Exhibit 10.3

LOGO [g78788img001.jpg]

 

   BEAR STEARNS FINANCIAL PRODUCTS INC.    383 MADISON AVENUE    NEW YORK, NEW
YORK 10179    212-272-4009

 

DATE:    May 11, 2006 TO:    Wells Fargo Bank, N.A., not individually, but
solely as Securities Administrator on behalf of SG Mortgage Securities Trust
2006-FRE1, Asset-Backed Certificates, Series 2006-FRE1 ATTENTION:    Client
Manager – SGMS 2006-FRE1 TELEPHONE:    410-884-2000 FACSIMILE:    410-715-2380
FROM:    Derivatives Documentation TELEPHONE:    212-272-2711 FACSIMILE:   
212-272-9857 SUBJECT:    Fixed Income Derivatives Confirmation and Agreement
REFERENCE NUMBER:    FXNSC8210

The purpose of this letter agreement (“Agreement”) is to confirm the terms and
conditions of the current Transaction entered into on the Trade Date specified
below (the “Current Transaction”) between Bear Stearns Financial Products Inc.
(“BSFP”) and Wells Fargo Bank, N.A., not individually, but solely as Securities
Administrator and Custodian on behalf of SG Mortgage Securities Trust 2006-FRE1,
Asset-Backed Certificates, Series 2006-FRE1 (“Counterparty”) under the Pooling
and Servicing Agreement, dated as of March 24, 2006, among Wells Fargo Bank,
N.A., as Master Servicer Securities Administrator and Custodian, SG Mortgage
Securities, LLC, as Depositor and HSBC Bank USA, National Association, as
Trustee (the “Pooling and Servicing Agreement”). This letter agreement
constitutes the sole and complete “Confirmation,” as referred to in the “ISDA
Form Master Agreement” (as defined below), as well as a “Schedule” as referred
to in the ISDA Form Master Agreement.

1. This Agreement is subject to the 2000 ISDA Definitions (the “Definitions”),
as published by the International Swaps and Derivatives Association, Inc.
(“ISDA”). You and we have agreed to enter into this Agreement in lieu of
negotiating a Schedule to the 1992 ISDA Master Agreement (Multicurrency—Cross
Border) form (the “ISDA Form Master Agreement”) but, rather, an ISDA Form Master
Agreement shall be deemed to have been executed by you and us on the date we
entered into the Transaction. In the event of any inconsistency between the
provisions of this Agreement and the Definitions or the ISDA Form Master
Agreement, this Agreement shall prevail for purposes of the Transaction. Terms
capitalized but not defined herein shall have the meanings attributed to them in
the Pooling and Servicing Agreement.

--------------------------------------------------------------------------------

Reference Number: FXNSC8210

Wells Fargo Bank, N.A., not individually, but solely as Securities Administrator
on behalf of SG Mortgage Securities Trust 2006-FRE1, Asset-Backed Certificates,
Series 2006-FRE1

May 11, 2006

Page 2 of 18

2. The terms of the particular Transaction to which this Confirmation relates
are as follows:

 

Notional Amount:    With respect to any Calculation Period, the amount set forth
for such period in Schedule I attached hereto. Trade Date:    May 11, 2006
Effective Date:    May 11, 2006 Termination Date:    May 25, 2011 Fixed Amount:
      Fixed Rate Payer:    Counterparty    Fixed Rate Payer      
Period End Dates:    The 25th calendar day of each month during the Term of this
Transaction, commencing June 25, 2006, and ending on the Termination Date, with
No Adjustment.    Fixed Rate Payer       Payment Dates:    Early Payment shall
be applicable. The Fixed Rate Payer Payment Date shall be one Business Day prior
to each Fixed Rate Payer Period End Date.    Fixed Rate:    With respect to any
Calculation Period, the rate set forth for such period in Schedule I attached
hereto.    Fixed Rate Day       Count Fraction:    30/360 Floating Amounts:   
   Floating Rate Payer:    BSFP    Floating Rate Payer       Period End Dates:
   The 25th calendar day of each month during the Term of this Transaction,
commencing June 25, 2006, and ending on the Termination Date, subject to
adjustment in accordance with the Business Day Convention.

--------------------------------------------------------------------------------

Reference Number: FXNSC8210

Wells Fargo Bank, N.A., not individually, but solely as Securities Administrator
on behalf of SG Mortgage Securities Trust 2006-FRE1, Asset-Backed Certificates,
Series 2006-FRE1

May 11, 2006

Page 3 of 18

 

      Floating Rate Payer          Payment Dates:    Early Payment shall be
applicable. The Floating Rate Payer Payment Date shall be one Business Day prior
to each Floating Rate Payer Period End Date.       Floating Rate for initial   
      Calculation Period:    5.10133%       Floating Rate Option:   
USD-LIBOR-BBA       Designated Maturity:    One month       Spread:    None   
   Floating Rate Day          Count Fraction:    Actual/360       Reset Dates:
   The first day of each Calculation Period.       Compounding:    Inapplicable
   Business Days:    New York and London    Business Day Convention:    Modified
Following    Additional Amount:    In connection with entering into this
Transaction USD 4,900,000 is payable by Counterparty to BSFP on May 11, 2006. 3.
   Additional Provisions:    Each party hereto is hereby advised and
acknowledges that the other party has engaged in (or refrained from engaging in)
substantial financial transactions and has taken (or refrained from taking)
other material actions in reliance upon the entry by the parties into the
Transaction being entered into on the terms and conditions set forth herein and
in the Confirmation relating to such Transaction, as applicable. This paragraph
shall be deemed repeated on the trade date of each Transaction.

--------------------------------------------------------------------------------

Reference Number: FXNSC8210

Wells Fargo Bank, N.A., not individually, but solely as Securities Administrator
on behalf of SG Mortgage Securities Trust 2006-FRE1, Asset-Backed Certificates,
Series 2006-FRE1

May 11, 2006

Page 4 of 18

4. Provisions Deemed Incorporated in a Schedule to the ISDA Form Master
Agreement:

 

1) The parties agree that subparagraph (ii) of Section 2(c) of the ISDA Form
Master Agreement will apply to any Transaction.

 

2) Termination Provisions. For purposes of the ISDA Form Master Agreement:

 

(a) “Specified Entity” is not applicable to BSFP or Counterparty for any
purpose.

 

(b) “Breach of Agreement” provision of Section 5(a)(ii) will not apply to BSFP
or Counterparty.

 

(c) “Credit Support Default” provisions of Section 5(a)(iii) will not apply to
Counterparty and will not apply to BSFP unless BSFP has obtained a guarantee
pursuant to paragraph 15 below.

 

(d) “Misrepresentation” provisions of Section 5(a)(iv) will not apply to BSFP or
Counterparty.

(e) “Specified Transaction” is not applicable to BSFP or Counterparty for any
purpose, and, accordingly, Section 5(a)(v) shall not apply to BSFP or
Counterparty.

(f) The “Cross Default” provisions of Section 5(a)(vi) will not apply to BSFP or
to Counterparty.

(g) The “Credit Event Upon Merger” provisions of Section 5(b)(iv) will not apply
to BSFP or Counterparty.

(h) The “Bankruptcy” provision of Section 5(a)(vii)(2) will be inapplicable to
Counterparty.

(i) The “Automatic Early Termination” provision of Section 6(a) will not apply
to BSFP or to Counterparty.

(j) Payments on Early Termination. For the purpose of Section 6(e) of the ISDA
Form Master Agreement:

 

  (i) Market Quotation will apply.

 

  (ii) The Second Method will apply.

(k) “Termination Currency” means United States Dollars.

(l) The “Merger without Assumption” provision of Section 5(a)(viii) will not
apply to Counterparty.

--------------------------------------------------------------------------------

Reference Number: FXNSC8210

Wells Fargo Bank, N.A., not individually, but solely as Securities Administrator
on behalf of SG Mortgage Securities Trust 2006-FRE1, Asset-Backed Certificates,
Series 2006-FRE1

May 11, 2006

Page 5 of 18

(m) The “Tax Event Upon Merger” will apply to BSFP and not apply to
Counterparty.

3) Tax Representations.

(a) Payer Representations. For the purpose of Section 3(e) of the ISDA Form
Master Agreement, each of BSFP and the Counterparty will make the following
representations:

It is not required by any applicable law, as modified by the practice of any
relevant governmental revenue authority, of any Relevant Jurisdiction to make
any deduction or withholding for or on account of any Tax from any payment
(other than interest under Section 2(e), 6(d)(ii) or 6(e) of the ISDA Form
Master Agreement) to be made by it to the other party under this Agreement. In
making this representation, it may rely on:

(i) the accuracy of any representations made by the other party pursuant to
Section 3(f) of this Agreement;

(ii) the satisfaction of the agreement contained in Section 4(a)(iii) of the
ISDA Form Master Agreement and the accuracy and effectiveness of any document
provided by the other party pursuant to Section 4(a)(iii) of the ISDA Form
Master Agreement; and

(iii) the satisfaction of the agreement of the other party contained in
Section 4(d) of this Agreement, provided that it shall not be a breach of this
representation where reliance is placed on clause (ii) and the other party does
not deliver a form or document under Section 4(a)(iii) by reason of material
prejudice to its legal or commercial position.

(b) Payee Representations. For the purpose of Section 3(f) of the ISDA Form
Master Agreement, each of BSFP and the Counterparty make the following
representations.

The following representation will apply to BSFP:

BSFP is a corporation organized under the laws of the State of Delaware and its
U.S. taxpayer identification number is 13-3866307.

The following representation will apply to the Counterparty:

Counterparty represents that it is the Securities Administrator under the
Pooling and Servicing Agreement.

--------------------------------------------------------------------------------

Reference Number: FXNSC8210

Wells Fargo Bank, N.A., not individually, but solely as Securities Administrator
on behalf of SG Mortgage Securities Trust 2006-FRE1, Asset-Backed Certificates,
Series 2006-FRE1

May 11, 2006

Page 6 of 18

4) [Reserved]

5) Documents to be Delivered. For the purpose of Section 4(a):

(1) Tax forms, documents, or certificates to be delivered are:

 

Party required to deliver

document

  

Form/Document/

Certificate

  

Date by which to

be delivered

BSFP and

the Counterparty

   Any document required or reasonably requested to allow the other party to
make payments under this Agreement without any deduction or withholding for or
on the account of any Tax or with such deduction or withholding at a reduced
rate    Promptly after the earlier of (i) reasonable demand by either party or
(ii) learning that such form or document is required

(2) Other documents to be delivered are:

 

Party required

to deliver

document

  

Form/Document/

Certificate

  

Date by which to

be delivered

   Covered by Section 3(d)
Representation

BSFP and

the Counterparty

   Any documents required by the receiving party to evidence the authority of
the delivering party or its Credit Support Provider, if any, for it to execute
and deliver this Agreement, any Confirmation, and any Credit Support Documents
to which it is a party, and to evidence the authority of the delivering party or
its Credit Support Provider to perform its obligations under this Agreement,
such Confirmation and/or Credit Support Document, as the case may be    Upon the
execution and
delivery of this Agreement
and such Confirmation    Yes

--------------------------------------------------------------------------------

Reference Number: FXNSC8210

Wells Fargo Bank, N.A., not individually, but solely as Securities Administrator
on behalf of SG Mortgage Securities Trust 2006-FRE1, Asset-Backed Certificates,
Series 2006-FRE1

May 11, 2006

Page 7 of 18

 

Party required

to deliver

document

  

Form/Document/

Certificate

  

Date by which to

be delivered

   Covered by Section 3(d)
Representation

BSFP and

the Counterparty

   A certificate of an authorized officer of the party, as to the incumbency and
authority of the respective officers of the party signing this Agreement, any
relevant Credit Support Document, or any Confirmation, as the case may be   
Upon the execution and
delivery of this Agreement
and such Confirmation    Yes BSFP   

Legal opinion(s) with respect to such party and its Credit Support Provider, if
any, for it reasonably satisfactory in form and substance to the other party
relating to the enforceability of the party's obligations under this Agreement.

   Upon the execution and
delivery of this Agreement
and any Confirmation    No Counterparty    An executed copy of the Pooling and
Servicing Agreement.    Within 30 days after the
date of this Agreement.    No

6) Miscellaneous. Miscellaneous

 

(a) Address for Notices: For the purposes of Section 12(a) of the ISDA Form
Master Agreement:

Address for notices or communications to BSFP:

 

Address:    383 Madison Avenue, New York, New York 10179 Attention:    DPC
Manager Facsimile:    (212) 272-5823

--------------------------------------------------------------------------------

Reference Number: FXNSC8210

Wells Fargo Bank, N.A., not individually, but solely as Securities Administrator
on behalf of SG Mortgage Securities Trust 2006-FRE1, Asset-Backed Certificates,
Series 2006-FRE1

May 11, 2006

Page 8 of 18

with a copy to:

 

Address:    One Metrotech Center North, Brooklyn, New York 11201 Attention:   
Derivative Operations - 7th Floor Facsimile:    (212) 272-1634

(For all purposes)

Address for notices or communications to the Counterparty:

 

Address:    Wells Fargo Bank, N.A.    9062 Old Annapolis Road    Columbia,
Maryland 21045 Attention:    Client Manager –SGMS 2006-FRE1 Facsimile:   
410-715-2380 Phone:    410-884-2000

(For all purposes)

(b) Process Agent. For the purpose of Section 13(c):

 

  BSFP appoints as its      Process Agent:   

Not Applicable

  The Counterparty appoints as its   Process Agent:   

Not Applicable

(c) Offices. The provisions of Section 10(a) will not apply to this Agreement;
neither BSFP nor the Counterparty have any Offices other than as set forth in
the Notices Section and BSFP agrees that, for purposes of Section 6(b) of the
ISDA Form Master Agreement, it shall not in future have any Office other than
one in the United States.

(d) Multibranch Party. For the purpose of Section 10(c) of the ISDA Form Master
Agreement:

BSFP is not a Multibranch Party.

The Counterparty is not a Multibranch Party.

 

(e) Calculation Agent. The Calculation Agent is BSFP provider, however if an
Event of Default has occurred and is continuing with respect to BSFP, then the
Counterparty or a Reference Market-maker designated by Counterparty shall be
Calculation Agent.

 

(f) Credit Support Document.

BSFP: Not applicable, unless BSFP has obtained a guarantee pursuant to paragraph
15 below.

The Counterparty: Not Applicable

--------------------------------------------------------------------------------

Reference Number: FXNSC8210

Wells Fargo Bank, N.A., not individually, but solely as Securities Administrator
on behalf of SG Mortgage Securities Trust 2006-FRE1, Asset-Backed Certificates,
Series 2006-FRE1

May 11, 2006

Page 9 of 18

(g) Credit Support Provider.

 

BSFP:    Not Applicable unless BSFP has obtained a guarantee pursuant to
paragraph 15 below. The Counterparty: Not Applicable

(h) Governing Law. The parties to this Agreement hereby agree that the law of
the State of New York shall govern their rights and duties in whole without
regard to the conflict of law provisions thereof other than New York General
Obligations Law Sections 5-1401 and 5-1402.

(i) Severability. If any term, provision, covenant, or condition of this
Agreement, or the application thereof to any party or circumstance, shall be
held to be invalid or unenforceable (in whole or in part) for any reason, the
remaining terms, provisions, covenants, and conditions hereof shall continue in
full force and effect as if this Agreement had been executed with the invalid or
unenforceable portion eliminated, so long as this Agreement as so modified
continues to express, without material change, the original intentions of the
parties as to the subject matter of this Agreement and the deletion of such
portion of this Agreement will not substantially impair the respective benefits
or expectations of the parties.

The parties shall endeavor to engage in good faith negotiations to replace any
invalid or unenforceable term, provision, covenant or condition with a valid or
enforceable term, provision, covenant or condition, the economic effect of which
comes as close as possible to that of the invalid or unenforceable term,
provision, covenant or condition.

(j) Consent to Recording. Each party hereto consents to the monitoring or
recording, at any time and from time to time, by the other party of any and all
communications between officers or employees of the parties, waives any further
notice of such monitoring or recording, and agrees to notify its officers and
employees of such monitoring or recording.

(k) Waiver of Jury Trial. Each party waives any right it may have to a trial by
jury in respect of any Proceedings relating to this Agreement or any Credit
Support Document.

(l) BSFP is a U.S. entity and no withholding tax is payable. In the event that
BSFP is no longer a U.S. entity or its obligations or this Agreement is
transferred to a non-U.S. entity then the following provisions will apply and
the Termination Events in Sections 5(b)(ii) and 5(b)(iii) will no longer be
exercisable by BSFP:

--------------------------------------------------------------------------------

Reference Number: FXNSC8210

Wells Fargo Bank, N.A., not individually, but solely as Securities Administrator
on behalf of SG Mortgage Securities Trust 2006-FRE1, Asset-Backed Certificates,
Series 2006-FRE1

May 11, 2006

Page 10 of 18

a) Section 2(d)(i)(4) of the ISDA Form Master Agreement is amended by
(i) deleting the words “However, X will not be required to pay any additional
amount to Y to the extent that it would not be required to be paid but for:”;
and (ii) deleting subsections (A) and (B).

(b) Section 2(d)(ii) of the ISDA Form Master Agreement will not apply to
Counterparty.

(c) Section 4(e) of the ISDA Form Master Agreement will not apply to the
Counterparty.

(d) The definition of “Indemnifiable Tax” contained in Section 14 of the ISDA
Form Master Agreement is deleted and is replaced with the following:
“‘Indemnifiable Tax’ means any and all withholding tax.”

7) “Affiliate”. Each of BSFP and Counterparty shall be deemed to not have any
Affiliates for purposes of this Agreement, including for purposes of
Section 6(b)(ii).

8) Section 3 of the ISDA Form Master Agreement is hereby amended by adding at
the end thereof the following subsection (g):

“(g) Relationship Between Parties.

Each party represents to the other party on each date when it enters into a
Transaction that:—

(1) Nonreliance. It is not relying on any statement or representation of the
other party regarding the Transaction (whether written or oral), other than the
representations expressly made in this Agreement or the Confirmation in respect
of that Transaction.

(2) Evaluation and Understanding.

 

  (i) BSFP is acting for its own account and Wells Fargo Bank, N.A., is acting
as Securities Administrator on behalf of the Counterparty under the Pooling and
Servicing Agreement, and not for its own account. Each Party has made its own
independent decisions to enter into this Transaction and as to whether this
Transaction is appropriate or proper for it based upon its own judgment and upon
advice from such advisors as it has deemed necessary. It is not relying on any
communication (written or oral) of the other party as investment advice or as a
recommendation to enter into this Transaction; it being understood that
information and explanations related to the terms and conditions of this
Transaction shall not be considered investment advice or a recommendation to
enter into this Transaction. It has not received from the other party any
assurance or guarantee as to the expected results of this Transaction.

--------------------------------------------------------------------------------

Reference Number: FXNSC8210

Wells Fargo Bank, N.A., not individually, but solely as Securities Administrator
on behalf of SG Mortgage Securities Trust 2006-FRE1, Asset-Backed Certificates,
Series 2006-FRE1

May 11, 2006

Page 11 of 18

 

  (ii) It is capable of evaluating and understanding (on its own behalf or
through independent professional advice), and understands and accepts, the
terms, conditions and risks of this Transaction. It is also capable of assuming,
and assumes, the financial and other risks of this Transaction.

 

  (iii) The other party is not acting as an agent or fiduciary or an advisor for
it in respect of this Transaction.

(3) Purpose. It is an “eligible swap participant” as such term is defined in
Section 35.1(b)(2) of the regulations (17 C.F.R 35) promulgated under, and an
“eligible contract participant” as defined in Section 1(a)(12) of, the Commodity
Exchange Act, as amended, and it is entering into the Transaction for the
purposes of managing its borrowings or investments, hedging its underlying
assets or liabilities or in connection with a line of business.”

9) Pooling and Servicing Agreement. BSFP hereby agrees that, notwithstanding any
provision of this agreement to the contrary, Counterparty’s obligations to pay
any amounts owing under this Agreement shall be subject to the Pooling and
Servicing Agreement and BSFPS’s right to receive payment of such amounts shall
be subject to the Pooling and Servicing Agreement.

10) Securities Administrator Liability Limitations. It is expressly understood
and agreed by the parties hereto that (a) this Agreement is executed and
delivered by Wells Fargo Bank, N.A. (“Wells”), not individually or personally
but solely as Securities Administrator on behalf of SG Mortgage Securities
Trust, Series 2006-FRE1, (b) each of the representations, undertakings and
agreements herein made on the part of the Counterparty is made and intended not
as a personal representation, undertaking or agreement of Wells but is made and
intended for the purpose of binding only the Counterparty, (c) nothing herein
contained shall be construed as imposing any liability upon Wells, individually
or personally, to perform any covenant either expressed or implied contained
herein, all such liability, if any, being expressly waived by the parties hereto
and by any Person claiming by, through or under the parties hereto; provided
that nothing in this paragraph shall relieve Wells from performing its duties
and obligations under the Pooling and Servicing Agreement in accordance with the
standard of care set forth therein, (d) under no circumstances shall Wells be
personally liable for the payment of any indebtedness or expenses of the
Counterparty or be liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaken by the Counterparty
under this Agreement or any other related documents, other than due to its gross
negligence or willful misconduct in performing the obligations of the Securities
Administrator under the Pooling and Servicing Agreement, (e) any resignation or
removal of Wells as Securities Administrator on behalf of SG Mortgage Securities
Trust, Series 2006-FRE1 shall require the assignment of this agreement to
Wells's replacement, and (f) Wells has been directed, pursuant to the Pooling
and Servicing Agreement, to enter into this Agreement and to perform its
obligations hereunder.

11) Proceedings. BSFP shall not institute against or cause any other person to
institute against, or join any other person in instituting against, SG Mortgage
Securities, LLC, or SG Mortgage

--------------------------------------------------------------------------------

Reference Number: FXNSC8210

Wells Fargo Bank, N.A., not individually, but solely as Securities Administrator
on behalf of SG Mortgage Securities Trust 2006-FRE1, Asset-Backed Certificates,
Series 2006-FRE1

May 11, 2006

Page 12 of 18

Securities Trust 2006-FRE1, Asset-Backed Certificates, Series 2006-FRE1, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any federal or state bankruptcy, dissolution or
similar law, for a period of one year and one day (or, if longer, the applicable
preference period) following indefeasible payment in full of the SG Mortgage
Securities Trust 2006-FRE1, Asset-Backed Certificates, Series 2006-FRE1. The
provisions of this paragraph shall survive the termination of this Agreement.

12) Set-off. Notwithstanding any provision of this Agreement or any other
existing or future agreement, each party irrevocably waives any and all rights
it may have to set off, net, recoup or otherwise withhold or suspend or
condition payment or performance of any obligation between it and the other
party hereunder against any obligation between it and the other party under any
other agreements. The provisions for Set-off set forth in Section 6(e) of the
Agreement shall not apply for purposes of this Transaction.

13) Third party Beneficiary. Not Applicable.

14) Additional Termination Events. The following Additional Termination Events
will apply:

(i) If a Rating Agency Downgrade has occurred and BSFP has not complied with
Section 15 below, then an Additional Termination Event shall have occurred with
respect to BSFP and BSFP shall be the sole Affected Party with respect to such
an Additional Termination Event.

(ii) If the Trust is unable to pay its Class A Certificates or fails or admits
in writing its inability to pay its Class A Certificates as they become due,
then an Additional Termination Event shall have occurred with respect to
Counterparty and Counterparty shall be the sole Affected Party with respect to
such Additional Termination Event.

(iii) If, at any time, the Majority Class CE Certificateholder or the Master
Servicer purchases the Mortgage Loans pursuant to Section 10.01 of the Pooling
and Servicing Agreement, then an Additional Termination Event shall have
occurred with respect to Counterparty and Counterparty shall be the sole
Affected Party with respect to such Additional Termination Event; provided,
however, that notwithstanding the provisions of Section 6(b)(iv) of the ISDA
Form Master Agreement, either BSFP or Counterparty may designate an Early
Termination Date (such date shall not be prior to the final Distribution Date
under the Pooling and Servicing Agreement) in respect of this Additional
Termination Event.

(iv) If, upon the occurrence of a Swap Disclosure Event (as defined in
Section 15 below) BSFP has not, within ten (10) days after such Swap Disclosure
Event complied with any of the provisions set forth in Section 16 below, then an
Additional Termination Event shall have occurred with respect to BSFP and BSFP
shall be the sole Affected Party with respect to such Additional Termination
Event.

(v) Amendments to Pooling and Servicing Agreement. Without the prior written
consent of BSFP, Counterparty shall not consent to any amendment or supplemental
agreement to the

--------------------------------------------------------------------------------

Reference Number: FXNSC8210

Wells Fargo Bank, N.A., not individually, but solely as Securities Administrator
on behalf of SG Mortgage Securities Trust 2006-FRE1, Asset-Backed Certificates,
Series 2006-FRE1

May 11, 2006

Page 13 of 18

Pooling and Servicing Agreement if such amendment or supplemental agreement
could reasonably be expected to have an adverse effect on the interests of BSFP,
if such consent is required under the Pooling and Servicing Agreement.
Counterparty will furnish to BSFP a copy of each proposed and each executed
amendment or supplemental agreement and copies of any related Rating Agency
confirmation therewith, if any, if required pursuant to the Pooling and
Servicing Agreement. The failure by Counterparty to comply with the above shall
constitute an Additional Termination Event hereunder, upon which Counterparty
shall be the sole Affected Party and all Transactions hereunder shall be
Affected Transactions.

15) Rating Agency Downgrade. In the event that BSFP’s long-term unsecured and
unsubordinated debt rating is reduced below “AA-” by S&P or its long-term
unsecured and unsubordinated debt rating is withdrawn or reduced below “Aa3” by
Moody's (and together with S&P, the “Swap Rating Agencies”, and such rating
thresholds, “Approved Rating Thresholds”), then within 30 days after such rating
withdrawal or downgrade (unless, within 30 days after such withdrawal or
downgrade, each such Swap Rating Agency, as applicable, has reconfirmed the
rating of the Certificates, which was in effect immediately prior to such
withdrawal or downgrade), BSFP shall, at its own expense, subject to the Rating
Agency Condition, either (i) seek another entity to replace BSFP as party to
this Agreement that meets or exceeds the Approved Rating Thresholds on terms
substantially similar to this Agreement or (ii) obtain a guaranty of, or a
contingent agreement of another person with the Approved Rating Thresholds, to
honor, BSFP’s obligations under this Agreement. BSFP’s failure to do any of the
foregoing shall, at the Counterparty's option, constitute an Additional
Termination Event with BSFP as the Affected Party. In the event that BSFP's
long-term unsecured and unsubordinated debt rating is withdrawn or reduced below
“BBB-” by S&P, then within 10 Business Days after such rating withdrawal or
downgrade, BSFP shall, subject to the Rating Agency Condition and at its own
expense, either (i) secure another entity to replace BSFP as party to this
Agreement that meets or exceeds the Approved Rating Thresholds on terms
substantially similar to this Agreement or (ii) obtain a guaranty of, or a
contingent agreement of another person with the Approved Rating Thresholds, to
honor, BSFP’s obligations under this Agreement. For purposes of this provision,
“Rating Agency Condition” means, with respect to any particular proposed act or
omission to act hereunder that the party acting or failing to act must consult
with each of the Swap Rating Agencies then providing a rating of the
Certificates and receive from each of the Swap Rating Agencies a prior written
confirmation that the proposed action or inaction would not cause a downgrade or
withdrawal of the then-current rating of the Certificates.

16) Compliance with Regulation AB.

(i) BSFP agrees and acknowledges that SG Mortgage Securities, LLC, (“SGMS”) and
SG Mortgage Finance Corp. (“SGMFC”) are required under Regulation AB under the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) (“Regulation AB”), to disclose certain financial
information regarding BSFP or its group of affiliated entities, if applicable,
depending on the aggregate “significance percentage” of this

--------------------------------------------------------------------------------

Reference Number: FXNSC8210

Wells Fargo Bank, N.A., not individually, but solely as Securities Administrator
on behalf of SG Mortgage Securities Trust 2006-FRE1, Asset-Backed Certificates,
Series 2006-FRE1

May 11, 2006

Page 14 of 18

Agreement and any other derivative contracts between BSFP or its group of
affiliated entities, if applicable, and Counterparty, as calculated from time to
time in accordance with Item 1115 of Regulation AB.

(ii) It shall be a swap disclosure event (“Swap Disclosure Event”) if, on any
Business Day after the date hereof, SGMS or SGMFC requests from BSFP the
applicable financial information described in Item 1115 of Regulation AB (such
request to be based on a reasonable determination by SGMS, in good faith, that
such information is required under Regulation AB) (the “Swap Financial
Disclosure”).

(iii) Upon the occurrence of a Swap Disclosure Event, BSFP, at its own expense,
shall (a) provide to SGMS or SGMFC the Swap Financial Disclosure within
(5) Business Days of such Swap Disclosure Event or (b) secure another entity to
replace BSFP as party to this Agreement on terms substantially similar to this
Agreement and subject to prior notification to the Swap Rating Agencies, which
entity meets or exceeds the Approved Rating Thresholds or which otherwise
satisfies the Rating Agency Condition and which entity is able to comply with
the requirements of Item 1115 of Regulation AB (any such entity, a “Regulation
AB approved entity) within (5) Business Days. If permitted by Regulation AB, any
required Swap Financial Disclosure may be provided by incorporation by reference
from reports filed pursuant to the Exchange Act.

(iv) BSFP agrees that, in the event that BSFP provides Swap Financial Disclosure
to SGMS or SGMFC in accordance with clause (iii)(a) of paragraph 17 it will
indemnify and hold harmless SGMS and SGMFC, their respective directors or
officers and any person controlling SGMS or SGMFC, from and against any and all
losses, claims, damages and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in such Swap Financial
Disclosure or caused by any omission or alleged omission to state in such Swap
Financial Disclosure a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.

18) Transfer, Amendment and Assignment. No transfer, amendment, waiver,
supplement, assignment or other modification of this Transaction shall be
permitted by either party unless each of S&P and Moody's has been provided
notice of the same and each of S&P and Moody's confirms in writing (including by
facsimile transmission) that it will not downgrade, qualify, withdraw or
otherwise modify its then-current rating of the Certificates.

19) Non-Recourse. Notwithstanding any provision herein or in the ISDA Form
Master Agreement to the contrary, the obligations of Counterparty hereunder are
limited recourse obligations of Counterparty, payable solely from the Swap
Account and the proceeds thereof, in accordance with the terms of the Pooling
and Servicing Agreement. In the event that the Swap Account and proceeds thereof
should be insufficient to satisfy all claims outstanding and following the
realization of the Swap Account and the proceeds thereof, any claims against or
obligations of Counterparty under the ISDA Form Master Agreement or any other
confirmation thereunder still

--------------------------------------------------------------------------------

Reference Number: FXNSC8210

Wells Fargo Bank, N.A., not individually, but solely as Securities Administrator
on behalf of SG Mortgage Securities Trust 2006-FRE1, Asset-Backed Certificates,
Series 2006-FRE1

May 11, 2006

Page 15 of 18

outstanding shall be extinguished and thereafter not revive. The Securities
Administrator shall not have liability for any failure or delay in making a
payment hereunder to BSFP due to any failure or delay in receiving amounts in
the Swap Account from the Trust created pursuant to the Pooling and Servicing
Agreement. The provisions of this paragraph shall survive the termination of the
Agreement.

NEITHER THE BEAR STEARNS COMPANIES INC. NOR ANY SUBSIDIARY OR AFFILIATE OF THE
BEAR STEARNS COMPANIES INC. OTHER THAN BSFP IS AN OBLIGOR OR A CREDIT SUPPORT
PROVIDER ON THIS AGREEMENT.

 

5.    Account Details and       Settlement Information:    Payments to BSFP:   
   Citibank, N.A., New York       ABA Number: 021-0000-89, for the account of   
   Bear, Stearns Securities Corp.       Account Number: 0925-3186, for further
credit to       Bear Stearns Financial Products Inc.       Sub-account Number:
102-04654-1-3       Attention: Derivatives Department       Payments to
Counterparty:       Wells Fargo Bank, N.A.       San Francisco, California      
ABA#: 121-000-248       Account#: 3970771416       Account Name: SAS Clearing   
   FFC: 50910902

This Agreement may be executed in several counterparts, each of which shall be
deemed an original but all of which together shall constitute one and the same
instrument.

Counterparty hereby agrees to check this Confirmation and to confirm that the
foregoing correctly sets forth the terms of the Transaction by signing in the
space provided below and returning to BSFP a facsimile of the fully-executed
Confirmation to 212-272-9857. For inquiries regarding U.S. Transactions, please
contact Susan Donlon by telephone at 212-272-2364. For all other inquiries
please contact Derivatives Documentation by telephone at 353-1-402-6233.
Originals will be provided for your execution upon your request.

--------------------------------------------------------------------------------

Reference Number: FXNSC8210

Wells Fargo Bank, N.A., not individually, but solely as Securities Administrator
on behalf of SG Mortgage Securities Trust 2006-FRE1, Asset-Backed Certificates,
Series 2006-FRE1

May 11, 2006

Page 16 of 18

We are very pleased to have executed this Transaction with you and we look
forward to completing other transactions with you in the near future.

Very truly yours,

BEAR STEARNS FINANCIAL PRODUCTS INC.

 

By:

 

/s/ Annie Manevitz

 

Name:

 

Annie Manevitz

Title:

 

Authorized Signatory

Counterparty, acting through its duly authorized signatory, hereby agrees to,
accepts and confirms the terms of the foregoing as of the Trade Date.

WELLS FARGO BANK, N.A., NOT INDIVIDUALLY, BUT SOLELY AS SECURITIES ADMINISTRATOR
ON BEHALF OF SG MORTGAGE SECURITIES TRUST 2006-FRE1, ASSET-BACKED CERTIFICATES,
SERIES 2006-FRE1

 

By:  

/s/ Peter A. Gobell

 

Name:   Peter A. Gobell Title:   Vice President

am

--------------------------------------------------------------------------------

Reference Number: FXNSC8210

Wells Fargo Bank, N.A., not individually, but solely as Securities Administrator
on behalf of SG Mortgage Securities Trust 2006-FRE1, Asset-Backed Certificates,
Series 2006-FRE1

May 11, 2006

Page 17 of 18

SCHEDULE I

(For the purposes of (i) determining Floating Amounts, all such dates subject to
adjustment in accordance with the Business Day Convention and (ii) determining
Fixed Amounts, all such dates subject to No Adjustment)

 

From and including

   To but excluding    Notional Amount    Fixed Rate             (USD)       

Effective Date

   25-Jun-06    933,154,000.00    4.8094 %

25-Jun-06

   25-Jul-06    929,952,158.00    5.1000 %

25-Jul-06

   25-Aug-06    915,141,365.00    5.1000 %

25-Aug-06

   25-Sep-06    898,808,766.00    5.1000 %

25-Sep-06

   25-Oct-06    880,593,282.00    5.1000 %

25-Oct-06

   25-Nov-06    860,322,676.00    5.1000 %

25-Nov-06

   25-Dec-06    837,660,299.00    5.1000 %

25-Dec-06

   25-Jan-07    811,926,584.00    5.1000 %

25-Jan-07

   25-Feb-07    785,184,492.00    5.1000 %

25-Feb-07

   25-Mar-07    758,505,383.00    5.1000 %

25-Mar-07

   25-Apr-07    732,290,830.00    5.1000 %

25-Apr-07

   25-May-07    706,584,865.00    5.1000 %

25-May-07

   25-Jun-07    681,943,750.00    5.1000 %

25-Jun-07

   25-Jul-07    657,628,145.00    5.1000 %

25-Jul-07

   25-Aug-07    632,013,972.00    5.1000 %

25-Aug-07

   25-Sep-07    601,671,875.00    5.1000 %

25-Sep-07

   25-Oct-07    565,504,002.00    5.1000 %

25-Oct-07

   25-Nov-07    531,575,633.00    5.1000 %

25-Nov-07

   25-Dec-07    499,739,087.00    5.1000 %

25-Dec-07

   25-Jan-08    469,841,241.00    5.1000 %

25-Jan-08

   25-Feb-08    441,737,544.00    5.1000 %

25-Feb-08

   25-Mar-08    415,290,754.00    5.1000 %

25-Mar-08

   25-Apr-08    390,466,503.00    5.1000 %

25-Apr-08

   25-May-08    367,162,672.00    5.1000 %

25-May-08

   25-Jun-08    207,169,725.00    5.1000 %

25-Jun-08

   25-Jul-08    194,789,429.00    5.1000 %

25-Jul-08

   25-Aug-08    184,734,507.00    5.1000 %

25-Aug-08

   25-Sep-08    177,950,810.00    5.1000 %

25-Sep-08

   25-Oct-08    171,414,975.00    5.1000 %

--------------------------------------------------------------------------------

Reference Number: FXNSC8210

Wells Fargo Bank, N.A., not individually, but solely as Securities Administrator
on behalf of SG Mortgage Securities Trust 2006-FRE1, Asset-Backed Certificates,
Series 2006-FRE1

May 11, 2006

Page 18 of 18

 

25-Oct-08

   25-Nov-08    165,117,509.00    5.1000 %

25-Nov-08

   25-Dec-08    159,049,306.00    5.1000 %

25-Dec-08

   25-Jan-09    153,201,636.00    5.1000 %

25-Jan-09

   25-Feb-09    147,566,253.00    5.1000 %

25-Feb-09

   25-Mar-09    142,135,363.00    5.1000 %

25-Mar-09

   25-Apr-09    136,900,812.00    5.1000 %

25-Apr-09

   25-May-09    131,855,491.00    5.1000 %

25-May-09

   25-Jun-09    127,024,884.00    5.1000 %

25-Jun-09

   25-Jul-09    126,057,866.00    5.1000 %

25-Jul-09

   25-Aug-09    121,737,200.00    5.1000 %

25-Aug-09

   25-Sep-09    117,472,469.00    5.1000 %

25-Sep-09

   25-Oct-09    113,348,999.00    5.1000 %

25-Oct-09

   25-Nov-09    109,367,239.00    5.1000 %

25-Nov-09

   25-Dec-09    105,522,303.00    5.1000 %

25-Dec-09

   25-Jan-10    101,809,474.00    5.1000 %

25-Jan-10

   25-Feb-10    98,224,199.00    5.1000 %

25-Feb-10

   25-Mar-10    94,762,081.00    5.1000 %

25-Mar-10

   25-Apr-10    91,418,876.00    5.1000 %

25-Apr-10

   25-May-10    88,190,486.00    5.1000 %

25-May-10

   25-Jun-10    85,072,954.00    5.1000 %

25-Jun-10

   25-Jul-10    82,062,463.00    5.1000 %

25-Jul-10

   25-Aug-10    79,155,324.00    5.1000 %

25-Aug-10

   25-Sep-10    76,347,978.00    5.1000 %

25-Sep-10

   25-Oct-10    73,636,988.00    5.1000 %

25-Oct-10

   25-Nov-10    71,019,036.00    5.1000 %

25-Nov-10

   25-Dec-10    68,490,919.00    5.1000 %

25-Dec-10

   25-Jan-11    66,049,545.00    5.1000 %

25-Jan-11

   25-Feb-11    63,691,815.00    5.1000 %

25-Feb-11

   25-Mar-11    61,406,934.00    5.1000 %

25-Mar-11

   25-Apr-11    59,200,649.00    5.1000 %

25-Apr-11

   Termination Date    57,070,250.00    5.1000 %