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Lehman Paper Buy Sell Agreement 06-11-1998

MASTER REPURCHASE AGREEMENT GOVERNING

 

PURCHASES AND SALES OF MORTGAGE LOANS

 

Dated as of June 11, 1998

 

 

Between

 

LEHMAN COMMERCIAL PAPER INC.,

 

as Buyer

 

and

 

NOVASTAR FINANCIAL, INC.,

 

as Seller

 

1. APPLICABILITY

 

From time to time, the parties hereto may, subject to the terms hereof, enter

into transactions in which Novastar Financial, Inc. ("Seller") agrees to

transfer to Lehman Commercial Paper Inc. ("Buyer") Mortgage Loans against the

transfer of funds by Buyer, with a simultaneous agreement by Buyer to transfer

to Seller such Mortgage Loans at a date certain not later than the date of

transfer specified in the Confirmation, against the transfer of funds by Seller.

Each such transaction shall be referred to herein as a "Transaction" and shall

be governed by this Agreement and the related Confirmation, unless otherwise

agreed in writing. This Agreement does not constitute a commitment of Buyer or

Seller to enter into Transactions but rather sets forth the procedures to be

followed in connection with requests to enter into Transactions by Seller to

Buyer. Seller hereby acknowledges that Buyer is under no obligation to agree to

enter into Transactions under this Agreement.

 

2. DEFINITIONS

 

"Act of Insolvency" means, with respect to any party and its Affiliates, (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 the

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appointment of a receiver, trustee, custodian or similar official for such party

or an Affiliate or any substantial part of the property of either, (iii) the

appointment of a receiver, conservator, or manager for such party or an

Affiliate by any governmental agency or authority having the jurisdiction to do

so; (iv) the making or offering by such party or an Affiliate of a composition

with its creditors or a general assignment for the benefit of creditors, (v) the

admission by such party or an Affiliate of such party 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 party or of any of its Affiliates, or

shall have taken any action to displace the management of such party or of any

of its Affiliates or to curtail its authority in the conduct of the business of

such party or of any of its Affiliates.

 

"Additional Loans" means Mortgage Loans or cash provided by Seller to Buyer or

its designee pursuant to Section 4(a).

 

"Affiliate" means an affiliate of a party as such term is defined in the United

States Bankruptcy Code in effect from time to time.

 

"Agency" means FNMA, FHLMC or GNMA.

 

"Agreement" means this Master Repurchase Agreement Governing Purchases and Sales

of Mortgage Loans between Buyer and Seller, as amended from time to time.

 

"Balloon Mortgage Loan" means any Mortgage Loan that provided on the date of

origination for scheduled payments by the Mortgagor based upon an amortization

schedule extending beyond its maturity date.

 

"Business Day" means a day other than (i) a Saturday or Sunday, or (ii) a day in

which the New York Stock Exchange is authorized or obligated by law or executive

order to be closed.

 

"Buyer" has the meaning specified in Section 1.

 

" "C" Loan" means a Mortgage Loan made by Seller to a Mortgagor with a "C"

credit history which is underwritten in accordance with Seller's underwriting

guidelines for "C" credit Mortgage Loans, a copy of which is attached as Exhibit

VI hereto.

 

"Collateral" has the meaning specified in Section 6.

 

"Collateral Amount" means, with respect to any Transaction, the amount obtained

by application of the applicable Collateral Amount Percentage to the related

Repurchase Price for such Transaction.

 

"Collateral Amount Percentage" means the amount set forth in the Confirmation

which, in any event, (i) shall not be less than 103% with respect to all

Mortgage Loans in determining whether

 

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a Market Value Collateral Deficit exists pursuant to the first sentence of

Section 4(a) hereof and (ii) shall not be less than 105% with respect to all

Mortgage Loans in determining whether a Securitization Value Collateral Deficit

exists pursuant to the second sentence of Section 4(a) hereof.

 

"Collateral Deficit" means either a Market Value Collateral Deficit or a

Securitization Value Collateral Deficit.

 

"Collateral Information" means the following information with respect to each

Mortgage Loan: (i) Seller's loan number, (ii) the Mortgagor's name, (iii) the

address of the Mortgaged Property, (iv) the current interest rate, (v) the

original balance, (vi) current balance as of the last day of the immediately

preceding month, (vii) the principal paid to date, (viii) the appraisal value of

the Mortgaged Property, (ix) whether interest rate is fixed or adjustable (and

if adjustable, the ARM terms, including the index, spread, adjustment frequency,

next adjustment date, caps and floors), (x) whether the Mortgage Loan is

convertible from ARM to fixed, (xi) the occupancy status of the Mortgaged

Property (including whether owner occupied), (xii) whether the Mortgage Loan is

a Balloon Loan, (xiii) the first payment date, (xiv) the maturity date, (xv) the

principal and interest payment, (xvi) the property type of the Mortgaged

Property, (xvii) the applicable credit grade, (xviii) the note date and (xix)

whether the Mortgage Loan is a Wet Ink Mortgage Loan.

 

"Confirmation" has the meaning specified in Section 3(a).

 

"Custodial Agreement" means that certain custodial agreement, dated as of June

11, 1998, by and among Buyer, Seller and the Custodian.

 

"Custodial Delivery" means the form executed by Seller in order to deliver the

Mortgage Loan Schedule and/or the Mortgage File to Buyer or its designee

(including the Custodian) pursuant to Section 7, a form of which is attached

hereto as Exhibit II. Such form shall indicate any Mortgage Loans which are Wet

Ink Mortgage Loans.

 

"Custodian" means the custodian under the Custodial Agreement. The initial

custodian is First Union National Bank.

 

" "D" Loan" means a Mortgage Loan made by Seller to a Mortgagor with a "D"

credit history which is underwritten in accordance with Seller's underwriting

guidelines for "D" credit Mortgage Loans, a copy of which is attached as Exhibit

VI hereto.

 

"Delinquent" means, with respect to any Mortgage Loan, the period of time from

the date on which a Mortgagor fails to pay an obligation under the terms of such

Mortgage Loan (without regard to any applicable grace periods) to the date on

which such payment is made.

 

"Event of Default" has the meaning specified in Section 13.

 

"First Mortgage" means a Mortgage that is a first lien on the Mortgaged

Property.

 

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"FHLMC" means the Federal Home Loan Mortgage Corporation.

 

"FNMA" means the Federal National Mortgage Association.

 

"GNMA" means the Government National Mortgage Association.

 

"Hedge" means, with respect to any or all of the Purchased Mortgage Loans, any

interest rate swap, cap or collar agreement or similar arrangements providing

for protection against fluctuations in interest rates or the exchange of nominal

interest obligations, either generally or under specific contingencies, entered

into by Seller with Buyer or its Affiliates, and reasonably acceptable to the

Buyer.

 

"HUD" means the United States Department of Housing and Urban Development.

 

"Income" means, with respect to any Purchased Mortgage Loan at any time, any

principal thereof then payable and all interest, dividends or other

distributions payable thereon less any related servicing fee(s) charged by a

subservicer.

 

"LIBOR" means the London Interbank Offered Rate for one-month United States

dollar deposits as set forth on page 3750 of Telerate as of 11:00 a.m., London

time, on the date of determination.

 

"Loan-to-Value Ratio" means with respect to any Mortgage Loan as of any date,

the fraction, expressed as a percentage, the numerator of which is the principal

balance of such Mortgage Loan at the date of determination and the denominator

of which is the lower of (x) the sale price of the related Mortgaged Property or

(y) the value of the related Mortgaged Property as set forth in the appraisal of

such Mortgaged Property obtained in connection with the origination of such

Mortgage Loan.

 

"Market Value" means as of any date with respect to any Mortgage Loan, the price

at which such Mortgage Loan could readily be sold as determined by Buyer in its

sole discretion; provided, however, that Buyer shall not take into account, for

purposes of calculating Market Value, any Mortgage Loan (i) which has been

subject to consecutive Transactions for more than 270 days, (ii) which, together

with the other Mortgage Loans subject to then outstanding Transactions, would

cause the 30+ Delinquency Percentage to exceed 5.0%, (iii) which is a Wet Ink

Mortgage Loan for more than 5 Business Days, (iv) which are more than 59 days

Delinquent or (v) with respect to which there is a breach of a representation,

warranty or covenant made by Seller in this Agreement that materially adversely

affects Buyer's interest in such Mortgage Loan and which breach has not been

cured.

 

"Market Value Collateral Deficit" has the meaning specified in Section 4(a).

 

"Mortgage" means a mortgage, deed of trust, deed to secure debt or other

instrument, creating a valid and enforceable first or second lien on or a first

or second priority ownership interest in an estate in fee simple in real

property and the improvements thereon, securing a Mortgage Note or similar

evidence of indebtedness.

 

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"Mortgage File" means the documents specified as the "Mortgage File" in Section

7(d), together with any additional documents and information required to be

delivered to Buyer or its designee (including the Custodian) pursuant to this

Agreement.

 

"Mortgage Loan" means (i) a non-securitized whole loan, namely a conventional

mortgage loan secured by a first or second lien on a one to four family

residential property which conforms to Seller's underwriting guidelines

(including, without limitation, Wet-Ink Mortgage Loans) or (ii) another type of

non-securitized whole loan as may be agreed upon in writing by the parties

hereto from time to time.

 

"Mortgage Loan Schedule" means a schedule of Mortgage Loans attached to each

Trust Receipt, Confirmation and Custodial Delivery.

 

"Mortgage Note" means a note or other evidence of indebtedness of a Mortgagor

secured by a Mortgage.

 

"Mortgaged Property" means the real property securing repayment of the debt

evidenced by a Mortgage Note.

 

"Mortgagee" means the record holder of a Mortgage Note secured by a Mortgage.

 

"Mortgagor" means the obligor on a Mortgage Note and the grantor of the related

Mortgage.

 

"Periodic Payment" has the meaning specified in Section 5(b).

 

"Person" means an individual, partnership, corporation, joint stock company,

trust or unincorporated organization or a governmental agency or political

subdivision thereof.

 

"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" means the per annum percentage rate specified in the Confirmation

for determination of the Price Differential which shall not exceed LIBOR plus

the applicable Pricing Spread.

 

"Pricing Spread" means (x) [ ]%; provided that during any period for which

any such Mortgage Loans are Wet Ink Mortgage Loans, the applicable Pricing

Spread in respect of such Mortgage Loan shall be [ ]%.

 

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"Prime Rate" means the rate of interest published by The Wall Street Journal,

northeast edition, as the "prime rate".

 

"Purchase Date" means the date on which Purchased Mortgage Loans are transferred

by Seller to Buyer or its designee (including the Custodian) as specified in the

Confirmation.

 

"Purchase Price" means, on each Purchase Date, the price at which Purchased

Mortgage Loans are transferred by Seller to Buyer or its designee (including the

Custodian), which, subject to compliance with the collateral maintenance

requirements of Section 4, shall equal the outstanding principal amount of such

Purchased Mortgage Loans; provided, however, that the Purchase Price of any

Mortgage Loan shall not in any event exceed the outstanding principal amount

thereof.

 

"Purchased Mortgage Loans" means the Mortgage Loans sold by Seller to Buyer in a

Transaction, any Additional Loans and any Substituted Mortgage Loans.

 

"Replacement Loans" has the meaning specified in Section 14(b)(ii).

 

"Repurchase Date" means the date on which Seller is to repurchase the Purchased

Mortgage Loans from Buyer, including any date determined by application of the

provisions of Sections 3 or 14, as specified in the Confirmation; provided that

in no event shall such date be more than 30 days after the Purchase Date.

 

"Repurchase Price" means the price at which Purchased Mortgage Loans are to be

transferred from Buyer or its designee (including the 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 Payments actually received by Buyer pursuant to Sections

4(a), 5(a) and 5(b), respectively.

 

"Second Mortgage" means a Mortgage that is a second lien on the Mortgaged

Property.

 

"Securitization Value" means, as of any date with respect to any Mortgage Loans,

the price at which such Mortgage Loans could be securitized and sold in a

securitization as determined by Buyer in its sole discretion; provided, however,

that Buyer shall not take into account, for purposes of calculating

Securitization Value, any Mortgage Loan (i) which has been subject to

consecutive Transactions for more than 270 days, (ii) which, together with the

other Mortgage Loans subject to then outstanding Transactions, would cause the

30+ Delinquency Percentage to exceed 5.0%, (iii) which is a Wet Ink Mortgage

Loan for more than 5 Business Days, (iv) which are more than 59 days Delinquent

or (v) with respect to which there is a breach of a representation, warranty or

covenant made by Seller in this Agreement that materially adversely affects

Buyer's interest in such Mortgage Loan and which breach has not been cured.

 

"Securitization Value Collateral Deficit" has the meaning specified in Section

4(a).

 

"Seller" has the meaning specified in Section 1.

 

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"Servicing Agreement" has the meaning specified in Section 25.

 

"Servicing Records" has the meaning specified in Section 25.

 

"Substituted Mortgage Loans" means any Mortgage Loans substituted for Purchased

Mortgage Loans in accordance with Section 9 hereof.

 

"30+ Delinquency Percentage" means the fraction, expressed as a percentage, the

numerator of which is the aggregate Purchase Price of Purchased Mortgage Loans

subject to then outstanding Transactions which are more than 30 days Delinquent

and the denominator of which is the aggregate Purchase Price of all Purchased

Mortgage Loans subject to then outstanding Transactions.

 

"Transaction" has the meaning specified in Section 1.

 

"Trust Receipt" means a trust receipt issued by Custodian to Buyer confirming

the Custodian's possession of certain mortgage loan files which are the property

of and held by Custodian for the benefit of the Buyer or the registered holder

of such trust receipt.

 

"Wet Ink Mortgage Loan" means a non-securitized whole loan, namely a

conventional mortgage loan secured by a first or second lien on a one to four

family residential property for which a Mortgage File has not been delivered to

the Custodian.

 

3. INITIATION; CONFIRMATION; TERMINATION;

MAXIMUM TRANSACTION AMOUNTS

 

(a) An agreement to enter into a Transaction may be entered into orally or in

writing at the initiation of either Buyer or Seller. In any event, Buyer shall

confirm the terms of each Transaction by issuing a written confirmation to

Seller promptly after the parties enter into such Transaction in the form of

Exhibit I attached hereto (a "Confirmation"). Such Confirmation shall describe

the Purchased Mortgage Loans, identify Buyer and Seller and set forth (i) the

Purchase Date, (ii) the Purchase Price, (iii) the Repurchase Date, unless the

Transaction is to be terminable on demand, (iv) the Pricing Rate applicable to

the Transaction, (v) the applicable Collateral Amount Percentages and (vi)

additional terms or conditions not inconsistent with this Agreement. After

receipt of the Confirmation, Seller shall, upon its approval thereof and subject

to the provisions of subsection (c) below, sign the Confirmation and promptly

return it to Buyer. With respect to any Transaction, Seller must sell Buyer

sufficient number of Mortgage Loans such that the Purchase Price for such

Transaction shall exceed $1,000,000.

 

(b) Any Confirmation sent by Buyer shall be deemed to have been received by

Seller on the date actually received by Seller.

 

(c) Each Confirmation, together with this Agreement, shall be conclusive

evidence of the terms of the Transaction(s) covered thereby unless objected to

in writing by Seller no more than two (2) Business Days after the date the

Confirmation was received by Seller or unless a corrected

 

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Confirmation is sent by Buyer. An objection sent by Seller must state

specifically that such writing is an objection, must specify the provision(s)

being objected to by Seller, must set forth such provision(s) in the manner that

the Seller believes they should be stated, and must be received by Buyer no more

than two (2) Business Days after the Confirmation was received by Seller.

 

(d) In the case of Transactions terminable upon demand, such demand shall be

made by Seller by telephone or otherwise, no later than 4:00 p.m. (New York

Time) on the Business Day prior to the day on which such termination will be

effective.

 

(e) On the Repurchase Date, termination of the Transaction will be effected by

transfer to Seller or its designee of the Purchased Mortgage Loans (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)

against the simultaneous transfer of the Repurchase Price to an account of

Buyer. Seller is obligated to obtain the Mortgage Files from Buyer or its

designee at Seller's expense on the Repurchase Date.

 

(f) With respect to all Transactions hereunder, the aggregate Purchase Price for

all Purchased Mortgage Loans at any one time subject to then outstanding

Transactions under this Agreement shall not exceed $200,000,000.

 

(g) The aggregate Purchase Price of all Purchased Mortgage Loans which are

secured by a Wet Ink Mortgage Loans shall not represent more than 10% of the

aggregate Purchase Price for all Purchased Mortgage Loans which are subject to

then outstanding Transactions.

 

(h) The aggregate Purchase Price of all Purchased Mortgage Loans which are

secured by a Second Mortgage shall not represent more than 10% of the aggregate

Purchase Price for all Purchased Mortgage Loans which are subject to then

outstanding Transactions.

 

4. COLLATERAL AMOUNT MAINTENANCE

 

(a) If at any time the aggregate Market Value of all Purchased Mortgage Loans

subject to then outstanding Transactions is less than the aggregate Collateral

Amount for all such Transactions (a "Market Value Collateral Deficit"), then

Buyer may by notice to Seller require Seller to transfer to Buyer or its

designee (including the Custodian) Mortgage Loans ("Additional Loans") or cash,

so that the cash and aggregate Market Value of the Purchased Mortgage Loans,

including any such Additional Loans, will thereupon equal or exceed the

aggregate Collateral Amount. If at any time the aggregate Securitization Value

of all Mortgage Loans subject to then outstanding Transactions is less than the

aggregate Collateral Amount for all such Transactions (a "Securitization Value

Collateral Deficit"), then Buyer may by notice to Seller require Seller to

transfer to Buyer or its designee (including the Custodian) Additional Loans or

cash, so that the cash and aggregate Securitization Value of such Mortgage

Loans, including any such Additional Loans, will thereupon equal or exceed the

aggregate Collateral Amount.

 

(b) Notice required pursuant to subsection (a) above may be given by any means

of telecopier or telegraphic transmission. A notice for the payment or delivery

in respect of a Collateral Deficit received before 9:00 a.m. on a Business Day,

local time of the party receiving the notice, must be met not later than 5:00

p.m. on the Business Day on which the notice was given, local time of the party

receiving the notice. Any notice given on a Business Day after 9:00 a.m., local

time of the party receiving the notice, shall be met not later than 2:00 p.m.

(New York time) on the following Business Day. The failure of Buyer, on any one

or more occasions, to exercise its rights under subsection (a) of this Section

shall not change or alter the terms and conditions to which this Agreement is

subject or limit the right of the Buyer to do so at a later date. Buyer and

 

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Seller agree that a failure or delay to exercise its rights under subsections

(a) of this Section shall not limit Buyer's rights under this Agreement or

otherwise existing by law or in any way create additional rights for Seller.

 

(c) In the event that Seller fails to comply with the provisions of this Section

4, Buyer shall not enter into any additional Transactions hereunder after the

date of such failure.

 

5. INCOME PAYMENTS

 

(a) Where a particular Transaction's term extends over an Income payment date on

the Purchased Mortgage Loans subject to that Transaction such Income shall, so

long as no Event of Default with respect to Seller shall have occurred and be

continuing, be the property of Seller, and Seller shall be entitled to all

Income with respect to Purchased Mortgage Loans subject to Transactions. Upon

the occurrence and continuance of an Event of Default, all Income with respect

to Purchased Mortgage Loans subject to Transactions shall be held in a

segregated account established by the Custodian for the benefit of Buyer and

distributed under the Custodial Agreement.

 

(b) Notwithstanding that Buyer and Seller intend that the Transactions

hereunder be sales to Buyer of the Purchased Mortgage Loans, Seller shall pay by

wire transfer to Buyer the accreted value of the Price Differential (less any

amount of such Price Differential previously paid by Seller to Buyer)(each such

payment, a "Periodic Payment") on the first Business Day of each month.

 

(c) Buyer shall offset against the Repurchase Price of each such Transaction

all Income and Periodic Payments actually received by Buyer pursuant to Sections

5(a) and (b), respectively.

 

6. SECURITY INTEREST

 

(a) Buyer and the Seller intend that the Transactions hereunder be sales to

Buyer of the Purchased Mortgage Loans and not loans from Buyer to Seller secured

by the Purchased Mortgage Loans. 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 under this Agreement and the

Transactions entered into pursuant to this Agreement, Seller grants Buyer a

first priority security interest in the Purchased Mortgage Loans, Servicing

Records, insurance relating to the Purchased Mortgage Loans, Income, any and all

Hedges, any and all custodial accounts and escrow accounts relating to the

Purchased Mortgage Loans and any other contract rights, general intangibles and

other assets relating to the Purchased Mortgage Loans or any interest in the

Purchased Mortgage Loans and the servicing of the Purchased Mortgage Loans and

any and all replacements, substitutions, distributions on or proceeds of any and

all of the foregoing (collectively, the "Collateral").

 

(b) Seller shall pay all reasonable fees and expenses associated with perfecting

Buyer's security interest in the Collateral, including, without limitation, the

cost of filing financing statements under the Uniform Commercial Code and

recording assignments of Mortgage, as and when required by Buyer in its sole

discretion.

 

(c) Seller covenants to take such further actions as are necessary in order to

perfect Buyer's first priority security interest in the Hedges.

 

7. PAYMENT, TRANSFER AND CUSTODY

 

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(a) Unless otherwise mutually agreed in writing, all transfers of funds

hereunder shall be in immediately available funds.

 

(b) On or before each Purchase Date, Seller shall deliver or cause to be

delivered to Buyer or its designee the Custodial Delivery in the form attached

hereto as Exhibit II.

 

(c) On the Purchase Date for each Transaction, ownership of the Purchased

Mortgage Loans shall be transferred to the Buyer or its designee (including the

Custodian) against the simultaneous transfer of the Purchase Price to an account

of Seller specified in the Confirmation. Seller, simultaneously with the

delivery to Buyer or its designee (including the Custodian) of the Purchased

Mortgage Loans relating to each Transaction hereby sells, transfers, conveys and

assigns to Buyer or its designee (including the Custodian) without recourse, but

subject to the terms of this Agreement, all the right, title and interest of

Seller in and to the Purchased Mortgage Loans together with all right, title and

interest in and to the proceeds of any related insurance policies.

 

(d) In connection with each sale, transfer, conveyance and assignment, on or

prior to each Purchase Date with respect to each Mortgage Loan which is not a

Wet Ink Mortgage Loan (or with respect to item (vii) below within five Business

Days after the Purchase Date), the Seller shall deliver or cause to be delivered

and released to the Custodian the following original documents (collectively the

"Mortgage File"), pertaining to each of the Purchased Mortgage Loans identified

in the Custodial Delivery delivered therewith:

 

(i) the original Mortgage Note 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 officer of

such entity;

 

(ii) the original of any guarantee executed in connection with the

Mortgage Note (if any);

 

(iii) the original Mortgage with evidence of recording thereon or copies

certified by Seller to have been sent for recording;

 

(iv) the originals of all assumption, modification, consolidation or

extension agreements, if any, with evidence of recording thereon or copies

certified by Seller to have been sent for recording;

 

(v) the original assignment of Mortgage in blank for each Mortgage Loan,

in form and substance acceptable for recording and signed in the name of

the Last Endorsee (in the event that the Mortgage Loan was acquired by the

Last Endorsee in a merger, the signature must be in the following form:

"[the Last Endorsee], successor by merger to [name of predecessor]"; in the

event that the Mortgage Loan was acquired or originated while doing

business under another name, the signature must be in the following form:

"[the Last Endorsee], formerly known as [previous name]");

 

(vi) the originals of all intervening assignments of mortgage with

evidence of recording thereon or copies certified by Seller to have been

sent for recording;

 

(vii) the original policy of title insurance or a true copy thereof or, if

such policy has not yet been delivered by the insurer, the commitment or

binder to issue the same; and

 

(viii) the original of any security agreement, chattel mortgage or

equivalent document executed in connection with the Mortgage (if any).

 

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(e) In connection with each sale, transfer, conveyance and assignment with

respect to each Mortgage Loan which is a Wet Ink Mortgage Loan, on or prior to

the fifth Business Day following each Purchase Date, Seller shall deliver or

cause to be delivered to the Custodian a complete Mortgage File. Further, if

requested by Buyer, on the Purchase Date with respect to each Mortgage Loan

which is a Wet Ink Mortgage Loan, Seller shall fax an executed copy of the

respective Mortgage Note to the Custodian. On the date on which the Buyer

receives a Trust Receipt from the Custodian certifying that a complete Mortgage

File with respect to a Wet Ink Mortgage Loan is in the possession of the

Custodian, such Wet Ink Mortgage Loan be deemed a standard Mortgage Loan (and no

longer a Wet Ink Mortgage Loan) for all purposes hereunder including, without

limitation, determination of the Pricing Spread and compliance with subsection

(aaa) of Exhibit V.

 

(f) With respect to all of the Mortgage Loans delivered by Seller to Buyer or

its designee (including the Custodian), Seller shall execute an omnibus power of

attorney substantially in the form of Exhibit III attached hereto irrevocably

appointing Buyer its attorney-in-fact with full power to complete and record the

assignment of Mortgage, complete the endorsement of the Mortgage Note and take

such other steps as may be necessary or desirable to enforce Buyer's rights

against such Mortgage Loans, the related Mortgage Files and the Servicing

Records.

 

(g) Buyer shall deposit the Mortgage Files representing the Purchased Mortgage

Loans, or direct that the Mortgage Files be deposited directly, with the

Custodian. The Mortgage Files shall be maintained in accordance with the

Custodial Agreement.

 

(h) Any Mortgage Files not delivered to Buyer or its designee (including the

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. The possession of the Mortgage File by Seller or its

designee is at the will of the Buyer for the sole purpose of servicing the

related Purchased Mortgage Loan, and such retention and possession by the Seller

or its designee is in a custodial capacity only. The books and records

(including, without limitation, any computer records or tapes) of Seller or its

designee shall be marked appropriately to reflect clearly the sale of the

related Purchased Mortgage Loan to Buyer. Seller or its designee (including the

Custodian) 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 Mortgage Loans or is in connection

with a repurchase of any Purchased Mortgage Loan by Seller.

 

8. REHYPOTHECATION OR PLEDGE OF PURCHASED MORTGAGE LOANS

 

Title to all Purchased Mortgage Loans shall pass to Buyer and Buyer shall have

free and unrestricted use of all Purchased Mortgage Loans. Nothing in this

Agreement shall preclude Buyer from engaging in repurchase transactions with the

Purchased Mortgage Loans or otherwise pledging, repledging, hypothecating, or

rehypothecating the Purchased Mortgage Loans, but no such transaction shall

relieve Buyer of its obligations to transfer Purchased Mortgage Loans to Seller

pursuant to Section 3. Nothing contained in this Agreement shall obligate Buyer

to segregate any Purchased Mortgage Loans delivered to Buyer by Seller.

 

9. SUBSTITUTION

 

(a) Subject to Section 9(b), Seller may, upon not less than one (1) Business

Days' written notice to Buyer, with a copy to Custodian, substitute other

Mortgage Loans for any Purchased Mortgage Loans. Such substitution shall be made

by transfer to Buyer or its designee (including the Custodian) of the Mortgage

Files of such other Mortgage Loans together with a Custodial Delivery and

transfer to Seller or its designee of the Purchased Mortgage Loans requested for

 

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release. After substitution, the substituted Mortgage Loans, shall be deemed to

be Purchased Mortgage Loans subject to the same Transaction as the released

Mortgage Loans.

 

(b) Notwithstanding anything to the contrary in this Agreement, Seller may not

substitute other Mortgage Loans for any Purchased Mortgage Loans (i) if after

taking into account such substitution, a Collateral Deficit would occur or (ii)

such substitution would cause a breach of any provision of this Agreement.

 

10. REPRESENTATIONS AND WARRANTIES

 

(a) Each of Buyer and Seller represents and warrants to the other that (i) it

is duly authorized to execute and deliver this Agreement, to enter into the

Transactions contemplated hereunder and to perform its obligations hereunder and

has taken all necessary action to authorize such execution, delivery and

performance; (ii) it will engage in such Transactions as principal; (iii) the

person signing this Agreement on its behalf is duly authorized to do so on its

behalf; (iv) this Agreement is legal, valid and binding obligation of it,

enforceable against it in accordance with its terms, (v) no approval, consent or

authorization of the Transactions contemplated by this Agreement from any

federal, state, or local regulatory authority having jurisdiction over it is

required or, if required, such approval, consent or authorization has been or

will, prior to the Purchase Date, be obtained; (vi) the execution, delivery, and

performance of this Agreement and the Transactions hereunder will not violate

any law, regulation, order, judgment, decree, ordinance, charter, by-law, or

rule applicable to it or its property or constitute a default (or an event

which, with notice or lapse of time, or both would constitute a default) under

or result in a breach of any agreement or other instrument by which it is bound

or by which any of its assets are affected; (vii) it has received approval and

authorization to enter into this Agreement and each and every Transaction

actually entered into hereunder pursuant to its internal policies and

procedures; and (viii) neither this Agreement nor any Transaction pursuant

hereto are entered into in contemplation of insolvency or with intent to hinder,

delay or defraud any creditor.

 

(b) Seller represents and warrants to Buyer that as of the Purchase Date for

the purchase of any Purchased Mortgage Loans by Buyer from Seller and as of the

date of this Agreement and any Transaction hereunder and at all times while this

Agreement and any Transaction hereunder is in full force and effect:

 

(i) Organization. Seller is duly organized, validly existing and in good

standing under the laws and regulations of the State of _________ and is

duly licensed, qualified, and in good standing in every state where

Seller transacts business and in any state where any Mortgaged Property

is located if the laws of such state require licensing or qualification

in order to conduct business of the type conducted by Seller therein.

 

(ii) No Litigation. There is no action, suit, proceeding, arbitration or

investigation pending or threatened against Seller which, either in any

one instance or in the aggregate, may result in any material adverse

change in the business, operations, financial condition, properties or

assets of Seller, or in any material impairment of the right or ability

of Seller to carry on its business substantially as now conducted, or in

any material liability on the part of Seller, or which if adversely

determined would affect the validity of this Agreement or any of the

Purchased Mortgage Loans or of any action taken or to be taken in

connection with the obligations of Seller contemplated herein, or which

would be likely to impair materially the ability of Seller to perform

under the terms of this Agreement;

 

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<PAGE>

(iii) No Broker. No broker, investment banker, agent, or other person (except

for Buyer) is entitled to any commission or compensation as a result of

Seller's actions in connection with the sale of Purchased Mortgage Loans

pursuant to this Agreement;

 

(iv) Good Title to Collateral. Purchased Mortgage Loans shall be free and

clear of any lien, encumbrance or impediment to transfer, and Seller has

good, valid and marketable title and the right to sell and transfer such

Purchased Mortgage Loans to Buyer.

 

(v) Delivery of Mortgage File. With respect to each of the Purchased

Mortgage Loans which is not a Wet Ink Mortgage Loan, the Mortgage Note,

the Mortgage, the assignment of Mortgage and any other documents

required to be delivered under this Agreement and the Custodial

Agreement for such Mortgage Loan has been delivered to the Custodian.

Seller or its designee is in possession of a complete, true and accurate

Mortgage File with respect to each Mortgage Loan, except for such

documents the originals of which have been delivered to the Custodian.

 

(vi) Selection Process. Seller has not employed selection procedures that

identified Mortgage Loans relating to a Transactioon as being less

desirable or valuable than other comparable Mortgage Loans in Seller's

portfolio on the related Purchase Date.

 

(vii) [Reserved].

 

(viii) No Untrue Statements. To the best of Seller's knowledge, neither this

Agreement nor any written statement made, or any report or other

document issued or delivered or to be issued or delivered by Seller

pursuant to this Agreement or in connection with the transactions

contemplated hereby contains any untrue statement of a material fact or

omits to state a material fact necessary to make the statements

contained herein or therein not misleading;

 

(ix) Origination Practices. The origination practices used by Seller with

respect to each Mortgage Loan (i) have been and are in all respects

legal and proper in the mortgage origination business and (ii) are

either in accordance with (x) the underwriting guidelines attached

hereto as Exhibit VI or (y) such other underwriting guidelines as may be

approved by Buyer in connection with a bulk acquisition with the

exception of compensating factors which allow for reasonable exceptions;

 

(x) Performance of Agreement. Seller does not believe, nor does it have any

reason or cause to believe, that it cannot perform each and every

covenant contained in this Agreement on its part to be performed;

 

(xi) Seller Not Insolvent. Seller is not, and with the passage of time does

not expect to become, insolvent; and

 

(xii) No Event of Default. No Event of Default has occurred and is continuing

hereunder.

 

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(c) Seller represents and warrants to the Buyer that each Purchased Mortgage

Loan sold hereunder and each pool of Purchased Mortgage Loans sold in a

Transaction hereunder, as of the related Purchase Date, conforms to the

representations and warranties set forth in Exhibit V attached hereto and that

each Mortgage Loan delivered hereunder as Additional Loans or Substituted

Mortgage Loans, as of the date of such delivery, conforms to the representations

and warranties set forth in Exhibit V hereto. Seller further represents and

warrants to the Buyer that, as of the date of its delivery, the Collateral

Information with respect to each Purchased Mortgage Loan is complete, true and

correct in all material respects. It is understood and agreed that the

representations and warranties set forth in Exhibit V hereto, if any, shall

survive delivery of the respective Mortgage File to Buyer or its designee

(including the Custodian).

 

(d) On the Purchase Date for any Transaction, Buyer and Seller shall each be

deemed to have made all the foregoing representations with respect to itself as

of such Purchase Date.

 

11. NEGATIVE COVENANTS OF THE 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, Seller

covenants that it will not:

 

(a) take any action which would directly or indirectly impair or adversely

affect Buyer's title to or the value of the Purchased Mortgage Loans;

 

(b) pledge, assign, convey, grant, bargain, sell, set over, deliver or otherwise

transfer any interest in the Purchased Mortgage Loans to any person not a party

to this Agreement nor will the Seller create, incur or permit to exist any lien,

encumbrance or security interest in or on the Purchased Mortgage Loans except as

described in Section 6 of this Agreement; or

 

(c) create, incur or permit to exist any lien, encumbrance or security interest

in or on any of the Collateral without the prior express written consent of

Buyer.

 

12. AFFIRMATIVE COVENANTS OF THE SELLER

 

For so long as this Agreement is in effect:

 

(a) Seller covenants that it will promptly notify Buyer of any material adverse

change in its business operations and/or financial condition;

 

(b) Seller shall provide Buyer with copies of such documentation as Buyer may

reasonably request evidencing the truthfulness of the representations set forth

in Section 10, including but not limited to resolutions evidencing the approval

of this Agreement by Seller's board of directors or loan committee and copies of

the minutes of the meetings of Seller's board of directors or loan committee at

which this Agreement and the Transactions contemplated by this Agreement were

approved;

 

(c) Seller shall, at Buyer's request, take all action necessary to ensure that

Buyer will have a first or second priority security interest, as applicable, in

the Collateral, including, among other things, filing such Uniform Commercial

Code financing statements as Buyer may reasonably request;

 

(d) Seller shall notify Buyer no later than one (1) Business Day after obtaining

actual knowledge thereof, if any event has occurred that constitutes an Event of

Default with respect to Seller or any event that with the giving of notice or

lapse of time, or both, would become an Event of Default with respect to Seller;

 

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<PAGE>

(e) Seller covenants that each Mortgage Loan subject to this Agreement shall be

serviced by an approved servicer in good standing with the Agencies;

 

(f) Seller covenants to provide Buyer with a copy of any material changes to

Seller's underwriting guidelines prior to the purchase of any such Mortgage Loan

hereunder;

 

(g) Seller covenants, upon request of Buyer after the occurrence of a Collateral

Deficit, to enter into hedging transactions with respect to fixed rate Purchased

Mortgage Loans in order to protect adequately, in the reasonable judgment of

Seller against interest rate risks;

 

(h) Seller covenants to provide Buyer on the first Business Day of each month,

either by direct modem electronic transmission or via a computer diskette, the

Collateral Information in computer readable format with respect to all Purchased

Mortgage Loans then subject to Transactions; and

 

(i) Seller covenants to provide Buyer with the following financial and reporting

information:

 

(i) Within 90 days after the last day of its fiscal year, Seller's audited

consolidated and consolidating statements of income and statements of

changes in cash flow for such year and balance sheets as of the end of such

year in each case presented fairly in accordance with GAAP, and

accompanied, in all cases, by an unqualified report of Peat Marwick or

another nationally recognized independent certified public accounting firm

consented to by Buyer (which consent shall not be unreasonably withheld);

 

(ii) Within 60 days after the last day of the first three fiscal quarters

in any fiscal year, Seller's consolidated and consolidating statements of

income and statements of changes in cash flow for such quarter and balance

sheets as of the end of such quarter presented fairly in accordance with

GAAP;

 

(iii) Within 30 days after the last day of each calendar month an officer's

certificate from a senior officer of the Seller addressed to Buyer

certifying that, as of the last day such calendar month, (x) Seller is in

compliance in all material respects with all of the terms, conditions and

requirements of this Agreement, and (y) no Event of Default exists; and

 

(iv) As soon as available, copies of any proxy statements, financial

statements, and reports which Seller sends to its stockholders, and copies

of any regular, periodic and special reports, and all registration

statements under the Securities Act of 1933, as amended, which it files

with the Securities and Exchange Commission or any government authority

which may be substituted therefor, or with any national securities

exchange.

 

13. EVENTS OF DEFAULT

 

(a) If any of the following events (each an "Event of Default") occur, Seller

and Buyer shall have the rights set forth in Section 14, as applicable:

 

(i) Seller or Buyer fails to satisfy or perform any material obligation or

covenant under this Agreement;

 

(ii) an Act of Insolvency occurs with respect to Seller or Buyer;

 

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<PAGE>

(iii) any representation made by Seller or Buyer shall have been incorrect or

untrue in any material respect when made or repeated or deemed to have

been made or repeated;

 

(iv) Seller or Buyer shall admit its inability to, or its intention not to,

perform any of its obligations hereunder;

 

(v) any governmental, regulatory, or self-regulatory authority, including,

but not limited to, the Agencies, takes any action to remove, limit,

restrict, suspend or terminate the rights, privileges, or operations of

the Seller or any of its Affiliates, including suspension as an issuer,

lender or seller/servicer of mortgage loans, which suspension has a

material adverse effect on the ordinary business operations of Seller

or Seller's Affiliate, and which continues for more than 24 hours;

 

(vi) Seller dissolves, merges or consolidates with another entity (unless

(A) it is the surviving party or (B) the entity into which it merges

has equity and a market value of at least that of the Seller

immediately prior to such merger and such entity expressly assumes the

obligations of the Seller at the time of such merger), or sells,

transfers, or otherwise disposes of a material portion of its business

or assets other than in the ordinary course of its business;

 

(vii) Buyer, in its good faith judgment, believes that there has been a

material adverse change in the business, operations, corporate

structure or financial condition of Seller or that Seller will not meet

any of its obligations under any Transaction pursuant to this Agreement

or any other agreement between the parties;

 

(viii) Seller is in default under any other agreement to which it is a party,

provided, however, such a default shall not constitute an Event of

Default if the exercise of such remedies as are available to Seller's

counterparty with respect to such default would not result in a

material adverse change in the business operations or financial

condition of the Seller;

 

(ix) A final judgment by any competent court in the United States of America

for the payment of money in an amount of at least $500,000 is rendered

against the Seller, and the same remains undischarged or unpaid for a

period of sixty (60) days during which execution of such judgment is

not effectively stayed;

 

(x) This Agreement shall for any reason cease to create a valid, first

priority security interest in any of the Purchased Mortgage Loans

purported to be covered hereby;

 

(xi) A Market Value Collateral Deficit or Securitization Value Collateral

Deficit occurs with respect to Seller or Buyer, as applicable, and is

not eliminated within the time period specified in Section 4(b); or

 

(xii) An "event of default" has occurred pursuant to a Hedge.

 

(b) In making a determination as to whether an Event of Default has occurred,

the parties hereto shall be entitled to rely on reports published or broadcast

by media sources believed by such

 

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<PAGE>

party to be generally reliable and on information provided to it by any other

sources believed by it to be generally reliable, provided that such party

reasonably and in good faith believes such information to be accurate and has

taken such steps as may be reasonable in the circumstances to attempt to verify

such information.

 

14. REMEDIES

 

(a) If an Event of Default occurs with respect to Seller, the following rights

and remedies are available to Buyer:

 

(i) 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), the

Repurchase Date for each Transaction hereunder shall be deemed

immediately to occur,

 

(ii) If Buyer exercises or is deemed to have exercised the option referred to

in subsection (a)(i) of this Section,

 

(A) Seller's obligations hereunder to repurchase all Purchased Mortgage

Loans in such Transactions shall thereupon become immediately due and

payable,

 

(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 as so increased, (x) the greater

of the Prime Rate or the Pricing Rate for each such Transaction to (y)

the Repurchase Price for such Transaction as of the Repurchase Date as

determined pursuant to subsection (a)(i) of this Section (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 Mortgage Loans applied to the Repurchase Price

pursuant to subsection (a)(xii) of this Section, and (III) any amounts

applied to the Repurchase Price pursuant to subsection (a)(iii) of this

Section), and

 

(C) all Income actually received by the Buyer or its designee (including

the Custodian) pursuant to Section 5 shall be applied to the aggregate

unpaid Repurchase Price owed by Seller.

 

(iii) After one Business Day's notice to Seller (which notice need not be

given if an Act of Insolvency shall have occurred, and which may be the

notice given under subsection (a)(i) of this Section), Buyer may (A)

immediately sell, without notice or demand of any kind, at a public or

private sale and at such price or prices Buyer may reasonably deem

satisfactory any or all Purchased Mortgage Loans subject to a

Transaction hereunder or (B) in its sole discretion elect, in lieu of

selling all or a portion of such Purchased Mortgage Loans, to give

Seller credit for such Purchased Mortgage Loans in an amount equal to

the Market Value of the Purchased Mortgage Loans against the aggregate

unpaid Repurchase Price and any other amounts owing by Seller hereunder.

The proceeds of any disposition of Purchased Mortgage Loans shall be

applied first to the reasonable costs and expenses incurred by Buyer in

connection with Seller's default; second to consequential damages,

 

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<PAGE>

including but not limited to costs of cover and/or related hedging

transactions; third to the Repurchase Price; and fourth to any other

outstanding obligation of Seller to Buyer or its Affiliates.

 

(iv) The parties recognize that it may not be possible to purchase or sell

all of the Purchased Mortgage Loans on a particular Business Day, or

in a transaction with the same purchaser, or in the same manner

because the market for such Purchased Mortgage Loans may not be

liquid. In view of the nature of the Purchased Mortgage Loans, the

parties agree that liquidation of a Transaction or the underlying

Purchased Mortgage Loans does not require a public purchase or sale

and that a good faith private purchase or sale shall be deemed to have

been made in a commercially reasonable manner. Accordingly, Buyer may

elect, in its sole discretion, the time and manner of liquidating any

Purchased Mortgage Loan and nothing contained herein shall (A)

obligate Buyer to liquidate any Purchased Mortgage Loan on the

occurrence of an Event of Default or to liquidate all Purchased

Mortgage Loans in the same manner or on the same Business Day or (B)

constitute a waiver of any right or remedy of Buyer. However, in

recognition of the parties' agreement that the Transactions hereunder

have been entered into in consideration of and in reliance upon the

fact that all Transactions hereunder constitute a single business and

contractual relationship and that each Transaction has been entered

into in consideration of the other Transactions, the parties further

agree that Buyer shall use its best efforts to liquidate all

Transactions hereunder upon the occurrence of an Event of Default as

quickly as is prudently possible in the reasonable judgment of Buyer.

 

(v) Buyer shall, without regard to the adequacy of the security for the

Seller's obligations under this Agreement, be entitled to the

appointment of a receiver by any court having jurisdiction, without

notice, to take possession of and protect, collect, manage, liquidate,

and sell the Collateral or any portion thereof, and collect the

payments due with respect to the Collateral or any portion thereof.

Seller shall pay all reasonable costs and expenses incurred by Buyer

in connection with the appointment and activities of such receiver.

 

(vi) 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 25, if Seller fails or refuses to perform its

obligations as set forth therein.

 

(vii) Seller shall be liable to Buyer for the amount of all expenses,

reasonably incurred by Buyer in connection with or as a consequence of

an Event of Default, including, without limitation, reasonable legal

fees and expenses and reasonable costs incurred in connection with

hedging or covering transactions.

 

(viii) Buyer shall have all the rights and remedies provided herein, provided

by applicable federal, state, foreign, and local laws (including,

without limitation, the rights and remedies of a secured party under

the Uniform Commercial Code of the State of New York, to the extent

that the Uniform Commercial Code is applicable, and the right to

offset any

 

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<PAGE>

mutual debt and claim), in equity, and under any other agreement

between Buyer and Seller.

 

(ix) 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)(i) and (iii) of this Section,

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.

 

(x) In addition to its rights hereunder, Buyer shall have the right to

proceed against any assets of Seller which may be in the possession of

Buyer or its designee (including the Custodian) including the right to

liquidate such assets and to set off the proceeds against monies owed

by Seller to Buyer pursuant to this Agreement. Buyer may set off cash,

the proceeds of the liquidation of the Purchased Mortgage Loans, any

Collateral or its proceeds, and all other sums or obligations owed by

Seller to Buyer against all of Seller's obligations to Buyer, whether

under this Agreement, under a Transaction, or under any other

agreement between the parties, or otherwise, whether or not such

obligations are then due, without prejudice to Buyer's right to

recover any deficiency. Any cash, proceeds, or property in excess of

any amounts due, or which Buyer reasonably believes may become due, to

it from Seller shall be returned to Seller after satisfaction of all

obligations of Seller to Buyer.

 

(xi) 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 Seller

might otherwise have arising from the use of nonjudicial process,

enforcement and sale of all or any portion of the Collateral, 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.

 

(xii) Buyer and Seller hereby agree that sales of the Purchased Mortgage

Loans shall be deemed to include and permit the sales of Purchased

Mortgaged Loans pursuant to a securities offering.

 

(xiii) Notwithstanding the foregoing remedies, if the Event of Default (other

than an Event of Default under Section 13(a)(xi)) arises from a breach

of any representation or warranty set forth in Sections 10(b)(iii),

(iv),(v), (vi) or (ix) or in Exhibit V attached hereto with respect to

a Purchased Mortgage Loan, then Seller may elect, subject to Buyer's

written consent (which consent shall not be unreasonably withheld or

delayed), to cure such default by repurchasing such Mortgage Loan or

substituting for such Mortgage Loan within two (2) Business Days of

such Event of Default, provided, however, that Seller shall not have

the right to make the foregoing election if such breach causes a

default with respect to Mortgage Loans that in the aggregate represent

ten percent (10%) or more of the aggregate Purchase Price of all

Purchased Mortgage Loans subject to then outstanding Transactions. The

repurchase price for any such

 

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<PAGE>

repurchase shall be the outstanding Repurchase Price of such Mortgage

Loan, as the case may be. Any such substitution shall be performed in

accordance with Section 9 of this Agreement.

 

(b) If an Event of Default occurs with respect to Buyer, the following rights

and remedies are available to Seller:

 

(i) Upon tender by Seller of payment of the aggregate Repurchase Price for

all such Transactions, Buyer's right, title and interest in all

Purchased Mortgage Loans subject to such Transactions shall be deemed

transferred to Seller, and Buyer shall deliver or cause to be

transferred all such Purchased Mortgage Loans to Seller or its designee

at Buyer's expense.

 

(ii) If Seller exercises the option referred to in subsection (b)(i) of this

Section and Buyer fails to deliver or cause to be delivered the

Purchased Mortgage Loans to Seller or its designee, after one Business

Day's notice to Buyer, Seller may (A) purchase Mortgage Loans

("Replacement Loans") that are as similar as is reasonably practicable

in characteristics, outstanding principal amounts (as a pool) and

interest rate to any Purchased Mortgage Loans that are not delivered by

Buyer to Seller or its designee as required hereunder or (B) in its

sole discretion elect, in lieu of purchasing Replacement Loans, to be

deemed to have purchased Replacement Loans at a price therefor on such

date, equal to the Market Value of the Purchased Mortgage Loans.

 

(iii) Buyer shall be liable to the Seller, and Buyer shall pay to the Seller

on demand, (A) with respect to Purchased Mortgage Loans (other than

Additional Loans), for any excess of the price paid (or deemed paid) by

Seller for Replacement Loans therefor over the Repurchase Price for

such Purchased Mortgage Loans and (B) with respect to Additional Loans,

for the price paid (or deemed paid) by Seller for the Replacement Loans

therefor. In addition, Buyer shall be liable to Seller for interest on

such remaining liability with respect to each such purchase (or deemed

purchase) of Replacement Loans calculated on a 360-day year basis for

the actual number of days during the period from and including the date

of such purchase (or deemed purchase) until paid in full by Buyer. Such

interest shall be at the greater of the Pricing Rate or the Prime Rate.

 

(iv) Buyer shall be liable to Seller for the amount of all expenses

reasonably incurred by Seller in connection with or as a consequence of

an Event of Default, including, without limitation, reasonable legal

fees and expenses and reasonable expenses incurred in connection with

covering existing hedging transactions with respect to the Purchased

Mortgage Loans.

 

(v) Seller shall have all the rights and remedies provided herein, provided

by applicable federal, state, foreign, and local laws, in equity, and

under any other agreement between Buyer and Seller, including, without

limitation, the right to offset any debt or claim.

 

(vi) Seller may exercise one or more of the remedies available to Seller

immediately upon the occurrence of an Event of Default and at any time

thereafter without notice to Buyer. All rights and remedies arising

under

 

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this Agreement as amended from time-to-time hereunder are cumulative and

not exclusive of any other rights or remedies which Seller may have.

 

15. ADDITIONAL CONDITION

 

Seller shall, on the date of the initial Transaction hereunder and, upon the

request of Buyer, on the date of any subsequent Transaction, cause to be

delivered to Buyer, with reliance thereon permitted as to any Person that

purchases the Purchased Mortgage Loan from Buyer in a repurchase transaction, a

favorable opinion or opinions of counsel with respect to the matters set forth

in Exhibit IV attached hereto.

 

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 Transactions hereunder

and (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;

provided, however, that the parties hereto acknowledge and agree that each

Purchased Mortgage Loan is identified and unique and nothing in this Agreement

should limit or reduce Buyer's obligation to deliver the Purchased Mortgage

Loans to Seller as and when provided herein.

 

17. NOTICES AND OTHER COMMUNICATIONS

 

Unless another address is specified in writing by the respective party to whom

any written notice or other communication is to be given hereunder, all such

notices or communications shall be in writing or confirmed in writing and

delivered at the respective addresses set forth in the Confirmation.

 

18. ENTIRE AGREEMENT; SEVERABILITY

 

This Agreement together with the applicable Confirmations constitutes 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 Mortgage Loans. 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. 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.

 

19. NON-ASSIGNABILITY

 

The rights and obligations of the parties under this Agreement and under any

Transaction shall not be assigned by either party without the prior written

consent of Buyer. Subject to

 

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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 or any legal or equitable right, power, remedy or claim under this

Agreement.

 

20. TERMINABILITY

 

This Agreement shall terminate upon written notice from either party to the

other to such effect, except that this Agreement shall, notwithstanding the

clause above, remain applicable to any Transaction then outstanding.

Notwithstanding any such termination or the occurrence of an Event of Default,

all of the representations and warranties hereunder (including those made in

Exhibit V) shall continue and survive.

 

21. GOVERNING LAW

 

THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE

INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF

LAW PRINCIPLES THEREOF.

 

22. CONSENT TO JURISDICTION AND ARBITRATION

 

The parties irrevocably agree to submit to the personal jurisdiction of the

United States District Court for the Southern District of New York, the parties

irrevocably waiving any objection thereto. If, for any reason, federal

jurisdiction is not available, and only if federal jurisdiction is not

available, the parties irrevocably agree to submit to the personal jurisdiction

of the Supreme Court of the State of New York, the parties irrevocably waiving

any objection thereto. Notwithstanding the foregoing two sentences, at either

party's sole option exercisable at any time not later than thirty (30) days

after an action or proceeding has been commenced, the parties agree that the

matter may be submitted to binding arbitration in accordance with the commercial

rules of the American Arbitration Association then in effect in the State of New

York and judgment upon any award rendered by the arbitrator may be entered in

any court having jurisdiction thereof within the City, County and State of New

York; provided, however, that the arbitrator shall not amend, supplement, or

reform in any regard this Agreement or the terms of any Confirmation, the rights

or obligations of any party hereunder or thereunder, or the enforceability of

any of the terms hereof or thereof. Any arbitration shall be conducted before a

single arbitrator who shall be reasonably familiar with repurchase transactions

and the secondary mortgage market in the City, County, and State of New York.

 

23. NO WAIVERS, ETC.

 

No express or implied waiver of any Event of Default by either party shall

constitute a waiver of any other Event of Default and no exercise of any remedy

hereunder by any party shall constitute a waiver of its right to exercise any

other remedy hereunder. No modification or waiver of any provision of this

Agreement and no consent by any party to a departure herefrom shall be effective

unless and until such shall be in writing and duly executed by both of the

parties hereto. Any such waiver or modification shall be effective only in the

specific instance and for the specific purpose for which it was given.

 

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24. INTENT

 

The parties understand and intend that this Agreement and each Transaction

hereunder constitute a "repurchase agreement" and a "securities contract" as

those terms are defined under the relevant provisions of Title 11 of the United

States Code, as amended.

 

25. SERVICING

 

(a) Notwithstanding the purchase and sale of the Purchased Mortgage Loans

hereby, Seller shall cause the Purchased Mortgage Loans to be serviced by an

Affiliate of Seller for the benefit of Buyer and, if Buyer shall exercise its

rights to pledge or hypothecate the Purchased Mortgage Loan prior to the related

Repurchase Date pursuant to Section 8, Buyer's assigns; provided, however, that

the obligations of such Affiliate of Seller to service the Purchased Mortgage

Loans shall cease, at Seller's option, upon the payment by Seller to Buyer of

the Repurchase Price therefor. Such Affiliate of Seller shall service the

Purchased Mortgage Loans in accordance with the servicing standards maintained

by other prudent mortgage lenders with respect to mortgage loans similar to the

Purchased Mortgage Loans.

 

(b) 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 Purchased Mortgage Loans (the "Servicing Records"). Seller grants Buyer a

security interest in all servicing fees and rights relating to the Purchased

Mortgage Loans and all Servicing Records to secure the obligation of the Seller

or its designee to service in conformity with this Section and any other

obligation of Seller to Buyer. Seller covenants to safeguard such Servicing

Records.

 

(c) Upon the occurrence and continuance of an Event of Default with respect to

Seller, Buyer may, in its sole discretion, (i) sell its right to the Purchased

Mortgage Loans on a servicing released basis or (ii) terminate the Seller as

servicer of the Purchased Mortgage Loans with or without cause, in each case

without payment of any termination fee.

 

(d) Seller shall not employ sub-servicers to service the Purchased Mortgage

Loans without the prior written approval of Buyer.

 

(e) Seller shall cause any sub-servicers engaged by Seller to execute a letter

agreement with Buyer acknowledging Buyer's security interest and agreeing that,

upon notice from Buyer (or the Custodian on its behalf) that an Event of Default

has occurred and is continuing hereunder, it shall deposit all Income with

respect to the Purchased Mortgage Loans in the account described in the second

sentence of Section 5(a).

 

26. DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS

 

The parties acknowledge that they have been advised that in the case of

Transactions in which one of the parties is an "insured depository institution"

as that term is defined in Section 1831(a) of Title 12 of the United States

Code, as amended, funds held by the financial institution pursuant to a

Transaction hereunder are not a deposit and therefore are not insured by the

Federal Deposit Insurance Corporation, the Savings Association Insurance Fund or

the Bank Insurance Fund, as applicable.

 

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27. NETTING

 

If Buyer and Seller are "financial institutions" as now or hereinafter defined

in Section 4402 of Title 12 of the United States Code ("Section 4402") and any

rules or regulations promulgated thereunder:

 

(a) All amounts to be paid or advanced by one party to or on behalf of the other

under this Agreement or any Transaction hereunder shall be deemed to be "payment

obligations" and all amounts to be received by or on behalf of one party from

the other under this Agreement or any Transaction hereunder shall be deemed to

be "payment entitlements" within the meaning of Section 4402, and this Agreement

shall be deemed to be a "netting contract" as defined in Section 4402.

 

(b) The payment obligations and the payment entitlements of the parties hereto

pursuant to this Agreement and any Transaction hereunder shall be netted as

follows. In the event that either party (the "Defaulting Party") shall fail to

honor any payment obligation under this Agreement or any Transaction hereunder,

the other party (the "Nondefaulting Party") shall be entitled to reduce the

amount of any payment to be made by the Nondefaulting Party to the Defaulting

Party by the amount of the payment obligation that the Defaulting Party failed

to honor.

 

28. MISCELLANEOUS

 

(a) Time is of the essence under this agreement and all Transactions and all

references to a time shall mean New York time in effect on the date of the

action unless otherwise expressly stated in this Agreement.

 

(b) Buyer shall be authorized to accept orders and take any other action

affecting any accounts of the Seller in response to instructions given in

writing or orally by telephone or otherwise by any person with apparent

authority to act on behalf of the Seller, and the Seller shall indemnify Buyer,

defend, and hold Buyer harmless from and against any and all liabilities,

losses, damages, costs, and expenses of any nature arising out of or in

connection with any action taken by Buyer in response to such instructions

received or reasonably believed to have been received from the Seller, except in

the case of any liabilities, losses, damages, costs or expenses resulting from

the gross negligence, bad faith or willful miosconduct of Buyer.

 

(c) If there is any conflict between the terms of this Agreement or any

Transaction entered into hereunder and the Custodial Agreement, this Agreement

shall prevail.

 

(d) If there is any conflict between the terms of a Confirmation or a corrected

Confirmation issued by the Buyer and this Agreement, the Confirmation shall

prevail.

 

(e) This Agreement may be executed in counterparts, each of which so executed

shall be deemed to be an original, but all of such counterparts shall together

constitute but one and the same instrument.

 

(f) Seller agrees to reimburse Buyer for all reasonable out-of-pocket costs and

expenses of Buyer in connection with entering into this Agreement, including,

without limitation, the reasonable fees, expenses and disbursement of counsel to

Buyer (not in excess of $15,000).

 

(g) The headings in this Agreement are for convenience of reference only and

shall not affect the interpretation or construction of this Agreement.

 

[Signature page follows.]

 

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IN WITNESS WHEREOF, the parties have entered into this Agreement as of the

date set forth above.

 

 

LEHMAN COMMERCIAL PAPER INC.,

Buyer

 

 

By: /s/ Francis X. Gilhool

------------------------------------

 

Title: Authorized Signatory

---------------------------------

 

Date: June 11, 1998

----------------------------------

 

NOVASTAR FINANCIAL, INC.,

Seller

 

By: /s/ David J. Lee

------------------------------------

 

Title: Vice President

---------------------------------

 

Date: June 11, 1998

----------------------------------

 

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