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Master Loan Participation And Custodian Agreement

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Exhibit 10.4


MASTER LOAN PARTICIPATION AND CUSTODIAN AGREEMENT


THIS NEW MASTER LOAN PARTICIPATION AND CUSTODIAN AGREEMENT (this "Agreement") is made as of the ___ day of July, 2000, by and between MONUMENT MORTGAGE, INC., A CALIFORNIA CORPORATION ("Seller") and GATEWAY BANK, F.S.B. ("Buyer" and "Custodian") for mutual considerations herein evidenced.


INTRODUCTORY PROVISIONS


The following form the basis of and are a part of this Agreement:


A. Seller intends from time to time to originate and make in its own name, and in the approved fictitious business names listed on the attached Exhibit A, Loans described in this Agreement.


B. Seller has offered, or will offer from time to time, to sell to Buyer with recourse an undivided participation ownership interest in one or more of the Loans, and Buyer may, from time to time hereafter, agree to purchase an undivided participation ownership interest in one or more of the Loans in accordance with the terms and provisions in this Agreement.


C. Buyer desires a custodian to receive, on Buyer's behalf, certain evidence and other indicia of all Loans in which Buyer purchases an interest and to act as custodian and bailee for and on behalf of Buyer in respect thereto upon the terms and conditions herein set forth.


D. Although Seller shall have no obligation to offer, and Buyer shall have no obligation to purchase, an undivided participation ownership interest in any of the Loans, Buyer and Seller desire for this Agreement to set forth the terms and conditions that will apply to each undivided participation ownership interest in the Loans sold by Seller to Buyer.


NOW, THEREFORE, for and in consideration of Ten and No/100 Dollars ($10.00), the mutual covenants herein contained and other good and valuable consideration, receipt and sufficiency of which are hereby acknowledged, Seller, Buyer and Custodian hereby covenant and agree as follows:


DEFINITIONS


For the purposes of this Agreement, the following terms shall have the indicated meanings unless the context or use indicates another or different meaning and intent, and the definitions of such terms are equally applicable to the singular and the plural forms of such terms:


"APPRAISAL" shall mean a valuation of the Mortgaged Property and all improvements located thereon securing each -Loan meeting all federal laws, standards and regulations which govern appraisals that Buyer may rely upon and which appraisal is applicable to the type of loan represented by the Loan offered by Seller.


"COMMITMENT AMOUNT" shall mean the amount for which an Investor pursuant to a Take-Out Commitment or FNMA or FHLMC pursuant to a comparable agreement has agreed to purchase a Loan.


"CUSTODIAN" shall mean Buyer or its assignee acting in the capacity as custodian and bailee under this Agreement.


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"DEFAULT" shall have the meaning given to it in Article VI of this Agreement.
"FDIC" shall mean the Federal Deposit Insurance Corporation.


"FHA" shall mean the Federal Housing Administration.


"FHLMC" shall mean the Federal Home Loan Mortgage Corporation.


"FNMA" shall mean the Federal National Mortgage Association.


"GNMA" shall mean the Government National Mortgage Association.


"HIGHEST LAWFUL RATE" shall mean the maximum nonusurious interest allowed from time to time by law as it is now, or to the extent allowed by law, as may hereafter be in effect.


"INITIAL MORTGAGE DOCUMENTS" shall mean the documents described in Section 2.01(a) of this Agreement.


"INSURANCE POLICY" shall mean a hazard insurance policy in an amount representing coverage at least equal to the outstanding principal balance of the applicable Loan, or the full insurable value of the improvements securing such Loan, whichever is greater, and of a type substantially in the form of and at least as protective as the fire and extended coverage contained in the "New York" loss mortgagee clause (also known as "standard" or "union" loss mortgage clause) which provides that the Seller's hazard insurance is not invalidated by acts of the loan debtor.


"INTEREST" shall mean an undivided one hundred percent (100%) participation ownership interest in a Loan.


"INVESTOR" shall mean a third-party mortgage investor acceptable to Buyer in its sole discretion or FNMA or FHLMC.


"LOAN" shall mean a first lien residential real property credit transaction originated by Seller meeting the terms and conditions set forth in this Agreement evidenced by a Mortgage Note and secured by a Mortgage.


"LOAN APPLICATION" shall mean an application for a Loan signed by the borrower or its agent, in such form and containing such information as will disclose the purpose for which the Loan is sought and the identity of the Mortgaged Property.


"MORTGAGE" shall mean the mortgage, deed of trust or other instrument securing a Mortgage Note, which creates a first lien on a first priority ownership interest in an unsubordinated estate in fee simple in real property securing the Mortgage Note.


"MORTGAGE ASSIGNMENT" shall mean an instrument duly executed and in recordable form (including, if available, the record book and page number or instrument number of the public records in which the Mortgage was recorded) assigning a Mortgage (or several Mortgages) in blank, which is legally sufficient to evidence the sale of the Mortgage in the jurisdiction in which the applicable Mortgaged Property is located.


"MORTGAGE DOCUMENTS" shall mean the Initial and Supplemental Mortgage Documents.


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"MORTGAGEE FILE" shall mean with respect to a Loan all of the Mortgage Documents delivered by Seller to Custodian pursuant to this Agreement.


"MORTGAGE NOTE" shall mean the note or other evidence of the indebtedness secured by a Mortgage.


"MORTGAGED PROPERTY" shall mean the real property described in a Mortgage securing repayment of the debt evidenced by a Mortgage Note.


"OFFICER'S CERTIFICATE" shall mean a certificate signed by an officer (authorized to sign an Officer's Certificate) of Seller, or the title insurance company issuing the Title Policy, or the escrow/settlement agent or company for the Loan, or the closing attorney for the Loan.


"OTS" shall mean the Office of Thrift Supervision.


"PARTICIPATION CERTIFICATE" shall mean a Gateway Bank, Participation Loan Sale Application, Purchase Request and Participation Certificate, as may be amended by Buyer from time to time, in the form attached hereto as EXHIBIT "A", executed by Seller with all blanks completed.


"PERSON" shall mean any individual, corporation, partnership, joint venture, association, joint-stock seller, trust, unincorporated organization, government or any agency or political subdivision thereof.


"PRIME RATE" shall mean the highest rate of interest published in FEDERAL RESERVE STATISTICAL RELEASE H. 15 (519) as constituting the "bank prime loan", "prime rate" or "base rate" in such publications table of Money Rates or, in the absence of the publication of such rate, the variable rate of interest per annum established, announced or set by Citibank, N.A. from time to time as its "prime rate," "reference rate" or "base rate". Such rate is a general reference rate of interest, and is not necessarily the lowest or best rate actually charged by any lender to any customer.


"PURCHASE PRICE" shall have the meaning given to it in Section 1.03 of this Agreement.


"SELLER'S ACCOUNT" shall mean, collectively, those demand deposit accounts of Seller established with Buyer for the purpose of receiving all payments of the Purchase Price, all payments on the Loans and all payments of the Commitment Amount, and for other purposes under this Agreement, as further described in Section 7.02 of this Agreement.


"SUPPLEMENTAL MORTGAGE DOCUMENTS" shall mean the documents described in Section 2.01(b) of this Agreement.


"TAKE-OUT COMMITMENT" shall mean a fully executed and binding commitment, or in the case of FNMA or FHLMC a comparable agreement, pursuant to which an Investor has committed or agreed to purchase for cash one hundred percent (100%) of the ownership interests of the Loan or Loans in which Buyer has purchased an Interest within sixty (60) days of Buyer's purchase of the Interest in such Loans, or such other documentation which in Buyer's sole judgment confirms that an Investor is eligible and has committed or agreed to purchase for cash one hundred percent (100%) of the ownership interests of the Loan or Loans in which Buyer has purchased an Interest within sixty (60) days of Buyer's purchase of the Interest in such Loans.


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"TERMINATION DATE" shall mean the date this Agreement is terminated but in no event later than 12:00 NOON SAN FRANCISCO, CALIFORNIA TIME ON JULY ___, 2001.


"TITLE POLICY" shall mean a fully paid-up mortgagee's or lender's policy of title insurance with respect to a Loan naming Seller as the insured in an amount at least equal to the unpaid balance of the Loan, which policy shall be in form and substance that which is customarily used to affirm the quality, priority and validity of a lender's lien against real property in the jurisdiction where the Mortgaged Property is located.


"TRANSACTION FEE" shall mean the sum of $40.00 per Interest paid by Seller to Buyer in consideration of Buyer's purchase of an Interest for each Interest actually purchased.


"VA" shall mean the Veterans Administration.


"YIELD" shall mean the rate of interest accruing to Buyer on the Purchase Price in accordance with Section 1.04 of this Agreement.


ARTICLE I


SALE AND TRANSFER OF UNDIVIDED
PARTICIPATION OWNERSHIP INTERESTS IN LOANS


Section 1.01 SALE AND IDENTIFICATION OF PARTICIPATION OWNERSHIP INTERESTS. From time to time, Seller may offer to sell an Interest in one or more Loans by delivering to Buyer a Participation Certificate, together with copies of the following documents, with respect to each of such Loans:


(a) a Loan Application;


(b) financial statements covering the loan debtor
(unless attached to or incorporated in the Loan Application);


(c) an Appraisal;


(d) a FHA or VA Commitment to Insure (as that term
is defined by FHA or VA, as applicable), or Seller's written
representation and warranty that the Loan meets either (i) FNMA or
FHLMC underwriting standards and is eligible for sale to FNMA or
FHLMC or (ii) nationally recognized underwriting standards for a
commitment to purchase a residential mortgage loan on the secondary
market, including, without limitation, those of the issuer of the
Take-Out Commitment;


(e) a Take-Out Commitment;


(f) Seller's underwriting approval (FHA, VA or
private mortgage insurer, if applicable);


(g) a mortgage insurance certificate;


(h) Seller's closing instructions;


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and such other items as Buyer may reasonably require, each as may be more particularly described on the Participation Certificate. The Participation Certificate shall be issued pursuant to the terms and provisions of this Agreement. The Participation Certificate shall specify, among other things, the Interest, the identification of the Loans sold, the purchase price to be paid by the Buyer, and the interest or yield to be paid to the Buyer. Each such Loan shall (i) be secured by a first and prior mortgage lien on a single-family, owner-occupied residence, located in states acceptable to Buyer, (ii) comply with FHA, VA, FNMA, FHLMC or GNMA underwriting guidelines (whichever shall apply), (iii) have a term of not less than ten (10) years or more than thirty (30) years, (iv) amortize according to FHA, VA, FNMA, FHLMC or GNMA eligibility standards (whichever shall apply), (v) bear a rate of interest equal to or greater than the rate of interest required by the Investor, and (vi) otherwise be on terms and conditions which makes the Loan an eligible investment for federally chartered, FDIC-insured, savings associations.


Section 1.02. PURCHASE OF INTERESTS. If Buyer elects, exercising its own underwriting standards and criteria and in its sole and absolute discretion, to purchase Interests covered by a Participation Certificate, Buyer shall do the following: (i) designate on the Participation Certificate the Loan or Loans in which it will purchase an Interest and execute and deliver to Seller a copy of the Participation Certificate (it being understood that the original of the Participation Certificate shall be retained by Buyer), and, (ii) deliver to Custodian a copy of the Participation Certificate designating the Loan or Loans in which Buyer will purchase an Interest.


Section 1.03. PURCHASE PRICE. The Purchase Price for each Interest with respect to any Loans the security for which is a condominium or townhouse shall be equal to the LESSER of (i) one hundred percent (100%) of the principal balance of the Loan or (ii) the Commitment Amount. The Purchase Price for each Interest with respect to any other Loans shall be equal to the LESSER of (i) one hundred percent (100%) of the principal balance of the Loan, or (ii) the Commitment Amount. If Buyer fails to, or chooses not to, return any Participation Certificate to Seller within twenty-four (24) hours after Seller's delivery of that Participation Certificate, together with each and every document required by Section 1.01 hereof, then Buyer shall be deemed to have elected not to purchase any of the Interests set forth on that Participation Certificate.


Section 1.04. PAYMENT TERMS


(a) PAYMENT OF YIELD. The Yield shall accrue to Buyer on the
Purchase Price at a varying rate of interest per annum based on a
360-day year equal to the lesser OF (i) THE PRIME RATE MINUS 1.000%, or
(ii) the Highest Lawful Rate. The Yield shall accrue on the amount of
the Purchase Price from time to time outstanding from the date Buyer
purchases an Interest. On or before the fifth (5th) day of each month,
Buyer shall provide Seller with a monthly statement reflecting the
Yield with respect to each Loan and any fees or other sums due and
owing to Buyer by Seller hereunder. Such sums are due upon receipt of
the Yield statement. Notwithstanding the immediately foregoing
sentence, simultaneously with the issuance of the Yield statement,
Buyer shall automatically debit Seller's Account with the amount of
Yield, fees and other sums due and owing for the immediately preceding
month as reflected on that month's Yield statement. Notwithstanding any
provision herein to the contrary, it is expressly understood and agreed
to between Seller and Buyer that the Yield shall accrue and be paid to
Buyer as set forth herein regardless of the payment status of the loan
debtor. In the event (i) any Loan or Loans are not repurchased by an
Investor within sixty (60) days of Buyer's purchase of the Interests in
such Loan or Loans, (ii) no event of default exists in the payment of
principal or interest by the loan debtor, and (iii) Seller elects not
to repurchase such Loan or


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Loans in accordance with Section 5.04 of this Agreement, then,
thereafter, all interest accruing on the underlying Mortgage Note or
Notes at the interest rate or rates set forth in such instruments
shall be paid to Buyer on or before the fifth (5th) day of each month
and Buyer shall continue to provide a monthly statement to Seller and
debit Seller's account in the same manner as described above in this
subsection 1.04(a).


(b) PAYMENT OF PRINCIPAL. Buyer's interest in the principal
portion of payments received by Seller from the loan debtor shall be
paid to Buyer commencing on the earlier of (i) the resale by Seller to
an Investor of any Loan or Loans pursuant to the terms hereof or (ii)
the 60th day following Buyer's purchase of the Interest in the
applicable Loan or Loans. Thereafter, Buyer's interest in the principal
portion of payments received by Seller from the loan debtor shall be
paid to Buyer on or before the fifth (5th) day of each month in the
same manner as Yield or the loan debtor's interest, as applicable, is
paid to Buyer, including Buyer's delivery to Seller of a statement and
Buyer's right to debit Seller's Account, as all more particularly
described above in subparagraph 1.04(a).


(c) AUTHORIZATION TO DEBIT SELLER'S ACCOUNT. Seller hereby
acknowledges and agrees that Buyer shall have the right to debit
Seller's Account as described in subsections 1.04(a) and 1.04(b) and
hereby expressly authorizes Buyer to do so through and including the
Termination Date. In the event a discrepancy between the amount due and
the amount debited is subsequently identified by Buyer or Seller,
Seller's Account shall be credited or further debited in accordance
with the reconciliation reached between Buyer and Seller.


Section 1.05. MAXIMUM TOTAL PURCHASE PRICE. Notwithstanding any provision herein to the contrary, the maximum amount of TOTAL PURCHASE PRICE FROM TIME TO TIME OUTSTANDING SHALL NOT EXCEED $20,000,000. However, as Interests are repurchased from Buyer due to payment of principal on the Loans by either the loan debtor or the Investor pursuant to the terms of the Take-Out Commitment or otherwise, Buyer may elect to purchase additional Interests pursuant to the terms of this Agreement, to the extent of the principal amount of the Interests so repurchased, at Buyer's sole and absolute discretion. In the event that less than 80% of the maximum amount of the total Purchase Price is outstanding in any two consecutive calendar months, Buyer at its sole and absolute discretion may reduce the maximum amount of the total Purchase Price or terminate this Agreement. Notwithstanding anything contained herein to the contrary, the maximum amount of total PURCHASE PRICE FROM TIME TO TIME OUTSTANDING WITH RESPECT TO LOANS THE SECURITY FOR WHICH IS A CONDOMINIUM OR TOWNHOUSE SHALL NOT EXCEED, IN THE AGGREGATE, $5,000,000. FURTHERMORE, BUYER AT ITS SOLE AND ABSOLUTE DISCRETION MAY INCREASE TOTAL PURCHASE PRICE TO $25,000,000 pursuant to the preceding terms of this Section of this Agreement.


Section 1.06. WARRANTIES AND REPRESENTATIONS.


(a) SELLER'S OWNERSHIP OF LOANS SOLD AND COMPLIANCE WITH APPLICABLE LAW. The Seller hereby represents and warrants that as of the date the Buyer funds the Purchase Price for an Interest as to the underlying Loan: (1) Seller is the legal and beneficial owner; (2) the Loan has been made by Seller pursuant to and in compliance with all Applicable federal and state laws, rules, and regulations including, but not by way of limitation, applicable usury limitations, the Truth-in-Lending Act of 1968, the Equal Credit Opportunity Act, the Real Estate Settlement Procedures Act, the Depository Institutions Deregulation and Monetary Control Act of 1980, the Garn St. Germain Depository Institutions Act of 1982, the Financial Institutions Reform, Recovery and Enforcement Act of 1989, the Federal Deposit Insurance Corporation Improvement Act of 1991, applicable financial


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institution lending and investment requirements, OTS and FDIC laws and regulations, and all other regulations issued in implementation of the foregoing laws; and (3) all conditions within the control of the Seller as to the validity of the applicable insurance or guaranty as required by the National Housing Act of 1934, as amended, and the rules and regulations thereunder, or as required by the Servicemen's Readjustment Act of 1944, as amended, and the rules and regulations thereunder, or by the VA, FHA or the mortgage insurance companies or other insurers, have been properly satisfied, and said insurance or guaranty is valid and enforceable.


(b) POSSESSION OF LOAN DOCUMENTATION. Seller further represents and warrants that as of the date Buyer funds the Purchase Price for an Interest, as to such Interest and underlying Loan: (1) Seller is authorized to sell the Interests described in ARTICLE I, Section 1.01 of this Agreement; (2) Seller does not hold, but rather has caused to be delivered or will cause to be delivered to Custodian within three (3) business days of the date Buyer funds the Purchase Price for an Interest each of the documents which together constitute a Mortgage File (and it is expressly agreed that until delivery to the Custodian, Seller's agents, including any title company in possession of any such documents, shall be deemed to hold such documents in trust for Buyer and the Custodian); and (3) Seller has and shall retain in Seller's possession originals of all other instruments evidencing, securing, pertaining to, or representing each such Loan and all records required to be maintained for such Loans under OTS and FDIC regulations, including, but not by way of limitation, (A) a copy of the separate assignment of rents, if any (certified by the title company which closed the Loan to be a true and correct copy of the original sent for recording), (B) the Loan Application, (C) financial statement of the loan debtor current at the time the Loan Application was made (unless attached to or incorporated in the Loan Application), (D) appropriate evidence indicating loan debtor's receipt of the disclosure materials as required by the applicable Loan and disclosure rules and regulations, (E) the Appraisal, (F) properly signed loan closing settlement statement or statements showing the ultimate recipient(s) of all proceeds of the Loans, (G) the Insurance Policy, (H) such flood insurance policy as is required under the Flood Disaster Protection Act of 1973, as amended, and implementing and other regulations, (I) the Title Policy, (J) a copy of the Take-Out Commitment, (K) any and all documents, instruments or agreements executed in connection with or related to the Loans or the loan debtor, and (L) all such other documents required to be obtained by Buyer under applicable OTS and FDIC regulations as if it were the originator of the Loan.


(c) OTHER WARRANTIES AND REPRESENTATIONS CONCERNING THE LOANS. Seller further represents and warrants that as of the date Buyer funds the Purchase Price for an Interest, as to such Interest and underlying Loan: (1) there are no delinquent tax or assessment liens, or mechanics' liens on the real and/or personal (tangible or intangible) properties securing the Loan; (2) such security properties are free of substantial damage and are in good repair; (3) the Loan is not pledged as collateral for any loan or for any other purpose; (4) no part of such security properties has been released from the liens securing the Loan; (5) all representations as to such Loan are true and correct including, but not by way of limitation, the principal amount due; (6) the originals or copies of the documents evidencing and concerning the Loan provided to Buyer are accurate and complete to the best of Seller's knowledge; (7) Seller has in its possession a Take-Out Commitment; (8) the Mortgage Note and Mortgage represent the valid, enforceable, and binding obligations of each party thereto, subject to the effects of bankruptcy laws and other principles of equity, and there is no default existing under such documents or a fact in existence which, but for the passage of time or giving of notice or both, would constitute a default under either of such documents; (9) the interest rate provided for in each Loan and all fees, costs, expenses and charges contracted for, paid or payable by the Loan debtors do not violate any federal, state or other statute, rule, regulation or court ruling relating to the maximum legal rate of interest that can be charged and the Loans are not otherwise in violation of any usury laws; (10) such Loan is secured by a first and prior lien on single family (i.e., one-to-four family) residential real property; (11) the obligations of the


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loan debtor to make payments of principal and interest when due under the terms of the Mortgage Note and Mortgage are not subject to any defense, set-off, or counterclaim by the loan debtor or any other person obligated to repay the indebtedness evidenced by the Mortgage Note and Mortgage; (12) the Loan is subject to a legal, valid and binding Take-Out Commitment, and there exists no event of default under such Take-Out Commitment or any event, which with the giving of notice or passage of time, would constitute an event of default thereunder; (13) all information delivered and all representations, warranties and certifications made by Seller to the issuer of the Take-Out Commitment were and are true, correct and complete and were and are not misleading in any respect and no change in any of such information or representations, warranties or certifications will limit, impair or otherwise affect the obligations of the issuer of the Take-Out Commitment to perform its obligations thereunder; (14) Seller has no knowledge of my fact or circumstance not disclosed to Buyer which would adversely affect the value or marketability of any Loan in which Buyer purchases an Interest; (15) Seller shall adhere strictly to the terms of each Take-Out Commitment and perform all obligations and observe all covenants on its part to be performed or observed thereunder; (16) the issuer of the Take-Out Commitment shall pay to Custodian for each Loan the Commitment Amount for such Loan no more than sixty (60) days after Buyer's payment of the Purchase Price; (17) Seller is, and at all times while this Agreement is in effect will be, recognized by GNMA, FHA, VA, FHLMC or FNMA as a qualified seller/servicer of single-family residential property loans.


(d) ADDITIONAL REPRESENTATIONS AND WARRANTIES CONCERNING SELLER. Seller further represents and warrants that, as of the date Buyer funds the Purchase Price for each Interest (1) Seller is a California Corporation, validly existing and in good standing under the laws of the State of California; (2) Seller has and has had at all relevant times all requisite corporate power, licenses, permits and governmental authorizations or approvals granted by any federal, state or local government or quasi-governmental body or any agency or instrumentality thereof, necessary to permit Seller to originate and to own loans, and Seller is and has been at all relevant times duly licensed and qualified to transact business in each state in which it is transacting business; (3) Seller has all requisite corporate power, authority and capacity to execute and enter into this Agreement and to perform the obligations required of Seller hereunder and under the other documents, INSTRUMENTS and agreements required to be executed by Seller pursuant hereto; (4) the execution and delivery of this Agreement and all documents, instruments and agreements required to be executed and delivered by Seller pursuant hereto and thereto, and the consummation of the transaction contemplated hereby and thereby, have each been duly and validly authorized by all necessary corporate action; (5) this Agreement constit
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