WORKOUT AND FOREBEARANCE AGREEMENT

This Workout and Forebearance Agreement ("Agreement") is entered as of July 20,
2005 by and between FIRST PREFERENCE MORTGAGE CORPORATION ("FPMC") and
CITIMORTGAGE, INC., successor by separate mergers with First Nationwide Mortgage
Corporation and Principal Residential Mortgage, Inc. (hereinafter referred to as
"CMI").

WHEREAS, First Nationwide Mortgage Corporation ("Nationwide") and FPMC were
parties to a Mortgage Loan Purchase and Sale Agreement dated as of May 23, 1996
("Nationwide Agreement") and, in connection with Nationwide's merger into CMI,
FPMC executed a Correspondent Loan Purchase Agreement dated as of December 26,
2002 ("CMI Agreement"), both setting forth the terms and conditions under which
FPMC would sell mortgage loans to CMI;

WHEREAS, Principal Residential Mortgage, Inc. ("Principal") and FPMC were
parties to a Whole Loan Sale Agreement dated as of March 11, 1997 ("Principal
Agreement") and, in connection with Principal's merger into CMI, FPMC became
obligated to CMI under the Principal Agreement for mortgage loans sold to
Principal (the "Nationwide Agreement, Principal Agreement and CMI Agreement
shall be hereinafter collectively referred to as "Loan Purchase Agreement");

WHEREAS, under the terms of the Loan Purchase Agreement, FPMC sold certain
mortgage loans to CMI, as to which FPMC breached certain Loan Purchase Agreement
representations, warranties and covenants by, among other things:  i) failing to
timely obtain government insurance thereby rendering them uninsurable; and ii)
originating other mortgage loans with deficiencies that rendered them not to be
of Fannie Mae and Freddie Mac investment quality (these loans are detailed on
the attached Exhibit A and shall hereinafter be referred to as the "Loans");

WHEREAS, pursuant to the provisions of the Loan Purchase Agreement FPMC was/is
obligated to repurchase the Loans from CMI;

WHEREAS, at the request of FPMC, CMI previously agreed, as set forth in separate
indemnity letters executed by FPMC in favor of CMI for each such Loan, to accept
an indemnification fee for some of the uninsured loans in lieu of requiring FPMC
to immediately repurchase them (the "Indemnification Transactions");

WHEREAS, pursuant to the Indemnification Transactions FPMC remains liable for
all losses incurred by CMI in connection with any of the Loans, less the
indemnification fees paid by FPMC;

WHEREAS, CMI has foreclosed on some of the Loans covered by the Indemnification
Transactions and, after applying any applicable mortgage insurance or other
credits, has reduced to sums certain (not including interest) the amount owed
CMI by FPMC to satisfy its obligations with respect to each (these loans are
identified on Exhibit A and shall hereinafter be referred to as the "Liquidated
Loans");

 

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WHEREAS, FPMC desires to confirm its agreement for repayment of the amounts due
with respect to the Liquidated Loans;

WHEREAS, other of the Loans remain active on CMI's servicing system (the "Active
Loans")-the borrowers on some of the Active Loans continue generally to honor
their obligations as they become due (the "Active Non-defaulted Loans")-other of
the Active Loans are in default and CMI is completing the foreclosure and REO
process with respect to them (the "Active Defaulted Loans");

WHEREAS, FPMC acknowledges its repurchase obligation with respect to the Active
Non-defaulted Loans and the Active Defaulted Loans, all of which are also
identified on Exhibit A;

WHEREAS, FPMC desires to honor its obligations under the Loan Purchase Agreement
and repurchase the Active Non-defaulted Loans from CMI (on a service released
basis, without recourse or warranty of any kind other than that CMI is the
present owner and holder of the Active Non-defaulted Loans) in order to
immediately sell the Active Non-defaulted Loans to EMC Mortgage Corporation
("EMC") on a service released basis for $2,221,859.17, which is a price
representing a discount of the total amount outstanding and due CMI with respect
to the Active Non-defaulted Loans (the "Discounted Purchase Price");

WHEREAS, FPMC desires to acknowledge and reaffirm its as yet unliquidated
repurchase or indemnity obligations with respect to the Active Defaulted Loans;

WHEREAS, FPMC and CMI desire to set forth herein the terms and conditions under
which it will settle any and all issues, disputes and claims between them with
respect to FPMC's repurchase or indemnity obligations to CMI on the Loans, all
in an effort to avoid the cost, delay and uncertainty of any further discussion
or proceedings;

NOW, THEREFORE, in consideration of this Agreement, CMI's forbearance from
requiring immediate satisfaction of FPMC's repurchase or indemnity obligations
under the Loan Purchase Agreement with respect to the Loans, and other good and
valuable consideration described in this Agreement, the receipt and adequacy of
which the parties acknowledge by their signatures below, the parties agree:

1.        Recitals Part of the Agreement.

The recitals set forth above are incorporated in, and become part of this
Agreement as if fully set forth below.

2.        Accommodation Payments and Other Obligations.

 

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(a)           FPMC will pay (in cash or certified funds) $6,618,792.62 (which
includes interest through the transfer date of August 12, 2005 but not including
ongoing servicing expenses that will become due from FPMC to CMI following July
20, 2005, on all Loans covered by this Agreement, which expenses will be
included in the calculation of any Revised Settlement Amount under paragraph
2(b)) to satisfy its repurchase obligations to CMI with respect to all but the
Active Defaulted Loans in accordance with the payment schedule indicated below
(the "Initial Settlement Amount");

(i)     FPMC will pay CMI $254,544 with the signing of this Agreement;

(ii)    FPMC will pay CMI or cause EMC Mortgage Corporation to pay CMI on FPMC's
behalf the Discounted Purchase Price with respect to the Active Non-defaulted
Loans immediately upon FPMC's sale of the Active Non-defaulted Loans.  The
difference between the Discounted Purchase Price and the total amount
outstanding and due CMI with respect to the Active Non-defaulted Loans will be
included in the amount to be repaid under the repayment schedule referred to in
items (iii) and (iv) below.  The payment to CMI of the Discounted Purchase Price
shall be treated as a curtailment reducing the Initial Settlement Amount that
does not affect the repayment schedule set forth in items iii) and iv) below;

(iii)   FPMC will pay CMI two curtailments of $50,000 (each) on June 1, 2006 and
December 1, 2006, also reducing the Initial Settlement Amount, in accordance
with the repayment schedule as set forth in the attached Exhibit B.

(iv)    FPMC will pay CMI the monthly installments as set forth in the repayment
schedule as set forth in the attached Exhibit B, commencing with a payment of
$20,000 on the 1st day of October, 2005, and continuing on the first day of each
calendar month thereafter with payments that increase by $2,500 every three
months, until FPMC has paid CMI the Initial Settlement Amount and the increases
thereto as set forth in paragraph 2(b) below.

 

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(b)          As CMI completes the foreclosure, REO, any insurance claim or other
process (including collateral abandonment where deemed necessary due to
environmental hazard or other matter rendering foreclosure not economically
feasible in CMI's reasonable business judgment) on the Active Defaulted Loans
and reduces to sums certain (not including interest) the amount owed CMI by FPMC
to satisfy its obligations with respect to each Active Defaulted Loan, the
following shall occur:  (i) CMI shall advise FPMC of any such amounts, (ii) FPMC
shall have thirty (30) days to pay all or part of such amount, and (iii) if FPMC
elects not to pay all of such amount, then any remaining balance shall be added
to the Initial Settlement Amount on an ongoing basis.  The Initial Settlement
Amount as increased from time to time by the amounts coming due CMI under this
paragraph and under paragraph 2 (a) above shall be referred to as the Revised
Settlement Amount.  For each calendar quarter in which there is any increase in
the Initial Settlement Amount or a subsequent Revised Settlement Amount, CMI
shall, by the 15th day of the next calendar quarter, re-calculate and send to
FPMC, a repayment schedule in the format provided for Paragraph 2(a)(iv) above
to fully amortizing the new Revised Settlement  Amount (without interest) by
December 31, 2008 ("Maturity Date"), according to the same quarterly-increasing
payment formula provided for in Paragraph 2(a)(iv) above.  This Active Defaulted
Loan process shall be followed by the parties until each Active Defaulted Loan
has been concluded and any amount due CMI from FPMC has been included in a
Revised Settlement Amount.  Notwithstanding the provision in this paragraph (b)
for recalculation of any Revised Settlement Amount and its associated repayment
schedule, in no event shall FPMC's debt service with respect to the Loans
covered by this Agreement exceed nine hundred thousand dollars ($900,000) in any
calendar year ("Maximum Debt Service").  To the extent that it appears that a
recalculation will cause FPMC's Maximum Debt Service to be exceeded, CMI agrees
to consider FPMC's request for a reasonable extension of the Maturity Date.

(c)           Notwithstanding any other provision of this Agreement, in the
event FPMC recovers any amount from its insurance company(ies) in connection
with any claims(s) FPMC has submitted with respect to any of the Loans (the
"Insurance Recovery(ies), FPMC will pay fifty percent (50%) of any such
Insurance Recovery(ies), but not to exceed CMI's loss with respect to any of the
Loans, to CMI with fifteen (15) days of FPMC's receipt of any partial or full
Insurance Recovery(ies), at whatever interval(s) FPMC may receive any such
Insurance Recovery(ies).  Any and all expenses (including attorney fees)
incurred in connection with any Insurance Recovery(ies) shall be borne by FPMC
after first paying CMI the fifty percent (50%) provided for in this Paragraph. 
If the total of any such Insurance Recovery(ies) remitted to CMI are not
sufficient to pay CMI the then-existing Revised Settlement Amount in full, CMI
shall apply them to reduce FPMC's obligations, beginning with the last payment
first (such that FPMC will continue making the curtailment payments and
installment payments as set forth in Paragraph 2(a) and (b) above, as may be
revised from time to time, without interruption or reduction in amount until the
Revised Settlement Amount is paid in full). 

(d)          In order to document the requisite corporate authority for FPMC to
sign this Agreement and to pay the amounts due hereunder, it will deliver to CMI
with the signed Agreement, an original consent signed by all of the directors of
FPMC, approving and authorizing FPMC to execute this Agreement.  Such consent
shall be in the form attached as Exhibit C.

(e)           If and when FPMC pays CMI all of the amounts owned under this
Agreement, and provided that there is not at any time from the date of this
Agreement to the expiration of ninety (90) days following the date on which FPMC
makes the last payment under this Agreement a filing of a voluntary bankruptcy
petition by FPMC or an involuntary petition filed against FPMC that is not
dismissed within that same period, CMI's Limited Release with respect to FPMC's
repurchase or indemnity obligations on the Loans (and only the Loans described
in the recitals to this Agreement) as set forth in paragraph 3. below will
become effective.

3.             FPMC Limited Release.

In consideration of CMI's forbearance from exercising its immediate repurchase
rights under the Loan Purchase Agreement with respect to the Loans and CMI's
other commitments set forth herein, upon execution of this Agreement FPMC hereby
releases, acquits and forever discharges CMI, its parent, affiliate and
subsidiary corporations, its and their respective directors, officers,
employees, shareholders, attorneys, agents, predecessors, successors and assigns
from any and all claims, liability, damages, attorney fees, costs, or any other
matter or thing in connection with any of FPMC's business relationships or
dealings with Nationwide, Principal or CMI up to the execution of this Agreement
("Claims"), including without limitation any Claims about CMI's purchase or
servicing of the Loans.

 

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Nothing contained in this Agreement is intended or shall be construed as a
release or waiver of:  (a) any claims FPMC has or may have against CMI arising
under the Loan Purchase Agreement from the date of this Agreement forward,
including any unknown claims in connection with loans already purchased by CMI
from FPMC but presently not subject to any CMI repurchase or indemnification
demand; or (b) claims FPMC has or may have with respect to any matters other
than as set forth above, or (c) any claims arising out of, or based upon any
breach of this Agreement.

4.             CMI Limited Release.

If and when FPMC makes all of the payments for which paragraph 2 of this
Agreement provides, CMI shall be deemed to have released and discharged FPMC,
its parent, affiliate and subsidiary corporations, its and their respective
directors, officers, employees, shareholders, attorneys, agents, predecessors,
successors and assigns, from any and all liability to CMI for the repurchase or
indemnity obligations only with respect to the Loans described in the recitals
to this Agreement, provided that (i) if FPMC files a voluntary petition in
bankruptcy within ninety (90) days following the date on which FPMC makes any
payment(s) to CMI under this Agreement including the last payment to CMI
required under this Agreement, or (ii) if an involuntary petition is filed
against FPMC within any such ninety (90) day period that is not dismissed, and
(iii) if CMI disgorges any amounts received from FPMC as a result of claims
asserted in any such bankruptcy proceeding, then the release set forth herein
shall not apply to amounts which CMI is required to repay.  Nothing contained in
this Agreement is intended or shall be construed as a release or waiver of:  (a)
any claims CMI has or may have against FPMC otherwise arising under the Loan
Purchase Agreement; (b) claims CMI has or may have with respect to any other
loan; (c) any future loss or expense CMI may incur with respect to the Loans; or
(d) CMI's responsibilities to report to Fannie Mae, Freddie Mac, any other
investor or insurer, or any law enforcement or regulatory personnel the
circumstances surrounding the Loans and FPMC's involvement in the Loans.

5.             FPMC's Standing with CMI.

FPMC acknowledges and agrees that it has remained an approved customer with CMI,
notwithstanding the delayed repurchase and indemnity issues recited above.  FPMC
further acknowledges and agrees that, in addition to CMI's rights and remedies
at law, equity or under the Loan Purchase Agreement, should FPMC default under
the payment or other terms of this Agreement or under other provisions of the
Loan Purchase Agreement, CMI reserves the right to immediately suspend or
terminate its purchase of loans pursuant to the Loan Purchase Agreement.  Any
such suspension or termination shall be governed by the terms set forth in the
Loan Purchase Agreement.

6.             Acceleration Upon Payment Default.

FPMC acknowledges and agrees that, in addition to CMI's rights and remedies at
law and equity or under the Loan Purchase Agreement (with respect to these Loans
only), should FPMC default under the payment or other terms of this Agreement
and notwithstanding CMI's forbearance provided for in this Agreement, CMI
reserves the right to accelerate and demand immediate payment of all FPMC's
unpaid repurchase obligations with respect to the Loans provided that FPMC has
failed to cure such default within thirty (30) days of the due date for the
payment in default.

 

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7.             Other Repurchase Obligations

FPMC and CMI agree that any future repurchase or other obligations with respect
to loans purchased by CMI but not covered by this Agreement ("Future
Obligations"), shall be honored by FPMC as billed by CMI in a timely fashion and
separately from FPMC's obligations under this Agreement.  Any such Future
Obligations shall be governed by the provisions of the Loan Purchase Agreement
and CMI's then-existing cure and repurchase procedures.  Failure to comply with
this Section 7 will not be a basis for acceleration under Section 6.

8.             Cooperation

CMI shall cooperate with FPMC and EMC in accordance with commercially reasonable
loan servicing and transfer practices, to facilitate the sale of the Active
Non-Defaulted Loans to EMC including, without limitation, providing the
information as it appears on CMI's servicing systems with respect to such Loans,
and in accordance with EMC commercially reasonable Servicing Transfer
Instructions substantially in the form attached hereto and complying with EMC
commercially reasonable requirements in connection with the transfer date.

9.             Representations and Warranties.

Each party hereby acknowledges, represents and warrants to the other that

(a)     No statements or representations made by or on behalf of any of the
parties to this Agreement, except as specifically recited in this Agreement,
have influenced, induced or caused the parties to make this settlement and to
execute this Agreement.

(b)     This Agreement contains the entire agreement between the parties with
respect to the matters to which it refers, and there do not exist any other
written or oral terms or agreements except for those contained in this Agreement
and those contained in the Loan Purchase Agreement with respect to the Loans (as
modified by this Agreement).  This Agreement supersedes and replaces all prior
writings, discussions, representations, agreements and understandings, if any,
relating to the subject matter of this Agreement.  The parties may only amend
this Agreement by a document in writing signed by both parties and expressly
stating their intent to amend this Agreement.  The Loan Purchase Agreement
remains in full force and effect with respect to CMI and FPMC obligations with
respect to loans purchased by CMI from FPMC not addressed in this Agreement.

(c)     Only representations contained in this Agreement, and no others, shall
be admissible to establish the execution or inducement of this Agreement.

(d)     Each of the undersigned has read and understands this Agreement in its
entirety.

(e)     Each of the undersigned has been given full opportunity to seek legal
counsel and to consult with counsel of its choosing in connection with the
negotiation, drafting and execution of this Agreement.

 

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(f)     This Agreement has been jointly drafted by all of the parties, and in
the event of any dispute arising out of this Agreement, no party will have any
right to argue any rule of construction or interpretation against any other
party claiming the benefit or detriment of being a draftsperson.

(g)     Each of the parties acknowledges that it is authorized and has obtained
all of the necessary corporate authorization to sign this Agreement in the
capacity and manner set forth below, this Agreement constitutes a valid and
binding obligation enforceable against it in accordance with the terms contained
in this Agreement, and the execution and delivery of this Agreement will not
violate or contravene, in anyway, the articles of incorporation or bylaws, as
may be applicable, of the party or any agreement or instrument to which it is a
party or is subject.

(h)     None of the parties has assigned or conveyed, nor will any party assign
or convey, any of the claims or any portion of such claims specified as being
addressed or released in this Agreement.

10.         Governing Law and Venue.

The substantive laws of the State of Missouri shall govern the parties' rights
and obligations under this Agreement, without regard to its principles
concerning choice of laws, and shall govern the validity, construction,
enforcement and interpretation of this Agreement.  This Agreement is made and is
to be performed in St. Charles County, Missouri.

Any lawsuit or proceeding arising out of the validity, construction, enforcement
or interpretation of this Agreement, and any lawsuit or proceeding arising out
of or related to any claims, demands, causes of action, debts, damages,
obligations or liabilities discussed in or created by this Agreement, shall be
filed and venue shall be proper only in St. Charles County, Missouri (either in
the Missouri state courts sitting in St. Charles County, Missouri, or in the
United States District Court for the Eastern District of Missouri), and that
lawsuit or proceeding shall be governed by the substantive laws of the State of
Missouri. 

11.         Prevailing Party Entitled To Attorneys Fees.

In the event there arises any dispute under this Agreement with allegations that
any party has breached this Agreement, then the prevailing party in that dispute
will be entitled to recover (in addition to its actual damages and any other
relief sought) its reasonable attorneys fees and all permitted costs.

12.         Parties Bound.

This Agreement shall be binding upon and inure to the benefit of the parties and
their respective agents, directors, employees, representatives, successors and
assigns.

13.         Severability.

 

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If a court of competent jurisdiction holds any provision of this Agreement
illegal, invalid, or unenforceable under present or future laws effective during
the term of this Agreement, any such provision shall be fully severable.  In
that event, this Agreement shall be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised part of this Agreement. 
The remaining provisions of the Agreement shall remain in full force and effect
and shall not be affected by the illegal, invalid, or unenforceable provision,
or by its severance from this Agreement.  In lieu of each such illegal, invalid,
or unenforceable provision, there shall be automatically added as part of this
Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and that is legal, valid, and
enforceable.  (Accordingly, the parties expressly agree that the court may "blue
pencil" this Agreement such that it conforms to Missouri law as the court finds
it.)

14.              No Third Party Beneficiaries.

The parties to this Agreement have entered into this Agreement solely for their
own benefit and to advance their respective separate and individual interests,
and do not intend it to benefit any third parties or persons not a party to this
Agreement.

15.              The Captions.

The captions and headings used in this Agreement are for the parties'
convenience only, and do not in any way affect, limit, amplify or modify the
words and provisions contained in the text of this Agreement.

CITIMORTGAGE, INC.

/s/Louise Sherman,                              
                                    Date:    August 1, 2005
Louise Sherman,
Director-(Intermediary Management)

FIRST PREFERENCE MORTGAGE CORPORATION

/s/David W. Mann,                              
                                    Date:    July 29, 2005
David W. Mann, President

 

 

 

 

 

 

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