VARIABLE TERMS LETTER
October 25, 1996
First Mortgage Corporation
3230 Fallow Field Drive
Diamond Bar, California 91765
Arm: Mr. Clement Ziroli Chief Executive officer
Gentlemen:
This Variable Terms Letter constitutes the Variable Terms Letter referred to in
and a supplement to that certain Master Mortgage Loan Warehousing and Security
Agreement (the "Agreement") dated as of April 30, 1992, and will confirm certain
terms and conditions of the lending arrangements between First Mortgage
Corporation (the "Borrower") and Sanwa Bank California, a California corporation
with a state banking license ("Bank"), set forth therein. Capitalized terms are
used herein (including any exhibits and schedules hereto), unless otherwise
defined herein, with the same meanings as in the Agreement.
Credit Limit: $15,000,000.00.
Sub-Credit Limits: Allocation A: Up to the full amount of the Credit Limit for
funding FHA-insured, VA-guaranteed and FNMA/FHLMC-conforming,
conventional Eligible Mortgage Loans, each of which Eligible
Mortgage Loans: (i) is subject to a first priority deed of trust
(or mortgage) on the Property,, (ii) is covered by a Take-Out
Commitment and (iii) is of a type of Mortgage Loan which has been
pre-approved by the investor issuing the applicable Take-Out
Commitment prior to the inclusion of such Eligible Mortgage Loan
in the Borrowing Base.
Allocation B: Up to $10,000,000.00 of the Credit Limit for
funding conventional Eligible Mortgage Loans conforming to all
underwriting and other requirements of FNMA and FHLMC except as
to original principal balance, each of which Eligible Mortgage
Loans: (i) is subject to a first priority deed of trust (or
mortgage) on the Property, (ii) is covered by a Take-Out
Commitment (iii) is of a type of Mortgage Loan which has been
pre-approved by the investor issuing the applicable
Take-Out Commitment prior to the inclusion of such Eligible
Mortgage Loan in the Borrowing Base, and (iv) has an original
principal balance
not exceeding $700,000.00. Up to $3,000,000.00 of this
$10,000,000.00 sub-limit shall be available for funding
conventional Eligible Mortgage Loans conforming to all
underwriting and other requirements of FNMA and FHLMC except as
to original principal balance, each of which Eligible Mortgage
Loans: (i) is subject to a first priority deed of trust (or
mortgage) on the Property, (ii) is covered by a Take-Out
Commitment (iii) is of a type of Mortgage Loan which has been
pre-approved by the investor issuing the applicable Take-Out
Commitment prior to the inclusion of such Eligible Mortgage Loan
in the Borrowing Base, (iv) has an original principal balance
over $700,000.00 but not exceeding $1,000,000.00 and (v) has been
pre-approved by the Bank which approval shall be on a case-by-
case basis.
Allocation C: Up to $5,000,000.00 of the Credit Limit for funding
FHA-insured, VA-guaranteed and FNMA/FHLMC-conforming conventional
Eligible Mortgage Loans, or Eligible Mortgage Loans conforming to
all underwriting and other requirements of FNMA and FHLMC except
for having an original principal balance not exceeding
$700,000.00, each of which Eligible Mortgage Loans: (i) is
subject to a first priority deed of trust (or mortgage) on the
Property, and (ii) is not, at the time such Eligible Mortgage
Loan is submitted for inclusion in the Borrowing Base, covered by
a Take-Out Commitment.
Purchased
Loan Sub-limit: Not applicable.
Pledged Loan Sub-limit: $5,000,000.00.
Permitted Pledge
Period: Two business days.
Maturity Date: August 31, 1997.
Prevailing Interest
Rate: Prevailing Interest Rate, During the term hereof, Loans
outstanding hereunder shall bear interest at a per annum rate
equal to the Reference Rate plus zero percent (0.0%) (such
advances shall hereinafter be referred to as "Reference Rate
Advances"); however, for any monthly period, to the extent
average daily Available Deposits are maintained with Bank by the
Borrower (or by an Affiliate of the Borrower as designated by
Bank) during such monthly period, such loans in an amount equal
to such average daily Available Deposits shall bear interest at a
rate of interest equal to one and one quarter percent (1.25%) per
annum (such advances shall hereinafter be referred to as "Deposit
Based Advances"); and, for any Loans funded through overdrafts,
such Loans shall bear interest at a rate equal to the Reference
Rate plus two percent (2.0%).
In addition to Reference Rate Advances and Deposit Based
Advances, the Bank hereby agrees to make Loans to the Borrower,
at the Borrower's election, at a fixed rate (the "Fixed Rate")
for such period of time that the Bank may quote and offer,
provided that any such period of time shall not exceed thirty
(30) days (the "Interest Period"), and provided that any such
period of time does not extend beyond the Maturity date for
advances in the minimum amount of $250,000.00, (such advances
shall hereinafter be referred to as "Fixed Rate Advances"). For
Fixed Rate Advances, the interest rate for the Fixed Rate shall
be a percentage approximately equivalent to one and one quarter
percent (1.25%) per annum in excess of the rate which the Bank
determines in its sole and absolute discretion to be equal to the
Bank's cost of acquiring funds (adjusted for any and all
assessments, surcharges and reserve requirements pertaining to
the borrowing or purchase by the Bank of such funds) in an amount
approximately equivalent to the amount of the relevant Fixed Rate
Advance and for a period of time approximately equal to the
relevant Interest Period; The Bank shall provide the Borrower
with a statement of the Borrower's Fixed Rate Advances, which
statement shall be considered to be correct and conclusively
binding on the Borrower unless the Borrower notifies the Bank to
the convey within 10 days after the Borrower's receipt of any
such statement which it deems to be incorrect.
Notice of Election to Adjust Interest Rate, Upon telephonic
notice which shall be received by the Bank at or before 12:00
p.m. (California Time) on a business day, the Borrower may elect:
1. That the interest on a Reference Rate Advance or Deposit Based
Advance shall be adjusted to accrued at the Fixed Rate; provided
however, that such notice shall be received by the Bank no later
than one business day prior to the day (which shall be a business
day) on which Borrower requests that interest be adjusted to
accrue at the Fixed Rate.
2. That interest on a Fixed Rate Advance shall continue to accrue
at a newly quoted Fixed Rate or shall be adjusted to commence to
accrue at the Reference Rate; provided, however that such notice
shall be received by the Bank no later than one business day
prior to the last day of the Interest Period pertaining to such
Fixed Rate Advance. If the Bank shall not have received notice
as prescribed herein of the Borrower's election that interest on
any Fixed Rate Advance shall continue to accrue at the Fixed
Rate, Borrower shall be deemed to have elected that interest
thereon shall be adjusted to accrue at the Reference Rate upon
the expiration of the Interest Period pertaining to such Fixed
Rate Advance.
Prohibition Against Prepayment of Fixed Rate Advances,
Notwithstanding anything to the contrary in the Agreement, no
prepayment shall be made on any Fixed Rate Advance except on a
day which is the last day of the Interest Period pertaining
thereto. If the whole of any part of any Fixed Rate Advance is
prepaid by reason of acceleration or otherwise, the Borrower
shall, upon the Bank's request, promptly pay to and indemnify the
Bank for all costs and any loss (including interest) actually
incurred by the Bank and any loss (including loss of profit
resulting from the re-employment of funds) sustained by the Bank
as a consequence of such prepayment.
Indemnification of Fixed Rate Costs, During any period of time in
which interest on any Fixed Rate Advance is accruing on the basis
of the Fixed Rate, the Borrower shall, upon the Bank's request
promptly pay to and reimburse the Bank for all costs incurred and
payments made by the Bank by reason of any future assessment,
reserve, deposit or similar requirements or any surcharge, tax or
fee imposed upon the Bank or as a result of the Bank's compliance
with any directive or requirement of any regulatory authority
pertaining or relating to funds used by the Bank in quoting and
determining the Fixed Rate.
Conversion from Fixed Rate to Reference Rate, In the event that
the Bank shall at any time determine that the accrual of interest
on the basis of the Fixed Rate (i) is infeasible because the Bank
is unable to determine the Fixed Rate due to the unavailability
of U.S. dollar deposits, contracts or certificates of deposit in
an amount approximately equal to the amount of the relevant
Balance and for a period of time approximately equal to the
relevant Interest Period; or (ii) is or has become unlawful or
infeasible by reason of the Bank's compliance with any new law,
rule, regulation, guideline or order, or any new interpretation
of any present law, rule, regulation, guideline or order, then
the Bank shall give telephonic notice thereof (confirmed in
writing) to the Borrower, in which event any Fixed Rate Advance
shall be deemed to be a Reference Rate Advance and interest shall
thereupon immediately accrue at the Reference Rate.
Contact Office: Sanwa Bank California insurance and Financial Services, LA
CBC
601 South Figueroa Street (W8-6)
Los Angeles, CA 90017
Attn: John C. Hyche
Funding Account: Account No. 2068-01106
Statement Date: March 31, 1996.
Interim Date: June 30, 1996.
Required Monthly
Reports: Bank will have received monthly by the thirtieth day of each
calendar month, each dated as of the last day of the preceding
calendar month, (i) an Adjusted Net Worth, Financial Statement
and Loan Covenant Compliance Report in the form of Exhibit C
hereto (ii) an Inventory Aging Certificate in the form of Exhibit
D hereto (iii) a Pipeline Position and Commitment Status Report
in the form of Exhibit G hereto and (iv) a Servicing Delinquency
and Closed Loan Production Report in the form of Exhibit J
hereto. With the prior written consent of Bank, any of the above
reports may be in a form otherwise acceptable to Bank.
Required Fees: Collateral Handling: The Borrower agrees to pay Bank, from
time to time promptly upon delivery of a billing statement, a
collateral handling fee in the amount of $10.00 per Mortgage Loan
submitted by the Borrower for inclusion in the Borrowing Base.
Permissible Warehouse
Period: 90 days for Eligible Mortgage Loans which meet the criteria set
forth under Allocation A or Allocation C. 60 days for Eligible
Mortgage Loans which meet the criteria set forth under Allocation
B which have an original principal balance not exceeding
$700,000.00. 30 days for Eligible Mortgage Loans which meet the
criteria set forth in Allocation B and have an original principal
balance over $700,000.00 but not exceeding $1,000,000.00.
Minimum Permitted
Current Ratio: 1.08 to 1.0
Minimum GAAP
Net Worth: $15,000,000.00.
Adjusted Net Worth
Portfolio Percentage: 1.00%
Minimum Permitted
Adjusted Net Worth: $25,000,000.00.
Minimum Permitted
Servicing Portfolio: $1,000,000,000.00 on and after the date of the
Agreement.
Maximum Permitted
Leverage Ratio: Borrower will not at any time per7nit the ratio of the
Borrower's
Indebtedness (excluding Subordinated Debt)to the sum
of (x) the Borrower's Tangible Net Worth plus (y) its
Subordinated Debt to exceed 8.0 to 1.0.
Maximum Permitted
Adjusted Leverage Ratio: Borrower will not at any time permit the ratio of
the Borrower's Indebtedness
(excluding Subordinated Debt) to the sum of (x) the
Borrower's Adjusted Net Worth plus (y) its Subordinated Debt
to exceed 5.0 to
1.0.
Types of Eligible Collateral
Mortgage Loans: Eligible Mortgage Loans, each representing a one to four family
residential Mortgage Loan, which loan is insured by the FHA,
guaranteed by the VA or conforms to all underwriting and other
requirements of FHLMC, except as (i) permitted above in
Allocation B as to original principal balance.
Collateral Value of
the Borrowing Base: (a) As to each Mortgage Loan which is FHA-insured, VA-
guaranteed or FNMA/FHLMC conforming, ninety-nine percent (99%)
of the lesser of. (1) the weighted average net unfilled
purchase price of all Take-Out Commitments held by the Borrower
under which such Mortgage Loan could be sold (assuming the
simultaneous shipment of all other Mortgage Loans owned by the
Borrower) as represented in the most recent Pipeline Position
and Commitment Status Report submitted to Bank, multiplied by
the unpaid principal balance of such Mortgage Loan, and (2) the
unpaid principal balance of such Mortgage Loan.
(b) As to each Mortgage Loan which conforms to all underwriting
and other requirements of FNMA and FI4LMC except (A) as to
original principal balance where the original principal balance
does not exceed $700,000.00, ninety-five percent (95%) or (B)
as to original principal balance where the original principal
balance exceeds $700,000.00 but does not exceed $1,000,000.00,
ninety-five percent (95%) of the lesser of (1) the weighted
average net unfilled purchase price of all Take-Out Commitments
held by the Borrower under which such Mortgage Loan could be
sold (assuming the simultaneous shipment of all other Mortgage
Loans owned by the Borrower) as represented in the most recent
Pipeline Position and Commitment Status Report submitted to
Bank, multiplied by the unpaid principal balance of such
Mortgage Loan, and (2) the unpaid principal balance of such
Mortgage Loan.
(c) As to each Mortgage Loan which is FHA-insured, VA-
guaranteed or FNMA/FHLMC conforming except that it is not, at
the time such Eligible Mortgage Loan is submitted for inclusion
in the Borrowing Base, covered by a Take-Out Commitment ninety-
five percent (95%) of the unpaid principal balance of such
Mortgage Loan.
Collateral, The Collateral shall consist of the personal property described
more particularly on the Collateral Schedule attached hereto as
Exhibit E.
Addresses for
Purpose of Notice: The Borrower:
First Mortgage Corporation
3230 Fallow Field Drive
Diamond Bar, California 91765
Attn: Mr. Clement Ziroli
Bank:
Sanwa Bank California
Insurance & Financial Services, LA CBC
601 South Figueroa Street (W8-6)
Los Angeles, California 90017
Attn: Mr John C. Hyche
Exceptions: The following provisions of the Agreement are hereby
modified as follows:
(a) The second sentence of Paragraph I(F) shall be amended in its
entirety to read as follows:
"In addition to all other payment obligations of the
Borrower hereunder, upon verbal demand by the Bank (which
verbal demand shall be confirmed in writing) from time to
time, the Borrower shall repay to Bank within three (3) days
of Bank's verbal demand (i) the amount by which ninety-seven
(97%) of the aggregate principal amount of Loans outstanding
hereunder exceeds the Fair Market Value of the Borrowing
Base."
(b) The words "the failure to comply with which could have a
material adverse affect on the Borrower's business, operations,
property or financial or other condition" are hereby added to the
last line of Paragraph V(C) immediately before the period.
(c) The words "Within ninety (90) days in Paragraph VI(A)(1) are
hereby deleted and replaced with the words "Within one hundred
twenty (I 20) days".
(d) Paragraph VI(B)(1) shall be amended in its entirety to read
as follows: "Within thirty (30) days after the last day of each
month, an Adjusted Net Worth/Financial Statement/Covenant
Compliance Report as of the last day of such month.
(e) Paragraph VI(B)(2) shall be amended in its entirety to read
as follows: "No later than the thirtieth day of each calendar
month and at such other times as Bank may reasonably request,
each as of the last day of the, immediately preceding calendar
month: (i) a Pipeline Position Report and (ii) a Servicing
Delinquency and Closed Loan Production Report."
(f) Paragraph VI(B)(3) shall be amended in its entirety to read
as follows: "Promptly, such additional financial and other
information, including but not limited to (i) a Borrowing Base
Certificate, and (11) Borrower's Form 10-Q and 10-K within 60
days and 120 days respectively after the end of each of the
Borrower's quarters.
(g) Each of Paragraph VII(D), (F), and (G) are hereby deleted
and replaced with the words "intentionally omitted."
(h) Paragraph VII(E) is hereby amended to read: Borrowers'
payment of dividends may not exceed an amount equal to fifty
percent (50%) of Borrowers' net income (after taxes) on a
quarterly basis.
(i) The word "Tangible" in Paragraph VII(J)(3) is hereby deleted
and replaced with the word "GAAP".
(j) The words "Servicing Delinquency Report" are hereby deleted
wherever they appear in the Loan Documents and replaced with
the words "Servicing Delinquency and Closed Loan Production
Report."
(k) The definition of "Fair Market Value" in Paragraph X shall
be amended in its entirety to read as follows: "shall mean at any
date the fair market value of any Collateral at such date, as
determined by Bank using the FNMA sixty (60) day forward fixed
and adjustable rates plus 0.25%for conventional loans and the
dealer market sixty (60) day forward rate plus 0.50% for mortgage
backed securities (i.e. FHA/VA Loans) as quoted by Knight Ridder
Financial Information or Telerate Systems, Inc."
(1) Subparagraph (n) of the definition of "Eligible Mortgage
Loan" is hereby deleted and replaced with the following:
"(n) The date of the promissory note is no earlier than
thirty days prior to the date said Mortgage Loan is first
included in the Borrowing Base.
(m) Section (c)(3) of the definition of "Tangible Net Worth" in
Paragraph X is hereby deleted and replaced with the following:
"(3) loans to, or investments in, affiliates (with the exception
of the Borrower's note receivable dated February 1, 1991, from
Fin-West Group with an existing principal balance of $250,000 and
any renewals or extensions thereof."
(n) The words "hold Take-Out Commitments in less than an
aggregate amount necessary to provide for the sale of all closed
Mortgage Loans owned by the Company" are hereby deleted and
replaced with the words "hold Take-Out Commitments in less than
an aggregate amount necessary to provide for the sale of all
closed Mortgage Loans included in the Borrowing Base less the
aggregate amount of Eligible Mortgage Loans which meet the
criteria set forth under Allocation C.
Additional Requirements The Borrower warrants that is will at all times remain
an approved seller/servicer for each of FNMA and FHLMC.
Notwithstanding any provision herein or under the Agreement to
the contrary, every agreement and warranty of the Borrower
herein (including, without limitation, any of the above
additional requirements) shall be deemed to be an agreement
under and pursuant to the Agreement.
Exhibits Attached: A: Form of Promissory Note.
B: Delivery Procedures and exhibits thereto.
C: Certification re Adjusted Net Worth, Etc.
D: Borrowing Base and Inventory Aging Certificate.
E: Collateral Schedule.
F: Loan Request Form.
G: Pipeline Position and Commitment Status Report.
H: Form of Pledge Agreement.
1: Required Collateral Documents.
J: Servicing Delinquency and Closed Loan Production Report.
If the above meets your approval, please so indicate by executing and returning
to Bank the enclosed copy of this Variable Terms Letter.
Very truly yours,
SANWA BANK CALIFORNIA a California
corporation with a state banking license
AGREED TO AND ACCEPTED as of this
25th day of October, 1996.
FIRST MORTGAGE CORPORATION,
a California corporation
By:
Name:
Title: