Exhibit 1.1

 

Execution Version

 

 

 

AMENDED AND RESTATED

 

MANAGEMENT AGREEMENT

 

by and among

 

PENNYMAC MORTGAGE INVESTMENT TRUST,

 

PENNYMAC OPERATING PARTNERSHIP, L.P.

 

and

 

PNMAC CAPITAL MANAGEMENT, LLC

 

Dated as of February 1, 2013

 

 

 

AMENDED AND RESTATED MANAGEMENT AGREEMENT, dated as of February 1, 2013, by and among PennyMac Mortgage Investment Trust, a Maryland real estate investment trust (the “ Trust ”), PennyMac Operating Partnership, L.P., a Delaware limited partnership (the “ Operating Partnership ”), and PNMAC Capital Management, LLC, a Delaware limited liability company (the “ Manager ”).

 

W I T N E S S E T H:

 

WHEREAS, the Trust is a Maryland real estate investment trust which invests primarily in residential mortgage loans and mortgage-related assets and has qualified and intends to continue to qualify as a real estate investment trust for federal income tax purposes and will elect to receive the tax benefits accorded by Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “ Code ”);

 

WHEREAS, the Trust conducts substantially all of its operations, and makes substantially all of its investments, through the Operating Partnership, which is a Subsidiary of the Trust;

 

WHEREAS, the Trust, the Operating Partnership and the Manager entered into the Management Agreement dated as of August 4, 2009 (the “ Original Agreement ”) and Amendment No. 1 to Management Agreement, dated as of March 3, 2010 (“ Amendment No. 1 ”) and Amendment No. 2 to Management Agreement, dated as of May 16, 2012 (“ Amendment No. 2 ,” and the Original Agreement, as amended by Amendment No. 1 and Amendment No. 2, the “ Existing Management Agreement ”), pursuant to which the Manager manages the business and investment affairs of the Trust and the Subsidiaries (as defined below) and performs services for the Trust and the Subsidiaries in the manner and on the terms set forth in the Existing Management Agreement; and

 

WHEREAS, the Trust, the Operating Partnership and the Manager have agreed to amend and restate the Existing Management Agreement on the terms set forth herein.

 

NOW THEREFORE, in consideration of the premises and agreements hereinafter set forth, the parties hereto hereby agree as follows:

 

Section 1.  Definitions.  (a)  The following terms shall have the meanings set forth in this Section 1(a):

 

“ AAA ” has the meaning set forth in Section 7(f) hereof.

 

“ Affiliate ” means (1) any Person directly or indirectly controlling, controlled by or under common control with such other Person, (2) any executive officer or general partner of such other Person and (3) any legal entity for which such Person acts as an executive officer or general partner.

 

“ Agreement ” means this Amended and Restated Management Agreement, as amended, supplemented or otherwise modified from time to time.

 

 

“ Allocation Policy ” means the allocation policy for the Trust and the Manager, a copy of which is attached hereto as Exhibit A, as the same may be amended, restated, modified, supplemented or waived by the Independent Trustees as specified therein.

 

“Amended and Restated Flow Servicing Agreement” means the Amended and Restated Flow Servicing Agreement between the Operating Partnership and PennyMac Loan Services, dated as of February 1, 2013.

 

“ Arbitrator ” has the meaning set forth in Section 7(f) hereof.

 

“ Automatic Renewal Term ” has the meaning set forth in Section 11(b) hereof.

 

“ Bankruptcy ” means, with respect to any Person, (a) the filing by such Person of a voluntary petition seeking liquidation, reorganization, arrangement or readjustment, in any form, of its debts under Title 11 of the United States Code or any other federal, state or foreign insolvency law, or such Person’s filing an answer consenting to or acquiescing in any such petition, (b) the making by such Person of any assignment for the benefit of its creditors, (c) the expiration of 60 days after the filing of an involuntary petition under Title 11 of the Unites States Code, an application for the appointment of a receiver for a material portion of the assets of such Person, or an involuntary petition seeking liquidation, reorganization, arrangement or readjustment of its debts under any other federal, state or foreign insolvency law, provided , that the same shall not have been vacated, set aside or stayed within such 60-day period or (d) the entry against it of a final and non-appealable order for relief under any bankruptcy, insolvency or similar law now or hereinafter in effect.

 

“ Base Management Fee ” means the base management fee, calculated and payable (in cash) quarterly in arrears, in an amount equal to the sum of (a) 1.50% per annum of the Trust’s Shareholders’ Equity up to $2.0 billion, (b) 1.375% per annum of the Trust’s Shareholders’ Equity above $2.0 billion and up to $5.0 billion and (c) 1.250% per annum of the Trust’s Shareholders’ Equity in excess of $5.0 billion.  For purposes of calculating the Base Management Fee, outstanding limited partnership interests in the Operating Partnership (other than limited partnership interests held by the Trust) shall be treated as outstanding Common Shares.

 

“ Board of Trustees ” means the board of trustees of the Trust.

 

“ Business Day ” means any day except a Saturday, a Sunday or a day on which banking institutions in New York, New York are not required to be open.

 

“ Change in Control of the Manager ” means the occurrence of any of the following: (1) the sale, lease or transfer, in one or a series of related transactions, of all or substantially all of the assets of the Manager, taken as a whole, to any Person other than one or more Affiliates of the Manager,  Private National Mortgage Acceptance Company, LLC, the Trust or a Subsidiary; (2) the acquisition by any Person or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision), including any group acting for the purpose of acquiring, holding or disposing of securities (within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than one or more Affiliates of the Manager, Private National Mortgage Acceptance Company, LLC, the Trust or a Subsidiary, in a single transaction or in a

 

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related series of transactions, by way of merger, consolidation or other business combination or purchase of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision) of 50% or more of the total voting power of the voting securities of the Manager; or (3) Stanford L. Kurland ceases to be, or perform the duties of, Chief Executive Officer of the Manager and a replacement Chief Executive Officer, deemed suitable in the Trust’s discretion, has not been retained within a six month period from the date on which Stanford L. Kurland ceased to be, or perform the duties of, Chief Executive Officer.

 

“ Claim ” has the meaning set forth in Section 9(c) hereof.

 

“ Code ” has the meaning set forth in the Recitals.

 

“ Common Shares ” means the common shares of beneficial interest, par value $0.01, of the Trust.

 

“ Conditional Payments ” means the Manager Conditional Payment and the Underwriter Conditional Payment.

 

“ Conduct Policies ” has the meaning set forth in Section 2(t) hereof.

 

“ Confidential Information ” has the meaning set forth in Section 6(a) hereof.

 

“ Confidentiality and Standstill Agreement ” means the Confidentiality and Standstill Agreement dated February 1, 2013 by and between Private National Mortgage Acceptance Company, LLC and the Trust.

 

“ Dispute ” has the meaning set forth in Section 7(f) hereof.

 

“ Effective Termination Date ” has the meaning set forth in Section 11(c) hereof.

 

“ Excess Funds ” has the meaning set forth in Section 2(u) hereof.

 

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

 

“Fannie MAE MBS Yield” means the average, during the Rolling Four Quarters Period, of the 30 year Fannie Mae current coupon as reported on Bloomberg under the function “MTGEFNCL INDEX” or such successor function.

 

“ Fee Amendment ” has the meaning set forth in Section 7(e) hereof.

 

“ Fee Negotiations ” has the meaning set forth in Section 7(e) hereof.

 

“ GAAP ” means generally accepted accounting principles in effect in the United States on the date such principles are applied.

 

“ Governing Instruments ” means, with regard to any entity, the trust instrument in the case of a trust, the articles of incorporation or certificate of incorporation and bylaws in the case of a corporation, the certificate of limited partnership (if applicable) and the partnership agreement in the case of a general or limited partnership, the certificate of formation and

 

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operating agreement in the case of a limited liability company, or similar governing documents, in each case as amended.

 

“ High Watermark ” means an amount initially equal to zero. If in any fiscal quarter the product of the Equity Amount and the lesser of the Fannie Mae MBS Yield and 8% exceeds the Return, the High Watermark shall be increased by the amount of such excess (the “High Watermark Rise”), and thereafter, the High Watermark shall be adjusted each fiscal quarter as follows: (a) if there is a High Watermark Rise for such fiscal quarter, the High Watermark shall be increased by the amount of such High Watermark Rise and (b) if the Return exceeds the product of the Equity Amount and the lesser of the Fannie Mae MBS Yield and 8% for such fiscal quarter, the High Watermark shall be decreased by the amount of such excess; provided that if in any fiscal quarter the Incentive Fee is greater than or equal to zero, the High Watermark shall be reset to zero.

 

“ High Watermark Rise ” has the meaning set forth in the definition of “High Watermark.”

 

“ Incentive Fee ” means an incentive management fee calculated and payable (in cash or Common Shares (subject to reasonable restrictions on sale and transfer, provided that (i) the Trust shall use commercially reasonable efforts to cause, at its sole expense, any Common Shares issued in payment of the Incentive Fee to be registered for sale under the Securities Act, (ii) the Manager may sell or distribute such Common Shares in the manner that it determines, consistent with the Trust’s Policy Against Insider Trading and any applicable securities laws, including pursuant to Rule 10b5-1 under the Exchange Act, and (iii) the amount of the Incentive Fee payable in any particular quarter that may be paid in Common Shares shall be limited to 50% of the Incentive Fee payable for such quarter), as determined by a majority of the Independent Trustees) each fiscal quarter in arrears in an amount equal to the sum of:

 

(a)                                  10% per annum of the dollar amount by which the Return exceeds the High Watermark plus the product of:

 

(1)                                  the weighted average of the issue price per Common Share of all of the Trust’s public offerings of Common Shares (including the Initial Public Offering) multiplied by the weighted average number of Common Shares outstanding (including, for the avoidance of doubt, restricted share units granted under one or more of the Trust’s equity incentive plans) in the four-quarter period (the “Equity Amount”); and

 

(2)                                  8.0%,

 

but is less than or equal to the High Watermark plus the product of (i) the Equity Amount and (ii) 12%; plus

 

(b)                                  15% per annum of the dollar amount by which the Return equals or exceeds the High Watermark plus the product of:

 

(1)                                  the Equity Amount; and

 

(2)                                  12%,

 

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but is less than the High Watermark plus the product of (i) the Equity Amount and (ii) 16%; plus

 

(c)                                   20% per annum of the dollar amount by which the Return exceeds the High Watermark plus the product of:

 

(1)                                  the Equity Amount; and

 

(2)                                  16%.

 

For purposes of calculating the Incentive Fee, outstanding limited partnership interests in the Operating Partnership (other than limited partnership interests held by the Trust) shall be treated as outstanding Common Shares.

 

“ Indemnified Party ” has the meaning set forth in Section 9(b) hereof.

 

“ Independent Trustee ” means a member of the Board of Trustees who is not an officer or employee of the Manager or any Affiliate thereof and who otherwise is “independent” in accordance with the rules of the NYSE or such other securities exchange on which the Common Shares may be listed.

 

“ Initial Public Offering ” means the sale by the Trust of 14,706,327 Common Shares in the initial public offering of the Trust registered with the SEC.

 

“ Initial Term ” has the meaning set forth in Section 11(a) hereof.

 

“ Investment Company Act ” means the Investment Company Act of 1940, as amended.

 

“ Investment Policies ” means the Trust’s investment policies, a copy of which is attached hereto as Exhibit B, as the same may be amended, restated, modified, supplemented or waived by the Board of Trustees as specified therein.

 

“ Losses ” has the meaning set forth in Section 9(a) hereof.

 

“ Manager Conditional Payment ” means the conditional obligation of the Trust pursuant to the terms of the Underwriting Fee Reimbursement Agreement to reimburse the Manager an amount equal to the Manager Offering Payments (as such term is defined in the Underwriting Agreement) if the conditions set forth in the Underwriting Fee Reimbursement Agreement are met during the Conditional Payment Period (as defined in the Underwriting Fee Reimbursement Agreement).

 

“ Manager Indemnified Party ” has the meaning set forth in Section 9(a) hereof.

 

“ Manager Permitted Disclosure Parties ” has the meaning set forth in Section 6(a) hereof.

 

“ Manager Related Party ” means (a) any person who is, or at any time since the beginning of the Manager’s last fiscal year was, a manager or executive officer of the Manager or a nominee to become a manager of the Manager; (b) any person who is known to be the beneficial owner of more than 5% of any class of the Manager’s voting securities; (c) any

 

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immediate family member of any of the foregoing persons (which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of any of the foregoing persons); and (d) any firm, corporation or other entity in which any of the foregoing persons is employed or is a general partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership interest.

 

“ MBWS Agreement ” means the Mortgage Banking and Warehouse Services Agreement, dated as of February 1, 2013, by and between PennyMac Loan Services and PennyMac Corp.

 

“MSR Recapture Agreement” means the MSR Recapture Agreement entered into between PennyMac Loan Services and PennyMac Corp., dated as of February 1, 2013.

 

“ Net Income ” means net income or loss calculated in accordance with GAAP, and adjusted to exclude one-time events pursuant to changes in GAAP and certain other non-cash charges after discussion between the Manager and the Independent Trustees and after approval by a majority of the Independent Trustees.

 

For the initial four fiscal quarters following the date hereof, Net Income will be calculated on the basis of each of the previously completed fiscal quarters prior to the execution of this Agreement.

 

“ Net Income Offset ” means any portion of a Net Loss from a period prior to the Rolling Four Quarters Period that has not been taken into account in reducing the amount of Net Income (but not below zero) from a period subsequent to the period in which such Net Loss occurred in connection with the calculation of the Incentive Fee for any period.

 

“ Net Loss ” means a net loss with regard to any period as calculated in accordance with the definition of Net Income.

 

“ Nonrenewal Termination ” has the meaning set forth in Section 11(c) hereof.

 

“ Notice of Proposal to Negotiate ” has the meaning set forth in Section 11(c) hereof.

 

“ NYSE ” means the New York Stock Exchange, Inc.

 

“ PennyMac Brand ” has the meaning set forth in Section 17(a) hereof.

 

“ PennyMac Corp. ” means PennyMac Corp., a Delaware corporation and Affiliate of the Trust.

 

“ PennyMac Loan Services ” means PennyMac Loan Services, LLC, a Delaware limited liability company and Affiliate of the Manager.

 

“ Person ” means any natural person, corporation, partnership, association, limited liability company, estate, trust, joint venture, unincorporated association, any federal, state, county or municipal government or any bureau, department or agency thereof or any other legal entity and any fiduciary acting in such capacity on behalf of the foregoing.

 

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“ Portfolio Management Services ” has the meaning set forth in Section 2(b) hereof.

 

“ REIT ” means a “real estate investment trust” as defined under the Code.

 

“ Return ” means the Trust’s Net Income, for the Rolling Four Quarters Period, plus the amount of any Incentive Fee included in the determination in the amount of such Net Income, if any, during any of the fiscal quarters in such Rolling Four Quarters Period and less the amount of any Net Income Offset.

 

“ Rolling Four Quarters Period ” means the most recently completed fiscal quarterly period and the three fiscal quarters immediately preceding the most recently completed fiscal quarter.

 

“ SEC ” means the United States Securities and Exchange Commission.

 

“ Securities Act ” means the Securities Act of 1933, as amended.

 

“ Shareholder ” means a shareholder of the Trust.

 

“ Shareholders’ Equity ” means:

 

(A)                                the sum of the net proceeds from any issuances of the Trust’s equity securities since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance); plus

 

(B)                                the Trust’s retained earnings at the end of such quarter; less

 

(C)                                any amount that the Trust pays for repurchases of its Common Shares (allocated on a pro rata daily basis for such repurchases during the fiscal quarter of any such repurchase); excluding

 

(D)                                one-time events pursuant to changes in GAAP and certain other non-cash charges after discussions between the Manager and the Independent Trustees and after approval by a majority of the Independent Trustees.

 

The Conditional Payments shall be taken into account in the calculation of Shareholders’ Equity only from and after the payment thereof, if any.

 

For purposes of calculating the Base Management Fee, outstanding limited partnership interests in the Operating Partnership (other than limited partnership interests held by the Trust) shall be treated as outstanding Common Shares.

 

“ Subsidiary ” means any subsidiary of the Trust, any partnership (including the Operating Partnership), the general partner of which is the Trust or any subsidiary of the Trust; any limited liability company, the managing member of which is the Trust or any subsidiary of the Trust; and any corporation or other entity of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests is owned, directly or indirectly, by the Trust or any subsidiary of the Trust.

 

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“ Termination Fee ” means a termination fee equal to three (3) times the sum of (a) the average annual Base Management Fees and (b) the average annual (or, if the period is less than 24 months, annualized) Incentive Fees earned by the Manager during the 24-month period immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter before the date of termination.

 

“ Termination Notice ” has the meaning set forth in Section 11(c) hereof.

 

“ Trust Account ” has the meaning set forth in Section 5 hereof.

 

“ Trust Indemnified Party ” has the meaning set forth in Section 9(b) hereof.

 

“ Trust Permitted Disclosure Parties ” has the meaning set forth in Section 6(b) hereof.

 

“ Underwriter Conditional Payment ” means the conditional obligation of the Trust pursuant to the terms of the Underwriting Agreement to pay to the Underwriters the Conditional Payment (as defined in the Underwriting Agreement) if the conditions set forth in the Underwriting Agreement are met during the Conditional Payment Period (as defined in the Underwriting Agreement).

 

“ Underwriters ” means the underwriters named in the Underwriting Agreement.

 

“ Underwriting Agreement ” means the purchase agreement, dated July 29, 2009, among the Trust, the Operating Partnership, the Manager and the Underwriters relating to the Initial Public Offering.

 

“ Underwriting Fee Reimbursement Agreement ” means the Underwriting Fee Reimbursement Agreement, dated as of August 4, 2009, among the Trust, the Operating Partnership and the Manager.

 

(b)                                  As used herein, accounting terms relating to the Trust and the Subsidiaries, if any, not defined in Section 1(a) and accounting terms partly defined in Section 1(a), to the extent not defined, shall have the respective meanings given to them under GAAP.

 

(c)                                   The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section references are to this Agreement unless otherwise specified.

 

(d)                                  The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.  The words include, includes and including shall be deemed to be followed by the phrase “without limitation.”

 

Section 2.  Appointment and Duties of the Manager.  (a)   The Trust and the Operating Partnership hereby appoint the Manager to manage the investments and day-to-day operations of the Trust and the Subsidiaries, subject at all times to the further terms and conditions set forth in this Agreement and to the supervision of, and such further limitations or parameters as may be imposed from time to time by, the Board of Trustees.  The Manager hereby agrees to use its

 

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commercially reasonable efforts to perform each of the duties set forth herein, except where a specific standard of care is specified, in which case such specific standard of care shall apply.  The appointment of the Manager shall be exclusive to the Manager, except to the extent that the Manager elects, in its sole and absolute discretion, in accordance with the terms of this Agreement, to cause the duties of the Manager as set forth herein to be provided by third parties.

 

(b)                                  The Manager, in its capacity as manager of the investments and the day-to-day operations of the Trust and the Subsidiaries, at all times will be subject to the supervision and direction of the Board of Trustees and will have only such functions and authority as the Board of Trustees may delegate to it, including, without limitation, the functions and authority identified herein and delegated to the Manager hereby.  The Manager will be responsible for the day-to-day operations of the Trust and the Subsidiaries and will perform (or cause to be performed) such services and activities relating to the operations of the Trust and the Subsidiaries, including the investments of the Trust and the Subsidiaries and their financing, as may be appropriate, which may include, without limitation:

 

(i)                                      serving as the Trust’s and the Subsidiaries’ consultant with respect to the periodic review of the Investment Policies and Allocation Policy, which review shall occur no less often than annually, any modifications to which shall be approved by a majority of the Independent Trustees, and other policies and recommendations with respect thereto for approval by a majority of the Independent Trustees;

 

(ii)                                   serving as the Trust’s and the Subsidiaries’ consultant with respect to the identification, investigation, evaluation, analysis, underwriting, selection, purchase, origination, negotiation, structuring, monitoring and disposition of the Trust’s and the Subsidiaries’ investments;

 

(iii)                                serving as the Trust’s and the Subsidiaries’ consultant with respect to decisions regarding any financings, securitizations and hedging activities undertaken by the Trust or any Subsidiary, including (1) assisting the Trust or any Subsidiary in developing criteria for debt and equity financing that is specifically tailored to the Trust’s or such Subsidiary’s investment objectives, (2) advising the Trust and the Subsidiaries with respect to obtaining appropriate short-term financing arrangements for their investments and pursuing a particular arrangement for each individual investment, if necessary, and (3) advising the Trust and the Subsidiaries with respect to pursuing and structuring long-term financing alternatives for their investments, in each case consistent with the Investment Policies;

 

(iv)                               serving as the Trust’s and the Subsidiaries’ consultant with respect to arranging for the issuance of mortgage-backed securities from pools of mortgage loans or mortgage-backed securities owned by the Trust or any Subsidiary;

 

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(v)                                  representing and making recommendations to the Trust and the Subsidiaries in connection with the purchase and finance and commitment to purchase and finance investments and the sale and commitment to sell such investments;

 

(vi)                               negotiating and entering into, on behalf of the Trust or any Subsidiary, credit finance agreements, repurchase agreements, securitization agreements, agreements relating to borrowings under temporary programs established by the U.S. government, commercial paper, interest rate swap agreements, warehouse facilities and all other agreements and instruments required for the Trust and the Subsidiaries to conduct their business;

 

(vii)                            advising the Trust and the Subsidiaries on, preparing, negotiating and entering into, on behalf of the Trust or any Subsidiary, applications and agreements relating to programs established by the U.S. government;

 

(viii)                         with respect to any prospective investment by the Trust or any Subsidiary and any sale, exchange or other disposition of any investment by the Trust or any Subsidiary, conducting negotiations on behalf of the Trust or such Subsidiary with real estate brokers, sellers and purchasers and their respective agents, representatives and investment bankers and owners of privately and publicly held real estate companies;

 

(ix)                               evaluating and recommending to the Trust and the Subsidiaries hedging strategies and engaging in hedging activities on their behalf that are consistent with such strategies, as so modified from time to time, and with the Trust’s qualification as a REIT and with the Investment Policies;

 

(x)                                  making available to the Trust and the Subsidiaries the Manager’s knowledge and experience with respect to mortgage loans, mortgage-related securities, real estate, real estate securities, other real estate-related assets and non-real estate-related assets and real estate operating companies;

 

(xi)                               investing and re-investing any funds of the Trust and the Subsidiaries (including in short-term investments) and advising the Trust and the Subsidiaries as to its capital structure and capital-raising activities;

 

(xii)                            monitoring the operating performance of the Trust’s and the Subsidiaries’ investments and providing periodic reports with respect thereto to the Board of Trustees, including comparative information with respect to such operating performance and budgeted or projected operating results;

 

(xiii)                         engaging and supervising, on behalf of the Trust or any Subsidiary, and at the expense of the Operating Partnership (except to the extent determined by the Operating Partnership, in its sole discretion, to be the expense of a Subsidiary other than the Operating Partnership), independent contractors that provide real estate, investment banking, mortgage brokerage,

 

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securities brokerage, appraisal, engineering, environmental, seismic, insurance, legal, accounting, transfer agent, registrar, leasing, due diligence and such other services as may be required relating to the operations of the Trust and the Subsidiaries, including their investments (or potential investments);

 

(xiv)                        coordinating and managing operations of any joint venture or co-investment interests held by the Trust or any Subsidiary and conducting all matters with the joint venture or co-investment partners;

 

(xv)                           providing executive and administrative personnel, office space and office services required in rendering services to the Trust and the Subsidiaries;

 

(xvi)                        performing and supervising the performance of administrative functions necessary in the management of the Trust and the Subsidiaries as may be agreed upon by the Manager and the Board of Trustees, including, without limitation, the services in respect of any of the equity incentive plans, the collection of revenues and the payment of the Trust’s or any Subsidiary’s debts and obligations and maintenance of appropriate information technology services to perform such administrative functions;

 

(xvii)                     furnishing reports and statistical and economic research to the Trust and the Subsidiaries regarding their activities and services performed for the Trust and the Subsidiaries by the Manager;

 

(xviii)                  counseling the Trust and the Subsidiaries in connection with policy decisions to be made by the Board of Trustees;

 

(xix)                        communicating on behalf of the Trust or any Subsidiary with the holders of any equity or debt securities of the Trust or such Subsidiary as required to satisfy the reporting and other requirements of any governmental bodies or agencies or trading exchanges or markets and to maintain effective relations with such holders, including website maintenance, logo design, analyst presentations, investor conferences and annual meeting arrangements;

 

(xx)                           counseling the Trust and the Subsidiaries regarding the maintenance of their exclusions and, if applicable, exemptions from status as an investment company under the Investment Company Act, monitoring compliance with the requirements for maintaining such exclusions and exemptions and using commercially reasonable efforts to cause the Trust and the Subsidiaries to maintain their exclusions and exemptions from such status;

 

(xxi)                        assisting the Trust and the Subsidiaries in complying with all regulatory requirements applicable to them in respect of their business activities, including preparing or causing to be prepared all financial statements required under applicable regulations and all reports and documents, if

 

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any, required under the Exchange Act, the Securities Act and by the NYSE;

 

(xxii)                     counseling the Trust regarding the maintenance of its qualification as a REIT and monitoring compliance with the various REIT qualification tests and other rules set out in the Code and Treasury Regulations promulgated thereunder;

 

(xxiii)                  causing the Trust and the Subsidiaries to retain qualified accountants and legal counsel, as applicable, to (1) assist in developing appropriate accounting procedures, compliance procedures and testing systems with respect to financial reporting obligations and compliance with the provisions of the Code applicable to REITs and, if applicable, taxable REIT subsidiaries and (2) conduct quarterly compliance reviews with respect thereto;

 

(xxiv)                 taking all necessary actions to enable the Trust and any Subsidiary to make required tax filings and reports, including soliciting Shareholders or interest holders in any such Subsidiary for required information to the extent necessary under the Code and Treasury Regulations promulgated thereunder applicable to REITs;

 

(xxv)                    causing the Trust and the Subsidiaries to qualify to do business in all jurisdictions in which such qualification is required or advisable and to obtain and maintain all appropriate licenses;

 

(xxvi)                 using commercially reasonable efforts to cause the Trust and the Subsidiaries to comply with all applicable laws;

 

(xxvii)              handling and resolving on the Trust’s or any Subsidiary’s behalf all claims, disputes or controversies (including all litigation, arbitration, settlement or other proceedings or negotiations) in which the Trust or such Subsidiary may be involved or to which the Trust or such Subsidiary may be subject arising out of its day-to-day operations (other than with the Manager or its Affiliates), subject to such limitations or parameters as may be imposed from time to time by the Board of Trustees;

 

(xxviii)           arranging marketing materials, advertising, industry group activities (such as conference participations and industry organization memberships) and other promotional efforts designed to promote the Trust’s and the Subsidiaries’ business;

 

(xxix)                 using commercially reasonable efforts to cause expenses incurred by or on behalf of the Trust and the Subsidiaries to be commercially reasonable or commercially customary and within any budgeted parameters or expense guidelines set by the Board of Trustees from time to time; and

 

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(xxx)                    performing such other services as may be required from time to time for the management and other activities relating to the operations, including investments, of the Trust and the Subsidiaries as the Board of Trustees reasonably requests or the Manager deems appropriate under the particular circumstances.

 

Without limiting the foregoing, the Manager will perform portfolio management services (the “ Portfolio Management Services ”) on behalf of the Trust and the Subsidiaries with respect to their investments. Such services will include, but not be limited to, consulting with the Trust and the Subsidiaries on the purchase and sale of, and other investment opportunities in connection with, the Trust’s and the Subsidiaries’ portfolio of assets; the collection of information and the submission of reports pertaining to the Trust’s and the Subsidiaries’ assets, interest rates and general economic conditions; periodic review and evaluation of the performance of the Trust’s and the Subsidiaries’ portfolio of assets; acting as liaison between the Trust and the Subsidiaries and banking, mortgage banking, investment banking and other parties with respect to the purchase, financing and disposition of assets; and other customary functions related to portfolio management.

 

(c)                                   For the period and on the terms and conditions set forth in this Agreement, each of the Trust and the Operating Partnership hereby constitutes, appoints and authorizes the Manager as its true and lawful agent and attorney-in-fact and as the true and lawful agent and attorney-in-fact of any other Subsidiary, in its name, place and stead, to negotiate, execute, deliver and enter into such credit agreements, repurchase agreements, securitization agreements, agreements relating to borrowings under temporary programs established by the U.S. government, commercial paper, interest rate swap agreements, warehouse facilities, brokerage agreements, custodial agreements and such other agreements, instruments and authorizations on their behalf, on such terms and conditions as the Manager, acting in its sole and absolute discretion, deems necessary or appropriate. This power of attorney is deemed to be coupled with an interest.

 

(d)                                  The Manager may enter into agreements with other parties, including its Affiliates, for the purpose of engaging one or more parties for and on behalf of the Trust and/or one or more of the Subsidiaries, and at the sole cost and expense of the Operating Partnership (except to the extent determined by the Operating Partnership, in its sole discretion, to be the expense of a Subsidiary other than the Operating Partnership), to provide property management, asset management, securitization, leasing, development and/or other services to the Trust and the Subsidiaries (including, without limitation, Portfolio Management Services) pursuant to agreement(s) with terms which are then customary for agreements regarding the provision of services to companies that have assets similar in type, quality and value to the assets of the Trust and the Subsidiaries; provided , that (i) any agreements entered into with Affiliates of the Manager or any Manager Related Party shall be (A) on terms no more favorable to such Affiliates than would be obtained from a third party on an arm’s-length basis and (B) approved in advance by a majority of the Independent Trustees,(ii) with respect to Portfolio Management Services, (A) any such agreements shall be subject to the Trust’s prior written approval and (B) the Manager shall remain liable for the performance of such Portfolio Management Services, and (iii) with respect to all agreements or other arrangements with other parties, the Manager shall comply with the requirements of the Trust’s Related Party Transactions Policy.

 

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(e)                                   To the extent that the Manager deems necessary or advisable, the Manager may, from time to time, propose to retain one or more additional entities for the provision of sub-advisory services to the Manager in order to enable the Manager to provide the services to the Trust and the Subsidiaries specified by this Agreement; provided , that any such agreement (1) shall be on terms and conditions substantially identical to the terms and conditions of this Agreement or otherwise not adverse to the Trust and the Subsidiaries, (2) shall not result in an increased Base Management Fee, Incentive Fee or expenses payable hereunder and (3) shall be approved by a majority of the Independent Trustees.

 

(f)                                    The Manager may retain, for and on behalf of the Trust and/or one or more of the Subsidiaries, and at the sole cost and expense of the Operating Partnership (except to the extent determined by the Operating Partnership, in its sole discretion, to be the expense of a Subsidiary other than the Operating Partnership), such services of accountants, legal counsel, appraisers, insurers, brokers, transfer agents, registrars, financial printers, developers, investment banks, financial advisors, internal audit service providers, due diligence firms, underwriting review firms, banks and other lenders, surveyors, engineers, environmental and seismic consultants, information technology consultants, tax advisors and preparers, other consultants, agents, contractors, vendors, advisors and others as the Manager deems necessary or advisable in connection with the management and operations of the Trust and the Subsidiaries. Notwithstanding anything contained herein to the contrary, the Manager shall have the right to cause any such services to be rendered by its employees or Affiliates. Except as otherwise provided herein, the Operating Partnership (or such other Subsidiary) shall pay or reimburse the Manager or its Affiliates performing such services for the cost thereof; provided , that such costs and reimbursements are no greater than those which would be payable to outside professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arm’s-length basis.

 

(g)                                   The Manager may effect transactions by or through the agency of another person with it or its Affiliates which have an arrangement under which that party or its Affiliates will from time to time provide to or procure for the Manager and/or its Affiliates goods, services or other benefits (including, but not limited to, research and advisory services; economic and political analysis, including valuation and performance measurement; market analysis, data and quotation services; computer hardware and software incidental to the above goods and services; clearing and custodian services and investment related publications), the nature of which is such that provision can reasonably be expected to benefit the Trust and the Subsidiaries as a whole and may contribute to an improvement in the performance of the Trust and the Subsidiaries or the Manager or its Affiliates in providing services to the Trust and the Subsidiaries on terms that no direct payment is made but instead the Manager and/or its Affiliates undertake to place business with that party.

 

(h)                                  In executing portfolio transactions and selecting brokers or dealers, the Manager will use its best efforts to seek on behalf of the Trust and the Subsidiaries the best overall terms available. In assessing the best overall terms available for any transaction, the Manager shall consider all factors that it deems relevant, including, without limitation, the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer, and the reasonableness of the commission, if any, both for the specific transaction and on a continuing basis. In evaluating the best overall terms

 

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available, and in selecting the broker or dealer to execute a particular transaction, the Manager may also consider whether such broker or dealer furnishes research and other information or services to the Manager.

 

(i)                                      The Manager has no duty or obligation to seek in advance competitive bidding for the most favorable commission rate applicable to any particular purchase, sale or other transaction, or to select any broker-dealer on the basis of its purported or “posted” commission rate, but will endeavor to be aware of the current level of charges of eligible broker-dealers and to minimize the expense incurred for effecting purchases, sales and other transactions to the extent consistent with the interests and policies of the Trust and the Subsidiaries.  Although the Manager will generally seek competitive commission rates, it is not required to pay the lowest commission or commission equivalent, provided , that such decision is made in good faith to promote the best interests of the Trust and the Subsidiaries.

 

(j)                                     The Manager shall refrain from any action that, in its sole judgment made in good faith, (1) is not in compliance with the Investment Policies, (2) would adversely affect the qualification of the Trust as a REIT under the Code or the status of the Trust or any Subsidiary as an entity excluded or exempted from investment company status under the Investment Company Act, or (3) would violate any law, rule or regulation of any governmental body or agency having jurisdiction over the Trust or any Subsidiary or of any exchange on which the securities of the Trust may be listed or that would otherwise not be permitted by the Governing Instruments of the Trust or such Subsidiary.  If the Manager is ordered to take any action by the Board of Trustees, the Manager shall promptly notify the Board of Trustees if it is the Manager’s judgment that such action would adversely affect such status or violate any such law, rule or regulation or the Governing Instruments.  Notwithstanding the foregoing, the Manager, its Affiliates and their respective managers, officers, trustees, directors, employees and members and any Person providing sub-advisory services to the Manager shall not be liable to the Trust, the Subsidiaries, the Board of Trustees, the Shareholders or the interest holders in any Subsidiary for any act or omission by such Person except as provided in Section 9 of this Agreement.

 

(k)                                  The Trust (including the Board of Trustees) and the Operating Partnership agree to take all actions reasonably required to permit and enable the Manager to carry out its duties and obligations under this Agreement, including, without limitation, all steps reasonably necessary to allow the Manager to file any registration statement or other filing required to be made under the Securities Act, the Exchange Act, rules of the NYSE or such other securities exchange on which the Common Shares may be listed, the Code or other applicable law, rule or regulation on behalf of the Trust and any applicable Subsidiary in a timely manner.  The Trust and the Operating Partnership further agree to use commercially reasonable efforts to make available to the Manager all resources, information and materials reasonably requested by the Manager to enable the Manager to satisfy its obligations hereunder, including its obligations to deliver financial statements and any other information or reports with respect to the Trust and the Subsidiaries.  If the Manager is not able to provide a service, or in the reasonable judgment of the Manager it is not prudent to provide a service, without the approval of the Board of Trustees, as applicable, then the Manager shall be excused from providing such service (and shall not be in breach of this Agreement) until the applicable approval has been obtained, which the Manager shall seek promptly upon determining an approval is required.

 

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(l)                                      The Manager shall require each seller or transferor of investment assets to the Trust and the Subsidiaries to make such representations and warranties regarding such assets as may, in the judgment of the Manager, be necessary and appropriate. In addition, the Manager shall take such other action as it deems necessary or appropriate with regard to the protection of the investments of the Trust and the Subsidiaries.

 

(m)                              The Board of Trustees shall periodically review the Investment Policies and the Trust’s and the Subsidiaries’ portfolio of investments but will not review each proposed investment, except as otherwise provided herein. If a majority of the Independent Trustees determines in such periodic review of transactions that a particular transaction does not comply with the Investment Policies, then a majority of the Independent Trustees will consider what corrective action, if any, can be taken. The Manager shall be permitted to rely upon the direction of the Secretary of the Trust to evidence the approval of the Board of Trustees or the Independent Trustees with respect to a proposed investment.

 

(n)                                  Neither the Trust nor the Subsidiaries shall invest in any security structured or issued by an entity managed by the Manager or any Affiliate thereof, unless (i) the investment is made in accordance with the Investment Policies; (ii) such investment is approved in advance by a majority of the Independent Trustees; and (iii) the investment is made in accordance with applicable laws.

 

(o)                                  Reporting Requirements .

 

(i)                                      As frequently as the Manager may deem reasonably necessary or advisable, or at the direction of the Board of Trustees, the Manager shall prepare, or, at the sole cost and expense of the Operating Partnership (except to the extent determined by the Operating Partnership, in its sole discretion, to be the expense of a Subsidiary other than the Operating Partnership), cause to be prepared, with respect to any investment, reports and other information with respect to such investment as may be reasonably requested by the Trust.

 

(ii)                                   The Manager shall prepare, or, at the sole cost and expense of the Operating Partnership (except to the extent determined by the Operating Partnership, in its sole discretion, to be the expense of a Subsidiary other than the Operating Partnership), cause to be prepared, all reports, financial or otherwise, with respect to the Trust and the Subsidiaries reasonably required by the Board of Trustees in order for the Trust and the Subsidiaries to comply with their Governing Instruments, or any other materials required to be filed with any governmental body or agency, and shall prepare, or, at the sole cost and expense of the Operating Partnership (except to the extent determined by the Operating Partnership, in its sole discretion, to be the expense of a Subsidiary other than the Operating Partnership), cause to be prepared, all materials and data necessary to complete such reports and other materials including, without limitation, an annual audit of the Trust’s and the Subsidiaries’ books of account by a nationally recognized independent accounting firm.

 

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(iii)                                The Manager shall prepare, or, at the sole cost and expense of the Operating Partnership (except to the extent determined by the Operating Partnership, in its sole discretion, to be the expense of a Subsidiary other than the Operating Partnership), cause to be prepared, and deliver to the Board of Trustees (i) every three (3) months a reasonably detailed report regarding (A) the Trust’s and the Subsidiaries’ acquisitions, portfolio composition and characteristics, credit quality, performance and compliance with the Investment Policies and policies approved by the Board of Trustees, (B) the Manager’s financial results, and (C) such other matters as the Board of Trustees or a majority of the Independent Trustees shall reasonably request, and (ii) annually, relevant market data regarding management and servicing fees.

 

(p)                                  Managers, officers, trustees, directors, members, employees and agents of the Manager or Affiliates of the Manager may serve as trustees, officers, agents, nominees or signatories for the Trust and the Subsidiaries, to the extent permitted by their Governing Instruments, as from time to time amended, or by any resolutions duly adopted by the Board of Trustees pursuant to the Trust’s Governing Instruments or, to the extent applicable, the governing body of any Subsidiary, pursuant to the Governing Instruments of such Subsidiary.  When executing documents or otherwise acting in such capacities for the Trust or any Subsidiary, such Persons shall indicate in what capacity they are executing on behalf of the Trust or such Subsidiary.  Without limiting the foregoing, but subject to Section 13 below, the Manager will be obligated to supply the Trust with a management team, including a Chief Executive Officer, Chief Financial Officer and Chief Operating Officer or similar positions, along with appropriate support personnel, to provide the management services to be provided by the Manager to the Trust and the Subsidiaries hereunder, who shall devote such of their time to the management of the Trust and the Subsidiaries as is necessary and appropriate, commensurate with the level of activity of the Trust from time to time.

 

(q)                                  The Manager shall provide personnel for service on an investment or similar type of committee.

 

(r)                                     The Manager shall maintain reasonable and customary “errors and omissions” insurance coverage and other customary insurance coverage, in an amount which is comparable to that customarily maintained by other managers or servicers of similar assets.

 

(s)                                    The Manager shall provide such internal audit, compliance and control services as may be required for the Trust and the Subsidiaries to comply with applicable law (including the Securities Act and the Exchange Act), regulation (including SEC regulations) and the rules and requirements of the NYSE or such other securities exchange on which the Common Shares may be listed and as otherwise reasonably requested by the Trust, the Operating Partnership or the Board of Trustees from time to time.

 

(t)                                     The Manager acknowledges receipt of the Trust’s Code of Business Conduct and Ethics and Policy Against Insider Trading (collectively, the “ Conduct Policies ”) and agrees to require its officers and employees who provide services to the Trust to comply with such Conduct Policies in the performance of such services hereunder or such comparable

 

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policies as shall in substance hold officers and employees of the Manager to at least the standards of conduct set forth in the Conduct Policies.

 

(u)                                  Notwithstanding anything contained in this Agreement to the contrary, except to the extent that the payment of additional moneys is proven by the Trust to have been required as a direct result of the Manager’s acts or omissions which result in the right of the Trust to terminate this Agreement pursuant to Section 13 of this Agreement, the Manager shall not be required to expend money (“ Excess Funds ”) in connection with any expenses that are required to be paid for or reimbursed by the Operating Partnership (or any other Subsidiary) pursuant to Section 8 in excess of that contained in any applicable Trust Account (as herein defined) or otherwise made available by the Operating Partnership (or such other Subsidiary) to be expended by the Manager hereunder.  Failure of the Manager to expend Excess Funds out-of-pocket shall not give rise or be a contributing factor to the right of the Trust under Section 11(c) of this Agreement to terminate this Agreement due to the Manager’s unsatisfactory performance.

 

(v)                                  In performing its duties under this Section 2, the Manager shall be entitled to rely reasonably on qualified experts and professionals (including, without limitation, accountants, legal counsel and other professional service providers) hired by the Manager at the sole cost and expense of the Operating Partnership (except to the extent determined by the Operating Partnership, in its sole discretion, to be the expense of a Subsidiary other than the Operating Partnership).

 

Section 3.  Additional Activities of the Manager; Right of First Refusal.  Except as otherwise provided in this Section 3, the Allocation Policy and the Investment Policies, nothing in this Agreement shall (i) prevent the Manager or any of its Affiliates, managers, officers, trustees, directors, employees or members from engaging in other businesses or from rendering services of any kind to any other Person or entity, whether or not the investment objectives or policies of any such other Person or entity are similar to those of the Trust or (ii) in any way bind or restrict the Manager or any of its Affiliates, managers, officers, trustees, directors, employees or members from buying, selling or trading any securities or commodities for their own accounts or for the account of others for whom the Manager or any of its Affiliates, managers, officers, trustees, directors, employees or members may be acting.  Notwithstanding the foregoing, during the term of this Agreement, (i) the Manager and its Affiliates shall perform the services identified herein exclusively for the benefit of the Trust and (ii) neither the Manager nor any of its Affiliates may act as the manager to, or otherwise provide investment advisory services to, any other entity a primary investment objective of which is to invest in distressed residential mortgage loans, in each case excluding (a) the two private fund vehicles managed by the Manager as of the date of this Agreement, (b) any entity in which the Trust or any of its Subsidiaries is an investor and (c) any government-related entity; provided , however , that the Manager and/or any of its Affiliates may act as manager to an entity that it would otherwise not be permitted to manage pursuant to the foregoing if the Trust and its Subsidiaries are not able to pursue additional investment in distressed residential mortgage loans due to limitations on available capital and the Trust and its Subsidiaries determine not to raise additional capital, as long as the Independent Trustees do not determine that such activities would be detrimental to the Trust and its Subsidiaries.

 

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Prior to the undertaking by the Manager or its Affiliates of any new investment opportunity or any other business opportunity requiring a source of capital with respect to which the Manager or its Affiliates will earn a management, advisory, consulting or similar fee, the Manager shall present to the Trust such new opportunity and the material terms on which the Manager proposes to provide services to the Trust in pursuing such opportunity on behalf of the Trust.  If the Board of Trustees determines that it is in the best interest of the Trust to pursue such opportunity, the Trust shall cause notice of such determination to be given to the Manager within 10 days of the presentation of such opportunity by the Manager to the Trust.  If the Manager provides such notice, the Trust and the Manager shall negotiate in good faith to agree to the terms and documentation on which the Manager would provide services to the Trust in pursuing the opportunity.  In the event the Trust and the Manager are unable to reach agreement on such terms and documentation after such good faith negotiations, the Manager may pursue the opportunity with third parties, provided, however , that under such circumstances the material terms on which the Manager provides services to third parties in pursuing the opportunity shall be no more favorable to such parties than the terms offered to the Trust unless the Manager presents such more favorable terms to the Trust to reconsider such opportunity in accordance with this paragraph prior to proceeding with the third parties.

 

While information and recommendations supplied to the Trust and the Subsidiaries shall, in the Manager’s reasonable and good faith judgment, be appropriate under the circumstances and in light of the investment objectives and policies of the Trust and the Subsidiaries, they may be different from the information and recommendations supplied by the Manager or any Affiliate of the Manager to others.  The Trust and the Subsidiaries shall be entitled to equitable treatment under the circumstances in receiving information, recommendations and any other services, but the Trust and the Operating Partnership recognize that the Trust and the Subsidiaries are not entitled to receive preferential treatment as compared with the treatment given by the Manager or any Affiliate of the Manager to others.  The Trust and the Subsidiaries shall have the benefit of the Manager’s best judgment and effort in rendering services hereunder and, in furtherance of the foregoing, the Manager shall not undertake activities that, in its good faith judgment, will adversely affect the performance of its obligations under this Agreement.

 

Section 4.  Agency. The Manager shall act as agent of the Trust and the Subsidiaries in making, acquiring, financing and disposing of investments, disbursing and collecting the funds of the Trust and the Subsidiaries, paying the debts and fulfilling the obligations of the Trust and the Subsidiaries, supervising the performance of professionals engaged by or on behalf of the Trust and the Subsidiaries and handling, prosecuting and settling any claims of or against the Trust and the Subsidiaries, the Board of Trustees, holders of the Trust’s or any Subsidiary’s securities or representatives or properties of the Trust and the Subsidiaries.

 

Section 5.  Bank Accounts.  At the direction of the Board of Trustees, the Manager may establish and maintain one or more bank accounts in the name of the Trust or any Subsidiary (any such account, a “ Trust Account ”), and may collect and deposit into any such account or accounts, and disburse funds from any such account or accounts, under such terms and conditions as the Board of Trustees may approve; and the Manager shall from time to time render appropriate accountings of such collections and payments to the Board of Trustees and, upon request, to the auditors of the Trust or any Subsidiary.

 

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Section 6.  Records; Confidentiality.  (a)   The Manager shall maintain appropriate books of accounts and records relating to services performed hereunder, and such books of account and records shall be accessible for inspection by representatives of the Trust or any Subsidiary at any time during normal business hours upon reasonable advance notice.  The Manager shall keep confidential any and all non-public information, written or oral, obtained by it in connection with the services rendered hereunder (“ Confidential Information ”) and shall not use Confidential Information except in furtherance of its duties under this Agreement or disclose Confidential Information, in whole or in part, to any Person other than (1) to its Affiliates, managers, officers, trustees, directors, employees, members, agents, representatives or advisors who need to know such Confidential Information for the purpose of rendering services hereunder, (2) to appraisers, financing sources and others in the ordinary course of the Trust’s and any Subsidiary’s business ((1) and (2) collectively, “ Manager Permitted Disclosure Parties ”), (3) in connection with any governmental or regulatory filings of the Trust or any Subsidiary or disclosure or presentations to Trust investors, (4) to governmental officials having jurisdiction over the Trust, (5) as required by law or legal process to which the Manager or any Person to whom disclosure is permitted hereunder is a party, or (6) with the consent of the Board of Trustees.  The Manager agrees to inform each of its Manager Permitted Disclosure Parties of the non-public nature of the Confidential Information and to direct such Persons to treat such Confidential Information in accordance with the terms hereof.  Nothing herein shall prevent the Manager from disclosing Confidential Information (1) upon the order of any court or administrative agency, (2) upon the request or demand of, or pursuant to any law or regulation, any regulatory agency or authority, (3) to the extent reasonably required in connection with the exercise of any remedy hereunder, or (4) to its legal counsel or independent auditors; provided , however , that with respect to clauses (1) and (2), it is agreed that the Manager will provide the Trust and the Operating Partnership with prompt written notice of such order, request or demand so that the Trust and the Operating Partnership may seek an appropriate protective order and/or waive the Manager’s compliance with the provisions of this Agreement.  If, failing the entry of a protective order or the receipt of a waiver hereunder, the Manager is, in the opinion of counsel, required to disclose Confidential Information, the Manager may disclose only that portion of such information that its counsel advises is legally required without liability hereunder; provided , that the Manager agrees to exercise its best efforts to obtain reliable assurance that confidential treatment will be accorded such information.  Notwithstanding anything herein to the contrary, each of the following shall be deemed to be excluded from the provisions hereof:  any Confidential Information that (A) is available to the public from a source other than the Manager, (B) is released in writing by the Trust to the public or to Persons who are not under similar obligation of confidentiality to the Trust and the Subsidiaries, or (C) is obtained by the Manager from a third party without breach by such third party of an obligation of confidence with respect to the Confidential Information disclosed.

 

(b)                                  Each of the Trust and the Operating Partnership shall keep confidential, and shall cause any other Subsidiary to keep confidential, any and all Confidential Information and shall not use, and shall cause any other Subsidiary not to use, Confidential Information except in furtherance of the terms of this Agreement or disclose Confidential Information, in whole or in part, to any Person other than (1) to its Affiliates, officers, trustees, directors, employees, members, agents, representatives or advisors who need to know such Confidential Information for the purpose of fulfilling the Trust’s and the Operating Partnership’s obligations hereunder (collectively, “ Trust Permitted Disclosure Parties ”), (2) as required by law or legal

 

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process to which the Trust or any Subsidiary or any Person to whom disclosure is permitted hereunder is a party, or (3) with the consent of the Manager.  Each of the Trust and the Operating Partnership agrees to (1) inform each of its Trust Permitted Disclosure Parties of the non-public nature of the Confidential Information and to direct such Persons to treat such Confidential Information in accordance with the terms hereof and (2) not disclose any Confidential Information to its Trust Permitted Disclosure Parties upon the termination of this Agreement in accordance with Section 11 hereof.  Nothing herein shall prevent the Trust or any Subsidiary from disclosing Confidential Information (1) upon the order of any court or administrative agency, (2) upon the request or demand of, or pursuant to any law or regulation, any regulatory agency or authority, (3) to the extent reasonably required in connection with the exercise of any remedy hereunder, or (4) to its legal counsel or independent auditors; provided , however , that with respect to clauses (1) and (2), it is agreed that the Trust and the Operating Partnership will provide the Manager with prompt written notice of such order, request or demand so that the Manager may seek an appropriate protective order and/or waive the Trust’s and the Operating Partnership’s compliance with the provisions of this Section.  If, failing the entry of a protective order or the receipt of a waiver hereunder, the Trust or any Subsidiary is, in the opinion of counsel, required to disclose Confidential Information, the Trust or such Subsidiary may disclose only that portion of such information that its counsel advises is legally required without liability hereunder; provided , that each of the Trust and the Operating Partnership shall exercise, and shall cause any other Subsidiary to exercise, its best efforts to obtain reliable assurance that confidential treatment will be accorded such information.  Notwithstanding anything herein to the contrary, each of the following shall be deemed to be excluded from the provisions hereof:  any Confidential Information that (A) is available to the public from a source other than the Trust or any Subsidiary, (B) is released in writing by the Manager to the public or to Persons who are not under similar obligation of confidentiality to the Manager, or (C) is obtained by the Trust or any Subsidiary from a third party without breach by such third party of an obligation of confidence with respect to the Confidential Information disclosed.  For the avoidance of doubt, information about the systems, employees, policies, procedures and investment portfolio (other than investments in which the Trust or any Subsidiary and the Manager have co-invested) shall be deemed to be included within the meaning of “Confidential Information” for purposes of the Trust’s and the Subsidiaries’ obligations pursuant to this Section 6(b).

 

(c)                                   The provisions of this Section 6 shall survive the expiration or earlier termination of this Agreement for a period of one year.

 

Section 7.  Compensation.  (a)   For the services rendered under this Agreement, the Operating Partnership shall pay to the Manager the Base Management Fee and the Incentive Fee.  Notwithstanding the foregoing or any other provision contained in this Agreement, in the event that any of the services provided hereunder by the Manager are rendered to or for the benefit of any Subsidiary other than the Operating Partnership, then, in the sole discretion of the Operating Partnership, a portion of the Base Management Fee and/or the Incentive Fee, as determined by the Operating Partnership, shall be payable by such Subsidiary.

 

(b)                                  The parties acknowledge that the Base Management Fee is intended to compensate the Manager for the costs and expenses of its executive officers and employees (and certain related overhead and employee costs not otherwise reimbursable under Section 8 below)

 

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incurred in providing to the Trust the investment advisory services and certain general management services rendered under this Agreement.

 

(c)                                   The Base Management Fee shall be payable in arrears in cash, in quarterly installments commencing with the fiscal quarter in which this Agreement was executed (with such initial payment pro-rated based on the number of days during such quarter that this Agreement was in effect).   The Manager shall calculate each installment of the Base Management Fee within thirty (30) days after the end of the fiscal quarter with respect to which such installment is payable.  A copy of the computations made by the Manager to calculate such installment shall thereafter, for informational purposes only, promptly be delivered to the Board of Trustees and, upon such delivery, payment of such installment of the Base Management Fee shown therein shall be due and payable no later than the date which is five (5) Business Days after the date of delivery to the Board of Trustees of such computations.

 

(d)                                  The Manager shall compute each installment of the Incentive Fee within 30 days after the end of the fiscal quarter with respect to which such installment is payable.  A copy of the computations made by the Manager to calculate such installment shall thereafter, for informational purposes only, promptly be delivered to the Board of Trustees and, upon such delivery, payment of such installment of the Incentive Fee shown therein shall be due and payable no later than the date which is five (5) Business Days after the date of delivery to the Board of Trustees of such computations.

 

(e)                                   Notwithstanding anything to the contrary contained herein, upon the written request (a “ Fee Negotiation Request ”) of the Company or the Manager following a determination by the Company or the Manager that the rates of compensation payable to the Manager hereunder differ materially from market rates of compensation for services comparable to those provided hereunder, which request includes a proposal for revised rates of compensation hereunder, the parties hereto shall negotiate in good faith to amend the provisions of this Agreement relating to the compensation of the Manager in order to cause such compensation to be materially consistent with market rates of compensation for services comparable to those provided hereunder (a “ Fee Amendment ”); provided, however, that no such request shall be made until the second anniversary of the effective date of this Agreement, after which time each party may make such request (i) once with respect to fees to be paid during the remainder of the Initial Term, which request shall be made prior to the expiration of the Initial Term, and (ii) once with respect to fees to be paid during any Automatic Renewal Term, which request shall be made at least 210 days prior to the start of such Automatic Renewal Term.  If the parties are unable to reach agreement on the terms of a Fee Amendment within thirty (30) days of the date of delivery of the relevant Fee Negotiation Request, then the terms of such Fee Amendment shall be determined by final and binding arbitration in accordance with Section 7(f).

 

(f)                                    All disputes, differences and controversies of the Company or the Manager relating to a Fee Amendment (individually, a “ Dispute ” and, collectively, “ Disputes ”) shall be resolved by final and binding arbitration administered by the American Arbitration Association (“ AAA ”) under its Commercial Arbitration Rules, subject to the following provisions:

 

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(i)                                      Following the delivery of a written demand for arbitration by either the Company or the Manager, each party shall choose one (1) arbitrator within ten (10) Business Days after the date of such written demand and the two chosen arbitrators shall mutually, within ten (10) Business Days after selection select a third (3rd) arbitrator (each, an “ Arbitrator ” and together, the “ Arbitrators ”), each of whom shall be a retired judge selected from a roster of arbitrators provided by the AAA. If the third (3rd) Arbitrator is not selected within fifteen (15) Business Days after delivery of the written demand for arbitration (or such other time period as the Company and the Manager may agree), the Company and the Manager shall promptly request that the commercial panel of the AAA select an independent Arbitrator meeting such criteria.

 

(ii)                                   The rules of arbitration shall be the Commercial Rules of the American Arbitration Association; provided , however , that notwithstanding any provisions of the Commercial Arbitration Rules to the contrary, unless otherwise mutually agreed to by the Company and the Manager, the sole discovery available to each party shall be its right to conduct up to two (2) non-expert depositions of no more than three (3) hours of testimony each.

 

(iii)                                The Arbitrators shall render a decision by majority decision within three (3) months after the date of appointment, unless the Company and the Manager agree to extend such time. The decision shall be final and binding upon the Company and the Manager; provided , however , that such decision shall not restrict either the Company or the Manager from terminating this Agreement pursuant to the terms hereof.

 

(iv)                               Each party shall pay its own expenses in connection with the resolution of Disputes, including attorneys’ fees, unless determined otherwise by the Arbitrator.

 

(v)                                  The Company and the Manager agree that the existence, conduct and content of any arbitration pursuant to this Section 7(f) shall be kept confidential and neither the Company nor the Manager shall disclose to any Person any information about such arbitration, except in connection with such arbitration or as may be required by law or by any regulatory authority (or any exchange on which such party’s securities are listed) or for financial reporting purposes in such party’s financial statements.

 

Section 8.  Expenses of the Trust.  (a)   The Manager shall be responsible for compensation and related expenses of the Manager’s employees (including the officers of the Trust who are also employees of the Manager), including, without limitation, salaries, bonus and other wages, payroll taxes and the cost of employee benefit plans of such personnel ; provided, however , that the Operating Partnership (or any other Subsidiary, as provided below) shall pay or reimburse the Manager or any Affiliate of the Manager for the costs and expenses (including any employment expenses) incurred in connection with the performance by the Manager or such

 

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Affiliate of any services performed by the Manager or such Affiliate pursuant to Section 2(d) or 2(f) hereof.

 

(b)                                  The Trust and the Subsidiaries shall pay all of their costs and expenses and the Operating Partnership (or any other Subsidiary, as provided below) shall reimburse the Manager or its Affiliates for expenses of the Manager and its Affiliates incurred on behalf of the Trust or any Subsidiary, excepting only those expenses that are specifically the responsibility of the Manager pursuant to Section 8(a) of this Agreement.  Without limiting the generality of the foregoing, it is specifically agreed that the following costs and expenses of the Trust or any Subsidiary shall be paid by the Operating Partnership (or such other Subsidiary) and shall not be paid by the Manager or Affiliates of the Manager:

 

(i)                                      all costs and expenses associated with the formation and capital raising activities of the Trust and the Subsidiaries, if any, including, without limitation, the costs and expenses of the preparation of the Trust’s registration statements, any and all costs and expenses of the Initial Public Offering, any subsequent offerings and any filing fees and costs of being a public company, including, without limitation, filings with the SEC, the Financial Industry Regulatory Authority and the NYSE (or any other exchange or over-the-counter market), among other such entities;

 

(ii)                                   all costs and expenses in connection with the acquisition, origination, disposition, development, modification, protection, maintenance, financing, refinancing, hedging, administration and ownership of the Trust’s or any Subsidiary’s investment assets (including costs and expenses incurred for transactions that are not subsequently completed), including, without limitation, costs and expenses incurred in contracting with third parties, including Affiliates of the Manager, to provide such services, such as legal fees, accounting fees, consulting fees, loan servicing fees, trustee fees, appraisal fees, insurance premiums, commitment fees, brokerage fees, guaranty fees, ad valorem taxes, costs of diligence, foreclosure, maintenance, repair and improvement of property and premiums for insurance on property owned or leased by the Trust or any Subsidiary;

 

(iii)                                all legal, audit, accounting, consulting, underwriting, brokerage, listing, filing, custodian, transfer agent, rating agency, registration and other fees and charges, printing, engraving and other expenses and taxes incurred in connection with the issuance, distribution, transfer, registration and stock exchange listing of the Trust’s or any Subsidiary’s equity securities or debt securities;

 

(iv)                               all costs and expenses in connection with legal, accounting, due diligence (including due diligence costs for assets that are not subsequently acquired), asset management, securitization, property management, brokerage, leasing and other services that outside professionals or outside consultants perform or otherwise would perform on the Trust’s behalf and

 

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that are performed by the Manager or an Affiliate thereof, as provided in Section 2(d) or 2(f);

 

(v)                                  all expenses relating to communications to holders of equity securities or debt securities issued by the Trust or any Subsidiary and the other third party services utilized in maintaining relations with holders of such securities and in complying with the continuous reporting and other requirements of governmental bodies or agencies (including, without limitation, the SEC), including any costs of computer services in connection with this function, the cost of printing and mailing certificates for such securities and proxy solicitation materials and reports to holders of the Trust’s or any Subsidiary’s securities and the cost of any reports to third parties required under any indenture to which the Trust or any Subsidiary is a party;

 

(vi)                               all costs and expenses of money borrowed by the Trust or any Subsidiary, including, without limitation, principal, interest and the costs associated with the establishment and maintenance of any credit facilities, warehouse loans, repurchase agreements and other indebtedness of the Trust or any Subsidiary (including commitment fees, accounting fees, legal fees, closing and other costs and expenses);

 

(vii)                            all taxes and license fees applicable to the Trust or any Subsidiary, including interest and penalties thereon;

 

(viii)                         all fees paid to and expenses of third-party advisors and independent contractors, consultants, managers and other agents (including real estate underwriters, brokers and special servicers) engaged by the Trust or any Subsidiary or by the Manager for the account of the Trust or any Subsidiary;

 

(ix)                               all insurance costs incurred by the Trust or any Subsidiary, including, without limitation, any costs to obtain liability or other insurance to indemnify the Manager and underwriters of any securities of the Trust;

 

(x)                                  all costs and expenses relating to the acquisition of, and maintenance and upgrades to, the portfolio accounting systems of the Trust or any Subsidiary;

 

(xi)                               all compensation and fees paid to trustees or directors of the Trust or any Subsidiary (excluding those trustees or directors who are also officers or employees of the Manager), all expenses of trustees or directors of the Trust or any Subsidiary (including those trustees or directors who are also employees of the Manager), the cost of trustees and officers liability insurance and premiums for errors and omissions insurance, and any other insurance deemed necessary or advisable by the Board of Trustees for the

 

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benefit of the Trust and its trustees and officers (including those trustees who are also employees of the Manager);

 

(xii)                            all third-party legal, accounting and auditing fees and expenses and other similar services relating to the Trust’s or any Subsidiary’s operations (including, without limitation, all quarterly and annual audit or tax fees and expenses);

 

(xiii)                         all third-party legal, expert and other fees and expenses relating to any actions, proceedings, lawsuits, demands, causes of action and claims, whether actual or threatened, made by or against the Trust or any Subsidiary, or which the Trust or any Subsidiary is authorized or obligated to pay under applicable law or its Governing Instruments or by the Board of Trustees;

 

(xiv)                        subject to Section 9 below, any judgment or settlement of pending or threatened proceedings (whether civil, criminal or otherwise) against the Trust or any Subsidiary, or against any trustee, director or officer of the Trust or any Subsidiary in his capacity as such for which the Trust or any Subsidiary is required to indemnify such trustee, director or officer by any court or governmental agency, or settlement of pending or threatened proceedings;

 

(xv)                           all travel and related expenses of trustees, directors, officers and employees of the Trust or any Subsidiary and the Manager, incurred in connection with attending meetings of the Board of Trustees or holders of securities of the Trust or any Subsidiary or performing other business activities that relate to the Trust or any Subsidiary, including, without limitations, travel and expenses incurred in connection with the purchase, consideration for purchase, financing, refinancing, sale or other disposition of any investment or potential investment of the Trust or any Subsidiary; provided , however , that the Operating Partnership (or any other Subsidiary, as provided below) shall only be responsible for a proportionate share of such expenses, as determined by the Manager in good faith, where such expenses were not incurred solely for the benefit of the Trust or any Subsidiary;

 

(xvi)                        all expenses of organizing, modifying or dissolving the Trust or any Subsidiary and costs preparatory to entering into a business or activity, or of winding up or disposing of a business activity of the Trust or any Subsidiary, if any;

 

(xvii)                     all expenses relating to payments of dividends or interest or distributions in cash or any other form made or caused to be made by the Board of Trustees to or on account of holders of the securities of the Trust or any Subsidiary, including, without limitation, in connection with any dividend reinvestment plan;

 

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(xviii)                  all costs and expenses related to the design and maintenance of the Trust’s website or sites and associated with any computer software, hardware, electronic equipment or purchased information technology services from third party vendors that is used primarily for the Trust or any Subsidiary;

 

(xix)                        costs and expenses incurred with respect to market information systems and publications, research publications and materials, and settlement, clearing and custodial fees and expenses; provided , however , that the Operating Partnership (or any other Subsidiary, as provided below) shall only be responsible for a proportionate share of such expenses, as determined by the Manager in good faith, where such expenses were not incurred solely for the benefit of the Trust or any Subsidiary;

 

(xx)                           the costs and expenses incurred with respect to administering the Trust’s incentive plans;

 

(xxi)                        the costs and expenses of maintaining compliance with all U.S. federal, state, local and applicable regulatory body rules and regulations; provided , however , that the Operating Partnership (or any other Subsidiary, as provided below) shall only be responsible for a proportionate share of such costs and expenses, as determined by the Manager in good faith, where such costs and expenses were not incurred solely for the benefit of the Trust or any Subsidiary;

 

(xxii)                     expenses relating to any office or office facilities, including disaster backup recovery sites and facilities, maintained for the Trust or any Subsidiary separate from the offices of the Manager;

 

(xxiii)                  all other expenses of the Trust or any Subsidiary relating to the business and investment operations of the Trust and the Subsidiaries, including, without limitation, the costs and expenses of acquiring, originating, owning, protecting, maintaining, financing, refinancing, developing, modifying and disposing of investments that are not the responsibility of the Manager under Section 9(a) of this Agreement; and

 

(xxiv)                 all other expenses actually incurred by the Manager or its Affiliates or their respective managers, officers, trustees, directors, employees, members, representatives or agents, or any Affiliates thereof, that are reasonably necessary for the performance by the Manager of its duties and functions under this Agreement.

 

In addition, the Operating Partnership (or any other Subsidiary, as provided below) will be required to pay the Trust’s and the Subsidiaries’ pro rata portion of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of the Manager and its Affiliates required for the Trust’s and the Subsidiaries’ operations. These expenses will be allocated between the Manager, on the one hand, and the Operating Partnership (or such other Subsidiary), on the other hand, based on the ratio of the Trust’s and the

 

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Subsidiaries’ proportion of gross assets compared to all remaining gross assets managed by the Manager as calculated at each fiscal quarter end. The Manager, the Trust and the Operating Partnership will modify this allocation methodology, subject to the Board of Trustees’ approval, if the allocation becomes inequitable.

 

Notwithstanding the foregoing or any other provision contained in this Agreement, in the event that any of the services provided hereunder by the Manager are rendered to or for the benefit of any Subsidiary other than the Operating Partnership, then, in the sole discretion of the Operating Partnership, a portion of the expense reimbursements to the Manager and/or its Affiliates hereunder, as determined by the Operating Partnership, shall be payable by such Subsidiary.

 

(c)                                   Costs and expenses incurred by the Manager or an Affiliate thereof on behalf of the Trust or any Subsidiary shall be reimbursed quarterly to the Manager.  The Manager shall prepare a written statement in reasonable detail documenting the costs and expenses of the Trust and the Subsidiaries and those incurred by the Manager on behalf of the Trust or any Subsidiary during each fiscal quarter, and shall deliver such written statement to the Trust within 30 days after the end of each fiscal quarter.  The Operating Partnership (or any other Subsidiary, as provided in the immediately preceding paragraph) shall pay all amounts payable to the Manager pursuant to this Section 8 within five (5) Business Days after the date of delivery of such written statement without demand, deduction, offset or delay.  Cost and expense reimbursement to the Manager shall be subject to adjustment at the end of each calendar year in connection with the annual audit of the Trust and the Subsidiaries.  The provisions of this Section 8 shall survive the expiration or earlier termination of this Agreement to the extent such expenses have previously been incurred or are incurred in connection with such expiration or termination.

 

(d)                                  Notwithstanding the foregoing, the Manager may, at its option, elect not to seek reimbursement for certain expenses during a given quarterly period, which determination shall not be deemed to construe a waiver of reimbursement for similar expenses in future periods.

 

Section 9.  Limits of the Manager’s Responsibility; Indemnification.  (a)   The Manager assumes no responsibility under this Agreement other than to provide the services specified hereunder in good faith and shall not be responsible for any action of the Board of Trustees in following or declining to follow any advice or recommendations of the Manager; provided that to the extent that officers of the Manager also serve as officers of the Trust, such officers shall owe the Trust duties under Maryland law in their capacity as officers of the Trust, which may include the duty to exercise reasonable care in the performance of such officers’ responsibilities, as well as duties of loyalty, good faith and candid disclosure.  None of the Manager or its Affiliates or their respective managers, officers, trustees, directors, employees or members or any Person providing sub-advisory services to the Manager will be liable to the Trust, any Subsidiary, the Board of Trustees, or the Shareholders or interest holders of any Subsidiary for any acts or omissions performed under this Agreement, except because of acts constituting bad faith, willful misconduct, gross negligence or reckless disregard of the Manager’s duties under this Agreement.  The Trust and the Operating Partnership shall, to the full extent lawful, reimburse, indemnify and hold harmless the Manager and its Affiliates and

 

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their respective managers, officers, trustees, directors, employees and members and any Person providing sub-advisory services to the Manager (each, a “ Manager Indemnified Party ”), with respect to all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever (including reasonable attorneys’ fees) (collectively “ Losses ”) in respect of or arising from any acts or omissions of such Manager Indemnified Party, performed in good faith under this Agreement and not constituting bad faith, willful misconduct, gross negligence or reckless disregard of the duties of the Manager under this Agreement.

 

(b)                                  The Manager shall, to the full extent lawful, reimburse, indemnify and hold harmless the Trust (or any Subsidiary), and the trustees, officers and Shareholders and each Person, if any, controlling the Trust (each, a “ Trust Indemnified Party ”; a Manager Indemnified Party and a Trust Indemnified Party are each sometimes hereinafter referred to as an “ Indemnified Party ”) with respect to all Losses in respect of or arising from any acts or omissions under this Agreement constituting bad faith, willful misconduct, gross negligence or reckless disregard of the duties of the Manager under this Agreement or any claims by the Manager’s employees relating to the terms and conditions of their employment by the Manager.

 

(c)                                   In case any such claim, suit, action or proceeding (a “ Claim ”) is brought against any Indemnified Party in respect of which indemnification may be sought by such Indemnified Party pursuant hereto, the Indemnified Party shall give prompt written notice thereof to the indemnifying party, which notice shall include all documents and information in the possession of or under the control of such Indemnified Party reasonably necessary for the evaluation and/or defense of such Claim and shall specifically state that indemnification for such Claim is being sought under this Section; provided , however , that the failure of the Indemnified Party to so notify the indemnifying party shall not limit or affect such Indemnified Party’s rights to be indemnified pursuant to this Section.  Upon receipt of such notice of Claim (together with such documents and information from such Indemnified Party), the indemnifying party shall, at its sole cost and expense, in good faith defend any such Claim with counsel reasonably satisfactory to such Indemnified Party, which counsel may, without limiting the rights of such Indemnified Party pursuant to the next succeeding sentence of this Section, also represent the indemnifying party in such investigation, action or proceeding.  In the alternative, such Indemnified Party may elect to conduct the defense of the Claim, if (1) such Indemnified Party reasonably determines that the conduct of its defense by the indemnifying party could be materially prejudicial to its interests, (2) the indemnifying party refuses to defend (or fails to give written notice to the Indemnified Party within ten (10) days of receipt of a notice of Claim that the indemnifying party assumes such defense), or (3) the indemnifying party shall have failed, in such Indemnified Party’s reasonable judgment, to defend the Claim in good faith.  The indemnifying party may settle any Claim against such Indemnified Party without such Indemnified Party’s consent, provided , (1) such settlement is without any Losses whatsoever to such Indemnified Party, (2) the settlement does not include or require any admission of liability or culpability by such Indemnified Party and (3) the indemnifying party obtains an effective written release of liability for such Indemnified Party from the party to the Claim with whom such settlement is being made, which release must be reasonably acceptable to such Indemnified Party, and a dismissal with prejudice with respect to all claims made by the party against such Indemnified Party in connection with such Claim.  The applicable Indemnified Party shall reasonably cooperate with the indemnifying party, at the indemnifying party’s sole cost and expense, in connection with the defense or settlement of any Claim in accordance with the terms

 

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hereof.  If such Indemnified Party is entitled pursuant to this Section to elect to defend such Claim by counsel of its own choosing and so elects, then the indemnifying party shall be responsible for any good faith settlement of such Claim entered into by such Indemnified Party.  Except as provided in the immediately preceding sentence, no Indemnified Party may pay or settle any Claim and seek reimbursement therefor under this Section.

 

(d)                                  The provisions of this Section 9 shall survive the expiration or earlier termination of this Agreement.

 

Section 10.  No Joint Venture.  The Trust, the Operating Partnership and the Manager are not partners or joint venturers with each other and nothing herein shall be construed to make them such partners or joint venturers or impose any liability as such on any of them.

 

Section 11.  Term; Termination.

 

(a)                                  Initial Term .  This Agreement shall become effective on the date hereof and shall continue in operation, unless terminated in accordance with the terms hereof, until February 1, 2017 (the “ Initial Term ”).

 

(b)                                  Automatic Renewal Terms .  After the Initial Term, this Agreement shall be deemed renewed automatically every 18 months for an additional 18 month period (an “ Automatic Renewal Term ”) unless the Trust or the Manager terminates this Agreement in accordance with Section 11(c) of this Agreement.

 

(c)                                   Termination of this Agreement .  Notwithstanding any other provision of this Agreement to the contrary, upon the expiration of the Initial Term or any Automatic Renewal Term and upon at least 180 days’ prior written notice to the Manager or the Trust, as applicable (the “ Termination Notice ”), either (A) the Trust (without cause), upon the affirmative vote of at least two-thirds of the Independent Trustees or by a vote of the holders of at least two-thirds of the Trust’s outstanding Common Shares (other than those Common Shares held by the Manager or any Affiliate thereof), in each case based upon (1) unsatisfactory performance by the Manager that is materially detrimental to the Trust and the Subsidiaries or (2) the determination that the compensation payable to the Manager under this Agreement is not fair; or (B) the Manager (without cause) may, in connection with the expiration of the Initial Term or any Automatic Renewal Term, decline to renew this Agreement (any such nonrenewal, a “ Nonrenewal Termination ”); provided , that the Trust shall not have the right to terminate this Agreement under clause (2) above if the Manager agrees to continue to provide services under this Agreement at fees that at least two-thirds of the Independent Trustees determine to be fair pursuant to the procedures set forth below.

 

If the Trust (but not the Manager) issues the Termination Notice, the Operating Partnership shall be obligated to pay the Manager the Termination Fee within 90 days of the last day of the Initial Term or Automatic Renewal Term, as applicable (the “ Effective Termination Date ”); provided , however , that in the event a Termination Notice is given in connection with a determination that the compensation payable to the Manager is not fair, the Manager shall have the right to renegotiate such compensation by delivering to the Trust and the Operating Partnership, no fewer than 45 days prior to the prospective Effective Termination

 

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Date, written notice (any such notice, a “ Notice of Proposal to Negotiate ”) of its intention to renegotiate its compensation under this Agreement.  Thereupon, the Trust (represented by the Independent Trustees), the Operating Partnership and the Manager shall endeavor to negotiate in good faith the revised compensation payable to the Manager under this Agreement. Provided that the Manager, the Trust and the Operating Partnership agree to the terms of the revised compensation to be payable to the Manager within 45 days following the receipt of the Notice of Proposal to Negotiate, the Termination Notice shall be deemed of no force and effect and this Agreement shall continue in full force and effect on the terms stated in this Agreement, except that the compensation payable to the Manager hereunder shall be the revised compensation then agreed upon by the parties to this Agreement. The Trust, the Operating Partnership and the Manager agree to execute and deliver an amendment to this Agreement setting forth such revised compensation promptly upon reaching an agreement regarding the same. In the event that the Trust, the Operating Partnership and the Manager are unable to agree to the terms of the revised compensation to be payable to the Manager during such 45-day period, this Agreement shall terminate, such termination to be effective on the date which is the later of (A) 10 days following the end of such 45-day period and (B) the Effective Termination Date originally set forth in the Termination Notice.  In the event of any Nonrenewal Termination, after delivery of the Termination Notice, the Manager shall thereafter have the authority to invest only such capital that represents the return of capital resulting from the liquidation or repayment of investments of the Trust or any Subsidiary existing at the time of the Termination Notice, and subject to the Investment Policies and all other existing investment and other policies of the Trust.  The Manager shall cooperate with the Trust and the Subsidiaries in executing an orderly transition of the management of the Trust’s assets to a new manager.  The Trust may terminate this Agreement for cause pursuant to Section 13 of this Agreement even after a Nonrenewal Termination and no Termination Fee shall be payable.

 

(d)                                  If (i) either of the MBWS Agreement or the MSR Recapture Agreement is terminated by PennyMac Corp. without cause as provided in each such agreement or (ii) the Amended and Restated Flow Servicing Agreement is terminated by the Operating Partnership without cause as provided in such agreement, the Manager shall have the right to terminate this Agreement without cause upon notice to the Trust, provided that if such termination occurs due to a termination of the MBWS Agreement, MSR Recapture Agreement or Amended and Restated Flow Servicing Agreement at any time other than at the end of the Initial Term or any Automatic Renewal Term, the Operating Partnership shall be obligated to pay the Manager the Termination Fee within 90 days of receipt of such notice from the Manager.

 

(e)                                   If any of the MBWS Agreement, the MSR Recapture Agreement or the Amended and Restated Flow Servicing Agreement is terminated by PennyMac Loan Services without cause as provided in each such agreement, the Trust shall have the right to terminate this Agreement without cause upon notice to the Manager, provided that under such circumstances the Operating Partnership shall not be obligated to pay the Termination Fee.

 

(f)                                    If this Agreement is terminated pursuant to this Section 11 or pursuant to Section 12, 13 or 14, such termination shall be without any further liability or obligation of any party to the other, except with respect to the payment of a Termination Fee, if applicable, and except as provided in Sections 6, 8 and 15 of this Agreement; provided that notwithstanding the foregoing, the Manager shall be liable to the Trust for any breach of this Agreement, and nothing herein shall limit the Trust from pursuing any and all remedies available to it at law or equity in connection with any such breach. In addition, Sections 9, 17(b) and 18(e) of this Agreement shall survive termination of this Agreement.

 

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Section 12.  Assignments.  (a)  Except as set forth in Section 12(b) of this Agreement, this Agreement shall terminate automatically without payment of the Termination Fee in the event of its assignment, in whole or in part, by the Manager, unless such assignment is consented to in writing by the Trust with the consent of a majority of the Independent Trustees.  Any such permitted assignment shall bind the assignee under this Agreement in the same manner as the Manager is bound, and the Manager shall be liable to the Trust and the Subsidiaries for all errors or omissions of the assignee under any such assignment.  In addition, the assignee shall execute and deliver to the Trust and the Operating Partnership a counterpart of this Agreement naming such assignee as the Manager.  This Agreement shall not be assigned by the Trust or the Operating Partnership without the prior written consent of the Manager, except in the case of assignment by the Trust or the Operating Partnership to another REIT (in the case of the Trust) or other organization which is a successor (by merger, consolidation, purchase of assets, or similar transaction) to the Trust or the Operating Partnership, in which case such successor organization shall be bound under this Agreement and by the terms of such assignment in the same manner as the Trust and the Operating Partnership are bound under this Agreement.

 

(b)                                  Notwithstanding any provision of this Agreement, the Manager may subcontract and assign any or all of its responsibilities under this Agreement to any of its Affiliates in accordance with the terms of this Agreement applicable to any such subcontract or assignment, and the Trust and the Operating Partnership hereby consent to any such assignment and subcontracting. In addition, provided that the Manager provides prior written notice to the Trust and the Operating Partnership for informational purposes only, nothing contained in this Agreement shall preclude any pledge, hypothecation or other transfer of any amounts payable to the Manager under this Agreement. In addition, the Manager may assign one or more of its duties under this Agreement to any of its Affiliates without the Trust’s or the Operating Partnership’s approval if such assignment does not require their approval under the Investment Advisers Act of 1940, as amended.

 

Section 13.  Termination by the Trust for Cause.  At the option of the Trust and at any time during the term of this Agreement, this Agreement shall be and become terminated upon at least 30 days’ prior written notice of termination from the Board of Trustees to the Manager, without payment of the Termination Fee, if any of the following events shall occur, which shall be determined by a majority of the Independent Trustees:

 

(i)                                      the Manager shall materially breach any provision of this Agreement and such breach shall continue for a period of 30 days after the Manager’s receipt of written notice thereof specifying such breach and requesting that the same be remedied in such 30-day period (or 45 days after the Manager’s receipt of written notice of such breach if the Manager takes steps to cure such breach within 30 days of the written notice);

 

(ii)                                   the Manager shall commit any act of fraud, misappropriation of funds, or embezzlement against the Trust or any Subsidiary;

 

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(iii)                                the Manager shall commit any act of gross negligence in the performance of its duties under this Agreement;

 

(iv)                               upon the commencement of any proceeding relating to the Manager’s Bankruptcy or insolvency;

 

(v)                                  upon the dissolution of the Manager;

 

(vi)                               upon a Change in Control of the Manager;

 

(vii)                            the Manager or any of its Affiliates shall breach the Confidentiality and Standstill Agreement;

 

(viii)                         the termination of the MBWS Agreement for “cause” thereunder; or

 

(ix)                               the Manager is unable under applicable law or regulation to perform its obligations under this Agreement.

 

If any of the events specified above shall occur, the Manager shall give prompt written notice thereof to the Board of Trustees.  The Board of Trustees may exercise its right to terminate the Manager as provided in this Section 13 for a period of 60 days following receipt of such notice.

 

Section 14.  Termination by the Manager for Cause.

 

(a)                                  At the option of the Manager and at any time during the term of this Agreement, this Agreement shall be and become terminated upon at least 60 days’ prior written notice of termination from the Manager to the Trust and the Operating Partnership, with payment of the Termination Fee, if the Trust or the Subsidiaries shall have defaulted in the performance of any material term of this Agreement, and such default has continued uncured for a period of 30 days after the Trust’s and the Operating Partnership’s receipt of written notice of such default from the Manager.

 

(b)                                  At the option of the Manager and at any time during the term of this Agreement, this Agreement shall be and become terminated, without payment of the Termination Fee, if the Trust becomes required to register as an investment company under the Investment Company Act, with such termination deemed to occur immediately before such event.

 

Section 15.  Action Upon Termination.  From and after the effective date of termination of this Agreement pursuant to Sections 11, 12, 13 or 14 of this Agreement, the Manager shall not be entitled to compensation for further services hereunder, but shall be paid all compensation accruing to the date of termination and, if the Manager is so entitled in accordance with the terms of this Agreement, the Termination Fee.  Upon any such termination, the Manager shall forthwith:

 

(a)                                  after deducting any accrued compensation and reimbursement for its expenses to which it is then entitled, pay over to the Trust or a Subsidiary all money collected and held for the account of the Trust or a Subsidiary pursuant to this Agreement;

 

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(b)                                  deliver to the Board of Trustees a full accounting, including a statement showing all payments collected by it and a statement of all money held by it, covering the period following the date of the last accounting furnished to the Board of Trustees with respect to the Trust and any Subsidiary;

 

(c)                                   deliver to the Board of Trustees all property and documents of the Trust and any Subsidiary then in the custody of the Manager; and

 

Section 16.  Release of Money or Other Property Upon Written Request.  The Manager agrees that any money or other property of the Trust or any Subsidiary held by the Manager shall be held by the Manager as custodian for the Trust or such Subsidiary, and the Manager’s records shall be appropriately and clearly marked to reflect the ownership of such money or other property by the Trust or such Subsidiary.  Upon the receipt by the Manager of a written request signed by a duly authorized officer of the Trust requesting the Manager to release to the Trust any money or other property then held by the Manager for the account of the Trust or any Subsidiary under this Agreement, the Manager shall release such money or other property to the Trust or any Subsidiary within a reasonable period of time, but in no event later than 45 days following such request.  Upon delivery of such money or other property to the Trust, the Manager shall not be liable to the Trust, any Subsidiary, the Board of Trustees, or the Shareholders or the interest holders of any Subsidiary for any acts or omissions by the Trust or any Subsidiary in connection with the money or other property released in accordance with this Section.  The Trust and the Operating Partnership shall indemnify the Manager and its Affiliates and their respective managers, officers, trustees, directors, employees and members and any Person providing sub-advisory services to the Manager against any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever, which arise in connection with the Manager’s release of such money or other property in accordance with the terms of this Section 16.  Indemnification pursuant to this provision shall be in addition to any right of the Manager to indemnification under Section 9 of this Agreement.

 

Section 17.  Use of Name.

 

(a)                                  The Manager hereby grants to the Trust and the Subsidiaries during the term of this Agreement a non-exclusive, royalty-free license to use the “PennyMac” brand, trademark, logo and service marks and any derivation thereof related thereto (the “ PennyMac Brand ”) in the United States.  Notwithstanding the foregoing, it is acknowledged and agreed that the Manager and its other Affiliates retain the right to continue to use the PennyMac Brand during the term of this Agreement.  It is further acknowledged and agreed that under no circumstances shall the Manager be prohibited from licensing or transferring the ownership of the PennyMac Brand to third parties.

 

(b)                                  In the event of the termination of this Agreement, the Trust shall be required to cease using the PennyMac Brand as promptly as possible, including by changing its name to remove the word “PennyMac” therefrom as promptly as practicable.  The provisions of this Section 17(b) shall survive the expiration or earlier termination of this Agreement.

 

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Section 18.  Miscellaneous.

 

(a)                                  Notices .  All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered against receipt or upon actual receipt of (1) personal delivery, (2) delivery by reputable overnight courier, (3) delivery by facsimile transmission with telephonic confirmation or (4) delivery by registered or certified mail, postage prepaid, return receipt requested, addressed as set forth below (or to such other address as may be hereafter notified by the respective parties hereto in accordance with this Section 18):

 

The Trust and the

Operating Partnership:	PennyMac Mortgage Investment Trust
	PennyMac Operating Partnership, L.P.
	6101 Condor Drive
	Moorpark, California 93021
	Attention:  Chief Executive Officer
	Fax:  (818) 936-0283
with copies to:	Sidley Austin LLP
	787 Seventh Avenue
	New York, New York 10019
	Attention:  Edward J. Fine and J. Gerard Cummins
	Fax:  (212) 839-5599
	and
	Latham & Watkins LLP
	650 Town Center Drive, 20th Floor
	Costa Mesa, California 92626
	Attention: Charles Ruck and Scott Shean
	Fax:  (714) 540-8290
The Manager:	PNMAC Capital Management, LLC
	6101 Condor Drive
	Moorpark, California  93021
	Attention:  Chief Executive Officer
	Fax:  (818) 936-0283
with a copy to:	PNMAC Capital Management, LLC
	6101 Condor Drive
	Moorpark, California 93021
	Attention:  Chief Legal Officer
	Fax:  (818) 936-0283

 

(b)                                  Binding Nature of Agreement; Successors and Assigns .  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns as provided herein.

 

35

 

(c)                                   Integration .  This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof.  The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof.  Without limiting the foregoing, the Trust and the Operating Partnership shall not have any obligations to the Manager, monetary or otherwise, with respect to any agreement or arrangement entered into prior to the date hereof.

 

(d)                                  Amendments .  Neither this Agreement, nor any terms hereof, may be amended, supplemented or modified except in an instrument in writing executed by the parties hereto.

 

(e)                                   GOVERNING LAW .  THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.  EACH OF THE PARTIES HERETO IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA AND THE UNITED STATES DISTRICT COURT FOR ANY DISTRICT WITHIN SUCH STATE FOR THE PURPOSE OF ANY ACTION OR JUDGMENT RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY AND TO THE LAYING OF VENUE IN SUCH COURT.

 

(f)                                    WAIVER OF JURY TRIAL .  EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND, THEREFORE, EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY ACTION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

 

(g)                                   No Waiver; Cumulative Remedies .  No failure to exercise and no delay in exercising, on the part of a party hereto, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.  The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

 

(h)                                  Costs and Expenses .  Each party hereto shall bear its own costs and expenses (including the fees and disbursements of counsel and accountants) incurred in connection with the negotiations and preparation of and the closing under this Agreement, and all matters incident thereto.

 

36

 

(i)                                      Section Headings .  The section and subsection headings in this Agreement are for convenience of reference only and shall not be deemed to alter or affect the interpretation of any provisions hereof.

 

(j)                                     Counterparts .  This Agreement may be executed by the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

 

(k)                                  Severability .  Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

37

 

IN WITNESS WHEREOF, each of the parties hereto have executed this Amended and Restated Management Agreement as of the date first written above.

 

 

				PENNYMAC MORTGAGE INVESTMENT TRUST
		By:		/s/ Stanford L. Kurland
				Name:		Stanford L. Kurland
				Title:		Chief Executive Officer
				PENNYMAC OPERATING PARTNERSHIP, L.P.
		By:	PENNYMAC GP OP, INC.,
			its General Partner
		By:		/s/ Stanford L. Kurland
				Name:		Stanford L. Kurland
				Title:		Chief Executive Officer
				PNMAC CAPITAL MANAGEMENT, LLC
		By:		/s/ Anne D. McCallion
				Name:	Anne D. McCallion
				Title:	Chief Financial Officer

 

38

 

Execution Version

 

Exhibit A

 

Allocation Policy

 

Capitalized terms used but not defined herein shall have the meanings ascribed thereto in that certain Amended and Restated Management Agreement, dated as of February 1, 2013, as may be amended from time to time (the “ Management Agreement ”), by and among PennyMac Mortgage Investment Trust, PennyMac Operating Partnership, L.P. and PNMAC Capital Management, LLC.

 

Investment opportunities in pools of mortgage loans that are consistent with the investment objective of the Trust and the Subsidiaries, on the one hand, and the investment objectives of the two private fund vehicles managed by the Manager as of the date of the Management Agreement (the “PennyMac funds”) and other future entities or accounts managed by the Manager, on the other hand, will be allocated among the Trust and the Subsidiaries and the PennyMac funds and such other entities or accounts generally pro rata based upon relative amounts of investment capital (including undrawn capital commitments) available for new investments by the Trust and the Subsidiaries, the PennyMac funds and any other relevant entities or accounts managed by the Manager or by assigning opportunities among the relevant entities such that investments assigned among the Trust and the Subsidiaries, the PennyMac funds and such entities or accounts are fair and equitable over time; provided , that the Manager, in its sole discretion, may allocate investment opportunities in any other manner that it deems to be fair and equitable.

 

In the case of the assignment of investment opportunities, the Manager will consider a number of factors. These factors include:

 

a.               investment objective or strategies for particular entities or accounts,

 

b.               tax considerations of an entity or account,

 

c.                risk or investment concentration parameters for an entity or account,

 

d.               supply or demand for an investment at a given price level,

 

e.                size of available investment,

 

f.                 cash availability and liquidity requirements for an entity or account,

 

g.                regulatory restrictions,

 

h.               minimum investment size of an entity or account,

 

i.                   relative size or “buying power” of an entity or account,

 

j.                  regulatory considerations, including the impact on an entity’s status under the Investment Company Act, and, in the case of the Trust, its REIT status, and

 

Ex. A-1

 

k.               such other factors as may be relevant to a particular transaction.

 

In the case of pro rata purchases of pools of loans where the pool is allocated among the Trust and the Subsidiaries, the PennyMac funds and other entities or accounts managed by the Manager, the Manager will, at the time of purchase, seek to allocate the hundreds, or potentially thousands, of individual mortgage loans in the pools among the Trust and the Subsidiaries, the PennyMac funds and such other entities or accounts such that the overall allocation of acquired mortgage loans in the pools will target reasonable symmetry with reference to, among other factors, the following:

 

l.                   unpaid principal balances,

 

m.           default status,

 

n.               discounts from purchase price,

 

o.               lien position,

 

p.               expected cash flows,

 

q.               geography, and

 

r.                  such other factors as may be relevant to a particular transaction.

 

This Allocation Policy may be amended, restated, modified, supplemented or waived only by a majority of the Independent Trustees.

 

Ex. A-2

 

Exhibit B

 

Investment Policies

 

Capitalized terms used but not defined herein shall have the meanings ascribed thereto in that certain Amended and Restated Management Agreement, dated as of February 1, 2013, as may be amended from time to time, by and among PennyMac Mortgage Investment Trust, PennyMac Operating Partnership, L.P. and PNMAC Capital Management, LLC.

 

1.              No investment shall be made that would cause the Trust to fail to qualify as a REIT under the Code;

 

2.              No investment shall be made that would cause the Trust to be regulated as an investment company under the Investment Company Act;  and

 

3.              With the exception of real estate and housing, no single industry shall represent greater than 20% of the investments or aggregate risk exposure in the portfolio of the Trust.

 

These Investment Policies may be amended, restated, modified, supplemented or waived by the Board of Trustees (which must include a majority of the Independent Trustees) without the approval of, or prior notice to, the Shareholders.

 

Ex. B-1

Exhibit 1.2

 

Execution Version

 

AMENDED AND RESTATED FLOW SERVICING AGREEMENT

 

 

between

 

 

PENNYMAC OPERATING PARTNERSHIP, L.P.,
as Owner

 

 

and

 

 

PENNYMAC LOAN SERVICES, LLC,
as Servicer

 

 

Dated as of February 1, 2013

 

 

FIXED- AND ADJUSTABLE-RATE RESIDENTIAL MORTGAGE LOANS

 

 

 

TABLE OF CONTENTS

 

				Page
ARTICLE I DEFINITIONS				2
Section 1.01		Definitions		2
ARTICLE II     CONTINUATION OF EXISTING SERVICING; SERVICING OF ADDITIONAL MORTGAGE LOANS				19
Section 2.01		Servicing to Continue		19
Section 2.02		Addition of Mortgage Loans		19
Section 2.03		Closing Documents		20
ARTICLE III SERVICING OF AGENCY MORTGAGE LOANS				22
Section 3.01		Servicer to Act as Servicer of Agency Mortgage Loans		22
Section 3.02		Guides Control		22
ARTICLE IV SERVICING OF NON-AGENCY MORTGAGE LOANS				23
Section 4.01		Servicer to Act as Servicer of Non-Agency Mortgage Loans		23
Section 4.02		Liquidation of Mortgage Loans		25
Section 4.03		Collection of Mortgage Loan Payments; Payment Clearing Account		26
Section 4.04		Establishment of and Deposits to Custodial Account		26
Section 4.05		Permitted Withdrawals From Custodial Account		27
Section 4.06		Establishment of and Deposits to Escrow Account		28
Section 4.07		Permitted Withdrawals From Escrow Account		29
Section 4.08		Payment of Taxes, Insurance and Other Charges		30
Section 4.09		Protection of Accounts		30
Section 4.10		Maintenance of Hazard Insurance		31
Section 4.11		Maintenance of Mortgage Impairment Insurance Policy		33
Section 4.12		Maintenance of Fidelity Bond and Errors and Omissions Insurance		33
Section 4.13		Inspections		34
Section 4.14		Restoration of Mortgaged Property		34
Section 4.15		Title, Management and Disposition of REO Property		34
Section 4.16		Costs and Expenses		36
Section 4.17		Liquidity and Litigation Reserves		36
Section 4.18		Transfers of Mortgaged Properties		37
Section 4.19		Satisfaction of Mortgages and Release of Mortgage Files		38
Section 4.20		Notification of Adjustments		39
Section 4.21		Recordation of Assignments of Mortgage		39
Section 4.22		[Reserved]		40
Section 4.23		Credit Reporting		40
Section 4.24		Superior Liens		40
Section 4.25		Prepayments in Full		41
Section 4.26		Tax and Flood Service Contracts		41

 

i

 

Section 4.27		Maintenance of PMI Policies and LPMI Policies; Collections Thereunder		41
Section 4.28		Reliability of Information/Exceptional Expenses		42
Section 4.29		Escrow Obligations		42
Section 4.30		No Obligation to Advance Delinquent Payments		43
Section 4.31		MERS Transfers		43
ARTICLE V PAYMENTS; REPORTS				44
Section 5.01		Remittances		44
Section 5.02		Reports to the Owner		44
Section 5.03		Tax Reporting		45
Section 5.04		Cost of Funds		45
ARTICLE VI RECORDS, INFORMATION AND COMPLIANCE DOCUMENTS				46
Section 6.01		Possession of Servicing Files		46
Section 6.02		Annual Statement as to Compliance		46
Section 6.03		Annual Independent Public Accountants’ Servicing Report		47
Section 6.04		Provision of Information		47
Section 6.05		Right to Examine Servicer Records		47
Section 6.06		Compliance with Gramm-Leach-Bliley Act of 1999		48
Section 6.07		On-Line Access		48
Section 6.08		Financial Statements; Servicing Facilities		49
Section 6.09		Use of Subservicers		49
Section 6.10		Mortgage Loans Held by Wholly Owned Subsidiaries of Owner		49
ARTICLE VII SERVICING COMPENSATION				51
Section 7.01		Servicing Compensation		51
ARTICLE VIII TERMINATION				54
Section 8.01		Termination		54
Section 8.02		Outbound Transfer of Servicing		55
ARTICLE IX INDEMNIFICATION AND ASSIGNMENT AND OTHER MATTERS RELATED TO SERVICER				59
Section 9.01		Indemnification		59
Section 9.02		Limitation on Liability of Servicer and Others		60
Section 9.03		Limitation on Resignation and Assignment by Servicer		60
Section 9.04		Assignment by Owner		61
Section 9.05		Merger or Consolidation of the Servicer		61
Section 9.06		Additional Activities of the Servicer		61
ARTICLE X REPRESENTATIONS AND WARRANTIES				62
Section 10.01		Representations and Warranties of the Owner		62
Section 10.02		Representations and Warranties of the Servicer		63

 

ii

 

ARTICLE XI DEFAULT				66
Section 11.01		Events of Default		66
Section 11.02		Waiver of Defaults		68
ARTICLE XII RECONSTITUTIONS				69
Section 12.01		Cooperation of Servicer with a Reconstitution		69
ARTICLE XIII MISCELLANEOUS PROVISIONS				72
Section 13.01		Notices		72
Section 13.02		Amendment		73
Section 13.03		Entire Agreement		73
Section 13.04		Binding Effect; Beneficiaries		73
Section 13.05		Headings		73
Section 13.06		Further Assurances		73
Section 13.07		Governing Law		73
Section 13.08		Relationship of Parties		73
Section 13.09		Severability of Provisions		74
Section 13.10		No Waiver; Cumulative Remedies		74
Section 13.11		Recordation of Assignments of Mortgage		74
Section 13.12		Exhibits		74
Section 13.13		Counterparts		74
Section 13.14		Trademarks		74
Section 13.15		Confidentiality of Information		75
Section 13.16		WAIVER OF TRIAL BY JURY		75
Section 13.17		LIMITATION OF DAMAGES		75
Section 13.18		SUBMISSION TO JURISDICTION; WAIVERS		75

 

iii

 

EXHIBITS
EXHIBIT 1		LIST OF MONTHLY AND DAILY REPORTS
EXHIBIT 2		FORM OF CUSTODIAL ACCOUNT CERTIFICATION
EXHIBIT 3		FORM OF CUSTODIAL ACCOUNT LETTER AGREEMENT
EXHIBIT 4		FORM OF ESCROW ACCOUNT CERTIFICATION
EXHIBIT 5		FORM OF ESCROW ACCOUNT LETTER AGREEMENT
EXHIBIT 6		FORM OF OFFICER’S CERTIFICATE
EXHIBIT 7		MORTGAGE LOAN DOCUMENTS
EXHIBIT 8		FORM OF LIMITED POWER OF ATTORNEY
EXHIBIT 9		TERM SHEET
EXHIBIT 10		DELEGATION OF AUTHORITY MATRIX

 

iv

 

AMENDED AND RESTATED FLOW SERVICING AGREEMENT

 

This Amended and Restated Flow Servicing Agreement (this “ Agreement ”) is entered into as of February 1, 2013, by and between PennyMac Loan Services, LLC, a Delaware limited liability company (the “ Servicer ”), and PennyMac Operating Partnership, L.P., a Delaware limited partnership (the “ Owner ”).

 

RECITALS

 

WHEREAS, the Servicer is in the business of servicing residential mortgage loans similar to the Mortgage Loans;

 

WHEREAS, the Owner desires that the Servicer service some or all of the Mortgage Loans, and the Servicer is willing to perform such servicing;

 

WHEREAS, the Owner and the Servicer previously entered into that certain Flow Servicing Agreement, dated as of August 4, 2009, as amended by Amendment No. 1 thereto dated as of March 3, 2010, Amendment No. 2 thereto dated as of March 8, 2011 and Amendment No. 3 thereto dated as of May 17, 2011 (the “ Original Agreemen t”);

 

WHEREAS, the Owner and the Servicer desire to amend and restate the Original Agreement;

 

NOW, THEREFORE, in consideration of the mutual premises and agreements set forth herein and for other good and valuable consideration, the receipt and the sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

 

 

ARTICLE I

 

DEFINITIONS

 

Section 1.01                   Definitions.

 

The following terms are defined as follows:

 

AAA : As defined in Section 7.01 .

 

Accepted Servicing Practices :  With respect to any Mortgage Loan (including any related REO Property), each of those mortgage servicing practices (including collection procedures) of prudent mortgage lending institutions which service mortgage loans of the same type as such Mortgage Loan in the jurisdiction where the related Mortgaged Property is located, which servicing practices (i) are in compliance with all federal, state and local laws and regulations, (ii) shall be in accordance with the Servicer’s policies and procedures as amended from time to time for mortgage loans of the same type, (iii) are in accordance with the terms of the related Mortgage and Mortgage Note and (iv) are at a minimum based on the requirements set forth from time to time by Fannie Mae.

 

Actual/Actual Basis :  Remittance to the Owner or its designee which requires the Servicer to remit to the Owner or such designee the actual interest and actual principal collected from each Mortgagor.

 

Additional Servicing Fee :  With respect to each Third Party Loan, the Additional Servicing Fee set forth in or established pursuant to Exhibit 9 hereto.

 

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

 

Affiliate :  With respect to any specified Person, any other Person controlling or controlled by or under common control with such specified Person.  For the purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

 

Agency :  With respect to an Agency Mortgage Loan, Fannie Mae, Freddie Mac or Ginnie Mae, as applicable.

 

Agency Mortgage Loan :  A Mortgage Loan that is a Fannie Mae Mortgage Loan, a Freddie Mac Mortgage Loan or a Ginnie Mae Mortgage Loan.

 

Ancillary Income :  All income derived from the Mortgage Loans (other than payments or other collections in respect of principal, interest, Escrow Payments and Prepayment Penalties attributable to the Mortgage Loans) including, but not limited to, the Servicer’s share of all late charges, all interest received on funds deposited in the Custodial Account or any Escrow Account (subject to applicable law), assumption fees, reconveyance fees, subordination fees,

 

2

 

speedpay fees, mortgage pay on the web fees, automatic clearing house fees, demand statement fees, modification fees, if any, fees received with respect to checks on bank drafts returned by the related bank for insufficient funds, assumption fees and other similar types of fees arising from or in connection with any Mortgage Loan to the extent not otherwise payable to the Mortgagor under applicable law or pursuant to the terms of the related Mortgage Note.  In no event shall the Servicer be entitled to any Prepayment Penalties.

 

Appraised Value :  With respect to any Mortgaged Property, the lesser of (i) the value thereof as determined by an appraisal made for the originator of the Mortgage Loan at the time of origination of the Mortgage Loan and (ii) the purchase price for the related Mortgaged Property paid by the Mortgagor with the proceeds of the Mortgage Loan; provided, however , in the case of a Refinanced Mortgage Loan, such value of the Mortgaged Property is based solely upon the value determined by an appraisal made for the originator of such Refinanced Mortgage Loan at the time of origination of such Refinanced Mortgage Loan.

 

Arbitrator : As defined in Section 7.01 .

 

Asset Balance :  On any day for any Mortgage Loan, other than a liquidated Mortgage Loan, the total unpaid outstanding principal balance of such Mortgage Loan on such date.

 

Assignment of Mortgage :  An assignment of the Mortgage, notice of transfer or equivalent instrument in recordable form, sufficient under the laws of the jurisdiction wherein the related Mortgaged Property is located to reflect the sale of the Mortgage to the Owner.

 

Base Servicing Fee :  The Base Servicing Fee set forth in or established pursuant to Exhibit 9 hereto.

 

BPO :  A broker price opinion.

 

Business Day :  Any day other than (i) a Saturday or Sunday, or (ii) a day on which banking and savings and loan institutions in the States of New York or California are authorized or obligated by law or executive authority to be closed.

 

Combined Loan-to-Value Ratio or CLTV :  With respect to any Second Lien Mortgage Loan, the ratio (expressed as a percentage) of the sum of the outstanding principal amount of such Second Lien Mortgage Loan plus the outstanding principal amount of the related First Lien Mortgage Loan to the lesser of (a) the Appraised Value of the Mortgaged Property at origination or (b) if such Second Lien Mortgage Loan was made to finance part of the acquisition of the related Mortgaged Property, the purchase price of the Mortgaged Property.

 

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

 

Condemnation Proceeds :  All awards or settlements in respect of a Mortgaged Property, whether permanent or temporary, partial or entire, by exercise of the power of eminent domain or condemnation, to the extent not required to be released to a Mortgagor in accordance with the terms of the related Mortgage Loan Documents.

 

3

 

Correspondent Loan :  A newly originated Mortgage Loan acquired by Owner or one of its wholly owned subsidiaries from a third party originator under the correspondent lending program established by Owner or such subsidiary.

 

Cost of Funds :  The amount payable by the Owner to the Servicer pursuant to Section 5.04 , which amount shall be equal to one-twelfth of the product of (x) the average daily balance of Servicing Advances and (y) the sum of (i) the Cost of Funds Index plus 0 basis points.

 

Cost of Funds Index :  A per annum rate equal to the London interbank offered rate for one-month United States dollar deposits as such rate appears, in The Wall Street Journal (West Coast edition), as of the first Business Day of such calendar month.  If the rate above is unavailable, the Servicer shall select a comparable source mutually agreeable to the Servicer and the Owner from which to determine such rate.

 

Custodial Account :  The separate trust account or accounts created and maintained pursuant to Section 4.04 at a Qualified Depository.

 

Custodial Agreement :  The agreement governing the retention of the originals of each Mortgage Note, Mortgage, Assignment of Mortgage and other Mortgage Loan Documents.

 

Custodian :  The custodian of the Mortgage Loan Documents as specified under the related Custodial Agreement.

 

Cut-off Date :  The date set forth in the related Purchase Agreement, if applicable.

 

Deed in Lieu Fee :  With respect to each Mortgaged Property, the title to which is acquired by deed in lieu of foreclosure, the Deed in Lieu Fee as set forth in Exhibit 9 .

 

Delinquent Mortgage Loan :  As defined in Section 8.01(c) .

 

Dispute :  As defined in Section 7.01 .

 

Distressed Whole Loan :  Any Mortgage Loan classified by the PennyMac REIT Manager as troubled or distressed and acquired by Owner as part of a pool of mortgage loans that are or are expected to be re-performing and/or under-performing mortgage loans.

 

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

 

Due Period :  With respect to amounts collected by the Servicer and required to be remitted to the Owner (or as otherwise directed in writing by the Owner) on each Remittance Date, the period commencing on the first day of the month and ending on the last day of the month preceding the month of the Remittance Date.

 

4

 

Eligible Investments :  Any one or more of the obligations or securities listed below, acquired at a purchase price of not greater than par which investment provides for a date of maturity not later than one day prior to the Remittance Date in each month (or such other date as permitted under this Agreement):

 

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

 

(ii)            (A) federal funds, demand and time deposits in, certificates of deposits of, or bankers’ acceptances issued by, any depository institution or trust company (including U.S. subsidiaries of foreign depositories) incorporated or organized under the laws of the United States of America or any state thereof and subject to supervision and examination by federal and/or state authorities, so long as at the time of such investment or the contractual commitment providing for such investment, such depository institution or trust company has a short-term uninsured debt rating in the highest available rating category of Moody’s and S&P and provided that each such investment has an original maturity of no more than 365 days; and (B) any other demand or time deposit or deposit which is fully insured by the FDIC;

 

(iii)           repurchase obligations with a term not to exceed 30 days with respect to any security described in clause (i) above and entered into with a depository institution or trust company (acting as principal) that has obligations with an investment-grade rating from a Rating Agency, provided, however , that collateral transferred pursuant to such repurchase obligation must be of the type described in clause (i) above and must (A) be valued daily at current market prices plus accrued interest, (B) pursuant to such valuation, be equal, at all times, to 105% of the cash transferred by a party in exchange for such collateral and (C) be delivered to such party or, if such party is supplying the collateral, an agent for such party, in such a manner as to accomplish perfection of a security interest in the collateral by possession of certificated securities;

 

(iv)           securities bearing interest or sold at a discount issued by any corporation incorporated under the laws of the United States of America or any state thereof which have a credit rating from a Rating Agency that rates such securities in its highest long-term unsecured rating categories at the time of investment or the contractual commitment providing for such investment;

 

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

 

5

 

(vi)           certificates or receipts representing direct ownership interests in future interest or principal payments on obligations of the United States of America or its agencies or instrumentalities (which obligations are backed by the full faith and credit of the United States of America) held by a custodian in safekeeping on behalf of the holders of such receipts; and

 

(vii)          any other demand, money market, common trust fund or time deposit or obligation, or interest bearing or other security or investment rated investment grade level by a Rating Agency;

 

provided, however , that no such instrument shall be an Eligible Investment if such instrument evidences either (i) a right to receive only interest payments with respect to the obligations underlying such instrument, or (ii) both principal and interest payments derived from obligations underlying such instrument and the principal and interest payments with respect to such instrument provide a yield to maturity of greater than 120% of the yield to maturity at par of such underlying obligations.

 

Eligible Mortgage Loan :  A mortgage loan that is a fixed-rate or Adjustable-Rate Mortgage Loan that is secured by either a 1st lien or 2nd lien Mortgage on a single family ( i.e. , one- to four-unit) residential Mortgaged Property located in any of the 50 states of the United States or in the District of Columbia; provided, however, that such mortgage loan shall not be a High Cost Loan or a HOEPA Loan.  Notwithstanding the foregoing, an Eligible Mortgage Loan shall be one of the types of mortgage loans that the Servicer currently services on its servicing platform.

 

Errors and Omissions Insurance Policy :  An errors and omissions insurance policy to be maintained by the Servicer pursuant to Section 4.12 .

 

Escrow Account :  The separate trust account or accounts created and maintained pursuant to Section 4.06 at a Qualified Depository.

 

Escrow Payment :  With respect to any Mortgage Loan, the amounts constituting ground rents, taxes, assessments, water rates, sewer rents, municipal charges, mortgage insurance premiums, flood insurance premiums, fire and hazard insurance premiums, condominium charges, and any other payments required to be escrowed by the Mortgagor with the mortgagee pursuant to the related Mortgage or any other document.

 

Event of Default :  Any one of the conditions or circumstances enumerated in Section 11.01 .

 

Fannie Mae :  The Federal National Mortgage Association, or any successor thereto.

 

Fannie Mae Guide :  Collectively, the Fannie Mae Selling Guide and Servicing Guide, as such Guides may be amended from time to time hereafter.

 

Fannie Mae Mortgage Loan :  A Mortgage Loan underwritten in accordance with the guidelines of Fannie Mae described in the Fannie Mae Guide.

 

6

 

FDIC :  The Federal Deposit Insurance Corporation, or any successor thereto.

 

Fee Amendment : As defined in Section 7.01 .

 

Fee Negotiation Request : As defined in Section 7.01 .

 

Fidelity Bond :  A fidelity bond to be maintained by the Servicer pursuant to Section 4.12 .

 

First Lien Mortgage Loan :  A Mortgage Loan secured by a Mortgage in first lien position on the related Mortgaged Property.

 

Fitch :  Fitch, Inc., or any successor thereto.

 

Fixed-Rate Mortgage Loan :  A fixed-rate mortgage loan serviced pursuant to this Agreement.

 

Flood Zone Service Contract :  A transferable contract maintained for a Mortgaged Property with a nationally recognized flood zone service provider for the purpose of obtaining the current flood zone status relating to such Mortgaged Property.

 

Foreclosure Commencement :  With respect to any Mortgage Loan, the delivery of the applicable file to the Servicer’s foreclosure counsel for initiation of foreclosure proceedings.

 

Freddie Mac :  The Federal Home Loan Mortgage Corporation, or any successor thereto.

 

Freddie Mac Guide :  The Freddie Mac Single-Family Seller/Servicer Guide, as such Guide may be amended from time to time hereafter.

 

Freddie Mac Mortgage Loan :  A Mortgage Loan underwritten in accordance with the guidelines of Freddie Mac described in the Freddie Mac Guide.

 

Ginnie Mae :  The Government National Mortgage Association, or any successor thereto.

 

Ginnie Mae Mortgage Loan :  A Mortgage Loan underwritten in accordance with the guidelines of Ginnie Mae described in the Ginnie Mae Guide.

 

Ginnie Mae Guide :  The Ginnie Mae Mortgage-Backed Securities Guide, as such Guide may hereafter from time to time be amended.

 

Guide :  With respect to any Fannie Mae Mortgage Loan, the Fannie Mae Guide; with respect to any Freddie Mac Mortgage Loan, the Freddie Mac Guide; and with respect to any Ginnie Mae Mortgage Loan, the Ginnie Mae Guide.

 

Gross Margin :  With respect to each Adjustable-Rate Mortgage Loan, the fixed percentage amount set forth in the related Mortgage Note which amount is added to the Index in

 

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accordance with the terms of such Mortgage Note to determine on each Interest Rate Adjustment Date the Mortgage Interest Rate for such Mortgage Loan.

 

High Cost Loan :  A Mortgage Loan (a) covered by HOEPA or (b) classified as a “high cost,” “threshold,” “covered,” “predatory” or similar loan under any other applicable state, federal or local law (or a similarly classified loan using different terminology under a law imposing heightened regulatory scrutiny or additional legal liability for residential mortgage loans having high interest rates, points and/or fees).

 

HOEPA :  The Federal Home Ownership and Equity Protection Act of 1994, as amended.

 

HOEPA Loan :  A Mortgage Loan which (a) is subject to HOEPA or (b) which the Servicer discovers is subject to HOEPA.

 

Inbound Transfer Date :  The date on which the Servicer begins servicing the related Mortgage Loan pursuant to this Agreement.

 

Index :  With respect to each Adjustable-Rate Mortgage Loan, the index set forth in the related Mortgage Note.

 

Insurance Proceeds :  With respect to each Mortgage Loan, proceeds of insurance policies insuring such Mortgage Loan or the related Mortgaged Property.

 

Interest Rate Adjustment Date :  With respect to each Adjustable-Rate Mortgage Loan, the date specified in the related Mortgage Note on which the Mortgage Interest Rate is adjusted.

 

Interim Servicing Period :  With respect to any Mortgage Loan, the period commencing on the related Inbound Transfer Date and ending on the Reconstitution Date.

 

Lender Paid Mortgage Insurance Policy or LPMI Policy :  A policy of mortgage guaranty insurance issued by an insurer which meets the requirements of Fannie Mae and Freddie Mac in which the owner or servicer of the Mortgage Loan is responsible for the premiums associated with such mortgage insurance policy.

 

Lifetime Rate Cap :  With respect to each Adjustable-Rate Mortgage Loan, the provision of the related Mortgage Note that provides for an absolute maximum Mortgage Interest Rate thereunder.  The Mortgage Interest Rate during the terms of each Adjustable-Rate Mortgage Loan shall not at any time exceed the Mortgage Interest Rate at the time of origination of such Adjustable-Rate Mortgage Loan by more than the amount per annum set forth on the Mortgage Loan Schedule.

 

Liquidation Fee :  With respect to each sale of an REO Property or each full or discounted payoff accepted by the Servicer in satisfaction of a defaulted Mortgage Loan, the Liquidation Fee as set forth in Exhibit 9 .

 

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Liquidation Proceeds :  Amounts, other than Condemnation Proceeds and Insurance Proceeds, received in connection with the liquidation of a defaulted Mortgage Loan, whether through the sale or assignment of such Mortgage Loan, trustee’s sale, foreclosure sale or otherwise, or the sale of the related Mortgaged Property if the Mortgaged Property is acquired in satisfaction of the Mortgage Loan, other than amounts received following the acquisition of an REO Property pursuant to Section 4.15 and prior to such liquidation.

 

Liquidity Reserve :  As defined in Section 4.17 .

 

Liquidity Reserve Account :  The separate trust account or accounts to be created and maintained under the circumstances described in Section 4.17 .

 

Litigation Reserve :  As defined in Section 4.17 .

 

Litigation Reserve Account :  The separate trust account or accounts to be created and maintained under the circumstances described in Section 4.17 .

 

Loan-to-Value Ratio or LTV :  With respect to any First Lien Mortgage Loan, the ratio (expressed as a percentage) of the outstanding principal amount of such First Lien Mortgage Loan to the lesser of (a) the Appraised Value of the related Mortgaged Property at origination or (b) if such First Lien Mortgage Loan was made to finance the acquisition of the related Mortgaged Property, the purchase price of such Mortgaged Property.

 

Management Agreement :  The Management Agreement dated as of August 4, 2009 by and among PennyMac Mortgage Investment Trust, PennyMac Operating Partnership, L.P. and PNMAC Capital Management, LLC, as such agreement may be amended from time to time.

 

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

 

MERS Mortgage Loan :  Any Mortgage Loan as to which the related Mortgage or Assignment of Mortgage has been recorded in the name of MERS, as agent for the holder from time to time of the Mortgage Note and which is identified as a MERS Mortgage Loan on the related Mortgage Loan Schedule.

 

MERS ®  System :  The system of recording transfers of mortgages electronically maintained by MERS.

 

MOM Loan :  Any Mortgage Loan as to which MERS acts as the mortgagee of record of such Mortgage Loan, solely as nominee for the originator of such Mortgage Loan and its successors and assigns, at the origination thereof.

 

Monthly Payment :  The scheduled monthly payment of principal and interest on a Mortgage Loan.

 

Moody’s :  Moody’s Investors Service, Inc., and any successor thereto.

 

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Mortgage :  The mortgage, deed of trust or other instrument securing a Mortgage Note, which creates a first or second lien, as applicable, on an unsubordinated estate in fee simple in real property securing such Mortgage Note; except that with respect to real property located in jurisdictions in which the use of leasehold estates for residential properties is a widely accepted practice, the mortgage, deed of trust or other instrument securing the Mortgage Note may secure and create a first or second lien, as applicable, upon a leasehold estate of the Mortgagor.

 

Mortgage File :  The items pertaining to a particular Mortgage Loan referred to as the Mortgage File in Exhibit 7 annexed hereto, and any additional documents required to be added to the Mortgage File pursuant to this Agreement.

 

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

 

Mortgage Interest Rate :  With respect to each Mortgage Loan, the annual rate of interest borne on the related Mortgage Note.

 

Mortgage Loan :  An individual mortgage loan to be serviced pursuant to this Agreement, as identified on the Mortgage Loan Schedule, which mortgage loan shall be an Eligible Mortgage Loan and includes without limitation the Mortgage File, the Monthly Payments, Principal Prepayments, Liquidation Proceeds, Condemnation Proceeds, Insurance Proceeds, Servicing Rights and all other rights, benefits, proceeds and obligations arising from or in connection with such mortgage loan, excluding replaced or repurchased mortgage loans.

 

Mortgage Loan Documents :  The documents listed on Exhibit 7 attached hereto pertaining to any Mortgage Loan.

 

Mortgage Loan Remittance Rate :  With respect to each Mortgage Loan, the annual rate of interest remitted to the Owner (or as otherwise directed in writing by the Owner), which shall be equal to the related Mortgage Interest Rate.

 

Mortgage Loan Schedule :  The schedule of Mortgage Loans in the form attached as a schedule to the Notice of Inbound Transfer, to be delivered from time to time by the Owner to the Servicer, which schedule shall include, but not be limited to, the following information with respect to each Mortgage Loan (or such lesser information as the Service Provider may determine in its reasonable discretion):

 

(1)                                  the name of the Seller and the Seller’s Mortgage Loan identifying number;

 

(2)                                  the Mortgagor’s name;

 

(3)                                  the street address of the Mortgaged Property including the city, state and ZIP code;

 

(4)                                  a code indicating whether the Mortgaged Property is owner-occupied, a second home or investment property;

 

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(5)                                  the number and type of residential units constituting the Mortgaged Property ( i.e., a one-family residence, a two- to four-family residence, a unit in a condominium project or a unit in a planned unit development);

 

(6)                                  the original months to maturity or the remaining months to maturity from the related Cut-off Date, in any case based on the original amortization schedule and, if different, the maturity expressed in the same manner but based on the actual amortization schedule;

 

(7)                                  the LTV at origination in the case of a First Lien Mortgage Loan;

 

(8)                                  the CLTV at origination in the case of a Second Lien Mortgage Loan;

 

(9)                                  the Mortgage Interest Rate as of the related Cut-off Date;

 

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

 

(11)                           the stated maturity date;

 

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

 

(13)                           the last payment date on which a Monthly Payment was actually applied to pay interest and the outstanding principal balance;

 

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

 

(15)                           the principal balance of the Mortgage Loan as of the close of business on the related Cut-off Date, after deduction of payments of principal due and collected on or before the related Cut-off Date;

 

(16)                           in the case of an Adjustable-Rate Mortgage Loan, the next Interest Rate Adjustment Date;

 

(17)                           in the case of an Adjustable-Rate Mortgage Loan, the Gross Margin;

 

(18)                           in the case of an Adjustable-Rate Mortgage Loan, the Lifetime Rate Cap under the terms of the Mortgage Note;

 

(19)                           in the case of an Adjustable-Rate Mortgage Loan, a code indicating the type of Index;

 

(20)                           in the case of an Adjustable-Rate Mortgage Loan, the Periodic Rate Cap under the terms of the Mortgage Note;

 

(21)                           in the case of an Adjustable-Rate Mortgage Loan, the Periodic Rate Floor under the terms of the Mortgage Note;

 

(22)                           the type of Mortgage Loan ( i.e. , Fixed-Rate, Adjustable-Rate, First Lien, Second Lien);

 

(23)                           a code indicating the purpose of the loan ( i.e. , purchase, rate and term refinance, equity take-out refinance);

 

(24)                           a code indicating the related documentation program ( i.e. full, alternative or reduced);

 

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(25)                           the loan credit classification (as described in the related Underwriting Guidelines);

 

(26)                           whether the Mortgage Loan provides for a Prepayment Penalty;

 

(27)                           the Prepayment Penalty period of the Mortgage Loan, if applicable;

 

(28)                           a description of the Prepayment Penalty, if applicable;

 

(29)                           the Mortgage Interest Rate as of origination;

 

(30)                           the credit risk score (FICO score) of the related Mortgagor at origination;

 

(31)                           the date of origination;

 

(32)                           in the case of an Adjustable-Rate Mortgage Loan, the Mortgage Interest Rate adjustment period;

 

(33)                           in the case of an Adjustable-Rate Mortgage Loan, the Mortgage Interest Rate adjustment percentage;

 

(34)                           in the case of an Adjustable-Rate Mortgage Loan, the Mortgage Interest Rate floor;

 

(35)                           the Mortgage Interest Rate calculation method ( i.e ., 30/360, simple interest, other);

 

(36)                           a code indicating whether the Mortgage Loan is assumable;

 

(37)                           a code indicating whether the Mortgage Loan has been modified;

 

(38)                           the one year payment history;

 

(39)                           the Due Date for the first Monthly Payment;

 

(40)                           the original Monthly Payment due;

 

(41)                           with respect to the related Mortgagor, the debt-to-income ratio;

 

(42)                           the Appraised Value of the Mortgaged Property;

 

(43)                           the sales price of the Mortgaged Property if the Mortgage Loan was originated in connection with the purchase of the Mortgaged Property;

 

(44)                           the MERS identification number;

 

(45)                           a code indicating whether the Mortgage Loan has borrower paid, lender paid or deep primary mortgage insurance coverage and, if so, (i) the insurer’s name, (ii) the policy or certification number, (iii) the premium rate and (iv) the coverage percentage;

 

(46)                           in the case of a Second Lien Mortgage Loan, the outstanding principal balance of the superior lien;

 

(47)                           a code indicating whether the Mortgage Loan is a HOEPA Loan;

 

(48)                           a code indicating whether the Mortgage Loan is a High Cost Loan;

 

(49)                           a code indicating whether the Mortgage Loan is a subject to a buydown;

 

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(50)                           flood zone and flood insurance coverage information with respect to the Mortgage Loan (to the extent known by the Owner);

 

(51)                           whether the Mortgage Loan is subject to a repurchase agreement;

 

(52)                           if the Mortgage Loan is subject to a repurchase agreement, the name of the counterparty; and

 

(53)                           in the case of a negative amortization Mortgage Loan, the next payment adjustment date and the maximum negative amortization.

 

With respect to the Mortgage Loans in the aggregate, the Mortgage Loan Schedule shall set forth the following information, as of the related Cut-off Date:

 

(a)                                  the number of Mortgage Loans;

 

(b)                                  the current aggregate outstanding principal balance of the Mortgage Loans;

 

(c)                                   the weighted average Mortgage Interest Rate of the Mortgage Loans; and

 

(d)                                  the weighted average maturity of the Mortgage Loans.

 

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

 

Mortgaged Property :  The real property (or leasehold estate, if applicable) securing repayment of the debt evidenced by a Mortgage Note.

 

Mortgagor :  The obligor on a Mortgage Note.

 

MSR Recapture Agreement :  The MSR Recapture Agreement, dated as of February 1, 2013, by and between the Servicer and PennyMac Corp.

 

Non-Agency Mortgage Loan :  A Mortgage Loan that is not an Agency Mortgage Loan.

 

Nonrecoverable Advance :  Any Servicing Advance previously made or proposed to be made in respect of a Mortgage Loan or REO Property which, in the good faith judgment of the Servicer, will not or, in the case of a proposed advance, would not, be ultimately recoverable from related Insurance Proceeds, Liquidation Proceeds or otherwise from such Mortgage Loan or REO Property.  The determination by the Servicer that it has made a Nonrecoverable Advance or that any proposed Servicing Advance or advance of principal and interest, if made, would constitute a Nonrecoverable Advance shall be evidenced by an Officer’s Certificate delivered to the Owner.

 

Notice of Inbound Transfer :  A notice in the form mutually agreed upon by the Owner and the Servicer prior to a pending transfer whereby the Owner notifies the Servicer of the addition of the Mortgage Loans specified therein to the coverage of this Agreement.

 

Officer’s Certificate :  A certificate signed by the Chairman of the Board or the Vice Chairman of the Board or a President or Vice President or the Treasurer or the Secretary or

 

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one of the Assistant Treasurers or Assistant Secretaries of the Servicer, and delivered to the Owner.

 

Opinion of Counsel :  A written opinion of counsel, who may be counsel for the Servicer, reasonably acceptable to the Owner; provided, however, that any Opinion of Counsel relating to the qualification of any account required to be maintained pursuant to this Agreement at a Qualified Depository must be (unless otherwise stated in such Opinion of Counsel) an opinion of counsel who (i) is in fact independent of the Servicer, (ii) does not have any material direct or indirect financial interest in the related Servicer or is an Affiliate of either of them and (iii) is not connected with the Servicer as an officer, employee, director or person performing similar functions.

 

Originator :  With respect to a Mortgage Loan, the originator of such Mortgage Loan.

 

Other Fees :  With respect to each Mortgage Loan, those fees set forth in Exhibit 9 for the specific services described therein.

 

Outbound Transfer Date :  With respect to a Mortgage Loan, the date on which the physical servicing of such Mortgage Loan is transferred from the Servicer pursuant to this Agreement to a successor servicer.

 

Outstanding Owner Servicing Advances :  As defined in Section 4.28(f) .

 

Parent :  As defined in Section 13.14 .

 

Payment Clearing Account :  The account established and maintained pursuant to the second paragraph of Section 4.03 .

 

PennyMac Property Preservation Program:   The proprietary property preservation programs designed by PNMAC Capital Management, LLC to modify and enhance the value of Mortgage Loans or mitigate losses to Mortgage Loans, as amended from time to time, and presented to the Servicer by the program technology and other documentation administered and provided by the PennyMac REIT Manager.

 

PennyMac REIT :  PennyMac Mortgage Investment Trust, a Maryland real estate investment trust, or any successor thereto.

 

PennyMac REIT Manager :  PNMAC Capital Management, LLC, a Delaware limited liability company, or any successor thereto.

 

Periodic Rate Cap :  With respect to each Adjustable-Rate Mortgage Loan, the provision of the Mortgage Note which provides for an absolute maximum amount by which the Mortgage Interest Rate specified therein may increase on an Interest Rate Adjustment Date above the Mortgage Interest Rate previously in effect.

 

Periodic Rate Floor :  With respect to each Adjustable-Rate Mortgage Loan, the provision of the related Mortgage Note which provides for an absolute maximum amount by

 

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which the related Mortgage Interest Rate may decrease on an Interest Rate Adjustment Date below the Mortgage Interest Rate previously in effect.

 

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

 

PMI Policy :  A policy of primary mortgage guaranty insurance issued by a Qualified Insurer.

 

Prepayment Penalty :  Any prepayment premium, penalty or charge collected by the Servicer with respect to a Mortgage Loan from a Mortgagor in connection with any Principal Prepayment pursuant to the terms of such Mortgage Loan.

 

Prime Rate :  The prime rate in effect from time to time as published as the average rate in The Wall Street Journal (West Coast edition).

 

Principal Prepayment :  Any payment or other recovery of principal on a Mortgage Loan which is received in advance of its scheduled Due Date, including any Prepayment Penalty thereon, and which is not accompanied by an amount of interest representing scheduled interest due on any date or dates in any month or months subsequent to the month of prepayment.

 

Private Securitization Transaction :  Any transaction involving either (1) a sale of some or all of the Mortgage Loans directly or indirectly to an entity that issues privately offered, rated mortgage-backed securities or (2) an entity that issues privately offered, rated securities, the payments of which are determined primarily by reference to one or more portfolios of mortgage loans consisting, in whole or in part, of some or all of the Mortgage Loans.

 

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

 

Purchase Agreement :  The agreement pursuant to which the Owner purchased Mortgage Loans from the related Seller, if applicable.

 

Qualified Depository :  Either (i) an account or accounts maintained with a federal or state chartered depository institution or trust company the short-term unsecured debt obligations of which (or, in the case of a depository institution or trust company that is the principal subsidiary of a holding company, the short-term unsecured debt obligations of such holding company of which) are rated A-2 by S&P or Prime-2 by Moody’s (or a comparable rating if another Rating Agency is specified by the Owner by written notice to the Servicer) at the time any amounts are held on deposit therein, (ii) an account or accounts the deposits in which are fully insured by the FDIC or (iii) a trust account or accounts maintained with a federal or state chartered depository institution or trust company acting in its fiduciary capacity.

 

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Qualified Insurer :  Any insurer which meets the requirements of Fannie Mae and Freddie Mac.

 

Rating Agency :  Any credit rating agency that is a “nationally recognized statistical rating organization” within the meaning of Section 3(a)(62) of the Securities Exchange Act of 1934, as amended, in the residential mortgage asset class and is designated by the Owner, or any successor to such organization.

 

Reconstitution :  As defined in Section 12.01 .

 

Reconstitution Date :  As defined in Section 12.01 .

 

Refinanced Mortgage Loan :  A Mortgage Loan the proceeds of which were not used to purchase the related Mortgaged Property.

 

Remittance Date :  With respect to each Mortgage Loan, not later than the last Business Day of the month following the month in which payments in respect of such Mortgage Loan are received and credited.

 

REO Property :  A Mortgaged Property acquired by the Servicer on behalf of the Owner through foreclosure or by deed in lieu of foreclosure, as described in Section 4.15 .

 

RESPA :  Real Estate Settlement Procedures Act, as amended from time to time.

 

S&P :  Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., and any successor thereto.

 

Second Lien Mortgage Loan :  A Mortgage Loan secured by a Mortgage in second lien position on the related Mortgaged Property.

 

Seller :  With respect to each Mortgage Loan, the Seller set forth in the related Mortgage Loan Schedule, if applicable.

 

Service Release Fee :  With respect to each Mortgage Loan, the fee set forth in Exhibit 9 hereto payable by the Owner to the Servicer upon the release of such Mortgage Loan from the Servicer’s loan administration system; provided, however, that no such fee shall be payable by the Owner if the Mortgage Loan or the servicing thereof is transferred (i) to the Servicer or an Affiliate of the Servicer or (ii) pursuant to an Event of Default.

 

Servicer : PennyMac Loan Services, LLC or its successor in interest or any permitted assignee or designee of under this Agreement as herein provided and as provided in Section 8.02 .  Unless the context requires otherwise, all references to “Servicer” in this Agreement shall be deemed to include such Servicer’s successors in interest or permitted assignees or designees.

 

Servicer Employees :  As defined in Section 4.12 .

 

Servicer Information :  As defined in Section 12.01(b)(ii)(A) .

 

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Servicing Advances :  All customary, reasonable and necessary “out-of-pocket” costs and expenses (including reasonable attorneys’ fees and disbursements) incurred (regardless if any such advance is not, in the reasonable determination of the Servicer, a Nonrecoverable Advance when made but, thereafter, becomes a Nonrecoverable Advance) in the performance by the Servicer of its servicing obligations, including, but not limited to, the cost of (a) the preservation, restoration and protection of the Mortgaged Property or REO Property, (b) any fees relating to any enforcement or judicial proceedings, excluding foreclosures, (c) amounts advanced to correct defaults on any mortgage loan which is senior to the Mortgage Loan and amounts advanced to keep current or pay off a mortgage loan that is senior to the Mortgage Loan, (d) any appraisals, valuations, broker price opinions, inspections, or environmental assessments, (e) the management and liquidation of the Mortgaged Property if the Mortgaged Property is acquired in satisfaction of the Mortgage, (f) taxes, assessments, water rates, sewer rents, mortgage insurance premiums, fire and hazard insurance premiums, flood insurance premiums and other charges which are or may become a lien upon the Mortgaged Property, and (g) executing and recording instruments of satisfaction, deeds of reconveyance.

 

Servicing Fee :  With respect to each Mortgage Loan, the monthly sum of (a) the applicable Base Servicing Fee, (b) if such Mortgage Loan is a Third Party Loan, the applicable Additional Servicing Fee and (c) if such Mortgage Loan is a Third Party Loan or a Distressed Whole Loan, the applicable Supplemental Servicing Fee.  With respect to each newly boarded Mortgage Loan, boarded on or before the 15th day of month, the Servicer shall be entitled to receive the full monthly Servicing Fee for each newly boarded Mortgage Loan.  With respect to each newly boarded Mortgage Loan boarded after the 15th day of the month, the Servicer shall be entitled to one-half of the monthly Servicing Fee for each newly boarded Mortgage Loan.  With respect to each Mortgage Loan released from servicing, Servicer shall be entitled to receive the full monthly Servicing Fee irrespective of the applicable release date.

 

Servicing File :  With respect to each Mortgage Loan, the file retained by the Servicer consisting of originals, if provided, or copies of all documents in the related Mortgage File which are not delivered to the Owner, its designee or the Custodian and copies of the related Mortgage Loan Documents.

 

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

 

Servicing Rights :  With respect to a Mortgage Loan, the right to do any and all of the following:  (a) service and administer such Mortgage Loan; (b) collect any payments or monies payable or received for servicing such Mortgage Loan; (c) collect any late fees, assumption fees, penalties or similar payments with respect to such Mortgage Loan; (d) enforce the provisions of all agreements or documents creating, defining or evidencing any such servicing rights and all rights of the servicer thereunder, including, but not limited to, any clean-up calls and termination options; (e) collect and apply any escrow payments or other similar payments with respect to such Mortgage Loan; (f) control and maintain all accounts and other rights to payments related to any of the property described in the other clauses of this definition; (g) possess and use any and all documents, files, records, servicing files, servicing documents,

 

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servicing records, data tapes, computer records, or other information pertaining to such Mortgage Loan or pertaining to the past, present or prospective servicing of such Mortgage Loan; and (h) enforce any and all rights, powers and privileges incident to any of the foregoing.

 

Special Deposit Account :  An account which the Owner and the Servicer agree shall be a special deposit account for the benefit of the Owner under applicable law.

 

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

 

Supplemental Servicing Fee :  With respect to each Third Party Loan and each Distressed Whole Loan, the Supplemental Servicing Fee set forth in or established pursuant to Exhibit 9 hereto.

 

Tax Service Contract :  A life of loan tax service contract maintained for a Mortgaged Property with a tax service provider for the purpose of obtaining current information from local taxing authorities relating to such Mortgaged Property.

 

Third Party Loan :  A Correspondent Loan or other Mortgage Loan owned by a third party investor and with respect to which Owner has acquired the Servicing Rights relating thereto.

 

Underwriting Guidelines :  The underwriting guidelines of the applicable Originator, as identified or specified in the related Purchase Agreement, if applicable.

 

Whole Loan Transfer :  The sale or transfer by Owner of some or all of the Mortgage Loans in a whole loan or participation format other than a Private Securitization Transaction or a Public Securitization Transaction.

 

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

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ARTICLE II

 

CONTINUATION OF EXISTING SERVICING;
SERVICING OF ADDITIONAL MORTGAGE LOANS

 

Section 2.01                                                      Servicing to Continue.

 

All mortgage loans that were being serviced by the Servicer under the Original Agreement immediately prior to the execution and delivery of this Agreement shall constitute Mortgage Loans serviced under this Agreement upon its execution and delivery.

 

Section 2.02                                                      Addition of Mortgage Loans.

 

The Owner and the Servicer shall take the following actions with respect to each Mortgage Loan that the Owner desires to have serviced by the Servicer hereunder in order to effect the transfer of servicing to the Servicer on the related Inbound Transfer Date:

 

(a)                                  Delivery of Mortgage Loan Data .  With respect to each pool of Mortgage Loans to be serviced under this Agreement, no later than thirty (30) calendar days prior to the Inbound Transfer Date (or as otherwise mutually agreed between the Owner and the Servicer), the Owner shall furnish or cause to be furnished to the Servicer complete and accurate Mortgage Loan data reflecting the status of payments, balances and other pertinent information necessary to service such Mortgage Loans including but not limited to: (i) master file; (ii) Adjustable-Rate Mortgage Loan master file; (iii) escrow file; (iv) tax and insurance payee file; (v) Adjustable-Rate Mortgage Loan history file; (vi) servicing activities; and (vii) any other pertinent information reasonably required by the Servicer.  Such information shall be provided to the Servicer in such electronic format as is mutually agreed upon by both parties.  Not later than one (1) Business Day following the Inbound Transfer Date, the Owner shall provide the Servicer with computer or like records (final data) reflecting the status of payments, balances and other pertinent information as set forth above and necessary to service the Mortgage Loans as of the Inbound Transfer Date.

 

(b)                                  Delivery of Notification Letter . With respect to each pool of Mortgage Loans to be serviced under this Agreement, the Owner shall use its best efforts to deliver or cause to be delivered to the Servicer a Notice of Inbound Transfer for such Mortgage Loans not less than forty-five (45) days prior to the related Inbound Transfer Date (or as otherwise mutually agreed between the Owner and the Servicer), and the Servicer shall be deemed to have approved such transfer unless it shall have provided its written denial within five (5) Business Days of receipt of such Notice.  The Notice of Inbound Transfer shall include a statement of the related delinquency methodology to be used for the related Mortgage Loans as determined by the Owner.

 

(c)                                   Delivery of Servicing and Other Files .  The Owner shall use its reasonable best efforts to provide Servicer with hard copies (or imaged copies if available) of the Servicing File with respect to each Mortgage Loan transferred to Servicer within fifteen (15) Business Days prior to the applicable Inbound Transfer Date (or as otherwise mutually agreed between the Owner and the Servicer).  The Owner shall use its reasonable best efforts to provide Servicer

 

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with hard copies (or imaged copies if available) of any default file with respect to each Mortgage Loan transferred to Servicer within five (5) Business Days of the applicable Inbound Transfer Date (or as otherwise mutually agreed between the Owner and the Servicer).  Any costs and expenses to deliver the aforementioned files shall be borne by the Owner.

 

(d)                                  Notice to Mortgagors .  The Owner shall cause to be provided to each Mortgagor a “Notice of assignment, sale or transfer of servicing” to the Servicer.  Upon boarding of each Mortgage Loan originated by a third-party originator, the Servicer shall deliver to each related Mortgagor a “Welcome Letter” in accordance with RESPA and Accepted Servicing Practices.

 

(e)                                   Transfer of Escrow Funds and Other Proceeds .  The Owner shall use its best efforts to  transfer or cause to be transferred to the Servicer, within one (1) Business Day and not later than three (3) Business Days following the Inbound Transfer Date by wire transfer to the account designated by the Servicer, an amount equal to the sum of (i) Escrow Payments collected from each Mortgagor; and if applicable (ii) all undistributed insurance loss draft funds; (iii) all unapplied funds received by the Owner or any prior servicer; (iv) all unapplied interest on escrow balances accrued through the related Inbound Transfer Date; (v) all buydown funds held by the Owner or any prior servicer as of the related Inbound Transfer Date; and (vi) all other related amounts held by the respective owner of the Mortgage Loan or any prior servicer of such Mortgage Loan as of the related Inbound Transfer Date that the Owner or any prior servicer is not entitled to retain.  The Owner shall be responsible for any interest on escrow amounts held by the Owner prior to the related Inbound Transfer Date.  The Servicer shall be entitled to deduct from Servicer’s monthly remittance to the Owner any shortfalls in Escrow Payments that result from Owner’s failure to deliver any Escrow Payment in full to the Servicer.  To the extent the Custodial Account has insufficient funds to fully fund such shortfalls in the Escrow Payments plus all other amounts due to the Servicer as set forth in Section 5.01 herein, the Owner shall wire such shortfall amount to the Servicer promptly upon receipt of notice of such shortfalls from the Servicer.

 

(f)                                    Outstanding Servicing Advances . Not later than ten (10) Business Days following the Inbound Transfer Date, the Owner shall deliver to the Servicer a schedule, certified by an authorized officer of the Owner as being true and correct and setting forth, in all material respects, those Servicing Advances made by the Owner with respect to the Mortgage Loans as of the related Inbound Transfer Date for which the Owner has not been reimbursed (the “ Outstanding Owner Servicing Advances ”).  The Servicer agrees to reimburse the prior servicer within thirty (30) days following the Inbound Transfer Date for all Outstanding Owner Servicing Advances with which the prior servicer or the Owner has provided the Servicer with reasonably detailed documentation evidencing such advances.  The Servicer shall have no obligation to board Outstanding Owner Servicing Advances or reimburse the prior servicer unless the Servicer has received reasonably detailed documentation allowing the Servicer to collect such advances from the Mortgagor.

 

Section 2.03                                                      Closing Documents.

 

Simultaneously with the execution and delivery of this Agreement, the Servicer shall deliver to the Owner an Officer’s Certificate, in the form of Exhibit 6 , with respect to the

 

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Servicer, including all attachments thereto.  If requested by the Owner in connection with any Notice of Inbound Transfer, the Servicer shall deliver the following documents to or at the direction of the Owner:

 

1.                                       a copy of this Agreement;

 

2.                                       a Custodial Account Certification or a Custodial Account Letter Agreement, as applicable, in the form of either Exhibit 2 or Exhibit 3 , as required under Article IV , or a copy of any similar certification previously delivered under the Original Agreement or this Agreement; and

 

3.                                       an Escrow Account Certification or an Escrow Account Letter Agreement, as applicable, in the form of either Exhibit 4 or Exhibit 5 , as required under Article IV , or a copy of any similar certification previously delivered under the Original Agreement or this Agreement.

 

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ARTICLE III

 

SERVICING OF AGENCY MORTGAGE LOANS

 

Section 3.01                                                      Servicer to Act as Servicer of Agency Mortgage Loans.

 

The Servicer shall service and administer each Agency Mortgage Loan in accordance and shall otherwise comply in all respects with the related Guide, including the requirements of such Guide relating to the maintenance of custodial and escrow accounts.

 

Section 3.02                                                      Guides Control.

 

In the event of any conflict between the other provisions of this Agreement, insofar as they may relate to any Agency Mortgage Loan, and the terms of the related Guide, the terms of such Guide shall control.

 

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ARTICLE IV

 

SERVICING OF NON-AGENCY MORTGAGE LOANS

 

Section 4.01                                                      Servicer to Act as Servicer of Non-Agency Mortgage Loans.

 

The Servicer shall service the Non-Agency Mortgage Loans in accordance with the provisions of this Agreement and its obligations in respect of the Mortgage Loans shall be limited to those set forth in this Agreement.  To the extent set forth in and subject to the terms of the Delegation of Authority Matrix attached as Exhibit 10 hereto, the Owner hereby delegates authority to the Servicer to carry out the Servicer’s servicing and administration duties with respect to the Non-Agency Mortgage Loans without obtaining the Owner’s prior written approval.

 

Consistent with the terms of this Agreement, the PennyMac Property Preservation Program, and Accepted Servicing Practices, the Servicer may, with respect to a Non-Agency Mortgage Loan, (i) waive any late payment charge or, if applicable, any penalty interest, or (ii) extend the due dates for the Monthly Payments due on a Mortgage Note, or waive, in whole or in part, a Prepayment Penalty.  Unless in compliance with the PennyMac Property Preservation Program, the terms of any Non-Agency Mortgage Loan may only be modified, varied or forgiven with the prior written consent of the Owner while the Non-Agency Mortgage Loan remains outstanding.  The Servicer’s analysis supporting any forbearance and the conclusion that any forbearance meets the standards of this section shall be reflected in writing or electronically in the Servicing File.  The Servicer is hereby authorized and empowered to execute and deliver on behalf of itself and the Owner, all instruments of satisfaction or cancellation, or of partial or full release, discharge and all other comparable instruments, with respect to the Non-Agency Mortgage Loans and with respect to the Mortgaged Properties.  If reasonably required by the Servicer, the Owner shall furnish the Servicer with a fully executed Power of Attorney and other documents necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties under this Agreement with respect to the Non-Agency Mortgage Loans.  With respect to the Non-Agency Mortgage Loans, the Servicer may request the consent of the Owner in writing by certified mail, overnight courier or such other means as may be agreed to by the parties to a course of action that the Servicer proposes to take under this Agreement.  Unless the Owner shall give written notice to the Servicer that it objects to any such recommended course of action within ten (10) Business Days immediately following the day on which the Owner received the Servicer’s written consent request (together with its recommended course of action and relevant supporting documentation), the Owner shall be deemed to have consented to such recommended course of action, and Servicer may take the action recommended to the Owner, unless the Servicer determines, in its reasonable discretion, that such action is no longer prudent or applicable and the Servicer notifies the Owner of such decision not to act.  In the event that the Owner shall object to the Servicer’s recommended course of action, Servicer shall take such action as is required by the Owner, and the Servicer shall have no liability therefor if it is not negligent in performing such action.  Further, to the extent the Servicer has provided the Owner with reasonably timely notice, the Owner shall indemnify and hold harmless the Servicer from and against any penalty, fine or damages that may result from the Owner’s decision to wait for any period of time up to ten (10) Business Days before providing Servicer with direction as to the course of action to be taken as permitted in the second immediately preceding sentence.  In

 

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addition, except in accordance with the PennyMac Property Preservation Program, notwithstanding the foregoing, the Servicer may not waive any Prepayment Penalty or portion thereof required by the terms of the related Mortgage Note unless (i) the Servicer determines that such waiver would maximize recovery of Liquidation Proceeds for such Non-Agency Mortgage Loan, taking into account the value of such Prepayment Penalty and such Non-Agency Mortgage Loan, and the waiver of such Prepayment Penalty is standard and customary in servicing similar Non-Agency Mortgage Loans (including the waiver of a Prepayment Penalty in connection with a refinancing of the Mortgage Loan related to a default or a reasonably foreseeable default) or (ii) the enforceability thereof is limited (1) by bankruptcy, insolvency, moratorium, receivership or other similar laws relating to creditor’s rights or (2) due to acceleration in connection with a foreclosure or other involuntary payment, or (iii) in the Servicer’s reasonable judgment, (1) the waiver of such prepayment penalty relates to a default or a reasonably foreseeable default, (2) such waiver would maximize recovery of total proceeds taking into account the value of such Prepayment Penalty and such Mortgage Loan and (3) such waiver is standard and customary in servicing similar mortgage loans similar to such Non-Agency Mortgage Loan (including any waiver of a prepayment penalty in connection with a refinancing of a Non-Agency Mortgage Loan that is related to a default or a reasonably foreseeable default). In no event will the Servicer waive a Prepayment Penalty in connection with a refinancing of a Non-Agency Mortgage Loan that is not related to a default or a reasonably foreseeable default.  In servicing and administering the Non-Agency Mortgage Loans, the Servicer shall employ procedures (including collection procedures) and exercise the same care that it customarily employs and exercises in servicing and administering mortgage loans for its own account, where such procedures do not conflict with the requirements of this Agreement, and the Owner’s reliance on the Servicer.  In addition, the Servicer shall retain adequate personnel to effect such servicing and administration of the Non-Agency Mortgage Loans.  Servicer shall have no obligation to collect a Prepayment Penalty with respect to a Non-Agency Mortgage Loan unless the Servicer is provided with such information electronically; provided, however, that the Servicer shall compare the Notice of Inbound Transfer provided by the Owner and any electronic data regarding the Non-Agency Mortgage Loans provided by the previous servicer of such Non-Agency Mortgage Loans and provide the Owner with prompt written notice of any discrepancies with respect to information regarding Prepayment Penalties.

 

The Owner may sell and transfer, in whole or in part, some or all of the Non-Agency Mortgage Loans at any time and from time to time (including, without limitation, in connection with a Private Securitization Transaction or a Public Securitization Transaction). Upon such execution, the Servicer shall mark its books and records to reflect the ownership of the Non-Agency Mortgage Loans by such transferee.

 

The Servicer shall notify MERS of the ownership interest of Owner in each MOM Loan.  At any time during the term of this Agreement, Owner may direct the Servicer to cause any MOM Loan to be deactivated from the MERS System.

 

The Servicing File maintained by the Servicer pursuant to this Agreement shall be appropriately marked and identified in the Servicer’s computer system to clearly reflect the ownership of the related Non-Agency Mortgage Loan by the Owner.  The Servicer shall release from its custody the contents of any Servicing File maintained by it only in accordance with this Agreement.

 

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The Servicer shall be responsible for the actions of any vendors which the Servicer utilizes to carry out its obligations hereunder.  The Owner shall promptly reimburse the Servicer for any fees paid to such vendors by the Servicer.

 

The Servicer shall maintain adequate capacity to service the Non-Agency Mortgage Loans, as well as other mortgage loans that it may service (including mortgage loans held by other entities managed by the PennyMac REIT Manager or any of its Affiliates).

 

Section 4.02                                                      Liquidation of Mortgage Loans.

 

In the event that any payment due under any Non-Agency Mortgage Loan and not postponed pursuant to Section 4.01 is not paid when the same becomes due and payable, or in the event the Mortgagor fails to perform any other covenant or obligation under the Non-Agency Mortgage Loan and such failure continues beyond any applicable grace period, the Servicer shall take such action as the Servicer shall determine reasonably to be in the best interest of the Owner in accordance with Accepted Servicing Practices.  In the event that any payment due under any Non-Agency Mortgage Loan is not postponed pursuant to Section 4.01 and remains delinquent for a period of ninety (90) days or any other default continues for a period of ninety (90) days beyond the expiration of any grace or cure period (or such other period as is required by law in the jurisdiction where the related Mortgaged Property is located) or earlier as determined by the Servicer, the Servicer is granted authority to effect Foreclosure Commencement in accordance with and subject to Exhibit 10 hereto and Accepted Servicing Practices.  In such connection, the Servicer shall, acting in accordance with Accepted Servicing Practices, advance on behalf of the Owner such funds as are necessary and proper in connection with any foreclosure or towards the restoration or preservation of any Mortgaged Property securing a Non-Agency Mortgage Loan. Notwithstanding anything herein to the contrary, no Servicing Advance shall be required to be made hereunder with respect to a Non-Agency Mortgage Loan if such Servicing Advance would, if made, constitute a Nonrecoverable Advance.  The determination by the Servicer that it has made a Nonrecoverable Advance with respect to a Non-Agency Mortgage Loan or that any proposed Servicing Advance with respect to a Non-Agency Mortgage Loan would constitute a Nonrecoverable Advance shall be evidenced by an Officers’ Certificate of the Servicer, delivered to the Owner, which details the reasons for such determination.

 

The Servicer acknowledges and agrees that it shall take and initiate any legal actions with respect to any with respect to a Non-Agency Mortgage Loans and related REO Properties, including, without limitation, any foreclosure actions, acceptance of deeds in lieu of foreclosure, and any collection actions with respect to such Non-Agency Mortgage Loans or related REO Properties on behalf of the Owner, but only in the name of the Servicer or its nominee and without reference to the Owner.  Except as otherwise required by law or with the consent of the Owner, under no circumstances shall any such action be taken in the name of, or with any reference to, the Owner.  The Servicer shall provide prior written notice to the Owner, if the Servicer is required by applicable law to take any legal actions with respect to the Non-Agency Mortgage Loans or related REO Properties in the name of, or with reference to, the Owner.

 

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Section 4.03                                                      Collection of Mortgage Loan Payments; Payment Clearing Account.

 

Continuously from the related Inbound Transfer Date until the principal and interest on all Mortgage Loans are paid in full (unless otherwise provided herein), the Servicer shall proceed diligently to collect all payments due under each of the Non-Agency Mortgage Loans when the same shall become due and payable and shall take special care in ascertaining and estimating Escrow Payments, to the extent applicable, and all other charges that will become due and payable with respect to the Non-Agency Mortgage Loans and each related Mortgaged Property, to the end that the installments payable by the Mortgagors will be sufficient to pay such charges as and when they become due and payable.  Notwithstanding anything herein to the contrary, with respect to the Non-Agency Mortgage Loans, the Servicer shall not be required to institute or join in litigation with respect to collection of any payment (whether under a Mortgage, Mortgage Note, PMI Policy or otherwise or against any public or governmental authority with respect to a taking or condemnation) if in its reasonable judgment it believes that it will be unable to enforce the provision of the Mortgage or other instrument pursuant to which payment is required.  Further, the Servicer shall take special care in ascertaining and estimating annual ground rents, taxes, assessments, water rates, flood insurance premiums, fire and hazard insurance premiums, mortgage insurance premiums, and all other charges that, as provided in the Mortgage, will become due and payable to the end that the installments payable by the Mortgagors will be sufficient to pay such charges as and when they become due and payable.

 

The Servicer shall establish and maintain a Payment Clearing Account into which it shall deposit on a daily basis all payments received in respect of mortgage loans serviced by the Servicer (whether or not serviced pursuant to this Agreement).  Not later than the second Business Day following the receipt of a payment in respect of a Non-Agency Mortgage Loan subject to this Agreement, the Servicer shall withdraw the amount of such payment from the Payment Clearing Account and shall immediately deposit (1) in the Custodial Account, the portion of such payment required to be deposited therein pursuant to Section 4.04 , and (2) in the Escrow Account, the portion of such payment required to be deposited therein pursuant to Section 4.06 .

 

Section 4.04                                                      Establishment of and Deposits to Custodial Account.

 

The Servicer shall establish one or more Custodial Accounts, in the form of time deposit or demand accounts titled in the name of “PNMAC Loan Svc LLC ITF [description of applicable owners or investors]” or titled in another reasonable manner indicating that such account is held in a custodial capacity.  Each Custodial Account shall be established with a Qualified Depository acceptable to the Owner as a Special Deposit Account.  Any funds deposited in the Custodial Account shall at all times be fully insured to the full extent permitted by the FDIC and any amounts therein may be invested in Eligible Investments.  The creation of any Custodial Account shall be evidenced by a certification in the form of Exhibit 2 hereto, in the case of an account established with the Servicer (provided the Servicer qualifies as a Qualified Depository), or by a letter agreement in the form of Exhibit 3 hereto, in the case of an account held by a depository other than the Servicer.  A copy of such certification or letter agreement shall be furnished to the Owner upon request.  The Servicer shall segregate and hold

 

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all funds in the Custodial Account separate and apart from the Servicer’s own funds and general assets.

 

With respect to the Non-Agency Mortgage Loans, the Servicer shall deposit in the Custodial Account and retain therein the following collections received by the Servicer, together with any payments made by the Servicer subsequent to the Inbound Transfer Date pursuant to this Agreement:

 

(i)                                      all payments on account of principal on such Mortgage Loans, including all Principal Prepayments;

 

(ii)                                   all payments on account of interest on the related Mortgage adjusted to the Mortgage Loan Remittance Rate;

 

(iii)                                all related Liquidation Proceeds and any amount received with respect to the related REO Property;

 

(iv)                               all related Insurance Proceeds including amounts required to be deposited pursuant to Section 4.10 (other than proceeds to be held in the Escrow Account and applied to the restoration or repair of the related Mortgaged Property or released to the related Mortgagor in accordance with Section 4.14 ), and Section 4.11 ;

 

(v)                                  all Condemnation Proceeds affecting any related Mortgaged Property that are not applied to the restoration or repair of the related Mortgaged Property or released to the related Mortgagor in accordance with Section 4.14 ;

 

(vi)                               any amount required to be deposited in the Custodial Account pursuant to Section 4.15 or 4.19 ;

 

(vii)                            any Prepayment Penalties received with respect to any Non-Agency Mortgage Loan; and

 

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

 

The foregoing requirements for deposit into the Custodial Account shall be exclusive, it being understood and agreed that, without limiting the generality of the foregoing, Ancillary Income and Prepayment Penalties need not be deposited by the Servicer into the Custodial Account.  Any interest paid by the depository institution on funds deposited in the Custodial Account shall accrue to the benefit of the Servicer and the Servicer may retain any such interest.

 

Section 4.05                                                      Permitted Withdrawals From Custodial Account.

 

Subject to Section 5.01 , the Servicer shall be entitled to withdraw funds from the Custodial Account for the following purposes:

 

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(i)                                      to make payments to the Owner (or as otherwise directed by the Owner in writing) in the amounts and in the manner provided in Section 5.01 ;

 

(ii)                                   to fund any Liquidity Reserve Account or any Litigation Reserve Account as and to the extent required by Section 4.17 ;

 

(iii)                                following the liquidation of a Non-Agency Mortgage Loan, to reimburse itself for (a) any unpaid Servicing Advances to the extent recoverable from Liquidation Proceeds, Insurance Proceeds or other amounts received with respect to the related Non-Agency Mortgage Loan plus (b) related unreimbursed Nonrecoverable Advances made by the Servicer in accordance with this Agreement;

 

(iv)                               to invest funds in Eligible Investments in accordance with Section 4.09 ;

 

(v)                                  to withdraw funds deposited in the Custodial Account in error;

 

(vi)                               to pay to itself any interest earned on funds deposited in the Custodial Account (all such interest to be withdrawn monthly not later than each Remittance Date); and

 

(vii)                            to clear and terminate the Custodial Account upon the termination of the Servicing Agreement.

 

The Servicer shall keep and maintain separate accounting, on a Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any withdrawal from the Custodial Account pursuant to subclause (iii) above.

 

Section 4.06                                                      Establishment of and Deposits to Escrow Account.

 

The Servicer shall establish and maintain one or more Escrow Accounts, in the form of time deposit or demand accounts titled in the name of “PNMAC Loan Svc LLC ttee and/or bailee for [description of applicable owners or investors]” or titled in another reasonable manner indicating that such account is held in a custodial capacity.  Each Escrow Account shall be established with a Qualified Depository as a Special Deposit Account.  Funds deposited in the Escrow Accounts may be drawn on by the Servicer in accordance with Section 4.07 .  The creation of any Escrow Account shall be evidenced by a certification in the form of Exhibit 4 hereto, in the case of an account established with the Servicer (provided the Servicer qualifies as a Qualified Depository), or by a letter agreement in the form of Exhibit 5 hereto, in the case of an account held by a depository other than the Servicer.  A copy of such certification shall be furnished to the Owner on or prior to the execution of this Agreement.  The Servicer shall segregate and hold all funds in any Escrow Account separate and apart from the Servicer’s own funds and general assets.

 

With respect to the Non-Agency Mortgage Loans, the Servicer shall deposit in the Escrow Account or Accounts and retain therein the following collections received by the Servicer:

 

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(i)                                      all related Escrow Payments collected on account of the Non-Agency Mortgage Loans, for the purpose of effecting timely payment of any such items as required under the terms of this Agreement;  and

 

(ii)                                   all amounts representing related Insurance Proceeds or Condemnation Proceeds which are to be applied to the restoration or repair of any related Mortgaged Property.

 

The Servicer shall make withdrawals from the Escrow Account only to effect such payments as are required under this Agreement, as set forth in Section 4.07 .  Any interest paid on funds deposited in the Escrow Account by the depository institution shall accrue to the benefit of the Servicer, other than interest on escrowed funds required by law to be paid to the Mortgagor.  To the extent required by law, the Servicer shall be responsible to pay from its own funds interest on escrowed funds to the Mortgagor notwithstanding that the Escrow Account may be non interest bearing or that interest paid thereon is insufficient for such purposes.

 

Section 4.07                                                      Permitted Withdrawals From Escrow Account.

 

With respect to the Non-Agency Mortgage Loans, withdrawals from the Escrow Account or Accounts may be made by the Servicer only:

 

(i)                                      to effect timely payments of ground rents, taxes, assessments, water rates, mortgage insurance premiums, condominium charges, flood insurance, fire and hazard insurance, premiums or other items constituting related Escrow Payments for the related Mortgage;

 

(ii)                                   to reimburse the Servicer for any Servicing Advance made by the Servicer pursuant to Section 4.08 with respect to a Non-Agency Mortgage Loan, but only from amounts received on the related Mortgage Loan which represent late payments or collections of Escrow Payments thereunder;

 

(iii)                                to refund to any related Mortgagor any funds found to be in excess of the amounts required under the terms of the related Mortgage Loan or applicable federal or state law or judicial or administrative ruling;

 

(iv)                               for transfer to the Custodial Account in accordance with the terms of the related Mortgage and Mortgage Note or this Agreement;

 

(v)                                  for application to restoration or repair of the related Mortgaged Property in accordance with the procedures outlined in Section 4.14 ;

 

(vi)                               to pay the Servicer, or any Mortgagors to the extent required by law, any interest paid on the funds deposited in the Escrow Account;

 

(vii)                            to reimburse itself for any amounts deposited in the Escrow Account in error; and

 

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(viii)                         to clear and terminate the Escrow Account on the termination of this Agreement.

 

Section 4.08                                                      Payment of Taxes, Insurance and Other Charges.

 

With respect to each Non-Agency Mortgage Loan that is a First Lien Mortgage Loan requiring Escrow Payments to be made by the related Mortgagor, the Servicer shall maintain accurate records reflecting the status of ground rents, taxes, assessments, water rates and other charges which are or may become a lien upon the Mortgaged Property and the status of PMI Policy premiums, flood insurance, and fire and hazard insurance coverage and shall obtain, from time to time, all bills for the payment of such charges (including renewal premiums) and shall effect payment thereof prior to the applicable penalty or termination date and at a time appropriate for securing maximum discounts allowable, employing for such purpose deposits of the related Mortgagor in the Escrow Account which shall have been estimated and accumulated by the Servicer in amounts sufficient for such purposes, as allowed under the terms of the related Mortgage.

 

To the extent that any Non-Agency Mortgage Loan is a First Lien Mortgage Loan that does not provide for Escrow Payments, the Servicer shall determine that any such payments are made by the related Mortgagor when due.  With respect to each Non-Agency Mortgage Loan that is a First Lien Mortgage Loan requiring Escrow Payments to be made by the related Mortgagor, subject to Accepted Servicing Practices, the Servicer assumes full responsibility for the payment of all such bills and shall effect payments of all such bills irrespective of the Mortgagor’s faithful performance in the payment of same or the making of the Escrow Payments and shall make Servicing Advances from its own funds to effect such payments within the time period required to avoid penalties and interest and avoid the loss of the related Mortgaged Property by foreclosure from a tax or other lien. Notwithstanding the foregoing, if Servicer reasonably determines that such Servicing Advance would be a Nonrecoverable Advance, Servicer shall have no obligation to make such Servicing Advance.  Solely with respect to Non-Agency Mortgage Loans that require Escrow Payments, if Servicer fails to make a Servicing Advance with respect to any payment prior to the date on which late payment penalties or costs related to protecting the lien accrue, the Servicer shall pay any such penalties or costs which accrued.

 

Section 4.09                                                      Protection of Accounts.

 

The Servicer may transfer the Custodial Account, the Escrow Account, any Liquidity Reserve Account or any Litigation Reserve Account to a different Qualified Depository from time to time.  Such transfer shall be made only upon obtaining consent of the Owner, which shall not be unreasonably withheld.  The Servicer shall notify the Owner in writing of any such transfer fifteen (15) Business Days prior to such transfer.

 

Amounts on deposit in the Custodial Account, the Escrow Account, any Liquidity Reserve Account or any Litigation Reserve Account may at the option of the Servicer be invested in Eligible Investments.  Any such Eligible Investment shall mature no later than one day prior to the Remittance Date in each month; provided, however, that if such Eligible Investment is an obligation of a Qualified Depository (other than the Servicer) that maintains the

 

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Custodial Account, the Escrow Account, any Liquidity Reserve Account or any Litigation Reserve Account, then such Eligible Investment may mature on the related Remittance Date.  Any such Eligible Investment shall be made in the name of the Servicer in trust for the benefit of the Owner.  All income on or gain realized from any such Eligible Investment shall be for the benefit of the Servicer and may be withdrawn at any time by the Servicer.  Any losses incurred in respect of any such investment shall be deposited in the Custodial Account, the Escrow Account, any Liquidity Reserve Account or any Litigation Reserve Account, by the Servicer out of its own funds immediately as realized with no right to reimbursement.

 

Section 4.10                                                      Maintenance of Hazard Insurance.

 

The Servicer shall cause to be maintained for each Non-Agency Mortgage Loan that is a First Lien Mortgage Loan, hazard insurance (with extended coverage as is customary in the area where the Mortgaged Property is located) such that all buildings upon the related Mortgaged Property are insured by a generally acceptable insurer acceptable under the Fannie Mae Guides against loss by fire, hazards of extended coverage and such other hazards as are required to be insured pursuant to the Fannie Mae Guides, in an amount which is at least equal to the lesser of (i) the maximum insurable value of the improvements securing such Mortgage Loan and (ii) the greater of (a) the outstanding principal balance of such Mortgage Loan or (b) an amount such that the proceeds thereof shall be sufficient to prevent the related Mortgagor or the loss payee from becoming a co-insurer (or, in the case of any related REO Property, the fair market value of such REO Property).

 

With respect to the Non-Agency Mortgage Loans, if required by the National Flood Insurance Act of 1968 or Flood Disaster Prevention Act of 1973, as amended, each such Mortgage Loan is, and shall continue to be, covered by a flood insurance policy meeting the requirements of the current guidelines of the Federal Insurance Administration with a generally acceptable insurance carrier acceptable under the Fannie Mae Guides in an amount representing coverage not less than the least of (i) the aggregate unpaid principal balance of such Mortgage Loan (or, in the case of a related REO Property, the fair market value of such REO Property), (ii) maximum amount of insurance which is available under the National Flood Insurance Act of 1968 or Flood Disaster Prevention Act of 1973, as amended (regardless of whether the area in which such Mortgaged Property is located is participating in such program), or (iii) the full replacement value of the improvements which are part of such Mortgaged Property.  If a related Mortgaged Property is located in a special flood hazard area and is not covered by flood insurance or is covered in an amount less than the amount required by the National Flood Insurance Act of 1968 or Flood Disaster Prevention Act of 1973, as amended, the Servicer shall notify the related Mortgagor that the Mortgagor must obtain such flood insurance coverage, and if such Mortgagor fails to obtain the required flood insurance coverage within forty-five (45) days after such notification, the Servicer shall immediately force place the required flood insurance on such Mortgagor’s behalf.  Notwithstanding the foregoing, Servicer shall have no liability to Owner or any third party for any penalties or fines imposed based on Servicer’s failure to timely notify the Director of FEMA and the flood insurance provider related to a servicing transfer if Servicer is not provided with flood insurance information; provided that, the Servicer shall have promptly provided Owner with notice of such missing flood insurance information.  Notwithstanding the foregoing, the Servicer shall maintain a blanket insurance

 

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policy in sufficient amounts to cover any uninsured loss due to any gap in Mortgagor-provided coverage.

 

If a Non-Agency Mortgage Loan that is a First Lien Mortgage Loan is secured by a unit in a condominium project, the Servicer shall verify that the coverage required of the homeowners’ association, including hazard, flood, liability, and fidelity coverage, is being maintained in accordance with then current Fannie Mae requirements, and secure from the homeowners’ association its agreement to notify the Servicer promptly of any change in the insurance coverage or of any condemnation or casualty loss that may have a material effect on the value of the related Mortgaged Property as security.

 

The Servicer shall cause to be maintained on each Mortgaged Property securing a Non-Agency Mortgage Loan such other or additional insurance as may be required pursuant to such applicable laws and regulations as shall at any time be in force and as shall require such additional insurance, or pursuant to the requirements of any private mortgage guaranty insurer, or as may be required to conform with Accepted Servicing Practices.

 

In the event that the Owner or the Servicer shall determine that the Mortgaged Property securing a Non-Agency Mortgage Loan should be insured against loss or damage by hazards and risks not covered by the insurance required to be maintained by the Mortgagor pursuant to the terms of the Mortgage, the Servicer shall in accordance with the Fannie Mae Guides make commercially reasonable efforts to communicate and consult with the Mortgagor with respect to the need for such insurance and bring to the Mortgagor’s attention the desirability of protection of the Mortgaged Property.

 

All policies required hereunder shall name the Servicer and its successors and assigns as a mortgagee and loss payee and shall be endorsed with non contributory standard or New York mortgagee clauses which shall provide for at least thirty (30) days prior written notice of any cancellation, reduction in amount or material change in coverage.

 

In all such cases, the Servicer shall not interfere with the Mortgagor’s freedom of choice in selecting either his insurance carrier or agent, provided, however, that the Servicer shall not accept any such insurance policies from insurance companies unless such companies currently reflect a General Policy Rating of A:VI or better under Best’s Key Rating Guides, are acceptable under the Fannie Mae Guides and are licensed to do business in the jurisdiction in which the Mortgaged Property is located.  The Servicer shall determine that such policies provide sufficient risk coverage and amounts as required pursuant to the Fannie Mae Guides, that they insure the property owner, and that they properly describe the property address.  The Servicer shall furnish to the Mortgagor a formal notice of expiration of any such insurance in sufficient time for the Mortgagor to arrange for renewal coverage by the expiration date; provided, however, that in the event that no such notice is furnished by the Servicer, the Servicer shall ensure that replacement insurance policies are in place in the required coverages and the Servicer shall be solely liable for any losses in the event coverage is not provided.

 

Pursuant to Section 4.04 , any amounts collected by the Servicer under any such policies (other than amounts to be deposited in the Escrow Account and applied to the restoration or repair of the related Mortgaged Property, or property acquired in liquidation of the Mortgage

 

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