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HomeMy WebLinkAbout1984-07-17; City Council; 7820 Exhibit 07; OFFICIAL REQUEST TO STATE OF CALIFORNIA FOR MORTGAGE REVENUE BOND ALLOCATION Exhibit 07kh 8 78D WH \bir-7 FJJLfj -71 \-$%!% [NAME OF LENDING INSTITUTION] as Lending Institution and UNITED GUARANTY RESIDENTIAL INSURANCE COMPANY OF IOWA as Compliance Agent and FIRST INTERSTATE BANK OF CALIFORNIA as Trustee and CITY OF CARLSBAD, CALIFORNIA as Issuer ----________________---_---------------------------------------- -----___-___________---_----------------------------_----------- MORTGAGE SALE AND SERVICE AGREEMENT Dated as of June 1, 1985 CITY OF CARLSBAD, CALIFORNIA SINGLE RESIDENTIAL MORTGAGE REVENUE BONDS BONDS ISSUE OF 1985 ___--_______________--------_----_------------------------------ ____________________--_----------------------------------------- TABLE OF CONTENTS (This Table of Contents is for convenience of reference only and is not a part of this Agreement). ARTICLE I Page Definitions ............................................. 2 ARTICLE I1 REPRESENTATIONS Section 2.01. Representations, Warranties and Covenants Section 2.02. Representations, Warranties and Covenants Section 2.03 Representations, Warranties and Covenants Section 2.04 Representations, Warranties and Covenants of the Issuer ......................... 9 of the Lending Institution ............ 10 of the Trustee ........................ 12 of the Compliance Agent ............... 13 ARTICLE I11 ISSUANCE OF BONDS, APPLICATION OF BOND PROCEEDS Section 3.01. Agreement to Issue Bonds; Application of Bond Proceeds .......................... 15 Section 3.02. Payment of Cost of Issuance of Bonds ..... 15 Section 3.03. Special Arbitrage Certifications ........ 15 Section 3.04. Limited Liability ....................... 16 ARTICLE IV COMMITMENTS TO PURCHASE LOANS Section 4.01. Commitment to Buy and Sell ............... 16 Section 4.02. Loan Amount ............................. 18 Section 4.03. Loan Submission ......................... 18 Section 4.04. Closings ................................ 19 Section 4.05. Closing Documents ....................... 19 (i) Section 4.06. Loan File ............................... 20 Section 4.07. Defective Documents ..................... 20 Section 4.08. Representations, Warranties and Covenants of Lending Institution Concerning Loans ...................... 21 Section 4.10. Report Re Loans ......................... 27 Section 4.09. Permitted Buydowns of Interest Rate ..... 26 ARTICLE V ADMINISTRATION AND SERVICING OF LOANS Section 5.01. Lending Institution to Act as Servicer ... 28 Section 5.02. Collection of Certain Loan Payments; Section 5.03. Collection of Taxes, Assessments and Section 5.04. Transfers and Permitted Withdrawals Receipts Account ...................... 29 Similar Items; Loan Service Account .... 30 from Issuer's Receipts Account; Requisitions for Reimbursements ....... 30 Section 5.05. Claims Against Insurer of Loans ......... 32 Section 5.06. Maintenance of Standard Hazard Insurance and Flood Insurance ......... 33 Section 5.07. Maintenance of Earthquake Damage Insurance ............................. 34 Section 5.08. Maintenance of Special Hazard Insurance Section 5.09. Maintenance of Errors and Omissions Section 5.10. Maintenance of Private Mortgage Insurance Section 5.11. Transfers and Assumptions ............... 36 Section 5.12. Realization Upon Defaulted Loans ........ 38 Section 5.13. Issuer to Cooperate; Release of Loan Files ................................. 38 Section 5.14. Reports to Trustee and Issuer and Receipts Account Statements ....... 38 Section 5.15. Prohibition of Discrimination; Report to Issuer ............................. 39 Section 5-16. Certain Verifications ................... 40 Policy ................................ 34 Insurance Policy and Fidelity Bond .... 35 Policy ................................ 35 (ii) ARTICLE VI LENDING INSTITUTION Section 6.01. Merger or Consolidation of the Lending Institution ........................... 40 Section 6.02. Lending Institution Not to Resign ....... 40 ARTICLE VI1 CAUSES PERMITTING TERMINATION OF LENDING INSTITUTION Section 7.01. Causes of Termination Defined ........... 41 Section 7.02. Remedies ................................ 43 Section 7.03. Trustee to Act; Appointment of Successors ......................... 44 Section 7.04. Notification of Bondholders ............. 44 Section 7.05. No Remedy Exclusive ..................... 44 Section 7.06. Agreement to Pay Attorneys' Fees, Costs and Other Expenses .............. 45 ARTICLE VI11 COMPLIANCE AGENT Section 8.01. Compensation, Obligations, Duties and Responsibilities of Compliance Agent .. 45 Section 8.02. Liability of Compliance Agent ........... 48 Section 8.03. Compliance Agent Not to Resign .......... 48 Section 8.04. Termination by Issuer ................... 49 (iii) 6ARTICLE IX MISCELLANEOUS PROVISIONS Section 9-01. Amendments, Changes and Modifications .... 49 Section 9-02. Changes in Applicable Laws ............... 49 Section 9.03. Recordation of Agreement ................. 49 Section 9.04. Limitation on Rights of Bondholders ...... 50 Section 9.05. Litigation Regarding Acceleration Clauses. 50 Section 9-06. Purchase of Bonds ........................ 50 Section 9.07. Governing Law 50 Section 9-08. Counterparts ............................. 50 Section 9.09. Notices 50 Section 9.10. Severability ............................. 51 Section 9.11. Further Assurances and Corporate Instruments 51 Section 9.12. Term of Agreement ........................ 51 ............................ .................................. ........................... Testimonium Signatures and Seals EXHIBIT "A" Mortgage File EXHIBIT "Brr Loan Submission Voucher EXHIBIT "C" Lender's Certificate EXHIBIT ''D" Opinion of Lender's Counsel EXHIBIT "E" Riders to Note EXHIBIT 'IF" Riders to Deed of Trust EXHIBIT "G" Buyer's Affidavit EXHIBIT "H" Seller's Affidavit (iv) MORTGAGE SALE AND SERVICE AGREEMENT THIS MORTGAGE SALE AND SERVICE AGREEMENT (the "Agreement") , dated as of June 1, 1985, is among California (the "Trustee") , United Guaranty Residential Insurance Company of Iowa (the "Compliance Agent") , and the City of Carlsbad, California (the "Issuer"). (the "Lending Institution"), First Interstate Bank of WITNESSETH WHEREAS, the Issuer has adopted a home mortgage finance program (the "Program") pursuant to Part 5 of Division 31 of the Health and Safety Code of the State of California (the "Act" ) ; WHEREAS, the Issuer has promulgated rules and regulations with respect to purchasing mortgage loans originated and made by qualified mortgage lenders to mortgagors to purchase residences within its boundaries; WHEREAS, the Issuer proposes to issue, sell and deliver its Single Family Residential Mortgage Revenue Bonds, Issue of 1985 (the "Bonds") , pursuant to a purchase contract (the "Purchase Contract") between the Issuer and PaineWebber Incorporated (the "Underwriters"), for the purpose of providing funds to purchase mortgage loans pursuant to the Program; WHEREAS, the Issuer intends to enter into an indenture between itself and the Trustee for the issuance of the Bonds (the "Indenture"), pursuant to which the Trustee will be empowered to purchase on behalf of the Issuer mortgage loans which have been originated by the Lending Institution and reviewed by the Compliance Agent, subject, among other things, to certain of the terms and conditions hereinafter set forth; WHEREAS, the Issuer, the Trustee, the Compliance Agent, and the Lending Institution are desirous of setting forth the terms and conditions upon which the Lending Institution will originate and service mortgage loans under the Program; and WHEREAS, the Issuer has found and declared that the purchase of Loans under the terms of this Agreement and the Program will both further the purposes of the Act and serve the public purpose of providing financing for decent, safe and sanitary housing affordable to persons and families in the lower end of the purchasing spectrum; NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, and for and in consideration of the mutual promises, representations and agreements herein contained, hereby agree as follows: ARTICLE I DEFINITIONS Unless the context clearly otherwise requires, each capitalized word or phrase appearing herein which is defined in the Indenture shall have the same meaning in this Agreement as is given it in the Indenture. In addition thereto, unless the context clearly requires otherwise, the following terms shall have the following respective meanings: "Acquisition Cost" means the cost of acquiring a Residence from the seller as a completed residential unit, including: (i) all amounts paid, either in cash or in kind, by the purchaser (or a related party or for the benefit of the purchaser) to the seller (or a related person or for the benefit of the seller) as consideration for the Residence; (ii) if the Residence is incomplete, the reasonable cost of completing it (so that occupancy thereof is legally permitted); and, (iii) if the Residence is purchased subject to a ground rent, the capitalized value of the ground rent calculated using a discount rate equal to the Yield on the Bonds; but exclusive of: (i) usual and reasonable settlement or financing costs, (but only to the extent that such amounts do not exceed the usual and reasonable costs which would be paid by the purchaser where financing is not provided through bonds the interest on which is excludable from the gross income of the recipient for federal income tax purposes), (ii) the value of services performed by the mortgagor or members of his or her family in completing the Residence, and (iii) the cost of land which has been owned by the mortgagor for at least two years before the date on which construction of the Residence begins. "Average Area Purchase Price" means the most current average purchase price safe harbor limitations from time to time published by the Department of the Treasury for the San Diego Primary Metropolitan Statistical Area, stated separately with respect to residences which have not been previously occupied ("Average Area Purchase Price - New") and residences which have been previously occupied ("Average Area Purchase Price - Existing"); provided, however, that at its option or in the absence of such safe harbor limitations, the average area purchase price shall be determined by the Issuer in accordance with the Code. 05/30/85 55 11p/2062/O7 -2 - "Bond Reserve Fund" means the fund by that name created pursuant to the Indenture. "Closing" means a closing held pursuant to Section 4.04 of this Agreement at which a Loan is sold, without recourse, by the Lending Institution to the Trustee on behalf of the Issuer. "Closing Date" means the date on which a Closing is held pursuant to this Agreement. "Code" means the Internal Revenue Code of 1954, as amended, and all regulations and rulings promulgated thereunder. "Deed of Trust" means the instrument securing a Loan. Developer" means any one of the persons signing a If Developer Agreement who has designated the Lending Institution as the financial institution to originate and service Loans for its Developer Reserved Single Family Residences and who has not replaced the Lending Institution as such financial institution. "Developer Agreement" means any of the agreements between a Developer and the Issuer under which the Developer agrees to provide Developer Reserved Single Family Residences, and all amendments or supplements thereto. "Developer Fees" means the fees paid to the Issuer by the Developers pursuant to the Developer Agreements. "Developer Reserved Single Family Residences" means Residences which are anticipated to be sold by a Developer pursuant to a Developer Agreement. "Earthquake Damage Insurance" means an insurance policy, or endorsement thereto, issued by a Qualified Insurer, which provides extended coverage against earthquake loss in an amount at least equal to the principal balance owing on such Loan, but not less than 90 percent of the insurable value of the applicable Residence based upon the replacement cost thereof. Such insurance may provide a deductible not to exceed 5 percent per occurrence. "Errors and Omissions Insurance Policy" means a standard form insurance policy, in form and substance required of mortgage sellers/servicers by the FHLMC or the FNMA insuring against losses from errors or omissions in the conduct of a business. Existing Residence" means a Residence which has been ll previously occupied. 05/30/85 5511p/2062/07 -3- "FHLMC" means the Federal Home Loan Mortgage Corporation. "Fidelity Bond" means a standard form fidelity bond, in form and substance required of mortgage sellers/servicers by the FNMA or the FHLMC. "First Time Homebuyer" means an individual who has not had a present ownership interest (within the meaning of the Code) in his or her principal residence at any time during the three year period ending on the date he or she executes a Note. "Flood Insurance Policy" means insurance in the form of a standard federal homeowner's flood insurance policy or in the form of a conventional flood insurance policy in an amount at least equal to the principal balance of the Loan secured by the insured Residence, but not less than 90 percent of the insurable value of such Residence based upon the replacement cost thereof. "FNMA" means the Federal National Mortgage Association. Force Majeure'' means any cause or event not within the control of a party hereto which prevents that party from performing any of its obligations hereunder, including, without limitation, the following: acts of God; strikes, lockouts or other industrial disturbances; acts of public enemies; orders or restraints of any kind of the government of the United States of America or of the State or any of their departments, agencies or officials, or any civil or military authority; insurrections; riots; landslides; adverse weather conditions; earthquakes; fires; storms; droughts; floods; explosions; and breakage or accident to transmission wires, machinery, transmission pipes or canals. 11 "Household Income" means the current adjusted gross income, for purposes of federal income taxation, of a potential mortgagor, together with the current adjusted gross income of all persons over the age of 18 who reside or intend to reside with such mortgagor in the same dwelling unit, but exclusive of the income of any co-signer of a Note who does not reside or intend to reside therein, as evidenced by documentation satisfactory to the Lending Institution. Insurance Expenses" means expenses incurred by the Lending I1 Institution which are recoverable under any of the insurance policies required to be maintained hereunder, exclusive of amounts representing recoveries of principal of and interest on any Loan. "Insurance Proceeds" means payments received by the Lending Institution under any insurance policy with respect to a Loan. 05/30/85 5 5 1 lp/2 0 62/0 7 -4- Liquidation Expenses" means expenses incurred by the Lending Institution in connection with the liquidation of any defaulted Loan and not recovered under the applicable Private Mortgage Insurance Policy, exclusive of amounts representing recoveries of principal of and interest on any Loan. !I "Liquidation Proceeds'' means amounts (other than Insurance Proceeds) received by the Lending Institution in connection with the liquidation of any defaulted Loan, whether through trustee's sale, foreclosure sale or otherwise. Loan" means a loan evidenced by a Note secured by a first I1 lien Deed of Trust which meets the requirements of Section 4.08 hereof and which the Trustee, on behalf of the Issuer, has purchased or intends to purchase from the Lending Institution pursuant to this Agreement. "Loan File" means the documents listed in Exhibit A to this Agreement as required to be delivered by the Lending Institution for each Closing pertaining to each Loan it originates. "Loan Principal Prepayments" means all amounts representing recovery of the principal amount of any Loan (exclusive of regularly scheduled principal payments) as a result of (1) any prepayment of all of the principal amount of any Loan, including any prepayment fee, premium or other such additional charge, less the amount retained by the Lending Institution as servicer of such Loan as additional compensation on account of such prepayment; (2) the sale, assignment or other disposition of any Loan; (3) the acceleration of any Loan (on account of default or any other cause) or the foreclosure or sale under deed of trust or other proceedings taken in the event of default of any Loan; and (4) compensation for losses incurred with respect to any Loan from the proceeds of condemnation, title insurance, hazard insurance, mortgage insurance or guarantees (whether received in the form of moneys or as debentures or certificates issued pursuant to a contract of insurance), exclusive of amounts recovered in respect of such losses to the extent required to be otherwise applied pursuant to the applicable contract of insurance. "Loan Submission Voucher" means the voucher in the form of Exhibit B to this Agreement which is submitted to the Compliance Agent pursuant to Section 4.03 of this Agreement. "Loan-to-Value Ratio" means the ratio of the original principal amount of a Loan to the lesser of the initial appraised value or the purchase price of a Residence. 05/30/85 5 5 1 lp/2 062/07 -5- Maximum Acquisition Cost" means an amount which does not tt exceed 110 percent of the Average Area Purchase Price - New in the case of New Residence or of the Average Area Purchase Price - Existing in the case of an Existing Residence. The Maximum Acquisition Cost shall be determined as of the earlier of the date the Lending Institution makes a commitment to provide financing (or, in the case of an assumption of an existing Loan, the date the Lending Institution approves the assumption) or the date the Residence is purchased. "Median Household Income" means the highest of (i) statewide median household income for the State as determined by the Issuer, (ii) countywide median household income for the County of San Diego as determined by the Issuer, or (iii) median family income for the San Diego Primary Metropolitan Statistical Area for a family of four, as published by the United States Department of Housing and Urban Development, as may be adjusted from time to time by the Issuer, or as may be otherwise reasonably determined by the Issuer in accordance with the Act. "Mortgage Loan Interest Rate" means the annual rate of interest, as specified in the Note (exclusive of any fee or charge for mortgage insurance), of a Loan when held by the Trustee on behalf of the Issuer, which rate shall be specified by the Issuer in a Notice of Fee, Rate and Allocation. "New Residence" means a Residence which has not been previously occupied. Note" means the promissory note executed by a mortgagor to 1" evidence such mortgagor's obligation to repay a Loan. "Notice Address" means: (a) As to the Issuer: City of Carlsbad 1200 Elm Avenue Carlsbad, California 92008 Attention: City Clerk With a copy to: City of Carlsbad 1200 Elm Avenue Carlsbad, California 92008 Attention: City Attorney 05/30/85 5511p/2062/07 -6- (b) As to the Trustee: I First Interstate Bank of California Trust Division 707 Wilshire Boulevard, 10th Floor Los Angeles, California 90017 (c) As to the Compliance Agent: United Guaranty Residential Insurance Company of Iowa 201 North Elm Street Greensboro, North Carolina 27401 Greensboro, North Carolina 27420 Attention: Mortgage Related Securities Department or P.O. Box 21367 (d) As to the Lending Institution: Attention: "Notice of Fee, Rate and Allocation'' means a notice from the Issuer to the Trustee, the Compliance Agent, the Lending Institution, and the Developers specifying the Final Developer Fee, the Mortgage Loan Interest Rate, any reduction in the Developers' Reservation, and the Yield on the Bonds, which notice shall be provided within thirty days after the issuance of the Bonds. "Private Mortgage Insurance Policy" means an insurance policy or policies issued by a Private Mortgage Insurer under which the coverage is substantially the same as the coverage provided by the United Guaranty Residential Insurance Company of Iowa's Full Coverage Master Policy (100% Private Mortgage Insurance) with Non-Monetary Default, Advances and Advance Payments Endorsements, all in the form submitted to the Trustee by United Guaranty Residential Insurance Company of Iowa as of the date of issuance of the Bonds. "Private Mortgage Insurer" means United Guaranty Residential Insurance Company of Iowa, for so long as United Guaranty Residential Insurance Company of Iowa (i) is legally qualified to write Private Mortgage Insurance Policies in the State, (ii) underwrites Private Mortgage Insurance Policies for the Program in a manner consistent with its representations to the Issuer, and (iii) maintains a credit rating which does not cause a reduction in the rating of the Bonds assigned by Standard and Poor's Corporation as of the issuance of the Bonds; and thereafter, at the option of the Issuer, "Private 05/30/85 55 1 lp/2 062/07 -7- Mortgage Insurer" shall mean any other insurer which meets the criteria set forth in clauses (i) and (ii) hereof and which maintains a credit rating which does not cause a reduction in the rating of the Bonds assigned by Standard & Poor's Corporation immediately prior to such insurer's participation in the Program as a private mortgage insurer, and which has been approved by the Issuer to issue mortgage insurance under the Program, other than the Federal Housing Administration, the Veterans Administration or an instrumentality of the State. "Program Fund" means the fund by that name created pursuant to the Indenture and into which certain Bond proceeds and Developer Fees will be deposited and used to purchase Loans. "Qualified Insurer" means any properly licensed insurance company qualified to do business in and write the applicable form of insurance in the State and which is rated B-6 or better by Best's Insurance Reports (Property-Casualty). Receipts Account" means the account by that name created 11 and maintained for the Issuer by the Lending Institution pursuant to Section 5.02 of this Agreement and into which shall be deposited all payments and collections received with respect to Loans serviced by the Lending Institution, except the Service Fee, unless it is the Lending Institution's practice to calculate its Service Fee at the time it remits the balance of the Receipts Account to the Trustee. "Residence" means real property and improvements thereon consisting of a single family detached or attached (condominium, rowhouse, townhouse) residential unit (but not including a mobile home, that is, a residence transportable in one or more sections built on a permanent chassis) which can reasonably be expected to become the principal residence of the mortgagor within a reasonable period of time (which shall not exceed 60 days) after the Loan is made to the mortgagor and which is located within the corporate limits of the Issuer; provided, however, that no condominium unit in a structure more than four stories in height shall be considered to be a Residence. "Revenue Fund" means the account by that name created pursuant to the Indenture. "Service Fee" means a fee payable to the Lending Institution for servicing of Loans in an amount equal to a monthly fee of 1/12 of 0. percent of the unpaid balance of each Loan as of the day preceding the last day on which a scheduled payment on the Loan was due. 05/30/85 5511p/2062/'07 -8- "Servicing Officer" means any officer of the Lending Institution involved in, or responsible for, the administration and servicing of the Loans, whose name appears on a list of servicing officers furnished to the Issuer, the Trustee and the Compliance Agent by the Lending Institution, as such list may from time to time be amended. "Special Hazard Insurance Policy" means a special hazard insurance policy or any replacement policy obtained by the Trustee pursuant to Section 5.08 of this Agreement. "Standard Hazard Insurance" means insurance, issued by a Qualified Insurer, as described in Section 5.06 herein. "State" means the State of California. "Uninsured Cause" means any cause of damage to property subject to a Loan, the complete restoration of which is not fully reimbursable by the insurance policies required to be maintained pursuant to Section 5.06 or 5.07 of this Agreement. "Yield on the Bonds" means the yield on the Bonds as determined by the Issuer in accordance with the Code and as specified by the Issuer in a Notice of Fee, Rate, and Allocation. ARTICLE I1 REPRESENTATIONS Section 2.01. Representations, Warranties and Covenants of the Issuer. The Issuer represents and warrants to, and covenants with, the Lending Institution, the Compliance Agent and the Trustee that: (a) The Issuer is a municipal corporation of the State, duly organized and existing under the Constitution and laws of the State. Pursuant to the Act, the Issuer has authorized the execution and delivery of this Agreement, the Indenture, and the Developer Agreements. (b) The Issuer has complied or intends to comply with all of the provisions of the Constitution and laws of the State including the Act, and has or will have full power and authority to consummate all transactions contemplated by this Agreement, the Developer Agreements, the Indenture, and any and all other agreements relating thereto. (c) To accomplish the foregoing, the Issuer proposes to issue the Bonds following the execution of this Agreement on the terms and bases set forth in the Indenture and to use the proceeds thereof as specified in this Agreement, the Developer Agreements and the Indenture. 05/30/85 5511p/2062/07 -9- (d) No officer or official of the Issuer has any prohibited interest, as defined by the applicable laws of the State, in the Lending Institution or in the transactions contemplated by this Agreement. (e) The Issuer will make any and all findings and determinations required or permitted to be made by it pursuant to this Agreement in good faith and with due diligence. Section 2.02. Representations, Warranties and Covenants of Lending Institution. The Lending Institution represents and warrants to, and covenants with, the Issuer, the Trustee, the Compliance Agent and, in order to induce the Underwriters to enter into the Purchase Contract, the Underwriters that: (a) It is (i) a duly organized and existing mortgage banking corporation or other financial institution which customarily provides servicing and origination of home mortgages, and is authorized to do business in the State, or (ii) a duly organized and existing federal or state savings and loan association authorized to do business in the State, or (iii) a duly organized and existing federal or state bank authorized to do business in the State; and it is either a FNMA or FHLMC approved seller/servicer. (b) It will, during the term of this Agreement, remain a financial institution subject to supervision and examination by state or federal authorities (if currently subject to such supervision and examination) as applicable, will not make a change in the character of its business which would materially adversely affect its performance hereunder, will remain in good standing and qualified to do business under the laws of the United States of America or the state of its then state of organization and of the State, will not dissolve or otherwise dispose of all or substantially all of its assets and will not voluntarily consolidate with or merge into any other entity or permit one or more other entities to consolidate with or merge into it; provided, that it may, without violating the agreement contained in this subsection, consolidate with or merge into another financial institution, or permit one or more financial institutions to consolidate with or merge into it, or sell or otherwise transfer to another such financial institution all or substantially all of its assets as an entirety and thereafter dissolve, provided that the surviving, resulting, or transferee financial institution, as the case may be, (i) shall be subject to the supervision and examination of state or federal authorities, to the extent applicable, (ii) shall be a FNMA 05/30/85 5 5 1 lp/2 0 62/07 -10- or FHLMC approved seller/servicer, (iii) after giving effect to such transaction, shall have a net worth substantially equal to or greater than that of such Lending Institution immediately prior to such transaction, and (iv) shall assume in writing all of the obligations of such Lending Institution under this Agreement (in the case of a sale of all or substantially all of such Lending Institution's assets, the Trustee, on behalf of the Issuer, shall release such Lending Institution in writing from all liability hereunder, concurrently with and contingent upon such assumption). (c) It has the power to execute, deliver and perform, and to enter into the transactions contemplated by, this Agreement, and has duly authorized the execution, delivery and performance of this Agreement. (d) The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby, and the fulfillment of or compliance with the terms and conditions of this Agreement, do not and will not conflict with or result in a breach of its charter or bylaws or any of the terms, conditions or provisions of any legal restriction or any agreement or instrument to which it is now a party or by which it is bound, or constitute a default (or constitute, with notice or lapse of time, or both, a default) under any of the foregoing. (e) It will not knowingly take any action or permit any action which is within its control to be taken which would to its knowledge impair the exemption from federal income taxation of interest on the Bonds. (f) The information, if any, concerning the Lending Institution under the caption "Lending Institution" in the preliminary Official Statement of the Issuer relating to the Bonds does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading. (9) It will furnish to the Issuer and the Under- writers a letter and an opinion of counsel respectively, dated the date of the issuance of the Bonds, in sub- stantially the forms of Exhibits C and D hereto. 05/30/85 55 1 lp/2 062/07 -11- Section 2.03. Representations, Warranties and Covenants of Trustee. The Trustee represents and warrants to, and covenants with, the Lending Institution, the Compliance Agent, the Issuer and, in order to induce the Underwriters to enter into the Purchase Contract, the Underwriters that: (a) The Trustee has been duly organized under the laws of the State of California and is validly existing as a banking association, with full corporate power to own its properties and conduct its business; (b) This Agreement has been duly authorized, executed and delivered by the Trustee, and, when executed and delivered by the Issuer, the Compliance Agent and the Lending Institution, will constitute a legal, valid and binding obligation of the Trustee enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, or other laws affecting creditors' rights generally or by equitable principles if equitable remedies are sought; (c) All corporate proceedings legally required to be taken by the Trustee in connection with the authorization and execution of this Agreement and the consummation of the transactions contemplated hereby and related hereto, and to the best of its knowledge, all approvals, authorizations, consents or other orders of state or federal regulatory agencies, public boards or bodies, if any, as may be legally required to be obtained by the Trustee prior to the date of this Agreement with respect to any or all of such matters, have been taken or obtained; (d) The Trustee has full legal authority to engage in the activities covered by this Agreement; and, furthermore, the execution and delivery of this Agreement and compliance with the terms, conditions and provisions hereof will not conflict with or result in a breach of any of the terms, conditions or provisions of the charter or bylaws of the Trustee or any agreement or instrument to which it is a party or by which it is bound, or to the best of its knowledge, any law or regulation or administrative decree or order to which it is subject, or constitute a default (or constitute, with notice or lapse of time, or both, a default) thereunder; (e) The Trustee is not in default with respect to any order or decree of any court, or any order, regulation or demand of any federal, state, municipal or governmental agency, which default might have consequences that would 05/30/85 55 1 lp/2 062/07 -12- materially and adversely affect the operation of the Trustee or its properties with respect to its duties and obligations contemplated by this Agreement; (f) The Trustee is not a party to or bound by any agreement or instrument or subject to any charter or any other corporate restriction or any judgment, order, writ, injunction, or decree which now or in the future may materially and adversely affect -the ability of the Trustee to perform its obligations under this Agreement or which require the consent of any third person to the execution of this Agreement or the consummation of the transactions contemplated hereby; (9) The Trustee is, or has a wholly-owned mortgage banking subsidiary which is, a seller/servicer approved by the FNMA or the FHLMC for conventional loans, and it shall maintain its standing as such; (h) The Trustee will report, as more fully set forth in this Agreement, information relating to the Loans to the Issuer and the Lending Institution and will do and perform every act and thing which may be necessary or required to perform its duties under this Agreement; (i) No litigation is pending or, to the best of the Trustee's knowledge, threatened against the Trustee which would prohibit its entering into this Agreement or consummating the transactions Contemplated hereby. Section 2.04. Representations, Warranties and Covenants of the Compliance Agent. The Compliance Agent represents and warrants to, and covenants with, the Lending Iqstitution, the Trustee, the Issuer and, in order to induce the Underwriters to enter into the Purchase Contract, the Underwriters that: (a) The Compliance Agent is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation, is duly qualified and in good standing to transact insurance business in the State, and possesses all requisite authority, power, licenses, permits and franchises to conduct any and all such business contemplated by, and to execute, deliver, and comply with its obligations under the terms of, this Agreement, the execution, delivery and performance of which have been duly authorized by all necessary corporate action. (b) The execution and delivery of this Agreement by the Compliance Agent in the manner contemplated herein and the performance and compliance with the terms hereof by it will not violate its certificate or articles of incorporation or bylaws, or any laws which could have any 05/30/85 55 1 lp/2 062/07 -13- material adverse effect whatsoever upon the validity, performance or enforceability of any of the terms of this Agreement applicable to the Compliance Agent and will not constitute a material default (or constitute, with notice or lapse of time, or both, a default) under, or result in the breach of, any material contract, agreement or other instrument to which the Compliance Agent is a party or which may be applicable to it or any of its assets. (c) The execution and delivery of this Agreement by the Compliance Agent in the manner contemplated herein and the performance and compliance with the terms hereof by it do not require the consent or approval of any governmental authority, or if such consent or approval is required, it has been obtained. (d) This Agreement, and all documents and instruments contemplated hereby, which are or pursuant hereto will be executed and delivered by the Compliance Agent, will constitute valid, legal and binding obligations of the Compliance Agent (assuming execution and delivery thereof by the other party or parties thereto), enforceable in accordance with their respective terms, except as the enforcement thereof may be limited by applicable laws affecting creditors' rights generally and/or insurance claimants' rights generally or by equitable principles if equitable remedies are sought. (e) From time to time the Compliance Agent will report, as more fully set forth in this Agreement, information relating to the Loans to the Lending Institution, the Issuer, and the Trustee, and will do every act and thing which may be necessary or required to perform its duties under this Agreement. (f) The Compliance Agent agrees that so long as it shall continue to serve in the capacity contemplated under the terms of this Agreement it will remain in good standing under the laws of the State and qualified under the laws of the State to do insurance business in the State, will not dissolve or otherwise dispose of all or substantially all of its assets and will not voluntarily consolidate with or merge into any other entity or permit one or more other entities to consolidate with or merge into it; except that the Compliance Agent may, without violating the covenant contained in this subsection, consolidate with or merge into another entity, or permit one or more entities to consolidate or merge into it, or sell or otherwise transfer to another such entity all or substantially all of its assets as an entirety and thereafter dissolve, if the surviving, resulting or transferee entity, as the case may be, (i) shall have a net worth equal to or greater than the 05/30/85 5511p/2062/07 - 14- net worth of the Compliance Agent immediately preceding any such transaction, (ii) shall be qualified under the laws of the State to do insurance business in the State, shall be qualified under the laws and have all necessary approvals required of the Compliance Agent under this Section to perform the Compliance Agent's duties under this Agreement, and (iii) shall assume in writing all of the obligations of the Compliance Agent under this Agreement (in the case of a sale of all or substantially all of the Compliance Agent's assets, the Trustee, on behalf of the Lending Institution and the Issuer, shall release the Compliance Agent in writing from all obligations so assumed, concurrently with and contingent upon such assumption). ARTICLE I11 ISSUANCE OF BONDS; APPLICATION OF BOND PROCEEDS Section 3.01. Agreement to Issue Bonds; Application of Bond Proceeds. The Issuer agrees to use its best efforts to issue, sell and deliver the Bonds to the initial purchaser or purchasers thereof pursuant to the Purchase Contract on the terms and bases set forth in the Indenture, provided the terms and conditions of such sale are acceptable to the Issuer. The proceeds of the Bonds will be deposited with the Trustee as provided in the Indenture, and will be disbursed as provided in the Indenture, the Developer Agreements and this Agreement. Section 3.02. Payment of Cost of Issuance of Bonds. The Lending Institution acknowledges that the Issuer shall direct the payment of all costs not otherwise paid in connection with the issuance of the Bonds, including, without limitation, costs of printing, legal and accounting fees and all other costs as specified in the Indenture, solely from moneys in the Program Fund and that the Issuer shall have no obligation of any kind to pay, or to reimburse the Lending Institution for, any costs incurred by the Lending Institution in connection with the issuance of the Bonds. Section 3.03. Special Arbitrage Certifications. The Issuer, the Trustee, the Compliance Agent and the Lending Institution severally, and not jointly, certify to the purchasers and holders of the Bonds from time to time outstanding that, based solely on present expectations as set forth in an arbitrage certificate delivered at the closing for the sale of the Bonds, moneys on deposit in any fund or account in connection with the Bonds, whether or not such moneys were derived from the proceeds of the sale of the Bonds or from any other sources, are not intended to be used in a manner which will cause the interest on the Bonds to become subject to federal income taxation. The Issuer, the Trustee, the 05/30/85 5511p/2062/07 -15- Compliance Agent and the Lending Institution reserve the right, however, to make any investment of such moneys permitted by the laws of the State if, when and to the extent that the Code shall be repealed or interpreted to permit such investment or shall be held void by final judgment of a court of competent jurisdiction so as to permit such investment, but only if such investment made by virtue of such repeal, interpretation or decision would not, in the opinion of counsel of recognized competence in such matters, result in making the interest on the Bonds subject to federal income taxation. Section 3.04. Limited Liability. All obligations of the Issuer incurred hereunder shall be limited obligations of the Issuer, payable solely out of Bond proceeds, Developer Fees, revenues, and other amounts derived by the Issuer from the Loans (including earnings thereon and certain insurance proceeds with respect thereto), and certain reserve funds established in connection therewith and nothing contained hereunder shall create any indebtedness or be construed to create any moral obligation on the part of the Issuer, or permit any person to compel the exercise of the taxing power of the Issuer. All obligations of the Issuer incurred hereunder shall be subordinated to the obligations of the Issuer to the holders of the Bonds, and shall be payable only after all obligations of the Issuer to the holders of the Bonds shall have been satisfied. ARTICLE IV COMMITMENTS TO PURCHASE LOANS Section 4.01. Commitment to Buy and Sell. At or after the times (but in no event later than the date set forth in Section 10 of Exhibit B of the applicable Developer Agreements unless otherwise specified by the Issuer in a written notice to the other parties hereto) and in the amounts set forth in the draw-down schedule included in Section 5 of said Exhibit B of the Developer Agreements, the Trustee acting on behalf of the Issuer and using moneys in the Program Fund, will purchase from the Lending Institution Loans secured by the Residences referred to in said Developer Agreements; provided, however, that the Issuer may transfer the right to originate and service Loans to another Lending Institution in connection with the transfer of a reservation from one developer to another. The Lending Institution will use its best efforts to originate and sell such Loans to the Trustee, without recourse, at or after such times and in said amounts, provided that, if prior to the issuance of the Bonds the Issuer has entered into a mortgage sale and service agreement substantially similar to 05/30/85 55 1 lp/2062/07 -16- this Agreement with another lending institution, the Issuer shall determine the Developer Reserved Single Family Residences with respect to which the Lending Institution shall originate and sell loans to the Trustee. Each Loan shall: (i) be secured by a first lien Deed of Trust (subject to certain permitted encumbrances) on a Residence, the Acquisition Cost of which does not exceed the Maximum Acquisition Cost; (ii) be made to a person or persons each of whom is a First Time Homebuyer (except that Loans in an aggregate principal amount not exceeding at any time 10 percent of the total principal amount of all Loans may be made to persons who are not First Time Homebuyers) whose Household Income does not exceed: (a) 150 percent of the Median Household Income in the case of a purchase of a New Residence, or (b) 120 percent of the Median Household Income in the case of an Existing Residence (provided, however, that Loans representing at least one-fifth of the principal amount of all Loans for Existing Residences shall be made to persons whose Household Income does not exceed 110 percent of the Median Household Income); (iii) bear interest at the Mortgage Loan Interest Rate; (iv) not be used to acquire or replace an existing mortgage (other than a construction loan or similar temporary financing); (v) comply with the requirements of Section 4.08 hereof; and (vi) be insured by a Private Mortgage Insurance Policy. No Loan shall have a Loan-to-Value Ratio in excess of 95 percent and not more than 20 percent of the Loans shall be made with respect to Residences which are condominiums. Not more than 40 percent of the aggregate principal amount of the Loans in the first paragraph of this Section 4.01 may be made for the purchase of Existing Residences. Section 4.02. Loan Amount. The purchase price of each Loan purchased hereunder by the Trustee on behalf of the Issuer shall be equal to % of the principal amount thereof plus accrued interest thereon. The Trustee shall pay to the Lending Institution from the Program Fund on each Closing Date a sum equal to the aggregate applicable purchase price of Loans it originated which are purchased on such Closing Date. The Lending Institution shall fund each such Loan in the sum of % of the aggregate principal amount of such Loan. The Lending Institution may charge a non-refundable application fee of not more than one hundred dollars ($100) in connection with each loan application it processes. Such fee shall be credited against the fees and charges hereinafter described. At the closing for any Loan, the Lending Institution may charge the mortgagor a fee equal to 0.- percent of the original principal amount of the Loan and may charge either the mortgagor or the seller, as directed by the seller, an 05/30/85 5511p/2062/07 -17- additional fee equal to 0. of one percent of the principal amount of the Loan to be originated, which amounts may be retained by the Lending Institution for its sole account. The Lending Institution may also collect from the mortgagor charges for any costs of the following items paid or incurred by the Lending Institution in connection with the making of a Loan, but only to the extent that such charges do not exceed either those charged in the area in connection with the origination of loans not financed through qualified mortgage bonds within the meaning of the Code or the actual costs of the Lending Institution: (i) at the closing for a Loan, title insurance, recording charges, escrow and tax contract fees, standard hazard, earthquake, flood, mortgage or life insurance premiums in such amounts as may be actually incurred; and (ii) prior to the closing for a Loan, credit report, survey, appraisal, abstract and attorneys' fees, and similar charges for loan processing fees, in an amount not to exceed $300 in total, plus an additional $100 in the case of a Loan for which there is to be a cosigner. In addition, the Lending Institution, at the direction of the seller shall charge the buyer an origination fee equal to one-quarter of one percent of the principal amount of the Loan to be originated which fee shall be remitted to the seller upon the closing of the Loan. No other fees, charges or remuneration may be received by the Lending Institution, directly or indirectly, in connection with the origination or closing of a Loan for the Program. Section 4.03. Loan Submission. A Loan Submission Voucher accompanied by copies of supporting documents contained in Part I1 of the Loan File for each Loan sold by the Lending Institution to the Trustee shall be delivered to the Compliance Agent at a reasonable time, but not less than ten business days, prior to the proposed date on which Trustee will make a disbursement from the Program Fund for the purchase of such Loan. In addition, the Lending Institution shall provide the Trustee with telephonic notice of the aggregate principal amount of the Loans to be purchased at least ten calendar days before the Closing Date. The Compliance Agent shall review the Loan Submission Voucher and accompanying documents for each such Loan to determine whether it meets the criteria set forth in Section 8.01 hereof. Upon a determination that such evidence exists, the Compliance Agent shall deliver a Loan Submission Voucher to the Lending Institution and the Lending Institution shall deliver the Loan Submission Voucher to the Trustee. Each Loan to be purchased shall be submitted on standard conventional FHLMC loan documents with the riders set forth in Exhibits E and F, and shall provide for payments of principal and interest on the first day of each month, all such payments 05/30/85 5 5 1 lp/2 0 62/0 7 -18- to be substantially equal, except that, with the approval of the Private Mortgage Insurer, payments with respect to a Loan may be increased in the second and following years (but in no event after the sixth year), provided that: (a) the initial payment with respect thereto is based upon an interest rate which is not more than 303 basis points less than the fully indexed accrual rate (unless the Private Mortgager Insurer shall provide otherwise), (b) scheduled negative amortization does not exceed 5 percent of the original principal amount of the Loan if the Loan-to-Value Ratio exceeds 90 percent or 10 percent of the original principal amount of the Loan if the Loan-to-Value Ratio does not exceed 90 percent and (c) annual increases in payments shall be limited to 7.5 percent. Such payments shall commence not later than the first day of the second month following the Closing Date and in all cases not later than 62 days from the date of settlement with mortgagor. No Loan shall be purchased unless, on the submission date, all matured payments due on the Note have been paid. The sale of each Note and related Deed of Trust shall be evidenced by the originating Lending Institution's (i) placing the following endorsement on the back of such Note: "Pay to the Order of First Interstate Bank of California, as Trustee for City of Carlsbad, 1985 without recourse" and (ii) as soon as practicable thereafter, executing and delivering to Trustee, on behalf of Issuer, and recording or filing in the offices necessary to evidence Issuer's ownership thereof, an assignment to Issuer of the Deed of Trust securing such Note. Section 4.04. Closings. The Closing for the purchase of each Loan shall take place at the office of the Trustee or at such other place as may be mutually agreeable to the Trustee and the Lending Institution. Closings for the Lending Institution shall be in such numbers or for such principal amounts of Loans as shall be agreeable to the Lending Institution and the Trustee. Unless otherwise agreed among the Lending Institution and the Trustee, Closings shall be at least twice a month. No closing, however, shall be held on any of the seven business days before each June 1 and December 1 of each bond year. All mortgagor payments on account of principal (except for prepayments), interest, taxes or insurance collected by the Lending Institution with respect to a Loan prior to the Closing Date, but not due until after the Closing Date for such Loan ("prepaid installments") shall be held by the Lending Institution until the Closing. On such Closing, such amounts shall be immediately deposited by the Lending Institution in the appropriate fund or account, created hereunder or under the Indenture, as if such amount had been received subsequent to the Closing. Section 4.05. Closing Documents. The Lending Institution shall deliver to the Trustee in connection with the Closing for 05/30/85 5511p/2062/07 -19- each Loan the documents comprising Part I of the Loan File, including, without limitation, the Note, related Deed of Trust and assignment required by Section 4.03 hereof, all of which shall be held in the possession of the Trustee in accordance with the Indenture. Section 4.06. Loan File. The Lending Institution shall, at its own expense, maintain, with respect to each Loan it originates, any original documents not previously submitted to the Trustee and all other documents commonly maintained, or required to be retained by law or regulation, in its loan files. Such documents may be stored on microfilm. Section 4.07. Defective Documents. Notwithstanding the Compliance Agent's review of the Loan Submission Voucher and accompanying documents pursuant to Section 4.03 hereof, if at any time any document or documents constituting a part of a Loan File are in the opinion of the Trustee (which opinion shall be binding upon the Lending Institution) defective or inaccurate in any material respect, the Lending Institution shall cure the defect or inaccuracy within 60 days (or such shorter period of time as may be required by law) from the time the Trustee notifies it of the existence of the defect. The Lending Institution hereby covenants and agrees that, if any such material defect cannot be cured within such 60-day period (or such shorter period of time as may be required by law), it will, not later than 90 days after the Trustee's notice to it respecting such defect or inaccuracy, repurchase the related Loan from the Issuer at a price equal to (i) percent of the principal remaining unpaid on such Loan plus (ii) unpaid accrued interest thereon to the date of the repurchase. The Trustee shall then assign and deliver such Note and Deed of Trust to the Lending Institution. The Trustee, as agent for the Issuer (and the Trustee is hereby irrevocably appointed as the Issuer's agent and attorney-in-fact for such purpose) shall execute and deliver such instruments of transfer or assignment, in each case without recourse, as shall be necessary to vest in the Lending Institution the Note and Deed of Trust released pursuant thereto. The Lending Institution hereby waives any statute of limitation or other law which might otherwise be raised in defense to any obligation to repurchase any Loan hereunder. Notwithstanding the foregoing, in any case in which the Lending Institution is required to repurchase a Loan by reason of a defect, inaccuracy or misrepresentation in a Buyer's Affidavit (Exhibit G) pertaining to a requirement of the Code or the Act, the Lending Institution need not repurchase the Loan so long as (i) such defect, inaccuracy or misrepresentation constitutes a default under the Loan with respect to which the Private Mortgage Insurance Policy provides coverage, and (ii) the Lending Institution shall diligently proceed, on behalf of the Issuer, to declare all sums the payment of which is secured thereby to be immediately due and 05/30/85 55 1 lp/2062/07 -20- payable and to take all steps necessary to collect all benefits pursuant to the applicable Private Mortgage Insurance Policy. Moreover, in any case in which the Lending Institution is required to repurchase a Loan because a Developer incorrectly indicated in an affidavit submitted to the Lending Institution that the Acquisition Cost of a Residence did not exceed the Maximum Acquisition Cost, the Lending Institution may exercise the right of the Issuer, pursuant to Section 5.01 of the Developer Agreement, to reqire the Developer to purchase such Loan from the Issuer. Section 4.08. Representations, Warranties and Covenants of Lending Institution Concerning Loans. The Lending Institution hereby represents and warrants to, and covenants with, the Issuer, the Trustee, the Private Mortgage Insurer and the Compliance Agent that with respect to the Loans it shall originate for sale to the Trustee on behalf of the Issuer: (i) The Information set forth in each Loan Submission Voucher will be true and correct at the Closing Date thereof to the best knowledge of the Lending Institution, and each Loan shall have been closed after the delivery of this Agreement; (ii) Based upon representations made by the mortgagor by an affidavit or declaration under penalty of perjury and to the best knowledge of the Lending Institution (using the underwriting procedures and criteria which it applies in the case of loans being originated for its own portfolio), each Loan will be secured by a Residence to be occupied by the mortgagor as such mortgagor's principal place of residence (and not as an investment or recreational home) within 60 days and for a minimum of two years after receiving the Loan; will be made substantially in accordance with the Lending Institution's then current standard underwriting policies, which shall generally conform to FHLMC guidelines except as otherwise herein prescribed and except that credit underwriting criteria may be more liberal than provided for in said guidelines to the extent approved by the Private Mortgage Insurer; will be made for the purpose of purchasing the property subject to the related Loan and not for the purpose of refinancing or replacing any existing loan on any such property (other than a construction loan or similar temporary financing); will be a permanent mortgage and not a construction loan; will have a term of not more than 360 and not less than 348 consecutive monthly installments; and complies with all of the requirements of Section 4.01; (iii) As of the Closing Date, the Loan will have been finally endorsed for insurance under a Private Mortgage Insurance Policy (or a firm commitment therefor received); 05/30/85 5511p/2062/07 -21- and the Lending Institution agrees, until such time as no Bonds are outstanding or as otherwise directed by the Trustee, to cause such insurance to be maintained in force and effect during all times that the Issuer owns an interest in the Loan; (iv) As of the Closing Date, the Loan will be secured by a valid first lien Deed of Trust on the property financed by the Loan, subject only to (a) the lien of current real property taxes and assessments, and covenants conditions and restrictions, rights of way, easements, and other matters of public record as of the date of recording of the related Deed of Trust, such exceptions appearing of record being either acceptable to lending institutions generally or taken into account and reflected in the appraisal made in connection with the origination of the Loan or (b) any lien the full payment for the release of which provision has been made from the proceeds of such Loan, provided each payment will be made as soon as practicable ; (v) As of the Closing Date, the Lending Institution shall have in its possession with respect to the property financed by the Loan and secured thereby an ALTA approved or an equivalent mortgage title insurance policy (or a commitment therefor) in an amount equal to the original principal amount of the Loan, naming the Lending Institution and its successors and assigns, if any, as an insured, and insuring that the Deed of Trust securing the Loan constitutes a first lien on such property, subject to the exceptions of the preceding subsection; (vi) As of the Closing Date, the improvements upon the real property subject to such Loan will be covered by a valid and subsisting Standard Hazard Insurance Policy, Flood Insurance Policy (if required) and Earthquake Damage Insurance Policy with an endorsement in favor of the Lending Institution, the Issuer and the Trustee as their interests may appear, issued by a Qualifed Insurer; (vii) The terms, covenants and conditions of the Loan shall not have been and shall not prior to the Closing be waived, altered, impaired or modified in any respect which would materially affect the value, validity, enforceablity, or prompt payment of the Loan, or the security of the lien securing the Loan, except for such waivers, alterations and the like accomplished by the Lending Institution prior to the Closing Date and disclosed in writing to the Compliance Agent; (viii) As of the submission date, all matured payments due on the Note will have been current; 05/30/85 5 5 1 lp/2 062/07 -22- (ix) As of the Closing Date, there shall be no delinquent tax or delinquent lien against the property financed by the Loan, except as specified in paragraph (iv) hereof or unless the title insurance specified in paragraph (v) hereof insures against such risks; (x) As of the Closing Date, the Lending Institution shall not have done any act to create an offset, defense or counterclaim to the Loan, including the obligation of the mortgagor to pay the unpaid principal of and interest on the Loan; (xi) As of the Closing Date, there shall be no mechanics' liens or claims for work, labor or material affecting the premises financed by the Loan which are or may be a lien prior to, or equal with, the lien of the Deed of Trust securing the Loan, subject to the exceptions specified in paragraph (iv) hereof, or unless the title insurance specified in paragraph (v) hereof insures against such risks; (xii) The Lending Institution will cause an inspection to be performed in connection with making the Loan and, based upon the inspection and to the best knowledge of the Lending Institution, the physical property financed by the Loan will be complete, free of apparent material damage, and in general good repair on the Closing Date of such Loan; (xiii) In making such Loan, the Lending Institution has complied with the Truth-in-Lending Act, the Real Estate Settlement Procedures Act of 1974, the Equal Credit Opportunity Act and any other applicable federal or state statutes or regulations; (xiv) Each Deed of Trust required to be filed in a public office to perfect the lien of the Deed of Trust securing each Loan against third parties will have been duly recorded at the instructions of the Lending Institution in the proper public office in order to give constructive notice thereof to all subsequent purchasers or encumbrancers of the property financed by such Loan; (xv) Each Loan at the time it shall have been made shall have complied with the state and federal usury laws applicable to the Lending Institution; (xvi) To the best knowledge of the Lending Institution, the mortgagor of a Loan shall not have conveyed such mortgagor's right, title or interest to or in the property to any party other than a trustee for the benefit of such mortgagor; 05/30/85 55 1 lp/2062/07 -23- (xvii) The fees to be charged and retained by the Lending Institution and the stated interest rate for each Loan shall be in compliance with this Agreement; delivered a Buyer's Affidavit in substantially the form attached hereto as Exhibit G; (xviii) Each mortgagor shall have executed and (xix) Except in the case of Loans in an aggregate principal amount not exceeding 10 percent of the total amount of all Loans, to the best knowledge of the Lending Institution, based upon its review of signed copies (certified by the mortgagor to be true and accurate) of the mortgagor's federal income tax returns for the three years preceding the date of application for the Loan (from which it has determined that the mortgagor has not claimed a deduction pursuant to section 164(a)(l) of the Code for taxes on real property which was the mortgagor's principal residence or a deduction pursuant to section 163 of the Code for interest paid on a mortgage secured by real property which was the mortgagor's principal residence) and such other information as may have been furnished to the Lending Institution in connection with the Loan application, the affidavit furnished by the mortgagor under the preceding paragraph will have been accurate as it relates to the mortgagor's status as a First Time Homebuyer (if all such tax returns are not submitted by the mortgagor, the Lending Institution shall obtain an affidavit to the effect that the mortgagor was not required to file the same); (xx) If the mortgagor is an employee of the Issuer, the Lending Institution will have determined, or received a written declaration from the Issuer to the effect, that the mortgagor does not have decision-making authority for the Issuer; (xxi) The Note and Deed of Trust shall have attached thereto the riders provided for in Exhibits E and F or such other riders as the Issuer may from time to time require by no tic e ; (xxii) The Developer or seller, as the case may be, shall have executed and delivered a Seller's Affidavit in substantially the form attached hereto as Exhibit H; 05/30/85 55 11p/2062/07 -24- (xxiii) To the best knowledge of the Lending , Institution, based upon its examination of the closing statement pertaining to the sale of the Residence and such other information as the Lending Institution deems relevant, the Acquisition Cost of the Residence does not exceed the Maximum Acquisition Cost; (xxiv) To the Lending Institution's best knowledge there is no circumstance or condition with respect to the Loan or the mortgagor which (a) could reasonably be expected to cause the Lending Institution to regard the Loan as an unacceptable investment for its own portfolio, cause the Loan to become delinquent, or adversely affect the value or marketability of the Loan, except that the interest rate on the Loan may be below the market interest rate and the Loan-to-Value Ratio may be greater than that which is otherwise acceptable to private lenders; or (b) would lead it to believe that the affidavits required to be made by the mortgagor and the Developer or seller are not true and correct; and (xxv) Neither the Lending Institution nor any other person (insofar as the Lending Institution is aware) has charged the seller of the Residence or any other person any fee, charge or remuneration for the services to be provided by the Lending Institution pursuant to this Agreement except those fees, charges and remunerations specifically provided for herein. It is understood and agreed that the representations, warranties and covenants set forth in this Section shall survive the sale of the Loans by the Lending Institution to the Trustee and that the representations, warranties and covenants shall inure to the benefit of the transferees and the assigns 05/30/85 5511p/2062/07 -25- of the Issuer, the Trustee, the Private Mortgage Insurer and the Compliance Agent which, under the Indenture, include the Bondholders. Upon discovery at any time by the Issuer, the Private Mortgage Insurer, the Lending Institution, the Compliance Agent or the Trustee of a breach of any of the foregoing representations, warranties and covenants which may materially and adversely affect the value of any Loan or the interest of the Issuer in any Loan or the tax exemption for interest on the Bonds, the party discovering such breach shall give prompt written notice to the others. Within 60 days (or such shorter period as may be required by law) of its discovery or its receipt of notice of breach, the Lending Institution shall cure such breach in all material respects or shall purchase the Loan from Issuer in the manner and at the purchase price set forth in Section 4.07 hereof. Section 4.09. Permitted Buydowns of Interest Rate. The interest rate on any Loan which provides for scheduled negative amortization may not be bought down. The interest rate on any Loan the scheduled amortization of which provides for substantially equal monthly payments may be bought down, but only under the following conditions: (i) the money used to effect the buydown must be deposited in an escrow account with scheduled monthly releases which serve to reduce the mortgagor's payments; (ii) the term of the buydown period may not be less than one year nor more than three years; (iii) the initial interest rate buydown must be effective for one year and may not be greater than three percentage points and the total amount of the buydown may not exceed six percentage points in the case of Loans with Loan-to-Value Ratios higher than 90 percent or 10 percentage points in the case of Loans with Loan-to-Value Ratios of 90 percent or less; (iv) reductions in the buydown must occur not more frequently than annually, no such reduction may exceed one percentage point, and no resulting increase in the scheduled monthly payment may exceed 7.5 percent per year; 05/30/85 5511p/2062/07 -26- (VI or FSLIC; the escrow account must be fully insured by FDIC (vi) the Note and Deed of Trust may make no reference to the buydown and the interest rate and monthly payments provided in the Note may not take into account the buydown; agent to make monthly payments to the Lending Institution for the account of the mortgagor; (vii) the escrow agreement must require the escrow (viii) the escrow agreement must provide for reversion of escrowed moneys to the person who made the original deposit thereof if the Residence is sold by the mortgagor or the Loan is prepaid in full, whether voluntarily or involuntarily; (ix) if the Loan is to be underwritten on the basis of the reduced mortgagor payment for the first year, the moneys for the buydown must be placed in the escrow account prior to purchase of the Loan by the Trustee and must be sufficient (with interest earnings thereon, but without regard to the income of any co-signer) to make all monthly payments provided under the buydown; and (x) the mortgagor's only interest in the escrowed moneys is to have them applied to payments due under the Note as provided in this Section and such moneys may not be used to pay past due payments of the mortgagor. Section 4.10. Report Re Loans. Prior to the purchase of each Loan by the Trustee, the Lending Institution shall submit to the Trustee, the Issuer and the Compliance Agent a report (in a form satisfactory to the Trustee) with respect to such Loan setting forth: (1) The name and taxpayer indentification number of the mortgagor; (2) The date, amount and term of the Loan; (3) The interest rate of the Loan; (4) That the Loan is not a qualified home improvement loan or a qualified rehabilitation loan (as defined in §103A-2(i)(ii) of the Income Tax Regulations); (5) Whether the Residence is a previously occupied Residence; (6) Whether the Residence is a targeted area residence (as defined in §103A-2(b)(3) of the Income Tax Regulations; 05/30/85 55 1 lp/2 062/07 -27- (7) That the Residence is a one-family residence; (8) The Acquisition Cost of the Residence; (9) The Average Area Purchase Price applicable to the Residence ; (10) Whether the mortgagor is a First Time Homebuyer; (11) The number of the mortgagor's family members that occupy the Residence; (12) The adjusted income (as defined in §1.167(k)-3(b)(3)of the Income Tax Regulations) of the mortgagor's family for the previous calendar year; and (13) Said adjusted income as a percentage of the median income for the San Diego Primary Metropolitan Statistical Area, as determined under Sectioq 8 of the United States Housing Act of 1937, as amended, with adjustments for smaller or larger families (or, in the event programs under Section 8(f) of the Housing Act of 1937, as amended, are terminated, the applicable method of determining adjusted income and median income in effect immediately prior to the date of such termination). ARTICLE V ADMINISTRATION AND SERVICING OF LOANS Section 5.01. Lending Institution to Act as Servicer. The Lending Institution shall service and administer the Loans it originated and shall have full power and authority, acting alone, to do any and all things in connection with such servicing and administration which it may deem necessary or desirable, subject to the provision of this Agreement. Without limiting the generality of the foregoing, the Lending Institution shall, and is hereby irrevocably authorized and empowered by the Issuer to, execute and deliver, in its own name, on behalf of itself and the Issuer, any and all instruments of satisfaction or cancellation or of partial or full release or discharge and all other comparable instruments, with respect to the Loans and with respect to the Residences subject to the Deeds of Trust securing such Loans. Without limiting the generality of the foregoing paragraph, the Lending Institution shall service the Loans in accordance with the servicing standards as set forth in the FHLMC Servicers' Guide, as they may be in effect during the term of 05/30/85 5511p/2062/07 -28- the Program, and except as such standards may be specifically modifed herein or as may reasonably be requested from time to time by the Issuer or the Trustee. The Lending Institution shall perform all of its duties in servicing Loans for the Issuer with due care, diligence, and reasonable promptness and shall use the same degree of care in servicing Loans under the Program as it would employ in servicing mortgage loans on behalf of FHLMC. In addition, the Lending Institution shall provide to the Private Mortgage Insurer any and all notices and follow all procedures required as a condition to the payment of all benefits pursuant to the Private Mortgage Insurance Policy. As compensation for its activities hereunder, and in consideration for servicing the Loans it originated, the Lending Institution shall retain from each mortgagor's monthly payment allocable to interest in an amount equal to the Service Fee. In addition, the Lending Institution shall be entitled to servicing compensation out of Insurance Proceeds or Liquidation Proceeds to the extent permitted by Section 5.04 hereof. Additional servicing compensation in the form of assumption fees, reconveyance fees, late payment charges or otherwise, if any, may be retained by the Lending Institution to the extent not required to be deposited in the Receipts Account it maintains pursuant to Section 5.02 hereof. The Lending Institution shall be required to pay all expenses incurred by it in connection with its servicing activities hereunder (including maintenance of the insurance required by Section 5.09 hereof) and shall not be entitled to reimbursement therefor, except as specifically provided in Sections 5.03, 5.04 and 5.12 hereof and the Indenture. Section 5.02. Collection of Certain Loan Payments; Receipts Account. The Lending Institution shall collect and deposit, less the Service Fee (if it is the Lending Institution's general practice to collect such fees upon the receipt of a mortgagor's payment), in the Receipts Account all payments called for under the terms and provisions of the Loans, and shall follow such collection procedures as it follows at the time of the execution of this Agreement with respect to mortgage loans comparable to the Loans owned and held in its own portfolio. If it is the Lending Institution's accounting practice to determine the Service Fee at the end of each month, and if the amounts deposited into the Receipts Account include the Service Fee, then the Lending Institution may withhold its Service Fee at the time it transfers the balance of the Receipts Account pursuant to Section 5.04 hereof. Consistent with the foregoing, and subject to any requirements imposed by the Private Mortgage Insurer of such Loans, the Lending Institution may in its discretion arrange a schedule for the liquidation of delinquent items, which schedule shall not be any more favorable to the mortgagor than customarily obtained by the Lending Institution in the administration of its own portfolio. 05/30/85 5511p/2062/07 -29- The Lending Institution shall establish and maintain for the Issuer as a separate account a Receipts Account. All funds held in the Receipts Account shall constitute funds of the Issuer from the time of the deposit therein and the title of the account shall be in the name of the Issuer. Each Lending Institution shall hold moneys in its Receipts Account in an account which shall be fully insured with the FDIC or the FSLIC. In no event shall the amount in the Lending Institution's Receipts Account exceed the maximum insurance on such fund, and the Lending Institution shall immediately transfer to the Trustee any amount which is in excess thereof. Except as provided in Section 5.01 hereof, the Lending Institution shall deposit in the Receipts Account it maintains for the Issuer on a daily basis all payments and collections received by it with respect to Loans, including Insurance Proceeds and Liquidation Proceeds. All funds deposited in the Receipts Account shall be held by the Lending Institution until disbursed in accordance with Section 5.04 hereof. Section 5.03. Collection of Taxes, Assessments and Similar Items; Loan Service Account. The Lending Institution shall establish and maintain a loan service account and shall deposit therein all collections of real estate taxes, assessments, premiums on insurance required by Sections 5.06, 5.07 and 5.10 hereof or comparable items for the account of the mortgagors of the Loans to the extent it deems the same reasonably necessary. Withdrawals from the loan service account may be made only to effect timely payments of taxes, assessments, insurance premiums or comparable items with respect to such Loans, or to reimburse the Lending Institution out of related collections for any payments made pursuant to Sections 5.06, 5.07 and 5.10 hereof and any real estate taxes, assessments or premiums on insurance required by Sections 5.06, 5.07 and 5.10 or comparable items, advanced by it. Unless the Lending Institution shall be required by law to pay interest to the respective mortgagors of Loans on funds in its loan service account, the Lending Institution shall retain such interest to defray its expenses in servicing its loan service account, or to refund to each mortgagor the unused portion of the moneys attributable to such mortgagor's Loan, when such Loan is repaid in its entirety. The loan service account shall be fully insured by FDIC or FSLIC. Section 5.04. Transfers and Permitted Withdrawals from Issuer's Receipts Account; Requisitions for Reimbursements. On the close of business on the fifth and twentieth days of each month, on the day preceding each Bond interest payment or redemption date, and whenever else the Lending Institution has accumulated in any account hereunder an amount in excess of the amounts which are insured by the FDIC or FSLIC, the Lending Institution shall remit to the Trustee for deposit payments of principal and interest on the Loans and all other payments paid 05/30/85 5511p/2062/07 -30- by the mortgagor relating thereto, including Insurance Proceeds and Liquidation Proceeds (except the Service Fees, escrow payments and any other amounts permitted to be retained by the Lending Institution pursuant to this Agreement). If any such date of transfer is a Saturday, Sunday or legal holiday, or is not a business day for the Lending Institution, such transfer may be made at the opening of business on the next succeeding business day. The Issuer hereby authorizes the Lending Institution on any date prior to the transfer to the Trustee of moneys in the Receipts Account to withdraw moneys from such Receipts Account to: (a) Reimburse itself from Insurance Proceeds and Liquidation Proceeds for amounts expended in good faith by it with respect to the related Loan pursuant to Section 5.11 hereof in connection with the restoration of property damaged by an Uninsured Cause; (b) Reimburse itself from Insurance Proceeds for Insurance Expenses and pay itself from Insurance Proceeds any unpaid Service Fee on the related Loan, the latter payment being limited to the amount, if any, by which the sum of the aggregate of the Liquidation Proceeds, if any, plus the aggregate Insurance Proceeds received in connection with the liquidation of the defaulted Loan is, after the deduction of Insurance Expenses and any amounts deducted pursuant to subsection (a) above, in excess of the principal balance of such Loan together with accrued and unpaid interest thereon; (c) Reimburse itself from Liquidation Proceeds for Liquidation Expenses; (d) Reimburse itself for all real estate taxes, special assessments, utitility liens, premiums for Private Mortgage Insurance, Standard Hazard Insurance, Flood Insurance or Earthquake Damage Insurance advanced by it; (e) Reimburse itself for any unpaid accrued interest on a Closing Date for the related Loans; and (f) Reimburse itself for any Service Fee to which it is entitled and not theretofore retained before deposits into the Receipts Account. The Issuer agrees that it will execute and deliver, or cause to be executed and delivered, such further instruments and documents as may be required for permitting the above 05/30/85 55 1 lp/2 062/07 -31- stated withdrawals from the Receipts Account. In connection with withdrawals pursuant to subsections (a) through (f) above, inclusive, the Lending Institution's entitlement thereto is limited to collections or other recoveries on the related Loan, and for this reason the Lending Institution shall keep and maintain separate accounting, on a Loan-by-Loan basis, for the purpose of justifying any such reimbursement. Section 5.05. Claims Against Insurer of Loans. In connection with its activities as administrator and servicer of the Loans, the Lending Institution agrees to comply with any requirements imposed by the Private Mortgage Insurer with respect to the Loans it services, and with all applicable laws and to present, on behalf of the parties in interest, claims against all insurers of such Loans or mortgaged premises, and, in this regard, to take all reasonable actions as shall be necessary to permit recovery under all insurance policies respecting such Loans or mortgaged premises. of the Lending Institution under this Section specifically include, but are not limited to, providing, within the time limits applicable thereto, the Private Mortgage Insurer with any and all notices and claims for payment which are required in order to collect payments under the Advance Payments Endorsement to the Private Mortgage Insurance Policy. In connection therewith, on the 16th day of each month the Lending Institution shall notify the Trustee and the Private Mortgage Insurer by telephone, telex or other same day means of communication of the aggregate amount of monthly installment payments on Loans which were first due on the preceding first day of such month and payable by the 15th day of such month but which were not received by the Lending Institution. The Lending Institution shall immediately follow such notification with written confirmation thereof, with a copy thereof to the Trustee, so that said written confirmation is received by the Private Mortgage Insurer and the Trustee not later than the 19th day of such month. (If the Trustee has not received such notice by the 19th day of such month, the Trustee shall immediately file or cause to be filed such notices and claims for payment which are required to collect payments under said Advance Payments Endorsement.) The Lending Institution shall also provide the Trustee and the Private Mortgage Insurer with verbal notification on the 26th date of such month, to be followed immediately by written confirmation, of all Loans remaining delinquent as of the 25th day thereof. The obligations Pursuant to Section 5.02 hereof, any amounts collected by the Lending Institution from the Qualified Insurers with respect to the Loans shall be deposited in its Receipts Account, subject to withdrawal for reimbursement pursuant to Section 5.04 hereof. The Issuer, the Trustee and the Lending Institution shall be named as insureds as their interests may appear, where appropriate, under all insurance policies to be obtained with respect to the Loans. 05/30/85 5511p/2062/07 -32- Section 5.06. Maintenance of Standard Hazard Insurance and Flood Insurance. The Lending Institution shall cause to be maintained for each Loan it services fire insurance with extended coverage on the mortgaged property in an amount which is at least equal to the principal balance owing on the Loan, but not less than 90% percent of the insurable value of the Residence securing the Loan based upon the replacement cost thereof. Subject to all applicable laws, pursuant to Section 5.02 hereof, any amounts collected by the Lending Institution under any such policies (other than amounts to be applied to the restoration or repair of the property subject to the related Loan) shall be deposited into its Receipts Account, subject to withdrawal for reimbursement pursuant to Section 5.04 hereof. It is understood and agreed that such insurance shall be with Qualified Insurers approved by the Lending Institution and that no other additional hazard insurance is to be required of any mortgagor, except Flood Insurance where required hereby and Earthquake Damage Insurance (if commercially available), other than pursuant to such applicable laws and regulations as shall at any time be in force and as shall require such additional insurance. In the case of condominium units, the applicable declaration of covenants, conditions and restrictions must require the homeowners' association established for each project to maintain a Standard Hazard Insurance Policy and an Earthquake Damage Insurance Policy (if commercially available) to cover the entire project. Such premiums are to be paid by the homeowner's association. In the absence of such a requirement in the declaration of covenants, conditions and restrictions, the insurance requirements described in the first paragraph of this Section shall be applicable to each unit which secures a Loan. The association must have fidelity bond coverage, in an amount not less than 1.5 times the association's annual operating expenses and reserves, covering the negligent and willful acts and omissions of its officers, agents, employees and volunteers, as well as comprehensive public liability insurance covering common areas with a minimum policy limit of $1,000,000 per occurrence and with a severability of interest endorsement which precludes the insurer from denying the claim of a condominium unit owner because of the negligent acts of the association or of others and such other coverages as are commonly required by lenders making mortgage loans with respect to the units therein (including, but not limited to, flood, boiler explosion or other machinery accidents with a minimum policy limit of $100,000 per occurrence). In lieu of retaining in its possession the Standard Hazard Insurance Policy, the Lending Institution may maintain at its expense and keep a mortgagee single interest hazard insurance policy, for the benefit of the Issuer and the Trustee, in such 05/30/85 5511p/2062/07 -33- amount as may be acceptable to the Compliance Agent, throughout the term of this Agreement. In addition, the Lending Institution covenants and agrees that if a mortgaged property is located in an area designated as a flood area by federal or state authorities, it shall cause to be maintained for such Loan secured by such mortgaged property a Flood Insurance Policy. Pursuant to Section 5.02 hereof, any amounts collected by the Lending Institution under any such policy relating to the Loans shall be deposited in its Receipts Account, subject to withdrawal for reimbursement pursuant to Section 5.04 hereof. Section 5.07. Maintenance of Earthquake Damage Insurance. The Lending Institution shall cause to be maintained for each Loan it services Earthquake Damage Insurance (if commercially available) with extended coverage on the mortgaged Residence. Subject to the laws of the State, pursuant to Section 5.02 hereof, any amounts collected by the Lending Institution under any such policies (other than amounts to be applied to the restoration or repair of the property subject to the related Loan) shall be deposited into its Receipts Account, subject to withdrawal for reimbursement pursuant to Section 5.04 hereof. It is understood and agreed that such insurance shall be with Qualified Insurers approved by the Lending Institution. Section 5.08. Maintenance of Special Hazard Insurance Policy. The Issuer shall exercise its best reasonable efforts to maintain and keep with a Qualified Insurer, a Special Hazard Insurance Policy to provide protection with respect to mudslide, building collapse and losses resulting from the application of a coinsurance clause, in an amount equal to the greater of (i) 1 percent of the aggregate amount initially available for the purchase of Loans which are purchased hereunder (less any claims made and paid) or (ii) twice the original principal amount of the largest Loan so purchased (less any claims made and paid), in full force and effect until (i) each Loan has been paid in full or is no longer security for the Bonds or (ii) the principal of and interest on all Bonds has been fully paid or provision for such payment has been provided for pursuant to the Indenture. The premium for the Special Hazard Insurance Policy shall be paid from the Program Expense Fund pursuant to the Indenture. In the event that such insurance becomes unavailable from the original Qualified Insurer, whose credit rating will not adversely affect the rating assigned to the Bonds, the Issuer shall exercise its best efforts to obtain a comparable replacement policy from another Qualified Insurer with a total coverage equal to the then existing coverage of the Special Hazard Insurance Policy. Pursuant to Section 5.02 hereof, any amount collected under any such policy shall be paid to the Lending 05/30/85 5511p/2062/07 -34- Institution which serviced the Loan with respect to which the amount was collected and the Lending Institution shall deposit such amount in its Receipts Account, subject to withdrawal for reimbursement pursuant to Section 5.04 hereof. Section 5.09. Maintenance of Errors and Omissions Insurance Policy and Fidelity Bond. The Lending Institution will use its best efforts to maintain, or require the mortgagor to maintain, the Standard Hazard Insurance Policy (or mortgagee single interest hazard insurance policy), the Private Mortgage Insurance Policy, Earthquake Damage Insurance (if commercially available) and, if required, Flood Insurance in effect at all times throughout the terms of this Agreement. Additionally, the Lending Institution will be obligated to perform its servicing duties in a manner which will preserve all claims against insurers. If the Lending Institution fails to perform these obligations due to an error or omission of any of its officers or employees, coverage will be provided by the Errors and Omissions Insurance Policy required to be maintained by the Lending Institution. If any officer or employee of the Lending Institution misappropriates funds from the Lending Institution, coverage therefor will be provided by the Fidelity Bond maintained by the Lending Institution. The Lending Institution must obtain and maintain in effect at all times throughout the term of this Agreement an Errors and Omissions Insurance Policy and a Fidelity Bond, both of which must be in amounts, and be obtained from an insurance company, acceptable to the Trustee. The Lending Institution, as servicer, will pay the premiums for its Errors and Omissions Insurance Policy and Fidelity Bond. Any amounts collected under the errors and omissions insurance policy or fidelity bonds shall be deposited in the Receipts Account established pursuant to Section 5.02 hereof. Section 5.10. Maintenance of Private Mortgage Insurance Policy. The Lending Institution covenants and agrees that it shall cause to be maintained for all Loans, throughout the term of this Agreement, a Private Mortgage Insurance Policy, but only until no Bonds are outstanding or as otherwise determined by the Trustee; provided, however, that as long as any Bond is outstanding, the Trustee shall not waive this requirement unless it shall have first received the consent of the Issuer and written confirmation from Standard & Poor's Corporation that such waiver will not adversely affect the rating assigned to the Bonds. All premiums advanced by the Lending Institution in maintaining any such insurance shall be added to the amount owing under the Loan where the terms of the Loan so permit. Such premiums shall be recoverable by the Lending Institution pursuant to Section 5.03 or 5.04 hereof. Pursuant to Section 5.02 hereof, any amounts collected by the Lending Institution under any such policy shall be deposited into the Receipts Account. 05/30/85 55 1 lp/2 062/07 -35- Section 5.11. Transfers and Assumptions. In any case in which property subject to a Loan has been or is about to be conveyed by the mortgagor or by his successor in interest, the Lending Institution is authorized to consent to the conveyance and to release the transferor and to take or enter into an assumption agreement from or with the person to whom such property has been or is about to be conveyed, but only if the following conditions are met: (1) the Lending Institution has determined that.al1 of the requirements of Article IV and Article V hereof are met with respect to such assumption, based upon the facts as they exist at the time of the assumption as if the Loan were being made for the first time; (2) the Lending Institution has determined that mortgagor or his successor in interest, as the case may be, has satisfied the requirements of any resale controls applicable to the Residence; (3) the Lending Institution has received from the transferor an executed Seller's Affidavit in the form attached hereto as Exhibit H and from the person to whom such property has been or is about to be conveyed an executed Buyer's Affidavit in the form attached hereto as Exhibit G; (4) the Compliance Agent has determined, on behalf of the Issuer, that the transferee is a First Time Homebuyer who intends to occupy the Residence as his or her principal place of residence within 60 days after the assumption and that the Acquisition Cost of the Residence does not exceed the Maximum Acquisition Cost; (5) the Private Mortgage Insurer has approved such release and/or assumption agreement; and (6) the Lending Institution has received payment of its then customary assumption charge plus the charges specified in clauses (i) and (ii) of Section 4.02 hereof. The assumption agreement shall be inserted in the related Loan File whereupon it shall be deemed a part of such Loan File for all purposes hereof. agreement, the interest rate of the related Note shall not be changed. In connection with any such assumption Under no circumstances shall the Lending Institution consent to any conveyance of the Residence unless the above conditions (1) through (5) have been met or unless the Issuer shall have received an opinion of counsel of its choice, recognized to be expert in such matters, that permitting a conveyance without having met conditions (1) through (4) thereof would not affect the validity of the Bonds nor the tax-exemption for the interest thereon and the Issuer shall have so notified the Lending Institution. If the Lending Institution determines that a Residence has been conveyed by the mortgagor or his successor in interest and that the above conditions (1) through (5) have not been met, the Lending Institution shall give notice thereof to the Issuer and the Trustee. If the Lending Institution believes that some action other than foreclosure (such as reconveyance under circumstances meeting the above conditions) can be taken so as to enable it to consent to the transfer of the Residence, it 05/30/85 5511p/2062/07 -36- shall so advise the Issuer and the Trustee and cause such action to be taken. If no such action can be taken, or if the Lending Institution fails to cause such action to be taken, the Lending Institution shall so advise the Issuer and the Trustee shall take any and all steps necessary to secure all benefits payable under the applicable Private Mortgage Insurance Policy and shall commence foreclosure proceedings unless otherwise directed by the Issuer within fifteen days after such notice. Section 5.12. Realization Upon Defaulted Loans. The Lending Institution shall foreclose upon or otherwise comparably convert the ownership of properties securing such of the Loans it services as come into and continue in default and as to which no satisfactory arrangements can be made for the curing of such default. In connection with such foreclosures or other conversion, the Lending Institution shall follow such practices and procedures as it shall deem necessary or advisable and as shall be normal and usual in its general mortgage servicing activities, provided that such practices and procedures shall conform in every respect with the requirements of the applicable Private Mortgage Insurance Policy to obtain payments pursuant thereto. The Lending Institution shall give notice to the Trustee of the commencement of foreclosure proceedings within three business days after the filing thereof. Following such foreclosure or other conversion of ownership and upon deposit of such amounts as are realized as a result of such foreclosure (Liquidation Proceeds, Insurance Proceeds, and any other related procees or funds) in the Receipts Account of the Lending Institution pursuant to the Agreement, the Lending Institution shall notify the Trustee in writing within five (5) business days of such deposit of (i) the amount of unpaid principal of and unpaid accrued interest on such defaulted Loan, and (ii) the sum realized from such Loan and deposited in the Receipts Account. The foregoing is subject to the provision that, in the case of damage to mortgaged property from an Uninsured Cause, the Lending Institution may expend its own funds toward the restoration of the property if it reasonably believes (i) that after reimbursement to itself for such expenses such restoration will increase the proceeds of liquidation of the Loan to the Issuer, after reimbursement to itself for such expenses, and (ii) that such expenses will be recoverable to it either through Liquidation Proceeds (respecting which it shall have priority for purposes of withdrawal from the Receipts Account pursuant to Section 5.04 hereof) or through Insurance Proceeds (respecting which it shall have similar priority). Institution shall be responsible for all other costs and expenses incurred by it in any such proceedings or in connection with preservation of all insurance policies respecting the Loans it services; provided, however, that it shall be entitled to withdrawal thereof (as well as its normal Service Fee) to the extent, but only to the extent, that The Lending 05/30/85 5 5 1 lp/2 062/07 -37- withdrawals from its Receipts Account with respect thereto are permitted under Section 5.04 hereof. Section 5.13. Issuer to Cooperate; Release of Loan Files. Upon the payment in full of any Loan it services, the Lending Institution will notify the Issuer within five business days by delivering to the Issuer, and a copy to the Trustee, a certification (which certification shall include a statement to the effect that all amounts received in connection with such payment which are required to be deposited in its Receipts Account pursuant to Section 5.02 hereof have been so deposited) of a Servicing Officer of the Lending Institution along with the amount collected upon liquidation and, in the case of a defaulted loan, data sufficient to account for the liquidation and shall request delivery to it of the Note and related Deed of Trust. Upon receipt of such certification and request, the Trustee, pursuant to the Indenture, shall deliver the Note and related Deed of Trust to the Lending Institution. From time to time and as appropriate for the servicing or foreclosure of any Loan, including for this purpose collection of Insurance Proceeds, the Issuer hereby appoints the Lending Institution as its agent and attorney-in-fact to execute such documents as shall be necessary to the prosecution of any such proceeding relating to a Loan it services. The Trustee shall, on behalf of the Issuer, execute such documents as shall be necessary to the prosecution of any such proceedings. Section 5.14. Reports to Trustee and Issuer and Receipts Account Statements. No later than the twenty-fifth day of each month, the Lending Institution shall forward to the Trustee a statement substantially similar to FHLMC'S single-debit accounting for conventional loans, certified by a Servicing Officer, setting forth the status of the Receipts Account of the Issuer it maintains, as of the close of business on the twentieth day of such month and showing, for the period covered by such statement, the aggregate of deposits into and withdrawals from its Receipts Account. Such statement shall be in such form as the Trustee prescribes and shall also include (i) information as to the principal balances of Loans outstanding at the close of business on the twentieth day of such month, (ii) information as to the number of, principal balances of, and percentages of aggregate dollar amount of all Loans it services, of Loans upon which one required monthly payment of principal and interest shall be delinquent, as of the close of business on the last day of the preceding calendar month (together with evidence satisfactory to the Trustee that the Lending Institution has filed with the Private Mortgage Insurer any and all notices and demands for payment required to obtain payment with respect to such Loans under the Advance Payment Endorsement to the Private Mortgage Insurance Policy, in the absence of which evidence the Trustee shall direct the 05/30/85 5511p/2062/07 -38- Lending Institution to immediately file the same with the Private Mortgage Insurer), and (iii) the unpaid outstanding principal amount of Loans with respect to and the estimated fair market value of any real estate acquired through foreclosure or grant of a deed in lieu of foreclosure. In addition, no later than the twenty-fifth day of each month, the Lending Institution shall forward to the Trustee a statement setting forth the status of the Loan Service Account of the borrowers it maintains, as of the close of business on the twentieth day of such month. Such statement shall be in such form as the Trustee prescribes. If such twenty-fifth day of the month is a Saturday, Sunday or legal holiday or is not a business day for the Lending Institution such report may be forwarded at the opening of business on the next succeeding business day. Institution's fiscal year, the Lending Institution shall furnish to the Issuer and the Trustee an auditor's report relating to the Lending Institution's financial statement and mortgage loan operations. The Lending Institution shall also deliver to the Issuer and the Trustee a Servicing Officer's certificate stating that (i) a review of the activities under this Agreement of the Lending Institution during the preceding year and of its performance under this Agreement has been made under such Servicing Officer's supervision, and (ii) to the best of such Servicing Officer's knowledge, based upon such review, there is, as of such date, no default by the Lending Institution in the fulfillment of any of its obligations under this Agreement, or if there is any such default known to such Servicing Officer, specifying each such default and the nature and status thereof. Within 120 days after the close of the Lending In addition to the foregoing, the Lending Institution will provide to the Trustee or, at the direction of the Trustee, to Standard & Poor's Corporation, on an annual basis, or as reasonably requested by the Trustee or Standard & Poor's Corporation, information concerning the periodic delinquency, foreclosure and prepayment experience with respect to the Loans. Section 5.15. Prohibition of Discrimination; Report to Issuer. Except as specifically provided in this Agreement, the Lending Institution will not arbitrarily reject an application for a Loan or vary the terms of a Loan for residential properties within a specified geographic area of the Issuer because of the location and/or age of the property, case of a proposed mortgagor, arbitrarily reject an application or vary the terms of such Loans or the application procedures therefor because of race, color, religion, national origin, age, sex or marital status. or, in the 05/30/85 5 5 1 lp/2 062/07 -39- Any other information desired by the Issuer shall be compiled by the Issuer from information contained in the Loan Files which will be available for inspection upon reasonable notice and at reasonable times. Section 5.16. Certain Verifications. The Issuer or Lending Institution from time to time may cause a firm of independent public accountants to supply the Issuer, the Trustee and the Lending Institution with such information as the Issuer or the Lending Institution may request in order to determine in a manner reasonably satisfactory to the Issuer, the Trustee and the Lending Institution all matters relating to the sufficiency of projected cash flow receipts and disbursements on the Loans and reserve funds to pay the principal of and interest on the Bonds. Payment for costs and expenses incurred in connection with supplying the foregoing information shall be paid from moneys in the Revenue Fund pursuant to the Indenture. ARTICLE VI LENDING INSTITUTION Section 6.01. Merger or Consolidation of the Lending Institution. Any entity into which the Lending Institution may be merged or consolidated, or any entity resulting from any merger, conversion or consolidation to which the Lending Institution shall be a party, or any entity succeeding to the business of the Lending Institution, shall be the successor of the Lending Institution hereunder without the execution or filing of any document or instrument, except as provided in Section 2.02(b) of this Agreement, or any further act on the part of any of the parties hereto. Section 6.02. Lending Institution Not to Resign. The Lending Institution shall not resign from its obligations and duties hereby imposed on it except upon determination that its duties hereunder are no longer permissible under applicable law. Any such determination permitting the resignation of the Lending Institution shall be evidenced by an opinion of counsel to such effect delivered to the Issuer and the Trustee. No such resignation shall become effective until the Trustee or a successor servicer shall have assumed the Lending Institution's responsibilities and obligations in accordance with Section 7.03 hereof. 05/30/85 5511p/2062/07 -40- ARTICLE VI1 CAUSES PERMITTING TERMINATION OF LENDING INSTITUTION Section 7.01. Causes of Termination Defined. Upon the happening of any one or more of the following events, the Trustee, for and on behalf of the Issuer, may terminate this Agreement with respect to the Lending Institution as provided in Section 7.02 hereof and shall have the other remedies specified therein: (a) Failure by the Lending Institution to (i) deposit funds in the Receipts Account as required by Section 5.02 hereof or (ii) to make the payments required under Section 5.04 hereof at the time specified therein; provided, however, that the failure of the Trustee to receive such funds will not constitute a cause for termination if such payments have been forwarded by the Lending Institution at the time specified, in which event the Lending Institution will have three business days after the receipt of notice by the Trustee specifying such failure of receipt and requesting that it be remedied to provide such payment and provided further that a single failure of the Trustee to receive such funds will not constitute a cause for termination if the Lending Institution makes such payment within three business days after receipt of such notice from the Trustee. (b) Failure by the Lending Institution duly to observe or perform in any material respect any other covenant, condition or agreement in this Agreement to be observed or performed by it, other than as referred to in Section 7.01(a) hereof, for a period of thirty days after written notice, specifying such failure and requesting that it be remedied, given to the Lending Institution by the Issuer, the Trustee or the Compliance Agent, unless the Issuer, the Trustee or the Compliance Agent, (whichever has given notice) shall agree in writing to an extension of such time prior to its expiration; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, the Issuer and the Trustee will not unreasonably withhold their consent to an extension of such time if corrective action is instituted by the Lending Institution within the applicable period and diligently pursued until the default is corrected; and provided further, that no cause, reason, or event shall require the Trustee to purchase Loans on behalf of the Issuer after the date specified in Section 4.01. 05/30/85 55 1 lp/2 0 62/0 7 -41- (c) A decree or order of a court or agency or supervisory authority having jurisdiction in the premises for the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings, or for the winding up or liquidation of its affairs, shall have been entered against the Lending Institution and such decree or order shall have remained in force undischarged or unstayed for a period of sixty days. (d) The Lending Institution shall have consented to the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings of or relating to it or of or relating to all or substantially all of its property. (e) The Lending Institution shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of any applicable insolvency or reorganizaiton statute, make an assignment for the benefit of its creditors, or voluntarily suspend payments of its obligations. (f) The Lending Institution shall experience a delinquency ratio for Loans sixty (60) days or more delinquent which is two (2) times greater than the delinquency ratio for conventional mortgage loan sixty (60) days delinquent in the State of California as published by the Federal Home Loan Bank Board of San Francisco. The Lending Institution will have a thirty day cure period, as provided in (b) above, to rectify such delinquent ratio. The foregoing provisions of subsection (b) of this Section are subject to the following limitation: if by reason of Force Majeure, the Lending Institution is unable in whole or in part to carry out any agreement on its part herein contained, no such event shall be deemed a cause for termination during the continuance of such inability. The Lending Institution agrees, however, to remedy with all reasonable dispatch the cause or causes preventing it from carrying out its agreement; provided that the settlement of strikes, lockouts, and other disturbances shall be entirely within the discretion of the Lending Institution, as the case may be, and it shall not be required to make settlement of strikes, lockouts and other disturbances by acceding to the demands of the opposing party or parties when such course is in the judgment of the Lending Institution unfavorable to it. In addition, if the delinquency ratio of the Lending Institution described in subsection (f) of 05/30/85 5511p/2062/07 -42- this Section results by reason of Force Majeure, the Compliance Agent will not terminate the Agreement; provided, however, that neither Force Majeure nor any other cause, reason, or event shall require the Trustee to purchase Loans on behalf of the Issuer after the date specified in subparagraph (b) hereof. Section 7.02. Remedies. Whenever any event referred to in Section 7.01 hereof shall have happened and be continuing, the Trustee, for and on behalf of the Issuer, may take any one or more of the following remedial steps: (a) By notice in writing to the Lending Institution with respect to which such an event has occurred, the Trustee may, subject to applicable state and federal law, terminate all of the Lending Institution's rights and obligations concerning the servicing of Loans. On or after the receipt by the Lending Institution of such written notice, all authority and power of the Lending Institution under this Agreement with respect to servicing Loans shall pass to and be vested in the Trustee pursuant to and under this Section; and, without limitation, the Trustee is hereby authorized and empowered to execute and deliver, on behalf of the Lending Institution, as attorney-in-fact or otherwise, any and all documents and other instruments, and to do or accomplish all other acts or things necessary or appropriate to effect the purposes of such termination. The Lending Institution agrees to cooperate with the Trustee in effecting the termination of its servicing responsibilities hereunder, including, without limitation, the transfer to the Trustee for administration by it of Loan Files, and to a FDIC or FSLIC fully insured account designated by the Trustee all cash amounts which it shall at the time hold in its Receipts Account and loan service account or thereafter receive with respect to Loans. (b) The Trustee may take whatever other action at law or in equity may appear necessary or desirable to collect the amounts then due and thereafter to become due under this Agreement or enforce performance and observance of any obligation, agreement or covenant under this Agreement, of the Lending Institution with respect to which such an event has occurred. Any amounts collected pursuant to action taken under this Section shall be applied in accordance with the provisions of the Indenture. 05/30/85 55 1 lp/2 062/0 7 -43- Section 7.03. Trustee to Act; Appointment of Successors. At the time the Lending Institution receives a notice of termination pursuant to Section 7.02(a), the Trustee, on behalf of the Issuer, shall succeed to all rights and obligations of such terminated Lending Institution concerning servicing of the Loans and shall be entitled to receive compensation therefor as specified herein. As soon as practicable thereafter, the Trustee shall enter a servicing agreement with another qualified servicing institution approved by the Private Mortgage Insurer, or shall itself assume such servicing for such compensation. The Trustee may, if it shall be unable to so act, appoint or petition a court of competent jurisdiction to appoint any established bank or savings and loan association having a net worth of not less than $500,000, or another lending institution, as the successor to such terminated Lending Institution, in the assumption of all or any part of the responsibilities, duties or liabilities of the Lending Institution under this Agreement. In connection with such appointment and assumption, the Trustee may make such arrangements for the compensation of such successor out of payments on Loans as it and such successor shall agree; provided, however, that no such compensation shall be in excess of the funds to which the Lending Institution would have been entitled to retain or withdraw from the Receipts Account if it had continued to act hereunder. After the Lending Institution receives notice of termination under this Section 7.03, it shall be entitled to no payments or compensation of any kind (including the Service Fee for any period of time after such notice of termination) other than the payments which are provided for herein. The Trustee and such successor shall take such action, consistent with this Agreement, as shall be necessary to effectuate any such succession. Section 7.04. Notification of Bondholders. The Trustee shall give published notice to the Bondholders of any termination or appointment of a successor to the Lending Ins ti tuti on. Section 7.05. No Remedy Exclusive. Unless otherwise expressly provided, no remedy herein conferred upon the Issuer or the Trustee or reserved to any of them is intended to be exclusive of any other available remedy, but each remedy shall be cumulative and shall be in addition to other remedies given under this Agreement, the Indenture, or existing at law or in equity. No delay or omission to exercise any right or power accruing upon the happening of any event set forth in Section 7.01 hereof shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Issuer or the Trustee to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice, other than such notice as may be required in this Article. 05/30/85 55 1 lp/2062/07 -44- Section 7.06. Agreement to Pay Attorneys' Fees, Costs and Other Expenses. In the event the Lending Institution should fail to perform its obligations under any of the provisions of this Agreement and the Issuer or the Trustee should employ attorneys or incur other expenses for the enforcement of performance or observance of any obligation or agreement on the part of the Lending Institution herein contained, the Lending Institution agrees that it will pay or reimburse the Issuer or the Trustee on demand the reasonable fee of such attorneys and such other expenses and costs incurred in connection therewith. In addition, the Lending Institution agrees to pay or reimburse the Trustee on demand all expenses reasonably incurred in locating and engaging a successor Lending Institution pursuant to Section 7.03 hereof. ARTICLE VI11 COMPLIANCE AGENT Section 8.01. Compensation, Obligations, Duties, and Responsibilities of Compliance Agent. The Issuer will pay to the Compliance Agent from the Program Fund a fee of one thousand dollars ($1,000); and during the term of this Agreement, the Compliance Agent will perform all of the following obligations, duties, and responsibilities in connection with the origination and assumption of each Loan to be acquired by the Trustee on behalf of the County under the Program and pursuant to the Agreement and the Indenture: (a) To review the Loan Submission Voucher, the, documents referred to therein and such other documents relating to such Loan as it deems appropriate, to determine: (A) That the Residence (i) Is a single family, attached or detached structure, a single family condominium unit, or a single family unit in a planned unit development (but not including a mobilehome or a duplex, triplex, fourplex, or any personal property); (ii) Is located within the incorporated area of the City of Carlsbad; and (iii) Has an Acquisition Cost not exceeding the Maximum Acquisition Cost. 05/30/85 5 5 1 lp/2 0 62/0 7 -45- (B) That the land on which the Residence is situated is, in the opinion of the Compliance Agent, reasonably necessary to the basic livability of the Residence and does not provide, other than incidentally, a source of income to the mortgagor. (C) That the types and amounts of the actual or estimated settlement and financing costs, fees and other similar charges collected or to be collected by the Lending Institution do not exceed the usual and reasonable costs which would be paid by a mortgagor where financing is not provided through a qualified mortgage revenue bond issue. If such settlement and financing costs, fees or similar charges are not usual and reasonable, the Loan application shall be deemed deficient and the Lending Institution notified of such deficiency. (D) That the Mortgagor: (i) Has not had an existing mortgage, whether paid off or not, on the Residence at any time prior to the execution of the Loan, other than an existing mortgage securing a construction period loan, or similar temporary financing having a term not exceeding twenty-four (24) months; and (ii) Intends to occupy the Residence as the principal residence of the Mortgagor within a reasonable period (not to exceed sixty (60) days) following the execution of or the assumption of the Loan. (E) That except in the case of Loans in an aggregate principal amount not exceeding at any time 10 percent of the total principal amount of all Loans the individual(s) making application for a Loan, have had no present ownership interest in a principal residence at any time during the three (3) year period prior to the date on which the Loan is executed or assumed (and, in connection with the latter exception, the Compliance Agent shall continually monitor the Loans made pursuant thereto to persons who are not First Home Buyers so that said amount is never exceeded). meet these requirements, the Compliance Agent shall: In determining whether such individual(s) 05/30/85 55 1 lp/2062/07 -46- (i) Review copies of the signed or certified federal income tax returns of each individual intending to occupy the Residence for the three (3) year period immediately preceding the date of such application to confirm that the individual(s) did not claim deductions for taxes or interest on indebtedness with respect to real property constituting a principal residence of any such individual(s), whether one or more; provided that: (1) For purposes of the foregoing, the Compliance Agent's investigation with respect to such tax returns shall be deemed to be sufficient if the Compliance Agent complies fully with the requirements of Revenue Procedure 82-16 as published in Internal Revenue Bulletin No. 1982-9. (2) In lieu of such tax return, the Compliance Agent may accept the affidavit of the individual(s) stating that a tax return for one or more of the three (3) years was not required to be filed pursuant to Section 6012 of the Internal Revenue Code of 1954, as amended. (F) That there are no persons who have or who are expected to have a present ownership interest in the Residence following the execution or assumption of the Loan who have not executed a Buyer's Affidavit; and (b) To review any other documentary evidence obtained by a Lending Institution to ascertain the accuracy and completeness of information contained in the above and foregoing, affidavits, certificates, and/or federal income tax returns. The Compliance Agent shall review all documents delivered to it by a Lending Institution within five (5) business days of receipt and shall promptly notify the Lending Institution of any deficiency which the Compliance Agent determined to exist in any such materials. If a Lending Institution has not satisfactorily cured any deficiency within twenty (20) days from the date a notice specifying the deficiency is mailed to such Lending Institution, the Compliance Agent shall disapprove the Loan. Upon determining to the Compliance Agent's satisfaction that a Loan meets the requirements required to be verified by the Compliance Agent, the Compliance Agent shall deliver the Loan Submission Voucher to the Trustee and notify the Lending Institution accordingly. 05/30/85 55 1 lp/2 062/07 -47- If, following its approval of a Loan, the Compliance Agent subsequently discovers that any document submitted by a Lending Institution for review hereunder is inaccurate or defective or contains a representation or warranty of the Lending Institution which is untrue, and which inaccuracy, defect, or untrue representation or warranty, in the opinion of the Compliance Agent, may materially or adversely affect the tax exempt status of interest on the Bonds, the Compliance Agent shall give prompt written notice thereof to the Lending Institution, the County and the Trustee. Section 8.02. Liability of Compliance Agent. (a) The Compliance Agent assumes liability hereunder only to the extent that obligations, duties or responsibilities are specifically imposed upon it, and no implied covenants, warranties, or obligations shall be read into this Agreement against the Compliance Agent. (b) The Compliance Agent shall utilize reasonable efforts and due diligence in carrying out its duties hereunder and shall not be liable to the Issuer, the Trustee, or the Bondholders for any act, failure to act, error, mistake, or omission unless such act, failure to act, error, mistake or omission was willful. In no event shall the Compliance Agent have any responsibility whatsoever for the loss of the tax exempt status of the Bonds or for the curing or repurchase of any defective Home Mortgage except in its capacity as Private Mortgage Insurer. (c) No director, officer, employee, or agent of the Compliance Agent shall be liable to any other party or the Bondholders for the taking of any action or for refraining to take action in good faith pursuant to this Agreement. Section 8.03. Compliance Agent Not to Resign. The Compliance Agent shall have no right to resign from its duties and obligations hereunder; provided, however, that the Compliance Agent shall have the right from time to time, without the consent or approval of the Issuer and the Trustee, to delegate to any entity which is affiliated with the Compliance Agent some or all of the duties of the Compliance Agent hereunder, and following any such delegation, such delegee shall have sole and exclusive responsibility for performing such duties. The Compliance Agent shall also have the right from time to time, with the prior written consent of the Issuer and the Trustee (which consents shall not be unreasonably withheld), to delegate any of the above-mentioned duties of the Compliance Agent to any entity which is not affiliated with the Compliance Agent and, following such delegation, such delegee shall have sole and exclusive responsibility for performing such duties. 05/30/85 5511p/2062/07 -48- Section 8.04. Termination by Issuer. The Issuer may terminate this Agreement with respect to the Compliance Agent upon the happening of one or more of the following events: (a) Failure of the Compliance Agent to duly observe or perform in any material respect any covenant, condition, or agreement in this Agreement for a period of thirty (30) days or such longer period specified in a written notice to the Compliance Agent specifying such failure and requesting that it be remedied; (b) The Compliance Agent consents to the appointment of a conservator, receiver or liquidator to take possession of all or substantially all of the assets of the Compliance Agent; or (c) The Compliance Agent makes a general assignment for the benefit of its creditors, shall become insolvent, shall file a petition for reorganization, rearrangement or other such relief under any federal or state bankruptcy law or laws, or shall be adjudged bankrupt or insolvent in proceedings filed against the Compliance Agent. ARTICLE IX MISCELLANEOUS PROVISIONS Section 9.01. Amendments, Changes and Modifications. Subsequent to the issuance of the Bonds and prior to their payment in full (or provision for the payment thereof having been made in accordance with the provisions of the Indenture), this Agreement may not be effectively amended, changed, modified, altered or terminated without the written approval of the parties. Section 9-02. Changes in Applicable Laws. In the event the Act or the Code is amended so as, in the opinion of counsel recognized to be expert in such matters, to reduce or eliminate any restriction therein applicable to the use of the proceeds of the Bonds, the Issuer may, at its option, similarly reduce or eliminate the comparable restriction contained herein so as to conform to such amendment by giving notice thereof to the Developers and to the other parties hereto. Section 9.03. Recordation of Agreement. This Agreement, or a memorandum of any portion or portions hereof executed by the Issuer and the Lending Institution, is subject to recordation in all appropriate public offices for real property records, such recordation to be effected by the Lending Institution at its expense, on direction by the Trustee. 05/30/85 5511p/2062/07 -49- Section 9.04. Limitation on Rights of Bondholders. No Bondholder shall give any right to institute a suit with respect to this Agreement except as provided in Article VI11 of the Indenture and only if for the equal benefit of all Bondholders. This Section may be enforced by the Trustee or any Bondholder. Section 9.05. Litigation Regarding Acceleration Clauses. In the event that the exercise of any acceleration clause contained in any rider included in Exhibit E or Exhibit F hereto gives rise to litigation challenging the constitutionality or legality of such clause generally (as opposed, for example, to the manner in which it was exercised or the application thereof to a particular set of circumstances) the Lending Institution need not be responsible for pursuing or defending such litigation unless the Issuer agrees to pay such reasonable costs and attorneys' fees as may be incurred by the Lending Institution in pursuing or defending such acceleration clause. Section 9.06. Purchase of Bonds. The Lending Institution (including a "related person'' thereof, within the meaning of Section 103(b)(6)(c) of the Code) shall not purchase Bonds for its or their own account. Section 9.07. Governing Law. This Agreement shall be construed in accordance with the laws of the State and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with their own account. Section 9.08. Counterparts. This Agreement may be simultaneously executed in serveral counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 9.09. Notices. All notices, certificates, or other communications hereunder shall be sufficiently given and shall be deemed given when delivered or mailed by registered mail, postage prepaid, addressed to the appropriate Notice Address. A duplicate copy of each notice, certificate or other communication given hereunder to the Issuer, the Lending Institution, the Compliance Agent or the Trustee shall also be given to the others. The Issuer, the Lending Institution, the Compliance Agent and the Trustee may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates or other. communications shall be sent. 05/30/85 5 5 1 lp/2 062/07 -50- Section 9.10. Severability. In the event any provision of this Agreement shall be held liable or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. Section 9.11. Further Assurances and Corporate Instru- ments. To the extent permitted by law, the Issuer and the Lending Institution, severally and not jointly, agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements hereto and such further instruments as may be reasonably required for carrying out the intention of or facilitating the performance of this Agreement. Section 9.12. Term of Agreement. This Agreement shall be in full force and effect from the date of the execution hereof and shall continue in effect so long as any Bonds are outstanding or the Issuer shall own any Loans purchased hereunder whichever is later. (The remainder of this page is intentionally left blank.) 05/30/85 551 1p/2062/07 -51- IN WITNESS WHEREOF, the Lending Institution, the Issuer, the Trustee and the Compliance Agent have caused their names to be signed hereto by their respective duly authorized officers and their respective seals, duly attested, to be hereunto fixed, all as of the day and year first above written. Name of Lending Institution BY Its FIRST INTERSTATE BANK OF CALIFORNIA . BY Its UNITED GUARANTY RESIDENTIAL INSURANCE COMPANY OF IOWA BY Its CITY OF CARLSBAD, CALIFORNIA BY Mayor ATTEST : City Clerk MV [MSSA] 05/30/85 5511p/2062/07 -52- EXHIBIT A LOAN FILE PART I. Documents to be Delivered to the Trustee The following documents, for each Loan, must be for- warded to the trustee at least five days before the proposed purchase date : 1. Original and one copy of the executed Mortgage Sub- mission Voucher 2. Original executed Note with endorsement and any attendant riders 3. Original Deed of Trust or copy which has been noted: "Certified true and correct copy of original which has been transmitted for recordation." When a copy is furnished, the original must be delivered to the Trustee within sixty (60) days of the Purchase Date. 4. Original Assignment or copy meeting the same condi- tions as the Deed of Trust 5. Original title insurance policy or copy of initial binder with original policy to be delivered within sixty (60) days 6. Private Mortgage Insurance Policy or firm commitment therefor 7. Original Seller's Affidavit 8. Original Buyer's Affidavit 9. Information required by Section 4.10 of the Indenture ( "Report Re : Loans" ) PART 11. Documents to be Delivered to the Compliance Agent and the Private Mortgage Insurer Legible copies of the following for each Loan must be delivered to the Compliance Agent and the Private Mortgage Insurer concurrently with the delivery of the Loan Application to the Private Mortgage Insurer, but in no event later than at least ten days before the proposed purchase date. Compliance Agent will only be returning the original of the Mortgage Submission Voucher. The 1. Original and one copy of Mortgage Submission Voucher 2. Copy of the Seller's Affidavit 3. 4. A statement reaffirming the representations and war- Copy of the Buyer's Affidavit ranties made with respect to the Loan in the Mortgage Sale and Service Agreement Such other information as the Compliance Agent may reasonably request, including but not limited to federal income tax returns 5. 05/30/85 5 5 1 lp/2 0 62/0 7 A-2 EXHIBIT B LOAN SUBMISSION VOUCHER (Name of Lending Institution) A. LOAN INFORMATION Property Street Mtg. Int. Lender's Loan ID Borrower's Last Name Inits. Addresss and Number Rate / /I / /- // // / / // // // // / LTV Mtg.Ins. 0rig.Term City, State, Zip Code County Code 0rig.LoanAmt. Ratio Code (Months) / // // / /7 / // / / // // /L // // / Borrower's No.Instal1- Date of 1st # of Date of Purchase Date of Income ment (PGtI) Installment Units Origination Price Maturity / // // / /7 / // // / / // // // // // // / B. PURCHASE DATA Principal Interest Scheduled Accrued/Prepaid Bal. Offered Paid to Date Purchase Date Interest / / I / / / I / / / / / / / / / I hereby represent and warrant to, and covenant with, the City of Carlsbad and the Trustee that the information set forth herein (A and B) is true and correct to my best knowledge and is consistent with the terms of the Agreement. Such warranty constitutes recommendation that said Loan shall be made to Borrower. Authorized Signature Date ........................................ C. APPROVAL/REJECTION - COMPLIANCE AGENT Based on the information set forth above and the documents itemized in Part I of the Mortgage File(s) which are a part of the submission, it is hereby determined that the criteria set forth in Section 8.01 of the Mortgage Sale and Service Agreement have/have not been met, and the referenced Loan is /T APPROVED for purposes of commit- 17 REJECTED due to / / ment to borrower to make a Loan. / / UNITED GUARANTY RESIDENTIAL INSURANCE COMPANY OF IOWA By : Authorized Signature Date ........................................ D. TRUSTEE - FIRST INTERSTATE BANK OF CALIFORNIA Principal Accrued/Prepaid Bal. Purchased Interest Paid P & I Constant Date Purchased / // // // / I // // // I 05/30/85 55 1 lp/2 062/07 B-2 EXHIBIT C Letterhead of LENDING INSTITUTION June - , 1985 The City of Carlsbad, California PaineWebber Incorporated and the other Purchasers named in the Purchase Contract dated June - , 1985 PaineWebber Incorporated 100 California Street, 12th Floor San Francisco, California 94111 City of Carlsbad, California Single Family Residential Mortgage Revenue Bonds, Issue of 1985 Dear Sirs: We refer to the representations and warranties heretofore made by us in the Mortgage Sale and Service Agreement dated June 1, 1985 to induce you to execute and deliver the Purchase Contract relating to the above mentioned Bonds. Moreover, we hereby certify that the information concerning us which is set forth in the City's Official Statement with respect to the Bonds did not, as of the date of the Official Statement, and does not, as of the date hereof: (i) contain any untrue statement of a material fact, or (ii) omit to state any material fact which should be included therein for the purpose for which the Official Statement is to be used or which is necessary in order to make the statements contained therein, in light of the circumstances in which they were made, not misleading. Very truly yours, 05/30/85 55 1 lp/2 062/07 EXHIBIT D (Letterhead of Counsel to Lending Institution) June , 1985 The City of Carlsbad, California PaineWebber Incorporated and the other Purchasers named in the Purchase Contract dated June - , 1985 PaineWebber Incorporated 100 California Street, 12th Floor San Francisco, California 94111 City of Carlsbad, California Single Family Residential Mortgage Revenue Bonds, Issue of 1985 Dear Sirs: We have acted as counsel for [NAME OF LENDING INSTITUTION] (the "Lending Institution") in connection with the Lending Institution's entering into a Mortgage Sale and Service Agree- ment (the "Agreement") among the Lending Institution, the City of Carlsbad, California, First Interstate Bank of California, as Trustee, and United Guaranty Residential Insurance Company of Iowa, as Compliance Agent. In that connection we have examined originals or copies certified or otherwise identified to our satisfaction of (i) the Agreement (ii) the Charter and Bylaws of the Lending Insti- tution, and (iii) such other documents as we deem relevant to the rendering of this opinion. Based on the foregoing, and on diligent inquiry of the Lending Institution, we are of the opinion that: (i> the Lending Institution is a [INSERT TYPE OF ENTITY], duly created and lawfully existing under the laws of the State of and licensed to do busi- ness in the State of California. (ii) the Agreement has been duly authorized, executed and delivered by the Lending Institution and constitutes a valid, legal and binding obligation of the Lending Institu- tion enforceable in accordance with its terms; 05/30/85 55 1 lp/2 062/0 7 (iii) the execution and delivery of the Agreement and the performance by the Lending Institution of its obliga- tions thereunder, do not violate the Charter or Bylaws of the Lending Institution or any court order by which the Lending Institution is bound, and such actions do not con- stitute a default under any agreement, indenture, mortgage, lease, note or other obligation or instrument to which the Lending Institution is a party or by which it is bound and no approval or other action by any governmental authority or agency is required in connection therewith; and (iv) to the best of our knowledge, there is no action, suit, proceeding, inquiry or investigation at law or in equity or before or by any public board or body pending or, to our knowledge, threatened against or affecting the Lend- ing Institution or, to the best of our knowledge, any basis therefor, wherein an unfavorable decision, ruling or find- ing would adversely affect the transactions contemplated by the Agreement. Very truly yours, 05/30/85 55 1 lp/2062/07 D-2 EXHIBIT E RIDERS TO NOTE 1) - LOAN ASSUMABILITY RIDER This Loan Assumability Rider is made this day of , 19 I and is incorporated into and shall be deemed to amend and supplement the Note, dated of even date herewith, given by the undersigned (herein the "Mortgagor"). upon the Mortgagor's sale, transfer or other disposition of the Property securing this Note only if the City of Carlsbad approves in writing such assumption and the new obligor or obligors on the Note and any other new holders of an interest in such Property meet the eligibility requirements of the City of Carlsbad Home Finance Program. The obligation evidenced by this Note may be assumed 2)- LOAN INTEREST RATE INCREASE RIDER This Loan Interest Rate Increase Rider is made this day of I 19 , and is incorporated into and shall be deemed to amend and supplement the Note, dated of even date herewith, given by the undersigned (herein the "Mortgagor" ) . Upon the discovery of fraud or misrepresentation by the Mortgagor with respect to any information provided by the Mortgagor in the Buyer's Affidavit executed by the Mortgagor in connection with the Note, at the sole discretion of the holder of the Note, the rate of interest on the unpaid principal balance of the Note shall be increased to eighteen percent (18%) per annum and the monthly payments shall be increased to provide for amortization of such balance over the remaining portion of the original term of the Note with level payments of principal and interest together. 3)- FORGIVENESS RIDER This Forgiveness Rider is made this day of , 19-, and is incorporated into and shall be deemed to amend and supplement the Note, dated of even date herewith, given by the undersigned (herein the "Mortgagor"). Upon the redemption of the last outstanding bond of the issue of bonds designated as the City of Carlsbad Single Family Residential Mortgage Revenue Bonds, Issue of 1985, (the "Bonds") pursuant to the Indenture relating to the Bonds, dated as of June 1, 1985, by and between the City of Carlsbad and First Interstate Bank of California, and upon payment to the City of Carlsbad of any amount to be paid to it pursuant to said Indenture, the Mortgagor's obligation to make payments under this Note shall cease and shall be forgiven by the County and the Trustee. Mortgagor Mortgagor EXHIBIT F RIDERS TO DEED OF TRUST 1) - LOAN ASSUMABILITY RIDER This Loan Assumability Rider is made this day of , 19 , and is incorporated into and shall be deemed to amend and supplement a Deed of Trust, dated of even date herewith, given by the undersigned (herein the "Mortgagor") to secure the Mortgagor's Note to (herein "Beneficiary") and covering the property described in the Deed of Trust and located at (the "Residence"). (property address) Upon sale or other transfer, whether voluntary, involuntary or by operation of law, of all or any part of the Residence, not approved by the City of Carlsbad or to a person ineligible to receive a Loan under the City of Carlsbad Home Finance Program, Beneficiary may, by written notice to (Trustor), declare all obligations secured hereby immediately due and payable, except to the extent that such acceleration and in such particular circumstances as exercise of such a right by Beneficiary is prohibited by law. The provisions hereof shall prevail notwithstanding any contrary provisions in any note or other instrument which evidences the obligations hereby secured. (Trustor) shall notify Beneficiary promptly in writing of any transaction or event which may give rise to a right of acceleration hereunder. (Trustor) shall pay to Beneficiary all damages Beneficiary sustains by reason of the breach of the covenant of notice set forth herein. 2) - LOAN FRAUD RIDER This Loan Fraud Rider is made this day of , 19-, and is incorporated into and shall be deemed to amend and supplement a Deed of Trust, dated of even date herewith, given by the undersigned (herein the "Mortgagor") to secure the Mortgagor's Note to (herein "Beneficiary") and covering the property described in the Deed of Trust and located at (the "Residence" ) . (property address) Upon discovery of fraud or misrepresentation by the Mortgagor with respect to any information provided by the Mortgagor in the Buyer's Affidavit executed by the Mortgagor in connection with the Mortgagor's Note, Beneficiary may, at Beneficiary's sole discretion, by written notice to (Trustor), declare all obligations secured hereby immediately due and payable. The provisions hereof shall prevail notwithstanding any contrary provisions in any note or other instrument which evidences the obligations hereby secured. (Trustor) shall notify Beneficiary promptly in writing of any transaction or event which may give rise to a right of acceleration hereunder. (Trustor) shall pay to Beneficiary all damages Beneficiary sustains by reason of the breach of the covenant of notice set forth herein. Mortgagor Mortgagor EXHIBIT G BUYER'S AFFIDAVIT STATE OF CALIFORNIA ) COUNTY OF SAN DIEGO ) ) ss. as applicant for a loan to be originated by to the City of Carlsbad's Home Mortgage Financing Program, or as applicant to assume a loan purchased for said Program, and as purchaser of a residence which is the subject of such loan, being first duly sworn, in order to obtain approval therefor and to induce United Guaranty Residential Insurance Company of Iowa to issue or to continue a mortgage guaranty insurance policy with respect thereto, deposes and says: pursuant 1. The residence to be financed with the proceeds of the loan is located within the unincorporated portion of the City of Carlsbad at [address] 2. The residence is reasonably suitable for occupancy by not more than one family. 3. I intend to occupy the home as my principal place of residence within 60 days or less after the closing of the loan, and thereafter to maintain the property as my principal residence for a period of at least two years. I do not intend to, and have not entered into an arrangement to, rent, sell, assign or transfer the residence. 4. I will not use the residence in a trade or business which qualifies me to deduct any portion of the cost of the home as a home business expense on my federal or California income tax return(s), and in any event will not use more than 15% of the total area of the residence primarily in a trade or business. 5. I will not use the residence as an investment property and will not receive any income from the residence or the land being purchased with the residence except incidentally as follows: 6. I will not use the residence as a recreational home. 7. All of the land being purchased with the residence reasonably maintains the basic livability of the residence, and I have no intention of subdividing such land or otherwise selling it apart from the residence. 8. I have not had a present ownership interest* in a principal residence, including factory-made housing permanently fixed to real property, at any time during the three-year period immediately prior to the closing of the loan. 9. a. I have attached a copy of the purchase contract, together with all other agreements which I have entered into with the seller of the residence, to this Affidavit. b. The acquisition cost** of the residence as shown in the purchase contract is $ c. Neither I nor anyone on my behalf has made any payment other than the amount shown in (a) to the seller of the residence or to any other person on behalf of the seller, nor have I cancelled any debt of the seller or any related person to the seller. d. The residence (is/is not) located on leased land. If the residence is located on leased land, the terms of the lease, including the payments required to be made thereunder, are set forth below: *The term "present ownership interest" includes not only outright ownership but also any of the following interests if held either directly by you or in trust for you: a joint tenancy, a tenancy in common, a tenancy by the entirety, a community property interest, the interest of a tenant- shareholder in a cooperative, a life estate, or a contract pursuant to which you have possession and the benefits and burdens of ownership although legal title is not transferred until some time later. This provision does not apply to certain Residences as provided for in the City of Carlsbad's Mortgage Sale and Service Agreement dated June 1, 1985. **The term "acquisition cost" means the cost of acquiring the residence from the seller as a completed unit. The term does not include usual and reasonable settlement or financing costs. It does include the amount of any lien or assessment to which the residence is subject. 05/30/85 5511p/2062/07 G- 2 10. I will not use any part of the loan proceeds to acquire or replace an existing mortgage except for the construction period financing or other temporary initial financing set forth below: Amount of Type, Purpose, and Term of Loan Proceeds Existing Mortgage Being Acquired or Replaced 11. I will not lease the residence, nor allow the mortgage on the residence to be assumed, nor sell the residence subject to the mortgage, without the approval of the City of Carlsbad. 12. My adjusted gross income as calculated for federal income tax purposes is $ , and, for all other persons who intend to reside permanently with me in the residence, is $ I have read the Note and the Deed of Trust, and I understand that the loan may be accelerated and the interest rate increased upon the occurrence of certain events specified therein. I understand that, if I have made any material misstatements in the foregoing representations or omitted to state any of the information requested, the following may occur: 1. I may be fined not more than $ or imprisoned not more than two years, or both, pursuant to Section 1014 of Title 18 of the United States Code. 2. The office of the district attorney may be contacted for investigation regarding misrepresentation and fraud. 3. The outstanding principal balance of the loan may be declared immediately due and payable together with accrued interest and foreclosure costs (if foreclosure is necessary because payment in full is not made immediately). 05/30/85 5511p/2062/07 G-3 4. The rate of interest on the loan may be increased to percent (-x), and the monthly payment amount will be increased to amortize the loan over the same term. Signature Subscribed and sworn to before me thi s day of , 19 . Notary Public in and for said County and State 05/30/85 55 1 lp/2062/07 G- 4 EXHIBIT H SELLER'S AFFIDAVIT STATE OF CALIFORNIA ) COUNTY OF SAN DIEGO ) ) ss. , as the authorized representa- tive of the seller of a residence to and , as purchaser(s), being first duly sworn, in order to induce United Guaranty Residential Insurance Company of Iowa to issue or to continue a mortgage guaranty insurance policy with respect thereto, deposes and says : 1. The residence is located at [address] 2. The residence is reasonably suitable for occupancy by not more than one family. 3. All of the land being sold with the residence reasonably maintains the basic livability of the residence, and to the best of (my/our) knowledge the purchasers do not intend to subdivide such land. 4. a. The acquisition cost* of the residence as shown in the purchase contract is $ b. Neither the purchasers nor anyone on their behalf has made any payment other than the amount shown in (a) to me or to any other person on my behalf, nor have they cancelled any debt owned by me or by any person related to me. *The term "acquisition cost" means the cost of acquiring a residence from the seller as a completed unit. The term does not include usual and reasonable settlement or financing costs. It does include the amount of any lien or assessment to which the residence is subject. c. The residence (is/is not) located on leased land. If the residence is located on leased land, the terms of the lease, including the payments required to be made thereunder, are set forth below: d. The residence has/has not been previously occupied. 5. The proceeds of the loan being obtained by the purchasers from the City of Carlsbad's Home Mortgage Finance Program will not be used to acquire or replace an existing mortgage on the property (except for construction period financing or other temporary initial financing). 6. If the undersigned is a developer who has executed a Developer Agreement with the City of Carlsbad, the undersigned hereby reaffirms the representations and warranties with respect to the Residence which are contained in Section 4.5 of said Developer Agreement. Signature Subscribed and sworn to before me this day of , 19 . - Notary Public in and for said County and State 05/30/85 5511p/2062/07 H-2