Note L — Commitments and Contingencies

Legal Proceedings

The Company and certain subsidiaries are defendants in various legal proceedings involving matters generally incidental to their business. Although it is difficult to predict the ultimate outcome of these proceedings, management believes, based on discussions with counsel, that any ultimate liability will not materially affect the consolidated financial position or results of operations of the Company and its subsidiaries.

Commitments to Buy or Sell Mortgage-Backed Securities and Other Derivatives Contracts

In connection with its open commitments to buy or sell MBS and other derivative contracts, the Company may be required to maintain margin deposits. With respect to the MBS commitments, these requirements are generally greatest during periods of rapidly declining interest rates. With respect to other derivative contracts, margin requirements are generally greatest during periods of increasing interest rates.

Lease Commitments

The Company leases office facilities under lease agreements extending through December 2011. Future minimum annual rental commitments under these non-cancelable operating leases with initial or remaining terms of one year or more are as follows.

Year ending February 28 (29),	(Dollar amounts in thousands)
2002	$	38,228
2003		32,095
2004		24,008
2005		15,799
2006		13,701
Thereafter		52,201
	$	176,032

  Rent expense was $53.2 million, $57.2 million and $44.7 million for the years ended February 28 (29), 2001, 2000 and 1999, respectively.

Restrictions on Transfers of Funds

The Company and certain of its subsidiaries are subject to regulatory and/or credit agreement restrictions which limit their ability to transfer funds to the Company through intercompany loans, advances or dividends. Pursuant to the revolving credit facilities as of February 28, 2001, the Company is required to maintain $1.3 billion in consolidated net worth and CHL is required to maintain $1.2 billion of net worth, as defined in the credit agreement.

Loan Servicing

As of February 28 (29), 2001, 2000 and 1999, the Company serviced loans totaling approximately $293.6 billion, $250.2 billion and $215.5 billion, respectively. Included in the loans serviced as of February 28 (29), 2001, 2000 and 1999 were loans being serviced under subservicing agreements with total principal balances of $8.6 billion, $5.5 billion and $3.8 billion, respectively. The loans are serviced under a variety of servicing contracts. In general, these contracts include guidelines and procedures for servicing the loans, remittance requirements and reporting requirements, among other provisions.

  Conforming conventional loans serviced by the Company (56% of the servicing portfolio as of February 28, 2001) are primarily included in either Fannie Mae MBS or Freddie Mac participation certificates ("PCs"). Such servicing is done on a non-recourse basis, whereby credit losses are generally borne by Fannie Mae or Freddie Mac and not the Company. The government loans serviced by the Company are included in either Ginnie Mae MBS, Fannie Mae MBS, or Freddie Mac PCs. The government loans are either insured against loss by the Federal Housing Administration (16% of the servicing portfolio as of February 28, 2001) or partially guaranteed against loss by the Department of Veterans Affairs (6% of the servicing portfolio as of February 28, 2001). In addition, non-conforming mortgage loans (22% of the servicing portfolio as of February 28, 2001) are primarily included in "private label" MBS and serviced on a non-recourse basis.

  Properties securing the mortgage loans in the Company's servicing portfolio are geographically dispersed throughout the United States. As of February 28, 2001, approximately 27%, 6% and 5% of the mortgage loans (measured by unpaid principal balance) in the Company's servicing portfolio are secured by properties located in California, Texas and Florida respectively. No other state contains more than 5% of the properties securing mortgage loans.

  Generally, the Company is not exposed to credit risk. Because the Company services substantially all conventional loans on a non-recourse basis, credit losses are normally borne by the investor or insurer and not the Company. The Company retains credit risk on the home equity and sub-prime loans it securitizes, through retention of a subordinated interest or through a corporate guarantee of losses up to negotiated maximum amount. As of February 28, 2001, the Company had investments in such subordinated interests amounting to $763.6 million and had reserves amounting to $56.3 million related to the corporate guarantees. While the Company generally does not retain credit risk with respect to the conventional prime credit quality first mortgage loans it sells, it does have potential liability under representations and warranties made to purchasers and insurers of the loans. In the event of a breach of the representations and warranties, the Company may be required to repurchase a mortgage loan and any subsequent loss on the mortgage loan may be borne by the Company. Similarly, government loans serviced by the Company (22% of the Company's servicing portfolio as of February 28, 2001) are insured by the Federal Housing Administration or partially guaranteed against loss by the Department of Veterans Affairs. The Company is exposed to credit losses to the extent that the partial guarantee provided by the Department of Veterans Affairs is inadequate to cover the total credit losses incurred.