIES A PREFERRED STOCK OR EQUITY STOCK IN VIOLATION OF THESE RESTRICTIONS, WHETHER AS A RESULT OF A TRANSFER OR NON-TRANSFER EVENT, WILL BE TRANSFERRED AUTOMATICALLY AND BY OPERATION OF LAW TO A SHARE TRUST AND SHALL BE DESIGNATED SHARES-IN-TRUST. ALL TERMS USED IN THIS LEGEND AND DEFINED IN THE CORPORATION'S CHARTER HAVE THE MEANINGS PROVIDED IN THE CORPORATION'S CHARTER, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE RESTRICTIONS ON OWNERSHIP AND TRANSFER, WILL BE SENT WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS." 12 (e) In the case of an ambiguity in the application of any of the provisions of this Section 7 (or the corresponding provisions of the Charter), the Board of Directors shall have the power to determine the application of the provisions of this Section 7 and those other corresponding provisions of the Charter referred to herein or applicable hereto, in each case with respect to any situation based on the facts known to it. (8) Settlement of New York Stock Exchange Transactions. Nothing in Section 7 above precludes the settlement of transactions entered into through the facilities of the New York Stock Exchange. Notwithstanding the fact that such settlement occurs, certain transactions may be subject to the provisions requiring the Series A Preferred Stock to be held in a Share Trust as set forth in Section 2(c) of Article V (or any successor provision of the Charter of similar import) of the Articles of Amendment and Restatement. (9) Conversion. The Series A Preferred Shares are not convertible into or exchangeable for any other property or securities of the Corporation. (10) No Sinking Fund. No sinking fund shall be established for the retirement or redemption of Series A Preferred Stock. (11) No Preemptive Rights. No holder of the Series A Preferred Stock of the Corporation shall, as such holder, have any preemptive rights to purchase or subscribe for additional shares of stock of the Corporation or any other security of the Corporation which it may issue or sell. FOURTH: The Series A Preferred Shares have been classified and designated by the Board under the authority contained in the Charter. FIFTH: These Articles Supplementary have been approved by the Board in the manner and by the vote required by law. SIXTH: These Articles Supplementary shall be effective at the time the Department accepts these Articles Supplementary for record. 13 SEVENTH: The undersigned Chief Executive Officer and President of the Corporation acknowledges these Articles Supplementary to be the act of the Corporation and, as to all matters or facts required to be verified under oath, the undersigned Chief Executive Officer and President acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury. 14 IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary to be executed under seal in its name and on its behalf by its Chief Executive Officer and President and attested to by its Corporate Secretary on this 6th day of July, 2004. American Home Mortgage Investment Corp. By: /s/ Michael Strauss ------------------------------------- Name: Michael Strauss Title: Chief Executive Officer and President [SEAL] ATTEST: /s/ Alan B. Horn - -------------------------------- Name: Alan B.Horn Title: Corporate Secretary 15 EX-3.2 3 am696881-ex3_2.txt ARTICLES SUPPLEMENTARY FOR ADDITONAL SHARES Exhibit 3.2 AMERICAN HOME MORTGAGE INVESTMENT CORP. ARTICLES SUPPLEMENTARY ESTABLISHING AND FIXING THE RIGHTS AND PREFERENCES OF 747,500 ADDITIONAL SHARES OF 9.75% SERIES A CUMULATIVE REDEEMABLE PREFERRED STOCK American Home Mortgage Investment Corp., a corporation organized and existing under the laws of the State of Maryland (the "Corporation"), certifies to the State Department of Assessments and Taxation of Maryland (the "Department") that: FIRST: Pursuant to the authority expressly vested in the Board of Directors of the Corporation (sometimes referred to herein as the "Board") by Article V of the charter (the "Charter") of the Corporation and Section 2-105 of the Maryland General Corporation Law (the "MGCL"), the Board of Directors of the Corporation, on April 27, 2004, adopted resolutions authorizing the Corporation, among other things, to issue up to a stated maximum number of shares of preferred stock, par value $0.01 per share (the "Preferred Stock"), of the Corporation and appointing, pursuant to the MGCL and the powers contained in the Bylaws of the Corporation, a committee (the "Committee" or the "Preferred Stock Transaction Committee") of the Board of Directors comprised of Michael Strauss and delegating to the Committee, to the fullest extent permitted by Maryland law and the Charter and Bylaws of the Corporation, all powers of the Board of Directors with respect to classifying, authorizing, approving, ratifying and/or confirming the terms of the Preferred Stock to be issued, including, without limitation, the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption, and determining the consideration per share to be received in respect of the issuance and sale of each share of Preferred Stock to be issued and sold, and the number of shares of Preferred Stock to be so classified or reclassified and issued by the Corporation, subject to the limitations set forth in the resolutions of the Board of Directors adopted on April 27, 2004. SECOND: Pursuant to the authority conferred upon the Committee as aforesaid, the Committee, on June 29, 2004, adopted resolutions classifying and designating as a separate series of Preferred Stock the 9.75% Series A Cumulative Redeemable Preferred Stock, and establishing the preferences, conversions and other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption and other terms and conditions of such 9.75% Series A Cumulative Redeemable Preferred Stock (within the limitations set by the Board of Directors in the resolutions adopted on April 27, 2004 and referred to in Article FIRST of these Articles Supplementary), and further establishing 1,610,000 as the number of shares to then be so classified and designated, and authorizing the issuance of such shares of 9.75% Series A Cumulative Redeemable Preferred Stock. THIRD: On July 6, 2004, the Corporation caused to be filed with the Department "Articles Supplementary Establishing and Fixing the Rights and Preferences of 9.75% Series A Cumulative Redeemable Preferred Stock" (the "July 6, 2004 Articles Supplementary") providing for the classification and designation, and setting the preferences, conversions and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption and other terms of, 1,610,000 shares of 9.75% Series A Cumulative Redeemable Preferred Stock (the "Initial Series A Preferred Shares"). FOURTH: Pursuant to the authority conferred upon the Committee as aforesaid, the Committee has on July 15, 2004, adopted resolutions classifying and designating 747,500 authorized but unissued shares of Preferred Stock of the Corporation as 9.75% Series A Cumulative Redeemable Preferred Stock (the "Additional Series A Preferred Shares"), having the preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption and other terms and conditions as set forth in the July 6, 2004 Articles Supplementary and applicable to the Initial Series A Preferred Shares, and authorizing the issuance of such Additional Series A Preferred Shares. The Initial Series A Preferred Shares and the Additional Series A Preferred Shares, all having the preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption and other terms and conditions as set forth in the July 6, 2004 Articles Supplementary, together with any other or additional shares of 9.75% Series A Cumulative Redeemable Preferred Stock of the Corporation subsequently classified and so designated, all comprise and will comprise one and the same series of Preferred Stock of the Corporation, and pursuant to the Charter of the Corporation a separate class of Preferred Stock, referred to as the "Series A Preferred Stock" in the July 6, 2004 Articles Supplementary. FIFTH: The Additional Series A Preferred Shares have been classified and designated by the Board under the authority contained in the Charter. SIXTH: These Articles Supplementary have been approved by the Board in the manner and by the vote required by law. SEVENTH: These Articles Supplementary shall be effective at the time the Department accepts these Articles Supplementary for record. EIGHTH: The undersigned Chief Executive Officer and President of the Corporation acknowledges these Articles Supplementary to be the act of the Corporation and, as to all matters or facts required to be verified under oath, the undersigned Chief Executive Officer and President acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury. 2 IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary to be executed under seal in its name and on its behalf by its Chief Executive Officer and President and attested to by its Corporate Secretary on this 19th day of July, 2004. American Home Mortgage Investment Corp. By: /s/ Michael Strauss ------------------------------------- Name: Michael Strauss Title: Chief Executive Officer and President [SEAL] ATTEST: /s/ Alan B. Horn - ------------------------------------- Name: Alan B. Horn Title: Corporate Secretary 3 EX-10.1 4 am696881-ex10_1.txt SECOND AMENDED AND RESTATED WAREHOUSING CREDIT, Exhibit 10.1 - -------------------------------------------------------------------------------- SECOND AMENDED AND RESTATED WAREHOUSING CREDIT, TERM LOAN AND SECURITY AGREEMENT (SYNDICATED) - -------------------------------------------------------------------------------- BETWEEN COLUMBIA NATIONAL INCORPORATED, a Maryland corporation and AMERICAN HOME MORTGAGE CORP., a New York corporation and AMERICAN HOME MORTGAGE ACCEPTANCE, INC. a Maryland corporation as Borrowers AND Lenders Party Hereto AND RESIDENTIAL FUNDING CORPORATION, a Delaware corporation as Credit Agent AND U.S. BANK NATIONAL ASSOCIATION , a national banking association and MANUFACTURERS AND TRADERS TRUST COMPANY a New York banking corporation as Co-Agents Dated as of May 27, 2004 - -------------------------------------------------------------------------------- TABLE OF CONTENTS - -------------------------------------------------------------------------------- 1. THE CREDIT................................................................1-1 1.1. Warehousing Commitment..........................................1-1 1.2. Expiration of Warehousing Commitment............................1-2 1.3. Swingline Facility..............................................1-2 1.4. Term Loan Commitment............................................1-2 1.5. Expiration of Term Loan Commitment..............................1-3 1.6. Notes...........................................................1-3 1.7. Non-Receipt of funds by Credit Agent............................1-3 1.8. Replacement Notes...............................................1-4 1.9. Joint and Several Liability.....................................1-4 1.10 Limitation on Warehousing Advances and Term Loan Advances Against Other Eligible Assets.................................1-4 2. PROCEDURES FOR OBTAINING ADVANCES.........................................2-1 2.1. Warehousing Advances............................................2-1 2.2. Term Loan Advances..............................................2-1 2.3. Estimate of Advances............................................2-2 3. INTEREST, PRINCIPAL AND FEES..............................................3-1 3.1. Interest........................................................3-1 3.2. Interest Limitation.............................................3-2 3.3. Principal Payments..............................................3-2 3.4. Warehousing Commitment Fees.....................................3-5 3.5. Term Loan Non-Usage Fees........................................3-5 3.6. Agent's Fee.....................................................3-6 3.7. Loan Package Fees, Wire Fees, Warehousing Fees..................3-6 3.8. Miscellaneous Fees and Charges..................................3-6 3.9. [Intentionally Omitted].........................................3-6 3.10. Method of Making Payments......................................3-6 3.11. Illegality.....................................................3-7 3.12. Increased Costs; Capital Requirements..........................3-7 3.13. Withholding Taxes..............................................3-8 4. COLLATERAL................................................................4-1 4.1. Grant of Security Interest......................................4-1 4.2. Maintenance of Collateral Records...............................4-3 4.3. Release of Security Interest in Pledged Loans and Pledged Securities....................................................4-3 4.4. Release of Security Interest in Other Eligible Assets...........4-4 4.5. Collection and Servicing Rights.................................4-4 4.6. Return of Collateral at End of Commitments......................4-5 4.7. Delivery of Collateral Documents................................4-5 4.8. Borrowers Remains Liable........................................4-5 4.9. Further Assurance...............................................4-6 5. CONDITIONS PRECEDENT......................................................5-1 5.1. Initial Advance.................................................5-1 5.2. Each Advance....................................................5-3 5.3. Force Majeure...................................................5-3 6. GENERAL REPRESENTATIONS AND WARRANTIES....................................6-1 6.1. Place of Business...............................................6-1 6.2. Organization; Good Standing; Subsidiaries.......................6-1 6.3. Authorization and Enforceability................................6-1 6.4. Authorization and Enforceability of Guaranty....................6-2 6.5. Approvals.......................................................6-2 6.6. Financial Condition.............................................6-2 6.7. Litigation......................................................6-2 6.8. Compliance with Laws............................................6-2 6.9. Regulation U....................................................6-3 6.10. Investment Company Act.........................................6-3 6.11. Payment of Taxes...............................................6-3 6.12. Agreements.....................................................6-3 6.13. Title to Properties............................................6-4 6.14. ERISA..........................................................6-4 6.15. No Retiree Benefits............................................6-4 6.16. Assumed Names..................................................6-4 6.17. Servicing......................................................6-4 7. AFFIRMATIVE COVENANTS.....................................................7-1 7.1. Payment of Obligations..........................................7-1 7.2. Financial Statements............................................7-1 7.3. Other Borrowers Reports.........................................7-2 7.4. Maintenance of Existence; Conduct of Business...................7-3 7.5. Compliance with Applicable Laws.................................7-3 7.6. Inspection of Properties and Books; Operational Reviews.........7-3 7.7. Notice..........................................................7-4 7.8. Payment of Debt, Taxes and Other Obligations....................7-4 7.9. Insurance.......................................................7-4 7.10. Closing Instructions...........................................7-4 7.11. Subordination of Certain Indebtedness..........................7-5 7.12. Other Loan Obligations.........................................7-5 7.13. ERISA..........................................................7-5 7.14. Use of Proceeds of Warehousing Advances........................7-5 7.15. Use of Proceeds of Term Loan Advances..........................7-6 8. NEGATIVE COVENANTS........................................................8-1 8.1.Contingent Liabilities...........................................8-1 8.2.Limitation on Liens..............................................8-1 8.3.Restrictions on Fundamental Changes..............................8-1 8.4. Deferral of Subordinated Debt...................................8-2 8.5.Investments......................................................8-2 8.6. Loss of Eligibility.............................................8-2 8.7. Accounting Changes..............................................8-2 8.8. Leverage Ratio..................................................8-2 8.9. Minimum Tangible Net Worth......................................8-3 8.10. Minimum Book Net Worth.........................................8-3 8.11. Liquid Assets..................................................8-3 8.12. Maximum Servicing Delinquencies................................8-3 8.13. Maximum Servicing Foreclosures.................................8-3 8.14. Distributions to Shareholders..................................8-3 8.15. Transactions with Affiliates...................................8-3 8.16. Recourse Servicing Contracts...................................8-3 9. SPECIAL REPRESENTATIONS, WARRANTIES AND COVENANTS CONCERNING COLLATERAL...................................................................9-1 9.1. Special Representations and Warranties Concerning Eligibility as Seller/Servicer of Mortgage Loans................9-1 9.2. Special Representations and Warranties Concerning Warehousing Collateral......................................................9-1 9.3. Special Representations and Warranties Concerning REO Properties Included as Other Eligible Assets.........................9-3 9.4. Special Representations and Warranties Concerning Servicing Collateral...........................................................9-4 9.5. Special Representations and Warranties Concerning P&I Advance Receivables.........................................9-5 9.6. Special Representations and Warranties Concerning T&I Advance Receivables.........................................9-5 9.7. Special Representations and Warranties Concerning Foreclosure Advance Receivables.................................9-5 9.8. Special Affirmative Covenants Concerning Warehousing Collateral....................................................9-6 9.9 Special Affirmative Covenants Concering REO Properties..........9-7 9.10 Special Nevative Covenants Concering Warehouisng Collateral...9-7 10. DEFAULTS; REMEDIES......................................................10-1 10.1. Events of Default.............................................10-1 10.2. Remedies......................................................10-3 10.3. Application of Proceeds.......................................10-6 10.4. Credit Agent Appointed Attorney-in-Fact.......................10-8 10.5. Right of Set-Off..............................................10-8 10.6. Sharing of Payments ..........................................10-8 11. AGENT ................................................................11-1 11.1. Appointment...................................................11-1 11.2. Duties of Agent...............................................11-1 11.3. Standard of Care..............................................11-1 11.4. Delegation of Duties..........................................11-2 11.5. Exculpatory Provisions........................................11-2 11.6. Reliance by Agent.............................................11-2 11.7. Non-Reliance on Agent or Other Lenders........................11-3 11.8. Agent in Individual Capacity..................................11-3 11.9. Successor Agent...............................................11-3 11.10.Availability of Documents.....................................11-4 12. MISCELLANEOUS...........................................................12-1 12.1. Notices.......................................................12-1 12.2. Reimbursement Of Expenses; Indemnity..........................12-1 12.3. Indemnification by Lenders....................................12-2 12.4. Financial Information.........................................12-3 12.5. Terms Binding Upon Successors; Survival of Representations....12-3 12.6. Lenders in Individual Capacity................................12-3 12.7. Assignments and Participations................................12-3 12.8. Commitment Increases..........................................12-4 12.9. Amendments....................................................12-4 12.10.Governing Law.................................................12-5 12.11. Relationship of the Parties..................................12-5 12.12. Severability.................................................12-6 12.13. Consent to Credit References.................................12-6 12.14. Counterparts.................................................12-6 12.15. Headings/Captions............................................12-6 12.16. Entire Agreement.............................................12-6 12.17. Consent to Jurisdiction......................................12-6 12.18. Waiver of Jury Trial.........................................12-7 12.19. Waiver of Punitive, Consequential, Special or Indirect Damages...........................................12-7 12.20. Waiver of Defaults Under Existing Agreement..................12-7 13. DEFINITIONS.............................................................13-1 13.1. Defined Terms.................................................13-1 13.2. Other Definitional Provisions; Terms of Construction.........13-15 - -------------------------------------------------------------------------------- EXHIBITS - -------------------------------------------------------------------------------- Exhibit A Request for Advance (Eligible Loans) - --------- Exhibit A-CON Request for Advance Request (Construction/Perm Mortgage Loans) - ------------- Exhibit A-WC Request for Advance Request (Other Eligible Assets) - ------------ Exhibit A-TL Term Loan Advance Request - ------------ Exhibit B Procedures and Documentation for Warehousing Single Family - --------- Mortgage Loans Exhibit B-CON Procedures and Documentation for Warehousing Construction and - ------------- Construction/Perm Mortgage Loans Exhibit C Schedule of Servicing Portfolio - --------- Exhibit D Subsidiaries - --------- Exhibit E Officer's Certificate - --------- Exhibit F Schedule of Existing Lines of Credit - --------- Exhibit G Assumed Names - --------- Exhibit H Eligible Loans and Other Eligible Assets - --------- Exhibit I Collateral Operations Fee Schedule (Single Family) - --------- Exhibit J Commitment Summary Report - --------- Exhibit K Terms of Guaranteed Obligations - --------- Exhibit L Warehousing Commitment Amounts - --------- Exhibit M Term Loan Commitment Amounts - --------- Exhibit N Advance Certificate - --------- Exhibit O Approved Custodians and Investors - --------- - -------------------------------------------------------------------------------- SECOND AMENDED AND RESTATED WAREHOUSING CREDIT, TERM LOAN AND SECURITY AGREEMENT (SYNDICATED) - -------------------------------------------------------------------------------- SECOND AMENDED AND RESTATED WAREHOUSING CREDIT, TERM LOAN AND SECURITY AGREEMENT (SYNDICATED), dated as of May 10, 2004, between COLUMBIA NATIONAL INCORPORATED, a Maryland corporation ("CNI"), AMERICAN HOME MORTGAGE CORP., INC., a New York corporation ("AHMC"), and AMERICAN HOME MORTGAGE ACCEPTANCE, INC. a Maryland corporation ("AHMAI") (each of CNI, AHMC and AHMAI, a "Borrower," and CNI, AHMC and AHMAI together, the "Borrowers"), RESIDENTIAL FUNDING CORPORATION ("RFC"), COLONIAL BANK, N.A. ("Colonial"), CALYON NEW YORK BRANCH ("Calyon"), FLEET NATIONAL BANK ("Fleet"), MANUFACTURERS AND TRADERS TRUST COMPANY ("MTTC"), THE BANK OF NEW YORK ("BNY"), U.S. BANK NATIONAL ASSOCIATION ("U.S. Bank") and COMMERZBANK AG ("Commerzbank"), BANK HAPOALIM B.M. ("Bank Hapoalim") (RFC, Colonial, Calyon, Fleet, MTTC, BNY, U.S. Bank, Commerzbank, Bank Hapoalim and any Additional Lenders as may from time to time become a party hereto and their respective successors and permitted assigns being referred to individually as a "Lender" and collectively as the "Lenders"), MTTC and U.S. Bank as co-agents for Lenders (collectively "Co-Agents"), and RFC as credit agent for Lenders (in such capacity, "Credit Agent"). Borrowers have requested certain financing from Lenders. Borrowers have asked Lenders and Credit Agent to amend and restate the Existing Agreement (as defined below) and to set forth the terms and conditions upon which Lenders will provide certain financing to Borrowers. Credit Agent and Lenders have agreed to amend and restate the Existing Agreement to provide that financing to Borrowers subject to the terms and conditions of this Agreement. The "Closing Date" for the transactions contemplated by this Agreement is May 27, 2004. NOW, THEREFORE, the parties to this Agreement agree as follows: THE CREDIT 1.1. Warehousing Commitment On the terms and subject to the conditions of this Agreement, Lenders agree, severally and not jointly, to make Warehousing Advances to Borrowers from the Closing Date to the Business Day immediately preceding the Warehousing Maturity Date, pro rata in accordance with their respective Percentage Shares, during which period Borrowers may borrow, repay and reborrow in accordance with the provisions of this Agreement. The total aggregate principal amount of all Warehousing Advances and Swingline Advances outstanding at any one time may not exceed the Warehousing Credit Limit. While a Default or Event of Default exists, Lenders may refuse to make any additional Warehousing Advances to Borrowers. Effective as of the Closing Date, all outstanding loans made under the Existing Agreement are deemed to be Warehousing Advances and Swingline Advances or Term Loan Advances, as applicable, made under this Agreement. All Warehousing Advances and Swingline Advances under this Agreement constitute a single indebtedness, and all of the Collateral is security for the Warehousing Note, the Swingline Note and for the performance of all of the Obligations. 1.2. Expiration of Warehousing Commitment The Warehousing Commitment expires on the earlier of ("Warehousing Maturity Date"): (a) August 30, 2004, as such date may be extended in writing by Lenders and Credit Agent, in their sole discretion, on which date the Warehousing Commitment will expire of its own term and the Warehousing Advances will become due and payable, in each case without the necessity of Notice or action by Lenders, and (b) the date the Warehousing Commitment is terminated and the Warehousing Advances become due and payable under Section 10.2. 1.3. Swingline Facility On the terms and subject to the conditions set forth herein, RFC may, from time to time to but not including the Business Day immediately preceding the Warehousing Maturity Date, make Advances ("Swingline Advances") requested by Borrowers, in an aggregate amount not to exceed the Swingline Facility Amount, without requesting Warehousing Advances or Term Loan Advances from the other Lenders. At such time as Borrowers have borrowed the maximum amount available under the Swingline Facility Amount, RFC Agrees to provide Borrowers 1 day's Notice. Lenders hereby agree to purchase from RFC an undivided participation interest in all outstanding Swingline Advances at any time in an amount equal to each Lender's Percentage Share of such Swingline Advances. RFC may at any time in its sole and absolute discretion (and shall no less frequently than weekly and upon the acceleration of the Obligations following an Event of Default) request Lenders to make Warehousing Advances or Term Loan Advances, as applicable, in principal amounts equal to their Percentage Shares of outstanding Swingline Advances, and each Lender absolutely and unconditionally agrees to fund such Warehousing Advances or Term Loan Advances, as applicable, regardless of any Default or Event of Default or other condition which would otherwise excuse such Lender from funding such Advances, provided that no Lender shall be required to make Advances to repay Swingline Advances or purchase participations in Swingline Advances which would cause such Lender's aggregate Warehousing Advances or Term Loan Advances (including participations in Swingline Advances), as applicable, then outstanding to exceed the amount of such Lender's Warehousing Commitment Amount or Term Loan Commitment Amount, as applicable. Each Lender's Advances made pursuant to the preceding sentence shall be delivered directly to RFC in immediately available funds at the office of Credit Agent by 4:00 p.m. on the day of the request therefor by RFC if such request is made on or before 3:00 p.m., or by 9:00 a.m. on the 1st Business Day following such request if such request is made after 3:00 p.m., and shall be promptly applied against the outstanding Swingline Advances. At the time of any request for Advances from Lenders pursuant to this Section 1.3, Credit Agent shall deliver to each Lender a certificate in the form of Exhibit N attached hereto (the "Advance Certificate"), certified by Credit Agent. For purposes of the limitations set forth in Exhibit H hereto, Swingline Advances made against Eligible Loans or Other Eligible Assets shall be deemed to be Warehousing Advances, and Swingline Advances against Servicing Collateral shall be deemed to be Term Loan Advances. 1.4. Term Loan Commitment On the terms and subject to the conditions of this Agreement, Lenders agree, severally and not jointly, to make Term Loan Advances to Borrowers from the Closing Date to the Business Day immediately preceding the Term Loan Commitment Termination Date, pro rata in accordance with their respective Percentage Shares, during which period Borrowers may borrow, repay and reborrow in accordance with the provisions of this Agreement. The total aggregate principal amount outstanding at any one time of all Term Loan Advances may not exceed the Term Loan Credit Limit. While a Default or Event of Default exists, Lenders may refuse to make any additional Term Loan Advances to Borrowers. All Term Loan Advances under this Agreement shall constitute a single indebtedness, and all of the Collateral shall be security for the Term Loan Note and for the payment and performance of all the Obligations. 1.5. Expiration of Term Loan Commitment The Term Loan Commitment expires on the earlier of ("Term Loan Commitment Termination Date"): (a) August 30, 2004, as such date may be extended in writing by Lenders, in their sole discretion, on which date the Term Loan Commitment will expire of its own term, without the necessity of Notice or action by Lenders, and (b) the date the Term Loan Commitment is terminated under Section 10.2. 1.6. Notes Warehousing Advances against Eligible Loans made by each Lender are evidenced by Borrowers' promissory note, payable to such Lender, in the form prescribed by Credit Agent (each, a "Warehousing Note"). Warehousing Advances against Other Eligible Assets made by each Lender are evidenced by Borrowers' promissory note, payable to such Lender, in the form prescribed by Credit Agent (each, a "Sublimit Note"). Swingline Advances of the Borrowers in favor of RFC are evidenced by Borrowers' promissory note, payable to RFC, in the form prescribed by Credit Agent (the "Swingline Note"). Term Loan Advances made by each Lender are evidenced by Borrowers' promissory note, payable to such Lender, in the form prescribed by Credit Agent (each, a "Term Loan Note"). The terms "Warehousing Note," "Sublimit Note," "Swingline Note" and "Term Loan Note" as used in this Agreement, include all amendments, restatements, renewals or replacements of the original "Warehousing Notes," `Sublimit Notes," "Swingline Note," "Term Loan Notes" and all substitutions for any of them. All terms and provisions of the "Warehousing Notes," "Sublimit Notes," "Swingline Note" and "Term Loan Notes" are incorporated into this Agreement. 1.7. Non-Receipt of funds by Credit Agent. If Credit Agent receives notice from a Lender that such Lender does not intend to make its Percentage Share of any Advances, neither Credit Agent nor any other Lenders shall have any obligation to fund such Lender's Percentage Share. Notwithstanding the foregoing, unless a Lender notifies Credit Agent by 3:00 p.m. on the date of a proposed Advance that it does not intend to make its Percentage Share of such Advance available to Credit Agent at such time and on such date, Credit Agent may assume that such Lender will make such amount available to Credit Agent to be advanced to the Borrowers, and in reliance on such assumption, Credit Agent may, at its option, make a corresponding amount available to the Borrowers. 1.7(a) If Credit Agent makes such corresponding amount available to the Borrowers and such amount is not made available to Credit Agent by such Lender by close of business on the date of the Advance, such Lender shall pay such amount to Credit Agent upon demand plus interest to the date of payment at a rate per annum equal to the Federal Funds Rate. 1.7(b) If a Lender fails to pay as provided herein, the Borrowers shall pay such amount to Credit Agent upon demand plus interest (at the rate applicable to the Borrowers for such Warehousing Advance) to the date of repayment. 1.7(c) Nothing in this Section 1.7 shall relieve any Lender from its obligation to fund its Percentage Share of any Advance, or prejudice any rights the Borrowers may have against any Lender as a result of such Lender's failure to make its Percentage Share of any Advance. 1.8. Replacement Notes. Upon receipt by Borrowers of an affidavit of an officer of any Lender as to the loss, theft, destruction or mutilation of any Note, and, in the case of any such loss, theft, destruction or mutilation, upon receipt by Borrowers of such Note, Borrowers will issue, in lieu thereof, a replacement note in the same principal amount thereof and otherwise of like tenor. 1.9. Joint and Several Liability Advances shall be made to any Borrower (except to the extent otherwise provided herein), as shall be requested in the Advance Request, but each Advance, regardless of which Borrower it is made to, shall be deemed made to or for the benefit of all Borrowers, and each Borrower jointly and severally shall be obligated to repay all Advances. With respect to its obligation to repay Advances made to any other Borrower, each Borrower agrees to the terms set forth in Exhibit K. 1.10. Limitation on Warehousing Advances and Term Loan Advances Lenders will make Warehousing Advances against Eligible Loans and Other Eligible Assets and Term Loan Advances against Servicing Contracts, upon the request of Borrowers, in the manner provided in Article 2, for the purposes set forth in Section 7.14 and 7.15. Lenders' obligation to make Warehousing Advances against Eligible Loans and Other Eligible Assets and Term Loan Advances are subject to the limitations set forth in Exhibit H. End of Article 0 PROCEDURES FOR OBTAINING ADVANCES 2.1. Warehousing Advances 2.1(a) To obtain a Warehousing Advance under this Agreement, Borrowers must deliver to Credit Agent either a completed and signed request for a Warehousing Advance on the then current form approved by Credit Agent or an Electronic Advance Request, ("Warehousing Advance Request"), not later than (i) in the case of Electronic Advance Requests, 2:30 p.m. on the Business Day, and (ii) in all other cases, 1 Business Day before the Business Day, on which Borrowers desire the Warehousing Advance. Subject to the delivery of a Warehousing Advance Request, Borrowers may obtain a Warehousing Advance under this Agreement upon compliance with the procedures set forth in this Section and in the applicable Exhibit B, including delivery to Credit Agent of all required Collateral Documents. Credit Agent's current form of Warehousing Advance Request is set forth in the applicable Exhibit A. Upon not less than 3 Business Days' prior Notice to Borrowers, Credit Agent may modify its form of Warehousing Advance Request, and any other Exhibit or document referred to in this Section to conform to either current legal requirements or Credit Agent practices and, as so modified, those Exhibits and documents will become part of this Agreement. Credit Agent will promptly notify Lenders of any changes made to any document under the preceding sentence. 2.1(b) In making the determination whether Warehousing Advances shall be made against an Eligible Loan, Credit Agent will be permitted to rely, without independent investigation of the correctness thereof, on the most recent information supplied by Borrowers to Credit Agent with respect to the Weighted Average Committed Purchase Price. Credit Agent will disburse Warehousing Advances against Eligible Loans and other amounts to fund the origination or acquisition of such Eligible Loans in such manner as Credit Agent determines, in its sole discretion. 2.1(c) To make Warehousing Advances against Other Eligible Assets hereunder, Credit Agent shall disburse the amount thereof into the Operating Account. 2.2. Term Loan Advances 2.2(a) To obtain a Term Loan Advance hereunder, Borrowers must deliver to Credit Agent, not later than 9:30 a.m. on the Business Day on which Borrowers desire to borrow Term Loan Advances hereunder, a completed and signed request for Term Loan Advances ("Term Loan Advance Request") on the then current form approved by Credit Agent. The current form in use by Credit Agent is Exhibit A-TL attached hereto. Credit Agent shall have the right, on not less than 3 Business Days' prior Notice to Borrowers, to modify Exhibit A-TL to conform to current legal requirements or Credit Agent practices and, as so modified, said Exhibit shall be deemed a part hereof. 2.2(b) To make Term Loan Advances hereunder, Credit Agent shall disburse the amount thereof (i) in the case of Term Loan Advances made to finance a Servicing Acquisition, to the seller in such Servicing Acquisition as directed by a Borrower; and (ii) in all other cases, into the Operating Account. 2.3. Estimate of Advances Borrowers will provide to Credit Agent, by the close of business on each Business Day, an estimate of the amount, if any, of Warehousing Advances against Other Eligible Assets and Term Loan Advances Borrowers expect to request on the following Business Day. End of Article 0 INTEREST, PRINCIPAL AND FEES 3.1. Interest 3.1(a) Except as otherwise provided in this Section, Borrowers must pay interest on the unpaid amount of each Warehousing Advance and each Term Loan Advance from the date that such Advance is made until it is paid in full at the Interest Rate specified in Exhibit H. 3.1(b) Borrowers and any Lender may enter into an agreement (the "Balance Funded Agreement") pursuant to which Borrowers agree to maintain deposits with such Lender or a Designated Bank in consideration of the funding of all or a portion of such Lender's Advances at a Balance Funded Rate. Borrowers may give written notice to any Lender with which it has a Balance Funded Agreement, as and when provided in such Balance Funded Agreement, of Borrowers' election to have a portion (the "Balance Funded Portion") of the principal amount of such Lender's Advances bear interest at the Balance Funded Rate during any calendar month. In the event Borrowers elect to have all or a portion of any Lender's Advances bear interest at the Balance Funded Rate during any month, such Lender shall notify Credit Agent no later than 12:00 Noon on the second Business Day of the following month of the estimated amount by which the interest to be paid by Borrowers on such Lender's Advances during such month was reduced as a result of the application of such Balance Funded Agreement. If the deposits maintained by Borrowers with such Lender or its Designated Bank during such month are less than the amount required with respect to the Balance Funded Portion, or if the estimate provided by a Lender pursuant to the previous sentence is not accurate, such Lender may charge and separately bill Borrowers a deficiency fee (a "Balance Deficiency Fee"), or credit Borrowers with any amount by which interest billed exceeded interest actually due, the amount of which shall be set forth in the Balance Funded Agreement between Borrowers and such Lender. 3.1(c) Credit Agent computes interest on the basis of the actual number of days in each month and a year of 360 days ("Accrual Basis"). Borrowers must pay interest monthly in arrears, not later than 9 days after the date of Credit Agent's invoice or, if applicable, 2 days after the date of Credit Agent's account analysis statement, commencing with the first month following the Closing Date and on the Warehousing Maturity Date. 3.1(d) If (1) Borrowers repay a Warehousing Advance on the same day that it was made by Credit Agent or (2) Borrowers instruct Credit Agent not to make a previously requested Warehousing Advance after Credit Agent has reserved funds or made other arrangements necessary to enable Credit Agent to fund that Warehousing Advance, Borrowers agree to pay to Credit Agent for the benefit of Lenders an administrative fee equal to 1 day of interest on that Warehousing Advance at the Interest Rate that would otherwise be applicable under Exhibit H for the applicable Eligible Loan or Other Eligible Asset type. 3.1(e) After an Event of Default occurs and upon Notice to Borrowers by Credit Agent, the unpaid amount of each Advance will bear interest at the Default Rate until paid in full. 3.1(f) Credit Agent will adjust the rates of interest provided for in this Agreement as of the effective date of each change in the applicable index. Credit Agent's determination of such rates of interest as of any date of determination are conclusive and binding, absent manifest error. 3.2. Interest Limitation Credit Agent and Lenders do not intend, by reason of this Agreement, the Notes or any other Loan Document, to receive interest in excess of the amount permitted by applicable law. If Credit Agent or Lenders receive any interest in excess of the amount permitted by applicable law, whether by reason of acceleration of the maturity of this Agreement, the Notes or otherwise, Credit Agent will apply the excess to the unpaid principal balance of the Advances and not to the payment of interest. If all Advances have been paid in full and the Commitments have expired or have been terminated, Credit Agent will remit any excess to Borrowers. This Section controls every other provision of all agreements between Borrowers, Credit Agent and Lenders and is binding upon and available to any subsequent holder of the Notes. 3.3. Principal Payments 3.3 (a) Borrowers must pay to Credit Agent for the benefit of Lenders the outstanding principal amount of all Warehousing Advances and Swingline Advances on the Warehousing Maturity Date. 3.3 (b) Borrowers must pay to Credit Agent for the benefit of Lenders the outstanding principal amount of all Term Loan Advances on the Term Loan Maturity Date. 3.3 (c) Except as otherwise provided in Section 3.1, Borrowers may prepay any portion of the Advances without premium or penalty at any time. 3.3 (d) Borrowers must pay to Credit Agent for the benefit of Lenders, without the necessity of prior demand or Notice from Credit Agent, and Borrowers authorize Credit Agent to cause the Funding Bank to charge Borrowers' Operating Account for the amount of any outstanding Warehousing Advances or Swingline Advances against a specific Pledged Asset upon the earliest occurrence of any of the following events: (1) One (1) Business Day elapses from the date a Warehousing Advance was made if the Pledged Loan to be funded by that Warehousing Advance is not closed and funded. (2) Ten (10) Business Days elapse without the return of a Collateral Document delivered by Credit Agent to a Borrower under a Trust Receipt for correction or completion. (3) On the date on which a Pledged Loan is determined to have been originated based on untrue, incomplete or inaccurate information or otherwise to be subject to fraud, whether or not Borrowers had knowledge of the misrepresentation, incomplete or incorrect information or fraud, on the date on which any Borrower knows, has reason to know, or receives Notice from Credit Agent, that (A) one or more of the representations and warranties set forth in Article 9 were inaccurate or incomplete in any material respect on any date when made or deemed made, or (B) any Borrower has failed to perform or comply with any covenant, term or condition set forth in Article 9. (4) On the date the Pledged Loan or a Lien prior to the Mortgage securing repayment of the Pledged Loan is defaulted and remains in default for a period of 30 days or more. (5) Upon the sale, other disposition or prepayment of any Pledged Asset or, with respect to a Pledged Loan included in an Eligible Mortgage Pool, upon the sale or other disposition of the related Agency Security. (6) One (1) Business Day immediately preceding the date scheduled for the foreclosure or trustee sale of the premises securing a Pledged Loan. (7) If the outstanding Warehousing Advances against Pledged Loans of a specific type of Eligible Loan exceed the aggregate Purchase Commitments for that type of Eligible Loan. 3.3 (e) Upon telephonic or written Notice to Borrowers by Credit Agent, Borrowers must pay to Credit Agent for the benefit of Lenders, and Borrowers authorize Credit Agent to cause the Funding Bank to charge Borrowers' Operating Account for the amount of any outstanding Warehousing Advance against a specific Pledged Asset upon the earliest occurrence of any of the following events: (1) For any Pledged Loan, other than an Aged Mortgage Loan, the Standard Warehouse Period elapses and, for any Aged Mortgage Loan, the Aged Warehouse Period elapses. (2) Forty-five (45) days or, in the case of a Bond Program Mortgage Loan, 75 days, elapse from the date a Pledged Loan was delivered to an Investor or Approved Custodian for examination and purchase or for inclusion in a Mortgage Pool, without the purchase being made or an Eligible Mortgage Pool being initially certified, or upon rejection of a Pledged Loan as unsatisfactory by an Investor or Approved Custodian. (3) Seven (7) Business Days elapse from the date a Wet Settlement Advance was made against a Pledged Loan without receipt by Credit Agent of all Collateral Documents relating to the Pledged Loan. (4) Three (3) Business Days after the mandatory delivery date of the related Purchase Commitment if the specific Pledged Loan or the Pledged Security backed by that Pledged Loan has not been delivered under the Purchase Commitment prior to such mandatory delivery date, or on the date the related Purchase Commitment expires or is terminated, unless, in each case, the Pledged Loan or Pledged Security is eligible for delivery to another Investor under a comparable Purchase Commitment. (5) With respect to any Pledged Loan, any of the Collateral Documents, upon examination by Credit Agent (and at the reasonable discretion of the Credit Agent), are found not to be in compliance with the requirements of this Agreement or the related Purchase Commitment. 3.3 (f) In addition to the payments required by Sections 3.3(d) and 3.3(e), if the principal amount of any Pledged Loan or Other Eligible Asset is prepaid in whole or in part while a Warehousing Advance or Swingline Advance are outstanding against the Pledged Loan or Other Eligible Asset, Borrowers must pay to Credit Agent, without the necessity of prior demand or Notice from Credit Agent, and Borrowers authorize Credit Agent to cause the Funding Bank to charge Borrowers' Operating Account for, the amount of the prepayment, to be applied against the Warehousing Advance or Swingline Advance. 3.3 (g) The proceeds of the sale or other disposition of Pledged Assets must be paid directly by the Investor or other obligor to the Cash Collateral Account. Borrowers must give Notice to Credit Agent in writing or by telephone or by RFConnects Delivery to Credit Agent (and if by telephone, followed promptly by written Notice) of the Pledged Assets for which proceeds have been received. Upon receipt of Borrowers' Notice, Credit Agent will apply any proceeds deposited into the Cash Collateral Account to the payment of the Advances related to the Pledged Assets identified by Borrowers in their Notice, and those Pledged Assets will be considered to have been redeemed from pledge. Credit Agent is entitled to rely upon Borrowers' affirmation that deposits in the Cash Collateral Account represent payments from Investors or obligors for the purchase of the Pledged Assets specified by Borrowers in their Notice. If the payment from an Investor for the purchase of Pledged Assets is less than the outstanding Advances against the Pledged Assets identified by Borrowers in their Notice, Borrowers must pay to Credit Agent, and Borrowers authorize Credit Agent to cause the Funding Bank to charge Borrowers' Operating Account in an amount equal to that deficiency. As long as no Default or Event of Default exists, Credit Agent will return to Borrowers any excess payment from an Investor or obligor for Pledged Assets unless the Majority Lenders instruct Credit Agent otherwise. For the purposes of this Section 3.3(f), payments made by check into the Cash Collateral Account shall be deemed received when the check has cleared in accordance with Credit Agent's usual procedures. 3.3 (h) Credit Agent reserves the right to revalue any Pledged Loan that is not (i) covered by a Purchase Commitment from Fannie Mae or Freddie Mac, or (ii) to be exchanged for an Agency Security if that Agency Security is covered by a Purchase Commitment. Borrowers must pay to Credit Agent, without the necessity of prior demand or Notice from Credit Agent, and Borrowers authorize Credit Agent to cause the Funding Bank to charge Borrowers' Operating Account for, any amount required after any such revaluation to reduce the principal amount of the Warehousing Advance outstanding against the revalued Pledged Loan to an amount equal to the Advance Rate for the applicable type of Eligible Loan, multiplied by the Fair Market Value of the Mortgage Loan, as applicable 3.3 (i) If at any time the aggregate outstanding principal balance of all Term Loan Advances exceeds the Servicing Collateral Value, Borrowers shall prepay the Term Loan Advances in the amount of such excess. If at any time the aggregate outstanding principal balance of all Term Loan Advances and Warehousing Advances made against Other Eligible Assets exceeds 90% of the most recent Appraisal Value of the Servicing Portfolio (adjusted to reflect additions to and deletions from the Eligible Servicing Portfolio since the date of the relevant Appraisal), Borrowers shall prepay the following types of Advances, in order, in the amount of such excess: Warehousing Advances outstanding against Other Eligible Assets, other than Repurchased Maturing Mortgage Loans; Term Loan Advances; and Warehousing Advances outstanding against Repurchased Maturing Mortgage Loans. 3.3 (j) Amounts received by Credit Agent as proceeds of the sale or other disposition of or payments on Pledged Loans, Pledged Securities and Other Eligible Assets and applied to the principal amount of Warehousing Advances shall be allocated among Lenders as follows: (1) First, except in the case of proceeds of or payments on Other Eligible Assets, to RFC until the principal amount of Swingline Advances have been paid in full; and (2) Second, pro rata to the Lenders in accordance with their respective Percentage Shares. Amounts applied to Swingline Advances set forth above shall be deemed to be a repayment of the Warehousing Advances deemed pursuant to Section 1.3 to be outstanding against such Pledged Loans or Pledged Securities. 3.3 (k) The outstanding amount of any Swingline Advance made pursuant to Section 1.3 shall be payable in full within 1 Business Day after the date of such Advance. 3.4. Warehousing Commitment Fees Borrowers must pay each Lender, through Credit Agent, a fee ("Warehousing Commitment Fee") in the amount of 0.125% per annum of the amount of such Lender's Warehousing Commitment Amount. The Warehousing Commitment Fee is payable quarterly in advance. Credit Agent computes the Warehousing Commitment Fee on the basis of the actual number of days in each Calendar Quarter and a year of 360 days. On the Closing Date, Borrowers must pay the prorated portion of the Warehousing Commitment Fee due from the Closing Date to the last day of the current Calendar Quarter. After the Closing Date, Borrowers must pay the Warehousing Commitment Fee within 9 days after the date of Credit Agent's invoice or, if applicable, within 2 days after the date of Credit Agent's account analysis statement. If any Lender increases its Warehousing Commitment Amount, or if an Additional Lender becomes a party hereto, during any Calendar Quarter, Borrowers shall pay the prorated portion of the Warehousing Commitment Fee on the amount of such increase or the amount of such Additional Lender's Warehousing Commitment Amount from the effective date thereof to the last day of the current Calendar Quarter. If the date set forth in clause (a) of the definition of Warehousing Maturity Date occurs on a day other than the last day of a Calendar Quarter, Borrowers must pay the prorated portion of the Warehousing Commitment Fee due from the beginning of the then current Calendar Quarter to and including that date. Borrowers are not entitled to a reduction in the amount of the Warehousing Commitment Fee if (a) the Warehousing Commitment Amounts are reduced or (b) the Warehousing Commitment is terminated at the request of Borrowers or as a result of an Event of Default. If the Warehousing Commitment terminates at the request of Borrowers or as a result of an Event of Default, Borrowers must pay, on the date of termination, a Warehousing Commitment Fee on the Warehousing Commitment Amounts in effect immediately prior to termination, for the period from the date of termination to and including the date set forth in clause (a) of the definition of Warehousing Maturity Date on the date of such termination. Credit Agent's determination of the Warehousing Commitment Fee for any period is conclusive and binding, absent manifest error. 3.5. Term Loan Non-Usage Fees At the end of each Calendar Quarter during the term of this Agreement, Credit Agent will determine the average usage of the Term Loan Commitment by calculating the arithmetic daily average of the Term Loan Advances outstanding during each month during such Calendar Quarter ("Used Portion"). Credit Agent will then subtract the Used Portion from the arithmetic daily average of the Term Loan Credit Limit during each such month, and the result, if positive, will be known as the "Unused Portion." Borrowers agree to pay to Credit Agent, for the account of Lenders, a fee ("Non-Usage Fee") in the amount of 0.20% per annum of the Unused Portion during each month during such Calendar Quarter. The Non-Usage Fee is payable quarterly, in arrears. Credit Agent computes the Non-Usage Fee on the basis of the actual number of days in each month and a year of 360 days. Borrowers must pay the Non-Usage Fee within 9 days after of the date of Credit Agent's invoice or if applicable, within 2 days after the date of Credit Agent's account analysis statement. If the date set forth in clause (a) of the definition of Term Loan Maturity Date occurs on a day other than the last day of a Calendar Quarter, Borrowers must pay the prorated portion of the Non-Usage Fee due from the beginning of the then current Calendar Quarter to and including that date. Borrowers are not entitled to a reduction in the amount of the Non-Usage Fee if the Term Loan Commitment Amount is terminated at the request of Borrowers or as a result of an Event of Default. If the Term Loan Commitment terminates at the request of Borrowers or as a result of an Event of Default, Borrowers must pay, on the date of termination, a Non-Usage Fee in the amount of 0.20% per annum on (i) through the date of such termination, the Unused Portion, and (ii) from and after the date of such termination to and including the date set forth in clause (a) of the definition of Term Loan Commitment Terminaton Date, the Term Loan Credit Limit. Credit Agent's determination of the Non-Usage Fee for any period is conclusive and binding, absent manifest error. 3.6. Agent's Fee Borrowers shall pay to Credit Agent, for its own account, such fees as shall be separately agreed between Borrowers and Credit Agent. 3.7. Loan Package Fees, Wire Fees, Warehousing Fees At the time of each Warehousing Advance against an Eligible Loan, Borrowers will incur a loan package fee ("Loan Package Fee") and a wire fee ("Wire Fee"). Loan Package Fees and Wire Fees may, at Credit Agent's discretion, be billed separately or combined into a single warehousing fee ("Warehousing Fee"). Borrowers must pay all Loan Package Fees, Wire Fees or Warehousing Fees in the amount separately agreed between Borrowers and Credit Agent within 9 days after the date of Credit Agent's invoice or, if applicable, within 2 days after the date of Credit Agent's account analysis statement. 3.8. Miscellaneous Fees and Charges Borrowers must reimburse Credit Agent for all Miscellaneous Fees and Charges. Borrowers must pay all Miscellaneous Fees and Charges within 9 days after the date of Credit Agent's invoice or, if applicable, within 2 days after the date of Credit Agent's account analysis statement. 3.9. [Intentionally Omitted] 3.10. Method of Making Payments 3.10 (a) Credit Agent shall, on or before the 5th Business Day of each month, deliver to Borrowers billings for interest due and payable on Advances, the Warehousing Commitment Fees, the Term Loan Non-Usage Fees, Miscellaneous Charges payable to it and other fees and charges calculated through the end of the preceding month. On or after the 9th Business Day of each month, Borrowers shall pay to Credit Agent the full amount of interest, fees and charges billed as described above. 3.10 (b) All payments made on account of the Obligations shall be made by Borrowers to Credit Agent for distribution to Lenders, except for Balance Deficiency Fees, which shall be made directly to the applicable Lenders, and fees and charges payable to Credit Agent for its own account. All payments made on account of the Obligations shall be made without setoff or counterclaim, free and clear of and without deduction for any taxes, fees or other charges of any nature whatsoever imposed by any taxing authority, and must be received by Credit Agent by 1:30 p.m. on the day of payment, it being expressly agreed and understood that if a payment is received after 1:30 p.m. by Credit Agent such payment will be considered to have been made on the next succeeding Business Day and interest thereon shall be payable by Borrowers at the then applicable rate during such extension. No principal payments resulting from the sale of Pledged Loans or Pledged Securities shall be deemed to have been received by Credit Agent until Credit Agent has also received the Notice required under Section 3.3(g). All payments shall be made in lawful money of the United States of America in immediately available funds transferred via wire to the Cash Collateral Account. If any payment required to be made by Borrowers hereunder becomes due and payable on a day other than a Business Day, the due date thereof shall be extended to the next succeeding Business Day and interest shall be payable on Advances so extended at the then applicable rate during such extension. 3.10 (c) All amounts received by Credit Agent on account of the Obligations (except amounts received in respect of fees or expenses payable hereunder to Credit Agent for its own account or amounts payable to RFC for Swingline Advances) shall be disbursed to Lenders by wire transfer on the date of receipt if received by Credit Agent by the applicable deadlines for payment thereof as specified in Section 3.10(b) hereof, or if received later, by 12:00 noon on the next succeeding Business Day, without any interest payable by Credit Agent thereon. 3.10 (d) Without limiting any other right that Credit Agent or any Lender may have under applicable law or otherwise, while a Default or Event of Default exists, Borrowers authorize Credit Agent to cause the Funding Bank to charge Borrowers' Operating Account, for any Obligations due and owing, without the necessity of prior demand or Notice from Credit Agent. 3.11. Illegality In the event that any Lender shall have determined (which determination shall be conclusive and binding absent manifest error) at any time that the introduction of, or any change in, any applicable law, rule, regulation, order or decree or in the interpretation or the administration thereof by any Person charged with the interpretation or administration thereof, or compliance by such Lender with any request or directive (whether or not having the force of law) of any such Person, shall make it unlawful or impossible for such Lender to charge interest at the Balance Funded Rate based on Borrowers' Eligible Balances as contemplated by this Agreement, then such Lender shall forthwith give Notice thereof to Credit Agent and Borrowers describing such illegality in reasonable detail. Upon the giving of such Notice, the obligation of such Lender to charge interest at the Balance Funded Rate based on Borrowers' Eligible Balances shall be immediately suspended for the duration of such illegality and with respect to Advances bearing interest at the Balance Funded Rate, each such Advance of such Lender shall bear interest at the applicable Interest Rate described in Exhibit H. If and when such illegality ceases to exist, such Lender shall notify Credit Agent and Borrowers thereof and such suspension shall cease. 3.12. Increased Costs; Capital Requirements In the event any applicable law, order, regulation or directive issued by any governmental or monetary authority, or any change therein or in the governmental or judicial interpretation or application thereof, or compliance by any Lender with any request or directive (whether or not having the force of law) by any governmental or monetary authority: 3.12 (a) Does or shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement or any Advances made hereunder, or change the basis of taxation on payments to such Lender of principal, fees, interest or any other amount payable hereunder (except for change in the rate of tax on the overall gross or net income of such Lender by the jurisdiction in which such Lender principal office is located); or 3.12 (b) Does or shall impose, modify or hold applicable any reserve, capital requirement, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, such Lender which are not otherwise included in the determination of the interest rate as calculated hereunder; and the result of any of the foregoing is to increase the cost to such Lender of making, renewing or maintaining any Advance or to reduce any amount receivable in respect thereof or to reduce the rate of return on the capital of such Lender or any Person controlling such Lender as it relates to credit facilities in the nature of that evidenced by this Agreement, then, in any such case, Borrowers shall promptly pay any additional amounts necessary to compensate such Lender for such additional cost or reduced amounts receivable or reduced rate of return as determined by such Lender with respect to this Agreement or Advances made hereunder. If a Lender becomes entitled to claim any additional amounts pursuant to this Section, it shall notify Borrowers through Credit Agent of the event by reason of which it has become so entitled and Borrowers shall pay such amount within 15 days thereafter. A certificate as to any additional amount payable pursuant to the foregoing sentence containing the calculation thereof in reasonable detail submitted by a Lender, through Credit Agent, to Borrowers shall be conclusive in the absence of manifest error. 3.13. Withholding Taxes 3.13 (a)(1) Any and all payments by Borrowers hereunder or under the Notes shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto imposed on it by any jurisdiction (excluding, in the case of each Lender and Credit Agent, (y) franchise taxes imposed on or measured by its income by the jurisdiction under the laws of which such Lender or Credit Agent, as the case may be, is organized or any political subdivision thereof, and, (z) if such Lender or Credit Agent is entitled at such time to a total or partial exemption from withholding that is required to be evidenced by a United States Internal Revenue Service Form, taxes imposed on it by reason of any failure of such Lender or Credit Agent to deliver to Credit Agent or the Borrowers, from time to time as required by Credit Agent or Borrowers, such Form, completed in a manner reasonably satisfactory to Credit Agent or the Borrowers) (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If Borrowers shall be required by law to deduct any taxes from or in respect of any sum payable hereunder or under any Note to any Lender or Credit Agent (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.13) such Lender or Credit Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrowers shall make such deductions, and (iii) Borrowers shall pay the full amount deducted to the relevant taxing authority or other authority in accordance with applicable law. (2) Borrowers will indemnify each Lender and Credit Agent for the full amount of taxes (including, without limitation, any taxes imposed by any jurisdiction on amounts payable under this Section 3.13 paid by such Lender or Credit Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date such Lender or Credit Agent (as the case may be) makes written demand therefor. (3) Within 30 days after the date of any payment of taxes, Borrowers will furnish to Credit Agent the original or a certified copy of a receipt evidencing payment thereof. (4) Prior to the Closing Date, in the case of each Lender which is an original signatory hereto, and on the date of the assignment pursuant to which it becomes a Lender, in the case of each other Lender, and from time to time thereafter if requested by Borrowers or Credit Agent, each Lender organized under the laws of a jurisdiction outside the United States that is entitled to an exemption from United States withholding tax, or that is subject to such tax at a reduced rate under an applicable tax treaty, shall provide Credit Agent and Borrowers with an Internal Revenue Service Form W-8BEN or W-8ECI or other applicable form, certificate or document prescribed by the Internal Revenue Service of the United States certifying as to such Lender's entitlement to such exemption or reduced rate with respect to all payments to be made to such Lender hereunder and under the Notes. Unless Borrowers and Credit Agent have received forms or other documents satisfactory to them indicating that payments hereunder or under any Note are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, Borrowers or Credit Agent shall withhold taxes from such payments at the applicable statutory rate in the case of payments to or for any Lender organized under the laws of a jurisdiction outside the United States. (5) Any Lender claiming any additional amounts payable pursuant to this Section 3.13 shall use its best efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its applicable lending office to a jurisdiction in which such Lender already has a lending office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts which may thereafter accrue and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. (6) Without prejudice to the survival of any other agreement of the Borrowers hereunder, the agreements and obligations of the Borrowers contained in this Section 3.13 shall survive the payment in full of principal and interest hereunder and under the Notes. 3.13 (b) If Borrowers become obligated to pay additional amounts described in Section 3.13(a) as a result of any condition described in such Section and payment of such amount is demanded by any Lender, then unless a Default or an Event of Default shall have occurred and be continuing or such Lender has theretofore taken steps that will promptly remove or cure the conditions creating the cause for such obligation to pay such additional amounts, or has revoked such election, as the case may be, Borrowers may, on 10 Business Days' prior written Notice to Credit Agent, who shall promptly send a copy of such notice to each Lender, cause such Lender to (and such Lender shall, upon payment in full of all amounts outstanding in respect of such Lender's Advances, including accrued interest thereon, and all other amounts due and payable to such Lender hereunder) assign pursuant to Section 12.6 all of its rights and obligations under this Agreement to a Lender or other Person selected by Borrowers and reasonably acceptable to Credit Agent. End of Article 3 COLLATERAL 4.1. Grant of Security Interest As security for the payment of the Notes and for the performance of all of Borrowers' Obligations, Borrowers grant a security interest to Credit Agent, for the benefit of Lenders, in all of Borrowers' right, title and interest in and to the following described property ("Collateral"): 4.1 (a) All amounts advanced by Credit Agent to or for the account of Borrowers under this Agreement to fund a Mortgage Loan until that Mortgage Loan is closed and those funds disbursed. 4.1 (b) All Mortgage Loans, including all Mortgage Notes, Mortgages and Security Agreements evidencing or securing those Mortgage Loans, that are delivered or caused to be delivered to Credit Agent or any Lender (including delivery to a third party on behalf of Credit Agent), or that otherwise come into the possession, custody or control of Credit Agent or any Lender (including the possession, custody or control of a third party on behalf of Credit Agent) for the purpose of pledge or in respect of which Credit Agent has made an Advance under this Agreement (collectively, "Pledged Loans"). 4.1 (c) All Mortgage-backed Securities that are created in whole or in part on the basis of Pledged Loans or that are delivered or caused to be delivered to Credit Agent or any Lender (including delivery to a third party on behalf of Credit Agent), or that otherwise come into the possession, custody or control of Credit Agent or any Lender (including the possession, custody or control of a third party on behalf of Credit Agent) or that are registered by book-entry in the name of Credit Agent or any Lender (including registration in the name of a third party on behalf of Credit Agent), in each case for the purpose of pledge, or in respect of which an Advance has been made under this Agreement (collectively, "Pledged Securities"). 4.1 (d) All private mortgage insurance and all commitments issued by the VA or FHA to insure or guarantee any Mortgage Loans included in the Pledged Loans, all Purchase Commitments held by Borrowers covering Pledged Loans or Pledged Securities, and all proceeds from the sale of Pledged Loans or Pledged Securities to Investors pursuant to those Purchase Commitments; and all personal property, contract rights, servicing rights or contracts and servicing fees and income or other proceeds, amounts and payments payable to Borrowers as compensation or reimbursement, accounts, payments, intangibles and general intangibles of every kind relating to Pledged Loans, Pledged Securities, Purchase Commitments, VA commitments or guaranties, FHA commitments, private mortgage insurance and commitments, and all other documents or instruments relating to Pledged Loans and Pledged Securities, including any interest of Borrowers in any fire, casualty or hazard insurance policies and any awards made by any public body or decreed by any court of competent jurisdiction for a taking or for degradation of value in any eminent domain proceeding as the same relate to Pledged Loans. 4.1 (e) All Servicing Contracts now owned or created or acquired by Borrowers after the date of this Agreement that do not, by their terms, prohibit the creation of a Lien thereon in favor of Credit Agent (collectively, "Pledged Servicing Contracts"). 4.1 (f) All rights of Borrowers to receive payments under or by virtue of the Servicing Contracts owned by Borrowers, whether as servicing fees, servicing income, damages, amounts payable upon the cancellation or termination of those Servicing Contracts, interest on the foregoing, or otherwise (collectively, "Pledged Servicing Payments"). 4.1 (g) All agreements under which any Servicing Contract owned by Borrowers was acquired or is sold by Borrowers (including the acquisition or sale of a Person that owns the Servicing Contract), and all documents executed or delivered in connection with that acquisition or sale (collectively, "Pledged Servicing Acquisition/Disposition Agreements"). 4.1 (h) All accounts or general intangibles owned by Borrowers ("Receivables") for the payment of money against (1) VA under a VA guaranty of, FHA or a private mortgage insurer under an FHA or private insurer's mortgage insurance policy insuring payment of, or any other Person under any other agreement (including a Servicing Contract) relating to, all or part of a defaulted Mortgage Loan repurchased by Borrowers from an investor or out of a pool of Mortgage Loans serviced by Borrowers, (2) obligors and their accounts, Fannie Mae, Freddie Mac, Ginnie Mae or any other investor under a Servicing Contract covering, or out of the proceeds of any sale of or foreclosure sale in respect of, any Mortgage Loan (A) repurchased by Borrowers out of a pool of Mortgage Loans serviced by Borrowers, or (B) being serviced by Borrowers, in either case, for the reimbursement of real estate taxes or assessments, or casualty or liability insurance premiums, paid by Borrowers in connection with Mortgage Loans, and (3) obligors and their accounts, or Fannie Mae, Freddie Mac, Ginnie Mae or any other investor under or in respect of, or out of the proceeds of any sale or foreclosure sale in respect of, any Mortgage Loans serviced by Borrowers for repayment of advances made by Borrowers to cover shortages in principal and interest payments. 4.1 (i) All escrow accounts, documents, instruments, files, surveys, certificates, correspondence, appraisals, computer programs, tapes, discs, cards, accounting records (including all information, records, tapes, data, programs, discs and cards necessary or helpful in the administration or servicing of the Collateral) and other information and data of Borrowers relating to the Collateral. 4.1 (j) All cash, whether now existing or acquired after the date of this Agreement, delivered to or otherwise in the possession of Credit Agent or any Lender, the Funding Bank or Credit Agent's agent, bailee or custodian or designated on the books and records of Borrowers as assigned and pledged to Credit Agent, including all cash deposited in the Cash Collateral Account, the Check Disbursement Account and the Wire Disbursement Account. 4.1 (k) All Hedging Arrangements related to the Collateral ("Pledged Hedging Arrangements") and Borrowers' accounts in which those Hedging Arrangements are held ("Pledged Hedging Accounts"), including all rights to payment arising under the Pledged Hedging Arrangements and the Pledged Hedging Accounts, except that Credit Agent's security interest in the Pledged Hedging Arrangements and Pledged Hedging Accounts applies only to benefits, including rights to payment, related to the Collateral. 4.1 (l) All cash and non-cash proceeds of the Collateral, including all dividends, distributions and other rights in connection with, and all additions to, modifications of and replacements for, the Collateral, and all products and proceeds of the Collateral, together with whatever is receivable or received when the Collateral or proceeds of Collateral are sold, collected, exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary, including all rights to payment with respect to any cause of action affecting or relating to the Collateral or proceeds of Collateral. 4.2. Maintenance of Collateral Records As long as the Commitments are outstanding or there remain any Obligations to be paid or performed under this Agreement or under any other Loan Document, Borrowers must preserve and maintain, at their chief executive office and principal place of business or in a regional office approved by Credit Agent, or in the office of a computer service bureau engaged by Borrowers and approved by Credit Agent and, upon request, make available to Credit Agent or Lenders the originals, or copies in any case where the originals have been delivered to Credit Agent or to an Investor, of the Mortgage Notes, Mortgages and Security Agreements included in Pledged Loans, Mortgage-backed Securities delivered to Credit Agent as Pledged Securities, Purchase Commitments, and all related Mortgage Loan documents and instruments, and all files, surveys, certificates, correspondence, appraisals, computer programs, tapes, discs, cards, accounting records and other information and data relating to the Collateral. 4.3. Release of Security Interest in Pledged Loans and Pledged Securities 4.3 (a) Except as provided in Section 4.3(b), Credit Agent will release its security interest in the Pledged Loans only against payment to Credit Agent of the Release Amount in connection with those Pledged Loans. If Pledged Loans are transferred to a pool custodian or an Investor for inclusion in a Mortgage Pool and Credit Agent's security interest in the Pledged Loans included in the Mortgage Pool is not released before the issuance of the related Mortgage-backed Security, then that Mortgage-backed Security, when issued, is a Pledged Security, Credit Agent's security interest continues in the Pledged Loans backing that Pledged Security and Credit Agent is entitled to possession of the Pledged Security in the manner provided in this Agreement. 4.3 (b) If Pledged Loans are transferred to an Approved Custodian and included in an Eligible Mortgage Pool, Credit Agent's security interest in the Pledged Loans included in the Eligible Mortgage Pool will be released upon the delivery of the Agency Security to Credit Agent (including delivery to or registration in the name of a third party on behalf of Credit Agent) and that Agency Security is a Pledged Security. Credit Agent's security interest in that Pledged Security will be released only against payment to Credit Agent of the Release Amount in connection with the Mortgage Loans backing that Pledged Security. 4.3 (c) Credit Agent has the exclusive right to possession of all Pledged Securities or, if Pledged Securities are issued in book-entry form or issued in certificated form and delivered to a clearing corporation (as that term is defined in the Uniform Commercial Code of Minnesota) or its nominee, Credit Agent has the right to have the Pledged Securities registered in the name of a securities intermediary (as that term is defined in the Uniform Commercial Code of Minnesota) in an account containing only customer securities and credited to an account of Credit Agent with respect to which Credit Agent is the entitlement holder. Credit Agent has no duty or obligation to deliver Pledged Securities to an Investor or to credit Pledged Securities to the account of an Investor or an Investor's designee except against payment for those Pledged Securities. Borrowers acknowledge that Credit Agent may enter into one or more standing arrangements with securities intermediaries with respect to Pledged Securities issued in book entry form or issued in certificated form and delivered to a clearing corporation or its designee, under which the Pledged Securities are registered in the name of the securities intermediary, and Borrowers agree, upon request of Credit Agent, to execute and deliver to those securities intermediaries Borrowers' written concurrence in any such standing arrangements. 4.3 (d) If no Default or Event of Default occurs, Borrowers may redeem a Pledged Loan or Pledged Security from Credit Agent's security interest by notifying Credit Agent of its intention to redeem the Pledged Loan or Pledged Security from pledge and either (1) paying, or causing an Investor to pay, to Credit Agent, for application as a prepayment on the principal balance of the Warehousing Note, the Release Amount in connection with the Pledged Loan or the Pledged Loans backing that Pledged Security, or (2) delivering substitute Collateral that, in addition to being acceptable to Credit Agent in its sole discretion will, when included with the remaining Collateral, result in a Warehousing Collateral Value of all Collateral held by Credit Agent that is at least equal to the aggregate outstanding Warehousing Advances (other than Warehousing Advances against Other Eligible Assets). 4.3 (e) After a Default or Event of Default occurs, Credit Agent may, with no liability to Borrowers or any Person, continue to release its security interest in any Pledged Loan or Pledged Security against payment of the Release Amount for that Pledged Loan or for the Pledged Loans backing that Pledged Security. 4.3 (f) The amount to be paid by Borrowers to obtain the release of Credit Agent's security interest in a Pledged Loan ("Release Amount") will be (1) in connection with the sale of a Pledged Loan by Borrowers, the payment required in any bailee letter pursuant to which Credit Agent ships that Pledged Loan to an Investor, Approved Custodian, pool custodian or other party, (2) in connection with the sale of a Pledged Loan by Credit Agent while an Event of Default exists, the amount paid to Credit Agent in a commercially reasonable disposition of that Pledged Loan and (3) otherwise, until an Event of Default occurs, the principal amount of the Warehousing Advance outstanding against the Pledged Loan. 4.4. Release of Security Interest in Other Eligible Assets Assets other than Pledged Loans, Pledged Securities and related Collateral will be released from Credit Agent's security interest in connection with any sale thereof permitted pursuant to this Agreement, provided that any prepayment of Advances required in connection with or a result of such sale under Section 3.3, including Section 3.3(f), 3.3(g) and 3.3(i), is made prior to, or at the time of, such sale. 4.5. Collection and Servicing Rights 4.5 (a) If no Event of Default exists, Borrowers may service and receive and collect directly all sums payable to Borrowers in respect of the Collateral other than proceeds of any Purchase Commitment or proceeds of the sale of any Collateral. All proceeds of any Purchase Commitment or any other sale of Collateral must be paid directly to the Cash Collateral Account for application as provided in this Agreement. 4.5 (b) After an Event of Default, Credit Agent or its designee is entitled to service and receive and collect all sums payable to Borrowers in respect of the Collateral, and in such case (1) Credit Agent or its designee in its discretion may, in its own name, in the name of Borrowers or otherwise, demand, sue for, collect or receive any money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but Credit Agent has no obligation to do so, (2) Borrowers must, if Credit Agent requests it to do so, hold in trust for the benefit of Credit Agent and immediately pay to Credit Agent at its office designated by Notice, all amounts received by Borrowers upon or in respect of any of the Collateral, advising Credit Agent as to the source of those funds and (3) all amounts so received and collected by Credit Agent will be held by it as part of the Collateral. 4.6. Return of Collateral at End of Commitments If (a) the Commitments have expired or been terminated, and (b) no Advances, interest or other Obligations are outstanding and unpaid, Credit Agent will release its security interest and will deliver all Collateral in its possession to Borrowers at Borrowers' expense. Borrowers' acknowledgement or receipt for any Collateral released or delivered to Borrowers under any provision of this Agreement is a complete and full acquittance for the Collateral so returned, and Credit Agent is discharged from any liability or responsibility for that Collateral. 4.7. Delivery of Collateral Documents 4.7 (a) Credit Agent may deliver documents relating to the Collateral to Borrowers for correction or completion under a Trust Receipt. 4.7 (b) If no Default or Event of Default exists, upon delivery by Borrowers to Credit Agent of shipping instructions pursuant to the applicable Exhibit B, Credit Agent will deliver the Mortgage Notes evidencing Pledged Loans or Pledged Securities, together with all related loan documents and pool documents previously received by Credit Agent under the requirements of the applicable Exhibit B, to the designated Investor or Approved Custodian or to another party designated by Borrowers and acceptable to Credit Agent in its sole discretion. 4.7 (c) If a Default or Event of Default exists, Credit Agent may, without liability to Borrowers or any other Person, continue to deliver Pledged Loans or Pledged Securities, together with all related loan documents and pool documents in Credit Agent's possession, to the applicable Investor, or Approved Custodian or to another party acceptable to Credit Agent in its sole discretion. 4.7 (d) Upon receipt of Notice from Borrowers under Section 3.3(g), and payment of the Release Amount with respect to a Pledged Loan identified by Borrowers, Credit Agent will, at Borrowers' request, release to Borrowers any Collateral Documents relating to the redeemed Pledged Loan or the Pledged Loans backing a Pledged Security that Credit Agent has in its possession and that have not been delivered to an Investor or Approved Custodian; provided, that Credit Agent shall, if requested by an Investor or Approved Custodian or consistent with past practices, provide the Collateral Documents for any Pledged Loan purchased to such Investor, and the Collateral Documents for any Pledged Loan backing Mortgage-backed Securities to the Approved Custodian. 4.8. Borrowers Remains Liable Anything herein to the contrary notwithstanding, Borrowers shall remain liable under each item of the Collateral to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms thereof and any other agreement giving rise thereto, and in accordance with and pursuant to the terms and provisions thereof. Whether or not Credit Agent has exercised any rights in any of the Collateral, neither Credit Agent, nor any Lender shall have any obligation or liability under any of the Collateral (or any agreement giving rise thereto) by reason of or arising out of this Agreement or the receipt by Credit Agent of any payment relating thereto, nor shall Credit Agent nor any Lender be obligated in any manner to perform any of the obligations of Borrowers under or pursuant to any of the Collateral (or any agreement giving rise thereto) to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any of the Collateral (or any agreement giving rise thereto), to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. 4.9. Further Assurance Borrowers authorize Credit Agent to file any financing statements, and Borrowers agree to take whatever other actions are requested by Credit Agent to perfect and continue Credit Agent's security interest in the Collateral. Borrowers will execute and cooperate with Credit Agent in obtaining from third parties control agreements in form satisfactory to Credit Agent with respect to collateral consisting of investment property, deposit accounts, letter-of-credit rights, and electronic chattel paper. End of Article 0 CONDITIONS PRECEDENT 5.1. Initial Advance The Lenders' obligation to make the initial Advance under this Agreement is subject to the satisfaction, in the sole discretion of Credit Agent, of the following conditions precedent: 5.1 (a) Credit Agent must receive the following, all of which must be satisfactory in form and content to Credit Agent, in its sole discretion: (1) The Notes and this Agreement duly executed by Borrowers. (2) A certificate of CNI stating that there has been no change in either CNI's articles or certificate of incorporation or bylaws since those delivered in connection with the Existing Agreement and there has been no change in the certificate as to the incumbency and authenticity of the signatures of the officers of CNI delivered pursuant to Section 5.1(a)(5) of the Existing Agreement, and attaching (and certifying to) CNI's resolutions authorizing the execution, delivery and performance of this Agreement and the other Loan Documents, each applicable Advance Request and all other agreements, instruments or documents to be delivered by such Borrower under this Agreement; and certificates of good standing dated within 60 days prior to the date of this Agreement. (3) A certificate of AHMC stating that there has been no change in either AHMC's articles or certificate of incorporation or bylaws since those delivered in connection with the Existing Agreement and that there has been no change in the certificate as to the incumbency and authenticity of the signatures of the officers of AMHC delivered pursuant to Section 5.1(a)(5) of the Existing Agreement, and attaching (and certifying to) AHMC's resolutions authorizing the execution, delivery and performance of this Agreement and the other Loan Documents, each applicable Advance Request and all other agreements, instruments or documents to be delivered by such Borrower under this Agreement; and certificates of good standing dated within 60 days prior to the date of this Agreement. (4) A reaffirmation of Guaranty, on the form prescribed by Credit Agent, duly executed by AH Holdings. (5) A certificate of AH Holdings stating that there has been no change in either AH Holding's articles or certificate of incorporation or bylaws since those delivered in connection with the Existing Agreement and that there has been no change in the certificate as to the incumbency and authenticity of the signatures of the officers of AH Holdings delivered pursuant to Section 5.1(a)(9) of the Existing Agreement and attaching AH Holdings' resolutions authorizing the execution, delivery and performance of the Guaranty, as modified by the reaffirmation referred to in Section 5.1(a)(4) of this Agreement, the other Loan Documents and all other agreements, instruments or documents to be delivered by AH Holdings under this Agreement or the Guaranty; and certifiates of good standing dated within 60 days prior to the date of this Agreement. (6) AHMAI's articles or certificate of incorporation, together with all amendments, as certified by the Secretary of State of Maryland, AHMAI's bylaws, together with all amendments, certified by the corporate secretary or assistant secretary of AHMAI and certificates of good standing dated within 60 days prior to the date of this Agreement. (7) A resolution of the board of directors of AHMAI, certified as of the date of this Agreement by its corporate secretary, authorizing the execution, delivery and performance of this Agreement, the other Loan Documents, each applicable Advance Request and all other agreements, instruments or documents to be delivered by such Borrower under this Agreement. (8) A certificate as to the incumbency and authenticity of the signatures of the officers of AHMAI executing this Agreement, the other Loan Documents, each Applicable Advance Request and all other agreements, instruments or documents to be delivered by AHMAI under the Agreement (Credit Agent and Lenders being entitled to rely on that certificate until a new incumbency certificate has been furnished to Credit Agent). (9) The Guaranty of AHMIC, on the form prescribed by Credit Agent, duly executed by AHMIC. (10) AHMIC 's articles or certificate of incorporation, together with all amendments, as certified by the Secretary of State of Maryland, bylaws, together with all amendments, certified by the corporate secretary of AHMIC and certificates of good standing dated within 60 days prior to the date of this Agreement. (11) A resolution of the board of directors of AHMIC, certified as of the date of this Agreement by its corporate secretary, authorizing the execution, delivery and performance of the Guaranty, and all other agreements, instruments or documents to be delivered by AHMIC under this Agreement. (12) A certificate as to the incumbency and authenticity of the signatures of the officers of AHMIC executing the Guaranty and all other agreements, instruments or documents to be delivered by AHMIC under this Agreement (Credit Agent and Lenders being entitled to rely on that certificate until a new incumbency certificate has been furnished to Credit Agent). (13) Assumed Name Certificates dated within 30 days of the date of this Agreement for any assumed name used by any Borrower in the conduct of its business. (14) A favorable written opinion of counsel to Borrowers and Guarantors, addressed to Lenders and dated as of the date of this Agreement, covering such matters as Credit Agent may reasonably request. (15) Uniform Commercial Code, tax lien and judgment searches of the appropriate public records for each Borrower that do not disclose the existence of any prior Lien on the Collateral other than in favor of Credit Agent or as permitted under this Agreement. (16) Copies of the certificates, documents or other written instruments that evidence each Borrower's eligibility described in Section 9.1, all in form and substance satisfactory to Credit Agent. (17) Copies of each Borrower's errors and omissions insurance policy or mortgage impairment insurance policy, and blanket bond coverage policy, or certificates in lieu of policies, showing compliance by each Borrower as of the date of this Agreement with the related provisions of Section 7.9. (18) Receipt by Credit Agent of any fees due on the date of this Agreement. 5.1 (b) If any Borrower is indebted to any of its directors, officers, shareholders or Affiliates, as of the date of this Agreement, which indebtedness has a term of more than 1 year or is in excess of $100,000, the Person to whom such Borrower is indebted must have executed a Subordination of Debt Agreement, on the form prescribed by Credit Agent; and Credit Agent must have received an executed copy of that Subordination of Debt Agreement, certified by the corporate secretary of such Borrowers to be true and complete and in full force and effect as of the date of the initial Advance. 5.1 (c) Borrowers must not have incurred any material liabilities, direct or contingent, other than in the ordinary course of its business, since the Audited Statement Date. 5.2. Each Advance Lenders' obligation to make the initial and each subsequent Advance is subject to the satisfaction, in the sole discretion of Credit Agent, as of the date of each Advance, of the following additional conditions precedent: 5.2 (a) Borrowers must have delivered to Credit Agent, the applicable Advance Request and Collateral Documents required by, and must have satisfied the procedures set forth in, Article 2 and the Exhibits described in that Article. All items delivered to Credit Agent must be satisfactory to Credit Agent in form and content, and Credit Agent may reject any item that does not satisfy the requirements of this Agreement or the related Purchase Commitment. 5.2 (b) Credit Agent must have received evidence satisfactory to it confirming the making and/or continuation of any book entry or the due filing and recording in all appropriate offices of all financing statements and other instruments necessary to perfect the security interest of Credit Agent in the Collateral under the Uniform Commercial Code or other applicable law. 5.2 (c) The representations and warranties of Borrowers contained in Article 6 and 9 and the representations and warranties of each Guarantor under the Guaranty must be accurate and complete in all material respects as if made on and as of the date of each Advance. 5.2 (d) Borrowers must have performed all agreements to be performed by them under this Agreement and after giving effect to the requested Advance no Default or Event of Default may exists under this Agreement. 5.2 (e) Each Guarantor must have performed all agreements to be performed by each Guarantor under the Guaranty. Delivery of an Advance Request by Borrowers will be deemed a representation by Borrowers and Guarantors that all conditions set forth in this Section have been satisfied as of the date of the Advance. 5.3. Force Majeure Notwithstanding Borrowers' satisfaction of the conditions set forth in this Agreement, Credit Agent and Lenders have no obligation to make an Advance if Lenders or Credit Agent are unable to deliver such funds as a result of any fire or other casualty, failure of power, strike, lockout or other labor trouble, banking moratorium, embargo, sabotage, confiscation, condemnation, riot, civil disturbance, insurrection, act of terrorism, war or other activity of armed forces, act of God or other similar reason beyond the control of Lenders and Credit Agent. Lenders and Credit Agent will make the requested Advance as soon as reasonably possible following the occurrence of such an event. End of Article 0 GENERAL REPRESENTATIONS AND WARRANTIES Borrowers represent and warrant to Credit Agent and Lenders as of the date of this Agreement and as of the date of each Advance Request and the making of each Advance, that: 6.1. Place of Business Each Borrower's chief executive office and principal place of business is: c/o American Home Mortgage Holdings, Inc., 520 Broadhollow Road, Melville, NY 11747. 6.2. Organization; Good Standing; Subsidiaries Each Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland (in the case of CNI and AHMAI) and the State of New York (in the case of AHMC), respectively, and has the full legal power and authority to own its property and to carry on its business as currently conducted. Each Borrower is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction in which the transaction of its business makes qualification necessary, except in jurisdictions, if any, where a failure to be in good standing has no material adverse effect on such Borrower's business, operations, assets or financial condition as a whole. For the purposes of this Agreement, good standing includes qualification for all licenses and payment of all taxes required in the jurisdiction of its incorporation and in each jurisdiction in which a Borrower transacts business. Borrowers have no Subsidiaries except as set forth on Exhibit D, which sets forth with respect to each Subsidiary, its name, address, jurisdiction of organization, each state in which it is qualified to do business and the percentage ownership of its capital stock by a Borrower. Each of Borrowers' Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, and has the full legal power and authority to own its property and to carry on its business as currently conducted. 6.3. Authorization and Enforceability Each Borrower has the power and authority to execute, deliver and perform this Agreement, the Notes and other Loan Documents to which it is party and to make the borrowings under this Agreement. The execution, delivery and performance by each Borrower of this Agreement, the Notes and the other Loan Documents to which it is party and the making of the borrowings under this Agreement and the Notes, have been duly and validly authorized by all necessary corporate action on the part of each Borrower (none of which actions has been modified or rescinded, and all of which actions are in full force and effect) and do not and will not (a) conflict with or violate any provision of law, of any judgments binding upon any Borrower, or of the articles of incorporation or by-laws of any Borrower, or (b) conflict with or result in a breach of, constitute a default or require any consent under, or result in or require the acceleration of any indebtedness of any Borrower under any agreement, instrument or indenture to which any Borrower is a party or by which any Borrower or its property may be bound or affected, or result in the creation of any Lien upon any property or assets of any Borrower (other than the Lien on the Collateral granted under this Agreement). This Agreement, the Notes and the other Loan Documents constitute the legal, valid and binding obligations of each Borrower, enforceable in accordance with their respective terms, except as limited by bankruptcy, insolvency or other such laws affecting the enforcement of creditors' rights. 6.4. Authorization and Enforceability of Guaranty Each non-individual Guarantor has the power and authority, and each individual Guarantor has the legal capacity to execute, deliver and perform the Guaranty. The Guaranty constitutes the legal, valid, and binding obligation of each Guarantor, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other such laws affecting the enforcement of creditors' rights. 6.5. Approvals The execution and delivery of this Agreement, the Notes and the other Loan Documents and the performance of each Borrower's obligations under this Agreement, the Notes and the other Loan Documents and the validity and enforceability of this Agreement, the Notes and the other Loan Documents do not require any license, consent, approval or other action of any state or federal agency or governmental or regulatory authority other than those that have been obtained and remain in full force and effect. 6.6. Financial Condition The balance sheet of Borrowers (and, if applicable, Borrowers' Subsidiaries, on a consolidated basis) as of each Statement Date, and the related statements of income, cash flows and changes in stockholders' equity for the fiscal period ended on each Statement Date, furnished to Credit Agent, fairly present the financial condition of Borrowers (and, if applicable, Borrowers' Subsidiaries) as at that Statement Date and the results of its operations for the fiscal period ended on that Statement Date. Borrowers had, on each Statement Date, no known material liabilities, direct or indirect, fixed or contingent, matured or unmatured, or liabilities for taxes, long-term leases or unusual forward or long-term commitments not disclosed by, or reserved against in, those financial statements, and at the present time there are no material unrealized or anticipated losses from any loans, advances or other commitments of Borrowers except as previously disclosed to Credit Agent in writing. Those financial statements were prepared in accordance with GAAP applied on a consistent basis throughout the periods involved. Since the Audited Statement Date, there has been no material adverse change in the business, operations, assets or financial condition of Borrowers (and, if applicable, Borrowers' Subsidiaries), nor is any Borrower aware of any state of facts that (with or without notice or lapse of time or both) would or could result in any such material adverse change. 6.7. Litigation There are no actions, claims, suits or proceedings pending or, to Borrower's knowledge, threatened or reasonably anticipated against or affecting any Borrower or any Subsidiary of Borrowers in any court or before any arbitrator or before any government commission, board, bureau or other administrative agency that, if adversely determined, may reasonably be expected to result in a material adverse change in any Borrower's business, operations, assets or financial condition as a whole, or that would affect the validity or enforceability of this Agreement, the Notes or any other Loan Document. 6.8. Compliance with Laws Neither any of the Borrowers nor any Subsidiary of any of the Borrowers is in violation of any provision of any law, or of any judgment, award, rule, regulation, order, decree, writ or injunction of any court or public regulatory body or authority that could result in a material adverse change in any Borrower's business, operations, assets or financial condition as a whole or that would affect the validity or enforceability of this Agreement, the Notes or any other Loan Document. 6.9. Regulation U None of the Borrowers is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no part of the proceeds of any Advance made under this Agreement will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. 6.10. Investment Company Act None of the Borrowers is an "investment company" or controlled by an "investment company" within the meaning of the Investment Company Act. 6.11. Payment of Taxes Each Borrower, and each of its Subsidiaries, has filed or caused to be filed all federal, state and local income, excise, property and other tax returns that are required to be filed with respect to the operations of such Borrower and its Subsidiaries, all such returns are true and correct and Borrowers and each of its Subsidiaries has paid or caused to be paid all taxes shown on those returns or on any assessment, to the extent that those taxes have become due, including all FICA payments and withholding taxes, if appropriate. The amounts reserved as a liability for income and other taxes payable in the financial statements described in Section 6.6 are sufficient for payment of all unpaid federal, state and local income, excise, property and other taxes, whether or not disputed, of each Borrower and its Subsidiaries accrued for or applicable to the period and on the dates of those financial statements and all years and periods prior to those financial statements and for which such Borrower and its Subsidiaries may be liable in their own right or as transferee of the assets of, or as successor to, any other Person. No tax Liens have been filed and no material claims are being asserted against any Borrower, any Subsidiary of any Borrower or any property of any Borrower or any Subsidiary of any Borrower with respect to any taxes, fees or charges. 6.12. Agreements Neither any of the Borrowers nor any Subsidiary of any Borrower is a party to any agreement, instrument or indenture or subject to any restriction materially and adversely affecting its business, operations, assets or financial condition, except as disclosed in the financial statements described in Section 6.6. Neither any of the Borrowers nor any Subsidiary of any Borrower is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement, instrument, or indenture which default could result in a material adverse change in any Borrower's business, operations, properties or financial condition as a whole. No holder of any indebtedness of any Borrower or of any of its Subsidiaries has given notice of any asserted default under that indebtedness, and no liquidation or dissolution of any Borrower or of any of its Subsidiaries and no receivership, insolvency, bankruptcy, reorganization or other similar proceedings relative to any Borrower or of any of its Subsidiaries or any of its or their properties is pending, or to the knowledge of any Borrower, threatened. 6.13. Title to Properties Each Borrower, and each Subsidiary of such Borrower, has good, valid, insurable and (in the case of real property) marketable title to all of its properties and assets (whether real or personal, tangible or intangible) reflected on the financial statements described in Section 6.6, except for those properties and assets that any Borrower has disposed of since the date of those financial statements either in the ordinary course of business or because they were no longer used or useful in the conduct of such Borrower's or the Subsidiary's business. All of each Borrower's properties and assets are free and clear of all Liens except as disclosed in each Borrower's financial statements. 6.14. ERISA Each Plan is in compliance with all applicable requirements of ERISA and the Internal Revenue Code and with all material applicable rulings and regulations issued under the provisions of ERISA and the Internal Revenue Code setting forth those requirements, except where any failure to comply would not result in a material loss to any Borrower or any ERISA Affiliate. All of the minimum funding standards or other contribution obligations applicable to each Plan have been satisfied. No Plan is a defined-benefit pension plan subject to Title IV of ERISA, and there is no Multiemployer Plan. 6.15. No Retiree Benefits Except as required under Section 4980B of the Internal Revenue Code, Section 601 of ERISA or applicable state law, neither any of the Borrowers nor, if applicable, any Subsidiary of any Borrower is obligated to provide post-retirement medical or insurance benefits with respect to employees or former employees. 6.16. Assumed Names None of the Borrowers originates Mortgage Loans or otherwise conducts business under any names other than its legal name and the assumed names set forth on Exhibit G. Each Borrower has made all filings and taken all other action as may be required under the laws of any jurisdiction in which it originates Mortgage Loans or otherwise conducts business under any assumed name. No Borrower's use of the assumed names set forth on Exhibit G conflicts with any other Person's legal rights to any such name, or otherwise gives rise to any liability by any Borrower to any other Person. Borrowers may amend Exhibit G to add or delete any assumed names used by any Borrower to conduct business. An amendment to Exhibit G to add an assumed name is not effective until a Borrower has delivered to Credit Agent an assumed name certificate in the jurisdictions in which the assumed name is to be used, which must be satisfactory in form and content to Credit Agent, in its sole discretion. In connection with any amendment to delete a name from Exhibit G, Each Borrower represents and warrants that it has ceased using that assumed name in all jurisdictions. 6.17. Servicing Exhibit C is a true and complete list of each Borrower's Servicing Portfolio. Each of Borrower's Servicing Contracts are in full force and effect, and are unencumbered by Liens other than Liens disclosed in Exhibit C. No default or event that, with notice or lapse of time or both, would become a default, exists under any of any Borrower's Servicing Contracts. End of Article 0 AFFIRMATIVE COVENANTS As long as the Commitments are outstanding or there remain any Obligations to be paid or performed under this Agreement or under any other Loan Document, each Borrower must: 7.1. Payment of Obligations Punctually pay or cause to be paid all Obligations, including the Obligations payable under this Agreement and under the Notes, in accordance with their terms. 7.2. Financial Statements Deliver to Credit Agent: 7.2 (a) As soon as available and in any event within 45 days after the end of each month, including the last month of Borrowers' fiscal year, an interim combined statement of income of Borrowers (and, if applicable, Borrowers' Subsidiaries, on a consolidated basis) for the immediately preceding month and for the period from the beginning of the fiscal year to the end of that month, and the related balance sheet as at the end of the immediately preceding month, all in reasonable detail, subject, however, to year-end audit adjustments. 7.2 (b) As soon as available and in any event within 90 days after the end of each fiscal year of Borrowers, fiscal year-end combined statements of income, changes in stockholders' equity and cash flow of Borrowers (and, if applicable, Borrowers' Subsidiaries, on a consolidated basis) for that year, and the related balance sheet as of the end of that year (setting forth in comparative form the corresponding figures for the preceding fiscal year), all in reasonable detail and accompanied by (1) an opinion as to those financial statements in form and substance satisfactory to Credit Agent and prepared by independent certified public accountants of recognized standing acceptable to Credit Agent and (2) any management letters, management reports or other supplementary comments or reports delivered by those accountants to Borrowers or their boards of directors. 7.2 (c) Together with each delivery of financial statements required by this Section, a Compliance Certificate substantially in the form of Exhibit E. 7.2 (d) As soon as available and in any event within 90 days after the end of each fiscal year of AHMIC, fiscal year-end consolidating statements of income, changes in stockholders' equity and cash flows of AHMIC (and, if applicable, AHMIC's Subsidiaries, on a consolidated basis) for the most recent fiscal year, the related balance sheet as at the end of that year (setting forth in comparative form the corresponding figures for the preceding fiscal year), all in reasonable detail and accompanied by (1) an opinion as to those financial statements in form and substance satisfactory to Credit Agent and prepared by independent certified public accountants of recognized standing acceptable to Credit Agent and (2) any management letters, management reports or other supplementary comments or reports delivered by those accountants to AHMIC. 7.2 (e) Copies of all regular or periodic financial and other reports that AHMIC files with the Securities and Exchange Commission or any successor governmental agency or other entity. 7.3. Other Borrowers Reports Deliver to Credit Agent: 7.3 (a) As soon as available and in any event within 45 days after the end of each month, a consolidated report ("Servicing Portfolio Report") as of the end of such month, as to all Mortgage Loans, the servicing rights to which are owned by Borrowers (specified by investor type, recourse and non-recourse) regardless of whether the Mortgage Loans are Pledged Loans. The Servicing Portfolio Report must indicate which Mortgage Loans (1) are current and in good standing, (2) are more than 30, 60 or 90 days past due, (3) are the subject of pending bankruptcy or foreclosure proceedings, or (4) have been converted (through foreclosure or other proceedings in lieu of foreclosure) into real estate owned by Borrowers. The Servicing Portfolio Report must segregate the information relating to the Pledged Mortgage Loans from other information. 7.3 (b) As soon as available and in any event within 45 days after the end of each Calendar Quarter of Borrowers, or more frequently upon Credit Agent's request, an Appraisal of the Eligible Servicing Portfolio. If Borrowers fail to obtain an Appraisal required by this Section within 45 days after the end of each Calendar Quarter, or within 30 days after Notice from Credit Agent, Credit Agent may obtain an Appraisal and Borrowers must reimburse Credit Agent for its costs and expenses incurred in connection with that Appraisal. 7.3 (c) As soon as available and in any event within 45 days after the end of each month, a consolidated loan production report as of the end of that month, presenting the total dollar volume and the number of Mortgage Loans originated and closed or purchased during that month and for the fiscal year-to-date, specified by property type and loan type for Borrowers. 7.3 (d) As soon as available and in any event within 45 days after the end of each month, a commitment summary and pipeline report, substantially in the form of Exhibit J, as of the end of that month. 7.3 (e) Unless the Funding Bank has previously provided Credit Agent with a copy of the Funding Bank's monthly statement for the Check Disbursement Account, as soon as available and in any event within 30 days after the end of each month, a copy of that monthly statement. 7.3 (f) As soon as available and in any event within 45 days after the end of each month, a report as of the end of that month detailing all requests that Borrowers repurchase Mortgage Loans from an Investor or out of an Eligible Mortgage Pool, the status of each such request and any indemnification or similar agreement to which any Borrower is a party in connection with any such request. 7.3 (g) Other reports in respect of Pledged Assets, including copies of purchase confirmations issued by Investors purchasing Pledged Loans from Borrowers, in such detail and at such times as Credit Agent in its discretion may reasonably request. 7.3 (h) With reasonable promptness, all further information regarding the business, operations, properties or financial condition of Borrowers as Credit Agent, or any Lender, through the Credit Agent, may reasonably request, including copies of any audits completed by HUD, Ginnie Mae, Fannie Mae or Freddie Mac. 7.4. Maintenance of Existence; Conduct of Business Preserve and maintain its corporate existence in good standing and all of its rights, privileges, licenses and franchises necessary or desirable in the normal conduct of its business, including its eligibility as lender, seller/servicer and issuer described under Section 9.1; conduct its business in an orderly and efficient manner; maintain a net worth of acceptable assets as required for maintaining its eligibility as lender, seller/servicer and issuer described under Section 9.1; and make no material change in the nature or character of its business or engage in any business in which it was not engaged on the date of this Agreement. 7.5. Compliance with Applicable Laws Comply with the requirements of all applicable laws, rules, regulations and orders of any governmental authority, a breach of which could result in a material adverse change in its business, operations, assets, or financial condition as a whole or on the enforceability of this Agreement, the Notes, any other Loan Document or any Collateral, except where contested in good faith and by appropriate proceedings. 7.6. Inspection of Properties and Books; Operational Reviews 7.6 (a) Permit Credit Agent, any Lender or any Participant (and their authorized representatives) to discuss the business, operations, assets and financial condition of each Borrower and its Subsidiaries with each Borrower's officers, agents and employees, and to examine and make copies or extracts of each Borrower's and its Subsidiaries' books of account, all at such reasonable times and, as long as no Default or Event of Default has occurred and is continuing, on such reasonable Notice, as Credit Agent, any Lender or any Participant may request. 7.6 (b) Provide its accountants with a copy of this Agreement promptly after its execution and authorize and instruct them to answer candidly all questions that the officers of Credit Agent, any Lender or any Participant or any authorized representatives of Credit Agent, any Lender or any Participant may address to them in reference to the financial condition or affairs of each Borrower and its Subsidiaries. As long as no Default or Event of Default has occurred and is continuing, Credit Agent or any Lender shall provide Borrowers with advance notice of any such inquiry to Borrowers' accountants. Borrowers may have their representatives in attendance at any meetings held between the officers or other representatives of Credit Agent, any Lender or any Participant and Borrowers' accountants under this authorization. 7.6 (c) Permit Credit Agent, any Lender or any Participant (and their authorized representatives) access to each Borrower's premises and records for the purpose of conducting a review of each Borrower's general mortgage business methods, policies and procedures, auditing its loan files, and reviewing the financial and operational aspects of each Borrower's business. 7.7. Notice Give prompt Notice to Credit Agent of (a) any action, suit or proceeding instituted by or against Borrowers or any of their Subsidiaries in any federal or state court or before any commission or other regulatory body (federal, state or local, domestic or foreign), which action, suit or proceeding has at issue in excess of $500,000, or any such proceedings threatened against Borrowers or any of their Subsidiaries in writing containing the details of that action, suit or proceeding; (b) the filing, recording or assessment of any federal, state or local tax Lien against Borrowers, or any of their assets or any of their Subsidiaries; (c) an Event of Default; (d) a Default that continues for more than 4 days; (e) the suspension, revocation or termination of any Borrower's eligibility, in any respect, as lenders, seller/servicer or issuer as described under Section 9.1; (f) the transfer, loss, nonrenewal or termination of any Servicing Contracts to which any Borrower is a party, or which is held for the benefit of any Borrower, and the reason for that transfer, loss, nonrenewal or termination if the aggregate principal amount of Mortgage Loans serviced pursuant to affected Servicing contracts exceeds 2.50% of the Eligible Servicing Portfolio as of the date of the most recent Appraisal; (g) any Prohibited Transaction with respect to any Plan, specifying the nature of the Prohibited Transaction and what action Borrowers propose to take with respect to it; and (h) any other action, event or condition of any nature that could lead to or result in a material adverse change in the business, operations, assets or financial condition of Borrowers or any of their Subsidiaries. 7.8. Payment of Debt, Taxes and Other Obligations Pay, perform and discharge, or cause to be paid, performed and discharged, all of the obligations and indebtedness of each Borrower and its Subsidiaries, all taxes, assessments and governmental charges or levies imposed upon each Borrower or its Subsidiaries or upon their respective income, receipts or properties before those taxes, assessments and governmental charges or levies become past due, and all lawful claims for labor, materials and supplies or otherwise that, if unpaid, could become a Lien or charge upon any of their respective properties or assets. Each Borrower and its Subsidiaries are not required to pay, however, any taxes, assessments and governmental charges or levies or claims for labor, materials or supplies for which each Borrower or its Subsidiaries have obtained an adequate bond or insurance or that are being contested in good faith and by proper proceedings that are being reasonably and diligently pursued and for which proper reserves have been created. 7.9. Insurance Maintain blanket bond coverage and errors and omissions insurance or mortgage impairment insurance, with such companies and in such amounts as satisfy prevailing requirements applicable to a Lender, seller/servicer and issuer described under Section 9.1, and liability insurance and fire and other hazard insurance on its properties, in each case with responsible insurance companies acceptable to Credit Agent, in such amounts and against such risks as is customarily carried by similar businesses operating in the same location. Within 30 days after Notice from Credit Agent, obtain such additional insurance as Credit Agent may reasonably require, all at the sole expense of Borrowers. Copies of such policies must be furnished to Credit Agent without charge upon request of Credit Agent. 7.10. Closing Instructions Indemnify and hold Credit Agent and Lenders harmless from and against any loss, including reasonable attorneys' fees and costs, attributable to the failure of any title insurance company, agent or approved attorney to comply with Borrowers' disbursement or instruction letter relating to any Mortgage Loan. Credit Agent has the right to pre-approve Borrowers' choice of title insurance company, agent or approved attorney and Borrowers' disbursement or instruction letter to them in any case in which Borrowers intend to obtain a Warehousing Advance against the Mortgage Loan to be created at settlement or to pledge that Mortgage Loan as Collateral under this Agreement. In any event, Borrowers' disbursement or instruction letter must include the following language: Residential Funding Corporation has a security interest in any amounts advanced by it to fund this mortgage loan and in the mortgage loan funded with those amounts. You must promptly return any amounts advanced by Residential Funding Corporation and not used to fund this mortgage loan. You also must immediately return all amounts advanced by Residential Funding Corporation if this mortgage loan does not close and fund within 1 Business Day of your receipt of those funds. 7.11. Subordination of Certain Indebtedness Cause any indebtedness of any Borrower to any shareholder, director, officer or Affiliate of any Borrower, or to any Guarantor, which indebtedness has a term of more than 1 year or is in excess of $100,000, to be subordinated to the Obligations by the execution and delivery to Credit Agent of a Subordination of Debt Agreement, on the form prescribed by Credit Agent, certified by the corporate secretary of such Borrower to be true and complete and in full force and effect. 7.12. Other Loan Obligations Perform all material obligations under the terms of each loan agreement, note, mortgage, security agreement or debt instrument by which any Borrower is bound or to which any of its property is subject, and promptly notify Credit Agent in writing of a declared default under or the termination, cancellation, reduction or nonrenewal of any of its other lines of credit or agreements with any other Lenders. Exhibit F is a true and complete list of all such lines of credit or agreements as of the date of this Agreement. Borrowers must give Credit Agent at least 30 days Notice before entering into any additional lines of credit or agreements. 7.13. ERISA Maintain (and, if applicable, cause each ERISA Affiliate to maintain) each Plan in compliance with all material applicable requirements of ERISA and of the Internal Revenue Code and with all applicable rulings and regulations issued under the provisions of ERISA and of the Internal Revenue Code, and not (and, if applicable, not permit any ERISA Affiliate to), (a) engage in any transaction in connection with which Borrowers or any ERISA Affiliate would be subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Internal Revenue Code, in either case in an amount exceeding $25,000 or (b) fail to make full payment when due of all amounts that, under the provisions of any Plan, Borrowers or any ERISA Affiliate is required to pay as contributions to that Plan, or permit to exist any accumulated funding deficiency (as such term is defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code), whether or not waived, with respect to any Plan in an aggregate amount exceeding $25,000. 7.14. Use of Proceeds of Warehousing Advances Use the proceeds of each Warehousing Advance solely for the purpose of (a) in the case of Warehousing Advances against Eligible Loans, funding Eligible Loans and against the pledge of those Eligible Loans as Collateral, and (b) in the case of Warehousing Advances against Other Eligible Assets, financing the Other Eligible Assets, subject to the limitations set forth on Exhibit H. 7.15. Use of Proceeds of Term Loan Advances Use the proceeds of each Term Loan Advance solely for the purpose of funding Servicing Acquisitions and financing general working capital needs of Borrowers. End of Article 0 NEGATIVE COVENANTS As long as the Commitments are outstanding or there remain any Obligations to be paid or performed, Borrowers must not, either directly or indirectly, without the prior written consent of Credit Agent: 8.1. Contingent Liabilities Assume, guarantee, endorse or otherwise become contingently liable for the obligation of any Person except by endorsement of negotiable instruments for deposit or collection in the ordinary course of business, and except for obligations arising in connection with the sale of Mortgage Loans without credit recourse (but subject to recourse for breaches of normal representations, warranties and other provisions) in the ordinary course of Borrowers' business. 8.2. Limitation on Liens Pledge or grant a security interest in any Collateral, other than to Credit Agent, or omit to take any action required to keep all Collateral, including Borrowers' Servicing Contracts in full force and effect. 8.3. Restrictions on Fundamental Changes 8.3 (a) Consolidate, merge or enter into any analogous reorganization or transaction with any Person, unless such other Person is engaged in the mortgage banking business and a Borrower is the surviving entity. 8.3 (b) Liquidate, wind up or dissolve (or suffer any liquidation or dissolution). 8.3 (c) Cease actively to engage in the business of originating, acquiring or servicing Mortgage Loans or make any other material change in the nature or scope of the business in which each Borrower engages as of the date of this Agreement. 8.3 (d) Sell, assign, lease, convey, transfer or otherwise dispose of (whether in one transaction or a series of transactions) all or any substantial part of each Borrower's business or assets, whether now owned or acquired after the Closing Date, other than, in the ordinary course of business and to the extent not otherwise prohibited by this Agreement, sales of (1) Mortgage Loans, (2) Mortgage-backed Securities and (3) Servicing Contracts. 8.3 (e) Acquire by purchase or in any other transaction all or substantially all of the business or property of, or stock or other ownership interests of, any Person, unless such Person is engaged in the mortgage banking business and, after giving effect to such acquisition or purchase, no Default or Event of Default will have occurred and be continuing. 8.3 (f) Change its name or jurisdiction of incorporation, without the prior written consent of the Majority Lenders, which will not be unreasonably withheld. 8.3 (g) Permit any Subsidiary of Borrowers to do or take any of the foregoing actions. 8.4. Deferral of Subordinated Debt (a) Pay any Subordinated Debt of Borrowers in advance of its stated maturity, except for prepayments in an aggregate amount not to exceed $75,000; or (b) after a Default or Event of Default under this Agreement has occurred, make any payment of any kind on any Subordinated Debt of Borrowers until all of the Obligations have been paid and performed in full and any applicable preference period has expired. 8.5. Investments Make or own, or permit any Subsidiary to make or own, any Investment, except Investments in (a) marketable direct obligations issued or unconditionally guaranteed by the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof, (b) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within 1 year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either Standard & Poor's Rating Group, a Division of McGraw Hill, Inc., or Moody's Investors Service, Inc., (c) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having the highest rating obtainable from either Standard & Poor's Rating Group, a Division of McGraw, Hill, Inc., or Moody's Investors Service, Inc., (d) Mortgage Loans and Mortgage-backed Securities originated or acquired in the ordinary course of business, (e) certificates of deposits or bankers acceptances issued by any Lender or any other commercial bank organized under the laws of the United States or any State thereof and having a combined capital and surplus of at least $500,000,000, or by United States offices of foreign banks having the highest rating obtainable from a nationally recognized rating agency, or by any commercial bank or savings association to the extent the full amount thereof is insured by the Federal Deposit Insurance Corporation, in each case maturing within one year from the date of acquisition thereof; (f) investments in mutual funds that invest substantially all of their assets in investments of the types described in subsections (a), (b), (c) and (e) of this Section 8.5, (g) Investments made pursuant to Hedging Arrangements, (h) Investments in businesses related to mortgage banking not otherwise permitted by this Section 8.5 in an aggregate amount not to exceed $1,500,000, and (i) Investments existing as of the Closing Date in the capital stock of Subsidiaries, as described on Exhibit D hereto. 8.6. Loss of Eligibility Take any action that would cause any Borrower to lose all or any part of its status as an eligible lender, seller/servicer or issuer as described under Section 9.1. 8.7. Accounting Changes Make, or permit any Subsidiary of any Borrower to make, any significant change in accounting treatment or reporting practices, except as required by GAAP, or change its fiscal year or the fiscal year of any Subsidiary of any Borrower. 8.8. Leverage Ratio Permit Borrowers' Leverage Ratio, on a combined basis, at any time to exceed 13 to 1. 8.9. Minimum Tangible Net Worth Permit Borrowers' Tangible Net Worth, on a combined basis, at any time to be less than $125,000,000. 8.10. Minimum Book Net Worth Permit Borrowers' Book Net Worth, on a combined basis, at any time to be less than $160,000,000. 8.11. Liquid Assets Permit Borrowers' Liquid Assets, on a combined basis, at any time to be less than $6,000,000. 8.12. Maximum Servicing Delinquencies Permit Borrowers' Servicing Delinquencies, on a combined basis, at any time to be greater than 6% of the Eligible Servicing Portfolio; for purposes of such calculation, Bond Program Mortgage Loans shall be excluded. 8.13. Maximum Servicing Foreclosures Permit Borrowers' Servicing Foreclosures, on a combined basis, at any time to be greater than 2% of the Eligible Servicing Portfolio; for purposes of such calculation, Bond Program Mortgage Loans shall be excluded. 8.14. Distributions to Shareholders Declare or pay any dividends or otherwise declare or make any distribution to Borrowers' shareholders (including any purchase or redemption of stock) if a Default or Event of Default exists or would occur as a result of the dividend 8.15. Transactions with Affiliates Directly or indirectly (a) make any loan, advance, extension of credit or capital contribution to any of Borrowers' Affiliates, other than to either Guarantor or between each Borrower; (b) sell, transfer, pledge or assign any of its assets to or on behalf of those Affiliates, other than to either Guarantor or between each Borrower; (c) merge or consolidate with or purchase or acquire assets from those Affiliates, other than with either Guarantor or between each Borrower, or (d) pay management fees to or on behalf of those Affiliates. 8.16. Recourse Servicing Contracts Acquire or enter into Servicing Contracts under which any Borrower must repurchase or indemnify the holder of the Mortgage Loans as a result of defaults on the Mortgage Loans at any time during the term of those Mortgage Loans (but subject to recourse for breaches of normal representations, warranties and other provisions). End of Article 0 SPECIAL REPRESENTATIONS, WARRANTIES AND COVENANTS CONCERNING COLLATERAL 9.1. Special Representations and Warranties Concerning Eligibility as Seller/Servicer of Mortgage Loans Borrowers represent and warrant to Credit Agent and Lenders, as of the date of this Agreement and as of the date of each Advance Request and the making of each Advance, that each Borrower is approved and qualified and in good standing as a lender, seller/servicer or issuer, as set forth below, and meets all requirements applicable to its status as: 9.1 (a) A HUD-approved mortgagee, eligible to originate, purchase, hold, sell and service FHA fully insured Mortgage Loans. 9.1 (b) A Ginnie Mae-approved seller/servicer of Mortgage Loans and issuer of Mortgage-backed Securities guaranteed by Ginnie Mae. 9.1 (c) A Fannie Mae-approved seller/servicer of Mortgage Loans, eligible to originate, purchase, hold, sell and service Mortgage Loans to be sold to Fannie Mae. 9.1 (d) A Freddie Mac-approved seller/servicer of Mortgage Loans, eligible to originate, purchase, hold, sell and service Mortgage Loans to be sold to Freddie Mac. 9.1 (e) A VA-approved mortgagee and a lender in good-standing under the VA loan guarantee program, eligible to originate, purchase, hold, sell and service VA-guaranteed Mortgage Loans. 9.1 (f) An approved seller/servicer of Mortgage Loans by RFC, eligible to originate, purchase, hold, sell and service Mortgage Loans to be sold to RFC. 9.2. Special Representations and Warranties Concerning Warehousing Collateral Borrowers represent and warrant to Credit Agent and Lenders, as of the date of this Agreement and as of the date of each Warehousing Advance Request and the making of each Warehousing Advance or Swingline Advance, that: 9.2 (a) Borrowers have not selected the Collateral in a manner so as to affect adversely Lenders' interests. 9.2 (b) A Borrower is the legal and equitable owner and holder, free and clear of all Liens (other than Liens granted under this Agreement), of the Pledged Loans and the Pledged Securities. All Pledged Loans, Pledged Securities and related Purchase Commitments have been duly authorized and validly issued to a Borrower, and all of the foregoing items of Collateral comply with all of the requirements of this Agreement, and have been and will continue to be validly pledged or assigned to Credit Agent, for the benefit of Lenders, subject to no other Liens. 9.2 (c) A Borrower has, and will continue to have, the full right, power and authority to pledge the Collateral pledged and to be pledged by it under this Agreement. 9.2 (d) Each Mortgage Loan and each related document included in the Pledged Loans (1) has been duly executed and delivered by the parties to that Mortgage Loan and that related document, (2) has been made in compliance with all applicable laws, rules and regulations (including all laws, rules and regulations relating to usury), (3) is and will continue to be a legal, valid and binding obligation, enforceable in accordance with its terms, without setoff, counterclaim or defense in favor of the mortgagor under the Mortgage Loan or any other obligor on the Mortgage Note and (4) has not been modified, amended or any requirements of which waived, except in writing that is part of the Collateral Documents. 9.2 (e) Each Pledged Loan is secured by a Mortgage on real property and improvements located in one of the states of the United States or the District of Columbia. 9.2 (f) Each Pledged Loan (other than a Third Party Originated Loan, a Construction/Perm Mortgage Loan, an Early Buyout Mortgage Loan or a Mortgage Loan that constitutes a modification of a Mortgage Loan with a final balloon payment or an adjustable interest rate) has been closed or will be closed and funded with the Advance made against it. 9.2 (g) Except for open-ended Second Mortgage Loans, each Mortgage Loan has been fully advanced in the face amount of its Mortgage Note. 9.2 (h) Each First Mortgage Loan is secured by a First Mortgage on the real property and improvements described in or covered by that Mortgage. 9.2 (i) Each First Mortgage Loan has or will have a title insurance policy, in ALTA form or equivalent, from a recognized title insurance company, insuring the priority of the Lien of the Mortgage and meeting the usual requirements of Investors purchasing those Mortgage Loans. 9.2 (j) Each Second Mortgage Loan is secured by a Second Mortgage on the real property and improvements described in or covered by that Mortgage. 9.2 (k) To the extent required by the related Purchase Commitment or by Investors generally for similar Mortgage Loans, each Second Mortgage Loan has or will have a title insurance policy, in ALTA form or equivalent, from a recognized title insurance company, insuring the priority of the Lien of the Mortgage and meeting the usual requirements of Investors purchasing those Mortgage Loans. 9.2 (l) Each Mortgage Loan has been evaluated or appraised in accordance with Title XI of FIRREA. 9.2 (m) The Mortgage Note for each Pledged Loan is (1) payable or endorsed to the order of Borrowers, (2) an "instrument" within the meaning of Article 9 of the Uniform Commercial Code of all applicable jurisdictions and (3) is denominated and payable in United States dollars. 9.2 (n) No default has existed for 30 days or more under any Mortgage Loan included in the Pledged Loans other than an Impaired Mortgage Loan or an Early Buyout Loan. 9.2 (o) No party to a Mortgage Loan or any related document is in violation of any applicable law, rule or regulation that would impair the collectibility of the Mortgage Loan or the performance by the mortgagor or any other obligor of its obligations under the Mortgage Note or any related document. 9.2 (p) All fire and casualty policies covering the real property and improvements encumbered by each Mortgage included in the Pledged Loans (1) name and will continue to name Borrowers and its successors and assigns as the insured under a standard mortgagee clause, (2) are and will continue to be in full force and effect and (3) afford and will continue to afford insurance against fire and such other risks as are usually insured against in the broad form of extended coverage insurance generally available. 9.2 (q) Pledged Loans secured by real property and improvements located in a special flood hazard area designated as such by the Director of the Federal Emergency Management Agency are and will continue to be covered by special flood insurance under the National Flood Insurance Program. 9.2 (r) Each Pledged Loan against which a Warehousing Advance is made on the basis of a Purchase Commitment meets all of the requirements of that Purchase Commitment, and each Pledged Security against which a Warehousing Advance is outstanding meets all of the requirements of the related Purchase Commitment. 9.2 (s) Pledged Loans that are intended to be exchanged for Agency Securities comply or, prior to the issuance of the Agency Securities will comply, with the requirements of any governmental instrumentality, department or agency issuing or guaranteeing the Agency Securities. 9.2 (t) Pledged Loans that are intended to be used in the formation of Mortgage-backed Securities (other than Agency Securities) comply with the requirements of the issuer of the Mortgage-backed Securities (or its sponsor) and of the Rating Agencies. 9.2 (u) The original assignments of Mortgage delivered to Credit Agent for each Pledged Loan are in recordable form and comply with all applicable laws and regulations governing the filing and recording of such documents. 9.2 (v) None of the mortgagors, guarantors or other obligors of any Pledged Loan is a Person named in any Restriction List and to whom the provision of financial services is prohibited or otherwise restricted by applicable law. 9.2 (w) No Pledged Loan delivered to Credit Agent is a Discontinued Loan. 9.2 (x) Each Pledged Loan secured by real property to which a Manufactured Home is affixed will create a valid Lien on that Manufactured Home that will have priority over any other Lien on the Manufactured Home, whether or not arising under applicable real property law. 9.2 (y) Each Pledged Loan is an Eligible Loan as described on Exhibit H. 9.3. Special Representations Concerning REO Properties Included as Other Eligible Assets Borrowers represent and warrant to Lenders, as of the date of this Agreement and as of the date of each Warehousing Advance Request for a Warehousing Advance made against an Other Eligible Asset that is an REO Property and the making of each Warehousing Advance or Swingline Advance, that: 9.3 (a)2 Borrower is the legal and equitable owner and holder, free and clear of all Liens, and such REO Property is an Other Eligible Asset as described on Exhibit H. 9.3 (b) Each REO Property against which a Warehousing Advance is made (1) is free from any environmental, lien, title, compliance, regulatory or survey defect or liability, or seizure or condemnation proceeding, and (2) is current with respect to all tax and insurance payments relating to such property. 9.4. Special Representations and Warranties Concerning Servicing Collateral Exhibit C is a true and complete list of each Borrower's Servicing Portfolio as of the date of this Agreement. Borrowers hereby represent and warrant to Credit Agent, as of the date of this Agreement and as of the date of each Term Loan Advance Request and the making of each Term Loan Advance or Swingline Advance, that: 9.4 (a) Borrowers are the legal and equitable owners and holders, free and clear of all Liens (other than Liens in favor of Credit Agent), of the Servicing Contracts included in the Servicing Portfolio, and the Servicing Contracts pledged under this Agreement have been and will continue to be validly pledged or assigned to Credit Agent, subject to no other Liens. 9.4 (b) Borrowers have, and will continue to have, the full right, power and authority to pledge the Servicing Contracts pledged and to be pledged by it under this Agreement. 9.4 (c) Except as otherwise disclosed to Credit Agent, all of the servicing rights under the Servicing Contracts included in the Servicing Portfolio constitute direct servicing rights. 9.4 (d) Each Servicing Contract included in the Servicing Portfolio is in full force and effect and is legal, valid and enforceable in accordance with its terms, and no default or event that, with notice or lapse of time or both, would become a default, exists under any Servicing Contract. 9.4 (e) Each right to the payment of money under the Servicing Contracts included in the Servicing Portfolio is genuine and enforceable in accordance with its terms against the parties obligated to pay the same, which terms have not been modified or waived in any respect or to any extent. 9.4 (f) The amount represented by Borrowers to Credit Agent as owing by an obligor under each Mortgage Loan being serviced under a Servicing Contract included in the Servicing Portfolio is the correct amount actually owing by that obligor. 9.4 (g) To the best of Borrowers' knowledge, no obligor has any defense, set off, claim or counterclaim against Borrowers that can be asserted against Credit Agent, whether in any proceeding to enforce Credit Agent's rights in the related Mortgage Loan or otherwise. 9.4 (h) Borrowers have not sold, assigned or otherwise transferred any rights associated with the Mortgage Loans being serviced under the Servicing Contracts included in the Servicing Portfolio. 9.4 (i) No consent of any obligor or any other Person is required for the grant of the security interest provided in this Agreement by Borrowers in any of the Collateral or any computer software being utilized by Borrowers pursuant to license, lease or otherwise, other than consents that have been obtained, nor will any consent need to be obtained upon the occurrence of an Event of Default for Credit Agent to exercise its rights with respect to any of the Collateral. 9.5 Special Representations and Warranties Concerning P&I Advance Receivables--Pooled Loans and P&I Advance Receivables--EBO Loans 9.5 (a) In the event the obligor on any Mortgage Loan which is part of a pool of Mortgage Loans securing a Mortgage-backed Security fails to make the payment of principal and interest as to which said receivable relates, Borrowers are entitled to reimbursement therefore on a priority basis pursuant to the terms of the applicable Servicing Contract out of proceeds of the sale or other disposition or liquidation of said Mortgage Loan or out of insurance proceeds, including, without limitation, private mortgage insurance proceeds and the proceeds of any guaranty of the obligations of the obligor thereunder. 9.5 (b) Said receivable is and will be free and clear of all Liens, claims and encumbrances, except Liens in favor of Credit Agent for benefit of Lenders. 9.5 (c) Said receivable is an Other Eligible Asset as described on Exhibit H. 9.6. Special Representations and Warranties Concerning T&I Advance Receivables 9.6 (a) In the event the obligor on any Mortgage Loan fails to make the payment of property tax and property insurance impound payment as to which said receivable relates, Borrowers are entitled to reimbursement therefor on a priority basis pursuant to the terms of the applicable Servicing Contract out of proceeds of the sale or other disposition or liquidation of said Mortgage Loan out of insurance proceeds, including without limitation, private mortgage insurance proceeds and the proceeds of any guaranty of the obligations of the obligor thereunder. 9.6 (b) Said receivable is and will be free and clear of all Liens, claims and encumbrances, except Liens in favor of Credit Agent for benefit of Lenders. 9.6 (c) Said receivable is an Other Eligible Asset as described on Exhibit H. 9.7. Special Representations and Warranties Concerning Foreclosure Advance Receivables 9.7 (a) The Mortgage Loan with respect to which such advance was made by Borrowers is in foreclosure, or there shall have been commenced and be continuing bankruptcy or similar proceedings involving the obligor on such Mortgage Loan, or Borrowers have commenced loss mitigation action with respect to such Mortgage Loans. 9.7 (b) In the event the obligor on such Mortgage Loan fails to make the payment as to which said receivable relates, Borrowers are entitled to reimbursement therefor on a priority basis pursuant to the terms of the applicable Servicing Contract out of proceeds of the sale or other disposition or liquidation of said Mortgage Loan or out of insurance proceeds, including, without limitation, private mortgage insurance proceeds and the proceeds of any guaranty of the obligations of the obligor thereunder. 9.7 (c) Said receivable is and will be free and clear of all Liens, claims and encumbrances, except Liens in favor of Credit Agent for benefit of Lenders. 9.7 (d) Said receivable is an Other Eligible Asset as described on Exhibit H. 9.8. Special Affirmative Covenants Concerning Warehousing Collateral As long as the Commitments are outstanding or there remain any Obligations to be paid or performed under this Agreement or under any other Loan Document, Borrowers must: 9.8 (a) Warrant and defend the right, title and interest of Credit Agent and Lenders in and to the Collateral against the claims and demands of all Persons. 9.8 (b) Service or cause to be serviced all Pledged Loans in accordance with the standard requirements of the issuers of Purchase Commitments covering them and all applicable HUD, Fannie Mae and Freddie Mac requirements, including taking all actions necessary to enforce the obligations of the obligors under such Mortgage Loans. Service or cause to be serviced all Mortgage Loans backing Pledged Securities in accordance with applicable governmental requirements and requirements of issuers of Purchase Commitments covering them. Hold all escrow funds collected in respect of Pledged Loans and Mortgage Loans backing Pledged Securities in trust, without commingling the same with non-custodial funds, and apply them for the purposes for which those funds were collected. 9.8 (c) Execute and deliver to Credit Agent with respect to the Collateral those further instruments of sale, pledge, assignment or transfer, and those powers of attorney, as required by Credit Agent, and do and perform all matters and things necessary or desirable to be done or observed, for the purpose of effectively creating, maintaining and preserving the security and benefits intended to be afforded Credit Agent under this Agreement. 9.8 (d) Notify Credit Agent within 2 Business Days of any default under, or of the termination of, any Purchase Commitment relating to any Pledged Loan, Eligible Mortgage Pool, or Pledged Security. 9.8 (e) Promptly comply in all respects with the terms and conditions of all Purchase Commitments, and all extensions, renewals and modifications or substitutions of or to all Purchase Commitments. Deliver or cause to be delivered to the Investor the Pledged Loans and Pledged Securities to be sold under each Purchase Commitment not later than the mandatory delivery date of the Pledged Loans or Pledged Securities under the Purchase Commitment. 9.8 (f) Compare the names of every mortgagor, guarantor and other obligor of every Mortgage Loan, together with appropriate identifying information concerning those Persons obtained by Borrowers, against every Restriction List, and make certain that none of the mortgagors, guarantors or other obligors of any Mortgage Loan is a Person named in any Restriction List and to whom the provision of financial services is prohibited or otherwise restricted by applicable law. 9.8 (g) Prior to the origination by AHMAI of any Mortgage Loans for sale to Fannie Mae, enter into an agreement among AHMAI, Credit Agent and Fannie Mae, pursuant to which Fannie Mae agrees to send all cash proceeds of Mortgage Loans sold by each Borrower to Fannie Mae to the Cash Collateral Account. 9.8 (h) Prior to the origination by Borrowers of any Mortgage Loan to be registered on the MERS system, obtain the approval of Credit Agent and enter into an Electronic Tracking Agreement. 9.9 Special Affirmative Covenants Concerning REO Properties As long as the Warehousing Commitment is outstanding or there remain any Obligations to be paid or performed under this Agreement , Borrowers must instruct the purchaser of any REO Property and the closing agent for any REO Property sale against which a Warehousing Advance has been made to wire transfer the purchase proceeds for the REO Property to the Cash Collateral Account. 9.10. Special Negative Covenants Concerning Warehousing Collateral As long as the Commitments are outstanding or there remain any Obligations to be paid or performed, Borrowers must not, either directly or indirectly, without the prior written consent of Credit Agent: 9.10 (a) Amend or modify, or waive any of the terms and conditions of, or settle or compromise any claim in respect of, any Pledged Loans or Pledged Securities. 9.10 (b) Sell, transfer or assign, or grant any option with respect to, or pledge (except under this Agreement and, with respect to each Pledged Loan or Pledged Security, the related Purchase Commitment) any of the Collateral or any interest in any of the Collateral. 9.10 (c) Make any compromise, adjustment or settlement in respect of any of the Collateral or accept other than cash in payment or liquidation of the Collateral. End of Article 0 DEFAULTS; REMEDIES 10.1. Events of Default The occurrence of any of the following is an event of default ("Event of Default"): 10.1 (a) Borrower fails to pay the principal of any Advance when due, whether at stated maturity, by acceleration, or otherwise; or fails to pay any installment of interest on any Advance within 9 days after the date of Credit Agent's invoice or, if applicable, within 2 days after the date of Credit Agent's account analysis statement; or fails to pay, within any applicable grace period, any other amount due under this Agreement or any other Obligation of Borrowers to Credit Agent or any Lender. 10.1 (b) Borrowers or any of their Subsidiaries fail to pay, or default in the payment of any principal or interest on, any other indebtedness or any contingent obligation within any applicable grace period; breach or default with respect to any other material term of any other indebtedness or of any loan agreement, mortgage, indenture or other agreement relating to that indebtedness, if the effect of that breach or default is to cause, or to permit the holder or holders of that indebtedness (or a trustee on behalf of such holder or holders) to cause, indebtedness of Borrowers or their Subsidiaries in the aggregate amount of $50,000 or more to become or be declared due before its stated maturity (upon the giving or receiving of notice, lapse of time, both, or otherwise). 10.1 (c) Borrowers fail to perform or comply with any term or condition applicable to it contained in Sections 7.4, 7.14 or 7.15 or in any Section of Article 8. 10.1 (d) Any representation or warranty made or deemed made by Borrowers or Guarantors under this Agreement, in any other Loan Document or in any written statement or certificate at any time given by Borrowers or Guarantors, other than the representations and warranties set forth in Article 9 with respect to specific Pledged Loans, is inaccurate or incomplete in any material respect on the date as of which it is made or deemed made. 10.1 (e) Borrowers default in the performance of or compliance with any term contained in this Agreement or any other Loan Document other than those referred to in Sections 10.1(a), 10.1(c) or 10.1(d) and such default has not been remedied or waived within 30 days after the earliest of (1) receipt by Borrowers of Notice from Credit Agent of that default, (2) receipt by Credit Agent of Notice from Borrowers of that default or (3) the date Borrowers should have notified Credit Agent of that default under Section 7.7(c) or 7.7(d). 10.1 (f) An "event of default" (however defined) occurs under any agreement between any Borrower and Credit Agent other than this Agreement and the other Loan Documents. 10.1 (g) A case (whether voluntary or involuntary) is filed by or against Borrower, any Subsidiary of any Borrower or either Guarantor under any applicable bankruptcy, insolvency or other similar federal or state law; or a court of competent jurisdiction appoints a receiver (interim or permanent), liquidator, sequestrator, trustee, custodian or other officer having similar powers over any Borrower, any Subsidiary of any Borrower or either Guarantor, or over all or a substantial part of their respective properties or assets; or any Borrower, any Subsidiary of any Borrower or either Guarantor (1) consents to the appointment of or possession by a receiver (interim or permanent), liquidator, sequestrator, trustee, custodian or other officer having similar powers over any Borrower or any Subsidiary of any Borrower, or either Guarantor, or over all or a substantial part of their respective properties or assets, (2) makes an assignment for the benefit of creditors, or (3) fails, or admits in writing its inability, to pay its debts as those debts become due. 10.1 (h) Borrowers fail to perform any contractual obligation to repurchase Mortgage Loans, if such obligations in the aggregate exceed $1,000,000. 10.1 (i) Any money judgment, writ or warrant of attachment or similar process involving an amount in excess of $500,000 is entered or filed against any Borrower or any of its Subsidiaries or either Guarantor or any of their respective assets and remains undischarged, unvacated, unbonded or unstayed for a period of 30 days or 5 days before the date of any proposed sale under that money judgment, writ or warrant of attachment or similar process. 10.1 (j) Any order, judgment or decree decreeing the dissolution of any Borrower or any non-individual Guarantor is entered and remains undischarged or unstayed for a period of 20 days. 10.1 (k) Borrowers purport to disavow the Obligations or contest the validity or enforceability of any Loan Document. 10.1 (l) Any Guarantor purports to disavow its obligations under its Guaranty or contests the validity or enforceability of the Guaranty. 10.1 (m) Credit Agent's security interest on any portion of the Collateral becomes unenforceable or otherwise impaired and, if Credit Agent agrees in writing to the grace period, all Advances made against any of that Collateral are not paid in full within 10 days after the date the unenforceability or impairment begins. 10.1 (n) A material adverse change occurs in Borrowers' financial condition, business, properties, operations or prospects, or in Borrowers' ability to repay the Obligations. 10.1 (o) Any Lien for any taxes, assessments or other governmental charges (1) is filed against any Borrower, either Guarantor or any of its property, or is otherwise enforced against any Borrower, either Guarantor or any of its property, or (2) obtains priority that is equal to or greater than the priority of Credit Agent's security interest in any of the Collateral. 10.1 (p) AHMIC ceases to own, directly or indirectly, all of the capital stock of each Borrower. 10.1 (q) AHMIC's consolidated net income at any time is less than zero for any period of 3 consecutive months. 10.1 (r) AHMIC's Leverage Ratio at any time exceeds 13 to 1. 10.1 (s) AHMIC's Tangible Net Worth, on a consolidated basis, at any time is less than $285,000,000. 10.1 (t) AHMIC's Book Net Worth, on a consolidated basis, at any time is less than $350,000,000. 10.2. Remedies 10.2 (a) If a Lender shall have knowledge of a Default or an Event of Default, it shall forthwith give Notice thereof to the Credit Agent. If the Credit Agent shall have knowledge of a Default or an Event of Default, it shall give Notice thereof to each Lender and to Borrowers. The Credit Agent shall not be deemed to have knowledge or Notice of the occurrence of a Default or an Event of Default unless the Credit Agent has received Notice from a Lender or Borrowers. No Lender shall be deemed to have knowledge or Notice of the occurrence of a Default or an Event of Default unless such Lender has received Notice from the Credit Agent or Borrowers. 10.2 (b) If an Event of Default described in Section 10.1(g) occurs with respect to any Borrower, the Commitments will automatically terminate and the unpaid principal amount of and accrued interest on the Notes and all other Obligations will automatically become due and payable, without presentment, demand or other requirements of any kind, all of which Borrowers expressly waive. 10.2 (c) If any Event of Default occurs, Majority Lenders may, by Notice to Borrowers, terminate the Commitments and declare the Obligations to be immediately due and payable. 10.2 (d) If any Event of Default occurs, Credit Agent, on behalf of the Lenders, may, and at the direction of the Majority Lenders shall (subject to Section 11.3(c)), also take any of the following actions: (1) Foreclose upon or otherwise enforce its security interest in any Lien on the Collateral to secure all payments and performance of the Obligations in any manner permitted by law or provided for in the Loan Documents. (2) Notify all obligors under any of the Collateral that the Collateral has been assigned to Credit Agent (or to another Person designated by Credit Agent) and that all payments on that Collateral are to be made directly to Credit Agent (or such other Person); settle, compromise or release, in whole or in part, any amounts any obligor or Investor owes on any of the Collateral on terms acceptable to Credit Agent; enforce payment and prosecute any action or proceeding involving any of the Collateral; and where any Collateral is in default, foreclose on and enforce any Liens securing that Collateral in any manner permitted by law and sell any property acquired as a result of those enforcement actions. (3) Prepare and submit for filing Uniform Commercial Code amendment statements evidencing the assignment to Credit Agent or its designee of any Uniform Commercial Code financing statement filed in connection with any item of Collateral. (4) Act or contract with a third party to act, at Borrowers' expense, as servicer or subscriber of Collateral requiring servicing, and perform all obligations required under any Collateral, including Servicing Contracts and Purchase Commitments. (5) Require Borrowers to assemble and make available to Credit Agent the Collateral and all related books and records at a place designated by Credit Agent. (6) Enter onto property where any Collateral or related books and records are located and take possession of those items with or without judicial process; and obtain access to Borrowers' data processing equipment, computer hardware and software relating to the Collateral and use all of the foregoing and the information contained in the foregoing in any manner Credit Agent deems necessary for the purpose of effectuating its rights under this Agreement and any other Loan Document. (7) Before the disposition of the Collateral, prepare it for disposition in any manner and to the extent Credit Agent deems appropriate. (8) Exercise all rights and remedies of a secured creditor under the Uniform Commercial Code of Minnesota or other applicable law, including selling or otherwise disposing of all or any portion of the Collateral at one or more public or private sales, whether or not the Collateral is present at the place of sale, for cash or credit or future delivery, on terms and conditions and in the manner as Credit Agent may determine, including sale under any applicable Purchase Commitment. Borrowers waive any right they may have to prior notice of the sale of all or any portion of the Collateral to the extent allowed by applicable law. If notice is required under applicable law, Credit Agent will give Borrowers not less than 10 days' notice of any public sale or of the date after which any private sale may be held. Borrowers agree that 10 days' notice is reasonable notice. Credit Agent may, without notice or publication, adjourn any public or private sale one or more times by announcement at the time and place fixed for the sale, and the sale may be held at any time or place announced at the adjournment. In the case of a sale of all or any portion of the Collateral on credit or for future delivery, the Collateral sold on those terms may be retained by Credit Agent until the purchaser pays the selling price or takes possession of the Collateral. Credit Agent has no liability to Borrowers if a purchaser fails to pay for or take possession of Collateral sold on those terms, and in the case of any such failure, Credit Agent may sell the Collateral again upon notice complying with this Section. (9) Instead of or in conjunction with exercising the power of sale authorized by Section 10.2(c) (8), Credit Agent may proceed by suit at law or in equity to collect all amounts due on the Collateral, or to foreclose Credit Agent's Lien on and sell all or any portion of the Collateral pursuant to a judgment or decree of a court of competent jurisdiction. (10) Proceed against Borrowers on the Notes or against Guarantor under the Guaranty. (11) Retain all excess proceeds from the sale or other disposition of the Collateral, and apply them to the payment of the Obligations under Section 10.3. Credit Agent shall follow the instructions of the Majority Lenders in exercising or not exercising its rights under this Section 10.2, but (i) the Credit Agent shall have no obligation to take or not to take any action which it believes may expose it to any liability, and (ii) the Credit Agent may, but shall be under no obligation to, await instructions from the Majority Lenders before exercising or not exercising its rights under this Section 10.2. 10.2 (e) Neither Credit Agent nor any Lender will incur liability as a result of the commercially reasonable sale or other disposition of all or any portion of the Collateral at any public or private sale or other disposition. Borrowers waive (to the extent permitted by law) any claims they may have against Credit Agent or any Lender arising by reason of the fact that the price at which the Collateral may have been sold at a private sale was less than the price that Credit Agent might have obtained at a public sale, or was less than the aggregate amount of the outstanding Advances, accrued and unpaid interest on those Advances, and unpaid fees, even if Credit Agent accepts the first offer received and does not offer the Collateral to more than one offeree. Borrowers agree that any sale of Collateral under the terms of a Purchase Commitment, or any other disposition of Collateral arranged by Borrowers, whether before or after the occurrence of an Event of Default, will be deemed to have been made in a commercially reasonable manner. 10.2 (f) Borrowers acknowledge that Mortgage Loans are collateral of a type that is the subject of widely distributed standard price quotations and that Mortgage-backed Securities are collateral of a type that is customarily sold on a recognized market. Borrowers waive any right they may have to prior notice of the sale of Pledged Securities, and agree that Credit Agent or any Lender may purchase Pledged Loans and Pledged Securities at a private sale of such Collateral. 10.2 (g) Borrowers specifically waive and release (to the extent permitted by law) any equity or right of redemption, stay or appraisal that Borrowers have or may have under any rule of law or statute now existing or adopted after the date of this Agreement, and any right to require Credit Agent or any Lender to (1) proceed against any Person, (2) proceed against or exhaust any of the Collateral or pursue its rights and remedies against the Collateral in any particular order, or (3) pursue any other remedy within its power. Credit Agent and Lenders are not required to take any action to preserve any rights of Borrowers against holders of mortgages having priority to the Lien of any Mortgage or Security Agreement included in the Collateral or to preserve Borrowers' rights against other prior parties. 10.2 (h) Credit Agent may, but is not obligated to, advance any sums or do any act or thing necessary to uphold or enforce the Lien and priority of, or the security intended to be afforded by, any Mortgage or Security Agreement included in the Collateral, including payment of delinquent taxes or assessments and insurance premiums. All advances, charges, costs and expenses, including reasonable attorneys' fees and disbursements, incurred or paid by Credit Agent in exercising any right, power or remedy conferred by this Agreement, or in the enforcement of this Agreement, together with interest on those amounts at the Default Rate, from the time paid by Credit Agent until repaid by Borrowers, are deemed to be principal outstanding under this Agreement and the Notes. 10.2 (i) No failure or delay on the part of Credit Agent or any Lender to exercise any right, power or remedy provided in this Agreement or under any other Loan Document, at law or in equity, will operate as a waiver of that right, power or remedy. No single or partial exercise by Credit Agent or any Lender of any right, power or remedy provided under this Agreement or any other Loan Document, at law or in equity, precludes any other or further exercise of that right, power, or remedy by Credit Agent or any Lender, or Credit Agent's or any Lender's exercise of any other right, power or remedy. Without limiting the foregoing, Borrowers waive all defenses based on the statute of limitations to the extent permitted by law. The remedies provided in this Agreement and the other Loan Documents are cumulative and are not exclusive of any remedies provided at law or in equity. 10.2 (j) Borrowers grant Credit Agent and Lenders a license or other right to use, without charge, Borrowers' computer programs, other programs, labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in advertising for sale and selling any of the Collateral and Borrowers' rights under all licenses and all other agreements related to the foregoing inure to Credit Agent's and Lenders' benefit until the Obligations are paid in full. 10.2 (k) Borrowers acknowledge that Borrowers and Credit Agent have entered into, or after the date of this Agreement may enter into, Acknowledgement Agreements with Fannie Mae, Freddie Mac, or another Investor, and that those Acknowledgment Agreements may contain certain provisions concerning the enforcement by Credit Agent of its security interest in the Servicing Contracts subject to the Acknowledgement Agreements. Borrowers agree that the disposition of its rights in any Servicing Contract pursuant to the terms of an applicable Acknowledgment Agreement will be deemed commercially reasonable within the meaning of Article 9 of the Uniform Commercial Code of Minnesota. Borrowers waive any clams it might otherwise have against Credit Agent as a result of Credit Agent's compliance with the terms of any Acknowledgment Agreement. 10.3. Application of Proceeds The proceeds of any sale, disposition or other enforcement of Credit Agent's security interest in all or any part of the Collateral shall be applied by Credit Agent as follows: 10.3 (a) In the case of the proceeds of Other Eligible Assets (excluding Servicing Contracts) and related collateral: First, to the payment of the costs and expenses of such sale or enforcement, including reasonable compensation to Credit Agent's agents and counsel, and all expenses, liabilities and advances made or incurred by or on behalf of Credit Agent in connection therewith; Second, to the payment of the costs and expenses of such sale or enforcement, including reasonable compensation to Lenders' agents and counsel, and all expenses, liabilities and advances made or incurred by or on behalf of any Lender in connection therewith; Third, to Lenders holding Warehousing Advances against Other Eligible Assets, pro rata in accordance with the amount of accrued interest, or accrued Balance Deficiency Fees, owed to each of them in respect to such Warehousing Advances, until such interest and fees are paid in full; Fourth, to Lenders holding Warehousing Advances against Other Eligible Assets, pro rata in accordance with their respective Percentage Shares, until the principal amounts of all such Warehousing Advances outstanding are paid in full; Fifth, to Lenders, for application to the Obligations owed to each of them in respect of other Warehousing Advances and Term Loan Advances, as set forth in clauses Fifth and Sixth of Section 11.3(b) and clauses Third and Fourth of Section 11.3(c); and Sixth, to the remaining Obligations; and Finally, to the payment to Borrowers, or to their successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. 10.3 (b) In the case of the proceeds of Eligible Loans and related Collateral: First, to the payment of the costs and expenses of such sale or enforcement, including reasonable compensation to Credit Agent's agents and counsel, and all expenses, liabilities and advances made or incurred by or on behalf of Credit Agent in connection therewith; Second, to the payment of the costs and expenses of such sale or enforcement, including reasonable compensation to the Lenders' agents and counsel, and all expenses, liabilities and advances made or incurred by or on behalf of any Lender in connection therewith; Third, to RFC, in an amount equal to the amount of accrued interest or Balance Deficiency Fees owed to RFC in respect of Swingline Advances, until paid in full; Fourth, to RFC until the principal amount of all Swingline Advances outstanding are paid in full; Fifth, to Lenders holding Warehousing Advances against Eligible Loans, pro rata in accordance with the amount of accrued interest, or accrued Balance Deficiency Fees, owed to each of them in respect to Warehousing Advances, until such interest and fees are paid in full; Sixth, to Lenders holding Warehousing Advances against Eligible Loans, pro rata in accordance with their respective Percentage Shares, until the principal amounts of all Warehousing Advances outstanding are paid in full; Seventh, to Lenders holding Warehousing Advances, pro rata in accordance with their respective Percentage Shares, until all fees and other Obligations accrued by or due each Lender and Credit Agent are paid in full; Eighth, to Lenders, for application to the Obligations owed to each of them in respect of other Warehousing Advances and Term Loan Advances, as set forth in clauses Third and Fourth of Section 10.3(a) and clauses Third and Fourth of Section 10.3(c); and Ninth, to the remaining Obligations; and Finally, to the payment to Borrowers, or to their successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. 10.3 (c) In the case of the proceeds of the Servicing Contracts: First, to the payment of the costs and expenses of such sale or enforcement, including reasonable compensation to Credit Agent's agents and counsel, and all expenses, liabilities and advances made or incurred by or on behalf of Credit Agent in connection therewith; Second, to the payment of the costs and expenses of such sale or enforcement, including reasonable compensation to the Lenders' agents and counsel, and all expenses, liabilities and advances made or incurred by or on behalf of any Lender in connection therewith; Third, to Lenders holding Term Loan Advances, pro rata in accordance with the amount of accrued interest, or accrued Balance Deficiency Fees, owed to each of them in respect of Term Loan Advances until such interest and fees are paid in full; Fourth, to Lenders holding Term Loan Advances, pro rata in accordance with their respective Percentage Shares, until the principal amount of all Term Loan Advances outstanding are paid in full; Fifth, to Lenders holding Term Loan Advances, pro rata in accordance with their respective Percentage Shares, until all fees and other Obligations accrued by or due each Lender and Credit Agent are paid in full; Sixth, to Lenders, for application to the Obligations owed to each of them in respect of Warehousing Advances outstanding against Other Eligible Assets, as set forth in clauses Third and Fourth of Section 8.3(a) hereof; Seventh, to the Lenders, for application to the Obligations owed to each of them in respect of Swingline Advances and Warehousing Advances outstanding against Eligible Loans, as set forth in clauses Third, Fourth, Fifth, Sixth and Seventh of Section 8.3(b) hereof; and Eighth, to the remaining Obligations; and Finally, to the payment to Borrowers, or to their successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. 10.3 (d) If the proceeds of any such sale, disposition or other enforcement are insufficient to cover the costs and expenses of such sale, as aforesaid, and the payment in full of all Obligations, Borrowers shall remain liable for any deficiency. 10.4. Credit Agent Appointed Attorney-in-Fact Each Borrower appoints Credit Agent its attorney-in-fact, with full power of substitution, for the purpose of carrying out the provisions of this Agreement, the Notes and the other Loan Documents and taking any action and executing any instruments that Credit Agent deems necessary or advisable to accomplish that purpose. Borrowers' appointment of Credit Agent as attorney-in-fact is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, Credit Agent may give notice of its Lien on the Collateral to any Person, either in Borrower's name or in its own name, endorse all Pledged Loans or Pledged Securities payable to the order of any Borrower, change or cause to be changed the book-entry registration or name of subscriber or Investor on any Pledged Security, prepare and submit for filing Uniform Commercial Code amendment statements with respect to any Uniform Commercial Code financing statements filed in connection with any item of Collateral or receive, endorse and collect all checks made payable to the order of any Borrower representing payment on account of the principal of or interest on, or the proceeds of sale of, any of the Pledged Loans or Pledged Securities and give full discharge for those transactions. 10.5. Right of Set-Off If Borrowers default in the payment of any Obligation or in the performance of any of their duties under the Loan Documents, each Lender may, without Notice to or demand on Borrowers (which Notice or demand Borrowers expressly waive), set-off, appropriate or apply any property of Borrowers held at any time by each Lender, or any indebtedness at any time owed by each Lender to or for the account of Borrowers, against the Obligations, whether or not those Obligations have matured. 10.6. Sharing of Payments If upon the occurrence of an Event of Default and acceleration of the Obligations, any Lender shall hold or receive and retain any payment, whether by setoff, application of deposit balance or security, or otherwise, in respect of the Obligations, then such Lender shall purchase from the other Lenders for cash and at face value and without recourse, such participation in the Obligations held by them as shall be necessary to cause such payment to be shared ratably with each of them; provided, that if such payment or part thereof is thereafter recovered from such purchasing Lender, the related purchases from the other Lenders shall be rescinded ratably and the purchase price restored as to the portion of such excess payment so recovered, but without interest thereon unless the purchasing Lender is required to pay interest on such amounts to the Person recovering such payment, in which case with interest thereon, computed at the same rate, and on the same basis, as the interest that the purchasing Lender is required to pay. If any Lender receives a payment from the Borrowers not in respect of the Obligations, but relating to another relationship of such Lender and the Borrowers, such Lender may apply the payment first to the indebtedness arising out of the other relationship and then against the Obligations as provided for above. End of Article 10 AGENT 11.1. Appointment Each Lender hereby irrevocably designates and appoints Credit Agent as the agent of such Lender under the Loan Documents and each Lender hereby irrevocably authorizes Credit Agent to take such action on its behalf under the provisions of the Loan Documents and to exercise such powers and perform such duties as are expressly delegated to Credit Agent by the terms of the Loan Documents, together with such other powers as are reasonably incidental thereto. Credit Agent hereby accepts such appointment and agrees to act in accordance with this Agreement. 11.2. Duties of Agent 11.2 (a) The provisions of the Loan Documents set forth the exclusive duties of Credit Agent and no implied duties or obligations shall be read into the Loan Documents against Credit Agent. Credit Agent shall not be bound in any way by any agreement or contract other than the Loan Documents and any other agreement to which it is a party. Credit Agent shall act as an independent contractor in performing its obligations as Credit Agent under the Loan Documents and nothing herein contained shall be deemed to create any fiduciary relationship among or between Credit Agent, Borrowers or Lenders. 11.2 (b) Credit Agent shall examine the Pledged Loans delivered by or on behalf of the Borrowers hereunder to determine whether the Pledged Loans: (i) include the documents and instruments to be delivered for each Pledged Loan required pursuant to Section 2.1 and the applicable Exhibits, (ii) conforms with the requirements of this Agreement, and (iii) is otherwise in conformity with any customary collateral review criteria that Credit Agent may use from time to time. If Credit Agent shall have determined that any Mortgage Loan delivered to Credit Agent does not meet the requirements of this Agreement, Credit Agent may return to the Borrowers all Collateral Documents relating thereto. 11.2 (c) As to any Pledged Loan against which Warehousing Advances may be made, if Credit Agent shall note any minor discrepancies or deficiencies in any Collateral Documents pertaining thereto, Credit Agent shall: (a) immediately notify Borrowers thereof, (b) if such discrepancies or deficiencies can be cured without returning any Collateral Documents to the Borrowers, request that Borrowers cure such discrepancies or deficiencies immediately, and (c) if such discrepancies or deficiencies can only be cured by returning Collateral Documents to the Borrowers, return any Collateral Documents containing any discrepancy or deficiency to the Borrowers for correction against a Trust Receipt pursuant to Section 4.6(a). 11.3. Standard of Care Credit Agent shall act in accordance with customary standards for those engaged as credit agents or collateral agents of commercial transactions in similar capacities. 11.3 (a) Credit Agent shall not be required to ascertain or inquire as to the performance or observance of any of the conditions or agreements to be performed or observed by any other party, except as specifically provided in the Loan Documents. Credit Agent disclaims any responsibility for the validity or accuracy of the recitals to the Loan Documents and any representations and warranties contained herein, unless specifically identified as recitals, representations or warranties of Credit Agent. 11.3 (b) Credit Agent shall not have any responsibility for ascertaining the value, collectibility, insurability, enforceability, effectiveness or suitability of any Collateral, the title of any party therein, the validity or adequacy of the security afforded thereby, or the validity of the Loan Documents (except as to its authority to enter into the Loan Documents and to perform its obligations hereunder and thereunder). 11.3 (c) No provision of this Agreement shall require Credit Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if, in its sole judgment, it shall believe that repayment of such funds or adequate indemnity against such risk or liability is not assured to it. 11.3 (d) Credit Agent is not responsible for preparing or filing any reports or returns relating to federal, state or local income taxes with respect to this Agreement, other than for its compensation or for reimbursement of expenses. 11.4. Delegation of Duties Credit Agent may execute any of its duties under the Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Credit Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 11.5. Exculpatory Provisions Credit Agent or any of its respective officers, directors, employees, agents, attorneys-in-fact or Affiliates shall not be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with the Loan Documents (except for its or such Person's own gross negligence or willful misconduct), or (b) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by Borrowers or any officer thereof contained in the Loan Documents or in any certificate, report, statement or other document referred to or provided for in, or received by Credit Agent under or in connection with, the Loan Documents or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of the Loan Documents or for any failure of Borrowers to perform their obligations under any Loan Document. Credit Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, the Loan Documents or to inspect the properties, books or records of Borrowers or any of their Subsidiaries. 11.6. Reliance by Agent Credit Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certification, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation reasonably believed by it to be correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to Borrowers), independent accountants (including, without limitation, accountants to Borrowers) and other experts selected by Credit Agent. Credit Agent may deem and treat the payee of any Note as the owner thereof for all purposes. Credit Agent shall be fully justified in failing or refusing to take any action under the Loan Documents unless it shall first receive such advice or concurrence of the Majority Lenders or all Lenders, as appropriate, or it shall first be indemnified to its satisfaction by Lenders ratably in accordance with their respective Percentage Shares against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any action (except for liabilities and expenses resulting from Credit Agent's gross negligence or willful misconduct), and (b) Credit Agent shall in all cases be fully protected in acting, or in refraining from acting, under the Loan Documents in accordance with a request of the Majority Lenders or all Lenders, as appropriate, and such request and any action taken or failure to act pursuant thereto shall be binding upon all Lenders. 11.7. Non-Reliance on Agent or Other Lenders Each Lender expressly acknowledges that neither Credit Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to such Lender and that no act by Credit Agent hereafter taken, including any review of the affairs of Borrowers, shall be deemed to constitute any representation or warranty by Credit Agent to any Lender. Each Lender represents to Credit Agent that it has, independently and without reliance upon Credit Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of Borrowers and made its own decision to enter into and make Advances under the Agreement. Each Lender also represents that it will, independently and without reliance upon Credit Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under the Agreement, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of Borrowers. Except for notices, reports and other documents expressly required to be furnished to Lenders by Credit Agent hereunder, Credit Agent shall have no duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, financial or other condition or creditworthiness of Borrowers or any Subsidiary or either Guarantor which may come into the possession of Credit Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 11.8. Agent in Individual Capacity Credit Agent may make loans to, purchase Mortgage Loans and other assets from, and generally engage in any kind of business with Borrowers as though it were not an agent hereunder. With respect to the Advances made or renewed by it and any Note issued to it, Credit Agent shall have the same rights and powers under the Loan Documents as any Lender and may exercise the same as though it were not Credit Agent, and the terms "Lender" and "Lenders" shall include Credit Agent in its individual capacity. 11.9. Successor Agent Credit Agent may resign as such at any time upon giving 30 days Notice to Borrowers and Lenders. Credit Agent may be removed immediately with cause or at any time upon 10 days Notice from the Majority Lenders to Credit Agent and Borrowers. Upon Notice of such resignation or removal, the Majority Lenders may appoint a successor Credit Agent (which successor Credit Agent, assuming that no Default or Event of Default exists, shall be reasonably acceptable to Borrowers). The date on which Borrowers, Credit Agent and Lenders have received Notice from such successor of its acceptance of appointment as Credit Agent shall constitute the effective date of resignation or removal of the resigning or removed Credit Agent. If no successor Credit Agent shall have been so appointed by the Majority Lenders, and shall have accepted such appointment within the allotted time period, then, upon 5 days Notice to Borrowers, the resigned or removed Credit Agent may, on behalf of Lenders, appoint a successor. Upon the effective date of resignation or removal of the resigning or removed Credit Agent, such successor will thereupon succeed to and become vested with all the rights, powers, privileges, and duties of the resigning or removed Credit Agent, but the resigning or removed Credit Agent shall not be discharged from any liability as a result of its or its directors', officers', agents', or employees' gross negligence or willful misconduct in the performance of its duties and obligations under this Agreement prior to the effective date of its resignation or removal. Upon the effective date of its resignation or removal, Credit Agent shall assign all of its right, title and security interest in and to all Collateral to its successor, without recourse, warranty or representation, express or implied. 11.10. Availability of Documents Lenders and their agents, accountants, attorneys and auditors will be permitted during normal business hours at any time and from time to time upon reasonable notice to examine (to the extent permitted by applicable law) the files, documents, records and other papers in the possession or under the control of the Credit Agent relating to any or all Pledged Loans and Pledged Securities and to make copies thereof. Except during an Event of Default, any such activity will be at the cost and expense of the Lender conducting such activity; during an Event of Default, all costs and expenses associated with the exercise by Lenders of their rights under this Section 11.10 shall be promptly paid by Borrower upon demand of any Lender made through the Credit Agent in each case. End of Article 0 MISCELLANEOUS 12.1. Notices Except where telephonic or facsimile notice is expressly authorized by this Agreement, all communications required or permitted to be given or made under this Agreement ("Notices") must be in writing and must be sent by manual delivery, overnight courier or United States mail (postage prepaid), addressed as follows (or at such other address as may be designated by it in a Notice to the other): If to Borrowers: Columbia National, Incorporated American Home Mortgage Corp. c/o American Home Mortgage Holdings, Inc. 520 Broadhollow Road Melville, NY 11747 Attention: Stephen A. Hozie, Chief Financial Officer Facsimile: (631) 777-3289 With a copy to: Columbia National, Incorporated American Home Mortgage Corp. c/o American Home Mortgage Holdings, Inc. 520 Broadhollow Road Melville, NY 11747 Attention: General Counsel With a copy to: American Home Mortgage Acceptance, Inc. 520 Broadhollow Road Melville, NY 11747 Attention: Craig Pino, Senior V.P./Treasurer Facsimile: (516) 495-5411 With a copy to: American Home Mortgage Acceptance, Inc. 520 Broadhollow Road Melville, NY 11747 Attention: General Counsel If to Credit Agent: Residential Funding Corporation 7501 Wisconsin Avenue Bethesda, MD 20814 Attention: Jason Mitchell, Director Facsimile: (301) 215-6288 If to Lenders: As set forth on the signature pages hereof or of any amendment hereto. All periods of Notice will be measured from the date of delivery if delivered manually or by facsimile, from the first Business Day after the date of sending if sent by overnight courier or from 4 days after the date of mailing if sent by United States mail, except that Notices to Credit Agent under Article 2 and Section 3.3 shall be deemed to have been given only when actually received by Credit Agent. Borrowers authorizes Credit Agent to accept Borrowers' bailee pledge agreements, Advance Requests, shipping requests, wire transfer instructions and security delivery instructions transmitted to Credit Agent by facsimile or RFConnects Delivery, and those documents, when transmitted to Credit Agent by facsimile or by RFConnects Delivery, have the same force and effect as the originals. 12.2. Reimbursement Of Expenses; Indemnity Borrowers must: (a) pay Credit Agent a document production fee in connection with the preparation and negotiation of this Agreement; (b) pay such additional documentation production fees as Credit Agent may require and all out-of-pocket costs and expenses of Credit Agent, including reasonable fees, service charges and disbursements of counsel to Credit Agent (including allocated costs of internal counsel), in connection with the amendment, enforcement and administration of this Agreement, the Notes, and other Loan Documents, the making, repayment and payment of interest on the Advances and the payment of all other Obligations under Loan Documents; (c) indemnify, pay, and hold harmless Credit Agent and Lenders and any other holder of the Notes from and against, all present and future stamp, documentary and other similar taxes with respect to the foregoing matters and save Credit Agent and Lenders and any other holder of the Notes harmless from and against all liabilities with respect to or resulting from any delay or omission to pay such taxes; and (d) indemnify, pay and hold harmless Credit Agent and each Lender and all of their officers, directors, employees or agents and any subsequent holder of the Notes (collectively called the "Indemnitees") from and against all liabilities, obligations, losses, damages, penalties, judgments, suits, costs, expenses and disbursements of every kind or nature (including the reasonable fees and disbursements of counsel to the Indemnitees (including allocated costs of internal counsel) in connection with any investigative, administrative or judicial proceeding, whether or not the Indemnitees have been designated as parties to such proceeding) that may be imposed upon, incurred by or asserted against such Indemnitees in any manner relating to or arising out of this Agreement, the Notes, or any other Loan Document or any of the transactions contemplated by this Agreement, the Notes and the other Loan Documents, including against all liabilities, obligations, losses, damages, penalties, judgments, suits, costs, expenses and disbursements of every kind or nature (including the reasonable fees and disbursements of counsel to the Indemnitees (including allocated costs of internal counsel) in connection with any investigative, administrative or judicial proceeding, whether or not the Indemnitees have been designated as parties to such proceeding) arising from any breach of Sections 9.2 (v) or 9.3 (f) or the making of any Mortgage Loan in which any mortgagor, guarantor or other obligor is a Person named in any Restriction List and to whom the provision of financial services is prohibited or otherwise restricted by applicable law ("Indemnified Liabilities"), except that Borrowers have no obligation under this Agreement to any Indemnitee with respect to Indemnified Liabilities arising from the gross negligence or willful misconduct of such Indemnitees. To the extent that the undertaking to indemnify, pay and hold harmless as set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, Borrowers must contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any of them. The agreement of Borrowers contained in this Article survives the expiration or termination of this Agreement and the payment in full of the Notes. Attorneys' fees and disbursements incurred in enforcing, or on appeal from, a judgment under this Agreement are recoverable separately from and in addition to any other amount included in such judgment, and this clause is intended to be severable from the other provisions of this Agreement and to survive and not be merged into such judgment. 12.3. Indemnification by Lenders Each Lender agrees to indemnify Credit Agent in its capacity as such (to the extent not reimbursed by Borrowers and without limiting the obligation of Borrowers to do so), ratably according to the respective amounts of their Percentage Shares, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including without limitation at any time following the payment of the Obligations) be imposed on, incurred by or asserted against Credit Agent in any way relating to or arising out of the Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by Credit Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from Credit Agent's gross negligence or willful misconduct. The agreements in this Section shall survive the payment of the Obligations and the termination of this Agreement. Attorneys' fees and disbursements incurred in enforcing, or on appeal from, a judgment pursuant hereto shall be recoverable separately from and in addition to any other amount included in such judgment, and this clause is intended to be severable from the other provisions of this Agreement and to survive and not be merged into such judgment. 12.4. Financial Information All financial statements and reports furnished to Credit Agent under this Agreement must be prepared in accordance with GAAP, applied on a basis consistent with that applied in preparing the financial statements as at the end of and for Borrowers' most recent fiscal year (except to the extent otherwise required to conform to good accounting practice). 12.5. Terms Binding Upon Successors; Survival of Representations The terms and provisions of this Agreement are binding upon and inure to the benefit of Borrowers, Credit Agent, Lenders and their respective successors and assigns. All of Borrowers' representations, warranties, covenants and agreements survive the making of any Advance, and except where a longer period is set forth in this Agreement, remain effective for as long as the Commitments are outstanding or there remain any Obligations to be paid or performed. 12.6. Lenders in Individual Capacity Any Lender and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with Borrowers, any Subsidiary and/or Guarantor regardless of its capacity as a Lender hereunder. Any Lender may disclose to the other Lenders information regarding other relationships which it may have with Borrowers and Borrowers hereby consent to these disclosures. 12.7. Assignments and Participations This Agreement and the Obligations of Borrowers may not be assigned by Borrowers. Any Lender may, subject to the limitations set forth below, assign or transfer, in whole or in part, its Commitments and the related Advances, together with its corresponding rights under this Agreement and the other Loan Documents, and further may sell participations in all or any part of any of its Commitments and the related Advances or any other interest in the Obligations or any of its obligations hereunder to another Person, in which event: (a) in the case of an assignment, upon notice thereof by such Lender to Borrowers and consent of Credit Agent, the assignee shall have, to the extent of such assignment (unless otherwise provided thereby), the same rights and benefits as it would have if it were a "Lender" hereunder, and, if the assignee has expressly assumed, for the benefit of Borrowers, such Lender's obligations hereunder, such Lender shall be relieved of its obligations hereunder to the extent of such assignment and assumption, provided that Credit Agent shall have no obligation to consent to there being more than a total of 10 Lenders (a Participant is not a Lender); and (b) in the case of a participation, the participating Person's (a "Participant") rights against the Lender from whom it has purchased such participation in respect of such participation are those set forth in the agreement executed by such Lender in favor of the Participant relating thereto. Unless an assignee has expressly assumed such Lender's obligations hereunder, (x) such Lender shall remain solely responsible to the other parties hereto for the performance of such Lender's obligations under the Loan Documents, whether or not such Lender shall remain the holder of any Note, (y) such Lender shall retain all voting rights with respect to such Note, the Advances hereunder and Lender's Commitments, and (z) Borrowers, Credit Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents. Without limiting any Lenders exclusive right to collect and enforce the Obligations owed to it, Borrowers agree that each participation will give rise to a debtor-creditor relationship between Borrowers and Participant, and Borrowers authorize each Participant, upon an occurrence of an Event of Default, to proceed directly by right of setoff, bankers' lien or otherwise, against any assets of Borrowers that may be held by that Participant. Notwithstanding the foregoing, nothing contained herein shall in any manner or to any extent affect the right of any Lender to pledge or assign Notes and interests in this Agreement to any Federal Reserve Bank pursuant to applicable laws and regulations, or to assign its Notes and its right to receive and retain payments on its Notes provided such Lender remains primarily and directly liable pursuant to the terms and conditions of this Agreement to keep, observe and perform all of its obligations under this Agreement, and all such assignments shall be treated, considered and administered as a sale of a participation and not as an assignment and shall be subject to and governed by the provisions of this Section. Any Lender may furnish any information concerning Borrowers in the possession of such Lender from time to time to Affiliates of such Lender and to assignees and Participants (including prospective assignees and Participants) and Borrowers hereby consent to the provision of such information. 12.8. Commitment Increases 12.8 (a) At any time and from time to time after the Closing Date, the Warehousing Credit Limit and the Term Loan Credit Limit may be increased either by an Additional Lender establishing a Warehousing Commitment and a Term Loan Commitment or by one or more then existing Lenders ("Increase Lenders") increasing its Warehousing Commitment Amount and Term Loan Commitment Amount (each such increase by either means, a "Commitment Increase") provided that no Commitment Increase shall become effective unless and until (i) Borrowers, Credit Agent and the Additional Lenders or the Increase Lenders shall have executed and delivered an amendment with respect to such Commitment Increase, and (ii) if, after giving effect thereto, the Warehousing Credit Limit would exceed $450,000,000 and the Term Loan Credit Limit would exceed $100,000,000, such Commitment Increase shall have been consented to by each of the other Lenders. Prior to the effective date ("Effective Date") of any Commitment Increase, Borrowers shall issue promissory notes to the Additional Lenders. Such new promissory note or notes shall constitute a "Warehousing Note" and "Term Loan Note" for the purposes of the Loan Documents. No Lender has implicitly or explicitly agreed to make any future Commitment Increase by entering into this Agreement. 12.8 (b) On the Effective Date of such Commitment Increase, Credit Agent shall recompute the Percentage Share for each Lender based on the new Warehousing Credit Limit and Term Loan Credit Limit which results from the Commitment Increase, and Credit Agent shall request Warehousing Advances and Term Loan Advances from or will direct prepayments to each Lender so that the total amount of all then outstanding Warehousing Advances and Term Loan Advances are shared pro rata by each Lender. On the effective date of any reduction of the Warehousing Credit Limit and Term Loan Credit Limit resulting from the expiration of a temporary increase in any Lender's Warehousing Commitment Amount and Term Loan Commitment Amount, Borrower shall prepay the Warehousing Advances and Term Loan Advances in an amount equal to the amount by which the aggregate unpaid principal balance of such Lender's (i) Warehousing Advances exceeds its Warehousing Commitment Amount, and (ii) Term Loan Advances exceeds its Term Loan Commitment Amount, and Credit Agent shall direct such prepayments to such Lender. 12.9. Amendments 12.9 (a) Other than as permitted by Section 12.8(a), this Agreement may not be amended or terms or provisions hereof waived unless such amendment or waiver is in writing and signed by the Majority Lenders, Credit Agent and Borrowers; provided, however, that without the prior written consent of 100% of Lenders, no amendment or waiver shall: (1) waive or amend any term or provision of Sections 7.4, 7.13, 7.14 or 7.15 hereof or the definition of any type of Collateral or the provisions of Section 4.1 hereof, or release the Guarantor, (2) reduce the principal of, or rate of interest or fees on, the Advances or any Lender's Commitments, (3) modify the Warehousing Credit Limit or the Term Loan Credit Limit (other than as permitted by Section 12.8(a)), (4) modify any Lender's Percentage Share of the Warehousing Credit Limit or the Term Loan Credit Limit (other than as permitted by Section 12.8(a)), (5) modify the definition of "Majority Lenders," or of the number or percentage of Lenders that are required to take action under the Loan Documents, (6) extend the Term Loan Commitment Termination Date, the Term Loan Maturity Date or the Warehousing Maturity Date, (7) release any material portion of the Collateral, except as expressly contemplated by the Loan Documents or in connection with a sale of such Collateral permitted hereunder, (8) amend Exhibit H, or (9) amend this Section. It is expressly agreed and understood that the failure by the Majority Lenders to elect to accelerate amounts outstanding hereunder or to terminate the obligation of Lenders to make Advances hereunder shall not constitute an amendment or waiver of any term or provision of this Agreement. 12.9 (b) Borrowers hereby agree that they shall, upon requesting any amendment of this Agreement or any other Loan Document or any waiver of any material term or provision of this Agreement or any other Loan Document (except an extension of the Warehousing Maturity Date), pay at the time of such request a modification fee (1) to Credit Agent in a minimum amount of $2,500 or such greater amount as may be notified to Borrowers by Credit Agent in its sole discretion and (2) to each Lender (except any Lender which becomes party to the Agreement by virtue of such amendment) in a minimum amount of $1,000 or such greater amount as may be notified to Borrowers by the Majority Lenders, acting through Credit Agent, in their sole discretion. The payment of such modification fees shall be in addition to and shall not limit Borrowers' reimbursement obligations pursuant to Section 12.2 hereof, and any other fee or charge imposed by Credit Agent or Lenders as a condition to any amendment. 12.10. Governing Law This Agreement and the other Loan Documents are governed by the laws of the State of Minnesota, without reference to its principles of conflicts of laws. 12.11. Relationship of the Parties This Agreement provides for the making and repayment of Advances by Lenders (in their capacities as Lenders) to Borrowers (in their capacity as a Borrowers), for the payment of interest on those Advances and for the payment of certain fees by Borrowers to Lenders and Credit Agent. The relationship between Lenders and Borrowers is limited to that of creditor and secured party on the part of Lenders and of debtor on the part of Borrowers. The provisions of this Agreement and the other Loan Documents for compliance with financial covenants and the delivery of financial statements and other operating reports are intended solely for the benefit of Lenders and Credit Agent to protect their interest as a creditors and secured party. Nothing in this Agreement creates or may be construed as permitting or obligating Credit Agent or any Lender to act as a financial or business advisor or consultant to Borrowers, as permitting or obligating Lenders or Credit Agent to control Borrowers or to conduct Borrowers' operations, as creating any fiduciary obligation on the part of Credit Agent or any Lender to Borrowers, or as creating any joint venture, agency, partnership or other relationship between Credit Agent or any Lender and Borrowers other than as explicitly and specifically stated in the Loan Documents. Borrowers acknowledge that they have had the opportunity to obtain the advice of experienced counsel of their own choice in connection with the negotiation and execution of the Loan Documents and to obtain the advice of that counsel with respect to all matters contained in the Loan Documents, including the waivers of jury trial and of punitive, consequential, special or indirect damages contained in Sections 12.16 and 12.17, respectively. Borrowers further acknowledges that they are experienced with respect to financial and credit matters and have made their own independent decisions to apply to Lenders for credit and to execute and deliver this Agreement. 12.12. Severability If any provision of this Agreement is declared to be illegal or unenforceable in any respect, that provision is null and void and of no force and effect to the extent of the illegality or unenforceability, and does not affect the validity or enforceability of any other provision of the Agreement. 12.13. Consent to Credit References Borrowers consents to the disclosure of information regarding Borrowers and their Subsidiaries and their relationships with Credit Agent and Lenders to Persons making credit inquiries to Credit Agent or any Lender. This consent is revocable by Borrowers at any time upon Notice to Lenders as provided in Section 12.1. 12.14. Counterparts This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together constitute but one and the same instrument. 12.15. Headings/Captions The captions or headings in this Agreement and the other Loan Documents are for convenience only and in no way define, limit or describe the scope or intent of any provision of this Agreement or any other Loan Document. 12.16. Entire Agreement This Agreement, the Notes and the other Loan Documents represent the final agreement among the parties with respect to their subject matter, and may not be contradicted by evidence of prior or contemporaneous oral agreements among the parties. There are no oral agreements among the parties with respect to the subject matter of this Agreement, the Notes and the other Loan Documents. 12.17. Consent to Jurisdiction AT THE OPTION OF CREDIT AGENT, THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS MAY BE ENFORCED IN ANY STATE OR FEDERAL COURT WITHIN THE STATE OF MINNESOTA. BORROWERS CONSENT TO THE JURISDICTION AND VENUE OF THOSE COURTS, AND WAIVE ANY OBJECTION TO THE JURISDICTION OR VENUE OF THOSE COURTS, INCLUDING THE OBJECTION THAT VENUE IN THOSE COURTS IS NOT CONVENIENT. ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE COMMENCED AND INSTITUTED BY SERVICE OF PROCESS UPON BORROWERS BY FIRST CLASS REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO BORROWERS AT THEIR ADDRESS LAST KNOWN TO CREDIT AGENT. EACH BORROWER'S CONSENT AND AGREEMENT UNDER THIS SECTION DOES NOT AFFECT CREDIT AGENT'S RIGHT TO ACCOMPLISH SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST BORROWERS IN ANY OTHER JURISDICTION OR COURT. IN THE EVENT BORROWERS COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, CREDIT AGENT AT ITS OPTION MAY HAVE THE CASE TRANSFERRED TO A STATE OR FEDERAL COURT WITHIN THE STATE OF MINNESOTA OR, IF A TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, MAY HAVE BORROWER'S ACTION DISMISSED WITHOUT PREJUDICE. 12.18. Waiver of Jury Trial EACH BORROWER, CREDIT AGENT AND EACH LENDER, EACH PROMISES AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND FULLY WAIVES ANY RIGHT TO TRIAL BY JURY TO THE EXTENT THAT ANY SUCH RIGHT NOW EXISTS OR ARISES AFTER THE DATE OF THIS AGREEMENT. THIS WAIVER OF THE RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY, BY EACH BORROWER, CREDIT AGENT AND EACH LENDER, AND IS INTENDED TO ENCOMPASS EACH INSTANCE AND EACH ISSUE FOR WHICH THE RIGHT TO TRIAL BY JURY WOULD OTHERWISE APPLY. CREDIT AGENT, EACH BORROWER AND LENDERS ARE EACH AUTHORIZED AND DIRECTED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES TO THIS AGREEMENT AS CONCLUSIVE EVIDENCE OF THIS WAIVER OF THE RIGHT TO TRIAL BY JURY. FURTHER, EACH BORROWER, CREDIT AGENT AND LENDERS EACH CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF THE OTHER PARTY, INCLUDING THE OTHER PARTY'S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO ANY OF ITS REPRESENTATIVES OR AGENTS THAT THE OTHER PARTY WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO TRIAL BY JURY. 12.19. Waiver of Punitive, Consequential, Special or Indirect Damages EACH BORROWER WAIVES ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES FROM CREDIT AGENT, ANY LENDER OR ANY OF THEIR AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY BORROWERS AGAINST LENDERS, CREDIT AGENT OR ANY OF THEIR AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. THIS WAIVER OF THE RIGHT TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES IS KNOWINGLY AND VOLUNTARILY GIVEN BY EACH BORROWER, AND IS INTENDED TO ENCOMPASS EACH INSTANCE AND EACH ISSUE FOR WHICH THE RIGHT TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES WOULD OTHERWISE APPLY. CREDIT AGENT AND EACH LENDER ARE AUTHORIZED AND DIRECTED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES TO THIS AGREEMENT AS CONCLUSIVE EVIDENCE OF THIS WAIVER OF THE RIGHT TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES. 12.20 Waiver of Defaults under Existing Agreement. AHMC has notified Lenders and Credit Agent that Defaults or Events of Default (as defined in the Existing Agreement) exist (a) as a result of the failure to deliver in a timely fashion the financial statements required by Section 7.2 of the Existing Agreement in respect of the months ended February 29, 2004 and March 31, 2004, (b) as a result of the failure to be in compliance with Section 8.9 and 8.12 of the Existing Agreement as of each of February 29, 2004, March 31, 2004, and (c) as a result of the failure to be in compliance with Section 8.12 of the Existing Agreement as of February 29, 2004 (a - c, collectively, the "Existing Defaults"). Majority Lenders (as defined in the Existing Agreement) and Credit Agent waive the Existing Defaults effective as of the Closing Date, provided, that (a) on or prior to the Closing Date (as defined in this Agreement), Borrowers deliver to Lenders financial statements of Borrowers as of each of February 29, 2004 and March 31, 2004 that demonstrate compliance by Borrowers as of each of such dates with all financial covenants set forth in Article 8 of this Agreement (assuming such financial covenants were applicable as of each of such dates), (b) when financial statements for financial results as of April 30, 2004 are delivered to Lenders they demonstrate compliance by Borrowers as of such date with all financial covenants set forth in Article 8 of this Agreement (assuming such financial covenants were applicable as of such date), and (c) on or prior to the Closing Date AHMIC certifies to Lenders that its consolidated net income for each consecutive three month period ended February 29, 2004 and March 31, 2004, respectively, was positive. If Borrowers' financial statements for the month ended April 30, 2004 do not demonstrate compliance with all covenants set forth in Article 8 of this Agreement (assuming such financial covenants were applicable as of such date), or if AHMIC's net income for the three month period ended April 30, 2004 is not positive, then, in either case, an Event of Default (as defined in this Agreement) will be deemed to exist. This waiver applies only to the specific instances described in this Section 12.20. Lenders and Credit Agent reserve all of the rights, powers and remedies available to them under the Loan Documents, including the right to cease making Advances to Borrowers and the right to accelerate the Obligations, if any Default or Event of Default (as defined in this Agreement) occurs. End of Article 0 DEFINITIONS 13.1. Defined Terms Capitalized terms defined below or elsewhere in this Agreement have the following meanings or, as applicable, the meanings given to those terms in Exhibits to this Agreement: "Accrual Basis" has the meaning set forth in Section 3.1(c). "Additional Lenders" means a Person admitted as a Lender under the Agreement by assignment or by the terms of an amendment hereto. Credit Agent will use its best efforts to notify Borrowers of the identity of any Person (other than RFC) proposed by Credit Agent to be admitted as a Lender at least 10 Business Days prior to the date on which such Person is proposed to be admitted as a Lender, provided that Credit Agent shall incur no liability to Borrowers or any other Person for any failure to give such notification. "Advance" means a Warehousing Advance, a Swingline Advance or a Term Loan Advance. "Advance Rate" means, with respect to any Eligible Loan, the Advance Rate set forth in Exhibit H for that type of Eligible Loan. "Advance Request" means a Warehousing Advance Request Against Eligible Loans, a Warehousing Advance Request Against Constructon/Perm Mortgage Loans, Warehousing Advance Request Against Other Eligible Assets or a Term Loan Advance Request. "Affiliate" means, when used with reference to any Person, (a) each Person that, directly or indirectly, controls, is controlled by or is under common control with, the Person referred to, (b) each Person that beneficially owns or holds, directly or indirectly, 5% or more of any class of voting Equity Interests of the Person referred to, (c) each Person, 5% or more of the voting Equity Interests of which is beneficially owned or held, directly or indirectly, by the Person referred to, and (d) each of such Person's officers, directors, joint venturers and partners. For these purposes, the term "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the Person in question. "Aged Mortgage Loans" means Mortgage Loans against which a Warehousing Advance has been outstanding for longer than the Standard Warehouse Period, provided that Aged Mortgage Loans are permitted for such type of Mortgage Loan. "Aged Warehouse Period" means the maximum number of days a Warehouse Advance against Aged Mortgage Loans of a particular type may remain outstanding as set forth in Exhibit H. "Aged Wet Mortgage Loan" has the meaning set forth on Exhibit H. "Agency Security" means a Mortgage-backed Security issued or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. "Agreement" means this Second Amended and Restated Warehousing Credit, Term Loan and Security Agreement (Syndicated), either as originally executed or as it may be amended, restated, renewed or replaced. "AH Holdings" means American Home Mortgage Holdings, Inc., a Delaware corporation. "AHMC" has the meaning set forth in the first paragraph of this Agreement. "AHMAI" has the meaning set forth in the first paragraph of this Agreement. "AHMIC" means American Home Mortgage Investment Corp., a Maryland corporation. "Appraisal" means a certificate of independent certified public accountants or independent financial consultants of recognized standing selected by Borrowers and satisfactory to Credit Agent as to the Appraisal Value of the Servicing Contracts included in the Servicing Collateral. An Appraisal must evaluate Borrowers' Servicing Portfolio or those Servicing Contracts based upon reasonably determined categories of the Mortgage Loans and must give effect to any subservicing agreements to which any Mortgage Loan is or will be subject. Each Appraisal must be in form, substance and detail satisfactory to Credit Agent. "Appraisal Value" means, as of any date of determination, the fair market value of Borrowers' right to service Mortgage Loans under the Servicing Contracts included in the Servicing Collateral. Appraisal Value must be calculated as a percentage of the unpaid principal amount of each category of Mortgage Loan serviced under those Servicing Contracts. "Appraised Property Value" means with respect to an interest in real property, the then current fair market value of the real property and any improvements on it as of recent date determined in accordance with Title XI of FIRREA by a qualified appraiser who is a member of the American Institute of Real Estate Appraisers or other group of professional appraisers. "Approved Custodian" means a pool custodian or other Person that Credit Agent deems acceptable, in its sole discretion, to hold Mortgage Loans for inclusion in a Mortgage Pool or to hold Mortgage Loans as agent for an Investor that has issued a Purchase Commitment for those Mortgage Loans. The Approved Custodians as of the Closing Date are listed on Exhibit Q hereto. Credit Agent may at any time, on 3 Business Days' Notice to Borrowers, add or remove any Person as an Approved Custodian. "As Completed Appraised Value" means the value given by a state-certified appraiser to the real property and improvements on the real property based on the Total Hard Costs and plans and specifications for the improvements on the real property prior to the beginning of any construction or rehabilitation. "Audited Statement Date" means the date of Borrowers' most recent audited financial statements (and, if applicable, Borrowers' Subsidiaries, on a consolidated basis) delivered to Credit Agent under the Existing Agreement or this Agreement. "Balance Deficiency Fee" has the meaning set forth in Section 3.1(b). "Balance Funded Agreement" has the meaning set forth in Section 3.1(b). "Balance Funded Portion" has the meaning set forth in Section 3.1(b). "Balance Funding Rate" has the meaning set forth in Exhibit H. "Bank One" means Bank One, National Association, or any successor bank. "Bank One Prime Rate" means, as of any date of determination, the highest prime rate quoted by Bank One and most recently published by Bloomberg L.P. If the prime rate for Bank One is not quoted or published for any period, then during that period the term "Bank One Prime Rate" means the highest prime rate published in the most recent edition of The Wall Street Journal in its regular column entitled "Money Rates." "Bond Program Mortgage Loan" has the meaning set froth in Exhibit H. "Book Net Worth" means with respect to any Person at any date, the excess of total assets over total liabilities of such Person on such date, each to be determined in accordance with GAAP consistent with those applied in the preparation of the financial statements referred to in Section 7.2(b) hereof. "Borrower" or "Borrowers" has the meaning set forth in the first paragraph of this Agreement. "Business Day" means any day other than Saturday, Sunday or any other day on which national banking associations are closed for business. "Calendar Quarter" means the 3 month period beginning on each January 1, April 1, July 1 or October 1. "Cash Collateral Account" means a demand deposit account maintained at the Funding Bank in Credit Agent's name and designated for receipt of the proceeds of the sale or other disposition of Collateral. "Check Disbursement Account" means a demand deposit account maintained at the Funding Bank in Borrowers' name and under the control of Lender for clearing checks written by Borrowers to fund Mortgage Loans funded by Warehousing Advances. "Closing Date" has the meaning set forth in the Recitals to this Agreement. "CNI" has the meaning set forth in the first paragraph of this Agreement. "Collateral" has the meaning set forth in Section 4.1. "Collateral Documents" means, with respect to each Mortgage Loan, (a) the Mortgage Note, the Mortgage and all other documents including, if applicable, any Security Agreement, executed in connection with or relating to the Mortgage Loan; (b) as applicable, the original lender's ALTA Policy of Title Insurance or its equivalent, documents evidencing the FHA Commitment to Insure, the VA Guaranty or private mortgage insurance, the appraisal, the Regulation Z statement, the environmental assessment, the engineering report, certificates of casualty or hazard insurance, credit information on the maker of the Mortgage Note, the HUD-1 or corresponding purchase advice; (c) any other document listed in Exhibit B; and (d) any other document that is customarily desired for inspection or transfer incidental to the purchase of any Mortgage Note by an Investor or that is customarily executed by the seller of a Mortgage Note to an Investor. "Committed Purchase Price" means for an Eligible Loan (a) the dollar price as set forth in the Purchase Commitment or, if the price is not expressed in dollars, the product of the Mortgage Note Amount multiplied by the price (expressed as a percentage) as set forth in the Purchase Commitment for the Eligible Loan, or (b) if the Eligible Loan is to be used to back an Agency Security, an amount equal to the product of the Mortgage Note Amount multiplied by the price (expressed as a percentage) as set forth in the Purchase Commitment for the Agency Security. "Commitments" means the Warehousing Commitment and the Term Loan Commitment. "Compliance Certificate" means a certificate executed on behalf of Borrowers by the chief financial officer or treasurer of a Borrower or by another officer approved by Credit Agent, substantially in the form of Exhibit E. "Co-op Loans" means a loan evidenced by a co-op note and committed for purchase by an Investor. "Construction/Perm Mortgage Loan" has the meaning set forth in Exhibit H. "Cost Breakdown" means a list of the costs and expenses to be financed by the Advances against a Construction/Perm Mortgage Loan, including, without limitation, real property acquisition costs, hard and soft construction costs, architectural fees, and any other costs and expenses budgeted to construct and complete the improvement. "Credit Agent" has the meaning set forth in the first paragraph of this Agreement. "Credit Limit" means the Warehousing Credit Limit or the Term Loan Credit Limit. "Credit Score" means a mortgagor's overall consumer credit rating, represented by a single numeric credit score using the Fair, Isaac consumer credit scoring system, provided by a credit repository acceptable to Credit Agent and the Investor that issued the Purchase Commitment covering the related Mortgage Loan (if a Purchase Commitment is required by Exhibit H). "Debt" means (a) all indebtedness or other obligations of a Person (and, if applicable, that Person's Subsidiaries, on a consolidated basis) that, in accordance with GAAP, would be included in determining total liabilities as shown on the liabilities side of a balance sheet of that Person on the date of determination, plus (b) all indebtedness or other obligations of that Person (and, if applicable, that Person's Subsidiaries, on a consolidated basis) for borrowed money or for the deferred purchase price of property or services. For purposes of calculating a Person's Debt, Subordinated Debt not due within 1 year of that date may be excluded from that Person's indebtedness. "Default" means the occurrence of any event or existence of any condition that, but for the giving of Notice or the lapse of time, would constitute an Event of Default. "Default Rate" means, for any Advance, the Interest Rate applicable to that Advance plus 4% per annum. If no Interest Rate is applicable to an Advance, "Default Rate" means, for that Advance, the highest Interest Rate then applicable to any outstanding Advance plus 4% per annum. "Depository Benefit" means the compensation received by a Lender, directly or indirectly, as a result of Borrowers' maintenance of Eligible Balances with a Designated Bank. "Designated Bank" means any bank designated by a Lender as a Designated Bank, but only for as long as a Lender has an agreement under which Lender receives Depository Benefits from that bank. "Designated Bank Charges" means any fees, interest or other charges that would otherwise be payable to a Designated Bank in connection with Eligible Balances maintained at the Designated Bank, including deposit insurance premiums, service charges and any other charges that may be imposed by governmental authorities from time to time. "Discontinued Loan" has the meaning set forth in the GMAC-RFC Client Guide. "Early Buyout Mortgage Loan" has the meaning set forth in Exhibit H. "Electronic Advance Request" means an electronic transmission through RFConnects Delivery containing the same information as Exhibit A to this Agreement. "Electronic Tracking Agreement" means an Electronic Tracking Agreement, on the form prescribed by Credit Agent, among Borrowers, Credit Agent, MERS and MERCORP, Inc. "Eligible Balances" means all funds of or maintained by Borrowers (and, if applicable, Borrowers' Subsidiaries) in demand deposit or time deposit accounts at a Designated Bank, minus balances to support float, reserve requirements and any other reductions that may be imposed by governmental authorities from time to time. "Eligible Loan" means a Single Family Mortgage Loan or a Co-op Loan that satisfies the conditions and requirements set forth in Exhibit H. "Eligible Mortgage Pool" means a Mortgage Pool for which (a) an Approved Custodian has issued its initial certification, (b) there exists a Purchase Commitment covering the Agency Security to be issued on the basis of that certification and (c) the Agency Security will be delivered to Credit Agent. "Eligible Servicing Portfolio" means the portion of Borrowers' Servicing Portfolio consisting of rights to service Single Family Mortgage Loans; provided, however, not included are the principal balance of Mortgage Loans included in that Servicing Portfolio (a) with respect to which the Person is obligated to repurchase or indemnify the holder of the Mortgage Loans as a result of defaults on the Mortgage Loans at any time during the term of such Mortgage Loans, (b) the Servicing Contracts for which are not owned by the Person free and clear of all Liens (other than in favor of Credit Agent) or (c) that are serviced by Borrowers for others under subservicing arrangements. "Equity Interests" means all shares, interests, participations or other equivalents, however, designated, of or in a Person (other than a natural person), whether or not voting, including common stock, membership interests, warrants, preferred stock, convertible debentures and all agreements, instruments and documents convertible, in whole or in part, into any one or more of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974 and all rules and regulations promulgated under that statute, as amended, and any successor statute, rules, and regulations. "ERISA Affiliate" means any trade or business (whether or not incorporated) that is a member of a group of which Borrowers is a member and that is treated as a single employer under Section 414 of the Internal Revenue Code. "Event of Default" means any of the conditions or events set forth in Section 10.1. "Exchange Act" means the Securities Exchange Act of 1934 and all rules and regulations promulgated under that statute, as amended, and any successor statute, rules, and regulations. "Exhibit B" means Exhibit B or Exhibit B-CON, as applicable to the type of Eligible Loan against which a Warehousing Advance is to be made. "Existing Agreement" means the First Amended and Restated Warehousing Credit, Term Loan and Security Agreement dated as of May 30, 2003, as amended, between Borrowers, Lenders party thereto and Credit Agent. "Fair Market Value" means, at any time for an Eligible Loan or a related Agency Security (if the Eligible Loan is to be used to back an Agency Security) as of any date of determination, (a) the Committed Purchase Price if the Eligible Loan is covered by a Purchase Commitment from Fannie Mae or Freddie Mac or the Eligible Loan is to be exchanged for an Agency Security and that Agency Security is covered by a Purchase Commitment from an Investor, or (b) otherwise, the market price for such Eligible Loan or Agency Security, determined by Credit Agent based on market data for similar Mortgage Loans or Agency Securities and such other criteria as Credit Agent deems appropriate in its sole discretion. "Fannie Mae" means Fannie Mae, a corporation created under the laws of the United States, and any successor corporation or other entity. "Federal Funds Rate" means, for each week, the effective Federal Funds Rate (per annum) of interest in effect on the first Business Day of that week, as published by Bloomberg L.P. If the Federal Funds Rate is not published by Bloomberg L.P. on the first Business Day of any week, then the term "Federal Funds Rate" means the highest Federal Funds Rate published in the Wall Street Journal in its regular column entitled "Money Rates" on the first Business Day of that week. "FHA" means the Federal Housing Administration and any successor agency or other entity. "FHA Mortgage Loan" means an FHA-insured Mortgage Loan included in the Pledged Loans. "FICA" means the Federal Insurance Contributions Act and all rules and regulations promulgated under that statute, as amended, and any successor statute, rules and regulations. "FIRREA" means the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and all rules and regulations promulgated under that statute, as amended, and any successor statute, rules, and regulations. "First Mortgage" means a Mortgage that constitutes a first Lien on the real property and improvements described in or covered by that Mortgage. "First Mortgage Loan" means a Mortgage Loan secured by a First Mortgage. "Foreclosure Advance Receivables" has the meaning set forth on Exhibit H. "Freddie Mac" means Freddie Mac, a corporation created under the laws of the United States, and any successor corporation or other entity. "Funding Bank" means Bank One or any other bank designated by Credit Agent as a Funding Bank. "Funding Bank Agreement" means a letter agreement on the form prescribed by Credit Agent between the Funding Bank and Borrowers authorizing Credit Agent's access to the Operating Account and the Check Disbursement Account. "GAAP" means generally accepted accounting principles set forth in opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and in statements and pronouncements of the Financial Accounting Standards Board, or in opinions, statements or pronouncements of any other entity approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination. "Gestation Agreement" means an agreement under which Borrowers agree to sell or finance (a) a Mortgage Loan prior to the date of purchase by an Investor, or (b) a Mortgage Pool prior to the date a Mortgage-backed Security backed by the Mortgage Pool is issued. "Ginnie Mae" means the Government National Mortgage Association, an agency of the United States government, and any successor agency or other entity. "GMAC-RFC Client Guide" means the applicable loan purchase guide issued by RFC, as the same may be amended or replaced. "Government Mortgage Loan" means a closed-end First Mortgage Loan that is either HUD/FHA insured (other than a HUD 203(K) Mortgage Loan or a Title I Mortgage Loan) or VA guaranteed. "Guarantor" means, individually and collectively, AH Holdings and AHMIC and any other Person that after the date of this Agreement guarantees all or any portion of the Obligations. "Guaranty" means a guaranty of all or any portion of the Obligations. If more than one Guaranty is executed and delivered to Credit Agent, the term "Guaranty" means each of the Guaranties and all of them. "Hedging Arrangements" means, with respect to any Person, any agreements or other arrangements (including interest rate swap agreements, interest rate cap agreements and forward sale agreements) entered into to protect that Person against changes in interest rates or the market value of assets. "HUD" means the Department of Housing and Urban Development, and any successor agency or other entity. "HUD 203(K) Mortgage Loan" means an FHA-insured closed-end First Mortgage Loan to an individual obligor the proceeds of which will be used for the purpose of rehabilitating and repairing the related single family property, and which satisfies the definition of "rehabilitation loan" in 24 C.F.R. 203.50(a). "Impaired Mortgage" has the meaning set forth on Exhibit H. "Indemnified Liabilities" has the meaning set forth in Section 12.2. "Indemnitees" has the meaning set forth in Section 12.2. "Interest Rate" means, for any Advance, the floating rate of interest specified for that Advance in Exhibit H. "Interim Statement Date" means the date of the most recent unaudited financial statements of Borrowers (and, if applicable, Borrowers' Subsidiaries, on a consolidated basis) delivered to Credit Agent under the Existing Agreement or this Agreement. "Internal Revenue Code" means the Internal Revenue Code of 1986, Title 26 of the United States Code, and all rules, regulations and interpretations issued under those statutory provisions, as amended, and any subsequent or successor federal income tax law or laws, rules, regulations and interpretations. "Investment" means any direct or indirect purchase or other acquisition by any Person of, or a beneficial interest in, stock or other securities of any other Person, or any direct or indirect loan, advance (other than advances to employees for moving and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by that Person to any other Person, including all Debt and accounts receivable from that Person which are not current assets or did not arise from sales to that other Person in the ordinary course of business. "Investment Company Act" means the Investment Company Act of 1940 and all rules and regulations promulgated under that statute, as amended, and any successor statute, rules, and regulations. "Investment Line Agreement" means an agreement under which Borrowers agree (a) to borrow funds from any Lender or other Person reasonably satisfactory to the Credit Agent, (b) to invest such funds in investments of the type described in Section 8.5 (a), (b), (c) and (e), and (c) to pledge such Investments to such Lender or other Person to secure such loans. "Investor" means Fannie Mae, Freddie Mac or a financially responsible private institution that Credit Agent deems acceptable, in its sole discretion, to issue Purchase Commitments with respect to a particular category of Eligible Loans. Investors as of the Closing Date are listed on Exhibit O hereto. Credit Agent may at any time, on 3 Business Days' Notice to Borrowers and Credit Agent, add or remove any Person as an Investor. "Lenders" has the meaning set forth in the first paragraph of this Agreement. "Leverage Ratio" means the ratio of a Person's (and, if applicable, the Person's Subsidiaries, on a consolidated basis) Debt to Tangible Net Worth. For purposes of calculating a Person's Leverage Ratio, Debt arising under Hedging Arrangements relating to such Person's Servicing Portfolio, to the extent of assets arising under those Hedging Arrangements, Debt arising under Gestation Agreements covering Agency Securities or Eligible Mortgage Pools and Debt arising under Investment Line Agreements, to the extent of the Investments securing the same, may be excluded from a Person's Debt. "LIBOR" means, for each week, the rate of interest per annum that is equal to the arithmetic mean of the U.S. Dollar London Interbank Offered Rates for 1 month periods of certain U.S. banks as of 11:00 a.m. (London time) on the first Business Day of each week on which the London Interbank market is open, as published by Bloomberg L.P. If those interest rates are not offered or published for any period, then during that period LIBOR means the London Interbank Offered Rate for 1 month periods as published in The Wall Street Journal in its regular column entitled "Money Rates" on the first Business Day of each week on which the London Interbank market is open. "Lien" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature of such an agreement and any agreement to give any security interest). "Liquid Assets" means the following assets owned by a Person (and, if applicable, that Person's Subsidiaries, on a consolidated basis) as of any date of determination: (a) unrestricted and unencumbered cash, (b) funds on deposit in accounts with any bank located in the United Sates (net of the aggregate amount payable under all outstanding and unpaid checks, drafts and similar items drawn by a Person against those accounts), (c) investment grade commercial paper, (d) money market funds, and (e) marketable securities. "Liquidity Ratio" means the ratio of a Person's Liquid Assets to Book Net Worth (expressed as a percentage). "Loan Documents" means this Agreement, the Notes, the Guaranty, any agreement of Borrowers relating to Subordinated Debt, and each other document, instrument or agreement executed by Borrowers or Guarantor in connection with any of those documents, instruments and agreements, as originally executed or as any of the same may be amended, restated, renewed or replaced. "Loan Package Fee " has the meaning set forth in Section 3.7. "Loan-to-Value Ratio" means, for any Mortgage Loan, the ratio of (a) the maximum amount that may be borrowed under the Mortgage Loan (whether or not borrowed) at the time of origination, plus the Mortgage Note Amounts of all other Mortgage Loans secured by senior or pari passu Liens on the related property, to (b) the Appraised Property Value of the related property. "Majority Lenders" means at any date the Lenders holding not less than 66-2/3% of the aggregate Credit Limit. Notwithstanding the foregoing, if there are only 2 Lenders the term "Majority Lenders" shall, except for purposes of Section 10.2(c), include both Lenders. "Manufactured Home" means a structure that is built on a permanent chassis (steel frame) with the wheel assembly necessary for transportation in one or more sections to a permanent site or semi-permanent site. "Margin Stock" has the meaning assigned to that term in Regulation U of the Board of Governors of the Federal Reserve System, as amended. "MERS" means Mortgage Electronic Registrations Systems, Inc. and any successor entity. "Miscellaneous Fees and Charges" means the miscellaneous fees set forth on Credit Agent's fee schedule attached as Exhibit I and all miscellaneous disbursements, charges and expenses incurred by or on behalf of Credit Agent for the handling and administration of Advances and Collateral, including costs for Uniform Commercial Code, tax lien and judgment searches conducted by Credit Agent, filing fees, charges for wire transfers and check processing charges, charges for security delivery fees, charges for overnight delivery of Collateral to Investors, recording fees, Funding Bank service fees and overdraft charges and Designated Bank Charges. Upon not less than 3 Business Days' prior Notice to Borrowers, Credit Agent may modify Exhibit I and the fees set forth in it to conform to current Credit Agent practices and, as so modified, the revised Exhibit I will become part of this Agreement. "Mortgage" means (i) other than for a Co-op Loan, a mortgage or deed of trust on real property that is improved and substantially completed (including real property to which a Manufactured Home has been affixed in a manner such that the Lien of a mortgage or deed of trust would attach to the Manufactured Home under applicable real property law), and (ii) with respect to a Co-op Loan, a security agreement, UCC financing statement and assignment of proprietary lease. "Mortgage-backed Securities" means securities that are secured or otherwise backed by Mortgage Loans. "Mortgage Loan" means any loan evidenced by a Mortgage Note and secured by a Mortgage and, if applicable, a Security Agreement. "Mortgage Note" means a promissory note secured by one or more Mortgages and, if applicable, one or more Security Agreements. "Mortgage Note Amount" means, as of any date of determination, the then outstanding and unpaid principal amount of a Mortgage Note (whether or not an additional amount is available to be drawn under that Mortgage Note). "Mortgage Pool" means a pool of one or more Pledged Loans on the basis of which a Mortgage-backed Security is to be issued. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA, to which any Borrowers or any ERISA Affiliate of Borrowers has any obligation with respect to its employees. "Non-Usage Fee" has the meaning set forth in Section 3.5. "Notes" means the Warehousing Notes, the Sublimit Notes, the Swingline Note and the Term Loan Notes. "Notices" has the meaning set forth in Section 12.1. "Obligations" means all indebtedness, obligations and liabilities of Borrowers to Lenders and Credit Agent (whether now existing or arising after the date of this Agreement, voluntary or involuntary, joint or several, direct or indirect, absolute or contingent, liquidated or unliquidated, or decreased or extinguished and later increased and however created or incurred) under the Loan Documents. "Operating Account" means a demand deposit account maintained at the Funding Bank in Borrowers' name and designated for funding that portion of each Eligible Loan or Other Eligible Asset not funded by a Warehousing Advance made against that Eligible Loan or Other Eligible Asset and for returning any excess payment from an Investor for a Pledged Loan or Pledged Security. "Other Eligible Assets" has the meaning set forth on Exhibit H. "P&I Advance Receivables-Pooled Loans" has the meaning set forth in Exhibit H. "P&I Advance Receivables-EBO Loans" has the meaning set forth in Exhibit H. "Participant" has the meaning set forth in Section 12.9. "Percentage Share" means, for any Lender at any date, that percentage which such Lender's Warehousing Commitment Amount bears to the Warehousing Credit Limit or Term Loan Commitment Amount bears to the Term Loan Credit Limit, as the case may be. "Person" means and includes natural persons, corporations, limited liability companies, limited liability partnerships, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments and agencies and political subdivisions of those governments. "Plan" means each employee benefit plan (whether in existence on the Closing Date of this Agreement or established after that date), as that term is defined in Section 3 of ERISA, maintained for the benefit of directors, officers or employees of Borrowers or any ERISA Affiliate. "Pledged Assets" means, collectively, Pledged Loans, Pledged Securities and Other Eligible Assets. "Pledged Hedging Accounts" has the meaning set forth in Section 4.1 (k). "Pledged Hedging Arrangements" has the meaning set forth in Section 4.1 (k). "Pledged Loans" has the meaning set forth in Section 4.1(b). "Pledged Securities" has the meaning set forth in Section 4.1(c). "Pledged Servicing Acquisition/Disposition Agreements" has the meaning set forth in Section 4.1 (g). "Pledged Servicing Contracts" has the meaning set forth in Section 4.1(e). "Pledged Servicing Payments" has the meaning set forth in Section 4.1(f). "Prime Mortgage Loan" has the meaning set forth in Exhibit H. "Prohibited Transaction" has the meanings set forth for such term in Section 4975 of the Internal Revenue Code and Section 406 of ERISA. "Purchase Commitment" means a written commitment, in form and substance satisfactory to Credit Agent, issued in favor of any Borrower by an Investor under which that Investor commits to purchase Mortgage Loans or Mortgage-backed Securities. "Rating Agency" means any nationally recognized statistical rating organization that in the ordinary course of its business rates Mortgage-backed Securities. "Receivables" has the meaning set forth in Section 4.1(h). "Release Amount" has the meaning set forth in Section 4.3(f). "REO Property" has the meaning set forth on Exhibit H. "Repurchased Maturing Mortgage Loan" has the meaning set forth in Exhibit H. "Restriction List" and "Restriction Lists" means each and every list of Persons to whom the Government of the United States prohibits or otherwise restricts the provision of financial services. For the purposes of this Agreement, Restriction Lists include the list of Specifically Designated Nationals and Blocked Persons established pursuant to Executive Order 13224 (September 23, 2001) and maintained by the Office of Foreign Assets Control, U.S. Department of the Treasury, current as of the day the Restriction List is used for purposes of comparison in accordance with the requirements of this Agreement. "RFC Mortgage Loan" means a Mortgage Loan covered by a Purchase Commitment issued by RFC. "RFConnects Delivery" means RFC's proprietary service to support the electronic exchange of information between Credit Agent and Borrowers, including Warehousing Advance Requests, shipping requests, payoff requests, wire transfer instructions, security delivery instructions, activity reports and exception reports. "Second Mortgage" means a Mortgage that constitutes a second Lien on the real property and improvements described in or covered by that Mortgage. "Second Mortgage Loan" means a Mortgage Loan secured by a Second Mortgage. "Security Agreement" means a security agreement or other agreement that creates a Lien on personal property, including furniture, fixtures and equipment, to secure repayment of a Mortgage Loan. "Servicing Acquisition" means a transaction in which a Borrower acquires Fannie Mae DUS Servicing Contracts or Ginnie Mae Servicing Contracts in a bulk purchase. "Servicing Acquisition Documents" means, with respect to any Servicing Acquisition, the Servicing Purchase Agreement and all agreements, documents and instruments executed and delivered in connection with the Servicing Acquisition. "Servicing Collateral" means the Collateral described in Sections 4.1(e) and 4.1(f) and all Collateral described in Sections 4.1(h), 4.1(i), 4.1(j) and 4.1(l) that constitutes proceeds of or is related to that Collateral. "Servicing Collateral Value" means, as of any date of determination, 65% of the most recent Appraisal Value of the Servicing Contracts included in the Eligible Servicing Portfolio, adjusted to reflect additions to and deletions from the Eligible Servicing Portfolio since the date of such Appraisal. "Servicing Contract" means, with respect to any Person, the arrangement, whether or not in writing, under which that Person has the right to service Mortgage Loans. "Servicing Delinquencies" means the aggregate outstanding principal balances of Mortgage Loans included in Borrowers' Eligible Servicing Portfolio which are 30 days or more past due (other than such as are in the process of foreclosure). "Servicing Foreclosures" means the aggregate outstanding principal amount of Mortgage Loans included in Borrowers' Eligible Servicing Portfolio which are in the process of foreclosure. "Servicing Portfolio" means, as to any Person, the unpaid principal balance of Mortgage Loans serviced by that Person under Servicing Contracts, minus the principal balance of all Mortgage Loans that are serviced by that Person for others under subservicing arrangements. "Servicing Portfolio Report" has the meaning set forth in Section 7.3(a). "Servicing Purchase Agreement" means the principal agreement or agreements pursuant to which Borrowers make any Servicing Acquisition. "Single Family Mortgage Loan" means a Mortgage Loan secured by a Mortgage on improved real property on which is located a 1-to-4 family residence. "Standard Warehouse Period" means, for any Mortgage Loan or Other Eligible Asset, the maximum number of days a Warehousing Advance against that type of Mortgage Loan or Other Eligible Asset, other than against an Aged Mortgage Loan, may remain outstanding, as set forth in Exhibit H. "Statement Date" means the Audited Statement Date or the Interim Statement Date, as applicable. "Sublimit" means the aggregate amount of Warehousing Advances (expressed as a dollar amount or as a percentage of the Warehousing Commitment Amount) that is permitted to be outstanding at any one time against a specific type of Eligible Loan or Other Eligible Asset. "Sublimit Note" has the meaning set forth in Section 1.6. "Subordinated Debt" means (a) all indebtedness of Borrowers for borrowed money that is effectively subordinated in right of payment to all present and future Obligations either (1) under a Subordination of Debt Agreement on the form prescribed by Credit Agent or (2) otherwise on terms acceptable to Credit Agent, and (b) solely for purposes of Section 8.5, all indebtedness of Borrowers that is required to be subordinated by Sections 5.1(b) and 7.11. "Subprime Mortgage Loan" has the meaning set forth in Exhibit H. "Subsidiary" means any corporation, partnership, association or other business entity in which more than 50% of the shares of stock or other ownership interests having voting power for the election of directors, managers, trustees or other Persons performing similar functions is at the time owned or controlled by any Person either directly or indirectly through one or more Subsidiaries of that Person. "Swingline Advance" means an Advance made by RFC under Section 1.3. "Swingline Facility Amount" means the maximum amount of Swingline Advances to be made by RFC from time to time, but not to exceed $45,000,000. "Swingline Note" has the meaning set forth in Section 1.4. "T&I Receivables" has the meaning set forth on Exhibit H. "Tangible Net Worth" means the excess of a Person's (and, if applicable, that Person's Subsidiaries, on a consolidated basis) total assets over total liabilities as of the date of determination, each determined in accordance with GAAP applied in a manner consistent with the most recent audited financial statements delivered to Credit Agent under the Existing Agreement, plus that portion of Subordinated Debt not due within 1 year of that date. For purposes of calculating a Person's Tangible Net Worth, advances or loans to shareholders, directors, officers, employees or Affiliates, investments in Affiliates, assets pledged to secure any liabilities not included in the Debt of that Person, intangible assets, those other assets that would be deemed by HUD to be non-acceptable in calculating adjusted net worth in accordance with its requirements in effect as of that date, as those requirements appear in the "Consolidated Audit Guide for Audits of HUD Programs," and other assets Credit Agent deems unacceptable, in its sole discretion, must be excluded from that Person's total assets. "Term Loan Advance" means a disbursement by Credit Agent on behalf of Lenders under the Term Loan Agreement. "Term Loan Advance Request" has the meaning set forth in Section 2.2. "Term Loan Commitment" means the obligation of each Lender to make a Term Loan Advance to Borrowers under Section 1.4. "Term Loan Commitment Amount" means, for any Lender at any date, the dollar amount designeated as such opposite such Lender's name on Exhibit M as its Term Loan Commitment Amount, as the same may be amended from time to time in accordance with this Agreement. "Term Loan Commitment Termination Date" has the meaning set forth in Section 1.5. "Term Loan Credit Limit" means the sum of the Term Loan Commitment Amounts of all Lenders. "Term Loan Maturity Date" means the earlier of: (a) 364 days after the Term Loan Commitment Termination Date, (b) 364 days after the Warehousing Commitment is terminated for any reason other than the occurrence of an Event of Default, and c) the date the Term Loan Advances become due and payable under Section 10.2. "Term Loan Non-Usage Fee" has the meaning set forth in Section 3.5. "Term Loan Note" has the meaning set forth in Section 1.6. "Term Loan Usage Fee" has the meaning set forth in Section 3.5. "Third Party Originated Loan" means a Mortgage Loan originated and funded by a third party (other than with funds provided by Borrowers at closing to purchase the Mortgage Loan) and subsequently purchased by Borrowers. "Title I Mortgage Loan" means an FHA co-insured closed-end First Mortgage Loan or Second Mortgage Loan that is underwritten in accordance with HUD underwriting standards for the Title I Property Improvement Program set forth in, and that is reported for insurance under, the Mortgage Insurance Program authorized and administered under Title I of the National Housing Act of 1934, as amended, and the regulations related to that statute "Total Hard Costs" means the total of the costs and expenses listed on the Cost Breakdown. "Trust Receipt" means a trust receipt in a form approved by and under which Credit Agent may deliver any document relating to the Collateral to Borrowers for correction or completion. "Unused Portion" has the meaning set forth in 3.5. "Used Portion" has the meaning set forth in Section 3.5. "Warehousing Advance" means a disbursement by Credit Agent on behalf of Lenders under Section 1.1. "Warehousing Advance Request" has the meaning set forth in Section 2.1. "Warehousing Collateral Value" means, as of any date of determination, (a) with respect to any Eligible Loan, the lesser of (1) the amount of any Warehousing Advance made, or that could be made, against such Eligible Loan or Other Eligible Asset under Exhibit H or (2) an amount equal to the Advance Rate for the applicable type of Eligible Loan or Other Eligible Asset multiplied by the Fair Market Value of such Eligible Loan or Other Eligible Asset; (b) if Eligible Loans or Other Eligible Assets have been exchanged for Agency Securities, the lesser of (1) the amount of any Warehousing Advances outstanding against the Eligible Loans or Other Eligible Assets backing the Agency Securities or (2) an amount equal to the Advance Rates for the applicable types of Eligible Loans or Other Eligible Assets backing the Agency Securities multiplied by the Fair Market Value of the Agency Securities; and (c) with respect to cash, the amount of the cash. "Warehousing Commitment" means the obligation of each Lender to make Warehousing Advances to Borrowers under Section 1.1. "Warehousing Commitment Amount" means, for any Lender at any date, that dollar amount designated as such opposite such Lender's name on Exhibit J as its Warehousing Commitment Amount, as the same may be amended from time to time in accordance with this Agreement. "Warehousing Commitment Fee" has the meaning set forth in Section 3.4. "Warehousing Credit Limit" means the sum of the Warehousing Commitment Amounts of all Lenders. "Warehousing Fee" has the meaning set forth in Section 3.7. "Warehousing Maturity Date" has the meaning set forth in Section 1.2. "Warehousing Note" has the meaning set forth in Section 1.6. "Weighted Average Committed Purchase Price" means the weighted average of the Committed Purchase Prices of the unfilled Purchase Commitments (expressed as a percentage) for Mortgage Loans or Mortgage-backed Securities of the same type, interest rate and term. "Wet Settlement Advance" means with respect to any Warehousing Advance, the time from the date the Warehousing Advance is made until the date of Credit Agent's receipt of the Collateral Documents required by Article 2 and the Exhibits and documents referenced in that Article. "Wire Disbursement Account" means a demand deposit account maintained at the Funding Bank in Credit Agent's name for clearing wire transfers requested by Borrowers to fund Warehousing Advances. "Wire Fee" has the meaning set forth in Section 3.7. 13.2. Other Definitional Provisions; Terms of Construction 13.2 (a) Accounting terms not otherwise defined in this Agreement have the meanings given to those terms under GAAP. 13.2 (b) Defined terms may be used in the singular or the plural, as the context requires. 13.2 (c) All references to time of day mean the then applicable time in Chicago, Illinois, unless otherwise expressly provided. 13.2 (d) References to Sections, Exhibits, Schedules and like references are to Sections, Exhibits, Schedules and the like of this Agreement unless otherwise expressly provided. 13.2 (e) The words "include," "includes" and "including" are deemed to be followed by the phrase "without limitation." 13.2 (f) Unless the context in which it is used otherwise clearly requires, the word "or" has the inclusive meaning represented by the phrase "and/or." 13.2 (g) All incorporations by reference of provisions from other agreements are incorporated as if such provisions were fully set forth into this Agreement, and include all necessary definitions and related provisions from those other agreements. All provisions from other agreements incorporated into this Agreement by reference survive any termination of those other agreements until the Obligations of Borrowers under this Agreement and the Notes are irrevocably paid in full and the Commitments are terminated. 13.2 (h) All references to the Uniform Commercial Code shall be deemed to be references to the Uniform Commercial Code in effect on the date of this Agreement in the applicable jurisdiction. 13.2 (i) Unless the context in which it is used otherwise clearly requires, all references to days, weeks and months mean calendar days, weeks and months. End of Article 0 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. BORROWERS: COLUMBIA NATIONAL, INCORPORATED, a Maryland corporation By: /s/ Alan Horn ------------------------------------------- Its: Executive Vice President ------------------------------------------ Columbia National, Incorporated c/o American Home Mortgage Holdings, Inc. 520 Broadhollow Road Melville, NY 11747 Attention: Stephen A. Hozie, Chief Financial Officer Facsimile: (631) 777-3289 AMERICAN HOME MORTGAGE CORP., a New York corporation By: /s/ Alan Horn ------------------------------------------- Its: Executive Vice President ------------------------------------------ American Home Mortgage Corp. c/o American Home Mortgage Holdings, Inc. 520 Broadhollow Road Melville, NY 11747 Attention: Stephen A. Hozie, Chief Financial Officer Facsimile: (631) 777-3289 AMERICAN HOME MORTGAGE ACCEPTANCE, INC., a Maryland corporation By: /s/ Alan Horn ------------------------------------------- Its: Executive Vice President ------------------------------------------ American Home Mortgage Acceptance, Inc. 520 Broadhollow Road Melville, NY 11747 Attention: Craig Pino, Senior V.P./Treasurer Facsimile: (516) 495-5411 CREDIT AGENT: RESIDENTIAL FUNDING CORPORATION, a Delaware corporation By: /s/ Jason Mitchell ------------------------------------------- Its: Director ------------------------------------------ Residential Funding Corporation 7501 Wisconsin Avenue Bethesda, MD 20814 Attention:, Jason Mitchell, Director Facsimile: (301) 215-6288 LENDERS: RESIDENTIAL FUNDING CORPORATION, a Delaware corporation By: /s/ Jason Mitchell ------------------------------------------- Its: Director ------------------------------------------ Residential Funding Corporation 7501 Wisconsin Avenue Bethesda, MD 20814 Attention: Jason Mitchell, Director Facsimile: (301) 215-6288 LENDER: COLONIAL BANK, N.A., By: /s/ Amy J. Nunneley ------------------------------------------- Its: Senior Vice President ------------------------------------------ Colonial Bank, N.A. 201 East Pine Street Suite 730 Orlando, FL 32801 Attention: Cathie Kissick Facsimile: (407) 835-6637 LENDER: CALYON NEW YORK BRANCH By: /s/ William Denton ------------------------------------------- William Denton Managing Director By: /s/ Sebastian Rocco ------------------------------------------- Sebastian Rocco Managing Director Calyon New York Branch 1301 Avenue of the Americas New York, NY 10019 Attention: Jay Buckley Facsimile: (212) 261-3438 LENDER: FLEET NATIONAL BANK By: /s/ Carolyn N. Warren ------------------------------------------- Its: Carolyn N. Warren, Principal ------------------------------------------ Fleet National Bank 901 Main Street, 66th Floor TX1-492-66-01 Dallas, TX 75202 Attention: Elizabeth Kurilecz Facsimile: (214) 209-1027 LENDER: MANUFACTURERS AND TRADERS TRUST COMPANY By: /s/ [ILLEGIBLE] ------------------------------------------- Its: Vice President ------------------------------------------ MANUFACTURERS AND TRADERS TRUST COMPANY 25 South Charles Street Mail Code 101-745 Baltimore, MD 21201 Attention: Timothy Avendt Facsimile: (410) 545-2047 LENDER: THE BANK OF NEW YORK By: /s/ Indra D. Kish ------------------------------------------- Its: Indra D. Kish, Vice President ------------------------------------------ The Bank of New York One Wall Street 21st Floor New York, NY 10286 Attention: Indra Kish Facsimile: (212) 635-6468 LENDER: U.S. BANK NATIONAL ASSOCIATION By: /s/ Kathleen M. Connor ------------------------------------------- Its: Kathleen M. Connor, Vice President ------------------------------------------ U.S. Bank National Association 800 Nicollet Mall Mortgage Banking Services BC-MN-H03B Minneapolis, MN 55402-7020 Attention: Kathleen Connor Facsimile: (612) 303-2253 LENDER: COMMERZBANK AG, New York and Grand Cayman Branches, except with respect to the waivers set forth in Section 12.20 of this Agreement By: /s/ Michael P. McCarthy ------------------------------------------- Its: Michael P. McCarthy, Vice President ------------------------------------------ Commerzbank AG, New York Branch 2 World Financial Center New York, NY 10281 Attention: Joseph J. Hayes, Vice President Facsimile: (212) 266-7629 AND By: /s/ William M. Earley ----------------------------------------- Its: William M. Earley, Senior Vice President ----------------------------------------- Commerzbank AG, New York Branch 2 World Financial Center New York, NY 10281 Attention: William M. Earley, Sr. Vice President Facsimile: (212) 266-7629 LENDER: BANK HAPOALIM B.M., By: /s/ Helen H. Gateson ------------------------------------------- Its: Helen H. Gateson, Vice President ------------------------------------------ Bank Hapoalim B.M. 1177 Avenue of the Americas New York, NY 10036 Attention: Helen Gateson Facsimile: (212) 782-2382 AND: By: /s/ Lewroy Hackett ------------------------------------------- Its: Lewroy Hackett ------------------------------------------ Bank Hapoalim B.M. 1177 Avenue of the Americas New York, NY 10036 Attention: Facsimile: EX-10.2 5 am696881-ex10_2.txt GUARANTY Exhibit 10.2 - -------------------------------------------------------------------------------- GUARANTY - -------------------------------------------------------------------------------- THIS GUARANTY, dated May 27, 2004, is made and given by American Home Mortgage Investment Corp., a Maryland corporation ("Guarantor"), to RESIDENTIAL FUNDING CORPORATION, a Delaware corporation, as credit agent ("Credit Agent") for the lenders ("Lenders") party to the Agreement (as defined below). RECITALS 1) Credit Agent and Lenders have agreed to make certain accommodations ("Loan") to Columbia National, Incorporated, a Maryland corporation, AMERICAN HOME MORTGAGE CORP., a New York corporation, and AMERICAN HOME MORTGAGE ACCEPTANCE, INC., a Maryland corporation (collectively referred to as "Borrowers" and individually referred to as "Borrower"). 2) The Loan is evidenced by Borrowers' Warehousing Notes and Sublimit Notes and Term Loan Notes, each dated as of May 27, 2004 (as amended, supplemented or otherwise modified, including any other instruments executed and delivered in renewal, extension, rearrangement or otherwise in replacement of any of those promissory notes, the "Notes")" and provided pursuant to a Second Amended and Restated Warehousing Credit, Term Loan and Security Agreement (Syndicated) dated as of May 27, 2004 between Borrowers, Lenders and Credit Agent (as amended, restated, renewed or replaced, including any other instruments executed and delivered in renewal, extension, rearrangement or otherwise in replacement of that agreement, the "Agreement"). 3) Guarantor is the direct or indirect sole shareholder of each Borrower and will derive substantial benefits from the Loan. 4) Lenders refuse to make the Loan until Credit Agent receives this Guaranty. 5) In order to induce Credit Agent and Lenders to accept the Notes and the Agreement and to induce Lenders to make the Loan to Borrowers, Guarantor is willing to execute and deliver this Guaranty to Credit Agent. AGREEMENT NOW, THEREFORE, Guarantor agrees with Credit Agent and Lenders as follows: 6) Definitions; Rules of Construction. Unless otherwise defined in this Guaranty, all capitalized terms have the meanings given to those terms in the Agreement. Defined terms may be used in the singular or the plural, as the context requires. The words "include," "includes" and "including" are deemed to be followed by the phrase "without limitation." Unless the context in which it is used otherwise clearly requires, the word "or" has the inclusive meaning represented by the phrase "and/or." References to Sections are to Sections of this Guaranty unless otherwise expressly provided. 7) Guaranty of Payment and Performance. Guarantor irrevocably, unconditionally and absolutely guarantees to Credit Agent and Lenders the due and prompt payment (and not just the collectibility) by Borrowers of a) the principal, and b) all interest, fees, late charges and other indebtedness arising under the Notes and the Agreement, when due, whether at maturity, by reason of acceleration or otherwise, all at the times, places and at the rates described in, and otherwise according to the terms of, the Notes and the Agreement, and all whether currently existing or created or arising after the date of this Guaranty. Guarantor also irrevocably, unconditionally and absolutely guarantees to Credit Agent and Lenders the 1 due and prompt performance by Borrowers of all other duties and obligations of Borrowers contained in the Notes and the Agreement, and the due and prompt payment of all costs and expenses incurred by Credit Agent or any Lender (including attorneys' fees, court costs and other litigation expenses such as expert witness fees, exhibit preparation and courier, postage, communication and document copying expenses) to enforce the payment and performance of the Notes, the Agreement and this Guaranty. The payment and performance of the items set forth in this Section are collectively referred to as the "Guaranteed Debt." Any sum payable by Guarantor to Credit Agent under this Guaranty will bear interest from the date due until paid at a per annum rate of interest equal to the highest Default Rate then applicable under the Agreement. c) Limitations on Scope of Guaranty. Notwithstanding anything to the contrary contained in this Guaranty or in any of the Loan Documents, the Guarantor's liability for payment of the Guaranteed Debt shall be limited to the aggregate of (a) Error! Unknown document property name., (b) interest on such amount from the date demanded until the date paid at a per annum rate of interest equal to the highest Interest Rate then applicable under the Agreement and (c) all costs and expenses incurred by the Lender (including reasonable attorneys' fees) in enforcing this Guaranty, which amount may be comprised of any portion of the Guaranteed Debt, to be determined at the sole discretion of the Lender." 8) Right of Set-Off. After an Event of Default occurs, Credit Agent or any Lender may, without notice or demand to Guarantor (which notice or demand Guarantor expressly waives), set-off and apply any property of Guarantor in Credit Agent's or such Lender's possession or control, or standing to the credit of Guarantor, to the payment of the Guaranteed Debt. 9) Other Transactions. Guarantor (a) consents to all modifications of the terms and conditions of the Guaranteed Debt and to all extensions or renewals of the time of payment or performance of the Guaranteed Debt by Borrowers; (b) agrees that Credit Agent and Lenders need not resort to legal remedies against any Borrower or take action against any other Person obligated (an "Obligor") for the payment or performance of the Guaranteed Debt or against any collateral for the Guaranteed Debt before proceeding against Guarantor under this Guaranty; (c) agrees that no release of any Borrower or any other guarantor or Obligor, and no release, exchange or nonperfection of any collateral for the Guaranteed Debt, whether by operation of law or by any act or failure to act of Credit Agent, with or without notice to Guarantor, shall release Guarantor; (d) waives presentment, demand, notice of demand, dishonor, notice of dishonor, protest, and notice of protest and any other notice with respect to the Guaranteed Debt and this Guaranty, and promptness in commencing suit against any party to or liable on the Guaranteed Debt or in giving any notice to or making any claim or demand upon Guarantor under this Guaranty; (e) waives any defense arising by reason of any disability or other defense of any Borrower for payment of all or any part of the Guaranteed Debt or by reason of the cessation from any cause whatsoever of the liability of any Borrower for the Guaranteed Debt other than full payment; and (f) waives, to the extent permitted by law, all benefit of valuation, appraisement and exemptions under the laws of the State of Minnesota or any other state or territory of the United States. 10) Continuing Guaranty. Guarantor's obligations under this Guaranty are primary, absolute and unconditional. Only full and irrevocable payment and performance of the Guaranteed Debt will discharge Guarantor's obligations under this Guaranty. Guarantor's obligations under this Guaranty are not impaired or affected by: (a) the genuineness, validity, regularity or enforceability of, or any amendment or change in the Agreement or the other Loan Documents, or any change in or extension of the manner, place or terms of payment of, all or any portion of the Guaranteed Debt; (b) Credit Agent's or any Lender's taking or failure to take any action to enforce the Agreement or the other Loan Documents, or Credit Agent's or any Lender's exercise or failure to exercise any remedy, power or privilege contained in the Loan Documents or available at law or otherwise, or the waiver by Credit Agent or any Lender of any provisions of the Agreement or the other Loan Documents; (c) any impairment, modification, change, release or limitation in any manner of the liability of any Borrower or its estate in bankruptcy, or of any remedy for the enforcement of any Borrower's liability, resulting from the operation of any present or future provision of the bankruptcy laws or any other statute or regulation, or the dissolution, bankruptcy, 2 insolvency or reorganization of any Borrower; (d) the merger or consolidation of any Borrower, or any sale or transfer by any Borrower of all or any part of its assets or property; (e) any claim Guarantor may have against any other Obligor, including any claim of contribution; (f) the release, in whole or in part, of any other guarantor (if more than one), any Borrower or any other Obligor; (g) any settlement or compromise with any Obligor with respect to any Guaranteed Debt or the subordination of the payment of all or any part of the Guaranteed Debt to the payment of any other debts or claims that may at any time be due and owing to Credit Agent or any Lender or any other Person; or (h) any other action or circumstance that may (with or without notice to or knowledge of Guarantor) in any manner or to any extent vary the risks of Guarantor under this Guaranty or otherwise constitute a legal or equitable discharge or defense. Guarantor's obligations under this Guaranty are in addition to Guarantor's obligations under any other guaranties of the Guaranteed Debt or any other obligations of any Borrower or any other Persons, and this Guaranty does not affect or invalidate those other guaranties. Guarantor's liability to Credit Agent and Lenders is deemed to be the aggregate liability of Guarantor under the terms of this Guaranty and any other guaranties made in favor of Credit Agent or any Lender before or after the date of this Guaranty. 11) Application of Payments. Credit Agent has the exclusive right to determine the application of all payments and credits (whether derived from Borrowers or from any other source) to be made on the Guaranteed Debt and any other indebtedness owed by any Borrower or any other Obligor to Credit Agent or any Lender. Credit Agent and Lenders have no obligation to marshal any assets in favor of Guarantor or in payment of all or any part of the Guaranteed Debt. 12) Recovery of Payments. Guarantor's obligations under this Guaranty continue to be effective, or are automatically reinstated, as the case may be, if at any time the performance or the payment, in whole or in part, of any of the Guaranteed Debt is rescinded or must otherwise be restored or returned by Credit Agent or any Lender (as a preference, fraudulent conveyance or otherwise) upon or as a result of (a) the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Borrower, Guarantor or any other Person, (b) the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to any Borrower, Guarantor or any other Person, (c) the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to any substantial part of any Borrower's, Guarantor's or any other Person's property, or (d) any other action or event, all as though those payments had not been made. If an Event of Default exists and a case or proceeding against Guarantor or any Borrower under a bankruptcy or insolvency law prevents Credit Agent or any Lender from declaring a default and accelerating Guarantor's obligations under this Guaranty or from declaring a default and accelerating any Guaranteed Debt, Guarantor's obligations under this Guaranty will be deemed to have been declared in default and accelerated with the same effect as if this Guaranty and those obligations had been declared in default and accelerated in accordance with their respective terms, and Guarantor must immediately perform or pay, as the case may be, as required under the terms of this Guaranty without further notice or demand. 13) No Subrogation. Until the Guaranteed Debt has been irrevocably paid and performed in full, Guarantor irrevocably waives any claims or other rights that Guarantor now has or may acquire against any Borrower that arise from the existence, payment, performance or enforcement of Guarantor's obligations under this Guaranty, including any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of Credit Agent or any Lender against any Borrower or any collateral that Credit Agent or any Lender now has or may acquire, whether or not that claim, remedy or right arises in equity or under contract, statute or common law, including the right to take or receive from any Borrower, directly or indirectly, in cash or other property or by set-off or in any manner, payment or security on account of that claim or other right. In addition, to the extent permitted by law, Guarantor irrevocably releases and waives any such subrogation rights or rights of reimbursement, exoneration, contribution or indemnity to the extent any such rights give rise to a claim under the U.S. Bankruptcy Code that payments or transfers to Credit Agent or any Lender with respect to the Guaranteed Debt constitute a preference in favor of Guarantor or a claim under the U.S. Bankruptcy Code that the preference is recoverable from Credit Agent or any Lender. Any amount paid to Guarantor 3 in violation of the preceding two sentences is deemed to have been paid to Guarantor for the benefit of, and held in trust for, Credit Agent and Lenders and must immediately be paid to Credit Agent to be credited and applied to the Guaranteed Debt, whether matured or unmatured. Notwithstanding the blanket waiver of subrogation rights set forth above, Guarantor specifically acknowledges that any subrogation rights that Guarantor may have against any Borrower or any collateral that Credit Agent or any Lender now has or may acquire may be destroyed by a nonjudicial foreclosure of the collateral. Without limiting the foregoing, Guarantor waives all rights and defenses arising out of Credit Agent's or any Lender's election of remedies, even though that election of remedies (such as a nonjudicial foreclosure with respect to security for any Guaranteed Debt) may destroy Guarantor's rights of subrogation and reimbursement against any Borrower. To the extent permitted by Part 6 of Article 9 of the Uniform commercial Code of Minnesota or of any other applicable jurisdiction ("Part 6"), Guarantor also waives the right to require Credit Agent or any Lender to comply with the provisions of Part 6 in connection with Credit Agent's enforcement of any security interest securing the payment or performance of the Guaranteed Debt. Guarantor specifically acknowledges that Guarantor will receive direct and indirect benefits from the arrangements contemplated by the Agreement and that the waivers set forth in this Section are knowingly made in contemplation of those benefits. Guarantor agrees that Credit Agent and Lenders will incur no liability as a result of the commercially reasonable sale or other disposition of all or any portion of the Collateral at any public or private sale or other disposition. Guarantor waives (to the extent permitted by law) any claims Guarantor may have against Credit Agent or any Lender arising by reason of the fact that the price at which the Collateral may have been sold at a private sale was less than the price that Credit Agent might have obtained at a public sale, or was less than the aggregate amount of the Guaranteed Debt, even if Credit Agent accepts the first offer received and does not offer the Collateral to more than one offeree. Guarantor agrees that any sale of Collateral under the terms of a Purchase Commitment, or any other disposition of Collateral arranged by any Borrower, whether before or after the occurrence of an Event of Default, will be deemed to have been made in a commercially reasonable manner. Guarantor acknowledges that Mortgage Loans are collateral of a type that is the subject of widely distributed standard price quotations and that Mortgage-backed Securities are collateral of a type that is customarily sold on a recognized market. Guarantor waives any right Guarantor may have to prior notice of the sale of Pledged Securities, and agrees that Credit Agent or any Lender may purchase Pledged Loans and Pledged Securities at a private sale of such Collateral. 14) Remedies. Credit Agent's or any Lender's postponement or delay in the enforcement of any right under this Guaranty is not a waiver of that right and all of Credit Agent's and Lenders' rights under this Guaranty are cumulative and not alternative and are in addition to any other rights granted to Credit Agent or any Lender in any other agreement or by law. Guarantor understands and acknowledges that time is of the essence with respect to the performance of Guarantor's obligations under this Guaranty. 15) Reaffirmation. When requested by Credit Agent, Guarantor must promptly execute and deliver a written reaffirmation of this Guaranty in such form as Credit Agent may require. 16) Representations, Warranties and Covenants. Guarantor represents, warrants to Credit Agent and Lenders and agrees for the benefit of Credit Agent and Lenders, as follows: a) Organization and Good Standing. Guarantor is a Maryland corporation duly organized, validly existing and in good standing under the laws of the State of and has the full legal power and authority to own its property and to carry on its business as currently conducted. Guarantor is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction in which the transaction of its business makes qualification necessary, except in jurisdictions, if any, where a failure to be in good standing has no material adverse effect on Guarantor's business, operations, assets or financial condition as a whole. For the purposes of this Guaranty, good standing includes qualification for any and all licenses and payment of any and all taxes required in the jurisdiction of its corporation and in each jurisdiction in which Guarantor transacts business. 4 b) Authority and Authorization. Guarantor has the power and authority to execute, deliver and perform this Guaranty. The execution, delivery and performance by Guarantor of this Guaranty has been duly and validly authorized by all necessary corporate action on the part of Guarantor (none of which actions has been modified or rescinded, and all of which actions are in full force and effect). The execution, delivery and performance by Guarantor of this Guaranty do not and will not conflict with or violate any provision of law, any judgments binding upon Guarantor, or the articles of incorporation or by laws of Guarantor, and do not and will not conflict with or result in a breach of or constitute a default or require any consent under any agreement, instrument or indenture to which Guarantor is a party or by which Guarantor or its property may be bound or affected. This Guaranty constitutes the legal, valid, and binding obligation of Guarantor, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights. c) Financial Statements. All financial statements and other information given to Credit Agent with respect to Guarantor fairly and accurately present the financial condition of Guarantor as of the date of those financial statements and that information, and there has been no material adverse change in the financial condition of Guarantor since the date of those financial statements and that information. Guarantor must promptly deliver to Credit Agent (or to Borrowers in time for Borrowers to deliver to Credit Agent) all financial statements, tax returns and other information about Guarantor that are required by the Agreement or requested by Credit Agent. d) No Default. Guarantor is not in default with respect to any order, writ, injunction, decree or demand of any court or other governmental authority, in the payment of any material debt for borrowed money or under any material agreement evidencing or securing any such debt. e) Solvency. Guarantor is now solvent, and there are no bankruptcy or insolvency proceedings pending or contemplated by or, to the best of Guarantor's knowledge, against Guarantor. f) Relationship to Borrowers. The consideration received or to be received by Guarantor as a result of the Loan is worth as much or more than the liabilities and obligations incurred by Guarantor under this Guaranty. Guarantor has had full and complete access to the Agreement and the Notes and all other Loan Documents relating to the Guaranteed Debt, has reviewed them and is fully aware of the meaning and effect of those documents. Guarantor is fully informed of all facts and circumstances that bear upon the risks of executing this Guaranty, including all facts that a diligent inquiry would reveal. Guarantor has the ability to obtain from Borrowers on a continuing basis information concerning each Borrower's financial condition, and Guarantor is not relying on Credit Agent or any Lender to provide such information. Except as specifically required by this Guaranty, Credit Agent and Lenders have no obligation to advise or notify Guarantor or to provide Guarantor with any data or information about any Borrower. Credit Agent and Lenders have not agreed to make, extend or modify any loan or other financial accommodation to or for Guarantor in consideration of Guarantor's execution and delivery of this Guaranty. g) Litigation. There is no action, suit or proceeding at law or in equity or by or before any administrative agency pending or contemplated by or, to the best of Guarantor's knowledge, against Guarantor that, if adversely determined, would result in a material adverse change in Guarantor's financial condition. h) Taxes. Guarantor has filed all federal, state, provincial, county, municipal and other income, excise, property and other tax returns required to have been filed by Guarantor. Guarantor has paid all taxes that have become due pursuant to those returns or pursuant to any assessments received by Guarantor, and Guarantor has no knowledge of any 5 basis for any material additional assessment against Guarantor with respect to those taxes. Guarantor's representations and warranties in this Guaranty and in any other agreement between Guarantor and Credit Agent or any Lender will survive the execution, delivery and performance of this Guaranty and the creation and payment of the Guaranteed Debt. 17) Subordination of Borrower Debt. All indebtedness of Borrowers (or any of them) to Guarantor ("Subordinated Debt") is subordinated to the Guaranteed Debt. Upon Credit Agent's request, Guarantor must collect, enforce and receive payments on the Subordinated Debt as trustee for Credit Agent and Lenders, and pay over those amounts to Credit Agent on account of the Guaranteed Debt. The collection and payment of those amounts to Credit Agent does not reduce or limit Guarantor's liability under any other provision of this Guaranty. 18) Governing Law. This Guaranty is governed by the laws of the State of Minnesota, without reference to its principles of conflicts of laws. 19) Severability. Any provision of this Guaranty declared to be illegal or unenforceable in any respect is null and void and of no force and effect to the extent of the illegality or unenforceability, but all other covenants, terms, conditions and provisions of this Guaranty continue to be valid and enforceable. 20) Successors and Assigns. The terms and provisions of this Guaranty are binding upon and inure to the benefit of Credit Agent, Guarantor and their respective heirs, executors, administrators, personal representatives, successors and assigns. 21) Waivers and Amendments. This Guaranty may not be amended, modified or supplemented unless the amendment, modification or supplement is set forth in a writing signed by both Guarantor and Credit Agent. No waiver of any provision of this Guaranty nor consent to any departure by Guarantor from the terms of this Guaranty will be effective unless the same is in writing and signed by Credit Agent, and then that waiver or consent is effective only in the specific instance and for the specific purpose for which given. No notice to or demand on Guarantor shall in any case entitle Guarantor to any other or further notice or demand in similar or other circumstances. 22) Notices. All notices and communications required or permitted to be given or made under this Guaranty must be in writing and must be sent by manual delivery, overnight courier or United States registered or certified mail, return receipt requested (postage prepaid, including registration or certification charges), addressed as follows (or at such other address as may be designated by Guarantor or Credit Agent in a notice to the other): If to Guarantor: American Home Mortgage Investment, Corp. 520 Broadhollow Road Melville, NY 11747 If to Credit Agent: Residential Funding Corporation 7501 Wisconsin Avenue Bethesda, MD 20814 Attention: Jason Mitchell, Director 6 All periods of notice will be measured from the date of delivery if manually delivered, from the first Business Day after the date of sending if sent by overnight courier or from 4 days after the date of mailing if sent by United States mail, except that notices of changes of address are not effective until actually received. 23) Entire Agreement. This Guaranty represents the final agreement of guaranty between Guarantor and Credit Agent and Lenders. This Guaranty may not be contradicted by evidence of prior or contemporaneous oral agreements, and there are no oral agreements between Guarantor and Credit Agent or any Lender with respect to the subject matter of this Guaranty. No course of prior dealings between Guarantor and Credit Agent or any Lender, no usage of trade and no parole or extrinsic evidence of any nature may be used to contradict or modify the terms and provisions of this Guaranty. 24) Consent to Jurisdiction. AT CREDIT AGENT'S OPTION, THIS GUARANTY MAY BE ENFORCED IN ANY STATE OR FEDERAL COURT WITHIN THE STATE OF MINNESOTA. GUARANTOR CONSENTS TO THE JURISDICTION AND VENUE OF THOSE COURTS, AND WAIVES ANY OBJECTION TO THE JURISDICTION OR VENUE OF THOSE COURTS, INCLUDING THE OBJECTION THAT VENUE IN THOSE COURTS IS NOT CONVENIENT. ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE COMMENCED AND INSTITUTED BY SERVICE OF PROCESS UPON GUARANTOR BY FIRST CLASS REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO GUARANTOR AT ITS ADDRESS LAST KNOWN TO CREDIT AGENT. GUARANTOR'S CONSENT AND AGREEMENT UNDER THIS SECTION DOES NOT AFFECT CREDIT AGENT'S RIGHT TO ACCOMPLISH SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST GUARANTOR IN ANY OTHER JURISDICTION OR COURT. IN THE EVENT GUARANTOR COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS GUARANTY, CREDIT AGENT AT ITS OPTION MAY HAVE THE CASE TRANSFERRED TO A STATE OR FEDERAL COURT WITHIN THE STATE OF MINNESOTA OR, IF A TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, MAY HAVE GUARANTOR'S ACTION DISMISSED WITHOUT PREJUDICE. 25) Waiver of Jury Trial. GUARANTOR AND CREDIT AGENT EACH AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND FULLY WAIVES ANY RIGHT TO TRIAL BY JURY TO THE EXTENT THAT ANY SUCH RIGHT NOW EXISTS OR ARISES AFTER THE DATE OF THIS GUARANTY. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY, BY GUARANTOR AND CREDIT AGENT, AND IS INTENDED TO ENCOMPASS EACH INSTANCE AND EACH ISSUE FOR WHICH THE RIGHT TO TRIAL BY JURY WOULD OTHERWISE APPLY. CREDIT AGENT OR ANY LENDER IS AUTHORIZED AND DIRECTED TO SUBMIT THIS GUARANTY TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES TO THIS AGREEMENT AS CONCLUSIVE EVIDENCE OF THIS WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER, GUARANTOR CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF CREDIT AGENT OR ANY LENDER, INCLUDING CREDIT AGENT'S OR ANY LENDER'S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO ANY OF GUARANTOR'S REPRESENTATIVES OR AGENTS, INCLUDING GUARANTOR'S COUNSEL, THAT CREDIT AGENT OR ANY LENDER WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO TRIAL BY JURY. 26) Waiver of Punitive, Consequential, Special or Indirect Damages. GUARANTOR WAIVES ANY RIGHT GUARANTOR MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES FROM CREDIT AGENT, ANY LENDER AND ANY OF CREDIT AGENT'S OR ANY LENDER'S AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY GUARANTOR AGAINST CREDIT AGENT, ANY LENDER OR ANY OF CREDIT AGENT'S OR ANY LENDER'S AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS 7 WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY. THIS WAIVER OF THE RIGHT TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES IS KNOWINGLY AND VOLUNTARILY GIVEN BY GUARANTOR, AND IS INTENDED TO ENCOMPASS EACH INSTANCE AND EACH ISSUE FOR WHICH THE RIGHT TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES WOULD OTHERWISE APPLY. CREDIT AGENT AND LENDERS ARE AUTHORIZED AND DIRECTED TO SUBMIT THIS GUARANTY TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AS CONCLUSIVE EVIDENCE OF THIS WAIVER OF THE RIGHT TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES. IN WITNESS WHEREOF, Guarantor has executed this Guaranty with the intent to be legally bound as of the date first above written. American Home Mortgage Investment Corp., a Maryland corporation By: /s/ Michael Strauss ------------------------------------------- Its: Michael Strauss, President and Chief Executive Officer ------------------------------------------ Address: 520 Broadhollow Road Melville, NY 11747 Telephone: 516-396-7700 ------------------------------------ E.I. No.: 20-0103914 8 EX-10.3 6 am696881-ex10_3.txt SECOND AMENDED AND RESTATED MASTER REPURCHASE Exhibit 10.3 EXECUTION COPY -------------- ================================================================================ SECOND AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT Between CDC MORTGAGE CAPITAL INC., as Buyer and AMERICAN HOME MORTGAGE CORP., AMERICAN HOME MORTGAGE INVESTMENT CORP., AMERICAN HOME MORTGAGE ACCEPTANCE, INC. AMERICAN HOME MORTGAGE HOLDINGS, INC., and COLUMBIA NATIONAL, INCORPORATED, collectively, as Seller Dated as of June 1, 2004 TABLE OF CONTENTS Page 1. APPLICABILITY............................................................1 2. DEFINITIONS..............................................................1 3. INITIATION; TERMINATION.................................................24 4. MARGIN AMOUNT MAINTENANCE...............................................32 5. INCOME PAYMENTS.........................................................32 6. REQUIREMENTS OF LAW.....................................................33 7. SECURITY INTEREST.......................................................35 8. PAYMENT, TRANSFER AND CUSTODY...........................................36 9. HYPOTHECATION OR PLEDGE OF PURCHASED ASSETS.............................37 10. SELLER REPRESENTATIONS..................................................37 11. COVENANTS OF SELLER.....................................................42 12. EVENTS OF DEFAULT.......................................................49 13. REMEDIES................................................................51 14. INDEMNIFICATION AND EXPENSES............................................54 15. RECORDING OF COMMUNICATIONS.............................................55 16. SINGLE AGREEMENT........................................................55 17. NOTICES AND OTHER COMMUNICATIONS........................................55 18. ENTIRE AGREEMENT; SEVERABILITY..........................................56 19. NON-ASSIGNABILITY.......................................................56 20. TERMINABILITY...........................................................56 21. GOVERNING LAW...........................................................57 22. Submission To Jurisdiction; Waivers.....................................57 23. NO WAIVERS, ETC.........................................................58 24. SERVICING...............................................................58 25. INTENT..................................................................59 26. PERIODIC DUE DILIGENCE REVIEW...........................................60 27. BUYER'S APPOINTMENT AS ATTORNEY-IN-FACT.................................60 28. MISCELLANEOUS...........................................................62 29. CONFIDENTIALITY.........................................................62 i 30. CONFLICTS...............................................................63 31. Set-Off.................................................................63 32. Obligations Joint and Several...........................................63 ii EXHIBITS SCHEDULE 1 Representations and Warranties Re: Mortgage Loans SCHEDULE 2 Jurisdictions of Incorporation and Organizational Identification Numbers of Seller Entities EXHIBIT I Transaction Request EXHIBIT II Underwriting Guidelines EXHIBIT III Form of Opinion Letter EXHIBIT IV UCC Filing Jurisdictions EXHIBIT V Form of Account Agreement EXHIBIT VI Form of True Sale Certification EXHIBIT VII Form of Servicer Notice EXHIBIT VIII Form of Request for Additional Transactions For Excess Margin EXHIBIT IX Form of Compliance Report iii SECOND AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT This is a SECOND AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT, dated as of June 1, 2004, among AMERICAN HOME MORTGAGE CORP., a New York corporation ("AHMC"), AMERICAN HOME MORTGAGE INVESTMENT CORP., a Maryland corporation ("AHMIC"), AMERICAN HOME MORTGAGE ACCEPTANCE, INC., a Maryland corporation ("AHMA"), AMERICAN HOME MORTGAGE HOLDINGS, INC., a Delaware corporation ("AHMH"), COLUMBIA NATIONAL, INCORPORATED, a Maryland corporation ("CNI" and, collectively with AHMC, AHMIC, AHMA and AHMH, the "Seller" and each a "Seller Entity") and CDC MORTGAGE CAPITAL INC., a New York corporation ("Buyer"). 1. APPLICABILITY From time to time the parties hereto may enter into transactions ("Committed Transactions") in which Seller agrees to transfer to Buyer Mortgage Loans against the transfer of funds by Buyer, with a simultaneous agreement by Buyer to transfer to Seller such Mortgage Loans on demand by Buyer against the transfer of funds by Seller. Additionally, from time to time the Buyer is prepared to consider entering into additional transactions ("Uncommitted Transactions") in which Seller agrees to transfer to Buyer Mortgage Loans against the transfer of funds by Buyer, with a simultaneous agreement by Buyer to transfer to Seller such Mortgage Loans on demand by Buyer, against the transfer of funds by Seller. Each such Committed Transaction and Uncommitted Transaction shall be referred to herein as a "Transaction" and shall be governed by this Agreement, unless otherwise agreed in writing. 2. DEFINITIONS As used herein, the following terms shall have the following meanings (all terms defined in this Section 2 or in other provisions of this Agreement in the singular to have the same meanings when used in the plural and vice versa). Terms otherwise not defined herein shall have the meanings assigned thereto in the Custodial and Disbursement Agreement. "Account Agreement" shall mean a letter agreement among each Seller Entity, Buyer, and the Bank substantially in the form of Exhibit V attached hereto. "Act of Insolvency" shall mean, with respect to any Person, (i) the filing of a petition, commencing, or authorizing the commencement of any case or proceeding under any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar law relating to the protection of creditors, or suffering any such petition or proceeding to be commenced by another which is consented to, not timely contested or results in entry of an order for relief; (ii) the seeking or consenting to the appointment of a receiver, trustee, custodian or similar official for such Person or any substantial part of the property of such Person; (iii) the appointment of a receiver, conservator, or manager for such Person by any governmental agency or authority having the jurisdiction to do so; (iv) the making or offering by such Person of a composition with its creditors or a general assignment for the benefit of creditors; (v) the admission by such Person of its inability to pay its debts or discharge its obligations as they become due or mature; or (vi) that any governmental authority or agency or any person, agency or entity acting or purporting to act under governmental authority shall have taken any action to condemn, seize or appropriate, or to assume custody or control of, all or any substantial part of the property of such Person, or shall have taken any action to displace the management of such Person or to curtail its authority in the conduct of the business of such Person. "Affiliate" shall mean with respect to any Person, any "affiliate" of such Person, as such term is defined in the Bankruptcy Code. "Agreement" shall mean this Master Repurchase Agreement, as the same may be further amended, supplemented or otherwise modified in accordance with the terms hereof. "AHMA" shall mean American Home Mortgage Acceptance, Inc., a Maryland corporation and its successors in interest. "AHMC" shall mean American Home Mortgage Corp., a New York corporation and its successors in interest. "AHMH" shall mean American Home Mortgage Holdings, Inc., a Delaware corporation and its successors in interest. "AHMIC" shall mean American Home Mortgage Investment Corp., a Maryland corporation and its successors in interest. "ALTA" shall mean the American Land Title Association. "Alt-A Mortgage Loan" shall mean an Eligible Asset which is a Mortgage Loan made to a Mortgagor of "A" or "A-" credit quality, which is a secured by a lien on a single-family Residential Dwelling and for which the related Mortgagor has a FICO score of greater than 600. In no event shall any Mortgage Loan be an "Alt-A Mortgage Loan" if the related Mortgagor does not have a FICO score of at least 600 as of the date of origination. "Alt-A First Mortgage Loan" shall mean an Eligible Asset which is an Alt-A Mortgage Loan and a First Lien Mortgage Loan. "Alt-A Second Mortgage Loan" shall mean an Eligible Asset which is an Alt-A Mortgage Loan and a Second Lien Mortgage Loan. "Appraised Value" shall mean the value set forth in an appraisal made in connection with the origination of the related Mortgage Loan as the value of the Mortgaged Property (or the related residential dwelling unit in the Underlying Mortgaged Property, in the case of a Co-op Loan). "Asset Schedule and Exception Report" shall have the meaning assigned thereto in the Custodial and Disbursement Agreement. -2- "Asset Value" shall mean as of any date of determination with respect to (A) each Eligible Asset that is not a Repurchased Mortgage Loan, a HELOC, an Alt-A Second Mortgage Loan or a Sub-Prime Second Mortgage Loan, the Purchase Percentage applicable to such Eligible Asset multiplied by the lesser of (a) the Market Value of such Mortgage Loan as of such date and (b) the outstanding principal balance of such Eligible Asset as of such date, (B) each Repurchased Mortgage Loan, 60% of the least of (a) 90% of the Market Value of such Mortgage Loan as of such date, (b) the outstanding principal balance of such Eligible Asset as of such date and (c) the Repurchased Appraised Value of such Mortgage Loan and (C) each Eligible Asset that is a HELOC, an Alt-A Second Mortgage Loan or a Sub-Prime Second Mortgage Loan, the Purchase Percentage applicable to such Eligible Asset multiplied by the lesser of (a) the Market Value of such Mortgage Loan as of such date and (b) the outstanding principal balance of such Eligible Asset as of such date; provided, that, the following additional limitations on Asset Value shall apply: (1) after giving effect to any requested Transaction, the aggregate Asset Value of all Alt-A Mortgage Loans and Sub-Prime Mortgage Loans owned hereunder by Buyer as of such date of determination may not exceed the Non-Conforming Sub- Limit; (2) after giving effect to any requested Transaction, the aggregate Asset Value of all Sub-Prime Mortgage Loans owned hereunder by Buyer as of such date of determination may not exceed the Sub-Prime Sub-Limit; (3) after giving effect to any requested Transaction, the aggregate Asset Value of all Sub-Prime Second Lien Mortgage Loans owned hereunder by Buyer as of such date of determination may not exceed the Sub-Prime Second Lien Sub-Limit; (4) after giving effect to any requested Transaction, the aggregate Asset Value of all Sub-Prime Mortgage Loans made to "C" or "D" credit quality Mortgagors owned hereunder by Buyer as of such date of determination may not exceed the Credit Sub-Limit; (5) after giving effect to any requested Transaction, the aggregate Asset Value of all Mortgage Loans which are Manufactured Housing Mortgage Loans owned hereunder by Buyer as of such date of determination may not exceed the Manufactured Housing Sub-Limit; (6) after giving effect to any requested Transaction, the aggregate Asset Value of all Mortgage Loans which are not occupied by the related Mortgagor as its primary residence (as determined on the origination date) owned hereunder by Buyer as of such date of determination may not exceed the N/O/O Sub-Limit; (7) after giving effect to any requested Transaction, the aggregate Asset Value of all Repurchased Mortgage Loans owned hereunder by Buyer as of such date of determination may not exceed the Repurchased Mortgage Loan Sub-Limit; -3- (8) after giving effect to any requested Transaction, the aggregate Asset Value of all Co-op Loans owned hereunder by Buyer as of such date of determination may not exceed the Co-op Sub-Limit; (9) after giving effect to any requested Transaction, the aggregate Asset Value of all Super Jumbo Mortgage Loans owned hereunder by Buyer as of such date of determination may not exceed the Super Jumbo Sub-Limit; (10) after giving effect to any requested Transaction, the aggregate Asset Value of all Fannie Mae Flex 100 Mortgage Loans owned hereunder by Buyer as of such date of determination may not exceed the Fannie Mae Flex 100 Sub-Limit; (11) after giving effect to any requested Transaction, the aggregate Asset Value of all Interest-Only Loans owned hereunder by Buyer as of such date of determination may not exceed the Interest-Only Sub-Limit; (12) after giving effect to any requested Transaction, the aggregate Asset Value of all Wet-Ink Mortgage Loans owned hereunder by Buyer as of such date is determination may not exceed the Wet-Ink Sub-Limit; (13) after giving effect to any requested Transaction, the aggregate Asset Value of all Co-op Loans that are Super Jumbo Mortgage Loans, Jumbo Mortgage Loans owned hereunder by Buyer as of such date of determination may not exceed the Co-op Jumbo Sub-Limit; (14) with respect to each Check Funded Loan, the Asset Value shall be deemed zero until at least one check set forth on the related Check Funding Schedule has been presented for payment and paid in accordance with the procedures set forth in the Custodial and Disbursement Agreement and the Check Disbursement Agreement; provided that for purposes of Section 3(n) and Section 4 hereof, the Asset Value shall be equal to no more than amounts that have previously been paid in respect of checks with respect to such Check Funded Loan; (15) with respect to each Official Check Funded Loan, the Asset Value shall be deemed zero until the official check set forth on the related Official Check Funding Schedule has been presented for payment and paid in accordance with the procedures set forth in the Custodial and Disbursement Agreement and the Official Check Disbursement Agreement; provided that for purposes of Section 3(n) and Section 4 hereof, the Asset Value shall be equal to no more than amounts that have previously been paid in respect of checks with respect to such Official Check Funded Loan; (16) after giving effect to any requested Transaction, the aggregate Asset Value of all HELOCs owned hereunder by Buyer as of such date of determination may not exceed the HELOC Sub-Limit; and (17) the Asset Value shall be deemed to be zero with respect to each Mortgage Loan (i) in respect of which there is a breach of a representation and warranty set forth in Schedule 1 (assuming each representation and warranty is made as of the date the Asset -4- Value is determined), (ii) other than with respect to a Repurchased Loan, in respect of which there is a delinquency in the payment of principal and/or interest which continues for a period in excess of twenty-nine (29) calendar days (without regard to any applicable grace periods), (iii) which has not been repurchased by Seller by the earlier to occur of (A) the Termination Date and (B) except with respect to Repurchased Mortgage Loans, the 90th day after the date on which it is first purchased by Buyer, and with respect to Repurchased Mortgage Loans, the 180th day after the date on which such Mortgage Loan becomes a Repurchased Mortgage Loan, (iv) which has been released from the possession of Custodian under the Custodial and Disbursement Agreement to any Person other than Buyer for a period in excess of forty-five (45) calendar days with respect to releases pursuant to Section 5(c), (v) which has been released from the possession of Custodian under the Custodial and Disbursement Agreement to Seller for a period in excess of ten (10) calendar days with respect to releases pursuant to Sections 5(a) and 5(b), (vi) which exceed the Sub-Limit for the related Class or otherwise or (vii) which is a Wet-Ink Mortgage Loan, for which Custodian has failed to receive the related Mortgage Documents by the tenth 10th Business Day following the applicable Purchase Date; "Assignment of Mortgage" shall mean, with respect to any Mortgage, an assignment of the Mortgage, notice of transfer or equivalent instrument in recordable form, sufficient under the laws of the jurisdiction wherein the related Mortgaged Property is located to reflect the assignment of the Mortgage to Buyer. "Bank" shall mean Deutsche Bank National Trust Company, a national banking association, and its successors in interest, or such other depository institution as may be acceptable to Buyer in its sole discretion, and their respective successors in interest. "Bank Charter Event" shall mean the date on which AHMH acquires Valley Bancorp, Inc. and its wholly owned subsidiary, Valley Bank of Maryland. "Bankruptcy Code" shall mean the United States Bankruptcy Code of 1978, as amended from time to time. "Business Day" shall mean any day other than (i) a Saturday or Sunday or (ii) a day on which banks in the State of New York (or state in which any of Custodian, Disbursement Agent, Seller or Buyer is located) is authorized or obligated by law or executive order to be closed. "Buyer" shall mean CDC Mortgage Capital Inc., a New York corporation, and its successors in interest and assigns. "Capital Lease Obligations" shall mean, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP. -5- "Cash" shall mean all cash and Cash Equivalents, as shown on the balance sheet of the Seller prepared in accordance with GAAP. "Cash Equivalents" shall mean (a) securities with maturities of 90 days or less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit and eurodollar time deposits with maturities of 90 days or less from the date of acquisition and overnight bank deposits of any commercial bank having capital and surplus in excess of $500,000,000, (c) repurchase obligations of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than seven days with respect to securities issued or fully guaranteed or insured by the United States Government, (d) commercial paper of a domestic issuer rated at least A-1 or the equivalent thereof by Standard and Poor's Ratings Group ("S&P") or P-1 or the equivalent thereof by Moody's Investors Service, Inc. ("Moody's") and in either case maturing within 90 days after the day of acquisition, (e) securities with maturities of 90 days or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody's, (f) securities with maturities of 90 days or less from the date of acquisition backed by standby letters of credit issued by any commercial bank satisfying the requirements of clause (b) of this definition or (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition. "Check Disbursement Account" shall have the meaning specified in the Check Disbursement Agreement. "Check Disbursement Agreement" shall mean the amended and restated Letter Agreement, dated as of the date hereof, among each Seller Entity, Buyer, Disbursement Agent, Deutsche Bank Trust Company Delaware and Deutsche Bank Trust Company Americas as may be amended from time to time. "Check Funded Loan" shall mean an Eligible Asset funded pursuant to the Check Disbursement Agreement. "Check Funding Schedule" shall have the meaning specified in the Check Disbursement Agreement. "Class" shall mean each group of Mortgage Loans where each Mortgage Loan within such group qualifies as at least one of the following: "Conforming Mortgage Loan", "Jumbo Mortgage Loan", "Alt-A First Mortgage Loan", "Alt-A Second Mortgage Loan", "Sub-Prime First Mortgage Loan", "Sub-Prime Second Mortgage Loan", "Wet-Ink Mortgage Loan", "HELOC" or "Repurchased Mortgage Loan"; provided, that a Mortgage Loan may be within more than one Class as of any date of determination. "Closed End Loan" shall mean a Mortgage Loan which is not a HELOC. -6- "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Collection Account" shall mean the account established by the Bank subject to an Account Agreement, into which all Income shall be deposited. "Combined Loan-to-Value Ratio or CLTV" shall mean with respect to any Second Lien Mortgage Loan, the sum of (a) the original principal balance of such Second Lien Mortgage Loan or, with respect to any HELOC, the original Credit Limit, and (b) the outstanding principal balance of any related first lien loan as of the date of origination of such Second Lien Mortgage Loan, divided by the lesser of (i) the Appraised Value of the related Mortgage Property as of the date of origination of such Second Lien Mortgage Loan and (ii) if the related Mortgaged Property was purchased within twelve (12) months of the origination of such Second Lien Mortgage Loan, the purchase price of such Mortgaged Property. "Committed Transaction" as defined in the recitals hereto. "Commitment Fee" shall mean the fee payable by Seller to Buyer pursuant to Section 3(a)(7) equal to 0.075% of the Maximum Committed Amount. "Commonly Controlled Entity" shall mean an entity, whether or not incorporated, which is under common control with Seller within the meaning of Section 4001 of ERISA or is part of a group which includes Seller and which is treated as a single employer under Section 414 of the Code. "Confirmation" shall have the meaning specified in Section 3(c). "Conforming Mortgage Loan" shall mean an Eligible Asset which is insured by, and meets all criteria of, Fannie Mae, Freddie Mac, the FHA or the VA which is secured by a first lien on the related Mortgaged Property. "Co-op" shall mean a private, cooperative housing corporation, having only one class of stock outstanding, which owns or leases land and all or part of a building or buildings, including apartments, spaces used for commercial purposes and common areas therein and whose board of directors authorizes the sale of stock and the issuance of a Co-op Lease. "Co-op Lease" shall mean with respect to a Co-op Loan, the lease with respect to a dwelling unit occupied by the Mortgagor and relating to the stock allocated to the related dwelling unit. "Co-op Loan" shall mean an Eligible Asset that is a Conforming Mortgage Loan, except with respect to the outstanding principal balance at origination, secured by the pledge of stock allocated to a dwelling unit in a Co-op and a collateral assignment of the related Co-op Lease. -7- "Co-op Security Agreement" shall mean the agreement creating a first lien security interest in the stock allocated to a dwelling unit in the residential cooperative housing corporation that was pledged to secure such Co-op Loan and the related Co-op Lease. "Co-op Sub-Limit" shall mean $16,000,000. "Co-op Jumbo Sub-Limit" shall mean $8,000,000. "Credit Limit" shall mean, with respect to each HELOC, the maximum amount permitted under the terms of the related Credit Line Agreement. "Credit Line Agreement" shall mean, with respect to each HELOC, the related home equity line of credit agreement, account agreement and promissory note (if any) executed by the related mortgagor and any amendment or modification thereof. "Credit Sub-Limit" shall mean $3,000,000. "Custodial and Disbursement Agreement" shall mean that amended and restated custodial and disbursement agreement, dated as of the date hereof, by and among Buyer, Seller, Disbursement Agent and Custodian, as the same shall be modified and supplemented and in effect from time to time. "Custodial Identification Certificate" shall have the meaning assigned thereto in the Custodial and Disbursement Agreement. "Custodian" shall mean Deutsche Bank National Trust Company, a national banking association, and its successors in interest, as custodian under the Custodial and Disbursement Agreement, and any successor Custodian under the Custodial and Disbursement Agreement. "DDA Account" shall have the meaning specified in the Check Disbursement Agreement. "Default" shall mean an Event of Default or an event that with notice or lapse of time or both would become an Event of Default. "Disbursement Agent" shall mean Deutsche Bank National Trust Company, a national banking association, and its successors in interest, as disbursement agent under the Custodial and Disbursement Agreement, and any successor Disbursement Agent under the Custodial and Disbursement Agreement. "Dollars" and "$" shall mean lawful money of the United States of America. "Draw" shall mean, with respect to each HELOC, an additional borrowing by the Mortgagor subsequent to the Cut-off Date in accordance with the related Credit Line Agreement, which borrowing shall be funded by the Seller. -8- "Due Diligence Review" shall mean the performance by Buyer of any or all of the reviews permitted under Section 26 with respect to any or all of the Mortgage Loans, as desired by Buyer from time to time. "Effective Date" shall mean the date upon which the conditions precedent set forth in Section 3(a) shall have been satisfied. "Electronic Agent" shall mean MERSCORP, INC., and its successors in interest. "Electronic Tracking Agreement" shall mean the Electronic Tracking Agreement, in a form substantially similar to the form set forth in Annex 19 to the Custodial and Disbursement Agreement, to be entered into among Buyer, each Seller Entity, Electronic Agent and MERS, if any, as the same shall be amended, supplemented or otherwise modified from time to time; provided that if no Mortgage Loans are or will be MERS Designated Mortgage Loans, all references herein to the Electronic Tracking Agreement shall be disregarded. "Electronic Transmission" shall mean the delivery of information in an electronic format acceptable to the applicable recipient thereof. An Electronic Transmission shall be considered written notice for all purposes hereof (except when a request or notice by its terms requires execution). Any document that requires signature that is delivered by Electronic Transmission via email that includes the sender's name shall satisfy such signature requirement. "Eligible Asset" shall mean a Mortgage Loan, including a Wet-Ink Mortgage Loan, (i) as to which the representations and warranties in Schedule 1 attached hereto are true and correct, (ii) which is underwritten strictly in accordance with Seller's Underwriting Guidelines, a copy of which is attached hereto as Exhibit II or with such exceptions as Buyer shall approve pursuant to Section 3(b)(9) or meets all underwriting criteria of, Fannie Mae, Freddie Mac, the FHA or the VA, and (iii) which is secured by a Residential Dwelling. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" shall mean any corporation or trade or business that is a member of any group of organizations (i) described in Section 414(b) or (c) of the Code of which Seller is a member and (ii) solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of which Seller is a member. "Escrow Instruction Letter" shall have the meaning assigned thereto in the Custodial and Disbursement Agreement. "Eurodollar Rate" shall mean, with respect to each day a Transaction is outstanding (and reset on each day a Transaction is outstanding), the rate per annum equal to the rate appearing at page 5 of the Telerate Screen as one-month LIBOR at or about 9:00 a.m., -9- New York City time, on such date (and if such date is not a Business Day, the Eurodollar Rate in effect on the Business Day immediately preceding such date), and if such rate shall not be so quoted, the average rate per annum at which three mutually acceptable banks are offered Dollar deposits at or about 8:00 a.m., New York City time, on such date by prime banks in the interbank eurodollar market where the eurodollar and foreign currency exchange operations in respect of its Transactions are then being conducted for delivery on such day for a period of thirty (30) days and in an amount comparable to the amount of the Transactions to be outstanding on such day. The Eurodollar Rate shall be reset by Buyer as described above and Buyer's determination of Eurodollar Rate shall be conclusive upon the parties absent manifest error on the part of Buyer. "Event of Default" has the meaning specified in Section 12. "Excess Margin" has the meaning specified in Section 3(q). "Existing Financing Facilities" shall mean the Morgan Facility, the UBS Warburg Facility, the RFC Facility, the Freddie Facility and the Greenwich Capital Facility, as may be amended and/or restated from time to time, and all other documents or agreements executed in connection therewith, or replacement facilities with financial covenants that are no less favorable to Buyer and with financial institutions approved by the Buyer. "Fannie Mae" shall mean the Federal National Mortgage Association, and its successors in interest. "Fannie Mae Flex 100 Mortgage Loan" shall mean an Eligible Asset which meets all criteria of the Fannie Mae Flex 100 program. "Fannie Mae Flex 100 Sub-Limit" shall mean $2,000,000. "Foreclosed Loan" shall mean a loan the property securing which has been foreclosed upon by Seller. "Freddie Facility" means the financing facility between the Seller and Freddie Mac, as may be amended from time to time, and all other documents or agreements executed in connection therewith, or replacement facilities with substantially similar terms (including, but not limited to, amounts and rates) with financial institutions approved by Buyer. "Freddie Mac" shall mean the Federal Home Loan Mortgage Corporation, and its successors in interest. "GAAP" shall mean generally accepted accounting principles as in effect from time to time in the United States. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof, any entity exercising executive, legislative, judicial, -10- regulatory or administrative functions of or pertaining to government and any court or arbitrator having jurisdiction over Seller, any of its Subsidiaries or any of their properties. "Greenwich Capital Facility" means the Whole Loan Purchase and Sale Agreement, dated as of January 1, 2004, by and between AHMC, CNI and Greenwich Capital Financial Products, Inc. "Guarantee" shall mean, as to any Person, any obligation of such Person directly or indirectly guaranteeing any Indebtedness of any other Person or in any manner providing for the payment of any Indebtedness of any other Person or otherwise protecting the holder of such Indebtedness against loss (whether by virtue of partnership arrangements, by agreement to keep-well another Person, to purchase assets, goods, securities or services, or to agree to take-or-pay arrangement or otherwise); provided that the term "Guarantee" shall not include (i) endorsements for collection or deposit in the ordinary course of business, or (ii) obligations to make servicing advances for delinquent taxes and insurance, or other obligations in respect of a Mortgaged Property, or other principal and interest advances made in the ordinary course of servicing the Mortgage Loans. The amount of any Guarantee of a Person shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith. The terms "Guarantee" and "Guaranteed" used as verbs shall have correlative meanings. "HELOC" shall mean a home equity revolving line of credit secured by a Mortgage, deed of trust or other instrument creating a second lien on the related Mortgaged Property, which lien secures the related Credit Line Agreement and which related first lien is also an Eligible Asset subject to an outstanding Transaction under this Agreement at any time that such HELOC is requested to be, or is, subject to an outstanding Transaction under this Agreement. "HELOC Sub-Limit" shall mean $30,000,000. "Income" shall mean, with respect to any Mortgage Loan at any time, all collections and proceeds on or in respect of the Mortgage Loans, including, without limitation, any principal thereof then payable and all interest or other distributions payable thereon less any related servicing fee(s) charged by Servicer. "Indebtedness" shall mean, for any Person: (a) obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of Property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such Property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of Property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within 90 days of the date the respective goods are delivered or the respective services are rendered; (c) Indebtedness of others secured by a Lien on the Property of such Person, whether or not the respective Indebtedness so -11- secured has been assumed by such Person; (d) obligations (contingent or otherwise) of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for account of such Person; (e) obligations of such Person under repurchase agreements, sale/buy-back agreements or like arrangements; (f) Indebtedness of others Guaranteed by such Person; (g) all obligations of such Person incurred in connection with the acquisition or carrying of fixed assets by such Person; (h) Indebtedness of general partnerships of which such Person is secondarily or contingently liable (other than by endorsement of instruments in the course of collection), whether by reason of any agreement to acquire such indebtedness to supply or advance sums or otherwise; and (i) Capital Lease Obligations of such Person. "Interest-Only Loan" shall mean any Mortgage Loan as to which scheduled payments only include interest for an initial period of not more than 10 years, after which such Mortgage Loan will fully amortize to maturity. "Interest-Only Sub-Limit" shall mean $90,000,000. "Interest Rate Protection Agreement" shall mean, with respect to any or all of the Mortgage Loans, any short sale of US Treasury securities, or futures contract, or options related contract, or interest rate swap, cap or collar agreement or similar arrangement providing for protection against fluctuations in interest rates or the exchange of nominal interest obligations, either generally or under specific contingencies and acceptable to Buyer. "Interim Funder" shall mean, with respect to each MERS Designated Mortgage Loan, the Person named on the MERS(R) System as the interim funder pursuant to the MERS Procedures Manual. "Investor" shall mean, with respect to each MERS Designated Mortgage Loan, the Person named on the MERS(R) System as the investor pursuant to the MERS Procedures Manual. "Jumbo Mortgage Loans" shall mean an Eligible Asset which meets all criteria of Fannie Mae or Freddie Mac except that the outstanding principal balance thereof at origination was in excess of Fannie Mae or Freddie Mac's guidelines which is secured by a first lien on the related Mortgaged Property. "Late Payment Fee" has the meaning specified in Section 5(b). "Lien" shall mean any mortgage, lien, pledge, charge, security interest or similar encumbrance. "Loan-to-Value Ratio" or "LTV" means with respect to any Mortgage Loan, the ratio of the original outstanding principal amount (or with respect to a HELOC, the Credit Limit) of such Mortgage Loan at the time of origination to the lesser of (a) the Appraised Value of the related Mortgaged Property at origination of such Mortgage Loan and (b) if the related Mortgaged Property was purchased within twelve (12) months of the origination of such Mortgage Loan, the purchase price of the related Mortgaged Property. -12- "Manufactured Housing Sub-Limit" shall mean $2,000,000. "Margin Base" shall mean the aggregate Asset Value of all Purchased Assets which are Eligible Assets. "Margin Deficit" has the meaning specified in Section 4. "Market Value" shall mean, as of any date in respect of any Mortgage Loan, the price at which such Mortgage Loan could readily be sold as determined by Buyer, which price may be determined to be zero. Buyer's determination of Market Value shall be conclusive upon the parties absent manifest error on the part of Buyer. "Material Adverse Effect" shall mean a material adverse effect on (a) the Property, business, operations, financial condition or prospects of any Seller Entity, (b) the ability of any Seller Entity to perform its respective obligations under any of the Repurchase Documents to which it is a party, (c) the validity or enforceability of any of the Repurchase Documents, (d) the rights and remedies of Buyer under any of the Repurchase Documents, (e) the timely payment of any amounts payable under the Repurchase Documents, or (f) the Asset Value of the Purchased Assets. "Maximum Amount" shall mean $450,000,000. "Maximum Committed Amount" shall mean $200,000,000. "Maximum Uncommitted Amount" shall mean $250,000,000. "MERS" shall mean Mortgage Electronic Registration Systems, Inc., and its successors in interest. "MERS Designated Mortgage Loan" shall mean a Mortgage Loan for which the Seller has designated or will designate MERS as, and has taken or will take such action as is necessary to cause MERS to be, the mortgagee of record, as nominee for the Seller, in accordance with the MERS Procedure Manual. "MERS Procedure Manual" shall mean the MERS Procedures Manual attached as Exhibit B to the Electronic Tracking Agreement, as it may be amended, supplemented or otherwise modified from time to time. "MERS Report" shall mean the schedule listing MERS Designated Mortgage Loans and other information prepared by the Electronic Agent pursuant to the Electronic Tracking Agreement. "MERS(R) System" shall mean the Electronic Agent's mortgage electronic registry system, as more particularly described in the MERS Procedures Manual. "Morgan Facility" means the Amended and Restated Master Loan and Security Agreement, dated as of November 26, 2003, by and among AHMC, AHMIC, AHMA, -13- AHMH, CNI, the Lenders from time parties thereto and Morgan Stanley Mortgage Capital Inc. r. "Mortgage" shall mean with respect to a Mortgage Loan that is not a Co-op Loan, the mortgage, deed of trust or other instrument securing a Mortgage Note, which creates a first lien or second lien on a fee simple Residential Dwelling securing the Mortgage Note and with respect to a Co-op Loan, the Co-op Security Agreement. "Mortgage File" shall have the meaning assigned thereto in the Custodial and Disbursement Agreement. "Mortgage Loan" shall mean a mortgage loan or HELOC originated in accordance with the Underwriting Guidelines which Custodian has been instructed to hold for Buyer pursuant to the Custodial and Disbursement Agreement, including any Wet-Ink Mortgage Loan listed on a Transaction Request, and which Mortgage Loan includes, without limitation, (i) a Mortgage Note and related Mortgage or Credit Line Agreement, and (ii) all right, title and interest of Seller in and to the Mortgaged Property covered by such Mortgage. "Mortgage Note" shall mean the original executed promissory note or other evidence of the indebtedness of a Mortgagor with respect to a Mortgage Loan. "Mortgaged Property" shall mean, with respect to a Mortgage Loan that is not a Co-op Loan, a fee simple interest in the real property (including all improvements, buildings, fixtures, building equipment and personal property thereon and all additions, alterations and replacements made at any time with respect to the foregoing) and all other collateral securing repayment of the debt evidenced by a Mortgage Note. With respect to a Co-op Loan, the stock allocated to a dwelling unit in the residential cooperative housing corporation that was pledged to secure such Co-op Loan and the related Co-op Lease. "Mortgagee" shall mean the record holder of a Mortgage Note secured by a Mortgage. "Mortgagor" shall mean the obligor or obligors on a Mortgage Note, including any person who has assumed or guaranteed the obligations of the obligor thereunder. "Multiemployer Plan" shall mean a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been or are required to be made by Seller or any ERISA Affiliate and that is covered by Title IV of ERISA. "N/O/O Sub-Limit" shall mean $3,000,000. "Net Income" shall mean, with respect to any Person for any period, the net income of such Person for such period as determined in accordance with GAAP. "Non-Conforming Sub-Limit" shall mean $60,000,000. "Official Check Disbursement Account" shall have the meaning specified in the Official Check Disbursement Agreement. -14- "Official Check Disbursement Agreement" shall mean the amended and restated Letter Agreement, dated as of the date hereof, among each Seller Entity, Buyer, Disbursement Agent, Deutsche Bank Trust Company Delaware and Deutsche Bank Trust Company Americas as may be amended from time to time relating to "official" or "certified" checks. "Official Check Funded Loan" shall mean an Eligible Asset funded pursuant to the Official Check Disbursement Agreement. "Official Check Funding Schedule" shall have the meaning specified in the Official Check Disbursement Agreement. "Payment Calculation Date" shall mean the tenth (10th) day of each month. "Payment Date" shall mean two (2) Business Days after the Payment Calculation Date. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Periodic Advance Repurchase Payment" has the meaning specified in Section 5(b). "Person" shall mean any individual, corporation, company, voluntary association, partnership, joint venture, limited liability company, trust, unincorporated association or government (or any agency, instrumentality or political subdivision thereof). "Plan" shall mean an employee benefit or other plan established or maintained by any Seller or any ERISA Affiliate and covered by Title IV of ERISA, other than a Multiemployer Plan. "Post-Default Rate" shall mean, in respect of any day a Transaction is outstanding or any other amount under this Agreement or any other Repurchase Document that is not paid when due to Buyer at the stated Repurchase Date or otherwise when due (a "Post-Default Day"), a rate per annum on a 360 day per year basis during the period from and including the due date to but excluding the date on which such amount is paid in full equal to 4% per annum plus the Prime Rate on such Post-Default Day. "Price Differential" means, with respect to any Transaction hereunder as of any date, the aggregate amount obtained by daily application of the Pricing Rate for such Transaction to the Purchase Price for such Transaction on a 360 day per year basis for the actual number of days during the period commencing on (and including) the Purchase Date for such Transaction and ending on (but excluding) the Repurchase Date (reduced by any amount of such Price Differential previously paid by Seller to Buyer with respect to such Transaction). "Pricing Rate" shall mean with respect to any Class of Mortgage Loans and any date of determination a rate per annum equal to the sum of (a) the Eurodollar Rate applicable on such date plus (b) the Pricing Spread for such Class applicable on such date. -15- "Pricing Spread" shall mean (a) with respect to each Committed Transaction with respect to any Class of Mortgage Loan, the rate per annum corresponding to such Class as set forth in the table below: Class Pricing Spread ----------------------------------- -------------- Conforming Mortgage Loan 0.75% Jumbo Mortgage Loan 0.75% Super Jumbo Mortgage Loan 0.75% Alt-A First Lien Mortgage Loan 0.85% Alt-A Second Lien Mortgage Loan 0.85% HELOC 0.90% Sub-Prime First Lien Mortgage Loan 0.95% Sub-Prime Second Lien Mortgage Loan 0.95% Wet-Ink Mortgage Loans 1.00% Repurchased Loans 1.75% and (b) with respect to each Uncommitted Transaction, a percentage to be determined by Buyer in its sole discretion; provided, that should a Mortgage Loan qualify for more than one Class as of any date of determination, then the Pricing Spread, subject to clause (b), shall be the Pricing Spread of the Class for which such Mortgage Loan qualifies that produces the greatest Pricing Rate. "Prime Rate" shall mean the prime rate announced to be in effect from time to time, as published as the average rate in The Wall Street Journal. "Property" shall mean any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. "Purchase Agreement" shall mean any purchase agreement by and between Seller and any third party, including without limitation, any Affiliate of Seller, pursuant to which Seller has purchased assets subsequently sold to Buyer hereunder. "Purchase Date" shall mean the date on which Purchased Assets are transferred by Seller to Buyer or its designee (including Custodian). "Purchase Percentage" shall mean, with respect to each Committed Transaction with respect to any Class of Mortgage Loan, the applicable percentage corresponding to such Class as set forth in the table below: -16- Purchase Class Percentage ------------------------------- ------------ Conforming Mortgage Loan 98% Jumbo Mortgage Loan 98% Super Jumbo Mortgage Loan 98% Alt-A First Lien Mortgage Loan 98% Alt-A Second Lien Mortgage Loan 95% Sub-Prime First Lien Mortgage 98% Loan Sub-Prime Second Lien Mortgage 95% Loan HELOC 95% provided that with respect to each Uncommitted Transaction, such percentage as is acceptable to Buyer in its sole discretion and set forth in the related Confirmation; provided further that should a Mortgage Loan qualify for more than one Class, then the Purchase Percentage, subject to the preceding proviso, shall be the Purchase Percentage of the Class for which such Mortgage Loan qualifies which produces the lowest percentage. "Purchase Price" shall mean on each Purchase Date, the price at which Purchased Assets are transferred by Seller to Buyer or its designee (including Custodian) which shall equal the Asset Value for such Purchased Assets on the Purchase Date. "Purchased Assets" shall mean the Mortgage Loans sold by Seller to Buyer in a Transaction. "Purchased Items" has the meaning specified in Section 7. "Qualified Originator" means an originator of Mortgage Loans acceptable to Buyer in its sole discretion. "Regulations T, U and X" shall mean Regulations T, U and X of the Board of Governors of the Federal Reserve System (or any successor), as the same may be modified and supplemented and in effect from time to time. "REIT" shall mean a real estate investment trust, as defined in Section 856(a) of the Code. "REIT Distribution Requirement" shall mean distributions reasonably necessary for AHMIC to maintain its REIT Status and not be subject to corporate level tax based on income or to excise tax under Section 4981 of the Code. "REIT Status" shall mean, with respect to any Person, such Person's status as a real estate investment trust, as defined in Section 856(a) of the Code, that satisfies the conditions and limitations set forth in Section 856(b) and 856(c) of the Code. -17- "REO Property" shall mean real property acquired by Seller, including a Mortgaged Property acquired through foreclosure of a Mortgage Loan or by deed in lieu of such foreclosure. "Reportable Event" shall mean any of the events set forth in Section 4043(b) of ERISA or a successor provision thereof, other than those events as to which the thirty day notice period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. ss. 2615 or one or more successor provision thereof. "Repurchase Date" shall mean the date on which Seller is to repurchase the Purchased Assets from Buyer as specified in the related Confirmation including any date determined by application of the provisions of Sections 3 or 13 which date shall be specified as "open" unless otherwise requested by Seller and agreed by Buyer; provided that in no event shall the Repurchase Date be in excess of 364 days after the Purchase Date. If the Transaction is "open", the Repurchase Date shall be one (1) Business Day after the date upon which either Buyer (in its sole discretion) or the Seller (in its sole discretion) provides to the other written notice of its intention to sell or repurchase, as applicable, the applicable Mortgage Loans; provided that the Repurchase Date (with respect to any Committed Transaction) for a repurchase arising due to the failure of the Seller to satisfy the condition set forth in Section 3(b)(20) shall be no later than 30 days after the date upon which the Buyer provides notice of its intention to terminate this facility; and provided further that the Repurchase Date shall not, in any event, exceed 364 days from the date hereof. "Repurchase Documents" shall mean this Agreement, the Custodial and Disbursement Agreement, the Account Agreement, the Check Disbursement Agreement and the Official Check Disbursement Agreement and all other documents or agreements executed connection therewith. "Repurchase Obligations" shall have the meaning specified in Section 7(b). "Repurchase Price" means the price at which Purchased Assets are to be transferred from Buyer or its designee (including Custodian) to Seller upon termination of a Transaction, which will be determined in each case (including Transactions terminable upon demand) as the sum of the Purchase Price and the Price Differential as of the date of such determination decreased by all cash, Income and Periodic Advance Repurchase Payments (including Late Payment Fees, if any) actually received by Buyer pursuant to Sections 5(a) or 5(b), respectively. "Repurchased Appraised Value" shall mean the value set forth in an appraisal made no earlier than 30 days prior to the Purchase Date of a Repurchased Mortgage Loan by an appraiser satisfactory to Buyer in its sole discretion, as the value of the Mortgaged Property. "Repurchased Mortgage Loan" shall mean an Eligible Asset with a current outstanding principal balance not in excess of $750,000 which is a Conforming Mortgage Loan, a Jumbo Mortgage Loan, an Alt-A First Lien Mortgage Loan or a Sub-Prime First Mortgage Loan but in each case is not a Wet-Ink Mortgage Loan or a Second Lien -18- Mortgage Loan, which has previously been sold to a warehouse lender under a gestation or similar facility and is required to be repurchased thereunder by the Seller for which Seller has obtained an appraisal by an appraiser satisfactory to Buyer in its sole discretion not earlier than 30 days prior to the requested Purchase Date for such Mortgage Loan. In no event shall Buyer be required to purchase a "Repurchased Mortgage Loan" (a) unless Seller has delivered to Buyer an appraisal meeting the criteria in the preceding sentence, (b) if such Mortgage Loan is the subject of a contested foreclosure, (c) if such Mortgage Loan has an obligor that has filed for bankruptcy relief, or (d) if such Mortgage Loan is the subject of any fraud or suspected fraud on the part of the obligor thereunder. "Repurchased Mortgage Loan Sub-Limit" shall mean $4,000,000; provided however, that if the aggregate Purchase Price of all Transactions outstanding hereunder on such date of determination is less than $75,000,000 after giving effect to any requested Transactions, then the Repurchased Mortgage Loan Sub-Limit shall mean 2% of the aggregate Purchase Price of all Transactions outstanding hereunder on such date of determination. "Request for Additional Transactions for Excess Margin" shall have the meaning specified in Section 3(q)(1). "Requirement of Law" shall mean as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Residential Dwelling" shall mean any one of the following: (i) a detached single family dwelling, (ii) a two-to-four family dwelling, (iii) a co-operative unit, (iv) a unit in a condominium project, or (v) a detached single family dwelling in a planned unit development. Mortgaged Properties that consist of the following property types are not Residential Dwellings: (a) log homes, (b) earthen homes, (c) underground homes, (d) mobile homes, (e) any dwelling situated on more than ten acres of property and (f) any dwelling situated on a leasehold estate. "Responsible Officer" shall mean, as to any Person, the chief executive officer, the chief financial officer, the treasurer or the chief operating officer of such Person. "RFC Facility" means the First Amended and Restated Warehousing Credit, Term Loan and Security Agreement, dated as of May 30, 2003, among AHMC, CNI, the Lenders party thereto, Residential Funding Corporation, U.S. Bank National Association and Manufacturers and Traders Trust Company. "Second Lien Mortgage Loan" shall mean an Eligible Asset secured by a lien on the Mortgaged Property, which is subject to one prior lien on such Mortgaged Property. "Security Agreement" shall mean with respect to any Mortgage Loan, any contract, instrument or other document related to security for repayment thereof (other than the related Mortgage and Mortgage Note), executed by the Mortgagor and/or others in -19- connection with such Mortgage Loan, including without limitation, any security agreement, guaranty, title insurance policy, hazard insurance policy, chattel mortgage, letter of credit or certificate of deposit or other pledged accounts, and any other documents and records relating to any of the foregoing. "Seller" shall mean, collectively, AHMC, AHMIC, AHMA, AHMH and CNI, and their respective successors in interest. "Seller Asset Schedule" shall have the meaning assigned thereto in the Custodial and Disbursement Agreement. "Seller-Related Obligations" shall mean any obligations, representations, warranties and covenants of Seller hereunder and under any other arrangement between Seller or an Affiliate of Seller on the one hand and Buyer or an Affiliate of Buyer on the other hand. "Servicer" shall have the meaning specified in Section 24. "Servicer Account" shall mean any account established by Servicer in connection with the servicing of the Mortgage Loans. "Servicer Notice" shall mean the notice from each Seller Entity to Servicer, substantially in the form of Exhibit VII attached hereto. "Servicing Agreement" has the meaning specified in Section 24. "Servicing File" means with respect to each Mortgage Loan, the file retained by Seller consisting of originals of all documents in the Mortgage File which are not delivered to a Custodian and copies of all documents in the Mortgage File set forth in Section 2 of the Custodial and Disbursement Agreement. "Servicing Records" has the meaning specified in Section 24. "Settlement Agent" shall mean, with respect to any Transaction, the entity approved by Buyer, in its sole discretion, which may be a title company, escrow company or attorney in accordance with local law and practice in the jurisdiction where the related Wet-Ink Mortgage Loan is being originated, to which the proceeds of such Transaction are to be wired pursuant to Section 3. "Sub-Limit" shall mean each of the Non-Conforming Sub-Limit, the Sub-Prime Sub-Limit, the Sub-Prime Second Lien Sub-Limit, the Credit Sub-Limit, the Manufactured Housing Sub-Limit, the N/O/O Sub-Limit, the Co-op Sub-Limit, the Fannie Mae Flex 100 Sub-Limit, the Super Jumbo Sub-Limit, the HELOC Sub-Limit and the Repurchased Mortgage Loan Sub-Limit. For purpose of determining a violation of a Sub-Limit hereunder, (1) at no time shall the aggregate of the Asset Value of all Mortgage Loans subject to outstanding transactions hereunder violate any single Sub-Limit and (2) to the extent that there are both Committed Transactions and Uncommitted Transactions outstanding hereunder, at no time shall the aggregate Asset Value of Mortgage Loans subject to (a) a Committed Transaction be in excess of the applicable -20- Sub-Limit Percentage or (b) an Uncommitted Transaction be in excess of the applicable Sub-Limit Percentage. "Sub-Limit Percentage" shall mean the aggregate Asset Value multiplied by a percentage equal to the percentage of all outstanding Transactions which are Committed Transactions or Uncommitted Transactions, as applicable. "Sub-Prime First Mortgage Loan" shall mean an Eligible Asset which is a Sub-Prime Mortgage Loan and a First Lien Mortgage Loan. "Sub-Prime Mortgage Loan" shall mean an Eligible Asset which is a Mortgage Loan made to a Mortgagor of less than "A-" credit quality secured by a lien on a single-family Residential Dwelling. "Sub-Prime Second Lien Sub-Limit" shall mean $5,000,000. "Sub-Prime Second Mortgage Loan" shall mean an Eligible Asset which is a Sub-Prime Mortgage Loan and a Second Lien Mortgage Loan. "Sub-Prime Sub-Limit" shall mean $30,000,000. "Subsidiary" shall mean, with respect to any Person, any corporation, partnership, limited liability company or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership, limited liability company or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. "Super Jumbo Mortgage Loan" shall mean an Eligible Asset which is a Jumbo Mortgage Loan with an outstanding principal balance at origination of greater than or equal to $1,000,000 but less than or equal to $5,000,000. "Super Jumbo Sub-Limit" shall mean $30,000,000. "Tangible Net Worth" shall mean as to any Person, as of a particular date, (a) all amounts which would be included under capital on a balance sheet of such Person at such date, determined in accordance with GAAP, less (b) (i) amounts owing to such Person from Affiliates, or from officers, employees, partners, members, directors, shareholders or other Persons similarly affiliated with such Person or its respective Affiliates, (ii) intangible assets, and (iii) the value of REO Property and Foreclosed Loans. -21- "Termination Date" shall mean the date which is 364 days from the date hereof, which date shall be June 1, 2005 or such earlier date on which this Agreement shall terminate in accordance with the provisions hereof or by operation of law, as may be extended pursuant to Section 3(o). "Termination Fee" shall mean a fee payable by Seller to Buyer in accordance with Section 20 hereof equal to 0.10% per annum on the Maximum Committed Amount for the period commencing on the date of such termination through and including June 1, 2005. "Test Period" shall have the meaning specified in Section 11(m). "Total Indebtedness" shall mean with respect to any Person, for any period, the aggregate Indebtedness of such Person during such period less the amount of any nonspecific balance sheet reserves maintained in accordance with GAAP. "Transaction" has the meaning specified in Section 1. "Transaction Request" means a request from Seller to Buyer, in the form attached as Exhibit I hereto, to enter into a Transaction, which may be delivered via Electronic Transmission. "True Sale Certification" shall mean a true sale certification in the form of Exhibit VI attached hereto. "Trust Receipt" shall mean a trust receipt issued by Custodian to Buyer confirming Custodian's possession of certain Mortgage Files which are held by Custodian for the benefit of Buyer or the registered holder of such trust receipt. "UBS Warburg Facility" means the Amended and Restated Mortgage Loan Purchase Agreement, dated as of February 6, 2004, by and among UBS Real Estate Securities Inc., AHMIC, AHMA, AHMH, AHMC and CNI; the Amended and Restated Mortgage Loan Repurchase Agreement, dated as of February 6, 2004, by and among UBS Real Estate Securities Inc., AHMIC, AHMA, AHMH, AHMC and CNI; the Amended and Restated Mortgage Loan Custodial Agreement, dated as of February 6, 2004, by and among UBS Real Estate Securities Inc., Deutsche Bank National Trust Company, AHMIC, AHMA, AHMH, AHMC and CNI; the Amended and Restated Mortgage Loan Participation Agreement, dated as of February 6, 2004, by and among UBS Real Estate Securities Inc., AHMIC, AHMA, AHMH, AHMC and CNI; and the Amended and Restated Custodial Agreement, dated as of February 6, 2004, by and among UBS Real Estate Securities Inc., Deutsche Bank National Trust Company, AHMIC, AHMA, AHMH, AHMC and CNI, each as may be amended from time to time. "Uncommitted Transaction" as defined in the recitals hereto. "Underlying Mortgaged Property" shall mean with respect to each Co-op Loan, the underlying real property owned by the related residential cooperative housing corporation. -22- "Underwriting Guidelines" shall mean (i) with respect to each Mortgage Loan other than a Conforming Mortgage Loan or a Jumbo Mortgage Loan, the underwriting guidelines delivered by Seller to Buyer on or prior to the Effective Date and as may be modified or supplemented from time to time thereafter as approved by Buyer in its sole discretion attached hereto as Exhibit II and (ii) with respect to each Conforming Mortgage Loan and Jumbo Mortgage Loan, the guidelines set forth in the applicable guide published by Fannie Mae, Freddie Mac, the FHA or the VA setting forth the requirements each Mortgage Loan needs to satisfy in order to be eligible for purchase or insurance by Fannie Mae, Freddie Mac, the FHA or the VA, as applicable, or any other set of criteria established by Fannie Mae, Freddie Mac, the FHA or the VA, as applicable, that a Mortgage Loan must satisfy in order to be eligible for purchase or insurance by Fannie Mae, Freddie Mac, the FHA or the VA, as applicable, in each case, except with respect to the outstanding principal balance of a Jumbo Mortgage Loan. "Uniform Commercial Code" or "UCC" shall mean the Uniform Commercial Code as in effect on the date hereof in the State of New York; provided that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the security interest in any Purchased Items is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection. "VA" shall mean the Veterans Administration, an agency of the United States of America, or any successor thereto including the Administrator of Veterans Affairs. "Wet-Ink Mortgage Loan" shall mean an Eligible Asset which is sold to Buyer simultaneously with or one day prior to the origination thereof by Seller, which origination is in accordance with the Underwriting Guidelines and is funded in part or in whole with proceeds of the sale of the Eligible Asset to Buyer advanced directly to a Settlement Agent or with respect to a Check Funded Loan, pursuant to the Custodial and Disbursement Agreement and Check Disbursement Agreement or Official Check Disbursement Agreement, as applicable. "Wet-Ink Sub-Limit" shall mean with respect to (i) all Committed Transactions on any of the first five (5) Business Days and the last three (3) Business Days of each calendar month $100,000,000 and at all other times, $80,000,000 and (ii) Uncommitted Transactions on any of the first five (5) Business Days and the last three (3) Business Days of each calendar month $175,000,000 and at all other times $150,000,000. 3. INITIATION; TERMINATION (a) Conditions Precedent to Effective Date. It is a condition precedent to the Effective Date hereof, and Buyer's obligations hereunder are subject to the satisfaction of the condition precedent that Buyer shall have received from Seller any fees and expenses payable hereunder, and all of the following documents, each of which shall be satisfactory in form and substance to Buyer and its counsel: -23- (1) The following Repurchase Documents delivered to Buyer: (A) Master Repurchase Agreement. This Second Amended and Restated Master Repurchase Agreement duly completed and executed by the parties thereto. In addition, Seller shall have taken such other action as Buyer shall have requested in order to perfect the security interests created pursuant to this Agreement, including filing of UCC financing statements in form and substance satisfactory to Buyer; (B) Custodial and Disbursement Agreement. The Second Amended and Restated Custodial and Disbursement Agreement, duly executed and delivered by each party thereto. In addition, Seller shall have taken such other action as Buyer shall have requested in order to transfer the Purchased Assets pursuant to this Agreement; (C) Check Disbursement Agreement. The Amended and Restated Check Disbursement Agreement, duly executed and delivered by each party thereto. (D) Official Check Disbursement Agreement. The Amended and Restated Official Check Disbursement Agreement duly executed and delivered by each party thereto. (E) Consents and Waivers. Any and all consents and waivers required under the Existing Financing Facilities; and (F) UCC Financing Statements. UCC Financing Statements naming each Seller Entity as Debtor and Buyer as Secured Party and describing the Purchased Items. (2) Opinions of Counsel. An opinion or opinions of outside counsel to each Seller Entity, substantially in the form of Exhibit III; (3) Organizational Documents. A good standing certificate and certified copies of the charter and by-laws (or equivalent documents) of each Seller Entity and of all corporate or other authority for each Seller Entity with respect to the execution, delivery and performance of the Repurchase Documents and each other document to be delivered by each Seller Entity from time to time in connection herewith (and Buyer may conclusively rely on such certificate until it receives notice in writing from such Seller Entity, as applicable to the contrary); (4) Underwriting Guidelines. A copy of Seller's current Underwriting Guidelines, and any material changes to the Underwriting Guidelines made since the Underwriting Guidelines were last delivered to Buyer; (5) Other Documents. Such other documents as Buyer may reasonably request, in form and substance reasonably acceptable to Buyer; and -24- (6) Commitment Fee. Seller shall have paid to Buyer the Commitment Fee. (b) Conditions Precedent to all Transactions. Buyer's obligation to enter into each Committed Transaction (including the initial Transaction) and, in the event Buyer chooses, in its sole discretion, to enter into an Uncommitted Transaction pursuant to Section 3(c) below, Buyer's obligation to enter into each Uncommitted Transaction, is subject to the satisfaction of the following further conditions precedent, both immediately prior to entering into such Transaction and also after giving effect to the consummation thereof and the intended use of the proceeds of the sale: (1) Seller shall have delivered a Transaction Request via Electronic Transmission in accordance with the procedures set forth in Section 3(c). (2) no Default or Event of Default shall have occurred and be continuing under the Repurchase Documents; (3) after giving effect to the requested Transaction, the aggregate outstanding Purchase Price of the Transactions outstanding shall not exceed the Maximum Amount; (4) both immediately prior to the requested Transaction and also after giving effect thereto and to the intended use thereof, the representations and warranties made by Seller in Section 10, shall be true, correct and complete on and as of such Purchase Date in all material respects with the same force and effect as if made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date); (5) after giving effect to the requested Transaction, the aggregate outstanding Purchase Price of the Transactions outstanding shall not exceed the Asset Value of all the Purchased Assets subject to outstanding Transactions; (6) subject to Buyer's right to perform one or more Due Diligence Reviews pursuant to Section 26, Buyer shall have completed its due diligence review of the Mortgage File for each Purchased Asset, and such other documents, records, agreements, instruments, mortgaged properties or information relating to such Purchased Asset as Buyer in its sole discretion deems appropriate to review and such review shall be satisfactory to Buyer in its sole discretion; (7) with respect to any Eligible Asset to be purchased hereunder on the related Purchase Date which is not serviced by the Seller, Seller shall have provided to Buyer a copy of the related Servicing Agreement, certified as a true, correct and complete copy of the original, together with a Servicer Notice, fully executed by Seller and the Servicer; (8) Buyer shall have received all fees and expenses of counsel to Buyer as contemplated by Section 14(b) and, to the extent Seller is required hereunder to reimburse Buyer for such amounts, Buyer shall have received the reasonable costs and expenses incurred by it in connection with the entering into of any -25- Transaction hereunder, including, without limitation, costs associated with due diligence recording or other administrative expenses necessary or incidental to the execution of any Transaction hereunder, which amounts, at Buyer's option, may be withheld from the sale proceeds of any Transaction hereunder; (9) Buyer shall have approved, in its sole discretion, all exceptions to the Underwriting Guidelines; (10) none of the following shall have occurred and/or be continuing: (A) an event or events shall have occurred in the good faith determination of Buyer resulting in the effective absence of a "repo market" or comparable "lending market" for financing debt obligations secured by mortgage loans or securities or an event or events shall have occurred resulting in Buyer not being able to finance Purchased Assets through the "repo market" or "lending market" with traditional counterparties at rates which would have been reasonable prior to the occurrence of such event or events; or (B) an event or events shall have occurred resulting in the effective absence of a "securities market" for securities backed by mortgage loans or an event or events shall have occurred resulting in Buyer not being able to sell securities backed by mortgage loans at prices which would have been reasonable prior to such event or events; or (C) there shall have occurred a material adverse change in the financial condition of Buyer which affects (or can reasonably be expected to affect) materially and adversely the ability of Buyer to fund its obligations under this Agreement; (11) with respect to each Eligible Asset that is not a Wet-Ink Mortgage Loan, Buyer shall have received from Custodian on each Purchase Date an Asset Schedule and Exception Report, dated the Purchase Date, duly completed and with exceptions acceptable to Buyer in its sole discretion in respect of Eligible Assets to be purchased hereunder on such Business Day; (12) Buyer shall have received from Seller a Warehouse Lender's Release Letter substantially in the form attached to the Custodial and Disbursement Agreement (or such other form acceptable to Buyer) or a Seller's Release Letter substantially in the form attached to the Custodial and Disbursement Agreement (or such other form acceptable to Buyer) covering each Eligible Asset to be sold to Buyer; (13) prior to the purchase of any Mortgage Loan acquired (by purchase or otherwise) by Seller from any third party, including without limitation, any Affiliate of Seller, Buyer shall have received a True Sale Certification; (14) Buyer shall not have determined that the introduction of, or a change in, any Requirement -26- of Law or in the interpretation or administration of any Requirement of Law applicable to Buyer has made it unlawful, and no Governmental Authority shall have asserted that it is unlawful, for Buyer to enter into Transactions; (15) the Repurchase Date for such Transaction is not later than the Termination Date; (16) after giving effect to the requested Committed Transaction, the aggregate amount of outstanding Committed Transactions shall not have Purchase Prices in excess of the Maximum Committed Amount; (17) after giving effect to the requested Uncommitted Transaction, the aggregate amount of outstanding Uncommitted Transactions shall not have Purchase Prices in excess of the Maximum Uncommitted Amount; (18) to the extent there are any MERS Designated Mortgage Loans, Buyer shall have received from Seller a copy of a fully executed Electronic Tracking Agreement; (19) Buyer shall have received from Seller, with respect to MERS Designated Mortgage Loans, a MERS Report reflecting Seller as Investor and no Person named in the Interim Funder field for each such MERS Designated Mortgage Loan; (20) immediately prior to the requested Transaction and also after giving effect thereto and to the intended use of the proceeds thereof, the Tangible Net Worth of AHMIC and its consolidated Subsidiaries shall be at least $500,000,000; provided, however, that in no event shall the Seller's failure to meet such Tangible Net Worth test result in any Non-Use Fee or Termination Fee to the Seller hereunder; and (21) immediately prior to the requested Transaction and also after giving effect thereto and to the intended use of the proceeds thereof, Seller shall not permit, for any period of three (3) consecutive calendar months, Net Income of AHMIC and its consolidated Subsidiaries for such period determined on a monthly basis, before income taxes for such period and distributions made during such period, to be less than $1.00. With respect to any failure of condition precedent to any Transaction resulting from the failure of Buyer to approve any replacement facility to the Existing Facilities, in no event shall such failure result in any Non-Use Fee or Termination Fee to the Seller hereunder. Each Transaction Request delivered by Seller hereunder shall constitute a certification by Seller that all the conditions set forth in this Section 3(b) have been satisfied (both as of the date of such notice or request and as of the date of such purchase) and shall be deemed to be a request for a Committed Transaction; provided that after giving effect to the requested Committed Transaction, the aggregate amount of outstanding Committed Transactions shall not have Purchase Prices in excess of the Maximum Committed Amount, in which case such request shall be deemed a request for an Uncommitted Transaction. -27- (c) This Agreement is not a commitment by Buyer to enter into Uncommitted Transactions with Seller but rather sets forth the procedures to be used in connection with periodic requests for Buyer to enter into Uncommitted Transactions with Seller. Seller hereby acknowledges that Buyer is under no obligation to agree to enter into, or to enter into, any Uncommitted Transaction pursuant to this Agreement. Seller shall request a Transaction by delivering to Custodian, Disbursement Agent and Buyer via Electronic Transmission a request in the form of Exhibit I attached hereto (a "Transaction Request") in accordance with the timeframe set forth in Section 3(a) of the Custodial and Disbursement Agreement. Such Transaction Request shall describe the Purchased Assets in a Seller Asset Schedule and set forth (i) the Purchase Date, (ii) the Purchase Price, (iii) the Repurchase Date, (iv) the Pricing Rate applicable to the Transaction, (v) the applicable Purchase Percentages, (vi) the applicable Class or Classes for each Mortgage Loan for which Seller is requesting the Transaction and (vii) additional terms or conditions not inconsistent with this Agreement. With respect to any request for an Uncommitted Transaction, unless otherwise agreed in writing, upon receipt of the Transaction Request, Buyer may, in its sole discretion, agree to enter into that portion of the requested Transaction representing a request for an Uncommitted Transaction, and such agreement shall be evidenced by a Confirmation to be delivered to Seller on the Purchase Date as described below. On each Purchase Date, Buyer shall forward to Seller a confirmation (a "Confirmation") by Electronic Transmission setting forth with respect to each Transaction funded on such date, (1) the mortgage loan number, (2) the Purchase Price for such Purchased Assets, (3) the Market Value of the related Mortgage Loans as of the date of such Confirmation, (4) the outstanding principal amount of the related Mortgage Loans, (5) the Repurchase Date, (6) the Pricing Rate and (7) the Class designations of such Purchased Assets. Buyer shall forward to Seller a revised Confirmation by Electronic Transmission notifying Seller as to any changes made by Buyer in the Pricing Spread, Purchase Percentage or Reduction Amount pursuant to the terms hereof. On each date that all the documents set forth in Section 2(a)(i) of the Custodial and Disbursement Agreement are received by the Custodian with respect to any Wet-Ink Mortgage Loan, and Custodian delivers to Buyer a Trust Receipt attaching an Asset Schedule and Exception Report with respect to such Eligible Assets, Buyer shall forward to Seller a new Confirmation by Electronic Transmission setting forth the following information, updated to reflect the revised Pricing Rate, and, if applicable, Market Value as a result of the conversion of such Mortgage Loan, (1) the mortgage loan number, (2) the Purchase Price for such Purchased Assets, (3) the Market Value of the related Mortgage Loans, (4) the outstanding principal amount of the related Mortgage Loans, (5) the Repurchase Date, (6) the Pricing Rate and (7) the Class designations of such Purchased Assets. In the event Seller disagrees with any terms of the Confirmation, Seller shall notify Buyer in writing of such disagreement within one (1) Business Day after receipt of such Confirmation unless a corrected Confirmation is sent by Buyer. An objection sent by Seller must state specifically that it is an objection, must specify the provision(s) being -28- objected to by Seller, must set forth such provision(s) in the manner that Seller believes they should be stated, and must be received by Buyer no more than one (1) Business Day after the Confirmation was received by Seller. (d) Any Confirmation by Buyer shall be deemed to have been received by Seller on the date actually received by Seller. (e) Except as set forth in Section 3(c), each Confirmation, together with this Agreement, shall constitute conclusive evidence of the terms agreed between Buyer and Seller with respect to the Transaction to which the Confirmation relates, and Seller's acceptance of the related proceeds shall constitute Seller's agreement to the terms of such Confirmation. It is the intention of the parties that each Confirmation shall not be separate from this Agreement but shall be made a part of this Agreement. (f) On the Repurchase Date, termination of a Transaction will be effected by transfer to Seller or its designee of the Purchased Assets (and any Income in respect thereof received by Buyer not previously credited or transferred to, or applied to the obligations of, Seller pursuant to Section 5) which amount shall be netted against the simultaneous receipt of the Repurchase Price by Buyer. To the extent a net amount is owed to one party, the other party shall pay such amount to such party. Seller is obligated to obtain the Mortgage Files from Buyer or its designee (including Custodian) at Seller's expense on the Repurchase Date. Any payment made by Seller to repurchase Purchased Assets shall be first applied to repurchase Purchased Assets under Uncommitted Transactions until all outstanding Uncommitted Transactions have been terminated; it being understood that it is the intention of the parties hereto that at no time shall there be any outstanding Uncommitted Transactions when the aggregate amount of the Purchase Price with respect to all outstanding Committed Transactions is less than the Maximum Committed Amount. (g) Subject to the terms and conditions of this Agreement, during the term of this Agreement Seller may sell to Buyer, repurchase from Buyer Eligible Assets hereunder and resell to Buyer Repurchased Mortgage Loans that are Eligible Assets hereunder. (h) In no event shall a Transaction be entered into when any Default or Event of Default has occurred and is continuing or when the Repurchase Date for such Transaction would be later than the Termination Date. (i) With respect to each Eligible Asset that is not a Wet-Ink Mortgage Loan, Seller shall deliver to Custodian the Mortgage File pertaining to each Eligible Asset to be purchased by Buyer no later than the time set forth in the Custodial and Disbursement Agreement. (j) With respect to each Eligible Asset that is not a Wet-Ink Mortgage Loan, pursuant to the Custodial and Disbursement Agreement, Custodian shall deliver to Buyer and Seller an Asset Schedule and Exception Report with respect to the Eligible Assets which Seller has requested Buyer purchase on such Purchase Date, and no later than 5 p.m., New York City time, on each Purchase Date, Custodian shall deliver to Buyer a Trust Receipt in respect of all such Eligible Assets purchased by Buyer on such Purchase Date. Subject to -29- the provisions of this Section 3 and Section 11 of the Custodial and Disbursement Agreement, the Purchase Price for each Eligible Asset that is not a Wet-Ink Mortgage Loan will be made available to Seller by Disbursement Agent transferring, the aggregate amount of such Purchase Price in accordance with the Custodial and Disbursement Agreement. (k) With respect to each Eligible Asset that is a Wet-Ink Mortgage Loan, Seller shall cause the Settlement Agent to send the Custodian a facsimile of the associated Escrow Instruction Letter on each Purchase Date. Subject to the provisions of this Section 3 and Section 11 of the Custodial and Disbursement Agreement, the Purchase Price for each Eligible Asset which is a Wet-Ink Mortgage Loan will then be made available to Seller by Disbursement Agent transferring the aggregate amount of such Purchase Price in accordance with the Custodial and Disbursement Agreement. Seller shall deliver the Mortgage File related thereto and the original Escrow Instruction Letter to Custodian, for receipt by Custodian no later than ten (10) Business Days following the Purchase Date (l) Seller may repurchase Purchased Assets without penalty or premium, but subject to the last sentence of this Section 3(l), on any date. The Repurchase Price payable for the repurchase of any such Purchased Asset shall be reduced as provided in Section 5(d). If Seller intends to make such a repurchase, Seller shall give one (1) Business Day's prior written notice thereof to Buyer, designating the Purchased Assets to be repurchased. If such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, and, on receipt, such amount shall be applied to the Repurchase Price for the designated Purchased Assets. The amount of the original Purchase Price of the Purchased Assets thus repurchased shall be available for subsequent Transactions subject to the terms of this Agreement. If any Purchased Asset is repurchased on any date other than the Repurchase Date for such Transaction, Seller shall pay to Buyer any amount determined by Buyer, in its sole discretion, as necessary to compensate Buyer for any additional losses, costs or expenses which it may reasonably incur as a result of such repurchase, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by Buyer to fund or maintain such Transaction. (m) Seller agrees to pay to Buyer on the first Business Day following the 6 month anniversary of the Effective Date and every 6 month anniversary thereafter, a non-use fee (the "Non-Use Fee"), equal to 10 basis points (0.10%) per annum on the average daily amount of the unutilized portion of the Maximum Committed Amount during the immediately ended 6-month period for which such payment is made, if the average daily amount of unutilized portion of the Maximum Committed Amount is in excess of 50% of the Maximum Committed Amount, such payment to be made in Dollars, in immediately available funds, without deduction, set-off or counterclaim, to Buyer at the account set forth in Section 8(a) hereof. Notwithstanding the foregoing, Seller will not be obligated to pay a Non-Use Fee in connection with the failure to satisfy the condition set forth in Section 3(b)(20) or 3(b)(21). -30- (n) On any day on which the Margin Base exceeds the aggregate outstanding Purchase Price of all Transactions, so long as no Default or Event of Default has occurred and is continuing: (1) Seller may prepare a Request for Additional Transactions for Excess Margin in the form of Exhibit VIII attached hereto ("Request for Additional Transactions for Excess Margin"), (A) specifying (i) the increase in Purchase Price for all outstanding Transactions and the requested Purchase Date, (ii) the Excess Margin with respect to all outstanding Transactions before giving effect to the requested Transaction, (iii) the remaining Excess Margin after giving effect to the requested Transaction, and (iv) the aggregate outstanding Purchase Price of the Transactions after giving effect to the requested Transaction, and (B) including a certification that, upon the consummation of the additional Transactions, the Margin Base will be equal to or greater than the aggregate outstanding Purchase Price of all Transactions, and the excess of the Margin Base over the aggregate outstanding Purchase Price, after giving effect to the Transaction, shall be the "Excess Margin". (2) Seller shall transmit via Electronic Transmission the Request for Additional Transactions for Excess Margin to Disbursement Agent and Buyer prior to 12:00 noon, New York City time, on the requested Purchase Date. Upon confirming that the Request for Additional Transactions for Excess Margin correctly reflects the information set forth in Section 3(n)(1) and that, after giving effect to the requested Transaction, the amount of the Margin Base would be equal to or greater than the aggregate outstanding Purchase Prices of all Transactions, Buyer shall cause Disbursement Agent to remit the additional Purchase Price in the amount set forth in such Request for Additional Transactions for Excess Margin and send a revised Confirmation with respect to such Purchased Assets. In the event that Buyer's assessment of the Margin Base would alter the information set forth in any Request for Additional Transactions for Excess Margin, Buyer shall promptly notify Seller in writing of such assessment. (3) Buyer shall not be obligated to remit or cause Disbursement Agent to remit the additional Purchase Price requested pursuant to a Request for Additional Transactions for Excess Margin which (i) Buyer reasonably determines is based on erroneous information or would result in a Transaction other than in accordance with the terms of this Agreement, or (ii) does not reflect Buyer's current determination of Market Value as provided in the definition thereof. (o) At the request of Seller made at least 90 days, but in no event earlier than 360 days, prior to the then current Termination Date, Buyer may in its sole discretion extend the Termination Date for a period of 364 additional days or such other period to be determined by Buyer in its sole discretion by giving written notice of such extension to Seller no later than sixty (60) days after Buyer's receipt of Seller's request. Any failure by Buyer to deliver such notice of extension shall be deemed to be Buyer's determination not to extend the then current Termination Date. -31- 4. MARGIN AMOUNT MAINTENANCE (a) If at any time the Margin Base is less than the aggregate Purchase Price for all outstanding Transactions (a "Margin Deficit"), then Buyer may by notice to Seller (as such notice is more particularly set forth below, a "Margin Deficit Notice") require Seller to transfer to Buyer or its designee (including Custodian) cash to be applied to reduce the Purchase Price with respect to all outstanding Transactions such that the aggregate Asset Value of the Purchased Assets will thereupon equal or exceed the aggregate Purchase Price for all outstanding Transactions. If Buyer delivers a Margin Deficit Notice to Seller on or prior to 10 a.m., New York City time, on any Business Day, then Seller shall transfer such cash to Buyer no later than 5 p.m. New York City time, on such Business Day. In the event Buyer delivers a Margin Deficit Notice to Seller after 10 a.m., New York City time, on any Business Day, Seller shall be required to transfer such cash no later than 5 p.m., New York City time, on the subsequent Business Day. All cash transferred to Buyer pursuant to this Section 4(a) shall be deposited in the account set forth in Section 8(a) hereof and shall be deemed to reduce the aggregate Purchase Price with respect to all outstanding Transactions. (b) Buyer's election, in its sole and absolute discretion, not to deliver a Margin Deficit Notice at any time there is a Margin Deficit shall not in any way limit or impair its right to deliver a Margin Deficit Notice at any time a Margin Deficit exists. 5. INCOME PAYMENTS (a) Where a particular Transaction's term extends over an Income payment date on the Purchased Assets subject to that Transaction such Income shall be the property of Buyer. Buyer agrees that until a Default or an Event of Default has occurred and Buyer otherwise directs as contemplated in each Servicer Notice, each Servicer that is not Seller shall be permitted to continue to remit Income in accordance with the respective Servicing Agreement. In the event that Seller is the Servicer of any Mortgage Loans, Buyer agrees that until a Default or an Event of Default has occurred, Seller shall be permitted to continue to remit or retain Income with respect to such Mortgage Loans in accordance with its current existing business practice. Upon notice of a Default or an Event of Default to Seller hereunder or to Servicer pursuant to a Servicer Notice, Seller shall, and pursuant to the Servicer Notice, Servicer shall be required to, deposit promptly all Income in a deposit account (the title of which shall indicate that the funds therein are being held in trust for Buyer) (the "Collection Account") with the Bank and which is subject to the Account Agreement. All funds in the Collection Account may be withdrawn by Buyer and applied as determined by Buyer. Seller may not give any instruction with respect to the Collection Account after a Default or an Event of Default. (b) Notwithstanding that Buyer and Seller intend that the Transactions hereunder be sales to Buyer of the Purchased Assets, Seller shall pay to Buyer the accreted value of the Price Differential (less any amount of such Price Differential previously paid by Seller to Buyer) of each Transaction through but not including the Payment Calculation Date (each such payment, a "Periodic -32- Advance Repurchase Payment") on each Payment Date. Buyer shall deliver to Seller, via Electronic Transmission, notice of the required Periodic Advance Repurchase Payment on or prior to the second Business Day preceding each Payment Date. If Seller fails to make all or part of the Periodic Advance Repurchase Payment by 5:00 p.m., New York City time, on the Payment Date, Seller shall be obligated to pay to Buyer (in addition to, and together with, the Periodic Advance Repurchase Payment) interest on the unpaid amount of the Periodic Advance Repurchase Payment at a rate per annum equal to the Post-Default Rate (the "Late Payment Fee") until the overdue Periodic Advance Repurchase Payment is received in full by Buyer. (c) Seller shall hold or cause to be held for the benefit of, and in trust for, Buyer all income, including without limitation all Income received by or on behalf of Seller with respect to such Purchased Assets. All such Income shall be held in trust for Buyer, shall constitute the property of Buyer and shall not be commingled with other property of Seller, any affiliate of Seller or the applicable Servicer except as expressly permitted above in this Section 5. Funds deposited in the Collection Account during any month shall be held therein, in trust for Buyer. (d) Buyer shall offset against the Repurchase Price of each such Transaction all Income and Periodic Advance Repurchase Payments actually received by Buyer for such Transaction pursuant to Sections 5(a) and 5(b) as of the applicable Repurchase Date, respectively, excluding any Late Payment Fees paid pursuant to Section 5(b); it being understood that the Late Payment Fees are properties of Buyer that are not subject to offset against the Repurchase Price. 6. REQUIREMENTS OF LAW (a) If any Requirement of Law (other than with respect to any amendment made to Buyer's certificate of incorporation and by-laws or other organizational or governing documents) or any change in the interpretation or application thereof or compliance by Buyer with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (1) shall subject Buyer to any tax of any kind whatsoever with respect to this Agreement or any Transaction (excluding net income taxes) or change the basis of taxation of payments to Buyer in respect thereof; (2) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, or other extensions of credit by, or any other acquisition of funds by, any office of Buyer which is not otherwise included in the determination of the Eurodollar Rate hereunder; (3) shall impose on Buyer any other condition; and the result of any of the foregoing is to increase the cost to Buyer, by an amount which Buyer deems to be material, of entering, continuing or maintaining any Transaction or to reduce any amount due or owing hereunder in respect thereof, then, in any such case, Seller shall promptly pay Buyer such additional -33- amount or amounts as calculated by Buyer in good faith as will compensate Buyer for such increased cost or reduced amount receivable. (b) If Buyer shall have determined that the adoption of or any change in any Requirement of Law (other than with respect to any amendment made to Buyer's certificate of incorporation and by-laws or other organizational or governing documents) regarding capital adequacy or in the interpretation or application thereof or compliance by Buyer or any corporation controlling Buyer with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on Buyer's or such corporation's capital as a consequence of its obligations hereunder to a level below that which Buyer or such corporation could have achieved but for such adoption, change or compliance (taking into consideration Buyer's or such corporation's policies with respect to capital adequacy) by an amount deemed by Buyer to be material, then from time to time, Seller shall promptly pay to Buyer such additional amount or amounts as will compensate Buyer for such reduction. (c) Any payments made by Seller to Buyer shall be free and clear of, and without deduction or withholding for, any taxes; provided, however, that if Seller shall be required by law to deduct or withhold any taxes from any sums payable to Buyer, then Seller shall (A) make such deductions or withholdings and pay such amounts to the relevant authority in accordance with applicable law, (B) pay to Buyer the sum that would have been payable had such deduction or withholding not been made, and (C) at the time the Price Differential is paid, pay to Buyer all additional amounts as specified by Buyer to preserve the after-tax yield Buyer would have been received had such tax not been imposed. (d) If Buyer becomes entitled to claim any additional amounts pursuant to this Section, it shall promptly notify Seller of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this Section 6(d) submitted by Buyer to Seller shall be conclusive in the absence of manifest error. 7. SECURITY INTEREST (a) Each of the following items or types of property, whether now owned or hereafter acquired, now existing or hereafter created and wherever located, is hereinafter referred to as the "Purchased Items": all Mortgage Loans, all rights under each Purchase Agreement (but not the obligations thereunder), all Interest Rate Protection Agreements, all Mortgage Files, including without limitation all promissory notes, all Servicing Records relating to the Mortgage Loans, all Servicing Agreements relating to the Mortgage Loans and any other collateral pledged hereunder or otherwise relating to such Mortgage Loans, together with all files, documents, instruments, surveys, certificates, correspondence, appraisals, computer programs, computer storage media, accounting records and other books and records relating thereto, all mortgage guaranties and insurance (issued by governmental agencies or otherwise) and any mortgage insurance certificate or other document evidencing such mortgage guaranties or insurance relating to any Mortgage Loan, all servicing fees to which such Seller is entitled and servicing and other rights relating to the Mortgage Loans, all Servicer Accounts established -34- pursuant to any Servicing Agreement and all amounts on deposit therein, from time to time, all Purchase Agreements or other agreements or contracts relating to, constituting, or otherwise governing, any or all of the foregoing to the extent they relate to the Purchased Assets including the right to receive principal and interest payments with respect to the Purchased Assets and the right to enforce such payments, the Collection Account and all monies from time to time on deposit in the Collection Account, the DDA Account and all monies from time to time on deposit in the DDA Account, the Check Disbursement Account and all monies from time to time on deposit in the Check Disbursement Account, all "general intangibles", "accounts", "chattel paper", "deposit accounts" and "investment property" as defined in the Uniform Commercial Code as in effect from time to time relating to or constituting any and all of the foregoing, and any and all replacements, substitutions, distributions on or proceeds of any and all of the foregoing. (b) Buyer and Seller intend that the Transactions hereunder be sales to Buyer of the Purchased Assets and not loans from Buyer to Seller secured by the Purchased Assets. However, in order to preserve Buyer's rights under this Agreement in the event that a court or other forum recharacterizes the Transactions hereunder as loans and as security for the performance by Seller of all of Seller's obligations to Buyer hereunder and the Transactions entered into hereunder ("Repurchase Obligations") and the Seller-Related Obligations, each Seller Entity hereby assigns, pledges and grants a security interest in all of its right, title and interest in, to and under the Purchased Items and the Purchased Assets to Buyer to secure the Repurchase Obligations and the Seller-Related Obligations, including without limitation the repayment of all amounts owing to Buyer hereunder. The assignment, pledge and grant of security interest contained herein shall be, and each Seller Entity hereby represents and warrants to Buyer that it is, a first priority perfected security interest. Each Seller Entity agrees to mark its computer records and tapes to evidence the interests granted to Buyer hereunder. All Purchased Items shall secure the payment of all obligations of Seller now or hereafter existing under this Agreement, including, without limitation, Seller's obligation to repurchase Purchased Assets, or if such obligation is so recharacterized as a loan, to repay such loan, for the Repurchase Price and to pay any and all other amounts owing to Buyer hereunder. (c) Pursuant to the Custodial and Disbursement Agreement, Custodian shall hold the Mortgage Files as exclusive bailee and agent for Buyer pursuant to the terms of the Custodial and Disbursement Agreement and shall deliver to Buyer Trust Receipts each to the effect that Custodian has reviewed such Mortgage Files in the manner and to the extent required by the Custodial and Disbursement Agreement and identifying any deficiencies in such Mortgage Files as so reviewed. 8. PAYMENT, TRANSFER AND CUSTODY (a) Unless otherwise mutually agreed in writing, all transfers of funds to be made by Seller hereunder shall be made in Dollars, in immediately available funds, without deduction, set-off or counterclaim, to Buyer at the following account maintained by Buyer; Account No. GLA 111569, account name SER, Bank of New York, ABA No. 021000018, Attn: Eric Seyffer, not later than 3 p.m., New York City time, on the date on which such -35- payment shall become due (and each such payment made after such time shall be deemed to have been made on the next succeeding Business Day). Seller acknowledges that it has no rights of withdrawal from the foregoing account. (b) On the Purchase Date for each Transaction, ownership of the Purchased Assets shall be transferred to Buyer or its designee (including Custodian) against the simultaneous transfer of the Purchase Price as set forth in Section 11 of the Custodial and Disbursement Agreement not later than 6 p.m., New York City time, simultaneously with the delivery to Custodian of the Purchased Assets relating to each Transaction. Seller hereby sells, transfers, conveys and assigns to Buyer or its designee (including Custodian) without recourse, but subject to the terms of this Agreement, all the right, title and interest of Seller in and to the Purchased Assets together with all right, title and interest in and to the proceeds of any related Purchased Items. (c) In connection with such sale, transfer, conveyance and assignment, on or prior to each Purchase Date, Seller shall deliver or cause to be delivered and released to Buyer or its designee (including Custodian) (i) the Custodial Identification Certificate and (ii) the documents identified in the Custodial and Disbursement Agreement. (d) Any Mortgage Files not delivered to Buyer or its designee (including Custodian) are and shall be held in trust by Seller or its designee for the benefit of Buyer as the owner thereof. Seller or its designee shall maintain a copy of the Mortgage File and the originals of the Mortgage File not delivered to Buyer or its designee (including Custodian). The possession of the Mortgage File by Seller or its designee is at the will of Buyer for the sole purpose of servicing the related Purchased Asset, and such retention and possession by Seller or its designee is in a custodial capacity only. Each Mortgage File retained or held by Seller or its designee shall be segregated on Seller's books and records from the other assets of Seller or its designee and the books and records of Seller or its designee shall be marked appropriately to reflect clearly the sale of the related Purchased Asset to Buyer. Seller or its designee shall release its custody of the Mortgage File only in accordance with written instructions from Buyer, unless such release is required as incidental to the servicing of the Purchased Assets or is in connection with a repurchase of any Purchased Asset by Seller. 9. HYPOTHECATION OR PLEDGE OF PURCHASED ASSETS Title to all Purchased Assets and Purchased Items shall pass to Buyer and Buyer shall have free and unrestricted use of all Purchased Assets and Purchased Items. Nothing in this Agreement shall preclude Buyer from engaging in repurchase transactions with the Purchased Assets and Purchased Items or otherwise pledging, repledging, transferring, hypothecating, or rehypothecating the Purchased Assets and Purchased Items, all on terms that Buyer may determine in its sole discretion. Nothing contained in this Agreement shall obligate Buyer to segregate any Purchased Assets and Purchased Items delivered to Buyer by Seller. -36- 10. SELLER REPRESENTATIONS Each of the Seller Entities, jointly and severally, represents and warrants to Buyer that as of the Purchase Date for the purchase of any Purchased Assets by Buyer from Seller and as of the date of this Agreement and any Transaction hereunder and at all times while the Repurchase Documents and any Transaction hereunder is in full force and effect: (a) Acting as Principal. Seller will engage in such Transactions as principal (or, if agreed in writing in advance of any Transaction by the other party hereto, as agent for a disclosed principal); (b) Solvency. Neither the Repurchase Documents nor any Transaction thereunder are entered into in contemplation of insolvency or with intent to hinder, delay or defraud any of Seller's creditors. The transfer of the Mortgage Loans subject hereto and the obligation to repurchase such Mortgage Loans is not undertaken with the intent to hinder, delay or defraud any of Seller's creditors. None of the Seller Entities is insolvent within the meaning of 11 U.S.C. Section 101(32) or any successor provision thereof and the transfer and sale of the Mortgage Loans pursuant hereto and the obligation to repurchase such Mortgage Loan (i) will not cause any Seller Entity to become insolvent, (ii) will not result in any Seller Entity having unreasonably small capital, and (iii) will not result in debts that would be beyond Seller's ability to pay as the same mature. Seller received reasonably equivalent value in exchange for the transfer and sale of the Purchased Assets and Purchased Items subject hereto; (c) No Broker. Seller has not dealt with any broker, investment banker, agent, or other person, except for Buyer and Milestone Merchant Partners, who may be entitled to any commission or compensation in connection with the sale of Purchased Assets pursuant to this Agreement; (d) Ability to Perform. Seller does not believe, nor does it have any reason or cause to believe, that it cannot perform each and every covenant contained in the Repurchase Documents; (e) No Defaults. No Default or Event of Default has occurred and is continuing hereunder; (f) Legal Name; Existence; Organizational Identification Number. Each Seller Entity's exact legal name is, and for the immediately preceding four months has been, American Home Mortgage Corp., American Home Mortgage Investment Corp., American Home Mortgage Acceptance, Inc., American Home Mortgage Holdings, Inc. or Columbia National, Incorporated, as applicable, or such other legal name with respect to a Seller Entity or Entities as may be provided to Buyer by such Seller Entity or Entities from time to time by not less than ten (10) days prior written notice to Buyer. Seller shall cooperate with Buyer in filing amendments to financing statements in connection with any such name changes. Each Seller Entity (i) is, and for the immediately preceding twelve months (or, if such Seller Entity was formed within the preceding twelve months, since the date of its formation) has been, a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (ii) has all requisite -37- corporate or other power, and has all governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted, except where the lack of such licenses, authorizations, consents and approvals would not be reasonably likely to have a Material Adverse Effect; and (iii) is qualified to do business and is in good standing in all other jurisdictions in which the nature of the business conducted by it makes such qualification necessary, except where failure so to qualify could not be reasonably likely (either individually or in the aggregate) to have a Material Adverse Effect. The jurisdiction of incorporation and the corresponding organizational identification number for each Seller Entity are as set forth on Schedule 2 attached hereto. (g) Financial Condition. Seller has heretofore furnished to Buyer a copy of (a) AHMIC's consolidated balance sheet and the consolidated balance sheets of AHMIC's consolidated Subsidiaries for the fiscal year ended December 31, 2003, and the related AHMIC consolidated statements of income and retained earnings and of cash flows for AHMIC and AHMIC's consolidated Subsidiaries for such fiscal year, each audited by and with the unqualified opinion thereon of Deloitte and Touche LLP and (b) AHMIC's consolidated balance sheet and the consolidated balance sheets of AHMIC's consolidated Subsidiaries for the quarterly fiscal periods of AHMIC ended March 31, 2004 and the related consolidated statements of income and retained earnings and of cash flows for AHMIC and AHMIC's consolidated Subsidiaries for each such quarterly fiscal period, setting forth in each case in comparative form the figures for the previous year. All such financial statements are complete and correct and fairly present, in all material respects, the consolidated financial position of AHMIC and AHMIC's Subsidiaries and the consolidated results of their operations as at such dates and for such fiscal periods, all in accordance with GAAP applied on a consistent basis. Since March 31, 2004, there has been no material adverse change in the consolidated business, operations or financial condition of AHMIC and AHMIC's consolidated Subsidiaries taken as a whole from that set forth in said financial statements. (h) Litigation. There are no actions, suits, arbitrations, investigations (including, without limitation, any of the foregoing which are pending or threatened) or other legal or arbitrable proceedings affecting any Seller Entity or any of its respective Subsidiaries or affecting any of the Property of any of them before any Governmental Authority which (i) questions or challenges the validity or enforceability of the Repurchase Documents or any action to be taken in connection with the transactions contemplated hereby, (ii) makes a claim or claims in an aggregate amount greater than $1,500,000, or (iii) individually or in the aggregate, if adversely determined, could reasonably be likely to have a Material Adverse Effect. (i) No Breach. Neither (a) the execution and delivery of the Repurchase Documents nor (b) the consummation of the transactions therein contemplated to be entered into by Seller, in compliance with the terms and provisions thereof will conflict with or result in a breach of the organizational documents of any Seller Entity or any applicable law, rule or regulation, or any order, writ, injunction or decree of any Governmental Authority, or any Servicing Agreement or other material agreement or instrument to which any Seller Entity or any of its respective Subsidiaries is a party or by which any of them or any of -38- their Property is bound or to which any of them is subject, or constitute a default under any such material agreement or instrument or result in the creation or imposition of any Lien (except for the Liens created pursuant to the Repurchase Documents) upon any Property of any Seller Entity or any of its respective Subsidiaries pursuant to the terms of any such agreement or instrument. (j) Action. Each Seller Entity has all necessary corporate or other power, authority and legal right to execute, deliver and perform its obligations under each of the Repurchase Documents to which it is a party; the execution, delivery and performance by it of each of the Repurchase Documents to which it is a party has been duly authorized by all necessary corporate or other action on its part; and each Repurchase Document to which it is a party has been duly and validly executed and delivered by it, and constitutes a legal, valid and binding obligation of it enforceable against it in accordance with its terms. (k) Approvals. No authorizations, approvals or consents of, and no filings or registrations with, any Governmental Authority or any securities exchange are necessary for the execution, delivery or performance by any Seller Entity of the Repurchase Documents to which it is a party or for the legality, validity or enforceability thereof, except for filings and recordings in respect of the Liens created pursuant to the Repurchase Documents. (l) Margin Regulations. Neither any Transaction hereunder, nor the use of the proceeds thereof, will violate or be inconsistent with the provisions of Regulation T, U or X. (m) Taxes. Each Seller Entity and its respective Subsidiaries have timely filed all Federal income tax returns and all other material tax returns that are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by it or any of its Subsidiaries, except for any such taxes as are being appropriately contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves have been provided. The charges, accruals and reserves on the books of each Seller Entity and its respective Subsidiaries in respect of taxes and other governmental charges are, in the opinion of Seller, adequate. (n) Real Estate Investment Trust. AHMIC has not engaged in any material "prohibited transactions" as defined in Section 857(b)(6)(B)(iii) and (C) of the Code. AHMIC for its current "tax year" (as defined in the Code) is and for all prior tax years subsequent to its election to be a real estate investment trust has been entitled to a dividends paid deduction in accordance with the provisions of Section 857 of the Code with respect to any dividends paid by it with respect to each such year for which it has claimed or will claim a deduction in its Form 1120-REIT filed or to be filed with the United States Internal Revenue Service for such year. (o) Investment Company Act. None of the Seller Entities nor any of their respective Subsidiaries is an "investment company", or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. -39- (p) Purchased Assets. (1) No Seller Entity has assigned, pledged, or otherwise conveyed or encumbered any Mortgage Loan to any other Person, and immediately prior to the sale of such Mortgage Loan to Buyer, the respective Seller Entity was the sole owner of such Mortgage Loan and had good and marketable title thereto, free and clear of all Liens, in each case except for Liens to be released simultaneously with the sale to Buyer hereunder. No Mortgage Loan sold to Buyer hereunder was acquired (by purchase or otherwise) by a Seller Entity from an Affiliate of such Seller Entity unless a True Sale Certification has been delivered to Buyer or such Affiliate is a Seller Entity. (2) The provisions of this Agreement are effective to either constitute a sale of Purchased Items to Buyer or to create in favor of Buyer a valid and fully perfected first priority security interest in all right, title and interest of Seller in, to and under the Purchased Items. (3) Upon receipt by Custodian of each Mortgage Note, endorsed in blank by a duly authorized officer of Seller, either a purchase shall have been completed by Buyer of each Mortgage Note or Buyer shall have a valid and fully perfected first priority security interest in the applicable Mortgage Note and in such Seller Entity's interest in the related Mortgaged Property. (4) Upon the filing of financing statements on Form UCC-1 naming Buyer as "Secured Party", Seller as "Debtor" and describing the Purchased Items, in the jurisdictions and recording offices listed on Exhibit IV attached hereto, the security interests granted hereunder in the Purchased Items will constitute fully perfected security interests under the Uniform Commercial Code in all right, title and interest of each Seller Entity in, to and under such Purchased Items, which can be perfected by filing under the Uniform Commercial Code. (5) Upon execution and delivery of the Account Agreement, Buyer shall either be the owner of, or have a valid and fully perfected first priority security interest in, the investment property and all deposit accounts comprising Purchased Items. (6) With respect to each Purchased Asset, each of the representations and warranties on Schedule 1 is true and correct. (q) Location of Books and Records. The location where Seller keeps its books and records, including all computer tapes and records related to the Purchased Items is its chief executive office. (r) [Reserved]. (s) Existing Financing Facilities. All credit facilities of each Seller Entity listed under the definition of "Existing Financing Facilities" are presently in effect. No defaults or events of default exist under any of the Existing Financing Facilities. The financial covenants hereunder are at least equal to those the applicable Seller Entity makes under each of the -40- Existing Financing Facilities. Seller shall give Buyer prior notification if any amendment to any financial covenant in any Existing Financing Facility increases the obligations or requirements of Seller thereunder, and such changed financial covenant shall, with no further action of Seller or Buyer, automatically become a part hereof and be incorporated herein upon the effectiveness of such amendment in the other Existing Financing Facility. (t) True and Complete Disclosure. The information, reports, financial statements, exhibits and schedules furnished in writing by or on behalf of Seller to Buyer in connection with the negotiation, preparation or delivery of this Agreement and the other Repurchase Documents or included herein or therein or delivered pursuant hereto or thereto (other than with respect to the Mortgage Loans), when taken as a whole, do not contain any untrue statement of material fact or omit to state any material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading. All written information furnished after the date hereof by or on behalf of Seller to Buyer in connection with this Agreement and the other Repurchase Documents and the transactions contemplated hereby (other than with respect to the Mortgage Loans) and thereby will be true, complete and accurate in every material respect, or (in the case of projections) based on reasonable estimates, on the date as of which such information is stated or certified. There is no fact known to a Responsible Officer of Seller, after due inquiry, that could reasonably be expected to have a Material Adverse Effect that has not been disclosed herein, in the other Repurchase Documents or in a report, financial statement, exhibit, schedule, disclosure letter or other writing furnished to Buyer for use in connection with the transactions contemplated hereby or thereby. (u) ERISA. Each Plan to which each Seller Entity or any of its respective Subsidiaries makes direct contributions, and, to the knowledge of Seller, each other Plan and each Multiemployer Plan, is in compliance in all material respects with, and has been administered in all material respects in compliance with, the applicable provisions of ERISA, the Code and any other Federal or State law. No event or condition has occurred and is continuing as to which Seller would be under an obligation to furnish a report to Buyer under Section 11(a)(4). (v) Servicing. CNI is the servicer of each Mortgage Loan. (w) No Reliance. Each Seller Entity has made its own independent decisions to enter into the Repurchase Documents and each Transaction and as to whether such Transaction is appropriate and proper for it based upon its own judgment and upon advice from such advisors (including without limitation, legal counsel and accountants) as it has deemed necessary. Seller is not relying upon any advice from Buyer as to any aspect of the Transactions, including without limitation, the legal, accounting or tax treatment of such Transactions. (x) Compliance with Anti-Money Laundering Laws. Seller has complied with all applicable anti-money laundering laws and regulations, including without limitation the USA Patriot Act of 2001 (collectively, the "Anti-Money Laundering Laws"); Seller has established an anti-money laundering compliance program as required by the Anti-Money Laundering Laws, has conducted the requisite due diligence in connection with the origination of -41- each Mortgage Loan for purposes of the Anti-Money Laundering Laws, including with respect to the legitimacy of the applicable Mortgagor and the origin of the assets used by the said Mortgagor to purchase the property in question, and maintains, and will maintain, sufficient information to identify the applicable Mortgagor for purposes of the Anti-Money Laundering Laws. (y) Other Security Agreements. Seller has not become bound under Section 9-203(d) of the UCC by a Security Agreement previously entered into by another Person. 11. COVENANTS OF SELLER On and as of the date of this Agreement and each Purchase Date and until this Agreement is no longer in force with respect to any Transaction, each of the Seller Entities, jointly and severally, covenants that it will: (a) Financial Statements. Seller shall deliver to Buyer: (1) as soon as available and in any event within forty-five (45) calendar days after the end of each calendar month, the unaudited consolidated balance sheets of American Home Mortgage Investment Corp. ("AHMIC") and its consolidated Subsidiaries as at the end of such period and the related unaudited consolidated statements of income and retained earnings and of cash flows for AHMIC and its consolidated Subsidiaries for such period and the portion of the fiscal year through the end of such period, accompanied by a certificate of a Responsible Officer of AHMIC, which certificate shall state that said consolidated financial statements fairly present in all material respects the consolidated financial condition and results of operations of AHMIC and its consolidated Subsidiaries in accordance with GAAP, consistently applied, as at the end of, and for, such period (subject to normal year-end adjustments); (2) as soon as available and in any event within ninety (90) days after the end of each fiscal year of AHMIC, the consolidated balance sheets of AHMIC and its consolidated Subsidiaries as at the end of such fiscal year and the related consolidated statements of income and retained earnings and of cash flows for AHMIC and its consolidated Subsidiaries for such year, setting forth in each case in comparative form the figures for the previous year, accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall not be qualified as to scope of audit or going concern and shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of AHMIC and its respective consolidated Subsidiaries as at the end of, and for, such fiscal year in accordance with GAAP, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default or Event of Default; (3) from time to time such other information regarding the financial condition, operations, or business of Seller as Buyer may reasonably request; and -42- (4) as soon as reasonably possible, and in any event within thirty (30) days after a Responsible Officer of Seller knows, or with respect to any Plan or Multiemployer Plan to which AHMIC or any of its Subsidiaries makes direct contributions, has reason to believe, that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan has occurred or exists, a statement signed by a senior financial officer of AHMIC setting forth details respecting such event or condition and the action, if any, that AHMIC or its ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC by AHMIC or an ERISA Affiliate with respect to such event or condition): (A) any reportable event, as defined in Section 4043(c) of ERISA or any successor provision thereof and the regulations issued thereunder, with respect to a Plan, as to which PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within thirty (30) days of the occurrence of such event (provided that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA or any successor provision thereof, including without limitation the failure to make on or before its due date a required installment under Section 412(m) of the Code or Section 302(e) of ERISA or any successor provision thereof, shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code or any successor provision thereof); and any request for a waiver under Section 412(d) of the Code or any successor provision thereof for any Plan; (B) the distribution under Section 4041(c) of ERISA or any successor provision thereof of a notice of intent to terminate any Plan or any action taken by Seller or an ERISA Affiliate to terminate any Plan; (C) the institution by PBGC of proceedings under Section 4042 of ERISA or any successor provision thereof for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by Seller or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan; (D) the complete or partial withdrawal from a Multiemployer Plan by AHMIC or any ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA or any successor provision thereof (including the obligation to satisfy secondary liability as a result of a purchaser default) that would have a Material Adverse Effect or the receipt by AHMIC or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or any successor provision thereof or that it intends to terminate or has terminated under Section 4041A of ERISA or any successor provision thereof; -43- (E) the institution of a proceeding by a fiduciary of any Multiemployer Plan against AHMIC or any ERISA Affiliate to enforce Section 515 of ERISA or any successor provision thereof, which proceeding is not dismissed within thirty (30) days; and (F) the adoption of an amendment to any Plan that would result in the loss of tax-exempt status of the trust of which such Plan is a part if AHMIC or an ERISA Affiliate fails to provide timely security to such Plan in accordance with the provisions of Section 401(a)(29) of the Code or Section 307 of ERISA or any successor provision thereof. AHMIC will furnish to Buyer, at the time AHMIC furnishes each set of financial statements pursuant to paragraphs (a)(1) and (a)(2) above, a certificate of a Responsible Officer of AHMIC to the effect that, to the best of such Responsible Officer's knowledge, AHMIC during such fiscal period or year has observed or performed in all material respects all of its covenants and other agreements, and satisfied every condition, contained in this Agreement and the other Repurchase Documents to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate (and, if any Default or Event of Default has occurred and is continuing, describing the same in reasonable detail and describing the action AHMIC has taken or proposes to take with respect thereto). (b) Litigation. Seller will promptly, and in any event within ten (10) days after service of process on any of the following, give to Buyer notice of all litigation, actions, suits, arbitrations, investigations (including, without limitation, any of the foregoing which are threatened or pending) or other legal or arbitrable proceedings affecting any Seller Entity or any of their respective Subsidiaries or affecting any of the Property of any of them before any Governmental Authority that (i) questions or challenges the validity or enforceability of any of the Repurchase Documents or any action to be taken in connection with the transactions contemplated hereby, (ii) makes a claim or claims in an aggregate amount greater than $1,500,000, or (iii) which, individually or in the aggregate, if adversely determined, could be reasonably likely to have a Material Adverse Effect. Seller shall set forth on its monthly compliance report (in the form of Exhibit IX attached hereto) any such event requiring notice to Buyer under this Section 11(b). (c) Existence, etc. Each Seller Entity will: (1) preserve and maintain its legal existence and all of its material rights, privileges, licenses and franchises necessary for the operation of its business (provided that nothing in this Section 11(c)(1) shall prohibit any transaction expressly permitted under Section 11(d)); (2) comply with the requirements of all applicable laws, rules, regulations and orders of Governmental Authorities (including, without limitation, all environmental laws) if failure to comply with such requirements could be reasonably likely (either individually or in the aggregate) to have a Material Adverse Effect; -44- (3) keep adequate records and books of account, in which complete entries will be made in accordance with GAAP consistently applied; (4) not (i) cause or permit any change to be made in its name, organizational identification number, identity or corporate structure, each as described in Section 10(f) or (ii) change its jurisdiction of organization, unless it shall have provided Buyer thirty (30) days' prior written notice of such change and shall have first taken all action required by Buyer for the purpose of perfecting or protecting the lien and security interest of Buyer established hereunder; (5) pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its Property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained; and (6) permit representatives of Buyer, upon reasonable notice (unless a Default shall have occurred and is continuing, in which case, no prior notice shall be required), during normal business hours, to examine, copy and make extracts from its books and records, to inspect any of its Properties, and to discuss its business and affairs with its officers, all to the extent reasonably requested by Buyer. (d) Prohibition of Fundamental Changes. Except with respect to the Bank Charter Event, no Seller Entity shall enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation, winding up or dissolution) or sell all or substantially all of its assets; provided, that each Seller Entity may purchase all or substantially all of the assets and/or merge or consolidate with (i) any Affiliate or wholly owned subsidiary of it, or (ii) any other Person if it is the surviving corporation; and provided, further, that if after giving effect thereto, no Default would exist hereunder. (e) Margin Deficit. If at any time there exists a Margin Deficit Seller shall cure same in accordance with Section 4. (f) Notices. Seller shall give notice to Buyer: (1) promptly upon receipt of notice or knowledge of the occurrence of any Default or Event of Default; (2) with respect to any Purchased Asset, promptly upon receipt of any principal prepayment (in full or partial) of such Purchased Asset; (3) with respect to any Purchased Asset hereunder, promptly upon receipt of notice or knowledge that the underlying Mortgaged Property has been damaged by waste, fire, earthquake or earth movement, flood, tornado or other casualty, or otherwise damaged so as to affect adversely the Asset Value of such Purchased Asset; -45- (4) promptly upon receipt of notice or knowledge of (i) any material default related to any Purchased Item, (ii) any Lien or security interest on, or claim asserted against, any Purchased Item or (iii) any event or change in circumstances which could reasonably be expected to have a Material Adverse Effect; (5) promptly upon any material change in the market value of any or all of Seller's assets which could reasonably be expected to have a Material Adverse Effect; and (6) promptly upon the occurrence of any default or event of default under the Existing Financing Facilities. Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer of Seller setting forth details of the occurrence referred to therein and stating what action Seller has taken or proposes to take with respect thereto. (g) Reports. Within forty-five calendar days of the end of each calendar quarter, Seller shall provide Buyer with a quarterly report, which report shall include, among other items, (i) a summary of each Seller Entity's delinquency and loss experience with respect to Mortgage Loans serviced by Seller, any Servicer or any designee of either, operating statements and the occupancy status of such Mortgaged Property and other property level information, including internal quality control reports, plus (ii) with respect to any MERS Designated Mortgage Loan, MERS Reports, plus (iii) any such additional reports as Buyer may reasonably request with respect to Seller or any Servicer's servicing portfolio or pending originations of Mortgage Loans. (h) Underwriting Guidelines. All Eligible Assets will conform with the Underwriting Guidelines. Seller shall not make any material change in the Underwriting Guidelines without the prior written consent of Buyer and shall review the Underwriting Guidelines periodically to confirm that they are being complied with in all material respects and are adequate to meet Seller's business objectives. In the event Seller makes any amendment or modification to the Underwriting Guidelines, Seller shall promptly deliver to Buyer a complete copy of the amended or modified Underwriting Guidelines. (i) Transactions with Affiliates. No Seller Entity shall enter into any transaction with any Affiliate, including without limitation, any purchase, sale, lease or exchange of property or the rendering of any service unless such transaction is not otherwise expressly prohibited under this Agreement and is upon fair and reasonable terms no less favorable to such Seller Entity than it would obtain in a comparable arm's length transaction with a Person which is not an Affiliate except for (i) the acquisition of equity or stock or warrants of an Affiliate, (ii) the payment of dividends, in the ordinary course of business, (iii) the contribution of capital (not to exceed $1,000,000) to an entity in which any Seller Entity holds at least a majority equity interest, and (iv) the purchase or sale of loans in the ordinary course of business which is a true sale and does not constitute a fraudulent conveyance and (v) any transaction or series of transactions between two or more Seller Entities. No Seller Entity shall make a payment that is not otherwise permitted by this Section 11(i) to any Affiliate. In no event shall any Seller Entity transfer to Buyer hereunder any Mortgage Loan acquired by such Seller Entity from an Affiliate of such -46- Seller Entity unless a True Sale Certification has been delivered to Buyer prior to such sale or such Affiliate is a Seller Entity. (j) Limitation on Liens. Immediately upon notice of a Lien or any circumstance which could give rise to a Lien on the Purchased Items, Seller will defend the Purchased Items against, and will take such other action as is necessary to remove, any Lien, security interest or claim on or to the Purchased Items (other than any security interest created under this Agreement), and Seller will defend the right, title and interest of Buyer in and to any of the Purchased Items against the claims and demands of all persons whomsoever. (k) Limitation on Distributions. After the occurrence and during the continuation of any Default, no Seller Entity shall make any payment on account of, or set apart assets for, a sinking or other analogous fund for the purchase, redemption, defeasance, retirement or other acquisition of any equity or partnership interest of Seller, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of Seller, except, with respect to AHMIC and AHMA, any distributions in cash or other property to the extent required to satisfy the REIT Distribution Requirement; provided, for the avoidance of doubt, that after the occurrence and during the continuation of any Default, no Seller Entity (other than AHMIC and AHMA) shall make any distributions as set forth in this Section 11(k). (l) Maintenance of Profitability. Seller shall not permit, for any period of six (6) consecutive calendar months (each such period, a "Test Period"), Net Income of AHMIC and its consolidated Subsidiaries for such Test Period determined on a monthly basis, before income taxes for such Test Period and distributions made during such Test Period, to be less than $1.00. (m) Maintenance of Tangible Net Worth; Liquidity. Seller shall not permit Tangible Net Worth of AHMIC and its consolidated Subsidiaries at any time to be less than $300,000,000. In addition, Seller shall maintain at least $50,000,000 in the aggregate of (i) Cash in an amount not less than $25,000,000 and (ii) the amount available for borrowing as a result of the excess of the value of collateral pledged at any such time over the sum of the aggregate outstanding loan amounts advanced at such time against such collateral under each Existing Financing Facility. (n) Maintenance of Ratio of Total Indebtedness to Tangible Net Worth. Seller shall not permit the ratio of Total Indebtedness to Tangible Net Worth of AHMIC and its consolidated Subsidiaries at any time to be greater than 13:1. (o) Servicer; Servicing Information. Seller shall provide to Buyer and to Disbursement Agent via Electronic Transmission, a list of Mortgage Loans (including each loan number, Mortgagor name and Mortgagor address) on a monthly basis by no later than the 10th day following the end of each month (the "Reporting Date") containing the following information, on a loan-by-loan basis and in the aggregate, with respect to the Purchased Assets serviced hereunder by Seller or any Servicer for the month (or any portion thereof) prior to the Reporting Date: (i) Mortgage Loans that are 30 days or more delinquent -47- (including the paid through date and the outstanding principal balance of each such Mortgage Loan individually and in the aggregate as of the last day of the preceding month) and (ii) Mortgage Loans that were originated more than 45 days prior to the last day of the calendar month preceding the Reporting Date (including the paid through date and the outstanding principal balance of each such Mortgage Loan individually and in the aggregate as of the last day of the preceding month). Seller shall not cause the Mortgage Loans to be serviced by any servicer other than a servicer expressly approved in writing by Buyer, which approval shall be deemed granted by Buyer with respect to Seller with the execution of this Agreement. (p) Required Filings. Seller shall promptly provide Buyer with copies of all documents which Seller or any Subsidiary of either is required to file with any regulatory body in accordance with its regulations. (q) Remittance of Prepayments. Seller shall remit or cause to be remitted to Buyer, with sufficient detail via Electronic Transmission to enable Buyer to appropriately identify the Mortgage Loan to which any amount remitted applies, all full or partial principal prepayments on any Purchased Asset that Seller has received no later than one (1) Business Day following the date such prepayment was received. (r) Custodial and Disbursement Agreement and Account Agreement. Seller shall maintain each of the Custodial and Disbursement Agreement and Account Agreement in full force and effect and shall not amend or modify either of the Custodial and Disbursement Agreement or the Account Agreement or waive compliance with any provisions thereunder without the prior written consent of Buyer. (s) Compliance Report. Seller shall provide Buyer no later than the forty-fifth (45th) day after the end of a calendar month, a compliance report, in the form of Exhibit IX attached hereto, demonstrating therein the calculations Seller utilized to determine its compliance with the financial covenants set forth in clauses (m), (n) and (o) of this Section 11 as of the end of the immediately preceding month. Such compliance report shall be delivered by Seller to Buyer in accordance with Section 17 and shall also be delivered by Seller to Buyer at 9 West 57th Street, New York, NY 10019 Attn: Michael Friedman, Telecopier No.: (212) 891-6143, Telephone No.: (212) 891-6261. (t) Sub-Limits. Seller shall not sell to Buyer any Eligible Assets if, after giving effect to such Transaction, the aggregate principal balance of all Purchased Assets are in excess of any Sub-Limit as set forth in the definition of "Asset Value". (u) Inconsistent Agreements. Seller will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into any agreement containing any provision which would be violated or breached by any Transaction hereunder or by the performance by Seller of its obligations under any Repurchase Document. (v) Escrow Imbalance. Seller will, no later than five (5) Business Days after learning (from any source) of any material imbalance in any escrow account, fully and completely -48- correct and eliminate such imbalance including, without limitation, depositing its own funds into such account to eliminate any overdrawal or deficit. (w) Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of an Event of Default or Default if such action is taken or condition exists. 12. EVENTS OF DEFAULT If any of the following events (each, an "Event of Default") occur, Seller and Buyer shall have the rights set forth in Section 13, as applicable: (a) Seller shall default in the payment of any Repurchase Price due or any amount under Section 5 when due (whether at stated maturity, upon acceleration or at mandatory or optional prepayment); or (b) Seller shall default in the payment of any other amount payable by it hereunder or under any other Repurchase Document after notification by Buyer of such default, and such default shall have continued unremedied for one (1) Business Day; or (c) any representation, warranty or certification made or deemed made herein or in any other Repurchase Document by any Seller Entity or any certificate furnished to Buyer pursuant to the provisions hereof or thereof or any information with respect to the Mortgage Loans furnished in writing by or on behalf of Seller shall prove to have been false or misleading in any material respect as of the time made or furnished (other than the representations and warranties set forth in Schedule 1, which shall be considered solely for the purpose of determining the Asset Value of the Purchased Assets, unless (i) such Seller Entity shall have made any such representations and warranties with actual knowledge that they were materially false or misleading at the time made; or (ii) any such representations and warranties have been determined in good faith by Buyer in its sole discretion to be materially false or misleading on a regular basis); or (d) Seller shall fail to comply with the requirements of Section 11(c) through Section 11(f), or Sections 11(g) through 11(t) or 11(y); or except as otherwise set forth in Sections 12(a), 12(b), 12(c), or 12(d), Seller shall fail to observe or perform any other covenant or agreement contained in this Agreement or any other Repurchase Document and such failure to observe or perform shall continue unremedied for a period of 10 Business Days; or (e) a final judgment or judgments for the payment of money in excess of $250,000 in the aggregate shall be rendered against Seller or any of its Affiliates by one or more courts, administrative tribunals or other bodies having jurisdiction and the same shall not be satisfied, discharged (or provision shall not be made for such discharge) or bonded, or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof; or -49- (f) an Act of Insolvency shall have occurred with respect to any Seller Entity or any of its Affiliates; or (g) the Custodial and Disbursement Agreement, the Account Agreement or any Repurchase Document shall for whatever reason be terminated or cease to be in full force and effect, or the enforceability thereof shall be contested by any Seller Entity; or (h) Seller shall grant, or suffer to exist, any Lien on any Purchased Item (except any Lien in favor of Buyer); or the Purchased Items shall not have been sold to Buyer, or the Liens contemplated hereby shall cease or fail to be first priority perfected Liens on any Purchased Items in favor of Buyer or shall be Liens in favor of any Person other than Buyer; or (i) any Seller Entity or any of its respective Affiliates shall be in default under (i) any Indebtedness of such Seller Entity or of such Affiliate which default (1) involves the failure to pay a matured obligation, or (2) permits the acceleration of the maturity of obligations by any other party to or beneficiary with respect to such Indebtedness, (ii) any other contract to which such Seller Entity or such Affiliate is a party which default (1) involves the failure to pay a matured obligation, or (2) permits the acceleration of the maturity of obligations by any other party to or beneficiary of such contract, or (iii) any Seller-Related Obligation; or (j) any material adverse change in the Property, business or financial condition of any Seller Entity or any of its Affiliates shall occur, in each case as determined by Buyer in its sole discretion, or any other condition shall exist which, in Buyer's sole discretion, constitutes a material impairment of Seller's ability to perform its obligations under this Agreement or any other Repurchase Document; or (k) the failure of AHMIC to at any time continue to be (i) qualified as a real estate investment trust as defined in Section 856 of the Code and (ii) entitled to a dividend paid deduction under Section 857 of the Code with respect to dividends paid by it with respect to each taxable year for which it claims or will claim a deduction on its Form 1120 - REIT filed or to be filed with the United States Internal Revenue Service for such year, or the entering into by AHMIC of any material "prohibited transactions" as defined in Sections 857(b) and 856(c) of the Code; (l) (i) any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any material "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of any Seller Entity or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable -50- opinion of Buyer, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Plan shall terminate for purposes of Title IV of ERISA, (v) any Seller Entity or any Commonly Controlled Entity shall, or in the reasonable opinion of Buyer is likely to, incur any liability in connection with a withdrawal from, or the insolvency or reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a Material Adverse Effect; or (m) upon any event of default or event which, with the passage of time or expiration of any grace periods, would constitute an event of default under the Existing Financing Facilities; or (n) any of the events specified in Section 3(b)(10) have occurred; or (o) if the Buyer has purchased MERS Designated Mortgage Loans, the Electronic Tracking Agreement has for whatever reason been terminated or ceases to be in full force and effect and the Buyer (or the Custodian as its designee) shall not have received an assignment of mortgage with respect to each MERS Designated Mortgage Loan, in blank, in recordable form, but unrecorded; or (p) upon any material adverse change in the terms of, or any material reduction in amounts available to Seller or its Affiliates, under any of the Existing Financing Facilities. 13. REMEDIES (a) If an Event of Default occurs, the following rights and remedies are available to Buyer; provided, that an Event of Default shall be deemed to be continuing unless expressly waived by Buyer in writing. (1) At the option of Buyer, exercised by written notice to Seller (which option shall be deemed to have been exercised, even if no notice is given, immediately upon the occurrence of an Act of Insolvency of Seller), the Repurchase Date for each Transaction hereunder, if it has not already occurred, shall be deemed immediately to occur. Buyer shall (except upon the occurrence of an Act of Insolvency of Seller) give notice to Seller of the exercise of such option as promptly as practicable. (2) If Buyer exercises or is deemed to have exercised the option referred to in subsection (a)(1) of this Section 13, (A) (i) Seller's obligations in such Transactions to repurchase all Purchased Assets, at the Repurchase Price therefor on the Repurchase Date, and to pay all other amounts owned by Seller hereunder, shall thereupon become immediately due and payable, (ii) all Income paid after such exercise or deemed exercise shall be retained by Buyer and applied to the aggregate unpaid Repurchase Prices and any other amounts owed by Seller hereunder, and (iii) Seller shall immediately deliver to Buyer any Purchased Assets subject to such Transactions then in Seller's possession or control; -51- (B) to the extent permitted by applicable law, the Repurchase Price with respect to each such Transaction shall be increased by the aggregate amount obtained by daily application of, on a 360 day per year basis for the actual number of days during the period from and including the date of the exercise or deemed exercise of such option to but excluding the date of payment of the Repurchase Price, (x) the Post-Default Rate to (y) the Repurchase Price for such Transaction as of the Repurchase Date (decreased as of any day by (i) any amounts actually in the possession of Buyer pursuant to clause (C) of this subsection, (ii) any proceeds from the sale of Purchased Assets applied to the Repurchase Price pursuant to subsection (a)(4) of this Section 13, and (iii) any amounts applied to the Repurchase Price pursuant to subsection (a)(4) of this Section 13); and (C) all Income actually received by Buyer pursuant to Section 5 (excluding any Late Payment Fees paid pursuant to Section 5(b)) shall be applied to the aggregate unpaid Repurchase Price owed by Seller. (3) Upon the occurrence of one or more Events of Default, Buyer shall have the right to obtain physical possession of the Servicing Records (subject to the provisions of the Custodial and Disbursement Agreement) and all other files of Seller relating to the Purchased Assets and all documents relating to the Purchased Assets which are then or may thereafter come in to the possession of Seller or any third party acting for Seller and Seller shall deliver to Buyer such assignments as Buyer shall request and Buyer shall have the right to appoint any Person to act as Servicer for the Purchased Assets. Buyer shall be entitled to specific performance of all agreements of Seller contained in the Repurchase Documents. (4) At any time on the Business Day following notice to Seller (which notice may be the notice given under subsection (a)(1) of this Section 13), in the event Seller has not repurchased all Purchased Assets, Buyer may (A) immediately sell, without demand or further notice of any kind, at a public or private sale and at such price or prices as Buyer may deem satisfactory any or all Purchased Assets subject to such Transactions hereunder and apply the proceeds thereof to the aggregate unpaid Repurchase Price and any other amounts owing by Seller hereunder or (B) in its sole discretion elect, in lieu of selling all or a portion of such Purchased Assets, to give Seller credit for such Purchased Assets in an amount equal to the Market Value of the Purchased Assets against the aggregate unpaid Repurchase Price and any other amounts owing by Seller hereunder. The proceeds of any disposition of Purchased Assets shall be applied first to the costs and expenses incurred by Buyer in connection with Seller's default; second to costs of related covering and/or related hedging transactions; third to the Repurchase Price; and fourth to any other outstanding obligation of Seller to Buyer or its Affiliates. In connection with any sale pursuant to clause (A) of this subsection (a)(4), Buyer may (i) sell any such Purchased Assets without giving any warranties and (ii) specifically disclaim or modify any warranties of title or the like, and this procedure shall not be considered to adversely affect the commercial reasonableness of any such sale of Purchased Assets. -52- (5) Seller agrees that Buyer may obtain an injunction or an order of specific performance to compel Seller to fulfill its obligations as set forth in Section 24, if Seller fails or refuses to perform its obligations as set forth therein. (6) Seller shall be liable to Buyer, payable as and when incurred by Buyer, for (A) the amount of all actual out-of-pocket expenses, including legal or other expenses incurred by Buyer in connection with or as a consequence of an Event of Default, and (B) all costs incurred in connection with hedging or covering transactions. (7) Buyer shall have, in addition to its rights hereunder, any rights otherwise available to it under any other agreement or applicable law. (b) Buyer may exercise one or more of the remedies available to Buyer immediately upon the occurrence of an Event of Default and, except to the extent provided in subsections (a)(1) and (4) of this Section 13, at any time thereafter without notice to Seller. All rights and remedies arising under this Agreement as amended from time to time hereunder are cumulative and not exclusive of any other rights or remedies which Buyer may have. (c) Buyer may enforce its rights and remedies hereunder without prior judicial process or hearing, and Seller hereby expressly waives any defenses Seller might otherwise have to require Buyer to enforce its rights by judicial process. Seller also waives any defense (other than a defense of payment or performance) Seller might otherwise have arising from the use of nonjudicial process, enforcement and sale of all or any portion of the Purchased Items, or from any other election of remedies. Seller recognizes that nonjudicial remedies are consistent with the usages of the trade, are responsive to commercial necessity and are the result of a bargain at arm's-length. (d) To the extent permitted by applicable law, Seller shall be liable to Buyer for interest on any amounts owing by Seller hereunder, from the date Seller becomes liable for such amounts hereunder until such amounts are (i) paid in full by Seller or (ii) satisfied in full by the exercise of Buyer's rights hereunder. Interest on any sum payable by Seller to Buyer under this paragraph 13(d) shall be at a rate equal to the Post-Default Rate. 14. INDEMNIFICATION AND EXPENSES (a) Seller agrees to hold Buyer and its Affiliates and their present and former respective officers, directors, employees, agents, advisors and other representatives (each, an "Indemnified Party") harmless from and indemnify any Indemnified Party against all liabilities, losses, damages, judgments, costs and expenses of any kind which may be imposed on, incurred by or asserted against such Indemnified Party (including counsel's fees and disbursements) (collectively, "Costs"), relating to or arising out of this Agreement, any other Repurchase Document or any transaction contemplated hereby or thereby, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, any other Repurchase Document or any transaction contemplated hereby or thereby, that, in each case, results from anything other than the Indemnified Party's gross negligence or willful misconduct. Without limiting the generality of the foregoing, Seller agrees to hold any Indemnified Party harmless -53- from and indemnify such Indemnified Party against all Costs with respect to all Mortgage Loans relating to or arising out of any violation or alleged violation of any environmental law, rule or regulation or any consumer credit laws, including without limitation the federal Truth in Lending Act and/or the federal Real Estate Settlement Procedures Act, that, in each case, results from anything other than the Indemnified Party's gross negligence or willful misconduct. In any suit, proceeding or action brought by an Indemnified Party in connection with any Mortgage Loan for any sum owing thereunder, or to enforce any provisions of any Mortgage Loan, Seller will save, indemnify and hold such Indemnified Party harmless from and against all expense, loss or damage suffered by reason of any defense, set-off, counterclaim, recoupment or reduction or liability whatsoever of the account debtor or obligor thereunder, arising out of a breach by Seller of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such account debtor or obligor or its successors from Seller. Seller also agrees to reimburse an Indemnified Party as and when billed by such Indemnified Party for all the Indemnified Party's costs and expenses incurred in connection with the enforcement or the preservation of Buyer's rights under this Agreement, any other Repurchase Document or any transaction contemplated hereby or thereby, including without limitation the fees and disbursements of its counsel. (b) Seller agrees to pay as and when billed by Buyer all of the out-of-pocket costs and expenses (including legal fees and any costs associated with any upfront due diligence costs, including appraisals) incurred by Buyer in connection with the development, preparation and execution of, this Agreement, any other Repurchase Document or any other documents prepared in connection herewith or therewith. Seller agrees to pay as and when billed by Buyer all of the out-of-pocket costs and expenses incurred in connection with the consummation and administration of the transactions contemplated hereby and thereby including without limitation all fees, disbursements and expenses of counsel to Buyer which amount shall be deducted from the Purchase Price paid for the first Transaction hereunder and all initial set-up costs with the Custodian and the Disbursement Agent. Seller agrees to pay as and when billed by Buyer all of the out-of-pocket costs and expenses (including legal fees) incurred by Buyer in connection with the development, preparation and execution of any amendment, supplement or modification to this Agreement, any other Repurchase Document or any other documents prepared in connection therewith. Subject to the limitations set forth in Section 27, Seller agrees to pay Buyer all the out of pocket due diligence, inspection, appraisals, testing and review costs and expenses incurred by Buyer with respect to Mortgage Loans submitted by Seller for purchase under this Agreement, including, but not limited to, those out of pocket costs and expenses incurred by Buyer pursuant to Sections 24 and 27. 15. RECORDING OF COMMUNICATIONS Buyer and Seller shall have the right (but not the obligation) from time to time to make or cause to be made tape recordings of communications between its employees and those of the other party with respect to Transactions upon notice to the other party of such recording. Buyer and Seller consent to the admissibility of such tape recordings in any court, arbitration, or other proceedings. The parties agree that a duly authenticated -54- transcript of such a tape recording shall be deemed to be a writing conclusively evidencing the parties' agreement. 16. SINGLE AGREEMENT Buyer and Seller acknowledge that, and have entered hereinto and will enter into each Transaction hereunder in consideration of and in reliance upon the fact that, all Transactions hereunder constitute a single business and contractual relationship and that each has been entered into in consideration of the other Transactions. Accordingly, each of Buyer and Seller agrees (i) to perform all of its obligations in respect of each Transaction hereunder, and that a default in the performance of any such obligations shall constitute a default by it in respect of all Transactions hereunder, (ii) that each of them shall be entitled to set off claims and apply property held by them in respect of any Transaction against obligations owing to them in respect of any other Transaction hereunder; (iii) that payments, deliveries, and other transfers made by either of them in respect of any Transaction shall be deemed to have been made in consideration of payments, deliveries, and other transfers in respect of any other Transactions hereunder, and the obligations to make any such payments, deliveries, and other transfers may be applied against each other and netted and (iv) to promptly provide notice to the other after any such set off or application. 17. NOTICES AND OTHER COMMUNICATIONS Except as otherwise expressly permitted by this Agreement, all notices, requests and other communications provided for herein and under the Custodial and Disbursement Agreement (including without limitation any modifications of, or waivers, requests or consents under, this Agreement) shall be given or made in writing (including without limitation by email, telex or telecopy) delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof or thereof); or, as to any party, at such other address as shall be designated by such party in a written notice to each other party. Except as otherwise provided in this Agreement and except for notices given under Section 3 (which shall be effective only on receipt), all such communications shall be deemed to have been duly given when transmitted by telecopy or personally delivered or, in the case of a mailed notice, upon receipt. 18. ENTIRE AGREEMENT; SEVERABILITY This Agreement together with the other Repurchase Documents and the Account Agreement constitute the entire understanding between Buyer and Seller with respect to the subject matter it covers and shall supersede any existing agreements between the parties containing general terms and conditions for repurchase transactions involving Purchased Assets. By acceptance of this Agreement, Buyer and Seller acknowledge that they have not made, and are not relying upon, any statements, representations, promises or undertakings not contained in this Agreement or the other Repurchase Documents. Each provision and agreement herein shall be treated as separate and independent from any other provision or agreement herein and shall be enforceable notwithstanding the unenforceability of any such other provision or agreement. No amendment, modification -55- or release from any provision of this Agreement shall be effective unless in writing and executed by or on behalf of the party or parties to be charged therewith and shall be effective only in the specific instance and for the specific purpose for which given. 19. NON-ASSIGNABILITY The rights and obligations of the parties under this Agreement and under any Transaction shall not be assigned by any Seller Entity without the prior written consent of Buyer, and any attempted assignment without such consent shall be null and void. Subject to the foregoing, this Agreement and any Transactions shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns. Nothing in this Agreement express or implied, shall give to any person, other than the parties to this Agreement and their successors hereunder, any benefit of any legal or equitable right, power, remedy or claim under this Agreement. 20. TERMINABILITY This Agreement may be terminated by (i) Seller (a) upon 30 days' written notice to Buyer upon payment to Buyer of the Termination Fee and (b) upon Buyer's unreasonable failure to approve a replacement facility (in which case such termination shall not cause Seller to incur any Non-Use Fee or Termination Fee) and (ii) Buyer upon 30 days' notice from Buyer to Seller upon the occurrence of the event set forth in Section 3(b)(20) or 3(b)(21) (in which case such termination shall not cause Seller to incur any Non-Use Fee or Termination Fee), except that this Agreement shall, notwithstanding termination, remain applicable to any Transaction then outstanding. Each representation and warranty made or deemed to be made by entering into a Transaction, herein or pursuant hereto shall survive the making of such representation and warranty, and Buyer shall not be deemed to have waived any Default that may arise because any such representation or warranty shall have proved to be false or misleading, notwithstanding that Buyer may have had notice or knowledge or reason to believe that such representation or warranty was false or misleading at the time the Transaction was made. Notwithstanding any such termination or the occurrence of an Event of Default, all of the representations and warranties and covenants hereunder shall continue and survive. The obligations of Seller under Section 14 and under this Section 20 with respect to the payment of the Termination Fee shall survive the termination of this Agreement. 21. GOVERNING LAW THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES. -56- 22. Submission To Jurisdiction; Waivers EACH OF BUYER AND SELLER HEREBY IRREVOCABLY AND UNCONDITIONALLY: (A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND THE OTHER REPURCHASE DOCUMENTS, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN THE BOROUGH OF MANHATTAN, THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF; (B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME; (C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO ITS ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW OR AT SUCH OTHER ADDRESS OF WHICH BUYER SHALL HAVE BEEN NOTIFIED; (D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION; AND (E) WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER REPURCHASE DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 23. NO WAIVERS, ETC. No failure on the part of Buyer to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under any Repurchase Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under any Repurchase Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies -57- provided herein are cumulative and not exclusive of any remedies provided by law. An Event of Default shall be deemed to be continuing unless expressly waived by Buyer in writing. 24. SERVICING (a) Seller covenants to maintain or cause the servicing of the Mortgage Loans to be maintained in conformity with accepted and prudent servicing practices in the industry for the same type of mortgage loans as the Mortgage Loans and in a manner at least equal in quality to the servicing Seller provides for mortgage loans which it owns. In the event that the preceding language is interpreted as constituting one or more servicing contracts, each such servicing contract shall terminate automatically upon the earliest of (i) an Event of Default, (ii) the date on which this Agreement terminates or (iii) the transfer of servicing approved by Buyer. (b) If the Mortgage Loans are serviced by Seller, Seller agrees that Buyer is the owner of all servicing records, including but not limited to any and all servicing agreements, files, documents, records, data bases, computer tapes, copies of computer tapes, proof of insurance coverage, insurance policies, appraisals, other closing documentation, payment history records, and any other records relating to or evidencing the servicing of the Mortgage Loans (the "Servicing Records"). Seller covenants to safeguard such Servicing Records and to deliver them promptly to Buyer or its designee (including Custodian) at Buyer's request. (c) If the Mortgage Loans are serviced by a person other than Seller (such third party the "Servicer"), Seller (i) shall, in accordance with Section (3)(b)(7), provide a copy of the servicing agreement to Buyer, which shall be in form and substance acceptable to Buyer (the "Servicing Agreement"), and shall provide a Servicer Notice to the Buyer substantially in the form of Exhibit VII hereto, fully executed by such Seller Entity and the Servicer; and (ii) hereby irrevocably assigns to Buyer and Buyer's successors and assigns all right, title and interest of Seller in, to and under, and the benefits of, any Servicing Agreement with respect to the Mortgage Loans. Seller agrees that no Person shall assume the servicing obligations with respect to the Mortgage Loans as successor to the Servicer unless such successor is approved in writing by Buyer prior to such assumption of servicing obligations. (d) If the servicer of the Mortgage Loans is Seller, upon the occurrence of an Event of Default, Buyer shall have the right to terminate Seller as servicer of the Mortgage Loans and transfer servicing to Buyer's designated Servicer, at no cost or expense to Buyer, at any time thereafter. If the Servicer of the Mortgage Loans is not Seller, Buyer shall have the right, as contemplated in the applicable Servicer Notice, upon the occurrence of an Event of Default, to terminate any applicable Servicing Agreement and transfer servicing to Buyer's designated Servicer, at no cost or expense to Buyer, it being agreed that Seller will pay any and all fees required to terminate such Servicing Agreement and to effectuate the transfer of servicing Buyer's designated Servicer, as well as any servicing fees and expenses payable to such Servicer. -58- (e) After the Purchase Date, until the repurchase of any Mortgage Loan, Seller will have no right to modify or alter the terms of such Mortgage Loan and Seller will have no obligation or right to repossess such Mortgage Loan or substitute another Mortgage Loan, in each case except as provided in the Custodial and Disbursement Agreement. (f) In the event Seller or its Affiliate is servicing the Mortgage Loans, Seller shall permit Buyer to inspect Seller's or its Affiliate's servicing facilities, as the case may be, for the purpose of satisfying Buyer that Seller or its Affiliate, as the case may be, has the ability to service the Mortgage Loans as provided in this Agreement. 25. INTENT (a) The parties recognize that each Transaction is a "repurchase agreement" as that term is defined in Section 101 of Title 11 of the United States Code, as amended (except insofar as the type of Purchased Assets subject to such Transaction or the term of such Transaction would render such definition inapplicable), and a "securities contract" as that term is defined in Section 741 of Title 11 of the United States Code, as amended (except insofar as the type of Purchased Assets subject to such Transaction would render such definition inapplicable). (b) It is understood that either party's right to liquidate Purchased Assets delivered to it in connection with Transactions hereunder or to exercise any other remedies pursuant to Section 16 hereof is a contractual right to liquidate such Transaction as described in Sections 555 and 559 of Title 11 of the United States Code, as amended. (c) The parties agree and acknowledge that if a party hereto is an "insured depository institution," as such term is defined in the Federal Deposit Insurance Act, as amended ("FDIA"), then each Transaction hereunder is a "qualified financial contract," as that term is defined in FDIA and any rules, orders or policy statements thereunder (except insofar as the type of Purchased Assets subject to such Transaction would render such definition inapplicable). (d) It is understood that this Agreement constitutes a "netting contract" as defined in and subject to Title IV of the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") and each payment entitlement and payment obligation under any Transaction hereunder shall constitute a "covered contractual payment entitlement" or "covered contractual payment obligation", respectively, as defined in and subject to FDICIA (except insofar as one or both of the parties is not a "financial institution" as that term is defined in FDICIA or regulations promulgated thereunder). 26. PERIODIC DUE DILIGENCE REVIEW Seller acknowledges that Buyer has the right to perform continuing due diligence reviews with respect to the Mortgage Loans, for purposes of verifying compliance with the representations, warranties and specifications made hereunder, or otherwise, and Seller agrees that upon reasonable (but no less than one (1) Business Day's) prior notice unless an Event of Default shall have occurred, in which case no notice is required, to Seller, Buyer or its authorized representatives will be permitted during normal business hours to -59- examine, inspect, and make copies and extracts of, the Mortgage Files and any and all documents, records, agreements, instruments or information relating to such Mortgage Loans in the possession or under the control of Seller and/or Custodian. Seller also shall make available to Buyer a knowledgeable financial or accounting officer for the purpose of answering questions respecting the Mortgage Files and the Mortgage Loans. Without limiting the generality of the foregoing, Seller acknowledges that Buyer may purchase Mortgage Loans from Seller based solely upon the information provided by Seller to Buyer in the Seller Asset Schedule and the representations, warranties and covenants contained herein, and that Buyer, at its option, has the right at any time to conduct a partial or complete due diligence review on some or all of the Mortgage Loans purchased in a Transaction, including without limitation ordering new credit reports and new appraisals on the related Mortgaged Properties and otherwise re-generating the information used to originate such Mortgage Loan. Buyer may underwrite such Mortgage Loans itself or engage a mutually agreed upon third party underwriter to perform such underwriting. Seller agrees to cooperate with Buyer and any third party underwriter in connection with such underwriting, including, but not limited to, providing Buyer and any third party underwriter with access to any and all documents, records, agreements, instruments or information relating to such Mortgage Loans in the possession, or under the control, of Seller. Buyer shall pay all out-of-pocket costs and expenses incurred by Buyer in connection with Buyer's activities pursuant to this Section 26 ("Due Diligence Costs"); provided that,(i) in the event that a Default or an Event of Default shall have occurred or (ii) in the event that Buyer shall determine the need to confirm compliance with local, state or federal laws concerning the regulation of predatory lending practices, Seller shall reimburse Buyer for all Due Diligence Costs for any and all reasonable out-of-pocket costs and expenses incurred by Buyer in connection with Buyer's activities pursuant to this Section 26. 27. BUYER'S APPOINTMENT AS ATTORNEY-IN-FACT (a) Seller hereby irrevocably constitutes and appoints Buyer and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Seller and in the name of Seller or in its own name, from time to time in Buyer's discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be reasonably necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, Seller hereby gives Buyer the power and right, on behalf of Seller, without assent by, but with notice to, Seller, to do the following: (1) in the name of Seller, or in its own name, or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any mortgage insurance or with respect to any other Purchased Items and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by Buyer for the purpose of collecting any and all such moneys due under any such mortgage insurance or with respect to any other Purchased Items whenever payable; -60- (2) to pay or discharge taxes and Liens levied or placed on or threatened against the Purchased Items; (3) (A) to direct any party liable for any payment under any Purchased Items to make payment of any and all moneys due or to become due thereunder directly to Buyer or as Buyer shall direct; (B) to ask or demand for, collect, receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Purchased Items; (C) to sign and endorse any invoices, assignments, verifications, notices and other documents in connection with any Purchased Items; (D) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Purchased Items or any proceeds thereof and to enforce any other right in respect of any Purchased Items; (E) to defend any suit, action or proceeding brought against Seller with respect to any Purchased Items; (F) to settle, compromise or adjust any suit, action or proceeding described in clause (E) above and, in connection therewith, to give such discharges or releases as Buyer may deem appropriate; and (G) generally, to sell, transfer, pledge and make any agreement with respect to or otherwise deal with any Purchased Items as fully and completely as though Buyer were the absolute owner thereof for all purposes, and to do, at Buyer's option and Seller's expense, at any time, and from time to time, all acts and things which Buyer deems necessary to protect, preserve or realize upon the Purchased Items and Buyer's Liens thereon and to effect the intent of this Agreement, all as fully and effectively as such Seller might do; (4) to direct the actions of Custodian with respect to the Purchased Items under the Custodial and Disbursement Agreement; and (5) to execute, from time to time, in connection with any sale provided for in Section 13, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Purchased Items. Seller hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable. (b) The powers conferred on Buyer hereunder are solely to protect Buyer's interests in the Purchased Items and Purchase Assets and shall not impose any duty upon it to exercise any such powers. Buyer shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither it nor any of its officers, directors, employees or agents shall be responsible to Seller for any act or failure to act hereunder, except for its or their own gross negligence or willful misconduct. 28. MISCELLANEOUS (a) If there is any conflict between the terms of this Agreement or any Transaction entered into hereunder and the Custodial and Disbursement Agreement, this Agreement shall prevail. -61- (b) This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart. (c) The captions and headings appearing herein are for included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. (d) Seller hereby acknowledges that: (1) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Repurchase Documents; (2) Buyer has no fiduciary relationship to Seller; and (3) no joint venture exists between Buyer and Seller. 29. CONFIDENTIALITY Seller hereby acknowledges and agrees that all information regarding the terms set forth in any of the Repurchase Documents or the Transactions contemplated thereby (the "Confidential Terms") shall be kept confidential by it and the Buyer and shall not be divulged to any party without the prior written consent of such other party except to the extent that (i) it is necessary to do so in working with legal counsel, auditors, taxing authorities or other governmental agencies or regulatory bodies or in order to comply with any applicable federal or state laws, (ii) any of the Confidential Terms are in the public domain other than due to a breach of this covenant, (iii) in the event of a Default or an Event of Default, Buyer determines such information to be necessary or desirable to disclose in connection with the marketing and sales of the Purchased Assets or otherwise to enforce or exercise Buyer's rights hereunder or (iv) Buyer determines such disclosure to be necessary in connection with pledging, repledging, transferring, hypothecating, or rehypothecating the Purchased Assets and Purchased Items pursuant to Section 9 hereof. Notwithstanding the foregoing or anything to the contrary contained herein or in any other transaction document, the parties hereto may disclose to any and all Persons, without limitation of any kind, the federal, state and local tax treatment of the Transaction, any fact relevant to understanding the federal, state and local tax treatment of the Transaction, and all materials of any kind (including opinions or other tax analyses) relating to such federal, state and local tax treatment and any fact relevant to understanding such tax treatment; provided that Seller may not disclose the name of or identifying information with respect to Buyer or any pricing terms (including, without limitation, the Pricing Rate, Commitment Fee, Purchase Percentage and Purchase Price) or other nonpublic business or financial information (including any sublimits and financial covenants) that is unrelated to the purported or claimed federal, state and local tax treatment of the Transaction and is not relevant to understanding the federal, state and local tax treatment of the Transaction, without the prior written consent of the Buyer. The provisions set forth in this Section 29 shall survive the termination of this Agreement for a period of one year following such termination. -62- 30. CONFLICTS In the event of any conflict between the terms of this Agreement, any other Repurchase Document and any Confirmation, the documents shall control in the following order of priority: first, the terms of the Confirmation shall prevail, then terms of this Agreement shall prevail, and then terms of the other Repurchase Documents shall prevail. 31. Set-Off In addition to any rights and remedies of Buyer provided by this Agreement and by law, Buyer shall have the right, without prior notice to Seller, any such notice being expressly waived by Seller to the extent permitted by applicable law, upon any amount becoming due and payable by Seller to Buyer hereunder or otherwise (whether at the stated maturity, by acceleration or otherwise) to set-off and appropriate and apply against such amount any and all monies and other property of Seller, any and all deposits (general or special, time or demand, provisional or final), in any currency, and any and all other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, and in each case at any time held or owing by Buyer or any Affiliate thereof to or for the credit or the account of Seller. Buyer agrees promptly to notify Seller after any such set-off and application made by Buyer; provided that the failure to give such notice shall not affect the validity of such set-off and application. 32. Obligations Joint and Several (a) Each of the Seller Entities hereby acknowledges and agrees that it shall be jointly and severally liable to Buyer for all representations, warranties, covenants, obligations and indemnities of Seller hereunder. (b) Each of the Seller Entities waives any and all notice of the creation, renewal, extension or accrual of any of the Repurchase Obligations and notice of or proof of reliance by the Buyer upon the obligations of such Seller Entity set forth herein or acceptance of such obligations by such Seller Entity hereunder. Each Seller Entity waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon each other Seller Entity with respect to the Repurchase Obligations. Each Seller Entity's obligations shall be construed as continuing, absolute and unconditional obligations without regard to (i) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by any Seller Entity against the Buyer, or (ii) any other circumstance whatsoever (with or without notice to or knowledge of any Seller Entity) which constitutes, or might be construed to constitute, an equitable or legal discharge of such Seller Entity for the Repurchase Obligations. Each Seller Entity hereby waives any defense arising by reason of, and any and all right to assert against the Buyer any claim or defense based upon, an election of remedies by the Buyer which in any manner impairs, affects, reduces, releases, destroys and/or extinguishes such Seller Entity's subrogation rights, rights to proceed against such Seller Entity or any other party for reimbursement or contribution, -63- and/or any other rights of such Seller Entity to proceed against any other Seller Entity, against any other guarantor, or against any other person or security. (c) The parties intend that the each Seller Entity's Repurchase Obligations are primary obligations and not in the nature of a guaranty or suretyship. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the parties have entered into this Agreement as of the date set forth above. BUYER: ------ CDC MORTGAGE CAPITAL INC. By: /s/ Joe Piscina -------------------------------------- Name: Joe Piscina Title: Managing Director By: /s/ Kathy Lynch -------------------------------------- Name: Kathy Lynch Title: Director Address for Notices: with a copy to: 9 West 57th Street 9 West 57th Street New York, NY 10019 New York, NY 10019 Attn: Ray Sullivan Attn: Al Zakes, Esq., General Counsel Telecopier No.: (212) 891-1922 Telecopier No.: (212) 891-3347 Telephone No.: (212) 891-6137 Telephone No.: (212) 891-5815 Email: albert.zakes@cdcixis-cmna.com Email: r.sullivan@cdcixis-cmna.com and with a copy to: 9 West 57th Street New York, NY 10019 Attn: Michael Friedman Telecopier No.: (212) 891-6143 Telephone No.: (212) 891-6261 Email: m.friedman@cdcixis-cmna.com SELLER: ------- AMERICAN HOME MORTGAGE CORP. By: /s/ Alan Horn -------------------------------------- Name: Alan Horn Title: Executive Vice President AMERICAN HOME MORTGAGE INVESTMENT CORP. By: /s/ Alan Horn -------------------------------------- Name: Alan Horn Title: Executive Vice President AMERICAN HOME MORTGAGE HOLDINGS, INC. By: /s/ Alan Horn -------------------------------------- Name: Alan Horn Title: Executive Vice President AMERICAN HOME MORTGAGE ACCEPTANCE, INC. By: /s/ Alan Horn -------------------------------------- Name: Alan Horn Title: Executive Vice President COLUMBIA NATIONAL, INCORPORATED By: /s/ Alan Horn -------------------------------------- Name: Alan Horn Title: Executive Vice President Address for Notices: 520 Broadhollow Road, Melville, New York 11747 Attn: Alan B. Horn, Esq., Executive Vice President and General Counsel Telecopier No.: (800) 209-7276 Telephone No: (516) 396-7703 Email: alan.horn@americanhm.com EX-10.4 7 am696881-ex10_4.txt SECOND AMENDED AND RESTATED CUSTODIAL AND DISBUR Exhibit 10.4 EXECUTION COPY -------------- ================================================================================ SECOND AMENDED AND RESTATED CUSTODIAL AND DISBURSEMENT AGREEMENT Among CDC MORTGAGE CAPITAL INC., as Buyer, AMERICAN HOME MORTGAGE CORP., AMERICAN HOME MORTGAGE INVESTMENT CORP., AMERICAN HOME MORTGAGE ACCEPTANCE, INC. AMERICAN HOME MORTGAGE HOLDINGS, INC., and COLUMBIA NATIONAL, INCORPORATED, collectively as Seller, DEUTSCHE BANK NATIONAL TRUST COMPANY, as Custodian, and DEUTSCHE BANK NATIONAL TRUST COMPANY, as Disbursement Agent Dated as of June 1, 2004 ================================================================================ TABLE OF CONTENTS Page Section 1. Definitions......................................................2 Section 2. Delivery of Mortgage File.......................................10 Section 3. Asset Schedule and Exception Report; Trust Receipt..............13 Section 4. Obligations of Custodian........................................19 Section 5. Release of Mortgage Files.......................................19 Section 6. Fees and Expenses of Custodian..................................22 Section 7. Removal or Resignation of Custodian and Disbursement Agent......23 Section 8. Examination of Files, Books and Records.........................24 Section 9. Insurance.......................................................24 Section 10. Representations and Warranties..................................24 Section 11. Disbursement Agent Duties.......................................25 Section 12. No Adverse Interest.............................................34 Section 13. Indemnification.................................................35 Section 14. Reliance of Custodian...........................................36 Section 15. Term of Agreement...............................................37 Section 16. Notices.........................................................37 Section 17. Governing Law...................................................38 Section 18. Authorized Representatives......................................38 Section 19. Amendment.......................................................38 Section 20. Cumulative Rights...............................................38 Section 21. Assignment; Binding upon Successors.............................38 Section 22. Entire Agreement; Severability..................................39 Section 23. Execution in Counterparts.......................................39 Section 24. Tax Reports.....................................................39 Section 25. Assignment by Buyer.............................................39 Section 26. Submission to Jurisdiction; Waivers.............................39 Section 27. Confidentiality.................................................40 Section 28. Obligations Joint and Several...................................41 -i- Annex 1 Seller Asset Schedule Delivery Information Annex 2 Trust Receipt Annex 3 Custodial Identification Certificate Annex 4 Review Procedures Annex 5-A Request For Release And Receipt Annex 5-B Form of Request For Release of Documents And Receipt Annex 5-C Request For Release Annex 6 Authorized Representatives of Buyer Annex 7 Authorized Representatives of Seller Annex 8 Authorized Representatives of Custodian Annex 9 Authorized Representatives of Disbursement Agent Annex 10 Form of Escrow Instruction Letter Annex 11 Exception Codes Annex 12 Transmittal & Bailment Letter Annex 13 Transmittal & Bailment Letter Annex 14 Fannie Mae Master Bailee Letter Annex 15-A Fannie Mae Document List Annex 15-B Freddie Mac Document List Annex 16 Form of Lost Note Affidavit/Assignment of Mortgage Annex 17 Form of Settlement Report Annex 18-A Form of Seller's Release Annex 18-B Form of Warehouse Lender's Release Annex 19 Form of Payment Date Report Annex 20 Form of Electronic Tracking Agreement Annex 21 Form of Agreement and Release -ii- SECOND AMENDED AND RESTATED CUSTODIAL AND DISBURSEMENT AGREEMENT ("Agreement") dated as of June 1, 2004 made by and among: (i) AMERICAN HOME MORTGAGE CORP., a New York corporation ("AHMC"), AMERICAN HOME MORTGAGE INVESTMENT CORP., a Maryland corporation ("AHMIC"), AMERICAN HOME MORTGAGE ACCEPTANCE, INC., a Maryland corporation ("AHMA"), AMERICAN HOME MORTGAGE HOLDINGS, Inc., a Delaware corporation ("AHMH"), COLUMBIA NATIONAL, INCORPORATED, a Maryland corporation ("CNI" and, collectively with AHMC, AHMIC, AHMA and AHMH and their respective successors in interest, the "Seller" and each a "Seller Entity"); (ii) DEUTSCHE BANK NATIONAL TRUST COMPANY, as custodian for Buyer pursuant to this Agreement (in such capacity, including its successors in interest and any successor Custodian as permitted hereunder, "Custodian"); (iii) DEUTSCHE BANK NATIONAL TRUST COMPANY, as disbursement agent for Buyer pursuant to this Agreement (in such capacity, including its successors in interest and any successor Disbursement Agent as permitted hereunder, "Disbursement Agent"); and (iv) CDC MORTGAGE CAPITAL INC., a New York corporation (including its successors in interest, "Buyer"). RECITALS Seller and Buyer are parties to the Second Amended and Restated Master Repurchase Agreement, dated as of the date hereof (as amended, supplemented or otherwise modified and in effect from time to time, the "Repurchase Agreement"), pursuant to which Seller and Buyer have agreed, subject to the terms and conditions of the Repurchase Agreement, to enter into transactions (each, a "Transaction") in which Buyer has agreed to consider the purchase from time to time from Seller of certain Mortgage Loans with a simultaneous agreement by Seller to repurchase such Mortgage Loans. AHMC and Buyer previously entered into a Custodial and Disbursement Agreement, dated as of April 17, 2002, as amended by the Amended and Restated Custodial and Disbursement Agreement, dated as of May 14, 2003 (the "Original Agreement") and the Seller and Buyer now desire to amend and restate the Original Agreement to include all of the Seller Entities as parties. It is a condition precedent to the effectiveness of the Repurchase Agreement that the parties hereto execute and deliver this Agreement to provide for the appointment of Custodian as custodian and Disbursement Agent as disbursement agent hereunder. Accordingly, the parties hereto agree as follows: Section 1. Definitions. Unless otherwise defined herein, capitalized terms used herein and defined in the Repurchase Agreement shall have the respective meanings given them in the Repurchase Agreement, and the following terms shall have the following meanings: "Additional Seller Funded Amount" for any Check Presentation Date shall be an amount equal to the difference between the Total Required Funds and sum of (a) the aggregate Buyer Funded Amount on such Check Presentation Date plus (b) the Seller Funded Wire Amount for such Check Presentation Date. "Affiliate" shall mean with respect to any Person, any "affiliate" of such Person as such term is defined in the Bankruptcy Code. "Agency" shall mean Freddie Mac or Fannie Mae, as applicable. "Agreement and Release" shall mean a letter in form and substance acceptable to Buyer in its sole discretion, substantially in the form of Annex 21, from a Warehouse Lender to Buyer, (i) unconditionally releasing all of Warehouse Lender's right, title and interest in certain Mortgage Loans identified therein upon receipt of payment by the Warehouse Lender, and (ii) acknowledging that Warehouse Lender shall remove its name from the Interim Funder field on the MERS(R) System within one Business Day of the related Purchase Date. "AHMA" shall mean American Home Mortgage Acceptance, Inc., a Maryland corporation and its successors in interest. "AHMC" shall mean American Home Mortgage Corp., a New York Corporation and its successors in interest. "AHMH" shall mean American Home Mortgage Holdings, Inc., a Delaware corporation and its successors in interest. "AHMIC" shall mean American Home Mortgage Investment Corp., a Maryland corporation and its successors in interest. "Applicable Agency Documents": The documents listed on Annex 15-A or Annex 15-B, as applicable. "Applicable Guide" shall mean with respect to Fannie Mae or Freddie Mac, the applicable guide published by either Fannie Mae or Freddie Mac setting forth the requirements each Mortgage Loan needs to satisfy in order to be eligible for purchase by Fannie Mae or Freddie Mac, as such guide may be amended or supplemented from time to time or any other set of criteria established by Fannie Mae or Freddie Mac that a Mortgage Loan must satisfy in order to be eligible for purchase by Fannie Mae or Freddie Mac. "Asset Schedule and Exception Report" shall mean a list of Eligible Assets delivered by Custodian to Buyer on each Business Day, reflecting the Mortgage Loans held by Custodian for the benefit of Buyer (other than Mortgage Loans with Fatal Exceptions), which -2- includes the exception codes set forth on Annex 11 hereto indicating any Exceptions with respect to each Eligible Asset listed thereon. Each Asset Schedule and Exception Report shall set forth (a) the Mortgage Loans being sold to Buyer on any applicable Purchase Date as well as the Mortgage Loans previously sold to Buyer and held by Custodian hereunder, and (b) all Exceptions with respect thereto, with any updates thereto from the time last delivered. "Assignment of Mortgage" shall mean an assignment of the Mortgage, notice of transfer or equivalent instrument in recordable form sufficient under the laws of the jurisdiction wherein the related Mortgaged Property is located to reflect the transfer of the Mortgage to the party indicated therein. "Authorized Representative" shall have the meaning specified in Section 18. "Bailee Letter": A Fannie Mae Bailee Letter or a Freddie Mac Bailee Letter, as applicable. "Bankruptcy Code" shall mean the United States Bankruptcy Code of 1978, as amended from time to time. "Business Day" shall mean any day other than (i) a Saturday or Sunday or (ii) a day on which banking institutions in the state of New York or any of Custodian, Disbursement Agent, Seller or Buyer is authorized or obligated by law or executive order to be closed. "Buyer" shall have the meaning specified in the preamble to this Agreement. "Buyer Funded Amount" shall mean with respect to each Check Funded Loan, an amount equal to the Purchase Price for such Mortgage Loan; provided there are no Fatal Exceptions and shall mean zero with respect to each such Mortgage Loan for which there is a Fatal Exception. "Check Disbursement Account" shall have the meaning specified in the Check Disbursement Agreement. "Check Disbursement Agreement" shall mean the Letter Agreement, dated as of the date hereof, among each Seller Entity, Buyer, Disbursement Agent, Deutsche Bank Trust Company Delaware and Check Disbursement Bank, as may be amended from time to time. "Check Disbursement Bank" shall mean Deutsche Bank Trust Company Americas, and its successors in interest. "Check Funded Loan" shall mean a Wet-Ink Mortgage Loan which Sellerintends to fund at origination by means of delivering a check written on the Check Disbursement Account maintained by Seller at Deutsche Bank Trust Company Americas, which check is not a certified check. "Check Funding Schedule" shall mean a schedule delivered by Seller to Buyer, Disbursement Agent and Check Disbursement Bank with respect to Check Funded Loans which sets forth the following information with respect to each check used to fund origination of such -3- Check Funded Loan: (i) the Loan ID; (ii) the outstanding principal balance of such Check Funded Loan; (iii) the check number; (iv) the check payee; (v) the check amount; and (vi) the issue date of such check. "Check Funding Exception" shall mean any of the following: Exception Description --------- ----------- Above Max Dollar A single check is for an amount in excess of $500,000 Canceled Item Check has previously been cancelled Duplicate Paid Duplicate check already funded Paid Disagrees with Issue Dollar amount on check is different then identified in Check Funding Schedule Paid Without Issue Check not identified on a Check Funding Schedule Stale Date Check was issued more than 30 days prior to presentment Stop Suspects Any check with the same dollar amount as a cancelled check "Check Presentation Date" shall mean the Business Day a check is presented for payment against the Check Disbursement Account. "Check Reconciliation Date" shall have the meaning specified in the Check Disbursement Agreement. "Check Presentment Report" shall have the meaning specified in the Check Disbursement Agreement. "Closed End Loan" shall mean a Mortgage Loan which is not a HELOC. "Confirmation" shall have the meaning specified in the Repurchase Agreement. "Co-op" shall mean a private, cooperative housing corporation, having only one class of stock outstanding, which owns or leases land and all or part of a building or buildings, including apartments, spaces used for commercial purposes and common areas therein and whose board of directors authorizes the sale of stock and the issuance of a Co-op Lease. "Co-op Lease" shall mean with respect to a Co-op Loan, the lease with respect to a dwelling unit occupied by the Mortgagor and relating to the stock allocated to the related dwelling unit. "Co-op Loan" shall mean an Eligible Asset that is a Conforming Mortgage Loan secured by the pledge of stock allocated to a dwelling unit in a Co-op and a collateral assignment of the related Co-op Lease. -4- "Co-op Security Agreement" shall mean the agreement creating a security interest in the stock allocated to a dwelling unit in the residential cooperative housing corporation that was pledged to secure such Co-op Loan and the related Co-op Lease. "Credit Limit" shall mean, with respect to each HELOC, the maximum amount permitted under the terms of the related Credit Line Agreement. "Credit Line Agreement" shall mean, with respect to each HELOC, the related home equity line of credit agreement, account agreement and promissory note (if any) executed by the related mortgagor and any amendment or modification thereof. "Custodial Delivery Failure" shall have the meaning specified in Section 13(b). "Custodial Identification Certificate" shall mean the certificate executed by Seller in connection with the delivery of one or more Mortgage Files to be held by Custodian pursuant to this Agreement, a form of which is attached as Annex 3 hereto. "Custodian" shall have the meaning specified in the preamble to this Agreement. "DDA Account" shall have the meaning specified in the Check Disbursement Agreement. "Disbursement Account" shall have the meaning specified in Section 11(a)(i). "Disbursement Agent" shall have the meaning specified in the preamble to this Agreement. "Edit Check" shall mean a review conducted by the Disbursement Agent in accordance with the Edit Check Procedures. "Edit Check Agreement" shall mean the separate letter agreement, if any, between Disbursement Agent and Buyer setting forth the Edit Check Procedures, as may be amended from time to time. "Edit Check Procedures" shall mean, if an Edit Check Agreement has been entered into, those certain edit check procedures set forth in the Edit Check Agreement, and if no Edit Check Agreement has been entered into, none. "Electronic Agent" shall mean MERSCORP, INC, and its successors in interest. "Electronic Tracking Agreement" shall mean The Electronic Tracking Agreement, in a form substantially similar to the form set forth as Annex 19 hereto with such changes as may be reasonably agreed to by the parties thereto, among Buyer, Seller, Electronic Agent and MERS, as the same shall be amended, supplemented or otherwise modified from time to time; provided that if no Mortgage Loans are or will be MERS Designated Mortgage Loans, all references herein to the Electronic Tracking Agreement shall be disregarded. -5- "Electronic Transmission" shall mean the delivery of information in an electronic format acceptable to the applicable recipient thereof. An Electronic Transmission shall be considered written notice for all purposes hereof (except when a request or notice by its terms requires execution). "Escrow Instruction Letter" shall mean the Escrow Instruction Letter from Seller to the Settlement Agent, in the form of Annex 10 hereto as the same may be modified, supplemented and in effect from to time. "Exception" shall mean, with respect to any Mortgage Loan, any variances from the delivery requirements of Section 2 hereof that are not Fatal Exceptions with respect to the Mortgage Files (giving effect to Seller's right to deliver certified copies in lieu of original documents in certain circumstances) and indicating such exceptions using the codes set forth on Annex 11 hereto. "Fannie Mae" shall mean the Federal National Mortgage Association, and its successors in interest. "Fannie Mae Bailee Letter": The master bailee letter, in the form of Annex 14, for use by Custodian in connection with the delivery to Fannie Mae of a Mortgage File excluding (i) the Assignment of Mortgage, in blank, (ii) the Warehouse Lender's Release, if applicable and (iii) all modification agreements relating to a Mortgage. "Fatal Document Exception" shall mean, with respect to any Mortgage Loan, (i) any variance from the requirements of Section 2(a)(i)(A), (B), (D), (F) or (J) or Section 2(a)(ii)(A), (B), (C), (D), (E), (F), (H) or (I) (hereof with respect to the Mortgage Files (giving effect to Seller's right to deliver certified copies in lieu of original documents in certain circumstances); (ii) that the documents in the Mortgage Files referred to in the preceding clause (i) have been reviewed by Custodian in accordance with the Review Procedures (other than the Review Procedures set forth in 8, 9 and 10 thereof) and do not appear on their face to be regular or to relate to such Mortgage Loan, (iii) any exception indicated as a Fatal Exception on Annex 11 hereto, (iv) any exception with respect to the delivery requirements specified in Section 5(c)(iii) hereof with respect to a Mortgage Loan to be sold to an Agency, or (v) any Mortgage Loan with respect to which Custodian receives written notice or has actual knowledge of a lien subject or security interest in favor of a Person other than Buyer with respect to such Mortgage Loan. "Fatal Document Exception Report" shall mean a report delivered by Custodian to Seller and Buyer setting forth all Mortgage Loans with Fatal Document Exceptions. "Fatal Exception" shall mean a Fatal Document Exception or a Fatal Information Exception. "Fatal Exception Report" shall mean a report delivered by Disbursement Agent to Seller and Buyer setting forth all Mortgage Loans with Fatal Exceptions. "Fatal Information Exception" shall mean, with respect to any Mortgage Loan, (i) that any of the information required pursuant to all fields set forth on Annex 1 hereto is not set -6- forth with respect to such Mortgage Loan in the related Seller Asset Schedule delivered to Disbursement Agent with the Transaction Request, (ii) a Mortgage Loan that fails the Edit Check Procedure or (iii) the related Transaction Request sets forth a Purchase Price, Pricing Rate or Asset Value that is not identical to the Purchase Price, Pricing Rate or Asset Value calculated by Disbursement Agent. "Freddie Mac" shall mean the Federal Home Loan Mortgage Corporation, and its successors in interest. "Freddie Mac Bailee Letter": The master bailee letter for use by Custodian in connection with the delivery to Freddie Mac of a Mortgage File excluding (i) the Assignment of Mortgage, in blank, (ii) the Warehouse Lender's Release, if applicable, and (iii) all modification agreements relating to a Mortgage. "Governmental Authority" shall mean, with respect to any Person, any nation or government, any state or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any court or arbitrator having jurisdiction over such Person, any of its subsidiaries or any of their properties. "HELOC" shall mean a home equity revolving line of credit secured by a mortgage, deed of trust or other instrument creating a second lien on the related Mortgaged Property, which lien secures the related Credit Line Agreement. "Interim Funder" shall mean with respect to each MERS Designated Mortgage Loan, the Person named on the MERS System as the interim funder pursuant to the MERS Procedures Manual. "MERS" shall mean Mortgage Electronic Registration Systems, Inc., and its successors in interest. "MERS Designated Mortgage Loan" shall have the meaning assigned to such term in Section 3 of the Electronic Tracking Agreement. "MERS Identification Number" shall mean the eighteen digit number permanently assigned to each MERS Designated Mortgage Loan. "MERS Procedures Manual" shall mean the MERS Procedures Manual attached as Exhibit B to the Electronic Tracking Agreement, as it may be amended, supplemented or modified from time to time. "MERS Report" shall mean the schedule listing MERS Designated Mortgage Loans and other information prepared by an electronic agent pursuant to the Electronic Tracking Agreement. "MERS(R) System" shall mean an electronic agent's mortgage electronic registry system, as more particularly described in the MERS Procedures Manual. -7- "Mortgage" shall mean the mortgage, deed of trust or other instrument securing a Mortgage Note or Credit Line Agreement, which creates a first or second lien on the Mortgaged Property described therein. "Mortgage File" shall mean, as to each Mortgage Loan, those documents listed in Sections 2 that are delivered to Custodian or which at any time come into the possession of Custodian. "Mortgage Loan" shall mean any residential real estate secured loan or HELOC, including, without limitation: (i) a promissory note, any reformation thereof and related deed of trust (or mortgage), security agreement, home equity line of credit agreement and account agreement; (ii) all guaranties and insurance policies, including, without limitation, all mortgage and title insurance policies and all fire and extended coverage insurance policies and rights of the Seller to return premiums or payments with respect thereto; and (iii) all right, title and interest of the Seller in the property covered by such deed of trust (or mortgage) or home equity line of credit agreement, as applicable. "Mortgage Loan Documents" shall mean, with respect to a Mortgage Loan, the documents comprising the Mortgage File for such Mortgage Loan. "Mortgage Note" shall mean the note or other evidence of the indebtedness of a Mortgagor secured by a Mortgage, as the same may be reformed or amended from time to time. "Mortgaged Property" shall mean the real property securing repayment of the debt evidenced by a Mortgage Note or Credit Line Agreement. "Mortgagor" shall mean the obligor or obligors on a Mortgage Note or Credit Line Agreement, including any Person who has assumed or guaranteed the obligations of the obligor thereunder. "Official Check Account" shall have the meaning specified in the Check Disbursement Agreement. "Person" shall mean any individual, corporation, company, voluntary association, partnership, joint venture, limited liability company, trust, unincorporated association or government (or any agency, instrumentality or political subdivision thereof). "Release Limit" shall have the meaning specified in Section 5(a). "Repurchase Agreement" shall have the meaning specified in the Recitals. "Request for Release" shall mean a request of Seller in the form of Annex 5-A, 5-B, or 5-C, hereto. "Required Delivery Item" shall have the meaning specified in Section 3(a). "Required Delivery Time" shall have the meaning specified in Section 3(a). -8- "Required Party" shall have the meaning specified in Section 3(a). "Review Procedures" shall have the meaning specified in Section 3(c). "Seller" shall mean, collectively, AHMC, AHMIC, AHMA, AHMH and CNI, and their respective successors in interest. "Seller Asset Schedule" shall mean a list of Eligible Assets delivered by Seller to Buyer pursuant to Section 3(c) of the Repurchase Agreement, and provided in electronic format, setting forth, as to each Eligible Asset, the applicable information specified on Annex 1 to this Agreement. "Seller Funded Wire Amount" shall have the meaning specified in Section 11(a)(ii). "Seller's Release" shall mean a letter, in the form of Annex 18-A, delivered by Seller when no Warehouse Lender has an interest in a Mortgage Loan, unconditionally releasing all of Seller's right, title and interest in such Mortgage Loan upon receipt of the Purchase Price by Seller. "Seller's Wire Instructions" shall mean the wire instructions, set forth in a letter in the form of Exhibit A to Seller's Release, to be used for the payment of funds to Seller when no Warehouse Lender has an interest in the Mortgage Loans to which such payment relates. "Settlement Account" shall have the meaning specified in the Check Disbursement Agreement. "Settlement Report" shall have the meaning specified in Section 11(f). "Transaction Account" shall mean any of the Disbursement Account, the Settlement Account or the Wire-out Account. "Total Required Funds" shall have the meaning specified in Section 11(c)(i)(G). "Trust Receipt" shall mean a trust receipt in the form annexed hereto as Annex 2 delivered to Buyer by Custodian covering all of the Mortgage Loans subject to this Agreement from time to time, as reflected on the Asset Schedule and Exception Report attached thereto in accordance with Section 3(e). "Warehouse Lender" shall mean any lender providing financing to Seller for the purpose of warehousing, originating or purchasing Mortgage Loans, which lender has a security interest in such Mortgage Loans to be purchased by Buyer. "Warehouse Lender's Release" shall mean a letter, in the form of Annex 18-B, from a Warehouse Lender to Buyer, unconditionally releasing all of Warehouse Lender's right, title and interest in certain Mortgage Loans identified therein upon receipt of payment by the Warehouse Lender. -9- "Warehouse Lender's Wire Instructions" shall mean the wire instructions, set forth in a letter in the form of Exhibit A to the Warehouse Lender's Release, from a Warehouse Lender to Buyer, setting forth wire instructions for all amounts due and payable to such Warehouse Lender. "Wire Amount" shall mean the amount to be wired to the Warehouse Lender or Seller in accordance with the Warehouse Lender's Release or Seller's Release, as applicable, for any Mortgage Loan which is not a Wet-Ink Mortgage Loan and shall mean the amount to be wired to (i) the Settlement Agent pursuant to the Escrow Instruction Letter in the case of a Wet-Ink Mortgage Loan which is not a Check Funded Loan or (ii) the DDA Account in the case of a Check Funded Loan. "Wire-out Account" shall have the meaning specified in Section 11(a)(ii). Section 2. Delivery of Mortgage File. Seller shall release to Custodian the following original documents pertaining to each Eligible Asset in accordance with the required delivery times set forth in Section 3(a), each of which Mortgage Loans shall be identified in the related Seller Asset Schedule: (a) With respect to each Eligible Asset: (i) (other than a Wet-Ink Mortgage Loan or a Co-op Loan): (A) The original Mortgage Note or Credit Line Agreement, as applicable, bearing all intervening endorsements, endorsed "Pay to the order of _________ without recourse" and signed in the name of the last endorsee (the "Last Endorsee") by an authorized Person (in the event that the Eligible Asset was acquired by the Last Endorsee in a merger, the signature must be in the following form: "[Last Endorsee], successor by merger to [name of predecessor]"; in the event that the Eligible Asset was acquired or originated by the Last Endorsee while doing business under another name, the signature must be in the following form: "[Last Endorsee], formerly known as [previous name]"); (B) The original Mortgage with evidence of recording thereon, or a copy thereof certified by Seller, the title company, the Settlement Agent or the closing attorney to be a true and correct copy of the original that has been duly delivered to the appropriate recording office and, with respect to MERS Designated Mortgage Loans, the Mortgage names MERS as the "mortgagee" or "beneficiary" thereof (or MERS is reflected as the current mortgagee pursuant to an assignment of mortgage with evidence of recording thereon and reflecting a complete chain of title from the named originator in the Mortgage), with a conformed recorded copy to follow as soon as the same is received by Seller; (C) The originals of all assumption, modification, consolidation or extension agreements, if any, with evidence of recording thereon, or a copy thereof certified by Seller, the title company, the Settlement Agent or the closing -10- attorney to be a true and correct copy of the original that has been duly delivered to the appropriate recording office; (D) The original Assignment of Mortgage in blank for each Eligible Asset, in form and substance acceptable for recording and signed in the name of the Last Endorsee (in the event that the Eligible Asset was acquired by the Last Endorsee in a merger, the signature must be in the following form: "[Last Endorsee], successor by merger to [name of predecessor]"; in the event that the Eligible Asset was acquired or originated while doing business under another name, the signature must be in the following form: "[Last Endorsee], formerly known as [previous name]"), except in the case of such Eligible Asset that has been originated in the name of or assigned to MERS and registered under the MERS(R)System; (E) The originals of all intervening assignments of mortgage, if any, with evidence of recording thereon, showing an unbroken chain of title from the originator thereof to the Last Endorsee (or, in the case of a MERS Designated Mortgage Loan, MERS) or a copy thereof certified by Seller, the title company, the Settlement Agent or the closing attorney to be a true and correct copy of the original that has been duly delivered to the appropriate recording office; (F) The original attorney's opinion of title and abstract of title or the original mortgagee title insurance policy, or if the original mortgagee title insurance policy has not been issued, the irrevocable commitment to issue the same; (G) The original of any security agreement, chattel mortgage or equivalent document executed in connection with the Eligible Asset; (H) If any of the above documents has been executed by a person holding a power of attorney, an original or photocopy of such power certified by Seller to be a true and correct copy of the original; (I) Either a Seller's Release or a Warehouse Lender's Release; (J) In the case of a MERS Designated Mortgage Loan where any Person is named in the Interim Funder field on the MERS(R) System, an Agreement and Release; and (K) an original release letter for each Eligible Asset which has been the subject of a prior interest of which an Authorized Representative of Custodian has actual knowledge; provided, however, that as to the documents listed in clauses (B), (C) and (E) above which have been delivered or are being delivered to recording offices for recording and have not been returned to Seller in time to permit their delivery hereunder at the time of such transfer, and in lieu of delivering such original documents or conformed copies where permitted, Seller has delivered to Custodian a true copy thereof, Seller shall deliver such original documents, together -11- with any related policy of title insurance not previously delivered, on behalf of Seller to Custodian promptly after they are received. (ii) With respect to each Co-op Loan: (A) The original Mortgage Note or Credit Line Agreement, as applicable, bearing all intervening endorsements, endorsed "Pay to the order of _________ without recourse" and signed in the name of the last endorsee (the "Last Endorsee") by an authorized Person (in the event that the Eligible Asset was acquired by the Last Endorsee in a merger, the signature must be in the following form: "[Last Endorsee], successor by merger to [name of predecessor]"; in the event that the Eligible Asset was acquired or originated by the Last Endorsee while doing business under another name, the signature must be in the following form: "[Last Endorsee], formerly known as [previous name]"); (B) The original Co-op Security Agreement entered into by the Mortgagor with respect to such Co-op Loan; (C) UCC-3 assignment in blank (or equivalent instrument), sufficient under the laws of the jurisdiction where the related underlying Mortgaged Property is located to reflect of record the sale and assignment of the Mortgage Loan to the Buyer; (D) Original assignments of Co-op Security Agreement in blank showing a complete chain of assignment from the originator of the related Co-op Loan to the Seller; (E) Original Form UCC-1 and any continuation statements with evidence of filing thereon with respect to such Co-op Loan; (F) Stock certificate representing the stock allocated to the related dwelling unit in the related residential cooperative housing corporation and pledged by the related Mortgagor to the originator of such Co-op Loan with a stock power in blank attached; (G) Original proprietary lease. (H) Original assignment of proprietary lease, in blank, and all intervening assignments thereof; (I) Original recognition agreement of the interests of the mortgagee with respect to the Co-op Loan by the residential cooperative housing corporation, the stock of which was pledged by the related Mortgagor to the originator of such Co-op Loan; and (J) Originals of any assumption, consolidation or modification agreements relating to any of the items specified in (A) through (F) above with respect to such Co-op Loan. -12- (b) Seller shall release to Custodian the following original documents pertaining to each Eligible Asset that is a Wet-Ink Mortgage Loan in accordance with the required delivery times set forth in Section 3(a) and set forth below, each of which Mortgage Loans shall be identified in the related Seller Asset Schedule: (i) Seller shall cause the Settlement Agent to send Custodian a facsimile of each Escrow Instruction Letter with respect to all Wet-Ink Mortgage Loans to be purchased on each Purchase Date. Custodian shall not be responsible for reviewing such Escrow Instruction Letter, except to the extent requested by Buyer, to verify wire instructions. (ii) No later than ten (10) Business Days following the applicable Purchase Date, Seller shall deliver to Custodian the documents listed in Section 2(a). (c) With respect to all Mortgage Files: (A) From time to time, Seller shall forward to Custodian additional original documents or additional documents evidencing any assumption, modification, consolidation or extension of a Mortgage Loan approved by Seller, in accordance with the terms of the Repurchase Agreement, and upon receipt of any such other documents, Custodian shall hold such other documents as Buyer shall request from time to time. (B) With respect to any documents which have been delivered or are being delivered to recording offices for recording and have not been returned to Seller in time to permit their delivery hereunder at the time required, in lieu of delivering such original documents, Seller shall deliver to Custodian a copy thereof certified by Seller, the title company, the Settlement Agent or the closing attorney to be a true and correct copy of the original that has been duly delivered to the appropriate recording office, with a conformed recorded copy to follow as soon as the same is received by Seller. Section 3. Asset Schedule and Exception Report; Trust Receipt. (a) With respect to each category of Eligible Asset, Seller shall provide to the indicated required parties (each, a "Required Party") the required delivery items (each, a "Required Delivery Item") set forth in the table below by the corresponding required delivery time (the "Required Delivery Time"): -13-
Eligible Asset Required Delivery Time Required Delivery Items Required Party -------------- ---------------------- ----------------------- -------------- Mortgage Loans (other than 6:00 p.m. New York time, one A preliminary Transaction Buyer Wet-Ink Mortgage Loans) on (1) Business Day prior to the Request for the Mortgage Loans initial Purchase Date Purchase Date requested to be purchased on the next Business Day (delivered by Electronic Transmission) 10:00 a.m. New York time, on The final Transaction Request Custodian, Disbursement Agent the Purchase Date for the Mortgage Loans, and Buyer together with a Seller Asset Schedule containing the information set forth in Annex 1 hereto (delivered by Electronic Transmission) 8:00 p.m. New York time, one All documents required to be Custodian (1) Business Day prior to the delivered pursuant to Section Purchase Date 2(a), together with a Custodial Identification Certificate For delivery of each additional 250 Mortgage Files, one additional Business Day prior to the Purchase Date Wet-Ink Mortgage Loans (other 8:00 a.m. New York time on the A preliminary Transaction Buyer than Check Funded Loans) Purchase Date Request for the Wet-Ink Loans requested to be purchased on such Business Day 1:00 p.m. New York time on the A final Transaction Request Custodian, Disbursement Agent Purchase Date; provided that for the Mortgage Loans, and Buyer Seller may deliver up to three together with a Seller Asset (3) final transaction requests Schedule containing the on each Business Day information set forth in Annex 1 hereto (delivered by Electronic Transmission) All documents required to be Custodian delivered pursuant to Section 2(b)(i) Check Funded Loans 4:00 p.m. New York time on the a Check Funding Schedule Disbursement Agent and Buyer origination date of such Check Funded Loan Check Funded Loans 4:00 p.m. New York time on the A final Transaction Request Disbursement Agent and Buyer origination date of such Check for the Check Funded Loans Funded Loan requested to be purchased, attaching a Seller Asset Schedule
-14- If Custodian has received each applicable Required Delivery Item by the Required Delivery Time set forth above, then Custodian will deliver to Buyer and Disbursement Agent, by Electronic Transmission, no later than 3:00 p.m. New York time (or with respect to each such Wet-Ink Mortgage Loan, no later than 2 hours after receipt of a final Transaction Request but in no event later than 5:00 p.m. New York time) on the Purchase Date, an Asset Schedule and Exception Report for each Mortgage Loan (other than Mortgage Loans with a Fatal Document Exception) sold hereunder on such date, with Exceptions identified by Custodian as current as of the date and time of delivery of such Asset Schedule and Exception Report. Upon receipt of a Transaction Request and the related Seller Asset Schedule from Seller, Disbursement Agent shall confirm via Electronic Transmission, the receipt of such request with Seller and Buyer. Upon discovery by Custodian of a Fatal Document Exception, Custodian shall immediately send to Seller, Disbursement Agent and Buyer, by Electronic Transmission, a Fatal Document Exception Report listing such Fatal Document Exceptions together with an Asset Schedule with respect to each Mortgage Loan that has any Fatal Document Exception. Custodian's Electronic Transmission to each of Seller, Disbursement Agent and Buyer of a Fatal Document Exception, shall be sent "confirm receipt" or by some other means such that Custodian has a reasonable belief that such notice has been received by the addressee. In the event Custodian has not received all documents required to be delivered pursuant to Section 2(b)(ii) with respect to a Wet-Ink Mortgage Loan on or before the tenth (10th) Business Day after the related Purchase Date, Custodian shall immediately notify Buyer, Seller and Disbursement Agent by Electronic Transmission of such failure. (b) Custodian shall deliver to Buyer, no later than 5:00 p.m. New York time a Trust Receipt in respect of all Mortgage Loans (including Wet-Ink Mortgage Loans) sold to Buyer on such Purchase Date and any prior Purchase Date and held hereunder, and shall deliver to each of Buyer and Disbursement Agent an Asset Schedule and Exception Report for Mortgage Loans which are not Wet-Ink Mortgage Loans and a detailed listing of all Wet-Ink Mortgage Loans. Each Asset Schedule and Exception Report and detailed listing of Wet-Ink Mortgage Loans delivered by Custodian to Buyer and Disbursement Agent shall supersede and cancel the Asset Schedule and Exception Report and detailed listing of Wet-Ink Mortgage Loans previously delivered by Custodian to Buyer and Disbursement Agent hereunder, and shall replace the then existing Asset Schedule and Exception Report and detailed listing of Wet-Ink Mortgage Loans to be attached to the Trust Receipt. Custodian shall incorporate into each Asset Schedule and Exception Report delivered to Buyer and Disbursement Agent pursuant to this Section 3(b) all updated information with respect to the outstanding principal balance and interest paid on each Mortgage Loan delivered to Custodian by either Disbursement Agent or Buyer. Custodian shall also deliver to Seller, Buyer and Disbursement Agent no later than 5:00 p.m. New York time on each Business Day, by Electronic Transmission, a daily aging report setting forth such information as may be reasonably required by Buyer (the "Daily Aged Report"). Custodian shall monitor each Mortgage Loan on a daily basis in order that all information set forth on the Daily Aged Report is accurate as of the time such Daily Aged Report is delivered. Disbursement Agent shall provide to Custodian all information in its possession that Custodian requires in order to complete and deliver each Daily Aged Report. In no event shall Custodian list any Mortgage Loan on an Asset Schedule and Exception Report if Custodian has not yet reviewed the related Mortgage File. -15- (c) Each Asset Schedule and Exception Report shall list all Exceptions using such exception codes as are set forth on Annex 11 hereto, as may be amended from time to time. In no event shall Custodian list any Mortgage Loan on the Asset Schedule and Exception Report if such Mortgage Loan is required to be listed on the Fatal Document Exception Report and related Asset Schedule; provided that, if a Wet-Ink Mortgage Loan has been previously listed on the Asset Schedule and Exception Report, it shall remain on the Asset Schedule and Exception Report and the Custodian shall indicate any Fatal Document Exception. The delivery of each Asset Schedule and Exception Report to Buyer and Disbursement Agent shall be Custodian's representation that, other than the Exceptions listed as part of the Exception Report: (i) all documents required to be delivered in respect of each Mortgage Loan pursuant to Section 2 of this have been delivered and are in the possession of Custodian as part of the Mortgage File for such Mortgage Loan, (ii) Custodian is holding each Mortgage Loan identified on the Asset Schedule and Exception Report (except with respect to MERS Designated Mortgage Loans), pursuant to this Agreement, as the bailee of and custodian for Buyer and/or its designees, (iii) all such documents have been reviewed by Custodian and appear on their face to be regular and to relate to such Mortgage Loan and satisfy the requirements set forth in Section 2 of this Agreement and the review procedures attached hereto as Annex 4 (the "Review Procedures"), (iv) the interest rate on the Mortgage Note or Credit Line Agreement, as applicable, is the same as the amount specified in the related Mortgage File and (v) with respect to Closed End Loans, the original principal amount of the Mortgage Note, and with respect to HELOCs, the Credit Limit, as applicable, are each accurately reflected in the documents in the Mortgage File, and based upon a review of the Mortgage Note and Credit Line Agreement, as applicable, items 6, 8 through 12, 14, 21, 22, 118 and 119 of Annex 1 as set forth in the Seller Asset Schedule delivered by Seller to Custodian are correct. (d) In connection with an Asset Schedule and Exception Report delivered hereunder by Custodian, Custodian shall make no representations as to and shall not be responsible to verify (A) the validity, legality, enforceability, due authorization, recordability, sufficiency, or genuineness of any of the documents contained in each Mortgage File or (B) the collectability, insurability, effectiveness or suitability of any such Mortgage Loan. Subject to the following sentence, Seller and Buyer hereby give Custodian notice that from and after the Purchase Date, Buyer shall own each Mortgage Loan identified on an Asset Schedule and Exception Report until such time that Custodian receives notice from Buyer or Disbursement Agent that Buyer no longer owns such Mortgage Loan. In the event that Buyer does not purchase the Eligible Assets proposed to be purchased from Seller prior to 5:00 p.m. New York time on such Purchase Date, upon written notice thereof from Seller, acknowledged by Buyer, or notice from Disbursement Agent thereof, Custodian shall hold or release to Seller, pursuant to Seller's written instructions, the Mortgage Loans in respect of the Asset Schedule and Exception Report delivered by Custodian on such Purchase Date. (e) Notwithstanding anything to the contrary set forth herein, in the event that the Asset Schedule and Exception Report or detailed listing of Wet-Ink Mortgage Loans attached to the Trust Receipt is different from the most recently delivered Asset Schedule and Exception Report or detailed listing of Wet-Ink Mortgage Loans, then the most recently delivered Asset Schedule and Exception Report or detailed listing of Wet-Ink Mortgage Loans shall control and be binding upon the parties hereto. -16- Section 4. Obligations of Custodian. (a) Custodian shall maintain continuous custody of all items constituting the Mortgage Files in secure facilities in accordance with customary standards for such custody and shall reflect in its records the interest of Buyer therein. Each Mortgage Note and Credit Line Agreement, as applicable (and Assignment of Mortgage), shall be maintained in fire resistant facilities. (b) With respect to the documents constituting each Mortgage File, Custodian shall (i) act exclusively as the bailee of, and custodian for, Buyer, (ii) hold all documents constituting such Mortgage File received by it for the exclusive use and benefit of Buyer, and (iii) make disposition thereof only in accordance with the terms of this Agreement or with written instructions furnished by Buyer; provided, however, that in the event of a conflict between the terms of this Agreement and the written instructions of Buyer, Buyer's written instructions shall control. (c) In the event that (i) Buyer, any Seller Entity or Custodian shall be served by a third party with any type of levy, attachment, writ or court order with respect to any Mortgage File or any document included within a Mortgage File or (ii) a third party shall institute any court proceeding by which any Mortgage File or a document included within a Mortgage File shall be required to be delivered otherwise than in accordance with the provisions of this Agreement, the party receiving such service shall promptly deliver or cause to be delivered to the other parties to this Agreement copies of all court papers, orders, documents and other materials concerning such proceedings. Custodian shall, to the extent permitted by law, continue to hold and maintain all the Mortgage Files that are the subject of such proceedings pending a final, nonappealable order of a court of competent jurisdiction permitting or directing disposition thereof. Upon final determination of such court, Custodian shall dispose of such Mortgage File or any document included within such Mortgage File as directed by Buyer which shall give a direction consistent with such determination. Expenses of Custodian incurred as a result of such proceedings shall be borne by Seller. Section 5. Release of Mortgage Files. (a) From time to time until Custodian is otherwise notified by Buyer in writing (unless such notice is given by the Disbursement Agent in accordance with Section 11), which notice shall be given by Buyer (or Disbursement Agent in accordance with Section 11) only following the occurrence of a Default or an Event of Default, Custodian shall, upon receipt of written request of Seller, release documentation relating to Mortgage Loans in the possession of Custodian to Seller or its designee, for the purpose of correcting documentary deficiencies relating thereto against a Request for Release and Receipt delivered via Electronic Transmission by Seller in the form of Annex 5-A hereto. The preceding sentence respecting release to Seller, or its designee, of Custodian's Mortgage Files shall be operative only to the extent that at any time Custodian shall not have released to Seller or its designee pursuant to clause (a) or (b) of this Section 5, Mortgage Files pertaining to Mortgage Loans at the time being held by Custodian on behalf of Buyer with an aggregate outstanding principal balance greater than $500,000 (the "Release Limit"). In the event Seller or its designee requests the release of a Mortgage File to Seller or its designee with respect to a Mortgage Loan, which release would result in Custodian -17- having released Mortgage Files pertaining to Mortgage Loans at the time being held by Custodian on behalf of Buyer with an aggregate outstanding principal balance greater than the Release Limit, Custodian shall notify Buyer and obtain written consent of Buyer prior to such requested release. Custodian shall promptly notify Buyer in its Daily Report that it has released any Mortgage File to Seller or its designee. Seller or its designee shall hold each Mortgage File delivered to it pursuant to this Section 5(a) as bailee for Buyer. Seller or its designee shall return to Custodian each document previously released from Custodian's Mortgage File within ten (10) Business Days of receipt thereof. Seller hereby further covenants to Buyer and Custodian that any such request by Seller for release of Mortgage Loan Documents pursuant to this Section 5(a) shall be solely for the purposes of correcting clerical or other non-substantial documentation problems in preparation for returning such Mortgage Loan Documents to Custodian for ultimate sale or exchange and that Seller has requested such release in compliance with all terms and conditions of such release set forth herein and in the Repurchase Agreement. Notwithstanding anything to the contrary contained in the foregoing, Mortgage Notes and Credit Line Agreements, as applicable, shall be released only for the purpose of (i) ultimate sale or exchange or (ii) presentation, collection, renewal or registration of transfer. (b) From time to time until Custodian is otherwise notified by Buyer in writing (unless such notice is given by the Disbursement Agent in accordance with Section 11), which notice shall be given by Buyer (or Disbursement Agent in accordance with Section 11) only following the occurrence of a Default or an Event of Default, and as appropriate for the servicing of any of the Mortgage Loans, Custodian shall, upon receipt from Seller or its designee of a written Request for Release of Documents and Receipt delivered via Electronic Transmission in the form of Annex 5-B hereto, release to Seller or its designee the Mortgage File or the documents set forth in such request relating to Mortgage Loans in the possession of Custodian. The preceding sentence respecting release to Seller, or its designee, of Custodian's Mortgage Files shall be operative only to the extent that at any time Custodian shall not have released to Seller or its designee pursuant to clause (a) or (b) of this Section 5, Mortgage Files pertaining to Mortgage Loans at the time being held by Custodian on behalf of Buyer with an aggregate outstanding principal balance greater than the Release Limit. In the event Seller or its designee requests the release of a Mortgage File to Seller or its designee with respect to a Mortgage Loan, which release would result in Custodian having released Mortgage Files pertaining to Mortgage Loans at the time being held by Custodian on behalf of Buyer with an aggregate outstanding principal balance greater than the Release Limit, Custodian shall notify Buyer in its Daily Report and obtain written consent of Buyer prior to such requested release. Custodian shall promptly notify Buyer that it has released any Mortgage File to Seller or its designee. Seller or its designee shall hold each Mortgage File delivered to it pursuant to this Section 5(b) as bailee for Buyer. Seller or its designee shall return to Custodian each document previously released from Custodian's Mortgage File within ten (10) Business Days of receipt thereof. Seller hereby further covenants to Buyer and Custodian that any such request by Seller or its designee for release of Mortgage Loan Documents pursuant to this Section 5(b) shall be solely for the purposes of servicing of any of the Mortgage Loans and that Seller has requested such release in compliance with all terms and conditions of such release set forth herein and in the Repurchase Agreement. Notwithstanding anything to the contrary contained in the foregoing, Mortgage Notes and Credit Line Agreements, as applicable, shall be released only for the purpose of (i) ultimate sale or exchange or (ii) presentation, collection, renewal or registration of transfer. -18- (c) (i) From time to time Custodian is hereby authorized, upon receipt of a Request for Release in the form of Annex 5-C hereto delivered by Seller via Electronic Transmission and receipt of Buyers written consent to such release to release Mortgage Files in the possession of Custodian to a third party purchaser for the purpose of resale thereof. Buyer shall have no obligation to consent to any such Request for Release after the occurrence of a Default or an Event of Default. On such Request for Release, Seller shall indicate the Mortgage Loans to be sold, the purchase price for such Mortgage Loan anticipated to be received, the name and address of the third party purchaser, the preferred method of delivery, and the date of desired delivery. (ii) Any transmittal of documentation for Mortgage Loans in the possession of Custodian in connection with the sale thereof to a third-party purchaser other than an Agency will be under cover of a transmittal letter substantially in the form attached as Annex 12 hereto, duly completed by Custodian and executed by Custodian. Any transmittal of documentation for Mortgage Loans in the possession of Custodian in connection with the shipment to a custodian or trustee other than an Agency in connection with the formation of a mortgage pool supporting a mortgage-backed security (an "MBS") will be under cover of a transmittal letter substantially in the form attached as Annex 13 hereto. Promptly upon (x) the remittance by such third-party purchaser of the full purchase price of the Mortgage Loan or (y) the issuance of such MBS, Buyer shall notify Custodian in writing thereof. (iii) Any transmittal of documentation for Mortgage Loans in the possession of Custodian in connection with the sale thereof to an Agency will be under cover of Bailee Letter, duly completed by Custodian and executed by Custodian. Promptly upon the remittance by such Agency or the Seller of the full purchase price of the Mortgage Loan. With respect to any transmittal of documentation for Mortgage Loans in the possession of Custodian in connection with the shipment to an Agency, the Custodian shall verify (A) that the related Mortgage File contains the Applicable Agency Documents, (B) (1) with respect to the wire transfer instructions as set forth in Freddie Mac Form 987 (Wire Transfer Authorization for a Cash Warehouse Delivery) such wire transfer instructions are identical to Buyer's wire instructions to Seller or (2) the Payee Number set forth on Fannie Mae Form 1068 (Fixed-Rate, Graduated-Payment, or Growing-Equity Mortgage Loan Schedule) or Fannie Mae Form 1069 (Adjustable-Rate Mortgage Loan Schedule), as applicable, is identical to the Payee Number that has been identified by Buyer in writing as Buyer's Payee Number and (C) the Applicable Agency Documents list Buyer as sole subscriber. Seller covenants that it will advise Buyer of any necessary amendments to such exhibits to reflect all current requirements of the applicable Agency. Custodian shall immediately notify Buyer and Seller via Electronic Transmission (which shall be sent "confirm receipt" or by some other means such that Custodian has a reasonable belief that such notice has been received by the addressee) of any exception with respect to any exceptions to the requirements of the preceding sentence and such exception shall be a Fatal Document Exception with respect to such Mortgage Loan. (d) So long as no Default or Event of Default has occurred and is continuing, Custodian and Buyer shall take such steps as they may reasonably be directed from time to time by Seller in writing, which Seller deems necessary and appropriate, to transfer promptly and -19- deliver to Seller any Mortgage File in the possession of Custodian relating to any Mortgage Loan which was previously a Purchased Asset but which Seller, with the written consent of Buyer, has notified Custodian has ceased to be an Eligible Asset or the release of which would not cause Seller to violate Section 4 of the Repurchase Agreement. In furtherance of the foregoing, upon receipt of written request from Seller in the form of Annex 5-A hereto delivered via Electronic Transmission, which must be consented to by Buyer, Custodian shall release to Seller the requested Mortgage Files. (e) Following written notification by Buyer (or Disbursement Agent in accordance with Section 11) (which may be by facsimile) to Custodian that a Default or an Event of Default has occurred and is continuing, Custodian shall not release, or incur any liability to any Seller Entity or any other Person for refusing to release, any item relating to a Purchased Asset to any Seller Entity or any other Person without the express prior written consent and at the direction of Buyer. (f) Custodian shall at all times monitor any release of Purchased Assets under this Section 5, and shall track the period of time which has elapsed for any such release of Purchased Assets and shall report such information to Buyer daily and in the same manner as Custodian provides an Asset Schedule and Exception Report. (g) Prior to any shipment of Mortgage Files hereunder, Seller shall deliver to Custodian written instructions as to the method of shipment and shippers Custodian is to utilize in connection with the transmission of Mortgage Files or other loan documents in the performance of Custodian's duties hereunder. Seller shall arrange for the provision of such services at its sole cost and expense (or, at Custodian's option, reimburse Custodian for all costs and expenses incurred by Custodian consistent with the instructions) and will maintain such insurance against loss or damage to Mortgage Files or other loan documents as Buyer deems appropriate. Without limiting the generality of the provisions of Section 13(a), it is expressly agreed that in no event shall Custodian have any liability for any losses or damages to any Seller Entity arising out of actions of Custodian consistent with the instructions of Seller except to the extent such losses or damages arise due to the Custodian's gross negligence or willful misconduct. In the event Custodian does not receive such written instructions, Custodian shall be authorized to utilize any nationally recognized courier service. Section 6. Fees and Expenses of Custodian. Custodian shall charge such fees for its services under this Agreement as are set forth in a separate agreement between Custodian and AHMC, the payment of which fees, together with Custodian's expenses in connection herewith, shall be solely the obligation of Seller. The failure of Seller to pay any such fees shall not excuse the performance by Custodian of any of its obligations hereunder. The obligations of Seller o pay Custodian such fees and reimburse Custodian for such expenses in connection with services provided by Custodian prior to the termination of this Agreement and the earlier of the resignation or removal of Custodian shall survive such termination, resignation or removal. -20- Section 7. Removal or Resignation of Custodian and Disbursement Agent. (a) Custodian or Disbursement Agent may at any time resign and terminate their obligations under this Agreement upon at least (180) days' prior written notice to Seller and Buyer. Promptly after receipt of notice of Custodian's or Disbursement Agent's resignation, as applicable, Buyer shall appoint, by written instrument, a successor custodian or a successor disbursement agent, as applicable, subject to written approval by Seller (which approval shall not be unreasonably withheld). One original counterpart of such instrument of appointment shall be delivered to each of Seller, Custodian and the successor custodian. In the event that no successor custodian or disbursement agent shall have been appointed within such 180 day notice period, Custodian or Disbursement Agent, as applicable, may petition any court of competent jurisdiction to appoint a successor custodian or disbursement agent, as the case may be. (b) Buyer, with the consent of Seller (which consent shall not be unreasonably withheld), upon at least (30) days' prior written notice to Custodian, Disbursement Agent and Seller, may remove and discharge Custodian (or any successor custodian thereafter appointed) from the performance of its obligations under this Agreement. Buyer, without the consent of Seller, upon at least (30) days' prior written notice to Custodian, Disbursement Agent and Seller, may remove and discharge Disbursement Agent (or any successor disbursement agent thereafter appointed) from the performance of its obligations under this Agreement. Promptly after the giving of notice of removal of Custodian and Disbursement Agent, Buyer shall appoint, by written instrument, a successor custodian, with the consent of Seller (which consent shall not be unreasonably withheld), and a disbursement agent, which appointment shall require no other approval. One original counterpart of such instrument of appointment shall be delivered to each of Buyer, Seller, Custodian, Disbursement Agent and the successor custodian and disbursement agent. (c) In the event of any such resignation or removal, Custodian shall promptly transfer to the successor custodian, as directed in writing, all the Mortgage Files being administered under this Agreement and, if the endorsements on the Mortgage Notes or Credit Line Agreements, as applicable, and the Assignments of Mortgage have been completed in the name of Custodian, assign the Mortgages and endorse without recourse the Mortgage Notes Credit Line Agreements, as applicable, to the successor Custodian or as otherwise directed by Buyer. The cost of the shipment of Mortgage Files arising out of the resignation of Custodian shall be at the expense of Custodian; provided, however, that if the sole reason for Custodian's resignation is due to the non-payment of the fees and expenses due to it hereunder by Seller, then the shipment cost of such shipment of Mortgage Files shall not be an expense of Custodian, but shall be at the expense of Seller. Any cost of shipment arising out of the removal of Custodian shall be at the expense of Seller. Seller shall be responsible for the fees and expenses of the successor custodian and the fees and expenses for endorsing the Mortgage Notes and Credit Line Agreements, as applicable, and assigning the Mortgages to the successor custodian if required pursuant to this paragraph. Section 8. Examination of Files, Books and Records. Upon twenty-four (24) hours' prior written notice to Seller and Custodian and at Seller's expense, Buyer, Seller and each of their respective agents, accountants, attorneys and -21- auditors will be permitted during normal business hours to examine, inspect, and make copies of, the Mortgage Files and any and all documents, records and other instruments or information in the possession of or under the control of Custodian relating to any or all of the Mortgage Loans. Section 9. Insurance. (a) At its own expense, Custodian shall maintain at all times during the existence of this Agreement and keep in full force and effect a fidelity bond and document hazard insurance. All such insurance shall be in amounts, with standard coverage and subject to standard deductibles, all as is customary for insurance typically maintained by institutions which act as custodian. The minimum coverage under any such bond and insurance policies shall be at least equal to the corresponding amounts required by Fannie Mae or Freddie Mac in the Applicable Guide. A certificate of an Authorized Representative of Custodian shall be furnished to Seller and Buyer, upon written request, stating that such insurance is in full force and effect. (b) At its own expense, Disbursement Agent shall maintain at all times during the existence of this Agreement and keep in full force and effect a fidelity bond. All such insurance shall be in amounts, with standard coverage and subject to standard deductibles, all as is customary for insurance typically maintained by institutions which act as Disbursement Agents with duties similar to those of Disbursement Agent herein. The minimum coverage under any such bond and insurance policies shall be at least equal to the corresponding amounts required by Fannie Mae or Freddie Mac in the Applicable Guide. A certificate of an Authorized Representative of Disbursement Agent shall be furnished to Seller and Buyer, upon written request, stating that such insurance is in full force and effect. Section 10. Representations and Warranties. (a) Custodian represents and warrants to Buyer that: (i) Custodian has the corporate power and authority and the legal right to execute and deliver, and to perform its obligations under, this Agreement, and has taken all necessary corporate action to authorize its execution, delivery and performance of this Agreement; (ii) no consent or authorization of, filing with, or other act by or in respect of, any arbitrator or Governmental Authority and no consent of any other Person (including, without limitation, any stockholder or creditor of Custodian) is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement; (iii) this Agreement has been duly executed and delivered on behalf of Custodian and constitutes a legal, valid and binding obligation of Custodian enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (whether enforcement is sought in a proceeding in equity or at law); and (iv) Custodian is not an Affiliate of any Seller Entity. -22- (b) Disbursement Agent represents and warrants to Buyer that: (i) Disbursement Agent has the corporate power and authority and the legal right to execute and deliver, and to perform its obligations under, this Agreement, and has taken all necessary corporate action to authorize its execution, delivery and performance of this Agreement; (ii) no consent or authorization of, filing with, or other act by or in respect of, any arbitrator or Governmental Authority and no consent of any other Person (including, without limitation, any stockholder or creditor of Disbursement Agent) is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement; (iii) this Agreement has been duly executed and delivered on behalf of Disbursement Agent and constitutes a legal, valid and binding obligation of Disbursement Agent enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (whether enforcement is sought in a proceeding in equity or at law); and (iv) Disbursement Agent is not an Affiliate of any Seller Entity. (c) Each of the Seller Entities, jointly and severally, hereby makes to Custodian the same representations and warranties that each such Seller Entity makes to Buyer under Section 10 of the Repurchase Agreement. Section 11. Disbursement Agent Duties. (a) Establishment of Disbursement Account, Wire-out Account and Settlement Account. (i) Disbursement Agent shall establish and maintain a disbursement account (the "Disbursement Account") for and on behalf of Buyer entitled "Disbursement Account, Deutsche Bank National Trust Company, as Disbursement Agent for CDC Mortgage Capital Inc., Reference Number 33863." The Disbursement Account shall be owned by and under the exclusive dominion and control of Buyer. None of Disbursement Agent, any Seller Entity or any other Person claiming on behalf of or through Seller or Disbursement Agent shall have any right or authority, whether express or implied, to close or make use of, or, except as expressly provided herein, withdraw any funds from, the Disbursement Account. Unless Disbursement Agent shall receive notice in writing from Buyer to the contrary by 10:00 a.m. New York time on any applicable Business Day, Disbursement Agent is hereby authorized by Buyer to disburse funds deposited in the Disbursement Account on such Business Day in accordance with this Agreement. Funds retained in the Disbursement Account shall remain uninvested. Disbursement Agent shall reconcile the Disbursement Account on a daily basis. Unless otherwise instructed by Buyer in writing, before the close of business on each Business Day, Disbursement Agent shall withdraw all collected amounts as of 5:00 p.m. New York time then standing to the credit of the Disbursement Account and deposit such amounts -23- into the following account maintained by Buyer: Bank of New York, for the A/C of CDC Mortgage Capital Inc., ABA#021000018, Account #GLA 111569 SER, Attn: Eric Seyffer, or, if such funds cannot be deposited into the foregoing account at the end of such Business Day, on the next Business Day. (ii) In connection with the funding of any Wet-Ink Mortgage Loans or the purchase of any other Mortgage Loan by Seller simultaneously with the purchase of such Mortgage Loan by Buyer, Disbursement Agent shall establish and maintain a Wire-out Account (the "Wire-out Account") for and on behalf of Seller entitled "Wire-out Account, Deutsche Bank National Trust Company, as Disbursement Agent for American Home Mortgage Corp., Reference Number 33867." With respect to any Wet-Ink Mortgage Loan to be funded or any other Mortgage Loan to be purchased on any Business Day (other than a Check-Funded Loan), Seller shall deposit into the Wire-out Account no later than 11:00 a.m. New York time on such Business Day an amount (the "Seller Funded Wire Amount") equal to the difference between the Wire Amount and the amount to be funded by Buyer from the Disbursement Account in accordance with Section 11(d). Seller hereby requests that Disbursement Agent, and Disbursement Agent shall, disburse the Seller Funded Wire Amount at the same time, and in the same manner, as Disbursement Agent disburses funds from the Disbursement Account with respect to such Mortgage Loan in accordance with Section 11(d)(i). With respect to each Check Funded Loan, prior to 12:00 p.m. New York time on the related Check Presentation Date, Seller shall wire to the Wire-Out Account the Seller Funded Amount and the Additional Seller Funded Amount for such Check Presentation Date. Seller hereby requests that Disbursement Agent, and Disbursement Agent shall, disburse the Seller Funded Amount and the Additional Seller Funded Amount at the same time, and in the same manner, as Disbursement Agent disburses the Buyer Funded Amount from the Disbursement Account with respect to such Mortgage Loan in accordance with Section 11(d)(ii). The Wire-out Account shall be owned by and under the exclusive dominion and control of Seller. None of Disbursement Agent, Buyer nor any other Person claiming on behalf of or through Buyer or Disbursement Agent shall have any right or authority, whether express or implied, to close or make use of, or, except as expressly provided herein, withdraw any funds from, the Wire-out Account. Funds retained in the Wire-out Account shall remain uninvested. Disbursement Agent shall reconcile the Wire-out Account on a daily basis. Upon written request of Buyer, Disbursement Agent shall verify the information contained on each wire instruction to the extent of confirming that the wire instructions on the Asset Schedule delivered by Seller are identical to the wire instructions set forth in the related Escrow Instruction Letter, Seller's Release or Warehouse Lender's Release. (iii) Check Disbursement Bank shall establish and maintain the Settlement Account in accordance with the Check Disbursement Agreement. All proceeds from the repurchase of a Mortgage Loan subject to this Agreement by Seller or a sale of a Mortgage Loan subject to this Agreement to a third party investor shall be sent directly to the Settlement Account. All related fees and expenses for the Settlement Account shall be borne by Seller. The Settlement Account shall be owned by and under the exclusive dominion and control of Buyer. None of Disbursement Agent, any Seller Entity or any other Person claiming on behalf of or through Seller or Disbursement Agent shall have -24- any right or authority, whether express or implied, to close or make use of, or, except as expressly provided herein, withdraw any funds from, the Settlement Account. Notwithstanding anything herein to the contrary, Disbursement Agent shall be entitled to net any amounts due and owing under this Agreement to it or Custodian from Seller from amounts that, after application of amounts in the Settlement Account due and owing to Buyer, would otherwise be disbursed to Seller pursuant to this Section 11(a)(iii). Unless Disbursement Agent shall receive notice in writing from Buyer to the contrary by 5:00 p.m. New York time on any applicable Business Day, Disbursement Agent is hereby authorized by Buyer to disburse funds deposited in the Settlement Account on such Business Day in accordance with Section 11(f). Funds retained in the Settlement Account shall remain uninvested. Disbursement Agent shall reconcile the Settlement Account on a daily basis. Unless otherwise instructed by Buyer in writing, before the close of business on each Business Day, Disbursement Agent shall withdraw all collected amounts as of 5:00 p.m. New York time then standing to the credit of the Settlement Account and deposit such amounts into the following account maintained by Buyer: Bank of New York, for the A/C of CDC Mortgage Capital Inc., ABA#021000018, Account #GLA 111569 SER, Attn: Eric Seyffer, or, if such funds cannot be deposited into the foregoing account at the end of such Business Day, on the next Business Day. (b) Customer Profiles. On or prior to the first Purchase Date, Buyer shall provide to Disbursement Agent an initial customer profile in a form and substance as determined by Buyer and as is reasonably acceptable to Disbursement Agent (the "Customer Profile"), which will include each Class to be purchased under the Repurchase Agreement (i.e., Conforming Mortgage Loan, Jumbo Mortgage Loan, Alt-A First Mortgage Loan, Alt-A Second Mortgage Loan, Sub-Prime First Mortgage Loan, Sub-Prime Second Mortgage Loan, Wet-Ink Mortgage Loan or Repurchased Mortgage Loan) together with the related Market Values, Purchase Percentages, Sub-Limits, Pricing Spread and other relevant information, together with the calculations required to be performed in order to determine the Asset Value, Purchase Price, Pricing Differential and Pricing Spread for each such Class. The Customer Profile shall, at any time and from time to time, be in a form and substance as determined by the Buyer and as is reasonably acceptable to the Disbursement Agent. Each Customer Profile delivered by Buyer shall supersede the previous Customer Profile and Disbursement Agent shall utilize the most recently delivered Customer Profile on each day with respect to all transactions hereunder. Promptly upon receipt of a Customer Profile, Disbursement Agent shall verbally confirm with Buyer all changes to each field since the most recently delivered Customer Profile. (c) Disbursement Agent Calculations and Verifications. (i) Initial Purchase of an Eligible Asset. With respect to each Eligible Asset, Disbursement Agent shall perform the procedures set forth below, in such order, with respect to each Eligible Asset in the order that the related Transaction Requests are received: (A) On each date on which Disbursement Agent receives a Transaction Request from Seller, together with the related Seller Asset Schedule, Disbursement Agent shall verbally confirm the receipt of such Transaction Request with Buyer. With respect to each Transaction Request, Disbursement -25- Agent shall perform an Edit Check with respect to each Eligible Asset that Seller has requested Buyer purchase. If any Mortgage Loan fails the Edit Check Procedures, Disbursement Agent shall notify each of Seller and Buyer via Electronic Transmission (which shall be sent "confirm receipt" or by some other means such that Disbursement Agent has a reasonable belief that such notice has been received by the addressee) of such Fatal Information Exception, and such Transaction Request shall be deemed to be null and void. (B) Upon a determination that each Eligible Asset that Seller has requested Buyer purchase does not fail the Edit Check, Disbursement Agent shall compare the information set forth in the related Seller Asset Schedule with the applicable information required pursuant to Annex 1 hereof with respect to the particular Class and shall notify each of Seller and Buyer via Electronic Transmission (which shall be sent "confirm receipt" or by some other means such that Disbursement Agent has a reasonable belief that such notice has been received by the addressee) of any Fatal Information Exception, and such Transaction Request shall be deemed to be null and void. (C) Upon a determination that there is no Fatal Information Exception as set forth in clause (i) of the definition thereof, Disbursement Agent shall calculate the Purchase Price and Pricing Rate for each Eligible Asset to be purchased by Buyer pursuant to the Transaction Request using the information set forth in the Customer Profile. If the values calculated by Disbursement Agent do not match the values set forth in the related Transaction Request by Seller, Disbursement Agent shall notify each of Seller and Buyer via Electronic Transmission (which shall be sent "confirm receipt" or by some other means such that Disbursement Agent has a reasonable belief that such notice has been received by the addressee) of such Fatal Information Exception, and such Transaction Request shall be deemed to be null and void. (D) Upon Disbursement Agent's determination that the Transaction Request sets forth the correct calculations of the related Purchase Price and Pricing Rate with respect to the Transaction, Disbursement Agent shall verify that, (i) after taking into account all purchase requests on the related Transaction Request, together with all other outstanding Transactions, that the aggregate Purchase Prices for each Class is equal to or less than the related Sub-Limits set forth in the Customer Profile and (ii) after giving effect to the requested Transaction that there would not be a Margin Deficit. If after giving effect to the purchases contemplated in the Transaction Request, the aggregate Purchase Prices of all such Transactions is greater than the Sub-Limits or the Margin Base, Disbursement Agent shall notify each of Seller and Buyer via Electronic Transmission (which shall be sent "confirm receipt" or by some other means such that Disbursement Agent has a reasonable belief that such notice has been received by the addressee) of such Fatal Information Exception, and such Transaction Request shall be deemed to be null and void. -26- (E) At the request of Buyer, Disbursement Agent shall verify the Wire Instructions set forth in the Seller Asset Schedule only to the extent of confirming that the Wire Instructions on the Asset Schedule delivered by Seller are to the DDA Account or are identical to the Wire Instructions set forth in the related Escrow Instruction Letter, Seller's Release or Warehouse Lender's Release, as applicable. Disbursement Agent shall be under no obligation to verify such wire instructions unless requested by Buyer. (F) With respect to each Mortgage Loan other than a Check Funded Loan, upon a determination that giving effect to a Transaction Request would not cause a violation of any Sub-Limit or cause a Margin Deficit and receipt of an Asset Schedule and Exception Report from Custodian in accordance with Section 3 and receipt of the Fatal Document Exception Report, if any, from Custodian in accordance with Section 3, Disbursement Agent shall disburse funds in accordance with Section 11(d)(i). The disbursing of funds by Disbursement Agent shall constitute Disbursement Agent's certification that no Fatal Exception exists with respect to any Eligible Asset (or, with respect to a Wet-Ink Mortgage Loan, no Fatal Information Exception exists) funded pursuant to this Section 11(c)(i)(F). (G) With respect to each Check Funded Loan, upon (i) a determination that giving effect to a Transaction Request would not cause a violation of any Sub-Limit or cause a Margin Deficit, (ii) receipt of an Asset Schedule and Exception Report from Custodian in accordance with Section 3, (iii) receipt of the Fatal Document Exception Report, if any, from Custodian in accordance with Section 3, and (iv) receipt from Seller of a Check Funding Schedule, Disbursement Agent shall on each Check Presentation Date (1) verify that checks in excess of the original principal balance with respect to any Check Funded Loan were not presented for payment and (2) determine the related Buyer Funded Amount. On the Check Presentation Date, in accordance with the Check Disbursement Agreement, on or prior to 12:00 noon, New York time, the Check Disbursement Bank shall deliver electronically to Disbursement Agent, Buyer and Seller the Check Presentment Report. Upon receipt of each Check Presentment Report, with respect to all checks listed on such Check Funding Schedule, Seller shall determine (i) the aggregate difference ("Seller Funded Amount") between the Purchase Price for the related Check Funded Loans and the amounts necessary to clear all such checks and (ii) the difference between the aggregate Buyer Funded Amount for such Check Funded Loan and the aggregate amount needed to fund all checks on such Check Presentation Date (the "Total Required Funds"). Upon receipt of the Seller Funded Amount and the Additional Seller Funded Amount, the Disbursement Agent shall disburse funds in accordance with Section 11(d)(ii). The disbursing of funds by Disbursement Agent shall constitute Disbursement Agent's certification that no Fatal Information Exception exists with respect to any Check Funded Loan funded pursuant to this Section 11(c)(i)(G). No later than 11:00 a.m. New York time on the Check Reconciliation Date, pursuant to the Check Disbursement Agreement, Check Disbursement Bank shall make available to Disbursement Agent any Check -27- Funding Exceptions with respect to a check or a Check Funded Loan. Disbursement Agent shall review all Check Funding Exceptions received as of 11:00 a.m. New York time and notify Buyer via Electronic Transmission of any Check Funding Exceptions prior to 1:00 p.m. New York time. Unless Buyer shall have notified Disbursement Agent in writing on or prior to 2:00 p.m. New York time that Disbursement Agent shall not issue a "no pay" instruction on any related check, Disbursement Agent shall issue a "no pay" instruction on any check with a Check Funding Exception except in the case of "Stop Suspect" Check Funding Exceptions, which Disbursement Agent shall not stop payment on unless notified by Seller or Buyer. At the request of Buyer, Disbursement Agent shall view the image of a check and verify that the payee set forth on the Check Funding Schedule matches the payee on such imaged check. Disbursement Agent shall track each check funded on respect of a Check Funded Loan and notify Buyer, pursuant to the Daily Report, when each check with respect to a Check Funded Mortgage Loan has been paid. (ii) Conversion of a Wet-Ink Mortgage Loan. On the date that Custodian receives a Seller Asset Schedule containing the information set forth on Annex 1 and all the documents set forth in Section 2(b) with respect to each Wet-Ink Mortgage Loan, pursuant to Section 3(a), Custodian shall deliver an Asset Schedule and Exception Report to each of Buyer and Disbursement Agent in accordance with Section 3(a). Upon Disbursement Agent's receipt of such Asset Schedule and Exception Report, Disbursement Agent shall perform the procedures set forth in Section 11(c)(i)(A)-(E) as if such conversion were a purchase of an Eligible Asset and if there are no Fatal Exceptions with respect to such Wet-Ink Mortgage Loan, the related Mortgage Loan shall no longer be a Wet-Ink Mortgage Loan. (iii) Request for Additional Transactions for Excess Margin. Upon Disbursement Agent's receipt of any Request for Additional Transactions for Excess Margin, Disbursement Agent shall perform the procedures set forth in Section 11(c)(i)(C) and (D) as if such request were a Transaction Request. Pursuant to Section 11(b) herein, Disbursement Agent shall utilize the most recently delivered Customer Profile in connection with such Request for Additional Transactions for Excess Margin. If, after performing such procedures, Disbursement Agent determines that giving effect to any such Request for Additional Transactions for Excess Margin would not cause a violation of any Sub-Limits or cause a Margin Deficit, Disbursement Agent shall fund any amounts required pursuant to Section 11(d)(iv). The disbursing of funds by Disbursement Agent shall constitute Disbursement Agent's certification that no Fatal Exception exists with respect to any Eligible Asset (or, with respect to a Wet-Ink Mortgage Loan, no Fatal Information Exception exists). (d) Disbursements. If at any time Disbursement Agent is unable to calculate the Purchase Prices in respect of disbursements to be made pursuant to this Section 11(d) as a result of technical difficulties or otherwise, upon written notice from Disbursement Agent to Buyer and Seller, Disbursement Agent may request such information from Buyer. Additionally, if at any time Buyer disputes Disbursement Agent's or Seller's calculation of the Purchase Prices in respect of disbursements to be made pursuant to this Section 11(d), upon written notice from -28- Buyer to Disbursement Agent and Seller, Disbursement Agent shall not disburse funds as provided in this Section 11(d) until such dispute is resolved. (i) Disbursement in Respect of Purchases of Eligible Assets. On each proposed Purchase Date, Disbursement Agent will disburse funds in the Disbursement Account in accordance with the Wire Instructions in the Seller Asset Schedule within 2 hours of a final Transaction Request but in no event later than 5:15 p.m. New York time, provided that (A) Disbursement Agent shall have performed the procedures set forth in Section 11(c) and all conditions to disbursement set forth therein shall have been satisfied; (B) sufficient funds exist in the Disbursement Account (taking into account amounts required to be transferred from the related Wire-out Account pursuant to Section 11 (a)(ii)); (C) such instructions do not include any Seller Entity or any Affiliate of a Seller Entity as payee, unless otherwise authorized by Buyer in writing to Disbursement Agent; and (D) if a conflict exists between the instructions of Buyer and the instructions of Seller, Disbursement Agent shall follow Buyer's instructions. In the event that the funds maintained in the related Wire-out Account are not sufficient to permit the funding of the full Wire Amount for any Eligible Asset, no funds shall be disbursed from the Disbursement Account to fund or acquire such Eligible Asset. For each disbursement pursuant to this Section 11(d)(i), Disbursement Agent shall promptly notify Seller by Electronic Transmission of the related federal wire reference number when it becomes available. (ii) Disbursements in Respect of Check Funded Loans. On each Check Presentation Date, Disbursement Agent will disburse funds in the Disbursement Account to the DDA Account by 5:15 p.m. New York time, provided that (A) Disbursement Agent shall have performed the procedures set forth in Section 11(c) and all conditions to disbursement set forth therein shall have been satisfied; and (B) sufficient funds exist in the Disbursement Account (taking into account amounts required to be transferred from the related Wire-out Account pursuant to Section 11 (a)(ii)). In the event that the funds maintained in the related Wire-out Account are not equal to the Total Required Funds for such Check Presentation Date, Disbursement Agent should disburse funds in accordance herewith and notify each of the Buyer and Seller of such shortfall via Electronic Transmission (which shall be sent "confirm receipt" or by some other means such that Disbursement Agent has a reasonable belief that such notice has been received by the addressee). (iii) [Reserved] (iv) Disbursements in Respect of Requests for Additional Transactions for Excess Margin. On the Business Day that Disbursement Agent determines that the provisions of Section 11(c)(iii) have been satisfied with respect to any Request for Additional Transactions for Excess Margin, Disbursement Agent shall withdraw from the Disbursement Account and credit to the Wire-out Account an amount equal to the requested amount of the Excess Margin. (e) [Reserved] -29- (f) Settlement. On the Business Day prior to the date on which Seller intends to or is required to repurchase an Eligible Asset ("Intended Repurchase Date") pursuant to the terms of the Repurchase Agreement (or a third party purchases such Eligible Asset), Seller shall provide Disbursement Agent and Buyer with written notice of all funds anticipated to be received by Disbursement Agent from Seller (or such third party) for the credit of the Settlement Account, together with a settlement report containing all information set forth on Annex 17 hereto (the "Settlement Report") by 4:00 p.m. New York time. Upon Disbursement Agent's verification that (x) all information required pursuant to Annex 17 hereto is set forth in the Settlement Report, and (y) Buyer has confirmed the accuracy of such Settlement Report in writing, which confirmation may be delivered via Electronic Transmission, Disbursement Agent shall immediately disburse such funds in the Settlement Account as directed in the Settlement Report, provided (i) sufficient funds exist in the Settlement Account, (ii) after giving effect to such repurchase, a Margin Deficit would not exist and there would be no violation of any Sub-Limits and (iii) Buyer has not disputed such disbursement prior to such disbursement. Disbursement Agent's verification and Buyer's confirmation or disputation referenced in the preceding sentence shall be completed, and written notice of any disputation shall be given to Seller by Electronic Transmission, no later than 11:00 a.m. New York time on the Intended Repurchase Date. If all amounts required to be disbursed to Buyer pursuant to the Settlement Report are not deposited in the Settlement Account by 4:00 p.m. New York time on the date indicated as the "Settlement Date" in the Settlement Report, Disbursement Agent shall notify each of Custodian, Seller and Buyer and it shall be deemed to constitute an Event of Default under the Repurchase Agreement and satisfy all notice requirements of Buyer with respect to an Event of Default and Custodian and Seller shall treat such notice as a notice of an Event of Default from Buyer. Notwithstanding the foregoing sentence, if sufficient funds are not deposited in the Settlement Account in accordance with the preceding sentence on any "Settlement Date" and there are funds on deposit in the Wire-out Account, Seller hereby agrees that, and Disbursement Agent shall, transfer from the Wire-out Account to the Settlement Account no later than 5:30 p.m. New York time on such date an amount equal to the lesser of (x) all amounts on deposit in the Wire-out Account and (y) such shortfall. If such transferred funds are sufficient to pay all amounts required to be paid to Buyer pursuant to the Settlement Report, no Event of Default shall be deemed to have occurred. Notwithstanding the foregoing, if a conflict exists between the instructions of Buyer and the Settlement Report, Disbursement Agent shall follow Buyer's instructions. (g) Reports; Monitoring. (i) On each Business Day, Disbursement Agent shall provide to Buyer a reconciliation report with respect to all cash activity in each Transaction Account. Additionally, upon request Disbursement Agent shall provide to Seller a reconciliation report with respect to all cash activity on the Wire-out Account and the Settlement Account. (ii) No later than 5:00 p.m. New York time on each Business Day, Disbursement Agent shall provide to Buyer a daily report setting forth such information as may reasonably be required by Buyer (a "Daily Report"). -30- (iii) Upon request of Buyer, Disbursement Agent shall provide to Seller a Daily Report reflecting the information set forth thereon as of the time of the transmission of such report. (iv) Disbursement Agent shall provide to Buyer any reports with respect to any aspect of the transactions contemplated by this Agreement, to the extent the requested information is, or should be, in the possession of Disbursement Agent, as Buyer may request. (v) Disbursement Agent shall track and monitor all information required to be provided to any party hereunder pursuant to any report required to be delivered hereunder, including but not limited to, (A) all amounts funded in respect of any Mortgage Loan, including, without limitation, the Purchase Price, (B) the date such funds were disbursed, (C) all amounts due to Buyer in respect of the Periodic Advance Repurchase Payment, (D) the amount of any distribution in connection with any Request for Additional Transactions for Excess Margin, (E) all Purchased Assets and the aggregate outstanding Repurchase Prices in respect thereof and (F) the amount of any Margin Deficit or Excess Margin. (vi) Disbursement Agent shall provide all information in its possession to Custodian, to the extent Custodian requests, in order to permit Custodian to comply with its requirements under this Agreement, including, but not limited to, the preparation and delivery of each updated Asset Schedule, Exception Report and Fatal Exception Report. (h) Income Payment Dates. Notwithstanding that Buyer and Seller intend that the Transactions under the Repurchase Agreement and hereunder to be sales to Buyer of the Purchased Assets, Seller shall deposit into the Settlement Account the Periodic Advance Repurchase Payment on each Payment Date. On each Payment Date, Buyer shall forward to Disbursement Agent a payment date report in the form set forth on Annex 19 hereto (a "Payment Date Report"). Disbursement Agent shall verify that all amounts required to be paid to Buyer pursuant to the Payment Date Report are deposited into the Settlement Account on each Payment Date. If such amounts are not deposited into the Settlement Account on or prior to 5:00 p.m. New York time on such Payment Date, Disbursement Agent shall notify each of Custodian, Seller and Buyer and it shall be deemed to constitute an Event of Default under the Repurchase Agreement and satisfy all notice requirements of Buyer with respect to an Event of Default and Custodian and Seller shall treat such notice as a notice of an Event of Default from Buyer. (i) Set-off. Custodian and Disbursement Agent agree that they shall not exercise any right of set-off, banker's lien or any similar right in connection with funds on deposit in any Transaction Account. (j) Fees and Expenses of Disbursement Agent. (i) Disbursement Agent shall charge such fees for its services under this Agreement as are set forth in a separate agreement between Disbursement Agent and AHMC, the payment of which fees, together with Disbursement Agent's expenses in connection herewith, shall be solely the obligation of Seller. The failure of Seller to pay -31- any such fees shall not excuse the performance by Disbursement Agent of any of its obligations hereunder. The obligations of the Seller to pay Disbursement Agent such fees and reimburse Disbursement Agent for such expenses in connection with services provided by Disbursement Agent prior to the termination of this Agreement and the earlier of the resignation or removal of Disbursement Agent shall survive such termination, resignation or removal. (ii) Seller shall be responsible for the standard fees and charges of Disbursement Agent applicable to each Transaction Account. To the extent that Seller has not paid such fees within a reasonable amount of time from Seller's receipt of notice of such fees and charges, Disbursement Agent shall provide written notice to Buyer of Seller's failure to pay such fees and Buyer shall have the option, in its sole discretion, to cure such failure. (k) In performing its obligations under this Section 11, except as specifically provided in this Agreement, Disbursement Agent will not follow instructions from any party other than Buyer. Section 12. No Adverse Interest. By execution of this Agreement, each of Disbursement Agent and Custodian represent and warrant that it currently holds, and during the existence of this Agreement shall hold, no adverse interest, by way of security or otherwise, in any Mortgage Loan, and hereby waives and releases any such interest which it may have in any Mortgage Loan as of the date hereof. The Mortgage Loans shall not be subject to any security interest, lien or right to set-off by Custodian, Disbursement Agent or any third party claiming through Custodian or Disbursement Agent, and neither Custodian nor Disbursement Agent shall pledge, encumber, hypothecate, transfer, dispose of, or otherwise grant any third party interest in, the Mortgage Loans. Section 13. Indemnification. (a) Each Seller Entity, jointly and severally, agrees to indemnify and hold Custodian, Disbursement Agent and their affiliates, directors, officers, agents and employees harmless against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, of any kind or nature whatsoever, including reasonable attorney's fees, that may be imposed on, incurred by, or asserted against it or them in any way relating to or arising out of this Agreement or any action taken or not taken by it or them hereunder unless such liabilities, obligations, losses, damages, penalties, actions, judgements, suits, cost, expenses or disbursements were imposed on, incurred by or asserted against Custodian or Disbursement Agent because of the breach by Custodian or Disbursement Agent, as applicable, of its obligations hereunder, which breach was caused by negligence, lack of good faith or willful misconduct on the part of Custodian or Disbursement Agent, as applicable or any of its respective directors, officers, agents or employees. Each of Disbursement Agent and Custodian agree that it will promptly notify Seller of any such claim, action or suit asserted or commenced against it and that Seller may assume the defense thereof with counsel reasonably satisfactory to Disbursement Agent or Custodian, as applicable, at Seller's sole expense, that Custodian or -32- Disbursement Agent, as applicable, will cooperate with Seller on such defense, and that Custodian or Disbursement Agent, as applicable, will not settle any such claim, action or suit without the consent of Seller. The foregoing indemnification shall survive any resignation or removal of Custodian or Disbursement Agent, as applicable, or the termination or assignment of this Agreement. (b) In the event that Custodian fails to produce a Mortgage Note, a Credit Line Agreement, an Assignment of Mortgage or any other document related to a Mortgage Loan that was in its possession pursuant to Section 2 within two (2) Business Days after required or requested by Seller or Buyer, and provided that (i) Custodian previously delivered to Buyer an Asset Schedule and Exception Report which did not list such document as an Exception on the related Purchase Date; (ii) such document is not outstanding pursuant to a Request for Release and Receipt in the form annexed hereto as either Annex 5-A or Annex 5-B; and (iii) such document was held by Custodian on behalf of Seller or Buyer, as applicable (a "Custodial Delivery Failure"), then Custodian shall (a) with respect to any missing Mortgage Note or Credit Line Agreement, as applicable, promptly deliver to Buyer or Seller upon request, a Lost Note Affidavit in the form of Annex 16 hereto and (b) with respect to any missing document related to such Mortgage Loan, including but not limited to a missing Mortgage Note or Credit Line Agreement, as applicable, (1) indemnify Seller and Buyer, as applicable, in accordance with Section 13(c) below and (2) at Buyer's option, at any time the long term obligations of Custodian are rated below the second highest rating category of Moody's Investors Service, Inc. or Standard and Poor's Ratings Group, a division of McGraw-Hill, Inc., obtain and maintain, at Custodian's expense, an insurance bond in the name of Buyer, and its successors in interest and assigns, insuring against any losses associated with the loss of such document, in an amount equal to the then outstanding principal balance of the related Mortgage Loan or such lesser amount requested by Buyer in Buyer's sole discretion. (c) Custodian agrees to indemnify and hold Buyer and each Seller Entity, and each of their respective present or former affiliates, directors, officers, employees, agents and representatives harmless against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever, including reasonable attorney's fees, that may be imposed on, incurred by, or asserted against it or them in any way relating to or arising out of a Custodial Delivery Failure or Custodian's breach of this Agreement, negligence, lack of good faith or willful misconduct. The foregoing indemnification shall survive the resignation or removal of Custodian and any termination or assignment of this Agreement. (d) Disbursement Agent agrees to indemnify and hold Buyer and each Seller Entity, and each of their respective present or former affiliates, directors, officers, employees, agents and representatives harmless against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever, including reasonable attorney's fees, that may be imposed on, incurred by, or asserted against it or them in any way relating to or arising out of Disbursement Agent's breach of this Agreement, negligence, lack of good faith or willful misconduct. The foregoing indemnification shall survive the resignation or removal of Disbursement Agent or any termination or assignment of this Agreement. -33- Section 14. Reliance of Custodian. (a) In the absence of bad faith on the part of Custodian or Disbursement Agent, Custodian and Disbursement Agent may each conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any request, instruction, certificate, opinion or other document furnished to Custodian or Disbursement Agent (including such items received via Electronic Transmission), reasonably believed by Custodian or Disbursement Agent , as applicable, to be genuine and to have been signed or presented by the proper party or parties and conforming to the requirements of this Agreement; provided, however, that in the case of any Mortgage Loan Document or other request, instruction, document or certificate which by any provision hereof is specifically required to be furnished to Custodian or Disbursement Agent, Custodian or Disbursement Agent , as applicable, shall be under a duty to examine the same in accordance with the requirements of this Agreement. (b) Custodian shall have no duties or responsibilities except those that are specifically set forth in this Agreement. Custodian shall have no responsibility nor duty with respect to any Mortgage File while not in its possession. If Custodian requests instructions from Buyer with respect to any act, action or failure to act in connection with this Agreement, Custodian shall be entitled to refrain from taking such action and continue to refrain from acting unless and until Custodian shall have received written instructions from Buyer with respect to a Mortgage File without incurring any liability therefor to Buyer or any other Person. (c) Other than as provided herein, neither Custodian nor any of its directors, officers, agents or employees shall be liable for any action or omission to act hereunder except for its or their own negligence or lack of good faith or willful misconduct. In no event shall Custodian or any of its directors, officers, agents or employees have any responsibility to ascertain or take action except as expressly provided herein. (d) Neither Custodian nor any of its directors, officers, agents or employees shall be liable to the Purchaser or any other Person with respect to any action taken or not taken by it in good faith in the performance of its obligations under this Agreement. The obligations of Custodian or any of its directors, officers, agents or employees shall be determined solely by the express provisions of this Agreement. (e) Custodian may consult with counsel selected by Custodian with regard to legal questions arising out of or in connection with this Agreement, and the advice or opinion of such counsel shall be full and complete authorization and protection in respect of any action reasonably taken, omitted or suffered by Custodian in good faith and in accordance therewith; provided such action shall be in compliance with all the terms expressly provided herein. (f) No provision of this Agreement shall require Custodian to expend or risk its own funds or otherwise incur financial liability (other than expenses or liabilities otherwise required to be incurred by the express terms of this Agreement) in the performance of its duties under this Agreement if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity is not reasonably assured to it. -34- (g) Any corporation into which Custodian may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which Custodian shall be a party, or any corporation succeeding to the business of Custodian shall be the successor of Custodian hereunder without the execution or filing of any paper with any party hereto or any further act on the part of any of the parties hereto except where an instrument of transfer or assignment is required by law to effect such succession, anything herein to the contrary notwithstanding. Section 15. Term of Agreement. Promptly after written notice from Buyer of the termination of the Repurchase Agreement and payment in full of all amounts owing to Buyer thereunder, Custodian shall deliver all documents remaining in the Mortgage Files to Seller, and, except as otherwise set forth herein, this Agreement shall thereupon terminate. Section 16. Notices. All demands, notices and communications hereunder shall be in writing and shall be deemed to have been duly given when received by the recipient party at the address shown on its signature page hereto, or at such other addresses as may hereafter be furnished to each of the other parties by like notice. Any such demand, notice or communication hereunder shall be deemed to have been received on the date delivered to or received at the premises of the addressee. Each party hereto hereby represents and warrants that its office is located at the respective address set forth on its signature page hereto, and each such party shall notify each other party hereto if such address should change. Section 17. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF. Section 18. Authorized Representatives. Each individual designated as an authorized representative of Buyer or its successors or assigns, any Seller Entity, Disbursement Agent and Custodian, respectively (an "Authorized Representative"), is authorized to give and receive notices, requests and instructions and to deliver certificates and documents in connection with this Agreement on behalf of Buyer, Seller, Disbursement Agent and Custodian, as the case may be, and the specimen signature for each such Authorized Representative, initially authorized hereunder, is set forth on Annexes 6, 7, 8 and 9 hereof, respectively. From time to time, Buyer, each Seller Entity, Disbursement Agent and Custodian or their respective successors or permitted assigns may, by delivering to the others a revised annex, change the information previously given pursuant to this Section 18, but each of the parties hereto shall be entitled to rely conclusively on the then current annex until receipt of a superseding annex. -35- Section 19. Amendment. This Agreement may be amended from time to time by written agreement signed by each Seller Entity, Buyer, Custodian and Disbursement Agent. Section 20. Cumulative Rights. The rights, powers and remedies of Custodian, Disbursement Agent and Buyer under this Agreement shall be in addition to all rights, powers and remedies given to Custodian, Disbursement Agent and Buyer by virtue of any statute or rule of law, the Repurchase Agreement or any other agreement, all of which rights, powers and remedies shall be cumulative and may be exercised successively or concurrently without impairing Buyer's interest in the Purchased Assets. Section 21. Assignment; Binding upon Successors. This Agreement may not be assigned in whole or in part by Seller, Custodian or Disbursement Agent without the prior written consent of Buyer. This Agreement may be assigned by Buyer in whole or in part without the prior written consent of any other party hereto. Buyer shall provide Custodian with notice of such assignment together with written acknowledgment that the assignee is assuming all of the obligations of Buyer under this Agreement to the extent applicable. All rights of Custodian, Disbursement Agent and Buyer under this Agreement shall inure to the benefit of Custodian, Disbursement Agent and Buyer and their successors and permitted assigns, and all obligations of Seller and each Seller Entity shall bind its respective successors and assigns. Section 22. Entire Agreement; Severability. This Agreement, the Edit Check Agreement and the Repurchase Agreement contain the entire agreement with respect to the rights and obligations of Custodian and Disbursement Agent relating to the Purchased Assets among Custodian, Disbursement Agent, Buyer and Seller. If any of the provisions of this Agreement shall be held invalid or unenforceable, this Agreement shall be construed as if not containing such provisions, and the rights and obligations of the parties hereto shall be construed and enforced accordingly. Section 23. Execution in Counterparts. This Agreement may be executed in counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Section 24. Tax Reports. Custodian shall not be responsible for the preparation or filing of any reports or returns relating to federal, state or local income taxes with respect to this Agreement, other than in respect of Custodian's compensation or for reimbursement of expenses. -36- Section 25. Assignment by Buyer. Buyer hereby notifies Custodian that Buyer may assign, as of the applicable Purchase Date, all of its right, title and interest in and to some or all of the Purchased Assets to a third party assignee (an "Assignee"), subject only to an obligation on the part of the Assignee to release its interest in each such Purchased Asset to Buyer to permit Custodian, Buyer or its designee to make delivery thereof in accordance with the terms of this Agreement. Seller hereby irrevocably consents to any such assignment. Subject to any limitations in any agreement between the Assignee and Buyer, the Assignee may, upon notice of Buyer's default, directly enforce and exercise such rights under this Agreement that have been assigned or pledged to it and, until otherwise notified by the Assignee, Buyer shall no longer have any of such rights. Custodian shall assume that any assignment from Buyer to the Assignee is subject to no limitations that are not expressly set forth in this Agreement. Section 26. Submission to Jurisdiction; Waivers. EACH OF BUYER, EACH SELLER ENTITY, CUSTODIAN AND DISBURSEMENT AGENT HEREBY IRREVOCABLY AND UNCONDITIONALLY: (a) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND THE OTHER REPURCHASE DOCUMENTS, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN THE BOROUGH OF MANHATTAN, THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF; (b) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME; (c) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO ITS ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW OR AT SUCH OTHER ADDRESS OF WHICH EACH OTHER PARTY HERETO SHALL HAVE BEEN NOTIFIED; (d) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION; AND -37- (e) WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER REPURCHASE DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. Section 27. Confidentiality. Each of Custodian and Disbursement Agent hereby acknowledges and agrees that (i) all written or computer-readable information provided by Buyer or Seller regarding Buyer or Seller and (ii) the terms of this Agreement and the Repurchase Agreement (the "Confidential Information"), shall be kept confidential and shall not be divulged to any Person other than the parties hereto without Buyer's and Seller's prior written consent except to the extent that (i) Custodian or Disbursement Agent reasonably deems necessary to do so in working with legal counsel, auditors, taxing authorities or other governmental agencies or regulatory bodies or in order to comply with any applicable federal or state laws, (ii) any portion of the Confidential Information is in the public domain other than due to a breach of this covenant by the Custodian or the Disbursement Agent, as the case may be, or by the disclosing party or (iii) to the extent that Custodian or Disbursement Agent, as applicable, is required to disclose Confidential Information pursuant to the requirements of any legal proceeding, Custodian or Disbursement Agent, as applicable, shall notify Buyer and Seller within one Business Day of its knowledge of such legally required disclosure so that Buyer or Seller may seek an appropriate protective order and/or waive Custodian's or Disbursement Agent's compliance, as applicable, with this Agreement. Notice shall be both by telephone and in writing. In the absence of a protective order or waiver, Custodian or Disbursement Agent, as applicable, may disclose the relevant Confidential Information if, in the written opinion of its counsel, failure to disclose such Confidential Information would subject Custodian or Disbursement Agent, as applicable, to liability for contempt, censure or other legal penalty or liability. Section 28. Obligations Joint and Several. Each of the Seller Entities hereby acknowledges and agrees that it shall be jointly and severally liable to Buyer, Custodian and Disbursement Agent, as applicable, for all representations, warranties, covenants, obligations and indemnities of Seller hereunder. [SIGNATURE PAGE FOLLOWS] -38- IN WITNESS WHEREOF, this Agreement was duly executed by the parties hereto as of the day and year first above written. AMERICAN HOME MORTGAGE CORP. By: /s/ Alan Horn --------------------------------------- Name: Alan Horn Title: Executive Vice President AMERICAN HOME MORTGAGE INVESTMENT CORP. By: /s/ Alan Horn --------------------------------------- Name: Alan Horn Title: Executive Vice President AMERICAN HOME MORTGAGE HOLDINGS, INC. By: /s/ Alan Horn --------------------------------------- Name: Alan Horn Title: Executive Vice President AMERICAN HOME MORTGAGE ACCEPTANCE, INC. By: /s/ Alan Horn --------------------------------------- Name: Alan Horn Title: Executive Vice President COLUMBIA NATIONAL, INCORPORATED By: /s/ Alan Horn --------------------------------------- Name: Alan Horn Title: Executive Vice President Address for Notices: c/o American Home Mortgage Corp: 520 Broadhollow Road, Melville, New York 11747 Attention: Alan B. Horn, Esq;, Executive Vice President and General Counsel Telecopier No.: (800) 209-7276 Telephone No.: (516) 396-7703 Email: alan.horn@americanhm.com DEUTSCHE BANK NATIONAL TRUST COMPANY, as Custodian By: /s/ Aimee Kemmeter -------------------------------------- Name: Aimee Kemmeter Title: Assistant Vice President By: /s/ Andrew Hays -------------------------------------- Name: Andrew Hays Title: Associate Address for Notices: 1761 East St. Andrew Place Santa Ana, California 92705 Attention: Mortgage Custody-AH020C Telecopier No.: (714) 247-6285 Telephone No.: (714) 247-6000 CDC MORTGAGE CAPITAL INC. By: /s/ Kathy Lynch -------------------------------------- Name: Kathy Lynch Title: Director By: /s/ Anthony Malanga -------------------------------------- Name: Anthony Malanga Title: Managing Director Address for Notices: 9 West 57th Street New York, NY 10019 Attn: Ray Sullivan Telecopier No.: (212) 891-3347 Telephone No.: (212) 891-5815 Email: r.sullivan@cdcixis-cmna.com With a copy to: 9 West 57th Street New York, NY 10019 Attn: Al Zakes, Esq., General Counsel Telecopier No.: (212) 891-1922 Telephone No.: (212) 891-6137 Email: albert.zakes@cdcixis-cmna.com and with a copy to: 9 West 57th Street New York, NY 10019 Attn: Michael Friedman Telecopier No.: (212) 891-6143 Telephone No.: (212) 891-6261 Email: m.friedman@cdcixis-cmna.com DEUTSCHE BANK NATIONAL TRUST COMPANY, as Disbursement Agent By: /s/ Aimee Kemmeter --------------------------------------- Name: Aimee Kemmeter Title: Assistant Vice President By: /s/ Andrew Hays --------------------------------------- Name: Andrew Hays Title: Associate Address for Notices: 1761 East St. Andrew Place Santa Ana, California 92705 Attention: Mortgage Custody- AH020C Telecopier No.: (714) 247-6058 Telephone No.: (714) 247-6000
EX-31 8 am696881-ex31_1.txt CERTIFICATION PURSUANT TO SECTION 302 Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Michael Strauss, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of American Home Mortgage Investment Corp.; 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)) 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) 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 c) disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 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. /s/ Michael Strauss - ------------------- Michael Strauss Chairman of the Board, Chief Executive Officer and President August 9, 2004 EX-3 9 am696881-ex31_2.txt CERTIFICATION PURSUANT TO SECTION 302 Exhibit 31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Stephen A. Hozie, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of American Home Mortgage Investment Corp.; 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)) 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) 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 c) disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 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. /s/ Stephen A. Hozie - -------------------- Stephen A. Hozie Executive Vice President and Chief Financial Officer August 9, 2004 EX-32.1 10 am696881-ex32_1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER Exhibit 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of American Home Mortgage Investment Corp. (the "Registrant") on Form 10-Q for the quarter ended June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael Strauss, Chairman of the Board, Chief Executive Officer and President of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. August 9, 2004 /s/ Michael Strauss ---------------------- Michael Strauss Chairman of the Board, Chief Executive Officer and President EX-32.2 11 am696881-ex32_2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER Exhibit 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of American Home Mortgage Investment Corp. (the "Registrant") on Form 10-Q for the quarter ended June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stephen A. Hozie, Executive Vice President and Chief Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. August 9, 2004 /s/ Stephen A. Hozie ----------------------- Stephen A. Hozie Executive Vice President and Chief Financial Officer
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